KBR Inc

NYSE:KBR

Earnings Call Transcript 2021-Q3

[Operator]

Good day and welcome to KBR, Inc. Third 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 like to turn the call over to Alison Vasquez, President, Investor Relations. Please go ahead.

[Alison Vasquez, Vice President of Investor Relations]

Good morning and thank you for attending KBR's third quarter 2021 earnings call. Joining me today are Stuart Bradie, President and Chief Executive Officer; and Mark Sopp, Executive Vice President and Chief Financial Officer. Stuart and Mark will cover highlights from the quarter and then open the call for your questions. Today's earnings presentation is available on the Investors section of our website at kbr.com. This discussion includes forward-looking statements, reflecting KBR's views about future events and their potential impact on performance as outlined on Slide 2. These matters involve risks and uncertainties that could cause actual results to differ significantly from these forward-looking statements. These risks are discussed in our most recent Form 10-K available on our website.

I will now turn the call over to Stuart.

[Stuart Bradie, President & Chief Executive Officer]

Thank you, Alison and thank you for joining us this morning. I will start on Slide 5. As some of you may be aware, we released our 2020 Sustainability Report last week which highlights our progress and our continued ESG commitment. As such, I thought it would be timely to touch on some of the highlights. So starting on the right-hand side, if we could. I think the commitment to strong leadership and governance is, of course, table stakes today but I would highlight the progress we have made in divesting at the Board, the high degree of independence and I think the changing mix of capabilities to suit KBR's business today.

In the bottom left, we have matured our operating culture aligned with the social impact and there are some good examples listed there. The circles in the bottom in the middle highlight our ongoing carbon neutrality, our net zero 2030 commitment and the elements of executive reward that are aligned to ESG, really all great examples of being a good corporate citizen. But as you know, we believe and we firmly believe this, that being a good corporate citizen is the floor and not the ceiling. It's really about things like the strategic growth factors about advancing the science behind climate change in our workflow, NOAA and USGS. It's about making net zero a reality for our clients looking to operate more efficiently or to close the circular plastics loop. And it's about bringing commercially viable green energy to market.

Really, in sum, it's about our investment in new technologies and capabilities to meet the world's growing demand for real solutions around climate change. And KBR is doing some really pretty incredible work in these areas. And I think the alignment with shareholder value is, I believe, a clear differentiator with 32% of our revenues sustainably focused with strong CAGRs forecast. I encourage you to visit our website to read the comprehensive report.

Now, on to Slide 6 and the quarter highlights. It's been a fantastic quarter across all metrics: financial, operational and strategic. Revenue is up 34%. Yes, 34%. And this is a combination of organic and acquisitive growth and the Operation Allies Welcome, OAW mission, to assist the DoD and looking after the Afghan nationals as they came out of Afghanistan. It's an impressive revenue growth number, especially given the impact of our exit from commoditized services in 2020. EBITDA is up 30% which is, again, quite an increase. The business has performed really well across the board, delivering at or above expectations. We hit or exceeded target margins in both our core government and sustainable tech businesses. EPS was up significantly at 45%, obviously helped by what I just covered but also with more volume in the U.S. that helped our tax rate also. From a cash perspective, we maintained our discipline and focus and again outperformed. The conversion rate in the quarter was 125% or so. That's 110% year-to-date. I think the cash fundamentals of our business model are not only attractive and consistent, they, of course, give us options.

The team landed about $1.6 billion of awards and options in the quarter, a nice combination of some new work and recompetes that I'll touch on shortly. Now this figure significantly understates the magnitude of the OAW award by almost around about $1 billion and Mark will cover more on this later. For now, I'll just say the team continues to win important, highly strategic projects across the growth engines that we laid out at our Future Forward investor event earlier this year: cyber, green ammonia, digital solutions and more, doing important work advancing our client's missions and sustainability objectives. This, of course, provides us the continued momentum and growth towards our 2025 targets which remain unchanged. As we indicated last quarter, we concluded the settlement of a client on Ichthys, removing complexity and uncertainty and thus enhancing our capital deployment optionality. Our pursuit of the recoveries of the monies associated with the combined cycle power plant are not affected and continues with the arbitration starting next April in 2022.

So with all this, we are once more raising guidance for full year 2021 and Mark will walk you through that shortly. So all up, we must be and we are very pleased with the strength of the delivery and our people's commitment to the mission is inspiring. So a big shout-out and a big thank you to them.

