Elmet Group (ELMT) Q3 2026 Earnings Call Transcript

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DATE

Tuesday, Nov. 10, 2026

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Peter V. Anania
• Chief Financial Officer - Mike Lee

TAKEAWAYS

• Revenue -- $79.6 million, growing 55.6% year over year driven by higher material prices and increased demand across the aerospace, defense, government, and industrial end markets.
• Adjusted EBITDA -- $17 million, increasing 129.4% compared to the prior year period, primarily due to operational performance improvements within the CMC division.
• Gross Margin -- 31.3%, an increase of 960 basis points year over year, with management attributing 600 basis points to 650 basis points of the expansion to higher material pricing and 350 basis points to 400 basis points to operational improvements.
• Order Backlog -- $347.4 million at quarter end, up from $87.3 million a year earlier, bolstered by a $161.9 million initial funding from a Defense Logistics Agency contract.
• Department of War Investment -- $450 million total commitment with an initial $200 million draw at closing, structured as redeemable preferred equity and warrants representing up to 19.9% of common stock.
• Raw Material Pricing Impact -- 70% of revenue growth was attributable to higher tungsten and molybdenum market prices, according to management reports.
• Demand Growth -- 30% of revenue growth resulted from increased demand, with aggregate shipments rising approximately 15% when excluding the impact of material price increases.
• Inventory -- $152.8 million as of Oct. 2, 2026, up from $69.7 million at the end of 2025, with 85% of the increase driven by higher tungsten and molybdenum raw material costs hitting the balance sheet.
• DLA Agreement -- $2 billion ceiling for a five-year base ordering period through August 2031, covering the supply of tungsten concentrate and sodium tungstate to strategic stockpiles.
• Masan Investment -- $125 million, comprised of $100 million in Department of War funds and $25 million in company cash, to secure long-term supply from an integrated tungsten producer outside of China.
• Blue Moon Springer Commitment -- $150 million allocated to the Nevada complex, including a $25 million equity investment and a $50 million secured funding facility to restart and expand refining capacity.
• Manufacturing Upgrades -- $165 million planned for modernizing U.S. facilities in Maine, Michigan, and Ohio, with equipment procurement and installment expected during 2027.
• Adjusted Net Income -- $11.4 million or $0.35 per diluted share, compared to $4.7 million or $0.23 per diluted share in the third quarter of 2025.
• GAAP Net Income -- $8.3 million or $0.24 per diluted share, up from $1.6 million or $0.08 per diluted share in the prior year period.
• Operating Expenses -- $12.9 million, a 67.8% increase year over year reflecting $1.6 million in equity-based compensation and $0.9 million in onetime acquisition diligence and Department of War agreement costs.
• Cash Position -- $105.7 million in unrestricted cash and $124.7 million in restricted cash as of Oct. 2, 2026, largely due to $200 million in proceeds from the issuance of preferred stock.
• Tungsten West Agreement -- 1,000 metric tons per year of tungsten concentrate secured through a long-term offtake agreement to support the company's refining network.
• Segment Backlog -- $98.1 million increase for the CMC and EMP divisions year over year, with $52.7 million of that growth attributed specifically to material price increases.
• Trailing Twelve Months Revenue -- $257 million, representing a 12.4% increase compared to the trailing 12-month period ending July 3, 2026.
• Equity Capitalization -- 30.5 million common shares outstanding as of Oct. 2, 2026, compared to 20.1 million shares in the third quarter of 2025 following the company reorganization.

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RISKS

• Lee stated, "It's a turnaround. So it will be somewhat dilutive to margins for a period of time," regarding the pending acquisition of metal production operations in Germany.
• Lee noted that for the new ERT division, "a lot of it is conditional upon somebody else's performance," citing the dependence on Tungsten West's production ramp-up for revenue timing.

SUMMARY

The Elmet Group Co. (NASDAQ:ELMT) reported third-quarter results characterized by a substantial expansion of its order backlog and the initiation of a multiyear capital investment program supported by the U.S. Department of War. Management stated the company is transitioning toward a vertically integrated mine-to-missile platform by adding a refining and trading division to its existing engineered components business. The company announced strategic investments in international and domestic tungsten sourcing to mitigate supply chain constraints. Financial performance was influenced by a sharp rise in refractory metal market prices alongside increased demand from defense and aerospace customers.

• Anania stated, "ERT will manage our ammonium paratungstate, or APT conversion capacity and mine takeoff agreements, coordinating sourcing, refining, trading and delivery across our tungsten and molybdenum supply chain."
• Management expects expanded defense manufacturing capacity to begin coming online in the second half of 2028, with a full run rate across upgraded facilities targeted for 2031.
• The pending acquisition of ams OSRAM's metal production operations in Schwabmünchen is expected to provide the company's first refractory metals manufacturing footprint in Europe during the first quarter of 2027.
• Anania noted that the company sources more than 97% of its tungsten and molybdenum from locations outside of China, which management indicated positions the company to benefit from increasing export controls and supply chain resilience trends.
• The new DLA contract framework is intended to support the rebuilding of the U.S. strategic materials stockpile without disadvantaging current commercial customers.
• Management indicated that the EMP division is experiencing expansion in anti-drone defense systems, specifically citing rapid growth in Echodyne programs.

