Teledyne Technologies Incorporated (TDY) Q3 2026 Earnings Call Transcript

Operator: Welcome to Teledyne's Third Quarter Earnings Call. Here is our first speaker, Mr. Jason VanWees.

Jason VanWees: Good morning, everyone. Thanks for joining us. This is Jason VanWees, Vice Chairman of Teledyne. I would like to welcome everyone to Teledyne's third quarter 26 earnings release conference call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne's Executive Chairman, Robert Mehrabian; President and CEO, George C. Bobb; EVP and CFO, Steve Blackwood; and Melanie Cibik, EVP general counsel Chief Compliance Officer, and Secretary. After remarks by Robert, George, and Steve, we will ask for your questions. However, our attorneys have reminded me that before we get started, all forward-looking statements this morning are subject to various assumptions, risk 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 via webcast and dial-in will be available for approximately 1 month. Here's Robert.

Robert Mehrabian: Thank you, Jason, and good morning, everyone. Our third quarter sales and operating earnings were the strongest in Teledyne's history. For the third quarter in a row, we are raising our full year 2026 sales and earning guidance. In January, we forecasted revenue of $6.37 billion a 4.2% increase from 2025. And non GAAP earnings of $23.65 per share. Today, our outlook for 2026 sales is $6.625 billion a year over year increase of 8.3% and nearly doubled the growth rate projected in January. And earnings of $25.45 per share which is $1.80 per share or almost 8% higher than forecast in January. And it is earned a 16% increase compared to last year. For all of Teledyne, orders have exceeded sales for 12 consecutive quarters and funded backlog is now $5.3 billion. In the third quarter, organic growth accelerated in our Digital Imaging segment and was led by sales of infrared detectors and systems for space and unmanned applications. Furthermore, each of our major commercial imaging businesses, such as industrial vision sensors and systems as well as health care. Increased year over year. Our third quarter performance reflected not only the strong execution of the backlog that we have been building for 3 years, but also the strength of our business portfolio and what Teledyne is today, A company with a broad sense of sensors and vertically integrated platforms from space to deep sea. We also continue to enjoy robust free cash flow and recently made $224.6 million of opportunistic stock repurchases at a weighted average price of approximately $607 per share. We did the same in 2025 and 2024. When we felt Teledyne was undervalued. During the past 3 years, we have deployed nearly $980 million to buy back shares of our company at a total weighted average price of $479 per share. Regarding the pending acquisition of Varex, we have been following the company for more than 6 years. As health care and life sciences markets, began to recover earlier this year, we felt the timing was finally right. For us to pursue. And then announce this highly complementary acquisition in the third quarter. The regulatory process is underway, and there is a special stockholder meeting scheduled for October 28th. We continue to anticipate closing early in 2027. Notwithstanding the stock repurchases, and the pending acquisition, current leverage remains at the lowest level in 6 years and we have more than ample flexibility to continue compounding earnings growth for years to come. George will now comment on the performance of our 4 business segments.

George C. Bobb: Thank you, Robert. In the Digital Imaging segment, third quarter sales increased 14.3% organically, due to well balanced growth among our defense and commercial businesses. Sales of infrared detectors for space based imaging increased more than 25%. As did revenue from infrared subsystems and cameras for our customers' unmanned air systems and unmanned maritime surface vehicles. In addition, segment sales increased in each of our larger commercial end markets. that is, sensors and cameras for industrial and scientific vision applications, X-ray products for health care, commercial thermography cameras, electronics for maritime navigation, geospatial sensors and software, and microelectromechanical systems or MEMS. Finally, non GAAP operating margin in the segment increased 376 basis points to 25.4%. In the instrumentation segment, which consists of our marine, environmental, and test and measurement businesses, third quarter sales increased 1.9%. Versus last year. Overall sales of marine instruments increased 2% primarily due to strong defense related sales of interconnects, for U.S. Virginia and Columbia-class submarine programs, and sales of environmental instruments increased 7.1% Due to increased sales of gas monitoring instrumentation, along with more modest growth in sales of laboratory and life sciences instruments. Sales of electronic test and measurement systems decreased 6.3% due in part to the timing of orders. Which increased 18% year over year for a record book to bill ratio of 1.23x. Instrumentation non GAAP operating margin in the third quarter decreased modestly due to product mix. But was sequentially higher for the second consecutive quarter. In the Aerospace and Defense Electronics segment, third quarter sales increased 4.3%. Growth in defense electronics of 7.4% partially offset by lower sales in commercial aerospace. However, third quarter bookings were very strong in both the defense and aerospace markets, with a segment book to bill ratio of 1.29x. Non GAAP segment margin increased 86 basis points year over year even though there was a greater mix of defense electronics which as a whole have a lower operating margin, compared with commercial avionics. For the engineered systems segment, third quarter revenue increased 7.8% driven primarily by greater sales of marine and other manufacturing programs. Segment operating margin was largely flat with last year. I will now pass the call back to Robert.

