Teledyne Technologies Incorporated Price & Performance (TDY)

Thank you, Jason, and good morning, everyone, and thank you for joining our earnings call. In the first quarter, we achieved many records. Including first quarter total sales, which increased 7.4% accelerating for two quarters in a row and growing at the greatest rate in years. Sales also increased organically in every segment. Furthermore, non GAAP earnings per share and GAAP earnings per share and non GAAP operating margin were also records for any first quarter. We're pleased to close the QiOptik carve out acquisition in the first quarter but I should note also that a few months before closing, QOptik was awarded major new contracts with both The UK and German Ministry of Defence resulting in multi year acquired backlog. In any event, even excluding this acquired backlog, orders for Teledyne as a whole exceeded sales for the sixth consecutive quarter. We continue to execute our strategy which has delivered long term results regardless of economic, and political uncertainty. That is, maintained a balanced and resilient mix of commercial and government businesses across a broad range of geographies and markets and we continue to improve margins in existing businesses and acquire and integrate complementary companies.

Before further commenting on the quarter, I wanted to offer some perspective given the current and breadth [indiscernible] operating environment. While we're going to focus on what we can control, it's worth noting the following. Teledyne has never believed that offshoring US manufacturing and technology was a wise action. As a result, we have little low cost country manufacturing We are a net exporter and most of our external sales are produced and sold within regions. To be specific, approximately 80% of our sales are from US based locations to US based customers or our international locations to international customers. Of the remaining 20% of total sales, approximately 80% or roughly 16% of the total our U. S. Export sales to international location [indiscernible] only 2% of total sales are US export sales to China. Finally, just 4% of external sales are from Teledyne International locations to U. S.-based customers where new tariffs may apply for our customers. [indiscernible] regarding our own supply chain, we import relatively little from China and Mexico with the twenty twenty four annual value of each less than $25,000,000. Our largest import from Canada is internal sales of unmanned air systems for the US military a large portion of which we believe would be subject to U. S. DoD duty free exemption.

While we're not immune to the current ten plus percent of tariff rates, or Suntourney the pre pause liberation they propose tariff rates We are certainly planning actions to protect margins as the landscape evolves. That includes taking further exemptions under The US Mexico Canada agreement and from the United States Department of Defense as well as taking advantage of recent exemptions for import of certain electronic components and then finally of course pricing pricing actions. Where we find necessary. Turning to our full year sales and earnings outlook. We must assume that the market uncertainty will have some impact While this is nearly impossible to quantify, we've assumed a negative sales impact of perhaps about 1% of annual sales [indiscernible] by the KeyOptik acquisition resulting in 2025 estimated sales of approximately $6,000,000,000 Also, while we exceeded our first quarter midpoint guidance, of $4.85 and we expect a contribution from KeyOptik which is now included in our outlook, we think it's wise to maintain our full year earnings outlook. Edwin and George will now briefly comment on the performance of our four business segments. Thank you, Robert. This is Edvin, and I will report on the digital imaging segment. Represents approximately 52% of Teledyne's portfolio.

First quarter twenty twenty five sales increased 2.2% compared with last year, performance last year reflected an increase in sales for both Teledyne and Vlios Defense industrial business and relatively flat sales across the balance of our portfolio where increased sales of space based infrared detectors and semiconductors were largely offset by ongoing weakness in certain markets such as X-ray detectors for consumer discretionary sensitive dental Non GAAP operating margin improved 31 basis points primarily due to the contribution of FLIR as well as space based sensor business. George will now report on the other three segments, which represent the balance of Teledyne.

