AVEX

Hello, everyone. Thank you for joining us, and welcome to AEVEX's second quarter 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 Jason Gursky, Vice President of Investor Relations. Please go ahead.

Thank you for joining AEVEX's second quarter 2026 earnings conference call. I'm Jason Gursky, Vice President of Investor Relations. Joining me on the call today are Brian Raduenz, Executive Chairman, Roger Wells, Chief Executive Officer, and Todd Booth, Chief Financial Officer. Before we begin, please note that on this call, certain information presented contains forward-looking statements, including those related to the proposed acquisition of BlackSea Technologies, multi-domain strategy and technology integration, our 2026 outlook, backlog from the M&A strategy, and capital allocation priorities.

Our forward-looking statements are based on current expectations, forecasts, and assumptions, and may involve risks and uncertainties that could cause actual results to differ materially. Additional information concerning these risks are described in AEVEX's reports filed with the SEC. I'd also like to note that we will discuss a number of non-GAAP financial measures on this call. Our earnings press release and presentation, which were also published earlier today and can be found on the investor relations section of our company's website, contain a reconciliation of any non-GAAP financial measures to the most directly comparable GAAP measure.

The content of this conference call relates to information that is accurate only as of today, August 12, 2026. Except to the extent required by law, 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 the date of this conference call. I would like to now turn the call over to Brian for some opening remarks. Brian, go ahead.

Thanks, Jason. Good afternoon, everyone. AEVEX delivered another very strong quarter, our second consecutive beat and raise, driven by sustained demand and strong execution across the business. We're scaling production, expanding mission and customer reach, and strengthening our position as one of the most impactful providers of autonomous capability in the market today. Our momentum is being recognized.

AEVEX was recently identified by the Department of War as one of a select few defense technology primes, accelerating the development and production of systems for real-world missions. Roger was invited to brief the secretary and his staff at the Pentagon, outlining how we will continue to make an impact for the war fighter. It's a powerful validation of the role AEVEX is playing as the department moves decisively toward autonomous, affordable, multi-domain solutions, which is exactly what we built this company to provide.

Against that backdrop, today we're announcing another meaningful step forward, the proposed acquisition of BlackSea Technologies. For those not familiar with BlackSea, they're a leading developer of autonomous and unmanned surface and subsea vessels for the U.S. Navy, SOCOM, and various other customers. Their USV platforms are among the most widely produced and most operationally deployed systems in the Navy's inventory.

Just as AEVEX has established leadership in Group II and Group III unmanned aerial systems, BlackSea has likewise established leadership in unmanned surface and subsea capability, delivering fielded systems at scale with real operational history. By bringing these two organizations together, we will unite two battle-tested air, surface, and subsea portfolios in the market at exactly the moment the department is accelerating procurement of unmanned systems. Both companies are delivering in theater. Both are producing at volume with additional capacity beyond today's deliveries.

Together, we expect to expand our ability to support customers across domains, including meaningful new access to maritime pathways where AEVEX has not previously participated. This acquisition is another major proof point of the strategy we've laid out, building one of the nation's most impactful providers of autonomous and unmanned systems capability.

It reinforces our momentum, it strengthens our trajectory, and it advances the larger vision of what we set out to build, a company with the scale, relevance, and operational credibility to lead in this new era of defense. We could not be more excited about what this combined team can do together, and we can't wait to get started. With that, I'll hand it over to Roger to walk through the strategic rationale and transaction details, as well as a review of our very strong second quarter.

Thanks, Brian, and good afternoon, everyone. As Brian mentioned, today marks two important milestones for AEVEX. We've entered into a definitive agreement to acquire BlackSea Technologies, and we announced our second quarter results, hosting robust growth and strong operational performance across the business, leading us to raise our outlook for the year based on continuing strong demand signals and significant deployment of our mission-critical systems in theater.

What Todd and I plan to do today is walk through the strategic rationale for the acquisition and to provide more details on both the transaction and the company. We will then quickly review our second quarter results and open the line to your questions. Our remarks today will be a bit longer than normal, given the importance of both events. Let's go to slide four in the presentation deck. The transaction story is straightforward and clear.

By bringing these two leading companies together, we believe we will create one of the largest and most comprehensive multi-domain unmanned systems providers in the market. We expect this merger to deliver significant production capacity, access to new markets, and the ability to credibly deliver a broader portfolio of multi-domain unmanned capabilities, all underpinned by AEVEX's core autonomy stack, CompassX.

In addition, both AEVEX and BlackSea employs a hybrid business model that can both produce and operate assets for our customers. This provides predictable long-term revenue and valuable operational insights to feed back into platform development. Very few companies can credibly claim a multi-domain unmanned portfolio of this scope, and even fewer can claim one that's actually in the fight. Finally, we expect to retain strong financial flexibility post-transaction, which will allow us to continue to invest in innovation, production capacity, and future M&A.

The bottom line is this, with the acquisition of BlackSea, we believe we will create one of the most capable, pure-play, multi-domain autonomous systems providers in the U.S., delivering effects to the battlefield across air, surface, and sub-sea domains at a time when the Department of War is leaning into unmanned systems spending. This transaction aligns perfectly with our strategic direction and our mission-focused culture and also represents the kind of opportunity we signaled we'd pursue. With that as a strategic framework, let me turn it over to Todd to walk through the transaction itself.

Thanks, Roger, and good afternoon, everyone. Please turn to slide five. Let me walk you through the key economic terms. AEVEX intends to acquire BlackSea Technologies for a total consideration of up to $650 million, structured in three components. First, approximately $250 million in cash at closing. Second, roughly $350 million in AEVEX common stock at agreed price of $27.50 per share, which amounts to approximately 12.7 million shares issued to the sellers. Lastly, the transaction also includes a $50 million earn-out that is contingent on the achievement of certain performance targets by BlackSea through fiscal year 2027.

We designed the earn-out to align incentives so that the incremental $50 million becomes payable only if BlackSea's financial performance creates long-term shareholder value. We expect the transaction to be accretive to earnings per share in the near term before giving effect to non-cash purchase accounting amortization. BlackSea is expected to generate approximately $150 million in revenue in fiscal year 2026, with adjusted EBITDA margin roughly in line with AEVEX.

While we are not providing formal guidance for BlackSea for fiscal year 2027 today, we expect this growth to be at least in line with its addressable markets. I think it's worthwhile noting that BlackSea's leadership and shareholders were particularly excited about the opportunity to be a part of AEVEX and share our go-forward vision. As such, the equity consideration was very important to them, and we feel the purchase price was quite favorable given those dynamics. A few other items worth noting.

We expect the transaction to close in September 2026, subject to the expiration of the HSR waiting period and satisfaction of our customary closing conditions. BlackSea will operate as a third business unit within AEVEX, which we believe will preserve the mission focus and customer relationships that make the business valuable. I'd like to note that Bob Pudney, BlackSea's CEO, is expected to stay on to lead the business at AEVEX. Roger, back to you.

Thanks, Todd. Please turn to slide seven. When our team evaluated this transaction, we came back to five reasons why this combination is so compelling for us, and I want to spend some time on each one. First, this acquisition is expected to create one of the largest providers of battle-proven autonomous air and maritime platforms at a moment when unmanned systems spending is entering into what we believe is a genuine global defense super cycle.

The operational needs from the Department of War, the combatant commands, and our allied forces across the globe have moved from experimental projects to shorter cycle, high-production procurements as they work to get systems fielded. Being one of the largest battle-proven providers matters because in this environment, customers are buying from companies that have proven solutions and can deliver at scale today. Second, the capabilities are highly complementary, not overlapping.

AEVEX delivers Launched Effects, precision strike, loitering munitions, and full-scope ISR capabilities. BlackSea brings unmanned surface, subsurface, and contested logistics vessels to the market. From a growth perspective, based on our due diligence, BlackSea has deep relationships with all key maritime USV and UUV customers.

Not only do we believe that BlackSea and AEVEX will benefit from an anticipated increase in funding for USVs and UUVs, we expect the combination to also unlock a large Navy UAS market for AEVEX, which is an exciting expansion opportunity for us. Third, BlackSea brings well-capitalized facilities, infrastructure, and tooling to deliver USVs and UUVs at scale. I will walk you through the company's footprint in a few minutes, but the short version is that we are not acquiring a prototype shop.

Like AEVEX, BlackSea is a company already producing at significant industrial scale, in line with the DoW's objective for the defense industrial base. Fourth, BlackSea comes with significant backlog that gives us real visibility into above-market growth in fiscal year 2027. As of today, BlackSea has more than $110 million in funded backlog and over $250 million in unfunded backlog tied to programs associated with the production, sustainment, and operations of the company's marquee small USV, the Global Autonomous Reconnaissance Craft, or GARC, and its Block Two variant Chaser, as well as contested logistics vessels contracts such as the recently awarded Sea-Based Petroleum Distribution System, or SPDS.

This isn't driven by speculation on whether a market will develop. It's anchored on contracted demand. As mentioned before, the transaction further diversifies our program portfolio and customer access, opening new growth opportunities for both companies. Fifth, and this is one that's easy to overlook. BlackSea has an exceptional management team and a mission-focused culture that is genuinely aligned with AEVEX. To realize a successful M&A transaction, cultural fit is critical. It's a major driver of value creation.

We've spent significant time with BlackSea's leadership, and like the AEVEX team, they are firmly committed to the mission and the war fighter, and we are confident that they will continue to thrive as part of the AEVEX family. With that, let me tell you a little bit more about BlackSea, its platforms, and its track record. Please turn to slide seven. When you look at BlackSea, the first thing that stands out is that this is a company measured in outputs. They have delivered more than 350 USVs since inception, an installed base that we believe is unmatched among American USV manufacturers.

