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0:05 [Starts Abruptly] [Technical Difficulty] Ladies and gentleman, we do apologize for that delay, and I will turn the call over now to Alison Vasquez, Vice President of Investor Relations. Please go ahead.
0:14 Thank you, Orlando. Good morning and thank you for attending KBR's Fourth Quarter and Fiscal Year 2021 Earnings Call. Joining me today are Stuart Bradie, President and Chief Executive Officer; and Mark Sopp, Executive Vice President and Chief Financial Officer. Stuart and Mark will provide highlights from the quarter and the year and then open the call for your questions. Today's earnings presentation is available on the Investors 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 2. 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 also available on our website. 1:07 I will now turn the call over to Stuart.
1:10 Thank you, Alison and thank you all for joining us and for your interest in KBR. I will start on Slide 4 that you've seen these before. Here, the ESG pillars of a Zero Harm program and I think year ends are a good time to look back and I'm pleased to report that we've made good progress across each of the pillars as we move towards our net zero goal. 1:33 I've highlighted some key data points on Slide 5, which we'll touch on now and these really build on the inclusion and diversity metrics we spotlighted last quarter. We're very proud to have achieved carbon neutrality for a second consecutive year on a path towards net zero carbon by 2030. From a health and safety perspective, we again had a stellar year, and we continue to set the gold standard for Zero Harm days and incident rates. And our people are doing some amazing stuff really great things across the communities, in which we live and work a really core part of who KBR is. But as I've said many, many times at KBR, our commitment to sustainability goes beyond and includes leveraging our IP and expertise to help others achieve their sustainability goals, thus creating value for all our stakeholders and this is evidence in over 30% of our revenue base that is directly linked to sustainability. 2:32 Our people centered Zero Harm culture is at the heart of KBR and it's been really really rewarding for people to see many external recognitions of our progress in these important areas, some of which we've included here. I think a key takeaway here of these unsolicited recognitions, are they're really, really helpful in both retention and recruitment. These are only a few highlights for us from a sustainability report, which you know, was issued in late ’21. With ESG increasing an importance across the investment community and in fact, the world at large, I would encourage you to read our sustainability report, which of course is on our website, as it not only describes in detail the importance of ESG at KBR and our culture, but it also showcases the ESG at KBR aligns with shareholder value. 3:28 So on to Slide 6 and some highlights and key takeaways. I'm going to start by talking about KBR and some distinct differentiators that served us very, very well for many years, again in Q4 and of course throughout 2021 and beyond. Firstly, we have a significant base load of long-term contracts across our portfolio, both domestically and importantly, internationally. And that allows us to have confidence in long-term targets and avoid downside volatility. Our people are embedded in mission critical activities, doing things that really, really matter. 4:09 Secondly, our international footprint again gives greater diversity and mitigates downside volatility. Thirdly, a sustainable tech business is a true growth engine and hugely margin accretive as you know and I think we've proven this in 2021 and fourthly, strategically, our businesses are positioned to take advantage of increased spending and market tailwinds. And finally, our people on culture as far as I'm concerned are simply amazing and that people deliver quarter after quarter. 4:45 So why do I highlight these differentiators? Because – because regardless of COVID, CR, labor market, geopolitical shifts are significantly de-risked business model and our people have proven resilient consistently. In Q4, we performed in 2021, we performed across the core business, delivering growth, margin improvement, and importantly stellar cash. There's been quite a bit of discussion on OAW and for good reason, but I'd like to reiterate that our core business really performed. On OAW itself, which was a herculean effort and a significant humanitarian mission that we're all super, super proud of at KBR. This was in line with expectation. Our ability to ramp up to mobilize and then de-mobilize complex and sizable supply chains very rapidly and deliver and high pressure environments is a real value add to our customers, the machines we serve and of course, our shareholders. 5:54 So in short 2021 was a strong year, but as we know, that is now history, and you are more interested in tomorrow. I think a good indicator of how the business will perform tomorrow is of course book-to-bill. Our bookings with strong across government sustainable technology solutions as a whole and especially in heritage tech, which is quite telling as you're aware. The quality of the what we are winning is aligned with our shift to higher end differentiated and margin accretive work so we're very, very pleased. More detail on this in a sec, but this all lines up to underscoring continued momentum into ’22 and beyond. 