Arxis, Inc.

Good day and thank you for standing by. Welcome to the ARCSIS first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Brian Wendlandt, head of FP&A and investor relations. Please go ahead.

Thank you, Josh. Good morning, and welcome to the ARCSIS First Quarter 2026 Results Conference Call. Joining me today are Kevin Perhamis, our Chief Executive Officer, and Azad Badash, our Chief Financial Officer. Before we begin, I'd like to remind everyone that today's discussion will contain forward-looking statements relating to future events and expectations. Actual results may differ materially from those projected due to a number of risks and uncertainties. please refer to our most recent SEC filings and today's earnings materials for a discussion of factors that could cause actual results to differ materially from those forward-looking statements. During today's call, we may also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in today's earnings release and related presentation materials. With that, I'll turn the call over to Kevin.

Thanks, Brian. And good morning, everyone. I'm Kevin Perhamis, CEO of ArcSys. And welcome to our first earnings call as a public company. I'm going to start with a performance update, and then I'd like to walk through the ArcSys business model, the playbook, and the long-term growth algorithm that makes us so unique. With that, let's get started on slide three. We delivered an outstanding start to 2026. with first quarter sales of $459 million, up 21 percent year-over-year, and adjusted EBITDA of $175 million, up 31 percent year-over-year. The revenue growth was broad-based and highly diversified. New business wins, underlying market volume, modest price increases, and acquisitions each contributed mid-single digit growth during the quarter, highlighting the balanced nature of our growth algorithm. We also saw double digit growth across all three of our end markets. In defense and space, we continue to benefit from our alignment to key government spending priorities. In commercial aerospace, we are experiencing the benefits of ramping production rates, And within industrial technology, we are seeing solid momentum across several applications, especially medical technology and semiconductor. Overall, first quarter results reinforce our confidence in the full-year outlook, and we are excited to initiate strong guidance for fiscal year 2026. In summary, we expect strong growth to continue with the midpoint of our guidance range yielding 18% revenue growth and 27 percent EBITDA growth compared to prior year results. In addition, our partnership with ArcLine continues to be a significant strategic advantage in sourcing and executing acquisitions, including the successful completion of the Microtronics acquisition in January. And finally, following the IPO, we now have a substantially strengthened balance sheet and achieved net leverage of two times, positioning us to continue deploying capital across our M&A pipeline. Moving on to page four, I want to remind everyone of our differentiated business model and playbook. ArcSys designs and builds proprietary components, things like bearings, capacitors, connectors, and seals that perform in the harshest environments. These components are vital to the world's most advanced defense, aerospace, and industrial technology platforms. At the core of our model is a highly proactive and collaborative selling engine. Our engineers meet with our customers' engineers. They solve a problem, which results in a custom product that gets designed into the bill of materials, typically as the only qualified part, and then stays there for decades. Each of our business units own at least one foundational proprietary technology that dramatically improves the product performance and is exclusive to ArcSys. Across our 46 business units, we own 67 of these technologies, which underpin the 90% proprietary revenue shown at the bottom of this page. Examples of these technologies include Cryoflex as part of our PacAero business, and KRON within the Comatix business. When applied to a bearing, KRON transforms a standard bearing into a highly engineered custom product with five to 10 times the value. You'll also see our end market mix on this page. Approximately 50% defense in space, 20% commercial aerospace, and 30% industrial technology. We are highly diversified across virtually every metric, with 40,000 part numbers, more than 600 platforms, and over 5,000 customers. This diversification provides a highly stable foundation for the business and allows us to sleep really well at night. Finally, we have a nice balance between our two segments, electronic and mechanical components. And while the product families are quite different in the two segments, the underlying business model remains entirely consistent. Turning to page five, this slide summarizes why ArcSys is so unique. It starts with the markets we serve. We operate in highly attractive end markets with strong long-term demand drivers, high qualification requirements, and very long platform life cycles. Those dynamics create durable demand for ArcSys. The second piece is the nature of our products. Our components are highly engineered, proprietary, and deeply embedded inside our customers' platforms. Once we are designed in, those positions tend to stay in place for decades because the switching costs are high and the qualification cycles are long. The next three elements summarize our playbook called ArcSys Edge. First, we operate with a decentralized structure. Our business units move quickly, they are empowered to make decisions, and are accountable for performance. At the same time, the whole organization stays highly connected through a common operating system, shared processes, and aligned incentives. We are also unified. Second is our new business engine. We systematically track opportunities across the portfolio drive cross-selling between business units, and align compensation directly to growth generation. That creates a very proactive commercial culture and is the reason we can continue to grow faster than the markets we serve. And finally, M&A is embedded directly into the model. We operate in a highly fragmented market, and we've built a repeatable process around sourcing, underwriting, integrating and scaling acquisitions without disrupting the broader organization. From the beginning, ArcSys was built to be a long-term compounder, built by hand-selecting the companies with the best business models and integrating them one at a time into the ArcSys playbook. We did this in partnership with ArcLine. Let's look at slide six. ArcSys and ArcLine bring different strengths to the model. ArcSys brings the operating side, engineering expertise, customer relationships, the playbook, and processes that allow us to integrate and scale businesses while keeping them entrepreneurial, empowered, and decentralized. ArcLine brings deep capabilities around sourcing, research, underwriting, and long-term portfolio strategy with more than 60 investment professionals to support transaction evaluation and market analysis. This is a true partnership that creates a much more systematic approach to capital allocation than you typically see in an industrial company. We believe that combination, strong industrial operators paired with institutional quality capital allocators, is a key structural advantage. Moving on to slide seven. At the end of the day, everything we've discussed points to one thing. A business intentionally built to compound organically and through acquisitions. This model has produced and will continue to produce a highly durable financial profile. High single-digit organic revenue growth driven by strong markets, new business, and pricing. Approximately 50% incremental EBITDA conversion on that growth. translating into low double-digit organic EBITDA growth. This organic growth is supplemented by disciplined acquisition execution, which will provide meaningful incremental EBITDA growth. Ultimately, our objective is straightforward, to build a company that creates long-term value through world-class operational excellence and capital allocation, resulting in sustained long-term growth. a next generation industrial compounder. With that, let me turn it over to Azad to provide more detail on our first quarter results and fiscal 2026 guidance.

