Ralliant Q2 2025 Earnings Report

Ralliant EPS Results

• Actual EPS: $0.67
• Consensus EPS: $0.60
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: N/A

Ralliant Revenue Results

• Actual Revenue: $503.30 million
• Expected Revenue: $509.90 million
• Beat/Miss: Missed by -$6.60 million
• YoY Revenue Growth: N/A

Ralliant Announcement Details

• Quarter: Q2 2025
• Date: 8/11/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, August 12, 2025
• Conference Call Time: 8:30AM ET

Ralliant (NYSE:RAL) is a provider of precision technologies which specializes in designing, developing, manufacturing and servicing precision instruments and engineered products. Ralliant Corporation is based in RALEIGH, N.C.

Ralliant Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q2 revenue came in line with expectations, driven by strong secular demand in utilities and defense, while Test and Measurement showed sequential improvement.
• Positive Sentiment: Generated $74 million free cash flow with a 98% conversion rate, highlighting robust cash generation and the effectiveness of the Ralliant Business System.
• Neutral Sentiment: Test and Measurement revenue declined 15% year-over-year but stabilized sequentially and is supported by new product launches, including the high-performance 7 Series oscilloscope.
• Positive Sentiment: Initiated a $9 million–$11 million cost savings program to address separation dis-synergies in Test and Measurement and expects to fully offset the ~$40 million tariff headwind by year-end.
• Negative Sentiment: Third-quarter guidance anticipates revenue down 1%–4% year-over-year and an adjusted EBITDA margin of 18%–20%, reflecting a cautious stance amid macroeconomic and tariff pressures.

Presentation

[Operator]

My name is Donna, and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to the Ralliant Corporation's Second Quarter twenty twenty five Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the call over to Mr. Nathan McCurran, Vice President of Investor Relations. Mr. McCurran, you may begin your conference.

[Nathan McCurren, VP - IR at Ralliant]

Thank you, Donna. Good morning, everyone, and thank you for joining us for our first earnings call as Rallyon. I'm Nathan McCurran, VP of Investor Relations. Today, we'll walk through our second quarter twenty twenty five results, highlight key operational progress and provide an outlook for the third quarter. I'm joined today by Tammy Newcomb, our President and Chief Executive Officer and Neil Reynolds, our Chief Financial Officer.

[Nathan McCurren, VP - IR at Ralliant]

Our earnings release issued yesterday and today's presentation can be accessed on the Investors section of our website at rallyant.com. Please note that we'll be discussing certain non GAAP financial measures on today's call. A reconciliation of these items to U. S. GAAP can be found in the appendix to our presentation.

[Nathan McCurren, VP - IR at Ralliant]

During today's call, and unless otherwise stated, we're comparing our second quarter twenty twenty five results to the same period in 2024. During the call, we will make forward looking statements, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward looking statements are subject to a number of risks and uncertainties, and actual results might differ materially from any forward looking statements we make today. Information regarding these risks and uncertainties is available in our information statement filed with the SEC on 05/28/2025, and our quarterly report on Form 10 Q for the quarter ended 06/27/2025. With that, I'd like to turn the call over to Tammy.

[Tami Newcombe, President, CEO & Director at Ralliant]

Glad to have you on the team, Nathan. Welcome to Ralliance's second quarter earnings call. We are joining you from our new headquarters in Raleigh, North Carolina. It's hard to believe that just weeks ago, many of us were together at our Investor Day. That day marked the beginning of a new chapter for Ralliance, and we're incredibly grateful that you've joined us again as we are taking our first steps forward as a public company.

[Tami Newcombe, President, CEO & Director at Ralliant]

I want to begin by recognizing our team. The energy, focus and commitment they've shown during this transition has been nothing short extraordinary. Their belief in our mission and their drive to serve our customers is what gives me confidence in our future. Over the next hour, my goal is to provide you with a high level overview of our financial performance and share how we are navigating as an independent company. Neil will do a deep dive into our Q2 twenty twenty five results and provide our Q3 outlook.

[Tami Newcombe, President, CEO & Director at Ralliant]

Then I'll come back and demonstrate how we are executing our strategy and the exciting growth opportunities ahead. Let's begin on Slide four and five with a quick overview of our business. Ralliant provides essential technologies for our electrified and digital world. We design, manufacture and service precision instruments and engineered products for mission critical applications. In 2024, we had revenue of $2,200,000,000 with 26% adjusted EBITDA margin.

[Tami Newcombe, President, CEO & Director at Ralliant]

Over the past five years, we grew revenue by 3.5% and adjusted EBITDA by 9%, generating $2,000,000,000 of cumulative free cash flow. We have two strategic reporting segments: Sensors and Safety Systems and Test and Measurement. The segments include iconic brands with leading positions in attractive markets. Now shifting to our Q2 results, I'll begin on Slide six with key takeaways for the quarter. On June 28, we emerged as a public company with a legacy of operating rigor and a focused profitable growth strategy.

[Tami Newcombe, President, CEO & Director at Ralliant]

Our Q2 revenue was in line with our expectations as we continued to see secular demand in the utilities and defense markets with test and measurement improving sequentially. More on that shortly. We generated strong free cash flow with a conversion rate of 98% of adjusted net earnings, demonstrating the power of our Ralliant Business System, or RBS. The profitable growth strategy we shared Investor Day in June capitalizes on secular tailwinds where we are well positioned in high growth vectors, coupled with our stronghold positions in markets where we create enduring customer value. Lastly, post spin, we're activating a cost savings program initially targeting $9,000,000 to $11,000,000 of dis synergies in test and measurement created by the separation.

[Tami Newcombe, President, CEO & Director at Ralliant]

Moving to Slide seven for a brief overview of our Q2 twenty twenty five financial performance. Our second quarter results reflect the resilience of our business in a dynamic operating environment. We navigated macroeconomic uncertainty while remaining focused on executing our long term growth strategy. We balanced short term pressures with the disciplined capital deployment and a relentless focus on execution underpinned by RBS. The second quarter's revenue was in line with our expectations with sequential revenue growth in both segments.

