KBR, Inc. (KBR) Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to the KBR First Quarter 2023 Earnings Conference Call. My name is Jacquita, and I will be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to your host, Jamie DuBray with KBR. Jamie, please go ahead.

Thank you, Jacquita. Good morning, and welcome to KBR's First Quarter Fiscal Year 2023 Earnings Call. Joining me are Stuart Bradie, President and Chief Executive Officer; as well as Mark Sopp, Executive Vice President and Chief Financial Officer. Stuart and Mark will provide highlights from the year and then open the call for your questions. Today's earnings presentation is available on the Investors section of our website at kbr.com. This discussion includes forward-looking statements reflecting KBR's views about future events and their potential impact on performance as outlined on Slide 2. These matters involve risks and uncertainties that could cause actual results to differ significantly from these forward-looking statements, as discussed in our most recent Form 10-K available on our website. This discussion also includes non-GAAP financial measures that the company believes to be useful metrics for investors. A reconciliation of these non-GAAP measures to the nearest GAAP measure is included at the end of our earnings presentation. I will now turn the call over to Stuart.

Thank you, Jamie, and thanks to you all for taking the time to join us this morning. Now before we begin our earnings call, I am deeply saddened to inform you that Lieutenant General, Vincent Stewart, U.S. Marine Corps retired, a very distinguished member of our Board passed away this past Friday, sadly. Vincent had been a Director of the company since June 2021. And on behalf of KBR's Board of Directors, and all of our employees, we extend our deepest sympathies to Vincent's family. I am personally very saddened by Vincent's passing. He was a tremendous support of the company and me personally and I will always be appreciative of his service and his impact to KBR. Now I'll start today's presentation on Slide 4, as you know, these are our Zero Harm pillars. And today, I'd like to talk about our annual Zero Harm Day that actually celebrates all of the pillars you see on the slide. So on to Slide 5. So on February 22nd of this year, KBR employees from all around the world came together to celebrate the company's eighth Annual Zero Harm Day. Now this is an important and a significant day in the life of the company, which we celebrate KBR's outstanding safety performance and our sustainability culture throughout the organization. It's also an opportunity to really recognize our people for the zero harm achievements and their courage to care. Project sites, offices, business groups all around the world had Zero Harm Day events and this is forecast of that in the slide. And thousands of employees took part in a huge range of activities. And when there were panel discussions on climate change, on mental health, we had community leaders come in and experts come in to talk about topics ranging from personal safety to recycling to giving back to communities, et cetera. And overall, it was a fantastic day of recognizing our accomplishments but actually renewing our commitment and refreshing that commitment to a zero-harm culture at KBR. And of course, we carry on a zero harm theme actually throughout the whole year, as you know. And recently, our impact, our young professionals resource group came together on Earth Day for a day of giving back. And in Houston, they took part in a beach cleanup actually in Galveston, partnering the nonprofit Galveston Bay Foundation. So terrifically well done to those aspiring leaders. So on to Slide 6, and we'll just talk a little bit about some key highlights in the quarter and I guess, the business health of the group in general. Firstly, at the highest level, we've really hit the ground running in '23. Our people continue to perform. It's actually outstanding day in, day out. And I really wish to thank them personally for all that they do, doing things that matter 24/7. So staying on people on the top left, you will see that already this year, our headcount has actually increased by 7%. That's quite a jump, and almost all these roles are billable. Attrition has come down and it's kind of stabilized at normative levels, which is really helping, and obviously, our increased focus on retention, and recruitment is paying off. So a big shout out to the folks in the HR function. They [ are ] really terrific work. I mean as a Services business, the employee numbers