Operator: Welcome to Teledyne's Q3 earnings call. Here's our first speaker, Mr. Jason VanWees.
Jason VanWees: Good morning, everyone. Thanks for joining us. This is Jason VanWees, vice chairman of Teledyne, and I'd like to welcome everyone to Teledyne's Q3 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 will ask for your questions. However, our attorneys have reminded me that before we get started, all forward-looking statements 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.
Jason VanWees: In order to avoid potential selective disclosures, this call is simultaneously being webcast and a replay by webcast and audio will be available for approximately 1 month. Here's Robert.
Robert Mehrabian: Thank you, Jason, and good morning, everyone. Our Q3 sales and operating earnings were the strongest in Teledyne's history. For the third quarter in a row, we're raising our full year 2026 sales and earnings guidance. In January, we forecasted revenue of $6.37 billion, a 4.2% increase from 2025, and non-GAAP earnings of $23.65 per share. Today, our outlook for 2026 sales is $6.625 billion, a year-over-year increase of 8.3% and nearly double the growth rate projected in January. Earnings of $25.45 per share, which is $1.80 per share or almost 8% higher than forecast in January, and a 16% increase compared to last year. For all of Teledyne, orders have exceeded sales for 12 consecutive quarters, and funded backlog is now approximately $5.3 billion.
Robert Mehrabian: In the Q3, organic growth accelerated in our Digital Imaging segment and was led by sales of infrared detectors and subsystems for space and unmanned applications. Furthermore, each of our major commercial imaging businesses, such as industrial vision sensors and systems, as well as healthcare, increased year-over-year. Our Q3 performance reflected not only the strong execution of the backlog that we have been building for three years, but also the strength of our business portfolio and what Teledyne is today, a company with a broad set of sensors and vertically integrated platforms from space to deep sea. We also continue to enjoy robust free cash flow and recently made $224.6 million of opportunistic stock repurchases at a weighted average price of approximately $607 per share. We did the same in 2025 and 2024 when we felt Teledyne was undervalued.
Robert Mehrabian: During the past three years, we have deployed nearly $980 million to buy back shares of our company at a total weighted average price of $479 per share. Regarding the pending acquisition of Varex, we were following the company for more than six years. As healthcare and life sciences markets began to recover earlier this year, we felt the timing was finally right for us to pursue and then announce this highly complementary acquisition in the Q3. The regulatory process is underway, and Varex's special stockholder meeting is scheduled for 28 October. We continue to anticipate closing early in 2027. Notwithstanding the stock repurchases and the pending acquisition, current leverage remains at the lowest level in six years, and we have more than ample flexibility to continue compounding earnings growth for years to come. George will now comment on the performance of our four business segments.
George Bobb: Thank you, Robert. In the Digital Imaging segment, Q3 sales increased 15% and 14.3% organically due to well-balanced growth among our defense and commercial businesses. Sales of infrared detectors for space-based imaging increased more than 25%, as did revenue from infrared subsystems and cameras for our customers, unmanned air systems, and unmanned maritime surface vehicles. In addition, segment sales increased in each of our larger commercial end markets. That is, sensors and cameras for industrial and scientific vision applications, X-ray products for healthcare, commercial thermography cameras.
George Bobb: Electronics for maritime navigation, geospatial sensors and software, and micro electromechanical systems or MEMS. Finally, non-GAAP operating margin in the segment increased 376 basis points to 25.4%. In the Instrumentation segment, which consists of our marine, environmental, and test and measurement businesses, Q3 sales increased 1.9% versus last year. Overall sales of marine instruments increased 2%, primarily due to strong defense-related sales of interconnects for US Virginia and Columbia submarines, as well as continued growth in the offshore energy exploration and production market. Sales of environmental instruments increased 7.1% due to increased sales of gas monitoring instrumentation, along with more modest growth in sales of laboratory and life sciences instruments.
George Bobb: Sales of electronic test and measurement systems decreased 6.3% due in part to the timing of orders, which increased 18% year over year for a record book-to-bill ratio of 1.23. Instrumentation non-GAAP operating margin in Q3 decreased modestly due to product mix, but was sequentially higher for the second consecutive quarter. In the Aerospace and Defense Electronics segment, Q3 sales increased 4.3%. Growth in defense electronics of 7.4% was partially offset by lower sales in commercial aerospace. However, Q3 bookings were very strong in both the defense and aerospace markets, with a segment book-to-bill ratio of 1.29. Non-GAAP segment margin increased 86 basis points year over year, even though there was a greater mix of defense electronics, which as a whole have a lower operating margin compared with commercial avionics.
