Ralliant’s $1.4 Billion Impairment Overshadowed by Strong Q4 Execution

Date of Call: Feb 5, 2026

Financials Results

• Revenue: $555 million, up 1% year-over-year (flat on an organic basis)
• EPS: $0.69 per adjusted diluted share, a 15% sequential increase, down year-over-year
• Operating Margin: Adjusted EBITDA margin of 20.8%, a year-over-year decline, up 40 basis points sequentially

Guidance:

• Q1 2026 revenue expected to be $508M to $522M, up 5% to 8% YOY.
• Q1 2026 adjusted EBITDA margin expected to be 17% to 18%.
• Q1 2026 adjusted EPS expected to be $0.46 to $0.52 per share.
• Full-year 2026 revenue expected to be $2.1B to $2.2B, up 2% to 6% YOY.
• Full-year 2026 adjusted EBITDA margin expected to be 18% to 20%.
• Full-year 2026 adjusted EPS expected to be $2.22 to $2.42 per share.

Business Commentary:

Revenue and Earnings Performance:

• Ralliant Corporation reported revenue of $555 million for Q4 2025, a 1% improvement year-over-year and a 5% sequential growth.
• Adjusted EBITDA margin was 20.8% and adjusted EPS was $0.69, reflecting disciplined operational execution and strong free cash flow conversion above long-term targets.
• The growth was driven by stable to improving trends across most end markets, particularly in the Sensors & Safety Systems segment and Defense and Space end market.

Segment Performance and Market Trends:

• The Sensors & Safety Systems segment saw a 6% year-over-year and 3% sequential increase in revenue, with all end markets showing mid-single-digit growth.
• Test & Measurement revenue declined by 6% year-over-year but improved by 7% sequentially, with Diversified Electronics stabilizing and Communications growing significantly.
• Growth in Sensors & Safety Systems was driven by strong demand in Defense and Space, while Test & Measurement faced challenges in Diversified Electronics due to cautious customer CapEx spending.

Strategic Investments and Growth Vectors:

• Ralliant is focusing on strategic investments in commercial execution, innovation acceleration, and manufacturing agility to support long-term growth.
• Investments include expanding manufacturing footprint to increase capacity, leveraging AI and digital platforms to enhance sales resources, and developing platform architectures for faster product cycles.
• These investments are aimed at capturing opportunities in high-growth vectors such as defense, energy, and electronics.

Impairment and Market Challenges:

• A noncash goodwill impairment of $1.4 billion was recorded due to slower-than-anticipated progress and reduced industry forecasts in the EA Elektro-Automatik business.
• The impairment was primarily due to electric vehicle demand headwinds impacting the business's performance.
• Despite this challenge, Ralliant remains focused on strategic growth and has adjusted its long-term expectations for the affected business.

Sentiment Analysis:

Overall Tone: Positive

• Management stated: '2025 was a pivotal year... we exceeded our revenue guidance with stable to improving trends across most of our end markets. Adjusted EBITDA and adjusted EPS were both at or above the high end of our guidance ranges, another clear demonstration of our operating discipline. We delivered strong free cash flow with a conversion above our long-term target.' Also: 'We have confidence as we enter the year with the separation behind us, strong secular tailwinds at our back and strategic clarity on growth investments.'

Q&A:

• Question from Julian Mitchell (Barclays Bank PLC): Flesh out the segment cost growth and how you see that playing out? And what the main focus points are?
  Response: Confident in Investor Day targets; growth investments will be higher in Sensors & Safety Systems (stronger margins) and lower in Test & Measurement, with reinvestment of ~50-100 bps at company level.

• Question from Deane Dray (RBC Capital Markets): Clarification on the 250 basis points headwind; how does that spread across the quarters?
  Response: Operating expense run rate is ~$175M per quarter entering 2026, up modestly to ~$700M-$720M for the year, with costs lumpy but manageable.

• Question from Ian Zaffino (Oppenheimer & Co. Inc.): Color on T&M and expectations for next few quarters by subcategory.
  Response: Diversified Electronics (50% of T&M) shows 10% sequential improvement with good distributor signals; Communications (up 29%) benefits from new high-end products; Semiconductor segment lapping a large project but underlying demand is improving.

• Question from Piyush Avasthy (Citigroup Inc.): Elaborate on margin decline in Sensors & Safety in Q4 and margin expectations for 2026.
  Response: Margin decline due to record revenue in Defense & Space (lower margin profile); 2026 framework for Sensors & Safety Systems is mid- to high-20s adjusted EBITDA margin.

Contradiction Point 1

Test & Measurement Business Outlook and Recovery Timeline

It directly impacts expectations regarding the stabilization and growth trajectory of a significant business segment, affecting investor confidence and strategic planning.

Can you clarify the Sensor and Safety segment's Q4 margin performance and how the 2026 margin aligns with the 18% to 20% target? - Piyush Avasthy (Citigroup Inc.)

2025Q4: In Q4, it was down 6% year-over-year... The outlook will depend on when spending resumes. - Tamara Newcombe(CEO)

Is the Test & Measurement business's revenue expected to stabilize by the back half of 2026? - Amit Daryanani (Evercore ISI)

2025Q3: The business is largely stabilized, with sequential improvement each quarter. Sales funnels are healthy. - Tamara Newcombe(CEO)

Contradiction Point 2

Corporate Cost Run Rate and Guidance

It involves changes in the provision and nature of corporate cost guidance, which is essential for understanding the company's financial framework and operational efficiency.

Explain the level and nature of corporate costs in the guidance and fiscal outlook? - Unknown Analyst (Chris, TD Cowen)

2025Q4: The company provides a quarterly OpEx run rate of approximately $175 million... The framework for margins in 2026 considers the mix between the two segments... - Neill Reynolds(CFO)

What is the recent demand cadence and any notable changes? What differences exist between the two segments in the low single-digit sequential sales increase guided for Q4? - Julian Mitchell (Barclays Bank PLC)

2025Q3: The sequential volume improvement from Q2 to Q3 (5%) and into Q4 is the primary driver, with some pricing impact from tariffs already baked in. Q4 will also see a typical seasonal step-up. - Neill Reynolds(CFO)