Amentum Holdings, Inc. ($AMTM)

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. [Operator Instructions] I would like to turn the call over to Joe DeNardi, 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 2. 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 Factors 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 Arnette, Chief Operating Officer. With that, moving to Slide 3, 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 momentum 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 persevere. The success of Artemis 2 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 Amentum 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%. The adjusted EBITDA of $275 million with solid margins of 7.9%, adjusted diluted earnings per share of $0.60, up 13% year-over-year and free cash flow of $220 million. Turning to Slide 4. 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 1.2x and ending backlog of nearly $48 billion, up 7% from the prior year quarter, an all-time high for Amentum. Our funded backlog was $6.9 million, 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 summits, 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 momentum 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 2-year $112 million contract provide decommissioning and waste management solutions. In aviation, the California Department of Forestry and Fire Protection or CALFIRE, awarded Amentum a 5-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, momentum was with multiple contracts totaling over $300 million, which aligned with national security priorities and will 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 5. 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 2 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 6. We 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 that 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 7 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, momentum focuses on 3 primary areas. First, in smart commercial infrastructure and data centers, momentum supports the full life cycle 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 hypers retrofitting legacy data centers for AI workloads, where Amentum brings differentiated expertise, positioning our follow-on work as capacity expands. Beyond data centers, Amentum provides innovative solutions to several marquee Fortune 500 companies in areas such as advanced manufacturing to maximize uptime in mission-critical settings. Second, a 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. Amentum'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 stand-alone 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 super 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 under accelerating growth markets, global nuclear energy and space systems and technology, Amentum 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 Amentum 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. We 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 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 diluted 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 9. 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 and space systems and technologies markets. Adjusted EBITDA of $105 million was slightly lower year-over-year due to the fiscal year '25 divestiture, 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 JV 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 that has been a 100 basis point year-over-year increase in adjusted EBITDA margin 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 rebar 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 puts us on track to meet our full year free cash flow guidance. From a capital structure perspective, in the weeks after quarter end, leveraging our improving financial profile, we took deliberate actions to enhance the structure in terms of our debt. We issued a new $1.4 billion term loan A facility and utilize the product to pay down and reprice our Term Loan B. We also increased our repo credit capacity to $1 billion. These actions, coupled with benefits from the Moody's rating 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 3x 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 revenue is expected to come from existing a recompete business, we are reaffirming our fiscal year '26 guidance. We continue to expect revenues in the range of $13.95 billion to $14.3 billion, adjusted EBITDA between $1.1 billion and $1.14 billion; adjusted diluted earnings per share between $2.25 and $2.45 and free cash flow between $525 million 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 the 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's fiscal year-end. Wrapping up on Slide 12. Our first half performance reflects disciplined execution, continued to grow 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.

[Operator Instructions] Your first question comes from the line of [ Greg Parish ] from Morgan Stanley.

Congrats on the quarter. Great to be on the call here with you. I want to talk about booking strength, a really good quarter for bookings up sequentially, up meaningfully from last year. I appreciate the slide on the wins seem 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?

Yes. No. Just taking a step back, Amentum 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 LTM 1.2x, 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 free 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 with -- 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. Given 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 technology and Global Nuclear Energy or CDI or in our core markets. So we really think our growth rates stand up and we'll continue to be consistent. And with our bidding focus and are 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 new business and recompete 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.

Yes. Great. Fantastic color. Maybe just a click on margin here. Engineering specifically, 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 think you called out focusing on higher-margin work, fixed price as well. So is there any timing or onetime things to think about in the quarter? Or is this the right level to think about the second half for engineering margin?

Yes, Greg. Really pleased with the continued strong margin performance in 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 program write 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 per carat on a fixed price basis. And you'll see that in our contract mix statistics in the 10-Q 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, distant execution, as we mentioned. And then you're really starting to see the fruits of all the efforts we put into our cost synergy 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.

Your next question comes from the line of Tobey Sommer from Truist.

As we think about your underlying rate of growth and 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?

I'll start and then John can add or Steve as well. So the midpoint of our guidance for F '26 implies normalized growth, if you account for the joint venture transitions, the divestitures, obviously, we had an extra week in the fourth quarter of 3% and 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 roughly 4% at the midpoint of our guidance. That's exactly where we thought we would be at this point in our journey of bringing the merger together, going public in our long-term growth objectives of a 4% to 6% CAGR by FY '28. And then obviously, in John's prepared remarks and 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 to bill 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 2/3 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.

Yes. 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, we have the strength in the accelerating growth markets that we've talked a lot about, and AI is driving demand for electricity, driving data center expansion, network infrastructure, the other side you said like are there any things that are popping up, but defense budget increase, we necessarily see that coming when we go back -- you have but it's aligned really well with strength areas in our core markets as well. When you think of readiness, the budget request is proposing a 20% increase from 2026 that really aligns well with areas like platform, demand training, logistics, where Amentum is really strong, the leader in the market. Second, space and missile defense where our work Missile Defense Agency, Space Force, Air Force aligned really well if we see continued expansion of investment in those areas. And then finally, really in the drone power counter UAV counter drone technologies where the budget request has approximately $70 billion earmarked to expanded investment in those areas and Amentum has been for decades, a leader in helping develop and sustain the unmanned and now counter unmanned technologies and think of contested logistics and tactical operations that unmanned technology could support. It just aligns extremely well with Amentum's core markets. So we both believe our core markets are at the right place. Our accelerated markets have great tailwinds that can provide the future growth that we've been talking about.

