KBR Inc (KBR) 2021 Q2 法說會逐字稿

Ladies and gentlemen, please stand by. Good day, and welcome to the KBR, Inc. Second Quarter 2021 Earnings Conference Call. This call is being recorded. (Operator Instructions)

For opening remarks and introductions, I would like to turn the call over to Alison Vasquez. Please go ahead.

Good morning, and thank you for attending KBR's Second Quarter 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 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. These risks are discussed in our most recent Form 10-K available on our website.

I will now turn the call over to Stuart.

Thank you, Alison, and thank you for your interest in KBR and joining us today. I'll actually start on Slide 5 because you've seen Slide 4 many times. Now we presented on a number of sustainability topics over recent times, and I'm proud to report, we continue to make excellent progress across all of our sustainability program pillars. And thus, our ESG story is not only resilient but strengthening. And as you will see later, it's very, very aligned with shareholder value, a key differentiator for KBR.

All that said, I think it's really important to periodically come back to basics and look at our core HSSE performance. In this changed world, we are still employing best practice, so we're really still doing that. And now we're ensuring we are looking after the sales and those around us in the same way we did pre-COVID.

So driving the expectation that Zero Harm is achievable through our organization have delivered meaningful results as outlined here, and you've seen that before. But this belief remains a core within our values. And as you can see from the start, our safety performance was actually exemplary even through COVID, which was a time when our people were, of course, distracted by COVID itself. We couldn't get the level of leadership or visible leaderships and in some cases, rotations to bases, et cetera, and sites across the world. And of course, our people like everyone else, had to adapt to new ways of working. And priorities changed as the world change with more emphasis on things like mental fitness, for example.

So really, these results are simply the outcome of our strong culture and our people's commitment and really, it's an amazing performance. So a big thank you from me to our people across the world, you really do make a difference every day. As a people company that aspires to live up to our values, I hope this resonates.

So on to Slide 6. This slide tells the facts, and it's typically, as is our culture understated. But let's face it, this was an outstanding quarter, perhaps even a banger. And after a brilliant start to 2021 in Q1, our year-to-date performance has been absolutely terrific. The team has done a brilliant job across every metric with adjusted EPS coming in above expectation. We're tracking to the upper end of our range, which I'll remind you is over 20% increase over 2020 at the midpoint.

Double-digit revenue growth, while exiting lower margin, volume work is no small feat. And this really in turn, has delivered outstanding EBITDA performance, delivering EBITDA growth of almost 50%. That really reflects a strong delivery, bumping up margins, executing on strategy by exiting commodity services and really focusing on differentiated solutions while retiring uncertainty and managing risk as we closed out some older projects.

Cash management and result in collections was again above expectation, helped also with favorable project resolutions but a great result nonetheless, and we are bumping up cash guidance as a result. Great stuff there. You heard me talk about winning the right work many, many times, and this has come through in the quarter, a strong bookings quarter with a book-to-bill of 1.1. But as you'll see later, the result, including option years was even better. Bookings in heritage technology was 1.9, clearly worthy of a separate callout and multiple quarters of outperformance in this area.

We also made good progress on a number of legacy matters including settlement discussions with a client on Ichthys. We're not there yet, but we felt it's prudent to reflect the position on key terms within our numbers. This is all noncash. And I'll say that this again, this is all noncash and relates to matters with the client only. So to be clear, the combined cycle power plant or CCPP, there is no change whatsoever. And Mark will cover this in a bit more detail later.

On to Slide 7. The outlook for our TS business across the world remains favorable. This is, of course, reflected in our results, but also in our bookings, and a few are highlighted on the right-hand side of the slide. Our pipeline, which we'll present in a moment, is also reflective of this strong market. Now we know there's a lot of interest in our directed energy program, and we can't say a lot, but I will highlight that the shoot-off at Fort Sill a few weeks ago went very, very well. But more to come on that front later.

There was, of course, more clarity on the 2022 budget and the priority area that the Senate and House and as these coalesce around their recommendations, it was pleasing to confirm that our key strategic areas continued to be supported, and we remain very well positioned opposite national security priorities as we discussed previously.

At Fed budgets, were up as expected, but the NASA budget was a positive surprise with a larger-than-expected increase that really underpins our continued momentum in our science and space business, and they had a very strong book-to-bill in the quarter also. More to come, of course, from the infrastructure plan as this makes us way through government and what this means for KBR. But from what we can see today, this will only add more wind to the sail. Internationally, increased spending in the U.K. and Australia continues. Overall, international GS grew double digit in the quarter just over 10%, with Australia continuing to outpace.

