ARXS

Good day. Thank you for standing by. Welcome to the Arxis Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. Please be advised today's conference is being recorded. I would now like to turn the conference over to Brian Winland, Head of FP&A and Investor Relations. Please go ahead.

Good morning. Welcome to the Arxis Second Quarter 2026 Results Conference Call. Joining me today are Kevin Perhamus, President and Chief Executive Officer, and Azad Badakhsh, Chief Financial Officer of Arxis. Before we begin, I'd like to remind everyone that today's discussion will contain forward-looking statements relating to future events and expectations. Actual results may differ materially from those projected due to a number of risks and uncertainties. Please refer to our most recent SEC filings and today's earnings materials for a discussion of factors that could cause actual results to differ materially from those forward-looking statements. During today's call, we may also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in today's earnings release and related presentation materials. With that, I'll turn the call over to Kevin.

Thanks, Brian. Good morning, everyone. I'll begin with the highlights from the quarter and what drove our performance, then spend a few minutes discussing why we continue to believe that Arxis is well-positioned to compound over the long term. With that, let's get started on slide three. We delivered another excellent quarter, with second quarter sales of $501 million, an increase of 25% year-over-year, and adjusted EBITDA of $211 million, up 38%. The strong revenue growth translated into adjusted EBITDA margins of 42.2%, an expansion of 390 basis points year-over-year. Revenue growth was balanced across our key drivers. New business wins, pricing, and acquisitions each contributed mid-single-digit growth, with continued demand across our underlying markets contributing the remainder. This performance was broad-based. Each of our three end markets delivered double-digit growth.

Both of our segments grew double digits. No single customer platform or program meaningfully drove these results. That breadth is consistent with the diversified business we've built. Beyond the operating performance, we also announced three additional acquisitions, whose combined EBITDA exceeds our internal annual M&A target. I'll come back to those in a few minutes. They demonstrate the same repeatable acquisition strategy we've built at Arxis in partnership with Arcline. Overall, our first half performance and increased secured revenue gives us increased confidence in the balance of the year and supports our decision to raise our full-year guidance. Azad will walk through the updated outlook and assumptions in greater detail in a few minutes. Turning to page four, I want to briefly connect the quarter's results back to our differentiated business model and playbook, because the performance reflects consistent execution against both.

At our core, Arxis is an engineer components company. We develop proprietary products that solve difficult engineering problems and become deeply embedded in our customers' platforms. Once we're designed in, those positions typically remain in place for decades. Our confidence in the model comes from the combination of proprietary technologies, broad diversification, and long platform life cycles. Together, those characteristics create a company designed to perform consistently over long periods of time. Finally, we are also balanced across our end markets and between our electronic and mechanical segments. While the products and applications may differ, the underlying business model is consistent across the entire company. On page five, what differentiates Arxis over the long term is our proprietary Arxis EDGE playbook. It starts with our decentralized operating structure. Our business units move quickly, stay close to their customers, and are empowered to make decisions.

At the same time, the entire organization remains connected through a common operating system and shared processes. The second piece is our new business engine. We take a systematic approach to identifying and winning new opportunities by bringing together our engineers, sales teams, and business units to solve customer problems. We align incentives across those teams so everyone is working towards the same objective. Year to date through June, new business bookings have remained very strong, and the growth of those new business bookings is in line with our overall organic growth rate. That level of activity more than supports our new business growth target and reinforces our confidence in our ability to consistently grow faster than the markets we serve. The final piece is our repeatable acquisition engine. Turning to slide six, I'll show you what that looks like in practice.

Since our IPO in April, we've announced three additional acquisitions, Omnetics, MagCanica, and Blue Line, which we just announced yesterday. From the outside, these businesses look very different. They make different products, solve different problems for our customers, and operate in different niches. Underneath, they're all exactly the kind of business that we're looking for. Every one of them fits the same acquisition criteria we've followed since Arxis was formed. They all bring additional technologies, customer relationships, and engineering talent into the portfolio, giving us more opportunities to generate new business over time. For example, Omnetics brings industry-leading miniature interconnect technology, expanding our capabilities in harsh environment electronic interconnects. MagCanica has proprietary torque sensing technology that enhances our position in high-precision sensing applications and creates new opportunities across aerospace and defense.

Blue Line expands our offering of proprietary sensing technologies, including high reliability precision position sensing, and motion control systems. Finding businesses that fit the model is only part of the equation. Having a repeatable process to evaluate and execute those opportunities is just as important. The Omnetics acquisition is a good example of the power of the Arxis Arcline partnership. Let me walk through that on the next slide. Omnetics is a business I've admired for about 20 years because it fits the Arxis business model extremely well. It has proprietary technology, deep engineering capability, and highly differentiated products that are designed into platforms for decades. The opportunity came to market right in the middle of our IPO process. During this time, we were focused on becoming a public company, but we did not want to miss out on a business like Omnetics.

That's where having a unique partner like Arcline, whose principals will be long-term holders of our stock, truly makes a difference. Our team stayed focused on understanding the business, developing the operating plan, and determining how Omnetics would fit within Arxis while Arcline worked in parallel on diligence, financing, and transaction execution. That allowed us to move quickly without taking our eye off either priority. That's the real advantage of the partnership. It expands our capacity to identify and execute acquisitions while our teams remain focused on creating value. That's not unique to Omnetics. It's the same process we followed across more than 35 acquisitions over the past six years, and it's one of the reasons we continue to see a significant runway ahead. With that, I'll turn it over to Azad to walk through the financials and our 2026 outlook.

Thanks, Kevin, and good morning, everyone. I'll begin on slide eight. In summary, we delivered an outstanding second quarter with strength across the entire business. Sales were $501 million, an increase of 25% year-over-year, consisting of 21% organic growth and a 4% contribution from the Oldham Seals, Micro-Tronics, and MagCanica acquisitions. All three end markets delivered strong double-digit growth organically. Turning to profitability, second quarter adjusted EBITDA was $211 million, with adjusted EBITDA margins expanding 390 basis points year-over-year to 42.2%. The margin expansion was driven by very strong revenue growth, which provided meaningful operating leverage. We also benefited from continued operational improvements, particularly within our Mechanical Segment, where cost optimization initiatives continue to gain traction, along with disciplined pricing and the operating leverage generated by new business wins.

Free cash flow was $127 million, an increase of 261% year-over-year, reflecting the higher earnings and improved networking capital. The working capital timing items that I discussed on the first quarter call are beginning to normalize, we expect free cash flow generation to build through the second half of the year. Turning to slide nine, I'll provide a brief update on our capital structure. Following another quarter of strong operating performance and free cash flow generation, our balance sheet remains well-positioned to support our long-term capital allocation strategy. In April, we used a portion of the IPO proceeds to repay approximately $946 million of our Term Loan B, materially strengthening our balance sheet while significantly reducing annual interest expense by more than $70 million versus 2025.

In June, we repriced the remaining Term Loan B by an additional 25 basis points, reducing annual cash interest expense by an incremental $5 million. As of June 30th, net leverage was below two times, we had approximately $1.1 billion of available liquidity, including cash on hand, our fully undrawn revolving credit facility, and available delayed draw Term Loan B capacity. We remain very well positioned to continue executing our disciplined acquisition strategy. Turning to slide 10, as Kevin mentioned, we're raising our full-year sales and adjusted EBITDA guidance to reflect the strong first half performance. On revenue, we now expect a range of $1.96 billion-$1.98 billion, an increase of $100 million at the midpoint versus our prior guidance. At the midpoint, that represents 24% year-over-year growth, including approximately 20% organic growth, which is an increase of five percentage points compared to our prior guidance.

