Elmet Group (ELMT) 2026财年第二季度业绩电话会议：营收增长35%，在手订单创历史新高

核心要点

• 2026财年第二季度营收同比增长35.2%，达到6640万美元。 增幅中约有55%源于航空航天、国防及政府（ADG）、工业、医疗以及半导体市场的需求增加；其余部分则反映了钨和钼的价格变动。
• 毛利润增长63.7%至1660万美元，毛利率扩大430个基点至25.0%。关键材料组件（CMC）部门的战略性钨采购以及生产率提升推动了这一增长。
• 调整后EBITDA增长57.2%至890万美元。按通用会计准则（GAAP）计算的净亏损为450万美元，主要受与Elmet Group首次公开募股（IPO）相关的股权激励费用影响。
• 确认为在手订单达到创纪录的1.315亿美元，同比上一年的8460万美元增长55%。在导弹、航空航天和雷达项目的支持下，ADG在手订单增长了100.5%。
• 4月份的IPO共产生1.254亿美元的净募集资金。截至本季度末，Elmet拥有6610万美元的现金，包括循环信贷额度在内的总可用现金约为1.107亿美元。
• 管理层表示，主承包商获得的大型多年期导弹防御合同尚未大量转化为Elmet的在手订单，尽管报价请求（RFQ）活动和适度的剩余资金订单有所增加。

关键财务数据

运营费用中包括因IPO触发的1290万美元一次性股权激励归属费用。公司还产生了较高的上市公司合规成本和与增长相关的成本。

Elmet利用IPO募集资金偿还了1750万美元的定期债务，并偿还了约3100万美元的循环信贷额度。截至季度末，除了手头现金外，公司还拥有4460万美元的循环信贷可用额度。

业务与经营业绩

关键材料组件（CMC）是第二季度毛利率扩大的主要驱动力。随着第一季度钨价大幅上涨的影响体现在利润表中，Elmet的战略性钨采购协议使公司从中受益。以接近市场价格销售的现有存货也有所贡献。管理层表示，在进一步招聘和第三方运营支持下，工厂生产率有所提高。

Elmet有超过95%的钨和钼来自于中国境外采购。公司表示，这降低了其受出口管制相关供应链中断影响的风险。根据一项战略合作和长期包销协议，公司还增加了在EQ Resources的持股比例。

在欧洲核子研究组织（CERN）、战略导弹系统、精准打击导弹（PrSM）、标准导弹和爱国者等项目，以及商用与国防航空航天和雷达项目的推动下，ADG在手订单同比增长100.5%。在手订单同比增加的4690万美元中，约有3630万美元来自ADG部门内的钨产品，这反映了价格和销量的双重增长。

Elmet获得了430万美元的战略资金，用于扩大用于关键国防项目（包括现代拦截弹系统）的钼基产品和难熔金属部件的本土产能。

在ADG领域之外，由于一家大型客户的下单模式调整，医疗领域的在手订单从2025财年第二季度的近1200万美元下降至2026财年第二季度的约550万美元。管理层强调，尽管下单时间不均衡，但该客户上半年的需求仍高于上年同期的运行水平。两个部门的工业需求均有所增加，而半导体业务呈现初步改善迹象。由于核聚变和核裂变需求大多仍处于研发周期，能源领域的业务规模仍然有限。

工程微波产品（EMP）部门在工业、ADG和半导体应用领域的在手订单均创下历史新高。然而，运营问题影响了一家生产毛利率较高的ADG和半导体产品的工厂。原材料成本上涨也对部分长期项目造成了压力。

管理层展望

管理层预计CMC采购协议和工厂生产率的提升将在2026财年剩余时间内继续发挥效益。管理层还预计ADG仍将是主要的长期增长驱动力，并指出新的ADG业务通常具有较高的毛利率，因为产品更接近定制规格的成品部件。

