Executive Summary / Key Takeaways

• Amentum Holdings, Inc. has been fundamentally reshaped by its transformative merger with Jacobs' CMS business, creating a scaled leader in government and commercial engineering and technology solutions with a diversified portfolio and global reach.
• Recent financial results for Q2 FY2025 demonstrate the impact of the merger, with significant year-over-year increases in revenue and Adjusted EBITDA, driven by contributions from the acquired business and organic growth in key segments like Digital Solutions.
• The company boasts a substantial $45 billion total backlog and $10.7 billion in remaining performance obligations, providing strong revenue visibility and underpinning management's confidence in its reaffirmed and narrowed FY2025 guidance ranges.
• Strategic focus areas, including advanced digital solutions, nuclear energy, and intelligence, leverage Amentum's combined technological expertise and align with well-funded government and commercial priorities, offering potential for future growth despite a dynamic market environment.
• The planned divestiture of the Rapid Solutions business, along with disciplined cash flow management, is set to accelerate debt reduction efforts, positioning Amentum to achieve its target net leverage of approximately 3x by the end of FY2026 and enhance capital deployment flexibility.

A Transformed Enterprise: Setting the Scene

Amentum Holdings, Inc. (NYSE: AMTM) stands today as a significantly different entity than just a year ago, having undergone a transformative merger with Jacobs Solutions (J)' Critical Mission Solutions (CMS) business and parts of its Divergent Solutions unit on September 27, 2024. This Reverse Morris Trust transaction fundamentally reshaped Amentum, creating a global powerhouse in advanced engineering and technology solutions. The company now serves a broad base of U.S. and allied government agencies, supporting programs of critical national importance across diverse end-markets including energy and environmental, intelligence, space, defense, civilian, and commercial sectors.

The merger dramatically increased Amentum's scale, expanding its global footprint to over 80 countries and its workforce to more than 53,000 employees. This combination brought together complementary capabilities, particularly strengthening Amentum's position in areas like intelligence analytics, space system development, cybersecurity, large-scale environmental remediation, clean energy, and platform engineering. The company subsequently realigned its reporting structure into two segments: Digital Solutions (DS) and Global Engineering Solutions (GES), reflecting its operational focus.

Within the competitive landscape, Amentum operates alongside major players such as Leidos Holdings (LDOS), Jacobs Solutions, Fluor Corporation (FLR), and KBR, Inc. (KBR). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Amentum's post-merger scale positions it as a significant force. Its estimated aggregate market share in government engineering and technology services is in the range of 5-10%. The company's strategic positioning emphasizes providing comprehensive, end-to-end lifecycle support, differentiating it from rivals who may focus more on specific niches or project types.

Amentum's competitive strength is significantly bolstered by its differentiated technology solutions and deep technical expertise. The Digital Solutions segment, for instance, leverages advanced digital and data-driven capabilities, including intelligence analytics, cybersecurity, and next-generation IT. The company is actively deploying AI/Machine Learning-enabled tools across sectors like intelligence, defense, commercial, and energy. These applications include data collection and processing, enhanced data analysis, predictive analytics, real-time threat detection, and integration with existing security systems, with a critical emphasis on cybersecurity. Management highlights that these technologies enable customers to achieve their objectives faster and more effectively, providing a strategic edge in critical missions. The company has formalized nine centers of excellence and established technical advisory groups to connect experts and bring the best solutions to its customers.

In the Global Engineering Solutions segment, Amentum's technological edge is evident in areas like nuclear engineering. The company is involved in advanced fuel processing and fabrication design initiatives in the U.S., supports the development of Small Modular Reactors (SMRs), and plays a key role in large gigawatt nuclear power stations like Sizewell C and Hinkley Point C in the UK. This expertise is particularly relevant given the accelerating demand for nuclear energy, driven in part by the power needs of hyperscale computing centers supporting AI growth. While specific quantifiable performance metrics versus alternatives are not detailed, the strategic intent is clear: to provide reliable, secure, and advanced energy solutions. The company's partnership with Rivada Space Networks to offer ultra-secure low-earth orbit connectivity using Rivada's 600-satellite Outernet constellation further underscores its focus on leveraging advanced technology for mission-critical applications.

This foundation of scale, diversified capabilities, strategic alignment with critical missions, and technological expertise forms the backdrop against which Amentum's recent financial performance and future outlook should be assessed.

Performance Reflecting Transformation

Amentum's financial results for the second quarter and first six months of fiscal year 2025 clearly illustrate the impact of the CMS merger. For the three months ended March 28, 2025, revenue surged to $3,491 million, a substantial increase from $2,051 million in the prior year period. Similarly, for the six months ended March 28, 2025, revenue reached $6,907 million, up from $4,034 million in the corresponding period of the previous year. This significant top-line growth was primarily attributable to the inclusion of the CMS business.

