Skip to content
    RAL
    Earnings call· Mar 2026(Q1 FY26)

    Ralliant Q1 FY26 earnings call RAL

    May 12, 2026 Source

    Executive summary

    Ralliant Q1 FY26 — Strong Performance, Raised Full-Year Outlook, and Increased Capital Returns

    Ralliant delivered a solid Q1 FY26 performance, exceeding guidance across key metrics, driven by strong execution and recovery in shorter-cycle businesses. The company raised its full-year outlook, citing robust Test & Measurement orders and a growing defense backlog. Management also initiated a significant enterprise productivity program and increased capital returns to shareholders, targeting 50% of free cash flow for repurchases.

    Highlights

    5

    • Q1 revenue of $535 million, up 11% year-over-year, was above the high end of guidance.

    • Adjusted EBITDA margin of 18.6% and adjusted EPS of $0.57 were both above the high end of guidance ranges.

    • Company-wide book-to-bill was above 1.1x, with Test & Measurement book-to-bill between 1.1 and 1.2.

    • Defense backlog surpassed $1 billion, spanning more than 40 programs.

    • Initiated an enterprise productivity program targeting $50 million to $60 million of run rate annualized savings by 2028, with $20 million already actioned.

    Concerns

    3

    • Western Europe and the rest of the world were slightly down organically.

    • Utilities revenue growth was softer due to shipment timing.

    • Semiconductor organic revenue declined high single digits due to lapping a large customer project from last year.

    Guidance & targets

    14
    CategoryTargetConfidence
    Q2 FY26 Revenue
    $540 million to $556 million
    high materiality
    High
    Q2 FY26 Adjusted EBITDA margin
    18.5% and 19.5%
    medium materiality
    High
    Q2 FY26 Adjusted EPS
    $0.58 and $0.64
    high materiality
    High
    Q2 FY26 Weighted average diluted shares outstanding
    approximately $112 million
    low materiality
    High
    Full Year 2026 Revenue
    $2.185 billion to $2.245 billion
    high materiality
    High
    Full Year 2026 Adjusted EBITDA margin
    19.5% to 20.5%
    high materiality
    High
    Full Year 2026 Adjusted EPS
    $2.53 and to $2.69
    high materiality
    High
    Enterprise productivity program run rate annualized savings
    $50 million to $60 million
    high materiality
    High
    Share repurchases as % of free cash flow
    approximately 50%
    high materiality
    High
    Share repurchase authorization
    $500 million
    high materiality
    High
    Accelerated share repurchase program
    $100 million
    high materiality
    High
    Adjusted EBITDA margin
    midpoint of our through-cycle range
    high materiality
    High
    Organic growth rate (Defense & Utilities)
    5% range
    medium materiality
    Medium
    CapEx as % of revenue
    2% to 3%
    low materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Sensors & Safety Systems
    Adjusted EBITDA margin improved by 70 basis points on a normalized basis, driven by higher operating leverage, partially offset by dilutive mix impact from higher defense and space growth. Utilities revenue growth was softer due to customer shipment timing despite record orders.
    Organic revenue growth: 9%Defense & Space organic revenue growth: 21%Industrial, Manufacturing & Other organic revenue growth: mid-single digitsUtilities orders: record quarter
    		$324 million11% reported—28.4% Adjusted EBITDA margin
    Test and Measurement
    Returned to growth in the quarter, with adjusted EBITDA margin improving by 700 basis points on a normalized basis, reflecting significant operating leverage and early implementation of productivity actions. Achieved its highest quarterly book-to-bill since 2022.
    Organic revenue growth: 9%Book-to-bill: 1.1 to 1.2Communications organic growth: double digitsDiversified Electronics organic growth: double digitsSemiconductor organic revenue decline: high single digits (due to large customer credit last year)Semiconductor organic revenue growth (excluding headwind): double digits
    		$210 million12% reported—11.9% Adjusted EBITDA margin

    Operational metrics

    20
    Revenue
    $535 millionup 11% year-over-year
    Q1 FY26

    Above the high end of guidance. Total growth includes approximately 2 percentage points of FX benefit primarily in Western Europe and China.

