Good day, and welcome to KBR Inc. Second Quarter 2019 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 this time. For opening remarks and introductions, I would now like to turn the call over to Alison Vasquez. Please go ahead.

Good morning, and thank you for attending KBR's second quarter 2019 earnings call. Joining us today are Stuart Bradie, President and Chief Executive Officer; and Mark Sopp, Executive Vice President and Chief Financial Officer. Stuart and Mark will discuss highlights from the quarter, our market outlook, and financial results. After these remarks, we will open the call for questions. Today's earnings presentation is available on the Investors section of our website at kbr.com. I would like to remind the audience that this discussion may include forward-looking statements, reflecting KBR's views about future events and their potential impact on performance as outlined on slide two. 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 our most recent 10-K available on our website. I'll now turn the call over to Stuart.

Thanks, Alison. Good morning and thank you for joining us and for your interest in KBR. I'd like to start as usual on slide four excellence in health, safety, security, and of course the environment. It takes every person, all 38,000 by KBR to be aligned and fully committed to achieving Zero Harm to deliver the performance you see on the graph. We've had a great first half and a great start to 2019. And since inception of Zero Harm and courage to care program, and belief has become a cornerstone of a culture and values. The results speak for themselves and I wish to thank all of KBR for their unwavering passion. As a people company, this is essential. On to slide five. At our Investor Day in May, we presented new KBR as a growth and value story. After a strong Q1, our performance in Q2 and collectively for the first half of 2019 supports the story. A 12% growth in revenue year-on-year, delivered 16% growth in EBITDA, margin performance was thus very pleasing and of course in-line with our long-term target. With our continued leading organic growth in Government Solutions and in technology and on cash, positive cash performance has been delivered and a cash conversion year-to-date of 92% is also very pleasing more from Mark on this later. This is the 10th consecutive quarter performing at or above expectation. The quality of earnings and our backlog and a delivery focus has and continues to deliver growth that is both more predictable and sustainable. Our overall book-to-bill for the quarter was 1.5. The pushing momentum in Energy Solutions from Q1 has continued into Q2. And with the recently announced Methanex FID will continue in Q3. Note all major awards are for reimbursable services. Our book-to-bill in Government…

Great, Stuart. Thanks. I'll pick it up on slide nine. Although I would like to point out the image on the previous cover slide that shows the heavy equipment transporter vehicles that we have successfully managed under our PFI contracts for the United Kingdom Ministry of Defense over the past 16 years. We maintain and provision these vehicles around the world to meet UK and allied military needs. And our team has won a number of awards in doing so, including the best MoD PFI project and also a number of safety awards along the way. So really cool stuff. Now into the results on slide nine. Our results were strong across the board and consistent with our expectations at this point in the year. A couple of highlights worth pointing out here. First the ongoing strength in organic revenue growth, with the consolidated business at a $5.7 billion run rate, which is starting to provide the scale benefits that we envisioned in our long-term strategy. There's some distortion in the gross profit and operating income comparisons as last year we had a favorable project completion gain at an LNG projects, which disproportionately benefited these lines in Q2 of 2018. This is largely offset by a $16 million expense for non-controlling interest, representing our JV partners share of that benefit, which you can see towards the bottom of this table. When you adjust for this, the gross and operating margin profiles are essentially flat year-over-year. We've added tables in the appendix showing this effect and also segment EBITDA by quarter as many have requested. Equity and earnings was stronger in Q2 this year and a little above normative with a favorable lump sum project close out, but also on consistently good results out of our Brown & Root Industrial Services…

Thanks, Mark. On to slide 13, titled Growth and Value. It is a fantastic time to be a KBR. Our people continue to reshape KBR and deliver outstanding results. Our consecutive quarters of performance, backlog with attractive quality of earnings and cash characteristics are growing nicely across energy and government, combined with market dynamics and an attractive pipeline, we continue to increase certainty and create opportunities to deliver against our long-term targets. Thank you. And I will now hand back to the operator, who will open the call up for questions.

Thank you. [Operator Instructions] We'll take our first question from Brent Thielman with D.A. Davidson. Please go ahead.

Great, thanks. Congratulations on the quarter.

Thank you very much.

