AADX 2026 年第二季財報電話會議：營收成長 47.4%，在手訂單突破 11 億美元

重點摘要

• 2026 財年 Q2 營收達 1.673 億美元創下新高，年增 47.4%。若兩期均包含 CBI，擬制營收成長率為 21.3%。
• 調整後 EBITDA 成長 38.4% 至創紀錄的 3,640 萬美元，而調整後 EBITDA 利潤率則從 23.2% 降至 21.8%，部分原因是投資以及早期計畫的產能爬坡。
• 合約未交付訂單突破 11 億美元，高於年底的 8.71 億美元。管理層表示，未交付訂單通常提供 12 至 18 個月的能見度。
• 公司維持 2026 全財年營收指引為 6.7 億美元至 6.9 億美元，調整後 EBITDA 為 1.5 億美元至 1.55 億美元。
• IPO 所得加強了資產負債表。淨槓桿率降至約 2.7 倍，截至 6 月 30 日總債務降至 4.058 億美元。
• 管理層預計下半年自由現金流將轉正，因投向即將交付產品的營運資本將重新變現。

關鍵財務數據

業務與營運表現

三大終端市場皆實現全面成長。太空與發射系統受益於優先運載火箭和衛星計畫的組件使用量增加，包括 SpaceX 的獵鷹 9 號 (Falcon 9) 和藍色起源 (Blue Origin) 的新葛倫 (New Glenn)。

國防航空與機載系統受到步入量產階段的下一代計畫推動。Applied Aerospace & Defense 提及為 Anduril 的 CCA Fury 計畫和貝爾 (Bell) 的 MV-75 所做的工作，以及來自現役機隊的經常性後續市場需求。

C5ISR 與精準打擊系統受益於 CBI 以及整合防空與飛彈防禦和精準打擊計畫的需求。公司正在整合其平台的各項能力，以擴大固體火箭發動機外殼生產，並支援多項高優先級的國防計畫。

由於工程和生產團隊正處於初期學習曲線，早期開發計畫對利潤率造成壓力。管理層表示，這些學習曲線通常很短，大多數計畫在生產前幾台後就能達到目標利潤率。上半年營收中約有 20% 與新啟動計畫相關。

Applied Aerospace & Defense 在美國六個州設有 11 個設施，生產面積超過 150 萬平方英呎。管理層估計，以廠房面積、設備和勞動力靈活性綜合衡量，目前約有 40% 的產能尚可調用。

管理層財務指引

管理層維持以下 2026 全財年展望：

公司預計 2026 財年剩餘時間內的營收將逐季成長，第四季將是營收規模最大的季度。管理層還預期，隨著計畫產量提升和營運效率改善，利潤率將在下半年及 2027 年獲得提升。

管理層指出，2026 財年剩餘的營收實際上已由確定的未交付訂單完全覆蓋。預計目前未交付訂單中約有一半將在 2027 年轉化為營收，而既存長期合約下的追加訂單預期將進一步補充該覆蓋率。

風險與關注事項

• 供應鏈擁塞仍是關注焦點，但管理層表示已看到解決方案的途徑。
• 油價高企推升了原材料通膨（主要是鋁材），但迄今為止影響相對微弱。
• 隨著生產團隊渡過工程與製造學習曲線，新計畫的產能爬坡帶來了暫時性的利潤率壓力。
• 潛在的持續決議案 (CR) 可能會影響部分下一代計畫產能爬坡的時間點，管理層認為這對 2027 年的潛在影響大於 2026 年。
• MV-75 計畫迄今尚未受到資金相關問題的影響，但管理層將持續密切關注該議題。

分析師問答亮點

管理層將未交付訂單視為未來 12 至 18 個月的領先指標，並表示三大終端市場的訂單覆蓋率依然強勁。在 2026 財年剩餘時間裡，執行的效率而非訂單的獲取，才是關注的重點。

上半年的營運資本增加包含了約 3,600 萬美元的合約資產和庫存，用以支援下半年的交付。管理層預計隨著交付進行，這些投資大部分將轉化回現金，並澄清上半年的現金消耗與下半年的現金產生模式不應被視為每年的常態循環。

