SEC EDGAR · 10-Q
10-Q – 2026-05-28 – arxs-20260331.htm
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Omsättning
- Unregistered Sales of Equity Securities and Use of Proceeds
- Revenue
- Cost of revenue
- Use of Estimates | The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported periods. Actual results may differ from these estimates. Significant estimates and assumptions include those related to the carrying amount of property, plant and | Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances.
- Revenue Recognition | The Company recognizes revenue using the five-step model prescribed in ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company generates revenue primarily from the design, manufacture, and sale of highly engineered electronic and mechanical components used in mission-critical, harsh-environment applications. Based on the Company’s production cycle, it is generally expected that goods related to the revenue will be manufactured, shipped and billed within twelve months of the custo
- Revenue Recognition | The Company recognizes revenue using the five-step model prescribed in ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company generates revenue primarily from the design, manufacture, and sale of highly engineered electronic and mechanical components used in mission-critical, harsh-environment applications. Based on the Company’s production cycle, it is generally expected that goods related to the revenue will be manufactured, shipped and billed within twelve months of the custo | A majority of the Company’s revenue is recognized at a point in time. The Company typically sells electronic and mechanical components based on a customer purchase order, which generally includes a fixed price per unit. The Company satisfies the performance obligation generally upon shipment of the goods to the customer or delivery, depending on contractual terms, as this is when control transfers to the customer. The Company also provides repair, overhaul, and other service activities which are
- The Company recognizes revenue using the five-step model prescribed in ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company generates revenue primarily from the design, manufacture, and sale of highly engineered electronic and mechanical components used in mission-critical, harsh-environment applications. Based on the Company’s production cycle, it is generally expected that goods related to the revenue will be manufactured, shipped and billed within twelve months of the custo | A majority of the Company’s revenue is recognized at a point in time. The Company typically sells electronic and mechanical components based on a customer purchase order, which generally includes a fixed price per unit. The Company satisfies the performance obligation generally upon shipment of the goods to the customer or delivery, depending on contractual terms, as this is when control transfers to the customer. The Company also provides repair, overhaul, and other service activities which are | If a contract contains multiple performance obligations, the transaction price is allocated on a relative standalone selling price basis. Standalone selling price is determined using observable prices where available or estimated based on market conditions and internally approved pricing guidelines.
- If a contract contains multiple performance obligations, the transaction price is allocated on a relative standalone selling price basis. Standalone selling price is determined using observable prices where available or estimated based on market conditions and internally approved pricing guidelines. | For certain contracts, revenue is recognized over time because control transfers continuously to the customer, or the products have no alternative use and contractual termination clauses entitle the Company to payment plus a reasonable profit for performance completed to date. | Progress toward completion is generally measured using the cost-to-cost method, which best depicts the transfer of control to the customer. We estimate the amount of revenue attributable to a contract earned at a given point based on certain costs plus the expected profit. Costs include direct labor, materials, subcontractor costs, and other allocable expenses. Estimates of total contract costs require judgment based on contract duration, availability of materials and labor, and technical risks.
EBITDA
- Business Combinations | The Company accounts for business combinations under ASC 805, Business Combinations , using the acquisition method of accounting to allocate costs of acquired businesses to the identifiable assets acquired (including intangible assets) and liabilities assumed based on their estimated fair values at the dates of acquisition . The total purchase consideration is generally measured as the fair value of the cash or non-cash assets transferred and equity instruments issued at the acquisition date. Th | Fair value adjustments to the Company’s assets and liabilities are recognized and the results of operations of the acquired business are included in our financial statements from the effective date of the merger or acquisition. Costs incurred by the Company that are directly attributable to the acquisition are expensed within Selling, general and administrative expenses.
- The Company has two reportable segments, Electronic Components and Mechanical Components. The Company’s segment reporting structure is consistent with how the CODM reviews the business, makes investing and resource decisions, and assesses operating performance. | The Company’s CODM is its Chief Executive Officer . The CODM evaluates the performance of the segments and allocates resources to them based on segment adjusted earnings before interest, taxes, depreciation and amortization adjusted for other non-cash or non-recurring items (“Segment Adjusted EBITDA”) that management believes are not reflective of the Company’s ongoing core operations. | Information on the Company’s two reportable segments, Electronic Components and Mechanical Components, was as follows:
- Segment Adjusted EBITDA
- The following table provides a reconciliation of Segment Adjusted EBITDA to Net income (loss) before income taxes for the periods presented:
- We are a leading designer and manufacturer of proprietary, mission-critical electronic and mechanical components engineered for cutting-edge performance in extreme environments. Leveraging significant IP and world-class engineering capabilities, we design and deliver innovative solutions that address some of our customers’ most complex performance needs. Our business is highly diversified across end markets, customers and platforms. While we primarily serve the broader aerospace and defense indu | For the three months ended March 31, 2026, we generated revenue of $458.9 million, representing an increase of 20.7% compared to $380.1 million for the three months ended March 31, 2025. Net income for the quarter was $53.3 million compared to net loss of $4.3 million for the three months ended March 31, 2025. Adjusted EBITDA 1 was $175.2 million, or 38.2% of revenue, compared to $134.1 million, or 35.3% of revenue, for the three months ended March 31, 2025. | Demand across our end markets remained strong during the first quarter of 2026, driven by continued growth in defense and space programs from increasing U.S. and allied budgets, sustained growth in commercial aerospace from robust production rates and aftermarket activity, and solid demand across our industrial technology end markets driven by continued investment in automation and electrification. Our results are supported by disciplined execution, productivity initiatives, and cost management,
- Segment Results | The following table presents revenue by segment, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin for the three months ended March 31, 2026 and 2025:
- Segment Adjusted EBITDA Margin (1)
- (1) Segment Adjusted EBITDA Margin is calculated as Segment Adjusted EBITDA divided by segment revenue.
Rörelseresultat
- Operating income
- Our financial results of operations could be adversely affected by impairment of our goodwill or other intangible assets. | Goodwill and other intangible assets that have indefinite useful lives must be evaluated at least annually for impairment. The specific guidance for testing goodwill and other non-amortized intangible assets for impairment requires management to make certain estimates and assumptions. Changes in our estimates and assumptions, including as a result of factors beyond our control, could adversely impact the fair value of reporting units and result in impairments of goodwill and other intangible ass | We could be required to make future contributions to our defined benefit pension and post-retirement benefit plans and our costs may substantially increase in connection with such plans as a result of adverse changes in interest rates and the capital markets, changes in actuarial assumptions and legislative or other regulatory actions.
Periodens resultat
- Net income (loss) before income taxes
- Net income (loss)
- Net income
- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
- The purchase price allocation to the underlying assets acquired and liabilities assumed based on their fair values as of the acquisition date consisted of total assets acquired of $ 60,757 , including goodwill of $ 27,933 , intangible assets of $ 21,700, property, plant, and equipment of $ 2,635 and all other current and non-current assets of $ 8,489 , with assumed total liabilities of $ 10,290 which includes deferred tax liabilities of $ 5,658 . Goodwill was primarily attributable to synergies | Pro forma revenue and net income have not been presented for Micro-Tronics, Oldham, and Spira because the financial results are, individually and in the aggregate, not material to the condensed combined financial statements in any period presented.
- The following table provides a reconciliation of Segment Adjusted EBITDA to Net income (loss) before income taxes for the periods presented:
- We are a leading designer and manufacturer of proprietary, mission-critical electronic and mechanical components engineered for cutting-edge performance in extreme environments. Leveraging significant IP and world-class engineering capabilities, we design and deliver innovative solutions that address some of our customers’ most complex performance needs. Our business is highly diversified across end markets, customers and platforms. While we primarily serve the broader aerospace and defense indu | For the three months ended March 31, 2026, we generated revenue of $458.9 million, representing an increase of 20.7% compared to $380.1 million for the three months ended March 31, 2025. Net income for the quarter was $53.3 million compared to net loss of $4.3 million for the three months ended March 31, 2025. Adjusted EBITDA 1 was $175.2 million, or 38.2% of revenue, compared to $134.1 million, or 35.3% of revenue, for the three months ended March 31, 2025. | Demand across our end markets remained strong during the first quarter of 2026, driven by continued growth in defense and space programs from increasing U.S. and allied budgets, sustained growth in commercial aerospace from robust production rates and aftermarket activity, and solid demand across our industrial technology end markets driven by continued investment in automation and electrification. Our results are supported by disciplined execution, productivity initiatives, and cost management,
- Management compensates for these limitations by not viewing Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Free Cash Flow Conversion in isolation and specifically by using other GAAP measures, such as Revenue, Net income (loss) and Net cash provided by (used in) operating activities, to measure our operating performance and liquidity. Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Free Cash Flow Conversion are not measurements of financial performance or liquidity under | Adjusted EBITDA and Adjusted EBITDA Margin
Kassaflöde
- Cash flow from operating activities:
- Cash flow from investing activities:
- Cash flow from financing activities:
- Impairment of Long-Lived Assets | Long-lived assets, such as property, plant and equipment and finite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset or asset group to the carrying value of the asset or asset group. If the carrying val
- addition to Adjusted EBITDA and Adjusted EBITDA Margin, we believe Free Cash Flow and Free Cash Flow Conversion provide useful information regarding how Net cash provided by (used in) operating activities compares to the capital expenditures required to maintain and grow our business, and our available liquidity, after funding such capital expenditures, to service our debt, fund strategic initiatives and strengthen our balance sheet, as well as our ability to convert our earnings to cash. Additi | Our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies, have limitations as analytical tools and should not be considered in isolation, or as substitutes for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP financial measures as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations are:
- • Free Cash Flow and Free Cash Flow Conversion do not represent our residual cash flow available for discretionary purposes and do not reflect our future contractual commitments.
- Management compensates for these limitations by not viewing Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Free Cash Flow Conversion in isolation and specifically by using other GAAP measures, such as Revenue, Net income (loss) and Net cash provided by (used in) operating activities, to measure our operating performance and liquidity. Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Free Cash Flow Conversion are not measurements of financial performance or liquidity under | Adjusted EBITDA and Adjusted EBITDA Margin
- Free Cash Flow and Free Cash Flow Conversion | We measure Free Cash Flow as Net cash provided by (used in) operating activities less Capital expenditures. Free Cash Flow Conversion is calculated as Free Cash Flow divided by Net income (loss). The following table sets forth a reconciliation of Net cash provided by (used in) operating activities, the most comparable GAAP financial measure, to Free Cash Flow for the periods presented:
Fritt kassaflöde
- addition to Adjusted EBITDA and Adjusted EBITDA Margin, we believe Free Cash Flow and Free Cash Flow Conversion provide useful information regarding how Net cash provided by (used in) operating activities compares to the capital expenditures required to maintain and grow our business, and our available liquidity, after funding such capital expenditures, to service our debt, fund strategic initiatives and strengthen our balance sheet, as well as our ability to convert our earnings to cash. Additi | Our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies, have limitations as analytical tools and should not be considered in isolation, or as substitutes for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP financial measures as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations are:
- • Free Cash Flow and Free Cash Flow Conversion do not represent our residual cash flow available for discretionary purposes and do not reflect our future contractual commitments.
- Management compensates for these limitations by not viewing Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Free Cash Flow Conversion in isolation and specifically by using other GAAP measures, such as Revenue, Net income (loss) and Net cash provided by (used in) operating activities, to measure our operating performance and liquidity. Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Free Cash Flow Conversion are not measurements of financial performance or liquidity under | Adjusted EBITDA and Adjusted EBITDA Margin
- Free Cash Flow and Free Cash Flow Conversion | We measure Free Cash Flow as Net cash provided by (used in) operating activities less Capital expenditures. Free Cash Flow Conversion is calculated as Free Cash Flow divided by Net income (loss). The following table sets forth a reconciliation of Net cash provided by (used in) operating activities, the most comparable GAAP financial measure, to Free Cash Flow for the periods presented:
- Free Cash Flow
- Free Cash Flow Conversion
Likvida medel
- Cash and cash equivalents
- Effect of exchange rate changes on cash and cash equivalents
- Net increase (decrease) in cash and cash equivalents
- Cash and cash equivalents, beginning of the period
- Cash and cash equivalents, end of the period
- Cash and Cash Equivalents | Cash and cash equivalents include cash and liquid investments with original maturities of three months or less. The carrying amounts approximate fair value due to the high liquidity and short maturity of these instruments.
- The Company measures certain assets and liabilities at fair value in accordance with ASC 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and a fair value hierarchy based on the observability of inputs. The fair value hierarchy is as follows: Level 1 – Quoted prices for identical assets or liabilities in active markets; Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in | The Company’s financial instruments that are not remeasured at fair value include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and debt. The carrying values of these financial instruments materially approximate their fair values. | Interest Rate Hedges
- On June 27, 2025, the Company acquired 100 % equity interest in Oldham Seals Group Limited (“Oldham”), a Chichester, England based company that designs and manufactures highly engineered elastomeric and polymer products for the naval and civilian shipping, oil and gas and traction industries. The total consideration consisted of $ 115,099 of cash and $ 331 of deferred consideration. The acquisition was funded by $ 92,000 of proceeds from the issuance of debt from the Company’s existing debt inst | The purchase price allocation to the underlying assets acquired and liabilities assumed based on their fair values as of the acquisition date consisted of total assets acquired of $ 135,222 , including goodwill of $ 58,586 , intangible assets of $ 54,532 , cash and cash equivalents of $ 10,690 , property, plant and equipment of $ 4,842 , and all other current and non-current assets of $ 6,572 , with assumed total liabilities of $ 19,792 , which includes deferred tax liabilities of $ 14,924 . Goo
Nettoskuld
- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
- Net cash provided by (used in) operating activities
- Net cash used in investing activities
- Net cash provided by financing activities
- addition to Adjusted EBITDA and Adjusted EBITDA Margin, we believe Free Cash Flow and Free Cash Flow Conversion provide useful information regarding how Net cash provided by (used in) operating activities compares to the capital expenditures required to maintain and grow our business, and our available liquidity, after funding such capital expenditures, to service our debt, fund strategic initiatives and strengthen our balance sheet, as well as our ability to convert our earnings to cash. Additi | Our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies, have limitations as analytical tools and should not be considered in isolation, or as substitutes for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP financial measures as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations are:
- Management compensates for these limitations by not viewing Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Free Cash Flow Conversion in isolation and specifically by using other GAAP measures, such as Revenue, Net income (loss) and Net cash provided by (used in) operating activities, to measure our operating performance and liquidity. Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Free Cash Flow Conversion are not measurements of financial performance or liquidity under | Adjusted EBITDA and Adjusted EBITDA Margin
- Free Cash Flow and Free Cash Flow Conversion | We measure Free Cash Flow as Net cash provided by (used in) operating activities less Capital expenditures. Free Cash Flow Conversion is calculated as Free Cash Flow divided by Net income (loss). The following table sets forth a reconciliation of Net cash provided by (used in) operating activities, the most comparable GAAP financial measure, to Free Cash Flow for the periods presented:
- Net cash provided by operating activities
Eget kapital
- We could be required to make future contributions to our defined benefit pension and post-retirement benefit plans and our costs may substantially increase in connection with such plans as a result of adverse changes in interest rates and the capital markets, changes in actuarial assumptions and legislative or other regulatory actions. | Our estimates of liabilities and expenses for pensions and other post-retirement benefits incorporate significant assumptions including the rate used to discount the future estimated liability, the long-term rate of return on plan assets and several assumptions relating to the employee workforce (salary increases, medical costs, retirement age and mortality). A dramatic decrease in the fair value of our plan assets resulting from movements in the financial markets or a decrease in discount rates | We previously identified a material weakness in our internal control over financial reporting. If we experience additional material weaknesses in the future or otherwise fail to develop and maintain effective internal control over financial reporting, our ability to produce timely and accurate financial statements may be adversely affected.
Antal aktier
- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ | The number of shares outstanding of Arxis, Inc.'s Class A common stock, par value $0.01 per share, was 69,657,950 as of May 1, 2026. The number of shares outstanding of Arxis, Inc.'s Class B common stock, par value $0.01 per share, was 340,676,783 as of May 1, 2026. The number of shares outstanding of Arxis, Inc.'s Class C common stock, par value $0.01 per share, was 0 as of May 1, 2026. The number of shares outstanding of Arxis, Inc.'s convertible common stock, par value $0.01 per share, was 1
- Our convertible common stock is convertible into Class B common stock (or, if no shares of Class B common stock are outstanding at the time of such voluntary conversion, shares of Class A common stock), and prior to conversion participates on an as-converted basis, which will have the effect of diluting the economic and voting interests of holders of our Class A common stock and may adversely affect the market price of our Class A common stock. | Our convertible common stock will be convertible into a number of shares of our Class B common stock (or Class A common stock if no Class B common stock is outstanding at the time of such conversion) on the terms and conditions described in our Certificate of Incorporation. In addition, prior to satisfaction of the conditions to conversion of the convertible common stock, each holder of convertible common stock is entitled to vote, to consent, to receive dividends, if any, to receive notices as | The conversion of the share of convertible common stock into shares of Class B common stock (or, if no shares of Class B common stock are outstanding at the time of such voluntary conversion, shares of Class A common stock) would dilute the economic ownership interests of existing stockholders, including holders of our Class A common stock.