In addition, we understand that those platforms have accumulated more than 25,000 operational hours, including nearly 500 hours in support of Operation Epic Fury. As mentioned earlier, the company is expected to generate approximately $150 million of revenue in fiscal year 2026, and it does all of this with a workforce of approximately 275 highly skilled and motivated employees, the vast majority of whom hold active security clearances. BlackSea serves a host of customers within the Navy, United States Special Operations Command, and the intelligence community, to name a few.

As one of the first movers in the USV market, BlackSea has developed deep relationships with key customers that have been forged in real-world operations. While the company is primarily known for its flagship USV, the GARC, BlackSea continues to innovate in the Small USV space with Chaser and Comet, and in the undersea space with Raptor. In addition, BlackSea is a first mover in the growing contested logistics market, where it has developed a number of platforms, including NightTrain, Revenge, and SPDS.

Not only does BlackSea develop and manufacture these platforms, it also employs a highly technical team with deep operational experience with the ability to deploy, operate, and sustain USVs and UUVs in support of real-world missions. This has provided a significant force multiplier for our customers, as well as a valuable feedback loop that has helped to enhance these platforms. The pattern here is important. BlackSea does not sell hardware and walk away. They both deploy platforms and support their customers in the field, who then come back with bigger, longer, and more strategic scope of work. That is the flywheel that underpins our growth expectations for the business.

The takeaway on this slide is simple. We are buying a company that is already delivering, already deployed, and already trusted with the infrastructure, workforce, and customer relationships to keep scaling. Please turn to slide eight. Building on the last slide, I want to give you a sense of the product roadmap, because this is where near-term revenue is expected to meet long-term value creation. The GARC platform, the one that has generated the operational track record we just discussed, is designed to carry a payload of up to 1,000 lbs, has a range of more than 640 mi, cruises at 40 knots, is survivable through Sea State-7, and can operate for up to 10 days at a time.

That is a highly capable platform, and it is in the fight today. Chaser is the successor to GARC, offering next-generation capabilities. Relative to GARC, Chaser offers approximately 38% more payload weight, 33% more payload volume, 25% greater range at cruise, and does so at an estimated 10% lower unit cost, all while adding advanced platform autonomy and next-generation perception. Critically, it is packable in a standard 20 ft ISO container, which is a real logistics advantage for rapid global deployment.

In addition, BlackSea has delivered specialized variants with custom capabilities and proprietary intellectual property for classified customers. Importantly, BlackSea's platforms, like those at AEVEX, are built on a modular open systems architecture, which is with the department mandates to drive rapid capability insertion and interoperability. This architecture creates the opportunity for us to leverage our CompassX technology stack to enable autonomy and multi-domain interoperability across all of our combined platforms.

Additionally, as the department shifts towards contractor-owned, contractor-operated or COCO structures and larger USV and UUV programs, having an extensible architecture becomes a durable competitive mode. Here is how you should think about BlackSea's small USV leadership. The current platform is operationally deployed and delivering revenue today. The next generation platform improves on it across every dimension, and the underlying architecture is aligned with where the customer is going.

Turning to the right side of this chart, the best way to understand why BlackSea is differentiated asset is to look at what it is actually doing for the customer. There is no better example than the U.S. Navy's Fifth Fleet. The mission is to deploy additional guards and personnel to Bahrain to support Fifth Fleet operations in a highly contested maritime environment. BlackSea is solving three core problems for the customer.

Rapid force projection through immediate large-scale unmanned surface vessel deployment, operational risk mitigation by using unmanned combat support to reduce risk to human life, and capability versatility across a diverse set of mission needs, including mine clearing from a single adaptable platform. What sets BlackSea apart on this mission is a specific set of capabilities. Its USVs are multi-mission with rapid payload integration and true modularity.

BlackSea also provides end-to-end expertise for 24/7 maritime operations, and they have a proven ability to both surge production and deploy in support of operational missions as required. Please turn to slide nine. One of the things that made BlackSea attractive is its well-capitalized infrastructure. This is not a company that needs capital to meet near-term demand. The company operates across five U.S. locations, Maryland, Virginia, North Carolina, Florida, and California.

The headquarters and manufacturing facilities waterfront location in Baltimore, Maryland, is a genuine differentiator. The research, development, test, and evaluation facility is 57,000 sq ft, equipped with two 30 ton bridge cranes. The production facility is 47,000 sq ft, and today has the capacity to produce approximately 40 small USVs per month. Just to frame that, at current run rate, that is meaningful headroom relative to the 350+ units delivered to date, which we expect would give us room to convert the backlog we have highlighted without incremental capacity investment on day one.

The facilities also have three attributes that are hard to replicate. Deep water access for testing and delivery, a robotic welding machine for consistent, high throughput hull fabrication, and facilities that support classified program work. Of course, the true value of BlackSea is its roughly 275 hardworking employees across the organization. These are talented people that are dedicated to the missions they serve, many of which have decades of experience helping to solve our nation's most complicated challenges.

The bottom line on this slide, we are buying a company with the physical plant, location, security infrastructure, and the workforce already in place to deliver on the growth we have described. Please turn to slide 10. Let me pull the pieces together before we go into a discussion of second quarter results. Strategically, we believe this transaction has the potential to make AEVEX one of the largest providers of battle-proven, autonomous air and maritime platforms, right as the department enters a multi-year super cycle in unmanned systems investment. Financially, it is disciplined.

We are acquiring a business that is expected to generate approximately $150 million of revenue in fiscal year 2026, with an expected growth rate at or above the market moving forward. The transaction is expected to be accretive in the near term, and the consideration mix is structured to align sellers with long-term AEVEX shareholder value creation. Operationally, we are acquiring proven platforms, an already built and highly scalable production operation, highly skilled, highly cleared, and highly mission-focused talent, and most importantly, customer trust that has been earned over decades, mission by mission.

On next steps, we expect to close in September of this year. Between signing and closing, our integration team, led jointly by AEVEX and BlackSea leadership, will finalize day one and our 100-day integration plans. After closing, BlackSea will operate as a business unit within AEVEX to preserve the customer relationships and the mission focus that makes it valuable. We will provide updated financial guidance when appropriate after close. We are confident that this is the right combination at the right time, and we are excited about what AEVEX and BlackSea will build together for our customers, our employees, and our shareholders.

Let's turn to a brief discussion about our second quarter results. Please turn to slide 12 for an update on what we are seeing across the industry today. To begin, the geopolitical environment remains complex, and the conflicts in Ukraine and the Middle East are pushing global defense spending high. We are seeing increased interest in and demand for autonomous systems, air and maritime, both here in the U.S. and from allies overseas.

Of note, we have seen a growing set of use cases for these types of systems over the last several months. The Ukrainians have increasingly demonstrated the impact of Long-Range Precision Strike capabilities against military and infrastructure targets deep inside enemy territories. We have seen widespread use of autonomous systems in the Middle East, including unmanned surface vessels across multiple mission sets.

For years, AEVEX has provided these types of critical capabilities to the U.S. military and its allies, and we are confident that we are well-positioned to continue to do so given our scale, innovative technology, and battle-proven systems. On the budget side of things, the President's fiscal year 2027 budget projects materially higher spending, particularly for autonomous systems. House passage of the NDAA is a supportive indication that our market is likely to see significant growth in the years ahead.

At this point, it appears the next fiscal year will start with a continuing resolution, which has become commonplace over the past decade or more. However, we do not expect that to have a material impact on our financial results in 2026. Moving forward, we expect to see follow-on production orders from existing contract vehicles across Launched Effects, One-Way Attack, and Long-Range Precision Strike.

As far as the contracting environment goes, demand signals for unmanned systems remain robust and were reiterated during interactions we had with DoW leadership during the quarter. That said, the Middle East conflict, changes to the acquisition force and processes, and operational reprioritization have elongated award cycles in some cases. Let's now turn to slide 13 to walk through the key highlights from the quarter.

First, we posted roughly 100% year-over-year growth, driven by higher UAS production, and our trailing 12-month book-to-bill landed at 1.08x. From an operational perspective, we continue to make progress with unit volumes up 114% year-over-year, with continued investments in our supply chain helping to drive throughput. Of note, we made the decision to both expand and consolidate our Tampa production facilities.

We expect this investment will provide greater operational flexibility, and it will more than double our capacity over the next year to meet what we see as robust demand. Margins continue to expand this quarter, driven by operational efficiencies, pricing discipline, and OpEx leverage. With regard to cash flow and working capital, we continue to post metrics that reflect a key focus on lean operations, disciplined capital deployment, and the need to balance the growth our customers require.

On teams and culture, we continue to make investments in workforce planning and team excellence, and we've made key hires to drive this initiative forward. We expect these efforts to improve operational effectiveness and produce additional efficiencies throughout the organization. We've also put in place public company retention tools such as an equity program and an expanded incentive compensation plan.

This is helping to drive improved retention across the organization and reinforce the behaviors that are important for the business. Finally, we recently announced two key hires. First, Murali Krishnan is serving as our Chief Growth Officer, responsible for continuing to scale our growth operations and delivering next-generation solutions to our customers. He has a long tenure of demonstrated success in the defense industry, most recently with Northrop Grumman, and I am excited to have him on the team.

Secondly, I am equally excited to have Chelsey Thomas join us as the VP of Government Affairs. Chelsey comes to us with more than two decades of experience, both on the Hill and in the defense industry, and she will lead AEVEX's government engagement strategy for both federal and local levels as the company continues to expand. Let's now turn to slide 14, where I want to talk a bit about order and backlog highlights.

We've announced several key awards since the beginning of our second quarter, including recent new orders to deliver Long-Range Precision Strike systems to the U.S. government customers, demonstrating the strong demand signals we are seeing today. Demand is dynamic and robust as our customers want flexibility given their changing mission needs. As a result, we are seeing increased levels of shorter cycle production orders, which is leading to a greater amount of what we describe as book-and-ship revenue.

