June Investor Presentation

Transcription

1 June Investor Presentation Stuart Bradie President and Chief Executive Officer Brian Ferraioli EVP and Chief Financial Officer Zachary Nagle VP, Investor Relations

2 Forward-Looking Statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of These forward-looking statements include statements regarding our plans, objectives, goals, strategies, future events, future financial performance and backlog information and other information that is not historical information. 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. All forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs, and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management s expectations, beliefs, and projections will be achieved. There are numerous risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from the forwardlooking statements contained in this presentation. These risks and uncertainties include, but are not limited to: current or future economic conditions; our ability to obtain and perform under contracts from existing and new customers, including the U.S. Government; exposure to cost overruns, operating cost inflation and potential liability claims and contract disputes; access to trained engineers and other skilled workers; risks relating to operating through joint ventures and partnerships; risks inherent in doing business internationally; potential tax liabilities; maritime risks; changes in the demand for our services and increased competition; protection of intellectual property rights; risks associated with possible future acquisitions; risks related to our information technology systems; impairment of goodwill and/or intangible assets; reduction or reversal of previously recorded revenues; risks relating to audits and investigations, including by governments; compliance with laws and regulations, and changes thereto, including those relating to the environment, trade, exports and bribery; our creditworthiness and ability to comply with the financial covenants in our credit agreement; and other risk factors discussed in our most recently filed Form 10-K, any subsequent Form 10-Qs and 8-Ks, and other Securities and Exchange Commission filings. All forward-looking statements attributable to us, or persons acting on our behalf, apply only as of the date made and are expressly qualified in their entirety by the cautionary statements in this presentation. Except as required by law, we undertake no obligation to revise or update forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. This presentation contains the financial measure EBITDA, which is not calculated in accordance with generally accepted accounting principles in the U.S. ( GAAP ). A reconciliation of the non-gaap financial measure EBITDA to the most directly comparable GAAP financial measure has been provided in the Appendix to this presentation. 2

3 Journey to Zero Harm Day by Day 100% 90% 80% 70% 60% 70% 62% 50% 40% 48% 46% 52% 30% 20% 10% 0% Zero Harm Not Achieved Zero Harm Achieved

4 Executive Summary Continued progress against strategic objectives and in key focus areas for 2016 in Q1 1Q16 earnings reflect continued solid execution across KBR s core businesses With challenges in hydrocarbon markets, growth focus is shifting to growing Government Services business through high end, technically differentiated offerings Specific opportunities in hydrocarbons need to be selective and considered Won 500M U.K. MoD Fixed Wing Training contract; remain preferred bidder for U.K MoD multi-year Army 2020 contract, expect additional awards for U.S military international base operating support $200M annualized cost savings on track with more than $180M identified and actioned to-date Continued balanced capital allocation: Currently paying a competitively yielding dividend Acquired technology subsidiaries from Chematur in 1Q16; made investment in MFTS joint venture; announced acquisition of specialized Gov t Services company, Wyle, Inc. in May. All consistent with strategy to expand Technology and Government Services portfolios 4

5 Consolidated Results: Q vs Q Commentary Revenues reflect deconsolidation of B&R Industrial Services business (was $126M in 1Q15), sale of Building Group in 2Q15 (was $74M in 1Q15), reduced activity on non-strategic power projects and reduced activity on an LNG project. Gross profit and equity in earnings reflects solid business performance, growth in Government Services and the successful signing of a GS change order in the Middle East, the wind down of a major LNG project and a net $4M negative impact from changes in estimates on other projects. G&A reflects cost reduction initiatives. Net Income largely reflects solid operational performance as described above. Quarter Ending ($ in millions, except EPS) Mar 31, 2016 Mar 31, 2015 New awards $ 792 $ 682 Backlog of Unfilled Orders $ 12,019 $ 10,287 Revenues $ 996 $ 1,436 Gross profit $ 68 $ 70 Equity in earnings $ 29 $ 35 General & administrative expenses ($34) ($39) Asset impairment and restructuring charges ($2) ($2) Gain on disposition of assets $ 4 $ 0 Benefit (Provision) for income taxes ($15) ($19) Net income attributable to KBR $ 42 $ 44 EPS (diluted) $ 0.30 $ 0.30 EBITDA* $ 67 $ 76 5 *Consolidated EBITDA reconciliation provided in the Appendix.

