ESCO Technologies Q3 2026 Earnings Report

ESCO Technologies EPS Results

• Actual EPS: $2.20
• Consensus EPS: $2.12
• Beat/Miss: Beat by +$0.08
• One Year Ago EPS: $1.60

ESCO Technologies Revenue Results

• Actual Revenue: $339.03 million
• Expected Revenue: $341.40 million
• Beat/Miss: Missed by -$2.37 million
• YoY Revenue Growth: +14.40%

ESCO Technologies Announcement Details

• Quarter: Q3 2026
• Date: 8/6/2026
• Time: After Market Closes
• Conference Call Date: Thursday, August 6, 2026
• Conference Call Time: 5:00PM ET

ESCO Technologies (NYSE:ESE) is a St. Louis, Missouri-based provider of engineered products and services for the aerospace, defense, utility, healthcare, telecommunications and industrial markets. The company develops specialized technologies used in testing, measurement, filtration, fluid control and power-delivery applications.

Through its Aerospace & Defense segment, ESCO supplies filtration systems, fluid-control equipment, valves, electromechanical products and other components for commercial and military aircraft, spacecraft and defense platforms. Its Utility Solutions Group provides equipment and services that support electric power generation, transmission and distribution, including products used to monitor, protect and improve the performance of utility infrastructure.

ESCO’s RF Test & Measurement operations offer electromagnetic-compatibility and radio-frequency testing systems, wireless-device test equipment, antennas, sensors and related engineering services. The company serves customers globally through its operating businesses and has a history dating to its establishment in 1956.

ESCO Technologies Q3 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q3 results exceeded expectations, with 14% reported revenue growth, 8% organic growth, adjusted EBIT margins up 90 basis points to 22%, and adjusted EPS up 37.5% to $2.20.
• Positive Sentiment: Strong orders across all three segments produced a 1.21 book-to-bill ratio and a record $1.54 billion backlog, supporting management’s confidence in continued growth.
• Positive Sentiment: ESCO raised fiscal 2026 adjusted EPS guidance to $8.30-$8.40, representing 38%-39% growth, while operating cash flow increased to more than $193 million year to date.
• Positive Sentiment: The Megger acquisition remains on track to close in the first quarter of fiscal 2027, with regulatory reviews progressing as expected and integration planning underway; management expects debt costs of approximately 6%.
• Negative Sentiment: Utility Solutions margins declined 130 basis points, largely because NRG’s renewables business remains weak; management expects another year-over-year decline in the fourth quarter before a possible return to growth in fiscal 2027.

Presentation

[Operator]

Good day. Thank you for standing by. Welcome to the third quarter 2026 ESCO Technologies earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. On the call today, we have Bryan Sayler, President and CEO, Chris Tucker, Senior Vice President and CFO, and now I'd like to turn the conference over to our first speaker today, Kate Lowrey, Vice President of Investor Relations. Kate, you now have the floor.

[Kate Lowrey, VP of Investor Relations at ESCO Technologies]

Thank you. Statements made during this call, which are not strictly historical, are forward-looking statements within the meaning of the safe harbor provisions of the Federal Securities Law. These statements are based on current expectations and assumptions. Actual results may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the company's operations and business environment, including but not limited to, the risk referenced in the company's press release issued today, which will be included as an exhibit to the company's Form 8-K to be filed. We undertake no duty to update or revise any forward-looking statements, except as may be required by applicable laws or regulations. During the call, the company may discuss some non-GAAP financial measures in describing the company's operating results.

[Kate Lowrey, VP of Investor Relations at ESCO Technologies]

Reconciliation of these measures to the most comparable GAAP measures can be found in the press release issued today and found on the company's website at www.escotechnologies.com under the link Investor Relations. I'll turn the call over to Bryan.

[Bryan Sayler, President and CEO at ESCO Technologies]

Thanks, Kate. Thanks everyone for joining today's call. We're pleased to meet with you this afternoon to discuss ESCO's third quarter results. In Q3, we continued to see positive momentum in each of our business segments as demand across our served end markets continues to build. Aerospace, utility, and test orders were all strong, driving a consolidated book-to-bill of 1.21. This continuing strength lifted backlog to record levels across A&D, test, Doble, and at the consolidated level. This is all clear evidence of growing end market demand and the strength of our competitive position. Operationally, Q3 was another strong quarter of revenue and earnings performance. Continued order strength is flowing through to drive high single-digit organic revenue growth and operating leverage.