在太空計畫方面，管理層表示藍色起源已繼續指示供應商按既定節奏推進新葛倫計畫。Applied 也正在爭取多個與星艦 (Starship) 相關的機會，同時持續接收獵鷹 9 號訂單。管理層目前預期與獵鷹 9 號相關的業務將持續至 2030 年，並看好其進一步延長的潛力。

公司正致力於爭取多年期彈藥合約，期望更高的生產能見度和產量能支援製造效率。公司亦正與非傳統國防新進業者合作開發低成本、高產量的計畫，同時強調嚴格恪守客戶與計畫的篩選標準。

電話會議完整逐字稿

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完整財報電話會議逐字稿

管理層陳述

Operator

Greetings. Welcome to the Applied Aerospace & Defense Second Quarter 2026 earnings. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to Tom Cook, Managing Director of ICR. Thank you, Tom. You may begin.

Tom Cook

Thank you, operator, and good morning, everyone. Welcome to Applied Aerospace & Defense's Second Quarter 2026 Earnings Conference Call. With me on the call today are Trip Ferguson, Chief Executive Officer; Chris Rogers, President and Chief Strategy Officer; and Jeff McRae, Chief Financial Officer.

Before we begin, I'd like to remind everyone that our remarks may include forward-looking statements about our expectations, plans, outlook and future performance, which we make pursuant to the safe harbor provisions of federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Please refer to the forward-looking statements disclosure in our earnings presentation and our filings with the Securities and Exchange Commission. We will also discuss certain financial measures that are not presented in accordance with GAAP. Our earnings presentation includes additional information about these non-GAAP measures, including definitions and reconciliations to the most directly comparable GAAP measures as applicable. The earnings presentation is available on the Investor Relations section of our website.

With that, I'd like to turn the call over to Trip Ferguson. Trip?

James Ferguson

Thank you, Tom, and welcome to everyone joining us for our first earnings call as a public company. Before we review our results as a company, I'd like to recognize and thank all of our team members from across our organization at Applied. Applied's success is built on the skill and dedication of our people, and I'm proud of the work they deliver day in and day out.

The second quarter saw Applied successfully complete our initial public offering and enter our next season as a public company with real momentum. The IPO meaningfully strengthened our balance sheet and enhanced our financial flexibility. It gave us new resources to invest in our people, our capabilities and our operations as we scale to support a broad and expanding range of our customers' most critical programs. Importantly, it also reduced our pro forma net leverage to 2.7x.

In the quarter, we generated record revenue of $167.3 million, up 47.4% year-over-year. On a pro forma basis, giving effect to CBI in both periods, revenue grew 21.3%. We delivered record adjusted EBITDA of $36.4 million, up 38.4%. And importantly, our contract backlog also grew to a record of over $1.1 billion, providing us with a high level of forward visibility.

I'd like to begin this call by spending a few minutes on who we are, where we're focused and why customers choose us. Chris will cover our end markets and our outlook for growth, and Jeff will cover financials. I'll then come back with our priorities for the second half of the year before we take your questions. Applied Aerospace & Defense is a premier provider of advanced design, engineering and vertically integrated manufacturing solutions for leading and next-generation space and defense technology companies. We build complex mission-critical hardware for extreme operating environments across 3 core end markets: Space and Launch Systems, Defense Aviation and Airborne Systems, and C5ISR and Precision Strike Systems.

In the second quarter, those markets were roughly 23%, 47% and 30% of revenue. I'll note that it's not just the diversity of our business across end markets that differentiates us. It's also the high number of programs we support across the entire space and defense ecosystem.

Applied sits at the intersection of 2 powerful long-term and uncorrelated demand drivers. The first is an unprecedented growth outlook for the commercial space economy. The second is a dynamic global threat environment that demands highly capable advanced manufacturing capacity and major new investments in defense technology. Across both, the ability to manufacture highly engineered systems at the speed, quality and scale our customers require has never been more important. Applied is purpose-built for this mission, and we're confident our strategy provides an opportunity for asymmetric upside.

