Teledyne Technologies Q1 2025 Earnings Report

Teledyne Technologies EPS Results

• Actual EPS: $4.95
• Consensus EPS: $4.92
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: $4.55

Teledyne Technologies Revenue Results

• Actual Revenue: $1.45 billion
• Expected Revenue: $1.44 billion
• Beat/Miss: Beat by +$10.47 million
• YoY Revenue Growth: +7.40%

Teledyne Technologies Announcement Details

• Quarter: Q1 2025
• Date: 4/23/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, April 23, 2025
• Conference Call Time: 11:00AM ET

Teledyne Technologies (NYSE:TDY), together with its subsidiaries, provides enabling technologies for industrial growth markets in the United States and internationally. Its Digital Imaging segment provides visible spectrum sensors and digital cameras; and infrared, ultraviolet, visible, and X-ray spectra; as well as micro electromechanical systems and semiconductors, including analog-to-digital and digital-to-analog converters. This segment also offers cooled and uncooled infrared or thermal products, including sensors, camera cores, and camera systems; high-resolution, low-dose X-ray sensors, high-power microwave, and high-energy X-ray subsystems; and instruments for the measurement of physical properties and maritime products; as well as develops and manufactures multi-spectrum electro-optic/infrared imaging systems and associated products, such as lasers, optics, and radars, CBRNE (Chemical, Biological, Radiological, Nuclear and Explosive detectors), and unmanned air and ground systems. The company's Instrumentation segment offers monitoring, control, and electronic test and measurement equipment; and power and communications connectivity devices for distributed instrumentation systems and sensor networks. The company's Aerospace and Defense Electronics segment provides electronic components and subsystems, data acquisition and communications components and equipment, harsh environment interconnects, general aviation batteries, and other components; and onboard avionics systems and ground-based applications, aircraft data and connectivity solutions, hardware systems, and software applications. Its Engineered Systems segment offers systems engineering and integration, technology development, and manufacturing solutions for defense, space, environmental, and energy applications; and designs and manufactures electrochemical energy systems and electronics for military applications. The company was founded in 1960 and is headquartered in Thousand Oaks, California.

Teledyne Technologies Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Welcome to Teledyne's First Quarter Earnings Release Conference Call. Here is our first speaker, Mr. Jason Van Weise.

[Jason VanWees, Vice Chairman at Teledyne]

Good morning, and thanks, everyone, for joining us. This is Jason Van Weise, Vice Chairman, and we're about to begin our first quarter twenty twenty five earnings release conference call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne's Executive Chairman, Robert Morabian CEO, Edwin Rox President and COO, George Bob and EVP and CFO Steve Blackwood, and finally Melanie Sybik, EVP General Counsel Chief Compliance Officer and Secretary. After remarks by Robert, Edwin, George, and Steve, we will ask for your questions.

[Jason VanWees, Vice Chairman at Teledyne]

But of course, before we get started, attorneys have reminded me to tell you that all forward looking statements made this morning are subject to various assumptions, risks and caveats as noted in the earnings release and our SEC filings, 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 webcast and dial in will be available for approximately one month. Here is Robert.

[Robert Mehrabian, Executive Chairman at Teledyne]

Thank you, Jason, and good morning everyone and thank you for joining our earnings call. In the first quarter, we achieved many records, including first quarter total sales which increased 7.4% accelerating for two quarters in a row and growing at the greatest rate in years. Sales also increased organically in every segment. Furthermore,

[Robert Mehrabian, Executive Chairman at Teledyne]

non

[Robert Mehrabian, Executive Chairman at Teledyne]

GAAP earnings per share and GAAP earnings per share and operating non GAAP operating margin were also records for any first quarter. We're pleased to close the KeyOptik carve out acquisition in the first quarter, but I should note also that a few months before closing, QOptik was awarded major new contracts with both The UK and German Ministry of Defence resulting in multi year acquired backlog. In any event, even excluding this acquired backlog, orders for Teledyne as a whole exceeded sales for the sixth consecutive quarter. We continue to execute our strategy which has delivered long term results regardless of economic and political uncertainty. That is maintained a balanced and resilient mix of commercial and government businesses across a broad range of geographies and markets and we continue to improve margins in existing businesses and acquire and integrate complementary companies.

[Robert Mehrabian, Executive Chairman at Teledyne]

Before further commenting on the quarter, I wanted to offer some perspective given the current unpredictable operating environment. While we're going to focus on what we can control, it's worth noting the following. Teledyne has never believed that offshoring US manufacturing and technology was a wise action. As a result, we have little low cost country manufacturing, we are a net exporter, and most of our external sales are produced and sold within regions. To be specific, approximately 80% of our sales are from US based locations to US based customers or our international locations to international customers.

[Robert Mehrabian, Executive Chairman at Teledyne]

Of the remaining 20% of total sales, approximately 80% or roughly 16 of the total are U. S. Export sales to international location but only 2% of total sales are US export sales to China. Finally, just 4% of external sales are from Teledyne international locations to US based customers where new tariffs may apply for our customers. Now regarding our own supply chain, we import relatively little from China and Mexico with the 2024 annual value of each less than $25,000,000.