[Bryan Sayler, President and CEO at ESCO Technologies]

Over the past year or so, we have been working on development and implementation of an enterprise-wide continuous improvement process, which we will call the ESCO Operating System. Although we are still in the early stages of the operating system implementation, we are already beginning to see impacts across our businesses through greater consistency in execution and are building a stronger foundation for sustainable value creation over time. Chris will run you through all of the financial details for the third quarter. Before that, I wanted to give you a few comments on each segment. Starting with Aerospace & Defense. I recently had the opportunity to attend the Farnborough Airshow. It was really a great event, and it made clear that investments will continue to be made by our customers to support a continued robust demand outlook.

[Bryan Sayler, President and CEO at ESCO Technologies]

On the commercial side, the industry continues to be supported by a global aircraft backlog of approximately 18,000 aircraft, with an estimated unmet demand of an additional 5,000 aircraft. This demand backdrop underpins a long-duration production ramp and creates a compelling growth runway for OEMs, suppliers, and subcontractors across the aerospace value chain. At the same time, the show made clear that defense, security, and strategic resilience are becoming increasingly central to the industry narrative. Defense companies represented roughly half of the record exhibitor base at Farnborough, reflecting elevated military spending and a more complex geopolitical backdrop. Taken together, Farnborough reinforced the aerospace growth trajectory, supporting a durable multiyear production cycle. Strong commercial OEM and services outlooks remain intact while defense demand appears positioned to accelerate as governments prioritize readiness, modernization, and resilient supply chains.

[Bryan Sayler, President and CEO at ESCO Technologies]

On the Navy side, we continue to see evidence of a strong commitment to submarine programs. Last week, the Navy awarded the largest shipbuilding contract in history to the prime contractors for the remaining 9 Block VI Virginia-class and the next 5 Columbia-class submarines. ESCO is already under contract with the primes for this content, and the Navy's actions last week increase our confidence in the long-term outlook for submarine programs. Turning to the Utility Solutions Group, Doble's continued order strength has translated into double-digit revenue growth year to date as rising power demand, electrification, and grid modernization are all increasing the need for reliable, well-maintained electrical infrastructure.

[Bryan Sayler, President and CEO at ESCO Technologies]

As utilities expand their generation, transmission, and distribution capacity to support data centers, EVs, industrial electrification, heat pumps, and other sources of load growth, they must invest in tools that help maintain aging assets, diagnose and prevent failures, reduce downtime, and ensure grid reliability, safety, and compliance. In addition, as they progress on the longer-term infrastructure build-out, they need support in commissioning new assets and maintaining a larger, more complex grid. These are durable demand drivers for utility test instrumentation providers like Doble and Megger. Related to the Megger acquisition, we continue to work through the regulatory filing process in the required countries. This is all going smoothly, the timing is tracking to our expectations. We continue to believe that this process should be completed in a timeframe that results in closing the deal in the first quarter of our fiscal 2027.

[Bryan Sayler, President and CEO at ESCO Technologies]

Teams from both ESCO and Megger are actively collaborating on important integration planning activities. We believe this advance work will help establish a clear path for efficient, well-coordinated integration of Doble and Megger while keeping us focused on achieving the anticipated synergies. Bringing Megger into the ESCO portfolio will build greater scale in utility solutions and reinforce our role as a trusted partner to utility customers around the world. The acquisition is an important milestone in the continued advancement of our portfolio, and we remain optimistic about the long-term prospects for the utility markets that we serve. Finally, I'll touch on the test business, which had another strong orders quarter with 42% growth over the prior year. Test order strength in Q3 was driven by industrial shielding projects and electromagnetic interference filters. On industrial shielding, those orders primarily relate to secure shielded rooms in both the U.S. and Europe.

[Bryan Sayler, President and CEO at ESCO Technologies]

The EMI filters are for use in commercial and government data centers. The continued demand strength at Test is encouraging, and the team there is doing a really nice job of improving execution and expanding margins as their end market momentum continues. With that, I'll turn it over to Chris to run you through the financial details of the quarter.

