KBR Inc (KBR) Q3 2021 Earnings Call Transcript

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KBR Inc (KBR 0.28%)
Q3 2021 Earnings Call
Oct 29, 2021, 8:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to KBR Inc Third Quarter 2021 Earnings Conference Call. This call is being recorded. As a reminder, your lines will be in a listen-only mode for the duration of the call. There will be a question and answer session immediately following prepared remarks. You will receive instructions at that time. For opening remarks and introductions, I would like to turn the call over to Alison Vasquez, [phonetic] President, Investor Relations. Please go ahead.

Alison Vasquez -- Vice President, Investor (As per company's website) Relations.

Good morning, and thank you for attending KBR's Third Quarter 2021 Earnings Call. Joining me today, are Stuart Bradie, President and Chief Executive Officer, and Mark Sopp, Executive Vice President, and Chief Financial Officer. Stuart and Mark will cover 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 two. These matters involve risks and uncertainties that could cause actual results to differ significantly from these forward-looking statements. These risks are discussed in our most recent Form 10-K, available on our website. I will now turn the call over to Stuart.

Stuart Bradie -- President and Chief Executive Officer

Thank you, Alison. And thank you for joining us this morning. I will start on slide five. As some of you will be aware, we released our 2020 sustainability report last week, which highlights our progress and our continued ESG commitment. As such, I thought it would be timely to touch on some of the highlights. So starting on the right-hand side, if we could. I think the commitment to strong leadership and governance is of course table stakes today, but I would highlight the progress we have made and diversity at the board, the high degree of independence, and I think the changing mix of capabilities to suit KBR business today. In the bottom left, we have matured our operating culture, aligned with the social impact, and there are some good examples listed there. The circles in the bottom, in the middle, highlight our ongoing carbon neutrality, our net-zero 2030 commitment, and the elements of executive reward that are aligned to ESG.

Really, all great examples of being a good corporate citizen. But as you know, we believe-- and we firmly believe this, that being a good corporate citizen is the floor and not the ceiling. It's really about things like the strategic growth factors, about advancing the science behind climate change, and our work for [phonetic] on USGS. It's about making net-zero a reality for our clients, looking to operate more efficiently or to cause the secular plastics loop, but it's about bringing commercially viable green energy to market. Really in some, it's about our investment in new technologies and capabilities to meet the world's growing demand for real solutions around climate change. And KBR's doing some really pretty incredible work in these areas, and I think the alignment with shareholder value is I believe a clear differentiator, with 32% of our revenues sustainably focused with strong KBR's forecast. I encourage you to visit our website to read the comprehensive report. Now on to slide six, and the quarter highlights. It's been a fantastic quarter across all metrics, financial, operational, and strategic. Revenue is up 34%. Yes, 34%. And this is a combination of organic and acquisitive growth and Operation Allied Welcome, OAW mission to assess the DoD, and looking after the Afghan nationals as they came out of Afghanistan. It's an impressive revenue growth number, especially given the impact of our exit from commoditized services in 2020. EBITDA is up 30%, which is again quite an increase.

The businesses performed really well across the board, delivering at or above the expectations. We hit or exceeded target margins, in both our core Government and Sustainable Tech businesses. BPS was up significantly at 45%, obviously helped by what I just covered, but also with more volume in the US that helped our tax rate also. From a cash perspective, we maintained our discipline, and focus, and again outperformed. The conversion rate in the quarter was 125% or so, but 110% year to date. I think the cash fundamentals of our business model are not only attractive and consistently, they of course give us options. The team landed about $1.6 billion of awards and options in the quarter, a nice combination of some new work, and recompetes that I'll touch on shortly. Now, this figure significantly understates the magnitude of the OAW award by almost around about $1 billion. And Mark will cover more on this later. For now, I'll just say the team continues to win important highly strategic projects, across the growth engines that we laid out at our future-forward Investor event earlier this year. Cyber, green ammonia, digital solutions, and more doing important work advancing our clients' missions and sustainability objectives.

This of course, provides us the continued momentum, and growth toward our 2025 targets, which remain unchanged. As we indicated last quarter, we concluded the settlement with the client on [indecipherable], removing complexity, and uncertainty, and thus enhancing our capital deployment optionality. Our pursuit of the coverage of the monies associated with the combined cycle power plant are not affected, and continues with the arbitration, starting next April, in 2022. So with all of these, we are once more raising guidance for full-year 2021. And Mark will walk you through that shortly. So all up, we must be and we are very pleased with the strength of the delivery, and our people's commitment to the mission is inspiring. So a big shout out, and a big thank you to them. And on to slide seven, the market, and outlook in government remains quite similar to Q2. Of course, much of the discussion is on continuing resolution, and of course the defense budget.