are not the only measure of growth. But I think, of course, they're a solid indicator. I did want to highlight in this section today, a program that we came across from the Centauri acquisition that we really identified as best practice at the time, and we've now broadened that to the whole of KBR and this is our tech fellows program. Now this program takes nominations and then identifies and celebrates our leading technical goods. I mean I think this, of course, shows the value that KBR places on technical excellence. I mean many of these fellows are actually world leaders in their field. And I have to say that they are typically absolutely brilliant and excellent mentors to our people coming through. I mean this also provides a community and a forum to really innovate and to collaborate in sort of key topics that are really very important for our government and the world in general. We give additional budget and, of course, additional time so that they can invest in their chosen passion. So a really, really important program. And I think, again, really highlighting our commitment to technical excellence. Moving to our ESG program, Zero Harm. I'm pleased to report that our first quarter HSSE performance continues to be top quintile. So terrific. I mean, you can see the numbers there. But remember, as I always say, good safety is good business. So a terrific performance. From a shareholder value perspective, in Q1, we were awarded 3 green ammonia projects. These are at different levels of maturity, and I think we've announced each of them separately. But it's nice to see when you put them together, I think it really tells the market story and really our position within it. Obviously, this was on the technology IP side of STS. On the Sustainable Services end, we also announced that we've been awarded BP's hydrogen development work. And now with this, we're working in an integrated and collaborative framework with BP. And I think this and through time, will come with pull-through opportunities, think project management, engineering, technical authority over a number of years and BP has actually made a public $30 billion investment committee in hydrogen going forward. So super exciting. Moving to the bottom left, I'll touch quickly on business growth. We were awarded $3.1 billion in the quarter, which took our backlog and options up to circa $21 billion. But Importantly, the book-to-bill for the group was 1.4x, and GS at 1.0x in what is typically a slower quarter and STS at 1.9x on a trailing 12-month basis. I mean I think these are terrific indicators of our continued momentum for '23 and of course, towards the '25 targets. And I think the other key takeaway from this section is that we're feeling really, really good about '23 in general with 85% of our work now under contract. That's really a high level for this time of the year. Touching on the financials. Again, at a high level, obviously, Mark will dig in a bit in a moment. But excluding OAW, our revenue was up an impressive 18% with margins also up 170 bps to 11%. Cash was positive, albeit seasonally low, plus with cash-out events like comp payouts, et cetera, in Q1. These were all as expected. And our net leverage now stands below [ two double ]. So really strong balance sheet. Although we beat consensus by a fair amount, we have resisted increasing guidance this quarter. I guess we kind of want to see how the rest of the year plays out. But with 85% of our work secured, and with a strong and active pipeline, I will reiterate the momentum is really good. Now on to Slide 7, and we'll just touch a little bit more on markets and some of the award and the momentum that comes with that. So Slide 7. So starting on the left-hand side, the market across sustainable technology continues to be really bias, and it lines up nicely opposite our suite of offerings. Now we spent quite a bit of time on STS last quarter, and the market drivers that we talked about then still hold today. So I won't really go over this again. But our book-to-bill in the quarter once more at pace, and we've highlighted a couple of key wins on the bottom left. Phase 2 of Plaquemines was given the green light, a great win in sustainable services. And directionally important, we also secured our first plastics recycling module on the IP side of the house. And I think this demonstrates these projects are now moving into the next phase, the execution phase with proprietary equipment orders. So clearly, more to come in this area. There are a few key pieces of info on top of what's on the slide. The trailing 12-months