[Robert Mehrabian, Executive Chairman at Teledyne]

Our largest import from Canada is internal sales of unmanned air systems for the US military, a large portion of which we believe would be subject to US DoD duty free exemption. While we're not immune to the current 10 plus percent of tariff rates or certainly the pre pause liberation they propose tariff rates, we are certainly planning actions to protect margins as the landscape evolves. That includes taking further exemptions under The U. S.-Mexico Canada agreement and from the United States Department of Defense as well as taking advantage of recent exemptions for import of certain electronic components and then finally, of course, pricing actions where we find necessary. Turning to our full year sales and earnings outlook, we must assume that the market uncertainty will have some impact.

[Robert Mehrabian, Executive Chairman at Teledyne]

While this is nearly impossible to quantify, we've assumed a negative sales impact of perhaps about 1% of annual sales offset by the Qioptic acquisition resulting in 2025 estimated sales of approximately $6,000,000,000 Also, while we exceeded our first quarter midpoint guidance of 4.8 dollars and we expect a contribution from KeyOptik which is now included in our outlook, we think it's wise to maintain our full year earnings outlook. Edwin and George will now briefly comment on the performance of our four business segments.

[Edwin Roks, CEO at Teledyne]

Thank you, Robert. This is Edwin, and I will report on the Digital Imaging segment, which represents approximately 52% of Telen's portfolio. First quarter twenty twenty five sales increased 2.2% compared with last year.

[Edwin Roks, CEO at Teledyne]

The performance last year reflected an increase in sales for both Telenheim and FLIR's defense and industrial business and relatively flat sales across the balance of our portfolio, where increased sales of space based infrared detectors and semiconductors were largely offset by ongoing weakness in certain markets such as X-ray detectors for consumer discretionary sensitive dental markets. Non GAAP operating margin improved 31 basis points, primarily due to the contribution of FLIR as well as space based sensor business. George will now report on the other three segments, which represent the balance of Teladoc.

[George Bobb, President & COO at Teledyne]

Thanks, Edwin. In the Instrumentation segment, which consists of our marine, environmental, and test and measurement businesses, first quarter total sales increased 3.9% versus last year, with organic growth of 2.6%. Overall sales of marine instruments increased 9.5%, six point five % of which was organic due to both strong offshore energy and subsea defense sales. Sales of environmental instruments decreased 2%, primarily due to lower sales of laboratory instrumentation and emissions monitoring instruments. However, orders were strong for the first quarter book to bill of 1.11 times.

[George Bobb, President & COO at Teledyne]

Sales of electronic test and measurement systems, which include oscilloscopes, protocol analyzers, and Ethernet traffic generators, increased 1.5% year over year. Instrumentation operating margin in the first quarter increased 97 basis points to 27%, and 88 basis points on a non GAAP basis to 27.9%. In the Aerospace and Defense Electronics segment, first quarter organic sales increased 7.8%, driven by growth of defense electronics products. Including the two recent acquisitions, sales increased 30.6%. Overall segment operating profit increased year over year, but GAAP and non GAAP segment margin decreased as expected due to transaction and integration costs, as well as comparatively lower current margins in the new acquisitions.

[George Bobb, President & COO at Teledyne]

For the Engineered Systems segment, first quarter revenue increased 14.9% and segment operating profit increased seven nineteen basis points due in part to an easy comparison with last year, which included higher cost to complete estimates on certain programs that did not recur in Q1 twenty twenty five. I will now pass the call back to Robert.

[Robert Mehrabian, Executive Chairman at Teledyne]

Thank you, George. In conclusion, despite recent volatility in capital markets as well as economic uncertainty, our performance to date has been resilient and strong. Each of our total orders, sales, margins and earnings increased in the first quarter. While organic sales increased in each segment, we also completed two acquisitions and ended the quarter with a leverage ratio of just 1.8. While we cannot predict the future, I continue to believe our balanced mix of businesses, strong cash flow, healthy balance sheet, and acquisition pipeline creates more long term opportunities than risks for Teledyne if the current economic stress continues.

[Robert Mehrabian, Executive Chairman at Teledyne]

I will now turn the call over to Steve.

[Stephen Blackwood, EVP & CFO at Teledyne]

Thank you, Robert, and good morning. I will first discuss additional financials for the quarter not covered by Robert, and then I will discuss our second quarter and full year 2025 outlook. In the first quarter, cash flow from operating activities was $242,600,000 compared with $291,000,000 in 2024. Free cash flow, that is cash flow from operating activities less capital expenditures, was $224,600,000 in the first quarter of twenty twenty five compared with $275,100,000 in 2024. Cash flow decreased year over year in the first quarter due in part to lower customer cash advances received in the first quarter of twenty twenty five compared with 2024.

[Stephen Blackwood, EVP & CFO at Teledyne]

Capital expenditures were $18,000,000 in the first quarter of twenty twenty five compared with $15,900,000 in 2024. Depreciation and amortization expense was $80,700,000 in the first quarter of twenty twenty five compared with $78,000,000 in 2024. We ended the quarter with $2,500,000,000 in net debt. That is approximately $2,960,000,000 of debt less cash of $461,500,000 Now turning to our outlook, which includes the acquisitions of MicroPact and KeyOpti. Management currently believes that GAAP earnings per share in the second quarter of twenty twenty five will be in the range of four point zero zero dollars to $4.15 per share with non GAAP earnings per share in the range of $4.95 to $5.5 And for the full year 2025, we believe the GAAP earnings per share will be in the range of $17.35 to $17.83 And we are maintaining our prior non GAAP outlook of $21.1 to $21.5 per share.

