Amentum Holdings, Inc. (AMTM) Q4 2025 Earnings Call Transcript

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Overview

The earnings call summary and Q&A indicate a positive outlook with raised revenue and EPS guidance, strong market positioning in space and nuclear sectors, and strategic investments in growth markets. Despite some management ambiguity on divestitures, the overall sentiment is optimistic, with expectations of margin expansion and revenue growth in accelerating markets. The raised guidance and strategic contracts like the Space Force Range contract further support a positive sentiment.

Key Financial Performance

Revenue $14.4 billion, representing pro forma growth of 4%. The increase was driven by continued demand and year-over-year increases in both Digital Solutions and Global Engineering Solutions, as well as higher customer spend ahead of the government shutdown.

Adjusted EBITDA $1.1 billion, an increase of 5% year-over-year. This growth was supported by strong operational performance in both segments and cost synergy initiatives.

Adjusted Diluted Earnings Per Share (EPS) $2.22, up 11% year-over-year. The increase was consistent with strong revenue and margin expansion performance.

Free Cash Flow $516 million, which supported acceleration of debt reduction objectives, bringing net leverage to 3.2x.

Backlog $47 billion, a growth of 5%. This was driven by a full-year book-to-bill ratio of 1.2x and a quarterly book-to-bill ratio of 1.6x, reflecting strong demand and strategic wins.

Digital Solutions Revenue $5.5 billion for the year, representing 7% growth. The increase was driven by the ramp-up of new contract awards, strength in the commercial digital infrastructure market, and additional working days.

Global Engineering Solutions Revenue $8.9 billion for the year, representing 2% growth. The increase was driven by new contract awards, growth on existing programs, and additional working days.

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Operating Highlights

Nuclear Center of Excellence: Opened in Oak Ridge, Tennessee, serving as a strategic hub for nuclear expertise in North America.

AI Expert Community Network: Mobilized to support upskilling and innovation globally.

ITEAMS Program: Strengthening C5ISR capabilities for the U.S. Armed Forces using rapid prototyping and digital engineering methods.

Space Systems and Technologies: Secured a $4 billion 10-year U.S. Space Force Range contract, solidifying leadership in space systems.

Global Nuclear Energy: Sellafield selected Amentum for a $1.8 billion 15-year contract for advanced decommissioning solutions and nuclear material processing.

Digital Infrastructure: Commercial awards include design, deployment, and optimization of 5G networks and critical infrastructure management.

Integration Milestones: Completed all key integration milestones on time and within budget, exiting all transition service agreements.

Revenue Growth: Achieved $14.4 billion in revenue, a 4% pro forma growth.

Cost Synergies: On track to deliver $60 million in net run rate synergies by the end of fiscal year 2026.

Book-to-Bill Ratio: Achieved a full-year book-to-bill ratio of 1.2x and a quarterly ratio of 1.6x, with a backlog of over $47 billion.

Growth Markets: Focused on space systems, digital infrastructure, and global nuclear energy as accelerating growth markets.

Debt Reduction: Reduced net leverage to 3.2x, with $750 million in debt repayments in fiscal year 2025.

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Risk or Challenges

Integration of legacy businesses: The integration of legacy businesses was a massive undertaking, requiring focus, collaboration, and discipline. While the company exited all transition service agreements and completed key milestones on time and within budget, the scale of the integration posed significant challenges.

Protest of NASA Cosmos contract: The NASA Cosmos contract, a 9-year $1.8 billion award, is being protested. This creates uncertainty and delays in recognizing the contract in the backlog or book-to-bill results.

Government contracting environment: The transition to a new administration introduced new priorities and objectives, impacting contracting timelines, funding cycles, and future spending direction. This dynamic environment could affect the company's ability to secure and execute contracts efficiently.

Federal government shutdown: The federal government shutdown had a 1% impact on revenues, affecting certain programs and delaying award decisions.

Dependency on mission-critical programs: While the company benefits from long-duration, mission-critical programs, this dependency could pose risks if there are changes in government priorities or funding.

Supply chain and operational challenges: The company operates in complex sectors like nuclear energy and space systems, which may face supply chain disruptions or operational challenges, impacting project timelines and costs.

