Amentum (AMTM) Q3 2026 Earnings Call Transcript

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DATE

Tuesday, Aug. 11, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Senior Vice President of Investor Relations-Joseph DeNardi
• Chief Executive Officer-John Heller
• Chief Financial Officer-Travis Johnson
• Chief Operating Officer-Steve Arnette

TAKEAWAYS

• Revenue -- $3,490 million, representing a 2% decrease year over year driven by contract transitions and divestitures.
• Normalized Revenue Growth -- approximately 1%, after adjusting for the transition of consolidated joint ventures to unconsolidated status and fiscal 2025 divestitures.
• Adjusted EBITDA -- $290 million, an increase of 6% over the prior year quarter due to margin expansion and strong operational performance.
• Adjusted EBITDA Margin -- 8.3%, reflecting an increase of 60 basis points driven by a favorable mix shift and program execution.
• Adjusted Diluted EPS -- $0.67, growing 20% year over year reflecting lower interest expense and higher profitability.
• Free Cash Flow -- $135 million for the third quarter, supported by disciplined working capital management and strong cash earnings.
• Net Bookings -- $3.9 billion, resulting in a quarterly book-to-bill ratio of 1.1x.
• Total Backlog -- $48.2 billion at the end of the third quarter, an 8% increase compared to the prior year.
• Funded Backlog -- $6.2 billion, representing a 10% increase year over year.
• Fiscal Year 2026 Revenue Guidance -- $13.8 billion to $13.95 billion, revised downward from the prior range due to extended protest periods and procurement delays.
• Fiscal Year 2026 Adjusted EBITDA Guidance -- $1.115 billion to $1.14 billion, raised at the midpoint to reflect strong year-to-date performance.
• Fiscal Year 2026 Adjusted Diluted EPS Guidance -- $2.40 to $2.50, an increase from the previous guidance range of $2.25 to $2.45.
• NASA Revenue Impact -- 3% anticipated in fiscal year 2027, higher than the previously estimated 1% due to expanded workforce in-sourcing by the agency.
• Digital Solutions Segment Revenue -- $1.5 billion, reflecting 3% growth driven by awards in digital infrastructure and space markets.
• Global Engineering Solutions Segment Revenue -- $2 billion, impacted by the ramp-down of legacy programs and joint venture transitions.
• Debt Repayment -- $125 million voluntary principal payment during the quarter, reducing net leverage to 3x.
• Nuclear Energy Bookings -- over $400 million in commercial awards for the design and engineering of advanced nuclear technologies.
• Savannah River Project -- expected revenue in excess of $1 billion over the project life following selection to lead an AI data center and nuclear infrastructure initiative.
• NASA COSMOS Contract -- approximately $500 million booked in the quarter after a previously announced protest was resolved.
• NASA CMOE II Contract -- $974 million over 10 years for systems engineering and infrastructure modernization at Langley Research Center.
• Low-Margin Program Exits -- approximately 1% of revenue, following an intentional decision to exit domestic-based operations with negligible returns.
• Pending Awards -- $32 billion, of which two-thirds represents new business for the company.
• Digital Infrastructure Awards -- $250 million across several contracts for data center build-outs and network infrastructure.

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RISKS

• Heller noted that near-term revenue trends are below prior expectations, stating, "near-term growth is impacted by extended protest periods in certain instances of procurement delays."
• Arnette acknowledged that the impact of NASA's workforce directive had intensified, noting, "the in-sourcing goes to the upper bound of what we originally thought could possibly occur," which will result in a 3% revenue headwind in fiscal year 2027.
• Johnson highlighted that while margins are expanding, current revenue is being pressured by "low-margin material volume" and "the expected continued wind down of certain legacy programs."

SUMMARY

Management reported that Amentum Holdings, Inc. (NYSE:AMTM) is shifting its portfolio toward higher-margin, technology-enabled segments such as nuclear energy and digital infrastructure. While the company adjusted its full-year revenue guidance downward due to procurement delays and government contract protests, it raised its profitability outlook for adjusted EBITDA and earnings per share based on strong operational execution. Amentum reached a critical leverage target of 3x one quarter ahead of its internal timeline and is currently navigating a workforce transition with NASA that is expected to impact fiscal 2027 revenue. The company stated that its business development pipeline remains active with $32 billion in pending awards and significant new partnerships with Rolls-Royce and Westinghouse to support global nuclear energy deployments.

