KBR (KBR) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 29, 2026

CALL PARTICIPANTS

• President and Chief Executive Officer - Stuart Bradie
• Executive Vice President and Chief Financial Officer - Shad Evans
• Head of Investor Relations - Rachael Goldwait

TAKEAWAYS

• Revenue -- $2,028 million, representing a 5% increase primarily due to strong execution of engineering and professional services projects.
• Adjusted EBITDA -- $268 million, growing 12% year over year driven by favorable portfolio mix and lower corporate costs.
• Sustainable Technology Solutions Revenue -- $762 million, up 26% from the prior year as strong bookings converted into project ramps.
• Mission Technology Solutions Revenue -- $1,266 million, a 5% decrease reflecting anticipated headwinds from NASA program insourcing.
• STS Backlog -- $5.8 billion, reaching a record level and increasing more than 50% from the previous year.
• Adjusted EPS -- $1.12, a 10% increase supported by operating performance and share repurchases.
• Net Leverage -- 2.1x, finishing the quarter below the company target of 2.5x.
• STS Book-to-Bill -- 1.3x, reflecting structural demand shifts in energy security and food security.
• MTS Book-to-Bill -- 0.8x, when excluding the impact of NASA insourcing de-booking.
• Opportunity Pipeline -- $20.5 billion, including $9.9 billion in submitted proposals awaiting customer decisions.
• NASA Headwind -- $60 million impact in 2026, which was previously incorporated into the full-year outlook.
• Plaquemines LNG Contribution -- $115 million year to date, with $25 million to $35 million expected in the fourth quarter.
• Operating Cash Flow -- $171 million from continuing operations, down 14% primarily due to the timing of collections.
• Dividend Payments -- $21 million returned to shareholders during the third quarter.
• Submitted Proposals -- $9.9 billion, with approximately 80% representing new business opportunities.
• Fiscal 2026 Revenue Guidance -- $7.90 billion to $8.36 billion for the full year.
• Fiscal 2026 Adjusted EBITDA Guidance -- $980 million to $1,040 million for the full fiscal year.
• Fiscal 2026 Adjusted EPS Guidance -- $3.87 to $4.22, reaffirmed by management on the call.
• Fiscal 2026 Adjusted Operating Cash Flow Guidance -- $560 million to $600 million for the full year.
• STS Adjusted EBITDA Margin -- 19.3%, compared to 21.2% last year due to higher contributions from a joint venture in the prior period.
• MTS Adjusted EBITDA Margin -- 11.5%, expanding 110 basis points due to the roll-off of lower margin NASA programs.
• Tax Rate Guidance -- 26% to 28% for the underlying operations.
• Total Backlog and Options -- $23.1 billion, with 0.9x book-to-bill in the quarter.
• Corporate Adjusted EBITDA -- $(24) million, an improvement from $(26) million in the prior year.

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RISKS

• Evans warned that continued delays in customer collections in the Middle East could shift approximately $25 million to $50 million of cash flow beyond year-end, although the company expects to remain within its full-year guidance range.

SUMMARY

KBR, Inc. (NYSE:KBR) reported third-quarter results for 2026, highlighting growth in its sustainable technology segment and progress toward the planned separation of its government services business. Management reported that structural demand shifts in energy and food security are driving record backlog levels in Sustainable Technology Solutions. The company stated that its Mission Technology Solutions division is performing as expected despite revenue headwinds from NASA program insourcing. Leadership indicated that organizational readiness for the January separation is advancing through leadership appointments, regulatory filings, and system cut-overs.

• Bradie noted that while procurement timelines are extending, customer funding remains in place and priorities are intact.
• Management reported that LNG contributions from Plaquemines totaled $115 million through the third quarter, with $25 million to $35 million expected in the final quarter of the year.
• The company confirmed that the Middle East remains a key growth driver, highlighted by project awards from ADNOC and an expanded role on the Aramco Marjan offshore field.
• Bradie stated that the FIREFLY directed energy system was selected for a Pentagon counter-drone pilot program focused on homeland defense.
• Management announced the successful cut-over of key standalone systems, including the transition of payroll systems for the upcoming spin-off.
• The company reached a settlement with U.S. TRANSCOM to convert a prior termination for default to a termination for convenience regarding the Global Household Goods Contract.
• Bradie stated that the ammonia market is enduring due to structural changes in food security and efficiency needs.

