KBR, Inc. (KBR) Q2 2015 Earnings Report, Transcript and Summary

Good day and welcome to the KBR's Second Quarter 2015 Earnings Conference Call. This call is being recorded. As a reminder, your lines will be in a listen-only mode for the duration of the call. There will be a question-and-answer session immediately following prepared remarks. You will receive instructions at that time. For opening remarks and introductions, I would like to turn the call over to Zac Nagle, Vice President, Investor Relations. Please go ahead, sir. Zachary A. Nagle - Vice President-Investor Relations & Communications: Good morning and thank you for joining us for KBR's Second Quarter 2015 Earnings Conference Call. Today's call is also being webcast, and a replay will be available on KBR's website for seven days at kbr.com. The press release announcing KBR's second quarter results is also available on KBR's website. Joining me today are Stuart Bradie, President and Chief Executive Officer; and Brian Ferraioli, Executive Vice President and Chief Financial Officer. During today's call, Stuart and Brian will cover KBR's results in more detail and discuss our market outlook by major segment. Please refer to the accompanying presentation that is posted on our website at kbr.com. After our prepared remarks, we'll open the floor for questions. Before turning the call over to Stuart, I would like to remind our audience that today's comments may include forward-looking statements reflecting KBR's views about future events and their potential impact on performance. These matters involve risks and uncertainties that could impact operations and financial results and cause our actual results to differ significantly from our forward-looking statements. These risks are discussed in KBR's second quarter earnings press release, KBR's earnings presentation, KBR's Form 10-K for the period ended December 31, 2014 and KBR's current reports on Form 8-K. You can find all of these documents at kbr.com. Now I'll turn the call over to Stuart. Stuart? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thank you, Zac, and good morning. Turning to the first slide, we start every meeting, as most of – some of you who have had this before, with a safety moment. Today's no exception. We thought we'd do something a little bit different. Our safety performance that we usually put up as a graph to show how we're traveling. It's still continuing to improve year-on-year with a 27% reduction in our recordable incident rate. But we're trying to really personalize safety and I thought it would be worthwhile sharing this photograph. It's actually the granddaughter of one of our foremen on site and it gave me a heard heart. And the reason we use this imaging is really to make it a very personal thing in terms of looking after yourself and those around you and of course, the most important people in one's life is generally their family. So we're trying to make it very personal and take that key value, not just apply it at the workplace but also take it home. Okay. So moving on, just a quick summary of how the quarter has gone. Significantly improved from last year, underpinned by strong operating performance across the project. The two mega LNG projects continue to perform well and as we reported last time we expect them to continue to be contributors to earnings in 2015 and in 2016. We've announced that we've won the strategically important Johan Sverdrup contract from Statoil and this is the first of a multi-stage development, so we're very excited about being involved in probably the largest project in the foreseeable future in and around the Norwegian and North Sea. Government Services backlog now reflects the value of the full contract term for the PFI contracts in the UK and again, we disclosed last time that we were looking closely at that and trying to be very transparent here, that increases our backlog by $5.4 billion. In terms of sort of the ongoing business backlog, relatively unchanged from Q1 to Q2, which I think in this marketplace is a good performance. The strategy is on track to achieve the targeted margins and cost savings by the year-end 2016, and we've identified now more than and actioned $125 million of those savings, and these'll be, the upside of that is realized through the rest of 2015 and beyond. And we did close on the sale of the Building Group which was identified as non-strategic for new KBR. We also in the quarter were excited about the strategic partnership with Bernard Capital for our industrial services and pipe fabrication businesses and we feel that's set for earnings growth via a 50/50 joint venture and Brown and Root industrial services and will expand our customer base and give us greater geographical reach for maintenance and small construction, small-cap type projects. The pipe fabrication alliance will also provide us, and this is extremely important in these times, particularly in and around the Gulf Coast, access to facilities and with that investment. Both transactions are expected to close by year-end. And just to close on the summary, I think it's important to recognize we've maintained a strong balance sheet through these difficult times, and our cash position is providing flexibility in this challenging market. Now, I'd like to hand over to Brian who will put some more meat on those bones. Brian? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Thank you, Stuart, and good morning. Turning to slide five, if you look at the backlog, it's up significantly, but that includes the $5.4 billion adjustment Stuart referred to in the Government Services for the long-term annuity type contracts we have in the UK under the PFI initiatives that they have. But as he mentioned, backlog, just looking at it without the adjustment and excluding the non-strategic business was flat, was equal to that in the first quarter, which again, is pretty good in some tough markets. The revenues were down a bit quarter-over-quarter, but that primarily led to – or driven by Canadian pipe fabrication and North American fixed price construction projects, which were underway last year, which we had previously announced we were getting out of the fixed price construction work and the Canadian pipe fabrication businesses were running down. And I'm happy to announce that in July, we've shipped the last modules associated with the seven challenging projects that we've had over the last two years