KBR(KBR) - 2024 Q2 - Quarterly Results

Part I Executive Summary and Strategic Highlights KBR reported strong Q2 2024 results, raising guidance and strategically acquiring LinQuest for enhanced capabilities - CEO Stuart Bradie highlighted strong performance across key metrics, leading to an increase in full-year profit and cash flow guidance[3] - The planned acquisition of LinQuest is a strategic move to enhance KBR's high-end technology, expertise, and mission capabilities, strengthening support for U.S. defense and intelligence agencies[3] New Business Awards and Backlog KBR's backlog and options reached $20.1 billion with a 1.0x TTM book-to-bill ratio and $2.1 billion in quarterly bookings | Metric | Value | | :--- | :--- | | Total Backlog and Options (as of June 28, 2024) | $20.1 billion | | TTM Book-to-Bill (Total) | 1.0x | | TTM Book-to-Bill (Government Solutions) | 1.2x | | TTM Book-to-Bill (Sustainable Technology Solutions) | 0.8x | | Quarterly Bookings and Options | $2.1 billion | - Key awards for Sustainable Technology Solutions (STS) include K-GreeN® green ammonia technology selection in India, an operator training simulator contract for OCI Global, a five-year advisory contract for Iraq, and phenol technology licensing in China[4] - Key awards for Government Solutions (GS) include a position on the $43 billion Medical Q Coded Support contract, an $82 million task order for B-52 support, a position on the $2 billion Global Contingency Services contract, and a $34 million recompete contract for U.S. Naval Research Laboratory facility operations[8] Second Quarter 2024 Financial Performance KBR's Q2 2024 revenue grew 6% to $1.9 billion, with net income of $106 million reversing a prior-year loss, and Adjusted EBITDA increasing 13% | Financial Metric | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $1,855M | $1,753M | +6% | | Net Income (loss) attributable to KBR | $106M | ($351M) | N/A | | Adjusted EBITDA | $216M | $191M | +13% | | Adjusted EBITDA Margin | 11.6% | 10.9% | +75 bps | | Diluted EPS | $0.79 | ($2.60) | N/A | | Adjusted EPS | $0.83 | $0.74 | +12% | | Operating Cash Flows | $170M | $253M | -33% | - Revenue growth was driven by Sustainable Technology Solutions and Government Solutions (International, Defense & Intel, Science & Space), partially offset by reduced Ukraine-related activity[9] - The substantial increase in net income compared to Q2 2023 is primarily due to the non-recurrence of a $132 million after-tax legal settlement charge and a $314 million non-cash charge related to convertible notes from the prior year[10] - KBR returned $118 million to shareholders during the quarter, including $97 million in share repurchases and $21 million in dividends[12] Year-to-Date 2024 Financial Performance KBR's YTD 2024 revenue increased 6% to $3.7 billion, with net income of $199 million reversing a prior-year loss, and Adjusted EBITDA growing 13% | Financial Metric | YTD 2024 | YTD 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $3,673M | $3,456M | +6% | | Net Income (loss) attributable to KBR | $199M | ($265M) | N/A | | Adjusted EBITDA | $423M | $373M | +13% | | Adjusted EBITDA Margin | 11.5% | 10.8% | +72 bps | | Diluted EPS | $1.47 | ($1.95) | N/A | | Adjusted EPS | $1.59 | $1.41 | +13% | | Operating Cash Flows | $261M | $288M | -9% | - Year-to-date revenue growth mirrored Q2, driven by Sustainable Technology Solutions and Government Solutions, partially offset by reduced Ukraine activity[13] - The significant improvement in year-to-date net income was primarily due to the non-recurrence of a $132 million after-tax legal charge and a $314 million non-cash charge for convertible notes from the first half of 2023[15] - Year-to-date capital returned to shareholders totaled $197 million, including $158 million in share repurchases and $39 million in regular dividends[17] Anticipated Acquisition of LinQuest KBR agreed to acquire LinQuest Corporation for $737 million net of tax benefits, expected to close in Q3/Q4 2024 and be accretive to Adjusted EPS - KBR agreed to acquire LinQuest Corporation for $737 million, net of modest expected tax benefits[18] - The acquisition is expected to be accretive to Adjusted EPS and is