Good day, and welcome to the KBR Inc. Second Quarter twenty twenty one Earnings Conference Call. This call is being recorded. As a reminder, your lines will be in a listen only mode for the duration of the call.
For opening remarks and introductions, I would like to turn the call over to Alison Vazquez. Please go ahead.
Good morning, and thank you for attending KBR's second quarter twenty twenty one earnings call. Joining me today are Stuart Brady, President and Chief Executive Officer and Mark Sopp, Executive Vice President and Chief Financial Officer. Stuart and Mark will provide highlights from the quarter and then open the call for your questions. Today's earnings presentation is available on the Investors section of our website at kbr.com. This discussion includes forward looking statements reflecting KBR's views about future events and their potential impact on performance as outlined on Slide two.
These matters involve risks and uncertainties that could cause actual results to differ significantly from these forward looking statements. These risks are discussed in our most recent Form 10 ks available on our website. I will now turn the call over to Stuart.
Thank you, Alison, and thank you for your interest in KBR and joining us today. I'll actually start on slide five because you've seen slide four many times. Now we presented on a number of sustainability topics over recent times and I'm proud to report we continue to make excellent progress across all of our sustainability program pillars. And thus our ESG story is not only resilient, but strengthening. And as you will see later, it's very, very aligned with shareholder value, a key differentiator for KBR.
All that said, I think it's really important to periodically come back to basics and look at our core HSSE performance. In this changed world, we are still employing best practice. So we're really still doing that. And are we ensuring we are looking after ourselves and those around us in the same way we did pre COVID. So driving the expectation that Zero Harm is achievable through our organization has delivered meaningful results as outlined here and you've seen that before.
But this belief remains at core within our values. And as you can see from the stats, our safety performance was actually exemplary even through COVID, which was a time when our people were, of course, distracted by COVID itself. We couldn't get the level of leadership or visible leaderships and some cases rotations to bases, etcetera, on sites across the world. And of course, our people like everyone else had to adapt to new ways of working. And priorities changed as the world changed with more emphasis on things like mental fitness, for example.
So really these results are simply the outcome of our strong culture and our people's commitment and really it's an amazing performance. So a big thank you from me to our people across the world. You really do make a difference every day. As a people company that aspires to live up to our values, I hope this resonates. So on to slide six.
This slide tells the facts and is typically as is our culture understated. But let's face it, this was an outstanding quarter perhaps even a banger. And after a brilliant start to 2021 in Q1, our year to date performance has been absolutely terrific. The team has done a brilliant job across every metric with adjusted EPS coming in above expectation, we're tracking to the upper end of our range, which will I remind you is over 20% increase over 2020 at the midpoint. Double digit revenue growth, while exiting lower margin volume work is no small feat.
And this really in turn has delivered outstanding EBITDA performance delivering EBITDA growth of almost 50% that really reflects a strong delivery bumping up margins, executing on strategy by exiting commodity services and really focusing on differentiated solutions, while retiring uncertainty and managing risk as we closed out some older projects. Cash management and resulting collections was again above expectation, helped also with favorable project resolutions, but a great result nonetheless. And we are bumping up cash guidance as a result. Great stuff there. You've heard me talk about winning the right work many, many times and this has come through in the quarter, a strong bookings quarter with a book to bill of 1.1.
But as you'll see later, the result including option years was even better. Bookings in Heritage Technology was 1.9, clearly worthy of a separate call out and multiple quarters of outperformance in this area. We also made good progress on a number of legacy matters, including settlement discussions with the client on Ixtus. We're not there yet, but we felt it prudent to reflect the position on key terms within our numbers. This is all non cash and I'll say that this again, this is all non cash and relates to matters with the client only.
So to be clear, the combined cycle power plant or CCPP, there is no change whatsoever. And Mark will cover this in a bit more detail later. On to slide seven. The outlook for our GS business across the world remains favorable. This is of course reflected in our results, but also in our bookings and a few are highlighted on the right hand side of the slide.
Our pipeline, which we'll present in a moment, is also reflective of this strong market. Now we know there's a lot of interest in our directed energy program and we can't say a lot, but I will highlight that the shoot off at Fort Sill a few weeks ago went very, very well, but more to come on that front later. There was of course more clarity on the 2022 budget and the priority areas at the Senate and House and as these coalesce around the recommendations, it was pleasing to confirm that our key strategic areas continued to be supported and we remain very well positioned opposite national security priorities as we discussed previously. FedSIB budgets were up as expected, but the NASA budget was a positive surprise with a larger than expected increase that really underpins our continued momentum in our science and space business and they had a very strong book to bill in the quarter also. More to come of course from the infrastructure plan as this makes its way through government and what this means for KBR.
