4Q 2017 & Fiscal Year 2017 Financial Results February 23, 2018

Transcription

1 4Q 2017 & Fiscal Year 2017 Financial Results February 23, 2018 Stuart Bradie President and Chief Executive Officer Mark Sopp Executive Vice President and Chief Financial Officer Nelson Rowe Senior Vice President, Investor Relations

2 Forward-Looking Statements This presentation contains forward-looking statements regarding our plans, objectives, goals, strategies, future events, future financial performance and backlog information and other information that is not historical. When used in this presentation, the words estimates, expects, anticipates, projects, plans, intends, believes, forecasts or future or conditional verbs such as will, should, could, or may, and variations of such words or similar expressions are intended to identify forward-looking statements. Such statements are based upon our current expectations and various assumptions, which are made in good faith, and we believe there is a reasonable basis for them. However, because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and other factors that are difficult to predict and which could cause actual results to differ materially from the forward-looking statements contained in this presentation. Additional information about potential risk factors that could affect our business and financial results is included in our Form 10-K filed on February 23, We caution you not to place undue reliance on the forward-looking statements included in this presentation, which speak only as of the date hereof. We disclaim any intent or obligation, except as required by law, to revise or update this information to reflect new information or future events or circumstances. This presentation contains the financial measures EBITDA and Adjusted EPS, which are not calculated in accordance with U.S. GAAP. A reconciliation of the non-gaap financial measures EBITDA and Adjusted EPS to the most directly comparable GAAP financial measure has been provided in the Appendix to this presentation.

3 Stuart Bradie Chief Executive Officer

4 SAFETY Safety: Moving Towards Zero Harm Total Recordable Incident Rate (TRIR) Performance: KBR is focused on an industry-leading commitment to employee safety KBR IOGP Top Q IOGP Average Over the last 36 months, KBR has achieved a 52% decrease in TRIR and a 42% increase in Zero Harm Days IOGP = International Association of Oil & Gas Producers 4

5 2017 HIGHLIGHTS Revenue ($MM) KBR excluding NSB NSB Adjusted EPS* ($) $1.49 $210 $38 Predicted and improved results, solid project execution, strong cash flow generation $4,058 $4,133 FY 2016 FY 2017 EBITDA* Margin (%) 7.7% 1.5% $(0.33) FY 2016 FY 2017 Operating Cash Flow ($MM) $193 $61 Delivering growth; Government Services Book/Bill 1.2x and Technology & Consulting Book/Bill 1.3x Delivering or exceeding targeted margins for all segments Consistent results each quarter enabled by disciplined execution Operating cash flow at top of guidance Continued progress resolving legacy and legal matters FY 2016 FY 2017 FY 2016 FY 2017 *Consolidated EBITDA and Adjusted EPS reconciliations provided in the Appendix 5

6 MARKET OUTLOOK KBR OVERVIEW Strong outlook and favorable trends in all key end markets Increasing in government and defense spending Growth in key areas across our Space portfolio Civil, military and commercial Continued strong outlook for KBR Technologies in gas monetization, refining and petrochemicals Positive outlook in Hydrocarbons cycle driven by shale gas, LNG supplydemand re-balance and oil price recoveries Confidence for further strategic expansion in GS - Aspire and SGT 6 6

7 Mark Sopp Executive Vice President

8 CONSOLIDATED RESULTS ($ in millions, except EPS) 4Q Q 2017 FY 2017 Revenues $ 1,190 $ 937 $ 4,171 Gross Profit $ 6 $ 65 $ 342 Equity in Earnings $ 10 $ 8 $ 72 GP + EE* $ 16 $ 73 $ 414 General & Administrative Expenses ($32) ($40) ($147) Gain on Disposition of Assets/Restructuring ($17) ($6) ($1) Operating Income ($33) $ 27 $ 266 Benefit (Provision) for Income Taxes ($57) $ 243 $ 193 Net Interest & Noncontrolling Interest, Other $ 3 $ 5 ($25) Improved stability and generation of operating profits Superior margins in T&C business Restored profitability triggered tax benefit Adjusted EPS and Operating Cash Flow at the top of previously raised guidance Net Income (Loss) Attributable to KBR ($87) $ 275 $ 434 EBITDA** ($20) $ 48 $ 320 EPS (diluted wtd avg) ($0.61) $ 1.94 $ 3.06 Adjusted EPS** ($0.59) $ 0.28 $ 1.49 Diluted weighted average shares Operating Cash Flow $ 53 ($45) $ 193 * Gross Profit + Equity in Earnings **Consolidated EBITDA and Adjusted EPS reconciliations provided in the Appendix 8

