Amentum Stock

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.

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.

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.

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 towards 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 Instructions] Your first question comes from the line of Tobey Sommer with Truist.

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?

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.

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.

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.

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.

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.

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

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?

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.

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?

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.

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

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.

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.

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 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.

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?

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 towards 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 towards fixed price. So there is kind of this steady trend of organic portfolio optimization happening.

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 towards 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.

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

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?

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.

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%.

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.

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

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?

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.

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 towards your mid-single-digit potential?

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.

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

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.

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.

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?

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.

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

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?

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.

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?

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.

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

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.

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.

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?

Yes. It is not related at all to the global threat environment. It's domestic here. And as we've talked about, allocating resources towards 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.

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

Ladies and gentlemen, thank you for standing by. Good morning, and welcome to Amentum's Second 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, sir.

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.

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 and 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. 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.

Now 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 3%, adjusted EBITDA of $275 million with solid margins of 7.9%, adjusted diluted earnings per share of $0.60, up 13% year-over-year and free cash flow of $220 million.

Turning to Slide 4. Execution of our growth strategy continues to translate into tangible results. We delivered net bookings of $4 billion, resulting in a quarterly and last 12 months book-to-bill of 1.2x. And ending backlog of nearly $48 billion, up 7% 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 fiscal year 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. 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 Center awarded an Amentum-led joint venture, a 2-year, $112 million contract to provide decommissioning and waste management solutions.

In aviation, the California Department of Forestry and Fire Protection, or CALFIRE, awarded Amentum a 5-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.

In our intelligence portfolio, Amentum was awarded multiple contracts totaling over $300 million, which aligned 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 '27 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. 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 5. 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 6. 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. 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. And 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 7 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. 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 and 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, a 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. 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.

And third, in cyber and network defense, we embed security across all of our solutions, while also delivering stand-alone 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. 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.

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 8. Revenue in the second quarter totaled $3.5 billion, reflecting underlying growth of 3% 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. Adjusted EBITDA of $275 million benefited from a 20 basis point year-over-year increase in adjusted EBITDA margins to 7.9%. 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 initiatives.

Moving to our reportable segment results on Slide 9. 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 and space systems and technologies markets. Adjusted EBITDA of $105 million was slightly lower year-over-year due to the fiscal year '25 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 7.2%.

Turning to Global Engineering Solutions. Revenue was $2 billion, reflecting 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 margin to 8.5%. 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.

Now 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. 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 3x 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 recompete business, we are reaffirming our fiscal year '26 guidance. We continue to expect revenues in the range of $13.95 billion to $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.

From a timing perspective, we expect approximately 48% of remaining revenue and profit in our third quarter and 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 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 '26 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 Instructions] Your first question comes from the line of Greg Parrish from Morgan Stanley.

Congrats on the quarter. Great to be on the call here with you. So I wanted to talk about bookings strength, a really good quarter for bookings, up sequentially, up meaningfully from last year. I appreciate the slide on the wins seem 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?

Yes. No, just taking a step back, Amentum really had a strong second quarter. But 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. So it's not just the quarter, but really LTM 1.2x, 1.3x on an imputed basis, if you include our joint ventures. So 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. But at the same time, our core business continues to lead and perform well and generate strong free cash flow. So that's another area of excitement in the overall portfolio.

But if you look at performance to date, we mentioned bids greater than $20 billion thus far with -- we set out a goal of bidding $35 billion plus this year after bidding approximately $35 billion last year. And we're well on track to do that. We -- given 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.

So we really think our growth rates stand up and will continue to be consistent and with our bidding focus and are kind of feeling strong that we're going to 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. So we feel pretty good about where the business looks from a new business and recompete win standpoint for the second half of the year. And I mean, think about a lot of what we're doing thus far this year is really focused on '27. So if we can have a good bidding year this year, it sets us up for success in '27 as well.

Yes. Great. Maybe just to click on margin here. Engineering specifically expanded even further in the quarter. I think last quarter it benefited from a little bit from the government shutdown. So 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. So is there any timing or onetime things to think about in the quarter? Or is this the right level to think about the second half for engineering margin?

Yes, 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 going to have the timing of program write-ups and performance from quarter-to-quarter that could vary a little bit. But it's more fundamental what we're seeing in that business. So we mentioned our focus to continue to prioritize and go after higher-margin work. Obviously, 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.

So we are seeing a higher mix of fixed price work. And we're starting to see the customer in some areas where they would have traditionally procured on a cost-plus basis, procure on a T&M or fixed price basis. And you'll see that in our contract mix statistics in the 10-Q that's going to come out later today. So we welcome that. Obviously, the recent executive order is another example of where the customer is looking to do more of that. So we'll continue to work with them to support that initiative as well.

And then also, we're seeing 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. And then obviously, disciplined program execution, as we mentioned. And then you're really starting to see the fruits of all the efforts we put into our cost synergy initiatives flow through the P&L. So a lot of good activity really driving that 100 basis point improvement that you saw year-over-year.

Your next question comes from the line of Tobey Sommer from Truist.

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 '27 and '28?

Tobey, I'll start and then John can add or Steve as well. So the midpoint of our guidance for FY '26 implies normalized growth if you account for the joint venture transitions, the divestitures, and obviously, we had an extra week in the fourth quarter of 3%. And we had the impact from the government shutdown in the first quarter. So that's roughly an additional percent. So we're at underlying growth of roughly 4% at the midpoint of our guidance. That's exactly where we thought we would be at this point in our journey of bringing the merger together and going public and our long-term growth objectives of a 4% to 6% CAGR by FY '28.

And then obviously, in John's prepared remarks and what he said in response to the first question and how we feel about the growth trajectory of the business and what we're seeing in performance there in terms of a 1.2x book-to-bill on an LTM basis and how we view the second half of the year setting up with over $26 billion worth of awards pending and roughly 2/3 of that being new business to Amentum. We certainly are excited about what the potential could be headed into '27 and '28. We'll obviously have to see how the pending awards get adjudicated and see how '27 progresses, but certainly look forward to keeping you updated there.

Yes. And I would say just our strategy in general. And a lot of it, we're just the company at the right time in many respects. 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. But 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 we go back 1.5 years, but it's aligned really well with strength areas in our core markets as well.

When you think of readiness, the budget request is proposing a 20% increase from 2026 that really aligns well with areas like platform sustainment, training, logistics, where Amentum is really strong and 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. And then finally, really in the drone counter-UAV, counter drone technologies where the budget request has approximately $70 billion earmarked to expanded investment in those areas.

And Amentum has been for decades, a leader in helping develop and sustain the unmanned and now counter unmanned technologies. And to think of contested logistics and tactical operations that unmanned technology could support it just aligns extremely well with Amentum's core markets. So we both believe our core markets are at the right place. Our accelerating markets have great tailwinds that can provide the future growth that we've been talking about.

And I was wondering 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 couple of months or quarters?

Tobey, I'll take the NASA question and then Travis may want to chime in on the second part of your follow-up. But 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. So it's really a banner day. And so 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 achieving the goals of the National Space Policy, which will take us back to the Moon to stay and prepare us to venture forward onto Mars. So we're very excited about the campaign of upcoming Artemis mission. So 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 in-source 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 '26 will really be immaterial. We do think that for FY '27, as we estimate an approximately 1% impact to revenue in '27, the impact to EBITDA would be a little bit smaller than that. But given the modest impact that we see, this really does not change our excitement about the go-forward trajectory for Amentum.

Yes. And then on the second part of that question, Tobey. I guess building on John's remarks and really, he touched on what we're seeing from a growth perspective, 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. And then recently, obviously, this quarter, what we're able to do from a refinancing perspective will only further benefit that, in our ability to generate free cash flow at a growth rate of 10% or greater from now to FY '28.

And that puts us in a good point to your question on capital deployment, right? So we're really looking forward to getting to that place, where we achieve our net leverage target of less than 3x by the end of this year. Obviously, we should be in the high 2s based on the trajectory that we're on. And we're committed to maintaining a prudent capital structure that will allow us to deploy capital in a flexible and opportunistic way. And we'll evaluate the options as that comes up, whether it's high return on investment, organic opportunities, accretive M&A, it could be continued debt reduction or capital return to shareholders when we think the share price is trading below its intrinsic value.

So all that said, 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.

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

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?

Yes. There's a lot going on really in the U.S. nuclear market, and we're really 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 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.

And you can imagine with our expertise and things like the partnership with Rolls-Royce, where we are supporting both large gigawatt construction and engineering and design to SMR development across Europe. And 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. And not only that, it's real.

We have a history of supporting nuclear projects that really our competitors are -- don't have that hands-on experience that are new builds. And so we're excited about that project in particular, but many others that are being contemplated in the U.S. And I think I've mentioned this last quarter, I'll say it again, the progress is continuing, and we fully expect in the second half of this year, going into '27, we are going to 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 '27.

Got it. And then another just on Digital Solutions margins. I know there's some new start work there, specifically within 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?

Yes. Thanks, Ned. So the Digital Solutions segment obviously had a really nice quarter and a nice year-to-date performance on revenue growth. So It had 10% reported growth in the second quarter and bring that to 8.0% year-to-date. So nice growth in that segment. Obviously, when you're growing that fast and you're ramping up new programs, we have a couple of new program starts. One is in our space business, but another one is in our critical digital infrastructure business. It's not uncommon for margins to start off more modest and grow over time. And that's certainly what we expect on those programs that are ramping up. And that obviously is contributing to what you're seeing in the Digital Solutions margin dynamics this quarter and year-to-date.

And the other element there, just to mention is the timing of program write-ups those can vary from quarter-to-quarter, but over any kind of normalized period, say, over a year, they're kind of steady, right? So while the performance was more modest this quarter and year-to-date in Digital Solutions, we do expect over time that there's opportunity for margin expansion.

And so for the rest of this year, I'd say we expect it to be relatively consistent with first half performance. And then going FY '27 and beyond is when those programs will get into full year and other initiatives that we're running from a margin expansion perspective will start to benefit the segment.

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

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

Yes. Maybe I'll start, and John, Travis may want to 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 because 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. And so whether it's 4G, 5G, our team is even 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 demand. So 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.

So 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, Chicago, the major cities where we're helping to solution those. And so 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 can now be -- we can shift that capacity to work with data centers and these other kinds of types of projects. So the telecom is a little bit of a foundational piece, and now we're growing that business into other areas.

John, maybe you want to comment on the data center part.

Yes. Well, just in terms of the growth area. We talked about critical digital infrastructure is really being -- the demand is being driven by long-term trends primarily the rapid scaling of AI and data workloads. We actually have a slide in our presentation where we showed where that demand is driving. It's really in the edge AI markets. And 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.

And then it's driving the need for more data center computing power that can process the AI tools, the edge AI products. And that's -- our focus is really in supporting the telco capability, that infrastructure to transmit that data and 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.

So 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. And the final piece is 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. And 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. So we're pretty excited about all three of these areas and the growth that they can represent for Amentum going forward.

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

Yes. It's a great concept. And 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 in activity in the government customer space trying to make -- better utilize 5G and some of the, I'll say, elaborate capabilities of 5G and government missions, which heretofore has been primarily a commercial venture. And so we're very much taking advantage of that dual use.

And then the other thing I would say is that something -- the government has always been 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. So we very much see that it crosses from government and commercial applications.

And to your point, with the space com, space communication, there's so much work going on in the government and national security space around, and we certainly work 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. And some of those exact expertise areas will absolutely cross over into future commercial applications as you really build out this data center core, connect and edge and all that has to work more efficiently. So there's a true convergence there. So very much appreciate the question.

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

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? And do you see any other opportunities to divest and get rid of noncore work?

So we've been really happy with the overall portfolio over the last 18 months. 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. But of course, we're always going to look strategically at what -- where are 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.

And what I would say is we do a normal strategic planning process. We brief to the Board, actually later this year, closer to September. And 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. So I think that's just a normal evaluation that happens in the normal strategic planning process that we'll go through this year. But overall, thus far, we've been pretty happy with the entire portfolio and what it's doing.

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

Good morning, everybody, Wednesday, the long durable folks are still here. We're really excited that you're here. We have Amentum here to take us through their story. This is one of the few buy-rated government service stocks that I have in my coverage. We think there's a lot of opportunity to grow free cash flow and that there's some underappreciated growth markets in the name. So I think your time is well spent this morning. We're going to do a fireside chat format with the company's Chief Executive Officer, John Heller; and CFO, Travis Johnson here to go through the story. Gentlemen, welcome.

Great to be here.

John, maybe level set everybody to the story, just give them a sense for what Amentum does? The market served and our right to win and how you go to market.

