1q 2017 financial results...substantial completion final domestic epc power project in non-strategic...
TRANSCRIPT
April 28, 2017
Stuart Bradie – President and Chief Executive OfficerMark Sopp – Executive Vice President and Chief Financial Officer Nelson Rowe – Senior Vice President, Investor Relations
1Q 2017 Financial Results
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 24, 2017.
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 measure “EBITDA,” which is not calculated in accordance with 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.
Forward-Looking Statements
Safety: Moving Towards Zero Harm
IOGP = International Association of Oil & Gas Producers Note: Final IOGP 2016 results will not be available until mid‐2017
0.380.36
0.43
0.42
0.28
0.24
0.22
0.230.21
0.19 0.180.16
0.35 0.350.32
0.31
0.24
0.00
0.10
0.20
0.30
0.40
0.50
2011 2012 2013 2014 2015 2016 Q1 2017
KBR IOGP Top Q IOGP Average
Total Recordable Incident Rate (TRIR) Performance: 2011- Q1 2017
The data set above represents the KBR current portfolio excluding discontinued operations.
KBR is focused on an industry-leading commitment to employee safety
Over the last 27 months, KBR has achieved a 48% decrease in TRIR and a 40% increase in Zero Harm Days
SAFETY
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Substantial completion final domestic EPC power project in Non-Strategic Business
In April 2017, settled legal claim against Pemex. Received $435M and dismissal of all pending litigation (2Q event)
Settlement of major legal matters Settlement reached on class action
lawsuit related to 2013 restatement Appeals court upheld dismissal of
claims related to sodium dichromate
Growth in existing U.S. gov’t contracts supporting U.S. Military and backlog growth in Technology
Significant re-compete win for KBRwyle to provide ground systems and operations support for NASA’s Goddard Space Flight Center (2Q event)
Strategic win for Brown & Root in Indonesia for Chevron (2Q event)
1Q17HIGHLIGHTS
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Solid Earnings with Revenue Growth (11%) Progress against strategic objectives:
Reducing risk Delivering more predictable earnings Strong project delivery performance
1Q17: Highlights
Significantly Lower Risk Profile1Q17
BACKLOG
Backlog by Contract Type
Cost Reimbursable, PFI & Services
Contracts
Total KBR BacklogAt 3/31/17:
$10.6B + $2.2B options
Fixed Price Contracts
(GS, T&C) –Low Risk
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Fixed Price Contracts,
E&C
~75% of earnings for 2017 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 $2.2B in additional unrecognized backlog
Consolidated Results: 1Q17 vs 1Q16
1Q17 revenues reflect the impact of the two GS acquisitions and organic growth in U.S gov’t contracts
Gross profit in 1Q17 compared favorably to 1Q16 as a result of revenue growth and strong project execution
Equity in earnings lower due primarily to a reduction in the percentage of completion estimated on the Ichthys project joint venture in Australia; extends profit recognition into future periods
Net operating cash outflows; funding late stage EPC contracts
RESULTS
*Consolidated EBITDA and Adjusted EPS reconciliations provided in the Appendix
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($ in millions, except EPS) Mar 31, 2017 Mar 31, 2016
Bookings $ 772 $ 711Backlog of Unfilled Orders $ 10,595 $ 12,019
Revenues $ 1,106 $ 996
Gross Profit $ 82 $ 68
Equity in Earnings $ 9 $ 29
Gross Profit & Equity in Earnings $ 91 $ 97
General & Administrative Expenses ($32) ($34)
Gain on Disposition of Assets/Restructuring $ 4 $ 2
Operating Income $ 63 $ 65
Provision for Income Taxes ($13) ($15)
Non-controlling Interest ($1) ($3)
Net Income Attributable to KBR $ 37 $ 42
EBITDA* $ 68 $ 67
EPS (diluted) $ 0.26 $ 0.30
Adjusted EPS (excl legacy legal fees)* $ 0.28 $ 0.34
Operating Cash Flow ($115) ($21)
Quarter Ending
Government Services‒ Increases in revenue and gross profit & equity
in earnings are driven by acquisitions and organic growth. 1Q16 included a $15M change order for a program in the Middle East.
