Arxis (NASDAQ:ARXS) Q2 2026 Earnings Call

0:00 Welcome to the Arxis Second Quarter twenty twenty six Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised today's conference is being recorded. I would now like to turn the conference over to Brian Whitlett, Head of FP and A and Investor Relations. Please go ahead. Good morning, and welcome to the Arxis Second Quarter twenty twenty six Results Conference Call. Joining me today are Kevin Perhanas, President and Chief Executive Officer and Azan Vadash, Chief Financial Officer of Arxis. 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.

0:46 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'll begin with the highlights from the quarter and walk you over our performance, then spend a few minutes discussing why we continue to believe that Arxis is well positioned to compound over the long term. With that, let's get started on slide three. We delivered another excellent quarter, with second quarter sales of $5.00 $1,000,000 an increase of 25% year over year, and adjusted EBITDA of $211,000,000 up 38%.

1:39 The strong revenue growth translated into adjusted EBITDA margins of 42.2%, an expansion of three ninety basis points year over year. Revenue growth was balanced across our key drivers. New business wins, pricing, and acquisitions each contributed mid single digit growth, with continued demand across our underlying markets contributing the remainder. This performance was broad based. Each of our three end markets delivered double digit growth, both of our segments grew double digits, and no single customer, platform, or program meaningfully drove these results. That breadth is consistent with the diversified business we've built. Beyond the operating performance, we also announced three additional acquisitions, whose combined EBITDA exceeds our internal annual M and A target.

2:30 I'll come back to those in a few minutes, but they demonstrate the same repeatable acquisition strategy we've built at Arxis in partnership with Arxis. Overall, our first half performance and increased secured revenue gives us increased confidence in the balance of the year and supports our decision to raise our full year guidance. Zazan will walk through the updated outlook and assumptions in greater detail in a few minutes. Turning to Page four, I want to briefly connect the quarter's results back to our differentiated business model and playbook because the performance reflects consistent execution against both. At our core, Arxis is an engineered components company. We develop proprietary products that solve difficult engineering problems and become deeply embedded in our customers' platforms. Once we're designed in, those positions typically remain in place for decades.

3:18 Our confidence in the model comes from the combination of proprietary technologies, broad diversification and long platform life cycles. Together, those characteristics create a company designed to perform consistently over long periods of time. Finally, we are also balanced across our end markets and between our electronic and mechanical segments. While the products and applications may differ, the underlying business model is consistent across the entire company. On page five, what differentiates Arxis over the long term is our proprietary Arxis Edge playbook. It starts with our decentralized operating structure. Our business units move quickly, stay close to their customers, and are empowered to make decisions. At the same time, the entire organization remains connected through a common operating system and shared processes.

4:05 The second piece is our new business engine. We take a systematic approach to identifying and winning new opportunities by bringing together our engineers, sales teams, and business units to solve customer problems. We align incentives across those teams so everyone is working towards the same objective. Year to date through June, new business bookings have remained very strong, and the growth of those new business bookings is in line with our overall organic growth rate. That level of activity more than supports our new business growth target and reinforces our confidence in our ability to consistently grow faster than the markets we serve. The final piece is our repeatable acquisition engine. Turning to slide six, I'll show you what that looks like in practice. Since our IPO in April, we've announced three additional acquisitions: Omnetics, Magnetica, and BlueLine, which we just announced yesterday.

5:00 From the outside, these businesses look very different. They make different products, solve different problems for our customers, and operate in different niches. But underneath, they're all exactly the kind of business that we're looking for. Every one of them fits the same acquisition criteria we've followed since ARXS was formed. They all bring additional technologies, customer relationships, and engineering talent into the portfolio, giving us more opportunities to generate new business over time. For example, Commedix brings industry leading miniature interconnect technology, expanding our capabilities in harsh environment electronic interconnects. Mechanica has proprietary torque sensing technology that enhances our position in high precision sensing applications and creates new opportunities across aerospace and defense.

