Amentum Q2 2026 Earnings Report

Amentum EPS Results

• Actual EPS: $0.60
• Consensus EPS: $0.58
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.53

Amentum Revenue Results

• Actual Revenue: $3.48 billion
• Expected Revenue: $3.47 billion
• Beat/Miss: Beat by +$9.67 million
• YoY Revenue Growth: -0.40%

Amentum Announcement Details

• Quarter: Q2 2026
• Date: 5/11/2026
• Time: Before Market Opens
• Conference Call Date: Tuesday, May 12, 2026
• Conference Call Time: 8:30AM ET

Amentum (NYSE:AMTM) (NYSE: AMTM) is a global engineering and technical services company that provides mission support to government and commercial customers. Its capabilities include systems engineering, program management, operations and maintenance, logistics, cybersecurity, information technology, intelligence analysis, and professional services.

The company supports customers across the defense, intelligence, space, civilian government, energy, environmental, and industrial markets. Its work includes maintaining and modernizing critical infrastructure and complex platforms, supporting national security missions, managing nuclear and environmental programs, and providing technical services for space and other advanced technology programs.

Amentum was established through the combination of Amentum and Jacobs’ Critical Mission Solutions and Cyber and Intelligence businesses, which was completed in 2024. The company serves customers in the United States and internationally, with operations supporting government missions and critical assets across multiple regions.

Amentum Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Amentum reported a solid quarter with revenue of $3.5 billion, adjusted EBITDA of $275 million, adjusted EPS of $0.60 (up 13% YoY), and free cash flow of $220 million.
• Positive Sentiment: Booking momentum remained strong, with $4 billion in net bookings, a 1.2x book-to-bill, and backlog at nearly $48 billion—an all-time high for the company.
• Positive Sentiment: Management highlighted major awards across nuclear, aviation, intelligence, and digital infrastructure, including a $406 million SMR-related contract, a $425 million CAL FIRE contract, and over $600 million in critical digital infrastructure awards.
• Neutral Sentiment: The company reaffirmed FY2026 guidance, citing continued business development momentum and expecting revenue of $13.95 billion-$14.3 billion, adjusted EPS of $2.25-$2.45, and free cash flow of $525 million-$575 million.
• Neutral Sentiment: Travis Johnson said Amentum improved its capital structure after quarter end by issuing a $1.4 billion Term Loan A, refinancing debt, and raising revolver capacity to $1 billion, with net leverage still targeted to fall below 3x by year-end.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. Good morning, welcome to Amentum's second quarter fiscal year 2026 earnings conference call. Today's call is being recorded. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session, and instructions will be provided at that time. I would like to turn the call over to Joseph DeNardi, Senior Vice President of Investor Relations. Please go ahead, sir.

[Joseph DeNardi, SVP of Investor Relations at Amentum]

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. Let's move to slide two. 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.

[Joseph DeNardi, SVP of Investor Relations at Amentum]

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.

[Joseph DeNardi, SVP of Investor Relations at Amentum]

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

[John Heller, CEO at Amentum]

Thank you, Joe, and thank you everyone for joining us today. I want to begin today's call by recognizing the incredible work our employees do every day in support of our customers around the world. Their dedication, technical expertise, and innovation are what enable us to consistently deliver for our customers in the moments that matter most. In particular, I want to recognize our teams in the Middle East and the families who support them. In these environments, our employees are working side by side with our customers to deliver reliable outcomes in high-consequence missions. Their safety and well-being remain our top priority, and we greatly appreciate what they do for Amentum and our country. I also want to congratulate NASA, our Amentum employees, and other industry partners on the successful Artemis II mission, an extraordinary achievement that represents the very best of human ingenuity and perseverance.

[John Heller, CEO at Amentum]

The success of Artemis II showcases our multi-decade relationship as a trusted partner to NASA, where we look forward to continuing to deliver the engineering innovation, operational excellence, and mission-critical performance required to advance NASA's long-term goals. Let's turn to second quarter performance. Amentum delivered another period of solid results across all key metrics and continued momentum in business development with strong net bookings and robust submit activity. Financial performance highlights, which Travis will cover in more detail shortly, include revenue of $3.5 billion, reflecting normalized growth of three percent. Adjusted EBITDA of $275 million, with solid margins of seven point nine percent. Adjusted diluted earnings per share of $0.60, up 13% year-over-year, and free cash flow of $220 million.

