KBR Inc

NYSE:KBR

Earnings Call Analysis

KBR Reports Strong Q3 Growth and Raises 2024 Financial Guidance

KBR delivered a robust third-quarter performance with a 10% revenue increase and an 18% rise in adjusted EBITDA year-over-year. The strong results were bolstered by the LinQuest acquisition, which added over $60 million in new orders. KBR raised its 2024 revenue guidance to between $7.5 billion and $7.7 billion, and adjusted EBITDA guidance to $840 million to $870 million, while adjusted EPS is projected at $3.20 to $3.30. The company anticipates a solid pipeline moving into 2025, with a book-to-bill ratio of 1.2x, enhancing confidence in sustained growth across its segments.

Strong Performance Across Key Metrics

KBR reported a robust third quarter with double-digit year-over-year growth in revenue, profit, and operating cash flow. Group revenue increased by 10%, while adjusted EBITDA saw an 18% jump compared to the previous year. The company emphasizes its disciplined strategy in winning the right work and prudent cost management, resulting in improved margins, which grew by 70 basis points. Cash flow conversion has been exceptional, reaching 129% year-to-date, highlighting the efficiency of operations and strong customer relationships.

Significant Contributions from Recent Acquisition

The acquisition of LinQuest has added notable value, with the integration progressing well. LinQuest secured over $60 million in new work since the acquisition closed, contributing to KBR's strong performance and opening up additional revenue synergy opportunities. KBR reports that LinQuest is expected to add approximately $175 million in revenue for 2024, translating to about $17 million in EBITDA. This acquisition reflects KBR's ongoing strategy to expand its capabilities and enhance its service offerings.

Guidance Adjustments Reflect Confidence

KBR has raised its guidance for 2024, now projecting revenue between $7.5 billion and $7.7 billion, up from previous estimates. Adjusted EBITDA guidance was also increased to a range of $840 million to $870 million, and adjusted EPS is now expected to fall between $3.20 and $3.30. Importantly, despite the anticipated lower volume in the HomeSafe business segment for 2024, profitability remains unaffected due to conservative initial projections made earlier.

Booking Activity Indicates Strong Future Prospects

The company reported a strong book-to-bill ratio of 1.2x for the quarter, indicating healthy demand for its services. Specifically, the Government Solutions segment achieved a book-to-bill ratio of 1.3x, underscoring a high win rate on new awards. KBR anticipates this momentum will carry into the remainder of 2024, aided by an attractive pipeline of projects, particularly in energy transition and defense sectors.

Emerging Market Opportunities and Strategic Growth

KBR is positioning itself to capture growth in the energy transition market, particularly focusing on new projects in the Middle East. The company is optimistic about prospects in ammonia and sustainable aviation fuel technologies, as well as further developments in LNG projects. KBR has secured critical contracts, including a project management contract valued at approximately $130 million in Abu Dhabi, further establishing its footprint in high-demand markets.

Sustainability Commitment and Workforce Satisfaction

Sustainability remains a core focus for KBR, with over $2.5 billion of the company’s revenue linked directly to sustainable practices. The latest sustainability report highlights strong performance in health and safety while noting recognition of KBR as a great workplace in multiple regions. This commitment to sustainability not only enhances KBR's reputation but also aligns with long-term shareholder value creation.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, everyone, and welcome to KBR's Third Quarter 2024 Earnings Conference Call. My name is Emily, and I'll be coordinating your call today. [Operator Instructions] I will now turn the call over to our host, Jamie DuBray, Vice President of Investor Relations. Please go ahead, Jamie.

[Jamie DuBray, executive]

Thank you, Emily. Good morning, and welcome to KBR's Third Quarter Fiscal 2024 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 for your questions.

Today's earnings presentation is available on the Investors Section of our website at kbr.com. This discussion includes forward-looking statements reflecting KBR's views about future events and their potential impact on performance as outlined on Slide 2. These matters involve risks and uncertainties that could cause actual results to differ significantly from these forward-looking statements, as discussed in our most recent Form 10-K available on our website.

This discussion also includes non-GAAP financial measures that the company believes to be useful metrics for investors. A reconciliation of these non-GAAP measures to the nearest GAAP measure is included at the end of our earnings presentation.

I will now turn the call over to Stuart.

[Stuart Bradie, executive]

Thank you, Jamie, and welcome to our third quarter earnings presentation. I would like to start on Slide 4, if I may. Now we show this on every earnings presentation, so no surprise. It lays out our Zero Harm program and the pillars, both environmental and social, that underpin that program.

Now the progress we've made in each of these pillars is highlighted in our Annual Sustainability Report, which takes me nicely on to Slide 5. So this month, we issued our 2023 Sustainability Report. I mean the team does an amazing job in showcasing all that we're doing across these pillars. We've shown only a few highlights on the slide here, and I'll pick up on a few.