9 SEGMENT RESULTS 2017 Segment Profitability Results vs Targets Government Services Technology & Consulting Engineering & Construction Target Actual Target Actual Target Actual GP + EE Margins Upper single digits % 9% Low 20s 24% Upper single digits % 8% Operating Income Margins Upper single digits % 8% High teens 23% Mid to upper single digits % 7% All segments meeting/exceeding margin targets 9

10 TAXES 2017 Special Tax Items Benefit ($ millions) EPS Benefit Valuation Allowance Reduction $223 $1.58 KBR profitability restored; confidence in long-term profit generation 2017 U.S. Tax Reform $18 $0.13 Revalued deferred tax liabilities to 21% rate Repatriation tax offset with unused foreign tax credits (~$60M) Total Benefit from Tax Items $241 $1.71 KBR profit & outlook unlocks valuation allowance benefit 10

11 CASH Cash, Debt, and Leverage Position Ending Cash Balance $ 536 $ 439 Gross Debt $ 650 $ 470 Net Debt $ 114 $ 31 EBITDA $ 64 $ 320 Gross Debt/EBITDA Balanced 2017 Capital Allocation: Annual Dividend payments of $45M Reduced debt by $180M Repurchased 3.3M shares for $50M Recapitalization planned for 2018 Net Debt/EBITDA Strong cash flow performance 11

12 ICHTHYS Ichthys LNG, Status and Funding Timeline Commercial Terms & Status Sources and Uses of Joint Venture Funding Re-measurable Modular Fabrication (~12% of Project) Completed Cost Reimbursable (CR) Major Site Construction (~46% of Project) Complete 2H Sources of Funding 2019 Expecting Client/Subcontractor Recoveries $600M Lump Sum (LS) A) Combined Cycle Power Plant (~10% of Project) Complete 1H 2019 Loans to JV for project completion $300M - $400M Uses of Funding B) E&C of Jetty, Tanks, Buildings (~32% of Project) Completed (Funded via Contemplated Financing) 12 12

13 RECAPITALIZATION Have been targeting long-term refinancing since early 2017 Long-term refinancing to extend tenor and accommodate SGT and Ichthys Commitment/underwriting in place; execution planned Q1/Q Revolver, LOC facility, Term loan, dedicated Ichthys line Will consider modest equity component Expected rates and relevant costs incorporated into 2018 guidance 13

14 2018 GUIDANCE Adjusted EPS range $ $1.45, excluding legacy legal fees Estimate for legacy legal fees is $10M or $0.07 EPS Effective Tax Rate: 22% - 24% Operating Cash Flow range $125M - $175M Mid-point Adjusted EPS growth of 7% Note: 2018 guidance includes addition of former JV partner s share of earnings for Aspire Defence; does not yet include SGT acquisition 14

15 2018 Outlook 15

16 GOVERNMENT SERVICES Outlook: Strong Growth Strong 2018 U.S. Government Budget Defense spending increase across multiple funding streams, including Base and OCO Budgets, solidifies LogCAP in 2018/19 Emphasis on technology innovation and Space Based capabilities across civil, military, and National security programs U.K. and Australia governments committed to increase defense spending to 2 % GDP with a focus on intel, simulation, naval engineering, security and contingency operations Expansion opportunities for the U.K. and Australian MoD leveraging KBRwyle for expanded defense consulting services Target Gross Profit Margins Including Equity In Earnings: Upper-Single Digits % To Lower-Double Digits % Solid backlog allows focus on new business synergy pursuits enabling long-term growth Majority of earnings cost reimbursable or services under PFI contracts 16