Thanks, Edwin. In the instrumentation segment, which consists of our marine, environmental, and test and measurement businesses, first quarter total sales increased 3.9% versus last year. With organic growth of 2.6%. Overall sales of marine instruments increased 9.5%, 6.5% of which was organic, due to both strong offshore energy and subsea defense sales. Sales of environmental instruments decreased 2%, primarily due to lower sales of laboratory instrumentation, and emissions monitoring instruments. However, orders were strong for the first quarter book to bill of 1.11 times. Sales of electronic test and measurement systems include oscilloscopes, protocol analyzers, and Ethernet traffic generators, increased 1.5% year over year. Instrumentation operating margin in the first quarter increased 97 points. To twenty seven percent and eighty eight basis points on a non GAAP basis to 27.9%. In the Aerospace and Defense Electronics segment, first quarter organic sales increased 7.8% driven by growth of Defense Electronics Including the two recent acquisitions, sales increased 30.6%. Overall segment operating profit increased year over year but GAAP and non GAAP segment margin decreased as expected due to transaction and integration costs, as well as comparatively lower current margins in the new acquisitions. For the Engineered Systems segment, first quarter revenue increased 14.9% segment operating profit increased seven nineteen basis points due in part to an easy comparison with last year, which included higher cost to complete estimates on certain programs that did not recur in Q1 twenty twenty five.

I will now pass the call back to Robert.

Thank you, George. In conclusion, despite recent volatility in capital markets, as well as economic uncertainty, our performance to date has been resilient and strong. Each of our total orders sales, margins, and earnings increased in the first quarter. While organic sales increased in each segment, we also completed two acquisitions and ended the quarter with a leverage ratio of just 1.8. While we cannot predict the future, I continue to believe our balance mix of businesses strong cash flow healthy balance sheet and acquisition pipeline creates more long term opportunities than risks. For Teledyne if the current economic stress continues. I will now turn the call over to Steve.

You, Robert, and good morning. I'll first discuss some additional financials for the quarter not covered by Robert, and then I will discuss our second quarter and full year 2025 outlook. In the first quarter, flow from operating activities was $242,600,000 compared with $291,000,000 in 2024. Free cash flow, that is cash flow from operating activities less capital expenditures, was $224,600,000,000 in the first quarter of twenty twenty five, compared with $275,100,000 in 2024. Cash flow decreased year over year in the first quarter due in part to lower customer cash advances received in the first quarter of twenty twenty five compared with 2024. Capital expenditures were $18,000,000 in the first quarter of twenty twenty five compared with $15,900,000 in 2024. Depreciation and amortization expense was $80,700,000 in the first quarter of twenty twenty five. Compared with $78,000,000 in 2024. We ended the quarter with $2,500,000,000 in net debt That is approximately $2,960,000,000 of debt less cash of $461,500,000 Now turning to our outlook. Which includes the acquisitions of MicroPact and KeyOpti. Management currently believes that GAAP earnings per share in the second quarter twenty twenty five will be in the range of $4 to $4.15 per share with non GAAP earnings per share in the range of $4.95 to $5.00 $5 And for the full year 2025, we believe the GAAP earnings per share will be in the range of $17.35 to $17.83 and we are maintaining our prior non GAAP outlook of $21.1 to $21.5 per share.

I will now pass the call back to Robert. Thank you, Steve.

We would now like to take your questions. Operator, if you're ready to proceed with the and answers, please go ahead.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. Our first question is from Greg Conrad with Jefferies. Please proceed with your question.

Good morning.

Good morning, Greg.

Appreciate all the detail, but maybe just to start with the tariffs. It seems like you took about one point out of revenues, including M and A contribution.

Can you maybe just level set us where you see the biggest potential impact? And maybe how does that correlate it with expected organic growth for the year? And also any change to expected FX headwinds?

Yeah, actually, the 1% that I took out [indiscernible] revenue. Was from the total that included acquisitions. So the total had increased because of the KeyOptica acquisition by $180,000,000 We took down about a hundred from this. Now [indiscernible] reality of the outlook is that the impact of you're asking about tariffs first, Greg, I just want to make sure I have this right.

Well, I'm assuming it's all somewhat related. So I guess just the thought process behind one point of revenue that came out of the outlook. And maybe where you expect that to impact the business the most?