That is revenue we generate from orders we receive inside any given year. As you can see in this table, backlog coverage for us at the beginning of fiscal year 2025 was 41%, and for fiscal year 2026, it was roughly 86% of our expected revenue at the time of our IPO. That stepped down to 82% in the first quarter, given the short cycle order activity we saw then, and it's now stepped down even further to 71% this quarter, given the recent orders and subsequent increase in the midpoint of our revenue outlook for the year.

In our view, this demonstrates that we have a system and a team that is highly capable of converting bookings and delivering revenue in a short cycle environment. That is important as our customers are focused less on traditional long-tail programs of record and more on procuring systems from companies that possess innovative technology, production scale, and battle-proven systems that can be delivered on rapid timelines.

From our perspective, this is a great outcome for AEVEX, as we can deliver across all of those metrics, and we are excited to be able to take advantage of future growth in the market. Which leads me to slide 15. Our pipeline of opportunities this year has grown from $8.1 billion at the end of 2025 to roughly $10.5 billion today. That growth has been driven by increased clarity on government budgets and priorities, our own product development efforts, and the expansion of the production capacity I mentioned earlier. As budget dynamics continue to evolve and become clearer, we expect our pipeline to continue to grow.

At the current pace, our proposal levels are on track to increase roughly 30% year-over-year in 2026. Finally, we continue to see roughly $2 billion in potential contract value across Launched Effects, One-Way Attack, Long-Range Precision Strike, and support to operations in the CENTCOM AOR. With several of our recent award announcements aligned with these four areas. With that, I will hand the call over to Todd for a discussion of quarter two financials and our upwardly revised outlook for the full year.

Thanks, Roger. Please turn to slide 16. Revenue in the second quarter was up approximately 100% year-over-year to $201.8 million, driven by the tactical systems business, where we are executing on a large unmanned aerial systems program named Deep Strike that was awarded last year. Net income was $6.7 million in the quarter, compared to a net loss of $11.8 million in Q2 2025. The increase was driven by higher revenue and margins and lower interest expense, offset by increases in transaction costs, income taxes, and change in fair value of derivative liability.

As you will note from our historical financials, both revenue and profitability improved in the second half of 2025 as programs were put on contract and production ramped up. This trend has continued into 2026, with adjusted EBITDA margins in the first and second quarters improving significantly year-over-year, driven by higher revenue, production efficiencies, and lower operating expenses as a percentage of sales.

Going forward, we continue to expect margins to resemble the second half of last year and the first half of 2026 than what we experienced in the first half of last year. Please turn to slide 17. Our tactical system segment saw revenue growth of 142% year-over-year to $174.2 million, driven largely by the execution of the Deep Strike program. The higher revenue led to operational efficiencies and segment adjusted EBITDA margins of 17% of sales in Q2 2026.

In our view, margin levels in the first half of the year are more reflective of the longer-term potential of tactical systems, though quarter-to-quarter fluctuations are likely to be driven by volume levels, sales mix, and the timing of research and development spend. Let's turn to slide 19. Our global solutions segment revenue decreased 5% year-over-year to $27.6 million, driven largely by the timing of an aircraft sale in Q2 2025 that did not repeat this year and was offset by growth across the rest of the portfolio.

This led to favorable sales mix versus last year into segment adjusted EBITDA expansion of roughly 700 basis points to 14.2% in the quarter. Please turn to slide 20. Net cash generated from operating activities for the six months ended June 30th, 2026, was $8.6 million, compared to net cash used in operating activities of $27.9 million for the six months ended June 30th, 2025. The $36.5 million favorable change in cash flow from operations was primarily due to the $66.8 million increase in net income offset by higher working capital, primarily due to the timing of our cash payments to fulfill the EUCOM Deep Strike program.

Going forward, we plan to closely manage working capital and capital expenditure. We note that we expect to invest in inventory levels to support our customers as need arise, as well as capital equipment and leasehold improvements to expand capacity. Turning to the balance sheet, we ended the quarter with $99.1 million in long-term debt and $215.2 million of cash on hand, driven by operating activities and the net proceeds from the April IPO, which were roughly $345.9 million.

As I mentioned on the Q1 call, we used those proceeds to retire existing debt and subsequently entered into new credit facilities. As of now, we have a $99.1 million term loan on the balance sheet and have access to two undrawn facilities, a $75 million delayed draw term loan and a $200 million revolving credit facility. In our view, the collection of these transactions currently provides the company with sufficient liquidity to execute its near-term growth strategy, including the acquisition of BlackSea.

Of note, the company did not receive any proceeds from the June 3rd, 2026, secondary offering. That transaction involved sales by our private equity sponsor, Madison Dearborn Partners, and other related parties. For clarity, this transaction did not increase our total shares outstanding and did not lead to shareholder dilution. Now let's turn to slide 21 for a discussion of the outlook for 2026. At this point, we expect total company revenues to land in the range of $700 million-$720 million, and adjusted EBITDA in the range of $105 million-$111.5 million for full year 2026.

Other noteworthy items include depreciation and amortization, which we expect to be roughly $21.7 million, and net interest expense to be roughly $11.5 million in 2026. Please note that this outlook does not contemplate the completion of the BlackSea acquisition. As discussed throughout the call, we had a great start to the year with strong performance in both our reporting segments, including higher accelerated material receipts that continued into the second quarter and which drove higher revenue recognition.

In the second half of the year, we will have more deliveries but less revenue given this phenomenon. The increase in our outlook is being driven largely by our tactical systems segment, where we are seeing significant demand signals and award activity. Importantly, as of this call, roughly 95% of the midpoint of our revenue outlook for the year is currently in backlog, with the remainder expected through renewals of long-standing contracts in our global solutions segment. With that, I would now like to hand the call back to Jason for Q&A. Jason, go ahead.

Great. Thanks, Todd. Operator, we are ready for the Q&A session. I just want to ask those that are queued up to ask a question to, perhaps in the first go-around, limit yourself to one single-part question and then hop back in the queue. We went a little long today, and I want to give everybody an opportunity to ask some questions. Operator, over to you for some instructions and to get us started. Thanks.

Thank you. We will now begin the 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. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Peter Arment with Baird. Peter, your line is open. Please go ahead.

Yeah, thanks. Good afternoon, everyone. Nice results, and congrats on the BlackSea deal.

Hey, thanks, Peter. Great to hear you.

Hey, Roger. EUCOM Deep Strike has been such a major contributor. Maybe you could just give us an update of how much of that program maybe has been recognized to date, or how much you're thinking about for the second half. I assume it lingers a little bit into 2027, just because it is such a major contributor. Just thoughts on that or any of the other kind of big pursuits that you've been pursuing regarding that. Thanks.

Yeah. Thanks, Peter. EUCOM Deep Strike continues to be a major program for us in fiscal year 2026. As we've talked about on previous calls, we will likely roll off the vast majority of revenue on this program and deliver the vast majority of systems this fiscal year. The first half of the year was largely driven by EUCOM Deep Strike as we received material that allowed us to drive deliveries in the back half of the year. We are continuing to roll off the EUCOM Deep Strike program as we deliver.

We will be going through a transition in the second half as we move from EUCOM Deep Strike program to other programs that we're in the process of winning and delivering on in the back half of the year for U.S. forces across the four portfolio areas that we talked about: Launched Effects, Long-Range Precision Strike, One-Way Attack, and certainly support to the combatant commands across multiple areas of operation to include CENTCOM. So we feel extremely confident about our ability to continue to execute EUCOM Deep Strike. We've got the vast majority of material in-house or on order, and we don't see any challenges relative to the delivery of this program in this fiscal year.

Peter, this is Todd. We do not give exact percentages, but the Q3 percentage of total revenue is less than what was in Q2 and Q1, and Q4 goes down quite a bit, then there is a little bit in 2027.

Got it. I appreciate the color. I will leave it at one. Jump back in the queue. Thanks, guys.

Thanks, Peter.

Your next question comes from the line of Seth Seifman with JPMorgan. Seth, your line is open. Please go ahead.

Seth, you might be on mute if you're there.

A reminder to unmute locally if you find yourself muted. Your next question comes from the line of Brian Gesuale with Raymond James. Brian, your line is open. Please go ahead.

Yeah. Hi, good evening, and congrats on the quarter and the acquisition here.

Thanks, Brian.

Wanted to dig in a little bit to the pipeline. Continues to grow. Can you give us some color around two areas? One, maybe the product type, if you are seeing any differentiation amongst the products like Atlas, Disruptor, etc. Then also how you think that might matriculate into order flow and backlog through the end of the year.

Yeah. So right now we are seeing a significant amount of interest in our Group II and Group III. In particular, the Group III Long-Range Precision Strike and One-Way Attack systems. This is the Disruptor and the Raker product line within our portfolio. You know, this demand is really being highlighted by current activities that we see in Ukraine as well as activities in the Middle East surrounded by Operation Epic Fury. So, as part of the elevation and growth of our pipeline, $8.1 billion-$10.5 billion, you know, we really see it in three major categories.

The first is that product differentiation and expansion that we are getting through execution of our innovation engine and our product development plans and processes. Two, better clarity around the pipeline, the demands, and the needs of the U.S. government as we think about operations into the future. Then the third piece is capitalizing on the scale and the capitalization we have done in order to increase the capacity of the organization. So, you know, we believe that we are well positioned to execute on the pipeline that we see with the platforms that we have today, as well as the new products that are going to be coming on over the next several years as we look out through 2030.

Fantastic. I will jump back in the queue. Thank you.

Thanks, Brian.

Your next question comes from the line of Connor Dessert with Goldman Sachs. Connor, your line is open. Please go ahead.

Hey, good afternoon, guys. You've got Connor on for Noah today. Thanks for taking my question.

Hey, Connor.

Hey. When I look at the implied margin guide for 2026, it's about 20 basis points higher than the full year outlook you guys gave last quarter, and that's despite revenue being about $100 million higher. Can you walk us through the margin assumption you're making for the full year and whether or not there's some conservatism assumed in terms of the operating leverage you might see on that much higher of a revenue base?