George Bobb: For the Engineered Systems segment, Q3 revenue increased 7.8%, driven primarily by greater sales of marine and other manufacturing programs. Segment operating margin was largely flat with last year. I will now pass the call back to Robert.
Robert Mehrabian: Thank you very much, George. To conclude, right now, virtually all of our businesses are moving in a positive direction simultaneously, and our growth remains balanced across many end markets and geographies and not due to any singular, potentially fleeting market driver. Given our backlog, the pending acquisition of Varex, our strong balance sheet, and outstanding operating discipline, I am already looking forward to 2027. I will now turn the call over to Steve.
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 Q4 and full year 2026 outlook. In Q3, cash flow from operating activities was $352.5 million, compared with $343.1 million in 2025. Free cash flow, that is cash flow from operating activities less capital expenditures, was $319.5 million, a Q3 record, compared with $313.9 million in 2025. Cash flow increased due to favorable operating results in Q3 2026 compared to 2025, partially offset by higher inventory purchases.
Steve Blackwood: Capital expenditures were $33 million in Q3 2026, compared with $29.2 million in 2025. Depreciation and amortization expense was $84.7 million in Q3 2026, compared with $84.5 million in 2025. We ended the quarter with $1.47 billion in net debt. That is approximately $2.03 billion of debt, less cash of $562.4 million. Now turning to our outlook. Management currently believes that GAAP earnings per share in Q4 2026 will be in the range of $5.68 to $5.83, with non-GAAP earnings per share in the range of $6.60 to $6.70.
Steve Blackwood: For the full year 2026, we believe that GAAP earnings per share will be in the range of $21.71 to $21.87, and non-GAAP earnings per share in the range of $25.40 to $25.50. I will now pass the call back to Robert.
Robert Mehrabian: Thank you, Steve. We would now like to take your questions. Rob, if you're ready to proceed with the questions and answers, please go ahead.
Operator: Thank you. We'll now be conducting our question and answer session. To ask a question at this time, you may press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please for our first question. Thank you. The first question today comes from the line of Zachary Woljascht with UBS. Please proceed with your questions.
Zachary Walljasper: Hi. Thank you for the question. My first question is around backlog. Total company backlog has grown sequentially every quarter so far this year. With the trends you are seeing in unmanned and space, can you just talk about the visibility the team is building on it from a top-line perspective heading to 2027? Based on the awards you are winning now, I would assume they will be delivered next year. My second question is around Instrumentation. It sounds like from the prepared remarks
Zachary Walljasper: There is a bit of mistiming or a bit of a timing orders. Was that just for test measurement or for the whole segment? Thank you.
Robert Mehrabian: Thank you, Zach. Let me take the backlog question first. I want to just take it on a larger scale. As we mentioned, the backlog right now stands at $5.3 billion. Of that, about 72% will be available for us as revenue in the next 12 months. To put that in perspective, that number is about half of the revenue that we enjoy for 2026. The backlog in other areas, it varies, but basically, a lot of our longer-term defense and other areas, the backlog is for the full 18 months, and 9 months of it being as I mentioned. Overall, we think, if you look at the different segments, even in Instruments that George talked about and you just mentioned, our book to bill is 1.07. So we feel pretty good about it.
Robert Mehrabian: Even though the revenue may have been down in certain parts of that, overall, the pickup in our orders in Q3 points to a very favorable future.
Zachary Walljasper: Okay, great. Thank you so much.
Robert Mehrabian: Thank you, Zach.
Operator: Our next questions are from the line of Andrew Buscaglia with BNP Paribas. Please proceed with your questions.
Andrew Buscaglia: Hey, good morning, everyone.
Robert Mehrabian: Good morning, Andrew.
Andrew Buscaglia: I wanted to touch on Digital Imaging. It seems like things have really accelerated, and it seems really broad-based. What changed intra-quarter that made you exceed your expectations by so much? Was it on the defense side, or is it more kind of commercial infrared stuff that really picked up?
