Amentum Holdings, Inc.

© transcript Emily Beynon Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

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. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session, and instructions will be provided at that time. I would like to turn the call over to Joe DiNarni, 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 two. Please note that this morning's discussion will contain forward-looking statements that are subject to important factors that could cause actual results to differ materially from anticipated. I refer you to our SEC filings for a discussion of these factors, including the risk factor 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 Arnett, Chief Operating Officer. With that, moving to slide three, 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. Momentum 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 60 cents, up 13% year over year. And pre-cash flow of $220 million. Turning to slide four, execution of our growth strategy continues to translate into tangible results. We delivered net bookings of $4 billion, resulting in a quarterly and last 12 months book-to-bill of 1.2 times, an ending backlog of nearly $48 billion, up 7% from the prior year quarter, and an all-time high for amentum. Our funding 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 momentum. 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 two-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 five-year $425 million contract. This program will be delivered in an outcomes-based model. leveraging predictive analytics and data-driven tools to optimize fleet sustainment, reduce downtime, and streamline supply chain and repair cycles. In our intelligence portfolio, Amentum was awarded multiple contracts totaling over $300 million, which aligned with national security priorities and would 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 five, as demonstrated by this quarter's awards, we remain steadfast in driving performance in our core markets. At the same time, we are strategically positioned to capitalize on accelerating growth in emerging markets, Over the past two quarters, we've highlighted our global nuclear energy and space systems and technologies markets, both of which continue to represent substantial opportunities for momentum. Today, we will focus on critical digital infrastructure, or CDI, and how we are strategically positioned to benefit from this rapidly evolving area. Moving to slide six, you can see that CDI is a large and growing market with multi-decade tailwinds driven by increasing demand for AI, data, and mission-critical applications in both commercial and government environments. 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 seven to discuss how Amentum is well positioned to capitalize on this demand and help enable advancement in connectivity in the new AI and digitally driven world. In CDI, Amentum focuses on three primary areas. First, in smart commercial infrastructure and data centers, Amentum supports the full lifecycle 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, Momentum provides innovative solutions to several marquee Fortune 500 companies in areas such as advanced manufacturing to maximize uptime in mission-critical settings. Second, in next-generation digital connectivity, we engineer, design, and deploy large-scale networks, including wireless and fiber infrastructure. enabling secure real-time data movement across complex environments. Momentum'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 standalone capabilities in highly sensitive conditions. Our differentiation lies in our ability to secure both IT and operational technology environments, protecting not only data but the physical systems that underpin critical infrastructure. For example, We support intelligence community customers through advanced systems engineering and modeling capabilities to assess vulnerabilities, secure facilities, and prepare for both cyber and fiscal 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, Aventum 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.

Good morning, everyone. I'm pleased to discuss with you today some 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 and our accelerating growth markets. Adjusted EBITDA of $275 million benefited from a 20 basis point year-over-year increase and 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 deleted earnings per share of $0.60 was up 13% from a year ago as a result of the strong operational performance and lower interest expense from our debt reduction initiative. Moving to our reportable segment results on slide nine. Digital Solutions delivered revenue of $1.5 billion representing 10% growth driven by the continued ramp up of new contract awards in our critical digital infrastructure in space systems and technologies markets. Adjusted EBITDA of $105 million was slightly lower year-over-year due to the fiscal year 25 deduction, 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 GV transitions, the divestiture, and the expected ramp down of certain historical programs, all of which were partially offset by contributions from new contract awards. Adjusted EBITDA of $170 million benefited from a 100 basis point year-over-year increase in adjusted EBITDA margins to 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 put this on track to meet our full-year pre-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 aid 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 grading upgrade in December, have reduced our weighted average cost of debt by approximately 50 basis points and strengthened our overall capital structure, as we remain on track to achieve net leverage below three times by the end of the fiscal year, enabling greater financial flexibility and opportunistic deployment. On slide 11, let's now turn to our fiscal year 2026 full-year outlook. As a result of our first half performance, continued business development momentum, and with 97% of revenues expected to come from existing and re-compete business, we are reaffirming our fiscal year 26 guidance. We continue to expect revenues in the range of $13.95 to $14.3 billion, adjusted EBITDA between $1.1 and $1.14 billion, adjusted diluted earnings per share between $2.25 and $2.45, and free cash flow between $525 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 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.

