Q2 2026 Applied Aerospace & Defense Inc Earnings Call

August 12, 2026

Operator: Greetings. Welcome to the Applied Aerospace & Defense Q2 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Tom Cook, Managing Director at ICR. Thank you, Tom. You may begin.

Speaker #1: Greetings. Welcome to the Applied Aerospace & Defense second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Speaker #1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to Tom Cook, Managing Director at ICR.

Speaker #1: Thank you, Tom. You may begin.

Tom Cook: Thank you, operator, and good morning, everyone. Welcome to Applied Aerospace & Defense's second quarter 2026 earnings conference call. With me on the call today are Trip Ferguson, Chief Executive Officer, Chris Rogers, President and Chief Strategy Officer, and Jeff McRae, Chief Financial Officer. Before we begin, I would like to remind everyone that our remarks may include forward-looking statements about our expectations, plans, outlook, and future performance, which we make pursuant to the safe harbor provisions of federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Please refer to the forward-looking statements disclosure in our earnings presentation and our filings with the Securities and Exchange Commission. We will also discuss certain financial measures that are not presented in accordance with GAAP.

Tom Cook: Thank you, operator, and good morning, everyone. Welcome to Applied Aerospace & Defense's Q2 2026 Earnings Conference Call. With me on the call today are Trip Ferguson, Chief Executive Officer, Chris Rogers, President and Chief Strategy Officer, and Jeff McRae, Chief Financial Officer. Before we begin, I would like to remind everyone that our remarks may include forward-looking statements about our expectations, plans, outlook, and future performance, which we make pursuant to the safe harbor provisions of federal securities laws.

Speaker #2: Thank you, operator, and good morning, everyone. Welcome to Applied Aerospace & Defense's second quarter 2026 earnings conference call. With me on the call today are Trip Ferguson, Chief Executive Officer; Chris Rogers, President and Chief Strategy Officer; and Jeff McCray, Chief Financial Officer.

Speaker #2: Before we begin, I'd like to remind everyone that our remarks may include forward-looking statements about our expectations, plans, outlook, and future performance, which we make pursuant to the Safe Harbor Provisions of federal securities laws.

Tom Cook: These statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Please refer to the forward-looking statements disclosure in our earnings presentation and our filings with the Securities and Exchange Commission. We will also discuss certain financial measures that are not presented in accordance with GAAP.

Speaker #2: These statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Please refer to the forward-looking statements disclosure in our earnings presentation and our filings with the Securities and Exchange Commission.

Speaker #2: We will also discuss certain financial measures that are not presented in accordance with GAAP. Our earnings presentation includes additional information about these non-GAAP measures, including definitions and reconciliations, to the most directly comparable GAAP measures as applicable.

Tom Cook: Our earnings presentation includes additional information about these non-GAAP measures, including definitions and reconciliations to the most directly comparable GAAP measures, as applicable. The earnings presentation is available on the investor relations section of our website. With that, I'd like to turn the call over to Trip Ferguson. Trip?

Speaker #2: The earnings presentation is available in the Investor Relations section of our website. With that, I'd like to turn the call over to Trip Ferguson.

Speaker #2: Trip?

Trip Ferguson: Thank you, Tom, and welcome to everyone joining us for our first earnings call as a public company. Before we review our results as a company, I'd like to recognize and thank all of our team members from across our organization at Applied. Applied's success is built on the skill and dedication of our people, and I'm proud of the work they deliver day in and day out. The Q2 saw Applied successfully complete our initial public offering and enter our next season as a public company with real momentum. The IPO meaningfully strengthened our balance sheet and enhanced our financial flexibility. It gave us new resources to invest in our people, our capabilities, and our operations as we scale to support a broad and expanding range of our customers' most critical programs. Importantly, it also reduced our pro forma net leverage to 2.7 times.

Speaker #3: Thank you, Tom, and welcome to everyone joining us for our first earnings call as a public company. Before we review our results as a company, I'd like to recognize and thank all of our team members from across our organization at Applied Applied Success is built on the skill and dedication of our people, and I'm proud of the work they deliver day in and day out.

Speaker #3: The second quarter saw Applied successfully complete our initial public offering and enter our next season as a public company with real momentum. The IPO meaningfully strengthened our balance sheet and enhanced our financial flexibility.

Trip Ferguson: It gave us new resources to invest in our people, our capabilities, and our operations as we scale to support a broad and expanding range of our customers' most critical programs. Importantly, it also reduced our pro forma net leverage to 2.7x. In the quarter, we generated record revenue of $167.3 million, up 47.4% year over year. On a pro forma basis, giving effect to CBI in both periods, revenue grew 21.3%. We delivered record adjusted EBITDA of $36.4 million, up 38.4%. Importantly, our contract backlog also grew to a record of over $1.1 billion, providing us with a high level of forward visibility.

Speaker #3: It gave us new resources to invest in our people, our capabilities, and our operations as we scale to support a broad and expanding range of our customers' most critical programs.

Speaker #3: Importantly, it also reduced our pro forma net leverage to 2.7 times. In the quarter, we generated record revenue of $167.3 million, up 47.4% year over year.

Trip Ferguson: In the quarter, we generated record revenue of $167.3 million, up 47.4% year over year. On a pro forma basis, giving effect to CBI in both periods, revenue grew 21.3%. We delivered record adjusted EBITDA of $36.4 million, up 38.4%. Importantly, our contract backlog also grew to a record of over $1.1 billion, providing us with a high level of forward visibility. I'd like to begin this call by spending a few minutes on who we are, where we're focused, and why customers choose us. Chris will cover our end markets and our outlook for growth, and Jeff will cover financials. I'll then come back with our priorities for the H2 of the year before we take your questions.

Speaker #3: On a pro forma basis, giving effect to CBI in both periods, revenue grew 21.3%. We delivered record adjusted EBITDA of $36.4 million up 38.4%.

Speaker #3: And importantly, our contract backlog also grew to a record of over $1.1 billion, providing us with a high level of forward visibility. I'd like to begin this call by spending a few minutes on who we are, where we're focused, and why customers choose us.

Trip Ferguson: I'd like to begin this call by spending a few minutes on who we are, where we're focused, and why customers choose us. Chris will cover our end markets and our outlook for growth, and Jeff will cover financials. I'll then come back with our priorities for the H2 of the year before we take your questions. Applied Aerospace & Defense is a premier provider of advanced design, engineering, and vertically integrated manufacturing solutions for leading and next-generation space and defense technology companies.

Speaker #3: Chris will cover our end markets, and our outlook for growth, and Jeff will cover financials. I'll then come back with our priorities for the second half of the year, before we take your questions.

Trip Ferguson: Applied Aerospace & Defense is a premier provider of advanced design, engineering, and vertically integrated manufacturing solutions for leading and next-generation space and defense technology companies. We build complex mission-critical hardware for extreme operating environments across three core end markets: Space and Launch Systems, Defense Aviation and Airborne Systems, and C5ISR and Precision Strike Systems. In the Q2, those markets were roughly 23%, 47%, and 30% of revenue. I'll note that it's not just the diversity of our business across end markets that differentiates us, it's also the high number of programs we support across the entire space and defense ecosystem. Applied sits at the intersection of two powerful long-term and uncorrelated demand drivers. The first is an unprecedented growth outlook for the commercial space economy. The second is a dynamic global threat environment that demands highly capable advanced manufacturing capacity and major new investments in defense technology.

Speaker #3: Applied Aerospace & Defense is a premier provider of advanced design, engineering, and vertically integrated manufacturing solutions for leading and next-generation space and defense technology companies.

Trip Ferguson: We build complex mission-critical hardware for extreme operating environments across three core end markets: Space and Launch Systems, Defense Aviation and Airborne Systems, and C5ISR and Precision Strike Systems. In the Q2, those markets were roughly 23%, 47%, and 30% of revenue. I'll note that it's not just the diversity of our business across end markets that differentiates us, it's also the high number of programs we support across the entire space and defense ecosystem. Applied sits at the intersection of two powerful long-term and uncorrelated demand drivers.

Speaker #3: We build complex, mission-critical hardware for extreme operating environments across three core end markets: space and launch systems, defense aviation and airborne systems, and C5 ISR precision strike systems.

Speaker #3: In the second quarter, those markets were roughly 23%, 47%, and 30% of revenue. I'll note that it's not just the diversity of our business across end markets that differentiates us; it's also the high number of programs we support across the entire space and defense ecosystem.

Speaker #3: Applied sits at the intersection of two powerful long-term and uncorrelated demand drivers. The first is an unprecedented growth outlook for the commercial space economy.

Trip Ferguson: The first is an unprecedented growth outlook for the commercial space economy. The second is a dynamic global threat environment that demands highly capable advanced manufacturing capacity and major new investments in defense technology. Across both, the ability to manufacture highly engineered systems at the speed, quality, and scale our customers require has never been more important. Applied is purpose-built for this mission, and we're confident our strategy provides an opportunity for asymmetric upside. What differentiates us today is the combination of two things.

Speaker #3: The second is a dynamic global threat environment that demands highly capable advanced manufacturing capacity and major new investments in defense technology. Across both, the ability to manufacture highly engineered systems at the speed, quality, and scale our customers require has never been more important.