And on to Slide 7. The market and outlook in government remains quite similar to Q2. Of course, much of the discussion is on continuing resolution and of course, the defense budget. National security priorities, however, remain aligned to KBR's strategic positioning, so no real change there. I suspect if the CR continues through Q4, then some new awards will move to the right. However, the OAW work that we're doing and our book-to-bill associated with this should hold up pretty well as we await the expected catch-up in early 2022. Outside the U.S., we have just closed on Frazer-Nash and expect to do well, opposite increased spending in the prioritized areas in the U.K. and in Australia. And more on Frazer-Nash in a moment.

And an earnings call isn't complete without a tip of the hat to Australia which continues to grow above the norm and perform amazingly well. We've highlighted three awards on the right. I think the first two speak for themselves: high-end, technically differentiated, future-focused around IT and cyber and of course, bang-on strategy. The third award listed, actually awards, requires a special mention. This is via LOGCAP V and then, again, separately direct to the Navy at Quantico. And we've established multiple sites across the U.S. and Europe to deliver a significant humanitarian mission to accommodate the many thousands of displaced Afghans, many of them children.

Our people, together with the client, have done and continue to do a herculean heavy lift to establish critical infrastructure and medical facilities within a massively accelerated timeline. To be clear, KBR is not responsible for screening or security. For us, this is a purely humanitarian mission and one we at KBR are very proud of. A huge shout-out again for our people and the significant input from the supply chain to make all this happen. It's likely the task order will be extended but we shall have more visibility over the next few months. So in short, the market outlook across GS with OAW, the inclusion of Frazer-Nash, Australia, an aligned positioning opposite budget priorities for the rest of '21 and moving into 2022 is very positive.

Now on to Slide 8 and we'll talk about the outlook for sustainable technology. I guess similar to the government outlook in many ways, the outlook from Q2 to Q3 for sustainable tech is very similar but with one key positive development. The increase in oil and particularly gas prices recognizes supply-demand imbalance, particularly as we move into winter. This, of course, delivers increased profits to the oil and gas companies themselves, allowing them to restart capital projects and increase investment in decarbonization, energy efficiency, changing output mix and in energy transitioning projects, so very positive development. We see this shift, combined with the ongoing demand for sustainable solutions, as being key factors increasing demand for our technologies and our services. We continue to see opportunities across ammonia, hydrogen, olefins, clean refining, plastic recycling. There's been a big uptick in this area and in technology-led industrial solutions and our proprietary insight solution.

The three awards highlighted here clearly demonstrate these themes. I'd like to highlight the green ammonia project we announced a couple of weeks ago. This really is a cool project for a renewable energy client that combines the client's renewable solar expertise and capabilities with our K-Green technology to deliver what we think will be the world's first commercial-scale green ammonia plant. This facility is expected to be operational in 2022. It's a real project that is moving forward with great momentum and is very, very exciting.

I'll take another moment to brag on the team just a little bit. So far in 2021, there have been three commercial-scale ethylene opportunities that have come to market. And you can see one of those project wins highlighted here. But our team is batting a thousand, winning all three of those projects, a great result that I attribute to the customer focus and tenacity of our fantastic people and of course, the quality of our technology that brings lower CapEx investment, excellent end product flexibility, lower O&M profile and lower carbon footprint. So the outlook for STS is very positive and increasing demand is expected as we move into 2022. So this takes us nicely on to Slide 9, where you can see that all those positive awards are resulting in strong bookings and resulting in a robust pipeline. You can see the scale of our pipeline is indeed robust with $11 billion in the proposal and negotiation phase and lots coming down the pipe. The $1.6 billion of awards and options in the quarter brings our positive outlook and strategic positioning, all that talk, into numbers that are very aligned with our overall confidence in the company's growth strategy.

Now we promised we'd give you an update on the amount of work we have in hand and have secured to deliver on our 2021 to 2025 long-range targets. If you recall at our Investor Day in March 2021, our book of business reflected about 55% coverage across those 5 years. That revenue curve assumed CAGRs of about 8%. Today, that same book of business coverage number has grown to over 60%, 6-0% and that excludes the uptick from OAW. As we have said, our strategy is to build stable, predictable businesses in attractive markets with a very capable business development track record. We think the continued progress here is a great demonstration of those attributes. So bottom line is that we stand behind our 2025 targets.

Now on to Slide 10. Last week, we announced the closing of Frazer-Nash. Frazer-Nash, if you recall, is a high-end advisory and consulting firm, delivering systems technology, systems engineering and assurance. The addition of this talented team is an absolute step change in the evolution of KBR's business, primarily in the U.K. and in Australia. It further extends our reach into technically differentiated sectors and supports our mission of delivering high-margin, high-end technology-enabled solutions and mission-orientated capabilities.