Yeah. So right now, if you take our midpoint guidance, we have $710 million of revenue for the year, which translates to about approximately $291 million second half of the year. We're at the midpoint on the adjusted EBITDA. We're at 15.3% approximately. So we're seeing a 15% roughly, if you do the math, taking out the first Q1 and Q2 of 15%. You know, sales mix and operational efficiency, it could be a little higher, could be. But right now we're forecasting at that level, which is pretty consistent to the first half on a little bit. We have a little bit lower revenue, obviously, in the second half compared to the first half.

Okay. Thanks.

Yeah.

Yeah. Okay. Thanks.

Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila, your line is open. Please go ahead.

Yeah. Hi, this is Adam Samuelson on for Sheila. I guess the question is on the backlog coverage and kind of where we end the year with the amount of book to ship activity that you've seen. I think in your prepared comments, you alluded to having 95% coverage for the second half in backlog based on the second half revenue. Is there that would seem to work down most of the funded backlog that you have. So just can you help us think about what amount of book to ship is actually assumed in the second half of the year, or how much of that backlog that you have is actually 2027 shipments? Thanks.

Yeah. So as you've mentioned, over 95% of our fiscal year 2026 revenue at the midpoint of our new guidance is funded backlog, and the remaining 5% or so is going to come through long-established incremental funding on existing contracts. You know, we've got a high degree of confidence in our fiscal year 2026 revenue, as well as our fiscal year 2026 EBITDA. When we think about the bookings that are going to roll in as we move through the back half of fiscal year 2026 and into fiscal year 2027, we're seeing strong demand across our key portfolio areas. Launched Effects, both short range as well as long range. Our Atlas product as well as our Disruptor family.

Long-Range Precision Strike, One-Way Attack, and as we talked about, support to combatant commands across multiple different areas of operation. When you look at those portfolio areas, we see roughly $2 billion in potential contract value. That includes several contracts that we are in active negotiation on that will result in bookings in the near term. We do anticipate a book-to-bill near 1.0x, given the raise that we've just given our guidance.

That will lead to an inflection point as we move through the back half of 2026 and in 2027, where we're expanding funded backlog and moving into 2027 revenue. So, you know, we feel really good about our book-to-bill. We feel great about our position and the strong demand signals and active contract negotiations that we have going on. We feel equally good about our ability to operate in a short cycle environment.

Now, what we're really seeing here is a dynamic where the acquisition system, the process, and the team is focused more on shorter cycle production contracts as they work to get systems into the field. This not only sets up for the stockpiling, but also the operational evaluation exercises and test events that gets our sailors, soldiers, airmen, and Marines reps and sets on the system. We think the dynamic here is really set up, and we feel good about our position ending 2026 and rolling into fiscal year 2027 with a set of conditions that's conducive to long-term growth.

Thanks. If I could just clarify, you said for the book-to-bill near 1x, is that a second half book-to-bill, or is that the full year of 2026 is the work?

That's for the full year of 2026.

Okay. That's very helpful. I'll pass it on. Thank you.

Thanks, Adam.

Your next question comes from the line of Austin Bohlig with Needham. Austin, your line is open. Please go ahead.

Yeah. Thanks for taking my question, and congrats on the results and the acquisition. I wanted to maybe just dig a little bit into the BlackSea opportunity here. I think you guys said it was $100 million funded backlog and $250 million unfunded. There's a ton of money up for grabs, it seems like, in this USV and UUV category. So I would just love to get a sense of what a pipeline opportunity looks like for this acquisition. Then maybe a sense of what the growth profile should be as we work into next year.

Yeah. First, let me start by saying we couldn't be more excited about the BlackSea acquisition and having them join the AEVEX team. It's strategically aligned, and it's exactly the type of acquisition that we signaled when we discussed our capital allocation approach and priorities. We believe that we are in the process with this acquisition of creating the largest pure play multi-domain air, surface, and subsurface autonomy and unmanned company in the market today. Both of these companies are delivering at scale battle-proven systems that are on timelines that are operationally relevant and really supporting real war operations.

It's that position, it's that capability of scale that really underpins a lot of the growth expectations that we have. We see significant growth opportunities and pipeline expansion as a result of this multi-domain capability that we're building, especially when you factor in the ability to cross-leverage the CompassX autonomy suite, right? It's really a differentiator when it comes to leveraging technology across these platforms.

As you mentioned, we are tracking $110 million in funded backlog and $250 million of unfunded backlog across the USV, GARC, Chaser, Comet, UUV, Raptor, and certainly the contested logistics areas, SPDS, NightTrain, and Revenge, with SPDS being an active program today. We see a dynamic globally where USVs and UUVs will become an increasingly large part of force structures. We're seeing this in the Middle East.

We're seeing it in Ukraine. We believe that structurally, over the long term, it's going to be a well-funded, supported priority as part of the budgets moving forward. Without giving specifics on what their pipeline looks like and what their opportunities do, which we will, as we move through close and provide additional financial guidance. I think the setup and the dynamic is there for significant year-over-year growth in the maritime systems piece of what will be AEVEX.

Thank you, guys.

Yeah. Thanks, Austin. Sven, I think we've got time for one more question.

Thank you. Your next question, and final question, comes from the line of Louie DiPalma with William Blair. Louie, your line is open. Please go ahead.

Roger, Todd, and Jason, good evening, and nice work on the BlackSea deal.

Thanks, Louie.

Given AEVEX's specialization in mass manufacturing, particularly for the Phoenix Ghost and DeepStrike programs and your existing relationships, is there the potential that you can supercharge BlackSea's growth? I think you indicated that the historical growth has been 15% annually. Are there expectations that cross-selling and your manufacturing expertise can potentially accelerate that over the coming years? Thanks.

Yeah. Thanks, Louie. First off, both companies are extremely well capitalized. They're capable of delivering at scale today. As we think about the headroom that both of these companies have to meet the strong demand in both unmanned air, surface, and subsurface, we think that we're very well positioned. When you think about where BlackSea is today, they've delivered over 350 systems to date, which we believe is one of the largest small USV installed bases in the U.S. At a capacity of over 40 systems per month in their 47,000 sq ft facility, there's a lot of headroom there.

When you combine that with the production capacity, the footprint, and the ability to deliver at scale at AEVEX, especially when you combine the fact that we just secured an additional 83,000 sq ft of production facility space based upon the demand that we have forecasted, the capacity to be one of the largest scaled providers of autonomous unmanned systems in the country is unique. It's a highly differentiated capability.

We absolutely see the opportunity to cross-sell unmanned air, unmanned surface, and subsurface as multi-mission, multi-domain capabilities are going to continue to be needed across multiple different operational scenarios. Our modular open technology stack, CompassX, really facilitates this collaborative capability across all of these different assets. We really, again, think the power of these two companies together, leveraged against our CompassX differentiated technology stack, makes for a unique and highly capable set of multi-domain, multi-mission, autonomous unmanned systems, which is perfectly positioned, in our mind, for where our customers are going.

Fantastic, Roger. Thanks. Thanks, everyone.

Thanks, Louie.

We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us and welcome to AEVEX first quarter 2026 earnings 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 Jason Gursky, Vice President of Investor Relations. Please go ahead.

Thank you for joining AEVEX's first quarter 2026 earnings conference call. I'm Jason Gursky, Vice President of Investor Relations, I'm pleased to welcome you here today. Joining me on the call are Brian Raduenz, Executive Chairman, Roger Wells, the company's Chief Executive Officer, and Todd Booth, AEVEX's Chief Financial Officer. Before we begin, please note that on this call, certain information presented contains forward-looking statements, including our 2026 outlook, backlog, total addressable market opportunity, production ramp-up, growth and M&A strategy, and capital allocation priorities. Our forward-looking statements are based on current expectations, forecasts, and assumptions, involve risks and uncertainties. These risks are described in AEVEX's reports filed with the SEC, including our IPO prospectus. I'd also like to note that we will discuss a number of non-GAAP financial measures on this call.

Our earnings, press release, and presentation, which were also published earlier today and can be found on the Investors section of the company's website, contain a reconciliation of any non-GAAP financial measure to the most directly comparable GAAP measure. The content of this conference call contains time-sensitive information that is accurate as of only today, May 20th, 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. With that, I'd like to turn the call over to Brian for some opening remarks.

Thanks, Jason. Good afternoon, and thank you for joining our first earnings call as a publicly traded company. Before we get into this quarter's details, I want to take a moment to express my sincere gratitude to the people who made this milestone possible. When we founded AEVEX, we believed a small, dedicated team could take on tough challenges and deliver meaningful capabilities to those who rely on us. Today, as I look across this company, I'm incredibly proud that we have grown into a thriving organization built on agility, innovation, and trust. To our employees, thank you. Your talent, determination, and commitment to our mission are the foundation of everything we've achieved and the culture that will drive game-changing results for years to come. To our customers and partners, we are grateful for your trust.

Your missions inspire us, and your feedback pushes us to constantly evolve and work on the best available solutions. To our suppliers, thank you for standing with us as we've scaled, adapted, and prepared for this next chapter. Your reliability and collaboration play a vital role in our success. To our new shareholders, welcome. We're excited to have you join us as we continue building on our strong foundation. Our IPO marked an important step forward, one that strengthens our ability to invest, expand, and accelerate our growth over the long term. As I reflect on the current environment, it's clear we've built just the right company for just the right time.

Defense planners are calling for a stronger industrial base for autonomous systems, for innovative, agile companies that can both respond to rapidly evolving operational requirements and produce at scale, and for new acquisition, for battlefield-tested solutions gain the advantage. For AEVEX, these priorities are in our DNA. We are also seeing bipartisan support and broad agreement that our forces need substantially more of the capabilities we produce and increased funding to bring them into the field. Affordable, autonomous systems like ours are now among the most effective solutions, which we believe creates durable demand. Our most recent proof point of our position in the market is our $18.5 million contract award from the US Air Force for delivery of autonomous aircraft for One Way Attack missions that we announced last week.