[Tami Newcombe, President, CEO & Director at Ralliant]

We saw strong demand in the Sensors and Safety Systems segment with continued secular momentum across utility customers and defense programs. Utilities revenue rose significantly both year over year and sequentially, fueled by ongoing capital spend for global energy grid modernization. Our precision sensing and data analytics solutions are essential to ensuring reliable power, and we're optimistic about expanded offerings. In defense and space, the replenishment of existing defense programs endures. Many countries' current defense outlook has a significant budget step up, prioritizing missile programs, hypersonic and space.

[Tami Newcombe, President, CEO & Director at Ralliant]

All would benefit Rolliant. Globally, industrial manufacturing has shown some green shoots in critical environments, including new opportunities in the data center, yet demand in Europe remains soft. In the Test and Measurement segment, consistent with expectations, revenue remained down year over year. Sequentially, we are seeing gradual improvement. Communications had positive mid single digit sequential revenue growth, driven by an increase in investment in the research and development labs for the Department of Defense, the Department of Energy and the technology going to AI data centers.

[Tami Newcombe, President, CEO & Director at Ralliant]

Our diversified electronics and semiconductor end markets were up slightly sequentially in Q2 as we saw each of these markets stabilize after several quarters of revenue decline. In Diversified Electronics, we're seeing healthy channel positions and some positive trends for industrial, consumer, university research, grid energy storage and medical. Electric vehicle and battery applications drove our most significant revenue decline year over year in Test and Measurement. Semiconductor customer spending remains lumpy. We have long standing relationships with semi customers.

[Tami Newcombe, President, CEO & Director at Ralliant]

These customers' CapEx investment comes in cycles, but they continuously innovate. We have maintained our investment in field applications engineers and innovation collaboration to be well positioned as each of these customers invest. This quarter, Tektronix will begin shipping an industry leading high performance oscilloscope, an innovation already generating strong customer interest and strengthening our order pipeline. This is one of many new products launched this year, demonstrating how our platform engineering is accelerating innovation across our Test and Measurement segment. Turning to Slide eight, I'll share regional insights.

[Tami Newcombe, President, CEO & Director at Ralliant]

In Q2, North America revenue declined 5% year over year. Looking forward, we have great positioning here with exposure to utilities, defense and new products launching in test and measurement. China was stable with a modest 1% decline as growth in utilities was largely offset by lower demand in Test and Measurement. Western Europe remained challenged, down 23%, mainly due to the continued weakness year over year I called out across electric vehicles and batteries. Our Rest of World region led performance with 5% growth as most markets stabilized, and we saw strong demand in Japan, Latin America and portions of Eastern Europe.

[Tami Newcombe, President, CEO & Director at Ralliant]

As we move forward, we remain committed to delivering sustainable growth, expanding margins and creating long term value for our shareholders. Next, Neil will walk you through the details of our financials.

[Neill Reynolds, CFO at Ralliant]

It's great to be here, Tammy. I am both excited and grateful to join you in participating in Ralliant's inaugural earnings call. I would also like to extend my heartfelt appreciation to our dedicated Ralliant team for their hard work and tireless effort to get us here. I'll begin with an overview of our second quarter twenty twenty five performance starting on Slide 10. Comparisons are on a year over year basis unless otherwise noted.

[Neill Reynolds, CFO at Ralliant]

During the quarter, we generated revenue of $5.00 $3,000,000 representing a six percent decline year over year, but an increase of 4% sequentially. Strong demand continued in our Sensors and Safety Systems segment, driven by growth in both utilities and defense and space end markets. The industrial manufacturing end market continued to deliver stable revenue, which marks its sixth consecutive quarter of revenue stability. Test and Measurement remained down year over year, but stabilized during the quarter, contributing to overall sequential revenue growth. Adjusted EBITDA margin of 19.8% in the quarter was down five thirty basis points year over year, driven by lower volumes in the Test and Measurement segment, increased employee and standalone public company costs and tariffs.

[Neill Reynolds, CFO at Ralliant]

This was partially offset by year over year revenue growth and adjusted EBITDA margin expansion in Sensors and Safety Systems. Sequentially, adjusted EBITDA margin was down 140 basis points as the margin benefits from higher volume were offset by higher standalone public company costs and tariffs. By leveraging RBS, we expect to fully offset the ongoing tariff impact by the end of the year, and I will address the countermeasures we are taking later in our prepared remarks. Looking ahead, consistent with this team's track record, adjusted EBITDA margin expansion will be a core focus for us. We are confident in delivering improvements.

[Neill Reynolds, CFO at Ralliant]

Adjusted EPS of $0.67 declined 23% year over year, driven by lower volume in Test and Measurement, standalone public company costs and tariffs. I will note that the second quarter did not include any interest expense, which we began incurring during the third quarter. Consistent with our strong cash generation track record, we generated $74,000,000 of free cash flow in the quarter and achieved a 98% conversion rate. Now let's drill into segment performance in the quarter, starting with Sensors and Safety Systems on Slide 11. Sensors and Safety Systems delivered revenue of $311,000,000 representing greater than 60% of Ralliance total revenue.

[Neill Reynolds, CFO at Ralliant]

Revenue grew 1% year over year and 6% sequentially as demand continued to gain traction in the utilities and defense and space end markets. Utilities revenue reached double digit growth year over year as customers are continuing to invest in electric grid expansion, fueling growth in our sensors, analytics and grid monitoring solutions. We continue to experience defense and space demand as customers expand multiyear requirements for existing defense programs. The increased demand has led to order growth to exceed revenue growth. We are currently leveraging RBS to accelerate output in order to support customer timelines for expansion.

