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    RAL
    Earnings call· Jun 2026(Q2 FY26)

    Ralliant Q2 FY26 earnings call RAL

    Jul 30, 2026 Source

    Executive summary

    Ralliant Q2 FY26 — Strong Growth, Margin Expansion, and Raised Full-Year Outlook

    Ralliant Corporation delivered a strong second quarter, exceeding guidance across all metrics, driven by double-digit revenue growth in both segments and significant adjusted EBITDA margin expansion. The company is capitalizing on secular trends in electrification and defense, supported by its AI-infused Ralliant Business System (RBS) which is driving productivity savings. Management raised its full-year outlook, reflecting increased confidence in customer demand and continued execution, while balancing organic reinvestment with capital returns and tuck-in acquisitions.

    Highlights

    5

    • Revenue of $568 million, up 13% year-over-year on both reported and organic basis, exceeding the high end of guidance ranges.

    • Adjusted EBITDA margin of 19.8%, representing a 390 basis point improvement from the prior year (normalized), also above guidance.

    • Adjusted EPS of $0.68, an increase of 58% year-over-year, exceeding the high end of guidance ranges.

    • Book-to-bill was above 1.1 in both segments, with Test & Measurement specifically above 1.2, indicating strong demand.

    • Generated $99 million of free cash flow in the quarter, contributing to a trailing 12-month free cash flow conversion of 114%.

    Concerns

    3

    • Utilities revenue growth was 4% year-over-year, below expectations due to shipment timing delays into the Middle East, representing a 4 percentage point headwind.

    • Corporate and other expenses are expected to increase to $20 million-$23 million per quarter in the second half of FY26, up $5 million-$6 million from prior estimates.

    • The Semiconductor end market will face a more pronounced year-over-year headwind in Q3 FY26 due to lapping a large customer project from 2025.

    Guidance & targets

    14
    CategoryTargetConfidence
    Q3 FY26 Revenue
    $570 million to $590 million
    high materiality
    High
    Q3 FY26 Adjusted EBITDA margin
    20.5% and 21.5%
    high materiality
    High
    Q3 FY26 Adjusted EPS
    $0.72 and $0.78
    high materiality
    High
    Q3 FY26 Weighted average diluted shares outstanding
    approximately $112 million
    medium materiality
    High
    Full-year FY26 Revenue
    $2.25 billion to $2.3 billion
    high materiality
    High
    Full-year FY26 Adjusted EBITDA margins
    20% to 21%
    high materiality
    High
    Full-year FY26 Adjusted EPS
    $2.76 to $2.90
    high materiality
    High
    Full-year FY26 Enterprise productivity program in-year savings
    $10 million to $12 million
    medium materiality
    High
    Annualized run rate savings from enterprise productivity program
    $50 million to $60 million
    high materiality
    High
    Corporate and other expenses
    approximately $20 million to $23 million per quarter
    medium materiality
    High
    Free cash flow conversion
    greater than 95%
    medium materiality
    High
    Share repurchases as % of free cash flow
    approximately 50%
    medium materiality
    High
    Net leverage target
    1.5 to 2x adjusted EBITDA
    medium materiality
    High
    ROIC for tuck-in acquisitions
    double-digit
    low materiality
    High

    Segment performance

    12
    SegmentRevenueYoYQoQMargin
    Sensors & Safety Systems
    Driven by operating leverage on higher revenue, favorable mix from elevated industrial manufacturing and other contribution, and better-than-expected defense margins based on favorable program mix. Adjusted EBITDA margin improved 350 basis points on a normalized basis.
    Defense & Space revenue growth: double-digitIndustrial manufacturing revenue growth: double-digitOther end market revenue growth: double-digit
    		$347 million12% reported, 11% organic—29.4% adjusted EBITDA margin
    Test & Measurement
    Delivered a strong quarter driven by strong orders and revenue growth across all three end markets, with a broadening of customer investment. Adjusted EBITDA margin improved 750 basis points on a normalized basis due to strong operating leverage and ramping productivity savings.
    Strong orders and revenue growth across all 3 end markets
    		$221 million15% reported, 16% organic—14.7% adjusted EBITDA margin
    North America
    Driven by continued momentum in Test and Measurement, utilities, and defense. Expects elevated demand from ongoing investments in the electric grid, legacy defense programs, and technology innovation driven by AI.
    		54% of YTD total company revenue13%——
    Western Europe
    Executed well against pockets of opportunity in defense, industrial manufacturing, and advanced research. The macro environment remains selective with lower growth expected going forward.
    		13% of YTD total company revenue16%——
    China
    Increasing investments in AI data center and energy infrastructure. An acceleration of activity in the first half is expected to translate into increasing revenue growth in the second half of the year.
    		16% of YTD total company revenue7%——
    Rest of World
    Driven by test and measurement and industrial customers.
    		17% of YTD total company revenue14%——
    Industrial Manufacturing and Other (within Sensors & Safety Systems)
    Broadening recovery across most geographies with particular strength in applications within the AI data center.
    		approximately 30% of revenue (combined)double-digit——
    Defense & Space (within Sensors & Safety Systems)
    Defense backlog remains over $1 billion with continued multiyear demand on legacy missile programs. Scaling production across product lines at roughly 2 to 5 times historic levels.
    		17% of revenue14%——
    Utilities (within Sensors & Safety Systems)
    Q2 was another record quarter for orders and revenue, although revenue growth was below expectations due to shipment timing, primarily related to delays into the Middle East, causing a 4 percentage point headwind to growth.
    		14% of revenue4%——
    Diversified Electronics (within Test & Measurement)
    Customers increased innovation for electronics in energy storage systems, electric vehicles, medical devices, consumer electronics, and emerging AI-enabled edge devices. Secured a production win with a leading energy storage provider.
    		21% of revenue23%——
    Communication (within Test & Measurement)
    Reflecting continued technology innovation in advanced communications for AI infrastructure, aerospace and defense, and research laboratories. Had a customer win for validating optical laser chips for AI cloud computing.
    		11% of revenue9%——
    Semiconductor (within Test & Measurement)
    Saw broad-based acceleration in semiconductor technologies enabling new product innovation. Year-over-year headwind from lapping a large customer project in 2025 was less pronounced in Q2 than in prior quarters, but will be more pronounced in Q3.
    		7% of revenue5%——