- The trading market for our Class A common stock may be influenced by the research and reports that industry or securities analysts publish about us or our business. If no or few securities or industry analysts commence coverage of us, the trading price for our Class A common stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose vis | If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our Class A common stock could decline. | Sales of a substantial number of shares of Class A common stock in the public market, or the perception in the market that the holders of a large number of shares of Class A common stock (or securities convertible into shares of Class A common stock) intend to sell shares, could reduce the market price of our Class A common stock. The holders of approximately 340,676,783 shares of Class A common stock (or securities convertible into such shares of Class A common stock) are entitled to registrati
- If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our Class A common stock could decline. | Sales of a substantial number of shares of Class A common stock in the public market, or the perception in the market that the holders of a large number of shares of Class A common stock (or securities convertible into shares of Class A common stock) intend to sell shares, could reduce the market price of our Class A common stock. The holders of approximately 340,676,783 shares of Class A common stock (or securities convertible into such shares of Class A common stock) are entitled to registrati | Some provisions of Delaware law and our Amended and Restated Certificate of Incorporation and bylaws may deter third parties from acquiring us.
Antal anställda
- Liability-classified awards are initially measured at fair value on the grant date and subsequently remeasured at fair value at each reporting date until settlement. Compensation cost for liability-classified performance-based awards is recognized when the applicable performance condition is considered probable of achievement, for awards that are probable to vest. When the performance condition is event based, the Company generally does not determine the performance condition is probable until s | The fair value of each award is estimated on the date of grant using an Option Pricing Methodology, under a risk neutral framework. Liability-classified awards are remeasured at fair value at each reporting date using the same valuation methodology. A number of assumptions are used to determine the fair value of awards granted. These include expected term, dividend yield, volatility of the awards and the risk-free interest rate. The Company has classified share-based compensation within Selling, | See “Note 14. Members’ Equity” for further information.
- Growth Participation Plans | Arcline Engineered Polymer Topco, L.P., Hawkeye TopCo, L.P., Connector TopCo, L.P., and Ovation TopCo, L.P. established the Growth Participation Plans under which the Board of Directors of each entity had the authority to grant Growth Participation Units (“GPUs”) to employees. Compensation cost is only recognized when it is probable that the vesting conditions will be met. No compensation expense has been recognized for the three months ended March 31, 2026 and 2025. | The unrecognized compensation expense related to the GPUs as of March 31, 2026 was $ 138,808 .
- Value Creation Bonus Plan | Ovation TopCo, L.P. established the Value Creation Bonus (“VCB”) Plan under which the Board of Directors had the authority to grant VCB units to employees. Compensation cost is only recognized when it is probable that the vesting conditions will be met. No compensation expense has been recognized for the three months ended March 31, 2026 and 2025. | The unrecognized compensation expense related to the VCB units as of March 31, 2026 was $ 7,081 .
- Deferred Compensation Plans | The Company maintains a non-qualified deferred compensation plan for certain of its employees. Generally, participants have the ability to defer a certain amount of their compensation, as defined in the agreement. The deferred compensation liability will be paid out either upon retirement or as requested based upon certain terms in the agreements and in accordance with Internal Revenue Code Section 409A. The Company holds investments in company-owned life insurance policies which are recorded at
- Defined Contribution Plans | The Company sponsors defined contribution plans covering substantially all eligible employees. The plans permit participants to make elective deferrals, with the Company providing matching contributions. Company contributions vary depending on the date of hire, with the majority of employees eligible for employer matching on a portion of their contributions. Employer contributions to the defined contribution plans were approximately $ 3,460 and $ 3,783 for the three months ended March 31, 2026 a
- Some of our customers may require substantial financing in order to fund their operations and make purchases from us. The inability of these customers to obtain sufficient credit to finance purchases of our products, or otherwise meet their payment obligations to us, could adversely impact our financial condition and results of operations. | We depend on certain key personnel and may be unable to attract and retain qualified and skilled employees. | We require highly skilled and technical personnel with background and experience in and knowledge of our industry and products. We believe that our future success is highly dependent on the talents and contributions of our senior management team and other key employees across engineering, manufacturing and sales. We must be able to attract, develop, motivate and retain highly qualified and skilled employees. There is substantial competition for skilled personnel in our industry, and we could be
- We depend on certain key personnel and may be unable to attract and retain qualified and skilled employees. | We require highly skilled and technical personnel with background and experience in and knowledge of our industry and products. We believe that our future success is highly dependent on the talents and contributions of our senior management team and other key employees across engineering, manufacturing and sales. We must be able to attract, develop, motivate and retain highly qualified and skilled employees. There is substantial competition for skilled personnel in our industry, and we could be | Labor-related matters, including labor disputes, could adversely affect our operations and increase our costs.
- Labor-related matters, including labor disputes, could adversely affect our operations and increase our costs. | A small number of our employees in the U.S. are represented by unions and some of our employees outside of the U.S. are represented by workers’ councils. Although we believe that our relations with our employees are satisfactory, we may not be able to negotiate a satisfactory renewal of collective bargaining agreements, satisfy unions and workers’ councils or maintain stable employee relations. We may become subject to work stoppages and experience increases in our labor costs, which could disru | We face significant competition.
Bruttomarginal
- Gross margin
- Gross profit increased by $71.9 million, or 44.2%, for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The increase was primarily due to improved operating leverage on higher volumes and favorable price realization, reflecting continued execution of operational execution across the business. The increase was also partially due to gross profit of $6.4 million that was recognized in the three months ended March 31, 2026 attributable to the acquisitions o | Gross margin was 51.2% during the three months ended March 31, 2026 compared to 42.9% for the three months ended March 31, 2025. The increase was primarily driven by favorable price realization and operational leverage on increased volumes. Continued operational execution initiatives also supported margin expansion . Gross margin for the three months ended March 31, 2025 was negatively impacted by 4.8% of amortization of inventory step-up resulting from prior acquisitions.
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10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2026
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 001-43234
ARXIS, INC.
(Exact name of registrant as specified in its charter)
Delaware
39-5113483
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
1332 Blue Hills Avenue , Bloomfield , Connecticut
06002
(Address of principal executive offices)
(Zip Code)
+( 860 ) 243-7100
Registrant’s Telephone Number, Including Area Code
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Class A common stock, $0.01 par value per share
ARXS
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of Arxis, Inc.'s Class A common stock, par value $0.01 per share, was 69,657,950 as of May 1, 2026. The number of shares outstanding of Arxis, Inc.'s Class B common stock, par value $0.01 per share, was 340,676,783 as of May 1, 2026. The number of shares outstanding of Arxis, Inc.'s Class C common stock, par value $0.01 per share, was 0 as of May 1, 2026. The number of shares outstanding of Arxis, Inc.'s convertible common stock, par value $0.01 per share, was 1 as of May 1, 2026.
ARXIS
INDEX
Page
Part I.
Financial Information
Item 1.
Financial Statements
3
Condensed Combined Balance Sheets as of March 31, 2026 and December 31, 2025
3
Condensed Combined Statements of Operations for the Three Months Ended March 31, 2026 and 2025
4
Condensed Combined Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2026 and 2025
5
Condensed Combined Statements of Members’ Equity for the Three Months Ended March 31, 2026 and 2025
6
Condensed Combined Statements of Cash Flows for the Three Months Ended March 31, 2026 and 2025
7
Notes to Condensed Combined Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
29
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
38
Item 4.
Controls and Procedures
38
Part II.
Other Information
Item 1.
Legal Proceedings
40
Item 1A.
Risk Factors
40
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
64
Item 5.
Other Information
65
Item 6.
Exhibits
66
Signatures
67
2
PART I. FINANCIAL INFORMATION
ITE M 1. FINANCIAL STATEMENTS
Arxis
Co ndensed Combined Balance Sheets
(Unaudited, in thousands)
March 31, 2026
December 31, 2025
Assets
Current assets:
Cash and cash equivalents
$
238,918
$
250,303
Accounts receivable, net
244,277
216,936
Contract assets
78,786
67,780
Inventories
325,995
315,604
Prepaid expenses and other current assets
55,978
57,058
Total current assets
943,954
907,681
Property, plant and equipment, net
408,334
397,929
Intangible assets, net
2,415,087
2,429,879
Goodwill
2,756,880
2,745,351
Operating lease right-of-use assets, net
64,840
64,651
Other assets
50,634
50,943
Total assets
$
6,639,729
$
6,596,434
Liabilities and members’ equity
Current liabilities:
Accounts payable
$
58,029
$
56,467
Contract liabilities, current
23,876
30,027
Operating lease liabilities, current
10,701
10,584
Debt, current
27,103
26,853
Accrued expenses and other current liabilities
135,458
163,230
Total current liabilities
255,167
287,161
Debt, noncurrent
2,625,392
2,606,459
Contract liabilities, noncurrent
1,414
1,414
Operating lease liabilities, noncurrent
54,121
53,798
Deferred tax liabilities
384,078
384,420
Other long-term liabilities
136,283
139,124
Total liabilities
3,456,455
3,472,376
Members’ equity
3,183,274
3,124,058
Total liabilities and members’ equity
$
6,639,729
$
6,596,434
See accompanying notes to the condensed combined financial statements.
3
Arxis
Cond ensed Combined Statements of Operations
(Unaudited, in thousands)
Three Months Ended March 31,
2026
2025
Revenue
$
458,858
$
380,079
Cost of revenue
224,015
217,168
Gross profit
234,843
162,911
Selling, general and administrative expenses
88,317
68,626
Amortization of intangible assets
36,023
34,080
Operating income
110,503
60,205
Interest expense, net
43,958
68,260
Other income, net
( 2,467
)
( 1,229
)
Net income (loss) before income taxes
69,012
( 6,826
)
Income tax expense (benefit)
15,703
( 2,502
)
Net income (loss)
$
53,309
$
( 4,324
)
See accompanying notes to the condensed combined financial statements.
4
Arxis
Condensed Combined State ments of Comprehensive Income (Loss)
(Unaudited, in thousands)
Three Months Ended March 31,
2026
2025
Net income (loss)
$
53,309
$
( 4,324
)
Other comprehensive (loss) income, net of tax:
Foreign currency translation (loss) gain
( 15,038
)
17,987
Actuarial gains related to defined benefit pension plans
5
—
Other comprehensive (loss) income
( 15,033
)
17,987
Total comprehensive income, net of tax
$
38,276
$
13,663
See accompanying notes to the condensed combined financial statements.
5
Arxis
Conden sed Combined Statements of Members’ Equity
(Unaudited, in thousands)
Members’ Equity
Balance as of December 31, 2025
$
3,124,058
Net income
53,309
Other comprehensive loss
( 15,033
)
Issuance of members’ units
2,500
Settlement of notes receivable (a)
4,361
Contributions
11,344
Distributions
( 307
)
Share-based compensation expense
3,042
Balance as of March 31, 2026
$
3,183,274
Members’ Equity
Balance as of December 31, 2024
$
2,977,127
Net loss
( 4,324
)
Other comprehensive income
17,987
Issuance of notes receivable
( 3,000
)
Contributions
385,000
Distributions
( 350,257
)
Share-based compensation expense
2,330
Balance as of March 31, 2025
$
3,024,863
(a) Refer to “Note 16. Related Party Transactions” for further information on related party arrangements.
See accompanying notes to the condensed combined financial statements.
6
Arxis
Conden sed Combined Statements of Cash Flows
(Unaudited, in thousands)
Three Months Ended March 31,
2026
2025
Cash flow from operating activities:
Net income (loss)
$
53,309
$
( 4,324
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization
51,528
48,994
Amortization of deferred financing cost and accretion of paid-in-kind interest
1,338
1,908
Amortization of inventory fair value adjustment
722
18,177
Loss (gain) on sale and disposal of assets
194
316
Share-based compensation expense
2,480
2,330
Interest rate hedges change in fair value
( 725
)
88
Deferred income taxes
68
( 4,217
)
Loss on extinguishment of debt
—
15,535
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable
( 23,329
)
( 14,602
)
Inventories
( 5,528
)
( 15,831
)
Prepaid expenses and other current assets
841
( 29,566
)
Accounts payable
2,057
( 5,771
)
Accrued expenses and other current liabilities
( 27,526
)
16,648
Contract assets and liabilities, net
( 17,180
)
( 5,263
)
All other assets and liabilities
( 1,840
)
( 3,168
)
Other operating activities, net
60
( 492
)
Net cash provided by (used in) operating activities
36,469
20,762
Cash flow from investing activities:
Capital expenditures
( 11,703
)
( 8,795
)
Proceeds from sale and disposal of assets, net of cash sold
21
—
Acquisition of businesses, net of cash acquired
( 68,819
)
( 48,450
)
Net cash used in investing activities
( 80,501
)
( 57,245
)
Cash flow from financing activities:
Proceeds from issuance of debt
25,000
2,692,000
Repayments of debt
( 6,751
)
( 2,598,321
)
Payments of debt financing fees
—
( 38,907
)
Issuance of related party notes receivable
—
( 3,000
)
Settlement of related party notes receivable (a)
4,361
1,500
Repayments of related party payables
—
( 7,000
)
Distributions
( 307
)
( 350,257
)
Contributions
11,344
385,000
Other financing activities, net
( 145
)
( 521
)
Net cash provided by financing activities
33,502
80,494
Effect of exchange rate changes on cash and cash equivalents
( 855
)
( 2,065
)
Net increase (decrease) in cash and cash equivalents
( 11,385
)
41,946
Cash and cash equivalents, beginning of the period
250,303
110,838
Cash and cash equivalents, end of the period
$
238,918
$
152,784
Supplemental schedule of non-cash investing and financing activities:
Settlement of related party notes receivable in exchange for membership units (a)
$
18,748
$
—
Rollover equity issued in connection with acquisition
2,500
—
Operating lease assets obtained in exchange for operating lease liabilities
2,309
10,849
(a) Refer to “Note 16. Related Party Transactions” for further information on related party arrangements.
See accompanying notes to the condensed combined financial statements.
7
N otes to Arxis Condensed Combined Financial Statements
(Unaudited, in thousands, except units and where explicitly stated)
Note 1. Organization and Nature of Operations
Organization and Description of Business
Arcline Engineered Polymer Topco, L.P., Hawkeye TopCo, L.P., Connector TopCo, L.P., and Ovation TopCo, L.P. and certain of their respective wholly-owned subsidiaries (collectively, “Arxis,” the “Arxis Businesses” or “Company”) design, manufacture, and sell highly engineered electronic and mechanical components primarily used in mission-critical applications.
Arcline Engineered Polymer Topco, L.P. and its wholly-owned subsidiaries operate as leading manufacturers of seals, gaskets, and metalized fabrics used primarily in aerospace and defense, medical device, and industrial products. Hawkeye TopCo, L.P., and its wholly-owned subsidiaries operate as leading manufacturers of electrical components used primarily in aerospace and defense, consumer electronics, and medical device products. Connector TopCo, L.P. and its wholly-owned subsidiaries operate as leading manufacturers of highly engineered electronic interconnect solutions used primarily in mission-critical applications in aerospace and defense, semiconductor, medical device, and commercial products. Ovation TopCo, L.P. and certain of its wholly-owned subsidiaries operate as leading manufacturers of mechanical components used primarily in aerospace and defense, medical and specialized industrial products. Collectively, the Company serves diverse end markets including defense and space, commercial aerospace, and industrial technology, and operates highly specialized manufacturing facilities globally, with a focus on domestic manufacturing.
Arxis, Inc. was incorporated as a Delaware corporation on October 3, 2025, for the purposes of effecting the reorganization transactions on April 16, 2026 as described below (the “Reorganization”). Prior to the Reorganization, Arxis, Inc. did not conduct any activities other than those incidental to its formation and the planning and execution of the Reorganization. On April 16, 2026, the Company completed the Reorganization, pursuant to which wholly owned merger subsidiaries of Arxis, Inc. merged with and into the Arxis Businesses, with the Arxis Businesses surviving. As a result, the Arxis Businesses are wholly owned by the Company as of April 16, 2026. Prior to April 16, 2026, the Arxis Businesses operated under common control. Unless otherwise indicated or the context otherwise requires, references in these financial statements to “Arxis,” or the “Company,” refer to (i) Arxis, Inc. and its subsidiaries after the Reorganization on April 16, 2026, and (ii) the Arxis Businesses for periods prior to the Reorganization. See "Note 17. Subsequent Events" for further details regarding the Reorganization.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed combined financial statements should be read in conjunction with the Company's audited combined financial statements and the related notes thereto included in the Company's prospectus filed with the SEC on April 16, 2026 pursuant to Rule 424(b) of the Securities Act of 1933, as amended, in connection with the Company's initial public offering (“IPO”) (the "Prospectus"). See "Note 17. Subsequent Events" for further details regarding the IPO. The December 31, 2025 Condensed Combined Balance Sheet was derived from the Company's audited combined financial statements.