[Neill Reynolds, CFO at Ralliant]

Moving to Test and Measurement on Slide 12. Test and Measurement revenue declined 15% year over year, primarily due to weakness in EVs and China. Notably, on a sequential basis, Test and Measurement delivered 2% growth as order trends began to stabilize during the quarter. We anticipate continued sequential revenue improvements in the second half of the year, supported by stronger contributions from new product launches and seasonality, though we expect these gains will be gradual. Regarding seasonality, we tend to see a ramp in Test and Measurement as the year progresses, resulting in a first to second half split of approximately 48% to 52%, respectively, on average.

[Neill Reynolds, CFO at Ralliant]

Adjusted EBITDA margin for Test and Measurement was down approximately 1,300 basis points compared to last year, primarily due to lower sales volumes and tariffs. On a positive note, adjusted EBITDA margins improved by two thirty basis points sequentially, and we expect a return to double digit percent levels in the third quarter. This improvement is expected to be driven by higher volumes, the ramp up of our tariff mitigation efforts and our cost savings program. Turning to our balance sheet on Slide 13. We start out as a public company with a strong balance sheet with 199,000,000 in cash and cash equivalents and $1,150,000,000 in term loan debt, resulting in 1.9x net leverage.

[Neill Reynolds, CFO at Ralliant]

From this cash balance, we have approximately $90,000,000 of spin related obligations to Fortive or taxing authorities under our separation and tax matter agreements expected to be paid in the third quarter. We generated $86,000,000 of operating cash flow in the quarter and spent $12,000,000 on CapEx or 2% of revenue, resulting in $74,000,000 of free cash flow. On Slide 14, I'll discuss our capital allocation priorities and the actions we have taken. At our June Investor Day, we outlined our capital allocation priorities of first investing organically in the business, then returning capital through dividends and share buybacks and lastly, executing selective tuck in acquisitions focused on our high growth vectors. In June, we announced that our Board of Directors authorized up to $200,000,000 of share repurchases.

[Neill Reynolds, CFO at Ralliant]

And last week, we announced a quarterly cash dividend of $05 per share. These actions demonstrate our capacity and commitment to return capital to shareholders. We will continue to balance these capital allocation priorities based on our target cash balance and target net leverage of 1.5 to two times adjusted EBITDA as defined under our credit agreement. On Slide 15, I want to double click and provide color on expenses related to tariffs and our operating costs to ensure everyone understands the Q2 and spin related impacts. Let me start with tariffs.

[Neill Reynolds, CFO at Ralliant]

For the full year, we expect approximately $40,000,000 of cost headwinds, with China tariffs being the largest contributor. Approximately $12,000,000 of that total cost hit in the second quarter. RBS is in full gear as we execute our proven playbook and successfully navigate the current environment. To that end, we expect to fully offset the ongoing tariff impact by year end. At that point, we expect a continued gross margin headwind of about 100 basis points.

[Neill Reynolds, CFO at Ralliant]

The tariff countermeasures we are deploying are focused on both pricing and supply chain. By utilizing fundamental RBS toolkits, we have responded quickly and effectively to changes in tariff policy. In 2018, we began the shift to an in region for region manufacturing and sourcing strategy, which we have continued to execute, reducing our exposure to imports from China. Adding to our continued operating rigor, a strong U. S.

[Neill Reynolds, CFO at Ralliant]

Manufacturing footprint and reduced reliance on China, we believe we are well positioned to continue to navigate this dynamic environment. Now let me address operating expenses. As we move forward as a public company, we want to update you on our expected operating cost structure. In Q2, adjusted operating expense was $156,000,000 up $8,000,000 from the first quarter, representing an initial step up in standalone public company costs to prepare us for our separation from Fortive. In addition to this, we have cost dis synergies or stranded costs resulting from the spin from Fortive.

[Neill Reynolds, CFO at Ralliant]

Tammy will discuss how we are addressing that with the cost savings program we are launching. This Q2 adjusted operating expense amount excludes $10,000,000 of duplicative Fortive SG and A allocations that will not repeat moving forward. So we have made a non GAAP adjustment to remove these accounting charges. In our presentation, we have provided a table summarizing our non GAAP adjustments, a reconciliation of our adjusted OpEx and a bridge of adjusted operating expenses pre spin to what we view as a representative run rate beginning in Q3. In Q3, we expect operating costs to increase to approximately $170,000,000 on an adjusted basis, which is reflective of a fully ramped quarterly run rate going forward.

[Neill Reynolds, CFO at Ralliant]

This represents a full quarter of standalone costs along with other employee expenses that were reconciled post spin, including stock based compensation and healthcare costs, in addition to the normal step up in annual merit increase that took effect in Q2 as well. Included in the $170,000,000 adjusted operating expense run rate, we expect beginning in Q3 are standalone costs of approximately $13,000,000 We expect this to represent a go forward run rate of approximately $50,000,000 to $55,000,000 annually instead of the approximately $45,000,000 annually or $11,000,000 per quarter shared at our pre spin Investor Day. This increase of $1,000,000 to $2,000,000 per quarter is driven by us learning more as our new leaders began to actively build out their organizations and further refine the estimate that Fortive had previously established. We also anticipate an increase of other employee costs of $3,000,000 to $5,000,000 per quarter, driven primarily by higher stock based compensation and healthcare costs, which started to materialize in Q2. This is in addition to the typical annual merit increase that took effect in Q2.

[Neill Reynolds, CFO at Ralliant]

We hope this additional color is helpful as you seek to model Rallyant. We will continue to actively evaluate areas of additional cost productivity to support our through cycle adjusted EBITDA margin target of low to mid-20s percent. And now let's turn to our guidance on Slide 16. As a new public company launching halfway through the year, we will be providing quarterly guidance for the remainder of the year across revenue, adjusted EBITDA margin and adjusted EPS. We will revisit our guidance policy for full year 2026 and plan to provide an update in Q1 on our approach.

