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DATE

Thursday, February 5, 2026 at 5 p.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Bryan Sayler
  • Senior Vice President and Chief Financial Officer — Christopher L. Tucker
  • Director of Investor Relations — Kate Lowrey

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TAKEAWAYS

  • Orders -- Over $550 million reported, increasing 143%, with all three segments achieving double-digit growth; Maritime contributed $238 million via large UK contract awards.
  • Sales Growth -- Total sales rose 35%, driven by 11% organic growth and $51 million contributed by the Maritime acquisition.
  • Adjusted EBIT Margin -- Increased by 380 basis points to 19.4%.
  • Adjusted EPS -- Reached $1.64 per share, up nearly 73%, establishing a first-quarter record for the company.
  • Aerospace & Defense Segment -- Orders exceeded $380 million compared to $75 million last year; sales reported at $144 million with 14% organic growth; adjusted EBIT margin increased over 500 basis points to 26.5%.
  • Utility Solutions Group -- Orders up 10%, Doble orders up 15%, and backlog finished at nearly $155 million (up 8% since September 30); sales rose 1%, with Doble up 6% and NRG down.
  • Utility Solutions Group Profitability -- Adjusted EBIT down just over 4% due to Doble's gains being offset by NRG margin declines.
  • Test Segment -- Orders increased over 17%, sales rose nearly 27%, and adjusted EBIT margin improved by 320 basis points to 13.8%.
  • Operating Cash Flow -- More than doubled to $68.9 million, primarily due to higher contract liabilities in Navy businesses.
  • Guidance Increase -- 2026 sales guidance raised by $20 million at the midpoint to a range of $1.29 billion-$1.33 billion, mainly from Test segment outperformance; Test business revenue growth outlook increased from 3%-5% to 9%-11%.
  • Full-Year Adjusted EPS Guidance -- Updated to $7.90-$8.15 per share, $0.38 higher at the midpoint, expressing 31%-35% growth compared to 2025 adjusted EPS.
  • Guidance Tax Rate -- Full-year projected tax rate lowered to 23%-23.5% from the prior range of 23.7%-24.1%.
  • Maritime Contract Revenue Timing -- Large Maritime orders expected to generate marginal revenue in the fourth quarter, with major contributions in 2027-2028.
  • Capital Allocation Focus -- Strong cash flow and low leverage have enabled the company to rebuild its M&A pipeline, with acquisition targets focused on utility, aircraft components, and Navy businesses.
  • Renewables Business Trends -- Domestic renewables investments are temporarily slowed as developers prioritize existing projects qualifying for tax credits expiring in July, with recovery anticipated beginning late 2026 or early 2027.

SUMMARY

Management described robust demand across aerospace, naval, and test segments, explicitly crediting the ESCO Maritime acquisition for outsized order growth and backlog. Substantial order inflows, especially Navy-related and large UK contracts, significantly expanded revenue visibility beyond 2026, with Test segment momentum driving increased guidance. Operating cash flow strength was attributed to Navy contract liabilities, giving management the flexibility to pursue strategic acquisitions focused on secularly growing end markets.

  • Sayler stated, "long-term demand in all of these markets is really, really good," but clarified that Navy orders will remain "very lumpy" and do not normalize sequentially.
  • Test segment improvement was attributed to revived end-market demand in electromagnetic compatibility and medical shielding, with the wireless business still lagging in recovery.
  • Sayler noted, "we have our own opinion which is probably modestly skeptical of their ability to get to reach their targets," indicating company guidance partially discounts peak commercial aerospace production forecasts.
  • Management confirmed large Maritime contracts will support revenue and backlog stability in fiscal 2027 and beyond, with limited near-term profit impact.
  • Company reiterated active M&A exploration, emphasizing "good fit strategic acquisitions" as a primary capital deployment priority.

INDUSTRY GLOSSARY

  • Doble: Subsidiary within Utility Solutions Group, providing diagnostic test solutions and services for electric grid equipment.
  • NRG: Business unit focused on renewable energy products and services within the Utility Solutions Group segment.
  • EMP filter: Electromagnetic pulse filter product line supporting data centers and shielding applications within the Test segment.
  • Adjusted EPS: Earnings per share excluding specified non-recurring items, as defined by company-adjusted metrics.
  • Adjusted EBIT: Earnings before interest and taxes, excluding certain adjustments identified by management.