Sure. Thanks for being here this morning to hear the Amentum story. Quick story, $14 billion company, 50,000 employees around the world. A big part of our story is our diversification, about 80% of our work is for the U.S. government, 20%, nothing to do with U.S. government, working commercial industries and foreign governments in the U.K., in particular, over 6,000 employees supporting U.K. government, Australia another big customer. A key part of our business is really around our strategy and that we have about $10 billion of our business in our core growth markets, around defense and areas that we think, intelligence that we've been doing for decades, long contracts, average contract length, 7 to 8 years, really blending engineering and technology to deliver services for our customers, mid-single-digit to high single-digit margins, low to mid-single-digit growth rate in those core growth markets.

And then we have about $4 billion of our business in what we're calling accelerating growth markets around critical digital infrastructure, space systems and technology and global nuclear energy. Those 3 areas, probably you've certainly understood what's happening just kind of good timing for us that we are leaders, about $4 billion in our business are in those 3 markets, and we are leaders in those areas, but they have tremendous growth potential in the marketplace today. We talked publicly high single-digit growth in those markets, double-digit margins. We're prioritizing our strategy in those areas, and see significant tailwinds in areas that are supported by AI, supported by the goal to expand what we can do in space and also the need for expanded electricity and developing nuclear power capability from small module reactors to large gigawatt size plants, designing and building and operating those plants to provide the electricity we need for the AI economy.

John, let's double-click on the nuclear market. I want to go through each of these growth vectors and give the audience an appreciation for what you're doing. You went into a little bit on the design side. I think you've talked about nuclear being about 20% of the portfolio. Maybe take us through the service offerings and this seems like a secular spending increase in nuclear energy, not something that's cyclical. So maybe just address your thoughts overall on that.

Yes. I mean we believe these accelerating growth markets, including global nuclear energy is generational market demand that we're going to see for decades, just the need to -- not just AI, but robotics in manufacturing and human demand for electricity, it's just generational shift. And nuclear is a clean and available option today, doesn't need new research and development that's going to take 10, 20 years. The United States has not had a really a nuclear energy vibrant market where Europe, China, Russia have been racing to expand their capacity on nuclear. And we believe that, that demand for nuclear power generation and creation is happening in the U.S. today.

We are a leader in Europe in developing nuclear energy capability. As a matter of fact, in the U.K., we've been involved in every nuclear power plant that's ever been built in the United Kingdom. We're big partners with EDF, Westinghouse, other companies. And we're seeing that happen in the U.S. where to kind of win the AI race, we need electricity. And the U.S. has understood that this administration understands that electricity is a national security issue. It's to develop AI capacity, but also for our economy to survive and be the leader in the world, we need that additional electricity. And we are seeing significant demand happening on SMR, Small Modular Reactors, companies like Oklo, NuScale, Westinghouse, Rolls-Royce are racing to develop that capability and the U.S. government is partnering to help greenlight those types of projects in the U.S. and then building new gigawatt plants, the Trump administration and put out an executive order.

They want to see 10 additional gigawatt size plants under construction by 2030. We're partners with Westinghouse. We expect the AP1000 be a key part of that capacity as well as extending the life of the existing -- on about 200 nuclear power plants that exist in the United States today and expanding the life of those nuclear power plants, which represent significant projects.

So as we think about it, how does your business fit between the new builds versus extending the life? Because I've seen some statistics that suggest that in the U.S. nuclear power we're running at about 92% utilization of the existing inventory. So how do you think about that and where you're at across the entire life cycle

Yes. What we understand, and this comes from third-party analysts of the existing nuclear power capability of the United States that of the about 200 plants, about 100 have the potential to have the life extended, which represents the potential for 100 projects that Amentum could be involved in. And these could extend the life of these plants 10 to 20 years, which think about it in the like we need that electricity now. We can't see these plants be decommissioned. We have to see the -- and the U.S. government understands that. They are supportive of that and industry sees that. The consumers of electricity sees that. So we see big demand on extending the life of these plants and that can represent some real demand for us.

Outstanding. Let's pivot and talk about space. we're big believers in the strategic industrialization of low earth orbit. Talk about your space business, size of that market, maybe discuss some of the contracts that you're prominent on and how people should think of you within the overall space ecosystem that they're investing in.

Yes, Space is another one of our accelerating growth markets. We are the leading engineer to support NASA and developing next-generation space capability that can take humans to deep space. So it's a big difference between near space where we put basically our satellite capability in deep space, and Amentum is very unique in our ability to help develop next-generation deep space capability. And what we see the space market in 3 major areas. One is putting satellites into space so launching assets into space that enable commercial capability, but also enable military capability and intelligence capability.

And the expectation, at least from the U.S. government launch cadence is, right now, we have the space range contract, Space Force Range contracts operated by Space Force Range. We just won that contract, $4 billion over 10 years. That's the ceiling. But right now, it's running at about $225 million a year supporting about 100 launches. The expectation is that we're going to do the need for more assets in space to support military and intelligence capability. I think Golden Dome, those types of assets to build out that capability that the expectation is we will see that launch cadence grow to 300 to 500 launches a year, which would propel what we do further.

So launch capability is one area that we are key provider for the U.S. government. The second area is missile defense capability. So developing next-generation capability to support missile defense with hypersonic capability being developed rapidly. Our missile defense capability is not extensive enough to really handle the defense against these hypersonic capabilities. So the administration understands that. They announced a program called Golden Dome to really create and not just kind of develop that capability, but actually put that capability out into practice.

So think of us in the United States having assets deployed that could detect and destroy hypersonic missiles coming to the U.S. and helping Space Force Missile Defense Agency develop that technology. We have the IRES contract today with Missile Defense Agency, where we've been developing next-generation missile defense technology for the past decade and expect that as the U.S. government defines exactly what they want to do under the Golden Dome program, where they've allocated just thus far over 3 years, $170 billion, we're well positioned to win some of that work and help the U.S. government develop that.

And then the third part I talked about earlier is really deep space. And you think about developing AI data centers in space, we -- that's just one example, putting medical research and space, developing the human capacity to live and work in space and put assets in deep space. That's a capability that we expect will accelerate over the next decade. And that's something we've been doing for NASA. So if NASA expands its role, which we are hearing with Secretary Isaacman wants the Artemis program to accelerate, which we are the lead integrating engineer for the Artemis program, but more importantly, is what SpaceX might do or Blue Origin might do, expanding our ability to extend what we do in deep space will only increase the work that Amentum can support as commercial space enters the deep space market.

Maybe just quick follow-up on that space market. Two things. One, can you expand a little bit more on where you fit in on Golden Dome? And then secondly, there's been a lot of talk of recent weeks about accelerating the reconciliation spending towards those endeavors? Are you seeing any uptick in activity?

Yes. First of all, we have been, as I mentioned, under the Missile Defense Agency, a key supporter of creating the digital environment and working with OEMs to engineer next-generation capability. We've done this on the space-based interceptor capability, just think about it, just over the last 5 years, we're having to develop the capacity and technology to detect and intercept hypersonic missiles. So this is all new technology that is being developed and our contract, the IRES contract has been key in helping develop the architecture to detect hypersonic missiles in space.

And then the Golden Dome, of course, will extend that capability to actually put the hardware in space. So we'd have ground systems that -- and sea-based systems, ground systems, air-based systems and space-based systems that help triangulate the detection of those missiles and then have some kinetic capability to disrupt the hypersonic missiles. And that's something that we are very capable of being part of that team to develop that technology. So we're excited about where that might go.

In terms of the spending, the Space Force has the lead under General Guetlein line to develop that capability. And we have not seen a lot of that spending start yet they had to develop the architecture. They had to define what's the timeline for develop? What's their goal? Is it do they want something in 2 years, 4 years, 6 years? And then what do they want it to do? What do they want it to be capable of doing? And that's where they are right now in developing the goals in the architecture for the Golden Dome, at least first generation, let's say, Golden Dome. We believe they're near concluding that. And our expectation is the second half of our FY '26, we will see RFPs coming out that will push that work forward.

Tiding times in that marketplace for sure. Maybe pivot to something that I think is a core part of the story and talk about free cash flow. You're generating close to $550 million or so a year we think you can underwrite high single-digit, low double-digit growth over time. You've been delevering -- in a state of delevering here, maybe explain to people your target net leverage, but as you generate this much cash, there's going to be a pivot where delevering may not be the best use of capital. Maybe talk about your future plans on capital deployment.

Yes, sure. I think you hit it, Brian, and that's one of the core financial profile strength and momentum is our ability to generate free cash flow. And it starts with the core growth areas that John mentioned in the long-term, stable, predictable nature of that as well as our business model, which is a capital-light business model. We just only spent 0.3% of our revenue on capital expenditures, so really high free cash flow conversion. And we have been focused on prioritizing this past year that free cash flow to pay down debt. When we had our merger at the start, we were leveraged just at 4.1x. We were able to reduce that all the way to 3.2x just in our first year.

So we expect that trajectory to continue to meet our objective of being levered less than 3x by the end of this fiscal year, so just 7 months away. And longer term, we've set out an objective to grow free cash flow by 10% or more between now and FY '28. So really good potential there, which will ultimately get us to a point by the end of this year to open up capital deployment on a more opportunistic basis. And obviously, it will depend on the situation at that time. But our goal will be to make capital deployment decisions that are most accretive from a free cash flow per share perspective and maximize return for shareholders.

Just maybe a quick follow-up there. Are there opportunities -- you had a really successful divestiture within the last year or so? Are there opportunities for more portfolio optimization? Or are you pretty happy with what you have here?

Yes. So last year, Brian is mentioning, when we came together, we quickly analyzed the portfolio just to make sure that all the pieces were consistent with our strategy and where we were headed. And there were a couple of pieces that were clearly not. So we took decisive action on that, and it actually did help toward the deleveraging that I talked about a minute ago. So right now, obviously, we continue to evaluate the portfolio strategically. But we feel we have all of the capability inside the portfolio that we need to deliver on the strategy that John just articulated. So I would say nothing imminent that we feel like is holding us back from achieving our strategic objectives.

Fair enough. Maybe talk a little bit. I want people to appreciate the revenue growth in the story. In your guidance here, there's some onetime kind of unique things that kind of impair that number just a little bit or hold it back as a headwind. Can you talk about some of those onetime things? And we certainly think there's an opportunity to see that revenue accelerate on an organic basis?

Yes. So the midpoint of our guidance implies 3% underlying organic growth. Obviously, we had the impact of the government shutdown in the first quarter. So if you normalize for that, it's right at 4%. And I think the key message is that's right where we expected to be at this point in our life cycle and bringing these 2 companies together to ultimately achieve our longer-term growth target of 4% to 6%. And this year, specifically, there were a couple of things that played into that. First and foremost, obviously, the divestitures that we just talked about playing an impact. Also part of our business does work, particularly in our Energy business for the Department of Energy through joint ventures. We had a few joint ventures that transitioned from consolidated to unconsolidated. Absolutely no impact to free cash flow or profitability but did impact the revenue profile. And then lastly, working day dynamic, we just did have an additional week in our fiscal year 2024 relative to what we're going to have this year.

Okay. Great. I think there's also a lot of opportunity to expand margins over time. Can you talk about your key levers on the margin front and what investors can think of in a steady state or long-term margin objective?

Yes, absolutely. I'd say, first and foremost, the quarter of performance that we just had really kind of highlights the trajectory that we're on from a margin perspective and is evidence of the strategy that we have in place to expand EBITDA margin. So when we merged, we were right around 7.7% EBITDA margins, a midpoint of our guide this year is 7.9% with a goal to get to 8.5% to 9% by FY '28. And in Q1, we had 8.1% margin. So we're right on that path. And it's going to come from a combination of things, not just one thing. But first and foremost, it's -- obviously, we're going to have accelerated growth in those markets that John mentioned that have double-digit margins, right? So as those fold in, it will drive the margin expansion that we're looking for. Also, we have cost synergy and benefits from the merger that will help achieve that objective as well.

One of the things that I was particularly impressed with in the most recent quarterly results was the book-to-bill. It seemed to buck some of the trends that we've seen with your peers and particularly impressive from my perspective. Can you talk about your outlook for bookings and as I think of Golden Dome and other opportunities in your growth markets coming to fruition, it seems like this is going to be a pretty good year for winning business.

Yes. I mean you point out a key thing that we're focused on is all about growth and leveraging what we put together in this $14 billion enterprise to extend our focus to areas that we couldn't go after and before, and we're expanding our pipeline in these accelerated growth markets and our growth -- core growth markets. And -- you look at what we went through in 2025 with change administration, DOJ all those things yet we were able to have a better than 1.0 book-to-bill. Then you had a government shutdown. And we still -- with the government shutdown for the longest shutdown in the history of the U.S. government, we still had a 1.0 book-to-bill.

And I think what this shows is that the combination of our business is working. Like our strategy is working. Our diversity is that strength. The fact that we have access to these different markets. And we saw the 1.0 book-to-bill last quarter. LTM 1.1 book-to-bill. But you look at some of the other metrics, we bid over $35 billion last year. We said our goal was to bid greater than $35 billion this year. We're on track to do that. We have over $25 billion of bids awaiting award. And in our pipeline, we have -- actually in proposal right now a significant volume that we're working. So the metrics are supporting the growth story and supporting our strategy. And we're -- we expect to see that be the big part of our story going forward.

