Good morning, ladies and gentlemen. Welcome to the KBR First Quarter 2023 Earnings Conference Call. My name is Jaquita. I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to your host, Jamie DuBray with KBR. Jamie, please go ahead.
Thank you, Jaquita. Good morning and welcome to KBR's first quarter fiscal year 2023 earnings call. Joining me are Stuart Bradie, President and Chief Executive Officer, as well as Mark Sopp, Executive Vice President and Chief Financial Officer. Stuart and Mark will provide highlights from the year and then open the call for your questions. Today's earnings presentation is available on the investor 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 as discussed in our most recent Form 10-K, available on our website. This discussion also includes non-GAAP financial measures that the company believes to be useful metrics for investors. A reconciliation of these non-GAAP measures to the nearest GAAP measure is included at the end of our earnings presentation. I will now turn the call over to Stuart.
Thank you, Jamie, and thanks to you all for taking the time to join us this morning. Before we begin our earnings call, I am deeply saddened to inform you that Lieutenant General Vincent Stewart, U.S. Marine Corps retired, a very distinguished member of our board, passed away this past Friday, sadly. Vince had been a director of the company since June 2021, and on behalf of KBR's board of directors and all of our employees, we extend our deepest sympathies to Vince's family. I'm personally very saddened by Vince's passing. He was a tremendous supporter of the company and me personally, and I will always be appreciative of his service and his impact to KBR. I'll start today's presentation on slide four.
As you know, these are our Zero Harm pillars, and today I'd like to talk about our annual Zero Harm Day that actually celebrates all of the pillars you see on the slide. On to slide five. On February 22nd of this year, KBR employees from all around the world came together to celebrate the company's 8th annual Zero Harm Day.
Now, this is an important and a significant day in the life of the company, which we celebrate KBR's outstanding safety performance and our sustainability culture throughout the organization. It's also an opportunity to really recognize our people for their Zero Harm achievements and their courage to care. Project sites, offices, business groups all around the world had Zero Harm Day events, and there's photographs of that in the slide.
Thousands of employees took part in a huge range of activities and when there were panel discussions on climate change, on mental health. We had community leaders come in and experts come in to talk about, you know, topics ranging from personal safety to recycling, to giving back to communities, et cetera. Overall, it was a fantastic day of recognizing our accomplishments, but actually renewing our commitment and refreshing that commitment to a Zero Harm culture at KBR.
Of course, we carry on our Zero Harm Theme actually throughout the whole year, as you know. Recently our IMPACT, our young professionals resource group, came together on Earth Day for a day of giving back. In Houston, they took part in a beach cleanup, actually in Galveston, partnering the nonprofit Galveston Bay Foundation. Terrifically well done to those aspiring leaders.
On to slide six, we'll just talk a little bit about some key highlights in the quarter and the, I guess, the business health of the group in general. Firstly, at the highest level, we've really hit the ground running in 23. Our people continue to perform. It's absolutely outstanding day in, day out, and I really wish to thank them personally for all that they do doing things that matter 24/7. Staying on people on the top left, you will see that already this year, our head count has actually increased by 7%. That's quite a jump, and almost all these roles are billable. Attrition has come down and it's kind of stabilized at normative levels, which is really helping, and obviously our increased focus on retention and recruitment is paying off.
A big shout out to the folks in the HR function. They are really terrific work. I mean, as a services business, the employee numbers are not the only measure of growth, but I think of course, they're a solid indicator. I did want to highlight in this section today a program that we came across from the Centauri acquisition that we really identified as best practice at the time, and we've now broadened that to the whole of KBR. This is our Tech Fellows program. Now this program takes nominations and then identifies and celebrates our leading technical gurus. I mean, I think this of course shows the value that KBR places on technical excellence. I mean, many of these fellows are actually world leaders in their field.
I have to say that they're typically absolutely brilliant and excellent mentors to our people coming through. I mean, this also provides a community and a forum to really innovate and to collaborate in sort of key topics that are really very important for our government and the world in general. We give additional budget and of course, additional time so that they can invest in their chosen passion.
A really important program, and I think again, really highlighting our commitment to technical excellence. Moving to our ESG program, Zero Harm. I'm pleased to report that our first quarter HSSE performance continues to be top quintile, so terrific. I mean, you can see the numbers there, but remember, as I always say, good safety is good business. Terrific performance. From a shareholder value perspective, in Q1 we were awarded three green ammonia projects.
These are at different levels of maturity, and I think we've announced each of them separately. It's nice to see when you put them together, I think it really tells the market story and really our position within it. Obviously, this was on the technology IP side of SDS. On the sustainable services end, we also announced that we've been awarded BP's hydrogen development work. Now with this, we're working in an integrated and collaborative framework with BP. I think this in through time will come with pull-through opportunities, think project management, engineering, technical authority over a number of years. BP has actually made a public $30 billion investment committee in hydrogen going forward, super exciting. Moving to the bottom left, I'll touch quickly on business growth.
We were awarded $3.1 billion in the quarter, which took our backlog and options up to circa $21 billion. Importantly, the book-to-bill for the group was 1.4, with GS at 1.0 in what is typically a slower quarter, and STS at 1.9 on a trailing 12-month basis. I mean, I think these are terrific indicators of our continued momentum for 2023 and of course, towards our 2025 targets. I think the other key takeaway from this section is that we're feeling really, really good about 2023 in general, with 85% of our work now under contract. That's really a high level for this time of year.