And Stuart congrats on the Freeport. I know you've talked for some time about KBR's ability to be selective on these sort of projects and pick the best fit. I guess I want to get your thoughts and imagine this portfolio of government and Energy Solutions, whether you have a desire to add another LNG project to the mix?

Only if we've got an 18 to get on it only if we can get the terms and conditions that makes sense. And with a customer who's going to behave properly. And I think we've got -- we have the opportunity I've talked about this probably before to do we think one LNG in the UK has got a strong execution capability there. That's where we're building Nigeria, LNG from and two in the U.S. concurrently. So I still think there's headroom there from an LNG perspective. But, I'll come back to the statement we've made many times will be highly considered about what we do, what terms we do it under and who we do it for, and hopefully as we can't believe we've got a good quality of earnings with any backlog we won’t do it. And we don't need to do it. And I think we've been very consistent in our messaging.

Okay, great. And I guess my follow up, you've had a lot of new award and recompete successes in government so far this year, and I guess as you looked out at the pipeline into next year, how do you see the size and kind of scale of opportunities shaping up if we were to put long cap five aside? I guess so the opportunities is robust to kind of keep this bookings momentum that you've seen this year.

I mean, it's been quite an interesting dynamic over the last little while. You're quite right, our recompete win rate has been outstanding, and the team has done an enormously good job in terms of ongoing delivery and positioning for those recompete. So that's been very pleasing. I think with sense and others, and the awards and some of the losses, of course, that have happened over the period our pipeline actually went up from last quarter to this quarter in Government Services with those coming out. So I think the market is there, the way we're positioned in the market is highly exciting and attractive. The number of pursuits over $100 million is significant and quite near-term. So we're feeling really good about the replacement pipeline that's come in, in the last quarter, because it's going up, but also the quality of what's in front of us.

Thank you.

As a reminder to participants please limit yourself to one question with a follow up. We'll take our next question from Jamie Cook with Credit Suisse. Please go ahead.

Hi, good morning, everyone. This is Alex Con [ph] on for Jamie. Thanks for taking my question. So question on the Energy Solutions. So as you said, that was the only segment, it's on the quarter to have a year-over-year decline, but there has been some quite some sequential improvement over the past couple quarters. So I was wondering, just given the award outlook for the business including as you called out Freeport and I guess the general LNG outlook, which you've highlighted, when we could expect to see like a bigger uptick in revenue over the segment, whether that be in 2020 or the back half of this year?

I think we were quite particular about stating that on our Investor Day that 2019 would be a lot of the growth is coming from the services piece and winning LNG. So it wraps up after the period of engineering. The interesting characteristic with Freeport LNG is because it's an identical fourth train of three trains being built today, the level of engineering is actually not as high as is typical. And as a consequence of that we actually get to the field sooner. So assuming the FID happens at the latter part of this year early next year, we will actually mobilize the field very quickly thereafter. So, you will start to see quite a significant ramp up on the LNG side and as far as construction is concerned and as we progress through 2020, probably faster than is typical. And also say that, we're mobilizing to the field right now on blade for Exxon and we've obviously moving into the EPC phase of Methanex and this will include procurement as well as actually mobilize into the field as we move into 2020. So I think you will see quite a significant uptick in activity and volume as we move into 2020 and progressively so. So I think, you'll see quite a push in 2020 and beyond.

That's great. Thank you very much.

We'll take our next question from Tahira Afzal with KeyBanc. Go ahead.

Hi, congratulations on the quarters, Stuart.

Thank you very much, Tahira.

So, I guess first question for me. We've been tracking all the pretty big announcements coming out on the NASA front. To the extent the moon mission and timeline are what -- are being enforced, can you comment a bit now that we've seen a bit of time flyby on potential upsize on the NASA budget? Form everything I've read the $2 billion or so does not seem big enough. And does that essentially mean that just $700 million or so per annum, could sizably go up over the next few years?

Yes, I think -- yes, I mean, I think of course, it could grow up over the next few years with the activity that's happening not just on the moon shot, but actually the other areas of space where we're busy under human health, which falls under our space sector. So, I think that not always well, in terms of actually the moon shots itself, there's a -- I don't think there's clarity there yet in terms of the levels of activity and where that will be. We are seeing a lot of interest, we've got a lot of dialogue going on in terms of how we best position to support that moon shot. And I think we need to sort of come back to the market as things become clearer, but certainly there's a huge amount of activity in that area. And I think we're very well positioned to take advantage of it.