National security priorities however remain aligned to KBR strategic positioning, so no real change there. I suspect if the CR continues through Q4, then some new awards will move to the right. However, the OAW, and work that we're doing, and our book-to-bill associated with this should hold up pretty well as we await the expected catch-up in early 2022. Outside the US, we have just closed Frazer Nash, and expect to do well opposite increased spending in the prioritized areas in the UK, and in Australia. And more on Frazer Nash in a moment. And an earnings call isn't incomplete without a tip of the hottest area, which continues to grow above the normal, and performs amazingly well. We've highlighted 3 awards on the right. I think the first two speak for themselves. High-end, technically differentiated, future-focused around IT and cyber, and of course, buying on strategy. The third award listed-- actually awards, requires a special mention, this via LOGCAP V and then again separately direct to the Navy at Quantico.

And we've established multiple sites across the US, and Europe, to deliver a significant humanitarian mission to accommodate the many thousands of displaced Afghans, many of them children. Our people, together with the Cline have done and continue to do a herculean heavy lift to establish critical infrastructure and medical facilities within a massively accelerated timeline. To be clear, KBR is not responsible for screening or security, for us this is a purely humanitarian mission, and one we at KBR are very proud of. A huge shout again for our people, and the significant-end crew, from the supply chain to make all this happen. It's slightly the task order will be extended, but we shall have more visibility over the next few months. So in short, the market outlook across GS with OAW, the inclusion of Fraser Nash, Australia, and aligned positioning, opposite budget priorities for the rest of 21', and moving into 2022 is very positive.

Now on to slide eight, and we'll talk about the outlook for sustainable technology. I guess, similar to the government outlook in many ways, the outlook from Q2 to Q3 for Sustainable Tech is very similar, but with one key positive development, the increase in oil and particularly gas prices recognizes supply demand imbalance, particularly as we move into winter. This of course delivers increased profits to the oil and gas companies themselves, allowing them to restart capital projects, and increase investment in decarbonization energy efficiency, changing ARPU mix, and in energy transition projects, so very positive development. We see the shift, combined with the ongoing demand for sustainable solutions has been key factors increasing demand for our technologies and our services. We continue to see opportunities across ammonia, hydrogen, olefins, clean refining, plastics recycling. There has been a big uptick in this area, and in technology-led industrial solutions and our proprietary insight solution.

The three awards highlighted here, clearly demonstrate these themes. I'd like to highlight the green ammonia project we announced a couple of weeks ago. This really is a cool project for a renewable energy client, that combines the client's renewable solar expertise, and capabilities with our K-green technology to deliver what we think will be the world's first commercial-scale green ammonia plant. This facility is expected to be operational in 2022. It's a real project that is moving forward with great momentum, and it's very, very exciting. I'll take another moment to brag on the team, just a little bit. So far in 2021, there have been 3 commercial scale ethylene opportunities that have come to market, and you can see one of those project wins highlighted here. But our team is batting 1,000, winning all 3 of those projects. A great result that I attribute to the customer focus, and tenacity of our fantastic people. And of course, the quality of our technology that brings lower CapEx investment, excellent end product flexibility, lower O&M profile, and lower carbon footprint. So the outlook for STS is very positive, and increasing demand as expected, as we move into 2022.

So this takes us nicely on to slide nine, where you can see of all of those positive works that are resulting in strong bookings and resulting in a robust pipeline. You can see the scale of our pipeline is indeed robust with $11 billion in the proposal negotiation phase, and what's coming down the pipe. The $1.6 billion of awards and options in the quarter brings a positive outlook and strategic positioning, all that talk into numbers that are very aligned with our overall confidence in the company's growth strategy. Now, we promised we'll give you an update on the amount of work we have in hand and have secured to deliver on our 2021 to 2025 long-range targets, if you were at our Investor Day, in March 2021, at the current business reflected about 55% coverage across those 5 years. That revenue curve assumed cargoes of about 8%, today that same brick of business coverage number has grown to over 60%, and that excludes the upticks from OAW. As we've said, our strategy is to build stable, predictable businesses in attractive markets, with a very capable business development track record. We think the continued progress here is a great demonstration of those attributes. So bottom line is that we stand behind of 2025 targets. Now onto slide 10, last week we announced the closing of the Fraser Nash. Frazer Nash if you recall, is a high-end advisory and consulting firm, delivering systems technology. systems engineering, and insurance. The addition of this talented team is an absolute step change in the evolution of KBR's business, primarily in the UK, and in Australia.

It further extends our reach into technically differentiated sectors and supports our mission of delivering high-margin, high-end technology-enabled solutions and mission-orientated capabilities. What's more, the compelling clean and renewable energy suite of capabilities perfectly aligns with KBR's commitment to ESG principles, and to helping our customers accomplish their sustainability objectives. As outlined here, Fraser Nash has about $160 million of revenue, and our Government business in 2022, at high T-margins and is expected to be approximately 10 [indecipherable] accreted to adjusted EPS. We couldn't be more pleased to welcome this group into the KBR family. Now, I'll hand over to Mark, Mark.

