Q3 2025 Teledyne Technologies Inc Earnings Call
Per year.
In particular sales of high bandwidth similar scopes used by customers developing we're testing high speed networking devices increased nicely, but were partially offset by sales to customers in the automotive and consumer electronics markets.
Instrumentation operating margin in the third quarter decreased slightly on a tough comparison. However, we continue to expect a slight increase for full year 2025.
In the aerospace and defense Electronics segment.
Third quarter sales increased 37, 6%.
Primarily driven by acquisitions and organic growth in defense electronics products.
Commercial aerospace aftermarket sales increased and OEM orders for 2026 deliveries were strong in the quarter, but the OEM related shipments declined from last year, given some continuing customer destocking.
Overall segment operating profit increased year over year for GAAP and non-GAAP segment margin decreased slightly year over year due to comparatively lower current margins at recently acquired businesses.
Nevertheless, overall margin increased sequentially for the second consecutive quarter since closing the acquisition.
For the engineered systems segment third quarter revenue decreased eight 1%, given an especially tough comparison with last year.
However, despite the lower revenue and also a tough comparison operating margin increased 30 basis points from last year.
I'll now pass the call back to Robert.
Thank you George.
Let me just.
<unk> by saying.
They're always going to be near term challenges too.
Overcome and we have a strong history of doing that.
We havent portfolio.
That varies.
From market to market.
And no one market in our portfolio <unk> lines at the same time no one market goes up.
I'll ask months, Nevertheless, our strong portfolio always for taxes from market.
Turning to guidance.
The government shutdown.
Now of course is a problem for everybody.
And there is some market volatility that we are dealing with.
But.
We are resilient we.
Round position and we have a number of very strong growing markets with tangible creative product solutions as George mentioned.
For example.
In our unmanned air and subsea system.
As well as our space based electronics, <unk> imaging sensors, where both the U S government and our NATO allies.
Sorry strongly position.
The ongoing need for new energy sources, and new or renewed power generation are positively impacting our instrumentation businesses.
And the development any spec suite of advanced semiconductors utilize our electronic test and measurement instrumentation.
And our digital imaging solution.
Finally.
Regarding M&A activities.
While we have a very strong balance sheet.
And we have as I've mentioned before we have about a $1 billion in free cash flow.
We're going to be aggressive, but we are also going to be prudent not to overpay for things that are trading much higher than our own multiple let.
Let me just conclude.
We had one remark.
First I wanted to congratulate George Bob.
<unk> guided to our board last night.
But I also want to note that our plan to be the executive chairman of the company for at least another three years.
With that I will now turn the call over to Steve.
You Robert and good morning, I'll first discuss some additional financials for the quarter not covered by Robert and then I will discuss our fourth quarter and full year 2025 outlook.
In the third quarter cash flow from operating activities was $343 1 million.
Compared with $249 $8 million in 2024.
Free cash flow that is cash flow from operating activities less capital expenditures was $313 9 million in the third quarter of 2025, a record for teledyne compared with $228 7 million in 2024.
Cash flow increased year over year in the third quarter, primarily due to favorable accounts receivable collections in the third quarter of 2025 compared with 2024.
Capital expenditures were $29 2 million in the third quarter of 2025 compared with $21 one.
$1 million in 2024.
Depreciation and amortization expense was $84 5 million in the third quarter of 2025% compared with $76 9 million in 2024.
We ended the quarter with $2.0 billion of net debt that is approximately $253 billion of debt less cash of $528 6 million.
Now turning to our outlook management currently believes that GAAP earnings per share in the fourth quarter of 2025.
We'll be in the range of $4 76.
The $4 98 per share with non-GAAP earnings per share in the range of $5 73.
To $5 88.
And for the full year of 2025, we believe that GAAP earnings per share will be in the range of $17 83.
The $18 in <unk>.
And non-GAAP earnings per share in the range of $21 45.
The $21 60.
I'll now pass the call Dr. Robert.