Got it, good. And then just a follow up on the LNG question. When you look out and you look at the cycles, Stuart, how many of these projects in terms of cadence do you really see going ahead realistically? Are we going to see a flurry this year and for the next 12 months, and then it ends? And the reason I ask is I think we all follow that you're well positioned on Nigeria LNG as well. But then there are sleepers set to come and surprise like Blackamine [ph] that I believe you guys are very well positioned on and outsize? And I'm trying to assess how real those are?

Yes, I think like, all of these waves or cycles as we've seen in the past, they tend to last longer than people expect because, projects have, -- they take longer to get up or move forward or there's delays in FID or whatever that might be. So, I think that not all will go ahead, you're quite right, Tahira. And -- but I think the ones we're tracking at the moment, we've talked about these a few times in terms of Nigeria and the next the sort of Lake Charles is we’re bidding that now and doing frontend EPC bid for that and should we have another. So we’re trying to be very focused then on sort of really opportunities that we feel will go ahead because of backed up of clients of substance and that develop our clients that these are harder projects to move forward and one or two will be successful I'm sure it’s very difficult to say which ones will go ahead and which ones won’t because depend on so much particularly credibility and their ability to get the off-stakes in place. But I think for us in terms of our outlook we’ve set our stall out to win one LNG and I think we’ve not announced this publicly yet, but we’ve actually signed the EPC contract for Freeport yesterday. And that’s all in good shape too and we’ve got a limited notice to proceed to advance a number of sort of pre-sites activities. So that all be as well for that. And so when we -- if you -- our stall and our whole sort of targets that we laid out in May were really based on security sort of one mid-sized LNG which is really Freeport is that project if you like in that sense. And so anything above that is really additive to our growth story and I think we’ve got a great opportunity to convert that additive and it’s difficult to say which ones will go ahead and which ones won’t but what I would say is that the ones that we talk about more publicly has probably got better chance to go ahead just given the guess that the potential net present value associated with expansions versus greenfield projects. And then secondly who the customers are.

Got it, thank you so much and congratulations, Stuart.

Thank you.

[Operator Instructions] We’ll take our next question from Jerry Revich with Goldman Sachs. Please go ahead. Mr. Revich your line is open.

Yes, sorry, can you hear me now?

Yes, clear enough.

Okay, perfect. Good morning everyone. So really nice performance across the portfolio from booking standpoint maybe you just dive into the discussion a bit more so it’s nice that you folks were able to win Freeport after a couple of other contractors have had cost runs in LNG can you just talk about what the competitive environment was in that contract discussion? And [indiscernible] prospect project…

Yes, I mean, I think, Jerry, the line is not super clear, but I think what you’re asking was the fact that we’ve won Freeport and others are having challenges on the cost overruns, while we feel we’re well positioned not to do that I think that’s really the question. But I think if you look at what’s happening in Freeport LNG it’s the fourth train of the identical trains. I think we’ve just finished a project right next door to that site for the [indiscernible] BSF quite a bit sync gas job at a very similar level of manpower onsite. And so we know the area well, the dynamics of the labor force, we know the potash, we know the mayor, we knew how to operate right next door. We’re going to have the advantage of all the stock op lessons learned and the executions lessons learned as we move into the fourth train. And we also we understand obviously productivity norms and labor costs and the dynamics that are associated with cost in that arena. And so I think there’s some very unique sort of risk mitigators associated with that and we’ll likely not disclose our pricing for signing this contract or later on as we get closer to FID, in line with the customer. And I think when that pricing comes to market we said very clear all along that we are not booking revenue for the sake of booking revenue to do something smart with our share price we’re actually looking quality of earnings associated with long-term growth and we’ve been very consistent there and this is no different. So I think there’s some unique attributes to this and that derisk it significantly, and I think we know the existing pricing of the incumbent, and they've…

That's great. And then you folks have had a good win rate for hydrocarbons reimbursable projects, as well. And it sounds like based on your prepared remarks, the order outlook is pretty interesting from here. Can you just expand on what end markets you expect to drive that outside of the ammonia, your outlook sounds more positive in terms of the prospect as compared to a few others in the space?