So in summary, we remain on track to perform well in 2021, but beyond '21 also and towards our 2025 target. So all good there.

On to Slide 8. The outlook for sustainable tech continues to look really, really positive. This, of course, has been reflected in our bookings, and we have again highlighted a few recent wins on the right-hand side. It's great, obviously, to see traction in the plastics recycling area and in the digital maintenance area, along with ongoing demand across our whole portfolio. Our whole portfolio is performing exceptionally well.

The drivers are well known and remain valid. I won't read all of these, but the level of activity has increased quite a bit in the last 2 to 3 months. And of course, the climate change agenda in the U.S. will be layered on top of this as the various stimulus plans get approved. I've used the expression before of a perfect storm with all the areas firing, and this really continues to be the case. So again, very, very strong market dynamics for a sustainable tech.

On to Slide 9. So how does all this talk and rhetoric? So how does it all translate into numbers? And how can we be -- continue to be confident that the momentum we -- will continue as we progress towards not only 2021, but our 2025 targets? So in Q2, we secured $1.9 billion of awards and options, bringing total secured backlog to deliver 2021 to over 90%, 9-0 percent. So 2021 looking really, really good.

Now remember, we do not include the options in our book-to-bill. So excluding options, book-to-bill was 1.1 for the quarter. So a great stand-alone result. But when you include options, this performance is even more impressive, but importantly, put work into the secured hopper beyond 2021. So really a great guide to how we are traveling beyond the current year.

From a delivery perspective and a client satisfaction perspective, leading to good award fees, et cetera, really, that also drives margins, of course. But the key metric for me is the recompete win rate. If you're truly, truly delivering and adding value, your recompete win rate should be high. And you can see ours on the right-hand side of the slide, really, really impressive.

Now we've talked about scale of the pipeline and balance across the pipeline previously and really leading to lack of concentration at risk, et cetera, and that we have a number of needle movers and a year with more recompetes. These are all strong facts and continue. So in summary, a great quarter across all metrics with strong bookings in the right areas and a robust and attractive pipeline to ensure our momentum continues.

Now that, I'll hand over to Mark, who will take us through the numbers in more detail, cover capital deployment and, of course, give you updated guidance. Mark?

Great. Thank you, Stuart, once again, and I will pick up on Slide 11. The snapshot of our core financial performance in Q2 2021 shows terrific progress toward executing our strategy and also delivering on our long-term goals. We produced strong top line growth, reflecting how we have positioned KBR to tap quite attractive end markets.

Revenues exceeded $1.5 billion with double-digit growth year-over-year. As Stuart said, new business awards and options amounted to $1.9 billion, and that, of course, further signals strength of our offerings and also our end markets momentum.

Adjusted EBITDA came in at $156 million, that's up almost 50% from last year, 5-0, with EBITDA margins at 10% and also with both segments at or above targeted profit margin levels. This translated quite directly to the bottom line with adjusted EPS up about 50% over Q2 last year at $0.58 for the quarter. Organic growth in GS, accretive acquisitions and higher margins are driving this level of growth and profitability.

We're also pleased to report solid cash flow and free cash flow conversion of about 100% year-to-date and 120% for Q2, nicely at or above our targets. Year-to-date adjusted operating cash flow of $165 million and free cash flow of about $150 million is above pace for the first half, and as I'll cover shortly, the basis for bumping up guidance for the year.

Continued strong bookings and the Centauri acquisition are driving the nice trend you see here in year-over-year backlog growth. The total backlog and option value of $20 billion represents over 3x our current annual revenue run rate, which, as we have said before, demonstrates the strong visibility in our forward book of business and enables good confidence in our growth outlook and also our long-term targets. There's, of course, the very large pipeline of new opportunities on top of that, which Stuart presented just a moment ago.

On to Slide 12, which shows operating results by segment. Government Solutions posted top line growth of almost 30%, with double-digit underlying organic growth. As you see here, all 4 business areas contributed meaningfully to the strong 13% total GS organic growth, with 3 of the 4 producing double-digit organic growth. Amazing. This demonstrates the strength and balance across our GS landscape all around the world. New contract wins and on-contract growth across defense modernization, space, human health and performance, international and military readiness and sustainment all saw a contribution to these levels of growth.

A particular highlight to be made here is Centauri, which posted Q2 revenues of over $180 million with its own organic growth rate of 30% for Q2 and 16% on a year-to-date basis. That puts us on track for roughly $700 million of revenue from Centauri this year, consistent with our plan and in full alignment with our acquisition thesis, with that thesis being to buy terrific businesses with terrific people, equipping those people with the resources they need to continue to excel in strategic end markets and leverage the advantages of being part of a larger platform to grow the top line, bottom line and cash flow. Centauri checks all of these boxes, and we couldn't be more pleased with this acquisition.

