Executive Summary / Key Takeaways

• KBR, Inc. is undergoing a significant transformation, culminating in a planned spin-off of its Mission Technology Solutions (MTS) business, aiming to unlock value through two focused, technology-driven entities.
• The company delivered strong financial performance in Q3 2025, with adjusted EBITDA margins up over 100 basis points year-on-year to 12.4% and operating cash flow conversion exceeding 130% year-to-date, demonstrating robust operational execution and cash generation.
• KBR's proprietary technologies, such as Hydro-PRT for plastics recycling and Pure Lithium for direct lithium extraction, provide a competitive moat, driving efficiency and positioning the company in high-growth, sustainability-focused markets.
• Despite U.S. government shutdowns and market headwinds in certain Sustainable Technology Solutions (STS) areas, KBR reaffirmed its 2025 adjusted EBITDA and EPS guidance, underpinned by a resilient business model, diversified global footprint, and strong backlog.
• The company maintains a disciplined capital allocation strategy, including share repurchases and dividend increases, while strategically investing in bolt-on acquisitions and targeting a net leverage ratio below 2.5x.

A Decade of Transformation: Forging a Technology-Driven Future

KBR, Inc., founded in 1901, has undergone a profound multi-year transformation, evolving from a traditional engineering and construction firm into a leading provider of differentiated science, technology, and engineering solutions with global scale and reach. This strategic pivot, accelerating over the past decade, has focused on moving upmarket and positioning the company in high-value areas. A significant milestone in this journey is the planned spin-off of its Mission Technology Solutions (MTS) business, announced in September 2025 and targeting completion by mid-to-late 2026. This move is designed to create two pure-play public companies, each with enhanced strategic focus, operational independence, and financial flexibility, aiming to unlock further shareholder value.

KBR's strategic evolution is deeply rooted in its technological differentiation and a keen understanding of evolving market demands. The company's core strength lies in its portfolio of proprietary technologies and advanced engineering capabilities. In its Sustainable Technology Solutions (STS) segment, KBR boasts over 85 innovative, sustainability-focused process technologies. These technologies are designed to reduce emissions, increase efficiency, and accelerate the energy transition across various industrial sectors, including ammonia/syngas, chemical/petrochemicals, clean refining, and circular economy solutions.

A prime example is KBR's exclusive global licensing and preferred engineering partnership with Mura Technology for its Hydro-PRT advanced plastics recycling technology. This technology is being deployed in three commercial-scale facilities in the UK, Korea, and Japan, with the UK and Korea plants aiming for commercial operations by March 2025. The UK facility alone is projected to recycle the annual plastic packaging waste of approximately 700,000 residents, replacing an equivalent of roughly 100,000 barrels of fossil oil. KBR has further enhanced this offering by modularizing the facility design, making construction safer, quicker, and more controllable in terms of schedule and cost, thereby extending KBR's scope in future projects. This technological edge provides tangible benefits, offering clients more efficient and sustainable solutions, which translates into stronger customer loyalty and potentially higher pricing power for KBR.

Another innovative development is the "pure lithium" technology, a partnership with GeoLith, enabling zero-emission direct lithium extraction from produced wastewater. This technology has been selected for a demonstration plant in the UK, highlighting KBR's commitment to addressing future resource demands sustainably. These technological advancements are not merely R&D projects; they are foundational to KBR's competitive moat, contributing directly to its financial performance through new revenue streams, better margins, and a strong market position in critical, high-growth sectors.

Competitive Landscape and Strategic Positioning

KBR operates in a competitive landscape alongside global engineering and services firms such as Jacobs Engineering Group (J), Fluor Corporation (FLR), AECOM (ACM), and Worley (WORLY). While these companies share overlapping markets in government, infrastructure, and energy, KBR differentiates itself through specialized expertise and proprietary technologies.

In government solutions, KBR's MTS segment, particularly after the acquisition of LinQuest Corporation in August 2024, has expanded its mission expertise in military space and digital modernization. This includes advanced interoperability and model-based systems engineering capabilities, which are critical for programs like the U.S. Space Force's Ascent 2 award, a $970 million contract where KBR leveraged its backing to displace an incumbent. KBR's long-standing and differentiated involvement in aircraft operations and missile defense provides unique insights, allowing it to serve defense customers effectively. This specialized focus gives KBR a qualitative edge in delivering superior performance in high-stakes defense missions, potentially leading to greater efficiency and stronger customer relationships compared to broader infrastructure players like AECOM.

In the sustainable technology space, KBR's integrated approach to net-zero consulting and proprietary technologies, such as its ammonia process technology, provides materially lower operating costs for clients in circular economy projects. KBR's market-leading ammonia technology was selected for seven new projects in 2024, including in Angola and Kazakhstan, demonstrating its strong market position and extensive installed base of 260 facilities globally. This contrasts with firms like Fluor, which emphasize broad construction capabilities, or Worley, which focuses on resources and mining. KBR's unique value proposition in proprietary process technologies gives it a distinct advantage in chemical and fertilizer solutions, though it may lag in broader commercial construction or resource sector penetration.

