KBR Announces Third Quarter 2018 Financial Results

HOUSTON, Oct. 30, 2018 /PRNewswire/ -- KBR, Inc. (NYSE: KBR), a global provider of differentiated, professional services and technologies across the asset and program life cycle within the government services and hydrocarbons industries today announced third quarter 2018 financial results.

"I am delighted to report another strong quarter of growth, in which KBR delivered healthy revenues, earnings and operating cash flows," said Stuart Bradie, KBR President and CEO.

KBR's top line revenue momentum is underpinned by industry leading organic growth from its Government Services and Technology businesses, strong execution across all segments, accretive growth from Aspire and SGT and buoyant government contracting and hydrocarbons end markets. "The markets are as healthy as we've seen in many years, and we are strategically positioned where demand is growing," Bradie said.  "Our pipeline of opportunities has increased considerably from just six months ago, and we are encouraged by active levels of client engagement and project award momentum. Operationally, each of our segments is delivering strong performance and results, and we have restored operating cash flows to normative levels. Given our solid market fundamentals and consistent execution, we are pleased to increase our 2018 Adjusted EPS guidance for the second consecutive quarter," continued Bradie. "Our success - safety, operational, financial - is directly attributable to the outstanding commitment of our people, and I wish to thank each of them for their contributions in strengthening KBR today as we position our company for tomorrow."

 Third Quarter Financial Results

Summary of Financial Results: Overall, our quarterly and year to date increases in revenue,  gross profit, net income and earnings per share were driven by strong organic growth in our Government Services and Technology businesses, the consolidation of acquired entities in the Aspire Defence program and our acquisition of SGT. These increases were partially offset by the completion or substantial completion of several projects within our Hydrocarbons Services business as well as the non-recurrence of the $35 million PEMEX settlement in the second quarter of 2017.

Our joint ventures continue to produce quality earnings from solid execution. Our Brown & Root Industrial Services joint venture grew significantly year over year, and we achieved a significant construction milestone on a lump sum EPC project executed from one of our joint ventures in Europe.  The quarterly and year to date decrease in equity in earnings is attributable to the consolidation of the Aspire Defence subcontracting entities, now reported in revenue and gross profit, and reduced earnings from the Ichthys LNG project.

Liquidity: We ended the quarter with $581 million of cash and $1,169 million of gross debt (or $588 million of net debt).  During the quarter, cash provided by operations totaled $72 million, a 1.2x operating cash conversion rate, with DSO and DPO remaining consistent from the second quarter 2018.

New Business

KBR achieved an overall book-to-bill of 1.1x during the quarter with ending backlog of $13.5 billion as of September 30, 2018.  Bid volume across the business remains high with $26 billion of bids submitted and awaiting award[1] and another $12 billion in proposal preparation at the end of September.

Government Services

Third quarter bookings for Government Services were strong with book-to-bill of 1.3x.  Domestically, each of the GS service lines scored wins highlighting our ability to apply solutions to high impact, mission critical work that drives customer confidence across the value chain.  Internationally, our portfolio of PFI contracts continues to deliver expansion opportunities, and we continue to seek diversification into other government sectors and non-PFI defense projects. The following summarizes selected awards during the quarter:

• Defense Health Agency award to provide cybersecurity services to secure healthcare information of the U.S. Air Force, Army and Navy and their families;
• U.S. Air Force Institute of Technology Graduate School award to provide defense-focused graduate and professional continuing education;
• A seat on the Department of Defense Information Analysis Center R&D contract;
• LIG Nex1 award to support the upgrade of the Korean military's Identify Friend or Foe capabilities; and
• NASA award to study the future of commercial enterprise in low Earth orbit.

