Karman Holdings Inc.

Formation and Nature of Business Operations

Karman Holdings, Inc. (the “Company”) conducts business as Karman Space and Defense (“Karman”). Karman was incorporated in Delaware in August 2020 for the purpose of acquiring and operating companies providing contract manufacturing services to the aerospace and defense industries. Karman is headquartered in Dallas, Texas. It currently operates five subsidiaries in Brea, El Monte, Huntington Beach, California, Mukilteo, Washington and Wilsonville, Oregon.

Karman specializes in the upfront design, testing, manufacturing, and sale of mission-critical systems for existing and emerging missile and defense, and space programs. Karman’s integrated payload protection, propulsion, and interstage system solutions are deployed across a wide variety of existing and emerging programs supporting important Department of Defense (“DoD”) and space sector initiatives.

As of March 31, 2025, Karman’s five wholly-owned subsidiaries are:

Aerospace Engineering, LLC (AEC), a limited liability company, purchased August 28, 2020

AMRO Fabricating Corporation (AMRO), a C-corporation, purchased October 28, 2020

American Automated Engineering, Inc. (AAE), a C-corporation, purchased December 21, 2020

Systima Technologies, Inc. (Systima), a C-corporation, purchased September 14, 2021

Rapid Machine Solutions – Wolcott Design Services, LLC (RMS), a limited liability company, purchased February 16, 2024

Initial Public Offering

On February 12, 2025 the Company’s Registration Statement on Form S-1 for its initial public offering (the “IPO”) was declared effective. The Company operates as Karman Holdings Inc., a Delaware corporation. Prior to the effectiveness of the IPO, the Company was a Delaware limited liability company named TCFIII Spaceco Holdings LLC. On February 12, 2025, the Company converted into a Delaware corporation and changed the name to Karman Holdings Inc. Pursuant to the conversion, all outstanding equity interests and all outstanding P Units were converted into an aggregate of 123.8 million shares of common stock of Karman Holdings Inc.

On February 14, 2025, the Company completed the IPO of 26.5 million shares of its common stock at a public offering price of $22.00 per share, of which,8.4 million shares were sold by the Company. The aggregate net proceeds from the offering, after deducting underwriting discounts and commissions, payments to Phantom Unit holders and other offering expenses, were approximately $147.3 million. See Note 9 and Note 10 for details.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.

These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, include all adjustments of a normal recurring nature necessary to present fairly, in all material respects, the Company’s financial position, results of operations and cash flows. These unaudited condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. Operating results for the three-month periods presented are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Management periodically evaluates estimates used in the preparation of the financial statements for continued reasonableness. Appropriate adjustments, if any, to estimates are made prospectively based upon such periodic evaluations. It is reasonably possible that changes may occur in the near term that would affect managements’ estimates with respect to revenue recognition, estimates of cost to complete contracts, allowance for credit losses, share-based payments, accrued expenses, inventory, deferred taxes, property and equipment and valuation of net assets acquired in business combinations, and the impairment assessment of goodwill and intangible assets.

Revenue and Costs Recognition

The Company recognizes revenue for each separately identifiable performance obligation in a contract representing a promise to transfer a distinct good to a customer. In most cases, goods provided under the Company’s contracts are accounted for as a single performance obligation due to the complex and integrated nature of its products. These contracts generally require significant integration of a group of goods to deliver a combined output. Warranties are provided on certain contracts, but do not typically provide for services beyond standard assurances and are therefore not considered to be a separate performance obligation. Assets recognized from costs to obtain or fulfill a contract are not material. Payment terms are typically forty-five days, but may vary.

The Company generates revenue under a range of contract types including fixed-price, time and material and cost-plus fixed fee contracts. Substantially all revenue is recognized as control is transferred to the customer over time based on an input measure of progress based on costs incurred compared to estimated total costs at completion. In general, the Company’s contracts contain termination clauses that entitle the Company to payment for work performed to-date for goods that do not have an alternative use. Amounts recoverable in the event of terminations include reasonable profit margins. Control is effectively transferred as the Company performs its contractual obligations.

