Karman Q2 Earnings Call Highlights

Key Points

• Record results and raised guidance: Second-quarter revenue increased 58% year over year to $182 million, while adjusted EBITDA rose 55% to $55 million. Karman raised fiscal 2026 guidance to $730 million-$745 million in revenue and $215 million-$222.5 million in adjusted EBITDA.
• Strong demand and backlog support growth: Quarterly bookings approached $500 million, driving a record $1.3 billion backlog that provides 95% visibility to the midpoint of full-year revenue guidance. Tactical Missiles and Integrated Defense Systems led segment growth, with revenue up 55% year over year.
• Expansion and acquisition plans: Karman is expanding manufacturing capacity, expects three additional contingent supply agreements to become firm by year-end, and plans to acquire Walker Precision Engineering for approximately $94 million. The acquisition would establish the company’s initial European presence, subject to regulatory approval.

Karman NYSE: KRMN reported record second-quarter fiscal 2026 results, citing strong demand across missile, defense, maritime and space markets, while raising its full-year revenue and adjusted EBITDA outlook.

Revenue for the quarter totaled $182 million, up 58% from a year earlier and 20% sequentially, according to Chief Financial Officer Mike Willis. Net income rose 106% year over year to $14 million, while non-GAAP adjusted EBITDA increased 55% to $55 million. The company reported adjusted earnings per share of $0.14, up 43% from the prior-year quarter.

Chief Executive Officer Jon Rambeau, who joined the company four months ago, said Karman recorded nearly $500 million in quarterly bookings and ended the period with a record backlog of $1.3 billion. That backlog provides 95% visibility to the midpoint of the company’s full-year revenue guidance, he said.

Guidance Raised on Backlog and Demand

Karman raised its fiscal 2026 outlook and now expects revenue of $730 million to $745 million and non-GAAP adjusted EBITDA of $215 million to $222.5 million. At the midpoint, the outlook represents 57% revenue growth and 51% adjusted EBITDA growth from the prior year, according to Willis. The guidance excludes the pending acquisition of Walker Precision Engineering.

The company reaffirmed its expectation for organic growth of 25% or more for the full year. Organic revenue increased 24.4% year over year in the second quarter. Rambeau said quarterly organic-growth figures can be less indicative of Karman’s operating performance because the company rapidly integrates acquired operations and may move production between facilities based on capabilities and customer needs.

“We remain confident in our ability to deliver 20%-25% annual organic growth for the foreseeable future,” Rambeau said. He added that Karman expects to provide organic growth disclosures at least annually going forward.

Management expects second-half revenue to increase sequentially, with approximately 47% of second-half revenue in the third quarter and 53% in the fourth quarter. Willis said Tactical Missiles and Integrated Defense Systems is expected to remain a major driver of second-half growth.

Segment Growth and Long-Term Space Agreement

All of Karman’s legacy markets posted year-over-year quarterly growth. Tactical Missiles and Integrated Defense Systems revenue rose 55% to $63 million, supported by production programs involving unmanned systems and counter-unmanned aerial systems, as well as programs entering production.

• Hypersonics and Strategic Missile Defense: Revenue rose 24% to $43 million, driven by interceptor production and a new surface-to-surface missile system.
• Space and Launch: Revenue increased 6% to $42 million, supported by legacy and new launch providers, partially offset by customer order timing and shifting launch schedules.
• Maritime Defense Systems: Revenue totaled $34 million, supported by legacy and next-generation submarine programs.

Karman’s second-quarter revenue mix was 35% Tactical Missiles and IDS, 24% Hypersonics and Strategic Missile Defense, 23% Space and Launch, and 18% Maritime Defense Systems.

The company converted one of four previously announced contingent supply agreements into a firm contract during the quarter. Rambeau said the Space and Launch long-term agreement is valued slightly below the approximately $250 million estimate discussed in the prior quarter. The five-year agreement is expected to begin contributing some revenue in the second half of fiscal 2026 and then be recognized at a relatively even rate over the following four and a half years.

Karman said it expects the remaining three contingent supply agreements to become firm contracts by year-end, potentially with initial contracts arriving as early as the third quarter. Management said the expected volume from those agreements is at or above prior expectations, though the company is principally planning for their revenue contribution to begin in early 2027.

Capacity Expansion, Acquisitions and Cash Priorities

The company is expanding manufacturing capacity to support what executives described as generational demand for munitions, interceptors and related defense products. Karman is fitting out a 200,000-square-foot Salt Lake City factory, where initial production capability is expected in the fourth quarter of 2026. The facility will serve Tactical Missiles and IDS as well as Hypersonics and Strategic Missile Defense customers.

Chief Operating Officer Jonathan Beaudoin said Karman is also installing equipment to support a major space-launch award, with enhanced spacecraft production capabilities expected in the fourth quarter. The company plans to transition selected Space and Launch production to its Gulfport facility, using that location’s large-scale maritime manufacturing capabilities.

Karman continues to integrate Seemann and MSC, acquisitions completed earlier this year. Willis said those businesses are producing higher-than-expected margins, although their larger proportion of cost-plus contracts contributed to expectations for somewhat lower margins in the second half compared with the first half.

The company also agreed to acquire Walker Precision Engineering for approximately £70 million, or about $94 million. The acquisition, which remains subject to regulatory approval, is expected to close by year-end and would establish Karman’s initial European presence and relationships with European defense prime contractors.

At quarter-end, Karman had $52 million in cash and cash equivalents and net debt of $752 million. Its pro forma leverage ratio was approximately 3.7 times adjusted EBITDA. Subject to the Walker acquisition closing, management expects leverage to decline to about 3.5 times by year-end.

Cash used in operations was $4 million during the quarter, largely reflecting higher accounts receivable and contract assets tied to growth and production ramps. Karman expects free cash flow of $15 million to $20 million in the second half. Management said it expects long-term free-cash-flow conversion of 80% to 90% of net income, while noting that working capital and capital expenditures will continue to consume cash during the current expansion cycle.

Rambeau said Karman is pursuing opportunities to become a second source for additional defense programs while seeking to maintain its existing single- and sole-source positions. He said those opportunities are expected to carry margins generally in line with Karman’s existing business rather than materially diluting profitability.

About Karman (NYSE:KRMN)

We specialize in the upfront design, testing, manufacturing, and sale of mission-critical systems for existing and emerging missile and defense, and space programs. Our integrated payload protection, propulsion, and interstage system solutions are deployed across a wide variety of existing and emerging programs supporting important Department of Defense (“DoD”) and space sector initiatives. We estimate that no single program accounted for more than 10% of sales for the nine months ended September 30, 2024 or the twelve months ended December 31, 2023, with revenue from over 100 active programs supporting current production and next-generation space, missile, hypersonic, and defense applications.

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