Q4 2023 KBR Inc Earnings Call

Participants

Jamie DuBray; VP of IR; KBR, Inc.

Mark W. Sopp; Executive VP & CFO; KBR, Inc.

Stuart J. B. Bradie; CEO, President & Director; KBR, Inc.

Bert William Subin; Associate; Stifel, Nicolaus & Company, Incorporated, Research Division

Gautam J. Khanna; MD & Senior Analyst; TD Cowen, Research Division

Jerry David Revich; VP; Goldman Sachs Group, Inc., Research Division

Mariana Perez Mora; Research Analyst; BofA Securities, Research Division

Michael Stephan Dudas; Partner; Vertical Research Partners, LLC

Sangita Jain; Associate; KeyBanc Capital Markets Inc., Research Division

Steven Fisher; Executive Director and Senior Analyst; UBS Investment Bank, Research Division

Tobey O'Brien Sommer; MD; Truist Securities, Inc., Research Division

Presentation

Operator

Good morning. My name is Drew, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Q4 and FY 2023 KBR, Inc. Earnings Conference. (Operator Instructions)
I will now hand over to Jamie DuBray, Vice President of Investor Relations. Please go ahead when you are ready.

Jamie DuBray

Thank you. Good morning, and welcome to KBR's Fourth Quarter and 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 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 the 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.