[Neill Reynolds, CFO at Ralliant]

For the 2025, we expect revenue of $513,000,000 to $527,000,000 which implies year over year revenue growth of down 1% to down 4%. We expect continued demand in Sensors and Safety Systems with strong backlog supporting our revenue growth. We anticipate stable demand in Test and Measurement with gradual sequential improvement in line with typical seasonality as I discussed earlier. For the third quarter, we expect adjusted EBITDA margin of 18% to 20% with sequential improvement in Test and Measurement adjusted EBITDA margin to at least double digits in Q3. We have begun to incur interest expense after the spin, which we expect to result in 16,000,000 to $18,000,000 For Q3, we also expect an adjusted effective tax rate of 17% to 19% and weighted average diluted shares outstanding of approximately $113,000,000 We expect this to result in Q3 adjusted diluted EPS of $0.54 to $0.60 per share.

[Neill Reynolds, CFO at Ralliant]

Wrapping up my remarks, our Q3 outlook assumes gradual improvement in demand, but continued macro and tariff dynamics to navigate. We have plans in place that provide a path back to our long term target revenue growth and adjusted EBITDA margin through our proven RBS playbook and proactive countermeasures. With that, I'll turn it back to Tammy to talk through an update on our profitable growth strategy.

[Tami Newcombe, President, CEO & Director at Ralliant]

Thank you for providing clarity on our financials, Neil. Our profitable growth strategy is grounded in three pillars. The first pillar is RBS everywhere. We will continue to focus on innovation and operating rigor. RBS enables us to drive scale, efficiency and profitability across the enterprise.

[Tami Newcombe, President, CEO & Director at Ralliant]

The second pillar is stronghold positions where our imperative is delivering ongoing customer value, including services, product roadmaps and global channel reach. The third pillar is winning growth factors, where we are investing to capture secular growth trends, specifically in grid modernization, defense technologies and power electronics. Now I'll cover a few examples of how we are executing our strategy. First, Tektronix was recognized with Northrop Grumman's twenty twenty five Supplier Performance Excellence Award. Out of more than 20,000 suppliers worldwide, only 50 received this honor, a prime example of how RBS Everywhere is making a difference to our customers.

[Tami Newcombe, President, CEO & Director at Ralliant]

Next, GEMCETRA is expanding our strong position in pressure and flow sensors to the AI data center. We are partnering with the manufacturers of state of the art liquid and air cooling systems to increase operational efficiency. In utilities, Colitrol is shipping the new arc detection feature for their generation and transmission monitoring solutions. This feature employs AI software to automate the customer workflow and predict the precise fault location. Now, our utility customers have real time data analytics to predict failures before they occur, thus saving costly downtime and electricity disruptions around the globe.

[Tami Newcombe, President, CEO & Director at Ralliant]

Finally, I want to acknowledge our PACSCI EMC team for delivering mission critical innovations that enhance safety and reliability for our customers. Last month, an F-thirty five military plane crashed in California. PakSci EMC supplies the canopy fracturing system used in the event of an ejection. And thanks to the team, another pilot was able to eject safely and return home to his family. Hopefully, these examples bring to life how we are continuing to execute our strategy with our customers.

[Tami Newcombe, President, CEO & Director at Ralliant]

Before we turn to Q and A, I want to spend some time on our Test and Measurement segment. Please turn to Slide 19. I'll start with historical context for the growth pattern we have seen in Test and Measurement. Coming out of COVID, we realized strong growth, beginning with double digit revenue growth in both 2021 and 2022. Revenue continued to outperform versus the Test and measurement peer group over a seven quarter period from mid-twenty twenty two through the 2024.

[Tami Newcombe, President, CEO & Director at Ralliant]

The demand was driven by power applications, such as electric mobility, new battery technologies and charging infrastructure, where the portfolio is well positioned. Since that peak, orders began to decline in late twenty twenty three, resulting in organic revenue declines beginning in the 2024 amid very tough comps. To start 2024, we closed the EA Electroautomatiq acquisition and almost immediately felt the sharp market decline in EA's largest end market, automotive, and particularly electric vehicle and battery investment, predominantly in Europe. Despite the setback, we remain confident in EA's leading technology and our opportunity to reach new customers through the Tektronix brand and global channel. Throughout this period, we have maintained investments in R and D to drive innovation and future growth.

[Tami Newcombe, President, CEO & Director at Ralliant]

This year exemplifies ongoing innovation with eight new product launches, including first half announcements for battery testing and new probing technology. As I mentioned earlier, Tektronix will begin shipping a new seven Series high performance oscilloscope that allows a new level of performance for many test and measurement applications. We came into 2025 with uncertainty around the shifting global trade dynamics and softer for longer demand within our loyal Test and Measurement customers. After bottoming last quarter, Test and Measurement revenue stabilized, turning to slightly positive sequential growth in Q2, and we expect further gradual improvement as we finish the year. The Test and Measurement segment has a higher fixed cost base than our other businesses, largely driven by higher R and D.

[Tami Newcombe, President, CEO & Director at Ralliant]

So we tend to see the highest incremental and decremental margins here. As a result, the revenue decline has contributed to a significant drop in adjusted EBITDA margin. While we have a lot to be excited about for the future of Test and Measurement, as an independent company, we are taking proactive actions to improve adjusted EBITDA margins. We are starting by addressing spin related dissynergies. Specifically, there is an approximately $80,000,000 service business that was previously part of Test and Measurement segment that remained with Fortive.

[Tami Newcombe, President, CEO & Director at Ralliant]

This leaves us with stranded costs from the dis synergies. To optimize our operations and to help offset these dis synergies, we are further consolidating our services footprint and activating a cost savings program, initially targeting $9,000,000 to $11,000,000 of annualized savings. We expect to achieve approximately $4,000,000 of annualized savings as we exit 2025 and the remaining $6,000,000 in 2026. Most of this anticipated benefit will be in cost of sales with a small amount of operating expense savings. Between the sequential revenue increase in the second quarter, the many new product announcements this year and the margin improvement actions, we are confident the Test and Measurement segment will contribute to Raleigh's long term financial targets.

[Tami Newcombe, President, CEO & Director at Ralliant]

Now I'd like to open up the mic for your questions.