What's more, their compelling clean and renewable energy suite of capabilities perfectly aligns with KBR's commitment to ESG principles and to helping our customers accomplish their sustainability objectives. As outlined here, Frazer-Nash adds about $160 million of revenue in our government business in 2022 at high-teen margins and is expected to be approximately $0.10 accretive to adjusted EPS. We couldn't be more pleased to welcome this group into the KBR family.

Now, I'll hand over to Mark. Mark?

[Mark Sopp]

Great. Thank you, Stuart, once again. And I will pick up on Slide 12 which lays out our key financial performance metrics, as I usually do. However, before I get to the numbers, I'd just like to make a few comments to expand on our role in the Operation Allies Welcome program, OAW. As you know, KBR has been involved in supporting military activities in the Middle East for a very long time. We think it's a privilege to be called upon by our nation to once again provide a good environment for those who aided our allied forces during those missions. We stood side-by-side with these heroes in there and it is our duty and honor to help them transition out of that environment under this operation.

As part of this, we are tremendously proud of our KBR employees who literally dropped everything to build in a matter of just days, communities hosting tens of thousands of Afghan guests at the request of the Department of Defense. An important precursor to briefing our results here today is that while the financial impact of our role here is quite noticeable in our numbers, this effect is second fiddle to us. What matters is we are there when needed to provide this critical and difficult need. And in fact, we're quite proud to say that KBR continues to do this sort of thing really well.

Now on to our performance in Q3. Stuart did summarize much of this already but I'll emphasize a few points. Q3 year-over-year revenue growth was 34% and that includes over 20% being organic with all parts of our government business, including OAW, of course, driving this. Sustainable tech is performing at or above plan. It still saw year-over-year revenue contraction as we ramped down legacy reimbursable contracts.

Adjusted EBITDA grew 30%, a terrific result. Margins in the core government business were at or slightly above target. OAW is at low single digits, as you might expect. Margins for STS were once again healthy at 14% and corporate was on track as expected. So together, this blended to a KBR margin overall of 9%, whereas Stuart would say, bang on with our actual target. Great results in EBITDA growth, the impact of favorable jurisdictional mix for taxes and some benefits from buybacks boosted adjusted EPS by 45% to $0.64 for the quarter. Quality of earnings and cash conversion remained strong and as expected. Adjusted operating cash flow was about $120 million for the quarter and that's amounted to just under $290 million year-to-date. I'll note our consistent cash flow generation enables significant cash contributions toward the Frazer-Nash acquisition versus debt, of course and that helps in accretion.

Stuart covered Q3 bookings. And as you see, the company has built backlog in healthy measure, up over 25% from Q3 of last year. Picking up on what Stuart alluded to earlier, the $1.6 billion of bookings and options in Q3 does not reflect the full value that OAW will bring. Because this work is under IDIQ contracts, our consistent practice is to only book funded task orders which for OAW amounted to about $500 million in Q3. We expect another $900 million-plus for Q4 associated with incremental funding together tying to the $1.4 billion uptick in our revenue guide. Accordingly, Q4 is set up for strong bookings as well.

Onto our segment results, Slide 13. For government, top line growth was 54%, 33% of which was organic. All four business units grew organically. That's really important to see once again. OAW was a major driver, contributing almost $400 million in revenues in Q3, while our Middle East contingency work was down about $100 million from last year. Quite amazingly, when you strip out Middle East and OAW contingency revenue, the readiness and sustainment business unit grew 25% in its ongoing O&M business, 25%. Achieving that growth while managing this massive and urgent need associated with OAW is really a remarkable testament to the capabilities of this team.

Defense and intel's growth reflects Centauri and also growth across advanced systems engineering and integration and cyber work areas, including some important announcements that we've made in the quarter, particularly on the cyber front, as you've seen. Science and space ticked up its growth pace to 9%, all organic. This business unit is hitting on all cylinders, winning new work, winning recompetes and expanding work on existing contracts. Ongoing growth and excellent delivery on the Special Forces, projects, human health and performance contract is a great example of this latter category as we've almost doubled our footprint from 2018 when we won this contract. This is based, in large part, on that fantastic health professional advancing this program each and every day as well as the recognized need for overall wellness programs for our soldiers.

Todd May's science and space team has also supported several successful launches by both NASA and the well-publicized commercial launches over the summer. They also helped write the International Space Station twice after it was inadvertently knocked off course in foreign docking maneuvers, thus keeping the ISS mission safe. EBITDA margins were on track for the core GS business. As mentioned earlier, OAW is lower-margin work and the dilutive margin effect from that program brings the overall GS margin to 9% for the quarter. We'll gladly take the growth in core earnings dollars even with the dilution of margin percent.