Stuart J. B. Bradie

Thanks, Jamie, and a warm welcome to our 2023 year-end earnings presentation. I will start on Slide 5. As we reflect on 2023, I wanted to begin today with a theme of looking after our people, creating an environment where each and every person can go home after work, at a minimum. The same as when they started the day, was very personal to myself and the whole leadership of KBR. Our Zero Harm program is only as good as our processes and, of course, our people being committed to our values every single day.
I'm, therefore, pleased to report that, once again, we achieved top quintile results, an outstanding achievement given what we do and where we do it. So a huge shout out to KBR people all across the world.
There are a number of achievements and milestones that we have celebrated through the year as examples of this exemplary performance on this slide. I won't read them as there are many others, but this gives us a good feel for the global and complex nature of what we do and why we are so proud of our HSSE performance and ongoing commitment to continual improvement.
On to Slide 6, on Business Health. I will focus my remarks on the full year performance and outlook. I'll also give you an update on HomeSafe. Mark will cover the quarter results, which are, once again, resilient. We met or exceeded expectations on all key metrics. Mark will also break down the year a bit more and present, of course, on '24 guidance.
On the people front, we increased our headcount by double digits, which is aligned with our organic growth. Pleasingly through the year, our attrition reduced. And through independently run surveys, I'm proud to report that KBR is now certified as a Great Place To Work in 16 countries. This is a direct result of the emphasis we place on valuing our people. We are, of course, not perfect, and we will in '24 and beyond '24, strive for continual improvement and deliver even greater investment in our people.
But I think it's important we must also recognize the '23 performance. Talking of recognition, you can see some of the awards we received during the year. And importantly, these were all assessed independently. On Zero Harm, we've already covered the safety stats. From our people survey, you can see that our people truly believe that we are committed and do care for them and about them. As you're aware, our unique ESG position allows us to deliver shareholder value in addition to fulfilling our ESG goals. These aligned with UN Sustainable Development Goal #7, which is affordable and clean energy.
And as you'll see on the slide, we've listed an example from each of the businesses. In GS U.S, we support the FAA VALE project designed to achieve cleaner emissions from airport ground support equipment. In GS International, we support the U.K. MOD with testing of zero-emission military aircraft. And as you know, in STS, we have many sustainable clean energy technologies, which helped some of the largest organizations in the world deliver cleaner environmental outcomes.
Moving on to business growth. Now these are the metrics around work winning. Overall, trailing 12-month's book-to-bill was 1.1x. And as you would expect, with this result, backlog was up 10% year-on-year to $21.7 billion, including options. This provides great visibility of future earnings potential and importantly, excludes HomeSafe. Now more positive news on that in a moment.
In terms of 2024, this translates to 75% of work under contract as we start the year. Given in a typical year, we also execute 15% to 20% of our revenue on smaller short-term consulting contracts plus, of course, ongoing contract growth, this is a very solid basis for the year ahead.
On to group financials. Strong organic growth at 11% ex-OAW, a fantastic performance in its own right. But more impressive was the associated adjusted EBITDA result. We delivered 12% year-on-year adjusted EBITDA growth by increasing margins to 10.7%, an outstanding result.
On to cash. We settled the convert and warrants in cash as promised. Not only avoiding dilution, but reducing our share count, truly delivering on our commitment to maximize shareholder return. This was all possible due to excellent cash management and strong Treasury and tax management, with adjusted OCF conversion at 117% for the year. Absolutely outstanding.
So in short, we met or exceeded expectation across all key metrics for the full year: revenue growth, adjusted EBITDA, adjusted EPS and of course, cash. Our book of business underpins our continued momentum and growth. Our vision is to deliver technology and increasingly higher-end technically differentiated services in attractive end markets that matter, safe, secure and sustainable.
We continue to realize our vision, continually moving away from markets and business models that become commoditized, growing our technology portfolio, both in GS and STS, and ensuring we operate more in the differentiated services market. This, of course, should result in enhanced margins over time, which was clearly the case in 2023. All of this was achieved in quite a volatile year, not only geopolitically, but also fiscally, especially with increased interest rates.
On to Slide 7. I'm not going to spend too much time on these slides as the markets we discussed last quarter and in fact, most of 2023 remain unchanged. You can see 3 awards on the left, demonstrating how engaged KBR is across sustainability in all aspects of the energy trilemma.
STS book-to-bill on a trailing 12-month basis was 1.1x. And excluding the large LNG project, which, of course, has a large burn, the trailing 12-month book-to-bill was 1.2x. I think a really strong indicator that STS, both in technology and sustainable services, continues to grow and win work in critical areas aligned with our vision. The margin performance demonstrates this, which Mark will cover in a moment.
As a reminder, we have a number of inbound requests to do a deeper dive on STS. Why has it grown adjusted EBITDA 50% year-on-year? What is the book of business and how does it work off to demonstrate the noncyclical long business attributes? How do we make our returns? And what are the key markets going forward and their outlook? Our intent is to present a focused, I guess, what we're calling an STS Primer, the week of March 11 to answer these questions. The objective is to increase investors' knowledge of this business before we go into our Investor Day, at which our focus will be very much on future direction, increased synergy and the potentials going forward.
On the government side. In a year of volatility, both internationally and domestically, the team did an amazing job. GS book-to-bill on a trailing 12-month basis was 1.2x. We have highlighted some example wins that again showed the realization of our vision. Firstly in technology, directed energy via DEM-Shorad; high-end consulting via Frazer-Nash, working with the U.K. government showing very strong synergy with STS; and thirdly, absolutely great performance via highly differentiated services leading to extended scope on the preservation of the (inaudible) family contract. KBR is very well positioned in key markets that post appropriation, we expect, will be well funded.
Now on to Slide 8 and HomeSafe. Last quarter, we recognized that we delivered a status update that was devoid of clarity. It was the truth, but we also recognized the market does not like uncertainty. As you can well imagine, our team and TRANSCOM have been working very hard together to provide more clarity. We created a joint Tiger team with TRANSCOM to improve the integration of government on contractor systems. We added additional leadership with specific operational expertise. And together, we are partnering with individual services branches to drive organizational change management. We are jointly committed to a successful path forward and feeling very upbeat.
I'm thus pleased to report that round 1 systems testing was completed successfully in January. Now this paves the way to starting operational test moves at the local level in spring of this year. The volume ramp will be in a controlled manner through the year, with the expectation of significantly ramping up into 2025, especially the busy season. And international moves will then follow as we head into 2026. So in short, circa a delay of 1 year.
Now remember, this is a 9-year program. So although a delay is always frustrating, I believe it has allowed both sides the time to derisk the start-up and, of course, the ramp, which ultimately is a good thing. In addition, we have reached a contractual agreement with TRANSCOM on an extended and funded establishment and test period, which covers HomeSafe's project management and development costs, up until we reach a sufficient volume of moves. Therefore, insulating us from carrying overhead costs before higher volume moves get underway.
Now I've seen some reports and quite a bit of media noise on the supply chain side of the moving and transportation industry. Firstly, I'll start with emphasizing the intent of this program is to redefine the moving experience of our military personnel and their families. Secondly, it's to deploy an IT backbone with intelligence to retain data and knowledge that allows for optimization and importantly, accountability.
To achieve this, we require a certain level of disruption. And of course, disruption leads to change. To demonstrate the maturity of the supply chain development for the contract, here is statistics on the current state of our supplier network. In the HomeSafe digital supplier management system, we have over 2,200 suppliers registered as of today, of which 380 have already fully executed contract agreements, which can provide 100% coverage of our current service areas. And we have several large brand lines also committed to the program, once we get to higher volumes.
The new global household goods contract is not only limited to current DoD-approved providers and will be open to a broader set of the transportation market. We intend and commit to being entrepreneurial and innovative, attracting not only traditional van lines and owner operators, but also nontraditional providers to do moves in a more efficient manner.
I suspect the supply chain will change in areas, and there will likely be noise as a consequence, which is only to be expected. Both HomeSafe and TRANSCOM are committed to these outcomes, which include paying a fair and reasonable rate to service providers, rewarding those that perform with additional volumes, including small businesses, of course, and providing better services to our DoD families.
So what does this mean for 2024? We have a more defined path forward and are in a much better position given the recent modification agreement and supply chain developments. We intend to set initial '24 guidance with a very conservative view of HomeSafe. With local test moves beginning in the spring, we expect nominal amount of revenue circa $125 million to $175 million during the year, with profits, as we've guided before, at the mid-single digits and increasing over time to align with the GS margins today.
Of course, we expect volumes to ramp considerably in 2025 with the domestic busy season and again, in 2026 as international moves are added. One quarter is sometimes a long time in business. And clearly, there has been significant progress since Q3. And I want to be very clear, we're extremely upbeat about HomeSafe and what it can deliver to men and women in uniform, but also to our shareholders over the years ahead.
I will now hand over to Mark, who will cover the quarter, the year in a bit more detail and, of course, '24 guidance. Mark?

