Q2 2025 Earnings Call Transcript

Thank you, and welcome to Teledyne's Second Quarter Earnings Call. Here's our first speaker, Mr. Jason VanWees. Please go ahead.

Thank you, and good morning, everyone. This is Jason VanWees, Vice Chairman. I'd like to welcome everyone to Teledyne's Second Quarter 2025 Earnings Releaser Conference Call. We released our earnings earlier this morning before the market opened.

Joining me today are Teledyne's Executive Chairman, Robert Mehrabian; President and CEO; George Bobb; EVP and CFO, Steve Blackwood; and Melanie Cibik, EVP, General Counsel, Chief Compliance Officer and Secretary. After remarks by Robert, George and Steve, we will answer your questions. But of course, before we get started, our attorneys have reminded me to tell you that all forward-looking statements this morning are subject to various assumptions, risks and caveats as noted in the earnings release and our periodic SEC filings, and of course, actual results may differ materially. In order to avoid potential selective disclosures, this call is simultaneously being webcast and a replay, both via webcast and dial-in, will be available for approximately 1 month.

Here's Robert.

Thank you, Jason, and good morning, everyone, and thank you for joining our call. Today, we reported record quarterly sales. We've achieved greatest total and organic sales growth in almost 3 years. Second quarter sales increased 10.2%, half organic, half acquisitions, and accelerated for 3 quarters in a row.

Sales also increased organically in every segment. Non-GAAP earnings per share increased 13.5% from last year and were also a record for any second quarter. Finally, orders exceeded sales for the seventh consecutive quarter. Our Energy and Defense businesses continue to perform very well due to market strength but also our specific portfolio of technologies serving growing sectors such as unmanned air and subsea systems, space-based sensors, NATO defense spending and offshore energy productions.

Sales from our shorter-cycle environmental and test and measurement instrumentation businesses also increased single digits -- mid-single digits. And this is about the greatest level in a few years. Organic sales growth in Digital Imaging was also the most in 3 years, primarily resulting from healthy growth in our Teledyne FLIR Defense and Industrial businesses. Nevertheless, we're being a little cautious worrying about whether [ SWA's ] second quarter strength in our short-cycle businesses resulted from accelerated demand in advance of planned U.S. trade policy announcements in the first quarter.

Consequently, we're currently forecasting that total sales in the third quarter will remain essentially flat with the second quarter. Despite spending $770 million year-to-date on acquisitions, our current debt to leverage ratio, debt-to-EBITDA is 1.6 with only fixed rate debt and approximately $1.17 billion out of $1.2 billion available in our credit facility. While we're pursuing a number of acquisitions, mostly smaller ones at this time, we will consider stock repurchases where we feel larger acquisitions are too pricey as we found in the second quarter and where Teledyne offers the best value.

Therefore, our Board of Directors increased our stock repurchase authorization from $896 million to $2 billion, and we will use that, as I said before, if appropriate. George will now briefly comment on the performance of our 4 segments.

Thank you, Robert. In the Digital Imaging segment, second quarter sales increased 4.3%, which was the greatest year-over-year growth in 3 years. The performance largely reflected record growth of Teledyne FLIR, where the Defense and Industrial businesses increased nicely, largely driven by international defense sales as well as complete unmanned air systems and commercial infrared components and subsystems for the overall unmanned market. We had another quarter of strong orders with a total Digital Imaging book-to-bill of 1.1x, but it was especially nice to see bookings of 1.2x in our Industrial and Scientific Vision Systems business collectively.

Non-GAAP operating margin decreased marginally due in part to greater severance costs, which we did not exclude from non-GAAP margins. In the Instrumentation segment, which consists of our marine, environmental and test and measurement businesses, second quarter total sales increased 10.2% versus last year. Overall sales of marine instruments increased 16% due to both strong offshore energy production and subsea defense sales. Sales of environmental instruments increased 5.6%, primarily due to higher sales of process gas safety and emissions monitoring instrumentation.

Sales of electronic test and measurement systems, which include oscilloscopes, protocol analyzers and Ethernet traffic generators increased 5.5% year-over-year. Instrumentation operating margin in the second quarter increased 149 basis points to 27.6% and 134 basis points on a non-GAAP basis to 28.5%. In the Aerospace and Defense Electronics segment, second quarter sales increased 36.2%, primarily driven by acquisitions and organic growth of defense electronics products. While commercial aerospace aftermarket sales increased, this was offset by a decline in OEM sales due in part to on-again, off-again export restrictions.