Thanks, Kevin. And good morning, everyone. I will start with slide eight. The first quarter was a record one for ArcSys and reflects the strength of both our business model and the operating playbook that Kevin just outlined. Sales in the quarter were $459 million representing 21% growth year over year. This consisted of 17% organic growth and 4% contribution from the Oldham Seals and Microtronics acquisitions. Growth was broad-based, with all three of our key end markets delivering double-digit revenue growth during the quarter. Turning to profitability, first quarter adjusted EBITDA was $175 million, with adjusted EBITDA margins expanding 290 basis points year over year to 38.2%. Margin expansion was driven by continued operational efficiencies across the portfolio, in particular within our MCS segment, where we remain focused on cost optimization initiatives. In addition, the ArcSys Edge playbook continues to reinforce new business wins and pricing across the organization, resulting in incremental EBITDA margins in excess of 50% for the quarter. Free cash flow for Q1 was $25 million, up 107% year-over-year, As is typical for our business, first quarter free cash flow conversion was seasonally lower. That said, several factors impacted cash flow during the quarter that are important to highlight. First, record operating performance naturally drove higher accounts receivable and inventory levels of approximately $29 million in Q1. In addition, free cash flow was impacted by approximately $50 million from several timing-related items, including $17 million related to customer billing timing on a few larger defense programs driving an increase in net contract assets, $13 million from additional months of cash interest payments ahead of the IPO debt pay down, and $20 million related to annual bonus payments made in Q1. While some timing-related impacts may continue into Q2, we expect free cash flow to normalize over the remainder of 2026. Moving to slide nine, I'll provide a brief update on our capital structure following the IPO. First, continued EBITDA growth and strong cash generation supported further deleveraging during the quarter, with net leverage declining from 4.2 times at the end of the year to four times at the end of the quarter. Shortly after the quarter end, we successfully completed our IPO, generating $1.2 billion of net proceeds that all went to the company. Of that amount, $946 million was used to repay existing debt, with the remaining proceeds of $275 million going to our balance sheet. As a result, our net leverage declined further from four times to two times TTM EBITDA, significantly strengthening the balance sheet and enhancing our financial flexibility. In addition, the debt reduction is expected to lower annual cash interest expense by more than $70 million versus 2025. further supporting free cash flow generation going forward. Consistent with our approach, we intend to deploy capital in a disciplined manner towards continued M&A. We have multiple sources of liquidity to support this, including free cash flow and $1.1 billion of available liquidity through cash on hand, our undrawn revolver, and our delayed draw term loan. Turning to slide 10, I will conclude with a summary of our full year 2026 guidance. We expect total revenue to be in the range of $1.86 to $1.88 billion and adjusted EBITDA between $720 and $730 million. At the midpoint of the range, we expect 18% year-over-year revenue growth, including 15% organic growth with an adjusted EBITDA margin of 38.8% at the midpoint. On the slide, we've also outlined our internal growth assumptions for the end markets that we serve. Across all three of our key end markets, we're assuming mid-teens organic growth, which reflects a combination of underlying industry volumes, new business growth, and price realization. And finally, on slide 11, we've outlined key assumptions supporting our full-year outlook. A couple of items to highlight. We expect total CapEx to be around $63 million, approximately 3% of our revenue. Moving on to interest expense, following our debt repayment post-IPO, we expect that number to decline to approximately $135 million for the full year. We expect our effective tax rate to be around 25%. Total annual depreciation and amortization of around $206 million. And finally, we expect total share-based compensation expense of approximately $155 million. We expect these levels to be elevated in the near term and normalized over the next few years. With that, I'll turn it back over to the operator to open the line for questions.

Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions. And our first question comes from Sheila Kealu with Jefferies. You may proceed.

Good morning, guys, and congratulations on your strong start with the first quarter. You guided to all three of your end markets up mid-teens for the year toward the midpoint of your 2026 organic growth of 15%. Obviously, given what's happening with jet fuel prices and in the Middle East, just curious to see if you're seeing any changes in customer behavior across aerospace and defense. You also pointed to strong med markets as well as semiconductor. What level of risk are you seeing in opportunities in your plan?

Hi, Sheila. Yeah, so we are guiding for mid-teens growth organically in all three of the end markets. We're seeing very consistent growth across all of them. And a couple of things. I just want to, first of all, talk about how we are forecasting that guidance for the full year. We are really not depending on any market information to do that at this point. Because we have ARCSIS Edge and because we load all of our backlog and orders into ARCSIS Edge across the whole portfolio, we can see exactly where we're going to we're going to land at this point so as we sit here in may we have 90 of the year uh booked and sitting in backlog and so our full year guidance is really just using that information so there's uh very little risk uh to that forecast and we have you know great resolution and clarity into how things will will end up from a market perspective that's a great One of the great things about having Edge as a system we use to forecast. You asked about fuel prices and conflicts. That can impact commercial aerospace aftermarket. Obviously, that's a relatively small piece of our business. Commercial aerospace overall is around 15%. for narrow body and wide body. If you include business jet, it goes up to the 20, 23% level. And so that 5% continues to be strong for us. It's relatively small, but it continues to be strong and we're not seeing any changes there. And we're not seeing any impact to the supply chain, lastly. The supply chain is pretty resilient, mostly in country. And just remind people that if we did have input cost changes on the supply chain side, we conduct our business PO to PO for the most part with very few long-term agreements. And so we could pass those increased costs along in the form of price increases if it happened.

Got it. So strength across pretty much all end markets and 90% for us. I didn't realize you guys had such strong visibility. Maybe just following up on that 90% of coverage, how do you think about capacity, I guess, to flex upward if demand does materialize and how you think about that maybe across your end markets?

Yeah, it's another great aspect of our model, which is decentralized. We have 72 independent focus factories across our 46 business units. They're all carefully watching their capacity compared to customer demand, and they're able to flex up. We have plenty of capacity right now is the simple answer, and capacity would not be a constraint to achieving our guidance in any way.

