ESCO Technologies ESE Form 10-Q filing Q2 FY2026

ITEM 1. FINANCIAL STATEMENTS

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share amounts)

​

​

See accompanying notes to condensed consolidated financial statements.

​

​

2

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share amounts)

​

​

See accompanying notes to condensed consolidated financial statements.

​

3

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

​

​

See accompanying notes to condensed consolidated financial statements.

​

4

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands)

​

​

See accompanying notes to condensed consolidated financial statements.

​

5

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

​

​

See accompanying notes to condensed consolidated financial statements.

​

6

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. The condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all the disclosures required for annual financial statements by accounting principles generally accepted in the United States of America (GAAP). For further information refer to the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025.

The Company’s results for the three and six-month periods ended March 31, 2026 are not necessarily indicative of the results for the entire 2026 fiscal year. References to the second quarters of 2026 and 2025 represent the fiscal quarters ended March 31, 2026 and 2025, respectively. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates.

​

2. EARNINGS PER SHARE (EPS)

Basic EPS is calculated using the weighted average number of common shares outstanding during the period. Diluted EPS is calculated using the weighted average number of common shares outstanding during the period plus shares issuable upon the assumed exercise of unvested performance-based share awards and time-vested restricted shares by using the treasury stock method. The number of shares used in the calculation of earnings per share for each period presented is as follows (in thousands):

​

​

​

3. SHARE-BASED COMPENSATION

The Company provides compensation benefits to certain key employees under several share-based plans providing for a combination of performance-based share unit (PSU) awards and time-vested restricted share unit (RSU) awards and to non-employee directors under a separate compensation plan.

Performance Share Unit (PSU) Awards and Time-Vested Restricted Stock Unit (RSU) Awards

Compensation expense related to these awards was $3.0 million and $5.9 million for the three and six-month periods ended March 31, 2026, respectively, and $2.4 million and $4.6 million for the corresponding periods in 2025. As of March 31, 2026, there were 169,191 unvested stock units outstanding.

Non-Employee Directors Plan

Compensation expense related to the non-employee director grants was $0.3 million and $0.6 million for the three and six-month periods ended March 31, 2026, respectively, and $0.4 million and $0.7 million for the corresponding periods in 2025.

The total share-based compensation cost that has been recognized in the results of operations and included within selling, general and administrative expenses (SG&A) was $3.3 million and $6.6 million for the three and six-month periods ended March 31, 2026, respectively, and $2.8 million and $5.3 million for the corresponding periods in 2025. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $0.7 million and $1.4 million for the three- and six-month periods ended March 31, 2026, respectively, and $0.6 million and $1.1 million for the corresponding periods in 2025. As of March 31, 2026, there was $18.8 million of total unrecognized compensation cost related to share-based compensation arrangements. That cost is expected to be recognized over a remaining weighted-average period of 1.8 years.

​

7

4. INVENTORIES

Inventories from continuing operations consist of the following:

​

​

​

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Included on the Company’s condensed Consolidated Balance Sheets at March 31, 2026 and September 30, 2025 are the following intangible assets gross carrying amounts and accumulated amortization from continuing operations:

​

​

The changes in the carrying amount of goodwill attributable to each business segment from continuing operations for the six months ended March 31, 2026 is as follows:

​

​

​

​

8

6. BUSINESS SEGMENT INFORMATION

We adopted the provisions of ASU 2023-07 Segment Reporting for the year ended September 30, 2025. We are organized based on the products and services we offer, and we classify our business operations in three reportable segments for financial reporting purposes: Aerospace & Defense (A&D), Utility Solutions Group (USG) and RF Test & Measurement (Test). Corporate is not a reportable segment, but it is included for reconciliation purposes.

The A&D segment’s operations consist of PTI, Crissair, Globe, Mayday, and Maritime. Previously, A&D also included VACCO Industries which was sold in July 2025 and is reported in discontinued operations. The companies within this segment primarily design and manufacture specialty filtration, fluid control and naval products, including hydraulic filter elements and fluid control devices used in aerospace and defense applications; custom designed filters for manned aircraft and submarines; products and systems to reduce vibration and/or acoustic signatures and otherwise reduce or obscure a vessel’s signature, power management and control equipment; sealing, surface control and hydrodynamic related applications to enhance U.S. and UK Navy maritime survivability; precision-tolerance machined components for the aerospace and defense industry; metal processing services; and miniature electro-explosive devices utilized in mission-critical defense and aerospace applications.