Yeah, I mean, I said, we have no ammonia, at this point, we've got one or two opportunities in front of us, but actually a lot of what we're doing is in the midstream area, in the Permian, we've announced that we -- our newest refinery expansions as methanol plants, that's really taking advantage of the market dynamics associated with monetizing cheap gas in the U.S. And that's what's driving a lot of the activity. Plus, I guess, what we're doing in Azerbaijan, which is going very, very well, and we're well positioned in the Middle East. So there's two or three key markets, but the one that's driven a lot of the book-to-bill in the last couple of quarters that’s in the U.S. in that sort of mid and downstream sector.

Okay. I appreciate the discussion. Thank you.

Welcome.

We'll take our next question from Gautam Khanna with Cowen & Company. Please go ahead.

Good morning, this is Jeff Molinari on for Gautam Khanna. Thank you for taking my questions.

Good morning, Jeff.

Good morning. So first question -- well congratulations on the LOGCAP V win. Looks like the protest expires in Q3 upon which you'll book a formal award. What's the latest expectation if you do get -- if the protest does expire, what's the latest expectation for annual sales and margin impact going forward from that project?

Yes, I think I'll answer the first part just on timing, and then I'll let Mark talk a little bit about the numbers. So, ultimately, you're quite right, the protest feed is actually over in I think early to mid-August. And then we'll understand where we're at. We've said quite clearly on our Investor Day, there's a transition period as you move from one contract to another. And that likely will take about six months. And so there'll be very little impact to our current outlook for 2019, and in fact no impact has been assumed at all. And so the ramp up associated with the change will actually come through in 2020. So that's a sort of timing aspects to this. And Mark?

Yes, so Stuart, exactly right, no impact to 2019. We've been very clear about that as we prepare our plans for next year, we’ll of course know more, and guide accordingly, what -- in terms of what is in our targets that we talked about in May. We looked very hard at the objective data for what the previous contractors had done in the regions that will be new to us was particularly Afghanistan. And we have taken a more conservative view relative to our targets to those areas, just for purposes of being conservative and cautious. We also would recognize that the takeover, if you will, of NORTHCOM is really good for us. It's nice book of business, it is more funded out of the O&M area, for training and sustaining as opposed to OCL [ph] so we like the stability and predictability of that. At the end of the day, we've taken a more conservative view relative to the data we see from the incumbents. That said, we expect to be modestly above our current run rate, once LOGCAP V, really gets going sometime in 2020, as a result of our increased presence, with NORTHCOM being added, and with Afghanistan being extensively the larger footprint than our previous CENTCOM work.

Thanks for the color, guys. I got one more question. Just switching gears to the other side of the business. Do you mind providing an update on the Ichthys project, I know, the release said the final expectations remain unchanged, which was we were happy to see that. But when do you expect the complete turn over to the client and kind of what are the expectations for the side and timeframe for recoveries? Thank you.

Okay. I’ll try and dig a little bit chance to sink on that having at the moment I think everyone's aware we're finishing the power station and we've got the steam turbines only to finish everything else, the gas turbines, et cetera are all care cost control of the customer. Those three steam turbines were I was hoping on this call to be able to save our exporting power and I can we have exploiting power from STG 1 and 2, with STG 3 in a couple of weeks and the three identical steam turbines. So, it's fair to assume that one is performing all three will perform and certainly two are performing today. So that's fantastic progress. We expect to close out the commissioning and the tuning of those during the month of August with handover probably in September and then we'll be off the site completely.

Okay, we'll take our next question from Michael Dudas with Vertical Research. Please go ahead.

Good morning, gentlemen. Alison, how are you doing?

Michael, you're always the charmer of the day.

Just trying to be consistent. So Stuart, I guess, slide number seven very, very helpful and looking at the funnel and the outlook. When you think about the 27% of what you need to book over the next several years to achieve these targets. It sounds just from the discussion, what we've been reading and following here that there's quite a bit of opportunity. How do we -- is it more -- is it risk relative to improve margin, utilization of the talent that you have, by having go get others. How do you how do you think through it when you're trying to fill those buckets to achieve the optimal level of risk return growth cash flow that we should anticipate over the next several years?

