KBR Inc

NYSE:KBR

Earnings Call Analysis

Strong Q2 with Upgraded Guidance and Exciting Acquisition

In Q2, KBR demonstrated robust performance with a 13% increase in adjusted EBITDA and a 6% rise in revenue year-over-year. Adjusted EBITDA margins were 11.5%, and operating cash flow reached $170 million. The Sustainable Tech segment grew by 14%, while Government Solutions saw a 3% increase. KBR raised its full-year guidance, adjusting EBITDA to $825-$850 million and EPS to $3.15-$3.30. The company anticipates continuing strong performance and is excited about the LinQuest acquisition, which aligns well with its strategy and is expected to bring significant synergies without impacting the current year's forecast.

Strong Financial Performance in Q2

The company's performance in the second quarter exceeded expectations, continuing the momentum from a robust first quarter. Revenues increased by 6% year-over-year, while adjusted EBITDA rose by 13%, driven by excellent client delivery and cost discipline. This favorable performance led to a year-to-date cash flow conversion rate over 120%, prompting an upward revision in the full-year guidance.

Segment Highlights

Sustainable Technology Solutions (STS) recorded a 14% revenue growth, reaching $458 million, with profit margins improving to 21.4%. Government Solutions (GS) saw a more modest 3% revenue growth. The STS segment's growth was powered by a mix of intellectual property licenses, joint ventures, and a highly efficient cost structure, whereas GS faced fluctuations related to the Ukraine conflict but experienced a sequential revenue rise of 7% in the readiness and sustainment programs.

Capital Deployment and Shareholder Returns

The company demonstrated efficient cash flow management, with $170 million operating cash flow for the quarter and $261 million year-to-date. This enabled $100 million in share buybacks in Q2, on top of $50 million in Q1, alongside increased dividends, returning almost $200 million to shareholders in the first half of the year. The company’s leverage ratio also improved, finishing the quarter at 1.9x trailing 12 adjusted EBITDA.

Acquisition of LINQUEST

The planned acquisition of LINQUEST is expected to raise the company's pro forma net leverage to approximately 2.7x post-closing, but this is deemed a comfortable level. The transaction is anticipated to be accretive from day one on a cash basis. LINQUEST’s capabilities align well with the company’s strategic objectives, promising double-digit growth and margins post-synergy.

Raised Guidance for 2024

Following a strong first-half performance, the company increased its full-year guidance for profit and cash flow. Revenue guidance remains unchanged at $7.4 billion to $7.7 billion, but adjusted EBITDA guidance has been raised to $825 million to $850 million. Adjusted EPS guidance has also been increased to a range of $3.15 to $3.30.

Operational and Strategic Outlook

The company is bullish on future prospects, with 92% of work under contract for 2024 already secured. They emphasized their ongoing strategic shift towards technology-enabled markets, leveraging their technical, digital, and domain expertise to differentiate themselves in critical areas for customers globally. The integration of LINQUEST is seen as a catalyst for further opportunities and synergies in well-funded end markets.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, everyone. Welcome to KBR's Second Quarter 2024 Earnings Conference Call. My name is Kiki, and I will be your conference operator today. [Operator Instructions] I will now hand you over to your host, Jamie DuBray, Vice President of Investor Relations to begin. Jamie, please go ahead.

[Jamie DuBray, executive]

Thank you. Good morning, and welcome to KBR's Second Quarter Fiscal 2024 Earnings Call. Joining me are Stuart Brady, President and Chief Executive Officer; as well as 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, as discussed in our most recent Form 10-K available on our website. This discussion also includes non-GAAP financial measures that the company believes to be useful metrics for investors. A reconciliation of these non-GAAP measures to the nearest GAAP measure is included at the end of our earnings presentation.

I will now turn the call over to Stuart.

[Stuart Bradie, executive]

Thanks, Jamie, and welcome to our second quarter earnings presentation. I will start on Slide 5. As you've heard me say many, many times, KBR is a company that puts its people first. We strive to ensure our people have a strong sense of belonging that they feel connected to each other and the company, of course, I can grow within an environment where they can bring their whole selves to work every day.

Now to test that we're actually delivering for people in a broader sense, we regularly do a people survey which is, in fact, anonymous. And the feedback ensures we are focusing in the right areas as we see continual improvement, and it really helps us avoid any complacency. The survey results are also important, particularly as we bring new entities into KBR or new employees into the company. This year, the participation levels increased 10%, and we're over 70% which is actually our highest to date, and we feel gives a solid representation of how our people are feeling about being part of KBR.

I'm pleased to share with you that we've been certified as a great place to work in 13 countries, and over 84% of our team members feel KBR is indeed a great place to work, and they would recommend KBR to friends. From an inclusion perspective, 85% feel they can be themselves are heard and that this is very much a value I hold very, very dear. So good performance there.

