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    KBR
    Earnings call· Mar 2026(Q1 FY26)

    KBR Q1 FY26 earnings call KBR

    May 5, 2026 Source

    Executive summary

    KBR Q1 FY26 — Solid Start, Reaffirmed Guidance, and Spin Progress

    KBR reported a solid start to the year, driven by strong execution and cash generation, despite a challenging geopolitical backdrop and anticipated program dynamics. The company reaffirmed its full-year guidance, with strength in Sustainable Technology Solutions offsetting headwinds in Mission Technology Solutions, particularly from unresolved protests and potential NASA in-sourcing. KBR continues to advance its planned spin-off of Mission Technology Solutions, with the timeline adjusted to early FY27 to ensure a smooth separation.

    Highlights

    4

    • Adjusted EBITDA increased by $3 million year-over-year, with margin expanding to 13.1% from 12.3%.

    • Adjusted operating cash flow totaled $119 million, up $28 million year-over-year, reflecting 98% conversion.

    • Sustainable Technology Solutions (STS) delivered book-to-bill ex LNG of 1.2x for the third consecutive quarter, with backlog up 9% year-over-year to $4.7 billion.

    • Work under contract covers 67% of 2026 revenue guidance for STS and 91% for Mission Technology Solutions (MTS).

    Concerns

    3

    • Adjusted EPS was $0.96, down $0.05 year-over-year, primarily due to higher financing expenses from unconsolidated joint ventures.

    • Mission Tech revenue is expected to be flat to modestly down year-over-year due to unresolved protests and potential NASA in-sourcing, impacting revenue by $50M-$60M.

    • The spin transaction timeline was extended to January 4, 2027, from an original Q3 2026 target.

    Guidance & targets

    10
    CategoryTargetConfidence
    Full-year 2026 Adjusted EBITDA
    Reaffirmed
    high materiality
    High
    Full-year 2026 Adjusted EPS
    Reaffirmed
    high materiality
    High
    Full-year 2026 Adjusted Operating Cash Flow
    Reaffirmed
    high materiality
    High
    Mission Tech revenue growth
    Flat to modestly down year-over-year
    medium materiality
    Medium
    Sustainable Tech revenue growth
    Mid-teens year-over-year growth
    medium materiality
    High
    Full-year 2026 revenue phasing
    47% in H1, 53% in H2
    low materiality
    Medium
    Adjusted Operating Cash Flow volatility
    May see some volatility
    low materiality
    Medium
    Sustainable Technology Solutions long-term margin target
    20%+
    medium materiality
    High
    Mission Technology Solutions long-term margin target
    10%+
    medium materiality
    High
    Mission Tech bid volume goal
    $25 billion
    low materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Sustainable Technology Solutions (STS)
    Revenue was down primarily reflecting new awards that are still ramping. Adjusted EBITDA increased with margins expanding, driven by equity and earnings contributions from an LNG project.
    Adjusted EBITDA increase: $2M YoYUnderlying margins (ex-LNG project): 16.1%
    		down $10M——21.9%
    Mission Technology Solutions (MTS)
    Revenue was down primarily due to the planned reduction in EUCOM contingency work. Adjusted EBITDA was essentially flat, while margins expanded due to the roll-off of lower EUCOM work and increasing mix of higher-value offerings.
    Adjusted EBITDA decline: $1M YoY
    		down $85M——10.6%

    Operational metrics

    11
    Adjusted EBITDA
    $119Mup $3M YoY
    Q1 FY26

    Supported by strong program execution and favorable mix across the portfolio.

    Adjusted EBITDA margin
    13.1%up from 12.3% last year
    Q1 FY26

    Expanded due to strong program execution and favorable mix.

    Adjusted EPS
    $0.96down $0.05 YoY
    Q1 FY26

    Primarily due to higher financing expenses from unconsolidated joint ventures, partially offset by lower average shares outstanding.

    Adjusted OCF conversion
    98%
    Q1 FY26

    Resulting from strong DSO performance.

    Net leverage
    2.3xincreased modestly
    Q1 FY26

    Following investment in Bris to fund the SWAT acquisition, remains comfortably below the stated ceiling of 2.5x.

    Recurring joint venture contributions
    $18M
    Q1 FY26

    Expected to tick up modestly as the year progresses due to strong year-to-date bookings ramping up.

    STS underlying margins (ex-LNG project)
    16.1%
    Q1 FY26

    This is the margin for the base business, excluding the LNG project's contribution.

    STS weighted margin profile
    20%+
    2026

    Driven by technology, engineering, and JV participation.

    MTS bids and waiting award
    $16B
    Q1 FY26

    Total value of bids and awards awaiting decision.

    NASA in-sourcing revenue impact
    $50M-$60M
    FY26

    Potential impact from NASA's new administrator's push for greater in-sourcing, affecting one main contract.

    EUCOM contingency work reduction
    —
    Q1 FY26

    Planned reduction in EUCOM contingency work was the primary driver of the year-over-year revenue decline for MTS.

    Orderbook & backlog

    6
    STS Backlog$4.7BQ1 FY26

    up 9% year-over-year

    STS Book-to-bill ex LNG1.2xQ1 FY26

    Third consecutive quarter above 1.0.

    STS Trailing 12-month Book-to-bill ex LNG1.2xQ1 FY26
    MTS Backlog and options$18.5BQ1 FY26

    39% funded, excluding PFIs.

    STS work under contract coverage67%Q1 FY26

    Covers 67% of 2026 revenue guidance.

    MTS work under contract coverage91%Q1 FY26

    Covers 91% of 2026 revenue guidance.