But from what we can see today, this will only add more wind to the sale. Internationally, increased spending in The U. K. And Australia continues. Overall, international GS grew double digit in the quarter just over 10% with Australia continuing to outpace.
So in summary, we remain on track to perform well in 2021, but beyond 2021 also and towards our 2025 target. So all good there. On to slide eight. The outlook for sustainable tech continues to look really, really positive. This of course has been reflected in our bookings and we have again highlighted a few recent wins on the right hand side.
It's great obviously to see traction in the plastics recycling area and in the digital maintenance area along with ongoing demand across our whole portfolio. Our whole portfolio is performing exceptionally well. The drivers are well known and remain valid. I won't read all of these, but the level of activity has increased quite a bit in the last two to three months. And of course, the climate change agenda in The U.
S. Will be layered on top of this as the various stimulus plans get approved. I've used the expression before of a perfect storm with all the areas firing and this really continues to be the case. So again, very, very strong market dynamics for sustainable tech. On to slide nine.
So how does all this talk and rhetoric? So how does it all translate into numbers? And how can we be continue to be confident that the momentum will continue as we progress towards not only 2021, but our 2025 targets. So in Q2, we secured $1,900,000,000 of awards and options, bringing total secured backlog to deliver 2021 to over 90%, nine-zero percent. So 2021 looking really, really good.
Now remember, we do not include the options in our book to bill. So excluding options book to bill was 1.1 for the quarter, so a great stand alone result. But when you include options, this performance is even more impressive, but importantly put work into the secured hopper beyond 2021. So really a great guide to how we are traveling beyond the current year. From a delivery perspective and a client satisfaction perspective leading to good award fees etcetera, Really that also drives margins of course.
But the key metric for me is the recompete win rate. If you're truly, truly delivering and adding value, your recompete win rate should be high. And you can see ours on the right hand side of the slide really, really impressive. Now we've talked about scale of the pipeline and balance across the pipeline previously and really leading to lack of concentration risk etcetera And then we have a number of needle movers in a year with low recompetes. These are all strong facts and continue.
So in summary, a great quarter across all metrics with strong bookings in the right areas and a robust and attractive pipeline to ensure our momentum continues. Now, I'll hand over to Mark who will take us through the numbers in more detail, cover capital deployment and of course give you updated guidance. Mark?
Great. Thank you, Stuart once again and I will pick up on slide 11. The snapshot of our core financial performance in Q2 twenty twenty one shows terrific progress toward executing our strategy and also delivering on our long term goals. We produced strong top line growth, reflecting how we have positioned KBR to tap quite attractive end markets. Revenues exceeded $1,500,000,000 with double digit growth year over year.
As Stuart said, new business awards and options amounted to 1,900,000,000.0 and that of course further signals strength of our offerings and also our end markets momentum. Adjusted EBITDA came in at 156,000,000 that's up almost 50% from last year five-zero with EBITDA margins at 10% and also with both segments at or above targeted profit margin levels. This translated quite directly to the bottom line with adjusted EPS up about 50% over Q2 last year at $0.58 for the quarter. Organic growth in GS, accretive acquisitions and higher margins are driving this level of growth in profitability. We're also pleased to report solid cash flow and free cash flow conversion of about 100% year to date and 120% for Q2, nicely at or above our targets.
Year to date adjusted operating cash flow of $165,000,000 and free cash flow of about $150,000,000 is above pace for the first half and as I'll cover shortly the basis for bumping up guidance for the year. Continued strong bookings and the Centauri acquisition are driving the nice trend you see here in year over year backlog growth. The total backlog and option value of $20,000,000,000 represents over 3x our current annual revenue run rate, which as we have said before demonstrates the strong visibility in our forward book of business and enables good confidence in our growth outlook and also our long term targets. There's of course the very large pipeline of new opportunities on top of that which Stuart presented just a moment ago. On to slide 12, which shows operating results by segment.
Government Solutions posted top line growth of almost 30% with double digit underlying organic growth. As you see here, all four business areas contributed meaningfully to the strong 13% total GS organic growth with three of the four producing double digit organic growth. Amazing. This demonstrates the strength and balance across RGS landscape all around the world. New contract wins and on contract growth across defense modernization, space, human health and performance, international and military readiness and sustainment all saw contribution to these levels of growth.
