KBR Inc

NYSE:KBR

Earnings Call Analysis

KBR Delivers Strong Q3, Headwinds Ahead

KBR concluded Q3 with record high backlog, signaling strong momentum and demand across its segments. STS's over-performance is poised to offset the expected EBITDA from HomeSafe, which is set to start moving in Q1 2024, ramping up during the year with modest initial margins. Q3 saw revenues up 9% organically, EBITDA grew 10%, with adjusted EPS increasing by 15% to $0.75. Year-to-date cash flow was robust at $380 million. Q3's strong performance and backlog growth put KBR on track for 2023 while remaining cautious of higher interest rates and the uncertain ramp-up of HomeSafe potentially impacting its $4.75 EPS target by 2025.

KBR Powers into 2024 with Strong Backlog and Growth Opportunities

KBR, heading into 2024, is well positioned for growth, fueled by a hefty backlog and numerous multi-year awards, racking up more than $2.5 billion. Securing a lucrative re-compete and additive acquisitions such as OMS and Cs propels the science and space segment. The defense and Intel segments also boast key awards, promising a robust foundation for organic growth. Furthermore, investments in AI infrastructure, like the prioritized Bolt platform, fortify KBR's expansion into the knowledge economy across government and commercial sectors. Despite a slight contraction in European sustainment, the trajectory for growth remains solid, illustrated by a record high backlog since the company's transformation.

HomeSafe Anticipation and STS Over-Performance Buffer Potential EBITDA Shortfall

KBR's transformative HomeSafe program is poised for a significant ramp-up in 2024. Despite a delay in moves, which are expected to commence in Q1 of 2024, the over-performance of the STS segment is set to compensate for EBITDA initially allocated for HomeSafe. This exhibits KBR's diverse pathways to earnings growth, as it continually moves upmarket, enhancing EBITDA, cash flow, and company performance. The exact ramp profile for HomeSafe will become clearer with the full-year results and 2024 guidance to be reported in late February next year.

Headwinds Challenge EPS Target, While Bookings Sustain Momentum

KBR faces external headwinds that may impede the attainment of the $4.75 EPS target for 2025. However, the company remains driven by a culture committed to customers, shareholders, and stakeholders. Delivering resilient organic growth and managing cash judiciously, including effective repatriation and DSO reduction, affirms a consistent narrative of growth, especially in Government Solutions. The bookings in the recent quarters, particularly strong in GSUS, provide a springboard for sustained growth and progression into 2024, offsetting lighter re-competes. The STS segment is particularly buoyant, securing energy-related projects that span the energy trilemma and energy transition while delivering excellent margins.

Rising International Operations and Strategic Opportunities in STS

KBR's international growth is accelerating, potentially at double-digit rates, in response to global trends and strengthened collaborations. The steady political climate in regions like Australia adds confidence to the spending landscape, aligning KBR with favorable market vectors. In the STS front, major endeavors, such as the promising projects in Saudi Arabia with Aramco and a substantial investment program related to petrochemicals, promise sizeable, long-term benefits if KBR secures its share. This optimistic outlook is further reinforced by advancements in the LNG sector and potential opportunities in ammonia cracking and plastics recycling, setting a high bar for excitement and anticipation in the company's endeavors as of Q4 and into the following year.

Financial Prudence and Progressive Growth Amid Brewing Headwinds

The journey ahead for KBR is marked by robust organic growth and strategic positioning across multiple segments. While the company may encounter imminent challenges such as government shutdowns, its diverse operations and immunity in critical business areas provide a sturdy shield. The cautious but progressive hiring strategy and the company's allure in sustainable solutions continue to attract top talent, ensuring that KBR is equipped with the human capital necessary to capitalize on its growth trajectory. With all these elements in place, KBR is steadfast in its course towards continuous momentum and value creation for its stakeholders.

Earnings Call Transcript 2023-Q3

[Operator]

Hello, all and welcome to KBR Inc.'s 3rd Quarter 2023 Earnings Conference Call. My name is Lydia, and I will be your operator today. [Operator Instructions] It's my pleasure to now hand you over to your host, Jamie DuBray, VP of Investor Relations, to begin. Please go ahead.

[Jamie DuBray, executive]

Thank you. Good morning, and welcome to KBR's 3rd Quarter Fiscal Year 2023 Earnings Call. Joining me are Stuart Bradie, 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 to 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]

Thank you, Jamie, and a warm welcome to our Q3 earnings presentation. So let's start on Slide 5. Our Zero Harm moment today attempts to give you a high-level view of how KBR is engaged in space sustainability and security. This for us is both from space looking back to earth and in the space environment itself. So starting on the left of the slide, we have highlighted a couple of programs on which data is generated from space to enhance our environmental understanding of what is happening on our planet.

And this gives real-time analysis and trending of things like deforestation, [indiscernible] land development, et cetera. In the middle, we have highlighted our proprietary technology Iron Stallion. The digitally tracked satellites and space debris using proprietary algorithms, advanced AI and machine learning to predict estimates to validate future events. In addition to the U.S. DoD, two of our allies have acquired and are using Iron Stallion today.