Touching on the financials, again, at a high level, obviously Mark will dig in a bit in a moment, but excluding OAW, our revenue was up an impressive 18%, with margins also up 170 bits to 11%. Cash was positive, albeit seasonally low, plus with cash out events like comp payouts, et cetera, in Q1, these were all as expected. Our net leverage now stands below 2.0, so really strong balance sheet. Although we beat consensus by a fair amount, we have resisted increasing guidance this quarter. I guess we kind of want to see how the rest of the year plays out, but with 85% of our work secured and with a strong and active pipeline, I will reiterate that momentum is really good.
On to slide seven, we'll just touch a little bit more on markets and some of the award and the momentum that comes with that. Slide seven. Starting on the left-hand side, the market across sustainable technology continues to be really buoyant, it lines up nicely opposite our suite of offerings. We spent quite a bit of time on SDS last quarter, the market drivers that we talked about then still hold today, I won't really go over this again. Our book-to-bill in the quarter once more outpaced, we've highlighted a couple of key wins on the bottom left. Phase II of Plaquemines was given the green light, a great win in sustainable services. Directionally important, we also secured our first plastics recycling module on the IP side of the house.
I think this demonstrates these projects are now moving into the next phase, the execution phase, with proprietary equipment order. Clearly more to come in this area. A few key pieces of info on top of what's on the slide. The trailing 12 months book-to-bill excluding, so without Plaquemines, was 1.6. I just wanted to put this in context to demonstrate how well the whole portfolio is performing. In Q1 alone, we secured seven ammonia awards, three in green ammonia I highlighted earlier, plus one blue and three gray focused on additional capacity. That's 77 ammonia/hydrogen-driven projects in the quarter. The projects are in different phases, but the key takeaway here is it's a clear signal to the growing demand across the ammonia hydrogen markets that we have been highlighting for some time.
Another key takeaway is that there is a growing mix of long-term contracts in the STS portfolio, which I think should really serve us well into the future. Plaquemines, BP Hydrogen, and the recently announced win for Equinor in Canada are all really good examples of this. All are multi-year, giving us greater visibility and quite a bit beyond 2025. Backlog in STS is a touch under $5 billion, which is circa three time s annual revenue. Really good shape. On to government solutions. The market fundamentals are similar to what we described last quarter. Tensions in Europe and geopolitically in a global context continue. This is driving increased activity both domestically and overseas in a number of our business areas, but obviously and more noticeably in readiness and sustainment.
The defense budget, albeit a little bit or a long way to go to formalize, is directionally favorable and lines up nicely opposite where KBR has positioned itself. Space budgets are also up in civil and significantly in military space. Again, a very nice fit for us. Mark will cover later, our great performance in our space business, which reflects this increased activity.
As I have stated previously, our military space business, which actually sits inside our defense and intel portfolio, grew over 20% last year and has had a terrific start this year in the first quarter. Internationally, the increased peer threats are driving closer cooperation across the Western allies, AUKUS being a great example of this, and there's increased activity specifically in the advisory consulting arena, where Frazer-Nash lives.
In what is traditionally a very slow book, bookings quarter, I think we outpaced a bit with a book-to-bill of 1.0. This does not include the recently announced IMOC III award for NASA, where KBR is a minority joint venture partner. To give you a scale context, we'll add circa 100 people to execute our work in that program.
Overall, there's the IMOC III award is approximately $700 million takeaway that we'll book us share of in Q2 or Q3, depending on protests. Our book-to-bill does not include anything for HomeSafe yet. Just on HomeSafe, the transition work has passed 50% complete, so we've passed that milestone. It's all going very well, and we've made very good progress on the commercial side as we head towards our first moves later this year.
There were multiple awards across all our business segments that drove the book-to-bill performance, including increased task orders and LOGCAP in the U.S. and in Europe, some good awards under IAC MAC and the TENCAP contract frameworks, several high-end R&D awards, meaningful on-contract growth in our larger programs, increased activity within our intel portfolio, and numerous consulting assignments. I think this really demonstrates the value of the KBR business model and where we sit in our markets, and it kind of ensures that we can go after the big fish, but we don't rely upon them. You may have seen the new spacesuit that was demonstrated earlier this year. Axiom is the main contractor, but as you will know, we're a key design partner behind this exciting program, so that's pretty cool.
Staying with NASA, and a huge shout out to our team as they were awarded the Supernova Award. That's the highest safety and excellence award bestowed by NASA, so quite a big deal. I mean, and absolutely bang on our Zero Harm value, so a great win. Overall, I would say the feedback from the business is that award activity levels have gained momentum through Q1 after a sluggish start at the turn of the year, which I think bodes well for Q2 and Q3.
In summary, overall, our momentum continues with multiple market factors favorable. Our mission focus and delivery is absolutely top of mind, and I think you see that flowing into our results across the company, and we're feeling really, really good about our start to 2023. With that, I'll now hand over to Mark, who'll dive into the numbers and segment performance a bit more. Mark.