Mark Sopp -- Executive Vice President and Chief Financial Officer

Great, thank you. Stuart once again and I will pick up on Slide 12 which lays out our key financial performance metrics as I usually do. However, before I get into the numbers. I'd just like to make a few comments to expand on our role in the Operation Allied Welcome Program, OAW. As you know, KBR has been involved in supporting military activities in the Middle East for a very long time. We think it's a privilege to be called upon by our nation to once again provide a good environment for those who aided our allied forces during those missions. We feel side by side with these heroes in theater, and it is our duty and honor to help them transition out of that environment under this operation. As part of this, we are tremendously proud of our KBR employees, who literally drop everything, to build in a matter of just days communities hosting tens of thousands of Afghan guests at the request of the Department of Defense.

An important precursor to briefing our results here today is that while the financial impact of our role here is quite noticeable in our numbers, this effect is second fiddle to us. What matters is we are there when needed to provide this critical and difficult need. And in fact, we're quite proud to say that KBR continues to do this sort of thing really well. Now on to our performance in Q3, Stuart did summarize much of this already, but I'll emphasize a few points. Q3, year-over-year revenue growth was 34%, and that includes over 20% being organic, with all parts of our government business including OAW, of course, driving this. Sustainable Tech is performing at or above plan. It still saw year-over-year revenue contraction, as we ramped down legacy reimbursable contracts. Adjusted EBITDA grew 30%, a terrific result. Margins in the core government business were at or slightly above target, OAW is at low-single digits, as you might expect. Margins for STS were once again healthy at 14%, and corporate was on track as expected.

So together this blended to a KBR margin overall of 9%. Or as Stuart would say, bang on with our actual target. Great result in EBITDA growth, the impact of favorable jurisdictional mix for taxes, and some benefits from buybacks boosted adjusted EPS by 45% to $0.64 for the quarter. Quality of earnings and cash conversion remains strong and as expected. Adjusted operating cash flow was about $120 million for the quarter, and that amounted to just under $190 million year-to-date. I'll note our consistent cash flow generation enabled significant cash contributions toward the Frazer Nash acquisition, versus debt of course and that helps in accretion. Stuart covers Q3 bookings. And as you see, the company has built backlog and healthy measure up over 25% from Q3 of last year. Picking up on what Stuart alluded to earlier, the $1.6 billion of bookings and options in Q3 does not reflect the full value that OAW will bring.

Because of this work is under IDIQ contracts, our consistent practice is to only book funded task orders, which for OAW amounted to about $500 million in Q3. We expect another $900 million-plus for Q4, associated with incremental funding, together with tying to the $1.4 billion upticks in our revenue guide. Accordingly, Q4 is set up for strong bookings as well. On to our segment results, slide 13. For the government, topline growth was 54%, 33% of which was organic. All four business units grew organically, it's really important to see once again. OAW as a major driver, contributing almost $400 million in revenues in Q3. While our Middle East contingency work was down about $100 million from last year. Quite amazingly, when you strip out Middle East, and OAW contingency revenue, the readiness and sustainment business unit grew 25% in its ongoing O&M business, 25%-- Achieving that growth while managing this massive and urgently need associated with OAW is really a marketable testament to the capabilities of this team.

Defense & Intel's growth reflects Centauri, and also growth across advanced systems engineering, and integration and cyber work areas, including some important announcements that we've made in the quarter, particularly on the cyber front, as you've seen.

Science and Space picked up its growth pace to 9%, all organic. This business unit is hitting on all cylinders, winning new work winning recompetes, and expanding work on existing contracts. Ongoing growth and excellent delivery on the Special Forces Program [phonetics], human health and performance contract is a great example of this latter category, as we've almost doubled our footprint from 2018, when we won this contract. This is based in large part on the fantastic health professionals advancing this program, each and every day. As well as the recognized need for our overall wellness programs for our soldiers. Todd May's Science and Space team has also supported several successful launches, by both NASA and the well-publicized commercial launches over the summer. They also helped write the International Space Station twice and were inadvertently knocked off course in foreign docking maneuvers, thus keeping the ISS mission safe. EBITDA margins were on track for the core GS business. As mentioned earlier, OAW is lower margin work, and the dilutive margin effect from that program brings the overall GS margin to 9% for the quarter. So gladly take the growth in core earnings dollars, even with the dilution of margin percent. Over to STS, top and bottom lines remained on track for Q3 while bookings were seasonally low. The quality of bookings were superb as this team continues to provide cleaner and safer technologies to commercial and government customers all around the world. The awards in green ammonia, plastics recycling, and digitally led remote plant operations are hallmarks of creating a positive toward sustainability across our client base. And this really drives our team, and also bolsters the KBR brand. Corporate spend was as expected, with the increase year-over-year, reflecting our greater scale and also the select investments we are making in our infrastructure, to enable scalability going forward.