And on the right, we have highlighted two programs focused on going to space, working on next-generation satellites for Earth monitoring with the added objective of reservicing and recycling existing assets to minimize this chunk, and the exciting work being done at NASA Ames, which is in Silicon Valley, a key reset center for NASA where KBR has engaged for many years looking at water and ice on the moon to sustain human exploration. This is KBR playing in the knowledge economy in the space vertical across both civil and military space, developing and deploying differentiated know-how and technologies, and I have to say it's pretty cool stuff.

Our people really do amazing things that matter every day. So on to Slide 6 and a quick look at that overall business while being the business house light. On the people front, we have increased head count by low double digits since this time last year. I think a good indicator of managed sustained growth in the Services and Technology business. From an innovation perspective, we're in the middle of our first global hackathon. And this is a competition where volunteers completed in 145 teams across the world innovating to develop and present solutions in the areas of sustainability, digitalization AI and branding.

The 6 regional winners will be coming together to compete in the final later this month. The leadership driven myself have all reviewed the 6 final submissions, and I have to say they were absolutely terrific, and we'll certainly be taking a number of their ideas and solutions forward. So I think really truly a value-add process. So also in a world where there is more working from home and that's, I think, a greater risk of creating silos listed the added benefit of connecting people and fostering collaboration across nontraditional foundries are very, very successful.

And lastly, on the people front, we were notified within the last week that we have been once again recognized by Forbes as one of the world's top companies for women in 2023. And this recognition, I think, for the 3rd consecutive year, really underscores our commitment to fostering an inclusive and empowering environment for all our employees, and we are proud to be forging forward in gender equality in the workplace. Now on to HSSE.

Our people continue to really impress with our unparalleled commitment to health, safety, security and the environments they're working in, looking after themselves and those around them. And I think the statistics really speak for themselves in a really truly best-in-class. This obviously helps with recruitment and it's a very clear example of our values driven culture and it's also a key differentiator with clients and with partners around the world. And as you know, Zero Harm is a broader ESG and sustainability program. And internally, we link our activities to the UN sustainability development goals. So we thought we would present what KBR is doing opposite one of these goals each quarter going forward.

So we started today with water and sanitation. So just to give you a flavor, KBR today runs the combat water supply for the U.K. military. We run both portable and wastewater in a number of sites across the world from [ Dabur to Kosovo ]. We are heavily engaged across Australia supporting the major water authorities in upgrades, expansions, modernizations of the various cities, water and wastewater infrastructure. And we engage with local communities and schools to educate on plastics in the oceans organized river and beach cleanups et cetera, through our One Ocean program, and we've seen that before. So just as we did for space sustainability, I think this gives you a different lens into and across KBR.

On to business growth on the bottom left, a really, really strong bookings quarter, reflecting continued momentum as we continue to '24 and beyond. As you would expect, our work under contract to allow us to finish strongly this year is over 95%. And on to the financials at a high level, 9% growth, all organic. I'll say that again, 9% all organic at the revenue line with margins at the group level of 11%, a really terrific performance from our people around the world, delivering for customers, for retailers and ultimately, our shareholders. Cash was a standout in the quarter with conversions ahead of pace at 125%. And in a world of higher interest rates and volatility, this was a critical focus area for us, as I'm sure it is for many, many companies out there but our people really stepped up once again.

And Mark will also cover other positive activities in cash in a moment, which all helped to provide deployment optionality. And as promised and of course, linked to cash, one subsequent event of note is that we retired the remaining convertible principle of $250 million in cash on the first of the month as it matured. That's the 1st of November, a clear demonstration of our belief in the value upside of KBR. Now on to Slide 7.

The markets remain buoyant across the energy trilemma as we've discussed previously. Ongoing geopolitical instability, I think only adds to this, particularly in the energy security area. And we continue to see high levels of activity across aging assets as owners continually recognize they need to become more efficient, but also in a decarbonized way using a variety of science, engineering technologies including digital and data-enabled tools. STS trailing 12-month book-to-bill was 1.3x and we've highlighted 3 of multiple awards this quarter.

Firstly, we announced that we had been awarded the world's first Commercial Ammonium Tracking project with Daesan in Korea. This is effectively taking liquid ammonia and tracking it back into hydrogen so that you can transport and utilize it as a gas and existing facilities, infrastructure and networks. Now this is a big deal and a real enabler that it allows countries committed to a hydrogen future to deliver on that commitment and importantly for KBR can have the effect of significantly increasing demand for ammonia production, where of course, as you know, we have a very high market share.

In the U.K., we are deeply engaged with EET Hydrogen in the U.K.'s leading industrial decarbonization project. This project is the largest blue hydrogen project in the U.K. and is a fantastic example of synergy across all of sustainable technology solutions. It combines our innovative decarbonizing IP with best-in-class engineering services and digitalization. And finally, in the energy security market, where we believe gas is the transition fuel, we were awarded a reimbursable EPCm fully aligned to our existing risk profile services contract for the Pluto LNG Train 1 modifications in Australia for Woodside.