Our health and safety performance was once again top quintile, really demonstrating our commitment to really looking after our people. 37% of KBR Group '23 revenue, actually over $2.5 billion, is directly linked to sustainability and I think thus shows clear alignment with shareholder value, which we've talked about before, is a clear differentiator for KBR.

The result from our people survey, which is run by an independent company and done anonymously, resulted in KBR being classified as a Great Place to Work in multiple countries. Now the survey showed us a couple of things. I think the first that our focus on people is truly making a difference. And secondly, of course, we are not perfect and we still have work to do.

On the side of the slide, you will see our continued commitment to strong governance, and we continue to make progress in I&D advancing our agenda on multiple fronts. Our maturity and commitment and delivery of sustainability has been externally scored by various agencies and you've seen that before. And MSCI, we believe, is the most cited and we're, of course, delighted to have achieved for the second consecutive year the very highest ranking of AAA.

As I said, these are only a few highlights. And I would encourage you, if you have time, to have a look at the full document, which is on our website. Now on to Slide 6 and the group financial highlights for the quarter.

This was another clean quarter and frankly, another set of terrific and consistent results. Group revenue was up double digit at 10% year-on-year. Adjusted EBITDA increased 18% over the same period. I think once again demonstrating the focus and discipline to deliver on our strategy, to winning the right work and then executing with excellence with prudent cost management. And this has resulted, as you would expect, in enhanced margins, which were up 70 bps.

Cash was once again a standout with year-to-date conversion at 129%, an absolutely spectacular performance. Now on to book-to-bill. Now as you know, we've been providing a book-to-bill figure ex the Plaquemines project for the last several quarters to convey underlying business performance without the large LNG burn.

And beginning this quarter, we will switch to only using this figure in our materials, especially in light of the new JV with Technip, which I'll cover in a moment. On this basis, I'm really pleased to report that our book-to-bill at the group level was 1.2x in the quarter, and both STS and GS in particular had strong quarter. And this sets us up well to close out the year.

But this, together with our attractive pipeline, really gives the group a solid foundation heading into '25 and increases confidence to achieve our industry-leading long-term targets. At this point, I would like to publicly recognize and thank our people all across the world who continue to deliver every day doing what that truly matters. And without them, these results would not be possible.

Now as you're also aware, we closed on the LinQuest acquisition, and I'm pleased to report that the integration is well underway and the expected alignment in values and culture are shining through. We've had numerous townhall meetings with LinQuest employees all over the country, and we could not be more pleased with the warm reception to KBR. Their deep domain expertise, really outstanding technical capability and their dedication to serve the mission of the customer, which is 100% aligned with how we operate, doing things that matter.

Lastly, I'm pleased to report that we will be increasing our guidance for revenue, adjusted EBITDA and adjusted EPS this year to reflect the addition of LinQuest and our ongoing organic strong performance.

Now on to Slide 7 and some key awards. Let me start with STS and Saudi Arabia. Now there's been quite a bit of speculation on this, and we're now in a position to talk about our role on the liquid to chemicals project for Aramco LTC.

As we've discussed previously, there was an opportunity across multiple world-scale projects. 4 olefin crackers were initially tendered as pre front-end design, front-end design and PMC, project management contracts. Plus, there was an overarching coordinating project management contract or CPMC.

Now KBR won 1 of the crackers and the overarching CPMC, and this was actually the maximum any single company could win. Now the cracker project that KBR secured due to competing Aramco priorities was actually suspended, and this has been made public.

That said, the CPMC, we believe, is the key role. This is a multiyear endeavor, employing critical resources covering and not only touching all the olefins projects at all stages, but also developing and working the integrated schedule, supply chain management strategy, data and digital management, a first for Aramco, really managing the data in a digitalized way and really sort of looking at continuity of safety systems and the data digitalization of those safety systems and being the project-wide technical authority.

And to be clear, we will have teams embedded in each of the pre-feed pre-PMC contractors during the other large projects on Aramco's behalf. Now this will ramp up progressively through the rest of this year and in 2025. And as a matter of fact, we'll continue well beyond our long-term targets.

Now to give you a feel, revenue through the pre-feed will be between $50 million to $100 million. And then going through feed and into execution, revenue will be several times this magnitude, so quite significant.

In addition, again, with Aramco, we have also secured another of the offshore gas development front-end designs. This is our third to date that are really key enablers for the LTC program itself. This is another substantial and important piece of work, again setting us up well for 2025 and a significant contribution to our long-term targets.

I would remind you that Aramco are replacing crude by gas -- with gas, sorry, to generate power. And the crude will then go via the LTC program into various petrochemicals. This is both value add for the crude, but reduces the carbon footprint of energy production in the Kingdom significantly. So now let me turn to LNG.

