Elmet Group Q2 2026 Earnings Report

Elmet Group EPS Results

• Actual EPS: $0.18
• Consensus EPS: -$0.20
• Beat/Miss: Beat by +$0.38
• One Year Ago EPS: N/A

Elmet Group Revenue Results

• Actual Revenue: $66.40 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: +35.20%

Elmet Group Announcement Details

• Quarter: Q2 2026
• Date: 8/13/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, August 13, 2026
• Conference Call Time: 9:00AM ET

Elmet Group (NASDAQ:ELMT), Inc. is a special purpose acquisition company (SPAC) formed to pursue a business combination with one or more privately held businesses. Rather than operating a traditional commercial enterprise, the company’s primary objective is to identify a target and complete a merger, share exchange, asset acquisition, share purchase, reorganization or similar transaction.

Until a business combination is completed, Elmet Group does not have an established portfolio of products or services, and its activities are generally limited to evaluating potential acquisition candidates, conducting due diligence and managing the transaction process. The company may seek to combine with a business in a particular industry or geographic market, but reliable public information identifying a specific target or operating focus is limited.

Because Elmet Group is a newly formed acquisition vehicle, there is limited historical operating information available. Additional details about its long-term business activities, markets served and management structure are expected to become clearer if and when it announces and completes a business combination.

Elmet Group Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong Q2 financial performance: Revenue rose 35.2% year over year to $66.4 million, gross margin expanded to 25.0% from 20.7%, and adjusted EBITDA increased 57.2% to $8.9 million, supported by CMC productivity gains and favorable tungsten pricing.
• Positive Sentiment: Record backlog and defense momentum: Firm backlog reached $131.5 million, up 55% year over year, with aerospace, defense and government backlog increasing 100.5% on programs including Precision Strike Missile, Standard Missile and Patriot.
• Positive Sentiment: Elmet secured $4.3 million in strategic funding to expand domestic molybdenum-based manufacturing and refractory-metal capacity for defense interceptor programs, while management expects additional opportunities from rising defense spending and U.S. reshoring.
• Neutral Sentiment: The company increased its ownership stake in tungsten producer EQ Resources and sources more than 95% of tungsten and molybdenum outside China, positioning it to mitigate export-control disruptions; however, raw-material prices and tariffs remain volatile.
• Negative Sentiment: GAAP net loss was $4.5 million, or $0.16 per share, versus net income of $1.2 million a year earlier, largely due to $14.2 million of stock-based compensation and IPO-related expenses. EMP margins also weakened because of factory execution issues and faster-than-expected material-cost increases, with improvement expected to take time.

Presentation

[Operator]

Good morning. Welcome to The Elmet Group Company second quarter 2026 earnings conference call. Joining us for today's presentation are the company's Chairman and CEO, Peter V. Anania, and CFO, Mike Lee. At this time, all participants are in listen only mode. Following management's remarks, we will open the call for questions. I would like to remind everyone that this call will be recorded and made available for replay via a link available in the investor relations section of the company's website at investors.theelmetgroup.com. Before I turn the call over to Elmet's Chairman and CEO, the company would like to remind all participants that statements made by management during the course of this conference call that are not historical facts are considered to be forward-looking statements within the meaning of the U.S. securities laws, including the Private Securities Litigation Reform Act of 1995.

[Operator]

These statements are predictions, projections, or other statements about future events and are based on current expectations and assumptions that are subject to risks and uncertainties, including those risks identified in the Risk Factors section of the company's registration statement on Form S-1 and in its other reports and filings with the Securities and Exchange Commission. Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's belief only as of the date hereof. The company expressly disclaims any duty to update or correct any forward-looking statement. Further, management's remarks today will include certain non-GAAP financial measures. These measures are calculated by management and do not have any standardized meanings under the U.S. GAAP. These non-GAAP measures supplement GAAP measures, but should not be viewed as substitutes for GAAP measures.