On adjusted EBITDA, we now expect a range of $790 million-$800 million, an increase of $70 million at the midpoint versus our prior guidance. Adjusted EBITDA margins are now expected to be 40.4%, up from 38.8% previously, representing an additional 160 basis points of margin expansion compared to the prior guidance. I would like to note that the updated outlook includes the expected contribution from the MagCanica and Blue Line acquisitions but does not include the contribution from the pending Omnetics acquisition. On slide 11, these are the organic growth assumptions embedded in our updated 2026 guidance by end market. Across the three end markets, we're assuming organic growth of approximately 20%, supported by healthy market demand, disciplined pricing, and new business generation. As we progress through the year, additional bookings have increased our secured revenue, giving us greater visibility into the balance of 2026.

That increased visibility supports our updated guidance and our confidence in approximately 20% organic growth this year. With that, I will turn it over to the operator to open the line for questions.

Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered or you wish to remove yourself from the queue, please press star one one again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Kristine Liwag with Morgan Stanley. Your line is open.

Hey, good morning, guys. 17% organic growth last quarter, 21% this quarter. You guys are just printing organic growth well above peers, significantly higher than the growth algorithm you guys have shared in the past. I was wondering, can you talk more about the underlying drivers of how you get to that 21%? How much of the new business win from Arxis EDGE is driving this? I know you raised outlook for the year, but it still seems a little bit conservative considering what you've been able to print for the first half.

Hi, Kristine. Let me break it down into our BPC algorithm. The organic growth, the volume piece breaks down into two separate pieces. The new business remains at mid-single digit. The price that we're gaining remains at mid-single digits. All of the delta that you're seeing is in the base business, or the market growth rate, which is now coming in at low double-digit growth rates. That's really the only change. No difference in the new business, no difference in the price, really just continued market strength across all three end markets. In terms of the second part of your question about what we're seeing for the full year, as a reminder, we use Arxis EDGE. We keep careful track of every single purchase order that comes in, goes into Arxis EDGE, 6,000 purchase orders a month.

We keep track of the secured revenue that we have by customer, by program, by market. The secured revenue leads us to a full year revenue guidance number. Right now we have 95% of the year secured, which is exactly where we should be at this point in the year. That leads to the guidance number that we're providing. We believe it's accurate, because we have actual firm demand behind it. We're not forecasting based on trends or news. We're forecasting based on hard backlog.

Great. Super helpful. If I could follow up on deals. The business model of industrial compounder has been pretty popular in the industry, but what stands out also is that you guys have been able to find deals and close on them this year at a pace slightly above peers as well. Can you talk more about the pipeline of what you're seeing? Historically, you were around that five per year. Is that where we're still kind of tracking for this year and next year?

It's always hard to nail down the exact timing. As you know, we've done 35 acquisitions since we started building Arxis around six years ago. We do about five or six per year if you average out all the years. There actually have, if you look back, there have been years with two acquisitions and there have been years with 12 acquisitions. I don't want to commit to a certain number that happened per year. We've announced three since the IPO, but remember we did one back in January as well, Micro-Tronics. Four so far this year have been announced. The pipeline remains as active as ever. Just because we've announced four doesn't mean that we won't continue to try to do more acquisitions. We have plenty of capacity to source and integrate acquisitions.

remember, we have our partners at Arcline, who do this for a living, 60 professionals that are out there looking for new deals and helping us close deals all the time. The pipeline is as active as it's ever been. There are thousands of potential companies out there to buy, and we're evaluating many of them right now.

Great. Thank you very much.

Our next question comes from Sheila Kahyaoglu with Jefferies. Your line is open.

Good morning, guys, KP and Azad, congrats on another great quarter. I wanted to hone in maybe on Omnetics and MagCanica. Two questions, I guess. One is any financials you could provide around that, is it fair to say it's around $75 million of EBITDA? KP, you said you've admired this company for half its lifespan, essentially 20 years. I'm sure it was a very competitive process with peers like Amphenol probably looking at it. Can you talk about what got you guys interested, how you think about expanding the scope of this business, and how Arcline was helpful in that process?

Okay, let me try one at a time.

Sure. Sorry.

Good morning, Sheila. First of all, I think you asked about the size of the deals, if we just zoom out, I think this is very interesting to look at. We have BlueLine, MagCanica, and Omnetics, and across the three deals, I'd call them small, medium, and large. That's important because we're able to do small, medium, and large acquisitions all simultaneously. We do not discriminate based on the size of the deal. What we're really looking for is a fit from a business model perspective. We want to have the ability to grow the EBITDA as fast or faster than the base business, and buy down the multiple to less than 10 over three years. We've described that criteria in the past. They fit in in different ways to the company. BlueLine will be a product line inside of a business unit.

MagCanica will be a business unit. Omnetics is part of a block, could be its own block because it's that size. We can integrate them all simultaneously because they go into different parts of the company. We're not giving specific numbers around the size of the individual acquisitions, but just as a framework to think about it, I think that's how I would think about it. Then you asked about Omnetics, it's a company that I've been aware of and been looking at for a long time, like I said in the opening remarks, around 20 years now. It's a fantastic company. It's a connector company that has a lot of proprietary technology. It's got the same end market mix that Arxis has. It's just perfect for us.

It's differentiated the business model of getting the proprietary products designed into platforms, and then they stay there for decades, all the same as Arxis. What we'll be able to do is, they have customers that we don't have. We have customers that they don't have. We'll be able to cross-sell the products. We'll be able to put them in Arxis EDGE and learn from them, and they'll learn from us. We'll use the BPC algorithm to expand the margins and get them up to the Arxis average margins over some period of time.

That's super helpful. Thank you.

Our next question comes from Peter Arment with Baird. Your line is open.

Hey, good morning, KP, Azad. Great results. Hey, KP, maybe just to follow up on maybe Sheila's M&A question. I guess since coming public, maybe you've gotten on more people's radar screen. Has that picked up any further M&A conversations, or is the pipeline well-established and nothing new has come in since you've come public?

Well, first, good morning, Peter. To be honest, it hasn't changed anything. The pipeline is large with thousands of companies in it, across many different products and across many different markets. One thing that I would point out, though, is in the Omnetics process, I failed to mention this earlier, it was a competitive process, but it was somewhat limited because remember, the Omnetics owners were looking for shares in a public company as consideration. If we were not a public company, we would not have been able to participate in that process. The timing really worked out perfectly.

The process was kicked off during our IPO process, and as I said in the opening remarks, I don't know that we would've been able to bring the company public, do a good job with that, and be able to diligence, and close the-- or work on the Omnetics deal simultaneously as well as we did without the partnership with Arcline. So that was really helpful. And then the fact that we became public right at that time and we were able to use our new public equity to fund the deal was essential, because that was a criteria of being able to do it. So yeah, it maybe not expanding the pipeline, but it gave us a currency that we were able to use to acquire Omnetics, which was essential.

That's great color. Thanks, KP. And then just a quick follow-up, just we've seen a lot of pressure on the primes to ramp up production, kind of in missile defense. You guys have some exposure through your business. Are you seeing any kind of LTA agreements or anything that you're being asked to look at just to lock down long-term supply agreements?