Mark W. Sopp

Great. Thank you, Stuart. Hello, everyone. I'll start on Slide 10 with the Q4 results. Then I'll hit fiscal year results, capital structure matters and then finish with our guide for 2024.
So first up, we were pleased to finish fiscal 2023 with a strong Q4. Top line grew 8% in the quarter, all organic, with amplified growth and profit. Adjusted EBITDA was up 20%, with contributions from both business areas in volume and also in margins. I'll hit the drivers of this when I cover the segment slide here in a moment.
Adjusted EPS was $0.69 for the quarter, in line with expectations. Q4 '23 adjusted EPS does reflect considerably higher interest cost and a higher tax rate than the prior year quarter. Operating and free cash flow results finished strong, enabling a terrific full year outcome. As Stuart indicated earlier, cash performance was critical in building our treasury to enable us to fully settle the convertible maturity and warrants and get that out of the way as we entered into 2024.
Over to Slide 11. For the full year, all metrics were on or above our plan and also consistent with our long-term targets. So we're very pleased with that. Revenue was just about at $7 billion for the year, just a hair under, up 11% over 2022 on an ex-OAW basis and up 6%, without that adjustment. Adjusted EBITDA grew to $747 million. That's up 12% over last year, driven by 50 basis points of adjusted EBITDA margin improvement. This improvement was attributed to excellent project execution across the board and greater growth contribution, favorable project mix and economies of scale from sustainable tech. Adjusted EPS was up 7% for the year and in line with our original guide for 2023. In the end, it was pleasing to see our operations overperform on the EBITDA line to offset about $20 million of unplanned headwind in interest expense.
Operating cash flow of $463 million was one of the highlights of the year. We overperformed here relative to our guide, with more client advances received in STS and better-than-expected accounts receivable collections across the board in Q4. The team really worked hard and well together to lower DSO all year and also negotiate favorable cash terms on new contracts. This result underscores our quality of earnings and also client satisfaction across both segments. As I will discuss further in a moment, advances and strong collections are probably accelerations to some degree, so we expect to see some flip side of this in 2024.
Now on to Slide 12 for segment performance. I'll start with STS. As we have mentioned a number of times, our focus in this segment is EBITDA growth, which includes after-tax equity and earnings from unconsolidated joint ventures for which we report no revenue. As seen on the left, Q4 was a continuation of a stellar year for STS. We're seeing strong global demand for energy security requirements, decarbonization solutions and the new energy transition enablers that we provide. Our business model in STS provides a good demonstration of the ability to quickly convert demand to EBITDA in leveraging IP licensing, product sales and quick ramp-up on sustainable services, all simultaneously.
STS finished the year with ongoing growth plus superb margins and cash flow, with new business bookings paving the way for more success in 2024. Adjusted EBITDA growth was 42% in the quarter. All parts of STS are contributing to this result across offerings like licensing, equipment, design and engineering services. And also across multiple geographies and multiple verticals like ammonia, chemicals, olefins and various emerging areas. For the full year, adjusted EBITDA was up 50%, for all the same reasons as we had in Q4. Geographically, revenue in the Middle East and Europe was up about 37%, U.S. was up about 11% and Asia and the rest of the world was up about 44%. So STS indeed, is a global business.
Over to the Government segment on Slide 13. Q4 revenues were up 6% with adjusted EBITDA up 8% on improved margins. Growth drivers were defense and Intel and also International, up 22% and 15%, respectively. Within these bright spots were resumed pace on DEM-Shorad. Stuart mentioned that earlier. Terrific growth in defense and intel on advanced technology projects funded under the RDT&E budget, across our expansive IDIQ portfolio. And also continued excellent performance by our Frazer-Nash Technical consulting platform.
Science and space had modest growth, with the Fed (inaudible) budget constrained by the continuing resolution. Readiness & Sustainment pulled back with reductions in the European Command theater. We tie this directly to the funding debate in Congress on military support levels to Ukraine.
For the year, revenues were up 7% ex-OAW, with margins at 10%, in line with expectations. Earlier in the year, Readiness & Sustainment drove quite a bit of growth, while Defense & Intel and International lagged due to the DEM-Shorad delays, not resolved, and the government turnover implications in Australia. As you saw in Q4, it's good to see D&I and International return to higher growth to offset the political issues we're dealing with in Readiness & Sustainment in the Ukraine. This is a clear demonstration of the strength and resiliency of our well diversified government solutions business.
So that summarizes the P&L. Let's move over to Slide 14 for cash flow and capital structure matters. In 2023, we used cash in 3 main ways: we retired 2 risks, the convertible notes and warrants; and also the legacy legal matter. The third use was returning about $210 million of funds to shareholders via buybacks and dividends. As Stuart said earlier, we were pleased to be able to lean forward and resolve all elements of the convertible, either on time or in advance. And doing so without dilution so that we would not carry this overhang into 2024. So that's done.
The convertible notes and warrants, the legal matter and the return of capital to shareholders used about $950 million in cash. Quite amazingly, with adjusted EBITDA growth, strong free cash flow and by tapping repatriated cash, we finished 2023 with a net leverage ratio of 2.1, flat from last year, no change year-over-year after all of that deployment. So we think this is quite an accomplishment and means we managed these various deployments without strapping us with burdensome debt going forward.
In January of this year, with the convertible notes out of the way and with favorable signals that we got from the Fed in late December, actually, we jumped on the opportunity to refinance much of our debt. The details are provided in recently filed 8-Ks.
But to summarize, first, we had a cluster of debt maturities in 2026 and '27. In the refinancing, we pushed those out to 2029 and 2031, mitigating our maturity risk substantially. And second, while keeping total debt neutral, we upsized the longer-term maturity Term Loan B and freed up almost all of our $1 billion revolver availability. So that move enhanced the capital deployment options significantly moving forward.
The combination of taking care of the convertible and refinancing of the loans is a boost to our capital structure and certainly better supports our growth strategy going forward. In terms of the strategy for capital deployment going forward, our priorities are not changed, but our options are clearly more robust with the recent actions we've just taken. For a long time, we have committed to paying an attractive level of dividends, while also holding leverage levels at responsible numbers. We've also sought to keep payout ratios relatively constant as we generate net income and free cash flow growth.
In line with this and in conjunction with initiating our 2024 guidance with continued growth, we are increasing our annual regular dividend from $0.54 per share to $0.60 per share. This will take effect the next record date of March 15. This marks the fifth year in a row of increasing our dividend by a significant amount. Deployable capital after dividends will be directed towards either M&A, buybacks and/or debt reduction based on our view of the best long-term contribution to shareholder value. And finally to maximize flexibility, our Board has just approved replenishing our stock buyback authorization to $500 million.
I'll finish up with our guidance for 2024 on Slide 15. We are pleased to, again, set expectations for ongoing growth in profits and cash flow, reflecting healthy end markets, strong offerings and new business momentum coming out of 2023. We expect revenues in the $7.4 billion to $7.7 billion and adjusted EBITDA in the $810 million to $850 million range.
The midpoint in the adjusted EBITDA reflects a growth rate of 11% over 2023. We expect adjusted EPS in the range of $3.10 to $3.30, which represents a growth rate of 10% at the midpoint. The adjusted EPS guide reflects about $15 million more of interest expense over 2023, primarily from higher rates. The guide also assumes a higher tax rate in the 25% to 27% range. As I said last quarter, this is due to higher international mix.
Share count is assumed at 135 million units, which excludes capital deployment, but includes a modest level of repurchases to offset our annual share count creep. As for timing, we expect about 45% of adjusted EPS in the first half, 55% in the second. This is due to expected timing of projects, including work in Europe due to the continuing resolution and funding for Ukraine as well as the HomeSafe ramp and the overall growth trend in our business.
For adjusted operating cash flow. We exceeded expectations in 2023, which did include some cash advances in STS in Q4 and also strong collections in government as well. As I said earlier, there's about a $20 million giveback on this to 2024, but our guide is still up with a range of $450 million to $480 million of operating cash flow for 2024.
In sum, there are a few highlights worth reemphasizing here. First, we met or exceeded all key financial metrics in 2023 with overperformance and adjusted EBITDA generation, which I said, offset some of the interest expense headwinds we had. And second, over the course of 2023 and so far in 2024, we've derisked our future in several ways. We continue to demonstrate superb cash flow production, which opened up opportunities to improve our capital structure for the future. Now that included settling our convertible notes and warrants, and also settling legacy legal matter and finally, extending and improving our credit facilities.
The third point I'd emphasize is our core business momentum and recent bookings does indeed drive growth plans for '24 and well beyond that. Those elements together enable an attractive growth outlook for 2024, a catalyst for attractive growth again in 2025, including a meaningful planned ramp on HomeSafe and a more flexible capital structure to expand deployment opportunities, which represent an upside to our outlook.
Thanks for your patience through all of that. Now back to Stuart to wrap it up. Stuart?

