McDermott posts $2.4bn Q1 2026 revenue as backlog holds at $17.6bn despite Middle East volatility

McDermott International, Ltd reported first-quarter 2026 revenue of $2.4 billion, adjusted EBITDA of $117 million, and a backlog of $17.6 billion as of March 31, 2026, with trailing twelve-month adjusted EBITDA reaching $489 million. The privately held Houston-based engineering and construction contractor said its quarterly performance outpaced internal plan targets, with revenue running $415 million ahead of its Annual Business Plan 2026 guidance and adjusted EBITDA $18 million above plan. Chief Executive Officer and Chair Michael McKelvy framed the result as a continuation of the operational discipline that has defined McDermott’s post-bankruptcy reset, while flagging that Middle East geopolitical conditions remain a watchpoint for the rest of the year. The quarter marks the second consecutive period in which McDermott has delivered sequential adjusted EBITDA growth, even as new orders dropped sharply from the elevated Q4 2025 base.

How is McDermott International performing financially in the first quarter of 2026 against its annual business plan?

McDermott’s Q1 2026 print materially overshot its own internal benchmark in every meaningful line. Revenue of $2,361 million compared with an ABP target of $1,946 million, a 21 percent variance driven by change-order monetisation across the portfolio and faster physical progress on active projects. Adjusted EBITDA at $117 million versus an $99 million plan delivered an 18 percent beat, with the EBITDA margin landing at 5.0 percent against a planned 5.1 percent. The near-flat margin against an outsized revenue beat is telling. It indicates that the upside came from volume and execution velocity rather than from a structural improvement in pricing or contract economics, which is consistent with the company’s broader narrative of working through a mix of new-portfolio and legacy-renegotiated contracts.

Gross profit of $133 million against $123 million planned was a more modest $10 million beat, reinforcing the margin observation. The headline outperformance is real, but investors and lenders watching this private credit story should distinguish between operational throughput, which is clearly accelerating, and underlying contract profitability, which is improving at a much slower pace. Cash flow from operating activities was negative $126 million, materially better than the negative $241 million in plan, with the swing driven primarily by disbursement timing in the Offshore Middle East and Subsea and Floating Facilities business lines rather than by structural working capital release.

What does the McDermott Q1 2026 backlog tell investors about future revenue visibility?

Backlog of $17.6 billion as of March 31, 2026, provides roughly seven quarters of forward revenue cover at the current run rate, a comfortable position by engineering and construction industry standards. The composition matters as much as the headline figure. Offshore Middle East accounts for 51 percent of backlog at $8.89 billion, Low Carbon Solutions sits at 38 percent or $6.70 billion, and Subsea makes up 11 percent at $1.97 billion. The Middle East concentration is both a strength and a vulnerability. It reflects McDermott’s entrenched execution capability in the region, but it also means the company’s revenue base is materially exposed to any prolonged disruption to operations across Gulf and adjacent maritime corridors.

The legacy versus new-portfolio split is arguably the most strategically significant disclosure in the deck. New-portfolio contracts, defined as work won after the current executive leadership team assumed control in Q1 2022, now represent 63 percent of backlog at $11.12 billion. Legacy renegotiated and hybrid contracts make up 31 percent, while unrenegotiated legacy work has been reduced to just 6 percent. Loss-making projects represent only 2.6 percent of total backlog. This trajectory captures the core thesis of the post-restructuring McDermott. The high-risk, low-margin legacy book that pushed the predecessor entity into Chapter 11 in 2020 has been largely worked off, renegotiated, or quarantined, and the forward revenue base is now dominated by contracts written under tighter risk discipline.

Backlog burn schedule shows $5.37 billion expected to convert in 2026, $5.77 billion in 2027, and $6.43 billion in 2028 and beyond. The relatively even distribution suggests management has avoided the lumpy long-dated commitment profile that has hurt peers in the EPC sector during periods of cost inflation. Backlog is also supported by $1.39 billion in secured letters of credit and $1.38 billion in bilateral letters of credit and surety bonds, indicating that counterparty risk on the existing book is bilaterally collateralised at a meaningful level.

Why are McDermott’s new orders down sharply quarter-on-quarter despite a strong commercial pipeline?

New orders in Q1 2026 came in at $1,774 million, a sharp drop from $3,226 million in Q4 2025 and broadly flat against $1,835 million in Q1 2025. The quarter-on-quarter decline of $1,452 million is the headline disappointment of the release, although the comparison is distorted by the Q4 2025 base which included the Petronas Carigali Brunei EPCI award and the Nasr-115 Expansion Project. Q1 2026 new orders were driven primarily by change orders on Golden Pass LNG and Woodfibre LNG, rather than fresh competitive awards.

This is a meaningful distinction. Change orders typically carry higher margins than new awards because the customer has limited alternative suppliers once a project is in execution, but they do not signal the kind of forward commercial momentum that fresh contract wins provide. The Q1 figure also dramatically exceeded the ABP target of just $183 million, a near tenfold beat that suggests the internal plan was deliberately conservative on first-quarter award timing.

The longer-term commercial picture looks more constructive. McDermott’s two-year rolling targeted opportunity pipeline expanded to approximately $130 billion from $123 billion in the prior period, with Low Carbon Solutions representing 49 percent, Subsea and Floating Facilities 28 percent, and Offshore Middle East 23 percent. The geographic split shows the Middle East at 33 percent, the Americas at 32 percent, Europe and Africa at 25 percent, and Asia-Pacific at 10 percent. The pipeline diversification is more balanced than the existing backlog mix, which over time should reduce the company’s single-region concentration risk if conversion rates hold.