Overall segment operating profit increased year-over-year, but GAAP and non-GAAP segment margin decreased year-over-year, but increased sequentially primarily due to comparatively lower current margins at our recently acquired businesses. For the Engineered Systems segment, second quarter revenue increased 3.3% and segment operating profit increased 395 basis points due in part to a relatively easy comparison with last year, but also strong execution on a number of government programs. I will now pass the call back to Robert.

Thank you, George. In conclusion, I want to thank everyone at Teledyne for delivering a double-digit top and bottom line growth. Also, we're very optimistic about their long-term outlook. Our growth in our long-cycle business portfolio remains very stable and most of our short-cycle businesses have returned to reasonable sales and orders growth.

As I mentioned earlier, we're a bit cautious because of the near-term pull-ins perhaps as a consequence of various tariff scenarios. Having said that, we remain very optimistic about the future given our portfolio and where the markets in our domain are moving. With that, I want to turn the call to Steve.

Thank you, Robert, and good morning. I will first discuss some additional financials for the quarter not covered by Robert, and then I will discuss our third quarter and full year 2025 outlook. In the second quarter, cash flow from operating activities was $226.6 million compared with $318.7 million in 2024. Free cash flow, that is cash flow from operating activities less capital expenditures, was $196.3 million in the second quarter of 2025 compared with $301 million in 2024. Cash flow decreased year-over-year in the second quarter, primarily due to higher income tax payments in the second quarter of 2025 compared with 2024. Capital expenditures were $30.3 million in the second quarter of 2025 compared with $17.7 million in 2024. Depreciation and amortization expense was $86.5 million in the second quarter of 2025 compared with $77.8 million in 2024. We ended the quarter with $2.3 billion of net debt.

That is approximately $2.62 billion of debt less cash of $310.9 million. Now turning to our outlook. Management currently believes that GAAP earnings per share in the third quarter of 2025 will be in the range of $4.39 to $4.54 per share. with non-GAAP earnings per share in the range of $5.35 to $5.45. And for the full year 2025, we believe that GAAP earnings per share will be in the range of $17.59 and to $17.97 with non-GAAP earnings per share in the range of $21.20 to $21.50. I will now pass the call back to Robert.

Thank you, Steve. We'd now like to take your questions. Kerry, if you're ready to proceed with the question and answer, please go ahead.

[Operator Instructions] And our first question will come from Andrew Buscaglia with BNP Paribas Asset Management.

I just wanted to touch on your guidance for Q3 and some of the caution you're citing. Where exactly is this pull forward within your business segments? And can you comment on, are you seeing this more on -- with some of the short-cycle businesses versus long cycle? If you could add that to your comments.

Yes. I think, Andrew, the comment is primarily about short-cycle businesses because the longer cycle businesses, we have reasonably good visibility as to where things are and where our programs are. Short-cycle businesses, especially things like instruments, we get like sometimes 2 weeks, 3 weeks book-to-bill cycle times. And we kind of are a little cautious.

We're worried that maybe $15 million to $20 million, mostly in that domain may have been pulled in. Now we're not sure, but listening to our folks, that seems to be maybe the case. There's a little of that in our longer-cycle businesses like FLIR Defense, for example.

Okay. That's helpful. Can you comment on order activity in some of these longer-cycle businesses? I know you guys had a press release out supporting U.S.'s stance on dominance and wondering if you've seen an order uptick within unmanned systems or the components you supply to them?

Yes. I think, specifically, if you look at our unmanned systems in FLIR and generally in FLIR, first quarter, we saw book-to-bill of 1.17. This quarter, just a little over 1. Even Digital Imaging, excluding FLIR, recognizing that the comps are easier, we saw uptick on orders, book-to-bill as high as 1.2. In the other businesses, lumpy businesses like Engineered Systems, it's way over 1, but we know that's lumpy. Overall, I think our book-to-bill has been healthy. And as we mentioned earlier, this is like -- it's about 1.1 across all of our portfolio, and it's seventh consecutive quarter that we've seen that.

