2nd Quarter 2020 Financial Results · 2nd Quarter 2020 Financial Results August 06, 2020 ... This...

The future, designed and delivered.The future, designed and delivered.

Stuart Bradie – President and Chief Executive OfficerMark Sopp – Executive Vice President and Chief Financial Officer Alison Vasquez – Vice President, Investor Relations

2nd Quarter 2020Financial Results

August 06, 2020

©2020 KBR Inc. All Rights Reserved.

This presentation contains forward-looking statements regarding our plans, objectives, goals, strategies, future events, future financial performance and backlog information and other information that is not historical. When used in this presentation, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts” or future or conditional verbs such as “will,” “should,” “could,” or “may,” and variations of such words or similar expressions are intended to identify forward-looking statements. Such statements are based upon our current expectations and various assumptions, which are made in good faith, and we believe there is a reasonable basis for them. However, because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and other factors that are difficult to predict and which could cause actual results to differ materially from the forward-looking statements contained in this presentation. These risks and uncertainties include, but are not limited to: the significant adverse impacts on economic and market conditions of the COVID-19 pandemic; the company’s ability to respond to the challenges and business disruption presented by the COVID-19 pandemic; the recent dislocation of the global energy market; the company’s ability to realize cost savings and efficiencies relating to the streamlining of its Energy Solutions business; the company’s ability to manage its liquidity; the company’s ability to continue to generate anticipated levels of revenue, profits and cash flow from operations during the COVID-19 pandemic and any resulting economic downturn; the outcome of and the publicity surrounding audits and investigations by domestic and foreign government agencies and legislative bodies; potential adverse proceedings by such agencies and potential adverse results and consequences from such proceedings; the scope and enforceability of the company’s indemnities from its former parent; changes in capital spending by the company’s customers, including as a result of the COVID-19 pandemic; the company’s ability to obtain contracts from existing and new customers and perform under those contracts; structural changes in the industries in which the company operates; escalating costs associated with and the performance of fixed-fee projects and the company’s ability to control its cost under its contracts; claims negotiations and contract disputes with the company’s customers; changes in the demand for or price of oil and/or naturalgas; protection of intellectual property rights; compliance with environmental laws; changes in government regulations and regulatory requirements; compliance with laws related to income taxes; unsettled political conditions, war and the effects ofterrorism; foreign operations and foreign exchange rates and controls; the development and installation of financial systems;increased competition for employees; the ability to successfully complete and integrate acquisitions; and operations of jointventures, including joint ventures that are not controlled by the company. Additional information about potential risk factors that could affect our business and financial results is included in our Form 10-K filed on February 24, 2020 and any subsequent Forms10-Q and 8-K.

We caution you not to place undue reliance on the forward-looking statements included in this presentation, which speak only as of the date hereof. We disclaim any intent or obligation, except as required by law, to revise or update this information to reflect new information or future events or circumstances.

This presentation contains the financial measures “EBITDA,” “Adjusted EBITDA,” “Adjusted EPS” and “Adjusted Operating Cash Flow,” which are not calculated in accordance with U.S. GAAP. A reconciliation of the non-GAAP financial measures EBITDA, Adjusted EBITDA, Adjusted EPS and Adjusted Operating Cash Flow to the most directly comparable GAAP financial measure has been provided in the Appendix to this presentation.

Forward-Looking Statements

President & Chief Executive Officer

Stuart Bradie

Proud history, bright future. 4


KBR Sustainability Platform



KBR Sustainability Moment

SOCIAL MOBILITY

At KBR, we believe everyone should have the same opportunity to succeed regardless of the circumstances in which they were born.

We’ve invested in people in some of the world’s hardest hit

economic and geopolitical regions, such as Afghanistan, where we award university

scholarships for women.

HUMAN RIGHTSCOMMUNITY ENGAGEMENT

We’ve worked with local communities to run reading clubs for underserved

children, provided English lessons, and offered apprenticeships and training

opportunities that create a professional advantage.

INCLUSION AND DIVERSITY

We've been unwavering in our commitment to become a company of

choice for a broader, more diverse pool of talent through updated hiring

and recruitment processes and by focusing on fair wage distribution.


©2020 KBR Inc. All Rights Reserved.©2020 KBR Inc. All Rights Reserved.