Robert Mehrabian: Yeah. I think, Andrew, obviously we anticipated based on the orders we had, that we would do better than we initially thought. But obviously everything depends on execution. I think when you look at our Digital Imaging, and you look at it both as what we call our historical Digital Imaging, which would be our Teledyne DALSA e2v, our imaging systems here, what we call Teledyne Scientific and Imaging. Those grew very nicely, primarily due to space. As you know, we do a lot of work in space with our infrared detectors, and the whole missile warning and tracking system has been a really good domain for us. So that picked up. The other area, of course, is the unmanned systems, and that did very well, better than we thought. Then lastly, in the commercial domain, which is machine vision, healthcare, microelectronics, mechanical systems.
Robert Mehrabian: If you add them all up, they all did very well. Digital Imaging book to bill as a whole, both what we call our legacy and FLIR, had a book to bill of about 1.22x. So things worked out across the board very well.
Andrew Buscaglia: Okay, yeah. And maybe the next question on Digital Imaging margins. Can you talk about expectations around gross margin going forward given price cost dynamics? Then it looks like R&D and SG&A are growing quite fast. I thought last year you guys took out some costs, so presumably those wouldn't be growing that way, but can you talk a little bit more about on the OPEX side, what you expect from here?
Robert Mehrabian: Well, I'll let George talk about the cost structure because that's been a significant undertaking in the whole Digital Imaging domain, especially in what we call our historical Digital Imaging. All along we've said that FLIR is going to do better year-over-year, quarter-over-quarter, and it's finally arrived at a point where we feel very comfortable with the growth both in revenue as well as earnings. Overall, we're projecting robust growth in FLIR of year-over-year of 12%, and in defense as well as commercial domain. In terms of the cost structure, I'll let George, as I said, answer it. But I think what we're aiming for is to continuously improve our margins. We started the year, just broadly, we started the year by saying Digital Imaging margins would grow about 150 basis points in Q2. Today, we've added another 61 basis points.
Robert Mehrabian: We're projecting for the whole year margins to grow 225 basis points. So with that, I'll pass this to George. We'll talk about the cost structure.
George Bobb: Sure. So we did take cost out in 2025. We're getting the benefit of that, as evidenced by the margins that we had here in Q3, up 180 basis points. Gross margins are up year-over-year, at least in the neighborhood of 100 basis points. Beyond that, R&D really wasn't up materially in the quarter. I think the rest of the cost structure is fine. So I think we're getting the benefit of the cost we took out and obviously the volume growth that we have.
Robert Mehrabian: That's about, I think that answers your question.
Andrew Buscaglia: Yes. Thank you.
Operator: The next question's from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question.
Adam Samuelson: Yeah. Hi, it's Adam Samuelson for Sheila. Good morning. Maybe the first question is on Instrumentation. I know you talked about test and measurement bookings improving, and that giving you confidence on the outlook for the top line as you go into Q4. But wondering if you could comment on kind of the margin outlook there. As we think about that mix maybe flipping more favorably within the segment, should we think about that segment returning to year-on-year margin expansion in Q4? And is there any way you think about the margin trajectory for that business as we move into 2027? Thank you.
Robert Mehrabian: Thank you, Adam. I'll pass this one back to George again.
George Bobb: Yeah. I think largely we continue to see sequential margin improvement as we go through the year. Quarter-over-quarter, I do not think we quite get back to 2025 margins in Q4. Having said that, based on the outlook for 2027, feel good about the direction we are headed.
Adam Samuelson: Got it. Then maybe just switching gears, if I could sneak one more in. Back in Digital Imaging on the unmanned side, any way you differentiate the demand for infrared subsystems for customer platforms versus your own? Any thoughts on, is there any need for incremental capacity to support some of the demand growth that you are seeing there?
Robert Mehrabian: Yeah. First of all, our subsystems have been the strongest of all of our defense programs. In the infrared and visible domain, our sensors, as you said, we supply to our own as well as other people. That has grown substantially year-over-year. There are good reasons for that. One of them is obviously as the demand is growing, the ability to meet the demand, and the confidence that the customers have in a demand environment that you will be supplying and not get offline, becomes very important. Then the second thing is, of course, we are improving our product continuously. We have 12 micron, which detectors that we have been shipping. Now we have announced 8 micron plus software additions, et cetera. At the bigger system, which would be our total defense system, we are looking at about a 10% growth, whereas in the subsystems, we are looking at multiple of that.