Now on to Government. So on the Government side, the market in the U.S. continues to be robust as we look beyond with budgets in critical areas in emerging technologies growing with a focus on operationalizing lease as quickly as possible, which is a sweet spot for KBR, as we've discussed many times. Ongoing and recent world events elevate these priorities and lead for greater multi-government collaboration, like [ Okus ], which emphasizes the significance and value of our global GS segment as we can play a critical role in addressing these challenges. We believe that our GS International business is a real differentiator, engaged in high-end consulting services in critical areas of defense, energy transition in critical infrastructure.

Book-to-bill this quarter was excellent. GS loan was 1.6x in bringing our trailing 12 months for the whole segment back up to 1.1x. As you may recall, GS International had a strong bookings last quarter, so the whole segment is well positioned as we move into 2024. We've highlighted a number of awards for the quarter in our Science & Space business. In total, these awards are well over $2.5 billion and importantly, are all multiyear. With these awards coming through in Q3 and with the IMO recompete increasing in value by several hundred million dollars and with OMES and FEEDs, all being additive as both were takeaways, it's easy to see that on a full run rate basis, 2024 for Science & Space should be a good growth year. Very exciting.

Similarly, in Defense & Intel, we've had several key awards in the quarter, some real nice wins in the Intel side with customers like the NRO. But unfortunately, we can't say too much more about these. And it was also nice to see awards under the IAC MAC contract vehicle pickup cadence in the quarter. So similar to Science & Space, our Defense & Intel business are a real good shape for growth as we move into '24. From a technology perspective, KBR's proprietary secured cloud and mission services platform has been prioritized for the Federal Risk Management Program. Our platform called Vaault® is one of only 6 prioritized platforms and is just one example of the investment we are making in the AI space. Investments in this area continue to open new opportunities for KBR, both with government and with commercial customers.

And although not specifically shown on the slide, register sustainment after a flourish to slightly down a few months in Europe, has been awarded new multiyear task orders that will also provide opportunity as we head into '24. The final point to make on new businesses, while KBR generated 9% of organic growth in Q3. We also finished the quarter to record high backlog and options since our transformation.

I think really indicative of great momentum and demand across all of KBR. And not to forget, on Homesafe, as transform leadership said in early October, the program hasn't quite started yet as readiness is still being evaluated. As you are aware, the number one priority of this effort is to improve the moving experience of service members, civilians and their families. And TRANSCOM and ourselves are fully committed to delivering this via HomeSafe from day 1. And thus, we are jointly adopting a careful and calculated approach to ensure this outcome. I'm sure you'll recall that we assumed no moves this year and our targets with a significant ramp-up during 2024 with modest initial margins, mainly due to the news of the program.

Although it hasn't started yet, we do expect moves to start in Q1 2024 and ramp progressively. But today, it still remains unclear what that ramp will look like. There should be more clarity when we report full year results and '24 guidance in late February next year.

Now we've always said, given the uniqueness and the design nature of the markets and the businesses that we are in, that there were many ways to meet our targets. And interestingly, the overperformance of STS will fill the EBITDA we plan for HomeSafe in 2024. If one now assumes that we do get started with moves in '24, we should be in real good shape from an EBITDA perspective at the group level. As we said consistently for many quarters, KBR is a company with multiple pathways to earnings growth, and the real focus needs to be on EBITDA for the whole corporation.

So in short, KBR continues to move up market increasingly playing in the knowledge economy from EBITDA, delivering strong cash and truly performing and have secured the right work and exciting well-funded verticals to keep on pace to close out '23 and keep momentum as we head into '24 and beyond.

With that, I will now hand over to Mark, who will add his own color, of course, and back up the works with the numbers. Mark?

[Mark Sopp, executive]

All right. Thank you, Stuart, and hello, everyone. I'll start on Page 9 or Slide 9. So we're certainly pleased with our team's ability to deliver strong and well-rounded performance in the 3rd quarter. As you see and as Stuart said, revenues were up 9%, all organic, reflecting a balance of ramp up on recent wins and production of on-contract growth across both segments. Adjusted EBITDA was up the same on constant margins and at the levels we expected. Focused program execution is required to deliver these healthy margins, I said that before, this continues to be the case across all of our operations in Q3. So a big shout out to the people who constantly deliver on this front across KBR, amazing.

Adjusted EPS grew 15% to $0.75 per share, driven by the EBITDA growth and net favorable below-the-line items compared to last year. While interest expense was higher year-over-year as expected, the team really pulled together to generate strong cash flow and also debt reduction actions, which kept financing costs in check. While effective tax rates are also trending up a bit, we did have a favorable resolution of an R&D tax credit, which did keep us in line with our tax rate guidance as well.

So our treasury and tax folks really did a superb job mitigating the more challenging interest and tax environment that we have today. I just mentioned, cash flow was strong again in Q3 at about $90 million. with year-to-date adjusted op cash flow of $380 million, reflecting a conversion ratio of approximately 125%. Quite good.

