Karman Holdings Stock

Thanks, everyone, for joining us this morning. Phil Ingle, Morgan Stanley Investment Bank. Have been at the firm for 25 years. Very pleased to be joined by John Rambeau, the CEO of Karman Space and Defense. We've got a little bit over 30 minutes. Before I get stuck into questions, and John, I don't know if you'd like to add anything to this.

Just want to bring to everyone's attention that the company did release this morning, a set of investor materials that has some details around some commonly asked questions from people in this room and outside around growth, working capital, how some of the M&A acquisitions have been performing. So I don't know if you want to add anything to that, John?

I think you hit it perfectly. But as we receive inquiries from investors, we think it's important to receive that feedback and respond to it. So I think the materials we put out this morning should help to clear up some of the questions folks have had in recent weeks.

Great. Well, first question for me, John. You've been at Karman now for around 6 months. You've come from an extremely long pedigree history in the defense space at Lockheed Martin and L3Harris for 30 years. So you've got a lot of context. It would be good just to get your perspective, having been in the seat now for 6 months on what you've seen that you've liked most about Karman. And then also, I don't know if there's 1 or 2 things that you've sort of noticed that, hey, this is where some real opportunities are to improve and drive performance.

Yes. Yes, happy to start off with that. It has been a real joy joining the Karman organization. I've really enjoyed my time in the defense industry over the last 30 years or so, 26 years with Lockheed Martin and then several years with L3Harris. And great companies, great colleagues there, good friends that I have for the balance of my career. But I have to say coming to Karman was just a completely different and exciting opportunity for me.

And as I've gotten to know the company, what I've appreciated most is the creative thinking, the agility, the drive to continue to perform and deliver. And as I've looked at the company carefully coming on Board, the careful selection of the businesses and the end markets that they're in, the growth trajectories of those end markets and then the synergies we can unlock by bringing some of those complementary capabilities together.

It's an exciting company at a really exciting time where we're seeing significant demand in these end markets. In terms of areas of focus, I think it's the logical things, the continuing integration of the company. I've gone out and visited every one of our operating locations now. It took me a few months to make that happen. And I can say that there is significant opportunity to continue to optimize the infrastructure.

As you might imagine, having put this business together over a series of years here with about 10 different component companies, some acquired pre-IPO and some we've acquired since. A lot of opportunity to continue to optimize to migrate work across that enterprise and most efficiently use the capability that we already have, and that's only going to give us lift as we continue to mature and to grow as a public company.

Another area, which I'm sure we'll talk about a little bit is as we continue to grow and scale, continuing focus on working capital, continuing to efficiently manage cash and provide a little bit more insight into that as we move forward into '27 and beyond. So a few things you probably expect there are still opportunities for us. But overall, I'm very optimistic about where the company is, and I'm excited about the future.

John, so when you -- that perspective is useful and you look at the company, you look at the growth numbers you've put up, sort of 50% top line, I think, split half, half organic, inorganic. We'll come back to some data points on growth, including the strong book-to-bill of the company has continued to drive 30% EBITDA margins, which again are best-in-class in defense. All that looks good. Multiples come down, though, over the last 6 months. So what are investors, if anything, missing? And what are some of the misconceptions that people on the outside, you've given your perspectives from the inside may be missing about the company?

Right. Yes. I know for those of you who have followed the stock closely who are investors in the company, you know the story pretty well. But just to give a little bit of an overview, some of the things that I think differentiate the company a bit and that people don't always understand when they first start looking at Karman. First off, we're not a holding company.

Karman was built, as I said, through a series of acquisitions, both pre and post IPO. And at the same time, we don't run those businesses as they were when we bought them. We actually integrate those businesses to operate as an effective unit. So we optimize at the enterprise level, it's common systems, common processes, and leveraging common infrastructure and factory capabilities across Karman to process work in all of our end markets in the factories that are most efficiently and best positioned to do so.

That's led to some interesting conversations about the importance of organic growth. And we had historically been periodically providing organic growth updates. I think there was a demand from investors for more of that sort of information. So on our last quarterly earnings call, we provided a lot more granularity on historical quarterly organic growth.

That was really well received. And so as we go forward, recognizing there are some puts and takes as we move work around the enterprise, I think net, it is still valuable for us as a business to offer quarterly organic growth metrics every quarter. So we are committed to do that going forward. So that's been a really important and valuable set of feedback I've received as the new CEO of the company.

The other thing I would say about Karman is it differentiates us from many of the companies that have entered into the defense tech space. We are not bringing a capability that we've invested in and grown organically and bringing that to market as a prime contractor. Instead, we've taken the approach of being a merchant supplier operating as a first-tier subcontractor to the prime.

So we're represented on 150 different programs with 150 unique customers. And so that gives us real durability as we see the ebb and flow of individual programs because in the end, we're kind of across each of the end markets in its totality, supporting virtually all of the customers that compete in those markets as primes. So that's a benefit for us. It's a risk mitigator for us.

And we also have tended to largely acquire existing mature production lines that have proven products that are present on existing established programs. And so relatively quick return, relatively lower risk sorts of business. And even as we enter into new development activities, it's typically designing the next generation is something that we already know how to design and something we already know how to build.

So risk profile of the company is, I think, very attractive as investors consider what differentiates Karman from some of the others that are out there. Last thing I would talk a little bit about in terms of understanding is backlog. We did make an adjustment to the nomenclature by which we refer to backlog earlier this year. We changed from the terminology of funded backlog to backlog.

And I want to be very clear that did not change our definition at all. That did not change how we book contracts into backlog at all. And we made 0 backward-looking adjustments to backlog as a result of the change. The nuance there is, as a first-tier subcontractor, we focus less on whether a program is funded at the government level, and we've always focused on whether we did or did not have a binding commitment to do business from a customer, a firm purchase order, a signed contract, a written authorization to proceed to incur cost and invoice against that cost.

So those are the categories of things that go into backlog. That's how we've always done it. That's how we'll continue to do it going forward. So there have been some questions about whether we had taken a more broad interpretation of backlog to include maybe options or IDIQ line items or speculative projections about future work. None of that has ever been in nor will ever be in going forward, Karman's backlog. So I guess those are probably the top 3 that would come to mind as things that we've been trying to clarify as investors consider moving forward and investing in Karman.

That's super useful, John. So you start -- and obviously, as I mentioned upfront, one of the standout features of Karman is that as a starting point to growth. So I've got a few questions growth related. First of all, I wanted to start at the high level. Hypersonics, missile defense, space and launch, submarines, UAS -- how do we think about like broadly at a big picture level, where you see the biggest opportunities on the growth side within the general bucket of priorities that the customer and the market is driving right now?

Yes. All of the end markets that Karman has chosen to be in, whether it's tactical missiles and integrated defense, which is inclusive of unmanned systems, hypersonics, strategic missile defense, maritime defense, space and launch, all of those are seeing generational growth trends, double digits annually, and it's really been a tremendous lift for Karman, and we think it will continue to be for some years to come.

If you look across those and say what's driving the most growth for the next several years, I would say, first off, it's tactical missiles. I think everyone is aware of the situation. If you picked up the Wall Street Journal this morning, continuing to focus on depleted munition stockpiles and how the nation can replenish those as quickly as possible.

So that's going to be a huge growth driver for us. The unmanned systems part of our business. We have come to market as a merchant supplier for the launching systems to support the small unmanned systems, the loitering munitions that are the interceptors that are being used in Ukraine, for example.

We've been a provider to a number of the primes there, and we provide whether it's a launching system that uses a gas generator to push the vehicle out of a tube or the small solid rocket motors that can be used to boost those vehicles out of a launch tube. It's not just about providing a tube, it's an integrated system that can be plugged in, drop the vehicle in and you go off and you launch it at your discretion.

So that's an area where we're going to see, I think, significant growth based on demand that we're seeing around the globe. The third area would be space and launch. The demand for launch far [ outceeds ] the launch capacity that exists in the system today. And so we're working across the providers in the launch area as well as starting to do more work for space vehicles themselves, lunar landers, satellites, et cetera. So that's another part of the business that we think is going to see tremendous lift in the coming years.

And then on specifics, if I look at some of the numbers, I think last quarter, backlog was up, I think, maybe over 80%. Your book-to-bill was 1.6, I think over the last year or 18 months, which is obviously very impressive, I think higher than what was guided to at the time of the IPO. I know you went there of sort of more like 1.2, 1.3. So healthy numbers. Specifically, how should investors think about the organic growth algorithm to the extent you're willing to share it sort of on a numbers level going forward?

Yes. I think that we'll continue to see this, call it, 25%-ish annual organic growth as we go forward, at least through the end of the decade. We've been guiding 20% to 25%. We've been historically seeing on the upper bound of that, very close to 25%. We're at 25%. And per our guidance this year, that's the track we've been on.

So that's what we're seeing in terms of organic growth. And then as we find opportunities for the right inorganic transactions to come in and supplement and expand our total addressable market, we see that as just opportunity for additional upside for growth for the company. But that trajectory, we think, is going to continue pretty steadily for the next several years.

Obviously, impressive numbers. You need to find space to build the path to fill that. How should we think about I think you mentioned you've now had time to go and see all the facilities. How should we think about capacity expansion that's needed and dollars that need to go in the ground and where you're at in terms of being able to have the dollars in the ground and the people on the ground to support that growth?

Yes. One of the most significant areas of focus when you're growing 25% a year organically is how do you keep ahead of that from a capacity point of view. So it's facilities, it's about having the right labor base to be able to scale. We're making several significant investments that are underway this year.

We have our largest project that's active is in Salt Lake City. We're putting in a new 200,000 square foot manufacturing facility, which is going to principally provide additional capacity for solid rocket motor nozzles, which huge demand for those right now as well as significantly more production capacity, about 4x what we have today for those small unmanned systems launching capabilities that I was just talking about.

So that's one of our most significant projects. We have a new energetics facility that's being built in Skagit, Washington, which is north of Seattle. So that one is in a stage where I would say we have our initial prototyping capability in place, warehousing, test facilities so we can test different propellants on a test stand and capture that data as we look to qualify new materials for advanced applications.

And then we have a smaller energetics facility we're putting up in Cedar City, Utah. And finally, we have a new advanced materials facility that we're building out in the Philadelphia area. So those are major projects that are underway this year. And we're actually going through the process now of framing out what additional capacity we're going to need as we get into '28 and '29, how do we kick those projects off in the January time frame of '27. So we continue to be out there a little bit ahead of need, but not too much further than we need to be.

Interesting. A lot going on there on the manufacturing front. I'll come back to that now on the margins, just to switch gears. Firstly, I mentioned upfront, obviously, the 25% organic growth, attractive -- very attractive relative to a lot of the rest of the peer group. The margin profile is also attractive at 30-odd percent. Although I did notice, I think in the last quarter, it was down 70-odd basis points. What was the driver of that? Was it M&A mix shift? Was it some of this capacity expansion that's going on? And just as a general starting point, how should the investors in this room think about how those margins evolve over time, both with the growth and then the investments you're making in capacity?

Yes. I think we'll see margins continue to hold relatively steady at around that 30% EBITDA range where we have been historically. There's been a little -- I think we peaked in the 31% range, which might be, I think, the relative delta from prior year, but still this past quarter, I think we came in just about at 30%.

And as we look forward, we're continuing to hold that projection. We are looking for operating leverage. We are looking for those efficiencies that I talked about as we look to move work around the enterprise to maximize the available infrastructure that we have. And as we do those things, I'm looking to create financial flexibility and it would be to support several things.

Number one, how do we make sure that we have some financial contingency so if we do get ourselves into a situation where we feel we have to reduce our pricing a little bit on a particular customer, whether that's to keep a significant piece of business sold or whether that's to win something new and strategic for the company that we have the ability to offset any additional margin pressure we might take on an individual job and to offset that with some of that flexibility to hold at the enterprise level our margins consistent.

Number two, do we have additional flexibility because we've created that financial benefit to be able to invest more quickly into the business to be able to scale even more rapidly than we are today? Or finally, do we have an opportunity to provide some additional margin lift at the bottom line? So those are the 3 things I'm keeping in the back of my mind. But first step is to create the financial flexibility so you can make those choices. And obviously, those choices would be traded off in terms of what is the long-term best value answer for the shareholder.

And then tying both in the growth piece and margins is LTAs. Different companies in the sector think about LTAs differently. It's a positive of having the visibility, there's the negative of many LTAs I've got sort of price locked in as opposed to PO to PO and be able to drive it. Philosophically, at a starting point, how do you think about LTAs and how much do you want? Do you want LTAs everywhere, nowhere, mix? As a starting point, how do you think about LTAs and the importance thereof or not?

Yes. Generally, for Karman, LTAs are going to be a very good thing. Of course, there may be some circumstances where it may not be the right decision for the company. But as I talked about earlier, given the risk profile of what we do, these established long-running production lines, higher volume, relatively quick turn product, the cost of producing those products relatively well understood.

So for us, that certainty, whether it's a 5-year space and launch LTA that we closed in the second quarter and announced or whether it's the 3 long-term missile LTAs that we're currently working through with the primes in support of the Department of War priorities for replenishment of the stockpiles.

Those LTAs are going to be very good for Karman. It will provide us long-term visibility. It will provide us assured pricing. There is appropriate escalation that will be included annually via some kind of an index that we'll be able to link to, to give us that escalation annually to cover inflation. And it will give us the opportunity to operate more efficiently, level load the factories and to lock in our supply chain with advantaged pricing as well. So I think that the benefits are significantly in excess of the challenges there. We just have to make sure that we understand each one of those quite well before we lock them in.

You answered the question. I was going to follow up on that, which is the dynamic in your LTAs around -- because some companies elsewhere have gotten upside down, particularly in the world of inflation on the cost piece, but it sounds like you've got appropriate protections there around inflation on the cost side of the equation to maintain margins?

Yes, yes. And it's my understanding that the prime level is these framework agreements that have been put in place between the government and the primes, as those are implemented, there's an appropriate escalation clause that's part of those. My understanding is those will be in ours as well when they're finalized. So I think that's the right answer.

Yes. Yes. That makes sense. And then you talked upfront, and I mentioned the materials that were released this morning, also talk about, which I know you've gotten questions around, which is working capital. How should we think about that piece of the equation? And specifically, noticed that as you've grown the contracts asset side of the balance sheet has grown. And so how should we think about where you are today on a working capital front, how that looks going forward? And then obviously, how that, therefore, relates to the conversion of the EBITDA and the cash flow.

Yes. Working capital, as some folks have noted in our conversations on an absolute level has been increasing as the company has grown. What we're most interested in is proportional to top line revenue growth, how is working capital trending. And so if we look at something like contract assets and inventory, for example, those are continuing to come down as a percentage of top line revenue.

And also, if we look at it on a days sales outstanding or DSO basis, we were at, I think, 111 days for contract assets at the time of the IPO. We're down to, I believe, 94 days sales outstanding now. So we are getting more efficient as we continue to scale the company, and we have more work to do as we continue to move forward and drive that down.

As we were growing the company in the early days, revenue and EBITDA were really the primary metrics we were driving toward. It was capture the growth, make sure we're capturing profitable growth that's going to give us long-term lift in the business. And we recognize also as we grow and mature as a public company, cash also becomes an important validator that the strategy of the company is actually yielding results.

And so we have committed to deliver positive cash in the second half of the year. We're on track to do that. And as we move into '27, we will be providing specific guidance around cash flow expectations for the coming year and beyond. And we also are going through an exercise now of developing our first ever 5-year financial plan. So we're going to be doing some very long-term planning for the business.

We're going to focus on efficiency and working capital more significantly than we have in the past. And we are also going to be including cash as a metric as part of our executive compensation plan beginning in 2027, where historically, it's been, as I said, driven more around revenue and EBITDA. So those 3 will all become important as we move into next year with cash being a new component.

That make sense because I know some of you previous employees, including Lockheed and L3Harris for those companies, working capital is an extremely focused on metric and those free cash flow. So it makes sense as Karman's matured and has become a larger company that, that should also be a place for you to focus the rest of your team on. M&A, you talked about the sort of general algorithm as you think about growth going forward, which is the 25% organic growth and then 25% sort of 50-50 split, if you want to M&A as well on top of that.

You've also talked publicly about sort of 1 to 2 deals a year, $5 million to $15 million of EBITDA, ideally around 10x multiples. And so far, since the IPO, I think you've been on track for that, maybe actually a little bit ahead, 2.5 sort of deals a year, if my math is correct. So understand the framework. How should we think about the sorts of companies that you're looking to pull into the tent? And how should we think about how healthy the pipeline is in the funnel is and sort of what you've got set up to continue to drive that M&A profile going forward?

Yes, happy to. Right now, we have actively -- I mean, the pipeline is always significant. If you look across the breadth of what's out there, we typically focus on evaluating actively 3, 4, 5 at a time, and some of those come to fruition and some of those for a variety of reasons don't. They have to pass through a series of screens in order to be the right candidate. We start by looking at the end markets.

And aside from the strategic move into maritime defense, otherwise, we have stuck very carefully to those end markets because they were chosen based on specific growth trajectories and opportunities that we saw for consolidation within those those segments. So we look at the end market. We look at the degree to which the capability has discriminating intellectual property associated with it, advanced technology, manufacturing IP, design IP, both.

And then we look for the growth trajectory of the business has to be right. The margin profile for the business has to be right. And if it passes through those screens, then we'll move to the next step of discussions. Typically, we are buying, and I think exclusively since we started Karman, all of the businesses we bought have been outside of a bank process.

We don't generally go into these auction scenarios and it oftentimes will drive the price of the property up. We tend to reach agreement at a very reasonable multiple. And we provide some detail on it in the package that we released, but 10x is kind of the multiple that we look to close at or maybe even a little bit better than that at times. And then we also look for businesses that are family-owned, founder of first generation led businesses because those businesses tend to want to be part of Karman not just for financial reasons.

The owners of the businesses care about what happens to the employees down the road, and they see the opportunity to bring that business into Karman and be part of something special and to grow together for the future. And many of them have continued to stay involved in the business at some level after the transaction has been closed. So there's a very specific profile and success formula that we look for, and we'll continue to hold ourselves to that pretty carefully as we go forward.

Now as the company continues to grow, will we look occasionally at businesses that are a little bit larger than that $5 million to $15 million of EBITDA. We have a couple out there that are a little bit larger. Nothing that I would say is serious and near to the boat at this point in time. But we're going to gradually expand our horizons as we look to the future. And we also, with the recent acquisition of Walker in the U.K., have made our first international acquisition. And we're looking at opportunities to grow the company.

One opportunity is to go upmarket and become a prime contractor, which we think is not the best answer for Karman. We are a good partner to the primes. We want to continue to maintain good positive relationships there as a partner, not as a competitor. But the opportunity to drive the Karman model laterally and to start to access the international markets, I think, is a great opportunity. So Europe certainly is a great place for us to have a beachhead now. We're also looking at places like Australia and potentially Canada.

Yes. A very thorough answer, and you actually included in a lot of the follow-ups I had, one, which was how you potentially think about larger deals. And obviously, it's a consideration, but it doesn't sound like there's anything that at least right now is in the sort of transformational bucket. And then two, I was going to ask you about Walker, which was your first foray into Europe. Maybe a follow-on to that or 2 follow-ons. First of all, the pipeline, as we look at it, how much of that pipeline that's out in the future is weighted to those international regions versus the U.S.? And secondly, how should we think not just M&A-wise, but about your broader Europe strategy?

So I would say the pipeline, if you just look at the number of businesses we're looking at actively, I would say we're still north of 75%, 80% U.S. domestic content in the end markets we support today. We do have 1 or 2 that we're looking at that would be non-U.S. There's not a huge pipeline in Europe at this time.

We just closed the transaction with Walker a couple of weeks ago. And what's important to me now is to make sure that the initial integration activities come off without a hitch. So we have to close Q3 from a financial point of view, make sure that gets wrapped up. We have some IT integration. We have to make sure we put the right export controls in place between the 2 parts of the business, so we don't get ourselves into trouble there with the export regulations.

So there's a lot of work to do to get Walker plugged into Karman. Now as we move into 2027, I would anticipate we'll start looking a little bit more actively at what else is out there in Europe. And we did acquire Walker with a view that this is a business that's performing well today. It's well positioned in the European missile market with European missile primes.

They have good content and seekers and guidance systems on those programs. Seekers and guidance systems is a capability that Karman has not had historically. So they bring a complementary capability in the right end market, the right growth trajectory, the right margin profile. And what I also like is that there have been some work done by the prior owners of the business to bring in a very professional management team to Walker.

So that is a team that we believe has the capacity to take on more over time. And so as we think about incremental acquisitions in Europe, we think those could be managed effectively by the leadership team that's in place there. So we're pretty excited about that.

And there's another part to your question. Just -- and how do you think about Europe generally in your strategy, not just M&A, but company-wide, the European strategy for us.

Yes. So this is an area where, obviously, with European defense spending on the rise, it's a place we want to have a footprint. So Walker helps from that point of view. And certainly, we can continue to participate in the programs that Walker is a part of today. We have opportunities to bring other Karman capabilities to Europe. There is additional capacity in the Walker manufacturing footprint today. So for example, as the U.S. primes are looking at localizing in Europe to sell more of their capabilities into the continent, there are opportunities for us to take things we do for them today in the U.S. and to localize those things in our European footprint.

So I think that's something that can be a benefit. And there are also opportunities to bring Walker capabilities to our U.S. customers. And in fact, some of Walker's work today through the European primes ultimately finds its way back into U.S. domestic programs. So I think there's a lot of opportunity to take advantage of the combination of the 2 organizations to leverage in both directions.

So add of interest, how did Walker come on your screen?

It was relationship-based. It was relationship-based through the -- some of the other businesses we've acquired over the years, there were some common relationships, and we got a phone call and it was before we go through a bank process, there's a company who's interested in selling. We think it could fit the profile of Karman, would you be interested in taking a look at it. So it happened. It happened pretty quickly, and it ended up being, I think, a good deal for everybody.

Yes. And then one last question on M&A, which is obviously integration is an important part of it. How is the integration going on the acquisitions you've done? And how should the team think about the tools, personnel, people and systems you've got set up internally to make sure that the deals you're doing are being integrated right and then lining up with the growth algorithm of the business going forward and also the margin profile.

Yes. That's something we put a lot of attention toward at Karman. We've put together what we call the Karman operating system, which is a common framework of IT infrastructure and ERP system, personnel systems, factory management software. And we are deploying that across these acquisitions on a phased approach as we bring them into the company.

So that was something when I came in the door that I looked at and I said, well, that's a lot of progress for a company the size of Karman that's growing as fast as they are to have done that diligence and thought that through. And we're continuing to mature that strategy every day as we work as a management team to continue to integrate the business.

The -- we're putting in place a talent management framework in Karman. We're getting to the point where we want to start thinking about rotating executives and leaders around the company, and we're doing some of that already, and there's more to be able to do. And then fundamentally, if you look at just the bottom line results, the acquisitions that we have executed on are meeting and, in many cases, exceeding expectations.

The Seemann Composites acquisition has performed substantially better than we expected at the time of the acquisition, both in terms of the backlog they've delivered, the growth of the business and the bottom line profitability, which we anticipated there would be a margin headwind because of the cost type work that they have in Seemann Composites supporting the Navy.

But actually, they've been able to offset a lot of that, and that's been a real plus for us. So generally speaking, we've done well with the integration, and it's going to continue to be, I think, a best practice for us as we move forward to continue to keep doing what we're doing.

Yes, that's very positive. I guess -- and by the way, John, I say this very genuinely, very, very thorough detailed answer. So there may not be follow-ups in the room, but let me offer it up to anyone in the room to see if there are questions. Christine, there's one from you.

By the way, it was very helpful to hear you clarify the order book and your approach to how you're defining backlog and not including IDIQs. But I guess when you look at the opportunity, you've got multiyear framework agreements being discussed by the Department of War. You've got varying degrees of maturity in some of these discussions. It seems like the Tomahawk has moved farther along than some of the other contracts.

But if you take a step back and look at all these opportunities as a whole, can you start quantifying how large this opportunity could be relative to your existing backlog? And then also, what does the CapEx requirement for that look like if these things materialize in definitive agreements? And what kind of -- I'm assuming you will get cash advances upfront. So it would be just helpful to understand. I think right now with the uncertainty with the funding, people are hesitant to talk about the large opportunities, but this is a big elephant in the room right should they materialize. So any comments there would be helpful.

Yes, happy to. Where we are with those discussions now is we're moving through the process. I think in the beginning of the year, we had talked about 4 contingent supply agreements. One was a space and launch customer, which we subsequently completed negotiations and booked in the second quarter. The other 3 are related to those missile framework agreements.

And 2 of those 3 are, call it, multi-part number sorts of long-term agreements that support multiple different missile platforms. So there's a lot of complexity in those, and there's a lot of opportunity in those. And we will see 2 things. We will see the annual run rate of business go up substantially because the volumes on an annualized basis are going to be higher than what we've built historically for those missile programs and also the duration of the contracts, of course, just substantially longer term.

And it does look like at this point in time, we're on track to be able to secure those multiyear commitments upfront, which is, I think, what the primes would prefer because they'll be able to lock in their supply chain and have that certainty over the duration of those framework periods of performance.

And also, we think for us, it's just -- it's great to have the certainty. And if those are firm contracts that have minimum annual quantities, and those minimum annual quantities that are guaranteed and contractually committed would go into our backlog. Anything that was upside to that, of course, would not. But it will provide us with both on an annual basis and certainly over a much longer term, a lot more certainty around the backlog.

Any other questions from the room? Otherwise, just one last question from me, John, and that is just as a general question at the end, sort of putting everything together, what is sort of one key takeaway that investors should take away from this conversation and just generally about Karman? And then maybe as a sort of second part to that, what is one sort of risk that the Street may be underwriting that you think they're over-indexing on or shouldn't be indexing on?

Yes. So I guess what I would say is my takeaway for investors is Karman is a highly differentiated business. We're a merchant supplier across virtually every prime and the end markets we support, the businesses that became part of the company have been carefully selected for their growth and margin profiles and discriminating intellectual property that came with those businesses. And so I do think we're differentiated from many others that are out there, and I think we're going to be a really good bet for the long term.

One of the things that I think is an area that we've gotten a little bit of feedback on is that there is a very positive value proposition for Karman. The data that's been put out there to date has been supporting that thesis. And at the same time, as we continue to put quarter by quarter by quarter on the Board, there's a greater and greater sort of legacy of performance that will leave behind us.

We have met and, in most cases, exceeded the commitments we made at the time of the IPO. We're just going to continue to build that track record of performance. And I think that's just going to naturally continue to raise investors' confidence. And last, but not least, we're going to continue to take your feedback and provide you as much transparency as we can so you have insight into some of the questions that you've been asking us. So I appreciate the continued engagement and feedback, and thanks for being here this morning.

Well, thank you, John. As I said, very thorough answers. I appreciate you joining us here for the Laguna Industrial Conference. Hopefully, this is the first of many attendances to come. We appreciate the time, and thanks to everyone for listening in here. Thank you.

Thank you.

Thank you. Thanks, everyone, for being here. My name is Sheila Kahyaoglu with the Jefferies Aerospace, Defense and Airlines Equity Research team. We have the Karman team here with us, Karman Space & Defense, Jon Rambeau, who's the CEO. Jon, thank you so much for gracing us with your presence and allowing us to visit some of your facilities as well earlier this year.

So maybe just to kick it off, for those who aren't as familiar with Karman, what do you guys do? You've grown tremendously, 24% organic growth in Q2, and you kind of started this defense tech IPO wave. So can you give us a quick background on Karman and how you're growing so much?

Yes, I can. That's a great place to start. So for those who aren't as familiar with the company, we've been a public company now for, call it, 18 months or so. We've got about 5, 6 quarters under our belt. And the company has performed consistently and has had very strong performance since the IPO. So just a little bit of backward-looking performance here. We have both from a top line and a bottom line point of view, we've exceeded consensus on both metrics every quarter since the IPO and continue to remain focused on that very strong performance. The company was put together around the strategy to be a merchant supplier across the 4 end markets that we play in, those 4 end markets being around space and launch, maritime defense, tactical missiles, hypersonics and strategic missile defense. Those are high-growth markets that were specifically targeted as areas for Karman to acquire established businesses with established product lines and capabilities that were IP-rich, that were competitively protected to a certain extent and would provide us a strong foothold from which to grow in those end markets. So since the time of the IPO, we've continued to execute well from an organic growth perspective, about 25% a year organic growth has been our performance. That is our projection as we look forward. Industry-leading margins at about 30% EBITDA margins as we've seen since the IPO as we continue to look to the future. And then the companies we've acquired since IPO, there have been 5, those are also performing comparably to the base business. So the company overall has continued to have a very positive outlook. I feel good about the future. I feel good about our guidance for this year and the years to come.

That's great. 25% organic growth is nothing to sneeze at. As you think about that multiyear outlook, how do you think about the drivers to get to that double-digit rate?

Yes. All of the end markets that we play in, again, because we chose those very intentionally have very strong growth vectors. The areas that are strongest are in the missiles and munitions area, and a lot of that growth is very clearly laid out as part of the Department of War's priorities around the Munitions Acceleration programs or MAC programs. as they're often referred to. Second area I would mention is the space and launch area. We do support all of the established and newer entrant space and launch providers. So that's an opportunity for us to see significant growth as we continue to see the resurgence of the space economy. And then the third area that I see as a primary vector for growth is around unmanned systems, whether we're talking about unmanned systems platforms, loitering munitions. There's a whole category of systems that typically are launched from a relatively standardized tube-based launching system, and Karman has a very strong position across a broad range of providers there in that unmanned system space. So those are probably the top 3, although, again, all of the end markets are very strong.

That's super helpful. And maybe just to double-click on the missiles growth. How do you think about what Karman offers and how -- the demand will be sustainable given the frameworks, but how do you think about Karman's offering across the platforms?

Yes. We have a very broad footprint across those platforms. The missile work that we've done is very well established, in many cases, single and sole source positions. And recognizing where the trajectory of this end market was headed, Karman has leaned in and made commitments to expand facilities, expand our investments in equipment and personnel so that we are on a trajectory to ramp at or beyond the rates at which those overall programs are going to ramp up. We've gotten a lot of questions about whether there's going to be second source activity in the missile market. And what I can tell you is that we see this much more as an opportunity for Karman to play offense rather than play defense. Of course, we're always concerned about making sure we continue to be competitive and capitalized in order to support our customers' demand signals. We think because of the proactive steps that we've taken and because of the active dialogue we maintain with our customers, there's not significant risk at this point in time that we're going to see erosion of Karman's current market share. What we are seeing is opportunities for us to go on offense where others in the supply chain haven't been able to keep pace or meet quality expectations, delivery expectations with our customers. And so we've been invited in a number of instances to either be in the qualification process or being evaluated for possible qualification to be a second source to other supply chain partners at this point in time. So it's a great opportunity for Karman to continue to do what we've already been doing and expand that across the end market of missiles and hypersonics.

Do you disclose your market share?

We don't disclose market share per se. We do break the revenue in our portfolio down by end market, but we don't talk about market share. We have at times, I think, talked about our percentage of the total bill of material on some of the platforms. I think that's about as far as we go. I'm looking at Steve. I don't have that number off the top of my head.

3% to 5%.

3% to 5%.

Half of the room says. I apologize.

3% to 5% of the total bill of material of an average missile.

And as we think about qualifying a second source or being the on-time deliverer of products, how do we think about that process to get qualified?

It's an extensive process. I mean we're talking minimum 18 to 24 months, and that assumes you're putting some focused attention toward it. So it's not something that a customer is going to enter into lightly. It's not something that is cheap and easy to do. It is something that's going to consume management attention, that's going to consume some resources, and there could potentially be some negative cost synergies as you divide your work across multiple suppliers. So as a prime customer, which I was for 30 years, I can tell you your first priority isn't going to go second source a green supplier who's investing to get ahead of the capacity demand. You're going to be focused on the suppliers who are not keeping pace. And so while it's something we always need to continue to watch, it is an extensive time-consuming tedious process to go through qualification. It can't be done overnight. And I don't have any evidence to say that there's any active process going on right now to qualify new suppliers for the work that we're doing today. We're seeing the opposite, which again is us being given the opportunity to do that for others.

How do you think about your capacity to deliver on missiles relative to what you could potentially expand as well?

