ESCO TECHNOLOGIES INC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. The condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all the disclosures required for annual financial statements by accounting principles generally accepted in the United States of America (GAAP). For further information refer to the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2025.

The Company’s results for the three and nine-month periods ended June 30, 2026 are not necessarily indicative of the results for the entire 2026 fiscal year. References to the third quarters of 2026 and 2025 represent the fiscal quarters ended June 30, 2026 and 2025, respectively. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates.

2. EARNINGS PER SHARE (EPS)

Basic EPS is calculated using the weighted average number of common shares outstanding during the period. Diluted EPS is calculated using the weighted average number of common shares outstanding during the period plus shares issuable upon the assumed exercise of unvested performance-based share awards and time-vested restricted shares by using the treasury stock method. The number of shares used in the calculation of earnings per share for each period presented is as follows (in thousands):

3. SHARE-BASED COMPENSATION

The Company provides compensation benefits to certain key employees under several share-based plans providing for a combination of performance-based share unit (PSU) awards and time-vested restricted share unit (RSU) awards and to non-employee directors under a separate compensation plan.

Performance Share Unit (PSU) Awards and Time-Vested Restricted Stock Unit (RSU) Awards

Compensation expense related to these awards was $3.3 million and $9.2 million for the three and nine-month periods ended June 30, 2026, respectively, and $2.3 million and $6.9 million for the corresponding periods in 2025. As of June 30, 2026, there were 167,759 unvested stock units outstanding.

Non-Employee Directors Plan

Compensation expense related to the non-employee director grants was $0.3 million and $1.0 million for the three and nine-month periods ended June 30, 2026, respectively, and $0.4 million and $1.0 million for the corresponding periods in 2025.

The total share-based compensation cost that has been recognized in the results of operations and included within selling, general and administrative expenses (SG&A) was $3.6 million and $10.2 million for the three and nine-month periods ended June 30, 2026, respectively, and $2.6 million and $7.9 million for the corresponding periods in 2025. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $0.7 million and $2.0 million for the three- and nine-month periods ended June 30, 2026, respectively, and $0.5 million and $1.6 million for the corresponding periods in 2025. As of June 30, 2026, there was $15.6 million of total unrecognized compensation cost related to share-based compensation arrangements. That cost is expected to be recognized over a remaining weighted-average period of 1.8 years.

4. INVENTORIES

Inventories from continuing operations consist of the following:

Included on the Company’s condensed Consolidated Balance Sheets at June 30, 2026 and September 30, 2025 are the following intangible assets gross carrying amounts and accumulated amortization from continuing operations:

The changes in the carrying amount of goodwill attributable to each business segment from continuing operations for the nine months ended June 30, 2026 is as follows:

6. BUSINESS SEGMENT INFORMATION

We adopted the provisions of ASU 2023-07 Segment Reporting for the year ended September 30, 2025. We are organized based on the products and services we offer, and we classify our business operations inthree reportable segments for financial reporting purposes: Aerospace & Defense (A&D), Utility Solutions Group (USG) and RF Test & Measurement (Test). Corporate is not a reportable segment, but it is included for reconciliation purposes.

The A&D segment’s operations consist of PTI, Crissair, Globe, Mayday, and Maritime. Previously, A&D also included VACCO Industries which was sold in July 2025 and is reported in discontinued operations. The companies within this segment primarily design and manufacture specialty filtration, fluid control and naval products, including hydraulic filter elements and fluid control devices used in aerospace and defense applications; custom designed filters for manned aircraft and submarines; products and systems to reduce vibration and/or acoustic signatures and otherwise reduce or obscure a vessel’s signature, power management and control equipment; sealing, surface control and hydrodynamic related applications to enhance U.S. and UK Navy maritime survivability; precision-tolerance machined components for the aerospace and defense industry; metal processing services; and miniature electro-explosive devices utilized in mission-critical defense and aerospace applications.

The USG segment’s operations consist of Doble Engineering Company and related subsidiaries including Morgan Schaffer and Altanova/ISA (collectively, Doble), and NRG. Doble is an industry leader in the development, manufacture and delivery of diagnostic testing and data management solutions that enable electric power grid operators to assess the integrity of high-voltage power delivery equipment, and Altanova/ISA’s strong market presence in Europe and Asia provides Doble with a significant international platform. Doble combines three core elements for customers – diagnostic test and condition monitoring instruments, expert consulting, and testing services – and provides access to its large reserve of related empirical knowledge. NRG is a global market leader in the design and manufacture of decision support tools for the renewable energy industry, primarily wind and solar.

