Karman Holdings Inc. Q1 FY2026 Earnings Call

Hello, everyone. Thank you for joining us, and welcome to the Karman Space and Defense First Quarter Fiscal Year 26 Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Steven A. Gitlin, Senior Vice President of Investor Relations and Corporate Communications. Steven, please go ahead.

Good afternoon, thank you for joining Karman Space and Defense's first quarter fiscal 26 earnings conference call. I am Steven A. Gitlin, Senior Vice President of Investor Relations and Corporate Communications. I am pleased to welcome you today. Joining me on today's call are Jonathan Rambeau, our Chief Executive Officer; Mike Willis, our Chief Financial Officer; and Jonathan Beaudoin, our Chief Operating Officer. Before we begin, please note that on this call, information presented contains forward-looking statements that are based on current expectations, forecasts, and assumptions that involve risks and uncertainties. These are described on page 2 of the earnings presentation we posted to our website this afternoon, and in detail in Karman's reports filed with the SEC and the Form 8-K filed today with the SEC. I would 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 as a substitute for results prepared in accordance with GAAP. Our earnings release, which we filed today, can also be found under the heading News and 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, 05/12/2026. 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 events or circumstances occurring after this conference call. Now I would like to turn the call over to Jonathan Rambeau.

Thank you, Steven. Good afternoon. Today, I will begin by summarizing our record first quarter performance. Then Mike Willis will review our financials, followed by Jonathan Beaudoin, who will discuss the demand environment and our capacity expansion initiatives. I will wrap up with our outlook, before we take your questions. Before we review our results, I want to acknowledge the service and sacrifice of the men and women who protect our nation, both at home and abroad, especially during these challenging times. Allow me to also recognize the achievements of our astronaut corps and the dedicated teams at NASA and throughout the space supply chain. At Karman, we are proud to serve these individuals every day with the critical systems that help protect and propel them to new heights. It has been an exciting and rewarding six weeks since I joined Karman. In that time, I visited six of our sites across the country: from California to Pennsylvania, from Picayune, Mississippi. I have gotten to know the people and the technology that has made Karman successful. I have also spoken with customers who consistently praise the value Karman delivers. I have had the pleasure of meeting many investors, some already shareholders, others who may join us in the future. Feedback has been constructive, and it is always appreciated. Two questions I am often asked are, number one, what prompted me after 30 years working in a defense prime to join Karman? And two, what do I plan to do differently here? To the first, I spent 30 years in defense. Yet when I began studying Karman, I saw something I had not seen before. The company's growth trajectory, product line pedigree, and unique merchant supply position as a provider to the primes across defense, space, and launch made this an opportunity I could not pass up. To the second, I believe Karman's strategy is working well, so I do not see a need for substantial changes in strategy or the trajectory of the company. My focus is on the continued strength of relationships with our customers and our investors, and on meeting our commitments to our customers with on-time product and system delivery, and to our shareholders via continued organic and inorganic growth and bottom-line returns. Finally, I am focused on the continued optimization and integration of capabilities across the company to unlock the full value of the Karman enterprise. As we come through the balance of 2026, I look forward to ongoing engagement with employees, customers, investors, and analysts, and to your questions and feedback. Now let's turn to our results. Our team delivered another set of record results in the first quarter. As shown on Page 4 of our earnings presentation, highlights include: record quarterly revenue of $151 million with year-over-year growth across all three end markets and the addition of our new Maritime Defense Systems end market; record quarterly gross profit of $64 million; record quarterly adjusted EBITDA of $45 million; all-time high backlog of more than $1 billion. And given our strong performance and high visibility we are now raising our full year revenue and adjusted EBITDA guidance as I will detail shortly. Our Seemann Composites and MSC acquisition, which closed in January, contributed two months of revenue this quarter. This represented about half of our year-over-year quarterly revenue growth. Just two weeks ago, I visited our sites in Port Clinton, Pennsylvania, and Gulfport, Mississippi, and I was impressed by the depth of capabilities, breadth of solutions, and the energy of our team. That impression has been consistent across every site I have visited. Some of the sites I visited produce critical components for the space industry. One of the most exciting recent developments was a successful Artemis II moon mission in April. Karman supplied key subsystems for the SLS launch vehicle and the Orion capsule. Our space and launch market produced 29% year-over-year revenue growth, underscoring our key position in the space ecosystem and highlighted with our inclusion in Morgan Stanley's recent space trade list. The Artemis II success and the restructuring of the Artemis program, with annual missions now planned through and beyond 2029, have increased both customer engagement and contracting momentum. Karman has a long, proven track record in space, and we look forward to continuing to support all major U.S. launch providers, both established and emerging, as well as our integration of a lunar lander for NASA's CLIPS program. We are off to a strong start in 2026, and we believe market dynamics point to continued opportunity through the end of the decade and beyond. With that, I will turn it over to Mike for a detailed financial review.