Great. Fantastic. Stuart, I'll pick up on slide nine. As you just heard, we're off to a terrific start for 2023. We're really pleased to see that. We're seeing strong P&L results from both businesses, underpinned by excellent project execution and also tapping growth opportunities which leverage our differentiated long-term contract base. Also, our global presence and our diversified offerings are kicking in.
Top line ticked $1.7 billion, which is up 18% on an ex-OAW basis. Just as a reminder, OAW was the large episodic humanitarian effort that we supported in 2021 and 2022, and that contributed about $300 million in revenues at the beginning of 2022 as it was winding down. That's a comparable that we're seeing. 18% growth ex-OAW is quite impressive. It's fueled by both segments, and I'll cover those here in a second.
Profit margins were excellent at 11% of revenue, with EBITDA growing to $182 million, up 18%. Not shown on this slide, EBITDA is up circa 30%, 30%, excluding OAW, which demonstrates terrific margin expansion year-over-year. Fantastic. This level of EBITDA is a high-water mark for quarterly operating profit for the new KBR. Margins of 11% were driven by both segments, where STS surpassed 20% and government profitability continues to perform consistently at the targeted 10%. The strong EBITDA, coupled with normative below-the-line items, produced adjusted EPS at $0.67 a share. With such strong performance in Q1, particularly in STS, we're ahead of pace for 2023, and we'll keep you posted on this as the year unfolds. As for cash flow, results were as expected.
Cash is usually low in Q1 due to incentive payments. This quarter was also affected by the $25 million headwind from early collections we had back in Q4, also some other timing items. In addition, working capital demands went up due to the strong sequential growth we saw since Q4. We expect to get back on pace in later quarters this year. On a positive note, we collected the second and final installment of the Ichthys settlement of AUD 90 million, a really nice boost to Treasury in the quarter. Now go to slide 10 for more color on the two segments, STS and gov. Starting on the left, STS revenues were up almost 50%, all organic. Amazing. This reflects everything we have been saying.
Technology offerings that are helping the world become a greener place, capabilities which are helping stabilize the global energy security challenges, and a world-class team executing its business extremely well. We are seeing strength and growth in all verticals within STS. Ammonia/hydrogen, olefins, clean refining, plastics recycling, and sustainable services, all involved in enabling really important projects all around the world.
With all of this going on, the team keeps a keen eye on the longer term as well. We always have sought to identify new technologies in this space, then acquire them, make them better, and leverage them across our global installed base with a highly effective sales team. In Q1, we added sustainable aviation fuel with Swedish Biofuels, Acetica for carbon capture usage, and SCOREKlean for zero carbon ethylene cracking using hydrogen burners.
Acquiring and developing technologies in this fashion served us very well leading up to the strong market conditions and the performance we see today. Continuing to do so helps drive STS in being both a short-term and long-term growth story. EBITDA for STS blossomed to $82 million, with margins increasing from 17%-22%.
This profitability strength reflects good license mix, economies of scale, and favorable closeouts on strong and consistent execution. While not provided here, and as Stuart said, book-to-bill for STS was an amazing 1.9, ex TTM, but was actually 2.2x in the quarter, continued demonstration of the attractive end market conditions and leadership positioning that we see in this business area. Now over to gov, revenues grew 12% ex- OAW, also reflecting good market conditions and having presence in areas in greatest need by our customers.
While not on the chart, it was really good to see the strong sequential growth from Q4. Specifically, all four business units grew within GS meaningfully since Q4, together up about $75 million or 6%. Growth was driven by our readiness and sustainment, defense systems engineering, and science and space business areas, with pockets of international also doing really well, such as technical consulting.
In readiness and sustainment, the majority of this business reflects long-term, recurring base operations and supply chain programs serving the armed services community all over the world. This includes stable support for the European Command and the Northern Command under LOGCAP VI. We've talked about that a lot. While that is all indeed firmly in place, our customer has also added substantial increases to support the allied effort to support Ukraine and overall security in Europe.
We expected quite a bit of this in the 2023 plan, and with high confidence, this will endure through the year and probably beyond. We'll certainly keep you posted. Science and space grew 10% year over year, kudos to Todd, Laurie, and the team on this. Fabulous.
Our operations focus has benefited from increased NASA and commercial space mission activity, plus military health work that we do in this business unit. This team also continues to re-receive stellar award fee scores, demonstrating superb service to the mission as it always does. Our work here continues to drive enormous pride across all of KBR. Margins for Gov came in at 10%, consistent with target and also recent performance. On to slide 11 and capital matters. With strong EBITDA growth, net leverage registered down and finishing at 1.9x for the quarter.
Last year, we signaled being cautious with debt in light of the interest rate environment, and we are indeed executing that strategy. We're also still deploying meaningful cash for tuck-ins and returning capital to shareholders.
M&A is selectively in play, and as discussed earlier, we added a couple of new technologies in STS this past quarter. In addition, buyback pace was kept strong at $50 million in Q1, plus another $11 million for benefit plan offsets. Finally, in Q1, we were opportunistic with the swap curve and bumped up our fixed-to-float ratio to about 90%. This will drop down 5-10 points when we retire the convertible securities later this year, this fall in particular. The average interest rate for our current debt stack is around 4%.
