Earnings Update: Amentum (AMTM.US)
Capping off a volatile quarter.
This earnings update should be read in conjunction with my original deep dive:
Quick Take
Amentum reported earnings after the bell on May 6th, with a conference call held before market open the next day. Results were uneventful, as was the conference call. Management tightened the guidance range, gave some timing details on the recently announced divestiture, and noted a one-time cash outflow expected in 3Q25 related to Jacobs net working capital true-up. Book-to-bill was modestly down this quarter at 0.9x on both an as-reported and look-through1 basis. YTD look-through book-to-bill remains robust at 1.2x. EBITDA, cash flow, and EPS targets are all unchanged. The stock reacted violently on this benign print, opening down 6% and closing the day down 4.5%. We think this was driven mainly by an unwind in L/S pair trades as pods expected a beat/raise rather than a meet on the print. CACI had a strong print last week, incentivizing a short CACI on mean reversion, long gov’t services peer on consensus beat type setup. Assuming this trade was on, positions would have been unwound immediately into the open when the call proved incorrect, and may help explain the violent morning sell-off into an afternoon bid.
While there was nothing to write home about in the numbers, the broader quarter has been a real ride. Let’s recap.
Rapid Solutions Divestment
On April 23rd, Amentum announced divestment of its Rapid Solution Division to Lockheed Martin for $360m. This is huge news for several reasons. First, our original thesis posited that Amentum had non-core assets that it could divest to accelerate deleveraging and transform the growth and margin profile of its business. This is now being borne out. Our understanding is that management has taken the entire contract base under strategic review to identify low-growth or low-margin businesses, which they intend to divest over the next one to three years. Further, our discussions with industry experts indicate that private equity and strategic are still shopping even in this environment. We strongly believe even low-margin carveout deals can be done at accretive multiples given Amentum’s current trading price.
The Rapid Solutions deal isn’t just exciting because it incrementally proves our thesis. It’s also exciting because LMT is buying the business for a 36x EBITDA. If management told us they would sell a piece of the business at 36x, we wouldn’t have believed them, but here we are. It’s unclear to us why LMT is willing to pay this price, but commentary from Amentum IR has indicated that the business is strategically important to LMT despite being low-growth within Amentum. Revenue synergies are (we think) high to LMT, and incremental capex is ~zero. Either way, this is an extremely accretive, if small, divestiture.
Total consideration will be $360m or $325m, net of tax with a targeted deal closure in CY25. Proceeds are earmarked for debt reduction. The divested unit only represents ~1% of revenue and ~1% of EBITDA, so its loss wont really be felt in earnings.
DOGE, Elon, & Tesla
Another point we made in our initial thesis was that DOGE, specifically Elon’s involvement in DOGE, couldn’t be anything more than temporary. This has proven to be true this quarter, as Elon announced his “significant” reduction in involvement with DOGE in the coming month. Frankly, we’re surprised the DOGE party lasted this long. Elon has managed to turn his brand and company toxic in the public eye with his wanton destruction of stability in the government sphere. Further, taking his eye off the ball at Tesla vis-à-vis DOGE seems to have resulted in significant operational troubles for the automaker. Elon declared DOGE’s work “mostly done” (this seems dubious).
This is exactly as we expected things to play out. Chaos for a few months, brand assassination for everyone involved, very little efficiency created, and a victory lap in the end. Now, taking a step back, we’re quite hopeful that DOGE efforts will continue on even without Musk as a large portion of the government does need efficiency reforms. Progress in a post-Musk DOGE will hopefully be more thoughtful and perhaps even more effective. Moreover, we believe thoughtful efficiency reforms are a tailwind to Amentum and its peers.
Misc. Items
There were a handful of other small miscellaneous takeaways:
A working capital true-up owed to Jacobs will drive a $70m cash headwind in 3Q25. This is already baked into guidance and is a natural result of the de-merger process.
Amentum has not paid down any debt yet because of a 6-month prepayment penalty on the term loan. This soft call has now expired, so debt paydown will begin going forward.
The team provided detailsaround nuclear engineering opportunities, which they haven’t given in the past. Our belief is that the nuclear work Amentum does is tremendous, high-margin, long-term work, and we’d like to see management discuss it more.
Wrapping Up
Again, nothing to write home about this quarter. Seems like business as usual across the board. We’re a little surprised to see the market react the way it did, but unconcerned by the move. We’d remind investors that Amentum is a volatile, battleground stock right now with a surprising dearth of liquidity when considering its size. While the quarterly print might not have been interesting, the quarter’s events were extremely interesting. The wind-down of DOGE chaos is huge for the sector as a whole. Meanwhile, seeing the wheels turning on strategic divestitures into debt reduction is precisely what we want to see. We remain extremely excited about the Amentum opportunity and have been buying aggressively into the last few month’s volatility.
Please leave any feedback, comments, or pushback in the comment section. You can also find me on X @cornerstone127. Write-up suggestions welcome!
If you enjoyed this and want more of this type of content, please subscribe below. Also, be sure to share with friends, family, and colleagues. Thank you for reading!
Disclaimer: The content on this website is for informational and educational purposes only. Nothing should be considered as investment advice or as a guarantee of profit. Please make sure to do your own due diligence. The opinions expressed are those of the author and are subject to change without notice.
Disclaimer: As of the time of writing, the author owns shares in the company described in this article. The author may purchase or dispose of these shares at any time without notice.
Look-through book-to-bill includes equity-accounted JV bookings and is a fairer metric for evaluation.