I think you should anticipate the targets that we've published in May, Mike is really the -- where we're aiming to take the business. There is no resource constraint or a margin impact at all in achieving that. I think the piece that is the dynamic here on the green part of that chart, which is something we haven't talked about is the fact that we do have a book of business that is short-term and recurring in our advisory consulting business pieces of what we do in technology, even sort of small engineering and front end design tasks and things like that. And that carries usually, 10% to 15% of our book of business on an ongoing basis. So, if we actually portray that within those green bars, obviously, the 27% would be down significantly. But of course, we haven’t booked it, so we're just told the truth, but that's a recurring nature of our business in those areas. So I think all we're trying to do with those grasses is that we've changed the dynamic in KBR in a way that we've got long term contracts that have built in margin profile and more as importantly or even more importantly, cost genitive qualities. And as a consequence of that we're trying to show the investment community, the quality of that backlog and what it means going through 2022. Are there opportunities to do better there? Yes, of course, because of the way that we've taken a conservative view on some areas. But I think it's a balanced view. And we said all along that, this is about -- this is a growth story and it's also value story in terms of the way we generate cash. And, we believe our margins will be consistent through the piece we’ve actually we might get a little bit uptake with the economies of scale. But at the end of the day, that's not what we're banking on here. We're actually banking on being very well positioned to grow the company. And I think we're proving that out.

Appreciate that. Just a quick follow up, as maybe for Mark, as you look at the balance sheet, and the tremendous performance we've seen on leverage ratios and the cash generation. And the anticipated, when do you think KBR from a balance sheet standpoint, and from a business standpoint, might be ready to think about an acquisition program? I'm assuming we're thinking maybe 2020. But just maybe just highlight that a little bit on where we think and after getting through the issues, the positive issues on driving that balance sheet lower? Thank you.

I think, we've been pretty clear about our intent to have a strong balance sheet overall. That would enable us a number of strategic alternatives. We've been very clear that absent compelling M&A in recent years, we would a year or so we will focus on de-leveraging, and we've done that quite well. I think we got a good chance to cross our targeted leverage in this fiscal year, by the end of the year. So that's great. But we've always said that we -- Stuart says kiss a lot of frogs, and look at opportunities that come forward all the time. And M&A has been very favorably transformative for this company. And so we pay keen attention to that. And so we're always aware of what's out there. And I would say from a priority perspective, with the criteria of having a strong balance sheet and flexible strategic alternatives. We would avail ourselves an opportunities in M&A as it pertains to, for example, technology. We've talked about industrial services, on a global basis being something of interest, we've talked about furthering our space portfolio, as well as we have become a leader in the area. And so, again, as opportunities present themselves, if they can generate revenue synergies for our business and allow us to move up market if you will, relative to barriers to entry and businesses that are protected from a competitive perspective, we're interested. And what we like about the portfolio we have today is it’s very cash generative, it's low capital intensity, and it does enable those alternatives to be pursued. And when they're not there, we've been very clear, our buybacks are very attractive alternative for value creation as well. And we're certainly near the point where we can be more aggressive there.

Appreciate the thoughts. Thanks, gentlemen.

Thank you.

We'll take our next question from Andy Kaplowitz with Citi. Please go ahead.

Hi, this is Piyush [ph] on behalf of Andy, thank you for taking my questions.

Proceed. Thanks for joining us.

Technology had another strong quarter. At this point, do you see any pullback in growth rate for the remainder of the year? Or do you think like 2019 growth for technology would be on the higher end of your long term range? And also, if you could highlight any constraint that stops you from beating the target range for this year?

So yes, I mean, technology at the moment is very exciting. And, particularly the -- I guess, the traction we’re getting and disruptor technologies like KSAT and I guess the ongoing demand across our portfolio. And I think as Mark said, there has been a stabilization of ammonia pricing that's allowing people to make investment decisions in our arena where we're a world leader. So we're actually seeing a very, very healthy pipeline in front of us for technology. And I think my expectation is that we’re well on track to be in the zip code of the targets that we laid out in May. And so that all plays well going forward the new rev rec rules actually help us there as well because we’re getting more consistency in performance as revenue and margins are recognized over a longer forward period than there had been historically. So there’s more stability in the earnings profile of that business. So that bears very well. Is there anything that could disrupt that I mean I think rather than -- other than sort of unforeseen geopolitical things or some other disruptive technology coming on to the market that we’re not aware of I would say at this point we’re pretty confident about where we’re heading in technology.

