Karman Holdings Inc. 2026 Q2 Earnings Call

Thank you for joining Karman Space & Defense's second quarter fiscal year 2026 earnings conference call. I'm Steven Gitlin, Senior Vice President of Investor Relations and Corporate Communications. Joining me today are Jon Rambeau, Chief Executive Officer, Mike Willis, Chief Financial Officer, and Jonathan Beaudoin, Chief Operating Officer. Before we begin, please note that many of the statements made on this call are forward-looking. These statements involve risks and uncertainties that may cause actual results to differ materially. We encourage you to review the risk factors discussed in our filings with the SEC. I'd also like to note that we will discuss a number of non-GAAP financial measures today that we believe can be useful in evaluating our performance. Such non-GAAP financial measures should not be considered in isolation or a substitute for results prepared in accordance with GAAP.

Our earnings release, which we filed today, can also be found under the heading News & Events on the Investors section of our company website and contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measure. The content of this conference call contains time-sensitive information that is accurate only as of today, August 6th, 2026. The company undertakes no obligation to make any revision to any forward-looking statements contained in our remarks today, or to update them to reflect the events or circumstances occurring after this conference call. We have posted our earnings release and presentation on our website at karman-sd.com. I'll turn the call over to John.

Good afternoon. In the four months I've been with Karman, I've worked intensely and methodically to evaluate our strategy, our operations, and our progress as we continue in our second year as a mid-cap public company. I'm very proud of what Karman has accomplished, and I'm pleased to see our hard work reflected in milestones such as our recent addition to the S&P SmallCap 600 Index. Against all measures of progress, we're seeing positive results. Shown on page four of our earnings presentation, highlights in and since the second quarter include sequential revenue growth of 20.4% from the first quarter to the second, year-over-year quarterly organic growth of 24.4%, representing revenue growth from businesses we've owned for more than 12 months. Record backlog of $1.3 billion. Record quarterly bookings of nearly $500 million.

Initial fit-up of a 200,000 square foot factory in Salt Lake City with production capability online before the end of 2026. A large long-term agreement executed with a Space and Launch customer further to the contingent agreement received earlier this year. Meaningful progress toward remediating the material weakness previously shared in our public filings. We anticipate the necessary controls to be fully implemented by the end of 2026, with testing of operating effectiveness expected to continue into early 2027. Selection of and transition to PwC as our new audit firm, moving Karman into the ranks of other established public companies working with a Big Four auditor. Signed agreement to acquire Walker Precision Engineering, establishing a beachhead position in Europe with relationships across the spectrum of European defense primes. Additional details on the Walker acquisition can be found on page five.

With these accomplishments as background, today I'll summarize our record second quarter performance, highlight the progress we've made, and outline the priorities guiding our next phase of growth. Mike will discuss our financial results and guidance. Jonathan will provide updates on demand, integration, and capacity expansion, and I will discuss our growth trajectory before we take your questions. From a performance point of view, as shown on page six, we delivered another quarter of record financial results. With quarterly revenue of $182 million, non-GAAP adjusted EBITDA of $55 million, and backlog reaching $1.3 billion, giving us 95% visibility to the midpoint of our full year revenue guidance. We expect our strong organic growth rate to continue and want to provide additional clarity on why short-term organic growth isn't as useful a metric for our integrated business model as it may be for other companies.

Some companies manage newly acquired businesses in more of a holding company fashion with minimal operational integration. In contrast, we identify and acquire companies that bring unique and valuable capabilities to Karman, capabilities that allow us to offer greater value to our customers, and we begin the integration process on day one. This means that we seek to exploit these capabilities immediately to the benefit of Karman and our customers, regardless of the amount of time they have been a part of the company. For example, if a newly acquired business is better suited to manufacture products for a long-standing program, then we will move production to that site, regardless of whether the output is considered organic or inorganic. An example is what we're doing now in Gulfport, where we're transitioning certain products for our Space and Launch end market from another longstanding business.

