Q1 2026 Teledyne Technologies Inc Earnings Call

April 22, 2026

Speaker #1: To capture crucial images. Sense, analyze, and distribute essential data. About the world around us. And transform information into knowledge. Across healthcare, space, and aerospace, maritime and defense, instrumentation, energy, security, and inspection.

Speaker #1: We enable the technology that moves. Welcome to Halloween . S first quarter earnings call . To introduce our first speaker , Mr. Jason VanWees .

Speaker #1: Jason , please go ahead

Speaker #2: Thank you . Hi . Good morning everyone . This is Jason VanWees chairman . I'd like to welcome everyone to Paladin's first quarter 2020 earnings release conference call .

Speaker #2: The release earnings earlier this morning before the market opened . Joining me today are televised executive Chairman Robert Mehrabian president and CEO of George Bobb , EVP and CFO Stephen Blackwood and EVP , General Counsel , Chief Compliance officer and Secretary After remarks by Robert George and Steve will answer your questions .

Speaker #2: Of course , before we get started . All forward looking statements made this morning are subject to various assumptions and caveats . As noted in the earnings release , under periodic SEC filings .

Speaker #2: And of course , actual results may differ materially In order to avoid potential selective disclosures , this call is simultaneously being webcast and a replay via Ireland will be available for approximately one month , here's Robert .

Speaker #3: Thank you . Jason , and good morning , everyone , and welcome to our conference call We started 2026 with record first quarter sales , earnings per share and operating margin .

Speaker #3: Specifically sales and non-GAAP earnings increased 7.6% . And 17.2% , respectively , in addition , despite a 30 basis point increase in R&D expense , non-GAAP operating margin increased 58 basis points year over year .

Speaker #3: And while we acquired the scientific in January and increased our capital expenditure significantly from last year , our leverage ratio declined to the lowest level in five years since before the acquisition of fear in 2001 .

Speaker #3: Excluding the impact of acquisitions , sales increased 5.3% , due in part to performance of our digital imaging segment . While organic growth was 6.9% .

Speaker #3: Sales of visible light sensors , infrared detectors , and specialty semiconductors for space applications each increased at double digit rates , as did fear infrared cameras for unmanned air vehicles , as well as our own complete unmanned aerial systems Also , within the digital imaging segment , our industrial imaging and X-ray businesses is returned to year over year growth , which helped contribute to the strong margin performance in the first quarter Given stronger sales in the first quarter , but also record orders and backlog with a big book to bill of 1.16 , which is our 10th consecutive quarter of bill of over one .

Speaker #3: We're comfortable in increasing . Both our expected sales and earnings for 2026 . We believe . Now sales will be in the range of 6.41 5 billion , or 70 basis points higher than we communicated in January We're also raising our earnings outlook at both the bottom and top of our prior range to about $24 at midpoint , or $0.35 overall increase .

Speaker #3: Because we are comments on the performance of our four business segments . George , thank you , Robert

Speaker #4: Digital imaging segment , first quarter sales increased 7.9% due to well-balanced growth throughout the segment , including imaging sensors , Dulce TV , and Teledyne Clear Robert mentioned sales of visible and infrared detectors for space based imaging , increased nicely Sales of infrared subsystems and cameras for our customers unmanned air systems and unmanned maritime service vehicles also increased .

Speaker #4: In addition , revenue from our own complete unmanned air systems increased due to continued growth of the highly differentiated black nano drone , as well as full rate production deliveries of a Rogue One loitering munition Interest in drone activity also remains elevated , and in the first quarter and early Q2 , we received orders for infrared cameras and subsystems totaling in the tens of millions of dollars for Counter-drone applications There were also bright spots outside of defense .

Speaker #4: For example , industrial machine vision cameras and sensors for semiconductor inspection and X-ray products for healthcare . Increased year over year , and sales of microelectromechanical systems , or MEMs , grew over 20% , primarily due to demand for micromirrors used for optical switching and high speed networking applications Finally , non-GAAP operating margin in the segment increased 107 basis points to 23.2% .

Speaker #4: Despite a 59 basis point increase in R&D expense within the segment, the Instrumentation segment, which consists of our Marine, Environmental, and Test and Measurement businesses, saw first quarter sales increase 5.3% versus last year.

Speaker #4: Overall , sales of marine instruments increased 8.3% , primarily due to strong defense related , including unmanned subsea vehicles , which increased more than 20% for applications such as anti-submarine warfare and mine countermeasures , as well as sales of interconnects for U.S.

Speaker #4: , Virginia and Columbia . Class submarines interconnect for offshore energy production . Also continued to grow However , these were partially offset by reduced sales of marine instruments for hydrographic and oceanographic research .

Speaker #4: Sales of environmental instruments increased 6.7%, primarily resulting from higher sales for gas safety and ambient air monitoring instrumentation, partially offset by lower sales of laboratory and life sciences instruments.

Operator: Welcome to Teledyne's Q1 Earnings Call. I'd now like to introduce our first speaker, Mr. Jason VanWees. Jason, please go ahead.

Jason VanWees: Thank you. Hi, good morning, everyone. This is Jason VanWees, Vice Chairman. I'd like to welcome everyone to Teledyne's Q1 2026 Earnings Release Conference Call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne's Executive Chairman, Robert Mehrabian, President and CEO, George Bob, EVP and CFO, Steve Blackwood, and Melanie Cibik, EVP, General Counsel, Chief Compliance Officer, and Secretary. After remarks by Robert, George, and Steve, we'll ask for your questions. Of course, before we get started, all forward-looking statements made this morning are subject to various assumptions, risks, and caveats as noted in the earnings release and our periodic SEC filings. Of course, actual results may differ materially. In order to avoid potential selective disclosures, this call is simultaneously being webcast and a replay via webcast and dial-in will be available for approximately one month. Here is Robert.

Jason VanWees: Thank you. Hi, good morning, everyone. This is Jason VanWees, Vice Chairman. I'd like to welcome everyone to Teledyne's Q1 2026 Earnings Release Conference Call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne's Executive Chairman, Robert Mehrabian, President and CEO, George Bobb, EVP and CFO, Steve Blackwood, and Melanie Cibik, EVP, General Counsel, Chief Compliance Officer, and Secretary. After remarks by Robert, George, and Steve, we'll ask for your questions. Of course, before we get started, all forward-looking statements made this morning are subject to various assumptions, risks, and caveats as noted in the earnings release and our periodic SEC filings. Of course, actual results may differ materially. In order to avoid potential selective disclosures, this call is simultaneously being webcast and a replay via webcast and dial-in will be available for approximately one month. Here is Robert.

Speaker #4: Sales of electronic measurement systems decreased 3.7% year over year , with greater sales of oscilloscopes , offset by lower sales of protocol analyzers However , continued to expect full year sales growth as semiconductor suppliers increase their shipments and data centers increasingly adopt devices utilizing the newest , fastest data transfer protocols .

Speaker #4: Instrumentation . non-GAAP operating margin in the first quarter decreased primarily due to product mix . That is , a decline in higher margin test and measurement first , growth in autonomous underwater vehicles and marine , which generally carry lower margins in the aerospace and defense electronics segment .

Speaker #4: First quarter sales increased 14.4% due to one additional month , results in optic acquisition with organic growth of 8.4% across defense , electronics , partially offset by slightly lower sales from commercial aerospace market due to a result of a tough comparison , non-GAAP segment margin increased nearly 200 basis points year over year due to higher sales and corresponding operating leverage .

Robert Mehrabian: Thank you, Jason, and good morning, everyone, and welcome to our conference call. We started 2026 with record Q1 sales, earnings per share, and operating margin. Specifically, sales and non-GAAP earnings increased 7.6% and 17.2% respectively. In addition, despite a 30 basis point increase in R&D expense, non-GAAP operating margin increased 58 basis points year over year. While we acquired Xidian G-ray in January and increased our capital expenditures significantly from last year, our leverage ratio declined to the lowest level in five years since before the acquisition of FLIR in 2001. Excluding the impact of acquisitions, sales increased 5.3%, due in part to the performance of our digital imaging segment, while organic growth was 6.9%.

Robert Mehrabian: Thank you, Jason, and good morning, everyone, and welcome to our conference call. We started 2026 with record Q1 sales, earnings per share, and operating margin. Specifically, sales and non-GAAP earnings increased 7.6% and 17.2% respectively. In addition, despite a 30 basis point increase in R&D expense, non-GAAP operating margin increased 58 basis points year-over-year. While we acquired DD-Scientific in January and increased our capital expenditures significantly from last year, our leverage ratio declined to the lowest level in five years since before the acquisition of FLIR in 2001. Excluding the impact of acquisitions, sales increased 5.3%, due in part to the performance of our digital imaging segment, while organic growth was 6.9%.

Speaker #4: Improved margin companies acquired in 2025 in this case , a relatively easy comparison for the engineered Systems segment . First quarter revenue decreased 2.6% .

Speaker #4: However , segment operating margin increased 113 basis points . I will now pass the call back to Robert

Speaker #3: Thank you . George Conclusion . We excited to begin 2026 with a strong first quarter . We continued orders and sales momentum in our backlog driven businesses , specifically defense , where Teledyne has meaningful exposure to low cost drone Counter-drone technologies .

