Teledyne Technologies Inc (TDY) — Q1 2025 Earnings Call Transcript

Good morning, and thanks, everyone, for joining us. This is Jason VanWees, Vice Chairman, and we're about to begin our first quarter 2025 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; CEO, Edwin Roks; President and COO, George Bobb; and EVP and CFO, Steve Blackwood; and finally, Melanie Cibik, EVP, General Counsel, Chief Compliance Officer and Secretary. After remarks by Robert, Edwin, George and Steve, we will ask for your questions. But of course, before we get started, attorneys have reminded me to tell you that all forward-looking statements made this morning are subject to various assumptions, risks and caveats, as noted in the earnings release and our 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 one month.

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 a record for any first quarter. We're pleased to close the Qioptiq carve-out acquisition in the first quarter, but I should note also that a few months before closing, Qioptiq was awarded major new contracts with both the U.K. and German Ministry of Defense resulting in multiyear 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 unpredictable 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 U.S. 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 U.S.-based locations to U.S.-based customers or our international locations to international customers. Of the remaining 20% of total sales, approximately 80%, or roughly 16% of the total, are U.S. export sales to international locations, but only 2% of total sales are U.S. 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. Now, regarding our own supply chain, we import relatively little from China and Mexico with the 2024 annual value of each less than $25 million. Our largest import from Canada is internal sales of unmanned air systems for the U.S. Military, a large portion of which we believe would be subject to U.S. DoD duty-free exemption. While we are not immune to the current 10%-plus of tariff rates or certainly the pre-pause liberation day proposed tariff rates, we are certainly planning actions to protect margins as the landscape evolves. That includes: taking further exemptions under the U.S.-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 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, offset by the Qioptiq acquisition, resulting in 2025 estimated sales of approximately $6 billion. Also, while we exceeded our first quarter midpoint guidance of $4.85, and we expect a contribution from Qioptiq, which is now included in our outlook, we think it's wise to maintain our full year earnings outlook. Edwin and George may now briefly comment on the performance of our four business segments.

Thank you, Robert. This is Edwin, and I will report on the Digital Imaging segment, which represents approximately 52% of Teledyne's portfolio. First quarter 2025 sales increased 2.2% compared with last year. The performance last year reflected an increase in sales for both some of our product sectors and FLIR Defense and Industrial business, a 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 the consumer discretionary-sensitive dental market. 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 1.11x. Sales of electronic test and measurement systems, which include oscilloscopes, protocol analyzers and ethernet traffic generators, increased 1.5% year-over-year. Instrumentation operating margin in the first quarter increased 97 basis points to 27% and 88 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 products. 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% and segment operating profit increased 719 basis points due in part to an easy comparison with last year that included higher cost to complete estimates on certain programs that did not recur in Q1 2025. 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 1.8x. While we cannot predict the future, I continue to believe our balanced 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.

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 second quarter and full year 2025 outlook. In the first quarter, cash flow from operating activities was $242.6 million compared with $291 million in 2024. Free cash flow, that is cash flow from operating activities less capital expenditures, was $224.6 million in the first quarter of 2025 compared with $275.1 million 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 2025 compared with 2024. Capital expenditures were $18 million in the first quarter of 2025 compared with $15.9 million in 2024. Depreciation and amortization expense was $80.7 million in the first quarter of 2025 compared with $78 million in 2024. We ended the quarter with $2.5 billion of net debt, that is approximately $2.96 billion of debt less cash of $461.5 million. Now, turning to our outlook, which includes the acquisitions of Micropac and Qioptiq. Management currently believes that GAAP earnings per share in the second quarter of 2025 will be in the range of $4.00 to $4.15 per share, with non-GAAP earnings per share in the range of $4.95 to $5.05. And for the full year 2025, we believe that 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 $21.10 to $21.50 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 questions and answers, please go ahead.

Good morning.

Good morning, Greg.

Appreciate all the detail, but maybe just to start with the tariffs, it seems like you took about 1 point out of revenues, including the M&A contribution. Can you maybe just level set us where you see the biggest potential impact? And maybe how does that correlate to expected organic growth for the year? And also any change to expected FX headwinds?