I feel very good about our capacity to deliver, and I'll tell you why. We have a facility in Huntington Beach today that is continuing to scale up and is certainly getting a little bit tighter on space, which is why we have already taken the initiative to lease a new 200,000 square foot manufacturing facility in Salt Lake City. And the primary product lines that will be moving through that factory are some of the missile components that are currently being produced in Huntington Beach as well as the launching systems for unmanned vehicles. So those will be the 2 primary product lines in that facility. We will also have some additional capacity there, but that's what we're doing, again, just to get out ahead of the demand curve and where we see things headed.

[indiscernible].

Salt Lake City.

Salt Lake City. Sorry, Salt Lake City. Okay.

Correct.

And that's where you could increase launch capacity by 4x?

Correct.

And solid rocket motors by 2x.

Correct.

Got it. And so how does the capacity come online, I guess? Is it just all available today to start winning second source share?

The capacity will come online gradually. We'll have initial production capability for solid rocket motor components and launching systems by the end of this year. It will not be at full rate at that point in time, particularly even as you think about an existing supplier producing a missile component in a new facility, just the fact that you're moving to a new facility requires some level of qualification of those same processes in a new facility with new equipment. So we'll start the qualification process for some of those missile products at the end of this year, and we'll be producing some of the launching systems there by the end of this year, and we'll gradually ramp up over time. The other thing that we're looking to do in Karman as we continue to scale and integrate the company is to look at opportunities for optimization and consolidation. So as we have smaller facilities that are reaching capacity, we're starting to make some of those trades to say, if we have additional capacity that isn't going to be immediately consumed, should we look at consolidating some of those smaller footprints and taking advantage of the newer, larger facilities and newer equipment. So that's something we're actively studying.

And how do you think about your share -- your economics on your sole-source equipment versus as you look to secondary source some supply and help primes out and you already have the capacity built out?

I don't see any overall, call it, meaningful increase or decrease of margins. On average, I think we'll be positioned about the same as we are today. That being said, if we're looking to push our way in as a second source on a product line that we see as strategic, we might go into a more aggressive bid position and recognize then over time, we would look to get ourselves to what we would see as our Karman appropriate margins on those products. There are always opportunities to look for efficiencies on existing programs and find offsets that can counterbalance those challenges that we might want to consider for strategic reasons. So again, no real meaningful change in margin profile as we look to the future at this point in time.

Got it. And as you kind of think about Golden Dome missile defense, the business has grown pretty significantly within hypersonics and strategic missile defense. How do you think about where you could add content? You have products across nozzles, motor cases, energetics and other propulsion components, where do you think you could add adjacencies?

Yes. That's something we talk about quite a bit. When we talk about Golden Dome as a program or as an initiative, that's something where you likely will not see announcements from Karman saying we've received a Golden Dome contract award. The way we see Golden Dome money or business coming in our direction would be through increased buys on the existing Interceptor programs that we have today. So what you may see instead is we've increased our forecast for production on THAAD or PAC-3, for example, in the coming years, and that's derived from some increased volume that's coming through Golden Dome. So we certainly would see a secondary effect of Golden Dome and some lift there, although I don't have a program that is expressly called out as Golden Dome. We continue to see opportunities to expand our offerings in the end markets that we support today. We look for IP-rich capabilities that offer a differentiator in the end markets that we support that might be adjacent to some of the assemblies we provide today. So we can thicken ourselves up a little bit, provide a more integrated subsystem to a customer. And that's really what Karman was built around is this idea that we could become a more agile, responsive, better capitalized supplier that's more thoroughly integrated within an end market that can add more value to the prime contractor, so they don't have to buy so many small subcomponents from small companies and integrate them all themselves. We can do some of that work and that heavy lifting for them. So we continue to sort of pursue that strategy of incremental acquired capabilities where it makes strategic sense for the business.

And in terms of going back to your production, as we think about high attrition nature of loitering munitions and global conflicts, how do we think about how you're designing those production lines? Is it mass production lines? Is it -- are you changing the way you produce?

Generally, our production facilities are adaptable to support a number of different products within a broader product family or capability area. So just to give you a very sharp example of where the value of Karman can be unlocked is we talk about the Seemann Composites business that we purchased in Gulfport that was earlier this year, a fairly large company, very heavily penetrated in maritime defense, and that was principally the end market that they've supported. Since we've acquired the business, we've evaluated their capabilities, and we found that they have had capacity through additional shift work to take on work from other parts of Karman. So we've recently started putting some of our space and launch business into the factory in Gulfport to take advantage of that additional capacity. So I think there's some real opportunities there to continue to optimize the business as we bring the pieces together. We're not taking a holding company sort of approach to Karman. And I think that's a distinction that may sometimes get lost as we talk about the company is it's not a business that's in the business of buying things within these end markets and holding them and letting them to perform as they historically have. We are actively integrating the businesses, bringing them together, looking to move capabilities and capacity across the business to take full advantage of the capabilities of the entire company.

Since you mentioned it, I'm going to ask a follow-up there. Your history has been 20-plus years, I think, at Lockheed, although you don't look at an L3Harris for 4 years. How do you think about coming to Karman, which is a relatively new organization and where they are in their integration process as well in terms of RFP -- internal systems, controls and manufacturing lines?

I am incredibly excited to be part of this, I have to say that. I spent about 30 years as a prime, 26 years at Lockheed Martin before L3Harris, and I enjoyed those years, good companies, good people, a lot of good friends and colleagues in those businesses. And at the same time, coming to a company like Karman that's where it is today that's been purpose-built to address specific problems for our customers in these targeted end markets and to be able to build that from the ground up and to find this company as I walk in the door that I don't feel like there's anything that needs to be beaten down and built back up. You have a lot of folks who have come together, the owners of these businesses have sold to Karman because they believed in the vision because they're excited about the opportunity that presents for their workforce and their business for the future. Many of them have stayed involved in the business in one capacity or another. And so there's a tremendous amount of creativity, adaptability, agility, enthusiasm and energy about what we can build as a company. Now I will say the folks work hard. They do. They work very hard. When you're going to deliver 25% organic growth quarter by quarter by quarter by quarter, year-over-year, it's hard work. And at the same time, the folks are energized. They're excited. We have brought some very well experienced folks on to continue to augment and build out the management team of the company, folks who have strong public company background, but still have that sort of disruptive small business mindset, if you will. And so we brought the right blend of talent, the right blend of leadership, and I couldn't be more excited to have my next chapter in my career here at Karman.

Great. Maybe just moving on to Tactical Missiles and Integrated Defense Systems. The business grew 55% in the last quarter. How do you think about -- we've talked a lot about missile production, UAS and counter UAS demand and emerging programs as well. What's driving that 55% growth, whether new or existing programs?

Yes. The 55%, I mean, if you look at how that business is trending right now and what's really driving growth, it really is, first and foremost, the replenishment of the munition stockpiles and the really aggressive push from the department to, at the prime level, dramatically increase production output of those major product lines. So that is where the significant demand signal is for the immediate future. That is where the most crisp and clear long-term demand signal is in the business. And we can look out 7 years and have a pretty good idea of where these product lines are going. And so I think that's where we're seeing the first priority and the biggest driver of growth. What has also been interesting, though, is I anticipated there might be some decline in demand for some of the next-gen programs, hypersonics, advanced materials to support those projects. And in some cases, we're actually getting requests from customers as well there as to whether we can accelerate some of those initiatives to get some of the next-gen systems in place. So there's going to be a continued strong pull for the legacy capabilities. There's going to be some continued focus and attention toward next-gen systems. And then there's also -- there are going to be new categories of capability that I think will emerge. We're seeing this push on sometimes the term affordable mass is used, which is think about the smaller man-portable loitering munitions that can take out the lower-end drone systems, for example, that we're seeing in Ukraine, in the Middle East right now. And then there's also going to be this pull for these gap filler sort of weapons. You might have heard about this program called ACE or the affordable version of Patriot, which would come in somewhere in between the affordable mass and the high-end exquisite interceptors or missile systems. So we're also involved with customers there, thinking about how we can support and talking about how we can support the development of those next-generation programs as well, which will give them a nice middle ground that allows them to reserve the most exquisite systems for the most advanced threats.

Can I ask on a program like ACE, when do you think it actually comes into fruition into the market? And how it would work for a supplier like yourself on a lower-cost missile?

Yes. The -- I'll hit the second piece first. I think the capabilities we would provide, first and foremost, would be the things that we're doing today, things that are at the tip and the tail of the missile system, the shrouds that go on the front, the nozzles that sit in the back. We have done some work in solid rocket motor cases as well. It's not as large a product line for us today as the nozzle work, but there is some presence there, and that could grow. And then we've also looked at how we can continue to provide integration support for larger sets of capability on these missile systems, and we've offered those services to the primes who are contemplating that program. In terms of the time line, Sheila, the time lines are fairly aggressive. They're being discussed. So trying to get some initial production capability online in the next couple of years, which for a new missile program would be very aggressive. So we're actively engaged in discussions on how we can support those programs and how we can be a key partner in facilitating that. The other thing that I would mention, which is a bit adjacent to that conversation is as the U.S. primes are looking to continue to support European nations, there's more and more push to have localized content in Europe to provide some of the subsystems locally. And with Karman's recent acquisition of Walker Precision Engineering closed just a little over a week ago, that gives us now a European footprint headquartered in Scotland, operations also outside London and a footprint in Poland, which puts us in the EU. So there's been a lot of interest with the primes in understanding how an established provider like Karman that produces these components in the U.S. today might also have manufacturing facilities in Poland that could do the same work there without having to move it to a new company that's, call it, an organic European company, where you also have to provide all of the know-how and the training to build the product to begin with. So we have some real opportunities there as well.

I'm going to -- I know to listen to you now. When we first met at Space Symposium with you as Karman CEO, it was loud and so it was hard to hear, but you mentioned the lack of international footprint. And a month later, there was the Walker acquisition. So -- or a few weeks later, I should say. I guess how -- what does Walker provide in terms of seekers, guidance control systems and how it overlaps? Like how easy is it to combine? And what gave you confidence this was the right international footprint?

Yes. Walker is a really exciting business, and I'm looking forward to making my first trip over there post acquisition in the first week of October. The company was built around subsystems for seekers and guidance systems. So they're a missile business, and they work for the European missile primes. They have a presence on 25 existing missile programs in Europe. And so it gives us presence with new customers. It gives us presence on new programs. And I think it takes us up in total now to about 150 different programs, 150 unique customers across the entire company of Karman. So a nice expansion there for the business. The other reason we like Walker, differentiated capability even down to the molecular level with the metals that they use to produce their components. They've actually made some special proprietary metal formulations that have unique properties. They perform a number of special processes on the components before they provide them for integration. And they have -- in the past, assembled entire nose sections of missiles, although they're not currently doing that work today, it's been done in the past. So they have that know-how and the people that have led that business are still present there. The other thing that we really like about Walker is it's an opportunity to replicate the Karman strategy in Europe. We selected the business after careful evaluation. And it's a bit of a hybrid. If you think about most of the businesses that Karman has procured, they have been founder or first-generation family-led businesses. In this case, it has been that business and also had had other investors come in and assist in bringing in a, call it, a very capable leadership team that's probably leveled beyond the scale of the business they are today. So we felt there was a management team in place that could take on additional work. And so if we were to find differentiated assets in Europe that fit with the overall Karman strategy and the end markets we support, we could replicate the work that we've done here to build out the U.S.-based component of Karman and do something similar in Europe. So for a number of reasons, it just felt like the right fit for us.

You don't provide content per platform, do you? No?

Not currently, no.

Okay. I guess with Walker the cross-sell opportunity, how would that work too? And does it establish your sales footprint? How are you planning to sell into the international government?

We have started the process of integrating the sales teams. As you might imagine, a company the size of Walker, not an extensive sales force. So we're already recognizing there's going to be an opportunity to, we think, expand the pipeline just on the base business just by putting a more active sales and marketing team in place there and getting them integrated and plugged in with the U.S. team. Where I think the real interesting unlock potential comes is, is there an ability to bring some of the capabilities that Walker produces into the U.S. market over time as new missile programs come online or as second sources are sought. And then other opportunities, as I already mentioned, to bring some of the capabilities we built here in the U.S. and to build those products and supply those products into the European market. So there will be opportunities in both directions, I think, Sheila, over time as we build out the plan and strategy.

I want to touch on Maritime Defense Systems as well. The segment is relatively smaller, I guess, but how do you think about what you're providing on submarines, next-gen and legacy platforms?

Yes. Maritime Defense business is one -- as I said, it's relatively new for Karman. We entered that end market in February with the Seemann Composites acquisition. We had a small presence in that end market, but the prior programs had been integrated into the existing -- the other 3 end market portfolios. So as we acquired Seemann, we brought all of the Maritime defense business together, and Seemann is the predominant component of that, although there have been also some legacy programs in that part of the business as well. The predominance of the business that we're seeing today in maritime defense is related to crewed submarines. The largest product that we produce physically and from a revenue perspective is called a bow dome for a submarine. It's -- think about a 40-foot diameter, half circle, give or take, that sits over the acoustic array on the front of the submarine. So that big giant nose that you see when the things fully out of the water, we provide those for the Virginia, Columbia and the Seawolf-class submarines. Now there have been historically other providers for those as well. We're a relatively newer entrant into the space. And what's differentiated Karman in this area is that we have been able to build these bow domes without the use of an autoclave without a giant pressurized oven that requires you to bake the product and push all of the voids out of the material after the composite is laid up. So we've been able to figure out a process over many years of refinement to build these massive structures that are very precisely processed to 30 thousandths of an inch of tolerance in some cases, produce these and do it in a way that's novel, differentiated and lower cost than historical methods and much less capital intensive. So that's the main product that we're pushing out of that factory, but we do have a number of other programs supporting submarines with advanced materials for their unique acoustic properties. We're building components at the front as well as at the rear of the submarines. We are doing work on surface vessels as well. We're doing some hybrid propulsion components, structural components. And increasingly, as I mentioned, we're starting to move work from other end markets into that part of the business as well. So the maritime defense facility, if you will, is starting to become a multi-end market facility just based on capacity and skill set.

That's great to hear. And how big could the maritime defense market eventually become for you?

Maritime defense can continue to grow at double digits per year. If you think about submarine production, there has been a significant push in the U.S. for years to increase throughput through the shipyards of submarine production, both Virginia and Columbia class. And of course, there's a next-generation tactical submarine that's been contemplated for some time called SSNX. So we think there's going to continue to be incremental growth there. We are also just getting started in unmanned systems. So as we have done as a merchant supplier for the other end markets we support, we've been a merchant supplier to the integrators of unmanned surface and subsurface vessels in naval. This is an area where the U.S. Navy strategy has started to mature around unmanned systems. There's still some work to be done there to shake that out and really figure out what are going to be the long-term bets the Navy is going to place on capabilities we are trying to be a provider as we have been to multiple companies who are supplying into that market. And so that has the potential to accelerate growth over time. But I think it's a little too early to say at this point how significant that unmanned systems component of that business will be as compared to the established submarine business. But it will grow at healthy double digits.

And just on the bow dome system, like how did you -- how -- I guess, who are the other competitors? And how often are you able to displace them on a Virginia or Columbia? Is it contracted? How does that work?

I understand there's one other company that has historically produced them. They've done it by finishing the product in an autoclave, which is a very large -- I think of just a very large oven that involves changes in pressure and temperature to get the material to cure to solidify in the right way. And we're the only provider that's competing with that company with that method to be able to do it in a more cost-efficient way. So we're hoping, as we go forward, we'd like to be the primary provider to the Navy going forward for all those platforms.

Great. Moving on to Space and Launch Systems. The business grew about 17% in the first half of this year. Obviously, launch schedules could always shift. What do you provide in that business? And how do you manage the shift in launch schedules?

Yes. We provide an awful lot of capability into space and launch. And the majority of what we're providing today is components of the launch vehicles themselves, large subassemblies of structure that go into the liquid fuel tanks. We provide shrouds, we provide stage separation systems. So you might not think about exactly how and why a stage breaks off from a launch vehicle when it goes into the second boost phase of a launch. But the systems that break those 2 stages apart are fairly highly engineered, involve explosives, frangible metals, all sorts of complex analysis to make sure you don't push the vehicle off track or otherwise disturb the launch sequence. So we do a lot of work that's tied into various elements of launch vehicles themselves. We have started to do some work in processing subassemblies for lunar landers. So you've probably seen some activity now around the government really putting a push into getting a stronger presence on the moon, establishing a moon base. So we've worked with multiple companies that are in the lunar lander business. And we've also started to provide subassemblies for satellites and other space vehicles as well. So I would say today, very heavily penetrated in the launch part of the equation across the range of providers, I believe all of them. And also as we look to more space-based assets to include the landers themselves, where we're seeing an increasing presence there.

So as we think about your launch capability and lander capability, what could lunar landers like add in terms of the content? Is it the doubling, the tripling? Or is it...

I wouldn't call it -- I would say that the primary driver for growth for the foreseeable future would be launch vehicles, the engines themselves. The rocket motors are very -- rocket engines are very complex assemblies. And in many cases, they're not reusable. At minimum, they have to be refurbished, if not lost completely and replaced. So there's an awful lot of repeat business that comes back, both in terms of the precise components that go into those engine assemblies as well as the large structures of the launch vehicles themselves. So that's, I think, going to continue to be a primary growth vector. Over time, we'll see how much larger the volume gets on the landers and satellites themselves.

Turning to profitability. You mentioned 30% plus EBITDA margins, great business given all the IP you have. But you do also have variability in the business in terms of just volume cadence as well and mix. How do you manage it all? And how should we think about volume and mix driving EBITDA going forward?

Yes. I think on the whole, our focus is on maintaining margins where they are today. There is variability and there is a range -- there's a mix across each of the end markets. In the end, they all net out to about the same level of profitability for us. And that really starts with the businesses that we've acquired to create Karman were very carefully chosen for strategic reasons around capabilities and end markets and also more tactically around the performance of the business to include the margin performance. So by selecting the right businesses going in, keeping the discipline around how you run those businesses, effectively controlling costs as you scale the company and see operating leverage, we feel confident we can maintain margins as we look forward. And the other thing that I've put a good bit of focus on since I joined the company is financial flexibility is the term that I'm using. What I mean by that is looking for opportunities as we scale the company to become more efficient with the resources that we already have at our disposal to do more with the same, if you will, as we also certainly are adding some additional capacity. And that gives me the opportunity to do 3 things: A, it gives me some flexibility to reduce pricing for competitive reasons if I need to, to win strategic business for the future. It gives me the opportunity if necessary and if it's the right strategic decision for the long term to invest in the future of the company or it does give me some flexibility to improve margins and put that money back to the bottom line. So that's been our focus and how we're thinking about margins is maintain where we are today and have flexibility for the future.

Can we talk about cash flow? You're growing quite tremendously, working capital, CapEx. How do you think about free cash flow conversion for the business on a normalized basis?

It's a very frequent conversation that we have within the company. And I think as a small company, growing to an IPO and just beyond, a lot of our focus, as you probably would appreciate, has been around capturing the demand, growth, profitability. At the same time, we recognize as we continue to grow and mature as a public company, cash becomes a more important conversation with our -- with analysts and investors. And so as we transition to '27, you'll see a lot more transparency and predictability around how we expect to generate and deliver cash. The what's our steady-state aspiration. We talked about maybe 80% cash conversion as a preliminary objective. At the same time, I'm excited we're going to have a new team member joining on Monday. Our new CFO, Chris Boynton, is going to be joining us. And one of the things I'm going to ask him to do as he onboards is work with me between now and the end of the year to make sure we nail down the specifics of our '27 plan to include a lot more thought and precision around cash generation for next year. And in the meantime, we continue to incrementally look at the efficiency of how the company operates, working capital, specifically looking at contract assets. And so while contract assets have been pointed out as an area we've seen some growth, contract assets have not grown as fast as our top line revenue. So we have become incrementally more efficient. I think on a day sales outstanding basis, we came into our IPO at about 111 days DSO and contract assets now around the mid-90s. So that has come down. And overall, again, as I said, as a proportion of revenue has come down also is very much in family with the peer group of stocks that we're typically evaluated and traded against. So feeling good about the trajectory that we're on, more work to do.

And just to wrap it up, you took the job in '26. As we think about maybe the next 3 years, what do you envision Karman looking like?

Well, look, I am super excited about the future. We're going through our first real no-kidding 5-year strategic planning cycle now as we -- again, as we continue to grow and mature, we want to make sure that there's a long-term strategic vision for the company, that there is a robust manufacturing capacity strategy that sits alongside that strategy because manufacturing is so much of what we do. And then thirdly, we've got a very clear long-range financial plan that sort of drops out of those strategic elements. So where do I think we'll be a few years from now? I think we're going to have a continuing strong presence in the end markets that we support. We're going to have more comprehensive offerings in each of those end markets. And certainly, we'll look back, and I think we'll find that Karman has met and exceeded expectations quarter-by-quarter, year-by-year as we have since the IPO. So really excited about the progress we've made, and I'm really optimistic about the future.

Great. Thank you, Jon, so much. Thanks all. Thank you. That concludes our webcast. I felt like I went around all the segments.

Hello, everyone. Thank you for joining us, and welcome to the Karman Space & Defense Second Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Stephanie Sawhill, Vice President of Investor Relations. Stephen, please go ahead.

Good afternoon, and thank you for joining Karman Space & Defense's Second Quarter Fiscal Year 2026 Earnings Conference Call. I'm Stephen Gitlin, Senior Vice President of Investor Relations and Corporate Communications. Joining me today are Jonathan Rambeau, Chief Executive Officer; Mike Willis, Chief Financial Officer; and Jonathan Beaudoin, Chief Operating Officer.

Before we begin, please note that many of the statements made on this call are forward-looking. These statements involve risks and uncertainties that may cause actual results to differ materially. We encourage you to review the risk factors discussed in our filings with the SEC.

I'd 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 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, August 6, 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 the events or circumstances occurring after this conference call. We have posted our earnings release and presentation on our website at karman-sd.com.

Now I'll turn the call over to John.

Good afternoon. In the 4 months I've been with Karman, I've worked intensely and methodically to evaluate our strategy, our operations and our progress as we continue in our second year as a mid-cap public company. I'm very proud of what Karman has accomplished and I'm pleased to see our hard work reflected in milestones such as our recent addition to the S&P SmallCap 600 index. Against all measures of progress, we're seeing positive results.

Shown on Page 4 of our earnings presentation, highlights in and since the second quarter include sequential revenue growth of 20.4% from the first quarter to the second. Year-over-year quarterly organic growth of 24.4% representing revenue growth from businesses we've owned for more than 12 months, record backlog of $1.3 billion, record quarterly bookings of nearly $500 million. initial fit-up of a 200,000 square foot factory in Salt Lake City with production capability online before the end of 2026. A large long-term agreement executed with the space and launch customer further to the contingent agreement received earlier this year. Meaningful progress toward remediating the material weakness previously shared in our public filings. We anticipate the necessary controls to be fully implemented by the end of 2026, with testing of operating effectiveness expected to continue into early 2027.

Selection of and transition to PwC as our new audit firm, moving Karman into the ranks of other established public companies working with a Big 4 auditor. Signed agreement to acquire Walker Precision Engineering, establishing a beachhead position in Europe with relationships across the spectrum of European defense primes. Additional details on the Walker acquisition can be found on Page 5.

With these accomplishments as background, today, I'll summarize our record second quarter performance, highlight the progress we've made and outline the priorities guiding our next phase of growth. Then, Mike will discuss our financial results and guidance. Jonathan will provide updates on demand, integration and capacity expansion and I will discuss our growth trajectory before we take your questions. From a performance point of view, as shown on Page 6, we delivered another quarter of record financial results with quarterly revenue of $182 million, non-GAAP adjusted EBITDA of $55 million and backlog reaching $1.3 billion, giving us 95% visibility to the midpoint of our full year revenue guidance.

We expect our strong organic growth rate to continue and want to provide additional clarity on why short-term organic growth isn't as useful a metric for our integrated business model as it may be for other companies. Some companies manage newly acquired businesses in more of a holding company fashion with minimal operational integration. In contrast, we identify and acquire companies that bring unique and valuable capabilities to Karman. capabilities that allow us to offer greater value to our customers, and we'll begin the integration process on day 1. This means that we seek to exploit these capabilities immediately to the benefit of Karman and our customers regardless of the amount of time they have been a part of the company.

For example, if a newly acquired business is better suited to manufacture products for a long-standing program, then we will move production to that site regardless of whether the output is considered organic or inorganic. An example is what we're doing now in Gulfport, where we're transitioning certain products for our space and launch end market from another long-standing business. We categorize this as inorganic even though it's really organic business that we're simply moving to a recently acquired site that is best suited to its delivery.

From an operational and customer perspective, what we call that revenue is much less important than making the best business decision for the customer and the enterprise. To provide a second and slightly different example, following the acquisition of our Cedar City, Utah Energetics business, we immediately began pursuing new use cases and customers for its capabilities. Having seen rapid success, we created new revenue streams within that recently acquired business that would not have been possible had they remained independent.

We aim to continue pursuing this strategy of moving work and combining capabilities across all of our businesses and will not constrain that strategy by managing to a quarterly organic growth metric that could reduce long-term value capture for the enterprise. With that said, we remain focused on end markets with very strong organic growth vectors, and we remain confident in our ability to deliver 20% to 25% annual organic growth for the foreseeable future.

Our demonstrated performance supports that growth rate. Quarterly year-over-year organic growth in the 5 full quarters since our IPO has ranged from 19% to 36%, including 24.4% organic growth year-over-year in the most recent quarter.

As we move forward, we will periodically share organic growth at a minimum annually, while continuing to focus on optimizing the company for maximum shareholder returns over time. Beyond our financial results, we achieved significant commercial milestones that position Karman for sustained profitable growth. As we first announced in May 2026, we secured 4 large contingent supply agreements 1 of which converted to a firm contract in the second quarter with the others expected to close by the end of the year.

Additionally, while protecting our single and sole-source positions on Munitions Advisory Council, or MAC programs, remains a top priority, we see this moment as an opportunity also to go on offense in terms of increasing our share as a second source to prime contractors. Not all suppliers have invested as proactively as Karman positioning us to step in and become a second source where we aren't participating today. Here are several examples of the progress we've made.

First, separation motors for a major munitions program, Second, expected selection is a second source on a small propulsion system for a widely deployed anti-armor weapon system. Third, emerging opportunity as a second supplier for large solid rocket motor or SRM cases. Fourth, an opportunity to be a second source supplier for a shroud system on a widely recognized interceptor program. And finally, we're also engaging with customers on an opportunity for a future lower-cost interceptor program.

These wins and opportunities reflect growing customer confidence in Karman's ability to scale, innovate and deliver critical hardware at speed and at high volume. They also reinforce what industry leaders have recently demonstrated. framework agreements are converting into large production contracts as highlighted by the more than $90 billion in FAD and PAC-3 Interceptor contracts recently awarded to Lockheed Martin. And these large contracts are not limited to missile defense, as the Navy recently awarded an historic $76.6 billion in contracts for 5 new Columbia and 9 new Virginia-class submarines, programs that we support extensively through our maritime defense end market.

Those contract awards underscore the strength of our pipeline and the state of the global security environment that drives our customers' mission every day. The demand environment remains strong with an urgency to replenish depleted munitions and Interceptor stockpiles at an unprecedented agree. In fact, some customers are now citing demand to increase certain annual production buys by as much as a factor of 10, which would dwarf earlier projections of 2, 3 or 4x multiples of current build rates.

Karman is purpose-built to respond to this market demand, and we continue to partner with prime contractors to help them deliver reliably and efficiently. Having covered our Q2 highlights, I'd like to turn for a moment to my go-forward priorities. First, continue our track record of strong financial performance while capturing generational demand that we see continuing through at least the end of the decade. Second, fully unlock the value of Karman, leveraging differentiated IP, a growing and well-capitalized development and production system and a talented workforce.

Having now visited 17 of our 20 current and expected to be acquired sites, I have confidence the hole will be realized as more than the sum of the parts. And third, drive operational excellence through technology, capacity and a rigorous operating rhythm. To support these priorities, we've identified key areas of focus: first, drive disciplined delivery of free cash. While we still view growth and margin performance as top priorities, you will see increased focus on this metric in 2027 and this will be reflected in our executive compensation incentive framework beginning next year. Second, create financial flexibility as we find opportunities for operational efficiency and operating leverage, this will provide options for price reduction, business reinvestment or margin improvement in a way that best maximizes long-term shareholder returns.

And third, continued expansion of our total addressable market within the high-growth end markets we currently occupy through both organic and inorganic means. I am pleased with the progress we've made at the midpoint of the year, and I remain confident that 2026 will be another year of record performance.

With that and to further discuss that performance, I'll turn it over to Mike.

Thank you, Jon. Our record second quarter results demonstrate the continued strength and momentum of the Karman business model. Pages 7 and 8 include key financial metrics: revenue of $182 million, up 58% year-over-year and 20% sequentially. Gross profit of $78 million, up 66% with a gross margin of 43%. Net income of $14 million, up 106% year-over-year, adjusted EBITDA of $55 million, up 55% year-over-year, adjusted EPS of $0.14, 43% above last year, backlog of $1.3 billion, up 65% compared to the end of fiscal year '25.

Bookings in the quarter totaled nearly $500 million from all end markets, including a large space and launch LTA. Organic revenue grew 24.4% year-over-year in the quarter. As Jon mentioned, full quarterly organic revenue growth since our IPO has ranged between 19% and 36%, supporting our annual 20% to 25% organic revenue growth target. Each of our legacy markets delivered year-over-year quarterly and year-to-date growth. Tactical missiles and IDS grew 55% to $63 million year-over-year quarterly and 41% to $108 million year-to-date. led by strength in core production programs, including unmanned nCounter UAS and emerging programs transitioning into production.

Maritime Defense Systems contributed $34 million in the quarter and $60 million year-to-date. driven by legacy and next-generation submarine programs. Hypersonics and strategic missile defense grew 24% to $43 million year-over-year quarterly and 22% to $79 million year-to-date. driven by growth in key Interceptor program production and increased production associated with a new surface-to-surface missile system. Space and launch grew 6% to $42 million year-over-year quarterly and 17% to $86 million year-to-date, supported by content for both legacy and new launch providers. partially offset by customer order timing associated with shifting launch schedules.

Our second quarter revenue mix was as follows: tactical missiles and IDS 35%, hypersonics and SMD, 24%; space and launch, 23%; and Maritime Defense Systems 18%. For the 6 months ending June 30, revenue rose to $333 million, up 55% year-over-year. Gross profit increased to $142 million, up 64% year-over-year. Net income grew to $22 million, up from $2 million a year ago. Adjusted EBITDA jumped to $99 million, up 51% year-over-year and adjusted EPS climbed to $0.25, up 56% year-over-year.

Looking now at the balance sheet. We continue to prioritize growth as we make capital allocation decisions, understanding that CapEx and working capital will continue to consume cash through this high-growth cycle. That said, we're also placing increased emphasis on cash management and will include free cash flow metrics in our executive compensation program, as Jon described earlier. Cash and cash equivalents totaled $52 million, up $18 million from year-end. Cash used in operations was $4 million, driven primarily by increases in accounts receivable and contract assets. This reflects the working capital requirements associated with the 58% revenue growth driving our receivables as well as contract assets from production ramps and investments we are making to expand our capacity.

We expect volume and cash generation to accelerate in the second half of '266, delivering free cash flow of $15 million to $20 million. Accounts receivable growth in the second quarter was a function of timing and our growth with significant deliveries taking place late in the quarter. Accounts receivable is likely to continue to grow in Q3 and Q4, but we do not expect AR days to grow. CapEx year-to-date was $22 million, supporting growth across nozzle capacity, UAS launches, launch vehicles, maritime programs and spacecraft manufacturing. This represents a slightly higher run rate than our 5% guidance for the year, complying a step down in CapEx in the second half of 2026. Our CapEx does not include customer funding capital.

We are investing ahead of orders to strengthen our ability to respond to the generational demand cycle we expect to persist for a number of years.

Turning now to leverage. Net debt was $752 million at the end of the second quarter. Our Q2 leverage ratio was roughly 3.7x adjusted EBITDA on a pro forma basis. Subject to regulatory approval of the Walker acquisition, we expect our pro forma leverage ratio to be approximately 3.5x by the end of the year. Since the quarter end, we repriced our Term Loan B to SOFR plus 2.25%. a 50 basis point reduction equivalent to a savings of approximately $4 million a year in interest payments. We also previously increased our revolving credit facility from $50 million to $150 million, providing greater strategic flexibility.