公司继续认为在未来四到五年内实现并保持30%的整体毛利率是一个可行的目标。管理层警告称，由于采购订单节点、金属价格及其他业务驱动因素，季度业绩可能会出现波动。

随着运营问题的解决，预期EMP的业绩将从第二季度的水平有所改善，但管理层表示恢复可能需要今年剩下的时间。

风险与关注领域

• 钨和钼价格大幅上涨，同时出口管制和关税波动继续使采购和定价变得更为复杂。
• 由于原材料价格上涨、采购需求以及业务量增长，存货增加至1.024亿美元。
• 受运营挑战以及某些长期协议下材料成本涨幅超预期影响，EMP的毛利率承受压力。
• 由于一家主要客户的下单节奏缺乏连贯性，即使基础需求保持稳定，医疗在手订单依然存在波动。
• Elmet的季度业绩可能会随采购订单下发节点和金属市场价格变动而发生波动。
• 主承包商的大型多年期导弹防御合同尚未大量下发转化为Elmet的在手订单。

分析师问答集锦

导弹防御机遇：管理层证实，近期向国防主承包商授予的大额合同尚未在在手订单中得到实质性体现。Elmet收到了报价请求（RFQ）以及几笔由剩余项目预算资助的温和订单，但尚未收到来自新拨款周期的重大订单。

轨道计算与卫星：Elmet目前没有任何SpaceX订单。公司已投资约300万美元新建一条用于服务其他卫星公司的CMC生产线，该生产线正在投入生产。EMP也在将其无人机防御能力向太空应用方向拓展。

利润率驱动因素：管理层将CMC季度增长中略多于一半归因于材料价格上涨和采购安排带来的好处。生产率的提升提供了额外贡献，且提升速度快于最初的预期。

工业需求：EMP正观察到工业活动的增加，以及与其知识产权相关的潜在机遇。CMC正受益于面向工业应用销售的钨和钼产品的需求与价格增长。

资金支持：管理层表示，Elmet在政府关系方面保持积极沟通，并意图争取更多资金支持机会，以进一步扩充本土国防工业的产能。

业绩电话会议完整文字记录

完整财报电话会议逐字稿

管理层陈述

Operator

Good morning. Welcome to the Elmet Group Company Second Quarter 2026 Earnings Conference Call. Joining us for today's presentation are the company's Chairman and CEO, Peter V. Anania; and CFO, Mike Lee. [Operator Instructions] I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at investors.theelmetgroup.com.

Before I turn the call over to Elmet's Chairman and CEO, the company would like to remind all participants that statements made by management during the course of this conference call that are not historical facts are considered to be forward-looking statements within the meaning of the U.S. securities laws, including the Private Securities Litigation Reform Act of 1995. These statements are predictions, projections or other statements about future events and are based on current expectations and assumptions that are subject to risks and uncertainties, including those risks identified in the Risk Factors section of the company's registration statement on Form S-1 and in its other reports and filings with the Securities and Exchange Commission. Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's belief only as of the date hereof. The company expressly disclaims any duty to update or correct any forward-looking statements.

Further, management's remarks today will include certain non-GAAP financial measures. These measures are calculated by management and do not have any standardized meanings under the U.S. GAAP. These non-GAAP measures supplement GAAP measures but should not be viewed as substitutes for GAAP measures. A reconciliation of the most directly comparable GAAP financial measures to these non-GAAP financial measures is available in the company's quarterly report on Form 10-Q and in its earnings press release.

I will now turn the call over to Elmet's Chairman and CEO, Peter V. Anania, for his comments. Sir, please proceed.

Peter Anania

Welcome. Thank you. Welcome, everyone, and thank you for joining us for the Elmet Group's second earnings call as a public company. Since we are still new to many people following our story, I'll begin my remarks with a brief overview of who we are and what we do before discussing updates from our strong second quarter.

The Elmet Group brings together a rare set of strengths with the mission to secure U.S. critical material supply chain. Today, we are the sole U.S.-based provider of certain precision engineered refractory metal components and some high-power microwave systems, serving the U.S. government and top blue-chip customers across key end markets such as aerospace and defense and/or ADG as well as industrial, medical, semiconductor and electronics and energy.

We operate through 2 divisions: the Critical Materials Components, or CMC, a vertically integrated manufacturer of critical materials specializing in tungsten and molybdenum products from powders to machine goods to fine wires and engineered Microwave Products, or EMP, a manufacturer of microwave systems and high-power components for military and demanding industrial applications. In terms of how we are positioned competitively in the market, we believe our long-term outlook is supported by several key advantages.

