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Earnings analysis · 10-Q

AADX earnings analysis

Filed August 12, 2026 · Our reading of the company's report

The latest report

Applied Aerospace & Defense delivered strong top-line momentum, with second-quarter revenue up 47.4% year over year to $167.318 million and backlog reaching $1.13 billion. However, gross margin contracted to 22.2%, the…

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Applied Aerospace & Defense delivered strong top-line momentum, with second-quarter revenue up 47.4% year over year to $167.318 million and backlog reaching $1.13 billion. However, gross margin contracted to 22.2%, the company posted a $96.232 million operating loss and a $153.971 million net loss, and first-half operating cash flow was negative $82.091 million. IPO proceeds substantially reduced debt to $405.796 million, but elevated share-based compensation, acquisition-related costs, working-capital investment, and interest expense keep the overall result mixed.

Read the original on SEC.gov

From revenue to operating profit

Where each $100 of revenue went in this report.

Of every $100 of revenue Cost of sales $78 Operating expenses $80 Left as operating profit $-58

Cost of sales, operating expenses, and what remained. Figures are rounded to whole dollars.

Where revenue came from

The business segments reported by the company.

Defense Aviation and Airborne Systems 47.2% C5ISR and Precision Strike Systems 29.6% Space and Launch Systems 23.2%

Shares of the segments disclosed in this filing, largest first.

What stood out

  • Revenue grew 47.4% year over year

    Second-quarter revenue increased 47.4% year over year to $167.318 million from $113.499 million. Six-month revenue rose 34.4% to $301.669 million from $224.523 million.

  • C5ISR drove segment growth

    C5ISR and Precision Strike Systems revenue surged 261.6% to $49.587 million from $13.714 million, driven by integrated air and missile defense and radar programs.

  • Backlog reached $1.13 billion

    Backlog increased $258.7 million to $1.13 billion at June 30, 2026, from $0.87 billion at December 31, 2025; CBI contributed approximately $178.5 million of incremental backlog.

  • IPO proceeds reduced debt

    The company received approximately $635.6 million of net IPO proceeds and used approximately $626.2 million to repay borrowings, including $565.0 million of term-loan principal and $56.1 million on the revolver.

  • Leverage improved materially

    Total debt declined to $405.796 million at June 30, 2026, from $643.443 million at December 31, 2025, while total debt-to-capitalization improved to 0.33 from 0.80.

  • Capex targets production expansion

    Management expects fiscal 2026 capital expenditures of approximately $50.0 million, focused on manufacturing efficiency, capacity expansion, and ramping customer demand.

What to watch

  • Gross-margin compression

    Second-quarter gross margin fell to 22.2% from 28.2% a year earlier, while six-month gross margin declined to 23.5% from 28.0%. Management attributed pressure to product mix shifting toward ramping programs with lower initial margins.

  • IPO charges drove operating loss

    Second-quarter operating loss was $96.232 million, or 57.5% of revenue, versus operating income of $13.910 million, or 12.3%, in the prior-year quarter. SG&A increased 965.0% to $123.315 million, primarily from $99.3 million of incremental IPO-related share-based compensation.

  • Operating cash burn increased

    Net cash used in operating activities was $82.091 million in the first six months, versus $16.666 million used in the prior-year period. Contract assets and inventory increased cash usage by approximately $36.4 million as the company invested for ramping demand.

  • Debt-related costs remain elevated

    Interest expense rose 55.0% year over year to $26.249 million in the second quarter, including $6.7 million of deferred debt discount and issuance-cost write-offs upon debt repayment.

  • No formal risk-factor updates

    The filing states there were no material changes to the risk factors disclosed in the Prospectus. Nevertheless, the quarter included a $153.971 million net loss and $31.490 million of income tax expense despite a $122.481 million pretax loss.

  • Liquidity depends on operating cash flow

    The company had $18.108 million of cash at June 30, 2026, against $405.796 million of total debt. Revolver availability was $125.0 million, but no availability remained under the delayed-draw term-loan commitment.

Management's outlook

The 10-Q provides FY2026 outlook of revenue of $670.0 million-$690.0 million and Adjusted EBITDA of $150.0 million-$155.0 million, but does not identify a prior outlook for comparison. Management expects fiscal 2026 capital expenditures to be approximately $50.0 million and believes operating cash flow plus available borrowings will fund requirements for at least the next 12 months.

This is our reading of a public filing, not the filing itself. Analysis can contain errors; check the source document for full context.