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01/11 03:09
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents mixed signals: revenue guidance was lowered, but EBITDA and cash flow targets remain unchanged. The STS segment shows potential growth, particularly in LNG projects, and there are opportunities in defense spending. However, uncertainties in NASA funding and strategic shifts in the MTS segment present risks. The Q&A reveals optimism for 2026, but concerns about budget pressures and unresolved protests. The market reaction is likely to be neutral, balancing positive prospects in defense and energy with revenue guidance cuts and NASA uncertainties.
Revenue Revenue was flat in the quarter year-on-year and up 5% year-to-date from the prior year. The flat revenue was due to back-end weighted bookings with little conversion to revenue in Q3, delays in LNG project development, oversupply in petrochemicals, Middle East unrest, new tariffs, and a market shift towards energy affordability.
Adjusted EBITDA Adjusted EBITDA margins were up more than 100 basis points year-on-year at 12.4%, delivering an adjusted EBITDA of $240 million, up 10%. This was achieved through delivery excellence, strong commercial management, and prudent cost control.
Adjusted EPS Adjusted EPS was $1.02, an increase of 21% year-over-year, driven by growth in adjusted EBITDA performance and benefits from share buybacks.
Operating Cash Flow Operating cash flow was $198 million in the quarter and $506 million year-to-date, an increase of 24% from the prior year. This was due to successful DSO reduction measures in both segments.
Backlog and Options Backlog and options now stand at more than $23 billion, representing a 13% increase since the prior year-end, driven by strong bookings and a robust pipeline of opportunities.
MTS Segment Revenue MTS segment revenue was $1.4 billion, flat versus the prior year. Defense and Intelligence grew 14%, while Readiness and Sustainment was down 22% due to Department of War strategic shifts. Science & Space was down 5% due to funding and decision delays at NASA.
STS Segment Revenue STS segment revenue was $525 million, down about 1% due to back-end weighted awards in the quarter. Adjusted EBITDA for STS was $123 million, up 13%, with margins at 23.5%, reflecting strong contributions from the Plaquemines LNG project.
Sustainability Initiatives: 38% of KBR's fiscal 2024 revenue ($2.9 billion) was allocated towards sustainability initiatives, up from $2.5 billion the previous year.
New Contract Wins: Secured a $2.5 billion base period contract with an additional $1 billion option value for astronaut health and human performance support during space missions.
Strategic Contracts: Awarded contracts with the Air Force Research Laboratory and U.S. Space Force for cybersecurity, digital engineering, and electronic warfare solutions.
Geographical Expansion: Expanded operations in the Middle East, including Iraq, and focused on LNG, ammonia for fertilizer, and energy affordability markets.
STS International Projects: Awarded contracts in Iraq, UAE, Kuwait, and Indonesia for strategic energy and infrastructure projects.
Revenue and Profitability: Revenue was flat year-on-year, but adjusted EBITDA margins increased by over 100 basis points to 12.4%, delivering $240 million in adjusted EBITDA, up 10%.
Cash Flow: Generated $198 million in operating cash in Q3 and $506 million year-to-date, achieving a conversion rate of over 130%.
Spin-Off Plan: Announced the spin-off of the Mission Technologies segment to create two pure-play public companies, targeting completion by mid-to-late 2026.
Resilience to U.S. Government Shutdown: Over 60% of adjusted EBITDA has no exposure to U.S. government spending budgets, ensuring operational stability.
Government Shutdown: The government shutdown has caused delays in new awards and the resolution of protests, impacting the conversion of $3 billion in contracts to revenue. This creates uncertainty in revenue generation for the Mission Technologies segment.
LNG Project Development: Delays in LNG project development due to prior administration decisions and oversupply in petrochemicals have led to project cancellations and delays, impacting the Sustainable Technology Solutions (STS) segment.
Middle East Unrest: Unrest in the Middle East has caused temporary pauses in projects, affecting operations and revenue generation in the region.
