I started covering defense and energy contractor Amentum Holdings, Inc. (NYSE: AMTM ) in February. The stock was under pressure from ownership issues that many spin-offs face and the question of DOGE and how aggressively they might cut USI am a UK-based long-only investor with a strategy which revolves around finding companies which can be multi-baggers over a 5-10 year time horizon, though, as a great man once said, my favourite holding period is forever. I am looking for companies that have a high probabi ...

Core Insights - The article discusses the approach of a nuclear engineer and amateur investor who specializes in European value and growth investing, focusing on competitive financial analysis and DCF modeling [1] Group 1: Investment Strategy - The investor looks for companies on the brink of bankruptcy, analyzing their financials to identify potential recovery opportunities [1] - Emphasis is placed on reviewing restructuring plans and market positions to gain an advantage over retail investors [1] - The strategy involves a combination of macroeconomic understanding and financial modeling, with a focus on revenue streams and their growth potential [1]

Group 1 - Amentum Holdings, Inc. has been initiated with a Neutral Rating and a price forecast of $21 by Goldman Sachs analyst Noah Poponak [1] - The company has a lower relative valuation compared to its peers, with current slower growth and lower margins than other companies in the industry [1][3] - Amentum's revenue base is large and diversified, reporting $14 billion in revenue and a backlog of $45 billion, which provides scale for potential success [2] Group 2 - The merger with Jacobs' government services business presents opportunities for growth and margin expansion, but Amentum faces sector headwinds due to expected revenue growth slowing or potentially turning negative [3] - Amentum's EBIT and free cash flow margins are lower than those of other companies in the government services sector, which may contribute to slower growth [3][4] - The company's balance sheet is more leveraged than its peers, which may deter potential buyers amid market concerns about the sector's future [4] Group 3 - EBITDA projections for FY25 and FY26 are estimated to be 2% and 3% higher than consensus estimates, respectively [4] - EPS is projected to surpass both consensus and the company's guidance, although a decline in revenue is anticipated for FY27 [5]

Core Insights - Amentum partners with Rivada Space Networks to provide an ultra-secure low earth orbit connectivity network for U.S. government communications [1][4] - Rivada's Outernet is the first unified global communications network, consisting of 600 low earth orbit satellites that create a low-latency, secure optical mesh network [3][5] Company Overview - Rivada Space Networks is developing the Outernet, a next-generation satellite constellation that combines inter-satellite laser links with advanced processing to ensure data security and low latency [3][5] - Amentum is recognized as a leader in advanced engineering and technology solutions, focusing on national security and resilience in information systems [7][8] Technological Features - The Outernet offers pole-to-pole coverage with end-to-end latencies significantly lower than terrestrial fiber, enhancing secure data sharing across distributed sites [3][5] - The network is designed to operate independently of terrestrial gateways, providing a secure communication backbone that addresses rising demands for data sovereignty and security [4][6] Strategic Importance - The partnership aims to enhance national security solutions amid growing geopolitical concerns, particularly in cybersecurity and resilient information systems [4] - Rivada's Outernet is positioned as a preferred choice for secure data communications, redefining connectivity in terms of security, latency, capacity, and coverage [4]

Core Insights - Spin-offs can lead to highly profitable investments and are often overlooked by the market [1] Group 1: Investment Strategy - The investment strategy focuses on identifying companies with the potential for significant revenue and earnings growth over a 5-10 year horizon [2] - Preference is given to less cyclical and higher growth sectors, with a geographical bias towards the United States [2] - The investor emphasizes the importance of writing to clarify thoughts and maintain rigor in the research process [2] Group 2: Analyst's Position - The analyst currently holds no positions in the mentioned companies but may initiate a long position in AMTM within the next 72 hours [3] - The article reflects the analyst's personal opinions and is not influenced by compensation from any company [3] Group 3: Seeking Alpha's Role - Seeking Alpha does not guarantee future results and does not provide specific investment recommendations [4] - The platform features a diverse range of authors, including both professional and individual investors [4]