[Chris Tucker, SVP and CFO at ESCO Technologies]

Thanks, Bryan. Everyone can follow along on the chart presentation. We will start on page three, which shows the financial highlights for the third quarter. ESCO had another strong quarter of top-line growth, translating to even better growth in adjusted earnings and operating cash flow. Getting to the numbers, we start with orders, where the book-to-bill ratio in the quarter was 121%. All three segments delivered book-to-bill ratios over 100%, leading to a record backlog of $1.54 billion. Order growth in the quarter was negative, but that resulted mostly from the $364 million of acquired backlog from the Maritime acquisition that took place in last year's third quarter. Turning to sales, reported growth was 14%, which was comprised of 8% organic growth and $23 million of incremental sales from Maritime.

[Chris Tucker, SVP and CFO at ESCO Technologies]

Just to remind everyone, we had a two-month impact from Maritime in last year's third quarter, while this year was a full three-month impact. On the profitability side, we saw adjusted EBIT margins improve by 90 basis points to 22% and adjusted earnings per share increase by 37.5% to $2.20 per share. Next, we will go through segment highlights, starting with Aerospace & Defense on page four. Another great quarter here as the A&D business continues to deliver for ESCO. Starting with orders, A&D had a book-to-bill ratio of 116%, with particular strength from our aircraft components business. You can see from the bar chart on the left, we showed a large percentage decline in orders compared to last year. There were two main factors driving the percentage drop. First, and as mentioned previously, there was $364 million of acquired backlog from Maritime last year.

[Chris Tucker, SVP and CFO at ESCO Technologies]

Second, the Navy business at Globe received $82 million of Virginia and Columbia class orders in last year's third quarter, which did not fully repeat this year. With backlog of $1.1 billion, the business continues to be situated well for future growth. Sales in the quarter were $168 million, which represents an increase of 23%. Organic growth was 9%. The organic growth was driven by 10% increases from commercial and Aerospace & Defense, as well as 10% from the Navy business. Really nice performance from all parts of the core Aerospace & Defense platform. On the profitability side, we had good improvement to 30% adjusted EBIT margins, an increase of 120 basis points. Margin increases were due to positive impacts from leveraging sales growth and increased prices. Next, we will go to chart five in the Utility Solutions Group.

[Chris Tucker, SVP and CFO at ESCO Technologies]

Orders here were up 20% in the third quarter, that was driven by exceptional performance at Doble, where orders grew by 30%. We did see weak orders performance at NRG, where the renewables markets continue to be very soft. Sales in the quarter were up 8%. Again, the growth was driven by Doble, where sales increased by 17%. Doble continues to see strong end market activity across a number of product lines serving their regulated utility customer base. Adjusted EBIT margins in the quarter declined by 130 basis points. Doble margins increased modestly, but were more than offset by margin declines at NRG. Next, we have the test business on page six. This business had another good quarter, starting with orders, which increased by 42%. The order growth was driven by industrial shielding products, projects, and EMI filters in the U.S.

[Chris Tucker, SVP and CFO at ESCO Technologies]

This business is seeing robust market activity centered around U.S. and European EMC test and measurement, as well as power filter demand in the U.S. Sales in the quarter increased by 5%, adjusted EBIT margins increased 50 basis points to 16.4%. The margin improvement was driven by volume leverage, somewhat offset by inflationary pressures. Next is chart seven, where we have year-to-date highlights. The first nine months saw ESCO deliver great results as we work towards another record year. Order strength has been significant, with 19% organic growth year to date. All three businesses have delivered double-digit organic growth, with Aerospace & Defense and test at 20% and 26% respectively. Sales have also been strong, with 11% year-to-date organic growth, led by test at 18% and Aerospace & Defense at 12%.

[Chris Tucker, SVP and CFO at ESCO Technologies]

Adjusted EBIT margins are up 250 basis points year to date, adjusted earnings per share have increased by 55%. Going to chart eight, we have cash flow highlights for the first nine months. Operating cash flow is up significantly at over $193 million, compared to $88 million in the prior year. A key driver to the increase has been increased advanced payments on large Navy contracts. Capital spending is up slightly compared to last year, acquisition spending is down significantly this year, given the large maritime deal in April of 2025. EBITDA leverage is low at 0.2 times, we continue to be positioned well for the debt requirements that will come with the Megger deal, which is expected to close in the first quarter of fiscal 2027. Our last chart is number nine, where we have updated 2026 guidance.