[Operator]

Reconciliation of the most directly comparable GAAP financial measures to these non-GAAP financial measures is available in the company's quarterly report on Form 10-Q and in its earnings press release. I will now turn the call over to Elmet's Chairman and CEO, Peter V. Anania, for his comments. Sir, please proceed.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

Welcome. Thank you. Welcome everyone, and thank you for joining us for The Elmet Group's second earnings call as a public company. Since we are still news to many people following our story, I'll begin my remarks with a brief overview of who we are and what we do before discussing updates from our strong second quarter. The Elmet Group brings together a rare set of strengths with the mission to secure U.S. critical material supply chain. Today, we are the sole U.S.-based provider of certain precision engineered refractory metal components and some high-power microwave systems, serving the U.S. government and top blue chip customers across key end markets such as aerospace and defense, or AD&G, as well as industrial, medical, semiconductor, and electronics, and energy.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

We operate through two divisions, the Critical Materials Components, or CMC, a vertically integrated manufacturer of critical materials specializing in tungsten and molybdenum products, from powders to machine goods, to fine wires. Engineered Microwave Products, or EMP, a manufacturer of microwave systems and high-power components for military and demanding industrial applications. In terms of how we are positioned competitively in the market, we believe our long-term outlook is supported by several key advantages. First, macro tailwinds from defense fortification and U.S. reshoring, and the overall focus on U.S. material independence continue to drive backlog and future growth. Second, as mentioned a moment ago, we have a sole U.S.-based supplier of certain highly engineered critical materials components, making us a critical supplier for key end markets and customers.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

Third, our vertically integrated operations, supported by a dedicated engineering team, allow us to maintain strong control throughout the engineering to production process, from material processing all the way to final machining. Fourth, our difficult to replicate asset base, paired with our specialized production capabilities, has created a naturally high barrier to entry, which took decades to develop. Finally, our team has a proven track record of driving organic growth in the business while also integrating synergistic acquisitions, helping drive sustainable long-term growth. Excuse me. With that overview complete, I will now briefly discuss some updates from the quarter before handing the call over to our CFO, Mike Lee, for a review of our financial results in greater detail. In the second quarter, we built on our existing momentum and delivered strong results highlighted by our acceleration in revenue growth and profitability with a record backlog.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

More specifically, revenues growth increased 35% year-over-year to $66.4 million. Gross profit expanded by 430 basis points, leading to 57.9 growth in adjusted EBITDA. Our open order backlog now stands at $131.5 million, up 55% from this time last year. Our performance was driven by a healthy combination of strong operational execution, skillful navigation of dynamic metals pricing market, and ongoing returns from our strategic focus on servicing the broader AD&G landscape, all of which we expect to drive continued demand through the balance of the year. Outside of our own execution, the largest factor impacting our results this year has been the significant and persistent rise in prices for global tungsten and molybdenum markets, which have been exasperated by export controls on critical materials.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

The prices of critical materials like tungsten have dramatically increased over the last year, which is further complicated by fluctuating and often steep tariffs on those same critical materials. While these dynamics create challenges, they also create opportunities that we have navigated to date through a combination of foresight and strategic agility. For over a decade, we have sourced more than 95% of our tungsten and molybdenum from outside of China, which largely shields us from export control-related supply chain disruptions. Additionally, our strategic tungsten sourcing agreements have kept us highly protected from material input pricing changes. This positioning enables us to capture the benefits of the sharp increase in tungsten prices during Q1, which drove a portion of the increase in Q2 backlog.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

Relatedly, to further support our commitment to securing sustainable and resilient supply chain for critical raw materials, in June, we announced our increased ownership stake in EQ Resources as part of our strategic collaboration and long-term offtake contract. Over the last two years, we have witnessed an increased focus on the critical material supply chain, particularly in defense applications, which is why we sought out this strategic collaboration with one of the fastest-growing Western tungsten mining groups. We look forward to continuing our strategic collaboration, as well as exploring additional opportunistic investments to bolster our long-term competitive positioning. We believe today's environment presents a significant opportunity to grow our business and differentiate ourselves, thanks to our positioning. To that end, we are investing in growth to support the accelerated demand we are seeing.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

