Amentum Holdings, Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our unaudited condensed consolidated financial condition and results of operations should be read in conjunction with the Amentum Holdings, Inc. unaudited condensed consolidated financial statements, and the notes thereto, and other data contained elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis should also be read in conjunction with our audited consolidated financial statements, and notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended October 3, 2025. In addition, please see “Information Relating to Forward-Looking Statements” and “Item 1A. Risk Factors” within our Annual Report on Form 10-K for a discussion of the risks, uncertainties and assumptions associated with these statements. References to “Amentum”, the “Company”, “we”, “our” or “us” refer to Amentum Holdings, Inc. and its subsidiaries unless otherwise stated or indicated by context. 18 Overview We are a global advanced engineering and technology solutions provider to a broad base of U.S. and allied government agencies, and customers in international and commercial markets, supporting programs of critical national importance across energy and environmental, intelligence, space, defense, civilian and commercial end-markets. We offer a broad reach of capabilities including energy, environmental remediation, intelligence and counter threat solutions, data fusion and analytics, engineering and integration, advanced test, training and readiness, and citizen solutions. As a leading provider of differentiated technology solutions, we have built a repertoire of deep customer knowledge, enabling us to engage our customers across multiple capabilities and markets. Underpinned by a strong culture of ethics and safety, Amentum is committed to operational excellence and successful execution. We conduct our business activities and report financial results as two reportable segments: Digital Solutions (“DS”) and Global Engineering Solutions (“GES”). The DS segment provides advanced digital and data-driven solutions including intelligence analytics, space system development, cybersecurity, and next generation IT across the federal government and commercial clients. The GES segment provides large-scale environmental remediation, nuclear power solutions, platform engineering, sustainment and supply chain management across all seven continents for the U.S. government and allied nations. The presentation of financial results as two reportable segments is consistent with the way the Company operates its business and the manner in which our chief operating decision maker (“CODM”), currently our Chief Executive Officer, manages the operations of the Company for purposes of allocating resources and assessing performance. Budgetary and Regulatory Environment In fiscal year 2025, we generated approximately 81% of our revenues from contracts with the U.S. federal government, either as a prime contractor or a subcontractor to other contractors engaged in work for the U.S. federal government. We carefully follow the U.S. federal budget, legislative and contracting trends and activities and evolve our strategies accordingly. Following a government shutdown from October 2, 2025 to November 12, 2025 and a partial government shutdown from January 31, 2026 to February 3, 2026, final appropriations legislation for the U.S. federal government fiscal year (“GFY”) 2026 was passed on February 3, 2026 for all government agencies except the Department of Homeland Security, which remained shutdown until funding was passed on April 30, 2026. In April 2026, the GFY 2027 budget request was submitted to Congress, which, as compared to GFY 2026 enacted levels, would increase defense discretionary spending by $250 billion to $1.15 trillion, and based on defense reconciliation legislation currently pending in Congress, would result in total GFY 2027 defense spending of $1.5 trillion, an increase of 43% from the GFY 2026 enacted level. While we view the budget environment as constructive and believe core funding sources for our primary customer-based markets will continue to experience bipartisan support, there can be no certainty about the level of funding for any particular GFY or that appropriations bills will be passed in a timely manner. During those periods of time when appropriations bills have not been passed and signed into law, government agencies operate under a continuing resolution (“CR”), a temporary measure allowing the government to continue operations at prior year funding levels. Depending on their scope, duration, and other factors, CRs can negatively impact our business due to delays in new program starts, delays in contract awards decisions, and other factors. We continue to monitor the actions of the administration, including NASA’s increased focus on insourcing certain activities, which could result in a change to budgetary priorities or impact federal government procurement timing. Although a limited number of our contracts for the U.S. Government have been affected by changes in budgetary priorities by the administration, the impact has not been material to date. Decreases in, or delays in approving, the federal government’s budget, decreases in government spending on the types of programs