Robert Mehrabian: Thank you very much, George. To conclude, right now, virtually all of our businesses are moving in a positive direction simultaneously and our growth remains balanced. Across many end markets and geographies and not due to any singular potentially fleeting market driver. Given our backlog, the pending acquisition of Varex, our strong balance sheet, and outstanding operating discipline, to 2027. I am already looking forward. I will now turn the call over to Steve.

Stephen Finis 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 fourth quarter and full year 2026 outlook. In the third quarter, cash flow from operating activities $352.5 million compared with $343.1 million in 2025. Free cash flow, that is cash flow from operating activities less capital expenditures, was $319.5 million a third quarter record compared with $313.9 million in 2025. Cash flow increased due to favorable operating results in the third quarter of 26 compared with 2025 partially offset by higher inventory purchases. Capital expenditures were $33 million in the third quarter of 26 compared with $29.2 million in 2025. Depreciation and amortization expense was $84.7 million in the third quarter of 26 compared with $84.5 million in 2025. We ended the quarter with $1.47 billion of net debt. That is approximately $2.03 billion of debt. Less cash of $562.4 million Now turning to our outlook. Management currently believes that GAAP earnings per share in the fourth quarter of 26 will be in the range of $5.68 to $5.83 with non GAAP earnings per share in the range of $6.60 to $6.70 And for the full year 2026, we believe that GAAP earnings per share will be in the range of $21.71 to $21.87 and non GAAP earnings per share in the range of $25.40 to $25.50 I will now pass the call back to Robert.

Robert Mehrabian: Thank you, Steve. We would now like to take your questions Robert, if you are ready to proceed with the questions and answers, please go ahead.

Operator: Thank you. We will now be conducting our question and answer session. To ask a question at this time, you may press *1 from your telephone keypad. You may press *2 if you would like to remove your question from the queue. 1 moment, please, for our first question. Thank you. And the first question today comes from the line of Zachary Walljasper with UBS. Please proceed with your questions.

Zachary Walljasper: Hi. Thank you for the question. My first question is around backlog. Total company backlog has grown sequentially every quarter so far this year. So with the trends you are seeing in unmanned space, can you just talk about the visibility of the team's building on from a top line perspective heading into 2027? Because based on the awards you are winning now, I would assume they will be delivered next year. And then my second question is around instrumentation. It sounded from the prepared remarks, there is a bit of mistiming or bit of a timing of orders. So that just for test measurement or for the whole segment? Thank you.

Robert Mehrabian: Thank you, Zachary. Let me take the backlog question first. I want to just take it on a larger scale. As we mentioned, the backlog right now stands at $5.3 billion. Of that about 72% will be available for us to recognize as revenue in the next 12 months. To put that in perspective, that number is about half of the revenue that we enjoy for 2026. Now the backlog in other areas it varies. But basically, a lot of our longer term defense and other areas The backlog is for the full 18 months. And 9 months of it being as I mentioned. And overall, we think, if you look at the different segments, even in instruments that George talked about and you just mentioned, our book to bill is 1.07x. So we feel pretty good about it. Even though the revenue may have been down in certain parts of that, overall, the pickup in our orders in Q3 points to a fairly favorable future. Okay, George, do you want to add anything to that? No. Okay. Thank you, Zachary.

Operator: Our next questions are from the line of Andrew Buscaglia with BNP Paribas. Please proceed with your questions.

Andrew Buscaglia: Hey, good morning, everyone.

Robert Mehrabian: Good morning, Andrew.

