KBR, Inc. (KBR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Virtual Annual Meeting of Stockholders of KBR, Inc. I will now turn the call over to General Lester Lyles, Chairman of the Board.

Thank you very much, and good morning. I would like to call to order the 2020 annual meeting of stockholders of KBR, Inc. I am, as just mentioned, the retired General Lester Lyles, Chairman of the Board of KBR, Inc. I want to thank you all for attending and joining us for this first virtual meeting of our stockholders. First, I'd like to introduce the other members of our Board of Directors who have joined us on the call. They are Mr. Mark Baldwin; Mr. Jim Blackwell; Mr. Stuart Bradie; Ms. Lynn Dugle; retired Lieutenant General, Wendy Masiello; Mr. Jack Moore; Ms. Ann Pickard; and finally, Mr. Umberto della Sala. Also, I'd like to introduce Mr. Adam Kramer, KBR's Corporate Secretary, who is acting as Secretary of this particular meeting. Mr. Kramer, please submit proper evidence that notice of this meeting was given to our stockholders.

Mr. Chairman, notice was mailed commencing on March 30, 2020. An affidavit to that effect will be filed with the records of the meeting.

Thank you. Finally, I'd like to introduce Mr. Jason Rash and Mr. Trey Weatherford of the accounting firm of KPMG LLP, our independent accountants; and Mr. James Gaughan of Carl T. Hagberg and Associates, who has been appointed inspector of the elections of this meeting and is assigned the required oath of office, which will become a part of the records of the meeting. Broadridge has furnished a certificate that holders of more than a majority of the shares of common stock entitled to vote are present in person or by proxy, and we, therefore, have a quorum. That certificate will be placed in the records. Well, as you all know, this is a virtual-only stockholders meeting. If you are a stockholder as of the record date, you may vote during the meeting today by online ballot. No notice, as required by the company's bylaws, or a stockholder proposal as required by Rule 14a-8 of the Exchange Act was received pertaining to additional nominations for election, for directors or any other business to be brought to the meeting. Accordingly, only the matters listed in our proxy statement filed with the Securities and Exchange Commission will be entertained at this meeting. It is now 9:03 am Central Time on May 13, 2020, and the polls for each matter to be voted on at this meeting are now open. We have 3 items of business today. The first item of business is to vote upon each of our Director nominees named in your proxy statement to serve on the company's Board until the next annual stockholders' meeting to be held in 2021 and until their successors have been elected and qualified. Second is to approve by advisory vote, the compensation of the company's named executive officers. And third is to ratify the appointment by the Audit Committee of the Board of Directors of KPMG LLP as the company's independent public accountants for the fiscal year ending 2020. We will now proceed to vote upon these proposals. Each common share is entitled to one vote on the directors noted above as well as on the other proposals I mentioned. I now ask the inspector of elections to canvas the vote. I'm sure that most of you have already signed and submitted a proxy. If you have voted online or by telephone or have submitted a signed proxy in advance of the meeting, your vote on the matters presented here will be cast by the proxy committee in accordance with your instructions and you need not vote now. We will keep the post open for a short while. [Voting]

Okay. It is now 9:04 Central Time and the polls are declared closed. The inspector has tabulated the votes and here is a preliminary report on the voting results. The proposals to elect Ms. Lynn Dugle; Lieutenant General Retired, Wendy Masiello; Ms. Ann Pickard; Ms. Baldwin, Blackwell, Bradie, Moore, della Sala, and Retired General Lester Lyles, to the Board of Directors each received more than a majority of the total common shares voted at the meeting with each of the directors receiving over 90% of the votes cast in their favor. I, therefore, declare that these individuals have been duly elected to the Board. Congratulations Board members. Next, the proposal to approve by advisory vote, the compensation of the company's named executive officers received more than a majority of the total shares present at the meeting in person or by proxy, with again, over 90% of the votes cast in favor of the proposal. I, therefore, declare this proposal adopted. And finally, the proposal to ratify KPMG LLP as the company's independent public accounts for the fiscal year 2020 received more than a majority of the total shares present at the meeting in person or by proxy, with again, over 90% of the votes cast in favor of the proposals. I, therefore declare this proposal also adopted. The final results of voting, including any ballots or proxies recorded during this meeting, will be set forth in the final report of the inspector of election. I ask Mr. Kramer to submit the final report and to file it with the records of the meeting.

Thank you. Yes, Mr. Chairman. The 9 persons' names are printed on the ballot have been duly elected to serve as directors, and the 2 other proposals on the ballot have all carried. Thank you.

