管理層發言
Good morning, and good afternoon, everyone. Thank you for joining us for KBR's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Drew, and I will be your operator today. After the prepared remarks, we will have a Q&A session. It is my pleasure to hand over to Rachael Goldwait, Head of Investor Relations, to begin. Please proceed when you're ready.
Stuart and Shad will provide highlights from the quarter and full year and then open the call for your questions. Today's earnings presentation is available on the Investors section of our website. 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, Rachael, and good morning, everyone. I will pick up on Slide 4. As we always do at KBR, I want to start with a brief Zero Harm moment. In 2025, we delivered industry-leading safety performance with our TRIR reaching an all-time low of 0.033 and Zero Harm days reaching an all-time high at 96%. These results really reflect strong discipline and accountability across our operations. More importantly, we speak to the culture we've built inside KBR. We focus on creating an environment where people look out for one another and where safety and well-being are part of how we operate every single day. That culture is especially important as we move through the spin, and it underpins the execution and results we will walk through today. On to Slide 5. Today's call will cover these key topics. First, I'll start with how we delivered our strategy in 2025. From there, I'll touch on why we see improving momentum and visibility as we move into 2026 across both segments, including how the quality of our earnings continues to improve. It's really important. I'll provide an update on the spin itself. And finally, Shad will walk through our financial performance for the year and of course, our guidance for 2026. On to Slide 6 and strategy. So as we enter the year, I want to start with a simple message. We executed our strategy in 2025 despite a very challenging award environment across both segments. We stayed disciplined, focused on what we can control and made meaningful progress across each of our strategic pillars. Firstly, drive and expand. In sustainable tech, we continue to expand globally with particular momentum in the global South, and you've heard us say that before. We also made deliberate progress growing our OpEx-facing businesses, both organically and inorganically. And this, of course, reduces our exposure to CapEx cycles. The SWAT acquisition within our Brown & Root joint venture BRIS, which closed in January, was a key milestone, more than doubling the EBITDA of that business. In Mission Tech, we continue to leverage contract vehicles, including recent Air Force and Space Force awards, which you'll have seen, while expanding internationally and strengthening our presence in Washington. And that's to deepen engagement with both the administration and the Pentagon. Second, to deliver innovation. Innovation remains central to our strategy. In Sustainable Tech, we launched INSITE 3.0 this quarter through a new venture with Applied, enhancing operational performance across KBR licensed ammonia plants using physics-based AI. We also continue to advance Mura and other technologies as a long-term growth platform. In Mission Tech, our focus on deepening customer relationships and advancing our technology road map is paying off. Recognition as a top 10 Australian defense contractor, the Nova Excellence Award from NASA and the recent Golden Dome Shield seat all reflect progress. Post-LinQuest, the establishment of a new Chief Technology Officer role and our digital design labs are strengthening our position as a true capability partner. Thirdly, drive operational excellence. Operational execution was a clear strength in 2025. We expanded margins by more than 100 basis points and generated operating cash flow with a conversion rate of 110%, delivering over $30 million in cost savings and expect this margin and cash performance momentum to continue into 2026. And finally, deploy capital effectively. We delivered $413 million in capital to shareholders in the year, and that's the highest in the last decade, successfully integrated LinQuest and delevered the balance sheet within a year. As we prepare for the spin, we remain highly disciplined, ensuring both companies are positioned with appropriate capital structures from day 1. With that context, let's turn to our segment performance, starting with Sustainable Tech on Slide 7. 2025 was a challenging year for Sustainable Tech, marked by a sharp decline in petrochemicals CapEx and a pause in many green projects as customers shifted their focus towards affordability and energy security. Now despite this backdrop, SPS proved remarkably resilient. Margins held up well in the first half of the year, and our teams responded quickly, pivoting towards the Global South, LNG, ammonia, and OpEx-driven markets where demand fundamentals remain strong. That pivot clearly showed up in the results. We delivered strong book-to-bill in both the third and fourth quarters and exited the year with solid work under contract for 2026. Geographically, Global South was a major source of strength with wins across Iraq, Saudi Arabia, Kuwait, and Singapore. In LNG, we secured both the Abadi and the Coastal Bend front-end engineering design contracts, reinforcing our front-end positioning. And in ammonia, awards were truly global, reflecting the durability of our technology portfolio. We