or so. Also, the revenues were down slightly as one of the LNG projects is running toward its conclusion, which Stuart says will continue throughout 2015 and into 2016. Gross profit was significantly improved, led by the improved business performance and the reduced operational cost that we've been working on for some time. And again, last year, we had $41 million in charges on those Canadian pipe fabrication contracts and another $19 million loss in our non-strategic business, which is included in all these results here. The overheads are lower and that again reflects the initiatives that we announced back in December. And we did have restructuring charges for the period, primarily severance related costs, but also an asset impairment relating to some land with a building that we are in process of trying to sell. We had this gain on the sale of the Building Group subsidiary of $28 million and the net income and the EPS of $0.43 reflects all of the above. Turning to slide six and looking at the segments, on the revenue side, Technology & Consulting continues to perform very well. They had a little less volume of activity because as last quarter, less proprietary equipment and a reduced level of upstream oil and gas consulting activity. The E&C decline again represents the Canadian pipe fabrication and North American fixed price construction contracts from a year ago, which we are not really having this year, and again, a reduction in some of the LNG activity. Turning to profit, the T&C group had very strong margins, 26%. Again, this reflects the shift of work to more technology from the proprietary equipment and consultancy work, but also reflects the reduction of overhead that we mentioned before. E&C has improved underlying business performance and reduced cost associated with its overhead, but it also had a $15 million correction of an error, which was a favorable correction. This goes back to the spin in 2007 and it's a series of small adjustments to a number of years which added up to about $15 million, so that's reflected in the equity and earnings numbers that you see here. And the earnings also reflect continued progress on one of the – of the second LNG project in Australia. As I mentioned, 2014 had losses which were not repeated and all the Canadian modules, as I said before, have now all been shipped, so our risk profile has reduced significantly. On the Government Services side, they continued to perform very well, primarily in the UK Ministry of Defense projects as well as having reduced overheads. They had $5 million in legal fees associated with a legacy U.S. government LogCAP and RIO contracts. And also, the 2014 results had a one-time $15 million change, a reduction in cost and collection of insurance proceeds on a project that obviously did not reoccur in 2015. The non-strategic businesses continued to perform as planned. They also had some lower overheads, so those provisions that we had taken at year-end are holding. Performance is good and we did have charges in 2014 which, again, did not repeat this year. And finally, we also sold the Building Group, as Stuart mentioned, and that's reflected in the non-strategic EBITDA line. Turning to cash, cash was down a hair for the quarter, $731 million, but still a good cash balance. You see on the slide, there were a number of one-time type events or non-operational type events, the largest of which are funding the lost contracts for which we had previously taken a provision. But you also see there was a payment as part of a settlement with our former parent. We have one more of those to go. And you see the net of these special items was $55 million. We did not buy any shares back during the quarter. The share price performed very well in the second quarter, moving from $15.87 on April 28, which was the day before we filed our Q1 results, and it rose to $19.48 at the end of June, a 23% increase. And even if you compare the share price performance to yesterday's close, the stock is up 9%. We remain committed to a balanced capital allocation policy that we discussed when we rolled out our strategy in December, and as a reminder, that includes investing in our current businesses, adding new businesses and/or technologies and returning capital to our shareholders. As you know, we already pay a dividend and that yields currently 1.9% and we have returned an excess of $1 billion to our shareholders since January of 2007. So with that, I'll turn it back to Stuart and he'll chat a little bit more about the market. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thanks, Brian. So moving to the next slide, so the market outlook in Technology & Consulting, the technology market opportunities, particularly led by ammonia, refining, and olefins, and particularly in the revamped area remain strong. Opportunities for our VCC technology, which essentially takes heavy hydrocarbons and converts it into lighter fuels, especially diesel for our first commercial plant now in full operation in China and performing well. So there's a significant interest in this technology and so we see that as a good opportunity into the future. In the consulting arena, it's a tough environment, and particularly in upstream E&P, but we are seeing some life in that market in the consulting and the study arena, and looking at that very closely on specific opportunities. And we continue to look for additional opportunities, as we've reported before, to expand our technology portfolio into new products and services. So moving on to E&C, the Q2 developments supporting strategic focus areas. I think again, we set out our stall in December saying we were very, very interested in the Statoil Johan Sverdrup opportunity and obviously we've secured that. Again, we're moving to grow our industrial services and maintenance business and reinvigorate in the Brown & Root brand through this new joint venture and moved into the strategic alliance for pipe fabrication. And the sale of the Building Group, again, announced in December was closed. So I think a good quarter in terms of actually delivering on the promises we made in December. We continued a strong base of large projects and backlog through 2015 and 2016. The two mega-projects you're well aware of; they continue to be significant importance of earnings in 2015 and in 2016. And as we reported last time, favorable resolution of pending change orders could result in 2016 income being