At the GS group level, adjusted EBITDA margins were 10%, so right in the middle of the fairway relative to our targeted profitability.

Sustainable Tech continues to make terrific progress on its own profit growth strategy. While revenues continue to reflect the ramp-down of areas we decided to exit last year, the quality of revenues, as Stuart said, are improving with much healthier margins as we envisioned when we formed this business.

Adjusted EBITDA for Q2 was more than triple 2020 levels at $61 million, and the team delivered EBITDA margins of 20%. All elements of this business contributed positively. We did have favorable net closeouts and attendant cash receipts, which spiked margins by about 5 percentage points. So net of this bump normalized STS EBITDA margins came in at circa 15%, a much higher than expected due to favorable mix. We continue to believe margins will be in the mid-teen range for the full year.

Finally, the third segment. Corporate costs are coming in higher than last year, as we are in various stages of returning to work. We are advancing various initiatives that we paused last year and things like business travel are picking back up. We expect corporate EBITDA and SG&A to continue at this run rate in 2021, which is more aligned with the 2019 pre-COVID levels.

Now on to Slide 13. Stuart mentioned the settlement negotiations on the legacy Ichthys project, and I'll make some additional points here. Coming into Q2, we had a carrying value of roughly $565 million associated with expected recoveries from this project. This is divided into 2 elements: expected recoveries from the client and expected recoveries from the subcontractors on the combined cycle power plant. This discussion and the charge that we took this quarter only relates to the first category matters with the client.

So literally in the past few days, we reached a point in the settlement discussions with the client, which led us to conclude that the carrying value associated with the expected client recoveries should be reduced. Those discussions, however, are not yet final, and thus, it is not appropriate to provide a lot of details here.

But what we can say is the following: The reduction in the carrying value is noncash. Stuart said that earlier. And because of that, there is no impact to our liquidity, borrowing capacity or financial covenants. And third, there is no impact to our long-term targets as Ichthys matters were always excluded from these measures. An ultimate settlement, assuming one does occur, would reduce cash legal costs, free up management time and contain any liquidity risk which would actually improve deployable capital. And very important, progress towards this settlement with the client has no impact on the ongoing claims we have against the power plant subcontractors, and the carrying value associated with those expected recoveries remains unaffected.

As you may recall, when we completed the delivery part of the project in 2019, we established that any write-ups or write-downs associated with this complex matter would be ring-fenced and adjusted out for purposes of adjusted EBITDA and adjusted EPS and accordingly excluded from our long-term targets. We also excluded the expected Ichthys cash recoveries from all cash flow and liquidity targets and planning levels. So consequently, there is no impact of this charge and these developments to our long-term targets, and that includes the $3 billion of deployable capital that we continue to expect to produce over the next few years.

On to Slide 14 with a liquidity update. We continue to delever with growth in EBITDA over the course of Q2. Net leverage now stands at 2.1x, well within our targeted 3.0 or below level. We did do open market share repurchases of just under $30 million for the quarter, which is consistent with our goal of having a balanced capital deployment strategy. We were also pleased to recently receive a credit rating upgrade by S&P to BB flat, continuing a favorable trend on that front.

And now finishing up on Slide 15. We are affirming our previous guidance for 2021 revenues and adjusted EBITDA margin and our tax rate. We are updating our GAAP EPS guidance to minus $0.10 to plus $0.10, which reflects the noncash Ichthys charge I just covered. This also reflects $7 million in noncash tax provisions for the increase in the U.K. statutory tax rate, which was announced in Q1 in response to COVID and was actually enacted in Q2. While that increase does not take effect until 2023, we revalue deferred tax liabilities for this higher rate this quarter as appropriate. We have reflected both of these noncash items as adjustments to adjusted EPS.

For adjusted EPS, we are guiding to the upper end of the original range of $2 to $2.20 as Stuart said earlier, and that's based on strong operational performance across the business in the first half. And of course, a strong continued outlook for the second half. And as said earlier, given the strong cash flow performance in the first half and continued healthy outlook there as well, we are upping adjusted operating cash flow by $20 million to a new range of $300 million to $340 million for the full year. This enhances potential value creation opportunities with greater expected deployable capital, and we really like that.

That wraps up my remarks. So I'll turn it back to Stuart.

