Release Date: August 05, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue surged 62.3% year-over-year to $9.3 million, with growth accelerating from Q1.
- Record bookings of $15.1 million in Q2 and $30 million year-to-date, with a book-to-bill ratio of 1.7.
- Expanding customer base and diversification across defense and commercial markets, reducing reliance on single programs.
- Customer-funded development revenue grew 145% year-over-year, providing early engagement and future production pathways.
- Raised full-year 2026 revenue growth guidance to 25%-30% from 20%-25%, reflecting strong demand and bookings.
Negative Points
- Gross margin declined to 39.1% from 41.3% year-over-year due to product mix and early-stage program activity.
- GAAP net loss widened to $7.3 million in Q2, impacted by a $6.25 million legal settlement charge.
- Operating expenses increased 129.8% year-over-year, largely due to the legal settlement, though ex-charge they rose only 2.9%.
- Cash used in operations was $629,000 in the first half, driven by a $7.1 million inventory investment to manage supply chain constraints.
- Supply chain challenges persist, particularly for memory components, with long lead times and potential delivery risks.
Q & A Highlights
Q: Can you provide an update on the two opportunities for the 360 vision solution in Army vehicles? Where in the procurement life cycle are these programs and when is a reasonable timeline for these competitions?
A: Mike Knowles (President and CEO): Both programs are now essentially into test and evaluation by the Army on representative vehicles. As they continue through the testing phase, they can identify new requirements and extend the technology. All acquisition vehicle classes can make determinations on their needs, timing, and funding. We have a solution that is tested, rugged, and production-ready, so we can move as soon as the Army makes a definitive decision. We cannot give an exact timeline, but we continue our capture efforts to potentially accelerate these technologies into fielded programs.
Q: You've had two consecutive quarters of $15 million in bookings. As you look at the next 6, 12, 18 months, how should we think about your goals for bookings and what's reasonable to assume?
A: Mike Knowles (President and CEO): We are encouraged by the strong bookings in the first half, not just the volume but the expanded customer set and increased value of each order. We are converting initial positions and designs into production orders that will lead to long-term sustainment. Our pipeline indicates we believe we can maintain that 30% a year growth. Bookings can be lumpy, so we monitor the year-to-date and trailing 12-month book-to-bill ratio, which has been fairly consistent. We have more customers coming into view, and orders are increasing, which gives us more optimism because of our reach, though we still expect some lumpiness quarter to quarter.
Q: Customer-funded development was around 10% of revenue this quarter. Is the expectation that this will be at a similar run rate?
A: Dan (CFO): We are definitely happy with the demand for customer-funded development, as it is a good forward-looking indicator of future growth. We have a number of opportunities we are working on, and I expect it to continue to be strong throughout the year. The levels seen in the first half should continue in the second half, though we could see some variability depending on opportunities.
Q: What's really behind the diversity of your customer base? Was this a proactive sales effort, or is it people moving around the industry and coming back to a reliable ruggedization partner?
A: Mike Knowles (President and CEO): It's a culmination of the hard work in our strategy, starting with building a five-year pipeline of opportunities. As we prosecuted that pipeline and entered different markets, we gained recognition, which increased our reach. Now that multiple customers have had systems delivered in production and seen the performance, others take note, creating a flywheel momentum. Our product line is agnostic to market application, so we can quickly adapt products to the performance, compute, and ruggedization needed, allowing us to diversify quickly across markets and customer sets.
Q: Given the upward revision to revenue and reiteration of gross margins, have you taken steps to ensure you're in good shape for FY 2026 and FY 2027 regarding supply chain constraints like memory and motherboards?
A: Mike Knowles (President and CEO): The strategies that have worked this year should continue to help us into next year. Early bookings help with setting expectations. The memory market hasn't necessarily gotten better, but we've used our strategies to generate the revenue and growth we have. We are already building in and focusing on the second half of 2027 and beyond, laying elements in to support our customers and growth. Dan (CFO) added that while long lead times are still quoted, we are seeing opportunities to bring in memory ahead of those lead times, which is part of the Q2 inventory increase, de-risking deliveries for the year.
Q: As you think about defense spending over the next few years, what has changed recently about how defense customers are thinking about rugged AI compute, and is there more opportunity in terms of compute per vehicle or aircraft?
A: Mike Knowles (President and CEO): There is an inevitable transition as AI/ML, sensor processing, and autonomy are exponentially adopted across existing and new platforms. These elements need the architectures and compute we deliver. The Department of Defense is assessing architectures and solutions, which will slowly transition into production. We are also seeing services reevaluate open system architectures to move in commercial data center and high-performance enterprise-class compute elements. The application of autonomous systems in recent conflicts strengthens this movement. We have demonstrated we can move these technologies significantly faster than industry, delivering in months what has taken others years, which is critical in a fast-moving operational tempo.
Q: How do you see the composition of the pipeline evolving over the next year or two, and could that be a contributor to margin expansion?
A: Mike Knowles (President and CEO): The pipeline continues to grow and generally moves in that 50/50 commercial-defense space. In the out years, we are identifying not only new opportunities but also weaving in longer-term production and sustainment on the back end of platform positions we are winning now. This gives us more certainty about future platforms and what they will generate versus just winning new opportunities, which we are encouraged by.
Q: With the fiscal year '27 budget, is the 50% projected increase in the shipbuilding budget more beneficial to you given the needs for network computing and C5ISR at the edge, or is there more opportunity on the Golden Dome and short-range air defense side?
A: Mike Knowles (President and CEO): Ironically, we are engaged in all those areas. Both are moving forward heavy with sensors, compute, and AI/ML applications, and they all need high-end compute, low latency, and rugged environments. On Navy shipboard elements, we are engaged with customers evaluating future architectures for surface and subsurface vessels. For Golden Dome, we are engaging with companies across its many layers, identifying key systems where compute is most critical and who the prime integrators are, to facilitate the performance needed for that system to be successful.
Q: When might we start seeing some of the programs you're involved in at the R&D evaluation stage flip to LRIP or serial production with higher margins, and do you anticipate doing advanced procurement of component inventory if that starts to inflect?
A: Mike Knowles (President and CEO): We don't have an exact view into the timeline of when these early-stage systems under test would flow into a program of record. Those elements could come out any number of ways, from small buys to a huge program of record. When and if it does, the programs will generally be set
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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