Kbr, Inc. (KBR) Q2 2027 Earnings Call Transcript

Hello, everyone. Thank you for joining us, and welcome to KBR's second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Rachel Goldwaite, Head of Investor Relation. Rachel, go ahead.

Thank you, and good morning. Welcome to KBR's second quarter 2026 earnings call. Joining me today are Stuart Brady, President and CEO, and Shad Evans, Executive Vice President and CFO. Stuart and Shad will cover highlights from the quarter, and then we'll open the line for your questions. Today's earnings presentation is available on the Investor Relations section of our website at kbr.com. As outlined on slide two, today's discussion includes forward-looking statements and certain non-GAAP financial measures. Additional information, including reconciliations to the nearest GAAP measures, can be found in the presentation appendix. With that, I'll turn the call over to Stuart.

Thanks, Rachel, and good morning, everyone. I will pick up on slide four. Now, before we get into the meat of the presentation, I wanted to briefly highlight a 2025 Sustainability and Corporate Responsibility report, which we published a few weeks ago. This is our fifth year issuing report and it reflects an important part of how KBR operates. Sustainability, safety and responsible delivery are embedded in how we manage risk, develop our people and of course deliver for our customers. This year's report highlights record safety performance, continued progress against their environmental commitment, and 35% of revenues focused on sustainability. As we move toward operating as two companies, that operating discipline will remain an important part of the culture and the value proposition of both businesses. On to slide five. Today we will focus on our key messages. First, we delivered a strong first half for the results backing slightly ahead of our plan cadence. Second, we have strong visibility across both the businesses supported by record backlog in STF and significant awarded work in MTF that has yet to be reflected in backlog. Third, our plan separation remains firmly on track with transaction, leadership and day one readiness milestones continuing to advance. And finally, we are reaffirming our 2026 guidance and remain focused on execution, cash generation, disciplined capital allocation and of course a successful. separation. Moving to slide thick. This slide highlights our progress against the four strategic pillars that continue to guide KBR. I'll focus on operational excellence and capital deployment here, and then discuss growth and differentiated solutions on the next two slides. On operational excellence, we continue to execute for our customers while standing up to standalone companies. Very important. Importantly, that work has not distracted us from delivering for customers, growing the business or executing against our financial commitments. We continue to win in the market, backlog across both businesses and deliver solid performance with year-to-date adjusted EBITDA margin of 13%, 1-3%, keeping us on track for another strong year. At the same time, we're taking actions ahead of separation to reduce incremental standalone costs and mitigate dissynergies. Across both businesses, we are simplifying organizational structures, driving productivity and increasing accountability so that each company enters 2027 with a leaner cost base and stronger margin potential. For Spinco, the priority is establishing a standalone public company while maintaining competitive rates and preserving our position across both cost plus and fixed price opportunities. Our objective remains rate neutrality and we continue to make good progress towards that goal. For New KBR, we're building a lean scalable organization that can support future growth while maintaining strong margins and disciplined cost management. Next, on capital deployment, we continue to allocate capital in a disciplined manner, investing roughly $190 million in the first half to strengthen the portfolio while also returning an additional $71 million to shareholders through dividends and share repurchases, bringing total capital deployed to $261 million. We remain focused on maintaining the flexibility needed to support separation, invest in growth, and pursue attractive value creation opportunities. In short, we're executing the strategy, preparing both companies for a successful separation and positioning each business to create greater value as a focused standalone company. With that as a backdrop, let's move to slide 7 and discuss the SDS business. The demand trends we discussed last quarter continue to strengthen during the second quarter, reinforcing our confidence in the long-term app for sustainable tech. Demand remains broad-based across energy security, food security, and sustainability-focused investments, supported by both new project activity and long-standing customer relations, very important. Those market dynamics continue to translate into strong commercial results. Second quarter book-to-bill was 1.5 times, and trailing 12-month book-to-bill was 1.3 times. and backlog end of the quarter at a record $5.5 billion and that is up 40% or 0% year over year. In addition, our near-term pipeline now exceeds $6 billion excluding large reimbursable LNG EPC opportunities which grew the numbers significantly. Importantly, work already under contract represents approximately 80 percent of a 2026 revenue guidance midpoint we're also seeing an increasing mix of opex related work approximately 34 percent of year-to-date bookings were tied to opex-based contracts with activity across both the middle east and the americas through brown and rude these contracts are generally longer in duration and further enhance the durability visibility and resilience of the business. We remain encouraged by the level of OPEX-related opportunities moving through the pipeline. The Middle East remains a significant growth driver where first-half bookings exceeded $900 million across oil, gas, NGL, and energy infrastructure projects. We are also seeing encouraging momentum across our technology portfolio, including our first commercial pure SAF license awards, and continued demand for our market-leading ammonia technologies, including the recent PAMPA Energia Award in the Americas. More broadly, many of these