Now I'd like to provide a brief update on M&A and our auditor. We announced the execution of an agreement to acquire Walker with a total consideration of GBP 70 million or approximately $94 million. The adjusted EBITDA multiple we expect to pay at closing is consistent with the other acquisitions we have made since our IPO. The regulatory review process is underway, and we expect the acquisition to be completed by year-end. Our integration of Siemens and MSC is on track, delivering higher-than-expected margin as we prepare to transition space and launch work to the Gulfport location. We are not seeing meaningful changes in valuation expectations across our robust proprietary M&A pipeline, we continue to represent an acquirer of choice for IP-rich first or second-generation owners seeking long-term growth for the businesses they've created.

We engaged PwC as our new auditor this quarter, their scale and expertise are well aligned with our business model and growth strategy. I'll now provide an update on our full year guidance. Given our strong first half results, record backlog and 95% visibility, we are raising our '26 outlook shown on Page 9. We now expect full year revenue of $730 million to $745 million and non-GAAP adjusted EBITDA of $215 million to $222.5 million, 29.7% margin at the midpoint. This represents year-over-year revenue growth of 57% and adjusted EBITDA growth of 51% to the midpoint. This outlook does not include the financial results from the Walker acquisition.

Importantly, we reaffirm expectations for 25% or higher organic growth in '26. We expect second half revenue to increase sequentially with approximately a 47%, 53% split between Q3 and Q4. With high visibility, much of our growing record backlog supports our plans for 2027 and beyond. Lastly, for '26 modeling purposes, we expect a statutory tax rate of 26.5% and capital expenditures of 5% of revenue, roughly $37 million.

Now I'll turn the call over to Jonathan.

Thank you, Mike. As Jon stated earlier, integration of acquired businesses is key to our strategy and enables us to create value that would not exist if these businesses remain stand-alone. Integration of our recent acquisitions continues to move ahead smoothly, including Siemen and MSC, which remains on track for completion this year. We are realizing early benefits capturing new business pursuits, leveraging our collective capability, along with increasing production of existing Karman products by utilizing available capacity at the newly acquired facilities. For example, our Cedar City, Utah business is helping secure our positions to compete for second source propulsion system opportunities on a MAC and receptor and a key program of record air-to-ground missile system.

An additional illustration is our initiative to manufacture space launch vehicle systems at the Gulfport facility, leveraging its large-scale maritime production capabilities to meet the specialized demands of space launch products. All business development opportunities and pursuits have been incorporated into our company-wide BD systems, allowing us to fully utilize Karman's capabilities to address customer needs. We have started implementing the Karman operating system across all companies acquired since our IPO with progress varying by location.

In the second quarter, our machine utilization monitoring system was launched at our Albany, Oregon facility. Given the unprecedented levels of demand, it is imperative to ensure we have sufficient capacity to satisfy our customers' requirements ahead of their need. We are optimizing existing assets by evaluating utilization rates at recently acquired businesses and leveraging the Karman operating system to identify and address output constraints.

In addition, we are investing in expanded capacity to accommodate future demand. installation of advanced equipment is underway to support our significant space launch award with enhanced spacecraft production capabilities slated for deployment in Q4 2026. We continue to advance our Salt Lake City manufacturing center, which will support both tactical missile and IDS and hypersonic and SMB customers. The first production equipment arrived last month, and we expect initial production capability in the fourth quarter 2026.

The transition of select production from the Seattle area to SLC will release meaningful capacity to support development, low rate and full rate production at that location. Maintaining strong visibility across our supply chain is necessary to support our growth strategy. As our business continues to grow, so does our customer and program count now at more than 150. This increased diversification also applies to our supply chain with no 1 vendor now making up 10% of our accounts payable.

Our customers control the supply of key high-temperature composite materials ensuring that we have access to the materials required to support them. In parallel, we are working to qualify our proprietary MG resin as an alternative solution to support the significant expansion and high-temperature material demand. We continue to monitor raw metallic material availability. And at this time, we have not experienced any constraints for our products.

Turning now to our AI initiatives. We are advancing AI-enabled capabilities across engineering and select business processes with the goal of reducing cycle times and expanding capacity. Our core initiative, what we call Project Moonshot, is focused on securely applying AI to our historical engineering and program data accumulated over several decades to accelerate design, engineering and proposal workflows. Over time, we believe these capabilities could improve capture probability and drive growth. We expect to share additional examples of our progress next quarter.

Now I'll turn it back to Jon.

Well, thank you, Jonathan. As we look toward the balance of the year, we remain focused on performance and growth. Complementing our strong organic growth, we also expect to continue to pursue our growth strategy through additional acquisitions. with a focus on munitions and space capabilities that complement our current footprint in domestic and international markets. Beyond the current year, we believe that we are well positioned to deliver 20% to 25% annual organic growth for a multiyear period. At that growth rate, revenue could double in 3 to 4 years with potential inorganic growth accelerating that time line.

There's no question that this is an exciting time for Karman, and we're just getting started. Now let's take your questions.

[Operator Instructions] Your first question comes from the line of Peter Arment with Baird.

Nice results. And maybe just first question, the new LTA within space and launch, could you give us a little more color on kind of the timing and when you expect that to start to contribute to the top line?

Yes. Sure, Peter. I'll start off with that one, if I could. This is 1 we had mentioned in our prior quarter earnings call, we talked about a contingent supply agreement that we were actively negotiating in space and launch and at that time, I think we had mentioned approximately a $250 million value for that LTA. That did come through just a bit below that number, but not too far from it. and it's a 5-year agreement. So you can see there will be some amount of that that will start to feather in over the balance of this year, following on to some prior year agreements that had already been in place, and that will just burn off on -- following this year, it will burn off at a relatively level rate across the following 4.5-or-so years.

Okay. Super helpful. And then just as a follow-up, the second half -- the guidance raised the second half implies kind of a sequential step up on the top line. Would you -- do we assume that tactical missiles, IDS will still be the main driver of the top line? Or maybe any color you could give on end markets or segments.

I think end markets are going to continue to be kind of steady course from what you saw in the first 6 months. So we would expect tactical missiles and IDS to remain pretty strong in the second half.

Your next question comes from the line of Louie DiPalma with William Blair.

Great. John, Michael Jonathan and Steve, nice work and a strong quarter. On the prior quarter earnings you announced that you were in negotiations with several framework agreements. I was wondering if you could provide an update in terms of the progress with those framework agreements and potential timing on when they might become definitized.

Yes, sure, I'd be happy to answer that, Louie. We continue to have active discussions with our prime customers on those 3 contingent supply agreements. We've made progress on all 3 of those, and we are continuing to anticipate as we did prior quarter that those would have firm agreements in place between now and the end of the year. We have -- I would say, reasonable confidence that we'll see initial contracts coming through as early as Q3. But again, I think by the end of the year, we'll see those fall into place. We've been going back and forth in -- as you might imagine, as the prime contracts come through, we have to sort of have our time in the queue to get to the detailed negotiations with those customers. But the conversations are ongoing.

And if anything, I think the expectation in terms of the total quantity volume that we'll be seeing coming through those is going to be at or above what was anticipated last quarter.

Great. And across the industry, Jon, you've observed and many investors have observed how the Department of War is looking for second suppliers for many in the leading platforms. For instance, Northrop Grumman was added as a second supplier to the PAC-3 system. But overall, in aggregate, do you view the second supplier trend is having a positive, neutral or potentially negative impact on current business.

Yes, I can tell you, Louie, that it's an active conversation that we're having almost every day. And certainly, as you are, we're well aware of the conversation around second sourcing. I would call it a net opportunity for Karman. And the reason I would say that is, first off, we really have leaned out ahead a bit in terms of anticipating where demand was going to be getting equipment on order, getting facilities in place. Jonathan talked a little bit about our expansion facility that's well underway, and we're quite excited about that.

So while we know our customers are being asked to look hard at second sourcing, our commitment is, a, we'll convince them that we have the volume -- I'm sorry, the capacity in place to support the volume and we're going to continue to be a reliable and competitive partner to them. And if there is an instance where they're asked to develop a second source, we'd work with them to make sure that, that was more of a contingency plan versus a meaningful diversion of volume from Karman.

On the other side of the coin, I think a big positive for us in terms of our opportunity to go on offense here and look for opportunities where other suppliers have not been able to build confidence with the primes that they're going to be able to meet the demand and meet the production ramp. And so we've had, as I mentioned in my remarks just a few minutes ago, a number of opportunities that have either come through or that we feel reasonably confident will come through for us to be a second source on certain programs for certain components. And then at least a couple of these instances, those will be meaningful large long-term upside opportunities for Karman. So while those are not all in the bag yet, I'm feeling optimistic so far based on the conversations we've had.

Your next question comes from the line of Ken Herbert with RBC Capital Markets.

Jon, I wanted to follow up on just a comment you made right there at the end of your prepared remarks, and that involved post '26 sort of 20% to 25% organic growth framework for the business? I mean it does represent a slight at least at a headline level slowdown from what we're seeing this year. But maybe you could just talk about confidence around that how you see maybe the opportunity to continue with sort of this mid-20s organic growth framework? And maybe just as you thought about providing that sort of longer-term outlook, what you went through is the puts and takes as you think about that?

Yes. I guess, Ken, I did not intend to communicate a slowdown. In fact, we see a very steady trend over time. As we look back across the last 5 or so quarters that we've been public. And as we look to the foreseeable future, we see it being a consistent trajectory. And I think if you just look at the end markets and some of the demand we're seeing there, particularly the missiles, munitions, interceptors, where we see space and launch headed, where we see the unmanned systems and counter UAS systems going. I think its easily supports that continued demand signal at least through the end of the decade.

Perfect. And if I could, just on the on the comments around free cash, we can appreciate sort of where you are in the investment cycle and supporting growth. But maybe if you could just remind us again and appreciate as well the increased focus on that you're bringing to the business. How we think about sort of conversions maybe in the near term, but more importantly, what you think the business should or could support in the longer term as we continue to see the growth. And ideally, some of the investments in terms of CapEx and working capital start to moderate a bit?

Yes. Ken, this is Mike. I think that longer term, we would still maintain that free cash flow should be in the range of 80% to 90% of net income. Now in this growth cycle, we're in right now, we do have a use of cash for both working capital as well as CapEx. On the working capital side, at this level of growth that we're seeing, we certainly have an increase on receivables, which is -- which would be expected.

We also are leaning forward to help support the upcoming ramp. And so you are seeing inventory and contract assets that are on the rise. First half of the year was a little bit heavier on CapEx. We were able to pull things to the left to help support the ramp coming, which is why we do expect CapEx to be a little bit lower as a percentage of revenue in the second half.

And long term, we would still maintain that where we're at in terms of 5% of revenue on CapEx. We think that's an adequate level to support the growth that we're seeing for the rest of the decade.

Your next question comes from the line of Amit Daryanani with Evercore.

I have 2 as well. I guess, maybe just to start with on the operating leverage side. Your EBITDA margin, I think, came in around 29.8% in the first half. And the full year guide sort of implies that it's going to step down a bit in the back half of the year despite sales, I think, being higher. Can you just walk through like what is driving that margin drop? Is it just the acquired entities are perhaps at a lower margin or the start-up costs, there's some capacity investments. I'd love to just understand kind of what's driving that downtick. And if there's a way to think about normalized EBITDA margin as we go into '27?

Amit, so our guidance on the 4-year EBITDA margins. They're in line with the margins that we guided to a quarter ago, slightly better, but the reason why they were a little bit stronger in the first half of the year is really due to a mix of contract type. And that does relate a little bit to acquisitions. And when you think about the Siemens and MSC acquisition that we did in February, they happen to have a much higher percentage of cost-plus type contracts, and those naturally do carry a lower EBITDA margin than a firm fixed. So what we saw in the first half and particularly in the second quarter is a more favorable contract mix where we did not have as much revenue proportionately coming from those cost-plus contracts.

So we see that normalizing in the second half, but still better than what we thought we would be a quarter ago.

Got it. Perfect. That's helpful. And then the $1.3 billion backlog number, obviously, very impressive. Can you just talk about what is the duration of this thing look like? Is it the way for us to at least conceptually think how much of that would convert to sales in the back half of this year versus '27? And then what's beyond that? I would love to just kind of understand how much of this uptick is being driven by duration versus anything else.

I can start with that. So the very strong booking quarter, nearly $0.5 billion that we had in the second quarter. Much of that, in fact, most of it was to support 2027 and beyond. And so that gives us great confidence for the outlook. Now we do only have 5% left to book this year. It's no white space or Gogo. It's really just timing of PO placement. Of those bookings and specifically of the large LTA that we ended up getting on space and launch, there is opportunity that some of that revenue will start to occur in the back half of the year.

But most of the bookings really are supporting our longer-term strategy.

Your next question comes from the line of John Godyn with Citi.

It's great to see the organic growth reaccelerate in the second quarter? And just because the laser focused on that. I was hoping maybe we could just revisit organic growth in the back half of the year, you could kind of discuss the shape in a little bit more detail, just to level set everybody.

John, yes, great quarter in the second quarter at the 24.4% on organic. We do believe that on the year, we are going to be at 25% or slightly better on organic. So we're going to expect to see that continue to increase in Q3 and again in Q4. So kind of that sequential buildup that we were talking to a little bit at the start of the year in terms of how the year would play out. But we would get to 25% or slightly better on the full year, so you're going to see an acceleration in the second half.

Got it. And it sounds like -- you mentioned you're 95% covered for the year. So tremendous visibility into that. Is there anything that can happen between now and the end of the year that would actually cause -- create upward pressure to that number? Like what would be a source of upside surprise to organic growth from here?

In terms of upside surprise that you might see. I think if the framework agreements that we talked about would convert earlier than the end of the year, there could be some additional upside that we might see as that gets up and running. As we had previously discussed, we're anticipating right now and planning for those to really start hitting us in the first part of 2027. But as we've seen, there's a sense of urgency to get that work contracted and we're hopeful that we might see some opportunity for upside, but it's a little bit too early to count on that right now.

Got it. And if I could just ask 1 more, Jon, in the prepared remarks, you were talking about fully unlocking the value of Karman. One of the things you mentioned was margins. in the conversations that I have with investors, it's not unusual that investors think kind of 30% EBITDA margins are the right normalized level roughly, but it sounded to me like you might think over the long term, could be upside beyond that. Did I hear that correctly? And maybe you could just sort of unpack that -- those comments a little bit more.

Yes. Certainly happy to do that. I don't want to set an expectation that margins will exceed 30% on a continuing basis as we go forward. However, what we are very focused on right now as we continue to integrate the company. It's been very apparent to me as I've traveled around to almost every 1 of our physical locations that as you would expect, with a number of recently acquired businesses, their initial integration has been completed. and there is still more opportunity to optimize the enterprise. And the way we're thinking about that optimization is to find opportunities for financial flexibility.

And we're thinking about that in 3 ways. One is we recognize it as our customers pursue some of these generational increases in capacity and look to lock in long-term arrangements, there could be pressure put on our pricing, and we want to make sure we have contingency in place to be able to manage that while still maintaining our margin performance. We're also looking at whether we might want to take that financial flexibility and look at reinvestment in the business to capture the next-generation franchises that are yet to be identified.

And the third opportunity would be, obviously, if we decided the best long-term value to our shareholders was to deliver that as additional margin for the business. That's an option that we would like to have available as well. So it's a strategy we're going to continue to, I would say, pursue very intentionally, and we'll provide updates as we start to make progress on that.

[Operator Instructions] Your next question comes from the line of Michael Leshock with KeyBanc Capital Markets.

Maybe just a follow-up on the margins there. I'm curious if you have a sense of what the margin difference is between a second-source opportunity and maybe a legacy Karman sole-source program. It sounds like there's quite a bit of second source opportunities that you're pursuing, and you mentioned it's a net positive. Just curious what your expectations are on the margin impact should that become a bigger piece of revenue over time?

Yes. Thanks for the question, Michael. I don't see that there's going to be an appreciable either increase or decrease in margins as a result of the second source opportunities. Certainly, we will perhaps be a bit more aggressive initially in pricing if we needed to, to secure a very nice long-term franchise for the company, but we wouldn't enter into something that would be significantly dilutive to margins over the long term. We would have an appropriate business case and think that through carefully before we made that decision.

Obviously, we want to look at finding a way to meet our customers where they are today, look at the price point they're paying today. Can we be competitive with that? Can we make the business case close in terms of any capital investment we might have to make there. But as I said, for the ones that are -- that are already in the pipeline that we have clear visibility to. I think we feel comfortable that Karman type margins would be in family with these new ones.

Okay. Great. And then maybe on space, if you can provide any details on the new Glen anomaly and the impact that had, if any, at all. I would expect it to be minimal, but just curious on the puts and takes as we look longer term given they're a meaningful customer within that segment?

Yes, sure. The long-term outlook for space and launch overall continues to be very favorable for us. And we certainly do talk on a regular basis with Blue Origin and I think I might have mentioned last quarter that the conversations we've had with them from almost immediately following the mishap were that things are are full steam ahead from a production point of view. The relationship hasn't slowed down. If anything, it's accelerated and strengthened over time.

So I feel very good about where we are and where we'll continue to go as a partner with Blue Origin.

Your next question comes from the line of Alexandra Mandery with Truth Securities.

Nice results. You mentioned working to qualify our MG resin. I guess what are qualification lead times right now? And are there any discussions with the Department award to just to support the acceleration of those processes to support demand more quickly?

Yes, I appreciate the question. This is Jonathan. We are receiving funding to further develop MG resin. It's both for use as an ablative material in solid rocket motor nozzles and for Karman. So kind of to 2 applications of the MG resin system. So that will further advance it. And then we're working with the propulsion primes to find a project or a platform that we would then insert it. At that time, it's probably, call it, a year to 2 years for a full qualification at a platform level.

We have a follow-up question from Amit Daryanani with Evercore.

Yes. Let me get back on. I guess, Jon, you were initially talking about just the organic growth and you talked about how the way you integrate acquisitions makes it difficult for you to disclose the quarterly organic growth going forward. I guess the question for you would be, when you evaluate an acquisition target, presumably part of the model separates the return on the target stand-alone organic base you would get from the return on integration synergies, like moving the Gulfport type pro that you just cited. Historically, has that split been formal when you look at a deal and you underwrite it for IRR and stuff internally.

And I guess the question really at now that you're going to disclose the organic inorganic less frequently, does that change how you internally are looking at deals pre and post synergies at all? Or is this really purely an external reporting decision of not giving information.

Yes. Thanks for the question, Amit. I guess, first off, I would say this is something that our approach and how we think about it has remained consistent. And typically, when we evaluate an opportunity, we would really make the base investment decision based on the current business plan or projection that we would see as we model the opportunity of the property. So really, the -- from there, we bring the business on as a, call it, instant bolt-on. We start the integration process, and then we typically will work the upside opportunities from there.

We certainly do talk about as we're evaluating an acquisition, the strategic value and how we can bring the portfolio more tightly together and unlock additional opportunities. But the base case is typically made on the, call it, the organic growth we'd see resident in that business.

So as we think about our model going forward and our plans to talk about organic growth annually, I don't see that really changing the way we would evaluate a target.

There are no further questions at this time. I will now turn the call back to Jon Rambeau, CEO, for closing remarks.

Well, thank you, everyone, for joining the call today. Before we close, I'd just like to emphasize 3 key points from today's call. First, Karman continues to deliver 20% to 25% annual organic growth, and we reaffirm our expectation of delivering 25% or higher organic growth in 2026. This growth rate varies quarter-to-quarter, but has remained consistent on average over the 5 full quarters since our Q1 2025 IPO. Second, we're strengthening our platform, expanding internationally, adding valuable new capabilities, deepening customer relationships, producing higher operational efficiency and tightening our focus on cash.

And third, we're deploying capital effectively by expanding our capacity to address generational demand and positioning Karman to deliver sustained 20% to 25% organic growth and adjusted EBITDA margins of up to 30% for years, supplemented by inorganic growth. This is only made possible by the efforts of our outstanding Karman employees whose relentless focus on serving our customers continues to inspire. Thank you for joining us today for your interest in Karman Space & Defense.

You can find our SEC filings and relevant news on our website at karman-sd.com. We look forward to speaking with you again following our next quarter.

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

Good afternoon. I'm Louie DiPalma. I cover aerospace and defense and satellites on William Blair's equity research team. This is the third day of the 46th Annual William Blair Growth Stock Conference and the last day in what's been an amazing week. We're pleased to be hosting a presentation and discussion with the CEO from Karman Space & Defense. So joining me today is CEO, Jon Rambeau, and in the audience is VP of Investor Relations, Steve Gitlin.

I'm required to inform the audience that a complete list of disclosures and potential conflicts of interest are available on our website. Jon will provide an overview, and then we will jump into Q&A. Jon -- I also wanted to mention he was appointed CEO in late March and previously, he was at L3Harris and Lockheed Martin, so he has extensive defense industry experience. And with that, take it away, Jon.

All right. Well, thanks, Louie. And look, I really appreciate so much interest here in the audience. As Louie said, I've been with the company now for just over 60 days and it's just been a really exciting transition for me to join Karman. I was excited before I took the job, and I'm even more excited now than I was when I stepped in, just in having gotten to get out to know the people, the technology, customers and to talk to so many of our investors and analysts that cover the company and to just hear what's on your mind.

So I appreciate you all being here. I'm going to go through a few presentation slides, and I guess we're going to have a little bit of Q&A here, and I really look forward to answering some of the prepared questions and then anything that might be on your minds today. So with that, I think we've got our forward-looking statements. You're all fairly familiar with these, so I won't go through them in any detail, but they're here for the record.

And this is my first slide on the company just to really give you a sense of Karman and why we really are -- we say we're a new kind of space and defense company. And when I joined Karman, I thought this is really a unique company. It's a company that has a unique value proposition and the reasons why are on this slide.

If you look at the pyramid on the right, first off, you can see this relatively differentiated position that we occupy in the supply chain that sits just below the prime level where we provide them the service of bringing together multiple components, pieces, parts, building those into integrated systems and subsystems and providing them to the prime level in a way that provides them more value than if they were to make the investment in building the capabilities themselves and having to go out and source all those individual components.

We also have -- and I highlighted some words in green here that I wanted to make sure I touched on, IP-enabled capabilities. About 40% of Karman's revenue today are for capabilities where we have design authority. So a lot of technical depth in the company. We do have full spectrum end-to-end capability from concept design. We can take a sketch on a cocktail napkin and take that all the way through to full rate production.

So it's a relatively unique capability for a company in the position that we occupy. Rapid system development as I go out and talk to customers, they're really impressed with the speed, the agility, the capabilities of the team. We have everything from aerodynamic experts, material scientists to work on advanced composites. We design our own custom propellants for energetic systems. So we really do have a depth of technical expertise in the company that's rare at this part of the supply chain.

I talked about the customer satisfaction. I have not yet come across a customer in my travels that is unhappy with Karman, which is rare. And in fact, as I talk to my former colleagues at the primes, they go and talk to their employees before the meetings, and they typically come in and say, you know, my team really likes working with your people. You're a really good partner. We see you as somebody we'd like to do more work with. We don't see you as somebody who's a threat that's trying to take our business and become a prime, we see you as a committed partner who wants to do more work that's similar to what you're doing as a support contractor to us at this level, and we see value in that, and we see a good partnership in that.

So I think that as we continue to expand those customer conversations and elevate them higher in our customer organizations. That's going to lead to more good business to follow the work that we're doing today.

A little bit more about the company if you're not already familiar. We operate in 4 end markets. Those are hypersonics and strategic missile defense, tactical missiles and integrated defense systems, the integrated defense systems piece principally supports unmanned systems and loitering munitions. We have a maritime defense business, which is largely the business that we acquired earlier this year, Seemann Composites and MSC, although there are some legacy Karman businesses that were folded into -- I should say, programs that were folded into that end market after the acquisition that are now part of that maritime defense piece of the business.

And then finally, Space and Launch, which has actually been our fastest-growing end market quarter 1 of '25 to quarter 1 of '26 at just under 30% year-over-year growth. Just a couple of things to highlight. I talked a little bit about the work we do in unmanned systems.

If you look at that first green square here, launchers and solid rocket motors. We make small solid rocket motors and energetic systems that are folded into these launching systems for putting these relatively smaller loitering munitions and unmanned systems into the air. We work on propulsor ducts for submarines. I highlight this because I worked in the industry world for about 7 years, and I love this stuff. And one of the most sensitive parts of a submarine is the propulsor. It's the part of the submarine that actually allows it to push a lot of water rearward very quickly without creating cavitation in the water, right, bubbles, which is noise. And when you're a submarine, you don't want noise.

So we're actually doing some work on those most sensitive parts of the submarine as well as the very large complex bow dome assemblies that cover the acoustic array on the front of the submarine. We're doing work with energetic systems that separate stages on launch vehicles. So those little blasts that you see when the first stage of a launch vehicle is separated from the second stage before it ignites, we do those separation systems for a number of different launch vehicles.

And finally, the submarine bow domes, which I think I touched on, just a very, very large complex piece of hardware that covers the acoustic array on the front of a submarine and some really differentiated process IP here, which is having formulated a process to cure the 6-inch thick composite dome outside of an autoclave without baking in an oven, which is typically how you cure a composite component.

So being able to do that outside of an autoclave is a game changer, and we're not aware of anyone else who's doing that in the world today. Process took years to develop. So just a few examples of some of the things that we're doing.

Strong financial results. I think you all probably have seen the numbers to date. So generally, looking at a year-over-year CAGR about 30% on revenue, that's about 10% -- think about 5% to 10% organic, maybe about 25%, 20% to 25% annual revenue growth on an organic basis. And I'll talk a little bit more about that on the next slide. And again, about 30% margins -- pretty consistently EBITDA margins on an annualized basis.

This is a chart that we put forth recently to address more questions about where is the growth going to come from looking forward? Is there organic growth that's going to continue to follow what we've seen historically? And I'll just walk you left to right on the slide. If you start with the origins of growth, it all starts with the new business pipeline. And this is really, just think, the addressable market that we are actively pursuing to convert to contracts. And we saw a relatively unprecedented increase year-over-year from quarter 1 of '25 to quarter 1 of this year from about $1 billion in the pipeline to $3 billion in our new business pipeline this year. We also saw quarter-over-quarter 2025 Q1 to '26 Q1, a 4x increase in our bid volume measured by dollars.

So the dollar value of the proposals that left Karman in the first quarter this year was about 4x what it was a year ago. And that's really driven by 2 things. First off, the framework agreements that were established as part of the munitions acceleration activity that the U.S. government is pursuing and so think about a lot more annual volume as long -- as well as longer-term contracts that are expected to be coming out of these framework agreements up to 7 years is the current expectation.

And so that's driving an increase in the pipeline. And then also a pretty significant increase in the Space and Launch pipeline. So that's really the 2 -- those are the 2 key drivers of that substantial growth in the new business pipeline. As you take that pipeline and you start to separate it into end market and you look at the significant deals that are expected to span multiple years, we started to break those out by end market. And no surprise as you look at the top 2 categories here, the strategic missile defense, the tactical missiles and integrated defense systems, a lot of the volume and opportunity is there, but you can also see Space and Launch pretty significant.

Now the maritime defense piece right now is represented by this much smaller number here. I anticipate that, that number is going to grow as we continue to integrate the Seemann Composites team into our business development organization and more fully unpack what's in the maritime budget year-by-year and start to roll those opportunities into the pipeline into our pursuit plans.

And then finally, we wanted to give just a little bit of a sense of what's happening with the business now, what happened in the first quarter of this year that provides some evidence that the pipeline is converting. So just four examples we pulled out here to share. The bottom two are contracts we've already signed. One is a program to qualify a system for a recovery of torpedoes. A lot of torpedoes are used for training in the submarine training ranges and the Navy likes to recover those. We've developed a system, a unique system that allows them to bring the -- I'm sorry, the Torpedo to the surface after it's used for a training mission. And so we qualified -- sorry, we signed a contract to qualify that system to get that into production.

And that actually is a program that predates the Seemann acquisition. There were some questions about whether everything in maritime and defense was inorganic. And the answer is no. We did have some organic maritime defense business that folded into that end market after the acquisition. We also signed a $20 million follow-on launching system contract for unmanned air systems. So that just tends to come in, in quarter-by-quarter purchase orders. So we signed another one of those follow-on contracts in Q1.

We were selected -- this is a relatively rare instance where we were asked to take the prime role on developing a munition. We had started with a technology demonstration program through one of the government labs that has now turned into a more comprehensive missile development program.

And we were asked to take the lead with one of the missile primes as a teammate. It's expected if we get this through qualification that at some point, we would then switch roles and the prime would take the lead on production, and we would provide the warhead, which is a pretty significant deal for us if that goes through to production.

And then finally, we have a Space and Launch long-term agreement that we're in the process of negotiating that I think we'll close on in the next couple of weeks, and that's worth about $0.25 billion over the next 4 to 5 years.

So just some examples of things that are pulling through from that pipeline and starting to fall into the backlog, which -- backlog, I think, at the end of Q1 is just a little bit north of $1 billion. So making some good progress across the board here on driving the growth story and continuing to deliver that 25%-ish annual organic growth going forward. So with that, I think we have some financial statements here that I will not go through, and we can convert over to some Q&A.

Fantastic. Thanks, Jon. So coming from Lockheed and L3, what attracted you to Karman in that at those prior defense primes, Karman was a supplier to you. And so you were able to see them up close. So what was the main motivation?

Karman wasn't -- I wasn't off looking for an opportunity. I've worked for 2 great primes and had great career, a lot of challenges in those roles and a lot of good colleagues that I've stayed in touch with. However, I got this call and I was asked to look at this company and I said, well, anything. I'll take a look and see what it is. And the more I looked at the company, I thought this really is something I haven't seen in my 30 years in this industry.

But were you already aware of Karman? Did you ever ...

I was not particular -- no, I didn't have a lot of interaction. If you think about the size of the company and how quickly it was put together, the company was founded about 5 years ago and has grown rapidly. And so I had not been tracking what was happening in the munitions and space side of the business. I was more in the Mission Systems, a lot of airborne work. So I wasn't working with -- now as I started to become attuned to the company, I found very quickly that my colleague, Ken Bedingfield, is very aware of Karman in tracking the business and working with Karman as a major subcontractor. So it's not that at the prime level, they were not executives tracking the company. I personally wasn't.

And as I started to study it more, I thought this is something really interesting and really exciting and something that I think will be a lot of fun to be a part of.

And so a long conversation with my wife about moving across the country and doing something that probably came with a little bit more risk, a little bit more reward in the long term and made the decision to give it a try. And I have to say I haven't looked back and I'm really excited.

And I assume since you mentioned you conferred with Ken Bedingfield and I'm sure many of your other executives and relationships across the industry, and you did your own due diligence that you have the view that Karman cannot easily be displaced that they have this secret sauce because if you did have that view, you probably wouldn't have come?

I studied that very carefully. And I looked at the -- I talked about the 40% of the revenue where we have design IP, where 50% of the remaining 60%, we have some process IP and also some patented materials that go into some of those products, my thought was, a, it's -- we have a pretty strong competitive moat around the company; b, though, the commitment to scale and capacity to meet this generational surge in demand was really exciting. I thought here is a company who's got it right because one thing I was very acutely aware of as a prime was this incredible pressure to expand capacity for missiles, munitions, Space and Launch. And so I thought, boy, this is right in the heart of where all of the action is going to be in defense for the next decade. So that was another thing that's really exciting to me that the growth was going to be there, and here was a company that had the vision to get ahead of that.

Definitely. And some have described that expected explosion in production as a super cycle. And on your slides, you referenced how your pipeline has dramatically increased. How should investors think about that pipeline converting into backlog and then that backlog converting into revenue? What's the time frame?

Yes. I mean when you think about our -- we don't advertise our book-to-bill on a quarterly basis. It tends to be lumpy. But generally speaking, on an annualized basis, we'd like to see a book-to-bill north of 1.3. So that 30% year-by-year increase in backlog would lead to support that, call it, 25% annual organic growth, which is important for us. We think that trajectory is going to sustain at least through the end of the decade is what we see right now. I would say, yes, super cycle. Certainly, what we're seeing right now is unprecedented in the 30 years I've been in defense.

And what's exciting also is there's -- as we see this real resurgence of the space economy, and we see this generational increase in demand for certain capabilities in defense, there's a lot of outside capital that's flowing into defense as well. And I think that's providing even more energy, even more investment in scaling capacity and capability. So it's an exciting time to be in this business.

Definitely. And related to what we described earlier, as part of this munition super cycle, and this is also taking place during the discussion and implementation of Golden Dome, there are many of these marquee missile platforms like the PAC-3 interceptor and the THAAD interceptor, you're a supplier on GMLRS. There's the Stinger missile, a surface-to-air system. And so there's -- these 15 systems, and you traditionally have been a supplier, do you see any risk you being able to scale capacity fast enough to meet your customers' expectations? How should we think about?

