Folks, thanks for joining us. I appreciate you guys making the trip in inclement weather. My name is Gautam Khanna. I'm the research analyst at TD Cowen, and that covers KBR. We're very honored to have Mark Sopp, Chief Financial Officer of KBR, and Jamie DuBray, who's head of investor relations as well.
The real boss is here, yes.
All right. Gautam, thanks for having us.
Of course.
Yeah.
I've known each other a long time. It's great to be on stage with you, and thank you for your interest in KBR and your coverage for a long time.
Yeah, of course. It's been fun.
You bet. Appreciate it.
So this is going to be just kind of an interview format, and if you have any questions at the end, we'll try to get them in, but these things go fast, unfortunately. So, Mark, big picture. You know, obviously, a lot of concern in the sector right now from investors, the concerns over DOGE and how that might impact the industry. I wanted to get your just initial impressions on what may change, if anything, and has anything changed in the KBR business, given kind of all the external noise that we're hearing in the marketplace.
Yeah, a lot of noise, but we actually look at the environment with a lot of enthusiasm, optimism for reasons I'll lay out. So, but the markets are perplexing, and there's a lot of change going on. Big picture, we're a global business, as you know, and we'll talk about that. But roughly 35%-40% of our EBITDA production is with the U.S. federal government, and big changes happened in the U.S. federal government here recently. We really think we're well positioned with the themes of the new administration. When you look at KBR, we really operate in three areas. We have a national security business. We have a human space exploration business vis-à-vis or via NASA, and we have an energy and chemicals business, which is a very global commercial-only business.
And so that 35%-40% rests in national security and NASA. And so we see an administration that is very focused on actually improving the national security posture of our country. We see DOGE as a way to help fund that improvement over time. Specifically, we see the administration really emphasizing space superiority, missile defense, digital warfare, troop support, wherever they may be in various fashions, and cybersecurity kind of penetrates all of that, as you well know. And through, you know, good strategy, but maybe luck as well, we've really positioned the portfolio to be very laser-focused on those things I mentioned. If you look at our Centauri acquisition a few years ago, 100% missile space. If you look at LinQuest, it's a mixture of missile space and digital warfare. And so we're really happy to have made those bets.
And so we have three business units under our gov business that we report, and then a fourth one that's international. But if you look at readiness and sustainment, that is all about troop support. And we really feel that this administration is going to support our troops. Number two is science and space. The administration has gone out of the way to endorse the mission to the moon, the human mission to the moon. And so we support human space exploration, always have almost 100% of that business unit is focused on that area. And then defense and intelligence is all about space superiority, digital defense modernization. So those are really well positioned, and we feel good about the direction, not only in the U.S., but internationally. The administration is quite forceful at international governments ponying up more on the defense side.
And so we're bullish on our U.K. Ministry of Defence outlook and also Australia, and all three of them working together on something like AUKUS, which is all about the INDOPACOM shift. We're well positioned there. On the commercial side of our business, there was an LNG pause in the last administration that was lifted on day one, as promised, and we see more activity in terms of interest in projects, and hopefully things like FID projects are much more likely in this environment. But also just the whole energy security environment, there's been a lot of disruption around the world in supply chain, yet demand is growing and growing and growing. And our portfolio has IP and service offerings in the traditional but cleaner space.
We call that gray, but also in a decarbonized or more aggressively decarbonized set of offerings that we call blue, and then a pure green set of offerings that some clients are very much committed to, and so we're seeing a lot of robust activity across the gray and blue and green energy space around the world, and we play those best based on how the markets and clients in particular are more committed, so for those, you know, those three areas that we see that we offer in the marketplace are actually looking very healthy from an end market perspective today.
So first of all, has KBR met with any of the DOGE leadership yet or?
We have ways to access DOGE on an as-needed basis. It's a very new organization. Our preference is to team with our partners like PSC. I see David in the audience here who represents a bunch of us, and I think they're very effective at representing our industry in that sort of setting. So that's kind of the method chosen at this point.
I'm just curious, like, what advice or what do you see that could be improved upon that would actually help contractors such as KBR work with the government? Any advice you'd give them unsolicited here today?