[Stephen Blackwood, EVP & CFO at Teledyne]

I will now pass the call back to Robert.

[Robert Mehrabian, Executive Chairman at Teledyne]

Thank you, Steve. We would now like to take your questions. Operator, if you're ready to proceed with the questions and answers, please go ahead.

[Operator]

Thank you. Our first question is from Greg Conrad with Jefferies. Please proceed with your question.

[Greg Konrad, SVP-Equity Research at Jefferies Financial Group]

Good morning.

[Robert Mehrabian, Executive Chairman at Teledyne]

Good morning, Greg.

[Greg Konrad, SVP-Equity Research at Jefferies Financial Group]

Appreciate all the detail, but maybe just to start with the tariffs. It seems like you took about one point out of revenues, including the M and A contribution. Can you maybe just level set us where you see the biggest potential impact? And maybe how does that correlate it with expected organic growth for the year? And also any change to expected FX headwinds?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yeah, the 1% that I took out for revenue was from the total that included acquisitions. So the total had increased because of the KeyOptica acquisition by $180,000,000 We took down about 100 from this. Now reality of the outlook is that the impact of you're asking about tariffs first, Greg. I just want to make sure I have this right.

[Greg Konrad, SVP-Equity Research at Jefferies Financial Group]

Well, I'm assuming it's all somewhat related. So I guess just the thought process behind the one point of revenue that came out of the outlook and maybe where you expect that to impact the business the most?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yeah, think most of that is just really, we're just looking at the GDP and assuming it's going to get a hit of 1%. So it's kind of a bigger picture. It's not going to affect a couple of our segments at all. It's going to probably affect a little bit of digital imaging and a little bit of instruments. I'm going to say in digital imaging, maybe $20,000,000 from before and in instruments, maybe another 20.

[Robert Mehrabian, Executive Chairman at Teledyne]

So you're looking at maybe 16 digital imaging, maybe 20 in instruments. I don't think it's going to affect our aerospace and defense or engineering systems. It's just a rounding up of what I think or what people think and I believe it. But if things continue, there's gonna be about a 1% hit to the overall growth in our GDP. So we're just taking it as a ballpark.

[Greg Konrad, SVP-Equity Research at Jefferies Financial Group]

And I guess just more on the tariff side, you mentioned all of the moving pieces. I mean, how do you think about the net impact, just thinking about margins, given you mentioned some of the pricing and localized production? How do you think about the margin impact from those or potential margin impact?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yeah, let me start, Greg, if I may. There are two components of the tariffs, as you well know. The first component is what happens for supply chain and the increase in the cost of the supplies. That we estimate that could be, we know that in 2024 about $700,000,000 of our products, supplies that we imported both internally and externally are going to be affected. And we assumed that if it goes from 1% to 15% tariffs, so you're going to have a 14% increase which is about $100,000,000 in cost.

[Robert Mehrabian, Executive Chairman at Teledyne]

That we can mitigate some of that and reduce it to less than $70,000,000 which would probably drop to maybe $18,000,000 a quarter. The second part of the tariffs is on the revenue side. That is how much is it going to affect our revenue. As I mentioned before, we think that that's going to have some effect only where we sell from U. S.

[Robert Mehrabian, Executive Chairman at Teledyne]

Based locations to international customers and I said before less than 2% to China. So 80% of what we make and sell is either made in The US, sold in The US. Made internationally, sold internationally. Only 17% is based in locations selling to international customers from The U. S.

[Robert Mehrabian, Executive Chairman at Teledyne]

And then only 4% from Teledyne international location back to The U. S. So I think it's important to put those two in perspective because they're a little different. I look at the supply chain issue which I just said could be as much as 18,000,000 a quarter in two ways. First, there's a similarity to what we experienced in 2021 and 2022 where we had to cough up a lot of money to brokers because of scarcity of materials especially electronic components.

[Robert Mehrabian, Executive Chairman at Teledyne]

Second, supplies that are coming in at a higher cost don't really impact the P and L immediately. They go initially in our inventory so they affect the balance sheet. We have inventory on hand and if you look at three to four turns a year it doesn't really affect the immediate quarter. It's going to probably start rolling in in the Q3, Q4 and that's where we'll see an increased cost of goods sold. And this is all before we do our pricing actions.

[Robert Mehrabian, Executive Chairman at Teledyne]

So yes, I'm giving you a very long answer because I think I'm going to get the same question multiple times. Yes, the tariffs are going to affect us. Overall GDP may go down 1%, we may go down 1%, but our revenue is still going to increase year over year and we're assuming with acquisitions our average revenue for the year would go up about 6%. So I feel pretty good about all of the above.

[Greg Konrad, SVP-Equity Research at Jefferies Financial Group]

And then maybe just sneaking in one last one, said US to international less than 2% of that's China. I believe China is maybe 5% of your total sales. Can you maybe just talk about what you're seeing into that region given I'm assuming that was probably already volatile before all of this, just broader trends within China?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yeah, going back to the overall, overall is maybe 4%, not quite 5%, two of it coming from US. So what do we sell there? One of the things that we sell there are avionic computers that go onboard commercial airlines that have to be certified. We also sell oscilloscopes and protocol analyzers. Some of the avionics actually are going to go there regardless of tariffs because they're needed or if you're going to fly commercial airlines and have a certified system.

