Good morning. Thank you for attending today's KBR's Second Quarter 2025 Earnings Conference Call. My name is Megan, and I'll be your moderator for today. [Operator Instructions] I would now like to turn the call over to Jamie DuBray, VP of IR with KBR. Please go ahead.

Thank you. Good morning, and welcome to KBR's Second Quarter Fiscal 2025 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 the Investors section of our website at kbr.com. This discussion includes forward-looking statements reflecting KBR's views about future events and their potential impact on performance as outlined on Slide 2. These matters involve risks and uncertainties that could cause actual results to differ significantly from these forward-looking statements, as discussed in our most recent Form 10-K available on our website. This discussion also includes non-GAAP financial measures that the company believes to be useful metrics for investors. A reconciliation of these non-GAAP measures to the nearest GAAP measure is included at the end of our earnings presentation. Beginning this quarter, for the current period and all prior periods, we are reporting results on a continuing operations basis with the impact of the wind down of HomeSafe Alliance JV reported as discontinued operations. Unless otherwise noted, the information presented herein reflects continuing operations only. Refer to Note 17 in our Form 10-Q for full details on discontinued operations. To facilitate investor modeling and analysis, we have provided an updated data sheet, which recast historical results on a continuing operations basis. This schedule is available on our Investor Relations website and available via the QR code shown in the appendix. With that, I will now turn the call over to Stuart.

Thanks, Jamie, and good morning, everyone. I will pick up on Slide 4. Today, as with all meetings at KBR, I'm starting off with a Zero Harm moment. The Safety Excellence awards are given each year to contractors or subcontractors with excellent safety records at an asset owner site. The award helps companies learn from each other by sharing safety ideas, and best practices. Each year, the industry business roundtable selects the top safety performers from nominated contractors and subcontractors. This year, our Brown & Root joint venture won the top award for Large Contractors. Our Brown & Root JV continues to perform really well and is actually growing more than 30% post-COVID. We don't often talk about the value-add we bring to our unconsolidated JVs. But I think this is a great example of slowdown, world-class programs delivering top quintile performance. Really good stuff. Now on to Slide 5 and some key messages. Now before we begin, I want to address the recent and unexpected termination of our HomeSafe Alliance joint venture contract by U.S. TRANSCOM. Importantly, the company and our people put in a tremendous effort into this transformational program. We are, of course, disappointed with this outcome. And while we wish our perspective had been more fully considered, we acknowledge there were operational challenges. We are committed to learning from this experience. This allows us to refocus our energy on our core business of MTS, and our strategic vision is unchanged, and KBR remains strong in our markets. With that, now on to our Q2 performance. First, we delivered solid performance on the top line with revenues of $2 billion and strong bottom line performance with adjusted EBITDA of $242 million. We generated an adjusted EBITDA margin of 12.4%, up 70 basis points year-over-year. In volatile times,…

Great. Thank you, Stuart. I'll start on Slide #12. So as Stuart just laid out, the first half of 2025 has seen its fair share of challenges. However, I'm pleased to report our results and outlook speak to our resiliency and multiple paths to deliver bottom line profits and cash flow. Revenues in the quarter were $2 billion, up 6% versus the prior year, driven by growth across both segments. Stuart touched on the reasons for this being lighter than expected, which extends to our outlook. Adjusted EBITDA was $242 million, up 12% with margins at 12.4%, an increase of 70 basis points versus the prior year. Margins were stable in MTS and improved in STS with strong performance in all areas. Adjusted EPS was $0.91 in the quarter, up 10%, reflecting a mix of normative interest and taxes with net unfavorable non-op expenses despite the lowered share count from buybacks. Year-to-date operating cash flow was $308 million. That's up 20% versus the prior year by the conversion rate against net income of 123%. Now on to Slide 13 and our segment performance. I'll start with MTS. Revenues of $1.4 billion were up 7% versus the prior year with adjusted EBITDA of $141 million, up 6%. Margins were 10% flat and in line with our targets. By business unit, Defense and Intelligence generated strong growth of 21% due to the LinQuest acquisition made in Q3 of last year and growth in international, particularly Australia, which was up 10%. Readiness and Sustainment contracted due to a slowdown in certain activity within the European theater, and a pause in some logistics work tied to the Army's transformation initiative. And Science & Space remain consistent with growth opportunities currently limited due to uncertain NASA funding policy so far under the new administration. Over…

Thank you, Mark. I'm on Slide 17 with some key takeaways. In closing, we delivered solid financial performance in the second quarter. We continue to execute our strategy, increasing our bid volumes and winning new contracts. We have a balanced and resilient business portfolio offering multiple pathways to growth. We are maintaining our disciplined approach to capital allocation, as Mark shared earlier, actioning on our share buyback authorization and returning capital to shareholders. We have updated our annual guidance and importantly, our long-term targets for the impacts of HomeSafe. We remain committed to creating shareholder value intentionally enabling future strategic optionality. So thank you for joining the call. And with that, we're happy to answer your questions. And I'll hand back to the operator to do so. Thank you.

