Amentum Holdings Q3 FY26 earnings call AMTM

Amentum reported Q3 FY26 revenue of $3.5 billion, reflecting 1% normalized growth, slightly below expectations. However, strong operating performance led to higher-than-anticipated profitability, with adjusted EBITDA of $290 million (8.3% margin) and adjusted diluted EPS of $0.67, up 20% year-over-year. The company generated $135 million in free cash flow and reduced net leverage to 3x, one quarter ahead of schedule. Strategic progress includes continued business development momentum, particularly in nuclear energy and critical digital infrastructure.

The company achieved net bookings of $3.9 billion, resulting in a quarterly book-to-bill of 1.1x and a trailing 12-month book-to-bill of 1.3x. Ending backlog reached $48 billion, with funded backlog increasing 10% year-over-year to $6.2 billion. Pending awards stand at $32 billion, with two-thirds representing new business. Amentum is on track to exceed its full-year submits target of $35 billion, with over half being new business. Notable awards include over $400 million in commercial nuclear, $250 million in critical digital infrastructure, and over $1 billion in National Security.

Amentum's nuclear revenue totals $2 billion, with $0.5 billion in the accelerating Global Nuclear Energy market. The company is the global delivery partner for Rolls-Royce SMR deployments in Sweden, the U.K., and Czech Republic. A strategic partnership with Westinghouse was announced to support the APX platform. Amentum was also selected by the Department of Energy to lead a consortium for an AI data center and multi-gigawatt nuclear facility at the Savannah River Site, an opportunity expected to exceed $1 billion in revenue over its life and offer economic interest in commercial operations.

The company is seeing accelerating progress in critical digital infrastructure, including key wins supporting hyperscaler data center build-outs and commercial network infrastructure. Management is incrementally biasing resources towards this area, making strategic hires to bolster business development and project leadership. The market is receptive to Amentum's integrated engineering and systems integration solutions, which optimize schedules and minimize delivery risks for complex facilities, positioning the company for continued scaling.

Amentum achieved its net leverage target of 3x a quarter early, enabling more flexible and opportunistic capital deployment. The company is evaluating strategic options including M&A, share repurchases, and continued debt reduction, with a focus on maximizing free cash flow per share and long-term shareholder value. Management emphasized that organic investments and business development success in higher-margin growth areas mean transformational M&A is not required, though it remains a potential part of the strategy.

The NASA workforce directive, which aims to insource certain industry-provided services, is now expected to have a 3% impact on FY27 revenue, higher than the previously estimated 1%. This revised estimate is based on detailed discussions with NASA. Due to the margin profile of the affected contracts, the impact on adjusted EBITDA is expected to be less than on revenue, making it accretive to overall margins. Amentum remains a trusted NASA partner, with larger contracts and IDIQ mechanisms offering future growth opportunities.

Amentum is undergoing organic portfolio shaping, shifting towards higher-margin opportunities. This includes a move from lower-margin managed services to technology-enabled work, and an increase in fixed-price and T&M contracts over cost-plus. The company also made an intentional decision to exit a few low-to-no-margin domestic-based operations, representing approximately 1% of FY27 revenue, to reallocate resources to higher-return opportunities. This strategy is expected to drive sustained margin improvement in the coming years.