Look, I think that, you know, a speaker later on today, Arnold Punaro, has been very outspoken about opportunities to save funds in the DOD, to improve the speed of procurements, and to put dollars to better use for the warfighter. And, you know, written books about that, and I think the DOGE approach is, you know, very sudden and very different, but I think it actually has a real shot at making a difference. And we endorse it for that reason, because we think if DOGE is successful, our national security apparatus will be more successful, and KBR will be more successful. So I think HomeSafe, that'll come up later, I'm sure, is a really good example of the types of things that our country can do.
That program is all about getting rid of a legacy paper manual bureaucratic layered ecosystem that at the end of the day was costly and did not deliver a good outcome for our troops, and using digital modernization, stripping out layers that don't need to be there, and improving the outcomes to the warfighter in this case by making the whole supply chain accountable and toggling between them as quality is assessed is a modern way to do business. It's a commercial way to do business, and I think this administration is very much supportive of more of that across the defense, the defense apparatus, and we certainly want to be a part of that in KBR, and HomeSafe is a start.
Right. We'll talk about HomeSafe in some detail later on. I was wondering also, you mentioned actually at the outset the new administration is kind of more pro-LNG exports and the like. Anything, like, on a net basis across the STS portfolio, is the new administration just better, do you think, in terms of alignment with what KBR does well, or is it a mixed bag? Because you mentioned green, blue, green, gray, et cetera. I don't know if there's less green, and if that's enough of an offset where the good, you know, LNG stuff happens. Like, I don't know what the net is. I'm curious, does your view on growth change from six months ago?
Yeah, I think I would say we are of the view that this administration is a net good for us. Relative to green and blue and gray, that's really not, I think, an administration thing. I think what we are seeing, while there are some customers and countries that are very committed to green, green is expensive and demand is growing. And we see, you know, as much as everyone wants green tomorrow, it's going to take time for it to be economically feasible, and therefore greener capabilities like blue are more able to pencil out, and we're seeing more demand there. So good news for us is the gray and the blue projects tend to be bigger, longer than the gray ones are early stage, quicker churn. And so I think the net there economically for us is favorable.
Yeah. Okay, that's helpful.
Yep.
Yeah, and obviously one of the things that people tend to focus on is the Ukraine war potentially ending. You know, President Trump has put someone in charge of trying to end the conflict within, you know, the first three months. If that were to happen, obviously you guys do troop support for European Command. How quickly does that phase down? Does it phase down anytime soon?
First of all, that'd be a great outcome. So let's hope for that outcome.
Yeah, I agree.
But for us, we serve that theater through our European Command LOGCAP V program, and it really has two parts. There's a base operations support, which is really sustaining. It's been for a long time. So we have troop support mechanisms in Poland, in Germany, in Romania, all these places, and that's been static at, you know, several hundred million dollars per year for KBR at normative margins that you would, you know, expect in a base operations sort of support mechanism. And then it's been plussed up for this conflict, and that's at a different and lower margin profile, which is normally the case as well when you have these sort of surge activities. For whatever it's worth, the new SecDef did announce this morning that they expect to keep the troop strength about the same there foreseeably, and so we're not expecting a lot of change.
But if we do see a peaceful outcome there, you know, we might have a downtick in those incremental revenues at low margin. You know, at the end of the day, that's. I'll take that trade.
Right.
What we, you know, and then we'll see what happens elsewhere in the world, and so there tend to be hotspots from time to time, and we, as I think the leading provider of life support systems, if you will, for our troops that are in difficult environments, we do that really well, and we've done it for decades, and we'll be there when asked.
So to your point, though, because I think perception sometimes is that it's a bigger business than it actually is.
Correct.
The profit contribution is below the segment average.
Yes, sir.
Of that work, and we're talking $200 million each, right?
Yes, sir.
Of roughly the size. So it's fairly de minimis.
It is de minimis. The bigger things we talked about earlier are much more consequential to the story.
Yeah. Actually, I mean, the LNG thing is very interesting because you guys booked a number of projects recently. They have to go to FID, I understand that, but maybe if you could update us on where things stand with Lake Charles and some of the others that are in the hopper.
