Hello everyone and a warm welcome to KBR, Inc.’s Q2 2022 Earnings Conference Call. My name is Melissa and I will be your moderator. [Operator Instructions]. I now have the pleasure of handing over to our host, Alison Vasquez, Vice President of Investor Relations to begin. Alison, over to you.

Thank you Melissa. Good day from the UK and welcome to KBR's second quarter 2022 earnings call. Joining me are Stuart Bradie, President and Chief Executive Officer; and 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 our 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, also 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 presentation. I will now turn the call over to Stuart.

Thanks Alison and thank you all for joining us today. I'll start on Slide 5. As you know we always kick off with a zero harm ESG focus and today I want to spend a moment on our expanding partnership with Mura, placing KBR at the center of enabling a global circular plastics economy, so really exciting. In June we committed to invest an additional $100 million in Mura Technology which allows us to participate more fully in this sustainably focused, high growth advanced recycling sector with a global pioneer of advanced plastics recycling, where it’s mission is to enable a plastic neutral future by providing an end-to-end solution to convert a wide range of mixed plastic waste, much of which would be destined for landfill today back into high quality chemical feedstocks. Targeting 1 million tons of annual capacity in operation or development by 2025, Mura licenses its technology through KBR to a global client base and is also developing its own pipeline of global operations. Our investment builds on the alliance we entered into last year to be Mura’s exclusive technology licensing partner. And with a very collaborative relationship this is I would say a really, really great team and have already produced numerous advances in the process technology such as loop power, water recycling, modularization as you'd expect, and digital operating solutions. And together we have already licensed approximately 170,000 tons of capacity to solve the world's largest chemicals company, so great momentum. Now under an expanded partnership agreement, KBR will also be the preferred services provider for Mura led projects to support project management, engineering, integration, etc. So really adding value is bringing key skill sets from KBR. Now just last week Mura made a big announcement with Dow to develop multiple world scale advanced recycling…

Great. Thank you, Stuart. I'll pick up on Slide 12 for highlights of the consolidated results for the quarter, and then I'll hit the segments after that. As Stuart said, the team really delivered a successful Q2 on all fronts, including playing an important role in critical areas like national security, space, energy security, and energy transition types of solutions all around the world. These roles do enable our clients to advance their impact on these fronts, but those in turn, motivate our employees and the fact they do things that really matter in the world scheme in our team of team's culture. In Q2, consolidated revenues were up 5% to just over $1.6 billion. Adjusted EBITDA came in at $186 million, up by a healthy 19% over last year. This reflected excellent core margins in both businesses. We also had some goodies flowing through the P&L this quarter, which was also the case actually in Q2 of last year, so I'll cover more of that in a moment. Adjusted earnings per share was up 31% over last year, building on the EBITDA growth, plus favorable year-over-year taxes, foreign exchange, and contained interest expense. Hedging actions benefited FX and interest results and hats off to our Treasurer, Natasha on that one. On the tax side, we had a discrete tax charge last year that did not recur this year. Taxes this year in Q2 were normative at about 25%. As Stuart mentioned upfront, we announced the $100 million investment commitment to Mura, which would increase our aggregate ownership percentage to roughly 18%. We funded $60 million of this commitment in June of this year. As a result, in Q2 we stepped up our original 5% investment made back in 2021 to its current market -- fair market value with a…

Thanks, Mark. Nicely done. Now to summarize. I think we can all agree, we've closed out the first half of 2022 with a bang, double-digit growth in both adjusted EBITDA and adjusted EPS in the quarter. Bookings were absolutely excellent and we continue to win work that will support and deliver our long-term targets and, of course, margin expansion. I'm really excited about the trajectory of GS and the STS business. The market outlook across the portfolio remains robust, and the associated pipeline of opportunities are attractive and aligned with a positive outlook. With the acquisition of VIMA, additional investment in Mura, debt reduction, return of capital to shareholders, we continue to deploy capital in a strategic balanced manner, as we said we would do so, doing what we said we would do. We have talked today a lot about EBITDA and EPS and rightfully so. KBR is an EBITDA and EPS growth story with strong margins and excellent proven cash conversion, with increasing contribution via equity and earnings in STS, the GS International growth with higher margins and hence earnings. And then when we layer on HomeSafe later this year, where we will fully consolidate but with a 72% share, overall revenue will not really tell you the whole story. Thus, going forward, we'll be talking a lot more about EBITDA and EPS and of course, cash. We work under contract of over 90% for full year 2022, we're really looking ahead now to winning the right work for 2023 and, of course, 2024 to help secure our long-term targets. All in all, another fantastic quarter, building momentum on the path to 2025. Thank you for listening and I'll now hand it back to Melissa, who will open the call for questions.