Adam Samuelson: All right. That is a very helpful color. Thank you. I will pass it on.
Robert Mehrabian: Sure. Shoot, Adam.
Operator: The next questions are from the line of Jonathan Siegmann with Stifel. Please proceed with your questions.
Jonathan Siegmann: Good morning. Thanks for taking my question. Congratulations on the nice balanced growth across the portfolio again. A question on the budget environment. Teledyne has some terrific exposure, both in space and in drones and counter-drone application. Those are disproportionately funded by some of the reconciliation money, which there is some worries out there may be stalled out in the months ahead in Congress. As a supplier, what impact does that have on your business? What are your prime customers saying in terms of any impact on this powerful growth you're seeing? Thank you.
Robert Mehrabian: That's a very good question. Right now, as you mentioned, there's uncertainty in the budget. On the other hand, because of our longer-term programs that we've won, including the most recent one in the Golden Dome, we don't see an issue for us in 2027. Having said that, there's other things that are happening that may change the outlook in 2028 and 2029. We don't know. On the other hand, right now, sitting where I am and where George is, we think we're okay in 2027 with all the uncertainties surrounding the budget as well as everything else that's going on in Europe and the Middle East.
Jonathan Siegmann: Thank you. If I could just slip one in on Varex, given we are used to looking at businesses that fly and blow up. I understand you have looked at Varex for quite some time. Maybe could you talk a little bit about what attracted you to that business, and maybe comment on some of the declines in revenue that business saw, and why you are excited about it? I would appreciate it. Thank you.
Robert Mehrabian: That is a very good question. First of all, we have been looking at that business for a long time, at least in the last 6 years, pretty actively. We wanted to buy pieces of that business before, were not able to. What happened is, recently, as the whole arena of healthcare and products that they make began to recover, we thought it was an appropriate time for us to approach them, and that would be obviously in the recovery after the post-COVID era. We were able to approach them, we were able to go through the process. They had a lot of other potential buyers that they were dealing with. That is, by the way, detailed in their merger proxy. In the end, we ended up with a friendly transaction. Why Varex? Very simple. We have healthcare products. We have X-ray detectors, but nothing like they do.
Robert Mehrabian: We primarily focus on complementary metal oxide detectors which are small in size, cannot tolerate high energy, high X-ray energy levels like you have in oncology. They have a bunch of other detectors led by amorphous silicon that are uniquely designed for the high-energy oncology X-rays. Also, they have really different complementary products to us. I will end up with one thing that they have that is exciting to us, and that is their photon counting detectors, which can detect X-rays without having to go through an intermediate layer called scintillation. That is really attractive to us because we have always wanted to get into that field, and they already have advanced in it. While their revenue has been relatively flat, we think, for us, the opportunity is to improve margins like we have done in all of our acquisitions. I will give you one example. FLIR.
Robert Mehrabian: We bought it at a multiple of 16.7x to EBITDA. If you look at it today, in just 4 years, that is down to 13.7x. Broadly, Teledyne has improved almost every acquisition that we have made and improved the margins. I would say, on the average, we paid 13.5x EBITDA, and today they are less than 8x. That is the other driver, is we think we can improve it with our 80/20 program, with not having the public costs associated with a smaller public company. That kind of sums up the best answer I can give you at this time.
Jonathan Siegmann: Great. Thank you. Congratulations on it, and a nice final one for Jason to have his contributions on. Good luck with it.
Robert Mehrabian: Thank you.
Operator: The next question is from the line of Guy Hardwick with Barclays. Please proceed with your questions.
Guy Hardwick: Hi, good morning. Robert, considering your pretty upbeat comments on the backlog, are you willing to give us an early look as to what revenue growth potential could be in 2027, excluding the Varex acquisition? I will ask my follow-up now, did Digital Imaging margins in Q3 benefit from any tariff reversals or refunds?
Robert Mehrabian: No, the refunds were really taken up in Q2, so it does not affect Q3. Let me start there. It is a little early for us to talk about 2027. Matter of fact, we had our first cut of half of our businesses that George went through with our board. I think our momentum is there. I think we will improve next year again. Whether it be at the level we did this year or projecting to do this year, I do not know. It is a little early. Improve, we will. That I can tell you.