Yeah, so what I would say is we expect that the demand for LNG will continue to outpace the amount of supply that's in the market for some time. There has been some reduction of that gap, but there's still a gap, and I think that gap even gets bigger when you look at, you know, beyond 2030. And the reason for that is LNG is a cleaner traditional offering. There's lots of gas. Gas is cheap, and there's major need for that type of power source, particularly in Asia, which is a, you know, massively growing economy. And so it feels like LNG is going to be the energy source of choice, you know, 2040, 2050, possibly beyond until green can be more affordable and more widely distributed. Good news is KBR has a rich history of LNG expertise.
There's only a very few number of players in the world that can help clients bring a multi-billion-dollar, very technical, very regulated plant into service and do it well. We're really pleased to have announced recently that for Plaquemines LNG, fastest gas to market perhaps ever achieved, less than three years. And so it is producing roughly 4-5 million metric tons per year on a daily basis. So that's the pace of production right now. That's about a 20%-25% of its end state of 20 million tons per year. And so they are exporting today, and we're really proud that we were able to help them do that very quickly, which means economics for the developer, and that helps them enable further project volume going forward.
Sure.
Plaquemines will continue to impact our financials all the way through 2025 as we go from the $4 million-$5 million pace to the 20 and well into 2026 as well.
Okay.
Lake Charles is a program that we won in partnership with Technip Energies, 50/50 joint venture, another joint venture here, and that project is of similar size than Plaquemines at the end of the day. We believe that the odds of it reaching successful FID have only increased with the new administration and the ban lift that happened on the first day of the presidency. If that continues at pace, we can expect an FID probably in the Q3 , maybe the Q4 , something like that. It's possible it's earlier, but that we'd kind of peg it middle of the year in the summer. If that occurs, we would start some level of activity this year. Probably wouldn't be noticeable in the financials for KBR, but it would be meaningfully ramped in 2026, which kind of lines up well with Plaquemines as I've laid out.
So that would be, you know, an ideal scenario, and we are in early stage, whether pre-FEED, FEED, consulting for a number of other projects, both in the U.S. but also internationally, some of which we've announced, and so we think the whole LNG sort of category will be, you know, something we'll be talking about and impacting our growth story quite a bit for the foreseeable future.
So you raised an interesting point on Plaquemines. So Plaquemines, maybe if you could describe what you actually do on the project and what the tail is to that work after the projects are up and running and they're at full rate of production. So what is KBR's role? You know, how does the, maybe if you could describe the work share that you have throughout the lifecycle of the project, okay, if you will?
Yeah, so we're a 45% joint venture partner here, and so having, you know, been associated with a lot of the LNG facilities around the world for a long time, we are a designer, we're an engineer, and we oversee the program of the construction itself. And so we are program engineers that are overseeing contractors, making sure first and foremost that we are operating as safe as possible, and we very deliberately and very successfully introduce safety programs in all the projects we do, and our track record speaks for itself there. We talk about it. First slide of every earnings call, it's that important to us. And we just, we work with the client to make sure, you know, there's always changes along the way that we, you know, manage the supply chain.
We deliver a schedule that delivers costs that delivers good economics to the developer at the end of the day. We get very involved in the commissioning process, and we also have, you know, a warranty obligation that sticks around for a while too, and so from the very beginning to the very end, we are involved, so any projects need from three years to five or even six, and you have a revenue and profit stream that goes throughout that entire time, and you usually use an EAC accounting sort of construct based on percentage of completion, so that's, I hope that answers your question.
No, it does.
Because it's a fascinating role, but it's really engineering heavy, and that extends to mechanical, electrical, civil, because all parts play there.
So I mean, one of the questions, and I'm sure you get it all the time, I certainly get it, is the backlog optics, you know, at STS because of the JV accounting. And so that's what I was trying to get at. It's like, you know, back in Q2, the reported backlog declined quite a bit, but that was because of the, it doesn't flow through revenue, but it comes out of backlog. So in terms of the level of work on that project, Plaquemines, in 2026, is it half the level of 2025? Like, do you have any sort of ballpark so we can understand how that backlog might actually trend up?