Operating income for the quarter was $110 million, up from $89 million, and for the six months was $242 million, compared to $175 million in the prior year. Interest expense and other, net, decreased to $86 million for the quarter and $173 million for the six months, benefiting from a reduction in the term loan principal and lower interest rates, partially offset by interest on new Senior Notes. This resulted in income before income taxes of $24 million for the quarter and $69 million for the six months. The provision for income taxes was $22 million and $46 million, respectively, leading to net income including non-controlling interests of $2 million for the quarter and $23 million for the six months. Net income attributable to common shareholders was $4 million for the quarter and $16 million for the six months.

Cost of revenues also increased in line with the higher revenue volume, totaling $3,124 million for the quarter and $6,179 million for the six months. However, as a percentage of revenues, cost of revenues saw a slight improvement, decreasing to 89.5% for both periods in FY2025 compared to 90.2% in the prior year. Selling, general, and administrative (SGA) expenses rose to $145 million for the quarter and $275 million for the six months, reflecting the larger combined entity and increased acquisition, transaction, and integration costs. SGA as a percentage of revenue increased to 4.2% and 4.0% for the respective periods. Amortization of intangibles also saw a significant jump due to the assets acquired in the merger, reaching $120 million for the quarter and $240 million for the six months.

Segment performance highlights the contributions of the combined business. The Digital Solutions segment reported revenues of $1,340 million for the quarter and $2,626 million for the six months, with Adjusted EBITDA of $107 million and $207 million, respectively. Management noted that DS revenue growth was driven by new contract awards, particularly in commercial infrastructure, and excluding the impact of Cytec, DS revenues grew 8% on an underlying basis. Adjusted EBITDA margin for DS increased to 8% in Q2 FY25 due to higher volume and improved operating performance. The Global Engineering Solutions segment generated revenues of $2,151 million for the quarter and $4,281 million for the six months, with Adjusted EBITDA of $161 million and $323 million. While GES revenues saw a slight year-over-year decrease in Q2 FY25 due to program ramp-downs, Adjusted EBITDA increased due to strong operating performance, with margins increasing by 10 basis points.

Amentum's liquidity position remains strong, supported by $546 million in cash and cash equivalents as of March 28, 2025, and $775 million in available borrowing capacity under its revolving credit facility. The company's debt structure includes a $3,750 million Term Loan and $1,000 million in 7.25% Senior Notes. Net leverage stood at 4.0x as of March 28, 2025, down slightly from 4.1x at the end of FY2024. Net cash provided by operating activities for the six months ended March 28, 2025, was $167 million, a significant increase from $78 million in the prior year period, driven by higher cash earnings from the merger and favorable working capital changes.

The company's substantial backlog provides significant revenue visibility. As of March 28, 2025, total backlog was $44.8 billion, a substantial increase from $27.2 billion a year prior, primarily due to the CMS merger. Remaining performance obligations stood at $10.7 billion, with approximately 72% expected to be recognized as revenue over the next 12 months and 87% over the next 24 months. This backlog, combined with a robust pipeline of $29 billion in pending awards, underpins management's confidence in the outlook.

Outlook and the Path Forward

Looking ahead, Amentum has reaffirmed the mid-points of its prior fiscal year 2025 guidance, while narrowing the ranges. The company now expects revenues between $13.85 billion and $14.15 billion and Adjusted EBITDA between $1.065 billion and $1.095 billion. Adjusted diluted earnings per share guidance remains unchanged at $2.00 to $2.20, and free cash flow guidance is maintained at $475 million to $525 million.

Management's confidence in achieving this outlook is rooted in the strong first-half performance and the high visibility provided by the existing backlog and re-compete business, which is expected to account for over 98% of FY2025 revenues. The guidance incorporates an estimated 1% revenue impact from new administration initiatives. While acknowledging the dynamic environment, management feels comfortable with this estimate for the current fiscal year and is tracking potential opportunities aligned with new administration priorities that could provide tailwinds in FY2026 and beyond.

The outlook anticipates sequential growth in the second half of FY2025, with Q3 results expected to be in line with Q2 and accelerating in Q4. Second-half revenues are projected to grow 3% relative to the first half, driven by organic growth, including a 53rd week in Q4, partially offset by joint venture transitions and the administration change impact. The transition of certain joint ventures from consolidated to unconsolidated accounting will impact reported revenue but is not expected to affect EBITDA or free cash flow, with stronger performance anticipated from these JVs over time. Cash flow seasonality is expected to follow historical patterns, with the majority generated in the second half, particularly the fourth quarter, driven by robust collections aligned with the government fiscal year-end. Key guidance assumptions include a non-GAAP effective tax rate of approximately 24%, interest expense between $355 million and $365 million, and capital expenditures between $40 million and $50 million.

