KBR Inc (KBR) 2021 Q1 法說會逐字稿

Good day, and welcome to the KBR, Inc. First Quarter 2021 Earnings Conference Call. This call is being recorded. (Operator Instructions) For opening remarks and introductions, I would now like to turn the call over to Ms. Alison Vasquez. Please go ahead, ma'am.

Good morning, and thank you for attending KBR's First Quarter 2021 Earnings Call. Joining us 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 our 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.

Thanks, Alison, and many thanks for joining us today. I will start on Slide 4. Now you should all be very familiar with the Zero Harm sustainability program by now and the 10 pillars that sit within it across the ESG spectrum. At our recent Investor Day, We highlighted that being a good corporate citizen was the floor and not the ceiling at KBR. And I wanted to pull on that thread a little bit more today. The symbiotic relationship between shareholder value and KBR helping our clients achieve their sustainability goals is an absolutely key differentiator for KBR, and we wanted to build on that just a little on to Slide 5.

Now KBR has a suite of recycling technologies that enable circular processing and the broader circular economy. At the Investor Day, Doug introduced Mura's revolutionary HydroPRS technology that causes the loop on the circular plastics economy. This is very exciting in its own right, and this excitement, I think, was compounded with the recent announcement that Dow is also investing and importantly, committing to offtake. This obviously is a huge endorsement on the sustainability aspects and, of course, a huge endorsement on the technology itself and is an important step forward.

But at KBR, we have many recycling technologies as outlined on this slide. All are proprietary, differentiated, disruptive and market-leading. Now we could spend the entire call, and I don't plan to do that, talking about these technologies. But today, I'll highlight just one example to give you a flavor, and that's on sustainable fibers. A global retailer from Scandinavia came to us a few years ago to help them solve a big problem: how to recover valuable chemicals and water from what would have been a waste stream at the end of their process to produce man-made fibers?

A sustainable technology team applied a proven evaporation and crystallization technology to essentially recover and purify critical ingredients and water such that they can be reintroduced right at the front of the process, closing the loop on the circular processing. Now this solution has many benefits, as I'm sure you can appreciate. It reduces processing cost, it saves finite elemental resources and water, and it eliminates a waste stream. So overall, it's great value for the client, obviously, for KBR and our shareholders and, of course, the planet. So like you've heard me say before, advancing our clients' ESG objectives is core to KBR's strategy. And this example is just one of the many that demonstrates that tenet.

So on to Slide 6, and some key highlights from the quarter. The key takeaway here is overall revenue, EBITDA margin, adjusted EPS and cash were all in line with full year guidance, and actually a little bit above our expectations for Q1. You'll recall that we stated that first half versus second half would be circa 40-60 split at the EPS level. That has now shifted to a circa 45-55 split with a couple of things happening in Q1 that were expected to happen in Q2 and Q3, and this was especially the case in sustainable tech, and Mark will give you some more details on this later.

Margins were bang on at the group level with some discrete items, some puts and takes that Mark will cover later within the segments. But to be clear, full year margin guidance at the group and within the individual segments is not changing. And I'll say that again, the Q1 puts and takes do not change full year margin guidance. Free cash conversion at over 100% was again strong, and importantly, the team brought in over $1.6 billion in backlog and options during the quarter in high-end technical upmarket areas, increasing our total backlog with options to $19.3 billion, more on some of these wins in a moment, but super exciting.

So Q1 was a relatively clean quarter at the group level. And so today's presentation, you'll be glad to hear, should be relatively short, as the overall business continued its momentum from 2020, and '21 guidance remains unchanged.

So on to Slide 7. The market outlook in GS was dominated by the release of the President's proposed 2022 budget. The DoD budget was aligned with what we presented at Investor Day, so no surprises there, and KBR was very well positioned opposite National Security and DoD strategic priorities.