First, macro tailwinds from defense fortification and U.S. reshoring and the overall focus on U.S. material independence continue to drive backlog and future growth. Second, as mentioned a moment ago, we have the sole U.S.-based supplier of certain highly engineered critical materials components, making us a critical supplier for key end markets and customers. Third, our vertically integrated operations supported by a dedicated engineering team allow us to maintain strong control throughout the engineering to production process from material processing all the way to final machining. Fourth, our difficult to replicate asset base paired with our specialized production capabilities has created a naturally high barrier to entry, which took decades to develop.

Finally, our team has a proven track record of driving organic growth in the business while also integrating synergistic acquisitions, helping drive sustainable long-term growth.

With that overview complete, I will now briefly discuss some updates from the quarter before handing the call over to our CFO, Mike Lee, for a review of our financial results in greater detail.

In the second quarter, we built on our existing momentum and delivered strong results highlighted by our acceleration in revenue growth and profitability with a record backlog. More specifically, revenues growth increased 35% year-over-year to $66.4 million. Gross profit expanded by 430 basis points, leading to 57.9% growth in adjusted EBITDA and our open order backlog now stands at $131.5 million, up 55% from this time last year. Our performance was driven by a healthy combination of strong operational execution, skillful navigation of dynamic metals pricing market and ongoing returns from our strategic focus on servicing the broader ADG landscape, all of which we expect to drive continued demand through the balance of the year.

Outside of our own execution, the largest factor impacting our results this year has been the significant and persistent rise in prices for global tungstens and molybdenum markets. which have been exasperated by export controls on critical materials. The prices of critical materials like tungsten have dramatically increased over the last year, which is further complicated by fluctuating and often steep tariffs on those same critical materials. While these dynamics create challenges, they also create opportunities.

Opportunities that we have navigated to date through a combination of foresight and strategic agility for over a decade, we have sourced more than 95% of our tungsten and molybdenum from outside of China, which largely shields us from export control-related supply chain disruptions. Additionally, our strategic tungsten sourcing agreements have kept us highly protected from material input pricing changes. This positioning enables us to capture the benefits of the sharp increase in tungsten prices during Q1, which drove a portion of the increase in Q2 backlog.

Relatedly, and to further support our commitment to securing sustainable and resilient supply chain for critical raw materials, in June, we announced our increased ownership stake in EQ Resources as part of our strategic collaboration and long-term offtake contract. Over the last 2 years, we have witnessed an increased focus on the critical material supply chain, particularly in defense applications, which is why we sought out the strategic collaboration with one of the fastest-growing Western tungsten mining groups. We look forward to continuing our strategic collaboration as well as exploring additional opportunistic investments to bolster our long-term competitive positioning. We believe today's environment presents a significant opportunity to grow our business and differentiate ourselves, thanks to our positioning.

To that end, we are investing in growth to support the accelerating demand we are seeing. Our increases in both staffing and third-party support to improve operations in our CMC factories have been significant, and we are already seeing favorable impacts on productivity across the CMC sites. Looking outward, there is a bipartisan support for strengthening our domestic industrial base, and we are seeing the effects of current U.S. focus on replenishing stockpiles for the general increase in global defense spending.

For example, in June, we announced -- in June, we announced we had secured strategic funding of $4.3 million to develop and advance domestic manufacturing capabilities for molybdenum-based products and refractory metal components utilizing critical defense programs. This contract award aims to bolster domestic manufacturing readiness to meet the projected long-term demand for refractory metal components, specifically molybdenum-based products used in modern defense interceptor programs. These funds will enable us to expand capacity and deploy advanced manufacturing technologies in support of our nation's critical defense initiatives, several of which depend on molybdenum-based components as a foundation.

With the ongoing conflict in Iran as well as the in-process budget and appropriation cycle as a backdrop, we expect to see continued funding opportunities ahead. Importantly, while many AD&G programs operate on multiyear implementations, we are not an impediment to the process, and we typically produce multiple years of production in 1 year for such programs.

Looking ahead, we believe we remain well positioned to effectively meet today's and tomorrow's demand as we expand our role as a trusted supplier across mission-critical systems. Longer term, we expect the operating environment to remain highly favorable for Elmet. Supported by our strategic position and the nexus of several megatrends that remain in the early stages of an investment super cycle.