[John Heller, CEO at Amentum]

Turning to slide four, execution of our growth strategy continues to translate into tangible results. We delivered net bookings of $4 billion, resulting in a quarterly and last twelve months book-to-bill of one point two times. An ending backlog of nearly $48 billion, up seven percent from the prior year quarter and an all-time high for Amentum. Our funded backlog was $6.9 billion, reflecting a 20% year-over-year increase. We also continue to see robust demand across our diverse end markets, with over $20 billion in first half submits, putting us on track to exceed our FY 2026 target of $35 billion. In addition, we ended the quarter with $26 billion in proposals awaiting award, with approximately 65% being new business to Amentum. With that, let me highlight a few notable second quarter awards.

[John Heller, CEO at Amentum]

First, Great British Nuclear awarded a 14-year, $406 million contract to an Amentum-led joint venture to deliver advanced solutions in support of the commissioning of small modular reactors, or SMRs, in the United Kingdom. This award reinforces our position as a trusted partner in complex nuclear programs and our role in supporting the global expansion of nuclear capacity. Also within our nuclear portfolio, the European Commission Joint Research Centre awarded an Amentum-led joint venture a two-year, $112 million contract to provide decommissioning and waste management solutions. In aviation, the California Department of Forestry and Fire Protection, or CAL FIRE, awarded Amentum a five-year, $425 million contract. This program will be delivered in an outcomes-based model, leveraging predictive analytics and data-driven tools to optimize fleet sustainment, reduce downtime, and streamline supply chain and repair cycles.

[John Heller, CEO at Amentum]

In our intelligence portfolio, Amentum was awarded multiple contracts totaling over $300 million, which align with national security priorities and will deliver a range of innovative mission-focused solutions. Finally, in our critical digital infrastructure accelerating growth market, Amentum received over $600 million in awards to provide advanced engineering and technology solutions to a broad range of telecom, hyperscaler, and national security customers. Under these agreements, Amentum will deploy advanced wireless networks, expand secure connectivity solutions, and retrofit legacy data centers to support AI-driven workloads. These awards reflect the alignment of our portfolio with enduring drivers of demand across defense, commercial, and global energy markets. Looking ahead, domestically, we are encouraged by the President's government fiscal year 2027 budget request and see alignment with key priorities, including enhancement of capabilities in readiness and deterrence, space, missile defense, and counter-UAS, just to name a few.

[John Heller, CEO at Amentum]

We are also seeing sustained momentum across international markets, particularly in nuclear, alongside strong commercial demand driven by AI and digital infrastructure. Turning to our growth framework on slide five, as demonstrated by this quarter's awards, we remain steadfast in driving performance in our core markets. At the same time, we are strategically positioned to capitalize on accelerating growth in emerging markets. Over the past two quarters, we've highlighted our global nuclear energy and space systems and technologies markets, both of which continue to represent substantial opportunities for Amentum. Today, we will focus on critical digital infrastructure, or CDI, and how we are strategically positioned to benefit from this rapidly evolving area. Moving to slide six, you can see that CDI is a large and growing market with multi-decade tailwinds driven by increasing demand for AI, data, and mission-critical applications in both commercial and government environments.

[John Heller, CEO at Amentum]

In particular, data center demand, which is expected to grow 29% annually, is increasing requirements for compute, power, and connectivity. At the same time, global mobile data traffic is expected to quadruple in the coming years and is driving the need for scalable, low-latency networks. Finally, at the edge, where the market is expected to grow 36% annually through 2030, there is an expanding need for distributed compute and real-time processing. Taken together, these trends are creating a unique and expanding set of opportunities for companies like Amentum, who offer integrated infrastructure solutions across data centers, networks, and edge environments. With that, let's turn to slide seven to discuss how Amentum is well-positioned to capitalize on this demand and help enable advancement in connectivity in the new AI and digitally driven world. In CDI, Amentum focuses on three primary areas.

[John Heller, CEO at Amentum]

First, in smart commercial infrastructure and data centers, Amentum supports the full life cycle from engineering and design through development and construction to operations, maintenance, and ongoing optimization, including power, cooling, controls, and automation solutions to enhance performance and efficiency. In the front end, an example where we have seen recent increasing demand is the work we do to support hyperscalers in retrofitting legacy data centers for AI workloads, where Amentum brings differentiated expertise, positioning us for follow-on work as capacity expands. Beyond data centers, Amentum provides innovative solutions to several marquee Fortune 500 companies in areas such as advanced manufacturing to maximize uptime in mission-critical settings. Second, in next-generation digital connectivity, we engineer, design, and deploy large-scale networks, including wireless and fiber infrastructure, enabling secure real-time data movement across complex environments.