Yeah, I think most of that is really we're just looking at the GDP and assuming it's gonna get a hit of 1%. So let's, it's a kind of a bigger picture It's not going to affect a couple of our segments at all. It's going to probably affect a little bit of digital imaging and a little bit of instrument. I'm going to say in digital imaging, maybe $20,000,000 from before and in [indiscernible] maybe another 20. So you're looking at maybe 16 digital imaging, maybe 20 in [indiscernible] I don't think it's gonna affect our aerospace and defense or engineering systems. It's just a rounding up of what I think or what people think and I believe it. That if things continue, there's gonna be about a 1% hit to the overall growth in our GDP. So we're just taking it as a ballpark.

And I guess just more on the tariff side, you mentioned all of the moving pieces. I mean, how do you think about the net impact, just thinking about margins, given you mentioned some of the pricing and and localized production. How do you think about the margin impact from those or potential margin impact?

Yeah, let me start Greg, if I may. There are two components of the tariffs. As you well know. The first component is what happens for supply chain [indiscernible] the increase in the cost of the supplies. That we estimate that that could be we know that we in 2024 about $700,000,000 of our products that supplies that we imported both internally and externally are going to be affected. And we assumed that if it goes from 1% to 15% tariffs so you're going to have a 14% increase which is about $100,000,000 in cost. That we can mitigate some of that and reduce it to less than 70 which would probably drop to maybe 18,000,000 a quarter. The second part of the tariffs is the on the revenue side.

That is how much is it going to affect our revenue? As I mentioned before, we think that that's going to have some effect only where we sell from U. S.-based locations to customers. And I said before, less than 2% to China. So 80% of what we make and sell is either made in The U. S. Sold in The U. S. Made internationally sold internationally. Only 17% is based in locations selling to international customers from The US and then only 4% from Teledyne international location back to The U. S. So I think it's important to put those two in perspective because they're a little different I look at the supply chain issue which I just said could be as much as 18,000,000 a quarter, in two ways.

First, there's a similarity to what we experienced in 2021 and 2022 where we had to cough up a lot of money to brokers because of scarcity of materials especially electronic components. Second, supplies that are coming in at a higher cost don't really impact the P and L immediately They go initially in our inventory, so they affect the balance sheet. We have inventory on hand if you look at three to four turns a year, it doesn't really affect the immediate quarter It's going to probably start rolling in in the Q3, Q4 and that's where we'll see an increased cost of goods sold And this is all before we do our pricing actions. [indiscernible] yes, I'm giving you a very long answer because I think I'm going to get the same question multiple times. Yes, the tariffs are going to affect us, overall GDP may go down 1%, we may go down 1%, but our revenue is still going to increase year over year and we're assuming with acquisitions our average revenue for the year would go up about 6%.

So I feel pretty good about all of the above.

And then maybe just sneaking in one last one. You said U. S. To international, less than 2% of that's China. I believe China's maybe 5% of your total sales. Can you maybe just talk about what you're seeing into that region given I'm assuming that was probably already volatile before all of this, just just broader trends within China.

Yeah, going back to the overall. Is maybe 4%, not quite five two of it coming from U. S. So what do we sell there? One of the things that we sell there are avionic computers that go onboard commercial airlines. That have to be certified. We also sell oscilloscopes. And protocol analyzers. Some of the avionics actually are going to go there regardless of tariffs because they're needed or if you're going to fly commercial airlines and have a certified system. Of that, then you go back and look at oscilloscopes that comes from US high end oscilloscopes. And that might affect us somewhat. And some of the machine vision stuff that might be affected They're not US based really. They're foreign based products that we make. We make most of our machine vision products in Canada. And in Europe. So they may be affected indirectly Yeah, it's kind of it's going to cause a little pain but again, we'll make it up somewhere else.

Appreciate it. Thank you.

Thank you, Greg.

Our next question is from Andrew Buscaglia with BNP Paribas. Hey, good morning, everyone.

Morning, Andrew.

Maybe Robert, on that the comment of 1% coming out, Can you comment about risk related to any government spending cuts that you're seeing? Is any of that contemplated in that? How do you see Teledyne managing through that?