Consolidated DSOs improved 2 days on increased focus by the team across the board. This will continue to be plus the course. Free cash flow year-to-date is $320 million, and I'll remind you, CapEx is running about twice the normative rate this year, due to two specific project requirements. So that's the big picture for the enterprise results. Now on to Slide 10 for segment performance.

Starting with STS, we are seeing tremendous growth and profit margins. In addition, while not shown here, STS is generating excellent cash flow as well with year-to-date free cash flow conversion of well over 100%. This entire segment wins a negative working capital. We said that before, that remains the case. Top line growth was almost 30% and balanced across technology and Sustainable Services. EBITDA margin was 21% with EBITDA totaling just under $90 million. As is evident in Stuart's remarks back on Slide 7, we're seeing high demand and increasing adoption of our proprietary solutions and technology service offerings all around the world, and we are improving the sustainability position for our clients. That's what we do.

Over to Government, organic growth was 4% in Q3, which is pretty consistent across the 4 business units. As Stuart mentioned, strong bookings in Q3 provide opportunity for improved growth prospects moving forward as we head into 2024. On to Slide 11 and capital matters. With strong year-to-date adjusted cash flow of again, $380 million effective cash repatriation actions and with year-to-date adjusted EBITDA growth of almost 10%. At the end of Q3, we actually kept our leverage ratio steady from the start of the year at 2.0x. That's really saying something after deploying over $200 million on buybacks, dividends and some modest M&A, $200 million on the convert and related warrants, $130 million on the legacy legal settlement and higher interest costs. So quite an accomplishment keeping the leverage ratio steady after going through all of that.

Consistent with our messaging at the beginning of the year, our capital priority was and is to resolve the maturity of the convertible notes that mature November 1 and the attendant warrants, which expire a little later. As Stuart just said, we did retire the notes yesterday, November 1, which culminated in a cash payment of $250 million. That was funded with $200 million of revolver debt and $50 million of cash on hand accumulated from free cash flow. As for the warrants, there's an open window to seek early settlement of those in the next 2 months or so. Doing so will depend on what terms can be negotiated, so we'll see how that goes, but we certainly have the capital capacity to do so. On to Slide 12 for forward guidance.

While the numbers through Q3 suggest we are ahead of pace, including the raised EBITDA guide from last quarter, there is seasonality to factor into Q4, including having fewer productive days due to holidays and things like that. With excellent growth, margins, cash flow and EPS production embodied in our current guide, we're sticking to that outlook for the rest of the year. With all that's happening in the world in KBR, here's a quick update on how we are tracking toward our long-term 2025 targets.

For things under our control, we are well ahead of pace on EBITDA and on pace for cash flow. For EPS, which is more influenced by external factors, $4.75 EPS by 2025 is looking much harder to achieve primarily due to the uncertainty that we have on the ramp-up of HomeSafe and with interest rates now expected to stay higher for longer and all the implications of that. For the more controllable factors, we see our end markets as strong or stronger than our original baseline, and our ability to capture demand for our offerings is the same. Government is on pace to meet our targeted EBITDA. And as Stuart said, STS is well ahead of pace.

We see this momentum continuing through 2025 and beyond. So that's it for me for the quarter, pretty short report. I'll turn it back to Stuart to wrap it up.

[Stuart Bradie, executive]

Thanks, Mark. Great job. And -- but just to emphasize what Mark said a few moments ago. Our EBITDA trajectory is well ahead of pace, including associated cash conversions. However, there are headwinds due to external factors beyond our control, making the '25 EPS target of $4.75 more difficult to achieve. With that, now let me summarize the key takeaways that are in our control and are going really well.

Firstly, we continue to deliver for our customers, our shareholders and other key stakeholders through our people-centric values-driven culture, consistent delivery, resilient, organic growth and increasingly so into the knowledge economy with another great quarter. Continued strong organic growth across all businesses and the group is a key takeaway. Cash management was absolutely terrific across many elements, as Mark said, repatriation of cash, DSO reduction, interest management, et cetera. We have paid the convert principal in cash as we promised, once again, doing what we said we would do.

Responsible leverage and strong cash management gives us optionality on capital deployment going forward. That's another key takeaway. Bookings were strong across the group, especially in GS U.S. in the quarter. Now with a light recompete year in 2024 that inbuilt organic growth as a consequence of bookings happening in the latter half, we'll deliver targeted growth into next year.

STS continues to win work across the energy trilemma and energy transition with outstanding delivery growth and margin performance, as you see quarter-on-quarter. So the key takeaway here is strong bookings underpin continued momentum and organic growth into 2024. HomeSafe moves should ramp up in 2024, but likely at a slower pace than originally was expected and we'll know much more by year-end earnings. However, we do expect STS to overperform thus mitigating any shortfall EBITDA from HomeSafe in 2024.

Finally, the key takeaway here is that there are multiple pathways to EBITDA success. This is a result of our differentiated, diversified global and resilient business model operating across multiple verticals within the knowledge economy. Thank you again for listening. And I will now hand the call back to the operator, who will open it up for questions. Thank you.

[Operator]

[Operator Instructions] Our first question today comes from Tobey Sommer of Truist.