[John Heller, CEO at Amentum]

Amentum's offerings span from supporting major telecom providers with national 5G deployments to more regional efforts, such as supporting state transportation departments with deployment of fiber optic networks for connected vehicle systems, traffic management, and public safety communications. Third, in cyber and network defense, we embed security across all of our solutions while also delivering standalone capabilities in highly sensitive conditions. Our differentiation lies in our ability to secure both IT and operational technology environments. Protecting not only data, but the physical systems that underpin critical infrastructure. For example, we support intelligence community customers through advanced systems engineering and modeling capabilities to assess vulnerabilities, secure facilities, and prepare for both cyber and physical threats. In aggregate, these areas represent a significant addressable market for Amentum, which is expected to grow 10% or more annually over the next several years.

[John Heller, CEO at Amentum]

When combined with our other accelerating growth markets, global nuclear energy and space systems and technology, Amentum has over $4 billion in annual revenue at accretive margins aligned with end markets expected to see significant long-term growth. We believe the value of this aspect of our portfolio is particularly underappreciated by the market. Our focus as a leadership team is to invest and execute to capture this opportunity and maximize long-term value for our shareholders. With that, I'll turn the call over to Travis.

[Travis Johnson, CFO at Amentum]

Thank you, John, and good morning, everyone. I'm pleased to discuss with you today Amentum's second quarter financial results, which reflect underlying growth across all key metrics and a notable rebound in cash flow. I will also cover the successful enhancement of our capital structure after quarter end and our views on performance for the remainder of the year. Building on John's remarks, our second quarter performance, the business development results in particular, reflect the continued strength of our execution, disciplined operational focus, and measurable progress against our strategic and financial priorities. With that, let's begin with an overview of our financial performance on slide eight. Revenue in the second quarter totaled $3.5 billion, reflecting underlying growth of three percent as the impact from joint venture transitions and divestitures previously discussed was positively offset by the ramp-up of new contract awards in our accelerating growth markets.

[Travis Johnson, CFO at Amentum]

Adjusted EBITDA of $275 million benefited from a 20 basis point year-over-year increase in adjusted EBITDA margins to seven point nine percent. The continued margin improvement represents tangible progress on our strategic focus to prioritize higher-margin work and realize benefits from our cost synergy initiatives. Adjusted diluted earnings per share of $0.60 was up 13% from a year ago as a result of the strong operational performance and lower interest expense from our debt reduction initiative. Moving to our reportable segment results on slide nine. Digital Solutions delivered revenue of $1.5 billion, representing 10% growth, driven by the continued ramp-up of new contract awards in our critical digital infrastructure in space systems and technologies markets.

[Travis Johnson, CFO at Amentum]

Adjusted EBITDA of $105 million was slightly lower year-over-year due to the FY 2025 divestiture, timing factors related to new program starts, and higher net write-ups in the prior year quarter. These impacts were partially offset by the higher revenue volume, resulting in adjusted EBITDA margins of seven point two percent. Turning to Global Engineering Solutions, revenue was $2 billion, reflecting the impacts from the JV transitions, the divestiture, and the expected ramp-down of certain historical programs, all of which were partially offset by contributions from new contract awards. Adjusted EBITDA of $170 million benefited from a 100 basis point year-over-year increase in adjusted EBITDA margins to eight point five percent.

[Travis Johnson, CFO at Amentum]

This strong performance in the quarter was driven by continued focus on higher margin growth opportunities, including more fixed price work and disciplined program execution. Turning to slide 10 to cover our cash flow and capital structure highlights. Free cash flow in the second quarter totaled $220 million and benefited from the recovery of collections consistent with our remarks on the first quarter earnings call. First half free cash flow of $78 million is in line with our expectations and puts us on track to meet our full year free cash flow guidance. From a capital structure perspective, in the weeks after quarter end, leveraging our improving financial profile, we took deliberate action to enhance the structure in terms of our debt.

[Travis Johnson, CFO at Amentum]

We issued a new $1.4 billion Term Loan A facility and utilized the proceeds to pay down and reprice our Term Loan B. We also increased our revolving credit capacity to $1 billion. These actions, coupled with benefits from the Moody's rating upgrade in December, have reduced our weighted average cost of debt by approximately 50 basis points and strengthened our overall capital structure as we remain on track to achieve net leverage below three times by the end of the fiscal year, enabling greater financial flexibility and opportunistic deployment. On slide 11, let's now turn to our fiscal year 2026 full year outlook. As a result of our first half performance, continued business development momentum, and with 97% of revenues expected to come from existing and repeat business, we are reaffirming our fiscal year 2026 guidance.

