KBR, Inc. Price & Performance (KBR)

This discussion also includes non GAAP financial measures that the company believes to be used A reconciliation of these non GAAP measures to the nearest GAAP measure is included at the end of our earnings presentation. Will now turn the call over to Stuart.

Thanks, Jamie, and good afternoon, everyone. I will pick up on Slide four. You know, we start every earnings call with a zero harm moment. In fact, this month, we are celebrating our tenth anniversary of our Zero Han program at KBR. Today, I would like to highlight circularity, and give an update on Mura's [indiscernible] Miura Technology is the global pioneer of a next generation advanced plastics recycling technology called HydroPRT. KBR is proud to be Murrah's exclusive global licensing partner and preferred engineering partner and of course we're an investor in the hydro PRT process itself. Now there are three commercial scale facilities all being built. Almost in parallel Murrah's in Wilton, UK LG cams in Korea and Mitsubishi's plant in Japan. Now the Murat and LG Chemicals plants have had several successful operational runs, with key customers like Dow and Nestle looking to in incorporate recycled feedstocks to enhance their sustainability in the plastics manufacturing. The facility in Japan is scheduled to come on stream a few months later. Now we're excited about what this means for the circular economy and to KBR, of course. To give you a feel for the positive impact, over the course of the year, The UK facility will recycle the annual plastic packaging waste of approximately 700,000 residents and replacing an equivalent of roughly 100,000 barrels of fossil oil, quite impressive.

So on to Slide five and some key messages. We delivered very strong fourth quarter and full year 2024 performance. We actually exceeded our previous expectations. Starting with our financial performance at a high level, delivered $2,100,000,000 of revenue in the fourth quarter. That brought our 2024 total to $7,700,000,000 which is over the top of our guidance range. Now this represents double digit growth of 23% for the quarter and 11% for the year. Organic growth for the full year was 9%. We generated strong adjusted EBITDA of $28,000,000 in the quarter, and $870,000,000 for the full year, also at the top of our guidance range. Due to a combination of strong execution and operational efficiency we delivered 11.2% adjusted EBITDA margin up roughly 50 basis points year over year.

Now we continue to successfully and methodically We are winning work with new customers and in markets globally.

And are continuing to move up market with our acquisition of Lindquist. With our segment realignment and our leadership updates, which were the key topics, of our webinar in early January, we are now more agile and better aligned to our markets. We will also highlight our resilient business model and alignment to strong secular growth trends more in a minute. Finally, we are issuing our 2025 financial outlook which equates to double digit growth at the midpoint across all guidance metrics supported by disciplined strategic execution as we advance towards our 2027 objectives. On to Slide six. I'll start with an update on our key contracts and recent wins, starting with HomeSafe. Following successful test moves in Q4, the ramp increased markedly in January. And now we're taking in roughly 300 moves per day from Transcom. With the program progressing significantly, there is increased interest from new suppliers. The move volume has really just started in earnest So we are in the early months of execution and bought as a ten year transformational program. And both HomeSafe and Transcom remain completely committed to a successful transformation. Over to our joint venture supporting the Plaquemines LNG project. Our customer announced first LNG production in December achieving this milestone in just thirty months from its final investment decision which makes Plaquemines LNG one of the fastest greenfield projects ever to be built.

Work is progressing well to deliver the fully planned capacity over 2025 and 2026. And lastly, with the executive order now reversing the LNG ban, Lake Charles LNG project is advancing their offtakes and limited notice to proceed is anticipated by mid-twenty twenty five with final investment decision expected later in the year. We were pleased to announce a number of new contract wins during fourth quarter and a few are highlighted here to deliver strong results in 2025 and beyond. The new administration has emphasized the need for technological advancements in the areas of unmanned systems, hypersonics, microelectronics and Directed Energy. This $445,000,000 contract win for the Department of Defense joint mission environment test capability program and our £88,000,000 contract win for rapid prototyping aligns nicely with these priorities. And in particular, I think these wins demonstrate [indiscernible] [indiscernible] and interoperability. Secondly, KBR's market leading ammonia process technology was like to two new projects one in Angola and one in Kazakhstan. Which will of course produce fertilizer critical to supporting growing populations. And we think this demonstrates our market leading position and really builds on our installed base of two sixty facilities across the world. Bringing the number of ammonia projects we've won in 2024 Lastly, KBR was chosen for several significant engineering and project management roles in the quarter including Shell's Manatee LNG project, the Oman LNG project and Saudi Aramco's Shaba gas increment project.

In addition, KBR also signed a global agreement with BP for engineering and project management across their portfolio. These project wins demonstrate the momentum in the gas market and the greater need for energy security. I think KBR is very well positioned to address this market through its differentiated capabilities and extensive global presence. In short, our book of business is strong. And we ended the year with a 1.1x trailing twelve month book to bill and over $21,000,000,000 in backlog and options. And one of KBR's strengths is that our portfolio offers multiple [indiscernible] allowing us to successfully navigate different macro environment I'll go into this more a bit later on. Onto Slide seven. Delivering on our strategy in 2024. So sort of doing what we said we would do. Our strong financial performance was we made significant progress on each area over the past year. Firstly, under Thrive and Expand, secured a contract for the Lake Charles LNG project, a planned $10,000,000,000 plus project with our partner, Technique. By effectively using the Information Analysis Center's multiple award contract vehicle, IACMAQ, we won over $1,500,000,000 of work as IDIQ. And this means quicker procurement, enabling more timely delivery of mission critical national security needs for our customers and a more resilient revenue stream.