also continue to advance emerging technologies, including lithium extraction. And in Hydro-PRT recycling, after ongoing commissioning challenges, I'm pleased to report they are now operating continuously producing on-spec product with ramp-up expected through 2026. Now as we look ahead, our growth opportunities in 2026 are directly aligned with these same themes. To anchor that outlook, fourth-quarter book-to-bill was 1.6x with a trailing 12 months book-to-bill of 1.2x. Backlog ended the year at $4.2 billion, and that's up 5% year-over-year and up more than 20%, excluding Plaquemines LNG. Our near-term pipeline, excluding LNG, is approximately $5 billion with about 80% from repeat customers showing the relationships that we have developed over time. And work under contract covers roughly 63% of our 2026 guidance, putting us above normative levels for this business going into the year. With that, let's turn to Mission Tech and on to Slide 8. Mission Tech also faced a challenging environment, as you're well aware, in 2025, including award delays, reduced contingency activity and for us, particularly in Europe and the impact of the government shutdown. Despite those headwinds, MTS performed well. Revenue held up year-over-year, margins improved and cash performance was excellent. And this reflects a disciplined execution approach and the quality of the underlying portfolio. Strategically, we continue to move upmarket. Activity expanded with the U.S. Space Force and Air Force Research Lab, validating the LinQuest acquisition. We secured positions on key multiple award contract vehicles and defended several important recompetes, including HHPC and Tubuti. While we did lose the COSMOS recompete in 2025, this was at the lower end of margin returns within the portfolio. Importantly, there are no material recompete revenues expected in 2026, reducing near-term recompete risk. Internationally, a standout, particularly Australia, with approximately $800 million in defense award contracts and high single-digit year-over-year revenue growth. While contingency activity declined in certain areas, the broader defense and intelligence portfolio performed well, particularly in missile defense, naval air, digital engineering, and in R&D. Cross-business synergy bids are becoming increasingly important, and we have several opportunities in the pipeline that reflect a similar integrated cross-business approach. Looking ahead, the full year 2026 Defense Appropriations Act has been enacted. And MTS, we believe, is well aligned with this funding. We expect award cadence to improve, particularly in the second half of the year, supported by strong bid volume and contract vehicle leverage. To anchor that outlook, the trailing 12-month book-to-bill was 1.0. Backlog and options ended the year at $19.1 billion, and that's up 15% year-over-year with 40% funded, excluding PFIs. Bids awaiting awards totaled $17 billion with 80% of that number representing new business. We expect to bid more than $25 billion in 2026, and that will be up double digits year-over-year. Finally, work under contract already covers approximately 82% of our 2026 guidance with minimal recompete exposure. On to Slide 9. Next, I'll provide an update on the spin-off transaction, which remains an important part of our strategy to sharpen focus and drive long-term value creation for shareholders, as you're well aware. Preparations continue to progress in line with our plan and our targeted distribution is anticipated in the second half of 2026. From a readiness standpoint, we are making steady tangible progress. Carve-out audits and pro forma financial statements are underway to support the Form 10 process. As committed, we made our initial confidential filing in late December, and we currently expect to file an amendment incorporating full year audited 2025 financials in March 2026. A similar timeline is progressing for the private letter memo with the IRS, so all on track. We are also continuing to refine the transaction perimeter to ensure operational clarity and strong stand-alone positioning for both companies. And as part of that effort, we have decided to move the Frazer Nash Consultancy business and the U.K. Civil Nuclear project portfolio into Sustainable Tech. We have provided a supplemental financial information sheet for modeling purposes, and this is accessible via the QR code. And this change has no material impact on our long-term segment growth CAGRs or margins. As discussed previously, CEO and CFO recruitment efforts are underway. And in the interim, I have appointed Mark Sopp as Interim Spin CEO, leveraging his role as spin transitioning lead. And this positions Mark to effectively serve in the capacity while the search for a permanent CEO continues. These efforts, along with early branding initiatives support the future stand-alone companies are progressing in parallel with the broader separation work streams. Importantly, a dedicated spin transaction team continues to drive execution across the organization, really helping to minimize disruption to day-to-day operations while maintaining momentum. And I think you can see that in the delivery of the 2025 bottom line results. The level of internal engagement and coordination continues to build, which gives us confidence in our ability to execute the transaction effectively. We'll continue to keep you updated, of course, as we progress. And with that, I'll turn it over to Shad.
