ESCO Technologies Reports Q3 2026 Results: Full Earnings Call Transcript
ESCO Technologies (NYSE:ESE) reported third-quarter financial results on Thursday. The transcript from the company's third-quarter earnings call has been provided below.
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The full earnings call is available at https://edge.media-server.com/mmc/p/nbevo2ty/
Summary
ESCO Technologies reported strong financial performance for Q3 2026 with a consolidated book-to-bill ratio of 1.21, driving a record backlog of $1.54 billion.
The company saw 14% sales growth, comprised of 8% organic growth and additional sales from the Maritime acquisition, while adjusted EBIT margins improved by 90 basis points to 22%.
Aerospace & Defense segment showed a 23% sales increase, driven by strong demand in commercial and defense aerospace, while the Utility Solutions Group experienced double-digit revenue growth due to increased power demand and grid modernization.
The Test business reported a 42% increase in orders, fueled by industrial shielding projects and EMI filters, indicating robust end-market activity.
The company is progressing with the Megger acquisition, expecting to close in fiscal Q1 2027, which will enhance scale in Utility Solutions and support further growth.
Updated guidance for 2026 anticipates a 38% to 39% increase in full-year adjusted earnings per share, indicating continued strong revenue and earnings growth.
Management noted ongoing successful implementation of the ESCO Operating System, aimed at improving operational efficiency and long-term value creation.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the third quarter 2026 ESCO Technologies earnings call. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.
Please be advised that today's conference is being recorded. On the call today we have Bryan Sayler, President and CEO, and Chris Tucker, Senior Vice President and CFO. And now I'd like to turn the conference over to our first speaker today, Kate Lowry, Vice President of Investor Relations. Kate, you now have the floor.
Kate Lowry, Vice President of Investor Relations
Thank you. Statements made during this call, which are not strictly historical, are forward-looking statements within the meaning of the safe harbor provisions of the federal securities law. These statements are based on current expectations and assumptions, and actual results may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company's operations and business environment, including but not limited to the risk factors referenced in the Company's press release issued today, which will be included as an exhibit to the Company's Form 8-K to be filed.
We undertake no duty to update or revise any forward-looking statements except as may be required by applicable laws or regulations. In addition, during the call the Company may discuss some non-GAAP financial measures in describing the Company's operating results. Reconciliation of these measures to the most comparable GAAP measures can be found in the press release issued today and found on the Company's website at www.escotechnologies.com under the link Investor Relations.
Now I'll turn the call over to Brian.
Bryan Sayler, President & CEO
Thanks, Kate. And thanks everyone for joining today's call. We're pleased to meet with you this afternoon to discuss ESCO's third quarter results. In Q3, we continue to see positive momentum in each of our business segments as demand across our served end markets continues to build. Aerospace, utility, and test orders were all strong, driving a consolidated book-to-bill of 1.21. This continuing strength lifted backlog to record levels across A&D Test, Doble, and at the consolidated level.
This is all clear evidence of growing end market demand and the strength of our competitive position. Operationally, Q3 was another strong quarter of revenue and earnings performance. Continued order strength is flowing through to drive high single-digit organic revenue growth and operating leverage. Over the past year or so, we have been working on development and implementation of an enterprise-wide continuous improvement process, which we will call the ESCO Operating System.
Although we are still in the early stages of the operating system implementation, we are already beginning to see impacts across our businesses through greater consistency and execution and are building a stronger foundation for sustainable value creation over time. Chris will run you through all of the financial details for the third quarter, but before that I wanted to give you a few comments on each segment, starting with Aerospace & Defense. I recently had the opportunity to attend the Farnborough Air Show.
It was really a great event, and it made clear that investments will continue to be made by our customers to support a continued robust demand outlook. On the commercial side, the industry continues to be supported by a global aircraft backlog of approximately 18,000 aircraft, with an estimated unmet demand of an additional 5,000 aircraft. This demand backdrop underpins a long-duration production ramp and creates a compelling growth runway for OEMs, suppliers, and subcontractors across the aerospace value chain.
At the same time, the show made clear that defense, security, and strategic resilience are becoming increasingly central to the industry narratives. Defense companies represented roughly half of the record exhibitor base at Farnborough, reflecting elevated military spending and a more complex geopolitical backdrop. Taken together, Farnborough reinforced the aerospace growth trajectory, supporting a durable, multi-year production cycle. Strong commercial OEM and services outlooks remain intact, while defense demand appears positioned to accelerate as governments prioritize readiness, modernization, and resilient supply chains.