Revenue and Backlog - Revenues for the three months ended December 27, 2024, were $3,416 million, a 72.3% increase from $1,983 million for the same period in 2023, primarily due to the merger with CMS[90] - The company's total backlog increased to $45.2 billion as of December 27, 2024, up from $27.3 billion as of December 29, 2023, reflecting a $17.9 billion increase primarily due to the merger with CMS[104] - Digital Solutions segment revenues rose to $1,286 million, a 180% increase from $459 million in the prior year, driven by the merger with CMS and new contract awards[98] - Global Engineering Solutions segment revenues increased to $2,130 million, a 40% rise from $1,524 million in the same period last year, attributed to the merger with CMS and growth in existing programs[100] Tax and Expenses - The effective tax rate for the three months ended December 27, 2024, was 53.3%, compared to (56.0)% for the same period in 2023, due to the recognition of a valuation allowance against a disallowed interest expense deferred tax asset[95] - Cost of revenues as a percentage of revenues decreased to 89.4% for the three months ended December 27, 2024, from 90.2% for the same period in 2023[91] - Selling, general, and administrative expenses (SG&A) increased to 3.8% of revenues for the three months ended December 27, 2024, up from 3.4% in the prior year, primarily due to the merger with CMS[92] Government Contracts and Funding - The company generated approximately 90% of its revenues from contracts with the U.S. federal government in fiscal year 2024[83] - The U.S. federal government fiscal year 2024 appropriations bill included a 3.3% increase in defense discretionary spending to $886 billion[84] Cash Flow and Financing - Net cash provided by operating activities increased by $193 million for the three months ended December 27, 2024, compared to the same period in 2023, driven by a $110 million increase in cash earnings from the merger with CMS[115] - Net cash used in investing activities increased by $5 million for the three months ended December 27, 2024, due to increased capital expenditures related to the merger with CMS[116] - Net cash used in financing activities increased by $2 million for the three months ended December 27, 2024, primarily due to distributions to non-controlling interests and the absence of quarterly principal amortization payments on the Term Loan, which will commence in March 2025[117] - The company completed an offering of $1,000 million in aggregate principal amount of 7.250% senior notes due August 01, 2032, in August 2024[108] Interest Rate and Liquidity - The company has entered into floating-to-fixed interest rate swap agreements for an aggregate notional amount of $1.9 billion related to a portion of its variable rate debt[120] - With every one percent fluctuation in applicable interest rates, interest expense on variable rate debt for the three months ended December 27, 2024, would have fluctuated by approximately $9 million[120] - The company believes that the combination of internally generated funds, available bank borrowings, and cash and cash equivalents will provide the necessary liquidity for ongoing operations over at least the next twelve months[111] - Future financial performance, which affects the ability to generate sufficient cash flows from operations, may be influenced by factors outside of the company's control, including global economic conditions[112] Backlog Definitions - Funded backlog represents contract value for which funding is appropriated less revenues previously recognized on the contract[114] - Unfunded backlog includes estimated values from negotiated contracts for which funding has not been appropriated and from unexercised contract options[114] Accounting Policies - There have been no significant changes to the company's critical accounting policies as disclosed in the Annual Report for the year ended September 27, 2024[118]