INDUSTRY GLOSSARY

• APT: Ammonium paratungstate, a critical chemical intermediary required for producing tungsten metal powders and carbides.
• CMC: Critical Materials Components, the company division focused on manufacturing tungsten and molybdenum components.
• DLA: Defense Logistics Agency, the combat support agency in the U.S. Department of Defense.
• EMP: Engineered Microwave Products, the division providing high-power microwave systems and components.
• ERT: Elmet Refining & Trading, a newly established division for managing material sourcing and refining.
• MTU: Metric Ton Unit, a standard unit of measurement in the tungsten market equal to 10 kilograms.
• Refractory Metals: A class of metals, including tungsten and molybdenum, known for exceptionally high melting points and resistance to wear and heat.

Full Conference Call Transcript

Operator: Good morning, and welcome to Elmet Group's Third Quarter 2026 Earnings Conference Call. Joining us for today's presentation are the company's Chairman and CEO, Peter V. Anania; and CFO, Mike Lee. [Operator Instructions] I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at investors.theelmetgroup.com.

Before I turn the call over to Elmet's Chairman and CEO, the company would like to remind all participants that statements made by management during the course of this conference call that are not historical facts are considered to be forward-looking statements within the meaning of U.S. securities laws, including the Private Securities Litigation Reform Act of 1995. These statements are predictions, projections or other statements about future events that are based on current expectations and assumptions that are subject to risks and uncertainties, including those risks identified in the Risk Factors section of the company's registration statement on Form S-1 and in its other reports and filings with the Securities and Exchange Commission.

Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's belief only as of the date hereof. The company expressly disclaims any duty to update or correct any forward-looking statements. Further, management's remarks today will include certain non-GAAP financial measures. These measures are calculated by management and do not have any standardized meanings under U.S. GAAP. These non-GAAP measures supplement GAAP measures, but should not be viewed as substitutes for GAAP measures. A reconciliation of the most directly comparable GAAP financial measures to these non-GAAP financial measures is available in the company's quarterly report on Form 10-Q and in its earnings press release.

I will now turn the call over to Elmet's Chairman and CEO, Mr. Peter V. Anania, for his comments. Sir, please proceed.

Peter Anania: Welcome, everyone, and thank you for joining us for Elmet Group's Q3 earnings call. As we remain a relatively new story for many investors, I'd like to begin with a brief overview of our business before discussing the significant strategic developments announced during the quarter and our financial results. Elmet is one of the leading manufacturers of high-performance refractory metals and the only U.S.-owned, U.S.-based manufacturer of highly engineered pure tungsten and molybdenum critical material components. We have operated historically through 2 divisions, Critical Materials Components, or CMC, and Engineered Microwave Products, or EMP.

As part of our recent Department of War announcement, which we will cover in a moment, we are adding a third division, Elmet Refining & Trading, or ERT, which is operationally separate from CMC, but strategically aligned with the business. CMC is our core refractory metals division. We manufacture tungsten, molybdenum and specialized alloys for demanding applications across defense, aerospace, semiconductor, medical, energy and industrial markets. Our EMP division provides highly engineered microwave systems, components and engineering services and is continuously looking to leverage this technology across new programs and platforms. Through these 2 divisions, we serve a wide range of critical industries, including aerospace, defense and government, or ADG, industrial, medical, semiconductors and energy.

Within these end markets, we primarily serve blue-chip customers in the U.S. government. Some of our customers include Lockheed Martin, Los Alamos National Laboratory, ATI, LyondellBasell, GE HealthCare, Varian, Westinghouse and BWXT. We have been able to support and grow with these customers because we maintain a difficult to replicate asset base. We have a strong supply chain network and currently have U.S.-centric manufacturing capabilities. We believe we are well positioned to address the growing need to secure resilient and trusted tungsten supply chains. Moving to ERT.

This new division is designed to extend Elmet's capabilities beyond downstream manufacturing and create a more integrated platform across the tungsten supply chain to support a broader segment of the currently supply constrained U.S. tungsten industry. ERT will manage our ammonium paratungstate, or APT conversion capacity and mine takeoff agreements, coordinating sourcing, refining, trading and delivery across our tungsten and molybdenum supply chain. APT conversion is a critical chemical refining process, which transforms raw tungsten concentrate into the standard industrial intermediaries required for advanced metal powders and carbides. In short, ERT's role will be to secure tungsten and molybdenum from trusted suppliers, manage APT conversion capacity and coordinate material delivery into the U.S. for Elmet's manufacturing operations and customer base.

To summarize, our capabilities, whether internally or through our relationships with suppliers, now span material supply, processing, precision engineering and finished components, each of which plays an important role in supporting our customers for the long term. With that overview completed, I will now provide a brief review of our strong results for the third quarter. We continue to execute across business units and delivered increased revenue in Q3 2026, up 55.6% to $79.6 million compared to $51.1 million for Q3 2025. Approximately 70% of the growth reflected higher tungsten and molybdenum raw material prices, while the remaining 30% was driven by increased demand.