For us. We also won work with new customers in the Defense Health Agency, the Department of State, and with the government of Iraq where we started a five year strategic partnership to help develop their future vision including energy and infrastructure. And lastly, outstanding bid value awaiting decisions climbed to over $17,000,000,000 yes, dollars $17,000,000,000 in MTS, really delivering on our commitment to increased bid volume this year by over 50% plus Second is to deliver innovation. In partnership with Geolith, we added a new proprietary technology called Pure Lithium. From produced wastewater which is a typical byproduct from oil and gas production. Recently announced that this technology was selected by Weirdale for the demonstration plant in The UK. Enable Information Warfare Center, we are integrating prototype component and designs into new or existing information warfare systems including command and control systems, intelligence, surveillance and reconnaissance systems, and cyber systems. We also launched a digital accelerator program and completed the stand up in connection of our four digital engineering labs in Alabama Maryland, Virginia and Pennsylvania. This adds core modeling and simulation capabilities and we're already seeing on contract growth across several of our Army, Navy and Intel customers.

And now these are important enablers as the market continues to grow around interconnected systems and data. Our third pillar is to drive operational excellence globally As we discussed earlier, we have delivered adjusted EBITDA margin expansion of 50 bps year over year really down to strong project execution and operational efficiency, And as we described during a special webcast in January, we realigned our segments to Mission Tech and Sustainable Tech with the associated synergy and cost benefits making both segments more self sufficient.

Our fourth pillar focused on effective capital deployment, very important. And during the year, we deployed over $1,000,000,000 in cash We returned nearly $300,000,000 to shareholders through buybacks and regular dividends. And secondly, of course, we acquired Linguist. Lynquest expands KBR's mission expertise particularly in the military space domain, and in the digital arena with advanced interoperability and model based systems engineering capabilities. Now these capabilities will be in high demand going forward and this is evidenced by Linquis direct award contracts of over $2,000,000,000 of available ceiling value over the next four plus years. So very exciting. Now we've included an additional slide in the appendix with some key details on Linguist. So these actions are built upon our differentiated business model which I'll now cover on to Slide eight. KBR is positioned for resilience and growth And thanks to our unique business model and alignment with strong secular growth trends, really enables multiple pathways to achieving those objectives. Our model focuses on agile leadership, customer centric national operations, that's really important, in multiple countries across the globe, domain expertise and elevated technology [indiscernible] And these strengths are supported by a capital light structure strong cash flows and cost discipline leading to resilient financial performance.

Now in the chart, you can see our 2024 adjusted EBITDA mix. Showing roughly 60%, six-zero percent comes from non U. S. Government customers, notably from sustainable tech and a sizable business with allied government customers in The UK, Australia and The Middle East. The remaining 30% EBITDA, 30 plus percent EBITDA generation from the U. S. Government is concentrated in serving mission critical operationally focused and technology development roles in areas like military space, missile defense, digital warfare, and direct support to our warfighters, all critical. Believe our business is very well positioned with the new administration priorities. And most of the NASA work is the literal operations of human and satellite space missions including those supporting commercial missions such as SpaceX, Blue Origin and Axiom. And notably, less than 2% of our adjusted EBITDA relates to federal civilian agencies outside of NASA. So less than 2% opposite Fed SIP And now let me touch on how KBR is aligned to strong secular growth trends onto Slide nine. [indiscernible] strategy is to align with exciting growing high end markets as you know, where we are differentiated. Now, I won't read the entire slide to you, but you can see that our book of business is well aligned to strong secular growth trends.

Just picking a couple, in U. S. Defense, we are aligned to mission priorities of the new administration as we just discussed, particularly our tip of the spear operational focus. In International Defense, we're positioned for both resilience and growth from increased international defense spending, And I'll remind you that KBR historically has supported both the UK MOD and NATO in overseas missions. As we've discussed many times, energy has real momentum is a global priority of which KBR is very well positioned in this market. Our infrastructure includes strong tailwinds from broadening industrial base and diversifying economies particularly in The Middle East. KBR's business model combined with our differentiation and an alignment to strong secular growth trends really informed our market outlook for fiscal year twenty twenty five. And Mark will cover this shortly, And in fact, with that, turn over.

Thank you, Stuart, and good afternoon, everyone.

I'm on Slide 11 covering Q4 performance.

As you see, revenues in the quarter were $2,100,000,000 dollars that's up 23% versus the prior year, and that was driven by growth across both segments and also the LinkQuest acquisition, which we made in late Q3. Adjusted EBITDA was up 21% with margins at 10.7%. [indiscernible] Adjusted EPS was $0.91 in the quarter that's up 32% over last year. This exceeded the adjusted EBITDA growth rate despite year over year interest headwinds driven by favorable Q4 tax adjustments that were within our guided range favorable year over year below the line items like mostly FX and a lower share count on repurchases over the past twelve months. On to Slide 12 for the full year. Revenues were strong at $7,700,000,000 up 11% versus last year and that's supported by robust growth across both segments. With the additional benefit of course of the Linklist acquisition which contributed about 2.5 the total Adjusted EBITDA was up 16% with margins increasing 0.5% to 11.2% for the year. This type of positive result, as I always say, starts with excellent program execution and that certainly was the case Also, as has been the case all year, sustainable tech top line growth of 17% at 20% plus margins is clearly benefiting margins in terms of mix.