The accompanying unaudited condensed combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the SEC. In the opinion of management, the unaudited condensed combined financial statements reflect all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair presentation of the Company's condensed combined financial position, results of operations, and cash flows for the interim periods presented. Quarterly results are not necessarily indicative of the results to be expected for the entire fiscal year.
The financial statements as of March 31, 2026 and December 31, 2025, and for the three months ended March 31, 2026 and 2025 combine: (i) the consolidated financial statements of Arcline Engineered Polymer Topco, L.P., (ii) the consolidated financial statements of Hawkeye TopCo, L.P., (iii) the consolidated financial statements of Connector TopCo, L.P., and (iv) the financial statements of Ovation TopCo, L.P., which include only the operations and entities contributed to Arxis, Inc. and therefore do not represent the full consolidated results of Ovation TopCo, L.P. For each of the aforementioned consolidated financial statements, all significant intercompany accounts and transactions have been eliminated in consolidation.
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Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies from those described in the audited combined financial statements and related notes included in the Prospectus.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported periods. Actual results may differ from these estimates. Significant estimates and assumptions include those related to the carrying amount of property, plant and equipment, goodwill and other intangible assets, fair value of assets acquired, the allowance for credit losses, the valuation of inventories, income taxes, including valuation allowances on deferred tax assets, share-based compensation, assets and obligations related to employee benefits, environmental liabilities and other contingencies, and accounting for over-time contracts with customers.
Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances.
Revenue Recognition
The Company recognizes revenue using the five-step model prescribed in ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company generates revenue primarily from the design, manufacture, and sale of highly engineered electronic and mechanical components used in mission-critical, harsh-environment applications. Based on the Company’s production cycle, it is generally expected that goods related to the revenue will be manufactured, shipped and billed within twelve months of the customer purchase order. Revenue is recognized from the sale of products when obligations under the terms of the contract are satisfied, and control of promised goods has transferred to the customer. Control is transferred when the customer has the ability to direct the use of and obtain benefits from the goods. Revenue is measured at the amount of consideration the Company expects to be paid in exchange for goods.
A majority of the Company’s revenue is recognized at a point in time. The Company typically sells electronic and mechanical components based on a customer purchase order, which generally includes a fixed price per unit. The Company satisfies the performance obligation generally upon shipment of the goods to the customer or delivery, depending on contractual terms, as this is when control transfers to the customer. The Company also provides repair, overhaul, and other service activities which are not material.
If a contract contains multiple performance obligations, the transaction price is allocated on a relative standalone selling price basis. Standalone selling price is determined using observable prices where available or estimated based on market conditions and internally approved pricing guidelines.
For certain contracts, revenue is recognized over time because control transfers continuously to the customer, or the products have no alternative use and contractual termination clauses entitle the Company to payment plus a reasonable profit for performance completed to date.
Progress toward completion is generally measured using the cost-to-cost method, which best depicts the transfer of control to the customer. We estimate the amount of revenue attributable to a contract earned at a given point based on certain costs plus the expected profit. Costs include direct labor, materials, subcontractor costs, and other allocable expenses. Estimates of total contract costs require judgment based on contract duration, availability of materials and labor, and technical risks. The Company performs reviews and reflects adjustments to revenue and margin in the period changes occur. These adjustments, as well as any provisions for anticipated losses, apply only to contracts recognized over time. Provisions for anticipated losses on contracts are recorded when identified. The Company does not currently expect changes in estimates and provisions for anticipated losses to materially affect revenue recognized, as the Company’s over time contracts are generally short in duration and cost-to-complete estimates are subject to a limited period of uncertainty.
Certain contracts include variable amounts such as award fees, incentive fees, penalties, or other adjustments. Variable consideration is included in the estimated transaction price when there is a basis to reasonably estimate the amount, including whether the estimate should be constrained based on determination of whether it is probable a significant reversal of revenue in a future period could occur. These estimates require judgment and consider historical performance, contractual terms, and expected outcomes.
9
Contract modifications are assessed to determine whether they create new, or change existing, enforceable rights and obligations. Modifications for goods or services that are not distinct are accounted for as part of the existing contract, with cumulative catch-up adjustments to revenue recorded as appropriate. Modifications for distinct goods or services are treated as separate contracts.
In the normal course of business, the Company does not accept product returns unless the items are defective as manufactured. In addition, the Company does not typically provide customers with the right to a refund. The Company establishes provisions for estimated returns due to defective products and warranties as required. Some products are covered by a standard assurance warranty, which promises that delivered products conform to contract specifications. The warranty periods typically extend for a limited duration following transfer of control of the product. The Company does not sell extended warranties and does not provide warranties outside of fixing defects that existed at the time of sale. As such, warranties are accounted for under ASC 460, Guarantees and not as a separate performance obligation.
Customers generally have payment terms between 30 and 60 days from the satisfaction of the performance obligations. The Company’s contracts with customers generally do not include significant financing components or non-cash consideration.
The Company has elected the following practical expedients and policy elections allowable under ASC 606:
• The Company elected to exclude from its transaction price any amounts collected from customers for all sales taxes.
• The Company elected to account for shipping and handling activities as fulfillment costs rather than as a separate performance obligation. Shipping and handling costs incurred are included within Cost of revenue. Amounts billed to a customer related to shipping and handling are included within Revenue.
• The Company elected to not disclose remaining performance obligations with an original expected duration of one year or less.
• The Company recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset is one year or less.
Research and Development Costs
The Company expenses research and development costs as incurred. Research and development costs are recorded within Selling, general and administrative expenses and were not material for the three months ended March 31, 2026 and 2025.
Cash and Cash Equivalents
Cash and cash equivalents include cash and liquid investments with original maturities of three months or less. The carrying amounts approximate fair value due to the high liquidity and short maturity of these instruments.
Accounts Receivable
The Company’s accounts receivable primarily consist of trade accounts receivable from third party customers. The amounts due are stated net of an allowance for credit losses. The allowance for credit losses is based on historical losses, current economic conditions, geographic considerations, and in some cases, evaluating specific customer accounts for risk of loss. All provisions for allowances for credit losses are included in Selling, general and administrative expenses.
Inventories
Inventory is reported at the lower of cost (using the first-in, first-out and weighted-average methods) or net realizable value. Net realizable value adjustments for slow-moving and obsolete inventories are provided based on current assessments about future product demand and production requirements.
10
Contract Assets and Contract Liabilities
The timing of revenue recognition may differ from the timing of customer invoicing and payments received. The Company’s contract assets include unbilled amounts, reflecting revenue recognized for performance obligations satisfied in advance of customer billings which arise from sales under contracts accounted for over time when the cost-to-cost method of revenue recognition is applied. As the right to payment is not solely subject to the passage of time, these amounts are classified as contract assets and are generally presented as current, as they are expected to be billed and collected within 12 months. Contract assets are transferred to accounts receivable when the right to invoice becomes unconditional. Contract assets do not exceed their net realizable value.
The Company’s contract liabilities consist primarily of advance billings and payments received in excess of revenue recognized. We receive payments from customers based on the terms established in our contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when we expect to recognize such revenue.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation is computed primarily on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives are as follows: buildings from 15 to 40 years ; leasehold improvements, the shorter of the lease term or the estimated useful life from one to 20 years ; and machinery, equipment and furniture and fixtures from one to 15 years . At the time of retirement or disposal, the acquisition cost of the asset and related accumulated depreciation are eliminated, and any gain or loss is credited to or charged against operations. Maintenance and repairs are expensed as incurred; costs of major additions and betterments are capitalized.
Leases
The Company evaluates whether a contract contains a lease at the inception of such contract. Specifically, the Company considers whether it controls the underlying asset and has the right to obtain substantially all the economic benefits or outputs of the asset. At lease commencement, the Company records a lease liability and corresponding right-of-use (“ROU”) asset. Options to extend or terminate the lease are included as part of the ROU asset and lease liability when it is reasonably certain the Company will exercise the option.
Lease liabilities are recognized at commencement based on the present value of the unpaid lease payments over the lease term. The initial measurement of the ROU asset is equal to the total of the initial measurement of the lease liability, incremental costs to obtain the lease and prepaid lease payments, less any lease incentives received. The Company uses the discount rate implicit in a lease contract, if available. As most of the Company’s leases do not provide an implicit rate, the present value of the lease liability is determined using the Company’s incremental borrowing rate at lease commencement based on information available, including relevant industry rates.
Amortization of these ROU assets is included within either Cost of revenue or Selling, general and administrative expenses depending on the nature of the expense. Variable lease payments are recognized as lease expense in the period in which the obligation for those payments is incurred.
The Company elected to combine lease and non-lease components for its real estate leases. Non-lease components are generally services that the lessor performs for the Company associated with the leased asset. For leases with an initial term of twelve months or less, an ROU asset and lease liability are not recognized and lease expense is recognized on a straight-line basis over the lease term. The Company tests ROU assets whenever events or changes in circumstance indicate that the asset may be impaired.
Finite-Lived Intangible Assets
Intangible assets primarily represent acquired intangible assets including customer relationships, developed technology, trademarks, and patents. The Company amortizes finite-lived intangible assets on a straight-line basis over their estimated useful life, ranging from 5 to 30 years . The Company routinely reviews the remaining estimated useful lives of finite-lived intangible assets. If there is a change to the estimated useful life assumption for any asset, the remaining unamortized balance is amortized prospectively over the revised estimated useful life.
11
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment and finite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset or asset group to the carrying value of the asset or asset group. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. There were no impairments of long-lived assets for the periods presented.
Business Combinations
The Company accounts for business combinations under ASC 805, Business Combinations , using the acquisition method of accounting to allocate costs of acquired businesses to the identifiable assets acquired (including intangible assets) and liabilities assumed based on their estimated fair values at the dates of acquisition . The total purchase consideration is generally measured as the fair value of the cash or non-cash assets transferred and equity instruments issued at the acquisition date. The Company recognizes goodwill if the fair value of the total purchase consideration is in excess of the fair value of the identifiable assets acquired net of liabilities assumed. The valuations of the assets acquired and liabilities assumed will impact future operating results. Determining the fair value of assets acquired and liabilities assumed requires judgment and often involves the use of estimates and assumptions which may be significant, including assumptions with respect to future cash inflows and outflows, revenue growth rates and EBITDA margins, discount rates, and market multiples, among other items. We determine the fair values of assets acquired and liabilities assumed generally in consultation with third-party valuation advisors.
Fair value adjustments to the Company’s assets and liabilities are recognized and the results of operations of the acquired business are included in our financial statements from the effective date of the merger or acquisition. Costs incurred by the Company that are directly attributable to the acquisition are expensed within Selling, general and administrative expenses.
Goodwill and Other Intangible Assets
The Company does not amortize goodwill or intangible assets that are deemed to have indefinite useful lives. The Company reviews these assets at least annually for impairment, on the first day of the fourth quarter. Additionally, these assets are also reviewed for possible impairment whenever changes in circumstances indicate that the fair value of a reporting unit is more likely than not below its carrying value.
The Company first assesses qualitative factors to determine whether events and circumstances indicate that it is necessary to perform a quantitative impairment test. In the quantitative impairment test, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. Fair value of the reporting unit is determined using an income or market approach based on estimates of cash flows for each reporting unit, with those cash flows discounted to present value using rates commensurate with the risks associated with those cash flows. No impairment charge was recorded for the periods presented.
Debt
Debt is classified as current or noncurrent based on the maturity of the Company’s financing arrangements. Long-term debt balances are reported net of debt issuance costs, which represent legal and other direct costs related to the Company’s debt. Debt issuance costs on the Company’s term loans are amortized to interest expense using the effective interest method through maturity date of the instrument. Debt issuance costs associated with the Company’s revolving credit facilities and delayed draw term loans are classified as an asset within Other assets, and are amortized to interest expense ratably over the contractual term of the underlying instrument.
12
Fair Value Measurements and Financial Instruments
The Company measures certain assets and liabilities at fair value in accordance with ASC 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and a fair value hierarchy based on the observability of inputs. The fair value hierarchy is as follows: Level 1 – Quoted prices for identical assets or liabilities in active markets; Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be derived from or corroborated by observable market data or by correlation or other means; and Level 3 – Significant unobservable inputs that reflect the Company’s best estimate of fair value from the perspective of a market participant.
The Company’s financial instruments that are not remeasured at fair value include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and debt. The carrying values of these financial instruments materially approximate their fair values.
Interest Rate Hedges
The Company uses interest rate hedging instruments (caps or collars) to limit exposure to variability in cash flows on certain floating-rate debt instruments should interest rates rise above a certain level. Interest rate hedges have been designated by the Company as an economic hedge rather than an accounting hedge. Interest rate hedges are recognized at fair value every reporting period and the current portion of the interest rate hedges is included within Prepaid expenses and other current assets or Accrued expenses and other current liabilities and the non-current portion of interest rate hedges is included within Other assets or Other long-term liabilities. The changes in the fair value of the interest rate hedges are reported as a component of Interest expense, net. Fair value of the interest rate hedges is calculated using Level 2 inputs. See “Note 11. Debt ” for further information.
Concentrations of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. The carrying amounts of these items, as well as trade accounts payable, approximate fair value due to the short-term maturity of these instruments.
The Company maintains its cash in bank accounts that, at times, exceeds federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk regarding cash. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers composing the Company’s customer base. As of March 31, 2026 and December 31, 2025, no individual customer accounted for more than 10% of accounts receivable. For the three months ended March 31, 2026 and 2025, no individual customer accounted for more than 10% of revenue.
Income Taxes
The Company prepared the combined tax provision for these condensed combined financial statements based on the individual tax attributes of Arcline Engineered Polymer Topco, L.P., Hawkeye TopCo, L.P., Connector TopCo, L.P., and Ovation TopCo, L.P. and certain of their respective wholly-owned subsidiaries. The Company’s tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. The Company updates its estimated annual effective tax rate each quarter and records a year-to-date adjustment to the income tax provision. The estimated annual effective tax rate may change in subsequent periods.
The Company accounts for income taxes in accordance with ASC 740, Income Taxes , using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as for operating loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company evaluates the realizability of deferred tax assets on a quarterly basis. A valuation allowance is recorded to reduce deferred tax assets when, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.The Company assesses all available positive and negative evidence, including historical income and losses, estimated future income and loss, reversal of existing temporary differences, and tax planning strategies. The valuation allowance assessment is based on the Company's best estimate of future results considering all available information.
13
The Company records a benefit for uncertain tax positions in the financial statements only when it determines it is more likely than not that such a position will be sustained upon examination by taxing authorities based on the technical merits of the position. Unrecognized tax benefits represent the difference between the position taken in the tax return and the benefit reflected in the financial statements. It is the Company’s policy to record interest and penalties on unrecognized tax benefits as income taxes.
Share-Based Compensation
The Company accounts for share-based compensation in accordance with ASC 718, Compensation-Stock Compensation (“ASC 718”), including certain receivables due from related parties, where recourse exists to the equity interests of the executive.
Equity-classified awards are measured at grant date fair value and are not subsequently remeasured. Compensation cost for equity-classified awards is recognized over the requisite service period for time-based awards and when the applicable performance condition is considered probable of achievement for performance-based awards.
Liability-classified awards are initially measured at fair value on the grant date and subsequently remeasured at fair value at each reporting date until settlement. Compensation cost for liability-classified performance-based awards is recognized when the applicable performance condition is considered probable of achievement, for awards that are probable to vest. When the performance condition is event based, the Company generally does not determine the performance condition is probable until such event occurs. Once vested, changes in fair value are recognized immediately in compensation expense until settlement.
The fair value of each award is estimated on the date of grant using an Option Pricing Methodology, under a risk neutral framework. Liability-classified awards are remeasured at fair value at each reporting date using the same valuation methodology. A number of assumptions are used to determine the fair value of awards granted. These include expected term, dividend yield, volatility of the awards and the risk-free interest rate. The Company has classified share-based compensation within Selling, general and administrative expenses to correspond with the classification of employees that receive awards. Award forfeitures are accounted for as incurred at the time of the forfeiture.
See “Note 14. Members’ Equity” for further information.
Employee Benefit Plans
The Company accounts for its defined benefit pension plan and supplemental retirement plan by recognizing the overfunded or underfunded status of the plan, calculated as the difference between the plan assets and the projected benefit obligation, as an asset or liability on the balance sheet, with changes in the funded status recognized in comprehensive income (loss) in the year in which they occur. Vested benefit obligations are determined based on the present value of vested benefits to which an employee is currently entitled based on his or her expected date of separation or retirement.
Expenses and liabilities associated with the plan are determined based upon actuarial valuations. Integral to the actuarial valuations are a variety of assumptions including expected return on plan assets and discount rate. The Company regularly reviews these assumptions, which are updated as of the December 31 measurement date. Differences between actual results and assumptions are recognized in other comprehensive income (loss) and subsequently recognized in earnings over the future or remaining service period, as applicable, which impacts pension expense in future periods.