[Chris Tucker, SVP and CFO at ESCO Technologies]

With another strong quarter, we are increasing the full year 2026 guidance. We now expect full year adjusted earnings per share of $8.30-$8.40 per share. This represents an increase of 38%-39% compared to fiscal 2025. This is a substantial increase from our original November guide. You can see from the bar graphs at the bottom of the page, we expect 2026 to be another record year and a nice continuation of the growth trend ESCO has delivered since fiscal 2021. That completes the financial summary. Now I'll turn it back over to Bryan.

[Bryan Sayler, President and CEO at ESCO Technologies]

Thanks, Chris. As you've heard from our commentary, Q3 was another solid quarter. We're looking at another year of strong revenue and earnings growth. With record backlog, we continue to feel great about the long-term prospects for ESCO. That concludes our opening remarks. We'll now turn it over to Q&A.

[Operator]

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, you'll press star one one again. Please stand by while we compile the Q&A questions. Thank you. Our first question comes from the line of Tommy Moll from Stephens. Please go ahead, your line is now open.

[Tommy Moll, Analyst at Stephens]

Good afternoon. Thanks for taking my questions.

[Bryan Sayler, President and CEO at ESCO Technologies]

Hi, Tommy.

[Tommy Moll, Analyst at Stephens]

Bryan, it wasn't the first time that you mentioned data center orders for the test business, you did give us a little more detail this time, I'm curious to ask, what more can you tell us about the complexion of that customer base? Is this one that has broadened over the last couple quarters for you, where you've had success with new and additional customers? Thank you.

[Bryan Sayler, President and CEO at ESCO Technologies]

Yeah. I would say that we have seen a little bit of improvement in the outlook there. We have a couple of good customers there. I don't want to get into the details of who they are, they're in that broadly speaking data center space. It's important to remember that not every data center has a requirement for this kind of EMP protection. Any commercial data center that's going to house government data, utility systems, that sort of thing, critical infrastructure, they tend to have this requirement. We see it being embraced increasingly, and I think we're doing pretty well in terms of our market attainment.

[Tommy Moll, Analyst at Stephens]

Then shifting gears to Doble, Bryan. Very strong acceleration there, both in terms of sales and orders. Particularly on the order side, what additional detail can you give us there? Relatedly, have you been able to discern how Megger's book has shaped up since you announced the deal? This is a big move higher for your order book. I'd be curious if they've seen the same thing.

[Bryan Sayler, President and CEO at ESCO Technologies]

Yeah. I would say that the 30% year-over-year increase in orders was very broad-based. Honestly, we had a 67% increase in our condition monitoring business that was led largely by some pretty good sized, large high voltage cable monitoring orders. We had a 13% increase in our services business. We had a 23% increase in our protection business, 13% in offline testing. We had a large renewal of one of our cybersecurity clients. Really broad-based, across-the-board improvements there. The one laggard in our utility business continues to be the renewables business. On a year-over-year basis, that was down considerably, but we are seeing some sequential growth that is encouraging.

[Tommy Moll, Analyst at Stephens]

Thank you, Bryan. I'll turn it back.

[Bryan Sayler, President and CEO at ESCO Technologies]

You asked about Megger.

[Tommy Moll, Analyst at Stephens]

Yeah.

[Bryan Sayler, President and CEO at ESCO Technologies]

We have reason to believe that they are seeing something similar. I don't have as much detail on their numbers, but they're up nicely over the prior year. That's an indication that the market itself broadly is improving and continues. I think we've been talking about this buildup in their spending for some time, and I'd say it certainly looks real, and we have deals to prove it.

[Tommy Moll, Analyst at Stephens]

Thank you, Bryan. I'll turn it back.

[Operator]

Thank you. Our next question comes from Scott Deuschle from Deutsche Bank. Please go ahead. Your line is now open.

[Scott Deuschle, Analyst at Deutsche Bank]

Sorry if I missed this. Hey, good evening. Chris, can you share the updated segment revenue guidance?