Adjusted EBITDA for Q3 2026 increased approximately 130% to $17 million compared to $7.4 million for Q3 2025. Outside of the results for the quarter, the last several months have been nothing short of a transformational period for Elmet, highlighted by several major announcements, including a landmark $450 million committed investment from the Department of War; a new $2 billion framework with the Defense Logistics Agency, or DLA, with initial purchase orders of $162 million; multiple strategic capital deployments and investments to expand the U.S. and allied tungsten supply chain; and an agreement to acquire OSRAM's metal production operations in Germany.

Collectively, we believe these initiatives build upon our history of nearly a century's worth of experience in refractory metals and position Elmet to play an increasingly important role in securing critical material supply chains for the U.S. and its allies. Each event is covered in greater detail in various materials in our Investor Relations website where we have posted the related press releases as well as supplementary presentations and infographics. We have also made available a recording of our September business update call where we provide a comprehensive overview of these updates and their expected impact on our business. I encourage anyone interested in a deeper dive to consult these resources.

In the meantime, I'll provide a brief review as well as preliminary updates for today's discussion. Let me dig in a bit further on the Department of War's investment. The DoW has committed $450 million to expand our tungsten processing and manufacturing capabilities across the U.S. This transaction is the first initiative launched by the DoW's new Economic Defense Unit, aligning public and private capital to strengthen America's tungsten supply chain. The investment began with an initial $200 million draw at closing. This investment is being made through redeemable preferred equity and warrants representing up to 19.9% of Elmet's common stock on a post-exercise basis, along with governance rights, which include one independent board seat and one board observer.

Importantly, the structure includes features designed to provide capital structure flexibility as warrants are exercised. We believe the transaction effectively aligns the interest of Elmet, the DoW, our investors and U.S. taxpayers while supporting a shared objective of strengthening America's tungsten and molybdenum supply chain. These investments also support our vision of building a fully integrated critical materials platform spanning raw material sourcing, refining, processing and advanced manufacturing. I will now provide a brief breakdown of where we intend to deploy these funds. We have already begun making progress towards upgrading our manufacturing footprint and securing long-term raw material supply, both of which we believe are essential to supporting growing customer demand across the defense and industrial markets.

To that end, approximately $165 million of the DoW investment is anticipated to be allocated to expand and modernize our existing U.S. manufacturing capacity across Maine, Michigan and Ohio. This investment is designed to allow us to serve our current customers more effectively while preparing Elmet for future defense and industrial demand. The time line for this stage, equipment procurement, installment and modernization, are expected during 2027. Expanded capacity is expected to begin coming online for defense programs in the second half of 2028, with a full run rate across the upgraded facilities targeted for 2031.

On the supply side, we invested $100 million of the DoW money and approximately $25 million of our own cash in our long-term supply partner, Masan. Masan is one of the world's largest integrated tungsten producers, the only operating independent APT processor outside of China that provides important strategic alignment with access to diversified tungsten supply. We also recently signed a long-term offtake agreement with Tungsten West, a mining development company, which owns a world-class tungsten deposit in Devon, England.

Our agreement with Tungsten West secures more than 1,000 metric tons per year of tungsten concentrate we plan to convert into APT and downstream intermediaries through our refining network, which will then go towards supporting our customers, including under the DLA agreement. As a reminder, the DLA contract has a ceiling value of $2 billion, including already funded purchase orders of $162 million, and covers the supply of tungsten concentrate and sodium tungstate to DLA strategic materials. The contract has a 5-year base ordering period through August 2031, with a 2-year extension option through August 2033. We believe this framework creates a long-term pathway for demand within ERT, strengthens our government relationship and can help backstop ERT refining production.

The goal of this framework is to support DLA in rebuilding its stockpile without disrupting existing American manufacturers or disadvantage our current customers. With the establishment of ERT, we expect that we will be able to more effectively manage our supply and build out our own processing capabilities to support the tungsten supply chain for the long term. We believe this is the natural step for us, and we look to secure multiple sources of feedstock for our CMC facilities in the U.S. as well as an anticipated new major facility in Europe.

To that end, we also intend to allocate approximately $150 million to Blue Moon Springer Tungsten Complex in Nevada through a recent $25 million equity investment in Blue Moon, a $50 million secured funding facility and an Elmet controlled joint venture with Blue Moon Metals and EQ Resources to restart and expand APT conversion capacity at the Springer facility. Together, these initiatives are intended to strengthen our vertical integration strategy, improve supply chain control and support a true mine to missile platform. While there is substantial work ahead, we believe we have laid the foundation for the next phase of Elmet's growth.

Separate from our work with the U.S. government, but related to CMC, we also recently announced the planned acquisition of ams OSRAM's metal production operations in Schwabmünchen, Germany. When complete, the transaction should establish -- would establish Elmet's first refractory metals manufacturing footprint in Europe and expand our capabilities across powders, rods, wires, electrodes and machined components. Importantly, the facility is Germany's only fully integrated tungsten producer and one of the new -- few facilities in Europe capable of producing pure tungsten powders. We expect the acquisition to close during the first quarter of 2027 and believe it will significantly strengthen our position across North America and Europe.