On to capital matters on slide 14. Net leverage was reduced to 1.9 X at September 30, on strong EBITDA growth and continued cash generation. Net leverage will nudge up to about 2.2 X pro forma with the Frazer Nash acquisition that we closed in mid-October. As a result of KBRs increased scale, good margins, strong cash flow, excellent track record, and the de-risking actions that have occurred this year, we were pleased to see another credit ratings upgrade this quarter, where we now carry a double B flat Ba2 corporate rating, up to 4 notches from where we started about 3 years ago. We continue buybacks this quarter, which amounted to about $25 million. [indecipherable] settlement as Stuart mentioned earlier was a significant positive development from a liquidity and legal cost perspective. This is a major de-risking event that affords us more options on capital deployment going forward. As such, we will review our optimal capital structure in the coming months, and update you on our latest views on that in our Q4 report that we will issue in early 22'.

Now on the guidance, slide 15. Stuart started updating our guidance favorably and also significantly, to reflect the impact from OAW, with all other things effectively as planned. As Stuart summarized the magnitude of this effort in a short period of time is quite stunning. We are raising revenue guidance for Fiscal 21' by $1.4 billion, or over 20% higher than our guide last quarter. This is clearly rare in the government contracting space, a testament to the team that can rapidly mobilize to serve at this scale when called upon. Of this increase, roughly $400 million came through in Q3 in terms of revenues. OAW margins are low single digit, as one would expect for this type of work. Thus, we are reducing consolidated adjusted EBITDA margin for this year by 1%. To be clear, the rest of GS and STS are performing as expected and delivering at or above our originally guided margins. Also, because of the increased work from OAW is US-based, it has a favorable impact on our tax rate from better jurisdictional mix.

We're taking this together, adjusted earnings per share guidance is increasing $0.25 at the midpoint, to a new range of $2.30 to $2.40. After raising in the second quarter, we are keeping cash flow guidance unchanged this quarter at a very healthy 300 to 340 million, while the volume bumped up, from OAW we'll produce net cash flow returns when all of this is said and done, timing items could lead this to spilling into next year. As you can imagine, we have and will continue to conduct many procurements to support this activity. And in turn, are invoicing our customers on a fully cost reimbursable basis. We will manage timing items between our supply chain and our customer as best we can. But we think it's prudent to assume the net cash benefit ultimately may land in 2022. That completes my remarks, and I'll turn it back on to Stuart for the closing. Thank you.

Stuart Bradie -- President and Chief Executive Officer

Thank you, Mark. Excellent job, I will finish on Slide 16. And a fairly consistent theme here, doing what we said we would do, and arguably this quarter a little bit more. Another excellent quarter, in fact, one could say a banger, an absolute focus on the mission, delivering exceptional results, strong growth, excellent profitability, excellent margin performance, and outstanding cash conversion. We have reduced risk and increased capital deployment optionality, and following the increased cash guidance in Q2, we are raising revenue and earnings guidance this quarter. Our momentum continues with good bookings, and very positive fundamentals in our end markets as we look into 2022, and beyond. And now I will hand back to the operator, who will open the call up for questions.

Questions and Answers:

Operator

Thank you.

[Operator instructions]

We'll take our first question from Tobey Sommer, with Truist Securities.

Tobey Sommer (Jasper Bibb) -- Truist Securities -- Managing Director

Hey, good morning. This is Jasper Bibb on for Tobey. So I wanted to ask, you mentioned the strong performance in readiness and sustenance [phonetics], excluding the allies welcome program but the quickly shifting resources to support the Afghanistan withdrawal during the quarter, potentially negatively impact, some of your other work in that segment?

Stuart Bradie -- President and Chief Executive Officer

Good question. I mean the answer to that is no. I mean, we-- part of the work On Allied Welcome was really driven by the supply chain. And so really it was a lot of-- I guess subcontracted personnel, and equipment, et cetera, that was brought into established the infrastructure required and we deployed a number of people, of course, that came out of I guess the historical work we're doing in Iraq. And obviously, we never mobilized Afghanistan. So we had those people readily available to deploy. So it did not negatively impact us at all.

Tobey Sommer (Jasper Bibb) -- Truist Securities -- Managing Director

Got it, it makes sense.

Stuart Bradie -- President and Chief Executive Officer

[Speech overlap] team produce really are great organic growth outside of OAW. As we said in the remarks, they continue to ramp up in the overseas work in Turkey and Spain, on that program there. They continue to support exercises in the European Command over the summer, dutifully, and other training work in NORTHCOM as well. So really remarkable growth outside of that OAW activity as well.

Tobey Sommer (Jasper Bibb) -- Truist Securities -- Managing Director

Yeah, that's great. And then, i just wanted to follow up on the green ammonia contract with ACME that you announced, a lot of press around this technology, with Aramco, also announcing a new plant this week, I mean could you just comment on what the RFP pipeline looks for your green ammonia Solutions? And how large do you think these opportunities may ultimately be?