Thanks, Stuart, and thank you to everyone for joining us today. I'm excited to step into the CFO role at an important time for KBR. Microsoft built a strong finance organization and a disciplined foundation, and I'm grateful for his leadership and the opportunity to build on that work. Looking ahead, my focus is straightforward: deliver on our financial commitments, support the financing and investor milestones associated with the Spin and maintain a disciplined financial structure that advances our strategy. With that, let's turn to the fourth quarter results on Slide 11. Revenues were $1.85 billion, down $223 million year-over-year, primarily reflecting award timing in MTS and reductions in EUCOM contingency scope. More importantly, profitability and execution were strong. Adjusted EBITDA increased $12 million and margins were 12.6%, up 190 basis points, driven by disciplined program execution and favorable mix as EUCOM volumes declined from lower-margin work. Adjusted EPS was $0.99, up $0.09 year-over-year, reflecting the stronger adjusted EBITDA performance and lower share count following open market repurchases. Turning to Slide 12 and our full-year results. Revenues were approximately $7.8 billion, up modestly year-over-year despite the market volatility. We delivered strong performance in defense and intelligence programs, supported by the LinQuest acquisition, continued momentum in Australia aligned with its defense priorities, and sustained demand in STS across our engineering, professional services, and technology offerings. Adjusted EBITDA increased $100 million, and full-year margins were 12.4%, up more than 100 basis points year-over-year. As Stuart mentioned, this performance reflects prioritizing high-margin growth, disciplined program execution, and continued delivery on cost-saving initiatives across the business. Adjusted EPS was $3.93, up $0.60 versus prior year and supported by the increase in adjusted EBITDA and share repurchases, partially offset by higher interest expense and higher income taxes due to international mix in our underlying rate. That same dynamic is reflected in our 2026 ETR guidance, which I'll cover in a moment. Cash was a key highlight. Operating cash flow was $557 million, representing 110% conversion to adjusted net income. We exited the year with strong liquidity heading into 2026. Overall, revenues and adjusted EBITDA within our ranges for the year and adjusted EPS and operating cash flow exceeded the top end of our guided ranges. Turning to Slide 13. I'll focus on a few financial proof points that support the progress Stuart just outlined in Sustainable Tech. As discussed earlier, the market environment shifted materially in 2025. From a financial standpoint, STS offset those headwinds through mix, geographical expansion, and increased exposure to OpEx-oriented and structurally stronger demand areas. That operating discipline is clearly showing up in the quality of earnings. Adjusted EBITDA has grown 16% since 2023, outpacing revenue growth and reflecting improved mix and cost execution. While margins were modestly elevated in 2025, we are on pace to meet our long-term margin target of 20% plus in 2027. This performance was delivered alongside strong cash conversion of more than 80% and a trailing 12-month book-to-bill of 1.2, providing good visibility as we enter 2026. Lastly, due to the recurring nature of risk and alignment with our OpEx strategy, we plan to update our adjusted EBITDA calculation beginning in 2026 to reflect our share of unconsolidated JV operating income. Previously, risk and other unconsolidated JVs were reflected through JV net income. This change improves transparency and aligns EBITDA with how we manage the business. Prior periods will not be recast as the impact is not material. Turning to Slide 14. I'll focus on the financial implications of the Mission Tech progress Stuart just outlined. From a financial perspective, the portfolio continues to move towards higher quality of earnings, driven by mix improvements, disciplined program selection, and favorable contract structures aligned to the most durable and well-funded national security priorities. Since 2023, the integration of LinQuest, strong international execution, and a more selective business development approach have supported mid-single-digit revenue growth while improving margin quality. Importantly, that improvement has been driven by commercial acumen and contract discipline, including a greater focus on fixed price and technically differentiated work, not volume. Even with near-term headwinds from award timing and