Guy Hardwick: Thank you.
Operator: Thank you. The next question is from the line of Joe Giordano with TD Cowen. Please proceed with your question.
Joe Giordano: Hey, guys. Good morning.
Robert Mehrabian: Morning, Joe.
Joe Giordano: So on the orders there, again, at the consolidated level, really strong. It is pretty similar number to what you had in dollars last quarter. I am just curious if there is any parts of that where you feel like our customers ordering earlier or excessively because of worries about a budget or anything like that? I know your products are not stocked in inventory typically or anything like that, but just curious if there is any parts of the business where you feel like there is a little bit of different order patterns for whatever reason.
Robert Mehrabian: Yeah. Joe, I do not think so. We have not seen anything unusual. The backlog, the orders are broad-based across our products.
Joe Giordano: Okay.
Robert Mehrabian: We are not looking at any huge movements because of data centers or other things, so we feel comfortable about that. That is the best answer I can give. We have not noticed anything unusual across our portfolio.
Joe Giordano: Okay. On Varex, I think my phone cut out a little bit. You may have gotten into this a little bit on the last question, but on the growth side of Varex, you guys have showed the ability to cut costs out, so I think people would expect that on the margin side. Growth, you mentioned it has been flattish. What do you do there? Is that just the market dynamic? I know you are probably not wanting to buy something that is wildly dilutive to the total growth profile of Teledyne. So what do you do there to stimulate that?
Robert Mehrabian: Yeah. I think, first, we are going to apply, like we do in all of our businesses every single quarter, every single month, we are going to apply our 80/20 principles to Varex. What do we mean by that? We have not done detailed analysis because, obviously, we are going through the process now. So the first thing in 80/20 is that is probably going to shrink revenue somewhat because we look at the 80% of the revenue that is substantially available for us to improve margins, and there is 20% that goes to smaller customers that are dilutive to earnings.
Robert Mehrabian: We do that across Teledyne. If you looked at Teledyne today versus four or five years ago, we have reduced the number of SKUs that we have by 50%. So we are going to do that first. So that might actually reduce our revenue a little bit at the beginning.
Robert Mehrabian: But then we think after that, we think we will get back to mid-size, mid-single-digit growth like we do under normal circumstances across our own portfolio. We would obviously look for synergies where we can sell similar but different products to the same customers. So I think initially, revenue is down a little bit, margins up, gross margins up in almost the first year accreted, and then as we go forward, grow the business like we have done every other acquisition that we have made.
Joe Giordano: If I could just sneak one more in. Do you foresee Varex, the go-to-market strategy, are they going to work independently from the offerings you already have? Is it two separate sales teams or is this going to be one face of Teledyne going to these same customers?
Robert Mehrabian: I think it is going to be one face. That is very important because George really was the architect of what we call One Teledyne, and it is not just across healthcare, but across all of our products. When a market representative, a sales representative approaches a company, whether it is a defense company or a commercial company, they have the visibility of all of our products. Somebody in defense might mention some of the products we have in the commercial domain. We are going to do the same thing with Varex. It is not going to be separate. It is going to be One Teledyne approach.
Joe Giordano: Thank you.
Robert Mehrabian: Thank you.
Operator: The next questions are from the line of Ron Epstein with Bank of America. Please proceed with your questions.
Ron Epstein: Yeah. Hey, and good afternoon. Good morning, guys. Just quickly, I did not hear much discussion around how supply chains are holding up for you. When we have gone to some of the recent trade shows, we have heard that there are shortages on things like printed circuit boards and some basic electronic components, given all the, how can I say it, capacity that is being thrown to the hyperscalers and the AI build-out that they are kind of sucking up everything. How is that impacting you guys, and how are you managing it?
Robert Mehrabian: Well, that is a very good question. Obviously, there is a lot of shortages. We have a dedicated team that works with our businesses, that ensures that we get what we need to produce our products. The only problem that we see because of the shortages, the inflation, specific inflation to the different areas you mentioned, is higher than normal, but we try and make up for that with price increases. This year we have been successful in enjoying probably one of our better price increases across our portfolio. So it is an annoyance from an inflation perspective, and sometimes you have a hard time getting specifically what you need. But we are very aggressively planning ahead with our suppliers, recognizing that some of the shortages would probably not last. Let us put it that way.