What differentiates us today is the combination of 2 things: First, platform's unique and highly integrated capabilities. And second, our operating philosophy. Let's start with our capabilities. We focus on building highly-engineered systems that integrate advanced and high-performance materials to operate in extreme environments. We believe that this integrated capability set is rare, and it's built on 3 foundational pillars: deep engineering talent with more than 220 engineers and well more than 400 technical subject matter experts, real material science know-how and depth across advanced resins and RF transparent materials, all forms of metals and space-grade polymers, and proprietary process IP that has been built up over decades.

Today, we believe roughly 88% of our revenue is tied to products produced using our IP-enabled processes. What all this delivers for our customers is faster development, higher quality, lower cost and proven performance that typically endures for the full life of a program.

Now let me touch on our operating philosophy because it's just as important. First, we're prime agnostic. We serve nearly all the leaders and innovators in defense and space, and we don't compete with our customers by design. Second, we're a full life cycle partner, trusted by the proven market leaders and by the bold new innovators, and we believe there are very few companies that can genuinely serve both. Third, we have relentlessly innovative engineering culture. Our people solve problems for our customers. That's how we build proprietary know-how into our processes and how we qualify into positions where, in many cases, we're the only supplier that has completed the requirement qualifications.

Finally, we are built to scale with the agility and the capacity to ramp alongside our customers from early development straight through to full-rate production. Here's why all this matters now. The U.S. space and defense industrial base needs exactly this capability set, and it needs it today. We believe that primes and new entrants alike are looking for partners with deeply integrated capabilities who can carry a hard problem from prototype to full production, and there aren't many companies capable of that kind of partnership. That's the single best explanation for the demand we're seeing at Applied.

Behind all of this sits our real physical capacity. We draw on more than 120 years of advanced manufacturing heritage, and we operate 11 purpose-built U.S.-based facilities across 6 states with more than 1.5 million square feet of production capacity. We estimate roughly 40% of that capacity is available today, measured across floor space, equipment capacity and workforce flexibility. Some of this we invested in strategically and proactively ahead of programs that we won but haven't yet begun to ramp. In today's market, this is proving to be a real advantage, and our entire Applied team is incredibly excited about what lies ahead.

Before I turn it over to Chris, I'll note that earlier this week, we announced Chris as President and Chief Strategy Officer, giving him broader strategic and operational oversight across our enterprise alongside the growth functions he already leads. With that, let me turn it over to Chris.

Christopher Rogers

Thanks, Trip. Let me start with backlog because it's the clearest evidence of where we're headed. We grew contract backlog to a record of over $1.1 billion, up from $871 million at year-end. Backlog is one key element from which we derive forward visibility, and that's why we can talk about the second half of this year and what lies beyond with confidence. One observation I'd share from the first half is how many programs in our pipeline now drawn multiple applied capabilities at once. As one example, we brought together complementary capabilities from across the platform to further vertically integrate our solid rocket motor case manufacturing. That's increasing speed and strengthening our ability to ramp production against the demand signal that we're seeing for a capability that supports multiple high-priority defense programs.

In another case, a large defense prime came to us looking for integrated production capability on key subsystems for a strategic precision strike program. We organized the full breadth of our capabilities against that opportunity in a way that's very unique to Applied. This is all about complementary and differentiated capabilities that when integrated, translate into speed, responsiveness and cost-competitive solutions. It's the platform working exactly the way we built it to deliver. The customer comes to us for capability and finds 3, and we win work we simply couldn't have won as separate businesses.

Now turning to our markets. In space, momentum is continuing across our commercial launch and satellite programs, and we're deepening relationships with the leading innovators in the sector. Rising launch cadence and the continued build-out of proliferated constellations point in the same direction, and our capabilities for uncompromising performance in the harsh environments of launch and space sit right in the middle of it. In defense aviation, we're ramping on next-generation programs, including our work supporting multiple collaborative combat aircraft platforms and the MV-75. These are the programs that will define the market over the coming decade, and we're positioned on them early at the point when content decisions get made.