A particular highlight to be made here was Centauri, which posted Q2 revenues of over $180,000,000 with its own organic growth rate of 30% for Q2 and 16% on a year to date basis. That puts us on track for roughly $700,000,000 of revenue from Centauri this year consistent with our plan and in full alignment with our acquisition thesis with that thesis being to buy terrific businesses with terrific people equipping those people with the resources they need to continue to excel in strategic end markets and leverage the advantages of being part of a larger platform to grow the top line, bottom line and cash flow. Centauri checks all of these boxes and we couldn't be more pleased with this acquisition. At the GS Group level, adjusted EBITDA margins were 10%, so right in the middle of the fairway relative to our targeted profitability. Sustainable tech continues to make terrific progress on its own profit growth strategy.
While revenues continue to reflect the ramp down of areas we decided to exit last year, the quality of revenues as Stuart said are improving with much healthier margins as we envisioned when we formed this business. Adjusted EBITDA for Q2 was more than triple twenty twenty levels at $61,000,000 and the team delivered EBITDA margins of 20%. All elements of this business contributed positively. We did have favorable net closeouts and attendant cash receipts, which spiked margins by about five percentage points. So net of this bump normalized STS EBITDA margins came in at circa 15%, a nudge higher than expected due to favorable mix.
We continue to believe margins will be in the mid teen range for the full year. Finally, the third segment, corporate costs are coming in higher than last year as we are in various stages of returning to work, we are advancing various initiatives that we paused last year and things like business travel are picking back up. We expect corporate EBITDA and SG and A to continue at this run rate in 2021, which is more aligned with the 2019 pre COVID levels. Now on to slide 13. Stuart mentioned the settlement negotiations on the legacy Ichthys project and I'll make some additional points here.
Coming into Q2, we had a carrying value of roughly $565,000,000 associated with expected recoveries from this project. This is divided into two elements expected recoveries from the client and expected recoveries from the subcontractors on the combined cycle power plant. This discussion and the charge that we took this quarter only relates to the first category matters with the client. So literally in the past few days, we reached a point in these settlement discussions with the client, which led us to conclude that the carrying value associated with the expected client recoveries should be reduced. Those discussions, however, are not yet final and thus it is not appropriate to provide a lot of details here.
But what we can say is the following. The reduction in the carrying value is non cash. Stuart said that earlier. And because of that, there is no impact to our liquidity, borrowing capacity or financial covenants. And third, there is no impact to our long term targets as excess matters were always excluded from these measures.
An ultimate settlement, assuming one does occur, would reduce cash legal costs, free up management time and contain any liquidity risk, which would actually improve deployable capital. And very important, progress towards this settlement with the client has no impact on the ongoing claims we have against the power plant subcontractors and the carrying value associated with those expected recoveries remains unaffected. As you may recall, when we completed the delivery part of the project in 2019, we established that any write ups or write downs associated with this complex matter would be ring fenced and adjusted out for purposes of adjusted EBITDA and adjusted EPS and accordingly excluded from our long term targets. We also excluded the expected Ichthys cash recoveries from all cash flow and liquidity targets and planning levels. So consequently, there is no impact of this charge and these developments to our long term targets and that includes the $3,000,000,000 of deployable capital that we continue to expect to produce over the next few years.
On to slide 14 with a liquidity update. We continue to delever with growth in EBITDA over the course of Q2. Net leverage now stands at 2.1x, well within our targeted three point zero or below level. We did do open market share repurchases of just under $30,000,000 for the quarter, which is consistent with our goal of having a balanced capital deployment strategy. We were also pleased to recently receive a credit rating upgrade by S and P to BB flat, continuing a favorable trend on that front.
And now finishing up on slide 15. We are affirming our previous guidance for twenty twenty one revenues and adjusted EBITDA margin and our tax rate. We are updating our GAAP EPS guidance to minus $0.10 to plus $0.10 which reflects the non cash ICDAS charge I just covered. This also reflects $7,000,000 in non cash tax provisions for the increase in The U. K.
Statutory tax rate, which was announced in Q1 in response to COVID and was actually enacted in Q2. While that increase does not take effect until 2023, we revalue deferred tax liabilities for this higher rate this quarter as appropriate. We have reflected both of these non cash items as adjustments to adjusted EPS. For adjusted EPS, we are guiding to the upper end of the original range of $2 to $2.2 as Stuart said earlier and that's based on strong operational performance across the business in the first half and of course a strong continued outlook for the second half. And as said earlier, given the strong cash flow performance in the first half and continued healthy outlook there as well, we are upping adjusted operating cash flow by $20,000,000 to a new range of 300,000,000 to $340,000,000 for the full year.
This enhances potential value creation opportunities with greater expected deployable capital and we really like that. So that wraps up my remarks. So I'll turn it back to Stuart.