Through these transformative announcements, the breadth of Elmet's CMC division's enhanced vertically integrated critical material platform has widened. Across the value chain, we now bring together mining and raw material supply, APT refining, powder processing, thermomechanical processing, mechanical machining, fabrication and quality control. Our established commercial relationships include Masan, to support APT conversion capability today, and our planned APT facility in Nevada is expected to add an independent and redundant U.S. conversion capacity over time. We believe the DoW investment enables us to build on this existing foundation, strengthening U.S. manufacturing capacity, expanding access to global diversified supply and connecting material availability with the finished components our defense and industrial customers require.

I would now like to provide an overview of the projected time line for our investments, which will roll out over the next several years, and expected financial growth associated with them. The $165 million in CMC facility upgrades will begin with initial funding from the DoW investment followed by procurement and modernization work beginning in 2027. Expanded defense capacity is expected to come online in the second half of 2028 and the full run rate targeted for 2030. Looking at our ERT division, the trading side is expected to begin fulfilling the DLA contract in the first half of 2028, subject to mine ramps related to our strategic offtake agreements.

The refining side of our ERT division and the Springer APT facility restart are targeted for the first half of 2029 or sooner, subject to customary closing conditions. We believe the facility will be fully operational and expect to be running at capacity in 2031. Collectively, for the whole business, this is a multiyear execution program, with the goal of being fully operational in all areas by the end of 2031. As we work towards completion, we will remain focused on delivering measurable program progress for customers, shareholders and the U.S. industrial base. Stepping back, all these initiatives share a common objective, expanding Elmet's role within the critical material supply chain while strengthening domestic and allied manufacturing capabilities.

We are building upon an established foundation of specialized engineering expertise, long-standing customer relationships and strategically important manufacturing assets. We believe the investments announced during the quarter will accelerate this strategy by expanding capacity, securing supply and increasing our participation across the tungsten value chain. At the same time, we are operating in an environment where supply chain resilience, export controls, critical mineral security are becoming increasingly important. With more than 97% of our tungsten and molybdenum sourced outside of China, we believe Elmet is uniquely positioned to benefit from these trends, and we are acting to capitalize on the opportunity at this unique moment in time.

Combined with the growing defense spending, strategic stockpile replenishment and increasing demand across critical end markets, we believe the long-term opportunity in front of us is substantial. Overall, we are entering our next chapter from a position of great strength. We have a growing backlog, expanding customer engagement and a clear road map for long-term value creation. I will now turn the call over to Mike to review our third quarter financial results in greater detail.

Michael Lee: Thank you, Peter, and good morning, everyone. We are pleased to present a strong Q3 performance for fiscal year 2026. Before I begin, please note that all numbers I plan to discuss have been rounded for ease of presentation. Our full financial results for the quarter can be found in our quarterly report filed with the SEC yesterday afternoon. Now let's get started. Revenue in Q3 2026 increased 55.6% to $79.6 million compared to $55.1 million (sic) [ $51.1 million ] in Q3 2025. Approximately 70% of the growth was driven by higher tungsten molybdenum raw material prices while 30% was driven by increased demand through aerospace, defense, government, industrial, medical and semiconductor end markets.

Excluding the supply and connecting material availability -- sorry, excluding the impact of significant material price increases, aggregate shipments grew around 15% compared to Q3 2025. Gross profit for Q3 2026 increased 124.1% to $24.9 million or 31.3% gross margin compared to $11.1 million or 21.7% gross margin in Q3 2025. The increase is driven primarily by our CMC division the Q1 2026 rapid rise in tungsten pricing and our management thereof continue to benefit our financial performance. We also delivered meaningful operational improvements through strategic tungsten sourcing agreements and productivity gains. Operating expenses for Q3 2026 increased 67.8% or $12.9 million compared to $7.7 million in Q3 2025 for a net increase of $5.2 million.

Within the quarter, we incurred approximately $1.6 million associated with equity based compensation compared to $0.4 million in Q3 2025. During the quarter, we also experienced around $0.9 million in onetime expenses associated with acquisition diligence and our transformative agreements with the Department of War. We also saw increases in costs associated with ongoing public company compliance and expenses associated with growth. Turning to the balance sheet. As of Q2 (sic) [ Q3 ] 2026, cash was $105.7 million with an additional $124.7 million of restricted cash compared to $1.8 million of cash as of December 31, 2025.

The increase was driven by $200 million in proceeds from the issuance of Class A redeemable preferred stock to the Department of War. Our restricted cash is related to our investment into Masan, where the cash for the investment was effectively in transit Q2 -- on October 2, 2026, with the transaction settling October 5, 2026, the first day of our fiscal 4Q. As of October 2, 2026, we saw inventories grow to $152.8 million, up from $69.7 million as of December 31, 2025. The increase was driven by CMC division as we saw the full effect of tungsten and molybdenum raw material pricing increases hit our balance sheet, driving approximately 85% of the increase since December 31, 2025.