Full Conference Call Transcript

Kate Lowrey: It was made during this call, which are not strictly historical, are forward-looking statements within the meaning of the safe harbor provisions of the Federal Securities Law. These statements are based on current expectations and assumptions, and actual results may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the company's operations and business environment, including but not limited to, the risk factors referenced in the company's press release issued today, which will be filed as an exhibit in the company's Form 8-Ks to be filed. We undertake no duty to update or revise any forward-looking statements except as may be required by applicable laws or regulations.

In addition, during this call, the company may discuss some non-GAAP financial describing the company's operating results. Reconciliation of these measures to the most comparable GAAP measures can be found in the press release issued today and found on the company website at www.escotechnologies.com under the link Investor Relations. Now I'll turn the call over to Bryan. Thanks, Kate, and thanks, everyone, for joining today's call.

Bryan Sayler: We are pleased to meet with you this afternoon to discuss ESCO's strong first quarter results, which have our fiscal 2026 off to a great start. We booked over $550 million in orders in the first quarter, which is an increase of 143% over the prior year. All three of our segments saw double-digit orders growth, led by strong aerospace demand and large Navy orders at Maritime and Globe. We believe in the long-term growth drivers across our end markets, and it was great to see the positive momentum across our businesses to start the year.

Top-line sales growth of 35% combined with 380 points of adjusted EBIT margin expansion drove a 73% year-over-year increase in adjusted earnings per share from continuing operations to a Q1 record of $1.64 per share. Our exceptional financial results for the quarter are a testament to our strategic positioning across our served markets combined with disciplined execution by our global team. Chris will take us through all of the financial details in the quarter, but before we get to that, I want to give you a few comments on each of the segments. Let's start with aerospace and defense.

As I mentioned, we're seeing tremendous order strength on both US and UK Navy programs from the maritime business and from our organic Navy business. In addition, sales were up 76% in the quarter, driven by the addition of Maritime, and double-digit organic growth across our Navy and aerospace programs. The growth story here remains intact, driven by increasing build rates for commercial aerospace OEMs, and sizable investments from our defense customers as they refresh and expand their capabilities. Overall, we're seeing the benefits of our A&D segment's sharper focus on the aerospace and Navy markets where the long-term outlook remains quite positive.

Switching over to our utility solutions group, the results here were a little bit more mixed in the quarter. Orders were up double digits with very strong order flow for services, condition monitoring, and offline test equipment at Doble. But this was partially offset by lower demand in our renewables business. Sales were up modestly over the prior year, as renewables headwinds largely offset the 6% revenue growth at Doble. Overall, we remain quite excited about the outlook for our utilities business. The majority of the activity here is driven by utility capital spending focused on grid reliability and capacity increases, and we continue to see those forecasts grow.

ESCO's capabilities have a clear role to play in assisting utilities to meet growing electricity demand, and we remain bullish on the long-term prospects for growth here. As we have discussed previously, the renewables market is recalibrating right now as US developers focus on completing current projects in order to satisfy the safe harbor provisions related to tax credits which expire in July. This has slowed domestic renewables investments in the near term, but we continue to believe that longer-term, renewables will play a vital role as a cost-competitive source of generation as utilities work to meet the increasing demand for electric power. Finally, I'll touch on the test business, which had a robust start to the year.

With orders up 17% over the prior year and revenue up 27%. This business had a nice year of recovery in 2025, and it's great to see that momentum continue with significant growth during the first quarter. This is a technology-driven business with broad capabilities to serve customers across the RF test and measurement and industrial shielding markets. The team here is executing very well, and we're excited the outlook for test continues to improve. Overall, our Q1 results got us off to a great start for the year. With record backlog and continuing strength across our businesses, we are raising our full-year sales and earnings guidance.

With that, I'll turn it over to Chris who will run you through the financial details for the quarter. Thanks, Bryan. Everyone can follow along on the chart presentation. We will start on page three, which shows financial highlights for the first quarter.

Christopher L. Tucker: Bar charts across the top of this page clearly show that ESCO had a tremendous first quarter. The key theme with ESCO's financial performance right now is that core company performance on an organic basis is quite strong, and the ESCO Maritime acquisition is adding significantly to that base company performance. It's a powerful combination. Getting the numbers, we start with orders, which increased 143%. Organic order growth was double-digit for all three business platforms, with aerospace and defense being particularly strong. Maritime added $238 million of orders as the business received large contract awards in the UK. On the sales side, reported growth was 35%, which was comprised of 11% organic growth and $51 million of sales from Maritime.