John, it's not known to me that in the Government Services space in general, we have -- tend to have a lot of competition. But in the areas you serve, you have this global ability to scale in this global footprint that seems very unique, and you're touching these end markets that very few of your peers do. One, can you comment on the competitive intensity of where you're at, but also maybe explain to people why Amentum is uniquely positioned for this market.

Yes. Well, I mean we -- there's a story across each of the end market. So it's hard to kind of pull that story into one. But let's just take the nuclear energy market as an example, where we have the capability in Europe that is very significant in nuclear energy. And as the U.S. market starts to expand, we're able to leverage the work we do in Europe and the people that are doing work there and the expertise that we have, the process expertise, the IP, bring that to the U.S. to support a growing market here in the U.S.

So I think that's what you're talking about, the strength of having a global business. There will be markets in the U.S. that are moving faster than the rest of the world and then vice versa. There are markets elsewhere in the world that are moving faster and having that footprint around the world, we're in 70 countries. We have a very significant footprint in just about every continent, including Antarctica, which gives us an ability as markets expand around the world, we're there to deliver that capability.

And we're -- we think that is a unique strength of what we have today. And Australia is another example where we -- Australia is expanding their nuclear infrastructure by -- for the first time in their history, they're going to have nuclear-powered submarines. And we have a significant base in Australia. It's been a key customer of ours. And we have that nuclear capability exactly what they need to build out the infrastructure in their country to handle nuclear power for the first time.

And we're well positioned to compete and win to build out that infrastructure and then support them as they acquire these subs. But they're building that today. They're not waiting until those subs are delivered. They need to build that infrastructure out, as we speak. So they are actually, set aside, billions of dollars to build out that capability, and they know our brand, they know our capability, we can tap into the nuclear capability that we have in the U.S. and in Europe, bring that to Australia. We have this great partnership in the U.K., in America. So they're comfortable with that Amentum brand.

Makes a ton of sense to me. I'm going to end this with one unfair question, so I apologize in advance. But I've been asking all of my companies, what are your thoughts on the $1.5 trillion budget number that's been kicked around in '27?

Well, I think we're seeing a lot of the justification for that today, play out, right, that we have an advanced military capability, but we don't have the resources we need to support our standing in the world. And I think this administration has it right, that we need to increase our spending relative to GDP to really deliver on our role in the world and also to develop the technology that enables us to continue to be #1 in those capabilities. So I expect that it will be a bipartisan issue that our defense spending needs to expand. Is it $1.5 trillion? It's anyone's guess. But I think there's significant support just in what's happening that our defense spending is not at, say, $900 billion, which is the general budget, is not sufficient.

Yes, I would agree with that. I think early on, people thought maybe this would be a peak year. I think it's very clear. It's not a peak year for defense spending. With that, John, Travis, thank you so much for joining us in the audience. Thank you. We will be adjourning to the breakout session. So please join us down there for some more Q&A.

Thank you.

Good morning, ladies and gentlemen, and welcome to the Amentum Q1 Fiscal Year 2026 Results Conference Call. [Operator Instructions] This call is being recorded on Tuesday, February 10, 2026. I would now like to turn the conference over to Nathan Rutledge.

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 go 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 or 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.

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.

Thank you, Nathan, and thank you, everyone, for joining us today. We entered the new fiscal year continuing our strong momentum, including another robust quarter of bookings that reinforce our alignment to the high-demand mission areas of nuclear energy, space and critical digital infrastructure. As a result, this morning, I'm pleased to share another quarter of results that put Amentum on track toward achieving both our near-term fiscal year 2026 outlook and our longer-term strategic growth objectives. Our differentiated business continues to perform. And as a management team, we're setting clear priorities and expectations and were executed. Bottom line momentum continues to deliver.

So let's jump right in with our quarterly results. The longest government shutdown in history impacted performance in the quarter, I am especially proud of our teams around the world who remain focused delivering exceptional outcomes for our customers and results largely in line with our expectations. Key highlights, which Travis will cover in more detail shortly, include revenue of $3.2 billion, reflecting normalized growth of 3%. Adjusted EBITDA of $263 million with robust margins of 8.1% and adjusted diluted earnings per share of $0.54, up 6% year-over-year. This performance is a direct result of our agile business model, disciplined execution, consistent focus on our strategic priorities and continued demand across our end markets.

Let's turn to Slide 4. We where I'll highlight how Amentum's focus on growth translated into a series of strategically significant wins this quarter. We delivered $3.3 billion in net bookings resulting in a first quarter and last 12 months book-to-bill of 1x and 1.1x respectively, including strategic joint venture awards our imputed book-to-bill was 1.3x for the last 12 months. This consistent performance enabled our industry-leading backlog to grow 4%, reaching over $47 billion. And at quarter end, we had $23 billion in proposals awaiting award, the majority of which are new business to momentum, including nearly $2 billion already won and under protest or are awaiting corrective action.

As I'll discuss in more detail, we continue to make meaningful progress advancing large multiyear opportunities directly aligned with our higher-margin accelerated growth markets. A point evidenced by our consistent book-to-bill performance at or above 1x. Our business development engine prioritizes scale, duration and strategic relevance grounded in deep customer relationships, shaping solutions and building long-cycle programs where customers value trusted partners. We are particularly encouraged by our progress in nuclear energy an accelerating growth market for Amentum, which is showing robust demand signals, both overseas and in the United States.

Years of technical investment in program execution have led to tangible awards including nearly $1 billion in the first quarter alone, reinforcing our role as a trusted partner across both existing facilities and new build programs, leveraging our technical leadership in nuclear energy Amentum was selected by Rolls-Royce as the global program delivery partner for its small modular reactors, including initial deployments in the U.K. and Czech Republic. Under this partnership, we will apply decades of experience in nuclear engineering and design, systems integration and program governance.

Amentum was also awarded a 10-year million contract by EDF nuclear power to support new and existing power stations in the U.K., reinforcing our role as a trusted partner to 1 of the world's largest nuclear utilities. And in the Netherlands, Amentum secured a 5-year $207 million contract to provide planning and engineering services, supporting the future development of up to 2 gigawatt scale power plants strengthening our position in Europe's energy transition. Beyond nuclear, we continue to win work that reflects the breadth and diversification of our portfolio across customers, geographies and contract types.

Our capabilities in digital engineering, advanced sustainment and other mission-critical operations are resonating with customers, both domestically and internationally. Award highlights include a U.S. Air Force 6-year single-award IDIQ with a ceiling value of up to $995 million for unmanned sustainment, modernization and training. Under this contract, Amentum will deploy specialized solutions and expertise in the U.S. and globally to reinforce readiness and training capabilities.

Next, we were awarded DISA Compute-as a-service contract, a 5-year $120 million award to deliver scalable computing power on demand. We're excited to support our customers' mission through this unique outcome-based contract and see it as a potential model for shaping future proposals. Finally, we secured a 3-year $270 million contract from a foreign military customer to provide advanced C5 ISR solutions. Our progress this quarter demonstrates consistent execution against our strategy and reinforces our confidence in our ability to continue building a high-quality backlog and delivering durable long-term growth.

Before we dive into our Space Systems and Technologies market, let's turn to Slide 5. To step back and reanchor our discussion and the growth framework we introduced last quarter. We outlined 3 accelerating growth markets where momentum is particularly well positioned, space systems and technologies, critical digital infrastructure and global nuclear energy. These markets are characterized by strong demand visibility, attractive margin profiles and long-term growth potential across government and commercial customers. These markets also align with enduring macro trends and support the technological needs of a growing global economy.

Please turn to Slide 6 to cover in more detail Space Systems and Technologies, which we view as a set of interconnected markets that scale together across satellites, launch, integrated systems and satellite communications. Together, they represented approximately $90 billion market projected to grow around 9% annually over the next 5 years, driven by higher launch cadence and increasing mission demand. Starting with satellites, demand continues to shift towards proliferated low-earth orbit constellations. Smaller satellites now dominate launch volumes across broadband, sensing and national security missions. These architectures enhance resilience but also increase integration and life cycle complexity, areas where customers value experience system integrators.

Integrated systems are also changing rapidly infrastructure is becoming more software-defined, virtualized and cloud integrated. While this improves scalability, it also raises the importance of integration cybersecurity, automation and end-to-end mission operations as data volumes and mission tempo increase. Launch activity is accelerating. Lower-cost commercial launch, reusable vehicles and increased competition are driving a higher cadence across government and commercial customers. As launch volumes expand, operational demands increased across mission integration, safety and sustainment.

Satellite Communications, or SATCOM is also expanding as a foundational layer of global connectivity, growth in broadband constellations mobile communications and sovereign networks is driving higher throughput and adoption of multi-orbit architectures. SATCOM underpins mission-critical defense, mobility and commercial applications worldwide. Taken together, these trends are expanding the space market and increasing demand for companies like momentum that can integrate, operate and sustain complex systems across their full life cycle.

Moving to Slide 7. let's discuss how Amentum is uniquely positioned with robust experience and capabilities to advance the future of space. Beginning with missile defense and command and control integration and modernization demand continues to rise for resilient space domain awareness and integrated missile warning and tracking. These priorities are central to U.S. and allied national security strategies and are driving sustained investment. Amentum supports these national security missions today through programs such as IRIS, providing advanced engineering sustainment and this to supporting global surveillance, missile warning and classified communications. As hypersonic and ballistic threats involve, demand for satellite-based tracking will only increase. Our performance and expanding capabilities positions Amentum well for space-enabled, missile defense opportunities such as Golden Dome, under the $151 billion Shield IDIQ on which Amentum was recently awarded a physician.

Amentum plays a critical role providing full life cycle solutions for human exploration and has numerous active programs supporting Ryan, the space launch system and exploration ground systems. These programs require continuous engineering integration operations and sustainment across multiyear mission cycles. They are not onetime development efforts, but long duration recurring opportunities supported by sustained demand across multiple human space flight missions. These efforts require advanced propulsion, power, autonomy and payload integration, areas where Amentum brings deep expertise and where we see growth across both national security and commercial customers.

Finally, in deep space research and development, Amentum focuses on robotic exploration and early-stage systems that extend human reach beyond Earth's Orbit. Our work includes missions such as space vehicles designed to operate in extreme lunar environments. We also see growing opportunities to support emerging technologies, including propulsion systems that will leverage advances in nuclear energy and in MARS-related Ascent and sample return technologies where early research and systems engineering are critical to reducing risk. We're positioned to lead mission-critical space integration today while scaling and extending our capabilities to capture long-term growth across the space economy of tomorrow.

In summary, Amentum enters the remainder of the fiscal year from a position of strength. Our results, backlog and pipeline reflect disciplined execution durable customer demand and the value of our differentiated capabilities across complex mission-critical environments. As global needs evolve across defense, energy, space and digital infrastructure, we are well positioned to support our customers' most important missions while creating long-term value for our stakeholders. We remain focused on execution, growth and delivering on the commitments we've made.

With that, I'll turn it over to Travis.

Thank you, John, and good morning, everyone. I'm excited to discuss with you today in some solid first quarter performance. our continued trajectory to achieve net leverage less than 3x by year-end, enabling a more flexible and opportunistic capital deployment posture and our confidence in achieving full year results in line with the guidance provided in November. To echo John's sentiment, I'm particularly encouraged by the continued successful execution of our strategy, evidenced by another quarter of robust bookings and by outstanding margin performance. both of which were enabled the relentless focus and dedication to operational excellence from our employees around the globe.

With that, let's begin with an overview of our financial performance on Slide 8. Revenue in the first quarter totaled $3.24 billion, reflecting the joint venture transitions and divestitures previously discussed as well as impacts from the government shutdown. Underlying growth normalizing for these items was approximately 3%, driven by the ramp-up of new contract awards in our critical digital infrastructure in space systems and technologies accelerating growth markets. Adjusted EBITDA of $263 million benefited from a 40 basis point year-over-year increase and adjusted EBITDA margins to 8.1%. Alongside continued strategic progress to prioritize higher margin work.

Margin expansion was enabled by strong program performance and reduced indirect spending as a result of realized cost synergies and disciplined expense management during the shutdown. Adjusted diluted earnings per share of $0.54 was up 6% from a year ago and reflects lower interest expense driven by our debt reduction initiative.

Moving to our reportable segment results on Slide 9. Digital Solutions delivered revenue of $1.34 billion, representing 4% growth on a reported basis and a robust 8% and after normalizing for the items mentioned previously. The year-over-year increase was driven by the continued ramp-up of new contract awards led by strength from commercial programs and critical digital infrastructure. Adjusted EBITDA increased to $103 million as a result of the higher revenue volume, resulting in adjusted EBITDA margins of 7.7%.