[Jasper Bibb, analyst]

This is Jasper Bibb on for Tobey. I can appreciate that there's still quite a bit of uncertainty on HomeSafe here. But any additional color you could share with us on the ramp would be appreciated. I think with the expectation of the first moves happening in 1Q '24? Is there an underlying expectation there for the share of total volume that you're going to be taking over at that point? And do you think it's still feasible to hit the full revenue run rate at some point in 2025?

[Stuart Bradie, executive]

I mean it's still not clear what the ramp is like, and we try to be quite distinct about that in our prepared remarks. Is it possible we can still get to a full run rate by somewhere around '25 Yes, it is. But until we get through the next few months and get to February, as we said, we'll have more clarity then. But yes, it's difficult to say what's going to happen in '24. Could you get to full run rate by '25. The answer is Yes. Is that guaranteed? No. And that's just, the bare truth of it today, we're not feeling any punches. That's just the facts and there's so much uncertainty at the moment on timing because of what's happening across the world, as I'm sure you can understand, totally not in our control.

But that's just the way it is, and we're trying to be very upfront and transparent in that message.

[Jasper Bibb, analyst]

No. That definitely makes sense. And then I think you said it was going to be harder to hit the $4.75 EPS target because of higher interest rates. Just curious if you could frame the relative headwind from those higher rates versus your initial plan? Like is there an EPS headwind that you could tie to that, that's more specific?

[Stuart Bradie, executive]

Yes. I mean, there's 2 factors, of course, the $4.75 has the embedded ramp-up on HomeSafe, which may or may not be achievable as we've just talked about. And in terms of interest rate, I think the difference that's happened over the last 3, 4 months, in particular, is the yield curves are now looking the interest rates are higher for longer, they were coming down, if you went back a few months, the yield curves, I would say they were coming down, which means, of course, it's accretive to borrow the money and then buy back stock.

And at the moment, that mass is on the edge, I would say. And so obviously, if you're using free cash flow, it's accretive. If you're putting that on your balance sheet, it's a more difficult decision. And I think that's really the message we're trying to give around that and the implications of the higher interest rates. Mark, any...

[Mark Sopp, executive]

Yes, I think it's an opportunity just to clarify that absent real compelling M&A, we intend to use all of our free cash flow for buybacks. We think that's a terrific return over the long term for our shareholders. But as Stuart suggested, these days to lever up and buyback stock is kind of a push from an accretion perspective. That was not our assumption in the original targets. When we had lower rates and so forth. And so that part won't deliver the accretion we want to assume.

But all other things operationally, as we said in our prepared remarks, were really strong or stronger than planned. A little bit of headwind on tax rates and FX since the derivation of those targets, but not that dramatic relative to the interest rate, which was the biggest move as well as the HomeSafe timing, which is uncertain.

[Operator]

Our next question today comes from Bert Subin of Stifel.

[Bert Subin, analyst]

Maybe just to start out, Stuart, you said STS is expected to overperform next year. How should we think about the trajectory there? I think last call, you mentioned that you expected sort of double-digit organic growth for a while. There could be some lumpiness in that over time. I mean, right now, you're growing 28%. Is there a situation where you just continue to grow at an elevated level in '24? And then as we think about '25, I mean, that was supposed to be $300 million in EBITDA by then. Is there any update you can give us on that as we think about, I guess, the new '25 target?

[Stuart Bradie, executive]

Yes. I mean I don't know if we're going to get out over STS on a '25 target today, Bert. But what I would say is that we are well ahead of pace. You're quite right. We had a $300 million target. We're going to blow through that this year. We raised EBITDA guide last quarter, and we're ahead of pace of that, are on pace for that. And I think everyone recognizes particularly with the Q3 results, that's all pointing to STS.

And I think if you look at the relative performance of STS to KBR, I think year-to-date, it's circa 40% in the quarter, it's even higher. And so its contribution and its value to KBR is becoming clearer and clearer. And hopefully, that reflects in the multiple as well as we go forward in terms of that contribution. But, as we look into next year, we'll be the double-digit growth that we set ourselves will be coming off a much higher base. And clearly, that outpaces where we originally thought. And even a few months ago, thought we would be starting from. So I think that's probably the best way to look at it.

We'll get to the -- we've got an Investor Day, as you know, in sort of May next year, and we'll certainly be realigning those targets by then, we should also have a lot more clarity on HomeSafe by then as well. So I think we can really sort of cover off where we're heading in the next couple of years at that future.

[Bert Subin, analyst]

Just to clarify there, Stuart, did you say it's a higher base, and so double-digit growth will be a challenge, or you expect double-digit growth off of a higher base?

[Stuart Bradie, executive]

No, no, no. We firmly expect double-digit growth. My point being, it's a much higher starting number that you put in the double digits, too.

[Bert Subin, analyst]

Got it. Okay. And then just as a follow-up on the HomeSafe side of things, I mean, I think there were some news out there in September that there was, I guess, challenges or, I guess, concerns on TRANSCOM part of integrating mill move with HomeSafe Connect. And it seems like you guys are pretty ready whenever they essentially say go. That expectation, I think, is still January start and then a sort of sequential ramp from there. Can you just give us some of the moving parts like the things you're watching to get that turned on and revenue started there?