Technology & Consulting‒ Revenue and gross profit were down in 1Q17
due to lower proprietary equipment sales. Gross profit margin percent up slightly due to technology licenses.
Engineering & Construction‒ Revenue down due to reduced activity on
several projects including LNG projects in Australia.
‒ Increase in gross profit in 1Q17 due primarily strong project execution; at normative level.
‒ Equity in earnings is $18M lower compared to 1Q16 due to a dilution of percentage of completion on the Ichthys project. Profit recognition will now be deferred into future periods.
SEGMENT RESULTS
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Segment Results: 1Q17 vs 1Q16
*Consolidated EBITDA reconciliation provided in the Appendix
($ in millions) Mar 31, 2017 Mar 31, 2016
Revenues
Government Services 515 210
Technology & Consulting 76 97
Engineering & Construction 489 606
Non-Strategic Business 26 83
Consolidated Revenues $1,106 $996
Gross Profit (Loss) & Equity in Earnings
Government Services 46 32
Technology & Consulting 14 17
Engineering & Construction 33 47
Non-Strategic Business (2) 1
Consolidated Gross Profit & Equity in Earnings $91 $97
EBITDA
Government Services 47 31
Technology & Consulting 14 16
Engineering & Construction 35 39
Non-Strategic Business (2) 5
Other (26) (24)
Consolidated EBITDA* $68 $67
Quarter Ending
2017 Forward ExpectationsMARKET OUTLOOK
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Foundation for 2017 Performance Expectations:‒ Revenue
o Strong Gov’t Services growth, both organic and acquisitive along with steady T&C revenue offsetting challenging E&C market conditions
o Continued expansion in global industrial services market
o Strong backlog earnings coverage (~75%), low re-competes
‒ Profitabilityo Solid foundation for stable and predictable
earnings growth‒ Operating Cash Flow
o Positive for 2017o Heavy outflows for end of cycle EPC contracts
Capital Structure/Liquidity‒ Maintain dividend, working capital focus, strong
balance sheet
Beyond 2017‒ Strong cash conversion ratio‒ More capital deployment options‒ Capital allocation strategy to be updated at
upcoming Investor Day
Guiding Principles
EPS, excluding legacy legal fees, now expected above mid-point of $1.10 - $1.40 range– Reflects gain on Pemex settlement to be recorded in 2Q17
– Reflects organic growth for GS, T&C and OpEx projects in E&C, contraction in CapEx projects in E&C, and target margins for all segments
– Includes $22M, or $0.15 EPS, in amortization
– Estimate for legacy legal fees is $9M or $0.07 EPS
EBITDA range: $300M-$350M
Effective Tax Rate: 25% - 27%
Operating Cash Flow: $100M-$200M
2017GUIDANCE
~75% Of Earnings Already In Backlog
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Solid financials, growing revenue with strategic wins
Well positioned for growth in both Gov’t Services & Hydrocarbons sectors. Increasing project pursuit pipeline and consulting activity.
More predictable earnings from high-level of secured backlog. No major re-competes in 2017.
Reduced uncertainty and risk as legacy projects complete and we successfully resolve legal and commercial disputes
Cost structure that is efficient and scalable
Stronger free cash flow beyond 2017 and attendant capital deployment options
2017 is Starting off StrongCONCLUSION
Executing on Strategy
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APPENDIX
Consolidated EBITDA ReconciliationNON-GAAP
RECONCILIATION
Note: EBITDA is defined as earnings before interest income / expense, income taxes, depreciation and amortization
($ in millions) Mar 31, 2017 Mar 31, 2016
Net Income Attributable To KBR $ 37 $ 42
Add Back:
Interest Expense (Income) $ 5 $ 1
Provision for Income Taxes $ 13 $ 15
Depreciation & Amortization $ 13 $ 9
Consolidated EBITDA $ 68 $ 67
Quarter Ending
Adjusted EPS ReconciliationNON-GAAP
RECONCILIATION
Mar 31, 2017 Mar 31, 2016
EPS (diluted) $ 0.26 $ 0.30
Add Back:
Legacy Legal Fees $ 0.02 $ 0.04
Adjusted EPS $ 0.28 $ 0.34
Quarter Ending