KBR Announces Second Quarter 2019 Financial Results
HOUSTON, July 31, 2019 /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 second quarter 2019 financial results.
"I am pleased to report another strong quarter of earnings, bookings and cash generation," said Stuart Bradie, KBR President and CEO, as the company announced consolidated quarterly results. KBR's 12% top line growth was led by Government Solutions that achieved its sixth consecutive quarter of double digit organic revenue growth and Technology Solutions that delivered 29% organic growth. Consolidated book-to-bill, excluding the work-off of our long-term privately financed initiatives, was strengthened by a robust 2.2x registered by Energy Solutions comprised predominantly of cost reimbursable services. "Combined with the stability of earnings afforded by our long-term contracts, our bookings momentum provides line of sight to KBR's growth into the future," Bradie said. "Our people continue to demonstrate unwavering commitment to delivering mission critical, top quality service across the globe that underpins the profitable, cash generative results we present today. I wish to thank each member of our team for their contributions in achieving ten straight quarters of meeting or exceeding expectations," said Bradie.
Second Quarter Financial Results
Three Months Ended June 30, Six Months Ended June 30,
Dollars in
millions,
except share
data 2019 2018(1) 2019 2018(1)
Revenue $
1,422 $
1,267 2,762 2,305
Operating
income $
92 $
100 $
170 $
279
Net income
attributable
to KBR $
48 $
44 $
88 $
180
Adjusted
EBITDA(2) $
117 $
101 $
223 $
183
Diluted EPS $
0.34 $
0.31 $
0.62 $
1.27
Adjusted
EPS(2) $
0.41 $
0.35 $
0.77 $
0.70
Operating cash
flow $
33 $
94 $
81 $
(36)
____________
(1)
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 June 30, 2019 Form 10-Q for
further information.
(2)
See additional
information at the end of this
release regarding non-GAAP
financial measures.
Summary Results for the Quarter Ended June 30, 2019
-- Overall revenue growth of 12% attributable to the following:
-- 19% growth in Government Solutions, 16% organic, underpinned by
on-contract growth and new work awarded under our portfolio of
well-positioned contracting vehicles; on-contract growth across our
logistics business; continued disaster recovery work for the U.S.
Air Force at Tyndall Air Force Base; expansion of systems
engineering, test and evaluation, modernization, systems integration
and program management services in our US engineering business; and
growth from SGT, acquired in late April 2018;
-- 29% organic revenue growth in Technology Solutions attributable to
strong execution across our chemical, petrochemical, refining and
ammonia projects and expanded proprietary equipment sales
-- Equity earnings favorably impacted by an EPC project close-out and
continued strong performance by Brown & Root Industrial Services in our
Energy Solutions business;
-- SG&A increased related to launch of our new brand and website and some
continued ERP implementation expenses; and
-- Interest expense and income taxes are in line with expectations.
Changes in reporting, effective January 1, 2019:
-- We changed the name of our Government Services segment to "Government
Solutions", our Technology segment to "Technology Solutions", and our
Hydrocarbons Services segment to "Energy Solutions".
-- Effective January 1, 2019, we elected to classify certain indirect costs
incurred as overhead (included in "Cost of revenues") or general
administrative expenses for U.S. GAAP reporting purposes in the same
manner as such costs are defined in our disclosure statements under U.S.
Government Cost Accounting Standards. We reclassified $31 million and
$67 million from "Cost of revenues" to "Selling, general and
administrative expenses" for the three and six months ended June 30,
2018. There was no impact on consolidated or segment operating income or
net income as previously reported.
Liquidity and Capital Structure
-- Year-to-date operating cash flow of $81 million, or 92% net income
conversion;
-- Gross and net debt leverage of 2.9x and 1.5x, respectively; continued
gross debt de-leveraging attributable to pay down of debt in the quarter
of $47 million, including $32 million of elective payments, and growing
EBITDA; and
-- Previously disclosed Ichthys funding expectations remain unchanged.
Notable New Business Awards/Developments:
Quality bookings continue to support the Company's long-term outlook. Consolidated second quarter 2019 book-to-bill was 1.5x, excluding the workoff of our long-term private finance initiatives. Our Government Solutions and Energy Solutions businesses led the Company in bookings, winning contracts aligned with our deep technical expertise and commercial risk strategies. Notable bookings in the second quarter include the following:
-- A new three-year award in our Government Solutions business by the U.K.
Ministry of Defence to provide communications network support and to
deliver training services in the Middle East.
