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Text: Joining us today are Stuart Bradie, President and Chief Executive Officer; and Mark Sopp, Executive Vice President and Chief Financial Officer.
Stuart and Mark will provide highlights from the quarter and then open the call for your question.
These risks are discussed in our most recent Form 10-K available on our website.
I will start on slide four.
Now you should all be very familiar with those Zero Harm sustainability program by now under 10 pillars that fit within it across the ESG spectrum.
At our recent Investor Day, we highlighted that being a good corporate citizen was the floor and not the ceiling at KBR, and I wanted to prove on that side a little bit more today.
The symbiotic relationship between shareholder value and KBR helping our clients achieve their sustainability goals is an absolutely key differentiator for KBR.
And we wanted to build on that just a little on to slide five.
KBR has a suite of recycling technologies that enable secular processing and the broader secular economy.
At the Investor Day, Dow introduced Mura'srevolutionaryHydroPRS technology that closes the loop on the secular plastics economy.
This is very exciting on its own right and this excitement I think was compounded with the recent announcement that Dow is also investing unimportantly committing to off-take.
This obviously is a huge endorsement on the sustainability aspects and of course, a huge endorsement on the technology itself and is an important step forward.
But at KBR, we have many recycling technologies as outlined on the slide.
All are proprietary, differentiated, disruptive and market-leading.
And we could spend the entire call and I don't plan to do that talking about these technologies.
But today I'll highlight just one example to give you a flavor and that's on sustainable fibers.
Our global retailer from Scandinavia came to a few years ago to help them solve a big problem.
How to recover valuable chemicals and water from what would have been a waste stream at the end of their process to produce manmade fibers.
Our sustainable technology team applied our proven of operation on crystallization technology to essentially recover and purify critical ingredients and water such that they can be reintroduced right at the front of the process.
Closing the loop on the secular processing.
And this solution has many benefits as I'm sure you can appreciate, it reduces processing cost, it saves finite elemental resources and water, and it eliminates a wasting.
So overall it's great value for the client.
Obviously for KBR and our shareholders and of course the planet.
So like you've heard me say before, advancing our clients' ESG objectives, its core to KBR strategy and this example is just one of the many that demonstrates that tenant.
So on to slide and some key highlights from the quarter.
The key takeaway here is overall revenue, EBITDA margin, adjusted earnings per share and cash were all in line with full-year guidance, and I'd say a little bit above our expectations for Q1.
You'll recall that we stated that first half versus second half would be circa 40-60 split at the earnings per share level.
That has now shifted to the circa 45-55 split with a couple of things happening in Q1, that were expected to happen in Q2 and Q3.
And this was especially the case in Sustainable Tech and Mark will give you some more details on this later.
Margins were bang on at the Group level with some discrete items some puts and takes that Mark will cover later within the segments.
But to be clear, full-year margin guidance at the Group and within the individual segments is not changing and I'll say that again the Q1 puts and takes do not change full-year margin guidance.
Free cash conversion at over 100% was again strong and importantly the team brought and over $1.6 billion in backlog and options during the quarter in high-end technical top market areas increasing our total backlog with options to $90.3 billion more on some of these wins in a moment, but super exciting.
So, Q1 was a relatively clean quarter at the group level.
As the overall business continued its momentum from 2020 and 2021 guidance remains unchanged.
So, on to slide seven.
The market outlook in GS was dominated by the release of the President's proposed 2022 budgets.
The DoD budget was aligned with what we presented at Investor Day.
So no surprises there.
And KBR was very well positioned opposite national security and DoD strategic priorities.
A few of the areas are highlighted on the slide.
Artificial intelligence and machine learning, cyber, trusted microelectronics and directed energy.
And you can see on the right hand side, prove the site.
We're especially excited this quarter by the trusted microelectronics win to conduct advanced R&D, prototyping, laboratory testing and supply chain verification on critical Microchip's and components.
This is really important work done by top tier scientists and PhDs to ensure major military systems and platforms operate as intended and have not been compromised.
We also won new work with the U.S. Space Force Rapid Capabilities Office or RCO to support the development and acquisition of new space capabilities and the modernization of the military space infrastructure.
Again this is highly advanced work centered around technical R&D and critical military space domain.
Shifting a little bit over to the civil space side.
The NASA budget request was also released and shows a marked increase and continue to support for the return to main and beyond.
And of course increased funding across a range of Fed spend activities focused, as you would expect initially on COVID, climate change an area of differentiation as you know for KBR and social justice.
The proposed infrastructure plan was also released and was very R&D heavy, very technology-driven on climate focused lining up well with KBR's R&D capability and technology portfolio.
This quarter we saw some great wins also in the international government business.
As you can see on the right hand side of the slide both in the U.K. and in Australia.
And there was also good news from a budget perspective in the U.K. and this follows on from Australia increasing its defense budget last year.
As an aside, and his team in Australia are off to another good start, posting top organic growth rates again at over 30% year-on-year this quarter.
