Karman Holdings Inc.

Thank you for standing by and welcome to the Carmen Space and Defense third quarter fiscal year 2025 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'd 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 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, and thank you for joining Carmen Space and Defense's third quarter fiscal year 2025 earnings conference call. I'm Stephen Gitlin, Vice President of Investor Relations, and I'm pleased to welcome you today. Joining me on today's call are Tony Koblinski, our Chief Executive Officer, Mike Willis, our Chief Financial Officer, and Jonathan Bodewein, our Chief Operating Officer. 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 filed our earnings release and posted an earnings 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, November 6, 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. I'd also like to note that, unless otherwise stated, all numbers we will be discussing today are GAAP. Our press release contains a reconciliation of any non-GAAP financial measure to the most comparable gap measure. Now I would like to turn the call over to Tony.

Thank you, Steve. Good afternoon, everyone. On today's call, I will provide an overview of our third quarter highlights. Then Mike Willis will provide a detailed review of our financial performance and capital allocation priorities. Jonathan Bodwine will then discuss market dynamics and our operational achievements. Following their remarks, I'll return to share a strategic outlook and guidance before opening the call for your questions. Our team delivered another quarter of record performance across our business through their strong execution, continuing our momentum since our February IPO. As shown on slide four of our earnings presentation, here are the key highlights. We posted record quarterly revenue of $122 million, driven by growth across all three of our end markets. We produced record gross profit of $50 million. Adjusted EBITDA rose to $38 million, another new quarterly Carmen record. And funded backlog continued to grow, reaching an all-time high of $758 million, providing 100% visibility to the midpoint of our full-year revenue guidance range and a strong foundation for 2026. During the quarter, we also completed a 1.2 billion non-dilutive secondary equity offering that generated significant market demand and resulted in the effective exit of our private equity sponsor as an owner of Carmen shares. Shortly after quarter end, we increased our credit facility, providing the resources to acquire five access industries and pay off our revolver. Summarized on slide five, five access is another strategic tuck in acquisition that expands our capabilities with IP rich content for the commercial space industry. The Arlington Washington based company is specialized provider of critical systems, including large nozzles for liquid fueled rocket engines. Their core focus is on high-performance exotic alloys such as titanium, inconel, and high-temperature, high-strength copper alloys. 5-Axis supports high-priority space launch programs on a single-source basis with its highly skilled team and state-of-the-art facility. We are delighted to welcome the 5-Axis team to Carmen. Now let's turn to our end markets where the demand environment remains very strong. Our customers and their end customers continue to communicate their expectations for significant volume increases in programs we support. One measure of that demand is the fact that we now support more than 80 customers on more than 130 programs. The drivers include increased replenishment activity, the Golden Dome for America, hypersonic developments, unmanned and counter unmanned systems, and an increasing space launch cadence for both defense and commercial missions. Given our continued strong performance, driven by accelerated progress on current programs and the five axis acquisition, we are again raising our 2025 guidance. this time by $7 million at the midpoint for revenue and $2.5 million for adjusted EBITDA. With that overview, I'll turn the call over to Mike for our financial review.

Thank you, Tony. Good afternoon, everyone. Q3 was another strong quarter that demonstrated the effectiveness of our business model and our team. Shown on slide six, highlights include revenue of $122 million, representing a 42% increase compared to the third quarter of fiscal year 24. Gross profit grew 48% to $50 million, maintaining gross profit margin at 41%. Net income rose 78% to $8 million. Adjusted EBITDA jumped to $38 million, a 34% year-over-year increase. Adjusted EPS more than doubled to $0.10 per diluted share from $0.04. And funded backlog grew 38% year-over-year and 31% since December 31, 2024. Growth remained broad-based across all three of our end markets, shown on slide 7. Hypersonics and strategic missile defense revenue grew 36% year-over-year to $37 million, driven by order growth in PRISM, Standard Missile 3 and 6, and development programs. Space and launch jumped 47% to $41 million, driven by the timing of orders from both legacy and emerging launch providers. And tactical missiles and integrated defense systems were up 42% to $44 million, driven by increasing production rates for GMLRS, AIM-9X, and UAS programs. End market mix was balanced, with our two defense-driven end markets representing two-thirds of quarterly revenue. Space and launch represented 33% of quarterly revenue. Hypersonics and SMD, 30%. And tactical missiles and IDS, 37%. Turning to the balance sheet, we continue to prioritize growth as we consider capital allocation decisions. We ended the quarter with 19 million in cash and equivalents, up 7 million from year end, 24. In late October, we upsized our term loan B by $130 million to a total of $505 million to support the acquisition of Five Access and to pay off our revolver. This results in a net leverage ratio of approximately three times adjusted EBITDA on a pro forma basis, a ratio well within our comfort level. Looking ahead, we now expect a statutory tax rate for fiscal year 25 of 25 and a half percent and expect CapEx to be approximately four and a half percent of the midpoint of our revised revenue guidance range. With that, I'll turn the call over to Jonathan for an overview of our market position and operational highlights.