Thanks, Mark, and good job as ever. Now on to our final slide, Slide 16. So to summarize what we have presented today. In short, a high-end Government Solutions business with a technology kicker. Executing on strategy, which in turn has positioned KBR in attractive markets today but also into the future. Our amazing people do things that matter, and they are delivering outstanding performance but also winning work in the right areas.

Our pipeline fundamentals are excellent. We are confident about tomorrow and have raised guidance as a consequence. We continue to work to derisk the future and increase certainty. In short, we are doing what we said we would do.

I will now hand over to the operator, who will open the call up for questions. Thank you.

(Operator Instructions) We will begin with Tobey Sommer with Truist Securities.

I wanted to ask a question about Sustainable Tech. If you look at the business now, how much of your work is sort of strictly defined as sort of clean energy initiatives of the future versus -- I'm struggling trying to phrase this, but sort of working for existing less clean infrastructure in the improvement of it. How -- if it's possible to bifurcate in that way, could you help me?

Well, certainly, the majority of what we're doing, Tobey, is in the in the cleaner areas, all the technology portfolio is pointed that way. What we're trying to do around our maintenance portfolio is really help people decarbonize by being more efficient. And the advisory capacity, it's all about the future and looking at a hydrogen economy or green ammonia or whatever shape that might take. So I don't think we've got quite a breakdown, but I'd say it's the majority of what we do today is in the greener side of the equation.

Excellent. And how should we think about any future sort of wind down of some of that business? When do you think we would approach the period of time if it's in the future when there's not a sort of a material drag from anything related to the market or internal choices you initiated last year?

I mean we're progressively working that down. I think we said there was a couple of hundred million of carryover of revenue, low margin work into this year. A little bit carries into next year, but not much. But it doesn't detract from the story, and it doesn't detract from the targets. The targets of $1 billion circa plus business with margins in the mid-teens still holds for this year. And that includes -- there was an -- we did say margins would increase progressively. And obviously, the work off of that allows that progression of margins to happen really.

So I think all that lines up. So I wouldn't even think about that. I think it just reinforces the story around margin increase as we move into next year.

Okay. And then I was also, from a modeling perspective, hoping you could help me understand the seasonality, if any, in Centauri. The 1Q to 2Q sequential change in revenue, very pronounced. You talked about sort of your annual expectations. But is there some seasonality that you could help us understand for modeling? Or is this just normal pace contract awards, I guess, a lot of them?

Yes. I don't think it's seasonal in a sense. I mean, obviously, we're very pleased with the performance in Q2. And I think the 30% growth and really sort of sitting behind our acquisition sort of thesis, if you like, in the business model is that why we acquired Centauri. And I'll remind everyone that when we did acquire them, we did not factor in at all going beyond against the current phase in the directed energy program. So if that does progress, it's all upside on that thesis.

So it could prove to be a very, very valuable acquisition beyond. It's still a viable acquisition today, never mind. But yes, I don't think there's truly seasonality. I think there's just the cadence of the awards. But we did say that was a very high-growing business, and I think it's proving to be the case. So we expect that momentum to continue into Q3, into Q4.

And probably -- well, Tobey, it probably follows the same cadence as the broader government that Q1 is a little bit slower. Q2 in terms of awards picks up, Q3 is the busy one and then Q4, it drops off again as the -- we move into the new budget cycle. So it probably will follow that same sort of pattern as the rest of our government business.

We'll now hear from Jamie Cook with Credit Suisse.

I guess just 2 questions. One, Mark, obviously, with Centauri going well and the cash flow guidance being better and you're feeling good about your liquidity, just wondering how opportunistic you can be or when we can start looking at M&A, again, to be additive to the story. And I guess, help you with your sort of longer term or the mid- to higher end of your longer-term EPS targets? And then I just guess my second question, based on the backlog that you have today and the wind prospects as we're thinking about 2022 and your longer-term target, should we expect sort of steady growth to get to those numbers? Or is the growth trajectory to achieve your longer-term targets sort of more back-end loaded?

Okay. Well, Jamie, and looking forward to your headline tomorrow. They're always quite innovative. So I'll start with that. Thanks for the questions. And I'll say that we're really pleased with the cost performance of the company and our overall liquidity position. The -- as I said, the developments on Ichthys, should they conclude, would actually free up more capital.

And as you probably are well aware, there's quite a bit of prospective M&A activity in the government space today, and there's always some on the Sustainable Tech side as well, so I would say our positioning and derisking as has occurred over the past several years, does allow us to be very constructive. Seeing the progress on Centauri, the team has done a terrific job with the integration. The employees of Centauri are just fantastic and they're really part of the family now. So it does allow us to be more constructive, and we've got quite a bit of firepower as our cash flow continues to be steady and as our leverage ratio has come down.