Thank you Stuart. [Operator Instructions]. Our first question today comes from Jerry Revich of Goldman Sachs. Jerry, please go ahead.

Hi, this is Adam Davis [ph] on for Jerry today. My first question is on the $1.5 billion LNG award. I appreciate that KBR's role in the joint venture will provide services outside of construction and that it's modular design, but we've seen many recent LNG projects that have been over budget. So can you just help us build comfort with the risk factors that the JV is responsible for, is it labor productivity, labor costs, and under what scenarios is the profitability of the JV at risk?

So we feel really good about the risk profile. I mean, it's a very, very good question and one we, of course, expected under this FID. I mean, this is not a lump sum project. There's no lump sum construction. It very much fits with our stated risk profile. The commercial model itself is -- the customer feels there's IP around that and the way they bring to market. But remember, as I said, there is no lump sum construction in this. The services itself do not constitute lump sum risk. And remember, the customer itself is providing the liquefaction modules, I guess, the LNG tanks, the pretreatment. So a lot of that typical process risk actually sits with them and their vendors in that area. And although we're playing an integration role, that typical risk that comes with your LNG type project doesn't exist for us in this construct. So it's a very unique commercial model. I think you should take comfort at our stated comments that it does not change KBR's risk profile. We're out of the lump sum EPC business. We're out of taking construction risk in that context. And of course, we're actually not responsible for the construction. So hopefully, that gives you enough comfort around that risk model. It also comes through equity and earnings for us. And I would say that the numbers themselves are already on the most conservative side, built into our long-range targets.

That's great. And can you just update us on how you're thinking about the revenue burn cadence in Government Solutions from here?

Sure, Mark here. We went through the details relative to the components this quarter. We have built quite a pipeline of outstanding awards. So we are hoping to see some of that decided in our favor as we get through the rest of the year. That will have probably a minor impact this year, but hopefully, a very favorable impact next year. We've got very good visibility in the business we have. It is flat to modest growth overall for the rest of the year quarter-over-quarter, of course, extracting out the effects of OEW last year. So we have seen some delays. We've seen not a lot of decisions coming out. We are pleased with the book-to-bill in Q2, for sure, gets the biggest recompete out of the way. And so we're winning our fair share. Pace of decisions could be better, but we're actually bullish on the long-term outlook and are comfortable with our long-term targets.

Just to pile on a bit there. I think we talked a little bit about this as we went through the prepared remarks. Obviously, the work coming through UCOM, we feel is very positive. And obviously, we're seeing that coming through growth in that segment. And although, as Mark said, it's difficult to predict, I think the cadence of that work through the course of the rest of this year, we don't expect to change too much. And I think there's probably more opportunity given the commitment from the U.S. and NATO as we move into next year.

Got it, thank you.

Thank you Adam.

Thank you Jerry. Our next question comes from Sean Eastman of KeyBanc Capital Markets. Sean, over to you.

Hi, team. Thanks for taking my questions. So I just wanted to -- first question is just sort of clarification. We have an intact 2022 guidance after, obviously, some very strong outperformance at the segment level in the second quarter. So it would be helpful to frame how some of these pickups in the second quarter were contemplated in the full year previously, perhaps whether there's any negative offsets underneath that, like FX, for example, just to assess kind of the underlying update on the full year ex the noise?

I mean, Sean, again, a very good question. And I mean, I think the easiest way to answer this is we have an absolutely outstanding first half of the year. We raised guidance in Q1. We are conservative in our nature, as you know, we just came through a very strong Q2. And Mark, who's probably more conservative than I am, actually said we revisit our guidance if we continue to perform like -- progress through the rest of the year. So I think this is more a question on making sure we've got strong performance in Q3. And I think if that comes through, I think we'll certainly be relooking at guidance in a positive way at that point. So I mean there's no guarantee of that, of course, but that -- I think the trajectory would tell you that, that's probably something we should be looking at very carefully.

