KBR Announces Third Quarter 2023 Financial Results

Delivered Strong Q3 and YTD Results
Robust TTM BTB¹ in Both Segments
Retired Outstanding Convertible Notes Principal on November 1st

HOUSTON, Nov. 2, 2023 /PRNewswire/ -- KBR, Inc. (NYSE: KBR) today announced its third quarter 2023 financial results.

"Once again, the people of KBR have demonstrated their dedication and talent, contributing to another strong performance this quarter," said Stuart Bradie, KBR president and CEO. "We delivered 9% organic revenue growth and strong margins, operational outcomes that speak volumes about our team's ability to deliver results. Our high-end services continue to make valuable contributions to the knowledge economy, playing a key role in KBR's overall performance. By leveraging our collective expertise and maintaining a focus on innovation, we're helping to shape the future while ensuring KBR's sustained growth."

"Furthermore, as of November 1st, we have retired the remaining convertible debt balance, a significant step that reduces financial uncertainty. This move to retire this maturity in cash is a testament to our strong financial discipline and our focus on creating long-term shareholder value."

New Business Awards
Backlog and options as of September 29, 2023 totaled $21.8 billion. Delivered 1.2x trailing-twelve-months (TTM) book-to-bill¹ as of September 29, 2023. Awarded $3.5 billion of bookings and options in the quarter.

Sustainable Technology Solutions (STS) delivered 1.3x TTM book-to-bill¹ as of September 29, 2023, including awards and achievements in the quarter as follows:

• Awarded a license and engineering design contract by Hanwha Impact Corporation for the world's first commercial ammonia to hydrogen cracking unit using KBR's leading H2ACT^SM technology in Daesan, Republic of Korea.
• Awarded a blue hydrogen process technology and front-end engineering design contract by EET Hydrogen for its planned HPP2 low-carbon hydrogen facility at HyNet, the UK's leading industrial decarbonization project.
• Awarded an engineering, procurement and construction management contract by Woodside Energy for Train 1 of its Pluto LNG facility, located near Karratha, Western Australia.
• Selected by Deepak Fertilisers and Petrochemicals Corporation Limited for a multi-year digital solutions contract for the development of their enterprise-level Smart Factory project. This transformative contract will cover the operations of their four nitric acid plants located in Dahej and Taloja, India.
• Selected by Madoqua Power2X, a joint venture of Madoqua Renewables, Power2X and Copenhagen Infrastructure Partners, for a green ammonia project using KBR's K-GreeN® technology.

Government Solutions (GS) delivered 1.1x TTM book-to-bill¹ as of September 29, 2023, including awards and achievements in the quarter as follows:

• Awarded a contract, Integrated Missions Operations Contract III, worth up to $1.9 billion, for the continued support of NASA's human spaceflight programs, including the International Space Station, Artemis and Low Earth Orbit Commercialization.
• KBR joint venture with Intuitive Machines awarded Omnibus Multidiscipline Engineering Services III contract, worth up to $719 million, to aid NASA's development of space orbital systems in its Engineering and Technology Directorate at Goddard Space Flight Center in Maryland.
• Awarded a two-year option on the Human Health & Performance Contract II for the continued biomedical, medical and health services in support of human spaceflight programs at Johnson Space Center in Houston.
• Defense & Intel backlog grew due to several awards in classified areas.
• Vaault®, KBR's proprietary secured cloud and mission service platform, has been prioritized for the Federal Risk and Authorization Management Program Joint Authorization Board authorization process.
• Awarded a $75 million recompete task order to perform research and analysis to address the Department of Defense critical technology areas of advanced materials, trusted artificial intelligence and autonomy and renewable energy generation and storage.

Summarized Third Quarter Fiscal 2023 Financial Results

Financial Highlights for the Three Months Ended September 29, 2023

• Revenue of $1.8 billion, up 9% (organic) on a year-over-year-basis
• Net income attributable to KBR of $(21) million; Adjusted EBITDA² of $186 million (11% Adjusted EBITDA² margin)
• Diluted EPS of $(0.16); Adjusted EPS² of $0.75
• Operating cash flows of $(40) million; Adjusted operating cash flows² of $92 million
• Bookings and options of $3.5 billion during the quarter with 1.2x TTM book-to-bill¹

Financial Highlights for the Nine Months Ended September 29, 2023

• Revenue of $5.2 billion, up 5% (organic) on a year-over-year basis and 12% on an ex-OAW² year-over-year-basis
• Net income attributable to KBR of $(286) million; Adjusted EBITDA² of $559 million (11% Adjusted EBITDA² margin)
• Diluted EPS of $(2.10); Adjusted EPS² of $2.18
• Operating cash flows of $248 million; Adjusted operating cash flows² of $380 million
• Bookings and options of $8.8 billion during the year to date period with 1.2x TTM book-to-bill¹

Commentary on the Three Months Ended September 29, 2023
Revenues were $1.8 billion, up 9% (organic) compared to 3Q'22, primarily due to new and on-contract growth across all Government Solutions business units and growing demand across the Sustainable Technology Solutions portfolio.