process activity, the team remained highly selective in bids and recompetes, prioritizing returns and contract terms over scale. That discipline is showing up in sustained margin performance and a robust pipeline. Against that backdrop, the business is preparing for the spin with improving economics, solid visibility, and strong alignment to long-term national security demand. Turning to Slide 15. Capital allocation and balance sheet discipline remain key strengths. In 2025, we returned a record $413 million to shareholders through buybacks and dividends, and we ended the year with net leverage of 2.2x. That reflects both strong cash generation and disciplined deployment. Looking ahead to 2026, our priorities remain unchanged. We're committed to maintaining an attractive and stable dividend through the spin transaction. And to that end, our Board approved an annual dividend of $0.66 per share or $0.165 per quarter for 2026. We also continue to invest selectively where returns are compelling. In January, we invested approximately $115 million to fund our proportional share of the SWAT OpEx acquisition with BRIS. A strategic transaction that enhances resilience to CapEx cycles and supports our OpEx expansion. As we execute this investment and absorb typical first-quarter cash uses, including incentive payments, leverage may trend up modestly in the first half of the year before coming back down below the targeted 2.5 level as cash builds throughout the year. Ahead of respective Investor Days, which we plan to conduct before the spin, each segment will assess its capital deployment priorities based on its stand-alone profile. I'll now turn to Slide 16 and our fiscal 2026 guidance. We're providing full year outlook for a consolidated company to establish a clear baseline. The stand-alone outlook to be updated as we progress towards the planned spin in the second half of 2026. With that in mind, for fiscal 2026, we are guiding revenues in the range of $7.9 billion to $8.36 billion, adjusted EBITDA of $980 million to $1.04 billion, adjusted EPS of $3.87 to $4.22 and adjusted operating cash flow of $560 million to $600 million. At the midpoint, this implies approximately 4% year-over-year growth across all key metrics. We expect transition costs related to the spin to be approximately $140 million to $180 million, inclusive of one-time IT capital costs. To ensure transparency around ongoing performance, we will introduce an adjusted operating cash flow and an adjusted free cash flow metric in 2026 that add back spin-related cash outflows, allowing investors to better assess the core cash-generating capability of the business. From a modeling perspective, the guide assumes low double-digit growth in STS at our normative long-term margins of 20% plus. MTS is expected to grow at low single digits, also at a normative margin of 10% plus, which we expect to continue to improve over time. Capital expenditures are expected to be in the range of $40 million to $50 million for the year. Our projected effective tax rate is 26% to 28%, higher than the current year, and as I mentioned earlier, primarily reflecting a greater mix of work in the Global South. Estimated adjusted share count was 127 million, which is exactly where we exited 2025. We expect revenues and adjusted EPS to be weighted approximately 46% to the first half and 54% to the second half of the year. For modeling purposes, we expect Q1 '26 to be largely in line with Q4 '25. And on a recast basis, we anticipate moderate sequential growth in MTS as EUCOM is at its base activity levels and partially offset by seasonal sequential declines in FTS. As a reminder, we will be comping against elevated EUCOM contingency in the first 2 quarters of '26, which is roughly $60 million to $70 million per quarter. Our guidance includes key assumptions that are worth highlighting given the current political and economic environment. First, we assume the resolution of outstanding protests in the first half of the year. With award cadence in Mission Tech improving as the year progresses. Second, we assume that all material programs we currently support remain in place. Should that change materially, we will, of course, update as appropriate. Third, we assume modest improvement in interest rates in the second half of the year and stable foreign exchange rates relative to current levels. In closing, our 2026 guidance reflects a disciplined view of the current environment. We entered the year with solid work under contract, strong growth momentum and a highly committed global team. And with that, I'll turn it back to Stuart.