Thank you, Mr. Kramer. The final results will also be included in a final report on a Form 8-K to be filed with the SEC. While all business properly brought before this meeting in accordance with the company's bylaws are now concluded. I will now turn the meeting over to our CEO, Stuart Bradie, to provide some brief remarks about the company. Stuart?

Thank you, Mr. Chairman. We announced our detailed Q1 results actually on April 29, and we'll thus focus this update on the key points. I'm pleased to report that in Q1, we delivered EPS results above consensus. This was actually the 13th, 1-3, 13th quarter in a row of meeting or exceeding expectations. And I think this is a clear demonstration of the consistency and the predictability of new KBR. Our cash performance was also above expectation, and this is even more important in today's market. Our liquidity position is strong as is our overall balance sheet. At a time when health and safety is front of mind, I'm also very pleased to report our culture of zero harm delivered exceptional safety performance in the top quintile and very strong sustainability results also. The company has proven resilient and prepared as we moved into a world with COVID-19 and the energy market downturn. Our risk management processes, business resilience, plans and our culture of contingency and scenario planning, all came to the floor as the company transitioned successfully to over 93% teleworking in a 2-week period. Our strong customer relationship focus and commitment to the mission also ensure that where we were supporting and continue to support our customers on sites and bases across the world that this is done in lockstep with our customer to ensure we do so safely while also delivering on the mission priorities and objectives. Our customers across the world, and in particular, our government customers have been hugely supportive. We have seen little commercial impact on our ongoing government work. And in fact, payments have been made on or ahead of time and we have seen bidding cadence continue where possible at pre-COVID pace. Our book-to-bill and government solutions in Q1 was a very healthy 1.3, and this was balanced across our key business lines. Margins were above expectation, mostly due to great performance in our U.K. business. And our underlying organic growth was a healthy 5% when we -- and we completed a modest but strategic acquisition in Australia that positions KBR at the forefront of high-end training for the Australian Navy at a time when they are modernizing their naval fleet with new frigates, offshore patrol vessels and submarines. In technology, our strong bookings at the end of 2019 ensured we had a good start to 2020. We did, however, recognize early that COVID-19 would have an impact on sales, particularly in China. And we prudently reduced our forecast for 2020 with our initial guidance in February. This has proven to have been a good decision, but the ongoing impact of COVID and the disruption in the petrochemical sector drove us to include that we should further reduce our 2020 forecast which we have done. We do view this as temporary and a reasonably modest dip with opportunities in ammonia, olefins and chemicals and in green technologies gathering pace and importantly, activity in China already starting to pick up. In Energy, there is no doubt our Energy Solutions business has been and will continue to be negatively impacted. The market has been disrupted significantly and we felt it was important to take stock and take time to strategically identify what we wanted to do in the new normal in this segment and as importantly, what we will not do. Although we expect, and I stress this point, we expect a positive return from Energy Solutions in 2020, we have zeroed out the profit contribution from this segment for the remainder of 2020 with our new guidance. There were a number of reasons for this novel approach. Number one, it removes the element of market uncertainty, the assumption is that we win no new work, which is very, very conservative. It gives us time to undertake the necessary review of our Energy portfolio. Number three, it allowed us to give guidance across the whole of KBR by taking a conservative approach to the Energy market. Thus demonstrating the true resilience of our business model. And number four, it allowed the market an opportunity to admire the company as a GS and technology company given our exposure to Energy at this time is less than 10% of our portfolio, and this truly helped reinforce this. This is important as government services companies today trade at a far higher multiple than energy companies. In conclusion, with the good work done by Mark Sopp and the finance team in reducing our debt and associated interest payments early this year, and the cost-cutting measures we took in Q1, combined with the resilient business model I talked about previously, our overall guidance for 2020, our revised guidance, excluding the contribution from Energy Solutions. So that zeroed out, was all but in line with our whole company performance in 2019. Our guidance is underpinned by very, very strong backlog. At the time of our earnings, we had secured circa 90% of the work required to deliver our new guidance. So a very strong position indeed. COVID-19 and the Energy market disruption have been table events. But ironically, for KBR, they have helped demonstrate the transformation of the company. They've helped show and showcase the intrinsic high-performance culture and our resilience in difficult times. I will now turn the meeting back to General Lyles.

Thank you very much, Stuart. A very positive report, particularly given these very trying times for everybody. While there being no further business to be brought before the meeting, I hereby declare the 2020 annual meeting of stockholders of KBR, Inc. adjourned. Thank you very much, and please be safe.