book-to-bill excluding, so without Plaquemines was 1.6x. I just wanted to put this in context to demonstrate how well the whole portfolio is performing. In Q1 alone, we secured 7 ammonia awards. Three, in green ammonia, I highlighted earlier, plus 1 blue and 3 gray focused on additional capacity. So that's 7 ammonia stroke hydrogen-driven projects in the quarter. The projects are in different phases, but the key takeaway here is it's a clear signal to the growing demand across the ammonia hydrogen markets that we have been highlighting for some time. Another key takeaway is that there is a growing mix of long-term contracts in the STS portfolio, which I think should really serve us well into the future. So Plaquemines, BP hydrogen and the recently announced win for Equinor in Canada are all really good examples of this. So all our multiyear giving us greater visibility and quite a bit beyond 2025. Backlog in STS is a touch under $5 billion which is circa 3x annual revenue. So in really good shape. Now on to Government Solutions. Again, the market fundamentals are similar to what we described last quarter. Tensions in Europe and geopolitically in a global context continue. And this is driving increased activity both domestically and overseas in a number of our business areas, but obviously and more noticeably in readiness and sustainment. The defense budget, albeit a little bit or a long way to go to formalize is directionally favorable and lines up nicely opposite where KBR has positioned itself. Space budgets are also up in civil and significantly in military space. Again, a very nice fit for us. And Mark will cover later our great performance in our Space business, which reflects this increased activity and as I have stated previously, our military space business, which actually sits inside our defense and intel portfolio grew over 20% last year and has had a terrific start this year in the first quarter. Internationally, the increased peer threats are driving closer cooperation across the Western allies. [ Arkus ] being a great example of this, and there's increased activity specifically in the advisory consulting arena where Frazer-Nash lives. And what is traditionally a very slow bookings quarter, I think we are [ paced ] a bit with a book-to-bill of 1.0x, and this does not include the recently announced [ FOMS 3 ] award for NASA, where KBR is a minority joint venture partner. But to give you a scale context, we'll add circa 100 people to execute our work in that program. Overall, that [ FOMS 3 ] award is approximately $700 million takeaway that we'll book our share of in Q2 or Q3 depending on protests. And our book-to-bill does not include anything for HomeSafe yet. Just on HomeSafe, the transition work has passed 50% complete. So we passed that milestone. It's all going very well and we've made very good progress on the commercial side as we head towards our first moves later this year. There were multiple awards across all our business segments that drove the book-to-bill performance including increased task orders in LOGCAP in the U.S. and in Europe, some good awards under IAC MAC and the TENCAP contract frameworks, several high-end R&D awards, meaningful on-contract growth in our larger programs, increased activity within our Intel portfolio and numerous consulting assignments. Now I think this really demonstrates the value of the KBR business model and where we sit in our market. And it kind of ensures that we can go after the big fish, but we don't rely upon them. And you may have seen the new space suit that was demonstrated earlier this year. Axiom is the main contractor. But as you will know, we're a key design partner behind this exciting program. So that's pretty cool. And staying with NASA, and a huge shout out to our team as they were awarded the Super Nova Award. Now that's the highest safety and excellence award bestowed by NASA. So quite a big deal. I mean, and absolutely bang on a Zero Harm value. So a great, great win. Overall, I would say the feedback from the business as the award activity levels have gained momentum through Q1 after a sluggish start at the turn of the year which I think bears well for Q2 and Q3. So in summary, overall, our momentum continues with multiple market factors favorable. Our mission focus and delivery is absolutely top of mind. And I think you see that flowing into our results across the company, and we're feeling really, really good about our start in 2023. So -- with that, I'll now hand over to Mark, who will dive into the numbers and segment performance a bit more. Mark?