    Adjusted EBITDA margin
    18.6%270 basis point improvement normalized
    Q1 FY26

    Above the high end of guidance ranges, reflecting strong operating leverage on higher volume and early benefits from productivity actions.

    Adjusted EPS
    $0.57increased 39% normalized
    Q1 FY26

    Above the high end of guidance ranges, driven by revenue growth and adjusted EBITDA margin expansion.

    Free cash flow conversion
    105%
    Trailing 12-month

    Remains resilient, above target of greater than 95%.

    Share repurchase authorization
    $500 millionincreased
    Ongoing

    Board authorized an increase.

    Target share repurchases
    approximately 50%
    Going forward

    Targeting this percentage of free cash flow.

    Accelerated share repurchase program
    $100 million
    Q2 FY26

    Planned for execution during the second quarter.

    Enterprise productivity program run rate annualized savings
    $50 million to $60 million
    FY28

    Expected to be delivered by 2028.

    Enterprise productivity program run rate annualized savings actioned
    approximately $20 million
    To date

    Actioned from the program, building on previously announced $9M-$11M savings.

    Enterprise productivity program in-year savings
    $10 million to $12 million
    FY26

    Expected for 2026, exiting 2026 at an annualized run rate of $20 million.

    Baseline incremental adjusted EBITDA margin
    35% to 40%
    FY26

    Assumed in 2026 guidance, slightly higher than through-cycle expectations due to higher revenue growth and favorable test and measurement mix.

    Total incremental adjusted EBITDA margin
    45% to 50%
    FY26

    Resulting from baseline incremental margins plus productivity savings.

    Total incremental adjusted EBITDA margin
    approximately 50%
    2027 and 2028

    Expected in 2027 and 2028, leading to the midpoint of long-term EBITDA margin range.

    CapEx as % of revenue
    2% to 3%
    Ongoing

    Target range for organic reinvestment, expanded from 2%.

    Net leverage target
    1.5x to 2x
    Long-term

    Target for net debt to adjusted EBITDA.

    Quarterly cash dividend
    $0.05
    Q2 FY26

    Authorized by the Board.

    Tariff impact
    $25 milliondown from $30M-$40M in FY25
    FY26

    Forecasted impact for 2026, reduced due to countermeasures and tariff changes.

    Price increase
    1.5% to 2%
    FY26

    Baked into 2026 outlook, at the north end of the normal range to offset inflationary pressures.

    Defense & Space new product innovation programs
    almost 60%up
    last 2 years

    Customer-funded innovation in the defense modernization space.

    Total employees
    approximately 7,000
    Q1 FY26

    Global employee count.

    Industry KPIs

    7
    MetricValueDetails
    Orders book to billabove 1.1xratio
    Segment revenue growthSensors & Safety Systems: $324 million, 9% organic growth; Test and Measurement: $210 million, 9% organic growthUSD
    Design wins product cycle rampsalmost 60%%
    Order visibility backlog policy$1 billionUSD
    Capacity expansion internal sourcingongoing for several years
    End market revenue mix organic growthAmericas: 16% organic growth; China: 5% organic growth; Western Europe & Rest of World: slightly down organically%
    Operating margin incremental leverage35% to 40%%

    Orderbook & backlog

    4
    Defense & Space backlogover $1 billionQ1 FY26

    continues to build

    Multiyear backlog, spanning 2 to 3 years, across more than 40 programs.

    Company-wide book-to-billabove 1.1xQ1 FY26
    Test & Measurement book-to-billbetween 1.1 and 1.2Q1 FY26

    highest since 2022

    Utilities ordersrecord quarterQ1 FY26

    Reinforcing strength and durability of demand.

    Capital programs

    1
    Defense & Utilities Capacity Expansionunderway
    Start: ongoing for several years

    Benefit: Increased throughput in existing facilities; physical space for future growth

    Capacity expansion has been ongoing for several years through productivity initiatives, multiple shifts, and strategic sourcing. Physical capacity expansion will be needed for 2028 and beyond, with investments starting this year.

    Risks & headwinds

    4
    Macroeconomic and geopolitical uncertaintyQ1 FY26

    Western Europe and Rest of World slightly down organically

    Mitigation: Focus on controlling what can be controlled, spending time with customers, launching new products, and focusing on higher growth opportunities.

