Episode Details

Arxis, Inc. (ARXS) Q2 2026 — Reported AFTER the close on July 29. Revenue $500.7M (+25.0%, 21.0% ORGANIC), adjusted EBITDA $211.5M (+37.6%) at a 42.2% margin, GAAP net LOSS $(4.9)M / EPS $(0.01) vs $0.28 adjusted, FCF $127.3M (+261%), FY26 guidance RAISED 10%. The stock then rose 27.9% in two sessions to an all-time high. Two things nearly every write-up got wrong: the market cap (feeds showing ~$2.2B use only the 40.5M IPO shares — it is really $22.7B on 417.5M), and the $(0.01)-to-$0.28 gap, which is IPO stock comp of which ~$120M/yr RECURS. THE CALL: REDUCE (3/5, AN EXCEPTIONAL BUSINESS AT AN UNFORGIVING PRICE) — base-case value ~$40.0 vs ~$54.3 today. KEY METRICS: - CALL: REDUCE 3/5 — fair value $40 vs $54.30 (-26%). STREET: Moderate Buy (12 analysts, 10 buy / 2 hold) yet the $49.64 average target is already 8.6% BELOW the price. Jefferies $55, Baird $55, Citi $54, RBC $50, Morgan Stanley $50, Wolfe $43, Redburn $40. We DIFFER on rating, ALIGN on price. - SHARE-COUNT TRAP: 10-Q cover 6/30/26 — Class A 76,797,587 + Class B 340,676,783 = 417,474,370 shares, BOTH economic (diluted WASO 401,813,695). Market cap $22.7B, NOT the ~$2.2B feeds show (= 40.5M IPO shares x $54.30). Net debt $1,239M, EV $23.9B. - THE PRINT: revenue $500.728M (+25.0%); gross margin 52.4% vs 49.3%; operating income FELL to $32.684M from $82.853M; net loss $(4.909)M, EPS $(0.01). Adjusted EBITDA $211.498M (+37.6%), 42.2% margin vs 38.4%. Adjusted EPS $0.28. FCF $127.298M (+261%). FY26 guide raised to $790-800M EBITDA. - THE $(0.01)-TO-$0.28 BRIDGE: net loss $(4.909)M + stock comp $107.111M + intangible amortisation $36.284M + other $11.812M (incl $13.3M TRA) + deal costs $2.534M - tax $(39.625)M = $113.207M. We grant the amortisation and the one-time IPO charge; NOT the ~$120M/yr that RECURS ($239.019M unrecognised over 2.5 yrs + a $129.680M convertible grant over 5). - GROWTH & BALANCE SHEET: organic +21.0% ($83.9M of the $100.3M gain), M&A ~4pts; volume mid-teens, pricing mid-single-digit. The release leads with Defense & Space but the 10-Q says growth was 'led by Industrial Technology'. Net leverage 1.8x from 4.2x; tangible book NEGATIVE ~$780M; TTM GAAP net income +$128.0M. - OCTOBER 13: the company's own risk factors state the IPO lock-ups EXPIRE 10/13/2026, when 340.7M Class B shares — 82% of the company, held by sponsor Arcline — become sellable against a 76.8M-share float. Arxis has also elected Nasdaq 'controlled company' status. - VALUATION: 2027E EBITDA ~$950M -> ~$600M FCF -> ~$480M owner earnings after the ~$120M/yr of recurring stock comp. DCF at 9.5% = $31 (bear $17, bull $52; weighted $32); 21x 2027 EV/EBITDA = $45; fair value $40. At $54.30 that is 35.7x TTM EBITDA and 25.2x 2027E. The REVERSE DCF demands ~$807M of 2027 owner earnings vs our $480M. What to watch: Bullish: Oct 13 lock-up passing with no Class B block, organic growth above 15% for two more quarters, FY27 EBITDA guided above $1.0B. Bearish: organic growth below 10%, a Class B secondary/block trade, or FY27 EBITDA guided under $900M. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.