So yes, I think we can be pretty bullish on the M&A outlook, provided it meets all our criteria, and we're very disciplined about that. I think we've shown a good track record. So I do expect, as we've always said, that there will be M&A activity in our future. And when that's not immediately present, we certainly have firepower for buybacks, too, and we're demonstrating that. So that's how I'd answer the first question. And Stuart, do you want to cover '22 and long-term targets?

Yes. Thanks, Mark. I think, Jamie, we're obviously very pleased with the start of the year, and I think we're probably outpacing many of our government peers in terms of growth. And as Mark said in his prepared remarks, we're seeing double-digit growth across the bulk of our sectors. And that would be as well to achieving not only '21, which we're well on the path to getting there, as I talked about. But obviously, '22 and beyond. And we're certainly progressing well. We're very confident of our '25 targets.

And I think what we will start to see as we look into '22 is just continued progression. I think I don't think it's going to be an up and down. I think it's going to be a very predictable growth pattern as we continue to book, work and execute. So I don't think we're going to see any sort of big steps up or big steps down and then a catch-up. I think it's going to be a progressive climb, and certainly cash flow forecast would support that as well. So I think that all lines up nicely with the long range predictability and future earnings profile of the company that we've basically presented on many occasions.

Moving on to Andy Kaplowitz with Citi.

So as you know, your first half EPS represents more than half of your EPS guidance this year, at least at the midpoint. So I know you told us the EPS is tracking to the high end of the range. But what held you back from raising your EPS guidance at this point, given you do tend to be modestly back-end loaded historically? I know you had a favorable resolution in Sustainable Tech that help margins so maybe that skewed seasonality a bit. But was there some pull forward of demand in Q2? Or is there any other reason why you didn't raise the guidance?

No. I mean it's -- I mean we talked about the 45-55 split, I think, last quarter. And I think if you sort of -- you back out the goody this quarter, it kind of takes you to the high end of the range. I think for us, we like to be, as you know, Andy, we're halfway through the year. We've got a bit more to play out, and we like to be reasonably conservative. We're -- in essence, we're bumping up guidance by guiding to the top end of the range now rather than people assume the midpoint.

We're bumping up cash. So I think it's a good news quarter. And we'll see where we land in Q3 as how we guide for the rest of the year. That's probably the best way to say it. But you get no favors in overpromising and underdelivering. As you know, we're much better to keep our -- to be prudent as we've done in the past. And I think that's served us well, and that's the way we're going to behave.

Very understandable. And then maybe digging into Sustainable Tech a little bit more. Again, you didn't change your guidance for the year there. But can you give us a little more color into what you mean by that the level of activity has increased significantly in the last 2 or 3 months? And are there portions of the business that are actually exceeding your expectations this year? And maybe any portions of the business that are not -- or below expectations?

I would say that there are no portions of the business below expectations at all. In fact, to the complete opposite. I think that's firing on all cylinders, as I said, it's that sort of perfect storm. The level of activity across our technology portfolio continues to really be unbelievably busy. And we've seen the level of awards, not just this quarter, but last quarter and et cetera. It's just been a tremendous book-to-bill progression through the course of, I guess, the last several quarters. So really, really strong performance.

But we're starting to see quite a bit of traction in the digital maintenance side. We've got a lot of awards coming through an advisory business. I mean those are small in nature, but the number of them is impressive, and we do some more time to pull through into further work. So all that bears really well. I think that's basically, we've got a lot of pressure on the IOCs themselves. And of course, oil price has gone up a bit, and so they've got probably more confidence in the future as well. So I think there's more confidence to spend. There's obviously pressure on the climate agenda and decarbonization agenda. So it all plays well.

And then you've got the refiners themselves having to look at different product mixes and look at things like more propylene and things like that, where we play a significant role in being a key supplier of technology to do just that. So it really is -- we're not seeing any slowdown there. In fact, I think we're seeing a pickup in prospects and levels of engagement around future projects and I guess, an untightening of that capital spend that's been around during COVID. So I think it all be as well as we look into the tail end of this year and into next year for sure.

We will now take a question from Steven Fisher with UBS.

I just wanted to follow up on Andy's first question there about the guidance expectations for this year, just as it relates to the EBITDA margins. The guidance does imply a little bit lower margins in the second half of the year than in the first half. Can you just talk about what was driving that moderation? I assume it's some type of mix, but I don't know if there's some unusual costs or anything.