These additively manufactured Group 3 systems include our AI-enabled CompassX autonomy stack and are designed for affordability and mission effectiveness. That's a formula that works and a model we believe we can replicate and scale. This is an exciting time for AEVEX, and we intend to continue to be a leader through this transformational period for our industry. The results you'll hear from Roger today are early evidence of this alignment between our strategy, our technology, and where the market is headed. With that, I'll hand the call over to our CEO, Roger Wells, who will walk through our first quarter results and share more about the momentum we're seeing across the business. Over to you, Roger.

Thanks, Brian, good afternoon, everyone. It's a pleasure to welcome you to AEVEX's first earnings call as a public company. I'm excited to be here. I want to begin by thanking our employees for their unwavering commitment to supporting the critical mission needs of our customers. To our newest shareholders following the IPO, thank you for your confidence in our vision and in the work ahead. Before reviewing our first quarter results, I'd like to take a moment to reintroduce AEVEX to those getting to know us and to outline the priorities we're focused on over the next 12 months. Please turn to slide three. AEVEX develops and produces combat-proven autonomous systems that provide the U.S. and its allies a meaningful competitive edge on the battlefield.

To date, we've delivered over 6,200 systems, and we currently have orders to deliver over 3,900 units in 2026 alone. Our focus is straightforward: solve complex operational challenges through daily innovation while maintaining a relentless commitment to cost-effective solutions, high-volume manufacturing, and consistent delivery on timelines that are operationally relevant. Let's go to slide four. We do all of this from two complementary operating segments. Tactical Systems focuses on autonomous unmanned systems in both the air and maritime domains, as well as our differentiated mission autonomy software and technology stack, CompassX. Global Solutions delivers operationally focused services, including manned aircraft modifications that act as a force multiplier. Both segments are deeply embedded with our customers, helping us anticipate the needs and invest appropriately, whether through internal research and development to accelerate new capabilities, or through capacity to help ensure timely delivery of mission-critical assets. Please turn to slide five.

At this point, demand for what AEVEX produces is robust and growing. Autonomous systems are becoming more important to the strategy and tactics of the U.S. Department of War, and they are increasingly important to our international allies and partners. The FY 2027 presidential budget projects meaningfully higher spending across the very categories we serve, including UAVs and USVs, with over $50 billion in requested appropriations. The chart on the right-hand side of this slide reflects our view of the market before those incremental dollars flow through, which suggests upward bias on our total addressable market and growth rates. As the DOW's Defense Autonomous Warfare Group, the DAWG, finalizes plans for the billions requested for autonomous systems, we expect additional clarity and opportunity.

We think this further validates our belief that we are in a global defense super cycle where autonomous unmanned systems, similar to those provided by AEVEX, will be in high demand and part of every major conflict in the future. Our goal is straightforward: grow in line or faster than the markets we serve by continuing to innovate and scaling efficiently as volumes rise. Let's go to slide six. Autonomous systems are rapidly proliferating across the modern battlefield, and AEVEX is positioned with a portfolio of proven systems across both air and surface domains. Importantly, our platforms are backed by an internally developed and differentiated mission autonomy technology stack. This lets our systems operate in contested environments while offering a competitive edge in the market.

Beyond platforms, our advanced deployment architectures include in-theater additive manufacturing, designed to deliver next-generation capability forward, accelerate fielding timelines, and enable real-time adaptation in contested logistics environments where traditional supply chains cannot reach. Please turn to slide seven. We have customers across the military services, the intelligence and special operations community, and a growing base of international allies. These customers are engaged in complex mission in the most contested environments, and we're proud of these partnerships and of the tangible impact our systems have in real-world missions. Moving quickly to slide eight. I really like this slide, as I think it does a good job of describing our alignment with our customers and our differentiation from others in the market. The DAWG, as many of you know, is prioritizing open architectures, reduced vendor lock, scalability, and proven performance. AEVEX checks each one of these boxes.

Our platforms are modular, interoperable, and battle proven, helping us be highly competitive and to win new programs and awards. Let's go to slide nine. At the center of what we do is our CompassX navigation and autonomy ecosystem, which includes CompassCore, our integrated hardware and software architecture. This is then paired with AI-powered vision-based navigation, AI-driven mission planning and control, resilient positioning, and advanced mapping capabilities. Importantly, all of this is done by employing a modular open systems approach, or MOSA, that allows us to quickly and affordably plug and play leading and domain-specific payloads, software, and systems into our product. This way, our customers can get the most advanced solutions available on the market. In our view, this technology stack is a key differentiator for the company and helps meet the operational requirements that ultimately drive wins. Please turn to slide 10.

We couple our technology with a highly scalable, certified manufacturing footprint capable of producing over 1,000 units per month. This capacity far exceeds our current volume, supporting our long-term growth plans and giving customers confidence that we have the capacity of scaling at the pace that their missions require. Let's go to slide 11. We've talked about the fact that our technology approach aligns with customer needs and that we have the ability to ramp production. Now let's turn to our combat-proven systems. We have a broad portfolio of aerial and maritime unmanned systems that have been conducting successful missions for years with over 30 unique customers, and we have deployed over 35 unique UXS platforms in the last three years.

Our products have been out there succeeding in incredibly challenging environments by providing critical mission needs to the warfighter, all powered by our CompassX autonomy platform that has delivered time and again. Please turn to slide 12. I think the benefit of this experience is best demonstrated by the work we've done to support operations in Ukraine. We successfully executed on the Phoenix Ghost program for 2022 to 2025, providing the Ukrainians capabilities that met their urgent timeline and helped them defend their country against a much larger adversary. Our success on that program led to a follow-on program that we continue to execute today, which we call the EUCOM Deep Strike program. Taken together, these programs account for over 9,300 systems delivered and committed through the end of 2026 to support combat operations and $1.2 billion in total contract value.

They've also helped inform our customers' views on what the future of drone dominance can look like. All this has opened up a robust pipeline of over $8 billion across the full range of our UAS and maritime platforms. Please turn to slide 13. Our growth strategy is diversified and momentum is strong. We're capturing share with existing U.S. customers, expanding our domestic base, growing internationally as allied budgets rise, moving into high-value adjacencies, all while evaluating strategically aligned M&A. Let's move to slide 14. In the near term, we are focused in on 4 areas of critical need for our U.S. customers, which provide us line of sight on opportunities for growth and broader diversification over the midterm. These areas include both service-level requirements for Launched Effects, One Way Attack, Long Range Precision Strike, as well as combatant command needs, particularly in the CENTCOM AOR.

These represent over $2 billion in potential follow-on and new work. We feel well positioned across all four of these pursuits, with several initial production awards already in place. The precise timing of additional DOW bookings is always fluid. We have active proposals and negotiations ongoing, and we anticipate a healthy backlog position exiting the year on the heels of awards across these four specific pursuits. That's just four pursuits. We are, of course, actively working many more, both domestically and internationally, that in our view, could strengthen the growth outlook even further. Please turn to slide 15. The organic growth we just discussed could be further bolstered over time by disciplined M&A.

We expect to be acquisitive, and we expect to focus on adds that strengthen the core, provide opportunities to move into strategically aligned adjacent markets where we can be competitive, help us garner access to innovative technologies and key skills, or that further differentiate our solutions. Like awards on the organic side, it's tough to predict the timing of M&A, but we have several active pursuits, and we'll be looking to provide updates on those, if any, at the appropriate time. Let's move to slide 16. Let's turn our attention now to 2026 and focus areas for the year. Todd's going to go through quarter one numbers in a few minutes, but I wanted to first lay out our five key priorities. To begin, and not surprisingly, after all that I've discussed thus far, we are focused on accelerating growth.

We are actively shaping several large programs in the pipeline, and we're continuing to invest to help us secure those wins. At this point, we anticipate a book-to-bill in excess of one for the full year and to enter 2027 with solid backlog coverage. We're also focused on enhancing operational performance, including driving operational efficiency and scaling production. I talked earlier about this being a key area of differentiation for us, but it's still something that you have to go do. We're laser-focused this year on enhancing program management, integrating our business systems, and implementing AI-aided execution tools to improve efficiency, supply chain management, and our industrial partner ecosystem to increase resilience. We've been successful to date in demonstrating our ability to produce at high levels, but there's always more to do. Of course, we're focused on expanding margins.

We expect to achieve this by working to keep cost in check to drive OpEx leverage, maintaining discipline with our bidding activity, and driving operational efficiencies through continuous improvement. We're focused on improving working capital efficiency and driving higher levels of free cash flow. Finally, we're going to focus on continuing to build high-performing teams and a success-minded culture. We'll be looking to attract the best talent and add experienced folks to the team, create professional development opportunities, and put a comprehensive workforce management system in place. Before I turn the call over to Todd, I'm going to walk through the key highlights from this first quarter. Please turn to slide 17. We experienced solid revenue growth driven in large part by the EUCOM Deep Strike program.

Bookings this quarter were in line with expectations. We expect to see growth through the rest of the year as we hit key program awards in the months ahead. Importantly, our trailing 12-month book-to-bill was 1.16 at the end of quarter one, with several important awards during the quarter for our Atlas product and the Tactical Systems segment and for margin-accretive follow-on work in Global Solutions. From an investment perspective, we made progress in the development of the second version of our CompassX technology, which is designed to provide customers with even better modularity and functionality across all our platforms. Its smaller, lighter form factor is easier to produce, which should help us drive costs down and improve our competitive positioning in the market.