A key strategic move impacting the future capital structure is the planned divestiture of the Rapid Solutions product business for $360 million in cash. This transaction, which closed on June 26, 2025, is aligned with Amentum's capital-light business model and commitment to disciplined balance sheet management. The after-tax proceeds of approximately $325 million, combined with a $70 million working capital true-up payment related to the Jacobs transaction, are expected to result in approximately $255 million of incremental cash. This cash infusion is intended to accelerate Amentum's deleveraging objectives. The company remains committed to prioritizing free cash flow towards debt reduction and achieving its target net leverage of approximately 3 times by the end of fiscal year 2026. This deleveraging path is seen as fundamental to creating long-term shareholder value by enhancing balance sheet strength and providing greater flexibility for future capital deployment.

Risks and Competitive Dynamics

While Amentum's post-merger scale and strategic alignment offer significant opportunities, the company operates within a complex environment subject to various risks. The U.S. government contracting landscape, which accounts for approximately 80% of Amentum's revenue, is inherently exposed to budgetary uncertainties, including potential decreases or delays in appropriations and the impact of continuing resolutions (CRs). While management believes its diversified portfolio and focus on critical missions mitigate some of this risk, delays in contract awards or program starts due to CRs or shifting priorities can still impact the business. The potential impact of new administration initiatives, including the yet-to-be-detailed Department of Government Efficiency (DOGE), adds a layer of uncertainty, although management currently estimates the FY2025 revenue impact at approximately 1%.

Amentum is also subject to risks inherent in its contract types, particularly cost-plus-fee contracts which are provisional and subject to government audit adjustments. While management does not anticipate material adverse effects from uncompleted audits, this remains a potential exposure. The company's involvement in joint ventures, while strategically important, also carries risks, as the modification or termination of a joint venture contract could trigger an impairment in the value of Amentum's investment, with maximum exposure related to equity method investments totaling $193 million as of March 28, 2025.

From a competitive standpoint, Amentum faces rivals with varying strengths. Leidos, for example, is strong in cybersecurity and IT, often exhibiting superior capital efficiency (higher ROIC) and slightly better operating margins. Jacobs, while having contributed significantly to Amentum's scale, remains a competitor in engineering and environmental services, sometimes demonstrating faster innovation cycles through acquisitions. Fluor and KBR compete in specific segments like energy and environmental, with Fluor potentially offering lower upfront costs and KBR having a broader international presence.

Amentum's competitive advantages lie in its post-merger scale, providing a larger addressable market and cross-selling opportunities, its substantial backlog offering superior revenue predictability, and its operational execution capabilities in complex, mission-critical programs. Its technological expertise in areas like AI/ML applications and nuclear engineering provides differentiation. However, analysts have noted that Amentum's EBIT and free cash flow margins are currently lower compared to some peers, potentially indicating a higher proportion of more commoditized work or integration-related costs. The company's higher debt leverage relative to some peers, while being actively addressed through deleveraging efforts, has also been highlighted as a potential vulnerability.

The strategic divestiture of Rapid Solutions underscores Amentum's commitment to focusing on its core, capital-light, technology-enabled solutions business model. This move, while streamlining the portfolio, also sharpens its competitive focus on areas where its combined capabilities offer the greatest differentiation.

Conclusion

Amentum Holdings, Inc. is navigating a pivotal period defined by its recent transformative merger. The combination has created a scaled, diversified leader with a robust backlog and enhanced capabilities across critical government and commercial markets. Recent financial performance reflects the integration of the CMS business, showing significant top-line growth and solid operational execution within the new structure.

The core investment thesis for Amentum centers on its ability to leverage this expanded platform and technological expertise to capture growth in well-funded sectors like digital solutions, intelligence, space, and nuclear energy, while simultaneously executing on its deleveraging strategy. The reaffirmed FY2025 guidance, underpinned by high revenue visibility, signals management's confidence in the near-term trajectory. The planned acceleration of debt reduction through the Rapid Solutions divestiture is a key step towards strengthening the balance sheet and increasing financial flexibility.

While challenges such as government budgetary dynamics, integration complexities, and competitive pressures persist, Amentum's strategic alignment with enduring customer missions, its differentiated technological capabilities, and its disciplined approach to operations and capital structure position it to pursue its long-term growth objectives and create value for stakeholders. Investors should monitor the company's progress on integration, the realization of cost synergies, the execution of its deleveraging plan, and its ability to convert its robust pipeline into new contract wins, particularly in high-value technology areas, as key indicators of the investment thesis unfolding.