Now I would like to turn the call over to our CFO, Mike Lee, to go over the results for the second quarter.

Michael Lee

Thank you, Peter, and good morning, everyone. We are pleased to present a strong Q2 performance for the fiscal year 2026. Before I begin, please note that all numbers I plan to discuss have been rounded for ease of presentation. Our full financial results for the quarter can be found in our quarterly report filed with the SEC this morning.

Now let's get started. Revenue in Q2 increased 35.2% to $66.4 million compared to $49.1 million in Q2 2025. Approximately 55% of the revenue growth is attributed to net demand increase across aerospace, defense and government, industrial, medical and semiconductor end markets with the balance associated with tungsten and molybdenum raw material pricing impacts. Gross profit for Q2 2026 increased 63.7% to $16.6 million or 25% gross margin compared to $10.1 million or 20.7% gross margin in Q2 2025.

The increase was driven by our CMC division as our strategic tungsten sourcing agreements enabled us to capture the benefits of the sharp increase in tungsten pricing during Q1 that began flowing through our P&L during the quarter. We also saw favorable impacts from productivity increases across our CMC sites making a meaningful impact. Operating expenses for Q2 2026 increased 251.2% to $24.2 million compared to $6.9 million in Q2 2025 or a net increase of $17.3 million.

Within the quarter, we incurred approximately $14.2 million associated with equity-based compensation compared to $0.4 million in Q2 2025. Of the $14.2 million, $12.9 million was associated with onetime vesting of awards associated with the completion of our IPO. We also saw increases in costs associated with our initial public offering, ongoing compliance and expenses associated with the growth.

Turning to the balance sheet. Cash at the end of Q2 2026 totaled $66.1 million compared to $1.8 million at the end of Q1 2026 and $1.8 million at the end of Q4 2025. The increase in cash is driven by proceeds from our April IPO, where we raised net proceeds of $125.4 million, retired $17.5 million in term debt and paid approximately $8.6 million for working capital and other corporate requirements. We also paid approximately $31.0 million on our revolving credit facilities to optimize interest expense.

At the end of Q2 2026, we had approximately $44.6 million in borrowing capacity on our revolving credit facilities, which, when combined with cash on hand, gave us approximately $110.7 million of cash availability for strategic investments.

At the end of Q2 2026, we saw inventories grow to $102.4 million, up from $75.0 million in Q1 2026 and $67.1 million in Q2 2025. The increase is driven by our CMC division by a combination of tungsten and molybdenum raw material pricing increases, sourcing dynamics and volume increases associated with growth.

To supplement our financial statements presented in accordance with GAAP, we use certain non-GAAP financial measures, including adjusted net income, EBITDA and adjusted EBITDA because we believe these metrics provide investors with additional meaningful methods to evaluate certain aspects of our results. We define adjusted net income as net income less stock-based compensation and onetime nonrecurring costs such as tax impacts of our reorganization, discontinued operations, the costs associated with the IPO, certain acquisition and transaction costs, severance and restructuring costs, other nonrecurring costs and income tax benefit of such adjustments as applicable.

Net loss for Q2 2026 was $4.5 million or $0.16 per share compared to net income of $1.2 million or $0.06 per share in Q2 2025. Adjusted net income for Q2 2026 was $5.2 million or $0.18 per share compared to $2.8 million or $0.14 per share in Q2 2025. It's worth noting that the majority of the adjustments in Q2 2026 are associated with the equity compensation associated with our initial public offering. We define adjusted EBITDA as our net income plus interest expense, income taxes, depreciation and amortization and as applicable for each period, stock-based compensation expense and noncash gains and losses on sale of assets.

Adjusted EBITDA also excluded certain nonrecurring costs such as costs associated with the IPO, certain acquisition and transaction costs, severance and restructuring and other nonrecurring costs. Adjusted EBITDA for Q2 2026 increased 57.2% to $8.9 million compared to $5.6 million in Q2 2025. The increase was driven by operational performance improvements within our CMC division. A full reconciliation between GAAP net income and adjusted net income and EBITDA and adjusted EBITDA can be found in our quarterly report and our earnings press release. As we've shared previously, our susceptibility to quarterly performance fluctuations driven by factors, including timing of purchase orders, metals market pricing dynamics and other drivers across our business, we believe it's prudent to examine our results over a longer time horizon.