On the operational performance side of the equation, unit volumes were up roughly 440% year-over-year in our Tactical Systems business, demonstrating the company's ability to scale production. We also continued to develop our supply chain capability with focus on enhancing material planning and sourcing. These efforts are yielding positive impact on the vendor base and material flow through the supply chain, factory, and into products. Importantly, on-time delivery rates improved as the quarter progressed, and we're seeing less rework on the factory floor, a clear demonstration that operational efficiency continues to move in the right direction.

Our adjusted EBITDA margins improved nearly 4,200 basis points this quarter versus a year ago, driven by higher volume, improved efficiency, better product mix, and operating expense leverage. With regard to working capital and free cash flow, both improved this quarter versus a year ago, and we continue to focus on contract terms with suppliers and customers and on a disciplined capital deployment to allow us the opportunity to fund strategic growth opportunities. Finally, we continue to make investments in systems that will improve our workforce planning and in programs that will help us retain top talent. As a result, our employee Net Promoter Scores are strong and improving, showing that AEVEX employees are increasingly excited about the work at the company. With that, let me turn it over to Todd for a discussion of our Q1 financials and our outlook for 2026. Todd, go ahead.

Thanks, Roger. I too would like to welcome everyone to our first earnings call as a public company. I'm excited to be here and to work with our customers, employees, suppliers, and shareholders in the years ahead. What I plan to do today is walk through the company's results for the first quarter, including segment-level details and cash flow dynamics, then provide an update on the balance sheet, particularly considering the recent IPO. I will then end with a discussion of our outlook for 2026. Please turn to slide 18. Revenue in the first quarter was up 307% year-over-year to $216.7 million, driven by the Tactical Systems, where we are executing on a large unmanned aerial system program named EUCOM Deep Strike that was awarded last year. Net income was $21 million in the quarter, compared to a net loss of $27.3 million in Q1 2025.

The increase was driven by higher revenue, operational efficiencies, and lower research and development spending. As you will note from our historical financials, both revenue and profitability improved in the second half of 2025 as programs were put on contract and production ramped up. Importantly, this trend continued into 2026, with adjusted EBITDA margins in the first quarter improving significantly year-over-year, driven by higher revenue, production efficiencies, and lower operating expenses as a percentage of sales. Going forward, we expect margins to be more similar to the second half of last year and the first quarter of 2026 than what we experienced in the first half of last year. Please turn to slide 19. Our Tactical Systems segment saw revenue growth of 548% year-over-year to $190.8 million, driven largely by the execution of the EUCOM Deep Strike program.

The higher revenue led to operational efficiencies and adjusted EBITDA margins of 20.2% of sales in Q1 2026. In our view, this quarter's margins level are more reflective of the longer-term potential of Tactical Systems, though quarter-to-quarter fluctuations are likely to be driven by volume levels, sales mix, and timing of research and development spend. Let's turn to slide 20. Global Solutions segment revenue increased 9% year-over-year to $25.9 million due to higher revenue from aircraft modifications and testing products and services which have good margins. This favorable sales mix and higher sales volume led the segment adjusted EBITDA margins to 16.2% in the quarter. We believe margin rates in Global Solutions going forward in 2026 will be slightly lower than Q1 2026, given the mix of programs. Please turn to slide 21.

In operating activities for the three months ended March 31st, 2026, was $10.4 million, compared to net cash used in operating activities of $20.1 million for the three months ended March 31st, 2025. The $9.8 million favorable change in cash flow from operations was primarily due to the $49.1 million increase in net income, net and non-cash items, offset by the $39.3 million net decrease in operating assets and liabilities during the three months ended March 31st, 2026, versus the $700,000 net decrease in operating assets and liabilities during the three months ended March 31st, 2025.

The $40.1 million net decrease in operating assets and liabilities during three months ended March 31st, 2026, is primarily due to the timing of our cash payments to fulfill the EUCOM Deep Strike program versus the timing of cash receipts from the customer, combined with an overall increase in revenue in the first quarter of 2026 versus the fourth quarter of 2025. Going forward, we plan to closely manage working capital and capital expenditures, Note that we expect to invest in inventory levels to support our customers if the need arises. Turning to the balance sheet, we ended the quarter with $257.9 million in debt and $27.4 million of cash on hand. These metrics have changed significantly since the IPO in April. Net proceeds from the IPO were roughly $345.9 million.

Importantly, subsequent to the IPO, we also entered into new credit facilities and as of now have a $100 million term loan on the balance sheet and have access to two undrawn facilities, a $75 million delayed draw term loan and a $200 million revolving credit facility. We used the proceeds from the IPO and the term loan to pay down debt and add cash to the balance sheet. In our view, the collection of these transactions currently provides the company sufficient liquidity to execute on its near-term growth strategy. Let's turn to slide 22 for a discussion of the outlook for 2026. At this point, we expect total company revenues to land in the range of $600 million-$620 million, and we expect adjusted EBITDA in the range of $88 million-$94.5 million for 2026.

Other noteworthy items include depreciation and amortization, which we expect to be roughly $21.3 million, and interest expense to be roughly $13.2 million in 2026. Of note, this guidance is predicated on some major assumptions that I would like to point out, including our expectation the government will remain open and that the general contracting and funding environment does not materially change. Finally, I would like to take a few minutes to discuss the expected cadence of revenue and adjusted EBITDA this year to help with your modeling. At this point, we expect first-half revenue to represent 62%-64% of the midpoint of our full-year guidance for revenue, and for adjusted EBITDA to represent roughly 65%-67% of the midpoint of our fully adjusted EBITDA guidance.

As discussed throughout the call, we've had a good start to the year, with strong performance in both of our reporting segments, including higher accelerated material receipts that continue into the second quarter and which drive higher revenue recognition. In the second half of the year, we will have more deliveries but less revenue given this phenomenon. With that, I would now like to hand this call back over to Roger for some closing remarks. Roger?

Great. Thanks, Todd. Please turn to slide 23. Before turning it over to Jason for Q&A, I want to spend a few minutes talking about how we're viewing the world on a multi-year basis. We're not going to get into practice or providing out year guidance. I thought a framework on how to think about our financial model would be helpful for investors. First, our goal is to grow in line or faster than the underlying markets we serve. Our strategy to do that is to stay aligned with our customers' requirements for open architectures, scale production, and proven products. Fortunately for us, market growth looks like it's going to be healthy over the longer term, driven by increased adoption of autonomous systems, and in the near term, by the operational tempo of our customers.

Second, our focus will be on trying to expand margins year-over-year through scale, absorption, productivity mix, and OpEx leverage. Third, we plan to be prudent with our capital, with deployment priorities focused first on IRAD and CapEx to drive innovative new products and scalable production, followed by M&A, and then debt paydown. Finally, leverage. We have very little of it now post-IPO, but we've operated at higher levels in the past, and we expect to remain flexible, including with the use of debt to fund organic and inorganic growth when we see the right opportunities. At this point, we think roughly 3.5x leverage would be our targeted upper bound. To wrap up, I'm really excited about what's in front of us at AEVEX.

We believe the markets we are serving are poised for substantial growth, driven by a strong customer demand for ever-increasing levels of autonomy. Our technology stack is combat-proven in the most challenging operational environments, and our production system is primed with capacity to scale. All this points to expected robust organic growth and margin expansion in the years ahead, which we anticipate will be supplemented with prudent capital deployment into M&A. Importantly, with our recent IPO proceeds, we now have improved financial flexibility to aggressively execute on our growth strategy. With that, I'm going to turn things over to Jason to conduct the Q&A session.

Thanks, Roger. Operator, at this point, I'd like to hand the call back over to you to conduct the Q&A session. Before we do, I just want to ask everybody to limit themselves to one primary question and one follow-up. With that, Operator, please open up the lines for the Q&A session. Thanks.

We will now begin the 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. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Noah Poponak with Goldman Sachs. Your line is open. Please go ahead.

Hey. Good afternoon, good evening, everyone, and congrats on being out.

Hey, thanks, Noah, appreciate it. Great to have you here.

Maybe instead of two questions, maybe one kind of long one. I think the market sees the strength in the product and the strategy and the long-term growth in unmanned. I think the big question people have in the near to medium term is the transition from Ukraine-oriented to not Ukraine-oriented. All the numbers you gave here imply the second half of 2026 revenue is a decent amount lower than the first half. We know you plan to grow next year, so that run rate of second half 2026, if that continued into 2027, you wouldn't grow next year. Help me understand the shaping. I guess the funded backlog kind of covers this year. The funded backlog is going to need new additions to it, right? In order to grow next year and complete this transition.

Maybe you can give us more color on the shape and composition of the backlog as you go through the year. It kind of looks like you're saying there's a little bit of a lull sort of back half 2026, first half 2027, as you're ramping down Deep Strike and winning new business, and then the new business is kind of ramping as you go through 2027. It's just, any help you can provide on triangulating all of those pieces, I think would be super helpful to the market.

Yeah, sure. Let me unpack a little bit of that, Noah. First, we have a healthy backlog position, and at this point in the year, we have over 90% of our fiscal year 2026 revenue covered in funded backlog. At this point in the year, we're positioned to continue to build backlog for next year. A really, really healthy position. As you point out, we continue to see strong demand for our products and technologies from a diversified customer base across several key program portfolios. Namely, Launched Effects, which we had secured bookings and orders for in the first quarter, and continue to see those transitioning from pipeline into backlog as we go through the year. One Way Attack, Long Range Precision Strike, and then certainly support to combatant commands across multiple AORs, including CENTCOM, which will offer potential upside.

As we pointed out in the prepared remarks, the trailing 12-month book-to-bill was 1.16, and we do anticipate having a book-to-bill over one for the year, which gives us a healthy funded backlog as we move into 2027. As you rightly point out, the first half of 2026 is heavily loaded, as we've accelerated material into the first half of the year to support accelerated deliveries for our customers. It's something that they've asked for, it's operationally important, and we're focused in on doing that. The second half will be, as we pointed out, less revenue than what we're seeing in the first half, but it still gives us the opportunity to continue to build on the book of business we're seeing.