A few of the areas are highlighted on the slide: artificial intelligence and machine learning, cyber, trusted microelectronics and directed energy. And you can see on the right-hand side wins that help prove this out. We're especially excited this quarter by the trusted microelectronics win. to conduct advanced R&D, prototyping, laboratory testing and supply chain verification on critical microchips and components. This is really important work done by top tier scientists and PhDs to ensure major military systems and platforms operate as intended and have not been compromised. We also won new work with the U.S. Space Force Rapid Capabilities Office, or RCO, to support the development and acquisition of new space capabilities and the modernization of the military space infrastructure. Again, this is highly advanced work centered around technical R&D and critical military space domain.

Shifting a little bit over to the civil side, the civil space side, the NASA budget request was also released, and shows a marked increase and continue to support for the return to the moon and beyond. And of course, increased funding across a range of Fed-Civ activities focused, as you would expect, initially on COVID, climate change, an area of differentiation, as you know, for KBR, and social justice.

The proposed infrastructure plan was also released and was very R&D heavy, very technology-driven and climate focused, lining up well with KBR's R&D capability and technology portfolio. This quarter, we saw some great wins also in the international government business, as you can see on the right-hand side of the slide, both in the U.K. and in Australia. And there was also good news from a budget perspective in the U.K., and this follows on from Australia increasing its defense budget last year. As an aside, Rob Hockets, whom you met in our GS and Focus Day and his team in Australia are off to another good start posting top organic growth rates again at over 30% year-on-year this quarter. And this is a nice example of a great team doing things that matter within a healthy budget environment.

One aspect not on the slide, but worth mentioning, was the announcement on troop withdrawal from Afghanistan. As most of you are aware, we took a very conservative view in this area, which has proven to be prudent. So in short, no red flags coming from recent announcements, no red flags from the budget priorities, in fact, very much aligned to what we presented in Investor Day, so very much aligned with our expectations. The market and our strategic positioning reaffirm our ongoing momentum.

Now on to Slide 8 on sustainable technology. The market and key strategic themes shown on this slide continue to gather momentum. It's a hot market. The recent announcements from the Biden administration are fully aligned with these themes as we discussed at Investor Day. Our suite of technologies remains in high demand, and I'm also pleased to announce a disruptive PDH technology, K-PRO, that was actually launched last year, has secured its first commercial scale order. This is terrific. There are details on this on the right-hand side of the slide, but to put it simply, this technology takes low-value propane and converts it into high-value propylene. And it does so in a more sustainable and more cost-effective manner than the competition.

It is worth noting that the book-to-bill of heritage technology was 1.5 in the quarter, led by important sales of exciting new disruptive technologies, K-PRO, K-COT and K-SAAT, bookings of these technologies dominated the tech book-to-bill as clients look to meet growing demand for propylene and high-value clean refining solutions with our disruptive, differentiated and, in our view, often superior technologies.

Now we've talked a lot about K-SAAT technology in the past, and obviously, I've just covered K-PRO, but I'd be remiss if I did not touch on K-COT and the K-COT win in the quarter, which was a substantial booking by the team. Now K-COT is KBR's catalytic olefins technology. It is the only, and I repeat, only technology of its kind in the market. Now this technology is unique and that it produces meaningfully higher volumes of propylene versus competing technologies, and as you know, propylene is in very, very high demand. Additionally, K-COT is the only commercially proven continuous operating process on the market, which means that both CapEx and OpEx costs are substantially lower, and the energy consumption and thus environmental impact are also greatly reduced. So in other words, It's highly monetizable at lower investment and operating costs, translating to a higher ROI for our clients and, at the same time, advancing their sustainability agenda, altogether, very compelling.