The Company generally recognizes revenues over time using the input method, measured by the percentage of total costs incurred to-date to estimated total anticipated costs for each contract. This method is used because the Company considers total costs to be the best available measure of satisfaction of its performance obligations. Use of the input method requires the Company to make reasonable estimates regarding the revenue and costs associated with the design, manufacture, and delivery of its products. The Company estimates profit on these contracts as the difference between total estimated revenues and total estimated costs at completion (EAC) and recognizes profit as costs are incurred. Significant judgment is used to estimate total costs at completion. EAC’s are estimated using historical actual margins as a percentage of revenue, applied to open jobs. Unforeseen events and circumstances can alter the estimate of the costs and potential benefits associated with a particular contract.

The nature of Company’s business can give rise to significant contract modifications, which can impact performance obligations and transaction price. A contract modification exists when the parties to a contract agree to a change in the scope and/or price of a contract. Contracts are often modified for changes in contract specifications or requirements. Most of the Company’s contract modifications are for goods that are not distinct in the context of the contract and are therefore accounted for as part of the original performance obligation through a cumulative catch-up adjustment.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as payroll taxes, employee benefits, equipment rental, indirect labor, rent, workers’ compensation insurance, utilities, and shop supplies. General operating, selling, and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

As of March 31, 2025, the Company had$436.0 million of remaining performance obligations. The Company expects to recognize approximately 35.9% of the remaining performance obligations as revenue in 2025,17.2% in 2026, and 46.9% thereafter.

The timing of Company billings is generally dependent upon agreed-upon contractual terms, milestone billings based on the completion of certain phases of the work, or when products are provided. Billing can occur prior to revenue recognition, resulting in deferred revenue or subsequent to revenue recognition, resulting in unbilled revenue. The asset, “contract assets” represents revenues recognized in excess of amounts billed. These contract assets are not considered a significant financing component of the Company’s contracts as the payment terms are intended to protect the customer in the event the Company does not fulfill its obligations under the contract. The liability, “contract liabilities” represents amounts billed in excess of revenues recognized. Contract liabilities are not a significant financing component as they are generally utilized to pay for contract costs within a one-year period or are used to ensure the customer meets contractual requirements.

The following table summarizes our contract assets and liabilities:

Changes in contract assets and contract liabilities are primarily due to the timing of payments from customers and the Company satisfying performance obligations during the normal course of business. The amount of revenue recognized from changes in the transaction price associated with performance obligations satisfied in prior year during the period ended March 31, 2025 and December 31, 2024 was not material. Changes in contract assets and contract liabilities were as follows:

The Company’s contracts with customers relate to the design, manufacturing and delivery of its products in the following markets:

•

Hypersonic and Strategic Missile Defense – Hypersonic missiles, large diameter missile deterrent technologies and intercontinental strategic missile defense systems

•

Space and Launch – Traditional and new space launch rocket systems, space capsules, vehicles and payloads

•

Tactical Missile and Integrated Defense Systems – Precision guided missiles, small diameter rocket and missile technologies and integrated defense systems

Substantially all of the Company’s customers are government or commercial enterprises based in the United States.

The following table presents our disaggregated revenue and revenue growth by end-markets for the three months ended March 31, 2025 and 2024:

Contract Estimates

The Company recognizes changes in contract estimates on a cumulative “catch-up” basis in the period in which the changes are identified. Such changes in contract estimates can result in the recognition of revenue in a current period for performance obligations which were satisfied or partially satisfied in a prior period. Changes in contract estimates may also result in the reversal of previously recognized revenue if the current estimate differs from the previous estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the condensed consolidated statements of operations in the period in which it is identified. During the period ended March 31, 2025 and 2024, changes in accounting estimates on revenue recognition was immaterial.