We categorize this as inorganic, even though it's really organic business that we're simply moving to a recently acquired site that is best suited to its delivery. From an operational and customer perspective, what we call that revenue is much less important than making the best business decision for the customer and the enterprise. To provide a second and slightly different example, following the acquisition of our Cedar City, Utah, energetics business, we immediately began pursuing new use cases and customers for its capabilities. Having seen rapid success, we created new revenue streams within that recently acquired business that would not have been possible had they remained independent. We aim to continue pursuing this strategy of moving work and combining capabilities across all of our businesses, and will not constrain that strategy by managing to a quarterly organic growth metric that could reduce long-term value capture for the enterprise.

With that said, we remain focused on end markets with very strong organic growth vectors. We remain confident in our ability to deliver 20%-25% annual organic growth for the foreseeable future. Our demonstrated performance supports that growth rate. Quarterly year-over-year organic growth in the five full quarters since our IPO has ranged from 19%-36%, including 24.4% organic growth year-over-year in the most recent quarter. As we move forward, we will periodically share organic growth at a minimum annually, while continuing to focus on optimizing the company for maximum shareholder returns over time. Beyond our financial results, we achieved significant commercial milestones that position Karman for sustained profitable growth.

As we first announced in May 2026, we secured four large contingent supply agreements, one of which converted to a firm contract in the second quarter, with the others expected to close by the end of the year. Additionally, while protecting our single and sole source positions on Munitions Advisory Council, or MAC programs, remains a top priority, we see this moment as an opportunity also to go on offense in terms of increasing our share as a second source to prime contractors. Not all suppliers have invested as proactively as Karman, positioning us to step in and become a second source where we aren't participating today. Here are several examples of the progress we've made. First, separation motors for a major munitions program. Second, expected selection as a second source on a small propulsion system for a widely deployed anti-armor weapon system.

Third, emerging opportunity as a second supplier for large solid rocket motor, or SRM, cases. Fourth, an opportunity to be a second source supplier for a shroud system on a widely recognized interceptor program. Finally, we're also engaging with customers on an opportunity for a future lower cost interceptor program. These wins and opportunities reflect growing customer confidence in Karman's ability to scale, innovate, and deliver critical hardware at speed and at high volume. They also reinforce what industry leaders have recently demonstrated. Framework agreements are converting into large production contracts, as highlighted by the more than $90 billion in THAAD and PAC-3 interceptor contracts recently awarded to Lockheed Martin.

These large contracts are not limited to missile defense, as the Navy recently awarded an historic $76.6 billion in contracts for five new Columbia and nine new Virginia-class submarines, programs that we support extensively through our Maritime Defense end market. Those contract awards underscore the strength of our pipeline and the state of the global security environment that drives our customer's mission every day. The demand environment remains strong, with an urgency to replenish depleted munitions and interceptor stockpiles at an unprecedented rate. In fact, some customers are now citing demand to increase certain annual production buys by as much as a factor of 10, which would dwarf earlier projections of two, three, or four times multiples of current bill rates. Karman is purpose-built to respond to this market demand. We continue to partner with prime contractors to help them deliver reliably and efficiently.

Having covered our Q2 highlights, I'd like to turn for a moment to my go-forward priorities. First, continue our track record of strong financial performance while capturing generational demand that we see continuing through at least the end of the decade. Second, fully unlock the value of Karman, leveraging differentiated IP, a growing and well-capitalized development and production system, and a talented workforce. Having now visited 17 of our 20 current and expected to be acquired sites, I have confidence the whole will be realized as more than the sum of the parts. Third, drive operational excellence through technology, capacity, and a rigorous operating rhythm. To support these priorities, we've identified key areas of focus. First, drive disciplined delivery of free cash.

While we still view growth and margin performance as top priorities, you will see increased focus on this metric in 2027, and this will be reflected in our executive compensation incentive framework beginning next year. Second, create financial flexibility. As we find opportunities for operational efficiency and operating leverage, this will provide options for price reduction, business reinvestment, or margin improvement in the way that best maximizes long-term shareholder returns. Third, continued expansion of our total addressable market within the high growth end markets we currently occupy through both organic and inorganic means. I am pleased with the progress we've made at the midpoint of the year, and I remain confident that 2026 will be another year of record performance. With that, and to further discuss that performance, I'll turn it over to Mike.