Obviously, we are not perfect, but hopefully, this gives you a good feel that we walk the talk when it comes to our people and a big shout out to our people, in fact. So let's move on to Slide 6 and discuss the quarter a little. So Q2 is similar to the first quarter was a clean quarter with the businesses performing at or above expectations across all key metrics. As you can see, the revenue was up 6% year-on-year but more importantly, adjusted EBITDA was up 13%, [ 1-3% ], with margins at the group level, up 75 bps. Year-to-date cash adverse was a terrific 121%. So following on from a strong Q1, this gives us confidence to raise guidance, which Mark will cover in a moment.

But in short, our people and thus KBR, continue to deliver. On the business growth side, our group book-to-bill on a trailing 12-month basis was 1.0. And after adjusting for the large LNG project was 1.2x, which considering we also have substantially increased bid volume and awards awaiting decision, this really represents a strong quarter. We booked circa $2 billion at the group level and currently sit at 92%, [ 9-2% ] of work under contract for 2024. And this is an important takeaway, especially with continued volatility, both politically and geopolitically.

Now on to Slide 7. Firstly, we'll start on STS. The book-to-bill after adjusting for the large LNG projects, it's at 1 for the quarter, so a good performance and 1.2 on a trailing 12-month basis. And as you can see from the awards highlighted below, we continue to lead the market in green ammonia with our first project in India and tenth project overall. Blue ammonia, however, continues to be more prominent due to affordability and the contract with OCI reflects this. It's critical that we continue to ensure there is value-add by delivering solutions that drive efficiency and improve yield. And this enables the energy transition, and I really think it's a key area of differentiation for KBR.

In fact, there's actually only 2 blue ammonia projects in the world that have actually FID-ed final investment decision. Both are using KBR's technology. These are the OCI plant in Bomen, Texas and 4 globes in the UAE, which will make KBR's proprietary process technology the first to produce blue ammonia. So this, in addition to our industry position in green ammonia as measured by licenses awarded, which is in a very, very strong position. We're also very, very excited about the award of a 5-year contract to help the Iraqi government develop their future plans across infrastructure, energy and sustainable development. I believe this demonstrates our strong position in the Middle East that we highlighted at Investor Day and ensures we are very much part of the early development conversations.

On to the government side, our book-to-bill sits at 1.1x in the quarter and at 1.2x on a trailing 12-month basis again terrific performance. Awards under the MAC IDIQ contract vehicle continued to be solid. And we've highlighted in the slide the recompete win on the B-52 program that we've had actually for 8 years, which had a significantly increased value and additional scope for cybersecurity as a bit of a trend that we do expect award volume to pick up in Q3 in this area with over $2 billion worth of bids submitted and awaiting award under the IAC MAC program alone, quite substantial in that area. We've highlighted 2 large multiple award contract wins also in the quarter, both at effectively a license to hunt and to enable rapid response mobilization if required. Now notably, MQS-2 is with a new customer, which is always positive, the Defense Health Agency. And we'll report ongoing progress as we move on to task orders under these contract vehicles in the coming months. As we highlighted at Investor Day, our volume of bids overall in the government business and across that whole portfolio has increased significantly in 2024 and currently sits at over $8 billion.

I will now hand over to Mark, who will give more detail on the financial performance. Mark?

[Mark Sopp, executive]

Fantastic. Hello, everyone. Thanks, Stuart. I'll pick up on Slide 9. So as you've just heard, we're really pleased with our Q2 performance, and that follows an already strong Q1, registering healthy top line growth, strong profit margins double-digit adjusted EPS growth and year-to-date cash flow conversion of over 120%, all leading to a bump up in our full year guide. As I said a number of times before, the day-to-day project performance across hundreds of engagements is the foundation of our consistently strong financial results. And this also pays recurring dividends with respect to client retention and employee engagement. We've seen delivering for our clients in critically important missions and projects around the world is a key enabler for the people survey results that Stuart just covered. .

Of particular note, adjusted EBITDA margins came in at about 11.5%. This reflects superb client delivery and good cost discipline. Operating cash flow was $170 million for the quarter and $261 million year-to-date as we continued progress on driving lower DSOs and overall demonstration of our low capital intensity business model. On to Slide 10 for details on the segments. Sustainable Tech has continued to deliver double-digit year-over-year growth, excellent profit margins and equally good contribution to enterprise cash flow generation. Revenues grew 14% to $458 million, with all parts of the business contributing to that result. Margins were 21.4%, up from last year on a combination of intellectual property license mix, joint venture performance and a highly efficient cost structure. For government revenue grew 3% overall, where again, we saw a growth in International Defense and Intelligence and science and space goes up 11%, 5% and 1%, respectively.

This is offset in part by a contraction in readiness and sustainment particularly for eCom activity down as funding delays earlier in the year are still trickling through related to the Ukraine conflict. However, this is beginning to reverse as sequential growth from Q1 was up 7% in the [indiscernible] and Sustainment segment pretty much attributed to this Ukraine area. Profit margins hit 10.4% pretty much in line with expectations for GS in Q2.

Now on to Slide 11. Good capital deployment starts with good cash flow generation, which as discussed earlier, was terrific for Q2. This enabled higher buybacks this quarter and also year-to-date yet still reduced our leverage, which finished the quarter at 1.9x trailing 12 adjusted EBITDA. Specifically, we bumped up our buybacks to about $100 million in Q2 on top of the $50 million in Q1. Together with increased dividends in Q1, we have returned almost $200 million in cash to shareholders through the first half.