Stuart Bradie -- President and Chief Executive Officer

I mean we've got a lot of studies ongoing in this area as you can imagine, as organizations look to drive their sustainability agenda. So I think the market is very buoyant, I guess these various projects have different levels of maturity. But we're very pleased, I mean it looks like it's the first to go. It's real, it's funded and it's progressing. So I think getting in the front of the queue on this because a lot of these projects have been talked about, but this is one that's actually being done and I think being in the front foot and first-mover advantages is extremely strategic. So I think we're going to see increasing activity, as these get proven out. I think that as we look at the combination of, I guess what we call gray, blue, and green ammonia, sort of been combined to produce more greener solutions from existing ammonia plants, et cetera. I think it's going to be a good market through quite a period of time. It's not everything that's going to come in one year, it's going to be a progression over multi-years. So it's a really, really good position for KBR to be in.

Tobey Sommer (Jasper Bibb) -- Truist Securities -- Managing Director

Got it. Thanks for taking the questions.

Stuart Bradie -- President and Chief Executive Officer

Thank you, Jesper.

Operator

We'll take our next question from Michael Dudas, with Vertical Research.

Michael Dudas -- Vertical Research -- Equity research analyst

Good morning, Allison, Stuart, Mark.

Mark Sopp -- Executive Vice President and Chief Financial Officer

[Speech overlap]

Hi Mike.

Michael Dudas -- Vertical Research -- Equity research analyst

Stuart, you mentioned your prepared remarks, certainly the improvement in energy prices and some extraordinary improvement especially overseas in gas, is it going to drive cash flows and leads to customers to spend more money. But you had mentioned like how differently you're going to spend. I'm just curious about how different, how ready are the customers to kind of go forward to de-carbon, reduce efficiency in the corporate sense, et cetera, relative to catching up on like maintenance or catching up on like heck, we better go maybe think about this LNG facility because prices are through the roof. So maybe a little bit more-- share some of your thoughts on how that plays through, and how that can maybe leverage on your technology side as we move forward in the next couple of years?

Stuart Bradie -- President and Chief Executive Officer

Yeah, I think it is a kind of question at the moment with many of the international, and I guess national oil companies, is that they have to be able to I guess sustained revenue and cash to be able to invest in the future. And I think the increase in oil and gas prices helps with that considerably and I suspect they'll be looking at repurposing refineries to different product mixes that sort of suit the future. I think you'll see a lot of investment in current assets around getting them more energy-efficient and reducing their carbon footprint, as we're seeing a lot of activities in that brownfield arena, which plays to our strength, as you know particularly around remote monitoring and our TLIF Solutions. So I think it's a balance, Mike. I think the companies themselves would admit that they need to generate the income, and maintain their assets, but by maintaining those assets, get them sort of far more efficient, and more green, and more sustainable. And then look at the product mixes that are coming through in the future. A lot of talk of oil to petrochemical for example, and obviously we have got technologies that help with that.

So I think it's going to be a different solution for each of those companies, but ultimately I think that's the way it's going to play out. So I think we're very well-positioned to help with I guess decarbonizing the existing assets and making them more energy-efficient. And of course at the same time, as they invest in sort of I guess newer technologies and newer solutions for the future, we're very well-positioned for that. So it's a nice balance for us of CapEx and OpEx, and I think these sort of oil and gas prices as we move into winter will come under increasing upward pressure as well.

Michael Dudas -- Vertical Research -- Equity research analyst

No question about that. And my follow-up is regarding Frazer Nash. As you announced the closure this past month, as you went through the process, very opportunistic on the acquisition, but over the next several years, how do you see it fitting in and what areas are more robust for revenue growth in some of the synergies that you can get? Maybe internally in the UK and Australia. But if some of that renewable energy technology is something that we can leverage to other parts, throughout the say-- of maybe technology side, given some of that expertise.

Stuart Bradie -- President and Chief Executive Officer

Yeah, I mean I'll first say that the engagement with the Frazer Nash folks through this process has been fantastic in terms of really truly understanding their high-end capability, as it at points I think to the future of investment, not just in renewables, but actually in the government spend, opposite the UK and in Australia. And that's an area where at the moment we don't really play in the UK, and that's in cyber, it's in looking at that the whole sort of evolution into what the UK is going to do in the space. It's looking at obviously defense modernization, particularly with the changes with Brexit, et cetera. So I think there's a lot of change coming in the UK, and having a high-end consultancy business to help the UK, and we'll be able to make those decisions, is completely strategic for us. And I think that really is an amazing opportunity and I think similarly in Australia to build upon what we're doing there already.

So I think that's the first part, and then the second part is they do come with a cadre of what I would call advisory capability and consulting engineering capability, and there is renewables switch, which KBR features heavily in the hydrogen world, as everyone's aware but they bring capabilities, things like solar and wind, and nuclear, that really augment our capability. So I think there is significant synergy when you're advising I guess governments and companies about how they decarbonize and what's a good strategy for their particular environment or geography, or constraints around infrastructure, we can certainly have a far broader offering in that regard. So I think it all dovetails really well, and we've got absolutely zero overlap. So it's all additive, and I think the capability that Frazer Nash brings from high-end technical capability really enhances our resume when we're talking to the UK MOD about broader programs that were traditionally in KBRs' wheelhouse.