6:36 With strong cash generation and a healthy balance sheet, capital deployment is of course a priority and I think 2021 was a model for balance across organic growth, M&A, and return of capital to shareholders with expanded dividends and continued share repurchases. On the M&A front, I actually just spent a week traveling across the UK, meeting new colleagues, Frazer-Nash, which we acquired if you remember last October, this business has an amazing brand and even more amazing culture of technical expertise. With a collaborative model that really delivers innovation in ways I think that can make all of KBR better. We're on this in a moment. And we head into 2022 with significant amount of work under contract, while over 70% with growth earnings and cash all in line with a 2025 targets. Obviously more on guidance later from Mark, but ’22 is shaping up to be a great year also. 7:40 So on to Slide 7 and the outlook for Government Solutions. On the left, there's really nothing new, the spending priorities and investment areas remain as per the first bullet, and also the reasons we have discussed recently. We do not see these changing anytime soon, especially with heightening tensions internationally. And while it feels a little bit early to talk about ’23 defense budgets in the midst of a ’22 CR, early indications based on reports last week indicate a national defense budget that could top $800 billion, which includes a nice 4% bump for DOD, which is great. If the spending priorities are a leading indicator than the bookings in those areas, and of course, the lagging indicators, really proving out these priorities. As you can see in 2021, award value plus options for Government Solutions was $6.7 billion, with a Q4 book-to-bill, a strong 1.3 times. 8:44 Some highlights through ’21, just to give you a feel for the types of work we are winning. In our defense systems engineering business, we talk a lot about contract vehicles that really facilitate getting onto contract early for critical high end work. I asked Mark, which we've talked about a lot as a great example, multiple awards merely due to size etc. We don't really talk about individually, but collectively on this contract vehicle alone, we were awarded over $800 million in 2021. And that was similar in 2020 and certainly more to come in 2022. So I think a great demonstration there. Strategically, we moved upmarket in the UK with Frazer-Nash, and this is a time of change for the UK MoD as it comes to terms with Brexit, cyber, and importantly the changing threat environment. The pipeline and Frazer-Nash is looking really, really good for ’22. 9:45 A science and space business had a stellar year, delivering across the portfolio in civil and commercial space, health and human performance and mission IT was strong on contract growth and margin performance. And of course, we want some interesting new work along the way, including a significant multiyear contract to provide high end engineering services for spaceflight and ground systems won by KBR JV. There's actually a number of bids in flight at the moment, as we head into ’22 due for award. 10:20 We could of course not fail to mention OEW in the context of 2021, but in 2022, the ramp down has been as quick as the ramp up, if not quicker, as families and individuals have been placed into society by state. Our guidance for 2022 will include an OEW tail, but it's not material. And of course, the directed energy program advanced wealth through the year and continues into ’22 and I'm sure there's more to come as we progress through the year. 10:52 So on to Slide 8 and we'll touch on the STS market outlook. Again, nothing I suspect you have not seen here. The market drivers are robust and recent activity levels in ammonia in particular, were very high. We're KBR actually won all the announced Greenfield awards we bet in ’21, with bookings across the green, blue and gray ammonia landscape just terrific. And a strong and growing pipeline of pursuits gives us great confidence into the future. Political will and policy around climate change, not to mention societal pressure is real and not going away. 11:33 As we mentioned, last quarter, the increase in oil and gas prices recognizes the supply demand imbalance and means increased spending capacity for traditional energy companies. And I'm sure lots have been talking about that. This allows clients of course to restart capital projects and we're seeing that and increase investments to decarbonize improve energy efficiency, improve end product flexibility, and invest in energy transition projects, all of which are buying on KBR’s wheelhouse of technology and expertise. 12:09 With over $1 billion in bookings over the year and a Q4 book-to-bill of $1.1 across the STS portfolio. This sets us up nicely for double digit growth in ’22 all in line with our targets. Now remember, we had $150 million of low margin reimbursable EPC still being worked off in 2021, that makes this book-to-bill even more impressive. As a strong indicator of continued high end growth with increasing margins, the book-to-bill for heritage tech was a terrific 1.4 times in Q4. 12:45 As we said often, the activity levels across the portfolio have and continue to be high. Whether that be in plastics recycling, which has actually delivered more opportunities than we expected to all offense and green refining where we have one significant multi-year work to high end engineering in areas like hydrogen and decarbonisation. The transition of this business is focused on sustainability and the resulted performance in 2021 have frankly been amazing, but it's only the beginning. 13:22 And this takes us nicely onto Slide 9. Our 2021 awards and group book-to-bill at 1.2 times in Q4 are a good near-term indicator. But for the longer-term, we of course need to look at the pipeline of opportunities. So does the pipeline match the outlook and you can see on the slide here that hopefully the scale, the lack of concentration risk, multiple opportunities that are $100 million plus, and a sizable cadre of needle movers over a billion dollars approves this act. And to be clear, our pipeline and our booking numbers exclude the HomeSafe. Alliance, which you're aware is under protest. 14:04 So lots to look forward to with our performance in 2021, which is terrific. The growth and resiliency of our core business are hugely differentiated large base load of work, the robust market outlook for specific areas of business, a strong book-to-bill and pipeline, we once more reaffirm 25 targets. So with that, I will now hand it over to Mark, who will take you through the numbers in a bit more detail, cover capital deployment, and of course, the detailed guide for 2022. Mark?
