KBR(US:KBR)2025-10-30 13:00Financial Data and Key Metrics Changes - Revenue for Q3 2025 was flat year-on-year at $1.9 billion, but up 5% year-to-date compared to the previous year [6][18] - Adjusted EBITDA increased by 10% to $240 million, with margins rising over 100 basis points to 12.4% [8][18] - Adjusted EPS rose by 21% to $1.02, driven by improved adjusted EBITDA performance and share buybacks [8][18] - Operating cash flow for the year-to-date reached $506 million, a 24% increase from the prior year, with a conversion rate exceeding 130% [8][18] Business Line Data and Key Metrics Changes - Mission Technologies (MTS) revenues were flat at $1.4 billion, with Defense and Intelligence growing by 14%, while Readiness and Sustainment declined by 22% [20][22] - Sustainable Technology Solutions (STS) revenues decreased by 1% to $525 million, but adjusted EBITDA increased by 13% to $123 million, with margins at 23.5% [22][24] - The book-to-bill ratio for MTS was 1.4x, while STS delivered a 1.2x book-to-bill excluding LNG [16][22] Market Data and Key Metrics Changes - KBR's backlog plus options increased to over $23 billion, a 13% rise from the previous year, marking the highest backlog in the company's history [13][36] - The company has $18 billion in bids pending award, with over 75% representing new business opportunities [13][15] - The U.S. funded backlog was $2 billion at the end of Q3, providing over five months of revenue run rate [26] Company Strategy and Development Direction - KBR is pursuing a spin-off of its Mission Technologies segment, aiming for completion by mid to late 2026, which is expected to enhance strategic focus and operational independence [31][33] - The company is focusing on geographical expansion and strategic partnerships, particularly in the Middle East and energy sectors [7][12] - KBR aims to increase exposure to recurring revenue streams, particularly in the OPEX side of the STS business [18] Management's Comments on Operating Environment and Future Outlook - Management noted resilience in the STS business despite headwinds from government shutdowns and project delays, with expectations for improved revenue in Q4 [7][26] - The company anticipates continued momentum in both segments heading into 2026, supported by a strong pipeline of opportunities [8][42] - Management expressed confidence in navigating the challenges posed by the government shutdown, with minimal impact on revenue expected [26][36] Other Important Information - KBR returned over $120 million in capital to shareholders during the quarter while managing leverage responsibly [9][24] - The company has received a top AAA rating from MSCI for sustainability efforts and allocated $2.9 billion towards sustainability initiatives in fiscal 2024 [5][6] Q&A Session Summary Question: Outlook for STS in 2026 - Management indicated good visibility for continued momentum in STS, aligned with growth targets of 11-15% for 2026, despite needing to replace energy transition projects [40][42] Question: MTS performance and growth - Management highlighted strong growth in Defense and Intelligence, with confidence in achieving growth targets despite pressures in other areas like NASA [44][46] Question: NASA exposure and budget cuts - Management noted minimal impact from NASA budget cuts for the remainder of the year, with expectations for increased investment in human space performance [54][56] Question: LNG opportunities - Management confirmed active discussions and ongoing projects in LNG, with positive expectations for future contributions from various LNG projects [58][60] Question: STS margins and backlog - Management explained that current margins are affected by timing and proprietary equipment sales, with expectations for mid-teens margins to be sustainable [100][102] Question: International opportunities in Australia and the UK - Management reported strong performance and brand recognition in Australia, with a robust pipeline of opportunities in both Australia and the UK [113]