ESCO TECHNOLOGIES INC (ESE)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following discussion refers to the Company’s results from continuing operations, except where noted. References to the third quarters of 2026 and 2025 represent the three-month periods ended June 30, 2026 and 2025, respectively.

OVERVIEW

In the third quarter of 2026, sales, net earnings and diluted earnings per share from continuing operations were $339.0 million, $32.7 million and $1.26 per share, respectively, compared to $296.3 million, $24.8 million and $0.96 per share, respectively, in the third quarter of 2025. In the first nine months of 2026, sales, net earnings and diluted earnings per share were $938.0 million, $95.0 million and $3.66 per share, respectively, compared to $742.7 million, $71.4 million and $2.76 per share, respectively, in the first nine months of 2025.

NET SALES

In the third quarter of 2026, net sales of $339.0 million were $42.7 million, or 14.4%, higher than the $296.3 million in the third quarter of 2025. In the first nine months of 2026, net sales of $938.0 million were $195.3 million, or 26.3%, higher than the $742.7 million in the first nine months of 2025. The increase in net sales in the third quarter of 2026 as compared to the third quarter of 2025 was due to a $31.9 million increase in the A&D segment, a $7.6 million increase in the USG segment and a $3.2 million increase in the Test segment. The increase in net sales in the first nine months of 2026 as compared to the first nine months of 2025 was due to a $154.5 million increase in the A&D segment, a $29.6 million increase in the Test segment and a $11.2 million increase in the USG segment.

-A&D

In the third quarter of 2026, net sales of $168.2 million were $31.9 million, or 23.4%, higher than the $136.3 million in the third quarter of 2025. In the first nine months of 2026, net sales of $462.3 million were $154.5 million, or 50.2%, higher than the $307.8 million in the first nine months of 2025. The sales increase in the third quarter of 2026 compared to the third quarter of 2025 was mainly due to a $22.3 million increase in navy revenues and a $7.9 million increase in aerospace revenues (defense and commercial). Maritime contributed $22.7 million of revenue growth in the third quarter of 2026. The sales increase in the first nine months of 2026 compared to the first nine months of 2025 was mainly due to a $110.9 million increase in navy revenues and a $37.7 million increase in aerospace revenues (defense and commercial). Maritime contributed $121.1 million of revenue growth in the first nine months of 2026.

-USG

In the third quarter of 2026, net sales of $100.0 million were $7.6 million, or 8.2%, higher than the $92.4 million in the third quarter of 2025. In the first nine months of 2026, net sales of $281.0 million were $11.2 million, or 4.2%, higher than the $269.8 million in the first nine months of 2025. The increase in the third quarter of 2026 compared to the third quarter of 2025 was due to an $12.9 million increase in net sales at Doble driven by higher sales of protection testing, offline test equipment and services, partially offset by a $5.3 million decrease in net sales at NRG driven by lower shipments of solar and wind products due to weakness in the renewables market. The increase in the first nine months of 2026 compared to the corresponding period of 2025 was due to a $25.5 million increase in net sales at Doble driven by higher sales of condition monitoring, offline, protection testing products and services, partially offset by a $14.3 million decrease in net sales at NRG for the reasons mentioned above.

-Test

In the third quarter of 2026, net sales of $70.9 million were $3.2 million, or 4.7%, higher than the $67.7 million in the third quarter of 2025. In the first nine months of 2026, net sales of $194.7 million were $29.6 million, or 17.9%, higher than the $165.1 million in the first nine months of 2025. The increase in the third quarter of 2026 as compared to the third quarter of 2025 was due to a $7.1 million increase in sales from the segment’s U.S. and European operations due to higher Test and Measurement, medical and industrial shielding, and filters volumes, partially offset by a $3.9 million decrease from the segment’s Asian operations. The increase in the first nine months of 2026 compared to the first nine months of 2025 was due to a $27.2 million increase in sales from the segment’s U.S. operations, a $4.3 million increase from the segment’s European operations for the reasons mentioned above, partially offset by a $1.9 million decrease in sales from the segment’s Asian operations.

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ORDERS AND BACKLOG

Backlog was $1,540.5 million at June 30, 2026 compared with $1,133.6 million at September 30, 2025. The Company received new orders totaling $409.5 million in the third quarter of 2026 compared to $749.1 million in the third quarter of 2025. Of the new orders received in the third quarter of 2026, $195.6 million related to A&D products, $126.9 million related to USG products, and $87.0 million related to Test products. Of the new orders received in the third quarter of 2025, $582.4 million related to A&D products (including $364.2 million of Maritime acquired backlog), $105.5 million related to USG products, and $61.2 million related to Test products.

