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

Hello all, and a warm welcome to KBR, Inc.'s Investor Call to Discuss the HomeSafe Alliance Award. My name is Lydia, and I will be your operator today. [Operator Instructions] It's my pleasure to now hand you over to our host, Alison Vasquez, Vice President of Investor Relations. Please go ahead when you're ready.

Thank you, Lydia. Good morning, and thank you for attending our conference call today. Joining me are Stuart Bradie, President and Chief Executive Officer; Mark Sopp, Executive Vice President and Chief Financial Officer; and Byron Bright, President of Government Solutions. Today, we will provide an overview of the recent award of the global household goods contract to HomeSafe Alliance, a KBR joint venture and its impact on our 2025 targets. And then we'll open the call for your questions. Today's 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. I will now turn the call over to Stuart.

Thank you, Alison, and thank you once again for joining us. And today, we're going to present the HomeSafe Alliance. It's a disruptive solution to an industry that historically has been very fragmented, had been very inefficient. And that's an efficiency in cost, quality, accountability and carbon footprint. And it's kind of resulted in very subpar results for our servicemen and women and, of course, their families. But before I go there, I wanted to address the continued conflict in Ukraine and the humanitarian crisis across Europe. We denounce Russia's aggression and hope for an immediate end to the suffering of the innocent people of Ukraine. And to this end, we have made the decision to wind down our commercial activities in Russia. And we're working to do this, of course, safely and most humanely and in the most orderly way possible with the care for the safety of our colleagues and their families. Now these are complex issues. We take them very seriously. And of course, we will share an update when we report our first quarter earnings next month. Now back to HomeSafe Alliance, and I'll start on Slide 3. In the slides that follow, we will present more detail on the program itself, but at a strategic level, I want to be clear, this is bang on strategy. Disruption through the deployment of an end-to-end digital solution gives TRANSCOM a single common operating picture for this program for the first time ever. On the front end, this is essentially a user-friendly app that tracks shipments, links to insurance, holds key data, et cetera, like Uber for moving, if you will. On the back end, the digital solution will capture and plan move activity to drive efficiency. So I think 2 trucks half full during the same sort of journey will be replaced by one truck into the future. AI and machine learning will also be deployed to capture performance data. And as this relates to the supply chain, it will obviously improve delivery and optimize the supply chain, the warehousing hub performance and efficiencies, et cetera. This is like Supply Chain as a Service on steroids. And to be clear, HomeSafe will not own trucks or containers, et cetera. So it's a very low capital-intensive program and again, bang on strategy and aligned with our sort of business models. The reduction of the carbon footprint will increase over time, again, firmly aligned with our ESG strategy to bring sustainable solutions to our clients, and in this case, the DoD. And finally, the strategic alignment with shareholder value is clear. This is a long-term enduring program that's highly accretive and highly cash generative. This is our best value win. We were not the low bidder, demonstrating the totality of qualifications, capability and the value proposition that this team can deliver. In totality, this program aligns well with our resilient low-risk business model. The program profile is shown on the right. The client TRANSCOM was very thoughtful in planning the transition of this program and is built in a measured steady ramp-up of operational activities through to 2024. In 2022, we've already begun aligning interfaces with the government, scaling the systems and technology, engaging the supply chain, et cetera. HomeSafe has begun receiving authorized funding for this part of the program. This isn't really material from a P&L perspective in '22, but as we head into 2023, we will see the start-up of the domestic moves, scaling up progressively during the year, and then beginning in late '23, we will commence the international move. So very nice, considered risk mitigant in terms of that ramp-up. Now this is a performance-based contract, meaning as we leverage scale, technology in the supply chain, the efficiencies we drive lead to enhanced profitability for HomeSafe. We have worked to mitigate some risks that are out of our control. For example, we have negotiated economic price adjustments that limit inflation risk, and we have price protection for fuel, very topical. So it is effectively a pass-through for the duration of the contract. Moving to success factors. First and foremost, we have very clear alignment with our client to improve the relocation experience for military and civilian DoD families. KBR has always stood out in our affinity with military and defense personnel, and this is amplified here. To do this, we will leverage commercially available technology and our experience in delivering complex program integrations. Supply Chain as a Service at scale. We are committed to delivering strong customer service to our military and defense families. Importantly, via that supply chain it is essential we bring together industry leaders, but also a significant number of existing small businesses into a streamlined solution and more in this in a moment. On to Slide 4. So here are some high-level statistics just to give you a feel for the scale. The contract has a ceiling value of $20 billion. With base and options period, this runs for 9.5 years. So think 2031. HomeSafe will become the single provider for circa 325,000 family relocations every year, many of which happen actually over the spring and summer months. I touched on digital modernization and technology already, but this will be a secure cloud-based solution with video-assisted more support, digital inventories and an array of modern features. On to Slide 5. HomeSafe Alliance is a joint venture, but it is bigger than a JV. It's an alliance. It's a world-class team with the right skills, capabilities, experience and, of course, people. KBR holds 72%, 7-2 of the joint venture and Tier 1, 28%. You know the attributes that KBR brings to the joint venture, so I won't go over these again. Tier 1 is an outstanding value-add partner. They really, really know this business and currently do about 20% of the DoD personnel moves today, which means, of course, that they really understand the human component, the cost base, the nuances of the supply chain in this industry, et cetera. MoveHQ brings its commercially proven relocation technology, the customer-facing app and secure cloud-based solution, which, again, was a key differentiator in our bid. Our team, however, would not be complete without the network of premier relocation players, SIRVA, the operator of North American and Allied Van Lines, Wheaton World Wide, Gosselin Group and they provide a lot of the international moves and they do that today, so again, a proven entity. JK Moving and, of course, an array of small businesses, collectively representing decades and decades of moving experience. I believe this is a world-class team, and we've gone to know each other really well over the last 3 years of bidding this through the procurement process. We're aligned, we're committed, and we're excited to get going to modernize and improve the relocation experience for our military families. Now I'll hand over to Mark who will present how this positively impacts KBR's financial targets. Mark?

