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    AADX
    Earnings call· Jun 2026(Q2 FY26)

    Applied Aerospace & Defense Q2 FY26 earnings call AADX

    Aug 12, 2026 Source

    Executive summary

    Applied Aerospace & Defense Q2 FY26 — Record Revenue and Backlog Post-IPO

    Applied Aerospace & Defense reported record Q2 FY26 revenue and backlog, driven by strong demand across its diversified end markets and a successful IPO that strengthened its balance sheet. The company is focused on operational excellence, strategic pipeline management, and executing on high-growth program ramps, despite near-term margin compression from new program ramp-ups and working capital investments to support future growth.

    Highlights

    5

    • Generated record revenue of $167.3 million, up 47.4% year-over-year (21.3% pro forma).

    • Delivered record adjusted EBITDA of $36.4 million, up 38.4%.

    • Contract backlog grew to a record of over $1.1 billion, up from $871 million at year-end.

    • Reduced pro forma net leverage to 2.7x post-IPO.

    • Strong execution on programs resulted in incremental pull-forward of revenue.

    Concerns

    5

    • Consolidated gross margin compressed to 22.2%, impacted by early-stage next-generation programs and approximately 6% from IPO-related share-based compensation.

    • Reported a net loss of $154 million, including $110 million in share-based compensation, higher interest expense, and IPO-related costs.

    • Net cash used in operating activities was $82.1 million for the first half, driven by IPO/acquisition costs, cash interest, and a $36 million working capital build.

    • Noted supply chain congestion and raw material inflation, primarily in aluminum, though deemed relatively immaterial to date.

    • Potential impact from continuing resolutions (CRs) on next-gen program ramps, primarily affecting the 2027 outlook.

    Guidance & targets

    7
    CategoryTargetConfidence
    Full year 2026 revenue
    $670 million and $690 million
    high materiality
    High
    Full year 2026 non-GAAP adjusted EBITDA
    $150 million and $155 million
    high materiality
    High
    Full year 2026 capital expenditures
    roughly $50 million
    medium materiality
    Medium
    Full year 2026 effective tax rate
    approximately 7%
    low materiality
    Medium
    Revenue cadence
    revenue will build through the balance of 2026 with the fourth quarter being our most significant quarter
    medium materiality
    High
    Free cash flow
    generating positive free cash flow
    high materiality
    High
    Backlog conversion to revenue
    roughly about half of that backlog should convert to revenue in 2027
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Space and Launch Systems
    High volumes of content supporting priority launch vehicle and satellite production programs, including SpaceX's Falcon 9 and Blue Origin's New Glenn program. Represents 23% of total revenue.
    		$38.8 million58.5%——
    Defense Aviation and Airborne Systems
    Next-generation development programs, such as the CCA Fury and MV75, are moving into production, alongside sustained aftermarket demand across a large installed base of aircraft. Represents 47% of total revenue.
    		$78.9 million4.8%——
    C5ISR and Precision Strike Systems
    Benefited from significant contributions from the CBI acquisition and strong demand signals across integrated air and missile defense systems and Precision Strike programs. Represents 30% of total revenue.
    		$49.6 million———

    Operational metrics

    20
    Revenue
    $167.3 millionup 47.4% year-over-year
    Q2 FY26

    Record revenue for the quarter.

    Adjusted EBITDA
    $36.4 millionup 38.4%
    Q2 FY26

    Record adjusted EBITDA for the quarter.

    Adjusted EBITDA margin
    21.8%compared to 23.2% in the prior year period
    Q2 FY26

    Reflects investment in business expansion and public company operations.

    Consolidated gross margin
    22.2%
    Q2 FY26

    Reflected impact of share-based compensation and lower initial margins on development programs.

    Gross margin impact from share-based compensation
    approximately 6%
    Q2 FY26

    Resulting from accelerated vesting of equity units at the IPO.

    Net loss
    $154 million
    Q2 FY26

    Included aggregate share-based compensation expense of $110 million, higher interest expense, increased intangible asset amortization, and IPO costs.

    Share-based compensation expense (accelerated vesting)
    $110 million
    Q2 FY26

    Part of the net loss for the quarter.

    Net cash used in operating activities
    $82.1 million
    H1 FY26

    Driven by elevated IPO/acquisition-related costs, cash interest, and working capital build.

    Working capital build
    roughly $36 million
    H1 FY26

    To support second half deliveries and growing contract backlog.

    Capital expenditures
    $21 million
    H1 FY26

    Part of the full year $50 million capital spending plan.

    Total debt
    $405.8 milliondown from $643.4 million at year-end
    as of June 30

    Reduced post-IPO.

    Net debt
    $387.7 million
    as of June 30

    Calculated with a cash balance of $18.1 million.

    Cash balance
    $18.1 million
    as of June 30

    As of quarter end.

    Available revolver capacity
    $125 million
    as of June 30

    Full amount available.

    Net leverage
    2.7x
    as of June 30

    Reduced post-IPO.

    Shares outstanding
    172.4 million
    as of June 30

    Total shares outstanding at quarter end.

    Weighted average shares outstanding
    148.2 million
    Q2 FY26

    For the quarter.

    Revenue tied to IP-enabled processes
    roughly 88%
    Q2 FY26

    Reflects proprietary process IP built up over decades.

    Available production capacity
    roughly 40%
    Q2 FY26

    Strategically invested ahead of programs to ramp.

    Single-source revenue
    86%
    Q2 FY26

    Management expects this percentage to go down as they pursue dual-source opportunities.