So staying on the right-hand side of the slide, as you would expect, the cadence of awards in our energy transition advisory business also increased, and is a great early indicator of activity in that market. But it's clearly a step change in this activity, and the cadence of new opportunities and awards has actually been above our expectation. Technology-led industrial solutions also had a fantastic start to the year and the pipeline for our digital solutions that leverages our IP and our domain expertise, and helps our customers reduce cost, enhance throughput, increasing efficiency, while also advancing their own sustainability goals is resonating. As Mark will show you in a moment, sustainable technology has come out the gates strong in Q1, and we remain confident in delivering a '21 guide that they will be a business that do circa $1 billion in revenue, likely a bit more, and with EBITDA margins in the mid-teens, the high-end government business with a sustainable tech kicker.

So on to Slide 9, on the pipeline. In Q1, we had some really nice wins in strategic areas, as we've just touched on. So really following through on winning the right work. The stats on the right, you will be familiar with, the stellar recompete win rate, the balanced portfolio of opportunities over $1 billion and multiple sizable opportunities over $100 million showing both the overall scale of opportunity but also minimal concentration risk. The team has done a nice job across the customer set, booking over $1.6 billion in awards and options in the quarter, a pleasing result in a typically light bookings quarter. The key message here is that with the recent budget announcements, we expect to see our pipeline remain robust and the momentum we have is expected to continue.

Now I'll remind you, we have a low recompete year in 2021 and in 2022, and you can probably see why we're so bullish on the outlook.

Now when we announced guidance in late February, we stated that we had already secured over 70%, 7-0 percent, of the work required to deliver the '21 plan. In Q1, we had excellent execution, especially in sustainable technology, and this combined with Q1 bookings has driven the level of secured revenue closer to 80%, 8-0 percent. So in short, the markets and budgets remain very favorable. We continue to deliver well. So -- and on that, I'd just like to add a big shout out to our people who do an incredible job and do things that really matter. We are winning work in the differentiated areas we set out to do. Our ESG commitment and direct link to shareholder value is super exciting and compelling, and Q1 was a great start to what is shaping up to be a great 2021 and beyond.

I'll now hand over to Mark, who will give you some more color on the segments. Mark?

Awesome, Stuart, thank you. I will pick up on Slide 11. So as you've just heard, Q1 performance was generally in line with our '21 guidance expectations and also our long-range targets that we presented to you last month in our Investor Day. Revenues of $1.5 billion and $135 million of adjusted EBITDA are right in line with our fiscal '21 guide of $6 billion top line and 9% EBITDA margin. Cash was once again very strong out of the gate with free cash flow conversion coming in at 109% for the quarter. As Stuart also said, what's particularly encouraging is the quality of the work that's coming in, in new orders. We are winning high-technology content, defense, research and development and modernization contracts in line with our upmarket strategy. Trusted microelectronics, rapid research and development and prototyping and others that Stuart cited earlier and also in our release are really good examples. These programs are high priority, high barrier to entry and, in some cases, leverageable to greater opportunities in the future.

The same is true and sustainable tech. A stellar quarter in bookings for proprietary process technologies, including strong bookings across our new disruptive sustainability-focused technologies, like you heard from Stuart, K-COT, K-PRO and K-SAAT, and measured progress on energy transition advisory and smart operations and maintenance awards.

As I'll cover later, we did have some acceleration of profit in the first quarter, which will modestly reweight our first half to second half earnings more toward the 45%-55% mix, versus our initial guide of 40% -60% But the bottom line here is we are on track on all measures and thus reaffirming our guidance for the year.

On to Slide 12. First, as planned, we have collapsed into 2 segments: Government Solutions, GS; and Sustainable Technology Solutions, STS. Highlights on the GS side include 19% top line growth, 5% of which was organic. We absorbed the headwind from reduced of Middle East activity compared to last year, with new growth areas predominantly in sustaining enduring programs. We have underscored the reduced dependency on the Middle East contingency work, and the 15% growth in readiness and sustainment highlights the enormous success of our team in driving growth from new, more recurring sources that will carry forward. 15% Net organic growth in light of the reduced Middle East activity is one of the top success stories this quarter, and hats off to Ella Studer and her team for delivering, not only excellent service in the Middle East for all the transitions going on and through a global pandemic, but also at the same time, amazingly capturing and realizing tremendous growth in baseline recurring programs elsewhere in the world. Truly remarkable.