So looking at that, you have to be positive, and I am. But we're always a little cautious, maybe too cautious. Let me leave it at that.

Next question comes from Damian Karas with UBS.

Better to be safe and cautious than sorry, Robert. But I do want to ask you -- I just want to kind of maybe push you a little bit on Digital Imaging. The book-to-bill is strong. I think this is the second quarter of 1.1 book-to-bill or higher.

But yet you still really only have, I think, modest organic sales growth factored into the second half. So could you just help us reconcile why we wouldn't see more of a meaningful pickup in sales just based on those bookings?

Yes. It's a kind of a story of 2 chapters. FLIR is strong. Even when some of the short-cycle businesses like in cameras, et cetera, in DALSA, e2v go down, our industrial businesses infrared cores as well as cameras, they seem to be all right.

Of course, FLIR Defense is just doing really well. Some of the problem that we have is in our DALSA, e2v, now remember, that business has been on -- it's been down. And while we're getting a little order pickup, it's easier comp when you go to book-to-bill at a business that's down. On the other hand, George and the managers in that business have been able to take cost out, reorganize where necessary.

As George mentioned, we took a little hit in Q2 because we can't our cost expenses -- cost out expenses in our non-GAAP. So that business is stabilizing. Again, we think some of our longer-cycle businesses that we see growing are going to be more like Q4 and maybe early '26. Maybe that's why that we're kind of where we are in terms of what you mentioned being a little cautious.

Okay. But just to clarify, you haven't really seen the short cycle start falling off in kind of real time, but your assessment was, "Hey, maybe there's $15 million to $20 million of a little uplift that we got," but you haven't seen that yet?

No. There are different forces operating in our management. Some of them are a little more cautious than others. And frankly, over the last 25 years, we've learned a hard way that being a little cautious pays dividends over the long term, even though sometimes you look at your stock after an earnings like today and say, no good deed should go unpunished.

Having said that, we will be fine. I think we're just going to be fine.

Okay. Fair enough. Really appreciate that. And then my second question.

The Aerospace and Defense margins did come in quite nicely. Would you maybe be able to elaborate a little bit? Was there any pricing or business mix factors, productivity? Maybe just give us a sense for what drove that margin strength?

And is there anything that we should be bearing in mind the rest of this year as we update our models?

Yes, Damian, I'm going to let George pick some of this up. But in general, what happens is if you look at the margins, when we make acquisitions, the margins go down because our acquired businesses, by and large, have lower margins. And if you look at Q1, Q2, Q3, Q4, our margins improved in those acquired businesses. If you exclude the acquired businesses, yes, our margins are very healthy, excellent execution.

George, do you want to comment on that?

Yes. I think I would just say in the legacy Defense Electronics businesses, in the Aerospace business, margins continue to be strong. In the new acquisitions, we acquired 2 companies here in the last several months, Micropac and Qioptiq. We had a good uptick in Q1 in the margins in Micropac.

And in both of those acquisitions, we're doing what we always do, which is work on improving the margins as we integrate those companies.

Yes, Damian, just to kind of put things in perspective, I think it might benefit -- our shareholders might benefit from this analysis. If you -- for a second, if you exclude FLIR, we spent $1.9 billion in cash acquiring businesses that are of some significant, 47 of them. What we paid for them at the time we acquired them was 9x EBITDA. If you look at the same businesses today and you look at the EBITDA and say, what did we pay for it, it's 3.4x.

So that is really just simply improved margins. even when you include FLIR, which is we've only had in 3 years, even there, what we paid when we acquired and what it is today, there's about 100 basis point improvement. Having said that, that's really the operating book that we have, acquire businesses, don't overpay, focus on improving margins, do your 80-20, anything else you have to do and go from there, which if you look at our overall businesses, no matter which year, how many, which segment, it's the same story.

Our next question comes from Greg Konrad with Jefferies.

Maybe just to follow up on your guidance that Q3 would look similar from a top line perspective relative to Q2. I mean I know what you did with the EPS guidance, but has there been any change to the revenue guidance you gave on the last call just as we think about kind of expectations for Q4?

