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DATE
Wednesday, July 23, 2025 at 11 a.m. ET
CALL PARTICIPANTS
Chairman, President & Chief Executive Officer — Robert Mehrabian
Chief Operating Officer — George Bobb
Chief Financial Officer — Steve Blackwood
Vice Chairman — Jason VanWees
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TAKEAWAYS
Record Quarterly Sales: Total sales increased 10.2% in Q2 2025, with approximately 2% organic growth for the year, marking the third consecutive quarter of accelerating growth in Q2 2025.
Non-GAAP EPS: Non-GAAP earnings per share increased 13.5% year-over-year in Q2 2025 and set a second-quarter record.
Segment Organic Growth: Digital Imaging posted its highest organic growth in three years, primarily from Teledyne FLIR defense and industrial markets.
Instrumentation Segment Sales: Sales up 10.2% year over year in the second quarter; marine instruments up 16%, environmental instruments up 5.6%, and electronic test and measurement up 5.5% year over year.
Instrumentation Segment Margin: Operating margin increased 149 basis points to 27.6% GAAP in Q2 2025, and 134 basis points to 28.5% non-GAAP.
Digital Imaging Segment Sales: Sales increased 4.3% year over year in Q2 2025, marking the largest gain in three years; Book-to-bill ratio was 1.1, with Industrial and Scientific Vision businesses at 1.2 book to bill.
Aerospace and Defense Electronics Sales: Sales rose 36.2% in Aerospace and Defense Electronics in Q2 2025, driven by both acquisitions and organic growth, with commercial aftermarket growth offset by lower OEM sales due to export restrictions.
Engineered Systems Segment Performance: Revenue increased 3.3% in Q2 2025, segment operating profit increased 395 basis points year over year.
Order Trends: Company-wide orders exceeded sales for the seventh consecutive quarter as of Q2 2025; consolidated book-to-bill ratio remains at 1.1.
Defense Sales Growth: United States government defense revenue increased 12.5% organically year-over-year in Q2 2025.
Free Cash Flow: Free cash flow was $196.3 million in Q2 2025, down from $301 million in Q2 2024, primarily due to higher income tax payments.
Capital Expenditures: $30.3 million in the second quarter of 2025 compared to $17.7 million in the second quarter of 2024.
Debt Metrics: Net debt at $2.3 billion as of Q2 2025; debt to EBITDA ratio of 1.6, with fixed-rate debt and $1.17 billion undrawn on the credit facility.
Stock Repurchase Authorization: Increased from $896 million to $2 billion, to be used opportunistically.
Full-Year Guidance: GAAP EPS projected at $17.59-$17.97 for the full year, non-GAAP EPS at $21.20-$21.50 for the full year.
Q3 Outlook: Expectations for flat total sales sequentially from Q2 to Q3 2025.
SUMMARY
Teledyne Technologies Incorporated (TDY -1.65%) reported record-breaking sales and non-GAAP earnings for Q2 2025, achieving consistent organic sales growth across all segments and sustained order momentum company-wide. Management emphasized that defense and energy portfolios continue to outperform, with FLIR driving Digital Imaging growth and international defense demand contributing to top-line strength. Despite a notable decrease in free cash flow and increased capital expenditures, the balance sheet remains strong with fixed-rate debt and extensive credit availability, while the board expanded the buyback capacity to $2 billion as the company balances acquisition and capital return strategies.
Chairman Mehrabian noted that management is "being a little cautious, worrying about whether the second quarter strength in our short cycle businesses resulted from accelerated demand in advance of planned US trade policy announcements in the third quarter."
Chief Financial Officer Blackwood stated, "Cash flow decreased year over year in the second quarter primarily due to higher income tax payments in 2025 compared with 2024."
The Instrumentation segment saw continued strength from offshore energy production and subsea defense, while marine instrumentation growth is described as supported by both unique products and favorable end markets.