5:46 BlueLine expands our offering of proprietary sensing technologies, including high reliability precision position sensing and motion control systems. Finding businesses that fit the model is only part of the equation. Having a repeatable process to evaluate and execute those opportunities is just as important. The Omnetics acquisition is a good example of the power of the Arxis, ArcLine partnership. Let me walk through that on the next slide. Omnetics is a business I've admired for about twenty years because it fits the ARXS business model extremely well. It has proprietary technology, deep engineering capability, and highly differentiated products that are designed into platforms for decades. The opportunity came to market right in the middle of our IPO process.

6:34 During this time, we were focused on becoming a public company, but we did not want to miss out on business like Omnetics. That's where having a unique partner like Arkline, whose principles will be long term holders of our stock, truly makes a difference. Our team stayed focused on understanding the business, developing the operating plan, and determining how Omnetics would fit within ARXS, while our client worked in parallel on diligence, financing, and transaction execution. That allowed us to move quickly without taking our eye off either priority. That's the real advantage of the partnership. It expands our capacity to identify and execute acquisitions while our teams remain focused on creating value.

7:19 And that's not unique to Omnetics. It's the same process we followed across more than 35 acquisitions over the past six years. And it's one of the reasons we continue to see a significant runway ahead. With that, I'll turn it over to Azad to walk through the financials and our 2026 outlook. Thanks Kevin and good morning everyone. I'll begin on Slide eight. In summary, we delivered an outstanding second quarter with strength across the entire business. Sales were $5.00 $1,000,000 an increase of 25% year over year, consisting of 21% organic growth and a 4% contribution from the Oldensteels, Microtronic and Mechanica acquisitions. All three end markets delivered strong double digit growth organically. Turning to profitability, second quarter adjusted EBITDA was $211,000,000 with adjusted EBITDA margins expanding three ninety basis points year over year to 42.2%.

8:16 The margin expansion was driven by very strong revenue growth, which provided meaningful operating leverage. We also benefited from continued operational improvements, particularly within our Mechanical Components segment, where cost optimization initiatives continue to gain traction along with disciplined pricing and the operating leverage generated by new business wins. Free cash flow was $127,000,000 an increase of 251% year over year reflecting the higher earnings and improved net working capital. The working capital timing items that I discussed on the first quarter call are beginning to normalize and we expect free cash flow generation to build through the second half of the year. Turning to Slide nine, I'll provide a brief update on our capital structure.

9:02 Following another quarter of strong operating performance and free cash flow generation, our balance sheet remains well positioned to support our long term capital allocation strategy. In April, we used a portion of the IPO proceeds to repay approximately $946,000,000 of our term loan B, materially strengthening our balance sheet while significantly reducing annual interest expense by more than $70,000,000 versus 2025. In June, we repriced the remaining term loan B by an additional 25 basis points, reducing annual cash interest expense by an incremental $5,000,000 As of June 30, net leverage was below two times and and we had approximately $1,100,000,000 of available liquidity, including cash on hand, our fully undrawn revolving credit facility and available delayed draw term loan capacity.

9:53 So we remain very well positioned to continue executing our disciplined acquisition strategy. Turning to Slide 10, as Kevin mentioned, we're raising our full year sales and adjusted EBITDA guidance to reflect the strong first half performance. On revenue, we now expect a range of $1,960,000,000 to $1,980,000,000 an increase of $100,000,000 at the midpoint versus our prior guidance. At the midpoint, that represents 24% year over year growth, including approximately 20% organic growth, which is an increase of five percentage points compared to our prior guidance. On adjusted EBITDA, we now expect a range of $790,000,000 to $800,000,000 an increase of $70,000,000 at the midpoint versus our prior guidance. Adjusted EBITDA margins are now expected to be 40.4%, up from 38.8% previously, representing an additional 160 basis points of margin expansion compared to the prior guidance.

10:50 I would like to note that the updated outlook includes the expected contribution from the Mechanica and Bluline acquisitions, but does not include the contribution from the pending Omnetics acquisition. On Slide 11, these are the organic growth assumptions embedded in our updated 2026 guidance by end markets. Across the three end markets, we're assuming organic growth of approximately 20% supported by healthy market demand, disciplined pricing and new business generation. As we progress through the year, additional bookings have increased our secured revenue, giving us greater visibility into the balance of 2026. That increased visibility supports our updated guidance and our confidence in approximately 20% organic growth this year. With that, I will turn it over to the operator to open the line for questions.