[Robert Mehrabian, Executive Chairman at Teledyne]

Off that, then you go back and look at oscilloscopes that that comes from US high end oscilloscopes and that might affect us somewhat. And some of the machine vision stuff that might be affected, They're not US based really, they're foreign based products that we make. We make most of our machine vision products in Canada and in Europe. So they may be affected indirectly. Yeah, it's gonna cause a little pain but again we'll make it up somewhere else.

[Greg Konrad, SVP-Equity Research at Jefferies Financial Group]

Appreciate it. Thank you.

[Robert Mehrabian, Executive Chairman at Teledyne]

Thank you, Greg.

[Operator]

Our next question is from Andrew Buscaglia with BNP Paribas.

[Andrew Buscaglia, Senior Analyst at BNP Paribas]

Hey, good morning, everyone.

[Robert Mehrabian, Executive Chairman at Teledyne]

Morning, Andrew.

[Andrew Buscaglia, Senior Analyst at BNP Paribas]

Hey, Robert, on that the comment of 1% coming out, can you comment about risk related to any government spending cuts that you're seeing? Is is any of that contemplated in that? And how do you see Teledyne managing through that?

[Robert Mehrabian, Executive Chairman at Teledyne]

To be very honest, I don't think that's gonna affect us. The kinds of cuts they're talking about with DOSH, yes we do have things that may be at risk if they go to NASA, we have some NASA programs and others. But in the bigger picture it might even be good for us in some ways because we participate in space programs in a very healthy way and that's one of the domains that we're actually increasing our revenue. We participate in space programs both science space which is pretty big for us and we also participate in defense space. In the defense space which is about 60% of our overall space programs, we think there's going to be growth from all of these activities going reduction and then increases in other domains.

[Robert Mehrabian, Executive Chairman at Teledyne]

So the answer to your question, the short and long answer to your question is that overall we believe that the effect to us is going to not be significant and if there is one it will improve our defense programs in missile warning and tracking and intelligence surveillance etcetera, etcetera. We have about 20 defense programs related to space at the current time.

[Andrew Buscaglia, Senior Analyst at BNP Paribas]

Okay. Got it. And and, yeah, I think I think it's a logical assumption in terms of how you're you're thinking about the top line. What are you seeing in terms of your short cycle sales more recently? Are you seeing that play out?

[Andrew Buscaglia, Senior Analyst at BNP Paribas]

Some some of that business is getting worse. And specifically, can you comment on test and measurement and machine vision, which, you know, had been struggling as of late?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yeah. I think the effects are gonna be somewhat minimal. I think test and measurement may get affected a little bit. Overall, we think for the year test and measurement is going to be fairly flat So that I think is an effect. Instruments as a whole, which includes environmental, marine and test and measurements, I think it's going to be okay.

[Robert Mehrabian, Executive Chairman at Teledyne]

It's going to grow maybe 2.5 to 3%. Going back to machine vision, there are two parts to it as you know. There's the FLIR part and that is doing actually pretty well, especially FLIR defense. There is some effect on the industrial cameras, especially infrared handheld and stationary cameras, but that's going to be fairly flat year over year. We think what will happen in the FLIR side is the defense is doing so well that that will offset any negativity there.

[Robert Mehrabian, Executive Chairman at Teledyne]

The only area of digital imaging that we believe it could affect is the continuing weakness in our sensor sales. Our cameras are coming back. This is legacy digital imaging. Our cameras are coming back a little slower than we hoped. Sensors are lagging even more because people who buy our sensors have to develop new cameras and the market incentives aren't really there.

[Robert Mehrabian, Executive Chairman at Teledyne]

But if you come back and look at it as a whole, big picture, Our book to bill across the company is 1.05. Our instruments book to bill is 1.04. Overall digital imaging book to bill is 1.11. Aerospace and defense is slightly under one and engineered systems which is very lumpy business is under one, but we're not worried about that because we had revenue increases there. So overall, I'd say, yeah, we'll see some short term effects in some of our short cycle businesses, but overall we should be fine.

[Andrew Buscaglia, Senior Analyst at BNP Paribas]

Okay, very clear. Thank you.

[Operator]

Our next question is from Jim Ricchiuti with Needham and Company.

[James Ricchiuti, Senior Analyst at Needham & Company]

Hi, thanks. Good morning. Question about steps, actions you may take in terms of offsetting some of the pressure that you might see on margins. Robert, I'm wondering how you're thinking about driving margin improvement in some of the newly acquired businesses over the next several quarters?

[Robert Mehrabian, Executive Chairman at Teledyne]

Jim, that's a really grand question. First, if I look at the overall margin for the year across all of our businesses, We are projecting margin improvement of about 60 basis points for the year. Q1, we had margin improvement of about 80 basis points year over year. And one of the reasons that we think the margins are improvement are going to be slightly less is because of the acquisitions. If you take an acquisition like QOptic which moves our needle a little bit, In the first quarter, their margins were lower as we always have when we acquire a business.

[Robert Mehrabian, Executive Chairman at Teledyne]

They're going to hit our aerospace and defense overall by 200 basis points. But the way we look at it, every quarter going forward their margins are going to improve as we have done with every acquisition in our portfolio. And eventually they'll have the same margins as everything else. So in a way I look at it and say okay, what is the effect right now? In Q1 we only had them for two months, For the year we're going to have them for eleven months.