KBR's strategic response to competitive forces also includes geographical expansion and deepening customer intimacy. The Middle East, for instance, has been a core growth region, experiencing 20% growth on a trailing 12-month basis. Countries like Iraq, Kuwait, and the UAE are investing heavily in energy security, economic diversification, and digital infrastructure, areas where KBR has a strong presence and a robust pipeline of opportunities. This global network and localized expertise allow KBR to offer tailored solutions and maintain a resilient business model, leveraging its asset-light structure and flexible cost base.

Financial Performance and Outlook

KBR's financial performance in 2025 reflects both strategic execution and adaptability in a dynamic environment. For the nine months ended October 3, 2025, KBR reported revenues of $5.901 billion, an increase of 5% from $5.602 billion in the prior year. This growth was primarily driven by increases in defense and intel programs due to the LinQuest acquisition in MTS and increased engineering and professional services in STS, partially offset by reduced activity within the European command in MTS.

Profitability metrics highlight KBR's operational effectiveness. For the nine months ended October 3, 2025, gross profit increased by 6% to $860 million, and operating income rose by 13% to $587 million. Adjusted EBITDA for the same period was $738 million, with a margin of 12.5%. The STS segment, in particular, demonstrated strong profitability, with adjusted EBITDA margins of 23.4% in Q3 2025 and 22.5% in Q1 2025, supported by the Plaquemines LNG project and the Brown & Root joint venture. Equity in earnings from unconsolidated affiliates significantly increased by $66 million (68%) for the nine months ended October 3, 2025, largely due to the LNG project.

Cash flow generation has been a standout, with operating cash flow reaching $506 million year-to-date through Q3 2025, representing a conversion rate over 130% against net income. This strong performance is attributed to successful Days Sales Outstanding (DSO) reduction measures across both segments.

KBR has also actively managed its balance sheet, delevering to a net leverage ratio of 2.2x in Q3 2025, and remains in compliance with its financial covenants. The company's disciplined capital allocation includes returning over $300 million to shareholders through buybacks and dividends year-to-date in 2025.

Looking ahead, KBR updated its 2025 revenue guidance to a range of $7.75 billion to $7.85 billion, with a midpoint of $7.8 billion. Despite this revenue adjustment, the company reaffirmed its adjusted EBITDA guidance of $960 million to $980 million and adjusted EPS guidance of $3.78 to $3.88, along with operating cash flow in the $500 million to $550 million range. This reaffirmation underscores KBR's resilient business model and strong year-to-date performance, which has offset revenue headwinds from the U.S. government shutdown and market shifts in STS. A key assumption for this outlook is the resolution of the government shutdown in November.

The MTS segment is expected to see continued growth, particularly in Defense & Intel, leveraging increased spending in areas like Space Force and the Golden Dome missile defense program, which received $25 billion in funding from the reconciliation bill. The STS segment anticipates continued momentum, with double-digit growth aligned with its 2027 Compound Annual Growth Rate (CAGR) targets, driven by a robust pipeline in LNG, ammonia for fertilizer, and energy affordability solutions. Equity and earnings from the Plaquemines LNG project are expected to continue at a steady pace through 2026 and into early 2027.

Risks and Challenges

While KBR's outlook is robust, several risks warrant investor attention. The ongoing U.S. government shutdown, as of October 30, 2025, has caused delays in payment collections and contract awards, and its duration will impact future results. KBR currently has $3 billion in awarded contracts under protest that cannot commence until these issues are resolved, further delaying revenue conversion. Additionally, directives from the Department of Government Efficiency (DOGE) could lead to federal staff reductions and hiring freezes, potentially delaying contract awards.

In the STS segment, market shifts towards energy affordability have led to the postponement or cancellation of some green technology prospects, and geopolitical unrest in the Middle East has caused temporary project pauses. The commissioning of Mura Technology's Hydro-PRT plants has also experienced delays due to initial technology start-up issues, pushing the Wilton plant's operational target to Q1 next year. While KBR's diversified portfolio and operational agility mitigate some of these risks, they highlight the inherent volatility in global markets and government contracting.

Conclusion

KBR stands at a pivotal juncture, poised to capitalize on its strategic transformation into a high-value, technology-driven solutions provider. The planned spin-off of its Mission Technology Solutions business represents the culmination of a decade-long journey, aiming to create two agile, focused entities better equipped to pursue distinct growth opportunities. KBR's strong financial performance, marked by expanding margins and exceptional cash flow generation, underscores its operational excellence and disciplined capital management.

The company's competitive advantages, particularly its proprietary technologies in sustainable solutions and deep expertise in critical government missions, position it favorably against rivals. While challenges such as government shutdowns and market shifts persist, KBR's resilient business model, diversified global footprint, and robust backlog provide a strong foundation for continued growth. For investors, KBR offers a compelling narrative of strategic evolution, technological leadership, and a clear path to enhanced shareholder value as it advances towards its 2027 objectives.