Yeah, backlog is confusing, and everyone does it different, and I'm not a huge, you know, backlog fan for that reason, so it can distort reality. So I think hopefully companies that have track records to deliver against the guide is maybe something that's more useful, but I think the order of work in 2026 is half, maybe a little less than half relative to the 2025 effort you'd expect to see.
Gotcha.
That is why I think the timing of Lake Charles is interesting.
Helps. Yeah, no, absolutely. And then in 2027, does it go away? Is it gone?
There'll be some inflow. We still have an obligation on the warranty side. There may be debottlenecking tweaks here and there that we're called in to do. So I think our association with that project will continue for some time, so I wouldn't be surprised if there's some role there in 2027.
But to your point, FID on Lake Charles, if that were to happen in the second half of this year, it would ramp pretty significantly, presumably in 2026.
Correct.
And so you'd have.
Hopefully we'll prosecute other things in the pipeline as well.
At the same time. Okay, gotcha. Maybe if you could talk about the Saudi Aramco Liquid to Chemicals projects, because that was a big opportunity and you guys won a couple positions. What's the latest there?
I'd like to talk about that, but also Saudi in general, because that's really the bigger story for KBR.
Yeah.
LTC is going as scheduled, so there's really no change to what we said. You know, last year was, not in a bad way, but there were some changes last year, and our role settled out to be kind of the overall PMC for that program, and it will take its shape over the next many years. And we are the owner's engineer, if you will, which is a role we play with Aramco on a number of projects. That's just one of them. We just announced another one a couple weeks past that adds to the portfolio and our relationship with Aramco. I would say that we have about 12 to 1,300 people in that country right now that are serving Aramco, but also serving some of the infrastructure projects like Diriyah Gate, NEOM, and others we're working on.
It's one of our more modern workforces as well. It's really an exciting place to go see in terms of the types of talent we have there, and the liberation of the worker that has happened in that country is amazing. And so we all get a kick out of what that team is doing. We haven't reported yet, but I can tell you that the growth rate of our Middle Eastern business or region of STS is remarkable. It was last year. It's 23% from 2022 and 2024. We'll show a very consistent, very strong growth pattern there.
So we have great C-suite access through all the big players in that region, not just Saudi, and we've been there for decades, and that's kind of opened the door to this new critical infrastructure opportunity I just talked about with Diriyah Gate and NEOM, which is a quasi-STS slash government collaboration, which starting in 2025 will be reported only in STS. And so we're excited about that too.
Right. Actually, going back to that big LTC project, you did win that oversight role, KBR did, across all the crackers, correct?
Yes, correct.
Was there at one point, I thought KBR might actually lead the construction of one of the crackers in particular. Did that?
That was an original plan, which for a variety of customer-driven reasons is not proceeding at this time.
Okay. Could it get added back? Is there any talk of that?
There's a lot of money, and so they will ebb and flow as that customer often does.
Gotcha. I know this never gets a lot of play, but I'm curious about the plastics recycling business. I know that was the Mura Technology investments you guys have done. Are we any closer to those things actually being real-life projects that are?
We should take you there, so yes, you know, what it will produce, you know, remains in front of us in terms of real economics to the company, but we couldn't be more excited about delivering a first-of-a-kind, truly circular capability that is energy efficient, it's environmentally responsible, and it enables clients to take a wide range of plastics that were otherwise not previously recyclable and recycle them into pure hydrocarbons, which can be used for new plastics or other products. There's variation there, and so our collaboration with Mura and our part ownership of Mura will deliver their first plant. They already did, and they're producing plastics now, so that is a demonstration we can make to prospective clients, and then two more will happen in the first half of this year as well.
In the very near term here, we will take prospective clients to as much as three operating plants: Japan, South Korea, and the United States. We're hopeful that that triggers license sales and feasibility studies and FEEDs and all of that that is part of our business model to hopefully take that technology and, you know, someday become the next ammonia or SAF or all these patented capabilities we have in STS and hopefully deliver a stream of economics that includes licenses and proprietary equipment and services like pre-FEED, FEED, and ultimately PMC to bring something to life.