Alongside that, our aftermarket positions continue to be a powerful advantage for our platform. Replacing, overhauling and repairing flight critical and life-limited parts on large installed fleets directly supports defense aviation fleet mission readiness and gives us high recurring demand that doesn't depend on new production rates. Demand remains high, and we're expecting solid aftermarket performance in the back half of 2026. Precision Strike is where you can really see the platform coming together. We have strong momentum in solid rocket motor cases, drawing on integrated capabilities from across Applied and serving customers we weren't working with a year ago. We've made the capacity investments these ramps require, and we're integrating our capabilities more tightly to drive speed and performance. The pipeline in this market is very dynamic and active.

On new business more broadly, we're seeing momentum on 2 fronts at once, deeper content with the large defense primes we've served for decades and genuinely exciting first-time opportunities with high potential new customers. Both of these matter. The first will always be our highest certainty growth, and there remains vast white space. And the second is one of many ways that we will compound growth. A quick word on M&A. CBI is delivering the synergies we underwrote and our M&A pipeline remains exciting and very active. We know where we want to invest internally and which capabilities we'd rather bring in from the outside. That clarity is what keeps us disciplined.

Let me leave you with this. What stands out most is the sheer scale of the integrated opportunity that sits in front of us. Applied today is a coordinated platform, and that is what lets us pursue tremendous white space in a coordinated way, drive productivity improvements and approach M&A thoughtfully. That combination is what we mean when we talk about Applied having asymmetric upside. It has really shown up in our pipeline, and I'm more optimistic about the scale of opportunity set in front of us today than I was just a few months ago. We're carrying real momentum into the second half, and there is a tremendous amount of energy and productive activity taking place all across Applied.

With that, I'll turn it over to Jeff to walk you through our financials.

Jeffrey McRae

Great. Thanks, Chris, and good morning. I am very pleased with our second quarter as our results reflect strong execution and position us well to deliver on our full-year expectations. Before we get into the details, one note on the basis of the numbers. Everything I discuss today related to financial results as well as our guidance reflects GAAP as reported on a non-pro forma basis. Our acquisition of CBI is only reflected for the period from its March 2 closing date forward. Where I do reference pro forma figures, I'll say so.

So let's get into the results for the second quarter. Revenue for the quarter was $167.3 million, reflecting 47.4% growth year-over-year. The strong revenue performance was the result of growth across all 3 of our end markets. On a pro forma basis, including revenue realized by CBI for the same period last year, second quarter revenue grew by 21.3%. We also exceeded our internal revenue plan for the quarter due to some timing dynamics. We saw strong execution on several programs, which resulted in the incremental pull forward of revenue and contracted backlog that we had anticipated converting to revenue in the second half of 2026. This phasing does not alter our outlook for the full year.

Now a few highlights on revenue by end market. Space and Launch Systems revenue was $38.8 million, up 58.5% on high volumes of content supporting priority launch vehicle and satellite production programs. Specifically, we continue to see strong demand on content enabling SpaceX's Falcon 9 program as well as ramping demand on Blue Origin's New Glenn program. Defense Aviation & Airborne Systems revenue was $78.9 million, up 4.8% with certain next-generation development programs beginning to move into production, specifically our support of Anduril on their CCA Fury program and Bell on the MV-75 program. This alongside sustained aftermarket demand across a large installed base of aircraft.

C5ISR & Precision Strike Systems revenue was $49.6 million, up $13.7 million from the year prior. This market benefited from significant contributions from CBI and was supported by strong demand signals across integrated air and missile defense systems and Precision Strike programs.

From a margin perspective, we saw a heavier weighting of revenue from several early-stage next-generation programs that are now ramping up, and we see those programs accelerating from here. As such, we typically see some compression as we work through product development and initial learning curves with our engineering and production teams. Importantly, this is a typical short curve for us and most programs will reach our target margin profile within the first several units. So, as we ascend the learning curves and volumes ramp, efficiencies improve, and we will see margins improve as we progress through the year and into 2027.

Consolidated gross margin for the quarter was 22.2%. This did reflect the impact of share-based compensation resulting from the accelerated vesting of equity units at the IPO, which impacted margins by approximately 6%. Adjusting for this, gross margins were in line with the same period a year ago as increased volume and improved throughput offset the lower initial margins on our development programs. Net loss for the quarter was $154 million, including aggregate share-based compensation expense of $110 million from accelerated vesting of equity units, higher levels of interest expense for the period prior to our IPO, increased intangible asset amortization when compared with the prior year quarter and other costs related to our IPO. Excluding these impacts and their corresponding income tax effects, we would have generated net income in the quarter.