comparable to 2015. We have a significant backlog of ammonia/urea refining and oil and gas projects and as Brian reported, and am very happy to report, we shipped the final modules on the Canadian pipe fabrication/module assembly contracts, which reduces our risk in that particular business significantly. And it's actually worth noting that that Canadian pipe fabrication business has rolled into our venture for the pipe fabrication business with Bernhard Capital. Moving on to the next slide; good pipeline of near-term and long-term prospects. It is a difficult market out there, but I think as we set out our stall in December, we're pointing the organization very much at key areas and key markets, particularly around gas and geographies where we feel there are good opportunities and clients continue to spend money. One of those being the Middle East and we've hired and strengthened our management team there by hiring a new President for the Middle East who's well-known in the region and been in and around the region for 20-odd years. His name is J. Ibrahim. Onshore opportunities in the Middle East and Caspian do remain positive. We've formed a joined venture in Azerbaijan with SOCAR, the national oil company. We've been in Azerbaijan for many, many years and been involved in most of the developments, particularly in the offshore side in and around Azerbaijan, so we feel this sort of plays to the national content push and strengthens our position there particularly for brownfield work. Offshore developments continue, some continue anyway, in the Gulf of Mexico and West Africa, and again as I said last time, we're being very careful to try and really understand our clients and which projects have the best opportunity to proceed whether it's through political need or whether the financials even with these oil prices are robust. So we continue to work on the Maersk Culzean job in the UK, North Sea. We see more opportunities with Statoil, not just in Johan Sverdrup, but in other areas, and we've got opportunities across Thailand, Qatar and Indonesia. The BG Global Alliance, I mean the future of that is uncertain I guess beyond the close of the Shell BG deal, but at the moment it's going very well. We've awarded early work on it and that work is ramping up and proceeding well. And as we reported last time, we're, a circa $2 billion ammonia/urea complex in the Midwest is moving to EPC pricing in around the end of the year, December time. Major LNG developments in process supporting backlog growth in 2016 and beyond in addition to obviously the ammonia opportunities. The Shell Global LNG agreement is going very well also with a number of assignments underway. And the Tangguh LNG opportunity in Indonesia, again, as reported, is on track for EPC price submission later this year with award in early 2016. You have seen some of the announcements from – on Magnolia LNG by LNG Limited. They are now moving from, I guess, a four million-ton train solutions to an eight million-ton train solution because of, I guess, good progress and uptick in agreements. They feel confident that that's what they can get. And as a consequence of that, they've asked us to upgrade our study and our EPC pricing for 8 million tons, and that's underway and again, will be concluded on that before year-end. And work is underway on LNG Limited's Bearhead opportunity in Canada. And again, they've reported significant progress on a number of the approvals and permitting associated with that project. And pre-FEED work and tendering ongoing for two major FLNG projects, again, as we reported earlier. So now moving on to Government Services, we've confirmed preferred bidder for the U.K. Ministry of Defense Fixed Wing Training contract, another long-term annuity type project, and as we reported earlier, this award is expect this year. U.K. Army re-basing discussions continue on a sole-sourced basis. Decisions expected, again, within this year. So strong operational performance in the U.K., particularly on the PFI contracts and the sort of long-term facilities maintenance. As we disclosed earlier, our backlog has now been looked at and we've moved that up $5.4 billion higher to represent the true value of those contracts and across the whole of the O&M life span. We have a number of U.K. – sorry – U.S. overseas based operations support opportunities, which we're tendering at the moment, the largest of which is in Kuwait. And the services in Iraq as we support the U.S. military in their fight against ISIS, that continues to ramp up. And also, I'm very happy to report that we continue to make significant progress at successfully closing our U.S. government audits and legacy issues related to LogCAP III and the RIO contracts in Iraq. So we had a good quarter in that arena. So in summary, significantly improved earnings versus 2014, driven by strong operational performance. Our restructuring remains on track to deliver the cost savings of $200 million we announced previously, and we're standing by that number. And again, very good progress and achievement in some areas, a number of areas on our margin objectives. On Technology & Consulting, we're running above that at the moment, but the mix could bring that in line later through the year. E&C, upper single-digits. We're performing at that level and we're moving the Government Services business up towards the low teens as we progress, I think up a percent on last quarter. So continued success in strategically important areas. Johan Sverdrup we've talked about, the alliance for industrial services and pipe fabrication, selling the Buildings Group. We continue with a strong balance sheet, which again, in these difficult times is very prudent and gives us flexibility. A good bookings resulting in relatively unchanged from the Q1 backlog, which again, I think a great performance in this marketplace. Significant progress in closing out the legacy issues associated with LogCAP III and the RIO audits and also in part of closing out one of the major power plants. Expect two major LNG projects to contribute to 2015 and into 2016. EPS guidance now at $1.22 to $1.37, excluding legacy costs. And post-closing, we have shipped the final Canadian modules, and the first of the three EPC power plants is now operational. So again, I think significant de-risking of the business during the quarter. So I'd now like to hand it back to the operator for questions. Thank you.