Andrew Buscaglia: I wanted to touch on digital imaging. Just. It seems like things have really accelerated, and it seems really broad based. But what changed intra quarter that made you exceed your expectations by so much? Was it on the defense side, or was it more kind of commercial infrared stuff that really picked up?

Robert Mehrabian: Yeah. I think, Andrew, obviously, we anticipated based on the orders we had that we would do better than we initially thought But, obviously, everything depends on execution. I think when you look at our digital imaging and you look at it both as what we call our historical digital imaging, which would be our Teledyne dolsa e 2 v our imaging systems here, what we call Teledyne Scientific and Imaging. Those grew very nicely. Primarily, due to space. As you know, we do a lot of work in space. With our infrared image sensors, and the whole missile warning and tracking system has been a really good domain for us. So that picked up. The other area, of course, is the unmanned systems. And that did very well, better than we thought. And then lastly, in the commercial domain, which is machine vision, health care, microelectronics, mechanical systems, If you add them all up, they all did very well. And digital imaging book to bill as a whole, both what we call our legacy and FLIR, had a book to bill of about 1.22x. So things worked out across the board. Very well.

Andrew Buscaglia: Okay. Yeah. And maybe the next question on digital imaging margins? Can you talk about expectations around gross margin going forward? Given price cost dynamics? And then it looks like R&D and SG&A are growing quite fast. I thought last year, you guys were. You took out some costs, but those, so presumably, those would not be growing that way. Can you talk a little bit more about on the OpEx side, what you expect from here?

Robert Mehrabian: Well, I will let George talk about the cost structure. Because that would. That has been a significant undertaking in the whole digital imaging domain, especially in what we call our historical digital imaging. All along, we have said that FLIR is going to do better year over year, quarter over quarter, and it is finally arrived at a point. Where we feel very comfortable with the growth both in revenue as well as earnings. Overall, we are projecting robust growth in FLIR year-over-year of 12% And in the. In defense as well as commercial domain. In terms of the cost structure, I will let George, as I said, answer it. But I think what we are aiming for is to continuously improve our margins And we started the year just broadly We started the year by saying digital imaging margins would grow about 150 basis points in Q2. Today, we have added another 61 basis points So we are projecting for the whole year margins to grow 225 basis points. So with that, I will pass this to George. To talk about the cost structure.

George C. Bobb: Sure. So we did take cost out in 2025. We are getting And I think the rest of the cost structure is fine. So I think we are getting the benefit of the cost that we took out and obviously the volume growth that we have. that is about it. I hope that need that answers your question.

Andrew Buscaglia: Yes. Thank you.

Operator: The next question from the line of Sheila Kahyaoglu with Jefferies. Adam Samuelson on for Sheila. Good morning. Please proceed with your question.

Adam Samuelson: Yes. Hi, it is Maybe the first question is on instrumentation. I know you talked about test and measurement kind of bookings improving and that is giving you confidence on the outlook for the top line as you go into the fourth quarter. But wondering if you could comment on kind of the margin outlook there. Is that as we think about that mix, maybe flipping more favorably within the segment, should we think about that segment returning to year on-year margin expansion in the fourth quarter? And I mean, is there any way you think about the margin structure for that business as we move into 2027? Thank you.

Robert Mehrabian: Thank you, Adam. I will pass this 1 back to George again.

George C. Bobb: I think that we continue to see sequential margin improvement as we go through the year. Quarter over quarter, I do not think we would quite get back to 2025 margins in Q4. Having said that, based on the outlook for 2027, feel good about the direction we are headed.

Adam Samuelson: Got it. And then maybe just switching gears, like, sneak 1 more in. Back in digital imaging on the unmanned side, any way to frame the demand for infrared subsystems on customer-for-customer platforms versus your own, and any thoughts on kind of.is there any for incremental capacity to support some of the demand growth that you are seeing there?

Robert Mehrabian: Yeah. First of all, our subsystems have been the strongest. Of all of our defense programs. In the infrared and visible domain, our sensors, as you said, we supply to our own as well as other people. And that has gone substantially. Year over year. There are good reasons for that. 1 of them is obviously as the demand is growing, the ability to meet the demand and confidence that the customers have in a demand environment that you will be supplying and not get offline. Because that is very, very important. And the second thing is, of course, we are improving our product continuously. We have 12-micron detectors that we have been shipping Now we have announced 8-micron, plus software additions etcetera. On the bigger system, which would be our total defense system, we are looking at about 10% growth. Whereas in the subsystems, we are looking at a multiple of that.