Okay. Interesting comment. Thanks for that Stuart. And then coming back to the Plaquemines award, obviously, quite large. And considering it's going to flow through equity earnings, it would be helpful to get a little bit of idea on how to model that line on a go-forward in terms of quarterly run rate. And also there's going to be no revenue here. I would assume a contract of this size would have an impact on the go-forward STS margin target, maybe it changes the arithmetic there. So any color around that would be helpful as well.

Yes. I mean, we -- I mean, I think our guide on our growth and EBITDA over time for STS is 20% plus. And our margin expansion has room in it to go above the high teens into the low 20s. And I think both of these consider that. So I think we need to get a bit more time under our belt, Sean, to come back and answer that fully. But I think if you look at any business with underlying EPS growth that we've laid out, if there's any skepticism around that, hopefully, some of that skepticism disappears with the announcements today and also the skepticism of margin expansion, etcetera, also, hopefully, some of that skepticism disappears today also. So we'll come back over time, but that's probably the best way to answer it today.

Okay, thanks. I will turn it over there.

Thank you for your question Sean. Our next question today comes from Brent Thielman of D.A. Davidson. Brent, over to you.

Hey, thank you. Maybe just one more on the LNG opportunities. Just wondering if there are sort of similar-sized prospects out there of this sort of scope and stewarded this sort of risk profile that you're out there pursuing and can get involved in?

Yes. I mean, to be honest, I think they are probably few and far between in terms of the commercial model here. And I think the way that VG has done this is quite unique in the marketplace and has proven successful, of course, on Calcasieu Pass, which I think derisks a lot of this project considerably. But that aside, I think that as a proposed Phase 2 in Plaquemines, and we'll see if that comes to fruition in the next little while, there's certainly a lot of announcements by VG on LNG sales. And they've got a number of other prospects within their portfolio that they are trying to progress. And if we perform and things go well, then you would think we would be for a shot with that. But outside of that, today, I'm not -- we're not targeting getting back into the LNG EPC business in any way, shape or form on that lump sum basis. And we'll do some project management work. In fact, we're doing some project management work today in the Middle East around LNG development on a reimbursable basis, and we'll continue to look at those. But our roles will not -- going forward, will be very different than what they were in the past. And I do think that the commercial models that make this successful are not being adopted by others, maybe they will if they see this going really well. But I wouldn't count on it.

Okay. I appreciate that, Stuart. And then I was interested just in the focus on the international portion of the GS segment. Obviously, a lot of room to build on what you've done and as you call out relatively sort of attractive margins to the overall segment. I mean what -- kind of what's your view of the long-term organic growth potential of this piece of the business and sort of ability to penetrate new program on the international front with what you have today?

I mean, our CAGRs historically have been 10%, and I think that we'd expect that trajectory to continue. And we will realize, we believe, some synergies across Frazer-Nash and VIMA as they come in, and we actually integrate in a way that is united to the marketplace. And also the -- I think that just a stronger connection between the U.S. and Australia and the U.S. and the UK and all three, in fact, I think, plays well to sort of strong footprint in all three jurisdictions. So I think you'll start -- you'll continue to see really, really outperforming growth in some of these markets. And of course, it's becoming an increasingly important part of our portfolio well over $1 billion. And our margin expectations at that level will continue to be extremely attractive. So I think that's why we wanted to highlight to you, it's become a really material part of our business. We tried to give you the transformation color that's taking place there that is similar to the U.S. and going up market, being greater differentiation. And the returns are actually typically more attractive than the U.S. market. So it gives us a great piece of differentiation in that sort of margin enhancement story.

Very good, thank you.

Thank you Brent. Our next question today comes from Andy Kaplowitz of Citigroup. Andy, please go ahead.

Hey, good morning guys.

Hi Andy.

So, it doesn't seem like you're having issues, but can you talk about how tight global supply chain and labor markets are affecting KBR, have you seen any cost impacting your margin and/or have any projects been slower than expected to move forward given supply chain or labor issues?

