UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2025
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10596
ESCO TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
MISSOURI
43-1554045
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
645 MARYVILLE CENTRE DRIVE, SUITE 300
ST. LOUIS, MISSOURI
63141-5855
(Address of principal executive offices)
(Zip Code)
(314) 213-7200
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
ESE
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Shares outstanding at January 31, 2026
Common stock, $.01 par value per share
25,895,762
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
December 31,
2025
2024
Net sales
$
289,659
214,593
Costs and expenses:
Cost of sales
169,740
124,214
Selling, general and administrative expenses
61,207
54,969
Amortization of intangible assets
20,324
7,993
Interest expense, net
2,880
2,257
Other expenses (income), net
30
(637)
Total costs and expenses
254,181
188,796
Earnings before income taxes
35,478
25,797
Income tax expense
6,787
5,490
Net earnings from continuing operations
28,691
20,307
Earnings from discontinued operations, net of tax expense of $978
—
3,166
Net earnings
23,473
Earnings per share:
Basic – Continuing operations
1.11
0.79
– Discontinued operations
0.12
– Net earnings
0.91
Diluted – Continuing operations
See accompanying notes to condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
639
(18,028)
Total other comprehensive income (loss), net of tax
Comprehensive income
29,330
5,445
3
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
ASSETS
Current assets:
Cash and cash equivalents
103,824
101,350
Accounts receivable, net of allowance for credit losses of $3,514 and $3,205, respectively
245,328
253,554
Contract assets, net
88,662
90,730
Inventories
227,153
217,807
Other current assets
24,686
25,065
Total current assets
689,653
688,506
Property, plant and equipment, net of accumulated depreciation of $192,611 and $186,796, respectively
171,810
172,493
Intangible assets, net of accumulated amortization of $307,289 and $286,965 respectively
706,383
723,973
Goodwill
767,375
761,931
Operating lease assets
46,592
47,707
Other assets
17,186
15,778
Total assets
2,398,999
2,410,388
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and short-term borrowings
20,511
20,000
Accounts payable
92,291
96,534
Contract liabilities, net
252,360
216,590
Accrued salaries
31,929
53,301
Income tax payable – current
60,478
62,007
Accrued other expenses
60,824
59,716
Total current liabilities
518,393
508,148
Deferred tax liabilities
115,776
112,390
Non-current operating lease liabilities
43,466
44,403
Other liabilities
35,500
38,576
Long-term debt
125,000
166,000
Total liabilities
838,135
869,517
Shareholders’ equity:
Preferred stock, par value $.01 per share, authorized 10,000,000 shares
Common stock, par value $.01 per share, authorized 50,000,000 shares, issued 30,952,504 and 30,886,024 shares, respectively
309
Additional paid-in capital
308,929
316,194
Retained earnings
1,400,530
1,373,911
Accumulated other comprehensive loss, net of tax
(1,829)
(2,468)
1,707,939
1,687,946
Less treasury stock, at cost: 5,056,771 and 5,056,771 common shares, respectively
(147,075)
Total shareholders’ equity
1,560,864
1,540,871
Total liabilities and shareholders’ equity
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net earnings from discontinued operations, net of tax
(3,166)
Depreciation and amortization
26,493
12,971
Stock compensation expense
3,233
2,524
Changes in assets and liabilities
7,056
(8,171)
Effect of deferred taxes
3,388
1,521
Net cash provided by operating activities – continuing operations
68,861
29,152
Net cash provided by operating activities – discontinued operations
5,022
Net cash provided by operating activities
34,174
Cash flows from investing activities:
Acquisition of business, net of cash acquired
(5,134)
Additions to capitalized software
(2,196)
(2,587)
Capital expenditures
(5,902)
(5,124)
Net cash used by investing activities – continuing operations
(13,232)
(7,711)
Net cash used by investing activities – discontinued operations
(84)
Net cash used by investing activities
(7,795)
Cash flows from financing activities:
Proceeds from long-term debt and short-term borrowings
52,511
42,000
Principal payments on long-term debt and short-term borrowings
(93,000)
(52,000)
Dividends paid
(2,072)
(2,064)
Other
(10,609)
(6,031)
Net cash used by financing activities
(53,170)
(18,095)
Effect of exchange rate changes on cash and cash equivalents
15
(2,963)
Net increase in cash and cash equivalents
2,474
5,321
Cash and cash equivalents, beginning of period
65,963
Cash and cash equivalents, end of period
71,284
Supplemental cash flow information:
Interest paid
2,689
2,567
Income taxes paid
127
222
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. The consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all the disclosures required for annual financial statements by accounting principles generally accepted in the United States of America (GAAP). For further information refer to the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
The Company’s results for the three-month period ended December 31, 2025 are not necessarily indicative of the results for the entire 2026 fiscal year. References to the first quarters of 2026 and 2025 represent the fiscal quarters ended December 31, 2025 and 2024, respectively. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates.
