Amentum Holdings (NYSE: AMMT) delivered a quarter of two stories. Revenue of $3.49 billion missed the $3.57 billion consensus by about 2% and slipped 2% year-over-year. But adjusted diluted EPS of $0.67 beat estimates by a clean 10%. Adjusted EBITDA rose 6% to $290 million with margins expanding 60 basis points to 8.3%. The gap between the top and bottom lines is the quarter's central tension.
The revenue decline was structural, not cyclical. Management attributed the drop to the transition of certain contracts from consolidated to unconsolidated joint ventures and fiscal 2025 divestitures, which together knocked 3% off reported revenue. New awards in digital infrastructure and space systems partially offset the drag. Digital Solutions grew 3% to $1.46 billion. Global Engineering Solutions fell 5% to $2.03 billion as legacy program ramp-downs and JV transitions weighed on the larger segment.
Profitability tells a different story. Adjusted EBITDA margins expanded 60 bps to 8.3%, driven by a favorable mix shift and operational performance. Global Engineering Solutions, despite shrinking revenue, grew adjusted EBITDA 9% to $174 million as margin initiatives took hold. The $0.67 adjusted EPS figure also benefited from lower interest expense, which fell to $62 million from $88 million a year ago. This partly reflects a $125 million voluntary debt paydown during the quarter that brought gross debt to $3.875 billion and net leverage to 3.0x.
The guidance update captures the same split. Amentum lowered its full-year revenue outlook to $13.8 billion–$13.95 billion from $13.95 billion–$14.3 billion, citing near-term dynamics. But it raised adjusted EBITDA guidance to $1.115 billion–$1.14 billion from $1.1 billion–$1.14 billion and adjusted diluted EPS to $2.40–$2.50 from $2.25–$2.45. Free cash flow guidance of $525 million–$575 million was reiterated. The revenue cut is modest in absolute terms, roughly $150 million at the midpoint. The profit raise is more aggressive, implying management sees the margin improvement as durable rather than a one-quarter artifact.
Backlog provides context for the forward view. Total backlog grew 8% year-over-year to $48.2 billion, with a trailing twelve-month book-to-bill of 1.3x. Notable awards included over $400 million in global nuclear energy contracts, $250 million in digital infrastructure, and the resolution of protests on NASA's COSMOS and Langley contracts, which together added roughly $1.5 billion to backlog. The funded backlog of $6.2 billion was up 10% year-over-year, suggesting near-term revenue visibility is improving even as the reported top line contracts.
Free cash flow of $135 million rose 35% year-over-year, supported by strong cash earnings and disciplined working capital. The $125 million voluntary debt paydown is the clearest signal management is prioritizing balance sheet strength over growth spending. With net leverage at 3.0x, Amentum has room but is not aggressively positioned for M&A.
Amentum is trading top-line scale for margin quality, and the guidance split confirms the strategy. Revenue is being reshaped by deliberate portfolio moves: transitioning contracts to JVs, exiting lower-margin work. The profit guide is raised on the strength of what remains. The question is whether the revenue base can stabilize once the transition effects wash through. Backlog growth and the 1.3x book-to-bill suggest it can, but the lowered revenue guide implies management sees more near-term noise before the inflection.