Now let me briefly cover how we plan to finance the acquisition of LINQUEST. While we have cash and current revolver capacity to cover the full purchase price, we have commenced the process of tapping additional term loans to maximize our liquidity. Assuming we do that, we expect any new debt to be at the same or better rates than our existing debt. We'll also structure any new debt to allow for repayments, so we have the option of delevering as cash flows are generated down the road.

We expect the transaction to raise our pro forma net leverage to approximately 2.7x, give or take, post closing. This leverage ratio is still at a comfortable level. And thus, we still have capital deployment optionality across M&A, buybacks and debt reduction options. Now on to Slide 12, forward guidance. We are raising our guidance for the year on profit and cash metrics, which is all organically driven. We are not and will not factor in any expected contribution from Linquest until it closes. We will consider an update then depending on when closing occurs and the materiality to the year at that point in time. Revenue guidance is unchanged at $7.4 billion to $7.7 billion.

However, with a strong first half operating performance, we are bumping up adjusted EBITDA to a range of $825 million to $850 million with a midpoint of $838 million. Our adjusted EPS guidance is also increasing to $3.15 to $3.30 with a midpoint of $3.23. And finally, with a strong year-to-date cash flow conversion, we're increasing our adjusted operating cash flow guidance to $460 million to $480 million.

In summary, the core business is performing really well, and we are increasing the outlook for profit and cash flow production, certainly a great testament to the performance of our STS and GS operating teams. In addition, we're truly excited about the addition of LINQUEST. In fact, I've known this business for a really long time and have high confidence we will be an excellent home for their employees. The cultures align really well and we expect robust synergy and customer delivery benefits for years to come. All of us really just can't wait to get started with our new colleagues on this exciting front.

With that, back to Stuart.

[Stuart Bradie, executive]

Thanks, Mark. Terrific job, as always, and on to Slide 13 and really to talk about LINQUEST. What you see on the slide is the same as we published in our announcement last week, so I thought I would cover only a couple of points, and then I would touch on how the feedback has been since the acquisition was announced and how we're thinking about integration. So LinQuest, there are 1,500-plus people, they really do amazing work. And they do that across national security space, so think space force, future air dominance or I think Air Force and chassis 2 and connected battle space, so think interoperability and digital.

I mean their capability is highly complementary to KBR's with little overlap, which I really think gives exciting synergy opportunities, and we've highlighted how those will work on the slide and there. We're also excited at the fact that margins are double digit as is the pre-synergy growth profile. So absolutely terrific. And from a people perspective, the feedback on the announcement has been incredibly positive, in fact, positive on both sides. And we posted our first town hall with a LinQuest team last week, and there's a lot of excitement. LinQuest is a business we know very well, as Mark said earlier, we're located in many of the same locations. We worked with them on numerous occasions, and importantly, that people know and respect each other, which I think is absolutely unique. We have common values, we have commitment to mission. And I think from a culture perspective, we see this as really, really a terrific fit.

In terms of integration, we're actually feeling really good about it. LinQuest already operates on many of the same ERP platforms. And for those that have done this before, that really is a big deal. So this greatly reduces the risk and importantly, the burden on the teams doing the integration. So I'm sure you can tell, we're super excited about LinQuest joining the KBR family. This is not only a great fit with little overlap, but an acquisition that's absolutely bang on strategy and focused on delivering revenue synergies in very well-funded and critical end markets. Obviously, in the coming weeks, we'll be working through the HSR process, and hopefully, we'll close soon and more to come and we'll update you on our next earnings call.

Now on to Slide 14, and I'll finish with some key takeaways. Firstly, we've delivered a really strong first half performance across all key metrics and as a result, as Mark presented, we are pleased to raise full year '24 guidance on profit and cash flow. Secondly, our work under contract for 2024 today is at 92%, and bookings also ensure continued momentum and the bids submitted and awaiting awards at very, very high levels, as we explained earlier.

Thirdly, LinQuest, as I said earlier, is bag on strategy, and we are super excited about it, double-digit growth and double-digit margins really, really cool business. Lastly, at Investor Day, we emphasized our vision to continually move KBR into technology-enabled markets where our high-end technical digital and deep domain expertise really allow us to differentiate while adding value in critical areas for our customers all across the world.

Now following on these things from IR day, and with LinQuest as a catalyst, we believe there are opportunities to realign our business to operate even better based on our capabilities and markets. The objective of this realignment will be to reduce complexity, realize synergies like AUKUS and one Saudi, as we presented at Investor Day. And it's likely we will manage both segments globally to allow greater standardization and business process optimization, which should drive efficiency. Now we'll be working on this through the remainder of 2024 with an expectation to report along these lines in full year '25. And to be clear, the segments and the enterprise targets for 2027 will remain intact through this realignment. This is very much a heads up, and we're going to continue to work on this through the remainder of the year, and we'll update you as we make progress. So please stay tuned.

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

[Operator]

[Operator Instructions] The first question we received is from Tobey Sommer from Truist company.