Growth came from sustaining O&M funded areas, such as the important work our team does to plan, schedule and support training rotations at the National Training Center. The rest of GS pretty much netted out, although I will mention, and as Stuart alluded to, the Australia government business continues to produce really strong growth up about 30% organic year-over-year, offsetting some of the effect of winding down Aspire Capital Works in the U.K. We were pleased with the really nice new award that the team won in the U.K., Stuart also mentioned that earlier, and that will start contributing to earnings later this year. I'll also point out the nice balance of top line contribution across all 4 business areas within GS, which is consistent with our strategic intentions of having low concentration risk, access to multiple funding channels and access to faster streams of funding growth as national priorities change. GS margins were a percentage point off of our long-term guide, and this was primarily driven by timing items and provisions that we took for a legal matter. We do expect to achieve 10% EBITDA margins for the full year, with strong contributions in the back half of the year driving that home.

Now for STS, we're off to a great start in Q1 and are on track to meet the full year guide of $1 billion-plus of revenue at mid-teen margins. As planned, margins are vastly improved over last year, mostly from the fundamental improvement in business mix toward higher-margin offerings and also the cost reductions we made last year in the overhead structure of that area. As Stuart mentioned, profit was amplified in the first quarter by several percentage points on the favorable delivery of a sustainable technology project as well as an R&D investment recovery. These results were originally planned over several quarters this year, but due to good execution, early closeout and also accelerated cash collection of those items, we recognized all of it in Q1, which is certainly a great result from the team. Overall, while they likely have some margin variability this year due to timing and mix, we're confident, as I said earlier, our full year guide of revenue and $1 billion-plus ZIP code and margins in the mid-teens will be attained.

Now on to Slide 13. Just a brief update here. There's no real change to our capital structure and deployment strategy, which we fully covered in Investor Day just a few weeks ago. Net leverage adds down just 1 tick driven from growth in EBITDA to 2.3x. And in case you missed it, we bumped up our dividend for the second year in a row and now at $0.11 per quarter, up 10% from the 2020 dividend level.

And finishing up on Slide 14. As stated, we are reaffirming guidance on all measures for the full year 2021. The guide reflects a repositioned revenue profile in both our government and sustainable tech businesses. On the government side, the guide reflects essentially an immaterial amount of Middle East contingency operations contribution replaced by upmarket advanced technology work and defense modernization, military and civil space, cybersecurity, and a surge in growth from sustaining readiness and sustainment programs. On the STS side, the guide reflects lower overall revenues but much higher barrier work areas, with stronger margin attributes, particularly fueled by our proprietary sustainable process technologies. These technologies are indeed benefiting from much more commitment to greater energy efficiency and improved environmental outcomes across our entire contract base. This is now complemented with an attractive front-end advisory offering, which is gaining traction, and a recurring smart operations and maintenance offering, which leverages the large installed base of industrial and government customers we have worldwide. Altogether, the changes have produced a higher margin, strong cash flow business with well-established and reliable solutions in attractive end markets.

With that, I'll turn it back to Stuart.

Thanks, Mark. Great job, and on to our final slide, Slide 15. Our people continue to deliver, they really do, and execution was again exemplary, and we started 2021 well, a super strong performance across the entire business. Cash conversion, really important, was again, terrific. And our balance sheet and liquidity position, as Mark demonstrated, are both healthy. The circa 80%, 8-0 percent, of the work secured to deliver our '21 guide, and with a strong Q1 now behind us, we are very confident of delivering 2021, and we reaffirmed that guidance today. Now remember, that guidance reflects a 20%-plus increase in adjusted EPS from a very, very resilient '20 actual.