Adam Samuelson: Alright. that is a very helpful color. Thank you. I will pass it on for sure.

Operator: The next questions are from the line of Jonathan Siegmann with Stifel. Please proceed with your questions.

Jonathan Siegmann: Morning. Thanks for taking my question. Congratulations on the nice balanced growth across the portfolio again. A question on the budget environment. Teledyne has some terrific exposure both in space and in drones and counter drone applications. Those are disproportionately funded by some of the reconciliation money. Which there is some worries out there, you know, maybe it is stalled out in the months ahead in congress. As a supplier, what impact does that have on your business? What are your prime customers saying in terms of any impact on, this powerful growth you are seeing? Thank you.

Robert Mehrabian: that is a very good question. that is a very good question. Right now, as you have mentioned, there is uncertainty in the budget. On the other hand, because of our longer term programs, that we have won, including the most recent 1 in the Golden Dome, we do not see an issue for us. In 2027. Having said that, there are other things that are happening that may change the outlook in 2028 and 2029. We do not know. On the other hand, right now, sitting where I am and where George is, we think we are okay in 2027. With all the uncertainties surrounding the budget as well as everything else that is going on in Europe and The Middle East.

Jonathan Siegmann: Thank you. And if I could just slip 1 in on Varex given we are used to looking at businesses that fly and blow up. Just can you understand you have looked at Varex for quite some time. Maybe could you talk a little bit about what attracted you to that business and maybe comment on some of the declines in revenue that business saw and why you are excited about it. I would appreciate it.

Robert Mehrabian: Thank you. that is a very good question. First of all, we have been looking at that business for a long time, at least in the last 6 years, pretty actively. We wanted to buy pieces of that business before. We are not able to do that. But what happened is recently, as the whole arena of health care and products that they make. Began to recover we thought it was an appropriate time for us to approach them. And that would be obvious in the recovery after the post COVID era. And we were able to approach them. We were able to go through the process. They had a lot of other potential buyers that they were dealing with. And that is, by the way, detailed in their merger proxy. And in the end, we ended up with a friendly transaction. Why Varex? Very simple. We have health care products. We have X-ray detectors. But nothing like they do. We primarily focus on ceramic metal oxide detectors with our small in size. It cannot tolerate high energy, high X-ray energy levels. Like you have in oncology. They have a bunch of other detectors led by amorphous silicon that are uniquely designed for the high energy oncology X-ray Also, they have really different complementary products to us. And I will end up with 1 thing that they have that is exciting to us and that is their photon detectors. Which can detect X rays without having to go through an intermediate layer called scintillation. And that is very attractive to us because we have always wanted to get into that field, they are already in it and advanced in it. And we think while the revenue has been relatively flat, we think for us, the opportunity is to improve margins like we have done in all of our acquisitions. I will give you 1 example. FLIR. We bought it at a multiple of 16.7x EBITDA. If you look at it today, in just 4 years, that is down to 13.7. And broadly, Teledyne has improved almost every acquisition that we have made and improved the margins I would say, the average, we paid 13.5x James' EBITDA and today, they are less than 8x. So that is the other driver. We think we can improve it. with our 80/20 programs, With not having the public costs associated with a smaller public company. So that kind of sums up the best answer I can give you at this time.

Jonathan Siegmann: Greg. Thank you. Congratulations on it. A nice final 1 for Jason to have his contributions on. Good luck with it. Thank you.

Operator: The next question is from the line of Guy Drummond Hardwick with Barclays. Please proceed with your questions.

Guy Hardwick: Hi, good morning. Robert, considering your pretty upbeat comments on the backlog, are you willing to give us kind of a early look as to what revenue growth potential could be in 2027, excluding the Varex acquisition? And just to say, and I will ask my follow-up now. Did Digital Imaging margins benefit from any tariff reversals or refunds?