that we support, delays in government contract awards, and pauses on government contracts on which we are currently performing could have an adverse impact on our business. For a discussion of risks, see Part II. Item 1A. Risk Factors in this Report and Part I. Item 1A. Risk Factors in our Fiscal Year 2025 Form 10-K. Market Environment We believe our scale, breadth of capabilities, and depth of experience give us a robust understanding of our customers’ evolving needs. Given our portfolio diversity, we believe our total addressable market, and associated growth rate, is sufficient to support our strategic growth plans. We believe Amentum’s capabilities are strategically aligned to well-funded, long-term priorities for the federal government, allied nations, and commercial customers. Specifically, we believe we are well positioned to continue to win new business driven by the following trends in our addressable market: • Increasing demand for outsourced services and solutions with federal government customers; • Increased global demand for reliable power sources and nuclear energy; • Increased spending on government-wide modernization priorities; 19 • Increasing government focus on near-peer competitors and other nation state threats; • Increasing discretionary spending for homeland security and regional activities in the Western hemisphere; • Increasing discretionary spending for Indo-Pacific regional activities and initiatives; • Increasing discretionary spending to improve the readiness of the defense industrial base; and • Increased investment in advanced technologies (e.g., hypersonics, microelectronics, unmanned, electromagnetic spectrum). Results of Operations for the Three Months Ended July 3, 2026 and June 27, 2025 The following table presents our results of operations for the periods presented: Three Months Ended July 3, 2026 June 27, 2025 Change (Dollars in millions) Dollars Dollars Dollars Percent Revenues $ 3,490 $ 3,561 $ (71) (2.0) % Cost of revenues (3,130) (3,193) 63 (2.0) Selling, general, and administrative expenses (122) (165) 43 (26.1) Amortization of intangibles (94) (118) 24 (20.3) Equity earnings of non-consolidated subsidiaries 28 18 10 55.6 Operating income 172 103 69 67.0 Interest expense and other, net (62) (88) 26 (29.5) Loss on extinguishment of debt (16) (3) (13) 433.3 Income before income taxes 94 12 82 683.3 Provision for income taxes (28) (13) (15) 115.4 Net income (loss) including non-controlling interests 66 (1) 67 (6,700.0) Less: net income (loss) attributable to non-controlling interests — 11 (11) (100.0) Net income attributable to common shareholders $ 66 $ 10 $ 56 560.0 Revenues — The decrease in revenues was primarily attributable to the transition of certain contracts from consolidated to unconsolidated joint ventures and fiscal year 2025 divestitures partially offset by the net impact of the expected ramp-down of historical programs and the ramp up of new contract awards and growth on existing programs. Cost of revenues — The decrease in cost of revenues was primarily attributable to decrease in revenues discussed above. As a percentage of revenues, cost of revenues was 89.7% for both the three months ended July 3, 2026 and June 27, 2025. Selling, general, and administrative expenses (“SG&A”) — The decrease in SG&A was primarily attributable to synergies arising from the merger of the Jacobs Solutions Inc. (“Jacobs”) Critical Mission Solutions business and portions of the Jacobs Divergent Solutions business (and, together with the Critical Mission Solutions business, referred to as “CMS”). SG&A as a percentage of revenues decreased to 3.5% for the three months ended July 3, 2026 from 4.6% for the three months ended June 27, 2025 primarily due to the reduction in SG&A discussed above. Amortization of intangibles — Amortization of intangibles primarily relates to the amortization of our backlog and customer relationship intangible assets, which decreased due to the full amortization of backlog associated with the CMS merger in the prior year. Equity earnings of non-consolidated subsidiaries — Equity earnings of non-consolidated subsidiaries include our proportionate share of the income from equity method investments partially offset by the utilization of fair market value adjustments assigned to certain equity method investments based on the remaining period of performance for the related contract and increased primarily due to the transition of certain contracts from consolidated to unconsolidated joint ventures. Interest expense and other, net — The decrease in interest expense and other, net was primarily due to the reduction to our term facility principal balance as compared to the three months ended June 27, 2025 and more favorable rates due to the first amendment to the Credit Facility (the “Amendment”). Loss on extinguishment of debt — The loss on extinguishment of debt was due to the Amendment and a $125 million voluntary principal payment on the Term Loan B for the three months ended July 3, 2026 and a $191 million voluntary principal payment on the term facility for the three months ended June 27, 2025. 