Again, quite a bit of speculation on this market. So firstly, on Plaquemines. We expect first LNG before year-end. This will be one of the industry benchmarks for speed to market.

Now further LNG will be produced as the individual smaller trains are commissioned progressively through 2025 and into 2026. In the quarter, we secured the Lake Charles project in joint venture with Technip. This is a partner we've worked with successfully many times who have strong construction and fabrication capability, and the customer is Energy Transfer.

To be clear, the contract terms are firmly aligned with our stated risk profile, and KBR will be performing management and technical services similar to our role on Plaquemines. And again, similar to Plaquemines, this will be reported through equity and earnings.

Energy Transfer is making solid progress in offtakes and has the balance sheet to move the project through to final investment decision. In fact, they've actually placed long lead orders already. That said, there's a bit more wood to chop on this, and I think the election will have an impact on timing. We do not expect FID until the second half of 2025.

In addition and also in the LNG market, in this quarter, we secured the front-end design for an additional LNG train for a confidential LNG producer in the Middle East, which could lead to bigger things as that project progresses. And also in LNG, we secured the project management contract, the PMC for on behalf of ADNOC, the Abu Dhabi National Oil Company, for the new LNG project in Abu Dhabi. To be clear, this is for the execution phase. So again, this is a multiyear and valued at circa $130 million. And this follows on from a successful PMC of the front-end design that we completed earlier in the year.

And finally, we just announced the award of the Shell Manatee gas project in Trinidad, and this is an enabler for LNG in that part of the world. As we said previously, LNG is a global business that truly affords KBR's attractive opportunities aligned with our desired risk profile and leveraging our differentiated capability. Now let me shift a little bit to emerging technology areas.

We announced our acquisition of sustainable aviation fuel technology early in 2024. And since then, we have digitalized and modularized the tech while ensuring we can deliver an end-to-end solution. And this solution now trademarked as PureSAF is the first ASTM certified SAF technology. And we're particularly excited for what's to come as we're now at an intersection of increased demand, supportive legislation across the world and progressive incentives. And the project we announced with Avina is the first in an exciting pipelines of opportunities and obviously more to come through 2025, on circularity, and in particular, related to our investment in Mura and Hydro-PRT plastics recycling technology.

I personally visited the site in the U.K. at Wilton and saw the progress firsthand recently. Commissioning is well advanced. And although progress was impacted by skilled labor shortages due predominantly to Brexit, the plant will be producing product before year-end.

The LG chemicals plant in Korea, our first modular solution, is on the same timetable. And the Mitsubishi plant in Japan is looking to produce product in early 2025. So in the world of new technology, having the first at-scale plant is absolutely terrific, but 3 operating at scale plants is actually the watershed. And we believe this will catalyze new license and project partnership opportunities in 2025 and beyond. So again, very, very exciting.

STS book-to-bill was 1.0 in the quarter. But actually, this does not include the large ADNOC LNG PMC I referred to earlier that was signed a few days after quarter close and we booked in Q4. And now with this and what's in the hopper, we expect Q4 to be a strong booking quarter for STS.

Now on to Government Solutions. In the U.S., as expected, Q3 was a strong bookings quarter due to Department of Defense annual budget cycles. However, our international business also had a great quarter, and together, achieving 1.3x for the quarter and 1.1x on a trailing 12-month basis.

And some highlights this quarter were 9 awards in our systems engineering business via the IAC MAC contract vehicles we've talked about many times. I'd say this year, we have been awarded approximately $1.5 billion in task orders under that contract, $1.2 billion of which were actually in Q3.

Now as you're aware, we book only backlog that's funded, and the $1.21 billion this quarter is the ceiling value of those combined contracts, which we will expect to book and burn over time.

So one significant contract worth highlighting contained within that $1.2 billion reflects the increased attention, focus and funding expected for the Pacific with a circa $200 million multiyear contract supporting the Naval Warfare Center Pacific Program, which is actually a new digital customer for KBR, where we will play a significant role in introducing and testing new technology as we progress the digital transformation and Zero Trust environment for that customer.

In Space, as you know, a key strategic vector for KBR, we continue momentum with a follow-on strategic award by the Naval Research Lab, as shown on the slide.

The acquisition of LinQuest was made to accelerate our growth in military space, interoperability and digital engineering. And in the months since we've closed, LinQuest has secured over $60 million of new orders under a unique contract vehicle that KBR does not currently utilize, and LinQuest actually does not utilize IAC MAC. So with KBR and LinQuest now able to use each other's contract vehicles, the revenue synergy opportunities are exciting because the procurement cycles for these are very, very quick.