[Travis Johnson, CFO at Amentum]

We continue to expect revenues in the range of $13.95 billion-$14.3 billion, adjusted EBITDA between $1.1 billion and $1.14 billion, adjusted diluted earnings per share between $2.25 and $2.45, and free cash flow between $525 million and $575 million.

[Travis Johnson, CFO at Amentum]

From a timing perspective, we expect approximately 48% of remaining revenue and profit in our third quarter in a sequential increase in the fourth quarter, which benefits from an additional working day, the timing of already funded project work and contributions from new awards. Further, we expect cash flow will follow a normal seasonality with the majority generated in the fourth quarter as a result of payroll timing and strong collections given our alignment with the government's fiscal year-end. Wrapping up on slide 12, our first half performance reflects disciplined execution, continued growth, and sustained demand across the business. As a result, we are well-positioned to deliver on our fiscal year 2026 objectives and remain focused on driving long-term value for our customers, employees, and shareholders. With that, operator, please open the line for questions.

[Operator]

Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by one on your touch tone phone. You will hear a prompt that your hand has been raised. If you would like to withdraw from the polling process, please press star then number two. If you are using a speakerphone, please make sure to lift your handset before pressing any keys. We will be taking one question and one follow-up per participant. Your first question comes from the line of Greg Parrish from Morgan Stanley. Please go ahead.

[Greg Parrish, VP of Equity Research at Morgan Stanley]

Hey, guys. Good morning. Congrats on the quarter. Great to be on the call here with you.

[John Heller, CEO at Amentum]

Thanks, Greg. Greg, good morning. Thank you.[crosstalk]

[Greg Parrish, VP of Equity Research at Morgan Stanley]

Yep. Good morning. I want to talk about booking strength. You know, really good quarter for bookings up sequentially, up meaningfully from last year. Appreciate the slide on the win. Seemed pretty broad-based. I guess maybe just help us with the second half award environment. Do you expect bookings to continue to trend higher sequentially? How should we think about bookings in the second half?

[John Heller, CEO at Amentum]

Yeah, no, just taking a step back, you know, Amentum really had a strong second quarter. Overall, the company continues to execute at a very high level, all across our portfolio. The solid bookings with book-to-bill, LTM book-to-bill. It's not just a quarter, but really LTM one point two times, one point three on an imputed basis if you include our joint ventures. You know, our backlog is strong, and really demand is being driven by these long-term secular trends in AI, data, national security that we touched on that are driving our accelerated growth markets. At the same time, our core business continues to lead and perform well and generate strong free cash flow. That's another area of excitement in the overall portfolio.

[John Heller, CEO at Amentum]

If you look at performance today, you know, we mentioned bids greater than $20 billion thus far with, you know, we set out a goal of bidding $35 billion plus this year after bidding approximately $35 billion last year. We're well on track to do that. Given, you know, the scale of our business, the end-to-end capabilities, we're winning our fair share, right? We have the capabilities our customers need to perform their mission, whether it's in our accelerating growth markets of space systems and technology and global nuclear energy or CDI, or in our core markets. We really think our growth rates stand up and will continue to be consistent.

[John Heller, CEO at Amentum]

With our bidding focus, and our kind of feeling strong that we're gonna bid over $35 billion this year, we think our book-to-bill can remain at the levels that we've been doing consistently since the first day we came out as a public company. We feel pretty good about where the you know, where the business looks from a new business and recompete win standpoint for the second half of the year. I mean, think about a lot of what we're doing thus far this year is really focused on 2027. If we can have a good bidding year this year, it sets us up for success in 2027 as well.

[Greg Parrish, VP of Equity Research at Morgan Stanley]

Yeah, great. Fantastic color. Thank you. maybe just to click on margin here. engineering specifically expanded even further in the quarter. I think last quarter benefited from a little bit from the government shutdown. maybe we thought there would be a little bit of a step down. I think you called out focusing on higher margin work, fixed price as well. you know, is there any timing or one-time things to think about in the quarter, or is this the right level to think about the second half for engineering margin?