[Stuart Bradie, executive]

Yes. I mean, quite right, it's the integration of the systems and ensuring their readiness and we don't want to falter in any way. And I think TRANSCOM is quite right to be quite considered about how they ramp up. And I mean it comes back, we do expect moves in Q1. I don't think it will be January 1. That's for sure, I thought it will be a little bit later in the quarter. But I think directionally, I'll reiterate again, the relationship, the passion around this on both sides to get it right. It's absolutely there.

I'm not concerned about that at all, but it's all about being absolutely sure that when we start, we can actually ramp up very quickly and not falter. And so -- so that -- I can't say more than what we said in the prepared remarks just because I don't know anymore. And I think that's kind of where we're at. I'm sorry, I can't give more color. It's just related to uncertainty. I'm trying to be truthful.

[Operator]

The next question today comes from Gautam Khanna of TD Cowen.

[Gautam Khanna, analyst]

Two questions. First, on HomeSafe, I'm just curious about your confidence on execution, given some of the logistics partners may have agreed to contract terms prior to the runaway inflation we saw last year for part of this year. Just what kind of contractual -- what's your confidence that, that stuff doesn't have to get renegotiated? And then I have a follow-up.

[Stuart Bradie, executive]

Yes. I think, Gautam, I think the -- we have support from the supply chain to deliver the initial ramp and the commitments around that. Even if we started tomorrow, never mind in a few months, I think the heat's come out of that market somewhat and TRANSCOM are thinking that those rates should naturally come down as the heat comes out of the market in the event. So I think in terms of our confidence levels, we feel we've got the right partners, we've got the right people in the supply chain, and we're feeling really good about that. It's not really a question that we were concerned about.

[Gautam Khanna, analyst]

Okay. And then just a quick follow-up. On the 2025, $4.75 target, knowing what you know today, what is the variance -- earnings per share variance to that from interest expense, a higher share count, et cetera. I mean take HomeSafe out of it, which I think was about $0.50, right? To the target when you guys updated for the HomeSafe win. Where do you guys stand? Is it for '25? What do you -- what can you see?

[Stuart Bradie, executive]

I mean it's so tricky because we don't know what the ramp on HomeSafe. And as Mark was alluding to in terms of free cash flow, we were used to do buybacks. So there's a big piece of that in the initial calculation. And so I think the challenge for us, Gautam, if you look back, is that when we set our targets, initially, I think it was $4, not $4.25 and then $4.75 with HomeSafe. There was a base set of assumptions that surrounded that around interest rates and accretion dilution mass around buybacks and things like that. And average share prices and things. So -- but ultimately, everyone forgets about those assumptions, and everyone just goes and remember the EPS target.

And so I think the things that we can control are totally a better way to think about how we should be measured. And I think that really is EBITDA. And as we've come with these external factors and the volatility in the world today, we can't control interest rates and FX movements and things like that. But our EBITDA generation is within our control as is our organic growth and wins. And I think that's how we will be, I guess, projecting our future, if we like.

That doesn't mean that EPS -- particularly short-term EPS will not certainly be part of the executive compensation, but longer-term EPS with such volatility in movements is something we're probably going to move away from and think more about EBITDA.

[Gautam Khanna, analyst]

And do you have an updated EBITDA target for '25 recognizing Homesafe -- ex-HomeSafe?

[Mark Sopp, executive]

I think Stuart was very clear in the remarks that were ahead of pace by a lot on STS and on pace for government ex-HomeSafe. And we still believe HomeSafe is there. It's a matter of time. So putting a precise date in 2025 and HomeSafe's contribution is a little hard, but we still are optimistic it will deliver the reasonably intended EBITDA over time once we get through the first moves and everyone is comfortable that the quality that was intended can be delivered.

So the great news is that relative to the original targets, the most important driver, which is EBITDA is ahead of pace. We haven't quantified that yet. You can maybe do your own calculation on STS' run rate and where they're heading trajectory-wise, which we think will continue. But I think it's best to wait for the '24 guide and the Investor Day to be more precise on that exact level for '25.

[Stuart Bradie, executive]

I mean certainly, as we move into '24, we're very confident of our EBITDA targets and moving them as the pathway that we explained with STS outperforming and opposite any shortfall in wholesale will certainly be made up by STS. So we're not worried about that pathway at all, Gautam.

[Operator]

Our next question today comes from Michael Dudas of Vertical Research Partners.

[Michael Dudas, analyst]

Hello? Can you hear me?

[Stuart Bradie, executive]

We can.

[Michael Dudas, analyst]

Yes. Great. Yes. So just wanted to maybe move towards STS. There's a lot of news last couple of weeks of the funding in the U.S. for hydrogen hubs. So certainly, the hydrogen market continues to get a lot of visibility and news flow. Maybe you can explain a little bit about how KBR and its clients are thinking about that? And how that could drive some more opportunities on top of what you've already described in the ammonia and hydrogen business for the next, sure, several years?