Thank you. We'll now take our first question from John Rogers with D.A. Davidson. John Bergstrom Rogers - D.A. Davidson & Co.: Hi. Good morning. Congratulations on the quarter. I guess first question, Stuart, of the $200 million in annual cost savings that you're targeting, how much have you recognized of that in 2015? And so what would be the incremental amount in 2016? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Brian's probably best to answer that question. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Yeah, John, we haven't given the specific ranges for that, and the challenge is some of those costs are still in the results for the year. As the reductions occurred throughout the year and continue to occur, you had cost in there for the first six months, you have cost in for the first three months, so that $125 million is being spread out, some of which have been identified and are being actioned, and the costs haven't yet come out of the results that have been published. So by the end of the year, the full $125 million will be effective, but it's really a blend throughout the year. John Bergstrom Rogers - D.A. Davidson & Co.: Okay. Sorry, the $125 million? You referred to $200 million in annual cost savings. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Yes. Well what we've said is $125 million has been identified and actioned to date; $200 million is the goal. John Bergstrom Rogers - D.A. Davidson & Co.: Okay. Okay. Thanks for that clarification. And then I guess, Brian, just one other thing. In terms of the guidance, the $1.22 to $1.37, that includes presumably restructuring costs? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: It does. It does. It reflects the gain on the Building Group sale, which obviously had not been baked into the guidance at the beginning of the year, but it includes the restructuring and it also frankly, includes the correction of the error. The restructuring and the correction of the error kind of balance out. John Bergstrom Rogers - D.A. Davidson & Co.: Okay. Great. Thanks. I'll get back in queue. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Thank you.