[Travis Johnson, CFO at Amentum]

Yeah, Greg. Really pleased with the continued strong margin performance in our Global Engineering Solutions business specifically. Just to dive a little bit deeper to expand on what I said in the prepared remarks, it is a mix of things that are driving it, most of which we believe to be sustainable. Certainly, we're gonna have, you know, the timing of program write up some performance from quarter to quarter that could vary a little bit, but it's more fundamental what we're seeing in that business. We mentioned our focus to continue to prioritize and go after higher margin work. Obviously, we, you know, we view fixed price work as a potential to be accretive, and that's been part of our strategy since we came out with our margin expansion initiatives at Capital Markets Day back in August of 2024.

[Travis Johnson, CFO at Amentum]

We are seeing a higher mix of fixed price work. We're starting to see the customer in some areas where they would have traditionally procured on a cost plus basis procuring a T&M or fixed price basis.

[Travis Johnson, CFO at Amentum]

You'll see that in our contract mix statistics in the 10-Q that's going to come out later today. You know, we welcome that. Obviously, the recent executive order is another example of where the customer is looking to do more of that, we'll continue to work with them to support that initiative as well. Also we're seeing, you know, strong performance from our joint ventures. The equity income is a little bit higher this quarter than it was in the second quarter of last year. That's also driving some of the margin expansion. Obviously disciplined program execution, as we mentioned. You're really starting to see the fruits of all the efforts we put into our cost synergy and synergy initiatives flow through the P&L. A lot of good activity really driving that 100 basis point improvement that you saw year-over-year.

[Operator]

Okay. Thanks very much. Your next question comes from the line of Tobey Sommer from Truist. Please go ahead.

[Tobey Sommer, Managing Director and Analyst at Truist]

Thank you. As we think about your underlying rate of growth and this year and dovetail some of the better growth you're seeing in the growth areas that you've highlighted, are there any other puts and takes that you would point us to at this point as we think about growth in fiscal 2027 and 2028?

[Travis Johnson, CFO at Amentum]

Hey, Tobey. I'll start, John can add or Steve as well. The midpoint of our guidance for FY 2026 implies, you know, normalized growth if you know, account for the joint venture transitions, the divestitures, and obviously we had an extra week in the fourth quarter of three percent. You know, we had the impact from the government shutdown in the first quarter, so that's roughly an additional percent. We're at underlying growth of, you know, roughly four percent at the midpoint of our guidance. That's exactly where we thought we would be at this point in our journey of, you know, bringing the merger together and going public and our long-term growth objectives of a four to six percent CAGR by FY 2028.

[Travis Johnson, CFO at Amentum]

Obviously in John's prepared remarks and, you know, what he said in response to the first question and how we feel about the growth trajectory of the business and what we are seeing in performance there in terms of a one point two book-to-bill on an LTM basis and how we view the second half of the year setting up with, you know, over $26 billion worth of awards pending and roughly two-thirds of that being new business to Amentum. We certainly are excited about, you know, what the potential could be headed into 2027 and 2028. We will obviously have to see how the pending awards get adjudicated and, you know, see how 2027 progresses, but certainly look forward to keeping you updated there.

[John Heller, CEO at Amentum]

Yeah. I would say just our strategy in general. A lot of it, you know, we're just the company at the right time in many respects. You know, we have the strength in the accelerating growth markets that we've talked a lot about, and AI is driving demand for electricity, driving data center expansion, network infrastructure. The other side, and you said, like, "Are there any things that are popping up?" Well, the defense budget increase, we didn't necessarily see that coming when, you know, we go back a year and a half, but it's aligned really well with strength areas in our core markets as well. You know, when you think of readiness, the budget request is proposing a 20% increase from 2026.

[John Heller, CEO at Amentum]

That really aligns well with areas like platform sustainment, training, logistics, where Amentum is really strong and, you know, the leader in the market. Second, space and missile defense, where our work, Missile Defense Agency, Space Force, Air Force align really well if we see continued expansion of investment in those areas. Finally, really in the drone counter-UAV, counter-drone technologies, where, you know, the budget request has approximately $70 billion earmarked to expanded investment in those areas. Amentum has been, for decades, a leader in helping develop and sustain the unmanned and now counter-unmanned technologies. If, you know, think of contested logistics and tactical operations that unmanned technology could support, that just aligns extremely well with Amentum's core markets. You know, we both believe our core markets are at the right place.

[John Heller, CEO at Amentum]

Our accelerating markets have great tailwinds that can provide the future growth that we've been talking about.

[Tobey Sommer, Managing Director and Analyst at Truist]

Thank you. I was wondering if to dovetail and build on that, if you could comment on what you're seeing in your NASA customer as well as how you see the company applying capital proactively to shape and accelerate growth as you reach your leverage target in just a, you know, couple of months or quarters.