Stuart J. B. Bradie

Thank you, Mark. Now let me summarize with a few takeaways. Strong finish to full year '23, concluding an absolutely stellar full year. Backlog and options up 10%, and adjusted EBITDA growth of 12% year-over-year with, of course, margin expansion.
We have a derisked 2024 and beyond, with the convert and warrant settlement legacy legal resolution and refinanced capital structure. The balance sheet is in real good shape given deployment optionality. A key takeaway.
A more defined path forward on HomeSafe through continued partnership with TRANSCOM and positive supply chain developments. Over 75% work under contract as we start the year against our full year '24 guide, that delivers double-digit growth in both adjusted EBITDA and adjusted EPS midpoints, with effectively no capital deployment baked in, which, of course, is an opportunity as we progress through the year.
So we're committed to delivering sustained growth for KBR shareholders, with adjusted EBITDA in line with our progression towards our 2025 target of $925 million EBITDA.
Thank you for listening, and I will now hand back to the operator who will open the call up for questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question today comes from Tobey Sommer from Truist.

Tobey O'Brien Sommer

Thank you. Good morning. As you look out into 2024, with your guidance, how does -- how should we think about it at the segment level, in terms of the trajectory of organic growth in GS and STS?

Stuart J. B. Bradie

Yes. Thanks, Tobey. I mean, sort of original targets that we set forth towards 2025 are unchanged there. I mean the growth in GS is between 5% and 8% and the growth in STS is in the low double digits, and we expect that to continue.

Tobey O'Brien Sommer

And within the STS segment, I guess you exited the year at around 21% margin. How do you think about leverage in that business in the opportunity for margin expansion given double-digit expectations for organic growth?

Stuart J. B. Bradie

Yes. I think, Tobey, we're ahead of pace in terms of achieving -- we said we'd be in the high teens, low 20s over time, and we've got there faster. I mean our expectation is margins will kind of hold where they are today through the course of the year, and that's embodied in the guide.

Tobey O'Brien Sommer

Okay. One quick one on HomeSafe. Given the delays in sort of from when the initial contract was led, the extended, sort of litigation and protest period. And now this, is -- will the duration be extended as well? Or sort of the clock start a little bit later as a result of these delays? Or would the original time line still hold for the end of that contract?

Stuart J. B. Bradie

I mean, certainly, the protest period and the legal pieces with the term of the contract. But to date, the contract term is 9.5 years or so. There will be -- obviously, we compete and things like that at the end of it. But that holds, as it stands today, there's no extension to that just because of the -- we did start the development work. It has taken longer. That's just part of the deal, I think.

Tobey O'Brien Sommer

In last quarter, if I can sneak in...

Mark W. Sopp

Sorry, Tobey, it's Mark here. Just once we start real moves, that's when we really should consider the clock to start to tick on the 9-year period that Steve mentioned.

Tobey O'Brien Sommer

Got you. Okay. That's helpful. And then for your guidance, do you assume that a budget and supplemental bill -- spending bill are passed because I did see sort of the apportionment of 45% of earnings in the first half and 55% in the back half?

Stuart J. B. Bradie

Yes. I mean there's, obviously, a bit of HomeSafe in that buildup as we go through the year. We expect more in the second half than the first half. Obviously, as first moves are only in the spring. We do have -- you've seen the volatility in our R&S business due to, I guess, a little bit of a slowdown in [Ucom]. That is flatlining at the moment, and we've kind of assumed that as we progress with a bit of upside coming at the back end of the year.
But I think the other thing to take into consideration in that statement is we have 75% of our work under contract today. So I think that puts us in a very sound position. We've always said there's multiple pathways for KBR to deliver EBITDA.
So as Mark explained in his remarks, we're growing substantially in Defense & Intel and International. The trajectory of those businesses going into '24 is actually very, very healthy because of the work we secured near the tail end of the year also.
So I think there's different levers to pull there. So I don't think we're counting on resolution of budgets or -- those are difficult to predict, and it would be folly for us to sort of assume anything around there. We've actually based on our business as it stands today, and we've got some conservatism in certain place. And I feel that we are well positioned to deliver what we've actually guided.

