Karman Holdings Inc. (KRMN) Earnings

Management highlights

- Company Milestones - Achieved record Q2 results, including sequential revenue growth of 20.4% from Q1, 24.4% year-over-year organic growth, a record $1.3 billion backlog, and record quarterly bookings of nearly $500 million - Added to the S&P Small Cap 600 Index, transitioning to PwC as the new Big Four audit firm, and executed a signed agreement to acquire Walker Precision Engineering to establish a European market beachhead - Made meaningful progress on remediating the previously disclosed material weakness, with full control implementation expected by end of 2026 and effectiveness testing continuing into early 2027 - The 200,000 square foot Salt Lake City factory is on track for initial production capability by the end of 2026 - Strategic and Commercial Progress - One of four large contingent supply agreements announced in May 2026 converted to a firm contract in Q2, with the remaining three expected to close by end of 2026 - Multiple new second-source supplier opportunities have emerged across separation motors, small propulsion systems, large solid rocket motor cases, interceptor shroud systems, and future lower-cost interceptor programs, leveraging Carmen's proactive capacity investment - The company's integrated acquisition strategy involves immediate full integration of acquired capabilities to maximize value, rather than holding businesses as standalone entities, so quarterly organic growth metrics are less meaningful for the model; organic growth will be disclosed at a minimum annually going forward - Management reaffirms a target of 20-25% annual organic growth for the foreseeable future, supported by five quarters of 19-36% quarterly organic growth since the IPO - Continued M&A growth will focus on complementary munitions and space capabilities in domestic and international markets - Operational Updates - Integration of recent acquisitions Siemen and MSC remains on track for completion in 2026, with early delivery of higher-than-expected margins and new business capture - Capacity expansion is underway: the Salt Lake City Manufacturing Center received first production equipment in Q2, with initial production starting in Q4 2026, and enhanced spacecraft production equipment is also on track for Q4 2026 deployment - Supply chain diversification is complete, with no single vendor representing 10% of accounts payable; the company is qualifying its proprietary MG resin as an alternative high-temperature composite material, and has not experienced raw material constraints to date - AI initiative Project Moonshot is applying AI to decades of historical engineering data to accelerate design, engineering, and proposal workflows, with the goal of improving capture probability and growth - Go-forward Priorities 1. Capture generational demand expected to persist through the end of the decade to maintain strong financial performance 2. Unlock full company value by leveraging differentiated IP, a well-capitalized production system, and a talented workforce to deliver value greater than the sum of acquired parts 3. Drive operational excellence through technology investment, expanded capacity, and rigorous operating rhythm 4. Increase focus on free cash generation, which will be added to the executive compensation incentive framework starting in 2027 5. Build financial flexibility to support potential pricing adjustments, reinvestment, or margin expansion to maximize long-term shareholder value 6. Expand total addressable market through both organic and inorganic growth

Guidance

- Full-year 2026 guidance was raised from prior levels, to a revenue range of $730 to $745 million and non-GAAP adjusted EBITDA range of $215 to $222.5 million, representing 57% year-over-year revenue growth and 51% year-over-year adjusted EBITDA growth at the midpoint (29.7% adjusted EBITDA margin at the midpoint). The Walker Precision Engineering acquisition results are not included in this outlook. - Management reaffirmed the expectation of 25% or higher organic revenue growth for full-year 2026. - Full-year 2026 capital expenditures are expected to be 5% of total revenue (~$37 million), with a lower run rate in the second half after higher first-half investment. Free cash flow for full-year 2026 is expected to be $15 to $20 million, with accelerated generation in the second half. The statutory tax rate is expected to be 26.5%. - Second-half 2026 revenue is expected to increase sequentially from the first half, with a 47-53% split between Q3 and Q4. The company has 95% visibility to the midpoint of full-year 2026 revenue guidance. - Long-term, management reaffirms a target of 20-25% annual organic growth for the foreseeable future, which would allow revenue to double in 3-4 years (faster with incremental inorganic growth). Long-term free cash flow is expected to convert to 80-90% of net income, with CapEx stabilizing at ~5% of revenue to support ongoing growth. Normalized adjusted EBITDA margins are expected to hold near 30% long-term.