opportunities build on relationships that begin with technology licensing, studies or engineering services, and ultimately expand into larger project execution or aftermarket scopes, creating additional revenue opportunities while improving long-term visibility. Taking together, we believe SDS remains well-positioned for continued growth and provides strong visibility into future revenue and earnings. On to slide eight. Turning to MTS, we continue to see strong demand across our defense systems modernization, base and global mission operations businesses. Our strategy remains focused on combining trusted mission expertise, customer intimacy, and differentiated technology solutions to address some of our customers' most critical priorities. That demand is supported by strong visibility into future performance. Approximately 94% of our full-year revenue guidance is already under contract. We have roughly $10.4 billion awaiting award, and we expect more than $25 billion of bid volume in 2026, and that's up approximately 50% year-over-year, with significant submissions in the second half. Second quarter, Book to Bill was 0.8 times, with a trailing 12-month ratio of 1.0 times. Importantly, those metrics do not yet reflect approximately $10.6 billion of awarded work currently under protest, including the National Science Foundation Antarctica Award, the Department of State Award in Iraq, and the Classified PACOM Logistics Award. As a result, we believe reported backlog and book-to-build do not fully reflect the level of awarded work and future revenue visibility in the business today. While the timing of protest resolutions remain outside our control, these are awarded programs supporting enduring customer priorities. More broadly, our success continues to be driven by the mission expertise and customer relationships we've built over decades. The National Science Foundation Antarctica award is a really good example. While NSF was a new customer for KBR, the award reflects several years of engagement, mission understanding, and demonstrated technical capability, highlighting the differentiated approach that continues to create opportunities across the portfolio. We are also increasingly embedding software, AI, and digital capabilities into missions we already support, helping customers modernize operations, improve decision making and deliver faster outcomes. We also see opportunities to support emerging priorities such as Golden Dome where KBR already supports customers across many parts of the broader mission environment. In short, demand remains healthy across our global market. Visibility remains strong and our differentiated capabilities continue to support long-term growth. As we prepare to launch this business as a standalone company, we're also taking an important step in establishing its identity in the market. Now let me turn to slide 9 and introduce the new name for the MTS spinoff. enough. Trinsic. The name is inspired by the word intrinsic and reflects essential built-in capabilities and deep, deep expertise. Trinsic harnesses the power of technology to support governments, partners and allies across national security and space. We work at the frontier of what is technically possible, bringing new capabilities to the systems the world depends on and giving customers the confidence to act. The tagline for Twinsic is, The Bold Connected. And I think this captures the essence of the business. Twinsic designs solutions that hold up when there is no margin for error and in environments where critical systems must perform. Just as importantly, Twinsic gives us the opportunity to tell the story of how this business has evolved. While our foundation remains our deep expertise and trusted performance, today's intrinsic is increasingly defined by the way it connects people, technology, and critical systems with speed, precision, and rigor. We believe the brand better reflects both the company we are today and where we are headed now. Very exciting. It also reflects a culture built around collaboration, accountability, and delivering results. As we've discussed on today's call, this business is entering its next chapter with strong customer relationships, differentiated capabilities, global reach, and significant growth opportunities up ahead. We believe Trinsic reflects both our heritage and our exciting future, bringing intrinsic value and advantage to customers. On to slide 10. We continue to execute well against our separation plan and remain on track to complete the spin on a target date of January 4, 2027. On transaction readiness, we continue to make progress across key regulatory and transaction milestones. We submitted our final private letter ruling request to the IRS in June and expect a final ruling in September. We also continue through the SEC review process for the Form 10 with a public filing expected ahead of our NIC earning call. Operationally, the work is shifting from planning to execution. IT systems, contract bifurcation, procurement separation, corporate budgeting and organisational design are all progressing against plan. Corporate employees have been aligned to their future organisations and the teams focused on filling the remaining critical roles so both companies are ready to operate effectively from day one. We're also building up the intrinsic leadership team Michael LaRoche will join as CEO designate in September Bringing nearly 30 years of experience across defence, intelligence, space, cyber and government services Nick Vesey joined as CFO designate earlier this month With deep experience across finance, capital markets, M&A and investor engagement The majority of the Trinsic leadership team is now firmly in place, and the boards for both companies are taking shape as we assemble the skills necessary and the experience needed to support each company's stand-alone strategy. Looking ahead, we're excited to host Investor Days in New York for both New KBR and Trinsic, where we will outline the standalone strategies, the financial framework, and the long-term priorities for each business. Overall, I'm pleased to report the separation is progressing well, the Leadership Foundation is taking shape, and we have strong visibility into the key milestones required to successfully launch both companies. With that, I'll hand over to Shad.