Financial Performance - Revenues for Q1 FY 2025 were $3.4 billion, representing a 72% increase year-over-year[2] - Net income improved to $12 million from a loss of $41 million in the previous year, a 129% change[2] - Adjusted EBITDA for Q1 FY 2025 was $262 million, up 3% from $255 million in Q1 FY 2024[2] - Revenues for the quarter ended December 27, 2024, were $3,416 million, a 72.1% increase from $1,983 million in the same quarter of the previous year[28] - Operating income rose to $132 million, compared to $86 million in the prior year, reflecting a 53.5% increase[28] - Net income attributable to common shareholders was $12 million, a significant recovery from a net loss of $41 million in the same quarter last year[28] - Adjusted EBITDA for the quarter was $264 million, reflecting strong operational performance[38] - Net income attributable to common shareholders was $122 million, resulting in a net income margin of 3.7%[47][48] - Basic and diluted earnings per share attributable to common shareholders improved to $0.05, compared to a loss of $0.46 per share in the previous year[28] - Basic and diluted earnings per share attributable to common shareholders were $0.50[47] Cash Flow and Financial Stability - Free cash flow for the quarter was $102 million, driven by strong cash earnings and disciplined working capital management[10] - The company had $522 million in cash and cash equivalents and $4.7 billion in debt as of December 27, 2024[10] - Cash and cash equivalents increased to $522 million from $452 million at the end of the previous quarter[31] - Net cash provided by operating activities was $110 million, a turnaround from a cash outflow of $83 million in the same quarter last year[32] - The company reported a net change in cash and cash equivalents of $70 million for the quarter, compared to a decrease of $94 million in the same quarter last year[32] - Total assets decreased slightly to $11,919 million from $11,974 million in the prior quarter[31] - Total liabilities decreased to $7,356 million from $7,422 million, indicating improved financial stability[31] Contracts and Backlog - The company reported a backlog of $45.2 billion, an increase of $17.9 billion compared to $27.3 billion in the previous year[11] - Notable contract awards included a $3 billion contract from the U.S. Department of Energy and a $447 million contract from the U.S. Department of Defense[13] Segment Performance - Digital Solutions revenues increased by 1% year-over-year, while Global Engineering Solutions revenues grew by 3%[9] Other Financial Metrics - Adjusted diluted earnings per share for Q1 FY 2025 were $0.51, a 2% increase from $0.50 in the previous year[2] - Operating income was reported at $119 million, with a pro forma non-GAAP operating income of $252 million[47] - EBITDA (non-GAAP) for the quarter was $255 million, with an EBITDA margin of 7.6%[47] - Acquisition, transaction, and integration costs amounted to $7 million[47] - Amortization of intangibles was $124 million, impacting the pro forma adjusted net income[47] - Non-operating expenses, net, were reported at $(82) million[47] - Provision for income taxes totaled $(41) million, reflecting adjustments for non-GAAP tax deductible items[47] - Share-based compensation expenses recognized were $2 million[47]

Tile of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.01 per share AMTM New York Stock Exchange UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 27, 2024 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission ...

Core Insights - Amentum Holdings experienced a decline in share value following executives' comments regarding fiscal 2025 growth being impacted by the winding down of certain government programs [1][2][4] - The company reported a fourth-quarter profit with earnings per share (EPS) of $0.28, a recovery from a loss of $0.07 per share a year prior, and a revenue increase of 3.5% year-over-year to $2.21 billion [3] - Amentum's full-year guidance remains affirmed, with an adjusted EPS estimate for fiscal 2025 projected between $2.00 and $2.20 [3] Company Developments - Amentum recently joined the S&P 500 Index on September 30 after being spun off from Jacobs Solutions, but will be moved to the S&P SmallCap 600 Index effective December 23 [5] - Since the spinoff, Amentum's shares have decreased by 28% [6]