11:41 Thank you. Our first question comes from Christine Nguyen with Morgan Stanley. Your line is open. Hey, good morning, guys. Know, 17% organic growth last quarter, 21% this quarter. You guys are just printing organic growth well above peers and significantly higher than the growth algorithm you guys have shared in the past. I was wondering, can you talk more about the underlying drivers of how you get to that 21%?

12:29 How much of the new business win from ARXS Edge is driving this? And I know you raised outlook for the year, but it still seems a little bit conservative considering what you've been able to print for the first half. Yeah. Hi, Christine. So yeah, let me break it down into our VPC algorithm. The organic growth, the volume piece breaks down into two separate pieces. The new business remains at mid single digit. The price that we're we're gaining remains at mid single digit. So all of the delta that you're seeing is in the base business or, you know, the market growth rate, which is now coming in at low double digit growth rate.

13:15 So that's that's really the only change, you know, so so no difference in the new business, no difference in the price, really just continued market strength across all three end markets. And in terms of the second part of your question about what we're seeing for the full year, as a reminder, we use ARXS Edge. We keep careful track of every single purchase order that comes in goes into Arxis Edge. 6,000 purchase orders a month, we keep track of the secured revenue that we have by customer, by program, by market. And the secured revenue leads us to a full year revenue guidance number. Right now, we have 95% of the year secured, which is exactly where we should be at this point in the year. And that leads to the the guidance number that we're providing.

14:09 So we believe it's accurate because we have actual firm demand behind it. We're not forecasting based on trends or news. We're forecasting based on hard backlog. Great. Super helpful. And if I could follow-up on deals. The business model of industrial compounder has been pretty popular in the industry. But what stands out also is that you guys have been able to find deals and close on them this year at a pace slightly above peers as well. Can you talk more about the pipeline of what you're seeing? And historically, you were around that five per year. Is that where we're still kind of tracking for this year and next year?

14:57 Yeah, it's always hard to nail down the exact timing. As you know, we've done 35 acquisitions since we started building ARXS around six years ago. So we do about five or six per year if you average out all the years, but there actually have, if you look back, there have been years with two acquisitions and there have been years with 12 acquisitions. So I don't want to commit to a certain number that happened per year. We've announced three since the IPO, but remember we did one back in January as well, Microtronics, so four so far this year have been announced. And the pipeline remains as active as ever. Just because we've announced four doesn't mean that we won't continue to try to do more acquisitions.

15:46 We have plenty of capacity to source and integrate acquisitions. And remember, we have our partners at Arkline who do this for a living, 60 professionals that are out there looking for new deals and helping us close deals all the time. The pipeline is as active as it's ever been. There are thousands of potential companies out there to buy, and we're evaluating many of them right now. Great. Thank you very much. Our next question comes from Sheila Kahyaoglu with Jefferies. Your line is open. Good morning, guys. Kp and Azad, and congrats on another great quarter. I wanted to hone in maybe on Omidix and Mechanica.

16:36 So, two questions, I guess one is any financials you could provide around that? Is it fair to say it's around 75,000,000 of EBITDA? And Casey, you said you've admired this company for half its lifespan, essentially twenty years. I'm sure it was a very competitive process with peers like Amphenol probably looking at it. Can you talk about what got you guys interested? How you think about expanding the scope of this business? And how our client was helpful in that process? Okay, let me try one at a time. Sorry. Yeah, good morning, Sheila. So first of all, I think you asked about the size of the deals.

17:21 If we just zoom out, I think this is very interesting to look at. We have BlueLine, Mechanica, and Omnetics. And across the three deals, I call them small, medium, and large. And that's that's important because we're able to do small, medium, and large acquisitions all simultaneously. We we do not discriminate based on the size of the deal. What we're really looking for is a fit from a business model perspective, And we wanna have the ability to grow the EBITDA as fast or faster than the base business and buy down the multiple to less than 10 over three years. And we've described that criteria in the past. But they fit in different ways to the company. BlueLine will be a product line inside of a business unit.