2. EARNINGS PER SHARE (EPS)
Basic EPS is calculated using the weighted average number of common shares outstanding during the period. Diluted EPS is calculated using the weighted average number of common shares outstanding during the period plus shares issuable upon the assumed dilutive vesting of unvested performance-based share awards and time-vested restricted shares by using the treasury stock method. The number of shares used in the calculation of earnings per share for each period presented is as follows (in thousands):
Three Months
Ended December 31,
Weighted Average Shares Outstanding — Basic
25,855
25,781
Dilutive Shares
27
53
Adjusted Shares — Diluted
25,882
25,834
3. SHARE-BASED COMPENSATION
The Company provides compensation benefits to certain key employees under several share-based plans providing for a combination of performance-based share unit (PSU) awards and time-vested restricted share unit (RSU) awards, and to non-employee directors under a separate compensation plan.
PSU and RSU Awards
Compensation expense related to these awards was $2.9 million and $2.2 million for the three-month periods ended December 31, 2025 and 2024, respectively. There were 173,478 non-vested shares outstanding as of December 31, 2025.
Non-Employee Directors Plan
Compensation expense related to the non-employee director grants was $0.3 million and $0.3 million for the three-month periods ended December 31, 2025 and 2024, respectively.
The total share-based compensation cost that has been recognized in the results of operations and included within selling, general and administrative expenses (SG&A) was $3.2 million and $2.5 million for the three-month periods ended December 31, 2025 and 2024, respectively. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $0.7 million and $0.8 million for the three-month periods ended December 31, 2025 and 2024, respectively. As of December 31, 2025 there was approximately $22 million of total unrecognized compensation cost related to share-based compensation arrangements. That cost is expected to be recognized over a remaining weighted-average period of 2.0 years.
6
4. INVENTORIES
Inventories consist of the following:
(In thousands)
Finished goods
51,803
52,644
Work in process
55,085
46,825
Raw materials
120,265
118,338
Total inventories
5.
GOODWILL AND OTHER INTANGIBLE ASSETS
Included on the Company’s Consolidated Balance Sheets at December 31, 2025 and September 30, 2025 are the following intangible assets gross carrying amounts and accumulated amortization from continuing operations:
Intangible assets with determinable lives:
Patents
Gross carrying amount
7,611
7,607
Less: accumulated amortization
1,902
1,775
Net
5,709
5,832
Capitalized software
140,746
138,144
103,462
100,818
37,284
37,326
Customer relationships
625,477
625,535
169,244
159,543
456,233
465,992
76,914
76,991
32,681
24,829
44,233
52,162
Intangible assets with indefinite lives:
Trade names
162,924
162,661
The changes in the carrying amount of goodwill attributable to each business segment for the three months ended December 31, 2025 are as follows:
(Dollars in millions)
A&D
Test
USG
Total
Balance as of September 30, 2025
334.0
67.8
360.1
761.9
Acquisition activity and other
5.1
Foreign currency translation
0.4
Balance as of December 31, 2025
339.1
360.5
767.4
During the first quarter of fiscal 2026, the Company paid approximately $5 million for the final working capital settlement in connection with the Maritime acquisition.
7
6. BUSINESS SEGMENT INFORMATION
We adopted the provisions of ASU 2023-07 Segment Reporting for the year ended September 30, 2025. We are organized based on the products and services we offer, and we classify our business operations in three reportable segments for financial reporting purposes: Aerospace & Defense (A&D), Utility Solutions Group (USG) and RF Test & Measurement (Test). Corporate is not a reportable segment, but it is included for reconciliation purposes.
The A&D segment’s operations consist of PTI, Crissair, Globe, Mayday, and Maritime. Previously, A&D also included VACCO Industries which is now being reported in discontinued operations. The companies within this segment primarily design and manufacture specialty filtration, fluid control and naval products, including hydraulic filter elements and fluid control devices used in aerospace and defense applications; custom designed filters for manned aircraft and submarines; products and systems to reduce vibration and/or acoustic signatures and otherwise reduce or obscure a vessel’s signature, power management and control equipment; sealing, surface control and hydrodynamic related applications to enhance U.S. and UK Navy maritime survivability; precision-tolerance machined components for the aerospace and defense industry; metal processing services; and miniature electro-explosive devices utilized in mission-critical defense and aerospace applications.
The USG segment’s operations consist of Doble Engineering Company and related subsidiaries including Morgan Schaffer and Altanova/ISA (collectively, Doble), and NRG. Doble is an industry leader in the development, manufacture and delivery of diagnostic testing and data management solutions that enable electric power grid operators to assess the integrity of high-voltage power delivery equipment, and Altanova/ISA’s strong market presence in Europe and Asia provides Doble with a significant international platform. Doble combines three core elements for customers – diagnostic test and condition monitoring instruments, expert consulting, and testing services – and provides access to its large reserve of related empirical knowledge. NRG is a global market leader in the design and manufacture of decision support tools for the renewable energy industry, primarily wind and solar.
The Test segment’s operations consist of ETS-Lindgren Inc., including its related subsidiaries, and MPE Limited (collectively, ETS - Lindgren). ETS-Lindgren is an industry leader in designing and manufacturing products and systems to measure and control RF energy. It serves the medical, health and safety, electronics, wireless communications, automotive and defense markets, supplying a broad range of turnkey systems, including RF test facilities and measurement systems, RF and magnetically shielded rooms and secure communication facilities, and providing the design, program management, installation and integration services required to successfully complete these types of facilities. It also supplies a broad range of components including RF absorptive materials, filters, antennas, field probes, test cells, proprietary measurement software and other test accessories required to perform a variety of tests and measurements, and offers a variety of services including calibration and product tests.
Accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1 to the Consolidated Financial Statements in the Company’s Form 10-K for the year ended September 30, 2025. The operating units within each reporting segment have been aggregated because of similar economic characteristics and meet the other aggregation criteria of FASB ASC 280, Segment Reporting.
Measurement of Segment Results
Our CODM, who is our Chief Executive Officer, evaluates each segment’s performance and allocates resources based on segment EBIT, which is defined as earnings before interest and taxes. EBIT on a consolidated basis is a non-GAAP financial measure and is reconciled to consolidated earnings before income taxes below for continuing operations. Intersegment sales and transfers are not significant. Segment assets consist primarily of customer receivables, inventories, capitalized software and fixed assets directly associated with the production processes of the segment. Segment depreciation and amortization is based upon the direct assets listed above. Corporate assets consist primarily of acquired intangible assets including goodwill, deferred taxes and cash balances. The tables below are presented on the basis of continuing operations and exclude discontinued operations.
8
Quarter Ended December 31, 2025
Segment
Corporate
Sales
143,829
87,484
58,346
90,071
39,930
39,739
SG&A expense
15,533
26,043
9,652
51,228
9,979
155
2,043
514
2,712
17,612
Other expense (income), net
83
(61)
399
421
(391)
Segment profit (loss)
37,987
19,529
8,042
65,558
(27,200)
38,358
Interest expense
3,282
4,080
1,456
8,818
17,675
Segment assets
368,902
278,132
197,594
844,628
1,554,371
3,912
1,570
373
5,855
47
5,902
Quarter Ended December 31, 2024
81,868
86,660
46,065
53,513
39,338
31,363
10,868
25,916
9,050
45,834
9,135
213
2,072
622
2,907
5,086
(178)
(1,155)
608
(725)
88
17,452
20,489
4,422
42,363
(14,309)
28,054
2,650
3,888
1,375
7,913
5,058
267,549
280,071
163,352
710,972
959,720
1,670,692
2,464
1,990
670
5,124
Non-GAAP Financial Measures
The financial measure “EBIT” is presented in the above tables and elsewhere in this Report. EBIT on a consolidated basis is a non-GAAP financial measure. Management believes that EBIT is useful in assessing the operational profitability of the Company’s business segments because it excludes interest and taxes, which are generally accounted for across the entire Company on a consolidated basis. EBIT is also one of the measures used by management in determining resource allocations within the Company as well as incentive compensation. A reconciliation of EBIT to net earnings is set forth in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations – EBIT.
The Company believes that the presentation of EBIT provides important supplemental information to investors to facilitate comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. However, the Company’s non-GAAP financial measures may not be comparable to other companies’ non-GAAP financial performance measures. Furthermore, the use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP.
7. DEBT
The Company’s debt is summarized as follows:
Revolving credit facility and short-term borrowings
25,000
Incremental facility (Term loan A)
161,000
Total borrowings
145,511
186,000
Current portion of long-term debt and short-term borrowings
(20,511)
(20,000)
Total long-term debt, less current portion
9
The Credit Facility includes a $500 million revolving line of credit as well as provisions allowing for the increase of the credit facility commitment amount by an additional $250 million, if necessary, with the consent of the lenders. The bank syndication supporting the facility is comprised of a diverse group of seven banks led by JP Morgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as syndication agent, and Commerce Bank and TD Bank, N.A. as co-documentation agents. The Credit Facility matures August 30, 2028, with balance due by this date.
On August 5, 2024, the Company and certain of its subsidiaries entered into Amendment No. 1 (the “Amendment”) to the Credit Facility which, among other things, (i) implements a senior incremental delayed draw term loan credit facility in an aggregate principal amount of up to $375 million (the “Incremental Facility”), and (ii) permits the direct or indirect acquisition by the Registrant or certain of its subsidiaries of all the issued and outstanding shares of PMES I Limited, Measurement Systems, Inc., EMS Development Corporation, and DNE Technologies, Inc. (the “Maritime Acquisition”), pursuant to and in accordance with the terms and conditions of that certain Sale and Purchase Agreement, dated July 8, 2024, among Ultra Electronics Holdings Limited, as parent seller, the Registrant, as guarantor, and certain of the Registrant’s subsidiaries as buyers. During the third quarter of 2025, the proceeds of the loans drawn under the Incremental Facility were applied to pay a portion of the cash consideration for the Maritime Acquisition and other customary fees, premiums, expenses and costs incurred in connection with the acquisition.
At December 31, 2025, the Company had approximately $469 million available to borrow under the Credit Facility, excluding the Incremental Facility, plus the $250 million increase option subject to the lenders’ consent, in addition to $103.8 million cash on hand. The Company classified $20 million as the current portion of long-term debt as of December 31, 2025, as the Company intends to repay this amount within the next twelve months; however, the Company has no contractual obligation to repay such amount during the next twelve months. In addition, the Company had $0.5 million of short-term borrowings at its foreign locations outstanding as of December 31, 2025. The letters of credit issued and outstanding under the Credit Facility totaled $10.7 million at December 31, 2025.