Thank you so much.

Thank you. Our next question comes from Noah Popnuck with Goldman Sachs. You may proceed.

Hey, good morning everyone and congrats on being out. Thank you. Kevin, you referenced being levered to where the spending priorities are within defense. Can you elaborate on that? What are some of the larger exposures and platforms and where are you seeing growth in the end market?

Yeah. You know, that's air defense, radar, missile systems, missile defense, electronics, electronic warfare, modernization, you know, all of the, all of the priorities, the key government priorities that, that exist, we are broadly tied to and always have been, you know, so it just provides a nice backdrop. As I said before, though, we don't, we're not really relying on that information to create our guidance for the year. We have the year sitting mostly in backlog already.

Okay. The midpoint of the full year revenue guidance working off of what you just reported for 1Q implies around 1% sequential revenue growth each of the remaining three quarters through the rest of the year. Is that roughly the normal seasonality of the business, or was there anything abnormal with timing in the first quarter?

No seasonality. I mean, we're really pleased with the performance in Q1. We just want to be careful not to simply extrapolate a strong quarter across the remainder of the year. And again, thanks to Arches Edge, we have we have 90% visibility into the full year plan. So, you know, we're just using that information to forecast the revenue for the remainder of the year. Okay. Yeah, so, yeah, simple.

Makes sense. And then just last one, maybe you could just spend a little more time on how the M&A pipeline looks now versus your historical average and how you're thinking you'll be able, the pace at which you think you'll be able to deploy capital towards acquisitions this year versus your historical average pace?

Sure. Just as a reminder to everybody, we started ArcSys in late 2020. We've done 32 acquisitions since then, so we do on average five to six acquisitions per year. It's always been a big part of our DNA. The company was intentionally built as a compounder to continue to do acquisitions in the future as well. We have this partnership with ArcLine. We are working on acquisitions at ArcSys. They have 60 professionals and a whole business development team that's out scouring the landscape for new deals. We've been active. I'd say five to six deals per year. We've been very active from the beginning. The level of activity that we have today is as high as it's ever been. So we're working on many deals. And it's difficult to predict the exact timing of when those, if and when those will close. But it's as active as ever.

Okay. I appreciate all the detail. Thanks, guys. Talk to you soon. Thanks, Noah.

Thank you. Our next question comes from Christine Lewag with Morgan Stanley. You may proceed.

Hey, good morning, everyone. You know, KP, Azad, you know, when you look at the business model for Arxis, you know, you're targeting high single-digit organic growth. And, you know, I just want to take a look at this revenue growth in the quarter where, you know, you really did much higher than that. And so when I think about, like, the drivers of the 17% organic growth, can you parse out for us, you know, how much did ArcSys Edge contribute to that? Because it's much higher than peers in all the different end markets that you're providing, especially in aerospace and defense. So I want to understand a little bit better what the building blocks are, what was, you know, ArcSys Edge on new business, what was pricing. And because, you know, you have the same end markets as some of those peers. And also when we look at this, you know, higher than peer growth for now, I mean, look, high single-digit target versus 17% is a pretty big gap. How long do you think you can get this higher than high single-digit organic growth to sustain?

Thank you. Okay. Hi, Christine. Thanks. So first on what supports the 17% growth, how do we break that down and what is really from ARCS' edge? So I'll remind people that we have this algorithm that we use to drive the business. There's three ways organically to drive the business. And when we think about that, it's the bottom line of the business. But it's volume, price, and cost, PPC. And then inorganically, we have acquisitions. And we use edge to drive volume and price quite a bit. So if you break out that 17%, it's roughly a third, a third, a third, A third, new business growth as generated through ARCSIS Edge and measured through ARCSIS Edge. A third, pricing, mid-single-digit pricing. And a third, the market. So pretty simple. And we have great resolution into that, as you know, and we can really see the numbers coming through there. In terms of your second question, and the long term. You know, long term to us just means beyond this year, beyond the guidance period. So beyond the current period, we're just going to remain disciplined and very measured. We don't have data yet to really forecast beyond the current period. We don't have enough data yet. So we're forecasting the near term, you know, using that edge 90 percent you know, filled in number. And then we, you know, the way we use that number, by the way, is, you know, we know exactly where we should be in terms of firm backlog for each and every business unit at every month in the year. So we know in May how much backlog we should have secured for each business unit in order to achieve a certain forecast. And so we're using math and we're using data to support the near-term forecast. We feel very comfortable with that. And as we get data for next year and as we provide guidance for next year, we'll have a lot of data to do that as well. But in the meantime, we're disciplined and measured about the long term.