The 1% reduction I mentioned for revenue was from a total that included acquisitions, with an increase of $180 million due to the Qioptiq acquisition. We adjusted that by about $100 million. Regarding your question about tariffs, I want to confirm that I understood it correctly.

Well, I'm assuming it's all somewhat related. So, I guess, just the thought process behind the 1 point of revenue that came out of the outlook and maybe where you expect that to impact the business the most?

I think most of that is just regarding the GDP; I'm expecting it to take a hit of about 1%. Looking at the bigger picture, I don't believe this will significantly impact several of our segments. It may affect Digital Imaging and Instruments slightly, possibly around $20 million each. So, you might see around $16 million for Digital Imaging and about $20 million in Instruments. I don't anticipate any effects on our Aerospace and Defense or Engineering Systems segments. This seems to be a general consensus, and I agree with it, but if trends continue, we could see a 1% impact on overall GDP growth. We're treating this as a rough estimate.

And I guess just, I guess, 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 localized production? How do you think about the margin impact from those or potential margin impact?

Let me start, Greg. There are two components to the tariffs. The first is related to our supply chain and the increased cost of supplies. We estimate that in 2024, around $700 million of our imported products, both internally and externally, will remain unaffected. Assuming the tariffs increase from 1% to 15%, that results in a 14% hike, translating to roughly $100 million in costs. We believe we can mitigate some of this, reducing it to under $70 million, possibly down to about $18 million per quarter. The second component concerns how tariffs will impact our revenue. As previously mentioned, there will only be some effect when selling from U.S.-based locations to international customers, with less than 2% directed to China. Eighty percent of our production is either made and sold in the U.S. or made and sold internationally. Only 17% is from locations selling to international clients from the U.S., and just 4% involves Teledyne's international operations selling back to the U.S. It's crucial to view these two aspects in perspective as they differ. The supply chain issue, which could amount to $18 million per quarter, mirrors what we faced in 2021 and 2022, where we incurred substantial costs due to material shortages, particularly electronic components. The increased costs for incoming supplies won't immediately affect the profit and loss statement; they initially influence our inventory and balance sheet. Given our annual turnover rate of three to four times, this won't impact the immediate quarter but will likely show in Q3 and Q4 when we see a rise in cost of goods sold. This is all before we implement pricing actions. Yes, I'm giving a lengthy response because I anticipate similar questions. The tariffs will affect us, and while overall GDP might decline by 1%, we expect our revenue to increase year-over-year. With acquisitions, we project an average revenue growth of about 6% for the year, so I feel quite positive about the situation.

You mentioned that less than 2% of international sales come from China, which I believe accounts for around 5% of your total sales. Can you share your observations regarding that region, considering it was likely already experiencing volatility prior to the current situation, along with the overall trends in China?

Yeah. Going back to the overall, overall is maybe 4%, not quite 5%, 2% of it coming from U.S. 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 U.S. high-end oscilloscope, and that might affect us somewhat. And some of the machine vision staff that might be affected, they're not U.S.-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. Yes, it's going to cause a little pain, but again, we'll make it up somewhere else.

Appreciate it. Thank you.

Thank you, Greg.

Hey, good morning, everyone.

Good morning, Andrew.

Hey, Robert, could you talk about the risks related to any potential government spending cuts? Is that something you're considering, and how do you see Teledyne navigating 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 us, 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 we 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, both science space, 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, et cetera, et cetera. We have about 20 defense programs related to space at the current time.

Okay. Got it. And yeah, I think it's a logical assumption in terms of how 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 of that business is getting worse? And specifically, can you comment on test and measurement and machine vision, which had been struggling as of late?

I believe the impact will be relatively minimal. Test and measurement may be affected slightly, but overall, we anticipate it to remain steady for the year. Instruments as a whole, which encompass environmental marine and test and measurement, should perform reasonably well, with expected growth of about 2.5% to 3%. Regarding machine vision, there are two main components. The FLIR segment, particularly FLIR Defense, is doing quite well. There are some impacts on industrial cameras, especially infrared handheld and stationary types, but we expect them to remain stable year-over-year. The strong performance in defense is likely to offset any negatives on that side. The area of Digital Imaging that may experience challenges is in sensor sales, which continue to be weak. While our legacy Digital Imaging cameras are recovering, the pace is slower than anticipated, and sensors are even lagging more due to the need for customers to develop new cameras amidst insufficient market incentives. Looking at the broader picture, our company-wide book-to-bill ratio stands at 1.05, with instruments at 1.04 and overall Digital Imaging at 1.11. Aerospace and Defense is slightly below 1, as is Engineered Systems, but we're not concerned about that since revenues are increasing there. In summary, we may experience some short-term effects in our short-cycle businesses, but overall, we should be in a good position.