Loss Contingencies
The Company is subject to environmental regulation by federal, state, and local authorities in the United States and regulatory authorities with jurisdiction over its foreign operations. When the Company becomes aware of environmental risk, it performs a site study to ascertain the potential magnitude of contamination and the estimated cost of investigation and remediation. The Company is also subject to various legal proceedings that arise in the ordinary course of business, including product liability matters and commercial commitments primarily relating to the guarantee of future performance on certain contracts. Environmental costs, product liability matters, and commercial commitments are accrued when it is probable that a liability has been incurred, and the amount can be reasonably estimated. If there is any change in the cost and/or timing of investigation and the remediation, the accrual is adjusted accordingly.
At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.
See “Note 12. Commitments and Contingencies ” for further information.
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Foreign Currency Translation
The Company has certain operations outside the United States that prepare financial statements in currencies other than the U.S. dollar. For these operations, results of operations and cash flows are translated using the average exchange rate throughout the period. Assets and liabilities are generally translated using end of period rates. The gains and losses associated with these translation adjustments are included as a component of Members’ equity.
Gains and losses resulting from foreign currency transactions are included within Other income, net.
Recent Accounting Pronouncements Yet to be Adopted
In December 2025, the FASB issued ASU 2025-11, "Interim Reporting (Topic 270): Narrow-Scope Improvements." The amendments in this ASU clarify interim disclosure requirements and their applicability. This ASU results in a comprehensive list of interim disclosures that are required by GAAP. The ASU is effective for fiscal years beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. The Company is currently evaluating the impacts of adopting this guidance on its financial statement disclosures.
In November 2024, the FASB issued ASU 2024-03, “Income Statement (Topic 220): Disaggregation of Income Statement Expenses,” which requires additional disclosures of certain amounts included in the expense captions presented on a company’s income statement as well as disclosures about selling expenses. The ASU is effective on a prospective basis, with the option for retrospective application, for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, and early adoption is permitted. The Company is currently evaluating the impacts of adopting this guidance on its financial statement disclosures.
Note 3. Business Combinations
Micro-Tronics
On January 5, 2026 , the Company acquired 100 % equity interest in Micro-Tronics, Inc. (“Micro-Tronics”), a leading provider of engineered, mission-critical elastomeric and metallic components for commercial aerospace and defense applications. The acquisition expands the Company's product line into adjacent and overlapping capabilities, including elastomeric diaphragm seals and assemblies to high-precision electrical discharge machined components. The total consideration of $ 71,609 is preliminary and subject to the resolution of customary closing adjustments which have not yet been finalized. The acquisition was funded by $ 25,000 of proceeds from a draw on the 2025 DDTL (as defined below in "Note 11. Debt") and cash on hand.
The preliminary purchase price allocation to the underlying assets acquired and liabilities assumed based on their fair values as of the acquisition date consisted of total assets acquired of $ 74,969 , including intangible assets of $ 26,400 , goodwill of $ 17,775 , property, plant, and equipment of $ 16,288 and all other current and non-current assets of $ 14,506 , with assumed total liabilities of $ 3,360 . Goodwill was primarily attributable to synergies and economies of scale expected from combining the operations of the Company and Micro-Tronics. Substantially all of the goodwill is expected to be deductible for tax purposes, subject to finalization of the purchase price allocation.
Oldham Seals Group Limited
On June 27, 2025, the Company acquired 100 % equity interest in Oldham Seals Group Limited (“Oldham”), a Chichester, England based company that designs and manufactures highly engineered elastomeric and polymer products for the naval and civilian shipping, oil and gas and traction industries. The total consideration consisted of $ 115,099 of cash and $ 331 of deferred consideration. The acquisition was funded by $ 92,000 of proceeds from the issuance of debt from the Company’s existing debt instruments and cash on hand.
The purchase price allocation to the underlying assets acquired and liabilities assumed based on their fair values as of the acquisition date consisted of total assets acquired of $ 135,222 , including goodwill of $ 58,586 , intangible assets of $ 54,532 , cash and cash equivalents of $ 10,690 , property, plant and equipment of $ 4,842 , and all other current and non-current assets of $ 6,572 , with assumed total liabilities of $ 19,792 , which includes deferred tax liabilities of $ 14,924 . Goodwill was primarily attributable to synergies and economies of scale expected from combining the operations of the Company and Oldham. Goodwill is not deductible for tax purposes.
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Spira Manufacturing Corporation
On January 8, 2025 , the Company acquired 100 % equity interest in Spira Manufacturing Corporation (“Spira”), which specializes in custom manufacturing of electromagnetic interference and radio-frequency interference shielding gaskets and products. The total consideration consisted of $ 49,916 of cash and $ 551 of deferred consideration. The acquisition was funded by $ 42,000 of proceeds from the issuance of debt from the Company’s existing debt instruments and cash on hand. As of March 31, 2026, all deferred consideration was paid.
The purchase price allocation to the underlying assets acquired and liabilities assumed based on their fair values as of the acquisition date consisted of total assets acquired of $ 60,757 , including goodwill of $ 27,933 , intangible assets of $ 21,700, property, plant, and equipment of $ 2,635 and all other current and non-current assets of $ 8,489 , with assumed total liabilities of $ 10,290 which includes deferred tax liabilities of $ 5,658 . Goodwill was primarily attributable to synergies and economies of scale expected from combining the operations of the Company and Spira. Goodwill is not deductible for tax purposes.
Pro forma revenue and net income have not been presented for Micro-Tronics, Oldham, and Spira because the financial results are, individually and in the aggregate, not material to the condensed combined financial statements in any period presented.
Note 4. Revenue
The Company disaggregates revenue based on the method of measuring satisfaction of the performance obligation either at a point in time or over time. Additionally, the Company disaggregates revenue based on the end market where products and services are transferred to the customer. The Company’s principal operating segments and related revenue are discussed in “Note 5. Segment Information. ”
Disaggregation of Revenue
Disaggregated revenue satisfied at a point in time and over time was as follows:
Three Months Ended March 31,
2026
2025
Electronic Components
Satisfied at a point in time
$
142,371
$
121,354
Satisfied over time
58,898
48,475
Mechanical Components
Satisfied at a point in time
218,461
176,945
Satisfied over time
39,128
33,305
Total revenue
$
458,858
$
380,079
Disaggregated revenue by end market was as follows:
Three Months Ended March 31,
2026
2025
Electronic Components
Defense and space
$
128,211
$
110,163
Commercial aerospace
4,269
3,309
Industrial technology
68,789
56,357
Mechanical Components
Defense and space
79,085
55,555
Commercial aerospace
101,200
86,238
Industrial technology
77,304
68,457
Total revenue
$
458,858
$
380,079
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Contract Balances
Contract assets and contract liabilities were as follows:
March 31, 2026
December 31, 2025
Contract assets, current
$
78,786
$
67,780
Contract liabilities, current
( 23,876
)
( 30,027
)
Contract liabilities, noncurrent
( 1,414
)
( 1,414
)
Total contract liabilities
( 25,290
)
( 31,441
)
Net contract assets
$
53,496
$
36,339
Contract assets increased primarily due to new contract awards and timing of work performed resulting in progress toward completion and revenue recognition. This increase was partially offset by progress and contractual billings that reduced previously recognized contract asset balances. Contract liabilities decreased primarily as a result of revenue recognized upon completion of performance obligations, including the achievement of contractual milestones and fulfillment of orders during the period. This decrease was partially offset by advance payments received on new and existing contracts. For the three months ended March 31, 2026 and 2025, revenue recognized from contract liabilities at the beginning of the period was $ 8,839 and $ 8,886 , respectively.
Note 5. Segment Information
The Company has two reportable segments, Electronic Components and Mechanical Components. The Company’s segment reporting structure is consistent with how the CODM reviews the business, makes investing and resource decisions, and assesses operating performance.
The Company’s CODM is its Chief Executive Officer . The CODM evaluates the performance of the segments and allocates resources to them based on segment adjusted earnings before interest, taxes, depreciation and amortization adjusted for other non-cash or non-recurring items (“Segment Adjusted EBITDA”) that management believes are not reflective of the Company’s ongoing core operations.
Information on the Company’s two reportable segments, Electronic Components and Mechanical Components, was as follows:
Three Months Ended March 31, 2026
Electronic
Components
Mechanical
Components
Total
Revenue
$
201,269
$
257,589
$
458,858
Segment cost of revenue (1)
91,957
119,659
211,616
Segment selling, general and administrative expenses (2)
25,042
42,103
67,145
Other segment items (3)
( 1,873
)
( 971
)
( 2,844
)
Segment Adjusted EBITDA
$
86,143
$
96,798
$
182,941
Three Months Ended March 31, 2025
Electronic
Components
Mechanical
Components
Total
Revenue
$
169,829
$
210,250
$
380,079
Segment cost of revenue (1)
79,058
108,700
187,758
Segment selling, general and administrative expenses (2)
21,079
38,347
59,426
Other segment items (3)
( 90
)
( 1,140
)
( 1,230
)
Segment Adjusted EBITDA
$
69,782
$
64,343
$
134,125
(1) Represents cost of revenue adjusted to exclude depreciation and amortization.
(2) Represents selling, general and administrative expenses adjusted to exclude depreciation, transaction and other deal related expenses, acquisition and integration costs, restructuring related costs and non-cash share-based compensation expense.
(3) Represents other income and expense adjustments that are non-recurring, non-operational, or not reflective of core performance, such as loss on disposal of assets, foreign currency gains and losses and non-operational pension impacts.
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The following table provides a reconciliation of Segment Adjusted EBITDA to Net income (loss) before income taxes for the periods presented:
Three Months Ended March 31,
2026
2025
Segment Adjusted EBITDA
$
182,941
$
134,125
Less:
Corporate costs
7,746
—
Interest expense, net
43,958
68,260
Depreciation and amortization
51,528
48,994
Acquisition and integration costs
722
18,749
Restructuring costs
270
1,737
Transaction and other deal related expenses
7,225
881
Share-based compensation expense
2,480
2,330
Net income (loss) before income taxes
$
69,012
$
( 6,826
)
Total assets by reportable segment were as follows:
March 31, 2026
December 31, 2025
Electronic Components
$
3,081,821
$
3,059,230
Mechanical Components
3,557,908
3,537,204
Total assets
$
6,639,729
$
6,596,434
Capital expenditures by reportable segment were as follows:
Three Months Ended March 31,
2026
2025
Electronic Components
$
3,950
$
2,094
Mechanical Components
7,753
6,701
Total capital expenditures
$
11,703
$
8,795
Note 6. Accounts Receivable
Accounts receivable, net consisted of the following:
March 31, 2026
December 31, 2025
Trade receivables
$
247,180
$
219,870
Less: allowance for credit losses
( 2,903
)
( 2,934
)
Accounts receivable, net
$
244,277
$
216,936
Note 7. Inventories
Inventories consisted of the following:
March 31, 2026
December 31, 2025
Raw material
$
123,171
$
121,609
Work-in-progress
126,689
120,333
Finished goods
76,135
73,662
Inventories
$
325,995
$
315,604
18
Note 8. Property, Plant and Equipment
Property, plant and equipment, net consisted of the following:
March 31, 2026
December 31, 2025
Land
$
66,760
$
63,336
Building
124,163
109,479
Leasehold improvements
34,867
38,658
Machinery, equipment and furniture and fixtures
293,321
284,833
Construction in progress
22,272
22,321
Property, plant and equipment, gross
541,383
518,627
Less: accumulated depreciation
( 133,049
)
( 120,698
)
Property, plant and equipment, net
$
408,334
$
397,929
Depreciation expense was $ 15,505 and $ 14,914 for the three months ended March 31, 2026 and 2025 , respectively.
Note 9. Goodwill and Intangible Assets
Goodwill
The change in the carrying amount of goodwill by reportable segment were as follows:
Electronic
Components
Mechanical
Components
Total
Balance as of December 31, 2025
$
1,307,611
$
1,437,740
$
2,745,351
Additions
—
17,775
17,775
Foreign currency translation
( 548 )
( 5,698 )
( 6,246 )
Balance as of March 31, 2026
$
1,307,063
$
1,449,817
$
2,756,880
Intangible Assets
Intangible assets consisted of the following:
March 31, 2026
Weighted-
Average
Remaining
Useful Lives
(in years)
Gross Amount
Accumulated
Amortization
Net Book Value
Amortized intangible assets:
Customer lists / relationships
20
$
2,120,784
$
( 297,837
)
$
1,822,947
Patents and technology
16
401,275
( 48,899
)
352,376
Trademarks / trade names
14
252,902
( 49,938
)
202,964
Total amortized intangible assets
2,774,961
( 396,674
)
2,378,287
Indefinite-lived intangible assets:
Trademarks / trade names
36,800
—
36,800
Total intangible assets
$
2,811,761
$
( 396,674
)
$
2,415,087
19
December 31, 2025
Gross Amount
Accumulated
Amortization
Net Book Value
Amortized intangible assets:
Customer lists / relationships
$
2,107,860
$
( 273,349
)
$
1,834,511
Patents and technology
395,546
( 42,416
)
353,130
Trademarks / trade names
250,873
( 45,435
)
205,438
Total amortized intangible assets
2,754,279
( 361,200
)
2,393,079
Indefinite-lived intangible assets:
Trademarks / trade names
36,800
—
36,800
Total intangible assets
$
2,791,079
$
( 361,200
)
$
2,429,879
Amortization expense for amortized intangible assets was $ 36,023 and $ 34,080 for the three months ended March 31, 2026 and 2025, respectively.
As of March 31, 2026, estimated amortization expense for amortized intangible assets for the next five years and thereafter was as follows:
Years Ending December 31:
Amount
Remaining portion of 2026
$
107,994
2027
143,665
2028
143,565
2029
143,454
2030
142,123
Thereafter
1,697,486
Total expected future amortization expense
$
2,378,287
Note 10. Balance Sheet Components
Prepaid expenses and other current assets consisted of the following:
March 31, 2026
December 31, 2025
Prepaid expenses
$
22,231
$
20,821
Other current assets
33,747
36,237
Prepaid expenses and other current assets
$
55,978
$
57,058
Accrued expenses and other current liabilities consisted of the following:
March 31, 2026
December 31, 2025
Accrued compensation and benefits
$
59,145
$
79,488
Accrued tax liabilities
18,194
17,978
Accrued professional fees
16,027
12,285
Accrued interest
1,126
16,874
Other
40,966
36,605
Accrued expenses and other current liabilities
$
135,458
$
163,230
20
Note 11. Debt
Debt consisted of the following:
Maturities
Effective
Interest
Rates
March 31, 2026
December 31, 2025
Notes Payable
2031
8.0 %
$
836
$
836
2025 Term Loan
2032
6.5 %
2,630,126
2,636,755
2025 DDTL
2032
6.1 %
48,758
23,880
Total debt
2,679,720
2,661,471
Less: Unamortized deferred financing costs
( 27,225
)
( 28,159
)
Less: Current maturities
( 27,103
)
( 26,853
)
Total Debt, noncurrent
$
2,625,392
$
2,606,459
The following table of future payments reflects the contractual annual amounts due on all outstanding debt:
Year Ending December 31,
Amount
Remaining portion of 2026
$
20,324
2027
27,119
2028
27,130
2029
27,141
2030
27,154
Thereafter
2,550,852
Total expected future payments
$
2,679,720
2025 Credit Agreement
On February 26, 2025, the Company entered into a credit agreement (the “2025 Credit Agreement”) with the Arxis Businesses as co-borrowers. The 2025 Credit Agreement includes a senior secured term loan of $ 2,650,000 with a maturity date of February 26, 2032 (the “2025 Term Loan”), a senior secured revolving credit facility with a borrowing capacity of $ 400,000 with a maturity date of February 26, 2030 (the “2025 Revolver”), and a delayed draw term loan with commitments of $ 250,000 with a maturity date of February 26, 2032 (the “2025 DDTL”). The 2025 Credit Agreement includes a $ 65,000 letter of credit sublimit and a $ 100,000 swingline sublimit. The Company capitalized debt issuance costs of $ 38,907 in connection with the issuance. The Company may draw on the 2025 DDTL until February 26, 2027 .
The proceeds from the 2025 Term Loan were used to repay all outstanding instruments under the Company’s prior credit facilities. As a result of the extinguishment of such debt, the Company recorded a loss on extinguishment of $ 15,535 , which is included within Interest expense, net in the Condensed Combined Statements of Operations for the three months ended March 31, 2025.
As of March 31, 2026 , there was no outstanding balance on the 2025 Revolver and $ 3,716 letters of credit were utilized, resulting in an available borrowing capacity of $ 396,284 on the 2025 Revolver. As of March 31, 2026, the Company had borrowed $ 49,000 against the 2025 DDTL. As of December 31, 2025 , there was no outstanding balance on the 2025 Revolver and the Company had borrowed $ 24,000 against the 2025 DDTL.
