KBR, Inc. Q2 FY2025 earnings call

• Safety: Brown & Root joint venture won top safety award for Large Contractors. • HomeSafe: U.S. TRANSCOM terminated the HomeSafe Alliance JV contract; company is disappointed but refocusing on core business. • Q2 Performance: Revenues $2 billion, adjusted EBITDA $242 million, margin 12.4% (up 70bps y-o-y). • Growth Strategy: Focus on customer simplicity, key geographies (Middle East), and capital allocation. • Recent Wins: MTS won subcontracts for psychological health services, Djibouti operations, Air Force contracts, and LOGCAP V extension. STS won ammonia/urea complex award, FEED contract, BP projects, and plastics recycling plant technology license. • Pipeline: MTS has $19 billion in bids awaiting award (72% new business); STS pipeline robust with over $4.5 billion in Q3/Q4 opportunities. • Middle East Focus: Strong presence in Iraq, Kuwait, UAE; focus on customer intimacy and local value creation. • Defense Budget: Reconciliation Act provides $1T defense budget; KBR positioned to benefit from RDT&E, O&M, NASA, and international defense spending. • MTS Objectives: Realign resources, accelerate digital solutions, strengthen gov relations, expand int'l markets, drive operational excellence.

For the MTS segment, revenues were $1.4 billion, up 7% year-over-year with adjusted EBITDA of $141 million, up 6%, and margins at 10% flat. Defense and Intelligence within MTS saw strong growth of 21% due to the LinQuest acquisition and international growth, while Readiness and Sustainment contracted due to a European theater slowdown and logistics pause. The STS segment had revenues of $540 million, up 2% year-over-year, with adjusted EBITDA of $129 million, up 17%, and a margin of 23.9% driven by unconsolidated joint ventures, particularly in LNG performance.

• Revenue guidance revised from $8.7B-$9.1B to $7.9B-$8.1B midpoint $8B, removing HomeSafe ($400M), EUCOM/Ukraine work ($250M), and protest delays ($250M). • Adjusted EBITDA outlook unchanged; cash flow guide $500M-$550M unchanged. • Long-term targets for 2027: MTS revenue CAGR 5%-8%, STS 11%-15%, adjusted EBITDA $1.15B, operating cash flow $650M, MTS margin 10%+, STS margin 20%+.

• Geopolitical volatilities (e.g., Middle East tensions) causing delays in award cadence. • Prolonged protest resolutions affecting revenue recognition. • Impact of HomeSafe wind down on historical performance and future expectations.

Q: What were the key upside and downside risks considered in setting guidance?

A: Key factors include conversion of pipeline, funding flow from Reconciliation Act, and geopolitical movements. Downside risks include geopolitical disruptions affecting award timelines.

Q: On Sustainable Technologies, how is the new normal affecting revenue targets?

A: New normal relates to geopolitical shifts and market volatilities, but cadence of awards expected to pick up in Q2 with recent announcements.

Q: On MTS, should we anticipate a more robust second half bookings environment?

A: Expect pickup in award cadence as reconciliation budget fructifies, with budgets particularly supportive; protests and gov office changes are timing challenges but targets are achievable if pipeline converts.