Right now, I don't see any reason why we won't be able to scale. I think the company has committed substantial resources to -- in a prudent way, right? I mean, it's not overcommitment, but we've committed 5% of revenue this year to CapEx, and the majority of that is going into either expansion of capabilities in existing facilities or we also committed ourselves to a pretty large investment in a new Salt Lake City facility, which is going to be a couple of hundred thousand square feet almost exclusively manufacturing to support the unmanned systems part of the business as well as the tactical missile part of the business.

So yes, I think we're going to be where we need to be. We had a -- what gives me some confidence too that the overall ramp is going to happen. I was worried about, are there going to be 3 small suppliers that just can't get there and it holds everything back because ultimately, the primes will be able to move as fast as their slowest supplier in the grand scheme of things.

And so what's giving me confidence is the Department of War has had a contractor that's been out studying all of the suppliers and looking at the details of their investment plans, their CapEx investments and identifying risk areas and helping to identify sources of capital to get the smaller companies the resources they need.

And so we had a visit in our Huntington Beach facility where we do some subsystem -- I'm sorry, production for tactical missiles. And after 1.5 days of going through spreadsheets and numbers, the conclusion was we're very happy with where Karman is. You're exactly where we want you to be. You've leaned in on the investments, you're going to meet the aggressive ramp and you're going to get a green scorecard. So that felt good.

And so for the primes to move forward on the super cycle. Do you expect them to wait for the congressional funding to come in, in that -- like one of the big themes in the industry has been like companies such as Anduril or Crossbow or others using their own internal R&D, their IRAD to like develop these manufacturing facilities and the way you described it in your prior earnings call, it was like contingent funding. And is that the main, like, barrier here in terms of Congress approving it? Or do you expect the primes to continue to move forward with these investments even if the funding is not 100% locked in.

There's a spectrum. You have companies that are oriented more toward the Karman end of the spectrum that are leaning in and making investments. In many cases, they're non-traditionals. But if you look at L3Harris and you listened to some of Chris' public remarks just in the past week, I mean there's a business that is leaning in and investing. They know the demand is going to be there. I was a member of the leadership team, and I can vouch for that, huge commitment to making those investments with the absolute understanding that the contracts will follow and that the contracts will provide.

The theme I've seen also lately in the primes' remarks publicly is that there is an expectation that if contracts are for some reason, terminated, and there's a huge CapEx build that can't be liquidated. There would be some recovery possibility there at the prime level.

So obviously, all those things will look to work into our agreements as well. But the big -- the contingent is when we get our contracts, you'll get yours. And that feels good to me. I feel confident the contracts are going to happen at the prime level. And we seem to be hearing by the end of the year, that is the time frame for those contracts.

Great. And yes, thus far, we've been focusing on munitions, but there's also been tremendous excitement in the space industry. And your name has traditionally been Karman Space & Defense. And so what products are you providing the different space launch providers or satellite infrastructure providers?

A lot of the work we're doing in space is not all that different than what we're doing in the munitions area. We support the subsystems for the propulsion portion of the launch vehicles. We're doing some of the core stage components for a couple of our key launch customers. We have some areas where we've done design of subcomponents of launch vehicles from just a list of requirements all the way through to a complete integrated assembly that can go right on to a launch vehicle.

And we're also -- one of the most exciting projects is we're building a lunar lander in our Seattle facility for the NASA CLPS program for one of the primes and the actual full integration of that lunar lander is going to happen in our facility, which is a pretty big deal because a lot of times we'll build a subsystem, and we'll ship that to somebody who puts that into the end item and in this particular case, we're working with the prime to build and integrate the entire lunar lander in our facility. So that's pretty exciting.

Great. And one question from investors. A few weeks ago, Blue Origin experienced a significant mishap with their New Glenn platform. And you've previously discussed how they are among, like, many different space customers. Do you anticipate any significant impact from the New Glenn mishap on your business?

I don't at this time. I will tell you, like everyone else last week, I was really shocked and disappointed to see what had happened and concerned for where that would lead for Blue Origin. And some of the statements that NASA made immediately after the mishap were discouraging. However, coming out of the weekend, hearing some of the public comments that Blue Origin has made about getting back on track by the end of the year if they can recover the launch site and get it back to its full functionality by the end of the year, that's really encouraging.

And I will say that in my interactions with Blue Origin and the interactions my team are having, it is business as usual, if not even perhaps a little bit more resolved and committed to continue their cadence of production. So everything I'm seeing right now is full steam ahead.

And how is your long-term view of the space industry in terms of how -- there's Blue Origin. There's ULA with their Vulcan program. There's Rocket Lab with their Neutron development and their existing Electron. And I know many of these launch providers are customers of yours. Should you participate in the growth alongside their expectations to ramp the launch cadence?

One of the things that's really great about Karman is if you're thinking about missiles, munitions, Space and Launch, we're sort of like an index fund. We have participation on pretty much all of the platforms. We have representation on over 130 programs, over 80 individual prime customers that we support. And so across the spectrum of defense, Space and Launch, traditional, nontraditional new entrants, we're working with just about everybody in some capacity.

So we will -- if you look at the macro trends and you look at the bend in the curve for launch cadence, it really is starting to get to a point. And I think Artemis II was a big shot in the arm for the entire space community. I went to the Space Symposium this year, and there was just a certain energy, whether it was the military space or the commercial space folks, there's just a real excitement that space is back in this country, and it seems to be manifesting itself in real progress here.

Great. And for -- you mentioned the organic growth of 25% or around 25% for this year. What is your visibility in terms of that growth? You've reported a strong backlog at the end of the March quarter and the fourth quarter. But what needs to happen in terms of contracts coming in? And how dependent is that organic growth on different budget items or funding items?

We are -- right now, we have greater than 90% visibility to the full year revenue and the remaining less than 10% now is going to be follow-on to current production programs. So we're in good shape for this year for top line, and we're starting to look towards what next year is going to look like. So good visibility.

Great. And one thing from your presentation that was interesting. You discussed how -- you discussed that really compelling Torpedo recovery contract and how you had existing, like, maritime programs that are being folded into your new maritime segment in conjunction with the Seemann's acquisition. How large in terms of revenue was your existing maritime business? And what's your long-term view in terms of what other areas into maritime can you expand into?

Yes. Historically, maritime was not a significant portion of the business. There are a few contracts that was -- so the Torpedo work was one of them. So we had a few, not a substantial piece. So you could say the large majority of the maritime defense business that we reported in Q1 was through Seemann and MSC. And there was a substantially smaller piece that came from -- we parked it elsewhere in the portfolio given the size. So that's where that shakes out. The second part of your question was around...

Your long-term view.

Long-term -- long-term view of maritime?

You have Seemann and -- are there other products that you're developing or areas of maritime?

We have some -- so a lot of work that we're doing with submarines. And that's a great business to be in. Once you have a trusted relationship there and you can perform and deliver, that will be a long-term relationship. So I'm excited about that. There's work we're doing on the Ship-to-Shore Connector, which is, I think, like, a hovercraft sort of a vessel. A lot of advanced materials work there, some very advanced composites work and looking at what more we can do in unmanned. So we're doing some unmanned -- some subsystems on unmanned platforms for naval customers today for primes.

And I'd like to see what more we can do in unmanned. It's a crowded space, and the Navy has historically moved, I'll just say, very deliberately and intentionally, but in a very methodical way, to evaluate unmanned systems. And finally, we're starting to see maybe some larger procurement of those capabilities. It's a crowded space. And if we expand our footprint there, it will be for something really differentiated. So we're still looking at that.

Excellent. Well, that is the time we have for the main session. We have many more questions, and we will resume this in the Adler room on the second floor. Thank you very much, Jon.

Thank you.

All right. Is this on? Okay. I think we can start. Well, thank you, everyone, for joining us for this fireside chat with the CEO of Karman, Jon Rambeau.

Karman is actually one of my favorite ways to play this early stages of a defense tech cycle. They are a key merchant supplier to almost all of the key missile space, unmanned systems, hypersonics programs out there. And so super excited to have John here.

And so John, I think just to start, for people that might be newer to the story, can you give us a high-level overview of Karman, what you guys do, where you sit in the value chain and how the business has evolved over time?

Sure. Sure. Thank you. Karman really is unique in where the company sits in the space and defense value chain. We're a purpose-built company. We have a presence in high-growth parts of both the defense and space market. And the thesis of the company was to target these high-growth areas.

We have, in most cases, put together smaller businesses that had deep history in the industry. So in some cases, decades-long relationships with our customers. And we operate exclusively at that second layer of the supply chain as a merchant supplier to both the traditional businesses as well as the new entrants in Space and Defense. We have representation across over 130 programs and over 80 prime level customers. So we support virtually all of the primes in Space and Defense.

The company has been a high-growth business. We've been growing organically double digits annually, north of 20%. And also, we're looking at about 10% a year of inorganic growth on average through a series of generally small bolt-on acquisitions that continue to follow on in the end markets that we support. So very excited to be a part of the company.

And I think we are really unique in the sense when we think about competition, it's not really other companies that we're competing with to fill the same role. It's more the primes making the decision, do they want to buy the piece parts and integrate themselves, vertically integrate or do they want to come to a company like Karman who can take on the investment, take on the risk, do the end-to-end requirements all the way through full rate production. We can do all of those things for those customers, and that's really where we've been able to differentiate and add value.

Awesome. Well, and Jon, you recently stepped into the CEO role in Q1. And after a long tenure at multiple defense primes, such as Lockheed and L3Harris, what specifically attracted you to Karman as an opportunity at this point in your career?

Yes. I wasn't expecting this, to be honest. I -- 30 years at 2 very successful large defense companies. And at the same time, I got this call just before the holidays, and it was about this company that I had not heard much about. I knew of Karman, but I asked for some information just to at least take a look at it. And over the course of several days, I just kept coming back and picking up that package and looking at it again and again and flipping through it.

And I thought to myself, I've been in this business for 3 decades. I've never seen anything quite like this. So I decided to learn a little bit more, got to meet David Stinnett, the Chairman of our Board, who actually put the company together, got to meet some other members of the Board, talk a little bit more about the vision. And I thought there's really an opportunity to be a part of something different and special here that hasn't been done this way before. And that's why I decided to make the jump, and it's been a really rewarding experience so far.

Well, and kind of to piggyback off of one of the points you made, a question that I often hear from investors is like why don't your customers bring more of this capability in-house? And so from like your experience, you were on that other side of the table. What drives the decision to partner with a company like Karman instead?

Yes. As a prime -- I've considered this a prime, what you really want to have is you want to have control, you want to have surety of supply, you have -- you want to have no risk, right? When you're entering into a large complex development or production program in defense, it's all about risk and it's about schedule, it's about performance. And so you'd love to have everything under your control all the time, but the reality is you can't.

You can't afford the investment in the infrastructure or the intellectual property to put together a complete complex defense system all on your own, you have to partner. And so the -- I think the value proposition here for Karman is to say we can offload some of that risk. We can offload certainly a lot of the investment we are willing to invest to build capacity to support our customers. And we can do that while still providing them the surety of supply, the delivery, the quality and the competitive pricing that allows them to fit within their budget. And it gives them that surety that they were looking for without having to do it all themselves. So that's really the value prop.

Okay. Well, and so timing was great for this fireside chat. Yesterday, you guys reported very strong results, exceeding consensus expectations, top and bottom line, raised the full year guidance. It might be helpful just to kind of get a sense of kind of like maybe summarizing kind of the results or any kind of specific drivers that you guys wanted to...

Yes, sure. We had record results across the board. I mean, we were up over 50% year-over-year, some of that was organic, some inorganic growth. The EBITDA up about the same amount, high 40s. So in terms of the top line and the bottom line performance, it was strong. All of our end markets grew double digits year-over-year. The strongest growth that we had was in space and launch, 29% and change, almost 30% growth year-over-year, but all of our end markets grew.

We saw just a little bit of pullback in hypersonics. And I think what's happening there, as you think about hypersonics and tactical missiles, there is so much happening right now with the depletion of the stockpiles, the need to replenish those traditional munitions. And I think there's probably going to be some decision about how much money is going to go to replenishment versus how much goes to next-gen munitions.

So I think what's happening this quarter is a little bit of just taking a breath as the customers decide, okay, how is that going to move forward? How are we going to allocate the resources that we have? Are we going to see this big budget, this $1.5 trillion budget next year? So generally, across all of our end markets, we saw strong performance. I think the missiles and munitions, in particular, will pick up quite a bit towards the back end of the year as those decisions get finalized.

We -- it's worth noting, we did also announce that we had received since we -- so we had our year-end call a little over 30 days ago. So in that time, we were able to secure 4 written, call it, contingent demand commitments for munitions production, space and launch capability. And so we are starting to see now a lot of the talk turn into specific numbers on specific programs over specific time frames. And then I think the numbers that we're seeing are generally more of a floor and there's upside from there depending on how much momentum each of the primes is able to build with these platforms.

Well, and I think something that's really unique about the Karman story is how exposed you are to these key programs. I think you guys highlight you're working with 80 different customers, 130 different programs. And these are some of the most important defense programs we're seeing and using. So maybe just like you're exposed to several of these fastest-growing defense markets such as missiles, space, drones and now submarines. Can you walk us through what you're seeing across each of these today? And if there's any kind of key programs investors should be keeping an eye on driving the business?

Yes. I guess maybe start with maritime defense. That's an interesting one. The work that we're doing there is principally supporting Virginia, Columbia and Seawolf-class submarines. We are seeing growth year-over-year, substantial growth in terms of the budget. And that will drive, I think, an increased pace of production. We are building a new facility down in Gulfport, Mississippi to support expansion of that business.

I think there will be some inherent limitations on how much faster submarines can go through the shipyards. At the same time, over the last 3, 4 years, we supported in my prior role, the undersea community. And for the major subsystems on the submarines, the shipyards are saying as much as you can, as fast as you can. Well, if you can do it, we're going to order it, we're going to buy it, we're going to pay for it, we'll put it somewhere. So they are continuing to take the capability as fast as they can get it. So I think we'll continue to see an increase of the pace there, but there's going to be some limitation based on how fast the submarines can be produced.

If you look at the tactical missiles, I think we'll start to get a much better idea at the end of this year as those framework agreements start to turn into prime level contracts. Those are expected to be multiyear contracts up to 7 years. And we fully anticipate we're going to get the same kind of commitments from our customers. So those contingent supply agreements that we're seeing right now, I think they'll start to turn into contracts as early as the fourth quarter of this year, which will give us some real lift as we go into '27.

Hypersonics, as I mentioned, I think the question there is how fast will the new programs go from development into production? Will there be any trimming of the production quantities on programs like NGI to support the tactical missiles replenishment? That's a question in my mind. We are seeing growth there. It's not quite as fast as we predict in the tactical missiles. The unmanned systems, the launching systems that we produce, the subsystems for the vehicles themselves, some of the propulsion systems, those are, again, significant demand coming.

It's a little bit less precise in terms of how much on what time horizon in terms of not having necessarily long-term agreements, but we are expanding significantly. We're putting a new facility in Salt Lake City. It's about a 200,000-square-foot facility, and we'll start taking deliveries of equipment there around the midpoint of the year. That's going to principally support ramp-up of tactical munitions subsystems as well as the launching systems for UAV. So that's where that business is headed.

And then I'll come back around full circle again to space and launch. And that was our largest year-over-year revenue growth piece for Q1. And we're finally starting to see, I think, the launch cadence get to that point where it's going to hit the knee of the curve and really start to increase at a very significant rate. So we're talking to one of the 4 agreements that I talked about in this release yesterday was related to space and launch, multiyear agreements, hundreds of millions of dollars of value. And again, that's a floor. That's a minimum commitment, and that's likely to go up from there. So that's a long-term agreement we're looking to finalize and sign in the next several weeks.

Well, I think something, too, that investors are paying attention to is, so, like, when does all this funding get deployed? And just listening with what I think Secretary [ Hicks ] has said, they want to deploy a big bulk of that $150 billion in reconciliation money. I think as of like a few weeks ago, like $30 billion has only been deployed yet. So like how are you guys preparing? Or like what are you guys seeing as we get into the second half of the year and the fiscal '26 year-end? Like are we expected to see like just you think like a big inflow of order activity?

Yes. I think we will in the back half of the year, we'll certainly see things pick up. This is -- we've seen so much happen differently in this environment in the last 18 months. One thing that hasn't changed that much is the pace of contracting is always slower than you expect it to be. I would say it's -- it's faster now than it might have been a couple of years ago, but it still takes longer than you'd like. The primes are talking about getting their framework agreements finalized by the end of the year. And so we've already provided proposals.

The numbers are all in on the table. It's just a matter of them turning around and issuing some contracts. They want to receive their prime contracts first. So I think we will see a big push to spend the balance of that reconciliation money on time. I'm hopeful that most or all of it will get obligated. And then we look to the $1.5 trillion budget proposal for next year. And that one, that contains a lot of multiyear money, and that's intended in large part to fund a lot of those multiyear munition replenishment framework agreements.

Even if the entire $1.5 trillion doesn't get allocated and there's some lesser portion, it's still going to be -- it seems a big uptick from what it was last year. And also, even within the budget, we're seeing a reallocation of money more towards the areas that are more favorable to Karman, those end markets that we're in. They're chosen very carefully, and we are going to continue to see that significant double-digit growth in those markets.

Well, and I think that's an important or the interesting customer behavior. So as your customers are 3x or 4xing their production on missiles and stuff, I've always took the stance that when your customers are expanding that quickly, that's not the time when they're likely to say, "Hey, we're going to now bring stuff more in-house." It seems like that's more of an environment where like, hey, we're going as quickly as we can. Karman, can you guys help us maybe now with this, this and this? Like how does -- how is the customer behavior, I think, going to change as they go into these massive ramp?

Yes. Well, certainly, we will be on offense as we go into that massive ramp. We'll be looking for areas where we can opportunistically step in and help if there are other parts of the supply chain that are not meeting demand. And I think you're right. It's not the time that the primes are going to be looking to bring everything in-house. There may be targeted areas where they might feel, of necessity, they have to do that if they have a small supplier that can't get up the ramp and there is no alternative.

Certainly, we will not be that supplier. We have been very thoughtful in planning our investments to stay a little bit ahead of need. If you think about the areas we're going to see big growth in unmanned systems and missiles, that is exactly what the 200,000 square feet in Salt Lake City is going to be supporting. We have new capital equipment coming into our Huntington Beach facility. So some of that's online.

We have one of our top customers in the factory yesterday, and they walked in and the first thing they said was, wow, a couple of months ago, none of this was here, right? It is really real time happening. We have a lot of new equipment coming in, facilities expanding, capacity coming online. And the demand is -- when I'm talking to customers, it's just are you going to be able to keep up with us? We need you to continue to perform, deliver and scale.

And as long as we continue to do that, the last thing, back to primes, what's the #1 thing they want. They want that surety of supply. We have to be that consistent partner that's there to get them what they need when they need it, it needs to work and it needs to be at a competitive price that meets their budget. And I think we're in that position across the board, and we're going to continue to work very hard to stay there and not ever be that supplier that a customer might feel needs to be second sourced.

Well, and on that comment of supply and just like making sure you guys have enough supply, what does that dynamic look like for you guys as we go into this larger ramp in the second half of the year?

I feel good. I feel good about capacity. I'm optimistic. I'm excited. And one of the things that really surprised me when I got to Karman, having come from 30 years as a prime is I walked in and I said, where is the list of red suppliers? Where are all the problems? And really, there weren't any to speak of in the supply chain because we're very vertically integrated. We're generally taking raw materials and starting from that place.

There are some instances where our customers might give us a component and say, integrate this into a broader subsystem and give it all back to us. But most of the time, it's raw materials, it's metals, it's resins and fibers and composite structure. And we're taking it from that place and building it up into something that's an integrated electromechanical, energetic system. About the only thing we don't really do is we don't write a lot of software. We don't do a lot of total system integration. We do the electromechanical, structural, energetic components for them, and it's a huge burden off the shoulders of the primes.

And could you maybe talk about kind of your capacity today and like what type of investments you're making and where you're hoping that ends? I know you guys are doing a big expansion in Salt Lake City with your UAS lineup.

Yes. I would say that most of the investments that we're making are related to manufacturing. We have -- we do have a full-scale end-to-end design all the way through full rate production capability. That's where we tend to do our best work is when a customer comes to us and says, I have a requirement. I have a requirement, for example, for a deployable shroud that's going to protect a sensitive payload has to keep it at a constant temperature from launch all the way through the atmosphere and then it's deep space. And at the moment in time, it has to pop open and deploy that payload and do it with no net force applied to the vehicle.

It's -- these are complex problems. And when we get those requirements from our customers, we're able to do the engineering, the design, take those solutions to production. Again, though, when you're talking about our investments, they tend to be more in the manufacturing side of things. We have a lot of manufacturing intellectual property as well as a lot of design IP in a number of our solutions. So about 90% of what we do for our customers from a revenue point of view has either design and/or manufacturing IP that protects it from...

Okay. And kind of drones is the hottest subject in defense tech right now, a buzzword, but obviously, we're seeing more and more of that demand. And I think you guys are exposed to, I think, one of the most critical areas in this drone supply chain because I think like the FPV, small stuff gets a lot of the headlines. But if you look at what the military is using, it's more Group 2, Group 3 long-range precision strike. Could you maybe walk through like what are some of the key components and subsystems and if there's any customers that you guys can highlight that you're exposed to within the UAS market?

Yes. I mean, generally speaking, we've certainly worked with AeroVironment. That's one customer, I think, that certainly we have shared that we work with. We build the launching systems for them. So it's a very complex system that has to accelerate the payload from 0 to 300 feet per second in an instant and do all that without damaging the vehicle itself. So we provide it sort of an integrated electrical, mechanical, energetic system.

We also provide some of the small diameter propulsion kick motors or booster engines that will support the launch of those loitering munitions. And we provide some of the key subsystems on the vehicles themselves, not generally in the larger scale vehicles, the smaller ones. We have a payload that can be attached to a much larger UAS that can have sort of a cartridge loaded launching system to launch smaller vehicles from a larger one. So we have opportunities to be exposed across the entire spectrum. The one place I don't know that we have as much presence is in group 1.

Yes. Okay. Well, and like it's still a little bit of a black box. We've seen some more information, but the DAWG program, Defense Autonomous Warfare Group, $54 billion in unmanned aircraft or not unmanned aircraft, autonomous systems. Do you guys have a sense on kind of like the exposure you guys might have to that funding or...

Yes. I think as our prime level customers start to realize the benefit of that funding, we'll naturally follow along behind them. So that's our principal area of focus. We do have some work that we're doing with unmanned underwater and unmanned surface vessels out of our Seemann composites business. That's not big business right now. There is opportunity potentially there as some of that DAWG funding gets out for us to support some of the manufacturing. But I think it's a little bit early to speculate on how much that might be.

And would that be just exposed to like the underwater, the UUVs? Or because like the USVs, the autonomous boats on the water is obviously a market that's getting a ton of traction as well. Are you kind of exposed to like all maritime autonomous?

Yes, there is some potential exposure to all maritime autonomous. I would say potential because we're working with some of the primes that are looking for additional manufacturing capacity. So that's where we're starting our focus is there. And as they need that capacity, we think we'll be able to provide it.

Okay. Well, and I think kind of a key part to your guys' growth strategy has always been M&A. How should we be thinking about M&A now with like you in the seat and maybe how the strategy might be changing or might be staying the same?

Yes. I think the strategy for the company is sound. I'm about 6 weeks in. So it's perhaps a bit early here, but I don't see any reason at this point in time to shift the strategy of the company. I think the continued focus on those end markets that are high organic growth and to continue to supplement with a couple of bolt-on acquisitions every year is about the right pace.

So if you think about maybe 20% to 25% organic growth a year, another 10% on average coming from inorganic feels about right to me. That's about where we've been. It feels like a reasonable pace. And someone asked me the question earlier today, are you just buying these companies and letting them operate the way they've always operated. And that's not how we're running the business. We are doing the hard work to get the integration done.

We're deploying a common ERP system across the company. We're deploying common manufacturing execution system across the company. So we're going to have that integrated what we refer to as the Karman operating system, and that's going to be everything from HR systems all the way to the factory floor. We will integrate these businesses.

The targets will generally be in the end markets that we've been in for the most part. I don't know that we see any right now on the horizon that would deviate from that formula. Generally founder-owned, founder-led businesses that come in at a good multiple, at a reasonable purchase price, and we can fold those in naturally as part of the way we do business and how we continue to deploy that operating system. So that's how we'll continue to think about M&A going forward.

Well, and if you look at like some of the -- like even the most recent Seemann acquisition, it seems like material properties, strong material proprietary portfolios is a key aspect. Is that something that like is a big differentiator when it comes to these type of decisions?

It's huge. I mean we're absolutely looking for a differentiated IP, where is the competitive moat around that business? And how will that continue to complement the rest of the Karman portfolio. Generally, as these acquisitions come online, they add value across other parts of the portfolio. We're seeing composite technology now already coming out of Seemann that we can port over to our missile business.

We're seeing opportunity to bring manufacturing workload from the missile side of the business or the space side of the business and put that into the Siemens Composites infrastructure where they have excess capacity for production. So we really are taking advantage of the full breadth of the enterprise, whether it's from a systems integration point of view, whether it's looking for economies of scale and how we manage the business or it's looking for how we distribute the work across the factories. All of that has been taken into account.

Okay. I'm going to say the buzzword here, AI, but it goes back to the comment you made on your building this integrated manufacturing system. I'm curious, what are some of the advantages that you're seeing maybe when you integrate these more next-generation AI tools? Is there a huge value add that, obviously, like you think of improved efficiencies, productivity?

I think AI is going to be transformational for all companies, if they're not already well down the path, they need to be. And you think about a company like Karman, I said earlier, we don't do a lot of software in Karman. There's still a tremendous opportunity to leverage artificial intelligence.

We actually had some outside partners in to do a workshop 2 weeks ago that was focused on leveraging AI in the business. And we ended up with, I would say, 3 horizons on which we could realize benefit. One was a very -- just practically, how do we take the information that we have at our fingertips and leverage it to do our day-to-day work smarter. So whether it's building basis of estimate for proposals, whether it's analyzing a complex request for proposal and pulling out the key requirements for us, simple things like that.

And then we looked a little bit at the moonshot scenario, which was how could we design the munition for a customer in half the time and half the cost by leveraging all of -- because what really is important with AI, I think, is the ability to leverage data in general. But if you have data that's uniquely yours, then that can really be a competitive advantage.

And I think one of the challenges to unlocking the power of data is typically that a lot of it is unstructured. It might be test reports. It might be handwritten notes. It might be e-mails. With artificial intelligence, we now have the ability to access all of that unstructured data to solve challenging problems. And so the team actually conceptualized how would we take the data that we have and automate the first few iterations of a munition design process. So that's kind of the moonshot that we're thinking about now. So yes, I think it's going to add a lot of practical value and a lot of long-term strategic value as well.

Awesome. I'm going to pause here and just open the floor if there's any questions. I still got a bunch for me, so you're not getting up yet. But -- all right. Now maybe we'll pause again in a few more minutes to see. So a question I have for you. Obviously, a big bulk of your business is really driven by U.S. DoW. But what's unique about this defense cycle we're in, every feels region of the globe is going through their own defense spending cycle. Canada is increasing Europe, India, the Middle East. Is Karman exposed to any of these other geographic markets?

We are -- I mean, in the immediate term, certainly, there are foreign military sales of some of the U.S. platforms, and we're exposed through that. That demand will pull through for Karman. That's really not going to change the way we operate with our customers today. We sell them the components and then some are domestic and some go for export. That's just a given with the way we're positioned across key programs.

More broadly, are we going to go international on our own? We do have some acquisition targets in the pipeline that could open up opportunities more globally. We are evaluating those, and it's a big decision for us, I think, to consider venturing outside the United States. We've just had so much tremendous growth here on the home front. That's been our #1 priority.

As we look to the future, yes, if we have opportunities to selectively enter other markets that are strong U.S. allies, certainly, Europe is an area where we're going to see increased defense spending. I think it's been clear that our government expects European governments to spend more on defense, and they've answered that call. So there's a real push to take those increased dollars that are allocated in their defense budgets and put this into local industry.

So we are looking at some of those companies to see if there's anything that would make sense that would fit again with our end markets that would be complementary to the things that Karman already does. Australia would be a place we could consider. Canada would be a place we could consider. So yes, there are some non-U.S. markets that are attractive that we will selectively evaluate.

Okay. Well, I think to kind of maybe get more into the P&L of the business. Not only are you guys growing 20%, 25% organically, but very strong margin profile, operates EBITDA margins north of 30%, which I think clearly speaks to the strong competitive position you guys have. How should we think about the sustainability of these margins? And what are kind of the key drivers of potential expansion?

Yes. I think the margins are sustainable, and we've talked about targeting 50 basis points of margin expansion per year as the company grows. Certainly, my first priority is to make sure we see no degradation, no erosion of the margins. As we think about these framework agreements at the prime level, my understanding is that the government is asking the primes to hold pricing constant over time effectively to find efficiencies to offset inflation.

My guess is that same ask will flow to us. We've already started to think proactively about how we manage our way through that, which would be long-term agreements with our suppliers of the raw materials. It would be looking at how we get increased efficiencies and economies of scale as the company grows. And I think there are multiple levers that we'll pull to offset any pressure on our pricing, and that would be to continue to optimize the factory.

I think there is still capacity within the infrastructure that we have to leverage that more fully. I think there will be increased operating leverage as our revenues increase. And the customers that have talked to us about price reductions, again, given the pressures they're under to go faster and to be more efficient, they've been willing to say, I just -- real customer conversation about one of these long-term agreements that we announced, it was, I'd like to take another 10% off your price.

And how can I change requirements, relieve some of the inspection requirements or change the design in a way that makes it more producible. So typically, the conversations about price reductions have come with a conversation about how they can be more flexible to allow us to maintain our level of profitability while offering them a more competitive price. So at this point in time, I don't see any reason to think the margins are going to be a concern.

Okay. And this is something a lot of, obviously, military key components are already made in the U.S., but we are seeing this reindustrialization, this build in America, especially like in the drone space. Do you get a sense that there's a lot that your customers may have been buying internationally that they now are realizing that, oh, we now need to source these additional components that they're not doing to you and like how that dynamic is going to benefit Karman as we go forward?

Yes. I think certainly, on the domestic front, we're going to continue to see tailwinds coming from that push to buy U.S. There are not a lot of places right now where I would say we are taking over work that's being done by a non-U.S. supplier today could change. But certainly, we're not seeing non-U.S. suppliers. We're not seeing them get any traction moving into places that we occupy right now.

So I think that gives us a little bit of insulation. But it does again raise the question of if we were to want to expand internationally, my guess is we would have to acquire businesses that have local footprint or establish local footprint because there's going to be a real pressure from non-U.S. customers, I think, also to buy locally. There always has been. I think that pressure will be as strong or stronger going forward given U.S. is taking that position.

Okay. And I think, too, like competition always comes up and especially like when you have 30% EBITDA margins, that puts a bogey on your back because you're doing something right. How do you guys view about competition? Has that increased, obviously, given with the reindustrialization? And how do you guys feel about kind of maintaining this, I think, really strong moat you guys already built?

We feel good. What we're doing -- what Karman is doing is really unique. If you look at other companies coming into the space, they are generally focusing in 1 or 2 domains or have 1 or 2 very focused products, many of those coming out of a lab that was maybe venture-backed at one point in time is continuing to mature and they want to bring that to market as a prime offering. That is not at all how Karman has been built or is positioned.

We've been built from these pieces of capability that, in many cases, have been well established for decades with strong either design or manufacturing intellectual property that sort of protects those from competition. We've put those together in a way that has allowed us to be a subsystem provider to primes across the entire space and defense spectrum. So we're exposed to over 80 customers, 80 unique primes in Space and Defense and over 130 contracts.

And those contracts span the life cycle from concept design all the way to mature production all the way to even post-delivery support and sustainment. So we really are a unique merchant supply company operating in that prime to the primes kind of a role, if you will. And that's a unique position. And I think we're going to continue to be in a very positive competitive position going forward.

Okay. Yes.

So I'm curious, do you have to make any technology or R&D priority bets when you think about your customers, the areas that you want to focus your technical capabilities on? And if you, what are those?

We have some munitions programs where we're making some targeted company investment in design IP opportunities to go on offense, as I mentioned earlier, and take some share in certain munitions programs. So we have some targeted investments there.