Robert Mehrabian: No. The refunds were really taken up in Q2. So it does not affect Q3. Let me start there. it is a little early for us to talk about 2027. Matter of fact, we had our first cut off half of our businesses. That George went through with our board. I think our momentum is there. I think we will improve next year again, whether it be at the level we did this year or projecting to do this year, I do not know. it is a little early. Improve We will. That, I can tell you. Thank you.

Operator: The next question is from the line of Joe Giordano TD Cowen. Please proceed with your questions.

Joe Giordano: Hey guys, good morning.

Robert Mehrabian: Morning, Joe.

Joe Giordano: So on the orders there, I mean, again, at the consolidated level, really strong. it is pretty similar number to what you had in dollars last quarter. I am just curious if there is any parts of that where you feel like you know, our customers ordering earlier or excessively because of, you know, worries about a budget or anything like that? I mean, I know your products are not, like, stocked in inventory typically or anything like that, but just curious if there is any parts of the business where you feel like there is a little bit of different order patterns for whatever reason.

Robert Mehrabian: Yeah. Joe, I do not think so. We have not seen anything unusual. The backlog, the orders are kind of broad-based the orders are broad based across our products. We are not, we are not looking at any huge movements because of data centers or other things. So we feel comfortable about that. So that is the best answer I can give. We have not noticed anything unusual. Across our portfolio. Okay.

Joe Giordano: And then on Varex, like, I think I cut. My phone cut out a little bit. You may have gotten into this a little bit on last question. But on the growth side of Varex, I mean, you guys have showed the ability to cut costs out. And so I think people would expect that on the margin side. But growth, you mentioned it is been flattish. what do you do there? Is that just a market dynamic? You know, I know you are probably not wanting to buy something that is wildly dilutive to the total growth profile of Teledyne. So what do you do there to stimulate that?

Robert Mehrabian: Yeah, I think The obviously, we are going through the process now. So the first thing in 80/20 is we are-- that is probably gonna shrink revenue somewhat because we look at the 80% of the revenue that is substantially available for us to improve margins. And there is 20% that goes to smaller customers that are dilutive. To earnings and we do that across If you looked at Teledyne today versus 4, 5 years ago, we have reduced the number of SKUs that we have by about 50%. So we are gonna do that first. So that might actually reduce 50%. our revenue a little bit in the beginning. But then we think after that, we think we will get back to mid-single-digit growth like we do under normal circumstances. Across our own portfolio, and we obviously look for synergies where we can sell similar but different products to the same customers. So I think initially, revenue down a little bit, margins up, gross margins up. We are almost first year. Accretive. And then as we go forward, grow the business like we have done every other acquisition that we have made.

Joe Giordano: If I could just sneak 1 more in, do you insist. Do you foresee Varex, like, the go to market strategy? Is there how are they gonna work independently from the offerings you already have? Is it 2 separate sales teams, or is this gonna be, like, 1 face of Teledyne going to these same customers?

Robert Mehrabian: I think it is going to be 1 face. That is very important because George really was the architect of what we call 1 Teledyne, and it is not just across health care, but across all of our products. So when a market representative, a sales representative, approaches a company, whether it is a defense company or a commercial company, they have the visibility of all of our products. And so somebody in defense might mention some of the products we have in the commercial domain. We are gonna do the same thing with Varex. it is not going to be separate. it is got to be 1 Teledyne approach. Thank you. Thank you.

Operator: The next questions are from the line of Jordan Lyonnais with Bank of America. Please proceed with your questions.

Jordan Lyonnais: Yes. Hey, Good afternoon. Good morning, guys. So, yeah, just quickly, I did not hear much discussion around how are supply chains holding up for you. You know, we have gone to some of the recent trade shows. We have heard that there is shortages on things like printed circuit boards and some basic electronic components. Given all the, you know, how would I say it? Capacity that is being thrown to the hyperscalers and the AI build out that it is kind of like sucking up everything. How's that impacting you guys, and how are you managing it?

Robert Mehrabian: Well, that is a very good question. Obviously, there is a lot of shortages We have a dedicated team that works with our businesses that ensures that we get what we need to produce our products The only problem that we see because of the shortages the inflation specific inflation to the different areas to. You mentioned, is higher. Than normal. But we try and make up for that with price increases. This year, we have been successful. In enjoying probably 1 of our better price increases across our portfolio. So it is an annoyance from an inflation perspective. And sometimes you have a hard time getting specifically what you need But we are very aggressively planning ahead. With our suppliers recognizing that some of the shortages would probably not last. Let's put it that way.