Interest on borrowings under the Credit Facility is calculated at a spread over either an Adjusted Term SOFR Rate, Adjusted EURIBOR Rate, Adjusted CDOR Rate, Alternate Base Rate or Daily Simple RFR, at the Company’s election. The Credit Facility also requires a facility fee ranging from 12.5 to 25 basis points per annum. The interest rate spreads and the facility fee are subject to increase or decrease depending on the Company’s leverage ratio. The weighted average interest rates under the Credit Facility were 5.7% and 6.1% for the three-month periods ending December 31, 2025 and 2024, respectively. The weighted average interest rate under the Incremental Facility was 5.6% for the three-month period ending December 31, 2025. As of December 31, 2025, the Company was in compliance with all covenants.
8. INCOME TAX EXPENSE
The first quarter 2026 effective income tax rate from continuing operations was 19.1% compared to 21.3% in the first quarter of 2025. Income tax expense in the first quarter of 2026 was favorably impacted by additional tax benefits related to the vesting of share-based compensation awards.
10
9. SHAREHOLDERS’ EQUITY
The change in shareholders’ equity for the first three months ended December 31, 2025 and 2024 is shown below (in thousands):
Three Months Ended December 31,
Common stock
Beginning balance
308
Stock plans
1
Ending balance
Additional paid-in-capital
311,942
(7,265)
(3,799)
308,143
1,082,950
Net earnings common stockholders
1,104,359
Accumulated other comprehensive income (loss)
(10,775)
(28,803)
Treasury stock
Share repurchases
Total equity
1,236,933
10. FAIR VALUE MEASUREMENTS
The accounting guidance establishes a three-level hierarchy for disclosure of fair value measurements, based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, as follows:
Financial Assets and Liabilities
The Company has estimated the fair value of its financial instruments as of December 31, 2025 and September 30, 2025 using available market information or other appropriate valuation methodologies. The carrying amounts of cash and cash equivalents, receivables, inventories, payables, and other current assets and liabilities approximate fair value because of the short maturity of those instruments.
11
Fair Value of Financial Instruments
The Company’s forward contracts and interest rate swaps are classified within Level 2 of the valuation hierarchy in accordance with FASB Accounting Standards Codification (ASC) 825 and are immaterial.
Nonfinancial Assets and Liabilities
The Company’s nonfinancial assets such as property, plant and equipment, and other intangible assets are not measured at fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence that an impairment may exist. No impairments were recorded during the three-month period ended December 31, 2025.
11. REVENUES
Disaggregation of Revenues
Revenues by customer type, geographic location, and revenue recognition method for the three-month period ended December 31, 2025 are presented in the table below as the Company deems it best depicts how the nature, amount, timing and uncertainty of net sales and cash flows are affected by economic factors. The table below also includes a reconciliation of the disaggregated revenue within each reportable segment.
Customer type:
Commercial
45,796
85,739
46,317
177,852
Government
98,033
1,745
12,029
111,807
Total revenues
Geographic location:
United States
92,786
60,724
36,482
189,992
International
51,043
26,760
21,864
99,667
Revenue recognition method:
Point in time
66,534
68,289
9,217
144,040
Over time
77,295
19,195
49,129
145,619
Revenues by customer type, geographic location, and revenue recognition method for the three-month period ended December 31, 2024 are presented in the table below:
45,755
84,279
36,349
166,383
36,113
2,381
9,716
48,210
65,314
59,917
28,630
153,861
16,554
26,743
17,435
60,732
46,995
69,278
9,791
126,064
34,873
17,382
36,274
88,529
12
Revenue Recognition
Payment terms with our customers vary by the type and location of the customer and the products or services offered. Arrangements with customers that include payment terms extending beyond one year are not significant. The transaction price for these contracts reflects our estimate of returns and discounts, which are based on historical, current and forecasted information to determine the expected amount to which we will be entitled in exchange for transferring the promised goods or services to the customer. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant. We primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from one to two years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation. Under the typical payment terms of our long term fixed price contracts, the customer pays us either performance-based or progress payments. Performance-based payments represent interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments of costs incurred as the work progresses.
For our overtime revenue recognized using the output method of costs incurred, contract cost is estimated utilizing current contract specifications and expected engineering requirements. Contract costs typically are incurred over a period of several months to one or more years, and the estimation of these costs requires judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our projections of costs quarterly or more frequently when circumstances significantly change. In addition, in the USG segment, we recognize revenue as a series of distinct services based on each day of providing services (straight-line over the contract term) for certain of our USG segment contracts. Under the typical payment terms of our service contracts, the customer pays us in advance of when services are performed. In addition, in the Test segment, we use milestones to measure progress for our Test segment contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts.