• CEO Heller noted that "Amentum will play a key role enabling the deployment of nuclear energy capacity in the U.S. and globally" through strategic alliances and new project awards.
• CFO Johnson stated that the company reached a net leverage ratio of 3x "one quarter earlier than expected" due to strong free cash flow and disciplined debt repayment.
• The company highlighted the Savannah River Site project as a "multi-gigawatt nuclear facility" with long-term revenue potential exceeding $1 billion.
• Management confirmed an intentional exit from approximately 1% of revenue associated with low-margin domestic base operations to focus resources on higher-return opportunities.
• COO Arnette stated that Amentum is "incrementally biasing resources" toward critical digital infrastructure to meet demand from hyperscaler data center clients.
• Management projected that approximately 92% of fiscal year 2027 revenue is already covered by existing or follow-on work, providing high visibility into the upcoming year.
• Heller emphasized that the company's global footprint, including 7,000 employees in the U.K. and a large presence in Australia, differentiates it within the national security and defense sectors.

INDUSTRY GLOSSARY

• Book-to-bill: The ratio of orders received to units shipped and billed, used to measure the strength of a company's order pipeline.
• Hyperscaler: A large cloud service provider, such as Amazon Web Services, Microsoft Azure, or Google Cloud, that builds and manages massive data centers.
• IDIQ (Indefinite Delivery, Indefinite Quantity): A type of contract that provides for an indefinite quantity of services or supplies during a fixed period of time.
• LTM: Last twelve months.
• OTA (Other Transaction Authority): A streamlined contracting mechanism used by the U.S. Department of Defense to access innovative technologies from non-traditional contractors.
• SMR (Small Modular Reactor): A type of advanced nuclear reactor that is smaller than traditional reactors, allowing for faster construction and more flexible deployment.

Full Conference Call Transcript

Operator: Ladies and gentlemen, thank you for standing by. Good morning, and welcome to Amentum's Third Quarter Fiscal Year 2026 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] I would like to turn the call over to Joe DeNardi, Senior Vice President of Investor Relations. Please go ahead.

Joseph DeNardi: 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.

John Heller: Thank you, Joe, and thank you, everyone, for joining us today. I'll begin with a discussion of our third quarter results and updated outlook, followed by a review of our business development performance and how we're executing our strategy to create long-term value. I'll 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's 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 '26 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, and 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 2/3 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. And in Space Systems and Technologies, we booked 2 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 impacted by extended protest periods in certain instances of procurement delays, we believe that the underlying drivers of demand, including a well-supported Department of [ Board ] 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 in-source 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 '27. This is higher than the potential impact we shared on our second quarter call as the scope of in-sourcing 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 and 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 3 accelerating growth markets: nuclear energy, digital 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 3 primary markets with the majority of revenue coming from national security, followed by environmental remediation and homeland security. Across all 3, 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 $0.5 billion 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 in 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 for the data centers and electrons from the nuclear facility. This opportunity is a clear revenue synergy with our merger and could not have been won without the global reach, capabilities and customer access of the combined entity. We are excited about the long-term potential of the program, but also the short-term synergies it contributes to our broader nuclear strategy.

As we show on the slide, our expectation for growth in global nuclear reflects a combination of key contracts and partnerships already secured as well as opportunities in our pipeline that we are closely tracking with expected progress in the coming quarters and years. It also reflects the revenue profile typical in this market where project scope focus in the first few years is on planning, design and engineering, which yields low tens of millions of dollars in annual revenue before transitioning into construction with annual revenue several multiples higher.

While forecasting the exact timing of financial impacts on certain nuclear opportunities is difficult given the long-term nature of these projects, it is clear that Amentum will have a leading position as the U.S. invests to redevelop its nuclear energy capability as a national security priority and to ensure the country's leadership in the deployment of artificial intelligence and critical energy availability. We believe the developments announced in the quarter and those in our pipeline are clear evidence that Amentum will play a key role enabling the deployment of nuclear energy capacity in the U.S. and globally.

In summary, while we recognize near-term revenue trends are below our prior expectations, our strategic progress and continued business development momentum reinforce our confidence in the long-term trajectory of the business. We remain focused on delivering profitable growth, strong cash flow and continued value creation for our shareholders. With that, I'll now turn the call over to Travis.

Travis Johnson: Thank you, John, and good morning, everyone. I'll now discuss Amentum's third quarter financial results, which demonstrate continued strong operational performance, improving profitability and solid cash generation. I'll also review our capital structure highlights as well as our updated fiscal year '26 guidance and preliminary expectations for fiscal year '27. With that, let's begin with an overview of our financial performance on Slide 9. As John mentioned, third quarter revenue totaled $3.5 billion and came in slightly below our expectations as a result of the impact from protest delays and low-margin material volume.

Normalized year-over-year growth of 1% was driven by the ramp-up of new contract awards and on-contract growth, which more than offset the expected continued wind down of certain legacy programs. Adjusted EBITDA increased to $290 million, up 6% from the prior year quarter and reflects record quarterly adjusted EBITDA margins of 8.3%, a 60 basis point year-over-year increase. The strong margin performance was enabled by continued progress on our margin expansion strategy, including a favorable mix shift and strong operational performance.

