KBR Inc

NYSE:KBR

Earnings Call Transcript 2021-Q1

[Operator]

Good day, and welcome to KBR Inc. First Quarter 2021 Earnings Conference Call. This call is being recorded. As a reminder, your lines will be in a listen-only mode for the duration of the call. There will be a question-and-answer session immediately following prepared remarks. You will receive instructions at that time.

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

[Alison Vasquez, VP-IR]

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 question. 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.

[Stuart Bradie, President and CEO]

Thanks Alison, and many thanks for joining us today.

I will start on Slide 4. Now you should all be very familiar with those Zero Harm sustainability program by now under 10 pillars that fit 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 prove on that side 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.

KBR has a suite of recycling technologies that enable secular processing and the broader secular economy. At the Investor Day, Dow introduced Mura'srevolutionaryHydroPRS technology that closes the loop on the secular plastics economy. This is very exciting on its own right and this excitement I think was compounded with the recent announcement that Dow is also investing unimportantly committing to off-take. 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 the slide. All are proprietary, differentiated, disruptive and market-leading. And 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.

Our global retailer from Scandinavia came to 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 manmade fibers. Our sustainable technology team applied our proven of operation on 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 secular processing. And 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 wasting. 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, its core to KBR strategy and this example is just one of the many that demonstrates that tenant.

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 I'd say 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 the 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 and over $1.6 billion in backlog and options during the quarter in high-end technical top market areas increasing our total backlog with options to $90.3 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 budgets. 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, [indiscernible] prove the site. 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 Microchip's 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 space side. The NASA budget request was also released and shows a marked increase and continue to support for the return to main and beyond. And of course increased funding across a range of Fed spend 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 on 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, [indiscernible] 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 the slide continue to gather momentum. It's a hot market. The recent announcement 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. And 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 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 fastest 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 the 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 into 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 and 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 of the gate strong in Q1, and we remain confident in delivering our 2021 guide that they will be a business that do sucker $1 billion in revenue, likely a bit more and with EBITDA margins in the mid teens, the high-end government business is a sustainable tech kicker.

So on to Slide 9 on the pipeline. In Q1, we had some really nice wins and strategic areas as we just touched on so really following through on winning the right work. It starts on the right you will be familiar with you know 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 a minimal concentration risk.

The team has done a nice job across the customer set picking over $1.6 billion in awards and options in the quarter, a pleasing result and a typically like bookings quarter. The key message here is that 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% seven zero percent of the work required to deliver the 2021 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% eight zero percent. So in short the markets and budgets remain very favorable.

We continue to deliver while also and on that I'd just like to have big shout to our people who do an incredible job and do things that really matter. We are winning work and the differentiated areas we set out to do. Our ESG commitment and direct linked 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 now will hand over to Mark, who will give you some more color on the segments. Mark?

[Mark Sopp, EVP and CFO]

Awesome Stuart, thank you.

I will pick up on Slide 11. So as you just heard, Q1 performance was generally in line with our 2021 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 2021 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. Stuart also said it was 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 in sustainable tech a stellar quarter in bookings for proprietary process technologies, including strong bookings across our new disruptive sustainability focus 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 were modestly relate 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 two 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 a headwind from reduced of Middle East activity compared to last year with new growth areas, predominantly in sustaining and doing programs.

We have underscored to reduce dependency on the Middle East contingency work and the 15% growth in Readiness & 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 of 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 through all the transitions going on and through a global pandemic, but also at the same time amazingly capturing and realizing tremendous growth and 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 a really nice new award that the team, one 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 four 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 is 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 still be a great result from the team.

Overall, while we likely had 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 is no real change to our capital structure and deployment strategy, which we fully covered in the Investor Day just a few weeks ago. Net leverage edged down just one tick driven from growth in EBITDA to 2.3 and in case you missed it we bumped up our dividend for the second year in a row 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, cyber security 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 R&D 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.

[Stuart Bradie, President and CEO]

Thanks, Mark and great job.

And on to our final slide, Slide 15. Our people continue to deliver, they really do an 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 our both healthy. The circa 80% eight zero percent of the work secured to deliver our 2021 guide under the strong Q1 now behind us, we are very confident of delivering 2021 and we reaffirm 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]

[Operator Instructions] We will now take our first question from Gautam of Cowen & Company. Please go ahead.