14:40 Great. Thank you, Stuart. Thanks, everyone for joining us this morning. I'll pick up on slide 11, which provides a snapshot of our financial performance for fiscal 2021. So as Stuart has already stated ’21 was really a terrific year overall, with revenues, profits, and cash flow all exceeding our original plan, and also on or above pays relative to our long-term targets. When you step back and look at these charts, it is important to recognize the setting. So just last year, right in the middle of the pandemic, embarked on a bold set of changes in our business. We undertook the largest ever acquisition to advance into the intelligence community and military space at scale and we de-risked and reposition our commercial business opposite growing demand for sustainable technologies and solutions. Both changes were designed to reorient KBR towards higher end, more differentiated offerings aligned with attractive growing end markets and also with higher margins and attractive free cash flow. 15:55 The numbers and trends here speak for themselves relative to how our operations and our people have made this transition hugely successful, amazing. Revenue and earnings were amplified by rising to the occasion to meet the urgent humanitarian requirements associated with operation Allies Welcome OAW, which delivered revenue and margins totally in line with our previous guide. I'll highlight here that even with the dilutive impact of OAW to margins, it was about 50 basis points diluted to operating margin. We achieved our EBITDA margin goal of 9% for the year, due to excellent performance across both GS and STS. 16:41 The volume increases and strong margins across KBR resulted in adjusted EBITDA growth of over 30% and when coupled with normative below the line items adjusted EPS grew 40% for the year, far more than our initial guide and long-term targets. Ex-OAW, adjusted EPS growth is still in the low 20% range. Cash Flow grew nicely and consistent with the steady and up expectations that we set attended to our strategy. Backlog and options were up reflecting a strong Q4 book-to-bill and amounting to really good work under contract coverage for 2022, which of course underpins the growth we have in our guidance that I'll cover here in a moment. 17:35 Slide 12 shows the results by segment, and this has been a consistent story of year. No surprises here relative to our expectations other than of course the amplification of GS results from OAW, which started kicking in late Q2 and really – started Q3 and very much so in Q4. We'll continue to see good growth across the GS and importantly margins at 10% before the impact of OAW, just as we set out to do. Margins and GS continue to reflect first and foremost, excellent project execution. So hats off to our operations heroes who deliver solutions to advance our clients missions every day with vital recompete winds this year, strong CPAR performance scores, that's the government's methodology for objectively measuring contractor performance, and award fee scores in challenging technical areas that reflect very high customer satisfaction, really high scores by our team across the board here. 18:42 This type of commitment to deliver yield strong margins across our base. This includes Centauri whose margins were on track and also assets has been the case for years now continued double digit margins for international operations, which are significant in the overall mix, as you know. Over two STS, what an enormous achievement by this team. They navigated delivering the ramp down of legacy projects all as planned, and explaining the year-over-year revenue reduction, while producing real growth in much higher margin areas in accordance with the sustainable tech strategy. EBITDA grew a stunning 72% to almost $200 million with margins at 16% for the year, coupled with excellent cash flow. As we set out to do, this business has low capital intensity, attractive growth prospects, protected IP, which is in strong demand, and serves multiple market verticals to pivot across faster growth areas as those evolve. I'll also point out the continued positive developments on [Indiscernible] and our exclusive partnership with their Hydro-PRT plastics recycling technology. 20:08 In 2021, we secured multiple licensed contracts for new facilities using this technology well-above our expectations and have won numerous feasibility and initial engineering efforts for clients around the world, very important clients blue chips. Here we have continued to receive equity investments from some of its blue chip partners, including a recent round well above the valuation of our investment one year ago. We booked a gain of $3.5 million in Q4 related to this valuation appreciation, which we excluded from adjusted EPS. With STS comprising nearly 30% of consolidated contribution margin and with a higher expected growth rate, it is clearly much more than a kicker as we want to describe in our portfolio. Indeed, STS is core to KBR is positioned to drive an outsize contribution to economic value creation. And quite frankly, we couldn't be more delighted. 21:15 On the slide 13, we will continue to improve our scale or financial strengths and have demonstrated a balanced capital deployment strategy. In 2021, we improved our credit rating again, now up 2 notches in 3 years. We leverage this development to renegotiate our credit facility to achieve lower pricing, increased capacity, ease investment restrictions, and other attributes. In the fall, we use stranded cash to pay for a substantial portion of the Frazer-Nash acquisition, Stuart mentioned that earlier really excited about that team that put cash to work in a much more creative way for us. 21:55 Taking this all in 2021, we supported high organic growth. We made over $400 million in acquisitions. We completed over 80 million in stock buybacks and increase our dividends by 10% from the previous year and yet, all the while we kept our leverage ratio about the same 2.5x which I think speaks volumes for the power of the cash flow in our business. 22:23 In 2021, we outpaced our long-term targets and as we'll discuss in a moment, we expect continued growth and financial strength in 2022 and beyond. Consistent with our capital deployment strategy, which includes paying and attractive dividends, we are pleased to announce another dividend increase for the third year in a row. Starting in 2022, our regular quarterly dividend will increase 9% to $0.12 per quarter, $0.48 for the year, which represents a 50% increase in our regular dividends since 2019. 