I would say the vast majority of our technology investments are more in manufacturing technology. We do have some very strong positions on established production programs and the ability to ramp those to do more automation in the factory, think about advanced manufacturing methods. That is an area we're investing.

If you think about the work we're doing in Seemann composites, building these massive bow domes for submarines out of composite material and doing the curing of those composites outside an autoclave. That's a capability that exists nowhere else in the world. The moat around that, if you will, is tremendous. We do it at a very competitive price and using some very proprietary technology that we've developed. So a lot of the investments, I would say, focus more on the manufacturing technology differentiating there, although there are also some targeted investments around missiles and munitions.

So you don't really want to look at the end product or program and say, give an assessment at to really want -- do you want to be on our platform because it's either uneconomic or it's too expensive a platform long term, its viability is going to be...

We don't typically pick and choose platforms we want to be on. We tend to want to be on every platform and it will be a part of everybody's team. And in many cases, for the new missile ammunitions programs, for example, we are typically on all the teams, providing maybe different subcomponents or subassemblies. Sometimes we're working on advanced composite technologies for next-generation hypersonic weapon.

Some of the advanced carbon-carbon composites that we've invested in, for example, exist nowhere else in the world. The manufacturing methods we've developed are substantially lower cost than competing methods. So again, it's looking at what are those next-generation platforms, how do we make sure we're part of as many of the prime level teams as possible? How do we take as much share on each of those designs as possible? And we invest where necessary to make sure we're bringing the value to the team and to the partnership.

Okay. Well, Jon, the last question -- well, any other questions from the floor?

All right. Last question I have for you. I was just going to pass it back to you. Any kind of last couple of thoughts you just want these investors who are here and listening to take away?

I guess where I'd end is just to say, look, I've been in this job about 6 weeks, and I have been really impressed with what I've seen so far. This is something that excited me so much that I walked away from 30 years as a prime and came to do something very different and I think very special. And so I feel very good. Investors are here to talk about the numbers, I think, at the bottom line. And I feel great about the plan that we've put in place for this year.

We're hoping to see a little bit of upside at the back end of the year as the framework agreements start to get formalized. But as we look to '27 and beyond, I just see tremendous potential for the business, and you all have my commitment that I'm going to do everything I can to make this as successful as possible.

Well, thank you, Jon, for participating, and thank you, everyone, for attending. This ends the webcast.

Hello, everyone. Thank you for joining us, and welcome to the Karman Space & Defense First Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Steven Gitlin, Senior Vice President of Investor Relations and Corporate Communications. Steven, please go ahead.

Good afternoon, and thank you for joining Karman Space & Defense's First Quarter Fiscal 2026 Earnings Conference Call. I'm Steven Gitlin, Senior Vice President of Investor Relations and Corporate Communications, and I'm pleased to welcome you today. Joining me on today's call are Jon 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, certain information presented contains forward-looking statements that are based on current expectations, forecasts and assumptions and 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'd 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 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, May 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 the events or circumstances occurring after this conference call.

Now I would like to turn the call over to Jon Rambeau.

Thank you, Steve, and good afternoon. Today, I'll 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'll wrap up with our outlook before we take your questions.

Before I 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're proud to serve these individuals every day with the critical systems that help protect and propel them to new heights.

It's been an exciting and rewarding 6 weeks since I joined Karman. In that time, I visited six of our sites across the country from California to Pennsylvania, from Mukilteo to Mississippi. I've gotten to know the people and the technology that have made Karman successful. I've also spoken with customers who consistently praise the value Karman delivers. I've had the pleasure of meeting many investors, some already shareholders and others who may join us in the future. Your feedback has been constructive and is always appreciated.

Two questions I'm 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 hadn't 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 couldn't pass up. To the second, I believe Karman's strategy is working well, so I don't 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'm 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'll detail shortly.

Our Seemann Composites and MSC acquisition, which closed in January, contributed 2 months of revenue this quarter. This represented about half of our year-over-year quarterly revenue growth. Just 2 weeks ago, I visited our sites in Horsham, P.A. and Gulfport, Mississippi, and I was impressed by the depth of capabilities, breadth of solutions and the energy of our team, an impression that's been consistent across every site I 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 29.5% year-over-year revenue growth, underscoring our key position in the space ecosystem and is 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 CLPS program. We're 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'll turn it over to Mike for a detailed financial review.

Thank you, Jon. Our 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 '25. 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 million, primarily due to demand associated with the continued adoption of advanced drone and loitering munition 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 '25. 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 the end of 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 '26 and CapEx at roughly 5% of revenue or approximately $36 million. We expect that G&A and interest expense will moderately increase due to the acquisition 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'll 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, and we're 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, 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 capabilities and the growing value of the opportunities we can pursue, we've 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 our expected initial production capability in Q4 of this year. We're 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'll turn it back to Jon.

Thank you, Jonathan. In my short time here, what I've 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've made some recent changes that will strengthen the leadership team and accelerate our growth. I'm 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 road map 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 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'm 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 multiyear production levels, subject to our customers receiving contracts from their end customers.

The time horizon of these commitments ranges from 4 to 7 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'll 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. We expect revenue growth this year to be evenly split between organic and inorganic sources with the impact of our increased guidance affecting the second half of 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're 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're securing today provide a clear runway for continued momentum through 2027 and beyond. We remain focused on making the prudent investments necessary to deliver the volume our customers rely on to satisfy their customers.

Thank you for your time today. It's an exciting time for me and an even more exciting time for Karman. Now let's open up the call for questions.

[Operator Instructions] Your first question comes from the line of John Godyn with Citigroup.

I wanted to follow up on the missile framework agreements, kind of an exciting development. I'm just trying to better understand the nature of the agreements. You suggested there were volume minimums and what the shape of that revenue growth outlook may look like going forward? We've had other companies talk about acceleration -- sharp acceleration at the end of this year and in '27. Any color there would be helpful.

Yes. Thanks for your question, John. I guess how I would start with that is to say that the commitments vary by customer. We do have commitments that have come through both on the, let's call it, related to the framework agreements as well as related to at least one of our space and launch customers. So it's -- they're varied and they came in different forms, letters of intent, draft, long-term agreements that are yet to be finalized, if you will. But across the board, we have -- we're starting to see customers come forward with these requests for longer-term ramps in production.

So I would say that we are seeing volumes increasing consistently year-over-year. And I would say that what we're seeing is initially, I would say probably a floor that will have some upside. As we -- I think what we're seeing with the customers is that they are looking at how they anticipate the entire supply chain is going to be able to ramp and they're forecasting perhaps a little bit conservatively.

Got it. That's helpful. And then just on that last point on supply chain, anything to call out in terms of the supply chain as production ramps?

I'll step in here. This is Jonathan. That's something that we continue to manage on a regular basis. So we're engaging with our suppliers and flowing similar demand signals to them so that we're able to secure the inputs to our products. So right now, we're not foreseeing any significant constraints there, but it is something that we manage on a regular basis.

[Operator Instructions] Our next question comes from Jan Engelbrecht with Baird.

Jon and Mike, congrats on another strong print. I wanted to get back on unmanned systems. I know you've got some very good exposure there on the legacy partners that you have on launchers and wings as well. But if we just look at the drone dominance program, $54 billion, how are you seeing sort of that -- your ability to participate in the Group 1 to 4? And even the CCAs, where do you think is the sweet spot for Karman and your capabilities?

Jan, thank you for the question. Certainly, the demand for the systems we've been providing, the launching systems, in particular, we're seeing that continue to increase. So we've anticipated that, that demand was going to be coming. Certainly, the recent situation that's played out in the Middle East has only made that demand stronger. So we've started to see larger volume orders coming in for whether it's components that support the unmanned systems themselves, whether it's the launching systems, demand is continuing to increase, and we're going to be able to meet that demand with the new capacity we're putting in place in our Salt Lake City facility.

So I think across the spectrum, there'll be opportunities to participate. As you look to more, call it, the larger unmanned systems, there, I think we would have opportunities to contribute with some of our advanced composite systems and technologies. I would say that's probably a little bit more yet to be defined at this point in time.

Perfect. That's very helpful. And a quick follow-up, if I may. You already have 90% revenue visibility. But if we just look at -- I know the 2026 reconciliation funding is only about 30% of that $150 billion has really been obligated to the industry. So we obviously expect that pace to pick up the rest of that year and then you have this potentially very big '27 reconciliation. We'll see what happens if they vote on that. But is there sort of -- do you see upside to sort of as you exit '26 in terms of the visibility that you usually enter the year? I think Karman usually enters the year with about 70%, but I would think maybe if you exit '26, you probably have the ability to have more than that given the huge funding tailwinds.

Yes. I think what we see so far, obviously, we've taken our guidance up just modestly so far through this quarter. And as we look toward the end of the year, say, Q4 time frame, we're looking to see some of that funding flow through in the form of new contracts. And as we move into '27, we think that's only going to strengthen. So yes, as the year goes on, we'll continue to provide updates. We've guided to what we can see at this point in time, but we feel very confident having the 90% visibility at this point in the year. It feels very good.

A bit of a go back to the first question. This is Jonathan Beaudoin. Karman has extensive experience and heritage integrating various payloads onto UAVs and larger fixed wing aircraft. So as that continues to expand, we see that as a potential opportunity for us to help integrate payloads and dispense them from those aircraft.

Your next question comes from Alexandra Mandery with Truist.

Nice results. Can you give more color on what M&A target profiles look like? I'm sure you're looking to add capabilities, but anything else in terms of geographic footprint or to increase capacity inorganically? And I guess what would be the end market you're looking to add new capabilities to first?

Yes. Alexandra, thank you for the question. We continue to maintain a pipeline of potential acquisition candidates. And as you might expect, we're looking at things that are relatively close adjacencies to capabilities that we have today, and we've continued to put those pieces together as you've seen in the past. And certainly, as we look to the future here, how do we continue to expand our advanced materials capabilities, how do we continue to incrementally expand in missiles and munitions. And you might look at capabilities that are very close adjacencies, as I said, to the capabilities that we have today. I wouldn't be surprised if we saw another small bolt-on acquisition between now and the end of the year. We'll share more details about that when we're able.

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

We're not seeing significant difficulties with labor at this point in time. Obviously, we have to continue to keep an active campaign in place to recruit and retain employees as the business continues to grow. But I wouldn't say labor shortages are a significant constraint for us at this point in time.

Your next question comes from Ken Herbert with RBC Capital Markets.

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 sort of expectations in terms of visibility for this year?

I think the answer to that is it's a little bit of a mix. As you look at the commitments that have come through to us from these key customers, there are some volumes here that were in forecast for 2026 work that we expected. In some cases, there's perhaps a bit of modest upside to 2026, but then a lot more visibility into '27, '28, '29 and beyond. So I would say a small percentage might already have been in our plan for this year. The balance of it would be upside, mostly looking to future years.

Okay. That's helpful. And how do we think about -- I know you called out sort of the total growth sort of half was contribution from M&A. It seems like though that maybe that number was a little bit higher. How do we think about sort of the underlying organic growth when we think about the first quarter acquisitions, but then some of the '25 acquisitions as well?

Ken, this is Mike. I'll start by addressing it. So we still would expect that our full year '26 of the growth that we're seeing, it's roughly half of it organic and half of it inorganic. The first half of the year is going to have a little bit more of the inorganic side of it just based on timing of when those purchases were done last year when you think about MTI and ISP being right at the start of Q2 and mid-Q2. So full year, still maintaining that. We have great visibility on seeing a roughly even split between organic and inorganic. It will be a little bit more on the organic side in the second half as just based on the timing of those purchases last year.

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

Thank you, Ellen, and thank you all for your attention today and for your interest in Karman Space & 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.

Thank you for standing by, and welcome to the Karman Space & Defense Fourth Quarter and Full Fiscal Year 2025 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the call over to Steven Gitlin, Senior Vice President of Investor Relations. You may begin.

Good afternoon, and thank you for joining Karman Space & Defense's Fourth Quarter and Full Fiscal Year 2025 Earnings Conference Call. I'm Steven Gitlin, Senior Vice President of Investor Relations and Corporate Communications, and I'm pleased to welcome you today. Joining me on today's call are Jon Rambeau, our new Chief Executive Officer; Tony Koblinski, our Director and former 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, certain information presented contains forward-looking statements that are based on current expectations, forecasts and assumptions and 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'd also like to note that we will discuss a number of non-GAAP financial measures today. Our press 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, March 25, 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 the events or circumstances occurring after this conference call.

Now I would like to turn the call over to Jon Rambeau.

Thank you, Steve, and good afternoon. I'm excited to be with you all today as I assume my new role with Karman. I'm honored to have the opportunity to lead this impressive team and to represent them with more than 80 customers across the entire space and defense landscape. Karman's market position described on Page 3 and its track record of success, combined with its winning profitable growth algorithm, make this a very special company and a compelling opportunity. I've been working in defense for over 30 years, and I can't remember the last time I was this excited.

Karman's deep engineering expertise and vertically integrated full-spectrum manufacturing capabilities position the company as a unique enabler for national security and the growing space economy. Karman's values resonate with me and none of them more than be relentless.

Given that this is my first week in the role, I've asked Tony to summarize the strong financial and operational results the Karman team delivered in 2025 under his leadership. Tony?

Thank you, Jon. It's great to have you as part of Karman, and I wish you tremendous success as you lead this team to new heights. Before I begin, I want to express my deep appreciation to our Board, our employees, our shareholders, and our customers for the trust you have placed in me and in the Karman team. Together, we have worked hard to make a meaningful difference for our customers. And in doing so, we've created significant value for both our employees and our shareholders, leading Karman has truly been a tremendous capstone on my career.

Over the past several months, as the Board conducted a comprehensive search for my successor, we have the opportunity to meet a number of outstanding candidates Jon Rambeau clearly stood out. We are fortunate he chose to join Karman, and I look forward to supporting him in my role as a director. I'm confident you will quickly appreciate his experience, leadership and ability to guide Karman through its next phase of growth. As for me, after a 44-year business career, I'm looking forward to taking things a little slower, spending time with my family and having a different kind of fun.

Now turning to today's call, I'll begin with highlights from our fourth quarter and full year 2025 results. Mike Willis will then provide more detail on our financial performance and capital allocation priorities, Jon Beaudoin will follow with an update on how we are expanding capacity to meet accelerating demand and Jon will close with his strategic outlook and guidance. We'll then open up the call for your questions.

Now let's turn to our results. Our team delivered another quarter of record performance, driven by outstanding execution across the business and strong momentum following our February 2025 IPO. As shown on Page 4 of our earnings presentation, Key fourth quarter highlights include: record quarterly revenue of $134 million, with growth across all three end markets. Record gross profit of $54 million. Adjusted EBITDA of $42 million, another quarterly record for Karman, and backlog reached an all-time high of $801 million.

For the full year, we also delivered record financial results, with revenue and adjusted EBITDA ahead of the updated guidance we gave 2 months ago as part of our Seemann and MSC acquisition announcement. Full year revenue was $472 million. Gross profit, $190 million or 40% of revenue, and record adjusted EBITDA of $145 million.

At the same time, we executed on a disciplined and strategic M&A agenda. During 2025, we completed three acquisitions: MTI, ISP and Five Axis adding capabilities in advanced metallic solutions for extreme environments, energetic deployment systems and precision solutions for liquid rocket engines. In January, we further expanded our platform with the acquisition of Seemann and MSC, extending our reach into maritime defense with long-standing positions on Columbia, Virginia and [ SeaWorld ] class submarine programs. These businesses also deepen our expertise in Composites and Advanced Materials, capabilities we will leverage across the entire Karman portfolio.

Page 5 summarizes the 4 acquisitions completed since our IPO and the capabilities they bring to the company. Taken together, these actions position Karman exceptionally well to meet what we believe is a generational increase in demand across missiles, interceptors, hypersonics, UAS counter UAS, Maritime Defense as well as Space and Launch.

For example, multiple prime contractors have recently outlined significant planned annual production increases across key missile programs we support, including approximately 100% growth in AIM-9X, 200% in THAAD and standard missile and 300% for PAC-3. We expect these programs to achieve their production rate goals over the coming years.

This is a demand environment that we expect to persist through the end of the decade and beyond. Importantly, because this demand is tied to national security priorities, we believe it will continue to receive strong bipartisan support.

In response to the demand signals, we have been proactive in expanding both capabilities and our capacity. Today, Karman operates across 8 states with more than 1 million square feet of design, development and manufacturing space. And our recently announced Launch Systems and NASA manufacturing hub in Salt Lake City will further enhance our ability to support customer needs while positioning us closer to our key customers. We have a great deal to be proud of coming out of 2025 and even more to look forward to in the years ahead.

With that, I'll turn the call over to Mike for a more detailed financial review.

Thank you, Tony. Q4 was another strong quarter in which our team continued to demonstrate its focus on supporting our customers. Shown on Page 6. Highlights include revenue of $134 million represented a 47% increase compared to fourth quarter of fiscal year 2024. Gross profit grew 54% to $54 million, increasing gross profit margin at 40%. Net income rose over 300% to $8 million. Adjusted EBITDA jumped to $42 million, a 59% year-over-year increase adjusted EPS more than tripled to $0.11 per diluted share from $0.03, and backlog grew 38% year-over-year to $801 million.

For clarity, our numerical calculation and definition of backlog has not changed. We simply updated the terminology from funded backlog to backlog, to better align with industry practice.

Growth extended across all three of our end markets in the fourth quarter, shown on Page #7. Hypersonics and Strategic Missile Defense or SMD, revenue grew 42% year-over-year to $48 million, driven by expanded strategic missile programs, continued progress on NGI higher volumes on classified programs and increased activities supporting hypersonic test beds. Space and Launch jumped 25% to $36 million, driven by the timing of orders for critical content supporting both legacy and emerging launch providers. In Tactical Missile and Integrated Defense Systems, or IDS was up 77% to $50 million, primarily driven by demand associated with the continued proliferation of advanced drone and bordering munitions and an increase in production rates for GMLRS.

End market mix in the fourth quarter was as follows: Space and Launch represented 27% of quarterly revenue; Hypersonics and SMD, 36%; and Tactical Missiles and IDS 37%. For the full fiscal year 2025, revenue of $472 million represented a 37% increase compared to 2024. Gross profit grew 44% to $190 million, resulting in a gross profit margin of 40%. Net income rose 37% to $17 million. Adjusted EBITDA jumped to $145 million and 37% year-over-year increase and adjusted EPS nearly tripled to $0.37 per diluted share from $0.13.

End market mix for the year was as follows: Space and Launch represented 32% of annual revenue; Hypersonics and SMD, 32%; and Tactical Missiles and IDS 36%. Moving forward, we will report a fourth end market beginning in the first quarter of 2026. Maritime Defense Systems will capture Karman's existing maritime programs and those of Seemann and MSC. We expect our 4 end markets to be relatively balanced in terms of revenue with no discernible seasonality.

Now on the topic of seasonality, Karman like many other companies in our industry experienced a temporary slowdown in contracting activity during the fourth quarter of 2025, extending into the first quarter of 2026 due to the federal government shutdown. We continue to have discussions with our customers on program production needs and ramp-ups that are expected to materialize once contracts are let.

Turning now to the balance sheet. We continue to prioritize growth as we consider capital allocation decisions. We ended the fourth quarter with $34 million in cash and equivalents, up $22.5 million from year-end 2024. We invested a total of $20 million in CapEx during the year to support growth, prioritizing new manufacturing equipment and floor space, including our Decatur, Alabama facility, our advanced clean room in [indiscernible] and our energetics testing complex in [indiscernible]. With our acquisition of Seemann and MSC, our total debt increased to $768 million with an interest rate of SOFR plus 2.75%, an improvement of 75 basis points. We continue to expect our leverage ratio to decline to approximately 3x adjusted EBITDA by the end of 2026.

Earlier this month, we increased our revolving credit facility from $50 million to $150 million to provide added flexibility as we expand capacity to meet anticipated surge in demand. Looking ahead, we expect a statutory tax rate for fiscal year 2016 of 25.5% and now expect CapEx to be approximately 5% of revenue, equivalent to approximately $36 million Note that we increased our CapEx rate to expand our capacity for the anticipated volume increase that Tony discussed.

Now I'll turn the call over to Jonathan for a discussion of our operations and capacity expansion initiatives.

Thank you, Mike. The demand environment that Tony described places our focus squarely on continued effective execution and the strategic deployment of capital to expand our capacity and meet the requirements of our customers. We are prudently investing in advance of contract received to ensure we enable the anticipated ramp in customer demand.

Karman was formed to produce qualified proven systems at a rate that supports our customers' significant production output goals. We combine our deep understanding of real-world end user requirements with the most advanced material and manufacturing technologies and then add the operating tools for efficient scale production.

Karman essentially provides the agility and technology of a small business with the capacity and investment horsepower of a large business, it is exactly what our customers need to meet their mission requirements and production ramp-ups. We are frequently asked about potential capacity constraints, and we are fortunate to be able to rapidly respond and ensure that we are ready for current and future rates.

We think of our capacity in four separate but related categories. First, the physical space and equipment with which we develop, test and manufacture products. We now have over 1 million square feet under roof. Tony mentioned our plans for a new Salt Lake City manufacturing hub, which will add nearly 200,000 square feet, quadruple our production capacity for loitering UAV launch systems and add valuable redundant nozzle manufacturing capacity. We expect this site to achieve initial operational capability in the fourth quarter of this year.

We invested the majority of our $20 million in CapEx last year on capacity expansion projects at various sites. In addition, as we recently announced, we are equally co-investing with the government a total of $10 million to expand nozzle production capacity. These nozzles are key subsystems for solid rocket motors, which propel most missiles and many hypersonic systems.

Next, we are well positioned to accelerate hiring and expand our talent base to drive increased output. Our workforce grew significantly in 2025 from 1,100 to 1,400 employees, this growth was fueled primarily by strategic acquisitions. We have enhanced our recruiting capabilities by adding experienced recruiters and expanding our calendar recruiting events, enabling us to more effectively identify and attract top talent. Additionally, our presence across 8 states broadens and diversifies our talent pool, further strengthening our ability to attract top talent.

Third, we are carefully monitoring our supply chain to identify any potential bottlenecks well before they can interrupt production and are making strategic moves to strengthen our position, acquiring ISP last year helped us secure energetic formulations for multiple solutions we deliver to our customers. We are applying Karman's MG resin technology to tactical missiles and hypersonic systems, improving supply chain robustness, and our acquisition of Seemann and MSC provides us with deeper and expanded composite expertise, resin formulations and woven fabrics.

Fourth, we are rolling out our Karman operating system company-wide, this platform integrates our ERP system with advanced manufacturing execution and asset monitoring tools. By leveraging AI-enabled technologies, we expect to increase throughput, minimize downtime, improve yield, enhance workplace safety and automated administrative tasks, while allowing us to focus our resources where they matter most.

As an example, we can now monitor real-time data for most of our specialized manufacturing equipment across multiple states and sites. These data as well as historical data can be interrogated with AI to determine choke points and develop action plans for improving utilization and ultimately increasing capacity. In the near future, we will be able to monitor all of our key manufacturing equipment to proactively prescribe preventative maintenance, speed repairs and evaluate utilization rates by site, program, device, shift and operator.

Our integration of acquired companies is proceeding according to plan. Earlier this month, we held a welcome event at our Greenville, South Carolina and [ Gulfport ], Mississippi sites. We were thrilled by the spirit and enthusiasm of the more than 200 teammates who attended our events. We expect to complete the integration of Seemann and MSC by the fourth quarter of this year.

We have come a long way, and there is much work ahead but we are well prepared to support our customers' aggressive production ramp plans.

Now I'll turn the call back to Jon for his comments on 2026 and beyond.

Well, thank you, Jonathan. Karman's financial and operational execution has been tremendous. Our position as a merchant supplier to nearly all prime contractors in the U.S. space and defense market differentiates us and defines our unique value proposition. Complementing strong organic growth with strategic acquisitions has continued to strengthen our competitive position, deepening existing capabilities and adding adjacent lines.

This model and the performance of the team provide evidence that Karman is a new kind of space and defense company. And the demand environment could not be more favorable for Karman. Tony mentioned the dramatic production increase is planned for many programs, Karman supports. Having led growth businesses in the past and made critical capital allocation decisions, I'm eager to lean in and help our customers achieve their multiyear goals through focused investment strategies and consistent performance.

Our 2026 outlook reflects the near-term growth we anticipate summarized on Page 8. We now expect full year revenue of $715 million to $730 million and non-GAAP adjusted EBITDA of $207 million to $218 million. This represents 53% year-over-year revenue and 46% adjusted EBITDA growth, an additional growth above our previously communicated 2026 guidance given this past January.

We continue to expect revenue growth to be roughly split between organic and inorganic. We also expect our first half to represent approximately 45% of total revenue and adjusted EBITDA for the year with sequential quarterly growth similar to that of last year. While we have confidence that additional growth vectors such as Golden Dome will materialize, timing of those remains uncertain. Strong market conditions and the Seemann and MSC acquisition expanded our backlog to more than $1 billion, providing approximately 80% visibility to the midpoint of our full year revenue guidance range as of March 20, 2026.

We remain confident in our long-term outlook of strong organic growth, supplemented by strategic accretive acquisitions. This is a proven formula that has driven remarkable growth and profitability for the past 3 years. I'm focused on maintaining Karman's trajectory in the coming years.

Thank you all for your time today. I'll be learning more about our company, the people and the technology that have made it successful as I visit our primary locations in the coming weeks. I look forward to meeting our shareholders and the analysts who follow us. I'm excited to lead this incredible organization at this important moment for our company, our industry and our nation.

Now let's open up the call for questions.

[Operator Instructions] Your first question comes from the line of Peter Arment with Baird.

And congrats, Tony. Thanks for all your support over the last year. Really enjoyed it. And Jon, congrats on the new role. Could you guys talk a little bit about what we're seeing potentially with multiyear frameworks for the primes on ramping up on not only interceptors but missile production and how that might impact whether you guys are going to be part of those agreements given your customer relationships there and just how we might think of that.

Yes. This is Jon. Thank you, Peter. I appreciate the question. I guess the way I would address that is to say as time continues to march forward, we continue to have a little bit more clarity on how these frameworks are going to be implemented. And certainly, Karman will benefit from the outcomes of the frameworks.

That being said, we still I think we'll need to work a little bit further with the primes to understand specifically what the demand profile is going to look like over what period of time. So if you think about the significant increases in production rates that are contemplated within those frameworks, we don't see any of that really materializing in the form of orders for Karman until at the earliest day of the fourth quarter of this year. So we really don't see that there's a lot of that in the 2026 guidance that we provided. But certainly, we see that starting to materialize in '27 and beyond.

Okay. And just a broader question, maybe, Mike, for just on capacity. You guys talked about CapEx 5% of revenues. Can you just remind us where capacity utilization stands today and your ability to kind of meet all the demand signals.

Yes, it's always one that's tough to put a number on, depends on the product and exactly where that constraint is. But we do have existing floor square footage to expand into before even the Salt Lake City facility. And then that will give us a tremendous boost in terms of square footage. But as we noted, it will quadruple our UAS launch capability and then give us redundant capability for nozzle production and on certain critical programs, double our rate on those.

So we feel good about our immediate capacity today, but we're going to quadruple and double it depending on the product in the near future.

Your next question comes from the line of Ken Herbert with RBC Capital Markets.

Congratulations again, Tony, and welcome, Jon. I first wanted to ask, the record backlog exiting '25, how should we think about the margin represented in the backlog? And do we see any -- as you're expanding the backlog, is there any sort of mix benefit as you think about margins over the next 1 to 2 years from what's in the backlog? Or conversely, are you seeing any incremental pressure on pricing from your customers that could potentially be a headwind as -- from a mix standpoint?

Ken. So I'd say as we exited the year with the $801 million of backlog, there's really no notable mix changes in that number, whether it be positive or negative. It's a pretty steady course from what we're used to. But I would just make mention that as we talk about Seemann now coming into our portfolio and the backlog that they bring, we have discussed that they have a bit of a different profile just given the content on cost-plus contracts versus firm fixed, so that's going to change things in the near term. But over time, as those programs mature, we're going to work to put those into firm fixed contracts as well.

Great. And just to clarify, on the increased revenue guide for '26, I know heading into the year, you talked about 50% -- basically 25% organic, 25% from the acquisitions. With the slight tweak upwards on the guide for '26 now, and should we assume that the increase again is roughly sort of half organic, half acquisitions. It looked like initially much of the increase, albeit small, but much of the increase was driven by timing of the acquisitions.

There are a few factors there. Certainly, the timing of the acquisition on Seemann drove a lot of that change. So that would be the primary driver. But we still expect that in aggregate, we're going to have a pretty level split there between organic and inorganic.

Your next question comes from the line of Clarke Jeffries with Piper Sandler.

Just generally, I was curious, how has the last month changed your investment plans, any part of the business that you may not have considered a priority for 2026, now 30 days later, you're considering the priority for this year?

I wouldn't say that it changed anything, call it, more strengthening the convictions that we already had. So there's no call it, shift in terms of our priorities, just gives us more conviction to lean into the investments we already had planned.

Yes. This is Jon. I guess just to add, we did take our planned CapEx expense up a bit for '26 as we look forward. We were thinking about 4.5%. I think the last time we spoke. And as we've evaluated opportunities for growth. We decided 5% was a better number. So we're going to plan for that.

Perfect. And then just exiting the year here with a really strong margin progression over the course of the year. I was wondering if you could maybe talk about M&A integration headwinds to EBITDA margins, whether underlying margin expansion is around that 50 basis points you've talked to earlier or higher than that? Just maybe some discussion around the EBITDA guide.

So from what we saw in the year, I'd say it was in line with expectations, and we've talked in the past about operating leverage bringing about 50 bps a year on expansion. But again, I would just point to, and it's baked in our guide for '26, with that contract mix of Seemann and MSC and the heavy nature of cost plus contracts, we do have that in our guidance numbers. And that's why you do see that is the primary reason in fact why adjusted EBITDA margin would be lower in '26 versus '25.

Your next question comes from the line of John Godyn with Citigroup.

First, I just wanted to chat a little bit about the supply chain. How would you characterize the supply chain at present any bottlenecks? And any ramifications from what's going on in the Middle East?

Yes. This is Jon. I'll start and maybe hand it off to Jonathan. I guess one of the things I would start -- was saying here is that, in the first few days, I've been with the business, I spent some time with the team talking about both the growth trajectory as well as current operations. And as I ask questions, one of the things that surprised me was that there was not a significant concern raised to a large extent around supply chain.

So as we look at the Karman operating model and strategy, the bringing together of pieces of the supply chain into the integrated family of Karman product lines that we have here today, I think we've really derisked to a great extent the supply chain concerns that would normally be seen at this layer of the overall defense supply chain.

A couple of minor areas that I think Jonathan might want to talk to here. But generally speaking, I would say supply chain risk is low.

Yes, as our customers are engaging with us, collaborating with us on the rates and timing of the ramp-ups we are in kind doing the same with our suppliers going to them, communicating the planned rates, understanding what their capacities are so that they're ready to support us. And as part of that, we're looking to engage with them on longer-term deals so that we can secure our materials from a cost standpoint as well.

Great. Very helpful color. And just changing gears on Golden Dome, I think your phrasing was you have a lot of confidence as Golden Dome materialize, but the timing is uncertain. Maybe we could just sort of unpack that, the confidence that it will materialize, but then also what is driving uncertainty on timing, whatever you're willing to -- whatever color you want to offer, appreciate it.

Yes. I would say from a Golden Dome point of view, overall, it's clearly a priority initiative for the nation. And there's going to be a lot of emphasis on the program as we continue forward. How exactly all of the priorities of Golden Dome will be implemented is still a little bit unclear. And we -- given we reset in the supply chain, would anticipate that a lot of the volume to support Golden Dome will actually come through modifications to existing production programs. So I think that PAC-3, standard missile, for example, those types of programs are already in place and the adjustments could be made to the production rates. And in fact, those have already been largely communicated to the public.

So I think that the timing again is the question. And as I said earlier, I think that we can perhaps start to see some of the upside driven by Golden Dome coming towards the end of the year in the form of orders with potential revenue as we start to look into 2027.

The only thing I would add is Golden Dome is, call it, one vector of growth that we'll see the supplemental -- munition supplement provides another opportunity. So we don't yet a PO that says necessarily Golden Dome. And so that is baked into the ramp-ups that we're collaborating with our customers on being able to support.

Your next question comes from the line of Louie DiPalma with William Blair.