Thank you, Mike. Customer demand signals across our end markets have grown stronger since last quarter. National security priorities continue to drive increased interest and funding for critical programs while the commercial space market remains very active. For example, in the third quarter, we saw several large new contract announcements from the U.S. Army for systems we support, including those highlighted on slide eight. $4.2 billion for GMLRS production, $9.8 billion for PAC-3 missiles known as Patriot, and $5 billion for Coyote Missile Systems. These contract awards demonstrate increasing customer poll for proven solutions that we have been supporting with qualified content for years. This poll is aligned with the demand signals we continue to receive and with the priorities detailed in the Big Beautiful Bill and proposed defense funding, which are summarized on slide nine. This demand is evident in our strong and growing funded backlog. Golden Dome remains an important driver of demand beyond 2025. We believe that Carmen will benefit in several ways from this transformational initiative. First, through increased demand for existing missile defense programs that we support. Second, from an acceleration in the development of new solutions such as hypersonic missiles and space-based interceptors. And third, through increased space launch cadence to develop the space layer of the solution. The federal government shutdown has not impacted our 2025 guidance, which is based on our record funded backlog and associated shipping and invoicing schedules. That backlog provides us with full visibility to the midpoint of the increased guidance that Tony will detail shortly. We have seen some solicitations extended, some meetings shift to the right, but no direct impact to our programs. With respect to federal government procurement, we support initiatives intended to streamline and improve the defense procurement process. Any and all initiatives designed to speed deployment of critical capabilities to the warfighter are perfectly aligned with Carmen's focus on innovation, speed, efficiency, and scale. We are very comfortable operating in a competitive environment, working with fixed price contracts, and investing strategically in CAPEX and IRAD. For example, we developed our Rapid Integration Payload Launcher, or Ripple Pod, which permits the rapid integration and deployment of the latest air launch effects from Carmen's Common Launch Tube. It's adaptable to various payloads, providing agility and deployment speed for our customers. This is only one example of how we apply internal investment to develop new capabilities for our customers. Turning now to our operations, we remain focused on expanding capacity, capability, and productivity. In the third quarter, we continued to expand capacity and increase productivity with new capabilities for testing, manufacturing, and advanced inspection. One example is the investment we are making in our Albany, Oregon facility that will double our forging capacity for specialty payload production. These investments increase throughput, enhance quality, and give us the ability to scale our business further. Our integration of MTI and ISP continues on schedule for completion in mid-2026, as we now begin the integration process with Five Access. Finally, last month, our commitment to supporting our customers was acknowledged by ULA, which named us the Enterprise Operations Supplier of the Year for 2025. ULA recognized Carmen among their hundreds of suppliers for our outstanding support of their reuse development program, our efforts to improve quality and cost, and our proactive problem solving. We are proud to support ULA and all our customers. Now I'll turn the call back to Tony. Thank you, Jonathan.