Adjusted EPS was $3.34 up 15% versus the prior year generally in line with the adjusted EBITDA increase. Offset by higher interest cost.

Taxes were largely consistent year to year. And as Stuart indicated, revenue and adjusted EBITDA were at the high end of our guidance ranges for the year, whereas the adjusted EPS exceeded the top end of our range. Operating cash flows were $42,000,000 for the year. With an OCF conversion of 103%. [indiscernible] Later in the year, we did make a voluntary payment of $21,000,000 to prefund our 2025 United Kingdom pension obligation, This action was taken in conjunction with seeking a negotiated outcome to enable greater utilization of collateralized cash in The UK going forward the intention of bumping up our ultimate capital deployment capacity by over 50,000,000 The prepayment did result in OCF finishing at the low end of our guide for the year. But certainly we think worthwhile benefits in the long term relative to deployment capacity. On to Slide 13 and our segment performance. First up with Government Solutions, revenues in Q4 increased 20% to $1,600,000,000 with $150,000,000 in adjusted EBITDA and margins at 9.4%. As you see, all four business units contributed Defense and Intel revenue growth was particularly strong as you see up 33% supported by the Linklist acquisition and also organic growth. Primary drivers here include military space, missile defense, and support of advanced technologies including hypersonics and digital upgrades on various military platforms.

International also performed well with an increase of 20% driven by core UK and Australia defense programs and healthy increases in infrastructure work in Australia and The Middle East. As a reminder, the infrastructure area will shift to STS in 2025 as part of the realignment we discussed in early January. Margins were consistent with last year with normal Q4 seasonality due to lower labor utilization. Book to bill in the quarter was 0.9 times, While that isn't unusual for Q4, we have no significant awards in our favor remain in protest which hopefully will benefit future quarters. For the full year, revenues were $5,900,000,000 up 10% with adjusted EBITDA of $587,000,000 also up 10% a 10% margin. Very consistent with last year. On to Slide 14, sustainable tech. Within Sustainable Tech Solutions, revenues in the quarter were up 30% with $108,000,000 in adjusted EBITDA and margins at 20.6%. Is quite remarkable given the softness we saw in this market earlier in the year that you might recall. As Stuart suggested earlier, since the summer demand has increased for our ammonia, energy security and various decarbonization offerings. New projects and on project growth have both contributed Ammonia Technology program management consulting services, and LNG projects are the main drivers with LNG demand signals particularly picking up after the U. S. Election in November.

All these same factors drove a strong book to bill performance of 1.3 times And Q4 margins as has been the case all year were consistent with our long term targets 20% plus. For the full year, revenues were $1,900,000,000 up 17% with adjusted EBITDA of $398,000,000 up 18% and at a margin of 21.3%. Sustainable Tech has had double digit adjusted EBITDA growth Book to bill for the full year was also a strong 1.1x.

Over to Slide 15 and the balance sheet and capital matters. As Stuart said earlier, we executed a balanced capital deployment plan in 2024, We deployed over $1,000,000,000 in capital about 75% of that attributed to the Linklist acquisition and the rest on returning cash to shareholders primarily through buybacks. With over $1,000,000,000 deployed, we ended 2024 with a net leverage of 2.6 times expect this leverage ratio to work down as we grow EBITDA in 2025. Now I'd like to provide a little bit of clarity on our capital allocation priorities going forward. Our first priority, as you probably expect, is to fund organic growth. And also actions to drive operating excellence. That's number one. Number two, we are targeting a leverage ratio below 2.5x the current interest rate environment Growth in EBITDA should get us there quite soon. Our next priority is returning capital to shareholders.

Within this, we plan to continue buybacks with bias to do more. Consistent with our growth, we are announcing our Board has approved an increase in full replenishment of our stock buyback authorization to $750,000,000 effective We're also committing to maintaining an attractive dividend. As we are tracking to the growth levels consistent with our long term targets, our Board has approved increasing our regular dividend effective this March by 10% to $0.66 per annum or $0.165 per quarter. Since our first increase in the regular dividend in 2020, the average rate of annual dividend increase has been 13%. Finally, we will continue to take a disciplined approach to acquisitions, focused on bolt ons that have a strong strategic fit, cultural fit, of course, also attractive financial profile. I'll now turn to Slide 16 and our fiscal twenty twenty five guidance. For fiscal twenty twenty five, we're issuing the following: We expect revenue in the range of $8,700,000,000 to 9,000,000,000 representing an increase of 15% at the midpoint. [indiscernible] anticipate adjusted EBITDA of $950,000,000 to $990,000,000 an increase of 11% We expect adjusted EPS of $3.71 to $3.95 representing an increase of approximately 15% And lastly, for operating cash flows, we expect a range of $500,000,000 to $550,000,000 up 14% at the midpoint.