Key Takeaways Up Front – Executing on Our Strategy

▪ Solid Q2 results – Reaffirming Adjusted EPS

▪ Stellar cash performance – Raising operating cash flow guidance

▪ Reimagining KBR

▪ Focus on upmarket, technical services and solutions

▪ Exiting commoditized services, construction and lump-sum EPC, including LNG

▪ Portfolio shaping to two segments, GS and TS, enables greater focus on expansion of highly differentiated solutions

▪ Resolution of legacy matters – DOJ closes Unaoil investigation of KBR



1See Appendix for reconciliation of Adjusted EBITDA , Adjusted EPS and Adjusted Operating Cash Flow

$1,422 $1,385

2Q19 2Q20

7

2Q 2020 | Highlights

REVENUE ADJUSTED EBITDA1

8.2%7.7%

2Q19 2Q20

ADJUSTED EBITDA MARGIN1

ADJUSTED EPS1

$0.41 $0.39

2Q19 2Q20

ADJ. OPERATING CASH FLOW1

$33

$113

2Q19 2Q20

BACKLOG

2Q19 2Q20

$3.3B$2.9B

$13.8B $12.6B

OPTIONS

BACKLOG

$ in millions, except EPS and Backlog

$117 $106

2Q19 2Q20



Portfolio Shaping Advances Strategic Focus

TECHNOLOGYSOLUTIONS

GOVERNMENTSOLUTIONS

▪ Sustainability-focused, innovative licensed IP, catalyst and proprietary equipment

▪ Enhanced TS capabilities: Highly aligned advisory & consulting focused on emerging technologies in energy transition and sustainability; and technology-led opex

▪ Domain expertise across mission-critical, long duration programs aligned with critical priorities of health & human performance, defense modernization and space

▪ Balanced customer base and funding sources; long tenor of anchor programs



Market Outlook

▪ Defense budgets align well with KBR strategic growth vectors: modernization, space superiority, health & human perf.

▪ Bipartisan support for defense modernization and space

▪ U.S., U.K. and AUS governments highly supportive amidst COVID-19 pandemic

▪ Low recompete risk; attractive pipeline

▪ Continued strong BTB1 of 1.0x in Q2

Government Outlook

▪ Ammonia / fertilizer demand stable

▪ Olefins markets are active

▪ Increasing activity in Asia

▪ Increasing demand for solutions to address energy transition, sustainability, energy efficiency and end-product diversification

▪ Building to high-teen margins by 2024 from mid-teens in 2021

▪ Strong 1.5x BTB from heritage TS in Q2

▪ Debooked ~$1.2 billion of low margin projects that will no longer be performed as a result of market conditions and portfolio shaping

Technology Outlook

2021E Revenue

Reimagined KBR Revenue mix

1 Excluding the workoff of the long-term PFIs and other adjustments

EVP & Chief Financial Officer

Mark Sopp



▪ Core results in line with expectations

▪ SG&A reflects impact of proactive cost measures

▪ Portfolio shaping resulted in primarily non-cash restructuring and impairment:

▪ Interest expense down from 2019 due to favorable rates and reduced borrowings

▪ Taxes, excluding impairment and restructuring, in line with expectations

▪ Excellent operating and free cash flow1See Appendix for reconciliation of Adjusted EBITDA , Adjusted EPS and Adjusted Operating Cash Flow

2Q 2020 | Consolidated Results

$ in millions Pretax

Goodwill impairment 37$

Real estate capacity 21

Software & joint ventures 25

Overhead capacity 11

Other 2

Total 96$



Q2 2020 | Segment Results

296

387

21

4

2Q19 2Q20 2Q19 2Q20

ENERGY SOLUTIONS

Revenue Adj. EBITDA

7%

1%

1,033

925 107 103

2Q19 2Q20 2Q19 2Q20

GOVERNMENT SOLUTIONS

Revenue Adj. EBITDA

10% 11% 93

73

19 19

2Q19 2Q20 2Q19 2Q20

TECHNOLOGY SOLUTIONS

Revenue Adj. EBITDA

20% 26%

▪ Revenue impacted by reduced contingency logistics, primarily Tyndall

▪ 9% organic growth in SMS▪ 78 BPS expansion; strong execution

and progress on int’l programs▪ Excellent cash generation; working

capital improvement

▪ Revenue impacted by high mix of equipment deliveries in 2019

▪ 559 BPS expansion driven by higher license mix, strong execution, proactive cost control

▪ Good cash generation; net negative working capital

▪ Revenue impacted by high volume of construction services in 2020

▪ EBITDA as expected; low margin work being phased out over 2020

Note: See Appendix for reconciliation of Adjusted EBITDA



CAPITALDEPLOYMENT PRIORITIESFund Organic Growth

Maintain Attractive Dividend

Maintain Responsible Leverage

Strategic M&A or Share Repurchase


Capital Structure and Deployment

2.5xGROSS

LEVERAGE

1.1xNET

LEVERAGE

Amended Credit Agreement

▪ Completed amendment to shift $500M of PLOC capacity to increase credit facility capacity to $1 billion

▪ No revolver borrowings at June 30▪ No change to underlying rates

HEALTHY LIQUIDITY PROFILE

Attractive Dividend

▪ $0.10 per share quarterly dividend▪ 25% increase from 2019

Increased Leverage Target

▪ Target gross leverage raised to 3.0x▪ Reflects shift in portfolio toward

sustaining, differentiated, cash generative services and solutions


©2020 KBR Inc. All Rights Reserved.©2020 KBR Inc. All Rights Reserved.