INDUSTRY GLOSSARY

• STS: Sustainable Technology Solutions, KBR's division focused on commercial technology and energy transition.
• MTS: Mission Technology Solutions, KBR's government and defense services division.
• SAF: Sustainable Aviation Fuel, a biofuel used to power aircraft with a smaller carbon footprint.
• LNG: Liquefied Natural Gas, natural gas that has been cooled to a liquid state for shipping and storage.
• FEED: Front-End Engineering Design, the basic engineering performed after a conceptual design or feasibility study.
• PMC: Project Management Consultant, a role where KBR oversees other contractors on behalf of the owner.
• ADNOC: Abu Dhabi National Oil Company, a strategic energy partner in the Middle East.
• Purifier: KBR's proprietary technology used for ammonia production.
• IDIQ: Indefinite Delivery, Indefinite Quantity, a type of government contract that provides for an indefinite number of supplies or services.
• Giga-projects: Large-scale development initiatives, specifically within Saudi Arabia's investment program.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to KBR's Third Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Rachael Goldwait, Head of Investor Relations. Please go ahead.

Rachael Goldwait: Thank you, and good morning. Welcome to KBR's third quarter 2026 earnings call. Joining me today are Stuart Bradie, President and CEO, and Shad Evans, Executive Vice President and CFO. Stuart and Shad will cover highlights from the quarter, and then we'll open the line for your questions. Today's earnings presentation is available on the Investor Relations section of our website at kbr.com. As outlined on slide two, today's discussion includes forward-looking statements and certain non-GAAP financial measures. Additional information, including reconciliations to the nearest GAAP measure, can be found in the presentation appendix. With that, I'll turn the call over to Stuart.

Stuart Bradie: Thank you, Rachael, and good morning, everyone. I will pick up on slide four. As you know, we start every earnings call with a Zero Harm moment because looking after our people is fundamental to who we are. Over this past year in particular, that commitment has been tested as our teams have taken on the enormous task of creating two independent companies, while, of course, continuing to deliver for our customers around the world and for our shareholders. We saw this firsthand this quarter with a successful cut-over of key systems, including the transition of Trinzic's payroll systems, a major milestone. It's a great example of what can be accomplished when talented people come together with a common purpose.

What gives me great confidence is that the same culture that defines KBR today will endure in both KBR and Trinzic going forward, and that is a commitment to our people, our customers, our shareholders, and doing the right thing. I want to thank everyone across both organizations for their hard work, their teamwork, and unwavering focus as we move closer to separation. With that, let's move to slide five. Today, there are four key messages from the quarter. First, strong execution drove profitable growth and reinforced our confidence in the full-year outlook. Second, Sustainable Tech continues to deliver stellar growth both year-over-year and sequentially, supported by strong bookings momentum and broad-based demand.

Third, Mission Tech performed well through the expected NASA headwinds with strong margins and excellent cash conversion. Finally, the separation continues to advance with key leadership, governance, and regulatory milestones in place ahead of the expected January 4th separation date. Moving to slide six on Sustainable Tech. Sustainable Tech delivered another strong quarter, driven by structural demand shifts across energy security, food security, and critical infrastructure. Book-to-bill was 1.3x for the quarter, marking another period of strong bookings and bringing trailing 12 months book-to-bill to 1.3x as well. Backlog increased to another record at $5.8 billion, and that is up more than 50% from a year ago.

Excluding the Brown & Root Joint Venture, year-to-date book-to-bill was 1.5x, supporting our continued revenue growth outlook. [inaudible] bookings were softer as operators deferred maintenance and shutdowns in response to market conditions. We expect those deferrals to continue into Q4, with activity expected to recover in 2027 as critical maintenance needs are addressed. The strong bookings secured over the last 12 months are now translating into accelerating growth and revenue increasing 13% sequentially as projects continue to ramp across the portfolio. This keeps us on track for a mid-teens full-year revenue growth outlook. The Middle East remains a key growth driver, with project activity demonstrating resilience amid regional conflict.