Great. Fantastic. Stuart. I'll pick up on Slide 9. So as you just heard, we're off to a terrific start for 2023. We're really pleased to see that. We're seeing strong P&L results from both businesses, underpinned by excellent project execution and also tapping growth opportunities, which leverage our differentiated long-term contract base, also our global presence and our diversified offerings are kicking in. Top line tipped $1.7 billion, which is up 18% on an ex-OAW basis. Just as a reminder, OAW was the large episodic humanitarian effort that we supported in 2021 and 2022. And that contributed about $300 million in revenues at the beginning of 2022 as it was winding down. So that's a comparable that we're seeing. 18% growth ex-OAW is quite impressive. It's fueled by both segments, and I'll cover those here in a second. Profit margins were excellent at 11% of revenue with EBITDA growing to $182 million, up 18%. And not shown on the slide, EBITDA was up circa 30%, excluding OAW which demonstrates terrific margin expansion year-over-year, fantastic. This level of EBITDA is a high watermark for quarterly operating profit for the new KBR. Margins of 11% were driven by both segments, where STS surpassed 20% and Government profitability continues to perform consistently at the targeted 10%. The strong EBITDA, coupled with a normative below-the-line items produced adjusted EPS at $0.67 a share. With such strong performance in Q1, particularly in STS, we're ahead of pace for 2023 and we'll keep you posted on this as the year unfolds. As for cash flow, results were as expected. Cash is usually low in Q1 due to incentive payments and this quarter was also affected by the $25 million headwind from early collections we had back in Q4 and also some other timing items. In addition, working capital demands went up due to the strong sequential growth we saw since Q4. We expect to get back on pace in later quarters this year. And on a positive note, we collected the second and final installment of the Ichthys settlement of AUD 90 million, a really nice boost to treasury in the quarter. Now I'll go to Slide 10 for more color on the 2 segments, STS and Gov. And starting on the left, STS revenues were up almost 50%, all organic, amazing. This reflects everything we have been saying, technology offerings that are helping the world become a greener place, capabilities which are helping stabilize the global energy security challenges and a world-class team executing its business extremely well. We are seeing strength in growth in all verticals within STS. Ammonia/hydrogen, olefins, clean refining, plastics recycling and sustainable services all involved in enabling really important projects all around the world. With all of this going on, the team keeps a keen eye on the longer term as well. We always have sought to identify new technologies in this space, then acquire them, make them better and leverage them across our global installed base with a highly effective sales team. In Q1, we added sustainable aviation fuel with Swedish Biofuels, Acetica for carbon capture usage and SCOREKlean for zero carbon ethylene cracking using hydrogen burners. Acquiring and developing technologies in this fashion served us very well leading up to the strong market conditions and the performance we see today and continuing to do so helps drive STS in being both a short-term and long-term growth story. EBITDA for STS blossomed to $82 million, with margins increasing from 17% to 22%. This profitability strength reflects good license mix, economies of scale and favorable closeouts on strong and consistent execution. While not provided here, and as Stuart said, book-to-bill for STS was an amazing 1.9x TTM, but was actually 2.2x in the quarter, continued demonstration of the attractive end market conditions and leadership positioning that we see in this business area. Now over to Gov. Revenues grew 12% ex-OAW also reflecting good market conditions and having presence in areas in greatest need by our customers. While not on the chart, it was really good to see the strong sequential growth from Q4. Specifically, all 4 business units grew within GS meaningfully since Q4, together up about $75 million or 6%. Growth was driven by our readiness and sustainment defense systems engineering and science and space business areas. The pockets of international also doing really well, such as technical consulting, and readiness and sustainment the majority of this business reflects long-term recurring base operations and supply chain programs serving the armed services community all over the world. This includes stable support for the European Command and the Northern Command under LOGCAP V. We've talked about that a lot. While that is all indeed firmly in place, our customer has also added substantial increases to support the allied effort to support Ukraine and overall security in Europe. We expected quite a bit of this in the 2023 plan and with high confidence, this will endure through the year and probably beyond. We'll certainly keep you posted. Science and Space grew 10% year-over-year, so kudos to Todd, Lori and the team on this, fabulous. Our operations focus has benefited from increased NASA and commercial space mission activity plus military health work that we do in this business unit. This team also continues to receive stellar award fee scores, demonstrating superb service to the mission as it always does. Our work here continues to drive enormous pride across all of KBR. Margins for Gov came in at 10%, consistent with target and also recent performance. On to Slide 11 and capital matters. So with strong EBITDA growth, net leverage registered down and finishing up 1.9x for the quarter. Last year, we signaled being cautious with debt in light of the interest rate environment, and we are indeed executing that strategy, but we're also still deploying meaningful cash for tuck-ins and returning capital to shareholders. M&A is selectively in play. And as discussed earlier, we added a couple of new technologies in STS this past quarter. In addition, buyback pace was kept strong at $50 million in Q1 plus another $11 million for benefit plan offsets. And finally, in Q1, we were opportunistic with the swap curve and bumped up our fixed to float ratio to about 90%. This will drop down 5 to 10 points when we retire the convertible securities later this year, this fall in particular. The average interest rate for our current debt stack is around 4%. The combination of high fixed to float percentage and the low average rate provides significant stability in the interest outlook relative to driving toward our 2025 financial targets. And finally for me, on Slide 12, our forward outlook. Just quickly with an excellent Q1 and with 85% of our outlook under contract, we are affirming the '23 guidance for all measures. The strong start also shifts our weighting of earnings contribution over the course of the year. We're now looking at a 48-52 split of EPS first half to second half. Thank you. So I'll turn it back over to Stuart to finish it up.