Over to STS; top and bottom lines remained on track for Q3. While bookings were seasonally low, the quality of bookings were superb as this team continues to provide cleaner and safer technologies to commercial and government customers all around the world. The awards in green ammonia, plastics recycling and digitally led remote plant operations are hallmarks of creating a positive force towards sustainability across our client base. And this really drives our team and it also bolsters the KBR brand. Corporate spend was as expected, with the increase year-over-year reflecting our greater scale and also the select investments we are making in our infrastructure to enable scalability going forward.

On to capital matters on Slide 14. Net leverage was reduced to 1.9x at September 30 on strong EBITDA growth and continued cash generation. Net leverage will nudge up to about 2.2x pro forma with the Frazer-Nash acquisition that we closed in mid-October. As a result of KBR's increased scale, good margins, strong cash flow, excellent track record and the derisking actions that have occurred this year, we were pleased to see another credit ratings upgrade this quarter, where we now carry a BB flat Ba2 corporate rating, up two full notches from where we started about three years ago. The continued buybacks this quarter which amounted to about $25 million. The Ichthys settlement, as Stuart mentioned earlier, was a significant positive development from a liquidity and legal cost perspective. This is a major derisking event that affords us more options on capital deployment going forward. As such, we will review our optimal capital structure in the coming months and update you on our latest views on that in our Q4 report that we will issue in early '22.

Now on to guidance, Slide 15. As Stuart said, we're updating our guidance favorably and also significantly to reflect the impact from OAW, with all other things effectively as planned. As Stuart summarized the magnitude of this effort in a short period of time is quite stunning. We are raising revenue guidance for fiscal '21 by $1.4 billion or over 20% higher than our guide last quarter. This is clearly rare in the government contracting space, a testament to the team that can rapidly mobilize to serve at this scale when called upon. Of this increase, roughly $400 million came through in Q3 in terms of revenues. OAW margins are low single digit, as one would expect for this type of work. Thus, we are reducing consolidated adjusted EBITDA margin for this year by a turn, 1%. To be clear, the rest of GS and STS are performing as expected and delivering at or above our originally guided margins. Also because the increased work from OAW is U.S.-based, it has a favorable impact on our tax rate from better jurisdictional mix.

If we're taking this together, adjusted earnings per share guidance is increasing $0.25 at the midpoint to a new range of $2.30 to $2.40. After raising in the second quarter, we are keeping cash flow guidance unchanged this quarter at a very healthy $300 million to $340 million. While the volume bump up from OAW will produce net cash flow returns when all of this is said and done, timing items could lead this to spilling into next year. As you can imagine, we have and will continue to conduct many procurements to support this activity and in turn, are invoicing our customer on a fully cost-reimbursable basis. We will manage timing items between our supply chain and our customer as best we can but we think it's prudent to assume the net cash benefit ultimately may land in 2022.

That completes my remarks and I'll turn it back on to Stuart for the closing. Thank you.

[Stuart Bradie, President & Chief Executive Officer]

Thank you, Mark. Excellent job as ever. I will finish on Slide 16 and a fairly consistent theme here doing what we said we would do and arguably, this quarter, a wee bit more. Another excellent quarter, in fact, one could say a banger. An absolute focus on the mission delivering exceptional results, strong growth, excellent profitability, excellent margin performance and outstanding cash conversion. We have reduced risk and increased capital deployment optionality. And following the increased cash guidance in Q2, we are raising revenue and earnings guidance this quarter. Our momentum continues with good bookings and very positive fundamentals in our end markets as we look into 2022 and beyond.

And now I will hand back to the operator, who will open the call up for questions.

[Operator]

[Operator Instructions] We'll take our first question from Tobey Sommer with Truist Securities.

[Jasper Bibb, Truist Securities]

Hey, good morning. This is Jasper Bibb on for Tobey. So I wanted to ask, you mentioned the strong performance in readiness and sustainment, excluding the Allies Welcome program but did quickly shifting resources to support the Afghanistan withdrawal, during the quarter, potentially negatively impact some of your other work in that segment?

[Stuart Bradie, President & Chief Executive Officer]

Good question. I mean the answer to that is no. I mean we did - all of the work on Allies Welcome is really driven by the supply chain. And so really, it was a lot of, I guess, subcontracted personnel and equipment, etcetera, that we've brought in to establish the infrastructure required. And we deployed a number of people, of course, that came out of, I guess, the historical work we were doing in Iraq and obviously, we never mobilized to Afghanistan. So we had those people readily available to deploy. So it did not negatively impact us at all.

[Mark Sopp]

I'll just add that Ella and team produced really great organic growth outside of OAW. As we said in the remarks, they continue to ramp up in the overseas work in Turkey and Spain on that program there. They continue to support exercises in the European Command all over the summer dutifully and other training work in NORTHCOM as well. So really a remarkable growth outside of that OAW activity as well.

