KBR Inc. (NYSE: KBR) is a global provider of science, technology, and engineering solutions to governments and companies around the world. The company operates in two core business segments: Government Solutions (GS) and Sustainable Technology Solutions (STS).

Business Overview

The Government Solutions segment provides full life-cycle support solutions to defense, intelligence, space, aviation, and other programs and missions for military and other government agencies primarily in the U.S., U.K., and Australia. KBR's services cover the full spectrum spanning research and development, advanced prototyping, acquisition support, systems engineering, C5ISR, cyber analytics, space domain awareness, test and evaluation, systems integration and program management, global supply chain management, operations readiness and support, and professional advisory services across the defense, renewable energy, and critical infrastructure sectors.

The Sustainable Technology Solutions segment is anchored by KBR's portfolio of over 80 innovative, proprietary, sustainability-focused process technologies that accelerate and enable energy transition across the industrial base in four primary verticals: ammonia/syngas, chemical/petrochemicals, clean refining, and circular process/circular economy solutions. STS also provides highly synergistic services including advisory and consulting focused on broad-based energy transition and net-zero carbon emission solutions, high-end engineering, design and program management centered around decarbonization, energy security, energy efficiency, environmental impact, and asset optimization, as well as digitally-enabled operating and monitoring solutions.

Financials

In the second quarter of fiscal 2024, KBR reported revenue of $1.86 billion, up 5.8% from the same period in the prior year. Net income attributable to KBR was $106 million, compared to a net loss of $351 million in the second quarter of 2023, which was primarily due to a $144 million legal settlement charge and a $314 million charge related to the company's convertible notes in the prior year period. Adjusted EBITDA, a non-GAAP metric, was $216 million, up 13% year-over-year, with an adjusted EBITDA margin of 11.6%.

For the first half of fiscal 2024, KBR reported revenue of $3.67 billion, up 6% from the same period in the prior year. Net income attributable to KBR was $199 million, compared to a net loss of $265 million in the first half of 2023, again primarily due to the legal settlement and convertible notes charges in the prior year period. Adjusted EBITDA for the first half of 2024 was $423 million, up 13% year-over-year, with an adjusted EBITDA margin of 11.5%.

The company's Government Solutions segment reported revenue growth of 3% in the second quarter and 4% in the first half of 2024, driven by new and on-contract growth across the International, Defense & Intel, and Science and Space business lines, partially offset by a decline in the Readiness & Sustainment business due to funding delays related to the Ukraine conflict. Segment operating income margin was 10.4% in the second quarter, in line with expectations.

The Sustainable Technology Solutions segment delivered strong performance, with revenue growth of 14% in the second quarter and 15% in the first half of 2024. This was driven by growth across all parts of the business, including technology sales, engineering and professional services. Segment operating income margin was 21.4% in the second quarter, up from the prior year period, reflecting a favorable mix of intellectual property license revenue, strong joint venture performance, and the segment's highly efficient cost structure.

KBR's backlog of unfilled orders totaled $16.8 billion as of June 28, 2024, down slightly from $17.3 billion at the end of 2023. The company's trailing 12-month book-to-bill ratio was 1.0 times, or 1.2 times excluding the large LNG project. Approximately 92% of KBR's work for 2024 is currently under contract.

During the first half of 2024, KBR generated $261 million in operating cash flow and $226 million in free cash flow, down 9% and 10% respectively from the same period in the prior year, primarily due to the timing of collections. The company's balance sheet remains strong, with a net leverage ratio of 1.9 times trailing 12-month adjusted EBITDA as of June 28, 2024.

Outlook

Looking ahead, KBR raised its full-year 2024 guidance, increasing the adjusted EBITDA range to $825 million to $850 million, with a midpoint of $838 million. The company also increased its adjusted earnings per share guidance to a range of $3.15 to $3.30, with a midpoint of $3.23. The updated guidance does not include any contribution from the company's recently announced acquisition of LinQuest Corporation, a leading engineering, data analytics, and digital integration company serving national security missions.

Recent Developments

The LinQuest acquisition, valued at $737 million net of expected tax benefits, is expected to be accretive to KBR's adjusted earnings per share and further strengthen the company's capabilities in high-growth areas such as space, air dominance, and connected battlespace. LinQuest's 1,500-plus employees and double-digit growth and margin profile make it a highly complementary addition to KBR's portfolio.

KBR's geographic footprint is diverse, with a significant presence in the United States, the United Kingdom, Australia, the Middle East, and other international markets. In the second quarter, the company saw strong performance in the Middle East region, which it expects to continue as the focus on energy security and the energy transition accelerates in that part of the world.

Liquidity

The company's liquidity position remains robust, with $414 million in cash and cash equivalents as of June 28, 2024, and $901 million in remaining capacity under its committed and uncommitted credit facilities. KBR has demonstrated a disciplined approach to capital allocation, returning nearly $200 million to shareholders through dividends and share repurchases in the first half of 2024 while also pursuing strategic acquisitions like LinQuest to drive long-term growth.

Conclusion

Overall, KBR's diversified business model, strong backlog, and consistent operational execution have positioned the company well to navigate the current macroeconomic and geopolitical environment. The company's focus on high-growth, technology-enabled markets, combined with its proven ability to deliver for its government and commercial customers, makes KBR an attractive investment opportunity in the engineering and government services space.