The Elmet Group Co.

Good morning. Welcome to the Elmet Group Company's 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. 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 statements. Further, today will include certain non-GAAP financial measures. These measures are calculated by management and do not have any standardized meetings under the U.S. GAAP. These non-GAAP measures supplement GAAP measures but should not be viewed as substitutes for GAAP measures. 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 Group's Chairman and CEO, Peter V. Anania, for his comments. Sir, please proceed.

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 new 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 ADG, as well as industrial, medical, semiconductor, and electronics in energy. 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, and 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. Third, our vertically integrated operations supported by our 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 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. More specifically, revenues growth increased 35 percent year-over-year to 66.4 million, gross profit expanded by 430 basis points, leading to 57.9 growth in adjusted EBITDA, and our open order backlog now stands at 131.5 million, up 55 percent 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 ADG 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 was has been a significant and persistent rise in prices for global tungsten and molybdenum markets, which have been exasperated by export controls on critical materials. 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. 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 import 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. Relatedly, and 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 off-take 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 accelerating demand we are seeing. 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 a 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 we had secured strategic funding of $4.3 million to develop in advance domestic manufacturing capabilities for 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. 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 Iran, 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 megatrends that remain in the early stages of an investment super cycle. Now, I would like to turn the call over to our CFO, Mike Lee, to go over the results for the second quarter.

Thank you, Peter, and good morning, everyone. We're 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 and government, industrial, medical, and semiconductor end markets with a balance associated with tungsten and molybdenum raw material in 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. 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 and Q2 2025 for 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, $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 the growth. 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. 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-recurring costs such as tax impacts of our reorganization, discontinued operations, the costs associated with the IPO, certain acquisition and transaction costs, severance and restructuring costs, other non-recurring costs, and income tax benefit of such adjustments as applicable. 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 a 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-recurring costs, such as costs associated with the IPO, Certain acquisition and transaction costs, severance and restructuring, and other non-recurring costs. 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, or 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 GTM period. Approximately 55% of revenue growth is attributed to demand across, increased across aerospace, defense and government, industrial, medical and semiconductor end markets, The balance associated with tungsten and molybdenum material pricing effects. 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 GTM period. The increase is 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 GTM. 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. Our ADG end market backlog is 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, Strategic Missile Systems PRISM, Standard Missile, and Patriot, along with a mix of commercial and defense-related aerospace and radar programs. We also attribute approximately $36.3 million of the $46.9 million of total backlog growth between Q2 2025 and Q2 2026 to tungsten product increases within the ADG 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.