As we reiterated at Investor Day, we continually endeavor to do that simple thing, doing what we said we would do.

So thank you for listening, and I'll now hand it back to the operator, who will open the call up for questions.

(Operator Instructions)

We will now take our first question from Gautam At Cowen & Company.

This is Dan on for Gautam, good morning. And okay, so our question was, have you seen any exciting opportunities or threats just in the initial budget proposal that came through?

I mean...

I'm speaking in terms of like agencies? Obviously,

there's...

I mean, I think we -- yes, we tried to cover that off in the presentation somewhat on an Investor Day that we saw no real surprises, no red flags. And in fact, quite the opposite. I think we were very pleased with the levels of budget. And I think the priorities didn't throw up anything that disrupted our strategic advancement. And so that's why we're very bullish about our future. And so I think in short, no real surprises at all. I think that outside of the DoD, obviously, the tiring momentum, and obviously, last -- particularly around sustainability as well. And of course, last night's presidential address as well, putting more money to work in the economy is just good news. And I think we are very well positioned to take advantage of that across the spectrum of what we do, which again is why we're so bullish. So no red flags, only more encouragement, I would say, is a short way to describe your question.

And Dan, I'll just add into that, to Stuart's remarks, if you go back to the postelection moments in time, there certainly was some concern about whether or not the new administration would continue to support NASA that had some nice increases during the Trump administration, and we're really pleased to see a further bump up of 6.5% in the request for NASA across the board, and ongoing support for human space flight missions up to the moon, and longer term beyond. So that part was particularly strong in addition to Stuart's remarks as well.

Great. That's really helpful. And then just quickly, it kind of seems like multiples in the government IT space have really compressed, whereas KBR, you guys have had a nice run recently. And I'm wondering, how does that inform kind of the balance between M&A versus repo? And whether you guys have seen kind of the M&A pipeline become more active as a result of that? Or more affordable?

Yes. I mean, obviously, if your share price goes up, then if you're using that as currency, things become more affordable. But I think there's good recognition in the marketplace that KBR has changed significantly over time, and I think we're getting recognition for what it is we actually do today. We don't think we're -- I think our targets that we're reaffirming and obviously drive greater share price accumulation through time or EPS performance. And hopefully, that reflects in share price accumulation over time as we laid out on Investor Day.

In terms of the way that we think about the business, we do think we are very -- now today, a very high-end government business, but we do have this unique technology, sustainable technology kicker that is arguably should be valued at higher multiples than government. And so I think there's certainly excitement around that marketplace, as you're well aware. So in term -- and I think that came across, hopefully, strongly in Investor Day, and has really supported the run-up that we've had recently.

And in terms of the M&A market, Certainly, there is still obviously lots of activity out there. The consolidation will continue and -- but we've been very clear about our priorities in terms of how we'll look across our capital spectrum, and I think Mark laid those out. So I don't think there's any change there at all. And just to reiterate, if we -- we'll fund organic growth, and we've got really strong growth as we've had 20%-plus in EPS level, I have built into our guide, and that's the best use of cash. We've got increasing dividend. And then, of course, if you can find accretive M&A that fits our strategic future and accelerates us into new areas, and we won't acquire just to bulk up. We're not after market share per se and things that we already do. We think we can do that organically. So it would be -- and it has to be a cultural fit and it would have to be accretive. And so you have to get all these things right. And if that doesn't occur, then obviously, we'll be looking at -- we've got excess cash, obviously, our leverage targets as we did at the end of last year, we'll look at buying back our own stock, no doubt about it.

Thank you. (Operator Instructions). So we now take our next question from Michael at Vertical Research.

Two questions. First, maybe for Mark, certainly, you're talking about with these new businesses and upmarket in margins. Could you maybe reflect on, say, what the overall backlog, Mark, and say, in GS and maybe what this new STS was 6, 9 months ago, where it is today? And is it going to continue to move at a steady pace? So as you execute those margins, it will flow timely for meeting your targets over the next couple of years? It seems that you're getting that high-end bookings at a lot greater pace that we've seen in the recent quarters?

