Applied Aerospace & Defense (AADX) Q2 FY26 earnings call: guidance and Q&A

Can you discuss the backlog conversion over the next 12-24 months and the working capital investments supporting future growth?

Backlog provides 12-18 months of forward visibility, with the balance of 2026 revenue already in firm backlog. Approximately half of the backlog is expected to convert to revenue in 2027. A $36 million working capital build in H1 FY26 supports H2 deliveries and is projected to convert to positive free cash flow in H2.

“As we look forward into '27, 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.”

asked by Sheila Kallo · answered by Unknown Executive

What drives the implied sequential step-up in EBITDA margins in the second half, considering first-half headwinds?

First-half margins were compressed by new development programs, which represented roughly 20% of H1 revenue. As these programs mature and move past initial production units, margins are expected to expand in H2 due to efficiency improvements and favorable mix dynamics.

“As we look at the first half of the year, we did see some compression on margins related to start-up new development programs as those programs start to mature through the second half of the year, we will see margin expansion there.”

asked by Ken Herbert · answered by Unknown Executive

How is the New Glenn anomaly impacting the space and launch business for the second half and going forward?

The company remains optimistic about the space economy. All indicators and directions from Blue Origin suggest continuing at pace with no slowdown, which is consistent with their public statements. Growth is also observed in the proprietary tank business.

“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.”

asked by Peter Arment · answered by James Ferguson

Is the H1 cash usage and H2 cash generation pattern normal for the business, or specific to this year?

The H1 cash usage and H2 cash generation pattern is specific to this year, driven by the working capital build to support H2 deliveries. Going forward, working capital growth is expected to be more linear with revenue, with quarterly fluctuations.

“Yes, that's correct. And we'll lay out 2027 in the future for you and give you a little bit more [indiscernible].”

asked by Kristine Liwag · answered by James Ferguson

What is the progress on potentially supplying Starship, and when could it materialize?

SpaceX is a very important customer, and the company is working on a range of things related to Starship. They see their capabilities, particularly in composites for payloads, as relevant to Starship's future state. Falcon 9 orders are expected to continue through 2030, with potential for longer duration.

“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.”

asked by Kristine Liwag · answered by Unknown Executive

How does the potential for Continuing Resolutions (CRs) impact the company's guidance and specific programs?

The company is diversified with work on long-life enduring programs, which provides insulation from near-term CR impacts, as backlog is tied to funded purchase orders. CRs might impact next-gen program ramps, potentially affecting the 2027 outlook, but not expected to materially impact current year guidance.

“Much of our work is on long life enduring programs of record. And so if you think about the potential to enter into a continuing resolution environment, we are, 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.”

asked by Emily · answered by James Ferguson

What do new multiyear munition deals mean for the company as a supplier, and are there trade-offs with pricing/margins for longer visibility?

The company is actively working multiyear agreements and has forward-invested in capacity. Pricing is fair and delivers high value, fitting the platform's capabilities. Good visibility and volume from these agreements allow for increased efficiency in manufacturing operations.

“One of the great things about good visibility volume, it really allows you to provide efficiency in your manufacturing operations. And so that's one thing that we are very focused on as we think about how we support mission and customer in the areas you asked about.”

asked by Jonathan Siegmann · answered by Unknown Executive