Thanks, Shad. I'm on Slide 17 with some key takeaways, and I'll close with 4 key messages. First, we executed with discipline in a challenging environment. Despite pressure across awards and funding, we delivered results in line with our updated guidance. We expanded margins and generated strong cash and returned that cash at record levels to shareholders. That performance under pressure reflects the strength of our operating model and the quality of the people inside KBR, our teams. Second, both segments exit 2025 with improving momentum and of course, visibility. In Sustainable Tech, the portfolio is better aligned to structurally stronger demand, while in Mission Tech, margin discipline, pipeline strength, and funding visibility position the business well as award cadence improves into 2026. Third, the quality and the durability of our earnings continue to improve. Across the portfolio, we are being more selective. We're continually moving upmarket and leaning into innovation and digital differentiation. That focus is really driving better mix, more resilient margins and stronger cash generation over time. And finally, our spin-off prep is advancing as planned. We are making steady progress on separation readiness, capital structure planning and leadership and operational clarity, all with the goal of creating two focused, well-positioned stand-alone companies and, of course, delivering long-term value for our shareholders. With that, I'll turn it over to the operator who will open the call for Q&A. Thank you.
分析師問答
Our first question today comes from Tobey Sommer from Truist.
I was wondering if you could describe to us what the pipeline in STS is for sizable projects with Plaquemines closing out probably next year. Just to give us a sense for how we may be able to fill that hole and even grow.
Thanks, Tobey. That's a fair question. Regarding the book-to-bill for Q3 and Q4, our performance has been impressive across the board, especially in technology and our expanded capabilities in the Middle East. This is particularly reflected in the OpEx area, which we see as a strategic growth opportunity due to its long-term contracts providing visibility into future earnings. We started Q1 strongly with bookings in STS, which is a positive sign to share today. Looking at our broader pipeline, we have a global business with significant opportunities worldwide, including ammonia and other technologies. I mentioned Mura earlier; they are performing well and have successfully completed their 72-hour test run, even selling the product already. We expect to see that grow, as they have several projects lined up that we will leverage as both an investor and technology provider. In the LNG sector, we've made progress in Abadi, and the Coastal Bend front-end design is also in progress, along with a number of other projects that are currently confidential. It's important to note that while many focus on the equity and earnings line, seeing it primarily as the outcome of Plaquemines, we believe that BRIS will significantly contribute in this area over time. They've exceeded expectations as we approach year-end and possess a strong book-to-bill ratio. Additionally, with the integration of swap, we expect our EBITDA contribution to increase significantly, and we plan to provide more transparency on that moving forward. This will help change perceptions about our earnings quality and sustainability. I hope this provides a comprehensive overview.
It does. If I may ask my follow-up on the MTS side, backlog and options growth pretty substantial in the mid-teens and as well as the sizable awaiting award category. Maybe you could give us some color as to the drivers of the 15% growth in backlog as well as the more exciting areas where you've got bids awaiting award.
Thank you, Tobey. We have announced several successes, including HHPC and Tubuti, which offer multiple year options, enhancing our position in the market. We're particularly excited about the recent awards from the Space Force and Air Force in the higher-end digital sector, showing positive momentum. Our international portfolio has performed excellently, as highlighted in our prepared remarks. Looking ahead to next year, we have work under protest, which Shad mentioned, presenting opportunities to reach new customers and expand our influence. Our ongoing missile defense projects and collaborations with Space Force are promising, especially with the SHIELD IDIQ award that positions us well within the Golden Dome program. We've already shared tangible wins in that space, setting a solid foundation for the future. Additionally, I'm enthusiastic about our international progress, especially in Australia, where we continue to grow and have a substantial backlog from last year’s wins. The increased defense spending in the U.K. and Europe also strengthens our outlook through 2026 and beyond. Overall, we are very optimistic about our defense and intelligence portfolio in the U.S., with significant work related to the protest in the R&S segment, while our international portfolio is thriving, yielding better margins due to its commercial aspects.