I mean, Andy, not really. I mean, we're typically a services business. As you know, we're not really -- I mean, from an inflationary point of view, we did a midyear review across the business in terms of salaries and things, and that's all built into the numbers today. I think our retention and recruitment and numbers are leveling out somewhat. And so recruitment is keeping up pace, even though turnover was probably a bit higher than it was a year ago, but we've addressed that. And we're a provider of labor typically. So we're not seeing any real impact of the supply chain piece on what we do. And I think the other question is really around FX and interest rates. I think Mark addressed them. I think our treasury and Mark and the team have done a terrific job of actually mitigating those risks somewhat, and the international businesses continue to outperform. It also helps, of course. So I think some -- perhaps others are feeling greater headwinds in those areas than ourselves. And so I think that encourages us to be very positive on this call with the outlook.

Got it. And then just following up. I know you said STS is on target to achieve $200 million of EBITDA this year. Can you give us more color into what you're seeing in the business, it seems like cyclically, secularly, you should have a nice tailwind, but I think you were flattish in the quarter, a little bit behind in sort of that double-digit revenue growth, so what are you seeing? And then maybe any initial views on the Inflation Reduction Act and what it could mean for KBR?

Yes. I mean, obviously, I think answering the latter part first. I think, obviously, I mean, that puts quite strong tailwinds into the market. In the U.S., we've not done the full assessment of that. But I think, again, as we said, at all points North. And a lot of effort and effort sort of dollars targeted at energy security and climate change, as you're well aware. So I mean that only plays into our key skill sets. It really does. And in terms of what we're seeing across the board, you've got NOCs and IOCs that probably modeled an oil price in the original budgets that are far, far South of where it's at today. So these are incremental dollars that are all dropped to the bottom line, really. And so we're seeing a very cash-rich client base that wants to continue to address, I guess, the energy security issue and the supply-demand imbalance, and they want to gain market share. And so investment is right around the Middle East investment commitments from companies like Aramco and from ADNOC, etcetera are a mess. And they really contain a strong hydrogen component and we thought about not burning crude oil for energy and transitioning away from that and then taking crude and turning it into chemicals, etcetera. So a lot aligning with our technology portfolio, a lot of cash being put to work, a lot of market share that others will try to defend. And they're also cashed up, if you like. So I think we'll start to see increased investments across the board. And in truth there has been under investment in this sector for quite a few years now, as you're well aware. So it's -- that you've actually got refiners making margins that they've never made before.…

Appreciate all the color.

Thank you Andy. Our next question today comes from Jamie Cook of Credit Suisse. Jamie, please go ahead.

Hey, good morning. I guess two questions. One, Stuart, as I think about you guys today versus, I don't know, two years ago, five years ago, the business model and the portfolio is obviously a lot different, lots of concerns out there about a recession in the U.S. and Europe. But can you talk about how you think about the earnings resilience of KBR if we do go into a recession, just given some of the visibility and the backlog you have, do you think there's still opportunity to grow your earnings as you're thinking about the next sort of 12 to 18 months? And then my second question, Mark, I'd just update obviously, the cash flow in the quarter was strong, the balance sheet's in a good position, we're doing sort of sort of niche acquisitions, how are you thinking about your capital allocation priorities, any larger M&A opportunities? Thank you.

Thanks, Jamie. I mean, obviously, as we look at our strategic planning, not just this year, but every single year, we look at the resiliency of our earnings portfolio and whether that's actually political, geopolitical, or economic. And I think we've positioned the business very -- the businesses very nicely in areas that will continue to be funded and we could be -- continue to be funded through really any disturbances that I mentioned earlier. I mean if you think about energy security, that issue is not going away. If you think about the resiliency of moving the agenda from a climate change perspective and the commitments that are already being undertaken that are multiyear commitments, LNG being -- the VG thing being a perfect example, it's not a one year, it's a three, four-year program. So I think the resiliency around that portfolio is very, very strong. And then when you turn to look at Government, I mean, remember, we talk about KBR being very differentiated because of the length of tenure of our contract portfolio. And this is the time where people need to actually think about that and understand why we've done what we've done and really the resiliency around that and the length of tenure, not for one year, but I think the average tenure is 10 years and our contracts portfolio is extremely, extremely important at providing, I think, our shareholders and our people with confidence around the resiliency of the business. And to top that off, I think we've actually positioned the business in areas that will continue. I mean, the threats, or near-peer threats of Russia and China are not going away, regardless of any recession or potential recession. And therefore, I think continued investments in the areas I discussed in my prepared remarks will continue. So I mean -- so I think we're very, very well positioned to be resilient through any potential recession. And I think we've done that very purposely. And I think we've been very thoughtful around that and try to articulate that on a number of occasions to the market. And hopefully, that now resonates. And Mark, the second question?