[Operator]

Ladies and gentlemen, the floor is now open for questions. Our first question today is coming from Julian Mitchell of Barclays. Please go ahead.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

Hi, good morning and congratulations on getting the first standalone company earnings out of the way. Maybe the first question just around the Test and Measurement segment top line outlook. So I think the total company you've guided sales up sequentially sort of low mid single digits or so in Q3. Should we expect both segments, I. E, including T and M, to be moving at a similar pace?

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

And then the commentary on the 40 eightfifty two first half, second half sales split, I think that's implying you're still down maybe close to 10% year on year in Q4 in T and M. Just wanted to sort of understand that process and any sort of color on Western Europe and comms because those were very weak in Q2 still.

[Tami Newcombe, President, CEO & Director at Ralliant]

Hey, Julien. Grateful to have you on our first call with us today. We're certainly encouraged by the sequential improvement we saw in test and measurement. I will say that that's one data point and not a trend line yet. What we also have good access to is over 90,000 customers that we sell to around the globe.

[Tami Newcombe, President, CEO & Director at Ralliant]

And we get insights through our sales teams in the test and measurement space. We're about fifty-fifty direct and indirect. So we get channel insights, point of sale, and regional color. As I think forward to, to going forward, we called a gradual improvement. We said that for the company, but you'll also see that in the test and measurement space.

[Tami Newcombe, President, CEO & Director at Ralliant]

And the I think as Neil shared the typical seasonality is the 40 eightfifty two.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

Got it. And then if we're thinking about sort of the EBITDA margins here, so you talked about that double digit third quarter number for Test and Measurement. I guess sort of rolling in the €4,000,000 savings number, it sounds like that moves up somewhat sequentially in Q4. And taking a step back, is the aspiration with these cost measures to get Test and Measurement sort of firmly into that medium term margin range next year? I think at the Investor Day, you said kind of mid teens to low 20s through cycle.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

So is the purpose of all these cost outs and so forth to get sort of into the low end of that range next year?

[Tami Newcombe, President, CEO & Director at Ralliant]

Yes. We're still confident in the adjusted EBITDA range that we shared at Investor Day, mid teens to high teens. The cost savings program, which we are starting with, is in the Test and Measurement Services business. So that annualized savings you will see is in the cost of sales of that business. And we will continue.

[Tami Newcombe, President, CEO & Director at Ralliant]

So there's sort of a short term, just out of the spin here, six point five weeks in immediate actions that we're taking there to get after some of the stranded costs. And then as we move through the next quarter and prepare for 2026, we'll continue to employ our RBS toolkit and drive continued margin expansion.

[Neill Reynolds, CFO at Ralliant]

Can we just follow-up on that as well, Julian, this is Neil. So I think as you move into the second half of the year, you're also going to see some tailwinds from some of the tariff mitigation efforts we've put into place, both from a pricing front as well as a supply chain view. So in addition to say some, I'd say some underlying gradual volume improvement, kind of underlying some of those pricing measures, we're also seeing a little bit of tailwind from FX. So as we start to see that improve, we'll also see some structural improvement in the overall margin profile, both in T and M, but also I'd say in Sensors and Safety Systems. So when you take a step back, the gross margins are going to start improving as we get to the back half of the year.

[Neill Reynolds, CFO at Ralliant]

That will be offset a little bit by the higher OpEx that we talked about. But from a health perspective, we start to see the margin enhancements underlying the business start to improve fundamentally as we start to enter the second half of the year.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

Got it. And when you roll that together, does it mean test and measurement in the fourth quarter could be at that mid teens sort of level, the low end of the medium term range?

[Neill Reynolds, CFO at Ralliant]

Look, I think cautious. We're optimistic about where we sit right now. As you know, the business is also somewhat volume sensitive. So we're cautious, but we're optimistic about what we'll see from a volume perspective. Clearly, the cost savings program that will be laid out will help.

[Neill Reynolds, CFO at Ralliant]

But I don't think we're going to go out as far as Q4 right now to talk about exactly where we'll be. But improvement as we work into the second half of the year is kind of where we sit right now.

[Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank]

Great. Thank you.

[Operator]

Thank you. Our next question is coming from Piyush Avatsi of Citi. Please go ahead.

[Piyush Avasthy, Equity Research Senior Associate at Citi]

Good morning, guys.

[Tami Newcombe, President, CEO & Director at Ralliant]

Good morning.

[Piyush Avasthy, Equity Research Senior Associate at Citi]

Yes. Can you start with the demand activity that you're seeing across North America? I think last quarter, order growth was driven by NAND, and this quarter revenue was down mid single digit on somewhat easier comps versus the previous year. So if you could elaborate a bit on the NAND landscape for the region. I know you talked about still an uncertain macro environment, but any change in competitive dynamics that might be impacting growth there?

[Tami Newcombe, President, CEO & Director at Ralliant]

Waitzuk. It's thanks for joining us, by the way. As we think about North America specifically, we're encouraged by the spend in our utility space, both in the aging infrastructure sort of build out and expansion of the energy grid, as well as our space and defense business is strong in North America. And we're seeing mixed in test and measurement. We're seeing mixed spend with some of the large technology companies.

[Tami Newcombe, President, CEO & Director at Ralliant]

Those that have a play in the AI data center have been stronger. And as we said in the prepared remarks, we continue to stay close to our loyal customers. And as they have different spend cycles, we'll be there as they're innovating.

[Piyush Avasthy, Equity Research Senior Associate at Citi]

Got it. Helpful. And I think you mentioned seeing some stabilization in China. Can you elaborate if that is more a function of the underlying demand environment stabilizing? Or is it like and if you have enough visibility that these trends won't reverse versus just easier comps helping you?

[Tami Newcombe, President, CEO & Director at Ralliant]

Yes. The business in China is being driven by expansion in our sensing space. So we have an in region business there for utilities, critical environments and industrials, where we have seen growth, which has been offset by some slower test and measurements, notably due to some of the export control and customers we can no longer sell to.

[Piyush Avasthy, Equity Research Senior Associate at Citi]

Appreciate all the color guys. Good luck.

