KBR Q1 Earnings Call Highlights

Key Points

• KBR reaffirmed its full-year 2026 guidance after a solid first quarter, with management highlighting margin expansion, stronger cash generation and resilient execution despite a volatile geopolitical and government funding backdrop.
• Revenue fell year over year, mainly due to the planned reduction in EUCOM contingency work, but adjusted EBITDA rose and operating cash flow improved, with adjusted operating cash flow up to $119 million and margin expanding to 13.1%.
• The planned spin-off of Mission Technology Solutions remains on track for Jan. 4, 2027, as KBR works through regulatory filings and leadership searches while also expecting Sustainable Technology Solutions to drive mid-teens revenue growth in 2026.

KBR NYSE: KBR reaffirmed its full-year 2026 guidance after reporting what management described as a solid first quarter marked by margin expansion, strong cash generation and steady demand across its core end markets, despite a more volatile geopolitical and government funding backdrop.

President and CEO Stuart Bradie said the company “started the year well,” citing disciplined execution and resilient operations. Executive Vice President and CFO Shad Evans said revenue declined year over year, primarily because of a planned reduction in EUCOM contingency work, but adjusted EBITDA rose and cash flow improved.

“Overall, the quarter reflects disciplined execution, margin resilience, and strong cash generation, even as revenues were impacted by known and anticipated program dynamics,” Evans said.

Revenue Declines, But Margins Improve

KBR reported first-quarter revenue declined by $95 million from the prior year, driven mainly by the expected reduction in EUCOM contingency work. Evans said that excluding EUCOM, revenue was largely consistent with the prior year, and the company did not experience a material impact from the Middle East conflict during the quarter.

Adjusted EBITDA increased by $3 million year over year, supported by program execution and portfolio mix. Adjusted EBITDA margin expanded to 13.1%, compared with 12.3% a year earlier. Adjusted earnings per share were $0.96, down $0.05 from the prior year, which Evans attributed primarily to higher financing expenses from unconsolidated joint ventures. That impact was partially offset by lower average shares outstanding following open-market repurchases in 2025.

Cash flow was a notable highlight. Adjusted operating cash flow totaled $119 million, up $28 million year over year, reflecting strong days sales outstanding performance and 98% adjusted operating cash flow conversion.

Net leverage ended the quarter at approximately 2.3 times trailing adjusted EBITDA following KBR’s investment in BRIS to fund the SWAT acquisition. Evans said that remained below the company’s stated ceiling of 2.5 times.

Sustainable Tech Sees Strong Bookings and Pipeline Visibility

KBR’s Sustainable Technology Solutions, or STS, business continued to benefit from demand tied to energy security, downstream reliability, critical materials and infrastructure. Bradie said customer priorities have shifted in recent quarters toward reliable supply, resilient infrastructure and energy security, trends he said are being reinforced by geopolitical complexity.

For the third consecutive quarter, STS delivered book-to-bill excluding LNG above 1.0. First-quarter book-to-bill excluding LNG was 1.2 times, and trailing 12-month book-to-bill was also 1.2 times. STS backlog ended the quarter at approximately $4.7 billion, up 9% year over year. The near-term pipeline, excluding LNG, was more than $5 billion, with roughly 80% from repeat customers. Work under contract covered about 67% of KBR’s 2026 STS revenue guidance.

Bradie pointed to several awards, including project management services for the Zallaf South Refinery in Libya, integrated field management services at the Majnoon Oil Field in Iraq and a long-term general maintenance contract at SATORP in Saudi Arabia. KBR also secured a long-term catalyst supply agreement supporting Indorama’s ammonia operations.

Evans said STS revenue declined by $10 million year over year as new awards continued to ramp. Adjusted EBITDA rose by $2 million, while margins expanded to 21.9%, supported by equity earnings contributions from an LNG project. Excluding that project, underlying STS margins were 16.1%.

During the question-and-answer session, Bradie said the base STS business is generally around a 15% margin profile excluding the LNG project, with opportunities for improvement over time from technology licensing, early engineering and growth in recurring operating services through joint ventures such as BRIS.