Acquired business margin improvement is ongoing.
Management explained that 82% of revenue is insulated from international tariff volatility, with most exposures related to US exports or unique products, while ~$700 million of annual cost input is subject to tariff risk, partially offset by pricing strategies.
INDUSTRY GLOSSARY
Book-to-Bill Ratio: A key order metric that compares the amount of new orders received (bookings) to the amount of revenue billed within the same period; a figure above 1.0 indicates expanding demand.
Unmanned Air Systems: Aircraft systems operated without onboard human pilots, commonly referred to as drones, used in defense and commercial applications.
Subsea Defense: Products or technologies supporting military operations underwater, including unmanned underwater vehicles and marine instrumentation.
Environmental and Test & Measurement (T&M) Instrumentation: Tools and systems designed to monitor, analyze, and control environmental variables and to test or measure electrical and physical parameters in various industrial applications.
FLIR: Teledyne FLIR is the company’s subsidiary specializing in infra-red imaging technology for defense, industrial, and commercial markets.
Dalsa: Refers to Teledyne DALSA, focused on machine vision cameras and sensors within the Digital Imaging segment.
OEM Sales: Sales to original equipment manufacturers who integrate Teledyne products into their own finished goods.
Basis Points: One hundredth of a percentage point (0.01%), used for expressing margin and yield changes.
Full Conference Call Transcript
Robert Mehrabian: Thank you, Jason, and good morning, everyone, and thank you for joining our call. Today, we reported record quarterly sales. We've achieved the greatest total for organic sales growth in almost three years. Second quarter sales increased 10.2%, half organic, half acquisitions, and accelerated for three 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 environmental and test and measurement instrumentation businesses also increased 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 three years, primarily resulting from healthy growth in our Teledyne FLIR's defense and industrial businesses.
Nevertheless, we're being a little cautious, worrying about whether the second quarter strength in our short cycle businesses resulted from accelerated demand in advance of planned US trade policy announcements in the third 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 when we feel larger acquisitions are too pricey, as we found in the second quarter, and where Teledyne Technologies Incorporated 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 four segments.
George Bobb: Thank you, Robert. In the Digital Imaging segment, second quarter sales increased 4.3%, which was the greatest year-over-year growth in three 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, 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 1.1 times, but it was especially nice to see bookings of 1.2 times in our industrial and scientific vision systems businesses 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.
Robert Mehrabian: Thank you, George. In conclusion, I want to thank everyone at Teledyne Technologies Incorporated for delivering 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. 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.
Steve Blackwood: Thank you, Robert, and good morning. I will first discuss some additional financials for the quarter not covered by Robert, and then I will discuss our third quarter and full year 2025 outlook. In the second quarter, cash flow from operating activities was $220.6 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 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 2025 compared with 2024. Capital expenditures were $30.3 million in 2025 compared with $17.7 million in 2024.
Depreciation and amortization expense was $86.5 million in 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 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 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.
Robert Mehrabian: Thank you, Steve. We'd now like to take your questions. Carrie, if you're ready to proceed with the question and answer, please go ahead.
Operator: Thank you. We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. Before pressing the star keys. Our first question will come from Andrew Buscaglia with BNP Paribas Asset Management.
Andrew Buscaglia: Hey. Good morning, guys.
Robert Mehrabian: Morning, Andrew.
Andrew Buscaglia: 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, you know, are you seeing this more on with some of the short cycle businesses versus long cycle? If you could add that to your comments.
Robert Mehrabian: Yeah. I think Andrew, the comment is primarily about short cycle businesses. Because as 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 two weeks, two weeks, three weeks book to bill cycle times. And we kinda are a little cautious. We're worried that maybe $15 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 little of that in our large longer cycle business like FLIR defense, for example.
Andrew Buscaglia: Okay. That's helpful. Can you know you guys had a press release out order activity in some of these longer cycle businesses you know, supporting US's stance on dominance and wondering if you've seen an order uptick within unmanned systems or the component you supply to them.