The USG segment’s operations consist of Doble Engineering Company and related subsidiaries including Morgan Schaffer and Altanova/ISA (collectively, Doble), and NRG. Doble is an industry leader in the development, manufacture and delivery of diagnostic testing and data management solutions that enable electric power grid operators to assess the integrity of high-voltage power delivery equipment, and Altanova/ISA’s strong market presence in Europe and Asia provides Doble with a significant international platform. Doble combines three core elements for customers – diagnostic test and condition monitoring instruments, expert consulting, and testing services – and provides access to its large reserve of related empirical knowledge. NRG is a global market leader in the design and manufacture of decision support tools for the renewable energy industry, primarily wind and solar.

The Test segment’s operations consist of ETS-Lindgren Inc., including its related subsidiaries, and MPE Limited (collectively, ETS-Lindgren). ETS-Lindgren is an industry leader in designing and manufacturing products and systems to measure and control RF energy. It serves the medical, health and safety, electronics, wireless communications, automotive and defense markets, supplying a broad range of turnkey systems, including RF test facilities and measurement systems, RF and magnetically shielded rooms and secure communication facilities, and providing the design, program management, installation and integration services required to successfully complete these types of facilities. It also supplies a broad range of components including RF absorptive materials, filters, antennas, field probes, test cells, proprietary measurement software and other test accessories required to perform a variety of tests and measurements, and offers a variety of services including calibration and product tests.

Accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1 to the Consolidated Financial Statements in the Company’s Form 10-K for the year ended September 30, 2025. The operating units within each reporting segment have been aggregated because of similar economic characteristics and meet the other aggregation criteria of FASB ASC 280, Segment Reporting.

​

9

Measurement of Segment Results

Our CODM, who is our Chief Executive Officer, evaluates each segment’s performance and allocates resources based on segment EBIT, which is defined as earnings before interest and taxes. EBIT on a consolidated basis is a non-GAAP financial measure and is reconciled to consolidated earnings before income taxes below for continuing operations. Intersegment sales and transfers are not significant. Segment assets consist primarily of customer receivables, inventories, capitalized software and fixed assets directly associated with the production processes of the segment. Segment depreciation and amortization is based upon the direct assets listed above. Corporate assets consist primarily of acquired intangible assets including goodwill, deferred taxes and cash balances. The tables below are presented on the basis of continuing operations and exclude discontinued operations.

​

(1) Consists of customer relationships, trade names and other intangible assets. See Note 5 for details.

​

​

10

(1) Consists of customer relationships, trade names and other intangible assets. See Note 5 for details.

​

​

11

(1) Consists of customer relationships, trade names and other intangible assets. See Note 5 for details.

​

​

12

(1) Consists of customer relationships, trade names and other intangible assets. See Note 5 for details.

​

​

Non-GAAP Financial Measures

The financial measure “EBIT” is presented in the above tables and elsewhere in this Report. EBIT on a consolidated basis is a non-GAAP financial measure. Management believes that EBIT is useful in assessing the operational profitability of the Company’s business segments because it excludes interest and taxes, which are generally accounted for across the entire Company on a consolidated basis. EBIT is also one of the measures used by management in determining resource allocations within the Company as well as incentive compensation. A reconciliation of EBIT to net earnings is set forth in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations – EBIT.

13

The Company believes that the presentation of EBIT provides important supplemental information to investors to facilitate comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. However, the Company’s non-GAAP financial measures may not be comparable to other companies’ non-GAAP financial performance measures. Furthermore, the use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP.

​

7. DEBT

The Company’s debt is summarized as follows:

​

​

The Credit Facility includes a $500 million revolving line of credit as well as provisions allowing for the increase of the credit facility commitment amount by an additional $250 million, if necessary, with the consent of the lenders. The bank syndication supporting the facility is comprised of a diverse group of seven banks led by JP Morgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as syndication agent, and Commerce Bank and TD Bank, N.A. as co-documentation agents. The Credit Facility matures August 30, 2028, with balance due by this date.

On August 5, 2024, the Company and certain of its subsidiaries entered into Amendment No. 1 to the Credit Facility which, among other things, (i) implements a senior incremental delayed draw term loan credit facility in an aggregate principal amount of up to $375 million (the “Incremental Facility”), and (ii) permits the direct or indirect acquisition by the Registrant or certain of its subsidiaries of all the issued and outstanding shares of PMES I Limited, Measurement Systems, Inc., EMS Development Corporation, and DNE Technologies, Inc. (the “Maritime Acquisition”), pursuant to and in accordance with the terms and conditions of that certain Sale and Purchase Agreement, dated July 8, 2024. During the third quarter of 2025, the proceeds of the loans drawn under the Incremental Facility were applied to pay a portion of the cash consideration for the Maritime Acquisition and other customary fees, premiums, expenses and costs incurred in connection with the acquisition. The Incremental Facility matures August 30, 2028, with balance due by this date.