[Robert Mehrabian, Executive Chairman at Teledyne]

It's going to hit aerospace and defense margins somewhat but and it's going to decrease it maybe a 80 basis points but our defense margins before that were 28.6% and they're going to improve every quarter. So by next year it's all going to be fine and every acquisition we've made does the same thing. Lower the margin but actually contributes to the bottom line and as we said we expect QOptic to add another $0.15 to our overall earnings.

[James Ricchiuti, Senior Analyst at Needham & Company]

Got it. That's helpful, Robert. The follow-up question I had is historically in periods like this Teledyne has taken advantage of opportunities. I'm just wondering, are you seeing more potentially more acquisition opportunities in the current environment or is it too early?

[Robert Mehrabian, Executive Chairman at Teledyne]

Well, it's a little early but historically as you said Jim, every time there's been stress, economic stress, we've taken a little hit just like everybody else. But they've done two things. The three times that I remember there were similar economic stresses. We increased our cash, free cash flow. We had record cash flow.

[Robert Mehrabian, Executive Chairman at Teledyne]

Last year we had a record cash flow of over $1,000,000,000 I expect to have something close to that this year. As we come out of these things or even during these we make acquisitions. In 2017 as an example we bought E2V following twenty fourteen-sixteen depression. This year we bought Chia Optic and we also bought MicroPack. Having said that, our pipeline is relatively healthy both in smaller and what we like to call mid sized acquisitions.

[Robert Mehrabian, Executive Chairman at Teledyne]

We've already spent about $750,000,000 in the first quarter buying two businesses. And if we don't do anything else, our debt to EBITDA ratio which is not 1.8 will go to 1.2 because of our cash generation. So I'm looking forward to making some acquisitions, and it really depends on how competitive the environment is because there's some others doing the same thing as we are. There's some things available, but we don't wanna overpay them. Because if you overpay, then you pay for it later rather than sooner.

[James Ricchiuti, Senior Analyst at Needham & Company]

Thanks very much.

[Robert Mehrabian, Executive Chairman at Teledyne]

For sure.

[Operator]

Our next question is from Jordan Leone with Bank of America.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

Hey, good morning.

[Robert Mehrabian, Executive Chairman at Teledyne]

Good morning, Jordan.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

Could you guys talk a little bit about what you're expecting in your Aerospace and Defense segment or FLIR with The US FY '26 budget moving to a trillion dollars and also European rearmament, where should we be looking to see Teledyne?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yeah. Me just first say, let's just stay with defense for a second. Two parts. Obviously, if U. S.

[Robert Mehrabian, Executive Chairman at Teledyne]

Defense increases, we're going to have increased sales and in Q1 our defense sales year over year increased about 18.7%. Now there are two parts, obviously US defense is going to increase because we have some healthy products ranging from unmanned vehicles, probably one of the only companies that I can name that have unmanned vehicles in the air, on the ground, and underwater vehicles. Second, the defense, we also of course make all kinds of components that go into the defense domain. FLIR makes some very unique products for our defense. Let me move to Europe because that's just as important.

[Robert Mehrabian, Executive Chairman at Teledyne]

Currently we sell in 2024 let's just say, we sell $447,000,000 of product into European defence across many countries. If the defense budget and that includes by the way, I'm kind of taking key optic that we just bought and going backwards and saying well how much did they sell last year and so I'm putting that in that $4.47 and the small micro pack acquisition. So if you look at our defense budget it's about 3.3% if I'm correct of our GDP. European defense budgets at about 500,000,000,000 have been about 2% of the GDP. Everything we hear says they're planning to increase that to $8 to $900,000,000,000 over the next five years.

[Robert Mehrabian, Executive Chairman at Teledyne]

As a minimum we expect to maintain our share with what we have which is the four forty seven growing proportionate to what they increase their budgets with ads. Furthermore, we think considering the kinds of products that we make we're going to enjoy getting more of share of those primarily due to the fact that we have unique products that they need like our, I just mentioned our MAND systems but also we have a good manufacturing footprint of our defense products in Europe. We have it in The UK, we have it in Sweden, we have it in other locations. We make our unmanned vehicles, some of them in Iceland, we have them in Denmark, etc. So there's two folds to it.

[Robert Mehrabian, Executive Chairman at Teledyne]

One, we already enjoy it. Second, it's growing, we're going to grow with it. And third, there's going to be domestic manufacturing requirements that are going to go into all of the new programs which we enjoy our footprint in Europe. I said we don't have a manufacturing footprint in Southeast Asia. We've avoided it, but not in Europe because we bought a lot of businesses there and we've invested in European defense.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

Got it. That's helpful. Thank you so much.

[Operator]

Thanks. Our next question is from Damian Aras with UBS.

[Damian Karas, Executive Director at UBS Group]

Hey, good morning, everyone.

[Robert Mehrabian, Executive Chairman at Teledyne]

Good morning, Damian.

[Damian Karas, Executive Director at UBS Group]

Good morning. I was wondering if you might be able to clarify your prior comments about 1% lower GDP and factoring that into the full year guidance. Have you actually started seeing any slowdown in digital imaging and instrumentation over, say, the last month since all this tariff news and the tit for tat started? Or are you just kind of derisking because of this cloud of uncertainty, if you will? Because I guess if I think about all those book to bill numbers that you cited, they were all pretty positive.