Adjusted diluted earnings per share of $0.67 increased 20% year-over-year, reflecting continued strong operational performance as well as lower interest expense from almost $700 million in debt repayments over the last 12 months and a lower cost of debt enabled by our successful refinancing in April. Moving to our reportable segment results on Slide 10. Digital Solutions delivered revenue of $1.5 billion, representing 3% growth, driven by the continued ramp-up of new contract awards in our digital infrastructure and space markets. Adjusted EBITDA increased to $116 million due to the higher revenue volume, resulting in adjusted EBITDA margins of 8%, consistent with the prior year and up 80 basis points from the second quarter. Turning to Global Engineering Solutions.

Revenue was $2 billion, reflecting impacts from JV transitions, a divestiture and the expected ramp down of certain historical programs, all of which were partially offset by contributions from new contract awards and on-contract growth. Adjusted EBITDA of $174 million benefited from 110 basis points year-over-year increase in adjusted EBITDA margin to 8.6%. This strong performance in the quarter was driven by a continued focus on higher-margin growth opportunities, favorable contract mix and disciplined program execution. Now turning to Slide 11 to cover our cash flow and capital structure highlights.

Free cash flow in the third quarter and year-to-date totaled $135 million and $213 million, respectively, which is in line with our expectations and reflects strong cash earnings and our disciplined approach to working capital management. This performance enabled debt repayments of $125 million during the quarter and reduced our net leverage to 3x at quarter end, reaching an important milestone we set at Capital Markets Day 1 quarter earlier than expected. We remain on track to achieve net leverage less than 3x in the fourth quarter, which positions us well to be more flexible and opportunistic with capital deployment and our approach will remain focused on allocating capital toward the highest long-term returns.

Now turning to Slide 12 and our fiscal year '26 full year outlook. Based on year-to-date performance and our current visibility into the fourth quarter, we are updating our fiscal year '26 guidance. We now expect revenue between $13.8 billion and $13.95 billion, with reduced contributions from new business awards under protests and our latest expectations on materials and nonlabor volume. The midpoint reflects normalized revenue growth of approximately 2% in the fourth quarter, which is consistent with our performance year-to-date after adjusting for the impact of the government shutdown in Q1.

As a result of our strong year-to-date performance, we are raising our outlook for adjusted EBITDA to between $1.115 billion and $1.14 billion, reflecting adjusted EBITDA margins of 8.1% at the midpoint, a 20 basis point improvement from our prior guidance and a 40 basis point increase from fiscal year '25 actuals. We are also increasing guidance for adjusted diluted earnings per share to a range of $2.40 to $2.50, given the strong year-to-date operational performance and interest expense benefits from our debt refinancing. And finally, we are maintaining our free cash flow guidance between $525 million and $575 million.

As a reminder, fourth quarter cash flow will benefit from seasonally strong collections and 1 fewer pay cycle relative to the prior year quarter. Looking ahead, let's turn to Slide 13 to discuss our preliminary views for fiscal year '27. From a revenue perspective, as John indicated, we now expect a 3% impact from NASA's workforce directive. In addition, consistent with our commitment to allocate resources to higher return opportunities, we have made an intentional decision to exit a few no to low-margin programs, notably in domestic-based operations that total approximately 1% of revenue.

At the same time, given our continuing business development momentum, we expect mid-single-digit growth in the remaining portfolio, more than offsetting the impacts from NASA and the exit of low-margin work. Looking at adjusted EBITDA, given the relative profile of our NASA portfolio, we expect the impact will be accretive to overall margins. After taking into consideration some investments we are making to drive long-term growth, particularly in nuclear and digital infrastructure as well as a favorable mix shift and other operational improvements, we expect a 20 basis point year-over-year increase in margins.

Given our strong execution to date and further benefits of mix as higher-margin areas of our portfolio continue to grow faster, I'm confident in our ability to drive sustained margin improvement in the years ahead. Finally, we expect continued strong earnings per share and free cash flow growth as a result of the increased profitability and reductions to both integration and interest expense. In closing, our focus as a management team remains on execution, prudent investments to support long-term growth in our strongest markets and deploying capital to maximize long-term return on investment. We have conviction that our ability to deliver on these areas of focus will translate over time into significant value for our shareholders.

With that, operator, please open the line for questions.

Operator: [Operator Instructions] Your first question comes from the line of Tobey Sommer with Truist.

Tobey Sommer: I wanted to start out, if I could, looking forward as your commitment to delever to a reasonable range that comes to a conclusion, how are you planning to deploy your capital as you look into the following fiscal year?