The balance of the increase is attributed to our growing demand. To supplement our financial statements presented in accordance with GAAP, we use certain non-GAAP financial measures, including adjusted net income, EBITDA and adjusted EBITDA because we believe these metrics provide investors with additional meaningful methods to evaluate certain aspects of our results. We define adjusted net income as net income less stock-based compensation and onetime nonrecurring costs such as tax impacts of our reorganization, discontinued operations, the costs associated with the IPO, certain acquisition and transaction costs, severance and restructuring costs, other nonrecurring costs and the income tax effect of such adjustments as applicable.

Net income for Q3 2026 was $8.3 million or $0.24 per diluted share compared to net income of $1.6 million or $0.08 per diluted share in Q3 2025. Adjusted net income for Q3 2026 was $11.4 million or $0.35 per diluted share compared to $4.7 million or $0.23 per diluted share in Q3 2025. It's worth noting that Q3 2025 was prior to our reorganization in preparation for our IPO, at which time we were organized as a pass-through entity and not subject to corporate income tax. The share count is also materially different between the comparable periods, and we recommend reviewing the schedule within our earnings release to fully understand the changes between the comparable periods.

We define adjusted EBITDA as our net income plus interest expense, income taxes, depreciation and amortization and, as applicable for each period, stock-based compensation and noncash gains and losses of sale of assets. Adjusted EBITDA also excludes certain nonrecurring costs such as costs associated with the IPO, certain acquisition and transaction costs, severance and restructuring costs and other nonrecurring costs. In the first 2 quarters of this year, we recorded fair value gains and losses that were included in our adjusted net income and adjusted EBITDA that were associated with our equity investment in our strategic supply chain partner, EQ Resources.

While we believe the size and nature of this investment is core to our sourcing strategy and therefore, operational in nature, our transformational agreements both executed and contemplated have changed the nature of our relationship with EQ Resources. Additionally, our subscription agreements with Masan and Blue Moon have transformed our balance sheet, and we believe the related cash flow [indiscernible] effects of all fair value impacts to our income statement should be and now have been excluded from adjusted net income and adjusted EBITDA. Adjusted EBITDA for Q3 2026 increased 129.4% to $17.0 million compared to $7.4 million in Q3 2025. The increase is driven by operational performance improvements within our CMC division.

A full reconciliation between GAAP net income and adjusted net income and EBITDA and adjusted EBITDA can be found in our quarterly report, in our earnings press release. As we've shared previously, given our susceptibility to quarterly performance fluctuations driven by factors, including timing of purchase orders, metal market pricing dynamics and other drivers across the business, we believe it is also prudent to examine our results over a longer time horizon. To that end, I will now review our results for the trailing 12 months, or TTM. For clarity, the following comparisons will be made between 12-month periods ending October 2, 2026, and July 3, 2026.

Revenue increased 12.4% to $257.0 million compared to $228.5 million in the prior TTM period. As mentioned a few moments ago, approximately 70% of the growth was driven by higher tungsten and molybdenum raw material prices, while the remaining 30% was driven by increased demand across aerospace, defense, government, industrial, medical and semiconductor end markets. Gross profit increased 27.2% to $64.5 million or 25.1% gross margin compared to $50.7 million or 22.2% gross margin in the prior TTM. The increase in gross profit and gross margin was driven by the aforementioned effects of the tungsten market pricing, our management thereof and productivity gains within our CMC division.

Operating expenses increased 10.3% to $55.7 million compared to $50.5 million in the prior TTM period. The increase is primarily related to equity compensation associated with the IPO, onetime expense associated with the acquisition diligence and our transformative agreement with the Department of War, expenses associated with ongoing public company compliance and expenses associated with growth. As mentioned a few moments ago, we changed our adjusted EBITDA and adjusted net income calculations, removing fair value adjustments of equity instruments. This resulted in the exclusion of $3.3 million gain through Q2 to date and $4.7 million gain in Q3 to date. These changes are detailed in the associated schedule in our earnings release.

Net income was $5.0 million or $0.17 per diluted share compared to a net loss of $1.7 million or $0.08 per diluted share in the prior TTM. Adjusting for IPO-related operating expenses, equity compensation, fair value adjustments of equity instruments and reorganization costs, our adjusted net income increased to $22.7 million or $0.89 per share compared to $16 million or $0.71 per share in the prior TTM. Adjusted EBITDA increased 33.6% to $38.1 million or 14.8% of revenue compared to $28.5 million or 12.5% of revenue in the prior TTM period. I'd like to finish with our backlog where we have seen significant growth over the last year as well as the prior quarter.

Our firm order backlog grew to approximately $347.4 million at the end of Q3 2026 compared to $131.5 million at the end of Q2 2026 and approximately $87.3 million at the end of Q3 2025. We recently formed ERT division, received an IDIQ contract award from the DLA for tungsten offtake in the amount of $2.0 billion, with $161.9 million initially funded and now reflected in backlog.

