Oct 29, 2026 earnings call — Raised guidance, ramp capture and M&A focus
Raised full-year 2026 revenue guidance to $2.05 billion to $2.07 billion and 2027 revenue outlook of $2.4 billion to $2.5 billion.
Revenue $0.6B (est $0.5B) · EPS $0.37 (est $0.20) · Next-quarter revenue outlook $2.0B–$2.1B
Key quotes
"Growing with customers as they increase production and winning new content on existing platforms with our technology."
"Together, The combined purchase price for these 2 acquisitions was approximately $151 million which is less than 10x estimated 2027 adjusted EBITDA."
"Margin expansion was driven by operating leverage from higher sales volumes, strong pricing realization, and continued productivity and cost optimization initiatives."
Analyst Q&A 9
Q4 seasonality and margin drivers
Q (Jefferies): Analyst asked how seasonality affects Q4 revenue and whether Q4 might outperform guidance; and what drove the strong 45% margin and whether that is sustainable.
A: Management said Q4 revenue steps down because there are simply less working days and they do year-end preventative maintenance. They noted some M and A dilution: Q3 had about 40 basis points of dilution and Q4 dilution is expected to be about 100 basis points. They also said pricing (high single digit in the quarter) and operating leverage drove the strong margins but the full-year guide (~41.7% EBITDA) is a better reference.
"In Q3, we did see about 40 basis points of dilution, so our reported margin of 45.4% would have been approximately 45.8%, excluding the impact." — Azad Badakhsh (CFO)
Why growth beat expectations
Q (Morgan Stanley): Analyst asked why organic growth in 2026 (much higher than historical ~9%) outpaced expectations and whether pricing, share gains, or sunsetting products explain it; and asked about the M&A market and deal pipeline.
A: Management said the growth came from simultaneous ramp capture: many platforms they are designed into ramped at the same time in 2026, producing stacked growth. They cautioned not to extrapolate all ramps and keep a long-term high single digit algorithm, but noted next year guidance of 10% to 15% is closer to a normalized rate and still north of that long-term algorithm. On M&A, the pipeline is full — they track over a thousand companies — large deals trade at higher multiples and smaller deals (less than 25 million of EBITDA) trade lower; Schatz and StrataEdge will be less than 10x in 2027.
"It just so happens that in 2026, many of the platforms that we are designed in on ramped simultaneously." — Kevin S. Perhamus (CEO)
How much of 2027 is secured
Q (Baird): Analyst asked how much of 2027 revenue is already covered/visible and whether missile framework agreements could lead to long-term contracts.
A: Management said they like to start the year roughly half filled in, using a bottoms-up view by business unit, and that they were confident giving early guidance because secured business plus near-term bookings put them in a good position. The 2027 guidance is 10% to 15%, described as mid single digit price, mid single digit new business, and 0 to 5 of continued ramp capture. On missile agreements there have been initial conversations but nothing firm; they prefer operating on a purchase order basis for visibility and control.
"We like to start the year roughly half filled in." — Kevin S. Perhamus (CEO)
What drives incremental margins
Q (Citi): Analyst asked how price versus productivity drove incremental margins and what to expect next year; also asked about supply chain risks like semiconductors.
A: Management said they assume mid single digit price, mid single digit new business, and very low single digit cost growth; those three produce about a 50% conversion margin given their gross margins. They said the VPC algorithm outperformed this year partly due to prior acquisitions enabling pricing and cost moves but expect conversion margin to revert to about 50% going forward. New business margin is similar to existing business and margins are consistent across electronic and mechanical; they said their supply chain is not impacted because they are upstream converting raw materials.
"And when you put those 3 things together, it results in a 50% conversion margin plus just based on the gross margin that we have in our products." — Kevin S. Perhamus (CEO)
How ArcSys avoids M&A pitfalls
Q (Melius): Analyst asked why other M&A compounders struggled and how ArcSys ensures it will not follow that same path.
A: Management said they focus on their VPC algorithm and ArcSys Edge to drive continuous new business, and that their unique relationship with Arcline lets them execute more M&A (big and small) while staying focused on new business, pricing, acquisitions, and cost control. They added they only buy companies that pass their business model scorecard.
"But what we think is going to work over the long term and probably differentiate us is that we have the VPC algorithm." — Kevin S. Perhamus (CEO)
Growth split and cash conversion
Q (Wolfe): Analyst asked if organic growth in 2027 will differ by segment or end market and requested cash conversion expectations for next year.
A: Management said there is no bifurcation by segment or end market — all three end markets and both electronic and mechanical are expected to grow 10% to 15% organically. On cash conversion, they said the framework is unchanged: operational free cash flow = EBITDA less CapEx less change in net working capital, and CapEx and change in net working capital each contribute about 3% of revenue, making the math simple to model.
"There is no bifurcation by segment or end market." — Kevin S. Perhamus (CEO)
Recurring vs one-time margin moves
Q (Goldman Sachs): Analyst asked what portion of the margin improvement was recurring versus one-time and how to reconcile the full-year 41.7% guide with quarter-to-quarter moves and expected M&A dilution.
A: Management said high single digit pricing in Q3 was temporary and will revert to mid-single-digit pricing in Q4; operating leverage will soften in Q4 because there are fewer working days and less revenue. They said both segments benefited from the quarter's pricing and operating leverage, which led to the 45.4% quarter result, but when you zoom out the full-year averages are about 41.5% to 41.7%.
"That will revert back to mid-single-digit pricing in Q4, and then the operating leverage that we saw in Q3 will reverse a little bit because there is less revenue." — Kevin S. Perhamus (CEO)
Balancing supply-chain opportunities and pricing
Q (RBC): Analyst asked how they balance a strong opportunity to win second-source supply work amid supply-chain stress with maintaining price discipline, and whether they are ready to support large missile/munition ramps.
A: Management said supply-chain constraints are not impacting them because their decentralized model and general managers manage CapEx and capacity to avoid issues; they do not pursue second-source product wins as a strategy but focus on technical problem solving to be designed in as typically the sole source. They add they step up capacity as demand appears as actual purchase orders across their roughly 70 factories and 51 business units and can add incremental capacity where needed.
"I would I would say as a matter of practice and as a matter of, strategy, it is not our strategy to go off and try to pick off, you know, second source products." — Kevin S. Perhamus (CEO)
Demand hotspots and Schatz integration
Q (William Blair): Analyst asked if any components (for example bearings) are seeing heavier demand, and how Schatz will integrate and cross-sell with similar bearings businesses like Kamatics; also asked if Q4 preventative maintenance is similar to last year.
A: Management said demand is diversified across electronic and mechanical components and ramp capture is happening in almost every business unit. Schatz will be integrated with Kamatics geographically and into ArcSys Edge, with complementary products that fill a product gap and no real overlap; early cross-selling opportunities are already identified and integration is going well. Azad said the Q4 preventative maintenance is normal course and happens because there are fewer working days.
"So, you know, the ramp capture is happening in just about every single 1 of our business units." — Kevin S. Perhamus (CEO)