22:59 Now under slide 14, and our initial ’22 guidance. Upfront our guidance keeps us on track with the long-term targets we set last March and excludes as Stuart says the effects of HomeSafe. Alliance given its protest status. We expect revenues in the $6.3 billion to $6.8 billion range, up 14% at the midpoint when excluding the bump we had in 2021 from OAW. Obviously a non-recurring event. Adjusted EBITDA margin is guided at 10% of revenues, reflecting improvement from 9% in ’21. To 10% overall guidance for ’22 is consistent with our long-term targets, where GS is relatively steady, and STS is expected to improve core margins 1% to 2% per year from both scale and mix. 23:56 We expect steady tax rates and our guiding adjusted EPS of $2.45 to $2.60, up 4% from ’21 at the midpoint, but that's up 20% excluding the impacts from OAW the blip we had in ’21 from that important engagement 20%. Together with the 40% growth in EPS in 2021, we're tracking at the top end of our long-term targeted 2025 EPS CAGR of 15% to 20%. 24:35 Adjusted operating cash flow continues to rise nicely, and we are guiding a range of $350 million to $400 million for ’22, on pace with long-term targets in demonstrating continued flow, incremental capital deployment firepower. This reflects conversion rates of above 1x for net income to adjusted operating cash flow and adjusted free cash flow. The only adjustment that we're making here is the repayment of the Cares Act deferred payroll tax item of $30 million. You'll recall, we kept the original benefit of that outside of our adjusted EPS and also the repayment the same. 25:18 In summary, we really had remarkable financial performance for the year and with the improved financial strength, the value creation opportunities for KBR continue to expand once again. They're pleased to give shareholders another bump up in dividends and with a net debt at 2.5x, coupled with strong cash flows such as this capital for M&A and or buybacks is quite meaningful going forward. We expect to continue to deploy capital in a balanced fashion over the long-term and we'll be very disciplined – continue to be very disciplined to pursue actions which are in line with our growth strategy, or risk tolerance and also for the compelling investment thesis of KBR, which I think we've demonstrated. So that's my wrap for 2021. We look forward to an exciting 2022. I certainly hope you're along with us for the ride and I'll turn it back over to Stuart.
26:16 Thank you, Mark. And great job once again. Onto Slide 15 to wrap things up, I will let you read the words on the slide. But for me, I think today's prepared remarks highlight a business that has and continues to perform really perform, a business strategically positioned in attractive markets of the future, but with some additional facets. Firstly, clear differentiators and international footprint, significant long-term base of business, a unique and high performing technology growth engine as Mark covered, and a business model that is more risk resilient, and cash generative. 26:55 Secondly, we have a track record of consistently delivering quarter-after-quarter, year-upon-year of meeting or exceeding expectations, we do what we say we're going to do. Thirdly a business with a people focused culture. Now, we're far from perfect, but we strive to continually do better. But what is not in dispute is that our people are committed to the mission and do things that matter every single day. It's hugely uplifting. We have a strong balance sheet with an unwavering focus on shareholder value and that gives us options as you're aware. And fifthly an increasing and prominence a highly differentiated ESG position, again, firmly aligned with shareholder value. We make commitments on long-term targets in May ’21 and our 2021 performance and 2022 guidance of our core business, so excluding OAW are aligned with those targets and thus, as I said before, we have firm confidence to reaffirm 25 targets again today. 28:08 Thank you again for taking the time this morning. And I will now hand it back to the operator, who will open the call up for questions. Thank you. Orlando? 28:18 Thank you. [Operator Instructions] All right and our first question will come from Toby Sommer with Truist Securities, please go ahead.
28:46 Thank you. In your ’22 revenue guidance, could you give us some color on the components? So organic growth range or maybe provide the midpoint contribution from acquisitions and the OAW contribution, which I think Stuart you said was in material but just in terms of calculating the organic growth? It'd be helpful. Thank you.
29:10 Yeah, so I think ex-OAW if you back out that, yes, that last year and this year, organic growth is setting up about 7% of the midpoint.
29:24 Okay, that's helpful. Could you tell us what if any financial impacts you're thinking about on the company in terms of higher up tempo in Europe than any kind of troop movements? Does that – is that a consequential development for you?
29:44 I mean, I think, I think Tobey, it's a – it's a question we ask ourselves, it's – it's early in that endeavor. There's obviously a lot of classify things going on in our arena. I mean, our EUCOM rate as you know, we are on European Command for [Indiscernible]. So we're very well positioned there. Our typical run rates are soccer a couple of $100 million in that domain in ’21. And yeah, we – you would expect a little bit of a OPTEMPO in that arena, but I think it's too early to give you any real guide around I think it's a – it's an unfortunate opportunity, I think is the way I describe it. I mean, no one wants that sort of activity in and around the world and but in saying that we are positioned to support what's going on there. So more on that later. I think Tobey at this juncture.
30:37 Thanks. I know we have started late, that'll be it for me, I will get back in the queue.
30:41 Thank you.
30:45 All right. Next we'll hear from Jamie cook with Credit Suisse please go ahead.
30:50 Hi congrats on a nice quarter, sorry, Stuart, could you just give an update, just on, HomeSafe, just the what's going on there with the protest and when you'll have resolution on that and if you guys could sort of quantify what that means to the earnings power over time and I guess too, my second question would be your confidence sort of been your long-term targets potentially, having a pathway to exceed those targets with some of these awards you got that we just spoke about with the [Indiscernible] Award and then just better balance sheet and acquisitions, just how you're feeling on the longer-term target and when we could get an update there? Thanks.