Thanks, Mark, and great job as ever. Now on to our final slide, slide 16. So to summarize what we have presented today. In short, a high end Government Solutions business with a technology kicker executing on strategy, which in turn has positioned KBR in attractive markets today, but also into the future. Our amazing people do things that matter and they are delivering outstanding performance, but also winning work in the right areas.
Our pipeline fundamentals are excellent. We are confident about tomorrow and have raised guidance as a consequence. We continue to work to derisk the future and increase certainty. In short, we are doing what we said we would do. I will now hand over to the operator who will open the call up for questions.
Thank you.
You. will begin with Tobey Sommer with Truist Securities.
Thank you. I wanted to ask a question about sustainable tech. If you look at the business now, how much is of your work is sort of strictly defined as sort of clean energy initiatives of the future versus I'm struggling trying phrase this, but sort working for existing less clean infrastructure in the improvement of it. How if it's possible to bifurcate in that way, could you help me?
Well, certainly, the majority of what we're doing, Tobey, is in the cleaner areas. All the technology portfolio is pointed that way. What we're trying to do around our maintenance portfolio is really to help people decarbonize by being more efficient. And in the advisory capacity, it's all about the future and looking at a hydrogen economy or green ammonia or whatever shape that might take. So I don't think we've got quite the breakdown, but I'd say it's the majority of what we do today is in the greener side of the equation.
Excellent.
And how should we think about any future wind down When do you think we would approach the period of time if it's in the future when there's not a sort of a material drag from anything related to the market or internal choices you've initiated last year?
I mean, we're progressively working right now. I think we said there was a couple of hundred million of carryover of revenue, low margin work into this year, a little bit carried into next year, but not much. But it doesn't detract from the story and it doesn't detract from the targets. The targets of $1,000,000,000 circa plus business with margins in the mid teens still holds for this year. And that includes there was we did say margins would increase progressively and obviously the work off of that allows that progression of margins to happen really.
I think all that lines up. So I wouldn't even think about that. I think it just reinforces the story around margin increase as we move into next year.
Okay. And then I was also from a modeling perspective hoping you could help me understand the seasonality if any in Centauri, the 1Q to 2Q sequential change in revenue, very pronounced. You talked about sort of your annual expectations, but is there some seasonality that you could help us understand for modeling or this just normal pace contract awards and I guess a lot of them? Thanks.
Yes. I don't think it's seasonal in a sense. I mean, obviously, we're very pleased with the performance in Q2. And I think the 30% growth and really sort of sitting behind our acquisition sort of thesis if you like in the business model as to why we acquired Centauri. And I'll remind everyone that when we did acquire them, we did not factor in at all going beyond I guess the current phase in the directed energy program.
So if that does progress, it's all upside on that thesis. So it could prove to be acquisition beyond still a valuable acquisition today, never mind. Yes, I don't think there's truly seasonality. I think there's just a cadence of awards. But we did say that was a very high growing business and I think it's proving to be the case.
So we expect that momentum to continue into Q3 into Q4. Probably as well, Tobey, that probably follows the same cadence as the broader government. Q1 is a little bit slower. Q2 in terms of awards picks up, Q3 is the busy one and then Q4 drops off again as they move into the new budget cycle. So it probably will follow that same sort of pattern as the rest of our government business.
Thank you, Stuart.
We'll now hear from Jamie Cook with Credit Suisse.
Hi, good morning. I guess just two questions. One, Mark, obviously with inventory going well and the cash flow guidance being better and you're feeling good about your liquidity, just wondering how opportunistic you could be or when we can start looking at M and A again to be additive to the story and I guess help you with your sort of longer term or the mid to higher end of your longer term EPS targets? And then I just guess my second question, based on the backlog that you have today and the wind prospects as we're thinking about 2022 and your longer term targets, should we expect sort of steady growth to get to those numbers? Or is the growth trajectory to achieve your longer term target sort of more back end loaded?
Thank you.
Okay. Well, hello, Jamie, and looking forward to your headline tomorrow is always quite innovative. As we'll start with that, thanks for the And I'll say that we're really pleased with the cash flow performance of the company and our overall liquidity position. As I said, the developments on Ichthys should they conclude would actually free up more capital. And as you probably are well aware, there's quite a bit of prospective M and A activity in the government space today and there's always some on the sustainable tech side as well.
So I would say our positioning and derisking as has occurred over the past several years does allow us to be very constructive. Seeing the progress on Centauri, the team has done a terrific job with the integration. The employees of Centauri are just fantastic and they're really part of the family now. So it does allow us to be more constructive and we've got quite a bit of firepower as our cash flow continues to be steady and as our leverage ratios come down. So, I think we can be pretty bullish on the M and A outlook provided it meets all our criteria and we're very disciplined about that.