    Deals & partnerships

    3
    Applied ComputingPartnership to support data-driven and AI-enabled solutions.

    Aims to connect project execution to maintenance and operations while staying capital-light.

    Tag-up AIPartnership to apply AI-enabled tools.

    Aims to help improve sustainment workflows and readiness outcomes in mission support.

    BrisInvestment in Bris to fund the SWAT acquisition.

    The investment in Bris to fund the SWAT acquisition led to a modest increase in net leverage.

    Risks & headwinds

    5
    Higher financing expenses from unconsolidated joint venturesQ1 FY26

    Adjusted EPS down $0.05 YoY

    Unresolved protests delaying anticipated ramp activityFirst half of FY26

    Mission Tech revenue expected to be flat to modestly down year-over-year

    Mitigation: Focus on increasing bid activity and positioning for future awards.

    Potential program-level changes at NASA relating to workforce directive (in-sourcing)Second half of FY26

    Modest second half decline incorporated into FY26 outlook, potential $50M-$60M revenue impact for FY26

    Mitigation: KBR continues to support NASA in areas requiring deep mission experience and independent technical expertise.

    Geopolitical environment and policy shiftsOngoing

    Can create both opportunity and funding risk for government services portfolio

    Mitigation: Operating in markets where capabilities are highly relevant, deep customer relationships, and model designed for disciplined execution.

    Volatility in adjusted operating cash flowQ2 FY26

    May see some volatility

    Mitigation: Anticipated as the Middle East conflict is resolved; underlying assumptions remain consistent.

    What to watch in Q2 FY26

    5

    Mission Tech revenue trajectory

    H2 FY26
    CurrentFlat to modestly down YoY in Q1
    TargetResolution of unresolved protests, ramp-up of anticipated activity

    Why it matters

    Determines if MTS revenue stabilizes or declines further, impacting overall company performance.

    In Mission Tech, we expect revenue to be flat to modestly down year-over-year, largely reflecting unresolved protests in the first half that delayed anticipated ramp activity.

    Q&A highlights

    7

    Margins were ahead of expectations and above the full-year guide. What drove this, and what's the trajectory for margins and equity income, especially from the Brown & Root JV after the SWOT acquisition?

    Management stated margins are in line with long-term targets (10%+ for MTS, 20%+ for STS). Recurring JV contributions generated $18 million of EBITDA in Q1, expected to tick up. The M&A pipeline is active for Brown & Root, focusing on accretive opportunities in new geographies and adjacent industries.

    “recurring joint venture contributions generated approximately $18 million of EBITDA in the quarter, and we expect that contribution to tick up modestly as the year progresses.”

    asked by Adam Bubes · answered by Shad Evans

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Spin-off Update

    KBR is advancing the tax-free spin-off of its Mission Technology Solutions (MTS) business, now targeting an effective date of January 4, 2027. This adjustment from an earlier Q3 2026 target provides additional time to manage the complexities of IT standup, talent migration, and regulatory processes, including confidential Form 10 resubmission and IRS private letter ruling. The separation aims to create two independent, pure-play companies with distinct strategic focuses and investment profiles, with Investor Days planned for November.

    02

    Sustainable Technology Solutions (STS) Momentum

    STS demonstrated strong performance with a book-to-bill ex LNG of 1.2x for the third consecutive quarter, leading to a 9% year-over-year increase in backlog to $4.7 billion. Demand is anchored in energy security, downstream reliability, and long-duration asset services, with significant wins in the Middle East and Australia. The near-term pipeline is diversified across critical programs, reflecting a capital-light, engineering-led model and repeat customer relationships, with 67% of 2026 revenue guidance already under contract.

    03

    Mission Technology Solutions (MTS) Dynamics

    MTS faces a challenging environment with awards not flowing at historical levels, unresolved protests, and potential in-sourcing at NASA, which could impact revenue by $50M-$60M in FY26. Despite these headwinds, MTS continues to win work in space, national security, and civilian sectors, leveraging digital engineering, AI, and data analytics. The business is focused on increasing bid activity and positioning for future awards, with $16 billion in bids awaiting award and 91% of 2026 revenue guidance under contract.

    04

    Margin Profile and Mix Shift

    The company provided increased transparency on STS margins, noting that underlying margins ex-LNG were 16.1% in Q1 FY26, with the LNG project contributing significantly. The long-term STS margin profile is expected to be 20%+, driven by technology licensing, differentiated engineering, and growing JV participation. MTS margins expanded to 10.6% due to the roll-off of lower-margin EUCOM work and a shift towards higher-value offerings, aligning with the 10%+ long-term target.

    05

    Capital Allocation and Leverage

    KBR maintains a balanced and disciplined capital allocation strategy, investing for growth, returning capital to shareholders, and maintaining prudent leverage. Net leverage increased modestly to 2.3x trailing adjusted EBITDA following the Bris investment, remaining comfortably below the 2.5x ceiling. Strong adjusted operating cash flow of $119 million in Q1 FY26 provides flexibility for these priorities and the spin-off execution, with recurring joint venture contributions generating $18 million of EBITDA in the quarter.

    06

    Geopolitical Impact and Market Trends

    Geopolitical events, particularly in the Middle East, are reinforcing trends towards energy security, reliable supply, and resilient infrastructure. KBR has seen no material change in capital spending priorities from customers in the Middle East, with continued investment in mission-critical assets and a focus on restoration, repairs, and long-term resilience strategies. The company is well-positioned to support these evolving demands globally, with a strong local footprint and delivery reputation.

    AI-generated summary of the company’s earnings call. Not investment advice.