ARXS 10-K & 10-Q changes, risk factors and insider trading

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks described below as well as the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed combinedconsolidated financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below could adversely affect our business, results of operations, financial condition, reputation, and prospects. In such an event, the market price of our Class A common stock could decline, and you may lose all or part of your investment.

We also supply products to foreign governments and companies contracting with foreign governments, which present risks similar risks asto those described above. These risks associated with supplying products to governments and government contractors could be amplified by political factors and the then-current political environment. The occurrence of any of the foregoing events could reduce our revenue from, or the profitability of, certain of our supply arrangements with agencies and buying organizations of the U.S. government and our customers that are contractors or subcontractors for such agencies and buying organizations, and could damage our reputation.

We have a significant amount of indebtedness. As of MarchJune 31,30, 2026, we had $2,679.7$1,733.7 million outstanding principal amount of indebtedness. Such indebtedness could have important consequences, including making it more difficult for us to satisfy our obligations with respect to our indebtedness; limiting our ability to obtain additional financing to fund working capital, capital expenditures, acquisitions and other general corporate requirements; increasing our borrowing costs; increasing our vulnerability to general economic downturns and adverse competitive and industry conditions; requiring us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate requirements; limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; placing us at a competitive disadvantage compared to competitors that have less debt; and impacting investors’ perception of us.

We have been a private company since our inception and, as such, we have not been required to meet the internal control over financial reporting requirements that are applicable to a public company. As a result of becoming a public company, we will be required to comply with such requirements and to furnish a report by management on the effectiveness of internal control over financial reporting.

engaging external advisors with expertise and experience in the review of complex transactions and who are specialists in technical accounting matters, who advised management on accounting and reporting for transactions impacting the yearsix months ended DecemberJune 31,30, 20252026; and redesigning existing controls and implementing new controls to standardize accounting and reporting processes, including enhanced documentation and management review and approval requirements that clarify judgment criteria and accounting relevant to complex transaction.

Based on these remediation measures, we have concluded that the identified material weakness has been remediated as of December 31, 2025.remediated. However, we cannot assure you that the measures we have implemented will be sufficient to avoid future material weaknesses.

Our operations and facilities are subject to a number of federal, state, local and foreign environmental laws and regulations that govern, among other things, discharges of pollutants into the air and water, the generation, handling, storage and disposal of hazardous materials and wastes, the remediation of contamination and the health and safety of our employees. Environmental laws and regulations may require that we investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations, and compliance with these existing and evolving environmental laws and regulations requires and is expected to continue to require significant operating and capital costs. We may be subject to substantial administrative, civil or criminal fines, penalties or other sanctions (including suspension and debarment) for violations. In addition, as we enter into strategic acquisitions and investments, we may be subject to additional environmental risk, obligations and liabilities which may or may not be known to us at the time of such strategic acquisitions or investments. For example, we assumed certain liabilities related to environmental investigations and potential obligations to perform remediations. We have accrued amounts on our balance sheet related to these environmental investigations and remediations as described in further detail in “Note 12. Commitments and Contingencies” to the unaudited Arxis Condensed CombinedConsolidated Financial Statements included in this Quarterly Report on Form 10-Q. However, there can be no assurances that these accruals will be sufficient or that these matters will not have an adverse effect on our reputation, business, results of operations, prospects and financial condition.

We may also become a party to legal proceedings and disputes involving government and private parties (including individual and class actions) relating to alleged impacts from pollutants released into the environment, including bodily injury and property damage. These matters could result in material compensatory or other damages, remediation costs, penalties, non-monetary relief and adverse allowability or insurance coverage determinations. The impact of these factors is difficult to predict, but one or more of them could harm our reputation and business and have a material adverse effect on our results of operations, prospects and financial condition.

Any future issuance of our Class C common stock may have the effect of further concentrating voting control in our Class B common stock, may discourage potential acquisitions of our business and could have an adverse effect on the market price of our Class A common stock. Although we have no current plans to issue any shares of our Class C common stock, we may in the future issue shares of our Class C common stock for a variety of corporate purposes, including financings, acquisitions, investments and equity incentives to our employees, consultants and directors. Our authorized but unissued shares of Class C common stock are available for issuance with the approval of our board of directors without stockholder approval, except as may be required by Nasdaq corporate governance standards. Because our Class C common stock carries no voting rights on matters on which stockholders generally are entitled to vote (except as otherwise provided by our Certificate of Incorporation or otherwise required by applicable law), if we issue shares of our Class C common stock in the future, the holders of our Class B common stock may be able to hold significant voting control over most matters submitted to a vote of our stockholders for a longer period of time than would be the case if we issued our Class A common stock rather than our Class C common stock in such transactions. In addition, our Class C common stock will automatically convert into Class A common stock on a one-for-one basis upon the earliest to occur of (i) the date on which no shares of Class B common stock are outstanding and (ii) the affirmative vote of the holders of a majority of the then-outstanding shares of Class B common stock entitled to vote thereon, voting separately as a class. If we issue shares of our Class C common stock in the future, such issuances would have a dilutive effect on the economic interests of our Class A and Class B common stock and cause the market price of our Class A common stock to decline.