And we'll take our next question from Tahira Afzal with KeyBanc Capital Markets.

Good morning, folks, and congratulations. Very solid quarter. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thank you, Tahira.

The first question, Stuart, we've seen sort of a scurry or flurry of LNG announcements recently, including potential contractor selections. If I do the math, it seems that at least for the near term demand, let's say, for the next three years, we're probably going to see an excess of capacity with customers are saying they're going ahead with projects. So I would love to get your viewpoint, do you think there's a chance you'll see a slight over-build as customers try to take advantage of a transitory low-cost environment? Or do you think eventually some of these projects will get slightly pushed out? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: I think probably the latter, Tahira. I think at the end of the day, the customers themselves, the client base are under capital allocation pressure as you know, and they're trying to cut their own costs and some are out over their skis and they're trying to get back. So I suspect the latter and that, I think what will be important is the cost of development and the relative competitiveness of the LNG projects themselves against each other. And I think we've said that all along, that we feel the ones that are more brownfield in nature can take advantage of existing infrastructure, et cetera, that are really sort of have the best chance to go ahead.

Got it. Okay. And Stuart, the next question, you mentioned again in your commentary that you're still hoping to see low teens kind of margins on the Government Services side. I would assume that would mean that you still expect that large U.K. contract to potentially be on time and we should start seeing a potential kick from that in 2016? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Yeah, I mean, there's two of those contracts. I think one is progressing very well, the Fixed Wing, and we do think that will close this year. And the Army 2020 is, as every year in the – you're in the – at the mercy of politics, and we do feel positive that that will progress again; it may move out a little bit, but I think there's a significant commitment from the U.K. government to bring the Army back from Germany. So it's just the (25:54). So I think we made the statement so we think both of those happen this year, but while certainly MFDS will happen this year and the decisions on Army 2020 will be made this year.

Got it. Thank you very much, folks. Congrats, and I'll hop back in the queue. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thanks. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Thanks, Tahira.

We'll now move on to our next question from Steven Fisher with UBS.

Great. Thanks. Good morning. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Good morning. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Good morning, Steve.

Just wondering if you could talk about the trajectory of backlog you see in both the near term in Q3 and Q4 and then, how you think the backlog could progress in 2016, assuming Magnolia and Tangguh projects come through? And related to that, are the Tangguh and Magnolia potential awards bigger than what you still have left to burn on Gorgon and Ichthys? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Good question. I think – I mean, everything relates to timing, I think, Steve. Our statements before were really that we expected backlog to be flat through the year and certainly our performance this quarter is – would sort of hold up in that debate. I think going into towards the end of the year, there's a lot – not a lot – but we're thinking very much, very heavily around the fertilizer project and the timing around that is set for this financial year, but again, it could probably – it could slip. It's not scheduled to, but these things can move a little bit to the right, and if it moves to the right, it'll slip into early 2016. But moving into 2016 on the broader question around Tangguh and our ammonia opportunities on Magnolia, there's a good opportunity for us if the stars align with those things could increase our backlog.

Okay. And then I'm not sure if I missed it. I didn't see anything definitive in the Q, but just if you could just give us the Pemex update. It sounded like that was sort of potentially imminent, but I know it's a hard thing to nail down specifically. I don't know if there's any update there you could give us? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Yeah, unfortunately not. Again, I think we're at the mercy of the U.S. legal system and we're still waiting for the ruling. And as we said last time, once that ruling is made, assuming it's in our favor, it then goes back to the lower courts for I guess the formal implementation of that ruling. And thereafter, the recourse that Pemex would have would be to the Supreme Court. And if the Supreme Court does not hear that because it's simply a resolution of business, not a matter of law, and that's really the feedback we've had from the third-party lawyers, but the external counsel, that they feel it's unlikely the Supreme Court would hear that. I mean, unlikely doesn't mean they won't, of course, but it's unlikely. And then it would be finally finished, but we're waiting for that ruling to come out of the system. And all the arguments and papers and things are all submitted and have been for quite a few months now. So...

Are we still – sorry. Go ahead. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Yeah, no, we'll obviously, when that – when we do hear that, we'll come out and tell you.

So probably still more in 2016 kind of timeframe for that? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Yeah. I think that's right.

Okay. All right. Nice job on the quarter. Thanks. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thanks. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Thank you.