Speaker #3: Space based sensing , electronic countermeasures , and maritime surveillance Furthermore , certain markets such as industrial inspection and health care , which have had headwinds in the past , are now inflecting Finally , we are leverage at a five year low .

Speaker #3: We're actively pursuing a number of acquisitions , but at the same time , we investing more in R&D and capital expenditures to accelerate our own organic growth .

Robert Mehrabian: Sales of visible light sensors, infrared detectors, and specialty semiconductors for space applications each increased at double-digit rates, as did FLIR infrared cameras for unmanned air vehicles, as well as our own complete unmanned aerial systems. Also, within the digital imaging segment, our industrial imaging and X-ray businesses each returned to year-over-year growth, which helped contribute to the strong margin performance in Q1. Given stronger sales in Q1, but also record orders and backlog with a big book-to-bill of 1.16, which is our 10th consecutive quarter of book-to-bill of over one, we're comfortable in increasing both our expected sales and earnings for 2026. We believe now sales will be in the range of $6.415 billion or 70 basis points higher than we communicated in January.

Speaker #3: I will now turn the call over to Steve .

Speaker #4: Thank you , Robert , and good morning . I will first discuss some additional financials for the quarter . Not covered by Robert .

Speaker #4: And then I will discuss our second quarter and full year 2026 outlook . In the first quarter , cash flow from operating activities was $234 million , compared with $242.6 million in 2025 .

Speaker #4: Free cash flow is cash flow from operating activities less capital expenditures, and was $204.3 million in the first quarter of 2026, compared with $224.6 million in 2025.

Speaker #4: Cash flow decreased due to higher inventory purchases, partially offset by greater operating results in the first quarter of 2026 compared to 2025.

Speaker #4: Capital expenditures were $29.7 million in the first quarter of 2026 , compared with $18 million in 2025 . Depreciation and amortization expense was $87.2 million in the first quarter of 2026 , compared with $80.7 million in 2025 .

Speaker #4: Now , turning to our outlook Management currently believes that GAAP earnings share in the second quarter of 2026 will be in the range of $4 $0.75 to $4.90 per share , with non-GAAP earnings per share in the range of $5.70 to $5.80 .

Robert Mehrabian: We're also raising our earnings outlook at both the bottom and top of our prior range to about $24 at midpoint or $0.35 overall an increase. George will now briefly comment on the performance of our four business segments. George?

Speaker #4: And for the full year 2026 , we believe GAAP earnings per share will be in the range of $20.08 to $20.44 , and non-GAAP earnings per share in the range of $20.85 to $24.15 .

George Bobb: Thank you, Robert. In the digital imaging segment, Q1 sales increased 7.9% due to well-balanced growth throughout the segment, including Teledyne Imaging Sensors, Teledyne e2v, and Teledyne FLIR. As Robert mentioned, sales of visible and infrared detectors for space-based imaging increased nicely. Sales of infrared subsystems and cameras for our customers' unmanned air systems and unmanned maritime surface vehicles also increased. In addition, revenue from our own complete unmanned air systems increased due to continued growth of the highly differentiated Black Hornet nano drone, as well as full rate production deliveries of our Rogue 1 loitering munition. Interest in counter-drone activity also remains elevated. In the Q1 and early Q2, we received orders for infrared cameras and subsystems totaling $ tens of millions for counter-drone applications. There were also bright spots outside of defense.

Speaker #4: I'll now pass the call back to our

Speaker #3: Thank you . Steve Operator . We would like to start the questions . If you're ready to proceed , please go ahead .

Speaker #1: Thank you sir Ladies and gentlemen , if you'd like to ask question , please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue You may press star two if you would like to remove your question from the queue .

Speaker #1: Participants . Speaker . Equipment and may be necessary to keep your handset before pressing the star keys And our first question comes of Greg Conrad with Jefferies .

Speaker #1: Please proceed

Speaker #5: Good morning .

Speaker #3: Good morning Greg

Speaker #5: Maybe just to start on the revised revenue guidance of 6.415 billion . Can you maybe just talk about organic versus inorganic . And then if you think about some of the de-risking or things that have gotten better since the guidance you gave last quarter , where are you seeing the most outperformance just from a segment basis .

George Bobb: For example, industrial machine vision cameras and sensors for semiconductor inspection and X-ray products for healthcare increased year-over-year. Sales of microelectromechanical systems, or MEMS, grew over 20%, primarily due to demand for micromirrors used for optical switching in high-speed networking applications. Finally, non-GAAP operating margin in the segment increased 107 basis points to 23.2%, despite a 59 basis point increase in R&D expense within the segment. In the Instrumentation segment, which consists of our marine, environmental, and test and measurement businesses, Q1 sales increased 5.3% versus last year. Overall sales of marine instruments increased 8.3%, primarily due to strong defense-related sales, including unmanned subsea vehicles, which increased more than 20% for applications such as anti-submarine warfare and mine countermeasures, as well as sales of interconnects for US Virginia and Columbia class submarines. Interconnects for offshore energy production also continued to grow.

Speaker #3: Of course , Greg , first . Fundamentally , we're seeing a 4.9% total growth for the year right now , which is about 70 basis points higher than we had in January , about 4% of that solid 4% is organic and about 0.9% is from acquisitions .

Speaker #3: One early in 2025 . And one small one early this year from a segment perspective , we think the highest growth . Will probably be in our digital imaging and aerospace and defense with aerospace and defense probably over 6% , and digital imaging overall , about 5% , led by really flair , which we expect will grow about 6.5% .

George Bobb: However, these were partially offset by reduced sales of marine instruments for hydrography and oceanographic research. Sales of environmental instruments increased 6.7%. This primarily resulted from higher sales for gas safety and ambient air monitoring instrumentation, partially offset by lower sales of laboratory and life sciences instruments. Sales of electronic test and measurement systems decreased 3.7% year-over-year, with greater sales of oscilloscopes offset by lower sales of protocol analyzers. However, we continue to expect full-year sales growth as semiconductor suppliers increase their shipments and data centers increasingly adopt devices utilizing the newest, fastest data transfer protocols. Instrumentation non-GAAP operating margin in Q1 decreased primarily due to product mix. That is, a decline in higher margin test and measurement versus growth in autonomous underwater vehicles and marine, which generally carry lower margins.

Speaker #3: I hope that answers your question

Speaker #5: Yeah , that's perfect . And you give a little bit of color in the opening , but just following up on defense , you know , how much was it up overall in the quarter ?

Speaker #5: And then you mentioned earlier , can you just maybe give a little bit more color on your defense growth ? And then , you know what kind of driving the outperformance in a and electronics just given that growth ?

Speaker #5: Think about that broader portfolio.

Speaker #3: Okay , let me start with clear defense . I think we're looking at about 9% growth in that area . Pretty much all of our products in the clear defense are growing specifically drones or nano drones and drones Surveillance systems .

Speaker #3: You name it . And of course , we do supply both and could visible and more importantly , infrared detectors not only to our own drone manufacturers , but also to everyone else across the world .

George Bobb: In the Aerospace and Defense Electronics segment, Q1 sales increased 14.4% due to one additional month of results from the Qioptiq acquisition, and with organic growth of 8.4% across defense electronics, partially offset by slightly lower sales from the commercial aerospace market due to a result of a tough comparison. Non-GAAP segment margin increased nearly 200 basis points year-over-year due to higher sales and corresponding operating leverage, improved margins the companies acquired in 2025, and in this case, a relatively easy comparison. For the Engineered Systems segment, Q1 revenue decreased 2.6%. However, segment operating margin increased 113 basis points. I will now pass the call back to Robert.

Speaker #3: That's making drones from , from , from an A and D perspective , the growth has been , again , in a variety of our components .

Speaker #3: As you know , we make everything from lasers to detectors , readout , semiconductors , switches , all of these are seeing various degrees of growth and it's a business is very healthy , but supplying our own products , but more importantly , supplying products from that are required as the various conflicts are increasing , both in Europe and the Middle East

Robert Mehrabian: Thank you, George. In conclusion, we're excited to begin 2026 with a strong Q1 with continued orders and sales momentum in our backlog-driven businesses, specifically defense, where Teledyne has meaningful exposure to low-cost drone, counter-drone technologies, space-based sensing, electronic countermeasures, and maritime surveillance. Furthermore, certain markets, such as industrial inspection and healthcare, which have had headwinds in the past, are now inflecting. Finally, with the leverage at a five-year low, we're actively pursuing a number of acquisitions, but at the same time, we're investing more in R&D and capital expenditures to accelerate our own organic growth. I will now turn the call over to Steve.

Speaker #5: Thank you . I'll leave that to you . Thanks .

Speaker #3: Thanks , Greg .

Speaker #1: The next question comes from the line of Amit Malhotra with UBS . Please proceed

Speaker #6: Hi , this is for today . Just two questions for me . Can you just help give some color around the order trends , the segments and then the second question for me is just around the full year guide .

Speaker #6: So the high level first quarter came in a little above . And then raising a little above that . So there's not too much incremental pickup expected , but it helps flush out , you know , the balance of the year .

Speaker #6: They're seeing . That'll be helpful . And should the typical earnings seasonality still hold for 2026 . Thank you

Speaker #3: Sure . Let me start with the overall , which I mentioned . The overall book to Bill right now is 1.16 . It is led by digital imaging and specifically both flair as well as dossier to be .