Inventory

The Company determines the cost basis for inventory using the lower of cost or net realizable value. Cost is determined by using the weighted average method. The Company recognizes raw materials within inventory. As of March 31, 2025, the balance of raw materials and work in progress was$9.8 million and$0.6 million, respectively, and as of December 31, 2024, the balance of raw materials and work in progress was$9.5 million and$0.4 million, respectively.

Prepaid and other current assets

Within prepaid and other current assets, the Company recognizes prepaid expenses for prepayments for goods that are expected to be consumed within 12 months.

The following table summarizes our prepaid and other current assets:

Accounts Receivable and Credit Loss Reserves

Accounts receivable are comprised of unsecured amounts due from customers and presented net of any allowance for credit losses. The Company recognizes its estimate of expected losses on accounts receivable within the scope of the current expected credit losses (“CECL”) model under ASC 326. All accounts receivable balances 180 days beyond the contractual due date will be reserved at 50% and balances one year beyond the contractual due date will be reserved at 100%. For contract assets, the Company establishes a reserve for contract assets when a job exceeds a certain length of inactivity unless there is persuasive evidence the balance will still be recoverable.

The following table summarizes our allowance for credit losses:

Other Current Liabilities

Within other current liabilities, the Company recognizes certain accrued expenses and liabilities due within 12 months. The following table summarizes our other current liabilities:

Concentration of Credit Risk

Revenue from a few customers will typically represent a significant portion of the Company’s total revenue in any given fiscal year.

For the three months ended March 31, 2025, the Company had three customers with greater than 10% of the Company’s revenues, these customers comprised 23.4%,15.5% and 13.7% of the Company’stotal revenues during the year.

For the three months ended March 31, 2024, the Company had two customers with greater than 10% of the Company’s revenues, these customers comprised 31.2% and 10.4%f the Company’s total revenues during the year.

As of March 31, 2025, these three customers accounted for 46.3% of accounts receivable. As of December 31,2024, these three customers accounted for 58.7% of accounts receivable.

One supplier accounted approximately 12.1% of accounts payable as of March 31,2025. One supplier accounted for approximately 19.6% of accounts payable as of December 31,2024.

Share-Based Compensation

The Company accounts for share-based compensation under the fair value recognition provisions of ASC 718, Compensation - Stock Compensation. Under the fair value provisions, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite vesting period.

Net Income (Loss) Per Common Share or Common Unit

The Company uses the two-class method in calculating earnings per unit when it issues securities other than common units that contractually entitle the holder to participate in distributions and earnings of the Company. The Company historically issued Profit Interest Units (PIUs) in the form of Class P LLC Membership Units (“P Units”) that, once vested, participate in its distributions and earnings after the common units receive their return of capital plus a specified threshold amount. For the three months ended March 31, 2024, because the Company’s undistributed or distributed earnings did not exceeded the P Units’ thresholds, no earnings were allocated to the P Units in the computation of basic and diluted earnings per unit.

The Company presents both basic and diluted earnings per share and per unit amounts. Basic earnings per share and per unit is computed by dividing the net income attributable to common shares or common units by the weighted-average number of shares or units outstanding during the period.

Diluted earnings per share or per unit represents net income divided by the weighted-average number of shares or units outstanding, inclusive of the effect of dilutive units and contingently issuable shares or units. For the three months ended March 31, 2025 and 2024, the Company hadno potentially dilutive securities.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements Adopted

In March 2024, the FASB issued ASU 2024-01, Compensation-Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. This update clarifies the scope of “Profit Interest” and similar awards and adds an illustrative example to the existing ASC 718 standard that includes four fact patterns to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether a profits interest award should be accounted for in accordance with Topic 718. The amendments in this ASU are effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted for interim and annual financial statements not yet issued or made available for issuance. The amendments in this ASU should be applied either (1) retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or (2) modified on or after the date at which the entity first applies the amendments. On January 1, 2025, the Company retrospectively adopted ASU 2024-01. The standard didnot have any material impact on the Company’s financial position, results of operations or cash flows.