Mission Tech Faces Uneven Award Environment

In Mission Technology Solutions, or MTS, Bradie said awards are “not flowing at historical levels,” with some larger opportunities still pending or under protest. The business posted first-quarter book-to-bill of 1.0 times, with trailing 12-month book-to-bill also at 1.0 times. Backlog and options ended the quarter at $18.5 billion, 39% of which was funded, excluding PFIs. Bids awaiting award totaled $16 billion, and work under contract covered about 91% of 2026 MTS revenue guidance.

KBR highlighted recent wins supporting the U.S. Space Force, joint data and analytical support for senior defense leaders, a recompete with the Department of Transportation’s Volpe Center and a contract extension under the Army’s LOGCAP program.

MTS revenue declined by $85 million year over year, primarily due to the planned EUCOM reduction. Excluding EUCOM, Evans said revenue was in line with the prior year, as growth in U.S. and Australian defense programs offset award delays, protest activity and funding restrictions at NASA. Adjusted EBITDA declined by $1 million, while margins expanded to 10.6%.

Bradie also discussed NASA, where he said the administrator has indicated interest in insourcing certain core workforce competencies. He said any changes would affect the mix of work across some programs and are reflected in KBR’s 2026 outlook. In response to an analyst question, Bradie said the potential impact to KBR this year was in the range of $50 million to $60 million if it happened immediately, though he indicated the actual impact would likely be smaller if changes are gradual.

Spin-Off Targeted for January 2027

KBR continues to advance its planned tax-free spin-off of MTS, a transaction Bradie said is intended to create two independent pure-play companies with clearer strategic focus, distinct investment profiles and dedicated leadership teams.

The company is now working toward an effective spin date of Jan. 4, 2027, the first business day of fiscal 2027. Bradie said a quarter-end spin remains the most practical approach, and that a fourth-quarter timeline provides additional runway to manage separation complexity.

KBR has confidentially resubmitted its Form 10 with fiscal 2025 audited carve-out financials and expects to move to a public filing in September. The company is also advancing the IRS private letter ruling process to support tax-free treatment. Bradie said the MTS CEO search is in its final stages, with board interviews planned later this month, while the CFO process is expected to follow.

The company plans to host two investor days in the second week of November to outline the standalone strategies, operating models and long-term priorities for both STS and MTS.

Full-Year Guidance Reaffirmed

KBR reaffirmed its full-year 2026 guidance ranges across all metrics. Evans said the company is operating in an environment where potential outcomes are wider than normal for its government services portfolio, due to geopolitical and policy shifts in the U.S. and Australia.

For MTS, KBR expects revenue to be flat to modestly down year over year, reflecting protest-related delays in the first half and a modest second-half decline tied to potential NASA workforce changes. Those impacts are expected to be more than offset by strength in STS, where KBR now expects mid-teens year-over-year revenue growth driven by award momentum and higher service demand.

Evans said the company expects revenue phasing of approximately 47% in the first half and 53% in the second half. He added that there were no changes to adjusted EBITDA, adjusted EPS or adjusted operating cash flow guidance, though the company could see some second-quarter cash flow volatility as the Middle East conflict is resolved.

Bradie closed the call by emphasizing KBR’s demand visibility, execution focus and progress toward the planned separation. “We remain committed to execution, margin discipline, and strong cash generation,” he said.

About KBR NYSE: KBR

KBR, Inc is a global engineering, procurement, construction and services (EPC&S) company headquartered in Houston, Texas. The firm delivers integrated solutions and technologies across the full project lifecycle for customers in the energy, government, industrial and infrastructure sectors. Its offerings span feasibility studies, front-end engineering design, detailed design, procurement, fabrication, construction, commissioning and operations support.

The company is organized into business segments that include Energy Solutions, which focuses on oil and gas processing, liquefied natural gas (LNG) facilities and petrochemical plants; Government Solutions, providing logistics, sustainment, training and mission support for defense, intelligence and civilian agencies; and Sustainable Technology, delivering chemical process technologies, water treatment and lower-carbon fuels expertise.

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