Operator

Our next question today comes from Michael Dudas from Vertical Research.

Michael Stephan Dudas

Jamie, Mark, Stuart, I know you'll give more detail next month at the Primer. But maybe you could share as you're looking out towards the pipeline of opportunities and business on STS. Any significant changes in what clients are demanding relative to the services you're providing or the technologies? Is -- are the ammonia, hydrogen markets you [booked] some good projects could still have great visibility. Of course, there's always a lot of noise about puts and takes on clean energy focus elsewhere. So I just want to get a sense of that as your comfort level of heading through '24 and the margin mix improving or, at least, maintaining those levels into '25.

Stuart J. B. Bradie

Yes. Good question, Mike. I think I would like to just start off because I've seen some of the early reports coming out on book-to-bill and STS, and I think some of the folks are a little bit off the market. And that's kind of perhaps somewhat our fault as well because in our disclosures, we don't give a breakdown of the equity and earnings backlog.
So in STS, if you exclude the equity and earnings backlog piece, where the LNG projects are running at peak at the moment, the book-to-bill was 1.1x in Q4. And over the year, the backlog grew 15% in that core business. So I just wanted to give some context there. And most of that is coming across the energy trilemma. Well, all of it really is -- there's a lot of installed base that are trying to decarbonize.
You've got energy security concerns and a lot happening, particularly in the Middle East as they look to, I guess, change up their mix of products and actually decarbonize their own industries. And the level of ammonia work that we've won through the year is very, very impressive. And obviously, we've now got ammonia cracking as well that actually takes the ammonia in terms of back into hydrogen. So we're seeing no slowdown in that market.
I think when you look at the overall spend, the capital spending, we'll talk about this in the Primer, I mean the energy security piece is dwarfing energy transition. But every year, the percentage of energy transition spend increases. So as we are very well positioned in the energy security market and the things that we do and sort of taking forward energy security with a decarbonized thematic, which is terrific for us in a very large installed base to leverage off.
And then secondly, as energy transition, whether that's ammonia, hydrogen or any derivative thereof, like methanol, we're very well positioned as we -- as that market continues to grow. And you've seen our success in those areas, and we're very much at the forefront of multiple green ammonia projects that we've announced recently, et cetera. So I think it's going to be an increasing part of our portfolio, but it will happen over time. But I think that's absolutely fine for us because we can play in energy security as well as in energy transition. And as those two come together, we're very well positioned.

Operator

Our next question today comes from Bert Subin from Stifel.

Bert William Subin

Maybe just to start on the '24 guide. It seems like $310 million to $330 million on the adjusted EPS side is pretty good considering you're not assuming any capital allocation sort of beyond the share repurchases to avoid creep and you're factoring in a considerably higher tax rate. If we think about maybe the higher end of that range, excluding capital deployment, if you're ending at $ 330 million, a year from now, we're talking about it. Is that more driven by Government Solutions? Or is that more driven by STS?

Stuart J. B. Bradie

Yes. I mean I think the important takeaway is that the combined EBITDA keeps on our path to $925 million, which we committed to last quarter, and we're feeling pretty good about that, particularly with where HomeSafe is heading as well. Obviously, if CR resolves sooner, and there's more funding flowing to Ukraine, there could be upside towards our assumptions on the spend in Ucom, et cetera. But also, we've got a very, very strong pipeline in STS. And I think ultimately, if we win our fair share there, that could also outperform a bit.
So -- but I'd like to stick to the guide. I mean double-digit growth. I mean our revenue is up 9% to 10%, our EBITDA is up 11%, which shows a slight margin expansion across the portfolio. It keeps us very healthily on track to what people thought were very lofty targets back in the day, and we're well on path to achieving those. And as you say, we've got capital deployment optionality. So I think we keep talking about the levers we can pull and the fact that we didn't get derailed last year with the slowdown in Ucom. We still exceeded expectations, particularly in EBITDA.
And so again, with D&I outperforming and International outperforming and STS outperforming in truth. And so I think you'll see ebbs and flows across the segments through the course of the year. And that's why I said yes to both. I think there are opportunities across both segments to do well. And if the stars align, obviously, that would be terrific. But our guide is our guide, and that's what we're sticking to. In this market with volatility and uncertainty, I think doing double-digit growth with a very high proportion of work under contract is a very good place to be.

Bert William Subin

Stuart, maybe just a follow-up on some of the comments on HomeSafe and the '25 target. Just based on what you said in your prepared remarks what we see in the presentation, I guess, International starting in 2016, would sort of assumed that HomeSafe exit '25 at around 80% ramp, just if that's the process, 80/20.
If we're doing that math on top of $830 million as your midpoint in '24, it would get us fairly close to $925 million just on HomeSafe, probably only assumes like low single-digit EBITDA growth for the rest of the business. Can you just give us sort of how you're thinking about that number? And I guess, last quarter, when you had mentioned it, you sort of noted that you think you could hit $925 million with pretty little contribution from HomeSafe. I'm just curious if anything changed or if that's just sort of a conservative watermark that you're planning towards?