Our increases in both staffing and third-party support to improve operations in our CMC factories have been significant, and we are already seeing favorable impacts on productivity across the CMC sites. Looking outward, there is bipartisan support for strengthening our domestic industrial base, and we are seeing the effects of current U.S. focus on replenishing stockpiles for the general increase in global defense spending. For example, in June, we announced, excuse me. In June, we announced we had secured strategic funding of $4.3 million to develop and advance domestic manufacturing capabilities for molybdenum-based products and refractory metal components utilizing critical defense programs. This contract award aims to bolster domestic manufacturing readiness to meet the projected long-term demand for refractory metal components, specifically molybdenum-based products used in modern defense interceptor programs.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

These funds will enable us to expand capacity and deploy advanced manufacturing technologies in support of our nation's critical defense initiatives, several of which depend on molybdenum-based components as a foundation. With the ongoing conflict in Ukraine as well as the in-process budget and appropriation cycle as a backdrop, we expect to see continued funding opportunities ahead. Importantly, while many AD&G programs operate on multi-year implementations, we are not an impediment to the process, and we typically produce multiple years of production in one year for such programs. Looking ahead, we believe we remain well-positioned to effectively meet today's and tomorrow's demand as we expand our role as a trusted supplier across mission-critical systems. Longer term, we expect the operating environment to remain highly favorable for Elmet, supported by our strategic position and the nexus of several mega trends that remain in the early stages of an investment super cycle.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

Now, I would like to turn the call over to our CFO, Mike Lee, to go over the results for the second quarter.

[Mike Lee, CFO at The Elmet Group]

Thank you, Peter, and good morning, everyone. We are pleased to present a strong Q2 performance for the fiscal year 2026. Before I begin, please note that all numbers I plan to discuss have been rounded for ease of presentation. Our full financial results for the quarter can be found in our quarterly report filed with the SEC this morning. Now let's get started. Revenue in Q2 increased 35.2% to $66.4 million, compared to $49.1 million in Q2 2025. Approximately 55% of the revenue growth is attributed to net demand increase across Aerospace, Defense & Government, industrial, medical, and semiconductor end markets, with the balance associated with tungsten and molybdenum raw material pricing impacts. Gross profit for Q2 2026 increased 63.7% to $16.6 million or 25% gross margin, compared to $10.1 million or 20.7% gross margin in Q2 2025.

[Mike Lee, CFO at The Elmet Group]

The increase was driven by our CMC division, as our strategic tungsten sourcing agreements enabled us to capture the benefits of the sharp increase in tungsten pricing during Q1 that began flowing through our P&L during the quarter. We also saw favorable impacts from productivity increases across our CMC sites, making a meaningful impact. Operating expenses for Q2 2026 increased 251.2% to $24.2 million, compared to $6.9 million in Q2 2025, or a net increase of $17.3 million. Within the quarter, we incurred approximately $14.2 million associated with equity-based compensation, compared to $0.4 million in Q2 2025. Of the $14.2 million, $12.9 million was associated with one-time vesting of awards associated with the completion of our IPO. We also saw increases in costs associated with our initial public offering, ongoing compliance, and expenses associated with growth.

[Mike Lee, CFO at The Elmet Group]

Turning to the balance sheet, cash at the end of Q2 2026 totaled $66.1 million compared to $1.8 million at the end of Q1 2026 and $1.8 million at the end of Q4 2025. The increase in cash is driven by proceeds from our April IPO, where we raised a net proceeds of $125.4 million, retired $17.5 million in term debt, and paid approximately $8.6 million for working capital and other corporate requirements. We also paid approximately $31.0 million on our revolving credit facility to optimize interest expense. At the end of Q2 2026, we had approximately $44.6 million in borrowing capacity on our revolving credit facilities, which, when combined with cash on hand, gave us approximately $110.7 million of cash availability for strategic investments.