Thank you Sue we'd like now to take your questions operator, if you're ready to proceed with the question and answers. Please go ahead.
Thank you.
At this time, if you'd like to ask a question. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
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Thank you and our first question is from the line of Andrew Buscaglia with BNP Powerbar. Please proceed with your questions.
Hey, good morning, everyone.
Good morning, Andrew.
So yes.
Last quarter, there was some uncertainty around some of the strong growth you saw and whether that was pull forward or not and it seems.
Can you maybe run through the several segments where.
And talk about how that shook out in some areas. It seems like it didn't in some areas it didn't seem like growth.
Resumed that's wrong, but in your mind, how did how did things progress.
Well.
I think overall.
With acquisitions, we have the six 7% growth.
Across our portfolio.
What are what we're looking at is various.
Businesses.
Did differently as you mentioned for example, our marine businesses continued to grow very strongly.
And we are winning contracts.
In the defense domain, which is our underwater vehicles as an example.
As well as.
In.
Energy development.
In some of our instruments there is a variation between various instruments businesses.
In.
Hello.
<unk> claimed businesses for safety, we are doing very well, while we see a little softness for example in.
Our water and.
Products that we that are used in.
Drug.
Development.
Overall I'd say, we also have some pull ins into Q2, maybe a little more.
Test and measurement and are there areas, but going back to some of the other things demo mentioned before player.
<unk> growth was 3% organic.
We also had.
Stronger growth in some of our commercial flavor businesses.
And our unmanned systems.
We charge them a boat.
Air ground and.
Systems grew 10%. So there is variation in our portfolio now growing back Andrew who I'd say before we have a fairly diverse portfolio. Some things go up some things go down but the overall.
The truck is moving forward and it's moving forward. So many based on what I see.
Yes, okay.
And what about.
Specifically in digital imaging you made the comment.
Industrial automation or imaging equipment for that market, presumably thats machine vision, starting to pick up so maybe is that one area that.
Grew last quarter nicely, but.
Schemes like sustained growth from here.
Well I'll answer part of it that may be George who would want to add something to that I think overall, the industrial and scientific vision systems grew about three 4%.
<unk> to us is very attractive.
Overall, <unk>, which is defense stuff.
Digital imaging other than Slayer was relatively flat.
Quarter over quarter, and we expect year over year.
George has.
<unk> taken some very strong action to take cost out of the part of that business that is that has slowed down over the last two years and as a consequence.
He and I believe that while we would happen is that the margins now we've started improving going forward and that business will pick up because.
We skinny down.
To where it should be much more healthy George you want to add anything I think the only thing I would add is in the industrial side, we saw sales increases year over year, both the machine vision cameras business, where we're doing applications like semiconductor masking wafer inspection inspection of electronic components and we also saw an increase year over year in our machine vision sensors business, where we can.
Sensors for other Oems.
Great got it thank you guys.
The next question is from the line of Greg Konrad with Jefferies. Please proceed with your questions.
Good morning.
Good morning Andre.
Maybe just.
Putting a finer point on digital imaging margins I mean, you called out some of the headwinds in the quarter between R&D and <unk> and the restructuring, but I think in the past you talked about a 24% target. How do you think about the margin recovery into Q4, and maybe into next year for digital imaging.
I think the margins.
Between 23 and 24.
Sure.
At least in Q4.
Are obtainable achievable I think what will happen is that for the year. When you add the first three quarters and then Q4 for the year, we should be flat with last year, even though we took a significant amount of cost out.
In the first three quarters, including Q3.
We just concluded so all of that said if we can maintain the same margins as last year with all the cost out and going ahead I think <unk>.
Achievable.
And then maybe just to put a finer point on the revenue. So you raised the full year outlook by 5% to six six is that all organic and then it looks like maybe there is $20 million step up sequentially. In Q4 can you maybe talk about.
Seasonality into the final quarter of the year, and maybe which segments you expect to see a step up versus maybe where there is a step down tied to just typical seasonality.