The Test segment’s operations consist of ETS-Lindgren Inc., including its related subsidiaries, and MPE Limited (collectively, ETS-Lindgren). ETS-Lindgren is an industry leader in designing and manufacturing products and systems to measure and control RF energy. It serves the medical, health and safety, electronics, wireless communications, automotive and defense markets, supplying a broad range of turnkey systems, including RF test facilities and measurement systems, RF and magnetically shielded rooms and secure communication facilities, and providing the design, program management, installation and integration services required to successfully complete these types of facilities. It also supplies a broad range of components including RF absorptive materials, filters, antennas, field probes, test cells, proprietary measurement software and other test accessories required to perform a variety of tests and measurements, and offers a variety of services including calibration and product tests.

Accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1 to the Consolidated Financial Statements in the Company’s Form 10-K for the year ended September 30, 2025. The operating units within each reporting segment have been aggregated because of similar economic characteristics and meet the other aggregation criteria of FASB ASC 280,Segment Reporting.

Measurement of Segment Results

Our CODM, who is our Chief Executive Officer, evaluates each segment’s performance and allocates resources based on segment EBIT, which is defined as earnings before interest and taxes. EBIT is a non-GAAP financial measure and is reconciled to consolidated earnings before income taxes below for continuing operations. Intersegment sales and transfers are not significant. Segment assets consist primarily of customer receivables, inventories, capitalized software and fixed assets directly associated with the production processes of the segment. Segment depreciation and amortization is based upon the direct assets listed above. Corporate assets consist primarily of acquired intangible assets including goodwill, deferred taxes and cash balances. The tables below are presented on the basis of continuing operations and exclude discontinued operations.

Non-GAAP Financial Measures

The financial measure “EBIT” is presented in the above tables and elsewhere in this Report. EBIT on a consolidated basis is a non-GAAP financial measure. Management believes that EBIT is useful in assessing the operational profitability of the Company’s business segments because it excludes interest and taxes, which are generally accounted for across the entire Company on a consolidated basis. EBIT is also one of the measures used by management in determining resource allocations within the Company as well as incentive compensation. A reconciliation of EBIT to net earnings is set forth in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations – EBIT.

The Company believes that the presentation of EBIT provides important supplemental information to investors to facilitate comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. However, the Company’s non-GAAP financial measures may not be comparable to other companies’ non-GAAP financial performance measures. Furthermore, the use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP.

7. DEBT

The Company’s debt is summarized as follows:

The Company’s current credit facility (the Existing Credit Facility) includes a $500 million revolving line of credit as well as provisions allowing for the increase of the credit facility commitment amount by an additional $250 million, if necessary, with the consent of the lenders. The bank syndication supporting the facility is comprised of a diverse group ofseven banks led by JP Morgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as syndication agent, and Commerce Bank and TD Bank, N.A. as co-documentation agents. The Existing Credit Facility matures August 30, 2028, with balance due by this date.

On August 5, 2024, the Company and certain of its subsidiaries entered into Amendment No. 1 to the Existing Credit Facility which, among other things, (i) implemented a senior incremental delayed draw term loan credit facility in an aggregate principal amount of up to $375 million (the Incremental Facility), and (ii) permitted the direct or indirect acquisition by the Registrant or certain of its subsidiaries of all the issued and outstanding shares of PMES I Limited, Measurement Systems, Inc., EMS Development Corporation, and DNE Technologies, Inc. (the Maritime Acquisition). During the third quarter of 2025, the proceeds of the loans drawn under the Incremental Facility were applied to pay a portion of the cash consideration for the Maritime Acquisition and other customary fees, premiums, expenses and costs incurred in connection with the acquisition. The Incremental Facility matures August 30, 2028, with balance due by this date.

At June 30, 2026, the Company had approximately $442 million available to borrow under the Existing Credit Facility, plus the $250 million increase option subject to the lenders’ consent, in addition to $73.2 million cash on hand. The Company classified $20 million as the current portion of long-term debt as of June 30, 2026, as the Company intends to repay this amount as obligated by the repayment terms of the Incremental Facility within the next twelve months. The letters of credit issued and outstanding under the Credit Facility totaled $12.7 million at June 30, 2026.

Interest on borrowings under the Existing Credit Facility and the Incremental Facility is calculated at a spread ranging from 0.25% to 2.25% over either an Adjusted Term SOFR Rate, Adjusted EURIBOR Rate, Adjusted CDOR Rate, Alternate Base Rate or Daily Simple RFR, at the Company’s election. The Existing Credit Facility also requires a facility fee ranging from 12.5 to 25 basis points per annum. The interest rate spreads and the facility fee are subject to increase or decrease depending on the Company’s leverage ratio. The weighted average interest rates under the Existing Credit Facility were 4.98% and 5.18% for the three and nine-month periods ending June 30, 2026, respectively, and 6.03% and 5.99% for the three- and nine-month periods ending June 30, 2025. The weighted average interest rate under the Incremental Facility was 5.25% and 5.40% for the three and nine-month periods ending June 30, 2026. As of June 30, 2026, the Company was in compliance with all covenants.