Thanks, Stuart. I'll pick up on slide 12 with our consolidated second quarter results. Revenues for the quarter were approximately $2 billion, up $32 million, or 2% from prior year. As a reminder, this was the final quarter lapping elevated EUCOM contingency activity in 2025. Excluding that work, revenue increased by approximately $91 million, or roughly 5%, driven by continued ramp-up on recently awarded projects across both segments. Adjusted EBITDA increased $16 million to $258 million, with adjusted EBITDA margins expanding approximately 60 basis points to 13%. Performance was driven by strong project execution, favorable portfolio mix, and disciplined cost management across the business. Adjusted EPS increased $0.08 to $0.99, driven by strong operating performance, lower below-the-line expenses, and lower diluted share count resulting from our repurchase activity. Turning to cash flow, first half adjusted operating cash flow was $183 million, representing adjusted OCF conversion of approximately 74%. As expected, second quarter cash flow reflected collections timing in STS, Middle East. Collections have started to normalize in July, and our full-year outlook remains unchanged. Overall, we are pleased with the first half performance. We delivered profitable growth, expanded margins, and continued to see healthy momentum across both segments as we enter the second half of the year. Turning to slide 13, I'll walk through segment performance. Beginning with sustainable technology solutions, revenue increased 60 million or 10% year over year to 676 million, driven by continued ramp up of projects awarded over the past 12 months, with particularly strong growth in the Middle East, Latin America, Asia, and Australia. Revenue also increased 8% sequentially, reinforcing our confidence in delivering mid-teens revenue growth for the full year as project activity accelerates in the second half. Adjusted EBITDA was $123 million, down $11 million from the prior year due to project mix. This quarter included a higher proportion of equipment procurement activity, which carries margins at the lower end of the framework we outlined last quarter. This impact was partially offset by strong project execution and continued healthy demand across the portfolio. Adjusted EBITDA margin was 18.2%, while adjusted EBITDA margin excluding LNGJV earnings was approximately 13%. Importantly, year-to-date adjusted EBITDA margins excluding LNGJV earnings remained approximately 14.5%, demonstrating the underlying earnings power of the business and keeping us on track to achieve our full-year outlook of mid-teens, excluding LNG JV earnings. Turning to Mission Tech, revenues were $1.3 billion, down $28 million from prior year. Excluding UConn contingency activity, revenues increased approximately 31 million, or 2%, reflecting strong activity in Australia and the UK, partially upset by project completions in the U.S. Adjusted EBITDA increased $22 million to $158 million, with margins expanding roughly 190 basis points, 12.1%. Performance benefited from favorable mix, disciplined cost management, and benefited from contract closeouts. Year-to-date margins of 11.4% remain modestly ahead of our full-year outlook. Overall, we were pleased with the segment performance during the quarter. Both businesses continued to execute well, deliver profitable growth, and maintain strong momentum as we move through the back half of the year. Turning to capital allocation on slide 14. Net leverage ended the quarter at approximately 2.3 trailing adjusted EBITDA, flat sequentially and comfortably below our 2.5 target. As working capital normalizes and cash generation strengthens in the second half, we expect leverage to continue trending downward through year end. We also maintained a disciplined approach to capitalization, repurchasing approximately $25 million shares during the quarter while preserving ample liquidity. As we prepare for separation, we remain focused on positioning both companies with capital structures and financial flexibility needed to execute their growth strategies and create long-term shareholder value. Overall, we're confident in the strength of our balance sheet, our capital allocation framework, and the readiness for both businesses as we move towards separation. On to slide 15. Today, we're reaffirming our full-year guidance across revenue, adjusted EBITDA, adjusted EPS, and adjusted operating cash flow. The business continues to perform in line with our expectations, supported by strong execution, a healthy demand environment, and strong revenue visibility.