    Operational metrics

    16
    Non-GAAP EPS
    $0.68up 58% YoY
    Q2 FY26

    Above the high end of guidance ranges.

    Non-GAAP operating margin
    19.8%390 bps improvement normalized YoY
    Q2 FY26

    Above the high end of guidance ranges, driven by operating leverage and productivity savings.

    Free cash flow conversion
    114%
    TTM

    Above the target of greater than 95%.

    Capital returned to shareholders
    $161 million
    H1 FY26

    Through a combination of share repurchases and dividends.

    Share repurchases
    $150 million
    H1 FY26

    Inclusive of the completed $100 million accelerated share repurchase program.

    Net leverage
    approximately 1.9x
    Q2 FY26

    Within the long-term target range of 1.5x to 2x adjusted EBITDA.

    Corporate and other expenses
    $20 million to $23 millionincrease of about $5 million to $6 million per quarter from prior estimates
    per quarter

    Driven by EPP implementation costs, rebalancing of support functions, and higher variable compensation.

    Enterprise productivity program in-year savings
    $3 million
    Q2 FY26

    First realization of savings from the program.

    Enterprise productivity program incremental adjusted EBITDA margins
    approximately 50%
    through 2028

    Expected contribution to margins from the productivity program.

    Revenue seasonality (prior guidance)
    49% in H1, 51% in H2
    FY26

    Prior guidance on revenue distribution across the year.

    Revenue seasonality (updated guidance)
    48% in H1, 52% in H2
    FY26

    Updated guidance on revenue distribution, consistent with normal seasonal patterns.

    Test & Measurement revenue as % of total
    about 40%
    Q2 FY26

    Proportion of the overall business.

    Cycle time reduction
    65%
    Q2 FY26

    Achieved by doubling production throughput within existing manufacturing footprint.

    Defense production scaling
    2 to 5xhistoric levels
    Q2 FY26

    Scaling production across product lines for priority munitions programs.

    Utilities growth headwind
    4 percentage point
    Q2 FY26

    Due to shipment timing delays into the Middle East.

    Semiconductor end market headwind
    more pronounced
    Q3 FY26

    From lapping a large customer project in 2025; less pronounced in Q2, but will be more in Q3.

    Industry KPIs

    8
    MetricValueDetails
    Orders book to billabove 1.1
    Long term agreementsundefinitized contract actions (UCAs)
    Segment revenue growthSensors & Safety Systems: $347 million, Test & Measurement: $221 millionUSD
    Design wins product cycle rampsproduction win
    Order visibility backlog policyover $1 billionUSD
    Capacity expansion internal sourcingdoubled production throughput
    End market revenue mix organic growthNorth America: 54%, Western Europe: 13%, China: 16%, Rest of World: 17%%
    Operating margin incremental leverage50%%

    Orderbook & backlog

    3
    Defense backlogover $1 billionQ2 FY26

    remaining over

    continued multiyear demand on legacy missile programs

    Utilities ordersrecordQ2 FY26

    significantly outpaced revenue

    expected to translate into low double-digit revenue growth in H2

    Test & Measurement book-to-billover 1.2Q2 FY26

    up

    indicating strength, despite limited visibility beyond 90 days

    Product announcements

    2
    ProductTypeDetails
    MP 5000 platform (Tektronix)update
    7 Series (Tektronix)update

    Capital programs

    3
    Enterprise Productivity Program (EPP)underway$50 million to $60 million
    Period spend: $3 million
    Start: Q2 FY26

    Benefit: annualized run rate savings

    RBS-led program, on track to deliver $10M-$12M in-year savings in 2026. Expected to contribute ~50% incremental adjusted EBITDA margins through 2028.