Robert Mehrabian: Yeah. 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 one. Even digital imaging, excluding FLIR, recognizing that the comps are easier, we saw an uptick on orders, book to bill, yeah, as high as 1.2. In the other businesses, lumpy businesses like engineered systems is way over one, but we know that's lumpy. Overall, I think our book to bill has been healthy. And as we mentioned earlier, this is, it's about 1.1 across all of our portfolio. And it's the seventh consecutive quarter that we've seen that.
So you know, 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.
Andrew Buscaglia: Thank you.
Robert Mehrabian: Thanks, Andrew.
Operator: Next question comes from Damian Karas with UBS.
Damian Karas: Hey, good morning, everyone. And Morning, Jamie. Better to be safe and cautious than sorry, Robert. But I do wanna ask you, yeah. So I did wanna kinda maybe push you a little bit on digital imaging. You know, the book to bill is strong. I think this is the January '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?
Robert Mehrabian: Yeah. You know, it's a kind of story of two chapters. FLIR is strong. Even when some of the short cycle businesses like in cameras, etcetera, in Dalsa, we go down. Our industrial businesses seem to be holding up pretty well. In the FLIR, you know, our both our ability to sell cores infrared cores, as well as cameras, they seem to be alright. Of course, FLIR Defense is just doing really well. Some of the problem that we have is in our Dalsa. Now remember, that business has been on a it's been down. And while we're getting a little order pickup, it's easier to comp. When you go to book to bill the business that's done.
On the other hand, George and managers in that business have been able to take cost out reorganize when 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 gonna be more like Q4 and maybe early 2026. Maybe that's why that with kind of where we are in terms of what you mentioned being a little cautious.
Damian Karas: Okay. But just to just to clarify, you haven't really seen the short cycle start falling off in kinda real time, but your assessment was, hey. Maybe there's $15 to $20 million of a little uplift that we got. But you haven't seen that yet.
Robert Mehrabian: No. You know, there are different forces operating in our management. Some of them are a little more cautious than others. And, frankly, over the last twenty-five years, we've learned the 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. No good deed should go unpunished. Having said that, we'll be fine. You know, I think we're just gonna be fine.
Damian Karas: Okay. Fair enough. Really appreciate that. And then my second question, the aerospace and defense margin did come in quite nicely. Would you maybe be able to elaborate a little bit, you know, 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 we update our models?
Robert Mehrabian: Yeah. Damian, I'm gonna let George pick some of this up. But in general, what happens is if you look at the margins, we when we make acquisitions, the margins go down because our acquired businesses by and large, have a lower margins. And if you look at Q1, Q2, Q3, Q4, our margins improved in those acquired businesses. Now if you exclude the acquired businesses, yes, our margins are very healthy. Excellent execution, George, you wanna comment on think I was just saying the legacy defense electronics businesses and the aerospace business, margins continue to be strong. In the new acquisitions, we acquired two companies here in the last several months, MicroPack and KeyOptic.
A good uptick in Q1 in the margins in MicroPack. 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. Yeah. Damian, just to kinda put things in perspective, I think my benefit our shareholders might benefit from this analysis. If you for a second, if you exclude FLIR, we've 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 nine times EBITDA. If you look at the same businesses today and you look at EBITDA and say, what did we pay for it? It's 3.4 times.
So that is really just simply improved margins. Even when you include FLIR, which is what we've only had in three years, even there, the what we paid when we acquired and what it is today, there's about a 100 basis point improvement. Having said that, that's the that's really the operating book that we have. Acquired businesses, don't overpay. Focus on improving margins. Do your eighty twenty. Anything else you have to do. And go from there, which, you know, you look at our overall businesses no matter which year, how many, which segment, it's the same story.
Damian Karas: Okay. Great. Thanks a lot. Good luck out there.