I think a couple of great examples that point to progress that we're making on those portfolio of programs, the $18.5 million of awards for One Way Attack that Brian mentioned in his opening remarks. Today, we also announced another $15.6 million for our Long Range Precision Strike capability. We are continuing to execute on orders. We are responding to numerous RFPs. We are in active negotiations across a number of contracts, and really see strong demand and a portfolio of programs that will transition from our pipeline into backlog as we move through the rest of this year.

That's super helpful. You expect to end 2026 with a funded backlog higher than where you ended 2025, despite burning off the Deep Strike out of the backlog through the year?

Yeah, I think we're set up for a very healthy backlog that is supported by our scale and production capacity. I think when we think about an actual number, it's going to be heavily predicated on the timing of orders, which are hard to predict, and the delivery schedule that our customers are going to ask for. We do feel really comfortable with not only the quantity and timing of the orders that are going to come through in the back half of the year, but also our ability to operate in a short cycle environment where we are quickly converting backlog into revenue.

Right

I don't wanna afford, at this point, an ending or starting backlog. I think it's safe to say that we've got a lot of confidence and conviction in converting our well-qualified pipeline into opportunities for the year, and confidence in 2027's revenue growth.

In any one year, what % of revenue, just even if super roughly, should we expect to be that shorter-term book-and-ship?

Yeah, I think, again, it's going to vary. I think we're seeing focus and priorities change as we enter into operational scenarios and needs. I think, again, when we looked at 2026, we came in at around 80% coverage. I think that, again, we'll roll in with a healthy amount of backlog and the ability to convert, book, and ship within the year, consistent with the growth that we're anticipating for fiscal year 2027.

Okay. Thank you very much. I appreciate the details. Thank you.

You got it, Noah. Thank you.

Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is open. Please go ahead.

This is Kyle on for Sheila. I had a little bit of a more high-level one on operational readiness, maybe. You call out in the slide some of the commentary out of the Department of War about procuring potentially millions of drones on an annual basis. You're on pace to maybe do 4,000 this year in total, and talked about scaling towards 1,000 per month. Can you give us a little color in terms of how you bridge towards that higher production capacity from here? When you hear those high-level numbers, how you think about winning what you would determine to be sort of your fair share, and ultimately, how yourself and the supply chain are really ready to do those higher volumes?

Yeah. High level, we firmly believe that autonomous and unmanned systems are going to be a part of every conflict in the future, and that's been validated in Ukraine. We're certainly seeing it be reinforced with what's happening in the Middle East. Generally, a strong need for these types of systems. We have a production system in place that's capable of delivering over 1,000 systems a month. We've continued to build the infrastructure to ensure that we can scale as our customers bring in orders and demand. When we think about the total TAM, obviously there's multiple different classes of unmanned systems. We are seeing a strong focus from our customers on the Long Range Precision Strike capabilities and the One Way Attack capabilities, and a priority around supporting both current operations as well as the operational capability demonstration, evaluation, events, and training.

We really see a setup where the types of products, technologies, and solutions that AEVEX brings are well-aligned with what the customer is budgeting for and planning as part of their force projections in the future.

I'd just add one thing, that sometimes when you're talking about those numbers, the Group 1 drone space, you could buy a lot of systems with $5,000, and that's obviously not where we're playing. We're very comfortable with our projections and getting more than our fair share in the areas that we're playing in.

Thanks. If I could just follow up on the supply chain there. I think in the prepared remarks, there was some color about material receipts being better than expected, some reduced rework, and things like that. Can you just talk about where you would expect maybe there to be pinch points as you grow the production system?

Yeah

confidence there is in the supply chain?

Let me talk about fiscal year 2026, and then maybe give some color on a broader perspective. We have the vast majority of our material for the year, either in inventory or on order. We don't see a lot of risk associated with margin compression this year due to supply chain risks. Similarly, the material receipts that we have forecasted are well within our production and delivery window. We'd assess the revenue risk for fiscal year 2026 as low as well. We feel really good about the supply chain position that we have currently against the revenue and deliveries that we forecasted. Certainly for new and follow-on orders, we're pricing accordingly. Now, from a broader perspective, we've really built a very resilient and robust supply chain infrastructure over multiple years as we've scaled and built systems for a broad range of customers.

We have a mature and well-structured BOM with a solid supply chain ecosystem built around it. We have largely onshored our supply chain and created NDAA-compliant systems. We've implemented strategic supply and pricing agreements, as well as alternative sources of supply for all our critical components. We've effectively leveraged our balance sheet to bring critical components in ahead of potential downstream supply chain risk. We really feel good about where we are from a supply chain perspective and believe that we've done a really good job of mitigating risk, not only for FY 2026, but for the future. Additionally, I'd say our modular open system architecture lets us very quickly and very affordably integrate new technologies and components right into our system, which further mitigates the risk of supply chain constraints and obsolescence in the tech stack.

Thank you.

You got it. Thank you.

Your next question comes in the line of Kenneth Herbert with RBCCM. Your line is open. Please go ahead.

Yeah. Hi, good afternoon, Roger and Todd, and everybody. Congratulations again. I just want to maybe start off, you've called out, continued to call out some of the same programs, Launched Effects, One Way Attack, Long Range Precision Strike, and others, and feel pretty good about your potential there. When you look at the absolute amount of money, whether it's through the Defense Autonomous Warfare Group or other funding vehicles, it seems like there would be an expectation that the opportunity set for you should expand, especially as you think about, obviously, where the business can be in the next three to four years. When do you expect to be able to talk about sort of other opportunities beyond sort of what you've outlined today? Is that something we should expect this year, just considering your confidence around bookings this year?

As part of that, how well-defined do you think the customer is in their thinking around taking some of these high-level numbers? I know, obviously, we don't have a fiscal 2027 budget. How well-defined do you think the customer is in shaping some of these into programs that could ultimately be bid upon and won by you?

On the four primary programs that offer revenue diversification as well as product diversification, just want to point out that they're a portfolio of programs. We're going to see multiple opportunities and programs or production contracts within each one of those categories. There are more programs as we move forward, as we develop and book those pieces of business. Similar to the OWA contract we just received and the Long Range Precision Strike. We'll be highlighting those as proof points as we go along. Again, we really see those four areas as significant opportunity spaces, over $2 billion in opportunity value. That gives us the confidence as we roll off the backlog associated with the EUCOM Deep Strike program. Really setting us up for that revenue in the back half of 2026, 2027, and beyond.

As you point out, those are just four pieces of our portfolio. We have over 30 unique customers, and we typically execute over 100 active contracts a year. A lot of them are smaller than these four portfolio areas. However, they are growing. I will give a great example in our Mako. We have a growing and developing portfolio of capabilities in the unmanned surface vehicle market. Over the next several years, we see that growing and expanding. I also think that we are going to see a significant amount of international work as we develop opportunities with our partners and allies around the world. While it is relatively small, single-digit revenue in fiscal year 2026, we do see this grow to be a significant percentage of our revenue out over the next several years.

Just a couple of examples of that, we've recently won work with Finland, with Chile, and with Lithuania. Great examples of how we're developing and growing international revenue, certainly at an accretive margin. As we move through the year, as we move through the execution and conversion of our pipeline into backlog, we'll be highlighting and showing off these cases as proof points around the revenue diversification and growth.

Great, thanks. Just as a follow-up, has anything changed in your view that Ukraine revenues should go to zero in 2027? Are you getting any signals that we could see that bleed into 2027 or be a source of revenue in 2027 as well?

Yeah, as we've highlighted, we haven't factored in any follow-on Ukraine work from the EUCOM Deep Strike program into our financial growth projections for 2027 and beyond. Obviously, if they come through, we're well-positioned to execute on those, and it would offer upside to our existing forecasted growth rates.

Great. Thank you.

Yeah, you got it, Kenneth. Thank you.

Your next question comes to the line of Louie DiPalma with William Blair. Your line is open. Please go ahead.

Thanks. Roger, Todd, and Jason, good afternoon. Also, I say congrats on your IPO and the inaugural earnings call.

Absolutely.

My question is, it's been well-documented that your Phoenix Ghost Disruptor was one of the leading drone aircraft systems in the Ukraine theater. Are you able to share whether your aircraft have been utilized in the Middle East theater? Related to this, the LUCAS long-range drone platform that replicates the Shahed, that has gained significant attention in the Middle East conflict, and it seems that your Disruptor has significant overlap with that LUCAS system. How does Disruptor compare with LUCAS, and what's the general potential involvement in the Middle East? Thanks.

On the Phoenix Ghost program, we deployed numerous different systems across Group 2 and Group 3. That portfolio of capabilities that were deployed operationally as all-combat capability really informed how we thought about developing the capabilities, the technology, and the solutions that were going to be required as missions evolved and combat evolved. The Disruptor was certainly a key piece of that. Over time, we've continued to develop and evolve that platform and make it a more sophisticated, more capable, long-range, precision strike system. I think where we really differentiate ourselves is the fact that our systems, to include the Disruptor and the Disruptor family of platforms, have the capability of operating in highly contested environments where GPS is being jammed, communications are being denied, electronic warfare is being deployed, and across the battlefield by a technically sophisticated adversary.

The capabilities that we've evolved through our experience in Ukraine and in close working relationship with our U.S. government partners, have given us this really unique and differentiated set of capabilities that we bring to market. I'm not going to comment about whether or not our systems are operationally deployed with specific customers in various AORs, other than to say we are actively supporting the needs of our customers with combat-proven, highly flexible systems as the need arises. When we think about our position in the market and our differentiation, I would point out a couple of things. One, we are combat-proven, having delivered over 10,000 systems by the time we end FY 2026, with the vast majority of them being put into combat, we've got scale.