[Mike Lee, CFO at The Elmet Group]

At the end of Q2 2026, we saw inventories grow to $102.4 million, up from $75.0 million in Q1 2026 and $67.1 million in Q2 2025. The increase is driven by our CMC division by a combination of tungsten and molybdenum raw material pricing increases, sourcing dynamics, and volume increases associated with growth. To supplement our financial statements presented in accordance with GAAP, we use certain non-GAAP financial measures, including adjusted net income, EBITDA, and adjusted EBITDA because we believe these metrics provide investors with additional meaningful methods to evaluate certain aspects of our results. We define adjusted net income as net income less stock-based compensation and one-time non-reoccurring costs such as tax impacts of a reorganization, discontinued operations, the costs associated with the IPO, certain acquisition and transaction costs, severance and restructuring costs, other non-reoccurring costs, and income tax benefit, assessed adjustments as applicable.

[Mike Lee, CFO at The Elmet Group]

Net loss for Q2 2026 was $4.5 million, or $0.16 per share, compared to net income of $1.2 million, or $0.06 per share in Q2 2025. Adjusted net income for Q2 2026 was $5.2 million, or $0.18 per share, compared to $2.8 million or $0.14 per share in Q2 2025. It's worth noting that the majority of the adjustments in Q2 2026 are associated with the equity compensation associated with our initial public offering. We define adjusted EBITDA as our net income plus interest expense, income taxes, depreciation, and amortization, and as applicable for each period, stock-based compensation expense and non-cash gains and losses on sale of assets. Adjusted EBITDA also excludes certain non-reoccurring costs, such as costs associated with the IPO, certain acquisition and transaction costs, severance and restructuring, and other non-reoccurring costs.

[Mike Lee, CFO at The Elmet Group]

Adjusted EBITDA for Q2 2026 increased 57.2% to $8.9 million, compared to $5.6 million in Q2 2025. The increase was driven by operational performance improvements within our CMC division. A full reconciliation between GAAP net income and adjusted net income and EBITDA and adjusted EBITDA can be found in our quarterly report and our earnings press release. As we've shared previously, our susceptibility to quarterly performance fluctuations driven by factors including timing of purchase orders, metals market pricing dynamics, and other drivers across our business, we believe it's prudent to examine our results over a longer time horizon. To that end, I will now review our results for the trailing 12 months for TTM. For clarity, the following comparisons will be made between the 12-month periods ending July 3, 2026, and April 3, 2026. Revenue increased 8.2% to $228.5 million compared to $211.3 million for the prior TTM period.

[Mike Lee, CFO at The Elmet Group]

Approximately 55% of revenue growth is attributed to demand increase across aerospace, defense, and government, industrial, medical, and semiconductor end markets, with balance associated with tungsten and molybdenum raw material pricing impacts. Gross profit increased 14.6% to $50.7 million, or 22.2% gross margin, compared to $44.3 million or 20.9% gross margin in the prior TTM period. The increase in gross profit and gross margin was driven by the aforementioned effects of our strategic tungsten sourcing and productivity gains within the CMC division. Operating expenses increased 52.2% to $50.8 million, compared to $33.3 million in the prior TTM period. The increase was primarily related to the equity compensation associated with the IPO, expenses associated with the ongoing public company compliance, and expenses associated with growth. Net loss was $1.7 million or $0.08 per share, compared to the net income of $4 million or $0.20 per share in the prior TTM.

[Mike Lee, CFO at The Elmet Group]

Adjusting for IPO-related operating expenses, equity compensation, and reorganization costs, our adjusted net income increased to $18.6 million or $0.84 per share, compared to $16.2 million or $0.81 per share in the prior TTM period. Adjusted EBITDA increased 11.3% to $31.8 million, compared to $28.6 million in the prior TTM period. I'd like to touch base on our backlog, where we've seen significant growth over the last year. Our firm order backlog grew to approximately $131.5 million at the end of Q2 2026, compared to approximately $113.3 million at the end of Q1 2026, and approximately $84.6 million at the end of Q2 2025.

[Mike Lee, CFO at The Elmet Group]

Our AD&G end market backlog was up 100.5% at the end of Q2 2026 compared to the end of Q2 2025, driven by a series of new and growing programs such as CERN, Precision Strike Missile, Standard Missile, and Patriot, along with a mix of commercial and defense-related aerospace and radar programs. We also attributed approximately $36.3 million of the $46.9 million of total backlog growth between Q2 2025 and Q2 2026 to tungsten product increases within AD&G market, driven by a mixture of price and volume. That concludes our prepared remarks, and I'd like to hand it back to our operator for Q&A.