At March 31, 2026, the Company had approximately $440 million available to borrow under the Credit Facility, plus the $250 million increase option subject to the lenders’ consent, in addition to $92.3 million cash on hand. The Company classified $20 million as the current portion of long-term debt as of March 31, 2026, as the Company intends to repay this amount as obligated by the repayment terms of the Incremental Facility within the next twelve months. The letters of credit issued and outstanding under the Credit Facility totaled $14.5 million at March 31, 2026.

Interest on borrowings under the Credit Facility and the Incremental Facility is calculated at a spread ranging from 0.25% to 2.25% over either an Adjusted Term SOFR Rate, Adjusted EURIBOR Rate, Adjusted CDOR Rate, Alternate Base Rate or Daily Simple RFR, at the Company’s election. The Credit Facility also requires a facility fee ranging from 12.5 to 25 basis points per annum. The interest rate spreads and the facility fee are subject to increase or decrease depending on the Company’s leverage ratio. The weighted average interest rates under the Credit Facility were 5.06% and 5.28% for the three and six-month periods ending March 31, 2026, respectively, and 5.77% and 5.95% for the three- and six-month periods ending March 31, 2025. The weighted average interest rate under the Incremental Facility was 5.27% and 5.44% for the three and six-month periods ending March 31, 2026. As of March 31, 2026, the Company was in compliance with all covenants.

​

8. INCOME TAX EXPENSE

The second quarter 2026 effective income tax rate from continuing operations was 23.5% compared to 23.3% in the second quarter of 2025. The effective income tax rate from continuing operations in the first six months of 2026 was 21.5% compared to 22.5% for the first six months of 2025. Income tax expense in the first six months of 2026 was favorably impacted by additional tax benefits related to the vesting of share-based compensation awards.

​

14

9. SHAREHOLDERS’ EQUITY

The change in shareholders’ equity for the first three and six months of 2026 and 2025 is shown below (in thousands):

​

​

​

10. FAIR VALUE MEASUREMENTS

The accounting guidance establishes a three-level hierarchy for disclosure of fair value measurements, based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, as follows:

• Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
• Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
• Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Financial Assets and Liabilities

The Company has estimated the fair value of its financial instruments as of March 31, 2026 and September 30, 2025 using available market information or other appropriate valuation methodologies. The carrying amounts of cash and cash equivalents, receivables, inventories, payables, and other current assets and liabilities approximate fair value because of the short maturity of those instruments.

15

Fair Value of Financial Instruments

The Company’s forward contracts and interest rate swaps are classified within Level 2 of the valuation hierarchy in accordance with FASB Accounting Standards Codification (ASC) 825 and are immaterial.

Nonfinancial Assets and Liabilities

The Company’s nonfinancial assets such as property, plant and equipment, and other intangible assets are not measured at fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence that an impairment may exist. No impairments were recorded during the three and six-month periods ended March 31, 2026.

​

11. REVENUES

Disaggregation of Revenues

The tables below present our revenues from continuing operations by customer type, geographic location, and revenue recognition method for the three and six-month periods ending March 31, 2026, as we believe this presentation best depicts how the nature, amount, timing and uncertainty of net sales and cash flows are affected by economic factors.

​

​

​

16

Revenues by customer type, geographic location, and revenue recognition method for the three and six-month periods ended March 31, 2025 are presented in the tables below from continuing operations.

​

​

​

Revenue Recognition

Payment terms with our customers vary by the type and location of the customer and the products or services offered. Arrangements with customers that include payment terms extending beyond one year are not significant. The transaction price for these contracts reflects our estimate of returns and discounts, which are based on historical, current and forecasted information to determine the expected amount to which we will be entitled in exchange for transferring the promised goods or services to the customer. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant. We primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from one to two years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation. Under the typical payment terms of our long term fixed price contracts, the customer pays us either performance-based or progress payments. Performance-based payments represent interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments of costs incurred as the work progresses.

17

For our overtime revenue recognized using the output method of costs incurred, contract cost is estimated utilizing current contract specifications and expected engineering requirements. Contract costs typically are incurred over a period of several months to one or more years, and the estimation of these costs requires judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our projections of costs quarterly or more frequently when circumstances significantly change. In addition, in the USG segment, we recognize revenue as a series of distinct services based on each day of providing services (straight-line over the contract term) for certain of our USG segment contracts. Under the typical payment terms of our service contracts, the customer pays us in advance of when services are performed. In addition, in the Test segment, we use milestones to measure progress for our Test segment contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts.