And this is a nice example of a great team doing things that matter within a healthy budget environment.
One aspect not on the slide, but worth mentioning was the announcement on troop withdrawal from Afghanistan.
As most of you are aware, we took a very conservative view in this area, which has proven to be prudent.
So in short, no red flags coming from recent announcements, no red flags from the budget priorities, in fact very much aligned to what we presented in Investor Day, so very much aligned with our expectations.
The market and our strategic positioning reaffirm our ongoing momentum.
Now on to slide eight on sustainable technology.
The market and key strategic themes shown on the slide continue to gather momentum.
It's a hot market.
The recent announcement from the Biden administration are fully aligned with these themes as we discussed at Investor Day.
Our suite of technologies remains in high demand and I'm also pleased to announce a disruptive PDH technology K-PRO that was actually launched last year has secured its first commercial scale order.
There are details on this on the right hand side of the slide, but to put it simply, this technology takes low value propane and converts it into high value propylene and it does so in a more sustainable and more cost effective manner than the competition.
It is worth noting that the book-to-bill of heritage technology was 1.5 in the quarter.
Led by important sales of exciting new disruptive technologies K-PRO, K-COT and K-SAAT.
And bookings of these technologies dominated the tech book-to-bill as clients look to meet growing demand for propylene and high value clean refining solutions with our disruptive differentiated and in our view, often superior technologies.
Now we've talked a lot about K-SAAT technology in the past and obviously I've just covered K-PRO.
But I'd be remiss if I did not touch on K-COT and the K-COT win in the quarter which was a substantial booking by the team.
Now K-COT is KBR catalytic olefins technology, it is the only and I repeat only technology of its kind in the market.
Now this technology is unique and that it produces meaningfully higher volumes of propylene versus fastest competing technologies and as you know, propylene is in very, very high demand.
Additionally K-COT is the only commercially proven continuous operating process on the market, which means the both capex and opex costs are substantially lower and the energy consumption and thus environmental impact are also greatly reduced.
So in other words, it's highly monetizable at lower investment and operating costs translating into a higher ROI for our clients and at the same time advancing their sustainability agenda altogether very compelling.
So staying on the right hand side of the slide, as you would expect the cadence of awards and our energy transition advisory business also increased and is a great early indicator of activity in that market.
But it's clearly a step change in this activity and the cadence of new opportunities and awards has actually been above our expectation.
Technology led industrial solutions also had a fantastic start to the year and the pipeline for our digital solutions that leverages our IP and our domain expertise and helps our customers reduce cost, enhance throughput, increasing efficiency while also advancing their own sustainability goals is resonating.
As Mark will show you in a moment sustainable technology has come out of the gate strong in Q1, and we remain confident in delivering our 2021 guide that they will be a business that do sucker $1 billion in revenue, likely a bit more and with EBITDA margins in the mid teens, the high-end government business is a sustainable tech kicker.
So on to slide nine on the pipeline.
In Q1, we had some really nice wins and strategic areas as we just touched on so really following through on winning the right work.
It starts on the right you will be familiar with you know the stellar recompete win rate, the balanced portfolio of opportunities over $1 billion and multiple sizable opportunities over $100 million showing both the overall scale of opportunity, but also a minimal concentration risk.
The team has done a nice job across the customer set picking over $1.6 billion in awards and options in the quarter, a pleasing result and a typically like bookings quarter.
The key message here is that the recent budget announcements we expect to see our pipeline remain robust.
And the momentum we have is expected to continue.
Now I'll remind you we have a low recompete year in 2021 and in 2022 and you can probably see why we're so bullish on the outlook.
Now, when we announced guidance in late February, we stated that we had already secured over 70% seven zero percent of the work required to deliver the 2021 plan.
In Q1, we had excellent execution, especially in sustainable technology and this combined with Q1 bookings has driven the level of secured revenue closer to 80% eight zero percent.
So in short the markets and budgets remain very favorable.
We continue to deliver while also and on that I'd just like to have big shout to our people who do an incredible job and do things that really matter.
We are winning work and the differentiated areas we set out to do.
Our ESG commitment and direct linked to shareholder value is super exciting and compelling and Q1 was a great start to what is shaping up to be a great 2021 and beyond.
I now will hand over to Mark, who will give you some more color on the segments.
I will pick up on Slide 11.
So as you just heard, Q1 performance was generally in line with our 2021 guidance expectations and also our long range targets that we presented to you last month in our Investor Day.
Revenues of $1.5 billion and $135 million of adjusted EBITDA are right in line with our fiscal 2021 guide of $6 billion top-line and 9% EBITDA margin.
Cash was once again very strong out of the gate with free cash flow conversion coming in at 109% for the quarter.
Stuart also said it was particularly encouraging is the quality of the work that's coming in, in new orders.
We are winning high technology content defense, research and development and modernization contracts in line with our upmarket strategy.
Trusted microelectronics, rapid research and development and prototyping and others that Stuart cited earlier and also in our release are really good examples.