[Operator]

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Colin Canfield with Cantor. Please proceed.

[Colin Canfield, Analyst at Cantor]

Hey, thanks for the question. Maybe starting out on munitions. We saw some pretty sizable missile defense interceptor awards to the defense primes, and it looks like that's probably not reflected in backlog yet. So maybe if you could characterize kind of how the quantity or the magnitude of those potential orders related to those specific orders, and then perhaps kind of the timing of when you think that might hit. Thank you.

[Mike Lee, CFO at The Elmet Group]

Thanks for the question, Colin. Yeah, you're correct. We really haven't seen a significant amount of those larger multi-years. The primes are being awarded flow down to us yet. We've definitely seen some RFQ activity, and we've seen a couple modest, I would consider, sweep funding type orders where certain programs had residual funding, and they came in for either some spares orders or they could do a few years based on residual funding. Nothing from the new appropriation cycle is really in our backlog at this point in time of significance.

[Colin Canfield, Analyst at Cantor]

That's great. Then maybe following up on the orbital compute discussion from last quarter, if you could kind of talk through kind of where initial discussions are at with SpaceX and how you think about U.S. domestic supply chain requirements for orbital compute satellites versus international sourcing. Thank you.

[Mike Lee, CFO at The Elmet Group]

Well, we're not presently have orders from SpaceX. We do have from other satellite companies that we just bought a new line, roughly spent $3 million in CapEx to stand it up, and that is just starting to produce. We see that that is going to continue to be an area that we want to increase. That's on the CMC side. On the EMP side, we are seeing an increase in drone defense activities, and now that is expanding into satellite areas where we are providing a similar product to help defense against drones from space.

[Colin Canfield, Analyst at Cantor]

Got it. Thank you for the color.

[Mike Lee, CFO at The Elmet Group]

Sure.

[Operator]

The next question comes from the line of Jim Ricchiuti with Needham & Company. Please proceed.

[Jim Ricchiuti, Analyst at Needham & Company]

Thanks. Good morning. I was hoping to get a little bit more color on the decline in backlog outside of AD&G. Obviously, you saw significant growth in AD&G backlog. I am wondering if you are anticipating a pickup in order activity from your large medical customer.

[Mike Lee, CFO at The Elmet Group]

Yeah. Thanks, Jim. You hit it right on the head. That large medical customer absolutely creates a volatility in the other bucket for us. While the factual demand for them is up this year in the first half over run rate last year, again, their order pattern tends to be a bit inconsistent. They will place larger orders or they will place smaller orders, but the volume is very consistent for us. Without a doubt, we saw medical fluctuate quite heavily. Q2 2025 when our CMC division, driven by this customer, we had almost $12 million of backlog. At the end of Q2 2026, we are at like 5.5. All driven by that one customer. If you look at that total bucket of other, they are driving the swing. If we look at our other end markets, we have seen increases in industrial in both business divisions.

[Mike Lee, CFO at The Elmet Group]

We have seen semi start to move up a little bit. Again, that is a smaller end market for us, but we are seeing some traction there. Energy is down a little bit, but it is small enough that the variability is expected quarter-to-quarter, and a lot of that is waiting for fusion and fission demand to actually start to manifest beyond development cycles. We are seeing the non-medical influence, we are seeing some traction, and energy continues to be just a wait it out kind of situation.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

Okay.

[Jim Ricchiuti, Analyst at Needham & Company]

Let me just, if we could, switch gears a little bit and talk about margins. Obviously, very strong gross margins in Q2. I do not know if this is in any of your filings or if there is, you can give us some color as to how much of a benefit you have gotten from pricing on gross margin. The follow-up to the margin question is just around EBITDA margins, where you showed very good growth, improvement in CMC, but we are still not seeing much improvement on the EMP side. I wonder if you could just talk to some of those margin questions. Thank you.

