Applied Aerospace & Defense, Inc. 2026 Q2 Earnings Call

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. 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. 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.

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. 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 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. 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.

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 CVI in both periods, revenue grew 21.3%. We delivered record adjusted EBITDA of $36.4 million, up 38.4%, 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 would like to begin this call by spending a few minutes on who we are, where we are focused, and why customers choose us. Chris Rogers will cover our end markets and our outlook for growth, and Jeff McCray will cover financials. I will then come back with our priorities for the second half 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.

We build complex, mission-critical hardware for extreme operating environments across three core end markets: Space & Launch Systems, Defense Aviation & Airborne Systems, and C5ISR & Precision Strike. In the second quarter, those markets were roughly 23%, 47%, and 30% of revenue. I will note that it is not just the diversity of our business across end markets that differentiates us. It is 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. 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 are confident our strategy provides an opportunity for asymmetric upside. What differentiates us today is the combination of two things. First, the platform's unique and highly integrated capabilities, and second, our operating philosophy. Let us 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 is 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. And 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. Now, let me touch on our operating philosophy because it is just as important. First, we are prime-agnostic. We serve nearly all the leaders and innovators in defense and space, and we do not compete with our customers by design. Second, we are 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. That is how we build proprietary know-how into our processes and how we qualify into positions where, in many cases, we are 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 is why all 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 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 U.S.-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.

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

In another case, a large defense brand 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's very unique to Applied. 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. 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'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 and space sit right in the middle of it. In Defense Aviation, we are ramping our 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 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 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 back half of 2026.