Yes, Jamie. Good morning to you. Look, we have a great balance sheet today. We've worked very hard to achieve that, and we want to keep it that way. And we are in a situation where we're not sure where the interest rates are going and the magnitude of that, and we don't want to be overly speculative either. So I did say earlier that we tend to be cautious in deploying capital. We intend to continue to be balanced. We obviously just did VIMA this morning. That was done at an attractive valuation. I think we would continue to be constructive for modest-sized acquisitions at attractive valuations, but we also have a view there might be better pricing later in the event of a recession. And we'd like to have some dry powder available for that. So with respect to that, we'll be more cautious than usual on the M&A front.

Yes. I think -- I mean, it's interesting with these bolt-ons, Jamie, we call them bolt-ons, but they're actually very strategic for us. And I mean, digital transformation is obviously a key theme running through much of what we do. But the multiple we pay for that business was circa 10 times, and it's a business that's growing mid-teen CAGRs and with margins in the high teens and low 20s. I mean, if you put that in context of what you can achieve in the wider market today, that's a really, really attractive deal. And Mark's right, I think the heat will come out this market a little bit. Some people who are over levered may get themselves in trouble with higher interest rates and may not be as resilient to recession. And it'd be nice to be able to pounce, if you like, when the time is right and assets are perhaps a little bit more affordable in the U.S. and in the broader context that are more sizable, for example. So that's kind of where our thinking is today.

Appreciate the color. Thanks a lot.

Thank you Jamie. Our next question today comes from Tobey Summer of Truist Securities. Tobey, over to you.

Thank you. If we think of the space domain for a company of your exposure to NASA and military Intel, how is the growth there compared today versus the overall GS segment and what's the relative growth outlook compared to the GS segment on a go-forward basis?

Yes. I mean it's a good question, Tobey. Lots of discussion, a lot of excitement about space across, obviously, the NASA side with the increase in budget and the commitment to go to the moon and beyond. You see the changing contractual structures coming through NASA with this greater commercialization and that sort of symbiotic relationship, if you can get it right between government and commercial. And then you start to look at, obviously, the broader commercial space implications, and that is a growing part of our portfolio. And then, of course, the military space and Intel space side, which of course, has got a far greater level of investment in it today than it's ever had. But what is, I guess -- and that comes through, obviously, our D&I segment. And we're seeing very good pickup in awards across that business in Q2 is those contract vehicles like iMax and things actually do their stuff. The bit that is slow is NASA award. And we did pick up our GSMO recompete, which actually was quite quick, but we have multiple billion dollar awards sitting in that arena. And I think as a consequence of that, our revenue profile has been fairly flat this year, year-on-year in science's space. Our performance has been terrific. So the margins are up, which is exactly what we want. And so I think anything we win having want to recompete anything we get between now and next year, will actually increase the cadence of growth across that segment. But the timing is difficult to predict. And I think that's the key piece of this. But we are pretty confident when you roll in the whole space piece, the D&I piece and, of course, what we're doing in -- sustainment. And importantly, GSI, an international realm, that our overall growth targets are achievable in GS through to 2025.

Thank you. And my follow-up is, are you investing to grow your bid and proposal teams in the Government Solutions area to prosecute what means well an opportunity for it [Technical Difficulty]. And if so, what level of growth in those teams or investments are you luring?

Tobey, Mark here. Yes, we are increasing it to a modest degree. It does ebb and flow with specific bids and proposals, as you'd expect, to some degree. But we've built a good team. When you make acquisitions, you tend to take the best and brightest out of all of them and combine them and go after things you couldn't go after before. I think we've done that well. I still think we're in early innings on that. And as we go up the food chain and up in scale, it will require more investments. So we have that baked into our long-term plan. Organic growth is the best type of growth, obviously. And so those types of investments often pay off, and that is definitely in our sights to make sure we leverage that as much as we can.

Thank you.

Thank you Tobey. Our next question comes from the line of Gautam Khanna of Cowen. Gautam, over to you.

Hi, good morning guys. I was wondering if you could update us on two things. One, the timing and sort of the circumstances around the HomeSafe Alliance win. And if that's still on track for an October resolution and what you can say there? And secondly, in the past, you talked about the Eurocom business seeing about $100 million of task orders related to the escalation Russia-Ukraine. I was wondering if you could update us on what that might look like this year and next in terms of revenues? Thank you.

