Amentum Holdings, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, and good morning, everyone.

We hope you've had an opportunity to read our earnings release, which we issued yesterday afternoon and is posted on our investor relations website. We have also provided presentation slides to facilitate today's call, so let's move to slide 2. Please note that this morning's discussion will contain forward-looking statements that are subject to important factors that could cause actual results to differ materially from anticipated. I refer you to our SEC filings for a discussion of these factors, including the Risk Factors section of our annual report on Form 10-K. The statements represent our views as of today, and subsequent events may cause our views to change. We may elect to update the forward-looking statements at some point in the future, but specifically disclaim any obligation to do so, except as required by applicable law.

In addition, we will discuss non-GAAP financial measures which we believe provide useful information for investors. Both our earnings release and supplemental presentation slides include reconciliations to the most comparable GAAP measures. We do not provide reconciliations of forward-looking non-GAAP financial measures due to the inherent difficulty in forecasting and quantifying certain significant items. These non-GAAP financial measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP. Our Safe Harbor statement included on this slide should be incorporated as part of any transcript of this call. With me today to discuss our business and financial results are John Heller, Chief Executive Officer, and Travis Johnson, Chief Financial Officer. We are also joined by other members of management, including Steve Arnette, Chief Operating Officer.

With that, moving to slide 3, it's my pleasure to turn the call over to our CEO, John Heller.

Thank you, Joe, and thank you everyone for joining us today. I will begin with a discussion of our third quarter results and updated outlook, followed by a review of our business development performance and how we are executing our strategy to create long-term value. I will then turn to a review of our core growth areas before closing with an update on recent key developments in nuclear energy, which provides substantive proof points supporting our strategy and transformational opportunity in this market. Now, let us turn to our third quarter performance. Although revenue came in slightly below our expectations, strong operating performance enabled higher than anticipated profitability and cash. Notable highlights include revenue of $3.5 billion, reflecting normalized growth of approximately 1%, adjusted EBITDA of $290 million with strong margins of 8.3%, adjusted diluted earnings per share of $0.67, up 20% year-over-year, and free cash flow of $135 million.

As Travis will discuss in greater detail, we are revising our fiscal year 2026 guidance to reflect near-term revenue dynamics and to incorporate our strong year-to-date performance that increases our expectations for adjusted EBITDA and adjusted diluted earnings per share. Turning to slide 4 in our business development results, we delivered another quarter of solid execution. Net bookings of $3.9 billion resulted in a quarterly book-to-bill of 1.1x and trailing 12 months of 1.3x, an ending backlog of $48 billion. Funded backlog increased 10% year-over-year to $6.2 billion. Our key leading indicators remain strong with pending awards of $32 billion, including two-thirds new business to Amentum, as well as $2 billion of new work already won under protest. We also remain on track to exceed our full year submits target of $35 billion, of which more than half is new business.

With that, let me highlight a few notable third quarter awards. Starting in nuclear, we had bookings from multiple commercial customers that totaled over $400 million to provide solutions supporting the initial engineering, development, and design of advanced nuclear technologies. Second, we received $250 million in awards across several contracts within our critical digital infrastructure market, including key wins supporting hyperscaler data center build-outs and additional tasking in commercial network infrastructure. Within national security, we were awarded over $1 billion to provide engineering, logistics, and modernization solutions to U.S. and international defense customers. In space systems and technologies, we booked two long-term NASA IDIQ awards, which were previously under protest, including COSMOS, which supports flight mission operations, and CMOE, where Amentum provides research, engineering, and modernization for advanced aeronautics development. Turning to slide 5. We remain well-positioned for long-term growth and are demonstrating clear and tangible progress as indicated by continued business development momentum across the portfolio, but particularly in key markets, including global nuclear energy and critical digital infrastructure.

While near-term growth is impacting by extended protest periods in certain instances of procurement delays, we believe that the underlying drivers of demand, including a well-supported Department of Defense budget outlook, clearly point to an eventual strengthening of revenue trends. As we indicated last quarter, we are working with NASA to implement the agency's workforce directive. This initiative looks to insource certain elements of the workforce currently provided by industry with the intention of upgrading scientific and engineering expertise within the agency. Based on conversations with our customers at NASA in recent weeks and months, we now anticipate a 3% impact to revenue in fiscal year 2027.

This is higher than the potential impact we shared on our second quarter call as the scope of insourcing is now assumed to be at the upper bound of prior possible scenarios. Given the margin profile of this business, we expect the impact to adjusted EBITDA to be less than that to revenue, and therefore accretive to overall margins. In the interim, our focus is on mitigating the revenue impacts from NASA with strong program execution in continuing to grow the margin accretive areas of our portfolio at a faster rate. This approach and the resiliency of our business model will drive strong earnings and free cash flow growth, which we will deploy in a disciplined manner to further enhance long-term shareholder value. Now, let's turn to slide 6.

In prior quarters, I have focused on three accelerating growth markets: nuclear energy, Digital Solutions, and space, which combined account for just over $4 billion in annual revenue. Today, I'll cover our core growth areas that are outlined on slide 7, which represents the remaining $10 billion of revenue. We operate in three primary markets with the majority of revenue coming from national security, followed by environmental remediation and homeland security. Across all three, Amentum benefits from deep customer relationships spanning several decades of past performance and credibility supporting critical customer missions. We see alignment with key drivers of growth across the portfolio, including increased defense spending in the U.S. and among our key allies, securing the border and protecting the homeland, and providing solutions to support the U.S. and international customers management of legacy nuclear projects. Moving to slide 8. Let me provide an update on the recent strategic progress we've made in nuclear, including key recent developments and program wins.

As previously discussed, total nuclear revenue across Amentum is $2 billion, of which approximately half a billion dollars is in our global nuclear energy accelerating growth market, where we provide solutions to design, develop, and program manage new build nuclear capacity across the globe. Importantly, our rich legacy in the remediation market provides a level of expertise, customer access, and a deep talent pool which enable the success we are having in global nuclear energy. We continue to see momentum as evidenced by a few key recent developments. First, our position as global delivery partner to Rolls-Royce continues to gain momentum as they were selected for small modular reactor deployments in Sweden and signed contracts to move forward on previously announced awards in the U.K. and Czech Republic.

We continue to see a rich pipeline ahead and are proud to support Rolls-Royce in the deployment of nuclear capacity around the world. Second, we announced a strategic partnership with Westinghouse, under which Amentum will support engineering and commercial deployment of Westinghouse's APX platform, including its AP1000 gigawatt reactor and AP300 SMR. This expands upon Amentum's existing strategic relationship with Westinghouse from engineering support into a long-term strategic alliance covering wider nuclear technology opportunities. Lastly, Amentum was selected by the Department of Energy to lead development of an AI data center and energy infrastructure project at the Savannah River site. Under this initiative, Amentum will lead a broad consortium to develop, design, build, and operate a multi-gigawatt nuclear facility and AI data centers.

While the financial framework is still being negotiated between the consortium and the Department of Energy, we would expect the economics to Amentum to be generally consistent with a 2-gigawatt nuclear project with revenue in excess of $1 billion over the life of the project. In addition, given our role as lead integrator, we expect to have options for economic interest in the eventual commercial operations of the facility, including the monetization of tokens from the data centers and electrons from the nuclear facility. This opportunity is in clear revenue synergy with our merger and could not have been won without the global reach, capabilities, and customer access of the combined entity.