Stephen F. Blackwood: Thank you, Robert, and good morning. I will first discuss some additional financials for the quarter not covered by Robert, and then I will discuss our Q2 and full year 2026 outlook. In Q1, cash flow from operating activities was $234 million, compared with $242.6 million in 2025. Free cash flow, that is, cash flow from operating activities less capital expenditures, was $204.3 million in Q1 2026, compared with $224.6 million in 2025. Cash flow decreased due to higher inventory purchases, partially offset by greater operating results in Q1 2026 compared with 2025. Capital expenditures were $29.7 million in Q1 2026, compared with $18 million in 2025. Depreciation and amortization expense was $87.2 million in Q1 2026, compared with $80.7 million in 2025. Now turning to our outlook.

Steve Blackwood: Thank you, Robert, and good morning. I will first discuss some additional financials for the quarter not covered by Robert, and then I will discuss our Q2 and full year 2026 outlook. In Q1, cash flow from operating activities was $234 million, compared with $242.6 million in 2025. Free cash flow, that is, cash flow from operating activities less capital expenditures, was $204.3 million in Q1 2026, compared with $224.6 million in 2025. Cash flow decreased due to higher inventory purchases, partially offset by greater operating results in Q1 2026 compared with 2025. Capital expenditures were $29.7 million in Q1 2026, compared with $18 million in 2025. Depreciation and amortization expense was $87.2 million in Q1 2026, compared with $80.7 million in 2025. Now turning to our outlook.

Speaker #3: That's where we have probably the highest book to bill . Higher than . Certainly we talked about in January . Digital imaging right now is looking like about 1.38 in book to bill In instruments , a lot of short track stuff , but it's still holding above one , just like the over one .

Speaker #3: A D , which is a little lumpy because both R&D and engineering systems are because they we get big orders and there's period of quiescence .

Speaker #3: And then we pick up orders just below one right now , certainly AMD is , but I think what's happened to us is for whatever products that we're able to put out and increase production , there's very strong demand .

Speaker #3: And that's why we think across our portfolio , we're going to do very well . We would think that we have a little more sales in the second half versus the first half , and in January , we were saying the first half would be a little much , a little lower than we had .

Stephen F. Blackwood: Management currently believes that GAAP earnings per share in Q2 2026 will be in the range of $4.75 to $4.90 per share, with non-GAAP earnings per share in the range of $5.70 to $5.80. For the full year of 2026, we believe that GAAP earnings per share will be in the range of $20.08 to $20.44, and non-GAAP earnings per share in the range of $23.85 to $24.15. I'll now pass the call back to Robert.

Steve Blackwood: Management currently believes that GAAP earnings per share in Q2 2026 will be in the range of $4.75 to $4.90 per share, with non-GAAP earnings per share in the range of $5.70 to $5.80. For the full year of 2026, we believe that GAAP earnings per share will be in the range of $20.08 to $20.44, and non-GAAP earnings per share in the range of $23.85 to $24.15. I'll now pass the call back to Robert.

Speaker #3: So we're kind of guiding our second half , maybe at 51% versus first half at 49% . Whereas in January we were thinking first half would be more like 48% than the second half , 52% in terms of revenue .

Speaker #3: So we remain bullish , but also cautious not to overpromise promise what we deliver and stay within framework that we've operated for the last 25 years

Robert Mehrabian: Thank you, Steve. Operator, we would like to start the questions. If you're ready to proceed, please go ahead.

Speaker #6: Great . It's thank you

Speaker #1: The next question comes from the line of Andrew Buscaglia with BNP Paribas . Please proceed .

Speaker #7: Hey , good morning everyone

Speaker #3: Hey , Andrew

Speaker #7: Just wanted to touch on the Q2 guidance . Just that it's it reflects a point at the midpoint . It's declining sequentially , which is atypical historically , with seasonality , where are the biggest pain point ?

Operator: Our first question comes from the line of Greg Konrad with Jefferies. Please proceed.

Greg Konrad: Good morning.

Robert Mehrabian: Good morning, Greg.

Greg Konrad: Maybe just to start on the revised revenue guidance of $6.415 billion, can you maybe just talk about organic versus inorganic? If you think about some of the de-risking or things that have gotten better since the guidance you gave last quarter, where are you seeing the most outperformance, just from a segment basis?

Speaker #7: I think, I guess, is instrumentation like the test and measurement area a little weaker than expected in Q1? But wondering, what are the dynamics affecting that Q2 guide?

Speaker #3: Let me just put it the the big picture is the following . In Q1 , we had some good tax benefits year over year .

Robert Mehrabian: Of course, Greg. First, fundamentally, we're seeing about a 4.9% total growth for the year right now, which is about 70 basis points higher than we had in January. About 4% of that solid 4% is organic, and about 0.9% is from acquisitions. 1 early in 2025, and 1 small one early this year. From a segment perspective, we think the highest growth will probably be in our Digital Imaging and Aerospace & Defense, with Aerospace & Defense probably over 6%, and Digital Imaging overall about 5%, led by really FLIR, which we expect will grow about 6.5%. I hope that answers your question.

Speaker #3: Our tax benefits increased because of stock option exercises , increased about ten $0.11 year over year in Q2 , where we see it right now .

Speaker #3: We are not projecting similar tax benefits . Now . Our stock were to move up and our people start exercising more options that would change .

Speaker #3: But right now , we're not projecting that . So we're taking that part out , projecting more like $0.03 rather than having the increase that we have .

Speaker #3: So primarily , that's it . Just to cut through it . Everything else I'm comfortable with

Speaker #6: Okay .

Speaker #7: Maybe could you comment further on that instrumentation night earlier ? Just , you know , that was a week after the year . What do you think drove that ?

Speaker #7: How do you see that cadence of that niche over the next nine months ?

Speaker #3: I'm going to just make one comment and then I'm going to let Jorge answer that . There are different parts of instrumentation strong Marine performance for us , especially underwater vehicles .

Greg Konrad: Yeah, that's perfect. You gave a little bit of color in the opening, but just following up on defense, how much was it up overall in the quarter? Then you mentioned FLIR. Can you just maybe give a little bit more color on FLIR Defense growth? Then, what's kind of driving the outperformance in A&D electronics, just given that growth, thinking about that broader portfolio?

Speaker #3: You know , these are vehicles that are used across the world . Some of them for can't mine countermeasures . Very strong performance , but slightly lower margin than some of our high margin measurement .

Speaker #3: I'll let Jorge kind of a little bit . Jorge .

Robert Mehrabian: Okay. Let me start with FLIR Defense. I think we're looking at about 9% growth in that area. Pretty much all of our products in the FLIR Defense are growing, specifically drones, both nano drones and loitering drones, surveillance systems, you name it. Of course, we do supply both cooled, visible, and more importantly, infrared detectors, not only to our own drone manufacturers, but also to everyone else across the world that's making drones. From an A&D perspective, the growth has been, again, in a variety of our components. As you know, we make everything from lasers to detectors, readouts, semiconductors, switches. All of these are seeing various degrees of growth. The business is very healthy, both supplying our own products, but more importantly, supplying products that are required as the various conflicts are increasing, both in Europe and the Middle East.

Speaker #8: Yes , I think I will focus on just in measurement , which is where we had decline in Q1 . And there are parts of that business side of the business where we saw year over year growth and continuously good demand and high bandwidth applications , power applications , for example , people who are designing power supplies for data centers and from sales into the in-vehicle networks market .

Speaker #8: Protocol sales were down year over year , and that was really due to timing of PCI express , Gen six CPUs and GPUs .

Speaker #8: So we go through the protocol side of two phases. There's a silicon designer phase, where we sell to silicon designers, and then there's a phase of integration of chips when they come to the market.

Speaker #8: So what we expect this year is for those chips to come to market in the second half of the year , and we still expect full year growth in the low single digits in .

Speaker #8: So , as Robert said , strong performance in Marine , strong performance and environmental test and measurements . Karen Q1 but still expect full year growth in those things .

Speaker #3: That's great . George mentioned the various aspects . We still expect instrumentation to grow by 4% per year

Speaker #7: Okay , thank you guys

Speaker #1: Our next question comes from the line of Jim Ricchiuti with Needham & Company. Please proceed.

Speaker #9: I thank you. Good morning. I know it's probably early yet, but are you seeing signs of potential increases in your defense business?

Speaker #9: Just related to the conflict in Iran ?

Speaker #3: Yes Variety of them . First , we are being approached by the government . Actually , the government is making some investments . We haven't announced it yet , but they're making some investments in getting our capacities increased in certain specific areas , which I can't go into until the the releases are approved .

Greg Konrad: Thank you. I'll leave it at two. Thanks.

Robert Mehrabian: Thanks, Greg.

Operator: The next question comes from the line of Amit Malhotra with UBS. Please proceed.

Zach Waljas: Hi, this is Zach Waljas around for Amit today. Just two questions from me. Can you just help give some color around the order trends between the segments? Then the second question for me is just around the full year guide. At a high level, Q1 came in a little above, and then we're raising a little above that. There's not too much incremental pickup expected, but if you'd help flesh out the puts and takes for the balance of the year that you're seeing, that'll be helpful. Then should the typical earnings seasonality still hold for 2026? Thank you.