The Company received new orders totaling $1,344.9 million in the first nine months of 2026 compared to $1,243.9 million in the first nine months of 2025. Of the new orders received in the first nine months of 2026, $761.8 million related to A&D products, $326.9 million related to USG products, and $256.2 million related to Test products. Of the new orders received in the first nine months of 2025, $753.7 million related to A&D products (including $364.2 million of Maritime acquired backlog), $287.3 million related to USG products, and $202.9 million related to Test products.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative (SG&A) expenses for the third quarter of 2026 were $71.0 million (20.9% of net sales), compared with $62.0 million (20.9% of net sales) for the third quarter of 2025. For the first nine months of 2026, SG&A expenses were $195.0 million (20.8% of net sales) compared to $171.3 million (23.1% of net sales) for the first nine months of 2025. The increase in SG&A in the third quarter and first nine months of 2026 compared to the corresponding periods of 2025 was mainly due to an increase within the A&D segment due to the Maritime acquisition; increased expenses at all three business segments primarily related to higher sales and inflationary impacts and an increase at Corporate mainly due to acquisition costs related to the pending Megger acquisition.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization of intangible assets was $20.3 million and $61.1 million for the third quarter and first nine months of 2026, respectively, compared to $16.8 million and $32.7 million for the corresponding periods of 2025. Amortization expenses consist of amortization of acquired intangible assets from acquisitions and other identifiable intangible assets (primarily software). The increase in amortization expense in the third quarter and first nine months of 2026 compared to the corresponding periods of 2025 was mainly due to an increase in amortization of intangible assets related to the Maritime acquisition.

OTHER EXPENSES (INCOME), NET

Other expenses, net, was $0.5 million in the third quarter of 2026 compared with $2.2 million in the third quarter of 2025. Other expenses, net, was $2.3 million in the first nine months of 2026 compared with $1.9 million in the first nine months of 2025. The principal components of other expenses, net, in the third quarter of 2026 included $0.7 million of restructuring charges within the Test segment due to the exit of the acoustics product line (primarily asset write-offs), and $0.3 million of restructuring charges (primarily severance) within the USG segment. The principal components of other expenses, net, in the first nine months of 2026 included $2.0 million of restructuring charges within the Test segment due to the exit of the acoustics product line and $0.9 million of restructuring charges (primarily severance) within the USG segment. The principal component of other expenses, net, in the third quarter and first nine months of 2025 was $1.3 million of UK stamp duties on the Maritime acquisition.

EBIT

The Company evaluates the performance of its operating segments based on EBIT, and provides EBIT on a consolidated basis. EBIT is a non-GAAP financial measure. Please refer to the discussion of non-GAAP financial measures in Note 6 to the condensed Consolidated Financial Statements, above. EBIT was $49.7 million (14.6% of net sales) for the third quarter of 2026 compared to $41.0 million (13.8% of net sales) for the third quarter of 2025. For the first nine months of 2026, EBIT was $134.3 million (14.3% of net sales) compared to $105.7 million (14.2% of net sales) for the first nine months of 2025.

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The following table presents a reconciliation of EBIT from continuing operations to net earnings from continuing operations.

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-A&D

EBIT in the third quarter of 2026 was $50.4 million (30.0% of net sales) compared to $36.6 million (26.8% of net sales) in the third quarter of 2025. EBIT in the first nine months of 2026 was $131.4 million (28.4% of net sales) compared to $78.2 million (25.4% of net sales) in the first nine months of 2025. The increase in EBIT in the third quarter and first nine months of 2026 compared to the corresponding periods of 2025 was mainly driven by leverage on higher sales volumes as mentioned above, and price increases, partially offset by inflationary pressures and unfavorable mix. EBIT in the third quarter and first nine months of 2025 was negatively impacted by $2.7 million of inventory step-up charges and stamp duty charges related to the Maritime acquisition.

-USG

EBIT in the third quarter of 2026 was $22.0 million (22.0% of net sales) compared to $21.5 million (23.3% of net sales) in the third quarter of 2025. EBIT in the first nine months of 2026 was $64.0 million (22.8% of net sales) compared to $62.8 million (23.2% of net sales) in the first nine months of 2025. The increase in EBIT in the third quarter and first nine months of 2026 compared to the corresponding periods of 2025 was mainly driven by leverage on higher sales volumes at Doble and price increases and mix, partially offset by lower sales volumes at NRG, and inflationary pressures. EBIT was negatively impacted by $0.9 million and $0.3 million in the first nine months of 2026 and 2025, respectively, by restructuring charges (primarily severance) and acquisition costs.

-Test

EBIT in the third quarter of 2026 was $10.9 million (15.4% of net sales) compared to $10.7 million (15.9% of net sales) in the third quarter of 2025. EBIT in the first nine months of 2026 was $27.7 million (14.2% of net sales) compared to $21

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto and refers to our results from continuing operations except where noted.