Investments and Fair Value Measurements

The Company applies the provisions under ASC 820, Fair Value Measurements, for financial assets and liabilities that are remeasured and reported at fair value each reporting period, and for nonfinancial assets and liabilities that are remeasured and reported at fair value on a nonrecurring basis. ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. Where quoted market prices for identical assets and liabilities are available in active markets, securities are classified in Level 1 of the valuation hierarchy. Level 1 securities include exchange traded securities and mutual funds for which there are quoted prices in active markets. If quoted market prices are not available for the specific security, but are based on other observable inputs, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows and would generally be classified within Level 2 of the valuation hierarchy. Level 3 securities are securities where the inputs to the valuation methodology are unobservable inputs based on best estimates of inputs market participants that would be used in pricing the asset or liability as of the measurement date, including assumptions about risk. There were no transfers between Level 1, Level 2, or Level 3 for the three months ended March 31, 2025 or March 31, 2024.

On February 27, 2025, the Company invested $6.0 million in an unrelated party (the “Issuer”) in the form of a convertible promissory note (the “Note”). The Note will mature on the fifth anniversary of the Note’s issuance, bearsno interest andis convertible into the Issuer’s shares prior to the maturity date at the Company’s discretion or upon the occurrence of certain future events. The Note was accounted for as available-for-sale debt instrument measured at fair value and recorded in Other assets. The fair value of this Note is classified within level 3 of the fair value hierarchy. As of March 31, 2025, the fair value of Note approximates its carrying amount.

Property and Equipment

Property and equipment consisted of the following as of March 31,2025 and December 31, 2024:

Depreciation expense associated with property and equipment amounted to $2,781,990 and $2,166,752 for the three months ended March 31, 2025 and 2024, respectively.

Business Combination

On February 16, 2024 (the “Acquisition Date” or “Closing”), the Company acquired 100% of the equity interests of Rapid Machining Solutions - Wolcott Design Services (RMS) pursuant to the terms of a Securities Purchase Agreement (the “Agreement”) in exchange for cash consideration (the “Acquisition”). The primary purpose of the business combination was to create synergies based on RMS’s expertise in Aviation and Aerospace industry and expand the Company’s design and manufacturing capabilities.

The Acquisition met the requirements to be considered a business combination under ASC 805. The assets and liabilities acquired, affected for adjustments to reflect fair values assigned to assets purchased and liabilities assumed, and results of operations, are included in the Company’s condensed consolidated financial statements from the Acquisition Date. The Company recorded the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the acquisition date as required under ASC 805.

The Acquisition was accounted for using the acquisition method of accounting. To fund the business combination, the Company entered into a term loan of $35 million with TCW. The fair value of the total purchase consideration transferred was $31.3 million in cash. The Acquisition does not have any contingent consideration arrangements.

The Company also incurred$1.6 millionof direct acquisition-related expenses, recognized asgeneral, and administrative expenses on the condensed consolidated statements of operations for the three months ended March 31, 2024.

The following table sets forth the estimated fair values of the assets acquired, and liabilities assumed in connection with the Acquisition:

The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets was recorded as goodwill and is fully deductible for tax purposes. The components of goodwill do not qualify as a separately recognized intangible asset.

Below is a summary of the intangible assets acquired in the Acquisition:

The fair value for both the customer backlog and the customer relationships were determined using the multi-period excess earnings method (“MPEEM”). This method reflects the present value of the operating cash flows generated by the intangible assets after considering the cost to realize the revenue, and an appropriate discount rate to reflect the time value and risk associated with the invested capital. In total, the intangible assets acquired subject to amortization have a weighted average life of 12.1 years.