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

Hey, guys. Good morning. Congrats on the quarter. Great to be on the call here with you. Thanks, Greg. Great morning. Thank you. Good morning. So I want to talk about booking strength. Really good quarter for bookings up sequentially, up meaningfully from last year. Appreciate the slide on the wind. Seemed pretty broad-based. I guess maybe just help us with the second half award environment. Do you expect bookings to continue to trend higher sequentially? How should we think about bookings in the second half?

Yeah, no. Just taking a step back here, Mentum 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 a quarter, but really LPM 1.2 times, 1.3 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 pre-cash flow. So that's another area of excitement in the overall portfolio. But if you look at performance today, we mentioned bids greater than $20 billion thus far. 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, you know, the scale of our business, the end-to-end capabilities, we're winning our fair share, right? We have the capabilities our customers need to perform their mission, whether it's in our accelerating growth markets of space systems and technology and global nuclear energy or CDI, or in our core markets. So we really think our growth rates stand up and will continue to be consistent and with our bidding focus and our 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 a new business and re-compete 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.

Yeah, great. Fantastic, Collar. Thank you. Maybe just to click on margin here, engineering specifically, you know, expanded even further in the quarter. I think last quarter 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, you know, is there any timing or one-time things to think about in the quarter, or is this the right level to think about the second half for engineering margin?

Yeah, Greg, really pleased with the continued strong margin performance and 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 time to get programmed right up some performance from quarter to quarter that could vary a little bit, but it's more fundamental what we're seeing in that business. 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, procuring at T&M or fixed-price basis, And you'll see that in our contract mix statistics in the 10Q 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 discipline program execution, as we mentioned. And then you're really starting to see the fruits of all the efforts we put into our cost and energy 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.

Okay. Thanks very much.

Your next question comes from the line of Toby Shelmer from Tuist. Please go ahead.

Thank you. As we think about your underlying rate of growth 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?

It's a real start, and John can add or Steve as well. So, David, the midpoint of our guidance for FY26 implies, you know, normalized growth if you, you know, account for the joint venture transitions and investitures. And obviously, we had an extra week in the fourth quarter of 3%. And, you know, 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, you know, roughly 4% at the midpoint of our guidance. That's exactly where we thought we would be at this point in our journey of, you know, bringing the merger together and going public and our long-term growth objectives of a 4% to 6% CAGR by FY28. And then obviously in John's prepared remarks and, you know, what he said in response to the first question and how we feel about the growth trajectory of the business and what we're seeing in performance there in terms of a 1.2 book fill 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 two-thirds 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.

Yeah, 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. You know, we have the strength and 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 increased. We didn't necessarily see that coming when, you know, we go back a year and a half it's aligned really well with strength areas in our core markets as well you know when you think of readiness the budget request is proposing a 20 increase from 2026 that really aligns well with areas like platform sustainment training logistics where momentum is really strong you know the leader in the market second space and missile defense where our work uh 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 counter uav counter drone technologies where you know the budget request has approximately 70 billion dollars earmarked to expanded investment in those areas and inventum has been for decades a leader in helping develop and sustain the unmanned and now counter unmanned technologies. And, you know, think of contested logistics and tactical operations that unmanned technology could support. It just aligns extremely well with Momentum's core markets. So, you know, we both believe our core markets are at the right place. Our accelerated markets have great tailwinds that can provide the future of growth that we've been talking about.

Thank you. 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.

Hi, Toby. 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 MENTUM 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 Argus two and our teams are already working on processing hardware for Argus three. 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, you know, back to the moon to stay and prepare us to venture forward on to Mars. So we're very excited about the campaign of upcoming Artemis missions. 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 insource some expertise to expand their core capabilities. We are, of course, working with NASA to understand their objectives and certainly understand how we'll impact our momentum 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 FY26 will really be immaterial. We do think that for FY27, 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 that modest impact that we see, this really does not change our excitement about the go-forward trajectory for them.