To be very honest, I don't think that's going to affect us. The kinds of cuts they're talking about with Dorsh Yes. We do have things that may be at risk If they go to NASA, we have some NASA programs and others. But in the bigger picture, it might even be good for us in some ways because [indiscernible] will participate in space programs. In a very healthy way and that's one of the domains that we're actually increasing our revenue. We participate in space programs [indiscernible] [indiscernible] which is pretty big for us. And we also participate in defense space. In the defense space, which is about 60% of our overall space programs we think there's going to be growth from all of these activities going reduction and then increases in other domains So the answer to your question, the short and long answer to your question is that overall we believe that the effect to us is going to not be significant And if there is one, it will improve our defense programs in missile warning and tracking and intelligence surveillance etcetera, etcetera. We have about 20 defense programs related to space at the current time. Okay.

Got it.

And and, yeah, I think I think it's a logical assumption in terms of how you're you're thinking about the top line.

What are you seeing in terms of your short cycle sales more recently? Are you seeing that play out? Some some of that business is getting worse specifically, can you comment on test and measurement and machine vision, which you know, had been struggling as of late Yeah. I think the effects are going to be somewhat minimal. I think test and measurement may get affected a little bit. Overall, we think for the year, test and measurement is going to be fairly flat. So that I think is an effect. Instruments as a whole, includes [indiscernible] I think it's gonna be okay. It's gonna grow maybe 2.5 to 3% Going back to machine vision, there are two parts to it as you know.

There's the FLIR part and that is doing actually pretty well, especially FLIR defense. There is some effect on the industrial cameras especially infrared handheld and stationary cameras but that's going to be fairly flat year over year We think what will happen in the FLIR side is the defense is doing so well that that will offset any negativity there. The only area of digital imaging that we believe it could affect is the continuing weakness in our sensor cells. Our cameras are coming back This is legacy digital imaging. Our cameras are coming back. A little slower than we hoped sensors are lagging even more because people who buy our sensors have to develop new cameras and the market incentives aren't really there. But if you come back and look at it as a whole, big picture, Our book to bill across the company is 1.05. Our instruments book to bill is one point o four. Overall digital imaging book to bill is 1.11. Aerospace and Defense is slightly under one and engineered systems, is very lumpy business is under one, but we're not worried about that because we had revenue increases there. So overall, I'd say, yeah, we'll see some short term effects in some of our short cycle businesses.

But overall we should be fine.

Okay, very clear. Thank you.

Our next question is from Jim Ricchiuti with Needham and Company. Hi, thanks. Good morning. Question about steps, actions you may take in terms of the off offsetting some of the pressure that you might see on margins. Robert, I'm wondering, how you're thinking about driving margin in some of the newly acquired businesses over the next several quarters.

Jim, that's a really grand question.

First, if I look at the overall margin for the year, across all of our businesses, We are projecting margin improvement of about 60 basis points for the year. Q1, we had margin improvement of about 80 basis points year over year. And one of the reasons that we think the margins are improvements are going to be slightly less is because of the acquisitions. If you take an acquisition like QOptik which moves our needle a little bit, In the first quarter, their margins were lower as we always have when we acquire a business. They're going to hit our aerospace and defense overall 200 basis points. But the way we look at it every quarter going forward their margins are gonna improve as we have done with every acquisition in our portfolio. And eventually they'll have the same margins as everything else. [indiscernible] So in a way, I look at it and say, okay, what is the effect right now In Q1 we only had them for two months For the year, we're gonna have them for eleven months. It's going to hit aerospace and defense margins somewhat. But I mean it's going to decrease it maybe a 80 basis points but our defense margins before that were 28 points aerospace and defense were 28.6%.

So and they're going to improve every quarter. So by next year, it's all gonna be a fine and every acquisition we've made does the same thing, lowers the margin, [indiscernible] To the bottom line and as we said we expect QOptik to add another $0.15 to our overall earnings.

Got it. That's helpful, Robert. Follow-up question I had is, historically in periods like this, Teledyne has taken advantage of opportunities. I'm just wondering are you seeing more potentially more acquisition opportunities in the current environment? Or is it too early?