[Stuart Bradie, executive]

Yes. I mean, I think of the $7 billion, I think half of it, I thought will be spent in construction enabling, I think, 6 to 8 hydrogen hubs, I think targeted, I think for 2030, Mike, to be online. And I think, however, we've got customer sets all around the world, some of which have more funding and are moving far faster with greater urgency, and we talked a little bit about hydrogen tracking and the things we're doing in that area. And as you well know where we're positioned in hydrogen opposite ammonia as well. So I think the U.S. stimulus is a good part of the story.

But I guess, probably the near term, it's really part of the story, and I think there's great growth outside of the U.S. as well as in it. And so I think it's a terrific opportunity for KBR, how we play in that and the way we're thinking about it is evolving. It's only recently announced, of course, but we are really busy elsewhere in the work, which, of course, gives us amazing credentials and capability to back into the U.S.

[Operator]

The next question today comes from Jerry Revich of Goldman Sachs.

[Adam Bubes, analyst]

This is Adam on for Jerry today. Wondering if you could help us understand the growth outlook by platform for 2024 in Government Solutions? How you're thinking about that, excluding HomeSafe and particularly interested in how the -- how you're thinking about the international piece, given some of the things going on in the world?

[Stuart Bradie, executive]

Yes. So I think on guide ex-HomeSafe is somewhere between 5% and 8% in terms of growth and I think we're well aligned on that as I saw in the prepared remarks covered off. I think science and space is in a terrific place with its recent wins, particularly the takeaways and the additional scope and contract volumes we've taken on board as we move into '24 for good growth.

We've got a lot going on in the Intelligence Community, as you would rightly expect at this time. And we've secured quite a bit across our D&I portfolio, and there's more to come, I think, in Q4. So again, we're feeling really strongly about organic growth there. And RNS is the one where we've seen a little bit of softness, I think, in the last couple of months. But as I said, again, I think with the recent task out of all multiyear, we're expecting that to sort of that back up as we move into next year.

The international piece is interesting. Okay. But I think the international piece is probably growing faster than most. I think we're looking at sort of double-digit growth there as a consequence of what's happening in the world and the stronger collaboration and, I think that the markets they have settled down, there's been a new government in Australia a few months ago, and that's all settled down and have come through that, and we can see directionally where they're spending and we're lined up nicely opposite those factors.

So I think all up, we're feeling pretty good about our overall GS growth range, and that's the sort of breakdown across that portfolio that helps.

[Adam Bubes, analyst]

Very helpful. And then in STS. Can you talk about any major new contracts that you might be targeting and expected timing of any award decisions there?

[Stuart Bradie, executive]

Yes. I guess the biggest -- I mean, there's a lot happening in STS across the world. It's a multifaceted portfolio. We do a lot for many different customer sets across that energy trilemma, as we explained. I would say that the largest news, I think, in the market really is probably coming out of Saudi, I mean they are expected to be the largest economy -- or the largest growing economy or the fastest-growing economy for the next couple of years as you're probably aware, they're putting a lot of capital to work as they diversify their economy.

There's a lot going on from a decarbonization thematic where they're stopping burning crude for power, replacing that with gas, and we're heavily engaged in that. And then with that crude, they are trying to extend the value chain by turning it into petrochemicals. And so there's substantial new program with 4, 5 major crackers associated with it, and it's a huge integrated portfolio of investment running up hundreds of billions of dollars. It's up for bid now in terms of pre-FEED and FEED and project management. And if that comes through, I think if we can win our fair share of that, and we've got a good relationship in Saudi and we really like working with Aramco, we really understand how they operate. And we've got a long history of doing well mutually.

And so if we can win our fair share there, that's very exciting and quite sizable in multiyear. And I think that's probably the largest we think that there'll be noise about that coming through in Q4. That's probably the largest one out there. And I think if that comes through. I think also nice coming through in this quarter was more reimbursable LNG work, which I know a number of people felt that Plaquemines could not be more than just Plaquemine. And I think we've proven that that's not the case and that there are mature customers out there that like to work in the risk model that we can tolerate and take our sort of high-end capability to help them succeed, as we look to use, I guess, gas as a transition fuel and also around energy security.

So I think that's all good. But what's happening across the world in terms of ammonia in terms of more ammonia tracking opportunities. You probably saw that Mura, the plastic recycling partner or the investment we have in Mura that we've opened the doors, if you like, for business. And there was a big delegation in fact, just last week. And as with the CEO, at the tail end of last week and very positive of ramping up production as we move into Q1 next year. So again, I think that's all exciting. So more will come once that's happening, I'm sure in the plastics recycling area.

So sorry, a long answer to a short question, but there's so much excitement around STS. There's a lot happening across the portfolio, and that goes from, obviously, the olefins opportunities in Saudi to the global ammonia opportunities to hydrogen tracking in Korea to what's happening across the world in Australia and energy security, et cetera.

So it's a very global business and not to imagine what's happening in the U.S. with all the additional funding around the decarbonization thematic in Arab. So I think all good in that arena. Sorry. Sorry, it's a long answer, but we're quite excited about STS.