Since the Acquisition Date through the three months ended March 31, 2024, RMS revenue and net loss were $2.1 million and $0.9 million, respectively.

Goodwill and Intangibles

The table below summarizes the changes in the Company’s goodwill balances:

The table below summarizes the carrying amounts of the Company’s identifiable intangible assets:

Amortization expense amounted to$4.4 million and$3.9 million for the three months ended March 31, 2025 and 2024, respectively. In total, the intangible assets acquired subject to amortization have a weighted average useful life of 15.9 years.

Debt

Notes Payable

The Company’s notes payable consisted of the following as of March 31,2025 and December 31, 2024:

As of March 31, 2025, the Company has a term note payable under the TCW Credit Agreement (the “TCW Term Note”). The TCW Term Note was used to consolidate debt and finance the Company’s historical acquisitions. The note was issued in December 2020 with an original maturity date of December 2025. On February 16, 2024, the Company increased its TCW Term Note by $35 million to fund the acquisition of RMS and related closing costs. All other terms of the TCW Term Note were unchanged.

The TCW Term Note carries variable interest payments based on specified benchmark reference rates. Interest rates were 10.83% and 11.01% as of March 31,2025 and December 31, 2024, respectively.

The TCW Term Note has financial covenants such as total leverage ratios and fixed charge coverage ratios, which apply for any consecutive twelve fiscal months. As of March 31, 2025 and December 31, 2024, the Company maintained all leverage ratios and fixed charge coverage ratios. A prepayment penalty on any principal amounts repaid prior to maturity expired in April 2025. The TCW Term Note has mandatory quarterly principal repayments of$2.1 million. Upon achieving certain measurements of cash flows, the Company is required to use the cash to repay principal amounts of the TCW Term Note. Optional principal repayments above certain minimum cash thresholds are also permitted. As of March 31, 2025 and December 31, 2024, no optional principal repayments have been made.

On January 13, 2025, the Company extended the final maturity date of the TCW Term Note from December 21, 2025 to March 20, 2026. On March 25, 2025, the Company extended the final maturity date of the TCW Term Note from March 20, 2026 to April 15, 2026. All other material terms of the term note were unchanged.

The Company holds a note payable to one of the sellers (the “Seller Note”) from a prior acquisition for $6.6 million. The note bears interest at 7.5% and is capitalized annually on the anniversary date of the acquisition. The outstanding principal and interest balance as of March 31,2025 and December 31, 2024 was $10.6 million and $10.5 million, respectively. The Seller Note plus all capitalized interest amounts is due and payable March 22, 2026. In April 2025,The Company repaid outstanding principal and interest balance of $10.6 million.

Revolving Line of Credit

As of March 31, 2025, the Company has a revolving line of credit under the TCW Credit Agreement to provide for working capital needs. This line of credit had an initial borrowing limit of $20 million and expiration date in December 2025, which is the date the principal amounts are due. On December 27, 2024, the Company increased the borrowing limit of its revolving line of credit from $20.0 million to $25.0 million and borrowed an additional $5.0 million in cash net of financing expenses of $0.1 million. All other terms of the TCW Credit Agreement were unchanged. Amounts outstanding on the revolving line of credit under the TCW Credit Agreement were$0.0 million and $20.0 million as of March 31,2025 and December 31, 2024, respectively.

The Company’s revolving line of credit carries variable interest payments based on specified benchmark reference rates. Borrowings under the line of credit bear interest based on the Secured Overnight Financing Rate (SOFR) and the Company’s leverage ratio. Interest rates were 10.83% and 11.01% as of March 31,2025 and December 31, 2024, respectively.

The revolving line of credit has financial covenants such as total leverage ratios and fixed charge coverage ratios, which apply for any consecutive twelve fiscal months. As of March 31,2025 and December 31, 2024, the Company maintained all leverage ratios and fixed charge coverage ratios. Depending on the amount of cash generated from operations, disposition of assets, or sale of operation, the Company is required to use certain excess amounts to repay the outstanding principal balance of the revolving credit line. Additionally, optional principal repayments above certain minimum cash thresholds are also permitted. Debt repayment can be made before the due date without penalties.