17 TECHNOLOGY & CONSULTING Government Services Outlook: Strong Growth Outlook: Steady to Growing Increased demand for petrochemical technologies in feedstock advantaged territories (i.e. North America, Russia & Middle East) and in strong consumer markets (China & India) Increasing demand for niche refining technologies with changing maritime fuel specifications and regulations Strong demand for consulting services for new & revamp projects in response to improving market fundamentals Target Gross Profit Margins: Low-Twenties % On Average 17 Record Q4 bookings and margin performance

18 Government ENGINEERING Services & Outlook: Strong Growth CONSTRUCTION Outlook: Positioned for CapEx Recovery Strong market fundamentals in petrochemicals in North America, Russia and Middle East producing increased opportunities in greenfield and brownfield projects Mid-term LNG supply / demand rebalancing indicates recovery in LNG bidding and front end engineering Continued focus on brownfield expansion and maintenance services Growing services offerings globally allowing greater selectivity on EPC projects Oil price stability signals possible inflection point Target Gross Profit Margins Including Equity In Earnings: Mid-to-High Single Digits % Expected backlog growth in

19 SGT ACQUISITION Overview Company Overview Provides award-winning, high value engineering, mission operations, scientific, and IT service solutions to a wide array of federal government agencies The company innovates in the areas of: Agile development; big data; GIS/Geospatial Application, Development; Geographic information systems and Geospatial Data; Modeling, Simulation and Model Based Systems Engineering (MBSE) Key Platforms and Programs NASA NOAA Human Exploration and Operations Mission Directorate Science Mission Directorate Space Technology Directorate Aeronautics Mission Directorate Ocean surface Topography Program Satellite Mission Operations and Maintenance Support National Mesonet Program (Meteorological Observation) ~2,500 employees (~85% of employee base located at client facilities) Mission IT USGS Technical Support Contract (TSSCIV) Department of Transportation (SOFITS) Key Highlights Several recent large contract wins; MSOC, Mesonet, RS3, SPARC, ProTech, REMIS, SESDA, TEAMS, SSIEP No major recompetes for next 2 years 90% cost plus / T&M/FP growing 10 major contract vehicles (Army RS3, NOAA, ProTech, GSA Alliant) Key Customers Franchise at NASA Goddard Space Flight Center Ames Research Center Glenn Research Center Johnson Space Center Kennedy Space Center Langley Research Center 19 CMMI Level 5 for both the Development and Services models 19

20 SGT ACQUISITION Sapphire Overview Sapphire Overview Transaction Rationale Sapphire Delivers on Key KBRwyle Existing Strategy 1 Well-established, tightly integrated business with a strong brand and reputation 2 Highly complementary opportunity for a well-established, space-focused provider 3 Combination creates top tier services contractor at NASA Grow Space Franchise Civil Expand NASA franchise across multiple centers supported by growing congressional budget tailwinds Grow NOAA business and reputation for science and space Grow Core Engineering Army Command Leverage Army relationships and RS3 contract to accelerate CECOM growth, Army s Communications Electronics Command Grow TACOM, Tank Automotive Armaments Command Multi-year revenue visibility with a robust pipeline (no 4 recompetes for next 2 years; 90% reimbursable) 5 Strong cultural alignment, similar business models, and minimal integration risks Military Recapture Air Force Space Support programs Enhances engineering credentials for MDA & DOD Mission IT Adds Data Center capability and CMMI Level 5 development to existing KBRwyle cybersecurity 20 20

21 SGT ACQUISITION Financial Summary Sapphire Overview Key Financial Metrics Annualized revenues of ~$500M Margins in line with GS norms Low capital intensity, strong free cash flow Backlog/Options of $3.4B Revenue synergies of $100M by 2021 Deal Financials Purchase price $355M EBITDA Multiple low 8 s after tax benefits Cash and GAAP EPS accretive in year one, excluding transaction costs 21 21