Trip Ferguson: Across both, the ability to manufacture highly engineered systems at the speed, quality, and scale our customers require has never been more important. Applied is purpose-built for this mission, and we're confident our strategy provides an opportunity for asymmetric upside. What differentiates us today is the combination of two things. First, platform's unique and highly integrated capabilities. Second, our operating philosophy. Let's start with our capabilities. We focus on building highly engineered systems that integrate advanced and high-performance materials to operate in extreme environments. We believe that this integrated capability set is rare, and it's built on three foundational pillars. Deep engineering talent with more than 220 engineers and well more than 400 technical subject matter experts. Real material science know-how and depth across advanced resins and RF-transparent materials, all forms of metals, and space-grade polymers. Proprietary process IP that has been built up over decades.

Speaker #3: Applied is purpose-built for this mission and we're confident our strategy provides an opportunity for asymmetric upside. What differentiates us today is the combination of two things.

Trip Ferguson: First, platform's unique and highly integrated capabilities. Second, our operating philosophy. Let's start with our capabilities. We focus on building highly engineered systems that integrate advanced and high-performance materials to operate in extreme environments. We believe that this integrated capability set is rare, and it's built on three foundational pillars. Deep engineering talent with more than 220 engineers and well more than 400 technical subject matter experts.

Speaker #3: First, platform's unique and highly integrated capabilities. And second, our operating philosophy. Let's start with our capabilities. We focus on building highly engineered systems that integrate advanced and high-performance materials to operate in extreme environments.

Speaker #3: We believe that this integrated capability set is rare, and it's built on three foundational pillars: deep engineering talent, with more than 220 engineers, and well more than 400 technical subject matter experts.

Trip Ferguson: Real material science know-how and depth across advanced resins and RF-transparent materials, all forms of metals, and space-grade polymers. Proprietary process IP that has been built up over decades. Today, we believe roughly 88% of our revenue is tied to products produced using our IP-enabled processes. What all this delivers for our customers is faster development, higher quality, lower cost, and proven performance that typically endures for the full life of a program. Let me touch on our operating philosophy because it's just as important.

Speaker #3: Real material science know-how in depth, across advanced resins and RF transparent materials, all forms of metals, and space-grade polymers. And proprietary process IP, that has been built up over decades.

Trip Ferguson: Today, we believe roughly 88% of our revenue is tied to products produced using our IP-enabled processes. What all this delivers for our customers is faster development, higher quality, lower cost, and proven performance that typically endures for the full life of a program. Let me touch on our operating philosophy because it's just as important. First, we're prime-agnostic. We serve nearly all the leaders and innovators in defense and space, and we don't compete with our customers by design. Second, we're a full lifecycle partner, trusted by the proven market leaders and by the bold new innovators, and we believe there are very few companies that can genuinely serve both. Third, we have relentlessly innovative engineering culture. Our people solve problems for our customers.

Speaker #3: Today, we believe roughly 88% of our revenue is tied to products produced using our IP-enabled processes. What all this delivers for our customers is faster development, higher quality, lower cost, and proven performance that typically endures for the full life of a program.

Speaker #3: Now, let me touch on our operating philosophy, because it's just as important. First, we're prime agnostic. We serve nearly all the leaders and innovators in defense and space, and we don't compete with our customers by design.

Trip Ferguson: First, we're prime-agnostic. We serve nearly all the leaders and innovators in defense and space, and we don't compete with our customers by design. Second, we're a full lifecycle partner, trusted by the proven market leaders and by the bold new innovators, and we believe there are very few companies that can genuinely serve both. Third, we have relentlessly innovative engineering culture. Our people solve problems for our customers.

Speaker #3: Second, we're a full lifecycle partner, trusted by proven market leaders and by bold new innovators. We believe there are very few companies that can genuinely serve both.

Speaker #3: Third, we have relentlessly innovative engineering culture. Our people solve problems for our customers. That's how we build proprietary know-how into our processes, and how we qualify into positions where, in many cases, we're the only supplier that has completed the requirement qualifications.

Trip Ferguson: That's how we build proprietary know-how into our processes and how we qualify into positions where, in many cases, we're the only supplier that has completed the requirement qualifications. Finally, we are built to scale with the agility and the capacity to ramp alongside our customers from early development straight through to full-rate production. Here's why all this matters now. The US space and defense industrial base needs exactly this capability set, and it needs it today. We believe that primes and new entrants alike are looking for partners with deeply integrated capabilities who can carry a hard problem from prototype to full production, and there aren't many companies capable of that kind of partnership. That's the single best explanation for the demand we're seeing at Applied. Behind all of this sits our real physical capacity.

Speaker #3: Finally, we are built to scale. With the agility and the capacity to ramp alongside our customers, from early development straight through to full-rate production.

Speaker #3: Here's why all of this matters now. The U.S. space and defense industrial base needs exactly this capability set and it needs it today. We believe that primes and new entrants alike are looking for partners with deeply integrated capabilities who can carry a hard problem for prototype to full production and there aren't many companies capable of that kind of partnership.

Trip Ferguson: We believe that primes and new entrants alike are looking for partners with deeply integrated capabilities who can carry a hard problem from prototype to full production, and there aren't many companies capable of that kind of partnership. That's the single best explanation for the demand we're seeing at Applied. Behind all of this sits our real physical capacity. We draw on more than 120 years of advanced manufacturing heritage, and we operate 11 purpose-built US-based facilities across six states with more than 1.5 million square feet of production capacity.

Speaker #3: That's the single best explanation for the demand we're seeing at Applied. Behind all of this sits our real physical capacity. We draw on more than 120 years of advanced manufacturing heritage, and we operate 11 purpose-built U.S.-based facilities across six states with more than 1.5 million square feet of production capacity.

Trip Ferguson: We draw on more than 120 years of advanced manufacturing heritage, and we operate 11 purpose-built US-based facilities across six states with more than 1.5 million square feet of production capacity. We estimate roughly 40% of that capacity is available today, measured across floor space, equipment capacity, and workforce flexibility. Some of this we invested in strategically and proactively, ahead of programs that we won but haven't yet begun to ramp. In today's market, this is proving to be a real advantage, and our entire Applied team is incredibly excited about what lies ahead. Before I turn it over to Chris, I'll note that earlier this week, we announced Chris as President and Chief Strategy Officer, giving him broader strategic and operational oversight across our enterprise alongside the growth functions he already leads. With that, let me turn it over to Chris.

Trip Ferguson: We estimate roughly 40% of that capacity is available today, measured across floor space, equipment capacity, and workforce flexibility. Some of this we invested in strategically and proactively, ahead of programs that we won but haven't yet begun to ramp. In today's market, this is proving to be a real advantage, and our entire Applied team is incredibly excited about what lies ahead. Before I turn it over to Chris, I'll note that earlier this week, we announced Chris as President and Chief Strategy Officer, giving him broader strategic and operational oversight across our enterprise alongside the growth functions he already leads. With that, let me turn it over to Chris.

Speaker #3: We estimate roughly 40% of that capacity is available today, measured across floor space, equipment capacity, and workforce flexibility. Some of this we invested in strategically and proactively.

Speaker #3: The head of programs that we won but haven't yet begun to ramp. In today's market, this is proving to be a real advantage and our entire Applied team is incredibly excited about what lies ahead.

Speaker #3: Before I turn it over to Chris, I'll note that earlier this week we announced Chris as president and chief strategy officer. Giving him broader strategic and operational oversight across our enterprise, alongside the growth functions he already leads.

Speaker #3: With that, let me turn it over to Chris.

Chris Rogers: Thanks, Trip. Let me start with backlog, because it is the clearest evidence of where we are headed. We grew contract backlog to a record of over $1.1 billion, up from $871 million at year-end. Backlog is one key element from which we derive forward visibility, and it is why we can talk about the H2 of this year and what lies beyond with confidence. One observation I would share from the H1 is how many programs in our pipeline now draw on multiple Applied capabilities at once. As one example, we have brought together complementary capabilities from across the platform to further vertically integrate our solid rocket motor case manufacturing. That is increasing speed and strengthening our ability to ramp production against the demand signal that we are seeing for a capability that supports multiple high-priority defense programs.

Speaker #2: Thanks, Trip. Let me start with backlog, because it's the clearest evidence of where we're headed. We grew contract backlog to a record of over 1.1 billion, up from 871 million at year-end.

Speaker #2: Backlog is one key element from which we derive forward visibility, and it's why we can talk about the second half of this year and what lies beyond with confidence.

Speaker #2: One observation I'd share from the first half is how many programs in our pipeline now draw on multiple Applied capabilities at once. As one example, we brought together complementary capabilities from across the platform to further vertically integrate our solid rocket motor case manufacturing.

Chris Rogers: That is increasing speed and strengthening our ability to ramp production against the demand signal that we are seeing for a capability that supports multiple high-priority defense programs. In another case, a large defense prime came to us looking for integrated production capability on key subsystems for a strategic Precision Strike program. We organized the full breadth of our capabilities against that opportunity in a way that is very unique to Applied. This is all about complementary and differentiated capabilities that, when integrated, translate into speed, responsiveness, and cost-competitive solutions.

Speaker #2: That's increasing speed and strengthening our ability to ramp production in response to the demand signal that we're seeing for a capability that supports multiple high-priority defense programs.