CapEx is expected to be between $50,000,000 and $65,000,000 for the year. And our projected effective tax rate is 25% to 27%. [indiscernible] Finally, we are expecting phasing of adjusted EPS to be 47% in the first half, 53% in the second half. And with those objectives for 2025, we are certainly progressing well towards the 2027 targets issued in our May 2024 Day.

Now our guidance does include key assumptions and I think those are worth highlighting given the current political and economic environment. We First, as Stuart said earlier, we believe the types of national security space and operations programs that we support will continue to be dependent upon and demanded [indiscernible] our global customers, including the U. S. Government are accordingly assuming all material programs we currently support remain in place. If that changes materially, we'll certainly provide an update as appropriate. We believe there is significant probability of a full year continuing resolution for the U. S. Government fiscal twenty twenty five, What if soon funding and tasking including on contract growth for mission critical national security operations and modernization programs, remains intact. As we have previously communicated, 2025 will be a year in which home safe volumes ramp up considerably. We're assuming HomeSafe continues to ramp but not at the full domestic moves pace estimated revenue range is $300,000,000 to $500,000,000 for the year. This compares to less than $50,000,000 in 2024. So quite a contributor to growth.

We are not contemplating material effects from some of the proposed tariffs Our current business levels in Mexico, Canada and China are not material. And finally, we're expecting interest rate and foreign exchange rates to remain static from where we are today. So in closing, our plan for 2025 is consistent with the long term targets we set at Investor Day and we do so with confidence strong growth momentum and a very dedicated global team.

With that, I'll turn it back to Stuart.

Thanks, Mark. I'm on Slide 17 with some key takeaways. Firstly, strong fourth quarter and fiscal year twenty twenty four results were double digit growth, margin expansion, and book to bill of 1.1x. We delivered on a strategy in fiscal year twenty twenty four as we discussed earlier, to move up market and position in areas of differentiation. I think we demonstrated a diversified portfolio and a and with more than 60% of our adjusted EBITDA generated from non U. S. Government customers. We're confident in our 2025 outlook with double digit growth at the midpoint across all [indiscernible] entering 2025 with 75 plus percent work under contract. With that, we are happy to take your questions and I'll hand the call back to the operator. [indiscernible] Thank you. Will now begin the question and answer session. Up your handset before asking your question. The first comes from Brent Thielman with D. A. Davidson. You may proceed. Hey, great.

Thanks. And congrats on a great finish to the year. Guess maybe a question for Mark just in terms of the initial revenue outlook here for 2025. All it up $1,100,000,000 $1,200,000,000 at the midpoint. I think I heard you call out $300,000,000 to $500,000,000 from HomeSafe.

Did you specify what you anticipated from Lyncrest in 2025? And maybe just a little further color in terms of how that integration is going?

Great, Brent. Well, first, thanks for tuning in. Thanks for a great question. So the revenue guide $8,700,000,000 to $9,100,000,000 represents growth 15% at the midpoint. We talked about that in our prepared remarks. Of that, you mentioned the HomeSafe number. That's roughly five percentage points of the growth. LinkQuest is a similar number. It's about inorganic addition of $400,000,000 to the 25 numbers. Running very consistently with our original expectations, ballpark $600,000,000 per year. Really performing great. The culture, as we said many times before, couldn't be better. The BD teams are collaborating to really go after new interesting work, some of which we've one quite a bit of which is still in the pipeline. And so and this is all that good margins as well as we set forth to do. So it will be couldn't be happier with the status of the team, the integration and how they are contributing to a KBR set of capabilities.

Terrific. Thanks, Mark. And then I guess my follow-up would just be, I mean, obviously, a lot of success here with Plaque mines. Hit some clinical milestones here. Just curious how that if that is opening up discussions maybe with others outside of Lake Charles, which we know we're waiting for FID there, but maybe the tempo of discussions beyond that, just with the great success and approach you've had with Black and Minds here?

Yes. Good question. I think we've talked a little bit in the prepared remarks about the outlook for LNG. I think the world is telling us there's going to be a gap of a couple hundred billion tons of LNG over 73 to 20, Betty and beyond. So there's a lot of activity. We're seeing a lot of early engagement in the LNG market. Multiple customers, some are new market entries, some are older projects that are being revived as a consequence of the the new administration's focus in energy security. I think it's going to be a very boring part of our future. We're seeing operators with facilities that are operating today looking at expansions and debottlenecking to produce more algae as you would expect. So I think it's a very exciting time to be in that market and certainly delivering LNG in sort of Sura certainly right up there in terms of record time from FID to [indiscernible] been a very good position, particularly as we understand that currently, before us and all the current supply chains, how it works, etcetera. So, yes, we're in a good shape there. Thank you.

Thank you.

Thank you. The next question comes from Mariana Perez Mora with Bank of America. You may proceed. Good afternoon, everyone, or good morning, as it corresponds Could you mind discussing what are the main drivers when you think about like 2025 growth? And how you think about like international contributing to that?