Now before I move on, I would be remiss if I did not give you a HomeSafe update. The systems testing for the interstate moves was successful and moves have started now, this is very significant, is a significant milestone as it clears the way for essentially full domestic moves.

While we expect to see an increase in moves in Q4 as new lanes are turned on, revenue for the full year 2024 will be below our expectation. Now to be clear, there's no impact to profit because as you're aware, we were conservative in our original guide for 2024. And as a matter of fact, our long-term targets also contain a conservative ramp, as presented at Investor Day. So the lower volume in '24 has no impact at all to our targets.

A solid relationship with TRANSCOM continues to be collaborative, and we look forward to progressively ramping up on the program and enhancing the moving experience for our men and women in uniform and their families through '25 and beyond.

I will now hand over to Mark, who will take you through the Q3 performance in a bit more detail, including the 2024 guidance increase. Mark?

[Mark Sopp, executive]

Terrific. Thank you, Stuart, and good day, everyone. I'll pick it up on Slide 9. So as you've heard from Stuart already, the results for Q3 were really good across the board with every single metric you see here up double digits over last year.

Margins and cash flow were the particular highlights with profitability running consistently in the mid-11% range all year and cash flow super strong at $422 million on a year-to-date basis.

DSOs, days sales outstanding, continue to run at the lowest levels we have ever seen at KBR, averaging about 60 days through this year so far. And as you know, low DSOs reflect high customer satisfaction and also importantly, superb teamwork across our operations, our functions and customer touch points.

Let me just quickly go on to Slide 10 on results of the segments. Over on the left, as you see, STS is humming along with continued good momentum and superb profit growth consistently above the 20% margin level. As I said before, this team does a remarkable job delivering intellectual property capabilities to customers all around the world while continuing to grow its services platform also at very attractive overall margins. This is attributed to specialized domain expertise, scarce skill sets and a very cost-competitive delivery mechanism.

On the right, Government Solutions had an excellent quarter as well with revenues up 11% and profit up 14% on improved margins. A particular importance, we saw increased award decisions in the U.S., many of which came in our favor, as Stuart said, after experiencing delays in the first half.

Our win rate on award decisions was well over 50%. So it's really a testament to the great team effort there. And as Stuart said, the government book-to-bill was 1.3x in the quarter, all the while international grew at an impressive 13% with contribution from the U.K., Australia, and the Middle East, which well demonstrates our expanding global reach.

On to Slide 11 and capital matters. As said earlier, cash flow generation has been outstanding, which enabled deleveraging in September coming off of the LinQuest acquisition, which closed in August. So just stepping back, it's terrific to have made such a sizable and high-quality acquisition like LinQuest, plus deploy about $0.25 billion in buybacks and dividends year-to-date and still have a leverage ratio well south of 3x. This underscores the power of our EBITDA growth and also cash generation.

It's worth noting we received a credit upgrade attendant with the LinQuest deal with all agencies now at BB+ rating equivalents. Together with the quality of the acquisition, we lowered the borrowing rate on both the new debt associated with the deal and existing debt. We added committed liquidity and pushed out maturities. These actions will help contain interest cost and also enable more deployment options as we go down the road.

All forms of capital deployment spanning M&A, buybacks and debt reduction deliver benefits to us. So we'll balance doing those based on what generates, in our view, the most attractive long-term value for our shareholders.

Now I'll finish up with Slide 12 and our forward view of guidance. The LinQuest contribution for 2024 is consistent with the information we provided in the acquisition announcement. We are moderately increasing the revenue guide to $7.5 billion to $7.7 billion, reflecting 4 months of LinQuest in this year's results and also reflecting lower top line contribution from HomeSafe that Stuart just mentioned.

On the profit side, with strong year-to-date results and adding LinQuest, we are increasing our adjusted EBITDA guidance range to $840 million to $870 million. For EPS, the net effect of the LinQuest EBITDA contribution and also the incremental interest that stems from that transaction, enables a moderate increase to the adjusted EPS guide, raising the floor to a range of $3.20 to $3.30.

As I said, cash flow generation has been strong all year. And because the EPS bump is modest with 4 months of LinQuest activity, we're sticking with the original cash flow range of $460 million to $480 million.

So to wrap it up, another quarter of well-rounded execution, spanning program delivery, winning new work, generating cash flow and adding LinQuest to the team. This also enabled us to improve the capital structure for better earnings production and future deployment optionality as we look to 2025 and beyond.

Thanks, everyone, for tuning in this morning. I'll turn it back over to Stuart.

[Stuart Bradie, executive]

Thanks, Mark. Terrific job, as always. I will finish up on Slide 13 with some key takeaways. So as Mark and myself have said earlier, outstanding third quarter performance with double-digit year-over-year growth across all key metrics: revenue, profit and operating cash flow, absolutely terrific.

