KBR's Q3 2025 Earnings Call: Contradictions Emerge on STS Growth, NASA Exposure, Protest Resolutions, and Defense & Intel Outlook

Date of Call: October 30, 2025

Financials Results

• Revenue: $1.9B, flat YOY, up 5% year-to-date
• EPS: Adjusted EPS $1.02, up 21% YOY

Guidance:

• Revenue 2025 guidance updated to $7.75B–$7.85B (midpoint $7.8B, flat).
• Adjusted EBITDA reaffirmed at $960M–$980M; adjusted EPS reaffirmed at $3.78–$3.88.
• Operating cash flow guidance maintained at $500M–$550M (YTD $506M).
• Guidance assumes government shutdown resolved in November; conversion of $3B in awards delayed by protests.
• Other assumptions unchanged: tax, CapEx and interest.

Business Commentary:

* Revenue and Financial Performance: - KBR reported flat revenue for Q3 2025 year-on-year, with a year-to-date increase of 5%. - This was primarily due to a strong book-to-bill ratio of 1.4x, especially in the second half of the year, though back-end weighted awards delayed revenue recognition.

• Operational Efficiency and Margin Improvement:
• KBR's operational performance led to adjusted EBITDA margins increasing by over 100 basis points to 12.4% year-over-year, with an adjusted EBITDA of $240 million, up 10%.

• This improvement was driven by delivery excellence, commercial management, and prudent cost control measures.

• Cash Flow and Shareholder Returns:

• KBR generated $198 million in operating cash in Q3 and $506 million year-to-date, with a cash conversion rate over 130%.

• The strong cash performance was supported by successful DSO reduction measures and a focus on recurring revenue streams.

• International and Strategic Growth:

• The company's international segment reported a double-digit margin with over 10% sequential growth in Australia, and a significant backlog increase.
• This growth was driven by the team's ability to pivot to well-funded projects and opportunities in geographic regions with energy security priorities.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted strong bottom-line and cash: "Adjusted EBITDA of $240 million, up 10%" and "adjusted EPS of $1.02, an increase of 21% YOY." Cash conversion >130% YTD with operating cash $198M in Q3 and $506M YTD. Book-to-bill 1.4x, backlog +13% YOY to >$23B, and spin-off preparations are "on track." These emphasize operational resilience and positive outlook despite near-term headwinds.

Q&A:

• Question from Andrew Kaplowitz (Citigroup Inc., Research Division): Can you give more color into how you're thinking initially about STS going into '26? Do you have visibility to still grow that business in that sort of 11% to 15% range in '26 and where does that come from?
  Response: Management sees momentum from Q3 book-to-bill and expects STS to remain on a double-digit growth path aligned with its 2027 CAGR targets heading into 2026.

• Question from Andrew Kaplowitz (Citigroup Inc., Research Division): Outlook for MTS — can you keep up Defense & Intelligence strength along with international to offset weaker readiness and NASA into '26?
  Response: Defense & Intel growth, international strength (Australia, U.K.) and protest resolution upside should offset NASA/RNS weakness; management expects to hit prior growth ranges, likely toward the lower end while clarity is established.

• Question from Augie Smith (D.A. Davidson & Co., Research Division): Could you provide more depth on NASA exposure and proposed budget cuts, and impact on MTS for the rest of this year and into 2026?
  Response: Near-term impact minimal; 2026 uncertain due to budget dynamics—NASA science is lower-margin and represents <25% of the portfolio so bottom-line impact is limited; more clarity expected at year-end.

• Question from Augie Smith (D.A. Davidson & Co., Research Division): Within STS, how active are LNG opportunities and any advanced discussions on other terminals?
  Response: LNG activity is strong globally: Plaquemines continues through '26, Lake Charles FID delayed to Q1 (not cost-related), Abadi FEED initiated, and multiple U.S. and international opportunities under pursuit.

• Question from Michael Dudas (Vertical Research Partners, LLC): Outside LNG, what areas drive the $5B visible pipeline and client demand shifts (ammonia, Mura updates)?
  Response: Pipeline driven by Middle East national energy-security projects and traditional ammonia (fertilizer) opportunities; Mura commissioning delayed to Q1 (first‑of‑a‑kind startup issues) but progressing without structural problems.

• Question from Michael Dudas (Vertical Research Partners, LLC): On protest levels, what's the expected cadence for resolutions and conversion into 2026?
  Response: Shutdown is delaying protest resolutions; some awards (e.g., APS‑2 ~ $160M) will book when work orders issue and a major Iraq award likely resolves in Q1—resolution timing drives upside into 2026.

• Question from Tobey Sommer (Truist Securities, Inc., Research Division): Since announcing the spin, have you received interest from outside parties to acquire either business?
  Response: Management declined to comment on any inbound interest.

• Question from Tobey Sommer (Truist Securities, Inc., Research Division): Thoughts on appropriate comparables for valuation of the stand‑alone businesses?
  Response: Spin offers a rebranding opportunity; MTS aligns with government services peers (e.g., AECOM/Jacobs); STS has few direct public comps (potential Loomis IPO noted) and management will detail comps at Investor Days.

• Question from Mariana Perez Mora (BofA Securities, Research Division): STS margins excluding unconsolidated equity were lower; how should we think about those going forward?
  Response: Q3 weakness was timing-related—higher mix of lower-margin proprietary equipment hit revenue; blended margins should normalize over time.