Okay. International is a big context because our people think of that on the government side, but it's also this is sustainable technology side for us. Think Mark was pretty clear in terms of growth as it relates to Lequis and as it relates to HomeSafe and we've taken a very balanced view across the rest of the the MTS portfolio. Particularly with continuing resolutions expected, etcetera. So I think that's prudent and I think it's quite balanced in the way we've approached that. The international government markets, we're seeing increased spending, of course, from governments. There's a lot of noise in Europe as you may have seen from what's happening opposite Ukraine and the increased defense spending in Europe expected as we go forward.

Also we're actually taking this call from Australia, believe it or not, which is why Marianna said depending on us. So it's first thing in the morning here. And we're down visiting our business this year and the government and customers down here.

And the market down here is looking very attractive, both in the end digitally enabled business in Australia. So we're expecting pretty good growth going forward with that business over multiple years. In fact, that's what's in the pipeline. So when I look at the sustainable tech business, we talked about LNG as it relates I think most people are thinking about The U. S, but we are seeing increased activity in The Middle East and we covered a little bit of that in the prepared remarks. But also we're seeing Asia starting to take off as well. But importantly, adopting, I guess, a risk model that suits our appetite. So not your traditional wants on EPC, which I think has proven folly to many companies over the years of course, we got out of that many years ago. I think properly. So that was just stood as a very good stead.

But the Global South, the growth in energy is demand is there. I think The Middle East, I think we're seeing increases in Asia. Singapore business, for example, is very, very busy. But The Middle East plays an important role, not just in The Middle East and South where we've gone double digit across those many countries in terms of our presence. But also the larger projects that executed in their technical hubs in Houston and Chennai. So it's so we're seeing lots of activity outside The U. S, which is why we want to reinforce our multiple pathways that we have to hit our growth. There'll be some ups, some downs. I'm sure not everything will be perfect, but I think having those multiple pathways is proven in the past that we're very resilient and that's why we talk about it quite a bit.

So I think we're in good shape going forward.

And then if I may follow-up on LOGCAP and all the support that you're doing in Europe. How do you think about that going forward in the next like twelve to eighteen months.

Yes, I think another good question and one we've looked at internally very closely. We've talked about it before. It's $200,000,000 to $300,000,000 of revenue, it's at low single digit margins. So from materiality, point of view in terms of our EBITDA, it's not significant In the budget or sorry, the guidance as we we looked into next year, as I said, we've taken a very balanced view across the portfolio. And I think prudently so. And so I think the way we think about it is I mean, Defense Secretary, Hexa, has basically said that we know obviously withdrawal in the short to medium term. But goodness knows what happens opposite the we can't really speculate until [indiscernible] And so I think ultimately, we've got quite a lot of confidence in terms of the numbers we have through '25 And we've got a so as a consequence of the balance that we've taken, I think it's fairly appropriate in terms of how we position through the guide for that Thank you. And last one, probably to Mark, just as we check HomeSafe. How should we think about EBITDA margins [indiscernible] Or just the UCOM piece and LOGCAP V that you mentioned or roughly For HomeSafe.

Okay. Sorry, Mary. I couldn't hear that clearly. We're far we're far distance from you right now.

Anyway, so Comsafe, we we're in a ramp up phase and I'm sure we'll talk about that in the course of today quite a bit for others, but [indiscernible] we're expecting a very cautious amount of profitability in the year of ramp up. Due to all the issues you'd expect in a major transformational program. And so we're now beginning to that well, really proud of the team's efforts. And so it's really a negligible contribution to the profit, for 2025 as expected. And so we see contribution of all other parts of the business really carrying day. So we'll report that as it comes during the year. And that's pretty the that's the status today.

Thank you. The next question comes from Steven Fisher with UBS.

Great. Thanks a lot. So I know you guys stepped up the bidding over the past year.

In the mission technology business. I know you cited the 55% plus increase in bids. Can you just talk about where you are in in that process in terms of getting decisions back on those. I wasn't sure if that was what you're referring to in terms of things under protest or is there still a pretty good ramp of awards to come there? Just trying to gauge what sort of the bookings landscape might look like in that business for the next [indiscernible] Yes. Steve, as we said in our webcast, [indiscernible] we've been talking about this through the course of 2024, realigning our our big teams and our whole business development capability and effort and really up skilling that as we positioned NTS And we had a target of increasing bid volume, which we've exceeded in truth. And we expect to grow that further into 2025. We have quite a lot under protest actually that we won under protest, probably one of close to $1,500,000,000 and that's going through the typical protest machinations and within various agencies where we've won that work. So hopefully that will start to come through in Q1 and maybe into Q2. So that really sets ourselves up as we maybe win the protest, of course.

And then we've got 17,000,000,000 waiting for award. Through the course of the next twelve months. So that's really bid submitted, waiting for evaluation and award. So we won't speculate on timing. We particularly in this environment, but I think it's a great indicator of the the book of business that's in front of us and where we're positioned. But what I would say on top of that, we're going into this year with 75% of our under contract. That's a very healthy, healthy number. And secondly, as we alluded to in the not alluded to, but really talked very clearly, I thought in the prepared remarks in terms of quite unique contract vehicles that we're utilizing that they get to procurements quickly and they have revenue quicker for us of course, but actually addressing the customers' national security concerns. And we've done extremely well in '24 or MDIAC Max and we've seen unique contract vehicles that Linguist brought across being able to be device holders that a $2,000,000,000 that we can fill up on that contract vehicle as we move through '24 and into 2025. So very attractive areas where we can actually have very strong performance.