Technology

Our Technology business delivered a healthy book-to-bill of 1.4x, once again achieving record backlog at the end of the quarter. We continue to experience strong demand for petrochemical, refining and agricultural technologies driven by availability of competitively priced feedstock combined with increasing global development, expanding consumer demand and increasingly stringent environmental policies.  The following summarizes selected awards during the quarter:

• K-COT™ and SCORE™ technology award by Lihuayi Lijin Refining & Chemical Co., Ltd.;
• PCMAX™ polycarbonate technology awards Pingmei Shenma Group; and
• Nitric acid technology award by Kemerovo Azot JSC.

Hydrocarbons Services

Market conditions are showing improvement for LNG and downstream opportunities given the abundance of low-priced natural gas and the increasing demand for clean LNG, chemicals and petrochemicals.  We were awarded a number of strategic concept, pre-FEED and FEED projects to deliver solutions to advance our clients' core objectives to launch new capital projects that represent future delivery-stage opportunities for KBR.  To strengthen our competitive advantage, we also announced a joint development alliance with ConocoPhillips LNG Licensing LLC to provide low-cost and expedited mid-scale LNG solutions to the marketplace utilizing Optimized Cascade® process technology and the KBR SmartSPEND^SM methodology.

Guidance

We are increasing the company's full year 2018 EPS guidance range to $1.93 to $2.03 and Adjusted EPS guidance range to $1.45 to $1.55.  Our guidance of earnings per share is on an Adjusted EPS basis, which excludes legacy legal costs for U.S. Government contracts, acquisition & integration-related expenses associated with our acquisitions and the gain and amortization associated the Aspire consolidation.  The estimated legacy legal costs do not assume any cost reimbursement from the U.S. Government that could occur in the future.  A reconciliation of GAAP EPS to Adjusted EPS guidance is located at the end of this release.  We also reaffirm guidance for operating cash flows estimated to range from $125 million to $175 million for 2018.

Our effective tax rate, excluding discrete items, for 2018 is estimated to range from 23% to 25%, an increase from the previous range of 22% to 24%. The increase is primarily related to new guidance published during the quarter on taxes associated with international operations stemming from the U.S. Tax Cuts and Jobs Act of 2017.

¹ For Hydrocarbons Services "bids submitted and awaiting award" includes proposals formally submitted as well as EPC/EPCm projects awarded but that have not achieved FID (e.g. Magnolia and Methanex). "FID" is not applicable for our GS and Technology prospects.

About KBR, Inc.

KBR is a global provider of differentiated professional services and technologies across the asset and program life cycle within the Government Services and Hydrocarbons sectors. KBR employs over 34,000 people worldwide (including our joint ventures), with customers in more than 80 countries, and operations in 40 countries, across three synergistic global businesses:

• Government Services, serving government customers globally, including capabilities that cover the full life-cycle of defense, space, aviation and other government programs and missions from research and development, through systems engineering, test and evaluation, program management, to operations, maintenance, and field logistics;
• Technology, including proprietary technology focused on the monetization of hydrocarbons (especially natural gas and natural gas liquids) in ethylene and petrochemicals; ammonia, nitric acid and fertilizers; oil refining and gasification; and
• Hydrocarbons Services, including onshore oil and gas; LNG (liquefaction and regasification)/GTL; oil refining; petrochemicals; chemicals; fertilizers; differentiated EPC; maintenance services (Brown & Root Industrial Services); offshore oil and gas (shallow-water, deep-water, subsea); floating solutions (FPU, FPSO, FLNG & FSRU); program management and consulting services.

KBR is proud to work with its customers across the globe to provide technology, value-added services, integrated EPC delivery and long term operations and maintenance services to ensure consistent delivery with predictable results. At KBR, We Deliver.