Zach Waljasper: Hi, this is Zach Waljas around for Amit today. Just two questions from me. Can you just help give some color around the order trends between the segments? Then the second question for me is just around the full year guide. At a high level, Q1 came in a little above, and then we're raising a little above that. There's not too much incremental pickup expected, but if you'd help flesh out the puts and takes for the balance of the year that you're seeing, that'll be helpful. Then should the typical earnings seasonality still hold for 2026? Thank you.

Speaker #3: Second , we're seeing obviously interesting man for anything that has to do with drones and drones . And we're also seeing some demand for underwater vehicles .

Speaker #3: There are a lot of inquiries right now . Some orders we expect orders to really start picking up in the next six months

Robert Mehrabian: Sure. Let me start with the overall, which I mentioned. The overall book-to-bill right now is 1.16. It is led by Digital Imaging, and specifically both FLIR as well as the DALSA and e2v. That's where we have probably the highest book-to-bill, higher than certainly we talked about in January. Digital Imaging right now is looking like about 1.38 in book-to-bill. In Instrumentation, a lot of short cycle stuff, but it's still holding above one, just slightly over one. A&D, which is a little lumpy because both A&D and Engineered Systems are lumpy because then we get big orders and there's a period of quiescence, and then we pick up orders. They're just below one right now, certainly A&D is.

Speaker #9: Okay . That's helpful . Robert . Thank you . And just on the Na pipeline , just given valuation levels , are you still thinking the focus this year is going to be mainly tuck ins or is there the potential for for something larger ?

Speaker #3: I think 1st May be some midsize acquisitions . Like we did early in 2025 . The larger ones , they come not that frequently .

Speaker #3: And we're looking at some obviously , but people are willing to pay some outrageous prices to get the revenue . And we'll have to see .

Speaker #3: But I would say the answer to your question specifically talking first , mid-sized , second , larger , we have to wait and see what what fits our portfolio .

Speaker #3: We don't want to go outside our portfolio too much in getting a very large acquisition . And then have to do a whole new segment , etc.

Speaker #3: That's not us. So, there we are.

Speaker #9: And and the instrumentation , digital imaging or are there still some potential opportunities in D

Robert Mehrabian: I think what's happened to us is, for whatever products that we're able to put out and increase production, there's very strong demand, and that's why we think across our portfolio, we're going to do very well. We would think that we'll have a little more sales in H2 versus H1. In January, we were saying H1 would be a little lower than we had. We're kind of guiding our H2 maybe at 51% versus H1 at 49%. Whereas in January, we were thinking H1 would be more like 48% and H2, 52% in terms of our revenue. We remain bullish. Also cautious not to overpromise, promise what we can deliver, and stay within the framework that we've operated for the last 25 years.

Speaker #3: I would think all of our segments , probably with the exception of engineered systems , where we're not looking at acquisitions because it's a , it's a business that's growing at a governments investing in that .

Speaker #3: So it being almost all of our segments depends on what we get .

Speaker #9: Okay . Thank you

Speaker #3: For sure .

Speaker #1: The next question comes from the line of Jordan Lyons with Bank of America . Proceed .

Speaker #10: Good morning . Thanks for taking the question on the growth that you guys called out for space . Can you give us a sense if that is related to Golden Dome and then two , just for the FY 27 budget request , the 70 billion that they want for drone funding under the program .

Speaker #10: How are you guys thinking about that? If something gets approved? And for that much funding to come through, can you support the volumes?

Speaker #10: Of your own system and as a supplier to everyone ?

Speaker #3: Yeah , let me start By saying that right now , as Steve mentioned . And so did Jorge with investing in our businesses , both from a CapEx , we've increased CapEx , but 35% over last year in the first quarter .

Zach Waljas: Great. It's super helpful. Thank you.

Zach Waljasper: Great. It's super helpful. Thank you.

Operator: The next question comes from the line of Andrew Buscaglia with BNP Paribas. Please proceed.

Speaker #3: And expect to keep doing that throughout the year . So we investing in capacity because we frankly , our demand is larger than our than our capacity in certain areas .

Andrew Buscaglia: Hey, good morning, everyone.

Robert Mehrabian: Hi, Andrew.

Andrew Buscaglia: Just wanted to touch on the Q2 guidance. Just that it reflects the midpoint, EPS declining sequentially, which is atypical historically, like with the seasonality. I'm wondering, where is the biggest pain point? I think my guess is instrumentation, like the test and measurement area being a little weaker than expected in Q1. Wondering, what are the dynamics affecting that Q2 guide?

Speaker #3: So we're investing in that. Second, we're also increasing some R&D expenditures. We increased R&D by $10 million just in the first quarter.

Speaker #3: That's to us. To me, that's about $0.14 a share that we added in our investments because we think those are going to be good investments.

Speaker #3: There's going to be good demand for them . Now , having said that , I'll let George talk about Golden Dome right now , we're pretty well set on tranche programs .

Robert Mehrabian: Let me just put it, the big picture is the following. In Q1, we had some good tax benefits year over year. Our tax benefits increased because of stock option exercises, increased about $0.10 to $0.11 year over year. In Q2, where we sit right now, we're not projecting similar tax benefits. Now, if our stock were to move up and our people start exercising more options, that would change. Right now, we're not projecting that. We're taking that part out. We're projecting more like $0.03 rather than having the increase that we had. Primarily, that's it. Just to cut through it.

Robert Mehrabian: Let me just put it, the big picture is the following. In Q1, we had some good tax benefits year-over-year. Our tax benefits increased because of stock option exercises, increased about $0.10 to $0.11 year-over-year. In Q2, where we sit right now, we're not projecting similar tax benefits. Now, if our stock were to move up and our people start exercising more options, that would change. Right now, we're not projecting that. We're taking that part out. We're projecting more like $0.03 rather than having the increase that we had. Primarily, that's it. Just to cut through it.

Speaker #3: The SDA tranche program—we want just about everything, with minor exceptions here and there. So, I don't expect to get much more than that.

Speaker #3: But going to the Golden Dome, I'll have— George answered that.

Speaker #8: Sure . So just a follow on to that . What I would say is , you know , certainly on the programs , as Robert mentioned , we've done very well there .

Speaker #8: And that's what's driven a lot of the growth on the infrared imaging space side of the business . And I think we're very well positioned for Golden Dome as it evolves .

Speaker #8: Given the fact that we've been on all of these Space Development Agency programs,

Speaker #3: We see how much budget goes in there . In reality , right ? Asking for increased budget is one thing . Getting it is another .

Speaker #3: But eventually they will obviously be some some monies . Either way , we're ready . But right now with what we have and what we're seeing in terms of the book to Bill , we feel we should invest in our own businesses , which is very unusual for us at this point in the year

Andrew Buscaglia: Okay.

Robert Mehrabian: Everything else, I'm comfortable with.

Andrew Buscaglia: Okay. Maybe you could comment further then on that instrumentation comment I made earlier, just that was a weak start to the year. What do you think drove that, and how do you see the cadence of that niche over the next nine months?

Speaker #10: Thank you so much .

Speaker #3: For sure

Speaker #1: The next question comes from the line of Joe Giordano with TD Cowen . Please proceed

Robert Mehrabian: I'm gonna just make one short comment, and then I'm gonna let George answer that. There's different parts to instrumentation. Strong marine performance for us, especially underwater vehicles. These are vehicles that are used across the world, some of them for mine countermeasures. Very strong performance, but slightly lower margin than some of our high margin by test and measurement. I'll let George kind of expand on that a little bit. George?

Speaker #11: As You had previously last quarter talked about your unmanned business , $500 million going about 10% , I think the general view is it feels pretty conservative given recent events .

Speaker #11: Just curious for a bit of an update there . And then if you could maybe talk about the subsidy stuff specifically , like where are you positioned on potential like Strait of Hormuz minesweeping ?

Speaker #11: What types of products would that be for you ? Any sort of color you can give there on how that might materialize over the next couple of quarters here .

Speaker #11: Thank you .

Speaker #3: Sure , sure . Okay . Let's start with the unmanned . As you know , we make unmanned systems air ground and subsea .

George Bobb: Yes. I think I will focus on test and measurement, which is where we had the decline in Q1, and there are two parts to that business, really. There's the oscilloscope side of the business, where we saw year over year growth and continue to see good demand in high bandwidth applications, power applications, for example, people who are designing power supplies for data centers, and from sales into the in-vehicle networks market. Protocol sales were down year over year, and that was really due to the timing of PCIe 6.0 CPUs and GPUs. We go through, on the protocol side, kind of two phases. There's a silicon designer phase where we sell to silicon designers, and then there's a phase of integration of chips when they come to the market.

George Bobb: Yes. I think I will focus on test and measurement, which is where we had the decline in Q1, and there are two parts to that business, really. There's the oscilloscope side of the business, where we saw year-over-year growth and continue to see good demand in high bandwidth applications, power applications, for example, people who are designing power supplies for data centers, and from sales into the in-vehicle networks market. Protocol sales were down year-over-year, and that was really due to the timing of PCIe 6.0 CPUs and GPUs. We go through, on the protocol side, kind of two phases. There's a silicon designer phase where we sell to silicon designers, and then there's a phase of integration of chips when they come to the market.

Speaker #3: I don't know if there are many companies that are able to do all of that . Our unmanned air systems is growing very fast .

Speaker #3: Our black hornets , which are the nano drones over the last bunch of years , including this year , just that one drone , Black Hornet three .

Speaker #3: Now Black Hornet four will have revenues of about $500 million over that period . We expect , and we have received already orders for black Hornet , both in this country and some for Europe .