And of course, the digital lab piece we talked about is really exciting and I think adding on contract growth. So when you add up all those levers, if you like, not to mention, obviously, what happens in sustainable technology that's not and international government that's not fully constrained by CR in any way.

Going into the year, we're assuming 5% under contract with these pathways to growth. I think, is terrific. Sounds great. And then just maybe on HomeSafe, maybe you could give a little more color on how this year has progressed because it sounded like you're saying things stepped up pretty nicely at the beginning of the year. Started to build a little momentum, but it sounds like maybe not or the change now is that you might not do the full domestic move. So can you talk about what some of the puts and takes are of what's going right there, but yet what at the same time perhaps holding back the assumptions? And I know you said it's sort of a negligible profit impact, for this year, but just curious to learn a little bit more about kind of what's happening behind the scenes?

Yes. So to give out some context, we put up I think [indiscernible] sucking 300, three fifty moves a day. I think we we logged in almost just under 4,000 of January, April loan.

So that's quite an increase from December It's probably about a 400% increase actually in December. So you can see the ramp is progressing nicely. And with that, of course, we are taking on service providers and took on an additional 120 and we've got well over 500 providers now in the supply chain. But I would just remind everyone, of true performance into a ten year massive transformation program. So I think it's correct that we think that through in terms of ensuring that we deliver And I think our focus and objective is really to really improve the performance of against the legacy program, which has underperformed in many areas which is hence the change. We want to make sure that like all programs, we probably have we're not perfect, but we want to be and we're just being very, very sensitive [indiscernible] operationally we start to really sort of improve performance of our own program, but also against the legacy program. And I think that will stand as a good step. So it's more an element of being being focused on delivery. It's a ten year program. As I said, Steve, you don't want to win the battle and lose the war, you know, you want to be very careful about how you actually deliver and make sure you've got I would say in talking to the new General at TransCon, I think I can say quite openly that both Transcom and HomeSafe Alliance are 100% committed to the new program.

And I think we're starting to see as the ramp has gone up more of the supply chain coming in and being interested because clearly this is the way forward. So I think that's I think, it's sensibly balanced in our guide. And obviously, if we start to go a little bit quicker, we'll tell you as we progress the year, but better we tell you that. And other way around, I would suggest.

Thank you. The next question comes from Jerry Revich with Goldman Sachs. May proceed. [indiscernible] Afternoon. You see your calls in the morning. Can you talk about Stuart potential risk factors to 25 government Solutions guidance if we do see a slowdown in awards, what level of risk should we be thinking about relative to the guide that you folks laid out?

Thanks.

Jerry.

It goes back to what I was talking about earlier. If you actually just take NGS in the sort of a loan, you're looking at 400 delinquents and then $300,000,000 to $500,000,000 for HomeSafe. And when you if you do the math back you can see that the growth rates are in the low single digits for the base business. And I think that's a very considered sensible growth expectation given the uncertainty that again, we can speculate on timing of what Doge and all these things are going to do. But ultimately, I think that's given we've got the international footprint MTS, I think that's a very balanced element of our guide. So just to give you color, And then you've got SDS, which is probably in line with our long term targets. And we're feeling pretty bullish about that. But I think overall, having sort of these multiple pathways that we've talked about numerous times on this call really sets us up nicely and we're pretty confident of our guide.

We've been in all the years that we've been doing this, we've hit our guidance every year. And when I when you start to look at numbers like 15% revenue growth, that's probably in this environment, probably people are thinking that's quite high. But when you start to break it down because of the the additions of what we've got with HomeSafe and with Linguist, and with the excitement what's happening in the energy markets across the world. Think you can see it's a very achievable number.

Okay. And then can you talk about the equity income performance in the quarter, which line of business drove the lower equity income and in terms of segments earnings contribution that's embedded in the guide in 25 place?

No, Jerry, good that you picked that up. And so for the full year, the numbers were pretty consistent year over year, but in Q4, you did see a a jump down in equity and earnings and that's for one thing to deliver the margins we did despite the contribution of from equity and earnings is significant. And positive in my view There were two things that were happening in the fourth quarter. One was we did have a a very accounting centric non cash adjustment on a contingent liability for ICTUS believe it or not, that's still out there. And that was remeasured a foreign currency exchange downward by 10,000,000 particular one we added back in the adjusted EPS but it does show reduction in equity earnings when you look at just that line item. So that was 10 and then there was a similar number actually on the Paken and VG project And so we actually have scope increase On the project, which is generally a good thing, but that did lower our percentage of completion and we had to reset the JV position accordingly. So generally a good thing and it adds longevity to the project and the income stream from it.

But took a minor step back in Q4. So those are the reasons So really not substantive to the Our view of the business and the confidence we have in the guide for '25 Thank you.

The next question comes from Michael Dudas with Vertical Research. You may proceed. Good morning, Jamie, Stuart, Mark, Good morning, Mike.

I hope you didn't go all the way Australia for the Iscus thing. I didn't think we'd have to hear that name ever again.

Yes.

It's just squarely accounting, Mike.