The following is a discussion of the historical results of operations and liquidity and capital resources of theArxis, Arxis Businesses.Inc. The Arxis Businesses were not historically consolidated. This should be read in conjunction with our unaudited condensed combinedconsolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as the audited combined financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our final prospectus filed with the SEC pursuant to Rule 424(b) (the “Prospectus”) on April 16, 2026, for the year ended December 31, 2025. This discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results and the timing of events could differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors,” and “Cautionary Statement Regarding Forward-Looking Statements” sections. Unless the context otherwise requires, references in this section to “we,” “our,” “us” and the “Company” refer to Arxis, Inc. Certain columns and rows may not add due to the Arxisuse Businesses.of rounded numbers. Percentages presented are calculated from the underlying numbers in thousands.

We are a leading designer and manufacturer of proprietary, mission-critical electronic and mechanical components engineered for cutting-edge performance in extreme environments. Leveraging significant IP and world-class engineering capabilities, we design and deliver innovative solutions that address some of our customers’ most complex performance needs. Our business is highly diversified across end markets, customers and platforms. While we primarily serve the broader aerospace and defense industries, we also have a significant presence across medical technology and other specialized industrial technology end markets. We operate in two reportable segments: Electronic Components and Mechanical Components. For a complete description of our business and segments, refer to Part I, Item 11. “Business” of our Prospectus.

Demand across our end markets remained strong during the firstsecond quarter of 2026, driven by continued growth in defense and space programs from increasing U.S. and allied budgets, sustained growth in commercial aerospace from robust production rates and aftermarket activity, and solid demand across our industrial technology end markets driven by continued investment in automation and electrification. Our results are supported by disciplined execution, productivity initiatives, and cost management, underscoring the strength and scalability of our proprietary business system – Arxis EDGE (Empower Data-Driven Growth and Execution) – through which we drive team-based selling and accountability, increase cross-selling opportunities across our business units and support our commercial strategy. Additionally, we continue to pursue strategic acquisitions that complement our existing portfolio.

The following significant events occurred during or subsequent to the threesix months ended MarchJune 31,30, 2026:2026.

In April 2026, the Company completed its Reorganization and IPO of shares of Class A common stock. The Company’s Class A common stock began trading on the Nasdaq under the ticker symbol “ARXS” on April 16, 2026. Net proceeds from the IPO were approximately $1,221$1,220.6 million, after deducting underwriting discounts, commissions and offering costs. A portion of the net proceeds was used to repay approximately $946$946.0 million of outstanding indebtedness under the Company’s Term Loan Credit Facility, with the remainder to be used for working capital and general corporate purposes.

In connection with the IPO, the Company completed the Reorganization, pursuant to which the Arxis Businesses were reorganized into a corporate structure. Prior to the Reorganization, the Arxis Businesses operated as limited partnerships and limited liability companies. As a result of the Reorganization, the Company will beis subject to U.S. federal and state corporate income taxes on a consolidated basis. Refer to the Company’s Prospectus filed with the SEC on April 16, 2026 for additional details regarding the Reorganization.

On January 5, 2026, the Company acquired 100% of the equity interest of Micro-Tronics, Inc.LLC (“Micro-Tronics”), a leading provider of engineered, mission-critical elastomeric and metallic components for commercial aerospace and defense applications. The acquisition expands the Company's product line into adjacent and overlapping capabilities, including elastomeric diaphragm seals and assemblies to high-precision electrical discharge machined components.

For additional information regarding our acquisitions, refer to "Note 3. Business Combinations,” toin the unaudited condensed combinedconsolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

The following tables set forth a summary of our results of operations for the three and six months ended MarchJune 31,30, 2026 and 2025.

Three and Six Months Ended MarchJune 31,30, 2026 as compared to the Three and Six Months Ended MarchJune 31,30, 2025

Revenue increased by $78.8$100.3 million, or 20.7%,25.0%, for the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025.