So my first question is going to be to STS. And I think we and all the investment community will welcome more clarity on the EBITDA and the contribution from the joint ventures. But like in the meantime, how should we think about Plaquemines for how long it's going to contribute at these levels? And how should we think about Lake Charles or at least like Energy Transfer pausing and canceling that project and the impact to that contribution? And if we think, I don't know, 3 years from now, what are the opportunities you guys have to maintain that level of contribution from joint ventures?
That's a good strategic question, and it's probably best addressed in more detail at the Investor Day, Mariana. Ultimately, as we've mentioned before, the contribution from Plaquemines will remain steady throughout this year and into early next year. We are focused on this area and have added SWAT, while exploring both organic and inorganic growth to expand that portfolio. We'll provide further updates as the year progresses, and this part of the business is performing exceptionally well. Therefore, it will increasingly contribute to our equity and earnings, which is why we want to be more transparent to instill greater confidence in investors regarding our continued equity and earnings performance. Additionally, there is top line growth and associated EBITDA being generated from that portfolio. The book-to-bill ratio of 1.6 further showcases the momentum we are experiencing, especially in the Global South, as well as across the portfolio, which bolsters confidence in future earnings. We are optimistic about achieving double-digit revenue growth for STS going forward. We'll share more detailed information at Investor Day, but strategically, this is the direction we are heading.
And my follow-up on MTS, you talk about Australia. You have been discussing that for a couple of quarters, how strong it is. And now you talk about the U.K. How is the award environment in the U.K. in general going? Like what is your book-to-bill? How meaningful are the opportunities in the near term? And what are the expectations for growth there?
Yes, that's a good question. The award cadence in the U.K. has been slow this year due to standard defense reviews and U.S. budget appropriations that indicate spending trends. That situation is now behind us, and we can clearly see spending priorities for 2026, which gives us confidence about our position in the U.K. We'll provide more details at the Investor Day, but overall, we've emerged from a stagnant year in the U.K. and are entering a growth phase within our portfolio.
Question would also be on MTS. Can you maybe give us the kind of the components of the guidance there? I'd imagine defense and intel will be very nicely up above kind of the guidance. But what should we expect maybe for readiness and sustainment? And any other kind of color you could give us on that?
Yes, that's correct. Defense and intelligence is improving, as mentioned by Shad. Science and Space is experiencing a decline due to pressures on NASA budgets, which is expected. This is reflected in our guidance. Additionally, we are monitoring RNS and the protests that are more closely related to RNS as we progress through the year. If those protests are resolved in our favor, we anticipate solid growth for RNS along with the international portfolio we discussed. It’s also important to note that, as I mentioned earlier, we did lose some recompetes that were at the lower end of our margin performance. Regarding the guidance, while some of the recompetes are under protest, we have not factored success in those protests into our guidance. Thus, we believe that any success would represent additional upside. We have resources available as we progress through the year to achieve our goals. If we come across beneficial mergers and acquisitions, we want to remain active. Our acquisition of SWAT demonstrates this commitment to enhancing our strategy, particularly in the long-term recurring OpEx contracts. We will focus on expanding in strategically important areas but will be cautious and not take unnecessary risks. We don't anticipate making any significant transformational changes unless something extraordinary arises. Overall, we expect any acquisitions to be modest yet beneficial and strategic. We aim to continue our momentum, as shown by the successful SWAT acquisition, which has been very advantageous for us.