The combination of high fixed-to-float percentage and the low average rate provides significant stability in the interest outlook relative to driving toward our 2025 financial targets. Finally for me on slide 12, our forward outlook. Just quickly, with an excellent Q1 and with 85% of our outlook under contract, we are affirming the 2023 guidance for all measures
The strong start also shifts our weighting of earnings contribution over the course of the year. We're now looking at a 48-52 split of EPS first half to second half. Thank you. I'll turn it back over to Stuart to finish it up.
Thank you, Mark. Terrific job as always. My final slide today is slide 13. I'll just touch on a couple of key takeaways. I think in summary, an absolutely terrific start to the year. Sequential growth in all business units. Margin expansion, adjusted EPS ahead of pace. Really, our people are truly delivering significant value to our stakeholders. Book-to-bill was excellent at 1.4x on a trailing 12-month basis.
More importantly, the quality of work we're winning and the associated earnings are in key strategic areas. Work under contract is now 85% for 2023, and this is a very solid position to be in after Q1. We're very well positioned in attractive markets of the future, and I think our recent wins really demonstrate this. Thus, we remain absolutely committed to our 2025 targets. Thank you. I'll now hand back to the operator, Jaquita, who will open the call for questions. Thank you.
Absolutely. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. Also, please limit one question and one follow-up. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes on the line of Bert Subin with Stifel. You may proceed.
Hey, good morning, and, thank you for the question.
Thanks, Bert.
Stuart, maybe just to follow up to some of the comments on STS. How should we think about the sustainability of the current demand backdrop? You noted several, you know, material wins over the last couple of months, but I think the concern is, you know, if the global economy does start to head lower, ultimately, you could see some mix shift away from some of the licensing activity you've been doing back towards services and that could lead EBITDA down. Is there a concern, any concern like that in the near future? Or do you think the high book-to-bill and the pipeline give you a, you know, pretty good runway when you're thinking about your EBITDA growth?
Yeah, we're certainly seeing no signs of that, Bert. I think the latter, I think really are book-to-bill and activity levels in our pipeline in the licensing side and the IP side of the house are also, you know, driving that performance. On the sustainable services side, the margins we're attracting there, given the high nature of what we're doing and the capability we have in that arena, are also very attractive. We don't see any margin pressure downwards at the moment. We're sticking to our guide, of course. I think it all bears well looking forward.
As I said earlier, I think one of the key takeaways, which is a little bit different dynamic we're seeing in STS, is we're being locked in for the quality of our resourcing into more longer-term programs like the BP hydrogen work. I think that really gives us better vision into the future than we've probably historically had in that business area. It's a really good, really good mix at the moment. We're feeling really upbeat, as you can tell.
Okay, great. maybe on the other side of the business, you guys mentioned in your release that on contract growth in Government Solutions has been a tailwind with science and space trending better. I think the expectation was that segment would be a little slower growing this year. Now you have that benefit paired with, you know, a nice JV win at Goddard Space Center. As that trajectory looks like it's improving, do you see a path to perhaps the higher end of the 5% to 8% core growth in Government Solutions this year, obviously excluding OAW and HomeSafe?
Yeah. I mean, I think Mark commented on that. I think the sequential growth across all the business areas in government was 6% from Q4 into Q1 of this year, which is a terrific indicator of how that business is moving. I think, we'll give you more color as the quarters unfold. I think, in Q1, it's a bit bold to be getting out over the skis with that statement. I think we've done terrifically well with 18% year-over-year growth, ex-OAW, you know, long may that continue. That's a high watermark in anyone's book. I think that's probably the best I can give you on that. We're feeling pretty upbeat about the market and where we sit.
Great. Thanks, Stuart, and congrats on the quarter.
Thank you.
Thank you. The next question comes from the line of Jerry Revich with Goldman Sachs. You may proceed.
Yes. Hi, good morning, everyone.
Morning, Jerry.
Hi, Jerry. I'm wondering if you could just expand on the sustainable tech solutions performance in the quarter. Feels like that was ahead of plan. Can you just talk about what was the benefit of favorable closeouts versus things that we're seeing flowing through that will continue into the second quarter plus?
I think our long-range targets remain as they are, Jerry, at sort of high teens in the margin side. I did comment that we think that business could get into the low 20s, and I think we're seeing that in various quarters. I think we're doing extremely well, and our folks are delivering. We seem to have quite favorable close outs of projects on an ongoing basis. I think Q one was no different in that regard. I think the key takeaway there is that we are ahead of pace. I think the book-to-bill shows the continued activity in that segment. The team is doing an outstanding job as Mark remarked in his prepared remarks.
I think that team globally is doing terrifically well and really delivering for our customers and thus for our stakeholders. I think that's probably the best way to describe how that business is performing. Obviously as the year shapes up, we'll give you more. I think, I mean, so far we're very much well targeting our guidance.
The reason for the question is, you know, the discussion this morning is around whether given the sharp beat by STS in the quarter, there should have been a positive guidance revision because, without it looks like, the guidance is below consensus in coming quarters. Can you just expand on that point? Is it just too early in the year given the debt ceiling discussion, et cetera? Just say more please if there are any parts of the business that, we should be thinking about as potentially having a negative variance.