18:10 Mechanical will be a business unit. Omnetics is part of a block that could be its own block because it's that size. And we can integrate them all simultaneously because they go into different parts of the company. We're not giving specific numbers around the size of the individual acquisitions, but just as a framework to think about it, I think that's how I would think about it. Then you asked about Omnetics. It's a company that I've been aware of and been looking at for a long time. Like I said in the opening remarks, around twenty years now. It's a fantastic company. It's a connector company that has a lot of proprietary technology.

18:59 It's it's got the same end market mix that Arxis has. So, it's just perfect for us. It's differentiated. The business model of getting the proprietary products designed into platforms, and then they stay there for decades, all the same as ARXS. What we'll be able to do is they have customers that we don't have, we have customers that they don't have. We'll be able to cross sell the products. We'll be able to put them in ARXS Edge and learn from them, and they'll learn from us. And we'll use the BPC algorithm to expand the margins and get them up to the ARXS average margins over some period of time.

19:47 That's super helpful. Thank you. Our next question comes from Peter Arment with Baird. Your line is open. Hey, good morning, KP. Izzad, great results. Hey, KP, maybe just a follow-up on maybe Sheila's M and A question. I guess since coming public, maybe you've gotten on more people's radar screen. Has that picked up any further M and A conversations? Or is the pipeline well established and nothing new has come in since you come public? To be honest, it hasn't changed anything. The pipeline is large, with thousands of companies in it across many different products and across many different markets.

20:39 One thing that I would point out though, is in the Omnetics process, and I failed to mention this earlier. It was a competitive process, but it was somewhat limited because remember the Omnetics owners were looking for shares in a public company as consideration. And if we were not a public company, we would not have been able to participate in that process. So the timing really worked out perfectly. The process was kicked off during our IPO process. And as I said in the opening remarks, I don't know that we would have been able to bring the company public, do a good job with that, and be able to diligence and close the work on the Omnetics deal simultaneously as well as we did without the partnership with our clients. So that was really helpful.

21:34 And then the fact that we became public right at that time, and we were able to use our new public equity to fund the deal was essential because that was a criteria of being able to do it. So yeah, it's maybe not expanding the pipeline, but it gave us a currency that we were able to use to acquire Armenix, which was essential. That's great color. Thanks, KP. And then just a quick follow-up. Just we've seen a lot of pressure on the primes to ramp up production kind of in this missile defense. You guys have some exposure through your business. Are you seeing any kind of like LTA agreements or anything that you're being asked to look at just to lock down long term supply agreements? There's a lot of conversations going on in that area with these framework agreements.

22:23 So I would say we've heard about them and we are talking to people about it, but we haven't done anything definitive yet. I think those are remember we're deep in the supply chain, so we're a few layers away from the government. In some cases, we supply directly to brines. In other cases, we supply to tier two, three suppliers. So they're making their way through the supply chain. And like I said, we're having conversations, but nothing definitive yet. Got it. I'll jump back in queue. Nice results. Thank you. Our next question comes from Conor Desert with Goldman Sachs. Your line is open.

23:12 Hey guys, we've got Conor on for now today. Thanks for taking my question. Azad, in your prepared remarks, you commented on the strength in mechanical segment's margin. And if I did my 10 Q math right this morning before the call, it looks like that margin stepped up to 42.5% in the quarter from 37.5% last quarter. We had kind of imagined that margin approaching the electronic components margin over time. But the step up kind of begs the question, is that now the run rate margin of that business? Or were there some one time items there that kind of come out and it's a little bit lower through the rest of the year and it approaches electronic components over time? Hey, good morning, Connor. This is KP, I'll take that one.

23:59 So first of all, you have the mechanical components, really that team did a fantastic job in Q2. I would zoom out and look at the whole first half as a better number to use for their kind of run rate margin, which is still over 40%. It's just 40.1% in the first half. And the 42%, just incredible operating leverage on fixed costs. But there's normal quarterly variation, which will kind of push things up and down by a few percentage points. So that's why I think it's better to look at the 40 for the first half, kinda use that going forward.