Commitment Fees
The Company is subject to commitment fees, payable quarterly in arrears, on the unused portion of its revolving credit commitments and the undrawn capacity on its delayed draw term loan. Commitment fees were not material for the three months ended March 31, 2026 and 2025, and are included within Interest expense, net in the Condensed Combined Statements of Operations.
21
Interest Rate Hedges
In April 2025, the Company entered into interest rate collar arrangements as an economic hedge to a portion of the Company’s outstanding debt. The collars have a cap rate of 5.0 % and floor rates ranging from 1.9 % to 2.5 %. As of March 31, 2026 and December 31, 2025, the notional amount of the interest rate collars was $ 1,788,000 and $ 1,791,000 , respectively. The interest rate collars terminate in December 2028 .
The fair value as of March 31, 2026 and December 31, 2025 was $ 1,749 and $ 2,474 , respectively, which is included within Other long-term liabilities on the Condensed Combined Balance Sheets. For the three months ended March 31, 2026, the Company recorded a gain of $ 725 , due to the change in fair value of the interest rate collars, which is included within Interest expense, net in the Condensed Combined Statements of Operations.
Note 12. Commitments and Contingencies
Asset Retirement Obligations
The Company has asset retirement obligations (“AROs”) that are conditional upon certain events.
These AROs generally include the removal and disposition of non-friable asbestos. The facilities that contain non-friable asbestos are generally maintained in place, and under applicable environmental and workplace safety requirements, removal and disposal is generally required only if these materials are disturbed in connection with a major renovation, demolition, or other disposal activity, or if conditions otherwise require abatement under applicable law. The Company has not recorded a liability as of March 31, 2026, because the Company has no current plans for activities that would trigger disturbance and does not currently believe there is a reasonable basis for estimating a date or range of dates for major renovation or demolition of these facilities. In reaching this conclusion, the Company considered the historical performance of each facility and has taken into account factors such as planned maintenance, asset replacements, and upgrades, which, if conducted as in the past, can extend the physical lives of the facilities indefinitely. The Company also considered the possibility of changes in technology and risk of obsolescence in arriving at its conclusion. The Company will continue to evaluate these conditional obligations each reporting period and will record a liability when the fair value becomes reasonably estimable, including when the timing of settlement becomes reasonably estimable.
Additionally, the Company leases various properties under contracts that give the lessor the right to make the determination as to whether the lessee must return the premises to their original condition, except for normal wear and tear. The Company does not normally make substantial modifications to leased property, and many of the Company's leases either require lessor approval of planned improvements or transfer ownership of such improvements to the lessor at the termination of the lease. Historically the Company has not incurred significant costs to return leased premises to their original condition.
Environmental Costs
The Company has certain liabilities associated with potential obligations to perform environmental remediation. As of March 31, 2026 and December 31, 2025, the accruals related to these obligations were $ 51,336 and $ 51,291 , respectively, and are included within Accrued expenses and other current liabilities and Other long-term liabilities on the Condensed Combined Balance Sheets.
Moosup
The Company has certain obligations related to a former manufacturing facility in Moosup, Connecticut, that was sold to TD Development, LLC ("TD") in 2014. At the time of sale, TD assumed contractual and statutory responsibility for the environmental investigation and remediation work required at this site (subject to a cost-sharing arrangement). In September 2021, TD’s principal filed for personal bankruptcy protection, and during the course of that bankruptcy proceeding, the Company has learned that neither TD nor its principal is expected to have the means to undertake the investigation, remediation and abatement of the site. The Company has filed an objection to the issuance of a discharge in the bankruptcy proceeding.
In 2024, a settlement agreement with TD and related parties was signed, which provided the Company access to its former facility to update the environmental condition assessment of the property and remaining remediation efforts required, formalize the Company's oversight of the investigation and remediation activities with the Connecticut Department of Energy and Environmental Protection (“CDEEP”) and enable such investigation and remediation to be performed to commercial/industrial standard rather than the more stringent residential standard. Under this settlement agreement, the Company will undertake the investigation, remediation and abatement of the site, with a modest contribution from TD’s principal. The Company engaged an environmental consultant to gather the appropriate data to calculate a range for the potential environmental obligation. The environmental consultant provided an estimate of the costs that are likely to be incurred in connection with these environmental investigation and remediation activities.
22
As of March 31, 2026 and December 31, 2025, $ 45,008 and $ 45,015 , respectively, is accrued for these environmental investigation and remediation activities in Other long-term liabilities. The aggregate undiscounted amount has been accrued because it represents the Company’s best estimate of the cost, but the timing of payments is not considered to be fixed and reliably determinable. There can be no assurance that this matter would not have an adverse impact on our business, financial condition, results of operations and/or cash flows.
Bloomfield
The Company has the responsibility for environmental investigation and remediation at its Bloomfield campus as may be required under the Connecticut Transfer Act and other environmental laws and it continues the effort to define the scope of the remediation that will be required by the CDEEP. This investigation and remediation process will take many years to complete.
As of March 31, 2026 and December 31, 2025, the Company had $ 5,065 and $ 5,003 , respectively, accrued for these environmental investigation and remediation activities, a portion of which is included in Accrued expenses and other current liabilities and the remaining balance is included in Other long-term liabilities. Although it is reasonably possible that additional costs will be paid in connection with the resolution of this matter, the Company is unable to estimate the amount of such additional costs, if any, at this time. The following represents estimated future payments for the undiscounted environmental investigation and remediation liability related to the Bloomfield campus as of March 31, 2026:
Year Ending December 31,
Amount
Remaining portion of 2026
$
249
2027
195
2028
288
2029
464
2030
75
Thereafter
3,794
Total
$
5,065
Other Matters
The Company is subject to commercial matters and legal proceedings and claims that arise in the normal course of business. While the outcome of these matters cannot be predicted with certainty, the Company does not have any knowledge of any such matters that would have a material adverse effect to the condensed combined financial statements, except as disclosed below.
Commercial Commitments
In November 2024, a manufacturing business in Jacksonville, Florida (the “Jacksonville Business”) that is not part of the Arxis Businesses, was divested to a third party. Following the divestiture, the Company remained a guarantor of certain performance obligations arising under a long-term customer contract to which the Jacksonville Business is a party, pursuant to a guarantee agreement between the Company and such customer that predates the divestiture. The term of the contract covered by the guarantee ends in December 2028 and the approximate value of the contract over the remaining term is $ 30,000 . There is no limitation to the maximum potential future liabilities under this guarantee; however, the Company has a right to indemnification from the Jacksonville Business against such losses that may arise from any failure of the Jacksonville Business to perform under the contract. Such indemnification right includes a monetary cap of $ 10,000 , subject to customary exceptions. The Company may also have other rights or claims, at law or in equity, in connection with any failure by the Jacksonville Business to perform under the contract.
The customer has notified the Company of concerns regarding performance of the contract by the Jacksonville Business and alleged that it has incurred damages rela ted to non-performance of the contract to date. The customer has requested that the Company fulfill its obligations under the guarantee. The Company has accrued $ 9,000 as of March 31, 2026 and December 31, 2025.
As a response, in January 2026, the Company commenced litigation to seek to cause the Jacksonville Business to perform the contract. Should the customer and the Jacksonville Business not resolve their dispute regarding the contract directly or should the Company be unsuccessful in causing the Jacksonville Business to perform the contract, the Company may incur a loss in respect to this matter pursuant to the guarantee. For the three months ended March 31, 2026, there were no adjustments made to the condensed combined financial statements with respect to this matter.
23
The Company may incur an additional loss in excess of the amount accrued, but no such loss is estimable at this time due to, among other things, the fact that the dispute raises difficult legal and factual issues and is subject to many uncertainties and complexities. Separately, as discussed above, insofar as any such amounts are asserted against the Company pursuant to the terms of the guarantee, the Company intends to exercise all of its rights and remedies against the Jacksonville Business in respect thereof, including seeking indemnification and pursuing any potential remedies. Any proceeds received will not be recognized until realization and could be in a reporting period subsequent to the period in which any loss in respect of the guarantee is probable and estimable.
K-Max Legal Contingency
The Company has certain liabilities related to a helicopter crash where the helicopter utilized the Company’s K-Max blades. The Company is named in litigation seeking damages for loss of property and business interruption.
The Company has accrued $ 17,388 representing the Company’s estimate of probable loss associated with the loss of property and business interruption portion of the case, which was included within Other long-term liabilities as of March 31, 2026 and December 31, 2025 . The Company, in coordination with insurance, estimates that a portion of the liability on the loss of property and business interruption portion of the case will fall within insurance coverage amounts. Accordingly, the Company recognized a receivable for the amount estimated to be recoverable through insurance related to the business interruption claims of $ 7,779 , which was included within Other assets as of March 31, 2026 and December 31, 2025. As of March 31, 2026, the Company had not recorded any changes in the estimates associated with these claims.
The claims related to loss of property and business interruption proceeded to trial and there was a verdict awarding $ 22,000 to the plaintiff. Additional pre-judgment and post-judgment interest will apply. The jury found there was no design defect in the K-Max blades. The Company, along with the insurance carriers, has appealed the verdict. The Company estimates that resolution of this matter is not expected to occur within twelve months of March 31, 2026.
Other than the above matters, the Company is not involved in any pending, material legal proceedings other than routine legal proceedings occurring in the ordinary course of business.
Note 13. Income Taxes
The Company's effective income tax rate was 22.8 % for the three months ended March 31, 2026, compared to 36.7 % for the three months ended March 31, 2025. The change in the effective tax rate was primarily driven by significantly higher pre-tax book income and changes in the mix of earnings and losses across jurisdictions in 2026.
The effective tax rates for the three months ended March 31, 2026 and 2025 differed from the U.S. federal statutory tax rate of 21 % primarily due to the mix of earnings and losses across jurisdictions subject to different tax rates, nontaxable income from flow-through entities, and the impact of valuation allowances on deferred tax assets.
Given current earnings and the Reorganization, it is reasonably possible that within the next twelve months sufficient sources of income may become available to support the release of a portion of the valuation allowance. A release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.
Note 14. Members’ Equity
As of March 31, 2026 and December 31, 2025, the Company’s outstanding units consisted of Class A-1 Units and Class A-2 Units (collectively, “Class A Units”), Class B Units (incentive units), and Growth Participation Units and Value Creation Bonus Units (equivalent Class B Units) of Arcline Engineered Polymer Topco, L.P., Hawkeye TopCo, L.P., Connector TopCo, L.P., and Ovation TopCo, L.P. Class A Units are considered preferred units and have one vote per unit. In the event of distributions, liquidation, dissolution or winding up of the Company, the holders of Class A Units have preference to any distribution over the holders of any other units whereby the Class A Unit holders are entitled to receive an amount equal to their original investments.
As of March 31, 2026 and December 31, 2025 , there were 270,898,752 and 270,876,675 Class A Units outstanding, respectively.
The Company has authorize d 30,082,753 Class B Units for issuance under its share-based arrangements, as defined below. As of March 31, 2026 and December 31, 2025, 21,633,187 an d 23,726,763 Class B Units, respectively, have been awarded under the Company’s share-based arrangements.
24
Share-Based Arrangements
Management Equity Plans
Arcline Engineered Polymer Topco, L.P., Hawkeye TopCo, L.P., Connector TopCo, L.P., and Ovation TopCo, L.P. established Management Equity Plans (the “ME Plans”) under which the Board of Directors of each entity’s plan had the authority to grant Management Incentive Units (“MIUs”). The ME Plans were established to provide the participants incentive compensation via an equity award of Class B Units. The awards are intended to be “profits interests” under IRS regulations.
As of March 31, 2026, there was approximately $ 22,623 of unrecognized compensation expense related to non-vested time-based vesting MIUs expected to vest, which is expected to be recognized over a weighted-average period of 2.8 years. As of March 31, 2026, there was approximately $ 36,114 of total unrecognized compensation expense related to non-vested performance-based vesting MIUs.
Growth Participation Plans
Arcline Engineered Polymer Topco, L.P., Hawkeye TopCo, L.P., Connector TopCo, L.P., and Ovation TopCo, L.P. established the Growth Participation Plans under which the Board of Directors of each entity had the authority to grant Growth Participation Units (“GPUs”) to employees. Compensation cost is only recognized when it is probable that the vesting conditions will be met. No compensation expense has been recognized for the three months ended March 31, 2026 and 2025.
The unrecognized compensation expense related to the GPUs as of March 31, 2026 was $ 138,808 .
Value Creation Bonus Plan
Ovation TopCo, L.P. established the Value Creation Bonus (“VCB”) Plan under which the Board of Directors had the authority to grant VCB units to employees. Compensation cost is only recognized when it is probable that the vesting conditions will be met. No compensation expense has been recognized for the three months ended March 31, 2026 and 2025.
The unrecognized compensation expense related to the VCB units as of March 31, 2026 was $ 7,081 .
Note 15. Employee Retirement Plans
Pension Plans
The Company sponsors certain defined benefit pension plans. Certain of these defined benefit pension plans are non-contributory and frozen and therefore no additional service costs are incurred for those plans. Other defined benefit pension plans maintained by the Company’s operating subsidiaries continue to accrue benefits for eligible participants in accordance with the respective plan provisions. Net periodic pension (income) cost was not material for the three months ended March 31, 2026 and 2025.
There were no contributions made to the Company’s defined benefit pension plans during the three months ended March 31, 2026 and 2025 and there are no contributions expected to be made during the remainder of 2026.
Deferred Compensation Plans
The Company maintains a non-qualified deferred compensation plan for certain of its employees. Generally, participants have the ability to defer a certain amount of their compensation, as defined in the agreement. The deferred compensation liability will be paid out either upon retirement or as requested based upon certain terms in the agreements and in accordance with Internal Revenue Code Section 409A. The Company holds investments in company-owned life insurance policies which are recorded at cash surrender value (Level 2). The investments are included in Other assets on the Condensed Combined Balance Sheets and were $ 32,643 and $ 32,728 , as of March 31, 2026 and December 31, 2025, respectively. The liabilities under this plan were $ 2,566 and $ 2,566 , which are included in Accrued expenses and other current liabilities, and $ 14,785 and $ 16,490 , which are included in Other long-term liabilities on the Condensed Combined Balance Sheets, as of March 31, 2026 and December 31, 2025, respectively.
25
Defined Contribution Plans
The Company sponsors defined contribution plans covering substantially all eligible employees. The plans permit participants to make elective deferrals, with the Company providing matching contributions. Company contributions vary depending on the date of hire, with the majority of employees eligible for employer matching on a portion of their contributions. Employer contributions to the defined contribution plans were approximately $ 3,460 and $ 3,783 for the three months ended March 31, 2026 and 2025 , respectively.
Note 16. Related Party Transactions
Consulting and Advisory Agreement
The Company has an advisory and consulting services agreement with Arcline Arxis Advisory I, L.P., an affiliate of Arcline Investment Management, L.P. ( “ Arcline ” ). The Company pays advisory fees upon consummation of certain transactions. The agreements expire upon the mutual agreement of Arcline and the Company. For the three months ended March 31, 2026 and 2025, the Company incurred $ 732 and $ 1,203 , respectively, and paid $ 613 and $ 1,086 , respectively, for these services. The costs are included within Selling, general and administrative expenses in the Condensed Combined Statements of Operations.
Payables due to Related Parties
The Company has a note payable due to an affiliate of Arcline of $ 5,500 , which is unsecured and due in April 2030 and is included in Other long-term liabilities for the periods presented. The notes are interest-bearing at SOFR plus 3.50 % and mature on April 19, 2030 with outstanding principal and interest due at that time.
Receivables due from Related Parties
The Company has entered into notes receivable with certain executives of the Company. The notes are interest-bearing at the long-term applicable federal rate as of the date of issuance. The notes receivable mature in ten years from the date of issuance, or earlier under certain triggering events, with outstanding principal and interest due at that time. The notes are secured with recourse to the equity interests of the respective executive.
The notional amount of the outstanding notes receivable as of March 31, 2026 and December 31, 2025 was $ 7,000 and $ 28,500 , respectively, and is recorded within Members’ equity on the Condensed Combined Balance Sheets. During the three months ended March 31, 2026, notes receivable with an aggregate notional amount of $ 21,500 were extinguished, of which $ 4,000 was settled in cash and $ 17,500 was settled through the surrender, transfer, and cancellation of certain equity interests held by the respective borrower.
Leases
The Company leases certain manufacturing facilities and transportation equipment under operating leases with affiliates of Arcline. Total related party lease payments were not material for the three months ended March 31, 2026 and 2025.
Transition Services Agreements
As of March 31, 2026 and December 31, 2025, the Company had $ 1,579 and $ 4,622 , respectively, of receivables due from affiliates of Arcline recorded within Prepaid expenses and other current assets on the Condensed Combined Balance Sheets, for services provided under transition service agreements (“TSAs”). These amounts relate to technology, finance, human resources, and payroll support and are expected to be billed and collected within twelve months. The TSAs are valid until mutual agreement to terminate. During the three months ended March 31, 2026 and 2025 , the Company did no t recognize income related to these TSAs.