Well, let me stay with Q3 for a second, if I may, Greg. The way we're looking at it is we're looking at getting some uptick from acquired businesses in Q3, maybe about 5%, similar to Q2 and very little organic. And again, the reason we're doing that is we're just kind of looking at our short-cycle businesses. It's almost impossible to predict where they're going to end up.

Now we have raised -- overall, we've raised our guidance for the year, of course, primarily because Q2 came in higher. But even with a flat Q3, we've raised our guidance for the year in terms of revenue by almost $20-plus million. And given our conservative nature, for us, that's a hefty increase. So we think for the year, we'll have probably about $6.3 billion, maybe a little more.

We'll have growth of 6.3%. We're assuming most of that 4% plus 4.2% will come from acquisitions, maybe 2-plus percent from organic. But then we are also looking at FX effects and other things. So there's a lot of moving parts, but that's the best we can do at this time.

I appreciate that. And then maybe just to dig into Industrial and Scientific Vision a bit. I think you called out the book-to-bill was 1.2 in the quarter. And I appreciate some of the short-cycle commentary. But any additional color in kind of what you're seeing in that business, either from an end market perspective and how you're kind of thinking about the outlook for the year?

So why don't I ask George to address that one, too.

Yes, sure. So in that part of the business, the Industrial and Scientific Vision, what we saw in Q2 is the machine vision cameras business had year-over-year growth in applications like semiconductor mask and wafer inspection. The machine vision sensors business was down year-over-year on sales, but had an order uptick year-over-year. So both machines vision cameras, machine vision sensors had increases in orders year-over-year.

So as you mentioned, overall book-to-bill was 1.2. We still think that business for the full year is relatively flat. But I think we are encouraged by some of those order trends that we saw in Q2.

And as we mentioned before, George and even before George, we took cost out. And so we've kind of stabilized. We feel we've stabilized that business to a revenue stream that is lower than it used to be. So now we can focus on improving the margins, as we've done in other businesses. George, you did that in Marine as an example.

That's right. I would say, we run the same playbook always, right, which is we focus on getting the cost structure right and growing from there.

And then maybe just sneak in one last one. I mean you gave a lot of positive defense commentary. I mean if we think across the businesses, can you give some color on what overall defense was up and how maybe international contributed to that just given some of the positive commentary.

Yes. There are 2 parts. And I think that's a really relevant question at this point. We have U.S. government defense and we have foreign government defense.

The U.S. government defense improved 12.5% year-over-year. And it was primarily organic, primarily. Foreign government also improved, over 15%. And there's a very good reason for that.

Our defense portfolio is spread across different countries and different products. We have a very strong presence in Europe. For example, our very well-known nano-drones, are not made in the U.S. They're made in Europe.

On the other hand, some of our other zones are made in Canada and some are made in the U.S. So when we look at growth, we look at Europe where defense spending is increasing. We have a nice footprint of manufacturing facilities across Europe. And as you well know, in-country production, in-sourcing is a key.

So if you already have an existing footprint, that's really good. The other thing is that everybody is talking about unmanned. Yes. Well, unmanned systems are not new to Teledyne.

Look, we built our first unmanned drones during the Vietnam war. We built 5,000 Firebees that were used as targets and intelligence gathering. Unfortunately, when we got our divorce from Allegheny, they sold our best drone business, which was the Global Hawk. They sold it for $155 million to Northrop.

And so that business just went away, and it's only come back because of FLIR. But FLIR has a very strong portfolio of drones, both very small nano-drones and others. But the other part that we are enjoying is that in the first 20 years of our history, new history, we got unmanned vehicles. We bought 21 companies, underwater companies, marine companies, and we have underwater unmanned vehicles that are equal to as many as we sell that are above water.

And finally, the issue on drones is low cost. And the lower the cost, the better. And we are fortunate because of FLIR that we can supply sensors, EO/IR sensors, both for our drones as well as other people's drones. And we're happy to sell people sensors.

That's a big market for us. So the combination of being the company in infrared, having infrared and visible sensors, a packaging game for our drones and selling them for other people's drones has put us in a nice place in this environment. I know that's a very long answer to a short question, but I think the context is important. Drones are nothing new to Teledyne.

Moving on to our next question, Noah Poponak with Goldman Sachs.