FY 2020 Guidance

FY 2020 Guidance (updated)

GAAP EPS $(0.48) - $(0.18)

Adjustments to GAAP EPS

Restructuring and impairment chargesIchthys interest and commercial dispute costsAmortization related to Aspire amortizationNon-cash interest on convertible bondsLegacy legal feesNon-cash gain on legal entity rationalization1

$1.670.160.080.060.05

(0.04)

Adjusted EPS2 $1.50 - $1.80

Effective tax rate 25% - 27%

Adjusted operating cash flow2 $210M - $250M

(1) Gain on close-out of legal entities will vary based on actual entities closed during the year(2) See Appendix for reconciliation of Adjusted EPS and Adjusted Operating Cash Flow

IN CONCLUSION

Solid Q2 earnings – Reaffirming Adj. EPS guide

Stellar cash – Raising operating cash flow guide

Reimagined KBR – Significant portfolio shaping

Continued resolution of legacy matters

AppendicesDOING THE RIGHT THING FOR THE PLANET, OUR PEOPLE AND OUR COMMUNITIES WHILE PURSUING BUSINESS GROWTH

Appendices



Non-GAAP Reconciliations: Adjusted EPS & Adjusted Cash Flow

Adjusted EPS ReconciliationQuarter Ending

2Q19 2Q20

EPS (Diluted) $0.34 $(0.28)

Add Back:

Restructuring and impairment charges 0.00 0.59

Ichthys interest and commercial dispute cost 0.02 0.02

Amortization related to Aspire acquisition 0.02 0.02

Non-cash imputed interest on conversion option 0.01 0.02

Legacy Legal Fees 0.01 0.01

Non-cash gain on legal entity rationalization 0.00 0.01

Acquisition and integration cost 0.01 0.00

Adjusted EPS $0.41 $0.39

Adjusted Operating Cash Flow Reconciliation

2Q19 2Q20

Cash flows provided by operating activities $33 $109

Adjustments:

Add back: Major project advance work-off 0 26

Remove: CARES act temporary tax payment relief 0 (22)

Adjusted Cash flows provided by operating activities $33 $113

Adjusted EPS Guidance

2020 Guidance

EPS (Diluted) $(0.48) $(0.18)

Add Back:

Restructuring and impairment charges 1.67

Ichthys interest and commercial dispute cost 0.16

Amortization related to Aspire acquisition 0.08

Non-cash imputed interest on conversion option1 0.06

Legacy Legal Fees 0.05

Non-cash gain on legal entity rationalization2 (0.04)

Adjusted EPS $1.50 $1.80

Adjusted Operating Cash Flow Guidance

Lower Upper

Cash flows provided by operating activities $195 $235

Adjustments:

Add back: Major project advance work-off 75

Remove: CARES act temporary tax payment relief (60)

Adjusted Cash flows provided by operating activities $210 $250

1Conversion hedge will be calculated and adjusted quarterly based on KBR trading price; 2Gain (loss) on close-out of legal entities will vary based on actual entities closed during the year



EBITDA is defined as earnings before interest income / expense, income taxes, other non-operating income / expense (including FX) and depreciation & amortization.

Non-GAAP Reconciliation: Consolidated & Adjusted EBITDA

Adjusted EBITDA ReconciliationSep 30, 2018 Dec 31, 2018 Mar 31, 2019 Jun 30, 2019 Sep 30, 2019 Dec 31, 2019 Mar 31, 2020 Jun 30, 2020

Net Income (Loss) Attributable to KBR $54 $47 $40 $48 $56 $58 ($104) ($39)

Add Back:

Interest Expense $20 $23 $25 $26 $25 $23 $23 $19

Provision (benefit) for Income Taxes $22 $12 $16 $18 $24 $1 ($1) $6

Other non-operating (income) expense $1 $2 ($5) ($2) ($3) $5 ($7) $2

Depreciation & Amortization $17 $16 $25 $23 $28 $28 $27 $21

Consolidated EBITDA $114 $100 $101 $113 $130 $115 ($62) $9

Add Back:

Restructuring and impairment charge, net of NCI $0 $0 $0 $0 $0 $0 $173 $96

Non-cash gain on legal entity rationalization $0 $0 $0 $0 $0 $0 ($8) $1

Ichthys commercial dispute costs $0 $0 $0 $0 $0 $0 $7 ($2)

Legacy Legal Fees $3 $2 $4 $3 $1 $2 $2 $2

Acquisition & integration related expenses $1 $2 $1 $1 $0 $0 $0 $0

Aspire (gain) loss on consolidation $2 $5 $0 $0 $0 $0 $0 $0

Adjusted EBITDA $120 $109 $106 $117 $131 $117 $112 $106

Quarter Ending



EBITDA is defined as earnings before interest income / expense, income taxes, other non-operating income / expense (including FX) and depreciation & amortization.