Pro forma and non-GAAP financial measures: The reliance on pro forma and non-GAAP financial measures introduces complexity and potential risks in financial reporting and investor interpretation.

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Guidance & Outlook

Revenue Expectations: For fiscal year 2026, revenues are expected to range between $13.95 billion and $14.3 billion, representing 3% growth at the midpoint after normalizing for additional working days, JV transitions, and divestitures.

Adjusted EBITDA: Expected to range between $1.1 billion and $1.14 billion for fiscal year 2026, reflecting underlying growth of 5% at the midpoint and margin expansion of approximately 20 basis points.

Adjusted Diluted Earnings Per Share (EPS): Projected to be between $2.25 and $2.45 for fiscal year 2026, representing a 12% increase at the midpoint on an underlying basis.

Free Cash Flow: Anticipated to be between $525 million and $575 million for fiscal year 2026, reflecting 12% underlying growth at the midpoint.

Backlog and Pipeline: The company enters fiscal year 2026 with a backlog of over $47 billion and $20 billion in proposals awaiting awards, providing high visibility into future revenues.

Growth Markets: Focus on accelerating growth markets such as space systems and technologies, critical digital infrastructure, and global nuclear energy, which are expected to drive margin accretion and sustained double-digit growth in the nuclear energy sector.

Operational Synergies: On track to deliver at least $60 million in net run rate synergies by the end of fiscal year 2026.

Market Positioning: Amentum is positioned to benefit from generational investments in national security, energy resilience, and advanced technologies such as AI, robotics, and automation.

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Shareholder Return Plan

Share Buyback Program: Amentum has an enhanced balance sheet position and is committed to maintaining a prudent capital structure that enables flexible and opportunistic deployment. This includes the potential to return capital to shareholders, which may involve share buybacks. The company aims to maximize free cash flow per share and deliver strong compounding shareholder returns.

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Key Q&A

Q:Can you discuss the level of timing or onetime margin and cash flow dynamics in the quarter, and how much Section 174 benefits were included in fiscal 4Q versus the guide? Also, are there any pull forward or pushout dynamics around margins and cash related to the merger?

A:Travis Johnson explained that the year-end cash performance slightly exceeded expectations due to strong revenue performance. Onetime items included additional working days generating $20 million in cash. For FY '26, they expect 12% growth at the midpoint of guidance and $35 million in tax cash payment benefits from OBA tax law changes, disallowed interest, and CapEx bonus depreciation.

Q:Can you provide an update on the multiyear margin progression in terms of synergy targets and FY '26 margin progression?

A:Travis Johnson stated that the long-term goal is 8.5%-9% margins by FY '28. They achieved 10 basis points margin expansion in FY '25 and expect another 20 basis points in FY '26. Cost synergies will exceed $60 million in net run rate by the end of FY '26. John Heller added that growth opportunities in core and accelerated markets will drive margin improvement.

Q:Can you update us on the timing, magnitude, and multiple of any potential divestitures as well as the timing and magnitude of the upcoming SLS award?

A:Stephen Arnette highlighted the Space Force Range contract, which cleared the protest period and will begin operations in December. Congress appropriated $1.5 billion for infrastructure upgrades by 2028. John Heller mentioned that while they are excited about their portfolio, they will evaluate noncore assets during strategic planning.

Q:Can you remind us how you play throughout the entire nuclear life cycle, how big that business is today, and when you'll start to see some of those things inflect for your business?

A:John Heller explained that they play a mission-critical role across the nuclear energy life cycle, including design, construction, operation, maintenance, and decommissioning. The business represents 17% of their portfolio. While gigawatt-sized reactor projects may start by 2030, small modular reactors (SMRs) will take longer, with engineering work continuing through the decade.

Q:Can you help us understand how much of the space business is commercially oriented versus defense, and how Golden Dome and launch activity will drive your business?

A:Stephen Arnette stated that they have a strong presence in government and commercial space, supporting NASA and the Artemis II mission. They are also engaged in the Shield procurement, a $150 billion IDIQ vehicle, with task orders expected in FY '26. Their capabilities intersect government and commercial space, which is instrumental for achieving objectives in the space domain.

Q:When do you think you'd be at a point where you may be able to go on offense with capital deployment and start incorporating inorganic growth into the story?