Congratulations, Tony. And Congratulations, Jon. I was wondering for either Jonathan, Tony or Jon, can you discuss the trends that you're seeing in your space business with NASA, Blue Origin and ULA and some of your other customers? I think the recent Vulcan launch experience an anomaly, and there's been some changes with the Artemis program, but can you describe at a high level the trends you're seeing and how that impacts your 2026 projections?

Yes. I think from a space perspective, the way we're looking at it is that the demand for space launch is going to remain strong. And so having a strong position across the space launch, call it, prime supply chain, I think we have a good position here. And while we may see, for example, a temporary setback for ULA as they work through some technical challenges, and we may see others project perhaps more and more strong near-term opportunity to support such initiatives or launch events, I should say. Overall, we have confident that the trajectory we've been on will continue to be as it presses forward, even though the mix from one provider at the prime level to another may adjust.

Yes. Again, our strategy is to support all the launch providers. So they should one have a bump like ULA. We are supporting all of them. Interestingly enough, Artemis is showing some positive demand signals for us. So we do see opportunity there on both SLS and Orion to support that program.

Fantastic. And for you, Jon, you bring a unique perspective in that you came from L3Harris and you also came from Lockheed, which are Karman's larger customers. I was wondering, do you see opportunities for the defense primes to offload more of the research and development and offload more of the subsystems development to Karman. Do you think there's potential there for you to like gain, like market share from your customers in terms of the production of these munition systems?

In both instances, I think the answer to your question would be yes. I think there's certainly more opportunity for Karman to support the primes. That's been part of the overall strategy of the company is to look at within the second tier of the supply chain and find opportunities to bring together companies that on their own may not have had the resources to invest at the levels required to scale in the way that the primes, both traditional and nontraditional primes are likely to be expected to in the coming years.

And so we would look to be additional adjacent areas to support, whether that be development or work production and continue to scale the volumes of the products that we're supporting today. So yes, I see significant additional opportunity as time continues on I would temper that by saying the opportunity that we see at this point in time is in the '26 guidance.

Your next question comes from the line of Alexandra Mandery with Truist Securities.

Nice results. I just want to ask, can you provide more color on the contract delays, including the size of the headwind to backlog and growth and if this is embedded in the outlook, if at all?

The size of delay, that might be a little bit more difficult in terms of the exact figure itself. We are a constant contact and communication dialogues with our customers, and so that is getting better. We have great confidence that it is truly just a delay, and it's a timing matter rather than will the orders come through. So we are confident that our customers are also confident that it is really just a timing matter.

Yes. I think having just joined the company and certainly talking with other companies in the industry over the last 6 months, I think that the delays that Karman's experienced would be not inconsistent with what other companies in the industry experienced during the same period of time, if that helps.

That makes sense. Yes, yes, perfect. And then I guess one other follow-up was that we've seen a push towards low-cost, high-volume production of munitions and upon systems by the Department of War. So are you working with any new entrants that are playing in this space?

Yes, we are. We have -- we enjoy a really healthy position here at Karman. We're on over 130 programs, and we're working with 80 different customers, most of which are prime across the space and defense landscape. Certainly, all of the established primes as well as the newer entrants. So we're pretty well diversified from a coverage perspective.

And we're built from a manufacturing standpoint to support those type of lower-cost high-volume systems that are gaining traction in demand. As an example, ISP has a commercial offering of launch motors. And so we're able to leverage that commercial launch motors for DoD applications or DoW.

Your next question comes from the line of Austin Bohlig with Needham.

Congrats on the solid results. The first question just has to do with the new updated guidance and there's just some big supplemental packages possibly going through Congress related to the conflict in Iran. How should we think about potential upside with possible new funding that could be coming related to that war?

Yes. Thank you, Austin. I appreciate the question. I guess the first question is if that supplemental continues to move forward, how long is it going to take to find its way into law and then into funding. Certainly, while we see there's good reason for that supplemental to be pushed forward based on what we're seeing now on the hill, it's a little bit unclear how long that's going to take to work its way through and the path is not going to be an easy one. So timing would be a question.

If that were to move quickly, certainly, there might be something that could materialize before the end of this year. But again, our best guess at this point in time is those things that could present upside would likely materialize its orders as early as the fourth quarter of 2026, with real volume potentially in 2027.

Got it. And I guess, Jon, one more question for you. Just given your deep background in the space and just given Karman's history of being very acquisitive I guess like what capabilities do you think are most of interest that might make sense to go out and purchase an M&A.

Yes. Look, I've had an opportunity to spend some time with the team looking at the M&A pipeline, and it continues to be one that has a number of opportunities in it that are under various stages of evaluation. Certainly, as you're thinking about things that might be of interest to Karman, I would look at things that are complementary or adjacent to the things that we do today, if you look at how we put the company together to date, that's largely been how we've constructed it, and there tends to be value that accrues across the broader portfolio with each one of these portfolio businesses that we've acquired.

One thing we've been really thoughtful about is we are a supplier to 130 companies, most of them primes. And so we're really thoughtful about not wanting to directly compete with our customers. So we're looking at how we can bring together pieces of the sub-tier supply chain in a more meaningful way that brings greater value to the primes than if they were to try to do these things themselves, or as traditionally in many cases, has happened to try to piece them together with a number of smaller businesses that just have less capacity to invest and scale.

So that's the lens that we're putting over the landscape. We're also looking for high-technology IP-rich opportunities as has been our historical trend and our focus.

Your next question comes from the line of Amit Daryanani with Evercore.

This is [ Victor Santiago ] on for Amit. Congrats on solid quarter and wishing Tony have your retirement from the team. I wanted to ask about the backlog. I understand that you guys don't guide by segment, but can you help us better appreciate the composition of your backlog and which segments that you driving the recent expansion?

I would just point you towards that we are seeing solid growth in now all 4 of our end markets. And the reason why I wouldn't maybe call out one in particular is because there is a timing aspect of contract awards, whether it's a Space and Launch commercial platform, award of longer-term contracts now, of course, with Maritime. So the composition can shift from 1 quarter to the next. In a longer-term horizon on a year, it's rather pretty well balanced in terms of bookings and what that looks like. But I would just leave it with all 4 have great growth drivers behind them. And we expect that, that trend is going to continue on all 4 of those end markets.

Got it. And to follow up on the last question around M&A. Just how can we think about Karman's appetite to do another acquisition following the Seemann and MSC acquisition, just given where net leverage is just over 3x.

Yes. This is Jon. Look, I would say, as I've come on board, it's impressed me how well Karman has perfected the process of M&A integration. And one of the things that's been really impressive to me and as you know, can often trip up the integration process is culture. And what I've seen is that, first off, the core Karman business has a very healthy culture, and one of the things that really attracted me to this job as I got to know Tony and know the business was the way he's led this team is the way I would lead this team, and I will lead the team going forward. And the companies that have joined the portfolio are very enthusiastic about being a part of this business. They understand what's been happening here. They see it something special and they want to become part of this team.

And that's really made the integration process very straightforward. I've met with representatives from all of the component parts of the company in my short time here these last few days and honestly, there's just a lot of enthusiasm, and that's made the integration process more straightforward.

So back to the question of appetite, I think the appetite is there if you think about the mix of organic and inorganic growth that we are projecting going forward. That will depend upon a certain amount of continued M&A activity. We won't get out over our ski tips and bite off more than we can chew. But I think there's a formula here and as long as we stick to the formula, things will continue to go well, and we'll continue to see that balanced mix of growth in the business for the years to come.

Your next question comes from the line of Michael Leshock with KeyBanc Capital Markets.

I wanted to follow up on the NASA Ignition program announced yesterday to accelerate work on the moon. And you did -- you talked about your ability to support the launch providers. But are there any other areas outside of just launch that you might have exposure to as NASA looks to build out the LUNAR base over the next decade, maybe within satellite technology or anything else there that you can highlight?

Yes. We do have some participation outside of strictly the launch component of the full equation. In fact, space vehicles is an area where we do have some work that's active. And Jonathan, I'm not sure how much we can say about that work, if you want to add anything to that?

Yes, it's one of those where we look at the capabilities set that we have, and they have broad ability to support our customers really kind of independent and into what their mission ends up being. And so yes, we have built out at our Seattle facility, a large clean room to support spacecraft integration and assembly work. And so we would be able to support satellites, spacecraft from that facility, but certainly very engaged with the NASA and the prime customers on Ignition program to see how we can support.

Great. And then switching to hypersonics, just given the significant growth that we're seeing across the industry there, and clearly, budget support for those initiatives. Is there any more color you can provide on how significant some of these growth opportunities could be within hypersonics over maybe the next year or 2?

Yes. I'm not sure how much I want to speculate on the growth of specific initiatives in hypersonics. I mean clearly, it's a continued area of focus for our customers. It is an area where we do, again, have -- we have participation across a number of programs that are in various stages of development. We have some that are classified. We have some that are a little more out in the open. And again, we follow our customers' lead on those.

So I would say it will continue to be a significant focus for us. It's a part of our portfolio that continues to grow along with the other pieces. And I think we said that Hypersonics and Strategic Missile Defense grew for us, about 31% year-over-year in '25. So it's a healthy growing part of the business.

Your next question comes from the line of Ken Herbert with RBC Capital Markets.

I appreciate the follow-up. I know the vast majority of what you sell, you're sole source, but are you aware of any specific efforts or even broader effort by your customers try and add on second sources beyond yourself on any particular programs? And if so, how do you view that risk? And obviously, how do you then go about trying to prevent that?

Yes. Ken, certainly, it's something we've talked about. And I think that right now, we aren't aware of any initiatives of our customers to second sources for performance or capacity or any other reasons. As we look though at the increases that are contemplated. One of our highest priorities is first off, to make sure we're performing and meeting our commitments to our customers today, and I've been in touch with many of our customers in this last several days here to reinforce our commitment, and we'll be meeting with them in the weeks to come here.

Our focus is to make sure that we never become a chokepoint, a bottleneck or a risk for our customers. I mean, Jonathan mentioned the redundant. We're putting in additional capacity for nozzle production. We're also doing that deliberately in those locations from our primary nozzle production and part of that is to provide some redundancy to our customers without having to contemplate going elsewhere to get redundancy for those critical capabilities.

So it's something we think about it, something we talk about. It's something that is part of our strategy. And certainly, we are committed not to be a choke point or bottleneck that would put our customers in the position, frankly, over time consuming and costly qualification of another source.

That concludes our question-and-answer session. I will now turn the call back over to Steven Gitlin for closing remarks.

Thank you, Tiffany, and thank you all for your attention today and for your interest in Karman Space & Defense. An archived version of this call, all SEC filings and relevant company and industry news can be found on our website at 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 all for your participation. You may now disconnect.

Thanks for joining us. I'm Brian Gesuale, Senior Analyst covering Space and Defense at Raymond James. Appreciate you joining us. This is one of the best positioned stories in the defense and space markets that we cover. We're really excited to have them at our conference for the first time. This is Karman Space and Defense. We have the company's Chief Executive Officer, Tony Koblinski, here to take us through the story. Story has been great since you came public, great before that. Geopolitical events continue to keep you really busy. So love to hear about that. We're going to do this in a hybrid fashion. So he's going to give a 15- or 20-minute presentation, and then we'll take some questions from me and the audience. So if you have questions, please raise your hand, and we'll get to you. Thank you.

Appreciate it, Brian. Can you hear me okay? Everyone in the back? Good. And joining me is Steve Gitlin as well here in the room with me, our Head of Investor Relations and Corporate Comm. So happy to be with you, Brian. I appreciate the opportunity to talk. Thank you all for your interest. Some faces I recognize, others new. And so we thought it would be good to take you through a bit of an overview presentation, make sure you understand the story, our business model, why it's working, why it will continue to work as we move forward. And so with that, I'll go ahead. I do look forward to the questions at the end, typically the most fun part.

I know you've read this, and so we have a forward-looking statement policy. And so I'm not planning to give any new guidance. We talked to you all in January, gave you a look at our outlook for both the fourth quarter and the year ahead. We'll reconfirm that when we meet with you at the end of this month. So we look forward to that. Karman, both new, if you will, in terms of how long have we existed, but a new kind of company. So formed really PE-backed 5 years ago, acquisitions of 4 what we'll call cornerstone companies that make up the fundamental Karman and 6 acquisitions since then.

If you look at the diagram on the right, we love our position, right? It was purposeful. It was recognizing a need in the defense industry supply chain just below the primes. Fragmented supply base, lots of small providers of really important technology for our nation's safety and that of our allies. And so we positioned ourselves and have built prime-like capability but right below the prime. We're a merchant supply. We are, in fact, agnostic as to who wins or loses. We're not picking winners and losers. We've got over 80 customers, 130 programs. We'll talk about why we think that's a winning formula. Highly engineered IP at the center of everything we do. We'll get into that more deeply, but we like the tough stuff. That's where we can prove our worth and continue to earn the margins that we do.

Vertically integrated capabilities, and that's really from design, give us a napkin sketch. We don't like when folks give us drawings to make. We do a little of that, but very little. We like when they give us concepts. Here's what our product needs to do. Here's the environments in which it's going to live. How would you go about doing it? And that way, we can think about the design, think about the engineering, think about our vertical manufacturing capability designed for their cost targets, do the iteration, test internally and get them to full rate production quickly as we've demonstrated many times.

And so a wide breadth of fundamental capabilities. I'll show that in a later slide, but really designed to improve supply chain inefficiencies. Own the nodes that cause the problems. We've made investments in a number of things that allow us to promise. If you partner with us, we can get you there faster, cheaper, higher quality. And that's through owning the supply chain efficiencies. And we've got a history of success. This is not just a PowerPoint. The companies that make up Karman have been serving this industry in some cases, 30, 40 years. And so we've got a ton of flight-proven hardware, which makes us the go-to solution provider.

A couple of stats just to get us started. Significant revenue growth. We've built a momentum that's been demonstrated and we'll have a mix of charts here because we haven't given fourth quarter official or full year. You see some historic charts, 24% year-over-year CAGR on the revenue, but looking at about $428 million of trailing 12 as of the end of third quarter. I'll put that in context in a later slide. Good diversity of revenue, 130 programs, as I talked about, no single program greater than 10% of our revenue. And so it's not our job to pick which programs will ultimately succeed, which ones will be funded by the DOW or others. We provide them all.

And we've already demonstrated both for the existing primes and the new emerging players. We have not declared we're the next prime player. We don't want to play that role. So as we look at the emerging players who are getting space within this industry, we serve them well as a partner to their success. Good margins, 30% plus as we look at it, and you see what we did last year. We can talk about that a little bit in terms of the guidance we've given and a pure-play exposure to all of the high-growth markets, including now maritime, the fourth that we entered, and we'll talk about our Seemann acquisition and what that does for us in terms of our market penetration. And then 10, we've got a playbook that works in terms of the acquisitions, 10 in total. We'll talk a bit about that.

So where do we play? Across all of the domains now within space and defense. We think of the market this way. We report out as one segment. We've got some rudimentary indications that all of these markets are growing, and I can talk to some of the fundamentals that are driving them. But there are tailwinds in each. And we have dedicated business development folks who are in the right meetings as we think about each of these 4 distinct markets. Certainly some overlap, but distinct in terms of hypersonics and strategic missile defense. We've talked about the fact that we are on and have been part of the development of virtually all the hypersonic programs. We'll be proud to be a supplier to perhaps the first fielded one with the Arrow system. We're on the Sentinel. We're on the next-generation interceptor. And so a number of the programs strategically important to the U.S. and our allies.

Tactical missiles, think smaller diameter, if you will, and importantly, integrated defense, which includes unmanned. Unmanned drones, counter unmanned systems, think Switchblade, think Coyote, think others in that regard. Think about a missile, we're probably on it, right? The ones that are getting all the headlines these days, THAAD, PAC-3, Standard Missile 3 and 6, GMLRS, we've got content on each of those and have for decades literally.

And then I'll skip for a bit. We'll go to launch, all things space and launch. Think about kind of the major 5, if you will, providers of launch capability today. Certainly, there's a dominant player and SpaceX will continue to dominate this space for a while. But we enjoy our partnership with them. And then think Blue Origin, ULA, Firefly, Rocket Lab. We've got content on all of those. So if it's going through the Karman line, I don't know if you don't -- that's the reference to Theodore van Karman -- or von Karman. He was the one who has been named for the definition of where does space begin. About 100 kilometers up, 60 miles, we run out of atmosphere. And so if it's going through the Karman line, we likely have components on it.

Huge drivers in space as we think about both the space economy emerging exploration going to Mars, putting habitats as well as defense. It is a contested domain. There's no question about that and will continue to always be. And so more assets in space. It bodes well for us as well because we provide content for all the launch providers.

And then most recent acquisitions, Seemann and MSC brings us the maritime exposure. They are proven experts in composite manufacturing. They provide large systems, including the bow domes for Columbia class, Virginia class. Seawolf been a terrific partner to the Navy and their suppliers for many years, have world-class capabilities. And like many of our acquisitions, MSC came along as just a real bonus, materials experts. Seemann had bought MSC some years ago. They have scientists down to the molecular level, right, on how to choose and design the right composite material for the application. We weave our own fabric to make certain that we get that right and keep proprietary.

So whatever the application is in the area of composites, whether it needs to withstand 3,000 degrees or down on the ocean floor and be acoustically transparent, we have the capability to make those selections and make the material. So a lot going on, obviously, in all 4 of those, and we can talk about that. We talk somewhat about tip to tail, using a missile or a rocket, of course, we do other things. We're assembling a Lunar Lander that will be on the dark side of the moon in a couple of years. We were trusted with that and built a clean room for that purpose.

But as you think about missiles and rockets, tip to tail, shrouds, payload protection. We don't do the payloads, but it's our job to get the payload where it needs to be in the condition it should be and get it deployed properly, sometimes at hypersonic speeds. And so not a lot of folks can do that. And you think about the tail, all things propulsion.

We don't do large-diameter solid rocket motors. I think 12 inches and up from there, but we make the nozzles, the exit cones, the motor cases, safe and arm devices, igniters. So all the important components that go in. And then smaller-diameter solid rocket motors, we manufacture the whole thing. Think Stinger, Javelin size, think launchers for UAVs and flight motors. So we do a lot of that. And now bow to stern as we think about the same thing, everywhere from the acoustically transparent bow dome, 30 feet in diameter, 45 feet deep, to the propeller of these submarines, and that's 30 years of backlog, right? The Columbia class just being introduced, right, 1 a year, urging to go to 1.5, if not 2, Virginia, same thing. There's a complete refurbishment of the fleet. And so we've got built-in visibility there for many years to come.

And you see some of the products that we do and the crossover between both Seemann and what was then the core Karman up till that point, solid rocket motors, nozzles, launchers, thermal protection systems, igniters. That's just a really small sampling of what we do, stage separation systems, Stage 1 to Stage 2 and on and on. So lots of capability now across all those domains.

As we think about our value add, it's really because of our capabilities across this whole spectrum. A lot of IP, a lot of patents. Again, 40 years of legacy of flight-proven hardware allows us to quickly draw on that and for the next solution, whatever it is. Design capability, we've got modeling. We've got a lot of technology there where don't give us a print, tell us what you need. We'll do the math in terms of what we need to design to give you the safety factors and margins that you're looking for. Development, testing and qual, all in-house. Vast testing capability, both for hot fire as well as up in our north of Seattle facility there. We can deploy shrouds real time. We've got terrific test capabilities.

And what that allows us to do is iterate that design quickly, right? Design it, build it, test it, break it, go back and fix it again. And we can do that within weeks, not months, given that we do it all under our own roof. And having the knowledge of vertical integrated manufacturing, one, we control the supply chain and the important nodes, but two, we can design for what we know how to make. And so that allows us to say, what's your cost target, and then we can go to work for our customers to say, knowing what we do about manufacturing of all kinds, we are not beholden to we're a composite shop, let's do it in composite or we're a metal banger. We got to do it in metal. We can choose the right solution that meets the need and get it to their cost targets.

On the acquisition side, organic growth has been our story and will continue to be. You saw a 25% CAGR on that, but inorganic will be part of the story moving forward as well. We've got a playbook. We've rehearsed it a few times now, 4 acquisitions since the IPO in February of last year. And each one brings both a reason for being, whether that be in Seemann, a brand-new market segment plus the MSC. Five Axis was similar, brought us great manufacturing capability in spin forming and additive, but also brought us exposure to liquid propulsion engines. Up to that point, most of our content went on solid rocket motors, but now we have access and entry into the liquid propulsion business, specifically on, in this case, the BE series of engines there important to the future.

And ISP brought us the propulsion and MTI brought us more metal capability. So like composites, we are experts in what's the right metal, what temperature does it need to see, what corrosion, what strength, how do we optimize for weight and cost and make the right selections. So we are truly materials experts and then can design from there.

Proprietary products, as you look at what we're looking for on the left, niche manufacturing, smaller deals. Seemann was the largest, but that doesn't signal that they're always going to be ever increasing in size. It needs to have IP embedded, and there are still quite a number of opportunities of small players, first and second-generation owners who have built a great business around IP that's critical to our nation's defense, and we think make great tuck-ins as we move forward. And so we'll continue to have and have a pipeline of acquisitions. We signaled a while ago 1 to 2 a year. We're clearly ahead of that pace a little, and I don't want that to be a signal that we're going to continue at the pace we've been. But organic growth plus inorganic growth to fuel what we've got ahead of us.

It's a growing footprint. I mentioned we're in 8 states now. We started out on the West Coast, a lot of California and some Washington, but have added Oregon, Utah, Mississippi, Alabama now, South Carolina, Pennsylvania. So 11 different sites within that and a fully integrated system. We agreed on day 1, we were not going to be a collection of interesting companies. We're not a holding company. We're an integrated enterprise. And from day 1 of an acquisition, they're wearing the Karman hats. They're plugged into our communication system so that we can easily talk to them on our Microsoft and Teams environment.

We have a Karman operating system that's been defined with systems to support each business process. 6 to 12 months kind of nominally is our target for full integration depending upon their starting point. But you see some of the unique manufacturing capabilities. I've been in manufacturing my whole career. I mean my fifth decade of that, and we have amassed some of the best manufacturing capabilities that exist. We bought the right equipment. We've got the right people operating it. We can do things that others cannot.

Strong financial results. Again, it's a little mixed bag. We've got -- because we haven't reported yet full year '25, we go from showing you the last several years to a 2, 3 trailing 12 months. And we guided -- let's see, do I have to pull out my crib. We guided -- maybe I will here. I want to make sure I don't give new guidance here. As we think about what we said, I'm sure I'd be consent.

It's okay. Business has been good.

Yes. As we talked to you last time, we said full year '25, we're guiding to kind of the midpoint, which would be $470 million. And this year, we guided to a 50% increase, right? So over $700 million, half of that organic, half of that inorganic in terms of the growth. And then that's initial as we talked about last time. And on the EBITDA, we guided for a full year '25 of $144 million and $205 million to $215 million for the year that we're in. Great pipeline, good backlog. The tailwinds are blowing. Again, I don't know what I missed today, but I'm assuming it's going to be helpful for our business. There's a lot going on in that regard.

And space, again, important as well. We have been focusing on the defense side. Space is a contested domain, but there's a lot going on in the commercial and exploration, as we've talked about. Artemis program has a number of elements, CLPS being one, the Lunar Landers. We've entrusted with one of those working on another. We're involved in habitats. We're involved in waste stations. We do a lot of composite overwrap pressure vessels, which are necessary in space. And so each of our domains that we work on has good tailwinds coming in.

I talked about this diversity, both by end market. We have to add a fourth. It will look similar. It isn't exact, but it's roughly 1/4, 1/4, 1/4 now, one more 1/4 in there to finish it out. And again, the program diversity, which is the most important. We're not beholden. There isn't a high risk of a program being funded or not funded. We have programs that are 30 years in production, and we don't have a program of all of these where we have a known sunset. We keep adding programs to the development cycle, as I mentioned, some of those that are in development now. And so again, a lot of growth drivers and a lot of resiliency, if you will, as demonstrated here with a really diverse revenue base.

So summary, new, there isn't anybody just like us People are rolling up certain verticals, as we've talked about, people rolling up metal makers and machining, hoping to get a few points of synergy and efficiency in that. Some are rolling up composite manufacturers, right? But nobody has the breadth of engineering. We have over 300 engineers now. We truly have prime-like capability, but as a merchant supply. And so we think it's a real defensible business model that's difficult to replicate, and we're not aware of anybody that's even close at this point. We think we can continue to sustain outsized returns, a highly diverse portfolio, merchant supplier of mission-critical components.

We don't want the commodity stuff. We want the stuff you haven't found somebody else to do that you used to do yourself, prime. But now because of the number of programs or degradation of your resources, a lot of retirements in this industry over the last decade or so. They come to us, full solution provider and proven inorganic growth process that we talked about there. So I think I'll pause there, and we'll see what kind of questions there might be.

Perfect. If we do have any questions from the audience, raise your hand, and we'll -- I'll call on you. But I have a couple that I'd like to start with.

Yes, good.

It seems like most of your customers are anywhere from 2 to 4x expected volume increases over the next few years. How are you from a capacity standpoint to accommodate that? And are there areas where you have more capacity versus less capacity expansion naturally embedded in the model?

Yes. You've all been reading the headlines about this notion of doubling to quadrupling. And that's not across the board, but that's many missile programs and all of which that we have content on today. I think the good news for us and as an industry, and I'm not long term in this industry, but my view is, right, that it's being more transparent than it ever has from the signals from the Pentagon through the various tiers.

So though the end game may be doubling of a certain, our customers are telling us, we can't be there next year, right? We'll be there year 3. And as long as we install capacity to stay ahead of them, they're going to be satisfied. So those are the discussions that are going on right now is what's the slope of the ramp as we move over the next 3 to 5 years to achieve the volumes that are being talked about. So it's not a 1-year thing. It's a multiyear approach to these volume increases.

We've been installing capacity incrementally. It's really kind of theory of constraints, if you understand or part of that. It's really bottleneck management. We've got floor space we continue to add. We've got machines, we add labor and then we control our raw materials coming in. Because we're vertically integrated, there aren't that many raw material suppliers. And we're procuring for our needs next year right now. People ask what is your capacity utilization? It's impossible to give you one number, but I will. We say we got about 30% left, right? We've got shifting patterns that we can still utilize as the easiest way to add more capacity. So our role is we see this as a multiyear thing. We know that we have an obligation to the nation to stay out of the way of all of our customers' desire to ramp and that, that ramp is going to be years, not months.

Great. That makes a lot of sense. One of the other things I want to talk about. You mentioned the breadth of your programs and the diversity across the business lines. How often are you a sole source? You're solving really hard problems. So I imagine substitutability is difficult. So how often are you sole versus dual source? And what do you generally think of as a notional kind of share of wallet that you target?

Yes. On the sole source, it's the vast majority of what we do. It's just so expensive, time-consuming to qualify the systems that we're on. The bow domes as an example, that was an 8-year development program. To get a new nozzle, just to change the machine that you need is a year process, let alone change supplier. And so that provides great -- deep and wide moat stickiness in terms of what we have. About 90% of our revenue is single or sole sourced, very little is dual sourced. And the second part of the question was?

In those dual source cases, how do you generally think of your share of the wallet?

Well, we think we get our lion's share. We think that it's -- we get the most of it, frankly.

I agree. Let's maybe pull the thread on M&A a bit. You've been acquisitive. It sounds like you have, to use your napkin analogy, a lot of things drawn up and sketched out for where you want to go. How big is this pipeline of companies that would fit within the adjacencies of what you're trying to do?

The universe is -- of that is surprisingly large, right? It's one of the biggest surprises to me. I've been in a number of industries, and this one now for in my sixth year. But the number of small mom-and-pop, I'll call them with no disrespect intended in that first, second-generation owners who have key intellectual property, sometimes patented that is critical to the nation's defense, it's surprising to me. And so there are a number of them out there.

And we think that, again, as we have a pipeline, some of the -- it just takes a while for both parties to get to where they need to. We've been talking to Seemann for -- off and on for 6 years. But ultimately, they felt this was the time and we were the company to trust what they had put their heart and soul into over the last 20, 30 years. And increasingly, given the reputation that we're trying to earn and protect, they're coming to us. We're getting owners saying, listen, I've been thinking about selling for a while. I don't want to sell to PE. I hear what you guys are doing, and we want to be part of the Karman story. And so we think there's plenty of them out there.

Great. I'll pause for any questions in the audience. Yes, please.

In terms of your very clear future growth potential of the business, it's very competitive. But what are the areas that you think are maybe key points of weakness in [indiscernible] end market growth, the policy side of things. What sort of keeps you up at night in terms of [indiscernible]

Yes. I don't know if you heard what -- it's a version of what keeps you up at night, what are the limiting factors? What are the weaknesses, both either in the model. We think the model is sound. And the last thing I want to do is come off naive, head in the sand or overconfident, but we think we got a good thing going here. Obviously, the macroeconomics environment is sound. There's a lot of demand being pulled. We control most of the elements. We've worked hard to make sure supply chain below us is not going to be a factor. And so really, it's for us to operate well. And I would tell you, we've got a deep and talented bench of folks. They're great operators. We plan well, we execute well. And so really, it's up to us to just execute the model. Visibility of the demand is there, and we're planning for it for the years ahead.

I think that's just about our time for today. So thanks, everyone, for joining us. Tony, appreciate you taking us through the story. We are going to the breakout room. So more questions downstairs, and we'll see you there. Thank you, Tony.

Thank you all.

All right. Good afternoon, everybody. Thanks for joining us. It's a pleasure to have Steve Gitlin from Karman to talk about the company. He's going to go through some slides, and then maybe we'll get into a little bit of Q&A. But exciting company, certainly within the realm of a lot of strategic priorities within the department and maybe a new one to talk about, a little roots in my background when I saw Seemann, I was like, hey, wait a minute, I know those guys. So some interesting stuff. So Steve, thank you so much for being with us, and please go ahead.

Yes. Thank you very much for having us, Roman. It's great to be here. We appreciate the opportunity to engage with investors and tell our story. I just want to say at the outset, I'm happy to represent the more than 1,500 teammates of mine who work every day to accelerate, access to space, to enable the war fighter and to help protect the nation.

And if we go to the next slide, please. Do I have them? That would be helpful. Thank you. That's right. That's right. That's me. That's our forward-looking statement. So we really think of Karman as a new kind of space and defense company. We IPO-ed in February of last year. So we have just about a year's experience in the public markets. And in that time, as we've engaged with investors, with analysts and with a variety of other folks, it really has reinforced this idea that no one's ever seen a company quite like Karman.

And we think of ourselves as an enabler of the primes. We're basically a merchant supplier. We work with more than 80 prime contractor customers on more than 130 programs. And our goal is to enable our customers to be successful so that their ultimate customers can be successful. We focus on highly engineered IP-rich system solutions that support missiles, missile defense, space launch, hypersonics, drones, counter UAS and a variety of other missions. And of course, with our recent announcement of the closed acquisition of Seemann and MSC, Seemann Composites and MSC, we're very much into the maritime market as well for maritime defense systems.

We're vertically integrated. We can -- with our more than 200 engineers, we can take on any kind of problem that our customers present us with. We can come up with the right solution, and then we can take that all the way through prototyping, testing, development, low rate initial production into full rate production. So completely vertically integrated that helps us solve problems for our customers. And as you see on the right, that diagram that really attempts to describe visually the role we've created and we play in the marketplace.

We were specifically designed to provide speed, agility and integrated solution, integrated system solutions at scale for the market. And so far, that's proven to be quite effective at helping our customers succeed. We have a wide variety of capabilities that I'll talk about shortly, and we're really driven to drive efficiency and supply chain productivity and effectiveness through optimal technical solutions.

And if you look at our history, we have demonstrated mission success, and we've been able to successfully identify, acquire and integrate a number of very attractive companies to join the Karman family so that we can offer more capabilities to our customers.

Just really briefly overview of our results so far. We finished fiscal '25 at the end of last year, but we've not yet reported those numbers. So the numbers here are limited to our '24 results. We had significant revenue growth from '22 through '24, about 24% top line CAGR, very healthy profitability, 31% adjusted EBITDA margin for 2024. And we're continuing on that path of delivering high rates of growth and high rates of profitability.

Our revenue base is diversified very broadly, as I mentioned before, across customers, across programs, but also across the program life cycle of different products. We have qualified positions on a number of very high-profile key national security programs, but we're also positioned across a number of very important development programs. And so those development programs, if successful, will ultimately transition into next -- the future production programs and drive production revenue for us.

We consider ourselves to be a pure-play exposure -- offer pure-play exposure to some of the highest growth segments of the space and defense marketplace. If you look at hypersonics and strategic missile defense, tactical missiles, drones, also submarines now with our Seemann acquisition, these are all very, very high priority segments of the overall market, receiving a lot of attention, a lot of funding and driving -- driven by a lot of demand from end customers.