New PMC awards with ADNOC in Abu Dhabi and an expanded role on Aramco's Marjan offshore field reinforce our position with strategic customers and our participation in critical energy investment. In technology, SABIC in Saudi Arabia selected our Purifier technology for a new 3,500 metric ton per day facility, our second large-scale ammonia award this year following the Pampa award in Argentina. Together with ammonia revamp wins in Europe, these awards demonstrate continued investment in food security and supply resilience. We also secured another PureSAF award this quarter for Kazakhstan's first sustainable aviation fuel project, reflecting continued demand for technologies that advance decarbonization.

In critical infrastructure, we secured a central program management role at Diriyah Gate, one of Saudi Arabia's largest giga-projects, and a major program engineering and integration award in Texas. Both extend our role in delivering complex critical infrastructure. Altogether, our record backlog and strong pipeline gives us increasing visibility into growth in Q4 and onwards into 2027. Moving to slide seven. Turning to Mission Tech, the business continues to perform as expected. Michael has stepped seamlessly into the role, and the team delivered another solid quarter, including strong margins that Shad will discuss shortly.

During the quarter, we secured important work supporting PATRIOT air and missile defense and mission-critical radio frequency engineering, extending longstanding customer relationships across high-priority national security missions. Recently, FIREFLY was selected as one of four directed energy systems for a Pentagon counter-drone pilot focused on homeland defense. This follows its selection to protect launches at Cape Canaveral and further demonstrates the relevance of our technology in addressing critical and emerging customer needs. Both international businesses in the U.K. and Australia also performed well, with strong execution and healthy pipelines entering Q4 and 2027. In the U.S., procurement timelines continue to extend, weighing on book-to-bill, which was 0.8x, excluding the NASA insourcing de-booking. Importantly, customers aren't walking away.

Funding generally remains in place and priorities are intact, but projects are moving a little bit more slowly. On NASA, insourcing continued during the quarter, consistent with what we discussed earlier this year. As the program ramps down, we removed the remaining out-of-year revenue from the backlog to align the expected workload, bringing reported book-to-bill to 0.6x in the quarter. The anticipated 2026 revenue impact was already reflected in our guidance, so our full-year outlook remains unchanged. Awards under protest remained largely unchanged during the quarter, and that includes the National Science Foundation Antarctica Support Contract, which we secured through re-award following the GAO protest process.

We are working with the customer on transition, although the award is not yet reflected in backlog. Finally, we ended the quarter with $9.9 billion of submitted proposals awaiting customer decisions, and together with the wins under protest, that represents $20.5 billion of opportunity outside backlog. Approximately 80% of which is new business, underscoring the depth of growth opportunities across the portfolio. Overall, the business is performing well. The pipeline remains robust, and recent wins reinforce Mission Tech's strong competitive position as we prepare to launch Trinzic. On to slide eight, an update on the spin. My last slide today, I will finish with a brief update on the separation progress.

We continue to make excellent progress and have now completed many of the key milestones required to launch KBR and Trinzic as independent companies. The leadership teams are fully in place, and the boards have largely been established on both sides. We expect to announce the KBR and Trinzic boards in the coming weeks, and we are very pleased with the caliber of directors who will help guide the respective companies from day one. We also made important progress on the regulatory front. The Form 10 is now public, as you are aware, giving investors the first detailed look at Trinzic as a standalone company, and we have resolved the SEC's comments to date.

The PLR continues to progress, and we expect formal notification regarding the spin's tax-free treatment soon. As I mentioned earlier, the successful cut-over of key systems was another important step towards operational readiness. The organizations are increasingly operating as standalone businesses ahead of separation, including financial reporting, providing additional time to validate processes and ensure a smooth transition. While I was not directly a part of the rating agency meetings, the feedback has been very positive. Preparations for the Trinzic debt offering continue to move forward, and we currently expect to launch in mid-November. We have seen strong interest from the market, particularly given the quality of the business and the current environment.