On the Navy side, we continue to see evidence of a strong commitment to submarine programs. Last week, the Navy awarded the largest shipbuilding contract in history to the prime contractors for the remaining nine Block 6 Virginia-class and the next five Columbia-class submarines. ESCO is already under contract with the primes for this content, and the Navy's actions last week increase our confidence in the long-term outlook for submarine programs.
Turning to the Utility Solutions Group, Doble's continued order strength has translated into double-digit revenue growth year to date as rising power demand, electrification, and grid modernization are all increasing the need for reliable, well-maintained electrical infrastructure. As utilities expand their generation, transmission, and distribution capacity to support data centers, EVs, industrial electrification, heat pumps, and other sources of load growth, they must invest in tools that help maintain aging assets, diagnose and prevent failures, reduce downtime, and ensure grid reliability, safety, and compliance.
In addition, as they progress on the longer-term infrastructure buildout, they need support in commissioning new assets and maintaining a larger, more complex grid. These are durable demand drivers for utility test instrumentation providers like Doble and Megger. Related to the Megger acquisition, we continue to work through the regulatory filing process in the required countries. This is all going smoothly, and the timing is tracking to our expectations.
We continue to believe that this process should be completed in a timeframe that results in closing the deal in the first quarter of our fiscal 2027. Teams from both ESCO and Megger are actively collaborating on important integration planning activities. We believe this advanced work will help establish a clear path for efficient, well-coordinated integration of Doble and Megger while keeping us focused on achieving the anticipated synergies. Bringing Megger into the ESCO portfolio will build greater scale in Utility Solutions and reinforce our role as a trusted partner to utility customers around the world.
The acquisition is an important milestone in the continued advancement of our portfolio, and we remain optimistic about the long-term prospects for the utility markets that we serve. Finally, I'll touch on the Test business, which had another strong orders quarter with 42% growth over the prior year. Test order strength in Q3 was driven by industrial shielding projects and electromagnetic interference filters. On industrial shielding, those orders primarily relate to secure shielded rooms in both the U.S. and Europe. The EMI filters are for use in commercial and government data centers. The continued demand strength at Test is encouraging, and the team there is doing a really nice job of improving execution and expanding margins as their end market momentum continues. With that, I'll turn it over to Chris to run you through the financial details of the quarter.
Chris Tucker, Senior VP & Chief Financial Officer
Thanks, Brian. Everyone can follow along on the chart presentation. We will start on page three, which shows the financial highlights for the third quarter. ESCO Technologies had another strong quarter of top-line growth translating to even better growth in adjusted earnings and operating cash flow. Getting to the numbers, we start with orders, where the book-to-bill ratio in the quarter was 121%. All three segments delivered book-to-bill ratios over 100%, leading to a record backlog of $1.54 billion.
Order growth in the quarter was negative, but that resulted mostly from the $364 million of acquired backlog from the Maritime acquisition that took place in last year's third quarter. Turning to sales, reported growth was 14%, which was comprised of 8% organic growth and $23 million of incremental sales from Maritime. Just to remind everyone, we had a two-month impact from Maritime in last year's third quarter, while this year was a full three-month impact.
On the profitability side, we saw adjusted EBIT margins improve by 90 basis points to 22%, and adjusted earnings per share increased by 37.5% to $2.20 per share. Next we will go through segment highlights, starting with Aerospace and Defense on page four. Another great quarter here as the A and D business continues to deliver for ESCO Technologies. Starting with orders, A and D had a book-to-bill ratio of 116%, with particular strength from our aircraft components business.
You can see from the bar chart on the left we showed a large percentage decline in orders compared to last year. There were two main factors driving the percentage drop. First, and as mentioned previously, there was $364 million of acquired backlog from Maritime last year. Second, the Navy business at Globe received $82 million of Virginia and Columbia class orders in last year's third quarter, which did not fully repeat this year. With backlog of $1.1 billion, the business continues to be situated well for future growth.
Sales in the quarter were $168 million, which represents an increase of 23%. Organic growth was 9%. The organic growth was driven by 10% increases from Commercial and Defense Aerospace, as well as 10% from the Navy business. So really nice performance from all parts of the core Aerospace and Defense platform. On the profitability side, we had good improvement to 30% adjusted EBIT margins, an increase of 120 basis points. Margin increases were due to positive impacts from leveraging sales growth and increased prices.