24:46 If if I could take another minute and just, you know, maybe talk about how or add some color to how the mechanical segment did this. I think it's testament to the playbook and to the decentralized structure that we have. Remember, we did a large acquisition in the mechanical segment in 2024. And what the team has done over there is really decentralized that large acquisition. And when you decentralize a company and empower the individual business units and hold them accountable for results, really good things happen. 67% conversion margin is the conversion margin mechanical segment has achieved over last year in the first half.

25:36 If you know, they've grown 26%, but, like, just over 20% organically. And they have exactly the same number of people that they had last July. So 20% organic growth, same number of people. And there's two main categories that we spend money on, material and people. And so if you can grow your business 20% and have the same number of people by decentralizing and empowering people, you get that kind of conversion margin of 67%. So that's what happened. Okay. I appreciate all the color there. That's really helpful. And if I could ask one more quick one, just looking at the organic growth outlook being raised to roughly 20% across the three end markets versus last quarter's outlook of mid teens.

26:31 Are there any drivers end market by end market that are driving the better outlook specifically? I guess I'm trying to understand what have you guys seen improve just in the last few months versus what may have been some looking back relative conservatism in the outlook by end market last quarter? Yeah, all the end markets are now forecasted to grow at the same rate. And the increase in our guidance is very uniform across the end market. So it isn't one end market and it isn't one thing within any of the end markets. We're very diversified across many platforms and customers and the growth is very broad based and diversified.

27:16 So we feel really good about that. In terms of your question about maybe what changed then since the last time we spoke, it's pretty simple. What happened, we've had three additional months of bookings come in and, you know, three additional months to build secured revenue for the year. And those months came in much stronger than we expected. And so we booked more purchase orders. The backlog for the year increased faster than we thought. And so we're raising the guidance accordingly, and we're using secured revenue to do the calculations. And those calculations lead to, you know, kind of a constant growth rate across all three end markets because that's that's the way the backlog looks.

28:08 Okay. Thanks, JP. That's super helpful. Our next question comes from Ken Herbert with RBC. Your line is open. Hi. Good morning. Nice. You've seen some nice improvement certainly in the second quarter in free cash flow. And then it was odd, I think in your remarks, you called out some of the working capital items gaining momentum. How should we think about cash generation into the second half of the year? Sure. So as you've heard me say, free cash flow conversion can be somewhat lumpy in a given quarter, but it generally does smooth out on an annual basis. You know, as you said, in Q1, we saw that lumpiness at play. This quarter, free cash flow conversion was much stronger, and largely driven by our record shipment levels.

29:01 Accounts receivables, payables, inventory and accrued expenses all behaved as we expected given our strong growth this quarter. And to your question, we do expect this improved conversion track to continue through the balance of the year. And the full year free cash flow conversion, we expect to be very much in line with our internal targets. Okay, that's helpful. And just at a high level, how do we think about with obviously the step up in organic growth, are you seeing any pressure at capacity at any locations? Or is there any opportunity maybe that would be a positive to maybe step up CapEx as you think about meeting demand? Or just where are you in terms of capacity? And as organic growth continues to outperform, how do we think about that as an opportunity from an incremental margin perspective?

29:56 Yeah. As we've said before, we have plenty of capacity across the whole organization. Remember, we run 48 individual business units across nearly 70 factories, and we have general managers that are carefully looking at their own secured revenue and their capacity needs and their CapEx needs. And those CapEx projects occur on a regular basis to sort of incrementally walk the capacity up in all those individual factories. The the number that we're that that we have in mind right now is, you know, 3% of revenue, so 60 roughly $60,000,000 of CapEx this year.

30:41 And that number includes all the growth CapEx that we need in order to keep keep up with this growth rate. Perfect. Thanks, K. P. Thanks, Azad. Our next question comes from John Godden with Citi. Your line is open. Hey, guys. Thanks for taking my question. AT, obviously, a great 2026. I think you mentioned you had 95% visibility from here into year end. I'm just curious, does the standout 2026 create a tough comp for 2027? I'm guessing you have some visibility into early twenty twenty seven at this point and maybe a sense of whether or not trends are continuing as far as you can see.