Stuart J. B. Bradie

The latter. We're in a position today where we've try to give you far more clarity on HomeSafe for '24 and rightfully so, given the progress we've made. There will be significant ramp in '25 and again in '26. But I think we need a little bit more time to give you color on that. And of course, we're looking at an Investor Day later on this year. And obviously, that will give us a little bit more time.
So we I don't really want to give you numbers today on '25 or '26 because I got a significant punch in the nose last quarter for not being able to live up to expectations. So you know, that lesson learned there. But we're feeling really good about HomeSafe and. We've talked about it often, and I think you -- I mean all the sell side and a lot of investors know they expected to ramp over time. And -- but we're not going to give you numbers today if that's -- sorry to be so vague, but I think that's probably the prudent thing to do, and I would rather be conservative in that sense.

Bert William Subin

Very helpful. Just one quick sort of clarification question on some of the earlier STS comments. Middle East has been really strong. I haven't seen the K. I'm not sure if it's out, but I think you were running at like over 60% growth there through the first 3 quarters. Is your expectation that, that's going to be the strongest growing market for you in '24? And is there any potential U.S. catch up with IRA?

Stuart J. B. Bradie

Yes, to both of those questions. The Middle East continues to be buoyant. The capital spend profile is enormous. At worse, every other part of the world. I think Saudi is slated to be the fastest-growing economy this year and again, next year likely. And clearly, they've got their vision 2030, and they're executing on it. And we've got a significant pipeline and growth, not only in Saudi, but in Abu Dhabi and in Kuwait and other countries in the Middle East. And there's no doubt the Southern Hemisphere, in general, is driving a lot of global -- that any sort of level of global growth is going to come from there in our business.
But in terms of the IRA bill, we did a deep dive on that recently. We understand the drivers in all the 7 hubs. We recognized, at the moment, it's a very low drawdown on the $7 billion from the government. I think people are still forming rather than storming, if you like. And -- but we recognized which hubs we can really add value to, and we're in discussions there. So as they start to progress, there's very much an upside, I think, for KBR.

Operator

Our next question today comes from Mariana Perez Mora from Bank of America.

Mariana Perez Mora

So my question is on Defense & Intel. Could you please discuss what are the main drivers in terms of contracts or technologies? And how should we think about that for the next like 3, 5 years?

Stuart J. B. Bradie

Yes. The Defense business -- Defense & Intel is, obviously, in 2 separate subsegments. If you like, the defense piece is mostly driven around the SETA business as others would know it. We've got a very strong IDIQ portfolio, and we've got very excellent contract vehicles.
The one we've talked about the most is (inaudible) and that allows us for very short-term procurements. And because the size of the contracts are not amazingly large, we don't often announce it until we get to aggregate numbers, but the bookings there were significant last year and the growth in that particular business was in the high single digits in stand-alone.
And it seems to be the cadence of that business. And I think the other attribute of it is it's becoming more digitally differentiated. And so the scope that we're seeing on recompetes, and our recompete win rate is very, very high in that business, just by the technical nature and the main expertise that we deploy. And we've seen scope and margin creep as a consequence of that digital differentiation. So that's the defense side. And through defense modernization, which is, of course, a big strategic test of the DoD, but also overseas as well. That is in good shape to continue with that growth profile.
On the Intelligence side, we do a lot of work for the 3-letter acronym agencies. And we've made particular inroads post the Centauri acquisition of (inaudible) I guess, our profile from a small business into a prime, and that's starting really now to take hold. And we're seeing quite a lot of significant wins in that arena.
And then we had some delays last year, as you all know, on the directed energy program, which resolved itself in Q4 and as we move forward with another couple of vehicles in that laser program. So again, I think through '24, that business itself will be growing in the double digits. So I think that Defense & Intel portfolio is a real growth driver for us going into next year and really helps us with any volatility that may happen in R&S. So yes.

Mariana Perez Mora

And then if I may, can you please discuss international as well? Where do you see most growth coming from? Is it energy, military or any specific country or region?

Stuart J. B. Bradie

Yes. So in the government realm, as you all know, we acquired a business called Frazer-Nash and added to it with 2 other sort of high-level consultancies in the digital new advisory space. And we've now integrated that business fully. And as we came through last year, and that's really starting to pick up momentum and -- which is terrific, and it really comes in at high margins as well as you would expect with that sort of high-end differentiated consulting engineering portfolio.
But Frazer-Nash is a little bit unique because 60% of its business is in the government realm. Some classified, some in digital, some in cyber, but also in things like nuclear assurance, where we're probably the leading consultant. And when you look at things like AUKUS and the new nuclear programs that are around. Obviously, we're very well positioned there.
The other 40% of its business is actually in the commercial arena, where it does energy transition, advisory, it does work in solar, et cetera, and does a lot of consulting and helping businesses decarbonize with some software tools that allow them to actually measure how they're doing. So it's quite a diverse consultancy portfolio, but very much pointed at our 2 businesses. So that's gathering a good head of steam.
And then secondly, the Australian government changed last year. It slowed us down a little bit. They've come through their review. And now we're starting to see quite a bit of, I guess, clarity in that market. And we've sort of rebaselined and we're starting to see growth coming through in Australia as well, particularly, again, I would say, in that high-end consulting area, whether it's in digital cyber or interoperability around software.
So I think it's a very strong portfolio performing in those key markets today, with an opportunity to then move more into the other areas of what I would say that friends of allies, if you like, in the Middle East and things like that, where we're seeing quite a level of bid activity today. So it's got a very strong outlook, the GS business.
In terms of the question on energy. As we said earlier, I think there's a huge, huge capital spend, particularly in the Middle East, but also in Asia and somewhat in Australia as well. As you all know, we're doing the Pluto project down there, the Pluto LNG sort of revamp for the existing facilities there on a cost-reimbursable basis. So there's lots happening across both ends of the portfolio. And yes, and it's very attractive going forward, and I don't see that slowing down.