Our pre-existing divisions, CMC and EMP, were up $98.1 million at the end of Q3 2026 compared to the end of Q3 2025, driven by ADG customers with a separate DLA award for molybdenum products, a series of new and growing programs such as CERN, Strategic Missile Systems, PrSM, Standard Missile, Patriot and Next Gen Interceptor, along with a mix of commercial and defense-related aerospace and radar programs. We also attribute approximately $52.7 million of the $98.1 million of total backlog growth to tungsten and molybdenum material price increases. That concludes our prepared remarks. Now I'd like to hand it back to the operator for Q&A.

Operator: [Operator Instructions] Our first questions come from the line of Jim Ricchiuti with Needham & Company.

James Ricchiuti: So a lot to go through. But maybe if we could start on the newer business, the ERT business. Thanks for highlighting some of the milestones. But I'm wondering if you can provide any color on the revenue potential for this business as you look out to 2027.

Michael Lee: Yes. Thanks, Jim. The ERT business is really 2 different businesses within the division. One is a trading business that we're standing up. It is, in effect, what we do today to source for our CMC division, but it's going to be a multiple of volume with us selling some to commercial customers, including the DLA. That piece of the business is completely tied to the material availability from Tungsten West, which is a mine in the U.K., we've signed a commercial agreement with that we're anticipating.

There will be a time-phased delay from them starting to ramp and us seeing revenue of depending on how much and how we actually sell it between, I'd say, 3 to 6 months when they start to ramp. So it's hard to pinpoint what the impact to 2027 is because it's not really in our control. They do have published ramp rates that are on their website that you can see. But again, a lot of these mines have -- they have plans, but we have to wait until we actually see product delivered. So it's hard to pinpoint how much.

The scope and scale of their volume, we have a commitment where we think it's going to be about 3 to 4x what our internal use is. We do plan on offsetting our internal use as soon as we can and then start selling the excess. So again, that pushes the -- how much shows up as a revenue stream for 2027 towards the end of the year. At full scale at current pricing, again, the current pricing, we could see a couple of hundred million dollars start to manifest the run rate, maybe a little bit more.

But again, a lot of it is depending on -- as far as timing, it's completely dependent on Tungsten West's ability to provide and then we got to get through a lot of it through processing through Masan. So there is a lag time there.

James Ricchiuti: Right. We can follow up on that further offline. I wonder also if you could help us understand, I mean, clearly, some of the growth -- a good chunk of the growth that you saw in the quarter was due to higher tungsten and moly prices. What -- did you -- can you help us with the impact on CMC -- on margins in the materials business from the higher prices?

Michael Lee: Absolutely. So I'll do just a quick bridge from Q3 of '25 to Q3 of 2026. So these are from going from 21.7% to 31.3% for the total business, which is largely going to be driven by our CMC division. The rough math is about 2/3 of that growth going -- so let's say, 600 to 650 basis points is the impact of pricing going up and us, therefore, marking that material up as we sell it through. And then about 1/3 of our margin growth, so in the 300 to 400 basis range, is operational performance, which we still see as quite remarkable.

It's far better than what we had anticipated given the nature of how difficult it is to move margins in manufacturing or at least move it quickly. And so yes, about 2/3 to 1/3. And so -- yes, I think that maps it out for you. So we see 600 to 650 on material and about 350 to 400 on operational execution.

James Ricchiuti: Got it. And last question for me. We're a couple of months away, I guess, from the new DFARS rules, going into effect January 1. What are you hearing from your A&D customers? And maybe how do you see the new rules impacting CMC and, I guess, longer-term, ERT? If you could just talk to that for a moment.

Michael Lee: Yes. So we're seeing -- we haven't seen a significant uptick in orders distinctly tied to that. We have had conversations with customers that are, I'd say, not fully cognizant of the rule change and are starting to respond to it. So we do anticipate we'll see more tailwinds in terms of order patterns in the future, but it's not as straightforward as a rule comes out in a very response.

It's often these -- especially because there have been some pretty dramatic rules to these NDAAs, both in the way people contract as well as some of the material provisions, that the time for that to be digested in these large primes is a lot longer than you may anticipate. And they just -- it just takes a little bit longer than you think. And so we haven't seen the full impact of that yet. So we do think it's going to be a tailwind for us in the future, and it's going to be a driver for future backlog growth.

Peter Anania: We are having discussions with many customers about this. But as Mike said, we haven't received firm orders in the amount that we would have expected.

Operator: Our next questions come from the line of Chip Moore with ROTH Capital Partners.

Alfred Moore: Congratulations on all the positive developments here and the transformation. I wanted to follow up on ERT as well, and you gave some good color there, Mike, around sort of timing next year potential. But maybe any more color around Tungsten West and that, I think it was 1,000 MTUs? I think that's going to Masan for processing, but then comes back to you guys. Just kind of walk us through that and the GAAP accounting on that as well and implications.

Michael Lee: Yes. So that 1,000 MTUs, you can do the math relatively quickly.

Peter Anania: It's 1,000 tons.

Michael Lee: 1,000 tons, yes.

Peter Anania: Tons, not MTUs. MTUs would be 1/100 of a ton.