And our expertise is really to address the emergent requirements of combating near peers and peer nation states. So the solutions we support are instrumental in addressing that kind of a threat environment, which is something that our nation faces today and well into the future.

If we look at the 4 end markets that we serve from left to right, hypersonics and strategic missile defense, these are very -- national security-focused types of programs, some of which are still in the development phase, some of which are already in production. Tactical missiles and integrated defense systems, think of loitering munition systems, think of counter UAS systems, think of tactical missile systems as well.

The newest end market in our portfolio is maritime defense. That's enhanced by our recent acquisition of Seemann Composites and MSC. Seemann and MSC have qualified positions on some of the most important maritime programs of record, including Columbia and Virginia-class submarine programs, which are multiyear programs with significant sustainment tails associated with them.

And then space and launch, that's really driven by our support for all of the major launch providers and by an increase in launch cadence across the marketplace. So across our portfolio, we're primarily focused on the United States market. There is a very small amount of international revenue there. Of course, through our existing production programs, we support certain programs that are sold to our allies through FMS, for military sales programs.

We, of course, don't have visibility into where our solutions are heading, but we know after the fact, of course, that some of that content ends up in the hands to help protect our allies. All of these markets are experiencing significant growth, and all of them are very high priority -- highly funded items across the DoD and the space landscape.

As we look at our traditional Karman core business and how the Seemann Composites and MSC business complements that, it's important to note a couple of interesting dimensions of that. On the Karman side, when we talk about missiles and rockets, we talk about content of subsystems from tip to tail from the shielding systems, the shrouds, the nose cones at the tip of the rocket and missile all the way to the propulsion systems at the back end and interstage aspects between them.

It's the exact same diagram, if you will, or paradigm on the maritime side. For submarine, Seemann Composites and MSC work on bow domes, which are essentially the shields at the front of the submarine. They provide solutions for interstage across the body of submarines and also critical subsystems for propulsion systems at the tail of the submarine. So there's a very nice alignment between what Seemann and MSC bring and what Karman is already doing.

In addition, obviously, the maritime market, it's not new to Karman. We've been involved in some programs in maritime for a number of years. The Seemann and MSC contribution obviously significantly expands that exposure, which we think is a very important part of our overall diversification strategy. So from Tip-to-Tail, from Bow-to-Stern, from deep sea to deep space, that's what the Seemann and MSC acquisitions integrations do for the Karman platform.

If we look at our integrated capabilities across the organization, I spoke before about a very large number of engineers, a very deep design and engineering capability in the company. We think that's incredibly important to us because it helps differentiate from what a lot of other players in the supply chain do.

A prime contractor can come to us with a problem, and we can provide the end-to-end solution for them as opposed to them having to go to one company for design, another company for machining, another company for integration, another company for testing. We pull that all into a one-stop shop that ultimately, we think makes it easier, faster and cheaper and more effective for our prime contractor customers to succeed in their endeavors. So those advanced technology and significant IP portfolio that we bring and that we acquire through our M&A strategy help us to have the ability to solve those complex problems for customers.

We're able to integrate those into unique design solutions, trading off a variety of different capabilities across a wide range of materials, across a wide range of domains and that allow us to do then the development, the testing, the qualification, which is very important on all these major programs that we have a position on, these are qualified positions. So we're spec-ed into these programs. It's very difficult to gain that position, and it's very difficult for another supplier to devote the time and energy and resources to try to take that over.

So far, as far as we're aware, we've never lost a qualified position that we've bid on a program. And that vertically integrated manufacturing capability allows us to do most -- everything in-house. So again, it's a one-stop shop, complete solution provider to help our prime contractor customers operate more effectively and successfully.

M&A is an important part of our strategy. We were formed in 2020 as a result of the acquisition of 4 companies that founded -- that were the founding companies behind Karman. Each of those companies had a multiyear, if not multi-decade track record of successfully supporting prime contractors on very important programs, ranging from some of the most well-known missile programs to the most well-known missile interceptor programs.

Most recently, we've done -- in 2025, we did 3 acquisitions. MTI brought us a very rich portfolio of refractory metals capabilities. These are metals that are extremely useful in high temperature and highly corrosive environments that we can now use in cross-selling to our existing customers and add more value to what our customers are trying to accomplish.

ISP brought energetics capabilities that help to enable us to capture more of our supply chain and again, offer more capability to customers. And then in late 2025, we announced the acquisition of Five Axis Industries, which put us for the first time into the liquid-fueled rocket engine space. Previously, we've been focused primarily on solid rocket motor technology, which we're still a major player in. Liquid fueled engines is a very attractive market that expands our TAM.

Recently, of course, I spoke about Seemann and MSC. What we look for in M&A is, first and foremost, proprietary products. We're looking for IP-rich assets, unique assets with a unique position in the marketplace and on key programs. And as we work with them and understand them better, we've built relationships with many of these companies. We've known the folks over at Seemann and MSC for a number of years. We've looked at that as a key part of the Karman portfolio for quite some time, and we were fortunate enough to finally come to the point where they were willing to become part of Karman as we announced last week.

So we're common situational characteristics. These are typically proprietary transactions. We think we're quite effective at negotiating these deals in a way that's to the maximum benefit of our shareholders. And we're able to create value -- incremental value by making them part of the Karman family as opposed to them being on a stand-alone basis.

Our footprint is also growing as we grow and as we acquire new companies. With the Seemann and MSC acquisition, we're now in 8 states from the West Coast to the Gulf Coast to the East Coast, and we're now in about 17 or 18 different sites. This is a list of just some of the unique manufacturing capabilities that we offer. And these are all in and of themselves, there are other companies that do composites.

There are other companies that do filament winding and some of the other things. There are very few companies that can combine all of these capabilities together with the design engineering and the IP to deliver complete end-to-end system solutions. And that's what we think helps to differentiate Karman from many other companies that are in the marketplace, again, helping to define us as a new kind of space and defense company.

But that idea of speed, agility and seamless execution, it's something that's always been part of the strategy. It's the reason we exist, and it's extremely aligned now with the current government requirement for scaling the supply chain rapidly, effectively and in order to protect the nation and protect our workers.

All of this activity has produced very strong financial performance. Looking again through 2024 since we haven't reported '25 yet, 24% top line CAGR for those years. We can see how our end markets. Now these are not segments under the accounting standard. These are end markets. So we report revenue at an end market level, not anything beyond that.

Our adjusted EBITDA has grown quite healthily at a 33% CAGR over the last several years. And in 2024, we delivered about a 31% adjusted EBITDA margin. And funded backlog has also grown quite healthily from the mid-200s to more than $500 million at the end of 2024. In Q3, we announced that we had somewhere on the order of $750 million, $780 million in funded backlog. So the trajectory on all of these financial performance metrics continues to advance and the execution -- the effective execution of our team continues to drive those results.

Diversification, as I mentioned before, is a very important part of our strategy. By end market, in 2024, we were roughly evenly diversified across the 3 end markets that we serve. Generally speaking, if you look at our hypersonic and strategic missile defense and tactical missiles and integrated defense systems markets, we see those as constituting roughly 2/3 of revenue in any given year.

Of course, now with Seemann and MSC, we're adding that fourth end market, which is going to add further diversity to the mix. By program, we're very well diversified across these 100-plus programs, 130-plus programs. The largest program in 2024 accounted for about 11% of revenue. And as we add the Seemann MSC program, that's going to enhance that diversification further.

And then finally, we -- at a summary level, we really think of ourselves as the new kind of space company because we're delivering high profit margins, high growth rates. We're highly diversified across the Space and Defense portfolio. We're a merchant supplier, and we like the merchant supply position. We don't have any aspirations to be an end solution provider.

We want all of our customers to succeed, and they like doing business with us, and we support them all. We provide a full solution, as I mentioned before. And our inorganic growth process has proven to be quite effective in helping to grow our company profitably and consistently.

And with that, I'll turn it over to questions.

All right. So the first one is easy one, obvious one, and we just finished with it. No desire to be a prime [indiscernible].

We're very happy as a merchant supplier. We think it's a very attractive profile. It delivers attractive financial profile. We're supporting all of the customers. We're increasing our diversification. They rely on us, and we're very happy in that decision.

Right. When you think about those areas -- and I do want to get into the maritime aspect, I think that's pretty critical and interesting. But I mean, as you think about those areas, space, what -- we kind of have our view, but I mean what do you think -- what is the fastest growing area? I mean you kind of almost all of them [indiscernible] but where would you rank those if you had to think about the next couple of years?

So it's -- we're lucky to be in a position where every one of those end markets is growing rapidly. We're very well positioned to grow as the demand for those end market solutions grows. And if you look at each of those end markets, you can find significant funding. Just looking at the maritime space, for example, in the programs of record for Columbia and Virginia-class submarines, there's about $25 billion total in funding in FY '26, just for those 2 programs. That's very attractive.

It provides exceptional long-term visibility through that business. And importantly, the sustainment tail associated with the maritime market is very different from what we have with missiles and rockets and those other solutions that are effectively onetime use types of solutions. So again, further diversification of the business model, attractive across the board, and hard to pick one that we think is more of a winner than any of the others.

I was just trying to think through some of our estimates about budget and what we've seen in recent budget for the [indiscernible]. So sort of blessing and curse or I guess some of your customers have recently been working towards large production expansion agreements with the partners, right, in program that you discussed publicly that you're on. How do you meet all that? Like I mean that is a pretty -- over the -- let's just say, 7 years over multi years. And that's just counting domestic and not even counting international, [indiscernible] involved. What do you all need to do that either from [indiscernible]?

Well, first of all, it's a high-class problem, definitely. But we are very, very cognizant and we've been all along of how we're positioned and what we're positioned for. We've been talking publicly about the demand signals that we've been receiving from the market, from our customers for some time. And as those demand signals evolve and mature into stronger demand signals and eventually purchase orders, we're not waiting for those purchase orders to make the investments needed to ensure that we're able to satisfy the demand that is emerging.

So for example, in 2025, we started out the year guiding to 3.5% to 4% of revenue and CapEx investments. Over the course of the year, we ended up increasing that. In Q3, we said it would be about 4.5% for the year. That's one example of how we've been leaning into preparing for that. But we really look at about 3 or 4 different levers from a capacity perspective. One is obviously what we're willing to spend? Now what are we going to spend it on?

We've got headroom in our facilities. We think we've got a fair amount of headroom based on the fact that there's space we can redeploy for production lines based on which are ramping sooner rather than others. There's equipment and CapEx, capital good -- capital items that we can literally move around to accommodate shifts in demand. There's automation that we're integrating across our organization to increase efficiency, productivity, quality and that helps us, for example, machine 35 different parts overnight by just inserting the aluminum blanks before we leave.

So you put them and load it up at night in the morning, you got your finished parts ready for you. So we're doing all of those kinds of things to invest in expansion. We're also definitely expanding our hiring activities. We've got a number of dedicated recruiters across the organization. We're looking for the right people to join our team across our footprint.

And then we're very focused on the supply chain because we want to make sure that just like we don't want to be the bottleneck for our customers that we don't have any bottlenecks in our supply chain that could inhibit our ability to satisfy customer demand.

I mean, frequently in the missile production [indiscernible] challenging area. Is there anything within your product line or SKUs that are more challenging than others or as you mentioned your supply chain elements of that where you need some more redundancy or expansion?

We think we're on top of it. We bought a technology called MG Resin a few years ago that gave us organic ability to develop and produce our own resin systems to support our composite business. Of the acquisition of Seemann Composites and MSC, they bring with them a very rich portfolio of composites expertise, resin formulations and systems that's only going to enhance our capability to provide the right composite solutions for our customers across -- pretty much across our entire portfolio. So that's an important area we've invested in and we've acquired to make sure that we have the expertise needed to continue to push the capabilities forward for our customers across -- certainly across the composites domain.

As you think about M&A it seems kind of like I'm curious, did you look and say, wait a minute, naval and maybe unmanned that's an interesting vertical or composite business and that's sort of foundational kind of what we do in some of our other manufacturing processes. Like what's that thought process like? And maybe thematically, how do you think about future [indiscernible]?

The answer to the first part of the question is yes. It's an attractive market segment to be in. It enhances our ongoing involvement in the maritime market, which is at a much smaller level, of course, but of course, we have some experience with that. But strategically, it's that materials capability that is extremely attractive to us and extremely powerful in terms of enabling us with more capabilities to satisfy more customer problems. So as we look forward in M&A, as I pointed out in that one slide, IP-rich assets are key to our M&A strategy. We're not just going out and acquiring capacity. We're not going out acquiring customer list. We're acquiring assets that have deep IP that are unique, that help to deepen and expand our moat, our competitive moat.

And just -- I mean, about that moat, I mean, obviously, I think I'm sure there are competitors you suggested maybe not as unique as yourself or kind of rolled up with the sort of vertically integrated capabilities. But what are the challenges as maybe there's maybe more entrants into the initial programs of record, right, diversity unmanned, what do you see the competitors in the marketplace emerging or adopting similar strategy?

So the way we look at it is our main point of competition is not so much other companies trying to replicate our model. We wish them luck. We've got a pretty good head start, and we're finding the attractive assets to preserve our competitive position and the value position -- the value offering we provide. But it's more so the prime contractors' willingness and ability to in-source some of those activities. Do they want to take some of that on?

Now in some cases, the trend has been, look, they're coming up with the big ideas to solve these big problems. We're coming up with a small part of that solution, integral to the success of the solution, but it's not the big idea. It's not the big problem they're trying to solve. So them focusing on that big problem and integrating the right inputs to make that happen makes a lot of sense.

To the extent they want to integrate back into the supply chain, of course, they could always do that is -- in some cases, it might make sense for them to do it. I'm not aware of any instance where we won a competitive position, had a qualified position on a program and our customer decided to then in-source it, for example. So as long as we're able to do our job well, as long as we're able to satisfy their requirements for schedule, for timing, for cost, all those kinds of things, we don't want to give them any reason to have to do that.

Right. And I think -- and again, maybe just to be a little earlier. I mean you talk about being qualified, right? So I mean that is not just, "hey, you look like you can do this, like we're going to start using your [indiscernible]? I mean can you talk a little bit about the -- how embedded that makes you into that manufacturing process as [indiscernible].

It's very important. It's -- the qualification process can be very time -- take a lot of time, take a lot of resources, take a lot of money, talk to a lot of people's timing, and it can divert attention from one thing to another thing. So anybody could choose to do that when the opportunity arises on a program. Maybe it's a block upgrade, maybe it's a new development type of a program that people are trying to compete for. But we're expanding our capabilities. And when those block upgrade opportunities emerge, we may now have the ability to go after more content on that solution than we had before prior to some of the acquisitions that we did.

Similarly, when we're working on new development programs, our toolkit is expanding. We're able to show up the ability to solve more problems for those. So we think over time, it's a competitive environment. We like competition. It's good for the customer. It's good for the nation. That's why we're strengthening our moat, deepening our moat, widening our moat because we want to be able to offer more and more value to our customers and create more value for our shareholders.

You talked a little bit about new product development, but are there programs out there that you're sort of actively -- over the next year or 2, are there things that you're excited about that you think are strategic wins anything that you can talk about?

So there are a number of programs. We're very, very careful about talking about customers and programs publicly mainly because they're not our programs. They're our customers' programs, right? And in some cases, there are actually requirements that sort of restrict our ability to discuss those publicly. But yes, we are excited about a lot of different programs. Some major national security programs are evolving from the early development phase into sort of towards low rate initial production. We're very excited about those.

We're very excited about the role that programs we support currently are likely to play in the Golden Dome layer defense system and on the role we have on some key development programs that are likely to play a role in the Golden Dome defense system. So across the board, we're very happy with our positioning. We're partnered with the right customers on the right programs. We're really able to lever the capabilities of our people to add value to the entire end market.

Maybe just talk about the diversity of that customer base, right? Because I think there is a view and earlier, we had [indiscernible] from an industrial base policy, but -- and he sort of talked about [indiscernible] and tripling and quadrupling production rates for some of these things, but at the same time, DOW is looking at other low-cost, right? And there are nontraditional companies sort of startups, [indiscernible] What's your experience, exposure, relationships with some of those?

So it's a great point because I talked about 3 dimensions of diversification before; customers, programs and product life cycle. Within customers, we're diversified across both the incumbent prime contractors, the folks that have been around for a long time and also the emerging companies that are attracting a lot of attention, doing some very interesting things. We tend, again, not to speak publicly about those companies. I'll only mention one because I used to work at AeroVironment, and they won't hold it against me if I mentioned it. That's another one of our great customers. We're very proud to support them and proud to be a part of the mission that they're working on.

No, I think -- I mean, I guess the challenge, I mean, you've got a whole diversified set of customers across these mission sets. And I mean, I guess have you seen much -- I mean, you mentioned, again, role as a prominent supplier of the foreign military sales piece of it. There has been some, I guess, international [indiscernible] foreign adoption or U.S. adoption. Are there any foreign [indiscernible]?

We're doing some work there. It's nascent. It's limited, but there's an opportunity there, we think. If we think about the international market at large, the near-term opportunity for us is really primarily through FMS, which is I know is something you report on in your great weekly reports that come out here that I read religiously, and I encourage everybody to read.

So those FMS -- so the NATO allies are being -- are going to be spending more on defense, on acquisition. Their industrial base is not as developed as the United States is. In the near term, it's quite likely they're going to rely on continued, if not increased FMS activity to sort of fill the gaps until that industrial base is ready.

So when we get orders from our prime contractor customers, they don't say this is for this country, this is for Golden Dome, this is -- they just say we need more of these, and we deliver against that. We find out either before through contract announcements or later that those may have ended up in country X, country Y, country Z.

At the same time, we think there is an opportunity to build relationships with some of the allied industrial companies who are looking to scale up their capabilities because we think we can be very helpful in enabling them to do that. But again, that's very nascent. That's very early stage. And we're -- the high-class problem of having so much demand coming at us domestically, resourcing that is not trivial, right? Because if you do it, you want to do it right.

I won't ask you to be specific on [indiscernible]. But I guess maybe more so on space, on the capabilities and maybe opportunities there. Can you just talk a little bit about that? I mean because that I think is also a longer-term market that is growing significantly and sort of how can you take advantage of that?

Yes. The constituent companies that formed Karman at the beginning, one of them in particular, has been involved in space programs dating back to the space shuttle on structures, on subsystems, very sophisticated, complicated structures, by the way. So we've got a long heritage supporting the exploration of space, the creation of the space economy and its subsequent growth.

We see a lot of drivers pushing that forward, not the least of which is the development of the space layer of Golden Dome, which -- while we're not necessarily developing sensors and trackers and that kind of technology, we certainly are very much involved in getting things up in the space. And as that contributes to an increase in overall launch cadence, that's going to benefit Karman.

We're also involved in interesting programs like the integration of a Lunar lander for one of our clients because we have the ability to do that. We've got a -- we built a clean room in our Northwest operation. And that's an opportunity for us to expand in. So the integration of payloads potentially of vehicle space vehicles as that market continues to evolve and grow, we see opportunities there as well.

That's a legacy NASA business [indiscernible]?

No, that's a commercial -- one of the commercial companies. Yes.

And to be fair, I mean, I guess, I mean the launch piece of that is on the global [indiscernible].

For the most part, correct. Now there are some deployment capabilities that we're experts in also that help with that, right?

Great. Just go back to Seemann. As you talk about -- or let's put it this way, the naval segment, are there pieces there that you think you can expand into either on the manned side or on the unmanned side, given the potential [indiscernible] structures and other things?

Absolutely. Seemann and MSC have been involved in some early UUV and USV programs. So if we think about the evolution, and we were talking about this in some of our meetings today, the evolution of the drone space, having been at AeroVironment in the early days when nobody could spell drone, right, and seeing its adoption and evolution and where it is today, it seems like the naval market is sort of somewhat behind that in that adoption.

It's happening, it's very interesting things in Ukraine and elsewhere that are happening, but it doesn't appear to be as widespread necessarily as what we've seen in the aerial space. That's a great opportunity for the team at Seemann and MSC because they understand that domain, they understand the material science behind mission success in those vehicles. And to the extent that, that segment of the market continues to grow and expand, that could create great opportunities for us among others.

[indiscernible] I guess just -- I mean several times you mentioned sort of that IP moat, right? But -- and so a lot of this is basic science and research. You kind of talked about some of the IRA. But how do you think about the demand of that moving forward? And again, whether you're talking about particularly in hypersonics or space launch or other areas, there does seem to be a continued demand there as well as [indiscernible]?

Yes, it's a great question, and it speaks specifically to the strategy behind the Seemann MSC acquisition because we're developing solutions for some of the harshest operating environments you can imagine. That could be a heat shield for reentry into the earth's atmosphere from space, tremendous temperatures, tremendous stress, tremendous pressures. The material science that goes into that solution is not the same as building a graphite or composite tennis racket, to make a silly comparison. It's very specialized.

Having the additional IP from Seemann Composite and MSC gives us the ability to apply more of that capability to those solutions because we've got to find those solutions, and we effectively have solutions now from that reentry kind of environment all the way to 1,000 feet under the surface of the ocean. Those are completely different operating environments, saltwater, pressure, all those kinds of things, different composite solution entirely.

Within a submarine, there are different formulations for different subsystems across the submarine depending on what they're doing and how they're doing it. So that diversity of capabilities really sets us apart and gives us a lot of firepower to help solve very, very difficult problems that customers bring to us across the entire Karman portfolio.

Now I mean, I guess -- and kind of -- I realize this is an integrated idea. But do you think that as you look for M&A, right, is it -- we develop the technology in-house or do you kind of acquire [indiscernible]?

So we don't invest a great deal into IRAD, internally funded R&D, but we do acquire that IP. And it's not just IP in terms of formulations, it's also process IP. So as an example, Seemann Composites, they've developed a composite curing process that doesn't require autoclaves, right? A lot of the work we do at Karman for missiles for rockets involves putting those devices, those subsystems into autoclaves and curing them.

Seemann's developed a really interesting vacuum-based, infusion-based system for doing that. And that's really the only way you can produce monolithic 30-foot diameter [indiscernible] for some, right? There's no autoclave on the planet that can handle that. So there's a good deal of manufacturing and process IP that we have, that we continue to refine and develop and that we acquire in addition to the sort of classic IP, we know how to make this kind of a thing. And we'll continue to exercise M&A to expand on that.

Right. I guess just last one, we talked about this great problem you have in terms of capacity expansion, orders from [indiscernible] to you guys. But it looks like you guys have also done a very good job on margin expansion [indiscernible].

Yes. If you think about what the government has communicated about its desires of doing business with defense -- space and defense companies, a, we don't issue dividends. Yes, we don't -- it's not part of our business. We're growing. B, we don't do stock buybacks. C, about 90% of all our revenue from Karman is from fixed price contracts. So we're very comfortable and used to operating in that environment.

Now Seemann MSC has a higher mix of cost plus fixed fee contracts. That's going to change that a bit. But still, the majority of our business and our revenue will remain fixed price contracts. And so we're very, very comfortable operating in the desired environment as communicated by the Department of War and effectively serving our customers and, of course, the government in the process.

Please join me in thanking Steve for [indiscernible].

Thank you for standing by, and welcome to the Karman Space & Defense Expands into High-Priority Maritime Defense Market with Agreement to Acquire Seemann Composites and Materials Sciences Conference Call. [Operator Instructions]

I'd now like to turn the call over to Steven Gitlin, Vice President of Investor Relations. You may begin.

Good afternoon, and welcome to Karman's investor conference call to discuss our acquisition of Seemann Composites and MSC and provide financial updates for 2025 and 2026. This is Steven Gitlin, Vice President of Investor Relations for Karman.

Joining me today from Karman are Chief Executive Officer, Mr. Tony Koblinski; Chief Financial Officer, Mr. Mike Willis; Chief Operating Officer, Mr. Jonathan Beaudoin; and President, Seemann Composites and MSC, Mr. Sid Charbonnet.

Before we begin, please note that on this call, certain information presented contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Summarized on Slide #2, forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements and may contain words such as believe, anticipate, expect, estimate, intend, project, plan or words or phrases with similar meaning. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control that may cause our business strategy or actual results to differ materially from the forward-looking statements.

For further information on these risks, we encourage you to review the risk factors discussed in Karman's periodic reports on Form 10-K and Form 10-Q and the Form 8-K filed today with the SEC.

We also filed a copy of the investor presentation for today's call, which you can find on the Investors section of our website.

The content of this conference call contains time-sensitive information that is accurate only as of today, January 21, 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 the events or circumstances occurring after this conference call.

Slide #3 provides our agenda for today's call, in which Tony will review Karman's differentiated market position and successful acquisition strategy. Sid Charbonnet will provide an overview of Seemann Composites and Material Sciences, and Mike Willis will share a financial update on our continued strong growth and leading margins.

Slide #4 summarizes the Seemann and MSC transaction. We expect the transaction to close during our first quarter, and we expect full integration by the end of 2026. Total consideration consists of $210 million in cash and approximately $10 million in common stock. We expect an LTM net leverage ratio at year-end 2026 of approximately 3x adjusted EBITDA.

The acquisition deepens our advanced materials IP portfolio for application across our business and it expands our exposure to the Department of War's highest priority naval programs. The transaction is immediately accretive to major Karman financial metrics such as revenue growth, funded backlog, EBITDA, earnings per share and cash flow.

With that introduction, I will now turn the call over to Tony Koblinski. Tony?

Thanks, Steve. Good afternoon, and thank you all for joining us today. It's been a very busy time since our February 2025 IPO. In less than a year, we've acquired 3 businesses, completed a $1.2 billion secondary equity offering, executed beyond our initial guidance for the year and positioned Karman for continued profitable growth in the context of multiple expanding secular drivers.

We wanted to take a moment today to remind you of Karman's investment thesis and use it as a frame to demonstrate how Seemann and MSC acquisition strengthens and furthers our growth strategy. Our relationship with Seemann/MSC dates back to well before our current discussions, and we have been impressed with their leadership, capabilities, performance and their dedicated team.

In addition to offering compelling financial benefits, this transaction is about continuing market growth and expanding capabilities. We are excited about what we can do together to support the defense sector. And as such, we intend to retain the entire Seemann/MSC team to maintain their strong momentum and ensure continuity as they become a wholly owned subsidiary of Karman after closing.

To understand the context for this transaction, I'd like to take a step back and share our strategy summarized on Slide #6. Karman's strategy is to deliver advanced system solutions for next-generation propulsion, deployment and shielding applications, serving the country's highest priority national security interest now from deep sea to deep space.

Karman was conceived and built to support the critical weapon systems required to deliver strategic and tactical superiority to U.S. and allied forces against near-peer nation states and to accelerate access to space as both a strategic and economic resource.

With Seemann/MSC, we now address all 4 physical domains of sea, ground, air and space. We will continue to provide IP-rich mission-critical solutions for hypersonics and strategic missiles, loitering munitions and counter UAS, space and launch and now submarine and naval applications. The common characteristics connecting our 4 end markets include complex operating environments that require extensive design engineering and IP-enabled solutions, fragmented supply chains that benefit from a scale Tier 1 partner and the highest DOW priorities in funding with expectations for decades of sustained future growth.

Karman addresses market needs effectively because we offer system-level design and engineering capabilities beginning with material selection, proprietary products and more than 40 years of proven IP and performance, vertically integrated operations with a full suite of manufacturing capabilities, and we are well funded with a track record of operational success.

In summary, we provide agility and speed, rapidly delivering better technology for the most challenging environments. By delivering superior results to our customers and end users, we produce strong benefits to shareholders, sector-leading organic revenue and adjusted EBITDA growth, multidimensional diversification and a deep competitive moat.

A key component of our growth strategy summarized on Slide #7 is to identify and acquire IP-rich scarce assets that expand our capabilities and enable us to offer even more value to our customers. When searching for these assets, we focus on a number of important criteria, including a high degree of proprietary products, advanced design engineering and qualified positions on high-growth programs. These opportunities are typically proprietary in nature, founder or family-owned and have existing relationships with Karman personnel.

We formed Karman with 7 initial acquisitions starting in 2020. Each of the 3 unique companies we added in 2025 brings valuable new proprietary products and capability, such as forged refractory alloy-based shape charges at MTI, proprietary propellent formulations from ISP to leverage across Karman's solid rocket motor portfolio and liquid propulsion engine nozzles from Five Axis.

Seemann and MSC will provide significant design and process IP as well as impressive expertise in proprietary resins and composite technologies to the Karman platform. These acquisitions all strengthen Karman and Karman strengthens the capabilities and impact of our acquired companies.

Immediately, post-close, we began integration and cross-selling of new products and new technologies to our expanded customer base. For example, we deployed ISP's propellent formulations for other Karman programs shortly after its May 2025 closing. Our acquisition strategy expands our competitive moat and accelerates our growth.

Shown on Slide #8, our growth strategy makes Karman a pure-play supplier addressing the DOW's highest priority initiatives, multiple demand drivers such as Golden Dome, recapitalization of missiles and munitions capabilities, the DOW's Drone Dominance Program, accelerating commercial launch cadence and the recapitalization of the U.S. Navy submarine fleet, all position Karman well to deliver high growth and profitability well into the future.

To give you a better understanding of our exciting new acquisition, I'll now turn the call over to Sid Charbonnet, President of Seemann Composites and MSC.

Thanks, Tony. I'm happy to be with you all today and share what makes me so proud about Seemann Composites and MSC and what makes us all so excited about joining Karman.

As shown on Slide #10, the Seemann/MSC team has decades of experience in the maritime domain. We design, produce and support large-scale composite products such as submarine bow domes that span more than 30 feet in diameter. We are primarily focused on applying our unique IP-rich materials and composites expertise to recapitalize the United States Navy submarine fleet. We also support surface vessels, hypersonics and missile systems. Our specialized material science team is focused on next-generation materials and resin system design and formulation.

Like Karman, we have full life cycle capabilities from design through manufacturing. We have more than 60 engineers across 250,000 square feet of facilities in 4 states. Like Karman, we secure sole or single source positions with qualified content on most of our programs. Keep in mind that qualifying for U.S. Navy submarine program is a very long resource and capital-intensive endeavor, in some cases, requiring up to 8 years. Securing these programmatic positions, as we have, represents a significant competitive moat.

Unlike Karman's primarily fixed price contract mix, many of our developmental contracts are cost plus fixed fee because these programs are early in their life cycle. As these programs mature, we expect them to transition to firm fixed price with opportunities for operational efficiency and margin expansion as they move into production.

Complementing Karman's financial model, programs in our end market requires significant sustainment support, offering a long revenue tail. Key programs driving our multi-decade visibility include Columbia, Virginia and Seawolf-class submarines as well as LCAC 100 Ship-to-Shore Connector.

Among the main reasons we found joining Karman so compelling is the high degree of alignment in how we both approach solving complex problems for our customers in the highly complementary nature of our offering described on Slide #11. Karman and Seemann both offer IP-rich, highly engineered solutions for critical weapon systems. In both cases, these solutions address propulsion, interstage assemblies and shroud sections of missiles, rockets and submarines. Essentially, we are both tip to tail or as we would say, bow-to-stern solution providers. Both companies' approach to delivering value is full life cycle, including advanced system-level design engineering, vertically integrated manufacturing and deep materials expertise.

We could not have found a more compatible and aligned partner than Karman. Our entire 350-person Seemann/MSC team is incredibly excited to help make Karman a truly all-domain solution provider from deep sea to deep space, as shown on Slide #12.

Bringing key markets such as submarines, unmanned underwater vehicles, unmanned surface vehicles, surface vessels, torpedos and launchers, we will expand Karman's total addressable market and strengthen its materials capability with our dedicated team of specialists and composites, resin systems and advanced manufacturing. We look forward to completing this transaction in the first quarter and working closely with the Karman team to create and deliver even more value to our customers.

Now I'll turn the call over to Karman's Chief Financial Officer, Mike Willis.

Thank you, Sid. We also look forward to working with you and the Seemann/MSC team. While our financial close and audit are still underway, limiting our ability to provide final results for the recently completed fiscal year, it's clear that Karman continues to deliver outstanding financial results. Our sector high revenue growth and profitability is summarized on Slide 14.

We are again raising our 2025 guidance to between $470 million and $471 million in revenue, and between $144.5 million and $144.9 million in adjusted EBITDA. This represents top line revenue and adjusted EBITDA growth of 36% to the midpoint of the new guidance range. We expect 2025 adjusted EBITDA margin of 30.8% at the midpoint of the range, an increase of 10 basis points year-over-year.