There are no parts of the business with a negative variance. I'll say that right off the bat. I think. I get your question on consensus, when you add it to the Q1 performance. I think we're still well within our guide with the consensus numbers each quarter plus Q1, albeit not at the middle of the guide, I'll give you that. It is early in the year and, you know, as we come back in Q2 and Q3 and the business continue to form, we perform, we will review where we are in our guide, but that's kind of where we sit. We're still with consensus still trending within our guidance range.
It sounds like we're towards the high end just to put the pieces together.
Well, I think the math would tell you that, yes.
Super. Thank you.
Thank you. The next question comes from the line of Jamie Cook with Credit Suisse. You may proceed.
Hi, good morning and congrats on a nice quarter. Sorry to follow up again on the STS. Obviously a great EBITDA performance. You know, do we think about it? I mean, it had a nice jump sequentially in terms of EBITDA. Is the $80 some million, is that how we should think about the run rate, you know, over the next couple of quarters? Could you just, you know, congrats on the Plaquemines two awards. Can you just give a little color sort of on the size of that, the scope of work you're doing relative to the first contract, sort of when that starts to kick in? Thank you.
Yeah. Thanks, Jamie. I mean, I think the $80 plus million this quarter did benefit with, as we said, some project close outs and the mix. We've given a guide very clearly of $300 million for the year in STS, and we intend to do that with a fair wind. We may do a little bit better, but there's no commitment there. I think $300 million is the number we're targeting. To be honest, if we deliver that, we're two years ahead of pace. You know, and remember the characteristics of that business with its, you know, negative working capital and things. It's a terrific business. All good.
In terms of Plaquemines, the first phase was 13 million tons or so, with all the associated infrastructure to support 20 million tons. The second phase is for the balance, the 7 million tons of LNG. That's the way to think about it in terms of scale. It's, you know, circa, well, for us, about $800 million, $700 million-$800 million going into the backlog. But one of the things I was keen to point out was on a trailing twelve-month basis, that additive backlog, when you look at the rest of STS, we still achieved a book-to-bill of 1.6, so excluding Plaquemines. The whole portfolio is doing tremendously well.
I do think the other, as I said earlier in the questioning, I think the other change, I think, Jamie, is the long-term nature of some of these contracts that really underpin future performance.
Okay. Thank you. Congrats.
Thanks, Jamie.
Thank you. The next question comes from the line of Sean Eastman with KeyBanc. You may proceed.
Hi, James. Nice start to the year. just quick, quickly wanted to start on a clarification one. If we zone in on this STS kind of outperformance on margins in the first quarter, are we looking at outperformance on the core, you know, licensing business, or are we seeing closeouts on the legacy portfolio in that number?
Well, it's probably a not so much. Some legacy, Sean, but not too much. I mean, we've got ongoing services contracts. We've got ongoing, I guess, technology projects that we close out progressively. You know, as we close those out, we retire risks, and when we retire risks in our favor, we book the upside. That's an ongoing part of that type of business. I think if you're prudent, then you get the upside, and if you're conservative, then obviously you get no downside surprises. That's kinda how we manage that business. I think it's a mix there.
Okay. Thanks, Stuart. Then just relative to the debt ceiling negotiations, I just wanted to understand how the KBR team is thinking through scenarios and risk factors there. I mean, you know, is there sort of a simple explanation for the street here on how to think about the debt ceiling risk?
Yeah. I mean, it's some things are, you know, that whole negotiation is totally out with our control. The way that we think about it is that we've got certain attributes within KBR that are very different to perhaps some of our peers. W e've got the SDS business, got nothing to do with that debt ceiling, as you're aware. We've got the international part of our government business similarly that's up with it. We're positioned very much at the operational end of what we do for government. W e've talked about this often, you know, the things that are happening in Europe will not be switched off. They just can't be, given the circumstances there.
The work we're doing in space can't be turned off because of the things we do there, et cetera, et cetera. We've also got over half of our GS backlog, as you know, in long-term contracts that are funded. We're feeling pretty good about a lot of that. We've got certain attributes that we think we're very well positioned opposite these key priorities.
I think, the debt ceiling piece aside, I think we've talked about inflation risk before and how we've managed that. I think we've come through that very strongly. We've seen the shifts on really throughout geopolitical risk. Again, I think we're well positioned there to be resilient. I think that resiliency word hopefully resonates with the investment committee on KBR today just because of the attributes I've just described.
We've also positioned our business in very strong cash generative areas of the market. I think again, that, you know, you can see our leverage and where our balance sheet sits and the treasury team and Mark and has done a terrific job in sort of de-risking that element and giving us certainty with the swaps that Mark described. I think all up, we've de-risked the balance sheet, we've de-risked the outlook, and we're in attractive markets with a very long book of business that gives us more transparency than most into the future. With the attributes of SDS and GSI out with the U.S., I think that gives us, you know, certain factors that are, that are very positive in that regard.
Makes sense. One last quick one from me. Last month we saw this Australian defense strategic review come out. It seemed like there was some moving pieces there, some reprioritization of spend being discussed. We weren't really sure what to take away there. Just curious on KBR's take on that one.
Yeah, it's just come out. We're still sort of digesting it ourselves. Sean, obviously does a lot of focus on AUKUS and the Navy in general, which, you know, we're very well positioned opposite that. We're also strong in things like mission IT, which obviously is all well funded going into the future. There will be some reprioritization, so we'll probably have to come back to you on that. It's not certainly changing our guide or our outlook.