Yes. And maybe just to build on that, Ian, on deployment, the year typically begins, as you know, with several funded and cash commitments around annual incentive and dividends. And this year, we'll also be incurring some spin-related transition costs as well. And so when you combine those with the strategic investment that Stuart said at the outset, with the normal capital expenditures, they effectively consume a lot of the free cash flow in the first part of the year. So as the year progresses, we'll, of course, continue to assess opportunities to deploy any excess cash, obviously, in the most effective manner in close consultation with our Board. But our focus really is, as we said all along, is making sure we're setting both of these businesses up with really strong balance sheets out of the gate.
Just had a question on SCS. Would it be possible if you could rank order the growth outlook by end market in 2026?
I believe that's a topic best suited for Investor Day. As we have previously mentioned, there are several growth opportunities. We are broadening our presence in Iraq and have announced significant wins there recently. We're also expanding in Saudi Arabia across different market segments. Additionally, we secured the Coastal Bend LNG feed and have been awarded the front-end design in LNG. Our technology continues to perform well. It's challenging to provide a precise estimate at this moment due to timing. However, I would suggest that you think of double-digit growth at the consolidated level based on how the portfolio performs. We will delve into this in more detail during Investor Day as a stand-alone STS business.
Yes, Kevin, it does. And so I'll just remind you though that the first and second quarters of '26 have a bit of a tough comp, $60 million to $70 million of what I'll call elevated levels as that then throws down and is now at its steady run rate coming into '26.
In MTS, margins for the full year 2025, I think, were 10.4%. And it sounds like mix is improving there. So can you just expand on the puts and takes on the margin outlook for MTS embedded in the 2026 guide?
Yes. So happy to take that, Adam. Despite some of the macro headwinds that Stuart pointed out, I think operational performance throughout '25 is really strong. And as you said, resulted in a 10.4% margin, which again is in line with our long-term expectations for this business and really, I think, reflective of the profit first business development mindset within that organization. While we do hope to improve margins over time as we continue to see mix of that business move towards more fixed price work, we've not assumed any uplift in '26. And so it's flat sequentially from the 2025 run rates.
So again, I think we are focused on our upcoming Investor Day. That's been on our minds, and it's part of the reason we are increasing transparency around our operational expenditures in BRIS. We have an operations-facing business that we fully own in the international market, and we will consolidate that information when we meet later in the year for the Investor Day to highlight the opportunities there. We'll explain the long-term nature of those contracts and share an overall margin profile for that area. It's definitely within a defined range, and we'll discuss the outlook. We are strategically excited about this. We've seen a significant increase in global assets over the past decade. Additionally, the advancements in digital solutions that enhance customer efficiency and support predictive analytics are exciting, and we are actively engaged in that area.
If I can ask 2 questions on MPS. My first one is, are you still exploring a sale of that segment? Can you speak to the process if you are? And is that still an option as you move towards the split?
I cannot answer that question. However, we are committed to shareholder value, and that is absolutely true. We are currently going through this spin process to demonstrate our commitment. We are open to any approaches that could enhance shareholder value. That's all I can say at this point. Yes, this information is mostly available to the public. The Mission Iraq award is approximately $1 billion and involves the State Department. Additionally, there is a classified program called K2A that is in a similar range. We successfully resolved a protest in our favor regarding the prepositioned stock in Europe, which is now reflected in our figures. Those are the main points at this time. We are currently challenging the COSMOS and Diego losses. However, I want to emphasize that the latter two are not included in our numbers. That's the current status.
Stuart, can you talk a little bit more maybe about impacts of AI on KBR? I think you mentioned it briefly in prepared remarks, but how do we think about the mix between software and services and MTS? I mean you mentioned digital and sort of the growth there. I think there's quite a few security and regulatory barriers that should protect your business versus AI. But maybe you could elaborate on how you think about AI's impact on KBR's business.
