Ralliant Corp. Q2 FY2026 earnings call

• Strategic Execution & Overall Results

  • One year after becoming an independent company, Reliant's profitable growth strategy is delivering results, with Q2 2026 results exceeding the high end of prior guidance ranges
  • Both segments achieved double-digit organic revenue growth, with adjusted EBITDA margin expansion and strong free cash flow generation
  • Book-to-bill ratio was above 1.1 for both segments, and the defense backlog remains over $1 billion

• Productivity Initiatives

  • The RBS-led enterprise productivity program has moved from foundation building to execution, and is on track to hit $10 to $12 million in in-year 2026 savings and $50 to $60 million in annualized run-rate savings by 2028; $3 million in savings were realized in Q2
  • In defense and space, RBS-led initiatives have doubled production output within existing manufacturing footprints; a $27 million government award supported expansion at an Ohio manufacturing site
  • In July 2026, Reliant broke ground on an expansion of its precision sensor facility in upstate New York to support record utilities order growth
  • The program is expected to deliver approximately 50% incremental adjusted EBITDA margins through 2028, putting Reliant on track to hit its through-cycle adjusted EBITDA margin target of low to mid-20% by 2028

• Capital Allocation

  • Organic reinvestment to support growing demand is the top capital allocation priority, followed by returning capital to shareholders, then tuck-in acquisitions
  • Reliant generated $99 million in free cash flow in Q2 2026, with a trailing 12-month free cash flow conversion of 114%, and ended the quarter with a net leverage ratio of ~1.9x, within the 1.5x-2.0x long-term target range
  • $161 million was returned to shareholders in the first half of 2026, including the completion of a $100 million accelerated share repurchase program; 2.8 million shares were repurchased at an average price of $54.74 per share
  • Reliant maintains a robust pipeline of tuck-in acquisition targets, with a requirement of double-digit return on invested capital by year three for all deals

• Market & End-Market Positioning

  • Reliant is positioned to capitalize on strong secular tailwinds from electrification and AI-driven innovation, and defense modernization
  • North America (54% of year-to-date revenue) delivered 13% Q2 organic growth, with expected elevated demand from grid investments, defense programs, and AI-driven innovation
  • Western Europe (13% of revenue) delivered 16% Q2 organic growth, but the macro environment remains selective with lower expected growth going forward
  • China (16% of revenue) delivered 7% Q2 organic growth, with accelerating activity from AI data center and energy infrastructure investments, and expected higher revenue growth in H2 2026
  • Rest of world (17% of revenue) delivered 14% Q2 organic growth, driven by test and measurement and industrial customers

1. Sensors and Safety Systems: Revenue was $347 million, representing 61.1% of total Q2 2026 revenue. It grew 13% year-over-year on a reported basis and 11% organically. Adjusted EBITDA margin for the segment was 29.4%, a 350 basis point improvement from the normalized 2025 prior-year level, driven by operating leverage on higher revenue, favorable end-market mix, and better-than-expected defense program margins in the quarter.

2. Tests and Measurements: Revenue was $221 million, representing 38.9% of total Q2 2026 revenue. It grew 15% year-over-year on a reported basis and 16% organically. Adjusted EBITDA margin for the segment was 14.7%, a 750 basis point improvement from the normalized 2025 prior-year level, driven by strong operating leverage on higher revenue and ramping productivity savings.

• Third Quarter 2026 Guidance

  • Revenue is expected to be between $570 million and $590 million
  • Adjusted EBITDA margin is expected between 20.5% and 21.5%, with year-over-year normalized margin expansion from operating leverage and productivity savings
  • Adjusted EPS is expected between $0.72 and $0.78, with an expected weighted average diluted share count of approximately 112 million

• Full Year 2026 Guidance (upward revision from prior ranges)

  • Revenue is now guided to $2.25 billion to $2.3 billion
  • Adjusted EBITDA margin is now guided to 20% to 21%, including a small benefit from Q2 tariff refunds
  • Adjusted EPS is now guided to $2.76 to $2.90
  • Second half 2026 corporate and other expenses are expected to be $20 million to $23 million per quarter, an increase of $5 million to $6 million per quarter from prior estimates, driven by enterprise productivity program implementation costs, a cost reallocation from segments to corporate, and higher variable compensation from improved full-year performance expectations
  • No guidance is provided for 2027 or 2028 at this time

• Test and measurement is an inherently short-cycle business, with visibility limited to 90-120 days, making long-term demand forecasting uncertain
  • The macroeconomic environment in Western Europe remains selective, with expected lower growth going forward
  • Late shipment timing for utilities orders to the Middle East created a 4 percentage point year-over-year growth headwind in Q2 2026
  • Lapping a large 2025 semiconductor customer project creates a larger year-over-year headwind for the semiconductor end market in Q3 2026, after a reduced headwind in Q2
  • Longer-term, higher-volume defense programs are expected to have lower margins than current favorable mix, which will lead to gradual margin compression for the defense segment over time
  • All forward-looking statements are inherently uncertain, and actual results may differ materially from projections due to existing and unforeseen risks, as detailed in Reliant's SEC filings

Q: What is the expected duration of the current strong growth cycle in test and measurement's diversified electronics segment, given strong recent performance and new secular tailwinds from AI and energy storage? / A: Diversified electronics (20% of total company revenue) has posted two consecutive quarters of strong growth, with a current book-to-bill ratio over 1.2 for test and measurement overall. Management notes the business is inherently short-cycle (90-120 day visibility), and expects strength from the current recovery to moderate to mid-single digit growth in the second year after a strong first year, per historical trends. China saw strong first half activity that will translate to higher H2 2026 revenue, and management is still assessing whether this growth is structural or episodic.

Q: What capacity expansions have been completed for defense programs, and can capacity be flexed higher if surge demand materializes beyond current low double-digit growth projections? / A: Management has already doubled production throughput within existing manufacturing footprints, and has opened a new center of excellence for electronics at an Ohio site with government support, which will eventually become a fourth manufacturing location. The team has clear line of sight to capacity needs through 2030, and is actively collaborating with defense customers on multiple volume and timeline scenarios. Capacity will be adjusted as firm orders are received and added to the backlog.

Q: How is the strong diversified electronics growth in test and measurement geographically driven, and can the test and measurement segment margin return to 20% over the near term? / A: Diversified electronics growth is broad-based across end markets, driven by widespread innovation across energy storage, electric vehicle, medical device, and AI edge device electronics, where Reliant's core test instruments are foundational to engineering development. Through the cycle, management still expects test and measurement margins to land in the mid-teens to low 20% range, with continuous improvement driven by productivity program savings, aligning with the original long-term framework.

Q: What is the current outlook for tuck-in M&A, and what areas is Reliant targeting for acquisitions? / A: After completing the $100 million accelerated share repurchase program in H1 2026, Reliant has hit its 50% of free cash flow target for shareholder returns this year, allowing more focus on the tuck-in acquisition pipeline. Management is prioritizing smaller deals that complement organic strategy, filling technology or geographic gaps, while requiring a minimum double-digit ROIC by year three, and will maintain net leverage within the 1.5x-2.0x target range.

Q: How are Tektronix's new product platforms launched in late 2025 performing in the market, and what progress has been made expanding beyond R&D into production applications? / A: The new high-performance oscilloscope and power supply platforms launched in Q4 2025 have already gained better-than-expected market traction, with ongoing rollouts of new modules and software updates through 2026. The new MP5000 platform supports the full workflow from R&D through validation to production, and the Keithley product line has strong positioning for production validation of optical transceivers for AI infrastructure, supporting the expansion into production applications.