Remaining Unsatisfied Performance Obligations

Remaining unsatisfied performance obligations, as defined by ASC 606 and align with our backlog, represent the expected transaction price allocated to contracts that the Company expects to recognize as revenue in future periods when the Company performs under the contracts. These remaining obligations include amounts that have been formally appropriated under contracts with the U.S. Government, and exclude unexercised contract options and potential orders under ordering-type contracts such as Indefinite Delivery, Indefinite Quantity contracts. At March 31, 2026, the Company had $1,470.0 million in remaining performance obligations of which the Company expects to recognize revenues of approximately 55% in the next twelve months.

Contract assets, contract liabilities and accounts receivable

Assets and liabilities related to contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At March 31, 2026, contract assets, contract liabilities and accounts receivable totaled $103.5 million, $275.6 million and $256.8 million, respectively. During the first six months of 2026, the Company recognized approximately $56 million in revenues that were included in the contract liabilities balance at September 30, 2025. At September 30, 2025, contract assets, contract liabilities and accounts receivable from continuing operations totaled $90.7 million, $224.7 million and $253.6 million, respectively.

​

12. LEASES

The Company determines at lease inception whether an arrangement that provides control over the use of an asset is a lease. The Company recognizes at lease commencement a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term. The Company has elected not to recognize a ROU asset and lease liability for leases with terms of 12 months or less. Certain of the Company’s leases include options to extend the term of the lease for up to 20 years. When it is reasonably certain that the Company will exercise the option, Management includes the impact of the option in the lease term for purposes of determining total future lease payments. As most of the Company’s lease agreements do not explicitly state the discount rate implicit in the lease, Management uses the Company’s incremental borrowing rate on the commencement date to calculate the present value of future payments based on the tenor of each arrangement.

The Company’s leases for real estate commonly include escalating payments. These variable lease payments are included in the calculation of the ROU asset and lease liability. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease pre-payments and initial direct costs of obtaining the lease.

In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. Non-lease components are excluded from our ROU assets and lease liabilities and expensed as incurred.

The Company’s leases are for office space, manufacturing facilities, and machinery and equipment.

​

18

The components of lease costs are shown below:

​

​

​

Additional information related to leases are shown below:

​

​

​

​

19

The following is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and the related ROU assets, presented on our condensed Consolidated Balance Sheet on March 31, 2026:

​

​

Operating lease liabilities are included in the condensed Consolidated Balance Sheet in accrued other expenses (current portion) and as a caption on the Consolidated Balance Sheet (long-term portion). Finance lease liabilities are included on the Consolidated Balance Sheet in accrued other expenses (current portion) and other liabilities (long-term portion). Operating lease ROU assets are included as a caption on the Consolidated Balance Sheet and finance lease ROU assets are included in property, plant and equipment on the Consolidated Balance sheet.

​

13. NEW ACCOUNTING PRONOUNCEMENTS

In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses,” which requires disaggregated disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity presents on the face of the income statement, rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. This ASU will be effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Other than additional disclosure, we do not expect a change to our consolidated statements of operations, financial position, or cash flows.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures. This ASU will be effective for fiscal years beginning after December 15, 2024. Other than additional disclosure, we do not expect a change to our consolidated statements of operations, financial position, or cash flows.

​

14. RELATED PARTIES

Two of the Company’s directors are officers at two customers of the Company’s Doble subsidiary. Doble sells products, leases equipment and provides testing services in the ordinary course of Doble’s business. The total amount of these sales to these two customers was approximately $1.0 million and $2.3 million for the three- and six-month periods ending March 31, 2026. All transactions between Doble and the two customers are intended to be and have been consistent with Doble’s normal commercial terms offered to its customers, and the Company’s Board of Directors has determined that the relationships between the Company and the customers are not material and did not impair the Company’s or the directors’ independence.

​

15. SUBSEQUENT EVENT

On April 15, 2026, the Company signed a definitive agreement to acquire the Megger Group Limited (Megger) business of TBG AG. Megger is a global provider of testing, monitoring, and data-driven solutions for utilities and critical electric infrastructure, including industrial, transportation, data center and renewable end markets. Under the terms of the agreement, ESCO will acquire Megger for total consideration of approximately $2.35 billion, consisting of $0.9 billion in cash and ESCO equity valued at approximately $1.4 billion. The cash portion will be funded through existing cash on hand and incremental debt, with committed financing in place. The Company expects to complete the acquisition in the first quarter of fiscal 2027. Megger will become part of the Company’s Utility Solution Group (USG) segment. See further discussion of the transaction and financing arrangements in the Company’s Form 8-K’s filed April 15, 2026 and April 16, 2026.