There's a lot of conversations going on in that area with these framework agreements. I would say we've heard about them, we are talking to people about it, but we haven't done anything definitive yet. Remember, we're deep in the supply chain, so we're a few layers away from the government. In some cases, we supply directly to the primes. In other cases, we supply to Tier 2, 3 suppliers. They're making their way through the supply chain, like I said, we're having conversations, but nothing definitive yet.

Got it. I'll jump back in the queue. Nice results.

Thank you.

Our next question comes from Connor Dessert with Goldman Sachs. Your line is open.

Hey, guys. You've got Connor on for now today. Thanks for taking my question. Azad, in your prepared remarks, you commented on the strength in the Mechanical Segment margin. If I did my 10-Q math right this morning before the call, it looks like that margin stepped up to about 42.5% in the quarter from 37.5% last quarter. We had kind of imagined that margin approaching the Electronics Component Segment margin over time, the step-up kind of begs the question, is that now the run rate margin of that business, or were there some one-time items there that kind of come out and it's a little bit lower through the rest of the year, and it approaches Electronics Component Segment over time?

Hey, good morning, Connor. This is KP. I'll take that one. First of all, the mechanical components, really, that team did a fantastic job in Q2. I would zoom out and look at the whole first half as a better number to use for their kind of run rate margin, which is still over 40%. It's just 40.1%. In the first half. The 42% just incredible operating leverage on fixed costs. There's normal quarterly variation, which will kind of push things up and down by a few percentage points. That's why I think it's better to look at the 40% for the first half, kind of use that going forward. If I could take another minute and just maybe talk about how, or add some color to how the mechanical segment did this.

I think it's just a testament to the playbook and to the decentralized structure that we have. Remember we did a large acquisition in the mechanical segment in 2024. What the team has done over there is really decentralize that large acquisition. When you decentralize a company and empower the individual business units and hold them accountable for results, really good things happen. 67% conversion margin is the conversion margin the mechanical segment has achieved over last year in the first half. They've grown 26%, but just over 20% organically, and they have exactly the same number of people that they had last July. 20% organic growth, same number of people. There's two main categories that we spend money on, material and people.

If you can grow your business 20% and have the same number of people by decentralizing and empowering people, you get that kind of conversion margin of 67%. That's what happened.

Okay. I appreciate all the color there. That's really helpful. If I could ask one more quick one, just looking at the organic growth outlook being raised to roughly 20% across the three end markets versus last quarter's outlook of mid-teens. Are there any drivers, end market by end market, that are driving the better outlook specifically? I guess I'm trying to understand what have you guys seen improve just in the last few months versus what may have been some, looking back, relative conservatism in the outlook by end market last quarter?

Yeah. All the end markets are now forecasted to grow at the same rate. The increase in our guidance is very uniform across the end markets. It isn't one end market, and it isn't one thing within any of the end markets. We're very diversified across many platforms and customers. The growth is very broad-based and diversified. We feel really good about that. In terms of your question about maybe what changed then since the last time we spoke, it's pretty simple. What happened. We've had three additional months of bookings come in and three additional months to build secured revenue for the year. Those months came in much stronger than we expected. We booked more purchase orders. The backlog for the year increased faster than we thought, and we're raising the guidance accordingly.

We're using secured revenue to do the calculations. Those calculations lead to kind of a constant growth rate across all three end markets because that's the way the backlog looks.

Okay. Thanks, KP. That's super helpful.

Our next question comes from Ken Herbert with RBC. Your line's open.

Hi, good morning. You've seen some nice improvement, certainly in the second quarter in free cash flow. I know, Azad, I think in your remarks you called out some of the working capital items gaining momentum. How should we think about cash generation into the second half of the year?

Sure. As you've heard me say, free cash flow conversion can be somewhat lumpy in a given quarter, but it generally does smooth out on an annual basis. As you said, in Q1, we saw that lumpiness at play. This quarter, free cash flow conversion was much stronger and largely driven by our record shipment levels. Accounts receivables, payables, inventory, and accrued expenses all behaved as we expected, given our strong growth this quarter. To your question, we do expect this improved conversion trend to continue through the balance of the year. The full year free cash flow conversion, we expect to be very much in line with our internal targets.

Okay, that's helpful. Just at a high level, how do we think about with obviously the step up in organic growth, are you seeing any pressure at capacity at any locations or is there any opportunity maybe that would be a positive to maybe step up CapEx as you think about meeting demand? Just where are you in terms of capacity and as organic growth continues to outperform, how do we think about that as an opportunity from an incremental margin perspective?

Yeah. As we've said before, we have plenty of capacity across the whole organization. Remember, we run 48 individual business units across nearly 70 factories, and we have general managers that are carefully looking at their own secured revenue, and their capacity needs, and their CapEx needs. Those CapEx projects occur on a regular basis to sort of incrementally walk the capacity up. In all those individual factories. The number that we have in mind right now is 3% of revenue, so roughly $60 million of CapEx this year. That number includes all the growth CapEx that we need in order to keep up with this growth rate.

Perfect. Thanks, KP. Thanks, Azad.

Our next question comes from John Godyn with Citi. Your line is open.

Hey, guys. Thanks for taking my question. KP, obviously a great 2026. I think you mentioned you had 95% visibility from here into year-end. I'm just curious, does a standout 2026 create a tough comp for 2027? I'm guessing you have some visibility into early 2027 at this point, and maybe a sense of whether or not trends are continuing as far as you can see.

We're really focused on 2026 right now and making sure that we continue to fill in the rest of the year and execute on 2026. It's too early for us to comment on 2027. We will be back probably in the beginning of the year with a pretty clear picture of that. We don't start to shift our attention over to 2027. We'll start in Q3, we'll really do it in Q4, and we'll have a good look at 2027 as we come out of 2026.

Okay. I just wanted to kind of double-click on M&A pipeline. It's obviously very active. From our perspective, just coming out of Farnborough not long ago, clearly a lot of activity in A&D. I have less insight into industrial technologies. Maybe you can just talk a little bit about kind of the contours of the M&A pipeline and size, industry, kind of end markets, any color you're willing to offer.

Yeah, the pipeline's full. We use many avenues to source deals. Remember, we're in a very fragmented market with thousands and thousands of potential companies to acquire. We partner with Arcline. They have 60 investment professionals that are helping us to source deals. We have all of our block leaders, general managers, and segment presidents, plus me and Azad and others constantly looking for businesses that could fit with Arxis. We have a lot of people working on it. We're not focused on a market, we're focused on a business model. The business model is that the company needs to produce custom-engineered solutions that are developed through engineer-to-engineer conversations with their customers, and then get designed in, and generally be the only source for a very long period of time on the bill of materials. That's the business model that we're looking for.

It could be in any market. We don't even segment the pipeline by market, so I can't answer that. It's a healthy pipeline. That's all I can say.

Got it. If I could just ask one more on the layer cake idea. I think you mentioned in the prepared remarks that new business was contributing kind of a healthy amount to revenue growth. I'm envisioning that great chart from the S-1 where you had all the different layers kind of playing out. Obviously, you don't have that updated for us today. Maybe you could just talk a little bit about, shed some light on how the layer cake model continues to layer.

Sure. In order for the layer cake model to work, what we're trying to do is add mid-single digit of new revenue each year through new business. Each year is really just a cohort of new business. We have thousands of new business wins that come in to the company. They add on to last year's revenue and create a new layer to the cake. The new business wins that are in the cohort of 2025 and 2024 and 2023 also continue to expand. That's how the layer cake works. We have each year is a cohort of new business wins that continues to stack up. My comments about whether or not the new business wins are strong enough to continue to support that, just as long as that is mid-single digit each year of new wins, that's what we're looking for.