Great. Super helpful. And, you know, you talked about, you know, you guys have been doing five to six deals on average per year. That was kind of the playbook that you've had with ArcLine. When you look out now, considering the strength of the balance sheet, do you have a preference for larger deals versus smaller deals? And, you know, any additional color you want to provide regarding the pipelines?

Sure. We don't have a strong preference between larger deals or smaller deals. I would say that the smaller deals are more plentiful. So there's going to be a lot more smaller deals to work on. We're going to continue to evaluate the deals based on two main buckets. The first is Does it fit our business model? And if it does, then we can go to the second bucket, which is the financial criteria. The financial criteria that we're using to evaluate new deals is can we grow the EBITDA of the acquired business at a higher rate than the base of ARCSIS in the next three years? So will it accelerate our EBITDA growth? And the second financial criteria is, can we buy down the multiple to less than 10 times within 36 months? And so we're going to continue to use that criteria, large or small, no preference, even the market, not a strong preference, mostly the business model fit. And the business model is what I described in the opening remarks.

Sasha, thank you very much.

Thanks.

Thank you. Our next question comes from Peter Arment with Baird. You may proceed.

Hey, good morning, KP. Congrats on the strong start to the year. Hey, KP, I think we all understand kind of defensive space and commercial aerospace kind of drivers. Maybe you could talk a little bit about what you're seeing in industrial technology. You called out semis as maybe a source. Maybe give us a little more color of what's driving the opportunity there. Thanks.

Yeah, so in industrial tech, we have, you know, again, it's super diversified. There's a lot of submarkets in that category. The two largest would be semiconductor manufacturing related to AI. Medical is the other large one. And then there's a lot of other, you know, factory automation, robotics, quantum computing, you know, you name it. What's really nice about what we're seeing right now is that across that whole diversified subset of markets, it's up and to the right. We're seeing strength everywhere. So not one thing. It's in all of the above.

Got it. That's helpful and just good to see. I know space is a relatively small maybe percentage of the mix, but maybe opportunities there or your interest in growing kind of emanate there. Thanks again, KP.

Yeah, thanks. Yeah, so defense and space, or sorry, the space sub-market for us is 3% to 4% of our revenue, so not a very large piece. It does make sense that it is only 3% to 4% because, you know, if you look at the Department of Defense budget, space is 3% to 4% of spending for them as well. So we map onto the kind of the global market as a kind of a nice microcosm. And there's no particular interest in space. You know, when we're looking at new deals to add acquisitions to the portfolio, it's, again, mostly tied to is it a business model fit, first and foremost. So if we come across something that has space exposure that fits all the M&A criteria that we have, then we would certainly consider it.

Got it. And just lastly, Azad, you called out kind of the free cash flow, kind of maybe you could just level set us for kind of cadence or expectations, kind of the dynamics, you know, from Q2 and balance the year. Thanks.

Yeah, absolutely. Yeah. So I would just remind everybody that free cash flow conversion can be somewhat lumpy in a given quarter, but that does generally smooth out on an annual basis. And so zooming out, you know, what I would ask everyone to try to remember is that, you know, both our CapEx and our change in networking capital each tend to be around 3% of revenue on an annual basis. And so, you know, if you run the math on that, you should expect free cash flow conversion for the whole year to be well over 100%.

Got it. Thanks again, guys.

Thank you. Our next question comes from Scott Mikus with Mellius Research. You may proceed.

Good morning, KP and Azad. Congrats on the quarter. A quick question on the defense and space side. We're seeing a lot of defense contractors reach multi-year production agreements with the Pentagon, and understandably, the primes want to protect themselves against inflationary pressures, and same with their Tier 1 and Tier 2 suppliers. Are they pushing any of your operating units to sign up for long-term agreements instead of going PO to PO for some of these programs that they're looking for seven-year production runways?