6 Segment Reporting: Q vs Q Revenue T&C reflects increased proprietary equip. sales; E&C primarily reflects deconsolidation of KBR s B&R Industrial Services business ($126M) and lower revs on an LNG project; GS higher primarily related to U.S. Gov t contract awards; Non-Strategic reflects sale of Building Group in 2Q15 ($74M ) and lower revenues from the completion of two of the company s three remaining power projects. Gross Profit and Equity in Earnings T&C reflects higher mix of proprietary equipment sales which carry a lower margin than technology license sales versus prior year results. E&C reflects solid underlying business performance, particularly on mega-lng projects and a net $4M negative impact from changes in estimates on other projects. GS reflects improved operational performance, task order awards and the successful signing of a $15M change order for a program management project in the Middle East. Non-Strategic Business reflects good operational performance on the company s power project portfolio. Quarter Ending ($ in millions) Mar 31, 2016 Mar 31, 2015 Revenues Technology & Consulting Engineering & Construction Government Services Non-Strategic Business Consolidated Revenues 996 1,436 Gross profit (Loss) and equity in earnings Technology & Consulting Engineering & Construction Government Services Non-Strategic Business 1 0 Consolidated Gross profit & equity in earnings EBITDA Technology & Consulting Engineering & Construction Government Services Non-Strategic Business 5 0 Other (24) (17) Consolidated EBITDA* *Consolidated EBITDA reconciliation provided in the Appendix. 6

7 Market Outlook Global Hydrocarbons market remains difficult for E&Cs; prudent cost management is essential but opportunities remain, particularly gas related Magnolia LNG ($4.3B EPC): FERC Approval; bid extended until Dec Ongoing demand across refining & petrochemicals Middle East and North America U.S. construction expansions and major brownfield Maintenance and turnaround opportunities increasing as major IOCs and NOCs focus on increasing output efficiencies from existing assets Technology portfolio expansion opportunities 7

8 Market Outlook (Continued) In Government Services, markets across the globe are expanding Increase in U.S. Military overseas support Strategic opportunities in U.K. & Europe Increased spending committed in U.K. and Australia Strategic focus on differentiated services (i.e. technical know how, intelligence) led to Wyle, Inc. acquisition 8

9 Wyle Transaction Overview KBR signed a definitive agreement to acquire 100% of Wyle Inc. for $570 million (after adjusting for approximately $30 million of acquired tax benefits) This is a highly strategic, transformational acquisition for our Government Services business. Wyle will provide KBR s global GS franchise with: high value technical, consulting and testing capabilities in a growing global market for U.S. Government clients a significant base of personnel that hold security clearances access to new sources of U.S. Government funding Solid financial returns, higher margins and reduced risk via long-term, 97% reimbursable, annuity type contracts 9

10 KBR Executing on Strategy Ongoing Ongoing Ongoing Ongoing Ongoing Re-focus Growth Strategy Restructure & Streamline Operating Segments Margin Objectives & Cost Reduction Targets Expand B&R Industrial Services Model Globally Broaden Technology Portfolio / EPC Pull- Through Expand Government Services Offering Continue Balanced Capital Allocation Strategy Wyle s Complementary Business and Operating Model Expands GS offerings and is US domestic market focused with minimal overlap Predominantly reimbursable income streams reduces overall KBR risk Operating divisions located adjacent to their customers Strong cultural fit Operating divisions are empowered and accountable for P&L results with a strong seller/doer culture Lean corporate structure focused on efficiently supporting key project pursuits and delivering strategic long term objectives 10