That was helpful. And you touched briefly on in your prepared remarks, but can you elaborate on your cash flow performance for this quarter? Was this in line with your expectations and how should we think about the cadence for the cash for the remainder of the year?

Sure, I would say that we’re a little ahead of our expectations in the first quarter and slightly behind in the second quarter and on a year-to-date basis we’re right on track. I will say that when you really step back from this we are still integrating some acquisitions. We I think to our credit are very externally focused on running recomplete, generating synergies, having superb organic growth. And so the teams are already busy and we’re also doing things like ERP implementation on the inside as well to prepare for the future and the ability to scale very efficiently and effectively. And with that it’s a little challenging to manage working capital along that path of activity, but it is a key focus. We can do better, we will do better, it will take some time but we expect the conversion ratio to be stronger in the second half. We’re very comfortable with our guidance for the year and again a very cash generative business we still operate on a consolidated basis with net negative working capital with the advances we get from our customers, so we’re quite effective there. But I can assure you that with all the other priorities we have the speed of billing, the speed of collection is an important priority for the finance function, but also the program managers and the whole team, it’s a team sport. And we’re fine tuning our skills there as we have grown this business so impressively.

Thank you.

We will take our next question from Chad Dillard with Deutsche Bank. Please go ahead.

Hi, this is George [ph] on for Chad thanks for taking the question. Couple of things, first could you quantify the benefit of the close out in GS for the quarter?

We don’t talk about specific items within our segments like that, but it was a half to a full turn in terms of percentage points for the asset sales of the definitization in aggregate. So you’ve seeing our normative margins in GS usually between 9 and 10 and we should go above 10 this quarter for those reasons.

Got it, that’s helpful. And second thing, how much of your energy project pipeline is cost reimbursable and you continue to see more customers being comfortable with doing that type of work with you guys?

Yes, so now we’re seeing that we’re getting significant opportunities because of performance and I guess the good measure the best business development you can do is quite friendly enough that should just do a good job and you get repeat business, and we’re seeing quite a lot of that activity. And I think as I said before the dynamic of our overseas customers the people like SABIC and Saudi Aramco investing in the U.S. and we’re able to bring our relationships in our performance of what we’re doing in Saudi et cetera and into the U.S. And so those dynamics are affording us significant opportunity in the reimbursable environment Methanex of course on top of that. So we’re seeing a lot of opportunity there and all the work that we’ve booked and they saw the major pieces of that work are all cost reimbursable. And the book to bill that was posted in Q1 and Q2 so we’ve also been very clear with our customers and with the market that we’re only interested in doing lump sum turnkey in LNG. And we've been very, very focused in on that. And the reason for that is quite clear, we've done the analysis and looking back we have made money on LNG projects, regardless of the contractual structure consistently and holistically in fact, and all the jobs that we've done in the past. So we feel pretty -- that we're pretty confident and we have the right resource base and management skills and technology understanding to do well in LNG and we have decided that that quite frankly to manage that risk needs to be very focused. And as a consequence of that, we're going to put our A teams onto those jobs and we're not going to be distracted doing out some turnkey elsewhere. What does that mean is that we have a very, very clear, I guess, risk focus. But also what is also interesting is the dynamic and the other aspects of the market where we're actually booking significant work on a reimbursement basis. So today, when we look at our little chart there that shows the work going on to 2022, excluding the -- so excluding the one LNG project at 10%. Everything in the main is cost reversible time and materials within that book-to-bill.

We'll take our next question from Tobey Sommer with SunTrust. Please go ahead.

Thank you. Good morning. In the Government Solutions area, could you discuss win rate trends including recompetes and takeaways and how those trends inform your bid and proposal investments?