Financial Data and Key Metrics - Full-year revenue for fiscal 2024 was $13.9 billion, representing 4% organic growth [17] - Adjusted EBITDA for fiscal 2024 was $1.05 billion, reflecting a 7% year-over-year increase, driven by a 20-basis-point margin improvement [17] - Ending backlog for fiscal 2024 was $45 billion, representing 3.2x annual revenue coverage [17] - Net bookings totaled $12 billion, highlighting strong end-market demand [17] - Pro forma book-to-bill ratio was 0.8x, excluding the Hanford contract and $2 billion of recompete awards under protest [37] Business Line Performance - The company secured a $45 billion, 10-year contract for the Hanford Integrated Tank Disposition Contract, showcasing its expertise in environmental and energy solutions [19] - Amentum was awarded a task order to deliver microelectronics capabilities to the U.S. Navy, emphasizing its focus on cutting-edge RDT&E programs [18] - The company secured a position on the UK's Hypersonic Technologies and Capabilities Development Framework, leveraging its digital engineering solutions [20] - Commercial contracts exceeded $1 billion in fiscal 2024, supporting Fortune 500 customers in areas like advanced product R&D, next-gen wireless networks, and clean energy solutions [21] Market Performance - The company has a diversified customer base, with 80% of revenue from the U.S. government and 20% from international and commercial markets [28] - Amentum is well-positioned in defense, intelligence, and space markets, aligning with national security priorities [28] - The company sees growth opportunities in the energy transition and digital modernization, supported by its multi-disciplinary engineering centers of excellence [22] Strategic Direction and Industry Competition - The merger with Jacobs' Critical Mission Solutions and Cyber and Intelligence units has created a more diversified company capable of tackling complex global challenges [14] - Amentum is leveraging its combined capabilities to expand into new markets, including clean energy, nuclear, and international growth opportunities like AUKUS [23][24] - The company is focusing on digital solutions and global engineering solutions as key growth areas, with plans to report these as separate segments starting in fiscal 2025 [45] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in navigating potential changes under the new administration, citing Amentum's strong backlog and diversified customer base [32] - The company expects to submit over $35 billion in bids in fiscal 2025, with a robust pipeline supporting future growth objectives [38] - Amentum is targeting a net leverage ratio of approximately 3x by the end of fiscal 2026, supported by strong free cash flow and operational efficiencies [39][44] Other Important Information - The company introduced adjusted net income and adjusted diluted EPS metrics for fiscal 2025, with expectations of $2.00 to $2.20 per share [43] - Free cash flow guidance for fiscal 2025 is projected to be between $475 million and $525 million, supported by a capital-light business model [44] - The company expects quarterly sequential increases in all metrics through fiscal 2025, driven by new program ramp-ups and a 53rd week in the fourth quarter [44] Q&A Session Summary Question: Impact of DOGE and CR timeline - Amentum has limited exposure to civilian agencies, with most of its U.S. government work focused on national security, which is less likely to face budget pressure [52][53] - The company expects the continuing resolution (CR) to extend into February or April 2025 [55] Question: Post-merger learnings and leverage reduction - The merger has strengthened Amentum's market position, with opportunities to accelerate digital capabilities and expand into new markets like clean energy and international growth [59][60] - The company is committed to reducing leverage to 3x by fiscal 2026, with potential acceleration through improved working capital and higher EBITDA performance [66][67] Question: Nuclear and AI opportunities - Amentum is well-positioned in the nuclear and clean energy sectors, with significant growth opportunities in small modular reactors (SMRs) and environmental remediation [73][76] - The company is leveraging AI across multiple sectors, including defense, intelligence, and commercial applications, with a focus on real-time threat detection and predictive analytics [78][80] Question: Guidance assumptions and new business - Amentum's fiscal 2025 guidance assumes 8% of revenue from new business, with a well-diversified set of opportunities aligned with critical national and international priorities [85] - The company has $23 billion in submitted bids awaiting decision, with 80% representing new business [94] Question: Hanford contract and backlog - The Hanford contract is not included in backlog due to its joint venture structure, but its earnings contributions are reflected in the company's financial outlook [91] Question: Intelligence market growth - The merger has significantly expanded Amentum's intelligence market footprint, with opportunities to pursue larger enterprise contracts and expand its pipeline in the intelligence community [100][102] Question: Seasonality and geopolitical exposure - Amentum expects stronger performance in the second half of fiscal 2025, with normal seasonality in cash flow driven by government fiscal year-end collections [107][109] - The company has minimal exposure to geopolitical conflicts, with no significant contracts tied to Ukraine or the Middle East [115][116]