Episode Details

Applied Aerospace & Defense (AADX) Q2 2026 — Revenue $167.3M, up 47.4% - a record - against a $155.8M bar. Filed GAAP EPS is -$1.04, not the -$0.25 the feeds carry. The 8-K was accepted 7:26am ET on Aug 12, BEFORE the open, so Wednesday Aug 12 IS the reaction: $20.59 to $19.11, down 7.19%. Applied Aerospace & Defense reported its first quarter as a public company: record revenue of $167.3M up 47.4%, and record adjusted EBITDA of $36.4M. Over the same six months the business produced MINUS $103.7 million of free cash flow. The 8-K that moved the stock was accepted at 7:26am ET and contains no statement of cash flows; the 10-Q that does landed at 4:16pm, after the close. THE CALL: SELL (3/5, A CASH-CONVERSION CALL, NOT A DEMAND CALL) — base-case value ~$8.05 vs ~$19.11 today. KEY METRICS: - CALL: SELL 3/5, fair value $8.05 vs the $19.11 close - 58% BELOW the price and 68% below the Street's $25.20 average. Bear $2.02, base $8.05, bull $14.32. - THE ANGLE: the 8-K that moved the stock has no cash flow statement. The 10-Q that does landed 4:16pm ET, AFTER the close. Record EBITDA $36.4M; H1 FCF -$103.7M. - THE BRIDGE, six months: adjusted EBITDA $63.0M, less $46.7M working capital, less $40.8M cash interest, less $21.6M capex. Operating cash flow -$82.1M vs -$16.7M. - THE FINGERPRINT: contract assets $197.7M from $140.8M - 108 days of revenue recognised but unbilled. The prior-year half burned 7.4% of revenue; this one 27.2%. - THE $154.0M LOSS IS NOISE: a May 2026 modification vested ALL incentive units at the IPO ($113.2M of stock comp). Ex-stock-comp gross margin was 28.3%, flat vs 28.2%. - EPS BASIS: the filed loss per share is $(1.04) on 148,176,486 shares. Feeds carry $(0.25) against a +$0.007 adjusted-basis bar. The 'miss' framing is an artefact. - THE GROWTH WAS BOUGHT: headline +47.4%, organic +19.8%. CBI cost $374.8M on March 2 and brought $178.5M of the $258.7M backlog rise. Backlog now $1.13B. - THE BALANCE SHEET: $635.6M raised in June, $18.1M of cash at June 30. $626.2M went to debt, $305.8M to acquisitions. Liquidity $143.1M. Tangible book is negative. - THE GOOD NEWS: term loans peaked at $973.4M in March and stand at $400.5M. Clean Q2 interest was $19.5M ex a $6.7M write-off. It should roughly halve from here. - VALUATION: EV $3.71B = 24.3x guided EBITDA of $152.5M - CHEAPER than HEICO 39.7x and near TransDigm 20.0x. Our 2027 EPS $0.42 matches consensus $0.41 almost exactly. - WHY SELL ANYWAY: after $50M capex and $37M working capital, 2027 free cash flow is ~$25M = $0.14 a share, or 134x. Reverse DCF needs a 28.7% FCF margin by 2036. - THE STREET: five targets averaging $25.20 - Baird $30, Jefferies $25, Stifel $24, RBC $24, Morgan Stanley $23. ALL set June 28-29, 2026. None has seen this print. - WHAT BREAKS OUR THESIS: second-half cash. If the $197.7M contract-asset balance converts while H2 delivers the guided $368-388M, our assumption is wrong. What to watch: UP: revenue +47.4% to a record $167.3M; adjusted EBITDA +38.5% to $36.4M; backlog $1.13B; the FY26 revenue guide midpoint of $680M beats the $671.7M consensus; and $626.2M of debt repaid in June roughly halves the interest bill. DOWN: H1 free cash flow -$103.7M; $18.1M of cash after a $635.6M raise; contract assets of $197.7M equal 108 days of revenue; organic growth was 19.8% against a 47.4% headline; goodwill and intangibles of $934.7M exceed $827.9M of equity. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision. Learn investing free in the Charged Alpha app: https://chargedalpha.com/app?source=youtube&ref=video Educational only. Not financial advice.