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The call reflects solid underlying operational and financial resilience — margin expansion, higher adjusted operating cash flow and strong STS bookings/backlog were notable positives. MTS showed healthy backlog and contract coverage but faced slower award flow, protests, and NASA‑related mix risk. Management reaffirmed 2026 guidance, is advancing the spin, and maintained disciplined leverage and capital allocation. While there are clear near‑term timing and mix headwinds (EUCOM reduction, NASA uncertainty, LNG roll‑off and protest delays), the improvements in cash, margins, bookings and contract coverage materially outweigh the challenges discussed.
KBR reaffirmed its full‑year 2026 guidance across all metrics, saying work under contract already covers ~67% of STS’s and ~91% of MTS’s 2026 revenue guidance; STS delivered Q1 book‑to‑bill ex‑LNG of 1.2x (trailing‑12m 1.2x) with backlog ≈$4.7B (+9% YoY) and a >$5B pipeline (~80% repeat customers), while MTS posted Q1 book‑to‑bill 1.0 (trailing‑12m 1.0) with backlog+options of $18.5B (39% funded ex‑PFIs), $16B of bids/awards outstanding and progress toward a $25B 2026 bid‑volume goal; consolidated Q1 revenue fell $95M YoY but adjusted EBITDA rose $3M, expanding margin to 13.1% (from 12.3%), adjusted EPS was $0.96 (down $0.05 YoY), adjusted operating cash flow was $119M (up $28M YoY) with 98% adjusted OCF conversion, and net leverage ended ~2.3x trailing adjusted EBITDA (below a 2.5x ceiling); outlook assumes MTS revenue flat to modestly down while Sustainable Tech (STS) is expected to deliver mid‑teens revenue growth, STS underlying margins were ~16.1% ex‑LNG (with the LNG project adding ~500 bps) and the company expects a >20% weighted STS margin profile in 2026, with revenue phasing ~47% H1 / 53% H2 and possible Q2 OCF volatility as Middle East conditions resolve—yet no changes to adjusted EBITDA, adjusted EPS or adjusted OCF guidance.
Adjusted operating cash flow of $119 million, up $28 million year‑over‑year, with 98% adjusted OCF conversion. Adjusted EBITDA increased by $3 million YoY and adjusted EBITDA margin expanded to 13.1% from 12.3% (≈+80 basis points).
STS first quarter book‑to‑bill ex‑LNG of 1.2x (Q1 and trailing 12 months), backlog of approximately $4.7 billion (up 9% year‑over‑year), and a near‑term pipeline (ex‑LNG) > $5 billion with ~80% from repeat customers. Work under contract covers ~67% of STS 2026 revenue guidance.
MTS backlog and options ended the quarter at $18.5 billion with ~39% funded (ex PFIs). Bids and awards outstanding total ~$16 billion; work under contract covers ~91% of MTS 2026 revenue guidance. Progress toward the 2026 $25 billion bid volume goal with significant submissions expected in the next two quarters.
STS: wins include project management for Zales South refinery (Libya), integrated field management at Magino (Iraq), long‑term maintenance at Sator (Saudi Arabia), long‑term catalyst supply for Indorama and water/transport work in Middle East and Australia. MTS: awards include support for U.S. Space Force (digital engineering/analytics), DOT recompete, LOGCAP extension and direct data/analytical support to senior defense leaders.
Spin targeted for an effective date of January 4, 2027. Confidential Form 10 resubmitted with audited carve‑out financials for fiscal 2025; SEC review ongoing. IT standup and operational separation planning progressing; leadership recruiting and investor days planned for November.
Recurring joint venture contributions generated approximately $18 million of EBITDA in the quarter and are expected to increase through the year. Net leverage ended the quarter at ~2.3x trailing adjusted EBITDA, below the 2.5x ceiling; continued focus on balanced capital allocation and disciplined M&A approach.
No material impact from Middle East conflict during the quarter; KBR Pulse app launched (employee‑driven) to improve communications and safety for distributed workforce. Management reports resilient operations and continued award cadence in Middle East markets.
Welcome, everyone. The KBR's First Quarter 2026 Earnings Call Conference will begin shortly. Hello, everyone, and thank you for joining the KBR's First Quarter 2026 Earnings Conference Call. My name is Gabriel, and I will be coordinating your call today. [Operator Instructions] I will now hand over to your host, Rachael Goldwait, Head of Investor Relations. Please go ahead.
Thank you, and good morning. Welcome to KBR's First 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 Investors section of our website at kbr.com. This discussion includes forward-looking statements reflecting KBR's views about future events and their potential impact on performance as outlined on Slide 2. These matters involve risks and uncertainties that could cause actual results to differ materially from these forward-looking statements as discussed in our most recent Form 10-K available on our website. This discussion also includes non-GAAP financial measures that the company believes to be useful metrics for investors.
A reconciliation of these non-GAAP measures to the nearest GAAP measure is included at the end of our earnings presentation. I will now turn the call over to Stuart.
Thank you, Rachel, and good morning, everyone. I'll pick up on Slide 4. Now before we get into the results, I wanted to share a brief 0 harm moment on staying connected especially in chal...