Okay. Very clear. Thank you.

Hi, thanks. Good morning. Question about steps/actions you may take in terms of offsetting some of the pressure that you might see on margins. Robert, I'm wondering how you're thinking about driving margin improvement in some of the newly acquired businesses over the next several quarters?

That's a great question, Jim. Looking at our overall margin for the year across all businesses, we are expecting an improvement of about 60 basis points. In the first quarter, we achieved an improvement of roughly 80 basis points year-over-year. One reason we anticipate slightly less margin improvement moving forward is due to our acquisitions. For instance, with Qioptiq, which has a small impact on our results, their margins were lower during the first quarter, as is typical when acquiring a new business. They are expected to affect our Aerospace and Defense margins by about 200 basis points. However, we believe their margins will improve each quarter as we've seen with past acquisitions. Ultimately, they should align with our overall margins. In the first quarter, we only had them for two months, whereas we will have them for 11 months throughout the year. Their impact will slightly reduce Aerospace and Defense margins, potentially by around 180 basis points, but prior to this, those margins were at 28.6%. We expect to see improvement every quarter, and by next year, everything should be back on track. Each acquisition tends to lower margins initially but contributes positively to the bottom line. We also expect Qioptiq to add another $0.15 to our overall earnings.

Got it. That's helpful, Robert. My follow-up question is whether Teledyne is seeing more potential acquisition opportunities in the current environment, given that historically, the company has taken advantage of opportunities during periods like this. Is it too early to say?

It's a bit early to say, but historically, whenever there has been economic stress, we've experienced a slight decline like everyone else. However, we've taken two important actions. In the past three instances of similar economic strain that I can recall, we saw an increase in our free cash flow, achieving record levels. Last year, we generated over $1 billion in cash flow, and I anticipate something similar this year. During or after these periods, we tend to make acquisitions. For example, in 2017, we acquired e2v following the downturn from 2014 to 2016. This year, we acquired Qioptiq and Micropac. Our pipeline for both smaller and mid-sized acquisitions remains strong. In the first quarter alone, we've invested about $750 million in two businesses. If we don't take further action, our debt-to-EBITDA ratio, currently at 1.8 times, will improve to 1.2 times due to our cash generation. I'm eager to pursue acquisitions, but the level of competition will play a significant role, as others are also looking to make similar moves. There are opportunities available, but we want to avoid overpaying, as that can have long-term repercussions.

Thanks very much.

For sure.

Hey, good morning.

Good morning, Jordan.

Could you guys talk a little bit about what you're expecting in our Aerospace and Defense segment or FLIR with the U.S. FY '26 budget moving to $1 trillion and also European rearmament, where should we be looking to see Teledyne?

First, let's focus on defense. With the increase in U.S. defense spending, we anticipate a rise in sales. In the first quarter, our defense sales saw a year-over-year increase of about 18.7%. There are two key aspects to this. The U.S. defense sector is expected to grow due to our robust product lineup, which includes unmanned vehicles—one of the few companies offering these in the air, on land, and underwater. Additionally, we manufacture various components that serve the defense sector, and FLIR provides unique products in this area. Now, turning to Europe, this is also significant. In 2024, we project to sell $447 million in products to European defense across multiple countries. This figure includes the revenue from Qioptiq and a small Micropac acquisition. The European defense budget, currently around $500 billion, is approximately 2% of GDP, while ours is about 3.3%. There are indications that Europe aims to increase its budget to between $800 billion and $900 billion over the next five years. We expect to maintain our market share, with the $447 million figure growing in line with their budget increases. Moreover, given the unique products we offer, we anticipate gaining additional market share. Our strong manufacturing presence in Europe, with facilities in the U.K., Sweden, and other locations, including unmanned vehicles produced in Iceland and Denmark, positions us well. There are two key factors: the current share we maintain and the expected growth. Additionally, new domestic manufacturing requirements for upcoming programs will benefit our established presence in Europe. Unlike Southeast Asia, where we lack a manufacturing footprint, we have made significant investments in European defense through various acquisitions.