20 Provision for income taxes — The effective tax rate for the three months ended July 3, 2026 was 29.8%, as compared to 108.3% for the three months ended June 27, 2025. The change in the effective tax rate was primarily due to the recognition of a valuation allowance against a disallowed interest expense deferred tax asset relative to income before income taxes in the respective period. Net income attributable to non-controlling interests — Net income attributable to non-controlling interests includes the utilization of fair market value adjustments assigned to certain non-controlling interests based on the remaining period of performance for the related contract partially offset by the minority interests in our consolidated joint ventures that are not wholly-owned and decreased due to the completion of certain contracts with follow-on contracts which transitioned to equity method investments. Results of Operations for the Nine Months Ended July 3, 2026 and June 27, 2025 The following table presents our results of operations for the periods presented: Nine Months Ended July 3, 2026 June 27, 2025 Change (Dollars in millions) Dollars Dollars Dollars Percent Revenues $ 10,205 $ 10,468 $ (263) (2.5) % Cost of revenues (9,174) (9,372) 198 (2.1) Selling, general, and administrative expenses (361) (440) 79 (18.0) Amortization of intangibles (282) (358) 76 (21.2) Equity earnings of non-consolidated subsidiaries 73 47 26 55.3 Operating income 461 345 116 33.6 Interest expense and other, net (209) (261) 52 (19.9) Loss on extinguishment of debt (16) (3) (13) 433.3 Income before income taxes 236 81 155 191.4 Provision for income taxes (72) (59) (13) 22.0 Net income including non-controlling interests 164 22 142 645.5 Less: net income attributable to non-controlling interests — 4 (4) (100.0) Net income attributable to common shareholders $ 164 $ 26 $ 138 530.8 Revenues — The decrease in revenues was primarily attributable to the transition of certain contracts from consolidated to unconsolidated joint ventures, impacts from the government shutdown, and fiscal year 2025 divestitures. The reduction in revenues was partially offset by the net impact of the expected ramp-down of historical programs and the ramp up of new contract awards and growth on existing programs. Cost of revenues — The decrease in cost of revenues was primarily attributable to the decrease in revenues discussed above. As a percentage of revenues, cost of revenues was 89.9% for the nine months ended July 3, 2026 compared to 89.5% for the nine months ended June 27, 2025. Selling, general, and administrative expenses (“SG&A”) — The decrease in SG&A was primarily attributable to synergies arising from the CMS merger. SG&A as a percentage of revenues decreased to 3.5% for the nine months ended July 3, 2026 from 4.2% for the nine months ended June 27, 2025 primarily due to the reduction in SG&A discussed above. Amortization of intangibles — Amortization of intangibles primarily relates to the amortization of our backlog and customer relationship intangible assets, which decreased due to the full amortization of backlog associated with the CMS merger in the prior year. Equity earnings of non-consolidated subsidiaries — Equity earnings of non-consolidated subsidiaries include our proportionate share of the income from equity method investments partially offset by the utilization of fair market value adjustments assigned to certain equity method investments based on the remaining period of performance for the related contract and increased primarily due to the transition of certain contracts from consolidated to unconsolidated joint ventures during the nine months ended July 3, 2026. Interest expense and other, net — The decrease in interest expense and other, net was primarily due to the reduction to our term facility principal balance as compared to the nine months ended June 27, 2025 and more favorable rates due to the Amendment. Loss on extinguishment of debt — The loss on extinguishment of debt was due to the Amendment and a $125 million voluntary principal payment on the Term Loan B for the nine months ended July 3, 2026 and a $191 million voluntary principal payment on the term facility for the nine months ended June 27, 2025. 21 Provision for income taxes — The effective tax rate for the nine months ended July 3, 2026 was 30.5%, as compared to 72.8% for the nine months ended June 27, 2025. The change in the effective tax rate was primarily due to the recognition of a valuation allowance against a disallowed interest expense deferred tax asset relative to income before income taxes in the respective period. Net income attributable to non-controlling interests — Net income attributable to non-controlling interests includes the utilization of fair market value adjustments assigned to certain non-controlling interests based on the remaining period of performance for the related contract partially offset by the minority interests in our consolidated joint ventures that are not wholly-owned and decreased due to the completion of certain contracts with follow-on contracts which transitioned to equity method investments. Segment Results for the Three and Nine Months Ended July 3, 2026 and June 27, 2025 The primary financial performance measures we use to manage our reportable segments and monitor results of operations are revenues and Adjusted EBITDA. The following tables present our performance measures by reportable