[Mike Lee, CFO at The Elmet Group]

Yeah. Thanks for the question, Jim, and insightful questions. Starting with gross margin, in particular with the impact of material pricing. We definitely saw. First off, I want to acknowledge the excellent operational execution of our team during a rapid material price increase. That could have damaged us if we didn't have good processes in place, but we do. And we got the benefit of managing the price curve up. As we look in our CMC division, the growth in the quarter, we attribute about half of that growth to slightly more, to some capture of that, as the material spiked, we were able to either, A, leverage our existing agreements with our supply partners, or B, in effect, sell some material at market versus what we had on the shelf, and simple way to think about it. So that's definitely been beneficial.

[Mike Lee, CFO at The Elmet Group]

We do think that our supply agreements will continue to help us as we move through the rest of the year. And productivity within our factories, we're seeing some very good signs that not only did it hit us in Q2, but it's going to continue to be beneficial going forward. And that we tie that back to the investments we made, both in direct hires, as well as some third-party support. Regarding EBITDA margins, the balance of the year and going forward, again, just given its size, CMC will kind of dictate how the bottom line performs in general. Based on what I just said, you can draw a line to bottom line performance, at least in the, I'd say, the balance of the year. EMP margins and EBITDA, we have a lot of demand for our end product.

[Mike Lee, CFO at The Elmet Group]

We're seeing record backlog come our way, both in industrial and the AD&G space, as well as semiconductor for that business. We did see some operational challenges in Q2 in our factory that happens to deal with a lot of our AD&G and semiconductor product, which tends to be on the higher margin side. So we're working quite diligently to correct that in the second half and see some improvement from our Q2 results. But we do think it's going to take us a little while to get there throughout the balance of the year.

[Jim Ricchiuti, Analyst at Needham & Company]

Got it. Thanks very much. Helpful.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

Thank you.

[Operator]

The next question comes from the line of Chip Moore with Roth MKM. Please proceed.

[Chip Moore, Analyst at Roth MKM]

Hey, good morning. Thanks for taking the question. I wanted to maybe follow up on industrial, the strength there, right? I think 64% growth or something like that. Just maybe some of the trends you're seeing there and pockets of strength.

[Mike Lee, CFO at The Elmet Group]

Yeah. We're seeing it in a couple spots. In our EMP division, we've definitely seen an uptick in the industrial space, and we continue to see further growth there and a lot of opportunity. We think there's some opportunity with our IP that could definitely give us some longer-term continued growth. On the CMC side, while we've seen demand growth with tungsten drive AD&G, we're also seeing the industrial segment get some uplift as well. We do sell tungsten and molybdenum into those in market as well. So that is a little more distributed, where it's more concentrated in AD&G. But in general, we haven't seen a major pullback on demand in industrial at CMC, and the pricing uplift definitely flows through there.

[Mike Lee, CFO at The Elmet Group]

We're seeing it for various reasons, but for sure, it's something we're very happy about, and we see it as being something that's going to continue throughout the foreseeable future.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

Yeah. I think we're in a good CapEx cycle, but in addition, people are finding more and more uses for our products in the industrial space, which looks good.

[Chip Moore, Analyst at Roth MKM]

Yeah. No, that's helpful. Thanks, guys. And maybe back to just the raw material side, and you've done a great job managing that, particularly tungsten with some of the volatility. It looked like that contributed to those gross margins in CMC for sure. Just anything near term to contemplate around some of the movements in some of the underlying commodities?

[Peter V. Anania, Chairman and CEO at The Elmet Group]

Well, we did talk about the margins at the EMP division being down a little bit, and I think that may be because material costs there were spiking faster than we thought with some of our long-term agreements that we have with CERN and Fermi and so forth, making these gigantic circulators. And I think that caught us off guard. But as Mike said, we're really digging into it, really making sure that the backlog, we can figure out how to get that backlog up and gross margins up in the backlog. That's what I want to say and move forward.

[Chip Moore, Analyst at Roth MKM]

Great. Appreciate it. Thanks, guys.

[Mike Lee, CFO at The Elmet Group]

Thank you.

[Operator]

The next question comes from the line of Austin Moeller with Canaccord Genuity. Please proceed.

