Karman Holdings Q2 2026 Earnings Call Transcript

Karman Holdings (NYSE: KRMN ) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

3 billion, demonstrating strong financial performance. The company has successfully integrated recent acquisitions and is expanding into new markets, including a new factory in Salt Lake City and a planned acquisition of Walker Precision Engineering. 5 million. The company is focusing on operational excellence and cash flow, integrating businesses to enhance capabilities, and investing in growth opportunities across key markets such as tactical missiles, maritime defense, and space launch.

Management emphasized their strategy of pursuing both organic and inorganic growth, with expected annual organic growth rates between 20% to 25% for the foreseeable future. New strategic initiatives include the use of AI to improve engineering and operational processes and a focus on expanding international market presence. Full Transcript OPERATOR Thank you for joining us and welcome to the Karman Holdings second quarter fiscal year 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session.

If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Stephen Gitlin, Vice President of Investor Relations. Stephen, please go ahead.

Stephen Gitlin, Senior Vice President of Investor Relations and Corporate Communications Good afternoon and thank you for joining Karman Holdings' 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 John Rambo, Chief Executive Officer, Mike Willis, Chief Financial Officer, and Jonathan Bodwine, 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. com.

Now I'll turn the call over to John. John Rambeau, Chief Executive Officer Good afternoon. In the four months I've been with Karman Holdings, 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 Holdings 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. 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 Holdings into the ranks of other established public companies working with a Big Four 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 five.

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. 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 Holdings, capabilities that allow us to offer greater value to our customers, and we begin the integration process on day one.

This means that we seek to exploit these capabilities immediately to the benefit of Karman Holdings 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.

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 Holdings for sustained profitable growth. As we first announced in May 2026, we secured four large contingent supply agreements, one 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 Holdings, 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 as 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 Holdings' 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. 6 billion in contracts for five new Columbia and nine 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 rate. 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 two, three or four times multiples of current build rates. Karman Holdings 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 Holdings 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 whole 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 the 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. Mike Thank you, John. Our record second quarter results demonstrate the continued strength and momentum of the Karman Holdings business model. 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. 4% year over year in the quarter. As John 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 Encounter, 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 six 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. 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 John 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 2H26, delivering free cash flow of 15 to 20 million dollars.

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 launchers, launch vehicles, maritime programs, and spacecraft manufacturing. This represents a slightly higher run rate than our 5% guidance for the year, implying a step down in capex in the second half of 2026.

Our capex does not include customer-funded 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. 7 times adjusted EBITDA on a pro forma basis.

5 times by the end of the year. 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.