Detailed narrative
Record First Quarter and the Growth Algorithm
Arxis delivered Q1 FY26 sales of $459M, up 21% YoY, comprising 17% organic growth and 4% from the [indiscernible] Steels and Micro-Tronics acquisitions. Management framed growth as broad-based and balanced: new business wins, underlying market volume, modest price increases, and acquisitions each contributed mid-single-digit growth.
All three end markets — Defense & Space, Commercial Aerospace, and Industrial Technology — grew double digits. Adjusted EBITDA of $175M rose 31% YoY with margin up 290 bps to 38.2% and incremental margins above 50%.
Business Model: Proprietary, Designed-In Components
Arxis designs and builds proprietary components — bearings, capacitors, connectors, seals — for harsh environments, embedded in customers' bills of materials typically as the only qualified part and staying for decades. Across 46 business units it owns 67 foundational proprietary technologies (e.g., CryoFlex in the Pac Aero business, KRON in the [indiscernible] business, which adds 5–10x value to a bearing), underpinning 90% proprietary revenue.
The portfolio spans 40,000 part numbers, 600+ platforms, and 5,000+ customers across two segments — Electronic and Mechanical components — run through 72 decentralized focused factories.
IPO and Balance Sheet Transformation
Net leverage declined from 4.2x at year-end 2025 to 4x at quarter end, then to 2x TTM EBITDA shortly after the quarter following the IPO. The IPO generated $1.2B of net proceeds, all to the company: $946M repaid existing debt and $275M went to the balance sheet.
The paydown is expected to cut annual cash interest expense by more than $70M vs 2025. Available liquidity now stands at roughly $1.1B (cash, undrawn revolver, and delayed draw term loan), positioning the company for continued M&A.
Arxis EDGE and Backlog Visibility
Management repeatedly credited the Arxis EDGE operating system, into which all backlog and orders across the portfolio are loaded, for its forecasting confidence. As of May, ~90% of the full-year plan is booked and sitting in backlog, so guidance is built on actual filled-in orders rather than market assumptions.
Management knows the firm backlog target for each business unit at every month of the year. Total PO backlog ended 2025 at $1.2B and grew in Q1 on positive book-to-bill; management focuses on how much backlog is due in-year against the $1.87B revenue guide.
M&A Engine and the Arcline Partnership
Arxis was founded in late 2020 and has completed 32 acquisitions since, averaging 5–6 per year. Its partnership with Arcline — which brings 60+ investment professionals for sourcing, underwriting, and portfolio strategy — is a core structural advantage. Deal activity is described as as high as it has ever been.
Screening runs on two gates: business-model fit first, then financials — the target must grow EBITDA faster than the Arxis base over three years and have its purchase multiple bought down below 10x within 36 months. No strong preference for large vs small deals, though smaller deals are more plentiful.
Segment and End-Market Trends
End-market mix is ~50% Defense & Space, ~20% Commercial Aerospace, ~30% Industrial Technology. Defense & Space benefits from alignment to government priorities — air defense, radar, missile systems/defense, electronic warfare, and modernization — with the space submarket only 3–4% of revenue.
Commercial Aerospace is benefiting from ramping production rates; narrow/wide-body is ~15% of revenue, rising to 20–23% including business jet, with the business-jet aftermarket ~5% and unaffected by fuel prices or Middle East conflict. Industrial Technology strength is broad, led by AI-related semiconductor and medical technology, plus factory automation, robotics, and quantum.
Free Cash Flow Dynamics
Q1 free cash flow was $25M, up 107% YoY but seasonally low on conversion. Record operating performance drove ~$29M higher AR and inventory. Roughly $50M of timing items also weighed: $17M from customer billing timing on a few larger defense programs (raising net contract assets), $13M from additional months of cash interest ahead of the post-IPO debt paydown, and $20M of annual bonus payments made in Q1.
Some timing effects may continue into Q2, but management expects FCF to normalize over the year, with full-year conversion well over 100%.
Mechanical Components Margin Expansion
The Mechanical Components (MCS) segment posted the strongest margin expansion — ~37.6% adjusted EBITDA margin vs ~30% in Q1 FY25 — driven by the volume-price-cost (VPC) algorithm with >50% incremental conversion, mid-single-digit pricing, and cost reductions. The cost lever traces to a large 2024 MCS acquisition whose cost-reduction actions, taken in H1 2025, are still flowing through the P&L in H1 2026.
Management expects the elevated pace to modulate but sees continued expansion, with no structural reason MCS cannot eventually match the higher-margin Electronic Components segment.