Do you guys have growth in orders versus growth in revenue or a book-to-bill for the first half of the year in what you would call broadly defined short cycle or in machine vision and instrumentation?

Yes. I think in instrumentation, which would be short cycle, except for parts of marine, Noah, that are defense-related, which are underwater vehicles again. I think it's just above 1 because in Q1, it was 1.04; in Q2, it's 0.97. So average is a little over 1; let's say, 1. And that doesn't change much across the businesses. Environmental is a little healthier surprisingly.

T&M is healthy, but still just below 1. And Marine is obviously above 1. On Digital Imaging, as George mentioned and I mentioned, we're getting -- we're kind of getting a little bit of an uptick in our DALSA, e2v, where we had -- we took some cost out and we had lower revenue. But Q1 was 1.02. Q2 is 1.23. We're cognizant of the fact that you get good book-to-bill when your revenue is down. But nevertheless, it's way over 1. And FLIR is really healthy over 1. It's 1.17 in Q1; 1.02 in Q2. So average is way over 1. We feel good about those businesses right now.

Okay. Yes, I mean, we're all going to -- we're all thinking about the same thing here with the back half growth guide. And I recognize the pull forward you're mentioning, but $15 million to $20 million is 1% of the revenue in the quarter. So if you had the acceleration to the 6% organic growth in the quarter, and you're saying 3Q and 4Q are 1 and 1, you're sort of saying what was 6 and 1 is 5 and 2. So you're still adjusted for the pull forward.

You're still projecting a not insignificant decel in total organic revenue growth when the long cycle is growing 5 to 7, and you're telling us the short cycle is getting better.

Exactly.

I guess, it is -- is the short cycle -- I guess if instrumentation book-to-bill is still below 1 and you've only seen a short window of Digital Imaging orders getting better, plus there's just a lot happening in the macro. I mean, I guess I'm trying to get at how much of what you're saying about 3Q is a very bottom-up plan versus you guys said, "Hey, given all those mixed inputs and we need a little more time to feel good about short cycle." Let's just call it the third quarter flat sequentially and hope to beat it and see what the indicators are in 3 months.

Yes. No, exactly. Well, in the next 3 days, starting right after this meeting, we go in our operations reviews with all of our businesses across the globe, and they all come in here. And what we got to do is George and I have to sort through that they don't sandbag us.

People have a tendency to be cautious. And we got to challenge them without getting them to become too effervescent. So it's a balance. I'm hoping that we get some of these pull-ins in Q3 and Q4, right?

I mean as long as this whole international trade is volatile, who knows?

Yes. I thought volatile trade was causing pushouts, not pull-ins. So I wonder if you guys aren't telling that.

The reason I say that is it's both. If people think tariffs are going to go up in a certain area from a sales perspective, then they might like to get their orders in and then get under the tariffs. On the other hand, it could be the reverse if tariffs are high and they think they're going to go down. Right now, it's so uncertain.

Every day, you pick up the paper now, today is Japan 15%, somebody else is at 18%. So we're very cautious, and we're looking at that just like you are.

Okay. I get it. Fair enough. Could you spend another minute on the Digital Imaging margins and what you're thinking happens in the back half? And you've spoken to your medium-term framework just given those stepped back a little bit in the group.

Yes. Noah, again, there's tale of 2 cities. In FLIR, margins have continuously increased. For example, in FLIR Defense, when we acquired the business, our margins were more like just below 15%.

Today, they're over 20%. Over a 3-year period, that's a pretty healthy improvement. FLIR margins, by and large, have improved. Now the flip side is because of the downturn in our camera and sensors, especially sensor business, the margins in DALSA, e2v have gone down.

Now overall, together, if you look at -- and by the way, we also, as George mentioned, we have some charges we took in Q2 to kind of rightsize the business. So the margins, if you look at DALSA, e2v year-over-year, they've gone down 100 basis points, but I would attribute most of that to the cost out. Flip side, FLIR margins are as high as 24.2% in Q2 of this year, and they've gone up about 30 basis points. So when you look at the overall Digital Imaging, even basis points down in DALSA, e2v, Digital Imaging as a whole, even with the cost out, is only down 10 basis points or flat.