Our business strategy as a merchant supplier to nearly all prime contractors in the US space and defense market remains tightly aligned with our growing market opportunities. Our five axis acquisition broadens our capabilities further while expanding our capacity to support our customers increasing demand. Carmen is the result of the combination of scarce IP rich assets in the space and defense markets. Our capabilities are unique and growing stronger as we identify and acquire new assets. The competitive moat we have built is only growing deeper and wider through our thoughtful, deliberate M&A process. Our M&A pipeline remains healthy with a number of potentially accretive assets that we believe would create more value by being part of Carmen. The combined capabilities of these acquisitions, along with our existing expertise, position us extremely well to address the growing demand for advanced space systems, hypersonics, strategic missile defense, UAS, and counter UAS solutions. As Jonathan described, demand signals from the Pentagon and from our customers continue to indicate significant multi-year growth opportunities ahead Recent reports indicate that the Pentagon is seeking to double and even quadruple missile production. The missile systems cited include THAAD, Standard Missile 6 and 3, PRISM, AIM-9X, and GMLRS. All systems Carmen supports with qualified content. The demand environment for Carmen looks extremely healthy for the foreseeable future. Let me now turn to our outlook and financial guidance for the remainder of fiscal year 2025, summarized on slide 10. Based on our strong performance in the first three quarters of the year, the integration of MTI and ISP, the acquisition of five access, and the continued momentum across our end markets as reflected by our growing funded backlog, we are again raising and narrowing our full year guidance. We now expect full year revenue of 461 to 463 million, up 7 million to the midpoint. And non-GAAP adjusted EBITDA of 142 to 143 million, up 2.5 million to the midpoint. This increased guidance represents 34% year over year revenue and adjusted EBITDA growth. This guidance reflects 100% visibility to the midpoint of our increased revenue guidance range. Now looking beyond 2025, our funded backlog for 2026 continues to grow, helping us define the contours of what we believe will be another year of strong growth. For our preliminary view of 2026, we anticipate achieving annual growth consistent with our recent revenue CAGR of 20 to 25%. excluding the impact of any future acquisitions we're mindful of the added uncertainty introduced by the federal government shutdown the timing of the 2026 defense funding and golden dome orders as we work to finalize our detailed 2026 guidance and share it with you in our fourth quarter earnings call in march our differentiated capabilities strong backlog growing pipeline and proven ability to execute, reinforce our confidence in the long-term growth algorithm of consistent organic growth supplemented by strategic accretive acquisitions. I want to thank our employees, customers, and shareholders for your continued support. And I'd like to remind you that we think of Carmen as a new kind of space and defense company, one that is engineered for performance and growth by helping to enable the next generation space economy and enhance national security. Now let's open up the call for questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We ask that you please limit yourself to one question and one follow-up, at which point you may return to the queue for an additional two questions. Your first question today comes from the line of Peter Arment from Baird. Your line is open.

Hey, good afternoon, Tony, Mike, Jonathan, Steve. Thanks so much for your time. And maybe I'll just go to Mike. On the third quarter, could you give us what the organic growth was for the quarter and then Tony, just on 2026 as my follow-up, just how you're thinking about organic growth as kind of a baseline assumption. I know there's a lot of moving parts, but you've done three deals since you've come public. Just how you're thinking about that, Kager. Thanks.

So, you know, we talked about in the past about with organic versus inorganic, they quickly get tangled up in the sense from a business development integration into into Carmen between cross selling engineers that are working on on multiple facets across businesses, which really. blurs the line of what you would call organic. And so that's one of the reasons why we don't put a specific number on it, not to add any confusion, just because things quickly become organic. I think what I might direct you towards, though, is of that growth, significant, the vast majority of it is from organic. The businesses that we acquired earlier this year are smaller in nature.

And again, Peter, hello. You know, as we think about next year, We're simply guiding that with the assets that we currently have under Carmen at this point, that we would anticipate, again, consistent growth of 20 to 25%. We're leading this year, of course, to a 34% revenue and earnings. But this is a preliminary view, but wanted to at least give you some look at how we're thinking about 26 early on.

Okay, I appreciate it. I'll jump back in queue. Thanks, guys.

Your next question comes from a line of Amit Daryanani from Evercore ISI. Your line is open.

Yeah, Bob. Thanks for taking my question too as well. I guess maybe just to start with, you know, and Tony, again, it's a preliminary guide that you folks have of 20% to 25%, but it does imply some moderation from what you saw in 25%. So maybe just talk a little bit about, you know, what are the assumptions that are underpinning the growth of 20% to 25% And how much coverage do you think you already have from the 758 million backlog for 26?

Yeah, again, view this as a preliminary number. Again, it is our intent to continue to build confidence as we're still relatively new in the market. The backlog that we've talked about of 758 million is you know, is strong, but multi-year. But as we think about a rule of thumb that we have been comfortable with of having 75% plus of the future year booked by the beginning of the year, we are well on path for that, quite comfortable with the backlog and how we'll start the year relative to, you know, benchmarks that have held true for us.

Got it. And then, you know,

maybe if i just ask you from a backlog perspective again are you seeing any program level concentration on your backlog or is the backlog you know much more distributed and balanced out versus the revenue run rate is thank you yeah i would i would say that it is uh consistent uh the backlog with the revenue that we're achieving um all three of our end markets continue to grow uh we have advertised before and continue to view No single program making up. I think we're at 11% as we look forward, probably under 10% concentration on our single biggest program. And so again, a consistent and well-balanced backlog and future pipeline.

Your next question comes from a line of Ken Herbert from RBC Capital Markets. Your line is open.

Yeah, good afternoon, Tony and team. I wanted to first ask, there's been some chatter in the marketplace about some of your customers looking to maybe dual source some of your offerings just as a way of supporting a greater revenue ramp across missiles and other programs. Are you seeing that? And is that at all factoring into maybe any of the maybe slightly more conservative outlook in 26th?