On the profitability side, we saw adjusted EBIT margins improve by 380 basis points to 19.4%, and adjusted earnings per share increased by nearly 73% to $1.64 per share. Next, we'll go through the segment highlights, starting with aerospace and defense on page four. A great quarter here, starting with orders, which came in at over $380 million compared to $75 million in the prior year quarter. Order activity was quite strong from the commercial and military aircraft customers. Additionally, Navy order activity was also very strong with organic growth driven by Virginia class block six orders. Sales in the quarter were $144 million with organic growth of 14%.

This robust organic growth was driven by strength in commercial and defense aerospace, as well as the Navy business. So really nice performance from all parts of the core aerospace defense platform. On the profitability side, we had tremendous increases with adjusted EBIT margins up to 26.5%, which is more than 500 basis points of improvement. Adjusted EBIT and adjusted EBITDA dollars both more than doubled from last year's first quarter. Again, this demonstrates the strength of our base company performance and the additive impact of the ESCO Maritime acquisition. Margin increases were due to positive impacts from leveraging sales growth and increased price while Q1 also had favorable mix due to aftermarket sales.

Next, we will go to chart five in the Utility Solutions Group. Orders here were up 10% in the first quarter driven by strong performance at Doble, where orders grew by 15%. Backlog finished at nearly $155 million, up 8% since September 30. Sales in the quarter were up a modest 1%, with Doble sales growth of 6% mostly offset by declines at NRG. Doble continues to see good end market activity across a number of product lines serving the regulated utility customer base, while NRG continues to see near-term market weakness as the renewable activity resets.

Adjusted EBIT dollars were down just over 4% with price increases and sales volume leverage at Doble unable to offset margin drops at NRG. We have the test business on page six. This business had a terrific start to fiscal 2026 with orders up over 17% and sales up nearly 27%. This business is seeing robust market activity centered around US test and measurement, industrial shielding, medical shielding, and power filters. Adjusted EBIT margins improved nicely, increasing to 13.8%, which represents an increase of 320 basis points from last year's first quarter. The business is leveraging the sales growth nicely, also increasing margins via price increases and cost containment.

Going to chart seven, we have cash flow highlights for the first quarter. Operating cash flow in the first quarter was very strong, more than doubling to $68.9 million on a continuing operations basis. This was led by an increase in contract liabilities at the Navy businesses. Capital spending increased slightly in the quarter, and there was also a payment of just over $5 million during the quarter for the final working capital settlement related to the ESCO Maritime acquisition last year. Our last chart is number eight where we have the updated 2026 guidance. With a great start to the year, we are able to substantially increase the 2026 outlook.

The sales guidance is increasing by $20 million at the midpoint to a range of $1.29 billion to $1.33 billion. The increase is coming primarily from the test business, where we had Q1 outperformance in sales and orders driving up the full-year forecast. The original sales guidance for Test was for growth in the range of 3% to 5%, and the updated guide is for revenue growth in the range of 9% to 11%. Additionally, we had a slight increase in the A&D sales outlook. Overall, the sales increase is driving increased adjusted EBIT performance expectations for 2026. Additionally, the first quarter tax rate was favorable, and that impact will flow to the full-year forecast.

This means that full-year tax rate projections are now in a range of 23% to 23.5% compared to 23.7% to 24.1% in the original guidance. All of this drives the full-year adjusted earnings per share to a range of $7.90 to $8.15 per share. Compared to the prior guidance range, this is an increase of $0.38 per share at the midpoint and represents growth of 31% to 35% compared to 2025 adjusted earnings per share. The original outlook represented a strong growth plan for ESCO, and we are pleased to share this increased forecast representing an even stronger growth trajectory. That completes the financial summary. Now I'll turn it back over to Bryan. Thanks, Chris.

Bryan Sayler: So as you've heard from our commentary, Q1 was a great start to the year. Robust orders and strong execution have put us in a position to raise our outlook for the full year. So with that, we're finished with our prepared remarks and can turn it over to the Q&A. We also ask that you wait for your name and company to be announced before proceeding with your question.

Operator: The first question today will come from the line of Tommy Moll of Stephens. Your line is open.

Tommy Moll: Good afternoon, and thanks for taking my question.

Bryan Sayler: Hey, Tommy.

Tommy Moll: Bryan, my first question is on the A&D orders. To the extent you can comment on ships that content on either side of the Atlantic, if there's any updates there, we'd appreciate it. And maybe bigger picture on orders, you know, last quarter's 0.83 book to bill was clearly not the right level. This quarter's 2.66 is probably not a sustainable level. But how would you give us some kind of enduring takeaway here on the state of affairs there?