Approximately 89% of our expected revenue for the year is already in hand, including 80% for STS and 94% in MTS. given our first half performance and the strength of our backlog we remain confident in our ability to deliver on our full year outlook with that i'll pass it back to tour thanks sad and to wrap up on slide 16 there are four key takeaways from the quarter first we continue to execute at a high level across both businesses first half results demonstrate the strength of the portfolio profitable growth, margin expansion and solid momentum heading into the back half of the year. Second, demand remains healthy and visibility remains strong. Across both businesses, we're supported by substantial backlog, significant awarded work and a healthy pipeline, giving us confidence in both our near-term outlook and our longer-term growth opportunities. Third, confidence in the separation continues to build. Transaction milestones are progressing as planned, operational readiness is advancing, and we're increasingly shifting from planning to execution as we prepare for day one. And finally, we're positioning new KBR and Trinsic as two focused, highly differentiated companies with strong market positions, disciplined operating models, and a clear path to long-term value creation for our shareholders. With that, I'll hand it back to the operator who will open the call for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mariana Perez Mora with Bank of America. Mariana, your line is open. Please go ahead.

Good morning, everyone.

Morning, Mariana.

So my first question is, you mentioned, TrinSec is out there. New name, everything is on track, even a strong management team designated. Now, you mentioned about, like, this financial structure and the financial capability for both these businesses to be able to pursue their goals. How should we think about that broadly?

I mean, we're setting both businesses on the right path. Mariana, you'll have seen the book to build, particularly in SDS, very strong. And obviously the awards, when you link in what's under protest and MTS, I think both businesses heading very strongly towards the year end with momentum as they look to separate. I guess the whole piece around where the businesses are looking to operate is being de-risked as we progress towards the spin date. So that operational readiness was mentioned in the prepared remarks is key there and we continue to progress on all fronts. in terms of capital structure going forward we're very clear that both would have normative sort of leverage ratios for their businesses uh given where our balance sheet sits today i think you can translate that quite clearly and we've communicated that historically and pleasingly both uh on a year-to-date basis are performing at the margins levels we expected and our commitment was that we would not distract the core business while we said about the sort of spin separation process which in truth is a is a heavy lift so we had a dedicated team focused on doing that and we've made significant progress in both counts not just with a spin but actually delivering on the commitment not to distract the business and i think the underlying performance represents that but of course we've got investor days our capital market days coming up in november that will really be the the time where we i guess set out our stall in terms of i guess the investment thesis for both businesses which will be different uh and unsuitable for the standalone business case that makes sense great thank you and then on sts or the new carrier um how should we think should we think about the volatility of the margins in terms of on a quarterly basis

going forward especially as you have like more i don't know pass-through materials in a quarter or capex versus opex mix. How should we think about that volatility going forward and the trend from the mid-teens, I don't know, three, five years from now?

Yeah, I think we'll get into the longer-term margin profile during Investor Day, but what I'll say, Mariana, as it relates to 2026 is the full-year margin outlook for STS remains unchanged. The quarterly variability that you see and the P&L this quarter is normal, right? It reflects the sort of project mix, particularly the procurement content that moves through the STS segment in a very normative way. We've seen that pattern very clearly historically and this quarter is no different. But also say as importantly, that this year, the year to date margin performance X LNG equity and earnings is 14 and a half percent, which again is consistent with our expectations and puts us in a wonderful position to deliver on the full year commitments and STS.

Your next question comes from the line of Ian Zafino with Oppenheimer. Ian, your line is open. You may now go ahead.

Hey, good morning. This is Isaac Salazar on for Ian. Thanks for taking the questions. My first is just on STS. As far as the awards, you know, the first half of the year, maybe you could talk a little bit about geographic mix.