On LinQuest, it's really performed well since closing. It's won over $60 million of new work and really delivered solid, strong September results. But more importantly, integration is progressing really, really well. And with revenue synergy opportunities crystallizing, it's a very exciting acquisition indeed.

As a result of our strong year-to-date performance and of course, the addition of LinQuest, we're raising guidance, as Mark just talked about, on revenue, adjusted EBITDA and adjusted EPS.

And finally, on bookings, 1.2x book-to-bill at the group level, together with our attractive pipeline, sets us up nicely for the remainder of this year, of course. But more importantly, gives momentum going into 2025. So thank you again for joining us on today's call. And I'll now pass it back to Emily, who will open the call for questions. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Andy Kaplowitz with Citi.

[Andrew Kaplowitz, analyst]

I know it's a bit early to talk too much about '25, but could you give us a little more color into your visibility, particularly in STS growing in line with that algorithm you gave us earlier this year, the 11% to 15% revenue growth, as it looks like, as you said, trailing 12-month book-to-bill reaccelerated a bit in Q3. I know you talked about the strong expected Q4.

Last quarter, I think you talked about some delays in energy transition projects. Are you still seeing those delays? And how do you think about the sustainability of the 1x book-to-bill that you recorded in Q3 moving forward?

[Stuart Bradie, executive]

So lots of questions in one there, Andy.

[Andrew Kaplowitz, analyst]

I'm pretty good at weaving them together.

[Stuart Bradie, executive]

Yes, yes, yes, that's good. I would say that it's still quite early. We obviously started our budgets for next year. I think that we're confident that we're aligned with our 11% to 15% growth expectations in STS going into next year.

Our book-to-bill obviously picked up in Q3 and is looking strong in Q4 to underpin that. The margin performance continues to be very strong. I think energy transition projects, we're seeing more activity in the Middle East, in particular, around market share, around ammonia and the gas green hydrogen. But I think in general, a lot will depend on the election results in terms of the speed in the U.S.

But overall, the energy security market, combined with a growing energy transition, albeit probably slower than we expected, but still growing market, really gives us good confidence that we'll be aligned with what we presented at Investor Day in terms of STS targets. Hopefully, that helps.

[Andrew Kaplowitz, analyst]

It does, Stuart. And then, Mark, just I want to ask you about the guidance just in the context of LinQuest, obviously. You put in 4 months. You mentioned that sort of the offset is HomeSafe. I guess if I just look at the sort of guidance raise, it seems like -- is there anything else that's a little slower than you thought? I guess, because LinQuest, I think, would be pretty sizable, if not more than the EBITDA change in the guidance?

[Mark Sopp, executive]

Yes. Thanks, Andy. Just one clarification, if you will, is while HomeSafe is an offset to LinQuest on revenues, we did not really factor in profits for HomeSafe, as Stuart said. So that's not a reason for -- or contributing to your question relative to Q4 in the guide. So that is as expected for the year from a profit perspective on HomeSafe.

But we do have interest expense coming in for LinQuest. So we have -- good news is we have 3 full months of LinQuest, but we have 3 full months of interest. So we have that occurring as good as of a job, our treasurer has done with minimizing the impact of that. LinQuest is accretive, but it's a couple of pennies. So we didn't think that warranted a big bump. We just moved up the midpoint by taking up the floor.

We do have some seasonality that does kick in, in the fourth quarter. A little bit on things like just the efficiency of our labor coming into the fourth quarter with holidays and things like that is a little off pace for parts of government and parts of STS, so we're being conservative on our outlook there. And that's about it.

So not trying to get too fancy. We're adding some to the guide here, but cautiously so heading into the fourth quarter and really in context, capping off a brilliant year of growth on all metrics and doing out or above what we set out to do at the beginning of the year.

[Stuart Bradie, executive]

And I think just to finish off on that, I think the original question was on EBITDA guide. I mean we think the LinQuest revenue is about $175 million. It's coming in at double digits. So that's about a $17 million EBITDA return, and that's actually the raise that we've put into the announcement and is so completely consistent.

[Operator]

Our next question comes from the line of Tobey Sommer with Truist Securities.

[Jasper Bibb, analyst]

This is Jasper Bibb on for Tobey. It sounds like a lot of exciting wins in STS. Just kind of curious like how do you think mix and some of these LNG or recycling ones ramping up, might impact the segment margins over the next couple of years maybe relative to the flattish margin view you outlined at your Investor Day this spring?

[Stuart Bradie, executive]

I think we -- I think having margins in the circa 20% range with a business that's growing 11% to 15%, I think, is the targets we set out, and that's the targets we're going to hold to.

And maybe, obviously, mix volatility around margins mostly going -- as we've seen, we've achieved 21%, 22% in certain quarters depending on mix. But I think our overall guide stands and our long-term targets over time, particularly through the '27 stand. So I don't think there's going to be much change.