Awesome. Thank you, Stuart, and good morning, everyone. I'll pick up on Slide 6. So you'll recall, we provided 2021 to 2025 long-term targets as part of our Future Forward Investor Day event in March of last year. Just a few weeks ago, we announced our 2021 results, and those results were on or above the pace of those targets. Our outlook remains bullish in both of our operating businesses. In fact, we would say the long-term end market conditions are more favorable today than a year ago, and we covered this landscape in our recent earnings call last month. While it's still early days, we don't believe the appalling events in Ukraine materially change this. Accordingly, the previous long-term targets for the core KBR business areas before considering the effects of the new HomeSafe program are affirmed. This large new HomeSafe program adds another fresh layer of expected growth and cash flow on top. We've also reflected the addition of Frazer-Nash in today's updated targets, which we acquired this past fall. You see the results of our update here with our 2025 targets for expected revenue, earnings and cash flow, all significantly boosted over our original targets. This also drives a big boost to our capital deployment capacity, which, of course, enhances value creation opportunity. On to Slide 7. We are increasing the 2025 revenue target to $9.5 billion from $8 billion to reflect our proportionate share or 72% of the estimated HomeSafe revenues, plus the Frazer-Nash addition as well. For HomeSafe, we believe we will be at full run rate by 2025. And as you probably expect, we've taken a conservative view on the volume and financial contribution until we gain more experience in the alliance. For Frazer-Nash, we have maintained a healthy growth outlook and strong margins we outlined when we acquired them. Together, the KBR top line revenue compounded annual growth rate from 2021 to 2025 increases to 12% to 14% compared to the original 6% to 9% target set last year, 12% to 14% top line growth. As was covered earlier, the HomeSafe ramp-up is slated to occur for the domestic scope in 2023 and the international scope beginning late that same year. Since various factors will affect the pace and underlying volume, we will guide the '23 and '24 ramp trajectory as we guide the rest of the company at the beginning of those respective fiscal years. We are increasing our 2025 adjusted EBITDA target by $125 million to $925 million. That's a 15% increase over the original future forward targets set last year. We are holding expected consolidated EBITDA margins at 10% in 2025. For HomeSafe, we are taking a more conservative position that I just mentioned a moment ago. On the profit contribution in the early years, and as Stuart mentioned, there's opportunity to improve this over time given the performance-based structure of the contract. On earnings per share and free cash flow per share, our previous target was $4 a share by 2025, which included the assumption of 100% conversion of income to free cash flow and deployment of half of our deployable capital. With HomeSafe, we project to be at $4 per share by 2025 with the same cash flow conversion but with 0 capital deployments and at $4.75 using the same 50% deployment model, so up $0.75 there. That's a significant shift up, of course. As a reminder, deployable capital is the cash available starting with free cash flow, then deducting dividends, then adding incremental borrowings commensurate with our targeted leverage ratio of 3.0. No change there. Cash flow on HomeSafe is expected to be very strong with lower DSOs than the overall Government Solutions business today. Billing on the program will be done daily as moves are completed. Cash flow should be 1:1 with earnings. And together with the additional leverage on the new layer of EBITDA, we are also increasing our deployable capital target up 17% to $3.5 billion, up from $3 billion originally based on the same targeted leverage ratio of 3.0, repeating that. Again, this is a lot of capital to drive additional value creation opportunities. We expect to deploy capital in a combination of M&A, buybacks and dividends that are commensurate with our earnings and cash flow profile. We will, obviously, seek to maximize EPS and free cash flow per share with this enhanced firepower based on the opportunities that we see over this time horizon. Return on invested capital target remains 14% to 16%. And with HomeSafe, we are trending towards the top end of that range. So there is improvement there. Bravo to our team for such an effective use of capital, catalyzing this magnitude of organic growth and these types of returns. Finally, I'll finish with a few words on the protest and appeal process. The GAO protest denial on March 3 was a strong affirmation of the quality of the procurement process conducted by DoD TRANSCOM. Also, since the GAO decision, we have been actively engaged with a hugely supportive customer. They have lifted the stop work order, and we are off and running with the transition activities for the program at this time. However, there does remain an avenue for the nonprevailing parties to appeal the GAO decision in the court of federal claims, and we should have clarity around this fairly soon. As we have seen times before, such action would not necessarily preclude the customer from continuing to move forward with the transition fully and giving green -- and giving HomeSafe a green light to operate the program. And even if there are delays that push the program out, say, 6 to 9 months, the 2025 targets wouldn't change. As said, we're fully engaged with the client and are hopeful that HomeSafe will continue the momentum to deliver a modern digital move experience for our servicemen and women and their families. So in summary, we're adding $1.5 billion of revenue and $125 million of EBITDA to our 2025 targets, and we're increasing adjusted EPS up by almost 20%, and we're increasing deployable capital by $0.5 billion. Now that sure is a heck of a win. I'll turn it back to Stuart.