I think we've shown a good So I do expect as we've always said that there will be M and A activity in our future. And when that's not immediately present, certainly have firepower for buybacks too and we're demonstrating that. So that's how I'd answer the first question. And Stuart, do you want to cover twenty twenty two and long term targets?
Yes. Thanks, Mark. I think, Jamie, we're obviously very pleased with the start of the year. And I think we're probably outpacing many of our government peers in terms of growth. And as Mark said in his prepared remarks, we're seeing double digit growth across the bulk of our sectors and that bears well to achieving not only 2021, which we're well on the path to getting there as I talked about, but obviously 2022 and beyond and we're certainly progressing well.
We're very confident of our 2025 targets. And I think what we'll start to see as we look into 2022 is just continued progression. Think I don't think it's going to be an up and down. I think it's going to be a very predictable growth pattern as we continue to book, work and execute. So I don't think we're going to see any sort of big steps up or big steps down and then a catch up.
Think it's going to be a progressive climb and certainly our cash flow forecast would support that as well. So I think that all lines up nicely with the long range predictability and future earnings profile of the company that we've basically presented on many occasions.
Okay. Thank you. Nice job.
Thanks, Cindy.
Moving on to Andy Kaplowitz
Hey, good morning guys.
Hi, So
as you know, your first half EPS represents more than half of your EPS guidance this year, at least the midpoint. So I know you told us that EPS is tracking to the high end of the range. But what held you back from raising your EPS guidance at this point? I mean, you do tend to be modestly back end loaded historically. I know you had a favorable resolution in sustainable tech that helped margins, so maybe that skews seasonality a bit.
But was there some pull forward of demand in Q2? Is there any other reason why you didn't raise the guidance?
No. I mean, it's I mean, we talked about the 40 five-fifty five split I think last quarter. And I think if you sort of you back out the goodie this quarter, it kind of takes you to the high end of the range. I think for us, we'd like to be as you know Andy, we're halfway through the year. We've got a bit more to play out and we like to be reasonably conservative.
We're in essence we're bumping up guidance by getting to the top end of the range now rather than people assume the midpoint. We're bumping up cash. So I think it's a good news quarter. And we'll see where we land in Q3 is how we guide for the rest of the year. That's probably the best way to say it.
But you get no favors in over promising and under delivering as you know. We're much better to keep our to be prudent and as we've done in the past. And I think that served us well and that's the way we're going to behave.
Very understandable. And then maybe digging into sustainable tech a little bit more. Again, you didn't change your guidance for the year there, but can you give us a little more color into what you mean by that the level of activity has increased significantly And are there portions of the business that are actually exceeding your expectations this year? And maybe any portions of the business that are not below expectations?
I
would say that there are no portions of the business below expectations at all. In fact to the complete opposite, think that it's firing in all cylinders. As I said, it is that sort of perfect storm. The level of activity across our technology portfolio continues to really be unbelievably busy. And we've seen the level of awards not just this quarter but last quarter and etcetera.
It's just been a tremendous book to bill progression through the course of I guess the last several quarters. So really, really strong performance. But we're starting to see quite a bit of traction in the digital maintenance side. We've got a lot of awards coming through in the advisory business. I mean those are small in nature, but the number of them is impressive and they do some will tend to pull through into further work.
So all that bears really well. I think the let's face it, we've got a lot of pressure on the IOCs themselves. And of course oil price has gone up a bit and so they've got probably more confidence in the future as well. I think there's more confidence to spend. There's obviously pressure on the climate agenda and decarbonization agenda.
So it all plays well. And then you've got the refiners themselves having to look at different product mixes and look at things like more propylene and things like that, but where we play a significant role in being a key supplier of technology to do just that. So it really is we're not seeing any slowdown there. In fact, I think we're seeing a pickup in prospects and levels of engagement around future projects and I guess an untightening of that capital spend belt that's been around during COVID. So I think it all be as well as we look into the tail end of this year and into next year for sure.
Helpful color. Thanks, Stuart. Thanks.
We will now take a question from Steven Fisher with UBS.
Great, thanks. Good morning. I just wanted to follow-up on Andy's first question there about the guidance expectations for this year. Just as it relates to EBITDA margins, the guidance does imply a little bit lower margins in the second half of the year than in the first half. Can you just talk about what's driving that moderation?
I assume it's some type of mix, but don't know if there's some unusual costs or anything. Thanks.