Remaining Performance Obligations
Remaining performance obligations, which is the equivalent of backlog, represent the expected transaction price allocated to performance obligations that the Company expects to recognize as revenue in future periods when the Company performs under the contracts. These remaining obligations include amounts that have been formally appropriated under contracts with the U.S. Government, and exclude unexercised contract options and potential orders under ordering-type contracts such as Indefinite Delivery, Indefinite Quantity contracts. At December 31, 2025, the Company had $1,401.1 million in remaining performance obligations of which the Company expects to recognize revenues of approximately 58% in the next twelve months.
Contract assets, contract liabilities and accounts receivable
Assets and liabilities related to contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At December 31, 2025, contract assets, contract liabilities and accounts receivable totaled $88.7 million, $259.5 million and $245.3 million, respectively. During the first quarter of 2026, the Company recognized approximately $37.7 million in revenues that were included in the contract liabilities balance at September 30, 2025. At September 30, 2025, contract assets, contract liabilities and accounts receivable totaled $90.7 million, $224.7 million and $253.6 million, respectively.
12. LEASES
The Company determines at lease inception whether an arrangement that provides control over the use of an asset is a lease. The Company recognizes at lease commencement a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term. The Company has elected not to recognize a ROU asset and lease liability for leases with terms of 12 months or less. Certain of the Company’s leases include options to extend the term of the lease for up to 20 years. When it is reasonably certain that the Company will exercise the option, Management includes the impact of the option in the lease term for purposes of determining total future lease payments. As most of the Company’s lease agreements do not explicitly state the discount rate implicit in the lease, Management uses the Company’s incremental borrowing rate on the commencement date to calculate the present value of future payments based on the tenor of each arrangement.
The Company’s leases for real estate commonly include escalating payments. These variable lease payments are included in the calculation of the ROU asset and lease liability. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease pre-payments and initial direct costs of obtaining the lease.
13
In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. Non-lease components are excluded from ROU assets and lease liabilities and expensed as incurred.
The Company’s leases are for office space, manufacturing facilities, and machinery and equipment.
The components of lease costs are shown below:
Finance lease cost
Amortization of right-of-use assets
372
Interest on lease liabilities
192
206
Operating lease cost
2,229
1,714
Total lease costs
2,793
2,292
Additional information related to leases are shown below:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
1,996
1,665
Operating cash flows from finance leases
Financing cash flows from finance leases
382
351
Right-of-use assets obtained in exchange for lease liabilities
Operating leases
465
1,776
Weighted-average remaining lease term
9.1
years
8.5
Finance leases
9.5
10.2
Weighted-average discount rate
4.7
%
4.4
The following is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and the related ROU assets, presented on the Consolidated Balance Sheet on December 31, 2025:
Operating
Finance
Years Ending September 30:
Leases
2026(excluding the three months ended December 31, 2025)
6,056
1,723
2027
7,824
2,357
2028
7,696
2,417
2029
6,234
2,478
2030 and thereafter
33,708
11,575
Total minimum lease payments
61,518
20,550
Less: amounts representing interest
12,098
4,379
Present value of net minimum lease payments
49,420
16,171
Less: current portion of lease obligations
5,954
1,584
Non-current portion of lease obligations
14,587
ROU assets
11,822
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Operating lease liabilities are included on the Consolidated Balance Sheet in accrued other expenses (current portion) and as a caption on the Consolidated Balance Sheet (long-term portion). Finance lease liabilities are included on the Consolidated Balance Sheet in accrued other expenses (current portion) and other liabilities (long-term portion). Operating lease ROU assets are included as a caption on the Consolidated Balance Sheet and finance lease ROU assets are included in Property, plant and equipment on the Consolidated Balance sheet.
13. RECENT ACCOUNTING PRONOUNCEMENTS
In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses,” which requires disaggregated disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. This ASU will be effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Other than additional disclosure, we do not expect a change to our consolidated statements of operations, financial position, or cash flows.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures. This ASU will be effective for fiscal years beginning after December 15, 2024. Other than additional disclosure, we do not expect a change to our consolidated statements of operations, financial position, or cash flows.
14. RELATED PARTIES
Two of the Company’s directors are officers at two customers of the Company’s Doble subsidiary. Doble sells products, leases equipment and provides testing services in the ordinary course of Doble’s business. The total amount of these sales was approximately $1.3 million during the first quarter of fiscal 2026. All transactions between Doble and the two customers are intended to be and have been consistent with Doble’s normal commercial terms offered to its customers, and the Company’s Board of Directors has determined that the relationships between the Company and the customers are not material and did not impair the Company’s or the directors’ independence.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
References to the first quarters of 2026 and 2025 represent the three-month periods ended December 31, 2025 and 2024, respectively.
OVERVIEW
Sales, net earnings and diluted earnings per share from continuing operations were $289.7 million, $28.7 million and $1.11 per share, respectively, in the first quarter of 2026 compared to $214.6 million, $20.3 million and $0.79 per share, respectively, in the first quarter of 2025.
NET SALES
Net sales increased $75.1 million, or 35.0%, to $289.7 million in the first quarter of 2026 from $214.6 million in the first quarter of 2025. The increase in net sales in the first quarter of 2026 as compared to the first quarter of 2025 was due to a $61.9 million increase in the A&D segment, a $12.2 million increase in the Test segment, and a $0.8 million increase in the USG segment.
