the majority of our airspace and defense revenues we have also had heavy order volume this spring in the counter drone area where we're supplying oscillators from phased array radar being used for both mobile and stationary counter drone solutions these systems are being deployed for both military and border control applications we've also had strong orders for electronic warfare missile guidance systems and repeat orders for tactical communication radios we're also engaged with the defense primes on long-term supply agreements for many of these missile systems for which they recently signed seven-year framework agreements we are putting in longer term bids for the current programs and are also now competing for some systems for which we were not the original supplier we believe that our percent of content for the various systems will increase due to this process now these programs are being put out to bid part by part and program by program so the visibility is kind of slowly coming into focus we now expect to see our first purchase orders from these increased volumes due to these agreements and probably the first quarter of 2027 and that would be for 2028 production and we're beginning to get increased visibility now in the volumes required meanwhile we have strong growth in many of our current precision guide munition production orders on many of these program design slots we're a sole source provider and we stand to reap many benefits of defense spending in this area that we support continues to grow. Some of you have asked also about the continued impact of tariffs. Key two fiscal year 2025 was the first year that we were, you know, it was the first full quarter of impact to the tariffs. We remain impacted by tariffs across the majority of our products. However, it's been reduced slightly this year after the Supreme Court ruling. We saw a 1.1% impact on gross margins this past quarter compared to 1.25 percent a year ago in q2 2025. overall we see demand for aerospace and defense products only increasing over the next several years in 2026 being a very strong year for avionics and space orders and shipments we believe that we will continue to grow at a slightly accelerated rate through 26 and 27 and we'll begin to see more significant impact to our 2028 revenues from the strategic reshuffling and prioritizing of certain military systems we're now seeing in the FY27 defense budget and also reconciliation requests. As we more rapidly scale, we expect gross margins to initially decrease slightly as programs ramp and move to a full rate of production. But overall, earnings continue to increase as revenue should increase at a higher rate than operating expenses. We will continue to update the market as we learn more from our customers about the production volumes expectations on these 27 and 28 production orders and beyond. Imtron plays a critical role in the defense of our nation by providing U.S. source and highly engineered components for the U.S. and military programs. We continue to make significant investments in our ability to scale production with much new equipment and automation coming online and the development of innovative new solutions this past two quarters for example we've received 12 million dollars in new orders for 26 and 27 production for products that we just introduced to the market a year ago and sold approximately 200 000 of in 2025. we've also strengthened our balance sheet to signal to our customers that our mark we have market staying power we have the ability to invest in our growth and a desire to be a strategic partner as they scale their businesses to meet unprecedented demand we will also use this funding to add to our product portfolio an engineering talent pool through both in acquisition and investments during the quarter for example the company made an investment in an innovative dual use synchronization and timing systems company skyline instruments corporation skyline is making significant advancements critical for the synchronization of rf sensor data and operations in gps denied or fragile environments this is part of the company's effort to continue to innovate and to learn about future market opportunities in areas critical to our national defense before i open the floor questions i wanted to mention that we will be presenting at the moody capital conference in early september in new york city and also participating at the cdoti small cap virtual conference later in september information for both of these events will be posted on our investor website. I also encourage you to follow us on LinkedIn, as well as continue to get the updates on our press releases on the website. Anyway, Oprey, thank you for your assistance today. Can you open the lines and allow the first questions?

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of John Baer with Ascend Wealth Advisors. Please go ahead. Your line is now open.

Thank you. Good morning, Cameron. Question on And your outlook on M&A, I know the rights offering bolstered your cash balance. I'm just wondering if you can comment on that, what you see there, potentially. We're working on some things and just wondering how that's coming along.

Yeah, we are. We have been talking to a number of companies. Since we've completed the rights offering, we've had kind of an increase in deal flow. So we now have more banks actively engaged in giving us ideas. which we appreciate, and we've been following up with some of those opportunities. And we still hope to get a deal done this year. We're also starting to hire for our corporate development team, so trying to make that a more formal process and a better resource in the company. So we do anticipate accelerating that.

And how much increase in bid order and order activities line and maybe some of that rights-offering money utilized for?

Yeah, no, great question, John. So we're actually – we've had very strong bookings growth throughout this year. The past three quarters have been very strong, and I would say that – and it looks like it will continue to be strong. So right now we're very focused on increasing our manufacturing capacity and kind of scalability, and we've made a number of investments and kind of accelerated our investments earlier this year. just to meet the needs of our customers. So we're going to continue looking at that as well.

Thank you.

Your next question comes from the line of Anya Sonderstorm with Sidoti. Please go ahead. Your line is now open.

Hi, thank you for taking my questions and congrats on the quarter. How much of the backlog do you expect to convert over the next 12 months and has the timing of that conversion changed?

Yeah. I would say, so the backlog's been very strong, Anya. I appreciate your question on this. We've had three quarters in a row of very good bookings, and the book-to-bill ratio has been well above one. Right now, we have considerable backlog, not only for the next two quarters, we have more backlog than we actually currently anticipate producing in those two quarters, and we're trying to figure out how we can handle that. But also the backlog goes out through 2028 and we have more than half of next year's production already in the backlog and we're only halfway through the year really.

Okay, thank you. And you mentioned for the gross margin, you expect that to sort of contract in the second half due to ramping on new programs. But you also have that impact from the stock-based compensation for the second quarter. So how should we think about the contraction there for the second half?

Yeah, what we're faced is really, really rapid expansion for several products that are relatively new to us. And so we are making investments to try to automate that production and to improve the margins there. We're making good progress. But as we continue to bring up several new programs with expectations of very rapid growth, there will be some growing pains there. So it's difficult to tell quarter by quarter what the margins will be. But I think with the tariffs continuing, we probably are going to see gross margins in the back half of the year somewhere in the maybe 41.5 to 43.5 range, maybe 44. but certainly not any higher than that. I think, you know, realistically, we're probably in the middle of that range.

And then as you ramp those programs into 2027 and have the stock-based compensation comparison this year and the tariffs, that should have a positive impact on the margins for next year, or should we think about?

Yeah, I do see, you know, as we get more comfortable with the production of certain products, You know, the margin will go up a little bit just because of being more efficient. And so I do think that if you look at the larger programs, you know, the margins tend to go up over the first two or three quarters, you know, one to two quarters, and then they flatten out. After that, the benefits you can get really are from, you know, increased automation on a line. And so I do think that the margins will be slightly better next year. But I think this year, we've had such strong bookings in the first half of the year with products with a very rapid ramp that will have, you know, probably a point impact on our gross margins.

Okay, thank you. And then I'm just curious with Skyline Insurance investment, what benefits do you expect that to bring for the company near term? And how should we think about that kind of strategic investment?

Sure. Yeah, several of them. First of all, they are a consumer of oscillators. So, we hope to, over time, be a supplier there, potentially. But also, we have good dialogue with the management team there and really looking at their expertise to help us learn about how our products can play a role in areas where GPS is either fragile or denied. so trying to understand how we adapt our our product line to kind of meet you know future needs okay thank you that was all for me thank you appreciate it there are no further questions at this time we have reached the end of the q a session i will now turn the call back to cameron for ceo for the closing remarks please go ahead okay well i'd like to thank everybody for participating in today's call and your interest in imtron have a great day and please contact us at IRMtron.com should you have any additional questions. And we look forward to seeing you at some of the events in the next couple of months.

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