Thanks, Mark. And on to our final slide today and to summarize. I mean HomeSafe Alliance, as Mark said, is an unbelievable win. It will transform this industry by modernizing and digitalizing the relocation platform to enhance the relocation experience for military families. It's bang on strategy for KBR. I think digital technology deployment at scale, global Supply Chain as a Service and reducing carbon emissions, all bang on. And importantly, this is funded from the U.S. DoD personnel budget which actually further diversifies our funding sources. This is a long-term performance-based contract with a commercial profile. Efficiency gains and improved performance should enhance returns over time. Our targets, of course, today go out to 2025. And until we're fully up and running, one could argue they are on the conservative side. I'm sure you wouldn't expect anything different and rightfully so. However, post 2025, I suspect there may be uplift opportunities and margin pressure upwards. As Mark presented, HomeSafe is highly accretive to KBR. I think sustained enduring earnings and cash flow equivalent to a circa $1 billion plus acquisition but we've got there organically. We've won it organically. HomeSafe is a fantastic win that accelerates medium and long-term growth, far, far above industry norms with attractive profit, cash and of course, ROIC. And this just further differentiates KBR. Our long-term book of business was and is now very, very significant. And this really helps manage volatility, underpins our growth aspirations and delivers cash to deploy to expand shareholder value. So with that, I will close. I want to thank you again for attending today, and I'll now turn the call back over to Lydia for Q&A. And just to remind everyone, we've also got Byron on the call to answer all your difficult questions. So Lydia?