-A&D
Net sales of $143.8 million in the first quarter of 2026 were $61.9 million, or 75.6%, higher than the $81.9 million in the first quarter of 2025. The sales increase in the first quarter of 2026 compared to the first quarter of 2025 was primarily due to a $44.2 million increase in navy revenues and a $15.8 million increase in aerospace revenues (defense and commercial). Maritime contributed $50.6 million of revenue growth in the first quarter of 2026.
-USG
Net sales of $87.5 million in the first quarter of 2026 were $0.8 million, or 0.9% higher than the $86.7 million in the first quarter of 2025. The increase in the first quarter of 2026 compared to the first quarter of 2025 was mainly due to a $4.1 million increase in net sales at Doble driven by higher sales of condition monitoring and offline products, partially offset by a $3.3 million decrease in net sales at NRG driven by lower shipments of solar and wind products due to renewables market weakness.
-Test
Net sales of $58.3 million in the first quarter of 2026 were $12.2 million, or 26.5%, higher than the $46.1 million in the first quarter of 2025. The increase in the first quarter of 2026 compared to the first quarter of 2025 was primarily due to $13.0 million of higher sales from the segment’s U.S. and European operations mainly driven by higher test and measurement and filters volumes partially offset by a $0.8 million decrease from the segment’s Asian operations.
ORDERS AND BACKLOG
Backlog was $1,401.1 million at December 31, 2025 compared with $1,133.6 million at September 30, 2025. The Company received new orders totaling $557.2 million in the first quarter of 2026 compared to $229.2 million from continuing operations in the first quarter of 2025. Of the new orders received in the first quarter of 2026, $382.3 million related to A&D products, $98.8 million related to USG products, and $76.1 million related to Test products. Of the new orders received in the first quarter of 2025, $74.8 million related to A&D products, $89.6 million related to USG products, and $64.8 million related to Test products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses from continuing operations were $61.2 million (21.1% of net sales) for the first quarter of 2026, compared with $55.0 million (25.6% of net sales) for the first quarter of 2025. The increase in SG&A in the first quarter of 2026 compared to the first quarter of 2025 was mainly due to an increase within the A&D segment primarily due to the Maritime acquisition. SG&A as a percentage of net sales decreased in the first quarter of 2026 compared to the first quarter of 2025 within all three business segments.
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AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets was $20.3 million and $8.0 million for the first quarter of 2026 and 2025, respectively. Amortization expenses consist of amortization of acquired intangible assets from acquisitions and other identifiable intangible assets (primarily software). The increase in amortization expense in the first quarter of 2026 compared to the first quarter of 2025 was mainly due to an increase in amortization of intangible assets related to the Maritime acquisition.
OTHER (INCOME) EXPENSES, NET
Other expenses, net, was $0.1 million in the first quarter of 2026 compared to other (income), net, of ($0.6) million in the first quarter of 2025. There were no individually significant items in other expenses (income), net, in the first quarter of 2026 or 2025.
EBIT
The Company evaluates the performance of its operating segments based on EBIT, and provides EBIT on a consolidated basis, which is a non-GAAP financial measure. Please refer to the discussion of non-GAAP financial measures in Note 6 to the Consolidated Financial Statements, above. EBIT from continuing operations was $38.4 million (13.2% of net sales) for the first quarter of 2026 compared to $28.1 million (13.1% of net sales) for the first quarter of 2025.
The following table presents a reconciliation of EBIT from continuing operations to a GAAP financial measure:
Plus: Interest expense, net
Plus: Income tax expense
Consolidated EBIT
EBIT was $38.0 million (26.4% of net sales) in the first quarter of 2026 compared to $17.5 million (21.3% of net sales) in the first quarter of 2025. The increase in EBIT in the first quarter of 2026 compared to the first quarter of 2025 was mainly due to higher sales volumes as mentioned above, favorable mix and price increases, partially offset by inflationary pressures. In addition, EBIT in the first quarter of 2026 was negatively impacted by $0.1 million of restructuring charges.
EBIT was $19.5 million (22.3% of net sales) in the first quarter of 2026 compared to $20.5 million (23.6% of net sales) in the first quarter of 2025. The decrease in EBIT in the first quarter of 2026 compared to the first quarter of 2025 was mainly due to the lower sales volumes at NRG, unfavorable product mix and inflationary pressures partially offset by an increase in EBIT at Doble due to higher sales volumes.
EBIT was $8.0 million (13.8% of net sales) in the first quarter of 2026 compared to $4.4 million (9.6% of net sales) in the first quarter of 2025. The increase in EBIT in the first quarter of 2026 compared to the first quarter of 2025 was primarily driven by the higher sales volumes from the segment’s U.S. and European operations and price increases, partially offset by inflationary pressures and unfavorable mix.
–Corporate
Corporate costs included in EBIT were $27.2 million and $14.3 million in the first quarter of 2026 and 2025, respectively. The increase in Corporate costs in the first quarter of 2026 compared to the first quarter of 2025 was mainly due to increases in acquisition related amortization and share based compensation costs.