Note 17. Subsequent Events
The Company evaluated events occurring after the date of the condensed combined financial statements to consider whether the impact of such events needs to be reflected or disclosed in the condensed combined financial statements. Such evaluation was performed through May 28, 2026 .
26
Reorganization
Immediately prior to the completion of the IPO, the Company effected the Reorganization, pursuant to which its wholly owned merger subsidiaries merged with and into the Arxis Businesses, with the Arxis Businesses surviving and wholly owned by the Company. As consideration for such mergers, the Company issued (i) 340,676,783 shares of Class B common stock, par value $ 0.01 (“Class B common stock”), and 23,082,950 shares of Class A common stock, par value $ 0.01 (“Class A common stock”), to the holders of Class A units and vested equity units of the Arxis Businesses and (ii) 10,563,406 restricted shares of, or restricted units with respect to, Class A common stock to holders of unvested equity units of the Arxis Businesses, which awards are subject to forfeiture conditions.
In addition, the Company modified its outstanding equity awards in connection with the Reorganization which resulted in the acceleration of compensation expense to be recognized in the second quarter of 2026 and is currently estimated at approximately $ 81,000 .
Further, in connection with the IPO and Reorga nization, the Company issued one share of convertible common stock, par value $ 0.01 (“convertible common stock”) to Arcline Arxis Advisory I, L.P., valued at approximately $ 129,680 . The associated compensation expense will be recognized over a five-year requisite service period. Concurrently, the Company entered into the Convertible-Related Tax Receivable Agreement with Arcline Arxis Advisory I, L.P. The current estimate of the total liability under the Convertible-Related Tax Receivable Agreement is approximately $ 16,000 , representing 85 % of the anticipated cash tax savings to be paid to the holders of the convertible common stock.
Following the Reorganization and the IPO, as of April 16, 2026, the Company’s outstanding common stock consists of Class A common stock, Class B common stock and convertible common stock. As of April 17, 2026, there were 69,657,950 shares of Class A common stock outstanding, 340,676,783 shares of Class B common stock outstanding and one share of convertible common stock outstanding. The Company has authorized 3,500,000,000 shares of Class A common stock, 3,500,000,000 shares of Class B common stock, 500,000,000 shares of Class C common stock, par value $ 0.01 (“Class C common stock”) and one share of convertible common stock. There are no shares of Class C common stock outstanding.
Initial Public Offering
In April 2026, the Company consummated its IPO, in which the Company issued and sold 40,500,000 shares of its Class A common stock at a public offering price of $ 28.00 per share. In connection with the IPO, the underwriters exercised the overallotment option in full to purchase 6,075,000 additional shares of Class A common stock. The aggregate gross proceeds from the offering, including the overallotment, were $ 1,304,100 . After deducting underwriting discounts and commissions of $ 61,945 and offering costs of $ 21,571 , the Company received net proceeds of $ 1,220,584 .
On April 17, 2026, the Company used the net proceeds from the IPO and the underwriters’ exercise of the overallotment option to repay $ 746,000 of the outstanding borrowings under the 2025 Term Loan. On April 24, 2026, the Company used additional net proceeds to repay $ 200,000 of the outstanding borrowings under the 2025 Term Loan. The remaining net proceeds were used, or are intended to be used, for working capital and other general corporate purposes.
27
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q, including the exhibits being filed as part of this report, as well as other statements made by Arxis, Inc. (“Arxis,” the “Company,” “we,” “us” and “our”), contain forward-looking statements that reflect, when made, the Company’s current views with respect to current events, certain investments and acquisitions and financial performance. Such forward-looking statements are subject to many risks, uncertainties and factors relating to the Company’s operations and business environment, which may cause the actual results of the Company to be materially different from any future results, express or implied, by such forward-looking statements. All statements that address future operating, financial or business performance or the Company’s strategies or expectations are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “outlook” or “continue,” and other comparable terminology. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: the concentration of our business on the aerospace and defense industries; the unique business risks of supplying products to companies contracting with the U.S. government; the significant competition that we face; our industry’s rapid change; any decline or lower-than-anticipated growth of the markets into which we sell our products and services; cost overruns; the availability and pricing of certain components and raw materials from suppliers; inflation; our products may not operate as intended; our decentralized organizational structure; our indebtedness and the restrictive covenants under the agreements governing our indebtedness; our ability to comply with the extensive governmental regulation to which we are subject; our ability to maintain our government or industry approvals; product liability lawsuits and product recalls; our ability to obtain, maintain, protect and enforce our intellectual property (“IP”) and proprietary rights on which our business depends; our ability to realize the anticipated benefits from the Reorganization; and the significant transaction costs that we have incurred and expect to continue to incur in connection with the Reorganization and as a public company. Additional factors are discussed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s filings with the Securities and Exchange Commission, including those set forth in this Quarterly Report on Form 10-Q for the three months ended March 31, 2026. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect the Company. It should be remembered that the price of our Class A common stock and any income from them can go down as well as up. Arxis disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events and/or otherwise, except as may be required by law.
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ITEM 2. MA NAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the historical results of operations and liquidity and capital resources of the Arxis Businesses. The Arxis Businesses were not historically consolidated. This should be read in conjunction with our unaudited condensed combined financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as the audited combined financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our final prospectus filed with the SEC pursuant to Rule 424(b) (the “Prospectus”) on April 16, 2026, for the year ended December 31, 2025. This discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results and the timing of events could differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors,” and “Cautionary Statement Regarding Forward-Looking Statements” sections. Unless the context otherwise requires, references in this section to “we,” “our,” “us” and the “Company” refer to the Arxis Businesses.
Overview
We are a leading designer and manufacturer of proprietary, mission-critical electronic and mechanical components engineered for cutting-edge performance in extreme environments. Leveraging significant IP and world-class engineering capabilities, we design and deliver innovative solutions that address some of our customers’ most complex performance needs. Our business is highly diversified across end markets, customers and platforms. While we primarily serve the broader aerospace and defense industries, we also have a significant presence across medical technology and other specialized industrial technology end markets. We operate in two reportable segments: Electronic Components and Mechanical Components. For a complete description of our business and segments, refer to Part I, Item 1 “Business” of our Prospectus.
For the three months ended March 31, 2026, we generated revenue of $458.9 million, representing an increase of 20.7% compared to $380.1 million for the three months ended March 31, 2025. Net income for the quarter was $53.3 million compared to net loss of $4.3 million for the three months ended March 31, 2025. Adjusted EBITDA 1 was $175.2 million, or 38.2% of revenue, compared to $134.1 million, or 35.3% of revenue, for the three months ended March 31, 2025.
Demand across our end markets remained strong during the first quarter of 2026, driven by continued growth in defense and space programs from increasing U.S. and allied budgets, sustained growth in commercial aerospace from robust production rates and aftermarket activity, and solid demand across our industrial technology end markets driven by continued investment in automation and electrification. Our results are supported by disciplined execution, productivity initiatives, and cost management, underscoring the strength and scalability of our proprietary business system – Arxis EDGE (Empower Data-Driven Growth and Execution) – through which we drive team-based selling and accountability, increase cross-selling opportunities across our business units and support our commercial strategy. Additionally, we continue to pursue strategic acquisitions that complement our existing portfolio.
Recent Developments
The following significant events occurred during or subsequent to the three months ended March 31, 2026:
Reorganization and Initial Public Offering
In April 2026, the Company completed its Reorganization and IPO of shares of Class A common stock. The Company’s Class A common stock began trading on the Nasdaq under the ticker symbol “ARXS” on April 16, 2026. Net proceeds from the IPO were approximately $1,221 million, after deducting underwriting discounts, commissions and offering costs. A portion of the net proceeds was used to repay approximately $946 million of outstanding indebtedness under the Company’s Term Loan Credit Facility, with the remainder to be used for working capital and general corporate purposes.
In connection with the IPO, the Company completed the Reorganization, pursuant to which the Arxis Businesses were reorganized into a corporate structure. Prior to the Reorganization, the Arxis Businesses operated as limited partnerships and limited liability companies. As a result of the Reorganization, the Company will be subject to U.S. federal and state corporate income taxes on a consolidated basis. Refer to the Company’s Prospectus filed with the SEC on April 16, 2026 for additional details regarding the Reorganization.
1 Refer to “Non-GAAP Financial Measures” in this discussion and analysis for additional information and limitations regarding these non-GAAP financial measures, including a reconciliation to the comparable GAAP financial measure.
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Other Developments
We continue to monitor geopolitical developments in the Middle East and the potential effects on global markets and our business. Our direct exposure to the region is limited, and we have no material operations or assets in the Middle East. Based on information currently available, we do not expect these developments to have a material impact on our results of operations, cash flows, or financial condition; however, the scope, duration, and broader economic effects remain uncertain.
Acquisitions
On January 5, 2026, the Company acquired 100% of the equity interest of Micro-Tronics, Inc. (“Micro-Tronics”), a leading provider of engineered, mission-critical elastomeric and metallic components for commercial aerospace and defense applications. The acquisition expands the Company's product line into adjacent and overlapping capabilities, including elastomeric diaphragm seals and assemblies to high-precision electrical discharge machined components .
On June 27, 2025, the Company acquired 100% equity interest in Oldham Seals Group Limited (“Oldham”), a Chichester, England based company that designs and manufactures highly engineered elastomeric and polymer products for the naval and civilian shipping industry, oil and gas and traction industries.
For additional information regarding our acquisitions, refer to "Note 3. Business Combinations,” to the unaudited condensed combined financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations
The following tables set forth a summary of our results of operations for the three months ended March 31, 2026 and 2025.
Historical
Combined Statements of Operations Data:
Three Months Ended March 31,
(in thousands)
2026
2025
Revenue
$
458,858
$
380,079
Cost of revenue
224,015
217,168
Gross profit
234,843
162,911
Selling, general and administrative expenses
88,317
68,626
Amortization of intangible assets
36,023
34,080
Operating income
110,503
60,205
Interest expense, net
43,958
68,260
Other (income) expense, net
(2,467
)
(1,229
)
Net income (loss) before income taxes
69,012
(6,826
)
Income tax expense (benefit)
15,703
(2,502
)
Net income (loss)
$
53,309
$
(4,324
)
Three Months Ended March 31, 2026 as compared to the Three Months Ended March 31, 2025
Revenue
Three Months Ended March 31,
(in thousands, except for percentages)
2026
2025
$ Change
% Change
Organic revenue
$
445,151
$
380,079
$
65,072
17.1
%
Acquisition revenue
13,707
—
13,707
NM
Total revenue
$
458,858
$
380,079
$
78,779
20.7
%
Not meaningful (“NM”)
Revenue increased by $78.8 million, or 20.7%, for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025.
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Organic Revenue
Organic revenue represents revenue from our existing businesses for comparable periods and excludes revenue from acquisitions. We include revenue from new acquisitions in organic revenue from the 13th-month after the acquisition on a comparative basis with the prior period. As a result, revenue originally classified as acquisition revenue in the immediately preceding comparative period is reclassified as organic revenue in all the periods presented from the 13th-month after acquisition onwards. Organic revenue therefore reflects the period‑over‑period change in revenue attributable to underlying performance factors, such as customer demand, pricing, and volume, and excludes the impact of businesses that contributed revenue for only a portion of one of the comparative periods due to acquisition timing.
Organic revenue increased by $65.1 million, or 17.1%, for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025, including a 1% favorable foreign currency impact. The increase was driven by broad-based growth across all of our end markets, led by defense and space, and supported by continued strength in commercial aerospace and industrial technology.
Growth across all end markets reflected the combined benefit of higher sales volume and favorable pricing actions. Volume growth reflected increased customer demand across key programs and applications, as well as contributions from new business wins, contributing mid-teens growth in defense and space, high-single-digit growth in commercial aerospace, and low-teens growth in industrial technology. Pricing contributed a mid-single-digit percentage increase across each of our end markets, reflecting contractual price escalations and price realization actions.
Demand across our end markets was strong, driven by increased defense and space program activity supported by higher U.S. and allied defense spending, robust commercial aerospace production rates and aftermarket activity, and ongoing investment in automation and electrification across industrial technology applications.
Acquisition Revenue
Acquisition revenue represents revenue from businesses acquired either during the fiscal year of the acquisition, or revenue from acquisitions that were completed in the prior period for which there is no comparable revenue during the prior period. Revenue originally classified as acquisition revenue is reclassified as organic revenue when the acquired business is included in both the current reporting period and the immediately preceding comparative period, such that directly comparable prior period amounts exist. As the Company's organic revenue and acquisition revenue classification is applied on a comparison-period basis, acquisition revenue for a respective period may be classified differently depending on the period-over-period comparison being presented.
Acquisition revenue of $13.7 million for the three months ended March 31, 2026 represents revenue from businesses acquired after March 31, 2025 that was not included in the comparable organic revenue base for the period, and is attributable to the acquisitions of Oldham and Micro-Tronics.
Gross Profit
Three Months Ended March 31,
(in thousands, except for percentages)
2026
2025
$ Change
% Change
Gross profit
$
234,843
$
162,911
$
71,932
44.2
%
Gross margin
51.2
%
42.9
%
Gross profit increased by $71.9 million, or 44.2%, for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The increase was primarily due to improved operating leverage on higher volumes and favorable price realization, reflecting continued execution of operational execution across the business. The increase was also partially due to gross profit of $6.4 million that was recognized in the three months ended March 31, 2026 attributable to the acquisitions of Oldham and Micro-Tronics. Gross profit for the three months ended March 31, 2025 was negatively impacted by $18.2 million of amortization of inventory step-up resulting from prior acquisitions.
Gross margin was 51.2% during the three months ended March 31, 2026 compared to 42.9% for the three months ended March 31, 2025. The increase was primarily driven by favorable price realization and operational leverage on increased volumes. Continued operational execution initiatives also supported margin expansion . Gross margin for the three months ended March 31, 2025 was negatively impacted by 4.8% of amortization of inventory step-up resulting from prior acquisitions.
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Selling, General and Administrative Expenses
Three Months Ended March 31,
(in thousands, except for percentages)
2026
2025
$ Change
% Change
Selling, general and administrative expenses
$
88,317
$
68,626
$
19,691
28.7
%
Percentage of revenue
19.2
%
18.1
%
Selling, general and administrative expenses increased by $19.7 million, or 28.7%, for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. This increase was primarily driven by additional corporate costs incurred in connection with preparing to operate as a public company, as well as transaction expenses incurred related to our initial public offering.
Amortization of Intangible Assets
Three Months Ended March 31,
(in thousands, except for percentages)
2026
2025
$ Change
% Change
Amortization of intangible assets
$
36,023
$
34,080
$
1,943
5.7
%
Percentage of revenue
7.9
%
9.0
%
Amortization of intangible assets increased by $1.9 million, or 5.7%, for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. This increase was primarily due to amortization related to acquired intangible assets.
Interest Expense, Net
Three Months Ended March 31,
(in thousands, except for percentages)
2026
2025
$ Change
% Change
Interest expense, net
$
43,958
$
68,260
$
(24,302
)
(35.6
)%
Percentage of revenue
9.6
%
18.0
%
Interest expense, net decreased by $24.3 million, or 35.6%, for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. This decrease was primarily due to the debt refinancing in February 2025, which resulted in a lower effective interest rate in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025 and the absence of the $15.5 million loss on debt extinguishment which was recognized in the three months ended March 31, 2025.
Other Income, Net
Three Months Ended March 31,
(in thousands, except for percentages)
2026
2025
$ Change
% Change
Other income, net
$
(2,467
)
$
(1,229
)
$
(1,238
)
NM
Percentage of revenue
(0.5
)%
(0.3
)%
Other income, net increased by $1.2 million for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The increase is primarily due to interest income.
Income Tax Expense (Benefit)
Three Months Ended March 31,
(in thousands, except for percentages)
2026
2025
$ Change
% Change
Income tax expense (benefit)
$
15,703
$
(2,502
)
$
18,205
NM
Percentage of revenue
3.4
%
(0.7
)%
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Income tax expense increased by $18.2 million for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The Company's effective income tax rate was 22.8% for the three months ended March 31, 2026, compared to 36.7% for the three months ended March 31, 2025. The change in the effective tax rate was primarily driven by significantly higher pre-tax book income and changes in the mix of earnings and losses across jurisdictions in 2026.
Segment Results
The following table presents revenue by segment, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin for the three months ended March 31, 2026 and 2025:
Three Months Ended March 31,
(in thousands, except for percentages)
2026
2025
$ Change
% Change
Electronic Components
Segment Revenue
$
201,269
$
169,829
$
31,440
18.5
%
Segment Adjusted EBITDA
$
86,143
$
69,782
$
16,361
23.4
%
Segment Adjusted EBITDA Margin (1)
42.8
%
41.1
%
Mechanical Components
Segment Revenue
$
257,589
$
210,250
$
47,339
22.5
%
Segment Adjusted EBITDA
$
96,798
$
64,343
$
32,455
50.4
%
Segment Adjusted EBITDA Margin (1)
37.6
%
30.6
%
(1) Segment Adjusted EBITDA Margin is calculated as Segment Adjusted EBITDA divided by segment revenue.