Organic revenue represents revenue from our existing businesses for comparable periods and excludes revenue from acquisitions. We include revenue from new acquisitions in organic revenue from the 13th-month13th month after the acquisition on a comparative basis with the prior period. As a result, revenue originally classified as acquisition revenue in the immediately preceding comparative period is reclassified as organic revenue in all the periods presented from the 13th-month13th month after acquisition onwards. Organic revenue therefore reflects the period‑over‑period change in revenue attributable to underlying performance factors, such as customer demand, pricing, and volume, and excludes the impact of businesses that contributed revenue for only a portion of one of the comparative periods due to acquisition timing.

Organic revenue increased by $65.1 million, or 17.1%, forFor the three months ended MarchJune 31,30, 2026 as compared to the three2025 monthsperiod, endedorganic Marchrevenue 31,increased 2025,by including$83.9 amillion, 1%or favorable21.0%, foreign currency impact. The increasewhich was driven by broad-based growth across all of our end markets, led by defenseIndustrial and space,Technology, and supported by continued strength in commercialCommercial aerospaceAerospace and industrialDefense technology.and Space.

GrowthFor the three months ended June 30, 2026 as compared to the 2025 period, growth across all of our end markets reflected the combined benefit of higher sales volume and favorable pricing actions. Volume growth reflected increased customer demand across key programs and applications, as well as contributions from new business wins, contributing mid-teens growth inled defenseby Industrial Technology and space,Commercial high-single-digitAerospace growthend in commercial aerospace, and low-teens growth in industrial technology.markets. Pricing contributed a mid-single-digit percentage increase across each of our end markets, reflecting contractual price escalations and price realization actions.

DemandThe acrossfavorable ourdemand endenvironment marketsremained wasconsistent strong,throughout driventhe byfirst increasedhalf defenseof and space program activity2026, supported by higherincreased U.S. and allied defense spending, robusthigher commercial aerospace production rates and aftermarket activity, and ongoingcontinued investment in automation and electrification across industrial technology applications.

Acquisition revenue of $13.7 million forFor the three and six months ended MarchJune 31,30, 2026 acquisition revenue was $16.4 million and $30.1 million, respectively, which represents revenue from businesses acquired after MarchJune 31,30, 2025 that was not included in the comparable organic revenue base for the period, and is attributable to the acquisitions of OldhamOldham, Micro-Tronics, and Micro-Tronics.MagCanica.

Gross profit increased by $71.9 million, or 44.2%, forFor the three months ended MarchJune 31,30, 2026 as compared to the three2025 monthsperiod, endedgross Marchprofit 31,increased 2025.by The$65.0 increasemillion, or 32.9%, which was primarily due to improved operating leverage on higher volumesvolumes, and partially attributable to favorable price realization, reflecting continued execution of operational execution across the business.business, Theand increase was also partially due toincremental gross profit of $6.4 million that was recognized in the three months ended March 31, 2026 attributable tofrom the acquisitions of OldhamOldham, Micro-Tronics, and Micro-Tronics. Gross profit for the three months ended March 31, 2025 was negatively impacted by $18.2 million of amortization of inventory step-up resulting from prior acquisitions.MagCanica.

GrossFor margin was 51.2% duringboth the three and six months ended MarchJune 31,30, 2026 as compared to 42.9% for the three2025 monthsperiod, endedgross Marchmargin 31, 2025. The increase wasincreased primarily drivendue by favorable price realization andto operational leverage on increased volumes.volumes and partially attributable to favorable price realization. Continued operational execution initiatives also supported margin expansion. Gross margin for the three months ended March 31, 2025 was negatively impacted by 4.8% of amortization of inventory step-up resulting from prior acquisitions.

Selling, general and administrative expenses increased by $19.7$113.1 million, or 28.7%,140.3%, for the three months ended MarchJune 31,30, 2026 as compared to the three2025 period. Selling, general and administrative expenses increased by $132.7 million, or 89.0%, for the six months ended MarchJune 31,30, 2025.2026 Thisas increasecompared wasto the 2025 period. These increases were primarily driven by additionalshare-based corporatecompensation costsexpense incurredand transaction expenses recognized in connection with preparing to operate as a public company, as well as transaction expenses incurred related to our initial public offering.IPO.

Amortization of intangible assets increased by $1.9$2.1 million, or 5.7%,6.1%, for the three months ended MarchJune 31,30, 2026 as compared to the three2025 period. Amortization of intangible assets increased by $4.0 million, or 5.9%, for the six months ended MarchJune 31,30, 2025.2026 Thisas increasecompared wasto primarilythe 2025 period. These increases were due to amortization related to acquired intangible assets.