Yes. We talked a little bit about this before, I think, in last quarter that I think there's a number of companies that created AI departments, et cetera. And I think they probably spend a lot of money with not a lot of gain. We've been very disciplined around how we approach this, and we very much look at use case solutions that actually drive an ROI. We've got a number of activities inside MTS that are funded by government, as you would expect, as we look at that from an R&D perspective, and that hangs off the back of our digital engineering labs that we press released recently and talked a little bit about in the prepared remarks, which are gaining good traction because of the speed to market of R&D projects, et cetera, as you would expect. More in the STS world, again, looking very strongly at use cases around accelerating engineering, making sure there's checks and balances within that engineering that avoid human errors, speed up progress. But at the same time, looking at how we operate facilities across the world or our customers operate facilities and using particularly digital twins and applying AI and machine learning to really sort of draw data and get trending over time to know what good looks like and make sure that operators can intercede at the appropriate time or the maintenance crews can intercede at the appropriate time. So it's a multifaceted approach, but ultimately, it's driven by use case ROI, and we put quite a bit of front-end effort into that, Andy, rather than just saying AI is good and just running at it. We've been quite disciplined. And that's on the front of office. I think in the back of office, increasing use of bots to drive efficiency and decrease human error, keep our SG&A in check or reduce it in fact, over time. We're rolling out Microsoft Dynamics across the STS portfolio, which is really the forefront of a digitalized ERP because our project controls, which gives us all the project data hangs off that, and we can look at things real time and start to make real-time decisions on commercial execution. And we've also got digital procurement hanging off the back of that and with a similar upside. And so I think that whole digital project execution philosophy underpinned by really a very modern and digitally enabled ERP is going to stand us in really good stead as we come out of the spin. So I think it's multifaceted this front of office driven by use case, the back of office, again, driven by use case, but obviously with different drivers.
And Stuart, you just mentioned it, but when I looked at the release for STS margin, it mentioned ERP. And so we always think about sort of ERP implementation as, I guess, a risk factor, but you got to over 20% margins again for '26. So how do you think about STS margins? Are they kind of going to be consistent here over the next few quarters? And do we expect improvement in '26 versus '25?
Yes. Quite right on the ERP. It's typically a risk. Our teams have done a fantastic job. We've rolled out Dynamics just to be fully transparent, we did a pilot in Singapore. It went well. We rolled it out in Australia, added more functionality, went back to Singapore, increased their functionality, rolled it out in India, rolled it out in the U.K. And now we're looking at how we roll corporate out in the U.S. and then we'll move to the Middle East. So I think we've proven that we can roll this out without blowing it out, which is always the risk. So hats off to our teams in sort of managing the execution and the implementation. In terms of margins across STS, I think we'll just stick with our statement that it's 20-plus percent across the portfolio. And as you've seen, we have done as we are prudent in how we account for things. And as we close out projects, you will get ups in certain months. But I think over the piece, the portfolio performance is 20-plus percent. And I think that's a good measure to stick with.
Thank you. With that, we have no further questions in the queue. So I'll hand back over to Stuart Bradie for some closing remarks.
Thank you. Thank you very much. So just a few final thoughts. I think as we discussed on the call, 2025 started off as challenging a year as we've seen in many. But I think it really underscored the strength of the KBR portfolio. Our geographical reach being truly global and understanding each of the countries and the different drivers is a real plus, a very diversified customer base. And that really drove a lot of a true lack of concentration risk and being agile, both in terms of how we do a business and our business model that gives both Mission Tech and Sustainable Tech real resilience. And I think that came through particularly in the bottom line and the cash performance through the course of the year. So despite external noise, we did execute on our strategy, and we did so with discipline. And that's really about our people. The quality of our people and the commitment of our people is unbelievable, and my hats off to them. And so while we face revenue headwinds, margins did expand, cash was strong, and that really reinforces the underlying health of the broader portfolio. So as we enter 2026, we've got a solid foundation in both businesses, strong work under contract, and as we discussed on the call, a strong pipeline. So I think we're really well positioned in both businesses as we head towards the spin and as we enter 2026. So thank you again for joining today's call. I would welcome Shad and Rachael officially to the team in this forum. And obviously, we'll be talking soon. So thank you very much.
Thank you. That concludes today's call. You may now disconnect your lines. Thank you for joining.