Non-GAAP Reconciliation: Segment EBITDA and Segment Adjusted EBITDA

Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20

Net Income Attributable To Government Solutions $ 73 $ 72 $ 69 $ 91 $ 87 $ 88 $ 92 $ 91

Add Back:

Interest expense $ 1 $ 1 $ 1 $ 1 $ 1 $ 0 $ 0 $ 0

Provision for income taxes $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

Other non-operating (income) expense $ 0 ($0) $ 0 ($1) $ 0 ($1) $ 0 $ 0

Depreciation & amortization $ 11 $ 10 $ 15 $ 13 $ 17 $ 13 $ 12 $ 10

EBITDA - GS $ 85 $ 83 $ 85 $ 104 $ 105 $ 100 $ 104 $ 101

Add Back:

Legacy Legal Fees $ 3 $ 2 $ 4 $ 3 $ 1 $ 2 $ 2 $ 2

Aspire (gain) loss on consolidation $ 2 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

Adjusted EBITDA - GS $ 90 $ 85 $ 89 $ 107 $ 106 $ 102 $ 106 $ 103

Net Income Attributable To Technology Solutions $ 23 $ 23 $ 20 $ 18 $ 24 $ 26 $ 22 $ 18

Add Back:



Other non-operating (income) expense ($0) ($0) ($0) ($0) ($1) $ 1 $ 0 $ 0


EBITDA - TS $ 24 $ 24 $ 22 $ 19 $ 24 $ 29 $ 23 $ 19

Net Income (Loss) Attributable To Energy Solutions $ 22 $ 30 $ 24 $ 16 $ 10 $ 6 ($104) ($90)

Add Back:



Other non-operating (income) expense $ 0 ($1) ($1) ($0) ($1) $ 1 $ 1 $ 1


EBITDA - ES $ 24 $ 31 $ 28 $ 21 $ 13 $ 13 ($97) ($83)

Add Back:

Ichthys interest and commercial dispute costs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 7 ($2)

Restructuring and impairment charge, net of NCI $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 109 $ 88

Non-cash gain on legal entity rationalization $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ($8) $ 1

Adjusted EBITDA - ES $ 24 $ 31 $ 28 $ 21 $ 13 $ 13 $ 11 $ 4

Quarter Ending



Operating Income by Segment

($ in millions, except EPS) GS TS ES NSB Other Total KBR

Revenues $ 925 $ 73 $ 387 $ 0 $ 0 $ 1,385

Gross Profit $ 114 $ 23 $ 6 ($1) $ 0 $ 142

Equity in Earnings 7 - 9 - - 16

SG&A (29) (5) (15) - (24) (73)

Goodwill Impairment - - (37) - - (37)

Restructuring and Impairments - - (51) - (8) (59)

Gain on Disposition of Assets - - (1) - - (1)

Operating Income (Loss) $ 92 $ 18 ($89) ($1) ($32) ($12)

Interest Expense - - - - (19) (19)

Other Non-Operating Income - - (1) - (1) (2)

Income (loss) Before Taxes and NCI $ 92 $ 18 ($90) ($1) ($52) ($33)

($ in millions, except EPS) GS TS ES NSB Other Total KBR

Revenues $ 1,033 $ 93 $ 296 $ 0 $ 0 $ 1,422

Gross Profit $ 112 $ 26 $ 22 $ 0 $ 0 $ 160

Equity in Earnings 8 - 11 (4) - 15

SG&A (35) (7) (16) - (30) (88)

Acquisition & Integration (1) - - - - (1)

Goodwill Impairment - - - - - -

Restructuring and Impairments - - - - - -

Gain on Disposition of Assets 7 - - - (1) 6

Operating Income (Loss) $ 90 $ 19 $ 17 ($4) ($30) $ 92

Interest Expense (1) - - - (25) (26)

Other Non-Operating Income 2 (1) 1 - - 2

Income (loss) Before Taxes and NCI $ 91 $ 18 $ 18 ($4) ($55) $ 68

2Q20

2Q19

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