Yes. I mean in each of the segments, I think we set our stall with TS, Steve being in the sort of 10%, the low double digit zip code and obviously we're there this quarter. We were a bit below last quarter. But we think we're going to end the year in that in what we guided to. So I think that's good.
So no change there. In terms of sustainable tech, of course, we came out the gate very strongly last quarter and strong again this quarter with so I think that's really bumping up the margins. But I think when you look at the whole year, we do think sustainable tech will be in the mid teens. So that does lead you to a little bit of lower margin performance in that area because of the project the favorable project closeouts. But again very much within our original guide, very much within our performance expectation.
So again nothing out of the ordinary fact an inspiring performance in truth. So and as Mark said, we've got the corporate costs coming through more in line with 2019 as well when you look at the group level. But all in, if you look where we're heading, we said we'd be a circa $6,000,000,000 company with EBITDAs at 9% they're around at the group level. And we're heading towards those numbers and sticking by that original statement and tracking very well towards it. So I think that all lines up nicely.
Okay. That's helpful. And then just a follow-up on the IXYS discussion. Thanks, Mark, for the framing of that. I just want to make sure we're clear about direction of potential cash flows here.
How should we interpret the risk that you will actually have to pay something out on this charge that you've taken versus collecting perhaps less than you thought you might collect in general? I guess if we kind of keep it just to the customer side of things, is this sort of an indication that we may have to pay out something like 150,000,000 to $200,000,000 before you ultimately collect the rest of it and still come out ahead on a net basis with the subcontractors?
No. No, you should not think about that. This deal with Exist for me is a really, really positive outcome. But as far as I'm concerned, the complexity of what we're doing opposite the customer was extremely complex with multiple lawsuits going one way and counterclaims coming the other etcetera. We also had the I guess the interesting situation with our partners who as many of you know we've joined several with our partners whose recent performance has not been as strong.
So we've derisked that part of our future as well. So I think coming to this conclusion opposite the customer is a no cash out deal. So there is no cash out coming from us. This is just means that we're not collecting what we had assumed on our balance sheet. So there's no cash out.
So it's a zero sum game in that sense. In terms of what we're doing opposite CCPP, that's a very different matter. We're basically recovering monies that we have spent to build and complete the power plant that they walked away from. So we're going after them for recovery of cost in that sense that it's bona fide absolute cost that we had to step in and actually spend to finish their obligation. So that our expectation there is that's a cash positive event.
The timing of that hasn't changed. The hearings are next April and we expect for the tailwind to receive that cash at the tail end of next year early in 2023. So that all lines up and but please do not think our write down is in any way a cash out event. It's an absolutely non cash charge.
Okay, terrific. Thanks very much. Appreciate it.
Thanks, Steve.
We'll now take a question from Michael Dudas with Vertical Research.
Good morning, gentlemen and Allison.
Hi, Mike. Mike?
Mike, hello.
Hello. So I know this is like asking which is your favorite child, but of your four segments within government services, which one do you see are you most excited about next couple of quarters on orders or business cadence aspect? And there's been a lot of visibility on space from non commercial, but also the private side. Are you still seeing the very solid fundamentals there? And is there much opportunity for KBR to continue to support not only on the commercial but also on the private side?
Thanks.
Yeah. I mean, it's a bit like a favorite child. So I don't think we've got one. Mike, I think we love them all equally.
That's such a good answer.
And we're in a situation now where really they're all firing. The international business has got double digit growth. So what we're doing in that arena is terrific and Australia continues to outpace as I said. So that's all good. And the book to bill across the portfolio was terrific and will really supports fundamental growth going forward.
So I don't really think we've got any slowdowns in cadence across any of them. And they're all delivering margins at or above expectations. So really, really strong performance all around. So that's why we love them all equally. And I would say that in terms of space itself, you're quite right a lot of focus on military space today.
And obviously, the NASA budget is compounding our momentum in that arena as well. A lot of good, good momentum in our Science And I think from a Commercial Space perspective, I think I've said this before, it's an increasing but still not material part of our portfolio. But as that starts to sort of really dominate low earth orbit, which it will do over the coming years, I do think that we'll start to see more and more work coming through either through our NASA contracts or direct. We're doing some a lot of well not an increasing amount of direct work with people like Blue and others. So I think we'll start to see that grow over time and we'll report that in due course.
But it's an exciting part of our future, but today it's a non material part of our business. That's probably a good way to put it. So it's a good opportunity.
Excellent, Stuart. Thank you very much.
Sean Eastman with KeyBanc Capital Markets will have the next question.
Hi, team. Thanks for taking my questions. So it's great to hear the GS recompete win rates continue to be very strong. But what about takeaways? How are those numbers looking?