Net income attributable to KBR was $(21) million, down $95 million compared to 3Q'22, primarily due to a non-cash charge of $114 million recorded in connection with the convertible notes settlement method election (discussed below). Net income attributable to KBR ex-Nonrecurring Charges² was $93 million, up $19 million compared to  3Q'22, primarily due to increases in gross profit and equity in earnings from unconsolidated affiliates partially offset by increases in selling, general and administrative expenses and interest expense.

Adjusted EBITDA² was $186 million, up 9% (organic) compared to 3Q'22, with Adjusted EBITDA² margins of 11%.

Diluted earnings per share decreased in line with the decrease in net income attributable to KBR. Adjusted earnings per share² increased in line with Net income attributable to KBR ex-Nonrecurring Charges².

Operating cash flows were $(40) million, down 133% compared to 3Q'22 primarily due to a $132 million after-tax outflow in connection with the settlement of a legacy legal matter in 2Q'23. Excluding the legacy legal settlement outflow, Adjusted operating cash flows² were $92 million.

Commentary on the Nine Months Ended September 29, 2023
Revenues were $5.2 billion, up 5% (organic) compared to YTD 3Q'22. Revenue ex-OAW² increased $579 million, or 12%, due to growth in Readiness & Sustainment and Science & Space divisions and growing demand across the Sustainable Technology Solutions portfolio.

Net income attributable to KBR was $(286) million, down $383 million compared to YTD 3Q'22, primarily due to a current year non-cash charge of $428 million recorded in connection with the convertible notes settlement method election and partial repurchase and partial termination of the note hedge and warrants (discussed below) and an after-tax cash charge of $132 million in connection with the settlement of a legacy legal matter, as well as a non-cash charge of $137 million in equity in earnings related to the resolution of a subcontractor dispute that did not recur in 2023.

Net income attributable to KBR ex-Nonrecurring Charges² was $274 million, up $40 million compared to YTD 3Q'22, primarily due to increases in gross profit and equity in earnings from unconsolidated affiliates partially offset by increases in selling, general and administrative expenses and interest expense and a gain on sale of non-core assets that did not recur in 2023.

Adjusted EBITDA² was $559 million, up 9% (organic) compared to YTD 3Q'22, with Adjusted EBITDA² margins of  11%. Adjusted EBITDA ex-Gains² was up 14% compared to YTD 3Q'22.

Diluted earnings per share decreased in line with the decrease in net income attributable to KBR.  Adjusted earnings per share² increased in line with Net income attributable to KBR ex-Nonrecurring Charges².

Operating cash flows were $248 million, down 26% compared to YTD 3Q'22. Adjusted operating cash flows² were $380 million, up 13%  compared to YTD 3Q'22.

Capital returned to shareholders totaled $190 million during the year to date period, consisting of $137 million in share repurchases, inclusive of $125 million of open market repurchases and $12 million of repurchases to satisfy requirements of equity compensation plans, and $53 million in regular dividends.

Cash Settlement Method Election and Repurchase of Convertible Notes
During 2Q'23, KBR made an irrevocable election to use cash as the settlement method (as opposed to shares or a combination of cash and shares) to settle the principal and any excess value upon early conversion or maturity of the $350 million principal amount of convertible notes due November 2023. This election triggered a change in accounting treatment for both the convertible notes and the related note hedge. Previously these instruments qualified for an equity exemption under ASC 815 Derivatives and Hedging because share settlement was an available option. However, as of the date of the cash settlement election, the convertible notes and the related hedge no longer qualified for this exemption, and as a result, the conversion option of the convertible notes and the note hedge required fair value measurement on the date of such election.

As a result of the above cash settlement method election and partial repurchase and the partial termination of the corresponding portions of the note hedge and warrants, we recorded a YTD 3Q'23 loss of $428 million, of which $114 million was recorded in the current quarter related to the accretion of convertible notes debt discount. These amounts are not tax deductible and have been added back to Adjusted EPS. Refer to Note 18 "Cash Election and Repurchase of Convertible Notes" in our Form 10-Q for the quarter ended September 29, 2023 for further details.

Subsequent Event
On November 1, 2023, we retired the remaining principal amount of convertible notes totaling $250 million. The warrants associated with the convertible notes remain outstanding and mature in the first half of 2024.

Reaffirms Fiscal 2023 Guidance
The table below summarizes fiscal 2023 guidance and represents our views as of November 2, 2023.

The company does not provide reconciliations of Adjusted EBITDA or Adjusted operating cash flows to the most comparable GAAP financial measures on a forward-looking basis because the company is unable to predict with reasonable certainty the ultimate outcome of legal proceedings, unusual gains and losses, and acquisition-related expenses without unreasonable effort, which could be material to the company's results computed in accordance with GAAP.