​

​

20

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 second quarters of 2026 and 2025 represent the three-month periods ended March 31, 2026 and 2025, respectively.

OVERVIEW

In the second quarter of 2026, sales, net earnings and diluted earnings per share were $309.3 million, $33.6 million and $1.29 per share, respectively, compared to $231.8 million, $26.4 million and $1.02 per share, respectively, in the second quarter of 2025. In the first six months of 2026, sales, net earnings and diluted earnings per share were $599.0 million, $62.2 million and $2.40 per share, respectively, compared to $446.4 million, $46.7 million and $1.81 per share, respectively, in the first six months of 2025.

NET SALES

In the second quarter of 2026, net sales of $309.3 million were $77.5 million, or 33.4%, higher than the $231.8 million in the second quarter of 2025. In the first six months of 2026, net sales of $599.0 million were $152.6 million, or 34.2%, higher than the $446.4 million in the first six months of 2025. The increase in net sales in the second quarter of 2026 as compared to the second quarter of 2025 was due to a $60.7 million increase in the A&D segment, a $14.1 million increase in the Test segment and a $2.7 million increase in the USG segment. The increase in net sales in the first six months of 2026 as compared to the first six months of 2025 was due to a $122.6 million increase in the A&D segment, a $26.4 million increase in the Test segment and a $3.6 million increase in the USG segment.

-A&D

In the second quarter of 2026, net sales of $150.3 million were $60.7 million, or 67.7%, higher than the $89.6 million in the second quarter of 2025. In the first six months of 2026, net sales of $294.1 million were $122.6 million, or 71.5%, higher than the $171.5 million in the first six months of 2025. The sales increase in the second quarter of 2026 compared to the second quarter of 2025 was mainly due to a $44.3 million increase in navy revenues and a $14.0 million increase in aerospace revenues (defense and commercial). Maritime contributed $47.8 million of revenue growth in the second quarter of 2026. The sales increase in the first six months of 2026 compared to the first six months of 2025 was mainly due to a $88.5 million increase in navy revenues, a $29.8 million increase in aerospace revenues (defense and commercial) and a $3.3 million increase in industrial shipments. Maritime contributed $98.4 million of revenue growth in the first six months of 2026.

-USG

In the second quarter of 2026, net sales of $93.5 million were $2.7 million, or 3.0%, higher than the $90.8 million in the second quarter of 2025. In the first six months of 2026, net sales of $181.0 million were $3.6 million, or 2.0%, higher than the $177.4 million in the first six months of 2025. The increase in the second quarter of 2026 compared to the second quarter of 2025 was due to an $8.4 million increase in net sales at Doble driven by higher sales of protection testing, offline products and services, partially offset by a $5.7 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 six months of 2026 compared to the corresponding period of 2025 was due to a $12.5 million increase in net sales at Doble driven by higher sales of condition monitoring and offline products, partially offset by an $8.9 million decrease in net sales at NRG for the reasons mentioned above.

-Test

In the second quarter of 2026, net sales of $65.5 million were $14.1 million, or 27.4%, higher than the $51.4 million in the second quarter of 2025. In the first six months of 2026, net sales of $123.8 million were $26.4 million, or 27.1%, higher than the $97.4 million in the first six months of 2025. The increase in the second quarter of 2026 as compared to the second quarter of 2025 was due to a $10.1 million increase in sales from the segment’s U.S. operations, a $2.8 million increase in sales from the segment’s Asian operations, and a $1.2 million increase from the segment’s European operations; due to higher Test and Measurement and filters volumes. The increase in the first six months of 2026 compared to the first six months of 2025 was due to a $20.2 million increase in sales from the segment’s U.S. operations, a $4.2 million increase from the segment’s European operations and a $2.0 million increase in sales from the segment’s Asian operations for the reasons mentioned above.

21

ORDERS AND BACKLOG

Backlog was $1,470.0 million at March 31, 2026 compared with $1,133.6 million at September 30, 2025. The Company received new orders totaling $378.2 million in the second quarter of 2026 compared to $265.7 million in the second quarter of 2025. Of the new orders received in the second quarter of 2026, $183.8 million related to A&D products, $101.3 million related to USG products, and $93.1 million related to Test products. Of the new orders received in the second quarter of 2025, $96.5 million related to A&D products, $92.2 million related to USG products, and $77.0 million related to Test products.