We'll now take our next question from Jamie Cook with Credit Suisse. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): Hi. Good morning, and nice quarter. I guess a couple questions. You know, one, Brian, as it relates to the guidance, the implied guidance for the back half of the year, I think implies like $0.43 to $0.58, which would imply numbers at the low end of the range are below the first half sort of clean numbers. So I'm just trying to understand what would be the drivers behind that. One, are there any – just given the cost saving initiative that you should benefit from. So are there any deferrals or projects getting pushed out? Are there any projects that are completing? I'm just trying to understand why the back end of the guide would be so much lower relative to what we've seen in the first half with the cost saving benefits that you're getting? And then I guess my second question relates to cash flow. It was a little light in the quarter relative to what I would have thought. So can you give your expectations on how you're thinking about the back half of the year? And then I guess my last question, Stuart, would be you talked about the two LNG projects. Could you talk about the resolution of the pending change orders? I guess just given that we're six months into the year, how you're feeling about that contribution in 2016? I think there was news this morning that there were pending strikes in the Gorgon project. I'm just trying to get a feel if you're still comfortable with your ability to get those change orders. Thanks. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Okay. I guess I'll start off with the guidance. Jamie, basically we've changed the guidance for the gain on the sale of the Building Group. We're trying to go slow, walk before we run. We've had severance costs in there that we hadn't contemplated at the beginning of the year. We have a correction of an error that we hadn't contemplated at the beginning of the year, and we still have a ways to go in some challenging markets. So we're keeping basically guidance unchanged except for the transaction, and we'll see how we go as we progress throughout the year. In terms of cash, pretty much as expected. The last quarter we said that cash balance should be relatively flat through the last three quarters of the year. Some quarters up a little bit, some quarters down a little bit, and I don't think anything has changed there as well. So we were down slightly but nothing that was unexpected. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): But I guess, Brian, just to clarify, and I understand with the guidance, but to be clear the cost benefit associated with the restructuring should continue to gain traction and there's nothing that you see today that would imply the earnings generated from your backlog should deteriorate for whatever reason via there's some projects that are completing, via we're concerned about something. I'm just trying to understand if there's anything that's in there. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: No. No projects that are completing. No concerns other than it's a challenging market, and we have six months to go. So nothing in that regard, anything significant change. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): And the cost savings should continue to accelerate? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: The cost savings should continue to accelerate, but that's something we have considered for some time. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): Okay. Thanks. And then just, sorry Stuart, the last question just on how you're feeling about Gorgon and Ichthys and the ability to get favorable change order as we look to 2016 versus six months ago. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Yeah. It's difficult, Jamie, to be specific just because of the nature of the ongoing discussions and negotiations. But we would not have put it into our presentation if we didn't feel we weren't confident of resolution. Coming back to your question again about guidance and the things we're doing, we're trying very hard to deliver on our promise. And we're not putting anything down here that we feel is something that's not achievable. So again, we stay firm on the statements that we made earlier. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): All right. Great. I'll get back in queue. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thanks, Jamie.

We'll now take our next question from Jerry Revich with Goldman Sachs. Jerry David Revich - Goldman Sachs & Co.: Hi. Good morning. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Good morning, Jerry. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Good morning, Jerry. Jerry David Revich - Goldman Sachs & Co.: I'm wondering if you could just talk about the Johan Sverdrup field. I think we're looking for total CapEx of over $3 billion. Would love to understand what proportion of that would be addressable scope for you and then are there opportunities for follow-on work on the surrounding fields? And I understand those fields are moving towards final investment decision as well this year. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: On Johan Sverdrup, the first phase is circa $3 billion to $4 billion. Our addressable piece of that is a piece that we've won to date and that cost to $850 million to $900 million that we're in joint venture with Kvaerner. And so that's what we've announced. I think the exciting part about it, Jerry, is the fact that we feel it's the first stage of a multi-stage development. So I think the overall future CapEx spend on that particular development will be significantly above $3 billion for sure. So that's probably the more exciting piece about it. Jerry David Revich - Goldman Sachs & Co.: Okay. Thank you. And Stuart, you spoke about in your prepared remarks, opportunities in the Middle East in refining and petrochem. I'm wondering if you could just give us some more color in terms of number of greenfields, anything you're comfortable sharing just to flush out the opportunity set for us. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: We've not, I think most people are aware that we're in the midst of doing the Sadara complex in the Middle East which is the largest integrated petrochem facility in the world which is a joint venture between Dow Chemicals and Aramco. And we've got a rich history in the Middle East and particularly in Saudi Arabia, both with Sabic and with Aramco. And we're seeing a number of opportunities not just with inside Saudi Arabia as well but outside, and also people like Sabic, companies like Sabic, looking outside of Saudi to expand their portfolios, and so I think it's difficult at this stage and we've not talked specifically about named opportunities in there, but it's an ongoing part of our business and there are a number of key prospects in and around that part of the world for sure. Jerry David Revich - Goldman Sachs & Co.: Thank you.