Next we will go to chart five and the Utility Solutions Group. Orders here were up 20% in the third quarter, and that was driven by exceptional performance at Doble, where orders grew by 30%. We did see weak orders performance at NRG, where the renewables markets continue to be very soft. Sales in the quarter were up 8%. Again, the growth was driven by Doble, where sales increased by 17%. Doble continues to see strong end market activity across a number of product lines serving their regulated utility customer base.
Adjusted EBIT margins in the quarter declined by 130 basis points. Doble margins increased modestly but were more than offset by margin declines at NRG. Next we have the Test business on page six. This business had another good quarter, starting with orders which increased by 42%. The order growth was driven by industrial shielding products projects and EMI filters. In the U.S., this business is seeing robust market activity centered around U.S. and European EMC test and measurement, as well as power filter demand.
In the U.S., sales in the quarter increased by 5%, and adjusted EBIT margins increased 50 basis points to 16.4%. The margin improvement was driven by volume leverage, somewhat offset by inflationary pressures. Next is chart seven, where we have year-to-date highlights. The first nine months saw ESCO deliver great results as we work towards another record year. Order strength has been significant with 19% organic growth year to date. All three businesses have delivered double-digit organic growth, with Aerospace and Defense and Test at 20% and 26% respectively.
Sales have also been strong, with 11% year-to-date organic growth led by Test at 18% and Aerospace and Defense at 12%. Adjusted EBIT margins are up 250 basis points year to date, and adjusted earnings per share have increased by 55%. Going to chart eight, we have cash flow highlights for the first nine months. Operating cash flow is up significantly at over $193 million compared to $88 million in the prior year. A key driver to the increase has been increased advance payments on large Navy contracts.
Capital spending is up slightly compared to last year, and acquisition spending is down significantly this year, given the large Maritime deal. In April of 2025, EBITDA leverage is low at 0.2 times, and we continue to be positioned well for the debt requirements that will come with the Megger deal, which is expected to close in the first quarter of fiscal 2027. Our last chart is number nine, where we have updated 2026 guidance. With another strong quarter, we are increasing the full-year 2026 guidance.
We now expect full-year adjusted earnings per share of $8.30 to $8.40 per share. This represents an increase of 38% to 39% compared to fiscal 2025. This is a substantial increase from our original November guide, and you can see from the bar graphs at the bottom of the page. We expect 2026 to be another record year and a nice continuation of the growth trend ESCO has delivered since fiscal 2021. That completes the financial summary, and now I'll turn it back over to Brian.
Bryan Sayler, President & CEO
Thanks, Chris. As you've heard from our commentary, Q3 was another solid quarter, and we're looking at another year of strong revenue and earnings growth, and with record backlog, we continue to feel great about the long-term prospects for ESCO Technologies. That concludes our opening remarks, and we'll now turn it over to Q&A.
OPERATOR
Thank you. At this time we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, you'll press star-1-1 again. Please stand by while we compile the Q&A. Thank you. Our first question comes from the line of Tommy Moll from Stephens. Please go ahead. Your line is now open.
Tommy Moll, Analyst at Stephens
Good afternoon, and thanks for taking my questions.
Bryan Sayler, President & CEO
Hi, Tommy.
Tommy Moll, Analyst at Stephens
Brian, it wasn't the first time that you mentioned data center orders for the Test business, but you did give us a little more detail this time. So I'm curious to ask, what more can you tell us about the complexion of that customer base? And is this one that has broadened over the last couple quarters for you, where you've had success with new and additional customers? Thank you.
Bryan Sayler, President & CEO
Yeah, I would say that we have seen a little bit of improvement in the outlook there. We have a couple of good customers there. I don't want to get into the details of who they are, but they're in that, broadly speaking, data center space. It's important to remember that not every data center has a requirement for this kind of EMP protection. But any commercial data center that's going to house government data, utility systems, that sort of thing—those critical infrastructure—they tend to have this requirement, and we see it being embraced increasingly, and I think we're doing pretty well in terms of our market attainment.
Tommy Moll, Analyst at Stephens
And then, shifting gears to Doble—Brian, very strong acceleration there, both in terms of sales and orders, particularly on the order side. What additional detail can you give us there? And, relatedly, have you been able to discern how Megger's book has shaped up since you announced the deal? I mean, this is a big move higher for your order book. I'd be curious if they've seen the same thing.