Jordan Lyonnais: Got it. Got it. Thank you very much.

Operator: The next question is from the line of Noah Poponak with Goldman Sachs. Please proceed with your questions.

Noah Poponak: Hey. Good morning, everyone.

Robert Mehrabian: Morning, Noah.

Noah Poponak: Jason, congrats. On your announcement, and thanks for all the time you spent with us over the years.

Jason VanWees: Always super helpful. Thanks, Noah, and I will. So I will see you in December, so I am still here for now.

Noah Poponak: Yeah. Appreciate that. Robert, given the diversification of your business, as well as you guys have done over the years, there are not that many quarters in any of the businesses that look like the last 2 growth rates in digital imaging. I guess it leaves me wondering how sustainable is that because what is happening in the defense verticals you feed into right now is pretty unique, and at least for now, seems fairly enduring. And I guess you kind of have that happening at the same time that your commercial side is picking up, that has a little bit more of a cyclical element to it. Do you see these growth rates sustaining for a period of time, or is this more the early pickup on easy compares?

Robert Mehrabian: Thank you, Noah. Very good question as usual. Difficult 1 to answer. Let me just say, short term, and short term for 2027,, we think that we are going to do better than we have historically. This year, as you know, we are looking at, about 8.3%-8.4% growth. that is organic, which is higher. The organic, sorry, is about 7.5% but it is still. it is higher than what we have enjoyed the last 15 years or so. I think that is gonna sustain. Maybe not exactly at that level, but it is gonna be better than low single digits, which we have been stuck on for a while. Mid to higher single digits is what we are anticipating. it is hard to say but, you know, Noah, we have a balanced portfolio. We have intentionally worked very hard to balance our portfolio so that when things get tough, we survive and do well. And when things are going well, Some parts of our portfolio are outshined like they are this year. I feel comfortable that we are gonna do better than our historical Maybe not as aggressive as this year, but pretty close to it. Okay.

Noah Poponak: And then I also wanted to ask about the margin in that segment. When it was under some pressure, you would project when you when you expected it to be back to the level it is at now. I guess now that it is here, and it maybe has growth ahead of it, but also pieces moving around under the hood. Is there a framework for how to think about the 3- to 5-year out or just the longer term profitability potential of digital imaging?

Robert Mehrabian: Yeah. In digital imaging, obviously, we have enjoyed significant margin improvement. This year over last year. By the end of the year, we expect the total margin to go up 225 basis points. Our target for every year across our portfolio is at least 50 basis points. This year, we are going to enjoy closer to 90 basis points, and that improvement really we just announced this quarter, last quarter, we were closer to 50-55. So I think our target is to stay on that 50 and do what we can year over year to improve our margins and that goes to the heart of what George talked about. When necessary, cut cost When things improve, do not put it back. Okay.

Noah Poponak: 1 last 1. Just what is the implied fourth quarter total company organic revenue growth that is embedded in your revised guidance? I realize you raised the bottom line considerably, but it seems like it would require organic growth that looks a little conservative given you still have the easy compares.

Robert Mehrabian: Yeah. I think 7% to 8% is the number we have in mind at the present time. May be a little higher, but 7% to 8% for Q4. As we get into Q4, which we are now, things are looking pretty well. We just have to execute. Execution is, you know, As you well know, it is everything in our in our portfolio. So 8% is a good number. Okay.

Noah Poponak: Thanks very much.

Robert Mehrabian: Thank you, Noah.

Operator: The next question is from the line of Robert Jameson with Needham and Company. Please proceed with your question.

Robert Jamieson: Hey, good morning. Thanks for taking my Just back on the 4Q guide as well. Just with everything and the positive commentary around order books and book-to-bills, And then just looking historically, I gotta go back to, like, 2015-2016 to see sequentially when EPS was kind of, like, similar in Q3 to Q4. So just wondering what is kind of embedded in your outlook and any puts and takes in the broader macro that you are considering that might be just keeping a little bit more cautious here on your guidance?