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?

Tobey, I'll take the NASA question and then Travis may 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 2 mission. That was a great achievement, not only for our mentum team in partnership with massive, but the nation thinking about the first crude mission in more than 50 years to send our [indiscernible] out beyond the moon and return them safely. So it's really a banner day. And so really even getting beyond Artemis 2 and our teams are already working on processing hardware for the 3. But if you think about it, the overriding priority credit to the national space policy formulated by price at Trump and administrator Isac been with a laser focus on achieving the goals of the national space policy, which will take us Back to the move to stay and prepare us to venture forward on to more. 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 in-source some Ts to expand their core capabilities. We are, of course, working with asset understand their objectives and certainly understand how it will 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 FY '26 will really be immaterial. We do think that for FY '27, as we estimate an approximately 1% back to revenue in '27. The impact to EBITDA would be a little bit smaller than that. But given the modest impact that we see, this really does not change our excitement about the go-forward trajectory improvement.

Yes. And then on the second part of that question, Tobey, I guess building on John's remarks and really, he touched on what we're seeing from a growth perspective, 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 1 area that I'll just add to that is on free cash flow. Obviously, what we've been able to do the 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, further benefit that in our ability to generate free cash flow to growth rate of 10% or greater from now to FY '28. 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 3x by the end of this year. Obviously, we should be in the high 2s based on the trajectory that we're on. And 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 high return on investment organic opportunities accretive M&A, it could be continued debt reduction or capital return to shareholders when we think the share price is trading below its intrinsic value. So all that said, our goal will be to look at things to make sure that we're maximizing free cash flow per share in delivering strong compounding returns for our shareholders.

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

This is actually Net Morgan on 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?

Yes. I -- there's a lot going on really in the U.S. nuclear market, and we're 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 U.S., 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, Amentum brings 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 are -- 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 were 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. And then another just on Digital Solutions margins. I know there's some new start work there specifically within the space. That space force range contract. How should we think about the margins of that moving forward as the program kind of ramps and where DS margins will trend throughout the year?

Yes. Thanks, Dan. So the Digital Solutions segment, obviously had a really nice quarter and 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 of new program starts. One is in our space business, but another 1 in our critical digital infrastructure business. 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 the other element there, just to mention is the timing of program write-ups -- those can vary from quarter-to-quarter, but over any kind of normalized period, say, over a year, they're kind of 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 FY '27 and be when those programs will get into full year and initiatives that we're running from a margin expansion perspective will start to benefit the segment.

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

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.

Yes. Maybe I'll start, and 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 out focus for a second on kind of 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 whether it's 4G, 5G, our teams going to be getting to work with 6G, being able to diagnose what additional capacity is needed to engineer and even to deploy that capacity to enable those stable system performance and 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, Chicago, the major cities where we're helping to solution those. And so it really gives us a structural advantage from the critical digital infrastructure standpoint and that we have this geographically distributed teams. They're there ready to be able to design, integrate and deploy these solutions that can now be -- we can shift that capacity to work with data centers and these other kinds of -- types of projects. So 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.

Yes. Well, just in terms of the growth area. We talked about critical digital infrastructure is 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 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 we have the transpect 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 demand increasing really creates exposure, risk exposure. So we're pretty excited about all 3 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 experience and space, any crossover with just like telecom and network communication like moving into orbit, is there like a way to capture that opportunity as well?

Yes. It's a great concept. And we actually are very much seeing that come to life. Just building on kind of 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 is so much acceleration in activity in the government customer space trying to make better utilized 5G and some of the I'll say, elaborate capabilities of 5G and government missions, which heretofore has been primarily a commercial venture. And so we're very much taking advantage of that dual use. And then my other thing I would say is that something -- the government has always been a leader in terms of data security and cyber security, 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 from 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 of the system. And some of those exact expertise series will absolutely cross over into future commercial applications as you really build out this data center core, connect and Edge and all that has to work more efficiently. So there's a true convergence there. So very much appreciate the question.

Your last question comes from the line of [ Kevin Yu ] from RBC Capital Markets.

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 prudent? Or how do you look at your portfolio today? And do you see any other opportunities to divest and get rid of noncore work?

So we've been really happy with the overall portfolio over the last 18 months. Our book-to-bill has been very strong. We've seen opportunities for 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 -- where the real key growth drivers are, where we can drive margin expansion and will assess different parts of our portfolio and are they all aligned to our strategic objectives. And what I would say is we do a normal strategic planning process, we treat to the Board actually greater this year, closer to September. And it'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 valuation 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.

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