On January 13, 2025, the Company extended the final maturity date of the revolving line of credit under the TCW Credit Agreement from December 21, 2025 to March 20, 2026. On March 25, 2025, the Company extended the final maturity date of this revolving line of credit from March 20, 2026 to April 15, 2026. All other material terms of the revolving line of credit were unchanged.

Total interest expense related to the revolving line of credit, finance leases (Note 7) and notes payable amounted to$11.8 million and$12.1 million for the three months ended March 31, 2025 and 2024, respectively. Through March 31, 2025, debt origination fees related to the Term Note were $10.9 million, which are being amortized over the life of the loan using the straight-line method, as the difference between use of the effective interest and straight-line method is not material. Amortization of debt origination fees, related to the Term Note, of $0.6 million and $0.5 million were recorded as part of interest expense for the three months ended March 31,2025 and 2024, respectively.

No accrued interest was recorded under the revolving line of credit under the TCW Credit Agreement and the TCW Term Note as of both March 31, 2025 and December 31, 2024.

On April 1, 2025, the Company entered into a new Credit Agreement (the “Citi Credit Agreement”) by and among Karman, the lenders from time to time party thereto and Citibank, N.A. (“Citi”), as the administrative agent for the lenders, and, substantially contemporaneously therewith, certain direct and indirect subsidiaries of Karman terminated all outstanding commitments and repaid all outstanding obligations under the TCW Credit Agreement. This transaction resulted in the extinguishment of the aforementioned TCW Term Note and facilities under the TCW Credit Agreement and the issuance of a new $300.0 million term loan and $50.0 million revolving line of credit. The new term loan will mature on April 1, 2032 and the new revolving line of credit will mature on April 1, 2030. See Note 15.

Lease Obligations

The Company has certain property leases, with former owners and members for facilities of the Company’s subsidiaries. Most of these leases are accounted for as finance leases except for facilities leased by AEC and a plane hangar leased by Systima, which are accounted for as operating leases. Total lease payments amounted to$4.2 million and $2.4 million for the three months ended March 31,2025 and 2024.

Consolidated Lease Summary

On a consolidated basis, lease activity for the three month ended March 31,2025 and 2024 were as follows:

Amortization of ROU assets are included in the depreciation and amortization expense line of the Condensed Consolidated Statements of Operations.

On a consolidated basis, supplemental cash flow information for the three months ended March 31,2025 and 2024 were as follows:

Retirement Plans

Employee Benefit Plan

The Company maintains 401(k) Plans for all employees who have completed three months of service and have reached age 18. Qualified employees may contribute up to 90% of their pre-tax annual compensation to this plan, not to exceed the dollar limit set by law. The Company may make discretionary matching contributions and discretionary non-elective contributions to this plan. There were contributions of $0.8 million and $0.6 million made to the plans during the three months ended March 31,2025 and 2024 respectively. Retirement plan contribution expense is included within either Cost of Goods Sold or General and Administrative expenses on the condensed consolidated statement of operations, depending on the nature of the employee’s work.

Membership Units

Prior to the IPO, the Company issued membership units both in conjunction with purchases of subsidiaries and to reflect further investment in the Company’s operations. The Company issued Class A, Class B, and Class C units with substantially identical rights, privileges and liquidation preferences. No member shall be liable for the debts, liabilities or obligations of the Company beyond the member’s contributions. Pursuant to the Third Amended and Restated Limited Liability Company Agreement of TCFIII Spaceco Holdings LLC, all Membership Units entitle unitholders to share in the proceeds from capital transactions, including a sale of the Company, and grant them voting rights on matters requiring the consent of Members. As of December 31, 2024, a total of 166,737,325 shares of membership units were outstanding. In connection with the IPO in February 2025, all of the outstanding membership units were converted on a 0.68-for-1 basis into 112,566,039 shares of common stock of the Company.