Well, it's a little early, but but historically as you said Jim, every time there's been stress, economic stress, we've taken a little hit just like everybody else. But they've done two things. The three times that I remember were similar economic stresses We increased our cash free cash flow We have record cash flow. Last year we had a record cash flow of over $1,000,000,000 I expect to have something close to that this year. As we come out of these things or even during these we make acquisitions. In 2017 as example, we bought E2V following 02/2014 to '16 depression. This year, we bought Chia Optic and we also bought [indiscernible] Having said that, our pipeline is relatively healthy both in smaller and what we like to call [indiscernible] We've already spent about $750,000,000 in the first quarter buying two businesses. And if we don't do anything else, our debt to EBITDA ratio which is not 1.8 will go to 1.2. Because of our cash generation. So I'm looking forward to making some acquisitions and it really depends on how competitive the environment is because there's some others doing the same thing as we are. There's some things available but we don't wanna overpay him.

Because if you overpay, then you pay for it later. Rather than sooner. Thanks very much. For sure.

Our next question is from Jordan Leone with Bank of America. Hey, good morning.

Morning, Jordan. Could you guys talk a little bit about what you're expecting in your aerospace and defense segment or FLIR with The US FY '26 budget moving to $1,000,000,000,000 and also European rearmament where should we be looking to see Teledyne?

Let me just first say let's just stay with defense for a second. Two parts. Obviously, U. S. Defense increases, we're going to have increased sales And in Q1, our defense sales year over year increased about 18.7% Now, [indiscernible] Obviously, S. Defense is going to increase because we have some healthy product ranging from unmanned vehicles to probably one of the only companies that I can name that have unmanned vehicles in the air, on the ground, and underwater. Vehicles. Second, the defense we also of course make all kinds of components that go into the defense domain. FLIR makes some very unique products for our defense. Let me move to Europe because that's just as important. Currently [indiscernible] sell in 2024, let's say, sell $447,000,000 of product into European defense across many countries. If the defense budget and that includes by the way, I'm kind of taking key optic that we just bought and going backwards and saying, well, how much did they sell last year? And so I'm putting that in that $4.47 and the small MicroPack acquisition.

So if you look at our defense budget, it's about 3.3% if I'm correct of our GDP. European defense budgets at about 500,000,000,000 have been about 2% of the GDP. Everything we hear says they're planning to increase that to 8 to $900,000,000,000 over the next five years. As a minimum we expect to maintain our share with what we have. Which is the $4.47 growing proportionate to what they increase their budgets. With as. Furthermore, within considering the kinds of products that we make, we're going to enjoy getting more of the more of the share of those [indiscernible] due to the fact that we have unique products that they need like our I just mentioned our unmanned systems but also we have a good manufacturing footprint of our defense products in Europe. We have it in The UK, we have it in Sweden, and we have it in other locations We make our unmanned vehicles some of them in Iceland. We have them in Denmark. Etcetera. So there's two folds to it. One, we already enjoyed. Second, we it's growing. We're going to grow with it. And third, there's going to be domestic manufacturing requirements that are going to go into all of the new programs which we enjoy our footprint in Europe.

I said we don't have a manufacturing footprint footprint in Southeast Asia, we've avoided it. But not in Europe because we bought a lot of businesses there and we've invested in European defense.

Got it. That's helpful. Thank you so much.

Thanks. Our next question is from Damian Aras with UBS. Hey, good morning, everyone.

Good morning, Damian. Morning.

I was wondering if you might be able to clarify your prior comments about 1% lower GDP and factoring that into the full year guidance, have you actually started seeing any slowdown in digital imaging and instrumentation over, say, the last month since all this tariff news and the tit for tat started. Or are you just kind of derisking because of this cloud of uncertainty if you will.

Because I guess if I think about all those book to bill numbers that you cited, they were all pretty positive.

I think [indiscernible] we do see some weaknesses in certain areas but there's nothing new about that. That test and measurement oscilloscopes some of the stuff we sell overseas like to China yeah, that's affected. But I think you're right. It's my guess. It's a guess. Now somebody might say, 1% is too much, somebody might say 1% is too little, that's my guess. If it turns out not to be there, I'd be very happy.