31:34 We're really focused on 2026 right now and making sure that we continue to fill in the rest of the year and execute on 2026. And it's too early for us to comment on 2027. We will be back probably in the beginning of the year with a pretty clear picture of that, but we start to shift our attention over to 2027. We'll start in Q3, we'll really do it in Q4, and we'll have a good look at 2027 as we come out of 2026. Okay. And I just wanted to kind of double click on M and A pipeline. It's obviously very active. From our perspective, just coming out of Farmborough not long ago, clearly a lot of activity in A and D. I've less insight into industrial technologies, but maybe you can just talk a little bit about kind of the contours of the M and A pipeline and size, industry kind of end markets, any color you're willing to offer.

32:42 Yes, the pipeline is full. Use many avenues to source deals. Remember, we're in a very fragmented market with thousands and thousands of potential companies to acquire. We partner with ArcLine. They have 60 investment professionals that are helping us to source deals. We have all of our block leaders, general managers, and segment presidents, plus me and Azad and others, constantly looking for businesses that could fit with ARXS. So we have a lot of people working on it. We're not focused on a market. We're focused on a business model. And the business model is that the company needs to produce custom engineered solutions that are developed through engineer to engineer conversations with their customers.

33:37 And then get designed in and generally be the only source for a very long period of time on the bill of materials. And that's the business model that we're looking for. It could be in any market. And so we don't even segment the pipeline by market. So I can't answer that. But it's a healthy pipeline. That's all I can say. Got it. And if I could just ask one more on the layer cake idea. I think you mentioned in the prepared remarks that new business was contributing kind of a healthy amount to revenue growth. I'm envisioning that chart, that great chart from the S-one where you had all the different layers kind of playing out.

34:24 Obviously, you don't have that updated for us today. But maybe you could just talk a little bit about and shed some light on how the layer cake model continues to layer. Sure. Yeah, in order for the layer cake model to work, what we're trying to do is add mid single digit of new revenue each year through new business. And remember, each year is really just a cohort of new business. So we have thousands of new business wins that come in to the company, they add on to last year's revenue and create a new layer to the cake. But the new business wins that are in the cohort of 2025 and 2024 and 2023 also continue to expand. So that's how the layer cake works. Have each year is cohort of new business wins that continues to stack up.

35:16 And so my comments about whether or not that new business strength the new business wins are strong enough to continue to support that. Just as long as that is mid single digit each year of new wins, you know, that that's that's what we're looking for. Mid single digit new wins, mid single digit price, and then the market will do what it does. And if you add all that together, that adds up to our volume, which this year is is adding up to just over 20%. So hopefully that answers your question. That's how we're thinking about it. Appreciate it. Thank you. Our next question comes from David Strauss with Wells Fargo. Your line is open.

36:06 Hi, good morning. This is Josh Korn on for David. Just wondering if you could shed some light on some of the industrial tech end markets for the quarter. I think you had mentioned particular strength in medical and semis in Q1. Thanks. Yeah, sure, John. So industrial tech, remember, is a very diversified set of markets, submarkets within that overall market. But roughly half of our industrial tech business breaks down into two submarkets. So medical and semiconductor equipment manufacturing, those would be the two, each about a quarter of our industrial tech segment. Medical is implantable medical devices and surgical robots and other automation related to medical.

36:56 And semiconductor is actually going into the equipment used to manufacture and test the semiconductors. So both of those markets are very strong. Nothing to point to specifically, but broad strength across those. And the other submarkets that make up industrial tech, which is another seven or eight different categories. Great. Thanks. I'll stick to one. Our next question comes from Myles Walton with Wolfe. Your line is open. Thanks. Good morning. KT, you talked about 95%, sales coverage in backlog at this point in the year. Obviously, not as familiar with the lead times for your products, but I think, certainly, a larger percentage of your products than most A and B companies could be shorter lead times. What is your lead time for products in each of your businesses?