Share-Based Compensation

The Company historically, through Spaceco Management Equity LLC (the “Management Company”) under the Spaceco Management Equity LLC Equity Incentive Plan (the “Equity Incentive Plan”), granted P Units to certain employees of the Company and its subsidiaries, in exchange for their services to the Company. Management Company has an economic interest in the Company, but no other interests or business operations other than issuing P Units directly to management employees on behalf of the Company.

The accounting for grants of P Units by the Company to Management Company and Management Company’s contemporaneous issuance of P Units to individual Company employees represents a distribution from the Company immediately followed by a contribution from Management Company, which together would have no financial statement impact. As a result, the Company refers to P Units issued to Management Company as though the Company had issued P Units directly to the employee.

The P Units entitle the holder to receive cash distributions from the Company, including, but not limited to upon a sale or change in control of the Company, provided that the proceeds received exceed the defined threshold value in the individual award agreements. Vesting is dependent on service-based and performance-based vesting conditions, as discussed in further detail below.

The P Units are subject to time-based vesting conditions (Time-Based Units). The Time-Based Units generally vest over 5 years with 20% vesting at each annual vesting date. In some cases, the Company recognizes expense as of the grant date for the portion of an award that is legally vested on the grant date as a result of years of service performed prior to the grant date. Time-Based Units are also subject to an accelerated vesting upon a change of control event, which includes an initial public offering. A corporate conversion will cause all P units to be converted into new shares of the Company based upon the fair market value of the P Units immediately prior to such conversion.

The Company records compensation cost for Time-Based Units over the requisite service period using the straight-line method.

The following table summarizes P Units activities:

In February 2025, in connection with the IPO, all 18,063,207 P Units outstanding were converted into 11,187,501 shares of the Company’s common stock on a 0.62-for-1 basis. All unvested P Units vested immediately. The Company recognized share-based compensation expense of $1.4 million and $0.3 million during the three months ended March 31,2025 and 2024, respectively, in general and administrative expenses in the condensed consolidated statement of operations. As of March 31, 2025, there areno P Units outstanding.

Phantom Plan

On September 23, 2024 the Company adopted a Transaction Bonuses plan (the “Phantom Plan”), pursuant to which the Company granted Phantom Units through Management Company to select employees providing services to the Company and/or its subsidiaries.

The Phantom Units are subject to service and performance-based vesting conditions. The Phantom Units are entitled to payment if the recipient is employed in the period in which a distribution event to P Unit holders, such as a change in control, initial public offering or liquidation event is consummated. The Phantom Units are not entitled to any payments until a distribution to the Company’s unitholders in excess of the $470.2 million threshold value occurs. The Company does not recognize any compensation cost for Phantom Units as these events are not considered probable, until the event actually occurs.

The following table summarizes Phantom Units activities:

In connection with the IPO in February 2025, the Phantom Units were settled for $6.6 million in cash, which was recognized as share-based compensation expensein general and administrative expenses in the condensed consolidated statements of operations.

Net Income (Loss) Per Common Share and Common Unit

Net income (loss) per common share and common unit was computed as follows:

The Company hadno potentially dilutive securities in any period presented.

Segment Reporting

ASC Subtopic 280-10, “Segment Reporting,” establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available. This information is regularly evaluated by the chief operating decision maker (“CODM”) to allocate resources and assess performance. The Company’s Chief Executive Officer serves as the CODM, and reviews financial information on an operating segment basis to make operational decisions and assess financial performance. The Company operates asone segment. The accounting policies of the Company’s segment are the same as those described in the summary of significant accounting policies.

The CODM assesses performance at a consolidated level and decides how to allocate resources based on consolidated net income. The measure of segment assets is reported on the balance sheet as total consolidated assets.