To that end, I will now review our results for the trailing 12 months or TTM. For clarity, the following comparisons will be made between the 12-month period ending -- excuse me, July 3, 2026 and April 3, 2026. Revenue increased 8.2% to $228.5 million compared to $211.3 million for the prior TTM period. Approximately 55% of revenue growth is attributed to demand across -- increase across aerospace, defense and government, industrial, medical and semiconductor end markets with the balance associated with tungsten and molybdenum raw material pricing impacts. Gross profit increased 14.6% to $50.7 million or 22.2% gross margin compared to $44.3 million or 20.9% gross margin in the prior TTM period. The increase in gross profit and gross margin was driven by the aforementioned effects of our strategic tungsten sourcing and productivity gains within the CMC division.

Operating expenses increased 52.2% to $50.8 million compared to $33.3 million in the prior TTM period. The increase was primarily related to the equity compensation associated with the IPO, expenses associated with the ongoing public company compliance and expenses associated with growth. Net loss was $1.7 million or $0.08 per share compared to the net income of $4 million or $0.20 per share in the prior TTM. Adjusting for IPO-related operating expenses, equity compensation and reorganization costs, our adjusted net income increased to $18.6 million or $0.84 per share compared to $16.2 million or $0.81 per share in the prior TTM period. Adjusted EBITDA increased 11.3% to $31.8 million compared to $20.6 million in the prior TTM period.

I'd like to touch base on our backlog where we've seen significant growth over the last year. Our firm order backlog grew to approximately $131.5 million at the end of Q2 2026 compared to approximately $113.3 million at the end of Q1 2026 and approximately $84.6 million at the end of Q2 2025. Our ADG end market backlog was up 100.5% at the end of Q2 '26 compared to the end of Q2 2025, driven by a series of new and growing programs such as CERN, Strategic Missile Systems, PrSM, Standard Missile, and Patriot, along with a mix of commercial and defense-related aerospace and radar programs. We also attribute approximately $36.3 million of the $46.9 million of total backlog growth between Q2 2025 and Q2 2026 to tungsten product increases within the ADG market, driven by a mixture of price and volume.

That concludes our prepared remarks. I'd like to hand it back to our operator for Q&A.

Operator

[Operator Instructions] And our first question comes from the line of Colin Canfield with Cantor.

分析师问答

Colin Canfield

Maybe starting out on munitions. We saw some pretty sizable missile defense interceptor awards to the defense primes, and it looks like that's probably not reflected in backlog yet. So maybe if you could characterize kind of how kind of the quantity or the magnitude of those potential orders related to those specific orders and then perhaps kind of the timing of when you think that might hit?

Michael Lee

Thanks for the question, Colin. Yes, you're correct. We really haven't seen a significant amount of those larger multiyears the primes are being awarded flow down to us yet. We've definitely seen some RFQ activity, and we've seen a couple of modest, I would consider sweep funding type orders where certain programs had residual funding and they came in for either some spares orders or they could do a few years based on residual funding. But nothing from the new appropriation cycle is really in our backlog at this point in time of significance.

Colin Canfield

That's great. And then maybe following up on the orbital compute discussion from last quarter. If you could kind of talk through kind of where initial discussions are at with SpaceX and how you think about U.S. domestic supply chain requirements for orbital compute satellites versus international sourcing?

Peter Anania

Yes. Well, we're not presently have orders from SpaceX. We do have from other satellite companies that we have just bought a new line, roughly spent $3 million in CapEx to stand it up, and that is just starting to produce. And we see that, that is going to continue to be an area that we want to increase. That's on the CMC side.

And on the EMP side, we are seeing an increase in drone defense activities, and now that is expanding into satellite areas where we're going to -- we are providing a similar product to help defense against drones from space.

Operator

And the next question comes from the line of Jim Ricchiuti with Needham & Company.

James Ricchiuti

I was hoping to get a little bit more color on the decline in backlog outside of ADG. Obviously, you saw significant growth in ADG backlog. But I'm wondering if you're anticipating a pickup in order activity from your large medical customer.