I'm just trying to think about realistic win rate around this big pursuit pipeline you guys disclosed.
Yeah. I mean, as we know, Sean, takeaways are they're hard to do. We're in a point now. I think our win rate overall including recompetes is about between 4050% in numbers of dollars. So quite a strong performance.
So we've got a good shot at takeaways, but we do a lot of what I would call very strong BD around things like IDIQs and white papers and using our contract vehicles like Hyatt Max and others to position for either single source or low numbers of competitors within that environment. So we do very well building a book of business there. And obviously you've got things like Centauri and the intelligence community, which is a bit less competitive as well. So it's not just in I mean, we've actually got these large opportunities across all our portfolio. And so it's not they're not just takeaways.
They're actually some of this new business, some that have got lower competitor profiles and some that have got takeaway fundamentals. So I think really where we're I think the answer to your question is really are we booking over and above one in our book to bill? And the answer is yes. Does that support our Yes.
And is the pipeline fundamentals still strong for the future of the business? And I think the answer is yes. And are we performing well across our portfolio? And do we have low concentration risk? And I think the answer to all those questions is we're in really good shape.
So it's difficult to tell one or the other in terms of whether you're going to win a takeaway or not. But what is true is we're in a very low recompete year. And of course a lot of what we're reporting now is over and above our recompetes. So it's all additive to the story. And we will come back.
I think we talked about this before, but I think we'll come back in Q3. Alison might tell me for saying this, but we're going to come back in Q3 and I think we'll give an update to the level of booked business. We talked about 55% to support our long range targets. And of course, we had a very strong bookings year and with options. And so when we layer in those options, I want to be good to report back to the market and our shareholders just how we're traveling on increasing that 55% number upwards.
So we'll have a go at that in Q3 just to give you confidence that we're not just winning our recompetes, but we're actually building a book of business to secure our growth.
All right. That's really helpful. Nice to do list item for Alison there. Secondly, we hear a lot about the GS visibility, right? But on the STS side, I think a lot of people are trying to get comfortable around the very robust growth outlook over the next couple of years in that business.
So considering 1.6 times book to bill there this quarter, this is several quarters in a row now of very strong book to bill in that business. I mean, how far does that let you guys see out? A little
bit of color
around where these recent bookings trends get you from a visibility standpoint would be great in SGS?
Yes. As you know, it's a quicker cadence of contract awards and burn just given the scale and the size and the way that that business model works. I would say that obviously we're very confident our 2021 numbers and increasingly confident in our 2022 growth numbers. The work that we're winning now of course doesn't all get executed in 2021, but a lot of it in 2022. So as we're reviewing the performance of those businesses and the last weeks leading up to earnings, we start to get quite a good feel for how that business is going to track in 2022.
And I'm feeling really good about how that's moving into next year. That's good for that type of business. And really if we can get that level of visibility that's a good place to be.
Okay. Fantastic. Very helpful. Thanks very much.
Thanks. Thanks, John.
We'll now hear from the line of Jerry Revich with Goldman Sachs.
Hi. This is Ashok Sivamalan on for Jerry Revich. You touched on the momentum in some of the Government Solutions segment. Can you speak to how you view the sustainability of double digit organic growth in Government Solutions in the medium term?
I mean, obviously, we're very pleased with the performance year to date. And I think I don't know where we sit in that table, but I think we're certainly outperforming most of our peers in terms of growth in that double digit arena and that's translating very nicely into EBITDA as you've seen. So all good there. In terms of the sustainment of that, we are feeling really good about our long range targets and you all understand the growth numbers and the aspirations around that. So we'll continue with that momentum and we're very confident that we'll progress towards those targets in 2025 and they're very strong CAGR targets as you're aware.
So feeling really good about the future.
Okay. And can you let us know what the Ichthys related balance is within the unconsolidated affiliate line of the balance sheet?
That sounds like a question for Mark.
Yes. This Shok. This will all come out in the Q, but it's complex. It's always been complex. And the investment balance I described it starting off at $565,000,000 and it's coming down by roughly 200,000,000 So the net is a result of those two numbers and that's a combination of expected recoveries from the CCP side of the house against some reserves we have that need to stay there that are pretty minor.
And so that's the remaining exposure on the balance sheet if you will. And we have affirmed a couple of times on this call today that those expected recoveries that denominate that balance is with the CCP combined cycle power plant that is completely separate of the charge today and very high confidence as Stuart mentioned earlier relative to a good outcome there.
Okay. Thank you for the color.
You're welcome.
Now we'll hear from Brent Thielman with D. A. Davidson.