[Steve Arnette, COO at Amentum]

Hi, Tobey. I'll take the NASA question, and Travis may wanna chime in on the second part of your follow-up. We're right now still very thrilled about, John mentioned in his prepared remarks, the outcome of the Artemis II mission. That was a great achievement, not only for our Amentum team in partnership with NASA, but the nation thinking about the first crewed mission in more than 50 years to send our astronauts out beyond the moon and return them safely. It's really a banner day. Really even getting beyond Artemis II, and our teams are already working on processing hardware for Artemis III, but if you think about it, the overriding priority, credit to the National Space Policy formulated by President Trump and Administrator Isaacman with a laser focus on

[Steve Arnette, COO at Amentum]

Achieving the goals of the National Space Policy, which will take us, you know, back to the Moon to stay and prepare us to venture forward on to Mars. We're very excited about the campaign of upcoming Artemis missions. There's a lot to be excited about there. There is, as you may be referring to the NASA Workforce Directive, where they've taken a strategic decision that they need to incrementally insource some expertise to expand their core capabilities. We are, of course, working with NASA to understand their objectives and certainly understand how it will impact our Amentum portfolio of contracts and programs where we're supporting NASA. Based on the discussions we've had, the indicative input that we've received thus far, we believe the impact to FY 2026 will really be immaterial.

[Steve Arnette, COO at Amentum]

We do think that for FY 2027, as we estimate an approximately one percent impact to revenue in 2027. The impact to EBITDA would be a little bit smaller than that. Given the modest impact that we see, this really does not change our excitement about the go-forward trajectory for them.

[Travis Johnson, CFO at Amentum]

Yeah. On the second part of that question, Tobey, I guess building on John's remarks, and, you know, really he touched on, you know, what we're seeing from a growth perspective. You know, I touched a little bit on the margin expansion trajectory that we're on, and both of those being on track where we thought we would be. The one area that I'll just add to that is on free cash flow. Obviously, what we've been able to do from a deleveraging perspective to date is accelerated relative to what we initially thought, bringing the companies together and going public.

[Travis Johnson, CFO at Amentum]

Recently, obviously, this quarter, what we were able to do from a refinancing perspective will only further benefit that, in our ability to, you know, generate free cash flow at a growth rate of 10% or greater from now to FY 2028. That puts us in a good point, to your question on capital deployment, right? We're really looking forward to getting to that place, where we achieve our net leverage target of less than three times by the end of this year. Obviously, you know, we should be in the high two's based on the trajectory that we're on. You know, we're committed to maintaining a prudent capital structure that will allow us to deploy capital in a flexible and opportunistic way.

[Travis Johnson, CFO at Amentum]

We'll evaluate the options, as that comes up, whether it's, you know, high return on investment, organic opportunities, accretive M&A. You know, it could be continued debt reduction or a capital return to shareholders when we think, you know, the share price is trading below its intrinsic value. All that said, you know, our goal will be to look at things to make sure that we're maximizing free cash flow per share and delivering strong compounding returns for our shareholders.

[Operator]

Your next question comes from the line of Andre Madrid from BTIG. Please go ahead.

[Ned Morgan, Equity Research Associate at BTIG]

Hey, good morning. This is actually Ned Morgan on for Andre. I saw Japan is investing $40 billion in SMR development in the U.S. I was just wondering, are you guys positioned to benefit from this funding at all?

[John Heller, CEO at Amentum]

Yeah. I there's a lot going on really in the U.S. nuclear market, and we're real excited about the activity that this administration has been really focused on building partnerships that bring capital in from various sources to help support these types of projects. The, the money that you're talking about and the potential investment is targeted for a pretty significant project that we are in discussions with multiple of these opportunities throughout the U.S. Many of them involve SMR technologies and SMR vendors. You can imagine with our expertise and things like the partnership with Rolls-Royce, where we are supporting both, you know, large gigawatt construction and engineering and design to SMR development across Europe.

[John Heller, CEO at Amentum]

We're one of the key partners here in the U.S. that has that capability, given the lack of really progress in nuclear over the last 30 years. Amentum brings a scale of capability in the U.S. that is practically unmatched. Not only that, it's real. We have a history of supporting nuclear projects that really our competitors don't have that hands-on experience, that are new builds. We're excited about that project in particular, but many others that are being contemplated in the U.S.