Mid-single digit new wins, mid-single digit price. The market will do what it does. If you add all that together, that adds up to our volume, which this year is adding up to just over 20%. Hopefully that answers your question. That's how we're thinking about it.

Appreciate it. Thank you.

Our next question comes from David Strauss with Wells Fargo. Your line is open.

Hi. Good morning. This is Josh Korn on for David. Just wondering if you could shed some light on some of the industrial tech end markets for the quarter. I think you had mentioned particular strength in medical and semis in Q1. Thanks.

Yeah, sure, Josh. Industrial tech, remember, is a very diversified set of markets, sub-markets within that overall market. Roughly half of our industrial tech business breaks down into two sub-markets, medical and semiconductor equipment manufacturing. Those would be the two, each about a quarter of our industrial tech segment. Medical is implantable medical devices and surgical robots and other automation related to medical. Semiconductor is actually going into the equipment used to manufacture and test the semiconductors. Both of those markets are very strong. Nothing to point to specifically, but broad strength across those and the other sub-markets that make up industrial tech, which is another seven or eight different categories.

Great. Thanks. I'll stick to one.

Our next question comes from Myles Walton with Wolfe. Your line is open.

Thanks. Good morning. KP, you talked about 95% sales coverage in backlog at this point in the year. I'm obviously not as familiar with the lead times for your products, but I would think certainly a larger percentage of your products than most A&D companies could be shorter lead times. What is your lead time for products in each of your businesses? Is this normal that your roll-up of guidance would just be based on almost arithmetic of what you have in backlog?

Yeah. Good morning, Myles. It's normal for us. We've been doing it this way for several years in terms of forecasting the business, we think it turns out to be a very predictable way to run the company. We have a few years of data, around 95% is a good number to be at right now. The lead time is different for each business, there's even obviously different lead times for the different product lines within each business. There is no standard lead time across the company. We generally, I think you can do the math and figure out that we have another $150 million or so left to go to book for the year. That would be book and ship within the year, the rest of the stuff is already booked and planned.

The only other thing I would say is, unlike in a commercial business, the lead time isn't always the factor for when the orders get placed. The orders don't always just get placed just in time according to lead time. Sometimes the orders are placed in an annual kind of an annual chunk all at once, more often than not, that's what happens. That's why we end up getting more filled in maybe than what the lead time would indicate.

Okay. Yeah, this math might be not 100% accurate, I was just kind of last quarter 90% on your previous guidance, this quarter 95% on your new guidance. It almost looks like you had $200 million of orders for in-year business in the last 90 days, which obviously if that happened again, I would imagine would lead to further upside to guidance. I just want to make sure that the way I'm thinking about it is accurate.

You're thinking about it accurately. It is less likely that it happens later in the year.

As the year goes on, more and more of the bookings that come in land in the next period. As we go into the second half of the year, a large percentage of the bookings that come in land in 2027. We carefully parse that out and we're only really looking at the secured revenue for 2026 right now. You're right, a lot filled in since the last time we spoke, and that's why we raised the guidance. If more filled in for 2026, we would obviously have to raise the guidance again.

Okay. That's great. Thanks, KP.

Our next question comes from Louie DiPalma with William Blair. Your line is open.

KP and Azad, good morning.

Good morning, Louie.

The organic growth was exceptional relative to your long-term target. I was wondering, across the 16 blocks with Ross and Jason, were there any blocks that stood out in terms of on the positive side? Were there also any that you would highlight in terms of underperforming blocks? Because across 16 and with the 20%, there probably were some in the +30% or +40% range, and there perhaps were some that were negative. Is there anything that stood out that you could provide color on? Thanks.

Yeah. First of all, if you first break it down into the two segments, we'll break it down into the blocks. Across the two segments, it was fairly consistent in terms of organic growth rate. We predict fairly consistent organic growth rate for the full year across the two segments. The really nice thing, we can obviously drill down to the segments or into each of the individual business units and look at the organic growth rate of the individual companies. It is so broad and widespread, evenly distributed across all the business units, therefore the blocks. That's what gives us even more confidence in the ability to pull this off.

If all that growth was sort of stacked up in a few business units or a few blocks, then it would be really extreme growth in some areas and maybe no growth or even negative growth in others. That would be very difficult to manage. That's not the case. That's not what's happening. It's very distributed across the entire company, which is just great. Everyone's doing well.

When you're saying it's distributed, would there be a very narrow range with that mean of 20%?

There's obviously variation. I don't know exactly what the variation is, but I know that when I look at each of the individual blocks, they're all growing. They're all growing nicely. I don't have in front of me.

Great

I don't have in front of me the mean and the standard deviation, but it is very widespread.

My other question, has there been any change you've observed in terms of the regulatory scrutiny for some of your deals, and that part of your business model is to be the sole source supplier, but has there been any regulatory opposition to that?

Yeah.

The answer to that is simply no. Our acquisition strategy hasn't changed at all. As a reminder, we're acquiring highly engineered businesses that expand our technology portfolio. Every transaction that we do is evaluated on its own merits, we always do a detailed regulatory review ahead of potential transaction filing. No, our strategy hasn't changed at all, Louie.

That's it for me.

I'm not showing any further questions at this time. I'd like to turn the call back over to Kevin for any further remarks.

Okay. No, thank you. Before we conclude, I would just like to thank the employees of Arxis and Arcline. These outstanding results are a direct reflection of the relentless execution and collaboration of our teams. Thanks for joining us today and for your thoughtful questions and for your continued interest in Arxis, and we look forward to updating you on our progress next quarter.

Thank you. Ladies and gentlemen, this concludes today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.

Good day, and thank you for standing by. Welcome to the Arxis first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Brian Wendlandt, Head of FP&A and Investor Relations. Please go ahead.

Thank you, Josh. Good morning, and welcome to the Arxis first quarter 2026 results conference call. Joining me today are Kevin Perhamus, our Chief Executive Officer, and Azad Badakhsh, our Chief Financial Officer. Before we begin, I'd like to remind everyone that today's discussion will contain forward-looking statements relating to future events and expectations. Actual results may differ materially from those projected due to a number of risks and uncertainties. Please refer to our most recent SEC filings and today's earnings materials for a discussion of factors that could cause actual results to differ materially from those forward-looking statements. During today's call, we may also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in today's earnings release and related presentation materials. With that, I'll turn the call over to Kevin.

Thanks, Brian, and good morning, everyone. I'm Kevin Perhamus, CEO of Arxis, and welcome to our first earnings call as a public company. I'm going to start with a performance update, and then I'd like to walk through the Arxis business model, the playbook, and the long-term growth algorithm that makes us so unique. With that, let's get started on slide three. We delivered an outstanding start to 2026, with first quarter sales of $459 million, up 21% year-over-year, and Adjusted EBITDA of $175 million, up 31% year-over-year. The revenue growth was broad-based and highly diversified. New business wins, underlying market volume, modest price increases, and acquisitions each contributed mid-single-digit growth during the quarter, highlighting the balanced nature of our growth algorithm. We also saw double-digit growth across all three of our end markets.