Okay. So I'll take the first one, and maybe, Mark, the second. I mean, the HomeSafe process continues to be on track. We haven't heard anything that would give us any concern that this is not happening in the time table we laid out earlier, so in October. You'll recall, we do have our transition, our 9-month transition and how all that bears out. Once we get awarded, we'll come back and give you an update. But so far, no change, Gautam, on that.

And Gautam, on the UCOM, I believe it's your second question, and our support relative to the UK and Russia affair, well positioned there in to LOGCAP V, as you well know there's the normal activity and then there's the plus-up growth relative to supporting those activities. So far this year, it's up about roughly $100 million over its normal pace, and we expect that type of pace to continue through Q3. It's a little hard to tell after that, and we've been very cautious after that, in our view, as -- we suspect we'll be there for a long time, but it's hard to say with looking at contracts and specific guidance from the customer. So we're cautious on that front.

Thank you.

Thank you Gautam. Our next question comes from Bert Subin of Stifel. Bert, over to you.

Great, thank you and good morning.

Hi Bert.

Stuart, Mark, if you -- a lot of what you guys have been talking about sort of confidence on the couple of the businesses within Government Solutions. If I were to parse them out and say, LOGCAP, the international government services franchise and space, and you had to choose, which would you say is going to grow faster as you approach those 2025 targets?

It's almost an impossible question to ask. I think that the D&I business has had fantastic organic growth. If you looked at it last quarter, just from its cadence and when things are awarded, I think if things come through, NASA this year, you'll see quite nice growth coming through the Space business. But as I said, it's unpredictable. The RNS LOGCAP business, Mark said, it's quite difficult to predict. And GSI continues to perform nicely, without pace, sort of 10% CAGR. So I think the beauty is the portfolio. And I think the confidence our shareholders and the market should take from that is the continued performance at or above expectation. And every quarter, one of these segments does a little bit better than the other. Now they're all performing very, very well, as Mark said. But someone will outpace the other on a quarterly basis, just on time of awards, resolution of award fees or contract closeouts or whatever it might be. So I think at the end of the day, I think that's the piece that's more important. And we've laid out what I think are very realistic growth targets. And that hopefully, the market is getting more and more comfortable on achieving those as we head through each quarter. So I think that's probably the best way to answer it rather than to -- it's a bit like saying, "Who's your favorite child?" I mean, and you just don't do that, right. And so we're not going to. And I think that ultimately, the portfolio is the strength.

Fair enough. And just a quick follow-up, thinking about the other side of the business, STS. If I look at the components of that business, you have the ammonia syngas, you got recycling, petrochemicals, inorganics, and some of the energy refining. And obviously, you highlighted a pretty sizable deal in the energy refining side. How should we think about the other components, clearly, we're in a position right now where fertilizer is in short supply, but you're not hearing a lot about capacity being built out, you've highlighted Mura for the recycling side, but just in the context of the European energy crisis and a lot of things going on globally, how should we think through some of the other components that get you on those growth targets?

Yes. It's kind of a similar answer, I think. Our portfolio is the strength. We have 70-plus technologies. And I mean, I think we're seeing a huge amount of activity and hopefully, some -- we'll see some positive movement there in the ammonia side. We've announced a number of green and blue ammonia this year. There's a lot that we're bidding right now. There's a lot of traction in that area. And I think maybe you're not seeing as much as maybe you expected, but there's certainly a huge amount of activity in that ammonia segment for us. We're seeing a huge uptick in olefins and opportunities around olefins, as I explained in my prepared remarks. And then you've got the whole hydrogen piece coming through, which again is related to ammonia, the blue and green cycle of that and the continued investment in those areas. So it seems to be -- again, every quarter, depending on the timing of awards, one seems to win out over the other. So we're seeing, obviously, investment in traditional. We're seeing to get companies time to develop renewables. We're seeing refiners spending cash to keep their assets and improve, what I would say, optionality in terms of moving away, particularly from transportation fuels and looking at other options there. And we've got new technologies to help them with that. So we're seeing a lot of activity, more so in North America today than we've seen for many years, which is not unexpected, but also across the rest of the world. So I think it's -- again, it's not one segment over another or one technology over the other. I think it's a portfolio response question. And we actually feel pretty bullish about things like ammonia.