Bryan Sayler: Well, I'll take the last piece first, and that is I think the enduring takeaway is that the long-term demand in all of these markets is really, really good. I think we've signaled a number of times that Navy in particular is going to be very lumpy. I think we mentioned in November's conference call that we had a large, you know, couple $100 million order in the UK. That came through. Unfortunately, the way that the MOD thinks about those things, we're not really in a position to be able to give you specifics on platforms or our content there. So I would not be able to give you a lot of detail there.

I'd say over on the US side, we also received in the quarter about $30 million in orders for Virginia class block six. And we would expect that to kind of be continuing. But again, that's going to come in big chunks, and so that's gonna be kind of lumpy. And it's not always gonna be in the same quarter every year. So the year-over-year quarter-to-quarter comparisons aren't really great. I think the other big story here is that we really did see a pretty robust return to orders from our aerospace OEMs.

You know, 2025 was kind of a year that was a little soft on the order side as you know, build rates were kind of stable, and there seemed to be a lot of management of inventory going on in the supply chain. But we think that they're kind of through that. We're really encouraged to see Boeing and the other OEMs kind of getting their bill rates up. And we're starting to see that come through on our order book. I'd also say there was a pretty good amount of military aircraft activity in the quarter as well. That's something that is more stable, will be lumpy through a, you know, four-quarter cycle.

But generally speaking, it will be pretty repetitive on a year-to-year basis with a little bit of growth.

Tommy Moll: Bryan, if I could stay on A&D for another question. Just looking at the results in the first quarter, and the guide for the year, I'm talking revenue now. It looks conservative at first glance. I mean, you raised it from a seven to an eight at the midpoint. But you started the year in the teens on a pretty tough comp. So maybe walk me back from that assumption if there's something I'm missing here.

Christopher L. Tucker: Yeah, Tommy, this is Chris. You know, I would say that we do expect that the first quarter is going to be the strongest growth, and we would expect to still see solid growth through the year, but kind of tapering down a little bit. And then when we get to Q4, we have, you know, kind of lower growth overall. Again, I think that's a function of the comps a little bit. So, you know, we still see a nice high single-digit outlook there in the core business, but you know, understanding it's a little bit front-end loaded.

Tommy Moll: Thank you both. I'll turn it back.

Operator: Thank you. One moment for the next question. And the next question will be coming from the line of Jonathan E. Tanwanteng of CJS. Your line is open.

Jonathan E. Tanwanteng: Hi. Thank you for taking my questions and a really great quarter and outlook, guys.

Bryan Sayler: Thanks, Jon.

Jonathan E. Tanwanteng: If you could start, what's driving the strength in test, and how did that change so quickly in the span of ninety days?

Bryan Sayler: Listen. A lot of our traditional core markets, particularly electromagnetic compatibility, you know, medical shielding, those really came back very, very strong this year. Or this quarter, I would say. We won a couple of pretty good-sized orders, and that's really, you know, because it happened earlier in the year, we're gonna see a lot of that come through as revenue within the year. I would also say that we're starting we've seen kind of a return to, you know, regular orders from our kind of our EMP filter product line that supports, you know, some of the data centers and that sort of thing. So, listen.

Just a pretty broad-based I would tell you that the one area that we're still not, you know, feeling love on is the wireless business. I mean, it's we did see a little bit of growth there, but it's coming off a very low base. So that's the one area where we're probably still looking for some recovery. But I would say overall, like, a little bit A&D in there, some microwave stuff, so really good and I would say Europe and the US were the two big leaders there.

Jonathan E. Tanwanteng: Got it. Thank you. And then are you within sight of the trough of the energy business, or do you think that's gonna extend a little further out?

Bryan Sayler: Yeah. Listen. I think that what we believe about that is that the focus for all of the developers in the US is really they're hyper-focused on kind of getting as much done on their existing projects by July. So that they can qualify as much of that as possible for those cash credits. And so, you know, a lot of our content's already been delivered on those projects. And so that's leading them to make lower investments right now on new projects. We expect that's gonna kind of revert in 2026. So it might be in our fourth quarter. It might be in the first quarter of next year.