Travis Johnson: Tobey, Travis here. Well, thanks for your question. Obviously, we're pleased with the progress we've been able to make to date as it relates to our deleveraging objectives. The cash flow performance in the quarter allowed us to get to net leverage of 3x at the end of the quarter, which, as you know, is 1 quarter earlier than we expected when we set that goal back at Capital Markets Day. So really pleased with the progress. As you can imagine, we've been preparing in recent months to be ready as our capital opportunities broaden for deployment. And that obviously includes working internally and with our Board on the various strategic options, including M&A, share repurchases and continued debt reduction.

So in terms of how we deploy the capital, as stated in our prepared remarks, it should and will be determined based on what presents the best long-term return for Amentum and our shareholders. So that obviously requires we be realistic and disciplined about both Amentum's risks and opportunities, but also about those of the companies we would look to potentially acquire from an M&A perspective. And I say it also should require that we take a responsive look at where stock price and valuation are and taking a look at things like intrinsic value and making sure that we're obviously, taking that into consideration as we make those decisions.

So as appropriate and as we move throughout the year, we'll continue to keep you guys updated. But just keep in mind, our approach will focus on maximizing free cash flow per share and driving long-term shareholder value.

John Heller: And what I would add to that, Tobey, it's John. Thanks for the call. We're making great progress in -- across our portfolio from a business development standpoint, the numbers we talked about today, the volume of bids, our success in nuclear energy and the partnerships we're getting, all organic. So I think what we're showing is the enterprise of Amentum has the ability to go to market in our core growth areas today with the organic investments we're making does not require transformational M&A.

That doesn't say that M&A couldn't be part of our strategy, but I think the point would be that we're very comfortable with the capabilities we have to compete and win in areas that can drive higher margin and growth.

Tobey Sommer: And I was wondering if you could -- it might be early, I know, but you gave a preliminary look at fiscal -- the next fiscal year. Do you think -- do you expect top line organic growth in the fiscal year after that? And I know it's far away, so not an official guide or anything like that complete, but any kind of color you could provide would be helpful.

Travis Johnson: Yes. So as you can appreciate, a fair bit has changed over the last 24 months, especially as it relates to dynamics that are impacting our near-term revenue situation, obviously, as we covered in the prepared remarks, NASA headed into next year, which, as you would expect, we hadn't originally contemplated. But at the same time, our performance this year, I think, demonstrates our ability to mitigate the impact of lower revenue on both EBITDA and free cash flow and the preliminary outlook we provided for '27 has that trend continuing.

And then directly at your question, looking ahead, as John really highlighted in his prepared remarks and obviously in response to your prior question, we're really pleased with the business development momentum and we continue to see attractive opportunities across the portfolio with particular momentum in nuclear energy and critical digital infrastructure. And at the same time, we're also making progress across our technology-enabled businesses where our differentiated capabilities across engineering, digital, space, national security, we see really aligning well with emerging customer priorities and long-term investment. So altogether, when you look at the portfolio next year, aside from the impact we're seeing from NASA, it's growing at that mid-single-digit rate.

And we're really excited about the trajectory and what that means for momentum in the medium and long term.

John Heller: And we're really just keeping our heads down on our strategy, and it's working. The combination of business development momentum, we're seeing margin expansion. We're generating very strong free cash flow. If you look at LTM book-to-bill 1.3 this past quarter, 1.1 book-to-bill. We said we're going to bid over $35 billion this year. We've already done that, which means even with several months to go in the year, we've already exceeded what we did last year. So the things that are happening in the strategy and the tactical execution of the team is working, and we feel very comfortable on how we're managing the business and where it's going to go from here.

Operator: Your next question comes from the line of Seth Seifman with JPMorgan.

Christopher Barbero: This is Rocco on for Seth. Kind of building on the second question there, looking at the preliminary color on 2027, how should we think about the split between DS and GES? GES has seen some not great growth in '26 so far, while DS has posted strong growth even with the Rapid Solutions divestiture. Should we be expecting that trend to continue next year?

Stephen Arnette: Yes. Obviously, it's a little bit early to get into any segment-specific guidance. But what I would say at a macro level is from an underlying perspective, obviously, NASA, which is in our Digital Solutions segment will put some pressure on the growth in that segment. But setting that aside, we do see organic growth opportunities across both segments for next year as well as EBITDA margin expansion opportunities across both segments.

Christopher Barbero: Great. And then how should we be thinking about Amentum's involvement in U.S. allied nuclear power programs? For example, the reported agreement with Saudi Arabia. Would this be an opportunity for Amentum? And are there any other kind of big international opportunities to call out here?