Understood. I'll turn it over. Thank you.
Thanks.
Thank you. The next question comes from the line of Andy Kaplowitz with Citigroup. You may proceed.
I guess close enough. How are you doing, guys?
Hey, Andy.
Hi, Andy.
Stuart or Mark, you mentioned the seven ammonia awards in Q1 and the Hyundai Plastics Recycling modular plan helped you deliver that sort of 1.6x trailing 12-month book to go ex Plaquemines, which seems like maybe even more of an acceleration in those key markets, you know, in the quarter. Is that the case, and does that mean you can sustain sort of that 1.6x that you've achieved ex LNG moving forward?
Certainly, the market would, you know, we're feeling pretty good about the market and the pipeline and obviously, you know, it's been a month or so since the end of the quarter, and we're not seeing any of that slow down. I think that bodes well going forward. Can you achieve that exact number every quarter, Andy? That's difficult to predict. There'll be some ups and some downs in all of that. I think overall the key message and the takeaway is we've got a very strong backlog already secured in SDS. With the whole group at over 85% now, I think we're in pretty good shape for 2023. A lot of focus is obviously booking business as we move into next year already.
Stuart, I think last quarter you had talked about maybe awards in space starting to you know, you're watching for an acceleration awards in space and maybe we're seeing that. You mentioned a 10% growth in space. Does that have anything to do with sort of the Artemis program progressing? Like, what do you see for that particular area? I'd ask you the same thing about European Command. It seems like you've been, you know, expecting the revenue step up there, but it seems like it's now coming in 2023?
Yeah. Certainly the Artemis program and the flow through the existing contracts with that, I think that's what's driving the on contract growth there. As Mark also said, you know, the health side of the services in India is also seeing quite substantial on contract growth. It's all going, which is terrific. That obviously doesn't include the military space piece I touched on, which sits inside our intelligence portfolio.
In terms of what's happening in Europe, you know, I think that ultimately that program, in EUCOM is moved away really from contingency funding as OCO into European Command O&M funding, which I think directionally sets the tone that we think this is gonna be more enduring than less. So I think there's probably more stability around that. But, but you're right, we've seen growth from sort of last year to this year, about, in our forecast, about $75 a quarter.
Appreciate it, guys.
Thank you. The next question comes from the line of Steven Fisher with UBS. You may proceed.
Thanks. Good morning. I just wanted to follow up on the guidance discussions earlier in the queue. I know it's early, and you don't wanna get out over your skis, but I'm just wondering what are some of the key things you're looking at to update guidance or, you know, uncertainties that might be resolved? Is it just time, or is there any risk on the debt ceiling discussions in your mind shifting around timing of awards? Is it, you know, maybe something with this European Command that, you know, maybe troops could get pulled quickly? Anything kind of more specific you're looking for that's an uncertainty that you're looking for to be resolved?
Not, not really, Steve. I think it's a time issue. We just wanna get a few more months under our belt and as you know, we're quite conservative. I think that's prudent. W e've de-risked a number of factors. I've touched on them already. I won't go into them all, but obviously things like our capital situation and where we sit with the sort of interest rate risk and things like that has all been mitigated and we've secured the work potentially to deliver. I mean, people often forget you've got 85% of your work under contract.
Ultimately, in a normal year, we get a number of things that are small, and they make up, you know, 15%-20% of our revenue base, and we don't know what they are until they hit or a few weeks out before they hit. We're feeling pretty good about the year. It's more about time and just solid execution and a focus on delivering for our customers. I think if we do that and get a few more months under our belt, I think we'll talk, be talking about this again, I'm sure next quarter or Q3. It's really time.
Got it. Curious what you're seeing in the M&A pipeline and to what extent does your convert settlement later this year impact any M&A motivations or how does that convert also affect your buyback motivations as well?
Hey Steve. Mark here. M&A pipeline is fairly consistent. I wouldn't say there's a major trend one way or the other. There's always things happening in government. As you see, and we are really pleased to execute a few additions on the STSI, which doesn't happen very often. Small, but potentially, you know, really important in the long term as we continually tech refresh that business. Relative to, you know, the balance sheet, we did say very clearly in our last call, less so this time, but nonetheless remains our number one capital priority this year is to settle the convert and get that behind us. That does involve a meaningful amount of capital, circa $600 million at this stock price, starting today at least.
We do need to build the treasury for that. We do have adequate liquidity to take care of that and do tuck-ins. You know, don't be surprised if you see those. Otherwise, the priorities are very clear and unchanged, and we do remain constructive on M&A as opportunities present themselves.
Perfect. Thank you.
I think in terms of buybacks, Steve, we've started the year with a strong cadence. I think if you look back to Q1 last year, we were slower out of the blocks. You know, we're committed to that, the capital deployment and the 25 targets. Obviously, once we get through the convert this, later this year, that, you know, that will free up liquidity to sort of fulfill on that promise.
Thanks, Stuart.
Thank you. The next question comes from the line of Gautam Khanna with Cowen.
Hey, thanks, guys. Good morning.
Morning, Gautam.
Hi, Gautam.