Well first let me start with digital imaging.
$10 million of the 30.
30 comes from flare.
We expect.
Higher revenue in that area.
10 million of it comes from.
Aerospace <unk> defense organic.
And then another 10 comes from our acquisition from <unk> key optics.
So.
Is that $30 million increase.
A big number but there is also a little conservatism building to that of course.
Okay.
Thank you.
Thank you Greg.
Our next question is from the line of Jim Ricchiuti with Needham <unk> Company. Please proceed with your question.
Thank you good morning.
George I think you gave a book to Bill number and I wasn't sure if that was a book to bill in the digital imaging business, but maybe if you could.
Are you able to get can you give us provide book to bill.
For the various the three major segments.
Sure happy to do that yes, the book to Bill ratio I gave you was for digital imaging 112.
In the instrumentation segment. So we had a book to Bill overall of <unk> nine.
A little higher in TNF for example, <unk> 98.
Our mental closer to <unk> 95, marine closer to <unk> eight of a point to eight but keep in mind that as a longer cycle business little lumpiness in orders. There we have a lot of backlog in the energy business. So not concerned about that short term lower book to bill ratio.
And then in aerospace and defense electronics again longer cycle business Lumpiness in some larger orders book to Bill ratio was <unk> 84.
And engineered systems was over two times in the quarter, but again, that's a long cycle business and so we tend to look at the longer term view theyre not not one quarter at a time.
Okay got it.
Yes, and the overall book to Bill ratio of 1.09.
Perfect. Thank you Andrew.
Alluded to.
Yeah.
Our earnings announcements.
Potential for significant contract opportunities and I'm just wondering if you can give us some color on which areas of the defense business.
There are some potential large contracts.
Yes, any any idea about the timeline just given the government shutdown.
Yeah, I wouldn't want to opine too much on the timeline of the government shutdown, what I would say is.
It's not about the shutdown just sorry, just as it relates to the timeline for these contracts sorry.
Sure No problem I would say, we have some near term opportunities, particularly in the unmanned space I mentioned a couple of them.
In the opening for Loitering Munition program, both with the U S. Marine Corps lets see organic precision fire light program.
We're looking for a full rate production order there again, but we think that would be.
Relatively near term hopefully in Q4, depending on the timing of those the government operations and that would be in the range of tens of millions of dollars. The last program that I mentioned the U S Army program.
That initial order again, hopefully near term that would be initially more kind of millions of dollars and grow from there and overall, what I would say is unmanned systems things like Black Hornet drone, our sales into counter UAS systems.
<unk> of ourselves.
And where we're selling to other Oems integrated surveillance solutions for both border protection and defense et cetera. So I think those are the strongest areas also we continue to see a lot of strength in our submarine business, Robert Ryan Interconnects on the Virginia, and Columbia class submarines.
Got it thank you.
Our next question comes from the line of Jordan <unk> with Bank of America. Please proceed with your question.
Good morning, Thanks for taking the question.
On the 737 rate increase step up how are you.
Are you guys thinking about that into <unk> and next year.
Given the comments on some destocking.
Yes. This is George so what I would say there is what do we expect that to stocking are really to continue through most of next year.
So we won't see much of a benefit from the OEM Boeing 787, Max rate increase.
Next year, although the demand there continues to be strong and we received a large order for 737, Max 2026 delivery. So backlogs there just from a year over year comparison standpoint, we wont see much benefit from that slight increase in 2026 show the production rate.
Got it and then on defense.
Do you guys have any concerns about critical minerals availability.
Specifically for the sensor products for flare.
We have a little less exposure there on the other hand.
We've been very diligent to cover that exposure.
Overall, I don't think thats going to affect us in the short term.
Thank you guys so much.
Thank you.
The next question is from the line of Damian Karas with UBS. Please proceed with your question.
Yeah.
Hey, good morning, everyone.
Good morning, Daniel you had mentioned.