-- A significant recompete award in our Government Solutions business by
the U.S. Marine Corps (USMC) to provide worldwide maintenance and supply
chain services for the USMC Blount Island Command. The ceiling value of
this potential eight-year contract is $950 million.
-- A reimbursable contract award in our Energy Solutions business to
provide FEED and EPC services to a tier one company to support the
installation and construction of terminal facilities, not including
storage tanks, to handle Permian Basin crude oil and condensate for
transport to the Gulf Coast.
Also notable during the quarter was our selection as preferred bidder for the engineering, procurement, construction and commissioning contract for Train 4 at Freeport LNG's export facility. Under the terms of the expected EPC contract, KBR will provide engineering, procurement, construction, commissioning and startup of a nominal 5 mtpa LNG train and associated gas pre-treatment plant for the export of U.S. gas to international markets. We expect to record this award into backlog when the project achieves Final Investment Decision.
We were also awarded a new five-year, $200 million contract in our Government Solutions business to provide launch range operations at NASA's Wallops Flight Facility. Under this contract, we will perform a broad range of work, including radar, telemetry, logistics, tracking and communications services for flight vehicles; we will test and maintain communications and electronic systems; and we will operate ground, spacecraft and launch vehicle processing systems. We expect to record the value of this project into backlog in the third quarter 2019.
Earlier this month, Methanex announced Final Investment Decision for its Geismar 3 methanol project for which we completed the front end engineering design. We will continue to work closely with Methanex to provide reimbursable EPC services for a 1.8 million tonne per year world-scale methanol operating plant located adjacent to Methanex's two existing Geismar facilities. We expect to record the value of this reimbursable EPC contract into backlog in the third quarter 2019.
Reaffirming Guidance
KBR reaffirms 2019 GAAP EPS guidance with a range of $1.29 to $1.44, and Adjusted EPS guidance with a range of $1.58 to $1.73 per share. Our Adjusted EPS guidance excludes legacy legal costs for U.S. Government contracts, non-cash imputed interest on the conversion option of the convertible debt, acquisition and integration related costs, amortization related to the consolidation of Aspire and incremental 2019 interest expense associated with funding the Ichthys project. A reconciliation of GAAP EPS to Adjusted EPS guidance is included at the end of this release.
Operating cash flows for 2019 are estimated to range from $175 million to $205 million. Our estimated effective tax rate for 2019 is estimated to range from 23% to 25%.
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 approximately 38,000 people worldwide (including our joint ventures), with customers in more than 80 countries, and operations in 40 countries, across three synergistic global businesses:
-- Government Solutions, 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 Solutions, featuring proprietary technology, equipment,
catalysts, digital solutions and related technical services for the
monetization of hydrocarbons, including refining, petrochemicals,
ammonia and specialty chemicals, as well as inorganics; and
-- Energy Solutions, 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.
KBR, Inc.: Consolidated Statements of Operations
(In millions, except for per share data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2019 2018(1) 2019 2018(1)
---
Revenues:
Government Solutions $
1,033 $
868 $
2,008 $
1,545
Technology Solutions 93 72 185 134
Energy Solutions 296 327 568 626
Subtotal 1,422 1,267 2,761 2,305
Non-strategic Business - 1
Total revenues 1,422 1,267 2,762 2,305
Gross profit (loss):
Government Solutions 112 85 202 155
Technology Solutions 26 27 53 48
Energy Solutions 22 49 58 77
Subtotal 160 161 313 280
Non-strategic Business - (2)
Total gross profit 160 161 313 278
Equity in earnings of unconsolidated affiliates:
Government Solutions 8 6 14 14
Energy Solutions 7 6 1 19
Total equity in earnings of unconsolidated affiliates 15 12 15 33
Selling, general and administrative expenses (88) (72) (166) (143)
Acquisition and integration related costs (1) (1) (2) (4)
Gain on disposition of assets 6 10
Gain on consolidation of Aspire subcontracting entities - 115
Operating income 92 100 170 279
Interest expense (26) (17) (51) (23)
Other non-operating income (loss) 2 (1) 7 (3)
Income before income taxes and noncontrolling interests 68 82 126 253
Provision for income taxes (18) (18) (34) (52)
Net income 50 64 92 201
Net income attributable to noncontrolling interests (2) (20) (4) (21)
Net income attributable to KBR $
48 $
44 $
88 $
180
Adjusted EBITDA(2) $
117 $
101 $
223 $
182
Diluted EPS $
0.34 $
0.31 $
0.62 $
1.27
Adjusted EPS(2) $
0.41 $
0.35 $
0.77 $
0.70
(1)
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 June 30, 2019 Form 10-Q for
further information.