Michael Lee

Yes. Thanks, Jim. And you hit it right on the head. That large medical customer is -- absolutely creates volatility in the other bucket for us. And while they are -- the actual demand for them is up this year in the first half over run rate last year. They are -- again, the order pattern tends to be a bit inconsistent. The they'll place large orders or they'll place small orders, but the volume is very consistent for us.

And without a doubt, we saw medical fluctuate quite heavily. Q2 2025 in our CMC division, driven by this customer, we had almost $12 million of backlog. And at the end of Q2 '26, we're at like $5.5 million, all driven by that one customer. So it's -- if you look at that total bucket of other, they're driving the swing. All other -- if we look at our other end markets, we've seen increases in industrial in both business divisions. We've seen semi starts to move up a little bit. Again, that's a smaller end market for us, but we're seeing some traction there.

Energy is down a little bit, but it's small enough that the variability is expected quarter-to-quarter, and a lot of that is waiting for fusion and vision demand to actually start to manifest beyond development cycles. So I mean we have -- we're seeing the nonmedical influence, we're seeing some traction and energy continues to be just a waited out kind of situation.

James Ricchiuti

Just if we could switch gears a little bit and talk about margins. Obviously, very strong gross margins in Q2. And I don't know if this is in any of your filings or if there's -- you can give us some color as to how much of a benefit you've gotten from pricing on gross margin. And the follow-up to the margin question is just around EBITDA margins where you showed very good growth improvement in CMC, but we're still not seeing much improvement on the EMP side. So I wonder if you could just talk to some of those margin questions.

Michael Lee

Yes. Thanks for the question, Jim, and insightful questions. So starting with gross margin, in particular with the impact of material pricing. We definitely saw -- first off, I want to acknowledge the excellent operational execution of our team during a rapid material price increase. That could have damaged us if we didn't have good process in place, but we do and we got the benefit of managing the price curve up.

As we look in our CMC division, the growth in the quarter, we attribute about half of that growth to slightly more to some capture of that as the material spikes, we're able to either, a, leverage our existing agreements with our supply partners or b, in effect, sell some material at market versus what we had on the shelf and simple way to think about it. So that's definitely been beneficial. We do think that our supply agreements will continue to help us as we move through the rest of the year. And productivity within our factories, we're seeing some very good signs that not only did it hit us in Q2, but it's going to continue to be beneficial going forward. And we tie that back to the investments we made, both in direct hires as well as some third-party support.

Regarding EBITDA margins, the balance of the year and going forward, again, just given its size, CMC will kind of dictate how the bottom line performs in general. So based on what I just said, you can draw a line to bottom line performance, at least in the, I'd say, the balance of the year. EMP margins and EMP EBITDA, we definitely -- we have a lot of demand for our end product. We're seeing record backlog come our way, both in industrial and the ADG space as well as semiconductor for that business. We did see some operational challenges in Q2 in our factory that happens to deal with a lot of our ADG and semiconductor product, which tends to be on the higher margin side. So we're working quite diligently to correct that in the second half and see some improvement from our Q2 results. But we do think it's going to take us a little while to get there throughout the balance of the year.

Operator

And the next question comes from the line of Chip Moore with ROTH MKM.

Alfred Moore

I wanted to maybe follow up on industrial, the strength there, right? I think 64% growth or something like that. Just maybe some of the trends you're seeing there and pockets of strength.

Michael Lee

Yes. So we're seeing a couple of spots. In our EMP division, we've definitely seen an uptick in the industrial space, and we continue to see further growth there and a lot of opportunity. We think there's some opportunity with our IP that could definitely give us some longer-term continued growth.

On the CMC side, we've seen -- while we've seen demand growth with tungsten drive ADG. We're also seeing the industrial segment get some uplift as well. We do sell tungsten and moly into those end market as well. So that is a little more distributed where it's more concentrated in ADG. But in general, we're seeing -- we haven't seen a real pull -- a major pullback on demand in industrial at CMC and the pricing uplift definitely flows through there. So we're seeing it for various reasons. But for sure, it's something we're very happy about, and we see it as being something that's going to continue throughout the foreseeable future.