[Operator Instructions] Our first question will go to the line of Tobey Sommer with Truist.

I appreciate the detail in your updated guidance and the long-term targets. As you were putting it together, what were the sort of upside and downside risks, factors, maybe the top couple that you were considering in kind of setting those numbers?

Thanks, Tobey. Yes, quite an exercise to do in the time frame, so a big shout-out to the teams for pulling this together, particularly in the long-term outlook. We, of course, like many others are confident of increased conversion of our pipeline, I would say that that's a key factor in the funding that flows from that as the presidential budget and the Reconciliation Act that start to take shape and mature. And that's really the principal key factor in addition to actually looking at geopolitical movements and what's happening across, particularly the Middle East. And I mean, for example, during this quarter, the situation with Iran caused close to 2 weeks delay in terms of awards and as people were worried, of course, with the broader situations spilling over. So you've got to make the assumptions that things will remain in operable in a geopolitical sense, because we cannot predict that. But really, the key fundamental was really just getting the -- understanding where we're positioned. That's why we spent quite a bit of time in the scripted remarks, really sort of trying to strategically educate where we would be positioned in the future administration's priorities as the funding flows and the assumption is that funding will flow. And you'll notice that the targets themselves, the long-term targets will move HomeSafe, and are really floor numbers. So logically, that would mean we're at the bottom end of the CAGR ranges there, which makes perfect sense. So there's -- I think we've been quite thoughtful of how we position those long-term targets.

My follow-up would be from a reputational standpoint related to HomeSafe. And with that, not that specific customer, but that set of customers, how do you feel like the company is positioned from an ability to win and retain work? Do you think that your win rates on recompetes and new business will suffer as a result of the experience?

No. I mean, HomeSafe was a joint venture. We were a joint venture partner within that environment. But no, we don't foresee any impact. I think KBR has got strong relationships with its customers. We are engaged with them every day. And in fact, that engagement has increased as a consequence of how we need to interact with the government today, and we're not seeing any impact.

Our next question will go to the line of Michael Dudas with Vertical Research.

Stuart, looking at Sustainable Technologies, you talked about in earlier in your presentation about the new normal. I just want to contrary that the new normal, are we talking about BBB, Big B for bill, the geopolitics. And just the sense of how -- where you were thinking maybe a 1 year or 2 years ago, where the buck was going, where the markets are, how that you're adjusting to that to allow to maintain this revenue target through 2027 and assuming pretty healthy margins to offset some of the uncertainty on the MTS side.

Yes. I think the new normal relates much to, as you rightly said, just the geopolitical shifts and where the markets are ebbing and flowing. And again, we try to provide some color on, I guess, the vision of where certain countries are going and our position within them, which I think is a key differentiator. I think secondly is really around the settling down of tariffs and the impact of tariffs to capital spending, and certainly how that, sort of, manifests itself over the medium term to long term. But what we're seeing today is really, there was a pause because of the issues in the Middle East, but there's also the volatilities in the Middle East as well this quarter. And we are confident that the cadence of awards will pick up as we move through into Q2. And in fact, we've announced a number of them in July already. So I think we've got some basis to make that statement.

Our next question will go to the line of Brent Thielman with D.A. Davidson.

I had a question on MTS. I know that the resolution of protests is a difficult thing to predict, especially timing. But absent that, should we anticipate a more robust second half bookings environment than what you've seen year-to-date?

It's -- I mean, we've talked through quite carefully about the size of our pipeline and that being at record scales today and bids are waiting award similarly. So if the award cadence picks up, which logically it should now, the budgets are particularly, reconciliation budget is coming to fruition. I think at least we want to expect a pickup in award cadence as we head through the rest of this year. And historically, it really has been the third quarter. But my expectation is that will also lead into the fourth quarter with the reconciliation.