Hi, Scott. Yeah, so I would say it's very early days when it comes to that. We are starting to hear conversations about multi-year agreements. And so there's some qualitative indicators that that there may be more of that as we go forward. That has not impacted our backlog yet. That's not converted into actual orders. We have not signed long-term agreements at this time, but we're hearing more and more conversations about multi-year agreements. So we'll have to keep you posted on that as we go forward.

Okay, got it. And then also in the defense and space side, we're starting to see a lot of new programs come out that are being won by some of these new entrants, whether it be Anduril, Shield AI, Castellan. I'm just curious, can you talk about the work that you do with those NeoPrimes and how you see your products on those platforms growing over the coming years?

Sure. Yeah, we work with everybody. And we're working on many, many new business opportunities right now across the whole portfolio. And when we say many, it's in the thousands. And so as you go into ArcSys Edge, you can see this. All of the companies that you named are in ArcSys Edge, and we are working with all of them on different opportunities, and they're all at various stages. Some of them have converted to revenue. Some of them are pre-revenue. All of these defense technology companies including the, you know, and including the primes all rely on engineered components to make their products. And, you know, for the most part, none of them have vertically integrated down to the tier three, tier four components, base level components that we provide. So we will be an important part of the supply chain for all of the above, for all of them.

All right, guys, thanks for taking the questions.

Thank you.

Thank you. Our next question comes from Miles Walton with Wolf. You may proceed.

Thanks. KP, could you comment on the PO backlog relative to where it ended the year at $1.2 billion? How did that grow? I heard you comment that 90% of the rest of the year is filled out, but just curious on that quantum.

Yeah. The backlog has increased. I think you referenced $1.2 billion, which is where we ended 2025. And so the book-to-bill ratio has been positive as we went through Q1, resulting in a higher backlog. The total backlog obviously is spread out over, it can be 12 months, 12 to 18 months. What we look at as a more important indicator, as I referenced earlier, is how much of that backlog is actually due this year and how secured are we against this year, which is perfectly in line with where we should be considering our $1.87 billion revenue guidance.

And then just looking at the 10Q margins by segment, MCS, to your prepared remarks, had the best margin expansion i think 37.6 percent with the margins versus 30 last year in the first quarter that level of expansion um where you know what was the driver primarily and for the rest of the year where do you think that that can go and more medium term as well yeah so the mechanical component did expand more rapidly um than normal uh in q1 uh there

They're using the VPC algorithm, so they're growing their volume and they're converting their volume at greater than 50% conversion margin into EBITDA. They're pushing mid-single-digit price. But they have also the cost lever that they're pulling on right now. And so remember in the mechanical component segment, we did a large acquisition in 2024 of Command. And there were a number of cost reduction opportunities that the team on the mechanical side took action on in the first half of 2025. Those cost reductions are still flowing through the P&L as we go through the first half of this year. And so, we're at an elevated rate of margin expansion. Also, because they started at a lower rate, they started at 30%, so there was a lot more room to expand the margin, you know, from that lower starting point. It will certainly modulate. I think we're going to continue to see good margin expansion on the mechanical side. They're still behind the electronic component side. There's no structural reason why they wouldn't have the same margins.

Okay.

That's great.

Thank you so much. Thank you. Our next question comes from John Godin with Citi. You may proceed.

Hey, guys. Thanks for taking my question. I wanted to talk a little bit about, you know, guidance philosophy, if you will, because, you know, you guys are new to the market. When I look at the guidance range, you know, it's $20 million in revenue and $10 million in EBITDA. That's obviously unusually tight. It almost... seems not worthwhile to ask what would get us to the high end versus the low end, right? And KP, it sounds like the reason for that is because so much of it is locked in for the rest of the year. Can we talk a little bit about, you know, what approach we should expect going forward? Is the idea to set guidance in a very tight range at an extremely kind of conservative level. And then inevitably as the bookings come in a little bit better, just keep raising it. Um, is there another way to think about the range? Um, you know, maybe, maybe we could just kind of discuss what, what to expect going forward as you guys are delivering, um, performing very well and raising, you know, what is it extremely tight guidance range going forward?