[Robert Mehrabian, Executive Chairman at Teledyne]

I think you're two fold. First, we do see some weaknesses in certain areas, but there's nothing new about that. That test and measurement oscilloscopes, some of the stuff we sell overseas like to China, yeah, that's affected. But I think you're right. It's my guess.

[Robert Mehrabian, Executive Chairman at Teledyne]

It's a good, it's a guess. Now somebody might say 1% is too much, somebody might say 1% is too little, that's my guess. If it turns out not to be there I'd be very happy.

[Damian Karas, Executive Director at UBS Group]

I think we all will be. Thank you for that. And then not to beat a dead horse here on tariffs, but you mentioned that some of the higher costs, you won't see that in the P and L immediately as it sits in inventory. But I'm just curious, have you taken any price actions so far or made any adjustments in your supply chain to offset some of this cost inflation that you expect to creep in?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yeah, obviously just like twenty twenty one-twenty twenty two Damian, we jumped on that very fast. First you got to do a good analysis of what's happening and how it's going to affect you. So we start there. Then there are exemptions to those as I mentioned. For example, we make a lot of unmanned vehicles in Canada and we import them to The US.

[Robert Mehrabian, Executive Chairman at Teledyne]

So we're studying very carefully to make sure that we enjoy the DoD exemptions in that domain. Sometimes you can also assemble some internal products in a different location where you manufacture the components and assemble them somewhere else. We're looking at that. Finally, we have to take price action where we're getting hurt and we will do that and we will pass some of that on. So in totality there's a whole bunch of things, The most important one is the longer it takes for things to affect us, the better it is for us in terms of going from inventory to cost of goods sold and having time to take actions to offset what's coming our way.

[Robert Mehrabian, Executive Chairman at Teledyne]

Pricing opportunities, we're going to use them wherever we can and in the first quarter we actually had a volume increase of 2.3% or so in our products. So even with some pricing actions that we took. So it worries me but not a lot. Look we've been through this before number of times and what you got to do is hunker down and do what you do best, be very disciplined, Do small things very well and don't expect miracles to happen.

[Damian Karas, Executive Director at UBS Group]

Makes total sense. Thanks a lot, Robert. Good luck out there.

[Robert Mehrabian, Executive Chairman at Teledyne]

Thank you.

[Operator]

Our next question is from Joe Giordano with TD Cowen

[Joseph Giordano, Managing Director at TD Cowen]

hey guys how are you

[Robert Mehrabian, Executive Chairman at Teledyne]

morning Joe

[Joseph Giordano, Managing Director at TD Cowen]

Can you kind of go through the backlog with us? I know you mentioned it's at all time highs, but there was also some acquired backlog of some major multi year stuff you got from KeyOptix. So like how does that look excluding that?

[Robert Mehrabian, Executive Chairman at Teledyne]

Well, the KeyOptics backlog that we acquired increased about $60,000,000 because of the two new programs. Overall backlog, I think year over year is at the highest we've had including KeyOptik. It's about, I'm going to say about $4,000,000,000 which for us is pretty healthy. Of that, about $4.50 is KeyOptics. So 10% KeyOptics, the rest legacy Teledyne.

[Robert Mehrabian, Executive Chairman at Teledyne]

And you know, some of that is obviously multi year. But the way we look at it always is what is your book to bill in each quarter annualized and how are you doing in the short cycle businesses that you don't have much backlog? That's the one area that we're always very concerned and always very attentive to because some products we book and ship in two, three weeks. Some of our products, environmental products, maybe a month. Some of our cameras whether infrared or visible could be two weeks to four weeks.

[Robert Mehrabian, Executive Chairman at Teledyne]

So that's the area that we kind of keep an eye on very carefully. The longer term backlog, I don't worry too much about that.

[Joseph Giordano, Managing Director at TD Cowen]

Yeah. What about on the some of the stuff that if we talk about DOGE and some of the NASA stuff that you have that's more personnel at flight control kind of thing. Can you talk about the margin profile of the things that are at risk versus the margin profile of the things that you think are still growing?

[Robert Mehrabian, Executive Chairman at Teledyne]

Well, the margin profile of things like space, like the space station where we do a lot of work in designing experiments, training astronauts, coordinating space flights, whatever. That's our lowest margin business. It's in the 6% to 7%. The overall margins in our engineered systems business which includes both fixed cost and cost plus half and half are the lowest margins in the company around 10%. Having said that, some of the space stuff that's coming out whether it's the Golden Dome, whether it's putting satellites in space to be able to do look down at what missile warning and tracking, some of the ground based simulation stuff, those are our higher margin businesses and of course our unmanned systems.

[Robert Mehrabian, Executive Chairman at Teledyne]

So if you add them all up, we, let's say something happens to the NASA budget, yeah we'll take a hit in revenue but it's not going to affect us too much in our bottom line because that's our lowest margin business. On the flip side, if that money is not reprogrammed into other space programs, we're going to enjoy those because we have very healthy margins and we have tremendous heritage in space. Just to give you an example, in the science space which in a way translates to our military than defense space, We've participated in 162 missions, science missions. We have spent eighteen hundred mission years in space. We have a lot of detectors, almost a thousand detectors out there with zero device failures.

[Robert Mehrabian, Executive Chairman at Teledyne]

When the government starts investing in the space, they're gonna look for companies like ours that can actually make those very sophisticated stuff that they have made before and have a track record. So I think if the doors thing flips the way it looks like, That is some low margin businesses may go away, higher margin businesses, more difficult things to make come back. I think it'd be to our advantage.