segment: Digital Solutions Three Months Ended Nine Months Ended July 3, 2026 June 27, 2025 Change July 3, 2026 June 27, 2025 Change (Dollars in millions) Dollars Dollars Dollars Percent Dollars Dollars Dollars Percent Revenues $ 1,457 $ 1,421 $ 36 3 % $ 4,262 $ 4,047 $ 215 5 % Adjusted EBITDA 116 114 2 2 % 324 321 3 1 % The increase in revenues for the three and nine months ended July 3, 2026, as compared to the three and nine months ended June 27, 2025, was primarily attributable to the ramp up of new contract awards and growth on existing programs and partially offset by the fiscal year 2025 divestiture of Rapid Solutions. The increase in Adjusted EBITDA for the three and nine months ended July 3, 2026, as compared to the three and nine months ended June 27, 2025, was primarily attributable to increased revenue volume, partially offset by the divestiture of Rapid Solutions and higher net program write-ups in the prior year. Global Engineering Solutions Three Months Ended Nine Months Ended July 3, 2026 June 27, 2025 Change July 3, 2026 June 27, 2025 Change (Dollars in millions) Dollars Dollars Dollars Percent Dollars Dollars Dollars Percent Revenues $ 2,033 $ 2,140 $ (107) (5) % $ 5,943 $ 6,421 $ (478) (7) % Adjusted EBITDA 174 160 14 9 % 504 483 21 4 % The decrease in revenues for the three months ended July 3, 2026, as compared to the three months ended June 27, 2025, was primarily attributable to the transition of certain contracts from consolidated to unconsolidated joint ventures, a fiscal year 2025 divestiture, and the expected ramp-down of historical programs. The reduction in revenues was partially offset by the ramp up of new contract awards and growth on existing programs. The decrease in revenues for the nine months ended July 3, 2026, as compared to the nine months ended June 27, 2025, was primarily attributable to the factors described above and from the government shutdown in the first quarter of fiscal year 2026. The increase in Adjusted EBITDA for the three and nine months ended July 3, 2026, as compared to the three and nine months ended June 27, 2025, was primarily attributable to strong operational performance partially offset by the change in revenues described above. Revenues by Contract Type Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract. For a discussion of the types of contracts under which we generate revenues, see “Critical Accounting Policies” below. The following table summarizes revenues by contract type as a percentage of each reportable segment and total Amentum revenues, for the periods presented: 22 Three months ended Nine months ended July 3, 2026 June 27, 2025 July 3, 2026 June 27, 2025 DS GES Total DS GES Total DS GES Total DS GES Total Cost-plus-fee 59 % 50 % 53 % 67 % 63 % 65 % 60 % 53 % 56 % 64 % 64 % 64 % Fixed-price 29 % 33 % 32 % 24 % 22 % 23 % 28 % 31 % 29 % 26 % 22 % 24 % Time-and-materials 12 % 17 % 15 % 9 % 15 % 12 % 12 % 16 % 15 % 10 % 14 % 12 % Total revenues 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Backlog The Company's backlog represents the estimated amount of future revenues to be recognized under negotiated contracts. The Company’s backlog includes unexercised option years and excludes the value of task orders that may be awarded under multiple award indefinite delivery / indefinite quantity (“IDIQ”) vehicles until such task orders are issued. The Company’s backlog is either funded or unfunded: • Funded backlog represents contract value for which funding is appropriated less revenues previously recognized on the contract. • Unfunded backlog represents estimated values that have the potential to be recognized as revenues from negotiated contracts for which funding has not been appropriated and from unexercised contract options. As of July 3, 2026, the Company had total backlog of $48.2 billion, compared with $44.6 billion as of June 27, 2025, an increase of $3.6 billion primarily due to new contract wins partially offset by revenue recognized on current contracts. Funded backlog as of July 3, 2026 was $6.2 billion. The Company’s backlog, by reportable segment and in total, consisted of the following (in millions): July 3, 2026 June 27, 2025 DS GES Total DS GES Total Funded backlog $ 2,524 $ 3,716 $ 6,240 $ 2,539 $ 3,110 $ 5,649 Unfunded backlog 18,589 23,408 41,997 16,287 22,706 38,993 Total backlog $ 21,113 $ 27,124 $ 48,237 $ 18,826 $ 25,816 $ 44,642 There is no assurance that all backlog will result in future revenues being recognized, and the backlog balance is subject to increases or decreases based on the execution of new contracts, contract modifications or extensions, deobligations, early terminations, and other factors. Effects of Inflation Given the nature of our operations and contract type mix, we expect the impact of inflation on our business may be limited for some of our contracts. During the nine months ended July 3, 2026, 56% of our revenues was generated under cost-plus-fee type contracts that have limited inflation risk as they include provisions that adjust revenues to cover costs affected by inflation. The remainder of our revenues was generated under time-and-materials or fixed-price type contracts which we have historically been able to price in a manner that accommodates inflation and cost increases over the