Thank you, Mark. A terrific job, as always. And my final slide today is Slide 13, I'll just touch on a couple of key takeaways. I think in summary, an absolutely terrific start to the year, sequential growth in all business units, margin expansion, adjusted EPS ahead of pace, really, our people are truly delivering significant value to our stakeholders. Book-to-bill was excellent at 1.4x on a trailing 12-month basis and more importantly, the quality of work we're winning and the associated earnings are in key strategic areas. Work under contract is now 85% for 2023, and this is a very solid position to be in after Q1. We're very well positioned in attractive markets of the future. And I think our recent wins really demonstrate this. And thus, we remain absolutely committed to our 2025 targets. So thank you, and I'll now hand back to the operator, Jacquita, who will open the call for questions. Thank you.

[Operator Instructions] The first question comes from the line of Bert Subin with Stifel.

Stuart, maybe just a follow-up to some of the comments on STS. How should we think about the sustainability of the current demand backdrop? You noted several material wins over the last couple of months. But I think the concern is if the global economy does start to head lower, ultimately, you could see some mix shift away from some of the licensing activity you've been doing back towards services and that could lead EBITDA down. Is there a concern -- any concern like that in the near future? Or do you think the high book-to-bill and the pipeline gives you a pretty good runway on when you're thinking about our EBITDA growth?

Yes, we're certainly seeing no signs of that, Bert. I think the latter, I think, really our book-to-bill and activity levels in our pipeline in the licensing side and the IP side of the house are also driving that performance. And on the Sustainable Services side, the margins we're attracting there given the high nature of what we're doing and the capability we have in that arena are also very attractive. So we don't see any margin pressure downwards at the moment. We're sticking to a guide, of course. And -- so I think it all bears well looking forward. And as I said earlier, I think one of the key takeaways, which is kind of a little bit different dynamic we're seeing in STS as we're being locked in for the quality of our resourcing into more longer-term programs like the BP hydrogen work. So I think that really gives us a better vision into the future than we probably historically have had in that business area. So it's a really good mix at the moment. We're feeling really upbeat as you can tell.

Okay. Great. Maybe on the other side of the business, you guys mentioned in your release that [indiscernible] contract growth in Government Solutions has been a tailwind with Science and Space trending better. I think the expectation was that segment would be a little slower growing this year. But now you have that benefit paired with a nice JV win at Goddard Space Center as that trajectory looks like it's improving. Do you see a path to perhaps the higher end of the 5% to 8% core growth in Government Solutions this year, obviously, excluding OAW and HomeSafe?

Yes. I mean, I think Mark commented on that. I think the sequential growth across all the business areas in Government was 6% from Q4 into Q1 of this year, which was a terrific indicator of how that business is moving. I think -- we'll give you more color as the quarters unfold. I think in Q1, it's a bit bold to be going out over the skis with that statement. I think -- and we've done terrifically well with 18% year-on-year growth ex-OAW and long may that continue, but -- that's a high watermark in anyone's book. So I think that's probably the best I can give you on that. But we're feeling pretty upbeat about the market and where we sit.

The next question comes from the line of Jerry Revich with Goldman Sachs.