Thank you. Our next question now comes from Brian Konigsberg with Vertical Research Partners.

Yes. Hi. Good morning. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Good morning, Brian.

Hey. I just wanted to touch on the comment that you made, seeing some progress on closing U.S. government audits, on LogCAP and RIO billing. Will that give you the opportunity to accelerate the collections on the Form 1s that are outstanding? Is that included in the cash flow outlook? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Yes, the more we close out the audits, there is an opportunity for us to collect some cash as we're pushing for funding. The two are separate. Some of the disputes we have with the Form 1s are separate from the audit, but to the extent that we do owe some money, we can offset it against what is owed to us, so we eliminate the liability. But to answer your specific question, there is no significant amounts of cash included in the cash flow forecast coming from the settlements with the U.S. government. They could come, but that would be upside.

All right. Great. And just secondly, just questions on FLNG, so involved in pre-FEED. I was under the impression at least one of those was a little bit further along particularly on the east coast of Africa. Maybe you can just comment, is the next stage on at least one of those a FEED/EPC opportunity or will it progress into FEED and then later on into EPC? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: That's probably my choice of – oh, sorry, Brian, my choice of words weren't particularly good there. We did actually say that one is in pre-FEED and one is tendering. And the one that's tendering is the EPC opportunity in the east coast of Africa.

And that would be anticipated by year end? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Yes.

Understood. All right, thanks. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: The client is saying that they will make a decision before year end.

Got it. Thank you very much.

We'll now move on to George O'Leary with Tudor, Pickering, Holt & Company. George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc.: Good morning, guys. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Good morning. George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc.: Good job on the cost savings execution so far. I was wondering if you could just provide a little more color on where the incremental cost saves came from quarter-on-quarter? And then as you look forward, if you broke it down into some buckets, corporate costs, combining facilities versus incremental reductions in work force, where you see the lowest hanging fruit and then the more challenging cost cuts as we move through the back half of the year? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Well, the cost reductions really come across everything. We are looking at all costs, whether it be staffing levels, whether it be office, whether it be IT, whether it be travel, training, et cetera. So, it really is a comprehensive approach and we're not trying to break it down by individual categories, we're just looking at the totals. What I can tell you is, the majority of which is occurring in the businesses in terms of percentage, it's embedded in the gross profit number that you see, but you get a lot more visibility into the G&A line which is pretty transparent in the financial statements. So – but without question and unfortunately – the majority of the costs related to reductions in total staffing. But again, it is a comprehensive approach to cost and we are encouraging people to come up with ideas, suggestions on how we can accelerate this, be more efficient, and we've gotten some very good responses from the staff as well. George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc.: Great. That's helpful color. And then maybe just one more on customer sentiment. As you – oil prices ramped up from $50 to $60 if you can call that really a bounce – at least in the U.S. onshore you saw operators think about adding activity back. I think your customer base is much more long-term thinking than that. As we retrench down from $60 back to sub-$50 a barrel, have discussions with customers changed or has their long-term outlook remained somewhat the same and not much change in customer behavior? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: I think what you're, I mean, both Shell and Chevron have asked for their redundancies over the last little while, a day or so. I think certainly their view would be that this isn't a short-term-ism. There's a lot of market forces at play. The Iranian situation as well will bring more oil on to the market. So I think the sentiment of the customers is not changed. I think it was there before. But I think clearly there is, this oil price will be, we think, at this level for some time. And we've tried to set our stall out and our business to strategically line up against that. And I think it's also we're seeing our exposure is predominantly in the gas arena rather than the oil arena. And across areas, it's not just oil and gas, particularly with chemical companies, et cetera. George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc.: Great. Thanks very much for the color, guys. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Thank you.