George Bobb: What we expect this year is for those chips to come to market in H2, and we still expect full year growth in the low single digits in Test and Measurement. Overall, as Robert said, strong performance in Marine, strong performance in Environmental. Test and Measurement, a little weaker in Q1, but still expect full year growth in the low single digits.

Speaker #3: And of course, the Middle East conflict is demanding more. Second, we introduced the — our Rogue One, which is an armed drone.

Speaker #3: We have our first contracts. Those would increase substantially with time. We have other systems coming along the way, and then if we go to Sub C, we have different kinds of underwater drones.

Robert Mehrabian: That's great. George mentioned the various aspects. We still expect Instrumentation to grow over 4% for the year.

George Bobb: Okay. Thank you, guys.

Andrew Buscaglia: Okay. Thank you, guys.

Robert Mehrabian: Sure.

Speaker #3: They're not just saying we have , for example , gliders that can stay down very long periods of time and can go large distances .

Operator: The next question comes from the line of James Ricchiuti with Needham & Company. Please proceed.

Speaker #3: And then we also have our vehicles , various ranges of it that go to different depths . And those are the ones that are used for detecting mines we have some nice orders for that in , in Europe overall , I'd say I would remain with the 500 million for now .

James Ricchiuti: Hi. Thank you. Good morning. I know it's probably early yet, but are you seeing signs of potential increases in your defense business just related to the conflict in Iran?

Jim Ricchiuti: Hi. Thank you. Good morning. I know it's probably early yet, but are you seeing signs of potential increases in your defense business just related to the conflict in Iran?

Robert Mehrabian: Yes. A variety of them. First, we are being approached by the government. Actually, the government is making some investments. We haven't announced it yet, but they're making some investments in getting our capacities increased in specific areas, which I can't go into until the releases are approved. Second, we're seeing, obviously, increased demand for anything that has to do with drones and counter-drones. We're also seeing some demand for underwater vehicles. There are a lot of inquiries right now, some orders, but we expect orders to really start picking up in the next six months.

Speaker #3: For but it's some of the pockets are growing higher than 10% . So broadly speaking , I think we're approaching $2 billion in revenue Between defense , global defense , US defense drones , e w missiles , munitions , etc.

Speaker #3: it's a big chunk of our revenue for this year . It's about 30 to 35% of the whole company . So , you know , when you get that part of your portfolio growing , that fast and you're actually investing dollars , the way we are , you know , we've always been kind of very cautious with our money .

Speaker #3: That ought to tell you that we're kind of bullish about this area

Speaker #11: Okay

James Ricchiuti: Got it. That's helpful, Robert. Thank you. Just on the M&A pipeline, just given valuation levels, are you still thinking the focus this year is going to be mainly tuck-ins, or is there the potential for something larger?

Jim Ricchiuti: Got it. That's helpful, Robert. Thank you. Just on the M&A pipeline, just given valuation levels, are you still thinking the focus this year is going to be mainly tuck-ins, or is there the potential for something larger?

Speaker #1: The next question comes from the line of Guy Hartwig with Barclays . Please proceed .

Speaker #7: Hi .

Speaker #12: Good morning . Good morning . You good morning Robert , I if you could update us on your margin outlook , particularly in digital imaging , it seems that you've had a positive mix effect with the industrial scientific cameras picking up .

Robert Mehrabian: I think, tuck-ins first, maybe some mid-size acquisitions like we did early in 2025. The larger ones, they come not that frequently, and we're looking at some obviously. People are willing to pay some outrageous prices to get the revenue, and we'll have to see. I would say, the answer to your question specifically, tuck-ins first, mid-size second, larger, we'll have to wait and see what fits our portfolio. We don't want to go outside our portfolio too much, in getting a very large acquisition and then have to do a whole new segment, et cetera. That's not us. There we are.

Speaker #3: I think, as George mentioned, I mentioned a little bit for the quarter. Our margin went up about 50 basis points; we're projecting that to continue throughout the year.

Speaker #3: So we think we'll end up the year about 60 basis points above last year . And it'll be led by digital imaging at over 100 basis points , 105 107 basis points , which is , you know , something that we've been striving for ever since the acquisition of Flair .

Speaker #3: But now is doing well. And the legacy digital imaging, with TO, is picking up. So the margins overall will go up about 60 basis points, led by digital imaging. Aerospace and defense is not far behind at about 70 basis points.

James Ricchiuti: Mainly in the Instrumentation, Digital Imaging, or are there still some potential opportunities in A&D?

Jim Ricchiuti: Mainly in the Instrumentation, Digital Imaging, or are there still some potential opportunities in A&D?

Speaker #12: And just generally, talk about your say, long cycle versus short cycle trends. It sounds like you don't think there's a bump to the order book in defense.

Robert Mehrabian: I would say in all of our segments.

James Ricchiuti: Okay.

Jim Ricchiuti: Okay.

Robert Mehrabian: Probably with the exception of Engineered Systems, where we're not looking at acquisitions. Because it's a business that's growing and the government's investing in that. It'd be in almost all of our segments. Depends on what we get.

Speaker #12: I yet perhaps in the next six months does that suggest a pretty good outlook for defense for rather than kind of an acceleration in terms of revenue ?

Speaker #3: No, I hope I didn't give the impression that we don't expect acceleration this year. We do, because our orders are way up right now.

James Ricchiuti: Okay. Thank you.

Jim Ricchiuti: Okay. Thank you.

Speaker #3: In our defense businesses , we expect it to pick up more . Don't mean to be greedy , but we expect it to pick up more in the next six months or so because of the use of munitions .

Robert Mehrabian: For sure.

Operator: The next question comes from the line of Jordan Lyonnais with Bank of America. Please proceed.

Jordan Lyonnais: Hey, good morning. Thanks for taking the question. On the growth that you guys called out for space, can you give us a sense if that is related to Golden Dome? Then two, just for the FY27 budget request, the $70 billion that they want for drone funding and the Drone Dominance Program, how are you guys thinking about that if that funding gets approved? For that much funding to come through, can you support those volumes of your own systems and as a supplier to everyone?

Speaker #3: The significant use of munitions in the Middle East . Having said that , we are already experiencing very strong defense orders across all of our portfolio from components to systems

Speaker #12: Thank you

Speaker #3: For sure

Speaker #1: The next question comes from the line of John Gordon with Siti . Please proceed .

Speaker #7: Hey , guys . Thank you for taking my question . I wanted to just ask or kick off with a big picture question about M&A and strategy .

Robert Mehrabian: Yeah, let me start by saying that right now, as Steve mentioned, and so did George, we're investing in our businesses both from a CapEx. We've increased CapEx about 35% over last year in Q1, and expect to keep doing that throughout the year. We're investing in capacity because we frankly, our demand is larger than our capacity in certain areas. We're investing in that. Second, we're also increasing some R&D expenditures. We increased R&D by $10 million just in Q1. That's, to us, to me, that's about $0.14 a share that we added in our investments because we think those are going to be good investments. There's going to be good demand for it. Now, having said that, I'll let George talk about Golden Dome. Right now, we're pretty well set on tranche programs, the SDA tranche programs.

Speaker #7: A couple of years ago , we saw new issues , you know , IPOs , businesses being created that really focus on kind of roll ups and industrial roll ups within aerospace and defense , focus more recently , they've been that plus broader industrials as well .

Speaker #7: And when you think about the amount of new kinds of industrial compounders, industrial roll-ups, companies focused on finding niche, highly engineered products, etc.

Speaker #7: , you know , it definitely feels a little more crowded today than maybe years ago . You guys started this theme . I mean , decades ago in history books , you started it , but even just one decade ago , you were ahead of many of the others .

Speaker #7: I wanted to just take the temperature on the market at large. Are you rubbing up against competitors more? Is it harder to get deals done?

Speaker #7: Are sellers reshaping the processes in the face of , you know , different and maybe more buyers seeking the same opportunities ? I just feel like with all the IPO activity , it's worth kind of level setting , recalibrating and taking your temperature .

Speaker #3: Yeah , I don't know . It's a , it's a very kind of difficult question to answer that we've always had competition . Some of the let me let me begin somewhere else in the last 12 months , 13 months , we've already spent $900 million in acquisitions in the last 25 years , we've spent $12.8 billion in acquisitions only four of it with our stock .

Robert Mehrabian: We've won just about everything, with minor exceptions here and there. I don't expect to get much more than that. Going to the Golden Dome, I'll have George answer that.

George Bobb: Sure. I just, as a follow-on to that, what I would say is, certainly on the tranche program, as Robert mentioned, we've done very well there, and that's what's driven a lot of the growth particularly on the infrared imaging space side of the business. We think we're very well positioned for Golden Dome as it evolves, given the fact that we've been on all of these Space Development Agency tranches.

Speaker #3: So 10.8 of it with cash , which we generate . And in the last 12 , 13 months , 900 million for , I think , our we've made 75 acquisitions in the past 25 years .

Speaker #3: Yes . It's getting crowded on the other hand , people that are conglomerates that are putting things together , they also have a tendency to put them together , then take them apart .

Robert Mehrabian: We'll see how much budget goes in there in reality, right? Asking for increased budget is one thing, getting it is another. Eventually there will obviously be some monies. Either way, we're ready. Right now, with what we have and what we're seeing in terms of the book-to-bill, we feel we should invest in our own businesses, which is very unusual for us at this point in the year. All right. Thank you so much. For sure.