Chris Rogers: In another case, a large defense prime came to us looking for integrated production capability on key subsystems for a strategic Precision Strike program. We organized the full breadth of our capabilities against that opportunity in a way that is very unique to Applied. This is all about complementary and differentiated capabilities that, when integrated, translate into speed, responsiveness, and cost-competitive solutions. It is the platform working exactly the way we built it to deliver. The customer comes to us for one capability and finds three, and we win work we simply couldn't have won as separate businesses. Turning to our markets. In space, momentum is continuing across our commercial launch and satellite programs, and we are deepening relationships with the leading innovators in the sector.

Speaker #2: In another case, a large defense prime came to us looking for integrated production capability on key subsystems for a strategic precision strike program. We organized the full breadth of our way that's very unique to Applied.

Speaker #2: This is all about complementary and differentiated capabilities that, when integrated, translate into speed, responsiveness, and cost-competitive solutions. It's the platform working exactly the way we built it to deliver.

Chris Rogers: It is the platform working exactly the way we built it to deliver. The customer comes to us for one capability and finds three, and we win work we simply couldn't have won as separate businesses. Turning to our markets. In space, momentum is continuing across our commercial launch and satellite programs, and we are deepening relationships with the leading innovators in the sector.

Speaker #2: The customer comes to us for one capability and finds three, and we win work we simply couldn't have won as separate businesses. Now, turning to our markets.

Speaker #2: In space, momentum is continuing across our commercial launch and satellite programs, and we're deepening relationships with the leading innovators in the sector. Rising launch cadence and the continued build-out of proliferated constellations point in the same direction, and our capabilities for uncompromising performance in the harsh environments of launch in space sit right in the middle of it.

Chris Rogers: Rising launch cadence and the continued build-out of proliferated constellations point in the same direction, and our capabilities for uncompromising performance in the harsh environments of launch in space sit right in the middle of it. In Defense Aviation, we are ramping on next-generation programs, including our work supporting multiple collaborative combat aircraft platforms and the MV-75. These are the programs that will define the market over the coming decade, and we are positioned on them early, at the point when content decisions get made. Alongside that, our aftermarket positions continue to be a powerful advantage for our platform. Replacing, overhauling, and repairing flight-critical and life-limited parts on large installed fleets directly supports Defense Aviation fleet mission readiness, and it gives us high recurring demand that does not depend on new production rates. Demand remains high, and we are expecting solid aftermarket performance in the H2 of 2026.

Speaker #2: In defense aviation, we're ramping up on next-generation programs, including our work supporting multiple collaborative combat aircraft platforms and the MD-75. These are the programs that will define the market over the coming decade, and we're positioned on them early, at the point when content decisions get made.

Chris Rogers: Alongside that, our aftermarket positions continue to be a powerful advantage for our platform. Replacing, overhauling, and repairing flight-critical and life-limited parts on large installed fleets directly supports Defense Aviation fleet mission readiness, and it gives us high recurring demand that does not depend on new production rates. Demand remains high, and we are expecting solid aftermarket performance in the H2 of 2026.

Speaker #2: Alongside that, our aftermarket positions continue to be a powerful advantage for our platform. Replacing, overhauling, and repairing flight-critical and life-limited parts on large installed fleets directly supports defense aviation fleet mission readiness, and it gives us high recurring demand that doesn't depend on new production rates.

Speaker #2: Demand remains high, and we're expecting solid aftermarket performance in the back half of 2026. Precision strike is where you can really see the platform coming together.

Chris Rogers: Precision Strike is where you can really see the platform coming together. We have strong momentum in solid rocket motor cases, drawing on integrated capabilities from across Applied and serving customers we were not working with a year ago. We have made the capacity investments these ramps require, and we are integrating our capabilities more tightly to drive speed and performance. The pipeline in this market is very dynamic and active. On new business more broadly, we are seeing momentum on two fronts at once. Deeper content with the large defense primes we have served for decades and genuinely exciting first-time opportunities with high-potential new customers. Both of these matter. The first will always be our highest certainty growth, and there remains vast white space. The second is one of many ways that we will compound growth. A quick word on M&A.

Speaker #2: We have strong momentum in solid rocket motor cases, drawing on integrated capabilities from across Applied and serving customers we weren't working with a year ago.

Speaker #2: We've made the capacity investments these ramps require, and we're integrating our capabilities more tightly to drive speed and dynamic and active. A new business more broadly, we're seeing momentum on two fronts at once.

Chris Rogers: Deeper content with the large defense primes we have served for decades and genuinely exciting first-time opportunities with high-potential new customers. Both of these matter. The first will always be our highest certainty growth, and there remains vast white space. The second is one of many ways that we will compound growth. A quick word on M&A. CBI is delivering these synergies we underwrote, and our M&A pipeline remains exciting and very active. We know where we want to invest internally and which capabilities we'd rather bring in from the outside.

Speaker #2: Deeper content with a large defense primes we've served for decades and genuinely exciting first-time opportunities with high potential new customers. Both of these matter.

Speaker #2: The first will always be our highest certainty growth, and there remains vast white space. And the second is one of many ways that we will compound growth.

Speaker #2: A quick word on M&A. DBI is delivering the synergies we underwrote, and our M&A pipeline remains exciting and very active. We know where we want to invest internally and which capabilities we'd rather bring in from the outside.

Chris Rogers: CBI is delivering these synergies we underwrote, and our M&A pipeline remains exciting and very active. We know where we want to invest internally and which capabilities we'd rather bring in from the outside. That clarity is what keeps us disciplined. Let me leave you with this. What stands out most right now is the sheer scale of the integrated opportunity that sits in front of us. Applied today is a coordinated platform, and that is what lets us pursue tremendous white space in a coordinated way, drive productivity improvements, and approach M&A thoughtfully. That combination is what we mean when we talk about Applied having asymmetric upside. It has really shown up in our pipeline, and I'm more optimistic about the scale of opportunity set in front of us today than I was just a few months ago.

Chris Rogers: That clarity is what keeps us disciplined. Let me leave you with this. What stands out most right now is the sheer scale of the integrated opportunity that sits in front of us. Applied today is a coordinated platform, and that is what lets us pursue tremendous white space in a coordinated way, drive productivity improvements, and approach M&A thoughtfully. That combination is what we mean when we talk about Applied having asymmetric upside. It has really shown up in our pipeline, and I'm more optimistic about the scale of opportunity set in front of us today than I was just a few months ago. We're carrying real momentum into the H2, and there is tremendous amount of energy and productive activity taking place all across Applied. With that, I'll turn it over to Jeff to walk you through our financials.

Speaker #2: That clarity is what keeps us disciplined. Let me leave you with this: what stands out most right now is the sheer scale of the integrated opportunity that sits in front of us.

Speaker #2: Applied today is a coordinated platform, and that is what lets us pursue tremendous white space in a coordinated way, drive productivity improvements, and approach M&A thoughtfully.

Speaker #2: That combination is what we mean when we talk about Applied having asymmetric upside. It is really showing up in our pipeline, and I'm more optimistic about the scale of opportunity set in front of us today than I was just a few months ago.

Chris Rogers: We're carrying real momentum into the H2, and there is tremendous amount of energy and productive activity taking place all across Applied. With that, I'll turn it over to Jeff to walk you through our financials.

Speaker #2: We're carrying real momentum into the second half, and there is a tremendous amount of energy and productive activity taking place all across Applied. With that, I'll turn it over to Jeff to walk you through our financials.

Jeff McRae: Okay, great. Thanks, Chris, and good morning. I am very pleased with our Q2, as our results reflect strong execution and position us well to deliver on our full-year expectations. Before we get into the details, one note on the basis of the numbers. Everything I discuss today related to financial results as well as our guidance reflects GAAP as reported on a non-pro forma basis. Our acquisition of CBI is only reflected for the period from its 2 March closing date forward. Where I do reference pro forma figures, I'll say so. Let's get into the results for the Q2. Revenue for the quarter was $167.3 million, reflecting 47.4% growth year-over-year. The strong revenue performance was a result of growth across all three of our end markets.

Speaker #1: Hey, great. Thanks, Chris. And good morning. I am very pleased with our second quarter. As our results reflect strong execution, and position us well to deliver on our full-year expectations.

Speaker #1: Before we get into the details, one note on the basis of the numbers. Everything I discussed today related to financial results as well as our guidance reflects gap as reported on a non-performer basis.

Speaker #1: Our acquisition of CBI is only reflected for the period from its March 2nd closing date forward. Where I do reference pro forma figures, I'll say so.

Jeff McRae: Let's get into the results for the Q2. Revenue for the quarter was $167.3 million, reflecting 47.4% growth year-over-year. The strong revenue performance was a result of growth across all three of our end markets. On a pro forma basis, including revenue realized by CBI for the same period last year, Q2 revenue grew by 21.3%. We also exceeded our internal revenue plan for the quarter due to some timing dynamics. We saw strong execution on several programs, which resulted in the incremental pull forward of revenue and contracted backlog that we had anticipated converting to revenue in the H2 2026.

Speaker #1: So let's get into the results for the second quarter. Revenue for the quarter was $167.3 million reflecting 47.4% growth year over year. The strong revenue performance was a result of growth across all three of our end markets, on a performer basis including revenue realized by CBI for the same period last year, second quarter revenue grew by 21.3%.