Hey, I wanted to ask about HomeSafe Alliance and just make sure I understood. You mentioned you've transitioned over half. If you could just talk about if your expectations are the same as they were with the half billion every six months increase and how the phasing will be in 2024 and in 2025. Like, what do you think peak rate will be? Then if you could also talk about how would it hold up in an extended CR? Like, let's just say we had, for some reason, a budget continuing resolution for all of next fiscal year of the government. Would the program be impacted at all, the ramp? Thank you.
No, I don't think the ramp will be impacted at all. I think that's, you know, that's an ongoing commitment today, and that will continue into the future, Gautam. We don't see any impact with CR and the HomeSafe Alliance program. In terms of the ramp, we have said that as we head As we head towards the end of this year, we hope to get some moves under our belt, and the ramp will go up quite significantly into the summer of next year, which is the domestic busy period. That ramp will be quite marked, I think, into Q2 and Q3.
Then we'll probably come off a little bit, the international moves will then pick up at the end of the year into the first quarter of the following year. I think that's the sort of ramp. We reckon it'll be, you know, as we know, it's a $20 billion program over or the ceiling value over nine and a bit years. That, that mass with, I guess, inflation will mean that the, you know, the cadence might be a little bit above $2 billion in total. I think as we get closer to the end of this transition period, I think only then can we really truly come back and give you more accurate data around that.
That's the way to think about it just now and your models and I think the margin, you know, we've kind of resolved. As you know, we've got inflationary protection in the contract with CPI adjustments, and we've dealt with that with the government now. That's the for this kickoff period. I think that's the good news. We get to revisit that next year again, of course. At least the revenue basis is clear, and now we're working on the supply chain side. We should be able to come back to you obviously well before the end of the year with sorta a true margin expectations as well. You just have to give us a little bit more time, Gautam, but that's the kind of thinking at the moment.
Thank you.
Thank you. The next question comes from a line of Michael Dudas with Vertical Research. You may proceed.
Good morning, gentlemen, Jamie.
Morning.
Morning, Michael.
Just to follow up on some of your technology comments. You said, you know, I thought the plastics and the mirror order was quite helpful. Ammonia's been quite visible and strong with your company and in others as well. Are those two areas where we can see the cadence pick up on those opportunities, or is it gonna be more balanced in some of the more popular or more forward technology, especially on the emissions and the side on some of the legacy energy companies who are really starting to lean into that moving forward?
I think it's a bit of both, Mike. You know, the You're right, the cadence of awards in ammonia and I think directionally getting that first module going with plastics recycling, I think we'll. Obviously, more to come on that. It's very exciting because obviously the volume increase is significant once you start to get into the execute phase with some of these developments. As Mark alluded to, in his remarks also, we're seeing it in olefins, we're seeing it in greener refining or cleaner refining solutions, and across our portfolio. It's really not one or the other. On the sustainable services side of our business, you know, we presented that last quarter to show you the relativity and size of those bubbles that we presented, if you remember.
You know that side of the business that's really driven by decarbonized solutions around energy security is going extremely well also. I think it's a, it's a combination and it's not a, certainly not a one-trick pony. I think it's a multifaceted market driver thing and we're seeing it not just in one market either, it's a very global phenomena, as you can tell from some of our press releases.
My follow-up is, with some of the newer technologies that you've acquired recently, how the visibility? Are those early stage? Are those that we may see some more order cadence come through the next six, 12 or 18 months? Are they longer term plays? Like, how do you guys think through when you're looking at these technologies? Is it to like, you know, kind of get closer to the implementation stage or stuff for opportunities for KBR to kinda enhance and then really push forward? Thank you.
Yeah. I think each is a little bit. They're both in reasonably early stages is probably where all three interest. Two we've acquired and one we've developed. I think the SAF, the sustainable aviation fuel, we've been courting the Swedish Biofuels company for a long time. I think we've now obviously acquired the rights to that technology globally. It's quite unique. You know, it's actually been approved by DARPA, which is, you know, makes it more applicable to defense. I think, you know, a strong synergy play there into the future as the DOD tries to meet its net zero commitments. It's also quite unique because it's a true drop-in solution.
What does that mean? It means you can actually just physically drop it into a tank of existing, you know, aviation fuel and it'll work. You don't have to do a lot of work or pre-planned and all the things that you have to do with some of the other solutions. It's still early, but we think its attributes are very, very exciting and certainly we know directionally in places like Japan, the government have legislated that 10% of all refined products now has to be sustainable aviation fuel. We've seen many airlines come out with partnerships and things that is driving that market, and certainly, you know, that industry is under pressure to be more sustainable going forward.
For people who use those services and the investors and those stocks are also demanding that. We do think it's an exciting potential for the future, but I can't give you. Other than its attributes, I can't give you any numbers yet to support that. It is, it's exciting and of course we've got a hugely strong track record of commercializing new technologies, and we've got a very strong global sales force to affect that. I think it's directionally really, really exciting. I think similarly with acetic acid. Acetic acid is actually something that hangs beside what we do in ammonia.
It's a different product stream, and the beauty of that particular technology is it consumes CO2 in the process. It's, you know, it's gonna be attractive just from that attribute that we can actually take CO2 out and actually use it in as a consumable. Again, we think there are great opportunities for that as we go forward.
