KBR announced its third quarter 2023 financial results
Backlog and options as of September 29, 2023 totaled $21.8 billion. Delivered 1.2x trailing-twelve-months (TTM) book-to-bill1 as of September 29, 2023. Awarded $3.5 billion of bookings and options in the quarter.
Sustainable Technology Solutions (STS) delivered 1.3x TTM book-to-bill1 as of September 29, 2023, including awards and achievements in the quarter as follows:
- Awarded a license and engineering design contract by Hanwha Impact Corporation for the world’s first commercial ammonia to hydrogen cracking unit using KBR’s leading H2ACTSM technology in Daesan, Republic of Korea.
- Awarded a blue hydrogen process technology and front-end engineering design contract by EET Hydrogen for its planned HPP2 low-carbon hydrogen facility at HyNet, the UK’s leading industrial decarbonization project.
- Awarded an engineering, procurement and construction management contract by Woodside Energy for Train 1 of its Pluto LNG facility, located near Karratha, Western Australia.
- Selected by Deepak Fertilisers and Petrochemicals Corporation Limited for a multi-year digital solutions contract for the development of their enterprise-level Smart Factory project. This transformative contract will cover the operations of their four nitric acid plants located in Dahej and Taloja, India.
- Selected by Madoqua Power2X, a joint venture of Madoqua Renewables, Power2X and Copenhagen Infrastructure Partners, for a green ammonia project using KBR’s K-GreeN® technology.
Government Solutions (GS) delivered 1.1x TTM book-to-bill1 as of September 29, 2023, including awards and achievements in the quarter as follows:
- Awarded a contract, Integrated Missions Operations Contract III, worth up to $1.9 billion, for the continued support of NASA’s human spaceflight programs, including the International Space Station, Artemis and Low Earth Orbit Commercialization.
- KBR joint venture with Intuitive Machines awarded Omnibus Multidiscipline Engineering Services III contract, worth up to $719 million, to aid NASA’s development of space orbital systems in its Engineering and Technology Directorate at Goddard Space Flight Center in Maryland.
- Awarded a two-year option on the Human Health & Performance Contract II for the continued biomedical, medical and health services in support of human spaceflight programs at Johnson Space Center in Houston.
- Defense & Intel backlog grew due to several awards in classified areas.
- Vaault®, KBR’s proprietary secured cloud and mission service platform, has been prioritized for the Federal Risk and Authorization Management Program Joint Authorization Board authorization process.
- Awarded a $75 million recompete task order to perform research and analysis to address the Department of Defense critical technology areas of advanced materials, trusted artificial intelligence and autonomy and renewable energy generation and storage.
Summarized Third Quarter Fiscal 2023 Financial Results
| Three Months Ended | Nine Months Ended | ||||||
| September 29, | September 30, | September 29, | September 30, | ||||
| Dollars in millions, except share data | 2023 | 2022 | 2023 | 2022 | |||
| Revenues | $ 1,770 | $ 1,626 | $ 5,226 | $ 4,956 | |||
| Operating income | 147 | 125 | 301 | 221 | |||
| Net income (loss) attributable to KBR | (21) | 74 | (286) | 97 | |||
| Adjusted EBITDA2 | 186 | 171 | 559 | 511 | |||
| Operating income margin % | 8 % | 8 % | 6 % | 4 % | |||
| Adjusted EBITDA2 margin % | 11 % | 11 % | 11 % | 10 % | |||
| Earnings per share: | |||||||
| Diluted earnings per share | (0.16) | 0.49 | (2.10) | 0.65 | |||
| Adjusted earnings per share2 | 0.75 | 0.65 | 2.18 | 2.03 | |||
| Cash flows: | |||||||
| Operating cash flows | (40) | 122 | 248 | 336 | |||
| Adjusted operating cash flows2 | 92 | 122 | 380 | 336 | |||
| Adjusted free cash flows2 | 70 | 102 | 320 | 297 | |||
Financial Highlights for the Three Months Ended September 29, 2023
- Revenue of $1.8 billion, up 9% (organic) on a year-over-year-basis
- Net income attributable to KBR of $(21) million; Adjusted EBITDA2 of $186 million (11% Adjusted EBITDA2 margin)
- Diluted EPS of $(0.16); Adjusted EPS2 of $0.75
- Operating cash flows of $(40) million; Adjusted operating cash flows2 of $92 million
- Bookings and options of $3.5 billion during the quarter with 1.2x TTM book-to-bill1
Financial Highlights for the Nine Months Ended September 29, 2023
- Revenue of $5.2 billion, up 5% (organic) on a year-over-year basis and 12% on an ex-OAW2 year-over-year-basis
- Net income attributable to KBR of $(286) million; Adjusted EBITDA2 of $559 million (11% Adjusted EBITDA2 margin)
- Diluted EPS of $(2.10); Adjusted EPS2 of $2.18
- Operating cash flows of $248 million; Adjusted operating cash flows2 of $380 million
- Bookings and options of $8.8 billion during the year to date period with 1.2x TTM book-to-bill1
Commentary on the Three Months Ended September 29, 2023
Revenues were $1.8 billion, up 9% (organic) compared to 3Q’22, primarily due to new and on-contract growth across all Government Solutions business units and growing demand across the Sustainable Technology Solutions portfolio.