[Chris Tucker, SVP and CFO at ESCO Technologies]

Yeah. What I would say is, we don't typically give a guide every quarter on that. What I would tell you is, for A&D on an underlying basis, excluding maritime, we're looking at 8%-10% for the year. For test, we would be more like 10%-12% now, and then for utility overall, more like 4%-6%, something like that.

[Scott Deuschle, Analyst at Deutsche Bank]

Okay. How did the Doble outlook within utilities change?

[Chris Tucker, SVP and CFO at ESCO Technologies]

We'd be low double digits there. If you look at where they've been, we would see them continuing that trend through the fourth quarter.

[Scott Deuschle, Analyst at Deutsche Bank]

Okay. Either Bryan or Chris, why did USG margins go down sequentially on sales that were up sequentially?

[Chris Tucker, SVP and CFO at ESCO Technologies]

Yeah. I would say the main thing there, if you look at the Doble margins, they were up versus last year, but given the sales growth, they weren't up a lot. We had a little bit of unfavorable mix there. Some of the high voltage lines are seeing a lot of growth there, product lines. Those are a little bit unfavorable mix in the business. That's one issue. We also had just timing on some expenses for different SG&A and cost of sales items. That was one of the factors in there as well. I would point to NRG. The NRG margins are scuffling along the bottom here. Again, Scott, I'm talking a little bit to prior year comps, but last year, they had very nice margins in the third quarter at NRG, in line with the overall segment.

[Chris Tucker, SVP and CFO at ESCO Technologies]

They're operating quite a bit below that right now. More like low double-digit type margins there. That's really a big hit year-over-year and a key driver in the overall margins. I would say if you look year-to-date at Doble, it's right in line with where we thought they'd be year-to-date. They were really strong in the second quarter, not quite as strong here in the third.

[Scott Deuschle, Analyst at Deutsche Bank]

Okay. Have there been any discrete inflationary pressures in cost of goods sold that have impacted USG, things like DRAM costs or electronics like that?

[Chris Tucker, SVP and CFO at ESCO Technologies]

We haven't seen any that are really material at this point. We're anticipating that, and we're trying to get ahead of it, but we haven't seen anything that would be reflected in the third quarter numbers.

[Scott Deuschle, Analyst at Deutsche Bank]

Okay. Last question. Chris, is a 30% incremental EBIT margin for A&D still the correct go-forward rate given that you printed a 30% margin this quarter?

[Chris Tucker, SVP and CFO at ESCO Technologies]

Yea . Listen, I think as Bryan mentioned, we are trying to roll out this kind of ESCO Operating System. I think that we continue to expect to take the margins up there. I'll say it that way. I think the 30% could maybe be a little bit low there, but when we put that 30% target out, we are talking about the company in total. I think for A&D, there are certainly parts of that where we are going to have to do better than that to continue to drive the margins up. That's how we are looking at that right now.

[Scott Deuschle, Analyst at Deutsche Bank]

Okay. Thank you.

[Operator]

Thank you. Our next question comes from the line of Jon Tanwanteng from CJS Securities. Please go ahead. Your line is open.

[Analyst at CJS Securities]

Hey, this is Will in for Jon. Thanks for taking our questions. Can you talk about the strength in the defense business? Are you seeing more relative strength from programs of record or more from aftermarket activity than consumables? How should we think about that over the next couple of quarters, given the high usage rate?

[Bryan Sayler, President and CEO at ESCO Technologies]

I think it's mostly from programs of record. I think that our aftermarket business there continues to accelerate at about the same rate as the rest of the business. We're maintaining that 30% ratio. Our core business, particularly in the submarine programs, is what's driving the big acceleration that you're seeing. Listen, we have every reason to believe that's going to continue.

[Analyst at CJS Securities]

Thanks for that. Are you seeing a light at the end of the tunnel for NRG? When do you think you might return to year-over-year growth?

[Bryan Sayler, President and CEO at ESCO Technologies]

Well, we've got one more quarter of pretty tough comps. If you will remember that right about now a year ago is when the one big beautiful bill went into effect. What you're seeing in the third quarter from 2025 reflected a quarter where the renewables market was still quite hot. We carried that backlog through into the fourth quarter, had a really good fourth quarter last year. I think you're going to see another year-over-year negative in the fourth quarter. I'm encouraged by the fact that we're beginning to see sequential growth. I would continue to believe that as we move into FY 2027, that that's when we'll begin to see a return to growth off of a lower base. The business doesn't get back to where it was in FY 2025.

