Amentum: Decoding the Backlog Decline and IDIQ Opportunities

Why Amentum's backlog decline may be less concerning than it seems.

Nearly a month ago I introduced Amentum ($AMTM) as an investment. You can find the two Amentum articles from last month linked below:

Amentum (AMTM): A Post-Spin Opportunity with Growth Potential

Amentum (AMTM): Deleveraging for Long-Term Growth

Today I will discuss one of the concerns investors may have since the company’s last earnings release in December, and how we as investors can think about it.

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Introduction

Amentum Holdings (NYSE: AMTM), a leading provider of advanced engineering and technology solutions, recently reported fiscal year 2024 results (on 12/16/24) that initially sparked investor concerns. The company reported a backlog decline of 9.1% YoY in its Global Engineering Solutions segment, despite achieving 6.2% revenue growth. I marked the YoY percentage change in the far-right column below.

This divergence between revenue and backlog created a book-to-bill ratio below 1.0x and raised questions about Amentum’s ability to replenish its revenue pipeline. However, a closer look reveals that the story may be more about timing and opportunity rather than structural weakness.

Stock Price Reaction

First, take a look at the stock price reaction beginning December 17th, when the share price dropped more than 20% over two trading sessions from the $23.78 close on December 16th.

I took the opportunity to buy more shares and now hold about 5% of my portfolio in AMTM at an average cost basis of $21.07 a share - and I see a lot of room for price appreciation.

The stock, in my opinion, was hit by a perfect storm of events at the time:

• Reported book-to-bill ratio of 0.86x in the conference call (due to decreased backlog)

• Holiday trading with low liquidity

• DOGE in the news cycle negotiating a new CR and Musk tweeting about $2 trillion of budget cuts

• Unreasonably low analyst estimates ($1.41/share) entering the earnings release, despite previous guidance for much higher (see my tweet)

• Rebalancing due to AMTM moving from the S&P 500 Index to the S&P SmallCap 600

• Erroneous reporting through Zacks of a huge revenue miss (from not using the combined revenue from the merger)

Arguably the event that most influenced the drop that week was the net bookings comment, and the budget negotiations didn’t help either.

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Backlog Decline and Temporary Mismatches

What is Backlog? Backlog is a forward-looking metric that represents work contracted but not yet performed. It provides visibility into future revenue, making its decline a concern for investors. In Amentum’s case:

• Fiscal year 2024 backlog for the Global Engineering Solutions segment declined YoY from $28.7 billion to $26.1 billion (-9.1%).

• Revenue grew for that segment by 6.2% YoY to $8.7 billion, highlighting strong execution.

• Net bookings for the year totaled $12 billion for the company overall, leading to a book-to-bill ratio of approximately 0.86.

A book-to-bill ratio below 1.0 indicates that revenue recognition is outpacing new contract awards, depleting backlog. However, this can be attributed to temporary mismatches, such as:

• Contract Timing: Government contracting cycles often result in uneven award patterns.

• Protested Awards: Delayed task orders and protests can temporarily suppress backlog additions.

• Execution Excellence: The backlog depletion partially reflects Amentum’s strong and efficient delivery of contracted work.

The company also reported in its Analyst Day that it’s focused on higher quality contracts upon the merger providing higher margins and requiring more technological and engineering expertise. Here’s the CFO explaining in August during the Analyst day:

“We're also committed to being strategic and disciplined in our bidding approach, taking advantage of our differentiated position and prioritizing pursuit of higher margin opportunities. Yes, we do have a nice portfolio of long, stable, cost-plus contracts that will generate substantial free cash flow, but we also have a portfolio of nice double-digit programs, and we expect that portfolio to grow over time.”

- Amentum Analyst Day, August 13, 2025

I have no inside industry knowledge or expertise on contract flow but I believe this lower net booking figure is temporary, despite the fact that some of AMTM’s peers have not seen the same decline in their book-to-bill ratios lately. There is also the topic of IDIQ contracts which are not even reflected in the backlog figures.