Jeff McRae: On a pro forma basis, including revenue realized by CBI for the same period last year, Q2 revenue grew by 21.3%. We also exceeded our internal revenue plan for the quarter due to some timing dynamics. We saw strong execution on several programs, which resulted in the incremental pull forward of revenue and contracted backlog that we had anticipated converting to revenue in the H2 2026. This phasing does not alter our outlook for the full year. Now, a few highlights on revenue by end market. Space and Launch Systems revenue was $38.8 million, up 58.5% on high volumes of content supporting priority launch vehicle and satellite production programs. Specifically, we continue to see strong demand on content enabling SpaceX's Falcon 9 program, as well as ramping demand on Blue Origin's New Glenn program.

Speaker #1: We also exceeded our internal revenue plan for the quarter, due to some timing dynamics. We saw a strong execution on several programs, which resulted in the incremental pull forward of revenue and contracted backlog that we had anticipated converting to revenue in the second half of 2026.

Jeff McRae: This phasing does not alter our outlook for the full year. Now, a few highlights on revenue by end market. Space and Launch Systems revenue was $38.8 million, up 58.5% on high volumes of content supporting priority launch vehicle and satellite production programs. Specifically, we continue to see strong demand on content enabling SpaceX's Falcon 9 program, as well as ramping demand on Blue Origin's New Glenn program.

Speaker #1: This phasing does not alter our outlook for the full year. Now, a few highlights on revenue by end market. Space and launch systems revenue was $38.8 million up $58.5% on high volumes of content supporting priority launch vehicle and satellite production programs.

Speaker #1: Specifically, we continue to see strong demand on content-enabling spaceX's Falcon 9 program, as well as ramping demand on Blue Origin's New Glenn program. Defense aviation and airborne systems revenue was $78.9 million up $4.8%, with next with certain next-generation development programs beginning to move into production.

Jeff McRae: Defense Aviation and Airborne Systems revenue was $78.9 million, up 4.8%, with certain next-generation development programs beginning to move into production. Specifically, our support of Anduril on their CCA Fury program and Bell on the V-280 Valor program. This alongside sustained aftermarket demand across a large installed base of aircraft. C5ISR and Precision Strike Systems revenue was $49.6 million, up $13.7 million from the year prior. This market benefited from significant contributions from CVI and was supported by strong demand signals across integrated air and missile defense systems and precision strike programs. From a margin perspective, we saw a heavier weighting of revenue from several early-stage next-generation programs that are now ramping up, and we see those programs accelerating from here. As such, we typically see some compression as we work through product development and initial learning curves with our engineering and production teams.

Speaker #1: Specifically, our support of Anduril on their CCA FURY program and Bell on the MD-75 program. This alongside sustained aftermarket demand across a large installed base of aircraft.

Speaker #1: C5 ISR and precision strike systems revenue was $49.6 million up $13.7 million from the year probable. This market benefited from significant contributions from CBI and was supported by strong demand signals across integrated air and missile defense systems and precision strike programs.

Jeff McRae: This market benefited from significant contributions from CVI and was supported by strong demand signals across integrated air and missile defense systems and precision strike programs. From a margin perspective, we saw a heavier weighting of revenue from several early-stage next-generation programs that are now ramping up, and we see those programs accelerating from here. As such, we typically see some compression as we work through product development and initial learning curves with our engineering and production teams.

Speaker #1: From a margin perspective, we saw a heavier weighting of revenue from several early-stage next-generation programs, that are now ramping up. And we see those programs accelerating from here.

Speaker #1: As such, we typically see some compression as we work through product development and initial learning curves, with our engineering and production teams. Importantly, this is a typical short curve for us.

Jeff McRae: Importantly, this is a typical short curve for us. On most programs, we will reach our target margin profile within the first several units. As we ascend the learning curves and volumes ramp, efficiencies improve, and we will see margins improve as we progress through the year and into 2027. Consolidated gross margin for the quarter was 22.2%. This did reflect the impact of share-based compensation resulting from the accelerated vesting of equity units at the IPO, which impacted margins by approximately 6%. Adjusting for this, gross margins were in line with the same period a year ago, as increased volume and improved throughput offset the lower initial margins on our development programs.

Speaker #1: On most programs or reach our target margin profile, within the first several units. So as we ascend the learning curves and volumes ramp, efficiencies improve, and we will see margins improve as we progress through the year and into 2027.

Speaker #1: Consolidated gross margin for the quarter was $22.2%. This did reflect the impact of share-based compensation resulting from the accelerated investing of equity units at the IPO.

Speaker #1: Which impacted margins by approximately 6%. Adjusting for this gross margins were in line with the same period a year ago. As increased volume and improved throughput offset the lower initial margins on our development programs.

Jeff McRae: Net loss for the quarter was $154 million, including aggregate share-based compensation expense of $110 million from accelerated vesting of equity units, higher levels of interest expense for the period prior to our IPO, increased intangible asset amortization when compared with the prior year quarter, and other costs related to our IPO. Excluding these impacts and their corresponding income tax effects, we would have generated net income in the quarter. Adjusted EBITDA for the quarter came in at $36.4 million, representing solid year-over-year growth. Adjusted EBITDA margin, which is a non-GAAP measure, was 21.8% for the quarter compared to 23.2% in the prior year period, which reflects the investment we have made in our business to expand operational support capabilities, as well as investments to support operating in a public company environment.

Speaker #1: Net loss for the quarter was $154 million, including aggregate share-based compensation expense of $110 million from the accelerated vesting of equity units. Higher levels of interest expense for the period prior to our IPO, increased intangible asset amortization when compared with the prior year quarter, and other costs related to our IPO also contributed.

Speaker #1: Excluding these impacts and their corresponding income tax effects, we would have generated net income in the quarter. Adjusted EBITDA for the quarter came in at $36.4 million.

Speaker #1: Representing solid year-over-year growth. Adjusted EBITDA margin which is a non-gap measure was $21.8% for the quarter. Compared to $23.2% in the prior year period.

Jeff McRae: Adjusted EBITDA margin, which is a non-GAAP measure, was 21.8% for the quarter compared to 23.2% in the prior year period, which reflects the investment we have made in our business to expand operational support capabilities, as well as investments to support operating in a public company environment. On cash flow, for the first six months of the year, net cash used in operating activities was $82.1 million.

Speaker #1: Which reflects the investment we've made in our business to expand operational support capabilities as well as investments to support operating in a public company environment.

Jeff McRae: On cash flow, for the first six months of the year, net cash used in operating activities was $82.1 million. Three things drove this use of cash, the first two of which were non-recurring. Elevated IPO and acquisition-related costs, cash interest on the portion of our debt repaid with the proceeds from our IPO, which we carried for most of the period, and a working capital build of roughly $36 million in contract assets and inventory to support H2 deliveries and a growing contract backlog. We expect much of that working capital to be converted back to cash as H2 deliveries occur, and we project generating positive free cash flow in H2 of the year.

Speaker #1: On cash flow, for the first six months of the year, net cash used in operating activities was $82.1 million. Three things drove this use of cash.

Jeff McRae: Three things drove this use of cash, the first two of which were non-recurring. Elevated IPO and acquisition-related costs, cash interest on the portion of our debt repaid with the proceeds from our IPO, which we carried for most of the period, and a working capital build of roughly $36 million in contract assets and inventory to support H2 deliveries and a growing contract backlog. We expect much of that working capital to be converted back to cash as H2 deliveries occur, and we project generating positive free cash flow in H2 of the year.

Speaker #1: The first two of which were non-recurring. Elevated IPO and acquisition-related costs. Cash interest on the portion of our debt repaid with the proceeds from our IPO, which we carried for most of the period.

Speaker #1: And a working capital build of roughly $36 million in contract assets and inventory, to support second half deliveries and a growing contract backlog. We expect much of that working capital to be converted back to cash as second half deliveries occur.

Speaker #1: And we project generating positive free cash flow in the second half of the year. On capital expenditures, we spent roughly $21 million in the first half of the year, and expect full year spending on capital of roughly $50 million.

Jeff McRae: On capital expenditures, we spent roughly $21 million in the H1 of the year and expect full year spending on capital of roughly $50 million, weighted toward the qualified capacity and efficiency investments that support the production ramps Trip referenced earlier. Turning to our balance sheet, our June offering of approximately 34.2 million primary shares at $20 per share generated $635.7 million of net proceeds, and we used $626.2 million to repay term loan principal, our drawn revolver balance, and accrued interest. Total debt as of 30 June was $405.8 million, down from $643.4 million at year-end. Net debt was $387.7 million with a cash balance of $18.1 million as of the quarter end. We had our full $125 million available under our revolver. Net leverage based on pro forma trailing 12-month earnings was roughly 2.7 times. Now to our outlook.

Speaker #1: Weighted toward the qualified capacity and efficiency investments that support the production ramps trip referenced earlier. Turning to our balance sheet, our June offering of approximately 34.2 million primary shares at $20 per share generated $635.7 million.

Speaker #1: Of net proceeds. And we used $626.2 million to repay term loan principal our drawn revolver balance and accrued interest. Total debt as of June 30 was $405.8 million.