Bryan Sayler, President & CEO
Yeah, I would say that the 30% year-over-year increase in orders was very broad-based. We had a—honestly, we had a 67% increase in our condition monitoring business that was led largely by some pretty good-sized large high-voltage cable monitoring orders. We had a 13% increase in our services business and a 23% increase in our protection business, 13% in offline testing, and we had a large renewal of one of our cybersecurity clients. So, really broad-based, across-the-board improvements there.
The one laggard in our utility business continues to be the renewables business, and on a year-over-year basis that was down considerably, but we are seeing some sequential growth that is encouraging.
Tommy Moll, Analyst at Stephens
Thank you, Brian. I'll turn it back.
Bryan Sayler, President & CEO
You asked about Megger. You asked about Megger? Yeah. So we have reason to believe that they are seeing something similar. I don't have as much detail on their numbers, but they're up nicely over the prior year, and that's an indication that the market itself broadly is improving and continues. I think we've been talking about this buildup in their spending for some time, and I'd say it certainly looks real, and we have POs to prove it.
Tommy Moll, Analyst at Stephens
Thank you, Brian. I'll turn it back.
OPERATOR
Thank you. Our next question comes from Scott Deutschland from Deutsche Bank. Please go ahead. Your line is.
Scott Deutschland, Analyst at Deutsche Bank
Hey, good evening, Chris. Can you share the updated segment revenue guidance?
Chris Tucker, Senior VP & Chief Financial Officer
Yeah, I mean, what I would say is, you know, we don't typically give a guide every quarter on that. I mean, what I would tell you is for A and D, on an underlying basis, excluding Maritime, we're looking at 8% to 10% for the year. For Test, we would be more like 10% to 12% now. And then for Utility overall, more like 4% to 6%, something like that.
Scott Deutschland, Analyst at Deutsche Bank
Okay, and then how did the Doble outlook within Utility change?
Chris Tucker, Senior VP & Chief Financial Officer
So we'd be like low double-digit there. So, you know, if you look at kind of where they've been, we would kind of see them continuing that trend through the fourth quarter.
Scott Deutschland, Analyst at Deutsche Bank
Okay. And then either Brian or Chris, why did USG margins go down sequentially on sales that were up sequentially?
Chris Tucker, Senior VP & Chief Financial Officer
Yeah, I would say the main thing there—if you look at the Doble margins, they were up versus last year, but given the sales growth, they weren't up a lot. We had a little bit of unfavorable mix there. Some of the high-voltage product lines are seeing a lot of growth; those are a little bit unfavorable mix in the business, so that's one issue. We also had just timing on some expenses for different SG&A and cost of sales items, so that was kind of one of the factors in there as well.
And then I would point to NRG. The NRG margins—you know, we're kind of scuffling along the bottom here. And again, Scott, I'm kind of talking a little bit to prior-year comps. But last year they had very nice margins in the third quarter at NRG, kind of in line with the overall segment, and they're operating quite a bit below that right now—more like low double-digit type margins there. So that's really a big hit year to year and kind of a key driver in the overall margins.
I would say if you look year to date at Doble, Doble is kind of right in line with where we thought they'd be year to date. They were really strong in the second quarter, not quite as strong here in the third.
Scott Deutschland, Analyst at Deutsche Bank
Okay. Have there been any, like, discrete inflationary pressures in cost of goods sold that have impacted USG—things like DRAM costs or electronics like that?
Chris Tucker, Senior VP & Chief Financial Officer
We haven't seen any that are really material at this point. I mean, we're anticipating that and we're trying to get ahead of it, but we haven't seen anything that would be reflected in the third quarter numbers.
Scott Deutschland, Analyst at Deutsche Bank
Okay, and then last question, Chris. Is a 30% incremental EBIT margin for A and D still the correct go-forward rate, given that you printed a 30% margin this quarter?
Chris Tucker, Senior VP & Chief Financial Officer
Yeah, listen, I think as Bryan mentioned, we're kind of trying to, you know, roll out this kind of operating system. I think that we continue to expect to take the margins up there. I'll say it that way. I think the 30% could maybe be a little bit low there. But when we put that 30% target out, we're kind of talking about the company in total. So I think for A&D, there's certainly parts of that where we're going to have to do better than that to continue to drive the margins up.
So that's how we're looking at that right now.