Thank you, Jonathan. A record first quarter demonstrates Karman's continued strength and momentum. As shown on page 5, revenue of $151 million was up 51% from Q1 fiscal 2025. Gross profit of $64 million grew 62% with a gross margin of 42%. Net income was $8 million compared to a $5 million loss last year. Adjusted EBITDA reached $45 million, up nearly 50% year-over-year as compared to Q1 fiscal year 2025. Adjusted EPS increased more than 100% to $0.11 per diluted share from $0.05, and backlog grew 61% year-over-year to more than $1 billion. Each of our three legacy markets produced strong year-over-year growth in Q1. As shown on Page 6: Hypersonics and Strategic Missile Defense revenue grew 19% to $36 million, driven by increases in strategic programs. Space and Launch revenue grew 29% to $44 million, driven by the timing of orders for critical content supporting both legacy and emerging launch providers and spacecraft. Tactical Missiles and Integrated Defense Systems revenue rose 25% to $45.09 million, primarily due to demand associated with the continued adoption of advanced drone and loitering munitions systems and an increase in production output for GMLRS. Maritime Defense Systems contributed $26 million primarily from ongoing submarine and LCAC programs, among others. First quarter revenue mix was Space and Launch, 29%; Hypersonics and SMD, 24%; Tactical Missiles and IDS, 30%; and Maritime Defense Systems, 17%. Turning to the balance sheet, we continue to prioritize growth as we consider capital allocation decisions. We ended the quarter with $74 million in cash and cash equivalents, up $40 million from year-end 2025. CapEx totaled $7 million supporting growth in nozzle capacity, UAS launchers, launch vehicles, and spacecraft manufacturing capabilities. Total debt stands at $758 million with an interest rate of SOFR plus 2.75%. We expect leverage to decline to approximately 3x adjusted EBITDA by year-end 2026. Our untapped revolving credit facility increased from $50 million to $150 million, providing further flexibility. We expect a statutory tax rate of 26.5% for fiscal year 2026 and CapEx at roughly 5% of revenue, or approximately $36 million. We expect that depreciation and amortization and interest expense will moderately increase due to the acquisitions of Seemann and MSC. Regarding margins, we continue to focus on operational efficiency and scale, which we expect will support strong margins as we grow. Now I will turn it over to Jonathan for an update on market demand and capacity expansion.

Thank you, Mike. The demand environment remains very favorable for Karman. We are investing in capacity to support our customers. The President's FY 2027 defense budget request was published in late April. It is the very first step in the congressional appropriations process that typically plays out over a multi-month period and could result in compromises and changes. Nevertheless, the budget request includes sharp procurement funding increases for the programs Karman supports. For example, in hypersonics and SMD, the request proposes a tripling of SM-6, a near quadrupling of PrSM, and more than eightfold increases in SM-3, PAC-3, and THAAD funding. Other data points support significant increases in production for key programs. The prime contractor for PAC-3, PrSM, and THAAD recently announced that it had reached a multiyear framework agreement with the U.S. government to triple PAC-3 production and quadruple the production of THAAD and PrSM. In tactical missiles and IDS, the request includes over $53 billion for drone dominance with more than $14 billion for counter-UAS development and deployment. The extensive deployment of both loitering munitions and counter-UAS solutions as a result of recent conflict in the Middle East has driven demand for our UAS launch systems production. In maritime defense, funding for Columbia and Virginia class submarine programs is set to rise by over 30%, from $23 billion in 2026 to more than $31 billion in 2027. We believe we provide unique, qualified content for these programs. For Space and Launch, the request includes $71 billion for the Space Force, with $4.2 billion for launch services, targeting 22 National Security launches in FY 2027. As a reminder, we support the major U.S. launch providers and several emerging providers. Reflecting the growing interest in our capability and the growing value of the opportunities we can pursue, we have seen a marked increase in proposal volume and an even greater increase in proposal value for our integrated systems. These proposals include concepts to support next-generation systems, to enhance our nation's capabilities in space and defense. With respect to capacity, we are installing advanced production technology to boost output, quality, and productivity with deployments continuing through the year. For nozzles and UAS launchers specifically, our current capacity places us ahead of demand and our new Salt Lake City facility will keep us ahead as it comes online and demand grows. That new facility will add nearly 200,000 square feet of operating floor space and is on track for expected initial production capability in the fourth quarter of this year. We are also completing a large logistics and polymer facility at our Gulfport site to support continued growth there. And we are already benefiting from targeted applications of AI to help make our business processes more efficient and accurate. At the same time, we are exploring its broader applications to enable enterprise transformation. Finally, the integration of Seemann and MSC is progressing well, with teams collaborating on best practices and operational synergies to enhance our offerings. One example is how our Seemann and MSC acquisition instantly expanded our advanced materials technologies, intellectual property, and manufacturing capabilities across the enterprise to propel new solutions for customers in all markets. We are ramping up capacity to serve customers with speed, agility, and scale. Karman is ready to deliver. Now I will turn it back to Jonathan.