[Jasper Bibb, Truist Securities]

Yes. That's great. And then just wanted to follow up on the green ammonia contract with ACME that you announced. A lot of press around this technology with Aramco also announcing a new plant this week. I mean could you just comment on what the RFP pipeline looks for your - like for green ammonia solutions and how large do you think these all opportunities may ultimately be?

[Stuart Bradie, President & Chief Executive Officer]

I mean we've got a lot of studies ongoing in this area, as you can imagine, as organizations look to drive their sustainability agenda. So I think the market is very buoyant. I guess the various projects are at different levels of maturity. But we're very pleased. That may looks like it's the first to go, it's real, it's funded and it's progressing. So I think getting in the front of the queue on this - because a lot of these projects have been talked about but this is one that's actually being done. And I think being in the front foot and first-mover advantage is extremely strategic. So, I think we're going to see increasing activity as these get proven out. So I think that as we look at the combination of, I guess, what we call gray, blue and green ammonia sort of being combined to produce more greener solutions from existing ammonia plants, etcetera. I think it's going to be a good market through quite a period of time. It's not everything is going to come in one year. It's going to be a progression over multi-years. So it's a really, really good position for KBR to be in.

[Operator]

We'll take our next question from Michael Dudas with Vertical Research.

[Michael Dudas, Vertical Research]

Hey good morning, Alison, Stuart, Mark.

[Alison Vasquez, Vice President of Investor Relations]

Hi, Mike.

[Michael Dudas, Vertical Research]

Stuart, you mentioned in your prepared remarks certainly the improvement in energy prices and some extraordinary improvements, especially in overseas in gas, is that going to drive cash flows and lead to customers to spend more money but you didn't mention about like how differently you're going to spend. I'm just curious about how different, how ready are the customers to kind of go forward to decarbon, reduce efficiency - or improve efficiency, etcetera, relative to catching up on like maintenance or catching up on Huckleberry Gold, maybe think about this LNG facility because prices are through the roof? So maybe a little bit more - share some of your thoughts on how that plays through and how that can maybe leverage your - on your technology side as we move forward the next couple of years.

[Stuart Bradie, President & Chief Executive Officer]

Yes. I think it's the eternal question at the moment with many of the international and, I guess, national oil companies is that they have to be able to, I guess, sustain revenue and cash to be able to invest in the future. And I think the increase in oil and gas prices helps with that considerably. And I suspect they'll be looking at repurposing refineries to different product mixes that sort of suit the future. I think you'll see a lot of investment in current assets around getting them more energy-efficient and reducing their carbon footprint as we're seeing a lot of activity in that brownfield arena which plays to our strength, as you know, particularly around remote marking in our TLIS solutions. So I think it's a balance, Mike. I think the companies themselves would admit that, that they need to generate the income and maintain their assets but while maintaining those assets, getting them sort of far more efficient and more green and more sustainable. And then look at the product mixes that are coming through in the future, a lot of talk of oil to petrochemical, for example. And obviously, we've got technologies that help with that.

So I think it's going to be a different solution, I think, for each of those companies. But ultimately, I think that's the way it's going to play out. So I think we're very well positioned to help with, I guess, decarbonizing the existing assets and making them more energy efficient. And of course, at the same time, as they invest in sort of, I guess, newer technologies and newer solutions for the future, we're very well positioned for that. So it's a nice balance for us of CapEx and OpEx. And I think it's - I think these sorts of oil and gas prices as we move into winter will come under increasing upward pressure as well.

[Michael Dudas, Vertical Research]

No question about that. And my follow-up is regarding Frazer-Nash. As you announced the closure a - I guess this past month, how - as you went through the process - very opportunistic on the acquisition. But over the next several years, how do you see it fitting in? And which areas are more robust for revenue growth and some of the synergies that you can get maybe internally and through the U.K. and Australia? But is some of that renewable energy technology, something that we can leverage to other parts throughout the, say, of maybe the technology side given the some of that expertise?

[Stuart Bradie, President & Chief Executive Officer]

Yes. I mean I'd first say that the engagement with the Frazer-Nash folks through this process and - has been fantastic in terms of really truly understanding their high-end capability as it points, I think, to the future of investment, not just in renewables but actually in the government spend opposite the U.K. and in Australia. And that's an area where, at the moment, we don't really play in the U.K. and that's in cyber. It's looking at the whole sort of evolution into what the U.K. is going to do in space. It's looking at, obviously, defense modernization, particularly with the changes with Brexit, etcetera. So I think there's a lot of change coming in the U.K. and having a high-end consultancy business to help the U.K. MoD make those decisions is completely strategic for us. And I think that really is an amazing opportunity and I think similarly in Australia to build upon what we're doing there already. So I think that's the first part.