Visit www.kbr.com

Forward Looking Statement

The statements in this press release that are not historical statements, including statements regarding future financial performance, are forward-looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks and uncertainties, many of which are beyond the company's control that could cause actual results to differ materially from the results expressed or implied by the statements. These risks and uncertainties include, but are not limited to: the outcome of and the publicity surrounding audits and investigations by domestic and foreign government agencies and legislative bodies; potential adverse proceedings by such agencies and potential adverse results and consequences from such proceedings; the scope and enforceability of the company's indemnities from its former parent; changes in capital spending by the company's customers; the company's ability to obtain contracts from existing and new customers and perform under those contracts; structural changes in the industries in which the company operates; escalating costs associated with and the performance of fixed-fee projects and the company's ability to control its cost under its contracts; claims negotiations and contract disputes with the company's customers; changes in the demand for or price of oil and/or natural gas; protection of intellectual property rights; compliance with environmental laws; changes in government regulations and regulatory requirements; compliance with laws related to income taxes; unsettled political conditions, war and the effects of terrorism; foreign operations and foreign exchange rates and controls; the development and installation of financial systems; increased competition for employees; the ability to successfully complete and integrate acquisitions; and operations of joint ventures, including joint ventures that are not controlled by the company.

KBR's most recently filed Annual Report on Form 10-K, any subsequent Form 10-Qs and 8-Ks, and other U.S. Securities and Exchange Commission filings discuss some of the important risk factors that KBR has identified that may affect the business, results of operations and financial condition. Except as required by law, KBR undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

Non-GAAP Financial Information

The following information provides reconciliations of certain non-GAAP financial measures presented in the press release to which this reconciliation is attached to the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles (GAAP). The company has provided the non-GAAP financial information presented in the press release, which is not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in the press release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for or alternative to, and should be considered in conjunction with, the GAAP financial measures presented in the press release. The non-GAAP financial measures in the press release may differ from similar measures used by other companies.

Adjusted EBITDA

We evaluate performance based on Adjusted EBITDA. Adjusted EBITDA is defined as Net income (loss) attributable to KBR, plus interest expense, net; provision (benefit) for income taxes; other non-operating expense (income); and depreciation and amortization. Adjusted EBITDA for each of the three and nine months ended September 30, 2018 and 2017 is considered a non-GAAP financial measure under the SEC's rules because Adjusted EBITDA for each such period excludes certain amounts not excluded in the calculation of net income attributable to KBR in accordance with GAAP for such periods. Management believes that Adjusted EBITDA for each of the three and nine months ended September 30, 2018 and 2017 is a meaningful measure to share with investors because each measure, which adjusts net income attributable to KBR for such periods for certain items recorded in such periods, is the measure that best allows comparison of the performance for the comparable period. In addition, Adjusted EBITDA affords investors a view of what management considers KBR's core performance for each of the three and nine months ended September 30, 2018 and 2017 and also affords investors the ability to make a more informed assessment of such core performance for the comparable periods.

Adjusted EPS

Adjusted diluted earnings per share from net income attributable to KBR (Adjusted EPS) for each of the three and nine months ended September 30, 2018 and 2017 is considered a non-GAAP financial measure under the SEC's rules because the Adjusted EPS for each such period excludes certain amounts not excluded in the diluted earnings per share from net income attributable to KBR calculated in accordance with GAAP (EPS) for such periods. Management believes that the Adjusted EPS for each of the three and nine months ended September 30, 2018 and 2017 is a meaningful measure to share with investors because each measure, which adjusts EPS for such periods for certain items recorded in such periods, is the measure that best allows comparison of the performance for the comparable period. In addition, Adjusted EPS affords investors a view of what management considers KBR's core earnings performance for each of the three and nine months ended September 30, 2018 and 2017 and also affords investors the ability to make a more informed assessment of such core earnings performance for the comparable periods.

We have calculated Adjusted EPS for each of the three and nine months ended September 30, 2018 and 2017 by adjusting EPS for the items included in the table below. Adjusted EPS for each of the three and nine months ended September 30, 2018 and 2017 is a non-GAAP financial measure. The most directly comparable financial measure calculated in accordance with GAAP is Diluted EPS for the same periods.

We have calculated the Adjusted EPS for the 2018 guidance by adjusting EPS for the items included in the table below.

SOURCE KBR, Inc.