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INTEREST EXPENSE, NET
Interest expense was $2.9 million and $2.3 million in the first quarter of 2026 and 2025, respectively. The increase in interest expense in the first quarter of 2026 as compared to the first quarter of 2025 was mainly due to higher average outstanding borrowings ($171 million in the first quarter of 2026 compared to $122 million in the first quarter of 2025).
INCOME TAX EXPENSE
The effective income tax rate from continuing operations was 19.1% in the first quarter of 2026 compared to 21.3% in the first quarter of 2025. Income tax expense in the first quarter of 2026 was favorably impacted by additional tax benefits related to the vesting of share-based compensation awards.
CAPITAL RESOURCES AND LIQUIDITY
The Company’s overall financial position and liquidity remain strong. Working capital (current assets less current liabilities) decreased to $171.3 million at December 31, 2025 from $180.4 million at September 30, 2025. Accounts receivable decreased $8.2 million during this period mainly due to a $4.7 million decrease within the Test segment and a $4.6 million decrease within the USG segment due to strong cash collections during the quarter. Inventories increased $9.3 million during this period mainly due to a $5.0 million increase within the USG segment, a $3.4 million increase within the Test segment and a $0.9 million increase within the A&D segment primarily from an increase in work in process inventories due to timing of manufacturing existing orders. Contract liabilities increased $35.8 million primarily within the A&D segment due to timing of payments received under long-term contracts.
Net cash provided by operating activities from continuing operations was $68.9 million and $29.2 million in the first quarters of 2026 and 2025, respectively. The increase in net cash provided by operating activities in the first quarter of 2026 as compared to the first quarter of 2025 was mainly driven by an increase in net earnings and an increase in contract liabilities.
Capital expenditures from continuing operations were $5.9 million and $5.1 million in the first quarters of 2026 and 2025, respectively. The increase in the first quarter of 2026 was mainly due to an increase in building improvements and machinery & equipment within the A&D segment. In addition, the Company incurred expenditures for capitalized software of approximately $2.2 million and $2.6 million in the first quarters of 2026 and 2025, respectively.
Acquisition
During the first quarter fiscal 2026, the Company paid approximately $5 million for the final working capital settlement in connection with the Maritime acquisition.
Credit Facility
At December 31, 2025, the Company had approximately $469 million available to borrow under its bank credit facility, excluding the Incremental Facility, plus a $250 million increase option, and $103.8 million cash on hand. At December 31, 2025, the Company had $145.5 million of outstanding borrowings under the Credit facility, Incremental facility and short-term borrowings at its foreign locations, in addition to outstanding letters of credit of $10.7 million. Cash flow from operations and borrowings under the Company’s credit facility are expected to meet the Company’s capital requirements and operational needs for the foreseeable future. The Company’s ability to access the additional $250 million increase option of the credit facility is subject to acceptance by participating or other outside banks.
Dividends
A dividend of $0.08 per share, totaling $2.1 million, was paid on October 16, 2025 to stockholders of record as of October 2, 2025. Subsequent to December 31, 2025, a quarterly dividend of $0.08 per share, totaling $2.1 million, was paid on January 16, 2026 to stockholders of record as of January 2, 2026.
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CRITICAL ACCOUNTING POLICIES
Management has evaluated the accounting policies used in the preparation of the Company’s financial statements and related notes and believes those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by Management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving Management judgments and estimates may be found in the Critical Accounting Policies section of Management’s Discussion and Analysis and in Note 1 to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
OTHER MATTERS
Contingencies
As a normal incident of the business in which the Company is engaged, various claims, charges and litigation are asserted or commenced against the Company. Additionally, the Company is currently involved in various stages of investigation and remediation relating to environmental matters. In the opinion of Management, the aggregate costs involved in the resolution of these matters, and final judgments, if any, which might be rendered against the Company, are adequately reserved, are covered by insurance, or would not have a material adverse effect on the Company’s results from operations, capital expenditures, or competitive position.
FORWARD LOOKING STATEMENTS
Statements contained in this Form 10-Q regarding future events and the Company’s future results that reflect or are based on current expectations, estimates, forecasts, projections or assumptions about the Company’s performance and the industries in which the Company operates are considered “forward-looking statements” within the meaning of the safe harbor provisions of the Federal securities laws. These may include, but are not necessarily limited to, statements about: the strength of certain end markets served by the Company, and the timing of the recovery of certain end markets which the Company serves; the adequacy of the Company’s credit facility and the Company’s ability to increase it; the outcome of current litigation, claims and charges; timing of the repayment of the current portion of the Company’s long-term debt; future revenues from remaining performance obligations; fair values of reporting units; the deductibility of goodwill; estimates and assumptions that affect the reported amounts of assets and liabilities; the recognition of compensation cost related to share-based compensation arrangements; the Company’s ability to hedge against or otherwise manage market risks through the use of derivative financial instruments; the extent to which hedging gains or losses will be offset by losses or gains on related underlying exposures; and any other statements contained herein which are not strictly historical. Words such as expects, anticipates, targets, goals, projects, intends, plans, believes, estimates, variations of such words, and similar expressions are intended to identify such forward-looking statements.