On May 20, 2025, the Company announced it had entered into a definitive agreement to sell VACCO Industries (VACCO) to RBC Bearings Incorporated (RBC), an international manufacturer and marketer of highly engineered precision bearings and products, headquartered in Oxford, Connecticut. The Company completed this divestiture on July 18, 2025. The Company received net proceeds from the sale of approximately $270 million and recorded a $172.6 million after-tax gain on the sale in the fourth quarter of 2025. The Company used the proceeds from the sale to primarily pay down debt. The VACCO business is reflected as discontinued operations in the Consolidated Financial Statements and related notes for all periods presented, in accordance with accounting principles generally accepted in the United States of America (GAAP). The sale of VACCO represents a strategic shift for the Company to exit the Space business. Net sales from the VACCO business were $102.9 million, $107.6 million and $100.2 million for the period October 1, 2024 through July 18, 2025 and years ending September 30, 2024 and 2023, respectively. Pretax earnings (loss) from the VACCO business were $13.7 million, $(1.1) million and $8.6 million for the years ending September 30, 2025, 2024 and 2023, respectively. See Note 3 to the Consolidated Financial Statements for further discussion.

Selected financial information for each of our business segments is provided in the discussion below and in Note 10 to the Company’s Consolidated Financial Statements.

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Table of Contents

This section includes comparisons of certain 2025 financial information to the same information for 2024. Year-to-year comparisons of the 2024 financial information to the same information for 2023 are contained in Item 7 of our Form 10-K for 2024 filed with the Securities and Exchange Commission on November 29, 2024 and available through the SEC’s website at https://www.sec.gov/edgar/searchedgar/companysearch.html.

Introduction

We classify our business operations into three segments for financial reporting purposes, although for reporting certain financial information we treat Corporate activities as a separate segment. Our three operating segments during 2025 were Aerospace & Defense (A&D), Utility Solutions Group (USG), and RF Test & Measurement (Test). Our operating segments are comprised of the following primary operating subsidiaries:

A&D.  PTI and Crissair primarily design and manufacture specialty filtration products, including hydraulic filter elements and fluid control devices used in commercial and defense aerospace applications, and miniature electro-explosive devices for military aircraft ejection seats and missile arming devices. Mayday manufactures mission-critical bushings, pins, sleeves and precision-tolerance machined components for landing gear, rotor heads, engine mounts, flight controls, and actuation systems for the aerospace and defense industries. Globe designs, develops and manufactures elastomeric-based signature reduction solutions for U.S. naval vessels. Maritime is an established, long-standing business providing mission-critical signature and power management solutions for the US and UK naval defense markets.

USG.  Doble develops, manufactures and delivers diagnostic testing solutions that enable electric power grid operators to assess the integrity of high-voltage power delivery equipment. NRG designs and manufactures decision support tools for the renewable energy industry, primarily wind and solar.

Test.  ETS-Lindgren is an industry leader in providing its customers with the ability to identify, measure and control magnetic and electromagnetic energy.

We continue to operate with meaningful growth prospects in our primary served markets and with considerable financial flexibility. We continue to focus on new products that incorporate proprietary design and process technologies. Our Management is committed to delivering shareholder value through organic growth, ongoing performance improvement initiatives, and acquisitions.

Highlights of 2025

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Results of Continuing Operations

Net Sales

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Net sales increased $176.3 million, or 19.2%, to $1,095.4 million in 2025 from $919.1 million in 2024. The increase in net sales in 2025 as compared to 2024 was mainly due to a $137.7 million increase in the A&D segment, a $10.9 million increase in the USG segment, and a $27.7 million increase in the Test segment.

A&D

The $137.7 million, or 40.4%, increase in net sales in 2025 as compared to 2024 was mainly due to a $94.1 million increase in navy revenues and a $39.8 million increase in commercial aerospace revenues, partially offset by a $5.2 million decrease in defense aerospace revenues. By subsidiary, the $137.7 million increase in net sales in 2025 as compared to 2024 was due to an $8.1 million increase in net sales at PTI, a $13.3 million increase in net sales at Globe, a $19.6 million increase in net sales at Crissair, a $1.5 million increase in net sales at Mayday and a $95.2 million net sales contribution from the current year acquisition of Maritime.

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USG

The $10.9 million, or 3.0%, increase in net sales in 2025 as compared to 2024 was mainly due to a $17.8 million increase in net sales at Doble mainly due to higher shipments of offline and protection testing products and service revenue, partially offset by a $7.0 million decrease in net sales at NRG driven by lower shipments of solar and wind products due to renewables market weakness.

Test

The $27.7 million, or 13.2%, increase in net sales in 2025 as compared to 2024 was due to a $15.4 million increase in sales from the Company’s U.S. operations, an $8.8 million increase in sales from the Company’s European operations, and a $3.5 million increase in sales from the Company’s Asian operations due to higher test and measurement, industrial shielding, medical services and filters volumes partially offset by lower wireless volumes.

Orders and Backlog

New orders received from continuing operations were $1,564.8 million in 2025 and $999.8 million in 2024. Order backlog was $1,133.6 million at September 30, 2025, compared to order backlog from continuing operations of $664.2 million at September 30, 2024. Orders are entered into backlog as firm purchase order commitments are received.

By operating segment, 2025 orders were $895.6 million related to A&D products (including $364.2 million of Maritime acquired backlog), $403.5 million related to USG products, and $265.7 million related to Test products; and 2024 orders were $430.9 million related to A&D products, $355.6 million related to USG products, and $213.3 million related to Test products.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses were $234.6 million, or 21.4% of net sales, in 2

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