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    KBR (KBR)

    KBR Q3 2024: 11–15% STS Growth Guidance, Strong Book-to-Bill

    Reported on May 14, 2025 (Before Market Open)
    Pre-Earnings Price$70.40Last close (Oct 22, 2024)
    Post-Earnings Price$68.29Open (Oct 23, 2024)
    Price Change
    $-2.11(-3.00%)

    What went well

    • Robust STS Growth Potential: Executives confirmed alignment with 11%–15% revenue growth in the STS segment, supported by strong book‐to‐bill improvements in Q3 that bolster confidence going into next year.
    • Stable Defense & Government Solutions Outlook: There is strong bipartisan support in defense spending, with executive comments highlighting robust, recurrent contract wins and resilient margins in Government Solutions.
    • Attractive LNG & Energy Transition Opportunities: Management’s disciplined approach—eschewing lump‐sum EPC risk—has enabled them to secure multiyear projects (e.g., with Aramco) and capitalize on energy transition trends, positioning the company well for sustained long-term growth.

    What went wrong

    • Delayed Bookings from CR Extensions: The discussion indicates that an extension of the CR could delay contract awards, which may slow down upcoming bookings.
    • Uncertainty from Pending Protests: Several significant contracts are currently “awarded and under protest,” and the outcome of these protests remains uncertain, posing a risk to future revenue recognition.
    • Reliance on Favorable Resolutions: The answer implies that much depends on favorable outcomes in the protest resolution process, meaning any adverse developments could negatively impact the company's performance.

    Q&A Summary

    1. STS Growth
      Q: STS growth and book-to-bill sustainability?
      A: Management expects 11–15% STS revenue growth with a strong book-to-bill pickup despite some delays in energy transition projects, emphasizing that the current performance sets a solid foundation for next year.

    2. Guidance Impact
      Q: How does LinQuest affect 2024 guidance?
      A: They noted that adding LinQuest raised revenue and EBITDA guidance modestly, with approximately $17 million EBITDA incremental impact, offset partly by HomeSafe's lower top‐line, and adjusted EPS guidance improved slightly.

    3. HomeSafe Outlook
      Q: Is HomeSafe revenue on target for ’25?
      A: Management remains confident that HomeSafe will ramp as conservatively forecasted, with expectations aligning with their conservative '25 targets and potential upside as domestic moves progress.

    4. Margin Impact
      Q: Will LNG/recycling mix affect margins?
      A: They anticipate overall margins to remain in the circa 20% range despite mix volatility, expecting some quarters to hit 21–22%, which fits with their long‐term targets.

    5. LNG Election Risk
      Q: How might elections impact Lake Charles LNG?
      A: The view is that if Democrats prevail, projects will be released slowly due to environmental criteria, but a Republican outcome could speed things up—however, the guidance remains conservative with FID projected in the second half of 2025.

    6. Workforce & Pipeline
      Q: How is the workforce supporting Middle East projects?
      A: The staffing is globally organized—with Houston, Saudi, and Chennai playing key roles—ensuring robust project pipelines and quick transitions from front-end design to execution.

    7. Saudi Contract Stability
      Q: Is the Saudi PMC contract firm?
      A: While final investment decisions await EPC pricing, management is confident in their prominent role in the multiyear project, considering it a solid addition to their backlog once milestone gates are met.

    8. LNG Risk Terms
      Q: What changed regarding LNG risk terms?
      A: They stressed that shifting away from lump sum EPC risk has led to a more attractive risk profile, with improved win rates for projects like Plaquemines reflecting a disciplined, lower-risk approach.

    9. Heritage Pipeline
      Q: What’s the timeline for heritage tech bookings?
      A: The pipeline for ammonia and plastics recycling remains strong, with bookings expected later in the year once plants reach product start-up, supporting long-term growth.

    10. LTC Global Replication
      Q: Can LTC projects be followed internationally?
      A: Management indicated that similar front-end design and PMC engagements can be supported globally from their existing offices if contractual structures allow, though they expect the primary focus to remain in Saudi Arabia.

    11. LTC in Guidance
      Q: How is LTC reflected in long-term guidance?
      A: They confirmed LTC plays a significant role—ranging from $70 million to $100 million in pre-FEED revenues and multiple times that in execution—integral to their long-term targets.

    12. LinQuest SB Work
      Q: Does LinQuest include small business set-aside work?
      A: Management clarified that LinQuest does not engage in small business set-aside work; its contracts are fully available to larger entities, reflecting a streamlined approach.

    13. CR Bookings Outlook
      Q: What if CR contract protests delay bookings?
      A: They expect overall bookings to remain strong despite potential CR delays, noting that several sizable awards are already in favor and will likely support next year’s guidance.

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