Michael Lee: Yes. And so you can do the math on that relatively quick and see what the potential is by just looking at the current market pricing per MTU, to what Peter just said. The accounting flows will vary depending on how we sell it. So if we sell to the DLA, we have -- we're likely going to have one, a very clean transaction with a short time horizon. We'd see us picking it up in the U.K. and we're likely recognizing revenue within 60 days, something in that time horizon. If it's going through Masan in Vietnam, we could be several months. And depending on the agreement, we may be having to record revenue twice.

So we do have a stack of agreements that have different terms and conditions. And so it makes it a little more -- a little complex to pinpoint where we'll be in terms of what that 1,000 profile will look like. We do think somewhere in the area of 1/3 to maybe up to 1/2 depending on the outcome of next year and the ramp rate of Schwabmünchen would be consumed internally. So again, there's quite a -- there's a distinct variable there in terms of what ERT would look like, both in the rate for which Tungsten West ramps and supplies us and then where we direct that material to and then the potential customer on the other end.

So it is quite dynamic for a process that is buying concentrate processing and selling it. The series of outcomes and the related GAAP accounting behind it is not as straightforward as a buy resell, unfortunately. So we are a little hesitant to give any kind of strong guidance around what this will look like in the second half of next year. But we do like to position or at least try to help people think about our business this way. The existing core business of CMC and EMP is, excluding molybdenum and tungsten pricing, is exceeding our expectations in the first 9 months of this year, and we anticipate that to continue. We're seeing this strong growth there.

We'll be adding Schwabmünchen into next year. It's a turnaround. So it will be somewhat dilutive to margins for a period of time. We think we can get that cash flow positive by year 3, and we're seeing a lot of interest before even completing the acquisition from potential customers. So there is opportunity for us to improve that time line. And then ERT is the option for us for next year. Again, it's a lot of it is conditional upon somebody else's performance. And -- but once that starts to ramp, it's going to be pretty steady state real quick.

So that's the way we think about it, knowing that we're trying to work to get everything to execute on time or earlier. But again, we can't control our primary source around tungsten concentrate.

Alfred Moore: Very helpful, Mike. And yes, it makes perfect sense. A lot of moving pieces. We'll look forward to learning more as we can. And you brought up the acquisition in Germany. Any obstacles there to closing that? And then just talk about the playbook. It sounds very similar to what you've done with Philips in Maine, but your thoughts there?

Peter Anania: Yes. So we have applied for our FDI, and it has been approved in Germany. We are in the process of going through a transition where the -- this is a spinout of OSRAM, so we have to unravel a few things. So we're going through that process. So we're pretty confident that it will happen in Q1 2027. And as part of our due diligence and part of our process now to get to closing, we are talking with customers. We're seeing more interest than we expected, I would say, but nothing is concrete yet there.

And we have hired or have brought Marc Lamare, who is our 40-year employee up in Lewiston, Maine and ran the Philips Elmet plant for a while over there, to help with the transition. So you're right that Schwabmünchen is a lighting plant, just as the Lewiston plant that we purchased was a lighting plant. So it's very similar. They have all similar swaging and furnaces and reduction furnaces and so forth that we had in Lewiston, but much more modern than is in Lewiston at the moment. So it's actually a better or newer equipment. So we're pretty excited about it.

We -- the amount of space we have there, too, will also, potential, help us with -- on the EMP side as we get European business that requires European content, we can perhaps manufacture it there also because there is enough space for that.

Alfred Moore: Great. Yes, German engineering, always good. And maybe the last one. Just that the 30% growth ex the raw material movement, it sounds like that was fairly broad-based. Is that correct? And are you still not seeing any of that really material restocking uplift yet?

Michael Lee: No, no, not in the sales. We're seeing a little bit on the demand side. Nothing that's demonstrative, let's put it that way. Things we would -- I would characterize it as residual or sweep funding for smaller components where they can lock up supply for multiyear ahead of time. Nothing dramatic. What we are seeing is a fair amount of inquiry in terms of how fast can you ramp across different programs. And I'm speaking to the CMC division specifically in these comments. So we're seeing that. And what -- the way we interpret that is the primes are pressurizing the supply chain to figure where they need to focus.

They are -- we've seen the announcements with Lockheed and L3 getting awards via Aerojet. And they're out pursuing new facilities and so forth to ramp. So I think we're getting a response of that, but they're still trying to catch up as well and figure out where they have gaps in their supply chain. So we do see the early signs. I do think we're still tied to follow-on appropriations to really see a pop. And we're seeing some trickling here and there. That said, on the EMP side, Raytheon business with Patriot is definitely starting to tick up for our EMP division. It's a different part of the missile platform, more on the communications side.

It's a different cadence than the actual missiles. So we are seeing that starting to kick in earlier. So we've seen a little bit, but nothing that's the wave that we're anticipating in the future.

Peter Anania: And we are, on the EMP side, seeing a real increase in Echodyne anti-drone defense, if you will. And that is really expanding rapidly right now.

Operator: Our next questions come from the line of Austin Moeller with Canaccord Genuity.