Speaker #3: If you look at various conglomerates , they've been the beneficiary of taking them apart . We've gotten a few businesses from conglomerates that suddenly have decided , well , you know , this thing doesn't fit or we want to concentrate .

Speaker #3: So we've been getting some really nice carve outs in the recent past . We've always had competition . We always have going forward .

Operator: The next question comes from the line of Joseph Giordano with TD Cowen. Please proceed.

Speaker #3: That's not what worries me . What worries me is the crazy prices that people have been willing to pay . Fortunately , some of that is switching over to this AI and data center domain and bless them , let them spend their money in that area and we will stick to the things we know .

Joseph Giordano: Hi, guys.

Joe Giordano: Hi, guys.

Robert Mehrabian: Hi, Joe.

Joseph Giordano: You had previously, last quarter, talked about your unmanned business, $500 million, growing about 10%. I think the general view is that feels pretty conservative given recent events. Just curious for a bit of an update there, and then if you can maybe talk about the subsea stuff specifically, like where are you positioned on potential Strait of Hormuz mine sweeping. What types of products would that be for you? Just any sort of color you can give there on how that might materialize over the next couple quarters here. Thank you.

Joe Giordano: You had previously, last quarter, talked about your unmanned business, $500 million, growing about 10%. I think the general view is that feels pretty conservative given recent events. Just curious for a bit of an update there, and then if you can maybe talk about the subsea stuff specifically, like where are you positioned on potential Strait of Hormuz mine sweeping. What types of products would that be for you? Just any sort of color you can give there on how that might materialize over the next couple quarters here. Thank you.

Speaker #3: So I don't , I don't really see a lot of competition increases

Speaker #7: Okay . That was great color . And if I could just clarify some of the commentary on defense and , and maybe a little bit on aerospace , but it's very loud and clear that defense demand signals are strong , bookings are strong .

Robert Mehrabian: Sure. Okay. Let's start with the unmanned. As you know, we make unmanned systems, air, ground, and subsea. I don't know if there are many companies that are able to do all of that. Our unmanned air systems is growing very fast. Our Black Hornet, which are the nano drones, over the last bunch of years, including this year, just that one drone, Black Hornet 3, now Black Hornet 4, will have revenues of about $500 million over that period. We expect, and we have received already orders for Black Hornet, both in this country and some for Europe. Of course, Middle East, its conflict is demanding more. Second, we've introduced our Rogue 1, which is an armed drone. We have our first contracts. Those would increase substantially with time. We have other systems coming along the way.

Speaker #7: You know, one of the challenges in the past at different times with Teledyne is that the bookings are strong, but it doesn't necessarily translate into the immediate quarters.

Speaker #7: And there could be some confusion about kind of short versus long cycle exposure . When we see all these strong demand trends in defense , is that going to translate immediately ?

Speaker #7: Like , can you maybe just talk about the short cycle elements of your of your portfolio a little bit more ? You mentioned munitions .

Speaker #7: I just want to make sure that we're all kind of hearing that loud and clear, but also translating it into the models the right way.

Speaker #3: That's , that's a good question . That's a very good question . Let me just say it's mixed Yes . Some of our orders that we get are long two , three , four years in duration , some of our orders are yet to come because of the conflict in in the Middle East .

Speaker #3: And of course , there's European growth in defense where we're getting some healthy orders . By and large , when we think about part of our portfolio growing nine , 10% .

Speaker #3: Organically , that's very healthy . We haven't had that for a while . On the other hand , I'm not going to be the one standing here and telling people that we're going to grow 20% a year .

Robert Mehrabian: If we go to subsea, we have different kinds of underwater drones. They're not just any. We have, for example, gliders that can stay down very long periods of time and can go large distances. We also have our Gavia vehicles, various ranges of it that go to different depths. Those are the ones that are used for detecting mines. We have some nice orders for that in Europe. Overall, I'd say I would remain with the $500 million for now. Some of the pockets are growing higher than 10%. Broadly speaking, I think we are approaching almost $2 billion in revenue between defense, global defense, US defense, drones, EW, missiles, munitions, et cetera. That's a big chunk of our revenue for this year. It's about 30% to 35% of the whole company.

Speaker #3: Like I've heard others do . That's not us . It might happen if the munitions that are being used are replaced faster . The government cycles are tedious , even when there's urgent need .

Speaker #3: So I would balance it to say that we do have the great backlog . We have about 4.6 billion in our backlog right now , and those will translate into revenue .

Speaker #3: The good thing is that, based on what we see both in the Middle East, but also European defense increases as well as the Ukraine conflict, as well as what's happening in China and Taiwan.

Speaker #3: All of these directionally , all of these things favor the portfolio that we develop , both in legacy , Teledyne and of course , with clear acquisition .

Speaker #7: That's great . If I could slip in just one more related question on on aerospace , I know your aerospace exposure is very small and your commercial aftermarket exposure is even smaller as a percentage of that .

Speaker #7: But is there any tea leaf reading there, just on the back of what's going on in the Middle East? High oil prices?

Speaker #7: It's obviously much more topical with the companies that are more aerospace-heavy or aerospace pure plays.

Robert Mehrabian: When you get a part of your portfolio growing that fast, and you're actually investing dollars the way we are, we've always been kind of very cautious with our money. That ought to tell you that we're kind of bullish about this area.

Speaker #3: I'll let George address that one, please.

Speaker #8: Yes , you mentioned that it's a relatively smaller part of the business , which it is . It's about 4% of our revenue , give or take .

Speaker #8: The business actually is split about one third OEM , two thirds aftermarket . And what we've seen in the aftermarket , the aftermarket was healthy in Q1 .

Joseph Giordano: Thanks, guys.

Joe Giordano: Thanks, guys.

Speaker #8: So, not seeing anything in the near term as a result of that conflict.

Operator: The next question comes from the line of Guy Hardwick with Barclays. Please proceed.

Guy Hardwick: Hi. Good morning.

Speaker #7: Thanks guys . Appreciate it .

Robert Mehrabian: Morning, Guy.

Speaker #3: Good

Guy Hardwick: Good morning. This is Robert. I was wondering if you could maybe update us on your margin outlooks, particularly in digital imaging, where it seems that you've had a positive mix effect with the industrial and scientific cameras picking up.

Speaker #1: The next question comes from the line of Noah Poponak with Goldman Sachs . Please proceed

Speaker #13: Hey , good morning everyone .

Speaker #3: Good morning Noah .

Robert Mehrabian: Yeah, I think, as George mentioned, and I mentioned a little bit, for the quarter, our margin went up about 58 basis points. We're projecting that to continue throughout the year. We think we'll end the year about 60 basis points above last year, and it'll be led by Digital Imaging at over 100 basis points, 105, 107 basis points, which is something that we've been striving for ever since the acquisition of FLIR. Now FLIR's doing well, and the legacy digital imaging with DALSA e2v is picking up. The margins overall will go about 60 basis points, led by Digital Imaging. Aerospace and Defense is not far behind at about 70 basis points.

Speaker #13: Hey , Robert . Is it possible to to state or quantify What short cycle industrial revenue growth was in the quarter and what defense revenue growth was in the quarter .

Speaker #13: And then what's in the full year 2026 revenue guidance for each of those

Speaker #14: Right .

Speaker #3: Let me start with the government . We had a 9% growth in US government or we had in non-U.S. government total . We had another 4% growth .

Speaker #3: This is organic. Where we grew most also was in international domain. We had a little shrinkage in the U.S. commercial, but we grew significantly internationally.

Speaker #3: What happened to us now is our international businesses have become 48% of our portfolio . Now . 20 years ago , that was less than 15% .

Guy Hardwick: Just generally talking about your, say, long cycle versus short cycle trends, it sounds like you don't think there's a bump to the order book in the defense side yet, but perhaps in the next six months. Does that suggest a pretty good outlook for defense for next year rather than kind of an acceleration this year in terms of revenues?

Speaker #3: So the growth been international and US government , US government being at 9% and international , about 8.5% . I don't know whether I picked up everything you asked .

Robert Mehrabian: No, I hope I didn't give the impression that we don't expect acceleration this year. We do, because our orders are way up right now in our defense businesses. We expect it to pick up more. Don't mean to be greedy, but we expect it to pick up more in the next six months or so because of the use of munitions, the significant use of munitions, in the Middle East. Having said that, we are already experiencing very strong defense orders across all of our portfolio, from components to systems.

Speaker #13: And I guess , are you able to quantify what growth was ? In short cycle industrial ? I guess as you've defined it during the downturn , you experienced in machine vision test measurement , semiconductor ?

Speaker #13: I guess I'm trying to get a sense for how much that recovered in the quarter . In the 5% organic total company , they have .

Speaker #3: Yeah , I think generally the short cycle grew at about lower single digits , 3 to 4% defense , high single digits .

Speaker #13: Okay .

Speaker #3: There's a between machine vision and semiconductors . They're very healthy . We had good growth there . On the other hand , we had a little shrinkage in test measurement .

Guy Hardwick: Thank you.

Robert Mehrabian: For sure.

Operator: The next question comes from the line of John Godden with Citi. Please proceed.

Speaker #3: So

Speaker #13: Okay .