    Industry KPIs

    4
    MetricValueDetails
    Total company backlogover $1.1 billionUSD
    Program segment backlog—
    Aftermarket services split—
    Production capacity expansionmore than 1.5 million square feetsquare feet

    Orderbook & backlog

    1
    Total Contract Backlog$1.1 billionQ2 FY26

    up from $871 million at year-end

    Provides 12-18 months of forward visibility. The balance of 2026 revenue is in firm backlog. Roughly half of this backlog is expected to convert to revenue in 2027, with the remainder of 2027 filled by existing long-term agreements.

    Deals & partnerships

    2
    CBIAcquisition of CBI, contributing to C5ISR revenue.

    Acquisition reflected from its March 2 closing date forward.

    Public MarketInitial Public Offering (IPO)$635.7 million net proceeds from 34.2 million primary shares at $20 per share

    Successfully completed initial public offering in June.

    Capital programs

    1
    Capacity and Efficiency Investmentsunderwayroughly $50 million
    Period spend: roughly $21 million
    Spent to date: roughly $21 million

    Benefit: support the production ramps

    Full year spending weighted toward qualified capacity and efficiency investments that support production ramps.

    Risks & headwinds

    6
    Gross Margin Compression from New ProgramsH1 FY26, expected to improve through H2 FY26 and into 2027

    Consolidated gross margin for the quarter was 22.2%. Roughly 20% of H1 revenue related to start-up programs.

    Mitigation: Efficiencies improve as the company ascends learning curves and volumes ramp on new development programs, reaching target margin profile within the first several units.

    Net Cash Used in Operating ActivitiesH1 FY26, expected to reverse in H2 FY26

    $82.1 million net cash used in operating activities for H1 FY26, including a working capital build of roughly $36 million.

    Mitigation: Working capital is expected to convert back to cash as second-half deliveries occur, projecting positive free cash flow in H2 FY26.

    Supply Chain Congestion

    Not quantified, described as 'the same environment many of our peers and customers are seeing'.

    Mitigation: Actively working to mitigate congestion and sees a path to resolution, but will continue to monitor closely.

    Raw Material Inflation

    Primarily impacting aluminum, described as 'relatively immaterial' thus far.

    Mitigation: Making forward investments to support growth initiatives.

    Continuing Resolution (CR) ImpactPotentially impacting 2027 outlook, not near-term.

    Not quantified.

    Mitigation: Company is diversified with long-life enduring programs and funded backlog, providing insulation from near-term CR impacts. Monitoring closely for implications beyond the current fiscal year.

    MV75 Funding GapNear-term

    Not quantified.

    Mitigation: No impact seen to date, directed to continue moving forward. Considered a monitoring watch item, but the program has strong backing.

    What to watch in Q3 FY26

    5

    Gross Margin Trajectory

    H2 FY26 and into 2027
    Current22.2%
    TargetImprovement towards target margin profile

    Why it matters

    Indicates successful ramp-up of new programs and efficiency gains, impacting overall profitability.

    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.

    Q&A highlights

    7

    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

    2 min read5 chapters

    Detailed Narrative

    01

    IPO and Balance Sheet Strengthening

    Applied Aerospace & Defense successfully completed its initial public offering, which significantly strengthened its balance sheet and enhanced financial flexibility. The offering of 34.2 million primary shares at $20 per share generated $635.7 million in net proceeds. These funds were primarily used to repay $626.2 million of term loan principal, drawn revolver balance, and accrued interest, resulting in a reduction of pro forma net leverage to 2.7x.

    02

    Strategic Focus and Differentiation

    The company positions itself as a premier provider of advanced design, engineering, and vertically integrated manufacturing solutions for space and defense technology companies. Its differentiation is built on a combination of unique, highly integrated capabilities, including deep engineering talent (over 220 engineers and 400+ technical experts), material science expertise, and proprietary process IP, with approximately 88% of revenue tied to IP-enabled processes. The operating philosophy emphasizes being prime agnostic, a full life cycle partner, fostering an innovative engineering culture, and being built to scale.

    03

    End Market Dynamics and Growth Drivers

    Applied Aerospace & Defense operates across three core end markets: space and launch systems (23% of Q2 revenue), defense aviation and airborne systems (47%), and C5ISR Precision Strike Systems (30%). The company benefits from two powerful, long-term, and uncorrelated demand drivers: the unprecedented🌐 growth outlook for the commercial space economy and a dynamic global threat environment demanding advanced manufacturing capacity and defense technology investments. This market positioning drives the demand for its integrated capabilities.

    04

    Operational Excellence and Integration

    Management highlighted being ahead of schedule on operational excellence and integration across the Applied portfolio. They noted strong alignment among senior leaders and successful integration of people, processes, and systems. Synergies across sites are driving revenue opportunities, particularly with emerging innovators, by leveraging diverse capabilities to accelerate programs. The focus is on building the enterprise to endure and ensuring the right talent base for future opportunities.

    05

    New Business Pipeline and Program Ramps

    The company is experiencing significant momentum in its new business pipeline, engaging with both large defense primes and high-potential new customers. The dynamic nature of this pipeline requires careful selection of opportunities. A key priority for the second half of the year is the execution of high-growth and next-generation program ramps, ensuring these programs advance towards full-rate production on schedule and at the right cost, supported by proactive investments in capacity and capabilities.

    AI-generated summary of the company’s earnings call. Not investment advice.