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

Thanks.

Hey, good morning, everyone.

Good morning, Damian.

Good 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 there are two aspects to consider. First, we do notice some weaknesses in specific areas, but that's not a new situation. Test and measurement, oscilloscopes, and some of the products we sell overseas, particularly to China, are experiencing impacts. However, I believe you are correct in your assessment. My estimate is just that—an estimate. Some might argue that a 1% decrease is too high, while others could say it's too low. That's my perspective. If it turns out to be different, I would be quite pleased.

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 won't see that in the P&L immediately as it sits in inventory. But I'm just curious, 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 2021-'22, 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 U.S. 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 cost of goods sold and 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 2.3% 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 a number of times. And what you got to do is hunker down and do what you do best. We're very disciplined, do small things very well and don't expect miracles to happen.

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

Thank you.

Hey, guys. How are you?

Good morning, Joe.

Can you kind of go through the backlog with us? I know you mentioned it said all-time highs, but there was also some acquired backlog of some major multiyear stuff you got from Qioptiq. So, like how does that look excluding that?

Well, the Qioptiq backlog that we acquired increased about $60 million because of the two new programs. Overall backlog, I think year-over-year is at the highest we've had, including Qioptiq, it's about I'm going to say about $4 billion, which for us is pretty healthy. Of that, about $450 million is Qioptiq. So, 10% Qioptiq, the rest legacy Teledyne. And some of that is obviously multiyear. But the way we look at it always is what is your book-to-bill in each quarter annualized, and how are you doing in the short-cycle businesses that you don't have much backlog? That's the one area that we always very concerned and always very attentive to because some products, we book and ship in two, three weeks, some of our products, environmental 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.

What about the projects related to DOGE and some of your NASA personnel flight control initiatives? Can you discuss the margin profiles of the higher-risk items compared to those that you believe are still experiencing growth?

The margin profile for our space-related activities, such as designing experiments, training astronauts, and coordinating space flights, is our lowest margin business, ranging from 6% to 7%. Overall, the margins in our Engineered Systems business, which includes both fixed costs and cost-plus contracts, are the lowest in the company at around 10%. However, some of our space initiatives, including the Golden Dome and satellite deployment for missile warning and tracking, as well as our ground-based simulation projects, represent our higher-margin businesses along with our unmanned systems. If there are changes to the NASA budget, we might see a revenue decline, but it won't significantly impact our bottom line since that segment is low-margin. Conversely, if that funding is redirected toward other space programs, we will benefit from stronger margins, leveraging our extensive experience in space. For instance, in the science sector, which correlates with our military and defense initiatives, we've been involved in 162 science missions and accumulated 1,800 mission years in space, maintaining nearly 1,000 detectors with no device failures. When the government invests in space, they will seek out companies like ours with proven capabilities. If there are shifts in low-margin opportunities, it could lead to the return of higher-margin projects, which would benefit us.

I believe that's a significant point. If I may add one more thing, the items you are selling to China, excluding the commercial air avionics, need to be sold regardless. Is everything else, like oscilloscopes and environmental equipment, effectively at zero now with tariffs set at 145%? Does that mean it's essentially an embargo with such high tariffs?

It's not zero, but it's decreasing. Everyone is waiting to see what will happen. Some of our distributors are holding back, while others are forced to use higher cost materials. We'll handle that. When considering exports to China, 2% is primarily unaffected. I do have concerns about that, but not excessively. We don't manufacture products in China for the U.S., that's certain. Some of our cameras are shipped to China, along with other items like dental X-ray detectors. We've already faced challenges in China, similar to what others experience when selling products there. Once we sell there, our products often get imitated and produced at a lower cost. Therefore, we need to focus on moving upmarket and continuously developing more sophisticated products. It concerns me, but not too much.

Thanks, guys.

Hi. Good morning.

Good morning, Guy.