Adjusted EBITDA for the quarter came in at $36.4 million, representing solid year-over-year growth. Adjusted EBITDA margin, which is a non-GAAP measure, was 21.8% for the quarter compared to 23.2% in the prior year period, which reflects the investment we've made in our business to expand operational support capabilities as well as investments to support operating in a public company environment. On cash flow, for the first 6 months of the year, net cash used in operating activities was $82.1 million. Three things drove this use of cash, the first 2 of which were nonrecurring, elevated IPO and acquisition-related costs, cash interest on a portion of our debt repaid with the proceeds from our IPO, which we carried for most of the period and a working capital build of roughly $36 million in contract assets and inventory to support second half deliveries and a growing contract backlog.

We expect much of that working capital to be converted back to cash as second half deliveries occur, and we project generating positive free cash flow in the second half of the year. On capital expenditures, we spent roughly $21 million in the first half of the year and expect full-year spending on capital of roughly $50 million, weighted toward the qualified capacity and efficiency investments that support the production ramps Trip referenced earlier.

Turning to our balance sheet. Our June offering of approximately 34.2 million primary shares at $20 per share generated $635.7 million of net proceeds, and we used $626.2 million to repay term loan principal, our drawn revolver balance and accrued interest. Total debt as of June 30 was $405.8 million, down from $643.4 million at year-end. Net debt was $387.7 million with a cash balance of $18.1 million as of the quarter end. We had our full $125 million available under our revolver. Net leverage based on pro forma trailing 12-month earnings was roughly 2.7x.

Now to our outlook. For the full year 2026, we expect total revenue between $670 million and $690 million and non-GAAP adjusted EBITDA between $150 million and $155 million. It is important to note that we have strong backlog coverage supporting our outlook for the second half of the year and well into 2027 and beyond. We expect that revenue will build through the balance of 2026 with the fourth quarter being our most significant quarter.

From a supply chain perspective, we are seeing the same environment many of our peers and customers are, and we are actively working to mitigate some supply chain congestion. We see path to resolution, but we'll continue to monitor closely. On the materials side, we are making a number of forward investments to support growth initiatives and are seeing some raw material inflation as oil prices remain high and impact other inputs. To date, this has primarily been confined to aluminum and has thus far been relatively immaterial.

Two last items for modeling. We expect our full year 2026 effective tax rate to be approximately 7%, which reflects certain items recognized this year rather than our long-term tax rate that we would expect, and we had 172.4 million shares outstanding at June 30 against a weighted average of 148.2 million for the quarter. Our expectations for the full year are essentially unchanged. Relentless execution, proactively managing our supply chains and working up the learning curve on new programs that are in ramp mode, all bode well for 2027 and beyond.

And with that, let me turn it back to Trip.

James Ferguson

Thanks, Jeff. Before we open the call for questions, I'd like to lay out our priorities for the second half of the year. There are 3. First, drive operational excellence and building Applied right. That means operational excellence at the enterprise level and within every site, playing offense within our supply chain, pulling all the right levers to drive efficiencies and exceptional performance and accelerating the development programs that are ramping today into the growth programs of tomorrow. Building Applied right also means bringing our enterprise together the right way and making sure we have the right leaders and talent base for opportunity set ahead of us. That is what I mean when I say we are building Applied to endure.

Second, coordinating and thoughtfully triaging a dynamic new business pipeline. As Chris said earlier, we have exceptional momentum with the large primes we serve for decades and real opportunity with high potential customers we're working with for the first time. That pipeline is dynamic enough that choosing well matters as much as winning, and we're particularly excited about what lies ahead here. And third, executing on our high-growth and next-generation program ramps while continuing to invest ahead of demand and capacity and capabilities. Getting high potential programs advancing towards full-rate production on schedule and at the right cost is one of the most important things we'll be doing this year.