In two weeks, we will be hosting Investor Days for KBR and Trinzic. Michael, our teams, and I look forward to sharing more about each company's strategy, their opportunities, and financial outlook. For those interested in joining us, registration remains available through our Investor Relations website. While there is still work to be completed, the key building blocks are now in place, and we remain firmly on track for separation. With that, I will hand over to Shad.

Shad Evans: Thanks, Stuart. I will pick up on slide 10 with our consolidated third-quarter results. The headline is another quarter of profitable growth with strong execution driving higher revenue, adjusted EBITDA, and adjusted EPS. Revenue was approximately $2.03 billion, up $97 million, or 5% from the prior year. Growth in Sustainable Tech more than offset the expected NASA headwinds in Mission Tech, which I will cover more in detail on the next slide. Adjusted EBITDA increased $28 million to $268 million, and adjusted EBITDA margins expanded 80 basis points to 13.2%. The improvement reflects strong execution across both businesses, including EBITDA contributions from unconsolidated joint ventures, favorable portfolio mix, and lower corporate costs.

Adjusted EPS was $1.12, up $0.10 or 10% from the prior year, driven by stronger operating performance, lower below-the-line expenses, and a lower share count from repurchase activity over the last 12 months. The quarter also included $15 million in interest income associated with a discrete tax benefit that reduced our year-to-date tax rate below the guided range. We excluded that benefit from adjusted EPS, and our underlying tax rate remains in line with the guided range of 26%-28%. Year-to-date, adjusted operating cash flow was $371 million, and conversion remains strong at 95%, reflecting improved collections during the quarter.

We remain on pace to deliver our full-year cash flow outlook, with cash flow expected to be weighted towards the fourth quarter. I will discuss the remaining collection timing considerations when I cover guidance. Overall, the quarter reflects strong execution and keeps us on track to deliver full-year expectations. Turning to slide 11. Starting with Sustainable Tech, revenue increased $157 million or 26% to $762 million. The strong booking activity we have seen over the past year is now converting into accelerated revenue growth. Adjusted EBITDA increased $19 million or 15% to $147 million. Quarterly adjusted EBITDA margin was 19.3%, compared with 21.2% in the prior year.

Growth trailed revenue primarily due to higher contribution from an LNG joint venture in the prior period. Importantly, excluding the LNG joint venture, the quarter to date adjusted EBITDA margin was 13.9%, up 80 basis points from the prior quarter. On a year-to-date basis, adjusted EBITDA margin, excluding the LNG joint venture, was 14.3%, and that is consistent with our mid-teens full-year adjusted EBITDA margin outlook. In MTS, revenue was approximately $1.27 billion, and that was down $60 million or 5% as anticipated reductions in NASA-related programs were partially offset by growth across defense and intel and international government customers.

These NASA headwinds reflect the insourcing impact on the IMOC contract and the 2025 loss of MSOC, which has since been insourced. Importantly, adjusted EBITDA was $145 million, up $7 million or 5% from prior year, with adjusted EBITDA margins expanding 110 basis points to 11.5%. The improvement reflects higher unconsolidated joint venture contributions, favorable portfolio mix from the roll-off of lower margin NASA programs, and the earlier than expected timing of favorable closeouts. Year-to-date, adjusted EBITDA margin was 11.4%, which remains above the full-year margin outlook due to the timing of favorable closeouts. Margins in Q4 are expected to return to normative levels.

Overall, Sustainable Tech delivered strong revenue and adjusted EBITDA growth, while Mission Tech increased profitability despite lower volume. Turning to capital allocation on slide 12. Our balance sheet remains strong, and our approach to capital allocation remains disciplined. Net leverage ended the quarter at 2.1x, below our 2.5x target, providing financial flexibility as we prepare for separation. Our immediate cash focus is collecting outstanding receivables and carrying the third-quarter collections momentum into year-end. During the quarter, we returned $21 million to shareholders through our regular dividend. As we approach separation, we are taking a prudent approach to capital allocation, funding the remaining one-time spin-related costs while preserving flexibility and strong balance sheets for both companies. Turning to slide 13.

