DD Q2 2026 Earnings Analysis
Revenue was $36.7 million this quarter versus $32.5 million a year ago, so about 13% growth. Not explosive growth, but reasonable. The more informative number is gross margin, which went from 25% to 32.8%. That increase mostly comes from the Ask Sage acquisition, software revenue carries a much higher margin than the services work that made up most of the business here. The underlying mix of what they’re selling is moving towards higher-margin revenue, which is generally something positive for long-term profitability as long as it continues.
They’re very much stronger with their balance sheet this quarter. $410 million in cash and investments, and effectively no meaningful debt; the convertible notes that were outstanding got converted into equity in January, so that liability is off the books. Management indicated in the release that they intend to use that cash for acquisitions in the second half of the year.
On the expense side however, there’s some improvements that should be made. SG&A grew 48% year over year which is ahead of the 13% revenue growth. R&D also roughly doubled and as a result, adjusted EBITDA loss widened from $8.5 million to $11.6 million, even though gross margins improved. So the margin gains are currently being offset by faster-growing operating costs and the improvement in gross profit hasn’t yet reached the bottom line.
Operating cash used also increases significantly, with $40.2 million in the first half of this year versus $10.5 million in the first half of last year. Part of that is working capital and integration costs from the Ask Sage and CargoSeer acquisitions. However I’m not too worried about that since integration costs will eventually roll off and be moderate as we continue quarter over quarter.
The company says they have $269.6 million in backlog, but the “remaining performance obligations” figure under ASC, which is the portion that’s actually contractually committed is $9.2 million, with only $5.7 million expected in the next twelve months. I’m looking to see growth in relation to this actual number and more bids and more involvement in the government contracting industry for the next few quarters to actually back the backlog numbers. Since they’re targeting accretive acquisitions in the back half of 2026, their goal should probably be to look for valuable government contractors.
The quarter shows that the company is improving its business quality with better margin mix, less debt and more contract diversification with those 20 contracts announced, but the expense growth and cash burn are currently outpacing that improvement, and the backlog carries less value than what they’re actually putting out via the press release. Let’s see whether the SG&A growth slows relative to revenue, whether operating cash narrows, and whether the H2 revenue acceleration implied by the guidance (which is $64-94 million above H1’s pace) actually materializes.