[Bryan Sayler, President and CEO at ESCO Technologies]

We do begin to see something that'll look like high single digit growth from that point forward.

[Analyst at CJS Securities]

All right, I'll leave it there. Thank you.

[Operator]

Thank you. Our next question comes from the line of Tomo Sano from J.P. Morgan. Please go ahead. Your line is now open.

[Tomo Sano, Analyst at J.P. Morgan]

Hello, everyone.

[Bryan Sayler, President and CEO at ESCO Technologies]

Hello. How are you, Tomo?

[Tomo Sano, Analyst at J.P. Morgan]

Good. Thank you for taking my questions. I would like to ask you about NRG in the USG. Could you talk about beyond U.S. tax credit dynamics? What are the key bottlenecks for NRG? Customer and CapEx cycles, competitions, portfolio gaps, and so on, and what kind of actions are you taking like to address them? Thank you.

[Bryan Sayler, President and CEO at ESCO Technologies]

Yeah. At NRG, it's principally a diagnostics business that's around solar and wind generation, utility scale, terrestrial. What's happened there, the dynamic that's driving the unpleasantness this year is really around the capital spending that you're seeing from energy developers who really have been focused on safe harboring the projects that they already have in process. They've been working on qualifying for the tax credits, which expired last week. Now what we expect to see is that they will return to a broader focus. We do think long term that there's a place at the table for renewables because they are affordable relative to other forms of generation. They're available. We would expect to see a faster return to growth on the solar side compared to the wind side due to some of the animosity that the current administration has towards wind.

[Bryan Sayler, President and CEO at ESCO Technologies]

There's been some permitting issues there. From a structural perspective, there have been some costs incurred on the wind side from tariffs and things like that. Otherwise, our belief continues to be that on a levelized cost of energy basis, that wind and solar continue to be attractive and affordable, and that over time that we're going to see a return to growth in those markets.

[Tomo Sano, Analyst at J.P. Morgan]

Thank you. If you could talk about in the first 100 days post the close for Megger, what are the top priorities ahead? Thank you.

[Bryan Sayler, President and CEO at ESCO Technologies]

Sure. The good news is we've got a team that's kind of putting that plan together. What we would expect to do is shortly after closing, we're going to be able to communicate those plans across the business. We have not finished them, but that will require us to take a hard look at our footprint, our manufacturing sites, harmonizing our product lines, putting together our go-to-market strategy. Those are all the big things that you should see rolled out in that first, along with a new combined identity of the combined enterprise. I think the other thing that I might want to mention, I maybe didn't answer the question on other things we've done at NRG.

[Bryan Sayler, President and CEO at ESCO Technologies]

We have taken some cost out of the business at NRG, we will be rolling that into the larger Doble Megger platform as a business unit rather than as a standalone enterprise.

[Tomo Sano, Analyst at J.P. Morgan]

Thank you. That's helpful. If I may squeeze a last one. Regarding improved operating cash flow, how much of the working capital benefit is structural versus timing related?

[Chris Tucker, SVP and CFO at ESCO Technologies]

Listen, I would say that over time, we kind of target free cash flow conversion to adjusted net earnings of around 100%. We're going to be above that a little bit this year because of the timing of some of these big contract payments. I think structurally, we feel really good about driving that 100%. You'll still see periods like now where we're above it, and you might see periods where we're more like 90%, 95%. Net, we're still going to have high quality conversion in that 100% range.

[Tomo Sano, Analyst at J.P. Morgan]

Thank you very much, Chris, Bryan. That's all.

[Bryan Sayler, President and CEO at ESCO Technologies]

Thank you.

[Chris Tucker, SVP and CFO at ESCO Technologies]

Thank you, Tom.

[Operator]

Thank you. Our next question comes from Scott Deuschle from Deutsche Bank. Please go ahead. Your line is now open.

[Scott Deuschle, Analyst at Deutsche Bank]

Bryan, can you say what the lead times are for the condition monitoring orders that you secured in the quarter?