No, it's not real. I understand. Stuart, maybe you could share with the call we had in January and the realignment of the businesses, what's happened since then? And what's giving you more confidence of some wins or some opportunities that maybe can drive Maybe better performance to get that 25% of business into KBR, but maybe even lift the outlook for beyond given what you guys have realigned and given some of the tailwinds you have? [indiscernible] [indiscernible] so the realignment has as we said, we're headed to the end of twenty twenty four was was done.

And I'm pleased to announce that the integration of Linguist is substantially done as we move systems and things across that we hadn't achieved when we talked in January. So that's kind of behind us now. So the company is realigned into mission tech and sustainable tech with Just the infrastructure piece moving across from the legacy international government into SDS. And I think what we're seeing now is just the realization of synergy opportunities. The cost exercise that we embarked on, we have achieved that. We took £30,000,000 of cost out. I know it didn't drop all to the bottom line because of the the way that we have these reimbursable contracts in The U. S. But it's really positioned us nicely for to be competitive and and across our business. And you'll see the reduction in corporate costs as we go forward into next year. So I think that all sets us up nicely. So that's all behind us as well. But I think the main reason we did this was to realign the portfolios of offset customers. Make sure talent was aligned to provide solutions to those customers. And certainly, the book of business that we've got coming down the pipe is very exciting.

And the Linguist deal is already given us fantastic wins and we're positioned nicely for for 2025 and beyond. Across that portfolio, particularly in in Space Force and looking at the broader Air Force portfolio with digital enabled labs and things like that that we addressed in our opening remarks. But also within the sustainable tech in The Middle East, the infrastructure portfolio we have there and down in Australia but we do a balance of infrastructure work across defense infrastructure supporting the AUKUS program as well as looking at emphasize what's happening in things like water and transport. Going really, really well and very much aligned business model wise and obviously in countries where we've got very strong SDS presence. So our customer engagement and our brand recognition is really strong and that's helping. So I think that move has been [indiscernible] by our people. It's been an easy shift. We had one bad day in terms of taking costs out, which I think the team did a fantastic job. So if I know the dislocation as a consequence. And then thirdly, I think the customers are seeing the benefit of the of the combined capability in the appropriate markets.

That's encouraging Stuart. My follow-up is for you or for Mark. Looking back to capital allocation, given the dislocation of valuations in the marketplace. Maybe you could talk about maybe acquisition book and maybe as you think about your targets on net leverage and cash flows and timing, is I assume that share repurchase, there's [indiscernible] a desire to take advantage of that?

Yes, Michael. You picked up the yearly remarks quite clearly and so while there's always an eye toward M and A, I think I was pretty clear that in light of where we are with our outlook, which is Very healthy.

And resilient. As Stuart said many times, and where we are with valuation We have a bias to do more buybacks and with that our Board did authorize substantial increase in the authorization.

And because we can naturally lever down from 2.6 to maybe 2.1, 2.2 by year end, just with EBITDA growth. There's really no need to use cash to pay down debt. And achieve our targets. So So we expect to do buybacks When we can, as the window opens, with the capital we have, the cash flow outlook we have for the year, and a little bit of excess cash on the balance sheet sitting here as we close out 2024. So we're certainly bullish on that use of capital coming forward in this environment. Thank you. The next question comes from Andy Kapitalits with Citigroup.

May proceed.

Hey, good morning, everyone.

Good morning, Adi. Good morning Stuart and Mark. Just a little morning.

Just a little more color on SPS.

Can you maybe color where the demand for ammonia is coming from? Because it doesn't seem like it would be from ag projects right now. Maybe a similar question for energy security and decarbonization. I think we get the LNG potential pickup, but where are the other pockets of growth? I know, Sun, you mentioned Middle East spend, so maybe that's a lot of it. But just I'm trying to think about durability. Of the demand environment on the FCS side.

Yes.

So thanks, Andy.

Yes, we do have durability in the SDS piece, I would say. You're right, we've got the LNG market, which think as you said, everyone really understands and understands supply demand dynamics there and what's happening in The U. S. I think in the broader energy security market, we're seeing continued activity. We've seen lots happening in The U. S. Also around energy security and in Trinidad, and obviously across The Middle East as you rightly have picked up on. As they tried to only diversify their economies, but really sort of exploit gas in a really transition fuels as the energy transition piece moves to the right because of affordability. Challenges. Terms of ammonia, I think that's very much a national play. We reinforced the national national operational focus we have and the country focus that really has allowed us to to be very sort of tailored and what's right for the individual countries and the customers within those. I think we talked about in the global marketplace, And when you're looking at places like Angola, the government have provided very, very attractive prices for gas into the ammonia facilities. It makes it highly competitive. And I think that will be the first of many trains there assuming that dynamic continues.

And Kazakhstan, that's the first sort of major investment into fertilizers there for probably multiple decades. So it's not it's typical in different country dynamics that drive the economics of these projects. That's why it's extremely important we're very sort of global business with a strong footprint and across the globe from our business development and then execution capabilities. Perspective, which we've had. So I think the dynamics are different. But but I think the very global nature, I'll go back to my comments again about these multiple pathways to growth. And we've got a portfolio of 70 plus technologies. As you know, it's not [indiscernible] And they'll go up and down as countries decide what they want to do with their various resources.