So I think I'm happy when would go up as a consequence of that, so I think we really all are super excited about this, and it takes really sort of-- because if you think about our evolution transformation in the US to more higher-end, more sort of strategic services, and where the spend is, that's exactly what the Frazer Nash does for us in the UK environment. So really, really terrific acquisition, you're right as that came to make, it's something strategic we wanted to do. Figuring out how to do it was tricky, and this came to market and we took the opportunity to move quickly and secure what we think is going to be a very valuable asset for us going forward.

Michael Dudas -- Vertical Research -- Equity research analyst

Thanks Stuart. Thank you very much.

Operator

We'll take our next question from Andy Caplan with Citigroup.

Andy Caplan -- Citigroup -- Brand Manager

Good morning, everyone.

Mark Sopp -- Executive Vice President and Chief Financial Officer

Good morning, Andy.

Andy Caplan -- Citigroup -- Brand Manager

Can you give a little more color into the underlying revenue trajectory of carbon solutions, and as we shift here into 22', I know it's not right to exclude OAW from how you're thinking about growth, but given it's so big and discrete, we can do that. So how are you thinking about the 5% to 8%, you talked about it being tagged 25'. But as we go into 22', I think it was Stuart or Mark, I forgot who mentioned it, but you mentioned some projects moved into the right. So how do you see the growth in the 22' X [phonetic] OAW and then does OAW last into 22'?

Stuart Bradie -- President and Chief Executive Officer

Yeah, I like that. We kind of expected the OAW question, how long will it last? And I think right now it's undeterminable. We don't know, I mean it's happened very quickly. We've been very much all-- the teams have done an amazing job, just getting these facilities up and running and sustaining. So I think we've got direct line of sight to year-end around that and our goal obviously is as that progresses, and we get closer to the year-end we'll have more visibility into next year. So there's probably-that's a question, I think that we probably need to sort of talk a little bit, I think you can be confident of our up guide if you like. In terms of this year, and I think there'll be some of that will be quite considerable amounts to move them into next year, but trying to give you an underlying number around that is difficult at this stage, and I don't want to get out over my skis in that.

In terms of the core GS businesses, we call it I think the-- I think Mark was very absolutely right in saying that when you separate out OAW, the performance of the business has been terrific. We are well in the double digits and margins. The growth has occurred across all of our segments, and the performance and delivery has been exemplary. So in terms of our long-range targets, we very much stand behind those, and I said that as well. My prepared remarks. So I mean I think we, I think you're right, I think we will separate OAW. It's something that is so large and discrete that we should do that, and obviously has an impact on margins, et cetera, and it will be very positive. I think in the wash-around cash, and obviously given its scale. But, which is why the deployment optionality increases for KBR going forward. So, but in terms of the core business is performing extremely well. And even with the slippage of awards a little bit to the right. I think that it's not slipping so far that we're worried about any change in our long-range targets, and I think we are very confident upon them.

And I think if I take you back to the backlog slide and talking about our coverage. If you like under the graph to achieve those targets, it has gone up significantly since our Investor Day. So I think it all be as well in the quality of what we are winning and the margins associated with that quality is terrific. So, yeah.that's-- I'm sorry, that's a long answer to saying we're in good shape.

Andy Caplan -- Citigroup -- Brand Manager

That was the one question by me, so I appreciate that, Stuart. And so just follow-up, how is KBR handling supply chain and labor pressure? It seems quite well as your margins has been stable, and in line with your expectations, and it doesn't seem to be slowing down work, but maybe you could discuss and then maybe just dovetailing with that. We know you've been focused on sort of cost out over time in Sustainable Tech. So can you still make progress despite sort of the supply chain plus labor constraints that are out there?

Stuart Bradie -- President and Chief Executive Officer

Yeah. I think in the markets we're in, we're not really seeing too much pressure on a lot of what we do of course in the government side is cost-reimbursable and of course, is the pricing pressure that comes, we're protected in that area. And in terms of sustainable tech, again, we know that in terms of pricing pressure back to back. So I'm not worried about the supply chain in terms of the commercial risk, in terms of the supply risk. I think we've got a number of suppliers that we've worked with for numerous years, and I think that we are in really strong relationship shape with them that we can manage that, and have been managing that without too-- really with no disruption interest, and to the extent even during COVID, where we moved to using things like Google Glasses to do inspections, and things like that to ensure things we're continuing on track. So, I think there has been a change in the way that people operate for the Group, if you like to manage these situations. And I think from a supply chain risk perspective, we are very well isolated. So it's something we watch, we're not complacent in any way. But I think our teams are on it.

Andy Caplan -- Citigroup -- Brand Manager

I appreciate it, Stuart.