[Bryan Sayler, President and CEO at ESCO Technologies]

Yeah. The cable monitoring orders are the longest lead time. We kind of have to go at the rate that the cables themselves are built. That requires some field construction and that sort of thing. They can be as long as a year.

[Scott Deuschle, Analyst at Deutsche Bank]

Okay. What percentage of the business is that?

[Bryan Sayler, President and CEO at ESCO Technologies]

I think it's relevant. I don't know the answer. What was that? 20%. Well, that's overall condition. Overall condition monitoring is about 20% of the business, yeah.

[Scott Deuschle, Analyst at Deutsche Bank]

Okay. Just to be clear, you said condition monitoring orders are up 67%?

[Bryan Sayler, President and CEO at ESCO Technologies]

Yeah, they were up big time this quarter on a year-over-year basis, yeah.

[Scott Deuschle, Analyst at Deutsche Bank]

Okay. If 20% of the business grows 50%, you grow double digits next year just off of that piece. I guess, how much can I extrapolate off of this quarter, or is it just lumpiness, you'd say?

[Bryan Sayler, President and CEO at ESCO Technologies]

We're going to stick with our very high single digits.

[Scott Deuschle, Analyst at Deutsche Bank]

Okay. All right. Chris, I think last quarter there had been some push out in surface ship revenue due to challenges the yards have faced on ramping up output. Has that gotten any better and normalized at this point, or have you seen any additional push out?

[Chris Tucker, SVP and CFO at ESCO Technologies]

I would say no more push outs. I would say kind of the recovery plan that we put in place after some of those push outs last quarter has kind of unfolded as expected. We continue to kind of watch those programs pretty closely.

[Scott Deuschle, Analyst at Deutsche Bank]

All right. Thank you for letting me ask so many questions. I appreciate it.

[Bryan Sayler, President and CEO at ESCO Technologies]

No problem.

[Chris Tucker, SVP and CFO at ESCO Technologies]

Glad to do it. Thank you.

[Operator]

Thank you. Our next question comes from Tommy Moll from Stephens. Please go ahead. Your line is now open.

[Tommy Moll, Analyst at Stephens]

Hello again. Just to close with a couple on Megger, if we could.

[Bryan Sayler, President and CEO at ESCO Technologies]

Sure.

[Tommy Moll, Analyst at Stephens]

Chris, I think when you announced the deal, you told us where you were dialing in the cost of debt there, but I just wanted to see if you could give us any updated view. If this deal closes on your anticipated timeline, when you report Q4, will you be able to then give us the NTM guide for fiscal 2027, inclusive of Megger at that time? Thank you.

[Chris Tucker, SVP and CFO at ESCO Technologies]

Tommy. We would anticipate if the schedule tracks the way we're hoping it does, that our November announcement would include Megger in the guide. That's our anticipation. We can give you our best look at the interest cost as part of that guidance. I would tell you right now, we do expect the cost of debt to be around 6%. We've got kind of our term loan A, term loan B terms locked in. Those are SOFR plus instruments. We've actually executed a deal contingent hedge as well to kind of lock in a portion of that for next year. That's slightly below 6%, but I think right now where we are, 6% is the right way for you to plan it.

[Tommy Moll, Analyst at Stephens]

Got it. That's all for today. Thanks again.

[Bryan Sayler, President and CEO at ESCO Technologies]

Thanks, Tommy.

[Chris Tucker, SVP and CFO at ESCO Technologies]

Thank you.

[Operator]

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Bryan Sayler for closing remarks.

[Bryan Sayler, President and CEO at ESCO Technologies]

Melissa, thanks everyone for taking some time to learn a little bit more about ESCO today. We continue to believe that our outlook is very bright, and we're working hard to make it come true. Talk to you next quarter.

[Operator]

Thank you for participating in today's conference. This does conclude the program. You may now disconnect. Thank you.

Participants

Executives

• Kate Lowrey, VP of Investor Relations
• Bryan Sayler, President and CEO
• Chris Tucker, SVP and CFO

Analysts

• Tommy Moll, Analyst at Stephens
• Scott Deuschle, Analyst at Deutsche Bank
• Analyst at CJS Securities
• Tomo Sano, Analyst at J.P. Morgan