[John Heller, CEO at Amentum]

I think I've mentioned this last quarter, say it again, the progress is continuing, and we fully expect in the second half of this year, going into 2027, we are gonna see a number of projects come to light and really get the funding and the support and the partnerships come together that enable these projects to move forward from design and kind of theoretical to actual practical construction and moving forward in the second half of this year into 2027.

[Ned Morgan, Equity Research Associate at BTIG]

Got it. Another just on Digital Solutions margins. I know there's some new start work there, specifically within the space, that Space Force Range Contract. How should we think about the margins of that moving forward as the program kind of ramps and where DS margins will trend throughout the year?

[Travis Johnson, CFO at Amentum]

Thanks, Ned. The Digital Solutions segment obviously had a really nice quarter and a nice year-to-date performance on revenue growth. It had 10% reported growth in the second quarter and bring that to eight point zero percent year-to-date. Thanks, Chris, in that segment. Obviously, when you're growing that fast and you're ramping up new programs, we have, you know, a couple new program starts. One is in our space business, another one's in our critical digital infrastructure business. You know, it's not uncommon for margins to start off more modest and grow over time. That's certainly what we expect on those programs that are ramping up. That obviously is contributing to what you're seeing in the Digital Solutions margin dynamics this quarter and year-to-date.

[Travis Johnson, CFO at Amentum]

You know, the other element there, just to mention, is the timing of program write-ups. Those, you know, can vary from quarter to quarter, but over any kind of normalized period, say, over a year, they're kind of, you know, steady, right? While, you know, the performance was more modest this quarter and year-to-date Digital Solutions, we do expect over time that there's opportunity for margin expansion. For the rest of this year, I'd say we expect it to be relatively consistent with first half performance. Going FY 2027 and beyond is, you know, when those programs will get into, you know, full gear, and other initiatives that we're running from a margin expansion perspective will start to benefit the segment.

[Ned Morgan, Equity Research Associate at BTIG]

Great. Thank you.

[Operator]

Your next question comes from the line of Trevor Walsh from Citizens Bank. Please go ahead.

[Ethan Frost, Equity Research Associate at Citizens Bank]

Hi, guys. It's Ethan Frost on for Trevor. I was wondering on the CDI opportunity, can you give like a rough long-term sense of how that customer mix could develop between commercial and government customers?

[Steve Arnette, COO at Amentum]

Yeah, maybe I'll start and John, Travis may wanna add context. I guess the first point I would start with is that we are not a new entrant into this market. This is a business that we've been building for more than a decade, and maybe just from a historical context, I'll focus for a second on kind of the communications or telecom part of the market. It's a part of the business that we've been growing for really, as I mentioned, more than a decade. We're excited about that business 'cause structurally, it really gives us some advantages. If you think about, first of all, what we do, it's really helping some of the major telcos to be able to match capacity to demand.

[Steve Arnette, COO at Amentum]

Whether it's 4G, 5G, our teams even are beginning to work with 6G, being able to diagnose where additional capacity is needed to engineer and even to deploy that capacity to enable those, a stable system performance, and reaction to dynamic demands. We're really proud to kind of partner in that critical aspect of their businesses and really be a key partner, kind of the core business there. That business has continued to grow, and it's really concentrated, if you think about it, in the population centers of our nation. Eastern Seaboard, West Coast, you know, Chicago, the major cities where we're helping to solution those.

[Steve Arnette, COO at Amentum]

It really gives us a structural advantage from the critical digital infrastructure standpoint in that we have this geographically distributed teams that are there ready to be able to design, integrate, and deploy these solutions that we can, you know, shift that capacity to work with data centers and these other kinds of types of projects. The telecom is a little bit of a foundational piece, and now we're growing that business into other areas. John, maybe you wanna comment on the data center part.

[John Heller, CEO at Amentum]

Yeah. Well, just in terms of the growth area, you know, we talked about critical digital infrastructure as really being the demand is being driven by long-term trends, primarily the rapid scaling of AI and data workloads. You know, we actually have a slide in there in our presentation where we showed where that demand is driving. It's really in the edge AI markets. If you think of all the applications that are being developed right now, it's accelerating rapidly. As you know, businesses and consumers of AI tools are using and driving the demand into the data traffic that Steve just mentioned, which kind of drives the telcos to build out more infrastructure. It's driving the need for more data center computing power that can process the AI tools, the edge AI products.

