quarter & fy 2019 financial results and 2020 guidance · presentation, which speak only as of...

©2019 KBR Inc. All Rights Reserved.

4th Quarter & FY 2019 Financial Results and 2020 Guidance February 20, 2020

The future, designed and delivered.

Stuart Bradie – President and Chief Executive Officer Mark Sopp – Executive Vice President and Chief Financial Officer Alison Vasquez – Vice President, Investor Relations

Proud history, bright future. ©2019 KBR Inc. All Rights Reserved.

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 26, 2019.

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,” “Adjusted EBITDA,” “Adjusted EPS” and “Adjusted Operating Cash Flow,” which are not calculated in accordance with U.S. GAAP. A reconciliation of the non-GAAP financial measures EBITDA, Adjusted EBITDA, Adjusted EPS and Adjusted Operating Cash Flow to the most directly comparable GAAP financial measure has been provided in the Appendix to this presentation.

2


Stuart Bradie

President

& Chief Executive

Officer


D O I N G T H E R I G H T T H I N G F O R T H E P L A N E T ,

O U R P E O P L E A N D O U R C O M M U N I T I E S W H I L E

P U R S U I N G B U S I N E S S G R O W T H


KBR Sustainability Platform

5


2019 Scorecard

Meeting or exceeding 2019 targets

Strong FY 2019 financial results

Finish Ichthys

De-lever

Grow backlog

Win LOGCAP V

Win LNG – EPC Award; Pending FID

Internal efficiency

Costpoint ERP

Workday HRIS

Transformational agenda

New brand

New website

GICS code change

6



12018 reflects immaterial, non-cash corrections related to recording the effects of foreign currency on our share of earnings of an unconsolidated joint venture; see our December 31, 2019 Form 10-K for further information. See Appendix for reconciliation of Adjusted EBITDA and Adjusted EPS 2 Excluding the workoff of the long-term PFIs and other adjustments

$4,913

$5,639

2018 2019

Revenues

8.4% 8.4%

2018 2019

Adj. EBITDA Margin

Highlights | FY 2019 $ in millions, except EPS

$1.53

$1.69

2018 2019

Adjusted EPS1

$165

$256

2018 2019

Operating Cash Flow

$13,497 $14,636

$3,683 $2,755

2018 2019

Backlog

Options

Backlog

7

$412

$471

2018 2019

Adjusted EBITDA1

15% Growth

127% NI Conversion

1.3x Book-to-bill2

10% Growth

14% Growth

Aligned with LT targets

All segments

contributing double digit

growth

All segments

achieving > 1x BTB2



$0.41 $0.46

4Q18 4Q19

Adjusted EPS1

12018 reflects immaterial, non-cash corrections related to recording the effects of foreign currency on our share of earnings of an unconsolidated joint venture; see our December 31, 2019 Form 10-K for further information. See Appendix for reconciliation of Adjusted EBITDA and Adjusted EPS

$1,330

$1,452

4Q18 4Q19

Revenues

$109 $117

4Q18 4Q19

Adjusted EBITDA1

8.2% 8.1%

4Q18 4Q19

Adj. EBITDA Margin

Highlights | 4th Quarter 2019 $ in millions, except EPS

$13,497

$14,636

$3,683 $2,755

4Q18 4Q19

Backlog

Options

Reported Backlog

8

$165

$256

2018 2019

Operating Cash Flow Year-ended 2018 and 2019


Market Outlook

9

Outlook KBR's Competitive Advantage

Go

vern

men

t M

arke

t

FY 2020 defense budget prioritizes restoration of military readiness & modernization, near peer threats, creation of U.S. Space Force and innovation to meet emerging threats

Continued international investment to strengthen allied defensive posture and cyber defense capabilities

Growing investment in NASA to fund expanded human space flight programs; expanded commercialization of LEO

Expanded funding for study and analysis of global climate change

Domain expertise across a diverse set of mission-critical, long duration programs

Preeminent experts in the science and operations of human space flight

Global footprint serving U.S. DoD, NASA, USGS, U.K. MoD, Australian DoD and others

Low 2020 recompete risk

Ener

gy M

arke

t Growing demand for and transition to sustainable, low-carbon solutions

Mid-/long-term LNG supply shortfall; near-term energy, LNG and downstream market volatility and oversupply

Diverse portfolio of innovative, sustainability-focused technologies and capabilities

Strong 2019 BTB sustains growth thru 2020

2020 EBITDA (est.): ~50% O&M, industrial and brownfield services


2018 A 2019 A 2020 F 2021 F 2022 F

10-14% Revenue CAGR

thru 2022

WUC & Options Recompetes & Renewals

New Work (to 10% CAGR) New Work LNG (to 14% CAGR)

KBR Growth Outlook

10

New business: ~33% Our robust pursuit pipeline affords significant growth opportunities; LNG ~8%

Today’s book of business: ~67% Our recurring, long-term contracts provide stability and predictability into the future.