In defense and space, we continue to benefit from our alignment to key government spending priorities. In commercial aerospace, we are experiencing the benefits of ramping production rates, and within industrial technology, we are seeing solid momentum across several applications, especially medical technology and semiconductor. Overall, first quarter results reinforce our confidence in the full year outlook, and we are excited to initiate strong guidance for fiscal year 2026. In summary, we expect strong growth to continue with the midpoint of our guidance range yielding 18% revenue growth and 27% EBITDA growth compared to prior year results. In addition, our partnership with Arcline continues to be a significant strategic advantage in sourcing and executing acquisitions, including the successful completion of the Micro-Tronics acquisition in January.

Finally, following the IPO, we now have a substantially strengthened balance sheet and achieved net leverage of 2x, positioning us to continue deploying capital across our M&A pipeline. Moving on to page four. I want to remind everyone of our differentiated business model and playbook. Arxis designs and builds proprietary components, things like bearings, capacitors, connectors, and seals that perform in the harshest environments. These components are vital to the world's most advanced defense, aerospace, and industrial technology platforms. At the core of our model is a highly proactive and collaborative selling engine. Our engineers meet with our customers' engineers. They solve a problem which results in a custom product that gets designed into the bill of materials, typically as the only qualified part, and then stays there for decades.

Each of our business units own at least one foundational proprietary technology that dramatically improves the product performance and is exclusive to Arxis. Across our 46 business units, we own 67 of these technologies, which underpin the 90% proprietary revenue shown at the bottom of this page. Examples of these technologies include CryoFlex as part of our Pac Aero business and K-Ron within the Comatix business. When applied to a bearing, K-Ron transforms a standard bearing into a highly engineered custom product with 5-10x the value. You'll also see our end market mix on this page. Approximately 50% defense and space, 20% commercial aerospace, and 30% industrial technology. We are highly diversified across virtually every metric with 40,000 part numbers, more than 600 platforms, and over 5,000 customers.

This diversification provides a highly stable foundation for the business and allows us to sleep really well at night. Finally, we have a nice balance between our two segments, Electronic and Mechanical Components. While the product families are quite different in the two segments, the underlying business model remains entirely consistent. Turning to page five, this slide summarizes why Arxis is so unique. It starts with the markets we serve. We operate in highly attractive end markets with strong long-term demand drivers, high qualification requirements, and very long platform life cycles. Those dynamics create durable demand for Arxis. The second piece is the nature of our products. Our components are highly engineered, proprietary, and deeply embedded inside our customers' platforms. Once we are designed in, those positions tend to stay in place for decades because the switching costs are high and the qualification cycles are long.

The next three elements summarize our playbook, called Arxis EDGE. First, we operate with a decentralized structure. Our business units move quickly, they are empowered to make decisions, and are accountable for performance. At the same time, the whole organization stays highly connected through a common operating system, shared processes, and aligned incentives. We are also unified. Second is our new business engine. We systematically track opportunities across the portfolio, drive cross-selling between business units, and align compensation directly to growth generation. That creates a very proactive commercial culture and is the reason we can continue to grow faster than the markets we serve. Finally, M&A is embedded directly into the model. We operate in a highly fragmented market, and we've built a repeatable process around sourcing, underwriting, integrating, and scaling acquisitions without disrupting the broader organization.

From the beginning, Arxis was built to be a long-term compounder, built by hand-selecting the companies with the best business models and integrating them one at a time into the Arxis playbook. We did this in partnership with Arcline. Let's look at slide six. Arxis and Arcline bring different strengths to the model. Arxis brings the operating side, engineering expertise, customer relationships, the playbook and processes that allow us to integrate and scale businesses while keeping them entrepreneurial, empowered, and decentralized. Arcline brings deep capabilities around sourcing, research, underwriting, and long-term portfolio strategy, with more than 60 investment professionals to support transaction evaluation and market analysis. This is a true partnership that creates a much more systematic approach to capital allocation than you typically see in an industrial company. We believe that combination, strong industrial operators paired with institutional-quality capital allocators, is a key structural advantage.

Moving on to slide seven. At the end of the day, everything we've discussed points to one thing: a business intentionally built to compound organically and through acquisitions. This model has produced and will continue to produce a highly durable financial profile. High single-digit organic revenue growth driven by strong markets, new business, and pricing. Approximately 50% incremental EBITDA conversion on that growth, translating into low double-digit organic EBITDA growth. This organic growth is supplemented by disciplined acquisition execution, which will provide meaningful incremental EBITDA growth. Ultimately, our objective is straightforward: to build a company that creates long-term value through world-class operational excellence and capital allocation, resulting in sustained long-term growth. A next-generation industrial compounder. With that, let me turn it over to Azad to provide more detail on our first quarter results and fiscal 2026 guidance.

Thanks, Kevin. Good morning, everyone. I will start with slide eight. The first quarter was a record one for Arxis and reflects the strength of both our business model and the operating playbook that Kevin just outlined. Sales in the quarter were $459 million, representing 21% growth year-over-year. This consisted of 17% organic growth and 4% contribution from the Oldham Seals and Micro-Tronics acquisitions. Growth was broad-based, with all three of our key end markets delivering double-digit revenue growth during the quarter. Turning to profitability, first quarter Adjusted EBITDA was $175 million, with Adjusted EBITDA margins expanding 290 basis points year-over-year to 38.2%. Margin expansion was driven by continued operational efficiencies across the portfolio, in particular within our MCS segment, where we remain focused on cost optimization initiatives.

In addition, the Arxis EDGE playbook continues to reinforce new business wins and pricing across the organization, resulting in incremental EBITDA margin in excess of 50% for the quarter. Free cash flow for Q1 was $25 million, up 107% year-over-year. As is typical for our business, first quarter free cash flow conversion was seasonally lower. That said, several factors impacted cash flow during the quarter that are important to highlight. First, record operating performance naturally drove higher accounts receivable and inventory levels of approximately $29 million in Q1. In addition, free cash flow was impacted by approximately $50 million from several timing-related items, including $17 million related to customer billing timing on a few larger defense programs, driving an increase in net contract assets.

$13 million from additional months of cash interest payments ahead of the IPO debt paydown, and $20 million related to annual bonus payments made in Q1. While some timing-related impacts may continue into Q2, we expect free cash flow to normalize over the remainder of 2026. Moving to slide nine, I'll provide a brief update on our capital structure following the IPO. First, continued EBITDA growth and strong cash generation supported further deleveraging during the quarter, with net leverage declining from 4.2x at the end of the year to 4x at the end of the quarter. Shortly after the quarter end, we successfully completed our IPO, generating $1.2 billion of net proceeds that all went to the company. Of that amount, $946 million was used to repay existing debt, with the remaining proceeds of $275 million going to our balance sheet.

As a result, our net leverage declined further from four times to two times TTM EBITDA, significantly strengthening the balance sheet and enhancing our financial flexibility. The debt reduction is expected to lower annual cash interest expense by more than $70 million versus 2025, further supporting free cash flow generation going forward. We intend to deploy capital in a disciplined manner towards continued M&A. We have multiple sources of liquidity to support this, including free cash flow and $1.1 billion of available liquidity through cash on hand, our undrawn revolver, and our delayed draw term loan. I will conclude with a summary of our full year 2026 guidance. We expect total revenue to be in the range of $1.86 billion-$1.88 billion, and Adjusted EBITDA between $720 and $730 million.