Mariana Perez Mora

If I may, last one from me on HomeSafe. Margins. Usually, logistics programs are in the mid-single-digit margins. How do you -- like what are the main drivers that will drive HomeSafe to the type of margins that global -- government services has?

Stuart J. B. Bradie

Yes. I think, Mariana, you've got to remember our role there is -- we're not -- we're doing supply chain as a service. We're actually not -- we don't physically have trucks or warehousing or packers and things like that. We're coming in to manage a program at scale to somewhat look at a new way of moving the families of the military.
And ultimately, we're deploying a very digital backbone to this so that we can deploy AI and ML, so that we can actually drive efficiency by not running -- thinking rudimentary 2 traps to the same place at the same time because they're 2 different providers. We're actually unifying that and taking efficiency gains, which, of course, will drive our margins but also reduce the carbon footprint of that industry.
So I think our role is very, very different than a typical logistics supplier in that realm. And that's why we talked about increasing margins over time because I think the more we do it, the more efficient we'll get. The better providers will get more volume. We'll get volume discounts as a consequence, et cetera. So it's quite easy to step back and look at the logic behind this. That doesn't mean it's easy to get done, but we're well on the pathway now. And we're pretty confident that over time, we can get margins down. As I said in my prepared remarks, we're being very innovative at the way we're looking at this. And we're not restricted at all to the current DoD supply chain, which I think has been missed by many in the media.

Operator

Our next question comes from Jerry Revich from Goldman Sachs.

Jerry David Revich

Stuart, I'm wondering if you just -- on HomeSafe, so congratulations on the progress, in terms of ramping up signed contractors. Can you put in perspective the 2,200 that you mentioned in your prepared remarks? Where does that number need to get to for each of the phases? I know you're going to roll it out based on the types of moves. Can you just frame that for us, if you don't mind, on where we are relative to the ultimate number?

Stuart J. B. Bradie

Yes. So I think we've -- as I also said in the prepared remarks, we've got enough of the supply chain signed up for certainly what's in front of us. And we're obviously expanding that daily. So I'm feeling pretty good about the supply chain and the engagement of the supply chain.
For the 2,200, we've got a supplier database that allows the people to sign up or companies to sign up, including small businesses, and -- to really sort of register their interest to provide services to HomeSafe, and that's the 2,200. And out of that (inaudible) to 2,200, we've signed 380 contracts already. So we've got very, very good coverage across the supply chain for what we expect going forward.

Jerry David Revich

Okay. And then can I ask a sustainable tech solutions? Can you just talk about the moving pieces within the portfolio, the growth outlook that you see for the longer cycle part of the business, ammonia and plastics? How fast is that growing in '24? And then for the shorter-cycle business, what amount of activity do you need to see in terms of bookings, turn it into revenue relative to the double-digit organic growth outlook that you mentioned?

Stuart J. B. Bradie

Yes. STS is going into the year probably with its highest level of work under contract that we've seen in recent times. So we're feeling pretty good about that double-digit growth for sure. And it's a good balance, I think. That's why we feel quite confident. It's the sustainable services piece of the business, which is really underpinned by the technology is going great guns, and we'll explain a bit more about that in the STS Primer and then again at Investor Day.
I think the drivers around ammonia, we talked about earlier, so I won't cover that again. And that rolls into hydrogen, of course. I think energy security continues to be a big part in this, and you've seen that from many of the energy companies. They want to -- they've got to continue to really think about energy security in a very concise way. But they are trying to do it in a responsible decarbonized solution, and we are really at the forefront of that. So I think we are very well positioned.
In plastics recycling. Again, that's in a different market. We'll be producing first product, I think coming to the end of this quarter, early in Q2 in the (inaudible) site and in the [Mura] facility, and I think that really opens the door to accelerate that market. I think everyone's waiting to make sure that, that all works.
And of course, what we've not really said to the market, it's probably good to do it a little bit today is the fact that there's 2 other facilities that are being built, 1 in Korea and 1 in Japan. And they could end up actually if well and -- slips a little bit, they'll end up going first.
So we've got -- we've really got 3 sort of world-scale plants happening all at the same time now. And one of those is with a modulized solution that we sort of developed after we took additional investments. So that, as well as speed to market and cost effectiveness, et cetera, as this continues. So we're really happy about that plastic recycling market. And again, we'll cover more of that in the primer.
The other market that's really hot at the moment is olefins, and that's particularly coming out of the Middle East, both Aramco and SABIC and Saudi have got considerable programs. My expectation is it will be difficult for everything to happen. In parallel, there will be a little bit of a serious development there, but that's kind of okay for us as well because that just expands the pipeline over time. And I think we're very well positioned on the LTC program. We've talked about before, the liquid-to-chemicals program, and hopefully, we can get to really sort of announcing something on that later this quarter and if not, early Q2.

Operator

Our next question comes from Steven Fisher from UBS.

Steven Fisher

Stuart, you mentioned the desire to be a little vague on 2025 when you were asked about the HomeSafe amount embedded in there, but maybe task you about the STS angle. I think you had previously expected upside to STS to more than make up for HomeSafe.
So has anything changed in your thinking about that and the framing of the STS potential contribution? It sounds like from the answer you just gave, there's quite a bit happening and potential for upside there. And then I guess, can you maybe just give us your latest thinking on the synergies between STS and government? You did mention in your prepared remarks, one particular contract that offers some synergies. So just curious about sort of the commitment to keeping the businesses together.