[Neill Reynolds, CFO at Ralliant]

Thank you.

[Operator]

Thank you. Our next question is coming from Joseph Giordano of TD Cowen. Please go ahead.

[Analyst]

Good morning. This is Michael on for Joe. So in the prepared remarks, you mentioned the test and measurement side, I believe or saw or seen accelerated introduction of new products. I think you mentioned about eight new products. Can you quantify how this compares to historical patterns?

[Analyst]

And are there any end markets that you're targeting in particular?

[Tami Newcombe, President, CEO & Director at Ralliant]

Thank you, Michael. As long as we're back on Test and Measurement, I just want to be clear on our long term through cycle EBITDA margins for Test and Measurement. I think I incorrectly said mid teens to high teens. In investor day, we're still focused on our range of mid teens to low, twenties was the right, way to, frame that. From a new product standpoint, there there's small launches, medium launches and large launches as we look at the eight different product launches.

[Tami Newcombe, President, CEO & Director at Ralliant]

Probably the state of the art, most, the biggest splash and highest demand from our customers is in our high end seven Series oscilloscope. And this is where, we really are on the bleeding edge with our technology customers designing the next phases of innovation for a number of different end markets that we go into. But we've had two announcements already this year around battery test from our EA acquisition. There'll be a third coming later in the year. We've had a number of probes announcements.

[Tami Newcombe, President, CEO & Director at Ralliant]

And then also in our where we play in wafer test in high bandwidth memory for the AI data center, We'll have a new announcement coming out there in the coming months. So it's really pretty widespread. And I would point to the work that we did back, oh, about four years ago in platform engineering that is really allowing us to start to get this velocity.

[Analyst]

Great. That's and just one more if I may. So you mentioned that you're hoping to accelerate the region for in region supply chain. Can you just give us a sense, where the current portfolio stands, which are most exposed to these cross border transactions?

[Tami Newcombe, President, CEO & Director at Ralliant]

Yes. Our in region strategy, started back in 2018. And it's a combination of manufacturing, in region for region as well as and this is specific to, our Test and Measurement business, being able to manufacture in more than one region. So about 70% of the portfolio now, we can manufacture in at least two different locations. And that's one of the levers that we have as we think about, the mitigation of tariffs.

[Analyst]

Thank you.

[Operator]

Thank you. Our next question is coming from Amit Daryanani of Evercore ISI. Please go ahead.

[Amit Daryanani, Senior MD - Equity Research at Evercore]

Good morning, everyone. I guess I have two as well and maybe I'll start on Test and Measurement as well. If I think about the 10% EBITDA margins you folks are talking about in September in that segment, tell me, if I think about your medium term target of, call it, high teens in the midpoint of the range you just talked about, how much of that journey from ten percent to high teens EBITDA margin is going to come from self help levers with the initiatives that you've actually talked about today versus a need for a higher revenue run rate? And what does that revenue run rate look like for you to get to those targets?

[Neill Reynolds, CFO at Ralliant]

Yes. Okay. Sorry. Yes, just to start off, so if you start to think about how we get into Q3, there's a couple of different components here as it relates to the margin expansion. And I think Tammy can probably talk to a little bit more of the specific actions that we're taking.

[Neill Reynolds, CFO at Ralliant]

The biggest thing here is our tariff mitigation efforts. I think as we talked about, the team is in full gear here in terms of the tariff mitigation. So from pricing perspective, we talked a little bit about supply chain perspective, we're certainly seeing a tailwind. We are also getting a little bit of help from FX as we go into the quarter, but there is some underlying benefit coming in as well from volume. So I think volume, tariff mitigation improving from a gross margin perspective, certainly helping as we go into the quarter.

[Neill Reynolds, CFO at Ralliant]

And then a little bit on the volume leverage side, as I talked about. So we'll see those components coming in. As it relates to the cost out program, we'll see some benefit from that in the second half of the year. I think what we talked about was getting to about $4,000,000 run rate savings as we get to the end of this year, mostly in cost of sales. And then maybe midway through 2026, you can get a full kind of $10,000,000 annual run rate as you get to kind of mid-twenty twenty six.

[Neill Reynolds, CFO at Ralliant]

So a little bit of volume, some pricing and some tariff improvements as we start to see those mitigation efforts pay off and then the savings program as you think about Q4 and beyond.

[Tami Newcombe, President, CEO & Director at Ralliant]

Volume is a big lever in the Test and Measurement business. As I went through the sort of historical look, I think that's shown through. So we're encouraged by some of the uptick we've seen here in Q2, but also still cautious. It's a dynamic environment out there. And we've had changes in tariffs almost monthly here as we've gone through the year.

[Amit Daryanani, Senior MD - Equity Research at Evercore]

Got it. And then maybe just on this tariff impact, right, I think you folks talked about a $40,000,000 headwind on the cost side. Can you just talk about what sort of what your manufacturing footprint looks like? I assume a lot of the headwinds are from China. But just talk about what that footprint looks like right now.

[Amit Daryanani, Senior MD - Equity Research at Evercore]

And then when it comes to offsetting this $40,000,000 by year end, how much of that is getting done through price increases versus operational efficiencies, if you may?

[Tami Newcombe, President, CEO & Director at Ralliant]

Yes. Here's the navigating the tariffs, I think it's a great place to highlight what I see as a competitive advantage at Relliant, which is our Relliant business systems. And just to give you a picture of kinda week to week how this operates, we have the teams that have real time data on, cost increases we're seeing in, you know, our supply chain, our logistics. They have real time data on our price realization that we're getting through price, through surcharges and different levers we have in the business, one being, our 21 different manufacturing sites and how we might want to leverage those sites. So, you know, teams show up, cross functional teams.

[Tami Newcombe, President, CEO & Director at Ralliant]

This doesn't get done by one function in the company. They show up at what's called a stand up. They've got the data in front of them. And what is most important about our culture is we're taking action. We're taking action in that week, whether it's, shifting where we're sourcing something, shifting where we're manufacturing something, shifting a specific supplier.