Thank you, Jonathan. In my short time here, what I have come to appreciate most is that Karman is truly a different kind of space and defense company, a sentiment echoed by customers, investors, and employees alike. We are built to deliver speed, agility, and scale so our customers can succeed. A large part of what makes Karman special is our talented team of nearly 2,000 employees, and the leaders who set the vision for that workforce. We have made some recent changes that will strengthen the leadership team and accelerate our growth. I am pleased that Doug Laurendeau has joined us as Chief Growth Officer bringing a proven track record from his decades of service to Lockheed Martin. Stephanie Sawhill has assumed the role of Chief Technologist where she will continue to evolve our technology roadmap and engage with customers around the integrated solutions of both today and tomorrow. Both of these appointments will help Karman strengthen our competitive moat and create shareholder value. Another factor that sets Karman apart is the strong, long-term relationships we have built with our customers. In many cases, we have decades of experience delivering critical systems to support them. We believe this track record has established Karman as a trusted supplier and partner. As customer demand for a number of programs reaches new heights, strong relationships and clear communication are more important than ever. These connections help us profile our capacity investments as our customers increase their volume commitments to end users. On last quarter's call, we discussed recently announced framework agreements, and whether Karman had received commitments as a supplier under those agreements. At that time, I referenced verbal discussions that were underway. This quarter, I am pleased to announce that we have now received written contingent demand commitments from four of our largest customers in both the space and defense sectors. These commitments cover payload protection, propulsion, and space launch core stage products, and guarantee Karman certain multi-year production levels subject to our customers receiving contracts from their end customers. The time horizon of these commitments ranges from four to seven years. They have the potential to yield revenue in excess of $1 billion when fully realized and give us greater certainty as we plan investments and scale operations. With respect to capital allocation, we will continue to complement investments in organic growth with strategic acquisitions to deepen and expand our capabilities. Our pipeline remains healthy, and we expect to pursue one to two targeted acquisitions per year at similar multiples as past transactions. Looking ahead, with our strong Q1 results, record backlog and greater certainty of demand, we are raising our 2026 outlook. As summarized on page 7 of our presentation, we now expect full year revenue of $720 million to $735 million and non-GAAP adjusted EBITDA of $208.5 million to $219.5 million with a 29.4% margin to the midpoint. This represents 54% year-over-year revenue growth and 47% adjusted EBITDA growth. Expect revenue growth this year to be evenly split between organic and inorganic sources with the impact of our increased guidance affecting 2026. At this time, our strong backlog combined with first quarter revenue provides approximately 90% visibility to the midpoint of our full year revenue guidance. The remaining 10% is expected from anticipated contracts on existing programs. Strategic positioning has placed us on track to exceed our prior forecast for the year. We are seeing a generational demand for our solutions unfolding in a rapidly expanding pipeline and substantially increased proposal volume, which we expect to translate into growing bookings later this year. As funding for our core defense programs accelerates and space launch activity increases, the commitments we are securing today provide a clear runway for continued momentum through 2027 and beyond. We remain focused on making the prudent investments to deliver the volume our customers rely on to satisfy their customers. Thank you for your time today. It is an exciting time for me and an even more exciting time for Karman. Now open up the call for questions.

We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. We ask you pick up your handset when speaking for optimum sound quality and if muted locally, please remember to unmute your device. Your first question comes from the line of John Godyn with Citigroup. Your line is open. Please go ahead.

I wanted to follow up on the missile framework agreement, which is kind of an exciting development. I am just trying to better understand the nature of the agreement. You suggested there were volume minimums and what the shape of that revenue growth outlook may look like going forward. We have had other companies talk about acceleration, sharp accelerations at the end of this year and in 2027. Any color there would be helpful.

Thanks for the question, John. The commitments vary by customer. We have commitments that have come through both related to the framework agreements as well as related to at least one of our space and launch customers. They are varied and came in different forms: letters of intent, drafts, and long-term agreements that are yet to be finalized. Across the board, we are starting to see customers come forward with requests for longer-term ramps in production. We are seeing volumes increasing consistently year-over-year. Initially, I would describe what we're seeing as a floor that will have some upside. Customers are looking at how they anticipate the entire supply chain will be able to ramp, and they are forecasting perhaps a bit conservatively.

This is Jonathan. Managing the supply chain is something we continue to do on a regular basis. We are engaging with our suppliers and flowing similar demand signals to them so that we are able to secure the inputs to our products. Right now, we are not foreseeing any significant constraints, but it is something we manage on a regular basis.