Right. But the demonstration facility is up and running, and the technology works. It's super critical.
Yes, and you can go see it in the U.K. right now.
Because it is working.
Yeah, no, it's interesting because that seemed very promising, so we're proud of that. We're proud of that. We're proud, and, you know, our fellow investor, Dow, is also a big part of that, and they're the offtake of the U.K. facility, and so they'll be able to tell their investors that, you know, their investment will start to show a return for them, particularly in the green credits that that embodies.
I ask the question because it's fascinating technology, but is it financially? Are we going to see it really in the numbers anytime? I just wonder how big are these opportunities ultimately?
You know, the ultimate economics to us can look just like a given ammonia project for us, so there's an upfront license opportunity that's pretty much all profit. There's a proprietary equipment that has margins that are consistent with STS margins, and then there's a services offering that can be, again, consistent with the STS margins, and so you're talking about similar size, similar margin profiles, similar different elements as you would any of our other proprietary offerings.
Okay.
And so I don't think you're going to see any financial consequences in 2025. I think we're going to be in a selling mode, but I'm sure hopeful that in 2026 we can announce not only some license wins, but services or proprietary equipment deals that come with those that will offer a stream of business over the following couple of years, just like our ammonia projects and refining projects do today.
Okay. Yeah, no, it's an interesting growth factor that's still out there.
Yeah, and hopefully, you know, you didn't mention it, but our sustainable aviation fuel capabilities are similar. So there's proprietary rights there, and there's a service offering there, and that can take the same shape as does plastics as compared to our other offerings. And we're always looking for more. Lithium extraction is another one. So, you know, the team of STS has shown a lot of commercial acumen to acquiring technology at a very low capital cost. We talked about this in our investor day and converting that to, in many cases, a fantastic ROIC. And so we're hoping to do more of that in the future, obviously.
Okay. I have to talk about HomeSafe because there was some news recently on it. It was a show-cause notice, or I can't remember the exact terminology, but there was something in the public domain about how quickly we're going to ramp the domestic moves. What's the latest on how that's going with moving capacity being signed up?
Yeah, probably talk all day about HomeSafe, but I will say we will cover it more in our earnings in a couple of weeks because it's on top of mind. And I give you credit, you more than the other analysts have really kind of studied this program and tried to understand the angles, and it's complex. I think big picture is, as I said, this is a poster child program for the types of opportunities that exist in our government to use technology to deliver better outcomes, lower cost. And our customer has been fabulous at endorsing that vision and bringing this to reality, and they still are.
Okay.
That said, it's hard. Transformation is really hard. You're really digitizing something that has been paper and manual for a very long time, and there's lots of layers in the legacy program and a lot of economics going to those layers that are by design being disintermediated, and so there are winners and losers in transformation, but the goal is to give a better move experience to our men and women in uniform. That will drive us every single day. That's going to drive the customer every day, and technology really can enable that, but the other goal is to get this task off of TRANSCOM's hands because they have bigger fish to fry in their mission, and then the other task is to save taxpayers' money through modernization, so all of those are still in play. The ramp-up is challenging.
We're working with our customer to ramp up at a pace that the supply chain can handle and we can handle. We have had, I can report this through our latest internal reporting, we can say, thankfully, that the service provided to the end user, the scores on those are significantly better than the legacy program. Okay, but that's not a surprise. They can track their move on an app, and that's, you know, people expect that now. We have people that actually provide customer service that you can call and talk to, which was very hard, you know, in the legacy situation. But we have missed some moves. We've been late on occasion. We didn't have the supply chain up to speed on the digital apparatus maybe, and so we have some things to learn, as you would expect in a transformation.
We're proud of our efforts thus far. We're far from perfect. The good news is, you know, we couldn't be more committed. The customer couldn't be more committed. There's some political resistance on the other side because there are winners and losers, and we're going to have to navigate through that together.
Do you feel like HomeSafe has signed up enough moving capacity to actually handle the scale of the project in 2025?