The following table summarizes the Company’s revenues, net income (loss) and significant expenses:

General and administrative expenses include share-based compensation of $8.0 million and $0.3 million for the three months ended March 31, 2025 and 2024 respectively.

Other expense for the three months ended March 31, 2025 was immaterial. Other income for the three months ended March 31, 2024 was $0.8 million, which was was primarily attributable to the gain from the settlement of a shareholder note in the three months ended March 2024.

Capital expenditures, which include purchases of property, plant, and equipment, are assessed and managed at the enterprise level. Refer to “Investing Activities” in the condensed consolidated statement of cash flows for the amount of cash paid for capital expenditures.

Interest income during the periods presented is insignificant.

Provision for Income Tax

The following table summarizes the Company’s income tax expense and effective tax rate three months ended March 31,2025 and 2024:

The primary drivers for the difference between the effective income tax rates for the three months ended March 31, 2025 and the U.S. Federal statutory rate of 21% included (I) R&D credits, offset by (ii) state taxes including change in rates, (iii) non-deductible profit interests, (iv) officer compensation, (v) uncertain tax positions including penalties and interest, and (vi) change in entity classification.

The decrease in the effective tax rate for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 is primarily attributed to discrete items for change in entity classification, non-deductible officers’ compensation and interest and penalties from prior year tax returns and uncertain tax positions. The negative effective tax rate is due to the loss before provision for income taxes for the three-months ended March 31, 2025.

Commitments and Contingencies

In the course of doing business, the Company enters into various agreements. These agreements typically include commitments and indemnifications, which could create a liability for the Company in the event of damages or injuries related to providing these services. Management believes the Company is adequately insured. However, future claims related to these agreements could significantly affect the Company’s financial results if a loss is incurred as a result of these agreements.

The Company accrues a liability for legal contingencies when it is both probable that a liability has been incurred and the amount of loss is reasonably estimable. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained and our views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in our accrued liabilities would be recorded in the period in which such determination is made. For certain matters, the liability is not probable, or the amount cannot be reasonably estimated, and therefore, accruals have not been made. In addition, in accordance with the relevant authoritative guidance, for any matters in which the likelihood of a material loss is at least reasonably possible, the Company will provide disclosure of the possible loss or range of loss. If a reasonable estimate cannot be made, however, the Company will provide disclosure to that effect. As of March 31, 2025 and December 31, 2024, the Company has no material reserves for legal contingencies and does not believe it is subject to material litigation risk. Legal fees are expensed as incurred.

Subsequent Events

The following material subsequent events were noted:

In April 1, 2025, the Company entered into a new Credit Agreement (the “Citi Credit Agreement”) by and among Karman, the lenders from time to time party thereto and Citibank, N.A. (“Citi”), as the administrative agent for the lenders, and, substantially contemporaneously therewith, certain direct and indirect subsidiaries of Karman terminated all outstanding commitments and repaid all outstanding obligations under the TCW Credit Agreement. This transaction resulted in the extinguishment of the aforementioned TCW Term Note and facilities under the TCW Credit Agreement and the issuance of a new $300.0 million term loan and $50.0 million revolving line of credit. The new term loan will mature on April 1, 2032 and the new revolving line of credit will mature on April 1, 2030.

On April 2, 2025, the Company completed its acquisition of MTI Holdings LLC (“MTI”) pursuant to a Securities Purchase Agreement (the “Agreement”), under which the Company purchased all issued and outstanding equity interests in MTI Partners LLC and Metal Machining LLC d/b/a Innovative Precision, for approximately $90 million in cash. The Agreement contains customary representations, warranties and covenants of both the Company and MTI. The acquisition is expected to be accounted for as a business combination and the Company is in the process of preparing its preliminary purchase price allocation.

On April 17, 2025, the Company repaid the $10.6 million outstanding principal and interest balance of the Seller Note which was due and payable March 22, 2026.