planned to close in Q3 or Q4 of the current year[18] - Funding for the transaction will come from a combination of cash on hand and existing debt capacity[18] Updated Fiscal 2024 Guidance KBR raised its fiscal 2024 guidance for Adjusted EBITDA, Adjusted EPS, and operating cash flow, with revenue unchanged and excluding LinQuest impact | Metric | Updated Fiscal 2024 Guidance | Prior Fiscal 2024 Guidance | | :--- | :--- | :--- | | Revenue | $7.4B - $7.7B | $7.4B - $7.7B | | Adjusted EBITDA | $825M - $850M | $810M - $850M | | Adjusted EPS | $3.15 - $3.30 | $3.10 - $3.30 | | Operating cash flows | $460M - $480M | $450M - $480M | - The updated guidance reflects increased confidence in profitability and cash generation for the remainder of the year[19] - This guidance is based on a diluted and adjusted share count of approximately 135 million shares[20] Financial Statements This section presents detailed consolidated financial statements, including statements of operations, balance sheets, cash flows, and backlog information Condensed Consolidated Statements of Operations For H1 2024, KBR reported $3.67 billion in revenues and $199 million net income, reversing a prior-year loss due to non-recurring charges | Revenue by Segment (Six Months Ended) | 2024 | 2023 | | :--- | :--- | :--- | | Government Solutions | $2,783M | $2,680M | | Sustainable Technology Solutions | $890M | $776M | | Total revenues | $3,673M | $3,456M | - The significant swing from a net loss in 2023 to net income in 2024 was primarily driven by the non-recurrence of a $314 million charge for Convertible Notes and a $144 million legal settlement charge from the prior year[29] Condensed Consolidated Balance Sheets As of June 28, 2024, KBR's total assets were $5.76 billion, with cash increasing to $414 million, and total liabilities rising to $4.35 billion | Balance Sheet Item (in millions) | June 28, 2024 | Dec 29, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $414 | $304 | | Total current assets | $1,825 | $1,651 | | Total assets | $5,764 | $5,565 | | Long-term debt | $1,900 | $1,801 | | Total liabilities | $4,353 | $4,171 | | Total KBR shareholders' equity | $1,402 | $1,383 | Condensed Consolidated Statements of Cash Flows For H1 2024, KBR generated $261 million in operating cash flow, used $158 million in financing activities, and ended with cash and cash equivalents of $414 million | Cash Flow Item (Six Months Ended, in millions) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $261 | $288 | | Net cash provided by (used in) investing activities | $8 | ($21) | | Net cash used in financing activities | ($158) | ($126) | | Increase in cash and cash equivalents | $110 | $150 | - Major uses of cash in financing activities for the first six months of 2024 included $158 million for common stock repurchases and $39 million for dividend payments[33] Backlog Information As of June 28, 2024, KBR's total backlog and options were $20.1 billion, a 7% decrease from 2023, with GS at $16.2 billion and STS at $3.9 billion | Backlog (in millions) | June 28, 2024 | Dec 29, 2023 | | :--- | :--- | :--- | | Government Solutions Backlog | $12,894 | $12,790 | | Sustainable Technology Solutions Backlog | $3,923 | $4,545 | | Total backlog | $16,817 | $17,335 | | Award options | $3,332 | $4,397 | | Total backlog and options | $20,149 | $21,732 | Non-GAAP Financial Measures Reconciliation KBR uses non-GAAP measures like Adjusted EBITDA and Adjusted EPS to show core operational performance, excluding specific items, with detailed reconciliations provided - KBR presents non-GAAP measures like Adjusted EBITDA and Adjusted EPS to show core performance, excluding certain items[37][38][41] | Reconciliation of Net Income to Adjusted EBITDA (Q2, in millions) | 2024 | 2023 | | :--- | :--- | :--- | | Net income (loss) attributable to KBR | $106 | ($351) | | EBITDA | $215 | ($143) | | Adjustments (e.g., legal fees, acquisition costs) | $1 | $334 | | Adjusted EBITDA | $216 | $191 | | Reconciliation of Diluted EPS to Adjusted EPS (Q2) | 2024 | 2023 | | :--- | :--- | :--- | | Diluted EPS | $0.79 | ($2.60) | | Adjustments (e.g., amortization, legal fees, convert charges) | $0.04 | $3.34 | | Adjusted EPS | $0.83 | $0.74 |