[Operator Instructions] Our first question today comes from Jerry Revich of Goldman Sachs.

Congratulations.

Thanks, Jerry.

I'm wondering if you could talk about to what extent this win expands the scope of what you could bid on going forward as you lay out the white space of opportunities from here proving out the capabilities on this project? What kind of option value does that give you for future opportunities?

I mean I think, Jerry, that's -- I think that's a question you should probably ask us in a little while once we're up and running. I think our concentration will be very much focused on getting the program humming and delivering the value we think it can deliver both to the families and, of course, to our shareholders. I mean the logic would dictate that if we can do this in that environment, there will be opportunities outside the DoD to do this. There will also be international opportunities to deploy the platform, but I think that's getting ahead of ourselves, I think, and ultimately, if you've got the growth that we've laid out here in terms of CAGRs through to '25 across all the metrics, I think that's very, very exciting in its own right. But there will be opportunities, but I want to focus in on getting this right first.

And you alluded to providing more context on the ramp. I think the original program envisioned a really significant ramp in 2023. I'm wondering if you can comment if that still holds, we don't have to get into full detail on the exact revenue burn expectations, but I'm wondering if that part of the operating plan still holds given the protest, et cetera.

Byron, why don't you answer that?

Yes. Thank you, Stuart. Thank you, Jerry. And first, let me just say, we're just really excited about this win. It's just another example of what KBR does really well, and we have a great set of partners in our joint venture and just looking forward to making a difference to our war fighters. But yes, Jerry, it's always been a very considered ramp up. I think the client was quite smart. They knew that this was a change for the industry. And so there is a 9-month transition period where we really focus on integrating the technology, engaging that supply chain and really setting up for success with us and the customer. And that goes through kind of the end of this year. And then we would expect the domestic moves to ramp up really potentially very, very late Q4 this year, but really into next year, and it's a very considered ramp up. This industry has a seasonality to it. So there's more moves in the summertime and they want to make sure they get through 2023's peak season and then into the end of peak season next year, there'll be a nice, considered ramp-up starting late '23 and moving into 2024 for the -- taking on the international move. So a very nice, steady ramp-up over a pretty good 18- to 24-month time period.

Our next question today comes from Steven Fisher of UBS.

Congratulations again. I wonder if you could just clarify the new EPS assumptions. I think in the previous version, you had a range of $4 to $6 a share, and now it seems to be $4 a share. And on the last conference call, you were talking about being at the upper end of the growth range. So I think the expectation was that you're going to be sort of tracking to the $6 without HomeSafe and now it seems like we're talking about $4.75. So can you just reconcile some of the pieces that we're missing there, please?

Mark, why don't you start and I'll finish?

Sure. Well, thanks for the question, Steve. Very important to stand back and look. We were at $4 as the starting point of the range last time that included considerable deployment, and we are at $4 today with this win without any deployment. So that's a material shift up, as I said in my remarks, and there's a lot of capital there to deploy. Apples-to-apples, like-for-like, the $4 before with deployment, it translates to $4.75 with the same model today. So again, a big bump up there using that assumption, which was a buyback assumption as you'll recall. That's a 20% increase on that $4 number to $4.75. So I wanted to start with that because the core performance of the business before considering the vagaries of deployments is way up from this opportunity. And so with that comes quite a bit of certainty as to core financial performance. Above that, it's difficult to predict. There's a huge opportunity with $3.5 billion of deployable capital, and we really don't want to limit ourselves. What we do with that amount of capital will depend on the market conditions, the interest rates, our share performance, of course. And so we don't want to set any bounce at that at this time because it's so much capital at play for such a long period of time. I think we've got a great track record for meeting and beating expectations in everything we do. And we have a great track record of delivering value creation, and that's what we intend to do here. So we're just going to stick to seeking maximum production out of that firepower as we target to go as high as we can.