31:29 Yes. So HomeSafe alliance, the protest is due for I think conclusion out of March. So we'll a little more on that date and obviously, if we – if the protest comes in our favor, we will often probably do a separate call with you and we'll give you a lot more detail about the ramp up and the timing of HomeSafe Alliance, I mean, it’s a considerable procurement for [Indiscernible] $20 billion as you're aware over 9.5 years. So there is no doubt in my mind that we will have to update our long-term targets if that comes to fruition and obviously, we'll be revising them upwards not done, and which is all good. In terms of that ramp up cadence, I think the nice thing given the scale is it ramps up progressively over time. So we think it will happen over the course of the first 18 months to 24 months when we embed the organization, and I don't think it's going to be too material in 22 interest. I will get a bit of a kick value, it won't be that material and they'll really start to ramp up and really will underpin very strong organic growth as move into to ’23 and beyond so and some revision of our time at that time will be appropriate. We'll certainly do a separate call, we'll explain a bit more detail of the financials and expected returns from that and we'll have, how to dialogue with the customer on timing of ramp up and things like that. 32:56 In terms of the I guess the business it stands the day Mark already alluded where we're already tracking to the high end of a 25 targets. And so I think that – that's a very good fact. Just going into to where we are today. I think our book business really really gives us great confidence to achieve at that level. So I think we haven't really talked too much in this call. I'm sure we'll get the question on capital deployment and M&A etcetera. There's a lot of activity in the market today, but we've been very – I would say very disciplined and not paying too much and making sure that we do things that are statistically advantageous to KBR. So I'm very confident on the outlook, I'm very upbeat and where we're positioned in the markets we're in. I think we've had absolutely outstanding ’21 I think better than decent. And I would say that we are really sort of heading into ‘22 super confidence and an underlying core business that's growing nicely in delivering amazing cash returns and EPS performance and the STS businesses really knock it out of the park. So I think it's all – it all shapes up, Jamie. I often say it's a great time to be a KBR and I would just underscore that right now.
34:15 Okay, thank you.
34:20 Our next question comes from Jerry Revich with Goldman Sachs, please go ahead.
34:25 Yes. Hi, good morning, everyone.
34:27 Good morning, Jerry.
34:31 I'm wondering if you could talk about the Heritage Tech revenue burn outlook for 2022? Correct me if I'm wrong but based on the book-to-bill numbers you've spoken about this year, it looks like you booked about $600 million of heritage tech orders over the course of ’21 and I'm wondering, based on project timing, how quickly the ramp up revenue burned on those awards. Thanks.
34:58 So Jerry, either you've done some good analysis and your numbers about right in terms of the bookings, obviously, at 1.4x in Q4 book-to-bill as a terrific indicator of the strength of that market. We – in terms of the burn off of that, we don't really disclose it at that level. I think that the key piece that I would like you to take away is really the overall STS business. You know, its increasing and its margin mix because of the strength of fantastic territories, tech and other areas we moved into as we also we were obviously we will return to true organic growth as we move through ’22 in that business as well as those reimbursable EPCs disappear. So, I think that sort of double digit growth, the revenue base, the increased margin professional growth and margin enhancement and that business happening concurrently and it's not often because, people can say that. So I think it's terrific people. So, I'd rather you think about it as a holistic performance across STS, but we'd like to get her to attack because I guess, of the distortion that we've had and ’21 with these larger heritage EPCs rolling off because the revenue growth is we want to grow has been fantastic. And so that's why we give that that number and, we'll continue to give you a good indicator of how our business is traveling, obviously, but it's been on there, but I think that's probably where I'll stop there. Jerry.
36:25 Okay. Appreciate it. Thank you.
36:31 All right. And our next question will come from [Indiscernible], please go ahead. Gotham, we can't hear you. Gotham, your line is open, please go ahead.
37:05 Orlando, can we go to the next question. And maybe Gotham can join back.
37:13 And we are at the next question. Okay, we'll move on to Michael Dudas with vertical research. Please go ahead.
37:23 Good morning, gentlemen. Alison.
37:26 Hi, Michael.
37:27 Hi, Mike
37:28 Morning, Michael.
37:30 So since you teed it up earlier, Stuart, can you discuss a little bit 2022 on your capital allocation M&A pipeline, given, what you have in front of you in a very solid cash flow going to put forth and, maybe a sense of what type of investment or we can talk about low outcome lines, as you guys ramp that up into 20 later this year, hopefully and into the future?
