KBR lays out 'multiple pathways for growth' in its government segment

Over recent years, KBR has been glad to tout the acquisitions it has made to build an entirely new government business with much more of a technology and professional services bent than was there before.

KBR also has been glad to tout organic growth along the way, but now that appears to be top of its agenda with all those integrations in the rearview mirror.

During KBR's fourth quarter earnings call with investors Thursday, company executives laid out what they called the "multiple pathways for growth" for the government business both in the U.S. and abroad.

Their purpose for doing that was to present how KBR is pushing to meet or exceed its 2025 long-term targets it laid out for investors in March 2022: $9 billion in revenue on $925 million in profit. That translates to increases of 12-to-14% on both the top line and the bottom line on a compound annual basis.

For the government segment alone, KBR is pushing for CAGRs of 12%-to-14% in revenue and 10%-to-12% in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).

Houston-headquartered KBR ended 2022 on $6.5 billion in total revenue with $5.3 billion of that in government solutions and $4 billion in U.S. federal. Year-end adjusted EBITDA was $668 million for a bottom-line margin of around 10%.

Perhaps the largest program in KBR's government portfolio as part of that outlook is not even a 2023 item financially speaking.

KBR is the majority partner in HomeSafe Alliance -- a joint venture that has secured a potential nine-year, $20 billion contract to act as the U.S. military's lead management service provider for moving household goods. HomeSafe is tasked modernize the overall global relocation experience for uniformed personnel, Defense Department civilian employees and their families.

This year represents the transition period that runs for most of this year with the program slated to officially begin in the fall, KBR CEO Stuart Bradie told analysts. HomeSafe then ramps up its work in 2024, followed by what Bradie called "full cadence in 2025."

Space, defense, intelligence and science represent examples of the here-and-now regarding KBR's government business. That includes opportunities stemming from the so-called RDT&E budget -- research, development, testing and evaluation.

DOD's portion of that budget is around $144 billion for this current federal fiscal year, up 17% from those of FY 2022.

"Long-term RDT&E budgets relevant and accessible to KBR are up double digits, so key markets within this like Space Force are growing faster, which is being reflected in our ongoing growth," Bradie told analysts.

International aspects of KBR's government business also factor into their outlook, including U.S. federal work in overseas locations and support of allies. Bradie said the U.S.' operational tempo in Europe "has not slowed in the slightest" and "is set to continue again as we move into 2023," a year that still sees Ukraine defending itself against Russia.

Also on KBR's watch list is AUKUS -- the trilateral security arrangement between the U.S., U.K. and Australia their governments signed onto in September 2021.

The here-and-now of 2023 also includes the specter of a potential continuing resolution or even a government shutdown that contractors everywhere have to factor in, not unlike past years where the same situation arose.

Helping KBR to many extents is the fact that at least 70% of its work this year is on contract. KBR's initial guidance for 2023 has revenue in the $6.9 billion-to-$7.1 billion range on adjusted EBITDA of $715 million-to-$745 million.

"Mostly out of the U.S, we have multiple long-term contracts that are critical, and they continue, and we’ve seen this in previous CRs that they continue to be funded," Bradie said. "You stop operating the International Space Station and things like that.

"History has shown that it didn’t really impact the cadence of our performance so much. It was more a catch-up in cash, and which we managed as we went into the following year," Bradie added.

KBR enters 2023 with the same hope that every other company in the market has: government agencies picking up the pace on awarding major contracts. But KBR is also the latest company to report that its current book of business is where the growth is and that

."We do have some on-contract growth, but we are dependent on the big things coming to market, and those are a little harder to predict," Chief Financial Officer Mark Sopp said. "As others have said and experienced, the procurement decisions coming out of the government were not very strong during calendar 2022 across the board."