period of performance but changes in our expectations with respect to inflation rates or in the overall mix of our contract types could cause future results to differ substantially. Liquidity and Capital Resources Existing cash and cash equivalents and cash generated by operations are our primary sources of liquidity, as well as sales of receivables under our Master Accounts Receivable Purchase Agreement (“MARPA”) and available borrowing capacity under the revolving credit facility provided for in the senior secured credit facility (the “Credit Facility”). On April 24, 2026, we entered into the Amendment to the Credit Facility. As amended, the Credit Facility consists of a $1,400 million senior secured term loan A facility (“Term Loan A”) due April 24, 2031, a $1,591 million senior secured term loan B facility (“Term Loan B”) due September 27, 2031 and a $1 billion revolving facility (“Revolver”) maturing on April 24, 2031, which includes a $250 million letter of credit subfacility and a $150 million swingline subfacility. Quarterly principal amortization payments on Term Loan A are equal to (a) 0.625% of the original principal amount of Term Loan A commencing September 30, 2026 through June 30, 2028, (b) 1.25% of the original principal amount of Term Loan A from September 30, 2028 through June 30, 2030, and (c) 1.875% of the original principal amount of Term Loan A thereafter with the remainder of 23 the principal being due at maturity. Quarterly principal amortization payments on Term Loan B are equal to 0.25% of the original principal amount of Term Loan B commencing September 30, 2026, with the remainder of the principal being due at maturity. The interest rates applicable to the Term Loan A and Term Loan B are floating interest rates equal to an Alternate Base Rate or Adjusted Term Secured Overnight Financing Rate plus an applicable margin based upon our net leverage ratio. In August 2024, the Company also completed an offering of $1,000 million in aggregate principal amount of 7.250% senior notes due August 1, 2032 (the “Senior Notes”). The Credit Facility and the Senior Notes are guaranteed by substantially all of our wholly owned material domestic restricted subsidiaries, subject to customary exceptions set forth in the credit agreement and indenture, respectively. Each of the credit agreement and indenture requires us to comply with certain representations and warranties, customary affirmative and negative covenants and, in the case of the Term Loan A and Revolver, under certain circumstances, a financial covenant. We were in compliance with all covenants as of July 3, 2026. We believe that the combination of internally generated funds, available bank borrowings, and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund on-going operations, capital expenditures, scheduled principal and interest payments on our debt obligations, scheduled lease payments, and other working capital requirements over at least the next twelve months. As part of our debt reduction initiatives, we made a $125 million voluntary principal payment on the Term Loan B on June 30, 2026. Over the longer term, our ability to generate sufficient cash flows from operations necessary to fulfill the obligations under the Credit Facility, Senior Notes and any other indebtedness we may incur will depend on our future financial performance which could be affected by factors outside of our control, including, but not limited to, worldwide economic and financial market conditions. See “Note 5 — Sales of Receivables” and “Note 8 — Debt” of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q. Cash Flow Information Nine Months Ended (Amounts in millions) July 3, 2026 June 27, 2025 Net cash provided by operating activities $ 235 $ 273 Net cash (used in) provided by investing activities (48) 236 Net cash used in financing activities (165) (231) Effect of exchange rate changes on cash and cash equivalents — 8 Net change in cash and cash equivalents $ 22 $ 286 Net cash provided by operating activities decreased by $38 million for the nine months ended July 3, 2026 when compared to the nine months ended June 27, 2025 as a result of a $129 million increase in cash earnings offset by $167 million in changes in operating assets and liabilities. Net cash used in investing activities decreased by $284 million for the nine months ended July 3, 2026 when compared to the nine months ended June 27, 2025 primarily due the prior year sale of the Rapid Solutions business partially offset by the prior year cash payment made as part of the Transaction based on the final net working capital position. Net cash used in financing activities decreased by $66 million for the nine months ended July 3, 2026 when compared to the nine months ended June 27, 2025 primarily due to the reduction in voluntary principal payments on the Term Loan B, which were $125 million and $191 million for the nine months ended July 3, 2026 and June 27, 2025, respectively. Critical Accounting Policies and Estimates There have been no significant changes to the Company’s critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended October 3, 2025. Recent Accounting Pronouncements See “Note 2 — Recent Accounting Pronouncements” of the notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q.