11 Wyle Overview Wyle delivers an array of leading edge, custom solutions that drive mission success for customers in the DoD, NASA, and a variety of other U.S. federal agencies Aerospace CAS Weapon Systems Support & Analysis Science, Technology and Engineering Wyle provides instructions at the US Navy Flight Test School to top pilots Wyle provides a range of prototyping & integration and test & evaluation services Wyle supports astronauts and cosmonauts on the international space station 24/7 Wyle Snapshot Founded in 1949 c. 3,800 employees, 80% of whom hold security clearances 80+ locations across the US and a small office in Germany supporting the European Space Agency 2015 revenue of $836 million / Adjusted EBITDA of ~$67 million Funded 2015 backlog of ~$440 million; contracted not funded of ~$1.1 billion % 80% 60% 40% 20% 0% 2015 Revenue Breakdown - $836M DoD/Joint Programs and Other USAF NASA Navy Army Fixed Price Time & Materials Cost Plus Other Special Studies - Medical / Health Prof Support Svcs Research & Development

12 Compelling Complement to KBR s Platform Provides immediate scale, credibility and moves Gov t Services Group towards technology driven services with greater differentiation and margins Improves overall risk profile (reimbursable contracts, not subject to economic cycles) Opens up new funding sources (RDT&E vs OCO Funds) Grows US Federal CONUS (Contiguous US) footprint and capabilities: Longer term, high value contracts provide a base of recurring, annuity-type revenue Value-added services can provide KBR with stronger, broader relationships within NASA, Army, Navy, Air Force, DoD, Joint Command and others to help grow overall franchise Customer Expansion and Diversification KBR GS Americas Top Revenue-Generating Clients Wyle Top Revenue-Generating Clients Combination Proforma - '15 1,499 M International Government Services Other International GS DoS & DoHS NSP DoD/Joint Programs and Other 836 M Air Force USACE 663 M NASA International GS Navy US Government Army Revenue Pro forma

13 Legend Expands High-Value Services Mission Execution Logistics Facilities Management Supply Chain Services Platform Maintenance & Repair Additional non-it Services Training & professional development Workflow Management & Cost mitigation Process development Program design & Management Employee Management Operational IT & Networking Inventory/Order Management Data Center Operations Information Security Systems Integration 13 Life Sciences Systems Design Modeling & Simulation Testing & Evaluation Independent Verification Systems Integration Technical Support Specialized studies Life Cycle Support R&D Consulting Services KBR Both Wyle

14 Meaningful Revenue Synergies Available Opportunities Strengthen bids and pipeline pursuits, and will provide opportunities to pursue prime contract positions KBR Pursuits: Wyle brings key specialized technical experience and capabilities that will significantly improve KBR s proposal and expected project win rates Revenue Contribution Total estimated opportunity: $250 million by 2020 Wyle Pursuits: KBR brings key program management, logistics experience and relationships that will improve Wyle s proposal and expected win rates and offer opportunities to increase overall project scale/scope Future Opportunities 1. Asset Management & Sustainment Depot Level Maintenance Land & Air Systems Support Anticipated Market 2. Scientific & Test Facility O&M NASA Test & Research Facility Ops Aerospace & Propulsion Facilities National Laboratories Mgt. & Operations 3. Range Infrastructure O&M Test & Evaluation Ranges Radar, Telemetry, Optical O&M $20 billion anticipated market 14

15 Transaction Details Purchase price of ~$570 million (after adjusting for approx. $30 million of acquired tax benefits) 8.5x Enterprise Value to adjusted 2015 EBITDA Funding: $200 million cash; $400 million revolver Expected to be accretive in 2016 Leadership to remain in key positions to manage the business going forward 100% of the business acquired through the acquisition of shares from a merger sub transaction structure Shares acquired for business continuity and to minimize disruption (i.e. minimize contract novations or assignment requirements) Customary regulatory approvals including HSR Expected to close at the beginning of Q