Yes. I mean, in each of the segments, I think we set out our stall with GS, Steve, being in the sort of the 10%, the low double-digit ZIP Code and obviously, we're there this quarter. We were a bit below last quarter. But probably think we're going to end the year in that in what we guided to. So I think that's good. So no change there.

In terms of Sustainable Tech, of course, we came out of the gate very strongly last quarter and strong again this quarter with. So I think that's really bumping up the margins. But I think when you look at the whole year, we do think Sustainable Tech will be in the mid-teens. So that does lead you to a little bit of lower margin performance in that area because of the project, the favorable project closeouts. But again, very much within our original guide, very much within our performance expectations. So again, nothing out of the ordinary, in fact, an inspiring performance in truth.

And as Mark said, we've got the corporate costs coming through more in line with 2019 as well when you look at the group level. But all in, if you look where we're heading, we said we'd be a circa $6 billion company with EBITDA at 9%. They're around at the group level, and we're heading towards those numbers and sticking by that original statement and tracking very well towards it. So I think that all lines up nicely.

Okay. That's helpful. And then just a follow-up on the Ichthys discussion. Thanks, Mark, for the framing of that. I just want to make sure we're clear about direction of potential cash flows here. How should we interpret the risk that you will actually have to pay something out on this charge that you've taken versus collecting perhaps less than you thought you might collect in general, how you said if we kind of keep it just to the customer side of things? Is this sort of an indication that we may have to pay out something like $150 million to $200 million before you ultimately collect the rest of it and still come out ahead on a net basis with the subcontractors?

No, you should not think of it. But this deal with Ichthys for me is a really, really positive outcome. But as far as I'm concerned, the complexity of what we are doing, obviously, the customer was extremely complex with multiple lawsuits going one way and counterclaims coming, the other, et cetera. We also have the -- I guess, the interesting situation with our partners who, as many of you know, we've joined several of our partners whose recent performance has not been as strong. So we've derisked that part of our future as well.

So then coming to this conclusion, obviously, the customer is a no cash-out deal. So there's no cash out coming from us. This just means that we're not collecting what we had assumed on our balance sheet. So there's no cash out. So it's a zero-sum game in that sense, Steve.

In terms of what we're doing, obviously at CCPP, that's a very different matter. We're basically recovering monies that we have spent to build and complete the power plant that they walked away from. So we're going after them for recovery of cost in that sense that it's bona fide the absolute cost that we had to step in and actually spend to finish their obligation. So that our expectation there is that's a cash positive event. The timing of that hasn't changed with the hearings in next April, and we expect with a fair winds to receive that cash at the tail end of next year or early in '23. So that all lines up. And -- but please do not think our write-down is, in any way, a cash-out event. It's an absolutely noncash charge.

We'll now take a question from Michael Dudas with Vertical Research.

So I know this is like asking which is your favorite trial, but of your 4 segments within Government Services, which one do you see -- are you most excited about in the next couple of quarters on orders or business cadence aspect? And there's been a lot of visibility on space from not in commercial, but also in the private side. You're still seeing a very solid fundamentals there. And is there much opportunity for KBR to continue to support not only on the commercial but also on the private side?

Yes. I mean, it's a bit like a favorite job. So I don't think we've got one, Mike. I think we love them all equally. And...

That's a good answer.

And we're in a situation now where really they're all firing. The international business has got double-digit growth. The work we're doing in that arena is terrific and Australia continues to outpace, as I said. So that's all good. And the book-to-bill across the portfolio was terrific and really supports fundamental growth going forward. So I don't really, really think we've got any slowdowns in cadence across any of them. And they're all delivering margins at or above expectations.

So really, really strong performance all round. So that's why we love them all equally. And I would say that in terms of space itself, you're quite right, a lot of focus on military space today. And obviously, the NASA budget is compounding our momentum in that arena as well. So a lot of good momentum in our science and space business. And I think from a commercial space perspective, I think I said this before, it's an increasing, but still not a material part of our portfolio. But as that starts to sort of really dominate the lower a bit, which will do over the coming years, I do think that we'll start to see more and more work coming through either through our NASA contracts or direct. We're doing some -- a lot of an increasingly amount of direct work with people like Blue and others.

So I think we'll start to see that go over time, and we'll report that in due course. But it's an exciting part of our future. But today, it's a nonmaterial part of our business. That's a good way to put it. So it's a good opportunity.

Sean Eastman with KeyBanc Capital Markets will have the next question.

So it's great to hear the GS recompete win rates continue to be very strong. But what about takeaways? How are those numbers looking? I'm just trying to think about realistic win rate around this big pursuit pipeline you guys disclosed.