[Tobey Sommer, analyst]

I was wondering if you could expand on that last bit and offer some more color, Stuart, on the realignment in what you think that will achieve so far?

[Stuart Bradie, executive]

Yes. Thanks, Toby. The objective will be to, as I said, reduce complexity will move from 3 business units to 2 effectively with bits of what we've been describing as GSI. And I'll give you a good example, the DuriaGate project, which is a full-on project management of new sustainable city in Saudi Arabia. That currently sits in the government segment and that could -- given its commercial contractual basis, given its program management at scale and given where it is in Saudi to realize our One Saudi vision and leverage our position across a broader customer base, that sort of project will move into STS going forward.

So another example would be the Sellafield decommissioning that we do in the nuclear arena. Very much a sustainable project currently sits within GSI, big programmatic reducing carbon footprint, obviously, managing a very tricky nuclear decommissioning piece of work and managing quite a significant supply chain. They are very much in the bailiwick of STS also. So that's the sort of thing we'll be pushing across STS will get bigger. As a consequence, as I said, the guide that we've given one change. So we expect margins to hold up in STS as we go through this. But it certainly will obviously give us, I guess, an overhead advantage as well as we go from 3 to 2, and I think allows standardization and more commercial acumen in the where it's required. But the clear objective is to realize the synergies that we laid out at Investor Day. Does that make sense?

[Tobey Sommer, analyst]

Absolutely. If I may sneak in a follow-up. From a geographic perspective, where do you see the most rapid growth across the enterprise over the next year or 2?

[Stuart Bradie, executive]

I mean I think it's -- I think, ultimately, you're going to see a lot of growth in what we described as a Gold South, particularly in the Middle East. And I think you've seen that in -- if you look at our in documents that we -- for this quarter, you'll see the increase in activity in the Middle East, in particular. So I do see that from an energy perspective, going to be the area of significant activity. In terms of the government side, obviously, with the LinQuist acquisition, we obviously see a lot of activity happening in the U.S. also. But also, I think, continued emphasis on in the Pacific. So we do see increasing activity across things like AUKUS and sharing intelligence data and things across the allied forces. So I think you're going to see it in multi places and depending on which business, Tobey.

[Operator]

The next question on the line comes from Michael Dudas of VetoResearch.

[Michael Dudas, analyst]

Jamie, Stuart Mark. Stuart, you talked about visibility in the pipeline, and you highlighted some government service opportunities. Maybe you could share a little bit on the STS side on the pipeline. And looking at 2025, how comfortable are you relative to what's in backlog and near-term bookings today to at least achieve the growth targets that you have?

[Stuart Bradie, executive]

Yes. I think as we presented, I mean, the bookings at STS in the quarter, excluding the LNG project were [ 1.1 ]. So there's strong momentum there. I think that's similar to last quarter, actually, and on a trailing 12-month basis, sitting at [ 1.2 ]. So good continued bookings in STS, a strong pipeline really globally. But as I said earlier, I think a lot of activity in the Middle East. In fact, I was in Saudi last week with Jay. And so continued confidence in their investment profiles there. So we're not seeing a slowdown at all in that arena and energy security is very much on the agenda in the decarbonized way as we've talked about before as well as energy transition, probably energy transition moving a little bit slower due to affordability questions, but which just brings energy security more to the 4 because the demand in energy is still very much the same. So yes, no real change to really what we presented in Investor Day around that, Mike.

[Michael Dudas, analyst]

My follow-up is any early read on the new government in the U.K. and how things may shake out?

[Stuart Bradie, executive]

Yes, good question. The -- I mean, the U.K. moves a bit quicker than some jurisdictions in this election process. It sort of happened in a few weeks. The new government has elected on July 4, and the cabinet was in place by July 5th. So it's a fully operational government parliaments back. They will go back in holiday of course, in August, like most places, but it's all working. I do think there'll be as there always is with new governments, a review process, whether in defense or in other areas. But what we've seen so far is that the U.K. is very, very committed to NATO and what's happening in supporting Ukraine and already the defense and foreign ministers have engaged with -- in fact, Zelinsky was in the U.K. last week. And so we don't see any slowdown in commitment there. And in terms of their commitment to new energy, I think labor is actually even more committed to energy transition. So we see that as a good opportunity going forward. .

[Operator]

The next question is from Bert Subin from Stifel.

[Bert Subin, analyst]

Maybe just to kick off. It was a really strong second quarter for STS. I mean the EBITDA growth was quite a bit better than expected, sales growth continues to be robust. I know you look at the book-to-bill in this business, and there's some questions around like as Plaquemines starts to step back what the direction of the business is going to be. So could you give us some commentary just maybe on like what you're seeing in the second half? Do you expect the kind of growth rates to persist. And then as you think out the '25, '26, '27 and beyond, I mean, you highlighted the Middle East big program, we're still sort of waiting to hear from liquid to chemicals Aramco. Just curious if there's any update there.