It may be specific to the Middle east awards maybe how that has trended compared to expectations and if you're still seeing maybe any customer uncertainty uh with oil and gas customers at all thanks yeah good good question and we've seen quite a sort of global mix in our award cadence uh i think last quarter we saw significant awards in the middle east and we touched on that last quarter uh this quarter if you if you look at the uh the slides you'll see 54 of the awards were actually in the americas this quarter uh and that's across a range of uh technology sales and we we announced the pamper award in argentina uh and obviously we've got ongoing work in mexico again in lng but also in the services business as well as the asset services business so a good a good mix there with uh the middle east coming in somewhere around the sort of 25 26 percent uh so again good good continue momentum in the middle east but it's very much a global business we've talked about this many times and that's why we we lay out the where we've won the work and it it will vary quarter to work quarter to quarter in terms of your question on the middle east itself we've seen although there's increased i guess activity and in and around the middle east as it relates to the war we haven't seen any disruption to our ongoing work we did say that in q1 i think people probably were looking at that as to how can that be but we continued to continue for deliver for our customers through that period and uh you know our personnel are in place and continue to do the work and our customers really really appreciated that through uh through q1 and certainly that is the case as we as we had headed through the second quarter into q3 so no real disruption there the one anomaly and we did mention this last quarter is in these times of uh volatility like that you do get slower payments and we were seeing signs of recovery there as we entered into the end of the quarter uh but of course we're now entering another period of volatility so uh there may be some disruption to cash but but overall in terms of revenue and ebitda performance uh and and the customers are paying eventually and and so we expect to catch up as we progress so in in in terms of the full year outlook that's why we've maintained guidance uh in cash because we do expect for that to uh to come back to normative level so no real disruption really is the message thanks for that and then just as a quick follow-up you know as far as preparing the two businesses ahead of the spin that you talked about simplifying the cost structure um maybe if you could just give a brief overview of what what there is left to do ahead of the spin and then if you are able to provide any details as far as potential run rate savings of those kind of cost actions or anything like that thank you so i we we touched on this a little bit in prepared remarks but uh as i said before we're making good progress on standalone costs across both businesses uh and obviously we're not waiting until separation to address this uh we're well ahead of the game so the actions were taken today including some of which you saw uh in in in the earnings around real estate rationalization this quarter and you'll see that in the quarter through the lease impairments we continue to simplify our footprint and position both companies for day one so overall we're feeling really good about where that's tracking for intrinsic the objective is rate neutrality so we're designing the company really to fit within the cost structure that's already embedded in our rates today and that's really important not only from a cost plus perspective but also to ensure we remain highly competitive on fixed price opportunities as the business transitions to a standalone company it's a real good progress there and that's really been our core principle of our planning from the start and we've made significant moves within intrinsic towards that goal on the new kbr side we continue to build a fit for purpose organization and what does that mean it means reducing complexity simplifying how we operate building strong digital backbone that drives greater efficiency across the business and we really do see meaningful opportunities to operate more effectively as a focused standalone company so as we mentioned last quarter we'll have more to say about both companies cost structures their operating models and the path forward at upcoming investor days but sitting here today really encouraged by the progress we're making and remain confident in the approach we're taking your next question comes from the line of

toby summer with truest securities toby your line is now open please go ahead hi hi everybody it's henry on for toby here um just to start with on the on the guidance and um really looking to the The second half on the margin side, you know, your guys' reiteration implies, you know, pretty meaningful step down in margins from the first half. Can you just kind of remind us and walk through the puts and takes there and kind of any, you know, any potential upside to our guidances now?

Yeah, so first I'll say, Henry, we're really encouraged by the first half performance and believe it really reinforces our confidence in the full year outlook. As we said in the prepared remarks, our visibility remains really strong with the work under contract in hand. both for STS and MTS. That said, we're only halfway through the year. And so while we're tracking ahead of plan on awards, we still believe that the 12.4% aggregate margin for the full year puts us in a solid position to deliver across the board on our EBITDA and EPS commitments. And so again, while we're tracking a bit ahead of plan, there's still quite a bit ahead of us in terms of awards program activity execution milestones and of course the washington dynamics that need to play out over the balance of the year so given that uh probably getting to perhaps the intent of the question that's why we're reaffirming rather than taking an alternative approach today that's understood thank you thank you for that um and then switching to the sts side you know you got some good announcements um in that business recently but uh could you just maybe you frame up kind of those from a financial perspective with the you know the plans roll off of Plaquemines next year and kind of how you're working to bridge that gap going into

