AEVEX Corp. (AVEX) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to AEVEX's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] 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, growth and M&A strategy, and capital allocation priorities. Our forward-looking statements are based on current expectations, forecasts and assumptions, and they 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, and 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've 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 are 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 2 organizations together, we will unite 2 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 2 important milestones for AEVEX. We've entered into a definitive agreement to acquire BlackSea Technologies, and we announced our second quarter results, posting 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 4 in the presentation deck. The transaction story is straightforward and clear. By bringing these 2 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 subsea domains at a time when the Department of War is leaning into unmanned system spending. This transaction aligns perfectly with our strategic direction and our mission-focused culture and also represents the kind of opportunity we signaled we 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 5. 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 3 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 noncash 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 '27 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 6. When our team evaluated this transaction, we came back to 5 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 system 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 '27. 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 2 variant Chaser. As well as contested logistics vessels contracts such as the recently awarded Seabased 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. And 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 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 7. 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 '26, 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, U.S. 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's the flywheel that underpins our growth expectations for the business. The takeaway on this slide is simple. We're 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 8. Building on the last slide, I want to give you a sense of the product road map 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 pounds, has a range of more than 640 miles, 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. And critically, it's packable in a standard 20-foot 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. And importantly, BlackSea's platforms like those at AEVEX are built on a modular open systems architecture, which is exactly aligned 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 moat. Here's 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. And there is no better example than the U.S. Navy's fifth fleet. The mission is to deploy additional GARCs and personnel to Bahrain to support fifth fleet operations in a highly contested maritime environment. BlackSea is solving 3 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 9. 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 5 U.S. locations: Maryland, Virginia, North Carolina, Florida and California. And the headquarters and manufacturing facilities waterfront location in Baltimore, Maryland is a genuine differentiator. The research development test and evaluation facility is 57,000 square feet, equipped with 2 30-ton bridge cranes. The production facility is 47,000 square feet and today has the capacity to produce approximately 40 small USVs per month. Just to frame that, at current run rate, that's meaningful headroom relative to the 350-plus units delivered to date, which we expect would give us room to convert the backlog we've highlighted without incremental capacity investment on day 1. The facilities also have 3 attributes that are hard to replicate: deepwater access for testing and delivery, a robotic welding machine for consistent high-throughput whole fabrication and facilities that support classified program work. And of course, the true value of BlackSea is its roughly 275 hard-working 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 plan, location, security infrastructure and the workforce already in place to deliver on the growth we've 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 multiyear super cycle in unmanned systems investment. Financially, it's disciplined. We are acquiring a business that is expected to generate approximately $150 million of revenue in fiscal year '26 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 1 in 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 make 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're excited about what AEVEX and BlackSea will build together for our customers, our employees and our shareholders. And with that, 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 higher. We are seeing increased interest in and demand for autonomous systems, airmen and maritime, both here in the U.S. and from allies overseas. Of note, we've 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 territory. And we've 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 '27 Budget projects materially higher spending, particularly for autonomous systems. And 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 the continuing resolution, which has become commonplace over the past decade or more. However, we don't expect that to have a material impact on our financial results in 2026. And 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 keen 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. And finally, we recently announced 2 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 2 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 '25 was 41%. And for fiscal year '26, 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. And that's 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 time lines. From our perspective, this is a great outcome for AEVEX as we can deliver across all of those metrics, and we're 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. And 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 4 areas. And with that, I'll hand the call over to Todd for a discussion of Quarter 2 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 EUCOM 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 Systems segment saw revenue growth of 142% year-over-year to $174.2 million, driven largely by the execution of the EUCOM 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 and to 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 6 months ended June 30, 2026, was $8.6 million compared to net cash used in operating activities of $27.9 million for the 6 months ended June 30, 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, but 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 2 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 3, 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 to $720 million and adjusted EBITDA in the range of $105 million to $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. And 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 first go around and 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. So operator, over to you for some instructions and to get us started. Thanks.

[Operator Instructions] Your first question comes from the line of Peter Arment with Baird.

Nice results and congrats on the BlackSea deal. Roger, maybe if you could just -- EUCOM Deep Strike has been such a major contributor. And maybe you could just give us an update of how that -- how much of that program maybe has been recognized to date or how much you're thinking about for the second half? And I assume it lingers a little bit into '27, just because it is such a major contributor. And just thoughts on that or any of the other kind of big pursuits that you've been pursuing regarding that.

So EUCOM Deep Strike continues to be a major program for us in fiscal year '26. 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. And we will be going through a transition in the second half as we move from EUCOM Deep Strike program to other programs that were in the process of winning and delivering on in the back half of the year for U.S. Forces across the 4 portfolio areas that we talked about: Launched Effects, long-range precision strike, one-way attack and then 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.

And Peter, this is Todd. Just listen, we don't give exact percentages, but the Q3 percentage of total revenue is less than what was in Q2 and Q1 and Q4, it goes down quite a bit, and then there's a little bit in '27.

Your next question comes from the line of Seth Seifman with JPMorgan. Your next question comes from the line of Brian Gesuale with Raymond James.

Congrats on the quarter and the acquisition here. I wanted to dig in a little bit to the pipeline continues to grow. Can you give us some color around 2 areas? One, maybe the product type, if you're seeing any differentiation amongst the products like Atlas & Disruptor, et cetera? And then also how you think that might matriculate into order flow and backlog through the end of the year?

Yes. So right now, we're 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. And this demand is really being highlighted by current activities that we see in Ukraine as well as activities in the Middle East surrounded by Epic Fury. So as part of the elevation and growth of our pipeline, $8.1 billion to $10.5 billion, we really see it in 3 major categories. The first is that product differentiation and expansion that we're 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. And then the third piece is capitalizing on the scale and the capitalization we've done in order to increase the capacity of the organization. So we believe that we're 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.