Yeah, I was hoping to dig into the weeds, a little bit more on your comments about cameras and sensors being up year over year could you just perhaps elaborate on that what do you think is driving the improvement.
And have you been seeing those trends continue.
Continue into the fourth quarter.
Yeah.
I can tell you first of all.
<unk> sorry.
A little easier with respect to last year.
D R.
Our cameras.
Our up about.
The 11% and our sensors are up about 5% some of our scientific cameras that are very specific applications are down a little bit about so all in all and that's probably because the export.
All in all when you add it all up went up about three 4%.
I think what front as Thompson as I've mentioned before.
Taking the cost out of the it's also each of the businesses aggressively this year.
That business has stabilized its going to grow.
And the margins are going to improve as time goes on.
So we are positive about that.
When you look at the total imaging businesses initially right. After we acquired clear everybody was worried about FLIR flavor player well, we solve that problem players doing great.
Defense is just hitting every milestone we expect and now <unk> has stabilized. So we're very positive about our digital imaging segment altogether.
That's really helpful.
And Robert I, just was wondering if you could maybe.
Give us your perspective on the macro outlook.
Are there any changes.
Here your view.
Since since your last update and I know, it's early to be giving.
Guidance for 2020.
Just seeing where our trends are.
Yes.
And if you were to ballpark today, where do you suspect.
Growth could line up in 2020.
The current conditions kind of.
Remain.
Yes, let me, let me just kind of answered first broadly.
We.
We're very positive about our defense businesses with all the geopolitical problems you see.
If you can for example look at Europe.
They are going to increase their defense spending.
We teledyne.
<unk> 5100 employees in Europe distributed among many countries.
We make drones in Sweden.
We make other products.
We make start with Norway.
We have people that go in and out of.
Ukraine.
Dave.
Denmark.
Those guys are under a lot of pressures when we talk to our folks.
They have to increase their defense spending so macro level, if I look at that.
With all of our people data and all of the knee.
In country production I see very positive trends for us in Europe.
Today, we probably produce something close to half a billion in.
<unk> revenue in European Defense, and I expect that to increase.
As we go forward.
Coming back to the just the bigger picture defense George talked about.
Loitering munitions.
As you will know what they mean by loitering munitions, you got something that's flying around.
And Ken essentially attack at target.
Totally.
Most of our competition has.
Fixed wing aircraft.
We have.
Rotating wing aircrafts are required.
Aircrafts.
Interestingly now that also Kemp 50 unit to them be find out of it to have any can go vertical takeoff and landing.
We are very positive about that so the reason I'm talking about this stuff is because defense is going to be a pretty active area.
Both in Europe and of course in the priorities and then I have to say our small drawn so I would call our nano drones.
Bye.
At the end of next year, we would a strong half a billion dollars of these nano drones that you can hold in your hand.
Probably have the strongest position day.
So between all of the above.
I think we're going to do fine in the defense and the commercial domain.
We see.
Our machine vision.
Recovery as I said earlier with a reduced cost structure, we see our test and measurement recovery.
And we do have long term opportunities in power generation. So all in all.
26 should be a good year for us.
Barring any unforeseen.
Pass through fees across the world, which I don't expect.
And we're just doing our plans for our 26 and we're very positively inclined.
That's really helpful. Appreciate all the color good luck.
Thank you.
Our next question is from the line of Cristina <unk> with Morgan Stanley. Please proceed with your question.
Hey, good morning, everyone and Robert that was really helpful color on what you provided with European Defense and I just wanted to clarify a few things when you said half a billion dollars is that encompassing all of your defense exposure to Europe or is that specifically only on the drone exposure that you were discussing.
And then also you know more broadly speaking I guess my question is really trying to understand more your go to market for these things.
When you're looking at the drone and counter John market. How are you thinking about being a prime and in selling your nano drones versus your core competencies historically on sensors and those kinds of things and how do you look at the opportunity set for for those kind of a different go to market.
Okay, Christy let me start from the beginning that half a billion dollars.