    Semiconductor large customer project lappingQ1 FY26, next couple of quarters

    high single digits organic revenue decline

    Mitigation: Underlying strength in semi across a broad set of customers is strong; fully lapped by Q4 FY26.

    Potential supply disruptionsH2 FY26

    not quantified

    Mitigation: Being cautious in guidance due to potential for supply disruptions.

    Mix impact from Defense growthOngoing

    margins below company average

    Mitigation: Balanced by strong growth rates and backlog in defense; overall margin expansion expected for the full year.

    What to watch in Q2 FY26

    5

    Semiconductor organic revenue growth

    Q2/Q3 FY26
    Currentdeclined high single digits
    Targetdouble-digit growth (excluding comp)

    Why it matters

    To confirm the underlying strength and recovery in the semiconductor end market as the large customer comp is lapped.

    Underlying strength in semi across a broad set of customers. that we're still lapping a large customer deal from last year. We've got another quarter of that, but the underlying strength is strong.

    Q&A highlights

    5

    Why does the full-year sales guidance embed a slowdown in the back half, and how will the semiconductor business grow after lapping tough comps?

    The full-year raise was driven by Test & Measurement orders and book-to-bill, a short-cycle business with 90-120 days visibility. The H2 guidance is prudent due to macro uncertainty. The semiconductor business has underlying strength, but will face one more quarter of lapping a large customer deal.

    “But when you step back, there's also a lot of uncertainty in the environment. We're going to control what we can control around spending time with our customers, continuing to launch new products and focusing where the higher growth opportunities are. But I do think it's prudent at this point to think about the second half as we have.”

    asked by Julian Mitchell (Barclays) · answered by Tamara Newcombe

    2 min read5 chapters

    Detailed Narrative

    01

    Strong Q1 Performance and Raised Full-Year Outlook

    Ralliant commenced 2026 with a solid first quarter, with revenue of $535 million, up 11% year-over-year, exceeding the high end of guidance. Adjusted EBITDA margin of 18.6% and adjusted EPS of $0.57 also surpassed expectations. This strong performance, coupled with robust orders and a book-to-bill above 1.1x, led the company to raise its full-year 2026 outlook across all metrics, anticipating continued strength in Test & Measurement and Defense.

    02

    Enterprise Productivity Program for Margin Expansion

    The company initiated an enterprise productivity program targeting $50 million to $60 million in run rate annualized savings by 2028. This program, overseen by a dedicated management team, focuses on strategic sourcing in cost of sales and G&A optimization through simplification, AI-enhanced workflows, and leveraging lower-cost locations. Approximately $20 million of annualized savings have already been actioned, with $10 million to $12 million expected in-year savings for 2026.

    03

    Capitalizing on Electrification and Defense Growth Vectors

    Ralliant is strategically aligned with high-growth secular demand in electrification and defense. In electrification, the company's precision sensors and test & measurement solutions support the global power grid, energy storage, and data center infrastructure, particularly for AI workloads. In defense, Ralliant benefits from multiyear replenishment demand and modernization, supplying mission-critical systems for legacy programs and advanced solutions for R&D labs, with backlog exceeding $1 billion.

    04

    Disciplined Capital Allocation and Shareholder Returns

    The company maintains a disciplined capital allocation strategy, prioritizing organic reinvestment in areas like capacity expansion for defense and utilities. Following this, Ralliant is committed to returning capital to shareholders, targeting approximately 50% of free cash flow for repurchases. The Board increased the share repurchase authorization to $500 million, and a $100 million accelerated share repurchase program is planned for Q2, alongside a quarterly cash dividend of $0.05 per share.

    05

    Regional and End Market Dynamics

    North America demonstrated broad-based momentum with 16% organic revenue growth, driven by defense programs and AI-accelerated innovation. China grew 5% organically due to government-funded AI and energy projects. Western Europe and the rest of the world experienced slight organic declines. Defense & Space achieved over 20% organic growth, while Utilities posted record orders despite softer revenue due to shipment timing. Test & Measurement returned to growth, with strong performance in diversified electronics and communications.

    AI-generated summary of the company’s earnings call. Not investment advice.