Okay. That makes sense. But I guess I'm just wondering, since you were -- did we misinterpret the message from the last call that you were tracking at the upper end of the range before HomeSafe and so that HomeSafe should have been just additive on top of the upper end of the range?

Our performance out of the gate in '21 was clearly ahead of pace, and we stick to that. And our outlook remains as good or better longer term. So the underlying business is on or above pace, as we said before. And HomeSafe is clearly a nice layer on top of that.

The next question today comes from Jamie Cook of Credit Suisse.

Congratulations. I guess -- my first question, just a follow-up to Steve, just to be clear. Mark, should we assume for 2025, $4.75 is sort of the base of earnings is at least what you can do so there is potential to get towards sort of the higher end? My second question, it sounds like there's opportunities for this contract to be more accretive based on performance. Is there any way you could frame that for us? And then my last question, just -- sorry, I know you mentioned sort of Russia in your prepared remarks. Can you just frame for us what your exposure is there? Is there any cost of exiting the business?

So maybe I'll start with your last piece, and then Mark and Byron can maybe jump in on the HomeSafe piece itself, Jamie. So to put it in as a frame of reference, I think our STS business is what's doing, obviously, some work in Russia. And in 2021, it generated about $75 million of revenue. And that's really in 2 areas. We've got a long-term industrial maintenance contracts there supporting a U.S. company, and that's been there since well before I joined KBR. We employ about 500 Russian personnel there. And that's why I made the remarks that as we exit, we want to make sure we do the right thing by them, they're long-term KBR employees, and we've got a jury of care to manage that exit in the most humane way possible. I mean the annual returns for that part of the business are not very material. And -- but we'll obviously evaluate as we -- how best to wind that down, we'll have more color coming into the quarter. And we've also got a handful of technology, a small number of technology projects in Russia, primarily actually for European clients have invested there. And while these are not all subject to sanction, we -- there's obviously issues around payments and things like that, that we have to again work through. So complex issues. As I say, a $75 million exposure in 2021. And obviously, we're avoiding risk, et cetera, and we'll try and give you more color as we head to the end of the quarter. These are extraordinary events and whatever numbers we identify will likely adjust out. But as you can tell by the quantums here, it's not -- it's concerning, but not overly concerning, as you could understand.

And Jamie, back to your earlier part of the question, I would consider the $4.75 as a floor in the sense that $4 was the floor last time. So that's a fair way to look at it. And bear in mind, that's in year 1 of full HomeSafe activity, and we said we would take very conservative margins out of the gate there. So we clearly will be targeting to improve that over time. And so that improvement of HomeSafe itself as well as the rest of the business running hot relative to our original year ago assumptions, plus $3.5 billion of deployable capital really means quite a bit of upside beyond that $4.75 floor. And we just didn't want to put a cap around that as we did last time, given the abundance of opportunities we have and the strength of the business performance we are seeing. So we leave the upside to -- for everyone to take their view on because it will depend on a variety of paths we may take, but they're all great paths to have as options.

And Mark, this is Byron. If I could just add in, just on the margin opportunity. We take -- we don't disclose individual program margins, but we've taken a pretty conservative position on this. It is a new client with a new service model. But definitely in this industry, I mean, part of the REIT rationale for TRANSCOM going to a single move manager was to help get the inefficiencies out of the supply chain. And so we believe there is opportunities over time, but we want to make sure we start this on the right foot that we're delivering quality first to the war fire, and we'll focus on that customer service area first. And then over time, I personally believe there will be lots of various opportunities to improve margin, both through adding additional technologies, additional data analytics on the supply chain where efficiencies can be given. And then just in basic operations on how you consolidate loads and lots of different opportunities for margin improvement over the longer term.