    Defense & Space Manufacturing Capacity Expansion (Ohio)underway
    Period spend: $27 million
    Funding: Department of War
    Start: Q2 FY26

    Benefit: further increase production

    Awarded by the Department of War to expand into an existing manufacturing site, supporting scaling production across product lines at 2-5x historic levels for priority munitions programs.

    Utilities Precision Sensor Facility Expansion (Upstate New York)underway
    Start: July FY26

    Benefit: support the historic orders growth

    Broke ground on expansion to support robust demand and multiyear grid modernization and resiliency initiatives.

    Risks & headwinds

    4
    Macro environment in Europe remains selectiveGoing forward

    Lower growth expected going forward

    Mitigation: Executing well against pockets of opportunity in defense, industrial manufacturing, and advanced research.

    Utilities revenue growth below expectations due to shipment timingQ2 FY26

    4 percentage point headwind to growth

    Mitigation: Expect low double-digit growth in H2 as orders significantly outpaced revenue and capacity expansion progresses.

    Semiconductor end market headwind from lapping a large customer projectQ3 FY26

    Less pronounced in Q2, but will be more pronounced in Q3

    Mitigation: Implied temporary factor, expected to unlap itself in Q4.

    Corporate and other expenses increasingH2 FY26

    $20 million to $23 million per quarter in H2, an increase of $5 million to $6 million per quarter from prior estimates

    Mitigation: Driven by EPP implementation costs, rebalancing of support functions (net savings overall), and higher variable compensation due to increased performance.

    What to watch in Q3 FY26

    5

    Utilities segment revenue growth

    H2 FY26
    Current4% YoY (Q2 FY26)
    TargetLow double-digit growth

    Why it matters

    To confirm recovery from Q2 shipment delays and the effectiveness of capacity expansion initiatives.

    In the second half, we expect the utilities growth of low double digits as first half orders significantly outpaced revenue and we are further progressing our capacity expansion initiatives.

    Q&A highlights

    5

    Inquiring about the sustainability of strong growth in diversified electronics within T&M, considering its short-cycle nature versus long-term secular tailwinds like AI and energy storage.

    Tami Newcombe acknowledged T&M is a 90-120 day short-cycle business but noted a strong book-to-bill over 1.2. She expects the strong first year of recovery in T&M to moderate to mid-single digits in the second year historically. She highlighted China's AI and energy infrastructure investments as a key area to watch for structural growth versus episodic demand.

    “Overall, we see strong first year kind of coming out of the downturn in T&M is having a strong first year. I expect that to moderate in the second year. If you look at history, probably more mid-single digits coming out of a really strong first year.”

    asked by Christopher Snyder · answered by Tamara Newcombe

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Execution and RBS Impact

    Ralliant's strategy, one year into its journey as an independent company, is proving effective, leading to growth, margin expansion, and strong cash generation. The AI-infused Ralliant Business System (RBS) is central to this, driving disciplined execution and enterprise productivity. For example, RBS enabled a 65% cycle time reduction and doubled production throughput for humidity and temperature sensors using existing resources, reinforcing confidence in achieving significant savings.

    02

    Capitalizing on Secular Trends

    The company is well-positioned to benefit from secular trends in electrification and defense. In electrification, Ralliant's solutions support grid reliability and electronics innovation for AI-enabled technologies, aligning with increasing demand for power, compute, and connectivity. In defense, its safety-critical systems are embedded in legacy missile and munition programs, with new undefinitized contract actions providing increased confidence in multi-year demand for national security applications.

    03

    Defense & Space Expansion

    The Defense & Space segment maintains a backlog exceeding $1 billion, with continued multi-year demand. Ralliant is actively scaling production across product lines at 2 to 5 times historic levels for priority munitions programs like FAD, PAC-3, and Hawk. This expansion is supported by a $27 million award from the Department of War, enabling the company to expand into an existing Ohio manufacturing site to further increase electronics production capacity.

    04

    Utilities Market Dynamics

    The Utilities segment achieved record orders and revenue in Q2, yet revenue growth was impacted by a 4 percentage point headwind due to shipment timing delays into the Middle East. Management anticipates a recovery to low double-digit growth in the second half of FY26, driven by catching up on these shipments and progressing capacity expansion initiatives, including breaking ground on a precision sensor facility in upstate New York.

    05

    Test & Measurement Performance

    The Test & Measurement segment delivered strong organic growth of 16%, fueled by broad-based customer investment across all end markets. Diversified Electronics, comprising 21% of total revenue, grew 23%, driven by innovation in energy storage systems, electric vehicles, medical devices, and AI-enabled edge devices. The segment's book-to-bill ratio is currently over 1.2, signaling continued near-term strength despite its inherently short-cycle nature.

    06

    Enterprise Productivity Program Progress

    The RBS-led enterprise productivity program is on track to deliver $10 million to $12 million in-year savings for FY26 and $50 million to $60 million in annualized run-rate savings by 2028. This program, which began realizing $3 million in savings in Q2, is expected to contribute to approximately 50% incremental adjusted EBITDA margins through 2028, assuming a mid-single-digit organic revenue growth framework.

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