[Jasper Bibb, analyst]

And then one other follow-up on HomeSafe. Good to hear no impact to your targets for a little bit of a slower start there. Just to clarify, do you think you're still on plan with the, I guess, underlying '25 assumptions for HomeSafe revenue from the Investor Day? Or is that maybe a little bit below plan now and that's being offset by other wins across the portfolio or LinQuest?

[Stuart Bradie, executive]

No, it's very much on target. As I said in my prepared remarks, we took a quite a conservative view through '25, '26 and '27, in fact, in terms of the way the program ramps up. And certainly now, we've kind of opened the aperture, if you like, with the systems testing to really progress the domestic moves. I think if there's any surprise that I think there's opportunity to the upside. It is a new program however.

But I do feel that we've got the right sort of numbers on a conservative basis within the '25 long-term target guide that we gave at Investor Day. And obviously, more will come out as we guide for '25 in February.

[Operator]

Our next question comes from Michael Dudas with Vertical Research.

[Michael Dudas, analyst]

So with the positive progress you mentioned with the energy projects in the Middle East and Saudi in particular, maybe you could shed like what type of workforce? How is it being staffed? Where it has been maybe in '24 and how that may ramp in 2025? And I assume that's going to be used throughout many of your offices globally. And are you -- given some of the opportunities that you have in your current opportunity, can you see further on contract or bookings over the next 12 to 18 months in some of these other LNG or related opportunities there?

[Stuart Bradie, executive]

Yes. I mean that's a really good question, Mike. We -- so for LTC program, that will be led out of the Houston office, supported by predominantly the Saudi office. As you can expect, as things move into Saudi Arabia, the work on the gas developments offshore actually led from our Leatherhead office, again, supported by Saudi and Chennai in particular.

The LNG projects that we are looking at are really, again, led either out of particularly out of Houston or Leatherhead, but predominantly, in that case, supported out of Chennai in our India office. And so it really is a global impact and allows us to derisk concentration. I would also say that in terms of the opportunity when we're doing front-end design, then obviously, the follow-on opportunity is clear depending on where you are in the world.

And I think if it's in the Middle East, it will likely be maybe broader packages, but really in the project management realm. If it's in places that are not the Middle East, there's different contract vehicles that pursue our risk profile.

But in all occasions, I think being involved early in the project performing well often means that you actually have a role going forward. So that's why we put a lot of emphasis and explained to the market where we sit in sort of pre-front-end concept and front-end designs because it really positions us not only for broader roles, but also around understanding technology opportunities and things like that. So hopefully, that helps.

[Michael Dudas, analyst]

It does, Stuart. And my follow-up is, you mentioned in your prepared remarks about some of the energy transition opportunities maybe more uncertain because of the U.S. elections. Maybe turning to the government side. Any change into your thoughts on what you've said, given your significant business units in Government Solutions relative to what you're seeing out of the Pentagon or what anticipated change could occur? Anything that would cause any even minor change to your thoughts given how things may looks like to turn out?

[Stuart Bradie, executive]

No, I don't think materially, Mike. I think that there's strong bipartisan support around military spending in the Department of Defense budgets, as we've seen in the past. I think the areas where we've positioned the business, whether that be in military space or in the Pacific or looking at hypersonics or cyber, or even civil space with NASA, are going to be strongly supported regardless of how the elections turn out.

So we're feeling pretty good at that. There's usually a question on what happens in Europe on LOGCAP, but we feel that that's moving more to -- will move more to a sustainment-type solution depending on what happens with Russia and Ukraine.

But obviously, that's not a near-term resolution we see, but you never know. But I don't think there's going to be a material change in where the priority spending is going to be and I think that we will guide appropriately as we go into '25, and we're pretty confident of our targets of growth that we presented in our Investor Day.

[Operator]

The next question comes from Steven Fisher with UBS.

[Steven Fisher, analyst]

So Stuart, you mentioned potential election impact on Lake Charles. I'm just curious, what are some of the scenarios that could play out with that project based on the election? And kind of what would the timing implications be for those various scenarios?

And I don't want to put words in your mouth, but it sounded like the answer to Andy's question was that maybe in the event that Lake Charles is, say, delayed by a longer period of time, say, a couple of years, you still think you could have enough work in STS to hit those 11% to 15% targets. I don't want to put words in your mouth, but just clarifying that that's what you're messaging.

[Stuart Bradie, executive]

So in terms of the election and LNG, as you know, there's a pause in LNG projects in the U.S. If the Democrats remain, there is a strong indication that some projects will be released for -- going forward as long as they meet certain probably environmental hurdles and things like that, and we feel that Lake Charles is very well placed to be part of that cadre.

