Karman Q3 FY2026 Earnings: Revenue Rises 66% as Backlog Reaches $1.7 Billion

Karman Space & Defense (NYSE: KRMN) reported Q3 FY2026 revenue of $201.6 million, up 65.6% year over year, while diluted EPS increased to $0.16 from $0.06. Net income rose 174% to $20.9 million, adjusted EBITDA climbed 60% to $61 million, and operating cash flow improved to $26.7 million. Backlog reached $1.7 billion after nearly $465 million of quarterly bookings, supporting a higher full-year outlook.

Core Results

For the quarter ended September 30, 2026, Karman reported 25% organic revenue growth alongside 65.6% total growth. Gross profit increased faster than revenue, lifting gross margin by approximately 1.7 percentage points.

Operating income also increased, but operating margin contracted as general and administrative expenses more than doubled to $41.5 million and operating depreciation and amortization rose to $12.9 million. Cash generation improved substantially from the prior-year quarter.

Adjusted EPS, adjusted EBITDA, and free cash flow are non-GAAP measures. Prior-year free cash flow is calculated from the company’s reported operating cash flow and capital expenditures using its stated definition.

Business and End-Market Performance

Tactical Missiles and Integrated Defense Systems was Karman’s largest end market and recorded the fastest growth among businesses with comparable prior-year figures. Hypersonics and Strategic Missile Defense also expanded, while Space and Launch was the only end market to decline.

Hypersonics growth reflected increased production for key interceptor programs associated with Munitions Acceleration Council priorities and higher production for a new surface-to-surface missile system.

Tactical Missiles benefited from higher production across core programs, including unmanned aircraft systems and counter-UAS products, as well as emerging programs moving into production. A quarterly decline in one high-volume program partly offset those gains.

Space and Launch declined because of customer order timing related to shifting launch schedules. Increased content from liquid-fueled space and launch programs provided a partial offset.

Maritime Defense Systems generated $45.0 million from legacy and next-generation submarine and surface-vessel programs. Karman did not provide a comparable 2025 figure because this revenue had previously been included within other end markets.

Quarterly bookings approached $465 million, equivalent to approximately 2.3 times quarterly revenue. Bookings included a seven-year agreement with Lockheed Martin supporting the THAAD program. Backlog ended the quarter at a record $1.7 billion, up 108% from fiscal year-end 2025.

Cash Flow and Balance Sheet

Operating cash flow increased to $26.7 million from $0.1 million. After $13.4 million of capital expenditures, free cash flow was approximately $13 million, compared with an estimated negative $6.8 million a year earlier.

Working capital still absorbed cash in several areas. Contract assets used $21.2 million during the quarter, while inventory used $8.0 million. These outflows were partly offset by $15.4 million from accounts payable, accruals, and income taxes payable and $8.4 million from contract liabilities.

Acquisitions used $94.2 million of cash during the quarter and $304.2 million during the first nine months of FY2026. Quarterly financing cash flow was positive $97.4 million, including $230.2 million of term-loan proceeds and $129.6 million of term-loan repayments.

Cash and equivalents reached $68.2 million at September 30, up from $34.0 million at December 31, 2025. Long-term debt excluding the current portion increased to $851.5 million from $495.3 million over the same period, while inventory rose to $32.7 million from $10.7 million.

Higher Interest Expense and a Tax Benefit Magnified Net Income Growth

Karman’s 174% increase in net income was much larger than its approximately 12% increase in pretax income. Operating income grew 45.6%, but net interest expense rose about 80% to $18.0 million, limiting pretax income to $13.3 million versus $11.9 million a year earlier.

The income-tax line then shifted from a $4.2 million expense to a $7.6 million benefit, an approximately $11.8 million favorable swing. Consequently, the increase in GAAP net income and diluted EPS reflected both operating growth and a substantial tax-line contribution.

Full-Year Guidance

Karman raised its FY2026 outlook for both revenue and adjusted EBITDA, citing visibility from its operating performance and backlog. The release did not disclose the previous ranges, and the latest guidance excludes any future acquisitions.

The company did not provide a forward-looking GAAP reconciliation for adjusted EBITDA, citing the variability and limited visibility of transaction-related and other excluded items.

Management Commentary

CEO Jon Rambeau said Karman is focused on building backlog for 2027 and beyond while maintaining a long-term organic revenue growth framework of 20% to 25%. That framework is separate from the company’s quantitative FY2026 guidance.

Management also reported that Karman is negotiating two additional long-term agreements, executing the initial phases of two second-source opportunities, and pursuing three more. The completed acquisition of Walker Precision Holdings expands the company’s presence in the European defense market.

Risks Investors Should Watch

• Backlog conversion and government spending: A significant portion of Karman’s business depends on U.S. military programs. The timing and amount of defense spending, contract retention, and program schedules can affect how quickly the $1.7 billion backlog converts into revenue.
• Customer scheduling volatility: Space and Launch revenue declined because of order timing and shifting launch schedules, showing how customer schedules can create quarterly fluctuations even when longer-term demand remains present.
• Higher debt and interest expense: Long-term debt increased to $851.5 million, while quarterly net interest expense rose to $18.0 million. Additional financing costs could limit how much operating growth reaches pretax income.
• Acquisition integration: Karman spent $304.2 million on acquisitions during the first nine months of FY2026. Realizing the expected benefits depends on timely and efficient integration of acquired operations.
• Working-capital requirements: Rising contract assets and inventory consumed cash during the quarter. Continued growth may require further working-capital investment despite the recent improvement in operating and free cash flow.

Conclusion

Karman’s Q3 FY2026 results combined rapid revenue growth, broader defense-program production, positive free cash flow, and record backlog. Tactical Missiles and Hypersonics drove comparable end-market gains, while Space and Launch remained sensitive to order timing. The main items to monitor are backlog conversion, operating-expense discipline, acquisition integration, debt-related interest costs, and whether cash generation keeps pace with the company’s higher full-year outlook.