(2)
See additional
information at the end of this
release regarding non-GAAP
financial measures.
KBR, Inc.: Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Six Months Ended June 30,
2019 2018
---
Cash flows from operating activities:
Net income $
92 $
201
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and
amortization 48 30
Equity in earnings of
unconsolidated affiliates (15) (33)
Deferred income tax expense - 34
Gain on disposition of
assets (10)
Gain on consolidation of
Aspire subcontracting
entities - (115)
Other 12 6
Changes in operating assets
and liabilities (35) (159)
Total cash flows provided
by (used in) operating
activities 81 (36)
Cash flows from investing activities:
Purchases of property,
plant and equipment (6) (11)
Investments in equity
method joint ventures (131) (162)
Proceeds from disposition
of assets and investments 6 1
Acquisition of businesses,
net of cash acquired - (357)
Adjustments to cash due to
consolidation of Aspire
subcontracting entities - 197
Total cash flows used in
investing activities (131) (332)
Cash flows from financing activities:
Payments to reacquire
common stock (3) (3)
Acquisition of remaining
ownership interest in
joint ventures - (56)
Distributions to
noncontrolling interests (4)
Payments of dividends to
shareholders (23) (23)
Net proceeds from issuance
of common stock 2 1
Borrowings on revolving
credit agreements - 250
Borrowings on long-term
debt - 959
Debt issuance costs - (46)
Payments on revolving
credit agreements - (605)
Payments on short-term and
long-term borrowings (47) (5)
Other (3)
Total cash flows (used in)
provided by financing
activities (78) 472
Effect of exchange rate
changes on cash - (24)
(Decrease) increase in cash
and equivalents (128) 80
Cash and equivalents at
beginning of period 739 439
Cash and equivalents at end
of period $
611 $
519
KBR, Inc.: Backlog Information (a)
(In millions)
(Unaudited)
June 30, December 31,
2019 2018
---
Government
Solutions $
10,689 $
11,005
Technology
Solutions 500 594
Energy Solutions 2,634 1,896
Subtotal 13,823 13,495
Non-strategic
Business 1 2
Total backlog $
13,824 $
13,497
(a) Backlog generally represents the dollar
amount of revenues we expect to realize
in the future as a result of performing
work on contracts and our pro-rata share
of work to be performed by unconsolidated
joint ventures. We generally include
total expected revenues in backlog when a
contract is awarded under a legally
binding agreement. In many instances,
arrangements included in backlog are
complex, nonrepetitive and may fluctuate
due to the release of contracted work in
phases by the customer. Additionally,
nearly all contracts allow customers to
terminate the agreement at any time for
convenience. Where contract duration is
indefinite and clients can terminate for
convenience without having to compensate
us for periods beyond the date of
termination, projects included in backlog
are limited to the estimated amount of
expected revenues within the following
twelve months. Certain contracts provide
maximum dollar limits, with actual
authorization to perform work under the
contract agreed upon on a periodic basis
with the customer. In these arrangements,
only the amounts authorized are included
in backlog. For projects where we act
solely in a project management capacity,
we only include the value of our services
on each project in backlog.
We define backlog, as it relates to U.S.
government contracts, as our estimate of
the remaining future revenue from
existing signed contracts over the
remaining base contract performance
period (including customer approved
option periods) for which work scope and
price have been agreed with the customer.
We define funded backlog as the portion
of backlog for which funding currently is
appropriated, less the amount of revenue
we have previously recognized. We define
unfunded backlog as the total backlog
less the funded backlog. Our GS backlog
does not include any estimate of future
potential delivery orders that might be
awarded under our government-wide
acquisition contracts, agency-specific
indefinite delivery/indefinite quantity
contracts, or other multiple-award
contract vehicles nor does it include
option periods that have not been
exercised by the customer.
Within our GS business segment, we
calculate estimated backlog for long-
term contracts associated with the U.K.
government's privately financed
initiatives or projects ("PFIs") based on
the aggregate amount that our client
would contractually be obligated to pay
us over the life of the project. We
update our estimates of the future work
to be executed under these contracts on a
quarterly basis and adjust backlog if
necessary.
We have included in the table above our
proportionate share of unconsolidated
joint ventures' estimated revenues. Since
these projects are accounted for under
the equity method, only our share of
future earnings from these projects will
be recorded in our results of operations.
Our proportionate share of backlog for
projects related to unconsolidated joint
ventures totaled $2.9 billion at June 30,
2019 and $3.0 billion at December 31,
2018. Our backlog included in the table
above for projects related to
consolidated joint ventures includes 100%
of the backlog associated with those
joint ventures and totaled $5.1 billion
at June 30, 2019 and $5.3 billion at
December 31, 2018.