37:55 Yeah, so, we'll, I think we've been very clear that we do have options in front of us, I think the status of our balance sheet is clear. And the way that we deploy capital is very balanced with the increase in dividend and as we look to continue with share repurchases, we progress through the through the year, but it's also quite a hot market from an M&A perspective as a lot in the market today. I think multiples, maybe heading a little bit south, but there's such a lot of interest in some of these assets that might not be the case. I think, for us that I think one of the key takeaways is that our need to do acquisitions to achieve the high end of our targets in ’25, we don't need to do them. And I think that's a really cool position to be in for the company. So we can be very considered about what we do and why we do it. I would say that, ultimately, we've been very clear in our growth factors and what we think is attractive markets of the future and we're not going to move away from that. So it's not just about opportunity and it's not just about, bulking up. It's really about strategic positioning and accelerating up those growth vectors. And so I think you will see, as in the M&A market if the opportunities are correct and accretive. And we said that often and I think we've proven that over time. So I know that's a bit of a vague answer, Mike. But it's difficult to talk about specific targets, as you know, because of confidentiality. But I would say that for us, we have to make sure that whatever we buy really fits our acquisition thesis, which is one of making sure we look after the people and that we're a good, we're a very good one on hold for any business we acquire. And we don't want to see any dip in performance and ultimately, we want to focus on synergy. That was one of the two. And I think we've proven that out to be a successful model. And one we don't want to move away from so. But as tough as you know, finding targets and then secondly, not only finding the targets, but actually getting them for a price that makes sense. So, yeah, I think more to come. I think there's an appetite to do M&A that would be a takeaway as well. And certainly we've got enough capital to deploy to do something meaningful over the course of the year. And I'm sure there'll be additional sort of bolt on opportunities that takes us into new areas or geographies or skill sets. So, so sorry, I can't be more specific, Mike. But I think it's – I think the key takeaway is we don't need to do them to achieve the higher end of our growth targets.
40:24 Yes, Stuart, that's very helpful. And my follow up question would be as you look into sustainable tech and you highlight the strong book to build going into this year, which areas do you anticipate as you look at the at the pipeline and the opportunities, which ones will we see a lot more momentum for KBR in their technology over the next – next couple of quarters ending into 2020 (ph), may not, maybe difficult questions and a lot of stuff going on. But we'll see which couple areas should investor be focused on, what we will see how the KBR moving forward.
40:59 Yeah, we highlighted a couple in the prepared remarks, Mike, I think the stuff that we're the amount of opportunity and things that are coming through in the ammonia, arena are terrific and that continues. So I think you'll see that continuing to have momentum, for all the reasons we discussed around just the growth in the fertilizer market naturally. But also, of course, the hydrogen future and coal firing and all the dynamics around that market, we've talked about many times. So that continues, which is terrific. I think we are seeing as I said as well that we – the plastic recycling piece has done so much – so much more than we thought and I'm expecting that to continue as that goes into – into this year and I think across the portfolio, as the traditional energy companies get more capital, we will start to see them deploying more and energy efficiency in decarbonisation, and a lot to do with changing product mix. And so I think we'll see opportunities across our CAGR portfolio in our [Indiscernible] portfolio to that effect and I think that all lines up to quite a lot of activity, as you said, but I think that's probably the key areas that we see going into 2022, at least now. And obviously, we'll update you as we move through the quarters.
42:17 Thank you, Stuart.
42:19 And Michael, I'll just add on HomeSafe. It's best that we cover that, as Stuart mentioned earlier, if we have a good outcome there. We can talk about that specifically, relative to our targets, but also the capital profile of that which you don't expect any major changes relative to our capital intensity from that, in fact, the terms we expect will be quite favorable over the long haul. It might be a little bit of fun, but nothing to really get worried about.
42:47 That makes sense. Thanks, Mark.
42:50 Thanks.
42:55 All right, up next, we'll take a question from Gotham [Indiscernible], please go ahead.
43:00 Hey, can you hear me guys?
43:03 We can. Awesome. How are you doing?
43:05 Terrific. Sorry about that earlier, I don’t know what happened? Guys, I had two questions. First, I was wondering just given the CEO or the continuing resolution. What do you – how do you think about bookings at the Government Solutions segment over the course of the next couple quarters? I presume Q1 is going to be like just given that dynamic. But do you expect like a huge catch up in calendar Q2, calendar Q3 into the fiscal year of the government? Or how should we think about like the cadence just based on…
43:42 Yes. That's a good question, Gotham. We – as I said, in last quarters, we had it to the end of the year that – that we were quite unique in the fact that we did have things coming through in Q4 that were different to others and I think that proved itself over the stronger to build coming into the end of the year, we've got a lot of activity and awards awaiting, coming into Q1 and those coming out is expected through the first quarter and into the second quarter and if that does happen, pretty good shape and if the HomeSafe Alliance award comes through in the third of March, I think this will be a moot question. And so – and so I think we do have, and we've got obviously, a very differentiated position across a commercial business and an international government footprint as well. So I think, again, I was – that's why I was trying to highlight a really the beginning of my prepared remarks that, regardless of COVID and CR, and labor markets, etc, we've managed to perform at above expectation quarter after quarter and the book-to-bill is obviously a big indicator of the future and very focused on winning the right work, of course. 44:53 So there might be – there might be some delays. I think there always are under a CR period. But as I understand it, I think that CR will likely resolve itself as the appropriations are moving I think into – I think it looks like it'll be concluded in March. So which will obviously help with bookings going into at least into the second quarter?
45:18 And my follow up would just be on HomeSafe alliances, have you guys disclosed anything about kind of the ownership structure besides that it's a JV that you have a majority interest in, like, can we disclose the percentage ownership or any of the terms of that?
