Arxis Q1 Earnings Call Highlights

Arxis (NASDAQ:ARXS) reported a strong first quarter in its first earnings call as a public company, with management pointing to broad-based growth across defense and space, commercial aerospace and industrial technology, as well as a strengthened balance sheet following its initial public offering.

Chief Executive Officer Kevin Perhamus said first-quarter sales rose 21% year over year to $459 million, while adjusted EBITDA increased 31% to $175 million. He said revenue growth was diversified, with new business wins, underlying market volume, modest price increases and acquisitions each contributing mid-single-digit growth during the quarter.

“We also saw double-digit growth across all three of our end markets,” Perhamus said, citing government spending priorities in defense and space, production rate increases in commercial aerospace, and momentum in industrial technology, particularly medical technology and semiconductors.

Arxis Issues 2026 Guidance After Strong First Quarter

Chief Financial Officer Azad Badakhsh said first-quarter sales growth included 17% organic growth and a 4% contribution from the Oldham Seals and Micro-Tronics acquisitions. Adjusted EBITDA margin expanded 290 basis points to 38.2%, driven by operational efficiencies across the portfolio and cost optimization initiatives, particularly in the Mechanical Components segment.

For fiscal 2026, Arxis guided for revenue of $1.86 billion to $1.88 billion and adjusted EBITDA of $720 million to $730 million. At the midpoint, the outlook implies 18% year-over-year revenue growth, including 15% organic growth, and an adjusted EBITDA margin of 38.8%.

Badakhsh said the company expects mid-teens organic growth across all three end markets, supported by industry volume, new business growth and price realization. He also outlined full-year assumptions including capital expenditures of about $63 million, interest expense of approximately $135 million, an effective tax rate near 25%, depreciation and amortization of about $206 million, and share-based compensation expense of approximately $155 million.

IPO Proceeds Lower Leverage and Boost Liquidity

Management said Arxis used proceeds from its IPO to materially reduce debt. Badakhsh said net leverage declined from 4.2 times at the end of 2025 to 4.0 times at the end of the first quarter. After quarter-end, the company completed its IPO, generating $1.2 billion of net proceeds, all of which went to Arxis.

Of that amount, $946 million was used to repay existing debt, while $275 million was added to the balance sheet. Badakhsh said net leverage declined further to 2.0 times trailing 12-month EBITDA, and the debt reduction is expected to lower annual cash interest expense by more than $70 million compared with 2025.

Arxis said it has $1.1 billion of available liquidity through cash on hand, an undrawn revolver and a delayed draw term loan. Management said it intends to use capital in a disciplined way to support continued mergers and acquisitions.

Business Model Focuses on Proprietary Components

Perhamus used the call to describe Arxis’ business model, saying the company designs and builds proprietary components such as bearings, capacitors, connectors and seals that operate in harsh environments and are used in defense, aerospace and industrial technology platforms.

He said approximately 90% of revenue is proprietary, supported by 67 foundational technologies across 46 business units. Arxis’ end-market mix is approximately 50% defense and space, 20% commercial aerospace and 30% industrial technology. Perhamus said the company is diversified across about 40,000 part numbers, more than 600 platforms and over 5,000 customers.

Perhamus also highlighted the company’s “Arxis Edge” operating playbook, which includes decentralized business units, a system for tracking new business opportunities and cross-selling, and a repeatable acquisition process.

“From the beginning, Arxis was built to be a long-term compounder,” Perhamus said, noting the company’s partnership with Arcline, which supports acquisition sourcing, research and underwriting.

Backlog Provides Visibility Into 2026

During the question-and-answer session, analysts focused heavily on the company’s unusually tight guidance range and the sustainability of its growth. Perhamus said the company is relying on data from Arxis Edge rather than external market forecasts, noting that as of May, Arxis had 90% of the year booked and in backlog.

“There’s very low risk to that forecast, and we have great resolution and clarity into how things will end up from a market perspective,” Perhamus said.

Asked about the building blocks of the company’s 17% organic growth in the first quarter, Perhamus said it was roughly one-third new business growth, one-third mid-single-digit pricing and one-third market growth.

On capacity, Perhamus said Arxis has 72 independent focus factories across its 46 business units and “plenty of capacity” to meet its guidance.

M Pipeline Remains Active

Perhamus said Arxis has completed 32 acquisitions since its formation in late 2020 and has historically averaged five to six acquisitions per year. He said the current level of acquisition activity is “as high as it’s ever been,” though he cautioned that timing is difficult to predict.

When asked about acquisition criteria, Perhamus said Arxis first evaluates whether a potential acquisition fits its business model. Financially, the company looks for deals where it can grow the acquired company’s EBITDA faster than the Arxis base over the next three years and “buy down the multiple to less than 10 times within 36 months.”

Perhamus said smaller deals are more plentiful, but the company does not have a strong preference between larger and smaller acquisitions.

In defense and space, Perhamus said Arxis is exposed to priorities including air defense, radar, missile systems, missile defense, electronics, electronic warfare and modernization. In industrial technology, he cited semiconductor manufacturing related to artificial intelligence, medical applications, factory automation, robotics and quantum computing.

Badakhsh said free cash flow was $25 million in the first quarter, up 107% year over year, though seasonally lower as expected. He cited higher accounts receivable and inventory from record operating performance and timing-related items including customer billing timing, cash interest payments before the IPO debt paydown and annual bonus payments. He said free cash flow should normalize over the remainder of 2026, with full-year free cash flow conversion expected to be well over 100%.

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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