Interest expense, net decreased by $24.3$17.9 million, or 35.6%,31.3%, for the three months ended MarchJune 31,30, 2026 as compared to the three2025 monthsperiod, ended March 31, 2025. This decreasewhich was primarily due to the repayment of $946.0 million aggregate principal amount of debt refinancing in FebruaryApril 2025,2026 which resulted inusing a lower effective interest rate in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025 and the absenceportion of the $15.5proceeds from the IPO, partially offset by an $11.4 million loss on debt extinguishment whichof was recognized in the three months ended March 31, 2025.debt.

Other income, net increased by $1.2$1.7 million for the three months ended MarchJune 31,30, 2026 as compared to the three2025 period. Other income, net increased by $3.0 million for the six months ended MarchJune 31,30, 2025.2026 Theas increasecompared isto the 2025 period. These increases were primarily due to interest income.

Income Tax Expense (Benefit)

Income tax expense increaseddecreased by $18.2$54.8 million for the three months ended MarchJune 31,30, 2026 as compared to the three2025 months ended March 31, 2025.period. The Company's effective income tax rate was 22.8%(247.2)% for the three months ended MarchJune 31,30, 2026, compared to 36.7%200.6% for the three months ended MarchJune 31,30, 2025. The change in the effective tax rate was primarily drivendue byto significantlyIPO-related higheritems, including share-based compensation expense, which resulted in a near break-even pre-tax book income and changes in the mix of earnings and losses across jurisdictions in 2026.loss.

The following table presents revenue by segment, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin for the three and six months ended MarchJune 31,30, 2026 and 2025:2025.

Electronic Components segment revenue increased by $31.4$36.7 million, or 18.5%,20.6%, for the three months ended MarchJune 31,30, 2026 as compared to the three2025 period. Electronic Components segment revenue increased by $68.2 million, or 19.6%, for the six months ended MarchJune 31,30, 2025.2026 Theas increasecompared wasto the 2025 period. These increases were primarily due to higher revenue across our defenseIndustrial Technology and spaceDefense and industrial technologySpace end markets driven by strong customer demand.

Electronic Components Segment Adjusted EBITDA increased by $16.4$20.2 million for the three months ended MarchJune 31,30, 2026 as compared to the three2025 period. Electronic Components Segment Adjusted EBITDA increased by $36.6 million for the six months ended MarchJune 31,30, 2025.2026 Thisas increasecompared wasto the 2025 period. These increases were primarily duedriven toby robustincreased growthoperating inleverage defenseresulting andfrom spacehigher andsales industrialvolumes, technologytogether endwith markets and execution of ourcontinued operational strategy.efficiencies.

Mechanical Components segment revenue increased by $47.3$63.6 million or 22.5%28.6% for the three months ended MarchJune 31,30, 2026 as compared to the three2025 period. Mechanical Components segment revenue increased by $110.9 million or 25.6% for the six months ended MarchJune 31,30, 2025.2026 Theas increasecompared wasto the 2025 period. These increases were primarily due to higher revenue across all of our end markets,markets leddriven by growthstrong incustomer demand, and partially attributable to the defenseacquisitions of Oldham and space and commercial aerospace end markets, reflecting sustained customer demand and higher production activity.Micro-Tronics.

Mechanical Components Segment Adjusted EBITDA increased by $32.5$42.3 million for the three months ended MarchJune 31,30, 2026 as compared to the three2025 period. Mechanical Components Segment Adjusted EBITDA increased by $74.7 million for the six months ended MarchJune 31,30, 2025.2026 Thisas increasecompared wasto the 2025 period. These increases were primarily duedriven toby robust organichigher sales growthvolumes, inwhich ourincreased defenseoperating andleverage, spacetogether andwith commercial aerospace end markets, andcontinued execution of our operational strategy, including continued operational efficiencies and cost optimization initiatives. TheThese increaseincreases waswere also partially attributable to the acquisitions of Oldham and Micro-Tronics.

For more information regarding our segments please refer to “Note 5. Segment Information” toin the unaudited condensed combinedconsolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Adjusted EBITDA is defined as Net income (loss), adjusted for: (i) interest expense, net; (ii) income tax expense (benefit); (iii) depreciation and amortization; (iv) acquisition and integration costs; (v) restructuring costs; (vi) transaction and other deal related expenses; and (vii) share-based compensation expense.expense, and (viii) other non-recurring adjustments. Management defines Adjusted EBITDA Margin as Adjusted EBITDA divided by Revenue.