45:38 No, we have not. Gotham, we've not and – and I think it's – it's so large that we – as we said earlier, we're going to do a separate call on that assuming the protest lands in our favor. Well, not so far. We're not in a couple of weeks’ time. So yeah, I think look out for that, but no, we've not disclosed very much about it other than the overall value and is a joint venture and it's over 9 to 10 years. And so it all lines up for that very differentiated book of business. It's about, I guess, reframing an industry. It's about digital deployment. It's about managing supply chain. So it's right in our wheelhouse in terms of skills and capability and digitalization, but it's in terms of the commercial outcomes. I'm sorry, we haven't disclosed any more than what I've just told you. And, but we will do, obviously, and once we get through the protest.
46:29 Thanks very much, guys. Good luck.
46:31 Thank you.
46:35 All right, and up next, we'll hear from Brent Thielman with D.A. Davidson, please go ahead.
46:43 Great. Thank you, Stuart, on STS just with, higher commodity prices. I'm wondering if that's actually accelerated the pipeline for you maybe versus 6 months ago? Some of those legacy hydrocarbon customers generating more cash looking to transition faster? I guess I'm just wondering if that's translated into more opportunities already? Or is it still early stages and just conversations right now?
47:09 No, it's translated into a very strong pipeline. But I think, it's, no, I mean, we – I think we highlighted that that sort of, I guess, market dynamic as of this date, as well back in late ’21, coming into Q3, Q4 and that's certainly borne out in terms of the way that our customer base is thinking of the future. So our pipeline for opportunities is terrific across the STS portfolio and I think, we've got good confidence have continued double digit growth in that business as a consequence. So I think, yeah, absolutely.
47:46 Okay. And then Mark, this one might be for you. But should we see an uptick or an unusual uptick in cash flow in the first quarter, first half, just related to the wind down of OAW?
47:56 Brent, I think that Q1 we will have a little bit of boomerang from OAW but I expect the bulk of that in Q2 actually, because our activities are winding down, but they're still – they're still in place into Q1 plus Q1, the government doesn't, we're for whatever reasons, they seem to be a little slower in Q1, not really related to CR, but just, seasonality, if you will and so, we've historically had a pretty light Q1, I would expect that to be largely the case this year on the government side, STS is different, and that smooths things out a little bit. But I do expect Q2 to rebound really strongly as well as Q3 and Q4 and, and to have, consistent results with maybe Q1 being the lower of the floor after that.
48:52 Okay, thank you.
48:54 You bet. Thank you.
48:58 All right, Up next, we will hear from Sean Eastman with KeyBanc Capital Markets, please go ahead.
49:05 Hi, guys, thanks for taking my questions. Stuart, in the Q&A, you mentioned that you don't need to do acquisitions to be trending to the high end of the 2025 target ranges. Obviously, a noteworthy statement there. I just wanted to clarify, does that comment include, or contemplate HomeSafe or would you be able to say that even if we sort of set HomeSafe aside?
49:33 Now excludes HomeSafe? I think when HomeSafe we get through the protest period? We're going to have to adjust those targets upwards Sean?
49:43 Yep. Okay, helpful. And then, obviously HomeSafe takes GS into sort of a breakout scenario. But I'm wondering how close we are to a potential breakout in STS it just seems like the bookings were super solid over the last 12 months it seems like fundamentals firms. How would you characterize that Stuart?
50:10 I mean, in most companies a double digit growth with an increase in margin would be called a breakout so on. So, I mean, I don't want to go over our skis as you know, we like to give you know targets that are achievable and we work hard to do better and I think we will – we'll stick with a double or double digit revenue growth and our margins going up and but you're right, the market fundamentals are terrific and I can't see the market changing over the midterm anyway, just the, I think societal pressure and I think societal pressure and just what's going on across the world will ensure that those markets are strong for the foreseeable future and goes, things do happen, but right now, that's a statement I'm prepared to make and if that changes, obviously, we'll have to realign but, but yeah, it's a terrific business, as Mark said, it's been, we've kind of downplay the performance a little bit through the year because this was the first year of really new STS, but let's face it, the absolutely not out of the park and not only that, they've done it by actually working off these, these EPCs at the same time and delivered amazing customer satisfaction. So I think we're very well-positioned, we've got a terrific set of IP across the portfolio and, obviously, I would be delighted if they did better than the numbers we set out. But I'm a good try. But I'm not going to be drawn into saying anything above what we've guided but it's really exciting and the culture and upbeat momentum just around the business and the people out in the marketplace is fantastic.
51:58 Okay. Got a lot of adjectives I can pick up on there. Thanks to it.
52:04 There's no – there's no shortage of adjectives, I get that.
52:10 All right. Up next we'll take a question from Andy Kaplowitz with Citigroup. Please go ahead.
52:16 Good morning, everyone. Stuart, can you maybe give us a little more color regarding your self-help focus and sustainable tech? I mean, we know about your long-term guide, you just talked about sort of the markets. But the goal is to get the high teens I guess, in the business and the legacy projects continue to wind down. How difficult is it to sort of, get your costs down over time as you ramp the business given inflation and supply chain concerns? i.e. what -- just give us an update?