I think we all will be. Thank you for that. And then not to beat a dead horse here on tariffs, but you mentioned that some of the higher costs, you know, you won't see that in the P and L immediately. As it takes an inventory. But I'm just curious, have you have you taken any price actions so far or made any adjustments in your supply chain to offset some of this cost inflation that you expect to creep in. Yeah, first, obviously, just like twenty twenty one-twenty two, Damian, we jumped on that very fast.

First, you got to do a good analysis of what's happening and how it's going to affect you. So we start there.

Then there are exemptions to those as I mentioned. For example, we make a lot of unmanned vehicles in Canada. And we import them to The US. So we're studying very carefully to make sure that we enjoy the DoD exemptions in that domain. Sometimes you can also assemble some internal products in a different location where you manufacture the components and assemble them somewhere else. We're looking at that. Finally, we have to take price action where we're getting hurt and we will do that. And we will pass some of that on. So in totality there's a whole bunch of things The most important one is the longer it takes for things to affect us the better it is for us in terms of going from inventory to [indiscernible] cost of goods sold [indiscernible] having time to take actions to offset what's coming our way. Pricing opportunities we're going to use them wherever we can.

And in the first quarter we actually had a volume increase of 2.20.3% or so in our products. So even with some pricing actions that we took. So it worries me but not a lot. Look, we've been through this before number of times And what you got to do is hunker down and do what you do best. Be very disciplined. Do small things very well and don't expect miracles to happen.

Makes total sense. Thanks a lot, Robert. Good luck out there.

Thank you.

Our next question is from Joe Giordano with TD Cowen. Hey, guys. How are you?

Morning, Joe.

Can you kind of go through the backlog with us? I know you mentioned it's at all time highs, but there was also some acquired backlog of some major multi year stuff you got from KeyOptix. So like how does that look excluding that?

Well, the key optic backlog that we acquired increased about $60,000,000 because of the two new programs. Overall backlog I think year over year is at the highest we've had including key optic It's about I'm gonna say, about 4,000,000,000. Dollars which for us is pretty healthy. Of that about $4.50 is QIAptics, so 10% key optic, the rest legacy Teledyne. And some of that is obviously multi year the way we look at it always is what is your book to bill in each quarter? [indiscernible] [indiscernible] how are you doing in the short cycle businesses that you don't have much backlog? That's one area that we're always very concerned and always very attentive to Some products we book and ship in two, three weeks. Some of our products, products, maybe a month. Some of our cameras whether infrared or visible, could be two weeks to four weeks. So that's the area that we kind of keep an eye on very carefully. The longer term backlog I don't worry too much about that. Yeah.

What about on the some of the stuff that if we talk about Doge and some of the NASA stuff that you have that's more personnel at flight control kind of things. What like can you talk about the margin profile of things that are at risk versus the margin profile of the things that think are still growing?

Well, on the margin profile of things like space like the space station. Where we do a lot of work in designing experiments, training astronauts, coordinating space flights, whatever. That's our lowest margin business. It's in the 6% to 7%. The overall margins in our Engineered Systems business which includes both fixed cost and cost plus half and half [indiscernible] the lowest margins in the company around 10%. Having said that, some of the space stuff that's coming out, whether it's the Golden Dome, whether it's putting satellites in space, to be able to do look down at what missile warning and tracking Some of the ground based simulation stuff, Those are our higher margin businesses and of course our unmanned systems. So if you add them all up, if let's say something happens to the national budget, yeah, we'll take a hit revenue, but it's not going to affect us too much in our bottom line because that's our lowest margin On the flip side, if that money is not reprogrammed, into other space programs, we're going to enjoy those because we have very healthy margins and we have tremendous heritage in space. Just to give you an example, in the science space which in a way translates to our military than defense space, We've participated in 162 missions science missions, We have spent one point eight eighteen hundred mission years in space We have a lot of detectors almost a thousand detectors out there with zero device failures.