Robert Mehrabian: Thank you, Damian.
Operator: Our next question comes from Greg Conrad with Jefferies.
Greg Conrad: Good morning.
Robert Mehrabian: Good morning, Greg.
Greg Conrad: 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?
Robert Mehrabian: 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 kinda looking at our short cycle businesses. It's almost impossible to predict where they're gonna 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 dollars.
And given our conservative nature, for us, that's a hefty increase. So we think for the year, we'll have probably about $6.03 billion, maybe a little more. We'll have growth of 6.3%. We're assuming most of that 4% plus 4.2% come from acquisitions, maybe two plus percent from organic but then we are also looking at FX effects and other things. So you know, there's a lot of moving parts, but that's the best we can do at this time.
Greg Conrad: Thank you. 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 you know, 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
Robert Mehrabian: Sure. This So why don't I ask George to address that one too?
George Bobb: Yeah. Sure. So in that part of the business, the industrial and vision, you know, 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 orders uptick year over year. So both machine 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're encouraged by, you know, some of those order trends that we saw in Q2.
Robert Mehrabian: And then as we mentioned before, George and even before George, we took cost out. And so we've kinda 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 margin. As we've done in other businesses, George, you did that in marine as an example.
George Bobb: That's right. I would say, you know, we run the same playbook always, right, which is we focus on getting the cost structure right and grow growing from there.
Greg Conrad: And then maybe just sneak in one last one. I mean, you gave a lot of positive defense commentary. 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?
Robert Mehrabian: Yeah. There are two parts, and I think that's the really relevant question at this point. We have US government defense and we have foreign government defense. The US government defense improved 12.5% year over year. And it was primarily organic, primarily. Foreign government also improved. And over 15%. And there's a very, 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 nanodromes are not made in the US. They're made in Europe. On the other hand, some of our other drones are made in Canada, and some are made in the US.
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 is the insourcing. Is a key. So if you already have an existing footprint that's really good. The other thing is that everybody's talking about unmanned. Yes. Well, unmanned systems are not new to Teledyne Technologies Incorporated. But we built our first unmanned drones during the Vietnam War. We built 5,000 fire beads 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 Nordstrom.
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 nanodrones and others. But the other part that we are enjoying, is that in the first twenty 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. We are fortunate because of FLIR that we can supply sensors EOIR 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, packaging them 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. I think the context is important. Drones are nothing new to Teledyne Technologies Incorporated.
Greg Conrad: That was great. Thank you.
Operator: Moving on to our next question. Noah Poponak with Goldman Sachs.
Noah Poponak: Good morning, everyone.
Robert Mehrabian: Morning, Noah.
Noah Poponak: 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?
Robert Mehrabian: Yeah. I think in instrumentation, which would be short cycle, except for parts of marine know how that are defense related. Which are underwater vehicles again. I think it's just above one because in Q1, it was 1.04. In Q2, it's 0.97. So average is a little over one. Let's say one. And, yeah, that doesn't change much, across the businesses. Environmental is a little healthier, surprisingly. T and M is healthy, but still just below one. And Marin is obviously above one. On digital imaging, George mentioned and I mentioned, we're getting a we're kinda getting a little bit of an uptick in our Dalsa where we had we took some cost out, and we had lower revenue.
But, you know, Q1 was 1.02. Q2 is 1.23. We're cognizant of the fact that, you know, you get good book to bill when your revenue is done. But, nevertheless, it's way over one. And FLIR is really healthy over one. It's 01/2001, 01/2002. So average is way over one. We feel good about those businesses right now.
Noah Poponak: Okay. Yeah. I mean, you know, all gonna 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 to $20 million is 1% of the revenue in the quarter. So if you if you had the acceleration to the 6% organic growth in the quarter, and you're saying three q and four q are one and one, you're sort of saying what was six and one should is five and two. You're you're still you know, adjusted for the pull forward, you're still projecting a not insignificant desal in total organic revenue growth.