Turning to Global Engineering Solutions. Revenue was $1.9 billion, reflecting the impacts from JV transitions, the divestiture and the government shutdown. Normalizing for these items, underlying revenue was consistent with the prior year as revenue from new contract awards were offset by the expected ramp-down of certain historical programs. Adjusted EBITDA of $160 million reflects an 80 basis point year-over-year increase in adjusted EBITDA margins to 8.4%. The strong profitability was enabled by prioritizing higher-margin growth opportunities, disciplined program execution and delivering against cost synergy initiatives.

Now turning to Slide 10 to cover our cash flow and capital structure highlights. First quarter free cash flow included an additional pay cycle compared to the prior year quarter and was impacted by temporary collections timing from the government shutdown and holiday closures, resulting in a use of $142 million. It is important to emphasize that this is only timing related. In fact, collections in the first 5 days of the second quarter more than doubled compared to the same period in the prior year. As a result, we anticipate strong free cash flow in the second quarter and remain confident in meeting our full year free cash flow guidance.

From a liquidity perspective, our position remains healthy. with Q1 ending cash on hand of $247 million, a fully undrawn $850 million revolver and no near-term maturities. We're also pleased with the recent Moody's credit rating upgrade which underscores our improving financial profile, immediately reduces interest expense and our term loan B by 25 basis points and positions us for enhanced financial flexibility and market access moving forward. With a strong balance sheet, robust liquidity and focus on generating sustainable free cash flow, we are well positioned to deliver enduring value for our shareholders. Achieving our target net leverage of less than 3x by the end of the fiscal year remains a priority.

And looking into fiscal year 2027 and beyond, we will remain disciplined in our approach maintaining a prudent capital structure that enables flexible and opportunistic deployment.

On Slide 11, let's now turn to our fiscal year 2026 full year outlook. As a result of Q1 performance, backlog of $47 billion, including $7 billion in funded backlog, up 23% from last quarter. And with 95% of revenue expected to come from existing or recompete business, we remain confident in the outlook provided in November. We are reaffirming guidance for the year, including revenue in the range of $13.95 billion to $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.

All metrics reflect healthy underlying organic growth, and the primary guidance assumptions remain unchanged. From a timing perspective, we continue to expect quarterly sequential increases in revenue, adjusted EBITDA and adjusted diluted earnings per share as we move beyond the government shutdown and will benefit from additional working days in the remaining quarters. To assist with modeling, we have included a breakout of working days by quarter in the appendix. And I will also note that for Q2, consensus estimates are in line with our expectations.

From a free cash flow perspective, as previously shared, we have seen a rebound in collections and therefore, expect approximately 25% of our to-go free cash flow generation in the second quarter.

Wrapping up on Slide 12. We are pleased with our start to the year, which reflects our ability to deliver solid results through disciplined operational execution and strategic focus with continued robust bookings strong market demand signals and progress towards our leverage reduction goals, we are confident in achieving our full year outlook and in positioning Amentum for sustained value creation.

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

[Operator Instructions] Your first question comes from Colin with Canfield.

Travis, you been focusing on the free cash flow progression through the year? And maybe talk about how you think about this quarter's performance second half performance? And then maybe discussing how you think about potentially selling receivables in order to kind of bolster the free cash flow that.

So as stated in my prepared meats, there were 2 primary drivers for Q1 cash performance, both of which were simply timing related and have no impact on our expectations for the full year. And so first, as noted on our last earnings call, we had an additional pay cycle relative to Q1 of last year, which obviously will normalize as we move through the rest of the fiscal year. And second, there was an unexpected government holiday closure, which you guys may be familiar with. So the administration gave government employees an additional 2 days off in addition to Christmas and New Year's at the end of December and headed into the New Year. And so that pushed some collections into the first part of January due to delays in customer approvals and processing.

So really, again, just timing related and perhaps to provide some more context collections in the first week of the second quarter were $100 million higher than they were in the first week of Q2 of last year, kind of just reemphasizing that it was just collections timing that was pushed due to delays and approvals. And so looking ahead for the rest of the year, given the rebound we've already seen in the beginning of the second quarter, we're confident in achieving results that are in line with the guidance that we reaffirmed for the full year, with the midpoint being at $550 million. And roughly 25% of that to go free cash flow, we do expect in the second quarter.

And then obviously, Q4, as it always has been, will be our strongest free cash flow quarter as a result of our alignment with government at fiscal year-end. And then just to touch on your comment on AR factoring. As you're aware, we do have an AR factoring program in place, and we do leverage that to manage working capital as we move throughout the year.

Got it. And then maybe following up, if you can kind of refresh how you think about the award outlook by end market particularly focusing on unfunded awards and how you think about kind of the magnitude and timing of those funded awards.

Sure. I'll start with just saying it's something we've talked about really since last year, and we saw some administrative delays on the contracting side just with having fun. So we're pleased to see that bounce back up to nearly $7 billion, a 23% increase from Q4. But as we've said, we're comfortable with funded backlog in that range of $5 billion to $7 billion. And with what it means for the rest of our full year outlook.

And in terms of kind of looking ahead, obviously, with $23 billion in pending awards and or more of bids expected to be submitted this year. We're on track to achieve our full year book-to-bill greater than 1. And a lot of those key awards, we expect will come from the accelerating growth markets that John highlighted in his prepared remarks. And in fact, just this quarter, we had over $1 billion in awards in our Global Nuclear Energy business, so really highlighting the strength of that piece of the portfolio.

And I'll just mention, I think the kind of history of our consistent book-to-bill performance speaks for itself, right? 5 straight quarters of book-to-bill 1x or greater, including imputed book-to-bill of 1.3x on an LTM basis.

[Operator Instructions] Your next question comes from Tobey with Truist.

I wanted to ask a question about nuclear, where you've had a nice string of new business announcements. How do we think about how that folds into the P&L and starts to contribute to revenue and profit growth. And then I was wondering if you could comment on what nuclear bids either submitted or sort of pipeline looks like does it -- and is it indicative of more rapid growth there versus the overall metrics for the firm?

Well, the first thing that we highlight is, I think we highlighted in the prepared remarks, it's just a fact in Q1 with $1 billion of awards in the nuclear space. And given the fact that nuclear of our over $14 billion business represents just over $2 billion, you can see we're making really good progress and see acceleration in that market overall as it relates to our portfolio. But of course, we're $14 billion. So it's going to take time to see the nuclear business really have a significant impact on, say, quarter-by-quarter. But on a year-by-year basis, we do expect these accelerating growth markets, including nuclear space and digital all to have a positive impact on margins.

We're still looking for margin improvement year-over-year. It's going to be driven by those 3 areas. And nuclear is certainly stepping up and contributing there with the contract awards we announced, including kind of EDF and the Netherlands contract award. And of course, we announced Rolls-Royce, but that was an award after the quarter. We're continuing to see progress on the nuclear side, and we would expect that to be a big story for the business with the European market still robust.

As we talked about a couple of big awards there this quarter. But the U.S. market is just really starting to accelerate as these bigger deals, new starts, extensions for existing plants and the SMR market are all starting to get some momentum, and we have a lot of inbound demand in these areas. But that's probably going to take a few more quarters to see the money come together, those projects get greenlit. But nonetheless, we are working with a lot of companies that are working to put these U.S. projects on track to begin. So that's going to really help accelerate the future.

And of course, just the final point I'll make is the time line on these the upfront work on a nuclear project is typically in the engineering, the governance, getting regulatory approvals, preparing for construction. And then the revenue on these projects accelerates quite a bit once you move into construction. And that can take anywhere from 1 to 5 years to move into those stages. So these are really 5- to 10-year projects, which then have a kind of a tail that can go decades. But in terms of getting to the peak, it usually takes 2 to 5 years to see the peak revenue opportunity on nuclear.

When you look at your bid submitted and pipeline for the whole firm, is there an embedded favorable mix shift from a margin perspective based on the complexion of those bids in pipeline?

Tobey, this is Travis. I would characterize it like this. Obviously, we're starting to strategically prioritize higher-margin work, both in the accelerated growth markets that John highlighted, but also in our core markets, right? We still have $10 billion worth of the markets which we're a leader in, great work and still growth opportunity there. But we're also looking to expand margins in that part of the portfolio, which will be a big part of the story. And as we look at the bids going in, including things like contract mix, we are certainly seeing a shift over time. As we've stated, it will take time with $47 billion in backlog right? It's a big shift this year, but we are seeing that.

You'll see in our contract mix composition in the 10-Q, you'll see we've started to progress towards a higher percentage of fixed price work. So we are starting to see that as awards and that strategic shift in prioritization unfold.

Our next question comes from Seth with JPMorgan.

I wanted to ask in cash flow about the investing cash flows that go into the JVs. Is a significant amount in the quarter. How do we think about those cash requirements going forward and how they should be relative to your CapEx and free cash flow?

Yes, this quarter was abnormally large contributions to our equity method investments, and it's really a direct result of the big joint venture awards that we had last year. They're all kind of starting to ramp up. And at the initial phases of those joint ventures, you have initial capital contributions from partners and Amentum had our piece on that. The 2 larger ones for the quarter were in Portsmouth and our Hanford work. We don't expect that level as we move throughout the rest of the year. And then you also saw some return of contributions, which we would also expect over time as those programs ramp up and mature.

Okay. Okay. Great. And then just a quick follow-up in Global Engineering Solutions. Obviously, very tight margin there historically in that mid-7% range and then nearly 100 basis points higher in this quarter. What happened there that would make us not think that this should be that kind of the margin that we saw in Q1 is not sustainable in Global Engineering Solutions.

Yes, certainly, the margin performance for the entire company and obviously, led by Global Engineering Solutions with the highlight for the quarter performance is something we're really proud of the team for delivering. And it wasn't really just 1 area. It is a few different areas. First, it's progress on our strategic objective to prioritize higher margin work. And as I stated a little bit earlier, you'll see in our 10-Q that we've got a higher percentage of fixed price work that contributed to that. Also, there were some mix benefits from the government shutdown and just the work that was impacted from the shutdown with some lower-margin work. and obviously continued benefits from our cost synergy initiatives and then overall, just strong program performance.

So a lot of different variables driving the positive outcome there for Global Engineering Solutions. And then as we look for the rest of the year, obviously, our implied to go margins at the enterprise level are in line with the midpoint of our full year guidance. But as you know, that contemplates a range of outcomes and the top end of that could be up to 8.2%. So we feel really good about the quarter and obviously, the path that we have to meet our full year objectives as it relates to EBITDA and EBITDA margin.

Your next question comes from Kristine with Morgan Stanley.

John, we're seeing over 100 gigawatts of industrial gas turbine power capacity to enter the market by 2030. And it looks like this capacity is expected to come in sooner than nuclear projects. I mean, they're a little bit shorter duration than nuclear. I was wondering how applicable your core capabilities in nuclear is for these kinds of projects. I mean, these are still fairly large builds. Is this an opportunity for you?

Yes. Thanks, Kristine. The -- we're very aware that to meet the power needs of the nation and, frankly, the world. that you're going to have to look and there's a big article today, of course, in Wall Street Journal on coal, restarting coal plants, extending coal plants and other sources to create the bridge to where nuclear can step in. And our focus is on bringing that nuclear infrastructure online. And what you're seeing in this administration is very active in supporting using kind of the existing infrastructure and bringing that infrastructure online that is more carbon based, while we bring these or gigawatt size plant projects online in parallel.

So we're seeing projects being discussed and planned and the money coming together behind the overall plan to bring all this additional power online and nuclear is a huge part of that, which is going to keep us extremely busy. So our focus is on that nuclear power, which is happening absolutely in parallel. And these types of projects are not necessarily behind the scenes. I mean you're hearing about some of this with SoftBank getting involved in Japan and other large projects, and you hear about the nuclear element of that. But to get to the ability to have that nuclear power, which is 5, 6, 7 years down the road, you're going to have to have some bridge power capability brought online.

And that's where you're seeing this additional capacity you're mentioning. But the nuclear projects are going to keep us very busy that they're working on to really facilitate the accelerating demand is going to go far beyond what these near-term fossil fuel projects can handle.

Super helpful. And also on the DISA Compute As-a-Service contract that you won in the quarter, how is this structured? Are the economics of this contract similar to a traditional contract and providing this as a service, is this a business model also repeatable for the commercial end market?

Yes. We're excited about the DISA award. I think if you take it in a larger context, it's 1 of the great examples of how the government is really focusing on trying to get to more outcomes-based contracting. And so the -- it's inherently on demand to provide compute capacity and power for DISA and their clients. And so that scalable kind of outcome based, you can think in terms of not as an overall effort kind of fixed price, but rather a unit-based fixed price that allows us to deliver outcomes. And it's -- we think it's a great contract model, very much in line with how the government is trying to modernize procurement models. And so we think it is a structure that could replicate across other opportunities.

Your next question comes from Ken with RBC Capital Markets.