And then the second part is they do come with a cadre of what I would call advisory capability and consulting engineering capability in the areas of renewables which KBR features heavily in the hydrogen world, as everyone is aware. But they bring capability in things like solar and wind and nuclear that really augment our capabilities. So I think there's significant synergy when you're advising, I guess, governments and companies about how they decarbonize and what's a good strategy for their particular environment or geography or constraints around infrastructure, we can certainly now have a far broader offering in that regard. So I think it - that all dovetails really well and we've got absolutely 0 overlap. So it's all additive.

And I think the capability that Frazer-Nash brings from a tie-in technical capability really enhances our resume when we're talking to the U.K. MoD about broader programs that were traditionally in KBS wheelhouse. So I think a P-win would go up as a consequence of that. So I think add really all up, we're super excited about this and it takes really sort of - if you think about our evolution and transformation in the U.S., the more higher-end, more sort of strategic services and where the spend is, that's exactly what Frazer-Nash does for us in the U.K. environment. So really, really terrific acquisition. You're right. It came to market, it was - it's something strategic we wanted to do but figuring out how to do it was tricky. And this came to market and we took the opportunity to move quickly and secure what we think is going to be a very valuable asset for us going forward.

[Operator]

We'll take our next question from Andy Kaplowitz with Citigroup.

[Andy Kaplowitz, Citi]

Can you give a little more color into the underlying revenue trajectory of Government Solutions? And as we shift here into '22, I know it's not right to exclude OAW from how you're thinking about growth but given it's so big and discrete, we can do that. So how are you thinking about the 5% to 8%? You talked about it being tax into '25. But as we go into '22, I think gave us, Stuart or Mark, I forget who mentioned it but you mentioned some projects moving to the right. So how do you see the growth into '22 ex-OAW? And then does OAW last into '22?

[Stuart Bradie, President & Chief Executive Officer]

Yes. I think that we kind of expected the OAW question, how long will it last. And I think right now, it's undeterminable. We don't know. It's - I mean it's happened very quickly. We've been very much all - the teams have done an amazing job just getting these facilities up and running and sustaining. So I think we've got a direct line of sight to year-end around that. And obviously, as the - as that progresses and we get closer to the year-end, we'll have more visibility into next year. So we - it's probably - that's a question I think that we probably need to sort of park a little bit. I think you can be confident of our up-guide, if you like, in terms of this year. And we'll - I think there will be some that will be quite considerable amounts to move into next year. But trying to give you an underlying number around that is difficult at this stage and I don't want to get out over my skis in that.

In terms of the core GS business, as we would call it, I think the - Mark was very, I think, absolutely right in saying that when you separate out OAW, the performance of the business has been terrific. We're well in the double digits in margins. The growth has occurred across all of our segments and the performance of delivery has been exemplary. So in terms of our long-range targets, we might very much stand behind those and I said that as well in my prepared remarks. So I mean, I think you're right. I think we will separate out OAW. It's something that is so large and discrete that we should do that and obviously, has an impact on margins, etcetera. And I'll be very positive, I think, in the wash around cash and obviously, given its scale but - which is why the deployment optionality increases for KBR going forward.

So - but in terms of the core business, it's performing extremely well. And even with the slippage of awards a little bit to the right, I think that it's not slipping so far that we're worried about any change in our long-range targets. And I think we're very confident upon them. And I think, you'll - if I'll take you back to the backlog slide and talking about our coverage, if you like, under the graph to achieve those targets, it's gone up significantly since our Investor Day. So we think it will all be as well and the quality of what we're winning and the margins associated with that quality is terrific. So yes, sorry, that's a long answer for saying we're in good shape.

[Andy Kaplowitz, Citi]

Well, it was a long question by me. So I appreciate that, Stuart. And so just a follow-up. How is KBR handling supply chain and labor pressure? It seems quite well as your margin has been stable and in line with your expectations and it doesn't seem to be slowing down work. But maybe you could discuss and then maybe just dovetailing with that. We know you've been focused on sort of cost that over time in sustainable tech. So can you still make progress despite sort of the supply chains, less labor constraints that are out there?

