Karman Holdings Inc.

Thank you for standing by and welcome to the Carmen Space and Defence fourth quarter and full fiscal year 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. I'd now like to turn the call over to Stephen Gitlin, Vice President, of Investor Relations. You may begin.

Good afternoon. This is Stephen Gitlin, Vice President of Investor Relations for Carmen. Before we begin, please note that on this call, certain information presented contains forward-looking statements. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain words such as believe, anticipate, expect, estimate, intend, project, plan, or words or phrases with similar meaning. Forward-looking statements are based on current expectations, forecasts, and assumptions that involve risks and uncertainties, including but not limited to economic, competitive, governmental, and technological factors outside of our control that may cause our business strategy or actual results to differ materially from the forward-looking statements. All forward-looking statements should be considered in conjunction with the forward-looking statements in our earnings release. Future company updates will be available via press releases. For further information on these risks, we encourage you to review the risk factors discussed in Carmen's periodic reports on Form 10-K and Form 10-Q filed with the SEC and the Form 8-K filed today with the SEC, along with the associated earnings release and the safe harbor statement contained therein. This afternoon, we also posted a slide presentation to our website at carmen-sd.com in the news and events section. The content of this conference call contains time-sensitive information that is accurate only as of today, April 8, 2025. 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. Joining me today from Carmen are Chief Executive Officer, Mr. Tony Koblinski, Chief Financial Officer, Mr. Mike Willis, and Chief Operating Officer, Mr. Jonathan Boatwine. Now I would like to turn the call over to Tony. Thank you, Steve. It's good to be with you all today. On today's call, I will begin by highlighting the incredible progress we've made so far in 2025 and then summarize our fiscal year 2024 performance before Mike provides a more detailed overview of our financials. Then Jonathan will share our views on the end markets we serve, our capabilities, and the opportunities we see ahead of us. I will then discuss our strong strategic positioning and outlook before we take your questions. Only three months in and 2025 has been an incredibly exciting year for us as we highlight on slide three of our investor presentation. Our IPO and listing on the New York Stock Exchange in February generated strong interest and demand, raising approximately $173 million in net proceeds to support our growth plans and kicking off our next exciting chapter, as a public company. We began the year with record-funded backlog of nearly 580 million, up 35% year-over-year. We strengthened our balance sheet, successfully closing our refinancing last week, reducing our interest rate, and extending maturities to 2030 and beyond. And we announced our acquisition of MTI, a specialty metals company that adds new capabilities, customers, and contracted revenue. The transaction is expected to be immediately accretive to revenue growth and margins. We're expanding our team with experienced hires in investor relations, technical accounting, financial planning and analysis, and SEC reporting, to name a few. And we're better positioned than ever with significant content on virtually all space launch systems and on the majority of tactical missile and strategic defense systems. As you are learning, Carmen was built to be the nation's leading merchant supplier of advanced space and defense technologies. We are uniquely positioned for profitable growth with a diverse portfolio of customers and programs addressing vital national priorities. Our decades of experience, intellectual property, our focus on efficiency, and dedication to serving our customers make us a trusted and capable partner for more than 70 defense and space prime contractors. The impact of our team's capabilities, our technology, and our track record perhaps is best summed up in our tagline, impossible ends here. Now, turning to 2024, highlighted on slide four of our investor presentation, our year-over-year performance in 2024 was strong. We delivered total revenue of $345 million, representing 23% year-over-year growth, the vast majority of which was organic growth. We grew adjusted EBITDA by nearly 30% to $106 million, representing a nearly 31% margin and about 150 basis points of margin improvement from a year ago. And we increased net income to $12.7 million from $4.4 million a year ago. These results reflect the continued execution of our strategy