[Stuart Bradie, executive]

Yes. I mean I think in short, I mean, we're standing by our guide, and then I was very clear on that, Bert, we upped the guidance a bit for this year, obviously, but our '27 guide and our growth rates that we committed to at Investor Day are still there and very much robust, and we think we can achieve them. That's probably the first statement that you could get your arms around. STS is performing really, really well. I do think that we're seeing some movement in the LNG industry as well post the guidance or monitorium there. I think some projects have been released. And I think that will be progressive until election day in November, and I think that market will start to move again. So we're feeling pretty upbeat about that. And in terms of the Middle East, I think, I covered off at Investor Day that the Middle East is more than just LTC and Saudi is more than just LTC with commitments around ammonia, commitments around new gas development and et cetera. And that's the same in the UAE. It's the same in Kuwait and it's the same in Oman. So I think there's lots happening across that area, and we are very well present in all those markets. LTC, I know very much as for stating, but we have been we're very client friendly as you kind of be well aware and appreciate and we have been not able to announce anything on that program. We still feel really good about it but we are not yet at liberty to disclose anything until we get permission from the customer, and that is yet to be forthcoming. So I apologize, but that's the best I can do right now. I'd say that we're again, we're feeling pretty good about where we sit.

[Bert Subin, analyst]

That's super helpful. Just as a follow-up on the other side of the house in GS. You talked about a pretty substantial ramp up in bids, and it sounds like you're starting to see that. Could you maybe just help us understand like what the -- what changes by segments you had based on what, I think Mark said, 5% growth in D&I and 1% in SMS. So how do those ramp up into the targets you've given at Investor Day? And then regarding RNS, can you just give us some color on maybe early days of [indiscernible]?

[Stuart Bradie, executive]

Yes. So the -- I think our big target for this year is circa $12 billion in GS. I think we've achieved [ $8 billion ] to date. So we're well on the path to achieve that, which is terrific. And what we've done is we've refined costs in other areas and put more effort into BD to ensure our rates are still competitive. We've centralized our big -- I guess, a big acquisitive project group into a centralized group that oversees and drives more I guess, more volume, but obviously more quality through that pipeline, and we're seeing that manifest itself. And I think, as I described earlier, we've really got a very strong IDIQ machine, obviously, IAC-MAC. We've got [ 2 billion ] awaiting award in that program alone, and that is absolutely significant. And we do expect, I guess, some ramp-up in volumes of awards between now and October just because of the cycle of government. And hopefully, we'll see that coming in Q3. But this was all part of -- part and parcel of how we positioned Investor Day, very much strategically how we aligned our targets, how we thought through how we could achieve those targets. So I think what you're showing is strategy and action and for strategy to work and achieve your outcomes, you've got to also just deliver. And I think our teams are actually doing just that. So that's probably the best way to put that.

[Bert Subin, analyst]

Okay. And then just on the Homesafe start in April, I think at spoke just starting, so maybe how that's progressing there so far?

[Stuart Bradie, executive]

Yes. I mean the early moves have gone very, very well. The feedback on the quality and the service have been terrific. As you can imagine, the volumes are quite low. So we're all over that. So you would expect it. So -- but so far, so good in that sense. We've got the supply chain lined up in terms of what we're thinking about what we've got to achieve in the next little while. So no issues there. In terms of public statements, TRANSCOM came out in May and basically said that we'll be progressively ramping up, particularly in the fall as we look at interstate moves, which is aligned with our program, we're testing for that the systems right now, and so far, so good. With a view that we'll be doing full domestic moves in the busy season of 2025. Now obviously, the targets that we gave at Investor Day are a bit more conservative than that and rightfully so it's a new program, but we're doing all we can to achieve that and line up behind that expectation, but that's kind of where we sit today. .

[Operator]

The next question is from Brent Thielman from D.A. Davidson.

[Brent Thielman, analyst]

Mark or Stuart, can you just talk about your expectations for RNS. And I guess, particularly, your activities in Europe as you're moving into the second half of the year and what's embedded in your outlook?

[Stuart Bradie, executive]

Yes. I'll start and Mark can jump in. I mean RNS is actually quite interesting in what's happening there in its activity levels. So as you know, it slowed down a bit with the Ukraine supplemental not being approved for some time and a bit of CR. Both of them are behind us. And we're seeing some movement there in NuCom. But actually, if you look at the sequential growth, much of the sequential growth in RNS is actually coming from non-LOGCAP activities. So really a broader base operational support business, which is actually a terrific fact set because we do expect eCom and the impact of [indiscernible] come through in Q3 and Q4 based on our outlook. So I think that's quite an interesting dynamic there. Mark, any more to say on that?

[Mark Sopp, executive]

No, I think you said it. I think RNS is more diversified than one might think. And so they've been active, as we talked about upping the bids some [ mills ] by 50% this year, they're very much included and they've expanded their reach in their markets and are doing really well. On Ukraine, we will see. I did say that the trickle down was a little slow in Q2, it did pick up toward the end. So we're optimistic the second half will be a little bit better than the first. And then we'll just play that as the government dictates longer term.

[Stuart Bradie, executive]

Yes.And we've got a couple of recent bids that we as ever, you told you have won and then they go into protest. And we do think these will be additive if the protest resolved in our favor, but we'll obviously update you on that, hopefully, in Q3, Alex. So we're feeling pretty good about R&S and that whole business performance. .