[Stuart Bradie, President & Chief Executive Officer]

Yes. I think in the markets we're in, we're not really seeing too much pressure on it. A lot of what we do, of course, in the government side is cost-reimbursable. And of course, as the pricing pressure comes that - we're protected in that area. And in terms of sustainable tech, again, in terms of pricing pressure, we're back-to-back. So I'm not worried about the supply chain in terms of the commercial risk. In terms of the supply risk, I think we've got a number of suppliers that we've worked with for numerous years. And I think that we're in really strong relationship shape with them that we can manage that and have been managing that without too - really with no disruption in truth. And to the extent even with - during COVID, where we moved to using things like Google Glasses to do inspections and things like that to ensure things were continuing on track. So, I think there's been a change in the way that people operate for the good, if you like, to manage these situations. And I think from a supply chain risk perspective, we're very well isolated. So it's something we watch. We're not complacent in any way but I think our teams are on it.

[Operator]

We'll take our next question from Sean Eastman with KeyBanc Capital Markets.

[Sean Eastman, KeyBanc Capital Markets]

Thanks for taking my questions. So maybe just kind of expanding on Andy's question. I mean just as we think about next year, I know it's not guidance time yet but we've got to work with our models here. And clearly, we have to be careful around the Operation Allies Welcome revenue and what that looks like next year and how that comps for GS. Maybe the other thing would be just the outsized margins in STS. Maybe it's harder for STS to expand margins much into 2022. Is there anything else you would point out at this juncture just as we think about that bridge to next year and making sure we've got appropriate numbers out there?

[Stuart Bradie, President & Chief Executive Officer]

Yes. I mean I think, Sean, your statement on STS is not quite on the mark. We still feel that given where we're positioned in the technology cycle, where we're actually driving the growth within that business, we think margins are looking really, really good going into next year. So I don't see any downward pressure on STS margins at all. Our expectation is they will continue to go up. And we'll obviously give more guidance on that as we get into next year. But certainly, the quality of earnings that we secured would suggest that, that trend will continue. So - and remember, we're working off some of the - still working off some of the, I guess, the more commoditized projects and that becomes a lesser part as well. So again, that just puts upward pressure on margins. So I think that, that piece, we're pretty confident. And I think we, again, stand behind what we said at our Investor Day and that was very much that we think these will incrementally grow 1% to 2% per annum over the course of the 2025 guide. So that's good.

And I would say, of course, we had some breathing at the front end. As you know, we're well over 20% at the beginning of the year which was a little bit abnormal. So I think coming back to our statement around $1 billion-plus business in the mid-teens for '21, I think we're very confident around that. And then upward pressure and growth, the revenue line and upward pressure in margins to see the expansion of earnings around the STS business as we move forward. So we're really comfortable in that. And in terms of the guide a little bit, we're not guiding at all but around the 2025 target, that sort of 5% to 9% revenue CAGR around what we're doing in the GS arena is absolutely solid, we continue around that. And I would love to be able to give you more color on OAW past the end of the year but as I said, it's - if I get it wrong, you'll just beat me up, so it's better I don't say very much. So I mean there will be - obviously, it will carry over. I think there's an opportunity for some of the task orders for sure to be extended. But how many bases, how many facilities, how many people we'll house, how long to put them into society as that's a really difficult question to answer today.

[Sean Eastman, KeyBanc Capital Markets]

Okay, very helpful. And then I joined late, so apologies but I just heard someone mention sort of some procurements being pushed out. Is that just a function of the CR dynamic and we just need to wait for a budget to have some of those newer programs adjudicated? And just with the momentum in GS this year, obviously, the performance has been fantastic. It would be helpful to just frame sort of what a breakout scenario - what would drive a breakout-type scenario for GS as we look out over the next year or 2? What types of things could surprise to the upside for GS?

[Stuart Bradie, President & Chief Executive Officer]

I mean, I think we're all pretty surprised at OAW. I mean that was quite a surprise. And I mean Mark was at pace to tell me in his tenure as a CFO and I won't say how that long I get embarrassed by [indiscernible]. But to increase your revenue by such a significant amount, over 20% and in one quarter is quite remarkable. So - but in terms of that, we've got over well into double-digit numbers of procurements that are ongoing, if you like and many due for award that are well over $1 billion. And I think if we win our fair share of those, we could have a breakout scenario. But as you know, winning these is tough. And so we take a probabilistic view of that and that's how we build our models. And so, I think that's probably the best way to answer that at the moment. And in terms of things moving to the right, yes, I think it's a lot to do with the CR and just timing. It's not like we've lost anything or whatever. So I think these will move into - there'll be - I think we're looking at a very strong bookings quarter in Q4. OAW will help greatly with that, as Mark said. And that's a very nice position to have because as things start to catch up in Q1, etcetera, we'll - we can continue that momentum. So it puts us in a, yes, quite an unusual but strong position.

[Operator]

We'll take our next question from Zane Karimi with D.A. Davidson.