Yes. It's tricky, Jamie, to frame that and put a number on it. But I think you can see there's going to be upward pressure on margins due to efficiency gains over time. And -- but one other piece I just wanted to make clear to those on the call is that in terms of what's happening in Russia and how we deal with that as we come to the end of the quarter. I mean we do not expect a negative change to our full year adjusted EPS guidance for, I guess, lost business opportunities in Russia as we look out. So I wanted just to make sure that was clear in the commentary.

[Operator Instructions] Our next question comes from Sean Eastman of KeyBanc Capital Markets.

Hey team, can you hear me?

We can.

Yes.

This is Slate on for Sean today. So just a couple of quick questions for you. One, how much of HomeSafe's revenue will be booked in the backlog? And what quarter should we expect it to hit?

I think that's a really good question. And I think we are working through the mechanics of that. I mean the work that at least just now really relates, obviously, to the transition piece we mentioned through '22. But as we look into '23, I think our view is that we would try and do this if we could. We don't know yet how doable this is given how we book backlog. But we were trying to book it at the beginning of the year for the year in advance. So it becomes an annual sort of booking rather than booking $20 billion in 1 hit because I think we've got to ramp up the program and understand that cadence. And I think these are all the little moves, a little contracts in their own selves. So I think we want to do it in a very measured way and just understand the performance as we book the next year and the seasonality, as Byron mentioned, plays into that as well. So that's the current thinking. So don't expect a $20 billion booking, if you like, going into the end of this year. So any more on that, Mark, I think we're -- it's still -- that's kind of our thinking, but we haven't concluded that yet, just as we're working through it.

No, I think it's well covered, Stuart. We do have to assess the volumes, and those can change a little bit year to year. And so I think that gives us a good baseline to measure what the expected near-term volume is and annualize the bookings based on that latest view coming into each year. So that's what we'd certainly like to see.

Okay. Awesome. That's super helpful. And then just a second question. As we look out to 2025, what are the other major recompetes we should be tracking?

Byron, you're probably as good as anyone to answer that one.

Yes, absolutely. Thank you. We have a pretty -- we've actually had a couple of good years, both '21, '22 and even really going to '23, we're relatively lighter on the recompetes type of work. Moving into kind of late '23, '24 and '25, there's a couple that are coming up in our NAFTA business. So looking at our health and human performance contracts, looking at our machine operations control contract, those were all a couple of years apart starting in that '23 time frame to '25. And each one of those contracts are circa $100 million a year. So in the size of our portfolio today, we still don't have any single big risk contract. There's no concentration risk there. So I think we'll get kind of back to more normal recompete levels going into '24 is what I would say.

Okay. Awesome. Congrats on the award.

Thank you.

Thanks, Slate.

Our next question is from Tobey Sommer of Truist Securities.

I just had a question sort of about the budget and so forth. If we do get budget and as a result of the war in the Ukraine, potentially a budget more easily in the following fiscal year, are those kind of contextual in very primary environmental factors incorporated in this 2025 outlook? Or would kind of an overall better spending environment by your principal customers drive a change to that?

Yes. I think, obviously, if there's an up tempo in spending, Tobey, probably -- we could probably do a bit better. This is the way I would describe it. I mean we set the '21 targets in a very different budget regime than we are today, obviously with obviously the horrible events in Ukraine, obviously, not even in anyone's mind in 2021 and here we are today. So I think if those budgets went up, you would think activity levels would increase accordingly. I think we're well positioned in those markets where the spending is going to increase the most, and we'll get the most attention. And as a consequence of that, yes, you could say that. But I think the targets we're putting out there today for 2025, I mean if you look at the CAGRs, I mean, there's not many of our peers who will be able to put CAGRs out that we are putting out and it's underpinned by real work that we've won. It's not -- we don't have to do M&A and things to get there. So it's -- I think, standing behind the targets today is exactly the right message. And -- but could you see a path to doing a bit better, of course, you could.

And then I know there was a question on recompetes in 2025. I didn't quite catch. What's the cadence of recompetes this year and next? And how does that cadence compare to what might be considered normal?

I mean the level of recompetes in '22 is very low. But Byron, sorry, go on since you answered, you can continue.