OPERATOR
Thank you. Our next question comes from the line of John Tan Wan Tang from CJS Securities. Please go ahead. Your line is open.
Will Umprajan, Analyst at CJS Securities
Hey, this is Will Umprajan. Thanks for taking our questions. Can you talk about the strength in the defense business? Are you seeing more relative strength from programs of record or more from aftermarket activity and consumables? And how should we think about that over the next couple of quarters given the high usage rate?
Bryan Sayler, President & CEO
Yeah, I think it's mostly from programs of record, as you know. I think that our aftermarket business there continues to accelerate at about the same rate as the rest of the business. So we're kind of maintaining that kind of 30% ratio. But our core business, particularly in submarine programs, is what's driving the big acceleration that you're seeing. And listen, we have every reason to believe that's going to continue.
Will Umprajan, Analyst at CJS Securities
Thanks for that. And are you seeing a light at the end of the tunnel for NRG? When do you think you might return to year-over-year growth?
Chris Tucker, Senior VP & Chief Financial Officer
Well, we've got one more quarter of pretty tough comps, if you will remember that right about now, a year ago is when the one big beautiful bill kind of went into effect. So what you're seeing in the third quarter from 2025 reflected a quarter where, you know, the renewables market was still white hot; we carried that backlog through into the fourth quarter. Had a really good fourth quarter last year. So I think you're going to see another, you know, year-over-year negative in the fourth quarter.
But I'm encouraged by the fact that we're beginning to see sequential growth. And so I would continue to believe that as we move into FY27 that that's when we'll begin to see a return to growth off of a lower base. And so the business doesn't get back to where it was in FY25, but we do begin to see something that will look like high single-digit growth from that point forward.
Will Umprajan, Analyst at CJS Securities
All right, I'll leave it there. Thank you.
OPERATOR
Thank you. Our next question comes from the line of Tomo Sano from JP Morgan. Please go ahead. Your line is now open.
Tomo Sano, Analyst at J.P. Morgan
Hello everyone.
Bryan Sayler, President & CEO
Hello. How are you, Tomo?
Tomo Sano, Analyst at J.P. Morgan
Good. Thank you for taking my questions. I'd like to ask you about NRG in the USG. Could you talk about beyond U.S. tax credit dynamics? What are the key bottlenecks for NRG, customer capex, cycles, competitions, portfolio gaps and so on? And what actions, what kind of actions are you taking to address them? Thank you.
Bryan Sayler, President & CEO
Yeah, yeah. So at NRG, it's principally a diagnostics business. It's around solar and wind generation, utility scale, terrestrial. So what's happened there, the dynamic that's driving the unpleasantness this year, is really around the capital spending that you're seeing from energy developers who really have been focused on safe harboring the projects that they already have in process. And so they've been working on qualifying for the tax credits which expired last week.
So now what we expect to see is that they will return to a broader focus. We do think long term that there's a place at the table for renewables because they are affordable relative to other forms of generation; they're available. We would expect to see a faster return to growth on the solar side compared to the wind side due to some of the animosity that the current administration has towards wind. So there have been some permitting issues there from a structural perspective.
There have been some costs incurred on the wind side from tariffs and things like that. But otherwise, our belief continues to be that on a levelized cost of energy basis, wind and solar continue to be attractive and affordable and that over time we're going to see a return to growth in those markets.
Tomo Sano, Analyst at J.P. Morgan
Thank you. And if you could talk about, in the first 100 days post the close for Megger, what are the top priorities ahead? Thank you.
Bryan Sayler, President & CEO
Sure. Well, so the good news is we've got a team that's kind of putting that plan together. What we would expect to do is, shortly after closing, we're going to be able to communicate those plans across the business. We have not finished them. But that will require us to take a hard look at our footprint, our manufacturing sites, harmonizing our product lines, putting together our go-to-market strategy. Those are all the big things that you should see rolled out in that first, along with a new combined identity of the combined enterprise.
I think the other thing that I might want to mention — I maybe didn't answer the question on other things we've done at NRG — we have taken some cost out of the business at NRG and we will be rolling that into the larger Doble-Megger platform as a business unit rather than as a standalone enterprise.
Tomo Sano, Analyst at J.P. Morgan
Thank you, that's helpful. And if I may squeeze a last one, regarding an improved operating cash flow, how much of the working capital benefit is structural versus timing related?