Austin Moeller: So I just had a question about the Nevada mine. So the 40-ish tons of tungsten that you expect to potentially receive in 2027, is that tailings? Or is that new?

Peter Anania: From the mine itself? Yes, that would probably be out of the tailings pile. That's where they're starting.

Austin Moeller: Okay. And how are you thinking about the loss of Susan Collins? And obviously, she was on the Appropriations Committee. About 10% of Maine's GDP is defense. So I was just wondering how you're thinking about the outlook for naval shipbuilding within the core business.

Peter Anania: Not a lot. We're not that dependent on naval shipbuilding in our core business. We do, do some, but it's very minor. The loss of Susan Collins is yet to be seen as to how that's going to affect us. She was a good champion for us, and we appreciate all she's done. But we also have a good Senator in Angus King, who has supported us quite a bit and serves on some of the same committees that are important to us. And we hope to foster relationships with other delegations in Michigan and Ohio.

Michael Lee: Yes. And I'd just add on, as people think through this, to keep in mind that defense and munitions tend to be a bipartisan topic. And so while, to echo what Peter said, it's -- we appreciate what's taken place in the past, we foresee that what we do for the United States doesn't change based on our state-level representation.

Operator: Thank you. At this time, this concludes our question-and-answer session. If you have any additional questions, you may contact Elmet's Investor Relations team at elmt@gateway-grp.com. I would now like to turn the call back over to Mike Lee.

Michael Lee: Yes. Thank you. We did receive a few inbound questions. I'll now read and then address. The first question is, "Can you level set between tungsten and molybdenum pricing mechanics and refresh investors on how each flows through the P&L?" Yes. So as mentioned earlier, we do mark up and price -- value price both the material, because of our sourcing capabilities, as well as the conversion, and so there is a favorable effect as material pricing goes up and comes down. It's much more demonstrative for tungsten. The timing for which these changes flow through our P&L are different.

Molybdenum, as you may have seen in some of our prior published documents, about 85% of that is sourced domestically as consigned. So that -- any changes on moly, as we call it, tend to move through our P&L faster. A change today would likely be reflected 90 days or so to 120 days later in our P&L. Less of a margin effect, more just pure revenue. It is the one place we do have a decent amount of -- or a meaningful amount of true pass-through pricing versus markup. So the margin expansion isn't quite as dramatic, and the speed for which the change is much faster.

Tungsten, where we see value in our sourcing, ends up having a more substantial push up or down on pricing and margin. And that takes up to 9 months to flow through our P&L. So to that extent, we are -- I would say we still have a little bit of room to go before we see the full effects of the pricing spike in Q1 to $3,000 per MTU. I think we're starting to see that here, not in a quarter-to-quarter, but over the course of the bridge of the 2 quarters. So hopefully, that answers that question. The next question is, "Can you walk through your funding bookings expectations for the next 12 months?

And then when do you expect the heaviest bookings quarter? And how does it compare to this quarter's performance?" Again, I'll go back to Appropriations. It's going to dictate a lot for us in terms of the wave of munitions we anticipate to see in multiyears and so forth. I would -- again, I'd point to some of the phenomenon around the big primes and the larger publicly communicated long-term contracts. These take a while to digest. It's worth noting that those aren't fully funded yet. So therefore, the flow down to us is going to take some time. So it's hard for us to predict. We don't see any distinct signs in the change of our existing trend.

I would say the one outlier there is obviously the DLA contract for tungsten offtake. That funding is going to come in likely in one wave at some point in the future. But right now, we're focused on ramping that business and don't anticipate to eat through that funding next year. So I wouldn't anticipate a rush for additional funding there in the next several months. But it's going to largely depend on the way DLA allocates their budget versus us actually requesting any additional funding specifically for a ramp. Last question, "Can you talk about capital deployment?

How do you think about the balance between mining verticalization and adding to your microwave technologies business over time?" So we think given the Department of War agreement, we have adequate capitalization for the actual CapEx and build-out. And we're working through a refinancing of our existing credit facility to expand our working capital flexibility. That's just something we had planned on doing. We delayed that until we're -- we could complete the Department of War agreement. It just took precedence, and we were able to manage without updating our credit facility. It's nothing distinct or different other than our business has changed, and we hadn't really worked with our banks to change our credit facility to reflect that.

We do anticipate continuing to look for strategic bolt-ons for the microwave division. We do have an M&A pipeline we monitor. That has not changed. And so in terms of financing it, we think we have multiple source -- multiple means to actually accomplish that. So with that, I will wrap up because we're coming up on time.

Peter Anania: Thanks again, everyone, for joining us today. In closing, I want to thank our employees for their continued dedication, our customers for their trust and our shareholders for their ongoing support. We believe we are currently operating in a time of unprecedented realignment, which presents a significant opportunity for us to grow the business, given our exceptional positioning. The third quarter was a pivotal step forward in our mission to capitalize on the significant opportunities ahead. We remain focused on execution and look forward to updating you on our progress in the quarters to come. Operator?

Operator: Thank you for joining us today for the Elmet Group Company's Third Quarter 2026 Earnings Conference Call. You may now disconnect.

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