Yeah, and then on the second part of that question, Toby, I guess building on John's remarks and, you know, really he touched on, you know, what we're seeing from a growth perspective. You know, I touched a little bit on the margin expansion trajectory that we're on and both of those being on track where we thought we would be. The one area that I'll just add to that is on free cash flow. Obviously, what we've been able to do from a deleveraging perspective to date is accelerated relative to what we initially thought, bringing the companies together and going public. And then recently, obviously, this quarter, what we were 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 FY28. 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 three times by the end of this year. Obviously, you know, we should be in the high twos based on the trajectory that we're on. And, you know, 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, you know, high return on investment, organic opportunities, accreted M&A, you know, it could be continued debt reduction or a capital return to shareholders when we think you know, the share price is trading below its intrinsic value. So all that said, you know, our goal will be to look at things to make sure that we're maximizing free cash flow per share and delivering strong compounding returns for our shareholders.

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

Hey, good morning. This is actually Ned Morgan. I'm 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?

Yeah, there's a lot going on really in the U.S. nuclear market, and we're real excited about the activity that this administration has been really focused on building partnerships that bring capital in from various sources to help support these types of projects. The 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 US. 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. 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 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, 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 um and then another just on digital Solutions margins I know there's some new start work there uh specifically within space uh that Space Force range contract how should we think about the margins of that moving forward as the program kind of ramps and and where DS margins will trend throughout the year

Yeah, thanks, Ned. So the digital solution segment obviously had a really nice quarter and a nice year-to-date performance on revenue growth. So I 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 new programs starts. One is in our space business, but another one's in our critical digital infrastructure business. you know, it's not uncommon for margins to start off more modest and grow over time. 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, you know, the other element there just to mention is the timing of program write-ups. Those, you know, can vary from quarter to quarter, but over any kind of normalized period, say over a year, they're kind of, you know, steady, right? So, While the performance was more modest this quarter and year-to-date digital solutions, we do expect over time that there's opportunity for margin expansion. 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 FY27 and beyond is when those programs will get into full gear and other initiatives that we're running from a margin expansion perspective will start to benefit the segment.

Great. Thank you.

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

Hi, guys. 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?

Yeah, maybe I'll start. 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 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 when it's 4G, 5G, our teams are 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 a stable system performance in 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, you know, Chicago, the major cities where we're helping to solution those. And so it really gives us a a structural advantage from the critical digital infrastructure standpoint, and 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 transformed. We can shift that capacity to work with data centers and these other kinds of types of projects. The telecom is a little bit of a foundational piece, and now we're growing that business into other areas. John, maybe you want to comment on the data center part.

Yeah, well, just in terms of the growth area, we talked about critical digital infrastructure as really being the demand is being driven by long-term trends, primarily the rapid scaling of AI and data workloads. 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, you know, we have the transparent 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.

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

Yeah, it's a great concept. And we actually are very much seeing that come to life. Just building on the examples John talked about there with critical digital infrastructure. It's interesting how much of our expertise truly is dual use. I mean, it's critical to the national security missions with government customers, as well as the commercial mission. Kind of an example we were thinking about the other day is there's so much acceleration and activity in the government customer space trying to make better utilized 5G and some of the, I'll say, elaborate capabilities of 5G in government missions, which, you know, heretofore has been primarily a commercial venture. And so we're very much taking advantage of that dual use. And then the other thing I would say is that something, you know, government has always been, you know, a leader in terms of data security and cybersecurity, IT, OT, those kinds of things. Increasingly, as John alluded, commercial networks, commercial applications, increasingly interested in operational technology, cyber, and these kinds of things. So we very much see that it crosses between government and commercial applications. And to your point with the space comp, Space communication, there's so much work going on in the government 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 know data center core connect and edge and all that has to work more efficiently so there's there's a true convergence there so very much appreciate the question great thank you your last question comes from the line of kevin liu from rbc capital markets please go ahead

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

We've been really happy with the overall portfolio over the last 18 months. Our book to build 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 you know where the real key growth drivers are where we can drive margin expansion and we'll assess different parts of our portfolio and are they all aligned to our strategic objectives and what i would say is you know we do a normal strategic planning process we brief to the board uh actually later uh this year uh closer to september and you know that's just part of the review that we would do is looking at the overall portfolio looking at our what's happening in our growth areas, where are the strong tailwinds, and are there opportunities to shape the portfolio that would help drive investment in markets that we think have greater growth potential or greater potential to drive margin. 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.

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

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