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.

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.

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.

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

Hey, good morning, everyone.

Good morning, Andrew.

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?

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.

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?

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.

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.

Yes. Thank you.

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

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.

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

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.

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?

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.

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

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

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.

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.

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.

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.

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

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

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?

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.

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

Hey guys, good morning.

Morning, Joe.

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.

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.

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?

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.

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?

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.

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

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?

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.

Got it. Got it. Thank you very much.

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

Hey. Good morning, everyone.

Morning, Noah.

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

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

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?

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.

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?

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.

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.

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.

Thanks very much.

Thank you, Noah.

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

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?

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?

No. No, I guess not. No.

Thank you.

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.

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.

that is great. Thank you.

Thank you.

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

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.

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.

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

Thank you.

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

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.

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.

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

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.

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