KBR Q3 2026 Earnings Call Transcript

KBR (NYSE:KBR) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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View the webcast at https://events.q4inc.com/attendee/485891893

Summary

KBR Inc. reported strong execution and profitable growth in Q3 2026, with sustainable tech driving a record backlog and a book-to-bill ratio of 1.3x.

Mission Tech faced NASA-related headwinds but maintained strong margins and cash conversion, with a book-to-bill ratio of 0.8x excluding NASA impacts.

The separation into KBR and Trinzic is on track for January 4, 2027, with key leadership and regulatory milestones achieved.

KBR reaffirmed its full-year guidance, anticipating continued low double-digit growth in Sustainable Tech and flat to slightly lower revenue in Mission Tech.

Management expressed confidence in managing NASA insourcing impacts and highlighted strong growth opportunities in the ammonia market and other strategic areas.

Full 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 Rachel Goldweit, Head of Investor Relations. Please go ahead.

Rachel Goldweit (Head of Investor Relations)

Thank you and good morning. Welcome to KBR’s third quarter 2026 earnings call. Joining me today are Stuart Bradie, President and CEO, and Chad Evans, Executive Vice President and CFO. Stuart and Chad 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 2, 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 (President and CEO)

Thank you, Rachel, and good morning, everyone. I will pick up on Slide 4. 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 cutover of key systems, including the transition of Trinzic’s payroll systems, a major milestone, and 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.

And 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 5. 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.

And 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 6 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, BRIS.

Year-to-date book-to-bill was 1.5x supporting our continued revenue growth outlook. BRIS 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 from 2027 as critical maintenance needs are addressed. The strong bookings secured over the last 12 months are now translating into accelerating growth, with revenue increasing 13% sequentially as projects continue to ramp across the portfolio, and this keeps us on track for our 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, a record backlog and strong pipeline give us increasing visibility into growth in Q4 and onwards into 2027. Moving to Slide 7, 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 Chad will discuss shortly. During the quarter we secured important work supporting Patriot air and missile defense and mission-critical radio frequency engineering, extending long-standing customer relationships across high-priority national security missions.

And 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 UK and Australia also performed well, with strong execution and healthy pipelines entering Q4 and 2027.

In the US, 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 outer-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 8 and an update on the spin, my last slide today. I’ll 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’re very pleased with the calibre 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’re 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 cutover 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 wasn’t 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’ve 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. And 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’ll hand over to Chad.

Shad (Chief Financial Officer)

Thanks, Stuart. I’ll 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’ll 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 a guided range of 26 to 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’ll 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’ve 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’s consistent with our mid-teens full year adjusted EBITDA margin outlook. And MTS revenue was approximately 1.27 billion. 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 2.1 times below our 2 1/2 times 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’re 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 to 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’ll hand it back to Stuart.

Stuart Bradie (President and CEO)

Thank you, Shad. And on to Slide 14 and I’ll close with the four takeaways. We are growing profitably, we’re 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.

And 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 two weeks. With that, we’ll 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’re muted locally, please remember to unmute your device. Please stand by while we compile the Q and A roster. Your first question comes from the line of Adam with Goldman Sachs.

Your line is open. Go ahead.

Anuj (Analyst at Goldman Sachs)

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 laps and whether there is further debooking risk in it. Thank you.

Shad (Chief Financial Officer)

Yes, thanks for the question. As we’ve said before, there’s no material change to the 26 expectations. MSOC was already contemplated in our guidance and IMOC remains within the roughly 16 pack 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 27, 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 27.

OPERATOR

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

Andrew Ozzy (Analyst at Wells Fargo)

Hi everyone. Thank you for taking my question. This is Andrew Ozzy on for Jerry Revich. I just wanted to take a deeper look into the guidance. It implies a bit of a step down in 4Q. You know, 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. You know, what’s driving that in 4Q. Thank you.

Shad (Chief Financial Officer)

Yeah, thanks for the question, Andrew. We’re really pleased, I think, 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’s implied in the guide. And so 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’re really focused now on what’s ahead of us with both companies at our respective Investor Days.

Andrew Ozzy (Analyst at Wells Fargo)

Thank you. I appreciate that cut out a little bit, but I think I got most of what you were saying. You know, for my next question, how can we think about the Plaquemines runoff quarterly through its completion in, let’s say, 1H next year, and are there any completion items we have to be aware of like contingency releases or final closeout? Appreciate any color there.

Shad (Chief Financial Officer)

LNG. Yeah, sorry. The line’s cutting in and out a little bit, Andrew. LNG contributions have been about $115 million through Q3 and so we expect another 25 to 35 million in Q4 depending on milestones. That contribution does step down in 27, and we’ll 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 27.

Andrew Ozzy (Analyst at Wells Fargo)

Thank you very much. I’ll pass it on.

OPERATOR

Your next question comes from the line of Toby Summer with Truist. Your line is open. Please go ahead.

Toby Summer (Analyst at Truist)

Thanks. Based on what you know and what you’re hearing of incremental NASA insourcing, 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 (President and CEO)

Yeah, no, good question, Toby, thanks for that. We expect that to be all done this year and so as we look into 27, the first two quarter comps are going to be challenging because we obviously had full run rate of NASA in the first two quarters. But as I said, I think it’s all done this year. So we’ll start from a green slate, if you like, and I’m sure the team will describe that in detail at Investor.

Toby Summer (Analyst at Truist)

Fair enough, thank you. And then could you describe on the new KBR side, STS, what the pipeline looks like in ammonia, and could you kind of refresh us, just so we can interpret your prospective wins, what a project size from a dollar and duration looks like? I know they’re not all equal, but a framework would be helpful. Thanks.

Stuart Bradie (President and CEO)

Thanks, Toby. 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. So that’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 and it’s not just new builds, 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. And 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 at Investor Day. But one out of two to three projects is we’ve managed to position KBR to extend scope significantly, and so the share of the project wallet, for want of a better description, is substantially larger.

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

Toby Summer (Analyst at Truist)

Thank you.

OPERATOR

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

Ian Zaffino (Analyst at Oppenheimer & Company)

Hi. Thank you very much. You know, very strong backlog on this in STS. What is the timeframe that that backlog will be delivered in? And maybe you could also talk about the margin of the business because I know there’s tremendous growth on the top line, but we are kind of giving up some on the EBITDA line with Plaquemines next year. So 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 we’re thinking about that backlog being delivered and then maybe what’s the margin there, and then kind of do our own numbers.

Stuart Bradie (President and CEO)

Yeah, again, very good question, and quite rightly we have to get into that at Investor Day in more detail. But I think the headline would be very, I think, purposeful and transparent about the contribution from Plaquemines throughout the year and its impact on margins. Ex Plaquemines, we’re sitting in mid-teens, as you’re aware, and that’s been consistent through the course of the year. So that’s the way to business. And as Shad said, we’re confident we can, with the bookings and the strength of those bookings and the quality of earnings associated with those bookings, continue our momentum into ’27 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. And that’s probably all I’ll say now, because we’ve got to really get more detail at Investor Day, and we’ll break it down in a very clear and transparent way — where we’re starting from, et cetera, as we head forward.

Ian Zaffino (Analyst at Oppenheimer & Company)

Okay, thank you very much.

OPERATOR

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

Stuart Bradie (President and CEO)

Thank you. Thank you for joining us this morning. You know, 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’re 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, you know, we’re testing them, and they’re working the way they should. So we’re feeling really good about that.

So 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’ll see you then. Thank you very much.

OPERATOR

This concludes today’s call. Thank you for attending. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.