And when the long cycle's growing, five to seven and you're and you're telling us the short cycle is getting better. I guess Exactly. Is the short cycle me like, I guess if instrumentation book to bill is still below one, 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 it. How much of what you're saying about three q 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 the third quarter flat sequentially and hope to beat it and see what the indicators are in three months.
Robert Mehrabian: Yeah. No. Exactly. Well, in the next three days, starting right after this meeting, we go in operations reviews with all of our businesses across the globe. And they all come in here. And what we gotta do is George and I have to sort through that they don't sandbag us. You know? People have a tendency to be cautious. And we gotta challenge him without getting him to become too effervescent. So it's a balance. I am hoping that we get some of these pull ins in Q3 and Q4. I mean, as long as this whole international trade is volatile. Who knows?
Noah Poponak: Yeah. I thought I thought volatile trade was causing push outs. Not pull ins. So I wonder if you guys aren't telling me that. The reason I say that is it's both. If people think tariffs are gonna go up, in a certain area, from a sales perspective. Then they might like to get their orders in and get under the tariffs. On the other hand, it could be the reverse if tariffs are high and they think they're gonna go down. Right now, you know, it's so uncertain. Every day, you pick up the paper. No. Today is Japan, 15%. Somebody else is at 18%. So we're very cautious, and we're looking at that just like you are.
Noah Poponak: Yeah. 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 quarter.
Robert Mehrabian: Yeah. No. Yes. Again, there's scale of two cities. In FLIR, margins have continuously increased. For example, in 15%. Today, they're over 20%. Over a three-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 the Dalsa 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 kinda right size the business.
So the margins, if you look at Dalsa year over year, they've gone down a 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 with a 100 basis points done in Dalsa, 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. It's carrying the day.
And as soon as we straighten out, which we are, George straightens out with his people, the Dalsa picture we're gonna be fine.
Noah Poponak: Interesting. Okay. That's super helpful. What did you take in charges in millions of dollars in the quarter?
Robert Mehrabian: About $5.35.0.3, the way I look at it, every $600,000 is a penny.
Noah Poponak: Okay.
Robert Mehrabian: That's about 9¢. $8.09 cents.
Noah Poponak: Okay. Got it. Thank you.
Robert Mehrabian: Thank you, Noah. By the way, thank you for sending those free prepared questions. It's very helpful to me.
Noah Poponak: Oh, good. I'm glad to hear that. We'll keep doing it. Thanks again.
Operator: Thank you. Our next question comes from Jim Ricchiuti with Needham and Company.
Jim Ricchiuti: Thanks. Good morning. 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?
Robert Mehrabian: Yeah. 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. Fifty sixty is a good number. George, what do you think?
George Bobb: I think that's right. I think yeah.
Robert Mehrabian: So that's different strategies.
Jim Ricchiuti: And you know, 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 this you know, given what you're seeing?
Robert Mehrabian: I'm gonna let George answer that. From a sustainability perspective, there's two ways to look at it. One of them is the growth. Are you gonna 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, you wanna add to that?
George Bobb: Yeah. I would just add. So the energy part of the business is about 40% of the marine business. We've seen continue to see, you know, strong growth there in the subsea interconnect for oil production, for example, offshore streamers for geophysical surveys, for oil and gas exploration. And we expect that to continue at least, you know, 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, you know, give or take 30% of the marine business. What's driving that? Subsea unmanned vehicles. A lot of demand for unmanned vehicles. Globally in particular.
And then we also have a nice submarine interconnect business there where we're on platforms like the Virginia and Columbia class submarine, and that business is doing well. So I think in that case, on the defense side, certainly, I think that's sustainable given the overall environment geopolitically, particularly where we're selling vehicles in places like the Baltic Sea, the Black Sea, and certainly submarines are, you know, among the US Navy's top priorities.