On May 29, 2026, to finance the Company’s anticipated purchase of Megger Group Limited pursuant to a share purchase agreement entered into on April 15, 2026 (the Transaction), the Company and certain of its subsidiaries entered into a Credit Agreement with JPMorgan Chase Bank, N.A. as administrative agent, Bank of America, N.A. as syndication agent, and a diverse group of other banks (the New Credit Facility). The New Credit Facility will become effective subject to several conditions, including (and substantially concurrently with) the consummation of the Transaction and will replace the Existing Credit Facility on the Transaction closing date (the Effective Date). The New Credit Facility provides for (i) a senior secured revolving credit facility in an initial aggregate commitment amount of $500 million, (ii) a senior secured term loan A facility in an initial aggregate principal amount of $500 million, and (iii) a senior secured term loan B facility in an initial aggregate principal amount of $500 million. Through a credit facility expansion option, the Company may elect to increase the aggregate amount of the revolving credit facility or obtain incremental term loans in any agreed currency up to the U.S. Dollar equivalent of (a) the greater of (x) $451 million or (y)100% of Consolidated EBITDA (as defined and for periods set forth therein) plus (b) additional amounts subject to certain terms and conditions (including compliance with certain maximum leverage ratios). In addition to loans drawn down by the Company, certain of the Company’s foreign subsidiaries may draw loans on the New Credit Facility. Under the New Credit Facility, the revolving credit facility and term loan A will mature five years after the Effective Date and term loan B will mature seven years after the Effective Date.

8. INCOME TAX EXPENSE

The third quarter 2026 effective income tax rate from continuing operations was 20.1% compared to 25.1% in the third quarter of 2025. The effective income tax rate from continuing operations in the first nine months of 2026 was 21.0% compared to 23.4% for the first nine months of 2025. Income tax expense in the third quarter and first nine months of 2026 was favorably impacted by return-to-provision adjustments recognized upon finalization of the 2025 federal income tax return, including an increase to the federal research credit. Income tax expense in the third quarter and first nine months of 2025 was unfavorably impacted by income tax consequences associated with the acquisition of Maritime, including non-deductible transaction costs.

9. SHAREHOLDERS’ EQUITY

The change in shareholders’ equity for the first three and nine months of 2026 and 2025 is shown below (in thousands):

10. FAIR VALUE MEASUREMENTS

The accounting guidance establishes a three-level hierarchy for disclosure of fair value measurements, based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, as follows:

Financial Assets and Liabilities

The Company has estimated the fair value of its financial instruments as of June 30, 2026 and September 30, 2025 using available market information or other appropriate valuation methodologies. The carrying amounts of cash and cash equivalents, receivables, inventories, payables, and other current assets and liabilities approximate fair value because of the short maturity of those instruments. The carrying amounts due under the revolving credit facility approximate fair value as the interest on outstanding borrowings is calculated at a spread over either an Adjusted Term SOFR Rate, Adjusted EURIBOR Rate, Adjusted CDOR Rate, Alternate Base Rate or Daily Simple RFR, at the Company’s election.

Fair Value of Financial Instruments

The Company’s forward contracts and interest rate swaps are classified within Level 2 of the valuation hierarchy in accordance with FASB Accounting Standards Codification (ASC) 825 and are immaterial.

Nonfinancial Assets and Liabilities

The Company’s nonfinancial assets such as property, plant and equipment, and other intangible assets are not measured at fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence that an impairment may exist. No impairments were recorded during the three and nine-month periods ended June 30, 2026.

11. REVENUES

Disaggregation of Revenues

The tables below present our revenues from continuing operations by customer type, geographic location, and revenue recognition method for the three and nine-month periods ending June 30, 2026, as we believe this presentation best depicts how the nature, amount, timing and uncertainty of net sales and cash flows are affected by economic factors.

Revenues from continuing operations by customer type, geographic location, and revenue recognition method for the three and nine-month periods ended June 30, 2025 are presented in the tables below.

Revenue Recognition

Payment terms with our customers vary by the type and location of the customer and the products or services offered. Arrangements with customers that include payment terms extending beyond one year are not significant. The transaction price for these contracts reflects our estimate of returns and discounts, which are based on historical, current and forecasted information to determine the expected amount to which we will be entitled in exchange for transferring the promised goods or services to the customer. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant. We primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from one to two years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation. Under the typical payment terms of our long term fixed price contracts, the customer pays us either performance-based or progress payments. Performance-based payments represent interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments of costs incurred as the work progresses.

For our overtime revenue recognized using the output method of costs incurred, contract cost is estimated utilizing current contract specifications and expected engineering requirements. Contract costs typically are incurred over a period of several months to one or more years, and the estimation of these costs requires judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our projections of costs quarterly or more frequently when circumstances significantly change. In addition, in the USG segment, we recognize revenue as a series of distinct services based on each day of providing services (straight-line over the contract term) for certain of our USG segment contracts. Under the typical payment terms of our service contracts, the customer pays us in advance of when services are performed. In addition, in the Test segment, we use milestones to measure progress for our Test segment contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts.