The Role of IDIQ Contracts

Indefinite Delivery/Indefinite Quantity (IDIQ) contracts play a critical role in Amentum’s pipeline and future growth. These contracts provide high ceiling values but only add to backlog when specific task orders are awarded.

• Amentum’s IDIQ Highlights:

  • $45 billion Hanford Site Cleanup IDIQ

  • $5.87 billion DoE Decontamination and Decommissioning IDIQ contract

  • $75 billion HHS refugee services contract

    • This IDIQ may not yield as much revenue given the incoming admin

  • $6.4 billion Air Force AFCAP V contract

  • $3 billion DoE West Valley Deactivation & Decommissioning Contract

  • Some other interesting IDIQs and contracting vehicles

• Exposure: Amentum holds 40+ IDIQ contracts with a collective ceiling value of $450 billion.

• Opportunity: While IDIQ ceilings are not included in backlog, they represent significant untapped potential for future task orders.

Key Insight: Backlog declines may underestimate Amentum’s true pipeline strength, as IDIQ opportunities provide substantial long-term growth potential.

Note that some portion of revenue or backlog includes the current IDIQs as task orders are awarded. Also, several IDIQs involve either joint ventures or multi-award contracts, in which case Amentum must compete with other contractors for a particular task order.

Investor Concerns and Reassurances

Concerns:

• Backlog Decline: Investors worry about visibility into future revenue.

• Sub-1.0 Book-to-Bill: The FY2024 book-to-bill ratio of 0.86 raises concerns about contract replenishment.

• Policy Risks: Potential refugee program cuts under a new administration could affect IDIQ task orders (such as from the $75 billion multi-award IDIQ mentioned).

Reassurances:

• Strong Backlog Coverage: Amentum’s $45 billion backlog provides 3.2x annual revenue coverage, a robust figure by industry standards.

• Revenue Growth: FY2024 revenue grew 6.2% in the concerning segment, driven by efficient contract execution.

• IDIQ Potential: The extensive IDIQ portfolio offers opportunities to replenish backlog with new task orders and focus on more valuable bidding.

Competitor Comparisons

• Leidos (LDOS): Reported a TTM book-to-bill ratio of 1.2x in Q3 2024, reflecting strong bookings under major IDIQs like the Defense Enclave Services contract.

• Booz Allen Hamilton (BAH): Reported a TTM book-to-bill ratio of 1.3x last fiscal year but increasing the last couple of quarters. BAH also trades at a 20x NTM PE, double that of AMTM’s.

• Amentum’s Position: While its book-to-bill ratio is temporarily under pressure, its IDIQ pipeline and strong execution set the stage for a potential rebound given the reasons mentioned earlier.

Source: Koyfin Charts

Investor Takeaways

Near-Term View: The backlog decline and sub-1.0 book-to-bill ratio may weigh on the stock in the short term, as well as the transition to the new administration. However, these concerns appear to be driven by timing mismatches and strategic refocusing rather than a lack of demand.

Long-Term View:

• Task order opportunities from IDIQs represent significant growth potential.

• Amentum’s ability to win and execute task orders will determine its ability to stabilize backlog and sustain revenue growth.

What to Watch:

• Task order announcements and backlog replenishment in the February earnings release.

• Conversion of protested contracts into backlog.

• Management’s progress on deleveraging and margin improvement.

Closing Thoughts: Amentum’s backlog decline may be temporary, driven by timing mismatches and the nuances of government contracting. With a robust IDIQ pipeline and strong execution, the company has the tools to navigate these challenges and unlock long-term value for investors.

Just as a final resource to share with you. The transcript from the Amentum Capital Markets Day in August 2024 is packed with great information on the value proposition, reputation and contract work across the various markets. It is worth a read if you want to take a deeper dive into Amentum and what they may achieve.

Analyst Day Transcript: https://www.amentum.com/wp-content/uploads/Amentum-Capital-Markets-Day-Transcript.pdf

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Disclosure: This information is provided for informational purposes only and should not be considered a solicitation or recommendation to buy or sell any securities. The author or entity providing this information may hold positions in the securities discussed. This is not investment advice.