A:Travis Johnson mentioned they aim to reach less than 3x net leverage by the end of FY '26. After that, they will evaluate opportunities for capital deployment, including M&A, share buybacks, or debt reduction, depending on market conditions. John Heller emphasized leveraging organic growth opportunities in accelerating markets.

Q:Are there timing or mix issues for us to contemplate near term in modeling the quarterly cadence of revenue and EBITDA across fiscal '26?

A:Travis Johnson noted that Q1 will be impacted by the government shutdown, but revenue, profitability, and cash flow will increase sequentially throughout FY '26. Digital Solutions will drive growth, with margin expansion expected in Global Engineering Solutions due to new work and on-contract growth.

Q:Can you elaborate on the nuclear opportunities and their margin accretive nature? How fast can these opportunities materialize, and how much of the $20 billion pipeline is related to nuclear?

A:Travis Johnson explained that margin accretion comes from the nature of work rather than joint ventures. John Heller added that nuclear represents 17% of their business, with gigawatt-sized reactor projects potentially starting by 2030 and SMRs requiring more time. Engineering work will continue through the decade.

Q:What are the other drivers that will get you to the 8.5%-9% margin target by FY '28?

A:Travis Johnson stated that accelerating growth areas like global nuclear energy, critical digital infrastructure, and space systems will drive margin expansion, along with cost synergy initiatives contributing 30-50 basis points.

Q:How should we think about the pace of debt paydown through FY '26?

A:Travis Johnson mentioned that most cash flow will be generated in the second half of FY '26, allowing them to achieve less than 3x net leverage by then.

Q:Which areas are poised for the most organic investments?

A:John Heller highlighted core markets and accelerating growth markets, including space systems, critical digital infrastructure, and global nuclear energy, as priority areas for organic investment.

Q:What kind of growth are you expecting from the accelerating growth portfolio in FY '26, and how does it accelerate into FY '27 and '28?

A:Travis Johnson expects 3%-5% underlying growth in FY '26, with accelerating growth markets like space and nuclear contributing more significantly in FY '27 and '28. John Heller added that digital infrastructure and other accelerating markets will also expand.

Q:What is the recompete risk exposure in fiscal '26?

A:Travis Johnson stated that less than 10% of FY '26 revenue comes from new business, with less than 5% recompete risk.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the timing and magnitude of potential divestitures, providing only general statements about strategic planning and portfolio evaluation. Additionally, while discussing the accelerating growth markets, they did not provide specific numerical growth targets for FY '27 and '28, relying on qualitative descriptions instead.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

AMTM Transcript

Amentum Holdings, Inc. (AMTM) Q4 2025 Earnings Call Transcript

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Amentum Holdings, Inc. (AMTM) Q3 2025 Earnings Call Transcript

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The earnings call summary and Q&A reveal strong financial performance, strategic growth in key sectors, and positive guidance. The divestiture aligns with core strategy, and new contracts, especially in intelligence and nuclear markets, highlight growth potential. Despite some uncertainties, management's confidence in margin expansion and cash flow growth is clear. The positive sentiment is supported by strong revenue growth, high book-to-bill ratios, and robust pipeline opportunities. However, the lack of specific guidance for FY 2026 tempers the outlook slightly, leading to a positive but not strong positive rating.

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The earnings call presents a mixed picture: while there is modest revenue growth and positive cash flow guidance, concerns about debt management, integration risks, and a slowing award environment persist. The divestiture of Rapid Solutions is a positive step for liquidity, but management's vague responses regarding future revenue and joint venture transitions raise uncertainties. Given these factors, the stock price is likely to remain stable, resulting in a neutral sentiment.

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The earnings call shows mixed signals: strong revenue growth and EBITDA improvement are positive, but competitive pressures, regulatory issues, and supply chain challenges pose risks. The absence of a share repurchase program and unclear management responses to certain risks add uncertainty. Despite optimistic guidance, the Q4 book-to-bill ratio below 1 and pending bid awards may delay revenue. Overall, the balance of strong financial performance and significant risks suggests a neutral stock price movement.

AMTM Report

Amentum Holdings, Inc. 10-K

10-K

2024-12-17

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