I'm wondering if you could just expand on the Sustainable Tech Solutions performance in the quarter? Feels like that was ahead of plan. Can you just talk about what was the benefit of favorable closeouts versus things that we're seeing flowing through that will continue into the second quarter plus?

Yes. I think our long-range targets remain as they are, Jerry, at sort of high teens on the margin side. And I did comment that we think that business could get into the low 20s. And I think we're seeing that in various quarters. So I think we're doing extremely well and our folks are delivering. We seem to have quite favorable closeouts of projects on an ongoing basis. And I think Q1 was no different in that regard. So I think the key takeaway there is that we are ahead of pace. I think the book-to-bill shows the continued activity in that segment. The team is doing an outstanding job as Mark remarked in his prepared remarks, I think that team globally is doing terrifically well and really delivering for our customers and thus for our stakeholders. So I think that's probably the best way to describe how that business is performing. And obviously, as the year shapes up, we'll give you more. But I think -- I mean, so far, we're very much well targeting our guidance.

And so the reason for the question is the discussion this morning is around whether given the sharp [indiscernible] by STS in the quarter, there should have been a positive guidance revision because without it, it looks like the guidance is below consensus in coming quarters. Can you just expand on that point? Is it just too early in the year given that, that's the only discussion, et cetera? Or you just say more please, if there are any parts of the business that we should be thinking about as potentially having a negative variance?

So there are no parts of the business with a negative variance. I'll say that right off [ of that ]. I think the -- and I get your question on consensus when you add it to the quarter 1 performance. But I think we're still well within our guide with the consensus numbers each quarter plus Q1, albeit not at the middle of the guide, I'll give you that. And it is early in the year, and we -- as we come back in Q2 and Q3 and the business continue to form we -- perform, we will review where we are on our guide, but that's kind of where we sit. We're still with consensus still trending within our guidance range.

So it sounds like we're towards the high end, just to put the pieces together.

Well, I think the mass would tell you that.

The next question comes from the line of Jamie Cook with Credit Suisse.

Sorry to follow up again on the STS. Obviously a great EBITDA performance. Do we think about it? I mean it had a nice jump sequentially in terms of EBITDA. Is the $80-some million -- Is that the -- how we should think about the run rate over the next couple of quarters? And then could you just -- congrats on the Plaquemines 2 award, can you just give a little color sort of on the size of that, the scope of work you're doing relative to the first contract [indiscernible] that to kick in?

Yes. Thanks, Jamie. The -- I mean I think the $80-plus million that this quarter did benefit with, as we said, some project closeouts and the mix. We've given a guide very clearly of $300 million for the year in STS, and we intend to do that. With a fair wind, we may do a little bit better, but there's no commitment there. I think $300 million is the number we're targeting. And to be honest, if we deliver that, we're 2 years ahead of pace. And remember, the characteristics of that business, whether it's negative working capital and things, it's a terrific business. So all good. In terms of Plaquemines, the first phase was 13 million tons or so with all the associated infrastructure to support 20 million tons. And the second phase is for the balance of the 7 million tons of LNG. So that's the way to think about it in terms of scale. It's circa -- for us about $800 million -- $700 million, $800 million going into the backlog. But one of the things I was keen to point out as on a trailing 12-month basis, that added a backlog. When you look at the rest of STS, we still achieved a book-to-bill of 1.6x, so excluding Plaquemines. The whole portfolio is doing tremendously well. But I do think the other -- as I said earlier, in the questioning, I think the other change, I think, Jamie, is the long-term nature of some of these contracts that really underpin future performance.

The next question comes from the line of Sean Eastman with KeyBanc.

Just quickly wanted to start on a clarification one. If we zone in on this STS kind of outperformance on margins in the first quarter, are we looking at outperformance on the core licensing business? Or are we seeing closeouts on the legacy portfolio in that number?

It's probably not so much -- some legacy, Sean, but not too much. I mean, we've got ongoing services contracts. We've got ongoing, I guess, technology projects that we close out progressively. And as we close those out, we retire risks and we retire risk in their favor. We book the upside and that's an ongoing part of that type of business. And I think if you're prudent, then you get the upside and if you're conservative, then obviously, you get no downside surprises. So that's kind of how we manage that business. So I think it's a mix there.