We're adding more suppliers every day, every month. So we've added every single month since we've started, we've added more. As I think you well know, the legacy program had a defined set of suppliers. We don't have a box around the supply chain here, so we can recruit from wherever and bring into the fold as long as they're committed to the end mission of quality. And so we've added more. Yes, we need to still add more. That's part of a ramp-up cycle that you'd expect. The trickle-down economics are a challenge because the old program is priced very different than the new program. And to really understand the new costs that they will have, which are now going to be more efficient because of the digital infrastructure, it's hard to price early stage.
So that's got to trickle down, and I think we just need more time and more moves under our belt. That's why a ramp that moves at a pace where the supply chain can handle it in terms of transition in is in everyone's best interest.
Yeah. I mean, it's a very, just editorializing, any bad move that happens gets a lot of press. So I mean, that's the one thing. It's like it's almost like a can't win. If you have one thing that goes wrong, it's in the front. It's on the front page, you know.
Transformational change is a challenge, but there's a real payoff in this case in the end if we work together.
Yeah. I was going to ask though, on the economics of it. I know you guys have never assumed high profit rates on this contract. Is it still kind of in line with what you guys were thinking previously? It's kind of a mid-single digit, you know, margin program when it gets to maturity or?
I think we've been very clear to expect sub-norm margin relative to our norm as we ramp up for a variety of reasons, fixing our own mistakes, but just the fixed cost element relative to a ramp will play into this, and so we want to be cautious and prudent on profit expectations as we ramp, but this is a 10-year program, and we're hoping it's a multi-decade program, so we're happy to contribute, if you will, in that way, and so measured pace, very cautious profit expectations, we may have to put more skin in the game to make sure this is successful, but again, we're playing the long game and making sure those three goals that I mentioned earlier are achieved with the customer's collaboration.
Makes sense. I know it's an awkward subject if you haven't reported earnings and all that. So I did want to ask, LinQuest won a fairly large contract the other day, and it appeared to be new business. Maybe if you could elaborate on that nearly $1 billion multi-year award?
First of all, LinQuest has been a real gem of an acquisition thus far. Strategic fit is perfect because it's all about military space and digital space supremacy, right, and so couldn't be more aligned with what we see as the national security priorities. But culturally, just a tremendous fit with, we're already bidding together on things. Really no resistance relatively, you know, the benefits transition can sometimes be a headache. No headaches here. So what a great team. The recent award is an IDIQ for just under $1 billion. It's a SBIR III program. And so those attributes I trust everyone in the room knows about, so this is cutting-edge R&D and technology insertion, the customer is Space Force, which is a great customer to have these days, and so that will play out in terms of production as tasking is decided and delivered.
But it's great to have that amount of capacity for this term to go after. And this just continues LinQuest's legacy of really strong organic growth, normative, low double-digit margins, so to speak, very high-end people, very high-end customers. So this is where contractors like us and others, I'm sure that are here, are really trying to focus.
Yeah, actually, it's interesting, but your point on bidding together. So have you seen the bid pipeline expand? Have you seen kind of synergy between the legacy KBR capability and LinQuest as you go to market?
Yeah, as is the case with every acquisition in government contracting, you got to take care of the people, but one of the first things you want to do is connect the business development apparatus so that you can go after things together with the increase you have in past performance and bona fides, and so that's absolutely what we've done here, and so we've inserted our team into theirs and vice versa to go after collaborative things. This particular win was not, so this was already in flight before the transaction, but we have increased the pipeline on our collaborations with LinQuest. Even besides that, as we discussed publicly, we set out a very deliberate funded program in 2024 to increase our bids by 50% in our U.S. government business, and we have done that.
That's something that I can say today because that's not a reported number, but submittals are increased very deliberately. We'll talk about the pipeline numbers themselves when we get together in two weeks.
Do you expect any slowdown in the pace of contract awards in this environment? Government service contract awards in particular.
I think that with any new administration, you have a transition that has to occur. You have a lot of empty cabinet positions. The strategy and the trickle-down of that strategy and the priorities takes time. You also have a CR in place, and in this case, it might last all year, and then you have DOGE that's out there. So there are reasons to believe that there might be some distractions. We need to be prepared for that. I think we are. I think we'll set our guide with that in mind. On the other hand, when there's a need in the national security area, it usually gets tackled, and so hats off to the folks in the DOD and the whole federal apparatus for somehow in these challenging types of situations getting work out the door.