[Tami Newcombe, President, CEO & Director at Ralliant]

But the team is actively navigating and managing this. I'll let Neil add a little bit of color here on as we move through the year, what happens with that $40,000,000

[Neill Reynolds, CFO at Ralliant]

Yes. So as we talked about, 2Q, we experienced about $12,000,000 in additional costs. We'll see that step up as we go into Q3, Q4. Think about $1,000,000,000 a quarter, kind of 12,000,013 million $14,000,000 as you move throughout the year. From a pricing versus supply chain actions, majority of it's pricing.

[Neill Reynolds, CFO at Ralliant]

We have some supply chain actions that we're working as well. And we saw approximately we're a little bit over 100 basis point hit to margins as you look at Q2. And that will soften a bit over time as you move into the back half of the year as you start to see some of those pricing actions get fully baked into the revenue and you see some of the supply chain actions take effect. We do see that as driving a roughly 100 basis point drag on margins overall as you fully kind of implement those out over time. But as Tammy said, the team is actively working this.

[Neill Reynolds, CFO at Ralliant]

This is something we work on day in, day out. We can respond to very, very quickly using the tools that we have. So we think we've got our plan in place. We're executing it. We have pretty nice confidence around how to manage this as we move into the back half of the year.

[Amit Daryanani, Senior MD - Equity Research at Evercore]

Perfect. Thanks a lot.

[Operator]

Thank you. Our next question is coming from David Ridley Lane of Bank of America. Please go ahead.

[David Ridley-Lane, Equity Research Analyst at Bank of America]

Thank you. What were the test and measurement orders in 2025 and 2024?

[Neill Reynolds, CFO at Ralliant]

So from an orders perspective, let me just maybe break down kind of what we saw from an ordering perspective. Obviously, was down year over year. So from an order and revenue perspective, those would be in line and significantly down year over year.

[Neill Reynolds, CFO at Ralliant]

But what we saw in the quarter that gave us confidence is, if you look underlying the orders, when we talk about order stabilization, the amount of revenue that we were booking versus the orders that we were seeing started to match up. So actually, if you look in 2Q underlying, some of the FX tailwind that we had, some initial pricing that we had from the countermeasures from tariffs. Underlying that, actually volume was slightly down, but orders started to match up. So revenue and orders started to match up, which is what we're kind of thinking about as stabilization. How that manifests itself as you work into Q3 is we'll continue to see some FX tailwind.

[Neill Reynolds, CFO at Ralliant]

We'll continue it from a revenue perspective. We'll continue to see some pricing increase as we move into Q3. But underlying volume will also improve. We'll see that across both segments. So there'll be some modest underlying volume improvement, and that's kind of how we think about stabilization.

[Neill Reynolds, CFO at Ralliant]

So orders year over year down, revenue down, but stabilization as you move sequentially from Q2 into Q3.

[David Ridley-Lane, Equity Research Analyst at Bank of America]

And just strategically, why start a cost cutting initiative today in Test and Measurement if there are signs of a cyclical upturn?

[Tami Newcombe, President, CEO & Director at Ralliant]

Yes, good question. Maybe one that's on others' minds. This is directly related to the carve out of service business that we moved to Fortis. So there was a service business within our test and measurement segment, about $80,000,000 that stayed with Fortive. And this gives us the opportunity to really drive some operational efficiencies with consolidation of some very small field service sites and get a larger hub and regional activity.

[Tami Newcombe, President, CEO & Director at Ralliant]

So it's the right thing to do for this business to drive operational improvements. And directly and I talked about the cost. This cost is in the cost of sales in that service business and something we're getting after starting today.

[David Ridley-Lane, Equity Research Analyst at Bank of America]

Thank you very much.

[Operator]

Our next question is coming from Scott Graham of Seaport Research. Please go ahead.

[Scott Graham, Senior Equity Research Analyst at Seaport Research Partners]

Hi, good morning. Thank you for taking my question and congratulations on being a public company. I wanted to ask about the Test and Measurement operating income. There was a significant swing from the year ago to this year and I know you talked about stranded costs. You talked about the deleveraging on revenues.

[Scott Graham, Senior Equity Research Analyst at Seaport Research Partners]

But I'm also wondering is EA maybe operating at a loss and was EA responsible for the big deleveraging?

[Neill Reynolds, CFO at Ralliant]

Yes. So I think overall, we saw revenue come down, I think in a lot of different places. We saw revenue come down in China. We saw revenue come down in Europe. We don't talk to specific operating company details profitability.

[Neill Reynolds, CFO at Ralliant]

But I think that where we're at from an EA perspective is stable. You don't have a lot of concerns from overall profitability or cash flow in that business, if you look year over year. So I would think about just the volume sensitivity in the cycle that came down as you look year over year as China came down in T and M. We did see, as you mentioned, a significant drop off in Western Europe, primarily related to EA. But I think the other piece is that I think we're driving negatives where that tariffs came online.

[Neill Reynolds, CFO at Ralliant]

And that was kind of a negative driver for us year over year as well. So you kind of had multiple things going on, the volume leverage along with some, I'd say, other macro issues that brought the margins down, maybe lower than you normally anticipate. However, we are taking the tariff countermeasures. We are seeing this stabilize, and we feel cautiously optimistic about where we're headed. And if I flip to the other side of the business, I think we're seeing very, very solid demand and growth in both utilities and in defense on the sensors and safety side, we've got very high margins and great exposure to end markets.

[Neill Reynolds, CFO at Ralliant]

And putting all that together, I think you kind of see us here maybe at the bottom from an overall perspective with some nice prospects moving forward. So we're encouraged. And as we said before, with the macro situation, we're cautious, but we're encouraged.

[Scott Graham, Senior Equity Research Analyst at Seaport Research Partners]

Okay. Well, thank you for that, Neil. I guess my other question would be maybe on the more positive side. You talked about at your Investor Day focusing on these growth vectors and grid and space. And I was just wondering, laid out for us some of the things you're doing in defense electronics with new products.