We've got a flexible manufacturing system that's capable of producing over 1,000 systems a month affordably and on timelines that are operationally relevant. We've got a technology stack that is built to be modular and be open, giving our customers the ability to very quickly configure the systems to meet their specific mission needs. Those really come together to highlight how we differentiate ourselves in the market and how we differentiate our systems' capabilities on the battlefield.

Louie, this is Brian Raduenz. I'd just add, too, we're here at SOF Week this week, and we have had a whole parade of senior military officials coming by to thank us for our recent performance and what we've been doing for the community. We'll kind of leave it at that, but there's a lot of folks that are very impressed with the work that we've been doing.

Definitely, I was at your booth at SOF Week, meeting with Manan Patel. Another question, the backlog for your EUCOM Deep Strike program, it has been winding down. You've been very clear about that. Is there some potential that a portion of the program's funding is renewed and simply redirected to other geographies?

Yeah. Our focus is really on meeting the contractual terms of the contract, and it's a very important customer for us and a very important need. We are delivering to that customer, to the contracts, and how they deploy those systems is something that we won't comment on. Again, it's safe to say that we're very closely aligned with all of our customers. We are producing the systems that they need to support not only real-world operations but also the events associated with technology evaluation capability, effectiveness assessment, and training. We're going to keep our focus in on operational delivery and making sure that we continue to evolve our technology stack.

Excellent. Thanks, everyone.

Great. Thanks, Louie.

Your next question comes from the line of Brian Gesuale with Raymond James. Your line is open. Please go ahead.

Good evening, guys, thanks for taking my questions. Great job on the first print here. The after-hours trading seems to like it quite a bit. Lot to like there. I wanted to just kind of dig into the pipeline a little bit. The $8 billion has grown substantially over the course of the last year, but really even over the last couple of months, it appears. Can you give us a sense for when you expect the majority of that work to be contracted out? Maybe also when you look at that pipeline, does that matriculate into, when you talk about a book-to-bill greater than one, $20 million or $30 million awards, are there a couple of hundred-plus million dollar awards in there when you look at the complexion of that?

How might we think the rhythm of that progresses throughout the calendar year here? Thank you.

Yeah. We have a well-qualified pipeline. As you mentioned, it's over $8 billion. It continues to grow and expand. It's really composed of opportunities that are either sole source follow-ons, opportunities that are extensions of existing production contracts, or opportunities that we believe we've got a highly competitive capability with limited competition. We think that our pipeline is really prepared to transition from opportunity into funded backlog. The majority of that pipeline takes us out through fiscal year 2028, although, from a sales force perspective, we have opportunities that go out through fiscal year 2030. We're focused in on making sure that as we develop the products and technologies, as we shape and work with our customers to ensure that they're getting the systems and the capabilities they want, we're constantly looking at scale, we're looking at configurability, and we're looking at mission effects.

The opportunities that we have in the pipeline consist of $50 million opportunities that we think will come in incremental chunks as well as larger opportunities that we think will transition and execute over multiple years. There really isn't a single contract type or single production quantity or configuration in our pipeline. It's really designed to meet the needs of our customers, both operationally as well as budgetarily. What I will say is that we continue to see demand grow across all of our product portfolios. The Group 2, Atlas systems for the Launched Effects–Short Range and the hunter killer type collaborative autonomous operations, the Group 3 Long Range Precision Strike and One Way Attack capabilities in our Raker platform and our Disruptor platform, and then certainly a growing position in the unmanned surface vessels with the Navy, as well as multiple different international partner.

Really, again, a high degree of conviction in our pipeline and the belief that our systems are well-positioned to meet the needs of our customers on a timeline that makes sense for them.

Appreciate the detail there. Thank you very much. Maybe just one, the ForgeX seems to be a very differentiated part of the business. I'd like to give you just maybe a minute or two to riff on some of the opportunities, how you're seeing that grow. Obviously, you're getting some orders, which are really encouraging, but maybe just take us into the growth of interest from your customer sets with that very unique capability.

Yeah. The additive manufacturing capability was brought to AEVEX through a strategic acquisition of the assets of RapidFlight. Not only did it bring a portfolio of additive manufactured systems, the Onyx, the Raker, the Vandal, that are seeing significant adoption by our customers, but it also brought us the knowhow, the design, the technology to conduct additive manufacturing. We're actually incorporating that into our manufacturing system to produce more efficiently, more effectively, and more quickly for our customers. We're incorporating additive manufactured parts across all of our product lines. The ForgeX. The ForgeX is a capability where we've built additive manufacturing systems and capability into a deployable container.

That gives us the ability to not only provide additive capability, the ability to produce systems and components downrange, but it also gives our customers the opportunity and capability to take that downrange and fix systems that are broken, manufacture new components to adapt and integrate new payloads and systems. It's a great capability, and it'll allow our customers and ourselves to overcome some of the challenges associated with geographically distributed and contested logistics.

Great. Appreciate the color. Thanks so much.

Your next question comes to the line of Ronald Epstein with Bank of America. Your line is open. Please go ahead.

Hey, good afternoon. Good evening, guys. Can you speak a little bit to capital deployment, in particular, what you're seeing in the M&A pipeline, and if there's any areas that you're interested in terms of, is it little motors, or is it components, or what it could be?

Yeah. Thanks, Ron. Hey, we're going to focus in on good companies that are growth-oriented and accretive in nature. We're going to be very active in this front. While we can't forecast the timing of downstream activities, we will be implementing a very disciplined and strategic approach to acquisition. I think they really fall into three categories. We're going to look at companies that strengthen the core and bring both platforms and capabilities that enhance our offerings. We're going to be looking at opportunities to move into closely aligned adjacent markets where we believe the combined power of AEVEX and the acquired company will allow us to accelerate growth. We're going to be looking at acquisitions that have really innovative technology that enhance our strategic position, not only across our portfolio, but also within our CompassX ecosystem.

Those are really the three areas that we're focused in on. What we won't be doing is any transformational M&A that deviates from our business model, our strategy, or our approach to growth. Some of the areas that we would look at from an adjacency perspective would be expanding into the unmanned surface vessel more aggressively, potentially unmanned surface vehicles, counter-UAS from the perspective of fast interceptors, something that we're strategically aligned with in our existing portfolio, or other adjacent markets that enhance our systems capabilities in an ever-changing, dynamic battlefield.

Got it. Then, from an evaluation perspective, what are you seeing in private markets? Can you speak to that at all?

Yeah. I'm not going to forecast what we would be looking at from a valuation perspective. Really, again, we're going to be looking for good companies that are growth-oriented and accretive financially to what we have now. We've got a very healthy balance sheet and the ability to deploy both capital and stock to bring in these good companies. I would see a leveraged position with an upward bound of about three and a half times, and certainly, obviously, using our equity as capital to bring in companies that we think are very closely aligned and can help us grow.

Got it. Thank you very much.

Yeah. Thanks, Ron.

Okay, operator, I think we've got time for one more question.

Your last question comes from the line of Jan-Frans Engelbrecht with Baird. Your line is open. Please go ahead.

Good afternoon, Roger, Todd, and Jason. Congrats on a really strong print here out of the gate. I'm on for Peter Arment today. Just maybe a high-level question. If you guys can talk about Group 2, Group 3, how should we think about the typical refresh cycle? Just in terms of R&D, was modestly down for AEVEX this quarter, but the need to continue spending on R&D as a percentage of sales, what is sort of the right ballpark? Just in terms of if you look at budget, it's obviously going to attract even more competition. How do you sort of stay ahead of incumbents and just new entrants as well?

We're going to continue to focus on building the capabilities that our customers need. FY 2025 and into the first part of 2026 was really focused in on building the next generation of system, our Atlas class of Group 2, which we've actually gotten significant traction on with the Army's Launched Effects–Short Range, as well as continuing to enhance our CompassX differentiated technology stack, enhancing our ability to do precision navigation, and timing, and autonomy. Our collaborative approach, as well as mission effects for terminal guidance and automatic target recognition and identification. We are going to be very focused and in lockstep with our customer, ensuring that the investments that we do make are a part of a well-structured product development roadmap, and designed to meet the needs of our customer.

Really, we're building off of a long legacy of combat-proven operations and a deep, trusting, and strong working relationship with our customers. The percentage in our mind is less important as it is making sure that we are executing the innovation, the research and development, and the product improvement that our customers need to be successful on the battlefield. Certainly, we're going to use internal research and development dollars as well as CapEx as part of our growth strategy organically. We also work very closely with our customers to execute contract-funded research and development as well. We think that we've got a strong and good base to build from. We've got a portfolio of platforms and technology that is well-positioned for the future. We're going to focus in on innovating where it matters and it's meaningful for our customer.

Thank you. It's very helpful. If I could just do a quick follow-up. If we just look at sort of 2026 guidance, 2026 reconciliation funding has been sort of slow out of the gate in terms of the $150 billion flowing, but did say that it's accelerating. Are you guys assuming sort of anything from the reconciliation bill from 2026 in this year's guidance? How should we think about that? Is it more a 2027 impact?

We're seeing significant interest and increase in momentum as we move through fiscal year 2026. Our projections and our growth guidance is well-aligned with where we believe funding is for fiscal year 2026, and does not require any reconciliation funding for fiscal year 2027. Again, we've got most of our revenue in funded backlog, and we're going to continue to execute on that. I won't wade into reconciliation other than to say that the demand is high from our customers, and I think it's clear that autonomous unmanned systems being a part of modern force structure is both a bipartisan as well as a bicameral issue, and well-supported across both aisles. We do see a healthy increase in funding for this type of technology, as well as the industrial base as we move through 2026 into 2027 and beyond.

We really think that AEVEX is well-positioned to capitalize on that budgetary increases.

Thank you. Appreciate taking the questions.

Yeah, you got it. Yeah.

There are no further questions at this time. This concludes today's call. Thank you for attending, and you may now disconnect.