John Heller: Well, we have a strong pipeline of opportunities that we're working globally. We certainly see opportunities in countries like Saudi Arabia is open to Amentum with our brand, global brand. We definitely get inbounds and understand where growth is going to happen in the near term. And we are very active. Obviously, we've been involved in 17 nuclear power plant construction projects in the U.K. We have a great brand in Europe, working in various countries across Europe now with our Rolls-Royce partnership. So we're very well established in the European continent and the nuclear energy space. And we would see and are tracking opportunities globally in our pipeline that could provide opportunities for growth in the near term.

Operator: Your next question comes from the line of Colin Canfield with Cantor Fitzgerald.

Colin Canfield: For '27 growth outlook or preliminary growth outlook, can you just talk about how much of that revenue outlook is covered by both your backlog today as well as your expected pending awards over, call it, the next 6 to 12 months? And then if -- I know you didn't want to go into segment detail, but maybe talk about like just the level of on-contract growth that you're assuming as part of that number.

Stephen Arnette: So this is a few months earlier, obviously, than we provide outlooks in the prior years. But what I would say from how we see the year shaping up from a sources of revenue perspective, as we sit here today, we expect approximately 92% of the revenue in FY '27 to come from existing or follow-on work. So that's a really good place to be in terms of a level of visibility this early, right? FY '26 isn't over yet, right? So we still got a few months to go in terms of the $32 billion of pending awards that John mentioned and seeing how those get adjudicated in the coming months will obviously have an impact on FY '27.

But we feel really good about the visibility we have as we sit here today, and we'll continue to keep you updated as we move throughout the year.

John Heller: Yes, I'd just call out that we did mention that there have been factors that have impacted the revenue like the firm fixed price executive order that has created kind of slowdown reconsideration of some new business. So we've seen some new business delays, award delays because of that, which we deem is very positive. The opportunity to do more fixed price work, and we are seeing that shift happen in real time. So that's -- but it slows the process down. And then, of course, we've had a significant number of protests on new business, new business, net new business.

So those couple of things will work their way out over the next year that the executive order for firm fixed price has to be implemented by the government by the middle -- this time next year. So we still have some time for that to continue to play out. But overall, I think it will be real positive for the profitability of the business.

Colin Canfield: Got it. Got it. And then maybe if we could talk about portfolio shaping. Travis, if you could maybe characterize kind of where you're at in terms of selling additional pieces and delevering faster and how you think about kind of the sizing of those pieces?

Stephen Arnette: I think there's an inherent portfolio shaping going on and what's happening organically in the business right now. I mean some of our current contracts, we're seeing increments or sub-elements of the contract effort shift, as John mentioned, the higher margins, some fixed price types of elements. And a lot of that's coming through some of the IDIQ mechanisms on our existing contracts. I would say even if you look at the trends in our current business development activities, really across the portfolio, we've begun to see an incremental shift toward OTAs, other transactional authorities and commercial service offering type procurements and our team has been very responsive to that.

So I think even without some kind of inorganic type activity organically, that shift is happening. And as John mentioned, it's coming through in the contract mix as we see more and more of the portfolio migrate toward fixed price. So there is kind of this steady trend of organic portfolio optimization happening.

John Heller: Yes. And I think Travis mentioned this, a lot has changed in the last 24 months. And if you think of FY '25, that was a year of integration. Our business development pipeline was pretty much already set before the merger. But we've had now almost 2 years to really work with the combined enterprise that the new Amentum represents, which has opened the doors to a lot of technology-enabled opportunities that have allowed us to shift our focus in our pipeline from lower margin, say, managed services type work to technology-enabled work. And we're prioritizing that and it's starting to -- it's going to take time. We'll see a little bit of that this year.

But as we think about '27 and '28, and we'll see that shift to more fixed price, more T&M, less cost plus, more technology-enabled solutions, all driving toward higher margins. In some cases, fewer product buys, which are just part of the contracts we do, which does impact kind of revenue in the short term. But I think in the long term, we're excited about where that growth will come from.

Operator: Your next question comes from the line of Gavin Parsons with UBS.

Gavin Parsons: I just wanted to dig into the backlog kind of visibility to revenue conversion, right? Nice growth in funded, nice growth in total. And how do I reconcile that with the 0% to 1% growth next year? I mean, is that NASA that just needs to come out? And otherwise, kind of 10% funded backlog growth gives you pretty good visibility to mid-single digits? Or how do I think about backlog converting to revenue?

Stephen Arnette: Yes. So as we've talked about before, you're always going to see some kind of quarter-to-quarter fluctuations in terms of both funded and unfunded backlog. But at a high level, we're really pleased with, as John mentioned, the business development performance and getting to that kind of $48 billion in backlog. And as you noted, funded backlog is up 10% year-over-year. We've always said kind of despite the kind of fluctuations you can see from quarter-to-quarter on that, we feel comfortable in that $5 billion to $6 billion to $7 billion worth of funded backlog range, providing the right visibility we need to achieve our revenue objectives.