Travis, maybe I wondered if you can size the mix impact on margins in the quarter. I think you called that out as a headwind as a result of the shutdown and some of the maybe lower-margin work that wasn't booked in the quarter, it wasn't built in the quarter. How do we think about that? And how do we think about that then playing out as we think about the progression of margins through the remainder of the year?

So between kind of the 4 drivers that I mentioned earlier being just overall strategic progress to prioritize higher margin work, which means that we have lower margin work falling off and we're winning work that's coming online, it's higher margin. the kind of onetime impact from the quarter of the mix from the government shutdown impact realized cost synergies and then strong program performance, it was really, especially in Global Engineering Solutions, kind of evenly spread across those drivers. So not 1 kind of outsized contribution relative to those 4 things, but rather a combination of all of them. And as we look to the rest of the year, again, the midpoint of our guidance is 7.9%, but the whole range contemplates EBITDA margins up to 8.2%.

So obviously, we put out guidance that contemplates a range of different outcomes. And while we're pleased with the Q1 performance, we're obviously just being prudent in our approach to look at the variety of outcomes that could happen for the year.

And maybe as a follow-up, John, to some of your comments on the space market in the prepared remarks. As we track your progress here, obviously, we'll see the releases. But are there 1 or 2 things, whether it be launch activity or other aspects of this market as they evolve that you'd call out as maybe better or more indicative of how you could ramp in the space market more broadly. I'm just trying to get a sense as to what you view as perhaps some of the most important indicators as we track this moving forward.

Yes. No. We're really excited to highlight that this quarter. Our our teams are working across the space domain in very different areas that we outlined in the presentation, we thought that would be really good to share them. Glad that you brought that up because we were really excited to kind of make that a centerpiece of the quarter. And our position in the market is really built on long-standing roles and mission-critical programs really on missile warning systems, missile defense, space domain awareness, command and control, I mentioned programs like IRES and NIS 2 great examples of our advanced engineering sustainment hypersonic and ballistic missile development and other area.

We recently won a contract to support the U.K.'s hypersonic program. We're real excited about that. So we see that the strength of our history positions us in these areas that we highlighted. And we think there's some real good opportunities as obviously, the U.S. government is very much focused in these areas. The space race is real with China. The opportunity to get back to the moon and Artemis II, mission and then Artemis III. So a lot of things happening that align well with our strengths.

Yes. Maybe just to add a quick a little bit of context to John's remarks, I think that we very much see that back to your question, it's -- for us, it's not a single opportunity or I would even say it's not a single part of the system life cycle. As John indicated, it's really kind of more of a broad approach to the opportunities across the space market. We broke it into satellites launch, SATCOM and integrated systems. And today, we're driving those critical missions with Missile Defense Agency and other parts of the Department of Defense, but even NASA. And so we're excited about really the in-house expertise that we've built across these critical missions I think the real theme at this point in time is all of these critical missions are becoming more complex.

And so a partner that can deliver agile and scalable systems, all these missions require more rapid tech insertion -- and that's really the Amentum team that we've built in the space portfolio. And moving forward, there's just 3 things that give us a lot of optimism. I think number one, if you look at where we're deploying our proven expertise today, we're deployed in areas where the spending is becoming more durable. That's something we see across commissions we're supporting.

Secondly, we are excited about we are on and hold the ride contract vehicles. We talked about existing DoD and NASA contracts. Of course, we picked up a position on the Shield contract where we have the chance to compete and win work in support of Golden Dome. Even recent months, we've had the nice new win on the COSMIC contract with NASA where we're waiting for protest disposition. But all these things give us kind of line of sight on growth in '26 and into '27. But maybe in the biggest picture, the third point we're excited about is all the capabilities we have mentumave developed in-house translate across these missions, whether it's national security space, whether it's deep space exploration or even some of the emerging commercial opportunities.

And we've really worked on networking that expertise to be able to bring the best solution to all of these opportunities in the space market.

[Operator Instructions] next quesiton comes from Trevor with Citizens.

Great. Can you maybe just bridge some of the comments, Travis and John, that you made around kind of the timing of the nuclear contribution. And then just the overall new business that's coming in for '26. It sounds like that's probably not so much a factor of kind of the revenue that's beyond the visibility that you had from kind of new from the existing contracts? Just how are you bridging that kind of upside or the extra? Is that coming from -- what's that coming from? What are the puts and takes around the -- what could be the guidance there as far as not kind of meeting your expectations?

Yes. I'll just make a quick comment, maybe Travis can get into the numbers with a quick comment. That's a little tongue in cheek on the industry, but 21% of our revenue right now is non-U.S. government. In the U.S. government, you still have protests on new awards. We've mentioned we have $2 million -- $2 billion of new awards sitting in protest. So our BD engine is working. We're really excited with our strategy that we've outlined. Our win rates are strong and our backlog is growing. But we have protests. But what's interesting is in the non-U.S. government business, we really have no protests, right?

So we're able to transition those awards, whether it's in the nuclear space or foreign government space immediately into revenue and contribution to margin improvement. And so that's kind of another exciting part about the nuclear market as we announced $1 billion of awards. We still have the Rolls-Royce. It came in after. We have other things happening in our nuclear market. We're really excited about, and we're not seeing any protests. So we get to translate that into project work and see that contribute, but of course, in '26 as Travis said, we only have about 5% of new business to fill the gap.

But if you can get the work that we're winning in our accelerated growth market started that can have a greater impact on the fiscal year.

I'll just add. I think John covered it really well. But as we look at kind of bridging Q1 to the rest of the year run rate. There's really just a couple of mechanical things that are going to get us there. Obviously, first and foremost, there's going to be no government shutdown impact in the remaining quarters. That was roughly $150 million. We're also going to benefit from additional working days in the remaining quarters. So in Q1, there were 60 working days, in Q2 and Q3, there will be 63 working days and in Q4, there's 64 working days. So just kind of math on average daily run rate, right? That's an additional $150 million a quarter. And then obviously, the other net organic contributions, including things like ramp-up of new contract awards.

We mentioned our Space Worth range contract previously that only had 1 month worth of revenue in the first quarter, and we'll obviously have a full quarter benefit in the remaining quarters. So fairly simple bridge to kind of get you to how we see the rest of the year playing out. And then in terms of where we fall within the guidance range, I think John hit it really well. It's really just continuing to submit high-quality bids and expect to still submit over $35 billion this year. But we have $23 billion in pending awards and we have pretty good visibility into those, but there can always be variability of timing of those and then, of course, process, as John mentioned.

So I'd say if we're looking at variability within kind of our guidance ranges, it would be just that? And how does that play out during the rest of the year?

Your next question comes from Mariana with Bank of America.

Good morning, everyone. So the first 1 is going to be about you mentioned the Golden Dome Shield contract that you have been down selected. We haven't seen much awards yet. How are you thinking about timing of those awards and opportunities?

Yes. We -- I think for us, the Golden Dome story begins with kind of what we're doing today. In January, General Golin, Pentagon's appointed leader for the whole Golden Dome system realization. He made some great comments about the priorities for the first 2 years. And he really focused on the baseline command and control capability for this integrated system of systems that is Golden Dome and incorporating interceptors into the systems. And so if you look at a menu today, we're already doing a lot of work that's I'll say, bringing that to live. We're supporting certainly the Missile Defense Agency.

John mentioned our IRES contract where we've established now the digital backbone that's going to allow those systems to be integrated into our missile defense architecture and even developing prototype systems like as has been in the media, the hypersonic tracking and ballistic space sensors, so those prototype systems, we're working to bring to life. And so already, in conjunction with the Missile Defense agency, a minimis doing a lot of that work. And I would quickly mention our work also with the space force in their NORAD mission where we're advancing their ability to detect and track and have missile warning capabilities. That is -- we are continuing to sustain and advance their systems to carry out those parts of the missions.

And so we Amentum jon our current contract, a tasking that is relevant to the future solution that is Golden Dome. And so in parallel, as you correctly mentioned, now we, along with many other companies, have a seat on the Shield contract. We have begun just to see some of the plans for some of the procurements that will come out under Shield. We, like others, are positioning for those. And so we do expect, as we progress into '26 that we'll see increased activity there. And -- we were excited about the current work and the view ahead on the upcoming procurements.

And then if we can switch gears to NASA. Earlier this week, they announced the solicitation for the second iteration of like NASA engineering support contract that you guys have, and I understand you probably cannot comment on a particular contract that -- how should we think about opportunities and challenges going on for your NASA exposure going forward? -- especially as we think about like new leadership and a focus on more like commercial terms, the same that we're seeing at the Department of War? Like where are the opportunities and challenges there and competitive dynamics going forward?

Yes, we are really pleased that we've had the chat, even just within the past couple of weeks to meet with the new administrator and his team. And at the top level, let me just say we're excited to continue supporting NASA to achieve the President's national space policy goals and maintain U.S. leadership and space exploration and everybody is aligned around that. And even more specifically, just within the past couple of weeks, we've enjoyed interacting with the new NASA leadership at the Kennedy Space Center in Florida, where the integrated team is working to prepare for the Artemis II mission, and if you're following, it's now slated for the March launch window.

And so we're very proud of our current role in supporting NASA with this historic mission, which, by the way, will take humans deeper into space than they've ever before traveled and we'll bring them home safely. So rest assured that proper preparation for Artemis II is a priority for us. Administrator Isaacman he did recently, just as you noted, he committed to say, "Hey, NASA has got to focus on rebuilding internal talent, strengthening contractual provisions and fostering their culture of technical resilience -- these are all positive objectives, and we are fully in alignment. NASA has a unique leadership role in the world and never before in history has it been more important that NASA lead in this area.

So we're very excited about that. I think for us, as we've interacted with new NASA leadership, the administrator, we think, is focused on pushing the agency to deliver successful missions to do that and align them with cost constraints as well as schedule imperatives. We met them. We believe our proven expertise, coupled with our highly advantaged cost posture, we think we're positioned. We're a big part of those solutions today, but we can -- we think even be a bigger part of that in the future. So we're really excited about the direction of the agency under Administrator Isaacman and its leadership.

And I just want to close by having been at Kennedy with our team and the NASA team and seeing the preparations for -- we are really thankful for that team, how they're approaching every aspect of the mission to ensure it's executed safely and well. And I know all eyes of the nation will be on tap as we undertake that historic mission in March.

Your next question comes from Gavin with UBS.

You pointed out U.S. nuclear is still in early stages of acceleration. And I think I heard you say maybe a few more quarters until we see some tangible progress there. Is that the time frame we should expect for sort of for some potential award announcements.

Yes. I would say there's a lot of activity. We are extremely busy we haven't made any announcements, but trust me, our team could not be busier given the support of this administration as well as the need, the demand that is there from the hyperscalers and the whole community understanding that energy and meeting the energy needs of our industry is a national security issue. So it's all hands on deck great relationship with the government and commercial business as well as foreign investment and really working together to allow this to happen in the United States, this resurgence of nuclear, call it, the second nuclear renaissance and bringing that on.

And part of it is the excitement around small modular reactors, right? So SMR development is really happening. We have in the U.S., some great companies that are leading that effort. And for Amentum, we're working with these companies, and we're a key part of the supply chain to allow these projects to happen. We're doing that in Europe. We have all that expertise. We've been working in the nuclear industry going back to the Manhattan project here in the U.S. at developing next-generation energy capability here in the U.S. and now seeing the demand for electricity and bringing nuclear back on.

Amentum is extremely well positioned to be a part of that success here in the U.S. So we think 26% is going to see some real progress and that will really create momentum into '26, '27 and beyond.

Okay. That's great. And then just back to the shutdown impact briefly, the full year assumes some headwind I think the first quarter was a little bit light of where you guys guided, was that larger shutdown impact than you expected? And what gives you confidence that, that can be recaptured this year instead of slipping to the right?

Yes. So when we issued guidance back in November, we contemplated an approximate 1% impact from the government shutdown. And that kind of played out with the majority of that occurring in the first quarter as we stated. So it was in line with kind of what our expectations were when we set the guidance range, which obviously is the reason why we reaffirmed the guidance. But we're really confident with, again, only 5% of revenues expected to come from new business, 93% is firm, only 2% recompete. And with the $23 billion in pending awards, we have good line of sight into where the revenue is going to come from for the rest of the year.

Your last call is from Andre with BTIG.

In much of the same way that you previously broke down the different pieces of the nuclear end market, are you willing to share just how big each of the 4 space end markets are for you now and how big they could become?

I think that it's a great deeper look into the way we've laid out the space market. I'll be forthcoming. The way we are kind of omnipresent across all of those areas. It can be a little bit challenging to segregate revenue between the 4. I think that you could argue that the majority, if not all of our revenue in the space market, kind of all points towards that integrated systems bubble where -- or segment of the market where we're whether it's front-end design, all the way through development, integration and test, all of it headed toward integrated systems. But the other piece that we've got to factor in, that's really a new term in our momentum equation is the Space Force Range contract, where we are today have just ramped up that contract and are having such increased activity in the launch portion of the total market.

