Applied Aerospace & Defense Q3 Earnings Call Highlights

Key Points

• Q3 revenue hit a record $182.1 million, up 48.6% year over year, while adjusted EBITDA rose 37.4% to $39.7 million; the company’s backlog approached $1.3 billion.
• Supplier constraints and delayed government approvals are shifting $15 million to $20 million of rotorcraft aftermarket revenue into the first half of 2027 and pressuring margins. Applied lowered its 2026 outlook to $660 million–$670 million in revenue and $137 million–$142 million in adjusted EBITDA.
• Backlog provides visibility into 2027: about 75% of expected revenue is covered by firm funded orders, and management said roughly $800 million in 2027 sales was a fair takeaway.

Applied Aerospace & Defense NYSE: AADX reported record third-quarter revenue and a growing backlog, but said supplier constraints, delayed approvals and costs tied to production ramps are weighing on margins and shifting some deliveries into 2027.

The space and defense manufacturer now expects 2026 revenue of $660 million to $670 million and adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, of $137 million to $142 million. Management said the outlook reflects lower revenue expectations and continued investment in development programs and production capacity.

Revenue rose 48.6% from a year earlier to $182.1 million in the third quarter, including 20.2% organic growth excluding acquisitions completed in 2026. Adjusted EBITDA increased 37.4% to $39.7 million, although its margin narrowed to 21.8% from 23.6%.

Contract backlog approached $1.3 billion at quarter-end, up about 12% from the second quarter. President and Chief Strategy Officer Chris Rogers said the company booked approximately $254 million in orders during the quarter, equivalent to 1.4 times revenue.

Aftermarket Delays Affect Outlook

Chief Financial Officer Jeff McRae said approval and supplier issues are expected to move $15 million to $20 million of rotorcraft aftermarket revenue from the fourth quarter into the first half of 2027. That includes approximately $10 million of Apache rotor head overhaul work and $5 million to $10 million of aftermarket spares deliveries.

The overhaul work is awaiting government approval of updated technical documentation, while the spares business faces constraints involving forgings, castings and specialized fasteners. Rogers said rotorcraft aftermarket work accounts for about a quarter of Applied’s revenue and that most of it is sole- or single-source.

“We are in the last steps of approval on the updated technical process, so we have high confidence,” Chief Executive Officer Trip Ferguson said during the question-and-answer session.

McRae said the company has seen progress with suppliers and efforts to qualify additional sources, though improvements have taken longer than expected. Rogers added that the constraints are concentrated in certain programs rather than across the business.

Applied expects fourth-quarter gross margin of roughly 26%, about two percentage points below its original expectations. McRae said he expects gradual improvement through the first half of 2027 and a return to a more normalized gross margin in the high 20s in the second half.

Growth Across Markets

Space and Launch Systems revenue increased 31.1% to $39.1 million, supported by work for SpaceX and Blue Origin and demand for propellant tanks. Rogers said revenue from Blue Origin’s New Glenn program increased in each quarter of 2026.

The company plans to expand its Long Beach tank facility’s capacity to nearly 200 units by the end of 2026 and approximately 400 by 2028. The broader Long Beach operation is expected to generate more than $45 million of revenue in 2026, Rogers said.

McRae said Applied’s modeling assumes Falcon 9 volumes will moderate in 2027 and 2028, with continued growth in New Glenn work offsetting the decline. Combined revenue from the two programs is expected to remain slightly above 2026 levels.

Defense Aviation and Airborne Systems revenue rose 17.3% to $94.2 million, driven by rotorcraft aftermarket demand and production activity on programs including Anduril’s CCA Fury and Bell’s MV-75. Rogers said Applied is preparing additional production space in Stockton to support Fury.

Revenue in Advanced Sensing and Precision Strike Systems reached $48.7 million, an increase of $36.3 million from a year earlier. The company reported a $7.5 million order for LTAMDS radomes from Raytheon and a $21.9 million add-on for BLU-136 work.

Backlog Supports 2027 Visibility

Rogers said approximately $600 million of remaining performance obligations at Sept. 30 was expected to be recognized as revenue in 2027. McRae said roughly 75% of anticipated 2027 revenue was covered by existing firm funded orders.

Asked whether those figures implied approximately $800 million in 2027 sales, McRae said that was a fair takeaway. Ferguson said the company plans to provide its initial 2027 outlook with full-year results.

Third-quarter net income was $30.6 million, or 18 cents per diluted share, compared with $2.7 million, or 3 cents per share, a year earlier. The latest quarter included a $24.2 million income tax benefit.

Applied generated $11.5 million in operating cash flow but used $9.5 million in free cash flow after $21 million of capital expenditures. McRae said he expects positive free cash flow in the fourth quarter as capital spending moderates and working capital improves.

The company expects approximately $50 million in capital expenditures for 2026. McRae said a more normalized level in 2027 would be around 4% to 5% of revenue. Applied also continues to evaluate acquisitions after completing three deals in 2026, with Rogers saying the company is conducting due diligence on several potential targets.

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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