If the Republicans go forward, I think the -- I mean their stated positioning is to really go faster. And as a consequence of that, I think that the project will go faster. And that was really my comment there.

The FID that we gave you in the second half of next year is probably based on the conservative view. It could go quicker than that. But again, there's obviously, as I said, wood-to-chop there.

In terms of our ability to look further afield for looking at our pipeline and the way that we'll perform, I think there's absolute credibility in the numbers we put forward regardless of timing of Lake Charles. And so it's just -- we had one particular analyst who raised the fact that it would be difficult in an LNG market to replace what we're doing in Plaquemines and we've announced 4 associated LNG projects in 1 quarter.

And so I really want to be strong on that point. And you can see that the opportunity set that's been realized in a very short order. So I think there's going to be more opportunity, not less. And certainly, energy demand is not reducing. It's increasing, particularly in the global side.

So that's really my answer to the question, Steven, unless Mark, you want to say something further.

[Mark Sopp, executive]

I think you covered it beautifully well, Stuart.

[Steven Fisher, analyst]

Terrific. And then maybe just on the Saudi side. Just curious if you have a sense of how fluid that situation is with their programs there. Like can we take this -- now take this PMC contract to the bank, if you will? Or could it still change either to the upside or the downside? I know you're talking to Mike Dudas about some other opportunities. But I'm just wondering, is this thing now kind of locked in?

[Stuart Bradie, executive]

Well, they will make a final investment decision, I believe, Steve, when the EPC pricing comes in after the front-end designs are completed. But obviously, we're at pre-FEED and FEED, and it will take a couple of years to come through that exercise.

Right now, Aramco are committed. And so we feel very strongly that this is a very solid set of bookings. But we won't book it into backlog until such times as we reach the various milestone gates. But it was really to just give you an indication of our role on LTC, the fact that Aramco view us as really a very strong capability, and we've got a very strong relationship, of course, and we've got that broader CPMC role, which actually is bringing a whole set of different skill sets that have never really been delivered under the PMC environment before, and KBR was chosen to do that.

So I think ultimately, it's -- you should take it as really positive news. We're trying to give you a sense of the scale. It's a multiyear program, so really underpins our long range targets. And yes, we're feeling really good about it.

[Operator]

The next question comes from Jerry Revich with Goldman Sachs.

[Jerry Revich, analyst]

Stuart, I am wondering if we just a step back maybe 5, 6 years ago, the risk terms on a lot of these LNG projects and other large-scale energy projects weren't very attractive to you folks and now the win rates have been really attractive for you folks, including Lake Charles LNG. Can you just talk about what's changed over that timeframe in terms of industry discipline that's enabled the opportunity for you folks to have such a high win rate with acceptable and attractive risk terms for KBR?

[Stuart Bradie, executive]

Yes. I mean, we've been very clear, we're not taking lump sum EPC risk and we don't take construction blue collar risk, and we've been very true to that. We're not going back to the future, if you like, in what we're doing here.

So I think the -- particularly with VG and the success of Venture Global and their first phase and in Plaquemines, I think there are certainly new models that new customers, new developers are looking at because it allows them to carry the contingency and manage the risk directly and it also allows them to be heavily engaged in the decision-making. And that doesn't suit all customers.

There's still lump sum EPCs out there, many of them you'll know about, and we are not interested in them whatsoever. So I just think the market is realizing that there could be a different way. It doesn't suit everyone, but it does suit some. And where it suits them, we're actively engaged.

In the Middle East, where there's a project management contract or front-end design with PMCs, where, of course, that fits our model very, very well. And we'll continue to chase those types of opportunities.

But I think there are 2 things, I think, really the I guess the intent of your question is there a market for the risk profile that we have appetite for, absolutely, and I think we've proven that. And secondly, are we positioned well enough globally to take advantage of that. I think the answer, and we've demonstrated that we put meat on that bone in Q3, in particular, is absolutely yes.

[Jerry Revich, analyst]

Super. And can I ask on the Heritage Tech pipeline, can you just talk about what you expect to book over the next couple of quarters in areas like ammonia and plastic recycling. I know there's a pretty strong visibility on the pipeline and when you expect bookings to play out? Can you just expand on what that looks like over the next couple of quarters?

[Stuart Bradie, executive]

Yes. We don't -- I mean, I think the -- we are very excited, obviously, with SAF and plastics recycling as we start to look at the pipeline of opportunities and where the markets are going for those.

I think, as I said in my prepared remarks, the catalyst for change in terms of active final investment decisions on the dozen or so licenses we've already sold for Hydro-PRT is really down to the performance of what happens at Wilton or in Korea or in Japan.

And so I think we'll update the market more on that as we -- as these start to produce product at year-end and slightly into '25. So very excited about that.