[Austin Moeller, Analyst at Canaccord Genuity]

Hi, good morning. I think we already discussed the outstanding opportunities for some of the missile system weapons and structures for tungsten and moly that are outstanding. I was just wondering if we could think about how we should think about the gross margin ramp and improvement as some of those larger volume production awards come in in the next 12-24 months.

[Mike Lee, CFO at The Elmet Group]

Yeah, thanks for the question, Austin. I'll go back to some of our prior communications in our S-1, that all continues to hold true. We make a mixture of or we provide engineering services, microwave components that are quite difficult to produce, and as well as a lot of materials that can be from early stage production, say, powders, all the way through to near net shape or finished components built to spec. Just the simple nature of the closer you get to an end component, the more value you put into the actual product. When we get into the AD&G space, we're starting to live in that space, and creating more value for the customer, and therefore our margin profile tends to be better when we're dealing with AD&G.

[Mike Lee, CFO at The Elmet Group]

As we see our growth being driven predominantly over the long term by AD&G, we expect the new business to be coming in at a differentiated margin, and that will end up lifting our overall average. We're seeing some of the productivity improvements happen faster than we originally anticipated. We're very encouraged by that. But the combination of those two things and then we've done fairly well with managing, again, the material pricing spike where we've been able to capture that phenomenon as well. That'll help us throughout, I'd say, the next six, maybe 12 months. So that's the way I continue to think about it is net demand growth coming from AD&G, which is on average higher margin. And us getting to 30% and holding that, we still think that's a very viable target for us in the next four to five years.

[Austin Moeller, Analyst at Canaccord Genuity]

Okay. Can you comment on within the fiscal year 2027 base budget and also the reconciliation bills that are being talked about, 3.0 or 4.0, are you seeing any opportunities in there for additional investment funds for the defense industrial base that could be allocated to increase your capacity?

[Mike Lee, CFO at The Elmet Group]

Yeah. We've always got a finger on that pulse. We're very active in our governmental relations. Yes, I think it's fair to say that when the opportunity arises, we'll be prepared for it. We've had success in the past, and we continue to be seen as a critical partner for the Department of War. As the nature of critical material supply chains change, we only think that's going to be more distinct.

[Austin Moeller, Analyst at Canaccord Genuity]

Yep. Excellent. Thanks for the details.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

Thank you, Austin.

[Operator]

Thank you. At this time, this concludes our question-and-answer session. If you have any additional questions, you may contact Elmet's Investor Relations team at elmt@gateway-grp.com. I'd now like to turn the call back over to Mr. Anania for his closing remarks.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

Thanks again, everyone, for joining us today. Before we wrap up, I want to provide you with some closing remarks about why we remain confident in our long-term opportunity. As the sole U.S.-based supplier of certain highly engineered critical materials and components and some high-power systems, we believe we remain well-positioned to benefit from several favorable long-term market trends. With most of our competitors owned by foreign entities, and as export restrictions cause more constraints, we remain one of the last U.S.-based facilities with capabilities to provide key components for mission-critical systems and the ability to source critical materials at a reasonable cost. We have leveraged our difficult-to-replicate asset base and production capacity to support key U.S. defense programs over the last decade, which we intend to continue growing as we qualify on additional DoW programs, given the accelerating demand we are seeing today.

[Peter V. Anania, Chairman and CEO at The Elmet Group]

Finally, we remain encouraged by the opportunities and increased activities we are seeing across all of our markets, driven by multiple mega trends, from increased global defense spending to reshoring of critical manufacturing. To close, I'd like to thank our employees, partners, shareholders for their committed support. Operator?

[Operator]

Thank you for joining us today for The Elmet Group Companies second quarter 2026 earnings conference call. You may now disconnect.

Participants

Executives

• Peter V. Anania, Chairman and CEO
• Mike Lee, CFO

Analysts

• Colin Canfield, Analyst at Cantor
• Jim Ricchiuti, Analyst at Needham & Company
• Chip Moore, Analyst at Roth MKM
• Austin Moeller, Analyst at Canaccord Genuity