These programs are high priority high barrier to entry and in some cases leverageable to greater opportunities in the future.
The same is true in sustainable tech a stellar quarter in bookings for proprietary process technologies, including strong bookings across our new disruptive sustainability focus technologies like you heard from Stuart K-COT, K-PRO and K-SAAT and measured progress on energy transition advisory and smart operations and maintenance awards.
As I'll cover later, we did have some acceleration of profit in the first quarter, which were modestly relate our first half to second half earnings more toward the 45%, 55% mix versus our initial guide of 40%, 60%, but the bottom line here is, we are on track on all measures and thus reaffirming our guidance for the year.
On to Slide 12.
First as planned, we have collapsed into two segments Government Solutions, GS and Sustainable Technology Solutions STS.
Highlights on the GS side include 19% top-line growth, 5% of which was organic.
We absorbed a headwind from reduced of Middle East activity compared to last year with new growth areas, predominantly in sustaining and doing programs.
We have underscored to reduce dependency on the Middle East contingency work and the 15% growth in Readiness & Sustainment highlights the enormous success of our team in driving growth from new more recurring sources that will carry forward.
15% net organic growth in light of the reduced of Middle East activity is one of the top success stories this quarter and hats off to Ella Studer and her team for delivering not only excellent service in the Middle East through all the transitions going on and through a global pandemic, but also at the same time amazingly capturing and realizing tremendous growth and baseline recurring programs elsewhere in the world truly remarkable.
Growth came from sustaining O&M funded areas such as the important work our team does to plan, schedule and support training rotations at the National Training Center.
We were pleased with a really nice new award that the team, one in the U.K. Stuart also mentioned that earlier and that will start contributing to earnings later this year.
I'll also point out the nice balance of top-line contribution across all four business areas within GS, which is consistent with our strategic intentions of having low concentration risk, access to multiple funding channels and access to faster streams of funding growth as national priorities change.
GS margins were a percentage point off of our long-term guide and this is primarily driven by timing items and provisions that we took for a legal matter.
We do expect to achieve 10% EBITDA margins for the full year with strong contributions in the back half of the year driving that home.
Now for STS, we're off to a great start in Q1 and are on track to meet the full year guide of $1 billion plus of revenue at mid-teen margins.
As planned margins are vastly improved over last year, mostly from the fundamental improvement in business mix toward higher margin offerings and also the cost reductions we made last year in the overhead structure of that area.
As Stuart mentioned profit was amplified in the first quarter by several percentage points on the favorable delivery of a sustainable technology project as well as an R&D investment recovery.
These results were originally planned over several quarters this year, but due to good execution, early closeout and also accelerated cash collection of those items we recognized all of it in Q1, which is still be a great result from the team.
Overall, while we likely had some margin variability this year due to timing and mix.
We're confident as I said earlier, our full year guide of revenue and $1 billion plus zip code and margins in the mid-teens will be attained.
Now on to Slide 13.
Just a brief update here, there is no real change to our capital structure and deployment strategy, which we fully covered in the Investor Day just a few weeks ago.
Net leverage edged down just one tick driven from growth in EBITDA to 2.3 and in case you missed it we bumped up our dividend for the second year in a row now at $0.11 per quarter, up 10% from the 2020 dividend level.
And finishing up on Slide 14.
As stated, we are reaffirming guidance on all measures for the full year 2021, the guide reflects a repositioned revenue profile in both our Government and Sustainable Tech businesses.
On the government side, the guide reflects essentially an immaterial amount of Middle East contingency operations contribution replaced by upmarket advanced technology work and defense modernization, military and civil space, cyber security and a surge in growth from sustaining readiness and sustainment programs.
On the STS side, the guide reflects lower overall revenues, but much higher barrier work areas with stronger margin attributes particularly fueled by our proprietary sustainable process technologies.
These technologies R&D benefiting from much more commitment to greater energy efficiency and improved environmental outcomes across our entire contract base.
This is now complemented with an attractive front end advisory offering which is gaining traction and a recurring smart operations and maintenance offering which leverages the large installed base of industrial and government customers we have worldwide.
Altogether, the changes have produced a higher margin, strong cash flow business with well-established and reliable solutions in attractive end-markets.
And on to our final slide, Slide 15.
Our people continue to deliver, they really do an execution was again exemplary and we started 2021 well, a super strong performance across the entire business.
Cash conversion, really important was again terrific and our balance sheet and liquidity position as Mark demonstrated our both healthy.
The circa 80% eight zero percent of the work secured to deliver our 2021 guide under the strong Q1 now behind us, we are very confident of delivering 2021 and we reaffirm that guidance today.
Now remember that guidance reflects a 20% plus increase in adjusted earnings per share from a very, very resilient 20 actual.
As we reiterated at Investor Day, we continually endeavor to do that simple thing doing what we said we would do.

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compname announces q1 revenue of $1.5 bln.
q1 revenue $1.5 billion.
reaffirming fy 2021 guidance.

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