22 ASPIRE DEFENCE JV Assuming Full Operational Responsibility Largest UK Government infrastructure PFI 35 year PFI contract with UK Ministry of Defence commenced in 2006 $1.5B contract expansion in 2017 in support of the UK Army Basing Programme Scope includes base construction, management, maintenance and life support for 25% of UK Army Track record of high performance with established workforce Stable, predictable earnings and cash flow for 23 more years Now entitled to previous JV partner s share of earnings and cash flow 22

23 IMPROVING PORTFOLIO MIX Share of EBITDA KBR Pro Forma with SGT and Aspire Backlog + Option Dec. 31, E&C 36% KBR before acquisitions 46% Govt Services $22B 18% $13B T&C KBR excluding Acquisitions KBR including Aspire & SGT 2018 T&C E&C 18% 23% KBR including Aspire & SGT 60% Govt Services >75% of 2018 earnings from low risk/predictable GS and T&C businesses Higher proportion of E&C is services and reimbursable projects Step-change in backlog/future visibility 23

24 2017 SUMMARY & 2018 PRIORITIES 2017 Summary: Met or exceeded guidance every quarter Margins expectation across all segments met Strong cash flow performance Revenue stabilized with backlog/options growth Excellent project execution Integration of both Wyle and HTSI Delivering on Commitments 2018 Performance Expectations: Strong fundamentals in all three segment markets Projecting targeted growth in earnings E&C backlog growth expected Successful SGT and Aspire transitions Continued strategic and commercial discipline Complete refinancing Maintain capital allocation strategy 24

25 APPENDIX

26 2017 BACKLOG Significantly Lower Risk Profile Backlog by Contract Type Cost Reimbursable, PFI & Services Contracts Fixed Price Contracts (GS, T&C) Low Risk Fixed Price Contracts, E&C 77% of earnings for 2018 secured in backlog Majority of KBR backlog is currently either long-term, reimbursable, PFI or service contracts with a lower risk profile and predictable cash flows GS backlog excludes unexercised options and ID/IQ and MATOC contract values not yet under task order; work ultimately realized may be significantly higher Current estimate $2.8B in additional unrecognized backlog Total KBR Backlog At 12/31/17: $13.4B including options 26

27 BACKLOG Total Backlog (including Option Years) $12,838 $12,790 $12,729 $13,277 $13,405 Option Years (GS) $1,900 $2,195 $2,405 $2,935 $2,835 E&C $2,769 $2,537 $2,134 $1,874 $1,790 T&C $313 $333 $292 $278 $419 GS $7,821 $7,711 $7,891 $8,183 $8,355 4Q16 0.7x 1Q17 0.7x Aspire & SGT will add $9B+ to Backlog, including Option Years 27 2Q17 0.8x 3Q17 1.0x 4Q17 1.2x

28 NON-GAAP RECONCILIATION Consolidated EBITDA Reconciliation ($ in millions) 4Q Q 2017 FY 2017 Net Income Attributable To KBR ($87) $ 275 $ 434 Add Back: Interest Expense, Net $ 5 $ 4 $ 18 Provision (Benefit) for Income Taxes $ 57 ($243) ($193) Other Non-Operating Expense (Income) ($9) $ 2 $ 13 Depreciation & Amortization $ 14 $ 10 $ 48 Consolidated EBITDA ($20) $ 48 $ 320 Note: EBITDA is defined as earnings before interest income / expense, income taxes, other non-operating income / expense (including FX, excluding settlement), depreciation and amortization 28

29 NON-GAAP RECONCILIATION Adjusted EPS Reconciliation 4Q16 4Q 2017 FY 2017 EPS (diluted) ($0.61) $ 1.94 $ 3.06 Add Back: Legacy Legal Fees $ 0.02 $ 0.02 $ 0.10 Tax Reform Impact $ 0.00 ($0.13) ($0.13) Tax Valuation Allowance Reduction $ 0.00 ($1.59) ($1.58) Shareholder Loan Receivable Impairment $ 0.00 $ 0.04 $ 0.04 Adjusted EPS ($0.59) $ 0.28 $ 1.49 PEMEX Settlement Gain $ 0.00 $ 0.00 ($0.18) 2017 Adjusted EPS before PEMEX ($0.59) $ 0.28 $