I think the bookings will come later in the year associated that with Jerry, just given the timing. But very, very strong pipeline there. In terms of ammonia, I mean, it continues to be an attractive market. The ammonia pricing came down, as you know, through the course of the year. But there's still a lot of interest in actually moving forward, particularly in the Middle East around the fact they've got very attractive gas prices, they're looking at market share. There's also a growing demand for fertilizers as well as commitment around positing for hydrogen as we move forward.

So I think as we go into '25, we expect to see continued buoyancy in the ammonia market. The exact timing is very difficult to tell. And -- but I think the market itself remains very attractive.

[Operator]

The next question comes from Sangita Jain with KeyBanc Capital Markets. .

[Sangita Jain, analyst]

If I can ask one on the LTC project that you said was suspended by Aramco. If Aramco changes its priorities to move more investment to other parts of Asia, would you be able to follow them there for similar projects?

[Stuart Bradie, executive]

I mean, it depends on the contractual structure. But yes, if it's a front-end design PMC, of course, we can. And we've got offices in Asia that could support that depending on where it is. I think, historically, they've done more in China and increasingly looking at India. They view SABIC as really their overseas investment vehicle. Remember that Aramco owns the majority of SABIC, at least 50%, if not more than that. So I think, yes, in theory, but I don't suspect that's going to happen because I think that, as I said, the reason I said what I said in my prepared remarks was that they are looking to decarbonize in the Kingdom. They're trying to use gas to produce power, which at the moment, they burn crude and the utilization of crude into petrochemicals is value-add over time, and that's where they're pointing the investment dollar.

So I don't think it's just an investment in liquid to chemicals globally. I think there's a strategic and a sustainability play in Saudi itself that's driving these investments.

[Sangita Jain, analyst]

Got it. And I know you've referenced the long-term guidance a couple of times, but I think this project was in your long-term risk-adjusted guidance that you gave us at your Analyst Day. So I just want to know how you're thinking about that long-term guidance without this project.

[Stuart Bradie, executive]

I'm sorry, I'm confused.

[Sangita Jain, analyst]

On your Analyst Day, you gave us long-term guidance, right, which included this LTC project on a risk-adjusted basis?

[Stuart Bradie, executive]

It does. But remember, we've got a very prominent role on LTC, which is the coordinating PMC, which I said would be $70 million to $100 million through pre-FEED and several times that value through execution, which is aligned to our longer -- it's a multiyear project, so very long-term target.

So we've got a very prominent role in LTC, that's what I was trying -- that's why I spent quite a bit of time talking through that particular project. It's been a bit of a black box up to date, and apologies for that, but we were not allowed to say anything by the customer, but now we can.

[Operator]

The next question comes from Gautam Khanna with TD Cowen.

[Gautam Khanna, analyst]

I was curious on LinQuest. There was some language in the briefing about small business awards. I was curious, do they have a lot of small business set aside work? If so, can you quantify how much and how that runs through or runs off?

[Stuart Bradie, executive]

Yes. They don't really have any small business set aside. We obviously diligence that through the acquisition, so it doesn't feature at all, Gautam.

[Mark Sopp, executive]

I'll just expand the work we referred to as SBIR 3. So that is not restricted to small business. It reflects initially was perhaps under that set aside type of construct, but now it's preferential type of contract vehicle. It can put money to work quickly. It is fully available to large businesses, and it largely is done on a sole source basis to progress and commercialize the technologies that are at play that started off small and have become something bigger. So it's really an attractive type of vehicle for not only LinQuest, but part of the KBR group as well.

[Gautam Khanna, analyst]

That's helpful. And just last one for me on, you may have addressed it, I joined late. CR, the budget CR, I mean, what is your expectation for bookings over the next couple of quarters if in fact the CR extends?

[Stuart Bradie, executive]

I mean I think we've got enough in flight being looked at. We've got a number that have been awarded and under protest, and we don't talk about them until the protest is resolved and quite sizable.

So we -- I mean, assuming they come in our favor and you never know, of course, Gautam, the way the protest goes, but I think bookings will remain pretty strong as a consequence of what's in flight. And obviously, there will be some delays with CR, but we don't expect it to, in any way, change what we think we will guide to for next year aligned with our long range targets.

[Operator]

At this time, we have no further questions. I'll turn the call back to Stuart Bradie for final remarks.

[Stuart Bradie, executive]

Thank you, Emily, and thank you again for listening, and thank you for your interest, as always, in KBR. I think another terrific quarter and double-digit growth across all key metrics. Really, it's not just revenue, it's actually delivering that revenue into greater profit with enhanced margins. So really a terrific effort by our people all across the world. So yes, thank you again, and I'm sure we'll be on calls later today and tomorrow and through the course of the next little while. So thank you very much.

[Operator]

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.