Espey Mfg. & Electronics Corp. — Fiscal 2026 Form 10-K Summary
Business Context and Reporting Period
Espey designs and manufactures power electronics, transformers, magnetic components, power supplies, converters, filters, power distribution equipment, UPS systems and antennas for military, government and rugged industrial applications. Operations are conducted from the company-owned 174,000-plus-square-foot facility in Saratoga Springs, New York. The filing covers the fiscal year ended June 30, 2026, with fiscal 2025 presented for comparison.
Espey is a smaller reporting company whose common stock trades on NYSE American under the symbol ESP. The company operates as one reportable segment and had 144 employees as of August 31, 2026.
Key Financial Metrics
| Metric | Fiscal 2026 | Fiscal 2025 | Change |
|---|---|---|---|
| Net sales | $46.1 million | $44.0 million | Up 4.95% |
| Gross profit | $16.3 million | $12.7 million | Up 28.4% |
| Gross margin | 35.3% | 28.9% | Up 6.4 percentage points |
| Operating income | $11.6 million | $8.1 million | Up 42.7% |
| Other income | $1.7 million | $1.6 million | Up $0.1 million |
| Net income | $11.2 million | $8.1 million | Up 37.3% |
| Basic diluted EPS | $4.04 | $3.14 | Up $0.90 |
| Diluted EPS | $3.89 | $3.02 | Up $0.87 |
| Operating cash flow | $5.7 million | $21.0 million | Down $15.3 million |
| Cash and cash equivalents | $19.4 million | $18.9 million | Up $0.6 million |
| Investment securities | $26.0 million | $24.7 million | Up $1.3 million |
| Working capital | $54.7 million | $45.7 million | Up $9.0 million |
| Total debt | None reported | None reported | No borrowings in either year |
Gross margin benefited from higher sales volume, favorable product mix, milestone sales with above-average margins and the use of lower-cost labor groups than budgeted. Net income also benefited from increased interest income, partly offset by higher selling, general and administrative expenses and income taxes.
Manufacturing revenue increased to $37.6 million from $35.3 million, while engineering revenue decreased slightly to $8.5 million from $8.6 million. Export shipments increased to $4.5 million from $3.1 million.
Liquidity, Capital Expenditures and Capital Allocation
- Cash provided by operations was $5.7 million, compared with $21.0 million in fiscal 2025. The decline primarily reflected increased inventories, receivables, prepaid expenses and supplier advances, partly offset by higher contract liabilities and accounts payable.
- Inventories increased to $26.0 million from $17.8 million, including $22.8 million of costs related to contracts in process.
- Contract liabilities increased to $31.0 million from $22.9 million, primarily due to advance collections on specific contracts.
- Capital expenditures were $3.1 million, with $2.0 million reimbursed under a $3.4 million Navy-related funding award. Fiscal 2027 capital expenditures are expected to be approximately $0.5 million and not reimbursable under a funding award.
- The company has an unused $3.0 million line of credit expiring March 31, 2027, but does not anticipate needing borrowings. The line bears interest at SOFR Daily Floating Rate plus 2 percentage points and is secured by accounts receivable.
- Espey paid regular dividends of $1.00 per share and a special dividend of $0.75 per share in fiscal 2026, compared with a $1.00 regular dividend in fiscal 2025. Future dividends are not assured.
Material Changes Versus the Prior Comparable Period
- Revenue rose 4.95%, driven primarily by magnetics programs and field service work; power supply revenue declined due to contract completions and customer delivery schedules.
- Gross margin expanded substantially from 28.9% to 35.3%, producing a $3.6 million increase in gross profit.
- Net income increased by $3.0 million, while diluted EPS increased from $3.02 to $3.89.
- Operating cash flow declined sharply despite higher earnings, primarily because of working-capital investment in inventory, supplier advances and receivables.
- Total backlog declined to $134.9 million from $139.7 million. Funded backlog was $123.7 million and unfunded backlog was $11.2 million, compared with approximately $33 million of unfunded backlog in fiscal 2025.
- Approximately $48 million of June 30, 2026 backlog is expected to be filled in fiscal 2027. Backlog recognition is currently estimated at 36% in fiscal 2027, 35% in fiscal 2028, 12% in fiscal 2029 and 17% thereafter.
- Five customers represented 67% of fiscal 2026 sales, compared with six customers representing 74% in fiscal 2025. Three customers represented 60% of trade receivables at June 30, 2026.
Guidance, Outlook, Risks and Unusual Items
Management expects fiscal 2027 revenue to exceed fiscal 2026 revenue and expects new orders to meet or exceed the approximately $41.4 million received in fiscal 2026. Management identified approximately $173 million of potential repeat and new-program opportunities as of September 5, 2026, but stated that awards are not assured.
The fiscal 2027 sales mix is expected to include new products requiring greater engineering investment. These upfront costs could temporarily compress gross profit, although management expects manufacturing scale and efficiency initiatives to provide offsets. Inflationary costs are expected to continue but are not expected to have a significant impact on fiscal 2027 operating income.
- Component shortages, extended lead times approaching one year or more, part obsolescence and labor shortages could delay shipments and reduce profitability.
- Fixed-price contracts expose the company to cost overruns from technical delays, schedule changes, raw-material prices and supplier performance.
- Government contracts depend on appropriations and may be modified, terminated for convenience or terminated for default. Government audits could result in cost or fee adjustments, sanctions or other contract consequences.
- Tariffs and foreign-trade policies could increase material costs and lead times, although no significant current impact was reported.
- Customer and program concentration creates exposure to the loss, delay or reduction of a major customer or defense program.
- Cybersecurity incidents could materially affect operations, reputation, financial results or contract eligibility, despite current mitigation efforts. Prior attacks had no material financial impact.
- As of June 30, 2026, the company had $25.9 million of open material purchase commitments under current contracts.
- No litigation matters were pending, no standby-letter-of-credit liabilities were outstanding and management believes ordinary-course claims will not have a material adverse effect.
- The company recorded $2.0 million of Navy grant reimbursements in fiscal 2026 and had $1.9 million of related net property, plant and equipment on the balance sheet.
WithumSmith+Brown, PC issued an unqualified opinion on the fiscal 2026 financial statements. Management concluded that disclosure controls and internal control over financial reporting were effective; because Espey is a smaller reporting company, the independent auditor did not provide an attestation report on internal control effectiveness.
Important Facts for Investors to Verify
- Verify conversion of the $134.9 million backlog into fiscal 2027 and later revenue, including the funding status and cancellation provisions of major contracts.
- Monitor whether the sharp gross-margin improvement is sustainable as the product mix shifts toward new engineering-intensive programs.
- Assess the effect of elevated inventory, supplier advances and contract liabilities on future operating cash flow.
- Review exposure to the five largest customers, defense appropriations, government termination rights and contract-audit risks.
- Track component availability, tariffs, labor recruitment and technical execution, all of which could affect delivery timing and fixed-price contract profitability.
- Confirm the timing and conditions for the remaining Navy grant reimbursement and the associated required company investment.
- Evaluate dividend sustainability, particularly after the fiscal 2026 special dividend and in light of working-capital requirements.