At the midpoint of the range, we expect 18% year-over-year revenue growth, including 15% organic growth, with an Adjusted EBITDA margin of 38.8% at the midpoint. On the slide, we've also outlined our internal growth assumptions for the end markets that we serve. Across all three of our key end markets, we're assuming mid-teens organic growth, which reflects a combination of underlying industry volumes, new business growth, and price realization. Finally, on slide 11, we've outlined key assumptions supporting our full-year outlook. A couple of items to highlight. We expect total CapEx to be around $63 million, approximately 3% of our revenue. Moving on to interest expense. Following our debt repayment post-IPO, we expect that number to decline to approximately $135 million for the full year.

We expect our effective tax rate to be around 25%, total annual depreciation and amortization of around $206 million, and finally, we expect total share-based compensation expense of approximately $155 million. We expect these levels to be elevated in the near term and normalize over the next few years. With that, I'll turn it back over to the operator to open the line for questions.

Our first question comes from Sheila Kahyaoglu with Jefferies. You may proceed.

Good morning, guys, and congratulations on your strong start with the first quarter. You guided to all three of your end markets up mid-teens for the year toward the midpoint of your 2026 organic growth of 15%. Obviously, given what's happening with jet fuel prices and in the Middle East, just curious to see if you're seeing any changes in customer behavior across aerospace and defense? You also pointed to strong Medical markets as well as semiconductor. What level of risk are you seeing and opportunities in your plan?

Hi, Sheila. Yeah. We are guiding toward mid-teens growth organically in all three of the end markets. We're seeing very consistent growth across all of them. A couple of things, just want to, first of all, talk about how we are forecasting that guidance for the full-year. We are really not depending on any market information to do that at this point. We have Arxis EDGE and because we load all of our backlog and orders into Arxis EDGE across the whole portfolio, we can see exactly where we're going to land at this point. As we sit here in May, we have 90% of the year booked and sitting in backlog. Our full-year guidance is really just using that information.

There's very low risk to that forecast, and we have great resolution and clarity into how things will end up from a market perspective. That's one of the great things about having EDGE as the system we use to. To forecast. You asked about fuel prices and conflicts. That can impact commercial aerospace aftermarket. Obviously, that's a relatively small piece of our business. Commercial aerospace overall is around 15% for narrow body and wide body. If you include business jet, it goes up to the 20%-23% level. That 5% continues to be strong for us. It's relatively small, but it continues to be strong and we're not seeing any changes there. We're not seeing any impact to the supply chain, lastly. The supply chain's pretty resilient, mostly in country. I just remind people that if we did have input cost changes on the supply chain side, we conduct our business PO to PO for the most part with very few long-term agreements. We could pass those increased costs along in the form of price increases if it happened.

Got it. Strength across pretty much all end markets and 90% booked. I didn't realize you guys had such strong visibility. Maybe just following up on that 90% of coverage. How do you think about capacity, I guess, to flex upward if demand does materialize? How you think about that maybe across your end markets?

It's another great aspect of our model, which is decentralized. We have 72 independent focus factories across our 46 business units. They're all carefully watching their capacity compared to customer demand, and they're able to flex up. We have plenty of capacity right now is the simple answer, and capacity would not be a constraint to achieving our guidance in any way.

Got it. Thank you so much.

Thank you. Our next question comes from Noah Poponak with Goldman Sachs. You may proceed.

Hey, good morning everyone, and congrats on being out.

Thank you.

Kevin, you referenced being levered to where the spending priorities are within defense. Can you elaborate on that? What are some of the larger exposures and platforms, and where are you seeing growth in the end market?

Yeah. That's air defense, radar, missile systems, missile defense, electronics, electronic warfare, modernization. All of the priorities, the key government priorities that exist, we are broadly tied to and always have been. It just provides a nice backdrop. As I said before, though, we're not really relying on that information to create our guidance for the year. We have the year sitting mostly in backlog already.

Okay. The midpoint of the full year revenue guidance, working off of what you just reported for 1Q, implies around 1% sequential revenue growth, each of the remaining three quarters through the rest of the year. Is that roughly the normal seasonality of the business, or was there anything abnormal with timing in the first quarter?

No seasonality. I mean, we're really pleased with the performance in Q1. We just want to be careful not to simply extrapolate a strong quarter across the remainder of the year. Again, thanks to Arxis EDGE, we have 90% visibility into the full year plan. We're just using that information to forecast the revenue for the remainder of the year.

Okay.

Yeah. Yeah, simple.

Makes sense. Then just last one, maybe you could just spend a little more time on how the M&A pipeline looks now versus your historical average, and how you're thinking the pace at which you think you'll be able to deploy capital towards acquisitions this year versus your historical average pace.

Sure. Just as a reminder to everybody, we started Arxis in late 2020. We've done 32 acquisitions since then. We do, on average, five to six acquisitions per year. It's always been a big part of our DNA. The company was intentionally built as a compounder to continue to do acquisitions in the future as well. We have this partnership with Arcline. We are working on acquisitions at Arxis. They have 60 professionals and a whole business development team that's out scouring the landscape for new deals. We've been active. I'd say five to six deals per year. We've been very active from the beginning. The level of activity that we have today is as high as it's ever been. We're working on many deals. It's difficult to predict the exact timing of if and when those will close, but it's as active as ever.

Okay. I appreciate all the detail. Thanks, guys. Talk to you soon.

Thanks, Noah.

Thank you. Our next question comes from Kristine Liwag with Morgan Stanley. You may proceed.

Hey, good morning, everyone. KP, Azad, when you look at the business model for Arxis, you're targeting high single-digit organic growth. I just want to take a look at this revenue growth in the quarter where you really did much higher than that. When I think about the drivers of the 17% organic growth, can you parse out for us, how much did Arxis EDGE contribute to that? It's much higher than peers in all the different end markets that you're providing, especially in aerospace and defense. Want to understand a little bit better what the building blocks are, what was Arxis EDGE on new business, what was pricing, because you have the same end markets as some of those peers.

Also when we look at this higher than peer growth for now, look, high single digit target versus 17% is a pretty big gap. How long do you think you can get this higher than high single digits organic growth to sustain? Thank you.

Okay. Hi, Kristine, and thanks. First on what supports the 17% growth, how do we break that down and what is really from Arxis EDGE. I'll remind people that we have this algorithm that we use to drive the business. There's three ways organically to drive the business, and when we think about that, it's the bottom line of the business. It's volume, price, and cost, VPC, and then inorganically, we have acquisitions, and we use EDGE to drive volume and price quite a bit. If you break out that 17%, it's roughly 1/3:1/3:1/3. A third new business growth as generated through Arxis EDGE and measured through Arxis EDGE, 1/3 mid-single-digit pricing, and 1/3 the market. Pretty simple, and we have great resolution into that as you know, and we can really see the numbers coming through there.

In terms of your second question, and the long term. Long term to us just means beyond this year, beyond the guidance period. Beyond the current period, we're just going to remain disciplined and very measured. We don't have data yet to really forecast beyond the current period. We don't have enough data yet. We're forecasting the near term, using that Arxis EDGE 90% filled in number. The way we use that number, by the way is we know exactly where we should be in terms of firm backlog for each and every business unit at every month in the year. We know in May how much backlog we should have secured for each business unit in order to achieve a certain forecast. We're using math, and we're using data to support the near-term forecast, so we feel very comfortable with that.

As we get data for next year and as we provide guidance for next year, we'll have a lot of data to do that as well. In the meantime, we're disciplined and measured about the long term.

Great. Super helpful. You talked about you guys have been doing five to six deals on average per year. That was kind of the playbook that you've had with Arcline. When you look out now, considering the strength of the balance sheet, do you have a preference for larger deals versus smaller deals? Any additional color you want to provide regarding the pipeline?