Peter Anania

Yes. I think we're in a good CapEx cycle. But in addition, people are finding more and more uses for our products. in the industrial space, which is -- looks good.

Alfred Moore

Yes. No, that's helpful. And maybe back to just the raw material side, and you've done a great job managing that, particularly tungsten with some of the volatility. It looks like that contributed to those gross margins in CMC for sure. Just anything near term to contemplate around some of the movements in some of the underlying commodities?

Peter Anania

Well, we did talk about the margins at the EMP division being down a little bit, and I think that may be because material costs there were spiking faster than we thought with some of our long-term agreements that we have with like CERN and Fermi and so forth, making these gigantic circulators. And I think that caught us off guard.

But as Mike said, we're really digging into it, really making sure that the backlog -- we can figure out how to get that backlog up and gross margins up in the backlog. That's what I want to say and move forward.

Operator

Your next question comes from the line of Austin Moeller with Canaccord Genuity.

Austin Moeller

I think we already discussed the outstanding opportunities for some of the missile system weapons and structures for tungsten and moly that are outstanding. But I was just wondering if we could think about how we should think about the gross margin ramp and improvement as some of those larger volume production awards come in, in the next 12 to 24 months.

Michael Lee

Thanks for the question, Austin. I'll go back to some of our prior communications in our S-1 that all holds -- continues to hold true. We make a mixture of -- or we provide engineering services microwave components that are quite difficult to produce and as well as a lot of materials that can be from early-stage production, say, powders all the way through to near net shape or finished components built to spec.

Just a simple nature of the closer you get to an end component, the more value you put into the actual product. When we get into the ADG space, we're starting to live in that space. So we -- and creating more value for the customer, and therefore, our margin profile tends to be better when we're dealing with ADG. And so as we see our growth being driven predominantly over the long term, by ADG, we expect the new business to be coming at a differentiated margin, and that will end up lifting our overall average.

We're seeing some of the productivity improvements happen faster than we had originally anticipated. We're very encouraged by that. But the combination of those two things and then we've done fairly well with managing, again, the material pricing spike where we've been able to capture that phenomenon as well. And that will help us throughout the, I'd say, the next 6 to maybe 12 months. So that's the way that I continue to think about it is net demand growth coming from ADG, which is on average higher margin. And that -- us getting to 30% and holding that, we still think that's a very viable target for us in the next 4 to 5 years.

Austin Moeller

Okay. And can you comment on within the fiscal year '27 base budget and also the reconciliation bills that are being talked about 3.0 or 4.0, are you seeing any opportunities in there for additional investment funds for the defense industrial base that could be allocated to increase your capacity?

Michael Lee

Yes. I mean we've always got a finger on that pulse. We're very active in our governmental relations. Yes, I think it's fair to say that when the opportunity arises, we'll be prepared for it. We've had success in the past, and we continue to be seen as a critical partner for the Department of War. And as the nature of material supply chains change, we only think that's going to be more distinct.

Operator

At this time, this concludes our question-and-answer session. If you have additional questions, you may contact Elmet's Investor Relations team at elmt@gateway-grp.com.

I'd now like to turn the call back over to Mr. Anania for his closing remarks.

Peter Anania

Thanks again, everyone, for joining us today. Before we wrap up, I want to provide you with some closing remarks about why we remain confident in our long-term opportunity. As the sole U.S.-based supplier of certain highly engineered critical materials and components and some high-power systems, we believe we remain well positioned to benefit from several favorable long-term market trends.

With most of our competitors owned by foreign entities and as export restrictions cause more constraints, we remain one of the last U.S.-based facilities with capabilities to provide key components for mission-critical systems and the ability to source critical materials at a reasonable cost. We have leveraged our difficult-to-replicate asset base and production capacity to support key U.S. defense programs over the last decade, which we intend to continue growing as we qualify on additional Dow programs given the accelerating demand we are seeing today.

Finally, we remain encouraged by the opportunities and increased activities we are seeing across all of our markets, driven by multiple megatrends from increased global defense spending to reshoring of critical manufacturing. To close, I'd like to thank our employees, partners, shareholders for their committed support. Operator?

Operator

Thank you for joining us today for the Elmet Group Company Second Quarter 2026 Earnings Conference Call. You may now disconnect.