38:02 And is this, you know, normal that your roll up of guidance would just be based on a more charismatic of what you have in backlog? Yeah. Good morning, Miles. So it's for us. You know, we've been doing it this way for several years in terms of forecasting the business. And we think it turns out to be a very predictable way to run the company. And so we have a few years of data. Around 95% is a good number to be at right now. The lead time is different for each business, and there's even, obviously, different lead times for the different product lines within each business. So there is no standard lead time across the company.

38:52 But we generally I think you can do the math and figure out that we have another 150,000,000 or so left to go to book for the year that would be booked and shipped within the year. And the rest of this stuff is already booked and planned. The only other thing I would say is unlike in a commercial business, the lead time isn't always the factor for when the orders get placed. So the orders don't always just get placed just in time according to lead time. Sometimes the orders are placed in an annual chunk all at once. And often than not, that's what happens. So that's why we end up getting more filled in maybe than what the lead time would indicate.

39:40 Okay. Yeah. And this might not be not 100% accurate, but I was just kind of last quarter, 90% on your previous guidance. This quarter, 95% on your new guidance. It almost looks like you had $200,000,000 of orders for in year business in the last ninety days, which obviously, if that happened again, I would imagine it would lead to further upside the guidance. I just want to make sure that's the way I'm thinking about it is accurate. We're thinking about it accurately. It is less likely that it happens later in the year. Okay. So as the year goes on, more and more of the bookings that come in land in the in the next period. So as we go into the second half of the year, a large percentage of the bookings that come in land in 2027.

40:28 So we carefully parse that out, and we're only really looking at the secured revenue for 2026 right now. But you're right, a lot filled in since the last time we spoke, and that's why we raised the guidance. If that if more filled in for 2026, then we would we would obviously have to raise the guidance again. Okay. That's great. Thanks again. Our next question comes from Louis De Palma with William Blair. Your line is open. Hey, Pete and good morning. Good morning, Louis. The organic growth was exceptional relative to your long term target.

41:14 I was wondering across the 16 blocks with Ross and Jason, were there any blocks that stood out in terms of on the positive side? And are there also any that, you know, you would highlight in terms of underperforming blocks? Because, you know, across 16 and with the 20%, there probably were some in the plus 30% or plus 40% range, and there perhaps were some that were negative. So is there anything that stood out that you could provide color on? Thanks. Yeah. So first of all, if you first break it down into the two segments and then we'll break it down into the blocks. And across the two segments, it was fairly consistent in terms of organic growth rate.

42:09 And we predict fairly consistent organic growth rate for the full year across the two segments. The really nice thing, you know, I we can obviously drill down to the segments or into each of the individual business units and look at the the organic growth rate of the individual companies. It is so broad and widespread, evenly distributed across all the business units, and then therefore, the blocks. That's what gives us even more confidence in the ability to pull this off. If all that growth was sort of stacked up in a few business units or a few blocks, then it would be really extreme growth in some areas and maybe no growth or even negative growth in others. That would be very difficult to manage. That's not the case. That's not what's happening. It's very distributed across the entire company, which is it's great.

43:08 Everyone's doing well. So when you're saying it's distributed, would there be like a very narrow range with that mean of 20%? There's obviously variation. I don't know exactly what the variation is, but I know that when I look at each of the individual blocks, they're all growing. And they're all growing nicely. So I don't have in front of me the actual mean and the standard deviation. It is very widespread. And my other question, has there been any change you've observed in terms of the regulatory scrutiny for some of your deals in that part of your business model to be the sole source supplier, but has there been any regulatory opposition to that?

44:07 The answer to that is simply no, our acquisition strategy hasn't changed at all. As a reminder, we're acquiring highly engineered businesses that expand our technology portfolio. Every transaction that we do is evaluated on its own merits. And we always do a detailed regulatory review ahead of potential transaction signing. So no, our strategy hasn't changed at all. That's it for me. And I'm not showing any further questions at this time. I'd like to turn the call back over to Kevin for any further remarks. Okay, thank you. Before we conclude, I would just like to thank the employees of Arxis and ArcLine.

44:52 These outstanding results are a direct reflection of the relentless execution and collaboration of our teams. Thanks for joining us today and for your thoughtful questions and for your continued interest in ARXS. And we look forward to updating you on our progress next quarter. Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.