Yeah. Hi, John. So, remember, we're using data, so you're right. We are probably a little more precise than normal because we're using the actual filled-in backlog and then extrapolating, you know, we're 90% filled in in May. We should be 90% filled in in May. What does that result in in a full year revenue number? And then If the orders accelerate, so as we go into June, July, and the orders are ahead of expectation, then that would fill the backlog in faster and we would raise the guidance. So that would be our methodology. So I think that answers your question. It is pretty straightforward. Nothing magical about it. just math and using data to drive the forecast.

I guess some companies in your situation might have, let's say, a $75 million range on revenue or 100 and say 1.86 to whatever, 1.96. And as bookings come in throughout the year, we're comfortable that the low end is extremely protected and the high end has upside. In your case, it sounds like that upside is from here and the way that you guys are thinking about it is essentially setting the guidance range to what is the lowest realistic kind of number for the year based on your bookings. Is that fair? I'm just trying to kind of, you know, I'm getting at this idea that there's a $20 million revenue range for the year and a $10 million EBITDA range, but we're looking at a business that's growing mid-teens doing M&A and that's 50% incremental margins. You know, it, Is that tightness in the range really reflective of how you see the volatility in the business, or is it a function of how you guys are thinking about guidance philosophy?

I think it's probably a function of how we're thinking about guidance philosophy. And you did mention M&A, by the way, and this is all organic. We're not considering any future M&A in this guidance here. So that could also change things quite a bit. So there's a lot of things that could change the guidance as we go forward. You know, we are giving our opening guidance here in May. That will be unusual timing, right, just because we just went public. In the future, the opening guidance would be a little bit earlier in the year, and we might have a wider range on that, right, as we're establishing the initial guidance, because there will be more unknowns at that point in the year than there are in May. I would expect that as it fills in, we'll keep updating and I hope it gets tighter as we go through the end of the year because we should start to converge on the actual number as we get into the fourth quarter. Okay, great. That makes sense.

And then, you know, thinking a step ahead, you guys have your long-term guidance metrics. It feels like that's what you would default to at the start of any year for 27 or 28, you know, just kind of picking a date in the future. Is that right? Or should we be looking at the exit rate of the prior year informing following your guidance?

I would say that if we are... If we are providing guidance, say, for 2027, in the beginning of 2027, we're going to have more resolution, and we're going to actually have a significant portion of the year filled in at that point. And so we'll be able to give more accurate guidance than our long-term numbers at that point. I think that's your question.

Yeah, with all the momentum in 2026, it certainly seems reasonable that that carries forward and we'll see how that plays out. Thanks a lot, guys. All right. Thanks, John.

Thank you. Our next question comes from David Strauss with Wells Fargo. You may proceed. David, your line is now open.

Hi. Good morning. This is Josh Korn on for David. Thanks for taking the question and congrats on the IPO. I wanted to ask, following up on the guidance for the year, I think it was materially higher, the growth rate, than kind of your thoughts during the IPO process. So I just wanted to ask, I guess, kind of what contributed to the better outlook, any certain end markets, segment dynamics, anything like that.

Thanks. Yeah. Hi, Josh. Yeah, I think it's just timing. Remember, we built the models that went into the IPO sort of roadshow at the end of 2025. So it's several months ago now. And we have a lot more data. Our backlog is filled in and we can use that data now to kind of accurately forecast the year. So it's as simple as that. It's a matter of when we built the different models and how much data we had at that time.

Okay, great. Thanks. I'll just stick to one.

Thank you.

Thank you. Our next question comes from Ken Herbert with RBC. You may proceed.

Yeah. Hi, good morning, Kevin and Azad. Maybe just to start, is there any reminders? Is there any seasonality we should keep in mind as we think about specifically on the adjusted EBITDA, the cadence here from the first quarter to, through the rest of the year to end up at the full year just under 39% number?

No, I don't expect any seasonality in the margin or the revenue. It's pretty straight.