Thanks, Mike. We're really pleased with the quality of work as we've repeated over and over again. In some cases, that's rewarded in strong margins, and in cases such as NASA, as I think everybody knows to a lesser degree given the nature of economics in that agency and what others face with us. And we do so proudly, and it's all good. And so we see a balance in the bookings that are, yes, upmarket, but across a different mix of agencies, both in the U.S. and internationally, as you know, the international piece is favorable to margins, parts of the domestic are favorable to margins like Centauri and the trusted microelectronics and the rapid prototyping, and the continued great work we do with NASA tends to go the other direction. And I would tell you that, that the bookings we recently had in the pipeline we have suggests a static sort of scenario in the margin, 10%, hopefully a little bit more territory. And if that waiting changes we'll, of course -- I'll let you know. But right now, all signs indicate to a stability set of circumstances on the margin front for government.

I appreciate that. And my follow-up is for Stuart. So we've been gaining from clients that certainly since your Investor Day, the opportunities and certainly excitement on ammonia, in hydrogen, certainly, and the opportunity there. Given what you reported here in some of the refining and chemical processes that have been working well with these new technologies over the last, say, 12 months, you'd be instituted and getting some traction. Can you maybe share, is ammonia in that same realm? Do you think that's a 12-, 18-, 24-month story? Are we going to see some activity much quicker? I would think your clients are certainly asking you a whole bunch of questions on how this could work through, especially with your leadership in that space.

Yes. Good question, Michael. (inaudible) On Mark's answer on margins, I think what we're seeing, of course, on the -- on what was heritage tech, which is, I think, everyone knows is a very high-margin component of STS. And you know the cadence of the things with another book-to-bill at 1.5 in this quarter versus Q4 and Q3 and Q2 were all well above 1. It's just -- I think that's going to help drive margins upwards as we look at the mix in STS as we go forward.

So I just wanted to put that out there, because that is exciting. And if we can keep that level of activity and that cadence going, then clearly, that picks up the pressure on margins, which obviously is good for everyone. In terms of the discussion on ammonia and hydrogen, yes, of course, it's hugely positive, and I think, Mark and myself, we mentioned the cadence on the advisory business talking about energy transition and greener technologies, which includes hydrogen, of course, as part of that solution. So very much the tip of the spear. There are lots of awards and studies ongoing, and we expect that -- I mean, not all of them will prove out to be bigger opportunities, but lots will. And I think that really puts a lot of credibility on where the market is heading.

And in terms of ammonia demand, we expect that to be -- continue increasing over time. We've got a lot of activity and a lot of bids in the pipeline for that. I think we'll start to see some of them come through in the second half of the year, and the cadence of that will continue, and the reason for that is, I think people, it takes 2, 3 years to build these large ammonia facilities, and I think you can see the hydrogen demand with ammonia being, of course, the fuel, the transportation fuel for hydrogen, and that demand growing and people will try and get ahead of that, and certainly, the discussions with the big ammonia producers have already started. And if you've been involved in any of their sort of Investor Days or dialogue, I mean, that's very, very clear.

So I think it all stacks up really favorably for KBR. I think the drive for refining to be greener and our suite of green technologies we can apply to the families to help them the product mix options we can give on terms of driving value for petrochemical producers around things using K-COT and actually delivering more propylene than traditional ethylene-propylene mixes, again, highly attractive. And so I think you're seeing a little bit of a perfect storm across our portfolio, and we like that -- it pains not to just talk about ammonia and hydrogen in this call, because that took up -- it takes a -- there's a lot of activity there, and people get rolled up in that, and rightfully so. But I wanted just to make sure that we got the message across on this call that we've got a suite of technologies, over 70, 7-0 technologies that are being deployed actively across the green refining area, the petrochemical piece. And of course, in the gas ammonia piece for a hydrogen future. So I think more to come on that, Mike. And I'm sure as we get into Q2, Q3, Q4 of this year, you'll start to talk more about awards in that arena.