aimed at providing our customers with the right innovative, and cost-effective solutions supported by our deep manufacturing expertise, proprietary technologies, and proven design engineering approach. Beyond our strong financial performance, we expanded our operational capabilities during the year, adding specialized equipment and facilities that position us for new business opportunities. Jonathan will highlight these developments shortly. And strategically, in February of 2024, we acquired and successfully integrated Rapid Machine Solutions, or RMS, into our business. RMS added a high level of production automation along with significant content and customer relationships to our space and launch end market, contributing almost $12 million of revenue in 2024. This and our MTI acquisition are examples of the types of acquisitions that we seek to make moving forward as we focus on supplementing our strong organic growth and current capability set with the right inorganic opportunities. So, from financial, operational, and strategic perspectives, we finished 2024 strong and are off to a great start in 2025. Now, I'll turn the call over to Mike for a deeper review of our 2024 financial performance. Mike? Thank you, Tony. Now, as Tony highlighted, our strong 24 financial performance is reflected in numerous metrics. Total revenue increased from $280.7 million in the prior year to $345.3 million, representing a total growth rate of 23% and approximately 18% on an organic basis. The primary drivers of growth were organic in nature and visible across all three of our end markets shown on slide 5, hypersonic and strategic missile defense, Space and Launch, and Tactical Missiles and Integrated Defense Systems. Slide six shows revenue over time by end market, along with adjusted EBITDA growth. Our highest growing end market last year was Tactical Missiles and Integrated Defense Systems, where revenue grew by 34.5% from 86 million in 23 to 115.6 million in 24. This was a result of continued successful deployment of weapons systems across global conflicts, U.S. military inventory replenishment, and investment in next-generation programs which continue to generate significant global demand. New launch vehicle programs and our acquisition of RMS contributed to 21.5% growth in space and launch revenue, from $94.6 million to $115 million in 2024. And well-funded production programs, combined with maturing development programs, to a 14.5% revenue growth in hypersonics and strategic missile defense, from $100 million in 23 to nearly $115 million in 24. Moving down to P&L, shown on slide seven, gross margins expanded approximately 70 basis points year over year to 38.3%, driven by contribution from our RMS acquisition, operating leverage, and our ongoing focus on operational efficiency. that operating income increased 31.1% from $48.5 million to $63.6 million in 24, and experienced roughly 110 basis points of margin expansion year over year. Similarly, that income increased by 191.3% from $4.4 million in 23 to $12.7 million in 24, representing 3.7% of 24 revenue, and 210 basis point improvement year over year. And finally, adjusted EBITDA rose 29.7% from $81.9 million to $106.1 million in 2024, representing 30.7% margin and roughly 150 basis points of margin expansion year-on-year. Now turning to the balance sheet, as of December 31st of 2024, we had $11.5 million in cash and cash equivalents, up from $5.4 million in the prior year. Cash and cash equivalents exclude net proceeds of $173 million from our February 2025 IPO. Last week, we announced that we had strengthened our balance sheet by successfully refinancing our existing credit facilities, summarized on slide 8, with a new term loan B and revolving credit facility. Our new $300 million term loan B facility is priced at SOFR plus 3.5% and results in a 275 basis point improvement versus our prior term loan facility. Both our new term loan and $50 million revolving credit facility resulted in a significant extension with maturities of April of 2032 and April of 2030, respectively. Our refinancing, combined with net IPO proceeds, positioned us to execute the acquisition of MTI that we also announced last week. We funded this acquisition using balance sheet cash and are confident in our ability to manage our capital structure effectively. MTI provides us with incremental contracted revenue and adjusted EBITDA this year. Its margin profile is similar to ours and provides us with valuable new capabilities in refractory and specialized metals such as zirconium, niobium, titanium, and tungsten, just to name a few. Tony will discuss the strategic nature of our MTI acquisition in a few moments. Finally, For modeling purposes, in 2025, we expect a statutory tax rate of 24%, and we expect CapEx investments to total approximately 4% of revenue.