And so we think as we get to a little bit of normalization moving forward, it will be a much easier task for us to quantify exactly where the revenues fall in the 4 buckets.

Got it. Got it. That makes sense. And then I guess just to zoom out into just the accelerated growth markets overall, are you able to provide a book-to-bill for those markets that are collective and maybe just through that, talk about more of the opportunities you're seeing there.

Yes. On the book-to-bill, and I'll let John elaborate on the opportunities moving forward. Obviously, Q1 was a highlight, over $1 billion or right around $1 billion of the $3.3 billion in net bookings tied to just the global nuclear energy part of the accelerating growth market. So I think it's fair to say if you look at over the last 12 months, there's been proportionally outsized contribution from our accelerating growth markets, as you would expect with awards such as Space Force Range lot of the other international nuclear opportunities.

So certainly, they are the leading factor in our book-to-bill performance. That said, we still are excited about what our core growth markets are contributing, and they continue to have robust bookings as well. We're -- I mean we don't provide the book-to-bill.

And what we did this quarter did say we had $1 billion of nuclear awards. We will continue kind of share some of the color on where these awards are coming from. We're -- I mean we think the 1 highlight of what Amentum is that we have been delivering what we say we're going to deliver. We have been consistent. This team has developed a very solid strategy. We've used the last 2 quarters to share that strategy with the marketplace. It is working. It is delivering. We think the diversification of momentum is a key strength. And we're showing that across our core markets and across our accelerating growth markets, our ability to compete on the largest and most complex contracts in these areas.

And I think as we go forward, we will continue to share more detail. Things are happening in the digital infrastructure market. We're going to talk about that next quarter. We talked about the global nuclear last quarter. We talked about Space Systems and technologies, and we're seeing momentum in these accelerated growth markets as well as continued strength in our core markets that we've been delivering for decades. So yes, we plan to continue to share more of the details aligning to these accelerating growth markets as we go forward. And because we just see our pipeline is shaping up across these areas between core and the 3 accelerating growth markets, which is part of our strategy to continue to prioritize the higher-margin areas while still taking advantage of our leadership position in the core markets.

So we're excited about how the pipeline is pulling together. And our focus on new business, scale are all starting to work and pay off. And we saw it in margins this quarter. something we couldn't control with respect to additional days off for the government that impacted our cash, but in things that we can control that tied to our strategy, we continue to deliver. and I'm really proud of what this team is doing every quarter to live up to the expectations we're setting in the marketplace.

Thank you for joining today's call. There are no further questions at this time. Thank you for joining. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Good morning, and welcome to Amentum Fourth Quarter and Full Fiscal Year 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions].

I would now like to turn the call over to Nathan Rutledge, Senior Vice President of Investor Relations. Please go ahead, sir.

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 this morning's discussion will contain forward-looking statements that are subject to important factors that could cause actual results to differ materially 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.

In addition, we will discuss pro forma financial measures prepared in accordance with RF-11 of Regulation at. as well as 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 reconciliation of forward-looking non-GAAP financial measures due to the inherent difficulty in forecasting and quantifying certain significant items. These pro forma and non-GAAP financial measures should not be considered in isolation or as a substitute for financial measures prepared in accordance to GAAP.

Our safe harbor statement is included on this slide in the marketplace, and where we're going. It was a year of disciplined execution, strong performance and meaningful progress across every part of our business. I am so proud of our people and what we've accomplished together. At Capital Markets Day in August of last year, we established our objective to successfully integrate and deliver end-to-end advanced engineering and technology solutions to government international and commercial customers across key end markets, including defense, nuclear energy, intelligence and space, and we're executing exactly as we had envisioned.

As a result, Amentum has established a solid foundation for sustainable growth. This morning, I will detail how Amentum has proven our ability to operate with agility delivered to our customers and create long-term value for our shareholders. I will focus on 3 key areas: first, an overview of how this exceptional year unfolded, and how it positions Momentum for a promising future. Second, highlights from an impressive quarter, including strategic awards and key performance metrics; and finally, our strategy to drive Momentum's growth in fiscal year 2026 and beyond. Let's begin on Slide 4, which captures the core of our fiscal year 2025 performance centering around momentum's people, operational excellence, financial performance and effective execution of our strategy.

First, our people. fiscal year 2025 tested our resilience and our people delivered Against the backdrop of evolving customer priorities, our team stayed focused and delivered without pause. Our leadership maintained its steady focus on the fundamentals, protecting the long-term health of the business ensuring continuity for our customers and ensuring that our people continue to thrive regardless of the market environment. Through a dynamic operating environment, our teams continue designing and delivering critical solutions for our customers.

That resilience is reinforced by our ability to hire thousands of skilled professionals worldwide maintaining attrition well below the industry average and in our continued recognition as an employer of choice. We take pride in being a company where people want to build their careers while having a positive impact on our world. To that end, we're continuing to expand our centers of excellence, which provides specialized technology to drive innovation and progress.

For example, we recently opened our Nuclear Center of Excellence in Oak Ridge, Tennessee which serves as a strategic hub for nuclear expertise for North America. We've launched technical connection teams and mobilized an AI expert community network supporting upskilling and innovation at every level across the globe. The integration of our legacy businesses was one of the most significant in our industry's history and massive undertaking that demanded focus, collaboration and discipline across every part of the company. Thanks to our team, we have exited all transition service agreements, completed all of our key integration milestones on time and within budget, and are on track to deliver at least $60 million in net run rate synergies by the end of fiscal year 2026.

That operational readiness anchored in the strength of our people and culture is one of the Amentum's defining advantages, and it translated directly into strong financial performance. As a result, we met or exceeded guidance across every key metric underscoring our consistency and discipline. Starting with revenues, which increased to $14.4 billion, representing pro forma growth of 4%. The adjusted EBITDA of $1.1 billion, an increase of 5% year-over-year. Adjusted diluted earnings per share of $2.22 was up 11% and and free cash flow of $516 million, supporting acceleration of our debt reduction objectives, bringing net leverage to 3.2x.

These results demonstrate the strength of our operations and the reliability of our business model. And taken together, this year's achievements underscore the strength and breadth of our platform. In short, we executed with precision and strength, delivering on our commitments while positioning momentum for sustained success. Please turn to Slide 5.

Our disciplined execution and focus on growth translated into a series of strategically significant wins that strengthen our position across key markets. During fiscal year '25, we submitted $35 billion in bids, achieving a full year book-to-bill ratio of 1.2x and a quarterly book-to-bill ratio of 1.6x. Our backlog grew 5%, reaching over $47 billion. And at year-end, we had $20 billion in proposals awaiting award. Our quarterly book-to-bill ratio was driven by $6.4 billion in total bookings, reflecting continued demand in several strategically important wins, including the U.S. Space Force range contract, a new $4 billion 10-year single-award IDIQ.

This award now adjudicated and booked into backlog is one of the largest services contracts ever awarded by this customer. It cements Amentum's leadership in space systems and technology and solidifies our position in this fast-growing market. In the U.K. Sellafield selected momentum as a remediation partner for the site under a $1.8 billion 15-year contract, where we are leveraging our advanced decommissioning solutions systems engineering and next-generation nuclear material processing and disposition capabilities. Another exciting win came from the civilian side of our space portfolio with the NASA Cosmos contract, which is a 9-year $1.8 billion joint venture award to deliver critical mission operations systems and training solutions supporting NASA's current space flight programs and enabling future deep space exploration.

In the quarter, we were notified that this award is being protested. Therefore, it is not included in our fourth quarter backlog or book-to-bill results. We are confident in the strength of our bid and look forward to its resolution. And finally, we secured nearly $700 million in awards, providing a range of advanced engineering and technology solutions for intelligence customers. including a win developing and delivering AI-enabled software coating solutions. Together, these results underscore the trust that our customers have placed a momentum to execute complex programs at scale, and we enter fiscal year 2026 with strong momentum, preparing to bid at least $35 billion.

Turning to Slide 6. Fiscal year 2025 brought significant change, not just in Washington but across the globe and throughout our industry. The transition to a new administration introduced a new set of priorities and objectives, impacting contracting time lines, funding cycles and future spending direction.

For Amentum, this environment reinforced the strength and resilience of our business model. Our work is anchored in mission-critical long duration programs that are essential to national defense, energy security and space superiority. Our diverse portfolio, which includes 20% of revenue tied to commercial and international work provides a degree of insulation from sector volatility.

Combined with our strong backlog and robust pipeline, we have high visibility into future revenues. This structural agility allows Momentum to rapidly adapt to shifting priorities while delivering consistent results for customers as the government refocuses on efficiency, speed and accountability, momentum is well positioned. Our scale, performance record and proven operational discipline make us a trusted partner to our customers. For investors, that combination represents a low-risk high-visibility opportunity at a time when consistency and reliability are at a premium. Simply put, momentum represents stability in a period of transition. Let's turn to Slide 7 to discuss Momentum's growth strategy.

Our core growth areas where we have long-standing leadership positions across large, stable, mission-critical areas provide dependable revenue, strong cash flow and predictable returns, and they remain central to the steady performance that defines our company. These areas underpinned by several core capabilities are deployed across multiyear, often multi-decade programs and some notable areas include RDT&E, intelligence operations and analysis, homeland security and border protection, environmental remediation and defense engineering, logistics and modernization.

As an example, you can see this in work on our items program in [indiscernible], where we're strengthening C5 ISR capabilities for the U.S. armed forces by applying rapid prototyping and digital engineering methods to accelerate speed to mission. It's also reflected in our support to the Naval Surface Warfare Center Crane where we integrate next-generation sensors and apply model-based systems engineering to enhance reliability and life cycle management.

Whether we're leveraging machine learning solutions in support of customers across Homeland and national security missions, delivering digital engineering tools on behalf of intelligence customers or deploying advanced environmental solutions around the world, our core growth areas deliver consistent performance and create the platform from which the rest of our business continues to scale. Turning to Slide 8. complementing that foundation are our accelerating growth markets powering our future growth, space systems and technologies, critical digital infrastructure and global nuclear energy.

They are growing rapidly, fueled by generational investments in national security, energy resilience and advanced technologies such as AI, robotics and automation. They are also margin accretive, relying on advanced engineering, AI-enabled integration and high-value technical expertise, and they are global, creating opportunities across the U.S. U.K., Europe and other allied nations, where Amentum's credibility and scale make us a natural choice for government and commercial customers seeking a trusted partner.

Now let me provide a bit more detail. With the national security community and a fast-growing commercial sector, our work in launch infrastructure, systems integration and space flight operations position Momentum at the intersection of government and commercial space, supporting missions that will define the next generation of space exploration and defense readiness. Next, we're excited about our growing work providing digital infrastructure solutions. Here, we're supporting advanced telecom systems, deploying next-generation data center solutions and engineering the backbone of networks for national security and commercial customers alike.

For example, commercial awards in fiscal year 2025 in Strategic partnerships and capabilities, including MBSE enabled platforms often leverage from work in our core growth areas, we're future-proofing networks and data centers to meet the demands of low latency, data-intensive mission environments. By combining our engineering debt with turnkey connectivity and resilient cloud architectures, momentum is positioning itself as a trusted provider of mission-critical digital infrastructure for the world's most demanding users. And finally, turning to Slide 9. As I reviewed during last quarter's call, Momentum is well positioned to lead the next generation of nuclear power.

Our teams deliver full life cycle nuclear engineering capabilities, including design and licensing to construction, operations, modernization and life extension and decommissioning. The global resurgence of nuclear energy, driven by energy security needs and the explosive demand from artificial intelligence and next-generation manufacturing is creating a market with substantial tailwinds. For Amentum, this represents a multi-decade opportunity for sustained double-digit growth and meaningful margin expansion.

I look forward to providing future updates on our work in the nuclear market and diving deeper into the space systems and technologies and critical digital infrastructure markets on future earnings calls. When you combine the durability of our core growth areas with the momentum of our accelerating growth markets, the result is a portfolio that delivers both stability and scalability.

Our lower-risk long-cycle businesses generate the cash flow and institutional strength that allow us to incubate high-growth opportunities without compromising financial discipline or balance sheet flexibility. This is how we think of Momentum strategy for growth, a well-positioned portfolio that consistently delivers growth, margin expansion, sustainable free cash flow and compounding returns year after year.

With that, I'll turn it over to Travis.

Thank you, John, and good morning, everyone. I'm excited to discuss with you today another outstanding quarter of performance, that caps off what has been an exceptional first year for Amentum as a publicly traded company and to share our outlook for fiscal year 2026, which reflects momentum we're seeing across the business and underlying growth across all key metrics. As John noted, our strong finish to the year demonstrates the continued resilience of our diversified portfolio and was enabled by the extraordinary efforts of our dedicated employees around the world.