Got it. Thanks, guys.

Our next question comes from Jan Engelbrecht with Baird. Your line is open. Please go ahead.

Hi, Jonathan and Mike. Congrats on another strong print. I wanted to get back on unmanned systems. I know you have very good exposure there with legacy partners on launchers and wings as well. If we just look at the drone dominance program, $54 billion, are you seeing the ability to participate across Group 1 to 4 and even the CCA? Where do you think the sweet spot is for Karman's capability?

Certainly, the demand for the systems we provide, particularly the launching systems, continues to increase. We had anticipated that demand and the recent situation in the Middle East has only strengthened it. We have started to see larger volume orders coming in for components that support unmanned systems themselves and for the launching systems. Demand is continuing to increase, and we will be able to meet that demand with the new capacity we are putting in place at our Salt Lake City facility. Across the spectrum there will be opportunities to participate. For the larger unmanned systems, we would have opportunities to contribute with some of our advanced composite systems and technologies, though some of those opportunities are still to be defined.

Perfect. Thank you. And a quick follow-up: you already have 90% revenue visibility. But if we look at the 2026 reconciliation, funding is only about 30% of that $150 billion really been obligated to the industry. We expect that pace to pick up the rest of the year, and then there is potentially a very big 2027 reconciliation. Do you see upside as you exit 2026 in terms of the visibility you usually enter the year with? I think Karman usually enters the year with about 70% visibility. Might you exit 2026 with more than that given this funding tailwind?

As we look forward, we have taken our guidance up modestly through this quarter. As we approach the end of the year, around Q4, we expect to see some of that funding flow through in the form of new contracts. Moving into 2027, we expect that trend to continue. We will continue to provide updates during the year. We have guided to what we can see at this point in time, but we feel very confident having 90% visibility at this point in the year.

If I could go back to the first question, Karman has extensive experience and heritage integrating various payloads onto UAVs and larger fixed-wing aircraft. As that market continues to expand, we see potential opportunities to help integrate payloads and dispense them from those aircraft.

Great. Thanks, Jonathan. Thanks, guys.

Your next question comes from Alexandra Eleni Mandery with Truist. Your line is open. Please go ahead.

Hi. Nice results, thank you for taking my question. Can you give more color on what M&A target profiles look like? I am sure you are looking to add capabilities, but anything else in terms of geographic footprint or to increase capacity inorganically? And what end markets are you looking to add new capabilities to?

Alexandra, thank you for the question. We continue to maintain a pipeline of potential acquisition candidates. We are looking at targets that are close adjacencies to capabilities we have today. As we have done in the past, we will focus on expanding advanced materials capabilities and incrementally expanding missiles and munitions capabilities. We may pursue capabilities that are very close adjacencies to what we have today. I would not be surprised if we saw another small bolt-on acquisition between now and the end of the year. We will share more details when we are able.

Great. And then just a quick one: what are you seeing in terms of labor? Any difficulties in adding new labor or retaining labor?

We are not seeing significant difficulties with labor at this point in time. We continue to keep an active campaign in place to recruit and retain employees as the business grows, but I would not say labor shortages are a significant constraint for us at this time.

Your next question comes from Kenneth Herbert with RBC Capital Markets. Your line is open. Please go ahead.

Hi, good afternoon. First question, clarification: I just wanted to be sure the 90% visibility — did that include any of these framework agreements, or are they not included yet in expectations for this year?

It's a mix. Some volumes from the commitments were already in our forecast for 2026 work that we expected. In some cases there is modest upside to 2026, but most of the visibility is into 2027, 2028, 2029, and beyond. So a small percentage might already have been in our plan for this year; the balance would be upside, mostly in future years.

Okay, that is helpful. Thank you. And how do we think about — I know you called out that half of total growth was contribution from M&A. It seems like that number might have been higher this quarter. How do we think about underlying organic growth, considering the first quarter acquisitions and some of the 2025 acquisitions as well?

Hey Kenneth, this is Mike. I'll start. We still expect our full year 2026 growth to be roughly half organic and half inorganic. The first half of the year will have a bit more of the inorganic side based on timing of when those purchases were completed last year, with MTI and ISP done right at the start or mid-Q2. So full year, we expect roughly an even split between organic and inorganic. It will be a little more inorganic in the second half based on timing of prior purchases.

Okay. Thanks, Mike.

There are no further questions at this time. I will now turn the call back to Steven A. Gitlin for closing remarks.

Thank you, Ellen, and thank you all for your attention today and for your interest in Karman Space and Defense. An archived version of this call, all SEC filings, and relevant company and industry news can be found on our website, karman-sd.com. We wish you a good day, and we look forward to updating you on our continued progress in the quarters ahead.

This concludes today's call. Thank you for attending. You may now disconnect.