John Godden: Hey, guys. Thank you for taking my question. I wanted to just ask or kick off with a big picture question about M&A and the strategy. A couple of years ago, we saw new issues, IPOs, businesses being created that really focused on kind of roll-ups and industrial roll-ups with an aerospace and defense focus. More recently, they've been that plus broader industrials as well. When you think about the amount of new kind of industrial compounders, industrial roll-ups, companies focused on finding niche, highly engineered products, et cetera, it definitely feels a little more crowded today than maybe years ago. You guys started this theme, decades ago. In the history books, you started it, but even just one decade ago, you were ahead of many of the others. I wanted to just sort of take the temperature on the market at large.

John Godyn: Hey, guys. Thank you for taking my question. I wanted to just ask or kick off with a big picture question about M&A and the strategy. A couple of years ago, we saw new issues, IPOs, businesses being created that really focused on kind of roll-ups and industrial roll-ups with an aerospace and defense focus. More recently, they've been that plus broader industrials as well. When you think about the amount of new kind of industrial compounders, industrial roll-ups, companies focused on finding niche, highly engineered products, et cetera, it definitely feels a little more crowded today than maybe years ago. You guys started this theme, decades ago. In the history books, you started it, but even just one decade ago, you were ahead of many of the others. I wanted to just sort of take the temperature on the market at large.

Speaker #3: The first quarter, that's what we saw.

Speaker #13: That helps. And I think you've discussed this a little bit—just the revenue number you're now providing for the full year, I think would require the organic to slow a bit through the rest of the year.

Speaker #13: Sounds like defense orders would suggest it can hold or accelerate . Maybe nine's just a tough law of large numbers . Starting point .

Speaker #13: And then it sounds like short-cycle Industrial still has room to accelerate. Why would total company organic not accelerate?

Speaker #14: Well

Speaker #3: I , I you got me there . I'm I'm a little conservative . Noah , as you know , is to be we expect revenue to keep .

Speaker #3: Growing throughout the year . Year over year . We had growth in the first quarter . We expect growth in the second quarter In the third and the fourth quarter .

John Godden: Are you rubbing up against competitors more? Is it harder to get deals done? Are sellers reshaping the processes in the face of different and maybe more buyers seeking the same opportunities? I just feel like with all the IPO activity, it's worth kind of level setting, recalibrating, and taking your temperature.

John Godyn: Are you rubbing up against competitors more? Is it harder to get deals done? Are sellers reshaping the processes in the face of different and maybe more buyers seeking the same opportunities? I just feel like with all the IPO activity, it's worth kind of level setting, recalibrating, and taking your temperature.

Speaker #3: So when we when I look at the rest of the year in January , we thought the first half of the year would be 48% of the total second half , 52% of the total , we switched that .

Robert Mehrabian: Yeah. I don't know. It's a very kind of difficult question to answer, that we've always had competition. Let me begin somewhere else. In the last 12 months, 13 months, we've already spent $900 million in acquisitions. In the last 25 years, we've spent $12.8 billion in acquisitions, only 4 of it with our stock. 10.8 of it with cash, which we generate. In the last 12, 13 months, $900 million. We've made 75 acquisitions in the past 25 years. Yes, it's getting crowded. On the other hand, people that are conglomerates that are putting things together, they also have a tendency to put them together then take them apart. If you look at various conglomerates, we've been the beneficiary of taking them apart.

Speaker #3: Now, we think the second half would be a little less. And the reason for that is, frankly, it's just a little conservatism on our part.

Speaker #3: And we think we're going to have less benefit in the second half of the year from foreign exchange. We got some nice benefits in the first half of the year.

Speaker #3: In Q1, we had about 2%. We think that will drop down to maybe 0.6% in Q2, and then we're projecting zero in the last two quarters.

Speaker #3: Now , if that were to flip . So when I look at the year , we're thinking now , foreign exchange is going to contribute 0.6% , 0.5% .

Speaker #3: If that shifts , of course , our revenue would increase correspondingly .

Speaker #13: Okay .

Speaker #3: Some of the conservative has to do with foreign exchange.

Speaker #13: I understand the last one for me is just on instrumentation margin. Maybe you could just talk about how you see that progressing through the rest of the year.

Speaker #13: And then I guess , you know , that segment had really nice margin expansion in the last 3 or 4 years . You know , then now we have this quarter .

Robert Mehrabian: We've gotten a few businesses from conglomerates that suddenly have decided, "Well, this thing doesn't fit," or, "We want to concentrate." We've been getting some really nice carve-outs in the recent past. We've always had competition, we'll always have going forward. That's not what worries me. What worries me is the crazy prices that people have been willing to pay. Fortunately, some of that is switching over to this AI and data center domain. Bless them, let them spend their money in that area, and we will stick to the things we know. I don't really see a lot of competition increases.

Speaker #13: What how should we think about the right kind of medium term ? A few years out instrumentation margin ?

Speaker #3: Let me start by saying historically , our instrumentation margins have been the healthiest in the company . We think with progression through the year , this year , our margins will keep increasing .

Speaker #3: I think this was our lowest margin quarter and primarily because of test and measurement . We think the margins will go up every quarter and we should end the year .

Speaker #3: Closer to 27.5% to get there. We're projecting a 29% margin in the fourth quarter for that segment. So, as George said, our underwater vehicles don't have as great a margin as do our test.

John Godden: Okay. That was great color. If I could just sort of clarify some of the commentary on defense and maybe a little bit on aerospace. It's very loud and clear that defense demand signals are strong, bookings are strong. One of the challenges in the past at different times with Teledyne is that the bookings are strong, but it doesn't necessarily translate into the immediate quarters, and there could be some confusion about kind of short versus long cycle exposure. When we see all these strong demand trends in defense, is that going to translate immediately? Can you maybe just talk about the short cycle elements of your portfolio a little bit more? You mentioned munitions. I just want to make sure that we're all kind of hearing that loud and clear, but also translating into the models the right way.

John Godyn: Okay. That was great color. If I could just sort of clarify some of the commentary on defense and maybe a little bit on aerospace. It's very loud and clear that defense demand signals are strong, bookings are strong. One of the challenges in the past at different times with Teledyne is that the bookings are strong, but it doesn't necessarily translate into the immediate quarters, and there could be some confusion about kind of short versus long cycle exposure. When we see all these strong demand trends in defense, is that going to translate immediately? Can you maybe just talk about the short cycle elements of your portfolio a little bit more? You mentioned munitions. I just want to make sure that we're all kind of hearing that loud and clear, but also translating into the models the right way.

Speaker #3: And measurement where we are anticipating a comeback in our protocol . Analyzers are oscilloscopes , are already doing well . So I think margins will increase as the year goes on .

Speaker #13: Okay . Always appreciate your time . Thanks so much .

Speaker #3: Thank you . Noah .

Speaker #1: And the next question comes from the line of Rob Jameson with Vertical Research Partners . Please proceed

Speaker #15: Hey , good morning guys . I appreciate the color this morning . And thank you for my questions . Just a couple just on aerospace and defense margin .

Speaker #15: You know . Much better in the quarter than I expected . Was just curious on the better expansion outlook for that quarter or for the for the segment versus last quarter .

Speaker #15: You know , was there anything mix related that we saw in this quarter or that you're expecting for the rest of the year ?

Robert Mehrabian: That's a good question. That's a very good question. Let me just say it's mixed. Yes, some of our orders that we get are long, 2, 3, 4 years in duration. Some of our orders are yet to come because of the conflicts in the Middle East. Of course, there's European growth in defense where we're getting some healthy orders. By and large, when we think about part of our portfolio growing 9% to 10% organically, that's very healthy. We haven't had that for a while. On the other hand, I'm not going to be the one standing here and telling people that we're going to grow 20% a year like I've heard others do. That's not us. It might happen if the munitions that are being used are replaced faster, but the government cycles are tedious, even when there's urgent need.

Speaker #15: Or is it more some of the cost efficiencies from the traffic and acquisition integration?

Speaker #3: I think I'll let George answer this , but it has to do a lot to do with acquisitions .

Speaker #8: Yeah . That's right . So I'd answer it . Maybe a couple ways . One , on the acquisition side , playbook is pretty simple .

Speaker #8: We acquire companies at reasonable valuations . Then we work to improve them . And we've really seen over the last year with the acquisition and the Micro-pak acquisition and the aerospace and defense electronics segment , a lot of good work there .

Speaker #8: On margin improvement . Also did benefit a little bit from mix in Q1 . We sell , for example , our avionics spares , high reliability semiconductors , things like that that were somewhat better year , year .

Speaker #8: But fundamentally, I think cost discipline is always improving the acquisitions. And then, yes, a little bit of benefit from mix.

Speaker #15: Perfect . Thank you . And then just a quick update on just how you're thinking about free cash flow for the full year .

Speaker #15: And then just with the increase in CapEx investment that you called out as well , how should we think about that ? Kind of like the 2.5% of sales range for the year

Speaker #3: Let me start with free cash flow . We've been fortunate in the last in 24 , 25 to generate over 1 billion in free cash flow .

Robert Mehrabian: I would balance it to say that we do have the great backlog. We have about $4.6 billion in our backlog right now, and those will translate into revenue. The good thing is that based on what we see, both in the Middle East, but also European defense increases, as well as Ukraine conflict, as well as what's happening in China and Taiwan, directionally, all of these things favor the portfolio that we've developed, both in legacy Teledyne and, of course, with FLIR acquisition.