I know you mentioned it earlier, but could you explain a bit more about the Canadian business? Your filings indicate it’s a significant operation. What portion of DALSA is located there? How much of the business is commercial compared to government? You mentioned that the government business might be exempt from tariffs, and I understand that if a product has 20% U.S. content, it may also qualify for exemption. That's my first question. As for the $700 million in COGS, I assume that refers to components imported into the U.S.?

Let me address the second question first as it’s fresh in my mind. The $700 million consists of two parts: items we manufacture in the U.S. and the materials we purchase, including electronics for products made in the U.S. When it comes to the products we manufacture and bring into the U.S., these cover both commercial and defense sectors. For instance, the U.S. Department of Defense is acquiring unmanned aerial vehicles because of their necessity. On the commercial side, items like cameras may be impacted by a 10% tariff within that $700 million. However, as I've mentioned previously, this won't have an immediate effect on us since those items are set to go into inventory. We already possess inventory designated for Q2 production. Our inventory turnover is three to four times a year, so we anticipate seeing some impact in Q3 and a more significant effect by Q4. Meanwhile, various developments could unfold, including measures we might implement. Regarding our operations in Canada, we produce drones and military products and have roughly 2,000 employees there, similar to our workforce in Europe. The average revenue per employee in Canada could be around $250,000, leading to about $500 million worth of production in Canada. The advantage of Teledyne lies in our diversified production; we produce parts in Canada, England, Iceland, and the Netherlands, which mitigates exposure to tariffs in Europe. While we may face some challenges if this situation persists, it is not something that causes me significant concern.

But just to be clear, so I mean, 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 our defense business coming from Canada is not that large. I would say 70-30, 80-20 of that. I don't have the numbers in front of me, and I don't want to take guesses, but I can get you those numbers and have Jason supply to you.

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

Yeah. I guess you can say China of that order if maybe a little higher, maybe 150%, 160%, Canada 25%, 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 discuss buybacks. We have repurchased our stock only twice, specifically when the price fell below our acceptable threshold. The first buyback occurred in 2015 to 2016, when our stock was around $100 per share, totaling approximately $325 million. Last year, our stock price dipped to around $350 or $355, and we bought back shares then but paused when it reached $400. It's crucial to consider the timing of our stock purchases. While we can buy back shares at any time, we believe better returns come from acquiring companies, enhancing them, and achieving revenue and earnings per share growth, as seen with Qioptiq recently and FLIR three years ago. We only buy back shares when the stock is undervalued and when no compelling acquisition opportunities are available. Our primary preference remains acquiring companies. Currently, we maintain a debt ratio of 1.8 times. We also have long-term fixed debt averaging about 2.4%, with terms extending to 2029 and 2030. Although we could pay down this debt, it wouldn't be wise given that we can secure better interest rates in the market. We're generating cash, with our debt-to-EBITDA ratio projected to decrease to 1.2 times by year-end if we maintain our current course, and to 0.5 times the following year. This provides us significant capacity for acquisitions, which we will pursue if the price is right and aligns strategically with our goals. We're not looking to acquire just anything available; we want assets that fit our portfolio and strategy. Additionally, we generate around $1 billion in cash annually, positioning us well moving forward.

That's great. Very clear. Thank you. And then, just one last one on test and measure. I know it's a small business for you guys, but looks broadly 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?

We primarily sell two main products along with a smaller product. Our primary offerings are high-end oscilloscopes, which are high-bandwidth and high-frequency. The second product we offer is protocols, which define how devices communicate with each other or with the clock. We also have a small segment of Ethernet generators that we acquired, which is rapidly growing from $15 million to $30 million. However, our key products remain oscilloscopes and protocols, both of which can be influenced by economic factors as they fall under capital equipment, particularly oscilloscopes. In the first quarter, we saw an increase in protocol revenue, a decline in oscilloscope sales, and growth in Ethernet generators. A unique aspect of our business is that we utilize our oscilloscopes in our protocol analyzers, which allows us to market protocol analyzers that incorporate our oscilloscopes. Overall, it’s a strong business with high margins, although it is vulnerable to economic downturns.

Great. Thank you.

Thank you. I will ask Jason to conclude our conference call.

Thanks, 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, and talk to you later. Bye.