Chris Tucker, Senior VP & Chief Financial Officer
Listen, I would say that over time we kind of target free cash flow conversion to adjusted net earnings of around 100%. We're going to be above that a little bit this year, you know, because of the timing of some of these big contract payments. So, you know, I think structurally we feel really good about driving that 100%. But you'll still see periods like now where we're above it and you might see periods where we're more like 90, 95%, but net-net, we're still going to have high-quality conversion in that 100% range.
Tomo Sano, Analyst at J.P. Morgan
Thank you very much, Chris. Bryan, that's all.
Bryan Sayler, President & CEO
Thank you. Thank you, Tomo.
OPERATOR
Thank you. Our next question comes from Scott Deutschland from Deutsche Bank. Please go ahead. Your line is now open.
Scott Deutschland, Analyst at Deutsche Bank
Bryan, can you say what the lead times are for the condition monitoring orders that you secured in the quarter?
Bryan Sayler, President & CEO
Yeah, so the cable monitoring orders are the longest lead time. You know, we kind of have to go at the rate that the cables themselves are built, and so that requires some field construction and that sort of thing. So they can be as long as a year.
Scott Deutschland, Analyst at Deutsche Bank
Okay. And what percentage of the business is that?
Bryan Sayler, President & CEO
I think it's— I don't know the answer.
Chris Tucker, Senior VP & Chief Financial Officer
Well, overall condition monitoring is about 20% of the business. Yeah.
Scott Deutschland, Analyst at Deutsche Bank
Okay. And just to be clear, you said condition monitoring orders are up 67%?
Bryan Sayler, President & CEO
Yeah, they were up big time this quarter on a year-over-year basis. Yeah.
Scott Deutschland, Analyst at Deutsche Bank
Okay. I mean, if 20% of the business grows 50%, you grow double digits next year just off of that piece. Like, I guess, how much can I extrapolate off of this quarter? Or is it just lumpiness?
Chris Tucker, Senior VP & Chief Financial Officer
You'd say— we're going to stick with our very, very, very high single digits.
Scott Deutschland, Analyst at Deutsche Bank
Okay. All right. And then, Chris, I think last quarter there had been some pushout in surface ship revenue due to challenges the yards have faced in ramping up output. Has that gotten any better and normalized at this point, or have you seen any additional pushouts?
Chris Tucker, Senior VP & Chief Financial Officer
I would say no more pushouts. I would say kind of the recovery plan that we put in place after some of those pushouts last quarter has kind of unfolded as expected, you know, but we continue to kind of watch those programs pretty closely.
Scott Deutschland, Analyst at Deutsche Bank
All right. Thank you for letting me ask so many questions.
Bryan Sayler, President & CEO
I appreciate it. Oh, no problem. Glad to do it. Thank you.
OPERATOR
Thank you. Our next question comes from Tommy Moll from Stephens. Please go ahead. Your line is now open.
Tommy Moll, Analyst at Stephens
Hello again. Just to close with a couple on Megger, if we could. Chris, I think when you announced the deal, you told us where you were dialing in the cost of debt there, but I just wanted to see if you could give us any updated view. And then if this deal closes on your anticipated timeline, when you report Q4, will you be able to then give us the NTM guide for fiscal 27 inclusive of Megger at that time? Thank you.
Chris Tucker, Senior VP & Chief Financial Officer
Yeah, Tommy, we would anticipate, if the schedule tracks the way we're hoping it does, that our November announcement would include Megger in the guide. So that's our anticipation. We can give you our best look at the interest cost as part of that guidance. I would tell you right now we do expect the cost of debt to be around 6%. We've got kind of our term loan A, term loan B, terms locked in. Those are SOFR-plus instruments. We've actually executed a deal-contingent hedge as well to kind of lock in a portion of that for next year that's slightly below 6%.
But I think right now where we are, 6% is the right way for you to plan it.
Tommy Moll, Analyst at Stephens
Got it. That's all for today. Thanks again.
Bryan Sayler, President & CEO
Thanks, Tommy.
OPERATOR
Thank you. Thank you. I'm showing no further questions at this time. I would now like to turn it back to Bryan Sayler for closing remarks.
Bryan Sayler, President & CEO
Melissa. Thanks, everyone, for taking some time to learn a little bit more about ESCO Technologies today. We continue to believe that our outlook is very bright and we're working hard to make it come true. Talk to you next quarter.
OPERATOR
Thank you for participating in today's conference. This does conclude the program. You may now disconnect. Thank you.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.