ESCO Technologies Inc. Q1 FY2026 earnings call

• ESCO booked over $550 million in orders in the first quarter, a 143% increase over the prior year, with all three segments seeing double-digit orders growth.
• Top-line sales growth was 35% with adjusted EBIT margin expansion of 380 points, leading to a 73% year-over-year increase in adjusted earnings per share to $1.64 per share.
• Aerospace and defense saw strong order strength from commercial and military aircraft customers, with Navy order activity also robust. Sales were up 76% including Maritime acquisition and double-digit organic growth.
• Utility Solutions Group had mixed results with orders up double digits but renewables demand lower; still excited about long-term utility growth prospects.
• Test business had robust start with orders up 17% and revenue up 27%, driven by technology-driven capabilities.

Aerospace and Defense: Orders were over $380 million in the first quarter, up from $75 million in the prior year quarter. Sales were $144 million with 14% organic growth. Adjusted EBIT margin was 26.5%, a 500 basis point improvement. Utility Solutions Group: Orders were up 10% in the first quarter, driven by strong performance at Doble where orders grew 15%. Sales were up 1%, with Doble's 6% growth mostly offset by declines at NRG. Adjusted EBIT dollars were down just over 4%. Test Business: Orders were up over 17% and revenue up nearly 27% in the first quarter. Adjusted EBIT margin improved to 13.8%, an increase of 320 basis points from the prior year quarter.

• Raised full-year sales guidance to a range of $1.29 billion to $1.33 billion, an increase of $20 million at the midpoint, primarily from test business outperformance.
• Test business guidance revised from 3%-5% growth to 9%-11% growth.
• Full-year adjusted earnings per share guidance raised to a range of $7.90 to $8.15 per share, an increase of $0.38 per share at the midpoint, representing 31%-35% growth compared to 2025.

• Forward-looking statements are subject to risks and uncertainties in operations and business environment, including those referenced in the company's press release issued today, which will be filed as an exhibit in Form 8-Ks.

Q: On A&D orders, comment on ships content on either side of the Atlantic and enduring takeaway on order state of affairs.

A: Long-term demand in markets is good; Navy orders are lumpy. Can't give specifics on UK platforms, but US had $30 million orders for Virginia class block six. Aerospace OEMs seeing return to orders with build rates increasing.

Q: On A&D revenue guide being conservative, explanation?

A: First quarter expected to be strongest growth, with solid growth through the year but tapering down, understanding it's front-end loaded.

Q: What's driving strength in test and quick change in 90 days?

A: Strong performance in traditional core markets like electromagnetic compatibility, medical shielding, and some EMP filter product line; Europe and US were big leaders, though wireless business still recovering.

Q: State of energy business, trough sight?

A: US developers hyper-focused on existing projects to qualify for cash credits, leading to lower investments now, expected to revert in 2026, similar to regulated utility growth.

Q: How large maritime orders layer in over next couple years?

A: Revenue starting in fourth quarter, kicking in more in 2027 and 2028, long-term contracts solidify outlook for '27 and beyond.

Q: Comment on capital allocation and M&A funnel?

A: Actively rebuilding M&A pipeline, focusing on utility, aircraft components, and Navy segments for strategic acquisitions.

Q: Details on military business in A&D segment outside Navy, like military aircraft?

A: Broad-based with content on 21 of 15 EX fighters, sixth-generation fighter platform F-47, and traditional F-35, missile programs.

Q: How closely guidance mirrors OEM production rates?

A: Follow OEM partners closely but have a modestly skeptical view, assuming a little discount in outlook with upside if OEMs succeed