Jim Ricchiuti: Okay. The last question I have. Could just slip one other one in. It sounds like MicroPact margins were up at going well. Are you still thinking in terms of KeyOptik being able to add about 15¢ to EPS this year?
Robert Mehrabian: The answer is yes. Both in MicroPack and KeyOptik, as we look margins are consistently improving and projected to improve. Q1, Q2, Q3, Q4. That's that's our storybook. Right? Mike, by the way, KeyOptics turned out to be a really good acquisition. It's very interesting. There's a part of it that's in the US. Which are energetics, etcetera, when you separate missiles. From what drives them. But then in Europe, especially in the UK, it's a lot of military applications. Which are very closely tied to what FLIR makes. So what George's done is has the UK part. Report to GPEN. By the way, that's spelled J I H capital F E N.
Reports to Ji Feng Lee who runs our FLIR defense. So she's integrating that into FLIR Defense even though we report in a segment. Doesn't matter. It's how you manage it and how you enjoy the food. So having similar products different customers. KeyOptik makes products in Europe. We can sell those products now in the US. And, of course, the opposite is true. With FLIR. So there we go.
Jim Ricchiuti: Thank you.
Operator: Moving on to Jordan Lyonnais with Bank of America.
Jordan Lyonnais: Hey, good morning. Could you guys cover so on the drone exposure overall, how are you thinking about the opportunities Blackhorn, it was added to the blue UAS list. But is it the driver for you guys is really just this the camera systems you'll sell to everybody? Versus your own drone products.
Robert Mehrabian: Yeah. I think you got it. I think we sell it to our own 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 gonna go into preproduction is a weaponized drone. We have very competitive drone there. Called the R1. And the adults the other thing is that we have unique trunk in the small nano drones, which you've seen, the Black Hornets. Which are growing in revenue and in adaption 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.
I will sell them to anybody. We're not you need we're not gonna just sell it to our own. 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 Technologies Incorporated by the sensors. And I'm sure other people are enjoying the same thing. Basically, you wanna 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 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.
Jordan Lyonnais: Got it. Okay. And then for the one big beautiful bill that passed, are there any changes that we should consider for the R and D tax changes or any other new programs that you guys see a lot of runway from?
Robert Mehrabian: Yeah. They are two. One has to do with the writing down the R and 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 sides, R and D credits you can accelerate the other side. You're expected to pay $30 million more in taxes. Than we're expecting now to where calculations show. And we're obviously very busy trying to figure out all the R and D expenditures that we have across the company. It's been good from that perspective.
Jordan Lyonnais: Got it. Thank you.
Operator: Next question comes from Jonathan Siegman with Stifel.
Jonathan Siegman: Good morning. Thanks for taking my question.
Robert Mehrabian: Of course.
Jonathan Siegman: On Golden Dome, there seems to be some funding coming through to that program. Can you talk a little bit about which Teledyne Technologies Incorporated 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.
Robert Mehrabian: 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 gonna let George answer that.
George Bobb: Sure. So the One Big Beautiful Bill Act did include some funding to advance the Golden Dome concept. In general, we've got, you know, large presence in space-based imaging and electronic sub that go into things like missile tracking. So we would expect given our, you know, 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 subsets. Subsystems.
Robert Mehrabian: Yeah. 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've we've we've positively inclined towards that. Now, historically, we have participated in the defense systems that they use in the Middle East that 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 you're gonna have to use those if you're going to have any kind of broad defense system. Looking down.
I don't know if that answered your question.
Jonathan Siegman: Thank you. 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 could maybe expand on that, that'd be helpful.
Robert Mehrabian: Sure. It's a it again, tail of the 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, 20 times EBITDA for products for businesses that you gotta go and do three, four years of hard fixing. We one case, as an example, without mentioning the exact nature of it, we did a price, which we thought was a stretch for us. And somebody bid a price 30% higher.