Robert Mehrabian: Yeah. I think if you kind of look back, at those years. And by the way, we do all the time. What happened is in by the end of fourth quarter of 25, we started seeing some tax benefits. Which, by the way, we are not enjoying today. So we are very working very hard to make sure that we get those tax credits, but they play an important role, obviously. Especially if we can move the IRS to do what it is supposed to do, make decisions. If we can do that, we might enjoy some tax benefits on top of everything else. But if you look back at what we call coming out of the hard years, Simply what happened is we cut costs as I mentioned before, George did, But let's say, in marine and other domains, But when markets turned up, we did not put all that cost back. We had very good discipline. If we can do that again, that would sustain us for a while and our EPS will grow just like it did subsequent to the top years that we had in the mid of 2015 and 2016. So that is the best I can do in my answers. George, do you have anything you wanna add?

George C. Bobb: No. No, I guess not. No.

Robert Mehrabian: Thank you.

Robert Jamieson: that is helpful. And then just, Can you update us on the unmanned outlook just how much you expect to generate just on dollar growth for this year? I know you guys kind of bumped that up the last couple of quarters. So just curious where that stands today. Thank you.

Robert Mehrabian: Yeah. Broadly, 15%. Year over year, 2025 to 2026. just for unmanned. If you put everything else in, with space electronic warfare, missiles, and, of course, underwater. If you do all of that, it is still double digit. it is 11.3%-11.5%. So while unmanned is doing really great, everything else in the portfolio seems to be moving up in double digits in that domain.

Robert Jamieson: that is great. Thank you.

Robert Mehrabian: Thank you.

Operator: The next question is from the line of John Godyn with Citigroup.

Bradley Eyster: Hi. This is Bradley Eyster on for John Godyn. Thanks for taking my question. So I just want to follow-up on Noah's question about the growth trajectory for digital imaging. I mean 2Q, 3Q has been strong. Well, I am just trying to think for the potential outlook here given that you called programs such as space sensors, missile detection. These programs still seem to be in their infancy. So I am just trying to think what the size and shape of this segment looks like over the fullness of time. Any color you can do this year would be appreciated. Thank you.

Robert Mehrabian: Let me just say right now, from where we sit, George and I, we are looking at mid single digits maybe a little higher than that 5% to 8%. it is too early right now. Right now, we are working on 2027, and I have never been 1 to project beyond the year. I know some people would tell you, you know, 3 to 5 years, everything's going to be great, but that is not us because we do not see that far into the future. But I think single digits on the high side we would be comfortable with that. And as we execute and as we compete with new programs, with things like our new drones, loitering drones that are armed with our new nano drones that you can release 3 of them simultaneously from a single platform and recover them with our ability to have an environment with all of our drones, whether it is ground based or air, talk to 1 another, I think we feel comfortable with the let's say, higher single digit growth.

Bradley Eyster: Got it. Appreciate the color. I will keep that to 1. Thank you.

Robert Mehrabian: Thank you.

Operator: Thank you. Next question is from the line of Joe Giordano with TD Cowen. Please proceed with your question.

Joe Giordano: Hey. Thanks for letting me back in. Just I just wanted to clarify something I may have heard wrong. Robert, I thought you said for DI for the year, you were thinking, like, 8-point-something percent organic. Is that a fourth quarter number? Or is that a full year number If it is a full year number, I am guessing it is not. it is. Then it would mean, like, fourth quarter organic is barely up. I just wanted to clarify that.

Robert Mehrabian: Yeah. I think for the year, it is higher than that. The organic is 10%, with 0.6 of acquisition, it is 10.6%, closer to 11%. So if I said that I may have misspoken, We are talking about the revenue for digital imaging around $2.5 billion. That makes much more sense. Thank you. Thank you, Joe.

Operator: Thank you. At this time, we have reached the end of our question and answer session. I will hand the floor back to management for any closing comments. Thank you, Robert.

Robert Mehrabian: Robert, I will now ask Jason to conclude our conference call.

Jason VanWees: Thanks, Robert. And again, thank you, Robert, for hosting the call. And if you have follow-up questions, please feel free to call me at the number at the end of the earnings release, or you have my email. So thanks, everyone. Bye.

Operator: This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation. Have a wonderful day.