The Company received new orders totaling $935.4 million in the first six months of 2026 compared to $494.9 million in the first six months of 2025. Of the new orders received in the first six months of 2026, $566.1 million related to A&D products, $200.1 million related to USG products, and $169.2 million related to Test products. Of the new orders received in the first six months of 2025, $171.3 million related to A&D products, $181.8 million related to USG products, and $141.8 million related to Test products.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative (SG&A) expenses for the second quarter of 2026 were $62.8 million (20.3% of net sales), compared with $54.3 million (23.4% of net sales) for the second quarter of 2025. For the first six months of 2026, SG&A expenses were $124.0 million (20.7% of net sales) compared to $109.3 million (24.5% of net sales) for the first six months of 2025. The increase in SG&A in the second quarter and first six 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. SG&A as a percentage of net sales decreased in the second quarter and first six months of 2026 within all three business segments.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization of intangible assets was $20.4 million and $40.7 million for the second quarter and first six months of 2026, respectively, compared to $8.0 million and $16.0 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 second quarter and first six 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 $1.8 million in the second quarter of 2026 compared with $0.4 million in the second quarter of 2025. Other expenses, net, was $1.8 million in the first six months of 2026 compared to other (income) of ($0.3) million in the first six months of 2025. The principal components of other expenses, net, in the second quarter and first six months of 2026 included $1.3 million of restructuring charges within the Test segment due to the exit of the acoustics product line (primarily asset write-offs, contract termination charges and severance), and $0.6 million of restructuring charges (primarily severance) within the USG segment. There were no individually significant items in other expenses (income), net, in the second quarter of 2025. The principal component of other expenses, net, in the first six months of 2025 was approximately $0.5 million of restructuring charges (primarily severance) within the Test and USG segments.

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 $46.3 million (15.0% of net sales) for the second quarter of 2026 compared to $36.6 million (15.8% of net sales) for the second quarter of 2025. For the first six months of 2026, EBIT was $84.6 million (14.1% of net sales) compared to $64.7 million (14.5% of net sales) for the first six months of 2025.

22

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

​

​

-A&D

EBIT in the second quarter of 2026 was $43.0 million (28.6% of net sales) compared to $24.2 million (27.0% of net sales) in the second quarter of 2025. EBIT in the first six months of 2026 was $81.0 million (27.5% of net sales) compared to $41.7 million (24.3% of net sales) in the first six months of 2025. The increase in EBIT in the second quarter and first six 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.

-USG

EBIT in the second quarter of 2026 was $22.5 million (24.0% of net sales) compared to $20.8 million (22.9% of net sales) in the second quarter of 2025. EBIT in the first six months of 2026 was $42.0 million (23.2% of net sales) compared to $41.3 million (23.3% of net sales) in the first six months of 2025. The increase in EBIT in the second quarter and first six 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 $0.6 million of restructuring charges (primarily severance) in the first six months of 2026.

-Test

EBIT in the second quarter of 2026 was $8.8 million (13.4% of net sales) compared to $6.4 million (12.4% of net sales) in the second quarter of 2025. EBIT in the first six months of 2026 was $16.8 million (13.6% of net sales) compared to $10.8 million (11.1% of net sales) in the first six months of 2025. The increase in EBIT in the second quarter and first six months of 2026 compared to the corresponding periods of 2025 was mainly due to higher sales volumes and price increases partially offset by inflationary pressures. EBIT was negatively impacted by $1.3 million and $0.4 million in the first six months of 2026 and 2025, respectively, by restructuring charges (primarily asset write-offs, contract termination charges and severance).

–Corporate

Corporate costs included in EBIT were $28.0 million and $55.2 million in the second quarter and first six months of 2026, respectively, compared to $14.8 million and $29.1 million in the corresponding periods of 2025. The increase in Corporate costs in the second quarter and first six months of 2026 compared to the corresponding periods of 2025 was mainly due to an increase in acquisition related amortization due to the Maritime acquisition, and an increase in share-based compensation costs and acquisition related costs.

INTEREST EXPENSE, NET

Interest expense was $2.4 million and $5.3 million in the second quarter and first six months of 2026, respectively, and $2.2 million and $4.5 million in the corresponding periods of 2025. The increase in interest expense in the second quarter and first six months of 2026 compared to the corresponding periods of 2025 was mainly due to higher average outstanding borrowings due to the Maritime acquisition in April 2025. The weighted average outstanding borrowings were $168 million and $170 million for the three and six-month periods ending March 31, 2026 and $100 million and $111 million for the three and six-month periods ending March 31, 2025.