Jeff McRae: Total debt as of 30 June was $405.8 million, down from $643.4 million at year-end. Net debt was $387.7 million with a cash balance of $18.1 million as of the quarter end. We had our full $125 million available under our revolver. Net leverage based on pro forma trailing 12-month earnings was roughly 2.7 times. Now to our outlook. For the full year of 2026, we expect total revenue between $670 million and $690 million, and non-GAAP adjusted EBITDA between $150 million and $155 million.

Speaker #1: Down from $643.4 million at year-end. Net debt was $387.7 million, with a cash balance of $18.1 million. As of the quarter end, we had our full $125 million available under our revolver.

Speaker #1: Net leverage based on pro forma trailing 12-month earnings was roughly 2.7 times. Now to our outlook. For the full year 2026, we expect total revenue between $670 million and $690 million.

Jeff McRae: For the full year of 2026, we expect total revenue between $670 million and $690 million, and non-GAAP adjusted EBITDA between $150 million and $155 million. It is important to note that we have strong backlog coverage supporting our outlook for the H2 of the year and well into 2027 and beyond. We expect that revenue will build through the balance of 2026, with the Q4 being our most significant quarter. From a supply chain perspective, we are seeing the same environment many of our peers and customers are, and we are actively working to mitigate some supply chain congestion. We see paths to resolution, but will continue to monitor closely. On the material side, we are making a number of forward investments to support growth initiatives and are seeing some raw material inflation as oil prices remain high and impact other inputs.

Speaker #1: And non-gap adjusted EBITDA between $150 million and $155 million. It is important to note that we have strong backlog coverage supporting our outlook for the second half of the year.

Jeff McRae: It is important to note that we have strong backlog coverage supporting our outlook for the H2 of the year and well into 2027 and beyond. We expect that revenue will build through the balance of 2026, with the Q4 being our most significant quarter. From a supply chain perspective, we are seeing the same environment many of our peers and customers are, and we are actively working to mitigate some supply chain congestion.

Speaker #1: And well into 2027 and beyond. We expect that revenue will build through the balance of 2026, with the fourth quarter being our most significant quarter.

Speaker #1: From a supply chain perspective, we are seeing the same environment many of our peers and customers are. And we are actively working to mitigate some supply chain congestion.

Jeff McRae: We see paths to resolution, but will continue to monitor closely. On the material side, we are making a number of forward investments to support growth initiatives and are seeing some raw material inflation as oil prices remain high and impact other inputs. To date, this has primarily been confined to aluminum and has thus far been relatively immaterial. Two last items for modeling. We expect our full year 2026 effective tax rate to be approximately 7%, which reflects certain items recognized this year rather than our long-term tax rate that we would expect.

Speaker #1: We see past the resolution, but we'll continue to monitor closely. On the materials side, we are making a number of forward investments to support growth initiatives.

Speaker #1: And we are seeing some raw material inflation, as oil prices remain high and impact other inputs. To date, this has primarily been confined to aluminum and has thus far been relatively immaterial.

Jeff McRae: To date, this has primarily been confined to aluminum and has thus far been relatively immaterial. Two last items for modeling. We expect our full year 2026 effective tax rate to be approximately 7%, which reflects certain items recognized this year rather than our long-term tax rate that we would expect. We had 172.4 million shares outstanding at 30 June, against a weighted average of 148.2 million for the quarter. Our expectations for the full year are essentially unchanged. Relentless execution, proactively managing our supply chains, and working up the learning curve on new programs that are in ramp mode all bode well for 2027 and beyond. With that, let me turn it back to Trip.

Speaker #1: Two last items for modeling. We expect our full-year 2026 effective tax rate to be approximately 7%, which reflects certain items recognized this year, rather than our long-term tax rate that we would expect.

Jeff McRae: We had 172.4 million shares outstanding at 30 June, against a weighted average of 148.2 million for the quarter. Our expectations for the full year are essentially unchanged. Relentless execution, proactively managing our supply chains, and working up the learning curve on new programs that are in ramp mode all bode well for 2027 and beyond. With that, let me turn it back to Trip.

Speaker #1: And we had 172.4 million shares outstanding at June 30, against a weighted average of 148.2 million for the quarter. Our expectations for the full year are essentially unchanged.

Speaker #1: Relentless execution, proactively managing our supply chains, and working up the learning curve on new programs that are in ramp mode, all bode well for 2027 and beyond.

Speaker #1: And with that, let me turn it back to Trip.

Trip Ferguson: Hey, thanks, Jeff. Before we open the call for questions, I would like to lay out our priorities for the H2 of the year. There are three. First, drive operational excellence in building Applied right. That means operational excellence at the enterprise level and within every site, playing offense within our supply chain, pulling all the right levers to drive efficiencies and exceptional performance, and accelerating the development programs that are ramping today into the growth programs of tomorrow. Building Applied right also means bringing our enterprise together the right way and making sure we have the right leaders and talent base for opportunities set ahead of us. That is what I mean when I say we are building Applied to endure. Second, coordinating and thoughtfully triaging a dynamic new business pipeline.

Speaker #2: Hey, thanks, Jeff. Before we open the call for questions, I'd like to lay out our priorities for the second half of the year. There are three.

Speaker #2: First, drive operational excellence in building Applied right. That means operational excellence at the enterprise level and within every site. Playing offense within our supply chain, pulling all the right levers to drive efficiencies and exceptional performance, and accelerating the development programs that are ramping today into the growth programs of tomorrow.

Trip Ferguson: Building Applied right also means bringing our enterprise together the right way and making sure we have the right leaders and talent base for opportunities set ahead of us. That is what I mean when I say we are building Applied to endure. Second, coordinating and thoughtfully triaging a dynamic new business pipeline. As Chris Rogers said earlier, we have exceptional momentum with the large primes we have served for decades and real opportunity with high potential customers we are working with for the first time.

Speaker #2: Building applied right also means bringing our enterprise together the right way and making sure we have the right leaders and talent base for opportunities set ahead of us.

Speaker #2: That is what I mean when I say we are building applied to endure. Second, coordinating and thoughtfully triaging a dynamic new business pipeline. As Chris said earlier, we have exceptional momentum with a large primes we serve for decades.

Trip Ferguson: As Chris Rogers said earlier, we have exceptional momentum with the large primes we have served for decades and real opportunity with high potential customers we are working with for the first time. That pipeline is dynamic enough that choosing well matters as much as winning, and we are particularly excited about what lies ahead here. And third, executing on our high growth and next generation program ramps while continuing to invest ahead of demand and capacity and capabilities. Getting high potential programs advancing towards full rate production on schedule and at the right cost is one of the most important things we will be doing this year. With that, let me close where I started. Applied Aerospace & Defense was purpose-built for this moment.

Speaker #2: And real opportunity with high potential customers we're working with for the first time. That pipeline is dynamic enough that choosing well matters as much as winning.

Trip Ferguson: That pipeline is dynamic enough that choosing well matters as much as winning, and we are particularly excited about what lies ahead here. And third, executing on our high growth and next generation program ramps while continuing to invest ahead of demand and capacity and capabilities. Getting high potential programs advancing towards full rate production on schedule and at the right cost is one of the most important things we will be doing this year. With that, let me close where I started. Applied Aerospace & Defense was purpose-built for this moment.

Speaker #2: And we're particularly excited about what lies ahead here. And third, executing on our high growth and next-generation program ramps. While continuing to invest ahead of demand and capacity and capabilities.

Speaker #2: Getting high potential programs advancing towards full rate production on schedule and at the right cost is one of the most important things we'll be doing this year.

Speaker #2: So with that, let me close where I started. Applied was purpose-built for this moment. We have differentiated capabilities and operating philosophy that our customers value.

Trip Ferguson: We have differentiated capabilities and operating philosophy that our customers value, long-tenured relationships with excellent customers, diversified and embedded positions across enduring programs of record and next generation growth programs, and the qualified capacity to serve them all. Our job for the balance of this year is execution. And I will tell you that I am even more optimistic about what is in front of this company today than I was a quarter ago. Before we open up to questions, I would like to once again personally thank our team members whose work produced this quarter, customers for their trust, our service members for their commitment to our nation, and our shareholders for their confidence. With that, operator, we are ready to take questions.

Speaker #2: Long-tenured relationships with excellent customers diversified and embedded positions across enduring programs of record and next-generation growth programs. And the qualified capacity to serve them all.

Speaker #2: Our job for the balance of this year's execution. And I'll tell you that I'm even more optimistic about what is in front of this company today than I was a quarter ago.

Speaker #2: Before we open it up to questions, I'd like to once again personally thank our team members whose work produced this quarter, our customers for their trust, our service members for their commitment to our nation, and our shareholders for their confidence.

Speaker #2: With that, operator, we're ready to take questions.

Operator 2: Thank you. We will now be conducting a question and answer session. We ask that you please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Sheila Kahyaoglu with Jefferies. Please proceed with your question.

Operator: Thank you. We will now be conducting a question and answer session. We ask that you please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Sheila Kahyaoglu with Jefferies. Please proceed with your question.

Speaker #3: Thank you. We will now be conducting a question and answer session. We ask that you please limit yourself to one question and one follow-up.

Speaker #3: If you'd like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker #3: You may press star two if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker #3: One moment, please, while we pull for questions. Our first question is from Sheila Kalu with Jefferies. Please proceed with your question.