So, with that, let me close where I started. Applied was purpose-built for this moment. We have differentiated capabilities and operating philosophy that our customers value, long-tenured relationships with excellent customers, diversified and embedded positions across enduring programs of record and next-generation growth programs and the qualified capacity to serve them all. Our job for the balance of this year is execution. And I'll tell you that I'm even more optimistic about what is in front of this company today than I was a quarter ago.

Before we open up to questions, I'd like to once again personally thank our team members whose work produced this quarter, customers for their trust, our service members for their commitment to our nation and our shareholders for their confidence. With that, operator, we're ready to take questions.

Operator

[Operator Instructions] Our first question is from Sheila Kahyaoglu with Jefferies.

分析師問答

Sheila Kahyaoglu

Trip, Jeff and Chris, congratulations on the IPO and a big milestone. I wanted to ask 2 questions, if possible, please. The first one on backlog. It grew to over $1.1 billion, significantly ahead of your IPO levels. Can you maybe discuss the backlog conversion as we think about it over the next 12 to 24 months and how we think about it across space, defense, aviation and precision strike?

Jeffrey McRae

Yes. Sure, Sheila. Generally, as we look at backlog, we generally view it as a 12- to 18-month forward view on the business. As we think of conversion of it for 2026, we effectively have the balance of the year sitting in firm backlog, and it's all about the execution. As we look forward into '27, roughly about half of that backlog should convert to revenue in 2027. The balance of 2027 will be filled out by existing long-term agreements where additional orders drop in backlog over time. And then it starts positioning us as we start thinking into 2028. So very confident.

We love the firm backlog of this business. It gives us great visibility as we view the forward view of the business. It really is strong across all 3 end markets. We do not provide specific values across the 3 end markets, but I would say we're in great shape 2026, 2027 as we think backlog conversion across all 3 end markets.

Sheila Kahyaoglu

And maybe as a follow-up, just to support that growth, can you discuss some of the working capital investments you're making just to support the business going forward?

Jeffrey McRae

Yes. I mean, we're obviously making sure that we are prepared for the growth in the business, both from a working capital, but also from a capital facility and equipment standpoint. As we've talked in the past, we have forward invest in the business to support demand signals that we have there. We continue to do that through 2026. As we mentioned, we have roughly $50 million of capital going into the business. That is combined then with working capital growth really that is supporting that ramp in revenue through the second half of the year.

James Ferguson

Sheila, I would also add, we're incredibly excited about 2027 and beyond. We are seeing the same demand signals that many of the primes and our customers are seeing. And so we're preparing for success.

Operator

Our next question is from Ken Herbert with RBC Capital Markets.

Kenneth Herbert

Congratulations again on the successful IPO. Maybe just to start, either Trip or Jeff, I guess. As we look at the 2026 guide, it implies a bit of a sequential step-up in the EBITDA margins in the second half. Maybe, Jeff, can you just walk through some of the sort of onetime or transitory headwinds to margins you saw here in the first half and how you think about the step-up? And I guess underneath that is some implied assumptions maybe on some of the costs coming down on some of the newer programs that are ramping.

Jeffrey McRae

Yes. I would say that the most significant driver is that point there, Ken. As we look at the first half of the year, we did see some compression on margins related to start-up new development programs. As those programs start to mature through the second half of the year, we will see margin expansion there. If I look at first half of the year, roughly 20% of the revenue related to those start-up programs. And as we think about it, we tend to get through a handful of initial production units before we start seeing normalized margins. So working up the learning curve, getting through the engineering. So that is what really kind of drives the second half of the year. There are some mix dynamics as well, as we always have, that's helping us in the second half of the year as we see that growth in revenue.

Kenneth Herbert

And maybe as a follow-up, trip, one of your first points, as you called out second half priorities was the operational excellence piece. Can you just level set us on where you see integration across the Applied portfolio? And what would be some of the next major steps as you think about operational excellence? Or I guess, with that backdrop, integration of the various businesses and where you are on that journey?

James Ferguson

Yes, for sure. We are ahead of schedule, bottom line up front. We have great alignment of all of our senior leaders. We have seen both people, process and system come together extremely well. One of the things that's a really bright spot is we have seen synergies across sites driving revenue on opportunities supporting our customers. So an example with an emerging innovator who has a Go Fast program, we've been able to leverage our capabilities in a new thoughtful way that's helping accelerate that program.