That's when we think that things are gonna kind of return to what we would call normal growth. Which would be kind of high single digits, kind of like our regulated utility business operates. So please remember, Jon, that after the Inflation Reduction Act was put in place, you know, that whole market kind of got turbocharged for two or three years. And now they're kind of, you know, getting off that sugar high from all those tax incentives. And it's gonna take them, you know, a couple more months to kind of get back in the pocket. And really making good decisions. The renewables business, you know, will have a big role to play because it is very cost-effective.

Relatively easy to deploy, and the assets are available. And those are all characteristics that utilities are looking for.

Jonathan E. Tanwanteng: Got it. Thank you. Then last one, if I could. Just the large orders of the maritime business, can you just talk about how they'll layer in over the next couple of years and if that's an acceleration of the growth rate or if that's in line with what your expectations were?

Christopher L. Tucker: Yeah. I would say it's in line, you know, kind of since we've owned the company. You know, we closed the deal in April, and so these were kind of the expectations were that this order would come in. As far as how that layers in, I would say we would get a little revenue starting in the fourth quarter. And then you'll start to see it kind of kick in more in '27 and '28. So these are, you know, these are long-term contracts and programs. That really kind of help solidify the outlook for '27 and beyond, I would say. So that's kind of how we're thinking about them.

And really not much of a revenue impact this year, although there will be a little bit towards the end of the year.

Jonathan E. Tanwanteng: Got it. Thank you.

Operator: Thank you. One moment. We do have a follow-up question. And that question is coming from the line of Tommy Moll of Stephens. Your line is open.

Tommy Moll: Thanks for a follow-up question here. I had to ask on capital allocation. You'll look not too long for now and potentially have a net cash balance sheet. So I'm just curious what comments you can make on M&A funnel or capital allocation more broadly. Thank you.

Bryan Sayler: Yeah. Well, listen, I think with the sale of the tobacco business, and the completion of the maritime business, and that integration kind of going pretty well. Our cash flow really has been outstanding, and our leverage is pretty low. We are actively rebuilding a pipeline of M&A opportunities. The market looks pretty healthy. And we do see a number of different prospects on the horizon. Nothing we can announce, you know, at this point in time, but, you know, we do have a couple of good things that we could get something done this year. That's really our primary focus for deployment of capital, would be to continue to add good fit strategic acquisitions.

I think that we're going to continue to be a little bit picky focused primarily on our utility segment, our aircraft components segment, and our Navy segment, where we think we understand those markets pretty well, and they are all markets that have really good long-term secular growth characteristics. So that's kind of where our focus is right now.

Tommy Moll: Thank you, Bryan. That's all for me.

Operator: Thank you. And we have a follow-up question from the line of Jonathan E. Tanwanteng of CJS. Your line is open.

Jonathan E. Tanwanteng: Thanks for the follow-up. I was wondering if you could talk a little bit more about the military business in the A&D segment that is not Navy. You mentioned strength in military aircraft. Just wondering where that's coming from, number one. And if there's anything outside of that, maybe drones or munitions that's driving some strength there.

Bryan Sayler: Yeah. I think it's pretty broad-based. But a couple of highlights there. You know, you would have seen in the 2025 reconciliation bill that they put a lot of money out there. They've provided 21 of the 15 EX fighters. That's a platform that we have a lot of content on. You know, there's a lot going on with regard to the sixth-generation fighter platform, the F-47. And, you know, that's been a positive story for us. So, yeah, there's a lot of good things going on. But I would say, yeah, the traditional kind of F-35, missile programs, all those things are all kind of coming through for us.

Jonathan E. Tanwanteng: Got it. Thank you. And then just for the broader airplane business, the commercial side, how closely does your guidance, I guess, mirror the targeted production rates at the OEMs? Or are you still giving them a little cushion in your outlook?

Bryan Sayler: No. We stopped cushion. I think that, you know, yeah, I've we follow, you know, our OEM partners very, very closely. But I think that we have our own opinion which is probably modestly skeptical of their ability to get to reach their targets. And so when we are communicating, you know, to you, you know, I think you should assume there's a little bit of discount on there, which, yeah, listen. If they're successful, then that's gonna be all upside for us.

Jonathan E. Tanwanteng: Got it. Thank you, guys.

Bryan Sayler: Thanks, Jon.

Operator: Thank you. And this concludes today's Q&A session. I would like to turn the call back over to Bryan for closing remarks. Please go ahead.

Bryan Sayler: Well, listen, thanks for taking a little bit of time to hear about our first quarter. We're pretty excited about the results and probably more excited about our growth prospects going forward. So we'll look forward to talking to you again next quarter.

Operator: Thank you for joining today's program. You may all disconnect.