INCOME TAX EXPENSE

The second quarter 2026 effective income tax rate was 23.5% compared to 23.3% in the second quarter of 2025. The effective income tax rate in the first six months of 2026 was 21.5% compared to 22.5% for the first six months of 2025. Income tax expense in the first six months of 2026 was favorably impacted by additional tax benefits related to the vesting of share-based compensation awards.

23

CAPITAL RESOURCES AND LIQUIDITY

The Company’s overall financial position and liquidity remain strong. Working capital (current assets less current liabilities) increased to $226.4 million at March 31, 2026 from $180.4 million at September 30, 2025. Inventories increased $19.3 million during this period due to a $7.7 million increase within the A&D segment, a $9.1 million increase within the USG segment and a $2.5 million increase within the Test segment primarily from an increase in work-in-process and raw materials inventories due to timing of manufacturing existing orders. Contract assets increased $12.8 million primarily within the A&D segment (Maritime) due to timing. Contract liabilities increased $52.8 million primarily within the A&D segment (Globe and Maritime) due to timing of payments received from customers.

Net cash provided by operating activities from continuing operations was $134.6 million and $46.3 million in the first six months of 2026 and 2025, respectively. The increase in net cash provided by operating activities in the first six months of 2026 as compared to the first six months of 2025 was mainly driven by lower working capital requirements and higher earnings.

Capital expenditures for continuing operations were $13.1 million and $14.9 million in the first six months of 2026 and 2025, respectively. In addition, the Company incurred expenditures for capitalized software and other intangible assets from continuing operations of $4.8 million and $5.5 million in the first six months of 2026 and 2025, respectively.

Credit Facility

At March 31, 2026, the Company had approximately $440 million available to borrow under its bank credit facility, a $250 million increase option, and $92.3 million cash on hand. At March 31, 2026, the Company had $145 million of outstanding borrowings under the Credit Facility and Incremental Facility in addition to outstanding letters of credit of $14.5 million. Cash flow from operations and borrowings under the Company’s credit facility are expected to meet the Company’s capital requirements and operational needs for the foreseeable future. The Company’s ability to access the additional $250 million increase option of the credit facility is subject to acceptance by participating or other outside banks.

Acquisition

During the first six months of fiscal 2026, the Company paid $10.2 million consisting of a $5.1 million working capital settlement and a $5.1 million group tax relief payment, both related to the Maritime acquisition.

Divestiture

During the second quarter of 2026, the Company received a $1.5 million, net, working capital settlement related to the sale of VACCO. In addition, during the second quarter of 2026, the Company paid approximately $59 million in cash taxes related to the gain on sale of VACCO.

Subsequent Event

On April 15, 2026, the Company signed a definitive agreement to acquire the Megger Group Limited (Megger) business of TBG AG. Megger is a global provider of testing, monitoring, and data-driven solutions for utilities and critical electric infrastructure, including industrial, transportation, data center and renewable end markets. Under the terms of the agreement, ESCO will acquire Megger for total consideration of approximately $2.35 billion, consisting of $0.9 billion in cash and ESCO equity valued at approximately $1.4 billion. The cash portion will be funded through existing cash on hand and incremental debt, with committed financing in place. The Company expects to complete the acquisition in the first quarter of fiscal 2027. Megger will become part of the Company’s Utility Solution Group (USG) segment. See further discussion of the transaction and financing arrangements in the Company’s Form 8-K’s filed April 15, 2026 and April 16, 2026.

Dividends

A dividend of $0.08 per share, totaling $2.1 million, was paid on October 16, 2025 to stockholders of record as of October 2, 2025. A dividend of $0.08 per share, totaling $2.1 million, was paid on January 16, 2026 to stockholders of record as of January 2, 2026. Subsequent to March 31, 2026, a quarterly dividend of $0.08 per share, totaling $2.1 million, was paid on April 17, 2026 to stockholders of record as of April 2, 2026.

24

CRITICAL ACCOUNTING POLICIES

Management has evaluated the accounting policies used in the preparation of the Company’s financial statements and related notes and believes those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by Management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving Management judgments and estimates may be found in the Critical Accounting Policies section of Management’s Discussion and Analysis and in Note 1 to the condensed Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025.

OTHER MATTERS

Contingencies

As a normal incident of the business in which the Company is engaged, various claims, charges and litigation are asserted or commenced against the Company. Additionally, the Company is currently involved in various stages of investigation and remediation relating to environmental matters. In the opinion of Management, the aggregate costs involved in the resolution of these matters, and final judgments, if any, which might be rendered against the Company, are adequately reserved, are covered by insurance, or would not have a material adverse effect on the Company’s results from operations, capital expenditures, or competitive position.