Sure. We don't have a strong preference between larger deals or smaller deals. I would say that the smaller deals are more plentiful. There's going to be a lot more smaller deals to work on. We're going to continue to evaluate the deals based on, I guess, two main buckets. The first is, does it fit our business model? If it does, then we can go to the second bucket, which is the financial criteria. The financial criteria that we're using to evaluate new deals is, can we grow the EBITDA of the acquired business at a higher rate than the base of Arxis in the next three years? Will it accelerate our EBITDA growth? The second financial criteria is, can we buy down the multiple to less than 10x within 36 months?

We're going to continue to use that criteria large or small, no preference. Even the market, not a strong preference, mostly the business model fit. The business model is what I described in the opening remarks.

Got you. Thank you very much.

Thanks.

Thank you. Our next question comes from Peter Arment with Baird. You may proceed.

Yeah. Hey, good morning, KP. Azad, congrats on the strong start to the year. Hey, KP, I think we all understand kind of defense and space and commercial aerospace kind of drivers. Maybe you could talk a little bit about what you're seeing in industrial technology. You called out semis as maybe a source. Maybe give us a little more color on what's driving the opportunity there. Thanks.

Yeah. In industrial tech, again, it's super diversified. There's a lot of sub-markets in that category. The two largest would be semiconductor manufacturing related to AI. Medical is the other large one, and then there's a lot of other factory automation, robotics, quantum computing, you name it. What's really nice about what we're seeing right now is that across that whole diversified subset of markets, it's up and to the right. We're seeing strength everywhere. Not one thing, it's in all of the above.

Got it. That's helpful and just good to see. I know space is a relatively small, maybe percentage of the mix, but maybe opportunities there or your interest in growing kind of M&A there. Thanks again, KP.

Thanks. The space sub-market for us is 3%-4% of our revenue, so not a very large piece. It does make sense that it is only 3%-4% because, if you look at the Department of Defense budget, space is 3%-4% of spending for them as well. We map onto the kind of the global market as a kind of a nice microcosm. There's no particular interest in space. When we're looking at new deals to add acquisitions to the portfolio, it's again, mostly tied to, is it a business model fit first and foremost? If we come across something that has space exposure that fits all the M&A criteria that we have, then we would certainly consider it.

Got it. Just lastly, Azad Badakhsh, you called out kind of the free cash flow. Maybe you could just level set us for kind of cadence or expectations, kind of the dynamics from Q2 and balance of the year. Thanks.

Absolutely. I would just remind everybody that free cash flow conversion can be somewhat lumpy in a given quarter, but that does generally smooth out on an annual basis. Zooming out, what I would ask everyone to try to remember is that, both our CapEx and our change in net working capital each tend to be around 3% of revenue on an annual basis. If you run the math on that, you should expect free cash flow conversion for the whole year to be well over 100%.

Got it. Thanks again, guys.

Thank you. Our next question comes from Scott Mikus with Melius Research. You may proceed.

Good morning, KP and Azad. Congrats on the quarter. A quick question on the defense and space side. We're seeing a lot of defense contractors reach multi-year production agreement with the Pentagon. Understandably, the primes want to protect themselves against inflationary pressures and same with their tier one and tier two suppliers. Are they pushing any of your operating units to sign up for long-term agreements instead of going PO to PO for some of these programs that they're looking for seven-year production runways?

Hi, Scott. Yeah. I would say it's very early days, when it comes to that. We are starting to hear conversations about multi-year agreements. There's some qualitative indicators that there may be more of that as we go forward. That has not impacted our backlog yet. That's not converted into actual orders. We have not signed long-term agreements at this time. We're hearing more and more conversations about multi-year agreements, so we'll have to keep you posted on that as we go forward.

Okay. Got it. Also in the defense and space side, we're starting to see a lot of new programs come out, that are being won by some of these new entrants, whether it be Anduril, Shield AI, Castelion. I'm just curious, can you talk about the work that you do with those neo-primes, and how you see your products on those platforms growing over the coming years?

Sure. Yeah, we work with everybody. We're working on many new business opportunities right now across the whole portfolio. When we say many, it's in the thousands. As you go into Adjusted EBITDA, you can see this. All of the companies that you named are in Arxis EDGE, we are working with all of them on different opportunities, they're all at various stages. Some of them have converted to revenue. Some of them are pre-revenue. All of these defense technology companies, including the primes, all rely on engineered components to make their products. For the most part, none of them have vertically integrated down to the tier three, tier four base level components that we provide. We will be an important part of the supply chain for all of the above, for all of them.

All right. Guys, thanks for taking the questions.

Thank you.

Thank you. Our next question comes from Myles Walton with Wolfe. You may proceed.

Thanks. KP or Azad, could you comment on the PO backlog relative to where it ended the year at $1.2 billion? How did that grow? I heard you comment that 90% of the rest of the year is filled out, but just curious on that quantum.

Yeah. The backlog has increased. I think you referenced $1.2 billion, which is where we ended 2025, and so the book-to-bill ratio has been positive as we went through Q1, resulting in a higher backlog. The total backlog obviously is spread out over, it can be 12 months, 12-18 months. What we look at as a more important indicator, as I referenced earlier, is how much of that backlog is actually due this year, and how secured are we against this year, which is perfectly in line with where we should be considering our $1.87 billion revenue guidance.

Then just looking at the kind of Q margins by segment, MCS, to your prepared remarks, had the best margin expansion, I think 37.6% EBITDA margins versus 30% last year in the first quarter. That level of expansion, what was the driver primarily? For the rest of the year, where do you think that can go and more medium term as well?

The Mechanical Components did expand more rapidly than normal in Q1. They're using the VPC algorithm, so they're growing their volume, and they're converting their volume at greater than 50% conversion margin into EBITDA. They're pushing mid-single digit price. They have also the cost lever that they're pulling on right now. Remember in the Mechanical Components segment, we did a large acquisition in 2024 of Command, and there were a number of cost reduction opportunities that the team on the mechanical side took action on in the first half of 2025. Those cost reductions are still flowing through the P&L as we go through the first half of this year. We're at an elevated rate of margin expansion.

Because they started at a lower rate, they started at 30%, so there was a lot more room to expand the margin from that lower starting point. It will certainly modulate. I think we're going to continue to see good margin expansion on the mechanical side. They're still behind the Electronic Component side, there's no structural reason why they wouldn't have the same margins.

Okay. That's great. Thank you so much.

Thank you. Our next question comes from John Godyn with Citi. You may proceed.

Hey, guys. Thanks for taking my question. I wanted to talk a little bit about guidance philosophy, if you will, because you guys are new to the market. When I look at the guidance range, it's $20 million in revenue and $10 million in EBITDA. That's obviously unusually tight. It almost seems not worthwhile to ask what would get us to the high end versus the low end, right? K.P it sounds like the reason for that is because so much of it is locked in for the rest of the year. Can we talk a little bit about what approach we should expect going forward? Is the idea to set guidance in a very tight range at an extremely kind of conservative level, and then inevitably, as the bookings come in a little bit better, just keep raising it? Is there another way to think about the range?

Maybe we could just discuss what to expect going forward as you guys are delivering, performing very well and raising what is an extremely tight guidance range going forward.