[Joseph Giordano, Managing Director at TD Cowen]

Yeah, I think it's an important point. And if I could just sneak in one last thing. The stuff that you're selling to China outside of the the commercial air avionics stuff that you said is it has to go regardless. Is the rest of that stuff, I'm thinking oscilloscopes and environmental equipment, is that basically at zero now? Like with tariffs at 100 and is that effectively an embargo when tariffs are that high?

[Robert Mehrabian, Executive Chairman at Teledyne]

You can say that. It's not zero, but it's going down. Everybody is waiting to see what happens, some of our distributors are putting a hold on things, some of them are taking the higher cost materials because they have no choice. We'll deal with that. When you look at export to China at 2%, half of it is really not going to be affected.

[Robert Mehrabian, Executive Chairman at Teledyne]

Yeah I worry about that but I don't worry too much about it. You know we don't make stuff in China that we bring to The U. S. That's for sure. Some of our cameras go to China.

[Robert Mehrabian, Executive Chairman at Teledyne]

Some of our stuff like x-ray detectors for dental systems, we've already suffered the consequences of China like everybody else does when they sell product there. We sell product there, pretty soon the product is imitated, produced, and sold at a lower cost. So what you gotta do is move up market and make more sophisticated products continuously. It worries me, but not a whole lot.

[Joseph Giordano, Managing Director at TD Cowen]

Thanks, guys.

[Operator]

Our next question is from Guy Hardwick with Freedom Capital Markets.

[Guy Hardwick, Managing Director at Freedom Capital Markets]

Hi, good morning.

[Robert Mehrabian, Executive Chairman at Teledyne]

Good morning, Guy.

[Guy Hardwick, Managing Director at Freedom Capital Markets]

I know you touched on it earlier, but could you mind just maybe explaining a little bit more about the Canadian business? I mean, filings reveal, it's a substantial business. Could you how much of obviously, Dulce is based there? How much of business is commercial versus government? Because as you said that the government business may be exempt from tariffs.

[Guy Hardwick, Managing Director at Freedom Capital Markets]

And there's also those content rules. I understand that if a product is as much as 20% U. S. Content, it could be exempt as well. So that's my first question.

[Guy Hardwick, Managing Director at Freedom Capital Markets]

The second question on this $700,000,000 of COGS, presume that is components for you imported into The US.

[Robert Mehrabian, Executive Chairman at Teledyne]

Yeah. Let me answer the second question first because I have it in my head right away. I got to kind of dig the rest up. On the 700, it's composed of two parts. Things that we make and bring in The US.

[Robert Mehrabian, Executive Chairman at Teledyne]

And then supplies that like material supplies that we buy including electronics that go into products that we make in The US. So if you go to just the stuff that we make and bring into The US, those would be both commercial and defense. Some of the defense stuff like I mentioned unmanned air vehicles obviously the DoD is buying them because they need them and use them. Some of the commercial stuff like cameras, they might be subject to within that $700,000,000 they might be subject to the 10% or so tariff. We'll work with that.

[Robert Mehrabian, Executive Chairman at Teledyne]

It's not as I said before multiple times, forgive me if I repeat myself, it won't affect us immediately because that stuff goes into inventory. We already have inventory that's going to be used to make products, let's say for Q2 and the inventory rose three to four times a year. So we'd see some of it in Q3 then a full bore in Q4 maybe. But in the meantime there's a lot of things that can happen including actions that we take. Now going back to how much we make in Canada, I have to say that there's two sides to that.

[Robert Mehrabian, Executive Chairman at Teledyne]

We make, as I said, drones and military products. We have about 2,000 in Europe. In Canada we have, I'm going to say maybe 2,000 employees. And if you take the average revenue per employee in Canada, I don't know, it'd be maybe 250,000 per employee. So you can multiply that out.

[Robert Mehrabian, Executive Chairman at Teledyne]

I'm talking about, what, $500,000,000, you know, made in Canada and the beauty of Teledyne is we don't make everything anywhere else except The US. We make pieces of things here in Canada, pieces of it in England, pieces of it in Iceland, pieces of it in Netherlands, which spread across Western countries and that's good for us because where we make stuff in Europe, that's not going to be subject to European tariffs obviously. And so yes, we're going to have to take some hits if this environment continues. And I worry about it, but it doesn't keep me up at night.

[Guy Hardwick, Managing Director at Freedom Capital Markets]

But just because so, I mean, you're saying it's a fairly balanced business between commercial and government or is it more weighted towards government in Canada?

[Robert Mehrabian, Executive Chairman at Teledyne]

I would think most of it more commercial than government because our defense business coming from Canada is not that large. I would say seventythirty, eightytwenty of that. I don't have the numbers in front of me and I don't wanna take guesses, but I can I can get you those numbers and have Jason supply to you?

[Guy Hardwick, Managing Director at Freedom Capital Markets]

Thank you.

[Robert Mehrabian, Executive Chairman at Teledyne]

For sure.

[Operator]

Our next question is from Rob Jamieson with Vertical Research Partners.

