Applied Aerospace & Defense NYSE: AADX reported record second-quarter revenue and adjusted EBITDA in its first earnings call as a public company, while highlighting a growing contract backlog, capacity investments and continued demand across space and defense programs.
Revenue for the second quarter of 2026 rose 47.4% year over year to $167.3 million. On a pro forma basis that includes CVI in both comparison periods, revenue increased 21.3%, Chief Financial Officer Jeff McRae said. Adjusted EBITDA rose 38.4% to a record $36.4 million, while contract backlog reached more than $1.1 billion, up from $871 million at year-end.
Chief Executive Officer Trip Ferguson said the company’s June initial public offering strengthened its balance sheet and increased its flexibility to invest in operations, personnel and capabilities. The offering reduced pro forma net leverage to approximately 2.7 times.
Growth Across Three End Markets
Applied Aerospace & Defense supplies advanced design, engineering and vertically integrated manufacturing solutions for space and defense customers. Its second-quarter revenue mix was approximately 23% Space and Launch Systems, 47% Defense Aviation & Airborne Systems, and 30% C5ISR & Precision Strike Systems.
- Space and Launch Systems: Revenue totaled $38.8 million, up 58.5% from the prior-year quarter. McRae cited strong demand for content supporting SpaceX’s Falcon 9 program and rising demand tied to Blue Origin’s New Glenn program.
- Defense Aviation & Airborne Systems: Revenue was $78.9 million, up 4.8%. The segment benefited from next-generation development programs moving toward production, including work supporting Anduril’s CCA Fury program and Bell’s V-280 Valor program, as well as sustained aftermarket demand.
- C5ISR & Precision Strike Systems: Revenue was $49.6 million, increasing $13.7 million from a year earlier. The business benefited from contributions from the CVI acquisition and demand for integrated air and missile defense and precision-strike programs.
Ferguson said the company operates 11 U.S.-based facilities across six states, totaling more than 1.5 million square feet of production capacity. Management estimates that roughly 40% of capacity remains available, measured across floor space, equipment and workforce flexibility. The company has made some capacity investments in advance of expected program ramps.
President and Chief Strategy Officer Chris Rogers said the company is seeing an increasing number of opportunities that use multiple Applied capabilities. He cited additional vertical integration in solid rocket motor case manufacturing and a precision-strike subsystem opportunity with a large defense brand as examples of the platform approach.
Backlog Supports Near-Term Outlook
McRae said the company generally views backlog as providing a 12- to 18-month view of its business. The remaining 2026 outlook is effectively covered by firm backlog, he said, while approximately half of the current backlog is expected to convert to revenue in 2027. The rest of 2027 is expected to be supplemented by orders under existing long-term agreements.
The company reiterated its full-year 2026 forecast for revenue of $670 million to $690 million and adjusted EBITDA of $150 million to $155 million. Management expects revenue to build through the remainder of the year, with the fourth quarter representing the most significant quarter.
Second-quarter revenue exceeded the company’s internal plan because of execution on several programs that pulled forward revenue and contracted backlog conversion originally anticipated for the second half. McRae said the timing benefit did not change the full-year outlook.
Management said it is monitoring supply-chain congestion and is working to mitigate potential constraints. The company also cited raw-material inflation, primarily in aluminum, though McRae described its impact to date as relatively immaterial.
Margins, Cash Flow and Balance Sheet
Consolidated gross margin was 22.2% during the quarter. That figure included approximately 6 percentage points of impact from share-based compensation associated with accelerated equity-unit vesting at the IPO. Excluding that impact, gross margin was in line with the prior-year period, according to McRae.
Adjusted EBITDA margin was 21.8%, compared with 23.2% a year earlier. McRae attributed the change to investments in operational support and public-company capabilities, as well as lower initial margins on early-stage programs beginning production ramps. Management expects margins to improve as those programs advance through engineering and production learning curves.
The company reported a net loss of $154 million, including $110 million of share-based compensation expense from accelerated vesting of equity units. McRae also cited interest expense before the IPO, higher intangible-asset amortization and IPO-related costs. Excluding those items and related tax effects, he said the company would have generated net income in the quarter.
For the first half, net cash used in operating activities was $82.1 million. Drivers included IPO and acquisition costs, cash interest on debt repaid with IPO proceeds, and a roughly $36 million working-capital build in contract assets and inventory. Management expects much of that working capital to convert to cash as second-half deliveries occur and projects positive free cash flow in the second half.
The company spent about $21 million on capital expenditures in the first half and expects approximately $50 million for the full year, focused on qualified capacity and efficiency investments. Following the IPO, total debt fell to $405.8 million as of June 30 from $643.4 million at year-end. Net debt was $387.7 million, with $18.1 million in cash and the full $125 million revolver available.
Second-Half Priorities
Ferguson said Applied’s priorities for the second half are improving operational performance across its sites and supply chain, selectively pursuing a dynamic new-business pipeline, and executing on high-growth and next-generation program ramps.
Management said it remains optimistic about demand in commercial space, defense aviation and precision strike. Rogers added that the company is working on opportunities with traditional defense primes as well as newer, nontraditional customers seeking cost-effective and higher-volume capabilities.
On potential federal budget uncertainty, Rogers said the company’s diversified positions on long-life programs of record and its funded backlog provide near-term insulation, though management is monitoring potential effects on next-generation program ramps and the 2027 outlook.
About Applied Aerospace & Defense (NYSE:AADX)
Applied Aerospace and Defense Inc specializes in providing advanced design, engineering and vertically integrated manufacturing solutions for next-generation space and defense technology companies. Its core service offerings include design and analysis, fabrication and assembly and inspection, qualification and testing. Applied Aerospace and Defense Inc is based in HUNTSVILLE, United States.
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