Okay.

Helpful. What's more important than seasonality, I think, is just normal quarterly variability. The quarters could move and modulate a little bit. The full year guide is what I'm most confident in, and that's why we're not providing individual quarterly numbers.

Yeah, no, that's appreciated. And I guess as you think about the quarterly variability, could that really just come down to timing of shipments, I guess, and anything that could impact that where you might not have

control relative to cost items price i guess is where you could see the volatility quarter to quarter yeah um you know different different um platforms and um and customers have different delivery schedules and so things will you know move up and down as we go through the quarters uh but it will it will even out and converge around the mean over an annual you know period so uh Yeah, just normal variability of a manufacturing business.

Okay. Perfect. Thanks, Kevin.

I'll stop there. All right.

Thank you, Ken.

Thank you. And as a reminder, to ask a question, please press star 1-1 on your telephone. Our next question comes from Louis De Palma with William Blair. You may proceed.

KP, Azad, and Brian, good morning, and congrats to you, Rajiv, and the ArcLine team. What is the status of the 2025 class of acquisition slash block units, so M-Wave, RMB, OSG, Spira, and the Microtronics deal in terms of the cost synergies and the general P&L performance? And specifically, I'm wondering, are there more optimizations in store for these deals from last year or Are they already generally integrated?

Yeah, first of all, we're really happy with the performance of all the businesses that we acquired over the whole time period, but especially this cohort that you mentioned. Strategically, they're all, first of all, an excellent fit with the business model, right? Proprietary, engineered, mission-critical products, strong customer relationships, long platform durations. I would say operationally, financially, and culturally, they're all performing very well, meeting or in some cases really exceeding the objectives that we had when we acquired them. That said, one of the strengths of ARCSIS is that we're so diversified across our business units, so the The broader performance of the portfolio is a lot more important than the performance of any one individual asset or cohort of assets. So, you know, the decentralized and diversified nature of the business units is really the thing to focus on. As a group, we're doing really well.

Great. And are there more optimizations in store for these deals from last year?

I would say there's more optimization in store for every business unit. Every business unit doesn't stop pushing volume, price, and cost once they get integrated into the ArcSys system. It's a continuous process and never-ending. So I think we'll continue to see improvement across every business unit.

Great. And one final question. You highlighted KP new business wins as a contributor to the 17% organic growth. And I think you also discussed how roughly one third of the growth came from these new business wins. Can you provide more details on either the platforms or the products for some of those new business wins? Were they for like next generation platforms? As you mentioned, you're working with all of those neoprimes or Were they takeaways from, like, struggling suppliers on existing platforms? Any color there would be great. Thanks.

Yeah, so our new business wins, just like our existing business is super diversified. And there is no one thing that I can point to. There's no one product or platform or project. You know, it's a thousand things. things. There's roughly a thousand new business opportunities we booked business against in Q1. So it's diversified. If you ask about the neoprimes, they are in there. It's kind of proportionate to the size of the revenue that they have. So it's not a majority of it, but it is a piece of it And then if you think about how much of that is like truly new business development and, you know, where we are working hand in hand with the engineers and getting designed into a platform that is in the early stages of production or maybe there's a system on a platform that's been in production that's being modernized. That is the vast majority of it because that's our business model, you know, is to go in and work with the engineers and get in at the ground floor, get designed into the building materials. But there is a portion of the new business which is the customers having a problem, either a performance problem, a quality problem, a delivery problem with a different supplier. And then we come in to address that and we can displace them. I would generally, that's like an 80-20 rule. 80% is new, new, new. And 20% is we had to step in and help out and displace somebody else.

Great. Thanks, KP. Thanks, Azad and Brian.

All right. Thanks, Louis.

Thank you. I would now like to turn the call back over to Kevin Perhamis for any closing remarks.

Okay. Well, thank you. We're really pleased with how the business is performing and the excellent start that we've had as a public company. As we discussed today, we believe that Arxis has built a differentiated business model with attractive long-term growth characteristics. We remain confident in our ability to continue executing and creating value over time, and we appreciate your time today. We look forward to speaking with you again next quarter.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.