Represents the compensation expense under our share-based plans and deferred compensation plans. Includes $7.5 million for employer taxes related to vested RSUs for the three and six months ended June 30, 2026.

We measure Free Cash Flow as Net cash provided by (used in) operating activities less Capital expenditures. Free Cash Flow Conversion is calculated as Free Cash Flow divided by Net income (loss). The following table sets forth a reconciliation of Net cash provided by (used in) operating activities, the most comparable GAAP financial measure, to Free Cash Flow for the periods presented:

Historically, our primary sources of liquidity have been cash and cash equivalents, cash flows from our operating activities and borrowings under our credit agreements, including revolving credit facilities. In April 2026, the Company completed its IPO of shares of Class A common stock. Net proceeds from the IPO were $1,220.6 million, after deducting underwriting discounts, commissions and offering costs. A portion of the net proceeds was used to repay $946.0 million of outstanding indebtedness under the Company’s Term Loan Credit Facility, with the remainder to be used for working capital and general corporate purposes. Our principal historical liquidity requirements have been for acquisitions, capital expenditures, servicing indebtedness and working capital needs. As we continue to expand our business, we may require additional working capital in the future for increased costs, and although we believe that we will be able to fully fund our ongoing capital expenditures, working capital requirements and other capital needs for the foreseeable future through cash on hand and cash flows from our operating activities, we may choose to use borrowings under our credit facilities to finance our operating and investing activities. Based on our current outlook, we believe that net cash provided by operating activities and available borrowings under our credit agreements will be sufficient to fund our cash requirements for at least the next twelve months. As of March 31, 2026, we had $2,630.1 million of borrowings outstanding under the Term Loan Credit Facility, and a $250.0 million commitment under our delayed draw term loan (“DDTL”), of which $49.0 million had been borrowed as of March 31, 2026. We had no outstanding balance under our senior secured revolving credit facility (the “Revolving Credit Facility”) and $3.7 million letters of credit were utilized, resulting in an available borrowing capacity of $396.3 million on the Revolving Credit Facility.

The following table sets forth the major components of our unaudited condensed combinedconsolidated statements of cash flows for the periods presented:

Cash provided by operating activities increased by $15.7$105.7 million for the threesix months ended MarchJune 31,30, 2026 as compared to the three2025 months ended March 31, 2025,period, primarily due to an increase in Net income, adjusted for non-cash items, of $30.1$144.2 million, partially offset by an increase in cash outflow from contract assets and liabilities of $11.9 million and the cash impacts of changes in working capital of $4.3$23.8 million. Our overall decrease in working capital performance was primarily attributable to a decrease of $36.3$28.4 million in Accounts payable and Accrued expenses and other current liabilities for the timing and amount of vendor and bonus payments, an increase of $8.7$24.7 million in Accounts receivable primarily due to higher revenuerevenue, for increased customer demand,partially offset by a decrease of $30.4$15.1 million in Inventory primarily due to lower purchasing activity and a decrease of $14.2 million in Prepaid expenses and other current assets primarily due to income tax receivablesreceivables. andIn aaddition to the decrease of $10.3 million in Inventoryoverall working capital, cash outflow from net contract liabilities increased by $14.2 million, which was primarily due to lower purchasing activity. The increase of $11.9 million in net contract assets was driven largely by the timing of progress billings.

Net cash used in investing activities for the threesix months ended MarchJune 31,30, 2026 was $80.5$208.0 million, and related to $68.8$185.8 million cash consideration paid for acquisitions and $11.7$22.3 million of capital expenditures.

Net cash used in investing activities for the threesix months ended MarchJune 31,30, 2025 was $57.2$171.8 million, and related to $48.5$152.6 million cash consideration paid for acquisitions and $8.8$21.4 million of capital expenditures.

Net cash provided by financing activities for the threesix months ended MarchJune 31,30, 2026 was $33.5$279.2 million, and primarily related to proceeds from the Company's IPO of $1,227.8 million, $25.0 million of proceeds from the issuance of debt, $11.3 million in contributions, and $4.4$5.4 million of proceeds from the settlement of related party notes receivable, partially offset by $6.8$952.8 million of debt repayments.

Net cash provided by financing activities for the threesix months ended MarchJune 31,30, 2025 was $80.5$171.3 million, and primarily related to $54.8$146.7 million of proceeds from the issuance of debt, net of debt repayments and debt financing fees, and $385.0 million in contributions. This wascontributions, partially offset by $350.3$351.1 million in distributions and $7.0 million of repayments of related party payables.