Sheila Kahyaoglu: Thank you, and good morning, Trip Ferguson, Jeff McRae, and Chris Rogers. Congratulations on the IPO and a big milestone. I wanted to ask two questions, if possible, please. The first one on backlog. It grew to over $1.1 billion, significantly ahead of your IPO levels. Can you maybe discuss the backlog conversion as we think about it over the next 12 to 24 months, and how we think about it across Space and Launch Systems, Defense Aviation and Airborne Systems, and Precision Strike Systems?

Speaker #4: Thank you. And good morning, Trip, Jeff, and Chris. Congratulations on the IPO and a big milestone. I wanted to ask two questions if possible.

Speaker #4: Please the first one on backlog. It grew to over 1.1 billion significantly ahead of your IPO levels. Can you maybe discuss the backlog conversion as we think about it over the next 12 to 24 months and how we think it about it across space, defense, aviation, and precision strike?

Jeff McRae: Yeah, sure, Sheila. Generally, as we look at backlog, we generally view it as a 12 to 18 month forward view on the business. As we think of conversion of it for 2026, we effectively have the balance of the year sitting in firm backlog. It is all about then execution. As we look forward into 2027, roughly about half of that backlog should convert to revenue in 2027. The balance of 2027 will be filled out by existing long-term agreements where additional orders drop into backlog over time. Then it starts positioning us as we start thinking into 2028. So very confident. We love the firm backlog of this business. It gives us great visibility as we view the forward view of the business. It really is strong across all three end markets.

Speaker #2: Yeah, sure, Sheila. Generally, as we look at backlog, we generally view it as a 12 to 18-month forward view on the business. As we think of conversion of it, for 2026, we effectively have the balance of the year sitting in firm backlog.

Speaker #2: And it's all about execution. As we look forward into 2027, roughly half of that backlog should convert to revenue in 2027. The balance of 2027 will be filled out by existing long-term agreements, where additional orders drop into the backlog over time.

Jeff McRae: Then it starts positioning us as we start thinking into 2028. So very confident. We love the firm backlog of this business. It gives us great visibility as we view the forward view of the business. It really is strong across all three end markets. We do not provide specific values across the three end markets, but I would say we are in great shape 2026, 2027, as we think backlog conversion across all three end markets.

Speaker #2: And then it starts positioning us as we start thinking into 2028. So very confident we love the firm backlog of this business. It gives us great visibility as we view the forward view of the business.

Speaker #2: It really is strong across all three end markets. We do not provide specific values across the three end markets, but I would say we're in great shape.

Jeff McRae: We do not provide specific values across the three end markets, but I would say we are in great shape 2026, 2027, as we think backlog conversion across all three end markets.

Speaker #2: 2026, 2027, as we think backlog conversion across all three end markets.

Sheila Kahyaoglu: Maybe as a follow-up, just to support that growth, can you discuss some of the working capital investments you are making just to support the business going forward?

Speaker #4: Maybe as a follow-up, just to support that growth, can you discuss some of the working capital investments you're making as just to support the business going forward?

Jeff McRae: Yeah. We are obviously making sure that we are prepared for the growth in the business, both from a working capital, but also from a capital facility and equipment standpoint. As we have talked in the past, we have forward investment in the business to support demand signals that we have there. We continue to do that through 2026. As we mentioned, we have roughly $50 million of capital going into the business. That is combined then with working capital growth, really that is supporting that ramp in revenue through the second half of the year.

Speaker #2: Yeah, I mean, we're obviously making sure that we are prepared for the growth in the business, both from a working capital, but also from a capital facility and equipment standpoint.

Speaker #2: As we've discussed in the past, we have continued to invest ahead in the business to support the demand signals we see. We will continue to do that through 2026.

Speaker #2: As we mentioned, we have roughly $50 million of capital going into the business. That is combined then with working capital growth. Really, that is supporting that ramp and revenue through the second half of the year.

Trip Ferguson: Sheila, I would also add, we are incredibly excited about 2027 and beyond. We are seeing the same demand signals that many of the primes and our customers are seeing. We are preparing for success.

Speaker #3: Sheila, I would also add,

Speaker #1: we're incredibly excited about 2027 and beyond. We are seeing the same demand signals that many of the primes and our customers are seeing. And so we're preparing for success.

Sheila Kahyaoglu: That is great. Thank you.

Speaker #4: That's great. Thank you.

Operator 2: Our next question is from Ken Herbert with RBC Capital Markets. Please proceed with your question.

Operator: Our next question is from Ken Herbert with RBC Capital Markets. Please proceed with your question.

Speaker #3: Our next question is from Ken Herbert with RBC Capital Markets. Please proceed with your question.

Ken Herbert: Yeah. Hi, good morning, and congratulations again on the successful IPO. Maybe just to start, either Trip or Jeff, I guess, as we look at the 2026 guide, it implies a bit of a sequential step-up in the EBITDA margins in the H2. Maybe Jeff, can you just walk through some of the one-time or transitory headwinds to margins you saw here in the H1, and how you think about the step up? I guess underneath that is some implied assumptions maybe on some of the costs coming down on some of the newer programs that are ramping.

Speaker #5: Yeah, hi, good morning. And congratulations again on the successful IPO. Maybe just to start, either Trip or Jeff, I guess. As we look at the 2026 guide, it implies a bit of a sequential step-up in the EBITDA margins in the second half.

Speaker #5: Maybe, Jeff, can you just walk through some of the one-time or transitory headwinds to margins you saw here in the first half, and how you think about the step-up?

Speaker #5: And I guess underneath that is some implied assumptions maybe on some of the costs coming down on some of the newer programs that are ramping.

Jeff McRae: Yeah. I would say that the most significant driver is that point there, Ken Herbert. As we look at the H1 of the year, we did see some compression on margins related to startup new development programs. As those programs start to mature through the H2 of the year, we will see margin expansion there. If I look at the H1 of the year, roughly 20% of the revenue related to those startup programs. As we think about it, we tend to get through a handful of initial production units before we start seeing normalized margins, so working up the learning curve, getting through the engineering. That is what really kind of drives the H2 of the year.

Speaker #2: Yeah. I would say that the most significant driver is that point there, Ken. As we look at the first half of the year, we did see some compression on margins.

Speaker #2: Related to startup and new development programs, as those programs start to mature through the second half of the year, we will see margin expansion there.

Speaker #2: If I look at the first half of the year, roughly 20% of the revenue related to those startup programs, and as we think about it, we tend to get through a handful of initial production units before we start seeing normalized margins.

Speaker #2: So, working up the learning curve, getting through the engineering—that is what really kind of drives the second half of the year. There are some mixed dynamics as well, as we always have, that's helping us in the second half of the year.

Jeff McRae: There are some mixed dynamics as well as we always have that that is helping us in the H2 of the year as we see that growth in revenue.

Speaker #2: As we see that growth in revenue.

Ken Herbert: Thanks, Jeff. Maybe as a follow-up, Trip Ferguson, one of your first points as you called out H2 priorities was the operational excellence piece. Can you just level set us on where you see integration across the Applied portfolio, and what would be some of the next major steps as you think about operational excellence, or I guess with that backdrop, integration of the various businesses and where you are on that journey?

Speaker #5: Thanks, Jeff. And maybe as a follow-up, Trip, one of your first points as you called out second half priorities, was the operational excellence piece.

Speaker #5: Can you just level-set us on where you see integration across the Applied portfolio, and what would be some of the next major steps as you think about operational excellence?

Speaker #5: Or I guess with that backdrop, integration of the various businesses and where you are on that journey.

Trip Ferguson: Yeah, for sure. We are ahead of schedule, bottom line up front. We have great alignment of all of our senior leaders. We have seen both people, process, and system come together extremely well. One of the things that is a really bright spot is we have seen synergies across sites driving revenue on opportunities supporting our customers. So an example with an emerging innovator who has a Go Fast program, we have been able to leverage our capabilities in a new, thoughtful way that is helping accelerate that program. Just the key takeaway is, we feel really comfortable with where we stand today, and we believe we will really benefit through the H2 of the year, but most importantly, going into 2027. It will really help us grow the business in all the right ways.

Speaker #2: Yeah, for sure. We are ahead of schedule. Bottom line up front: we have great alignment among all of our senior leaders. We have seen people, process, and systems come together extremely well.

Speaker #2: One of the things that's a really bright spot is we have seen synergies across sites driving revenue on opportunities supporting our customers. So, an example with an emerging innovator who has a Go Fast program—we've been able to leverage our capabilities in a new, thoughtful way that's helping accelerate that program.

Speaker #2: The key takeaway is that we feel really comfortable with where we stand today, and we believe we'll benefit in the second half of the year.

Speaker #2: But most importantly, going into '27. And it'll really help us grow the business in all the right ways.

Ken Herbert: Great. Thank you very much.

Speaker #5: Great. Thank you very much.

Operator 2: Our next question is from Peter Arment with Baird. Please proceed with your question.

Operator: Our next question is from Peter Arment with Baird. Please proceed with your question.

Speaker #3: Our next question is from Peter Arment with Baird. Please proceed with your question.