And so I think we'll get what needs to get done, but I do think that the pace of awards does have the risk of slowing down because of those reasons.
Gotcha. But you haven't seen it yet.
No, I haven't seen it yet.
Early day.
Early day.
That's fair enough. I have to ask the question on separation because I'm sure you get it in every investor conversation. Historically, you guys have talked about the value of having both businesses, STS and GS. I'm curious, is it still a compelling synergy to be under one roof? We're seeing Honeywell deconsolidate. I wonder if I just am curious, is it just a sum of the parts exercise or are there operational synergies that are actually really valuable that strengthen both businesses?
Yeah. Well, the good news is that we've built two great businesses. For a while, STS was pretty infant in terms of its newly constructed business model. But that's come a long way really fast. I think as you could see through Q3, it's on pace to do darn near $400 million of EBITDA on an annualized basis. So bear in mind just a couple of years ago, that was 100 and change. Then GS, we call it GS. That's our government contracting business now, sorry. It's international business. It's diversified in and of itself. It has growth rates that are consistent with what you see in the marketplace, resiliency proven over time. I mentioned the alignment to the new administration already. So we think both are in great shape. We think there are some advantages being together.
There are opportunities that we do pursue together, but we also think as you grow in scale, you want your businesses to be more self-sufficient, and we specifically talked about that and reorganized in that fashion toward the end of 2024. We went public with that on January 8 or 6 or something like that, so we wanted to, just in the spirit of giving more autonomy in how the businesses operate, be close to the customer, corporate folks like me, not as smart as the folks in the line in terms of making decisions, and so we want them to migrate that way regardless, just for pursuit of growth and also operating efficiency. We've deliberately decreased our corporate cost center as a result, quite deliberately, $30 million annualized savings going forward just to sort of endorse that business model.
I think the success of the businesses, the end market strengths that we now see, the natural migration to be self-sufficient gives us strategic optionality to separate, and I think that idea and that proposition is very much in play, and we talk about it all the time, so there's an activist article out there talking about what value this can bring. There's merit to that. There's also a time and place to do things that we think is best, and right now, we think the course we're on is really smart, but it's really good to have that strategic option out there given the success we've seen in both businesses.
What would move you guys to actually split the cost? Is it just, again, a valuation? Right now, one could argue there's a lot of sum of the parts upside.
Yes.
Maybe that wasn't for you.
I mean, I think that valuation is something that is very much a focus of the street. We like to think of it in terms of what business model optimizes growth and profit and cash flow and the experience of our people and our customers. And so that's going to be what drives our decision. If we can control it, it's going to be all about long-term financial performance. And if it's better separated, then that's what we should do. And I think more things have developed to ultimately lead that conclusion that I've talked about. But we prefer to evaluate that with our board and determine the timing based on a lot of factors, management focus. A separation is very distracting. It's an investment. I've done it before, as you well know. And so it's no small undertaking.
So we have to evaluate the good part of being together and the merits of being separated. I'm sure our board will come through that when the time is appropriate.
I am curious, and we're out of time, but I am curious about the complexity you described in separating because STS is all over the world. I imagine there's a million different tax jurisdictions. I imagine it's more complicated than just a government services firm separating from another similar government services firm. It's not, right? This is much more complicated. Presumably.
Yes and no. I mean, because of the pace of growth and the global footprint, there's a pretty complicated legal entity structure out there. I will say that. On the other hand, the businesses really do run themselves separately. We have separate shared services. We have separate ERP systems. And so it's not as co-joined as a SAIC was. I can certainly say that. So I think there are some parts that are hard, but there are also parts that are easier as well.
Would it take more than a year if hypothetically this were to happen? Is it like a year and a half out before announcement, the actual separation? I'm not saying you're going to separate.
Yeah, yeah. Hypothetical. But I think that I don't think there's any reason to believe that if we were to embark on that, I don't think we would be any different than the normal garden variety separation if there is such a thing.
Awesome. Thank you very much, Mark. Really appreciate it.
Okay, Gautam. Thank you.
Take care.