Hey, great. Thank you. Good morning. Mark, this one might be for you as well. G and A, I understand the return to work and travel explanation.
I guess when you look at the second quarter levels, is this sort of a baseline level we ought to think about going forward? Or are we going to see that continue to accelerate as more employees return the office and sort of travel campaigns?
Thanks, Brent. We actually see it being fairly stable. So I would say that our enterprise SG and A should be in the 90,000,000 to $100,000,000 per quarter sort of territory. We're a tad above that in Q2, which can be explained by some initiatives we're undertaking. So I think Q2 will prove to be somewhat of a peak and will be more normative toward ninetyone hundred on the SG and A side.
And then the corporate part of that, the corporate segment if you will should be pretty consistently 30 ballpark per quarter on an EBIT basis about 25 on an EBITDA basis. And there's some volatility to that for various things particularly initiatives, but we don't see that increasing. It's it will steady off if not decrease in forward quarters from what we showed in Q2.
Okay. And then sticking to sort of
the labor commentary, so many companies talking about how challenging it is to find people and recruit and retention. I'd love to just get your thoughts on what KBR is doing sort of how you're faring in that particular area?
Yes. I mean, I think as you know we are a people company. We drive very hard to live up to our values and look after our people and that standing in good stead. And as we sort of look into certain areas, there's certainly no real issues we think across what we're seeing in SDS in terms of labor as we look at that business and the growth there is being supported by our ability to recruit etcetera. So no issues there.
I think in a lot of what we're doing internationally, I think there's a little bit of a labor shortage in Australia for example just because they're very, very busy, but it's not really impacting our ability to do the mission. And but we are looking hard at recruitment. We are looking retention. And I think in not only in Australia, in The U. S.
So the intelligence piece is always difficult as you're probably well aware. But in terms of the I guess the readiness and sustainment area that's probably easier to recruit into. So it just depends. I think it's a mixed bag. I don't think there's a silver bullet to any of it.
And I think we've got very, very strong dedicated people to the various machines that are working what they need to work in terms of the challenges on their projects. But to say that there's a fundamental labor shortage or crunch across the business is a wrong statement. To say there are pockets, I'd say it would be a right statement and breaking that down and focusing on those areas and helping those businesses recruit and retain staff is obviously an area of focus for those businesses. So that's probably the best way to answer it. But is it constraining our growth as we look into the future?
Are we hesitant about our long range targets as a consequence? The answer is no.
Okay. Okay. That's really helpful, Stuart. If I could sneak one quick one in. Hadn't tended to think of KBR or associated with an infrastructure plan.
I'd just be curious what some of the particular things you're monitoring within some of those proposals could be that applicable to you?
Yeah. Well, I think there's we've obviously got a very strong program delivery capability within KBR. But I think there's a lot of money going into the R and D side around that infrastructure piece, which is plays very firmly into our capabilities and where we sit. There'll be a lot in the climate change agenda again that will play strongly into what we can offer across the piece there as well. So I do think you'll start to see we're not a design firm in rules or anything like that.
So don't be thinking we're going into that more commoditized business not at all. But I do think it will play to our sustainable agenda. I think it will play to our R and D credentials and all play to our strong program delivery capability as we look across portfolios. But we're not going to get sucked into construction or commodity services in the slightest. So but it looks very, very promising in those R and D and sustainable areas.
Okay. Thank you. Great quarter.
Thank you.
Ladies and gentlemen, this will conclude your question and answer session. I will turn the call back over to Stuart Brady for any additional or closing remarks.
Yes. Just again, I thank you for your interest in KBR and taking the time today to listen to the presentation We do think we're traveling very, very well. The underlying operational performance of the business and the growth fundamentals are clear in the numbers. Think in the continued momentum with the pipeline and where we sit opposite budget spend and priorities I think hopefully resonates.
I do think obviously a few questions on IXYS, but as I said in my Q and A piece, I think it's a really, really strong outcome for us in terms of removing uncertainty. And it takes a risk off the table and really takes us to a point where the overall conclusion of IXYS will be a cash upside event for KBR as we conclude the CCPP arbitration litigation as it moves into 2022. So all up, think a terrific quarter. I think the fundamentals of the business are sound and we're very excited about the future and the management team is terrifically together about the way they're thinking about tomorrow. So thank you again for your time.
And obviously, we'll be talking to many of you one on one post this call. So thank you again and stay safe. And hopefully, we'll get to see some of you face to face in the coming months. All the best. Bye bye.
Ladies and gentlemen, this will conclude your conference for today. We do thank you for your participation and you
may
now disconnect.