[Brent Thielman, analyst]

Got it. Okay. And then, Stuart, just your answer to one of the previous questions, talking around some of the opportunity in LNG to waiting. I guess in particular, some of the opportunities here in the U.S., what might be embedded into your 2027 sort of financial targets for STS versus what is especially related to the opportunities here in the U.S.?

[Stuart Bradie, executive]

Yes. I mean in the [ 27 ] numbers and the reason we put out to [ 27 ] is to really answer that question. We do -- we do believe there's enough globally in LNG, not just the U.S. and we've talked about our project management work in Abu Dhabi, and we've talked about where we are in the Middle East in the broader Middle East as well and the activities we're doing in and around demand. So I'm thinking that LNG will pick up also in the U.S. But really, our targets in 2017 are not dependent on LNG. We think the markets are broader, we think our positioning in those markets are strong enough to achieve targets. LNG does factor in a bit, but we're not absolutely holistically dependent on that. And as you know, we run a plastic model, what's the chance of projects going ahead? What's the chances about getting them. So there's a whole mix of opportunity in there. And if we win our fair share, I think we can -- we win LNG, that's great. But at the end of the day, I think there is enough opportunity to stand behind those targets. .

[Operator]

The next question is from Steven Fisher from UBS.

[Steven Fisher, analyst]

Nice to see the guidance increase. I'm just curious on that guidance increase, if you could maybe bridge us between the old EBITDA and EPS guidance to the new guidance. I'm curious, was it more kind of contingency captures in the first half that drove the increase? Or was it more on the business wins? And then I'm curious to know if there was anything that was restraining the outlook there and any new headwinds that came up that had to be blended in that guidance change?

[Stuart Bradie, executive]

No. Steve, the -- the increase in guidance was driven by operational performance, full stop. I mean our people delivered day in and day out. I've said it many times, they're absolutely terrific, and they continue to perform. So really, really strong operational performance that drove the guide. In terms of our outlook, we gave, I guess, modest increase in guidance, but an increase nonetheless, and we're about to enter quite volatile times in the U.S. As you can imagine, with elections looming and all the noise before then and probably after then also, so we've been a little bit sensible and prudent in terms of how much we raised. And we'll see where we land in Q3. And we'll see what's in the backlog and how we're performing and what impacts some of this volatility has both in the U.S. and outside, of course, and that's really the basis of why we've guided up but perhaps been quite prudent in doing so.

[Steven Fisher, analyst]

Okay. That's helpful. And then related to LinQuest relative to the 12% plus growth rate that you cited in 2024, what's the growth rate that you're embedding in there in the multiple that you called out, I guess, implied EBITDA for 2025. It seems like you're implying around $65 million to $70 million of EBITDA next year, but it's a little hard to tell based on the tax benefits trying to back into it. And then is that going to be immediately accretive upon close? Or will it take some time to be accretive?

[Stuart Bradie, executive]

Yes. The growth that we've looked at going into '25 is in low double digits. And we think while we know through diligence, they've got the backlog and the contract vehicles to achieve that. and that excludes synergies. So I think we're feeling really good about that. And in terms of accretion, yes, it's accretive from day 1 on a cash basis. And yes, as you would expect, with with something of that growth and those margin performances. And I think we paid a sensible multiple for it that we were -- we had quite -- we didn't get deal fever or anything like that. We had a very sensible discussion with the owners, Manus Dearborn. And I think they recognize KBR was a good hope for this business. And certainly, the 2 management team has gone very well, as I said, through the process. So we're feeling real good about it. .

[Operator]

The next question is from Mariana Perez Mora from Bank of America.

[Samantha Stiroh, analyst]

This is Samantha Stiroh on for Mariana. So you mentioned that the volume of bids at GS is increasing substantially. So for those new bids, is it kind of a greater volume of the same types of work? Or have you been seeing KBR able to address maybe like a wider scope of type of work, if that makes sense.

[Stuart Bradie, executive]

Yes, it does. I think it's a bit of both. I certainly think that there are obviously similar pieces of work as we do now because we're ever present in those markets. But we are seeing, I guess, a lot of activity and things like human health performance that we got involved in through initially NASA and then the port of contract, and we're seeing we strategically led forward there. We think we've got great differentiation and performance and we're obviously penetrated into new customers as we presented today. So I think it's really a bit of both. We're seeing far more opportunity in the digital cyber world than we've seen historically. And that again, obviously, that's obviously market driven, but I think our credentials stand up to scrutiny there. So I do think it's a bit of both. But we're forever aligning on our vision, and that's to continually move up market and be differentiated based on our technologies and our capabilities, and we -- and those are the new new type bids we're going after. .

[Operator]

The next question is from Andy Kaplowitz from Citigroup.

[Andrew Kaplowitz, analyst]

Stuart, obviously, you're still bullish on STS GS. But just to be clear, with the understanding that Plaquemines will still burn, do you think you could grow backlog from here over the next few quarters in STS. And maybe elaborate on this transition from energy transition type projects and STS to energy security. It sounds like it could be LNG, as you said. But what are other peps of energy security projects that you're seeing that could offset or more than offset if energy transition works a little slower?