Historical recompete and renewal win rates (>95%)

$57B

$24

$24

$9

$107B

$26

$45

$36

~110 Pursuits > $100M

~60 Pursuits > $100M

*Pursuit pipeline as of December 31, 2019 includes opportunities through 2022 only

$164 billion KBR Pursuit Pipeline

Government Energy



11.1 10.8 11.0 11.0 10.8 10.7 10.7 10.9

0.4 0.5 0.5 0.6 0.5 0.5 0.5 0.6 1.6 2.1 1.9 1.9 2.3 2.6 3.4 3.1

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19

Backlog, by quarter

$13.1 $13.4 $13.4 $13.5 $13.6 $13.8 $14.6 $14.6

ES

TS

GS

Bookings Momentum and Backlog Growth

Backlog $ in millions; Includes KBR share of unconsolidated JVs; Book-to-bill excludes impact of our long-term PFIs and foreign exchange 11

1.1x Government Solutions

1.0x Technology Solutions

1.9x Energy Solutions

$2.8 billion unexercised options not in backlog as of December 31, 2019

LOGCAP V and Freeport LNG Train 4 not in backlog as of December 31, 2019

FY 2019 segment book-to-bill


Mark Sopp

EVP & Chief

Financial Officer


FY 2019 Consolidated Results

13 See Appendix for reconciliation of Adjusted EBITDA and Adjusted EPS 1ROIC is defined as NOPAT divided by total debt + shareholder’s equity; Post our February 2020 refinancing, ROIC increased to 9.4%

15% revenue growth, 12% organic

14% Adjusted EBITDA growth

10% Adjusted EPS growth impacted by full year of borrowing cost and benefitting from favorable tax planning

127% net income conversion to OCF primarily attributable to improvement in working capital management and collection of a long-term receivable

127%

Revenue

(Organic growth)

Operating Cash (Net Income conversion)

2019 Actuals

12%

Adjusted EBITDA Margin 8.4%

90 – 110%

2019 – 2022 Targets

10-14% CAGR

Upper single %

9% ROIC1 12% by 2022

($ in millions, except EPS) FY 2018 FY 2019

Revenues $ 4,913 $ 5,639

Gross Profit 584 653

Equity in Earnings 79 35

Selling, General & Administrative Expenses (294) (341)

Acquisition & Integration Expenses (7) (2)

Gain (Loss) on Disposition of Assets (2) 17

Gain on Consolidation of Aspire Entities 108 -

Operating Income $ 468 $ 362

Interest Expense (66) (99)

Other Non-Operating Income (loss) (6) 5

Income Before Taxes and Noncontrolling Interest $ 396 $ 268

Provision for Income Taxes (86) (59)

Noncontrolling Interest (29) (7)

Net Income Attributable to KBR $ 281 $ 202

Diluted EPS $ 1.99 $ 1.41

Adjusted EPS $ 1.53 $ 1.69

Adjusted EBITDA $ 412 $ 471

Operating Cash Flow $ 165 $ 256

YTD


Segment Performance: Government Solutions

14 See Appendix for reconciliation of EBITDA and Adjusted EBITDA 1 Disaster recovery work at Tyndall Air Force Base contributed ~$100 million and ~$150 million of revenue in 2018 and 2019, respectively. 2 Excluding the workoff of the long-term PFIs and other adjustments

$0

$500

$1,000

$0

$50

$100

$150

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19

Quarterly Revenue & Adjusted EBITDA

Adjusted EBITDA Revenue

14% revenue growth in 2019, 9% organic, led by new programs, on contract growth, and completion of work at Tyndall AFB1

25% Adjusted EBITDA growth in 2019 benefitting from strong execution

on Aspire Program and upsides from project close-out and asset sales

1.1x book-to-bill2 for the year; excludes LOGCAP V award

Revenue

(Organic growth)

2019 Actuals

9%

Adj. EBITDA Margin 10%

2019 – 2022 Targets

6-10% CAGR

Upper single %

Strong 2019 results against long-term targets

($ in millions) FY 2018 FY 2019

Revenue 3,457$ 3,925$


Equity Earnings 32 29

SG&A (109) (134)