And that, to me, is encouraging because for a long time, everybody was saying, "Gee, what are you doing with FLIR?"" Well, FLIR is doing really well is carrying the day. And as soon as we straighten out, which we are, George straightens out with these people, the DALSA, e2v picture, we're going to be fine.

Interesting. Okay. That's super helpful. What did you take in charges in millions of dollars in the quarter?

About $5.3 million. $5.3 million, the way I look at it, every $600,000 is a penny. It's about $0.09 -- $0.08, $0.09. By the way, thank you for sending those 3 prepared questions. It's very helpful to me.

Our next question comes from Jim Ricchiuti with Needham & Company.

Wondering just given the moving parts in terms of the overall revenue outlook, the sales outlook for Q3 and Q4, I'm wondering if your expectations for margin improvement for the full year have changed at all. I think versus your earlier expectation, correct me if I'm wrong, you were talking, I think, about 60 basis points of operating margin improvement.

Yes. We're still there. We did that in Q2. We improved it 57 basis points, not to nitpick. Right now, we're at 55 for the year. 50, 60 is a good number. George, what do you think?

No, I think that's right.

So that's where it is.

And looking at the Instrumentation business, the marine portion of that business. The marine instrumentation business has generated strong growth it seems like for the better part of a couple of years now. And I wanted to -- if we could, maybe just if you could talk a little bit about the drivers there. It's both, I think, both defense and commercial subs.

Is it sustainable at these given what you're seeing?

I'm going to let George answer that. From a sustainability perspective, there's 2 ways to look at it. One of them is the growth. Are you going to sustain a 15% growth going forward year in, year out? The answer is no. Is it sustainable because it's at a high level? Yes. Because we have really unique products. George, do you want to add on that?

Yes, I would just add, so the energy part of the business is about 40% of the marine business. We've seen -- continue to see strong growth there in the subsea interconnects for oil production, for example, offshore streamers for geophysical surveys for oil and gas exploration. And we expect that to continue at least for the next few years, subject, of course, to oil prices, which we can't predict. On the defense side of the business, that's probably, give or take, 30% of the marine business.

What's driving that? Subsea unmanned vehicles, a lot of demand for our unmanned vehicles globally in particular. And then we also have a nice submarine interconnects business there, where we're on platforms like the Virginia and Columbia-class submarine, and that business is doing well. So I think -- and in that case, on the defense side, I certainly think that's sustainable given the overall environment geopolitically, particularly where we're selling vehicles into places like the Baltic Sea, the Black Sea.

And certainly, submarines are among the U.S. Navy's top priorities.

Last question, if I could just slip one other one in. It sounds like Micropac margins were up, that's going well. Are you still thinking in terms of Qioptiq being able to add about $0.15 to EPS this year?

The answer is yes, both in Micropac and Qioptiq as we look Q1, Q2, Q3, Q4, margins are consistently improving and projected to improve. That's our story book, right? By the way, Qioptiq turned out to be a really good acquisition. It's very interesting.

There's a part of it as in the U.S., which are energetics, et cetera, when you separate missiles from what drives them. But then in Europe, especially in the U.K., it's a lot of military applications, which are very closely tied to what FLIR makes. So what George has done is has the U.K. part reports to JihFen Lei, who runs our FLIR Defense. So she is integrating that into FLIR Defense, even though we're reporting in a segment, it doesn't matter.

It's how you manage it and how you enjoy the fruits of having similar products, different customers. Qioptiq makes products in Europe. We can sell those products now in the U.S. And of course, the opposite is true with FLIR.

So there we go.

Moving on to Jordan Lyonnais with Bank of America.

Could you guys cover -- so on the drone exposure overall, how are you thinking about the opportunities? Black Hornet was added to the Blue UAS list. But is it the driver for you guys is really just the camera systems you'll sell to everybody versus your own drone products?

Yes, I think you got it. I think we sell it to our drone products. And our drone products are obviously not just the ability to put our sensors in, but we're developing new drones all the time. The latest drone that's going to go into pre-production is a weaponized drone, but we have very competitive drone there called the R1. And the other thing is that we have unique drones in the small nano-drones, which you've seen the Black Hornet, which are growing in revenue and in adoption by many countries.