[Robert Jamieson, Industrial Tech Equity Research at Vertical Research Partners]

Hey, good morning. Just a couple quick ones, just one clarification on tariffs. Sorry, joined late, but the underlying tariff rates that you're assuming on the impacts and everything that you laid out, is very clear, is that like China at 145% and then just what's what's been presented by the administration so far?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yeah, I guess you can say China of that order. Maybe a little higher, maybe 150, one hundred 60, Canada 20 five, United Kingdom 11, France 10, Denmark 10, and then when you roll it all up, it's about 15% across our portfolio.

[Robert Jamieson, Industrial Tech Equity Research at Vertical Research Partners]

Perfect, thank you. And then just on capital allocation, I appreciate the color you gave on acquisitions and how that looks, But how should we think about prioritization between deleveraging and buybacks over the next couple of quarters?

[Robert Mehrabian, Executive Chairman at Teledyne]

Let me go to the buybacks. We bought our stock back only two times and we bought them back when our stock price went below what we thought was prudent. We bought stock back in 2015. At about 2015 to 2016, about a hundred dollars a share. And we bought, I wanna say, about $325,000,000 of our stock.

[Robert Mehrabian, Executive Chairman at Teledyne]

Last year our stock dropped to $3.50, 3 50 5 or so and we bought it But then we stopped when it hit 400. So it's very important to look at the window of when we buy the stock. We can always buy the stock but it's prudent we can get much more returns in buying companies, improving them, and having both revenue and EPS attrition like we're talking about QOptics as a recent example or FLIR three years ago. So the buyback would be exceptions when our stock is low and there's nothing really available that we can look at. Our preference is always to buy companies.

[Robert Mehrabian, Executive Chairman at Teledyne]

So we'll buy back opportunistically when we have to or we have nothing else to do. On terms of capital, right now we're sitting at 1.8. By the way, we have long term debt that Steve mentioned and we have cash. But if you look at our long term debt, it's all fixed and it's fixed at average of about 2.4% and it spreads from two years hence out to 2029, '2 thousand and '30. And frankly we can pay that down but it would be stupid because we can get better interest rates in the immediate market than what we're paying.

[Robert Mehrabian, Executive Chairman at Teledyne]

So we're generating cash. We're sitting at 1.8. If we don't do anything, our debt to EBITDA ratio will go down to 1.2 by year end. And if we don't do anything another year, we'll go down to 0.5. So we have a lot of muscle to buy things and we will if the price is right and if it has strategically fits with what we're doing.

[Robert Mehrabian, Executive Chairman at Teledyne]

We're not going to just go out and buy stuff because it's available. We're going to buy stuff that we can run. It fits with our portfolio and our strategy. So and we generate about a billion of cash a year. So we're gonna be fine.

[Robert Jamieson, Industrial Tech Equity Research at Vertical Research Partners]

That's great. Very clear. Thank you. And then just one one last one on test and measurement. Know it's a small business for you guys, but it looks probably in line with expectations.

[Robert Jamieson, Industrial Tech Equity Research at Vertical Research Partners]

Any puts and takes you can give us just on the end markets that you serve there and how trading developed through the quarter?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yeah. We sell primarily the two products and one smaller product. The primary product that we sell are oscilloscopes and primarily high end oscilloscopes, high bandwidth, high frequency. And then the second thing we sell are protocols. Protocols are basically the rules with which devices communicate with one another or devices communicate with the clock.

[Robert Mehrabian, Executive Chairman at Teledyne]

We also have a very small piece of Internet generators that we bought which is growing fast but it's small. It used to be 15,000,000, it's going to be 30,000,000, But the primary products we make are oscilloscopes and protocols. And they can be somewhat affected by economic circumstances because there's capital equipment, especially oscilloscopes. In Q1 protocols went up the revenue, oscilloscopes went down, and Ethernet generators went up. There is one thing that we do that is very unique in that we also use our oscilloscopes in our protocol analyzers.

[Robert Mehrabian, Executive Chairman at Teledyne]

So that's a unique offering that we're able to make since we have such a strong position in protocols. So we can sell things, protocol analyzers that utilize our oscilloscopes. So all in all, it's a nice beautiful business with very high margins but it is subject to economic downturns.

[Robert Jamieson, Industrial Tech Equity Research at Vertical Research Partners]

Great. Thank you.

[Operator]

Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments.

[Robert Mehrabian, Executive Chairman at Teledyne]

Thank you, Paul. I'll ask Jason to conclude our conference call.

[Jason VanWees, Vice Chairman at Teledyne]

Thanks, Robert, and again, thanks everyone for joining us this morning. If you have follow-up questions, certainly feel free to call me or send me a note of my numbers on the earnings release. And again, thank you everyone and talk to you later. Bye.

[Operator]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Jason VanWees, Vice Chairman
• Robert Mehrabian, Executive Chairman
• Stephen Blackwood, EVP & CFO

Analysts

• Edwin Roks, CEO at Teledyne
• George Bobb, President & COO at Teledyne
• Greg Konrad, SVP-Equity Research at Jefferies Financial Group
• Andrew Buscaglia, Senior Analyst at BNP Paribas
• James Ricchiuti, Senior Analyst at Needham & Company
• Jordan Lyonnais, Equity Research Associate at Bank of America
• Damian Karas, Executive Director at UBS Group
• Joseph Giordano, Managing Director at TD Cowen
• Guy Hardwick, Managing Director at Freedom Capital Markets
• Robert Jamieson, Industrial Tech Equity Research at Vertical Research Partners