Peter Arment: Yeah. Hey, good morning, Trip, Chris, Jeff, and I'll echo everyone else's sentiments. Congrats on the quarter and the IPO. Trip, maybe you could talk a little bit about Space and Launch Systems. You guys have exposure to New Glenn, and there's been, obviously, an anomaly there. Just wondering how you think about the business for the H2 and going forward.

Speaker #1: Yeah. Hey, good morning, Trip, Chris, Jeff. And I'll echo everyone else's sentiments—congrats on the quarter and the IPO. Trip, maybe you could talk a little bit about space and launch.

Speaker #1: You guys have exposure to New Glenn and there's been obviously an anomaly there. Just wondering how you think about the business for the second half and going forward.

Trip Ferguson: Yeah. Good morning. Thank you for the question. I feel really optimistic about the space economy in general. What I would say, all indicators and direction from Blue Origin have been to continue moving at pace. We have not slowed down, so that reflects also their public statements. I would say we also see a lot of good tailwinds across, I would say, other emerging areas within space. One area that we've seen growth is really in our proprietary tank business as well. All in all, I would say very exciting, very positive, and we're preparing to really ramp throughout 2027.

Speaker #2: Yeah, good morning. Thank you for the question. I feel really optimistic about the space economy in general. What I would say, all indicators and direction from Blue Origin have been to continue moving at pace.

Speaker #2: We have not slowed down. So that reflects also their public statements. And I would say we also see a lot of good tailwinds across I would say other emerging areas within space.

Speaker #2: And one area that we've seen growth is really in our proprietary tank business as well. So all in all, I would say very exciting, very positive, and we're preparing to really ramp throughout '27.

Peter Arment: Got it. Appreciate that. Then just as a follow-up, if you could. A lot of the framework agreements are starting to get firmed up, or at least some of them are. Could you talk a little bit about your exposure there and when you expect to start seeing things flow to Applied? Thanks.

Speaker #1: Got it. Appreciate that. And then, just as a follow-up, if you could— a lot of the framework agreements are starting to get firmed up, or at least some of them are.

Speaker #1: Could you talk a little bit about your exposure there and when you expect to start seeing things flow to apply? Thanks.

Trip Ferguson: Yeah. I am going to pass it over to Chris and let him. He has been working that directly.

Speaker #2: Yep. I'm going to pass it over to Chris and let him—he's been working that directly.

Chris Rogers: Sure. To start off with, we have got deep content already across a range of the programs that you are seeing in the headlines. So a big part of our forward ramp is tied to those programs. We are also working a range of opportunities we are pretty excited about. At the time we were last speaking, I know we did touch on sole source revenue, single source revenue being kind of in the 86% range. Our expectation is that will go down, in part because a lot of the opportunities we are seeing to dual source are ones that are very attractive. They offer us an opportunity to showcase a lot of what we do best in terms of kind of moving fast and being cost-effective. So a lot there, and probably some more things you will see from us in the near term.

Speaker #3: Sure. To start off with, we've got deep content already across a range of the programs that you're seeing in the headlines. So a big part of our forward ramp is tied to those programs.

Speaker #3: We are also working on a range of opportunities. We're pretty excited about the time we were last speaking. I know we did touch on Sole Source revenue, single source revenue being kind of in the 86% range.

Speaker #3: Our expectation is that will go down in part because a lot of the opportunities we're seeing to dual source are ones that are very attractive they offer us an opportunity to showcase a lot of what we do best in terms of kind of moving fast and being cost-effective.

Speaker #3: So a lot there and probably some more things you'll see from us in the near term.

Peter Arment: Appreciate it. Thanks, Chris.

Speaker #1: Appreciate it. Thanks, Chris.

Operator 2: Our next question is from Kristine Liwag with Morgan Stanley. Please proceed with your question.

Operator: Our next question is from Kristine Liwag with Morgan Stanley. Please proceed with your question.

Speaker #3: Our next question is from Kristen Lewag with Morgan Stanley. Please proceed with your question.

Kristine Liwag: Hey, good morning, everyone. I wanted to follow up on the working capital question that was asked earlier. When we think about the timing of the cadence, should we think about H1 as being a negative use of cash or working capital and H2 as positive? Is that the normal run rate for the business, or are there any one-time items, excluding the IPO stuff, that make this pattern like this year?

Speaker #4: Hey, good morning, everyone. I wanted to follow up on the working capital question that was asked earlier. So when we think about the timing of the cadence, should we think about one H as being a negative use of cash or working capital and second H as positive?

Speaker #4: Is that the normal run rate for the business? Or are there any one-time items excluding the IPO stuff that make this pattern like this this year?

Jeff McRae: Thanks for the question, Kristine. Yeah, I think you have it pretty much in line. We will see the conversion to cash of the growth in working capital we saw in H1, which really is supporting the revenue generation that we see in Q3 with growth then in Q4. I would generally see a pretty linear growth with working capital as we move forward into 2027 and continue to see growth in the business, where you'll see some step up. You'll see ups and downs by quarters, depending on total revenue volume.

Speaker #2: Thanks for the question, Christine. Yeah, I think you have it pretty much in line. We will see the conversion to cash of the growth in working capital we saw in the first half of the year, which really is supporting the revenue generation that we see in Q3 with growth then in Q4.

Speaker #2: I would generally see a pretty linear growth with working capital. As we move forward into 2027 and continue to see growth in the business, where you'll see some step up.

Speaker #2: You'll see ups and downs by quarters. Depending on kind of total revenue volume.

Kristine Liwag: Okay, great. Just to confirm, we shouldn't think of this as the pattern where going forward, H1 is a usage of cash, H2 is a generation on an annual basis. This is just the pattern for this year?

Speaker #4: Okay, great. Just to confirm, we shouldn't think of this as the pattern where, going forward, one H is a usage of cash, two H is a generation on an annual basis.

Speaker #4: This is just the pattern for this year.

Jeff McRae: Yeah, that's correct. We'll lay out 2027 in the future for you and give you a little bit more clarity there.

Speaker #2: Yeah, that's correct. And we'll lay out 2027 in the future for you and give you a little bit more clarity there.

Kristine Liwag: Great. Super helpful. If I could follow up on Starship, perhaps. The Starship, SpaceX's Starship continues to hit some of its launch milestones. I was wondering, can you provide any color on the progress of potentially being a supplier to Starship? How far along are those conversations? If that were to proceed, when should we expect potential timing?

Speaker #4: Great, super helpful. And if I could follow up on Starship—perhaps SpaceX's Starship continues to hit some of its launch milestones. I was wondering, can you provide any color on the progress of potentially being a supplier to Starship?

Speaker #4: How far along are those conversations? And if that were to proceed, when should we expect potential timing?

Chris Rogers: Sure. A couple of things to touch on there. SpaceX is a very important customer for us. We view ourselves as that. It's a SpaceX relationship, while we have meaningful Falcon 9 content, relationship is with SpaceX, so we're working a range of things related to Starship today. We're also seeing Falcon 9 orders continue to come in. I think our expectation there is that that will run through 2030, which is consistent with what SpaceX is sharing. I think we're also expecting that for a range of applications, we've got capability that's likely relevant to kind of future state of Starship. When you think about some of what we're doing on composites, while the overwhelming design of Starship ties into metal, there's things as it relates to payloads and others that we think are going to be really relevant. A number of those we're working already.

Speaker #2: Sure. It's a couple of things to touch on there. So SpaceX is a very important customer for us. We view ourselves as that. It's a SpaceX relationship.

Speaker #2: So while we have meaningful Falcon 9 content, relationship is with SpaceX. So we're working a range of things related to Starship today. We're also seeing Falcon 9 orders continue to come in.

Speaker #2: I think our expectation there is that that will run through 2030, which is consistent, I think, with what SpaceX is sharing. I think we're also expecting that for a range of applications, we've got capability that's likely relevant to kind of future state of Starship when you think about some of what we're doing on composites.

Chris Rogers: When you think about some of what we're doing on composites, while the overwhelming design of Starship ties into metal, there's things as it relates to payloads and others that we think are going to be really relevant. A number of those we're working already. We'd also think that as it relates to kind of SpaceX, there's probably upside, although we've kind of conservatively modeled to be in line with SpaceX's expectations. There's probably a good chance that Falcon 9 actually runs longer. So that's how we're approaching it today and feel very bullish about opportunities that are on Starship and our work on it.

Speaker #2: While the overwhelming design of Starship ties into metal, there's things that it relates to payloads and others that we think we're going to be really relevant.

Speaker #2: A number of those we're working already. We also think that as it relates to kind of SpaceX, there's probably upside although we've kind of conservatively modeled to be in line with SpaceX's expectations, there's probably a good chance that Falcon 9 actually runs longer.

Chris Rogers: We'd also think that as it relates to kind of SpaceX, there's probably upside, although we've kind of conservatively modeled to be in line with SpaceX's expectations. There's probably a good chance that Falcon 9 actually runs longer. So that's how we're approaching it today and feel very bullish about opportunities that are on Starship and our work on it.

Speaker #2: So that's how we're approaching it today and feel very bullish about opportunities to have in Starship and our work on it.

Kristine Liwag: Great. Thank you very much.

Speaker #4: Great. Thank you very much.

Operator 2: Our next question is from Myles Walton with Wolfe Research. Please proceed with your question.