No, it would not be at this point. We are not aware of any dual source effort on products beyond what already exists, on products that we supply. Again, we don't give our customers a reason to switch. I know there is, as talked about tomorrow at the Pentagon, this notion of to field on new programs, but we believe that there is ample demand on the existing platforms and no effort that we're aware of to displace us as a primary provider of the systems that we currently produce.

Great. Thanks, Tony. And if I could, on Golden Dome, you called out three specific areas where you expect to potentially benefit. Are you seeing or have you bid or seeing RFPs yet on any of these areas that are specific to Golden Dome? Or what's your view on how this program could potentially impact you from a timing standpoint?

Yeah, on the existing assets that will be, in fact, part of Golden Dome, as we've talked about before, we are seeing increased demand signals. Now, they don't come in labeled as Golden Dome, of course, but the demand there is building on the new content. The integration of the various pieces the space based assets space based interceptors and other new it's it's still too early, we are very much involved in meetings and industry days that are occurring. but no hard RFQs. Request for proposals that we're participating in. And we would see that over the balance of this quarter and probably through the entire first quarter before there's real clarity as to what is the new and how will we participate.

I would just add, as part of those discussions, we are leaning into that from a facilitation standpoint, making sure that we will be ready to meet that demand when the POs start to arrive. Thanks, Jonathan. Great. Thank you.

Again, if you'd like to ask a question, press star 1 in your telephone keypad. Your next question comes from the line of Louis De Palma from William Blair. Your line is open.

Tony, Michael, Jonathan and Steve, good afternoon and congrats on another quarter of exceptional results.

Thank you, Louis.

How would Tony, how would you assess the M&A pipeline? Since you've been public, you've been able to make several deals that have been accretive to your EBITDA. But going forward, is it becoming harder to find deals that would enhance your EBITDA given how high it is relative to the rest of the industry?

I appreciate the comments. And I would say the answer is no. We've run the place several times now. It's a well-worn and we know how to do it. There is a pipeline, as we've referred to before, of conversations at various maturity levels. We're a little ahead of the pace that we advertised with three in the last 12 months, but expect that there will be more. We are not seeing an appreciable difference in terms of the valuations. in the deals that we're seeking, right, which are those that are off the radar a bit and not within an auction. And so we continue to be approached by folks that want to be part of the Carmen story moving forward. And we think there are more of those ahead.

Great. And another question. If NASA were to implement any major changes to the Artemis program, would that impact you? And in general, what are you assuming for the Artemis program?

So as we've talked prior, you know, we have taken out any forecast relative to the Space Launch System. But in terms of the Artemis program, the Orion capsule, other exploratory programs that fit within Artemis, there is volume and content for us there. Lunar Lander is part of the CLPS program. We are getting orders relative to Orion and other related. And so, you know, we think that we've got some solid demand coming forward, but are ready for more. And as you think of the space market, I was just reflecting on it today, of course, you know, Falcon 9 launched today. ULA Atlas 5 later today, Blue Origin on Sunday, Rocket Lab within, you know, about 10 days. I mean, the launch cadence and the steadiness of various providers with different mission sets is impressive, and we look forward to supporting it all.

Excellent. Thanks, everyone.

Thank you.

Your next question comes from a line of Alexandra Mandry from Truist Securities. Your line is open.

Hi, this is Alexandra Mandry. I'm from Michael Trimoli at Truist Securities. Thanks for taking my question. I was wondering if you can provide margin guidance for 2026, and should we think about EBITDA margin expansion and what range can we expect?

You know, in terms of EBITDA and margin expansions, we've often talked about a target of 50 BIPs a year that we will gain from operating leverage as we continue to grow. So while we're not, you know, necessarily putting out formal guidance, we continue to think that we would capture 50 BIPs a year going forward on that growth.

Okay, great. And then additionally, are you seeing any impact of the government shutdown on bookings and Any impact on 1Q26?

Again, it depends on how long it goes. Glad to hear there's some discussion. Right now, no impact to 25, as Jonathan indicated in his earlier comments. Meetings are being pushed to the right. Some solicitations are being delayed, but no impact to either 25 or 26 in our view as of now.

Great, thanks.

And that concludes our question and answer session. I will now turn the call back over to Stephen Gitlin for closing remarks.

Thank you, Rob, and thank you all for your attention today and for your interest in Carmen Space and Defense. An archived version of this call, all SEC filings, and relevant company and industry news can be found on our website, www.carmen-sd.com. We wish you a good day, and we look forward to updating you on our continued progress in the quarters ahead.

This concludes today's conference call. Thank you for your participation. You may now disconnect.