The third is really looking at SCORE. Scores are olefins technology, and really we've done a bit of work trying to make that even more sustainable by introducing hydrogen burners as part of the solution, which we think will be attractive to our customer base going forward. I think all exciting, Mike, all directionally terrific, and, but, which ones goes quicker and which one goes slower, I don't know. what numbers they deliver to KBR, I don't know. I think it does position us well, given the market fundamentals we're seeing.
Thank you. The next question comes from the line of Brent Thielman with D.A. Davidson. You may proceed.
Hey, thanks. Good morning. Hey, Stuart, I was curious on the comments about this growing mix of long-term contracts in STS. I mean, Plaquemines is pretty transparent. You talked about some others like BP. I guess I'm just curious, do you see more of a trend where kind of a larger portion of future revenue in this segment will be secured by long-term contract arrangements, maybe versus the shorter sales cycle solutions that think it represented more of the business? Is that the direction of the market, more of a strategic initiative? How do you see that going forward?
Yeah, I think that's exactly right. That was the point I was trying to make. I do think directionally, we're going to see more of that. I think, you know, you know, as that market gets busy, I think we are not, we're not gonna jump from one opportunity to the next. We're gonna be strategic, particularly with our customer choice and the sort of work that we do and the quality of earnings that's associated with that. With that comes key people and I think locking in resources is all part of the attractiveness of these longer term arrangements.
As a consequence of that, I do think given the activity levels in the market, you'll get to see more of that, not just with us, but I think with us for sure and where we've positioned, I think that's gonna be, you know, at the higher end, and I think you're gonna see more long-term contracts coming through the KBR portfolio and STS. As I said, that's really what we're seeing today. I think that the customers are very well funded, of course, and I think trying to get in front of what they want to do from a sustainability perspective and look at their ESG goals. I think we can help them with that, and I think there's and they'll want the people that help deliver that.
Trending wise, I think it's a very astute question and exactly the message we're trying to deliver.
Okay. Stuart and Mark, hate to put you on the spot with this, but obviously you're getting lots of questions about STS and all the different drivers within it. Is there a possibility, I know there's competitive factors to this too, that, you know, we could see more of a breakout at some of these different moving pieces within the segment just to understand, you know, financially where some of the implications are of kind of all these moving pieces within the segment, which all seem to be contributing in a significant way?
Well, Brent, are you asking about the logic of the two together or something? I kind of missed the second part of that.
No. Well, no, I'm referring more to ammonia, hydrogen, recycling piece. I mean, there's lots of moving pieces within this business which are all significant. I'm wondering if, you know, we could see KBR breaking out more of these pieces just to help the financial community understand it better.
I think it's a great question. As STS becomes more prominent component of the picture, it is up to us to improve our communications here. It's a great business. There's lots of parts to understand. Things are always changing, fortunately for us, for the better as conditions improve. We are committed to improving the communications there as best we can. You saw us show more in the last quarter, and we'll consider or continue to evolve that as best we can. Breaking out components of a $1.5 billion business, you know, has some merit, but I think more scale would be helpful. We're certainly on a great track to do that with the growth rates we see here.
Stay tuned, you know, it's a work in progress. The team's working very hard to execute and sell and maybe a little more time allocation to marketing might make sense someday. I think we're doing the right things in from a priority perspective in delivering these types of results.
Yeah. Understood. Very attractive asset. That's why I pointed out, but appreciate you taking that question.
Yep.
Thank you. Your next question comes from the line of Mariana Perez Mora with Bank of America. You may proceed.
Hi. You actually have Andre Madrid on for Mariana today. Thanks for taking the question. I was just wondering if you can give a little more color on the free cash flow step up through the year. You know, judging where you are at now, how do you expect to get to the point of $425 million-$460 million range for cash flow?
Yeah. Thanks, Andre. A fair question. The number does stick out a little bit in Q1. As I said, we did expect a pretty low number in Q1, and that's exactly what happened. I mentioned timing items in my prepared remarks. You know, we got the set of payments. We did have an extra payroll. We had some collections that went to the left and accelerated in Q4. I mentioned those things. We had quite a number of things going against us. We don't expect that to occur in future quarters and to some degree the opposite. It looks like a steep hill to climb, but we've had, you know, very strong cash flow every year. The business model hasn't changed.
We're capital light, and we're gonna work very hard to get those DSOs down, and we've got about five, six days to bring down over the course of the year. Team's focused on it and, you know, we didn't change guidance, so we're confident as such.
Yeah. I think Q1 and Q4 are probably the lower quarters. Q2, Q3 being seasonally the higher quarters with typically five-week seasons and things like that, but also lesser holidays in those.
Yep.
-lower quarters. Yeah. So we hope to make good progress into next quarter and, you know, we'll obviously update then.
Great. Thanks.
Thank you.
Thank you. There are currently no more questions waiting at this time. I would now like to turn the call back over to Stuart for closing remarks.
Thank you. Thank you very much. Again, thank you for joining us this morning. I'll be brief. I think we can all see we've got off to a great start in 2023. I think lots of attributes with revenue growth, margin expansion, very strong book-to-bill, and really just the absolute focus of our people on delivering, which is really driving amazing shareholder value. With that, I'll close and I look forward to talking to a number of you as the day progresses. Thank you very much.
That concludes today's conference call. Thank you for your participation. You may now disconnect your line.
Thank you.