Tariffs and Market Shifts: New tariffs and a market shift towards energy affordability have resulted in the postponement or cancellation of green technology projects, impacting the STS segment.
NASA Funding Delays: Funding and decision delays at NASA have impacted the Science & Space business, reducing new award activity and revenue generation.
Department of War Strategic Shifts: Strategic shifts by the Department of War, including reductions in operational tempo in the European Command Theater, have reduced revenue in the Readiness and Sustainment business.
Protests on Contracts: An increase in contracts under protest, now totaling $3 billion, has delayed revenue conversion and created uncertainty in the Mission Technologies segment.
Shutdown Impact on NASA: The government shutdown has exacerbated funding and decision delays at NASA, further impacting the Science & Space business.
Revenue Guidance: Updated revenue guidance for 2025 to a range of $7.75 billion to $7.85 billion, with an updated midpoint of $7.8 billion, reflecting flat growth.
Profit Metrics: Reaffirmed adjusted EBITDA guidance of $960 million to $980 million and adjusted EPS guidance of $3.78 to $3.88 for 2025.
Operating Cash Flow: Reaffirmed operating cash flow guidance of $500 million to $550 million for 2025, with 96% of the midpoint already achieved year-to-date.
Government Shutdown Impact: Assumes the U.S. government shutdown will be resolved in November 2025. Minimal impact expected on revenue in November due to essential work and funded backlog stability.
STS Revenue Growth: STS revenue growth outlook for 2025 has been impacted by delays in project conversions, but modest improvement is expected from Q3 to Q4.
MTS Revenue Growth: MTS revenue growth outlook for Q4 is modestly lowered due to delays in new awards and resolution of protests caused by the government shutdown.
Spin-Off Timeline: The spin-off of the Mission Technologies segment is targeted for completion by mid- to late 2026, with preparations advancing according to plan.
Dividends: Dividends add another $60 million in capital returned to shareholders on a year-to-date basis.
Share Buybacks: We have deployed over $300 million for buybacks so far this year, amounting to 4.5% of outstanding shares removed over the course of this year.
The earnings call presents mixed signals: revenue guidance was lowered, but EBITDA and cash flow targets remain unchanged. The STS segment shows potential growth, particularly in LNG projects, and there are opportunities in defense spending. However, uncertainties in NASA funding and strategic shifts in the MTS segment present risks. The Q&A reveals optimism for 2026, but concerns about budget pressures and unresolved protests. The market reaction is likely to be neutral, balancing positive prospects in defense and energy with revenue guidance cuts and NASA uncertainties.
The earnings call presents a mixed picture: strong financial performance with revenue and EBITDA growth, but uncertainties like NASA funding and protest delays. The Q&A reveals confidence in future targets but lacks concrete evidence. Shareholder returns are positive, yet HomeSafe losses and geopolitical risks weigh down sentiment. Overall, the market may react with caution, resulting in a neutral stock price movement.
The earnings call summary reveals strong financial performance, including a 13% revenue increase and a 27% rise in adjusted EPS. The strategic acquisition of LinQuest and significant contracts bolster future growth. The dividend increase and substantial share buybacks reflect confidence in the company's outlook. While there are competitive pressures and energy transition challenges, the management's focus on defense aligns with the new budget, and guidance remains optimistic. The Q&A section supports a positive outlook, with expectations for resolution of award protests and increased LNG activity.
The earnings call summary reveals strong financial performance, with revenue, EBITDA, and EPS showing significant year-over-year growth. The Q&A section highlights confidence in backlog growth and defense budget alignment, despite some energy transition delays. The increased dividend and substantial share buybacks indicate a positive shareholder return plan. While there are uncertainties in troop support and LNG project timelines, the company's strategic acquisitions and partnerships, along with optimistic guidance, suggest a positive outlook. These factors collectively point to a likely stock price increase in the short term.
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