Conference Call Details
The company will host a conference call to discuss its third quarter financial results on Thursday, November 2, 2023, at 7:30 a.m. Central Time. The conference call will be webcast simultaneously through the Investor Relations section of KBR's website at investors.kbr.com. A replay of the webcast will be available shortly after the call on KBR's website or by telephone at +1.866.813.9403, passcode: 821350.

About KBR
We deliver science, technology and engineering solutions to governments and companies around the world. KBR employs approximately 34,000 people worldwide with customers in more than 80 countries and operations in 33 countries. KBR is proud to work with its customers across the globe to provide technology, value-added services, and long-term operations and maintenance services to ensure consistent delivery with predictable results. At KBR, We Deliver.
Visit www.kbr.com

Forward-Looking Statements
The statements in this press release that are not historical statements, including statements regarding our expectations for our future financial performance, effective tax rate, operating cash flows, contract revenues, award activity, our business strategy, interest expense, and our plans for raising and deploying capital, paying dividends and settling our convertible notes at maturity, 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: uncertainty, delays or reductions in government funding, appropriations and payments, including as a result of continuing resolution funding mechanisms, government shutdowns or changing budget priorities;  the ongoing conflict between Russia and Ukraine and the related impacts on our business as we continue to carry out efforts to wind down operations in Russia; potential adverse economic and market conditions, such as interest rate and currency exchange rate fluctuations, the company's ability to manage its liquidity; 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; 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; the possibility of cyber and malware attacks; 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.

The company'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 the company has identified that may affect its business, results of operations and financial condition. Except as required by law, the company undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

Government Solutions backlog and options at September 29, 2023 totaled $16.8 billion, up $1.1 billion compared to December 31, 2022. Sustainable Technology Solutions backlog at September 29, 2023 totaled $5.0 billion, up $1.0 billion compared to December 31, 2022.

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 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.

EBITDA and Adjusted EBITDA
We evaluate performance based on EBITDA and Adjusted EBITDA. EBITDA is defined as Net income (loss) attributable to KBR, plus interest expense; charges associated with Convertible Notes; other non-operating expense; provision for income taxes; and depreciation and amortization. Adjusted EBITDA excludes certain amounts included in EBITDA. EBITDA and Adjusted EBITDA for each of the three- and nine-month periods ended September 29, 2023 and September 30, 2022 are considered non-GAAP financial measures under SEC rules because EBITDA and Adjusted EBITDA exclude certain amounts included in the calculation of net income (loss) attributable to KBR in accordance with GAAP for such periods. Management believes EBITDA and Adjusted EBITDA afford investors a view of what management considers KBR's core performance for each of the three- and nine-month periods ended September 29, 2023 and September 30, 2022 and also affords investors the ability to make a more informed assessment of such core performance for the comparable periods.

Adjusted EPS
Adjusted earnings per share (Adjusted EPS) for each of the three- and nine-month periods ended  September 29, 2023 and September 30, 2022 is considered a non-GAAP financial measure under SEC rules because Adjusted EPS excludes certain amounts included in the Diluted EPS calculated in accordance with GAAP for such periods. The most directly comparable financial measure calculated in accordance with GAAP is Diluted EPS for the same periods. Management believes that Adjusted EPS affords investors a view of what management considers KBR's core earnings performance for each of the three- and nine-month periods ended September 29, 2023 and September 30, 2022 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-month periods ended September 29, 2023 and September 30, 2022 by adjusting Diluted EPS for the items included in the table below.

We have calculated the 2023 guidance for Adjusted EPS by adjusting Diluted EPS for the items included in the table below.

Adjusted Cash Flows Provided by Operating Activities and Adjusted Free Cash Flows
Adjusted operating cash flows and Adjusted free cash flows are considered non-GAAP financial measures under SEC rules.  Adjusted operating cash flows exclude certain amounts included in the cash flows provided by operating activities calculated in accordance with GAAP. Adjusted free cash flows exclude capital expenditures from Adjusted operating cash flows. The most directly comparable financial measure calculated in accordance with GAAP is cash flows provided by operating activities. Management believes that Adjusted operating cash flows and Adjusted free cash flows afford investors a view of what management considers KBR's core operating cash flow performance and also afford investors the ability to make a more informed assessment of such core operating cash generation performance.

We have calculated Adjusted operating cash flows and Adjusted free cash flows for each of the three- and nine-month periods ended September 29, 2023 and September 30, 2022 by adjusting operating cash flow provided by operating activities for items included in the table below.

Revenue ex-OAW

Adjusted EBITDA ex-Gains

Net Income Attributable to KBR ex-Nonrecurring Charges

SOURCE KBR, Inc.