When the government starts investing in this space, they're gonna look for companies like ours that can actually make those very sophisticated stuff that they have made before and have a track record. So I think if the dose thing flips the way it looks like That is some low margin businesses may go away higher margin businesses, more difficult things to make come back. I think it'd be to our advantage.

Yeah. I think it's an important point. And if I could just sneak in one last thing. Stuff that you're selling to China outside of the [indiscernible] the commercial air avionics stuff that you said is you know, has to go regardless. Is the rest of that stuff I'm thinking oscilloscopes and environmental kind of [indiscernible] Is that basically at zero now, like with tariffs at 100 and Is that like effectively an embargo? When tariffs are that high?

You can say that it's not zero, but it's it's going down, yeah.

Everybody is waiting to see what happens. Some of our distributors are putting a hold on things. Some of them are taking the higher cost materials because they have no choice. We'll deal with that When you look at export to at 2% is half of it is really not going to be affected Yeah I worry about that but I don't worry too much about it. We don't make stuff in China that we bring to The U. S. That's for sure. Some of our cameras go to China Some of our stuff like x-ray detectors for dental systems we've already suffered the consequences of China like everybody else does when they sell product there. We sell product there, pretty soon the product is imitated, produced, sold at a lower cost. So what you got to do is move up market and make more sophisticated products continuously. It worries me, but not a whole lot.

Thanks guys.

Our next question is from Guy Hardwick with Freedom Capital Markets. Hi, good morning.

Morning, guys.

Know you touched on it earlier, could you might just maybe explaining a little bit more about the Canadian business? I mean, filings reveal, let's say, substantial business.

Could you how much of obviously, Delta is based there?

How much of the business is commercial versus government? Because as you said, the government business may be exempt from tariffs.

And there's also there's content rules I understand understand that if a product is as much as 20% U. S. Content, it could be exempt as well. So So that's my first question. Just second question on the $700,000,000 of COGS, presume that is components for you imported into The U. S?

Yeah, let me answer the second question first because I have it in my head right away. I got to kind of dig the rest up. On the 700, it's composed of two parts. Things that we make and bring in The US.

And then [indiscernible] that we buy including electronics that go into products that we make in The US. So if you go to Just The Stuff That We Make And Bring Into The US, those would be both commercial and defense. Some of the defense stuff like I mentioned, unmanned air vehicles, Obviously, the DoD is buying them because they need them and use them.

Some of the commercial stuff like cameras they might be subject to within that $700,000,000 they might be subject to the 10 or so tariff.

We'll work with that It's It's not as I said before, multiple times, forgive me if I repeat myself, it won't affect us immediately because that's stuff goes into inventory We already have inventory that's going to be used to make products let's say for q two, [indiscernible] the inventory rose three to four times a year, we'd see some of it in Q3 than a full bore in Q4 maybe. But in the meantime there's a lot of things that can happen including actions that we take. Now going back to how much we make in Canada, I have to say that [indiscernible] two sides to that. We make as I said, drones and military products We have about 2,000 in Europe In Canada, we have I'm going to say, maybe 2,000 employees And if you take the average revenue per employee in Canada I don't know. It'd be maybe 250,000 per employee So you can multiply that out I'm talking about what? $500,000,000. In all made in Canada, And the beauty of Teledyne is we don't make everything anywhere else except The US. We make pieces of things here in Canada, pieces of it in England, pieces of it in Iceland, pieces of it in Netherlands, spread across Western countries and that's good for us because where we make stuff in Europe, that's not going to be subject to European tariffs obviously.

And so yes, we're going to have to take some hits if this environment continues. And I worry about it, but it doesn't keep me up at night.

But just to be clear, so I mean, it you're saying it's a fairly balanced business between commercial and government or is it more weighted towards government in Canada?

I would think most of it more commercial than government. Because Okay. Our defense business coming from Canada Is not that large. I would say seventythirty, eightytwenty of that. I don't have the numbers in front of me and I don't wanna take guesses but I can get you those numbers and have, Jason supply it to you.