So just to clarify, you're not expecting a material negative impact from what's going on in Europe or is that just something you're monitoring right now?

We do not expect a material impact to what's going on in Europe and other than an increase in demand because of energy security. It's a material impact on the -- if anything, on the upside. But we've laid that out in our targets already.

Thank you Stuart.

Thank you Bert. Our next question comes from Manu Close of Vertical Research. Manu, over to you.

Hey, I think it is Mike Dudas. [Multiple Speakers]. Good afternoon gentlemen and Alison.

Hi Mike.

So I won't ask you to predict the winner of the UK Prime Minister race. But since you're over there and you've been certainly adding a lot of assets and talent to grow that part of the business out of the UK, can you give a sense of your -- given the politics and given what's going on, I would assume that budgets and opportunity is very strong over there, I just want to see if you would agree?

Very much so. I remember, it's not a change of party. It's just -- it's a change of leadership in the conservative party, and their commitment to defense spending is clear and that budget has been set. Unlike the -- I mean the U.S. does this an annual cycle as the UK does three to four-year commitment. So it's the very different regime. So we're feeling very confident about our spend. We're feeling really good about the commitments of the UK and others, in fact, to support the war effort in Ukraine. And we've got the whole dynamic, which is a little bit different in the UK around Brexit, where it has to be -- UK has to become more self-sufficient. And as a consequence of that, the activity levels going on with Frazer-Nash and VIMA, etcetera, are heightened by those factors.

Appreciate it, thanks.

Thank you for your question Mike. We'll now move over to our next question from Avi Jaroslawicz of UBS. Avi, over to you.

Hey, good morning guys. On for Steve Fisher. I guess just on those NASA awards being -- are they more sluggish now than they've been in the past and you also noted that they're rather unpredictable. Wondering if you can just help frame that in terms of kind of a range of timing, like does that mean a window measured in months, quarters, possibly a few years, any color there would be helpful?

Yes. So I think the problem is it is unpredictable. I mean, you've got the GSMO contract, which we bid and was awarded in fairly short order. It was not protested and we move forward, which was terrific. You had the Mossy contract that we bid, we won. It was protested. We bid again. And four years later, it's now under evaluation. And hopefully, we'll be awarded later this year. And we've got some that are being in the machine, if you like, within NASA for over a year. So just waiting for award. And I think it probably relates to different centers, different resourcing, different priorities. It's tricky to tell. And I ask our people the same question, and we don't really get -- I mean that's just the sort of answer that we get. So yes, I mean I think the nice thing to take away from that is that our risk of not doing what we said we do is actually very low. We've won our largest recompete of the year. Anything we win is additive. We won the Spacesuit Program, as we discussed in my remarks, and everything that comes through between now and the end of the year is just a positive impact to the 2023 story. I think the performance that we are having really helps us in terms of not just margins and returns but also position us well for recompetes, because you don't get strong award fees unless you're doing really, really well. So I think that all plays well, and we will see things moving as time progresses over the next six months to the end of the year. And I suspect the cadence of awards will pick up a little bit as well as more people get back from COVID and things like that.

Got it, thanks for that. And maybe as a follow-up here, just how should we be thinking about the backlog in STS from here, do you expect to be able to sustain at these levels or maybe wind it down as some of these bigger programs burn?

Yes. I mean I think -- I mean, the nice thing about announcing a $1.5 billion win in that arena is that it enhances your book-to-bill. The challenge is then continuing with that. But I do think that the market is supporting continued momentum in that arena. I really do. So I'm not saying that we're going to be struggling. I think the opposite. I really think that the market is hot. I think that our position in the market is really, really strong in the areas where we want to play. And we don't want to play everywhere. And I think that's key to our success also. So I think being focused, being smart around the work that we go after and why and the earnings profile and cash profile of that work will continue to be front of mind. So no, I don't think there's too many headwinds there.

Understood. Appreciate the color. Thank you.

Thank you. This concludes the Q&A portion of today's call. And I will now hand back to Stuart Bradie, President and CEO, for final remarks.

Thank you. I mean I think just a short thank you. I think, some excellent questions over the last hour or so. And thank you for listening. And obviously, we'll be talking to you further over the course of the next day or so. Thank you.

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