[Scott Graham, Senior Equity Research Analyst at Seaport Research Partners]

I assume that a lot of that is at tech. But if you could tell us a little bit more about what you're doing in defense and space and grid, that's new. Some of these focused strategies that you talked about, what's happening within the four walls?

[Tami Newcombe, President, CEO & Director at Ralliant]

Yes. Thank you for that question. Our Sensors and Systems, Safety Systems segment grew 6% sequentially, and we're continuing to see strong secular demand in utilities. And this is where customers are continuing to invest in the energy grid, and we're continuing to bring out a new portfolio of products. I talked in the prepared remarks about an arc detection feature, which leverages AI to help a customer predict where they might see the next faults in their electrical grid.

[Tami Newcombe, President, CEO & Director at Ralliant]

And you'll continue to see that innovation coming out from that particular operating company. And then in the defense space, the production defense programs that have been around for decades, we've seen the replenishment and expansion in those programs. And then in this segment, we have industrial manufacturing footprint, and we've been stable for about six consecutive quarters here. So this segment today is 60% of the Rallyant revenues and delivering high 20s adjusted EBITDA margins. So really healthy and really strong secular demands there.

[Scott Graham, Senior Equity Research Analyst at Seaport Research Partners]

Thank you.

[Operator]

Thank you. Our next question is coming from Rob Jamieson of Vertical Research Partners. Please go ahead.

[Robert Jamieson, VP - Industrial Technology at Vertical Research Partners]

Hey, good morning.

[Robert Jamieson, VP - Industrial Technology at Vertical Research Partners]

Thank you for taking my questions. Just a couple on Test and Measurement. So can you talk a little bit more about the headwinds in auto and EV and the weakness that you're seeing? Is that mostly on like the production or R and D side from a product or workflow application standpoint? And then can you also talk about like geographically where that weakness was, whether that was mostly European or any dynamics in China we should be aware of just in terms of you selling into local versus multinationals and some of the dynamics that are playing out in that market there? Yes.

[Tami Newcombe, President, CEO & Director at Ralliant]

Thanks for being with us today. We I would characterize our automotive as predominantly electric vehicles, electric batteries and energy storage and predominantly in Europe. And you see that with the declines that we saw in revenue from Q2 year over year. And what I would say is when we look at that space, we're starting to see it stabilize, but at a much lower volume at this point. What we and a lot of the business there is related to the Tektronix product line, which is electroautomotive and their exposure.

[Tami Newcombe, President, CEO & Director at Ralliant]

And from a workflow standpoint, it's from R and D into production. We play in the entire workflow there with that part of the portfolio. And again, I'd say stabilizing at a lower amount. We're seeing some of the project business start to have a few green shoots, but probably too early to call any type of a strong comeback there.

[Robert Jamieson, VP - Industrial Technology at Vertical Research Partners]

Okay. That helps. No, no, appreciate it. Then is there any way to quantify how large auto is within that diversified electronics bucket that you have? I mean, is it potentially 20% of total mix for Test and Measurement?

[Robert Jamieson, VP - Industrial Technology at Vertical Research Partners]

Just trying to figure out as we get through some of the trough level and auto CapEx, what the recovery path might look like as we get through 2025 and into 2026?

[Tami Newcombe, President, CEO & Director at Ralliant]

I'd characterize automotive as total mix, maybe in the 5% range.

[Robert Jamieson, VP - Industrial Technology at Vertical Research Partners]

Is that total company?

[Tami Newcombe, President, CEO & Director at Ralliant]

Yes. Yes.

[Robert Jamieson, VP - Industrial Technology at Vertical Research Partners]

Okay. Thank you.

[Operator]

Thank you. At this time, I'd like to turn the floor back over to Ms. Newcomb for closing comments.

[Tami Newcombe, President, CEO & Director at Ralliant]

Thank you for being with us today. I'd like to wrap up our call with a few closing remarks. While public for only a short time, over the last several years, we've undertaken deliberate actions to create a streamlined portfolio leveraging RBS to compete across businesses with stronghold positions and in secular high growth vectors. We continue to expand our addressable markets with new product introductions. Our total revenue in high growth vectors is now a greater share of our portfolio.

[Tami Newcombe, President, CEO & Director at Ralliant]

Despite the slower recovery we are seeing in Test and Measurement, we are encouraged by the sequential improvement and the exciting product launch schedule we have lined up. We expect RBS to continue to serve as a competitive advantage, enabling customer innovation and operating efficiencies, ultimately showing up in our financial performance. And we have consistently demonstrated our ability to profitably evolve our portfolio to deliver in any environment. One of our greatest strengths is the enduring passion and commitment of our teams, who take great pride in how they show up with a deep belief in winning as one team and unlocking our growth potential. My new leadership team is fully in place and includes leaders with significant experience across industry leading global companies, as well as operating company presidents with a consistent track record of operating rigor and execution.

[Tami Newcombe, President, CEO & Director at Ralliant]

As we continue to navigate the dynamic environment, we are resolute in our commitment to supporting our customers, inspiring employees and delivering for our shareholders. We have a relentless focus on execution and a proven playbook in RBS. We will continue to identify opportunities to extend our leadership positions in the markets we serve while protecting our earnings and free cash flow resiliency. Thank you for joining. I hope you all have a great day.

[Operator]

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

Participants

Executives

• Nathan McCurren, VP - IR
• Tami Newcombe, President, CEO & Director
• Neill Reynolds, CFO

Analysts

• Julian Mitchell, Equity Research Analyst - US Industrials at Barclays Investment Bank
• Piyush Avasthy, Equity Research Senior Associate at Citi
• Analyst
• Amit Daryanani, Senior MD - Equity Research at Evercore
• David Ridley-Lane, Equity Research Analyst at Bank of America
• Scott Graham, Senior Equity Research Analyst at Seaport Research Partners
• Robert Jamieson, VP - Industrial Technology at Vertical Research Partners