(Operator Instructions)

We'll now take our next question from Tobey at Truist Securities.

With respect to the pipeline and kind of bid activity in tech, is that top of the funnel kind of increasing as one might expect with some of these headlines and momentum? And what do you -- what's the outlook for contract size given some of the developments that you've talked about so far on the call?

Yes, but I don't think there's too much in terms of change in size per se, the size of awards from a technology perspective They haven't really changed too much over time. I think the important piece is we come with a very strong cash conversion dynamics and attributes and you've got the sort of high-margin profile as we've discussed in the past. So no really big size changes there. But the opportunity set, as I've just said, with really being in the sort of perfect storm at the moment is, of course, growing, so the pipeline of opportunity is sizable, and we're seeing that across all the areas in STS.

And so it's not just in one area, and hopefully, that came across in the presentation today. So we're feeling really positive about our business, and that's why we're very confident in our statements about what achieving $1 billion plus in revenue in mid-teen margins this year. And as Mark stated, the longer-term targets are also looking good, and if you think about -- if you remember the detail on STS, that has a growing margin profile as well as growing revenue, so it's a double whammy, as they say. So it's -- that's all looking very positive and the pipeline of opportunity would support that.

My follow-up question has to do with sort your -- the exposure you have to OPTEMPO via LOGCAP. How -- what is the outlook for that to rebound to levels of a couple of years ago? I understand we've got some news on it for Afghanistan, but to some degree, OPTEMPO may be tied to the pandemic in COVID cases. Could you speak to that over sort of more of a medium term?

Yes. It's a tricky question to answer, Tobey, I think we'd all be guessing. I think the important takeaway from what we're doing in our revenues and sustainment segment, where LOGCAP sits, of course, is that we've had 15% organic growth with actually work happening mostly in the U.S. and a bit internationally, but not really in that Middle East OCO arena. So I think that's really the key takeaway in that segment for this quarter. And then once things become clear, obviously, we'll report back. I'm very upbeat about that segment and really GS in general, and I'm particularly happy with the fact that we took a very conservative and prudent approach to that arena as part of our sort of future guidance and our outlook and really taking away any sort of volatility in our performance as a consequence. So I think we'll report back when things become clearer. There is potentially, of course, upside associated with that as things become clear, but maybe not necessarily so. But we'd be guessing if we said anything else, and I'd rather not guess. I'd rather tell you when we know the fact.

So we will now take our next question from Andy at Citigroup.

Sorry if this question has already been answered, I joined the call a little late. But just on the defense side of the business, international defense, you mentioned decline in Q1 was primarily attributable to a project completed. How do you see that end market trending over the rest of the year and going forward? It was strong for you most of last year? Should you see that sort of resuming that strength over time?

Yes. I mean, I think we do see that growing over time. I think the budget -- we did cover the budget, Andy, and the fact that the U.K. has got a 16% increase, and it's sort of defense budget and Australia announced moving up last year, as you're probably aware. So I think the budget environment supports our continued momentum there. We announced some good wins (inaudible) and we also talked about the fact the Australia business continues to [outperform this] quarter. So I think there's very healthy momentum, there's a good budget environment, and we're very well positioned to take advantage of what's in front of us. So I think that's why we're very upbeat of what we're doing internationally.

And I wanted to ask you about cyclical recovery in sustainable tech in the sense that you've got sizable tech chem, some refining exposure, have you seen sort of a balance in those end markets in places like China and such, where KBR is historically strong? And how do you think about the cyclical recovery in that business over the next 12 months?