[Dan Charney, 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 in terms of like agencies?

[Stuart Bradie, President and CEO]

Yes, we could tried to cover that off in the presentation somewhat on an Investor Day that we. So 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 through our 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 outside of the DoD obviously retiring momentum and think last particularly around sustainability as well, and of course last nice 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.

[Mark Sopp, EVP and CFO]

Dan I'll just add into that to Stuart remarks. If you go back to the post-election moments in time there is certainly with 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 to the moon and longer-term beyond. So that part was particularly strong in addition to Stuart remarks as well.

[Dan Charney, Cowen & Company]

Great, that's really helpful. Thank you. And then just quickly it currently seems like multiples on the government IT space of really compressed less KBR's you guys had a nice run recently, and I'm wondering how does that inform kind of a 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 for more affordable?

[Stuart Bradie, President and CEO]

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 whether we actually do today. We don't think our targets that we're reaffirming and obviously drive greater share price accumulation through time our EPS performance and hopefully that reflects a 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 have - 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 on that. So I think that's certainly excitement around marketplace as you're well aware. So in term - and I think back end across hopefully strongly and invested in has really supported the run-up that we had recently.

And in terms of the M&A market certainly, there is still obviously lots of activity there that consolidation will continue and, but we have been very clear about our priorities in terms of how we’re looking across our capital spectrum and I think Mark laid those out. So I don't think there is any change there at all. And just to reiterate, if we will fund organic growth and we've got really strong growth if you had 20% plus an EPS level built into our guide and that's the best use of cash.

We've got increasing dividend and then of course if we can find accretive M&A that fits our strategic feature and accelerators into new areas and we want to acquire just to bulk up after market share per se and things that we already do, we think we can do organically.

So it would be - 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 end of last year, we will look at buying back our own stock, no doubt about it.

[Operator]

[Operator Instructions] We will now take our next question from Michael at Vertical Research. Please go ahead.

[Michael Dudas, Vertical Research]

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

[Mark Sopp, EVP and CFO]

Thanks, Mike. And 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 and that agency and what others face with us and we do so proudly and it's all good. And so we see balance in the bookings that are yes up market, but across the 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 their continued great work we do with NASA tends to go the other direction, and I would tell you 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 will of course let you know. But right now all signs indicate to a stability set of circumstances on the margin front for government.

[Michael Dudas, Vertical Research]

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

[Stuart Bradie, President and CEO]

Yes, good question. On Mark's answer on margins, I think what we're seeing of course on what was heritage tech, which is I think everyone knows is a very high margin component of STS and the cadence of bookings with another book-to-bill above 1.5 and this quarter versus in Q4 in Q3, in Q2 were all well above one is just I think that's going to help drive margins upwards because 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 in that cadence going then, then clearly that puts 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 acutely positive and I think Mark and myself. We mentioned the cadence in the advisory business talking about energy transition and bringing the technologies which includes hygiene 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 I mean not all of them will prove out to be bigger opportunities but lots well.

And I think that really puts a lot of credibility on player in the market is heading and in terms of ammonia demand. We expect that to continue increasing over time. We've got a lot of activity in 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 on the cadence of that will continue. And the reason for that I think people, takes two, three 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 were trying to get ahead of that and certainly with discussions with big ammonia producers have already started and a few being involved in any of their sort of investor base a dialog I mean not very, very clear. So I think it all stacks up and really favorably for KBR.

I think the drive for refining to be greener and our suite of green technologies we can apply to refineries to help them the product mix of options. We can give on terms of driving value for our 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’re at pains not to just talk about ammonia and hydrogen in this call because that - it takes a, there's a lot of activity there and people get worked up and down by that and rightfully so. But I want to just to make sure that we've got the message of across on this call that we got a suite of technologies over 70, seven zero technologies that are being deployed actively across the green refining area, the petrochemical piece and of course in the syngas ammonia piece for the 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 will start to talk more about awards in that arena.

[Operator]

[Operator Instructions] We will now take our next question from Tobey at Truist Securities. Please go ahead.