Sorry, Stuart. I was just going to clarify, yes, I was going to think that what you said, 2022 are very low. You think a majority of our contracts are 5- to 8-year kind of cycles, right? So you get that kind of turnover volume traditionally. We've been in a pretty good cycle there. So I don't know if I can quantify exactly the percentage per year, but it's nothing that overly concerns us because we have so many different contracts and many of them are smaller in size. So there's not 1 recompete that's really going to be a major revenue impact. So like I said, 2022 is low, 2023 is pretty normal, and there's a couple of larger recompetes that start to happen in '24 and '25, but nothing that concerns me at all.

And those all -- we've seen, right, when you're the incumbent.

Right. Right. Exactly. The Russia-Ukraine war, could you describe what if any impact that's having in the European theater and sort of up-tempo and spending on the kind of services you're providing?

Yes. I think everyone is aware that we have, EUCOM, European Command for the army through LOGCAP V and as you can imagine, the activity levels there have increased. And as we said in earnings that -- we can see that up-tempo beginning and that continues, and I think we will know more when we get to earnings in Q1 earnings and to be able to give you more color around that because it's still a very volatile situation, as you can probably imagine.

[Operator Instructions] Our next question comes from Michael Dudas of Vertical Research Partners.

I just want to some further thoughts on the contract structure. You indicated that there is -- there could be opportunities as you get more mature through the contract and such to generate better returns, margins or more upside. Just is it the cost plus versus the fixed price services, the breakdown there? Is it going to be depending on location or type of job. Like, for example, you put out, Stuart, about the 2 trucks with half full cargo making one. Is that something that the -- all that goes to the government or a split or is that towards a target that you put forth? Just wanted a little more clarity on some of the opportunities here through the contract structure.

Yes. So the way the contract works is that each move is priced and there's a price per move, Mike, so the -- from one location to another, and that's why it was very important to have the partners that we have in there who've got the knowledge and the proven experience in managing that supply chain and its cost base. And so the more efficient you get in doing that, the better returns you get as a consequence. And of course, the built-in protection of things like fuel and -- as we described, with the fuel prices going up as they are today, is very important to protect those margins. So -- and not just for us but actually for the truckers and the companies themselves, of course. So I think that all bears out pretty well. So as we get to know the industry and we use AI and ML to understand who's performing and who's not and what's the -- what routes are profitable and more profitable and things like that, we certainly can drive efficiencies through the delivery of the program. And I think over time, you'll see margins increase as a consequence.

We have no further questions in the queue, so I'll hand the call back over to Stuart Bradie for closing remarks.

Thank you, Lydia. So we've presented today, obviously, HomeSafe, lots of good questions. But I think for me, the -- only we're trying to sort of enhance the experience of the military families here. I think, ultimately, the growth in revenue that Mark portrayed, CAGRs basically in the teens is terrific. I mean, it's just the fact that we've got EBITDA falling suit at 12% to 14% that we're holding margins at the low double digits at the 10% across the organization. And really, the key -- lots of questions on the $4 and things like that, but the $4 is achieved without any capital deployment, 0, and that's a massive significant shift and to try and give you comparators, we've got then the apples and apples from deploying half the capital, which now gives us instead of the old $4 gives us $4.75. So again, a 20% increase. And so that all coalesces around a 20% to 25% CAGR in EPS. I mean that's amazing, right? And we really got that organically. We're going to ramp up this program. And as Mark said, even if there is a delay of 6 to 9 months, the 2025 targets hold if this goes to the core of federal claims. So hopefully, we've given you enough color. We've given you our share of the joint venture. We've given you the team that we're going to be doing this with, which is world-class and obviously, the impact on the numbers is what we have presented. So we're all super excited. There's a lot of work in front of us, but it's an amazing organic opportunity to really enhance returns to our shareholders and to see KBR into the next 10 years. And I think that's a really strong message to take away from today also. So thank you again, and I'm sure we'll have further calls on this and other items. So -- but thanks again for your interest and taking the time.

This concludes today's call. Thank you for joining. You may now disconnect your lines.