And we really haven't seen any notable changes in the conversion of unfunded into funded. So we feel good about the eventual conversion of bookings into revenue as we set up for next year. And as I mentioned earlier, we've got 92% of our revenue visibility next year and firm or follow-on work.

Gavin Parsons: Got it. And then could you just spend a little bit more time on what changed at NASA now that you're assuming kind of the high end of the range of revenue being in-sourced. And just remind us your total NASA exposure and how we get confidence that, that doesn't expand more than to the 3%.

Stephen Arnette: Sure. Maybe I'll just back up and level set quickly and kind of get to the specifics of your question. But as John mentioned, NASA is taking this initiative to bolster the scientific engineering expertise as they think about a bigger mission set, more bold mission set into the future, programs like Moon to Mars and all of that. And so as you cited, our initial view based on preliminary input from the client was like a 1% impact, and we talked about that last time. But since then, NASA has solidified their plan, and we've been able to sit with our NASA customer. I mean, center by center, individual contract by contract.

And so we now -- NASA has firmed up their plan. They've shared the plan with us, and we have a detailed view on that. You're correct, the in-sourcing goes to the upper bound of what we originally thought could possibly occur. But now that we understand and kind of summing up the impacts, we have good visibility on the 3% impact, and we're confident in that estimate. Just to better characterize, we don't have all the contract actions in hand. Some contract mods right now are in negotiation and progress, and NASA has actually moved out on beginning to hire employees. So this transition is underway, and we have a good view.

I would just offer 2 other quick points that I think are important. It was mentioned in John's remarks, but the impact of contracts, they are margin dilutive to Amentum. So the EBITDA impact will certainly be less than the revenue. And it's also true that some of the remaining work on our contracts will transition to firm fixed price consistent with the Trump administration's executive order. And so this too will incrementally lessen the EBITDA impact. And the second point I would mention kind of thinking longer term, just as the CMOE II and the COSMOS awards this quarter highlight, Amentum remains a trusted partner.

And so we're navigating the strategic reset that NASA is executing, knowing that a strong agency is good for the nation and world, and we expect there will be future growth opportunities. Our larger contracts remain in place. So they offer IDIQ mechanisms that will allow NASA to mobilize Amentum as these big missions come into reality. So we absolutely see continuing opportunity in the mid- to longer term.

Operator: Your next question comes from the line of Greg Parrish with Morgan Stanley.

Gregory Parrish: I wanted to think through the revenue guide for 2026, specifically the business delays. I think you called out a few things, right, protest and procurement delays a little bit on the executive order, too, maybe. Maybe if you could just maybe unpack some of those items a little bit more. Are they particular markets? And is that something you expect to return to a normal cadence in '27? Or could it also be a headwind early next year?

Travis Johnson: Sure. Yes, I think you covered well the dynamics that we're seeing as we look to close out fiscal year '26, roughly $175 million from new business delays, notably around the new business that we've won that is under protest that is spread across the portfolio. It's a handful of opportunities. It's not kind of concentrated in one particular area or another. And just the timing that it's taking to get those through the process, including some that are in corrective action, just having that impact on the year and then materials and nonlabor volume, obviously, somewhat little bit harder to control and predict in terms of when things are delivered or procured.

So those are the dynamics that are driving FY '26. I would say that as we look into Q4, we're expecting growth that's really consistent with what we've done from a year-to-date perspective, which is 2% at the midpoint, again, consistent with our year-to-date performance, excluding the shutdown impact in Q1. And also Q4 seasonally our highest revenue-generating quarter. So the 26% contribution for the full year that you see there is consistent with historical trends. And then 99% of it is from a follow-on. So we feel really good about the Q4 guide. Second part of your question headed into '27.

As we put those preliminary expectations out there for '27, we've contemplated our latest thinking and views and what we're seeing in terms of the award environment, in terms of what we're seeing and how long it takes to get through protest or corrective action. So I think we've factored that in, in an appropriate way in how we see '27 playing out.

Gregory Parrish: Okay. Fair enough. And then maybe just zooming back a little bit, like what needs to happen to kind of bring this all together, right? You've had I think a ton of success commercially, great bookings trends. You're in great markets. But it seems like there's sort of little unique items that have been working against you. In your view, sort of what needs to happen to get you toward your mid-single-digit potential?

John Heller: Yes. We've talked a lot about nuclear. I think we have seen consistent success there over the past 2 years. We feel really good about the outlook of our pipeline and the opportunities. I think seeing those mature over the next couple of years to be funded to -- into construction. And then you see a very significant ramp-up, and we provided that slide in the presentation that provides some flavor of what we're seeing in terms of the volume of opportunities and the Savannah River AI data center, nuclear power project is a great example. This is going to be a decades-long project, but it represents a very significant opportunity for Amentum and our partners.