​

25

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to the Company’s operations result primarily from changes in interest rates and changes in foreign currency exchange rates. The Company is exposed to market risk related to changes in interest rates and selectively uses derivative financial instruments, including forward contracts and swaps, to manage these risks. The Company’s Canadian subsidiary Morgan Schaffer enters into foreign exchange contracts to manage foreign currency risk as a portion of their revenue is denominated in U.S. dollars. All derivative instruments are reported on the balance sheet at fair value. For derivative instruments designated as cash flow hedges, the gain or loss on the respective derivative is deferred in accumulated other comprehensive income until recognized in earnings with the underlying hedged item. There has been no material change to the Company’s market risks since September 30, 2025.

ITEM 4. CONTROLS AND PROCEDURES

The Company carried out an evaluation, under the supervision and with the participation of Management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of that date. During 2025, the Company acquired the Signature Management & Power business (Maritime). The Company is currently in the process of integrating Maritime into its assessment of its internal control over financial reporting. In accordance with the SEC’s published guidance, Management’s assessment, and conclusions on the effectiveness of our disclosure controls and procedures as of March 31, 2026, excludes an assessment of the internal control over financial reporting of Maritime. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Other than as described above with respect to Maritime, there has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

​

26

PART II. OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company did not repurchase any shares during the second quarter of 2026.

​

ITEM 5. OTHER INFORMATION

During the second quarter of fiscal 2026, no director or officer (as defined in Securities and Exchange Commission Rule 16-a-1(f)) of the Company adopted or terminated:

(i) Any contract, instruction or written plan for the purchase or sale of Company securities intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) (a “Rule 10b5-1 trading arrangement”); or

(ii) Any “non-Rule 10-b5-1 trading arrangement” as defined in Item 408(c) of SEC Regulation S-K.

​

27

ITEM 6. EXHIBITS

​

Exhibit Number Description Document Location

3.1(a) Restated Articles of Incorporation Exhibit 3(a) to the Company’s Form 10-K for the fiscal year ended September 30, 1999 3.1(b) Amended Certificate of Designation, Preferences and Rights of Series A Participating Cumulative Preferred Stock of the Registrant Exhibit 4(e) to the Company’s Form 10-Q for the fiscal quarter ended March 31, 2000 3.1(c) Articles of Merger effective July 10, 2000 Exhibit 3(c) to the Company’s Form 10-Q for the fiscal quarter ended June 30, 2000 3.1(d) Amendment of Articles of Incorporation effective February 5, 2018 Exhibit 3.1 to the Company’s Form 8-K filed February 7, 2018 3.2 Bylaws Exhibit 3.1 to the Company’s Form 8-K filed November 22, 2022 4.1(a) Amended and Restated Credit Agreement dated August 30, 2023 Exhibit 10.1 to the Company’s Form 8-K filed September 6, 2023 4.1(b) Amendment No. 1 to the Amended and Restated Credit Agreement dated August 30, 2023 Exhibit 10.1(c) to the Company’s Form 10-K for the fiscal year ended September 30, 2024 10.1 Twelfth Amendment and Restatement of Employee Stock Purchase Plan, effective January 30, 2026 Exhibit 10.1 to the Company’s Form 8-K filed February 5, 2026 31.1 Certification of Chief Executive Officer Filed herewith 31.2 Certification of Chief Financial Officer Filed herewith (32) Certification of Chief Executive Officer and Chief Financial Officer Filed herewith 101.INS XBRL Instance Document* Submitted herewith 101.SCH XBRL Schema Document* Submitted herewith 101.CAL XBRL Calculation Linkbase Document* Submitted herewith 101.DEF XBRL Definition Linkbase Document* Submitted herewith 101.LAB XBRL Label Linkbase Document* Submitted herewith 101.PRE XBRL Presentation Linkbase Document* Submitted herewith (104) Cover Page Interactive Data File (contained in Exhibit 101) Submitted herewith

* Exhibit 101 to this report consists of documents formatted in XBRL (Extensible Business Reporting Language). The financial information contained in the XBRL – related documents is “unaudited” or “unreviewed”.

​

28

​

ESCO TECHNOLOGIES INC.

/s/ Christopher L. Tucker

Christopher L. Tucker

Senior Vice President and Chief Financial Officer

(As duly authorized officer and principal accounting and financial officer of the registrant)

​ ​

Dated: May 11, 2026 ​

​

​

​

29