Like I certainly say the recompete win rate has been particularly pleasing. We entered this year with quite a concentration, with LOGCAP V and with the Marine Corp preposition stock, we won both of those on $1 basis. We are above 95% on recompetes on a unit basis we’re well above 90 this year, and hats off to the team for the focus they've had on those recompete they’re never easy. But what underpins that is the execution and innovation they bring to the customers every day. That's what really wins recompetes more than anything else more than a fancy bid. I think the team has done that remarkably well. The overall win rate, including recompetes and new pursuits is about 40%. And from my experience, that's pretty strong. So -- and we're taking our shot at some hard things too along the way. And we're winning our fair share of those like the launch activities with NASA, something that we're really proud of that we're up and running, now starting in Q3 with a launch here in a week or two to support. So the team has built quite a bit of credibility as it's come together across the widely Honeywell, SGT and legacy KBR elements as one team and we’re quite good. And so we -- when I mentioned earlier about the benefits of scale, with now a $4 billion run rate in this business, we have the rates that enable us to go after procurements in wider scale, and we’re able to do before, and the team has demonstrated to Stuart and I that they can and should be more aggressive in terms of seeking market share takeaways like we saw with POTUS and the range win at NASA and others. So we pretty much leave it to them in an entrepreneurial way to go after a pursuit aggressively and they've got the capital to do that and track record is excellent. So we wish to see more of the same.

It's interesting Tobey, depending how you do your analysis so we did our analysis based on value, just because of the scale of the Marine core recompete and the LOGCAP V win you know that, the win percentage is well above 70%. If you do it on numbers of proposals submitted it’s closer to where Mark has did. But I think one of the pleasing things that's happened over the last few quarters and we don't talk about this enough is actually our engineering business. Our engineering business has grown significantly with very strong win rate and so close to 50% with [indiscernible], and it continues to grow very nicely and we do a lot of cool stuff in there. And it doesn't get the noise because a lot of that it was circa $50 million and not the $1 billion ones, but we win a lot of them. And that that business is growing double-digits in the last little while and continues to really outperform. And so we're very, very pleased with the way that that business is behaving and really is a fantastic part of our portfolio.

Thank you very much for the extensive answer. With respect to contract mix, are you seeing any changes in the Government Solutions arena among your principal customers, as to their appetite to move towards contract types or solutions based arrangements that could be more profitable to the company, and more cost effective for the customer?

Yes, I think we've seen an increasing trend towards more best value, rather than just lowest price technically acceptable. And that's been happening for a while, I think in all the bids that we're seeing now they're looking for more solutions rather than just turning up with the resource or historical capability, you have to come with innovation in digital solutions across all that we do today. And I think we're -- our team has demonstrated we've been very laser like and the way that we've actually introduced those solutions. And a good example in the logistics arena would be becoming very, very, I guess, smart around the way we use our logistics management tools called Maximo which is off the shelf, but we've enhanced that significantly with KBR, I guess, more sort of efficiency driven tools and solutions that allow us to do more with less. So that, if you're in a fixed price based operations over multi years, you become more efficient year-on-year driving margins up. But at the same time, you're also working with the customer and minimizing sort of spend on idea IQs and things like that. So, I think that's a complete win-win and new driving efficiency through the smart use of artificial intelligence and things like that. So it's worked out really, really well. So I think we are we've recognized that change some time ago. And I think we're recognizing that we need to just continue to have that culture within the business to look for innovation and solutions that add value to both you are quite right, it needs to be to us, but also to the customer.

And I'd add to that, Toby that. I don't think we are seeing any major shift in contract types. But we are moving up market in the systems engineering and integration, and then technologies that Stuart referred to. And so that is helping us move up the value chain, but mostly still in a cost reimbursable sense. I would say in the U.S., what is different about KBR is the one-third exposure, if you will, to international markets, where we're not seeing a big shift in type either, but the overall margin profile of that business is much more attractive than the U.S. and it's growing really well and balanced over the past couple of years. And as a result, that's beneficial to our overall margins. As we’ve discussed 9% to 10% is pretty good the amount of logistics and space work that we do.

Thank you very much.

This concludes today's question-and-answer session. I'd like to turn the conference back to Stuart Bradie for closing remarks.

Thank you very much. So yes, just thank you very much for taking the time and thanks for your interest in KBR. It's another good quarter and the 10th in a row and upwards and onwards is really easy thinking and we've got a lot of hard work for us and great opportunity in front of us. So let the snowball continued rolling down the hill as they say. So thank you again for your time.

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