Segment performance

Carmen Space and Defense reported $182 million in total Q2 FY2026 revenue, with year-over-year growth of 58% across all segments. The segment performance is as follows: 1. Tactical Missiles and IDS: $63 million in Q2 revenue (up 55% year-over-year), $108 million year-to-date (up 41% year-over-year), accounting for 35% of total Q2 revenue. Growth was driven by strength in core production programs including unmanned counter UAS and emerging programs transitioning to production. 2. Maritime Defense Systems: $34 million in Q2 revenue, $60 million year-to-date, accounting for 18% of total Q2 revenue. Growth was driven by legacy and next-generation submarine programs. 3. Hypersonics and Strategic Missile Defense: $43 million in Q2 revenue (up 24% year-over-year), $79 million year-to-date (up 22% year-over-year), accounting for 24% of total Q2 revenue. Growth was driven by increased production for key interceptor programs and a new surface-to-surface missile system. 4. Space and Launch: $42 million in Q2 revenue (up 6% year-over-year), $86 million year-to-date (up 17% year-over-year), accounting for 23% of total Q2 revenue. Growth was supported by content for both legacy and new launch providers, partially offset by customer order timing from shifting launch schedules.

Risks & headwinds

- Forward-looking statements are inherently uncertain, and actual results may differ materially due to a range of potential risks, which are detailed in the company's SEC filings. - Contract definitization of remaining contingent supply agreements is subject to negotiation timing, with no guarantee these will close by the end of 2026 as expected. - The Walker Precision Engineering acquisition is subject to regulatory approval, with closing expected by year-end but not guaranteed. - Capacity expansion and qualification of new materials (such as MG resin) are subject to development and testing timelines that may exceed current projections. - While the second-sourcing trend is viewed as a net positive, it could create volume diversion pressure on existing sole-source positions if customers mandate new second suppliers. - Working capital requirements are elevated during the current high-growth cycle, which is expected to continue pressuring near-term cash generation.

Analyst Q&A

• Q: Can you provide more detail on the timing of revenue contribution from the new large long-term agreement (LTA) in Space and Launch?

  A: The LTA is a five-year agreement with a total value just slightly under the previously flagged $250 million. A small portion of revenue will begin to recognize in the second half of 2026, building on prior existing agreements. The remaining revenue will recognize at a relatively steady annual rate across the following four and a half years of the contract term.

• Q: What is your outlook on the defense industry's second-sourcing trend, and what impact will it have on Carmen?

  A: Management views the trend as a net positive opportunity for Carmen. The company has proactively invested in capacity ahead of demand, so it can defend existing sole-source positions by demonstrating reliable, scalable, competitive capability. If customers require a contingency second source for existing programs, Carmen aims to limit volume diversion. At the same time, Carmen has multiple active opportunities to become a second source for other suppliers that have not invested enough to meet expected demand ramps, creating meaningful new long-term growth opportunities that were not previously available.

• Q: Can you confirm management's confidence in the long-term 20-25% annual organic growth target, and what are the key drivers of this outlook?

  A: Management clarified that the 20-25% target is not a slowdown from recent performance, but a reflection of the consistent 19-36% quarterly growth trend seen across all five quarters since the IPO. Strong, sustained demand from end markets including missiles, munitions, interceptors, space and launch, and counter unmanned systems easily supports this growth trajectory at least through the end of the decade, so management remains confident in the range.

• Q: What drives the expected slight EBITDA margin step-down in the second half of 2026, and what should we expect for normalized long-term margins?

  A: Higher first-half margins reflect a more favorable contract mix, with a lower proportion of lower-margin cost-plus contracts from the recently acquired Siemen and MSC businesses. Second-half margins will normalize to a level still slightly above the prior guidance, so the shift is driven by mix not underlying margin pressure. Management does not expect margins to consistently exceed 30% long-term, but is actively optimizing the integrated business to create financial flexibility that can be used to protect margins, reinvest in growth, or deliver incremental margin upside depending on what maximizes long-term shareholder value.

• Q: Why is the company moving to annual organic growth reporting, and does this change internal acquisition evaluation?

  A: The shift is only an external reporting change, driven by the company's fully integrated acquisition model that often moves existing work to newly acquired facilities for operational efficiency, which distorts quarterly organic growth metrics without changing underlying performance. Internal acquisition underwriting has not changed: base investment decisions are still made on the standalone organic projections of the target, with integration synergies treated as upside. This approach remains unchanged despite the shift in external reporting frequency.