Investors are cautioned that such statements are only predictions and speak only as of the date of this Form 10-Q, and the Company undertakes no duty to update them except as may be required by applicable laws or regulations. The Company’s actual results in the future 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 those described in Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025, and the following: the impacts of climate change and related regulation of greenhouse gases; the impacts of labor disputes, civil disorder, wars, elections, political changes, tariffs and trade disputes, terrorist activities, cyberattacks or natural disasters on the Company’s operations and those of the Company’s customers and suppliers; disruptions in manufacturing or delivery arrangements due to shortages or unavailability of materials or components; or supply chain disruptions; inability to access work sites; the timing and content of future contract awards or customer orders; the timely appropriation, allocation and availability of Government funds; the termination for convenience of Government and other customer contracts or orders; weakening of economic conditions in served markets; the success of the Company’s competitors; changes in customer demands or customer insolvencies; competition; intellectual property rights; technical difficulties or data breaches; the availability of selected acquisitions; delivery delays or defaults by customers; performance issues with key customers, suppliers and subcontractors; material changes in the costs and availability of certain raw materials; material changes in the cost of credit; changes in laws and regulations including but not limited to changes in accounting standards and taxation; changes in interest rates; costs relating to environmental matters arising from current or former facilities; uncertainty regarding the ultimate resolution of current disputes, claims, litigation or arbitration; and the integration and performance of recently acquired businesses.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company’s operations result primarily from changes in interest rates and changes in foreign currency exchange rates. The Company is exposed to market risk related to changes in interest rates and selectively uses derivative financial instruments, including forward contracts and swaps, to manage these risks. The Company’s Canadian subsidiary Morgan Schaffer enters into foreign exchange contracts to manage foreign currency risk as a portion of their revenue is denominated in U.S. dollars. All derivative instruments are reported on the balance sheet at fair value. For derivative instruments designated as cash flow hedges, the gain or loss on the respective derivative is deferred in accumulated other comprehensive income until recognized in earnings with the underlying hedged item. There has been no material change to the Company’s market risks since September 30, 2025.
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the participation of Management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of that date. During 2025, the Company acquired the Signature Management and Power business (Maritime). The Company is currently in the process of integrating Maritime into its assessment of its internal control over financial reporting. In accordance with the SEC’s published guidance, Management’s assessment, and conclusions on the effectiveness of our disclosure controls and procedures as of December 31, 2025, excludes an assessment of the internal control over financial reporting of Maritime. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Other than as described above with respect to Maritime, there has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company did not repurchase any shares during the first quarter of 2026.
ITEM 5. OTHER INFORMATION
During the first quarter of fiscal 2026, no director or officer (as defined in Securities and Exchange Commission Rule 16a-1(f)) of the Company adopted or terminated:
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ITEM 6. EXHIBITS
Exhibit Number
Description
Document Location
3.1(a)
Restated Articles of Incorporation
Exhibit 3(a) to the Company’s Form 10-K for the fiscal year ended September 30, 1999
3.1(b)
Amended Certificate of Designation, Preferences and Rights of Series A Participating Cumulative Preferred Stock of the Registrant
Exhibit 4(e) to the Company’s Form 10-Q for the fiscal quarter ended March 31, 2000
3.1(c)
Articles of Merger effective July 10, 2000
Exhibit 3(c) to the Company’s Form 10-Q for the fiscal quarter ended June 30, 2000
3.1(d)
Amendment of Articles of Incorporation effective February 5, 2018
Exhibit 3.1 to the Company’s Form 8-K filed February 7, 2018
3.2
Bylaws
Exhibit 3.1 to the Company’s Form 8-K filed November 22, 2022
4.1(a)
Amended and Restated Credit Agreement dated August 30, 2023
Exhibit 10.1 to the Company’s Form 8-K filed September 6, 2023
4.1(b)
Amendment No. 1 to the Amended and Restated Credit Agreement dated August 30, 2023
Exhibit 10.1(c) to the Company’s Form 10-K for the fiscal year ended September 30, 2024
10.1(a)
Form of Restricted Share Unit (RSU) Awards to Executive Officers under 2018 Omnibus Incentive Plan (FY 2026)
Filed herewith
10.1(b)
Form of Performance Share Unit (PSU) Awards to Executive Officers under 2018 Omnibus Incentive Plan (FY 2026)
31.1
Certification of Chief Executive Officer
31.2
Certification of Chief Financial Officer
32
Certification of Chief Executive Officer and Chief Financial Officer
101.INS
XBRL Instance Document*
Submitted herewith
101.SCH
XBRL Schema Document*
101.CAL
XBRL Calculation Linkbase Document*
101.DEF
XBRL Definition Linkbase Document*
101.LAB
XBRL Label Linkbase Document*
101.PRE
XBRL Presentation Linkbase Document*
104
Cover Page Interactive Data File (contained in Exhibit 101)
*
Exhibit 101 to this report consists of documents formatted in XBRL (Extensible Business Reporting Language). The financial information contained in the XBRL – related documents is “unaudited” or “unreviewed”.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
/s/ Christopher L. Tucker
Christopher L. Tucker
Senior Vice President and Chief Financial Officer
(As duly authorized officer and principal accounting and financial officer of the registrant)
Dated: February 9, 2026
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