How is the Middle East security situation affecting McDermott’s operational outlook?

McKelvy’s explicit acknowledgment that the company is closely monitoring developments in the Middle East represents an unusual level of geopolitical caveating for an earnings release of this nature. With Offshore Middle East accounting for more than half of backlog and 33 percent of the forward pipeline, McDermott’s operational and financial trajectory is materially tied to the security environment across the Gulf, including Strait of Hormuz transit conditions and the broader Iran conflict that has shaped regional energy infrastructure planning since early 2026.

The company’s framing that operations in the region continue is deliberately measured. It implies that no material disruption has occurred to date, while preserving the option to invoke force majeure or contract adjustment mechanisms should conditions deteriorate. The Q1 utilisation data offers some early evidence of regional stress. Fabrication activity ran at 96 percent of standard, with weakness in Jebel Ali and Altamira partially offset by improvement in Batam. Vessel utilisation was 97 percent versus 135 percent in Q4 2025, with the DB50 underperforming while the NO102, DLV2000, and Amazon improved. Construction activity remained well above standard at 276 percent, driven by Golden Pass progress.

For a contractor with McDermott’s regional exposure, the operational risk is not just direct project disruption. Insurance costs, crew retention, vessel routing, and customer payment timelines can all deteriorate quickly in a contested maritime environment, eroding margin even on projects that physically continue. The fact that adjusted EBITDA improvement is partly attributed to higher asset utilisation makes this exposure more acute. Any forced de-utilisation of Gulf-based fabrication or marine assets would flow through the income statement quickly.

What does McDermott’s cash position and working capital trend signal about balance sheet health?

McDermott ended the quarter with $939 million in total cash, comprising $550 million of globally available cash, $265 million of other cash including joint venture, in-country, and captive insurance cash, and $124 million of restricted cash. The total declined from $1,081 million at year-end 2025, driven primarily by the negative operating cash flow in the quarter. Globally available cash, which is the most relevant metric for liquidity flexibility, fell from $731 million to $550 million, a $181 million reduction in three months.

Net working capital sat at negative $2,059 million, an improvement from negative $2,205 million at December 2025, but still reflecting the structural pattern of advance billings and accrued liabilities running well ahead of receivables and contracts in progress. This is characteristic of large EPC contractors and is generally a source of financing rather than a concern, but the trend bears watching. Contracts in progress increased to $2,315 million from $2,127 million at year-end, while accounts receivable trade declined to $1,046 million from $1,142 million. The shift from billed to unbilled work can signal either earlier-stage project mix or slower customer acknowledgement of completed milestones, neither of which is unambiguously positive.

Free cash flow for the quarter was negative $135 million, versus positive $352 million in Q4 2025, a $487 million swing. Capital expenditure of $9 million was running well below the $33 million quarterly plan, with management attributing the variance to delayed spending rather than reduced ambition. The deferred capex is worth flagging as a potential headwind to future quarters, as it may compress against subsequent periods when fleet maintenance and fabrication facility investments cannot be pushed further.

What are the key takeaways from McDermott’s first quarter 2026 results for the energy infrastructure sector?

• McDermott beat its Annual Business Plan 2026 across revenue, adjusted EBITDA, and operating cash flow, with Q1 revenue of $2.36 billion running $415 million ahead of plan and adjusted EBITDA at $117 million coming in $18 million above target.
• Backlog of $17.6 billion provides roughly seven quarters of forward revenue cover, with new-portfolio contracts now representing 63 percent of total backlog, demonstrating substantial progress in working through the legacy book that drove the predecessor entity into Chapter 11 in 2020.
• The 45 percent quarter-on-quarter decline in new orders to $1,774 million from $3,226 million is largely a base effect from Q4 2025’s outsized Petronas and Nasr-115 awards, but it does highlight that Q1 was driven by change orders on Golden Pass and Woodfibre LNG rather than fresh competitive wins.
• Middle East concentration at 51 percent of backlog and 33 percent of forward pipeline makes McDermott structurally exposed to Gulf security conditions, and management’s explicit monitoring language suggests the operational risk premium on the region is being actively reassessed.
• The targeted opportunity pipeline expansion to approximately $130 billion from $123 billion, with Low Carbon Solutions at 49 percent share, positions the company for diversification away from offshore Middle East dependence if conversion rates hold.
• Adjusted EBITDA margin at 5.0 percent versus a planned 5.1 percent indicates the quarterly beat was driven primarily by volume and execution velocity rather than structural pricing improvement, a distinction that matters for forward earnings quality.
• Free cash flow swung to negative $135 million from positive $352 million in Q4 2025, with capital expenditure of $9 million running well below the $33 million plan, creating a potential headwind from deferred capex in subsequent quarters.
• Globally available cash declined to $550 million from $731 million at year-end 2025, narrowing liquidity headroom even as the broader balance sheet continues to benefit from the post-restructuring debt and working capital normalisation.
• Loss-making projects now represent just 2.6 percent of total backlog, validating the executive team’s contract renegotiation strategy and substantially reducing the tail risk that historically defined the McDermott credit profile.
• The TTM adjusted EBITDA of $489 million implies a substantially de-risked cash generation base for any future return to public markets, refinancing, or strategic transaction, even though no such pathway has been publicly signalled by the company or its sponsors.