And so just the key takeaway is we feel really comfortable with where we stand today, and we believe we'll really benefit through the second half of the year, but most importantly, going into '27 and it will really help us grow the business in all the right ways.

Operator

Our next question is from Peter Arment with Baird.

Peter Arment

I'll echo everyone else's sentiments. Congrats on the quarter and the IPO. Trip, maybe you could talk a little bit about space and launch. You guys have exposure to New Glenn, and there's been obviously an anomaly there. Just wondering how you think about the business for the second half and going forward?

James Ferguson

Thank you for the question. I feel really optimistic about the space economy in general. What I would say, all indicators and direction from Blue Origin have been to continue moving at pace. We have not slowed down. So that reflects also their public statements. And I would say we also see a lot of good tailwinds across I would say, other emerging areas within space. And one area that we've seen growth is really in our proprietary tank business as well. So all in all, I would say, very exciting, very positive, and we're preparing to really ramp throughout '27.

Peter Arment

Got it. I appreciate that. And then just as a follow-up, if you could -- a lot of the framework agreements are starting to get firmed up or at least some of them are. Could you talk a little bit about your exposure there and when you expect to start seeing things flow to Applied?

James Ferguson

Yes. I'm going to pass it over to Chris and let him. He's been working that directly.

Christopher Rogers

Sure. To start off with, we've got deep content already across a range of the programs that you're seeing in the headlines. So a big part of our forward ramp is tied to those programs. We are also working on a range of opportunities we're pretty excited about. At the time we were last speaking, I know we did touch on sole-source revenue, single-source revenue being kind of in the 86% range. Our expectation is that will go down in part because a lot of the opportunities we're seeing to dual source are ones that are very attractive. They offer us an opportunity to showcase a lot of what we do best in terms of kind of moving fast and being cost effective. So a lot there and probably some more things that you'll see from us in the near term.

Operator

Our next question is from Kristine Liwag with Morgan Stanley.

Kristine Liwag

I wanted to follow up on the working capital question that was asked earlier. So when we think about the timing of the cadence, should we think about 1H as being a negative use of cash on working capital and second H is positive? Is that the normal run rate for the business? Or are there any onetime items, excluding the IPO stuff that make this pattern like this this year?

Jeffrey McRae

Thanks for the question, Kristine. Yes, I think you have it pretty much in line. We will see the conversion to cash of the growth in working capital we saw in the first half of the year, which really is supporting the revenue generation that we see in Q3 with growth then in Q4. I would generally see a pretty linear growth with working capital as we move forward into 2027 and continue to see growth in the business where you'll see some step up. You'll see ups and downs by quarters depending on kind of total revenue volume.

Kristine Liwag

Okay. Great. So just to confirm, we shouldn't think of this as a pattern where going forward, 1H is the usage of cash, 2H is a generation on an annual basis. This is just the pattern for this year?

Jeffrey McRae

Yes, that's correct. And we'll lay out 2027 in the future for you and give you a little bit more clarity there.

Kristine Liwag

Great. Super helpful. And if I could follow up on Starship, perhaps the Starship -- SpaceX Starship continues to hit some of its launch milestones. I was wondering, can you provide any color on the progress of potentially being a supplier to Starship? How far along are those conversations? And if that were to proceed, when should we expect potential timing?

Christopher Rogers

Sure. It's a couple of things to touch on there. So SpaceX is a very important customer for us. We view ourselves as that. It's a SpaceX relationship. So while we have meaningful Falcon 9 content, relationship is with SpaceX. So we're working a range of things related to Starship today. We're also seeing Falcon 9 orders continue to come in. I think our expectation there is that, that will run through 2030, which is consistent, I think, with what SpaceX is sharing. I think we're also expecting that for a range of applications, we've got capability that's likely relevant to kind of future state of Starship. When you think about some of what we're doing on composites, while the overwhelming design of Starship ties into metal, there's things as it relates to payloads and others that we think are going to be really relevant. A number of those are working already.