Hey, yeah. Hi, John. Remember, we're using data, so you're right, we are probably a little more precise than normal because we're using the actual filled-in backlog and then extrapolating. We're 90% filled in May. We should be 90% filled in May. What does that result in a full year revenue number? Then if the orders accelerate, so like as we go into June, July, and the orders are ahead of expectation, then that would fill the backlog in faster, and we would raise the guidance. That would be our methodology. I think that answers your question. It is pretty straightforward. Nothing magical about it, just math and using data to drive the forecast.

I guess some companies in your situation might have, let's say, a $75 million range on revenue or $100 million and say $1.86 billion to whatever, $1.96 billion, and as bookings come in throughout the year, we're comfortable that the low end is extremely protected and the high end has upside. In your case, it sounds like that upside is inevitably just guidance raises from here, and the way that you guys are thinking about it is essentially setting the guidance range to what is the lowest realistic kind of number for the year based on your bookings. Is that fair? I'm getting at this idea that there's a $20 million revenue range for the year and a $10 million EBITDA range, but we're looking at a business that's growing mid-teens doing M&A, and has 50% incremental margins.

Is that tightness in the range really reflective of how you see the volatility in the business? Or is it a function of how you guys are thinking about guidance philosophy?

I think it's probably a function of how we're thinking about guidance philosophy, and you did mention M&A, by the way, and this is all organic. We're not considering any future M&A in this guidance here. That could also change things quite a bit as we go forward. There's a lot of things that could change the guidance as we go forward. We are giving our opening guidance here in May. That will be unusual timing, right? Just because we just went public. In the future, the opening guidance would be a little bit earlier in the year. We might have a wider range on that, right? As we're establishing the initial guidance, because there will be more unknowns at that point in the year than there are in May.

I would expect that as it fills in, we'll keep updating and I hope it gets tighter as we go through the end of the year, because we should start to converge on the actual number as we get into the fourth quarter.

Okay, great. That makes sense. Thinking a step ahead, you guys have your long-term guidance metrics. It feels like that's what you would default to at the start of any year for 2027 or 2028, just kind of picking a date in the future. Is that right, or should we be looking at the exit rate of the prior year in forming following year guidance?

I would say that if we are providing guidance, say, for 2027, in the beginning of 2027, we're going to have more resolution, and we're going to actually have a significant portion of the year filled in at that point. We'll be able to give more accurate guidance than our long-term numbers at that point. I think that's your question.

Yeah. With all the momentum in 2026, it certainly seems reasonable that carries forward. We'll see how that plays out. Thanks a lot, guys.

All right. Thanks, John.

Thank you. Our next question comes from David Strauss with Wells Fargo.

Hi, good morning. This is Joshua Korn on for David Strauss. Thanks for taking the question and congrats on the IPO. Wanted to ask, following up on the guidance for the year. I think it was materially higher, the growth rate, than kind of your thoughts during the IPO process. Just wanted to ask, I guess kind of what contributed to the better outlook, any certain end market segment dynamics, anything like that. Thanks.

Yeah. Hi, Josh. Yeah, I think it's just timing. Remember, we built the models that went into the IPO sort of roadshow at the end of 2025. It's several months ago now. We have a lot more data. Our backlog is filled in, and we can use that data now to kind of accurately forecast the year. It's as simple as that. It's a matter of when we built the different models and how much data we had at that time.

Okay, great. Thanks. I'll just stick to one.

Thank you.

Thank you. Our next question comes from Kenneth Herbert with RBC. You may proceed.

Yeah. Hi, good morning, Kevin and Azad. Maybe just to start, remind us, is there any seasonality we should keep in mind as we think about specifically on the Adjusted EBITDA, the cadence here from the first quarter through the rest of the year to end up at the full year just under 39% number?

No, I don't expect any seasonality in the margin or the revenue. It's pretty straight.

Okay. Helpful.

I would just add, Ken, what's more important than seasonality, I think it's just normal quarterly variability. The quarters could move and modulate a little bit. The full year guide is what I'm most confident in. It's why we're not providing individual quarterly numbers.

Yeah. No, that's appreciated. I guess as you think about the quarterly variability, could that really just come down to timing of shipments, I guess, and anything that could impact that where you might not have control relative to cost items, price, I guess, is where you could see the volatility quarter to quarter?

Different platforms and customers have different delivery schedules. Things will move up and down as we go through the quarters. It will even out and converge around the mean over an annual period. It's just normal variability of a manufacturing business.

Okay. Perfect. Thanks, Kevin. I'll stop there.

All right. Thank you, Ken.

Thank you. As a reminder, to ask a question, please press star one one on your telephone. Our next question comes from Louie DiPalma with William Blair. You may proceed.

KP, Azad, and Brian, good morning, and congrats to you, Rajeev and the Arcline team. What is the status of the 2025 class of acquisition/block units, so M-Wave, RMB, OSG, Spira, and the Micro-Tronics deal, in terms of the cost synergies and the general P&L performance. Specifically, I'm wondering, are there more optimizations in store for these deals from last year, or are they already generally integrated?

First of all, we're really happy with the performance of all the businesses that we acquired over the whole time period, but especially this cohort that you mentioned. Strategically, they're all, first of all, an excellent fit with the business model, right? Proprietary, engineered, mission-critical products, strong customer relationships, long platform durations. I would say operationally, financially, and culturally, they're all performing very well, meeting or in some cases really exceeding the objectives that we had when we acquired them. One of the strengths of Arxis is that we're so diversified across our business units, so the broader performance of the portfolio is a lot more important than the performance of any one individual asset or cohort of assets. The decentralized and diversified nature of the business units is really the thing to focus on. As a group, we're doing really well.

Great. Are there more optimizations in store for these deals from last year?

I would say there's more optimization in store for every business unit. Every business unit doesn't stop pushing volume, price, and cost once they get integrated into the Arxis system. It's a continuous process and never-ending. I think we'll continue to see improvement across every business unit.

Great. One final question. You highlighted, KP, new business wins as a contributor to the 17% organic growth. I think you also discussed how roughly one-third of the growth came from these new business wins. Can you provide more details on either the platforms or the products for some of those new business wins? Were they for next generation platforms, as you mentioned you're working with all of those neo-primes, or were they takeaways from struggling suppliers on existing platforms? Any color there would be great. Thanks.

Our new business wins, just like our existing business, is super diversified. There is no one thing that I can point to. There's no one product or platform or project. It's 1,000 things. There's roughly 1,000 new business opportunities we booked business against in Q1. It's diversified. You asked about the neo-primes. They are in there. It's kind of proportionate to the size of the revenue that they have, so it's not a majority of it, but it is a piece of it.

If you think about how much of that is truly new business development and where we are working hand in hand with the engineers and getting designed into a platform that is in the early stages of production or maybe there's a system on a platform that's been in production that's being modernized, that is the vast majority of it, because that's our business model, is to go in and work with the engineers and get in at the ground floor, get designed into the bill of materials. There is a portion of the new business which is the customer's having a problem, either a performance problem, a quality problem, a delivery problem with a different supplier, and then we come in to address that, and we can displace them. That's like an 80/20 rule.

80% is new, and 20% is we had to step in and help out and displace somebody else.

Great. Thanks, K.P., and thanks, Azad and Brian.

All right. Thanks, Louie.

Thank you. I would now like to turn the call back over to Kevin Perhamus for any closing remarks.

Okay. Well, thank you. We're really pleased with how the business is performing and the excellent start that we've had as a public company. As we discussed today, we believe that Arxis has built a differentiated business model with attractive long-term growth characteristics. We remain confident in our ability to continue executing and creating value over time, and we appreciate your time today. We look forward to speaking with you again next quarter.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.