Yes. I mean as we know, Sean, takeaways are -- they're hard to do. And we're in our point now. I think our win rate overall, including recompetes is about between 40% and 50% in numbers and dollars. So quite a strong performance. So we've got a good shot at takeaways, but we do a lot of -- but we've got a very strong BD around things like IDIQs and white papers and using contract vehicles like IAC MACs and others to position for either single source or low numbers of competitors within that environment. So we do very well building a book of business there. And obviously, you've got things like Centauri in the intelligence community, which is a bit less competitive as well.

So it's not just in -- I mean, we've actually got these large opportunities across all our portfolio. And so it's not -- they're not just takeaways. They're actually some of this new business, some that have got lower competitor profiles and some have got takeaway fundamentals.

So I think really where we're -- I think the answer to your question is really are we booking over and above 1 in our book-to-bill? And the answer is yes. Does that support our growth story? Yes. And is the pipeline fundamentals still strong for the future of the business? And I think the answer is yes. And are we performing well across our portfolio? And do we have at low concentration risk? And I think the answer to all those questions is we're in really good shape. So it's difficult to tell one or the other in terms of whether you're going to win a takeaway or not. But what is true is we're in a very low recompete year. And of course, a lot of what we're reporting now is over and above our recompetes. So it's all additive to the story.

And we will come back. I think -- we've talked about this before, but I think we'll come back in Q3. Alison might tell me for saying this, but we're going to come back in Q3, and I think we'll give an update to the level of booked business. We talked about 55% to support our long-range targets. And of course, we will do a very strong bookings year and with options. And so when we layer in those options, I want this to be good to report back to the market and our shareholders, just how we're traveling on an increasing that 55% number upwards. So we'll have a go at that in Q3, just to give you confidence that we're not just winning our recompetes, but we're actually building a book of business to secure our growth.

All right. That's really helpful. A nice to-do list item for Alison there. Secondly, we hear a lot about the GS visibility, right? But on the STS side, I think a lot of people are trying to get comfortable around the very robust growth outlook over the next couple of years in that business. So considering 1.6x book-to-bill there this quarter, this is several quarters in a row now of very strong book-to-bill in that business. I mean how far does that let you guys see out? A little bit of color around where these recent bookings trends get you from a visibility standpoint would be great in STS.

Yes. As you know, it's a quicker cadence of contract awards and burn just given the scale and the size and the way that, that business model works. I would say that, obviously, we're very confident in our '21 numbers and increasingly confident in our '22 growth numbers. The work that we're winning now, of course, doesn't all get executed in '21, but a lot of it in '22.

So as we're reviewing the performance of those businesses and last weeks leading up to earnings, we start to get quite a good feel for how that business is going to track in '22, and I'm feeling really good about how that's moving into next year. And that's something that's really good for that type of business. And maybe if we can get that level of visibility, that's a good place to be.

We'll now hear from the line of Jerry Revich with Goldman Sachs.

This is Ashok Sivamohan on for Jerry Revich. You touched on the momentum in some of the Government Solutions segment. Can you speak to how you view the sustainability of double-digit organic growth in Government Solutions in the medium term?

I mean, obviously, we're very pleased with the performance year-to-date. And I think -- I don't know where we sit in that table a bit, I think we're certainly outperforming most of our peers in terms of growth in that double-digit arena, and that's translating very nicely into EBITDA as you've seen. So all good there. In terms of the sustainment of that, we're feeling really good about our long-range targets and you all understand the growth numbers and the aspirations around that.

So we'll continue with that momentum. And we're very confident that we'll progress towards those targets in 2025 and they're very strong CAGR targets, as you're aware. So feeling really good about the future.

Okay. And can you let us know the Ichthys-related balances within the unconsolidated affiliate line on the balance sheet?

That sounds like a question for Mark.

Yes. Ashok, the -- this will all come out in the Q, but it's complex. It's always been complex. And the investment balance, I described starting off at $565 million and it's coming down by roughly $200 million. So the net is the result of those 2 numbers, and that's a combination of expected recoveries from the CCP side of the house. Again, some reserves we have that need to stay there that are pretty minor. And so that's the remaining exposure on the balance sheet, if you will.

And we have affirmed a couple of times on this call today that those expected recoveries that denominate that balance is with the CCP, combined cycle power plant that is completely separate of the charge today and very high confidence as Stuart mentioned earlier, relative to a good outcome there.

Now we'll hear from Brent Thielman with D.A. Davidson.