Their unwavering commitment to execution and operational excellence to deliver both exceptional outcomes for our customers and Financial results that surpassed our expectations. These figures offer a combined view of the new momentum business and provide performance insights on a more comparable basis. Revenue momentum accelerated to end the year with $3.9 billion for the quarter and $14.4 billion for the year.

The strong performance was driven by continued demand and year-over-year increases in both digital solutions and global engineering solutions and exceeded our expectations as a result of nonlabor timing and higher customer spend ahead of the government shutdown. On an underlying basis, after normalizing for the previously disclosed additional working days, joint venture transitions and divestitures revenue growth was approximately 4% for the quarter and 2.5% for the full year.

Adjusted EBITDA of $300 million in the quarter resulted in $1.1 billion for the full year. representing annual growth of 5% and adjusted EBITDA margin expansion of 10 basis points. Full year margins, which were impacted by a higher nonlabor mix in the fourth quarter, benefited from strong operational performance in both segments and from our cost synergy initiatives. Adjusted net income was $154 million for the quarter and $542 million for the year, which generated adjusted diluted earnings per share of $0.63 for the quarter and $2.22 for the year.

Adjusted EPS grew 11% year-over-year consistent with the strong revenue and margin expansion performance. Moving to our reportable segment results on Slide 11. Digital Solutions generated revenues of $1.5 billion for the quarter and $5.5 billion for the year, representing 11% and 7% growth, respectively. The year-over-year increases were driven by the ramp-up of new contract awards, led by continued strength in the commercial digital infrastructure market and additional working days, which more than offset expected contract ramp-down and the divestiture of Rapid Solutions.

Adjusted EBITDA increased to $116 million for the quarter and $437 million for the year, resulting in full year growth of 8% and adjusted EBITDA margins of 7.9%. Turning to Slide 12. We Global Engineering Solutions generated revenues of $2.4 billion for the quarter and $8.9 billion for the year, representing 9% and 2% growth, respectively. The year-over-year increases were driven by new contract awards, growth on existing programs and additional working days, which more than offset the expected contract ramp-down and the impact from JV transitions in the fourth quarter.

Adjusted EBITDA increased to $184 million for the quarter and $667 million for the year, resulting in full year growth of 3% and adjusted EBITDA margin of 7.5%. Turning to Slide 13 to cover our cash flow and capital structure highlights. Fourth quarter and full year free cash flow of $261 million and $516 million, respectively, were slightly better than our expectations and reflects strong cash earnings and our continued unwavering focus on more capital efficiency. This performance enabled additional debt repayments of $550 million during the quarter, bringing full year repayments to $750 million and reducing our net leverage to 3.2x.

We ended the year with $437 million in cash, an undrawn $850 million revolver and no near-term maturities. With an enhanced balance sheet position, we now have an accelerated and clear path to achieving net leverage of less than 3x by the end of fiscal year 2026. Looking ahead, we will remain disciplined in our approach, maintaining a prudent capital structure that enables flexible and opportunistic deployment. Whether we are investing to drive sustained organic growth, reduce debt pursue accretive strategic acquisitions or return capital to shareholders. Our goals are the same: maximize free cash flow per share and deliver strong compounding shareholder returns. Simply stated, we're committed to retaining the financial strength that enables medicine to grow, invest and create long-term value while doing so with precision, prudence and purpose.

On Slide 14, let's now discuss our fiscal year 2026 outlook. Based on our bottoms-up forecast process for fiscal 2026, we expect revenues in the range of $13.95 billion to $14.3 billion or 3% growth at the midpoint after normalizing for the additional working days, JV transitions and divestitures previously mentioned. The ramp-up of new program awards and on-contract growth is expected to more than offset the wind down of certain historical programs and impacts from the federal government shutdown. Where the majority of momentum work is mission-critical and continued without interruption, our guidance contemplates an approximately 1% impact as a result of due spending in Q1 on certain programs and from delays in award decisions.

With less than 10% of revenues expected to come from new business and with $20 billion of submitted bids awaiting award decision, we have good visibility and are confident in our position starting the fiscal year. We expect adjusted EBITDA in the range of $1.1 billion to $1.14 billion, reflecting underlying growth of 5% at the midpoint, driven by margin expansion of approximately 20 basis points as we realize the benefits of our cost synergy initiatives as well as contract mix and operational improvements.

We expect adjusted diluted earnings per share of $2.25 to $2.45, up 12% at the midpoint on an underlying basis, which assumes 245 million weighted average shares outstanding and a tax rate of about 24.5%. And finally, we expect free cash flow of $525 million to $575 million or 12% underlying growth at the midpoint, driven by higher cash earnings and reduced interest from our debt reduction initiatives. As it relates to timing, we expect first quarter revenues and adjusted EBITDA to be consistent year-over-year on an underlying basis, followed by quarterly sequential increases as newly awarded programs including the key awards John mentioned earlier, ramp up throughout the year.

Free cash flow was also expected to follow normal seasonality with the majority generated in the second half of the fiscal year as a result of fringe benefit and payroll timing and as a result of expected strong collections in the fourth quarter given our alignment with the government fiscal year-end. Additional key assumptions for our guidance are included on Slide 14 in today's presentation posted on our Investor Relations website. Wrapping up on Slide 15. As we concluded and a 1.2x book-to-bill and surpassing our cash flow and deleveraging expectations, we are excited about the road ahead.

Our portfolio is strategically aligned with enduring global trends customer priorities and tailwinds in accelerating growth markets. While pleased with our current progress and achievements, we focused on delivering our strategic objectives and driving long-term value for all stakeholders.

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

[Operator Instructions] Your first question comes from Colin Canfield with Cantor.

Can you discuss perhaps the level of kind of timing or onetime margin and cash flow dynamics in the quarter? And then how much Section 174 benefits were included in fiscal 4Q versus the guide? And then maybe talk through if there are any kind of pull forward or push out dynamics around margins and cash related to the merger.

A little bit to unpack there. Obviously, all focused on cash. Maybe starting at the top. Obviously, we're pleased with our year-end cash performance, which, as I said in my prepared remarks, slightly exceeded our expectations as a result of the strong revenue performance that we saw in the year. As far as onetime items in the quarter, obviously, we've talked about the additional working days, which generated additional cash around $20 million is the impact from that. So that would be kind of an item to normalize as we head into FY '26. And then moving into FY '26, we're obviously really excited about the cash flow trajectory. We're expecting, as I said, 12% growth at the midpoint of our guide on an underlying basis.

And we do expect to receive some benefits from the OBBA tax law changes around immediate expensing of R&D, also smaller benefits, but still benefits around disallowed interest in CapEx bonus depreciation. So altogether, that's about a $35 million benefit to tax cash payments in FY '26. So put all that together, and again, just right along where we expected to be at this point, driving that double-digit free cash flow growth that we committed to at Capital Markets Day and excited to continue to head in that trajectory.

Got it. And then maybe a level setting us on the multiyear margin progression in terms of the [indiscernible]. I think one of the theses that kind of folks are focused on is essentially shutdown related dynamics, pushing everything 1 year to the right, but still fundamentally happening. So perhaps if you could talk through kind of how you think about FY '26 margin progression, the synergy contribution and perhaps kind of the multiyear framework set out at the Investor Day.

Sure. So as we talked about at Capital Markets Day, our goal is kind of a long year -- long-term goal by FY '28 to get to 8.5% to 9% margins. And as you sit here today, we're exactly where we thought we would be. Cost synergies were obviously part of it, but we drove 10 basis points margin expansion in FY '25 in our actual results and the midpoint of our guide for FY '26 is another 20 basis points.

So all in all, 30 basis points in the first 2 years together is exactly the trajectory we thought we would be on. And then as we head into FY '27, obviously, we'll have the full year impact from all of our cost synergy initiatives. And as John said, we're on track with all of our integration activities, including cost synergies and will exceed $60 million in net run rate cost synergies by the end of FY '26.

And I think the other part that we talked about on the call and we introduced through the first time kind of our overall two-pronged strategy of growth. And that, to us, is really what this story is all about. As we started out a year ago, we knew this would be a transition year this year, integrating, identifying the the real opportunities, the white space opportunities, the growth opportunities that neither of those -- of the companies we put together to go after. And we've really strongly set our sights on putting a strategy together that can leverage the broad enterprise of momentum.

We talked about our core markets, which we're leaders across those core markets, which gives us great opportunity for sustained growth. But it's about the accelerated growth markets that we've identified. They are strong already. We're leaders there as well, but it's only $4 billion of the $14 billion company. And we think the ,the growth opportunities are stronger and accelerating growth markets across space systems and technologies, critical digital infrastructure and global nuclear energy all will result in margin improvement.

And that's why we're still very excited about the targets we set out and the goal of 8.5% to 9% by 2018.

Got it. And maybe sneaking in a third, if you could just update us on how you think about kind of the timing, magnitude and multiple of any potential divestitures as well as the timing and magnitude of the upcoming SLS award.

I'm sorry, repeat the second part of the question to what award, I didn't catch all of that.

Sorry, SLS. So there's for the reconciliation bill. It's been 3 years since we've gotten a pretty major SLS award and the competitive dynamics of that race are obviously a national security focus as well. So I just want to make sure we're level set [indiscernible]

[indiscernible] Yes. Thank you for the repeat. Happy to provide just a little bit of color on the Space Force range contract. It's a topical issue for us right now because we've gotten through successfully protest period, and our teams are busy work right now today, even as we prepared to assume operations for that large contract in December. So really excited about the Space Force range contract. Really, just a quick synopsis at the top level, we're on that contract about making sure the U.S. has assured access to space. And actually, there was a great article just yesterday in the Space News publication where they interviewed Kernel Chapman, who's the commander of Space Launch Delta 45. And he talked about how the launch cadence just continues to ramp and both on the eastern and western range. We're working with the Apollo era infrastructure. He highlighted how Congress has appropriated nearly $1.5 billion be invested between now and 2028, to begin to upgrade that infrastructure.

And so for us, [indiscernible] we're coming in at an exciting time to that contract. So we're there certainly to maintain and sustain and support this launch cadence, but we're also there to engineer, upgrade and integrate all the capabilities needed for the future. So very excited about how that's going to play out beginning in December phase-in underway.

Yes. So just to be clear, that contract cleared protest, we are executing on that contract today, and Steve mentioned, very excited. The first part of your question, just about portfolio shaping. We were excited to have the opportunity with Rapid Solutions in our New Zealand business and non-core very clear noncore elements of the business. But I would say today, we're very excited about our entire portfolio, the capabilities we put together, we're leveraging across our entire business, very important for us as we look at the company as an enterprise and don't create silos, and we're leveraging across all different capability areas as we look at every opportunity. We're bidding. So right now, we're excited about the portfolio we have. Obviously, we go through strategic planning every year. We look at where the growth largest growth opportunities are, and we will obviously look if there are any noncore assets and identify those, I would say, right now, we're really excited about what we've put together and it's working.

And the next question comes from Brian Gesuale with Raymond James.

Nice job on the [indiscernible] here. I want to dig in a little bit to these growth areas, John, if I could. Can you remind us how you play throughout the entire kind of nuclear life cycle how big that business is today? And maybe as you lay out these broad ambitions for nuclear power in the future that have been put forward when you'll start to see some of those things inflect for your business?

Yes, sure. We highlighted this last quarter as well. So I would reference everyone to go back to that quarter. There's an additional slide there, but we kind of brought in one of the slides from last quarter into this quarter that kind of actually helps answer that exact question. So for us, what I would say is we play a mission-critical role across the entire nuclear energy life cycle. So it starts with design into construction and commissioning all the way through operation maintenance and decommissioning. And it's really across all sectors of the industry which starts with new development, construction and operation of gigawatt size reactors.

It also covers SMRs, a lot of activity in the marketplace today around the world. On developing that capability, that new design capability so that we could have small modular reactors existing in the United States and around the world, and we're working with a large number of these developers to help bring those capabilities to the market, but that's going to take some time.

So a lot of engineering work right now through likely this decade. But then the other area is really on plant life extension and upgrades. We're seeing the 3-mile Island news, other areas across the United States where we want to ensure that we have the electricity we need to fuel the AI data center demands and other demands of robotic manufacturing and just overall electricity demand generally is an important part of the economy.

It's been deemed a national security priority by this administration, and we're seeing a lot of good policy coming out of this administration that's driving this renaissance within the U.S.

Great. Really helpful. I want to talk also maybe about one of the other growth areas that we're really excited about in the space side of things. Can you maybe help us understand how much of that business is commercially oriented in defense, given there's just so much activity in both those areas? And maybe if you could help us think a little bit about how Golden Dome from award presence and a launch activity perspective would drive your business and maybe the timing of that, whether that's part of '26 or part of an unfolding '27 story that's yet to reveal itself.