[Stuart Bradie, executive]

Yes. So just on the market in general, to start there. So the energy demand is growing and it's growing significantly, particularly in the global South, as the more developing nations become more developed, and that's -- and you can see that. So that dynamic is not going away. Energy transition projects are still growing, but I think the whole market believed they would grow faster, but there are affordability issues, particularly around green molecules versus say, blue, and I presented a bit of that in my prepared remarks. So we are seeing energy transition growing, but to meet demand, energy security has to grow faster albeit in a decarbonized way. So I think the programs that were mentioned earlier, things like liquid chemicals, gas monetization, LNG projects, all your traditional sort of hydrocarbons transition fuel type opportunities. As I say, with electric drives or using renewable power or carbon sequestration, et cetera, to make them more blue. It's really sort of at the forefront. So that's kind of where the market is heading today. And certainly, that was echoed by Aramco when I met the CEO last week. It was echoed by Savik, when I met the CEO there last week, and I think you're hearing it from the majors like BP and Shell and Exxon, et cetera.

So -- but at the same time, you are seeing companies like BP and shall move into the ammonia market for the very, very first time. And I think our recent announcements and our successes with those international energy companies, are they diversify the portfolio to get ready for energy transition is clear. So I think we're really very well positioned in both sides and as I say, demand overall is not reducing. Fulfilling that demand and the balance between it may differ a little but I think we're very well placed to take advantage of both sides and actually take advantage of the overall demand.

And given where a lot of that demand is happening, Again, you have to be ever present or only present there, and I think we have presented that in Investor Day that we're very well positioned in these markets. So I think that's why you're seeing strong performance in STS. That's why we remain very bullish on the performance and the outlook for STS and so may it continue.

[Andrew Kaplowitz, analyst]

And then Stuart or Mark, equity and earnings of consolidated affiliates just continue to pick up in Q2 was higher again. Is that Plaquemines contribution continuing to pick up? Is there anything else helping? And is the run rate in Q2 the right level of equity earnings to model moving forward?

[Mark Sopp, executive]

I think I would say, Andy, that Plaquemines is or [indiscernible] sometimes said, is pretty much a peak right now. And so that is contributing quite a bit to the equity and earnings that you're seeing. It will stay strong, and it will start to wane off from that project a little bit in '25 and more so in '26. What we're also seeing, which is terrific, is really strong programs like Aspire. Our Brown Root joint venture is benefiting from the energy security dynamics that Stuart mentioned earlier and that those contributions have continued to grow, not at quite the pace as the LNG project as it has ramped up to its peak here, but has really come along really well. And so it's more diversified than you might think in that line, and that is healthy for a lot of reasons. And -- but that number might dissipate just a little bit this year from the [ 40 ] you see this quarter, but not much. It's pretty steady. .

[Operator]

The next line is from Sangita Jain from Keybanc Capital Markets.

[Sangita Jain, analyst]

So the first 1 on Plaquemines. Can you tell us when we should expect that book-to-bill headwind to go away? I understand it's burning at peak rates right now. But just from a modeling perspective, when should we think of that normalizing.

[Mark Sopp, executive]

Probably halfway through next year.

[Sangita Jain, analyst]

Okay. Got it. And as a follow-up, can I ask you about the LinQuest acquisition. It seems like it was an acquisition from a private equity firm. Was that a competitive process? And are you seeing more or less of those kind of deals coming through your way these days?

[Stuart Bradie, executive]

Yes, it was a competitive process. And -- but the -- through that process, I think we -- we're very much aligned with management on values and outlook and opportunity. And I think that played a part into us getting into a very strong position at the end. But yes, it was a competitive process that was circumvented somewhat and narrowed down quite quickly, which was terrific. But again, I would say that we kept our discipline through the process. In terms of what we're seeing, yes, there's quite a bit in the market today. And -- but like all things in this area, we have to be -- well, they have to be at a reasonable price, but also they have to fit strategically. We don't buy to bulk out, we buy for strategic acceleration, et cetera. So we'll continue to look. As Mark said, we do have some firepower. We are happy for the rig to tick up a bit if it makes sense, and we've got a deleveraging story, and we're still very much in the healthy balance sheet [indiscernible]. So but yes, the market is quite active, just.

But in saying all that, we need to close liquid through the integration, deliver if there's any upside to that, deliver it this year and really get that business off to our firm footing, and that's really our primary mission.

[Operator]

The next question is from Gautam Khanna from TD Cohen.

[Gautam Khanna, analyst]

I was curious the mechanics that you expect on liquid to chemicals, like how does that appear in backlog and we, like what's sort of the milestones that we should be looking for? And is it going to be like a major kind of lump sum booking at some point in the next couple of quarters? Or is it going to be more incremental over a number of years? If you could frame that for us?