Ron Epstein: Got it. Thank you very much.
Operator: The next question is from the line of Noah Poponak with Goldman Sachs. Please proceed with your questions.
Noah Poponak: Hey, good morning, everyone.
Robert Mehrabian: Morning, Noah.
Noah Poponak: Jason, congrats on your announcement, and thanks for all the time you spent with us over the years. Always super helpful.
Jason VanWees: Thanks, Noah, and I'll see you in December, so I'm still here for now.
Noah Poponak: Yeah, appreciate that. Robert, given the diversification of your business, as well as you guys have done over the years, there aren't that many quarters in any of the businesses that look like the last two growth rates in Digital Imaging. I guess, it leaves me wondering how sustainable is that? Because what's happening in the defense verticals you feed into right now is pretty unique and at least for now, seems fairly enduring. I guess you kind of have that happening at the same time that your commercial side is picking up, that has a little bit more of a cyclical element to it. Do you see these growth rates sustaining for a period of time, or is this more the early pickup on easy compares?
Robert Mehrabian: Thank you, Noah. Very good question as usual. Difficult one to answer. Let me just say, short-term, and short-term 2027, we think that we're going to do better than we have historically. This year, as you know, we're looking at about 8.3%, 8.4% growth that's organic, which is higher. The organic, sorry, is about 7.5%, but still, it's higher than what we've enjoyed the last 15 years or so. I think that's going to sustain, maybe not exactly at that level, but it's going to be better than those single digits, which we've been stuck on for a while. Mid to higher single digits is what we're anticipating. It's hard to say, but Noah, we have a balanced portfolio.
Robert Mehrabian: We've intentionally worked very hard to balance our portfolio so that when things get tough, we survive and do well, and when things are going well, some parts of our portfolio outshine like they are this year. I feel comfortable that we're going to do better than our historical, maybe not as aggressive as this year, but pretty close to it.
Noah Poponak: Okay. I also wanted to ask about the margin in that segment. When it was under some pressure, you would project when you expected it to be back to the level it's at now. I guess now that it's here, and it maybe has growth ahead of it, but also pieces moving around under the hood, is there a framework for how to think about the three to five year out or just the longer-term profitability potential of Digital Imaging?
Robert Mehrabian: Yeah. In Digital Imaging, obviously, we have enjoyed significant margin improvement this year over last year. By the end of the year, we expect the total margin to go up 225 basis points. Our target for every year across our portfolio is at least 50 basis points. This year, we are going to enjoy closer to 90 basis points, and that improvement, really, we just announced this quarter. Last quarter, we were closer to 50, 55. So I think our target is to stay on that 50 and do what we can year-over-year to improve our margins. That goes to the heart of what George talked about. When necessary, cut costs. When things improve, do not put it back.
Noah Poponak: Okay. One last one. Just what is the implied Q4, total company organic revenue growth that is embedded in your revised guidance? I realize you raised the bottom line considerably, but it seems like it would require organic growth that maybe looks a little conservative given you still have the easy compares.
Robert Mehrabian: Yeah, I think 7% to 8% is the number we have in mind at the present time. It may be a little higher, but 7% to 8% for Q4. As we get into Q4, which we are now, things are looking pretty well. We just have to execute. Execution is, as you well know, is everything in our portfolio. So 8% is a good number.
Noah Poponak: Okay. Thanks very much.
Robert Mehrabian: Thank you, Noah.
Operator: The next question is from the line of Robert Jamieson with Needham & Company. Please proceed with your question.
Robert Jamieson: Hey, good morning. Thanks for taking my questions here. Just back on the Q4 guide as well. Just with everything and the positive commentary around order books and books to bills. Then just looking historically, I got to go back to 2015, 2016 to see sequentially when EPS was kind of similar in Q3 to Q4. So just wondering what's kind of embedded in your outlook and any puts and takes in the broader macro, that you're considering that might be just keeping you a little bit more cautious here on your guidance?