We also think that as it relates to kind of SpaceX, there's probably upside, although we've kind of conservatively modeled to be in line with SpaceX's expectations. There's probably a good chance that Falcon 9 actually runs longer. So that's how we're approaching it today and feel very bullish about opportunity set Starship and our work on it.

Operator

Our next question is from Myles Walton with Wolfe Research.

Emilee Deutchman

This is actually Emilee on for Myles. Congrats on the IPO. Just a quick question on the budget landscape. The Senate and the House, both voting for CRs to go through at least early to mid-December. How are you guys thinking about that in terms of impact to your guide? Are there any specific programs that are on your radar that could be impacted by any funding constraints? Or are you all pretty much agnostic to the CR?

Christopher Rogers

Yes. We are monitoring it closely like many of our customers and other folks that we're working with within the ecosystem. I think one of the benefits of our platform is we are very diversified. Much of our work is on long life enduring programs of record. And so if you think about the potential to enter into a continuing resolution environment, we are in many ways, insulated from that in the near term, particularly as Jeff touched on, a lot of our definition of backlog ties into things that are funded kind of purchase order in hand. We are monitoring as you think about some of the things that will be impacted in terms of some of these ramps on next-gen programs that probably ties more into kind of outlook for '27. So that's something we're going to be tied in there in terms of just potential implications probably beyond this year.

Emilee Deutchman

Got it. And then one follow-up. In Defense Aviation with the MV-75 being a key growth driver, are you all seeing any impact from the funding gap that Textron is at least attempting to cover?

James Ferguson

To date, we have not. We have been directed to continue moving forward. It is a monitoring watch item for our team, but we view any near-term kind of headwinds that could come as just near term. We believe that program has very strong, strong backing, and we're very excited about it in 2027, '28 and beyond.

Operator

Our next question is from Jonathan Siegmann with Stifel.

Jonathan Siegmann

On these new multiyear munition deals, they're new for the industry. Can you talk about what it means as a supplier? And specifically, is there any trade-off going on with pricing and margins for this longer-term visibility on these programs?

Christopher Rogers

Sure. We are actively working a number of multiyear agreements. Part of where we've been very forward, I think, has been forward investing in terms of some of the capacity. From a pricing standpoint, I mean, our endpoint is to deliver value. And so much of that ties to kind of the speed at which we can deliver. And what we're seeing there are things that are really good fits for our platform. And so if you look at kind of what we can deliver relative to kind of the customer set, it's pricing that works, pricing that's fair, pricing delivers a high level of value, and I think exactly kind of the type of capabilities that kind of the nation needs.

So these are all fairly real time in terms of what we're working, but we're pretty bullish in terms of kind of what that means for both the mission, getting a lot of this kit kind of into the hands of our customers and ultimately out to the war fighters.

James Ferguson

And John, I would add, one of the great things about good visibility, volume, it really allows you to provide efficiency in your manufacturing operations. And so that's one thing that we are very focused on as we think about how we support mission and customer in the areas you asked about.

Jonathan Siegmann

And then you've highlighted consistently some great exposures to some of the name brand programs that we're all familiar with. But when we think about the push for lower cost affordable mass, can you just talk about how your capabilities might fit with some of those lower cost programs and whether that's a fit for your capabilities?

Christopher Rogers

That's an area we're actively working with a range of customers who I would consider kind of nontraditional new entrants. Our capability set is incredibly relevant to them. Why? Because we can be super responsive from some of the early-stage prototype working to also ability to ramp. And so while we've not publicly disclosed some of the work that we're doing, many of those are folks that are nontraditionals that are aiming to deliver that type of very kind of cost-effective, higher volume type of capability. So it will be more of kind of the future state of our business for sure.

James Ferguson

The Applied playbook drives us to have discipline and focus. We are working to partner with the teams and new emerging innovators that we believe will have long-term success, not everything that looks flashy. We're just being very disciplined as we look forward.

Operator

We have reached the end of the question-and-answer session. I would like to turn the floor back over to Trip Ferguson for closing comments.

James Ferguson

Thank you, operator. Thank you all for joining us. We look forward to updating you in November. And once again, thank you to the team in Applied for all of your hard work and effort and focus on mission.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.