• Question from Mariana Perez Mora (BofA Securities, Research Division): Is the new ~$70M per quarter from Plaquemines a sustainable run rate?
  Response: Mark: Q3 spike due to milestone progression; the mid‑year average approximates that quarterly pace and is a reasonable 2026 proxy, though milestone timing will create volatility.

• Question from Mariana Perez Mora (BofA Securities, Research Division): How do milestone P&L recognitions relate to cash flow for Plaquemines and similar JV work?
  Response: Profit recognition is closely tied to cash; cash extraction from the JV will follow profit realization and customers are paying, so cash conversion should be similar next year.

• Question from Mariana Perez Mora (BofA Securities, Research Division): Timing for the $5B near‑term STS pipeline and how it impacts backlog?
  Response: Near‑term pipeline is expected to convert over the next 6–8 months; this excludes large LNG one‑offs and represents actionable near-term opportunities.

• Question from Mariana Perez Mora (BofA Securities, Research Division): Update on Mission Technologies international performance—Australia and the U.K. pipeline?
  Response: Australia is outperforming (double‑digit growth) with a strong pipeline; U.K. is slower but improving post‑defense review; international overall delivers attractive mid‑teen margins and longer‑term upside.

Contradiction Point 1

Growth Expectations for Sustainable Technologies Segment (STS)

It involves differing expectations for the growth of the STS segment, which is a strategic focus area for the company and a key driver for future revenue.

Can you explain your initial plans for STS in 2026? - Andrew Kaplowitz(Citigroup Inc., Research Division)

2025Q3: The book-to-bill in Q3 and the expected book-to-bill in Q4 give us good insight into the momentum heading into 2026. We are still aligned with our target of double-digit growth in STS, supporting our strategic position in energy security and sustainability. - Stuart Bradie(CEO)

How have your strategies evolved over the past year or two to maintain the 2027 revenue target amid changing market conditions? - Michael Stephan Dudas(Vertical Research Partners, LLC)

2025Q2: Sustainable Technology Services is focused on decarbonization and energy security, and we're targeting a significant growth rate for the business - Stuart Bradie(CEO)

Contradiction Point 2

Impact of Budget Cuts on NASA Contracts

It involves differing expectations and impacts of potential budget cuts on NASA contracts, which are a significant portion of the company's MTS segment revenue.

What are your thoughts on NASA exposure and proposed budget cuts for MTS? - Augie Smith(D.A. Davidson & Co., Research Division)

2025Q3: The impact of budget cuts on NASA remains unclear, but we expect minimal disruption in 2025. We have less than 25% exposure to science areas and expect increased investment in human space performance initiatives. - Stuart Bradie(CEO)

Will second-half bookings be stronger than year-to-date levels? - Brent Edward Thielman(D.A. Davidson & Co., Research Division)

2025Q2: Correct, yes, we're obviously following the developments there. It's a pretty dynamic and fluid situation. But obviously, we're very engaged in the government expenditures and budget discussions. - Stuart Bradie(CEO)

Contradiction Point 3

Expected Resolution of Protests and Growth Impact

It involves differing expectations on the resolution of ongoing project protests and their impact on future growth, which can significantly affect financial projections and investor confidence.

When will disputed projects be reflected in revenue? - Michael Dudas(Vertical Research Partners, LLC)

2025Q3: We anticipate resolution of major protests in Q1 2026, which will have a significant financial impact. This includes a large project in Iraq that could bolster growth in '26 and '27. - Stuart Bradie(CEO)

What specific factors over the next several quarters would support the 2027 targets? - Brent Edward Thielman(D.A. Davidson & Co., Research Division)

2025Q2: We've got a full pipeline of opportunities, and we're got a number of these awards that we've got a reasonable degree of certainty around, although obviously, these awards can get held up in different situations. - Stuart Bradie(CEO)

Contradiction Point 4

Defense and Intel Business Growth Expectations

It involves differing expectations for growth in the Defense & Intel business, which is a key driver of the company's revenue and strategic positioning.

Can you sustain the strength in the Defense & Intel business? - Andrew Kaplowitz(Citigroup Inc., Research Division)

2025Q3: We are well positioned in Defense & Intel due to increased spending in Space Force and connected battlefield enhancements. We are optimistic about growth in R&D and international markets, including the U.K. and Australia, despite some headwinds. - Stuart Bradie(CEO)

Given your mid-single-digit organic growth guidance excluding HomeSafe and LinQuest, how confident are you in achieving this growth rate? Are the growth drivers changing, and how do you assess the NASA business now with the new President's budget emphasizing defense and deemphasizing NASA? - Andy Kaplowitz(Citigroup)

2025Q1: Confidence is high with a $1 trillion defense budget and increased funding for areas like Golden Dome, munitions, shipbuilding, nuclear deterrence, and space dominance. It aligns perfectly with our capabilities. - Stuart Bradie(CEO)

Contradiction Point 5

NASA Exposure and Budget Cuts

It involves the potential impact of budget cuts on NASA projects, which could affect KBR's financial performance and strategic positioning.

What are your thoughts on NASA exposure and proposed budget cuts for MTS? - Augie Smith(D.A. Davidson & Co., Research Division)

2025Q3: The impact of budget cuts on NASA remains unclear, but we expect minimal disruption in 2025. We have less than 25% exposure to science areas and expect increased investment in human space performance initiatives. - Stuart Bradie(CEO)

What are the main drivers of 2025 growth and how will international markets contribute? - Mariana Perez Mora(Bank of America)

2024Q4: We are seeing increased budget for human space performance initiatives. And we also see some increase in investment in the science area. But we're most excited about the human space performance area. - Stuart Bradie(CEO)