2027 thank you sure first we're not looking for a single project to replace Plaquemines we've talked about that before and that's not how we manage the business what gives us confidence are the leading indicators and they're clear for all to see the quarter to date book to bill was 1.5 but importantly a trailing 12 month book to bill is 1.3 so backlog is roughly up 40 percent year over year that's a big number and our two-year pipeline has grown about 6 billion and that excludes obviously any large lng reimbursable ebc opportunities as i said in the prepared remarks so but just as importantly the end markets we serve continue to be very strong long very global and we're seeing demand driven by energy security no surprise there food security as it relates to ammonia and urea and fertilizer and resilience and increasingly complex worlds and so we're also seeing a number of awards in and around Europe and Asia in particular around sustainability focused solutions so again a good good set of opportunities in that in that realm so while plaquemans will naturally wind down over time as we said before it does go through the first half of 27 we feel good about the growth outlook for sds because it's being supported by a broad set of opportunities not a single project and obviously we've got invested coming up who will will give you more detail and and give you a deeper dive into that but yeah we're feeling pretty good about how we're addressing that, the challenge of backfilling placements. Thank you.

The next question comes from Jerry Revich with Wells Fargo. Jerry, your line is now open. Please go ahead.

Hi, good morning, everyone. This is Andrew Ozzie on for Jerry Revich. I just wanted to ask maybe, you know, you discussed adding more than a couple thousand employees for the recent awards last quarter. Any update on how many are onboarded, how quickly they're becoming billable? and what the revenue runway for some of these Middle East ramp should contribute exiting the year?

Yeah, so you're quite right. We announced, I think, over 1,000 people or so joining, and that number's well above that today, and they're onboarded and working for us in the Middle East right now. So we've made great progress and been able to staff up the projects that we secured earlier in the year, you know that SDS revenue growth for the year is in the mid-teens, and that ramp-up supports that growth. And so both of those numbers align well, and we continue to be confident of our outlook for the full year.

I appreciate that. And you also flagged potential cash flow volatility from the Middle East. Can you quantify if that actually occurred and the actual impact and whether that's timing or structural and give us a recovery cadence through the year end?

Yeah, so again, as Stuart mentioned, we did flag the expected cash performance being largely timing from Middle East payments due to the conflict. But as he said, we have seen conditions improve as we exited the quarter. And as a result, we do view this purely as a timing issue rather than a change in the underlying cash generation profile of the business. And again, to be determined as and when this conflict will be resolved, that our view is that the full year cash flow from a guidance perspective remains unchanged.

Your next question comes from the line of Adam Boops with Goldman Sachs. Adam, your line is now open. Please go ahead.

Hi, good morning. This is Anuj on behalf of Adam. So quickly wanted to ask that on the MTS segment, margins were up 12% in this quarter. So can you pass out what in the portfolio is driving the strong execution? And also, I think in the past, you have framed MTS margins to be roughly around 10% or more on those lines level. Is that still the right way for us to think about the run rate? Thank you.

So as we've demonstrated before, favorable contract closeouts are really a normal part of managing a large and complex global portfolio. So the resolution this quarter was really consistent with our expectations and reflects the discipline contract management, customer engagement and risk management practices that are embedded across really both segments. As I said in my prepared remarks, margins to an MTS are running a bit higher this year at about 11 percent on a year to date basis. which is ahead of our planned outlook, but we still believe that the long-term 10-plus percent margin targets that we've given are an appropriate way to model this business, at least through the end of the year.

Got it.

And on the recently awarded $8 billion Antarctic science project, how should we think about the annual revenue run rate, the margins, and what's the RAM profile like in the early years? yeah so the it's 8 billion over 20 years and it will ramp up uh over the first couple of years i think we don't know until we get into the meat of this in terms of the run rates i guess the best guide is to look back at what the incumbent is running at and that's somewhere around oh i mean it's quite a range they're looking depending on the years about 150 to 300 million uh depending on the uh on the particular year uh as i say we we can't we can't give a guide on that until we are officially on the job and we start to see that and and the incumbent sort of run rates are probably the best way to do it uh and yeah as i say that's the sort of range that they're running at your next question comes from the line of michael dundas with vertical research partners Michael, your line is now open.

You may please go ahead.