Based on our year-to-date performance and current visibility, we are reaffirming our full-year 2026 guidance on all metrics. Our outlook assumes flat to modestly lower sequential revenue in Mission Tech and continued low double-digit sequential growth in Sustainable Tech, supported by strong bookings and demand trends we continue to see across the portfolio. Cash collection timing remains an area of focus, particularly in the Middle East. While the conflict has not changed our outlook, continued delays in customer collections could shift approximately $25 million-$50 million of cash flow beyond year-end. Despite that potential timing, we currently expect to remain within our full-year cash flow guidance range. With that, I will hand it back to Stuart.

Stuart Bradie: Thank you, Shad. On to slide 14, I will close with the four takeaways. We are growing profitably, we are executing well, and this gives us confidence in our full-year commitments. Sustainable Tech continues to deliver exceptional results with record backlog and strong revenue growth as bookings secured over the past year continue to convert into execution. Mission Tech continues to perform well, delivering strong margins despite the expected NASA headwinds, while continuing to win important work across the portfolio and globally. We continue to achieve major separation milestones with the leadership, governance, and operational foundations all in place, ready to launch two strong independent companies.

We remain excited about the opportunities ahead for both KBR and Trinzic, and look forward to sharing more at our Investor Days in two weeks. With that, we will open the line for questions. Thank you.

Operator: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Adam Bubes with Goldman Sachs. Your line is open. Go ahead.

Anuj Khandelwal: Hi, good morning. This is Anuj on behalf of Adam. Can you help us frame the NASA headwind, like how large it is on an annualized basis, when it lapses, and whether there is further de-booking risk in it? Thank you.

Shad Evans: Yes. Thanks for the question. As we've said before, there's no material change to the 2026 expectations. MSOC was already contemplated in our guidance, and IMOC remains within the roughly $60 million impact we outlined in Q1. So really what you're seeing now is the remaining contract value coming out of backlog, really with no additional P&L impact. We are seeing some potential insourcing on additional NASA programs, which will create a larger headwind as we move into 2027, but we'll provide more detail on that during Investor Day. But importantly, we've got strong business momentum, including the NSF win on Antarctica and the classified award, which provides meaningful offsets heading into 2027.

Operator: Your next question comes from the line of Jerry Revich with Wells Fargo. Your line is open. Please go ahead.

Andrew Azzi: Hi, everyone. Thank you for taking my question. This is Andrew Azzi on for Jerry Revich. I just wanted to take a deeper look into the guidance. It implies a bit of a step down in Q4. With one quarter left, what gets you to the low end of, I think it looks like a $60 million range from the top end to the low end. What's driving that in Q4? Thank you.

Shad Evans: Yeah. Thanks for the question, Andrew. We are really pleased with the year-to-date performance. We looked at the puts and takes for Q4. We continue to believe that our full-year guidance is really the right framework. We expect MTS to be flat to slightly down in Q4, and STS to deliver that double-digit growth that is implied in the guide. With both businesses operating at normalized margins and no change meaningfully to the tax rate or share count, when you put all that together, we feel really comfortable about the full-year outlook, and we are really focused now on what is ahead of us with both companies at our respective Investor Days.

Andrew Azzi: Thank you. Appreciate that. It cut out a little bit, but I think I got most of what you were saying. For my next question, how can we think about the Plaquemines runoff quarterly through its completion, and let us say 1H next year, and are there any completion items we have to be aware of, like contingency releases or final close outs that land? Appreciate any color there.

Shad Evans: Yeah, sorry. The line is cutting in and out a little bit, Andrew. LNG contributions have been about $115 million through Q3, and so we expect another $25 million-$35 million in Q4, depending on milestones. That contribution does step down in 2027. We will share that specific information with you during Investor Day and ahead of our guide. But really, the strength around the book-to-bill gives us confidence that we can absorb that headwind and still grow the business going into 2027.

Andrew Azzi: Thank you very much. I will pass it on.

Operator: Your next question comes from the line of Tobey Sommer with Truist. Your line is open. Please go ahead.

Tobey Sommer: Thanks. Based on what you know and what you are hearing of incremental NASA outsourcing, or insourcing, excuse me. When might the process be completed, just so we could get a sense for when that headwind for Trinzic would sort of cease, based on our best information today?