Stuart J. B. Bradie

That's a lot, Steve, in one question. Yes. I mean I think that -- as we said last quarter, we were confident on the $925 million number. And I think with what's happened in HomeSafe, we're even more confident with the $925 million number, and I'll probably leave it at that until we get to May or whatever we have at our Investor Day.
On the synergies, I thought I kind of explained earlier on. The bit that seems to be the connectivity piece between commercial and government is very much what's happening in our government international business, and Frazer-Nash was a perfect example of that, I explained earlier. We're seeing a lot more connectivity in places like Saudi.
We're -- and in Australia for that matter where we're very much seeing the contracts that are far more commercial in the government realm, and we're seeing a lot more connectivity between the 2 businesses and our profile and being able to leverage our reputation from one into the other.
So I think again, I'll sort of limit my remarks to that, Steve, until we get to our Investor Day, but it's certainly a hot topic. I understand there's been a lot of discussion around the synergies between these businesses and what we should do with them strategically. But we'll get to that when we get to Investor Day, if you don't mind.

Operator

Our next question today comes from Sangita Jain from KeyBanc Capital Markets.

Sangita Jain

If I can ask a couple on HomeSafe. That $60 million of contract modification that was announced a week or so ago, how should we think about that? Is that all 2024? Or does that split between '24 and '25?

Mark W. Sopp

Sangita, thanks for visiting us a couple of weeks ago. Great to see you. Mark here. The $60 million, we can assume will be expanded this calendar year. And so that is for recognition of the slower ramp and the overhead will incur along that path as well as the government and the client asking for more development, more capability out of the system, which we are developing with our joint venture partners. And so it covers both of those rounds, and we expect to burn through that this year and start moves in earnest pretty soon. And hopefully, picking up pace as the year progresses.

Sangita Jain

So is that part of that $150 million of HomeSafe revenue for this year then?

Stuart J. B. Bradie

Yes.

Mark W. Sopp

Yes, it is. It's slightly (inaudible).

Sangita Jain

Okay. And if I can ask -- okay, and if I can ask you one more on HomeSafe. How should we be factoring in backlog for that? How do you plan to do that? And how should we think about it?

Stuart J. B. Bradie

So good question. We -- there's nothing in backlog today for HomeSafe in terms of moves. And as we start to get clarity, we'll book the backlog. That's probably the way I would suggest. And when we get up to proper cadence, I think it will be an annual booking rather than trying to book 10 years in advance, and we've just got to work through that, but that's our thoughts at the moment. So more to come on that. And -- but I think the takeaway today is that there's nothing really in backlog of any material numbers for HomeSafe in 2024.

Operator

Our final question today comes from Gautam Khanna from TD Cowen.

Gautam J. Khanna

I had a couple of questions on HomeSafe. First, so the contract still seems subject to that Service Contract Act. And I was curious, has that been an issue with the folks that you've signed up, the 380-plus, in terms of their ability to comply? I'm just curious like how much of a -- whatever burden that is on them that might slow the ramp for HomeSafe?

Stuart J. B. Bradie

I mean to date, Gautam, the answer is no. I mean the whole point of SCA and TRANSCOM and KBR committed to that and had conversation of any senior level in TRANSCOM a couple of weeks ago on the subject. And I think firstly, neither the -- we really want providers who are properly are behaving properly and doing proper screening and things, as you can imagine, for the military and doing what they should be doing from a remuneration perspective.
But that between TRANSCOM and ourselves, we're pretty clear that will not disadvantage KBR commercially either. So I think there's a commitment to that. I know there's been a lot of discussion around it, but -- at the moment, I think it's something we're working through, but I don't see it as a concern. In fact, I see it as a huge positive in terms of the quality of the people that we'll actually get to work for us. And it absolutely aligns with KBR's values on people. So -- and actually with TRANSCOM's intentions as well.

Gautam J. Khanna

Got you. And then -- we've obviously heard some pushback in the channel from like the pricing terms. I was curious if there's any case for economic price adjustments? Have you guys had any indication from the customer as to whether they're looking at that again or?

Stuart J. B. Bradie

Yes. I mean it's an ongoing annual review process. And I think we explained that earlier. There are -- those economic price adjustments we've built into the contract to review as we go forward. And that includes pass-through increases in things like fuel and -- so it's -- in that sense, I'm pretty confident we'll get this. We've got most of the -- whether we've got the supply chain signed up on the terms that we need them to be signed up on already.
Obviously, they've been making hay while the sun shines a little bit during COVID. I think there's been quite a lot of rate increases and you can understand the noise. But ultimately, the objective of this is a, actually to do a better job in terms of quality for -- and make the move experience better for the military families at the moment. The feedback is not positive in that.
And then secondly is actually to somewhat disrupt the industry. So it becomes far more competitive. And a lot of the middle layers are taken out, and we get a focus into the actual truckers and their families, and we actually help them grow their businesses because they're performing and they're accountable. So I expect more noise in that sense. Am I concerned about the rate structure? No, I'm not. I think we'll work through that with TRANSCOM and the supply chain in collaboration. And to date, we have not seen, other than from some making noise in the media to too much trouble in that regard.

Operator

That concludes the Q&A portion of today's call. I will now hand back over to Stuart Bradie for any final remarks.

Stuart J. B. Bradie

Okay. Thank you very much. Good questions, and thank you for your time. As always, [grateful] for your interest in KBR. I think in short, we're well on our path to our $925 million target in EBITDA terms, double-digit growth, with margin expansion going into the year, albeit as well. Mark and the team have done a great job preserving the balance sheet to get this capital deployment optionality. And with 75% work under contract, feeling really good about the year ahead.
So all up, very buoyant. And obviously, the HomeSafe stabilization and a bit more clarity there also really, really helps. So thank you very much indeed. We'll be doing the STS Primer, obviously, in a couple of weeks' time, which will lead us into Investor Day in due course. So thank you.

Operator

That concludes today's Q4 and FY 2023 KBR, Inc. Earnings Conference Call. You may now disconnect your lines.