But then on the sensor side, we have this large business in Santa Barbara that makes cooled and uncooled infrared, and infrared plus visible sensors. We sell them to anybody. We're not going to just sell it to our OEM. Actually, we make a lot more revenue selling it to other people, but out of $200 million worth of product plus that they make, they also enable another $800 million of revenue across Teledyne by the sensors.

And I'm sure other people are enjoying the same thing. Basically, you want to make sensors for other people, and it's very simple. The math is really simple. The larger the production floor, you spread your cost and development across a broader sales channel.

And the more sales you have, the better your margins consequently because you have more -- so we'll sell it to anybody. And we do actually. We sell to competitors. We sell to people that are not competitors, and we sell to both defense companies and nondefense companies.

Got it. Okay. And then for the One Big Beautiful Bill that passed, are there any changes that we should consider for the R&D tax changes or any other new programs that you guys see a lot of runway from?

Yes. There are 2. One has to do with the writing down the R&D, which, obviously, it's good if you can accelerate it. But the other part is really the cash tax portion. And we think that would be lower in the second half of the year by as much as $30 million.

So flip side, R&D credits, you can accelerate. The other side, you expect it to pay $30 million more in taxes than we're expecting now to what our calculations show. And we're obviously very busy trying to figure out all the R&D expenditures that we have across the company. It's been good from that perspective.

Next question comes from Jonathan Siegmann with Stifel.

On Golden Dome, there seems to be some funding coming through to that program. Can you talk a little bit about which Teledyne products have the most relevance to? And are you already engaging with some of the industry partners? And just give a sense of how big of an opportunity that could be for the company.

Thank you. It's a little too early to kind of be too specific, but we have a lot of activity there, coordinated activity. I'm going to let George answer that.

Sure. So the One Big Beautiful Bill Act did include some funding to advance the Golden Dome concept. In general, we've got a large presence in space-based imaging and electronic subsystems that go into things like missile tracking. So we would expect, given our presence on, for example, the Space Development Agency tranche programs, Overhead Persistent Infrared programs, things like that, that we'd have opportunities in the -- mostly in the space-based sensing, but also some of the electronic subsystems.

Yes. And we do -- we're trying to coordinate our response. We're getting some requests for -- early requests for proposals from some of our customers. And we're positively inclined towards that.

Now historically, we have participated in the defense systems that they use in Middle East at Israel uses. But this is very different, obviously. It's bigger. It's broader.

It's more space based. And because we have a pretty rich heritage of space imaging, both in science and defense, by the way, they overlap. And as George mentioned, we play in all of those domains. And you're going to have to use those if you're going to have any kind of a broad defense system looking down.

I don't know if that answers your question.

It's very helpful. And on the share buyback authorization, I'm just curious whether we should be taking that as an indicator that the pipeline of activity is slowing down or whether you're starting to see value in the stock, if you can maybe expand on that, that would be helpful.

Sure. It's, again, a tale of 2 cities, right? Last time we bought stock was -- the stock was at $400, now it's over $500. So you ask yourself is that a wise thing to do? I think the most important thing is to have the optionality on the table.

In terms of acquisition availability, there are available acquisitions, but they're insane in prices. People are paying 19, 20x EBITDA for products for businesses that you've got to go and do 3, 4 years of hard fixing. Are we -- one case, as an example, without mentioning the exact nature of it, we bid a price, which we thought was a stretch for us and somebody bid a price 30% higher. It just blew as out of the water.

So there are acquisitions with the insanity of the price until it kind of moderates, but we're going to sit on the sideline. We may buy our stock back if that's the best value. We would also -- if we look at -- we have all fixed debt going forward. The longer is fixed debt, the cost to us in terms of -- it's about 5%.

And right now, we're earning just north of 4%. So you look at that and you say, what do you do? Sit on $800 million, $900 million of cash, or do you use some of that, not all of it, some of that to redeem some of the bonds. The good thing is our debt-to-EBITDA ratio is 1.6. If we do nothing, it will go down to 0.5 next year, end of next year.

So it's a nice place to be. We may buy our stock. We may buy businesses if sanity prevails.

We'll go next to Joe Giordano with TD Cowen.

Apologies if you said this in the beginning, I missed the very beginning of the call. But just relating to the pull forward, the potential there. I know it's not a huge number, but like were you seeing tangible reductions in orders in like early July that confirms something like this? Or is it more just like something that you're just maybe worried about but aren't seeing evidence of it?