We estimate that as of June 30, 2019, 32%
of our backlog will be executed within
one year. Of this amount, 85% will be
recognized in revenues on our condensed
consolidated statement of operations and
15% will be recorded by our
unconsolidated joint ventures. As of June
30, 2019, $154 million of our backlog
relates to active contracts that are in a
loss position.
As of June 30, 2019, 10% of our backlog
was attributable to fixed-price
contracts, 53% was attributable to PFIs
and 37% of our backlog was attributable
to cost-reimbursable contracts. For
contracts that contain both fixed-price
and cost-reimbursable components, we
classify the individual components as
either fixed-price or cost-reimbursable
according to the composition of the
contract; however, for smaller contracts,
we characterize the entire contract based
on the predominant component. As of June
30, 2019, $9.3 billion of our GS backlog
was currently funded by our customers. As
of June 30, 2019, we had approximately
$3.3 billion of priced option periods for
U.S. government contracts that are not
included in the backlog amounts presented
above.
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, net; provision (benefit) for income taxes; other non-operating expense (income); and depreciation and amortization. Adjusted EBITDA excludes certain amounts included in EBITDA. EBITDA and Adjusted EBITDA for each of the three and six months ended June 30, 2019 and 2018 is considered a non-GAAP financial measure under the SEC's rules because EBITDA and Adjusted EBITDA for each such period excludes certain amounts included in the calculation of net income attributable to KBR in accordance with GAAP for such periods. Management believes that EBITDA and Adjusted EBITDA for each of the three and six months ended June 30, 2019 and 2018 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, EBITDA and Adjusted EBITDA affords investors a view of what management considers KBR's core performance for each of the three and six months ended June 30, 2019 and 2018 and also affords investors the ability to make a more informed assessment of such core performance for the comparable periods.
Three Months Ended June 30, Six Months Ended June 30,
Dollars in millions 2019 2018 2019 2018
---
Net Income Attributable to KBR $
48 $
44 $
88 $
180
Add Back:
Interest expense 26 17 51 23
Provision for income taxes 18 18 34 52
Other non-operating (income)
loss (2) 1 (7) 3
Depreciation and amortization 23 17 48 30
Consolidated EBITDA $
113 $
97 $
214 $
288
Add back:
Legacy legal fees 3 3 7 6
Acquisition and integration
related costs 1 1 2 4
Gain on consolidation of
Aspire subcontracting
entities (115)
Adjusted EBITDA $
117 $
101 $
223 $
183
Adjusted EPS
Adjusted diluted earnings per share from net income attributable to KBR (Adjusted EPS) for each of the three and six months ended June 30, 2019 and 2018 is considered a non-GAAP financial measure under the SEC's rules because the Adjusted EPS for each such period excludes certain amounts included in the diluted earnings per share from net income attributable to KBR calculated in accordance with GAAP (EPS) for such periods. The most directly comparable financial measure calculated in accordance with GAAP is Diluted EPS for the same periods. Management believes that the Adjusted EPS for each of the three and six months ended June 30, 2019 and 2018 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 six months ended June 30, 2019 and 2018 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 six months ended June 30, 2019 and 2018 by adjusting EPS for the items included in the table below.
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Diluted EPS $
0.34 $
0.31 $
0.62 $
1.27
Adjustments:
Legacy legal fees $
0.01 $
0.02 $
0.04 $
0.03
Non-cash imputed
interest on
conversion option $
0.01
$ $
0.02
$
Acquisition and
integration related
expenses $
0.01
$ $
0.01 $
0.02
Amortization related
to Aspire
acquisition $
0.02 $
0.02 $
0.04 $
0.04
Incremental interest
on Ichthys $
0.02
$ $
0.04
$
Gain on consolidation
of Aspire
subcontracting
entities
$
$
$ $
(0.66)
Adjusted EPS $
0.41 $
0.35 $
0.77 $
0.70
We have calculated the Adjusted EPS for the 2019 guidance by adjusting EPS for the items included in the table below.
Low High
Diluted earnings per share: $
1.29 $
1.44
Adjustments:
Legacy legal fees $0.06
Non-cash imputed interest on
conversion option $0.06
Acquisition and integration related
expenses $0.02
Amortization related to Aspire
acquisition $0.06
Incremental interest on Ichthys $0.09
Adjusted EPS Guidance $
1.58 $
1.73
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SOURCE KBR, Inc.