For 2026, we now anticipate total revenue of between $700 million and $715 million, and adjusted EBITDA of between $205 million and $215 million. This represents year-over-year growth of 50% and 45%, respectively, from midpoint to midpoint. We expect 2026 adjusted EBITDA margin of 30% at the midpoint of this range. Note that our 2026 guidance assumes 9 months of results from Seemann/MSC.

Now turning to Slide 15. We expect to report continued strong organic growth in 2025 of approximately 25%, with inorganic growth of 11%. For 2026, the midpoint of our revenue guidance reflects approximately 50% growth, of which roughly half is organic and half inorganic from the completed acquisitions and Seemann/MSC.

In terms of funded backlog, we posted record bookings in '25, resulting in an organic book-to-bill ratio of approximately 1.3.

We remain well positioned across all 4 of our high-priority markets and are entering '26 with record levels of backlog and pipeline, giving us high confidence in our '26 plan. With respect to our leverage ratio, we expect to achieve approximately 3x adjusted EBITDA by the end of 2026.

A shift in the timing of our Seemann/MSC acquisition approval will influence the amount of revenue and adjusted EBITDA we'll recognize this fiscal year from those businesses.

To summarize, our core business continues to thrive as we build greater scale and capabilities through strategic acquisitions. Seemann/MSC will make us a truly all-domain solutions provider with a larger TAM and higher funding visibility and revenue across more of the nation's highest priority programs.

Now I'll hand the call back to Tony for his closing comments.

Thanks, Mike. As we have stated today, we and our Board of Directors believe this transaction will deliver value and benefits to our shareholders, our customers and our employees. Our shareholders will benefit from the accretive nature of this transaction, the expanded growing markets we will serve, increased diversity in our revenue, product and program mix and the strategic deployment of capital for long-term value creation.

Our customers will benefit from the added capabilities Seemann/MSC introduces to Karman and the exposure to more of our solutions across our all-domain reach. And we will continue to invest in our employees to grow our capabilities and our team. I want to thank them all for their considerable talents and efforts.

Thank you all for joining us today. We'll now take your questions.

[Operator Instructions] Your first question today comes from the line of Ken Herbert from RBC Capital Markets.

Maybe just the first question, as we think about the Seemann Composites and MSC acquisitions, how do we think about underlying organic growth in those businesses, either in '25 or expectations for '26?

Hi Ken, hope you're doing well. Yes, as we've guided for our 50% year-over-year roughly split between organic and inorganic, again, moving our organic guidance to 25% year-over-year, both to the core Karman business, plus the newly acquired assets are prime to continue that now new organic growth profile.

Many of the programs, as Sid mentioned in his prepared comments, are early on in the development stages and will move into higher growth, higher production cadence moving forward. And so you'll see growth from the combined business and really all of the now 4 market areas as we think of them.

Okay. And as we think about the legacy Karman, if I could call it that, as you look at now the organic growth from -- into 2026, are there any particular programs you can call out that are seeing perhaps a more material inflection relative to the guidance you initially provided with the third quarter results for organic growth in '26?

Appreciate it. It's going to be difficult to describe the legacy Karman as we continue to move forward and take on new capability and growth patterns. I wouldn't highlight any one. You guys are well aware of the demand signals that are becoming clearer with each passing month, as we think about the headline news on PAC-3 and THAAD and others.

But as we've talked about, we've got a number of our programs whether that be Sentinel or Trident or Aero or NGI or New Glenn, Vulcan that are all really early on in their life cycle. And so we see growth drivers in all 4 of our sectors at this point for years ahead.

Your next question comes from the line of John Godyn from Citigroup.

I was hoping maybe you could just give us, a, a little bit of additional color on how the deal came about, the -- maybe the prior history of the new companies and a little bit of context. It sounds like there was some history there. And I just think that would be helpful color.

And then a second question for Karman specifically. With the leverage at 3x at the end of this year, it feels like we're done with M&A for a bit. I don't know if that's accurate or not because at the same time, it seems like there may be a pipeline or a rich environment out there? Maybe you could just kind of help us think about where M&A goes from here after this fantastic deal that you have.

Yes. I appreciate that, John. And again, we're extremely excited about this particular deal. And I would tell you that as you look at our acquisition strategy, it has been consistent as we've reported it. We're looking for these smaller-in-nature, rich-IP, founder owner, second-generation off-the-grid opportunities. And as we've described before, we have a nice pipeline of opportunities at various levels of maturity.

Some of these conversations, this one, case in point, go on for years until both parties feel it's the right time. Our Board is active in securing these opportunities. All of the members of the management team as we're out and about in the various markets that we serve. We're starting to get more inbound inquiries about people who are excited about the story and want to be part of it. And so we've got a good process in place, a great playbook for integration after acquisition.

This one is slightly larger than the others we've done, but makes a ton of sense for a number of reasons that we can continue to talk about. And I wouldn't project in terms of how many moving forward. We have said historically, 1 to 2 a year. We're a little ahead of that pace, if you will. And we've got a number of ways from equity to debt that would allow us plus cash flow to allow us to continue to move forward with acquisitions. Organic growth, strong, 25%. Inorganic, part of our story moving forward.

John, in terms of leverage, we expect this year to be a great year in terms of EBITDA growth. We talked about cash flow conversion is going to be very strong as well. We should be exiting '26 back at very close to 3x levered on adjusted EBITDA.

Your next question comes from the line of Michael Ciarmoli from Truist Securities.

Congrats. I guess, Tony, can you give us a sense -- or I don't know who wants to take this one, but of the major programs or the revenue composition of Seemann, were there -- are there any 10% programs? I mean you called out some of the submarine platforms.

And then maybe just a sense of their growth trajectory. I mean, obviously, you said word legacy Karman, but you guys were in the rapidly growing missile, rocket launch. I mean do you expect the Seemann growth profile to kind of mirror that same shape you guys have had and expect to continue to have?

This is Tony. But let me turn it to Sid for just a moment, Sid, to describe the programs that you have been involved in.

I would say before you begin that as we now look at the customer distribution and importantly, the program distribution, we continue to have no program more than at this point, 8% of our total revenue. So a significant solid diversification of our revenue base over a number of programs.

Sid, the highlights for Seemann?

Great. So -- our -- we have work going on across many programs, primarily in the submarine world, Virginia-class submarine, Columbia-class, Seawolf, SSBN, SSGN and a lot of developmental work going on in the SSN(X), Next-Generation Attack Submarine.

We've got a lot of production work going on here and some other work for second-source vendors and some new work involving polymers. Our polymer group applications are seeing significant expansion including propulsors, hull coatings, sensors and missile applications. So there's a lot of existing work and a lot of new work coming on and some that is in the middle of development right now with near-term transition to production.

I love that answer. Let me just add to it a bit. Because what we like about Seemann and MSC is not just the programs they're on, but the capability that they bring us. We have become the go-to person for material sciences, both on the metallic side, with acquisitions of MTI and others, but also on the composite side. You know that we bought MG Resin some time ago. We've been synthesizing our own resin system. And what MSC brings us is vastly more capability in that regard, in-sourcing of the fabric and the fiber and various different methods.

Think about composites. We use that term a lot. But a quick example, a solid rocket motor nozzle and submarine bow dome, both use composites, but they're very different in terms of the characteristics, of course, that are necessary to allow something to survive at 3,000 degrees F and something that needs to survive in deep sea and acoustically no distortion.

So both composites, but universes away in terms of the science that goes into them. So that will serve us well on all applications as we move forward beyond the programs that Seemann brings us today.

I might add a point. With MG Resin's, we certainly are really excited to collaborate with Seemann on accelerating that. And Tony was hinting on it there, but direct application of -- it's a high-temperature resin system to materials associated with solid rocket motor nozzles. So that will provide alternate and address some of the supply chain constraints at the material level there. And then it has applications to hypersonics. So really excited to collaborate with the teams and accelerate MG Resin development and production.

That was Jonathan Beaudoin, our COO. Thanks, Jonathan.

I may have missed this. Just Mike, one quick one. Do you plan on breaking out the Seemann revenue as a separate market channel in kind of the revenue mix? Or are you going to fold it into the other segment somehow?

We will now have a fourth end market. So that will be our maritime end market that we're going to be reporting out on. It won't be as clean as that market being entirely Seemann. There are -- we've talked about a torpedo recovery system in the past, which obviously would be a great home for it to be in this new end market. There are a couple of other end products that Seemann/MSC delivers that fit into our existing end markets.

So the good news is we will have a fourth end market and being a truly all-domain provider now for some of the nation's most critical programs.

Your next question comes from the line of Amit Daryanani from Evercore ISI.

I guess maybe just to ask you on the Seemann side, one of the big focus areas, I think, for the U.S. Navy has been to really rebuilding the undersea fleet. So can you talk about how do you think about the growth opportunity across upgrading the aging fleet versus perhaps what you have in terms of deploying your next-gen unmanned submarines, et cetera? I'd love to just understand kind of where do you folks play? How big are these growth opportunities for you?

And then, I guess, maybe from a margin perspective, our understanding at least is that Seemann is running maybe in the mid-20% EBITDA margins. How do you get that to kind of Karman-like levels? And what are the levers you need to pull to get there?

I can start on that. Amit, good to hear from you. One, a number of growth drivers. One, as you well know, the Department of War is prioritizing the reestablishment of the submarine fleet and trying to move the entire industry base to more output per year in terms of the number of vessels. And so we will enjoy that growth.

They are working as well, and it is obviously, as we think about unmanned as forever part of the battlefield, wherever that domain is contested but certainly unmanned and counter-unmanned undersea and surface vehicles is a growth trajectory for us as well as was already the UAV, counter-UAV markets that we currently play in. And so we see all of that having an underlying strong growth trajectory.

And as we think about margins, as Mike indicated, we're still above 30%. There is a slight pullback given Seemann has slightly less than those. But as Sid said in his prepared remarks, we're early on in those. Many of those are cost plus. The majority of their contracts are at this point. As we move to firm fixed with operating efficiency and other improvements, we can get margins consistent with Karman has been and continue to move margins forward as we've talked about over the last year.

Perfect. Maybe to follow up on this. Could you just talk about your 25% organic growth assumption for '26. What are you sort of underlying assuming from a defense budget perspective? What's your sort of assumption of what the growth rate looks like? There's been talk of that number potentially being 50% higher in '26. So clearly, that's the case of the upside.

But I would love to understand, what are you kind of embedding as an underlying assumption of budget growth in '26 for your organic growth as you go forward?

I want to make sure I understand the question. You're saying, what is our underlying assumption relative to the Department of War budget?

Yes, essentially what it is.

Yes. Again, still some uncertainty in that regard being worked out on a weekly basis, as you well know. But the signals are strong on the items that we've been talking about. The components of Golden Dome, of which we have a hand in many, the replenishment of the tactical missiles for us and our allies, all very strong demand drivers.

The government being very flexible in terms of starting and think about long-term contracts, 7-year contracts for PAC-3 and others.

And then I listed some earlier in really every domain, including space where launch cadence will be increasing. And so it's not just Department of War-related and government funding, but there is also commercial applications there and funding that will seed our growth. And so at this point, we're signaling to a 25% year-over-year organic growth.

Your next question comes from the line of Jan Engelbrecht from Baird.

I'm on for Peter Arment today. The first question, I just wanted to get your latest thoughts just given all the news we have on the solid rocket motor industry with sort of the direct investment by the DOW. You've got sort of tripling, quadrupling of output for very large platforms. So how are you thinking for Karman sort of the next 3 to 5 years in terms of the pricing environment, the capacity that you have across your facilities? Just curious how you're thinking about that.

I appreciate the question. Certainly, an area that is going to be part of our growth story moving forward has been. We've invested, as we've talked before, for the last 5 years, we've been investing in this platform and the various components of it. We'll continue to invest.

You saw smaller than some of the headlines, both matching government funds to help us increase our capacities, specifically in nozzles and not ready to talk about it, but we have other plans in place moving forward that will make certain that we keep pace with the demand signals that are really solidifying. We're in discussions weekly with our customers about what do they need and when do they need it. And as we think about year-over-year increases, we'll be ready to support those.

Perfect. Thanks and very helpful. And then a quick follow-up, maybe to Sid or the entire team. Just -- if we think about sort of UUVs and USVs, just sort of these new upstart companies that are doing some next-generation platforms, just how should we think about sort of that industry evolving, given that it's sort of nontraditional companies that are leading a lot of the new awards that you're seeing.

Just curious how you're thinking about sort of the developments, getting these prototypes at the door and then scaling up production because it does seem like the Navy obviously wants to move to more unmanned platforms for the long term.

I think for all of those, we've talked about part of the beauty of our model as a merchant supply is we serve those who have been in business for decades and those that are still coming to the market. And we can -- our promise is, if you partner with us, we can help you go faster to achieve your mission, and we've demonstrated that with many of the new players.

So over 80 customers, that number may be approaching 90 at this point on a number of platforms. And so we love the new entrants. We have all the capabilities necessary to help them be successful. And we look -- we don't pick the winners and the losers. We just look forward to partnering with them all.

Your next question comes from the line of Noah Levitz from William Blair.

Congrats on the acquisition. To start off, if we could harp down on this, for 2026, can you talk a little bit about how your growth varies by your 3, I guess, now 4 end markets? And then to follow up on that, you've in the past given initial visibility related to your backlog. I was just wondering if you had any color there as well.

Yes. So I would say that we look forward to talking to you guys all again in a few weeks. Today's meeting was really to introduce and make sure everyone understood how excited we are about this acquisition and how it will continue to drive our growth.

All 4 of our markets, as we will describe them moving forward, are seeing significant growth patterns. There isn't one that dominates and I wouldn't say they're exactly equal. But as we look at this year's revenue, there is a fair balance among the now 4 legs of the stool.

And in terms of visibility, we've guided you in the past, but we feel very comfortable with where we are relative to the 2026 guidance. And we'll talk more specifically about that when we meet again.

Great. And then just another quick follow-up. I think something unique for Karman is that the majority of your revenue maybe 100% or so is based in the U.S. for the DOW. Is that the same dynamic for Seemann and MSC? And what kind of opportunity do you see down the road for supporting international allies as they ramp up their defense spending?

Appreciate the question. Yes, it's true that all of our customers are in the U.S. But as we've talked before on the missile defense and other sectors, foreign military sales is clearly part of the pull from our customers. We don't have visibility to that. We know that it as well as strengthening. We've made some initial and had initial discussions and have a preliminary pipeline, thinking about direct to outside of U.S., but that is not part of the visibility that we're demonstrating today and the growth. It's an opportunity, but one that is really early on in terms of our beginning to conquest that.

And for Seemann Composites and MSC, we are all U.S.-based customers as well. And as Tony mentioned, there are obviously a lot of opportunities, especially coming up around AUKUS. And we've actually had some contacts with Australia and with the U.K. regarding AUKUS. So I think there's opportunities coming down the pipeline for that. Those are a few years out at this point, but they're certainly there. And our sustain -- our portion of that most immediately will be a sustainment for Virginia class.

And that concludes our question-and-answer session. I will now turn the call back over to Steven Gitlin for closing remarks.

Thanks, Rob, and thank you all for joining us today and for your interest in Karman. A recording of this call, all SEC filings and relevant company and industry news can be found on our website, karman-sd.com. We look forward to speaking with you again soon for our fourth quarter fiscal year 2025 results. Have a good day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by, and welcome to the Karman Space & Defense Third Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the call over to Steven Gitlin, Vice President of Investor Relations. You may begin.

Good afternoon, and thank you for joining Karman Space and Defense's Third Quarter Fiscal Year 2025 Earnings Conference Call. I'm Steven Gitlin, Vice President of Investor Relations, and I'm pleased to welcome you today. Joining me on today's call are Tony Koblinski, 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, certain information presented contains forward-looking statements. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements and may contain words such as believe, anticipate, expect, estimate, intend, project, plan or words or phrases with similar meaning. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control that may cause our business strategy or actual results to differ materially from the forward-looking statements. All forward-looking statements should be considered in conjunction with the forward-looking statements in our earnings release. Future company updates will be available via press releases.

For further information on these risks, we encourage you to review the risk factors discussed in Karman's periodic reports on Form 10-K and Form 10-Q filed with the SEC and the Form 8-K filed today with the SEC, along with the associated earnings release and the safe harbor statement contained therein. This afternoon, we also filed our earnings release and posted an earnings presentation to our website at karman-sd.com in the News and Events section. The content of this conference call contains time-sensitive information that is accurate only as of today, November 6, 2025. 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 the events or circumstances occurring after this conference call.

I'd also like to note that, unless otherwise stated, all numbers we will be discussing today are GAAP. Our press release contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measure.

Now I would like to turn the call over to Tony.

Thank you, Steve. Good afternoon, everyone. On today's call, I will provide an overview of our third quarter highlights. Then Mike Willis will provide a detailed review of our financial performance and capital allocation priorities. Jonathan Beaudoin will then discuss market dynamics and our operational achievements. Following their remarks, I'll return to share a strategic outlook and guidance before opening the call for your questions.

Our team delivered another quarter of record performance across our business through their strong execution, continuing our momentum since our February IPO. As shown on Slide 4 of our earnings presentation, here are the key highlights. We posted record quarterly revenue of $122 million, driven by growth across all 3 of our end markets. We produced record gross profit of $50 million. Adjusted EBITDA rose to $38 million, another new quarterly Karman record, and funded backlog continued to grow, reaching an all-time high of $758 million, providing 100% visibility to the midpoint of our full year revenue guidance range and a strong foundation for 2026.

During the quarter, we also completed a $1.2 billion nondilutive secondary equity offering that generated significant market demand and resulted in the effective exit of our private equity sponsor as an owner of Karman shares. Shortly after quarter end, we increased our credit facility, providing the resources to acquire 5 access industries and pay off our revolver.

Summarized on Slide 5, Five Axis is another strategic tuck-in acquisition that expands our capabilities with IP rich content for the commercial space industry. The Arlington Washington-based company is specialized provider of critical systems, including large nozzles for liquid-fueled rocket engines. Their core focus is on high-performance exotic alloys such as titanium and canal and high-temperature high-strength copper alloys. Five Axis supports high priority space launch programs on a single-source basis with its highly skilled team and state-of-the-art facility. We are delighted to welcome the Five Axis team to Karman.

Now let's turn to our end markets where the demand environment remains very strong. Our customers and their end customers continue to communicate their expectations for significant volume increases in programs we support. One measure of that demand is the fact that we now support more than 80 customers on more than 130 programs. The drivers include increased replenishment activity the Golden Dome for America, hypersonic developments, unmanned and counter unmanned systems and an increasing space launch cadence for both defense and commercial missions.

Given our continued strong performance, driven by accelerated progress on current programs and the Five Axis acquisition, we are again raising our 2025 guidance. This time by $7 million at the midpoint for revenue and $2.5 million for adjusted EBITDA.

With that overview, I'll turn the call over to Mike for our financial review.

Thank you, Tony. Good afternoon, everyone. Q3 was another strong quarter that demonstrated the effectiveness of our business model and our team. Shown on Slide 6, highlights include revenue of $122 million, representing a 42% increase compared to the third quarter of fiscal year '24. Gross profit grew 48% to $50 million, maintaining gross profit margin at 41%. Net income rose 78% to $8 million. Adjusted EBITDA jumped to $38 million, a 34% year-over-year increase. Adjusted EPS more than doubled to $0.10 per diluted share from $0.04. And funded backlog grew 38% year-over-year and 31% since December 31, 2024.

Growth remained broad-based across all 3 of our end markets, shown on Slide 7. Hypersonics and strategic missile defense revenue grew 36% year-over-year to $37 million, driven by order growth in Prism, Standard Missile 3 and 6 and development programs. Space and launch jumped 47% to $41 million, driven by the timing of orders from both legacy and emerging launch providers. In Tactical Missiles and Integrated Defense Systems were up 42% to $44 million, driven by increasing production rates for GMLRS, AIM-9X and UAS programs. End market mix was balanced with our 2 defense-driven end markets, representing 2/3 of quarterly revenue. Space and launch represented 33% of quarterly revenue, hypersonics and SMD, 30% and tactical missiles and IDS 37%.

Turning to the balance sheet. We continue to prioritize growth as we consider capital allocation decisions. We ended the quarter with $19 million in cash and equivalents, up $7 million from year-end '24. In late October, we upsized our term loan B by $130 million to a total of $505 million to support the acquisition of Five Axis and to pay off our revolver. This results in a net leverage ratio of approximately 3x adjusted EBITDA on a pro forma basis, a ratio well within our comfort level. Looking ahead, we now expect a statutory tax rate for fiscal year '25 of 25.5% and expect CapEx to be approximately 4.5% of the midpoint of our revised revenue guidance range.

With that, I'll turn the call over to Jonathan for an overview of our market position and operational highlights.

Thank you, Mike. Customer demand signals across our end markets have grown stronger since last quarter. National security priorities continue to drive increased interest and funding for critical programs while the commercial space market remains very active. For example, in the third quarter, we saw several large new contract announcements from the U.S. Army for systems we support, including those highlighted on Slide 8.

$4.2 billion for GMLRS production, $9.8 billion for PAC-3 missiles known as Patriot, and $5 billion for Coyote Missile Systems. These contract awards demonstrate increasing customer pull for proven solutions that we have been supporting with qualified content for years. This pool is aligned with the demand signals we continue to receive and with the priorities detailed in the Big Beautiful Bill and proposed defense funding, which are summarized on Slide 9.

This demand is evident in our strong and growing funded backlog. Golden Dome remains an important driver of demand beyond 2025. We believe that Karman will benefit in several ways from this transformational initiative. First, through increased demand for existing missile defense programs that we support; second, from an acceleration in the development of new solutions such as hypersonic missiles and space-based interceptors. And third, through increased space launch cadence to develop the space layer of the solution.

The federal government shutdown has not impacted our 2025 guidance which is based on our record funded backlog and associated shipping and invoicing schedules. That backlog provides us with full visibility to the midpoint of the increased guidance that Tony will detail shortly. We have seen some solicitations extended some meetings shift to the right, but no direct impact to our programs. With respect to federal government procurement, we support initiatives intended to streamline and improve the defense procurement process. Any and all initiatives designed to speed deployment of critical capabilities to the Warfighter are perfectly aligned with Karman's focus on innovation, speed, efficiency and scale. We are very comfortable operating in a competitive environment, working with fixed price contracts and investing strategically in CapEx and IRAD.

For example, we developed our rapid integration payload launcher, or Ripple Pod, which permits the rapid integration and deployment of the latest air launch effects from Karman's common launch to. It's adaptable to various payloads providing agility and deployment speed for our customers. This is only one example of how we apply internal investment to develop new capabilities for our customers.

Turning now to our operations. We remain focused on expanding capacity, capability and productivity. In the third quarter, we continued to expand capacity and increase productivity with new capabilities for testing, manufacturing and advanced inspection. One example is the investment we are making in our Albany, Oregon facility that will double our forging capacity for specialty payload production. These investments increase throughput, enhance quality and give us the ability to scale our business further. Our integration of MTI and ISP continues on schedule for completion in mid-2026, as we now begin the integration process with 5 axis.

Finally, last month, our commitment to supporting our customers was acknowledged by ULA, which named us the Enterprise Operations Supplier of the Year for 2025. And ULA recognized Karman among their hundreds of suppliers for our outstanding support of their reuse development program, our efforts to improve quality and cost and our proactive problem solving. We are proud to support ULA and all our customers.

Now I'll turn the call back to Tony.

Thank you, Jonathan. Our business strategy as a merchant supplier to nearly all prime contractors in the U.S. space and defense market remains tightly aligned with our growing market opportunities. Our Five Axis acquisition broadens our capabilities further while expanding our capacity to support our customers' increasing demand.

Karman is the result of the combination of scarce IP-rich assets in the space and defense markets. Our capabilities are unique and growing stronger as we identify and acquire new assets. The competitive moat we have built is only growing deeper and wider through our thoughtful, deliberate M&A process. Our M&A pipeline remains healthy, with a number of potentially accretive assets that we believe would create more value by being part of Karman. The combined capabilities of these acquisitions, along with our existing expertise, position us extremely well to address the growing demand for advanced space systems, hypersonics, strategic missile defense, UAS and counter UAS solutions.

As Jonathan described, demand signals from the Pentagon and from our customers continue to indicate significant multiyear growth opportunities ahead. Recent reports indicate that the Pentagon is seeking to double and even quadruple missile production. The missile systems cited include FAD, Standard Missile 6 and 3, PRISM, AIM-9X and GMLRS. All systems come in supports with qualified content. The demand environment for Karman looks extremely healthy for the foreseeable future.

Let me now turn to our outlook and financial guidance for the remainder of fiscal year 2025 summarized on Slide 10. Based on our strong performance in the first 3 quarters of the year, the integration of MTI and ISP, the acquisition of Five Axis and the continued momentum across our end markets as reflected by our growing funded backlog, we are again raising and narrowing our full year guidance. We now expect full year revenue of $461 million to $463 million, up $7 million to the midpoint, and non-GAAP adjusted EBITDA of $142 million to $143 million up $2.5 million to the midpoint. This increased guidance represents 34% year-over-year revenue and adjusted EBITDA growth. This guidance reflects 100% visibility to the midpoint of our increased revenue guidance range.

Now looking beyond 2025, our funded backlog for 2026 continues to grow helping us define the contours of what we believe will be another year of strong growth. For our preliminary view of 2026, we anticipate achieving annual growth consistent with our recent revenue CAGR of 20% to 25%, excluding the impact of any future acquisitions. We're mindful of the added uncertainty introduced by the federal government shutdown, the timing of the 2026 Defense funding and Golden Done orders as we work to finalize our detailed 2026 guidance and share it with you in our fourth quarter earnings call in March.

Our differentiated capabilities, strong backlog, growing pipeline and proven ability to execute reinforce our confidence in the long-term growth algorithm of consistent organic growth supplemented by strategic accretive acquisitions.

I want to thank our employees, customers and shareholders for your continued support. And I'd like to remind you that we think of Karman as a new kinase space and defense company, one that is engineered for performance and growth by helping to enable the next-generation space economy and enhance national security.

Now let's open up the call for questions.

[Operator Instructions] Your first question today comes from the line of Peter Arment from Baird.

And maybe I'll just go to Mike. On the third quarter, could you give us what the organic growth was for the quarter? And then Tony, just on 2026, as my follow-up, just how you're thinking about organic growth as kind of a baseline assumption. I know there's a lot of moving parts, but you've done 3 deals since you've come public. Just how you're thinking about that CAGR.

So we talked about in the past about with organic versus inorganic, they quickly get tangled up in the sense from a business development and integration into Karman between cross-selling engineers that are working on multiple facets across businesses, which really blurs the line of what you would call organic. And so that's one of the reasons why we don't put a specific number on it, not to add any confusion just because things quickly become organic. I think what I might direct you towards though, is of that growth I mean significant -- the vast majority of it is from organic. The businesses that we acquired early this year are smaller in nature.

And again, Peter, as we think about next year, we're simply guiding that with the assets that we currently have under Kerman at this point, that we would anticipate, again, consistent growth of 20% to 25%. We're leading this year, of course, to a 34% revenue and earnings. But this is a preliminary view, but wanted to at least give you some look at how we're thinking about '26 early on.

Your next question comes from the line of Amit Daryanani from Evercore ISI.

I have two as well. I guess maybe just to start with -- and Tony, I get it's a preliminary guide that you folks have of 20% to 25%, but it does imply some moderation from what you saw in '25. So maybe just talk a little bit about what are the assumptions that are underpinning the growth of 20% to 25%? And how much coverage do you think you already have from the $758 million of backlog for '26?

Yes. Again, we view this as a preliminary number. Again, it is our intent to continue to build confidence as we're still relatively new in the market. The backlog that we've talked about of $758 million is strong but multiyear. But as we think about a rule of thumb that we have been comfortable with of having 75% plus of the future year booked by the beginning of the year, we are well on path for that. Quite comfortable with the backlog and how we'll start the year relative to benchmarks that have held true for us.

Got it. And then maybe if I just ask you from a backlog perspective, again, are you seeing any program level concentration on your backlog? Or is the backlog much more distributed and balanced out versus the revenue run rate is?

Yes. I would say that it is consistent, the backlog with the revenue that we're achieving. All 3 of our end markets continue to grow we have advertised before and continue to view no single program making up. I think we're at 11% as we look forward, probably under 10% concentration on our single biggest program. And so again, a consistent and well-balanced backlog and future pipeline.

Your next question comes from the line of Ken Herbert from RBC Capital Markets.

I wanted to first ask, there's been some chatter in the marketplace about some of your customers looking to maybe dual source some of your offerings just as a way of supporting a greater revenue ramp across missiles and other programs. Are you seeing that? And is that at all factoring into maybe any of the maybe slightly more conservative outlook in '26.

No. It would not be at this point. We are not aware of any dual source effort on products beyond what already exists on products that we supply. Again, we don't give our customers a reason to switch. I know there is, as talked about tomorrow at the Pentagon, this notion of to field on new programs, but we believe that there is ample demand on the existing platforms and no effort that we're aware of to displace us as a primary provider of the systems that we currently produce.

Great. And if I could, on Gold and Dome, you called out 3 specific areas where you expect to potentially benefit, are you seeing or have you bid or seeing RFPs yet on any of these areas that are specific to Golden Dome or what's your view on how this program could potentially impact you from a timing standpoint?

Yes. On the existing assets that will be, in fact, part of Golden Dome, as we've talked about before, we are seeing increased demand signals. Now they don't come in labeled there's Golden Dome, of course, but the demand there is building. On the new content, the integration of the various pieces the space-based assets, face-based interceptors and other new, it's still too early. We are very much involved in meetings and industry days that are occurring, but no hard RFQs. Request for proposals that we're participating in, and we would see that over the balance of this quarter and probably through the entire first quarter before there's real clarity as to what is the new and how will we participate?

I would just add, as part of that -- those discussions, we are leaning into that from a facilitization standpoint, making sure that we will be ready to meet that demand when the POs start to arrive.

[Operator Instructions] Your next question comes from the line of Louie DiPalma from William Blair.

Congrats on another quarter of exceptional results. How would -- Tony, how would you assess the M&A pipeline? Since you've been public, you've been able to make several deals that have been accretive to your EBITDA. But going forward, is it becoming harder to find deals that would enhance your EBITDA given how high it is relative to the rest of the industry?

I appreciate the comments. And I would say the answer is no. We've run the place several times now. It's well worn, and we know how to do it. There is a pipeline as we've referred to before of conversations at various maturity levels, we're a little ahead of the pace that we advertised with 3 in the last 12 months, but I don't expect that there will be more. We are not seeing an appreciable difference in terms of the valuations in the deals that we're seeking, right, which are those that are off the radar a bit and not within an auction. And so we continue to be approached by folks that want to be part of the Karman story moving forward and we think there are more of those ahead.

Great. And another question, if NASA were to implement any major changes to the ARTEMIS program, would that impact you? And in general, what are you assuming for the Artemis program.

So as we've talked prior, we have taken out any forecast relative to the space launch system. But in terms of the Artemis program, the Orion capsule other exploratory programs that fit within Artemis, there is volume and content for us there. Lunar lander is part of the Clips program. We are getting orders relative to Orion and other related, and so we think that we've got some solid demand coming forward, but already for more. And as you think of the space market, I was just reflecting on it today, of course, Falcon 9 launch today, ULA Atlas 5 later today, Blue Origin on Sunday, ROCCAT lab within about 10 days. I mean, the launch cadence and the steadiness of various providers with different mission sets, it is impressive, and we look forward to supporting it all.

Your next question comes from the line of Alexandra Mantri from Truist Securities.

This is Alexandra Mantri on for Michael from Truist Securities. So I was wondering if you can provide margin guidance for 2026. And should we think about EBITDA margin expansion and what range could we expect?

In terms of EBITDA and margin expansions, we've often talked about a target of 50 bps a year that we will gain from operating leverage as we continue to grow. So while we're not necessarily putting out formal guidance, we continue to think that we would capture 50 bps a year going forward on that growth.

Okay. Great. And then additionally, are you seeing any impact of the government shutdown on bookings? And any impact on 1Q '26?

Again, it depends on how long it goes. Glad to hear there's some discussion. Right now, no impact to '25. As Jonathan indicated in his earlier comments. Meetings are being pushed to the right, some solicitations are being delayed, but no impact to either '25 or '26 in our view as of now.

And that concludes our question-and-answer session. I will now turn the call back over to Steven Gitlin for closing remarks.

Thank you, Rob, 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, www.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 conference call. Thank you for your participation. You may now disconnect.