And then just relative to the debt ceiling negotiations. I just wanted to understand how the KBR team is thinking through scenarios and risk factors there. I mean, is there sort of a simple explanation for -- the Street here on how to think about the debt ceiling risk?

Yes. I mean it's -- some things are -- well, that whole negotiation is totally within our control. But the way that we think about it is that we've got certain attributes within KBR that are very different to perhaps some of our peers. We've got the STS business got nothing to do with that debt ceiling. As you're aware, we've got the international part of our Government business similarly that's up with it. And we're positioned very much at the operational end of what we do for government. And we've talked about this often that the things that are happening in Europe will not be switched off. They just can't be given the circumstances there. The work we're doing in Space can't be turned off because of the things we do there, et cetera, et cetera. So we've also got over half of our GS backlog, as you know, in long-term contracts that are funded. So we're feeling pretty good about a lot of that. So we've got certain attributes that we think we're very well positioned, opposite these key priorities. So I think the debt ceiling piece aside, I think we've talked about inflation risk before and how we've managed that. So I think we've come through that very strongly. We've seen the shifts on really throughout geopolitical risk. And again, I think we're well positioned there to be resilient. And I think that resiliency word hopefully resonates with the investment community on KBR today just because of the attributes I've just described. So -- we've also positioned our business in very strong cash-generative areas of the market. And I think, again, you can see our leverage and where our balance sheet sits and the treasury team and Mark and I have done a terrific job in sort of derisking that element and given uncertainty with the swaps that Mark described. So I think all up, we've derisked the balance sheet. We've derisked the outlook and we're in attractive markets with a very long book of business that gives us more transparency than most into the future. And with the attributes of STS and GSI with the U.S., I think that gives us certain factors that are very positive in that regard.

Makes sense. One last quick one for me. Last month, we saw this Australian defense strategic review come out. It seems like there was some moving pieces there, some reprioritization of spend being discussed. We weren't really sure what to take away there. So just curious on KBR's take on that one.

Yes. It's just come out. We're still sort of digesting ourselves. Sean, obviously, there's a lot of focus on [indiscernible] and the Navy in general which we're very well positioned, opposite that. We are also strong in things like Mission IT, which obviously, is all well funded going into the future. There will be some reprioritization. So we'll probably have to come back to you on that, but I don't -- it's not certainly changing our guide or our outlook.

The next question comes from the line of Andy Kaplowitz with Citigroup.

I guess close enough, how are you doing, guys? So Stuart or Mark, you mentioned the 7 ammonia awards in Q1 and the Hyundai plastic recycling modular plant, helped you deliver that sort of 1.6x trailing 12-month book-to-bill ex-Plaquemines, which seems like maybe even more of an acceleration in those key markets in the quarter. Is that the case? And does that mean you can sustain so at 1.6x that you've achieved ex LNG moving forward?

Certainly, the market would -- we feel pretty good about the market and the pipeline. And obviously, it's been a month or so since the end of the quarter, and we're not seeing any of that slow down. So I think that will be as well going forward. Can you achieve that exact number every quarter? Andy, that's difficult to predict. There will be some ups and some downs in all of that. But I think overall, the key message and the takeaway is we've got a very strong backlog already secured in STS and with the whole group over 85%. Now I think we're in pretty good shape for '23 and a lot of focus is obviously booking business as we move into next year already.

And then Stuart, I think last quarter, you had talked about maybe awards in Space starting to sort of -- you're watching for an acceleration of [indiscernible] and maybe we're seeing that. You mentioned a 10% growth in space. Does that have anything to do with sort of the Artemis program progressing? Like what do you see for that particular area? And then I'd ask you the same thing about European Command. It seems like you've been expecting the revenue step up there? But it seems like it's now coming in 2023?