Robert Mehrabian: Well, I think if you look back at those years, and by the way, we do all the time. What happened is by the end of Q4 2025, we started seeing some tax benefits, which, by the way, we're not enjoying today. So we're very hard at work making sure that we get those tax credits, but they play an important role, obviously. Especially if we can move the IRS to do what it's supposed to do, make decisions. If we can't do that, we might enjoy some tax benefits on top of everything else. But if you look back at the, what we call coming out of the hard years, simply what happened is we cut costs, as I mentioned before, George did, let's say in marine and other domains. But when markets turned up, we didn't put all that cost back. We had very good discipline.
Robert Mehrabian: If we can do that again, that would sustain us for a while, and our EPS will grow just like we did subsequent to the tough years that we had in mid-2015 and 2016. That is the best I can do in my answers. George, do you have anything you want to add?
George Bobb: No.
Robert Mehrabian: No, I guess not.
Robert Jamieson: No, thank you. That is helpful. Then just, can you update us on the unmanned outlook? Just how much you expect to generate just on dollar growth for this year? I know you guys kind of bumped that up the last couple quarters. Just curious where that stands today. Thank you.
Robert Mehrabian: Yeah. Broadly, 15% year-over-year, 2025 to 2026. Just on manned. If you put everything else in, with space, electronic warfare, missiles, and of course, underwater, if you do all of that, it is still double digits. It is 11.3%, 11.5%. While unmanned is doing really great, everything else in the portfolio seems to be moving up in double digits in that domain.
Robert Jamieson: That's great. Thank you.
Robert Mehrabian: Thank you.
Operator: The next question's from the line of John Godyn with Citigroup. Please proceed with your question.
[Analyst] (Citigroup): Hi, this is Bradley Eitzer for John Godyn. Thanks for taking my question. I just want to follow up on Noah's question about the growth trajectory for Digital Imaging. I mean, Q2 through Q have been strong. But I'm just trying to think for the potential outlook here, given that you called programs such as space sensors, missile detection. These programs still seem to be in their infancy. I'm just trying to think what the size and shape of this segment looks like over the fullness of time. Any color you can give here would be appreciated. Thank you.
Robert Mehrabian: Let me just say, right now, from where we sit, George and I, we are looking at mid-single digits, maybe a little higher than that, 5% to 8%. It is too early right now. Right now we are working on 2027, and I have never been one to project beyond the year. I know some people would tell you, three to five years, everything is going to be great, but that is not us because we do not see that far into the future. But I think single digits on the high side, we would be comfortable with that.
Robert Mehrabian: As we execute and as we compete with new programs, with things like our new drones, loitering drones that are armed, with our new nano drones that you can release three of them simultaneously from a single platform and recover them, with our ability to have an environment where all of our drones, whether it is ground-based or air, talk to one another. I think we feel comfortable with the, let us say, higher single-digit growths.
[Analyst] (Citigroup): Got it. Appreciate the color. I will keep it at the one. Thank you.
Robert Mehrabian: Thank you.
Operator: Thank you. The next question is from the line of Joe Giordano with TD Cowen. Please proceed with your question.
Joe Giordano: Hey, thanks for letting me back in.
Robert Mehrabian: Morning, Joe.
Joe Giordano: Just wanted to clarify something I may have heard wrong. Robert, I thought you said for DI for the year, you were thinking like 8-point something percent. Is that a Q4 number or is that a full year number? Because if it's a full year number, I'm guessing it's not, because then it would mean like Q4 organic is barely up. I just wanted to clarify that.
Robert Mehrabian: Yeah. I think for the year it is higher than that. Organic is 10%, with 0.6 of acquisition, it is 10.6%, closer to 11%. If I said that, I may have misspoken. We are talking about the revenue for Digital Imaging around $2.5 billion.
Joe Giordano: That makes much more sense. Thank you.
Robert Mehrabian: Thank you, Joe.
Operator: Thank you. At this time, we have reached the end of our question and answer session, and I will hand the floor back to management for any closing comments.
Robert Mehrabian: Thank you, Rob. I will now ask Jason to conclude our conference call.
Jason VanWees: Thanks, Robert, and again, thank you, Rob, for hosting the call. If any of you have follow-up questions, please feel free to call me at the number in the earnings release, or you have my email. Thanks, everyone. Bye.
Operator: This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation. Have a wonderful day.