And we'll take our next question from Robert Connors with Stifel. Robert Connors - Stifel, Nicolaus & Co., Inc.: Hey, guys. Good morning. How are you? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Good morning, Rob. Robert Connors - Stifel, Nicolaus & Co., Inc.: I just noticed perusing the Q very quickly that the language around a potential repatriation was removed versus the past couple of filings. And just wondering what the reasoning was around that. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: The repatriation of cash from overseas? Robert Connors - Stifel, Nicolaus & Co., Inc.: Yeah. I believe there was a strategy that identified possibly up to $370 million sitting in Australia and the U.K.? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Well we have repatriated some cash. But to be honest, I'm not clear why any language was removed other than we have repatriated some cash. We had put a plan in place, and we've been able to bring cash back without incurring any significant cash or P&L hits. Robert Connors - Stifel, Nicolaus & Co., Inc.: Okay. Do you have any numbers around how much was brought back year-to-date? Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: I don't. But cash moves back and forth routinely. We're talking at least a couple hundred million dollars. Robert Connors - Stifel, Nicolaus & Co., Inc.: Okay. Great. That was my only question. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Okay, Rob. Thank you. Robert Connors - Stifel, Nicolaus & Co., Inc.: Thanks.

We'll now take our final question from Vishal Shah with Deutsche Bank.

Hi. This is – thanks for taking my question. Just wanted to get some clarification on the profitability of the two segments, the E&C segment is running at upper single digit margins. And you still have some restructuring to go. How should we think about that segment profitability in the second half? And could there be some upside to your target margins in that segment as well as in the Technology segment? Thank you. Brian K. Ferraioli - Chief Financial Officer & Executive Vice President: Well, I think we're sticking by the long-term goals that we established when we rolled out the strategy with the Technology & Consulting being in the low 20%s. The mix of work will impact both of the segments. But in Technology & Consulting, the more technology the higher the margin would be. The more proprietary equipment and consulting services, those margins would come back down. So it really depends on the mix. On a longer term basis, the blend in the low 20%s we think still is a reasonable estimate. And the same with the engineering and construction where the mix has a big influence. If you do more services the profit margin would tend to be higher. If you do more EPC where you have the construction, the margins tend to be lower, the volume of business will be higher but the margins will be lower. So again, on a longer-term basis, we think the upper single digits for the E&C is a good basis. That will move around from quarter-to-quarter depending again on the mix. But we're pretty confident that we can achieve those goals that we set out last December.

That's helpful. And can you just comment on the Middle East strategy? And you said that you are looking to hire new business head and president in that region. What sort of changes do you expect to make in that region? Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Representation, Vishal, in the Middle East is very much about going and doing a project and coming out – the Pearl GTL project we did in Qatar would be a good opportunity. But since then really our legacy has very much centered attention on Saudi Arabia. And so we feel there's great opportunity for us to build businesses in and around the rest of the Middle East, whether that's in Oman or Qatar or Abu Dhabi or Kuwait, et cetera. And opportunities in Iraq, for that matter. And really establish, our brand is very well-respected, it's very well-known across the Middle East. And I think we've got a great opportunity and some significant growth opportunities for us looking at the Middle East in isolation.

Thank you.

Thank you. And that does conclude the question-and-answer session. Mr. Stuart Bradie, at this time I will turn the conference back over to you for any additional or closing remarks. Stuart Bradie - President & Chief Executive Officer & Group President-Engineering & Construction: Thank you. Thank you very much. Well thank you very much for taking the time to listen to us this morning. Again it's a pleasure to be able to talk about a company we're very passionate about and we're very passionate about the future. And I think coming back to some of the statements earlier, we're very conscious that historically we failed to deliver on promises and certainly since my tenure we've been very clear as to what our strategic goals were and what the metrics would be that we should be measured against, and we're sticking by those and we report against them next quarter again. So thank you very much again for taking the time, and I look forward to seeing you all as we travel around. Thank you.

That does conclude today's conference. Thank you all for your participation, and you may now disconnect.