[Operator]

Our next question today comes from Mariana Perez Mora of Bank of America. Please go ahead.

[Samantha Stiroh, analyst]

This is Samantha Stiroh on for Mariana. I was just wondering about, you talked a little bit about at the beginning, the head count ramp, what you're seeing with that? And then particularly as you see the strong growth in STS, do you have the head count in place already to kind of keep up with that?

[Stuart Bradie, executive]

Yes. I mean we're hiring just slightly ahead of curve Sam, there, I think we're -- team's doing extremely well and -- we've got a large presence in India that allows us a little bit of a relief valve there, and we've got a terrific lady who leads that business and, it's highly respected in the marketplace, so we're able to attract real talent and diversify talent, which is terrific. So I think so far, so good, and they will become, I'm sure, constraints in certain elements like in the world's gone past things like in the process side and things like that. But so far, we're keeping on pace and no real issues. We've got a very strong recruitment team.

But I think ultimately, that where we sit in the marketplace around sustainable solutions is a big draw for talent, particularly younger talent. They really value being part of a company that's actually trying to address climate change issues and decarbonization thematics, as well as the work we do in government around security and sustaining a way of life and things like that. So it's -- our overall reputation helps where we are in the markets and the things we do help, but we really look after our people once they're here, and recruitment is only one aspect. I think the retention is another aspect. And certainly, we're doing very well in that area. So I think so far, so good.

[Operator]

Our final question today comes from [ Sahil Manocha ] of Citibank.

[Unknown Analyst]

Good morning. This is [ Sahil Manocha ] for any Andy Kaplowitz. So another government shutdown, deadline is approaching in November. Could you provide some color on how a short-term, medium-term shutdown could impact the Government Solutions business?

[Stuart Bradie, executive]

Yes. Thanks, Sahil. I'm sure lots of companies that do what we do at getting that question. For us, this is nothing new. I mean it seems to happen every year, whether the CR or shutdown and I think we pull in year after year, we're very resilient. We understand what we're doing. Remember that our STS business and our Government International business is completely immune to that. So we've got some in-built immunity. We've got a lot of funding on what I would call tip of the spear critical operational missions and whether that's in Europe or the Space Station or whatever, it doesn't matter where the intelligence what we do across our whole defense portfolio.

So we're not concerned about that. I think ultimately, it's -- we've been engaged in it so many times. It's -- and I'm sure that answers the same from many of our peers in the government ramp. So not -- I mean, it's one of those things that would be great to be avoided.

But if it does happen, I don't think it's going to impact KBR too much.

[Unknown Analyst]

That's helpful. And then you provided some color on your -- in the opening remarks, but could you just provide an update on your plans to settle the remaining warrants, which mature in the first half of 2024, has the decision been made on whether they'll be settled in cash or shares?

[Stuart Bradie, executive]

Yes, I think it depends on how we go. I mean, we're not allowed to under the rules of engagement to start that dialogue with the warrant holders until we're in an open window, which we will be in tomorrow. So we can start that negotiation.

And as Mark said, if we can cut a reasonable deal around premiums and things we have options to settle in an accelerated fashion. I think the interesting fact around that is that if we do decide depending on how negotiations go to settle early, it will be quite a reduction in share count for the year, the way these things are calculated that will push up our EPS for 2023, a bit just because of share count. So with some good fact patterns there to be taken into consideration as well. So Mark, any more color on that?

[Mark Sopp, executive]

Yes, I'll just add because I know this has been a pretty complex story, but the last remaining piece after yesterday are the warrants. And at today's open, the value of those warrants is roughly $200 million, give or take, and that does vary with the stock price, roughly $10 of value per $1 of movement. And so that gives you some sensitivity to -- that will go into our thinking. And so we'll evaluate what the market bears. There are counterparties still as instruments, and that is a negotiation, and we'll undertake that and we'll see where it goes, and we'll advise accordingly.

[Operator]

We have no further questions in the queue. So I'll turn the call back to Stuart Bradie for any final remarks.

[Stuart Bradie, executive]

Thank you. Thanks again. Thanks for taking the time to listen this morning and thank you for your questions. I think you can ask at where we've got control over our destiny. We're feeling really good about the company, the bookings, the performance, the margins. We look ahead into '24 with bookings very strong in Q3 and obviously some very strong prospects we discussed in Q4, feeling really good about continued momentum.

Obviously, we'll be very clear and very truthful about -- I'm not trying to pull any punches about uncertainty on HomeSafe on ramp. We're feeling very good about the program in general. So please take that as we've said it, and -- but we don't know what the ramp's going to look like.

We will start in '24, and it will ramp up over time. But until we get clarity, it's difficult to give you any more than that. There is a path to get to full ramp by '25. But again, that path is unclear and uncertain. So again, apologies that we can't give more than this uptake at this time. That's probably a good place to leave it, and I'm sure we'll be talking to you one-on-one and others as we progress. But thank you for your interest in KBR. And we look forward to a strong finish to '23 and upwards in almost to '24. Thank you.

[Operator]

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