[Stuart Bradie, executive]

Yes. I think, Gautam, the way that Aramco typically work on these big programs is -- they do things called [indiscernible], which is a work authorization request, and you agree what the level of effort is there. So it's more incremental than the big bank booking. And so that's the way it's going to come through in backlog. So I think the best way that we -- when we can talk about it, we will describe what we think it could be. but we'll be very clear of what is and what is not in backlog and how we see that coming through over time. But typically, it's more a slow [indiscernible] than a big bang.

[Gautam Khanna, analyst]

Okay. And then just to put a finer point on the second quarter STS bookings recognized the backlog came down, but some of that reflects the Plaquemines. What were the orders, the actual like dollar value of orders that we received in the quarter for STS?

[Stuart Bradie, executive]

Well, it was 1.1x the burn, excluding -- yes, it's 1.1x the revenue that actually stated. Because obviously, the Plaquemines burn doesn't come through revenue.

[Mark Sopp, executive]

Roughly $500 million, give or take. .

[Stuart Bradie, executive]

Yes.

[Gautam Khanna, analyst]

Okay, roughly $500 million. And then last question on LinkWest. I was curious, did they have any set-aside business that may fade over time? Or is that 100% full and open?

[Stuart Bradie, executive]

It's 100% fully open. There's no small business in there at all.

[Operator]

The next question is from Jerry Revich from Goldman cash.

[Adam Bubes, analyst]

This is Adam on for Jerry. You were selected as 1 of the 11 awardees on the $43 billion MQS2 contract, what percent of that $43 billion could flow to KBR over time? And how are you thinking about the timing of that ramp?

[Stuart Bradie, executive]

Yes. As I said, we're very excited about the award. I mean, it's a substantial ceiling value. We are very excited. It's a new customer and really sort of reinforces our credentials in the human health side of our business. But given it's a new customer and a new contract, I really don't want to speculate, Adam, as to the volume that could come through each of the awards as a separate work order, if you like. I think it could get up to -- well, we don't know is the answer. But $40 million, $50 million, $60 million a year as a sort of base if it's less or more than that, I guess, we'll tell you. But I'm absolutely speculating. We're just a brand new in, we think it could do very well for us, but I don't want to get out in front of a skis, I would very much -- it's a new business for us. So it's kind of upside. And as we get into a bit more, I'm sure we can report, I guess, our activities there. But I think you should view is very, very good news. I think you should view it as a step forward strategically in that arena. And I think you should see it as potential upside as we move forward.

[Mark Sopp, executive]

And I'll add that we've really been on a good run in this area, as we said earlier, held in human performance is a real niche and great performer within our portfolio. I'll also add that on this particular award, we're really the only "household name of the awardees. And so there are niche players in the other 10 but we're, I think, the biggest and the most recognized may be most able to deliver a wide variety of capabilities here. So pretty excited about that, but it's really day, as Stuart said.

[Adam Bubes, analyst]

And then in STS, can you just update us on your plastics monetization progress? Where do we stand in the construction progress on projects that have made moved forward so far? And what's the timing of additional projects moving to construction phase?

[Stuart Bradie, executive]

Yes. So we've got -- again, as we -- I think we said this at Investor Day, we've got 3 under construction today. The 1 in the U.K. that work to our site is a stick build. It started before we got involved with Mura. They have progressed slower than expected. And we do expect them to be producing product in Q3. And so that's sort of right now. And the other 1 where we have been involved is in Korea with LG Chem, where we modularize the solution. And I think it's been proven that we've taken a year off the execution schedule as a consequence, and they're looking to reach mechanical completion at the end of Q3. So very much on schedule and doing very, very well. And then the third 1 is in Japan, which will be in Q1 next year. Again, we've been party to that. So I think that's where the 3 under construction sit. Over and above that, we have opportunities in Europe and North America that are very well mature. The key to unlock is actually this is a Stuart view, if you like, is actually producing product in 1 of these sites, but probably in the U.K. We've had a number of of interested parties through the site to see progress and to see what the plan looks like in a face-to-face, if you like, and all that, very positive. So there's a number coming behind it, but the key to unlock the market is to back all new technologies, although we're very, very confident -- we've got to get this facility up and running and producing. And I think once that happens, I think you'll see a lot of activity in that marketplace. .

[Operator]

Thank you. As we currently have no further questions, I will now hand back to Stuart Bradie for closing remarks.

[Stuart Bradie, executive]

Thank you, Kiki. So thank you again for taking the time to listen to our prepared remarks and the questions, obviously, today. We're very excited about the addition of LinQuist, as you've heard on numerous occasions through this call. We think it's a terrific acquisition and really accelerates our strategy in the -- particularly around the mission IT set. It's a real capability and customer play for us and really strong synergy opportunities. I'll reiterate, none of that is in the guidance. And so once we get through HSR and close, obviously, we'll be having a look at that. But to get halfway through the year with a little bit of overperformance prudently raised guidance in a volatile world. I think really send a strong signal to the market. We're feeling really good about our operational performance and our backlog and also our pipeline of potential bookings going forward. So all up, very pleased with where the company is at halfway through the year, a lot of work in a lot of we to chop obviously, to get to the end of the year. But so far, it's so good. So thank you very much. .

[Operator]

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