Speaker #3: We expect that to happen again this year. First half is a little slower than that, but I will pick it up in the second half of the year because we're spending more on CapEx, CapEx this year.

Speaker #3: We're projecting at about $150 million , which is an increase versus last year . And of course , we're spending a little more on inventory .

Speaker #3: We're spending a little more on where we have some cautions approach to some of the product or supply chain that comes out of China with that restrictions .

Speaker #3: And so we're investing in some inventory , investing in some machining facilities for germanium , etc. . Having said all of that , 115 CapEx , over a billion in free cash flow , I hope we'll get to 1.1 billion .

John Godden: That's great. If I could slip in just one more related question on aerospace. I know your aerospace exposure is very small and your commercial aftermarket exposure is even smaller as a percentage of that. Is there any tea leaf reading there just on the back of what's going on in the Middle East, high oil prices? It's obviously much more topical with the companies that are more kind of aerospace heavier, aerospace pure plays.

John Godyn: That's great. If I could slip in just one more related question on aerospace. I know your aerospace exposure is very small and your commercial aftermarket exposure is even smaller as a percentage of that. Is there any tea leaf reading there just on the back of what's going on in the Middle East, high oil prices? It's obviously much more topical with the companies that are more kind of aerospace heavier, aerospace pure plays.

Speaker #15: Thank you

Speaker #1: Thank you . This concludes the question and answer session . And I'd like to call back over to management for closing remarks .

Robert Mehrabian: I'll let George Bob address that one, please.

Speaker #3: Thank you very much, Jason. To conclude the conference call,

Speaker #2: Thanks , Robert . And again , thanks to everyone for joining us today . And of course , if you have follow up questions , please feel free to call me or send me an email .

George Bobb: Yes. You mentioned that it's a relatively smaller part of the business, which it is. It's about 4% of our revenue, give or take. The business actually is split about 1/3 OEM, 2/3 aftermarket. What we've seen in the aftermarket, the aftermarket was healthy in Q1, so I'm not seeing anything in the near term as a result of that conflict.

Speaker #2: My number's on the earnings release . Thanks , all . By

John Godden: Thanks, guys. Appreciate it.

John Godyn: Thanks, guys. Appreciate it.

Robert Mehrabian: Good.

Operator: The next question comes from the line of Noah Poponak with Goldman Sachs. Please proceed.

Noah Poponak: Hey, good morning, everyone.

Robert Mehrabian: Morning, Noah.

Noah Poponak: Hey, Robert. Is it possible to state or quantify what short cycle industrial revenue growth was in the quarter, and what defense revenue growth was in the quarter, and then what's in the full year 2026 revenue guidance for each of those?

Robert Mehrabian: Right. Let me start with the government. We had a 9% growth in US government. We had, in non-US government total, another 4% growth. This is organic. Where we grew most also was in international domain. We had a little shrinkage in the US commercial, but we grew significantly internationally. What's happened to us now is our international businesses have become 48% of our portfolio now. 20 years ago, that was less than 15%. The growth's been international and US government, US government being at 9% and international about 8.5%. I don't know whether I picked up everything you asked.

Noah Poponak: I guess, are you able to quantify what growth was in short cycle industrial, I guess, as you've defined it during the downturn you experienced in machine vision, test and measurement, semiconductor? I guess I'm trying to get a sense for how much that recovered in the quarter in the 5% organic total company that you have.

Robert Mehrabian: Yeah. I think, generally, the short cycle grew at about lower single digits, 3% to 4%. Defense, high single digits.

Noah Poponak: Okay.

Robert Mehrabian: There's a difference between machine vision and semiconductors. They're very healthy. We have good growth there. On the other hand, we have a little shrinkage in test and measurement.

Noah Poponak: Okay.

Robert Mehrabian: Q1, that's what we saw.

Noah Poponak: That helps. I think you've discussed this a little bit, but just the revenue number you're now providing for the full year, I think would require the organic to slow a bit through the rest of the year. Sounds like defense orders would suggest it can hold or accelerate. Maybe nine's just a tough large number starting point. Then it sounds like short cycle industrial still has room to accelerate. Why would total company organic not accelerate?

Robert Mehrabian: Well, you got me there. I'm a little conservative, Noah, as you know us to be. We expect revenue to keep growing throughout the year.

Noah Poponak: Okay

Robert Mehrabian: Year-over-year, we had growth in Q1. We expect growth in Q2, in Q3, and in Q4. When I look at the rest of the year, in January, we thought H1 would be 48% of the total, H2, 52% of the total. We switched that. Now we think H2 would be a little less. The reason for that is, frankly, it's us, a little conservatism. We think we're going to have less benefit in H2 from foreign exchange. We got some nice benefits in H1. In Q1, we had about 2%. We think that will drop down to maybe 0.6% in Q2, and then we're projecting 0% in the last two quarters.

Robert Mehrabian: Now, if that were to flip, so when I look at the year, we're thinking now foreign exchange is going to contribute 0.6%, 0.5%. If that shifts, of course, our revenue would increase correspondingly.

Noah Poponak: Okay.

Robert Mehrabian: Some of the conservatism has to do with foreign exchange.

Noah Poponak: I understand. Last one for me is just on the Instrumentation margin, maybe just talk about how you see that progressing through the rest of the year. I guess that segment had really nice margin expansion in the last three or four years. Now we have this quarter. How should we think about the right kind of medium term, a few years out, Instrumentation margin?

Robert Mehrabian: Let me start by saying, historically, our Instrumentation margins have been the healthiest in the company. We think with progression through the year this year, our margins will keep increasing. I think this was our lowest margin quarter and primarily because of test and measurement. We think the margins will go up every quarter, and we should end the year closer to 27.5%. To get there, we're projecting 29% margin in Q4 for that segment. As George said, our underwater vehicles don't have as great a margin as do our test and measurement, but we're anticipating a comeback in our protocol analyzers. Our oscilloscopes are already doing well. I think margins will increase as the year goes on.

Noah Poponak: Okay. Always appreciate your time. Thanks so much.

Robert Mehrabian: Thank you, Noah.

Operator: The next question comes from the line of Robert Jamieson with Vertical Research Partners. Please proceed.

Robert Jamieson: Hey, good morning, guys. Appreciate the color this morning, and thanks for taking my questions. Just a couple, just on Aerospace and Defense margin. Much better in the quarter than I expected. Was just curious on the better expansion outlook for that quarter, or for the segment versus last quarter. Was there anything mix-related that we saw in this quarter or that you're expecting through the rest of the year? Or is this more some of the cost efficiencies from the Qioptiq acquisition integration?

Robert Mehrabian: I think I'll let George answer this, but it has a lot to do with acquisitions.

George Bobb: Yeah, that's right. I'd answer it maybe a couple ways. One, on the acquisition side, our playbook is pretty simple. We acquire companies at reasonable valuations, then we work to improve them. We've really seen over the last year with the Qioptiq acquisition and the Micropac acquisition in the Aerospace and Defense Electronics segment, a lot of good work there on margin improvement. Also did benefit a little bit from mix in Q1. We sell, for example, our avionics spares, some high-reliability semiconductors, things like that were somewhat better year over year. Fundamentally, I think, cost discipline always, improving the acquisitions, and then, yes, a little bit of benefit from mix.

George Bobb: Yeah, that's right. I'd answer it maybe a couple ways. One, on the acquisition side, our playbook is pretty simple. We acquire companies at reasonable valuations, then we work to improve them. We've really seen over the last year with the Qioptiq acquisition and the Micropac acquisition in the Aerospace and Defense Electronics segment, a lot of good work there on margin improvement. Also did benefit a little bit from mix in Q1. We sell, for example, our avionics spares, some high-reliability semiconductors, things like that were somewhat better year-over-year. Fundamentally, I think, cost discipline always, improving the acquisitions, and then, yes, a little bit of benefit from mix.

Robert Jamieson: Perfect. Thank you. Just quick, can I get an update on just how you're thinking about free cash flow for the full year? Just with the increase in CapEx investment that you called out as well, how should we think about that kind of in like the 2.5% of sales range for the year?

Robert Mehrabian: Let me start with free cash flow. We've been fortunate in 2024, 2025 to generate over $1 billion in free cash flow. We expect that to happen again this year. H1 is a little slower than that, but we'll pick it up H2 of the year because we're spending more on CapEx. CapEx this year, we're projecting at about $150 million, which is an increase versus last year. Of course, we're spending a little more on inventory. We're spending a little more where we have some cautious approach to some of the product or supply chain that comes out of China with the restrictions. We're investing in some inventory. We're investing in some machining facilities for germanium, etc. Having said all of that, $115 CapEx, over $1 billion in free cash flow. I hope we get to $1.1 billion.

Robert Jamieson: Perfect. Thank you.

Operator: Thank you. This concludes the question and answer session. I'd like to-

Robert Mehrabian: Thank you very much.

Operator: call back over to management for closing remarks.

Robert Mehrabian: Thank you very much. I'll ask Jason to conclude the conference call.

Jason VanWees: Thanks, Robert. Again, thanks for everyone for joining us today. Of course, if you have follow-up questions, please feel free to call me or send me an email. My number's on the earnings release. Thanks, all. Bye.

Operator: This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.

Q1 2026 Teledyne Technologies Inc Earnings Call

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