Good morning, Rachel, Shad, Stuart. Hey, Mike. So, encouraging on the progress on the spin moving forward, maybe a step back, Stuart, looking at the new KBR after the spin is complete, what have you found in doing an assessment of the business model, about where the company is positioned or was part of the company together and its standalone opportunities. On the OPEX front, are you encouraged about some of those opportunities there and is there any emerging technologies or opportunities within the portfolio that might be starting to get more visibility over the next couple of years relative to the core certainly the ammonia stuff and and some of your own hydrocarbon hypercarbon technologies that you're well known for thanks mike that's a it's a big question with probably uh we don't have enough time to talk about all of it on this call i'll touch on a few areas uh they i mean we've got obviously emerging tech that we're very excited

about that we'll talk about how we are good at actually acquiring that at fairly low multiples and then commercializing over time. And we'll give you some examples of that in November at the Capital Markets Day. So that's an exciting, I think, growth opportunity. We're very excited across both businesses and what we're doing for AI. We actually see AI creating genuine customer our demand. As it relates to SDS, we're probably most excited about combining our engineering expertise with physics-based AI, really to drive market-leading operational performance. And initially, we're test casing that on our licensed ammonia plants and now have two customers running that for us. And we'll be able to give you an update again at Investor Day about how that can impact kbr going forward and uh and really position us opposite that operations and maintenance portfolio that has different commercial advantage uh and i think the the last piece and that we're quite excited about is the broader based opportunity and in in in the markets where we are very good at going in early uh and the geographical expansion uh and the relationship base that we have really creates quite high buyers to entry. And again, we'll touch on that as we get to invest today. So I think having a more focused management team who wake up every day thinking about this will really drive significant opportunity for the business. We're delivering well today and we're increasing backlog and the pipeline is super, super strong and our reputation in the market for delivery which i'm really proud of our people do an amazing job every single day across both businesses and so i think that will you know create tangible opportunity and increasing momentum as we we head into 27 so so all up i think that's probably enough for today on that mike if you don't mind and uh but i think you can tell we're excited about the potential growth drivers and the potential of margin enhancement over time No, Stuart, we are looking forward to November 11th, I guess that's the STS day.

Just a quick follow-up. Maybe if there's something to call out on, I think you mentioned $6 billion in pipeline for STS.

Anything to call out there that we should look at or think about and maybe a quick update on plastics recycling and how those projects are going? so on the pipeline itself it's it's very much similar to the way that we've performed i think over the last two quarters it'll be a mix of capex and in europe uh a mix of capex and opex in the middle east uh and capex in america's and australia and the capex embraces obviously technology sales uh and you know proprietary equipment that are associated with that given the the nature of that business so it will be it won't be in one region it will be broad-based uh and and and so it's i don't really i can't really go into specifics on the pipeline uh but we're you know our conversion rates remain very high and and you know our positioning and our thought process is about where we actually bid and who we bid to and because of our differentiation or our ability to win really are sort of bearing fruit. So I'm very, very upbeat about the quality of earnings associated with that pipeline. And we again, we will see that progress into next quarter, as we expect because of the scale of the pipeline. In terms of plastics recycling, they continue to, to make pretty reasonable progress. It's slower than anyone really wanted in in moora in teesside in england uh they've got their final technical solution in terms of being able to run the plant continuously uh and and you know that goes on stream nowish actually so we should be able to give an update in q q3 earnings as to the progress there and they've got a project pipeline that's quite exciting that uh uh looks at uh potentials in and around Europe and in Asia. And those are moving along quite nicely. And we, again, will give an update on the whole Moora situation as we get to invest today. I think it's a good part of our technology development story and our sort of investment in ventures.

We have reached the end of the Q&A session. I will now turn the call back to Stuart Brady for closing remarks.

Thank you very much. so a few final thoughts just to close so when we announced their intention to separate the company we truly believe kbr contained two very high quality businesses that could create value as focused standalone companies than they could together and as we've moved through the separation process, that conviction has only strengthened. In sustainable technology solutions, as you've heard today and can see, we're seeing strong demand. We're at record backlog and there's growing visibility supported by long-term investments in energy security, food security and sustainability. In mission tech, again, the demand remains strong. Visibility continues to build and opportunities across national security and space remain compelling today's introduction of the intrinsic brand very exciting is an important milestone and together with the leadership team that have been brought together it really marks the beginning of an exciting new chapter for the business we're excited about the opportunity for intrinsic it really gives them the opportunity to tell the story of what the business has become today and how it is bringing together together people technology and critical systems to help our customers move forward with confidence both organizations are entering this next chapter from a position of strength with significant revenue visibility strong market position and clear pass to long-term growth and just as important with amazing group of people in both organizations as we approach separation we're more confident than ever in the opportunities ahead for both new KBR and Trinsic and in the value each company can create as a focused standalone business. So thank you for your continued support and thank you for your interest in KBR today.

This concludes today's call. Thank you for attending. You may now disconnect.