Operator

We'll take our next question from Sean Eastman with KeyBanc Capital Markets.

Sean Eastman -- KeyBanc Capital Markets -- Senior Equity Research Analyst

Hi, team. Great update. Thanks for taking my questions. So maybe just kind of expanding on Andy's question, I mean, just as we think about next year, I know it's not guidance time yet, but we've got to work with our models here. And clearly, we have to be careful around the operational allied welcome revenue, and what that looks like next year, and now that comps for GS. Maybe the other thing would be just the outsized margins in STS, maybe it's harder for STS to expand margins much into 2022, is there anything else you would point out at this juncture? Just as we think about that bridge to next year and making sure we've got appropriate numbers out there.

Stuart Bradie -- President and Chief Executive Officer

Yeah, I mean I think Sean your statement on STS is not quite on the mark. We still feel that given where we're positioned in the technology cycle, where we're actually driving the growth within that business, we think margins looking really, really good going into next year. I don't see any downward pressure on STS margins at all. Our expectation is they will continue to go up, and we'll obviously get more guidance on that as we get into next year, but certainly the quality of earnings that we secured, would suggest that that trend will continue. So-- and remember, we were still working off some of the-- I guess, the more commoditized projects, and that becomes a lesser part as well. So again just puts upward pressure on margins. So I think that piece, we're pretty confident. I think we again stand behind what we said at our Investor Day, and that was very much that we think these will incrementally grow 1% to 2% per annum over the course of the 2025 guides. So that's good.

And I would say, of course we had some good news at the front end, as you know we're well over 20% at the beginning of the year, which was a little bit abnormal. Yes. So, I think coming back our statement, around $1 billion-plus business in the mid-theme [phonetics] for 21. I think we're very confident around that, and then upward pressure on growth, the revenue line and up the pressure in margins achieve that expansion of our earnings around STS business as we move forward. So we're really comfortable on that. And in terms of the guide a little bit, we're not guiding at all, it's all around the 20-25 targets that sort of 5% to 9% revenue CAGAR around what we're doing in GS. So we know is absolutely solid, and we continue around that, and I would love to be able to give you more color in OAW past the end of the year. But as I said, it's if I get it wrong, you'll just beat me up. So, sorry I don't say very much. So I mean, there will be obviously-it will carry over, I think there an opportunity for some of the task orders for sure, to be extended. But how many basis, how many facilities, how many people know how long to put them into society. That's a really difficult question to answer today.

Sean Eastman -- KeyBanc Capital Markets -- Senior Equity Research Analyst

Okay, very helpful. And then I joined late, so apologies, but I just heard someone mentioned sort of some procurements being pushed out. Is that just a function of the CR dynamic and we just need to wait for a budget to have some of those newer programs adjudicated? And just with the momentum in GS this year, obviously the performance has been fantastic. So it would be helpful to just frame sort of what a breakout scenario-- what would drive a breakout type scenario for as we look out over the next year or 2? What types of things could surprise to the upside for GS?

Stuart Bradie -- President and Chief Executive Officer

I mean I think we're all pretty surprised of OAW. I think that was quite a surprise. I mean, Mark was afraid to tell me in his tenure as the CFO and I won't [Technical issues] but to increase your revenue by such a significant amount, over 20% in one quarter is quite remarkable. So, but in terms of that, we've got over-- well into double-digit numbers of procurements that are ongoing, if you like, and many due for award that are well over $1 billion. And I think if we want our fair share of those, we could have a breakout scenario, but as you know, winning these is tough, and so we take a probabilistic view of that, and that's how we build a model. And so I think that's probably the best way to answer that at the moment. And in terms of things moving to the right. Yeah, I think it's a lot to do with the CR and just timing. It's not like we've lost anything or whatever. So I think these move into--

I think we're looking at a very strong bookings quarter in Q4, OAW will help greatly with that as Mark said, and that's a very nice position to have because as things start to catch up in Q1, et cetera. We can continue that momentum. So, puts us in quite an unusual but strong position.

Sean Eastman -- KeyBanc Capital Markets -- Senior Equity Research Analyst

Not too shabby indeed. Thanks for the help.

Stuart Bradie -- President and Chief Executive Officer

Thank you.

Operator

We'll take our next question from Zane Karimi with DA Davidson.

Zane Karimi -- DA Davidson -- Asset and Wealth Manager

Hey, good morning Stuart, Mark and Alison. Solid quarter and outlook.

Unidentified Speaker

[Speecg overlap]

Thank you.

Zane Karimi -- DA Davidson -- Asset and Wealth Manager

So first off here, given the growth forecast around at STS for the next few years, how do you feel like you have the resources, like the people in place to drive that? And are there any constraints in that business, you're having a work around today?