52:49 Yeah, I mean, self, I think the self-help, the full source of self-help, it really came through in 2021 and well, really late 20 and truth is we just – we adjusted our cost base for the future and realigned our market position. So I think we've got, we do have a business that's 100 years old, with a level of complexity that matches that tenure and as we unwind that complexity, entity reduction and just alignment of becoming a slicker business, we actually see some efficiencies coming through, they're helping us offset any inflationary pressure and things like that. So we're, we're not concerned with a guide on margins, we feel that we're very strongly positioned in that sense. And as the as the mix changes in that business, the margin pressure upwards is clear. And whether that's from selling IP or really just the higher end advisory engineering, what they were doing today, is in high demand and as a consequence of that it supports, I guess, higher pricing, which again, mitigates any inflation risk, etc. 53:54 And we're mostly in the in when we're providing services that it's, it's a mostly cost reimbursable environment. So, so we're, again, I think we've got some very strong mitigates against inflation. In terms of supply chain, we're not really seeing any pressure there from what we supply, in terms of proprietary products, we, it's a limited set, we've got, pretty solid providers that we've had for many years, and these are reasonably standard kit for us know, so, again, no real concern. They're –they're mostly component parts, there's, there's not – there's no chips in them or anything like that, where there's low supply chain pressure today, as you know, so – so I think we're seeing that piece work reasonably well. And so again, we had a big, obviously, as I'm sure every business in the world is doing today, we had a strong look at the inflationary risk and things like that. And we think it's minimal across KBR and we had a very strong look at the supply chain risk, given what's happening in the world. And again, I think we've mitigated that to – to a great extent, given the risk profile of that business. So, all up again, the fact that we're sitting here today, confidently predicting double digit growth and margin enhancement and we're standing by that commitment, given the dynamics in the world, I think [Indiscernible].
55:17 Thanks for that in Stuart, maybe following up on an earlier question, our clients dusting off some of the sort of energy and chemical projects, from a couple years ago, as you saw our commodities prices have occurred and sort of what's the trade-off for as you talk to customers between sort of accelerating energy transition now versus call it these old economy projects?
55:41 Yeah, I think – I think most of the traditional energy companies have been very honest and clear that they need to continue to invest into additional projects to generate the cash flow required to actually decarbonize and become more aligned with a sustainable future and I think we're seeing just that. So but as, as these new projects are being dusted off, there is a greater emphasis on energy efficiency that's greater – that’s great focus on changing product mix for future demand, etc. So we are seeing elements coming through of that, and but, an accelerating in that arena. So I think we got the question earlier, really about the, the increase in demand for our services as a consequence of that market dynamic. And we're absolutely seeing that.
56:27 Appreciate it.
56:33 All right. And now, we will hear from [Indiscernible] with UBS, please go ahead.
56:40 Hi guys, good morning.
56:42 Good morning. [Indiscernible] think about.
56:45 Just as we think about 2022 and this may have been addressed somewhat so far. But can you give us some color as to which technology is going to be the biggest driver of earnings growth in 2022. And also, same thing with new awards for 2022?
57:02 Yeah, on the STS side, that I mean, it's quite interesting Abbi, as we – as we – as we perform through 2021, the first half of the year was really, everyone was talking about hydrogen and ammonia. And really, the bulk of our performance is actually driven across all offenders in green refining. And as we came to the latter part, I think the hydrogen ammonia market can occur up in the world started to come through in that arena and that momentum is continuing into 2022. But that has not stopped the momentum and olefins market, nor in the green refining market. So, as I said before, we've got over 70 technologies in our portfolio, and the [Indiscernible] a little bit, but the key ones, I think, going into next year are all refunds, obviously, ammonia. And we think the plastics recycling momentum will continue and obviously, as people are trying to reduce the carbon footprint, things like rolls and things like that, in the green refining area will continue to be in high demand. So it's not a single answer. And I think that's a good thing because there's no concentration risk. And in that sense, and I think that ultimately, the portfolio is global as well. So it's really across geographies, and we're seeing, an uptick in activity in North America right now, which, wasn’t the case a few years ago. So that's terrific and so – so I think it really it's a – it's an amazingly robust business and, and one that, will deliver this the growth that we set out because of those factors.
58:37 Got it? Thank you.
58:42 There are no further questions in queue. I'll turn the call back to Stuart Bradie for additional or closing remarks.
58:51 So again, thank you very much for your interest and your questions this morning. I mean, we couldn't be more delighted in 2021 performance, that was an absolutely terrific year for all the things we've talked about on the call. We couldn't be more excited about the future either. I think that really there's – there's a lot of – there's a lot to be to be upbeat about not just where we're positioned not just a guidance, but I guess the whole the whole market dynamic and the fact that we've got HomeSafe alliance potentially coming through in the end of Q1. So all it's not often I'm all upbeat, but I'm pretty well all upbeat today and really looking forward to a really terrific year and obviously as the COVID restrictions is I look forward to seeing hopefully many of you face to face as we have our upper engagement with the investment community review US Strategic stakeholders and KBR. We look forward to seeing you more in 2022. Thank you very much.
59:54 Ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.