Yes. Well, I don't know if it's cyclical recovery. I think it's a -- there's certainly an OPTEMPO across the technology portfolio in refining and in petrochem. But I think there's a change that's happened, which really has proven to be advantageous for KBR, and you've got the refining community knowing that we have to change, and we're seeing a lot of activity, as we said, around green technology application in the refining segment.

And in the petrochem segment, we're seeing this significant demand for propylene that's driving a lot of our activity around what we're doing in PDH and K-COT as we apply these sort of technologies, particularly K-COT unique to KBR. So I don't really think it's so much a cyclical recovery. I think it's really sort of redefining the product offtakes to meet the I guess, the sustainable demand of the future and the market demands for things like propylene.

So I do -- I think that's what we're seeing, and we don't see that in any way slowing down. It's a very hot market, and we'll continue to be so because of the sustainability agenda that's driving, I guess, the world at the moment. So it bears up well for a long-term run. And then when you layer in the syngas and hydrogen ammonia opportunities on top of that, you -- each quarter, I'm sure there'll be ups and downs in various elements, but all over it, it's all over there the host are offering, I think to see continued growth.

Our next question from Sean at KeyBank Capital Markets.

This is Alex on for Sean this morning. To start off, I just wanted to ask on the cadence of awards, because a few federal contractors have highlighted some slowing in awards in the near term, which makes sense considering the change in administration, but is there a point at which we could see a catch-up dynamic there?

We've had a sort of an interesting quarter of awards, I think all of that $1.6 billion with options, we've had a very strong award quarter with options, particularly in the NASA space to with a number of on program growth awards in terms of additional monies being applied. And I think there's certain option years associated with it, that's just the way that NASA does it. So the overall number was terrific for KBR in the quarter, and really a good new story.

But typically, Q1 is a slow bookings quarter, and particularly after an election in the government realm, and I'm sure that's coming through with a number of our peers. And I think we would probably -- other than what I just mentioned, we would probably say that's the same across other bits of our government business. But I don't really think there's a huge slowdown. I think it's seasonal. I mean, typically, you get lower awards in Q1, it ramps up in Q2, it goes even higher in Q3 and then drops back down in Q4. That's the typical cadence for government.

For sustainable tech, again, usually Q1 is a slower bookings quarter as people come out of year-end and sort of -- and then they do sort of year-on-year budgets, and they look to sort of pick up pace, as you like, as you move closer into Q2. So I really think that our bookings this quarter are highly favorable. I think it is a good new story for KBR, given the typical seasonality.

Yes. That makes sense. And then on Centauri, can you provide us an update on the integration, whether there's a change in confidence behind the revenue synergy targets?

I mean I think the integration is going really well, as we talked about, our initial focus with Centauri was to ensure that we delivered those synergies, and we talked about TENCAP previously. And in fact, Centauri's book-to-bill was 1.1 in the quarter, again, sort of really, really -- sort of given the typical seasonal low bookings for government, again, a terrific performance. And they're performing to margin expectations.

So I think all of the integration is going well, and the business is performing at or above expectations. So hat's off to the team, they're doing a terrific job. And I think the culture alignment is proving to be very, very strong, which is for me really important.

So that is all the questions we have in the queue for now. So I would like to turn the conference over to Stuart Bradie for any additional or closing remarks.

Thanks, Sean. Thanks again for taking the time and for your interest in KBR. As I said at the beginning of the presentation, we're bang on. It's a very clean quarter in terms of where we're hitting all or our numbers and being a little bit ahead in Q1 to -- in some metrics in terms of expectation, and obviously, sustainable tech has come out of the blocks really, really strongly. So feeling good about the future, feeling good about where we sit, and as I said, the saying that we're on track it sounds a little bit understated, in truth, given that on track means a 20% growth in EPS. So it's all good for 2021 as we sit here today. And obviously, strong, strong Q1 performance really helping with that.

So thank you for your interest again, and no doubt we'll talk to most people on this call and in calls following this one. So yes, stay safe, and we'll talk soon. Thank you

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