Remaining Unsatisfied Performance Obligations

Remaining unsatisfied performance obligations, as defined by ASC 606 and align with our backlog, represent the expected transaction price allocated to contracts that the Company expects to recognize as revenue in future periods when the Company performs under the contracts. These remaining obligations include amounts that have been formally appropriated under contracts with the U.S. Government, and exclude unexercised contract options and potential orders under ordering-type contracts such as Indefinite Delivery, Indefinite Quantity contracts. At June 30, 2026, the Company had $1,540.5 million in remaining performance obligations of which the Company expects to recognize revenues of approximately 59% in the next twelve months.

Contract assets, contract liabilities and accounts receivable

Assets and liabilities related to contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At June 30, 2026, contract assets, contract liabilities and accounts receivable totaled $127.6 million, $293.4 million and $267.5 million, respectively. During the first nine months of 2026, the Company recognized approximately $74 million in revenues that were included in the contract liabilities balance at September 30, 2025. At September 30, 2025, contract assets, contract liabilities and accounts receivable from continuing operations totaled $90.7 million, $224.7 million and $253.6 million, respectively.

12. LEASES

The Company determines at lease inception whether an arrangement that provides control over the use of an asset is a lease. The Company recognizes at lease commencement a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term. The Company has elected not to recognize a ROU asset and lease liability for leases with terms of 12 months or less. Certain of the Company’s leases include options to extend the term of the lease for up to 20 years. When it is reasonably certain that the Company will exercise the option, Management includes the impact of the option in the lease term for purposes of determining total future lease payments. As most of the Company’s lease agreements do not explicitly state the discount rate implicit in the lease, Management uses the Company’s incremental borrowing rate on the commencement date to calculate the present value of future payments based on the tenor of each arrangement.

The Company’s leases for real estate commonly include escalating payments. These variable lease payments are included in the calculation of the ROU asset and lease liability. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease pre-payments and initial direct costs of obtaining the lease.

In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. Non-lease components are excluded from our ROU assets and lease liabilities and expensed as incurred.

The Company’s leases are for office space, manufacturing facilities, and selective machinery and equipment.

The components of lease costs are shown below:

Additional information related to leases are shown below:

The following is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and the related ROU assets, presented on our condensed Consolidated Balance Sheet on June 30, 2026:

Operating lease liabilities are included in the condensed Consolidated Balance Sheet in accrued other expenses (current portion) and as a caption on the Consolidated Balance Sheet (long-term portion). Finance lease liabilities are included on the Consolidated Balance Sheet in accrued other expenses (current portion) and other liabilities (long-term portion). Operating lease ROU assets are included as a caption on the Consolidated Balance Sheet and finance lease ROU assets are included in property, plant and equipment on the Consolidated Balance sheet.

13. NEW ACCOUNTING PRONOUNCEMENTS

In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses,” which requires disaggregated disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity presents on the face of the income statement, rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. This ASU will be effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Other than additional disclosure, we do not expect a change to our consolidated statements of operations, financial position, or cash flows.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures. This ASU will be effective for fiscal years beginning after December 15, 2024. Other than additional disclosure, we do not expect a change to our consolidated statements of operations, financial position, or cash flows.

14. RELATED PARTIES

Two of the Company’s directors are officers at two customers of the Company’s Doble subsidiary. Doble sells products, leases equipment and provides testing services in the ordinary course of Doble’s business. The total amount of these sales to thesetwo customers was approximately $1.7 million and $3.9 million for the three and nine-month periods ending June 30, 2026. All transactions between Doble and the two customers are intended to be and have been consistent with Doble’s normal commercial terms offered to its customers, and the Company’s Board of Directors has determined that the relationships between the Company and the customers are not material and did not impair the Company’s or the directors’ independence.

15. ACQUISITION

On April 15, 2026, the Company signed a definitive agreement to acquire the Megger Group Limited (Megger) business of TBG AG. Megger is a global provider of testing, monitoring, and data-driven solutions for utilities and critical electric infrastructure, including industrial, transportation, data center and renewable end markets. Under the terms of the agreement, ESCO will acquire Megger for total consideration of approximately $2.35 billion, consisting of $0.9 billion in cash and ESCO equity valued at approximately $1.4 billion. The cash portion will be funded through existing cash on hand and incremental debt, with committed financing in place. The Company expects to complete the acquisition in the first quarter of fiscal 2027. Megger will become part of the Company’s USG segment. See further discussion of the transaction and financing arrangements in the Company’s Form 8-K’s filed April 15, 2026 and April 16, 2026.