Very helpful, Stuart. And then maybe just back to MTS, like in Q4 revenue was quite high. I think a lot of that was Wing Quest obviously, but did you see any sort of like spending flush or something like that before the new administration took hold? And as we think about bookings for you guys, obviously, timing is all, it can always be lumpy. But should we think that bookings might be a little slower for a quarter or two before they pick up or how do you think about that? Have you seen any Doge impact so far? Or what do you expect to see any? So on George, We have not seen [indiscernible] At all yet.

In terms of timing of awards going into next year. We do think they'll probably be slower just through continuing resolution and the what's happening within the administration and we just won't speculate on that. But do have, as we said, dollars 1,500,000,000.0 that's under protest and that could come through in the first half of the year, which would obviously make bookings probably reasonably strong in Q1, Q2 depending on the timing of the resolution of those protests.

So that's kind of where we sit on that. SDS bookings will be progressive through the year.

As we've seen in prior years, international government similarly. So And I'd say, Andy, that I think we did have a little bit of pickup in tasking That's not too common in the fourth quarter with a new CR in place, but because of the administration change, it may be dynamics about upcoming slowness with some of the doge rhetoric and so forth. There might have been a little bit of push to get things done in the tasking area in the fourth quarter. We had a couple of extra productive days in the fourth quarter as well.

That helped a little bit.

I will just further endorse what Stuart said about we haven't seen a direct impact of the pace. We haven't seen a any adverse collections issues out of the government thus far. So we'll see how that goes, but we're seeing status quo at this point in time.

Thank you. The following comes from Sanjita Jain with KeyBanc. You may proceed. Hi, good morning. Thank you for taking my question. So if I can ask one on Home Save. So It's pushed out and can you pancake them? They move forward.

Sangeetha, we apologize, but that cut out for us here. Could you repeat the question, if you don't mind?

Sorry, sorry. Let's see if this works. But I was going to ask about the HomeSafe ramp. If the domestic ramp taking a little bit longer Can you still pancake the international ramp on top of that as the domestic ramps get to the full run rate.

Our view in talking with the customer is that these will occur sequentially. And so if domestic pushes out a bit, then that could have a a carryover effect to international. So we don't see a scenario today where international will accelerate in light of change in pace of domestic. It's sequential.

Okay.

And then a quick one on Murrah. Really appreciate the updates that you guys provided. How should we think about the P and L impact as these additional plants start operations So the way to think about this is it's one of our multiple pathways to achieving growth targets that we've given in our guide. I think it's a very exciting development. We'll give more updates as we get into true operational performance and [indiscernible] from Australia, I'll actually go to Japan, so I'll get more info on the Mitsubishi facility and when I'm there. But it's exciting. We've talked a number of times about the number of licenses and number of projects that are waiting for commercial operations to be declared. And certainly heading that way. So it's just another example of the pathways that we one of the multiple pathways we have to achieve in our targets and it's exciting.

And I'll just add that Miura is very similar to our other offerings in STS and KACE. This is not well known but with a kicker because in the case of Miro, we have exclusive licensing rights, so there's licensing opportunity. There's also proprietary equipment opportunity. With clients that choose to work with us on the industrialization of their plants. Leveraging that technology at the front end. There are service offerings like PMC that we can offer to plants under construction.

And as we've said, we have partial ownership in Europe. And so in the future, as they become profitable, which is certainly the intention that we we participate in that respect as well. So there's multiple economic facets.

Yes. Just to give more color on that, we took the original sort of what they call state and build design and we've put the whole facility into a module that can be fabricated in a in a yard. Which means it's safer, it's quicker, it's more controllable and it has a schedule. And cost for that matter. But that really we sell as part of our proprietary equipment offering. So really extending the scope or KBR in future endeavors. And that was what was employed on the LG Chem facility which is probably going to be built to go operational a year quicker than a state build facility that was originally being built in The UK.

So I think we've proven out that thesis. So it's a very exciting part of our future.

Thank you. There are currently no other questions queued. I will pass it over to Stuart Brady for final remarks.

Thank you very much. So in closing today, we're very excited about the path for KBR in 2025 and beyond, of course. We are confident in our ability to continue creating value for our shareholders. And to that end, I'll leave you with a few key takeaways. We have completed a multiyear transformation becoming a leading provider of differentiated innovative upmarket science, technology and engineering solutions with large scale and importantly global reach. We serve diverse attractive end markets aligned with strong secular growth. And we have top talent combining deep domain expertise, Proprietary technologies and an unwavering focus on execution with a specialization in complex mission critical work. We're excellent partners where we try to be We were operating in dynamic teams to solve our customers' most complex challenges. And you've seen that quarter in quarter out. But this had resulted in recurring long term engagements and over $21,000,000,000 of backlog and options and importantly 75% plus work under contract going into 2025.

Diversification, a low capital intensity, our disciplined capital allocation generated stable predictable cash flows and long term shareholder returns. We have growth and margin expansions plans in flight. So thank you again for joining us. Thank you again for your interest in KBR. And we look forward to updating you again next quarter.

Thank you.

This concludes today's conference call. You for your participation. You may now disconnect your line. [indiscernible]