16 USD $ Billions USD $ Millions Relevant Financial Contribution Pro forma results (including Wyle), illustrated using 2015 results: Revenue Pro forma EBITDA Pro forma $ 6.0 $ 1.5 $ 5.1 Wyle Wyle 56% 26% KBR GS 13% KBR GS KBR GS 44% KBR E&C and T&C KBR Revenue 87% 74% KBR E&C and T&C KBR Proforma Revenue GS Proforma Revenue $ 401 $ 107 $ 334 Wyle Wyle 63% 27% KBR GS 12% KBR GS KBR GS 37% KBR E&C and T&C KBR EBITDA 88% 73% KBR E&C and T&C KBR Proforma EBITDA GS Proforma EBITDA Transaction focus is on revenue synergies, estimated at $250M by Limited net cost synergies of $5M due to the reimbursable nature of the contracts Improves operating margins across the Government Services business Adds roughly $440M of backlog with an additional $1.1B of base contract orders not yet funded but expected and if all option years are exercised backlog would approximate $4.4 billion Plan to use revolver to partially fund the purchase price with the intent to replace with long-term debt later in Post-closing debt to pro forma 2015 KBR EBITDA of 1.0x 16

17 Wyle Acquisition - Summary Strategic acquisition that provides higher value, lower risk, geographic diversity, and solid backlog of long-term annuity type revenue streams with very little overlap Creates a full service, global Government Services organization executing $2 billion worth of contracts annually in a growing market Adds immediate earnings power, provides access to new funding sources and reduces overall KBR risk profile Expected to be accretive in 2016 and beyond Strong cultural fit and a strong management team supportive of KBR acquisition Wyle s differentiated technical capabilities and KBR s well established international program management and logistics expertise open up new markets to the combined business Significant revenue synergy opportunities 17

18 Overall KBR - Summary Solid operational performance in 1Q16 Technology and Government Services revenues increasing, offsetting E&C headwinds; completed / announced Technology and GS acquisitions We see KBR s portfolio diversity driving opportunities for stronger Technology and Government Services sales and other annuity revenue streams providing more continuity and cyclical protection and lower risk Our balance sheet continues to provide strength, optionality and the ability to move quickly as strategic opportunities arise 18

19 Appendix

20 GAAP to Non-GAAP Reconciliation Year Ending December 31, 2015 ($ in millions) KBR Wyle Consolidated Net income attributable to KBR an $ 203 $ 12 $ 215 Add Back: Interest income (expense) ($6) ($12) ($18) Provision for income taxes ($86) ($10) ($96) Depreciation & amortization ($39) ($26) ($65) Consolidated EBITDA $ 334 $ 60 $ 395 Wyle Nonrecurring Items* na $ 7 $ 7 Adjusted EBITDA $334 $67 $401 Year Ending December 31, 2015 ($ in millions) GS Wyle Consolidated Income Before Income Taxes $ 32 $ 32 Net income attributable to Wyle $ 12 $ 12 Add Back: Interest income (expense) ($3) ($12) ($15) Provision for income taxes* na ($10) ($10) Depreciation & amortization ($5) ($26) ($31) Consolidated EBITDA $ 40 $ 60 $ 100 Wyle Nonrecurring Items** na $ 7 $ 7 Adjusted EBITDA $ 40 $ 67 $ 107 *Restructuring, legal, transaction and legacy costs *KBR does not calculate income taxes at the segment level **Restructuring, legal, transaction and legacy costs 20

21 Consolidated EBITDA Reconciliation Q Quarter Ending ($ in millions) Mar 31, 2016 Mar 31, 2015 Net income attributable to KBR $ 42 $ 44 Add Back: Interest income (expense) ($1) ($2) Provision for income taxes ($15) ($19) Depreciation & amortization ($9) ($11) Consolidated EBITDA $ 67 $ 76 Note: EBITDA is defined as earnings before interest, income tax, depreciation and amortization 21