Electronic Components
Electronic Components segment revenue increased by $31.4 million, or 18.5%, for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The increase was primarily due to higher revenue across our defense and space and industrial technology end markets driven by strong customer demand.
Electronic Components Segment Adjusted EBITDA increased by $16.4 million for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. This increase was primarily due to robust growth in defense and space and industrial technology end markets and execution of our operational strategy.
Mechanical Components
Mechanical Components segment revenue increased by $47.3 million or 22.5% for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The increase was primarily due to higher revenue across all of our end markets, led by growth in the defense and space and commercial aerospace end markets, reflecting sustained customer demand and higher production activity.
Mechanical Components Segment Adjusted EBITDA increased by $32.5 million for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. This increase was primarily due to robust organic sales growth in our defense and space and commercial aerospace end markets, and execution of our operational strategy, including continued operational efficiencies and cost optimization initiatives. The increase was also partially attributable to the acquisitions of Oldham and Micro-Tronics.
For more information regarding our segments please refer to “Note 5. Segment Information” to the unaudited condensed combined financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Non-GAAP Financial Information
We report our financial results in accordance with GAAP, however, management believes that certain financial measures that are not presented in accordance with GAAP provide management and users of our financial information with useful supplemental information that provides a meaningful view of our performance across periods. We believe Adjusted EBITDA and Adjusted EBITDA Margin provide visibility to the underlying operating performance. Management uses Adjusted EBITDA and Adjusted EBITDA Margin to review and assess the performance of the management team in connection with employee incentive programs and to prepare its annual budget and financial projections. Moreover, our management uses Adjusted EBITDA of target companies to evaluate acquisitions. In
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addition to Adjusted EBITDA and Adjusted EBITDA Margin, we believe Free Cash Flow and Free Cash Flow Conversion provide useful information regarding how Net cash provided by (used in) operating activities compares to the capital expenditures required to maintain and grow our business, and our available liquidity, after funding such capital expenditures, to service our debt, fund strategic initiatives and strengthen our balance sheet, as well as our ability to convert our earnings to cash. Additionally, we believe such metrics are widely used by investors, securities analysts, ratings agencies and other parties in evaluating liquidity and debt-service capabilities.
Our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies, have limitations as analytical tools and should not be considered in isolation, or as substitutes for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP financial measures as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations are:
• Adjusted EBITDA and Adjusted EBITDA Margin do not reflect the significant interest expense, or the cash requirements, necessary to service interest payments on our indebtedness;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and the cash requirements for such replacements are not reflected in Adjusted EBITDA and Adjusted EBITDA Margin;
• Adjusted EBITDA and Adjusted EBITDA Margin exclude the cash expense we have incurred to acquire and integrate businesses into our operations, which is a necessary element of certain of our acquisitions;
• Adjusted EBITDA and Adjusted EBITDA Margin exclude share-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant, non-cash recurring expense for our business and an important part of our compensation strategy;
• Adjusted EBITDA and Adjusted EBITDA Margin exclude the substantial amortization expense associated with our intangible assets, which has been, and will continue to be for the foreseeable future, a significant recurring expense for our business;
• Adjusted EBITDA and Adjusted EBITDA Margin do not include the impact of income taxes, which is a necessary element of our operations; and
• Free Cash Flow and Free Cash Flow Conversion do not represent our residual cash flow available for discretionary purposes and do not reflect our future contractual commitments.
Management compensates for these limitations by not viewing Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Free Cash Flow Conversion in isolation and specifically by using other GAAP measures, such as Revenue, Net income (loss) and Net cash provided by (used in) operating activities, to measure our operating performance and liquidity. Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Free Cash Flow Conversion are not measurements of financial performance or liquidity under GAAP, and they should not be considered as alternatives to Net income (loss) or Net cash flows provided by (used in) operating activities determined in accordance with GAAP.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is defined as Net income (loss), adjusted for: (i) interest expense, net; (ii) income tax expense (benefit); (iii) depreciation and amortization; (iv) acquisition and integration costs; (v) restructuring costs; (vi) transaction and other deal related expenses; and (vii) share-based compensation expense. Management defines Adjusted EBITDA Margin as Adjusted EBITDA divided by Revenue.
The following table sets forth a reconciliation of Net income (loss) to Adjusted EBITDA and Adjusted EBITDA Margin for the periods presented:
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Three Months Ended March 31,
(in thousands, except for percentages)
2026
2025
Net income (loss)
$
53,309
$
(4,324
)
Interest expense, net
43,958
68,260
Income tax expense (benefit)
15,703
(2,502
)
Depreciation and amortization
51,528
48,994
Acquisition and integration costs (1)
722
18,749
Restructuring costs (2)
270
1,737
Transaction and other deal related expenses (3)
7,225
881
Share-based compensation expense (4)
2,480
2,330
Adjusted EBITDA
$
175,195
$
134,125
Adjusted EBITDA Margin
38.2
%
35.3
%
(1) Represents costs incurred to integrate acquired businesses and product lines into our operations, facility relocation costs, rebranding, system implementation costs and employee expenses related to acquisitions. This also includes amortization expense of inventory step-up recorded in connection with purchase accounting of acquired businesses.
(2) Represents severance, facility consolidation/closure costs and other charges associated with restructuring programs.
(3) Represents third-party transaction-related costs for acquisitions comprising deal fees, legal, financial and tax due diligence expenses and valuation costs that are required to be expensed as incurred.
(4) Represents the compensation expense under our share-based plans and deferred compensation plans.
Free Cash Flow and Free Cash Flow Conversion
We measure Free Cash Flow as Net cash provided by (used in) operating activities less Capital expenditures. Free Cash Flow Conversion is calculated as Free Cash Flow divided by Net income (loss). The following table sets forth a reconciliation of Net cash provided by (used in) operating activities, the most comparable GAAP financial measure, to Free Cash Flow for the periods presented:
Three Months Ended March 31,
(in thousands, except for percentages)
2026
2025
Net cash provided by operating activities
$
36,469
$
20,762
Less:
Capital expenditures
(11,703
)
(8,795
)
Free Cash Flow
$
24,766
$
11,967
Free Cash Flow Conversion
46.5
%
NM
Liquidity and Capital Resources
Historically, our primary sources of liquidity have been cash and cash equivalents, cash flows from our operating activities and borrowings under our credit agreements, including revolving credit facilities. Our principal historical liquidity requirements have been for acquisitions, capital expenditures, servicing indebtedness and working capital needs. As we continue to expand our business, we may require additional working capital in the future for increased costs, and although we believe that we will be able to fully fund our ongoing capital expenditures, working capital requirements and other capital needs for the foreseeable future through cash on hand and cash flows from our operating activities, we may choose to use borrowings under our credit facilities to finance our operating and investing activities. Based on our current outlook, we believe that net cash provided by operating activities and available borrowings under our credit agreements will be sufficient to fund our cash requirements for at least the next twelve months. As of March 31, 2026, we had $2,630.1 million of borrowings outstanding under the Term Loan Credit Facility, and a $250.0 million commitment under our delayed draw term loan (“DDTL”), of which $49.0 million had been borrowed as of March 31, 2026. We had no outstanding balance under our senior secured revolving credit facility (the “Revolving Credit Facility”) and $3.7 million letters of credit were utilized, resulting in an available borrowing capacity of $396.3 million on the Revolving Credit Facility.
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Cash Flows
The following table sets forth the major components of our unaudited condensed combined statements of cash flows for the periods presented:
Three Months Ended March 31,
(in thousands)
2026
2025
Net cash provided by (used in) operating activities
$
36,469
$
20,762
Net cash provided by (used in) investing activities
(80,501
)
(57,245
)
Net cash provided by (used in) financing activities
33,502
80,494
Operating Activities
Cash provided by operating activities increased by $15.7 million for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025, primarily due to an increase in Net income, adjusted for non-cash items, of $30.1 million, offset by an increase in cash outflow from contract assets and liabilities of $11.9 million and the cash impacts of changes in working capital of $4.3 million. Our overall decrease in working capital performance was primarily attributable to a decrease of $36.3 million in Accounts payable and Accrued expenses and other current liabilities for the timing of vendor and bonus payments, an increase of $8.7 million in Accounts receivable primarily due to higher revenue for increased customer demand, offset by a decrease of $30.4 million in Prepaid expenses and other current assets primarily due to income tax receivables and a decrease of $10.3 million in Inventory primarily due to lower purchasing activity. The increase of $11.9 million in net contract assets was driven largely by the timing of progress billings.
Investing Activities
Net cash used in investing activities for the three months ended March 31, 2026 was $80.5 million, and related to $68.8 million cash consideration paid for acquisitions and $11.7 million of capital expenditures.
Net cash used in investing activities for the three months ended March 31, 2025 was $57.2 million, and related to $48.5 million cash consideration paid for acquisitions and $8.8 million of capital expenditures.
Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2026 was $33.5 million, and primarily related to $25.0 million of proceeds from the issuance of debt, $11.3 million in contributions, and $4.4 million of proceeds from the settlement of related party notes receivable, partially offset by $6.8 million of debt repayments.
Net cash provided by financing activities for the three months ended March 31, 2025 was $80.5 million, and primarily related to $54.8 million of proceeds from the issuance of debt, net of debt repayments and debt financing fees, and $385.0 million in contributions. This was partially offset by $350.3 million in distributions and $7.0 million of repayments of related party payables.
2025 Credit Agreement
On February 26, 2025, wholly-owned subsidiaries of the Arxis Businesses entered into the Credit Agreement with a consortium of banks, led by Citibank N.A. Borrowings under the Term Loan Credit Facility mature on, and remaining commitments under the DDTL thereunder terminate on, February 26, 2032. We may draw on the DDTL until February 26, 2027. Borrowings under the Revolving Credit Facility mature on, and remaining commitments under the Revolving Credit Facility terminate on, February 26, 2030. The Credit Agreement contains customary conditions on the availability of commitments thereunder, including that our consolidated first-lien net leverage ratio is below specified thresholds. The interest rates on borrowings under the Revolving Credit Facility, DDTL, and Term Loan Credit Facility are calculated in accordance with the Credit Agreement and based on our consolidated first-lien net leverage ratio. We have the right to prepay borrowings at any time, subject to certain prepayment premiums applicable in connection with prepayments resulting from certain repricing events. We are obligated to prepay borrowings under certain circumstances, including using excess cash flows and proceeds from certain asset sales, casualty events and from issuances or incurrences of certain indebtedness. The obligations under the Credit Agreement are guaranteed by the restricted subsidiaries of the borrowers and, pursuant to the related holdings guarantee, which is filed as an exhibit to the registration statement of our Prospectus forms a part, by the holding companies of the borrowers, which holding companies are also our wholly-owned subsidiaries. The obligations under the Credit Agreement are secured by substantially all of our assets, which security interests are granted pursuant to the related security agreement, which is filed as an exhibit to the registration statement of our Prospectus.
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The Credit Agreement contains customary negative covenants, including limitations on indebtedness, liens, fundamental changes, asset sales, investments, dividends and other restricted payments, affiliate transactions and other matters customarily restricted in such agreements. In addition, the Credit Agreement includes a financial covenant that requires us to maintain a first-lien net leverage ratio of less than 10.15x when the Revolving Credit Facility is more than 40% utilized. The Credit Agreement also contains customary events of default, after which indebtedness under the Credit Facilities may become due and payable immediately and commitments under the Credit Facilities would terminate, including payment defaults, material inaccuracy of representations and warranties, covenant defaults, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, judgments against us and our subsidiaries and change in control.
The foregoing summary and description of certain provisions of the Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Credit Agreement, a copy of which is filed as an exhibit of the Prospectus.
Other Obligations and Commitments
We have future obligations under various contracts relating to debt and interest payments, finance and operating leases. During the three months ended March 31, 2026, there were no material changes to these obligations as described in our December 31, 2025 audited annual financial statements included in the Prospectus.
Off-Balance Sheet Arrangements
As of March 31, 2026, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material impact on our financial condition or liquidity.
Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed combined financial statements and the related notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). In preparing the unaudited condensed combined financial statements, we apply accounting policies and estimates that affect the reported amounts and related disclosures. Inherent in such policies are certain key assumptions and estimates made by management, which we believe best reflect our underlying business and economic conditions. Our estimates are based on historical experience and various other factors and assumptions that we believe are reasonable under the circumstances. We regularly re-evaluate our estimates used in the preparation of the condensed combined financial statements based on our latest assessment of the current and projected business and economic environment. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these estimates. There have been no material changes to our critical accounting policies and estimates as described in our Prospectus.
Recently Adopted Accounting Pronouncements
Refer to “Note 2. Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements” in our December 31, 2025 annual financial statements reported in the Prospectus for additional information.
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ITE M 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our primary exposure to interest rate risk results from outstanding borrowings under the Credit Facilities, which have a floating interest rate component. We estimate that a 100 basis point increase or decrease in the applicable average interest rates for the three months ended March 31, 2026, would have resulted in an estimated $6.7 million increase or decrease, respectively, in interest expense. See “—Liquidity and Capital Resources” above.
We had $238.9 million in cash and cash equivalents as of March 31, 2026, which is held for working capital and general corporate purposes. We do not have restricted cash. We do not enter into investments for trading or speculative purposes. Our cash holdings in interest-bearing accounts are exposed to market risk due to fluctuations in interest rates, which may affect our interest income.
We have entered into various interest rate agreements as economic hedges to certain of our floating rate debt. As of March 31, 2026, we had interest rate contracts with an aggregate notional amount of $1,788.0 million and aggregate fair value of $1.7 million. These interest rate agreements have expiration dates through December 2028.
We will continue to monitor market risk due to fluctuations in interest rates and potential impacts to the fair value of our holdings and operating cash flows.
Inflation Risk
We have generally experienced increases in our costs of labor, materials and services consistent with overall rates of inflation, but we do not believe that inflation has had a material effect on our business, results of operations or financial condition. We expect the impact of such increases will be mitigated by efforts to lower costs through manufacturing efficiencies, look for alternative sourcing and reevaluate pricing. However, continued cost inflation during 2026 may continue to require similar efforts to mitigate the impact on our results of operations. Our inability or failure to offset cost increases could adversely affect our business, results of operations and financial condition.
Foreign Currency Risk
Our reporting currency is the U.S. dollar. The reporting and functional currency of our wholly owned foreign subsidiaries is a combination of local currency and the U.S. dollar.
Our revenue and operating expenses are generally denominated in the currencies of the countries in which our operations are located, which are primarily in the U.S., the United Kingdom and Germany. Our combined results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, although we may choose to do so in the future. A 1,000 basis point increase or decrease in the British pound or the Euro for the three months ended March 31, 2026, would not have resulted in a material impact on our operating results.
ITE M 4. CONTROLS AND PROCEDURES
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Disclosure Controls and Procedures
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance of achieving their objectives.
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated, for disclosure purposes, the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the
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Company’s disclosure controls and procedures were effective to provide reasonable assurance that the desired control objectives were achieved as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control over Financial Reporting
There were no material changes in the Company’s internal controls over financial reporting during the three months ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
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PART II. OTHER INFORMATION
IT EM 1. LEGAL PROCEEDINGS
We are from time to time subject to various actions, claims, suits, government investigations, and other proceedings incidental to our business, including those arising out of alleged defects, alleged breaches of contracts, alleged competition and antitrust matters, product warranties, alleged intellectual property matters, alleged personal injury claims and employment- related and environmental matters. For a description of risks related to various legal proceedings and claims, see Item 1A, “Risk Factors,” in this Quarterly Report on Form 10-Q. For a description of our outstanding material legal proceedings, see "Note 12. Commitments and Contingencies" to the unaudited condensed combined financial statements included in this Quarterly Report on Form 10-Q.
ITE M 1A. RISK FACTORS
A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks described below as well as the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed combined financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below could adversely affect our business, results of operations, financial condition, reputation, and prospects. In such an event, the market price of our Class A common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Industry and Business
Our business is concentrated on the aerospace and defense industries.
Our business is concentrated on the aerospace and defense industries. As a result, our business, prospects, results of operations and financial condition are closely tied to the overall health and trends in these industries. A prolonged period of significant disruption in the aerospace or defense industry, such as those which occurred during the COVID-19 pandemic, during the great recession and following the September 11 terrorist attacks and international conflicts, or general sustained economic slowdown driven by fuel price volatility, supply chain constraints, macroeconomic conditions or other factors, could disproportionately affect our business, results of operations and financial condition compared to companies that are more diversified in the industries they serve.
Our business may be adversely affected by a decline in the U.S. and foreign government defense budgets and changes in spending and budgetary priorities and the contracting policies of the U.S. and foreign governments.