Operator: Our next question is from Myles Walton with Wolfe Research. Please proceed with your question.

Speaker #3: Our next question is from Miles Walton with Wolf Research. Please proceed with your question.

[Analyst] (Wolfe Research): Morning, everyone. This is actually Emily on for Myles. Thanks for taking my question, and congrats on the IPO. Just quick question on the budget landscape. The Senate and the House both voting for CRs to go through at least early to mid-December. How are you guys thinking about that in terms of impact to your guide? Are there any specific programs that are on your radar that could be impacted by any funding constraints, or are you all pretty much agnostic to the CR?

Speaker #4: Good morning, everyone. This is actually Emily on for Miles. Thanks for taking my question and congrats on the IPO. Just quick question on the budget landscape.

Speaker #4: The Senate and the House both voting for CRs to go through at least early to mid-December. How are you guys thinking about that in terms of impact to your guide?

Speaker #4: Are there any specific programs that are on your radar that could be impacted by any funding constraints or are you all pretty much agnostic to the CR?

Chris Rogers: Yeah, we are monitoring it closely like many of our customers and other folks that we're working with within the ecosystem. I think one of the benefits of our platform is we are very diversified. Much of our work is on long life enduring programs of record. If you think about the potential to enter into a continuing resolution environment, we're in many ways insulated from that in the near term. Particularly as Jeff touched on, a lot of our definition of backlog ties into things that are funded kind of purchase order in hand. We are monitoring, thinking about some of the things that will be impacted through some of these ramps on next gen programs that probably ties more into kind of outlook for 2027. So that's something we're going to be tied in there is in terms of just potential implications probably beyond this year.

Speaker #2: Yeah, we are monitoring it closely, like many of our customers and other folks that we're working with within the ecosystem. I think one of the benefits of our platform is we are very diversified.

Speaker #2: Much of our work is on long life and during programs of record. And so if you think about the potential to enter into a continuum resolution environment, we're in many ways insulated from that in the near term, particularly as Jeff touched on, a lot of our definition of backlog ties into things that are funded kind of purchase order in hand.

Speaker #2: We are monitoring because, when you think about some of the things that will be impacted in terms of some of these ramps on next-gen programs, that probably ties more into kind of the outlook for '27.

Speaker #2: And so that's something we're going to be tied into there, in terms of just potential implications, probably beyond this year.

[Analyst] (Wolfe Research): Got it. Thanks. Then one follow-up. In Defense Aviation, with the MV-75 being a key growth driver, are you all seeing any impact from the funding gap that Textron is at least attempting to cover?

Speaker #4: Got it. Thanks. And then one follow-up. In defense aviation with the MV 75 being a key growth driver, are you all seeing any impact from the funding gap that Textron is at least attempting to cover?

Trip Ferguson: Good morning. To date, we have not. We have been directed to continue moving forward. It is a monitoring watch item for our team, but we view any near-term headwinds that could come as just near-term. We believe that program has very strong backing, and we are very excited about it in 2027 and 2028 and beyond.

Speaker #2: Yeah, good morning. To date, we have not. We have been directed to continue moving forward. It is a monitoring watch item for our team, but we view any near-term kind of headwinds that could come as just near-term.

Speaker #2: We believe that program has very strong, strong backing and we're very excited about it in 2027, '28, and beyond.

[Analyst] (Wolfe Research): Thank you.

Speaker #4: Thank you.

Operator 2: Our next question is from Jonathan Siegmann with Stifel. Please proceed with your question.

Operator: Our next question is from Jonathan Siegmann with Stifel. Please proceed with your question.

Speaker #3: Our next question is from Jonathan Sigman with Stifel. Please proceed with your question.

Jonathan Siegmann: Good morning, Trip, Chris, and Jeff. Thanks for taking my question. On these new multi-year munition deals, they are new for the industry. Can you talk about what it means as a supplier? Specifically, is there any trade-off going on with pricing and margins for this longer-term visibility on these programs? Thank you.

Speaker #5: Good morning, Trip, Chris, and Jeff. Thanks for taking my question. On these new multi-year munition deals, there are new for the industry. Can you talk about what it means as a supplier and specifically, is there any trade-off going on with pricing and margins for this longer-term visibility on these programs?

Speaker #5: Thank you.

Chris Rogers: Sure. We are actively working a number of multi-year agreements. Part of where we have been very forward, I think, has been forward invest in terms of some of the capacity. From a pricing standpoint, our end point is to deliver value. Much of that ties to the speed at which we can deliver. What we are seeing there are things that are really good fits for our platform. If you look at what we can deliver relative to the customer set, it is pricing that works, pricing that is fair, pricing that delivers a high level of value, and I think exactly the type of capabilities that the nation needs.

Speaker #2: Sure. We are actively working a number of multi-year agreements. Part of where we've been very forward, I think, has been forward investing in terms of some of the capacity.

Speaker #2: From a pricing standpoint, I mean, our endpoint is to deliver value. And so much of that ties to kind of the speed at which we can deliver.

Speaker #2: And what we're seeing there, are things that are really good fits for our platform. And so if you look at kind of what we can deliver relative to kind of the customer set, it's pricing that works, pricing that's fair, pricing delivers a high level of value.

Chris Rogers: If you look at what we can deliver relative to the customer set, it is pricing that works, pricing that is fair, pricing that delivers a high level of value, and I think exactly the type of capabilities that the nation needs. These are all fairly real time in terms of what we are working, but we are pretty bullish in terms of what that means for both the mission, getting a lot of this kit into the hands of our customers, and ultimately out to the war fighters.

Speaker #2: And I think exactly kind of the type of capabilities of kind of the nation needs. So these are all fairly real-time in terms of what we're working, but we're pretty bullish in terms of kind of what that means for both the mission, getting a lot of this kit kind of into the hands of our customers and ultimately out to the warfighters.

Chris Rogers: These are all fairly real time in terms of what we are working, but we are pretty bullish in terms of what that means for both the mission, getting a lot of this kit into the hands of our customers, and ultimately out to the war fighters.

Trip Ferguson: Yeah. John, I would add, one of the great things about good visibility, volume, it really allows you to provide efficiency in your manufacturing operations. That is one thing that we are very focused on as we think about how we support mission and customer in the areas you asked about.

Speaker #2: Yep. And John, I would add that one of the great things about good visibility and volume is that it really allows you to provide efficiency in your manufacturing operations.

Speaker #2: And so that's one thing that we are very focused on as we think about how we support mission and customer and the areas you asked about.

Jonathan Siegmann: Thank you. Then you've highlighted consistently some great exposures to some of the name brand programs that we're all familiar with. But when we think about the push for lower cost, affordable mass, can you just talk about how your capabilities might fit with some of those lower cost programs and whether that's a fit for your capabilities? Thank you.

Speaker #5: Thank you. And then you highlighted consistently some great exposures to some of the name brand programs that we're all familiar with. But when we think about the push for lower cost, affordable mass, can you just talk about how your capabilities might fit with some of those lower cost programs and whether that's a fit for your capabilities?

Speaker #5: Thank you.

Chris Rogers: That's an area we're actively working with a range of customers who I would consider non-traditional new entrants. Our capability set's incredibly relevant to them. Why? Because we can be super responsive from some of the early stage prototype working to also ability to ramp. While we've not publicly disclosed some of the work that we're doing, many of those are folks that are non-traditionals that are aiming to deliver that type of very kind of cost effective, higher volume type of capability. So it will be more of the future state of our business, for sure.

Speaker #2: In that scenario, we are actively working with a range of customers who I would consider kind of non-traditional new entrants. Our capability sets are incredibly relevant to them.

Speaker #2: Why? Because we can be super responsive from some of the early-stage prototype working to also ability to ramp. And so while we've not publicly disclosed some of the work that we're doing many of those are folks that are non-traditionals that are aiming to deliver that type of very kind of cost-effective higher volume type of capability.

Speaker #2: So it will be more of kind of the future state of our business for sure. Yeah, wide playbook drives us to have discipline and focus.

Trip Ferguson: The Applied playbook drives us to have discipline and focus. We are working to partner with the teams and new emerging innovators that we believe will have long-term success. Not everything that looks flashy. So we're just being very disciplined as we look forward.

Speaker #2: We are working to partner with the teams and new emerging innovators that we believe will have long-term success—not everything that looks flashy. So, we're just being very disciplined as we look forward.

Jonathan Siegmann: Thank you.

Trip Ferguson: Thank you.

Speaker #5: Thank you.

Operator 2: We have reached the end of the question and answer session. I would like to turn the floor back over to Trip Ferguson for closing comments.

Operator: We have reached the end of the question and answer session. I would like to turn the floor back over to Trip Ferguson for closing comments.

Speaker #3: We have reached the end of the question and answer session. I would like to turn the floor back over to Trip Ferguson for closing comments.

Trip Ferguson: Yeah. Thank you, operator. Thank you all for joining us. We look forward to updating you in November. And once again, thank you to the team at Applied for all of your hard work and effort and focus on mission.

Speaker #2: Yeah, thank you, operator. Thank you all for joining us. We look forward to updating you in November. And once again, thank you to the team at Apply for all of your hard work and effort and focus on mission.

Operator 2: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Q2 2026 Applied Aerospace & Defense Inc Earnings Call

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