So two things first our total military sales this year in Europe.
Also a half a billion dollars applies if you add everything that we saw all of the nano draws that we've sold I would be selling through next year. That's another half a billion dollars so theyre kind of.
Only 60 or 78 down the first half a billion eastern nano drones.
So, let's put that to one side.
What.
What we're doing is we bought prime located prime in defense as well as our subprime.
For example in loitering munitions.
I'm in nano drones with prime and some of our commentary.
UAS systems, we are partners.
And so it's a mixture, but we also have strong presence in all of these countries, which is very important because everybody both in Europe and the middle East is driving towards in country production of their defense.
Product and we have presence everywhere so that works for us It works for us in Europe, our first auto.
15600, 700 folks in our company 51, hundreds are located in Europe. So that's how we go to market.
Where necessary.
We established a new enter new entities to be able to operate from.
Super helpful. Thank you very much.
Chris.
Next question is from the line of Guy Hardwick with Barclays. Please proceed with your question.
Hi, good morning.
Good morning.
I'm just a little.
Ask a little bit more about the digital imaging margins. So I think based on your comments that the reason for perhaps just to weigh in with your margin expectations.
Expectations being R&D and also the severance costs.
Obviously, you get the benefit of severance costs next.
Next year is R&D.
Step up effectively funded by <unk>.
The production cost space and kind of a.
Looking further forward for 2026 as a follow up to Jamie's question about the top line, what kind of should we be aware of in terms of margin mix.
Imaging in 2026.
Medical industrial what kind of margin dynamics could we potentially expect.
Let me, let me take a piece of that and then Steve George wants to add to it.
First.
R&D.
They're very very specific areas.
That we've decided to invest for example.
In our.
Test and measurement systems.
We've decided to invest especially in protocol analyzers in the marriage of our Silao scopes on protocols as well as our very high end <unk> growth.
We intentionally decided to do that.
Switching over to digital imaging is an area of digital imaging that we think we can be extremely successful and thats in our sensor businesses.
We've decided to invest a little more in our sensor businesses and frankly, that's worked for us because some of our sensors, whether they are job for sure.
Visual systems or for our infrared systems are doing very well our infrared sensors. We are also investing in because we are the supplier of.
Infrared sensors to almost everybody that flies it drawn in the United States or producers are doing.
So.
The investments in R&D is very specific for a specific guidance.
Cut across all of our products.
On the <unk>.
Margin improvement for next year.
I'll, let George talk a little more about that.
I'd say its first.
Mentioned before obviously, we're taking the cost out we're seeing a recovery in the short cycle business. So it's early really to talk about really what the.
What the mix is going to look like next year, what 'twenty 'twenty six numbers are simply going to look like but in general.
As a machine vision margin goes back as positive as we continue to grow and defense, that's a little perhaps negative in certain areas on the overall margin. So overall I'd say mix is probably neutral headed into next year, but we certainly should benefit from the cost reductions that we took this year.
Thank you.
Our next question is from the line of Jonathan <unk> with Stifel. Please proceed with your question.
Good morning, Thank you for taking my question.
So you commented already on unmanned demand signals globally are very strong, but there also seems to be substantial aspirations by customers of getting these capabilities at much lower cost.
So you have great market positions and sensors and cameras and you've already highlighted the prime opportunities that you have but could you comment on how attractive is the potential to supply. Some of these components on drones at much lower prices, but substantially higher volume.
And maybe comment on if there are opportunities to invest more capital in this area. Thank you.
Alright. Thank you very much that's it that's a really good question.
That I would I would say much lower.
And that's in due course, I think people are willing right now to pay for accuracy.
And.
Four our ability to defeat.
Defeat.
These are the targets.
No.
We we are actually adding a lot of ways a lot of our draws are low cost compared to others.
And also because there is a highly capable.
So for example, George.
George mentioned and I mentioned our job.
Well, we called the roadblock.
Which is.
Quadcopter.