[Tobey Sommer, Truist Securities]

Thank you. With respect to the pipeline in kind of bid activity in fact is that - is that top of 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.

[Stuart Bradie, President and CEO]

Yes, I don’t think it’s kind of just 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 they come with 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, not really big size changes there.

But the opportunity as I've just said would really be 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 our statements about what achieving $1 billion plus in revenue and the key margins this year.

And as Mark stated the longer term, 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 a, that's all looking very positive in the pipeline of opportunity we support that.

[Tobey Sommer, Truist Securities]

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

[Stuart Bradie, President and CEO]

Yes, for taking question to answer Tobey, I think we'd all be guessing. I think the important take away from what we're doing in our Readiness & Sustainment segment well as LOGCAP that of course is that we had 15% organic growth. And 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 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 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 we've taken away any sort of volatility and our performance as a consequence. So I think we’ll report back when things become clear.

There are, there is potentially of course upside associated with that as things become clear, but maybe not necessarily so but we will be guessing if we said anything I think I'd rather not guess I'd rather tell you when we know the fact.

[Operator]

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

[Andy Kaplowitz, Citigroup]

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

[Stuart Bradie, President and CEO]

Yes, 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 you're probably aware. So I think the budget environment supports our continued momentum there. We announced some good wins, [technical difficulty] we also talked about the fact the Australia business continues to outperform [technical difficulty] quarter.

So I think there is very healthy momentum. There is good, there is good budget environment and we are very well positioned to take advantage of what's in front of us. So I think that's why we're very upbeat about what we're doing internationally.

[Andy Kaplowitz, Citigroup]

Thanks for that Stuart. And I wanted to ask you about cyclical recovery in Sustainable Tech in the sense that you've got sizable Petrochem some refinery 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.

[Stuart Bradie, President and CEO]

Yes, well I don’t know that’s cyclical recovery. I think - there certainly an up-tempo across the technology portfolio and finding under petrochem, but I think there is a change that's happened which really is proven to be advantageous for KBR and you've got the refining community knowing that they 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, that gets the sustainable demands of the future and on 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 I'd be up well for our long-term run and then when you layer in the syngas and hydrogen ammonia opportunities on top of that - each quarter.

I'm sure that the ups and downs in various elements, but all over it. It's all over - that the hosts are offering I think you have to see continued growth.

[Operator]

[Operator Instructions] We will now take our next question from Sean at KeyBanc Capital Markets. Please go ahead.

[Unidentified Analyst]

Hi guys, this is Alex on for Sean this morning. Thanks for taking our questions. So 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 can see a catch-up dynamic there?

[Stuart Bradie, President and CEO]

I know we've got a sort of an interesting quarter of awards. I think all up by $1.6 billion with options. We've had a very strong award quarter with options, particularly in the NASA space. So we know the number of on program growth awards in terms of additional money is being applied and the certain option years associated with just the way 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 of our government business.

But I don't really think there is a huge slowdown. I think it's seasonal. I mean it typically you get more 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 quarters as people come out of year-end and tell us they when 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 favourable. I think it is a good news story for KBR given the typical seasonality.

[Unidentified Analyst]

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

[Stuart Bradie, President and CEO]

I think the integration is going really well. As we talked about our initial focus with Centauri was to ensure that we deliver those synergies and we talked a 10 cap previously and anti-Centauri book-to-bill was 1.1 in the quarter, again sort of really sort of given the typical seasonal low bookings for government again a terrific performance and they're performing the margin expectation.

So I think all up the integration is going well in the business is performing other above-expectation so hats off to the team, they’re doing a terrific job and I think the cultural alignment is proving to be very, very strong, which is for me really important.

[Operator]

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

[Stuart Bradie, President and CEO]

Thanks Sean. Thank you 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 our all our numbers and being a little bit ahead in Q1 in some metrics in terms of expectation and that was the sustainable tech [indiscernible]. So really, really strong.

So feeling good about the future, feeling good about where we sit, and as I said, the saying that we're on track sounds a little bit understated interest given the on-track means a 20% growth in EPS. So all good for 2021 as we sit here today and obviously 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 probably this one - yes, stay safe and we'll talk soon. Thank you.

[Operator]

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