[John Heller, CEO at Amentum]

That's our focus is really in supporting the telco capability, that infrastructure to transmit that data, then the computing power, helping the hyperscalers build out the data center capability by using capabilities that we've had for decades and working for government, our ability to bring the engineering and the technical resources to help upgrade and deliver expanded data center capability. For us, it's not expanding our capability, it's just leveraging strong capability that we've had for decades because you have this unbelievable demand being created by AI. The final piece is, you know, we have the transmit piece, we have the data center piece, but we also have the cybersecurity piece because all of this data creates immense risk, and you need cyber capability to secure networks, identify threats, and respond when you have problems.

[John Heller, CEO at Amentum]

These are things that we've been doing for our government customers and continue to do that we can bring to commercial enterprises to help them as the AI demand increases and really creates exposure, risk exposure. We're pretty excited about all three of these areas and growth that they can represent for Amentum going forward.

[Ethan Frost, Equity Research Associate at Citizens Bank]

Great. Just one quick one. In terms of, you know, using the existing experience and space, is there any crossover with just like telecom and network communication, like moving into orbit? Is there like a way to capture that opportunity as well?

[Steve Arnette, COO at Amentum]

Yeah, it's a great concept, we actually are very much seeing that come to life. Just building on kind of the examples John talked about there with critical digital infrastructure, it's interesting how much of our expertise truly is dual use. I mean, it's critical to the national security missions with government customers as well as the commercial mission. Kind of an example we were thinking about the other day is there's so much acceleration and activity in the government customer space trying to make better utilize 5G and some of the, I'll say, elaborate capabilities of 5G in government missions which, you know, heretofore has been primarily a commercial venture. We're very much taking advantage of that dual use.

[Steve Arnette, COO at Amentum]

Maybe other thing I would say is that, you know, government has always been, you know, a leader in terms of data security and cybersecurity, IT, OT, those kinds of things. Increasingly, as John alluded, commercial networks, commercial applications increasingly interested in operational technology, cyber, and these kinds of things. We very much see that it crosses from government and commercial applications. To your point with the space communication, there's so much work going on in the government national security space around. We've certainly worked with customers like the Missile Defense Agency, Space Force to kind of pioneer next generation ground space communications to be more efficient, more rapid, take latency out of the system.

[Steve Arnette, COO at Amentum]

Some of those exact expertise areas will absolutely cross over into future commercial applications as you really build out this, you know, data center core, connect, and edge, and all that has to work more efficiently. There's a true convergence there. Very much appreciate the question.

[Ethan Frost, Equity Research Associate at Citizens Bank]

Great. Thank you.

[Operator]

Your last question comes from the line of Kevin Liu from RBC Capital Markets. Please go ahead.

[Kevin Liu, Analyst at RBC Capital Markets]

Hey, good morning. Thanks for taking the question and congrats on the strong quarter. As you guys look at your portfolio today, obviously you guys have done a few divestitures over recent quarters. Where are you guys today in terms of further portfolio pruning, or how do you look at your portfolio today? Do you see any other opportunities to divest and get rid of non-core work?

[John Heller, CEO at Amentum]

We've been really happy with the overall portfolio, you know, over the last 18 months. You know, our book-to-bill has been very strong. We've seen opportunities in our core markets and these emerging accelerating growth markets really settling in and starting to deliver on what the expectation is there. Of course, we're always going to look strategically at what, you know, where the real key growth drivers are, where we can drive margin expansion, and we'll assess different parts of our portfolio and are they all aligned to our strategic objectives. What I would say is, you know, we do a normal strategic planning process. We brief to the board actually later this year closer to September.

[John Heller, CEO at Amentum]

You know, that's just part of the review that we would do, is looking at the overall portfolio, looking at our what's happening in our growth areas, where are the strong tailwinds, and are there opportunities to shape the portfolio that would help drive investment in markets that we think have greater growth potential or greater potential to drive margin. I think that's just a normal evaluation that happens in the normal strategic planning process that we'll go through this year. Overall, thus far, we've been pretty happy with the entire portfolio and what it's doing.

[Kevin Liu, Analyst at RBC Capital Markets]

Great. I'll leave it at one. Thank you.

[Operator]

There are no further questions at the time. Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Participants

Executives

• John Heller, CEO
• Joseph DeNardi, SVP of Investor Relations
• Steve Arnette, COO
• Travis Johnson, CFO

Analysts

• Ethan Frost, Equity Research Associate at Citizens Bank
• Greg Parrish, VP of Equity Research at Morgan Stanley
• Kevin Liu, Analyst at RBC Capital Markets
• Ned Morgan, Equity Research Associate at BTIG
• Tobey Sommer, Managing Director and Analyst at Truist