Stuart Bradie: Yeah. No, good question, Tobey. Thanks for that. We expect that to be all done this year. As we look into 2027, the first two quarter comps are going to be challenging because we obviously had full run rate of NASA in the first two quarters. As I said, I think it is all done this year, so we will start from a clean slate, if you like, and I am sure the team will describe that in detail at Investor Day.

Tobey Sommer: Fair enough. Thank you. Could you describe on the new KBR side, STS, what the pipeline looks like in ammonia? Could you refresh us just so we can interpret your prospective wins, what a project size from a dollar and duration looks like? I know they are not all equal, but a framework would be helpful. Thanks.

Stuart Bradie: Thanks, Tobey. Again, another good question. We're seeing, as I said in my prepared remarks, quite a structural change in that market around food security as countries start to look at more security of supply and supply chain resilience, having growth in GDP and population, as well as people moving into middle classes wanting better quality food, et cetera, around the world. There's a really strong pull from the market. The pipeline of opportunities is significant. We're going to talk a little bit about that at Investor Day, as you would expect, but ultimately, that market is buoyant today. It's global.

It's not just new projects, it's actually revamps as well as companies around the world start to look at how they can be more efficient and really modernize their facilities given that market. You've seen that coming through in Europe, this quarter with the wins announced, two wins in Europe. In terms of thinking about that, in terms of our project size, again, we'll cover that in a little bit more detail in Investor Day. But one out of two, three projects is we've managed to position KBR to extend scope significantly. The share of the project wallet, for want of a better description, is substantially larger.

The revenue opportunity and associated EBITDA and margins and cash around food security are very, very attractive. We feel that market is enduring, and it's not just a flash in the pan, so to speak, given the structural change. More to come at Investor Day, but certainly feeling really good about that part of the business.

Tobey Sommer: Thank you.

Operator: Your next question comes from the line of Ian Zaffino with Oppenheimer & Co. Your line is open. Please go ahead.

Ian Zaffino: Hi. Thank you very much. Very strong backlog on this in STS. What is the timeframe that backlog will be delivered in? Maybe you could also talk about the margin of the business because I know there is tremendous growth on the top line, but we are kind of giving up some on the adjusted EBITDA line with Plaquemines next year. Just trying to, and I know a lot of this will be discussed at the Investor Day, but maybe we could get a preview, as far as how are we thinking about that backlog being delivered, and then maybe what is the margin there and kind of do our own numbers. Thanks.

Stuart Bradie: Yeah. Again, very good question. Quite rightly, we have to get into that in Investor Day in more detail. But I think the headline, we have been very, I think purposeful and transparent about the contribution from Plaquemines throughout the year and its impact on margins. Ex Plaquemines, we are sitting in sort of mid-teens, as you are aware, and that has been consistent through the course of the year. So that is the way of the business.

As Shad said, we are confident we can, with the bookings and the strength of those bookings and the quality of earnings associated with those bookings, we can continue our momentum into 2027 and offset the Plaquemines equity and earnings piece as we head forward. So you should take confidence in that book-to-bill translating into revenue and earnings to do just that. That is probably all I will say now because we have got to really get more detail in Investor Day, and we will break it down in a very clear and transparent way, where we are starting from, et cetera, as we head forward.

Ian Zaffino: Okay. Thank you very much.

Operator: We have reached the end of the Q&A session. I will now turn the call back to Stuart Bradie for closing remarks.

Stuart Bradie: Thank you for joining us this morning. A fairly clean quarter for KBR, but very exciting as well. The businesses continue to perform. The growth around STS particularly a standout, but the performance on margins in both businesses was terrific, as was the cash generation. The progress on separation remains firmly on track. All things are converging, and we are having more and more confidence around achieving not only the regulatory pieces of this, but actually the hard work around systems and the bifurcation of those, and we are testing them, and they are working the way they should. We are feeling really good about that.

All up, looking forward to Investor Day and describing in detail more about both businesses. As I said, Michael and I and the whole team are looking forward to that, to show our wares, so to speak, and we will see you then. Thank you very much.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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