AADX

• Company Milestone & Balance Sheet Update

  • This is Applied's first earnings call as a public company, following a successful Q2 2026 initial public offering (IPO)
  • IPO generated $635.7 million in net proceeds, used to repay outstanding debt, reducing pro forma net leverage to 2.7x, strengthening the balance sheet and increasing financial flexibility for investments in scaling capabilities and operations
  • Chris Rogers was promoted to President and Chief Strategy Officer, with expanded enterprise-wide strategic and operational oversight

• Core Business & Differentiation

  • Applied is a vertically integrated advanced design, engineering, and manufacturing provider of mission-critical aerospace and defense hardware for extreme environments, serving leading space and defense primes without competing with customers by design (prime-agnostic operating model)
  • Core differentiation is an integrated platform of deep engineering expertise (over 220 engineers, 400+ technical subject matter experts), advanced material science capabilities across resins, RF transparent materials, metals, and space-grade polymers, and decades of accumulated proprietary process intellectual property, with ~88% of revenue tied to IP-enabled processes
  • Operates 11 U.S.-based purpose-built facilities across 6 states, totaling 1.5 million square feet of production capacity, with ~40% of capacity currently available to support future program ramping

• Operational & Growth Highlights

  • Total contract backlog grew to a record $1.1 billion, up from $871 million at year-end 2025, providing strong forward visibility into 2027 and beyond
  • The integrated platform model is driving larger wins: customers increasingly access multiple complementary Applied capabilities at once, enabling more vertically integrated solutions that improve speed, cost, and production ramp capability, leading to wins that would not have been possible as separate businesses
  • Strong growth momentum across all end markets: rising launch cadence and proliferated satellite constellation build-out drive space segment growth, early positioning on next-generation defense aviation programs delivers long-term growth alongside stable recurring aftermarket demand, and integrated capabilities have driven new customer wins and strong momentum in solid rocket motor cases for precision strike
  • M&A activity remains active and disciplined: the CBI acquisition is delivering expected synergies, and management maintains clear criteria for internal investment vs. external acquisition of new capabilities
  • Priorities for H2 2026: 1) Drive enterprise-wide operational excellence, proactively manage supply chains, mature ramping development programs, and build out leadership and talent infrastructure; 2) Coordinate and strategically triage the dynamic new business pipeline, prioritizing opportunities across both long-standing prime customers and new high-potential first-time customers; 3) Execute ramping for high-growth next-generation programs while continuing proactive capacity and capability investment ahead of demand

• Full-year 2026 guidance is maintained at $670 million to $690 million in total revenue, and $150 million to $155 million in non-GAAP adjusted EBITDA, despite $167.3 million in Q2 revenue exceeding internal plans due to timing of revenue pull-forward from the second half, which does not change full-year expectations
• Management expects sequential revenue growth through the remainder of 2026, with the fourth quarter 2026 as the largest revenue quarter of the year
• Full-year 2026 capital expenditures are expected to total ~$50 million, focused on capacity investments to support production ramps
• Positive free cash flow is projected for the second half of 2026, as first half working capital investments in inventory and contract assets are converted to cash through H2 deliveries
• The 2026 full-year effective tax rate is expected to be ~7%, driven by one-time items recognized in 2026, which is lower than the company's long-term expected tax rate
• ~50% of the current $1.1 billion backlog is expected to convert to revenue in 2027, with the remainder of 2027 revenue expected from future orders under existing long-term agreements, providing strong visibility for 2027 growth

Applied Aerospace & Defense reports three core product/end market segments for Q2 2026:

1. Space and Launch Systems: Revenue of $38.8 million, representing 23% of total Q2 revenue. Revenue grew 58.5% year-over-year, driven by high volumes for priority launch vehicle and satellite production programs, including sustained demand for SpaceX Falcon 9 content and ramping demand for Blue Origin New Glenn content.
2. Defense Aviation & Airborne Systems: Revenue of $78.9 million, representing 47% of total Q2 revenue. Revenue grew 4.8% year-over-year, as early-stage next-generation programs (including Anduril CCA Fury and Bell MV-75) moved into production, alongside sustained high recurring aftermarket demand for life-limited flight-critical parts across large installed aircraft fleets.
3. C5ISR & Precision Strike Systems: Revenue of $49.6 million, representing 30% of total Q2 revenue. Revenue grew $13.7 million year-over-year, with significant contributions from the recently acquired CBI and strong demand across integrated air and missile defense systems and precision strike programs.

• Early-stage ramping programs face temporary margin compression during initial production and learning curve stages, though management expects this compression to be short-lived, with margins improving as volumes ramp through 2026 and 2027
• Industry-wide supply chain congestion is impacting operations, though management notes a clear path to resolution and is actively mitigating issues
• Raw material inflation has been observed, particularly for aluminum, driven by elevated oil prices impacting input costs, though this impact has been immaterial to date
• A U.S. federal continuing resolution (CR) for fiscal funding could potentially impact ramping of next-generation programs in 2027, though near-term backlog is already funded, and the company's diversified portfolio insulates it from near-term impacts
• The MV-75 program faces a reported funding gap from prime contractor Textron, though management has not experienced impacts to date and has been directed to continue work, with only potential near-term headwinds expected if issues arise

Q: Backlog grew to over $1.1 billion, much higher than prior IPO-era projections. What is the expected timeline for backlog conversion across end markets over the next 12-24 months? / A: Management generally views backlog as providing a 12-18 month forward view of the business. All remaining 2026 projected revenue is already covered by firm backlog, and approximately half of the current backlog will convert to revenue in 2027. The balance of 2027 revenue will come from additional orders against existing long-term agreements, and backlog already provides strong positioning for 2028. Backlog strength is consistent across all three end markets.

Q: Blue Origin's New Glenn program recently experienced a launch anomaly. How does this impact Applied's space segment outlook for H2 2026 and beyond? / A: Blue Origin has directed Applied to continue ramping work on New Glenn at the original pace, with no slowdowns, aligned with Blue Origin's public statements on the program. Management remains very optimistic about overall growth in the commercial space economy, and sees additional growth momentum in Applied's proprietary space tank business across other emerging space programs, with preparation underway for major ramping through 2027.

Q: SpaceX's Starship program is hitting key development milestones. What is the status of Applied's potential supplier work for Starship, and what is the expected timeline for revenue if opportunities progress? / A: SpaceX is a key existing customer for Applied via significant Falcon 9 content, and Applied is actively working on multiple potential opportunities related to Starship today. Falcon 9 orders are expected to continue through 2030, consistent with SpaceX's public guidance, and there is potential upside if Falcon 9 production runs longer than currently modeled. While Starship's primary design uses metals, Applied sees relevant capability for payload-related applications, with multiple development opportunities already in progress, and is bullish on the long-term opportunity.

Q: New multiyear munition industry agreements are emerging. As a supplier, is there a tradeoff between long-term revenue visibility and pricing/margins for these contracts? / A: Applied has already proactively invested in capacity to support these multiyear programs, and its integrated platform allows for efficient delivery aligned with customer needs. While negotiations are ongoing, contracts deliver fair pricing that provides good value to customers and attractive returns for Applied. Long-term volume visibility from these agreements also improves manufacturing efficiency, which offsets any potential pricing concessions, and these contracts align well with Applied's core capabilities and national defense priorities.