K. Thank you. For sure.

Our next question is from Rob Jamieson. With Vertical Research Partners.

Hey, good morning. Just a couple of quick ones. Just one clarification on tariffs. Sorry, I joined late, but, the underlying tariff rates that you're assuming on the impacts and everything that you laid out, is very clear, is that like China at 145%? And then just what's what's been presented by the administration so far?

Yeah, I guess you can say of that order. Maybe a little higher, maybe 150, 160. [indiscernible] United Kingdom 11 France 10, Denmark 10. And then when you roll it all up, it's about 15%. Across our portfolio.

Perfect, thank you.

And then just on capital allocation, I appreciate the color you gave on acquisitions and how that looks But how should we think about prioritization between deleveraging and buybacks over the next couple of quarters?

Let me go to the buybacks. We bought our stock back only two times. And we bought them back when our stock price went below what we thought was prudent. We brought stock back in 2015 at about 02/2015 to 02/2016, about $100 a share.

And we bought I want to say about $325,000,000 of our stock. Last year our stock dropped to 3.50355 or so and we bought it. But then we stopped when it hit 400. So it's very important to look at the window of when we buy the stock. We can always buy the stock but it's prudent we can get much more returns in buying companies improving them, and having both revenue and EPS attrition like we're talking about QOptix as a recent example or FLIR. Three years ago. So the buyback would be exceptions. When our stock is low and there's nothing really available that we can look at. Our preference is always to buy companies. So we buy back opportunistically when we have to or we have nothing else to do. [indiscernible] right now we're sitting at 1.8 By the way, we have long term debt that Steve mentioned and we have cash. But if you look at our long term debt, it's all fixed and it's fixed at average of about 2.4%. And it spreads from two years hence up to twenty twenty nine-two thousand and thirty. And frankly we can pay that down but it would be stupid because we can get better interest rates in the immediate market than what we're paying.

So we're generating cash, we're sitting at 1.8, if we don't do anything, our debt to EBITDA ratio will go down to 1.2 by year end. If we don't do anything yet another year, we'll go down to point five. So we have a lot of we have a lot of muscle to buy things, and we will. If the price is right and if it strategically fits with what we do. We're not going to just go out and buy stuff because it's available. We're gonna buy stuff that we can run. It fits with our portfolio and our strategy. So and we generate about a billion of cash a year. So we're gonna be fine.

That's great. Very clear. Thank you. And then just one last one on test and measurement notes.

It's a small business for you guys, but look probably in line with expectations. Any puts and takes you can give us just on the end markets that you serve there and how trading developed through the quarter? [indiscernible] primarily two products and one smaller product. The primary product that we sell are oscilloscopes.

And primarily high end oscilloscopes. High bandwidth high frequency And then the second thing we sell are protocols. Protocols are basically the rules with which devices communicate with one another or devices communicate with the clock. We also have a very small piece of Internet generators that we bought which is growing fast, but it's small. It's used to be 15,000,000. It's gonna be 30,000,000. But the primary products we make are oscilloscopes and protocols.

And they can be somewhat affected by economic circumstances because there's capital equipment, especially oscilloscopes, In Q1, protocols went up the revenue oscilloscopes went down. Ethernet generators went up. There is one thing that we do that is very unique. In that we also use our oscilloscopes in our protocol analyzers. So that's a unique offering that we're able to make since we have such a strong position in protocols So we can sell things protocol analyzers that utilize our oscilloscopes. So all in all, it's a nice beautiful business with very high margins And but it is subject to economic downturns.

Great. Thank you. Thank you. There are no further questions at this time. Like to hand the floor back over to management for any closing comments.

Thank you, Paul. I'll ask Jason to conclude our conference call.

Robert, and again thanks everyone for joining us this morning. If you have follow-up questions, certainly feel free to call me or send me a note. On my numbers on the earnings release. And again, thank you everyone [indiscernible] talk to you later.

Bye. This concludes today's conference. May disconnect your lines at this time. Thank you for your participation.