We generate a significant portion of our revenue from suppliers and contractors for the U.S. government, particularly the Department of War ("DoW"), also known as the Department of Defense, and suppliers and contractors for foreign governments. As a result, changes in U.S. and foreign government defense budgets, including reduction in government spending, political pressure to reduce military spending, geopolitical uncertainty, government spending caps, delays in governmental budget processes and delays in the release of funds by governments could adversely affect the demand for our products and our results of operations. In particular, in recent years, the U.S. government has been unable to complete its budget process before the end of its fiscal year, resulting in both governmental shutdowns and continuing resolutions providing only enough funds for U.S. government agencies to continue operating at prior-year levels. Prolonged budgetary uncertainty, government shutdowns, continuing resolutions and debt ceiling constraints could delay contract awards, limit new starts, defer funding releases and increase pricing and program execution risk. In addition, changes in the U.S. and foreign governments’ spending priorities and contracting policies, such as a shift in expenditures away from programs that we support and delays in the award of contracts, could adversely affect the demand for our products and our results of operations.
Our commercial business could be negatively impacted by weakness or disruptions in the commercial aerospace market.
We design and manufacture aircraft components and parts and provide related services. As a result, our business is directly affected by declines and disruptions in the commercial aerospace market. Such declines or disruptions could occur for various reasons that cannot be predicted, including general economic conditions that reduce business and consumer spending, national and international events (such as wars, conflicts and geopolitical instability), pandemics and epidemics (such as the COVID-19 pandemic), higher fuel prices, increased security concerns (such as terrorist acts and international conflicts) and trade policies (such as the effects of tariffs and trade restrictions). A substantial reduction in airline traffic could result in large losses and financial difficulties for the airline industry and cause carriers to park or retire a portion of their fleets and reduce workforces and flights. During periods of reduced airline profitability, some airlines may delay or reduce purchases of airplanes and spare parts, delay refurbishments and delay or reduce
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discretionary spending and capital expenditures. In such circumstances, demand for our products and services and the value of our inventory could be adversely affected.
Our growth could suffer if the markets into which we sell our products and services decline or do not grow as anticipated.
Our growth depends on the performance and conditions of the markets into which we sell our products and services, including the defense, commercial aerospace, space, medical technology and specialized industrial markets. These markets and thus demand for our products and services are affected by factors that impact our customers’ demand for our products and services and the end user’s capital spending budgets, including many factors beyond our control such as the U.S. and global economy, product and economic cycles, government funding policies and other public policy and government budget dynamics. Any decline or lower than expected growth in our served markets could diminish demand for our products and services and negatively impact our customers’ and potential customers’ ability to pay for our products and services, including their ability to secure financing, which would adversely affect our business, results of operations and financial condition.
We generally do not have guaranteed future sales of our products and must forecast customer demand to manage our inventory.
We do not generally have long-term contracts with our customers and, therefore, do not have guaranteed future sales. To ensure adequate inventory supply, we must forecast future order volumes based on customers’ historic purchasing patterns and discussions with customers as to their anticipated future requirements. Our ability to accurately forecast demand could be negatively affected by various factors, including competition, change in customer demand, changes in industry and market conditions or regulatory changes. Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and reduced selling prices and gross margins. Conversely, if we underestimate customer demand, we may not be able to deliver required products in a timely fashion, which could damage our reputation and customer relationships. In addition, if we experience a significant increase in demand, additional supplies of raw materials and component parts or additional manufacturing capacity may not be available when required on terms that are acceptable to us, if at all, or suppliers may not be able to allocate sufficient capacity in order to meet our increased requirements, which could adversely affect our business, prospects, results of operations and financial condition.
We are subject to certain unique business risks as a result of supplying products to companies contracting with the U.S. government.
A meaningful portion of our revenue is derived from customers contracting with the U.S. government. In addition, a limited portion of our revenue is derived from contracts with the U.S. government. Companies engaged in supplying defense-related equipment and services to U.S. government agencies, whether through direct contracts with the U.S. government or as a subcontractor to customers contracting with the U.S. government, are subject to business risks specific to the defense industry. For example:
o The U.S. government can terminate existing contracts at its convenience and without significant notice. If contracts are terminated by the U.S. government for convenience, we and our customers that contract with the U.S. government, as applicable, would only be able to recover costs incurred or committed, settlement expenses and profit on the work completed prior to termination.
o The U.S. government may seek to review our costs and the costs of our customers that contract with the U.S. government to determine whether pricing is “fair and reasonable.” We and our customers are periodically subject to pricing reviews, and government buying agencies that purchase our and our customers’ products are periodically subject to audits by the DoW with respect to prices paid for such products. As a result of these audits, we and our customers could be asked to enter into an arrangement whereby prices would be based on cost, plus a nominal fee, the DoW could seek to pursue alternative sources of supply or the U.S. government could take other adverse actions, including payment withholds or contract termination, with respect to our and our customers’ contracts.
o For contracts for which the price is based on cost, the U.S. government may review our costs and those of our customers that contract with the U.S. government and our and our customers’ performance and, based on the results of such audits, the U.S. government may adjust contract-related costs and fees. In addition, under U.S. government purchasing regulations, some costs, including most financing costs, amortization of intangible assets, portions of research and development costs, and certain market expenses may not be subject to reimbursement.
o If a government inquiry or investigation uncovers improper or illegal activities, we could be subject to civil or criminal penalties or administrative sanctions, including contract termination, fines, forfeiture of fees, suspension of payment and suspension or debarment from doing business with U.S. government agencies.
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o U.S. government purchasing regulations contain a number of operational requirements that apply to entities engaged in government contracting. Failure to comply with such government contracting requirements could result in civil and criminal penalties and suspension or debarment from doing business with U.S. government agencies.
o The U.S. government could revoke required security clearances, which would impair our ability to supply products to U.S. government agencies and our customers that supply products to U.S. government agencies.
We also supply products to foreign governments and companies contracting with foreign governments, which present similar risks as those described above. These risks associated with supplying products to governments and government contractors could be amplified by political factors and the then-current political environment. The occurrence of any of the foregoing events could reduce our revenue from, or the profitability of, certain of our supply arrangements with agencies and buying organizations of the U.S. government and our customers that are contractors or subcontractors for such agencies and buying organizations, and could damage our reputation.
Our customers’ inability to obtain financing for their purchases from us and/or their inability to obtain financing to maintain their business could have a material adverse effect on our business.
Some of our customers may require substantial financing in order to fund their operations and make purchases from us. The inability of these customers to obtain sufficient credit to finance purchases of our products, or otherwise meet their payment obligations to us, could adversely impact our financial condition and results of operations.
We depend on certain key personnel and may be unable to attract and retain qualified and skilled employees.
We require highly skilled and technical personnel with background and experience in and knowledge of our industry and products. We believe that our future success is highly dependent on the talents and contributions of our senior management team and other key employees across engineering, manufacturing and sales. We must be able to attract, develop, motivate and retain highly qualified and skilled employees. There is substantial competition for skilled personnel in our industry, and we could be adversely affected by a shortage of skilled employees. To attract and retain key personnel, we incur significant costs. Even so, these measures may not be enough to attract and retain the personnel we require to operate our business effectively. In particular, we intend to compensate our employees, in part, using stock-based compensation, the effectiveness of which is influenced by our stock price, which could fluctuate due to various factors, including those beyond our control and unrelated to our performance. The loss of qualified employees – or an inability to attract, retain and motivate additional highly skilled employees required for the planned expansion of our business – could adversely impact our operations and growth.
Labor-related matters, including labor disputes, could adversely affect our operations and increase our costs.
A small number of our employees in the U.S. are represented by unions and some of our employees outside of the U.S. are represented by workers’ councils. Although we believe that our relations with our employees are satisfactory, we may not be able to negotiate a satisfactory renewal of collective bargaining agreements, satisfy unions and workers’ councils or maintain stable employee relations. We may become subject to work stoppages and experience increases in our labor costs, which could disrupt our operations and result in increased costs and an inability to complete our customers’ orders in a timely fashion.
We face significant competition.
We operate in a highly competitive global industry. Competitors in our product lines are both U.S. and foreign companies and range in size from divisions of large public corporations to small, privately held entities. Our competitors may be able to provide customers with different or greater capabilities or benefits than we can provide in areas such as technical qualifications, past contract performance, geographic presence and price. Furthermore, many of our competitors may be able to use their substantially greater resources and economies of scale to develop competing products and technologies, manufacture in high volumes more efficiently, divert sales from us by winning broader contracts or hire away our employees by offering more lucrative compensation packages. Small business competitors may be able to offer more cost-competitive solutions due to their lower overhead costs, and take advantage of small business incentive and set aside programs for which we are ineligible. Foreign competitors may also be able to offer more cost-competitive solutions as compared to our products and services. The markets for our products and services are expanding, and competition is intensifying as additional competitors enter such markets and current competitors expand their product lines. In order to secure contracts successfully when competing with larger, well-financed companies, we may need to agree to contractual terms that provide for lower aggregate payments to us over the life of the contract, which could adversely affect our margins. Our failure to compete effectively with respect to any of these or other factors could have a material adverse effect on our business, prospects, financial condition or operating results.
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Our industry is subject to rapid change, which could reduce demand for our products if we are unable to adapt to technological and industry changes.
Our industry is characterized by rapid changes, including technological changes, frequent new product introductions and enhancements and evolving industry standards, all of which could make our products and services obsolete or non-competitive. Our future success depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements, while meeting or exceeding industry standards and customer specifications. However, we may not be able to do so successfully, if at all, or on a timely, cost-effective or repeatable basis. A failure to adapt to technological and industry changes to keep ahead of our competitors could result in the loss of customers and market share.
We may encounter difficulties managing our growth.
As we grow, our business becomes increasingly complex. We may encounter difficulties in managing our growth and the associated demands on our operational, product, engineering, sales and marketing, risk management, compliance and finance and accounting resources, which could disrupt our operations and make it difficult to execute our business strategy. We believe that to effectively manage and capitalize on our growth, we must continue to expand our facilities, engineering capabilities and financial, operating and administrative systems and controls and continue to manage headcount, capital and processes efficiently. Our growth could strain our resources, cause operating difficulties, make it difficult to recruit and retain qualified employees and preserve our company culture, and divert our management’s attention from day-to-day activities in order to manage our growth. If we do not successfully manage our growth, the quality of our products and services, our reputation and our results of operations may suffer.
Negative publicity could damage our brand reputation.
To continue to be successful, we must continue to preserve, grow and capitalize on the value of our brand in the marketplace. Reputational value is based in large part on perceptions of subjective qualities. As our products are often mission-critical components, even an isolated incident, such as a high-profile product failure or product recall, or the aggregate effect of individually insignificant incidents, can erode trust and confidence, particularly if such incident or incidents result in adverse publicity, governmental investigations or litigation. In particular, product quality issues could negatively impact customer confidence in our brands and our products. Any negative publicity could damage our brand and lead to a material adverse effect on our business, financial position and results of operations.
We have in the past and may in the future acquire other businesses and products.
Acquisitions have been part of our growth strategy. We expect to continue to evaluate potential strategic acquisitions of complementary businesses and products. We may not be able to find suitable acquisition candidates, and we may not be able to negotiate and complete such acquisitions on favorable terms, if at all. The pursuit of potential acquisitions may divert the attention of management and cause us to incur additional expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. Acquisitions may also require regulatory approvals that are costly or time-consuming to obtain, and any difficulties or delays in complying with such regulatory requirements would hinder our strategic objectives. Consistent with the Reorganization, we may evaluate potential strategic acquisitions, asset sales or dispositions, including with our Sponsor. These transactions may present conflicts of interest between us and our Sponsor. In addition, our Sponsor has certain consent rights over certain acquisitions and dispositions, which our Sponsor may withhold for any reason. We may be unable to obtain our Sponsor’s consent required for transactions that may be beneficial to us. In addition, our Sponsor provides us with certain buy-side and sell-side advisory services, which may also create conflicts of interest between us and our Sponsor. If we do complete acquisitions, the acquired businesses may not perform in accordance with expectations, our judgments concerning the value, strengths and weaknesses of such businesses may prove incorrect and we may not achieve our anticipated synergies or benefits associated with such acquisitions. We may also lose certain pre-existing business relationships as a result of new acquisitions, and acquisitions we complete could be viewed negatively by our customers, shareholders and the market. In addition, acquisitions may result in unforeseen operating difficulties and expenditures, such as difficulties integrating businesses, personnel, operations and financial and other controls and systems; assumption of unknown liabilities, known contingent liabilities that become realized, or known liabilities that prove greater than anticipated or covered by any indemnity from former owners or representations and warranty insurance; difficulties retaining the customers or employees of any acquired business; incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill; entry into a new market or business line in which we have no prior experience and in which we may not successfully compete; and integration of an acquired company, which may disrupt ongoing operations and require management resources that would otherwise be used in developing our existing business.
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We have in the past and may in the future divest certain products or businesses.
We have divested and may in the future divest certain assets or businesses that no longer fit with our strategic direction or growth targets. In connection with such divestitures, we have entered, and may in the future enter, into sale agreements that include provisions under which we have agreed, or may agree, to indemnify, and have agreed, or may agree, to be indemnified by, third parties against breaches of representations and warranties or covenants, certain liabilities that may arise in connection with business activities of the divested businesses, and other specified matters. Additionally, in connection with certain divestitures, we have assigned, or may assign, specified long-term contracts to the acquirer of the divested businesses, together with the liabilities and performance obligations under such contracts.
Divestitures involve significant risks and uncertainties, including an inability to find potential buyers on favorable terms, an inability to obtain any required regulatory approvals, failure to effectively transfer liabilities, contracts, facilities and employees to buyers, the possibility that we will become subject to third-party claims arising out of such divestiture, challenges in identifying and separating the IP, systems and data to be divested from the IP, systems and data that we wish to retain, an inability to reduce fixed costs previously associated with the divested assets or business, challenges in collecting the proceeds from any divestiture, disruption of our ongoing business and distraction of management, loss of key employees who leave us as a result of a divestiture and loss of customers that prefer to contract with a larger organization with more expansive offerings. Because divestitures are inherently risky, our transactions may not be successful and may, in some cases, harm our operating results or financial condition.
As it relates to certain divestitures we have completed, disputes have arisen or may continue to arise between us and the acquirer subsequent to the completion of the divestiture transaction. Such disputes have included, or may in the future, include breaches of representations and warranties or covenants, amounts payable to or from the buyer, as well as claims regarding assignment of contracts, assumption of liabilities, and sale and transition service agreements, among other matters. The outcome of such disputes typically involves negotiations between us and an acquirer, but could also lead to litigation between the parties and the ultimate claims made by the parties against each other could be material.
There are difficult issues to navigate in the development and use of artificial intelligence, which may result in reputational harm or liability or otherwise adversely affect our business, and failure to introduce new and innovative products that have artificial intelligence capabilities could put us at a competitive disadvantage.
We use artificial intelligence, generative artificial intelligence, machine learning and similar tools and technologies (collectively, “AI”) in connection with our business, including in certain of our products and services, and may seek to expand such use of AI in the future. As with many innovations, AI presents risks, challenges and unintended consequences that could affect our business. For example, AI algorithms and training methodologies may be flawed, and, similarly, the content, analyses or recommendations that AI systems assist in producing may be, or may be perceived to be, deficient, inaccurate, biased, unethical or otherwise flawed. These deficiencies, and other failures of AI systems, could subject us to competitive harm, regulatory action, legal liability and brand or reputational harm.
Additionally, the use of generative artificial intelligence, a relatively new and emerging technology in the early stages of commercial use, exposes us to additional risks. For example, generative artificial intelligence has been known to produce false or “hallucinatory” inferences or output, and certain generative artificial intelligence uses machine learning and predictive analytics, which can create inaccurate, incomplete or misleading content, unintended biases and other discriminatory or unexpected results, errors or inadequacies, any of which may not be easily detectable by us or any of our related service providers.
Further, incorporating AI could give rise to litigation risk and risk of non-compliance and unknown cost of compliance, as AI and similar technologies and automated decision-making are an emerging area for which the legal and regulatory landscape is not fully developed and is changing rapidly. It is possible that new laws and regulations will be adopted in the U.S. and in non-U.S. jurisdictions, or that existing laws and regulations may be interpreted, in ways that would affect the operation of our products and services and the way in which we use AI and similar technologies. We may not be able to adequately anticipate or respond to these evolving laws and regulations, and we may need to expend additional resources to adjust our offerings in certain jurisdictions if applicable legal frameworks are inconsistent across jurisdictions. Moreover, because these technologies are themselves highly complex and rapidly developing, it is not possible to predict all of the legal or regulatory risks that may arise relating to our use of such technologies. Further, the cost to comply with such laws or regulations could be significant and would increase our operating expenses, which could adversely affect our business, financial condition and results of operations. Leveraging AI capabilities to potentially improve internal functions and operations presents further risks and challenges. If any of our employees, contractors, consultants, vendors or other service providers use any third-party AI-powered software in connection with our business or the services they provide to us, it may lead to the inadvertent disclosure or incorporation of our confidential information into publicly available training sets, which may impact our ability to realize the benefit of, or adequately maintain, protect and enforce our IP or confidential information, harming our competitive position and business. Similarly, the use of AI to support business operations
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