[Zane Karimi, D.A. Davidson]

Hey, good morning. Stuart, Mark and Alison, solid quarter and outlook.

[Mark Sopp]

Thanks, Zane.

[Stuart Bradie, President & Chief Executive Officer]

Thanks, Zane.

[Zane Karimi, D.A. Davidson]

So first off here, given the growth forecasts around STS for the next [ few ] years, how do you feel like you have the resources, like the people in place today to drive that? And are there any constraints in that business you're having to work around today?

[Stuart Bradie, President & Chief Executive Officer]

No constraints we're having to work around. I mean I think that we sell IP and that obviously is something that doesn't need too many resources. It's - we continue to help ensure that it's the most efficient and the most, I guess, we've got the lowest carbon footprint and things. And I think we're very much at the forefront of that. But it's - yes, it's not a big resourced business. We've got a lot of critical capability around process and things like that. But they've worked for us for many years and are very specialized in our particular technology. And so that is quite a solid place to be. So - and I think also that people are just super excited. The change in profile around that part of the business, the performance being - and as I always say, the - part of - one of life's great things has actually been part of a team that's doing really well and I see the best work experience really. And I think that team is proving that out.

So, I don't think we're really - the attrition rates are not concerning in any way. The ability to find key resources given our momentum in that particular business is not too difficult. And as I say, it's not a heavy personnel-driven business because it's really IP. So we're feeling - yes, feeling that we're - again, we will not be complacent at all but it's - I think it's a - we're very much trying to ensure that KBR is a fantastic place to work with a bit of a talent magnet in that sense and we'll continue that journey. But I mean, so far, so good in terms of resource constraints.

[Zane Karimi, D.A. Davidson]

Got you. And you also made a notable announcement with the work with a major utility in the STS segment. How are you seeing the customer profile evolving over time?

[Stuart Bradie, President & Chief Executive Officer]

Major utility?

[Mark Sopp]

Yes. Zane, could you clarify when you say utility?

[Zane Karimi, D.A. Davidson]

Maybe I misread a release. I'll get back to you off-line. about this one.

[Stuart Bradie, President & Chief Executive Officer]

Okay, no worries. Thanks, Zane.

[Operator]

[Operator Instructions] We'll take our next question from Jerry Revich with Goldman Sachs.

[Ashok Sivamohan, Goldman Sachs]

This is Ashok Sivamohan on for Jerry Revich. For Government Solutions, you mentioned the 9% revenue growth for science and space was all organic. Can you provide the organic growth for the other platforms in the quarter?

[Stuart Bradie, President & Chief Executive Officer]

Yes, we can. We do disclose those in the K, so Mark?

[Mark Sopp]

Yes. I'll find the right reference here, I'll tell you right off the bat.

[Stuart Bradie, President & Chief Executive Officer]

I think we gave you the readiness and sustainment organic growth.

[Mark Sopp]

Which was a huge number but ex-OAW, it was 25% for our readiness and sustainment. So that was terrific. The international piece was about 4%, much higher in Australia, a little more flattish in the U.K. But Australia continues to do really, really well in defense and intelligence which includes Centauri, was about 7%. So strong throughout.

[Ashok Sivamohan, Goldman Sachs]

Okay. Great. And for the heritage Technology business, can you tell us what the book-to-bill was in the quarter?

[Stuart Bradie, President & Chief Executive Officer]

It was seasonally low, about 0.6. Yes, around - between 0.5 and 0.6. I mean in that business, they always have, I guess, a softer Q3 just on budget cycles. Then people tend to sign contracts as they move into Q4 as they spend the money for that particular year and get the commitments going and then it will start again in the 1st of January.

So I think we'll see a - we - our expectation is that, that business will have a stronger book-to-bill in Q4. And the pipeline would suggest that, that is the case and that's been the historical norm for that business. So again, not concerning. And I think just the quality of the work that we're winning is actually what was really important in the quarter.

[Operator]

That concludes today's question-and-answer session. At this time, I will turn the conference back to Stuart Bradie for closing remarks.

[Stuart Bradie, President & Chief Executive Officer]

Thank you. And thank you very much for taking the time. We do appreciate. We know you've got other places you could be and - but thank you for taking the time to listen to us this morning. I think an amazing quarter for all the reasons we described in our opening remarks. And we're very excited about where the business is and where it's heading. No questions today on Ichthys which was terrific because that is - I shouldn't really bring up. Alison's giving me daggers. But I think it's very positive in the sense that, that, I guess, that uncertainty is now behind us and again, another major legacy issue resolved. So all good in that regard.

So, we're feeling that today is - we're in a really good shape and we're really looking forward to '22 and beyond. And thank you for your continued interest. Thank you.