Net income attributable to KBR was $(21) million, down $95 million compared to 3Q’22, primarily due to a non-cash charge of $114 million recorded in connection with the convertible notes settlement method election (discussed below). Net income attributable to KBR ex-Nonrecurring Charges2 was $93 million, up $19 million compared to 3Q’22, primarily due to increases in gross profit and equity in earnings from unconsolidated affiliates partially offset by increases in selling, general and administrative expenses and interest expense.
Adjusted EBITDA2 was $186 million, up 9% (organic) compared to 3Q’22, with Adjusted EBITDA2 margins of 11%.
Diluted earnings per share decreased in line with the decrease in net income attributable to KBR. Adjusted earnings per share2 increased in line with Net income attributable to KBR ex-Nonrecurring Charges2.
Operating cash flows were $(40) million, down 133% compared to 3Q’22 primarily due to a $132 million after-tax outflow in connection with the settlement of a legacy legal matter in 2Q’23. Excluding the legacy legal settlement outflow, Adjusted operating cash flows2 were $92 million.
Commentary on the Nine Months Ended September 29, 2023
Revenues were $5.2 billion, up 5% (organic) compared to YTD 3Q’22. Revenue ex-OAW2 increased $579 million, or 12%, due to growth in Readiness & Sustainment and Science & Space divisions and growing demand across the Sustainable Technology Solutions portfolio.
Net income attributable to KBR was $(286) million, down $383 million compared to YTD 3Q’22, primarily due to a current year non-cash charge of $428 million recorded in connection with the convertible notes settlement method election and partial repurchase and partial termination of the note hedge and warrants (discussed below) and an after-tax cash charge of $132 million in connection with the settlement of a legacy legal matter, as well as a non-cash charge of $137 million in equity in earnings related to the resolution of a subcontractor dispute that did not recur in 2023.
Net income attributable to KBR ex-Nonrecurring Charges2 was $274 million, up $40 million compared to YTD 3Q’22, primarily due to increases in gross profit and equity in earnings from unconsolidated affiliates partially offset by increases in selling, general and administrative expenses and interest expense and a gain on sale of non-core assets that did not recur in 2023.
Adjusted EBITDA2 was $559 million, up 9% (organic) compared to YTD 3Q’22, with Adjusted EBITDA2 margins of 11%. Adjusted EBITDA ex-Gains2 was up 14% compared to YTD 3Q’22.
Diluted earnings per share decreased in line with the decrease in net income attributable to KBR. Adjusted earnings per share2 increased in line with Net income attributable to KBR ex-Nonrecurring Charges2.
Operating cash flows were $248 million, down 26% compared to YTD 3Q’22. Adjusted operating cash flows2 were $380 million, up 13% compared to YTD 3Q’22.
Capital returned to shareholders totaled $190 million during the year to date period, consisting of $137 million in share repurchases, inclusive of $125 million of open market repurchases and $12 million of repurchases to satisfy requirements of equity compensation plans, and $53 million in regular dividends.
Cash Settlement Method Election and Repurchase of Convertible Notes
During 2Q’23, KBR made an irrevocable election to use cash as the settlement method (as opposed to shares or a combination of cash and shares) to settle the principal and any excess value upon early conversion or maturity of the $350 million principal amount of convertible notes due November 2023. This election triggered a change in accounting treatment for both the convertible notes and the related note hedge. Previously these instruments qualified for an equity exemption under ASC 815 Derivatives and Hedging because share settlement was an available option. However, as of the date of the cash settlement election, the convertible notes and the related hedge no longer qualified for this exemption, and as a result, the conversion option of the convertible notes and the note hedge required fair value measurement on the date of such election.
As a result of the above cash settlement method election and partial repurchase and the partial termination of the corresponding portions of the note hedge and warrants, we recorded a YTD 3Q’23 loss of $428 million, of which $114 million was recorded in the current quarter related to the accretion of convertible notes debt discount. These amounts are not tax deductible and have been added back to Adjusted EPS. Refer to Note 18 “Cash Election and Repurchase of Convertible Notes” in our Form 10-Q for the quarter ended September 29, 2023 for further details.
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