Stuart Bradie -- President and Chief Executive Officer

No constraints. We're having to walk around, I mean I think that we sell IP, and obviously is something that doesn't need too many resources as we continue to help ensure that it's the most efficient and the most-- I guess, got the lowest carbon footprint, and things that I think we're very much in the forefront of that. But it's, yeah, it's not a big resource business, we've got a lot of critical capability around process and things like that. But they work for us for many years and are very specialized in our particular technology, and so that's quite a solid place to be. So, and I think also that people are just super excited. You know the change in profile around that part of the business, the performance being-- And as I always say, the part of life's great things is actually being part of a team that is doing really well, and your best work experience really. And I think that team is proving that out.

So I don't think the attrition rates are not concerning in any way, the ability to find key resources given our momentum in that particular business is not too difficult, and as I say, it's not heavy personnel driven business, because that's where the IP-- So feeling that we're-- we will not be complacent at all, but I think it's-- we're very much trying to ensure that KBR's a fantastic place to work with a bit of a talent magnet in that sense, and we will continue that journey, but I mean, so far so good in terms of resource constraints.

Zane Karimi -- DA Davidson -- Asset and Wealth Manager

Got you. Thank you. And you also made a notable announcement with work, with a major utility in the STS segment. How are you seeing the customer profile of evolving over time?

Stuart Bradie -- President and Chief Executive Officer

Major utility. Yeah. Zane, could you clarify when you say utility?

Zane Karimi -- DA Davidson -- Asset and Wealth Manager

Maybe I misread the release, I'll get back to you offline about this.

Stuart Bradie -- President and Chief Executive Officer

Okay, Thanks, Zane.

Operator

[Operator instructions]

We'll take our next question from Jerry Revich with Goldman Sachs.

Jerry Revich (Ashok) -- Goldman Sachs -- Stock Analyst

Hi, this is Ashok [phonetic] Hannan on for Jerry Revich, for Government Solutions, you mentioned the 9% revenue growth for science and space is all organic, can you provide the organic growth for the other platforms in the quarter?

Stuart Bradie -- President and Chief Executive Officer

Yes, we can. We do disclose those in the K. So, Mark.

Mark Sopp -- Executive Vice President and Chief Financial Officer

Yeah, let me find my reference here, I'll tell you right off of that. I think we gave you the readiness and sustainment of organic growth, which was a huge number, but ex OAW was 25% for readiness and sustainment. So that was terrific. The international piece was about 4%, much higher in Australia, a little more flattish in the UK, that Australia continues to do really, really well in the Defense and Intelligence, which includes Centauri, was about seven. so strong throughout.

Jerry Revich (Ashok) -- Goldman Sachs -- Stock Analyst

Okay, great. And for the heritage technology business, can you tell us what the book-to-bill in the quarter?

Stuart Bradie -- President and Chief Executive Officer

It was seasonally low, about 0.6. Yeah, between 0.5 and 0.6.

Jerry Revich (Ashok) -- Goldman Sachs -- Stock Analyst

Okay, thank you.

Stuart Bradie -- President and Chief Executive Officer

I mean in that business, they always have I guess a softer Q3 just on budget cycles, than people tend to sign contracts as they move into Q4, as they spend the money for that particular year, and get the commitments going. And then it all start again in 1st January. So I think we will see, our expectation is that that business will have a stronger book-to-bill in Q4 and the pipeline would suggest that that is the case. And that's been the historical norm for that business. So again, not concerning and I think just the quality of the work that we're winning is actually what was really important in the quarter.

Jerry Revich (Ashok) -- Goldman Sachs -- Stock Analyst

Understood. Thank you.

Operator

That concludes today's question-and-answer session. At this time, I will turn the conference back to Stuart Bradie for closing remarks.

Stuart Bradie -- President and Chief Executive Officer

Thank you. And thank you very much for taking the time. We do appreciate, we know you've got other places you could be, but thank you for taking the time to listen to us this morning. I think an amazing quarter for all the reasons we described in our opening remarks. And we're very excited about where the businesses and where it's heading. No questions today on excess, which is terrific, because I shouldn't really bring that up, Alison is giving me dagger, but I think it's very positive in the sense that I guess the uncertainty is now behind us. And again another major legacy issue resolved. So, all good in that regard. So we're feeling that today we're in a really good shape, and we're really looking forward to 22' and beyond. And thank you for your continued interest. Thank you.

Duration: 57 minutes

Call participants:

Alison Vasquez -- Vice President, Investor (As per company's website) Relations.

Stuart Bradie -- President and Chief Executive Officer

Mark Sopp -- Executive Vice President and Chief Financial Officer

Unidentified Speaker

Tobey Sommer (Jasper Bibb) -- Truist Securities -- Managing Director

Michael Dudas -- Vertical Research -- Equity research analyst

Andy Caplan -- Citigroup -- Brand Manager

Sean Eastman -- KeyBanc Capital Markets -- Senior Equity Research Analyst

Zane Karimi -- DA Davidson -- Asset and Wealth Manager

Jerry Revich (Ashok) -- Goldman Sachs -- Stock Analyst

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