What Arxis (ARXS) Said on Its Q3 Earnings Call

Key Points

• Strong Q3 performance: Revenue increased 36% year over year to $564 million, while adjusted EBITDA rose 67% to $256 million and margin expanded to 45.4%. Free cash flow more than doubled to $150 million, and net leverage fell to 1.6 times.
• 2026 guidance raised: Arxis now expects revenue of $2.05 billion to $2.07 billion and adjusted EBITDA of $855 million to $865 million, supported by organic growth and contributions from acquisitions.
• Positive 2027 outlook and M&A expansion: The company projects 10% to 15% organic growth in 2027, with revenue of $2.4 billion to $2.5 billion. Recent acquisitions of Schatz Bearing and StratEdge expand its aerospace, defense and advanced electronics capabilities.

Arxis NASDAQ: ARXS reported third-quarter 2026 revenue of $564 million, up 36% from a year earlier, as organic growth, pricing and production increases on existing programs lifted results. Adjusted EBITDA rose 67% to $256 million, while adjusted EBITDA margin expanded 840 basis points to 45.4%.

Chief Executive Officer Kevin Perhamus said organic revenue increased 29% during the quarter, driven by mid-single-digit new-business growth, high-single-digit pricing and mid-teens growth from higher production on existing platforms. Acquisitions completed during the year added high-single-digit growth to reported revenue.

Free cash flow reached $150 million, up 117% year over year, according to Chief Financial Officer Azad Badakhsh. The company reduced net leverage to 1.6 times during the quarter, from 1.8 times at the end of the second quarter.

Growth across end markets

Arxis said performance was broad-based across its electronic components and mechanical components segments. In defense and space, growth was supported by higher volume on established platforms and increased production on next-generation programs. The company cited demand tied to Patriot and other missile programs, F-35 electronic warfare systems and commercial aerospace programs including the 737.

Commercial aerospace also benefited from higher aircraft production rates and aftermarket demand, Perhamus said. Industrial technology demand was strong across medical technology, oil and gas, semiconductor equipment, telecom and datacom, and quantum computing applications.

The company described its above-algorithm growth as “ramp capture,” which includes growth alongside customers as their production rises as well as new content wins on existing platforms that scale toward full-rate production. Arxis develops proprietary components designed into customer platforms, frequently as the only qualified component, management said.

Perhamus cautioned that the company does not expect to sustain 2026’s growth rate. Instead, he said current program ramps are increasing the recurring-revenue base from which the company expects to compound over time. Arxis maintained its long-term objective of high-single-digit organic revenue growth and low-double-digit adjusted EBITDA growth.

Guidance raised for 2026

Arxis raised its full-year 2026 outlook following its year-to-date performance and increased visibility for the remainder of the year.

• Revenue is now expected to be $2.05 billion to $2.07 billion, a $90 million increase at the midpoint from prior guidance.
• At the midpoint, the revenue outlook represents about 29% year-over-year growth, including 22% organic growth.
• Adjusted EBITDA is projected at $855 million to $865 million, a $65 million increase at the midpoint.
• The company expects adjusted EBITDA margin of about 41.7%, 130 basis points above its previous outlook.

The updated outlook includes about $60 million of incremental revenue and $20 million of incremental adjusted EBITDA from the acquisitions of Omnetics, Schatz and StratEdge. Management said acquisitions completed this year are expected to dilute margins by roughly 30 to 40 basis points for the full year, though it expects the effect to be temporary as it applies its VPC operating playbook and ARXIS EDGE processes.

For the fourth quarter, management said revenue is expected to step down from the third-quarter level because of fewer working days, holidays and scheduled preventative maintenance. Badakhsh said acquisition-related margin dilution is expected to rise to roughly 100 basis points in the fourth quarter as contributions from the recently completed acquisitions are fully reflected.

Initial 2027 outlook

The company also issued an initial outlook for fiscal 2027, calling for revenue of $2.4 billion to $2.5 billion and organic growth of 10% to 15%. It forecast adjusted EBITDA of $1.01 billion to $1.06 billion, with adjusted EBITDA margin between 42.1% and 42.4%.

Arxis expects all three of its end markets, as well as both its electronic and mechanical components segments, to grow at a 10% to 15% organic rate in 2027. Perhamus said that outlook reflects mid-single-digit pricing, mid-single-digit new-business generation and 0% to 5% of continued ramp capture.

Management said it generally aims to begin the year with roughly half of projected revenue secured, although the calculation is conducted on a bottoms-up basis by business unit. Perhamus said the company has enough secured revenue and near-term expected business to support its confidence in the 2027 forecast.

M&A activity adds bearing and electronics capabilities

Arxis completed two acquisitions in September, Schatz Bearing and StratEdge, bringing its year-to-date acquisition total to six. The combined purchase price for Schatz and StratEdge was about $151 million, or less than 10 times estimated 2027 adjusted EBITDA, according to Perhamus.

StratEdge produces specialized ceramic packages for high-frequency, high-power electronics used in advanced defense systems, including missile-defense applications. Schatz adds precision bearings for aerospace, defense and industrial applications and is Arxis’ fourth bearings business, alongside Kamatics, GRW and RWG.

Perhamus said Schatz’s products complement Kamatics’ offerings and fill a product gap rather than creating overlap between the businesses. Schatz is being integrated into ARXIS EDGE, and the company has begun identifying cross-selling opportunities, he said.

On the acquisition pipeline, Perhamus said Arxis tracks more than 1,000 companies through its EDGE system and continues to work on numerous potential transactions. He said larger deals continue to command higher multiples, while smaller businesses with less than $25 million in EBITDA tend to trade at lower multiples.

Management also said it has not experienced supply-chain constraints in its own operations. Perhamus said the company’s decentralized operating model allows individual general managers to manage capital spending and capacity, while the company adds production capacity as demand materializes through purchase orders.

About Arxis (NASDAQ:ARXS)

We are a leading designer and manufacturer of proprietary, mission-critical electronic and mechanical components engineered for cutting-edge performance in extreme environments. Leveraging significant intellectual property (“IP”) and world-class engineering capabilities, we design and deliver innovative solutions that address some of our customers' most complex performance needs. Arxis is the result of a deliberate and disciplined strategy executed by our sponsor, Arcline, and the Arxis management team to create a purpose-built, cohesive business through targeted acquisitions with similar product and end market characteristics.

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