Mark, this one might be for you as well. G&A, I understand the return to work and travel explanation. I guess when you look at the second quarter levels, is this a sort of a baseline level we ought to think about going forward or we're going to see that continue to accelerate as more employees return the office and sort of travel campaigns?

Thanks, Brent. We actually see it being fairly stable. So I would say that our enterprise SG&A should be in the $90 million to $100 million per quarter sort of territory. We're a tad above that in Q2, which can be explained by some initiatives we're undertaking. So I think Q2 will prove to be somewhat of a peak and we'll be more normative toward $90 million, $100 million on the SG&A side.

And then the corporate part of that, the corporate segment, if you will, should be pretty consistently 30 ballpark per quarter on an EBIT basis, about 25 on an EBITDA basis. And there's some volatility to that for various things, particularly initiatives, but we don't see that increasing with its -- it will steady off, if not decrease in forward quarters from what we showed in Q2.

Okay. And then sticking to sort of the labor commentary, so many companies talking about how challenging it is to find people and recruit and retention. I'd love to just get your thoughts on what KBR is doing and sort of how you're faring in that particular area.

Yes. I mean, I think, as you know, we are a people company. We drive very hard to live up to our values in regards to the people, and that's standing in good stead. And as we sort of look into certain areas, there's certainly no real issues, we think, across what we're seeing in STS in terms of labor as we look at that business, and the growth there is being supported by our ability to recruit, et cetera. So no issues there.

I think in a lot of what we're doing internationally, I think there's a little bit of a labor shortage in Australia, for example, just because they're very, very busy, but it's not really impacting our ability to do the mission. And -- but we are looking hard at recruitment. We are looking at harder retention. And I think not only in Australia, but in the U.S. So the intelligence piece is always difficult as you're probably well aware. But in terms of the, I guess, the readiness and sustainment area, that's probably easier to recruit into.

So it just depends. I think it's a mixed bag. I don't think there's a silver bullet to any of it. And I think we've got very, very strong dedicated people to the various missions that are working what they need to work in terms of the challenges on their projects. But to say that there's a fundamental labor shortage or a crunch across the business is a wrong statement to say there are pockets. I say it would be a right statement and breaking that down and focusing on those areas and helping those businesses to recruit and retain staff is obviously an area of focus for those businesses. So that's probably the best way to answer it. But is it constraining our growth as we look into the future? Are we hesitant about our long-range targets as a consequence? The answer is no.

Okay. Okay. That's really helpful, Stuart. If I could sneak one quick one in. I hadn't tended to think of KBR associated with an infrastructure plan. I'd just be curious what some of the particular things you're monitoring within some of those proposals could be that are applicable to you.

Yes. Well, I think there's -- we've always got a very strong program delivery capability within KBR. But I think -- there's a lot of money going into the R&D side around our infrastructure piece, which is -- plays value firmly into our capabilities and where we sit. There will be a lot in the climate change agenda, again, that will play strongly into what we can offer across the piece there as well.

So I do think you'll start to see -- we're not a design firm in roads or anything like that. So don't be thinking we're going into that. That's a more commoditized business, not at all. But I do think it will play to a sustainable agenda. I think it will play to our R&D credentials and that will play into our strong program delivery capability as we look across portfolios, but we're not going to get sucked into construction or commodity services in the slightest. So -- but it looks very, very promising in those R&D and sustainable areas.

Ladies and gentlemen, this will conclude your question-and-answer session. I will turn the call back over to Stuart Bradie for any additional or closing remarks.

Yes. Just again, thank you for your interest in KBR and taking the time today to listen to the presentation and ask questions. We do think we're traveling very, very well. The underlying operational performance of the business and the growth fundamentals are clear in the numbers. I think in the continued momentum with the pipeline and where we sit opposite budget spend and priorities, I think, hopefully resonates.

I do think, obviously, a few questions on Ichthys, but as I said in my Q&A piece, I think it's a really, really strong outcome for us in terms of removing uncertainty. And it takes a risk off the table, and it really takes us to a point where the overall conclusion of Ichthys will be a cash upside event for KBR as we conclude the CCPP arbitration litigation as it moves into '22.

So all up, I think, a terrific quarter. I think the fundamentals of the business are sound, and we're very excited about the future, and the management team is terrifically together about the way they're thinking about tomorrow. So thank you again for your time. And obviously, we'll be talking to many of you one-on-one post this call. So thank you again, and stay safe. And hopefully, we'll get to see some of you face-to-face in the coming months. All the best. Bye-bye.

Ladies and gentlemen, this will conclude your conference for today. We do thank you for your participation, and you may now disconnect.