Yes. The -- today, as I mentioned, we're just super excited about where we're at in this market and the continuing accelerating growth opportunities. Just to start, I think most people are familiar with the leading presence we have supporting the government with NASA and the whole civilian space exploration and all of those activities. A lot of momentum colleagues right now preparing for the Arms 2 mission that's scheduled for early 2026, and we're excited to be such a critical player in putting astronauts back in space and really excited about the preparations for that mission. Everything from integrating the vehicle, launch control software, mission control, software and I think that our recent win on Kosmos, where we'll have now an Amentum team at NASA Johnson Space Center becoming engaged in mission operations and all of the things that extend through the complete life cycle of the mission kind of speaks to our strength in supporting that customer and their missions. Of course, that contract currently is undergoing corrective actions. We're not underway yet, but that's a really good one.

As far as your question about Golden Dome, just to give a bit of insight there, we really think we have a great right to win in terms of being a part of the solution that the U.S. government is developing. Today, we're heavily engaged with the Missile Defense Agency and helping to take the missile defense system digital, if you will. It's allowed us to deploy things like the hypersonic next-gen satellites for detection. We're doing things like virtual engineering, digital methods to integrate new technologies into the system. That capability and that expertise, we're also deploying for the NORAD mission, which is the North American aerospace defense command. And so we're really excited about those capabilities. And the way Golden Dome comes to life for us is right now, the government is moving out on a shield procurement. Shield is the acronym for a large IDIQ vehicle, it will be a multiple award vehicle, $150 billion. We are engaged in that procurement like many other in the industry.

And so our proposal [indiscernible]. We're looking forward to the adjudication of that. And I think that Specific to your question, as we get toward deeper into FY '26, we'll begin to see specific task orders and passing come out under that Shield vehicle. So we're excited about the opportunity there. So really across national security as well as civilian space. There's a lot for us to draw on in the portfolio. And I think the last thing I would mention, and it comes into play even with our new space force range contract. John hit it in the prepared remarks, but so many of these contracts put us at the intersection of government and commercial space. And we have a great track record of working with those commercial partners.

So we think that proven capability is going to be instrumental for the government to accomplish all of their objectives that they have for the space time.

[Operator Instructions] Next question comes from Tobey Sommer with Truist.

The company has reduced leverage faster than we anticipated. When do you think you'd be at a point where you may be able to go on offense with capital deployment and start incorporating inorganic growth into the story.

Yes, certainly, we're pleased with the leverage trajectory sitting at 3.2x here 1 year in to our merger and public company transition ahead of where we thought we would be. I'd say we remain committed to getting to that target that we set out at Capital Markets Day last year of less than on debt levered, and we're on track to do that by the end of FY '26.

As you know, our kind of cash timing, 2H will be back-half weighted. So we'll get there in the second half of FY '26. And so obviously, now it's right around the corner, right? So we're starting to shift our focus into what that could look like. It will be obviously dependent on what opportunities are out there and available at that point in time. But as I said in my prepared remarks, regardless of what we do at that given point in time with our capital deployment strategy, we'll be looking to maximize free cash flow per share. And [indiscernible]

okay, could be part of that, but it also could be continue to pay down debt or returning capital to shareholders. Certainly, as we get out of this kind of 2-year restriction period of the R&D, looking at share buybacks when it's trading at something below the intrinsic value of the stock could be an option. So we look forward to getting there in the second half.

Yes. What I would put a bow on that discussion is really the fact that we have these accelerated growth markets that we see as organic opportunities, given the what we've created in the new momentum, and we think we can leverage and exploit those 3 areas of space systems and technologies that Steve talked about and the opportunities that are upcoming there that are organic the critical digital infrastructure which we will talk about in future calls. We haven't dived into that, but really about helping the AI economy to succeed cybersecurity and then global nuclear energy, which, again, we feel very confident that we have the organic capabilities to exploit.

That doesn't mean we wouldn't look at M&A in the future to help us accelerate those, but we're confident we can win and grow in those areas today.

I appreciate that. And I just sort of have a modeling question, so some of the growth areas have already been discussed and interests. Are there timing or mix issues for us to contemplate near term and modeling the quarterly cadence of revenue and EBITDA across fiscal '26.

So just as we look at the time phasing throughout FY '26, will obviously have the impact from the government shutdown, but that will normalize throughout the year. So we do expect quarterly sequential increases in both revenue, profitability and cash flow for that matter. Maybe just to provide a little bit more color.

We see digital solutions as the predominant driver of growth for the company in FY '26. Obviously, base force range contract is in that segment, and that will be ramping up as we grow throughout the year on that contract and some margin expansion in digital solutions may be a little bit more modest than what we expect to see in Global Engineering Solutions, but we do expect some revenue growth in Global Engineering Solutions as well due to continued ramp up of some new work as well as on-contract growth. And that's where we believe a lot of the margin expansion will come from in FY '26. So you can think about FY '26 kind of quarterly sequential increases as we move throughout the year.

The next question comes from Mariana Perez Mora with Bank of America.

I wanted to follow up on the nuclear opportunities. In the prepared remarks, you mentioned double-digit growth and margin accretive type of work. When you talk about these margins, are they accretive because they are coming like significant like EBITDA pure to the contract? Or it's mostly because a lot of them come through nonconsolidated like joint venture type of EBITDA added to the segment. And then as a follow-up to that, when we think about these opportunities, how fast can they actually come? For example, on the $20 billion that you have in the pipeline expected to be awarded? How much of that is related to nuclear?

Yes, I'll take the first part of the question, Mariana. And John, maybe you can tackle the second part of that. When we look at the front-end nuclear energy market, it's more of the former as it relates to margin expansion, not unconsolidated joint ventures. A lot of that work tends to come not only in the U.S. commercial but also international, right? And do the nature of the work and our capabilities and what we're providing there, it does tend to be margin accretive to the overall portfolio. I'm [indiscernible] to say that especially on kind of back-end environmental remediation, decommissioning, there could be some joint venture opportunities that could also be margin accretive. But as we look to the future and where we expect the growth to come from out of that part of our portfolio, it's certainly not JV consolidation, it's more of the nature of work.

Yes. We talk about this market the global nuclear market, first of all, we are in this market today. globally. In the United States, all across Europe, Japan, we are currently delivering capability across that entire life cycle. It represents about 17% of our business today, so very substantial. We're a leader both in the United States and across Europe and recognized and brought into Japan because of the work that we have done in our history. So for us, it's a real business, delivering real strong margins today as we talk about kind of the nuclear renaissance that is happening driven by real demand for electricity, and AI and the expansion of data centers to enable our AI economy, I think the demand is real, but nuclear takes time.

You have to do significant design work, planning and then you go into construction in the gigawatt size plants, which we have traditionally worked. We've been involved in every nuclear power plant constructed in the U.K. in its history. We have great expertise in the United States, we've just not seen an industry that has been operating on a regular cadence, but there is absolute support from the current administration as well as industry. And there's -- to bring more of this capability online. So President Trump laid out executive orders saying wanted to see 10 more gigawatt plants under construction by 2030.

I think that's an achievable goal, but it will take a lot of work. And we are one of the leaders that is capable of supporting that achievement working with the companies in the industry that have the designs that could be used to deliver that. On SMRs, it will take a little longer we are in the phase of working with companies to actually put the designs together and then prove those designs so that they can be certified and approved designs that can then move into construction. So that's going to take more or less the rest of this decade to move the SMR capability to a point where we would see projects going into construction, but there will be quite a bit of engineering work between now and then.

And then as a follow-up to margins, fourth quarter and fiscal '26 margins came a little bit lighter than expected, according to what you said in the Investor Day, besides the nuclear opportunity that will come with this accretive margins. What are the other drivers that will get you to the 8.5% to 9% that you expect to have by '28.

Yes. Certainly, as John talked about, the accelerating growth areas in aggregate, not just global nuclear energy, but also critical digital infrastructure and space systems and technologies in total are margin accretive to the portfolio. And as we see those outpace growth of the rest of the portfolio in our core growth areas, that will lead to margin expansion. In addition to, obviously, the cost synergy initiatives that we've talked about and a little bit of Q&A on that today, but those will drive, call it, 30 to 50 basis points as we move in through FY '27 into FY '28. So those combined are the predominant drivers of the margin expansion.

The next question comes from Andre Madrid with BTIG.

[indiscernible] came to an earlier-than-expected ended teams, probably 8 months ahead of schedule there. I think previously, you were anticipating that maybe there's going to be 1% headwind going into 26 based on policy changes. I see that there's a 1% headwind based on the shutdown. Is it kind of just shifting towards that where it's like maybe you could have clouded some back on on the policy ship side given the end of dose, but it's now the headwind from the shutdown? I'm just trying to understand the moving pieces there. Should we expect kind of both layered on top of each other or [indiscernible]

I would think about it, Andre, is not related at all. We obviously went through the administration change dose, all of that and throughout '25 and we did call out the approximate 1% impact of the portfolio. that was back half weighted. We'll see some noise of that continuing and kind of throughout the first quarter or 2 here of FY '26, but nothing significant to call out. A separate and independent of that, as we see in times of government shutdown in the past, obviously, this 1 was a little bit extended more than we've seen in the past. But some disruptions to depending on contracts and then some delays in the procurement environment is the 1% that we called out for this fiscal year. But all that being said, I still feel good about the trajectory of the underlying business, excluding that coverage shutdown impact.

4% growth at the midpoint is on revenue, above mid-single digits on EBITDA and obviously double digit on EPS and free cash flow despite those dynamics that are occurring.

Got it. Got it. And then maybe -- I mean, just in terms of debt paydown, you've still got a ways to go -- a little ways to go until you get to less than 3 turns. I mean, how should we think about the pace of that through the year? Is it also -- are you guys thinking of going a step further? Should we think it's still a sizable portion of free cash flow for the year or...

Yes. So the predominance of our cash flow, as will follow normal seasonality and be generated in the second half of FY '26, which is when you'll see us start to get to below the 3x net leverage that we talked about.

Got it. Got it. And maybe if I could squeeze 1 more in. I mean you talked about organic investments. I mean, which areas do you think are poised for the most?

Well, we talked about our core markets. We're still very comfortable with our core markets. So we're looking at investing there as well as those 3 accelerating growth markets. So all of those areas still represent real strength to the business. And so we're -- I think we highlighted in the strategy where we're focused. Those are our priority areas.

And the next question comes from Ken Herbert with RBC Capital Markets.

I wanted to see, first, on the '26 and maybe midterm growth outlook, can you get more specific on what kind of growth you're expecting in I guess, from the accelerating growth portfolio, as you outlined it here, as we think about sort of the 3% to 4% organic growth in '26. Are you at the high single digits for that market, the accelerating growth businesses? And then maybe how much does that accelerate into '27 and '28?

Yes. So I'll start, and then John, you can feel free to add in. So for FY '26, obviously, absent the government shutdown, as we've talked about, from a revenue perspective, expect underlying growth of to -- sorry, 3% or 5%, right? And that's kind of right in line where we thought we would be at this point in time. And then as we kind of transition and start to benefit from all of the pipeline and things that we bid as a newly merged company in the accelerating growth markets that John mentioned in his prepared remarks. Obviously, we think that will see not only as we move through FY '26, but also into FY '27 and beyond. So those will start to tick up and awards such as Spaceforce Range, we mentioned the Sellafield award. It's also in this accelerating growth markets. Those will continue to ramp up. as we move into the back half of '26.

Yes. And Steve talked about some of the opportunities, I think, that we're seeing in the space market that we think will adjudicate this year and therefore, impact next year in a more significant way. And I think the same as we think about the global nuclear energy market, we continue to see an uptick in activity. which will accelerate this year through next year. So we should see a higher pace of activity in that market as we think about '27 and '28 as well. And then the digital infrastructure. We have strong activities in working with the hyperscalers on helping with design and development of upgrades to data centers as an example on telecom, outfitting 5G networks and beyond. So we see areas like this will also continue to expand for us as we continue to reach into other hyperscalers with these capabilities and push the growth of those into '27 and '28 as we kind of break into new customers with these offerings.

Great. That's helpful. And just if you could remind us, what's the recompete risk or recompete exposure you have here as part of fiscal '26?

Yes. So we're really confident in kind of the composition of revenue in our FY '26 guidance. Over 90% of it will be coming from firm and follow-on work. So less than 10% from new business, and it's less than 5% recompete risk.

Thank you. And that is all the time we have for questions. I would like to turn it back to John Heller, CEO, for closing remarks.

Thank you. As we enter a new year, we're encouraged by our performance and confident in the path forward. Our strategy remains firmly aligned with long-cycle mission-critical markets, and we remain agile to meet the evolving needs of our customers. I want to extend my sincere thanks to our employees, particularly those who were impacted by and those who worked tirelessly to support our customers during the government shutdown. Their resilience and professionalism exemplify what makes Amentum a trusted partner.

We are well positioned to capture growing demand in our core growth areas and our accelerating growth markets and to deliver sustainable long-term value for our shareholders. Thank you for your continued interest in Momentum. We look forward to sharing our progress in the quarters ahead. We wish everyone a safe and joyful holiday season.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.