The answer is no. We didn't see it. We're just -- it's the cautious nature of Teledyne to kind of not be effervescent. We haven't seen it. I hope we won't see it. And I hope we can say next quarter that we pulled forward. But we haven't seen any evidence. No.

Got it. Okay. And then last quarter, given all the controversy around tariffs, and we didn't know what was going on and raising prices, you guys were building in some kind of contingency on the demand side related to price actions you may have to take to combat. Now as tariffs have deescalated, have you removed any of that kind of contingency from the guide now that we're 3 months further along and the tariffs are coming in at lower rates?

Yes, there are 2 parts to this, as you well know, one of them is on the sales side and the other part is on the cost side. Let me deal with the first, with the sales side. The good thing about Teledyne if there is -- in terms of tariffs is that 82% of our revenue on the sales side come from U.S.-based businesses that are selling to U.S.-based customers or international locations selling to international customers. So in that way, 82% of our product is under the tent, and we don't worry that much about it.

Of the other 18% of the sales, approximately 75%, or 14% of the total 18%, are U.S. exports to international locations. That can have an effect, but fortunately, for us, only 2% of our sales are to China in that domain. Finally, 4% of our external sales are from Teledyne international locations to U.S.-based customers where new tariffs may apply, but we have products that are extremely unique like magnetrons for X-ray for cancer treatment, which are unique products. And we think that's not going to be affected much.

Having said all of that, we see some impact, but it won't be very large. On the cost side, that's a different story. We import about $700 million of material, which enters our cost of goods. And if you assume tariffs are, let's say, 11%, that's $80 million.

We can probably mitigate some of that by using U.S., Mexico, Canada and the fact that we're doing U.S. military DoD products. And that leaves maybe $60 million in the cost, which is $15 million a quarter, which we have to make up with price increases. I don't know. That's as wholesome a picture as I can give.

I guess what I'm getting is, I think you guys were factoring in like every percent of price that you need to do will kind of like destroy demand to a certain extent. Do you still feel that way? And is that kind of -- is that contingency still in the guide?

No. The answer is no. We've become less cautious in that domain.

We'll go next to Rob Jamieson with Vertical Research Partners.

Just a quick one, just to go back to the full year guidance on EPS. Just can you walk us through a scenario and what would need to happen across the portfolio for you to hit the high end of the guidance range or maybe even exceed it? What would need to happen?

Teledyne's history would repeat itself. How's that. I think -- no, I think it all depends on our short-cycle business because we have a really good view on the long cycle. We're seeing growth in -- as George mentioned, we're seeing growth in our test and measurement. We're seeing growth in our environmental surprisingly. And if those hold up, we'll be fine.

Great. And then just can you talk a little bit more about the test and measurement business and performance during the quarter and your expectations for second half? I think last quarter, you called out that you saw strong Ethernet test sales, and that's just related to AI. Just curious if there are any additional areas of strength you saw during the quarter, any additional color?

I'll let George answer that, please.

Sure. So we had about 5.5% organic growth in the test and management business in Q2. It was our third consecutive quarter of year-over-year growth. And fundamentally, the protocol sales drove most of that growth, but the oscilloscope sales were also kind of slightly higher. On the oscilloscope side, it's driven by some of the high-speed applications, also driven by some power and motor drive analyzers.

And on the protocol side, yes, it's been driven by those network applications, high-speed communications, things like PCI Express. And so we continue to -- again, that business has stabilized. We've seen nice consecutive growth in 3 quarters year-over-year. We still expect the business to be up kind of low single digits for the full year, and it's solid.

Yes. Anything that increases traffic increases requirements for larger storage capacity. And anything to do with AI is, of course, just that would benefit our protocol businesses. So Kerry, how are we doing.

This actually does now conclude our question-and-answer session. I would like to turn the floor back over to our speakers for closing comments.

So okay. Let's go to Jason then.

Again, thanks, everyone, for joining us today. And if you have follow-up questions, feel free to call me at the number on the earnings release. Kerry, if you could give the replay information over the call, the webcast, we'd appreciate it. Goodbye, everyone. Thank you.

Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.