Yes. And Brent, a reason why we were cautious in the conversion outlook for this -- impacting this year. I mentioned very specifically, we assume things will unlock into next year. There's been a lot of change in government, particularly in the contracting offices. And people have retired, they left for other reasons. And so despite the customer engagement at the end user level, sometimes engagements are not even possible at the contractor office level. And so the decisions coming out reside on those people, and there's less of them. And so that's why we were prudent in our outlook this year. And eventually, they'll figure it out, and I think we'll get our fair share, but I think timing is a question mark.

Okay. Understood. And then sticking with MTS in the context of the targets on the new set of targets for 2027. I guess, could you talk a little more specifically about what we would need to see over the course of the next several quarters in support of that range, presumably, maybe a few of these protests or all the protests go your way, NASA isn't too disrupted. I'm just trying to get a sense of what we need to see and not see in support of that.

I think -- well, interestingly, when we look at our outlook for this year and as we look at the CAGRs going forward, we're actually -- the CAGRs to achieve our targets are coming off quite a low base with what's happened in the European theater. So that gives us more confidence in terms of where we're starting from. In terms of our ability to meet those targets, I think this conversion of the pipeline comes back exactly to what we said last time around. And if we win our fair share of what's in front of us, our pipeline continues to grow because the bidding environment has not changed significantly. And when you combine that with our ability to bring in our commercial skills, particularly from STS and international government, into the changing environment commercially within the U.S. government, I think we stand very well placed to meet the CAGRs we put forward, and we would not put them forward if we don't think we can meet them.

Well, I'll just add that the Reconciliation Act puts money to work quite quickly, provided all the support there, as I mentioned a moment ago, but we're quite concentrated in our business in the RDT&E funding area, which is a healthy recipient. As you heard in my earlier remarks, same with O&M. And so our teams are pursuing more and bigger opportunities on some of the very specific initiatives that are high priority of the administration. And we think we're quite -- they're quite motivated to get that going quickly. We're platform diagnostic. We can really bring a lot of digital capabilities together. That's a clear emphasis with our clients. And so we're expecting that to be a successful outlook for us in the '26, '27 period and well beyond, of course.

And lastly, just to pile on a little bit is really what's happening internationally. As you've seen, there's a commitment for defense spending to rise to 5% of GDP across the European arena by 2035, with the U.K. leading the charge there somewhat, but also in Australia, and we're seeing that coming through in the growth that we are experiencing in international, which I'll remind you comes with higher margins, and it's more commercial in nature, which suits our DNA.

There are no additional questions waiting at this time. So I will now pass the conference back over to you, Mr. Bradie for closing remarks.

Okay. Thank you very much. Just to reiterate, I'll sort of leave you with some key takeaways and thank you again for joining. We have completed a multiyear transformation becoming a leader in providing differentiated, innovative, and increasingly upmarket services, technologies and engineering solutions. And we're doing that increasingly at large scale and obviously, with a global reach. And I would be remiss if I didn't say the quality of earnings is something we've talked about many times, and this has been and continues to be a key focus area, and you can see that coming through in the bottom line. As you know, we serve diverse, attractive end markets. But importantly, these are aligned, we believe, with strong secular growth trends. We have amazing people, really top talent that combining deep domain expertise, which will be continually increasingly in demand, similarly with our proprietary technologies. But as you have seen from our results, not just this quarter, but for the last several years, and in our outlook, we have an unwavering focus on execution. And we specialize in sort of key technologies, difficult solutions and solving them for our customers as well as complex, harsh and mission-critical work. We are excellent partners. That's very much part of our DNA. I think that's going to be an increasing need into the future as we look at different solutioning. We are operating in dynamic teams to solve our customers' most complex challenges. And this has resulted in recurring long-term engagements. And of course, as we said in the script remarks, over $21.6 billion in backlog and options. Our diversification, our asset-light model and disciplined capital allocations have and will continue to generate stable predictable cash flows and compelling shareholder returns. And we have growth and margin expansion plans in flight that are bearing fruit. Finally, we remain alert and agile as we need to be in this environment. We are monitoring the current dynamic situations across the world and taking strategic and proactive solutions at pace to ensure KBR remains well positioned to deliver for our employees and customers and, of course, our shareholders. So thank you very much for joining today's call, and of course, for your interest in KBR and we look forward to updating you again next quarter. Thank you.

That concludes today's earnings conference call. Thank you for your participation. I hope you have a great rest of your day.