I just blew us out of the water. So there are acquisitions with the insanity of the price until it kinda moderates. We're gonna sit on the sideline. We may our buyer stack back. If that's the best value. We would also you know, if we look at you know, we have all fixed debt. Going forward. The longest fixed debt, the cost to us in terms of is 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 $8.9 billion 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'll 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.
Jonathan Siegman: Thank you very much.
Operator: We'll go next to Joe Giordano with TD Cohen.
Joe Giordano: Hey, guys. Thanks for taking my questions.
Robert Mehrabian: Hi, Chip.
Joe Giordano: 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. Know it's not a huge number, but, like, were you seeing like, tangible reductions in orders in, like, early July that confirms something like this? Or is it more just, like, something that you're just, you know, maybe worried about but aren't seeing evidence of it?
Robert Mehrabian: The answer is no. We didn't see it. We're just you know, it's it's it's the cautious nature of Teledyne Technologies Incorporated to kinda 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 pull forward. But we haven't seen any evidence. No.
Joe Giordano: Got it. Okay. And then last quarter, given all the controversy around tariffs and we didn't know what's going on and, you know, raising prices, you guys were building in some kind of contingency on the demand side. Related to, you know, 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 know, now that we're three months further along and the tariffs are coming in at lower rates.
Robert Mehrabian: Yeah. There are two 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 Technologies Incorporated is that it's in terms of tariffs, is that 82% of our revenue on the sales side come from US-based businesses that are selling to US-based customers. Or international locations selling to international customers. So in that way, 82% of our product is under the tent. We don't worry that much about it. Of the other 18% of the sales, approximately 75% or 14% of the total 18 are US exports to international locations.
That can have an effect but fortunately, for us, 2% of our sales are to China. In that domain. Finally, 4% of our external sales are from Teledyne Technologies Incorporated international locations to US-based customers where new tariffs may apply but we have products that are extremely unique like rons, for X-ray for the cancer treatment. Which are unique products. And we think that's not gonna be affected much. Having said all of that, we'll see some impact 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 US Mexico, Canada, and the fact that we're doing US 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 that's as wholesome a picture as I can give.
Joe Giordano: I guess what I'm getting is I think 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?
Robert Mehrabian: No. The answer is no. We become less cautious in that domain.
Joe Giordano: Okay. Thank you.
Robert Mehrabian: Thank you.
Operator: We'll go next to Rob Jamieson with Vertical Research Partners.
Rob Jamieson: Hey, guys. Thanks for taking my question. 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? You'd hit the high end of the guidance range or maybe even exceed it? What would need to happen?
Robert Mehrabian: Teledyne Technologies Incorporated's history would repeat itself.
Rob Jamieson: How's that?
Robert Mehrabian: I think no. I think I think it all depends on our short cycle business because we have a really good beyond the long cycle. You know, 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 it does hold up. We'll be fine.
Rob Jamieson: Great. 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 saw strong Ethernet test sales, and that's related to AI. Just curious, you know, if there are any additional errors in strength you saw, during the quarter? Any additional color?
Robert Mehrabian: I'll let George answer that, please.
George Bobb: Sure. So we had about 5.5% organic growth. In the Test and Measurement business in Q2. It was our third consecutive quarter of year over year growth. 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, you know, driven by some of the high-speed applications, also driven by some power and motor drives. Analyzers. And on the protocol side, yes, it's, you know, it's been driven by those network app applications. You know, high-speed communications, things like PCI Express. And so, you know, we continue to again, that business has stabilized. We've seen nice consecutive growth in three 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.
Robert Mehrabian: Yeah. 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.
Rob Jamieson: Perfect. Thank you.
Robert Mehrabian: So, Terry, how are we doing?
Operator: 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.
Robert Mehrabian: So okay. Let's go to Jason then.
Jason VanWees: 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. Carrie, if you give the replay information over the call, the webcast, we'd appreciate it. Goodbye, everyone. Thank you.
Operator: 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.