<unk>.
It's the lightest weight of the competition it only weighs about.
10 pounds.
And as you can imagine as we decrease the size the cost goes down so we're very cost competitive there.
The nano drones, which I mentioned earlier again those are produced in volume.
Very cost competitive.
What I think will happen is people may go to the low end of the.
<unk>.
Cost structure, but they'll have to give up some capabilities.
And so you may indicating an armored vehicles you may have two out of a massive one.
<unk> had in Europe strong, whereas in our case, we can do the same thing much more accurately.
Smaller vehicles with a smaller warhead so.
I don't know, if <unk> give and take the whole experiencing.
Ukraine, which we've had.
Has taught us that there is no one solution.
For what's happening.
They obviously are doing very well on the other hand.
They don't have to have that many capable staff.
Through just fly over the horizon, and then hit somebody so.
Cost is important but I think accuracy and weights are going to be just as important.
Sure for interesting thank you.
The next question is from the line of Joe Giordano with TD Cowen. Please proceed with your questions.
Hey, guys. Thanks for taking my questions.
Can you hear me.
Yes, sure Joe Yes, Okay great.
Yeah, so for unmanned.
We've been talking about $450 million across all on NAND.
Feels like kind of for a while it feels like a little bit of a dated number.
Maybe I will.
Can we frame out that over the next couple of years and when we've talked about potential opportunities here, but if you want to look.
Three four years out like.
Looking at $4 50, if things break correctly for you really become a material and that's really good.
Yes, I think we ran around 500 now versus 450 that we talked about before.
We are investing in that area.
And.
We are gaining market share not just on draws that we've talked a lot about.
But also under water.
As you May know.
We're proudly unique as a company, where we have products for.
Air unmanned.
<unk> unmanned underwater unmanned and I'll, let George talk a little bit about them their water domain, because that's our growth domains right now.
And we're very excited about that so the 500, we'd grow.
For sure.
Fast.
All knowing about a month or two when we do our plan for next couple of years, but girl it's will.
Yeah, I would add on the subsea unmanned side, we have both our subsea <unk>, which are kind of long duration long endurance can stay on station for a long time.
Useful as you can imagine in areas like anti submarine warfare in other areas. We also have propelled.
Particularly out of our Iceland business totaling gavea those vehicles shorter in time and duration, but bigger and carrying more payloads again for things like mine countermeasures anti submarine warfare. So yes, I think we see growth both in the unmanned aerial side the ground side, but also we're seeing significant demand.
With regard to the subsea vehicles vehicles given needs in the Black Sea Baltic Sea in Asia Pacific.
That makes sense.
A follow up.
If youre thinking about your full year.
EPS growth year on year, how much would you attribute that to M&A and how much would you say is organic this year.
For this year.
Yes.
This year.
I would say probably most of it is organic.
We have a little bit from M&A.
Because of our acquisition that we made I'm going to say, maybe 20% 25 cents from acquisitions.
Primarily because as George mentioned earlier and I have before when we make acquisitions.
Initially.
It drives our margins down.
Reality because.
They don't have the margins that we enjoyed but as you look at our products. If you look at across all of our acquisitions.
After a few years the margins improved significantly.
So they kind of become the standards that we have for job.
Instruments defense all good ways.
The margins do you see a contribution from acquisitions was relatively light, but they'll improve next year.
Yes, I had similar numbers to thanks guys.
Sure.
Thank you at this time, we've reached the end of our question and answer session now I'll hand, the floor back to management for closing comments.
Thank you operator, I'll not ask Jason to conclude our conference call.
Thanks, Robert and again, thanks, everyone for joining us this morning and of course, if you have questions. Please feel free to call me and my number is on the earnings release and all earnings releases and the replay of this call by webcast is available on our website.
If you could please give the replay information that would be ideal and again, thanks, everyone Goodbye.
Thank you.
This concludes today's conference you may disconnect. Your lines at this time, we thank you for your participation and have a wonderful day.