Now, I'd like to turn the call over to Jonathan. Thank you, Mike. To echo Tony's comments, it's an exciting time at Carmen. Today, I'd like to share our views on the end markets we serve, our operational capabilities, and the opportunities we see for Carmen to support our customers and our nation's security. Carmen has a long and rich history of designing, manufacturing, and delivering critical products from nearly every major platform within the markets we serve. We were purpose-built to deliver advanced solutions that meet the demanding requirements for hypersonics, defense, and space systems, leveraging technologies that meet the mission requirements. Our focus is on exceeding our customers' expectations by delivering on our existing programs while also providing proposals and technical solutions for emerging system requirements. We are excited about opportunities to support the administration's Golden Dome initiative and believe that we are in a strong position to help make it a reality. Golden Dome is expected to employ a multilayered architecture to protect the United States from a variety of missiles, drones, and other air and space-based threats. Today, we provide key integrated subsystems for proven high altitude and airborne threat defense systems. These systems or variants of them are likely to be part of this program, and we are actively engaged with our customers to help make this a reality. From a demand perspective, we have not seen any shifts in our program planning due to the changing landscapes and the conflicts between Ukraine and Russia and between Israel and Hamas. Additionally, We see opportunities to provide launchers and payload propulsion systems to support the DoD's replicator program as it progresses. Carmen is continuing to produce systems and subsystems, supporting both the replenishment of U.S. military arsenals and demands for these systems from our allies. In terms of government funding, our current programs have not seen any changes from the administration and DOJA's efforts reduce spending, and we expect that the quantity and diversity of the programs we support will help mitigate against any potential risks. This is the advantage of being a merchant supplier, as we are not reliant on a single or just a few programs to achieve our growth objectives. Our business is very balanced across our three end markets, and we serve nearly every major current and emerging space in Defense Prime on over 100 programs, as shown on slide 9. Another topic very much in today's headlines is the impact of tariffs. Since we have minimal international sales, tariffs should not have a material impact on our revenue. In fact, we see upside opportunity over time in the international market as allies focus on enhancing their own defense capabilities. Our supply chain is primarily domestic, but we are monitoring the situation closely and securing long-term supply agreements where possible. Keep in mind that our firm fixed price contracts typically renew every 12 months, providing us with the opportunity to renegotiate pricing based on changes and input prices. To summarize, Carmen is well aligned with major strategic national security priorities and well positioned to support emerging and next generation capabilities. In the space and launch market, a consistent increase in launch cadence continues to create opportunities for us. Nearly every launch vehicle that passes through the 62-mile high Kármán line into space includes significant content from our company. The increase in launch market competition opens opportunities for us to support and expand content with emerging players while continuing to support incumbents with production of many critical subsystems. For example, we are a key member of the Draper-led team for NASA's Commercial Lunar Payload Services Program and the CP-12 lunar lander mission. We are expanding clean room facilities at our Mukilteva, Washington site for the assembly, integration, and testing of the lunar lander to support this mission, future missions, and the evolving needs of our customers. To support our growth plans, we continue to invest in our technological and manufacturing capabilities in 2024. We accelerated the use of our proprietary MG resin system to shorten lead times and enable low-cost carbon-carbon solutions. We also validated MG as an alternative to traditional high-temperature composite material systems through successful hot-fire rocket motor testing of an MG nozzle. In 2024, we onboarded one of the most capable spin-forming machines in the nation, as well as purchased a powerful and flexible electron beam welding system that expands our advanced manufacturing capabilities. These new capabilities enable us to form and weld large titanium structures for applications in strategic missile defense and space and launch systems. At our Skagit Washington site, we completed the next phase of construction on our Energetics facility, which supports launch system production and propulsion technologies for tactical missiles. In Decatur, Alabama, just outside of Huntsville, we opened our new large system integration facility. The proximity of this facility to the Army's Redstone arsenal and numerous space and defense customers enhances our ability to support them and further our business objectives. We have already begun shipping our game-changing missile carriage release system to the warfighter from this facility. Customers trust Kearney with design, demonstration, and high-rate production, because we do not simply offer the same solution for every application. Our design and manufacturing approaches deliver on both performance and cost targets. We have the ability to work with our customers from napkin sketch to high volume production, leveraging a toolbox of technologies and capabilities to develop the system architecture and manufacturing approach to meet the mission. This allows us to select the appropriate technologies and manufacturing methods that achieve required production rates at desired cost targets. As a result, we remain well positioned to support current and future programs in the space and defense markets. Our continued engagement with customers and the government to support next-generation system requirements will create opportunities for continued growth in our business. We have a talented and experienced team and an effective go-to-market strategy that ensures we reach incumbent and emerging primes collaborating with them early and often to deliver reliable and cost-effective solutions for their missions. Now I'll turn it back to Tony for his closing comments.