Acquisition & Integration (7) (2)

Gain on Aspire / Dispositions 117 12

Operating Income 383$ 335$

Adjusted EBITDA 321$ 402$

Adjusted EBITDA Margin 9.3% 10.2%


Segment Performance: Technology Solutions

15 See Appendix for reconciliation of EBITDA and Adjusted EBITDA

26% revenue growth driven primarily by increased proprietary equipment and catalyst deliveries

26% Adjusted EBITDA margins in line with plan

1.0x book-to-bill for FY 2019; 2.1x in the 4th quarter 2019

Revenue

(Organic growth)

2019 Actuals

26%


2019 – 2022 Targets

10-14% CAGR

Mid-20%

2019 results aligned with long-term targets

$0

$50

$100

$0

$20

$40

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19



Revenue 297$ 374$


SG&A (24) (28)



Adjusted EBITDA Margin 29% 26%


Segment Performance: Energy Solutions

16 See Appendix for reconciliation of EBITDA and Adjusted EBITDA

16% revenue growth; double digit growth for 3 sequential quarters

2018 equity earnings favorably impacted by strong execution and substantial completion of multiple projects

1.9x book-to-bill in 2019; excludes Freeport LNG

$0

$250

$500

$0

$20

$40

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19

Quarterly Revenue & Adjusted EBITDA


Revenue

(Organic growth)

2019 Actuals

16%


2019 – 2022 Targets

20-30% CAGR

Mid single %

2019 results aligned with long-term targets


Revenue 1,157$ 1,339$


Equity Earnings 50 19

SG&A (64) (63)

Loss on Dispositions (2) -



Adjusted EBITDA Margin 9% 6%


Capital Deployment Priorities

Fund Organic Growth Maintain Attractive Dividend Maintain Responsible Leverage Strategic M&A or Share Repurchase

FY 2019 Gross and Net Leverage of 2.7x and 1.2x, respectively

Completed amendment of our credit agreement in February 2020

Reflects growth and improved credit rating / profile

Enables greater capital deployment flexibility

100 bps reduction in borrowing cost

Extends pro-rata maturities to 2025; Term Loan B to 2027

Reduced overall borrowings by $137 million

Gross leverage, post-refinancing, ~2.4x

25% increase in our quarterly dividend

Share repurchase authorization replenished to $350 million

Deployment priorities are unchanged

17

Capital Structure and Deployment


2020 Full-Year Guidance

18

2020 Guidance

Diluted GAAP Earnings Per Share

Adjustments: Legacy Legal Fees Non-Cash Interest and Conversion Hedge1 on Convertible bonds Amortization related to Aspire Consolidation Ichthys Interest and Commercial Dispute Costs

$1.46 - $1.58

0.05 0.06 0.07 0.16

Adjusted EPS $1.80 - $1.92

Midpoint: 10% growth y/y

Effective Tax Rate 25% - 27%

Adjusted Operating Cash Flow2 $200M - $250M

1 Conversion hedge will be calculated and adjusted quarterly based on KBR trading price

2 2020 operating cash flow targets exclude the impact of Major Project advances and work-off of Aspire Capital Works advances; potential recoveries from Ichthys LNG commercial settlements are excluded as well


KBR… Growth and Value

19

Strategic Market Position… diversity of clients and longevity of contracts provides long-term resilience, stability and growth

Balanced Portfolio Contributions… all segments contributing growth, cash and bookings in 2019; favorable 2020 outlook

Consistent Performance…3 consecutive years meeting or exceeding our financial targets; attractive 2020 guidance

Capital Deployment Optionality… 25% increase in quarterly dividend; replenished share repurchase authorization

Differentiated Safety and

Sustainability

Attractive Backlog

Sustainable Growth

Strong Free Cash

Capital Deployment

Flexibility


APPENDICES


Non-GAAP Reconciliations: Adjusted EPS & Adjusted Cash Flow Guidance

21

Adjusted EPS Reconciliation

Quarter Ending Year Ending

4Q18 4Q19 2018 2019

EPS (Diluted) $0.33 $0.40 $1.99 $1.41

Add Back:

Legacy Legal Fees 0.01 0.01 0.06 0.05

Non-cash imputed interest on conversion option 0.01 0.02 0.01 0.06

Acquisition & integration related expenses 0.01 0.00 0.04 0.02

Amortization related to Aspire acquisition 0.02 0.02 0.06 0.08

Incremental interest on Ichthys funding 0.00 0.01 0.00 0.07

Aspire (gain) loss on consolidation 0.03 0.00 (0.63) 0.00

Adjusted EPS $0.41 $0.46 $1.53 $1.69

Adjusted Operating Cash Flow 2020 Guidance

Low High

Cash flows provided by operating activities $125 $175

Adjustment: Add back impact of major project advance workoff $75

Adjusted Cash flows provided by operating activities $200 $250


EBITDA is defined as earnings before interest income / expense, income taxes, other non-operating income / expense (including FX) and depreciation & amortization.