But -- and we will see progress made that we can articulate milestone achievements. First thing is to get the lease negotiated with the U.S. government and put our business plan together, and we'll be able to talk to that and these milestones as they're achieved. But a project like that is going to take years to see matriculate into something that really impacts the business. So I think the one thing that I would be looking for is just continued progress in the U.S. nuclear industry and other global opportunities that we're tracking around the Rolls-Royce partnership, the Westinghouse partnership where we can see more projects awarded and brought online into the future.

Operator: Your next question comes from the line of Trevor Walsh with Citizens.

Trevor Walsh: Maybe just a couple of higher level, more macro for both the digital infrastructure and the nuclear opportunities. I'd love to hear your opinion or thoughts on this, Steve. But great to see the digital infrastructure wins overall that you announced in the quarter. Is there a way for you all to just lean into that a little bit more, whether it's by resource allocation, et cetera? Or is the opportunity set there particular to you and what you guys can deliver just a finite or a more defined set of opportunities, and it is what it is. So I just would like to start there, if we could.

Stephen Arnette: Sure. Great question, very timely, actually. I mean we are really excited about the continued accelerating progress in the critical digital infrastructure space. The team continues to focus on that. I would say that as a practical matter, we have a great track record of being able to find entree with a client, demonstrate significant value add and then scale with the client. And so we're right now, if you think about kind of the data center world specific and the hyperscalers, we're kind of moving to scale with a client. We've kind of found entree with a second and also making approaches with 1 or 2 others where we're getting started.

So we really do feel like we're kind of at that attractive part of the curve where we're beginning to launch into an opportunity to scale. And I think the reason that's happening and the reason that we're able to demonstrate value is there's so much volume of project activity happening so quickly lots of projects happen simultaneously. And the industry is still trying to figure out how do I engineer, how do I construct, how do I integrate these complex facilities.

And I think we've been able to bring a little bit of an improved solution to that where kind of engineering with systems integration, being able to stitch all that together in a way that optimizes schedule and minimizes delivery risk for the project. And so there's just a real receptive market there. So we absolutely see the continued opportunity to scale. And to your point about resource allocation, we are incrementally biasing resources there. We continue to make key strategic hires to bolster not only the business development, but also the project leadership part of that team. So really excited about the quarters to come for critical digital infrastructure.

Trevor Walsh: Awesome. That's great. Maybe just one quick follow-up, and John, maybe best for you. I appreciate the perspective around the kind of anticipated growth rates for the nuclear energy revenue opportunity. And I understand kind of the dynamics of these deals and these contracts just generally where in the planning stages, revenues may be kind of a little bit smaller scale or slower to develop. And then as the project really kicks off kind of in the back years is when you really see the top line impact.

Are there any other -- other than that just natural progression, are there any other milestones either from a regulatory standpoint or anything else that we should be mindful of to get to that 20%, 25% in the out years type of look that you kind of have contemplated in the slide?

John Heller: Yes. I think if you look at Europe, we're having great success, and we have great history, and we're involved in a whole host of projects, and we see other opportunities. I think the real question mark and that we are starting to see some progress with the Savannah River announcement would be, I think, a tremendous milestone, but that is progress in the United States that if you look at the last 30 years, very little new build activity. I think this administration is very much focused on the need for additional electricity to power the AI economy and that it's a national security issue. So this administration is very supportive.

I think the hyperscalers fully understand that if they're going to get the ability to build the data centers they need to sustain their businesses, they need additional electricity. So I think there are 2 things. One, that's driving it is the Trump administration's desire for 10 more gigawatt plants under construction by 2030. I think they are absolutely focused on that to make that happen. So that's going to be a key milestone. The Savannah River project is one of those engagements that can get 2 or more of those 10 under construction by 2030. And there are others that are being contemplated by the U.S. government in partnership with other companies, including Amentum.

I think the other thing is just the overall SMR market with a whole host of OEMs, including Westinghouse and of course, Rolls-Royce, where we're working with. But there are other OEMs that are putting tremendous investment and the U.S. government is supporting those companies because the need for alternatives to larger gigawatt plants and having smaller, say, between 100 to 400-megawatt opportunities to build and maybe in a faster way and a bit more flexibility in communities across the United States. So as we see continued progress and start to see some additional SMR projects greenlit, that will point to a real window of opportunity for our business to really accelerate.

Operator: Your next question comes from the line of [ Matti Roberts ] with RBC Capital Markets.