Non-GAAP Reconciliation: Consolidated & Adjusted EBITDA

22

Adjusted EBITDA Reconciliation Year Ending Year Ending

Mar 31, 2018 Jun 30, 2018 Sep 30, 2018 Dec 31, 2018 Dec 31, 2018 Mar 31, 2019 Jun 30, 2019 Sep 30, 2019 Dec 31, 2019 Dec 31, 2019

Net Income Attributable to KBR $136 $44 $54 $47 $281 $40 $48 $56 $58 $202

Add Back:

Interest Expense $6 $17 $20 $23 $66 $25 $26 $25 $23 $99

Provision (benefit) for Income Taxes $34 $18 $22 $12 $86 $16 $18 $24 $1 $59

Other non-operating (income) expense $2 $1 $1 $2 $6 ($5) ($2) ($3) $5 ($5)

Halliburton tax sharing agreement $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Depreciation & Amortization $13 $17 $17 $16 $63 $25 $23 $28 $28 $104

Consolidated EBITDA $191 $97 $114 $100 $502 $101 $113 $130 $115 $459 0

Add Back:

Legacy Legal Fees $3 $3 $3 $2 $11 $4 $3 $1 $2 $10

Acquisition & integration related expenses $3 $1 $1 $2 $7 $1 $1 $0 $0 $2

Aspire (gain) loss on consolidation ($115) $0 $2 $5 ($108) $0 $0 $0 $0 $0

Adjusted EBITDA $82 $101 $120 $109 $412 $106 $117 $131 $117 $471

Quarter Ending Quarter Ending


EBITDA is defined as earnings before interest income / expense, income taxes, other non-operating income / expense (including FX) and depreciation & amortization.

Non-GAAP Reconciliation: Segment EBITDA and Segment Adjusted EBITDA

23 1 Reflects the reclass of MMM JV to Non-strategic Business

Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19

Net Income Attributable To Government Solutions $ 170 $ 63 $ 73 $ 72 $ 69 $ 91 $ 87 $ 88

Add Back:

Interest expense $ 1 $ 1 $ 1 $ 1 $ 1 $ 1 $ 1 $ 0

Provision for income taxes $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

Other non-operating (income) expense $ 0 $ 0 $ 0 ($0) $ 0 ($1) $ 0 ($1)

Depreciation & amortization $ 7 $ 13 $ 11 $ 10 $ 15 $ 13 $ 17 $ 13

EBITDA - GS $ 178 $ 77 $ 85 $ 83 $ 85 $ 104 $ 105 $ 100

Add Back:

Legacy Legal Fees $ 3 $ 3 $ 3 $ 2 $ 4 $ 3 $ 1 $ 2

Aspire (gain) loss on consolidation ($115) $ 0 $ 2 $ 0 $ 0 $ 0 $ 0 $ 0

Adjusted EBITDA - GS $ 66 $ 80 $ 90 $ 85 $ 89 $ 107 $ 106 $ 102

Net Income Attributable To Technology Solutions $ 15 $ 21 $ 23 $ 23 $ 20 $ 18 $ 24 $ 26

Add Back:



Other non-operating (income) expense $ 0 ($0) ($0) ($0) ($0) ($0) ($1) $ 1


EBITDA - TS $ 16 $ 22 $ 24 $ 24 $ 22 $ 19 $ 24 $ 29

Net Income Attributable To Energy Solutions $ 18 $ 23 $ 22 $ 30 $ 24 $ 16 $ 9 $ 6

Add Back:



Other non-operating (income) expense $ 3 ($2) $ 0 ($1) ($1) ($0) ($1) $ 1


EBITDA - ES1

$ 23 $ 23 $ 24 $ 31 $ 28 $ 21 $ 13 $ 13

Quarter Ending

quarter & fy 2019 financial results and 2020 guidance · presentation, which speak only as of...

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