Matthew Akers: Was this for maybe for Ken Herbert with RBC? I just wanted to follow up on the -- you've got basically 50% of your revenues within the national security business. Maybe you can comment on how you're thinking about this business within sort of a focus within the core business. I can appreciate a lot of growth opportunities. As we think about this business, which does appear to be a bit of an anchor on sort of sentiment on the overall business, should this just naturally continue to mix down as you see better growth in other areas?

Or is there a real maybe sort of unlock on either revenues or margins within the national security business, in particular, that could help sort of the underlying core outlook?

John Heller: Thanks for the question. I think that if you look at today at the portfolio, it has -- it's actually shifted just incrementally less, but yes, approaching 50% of the portfolio in kind of national security. Of course, that does -- there's some diversification even within that because in the U.S., where we have a strong presence both in the U.K. and Australia. So there's some nice diversification there as well. We absolutely would not characterize that as an anchor. I mean I think there are large parts of the portfolio that are really going through some pretty exciting transformation. Some is organic kind of driving more technology solutions into the missions we drive and support.

And our teams are kind of getting used to, and I think it holds for the whole sector our teams are kind of operating in a mode of transforming the mission while we execute the mission. And we're very much engaged in enduring no fail missions, but the continuous integration of digital AI approaches to be able to more quickly integrate technologies to deal with evolving threat environment, so that is the norm now for our business.

As we think about it, even our national security work as we execute in that manner, we have opportunities now driven by the catalyst of the EO from the Trump administration to shift more of our work out of this kind of cost plus by the hour into a solution base whether it be as a service or just a fixed price enterprise solution. And so there is absolutely kind of an organic transformation of that part of the Amentum portfolio and national security happening as we go.

Kenneth Herbert: Okay. And maybe just to put a finer point on it, is it realistic to think that as we continue to see growth in broader defense spending that, that part of the portfolio could get to mid-single-digit growth? Or that might be a little ambitious?

Travis Johnson: Yes. I think as we view it today, Ken, certainly, our base case is not to see any significant impact to the budgets that impact momentum from what we're hearing in terms of the overall defense spending. If that were to occur, it would certainly be a tailwind to how we're viewing that part of the portfolio. And we do think, as I said earlier, that a lot of the things we're doing and the capabilities that we have are directly aligned with what this administration is trying to accomplish. So obviously, we're excited about that.

At the same time, we do see probably higher growth opportunities in our accelerating growth markets, as John talked about energy, as Steve talked about critical digital infrastructure. So I think our expectation naturally over time is that those will make up a larger percentage of the portfolio. But as Steve said, that's not to say that we don't see growth opportunities across our core, including in national security.

John Heller: And Ken, we really love this question because it gets to kind of the strategy. And I think this touches on one of the real differentiators and strengths of Amentum, and that is our global presence. And that Amentum is a true global company if you think about the peer set. We have 7,000 employees in the U.K. When you look all across Europe, Australia is a huge presence for us. Australia announced that they're moving ahead with infrastructure projects for the upcoming nuclear infrastructure that they're going to have with nuclear subs. Amentum is going to be a part of that.

I mean our position in Australia, our position in the U.K., our position across Europe on a defense standpoint. So when we think of defense, and you asked that question, we're thinking globally. And we -- of course, we're not trying to be in every country in the world. We have a great presence in the U.K. We have a great presence in Australia, certainly, those 2 markets. And we feel really good about the growth prospects there as well as being one of the leaders in the U.S., which has the largest budget. So of course, we're going to be focused there. But we like the broader opportunities that exist in that defense market.

Operator: [Operator Instructions] Your next question comes from the line of Andre Madrid with the U.S. Bancorp BTIG.

Andre Madrid: Yes. I was wondering if you can comment on what specific budget scenarios are contemplated in the '27 preliminary outlook? I know you kind of touched on it slightly there, but I wanted to hit on a bit more pointedly.

John Heller: Yes. Our base case is, I'll say, stable budget environment. And obviously, we're headed toward what's likely to be a continuing resolution at least through the better part of our first quarter. So we've contemplated what that could look like. So I'd say, especially within kind of the range of outcomes that we anticipate, we factored in a relatively consistent budget environment.

Andre Madrid: Got it. And then on the exiting of low to no margin work, I think you mentioned that this is base ops related. I wanted to clarify though, is this decision in part impacted by the current global threat environment at all? Is this something we're seeing across some peers? So -- or is it just purely based on the margin profile?

Stephen Arnette: Yes. It is not related at all to the global threat environment. It's domestic here. And as we've talked about, allocating resources toward higher growth, higher-margin opportunities is something that we're focused on. So this is isolated to just a few low to no margin kind of base operations programs here in the U.S. And as we said, they represent about 1% of revenue. So really just an intentional decision on where we're prioritizing our resources for the highest return opportunities.

Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

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