Teledyne Technologies Inc (TDY) — Q1 2026 Earnings Call Transcript

Thank you. Good morning, everyone. This is Jason VanWees, Vice Chairman. I'd like to welcome everyone to Teledyne's First Quarter 2026 Earnings Release Conference Call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne's Executive Chairman, Robert Mehrabian; President and CEO, George Bobb; EVP and CFO, Steve Blackwood; and Melanie Cibik, EVP, General Counsel, Chief Compliance Officer and Secretary. After remarks by Robert, George and Steve, we'll ask for your questions. But of course, before we get started, all forward-looking statements made this morning are subject to various assumptions, risks and caveats as noted in the earnings release and our periodic SEC filings, and of course, actual results may differ materially. In order to avoid potential selective disclosures, this call is simultaneously being webcast and a replay via webcast and dial-in will be available for approximately one month. Here is Robert.

Thank you, Jason, and good morning, everyone, and welcome to our conference call. We started 2026 with record first quarter sales, earnings per share and operating margin. Specifically, sales and non-GAAP earnings increased 7.6% and 17.2%, respectively. In addition, despite a 30 basis point increase in R&D expense, non-GAAP operating margin increased 58 basis points year-over-year. And while we acquired DD-Scientific in January and increased our capital expenditures significantly from last year, our leverage ratio declined to the lowest level in five years since before the acquisition of FLIR in 2011. Excluding the impact of acquisitions, sales increased 5.3% due in part to the performance of our Digital Imaging segment, while organic growth was 6.9%. Sales of visible light sensors, infrared detectors and specialty semiconductors for space applications each increased at double-digit rates as did FLIR infrared cameras for unmanned air vehicles as well as our own complete unmanned aerial systems. Also within the Digital Imaging segment, our industrial imaging and x-ray businesses returned to year-over-year growth, which helped contribute to the strong margin performance in the first quarter. Given stronger sales in the first quarter, but also record orders and backlog with a book-to-bill of 1.16, which is our tenth consecutive quarter of book-to-bill of over 1, we're comfortable in increasing both our expected sales and earnings for 2026. We believe now sales will be in the range of $6.415 billion, or 70 basis points higher than we communicated in January. We're also raising our earnings outlook at both the bottom and top of our prior range to about $24 at midpoint or $0.35 overall increase. George will now briefly comment on the performance of our four business segments. George?

Thank you, Robert. In the Digital Imaging segment, first quarter sales increased 7.9% due to well-balanced growth throughout the segment, including Teledyne Imaging Sensors, DALSA e2v and Teledyne FLIR. As Robert mentioned, sales of visible and infrared detectors for space-based imaging increased nicely. Sales of infrared subsystems and cameras for our customers' unmanned air systems and unmanned maritime systems also increased. In addition, revenue from our own complete unmanned air systems increased due to continued growth of the highly differentiated Black Hornet nano drone as well as full rate production deliveries of our Rogue 1 loitering munition. Interest in counter-drone activity also remains elevated. In the first quarter and early Q2, we received orders for infrared cameras and subsystems totaling in the tens of millions of dollars for counter-drone applications. There were also bright spots outside of defense. For example, industrial machine vision cameras and sensors for semiconductor inspection and x-ray products for health care increased year-over-year, and sales of micro-electromechanical systems, or MEMS, grew over 20%, primarily due to demand for micromirrors used for optical switching and high-speed networking applications. Finally, non-GAAP operating margin in the segment increased 107 basis points to 23.2%, despite a 59 basis point increase in R&D expense within the segment. In the Instrumentation segment, which consists of our marine, environmental and test and measurement businesses, first quarter sales increased 5.3% versus last year. Overall sales of marine instruments increased 8.3%, primarily due to strong defense-related sales, including unmanned subsea vehicles, which increased more than 20% for applications such as anti-submarine warfare and mine countermeasures, as well as sales of interconnects for U.S. Virginia and Columbia class submarines. Interconnects for offshore energy production also continued to grow. However, these were partially offset by reduced sales of marine instruments for hydrography and oceanographic research. Sales of environmental instruments increased 6.7%. This primarily resulted from higher sales for gas safety and ambient air monitoring instrumentation, partially offset by lower sales of laboratory and life sciences instruments. Sales of electronic test and measurement systems decreased 3.7% year-over-year with greater sales of oscilloscopes offset by lower sales of protocol analyzers. However, we continue to expect full year sales growth as semiconductor suppliers increase their shipments and data centers increasingly adopt devices utilizing the newest, fastest data transfer protocol. Instrumentation non-GAAP operating margin in the first quarter decreased primarily due to product mix — that is, a decline in higher-margin test and measurement and strong growth in autonomous underwater vehicles in marine, which generally carry lower margins. In the Aerospace and Defense Electronics segment, first quarter sales increased 14.4% due to one additional month of results from the Qioptiq acquisition and with organic growth of 8.4% across defense electronics, partially offset by slightly lower sales from the commercial aerospace market as a result of a tough comparison. Non-GAAP segment margin increased nearly 200 basis points year-over-year due to higher sales and corresponding operating leverage, improved margins at companies acquired in 2025 and, in this case, a relatively easy comparison. For the Engineered Systems segment, first quarter revenue decreased 2.6%. However, segment operating margin increased 113 basis points. I will now pass the call back to Robert.

Thank you, George. In conclusion, we are excited to begin 2026 with a strong first quarter with continued orders and sales momentum in our backlog-driven businesses, specifically defense where Teledyne has meaningful exposure to low-cost drone and counter-drone technologies, space-based sensing, electronic countermeasures and maritime surveillance. Furthermore, certain markets such as industrial inspection and health care, which have had headwinds in the past, are now inflecting. Finally, with leverage at a five-year low, we are actively pursuing a number of acquisitions, but at the same time, we're investing more in R&D and capital expenditures to accelerate our own organic growth. 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 2026 outlook. In the first quarter, cash flow from operating activities was $234 million compared with $242.6 million in 2025. Free cash flow, that is cash flow from operating activities less capital expenditures, was $204.3 million in the first quarter of 2026 compared with $224.6 million in 2025. Cash flow decreased due to higher inventory purchases, partially offset by greater operating results in the first quarter of 2026 compared with 2025. Capital expenditures were $29.7 million in the first quarter of 2026 compared with $18 million in 2025. Depreciation and amortization expense was $87.2 million in the first quarter of 2026 compared with $80.7 million in 2025. Now turning to our outlook. Management currently believes that GAAP earnings per share in the second quarter of 2026 will be in the range of $4.75 to $4.90 per share with non-GAAP earnings per share in the range of $5.70 to $5.80. And for the full year 2026, we believe that GAAP earnings per share will be in the range of $20.08 to $20.44 and non-GAAP earnings per share in the range of $23.85 to $24.15. I will now pass the call back to Robert.

Thank you, Steve. Operator, we would like to start the questions. If you're ready to proceed, please go ahead.

Maybe just to start on the revised revenue guidance of $6.415 billion. Can you maybe just talk about organic versus inorganic? And then if you think about some of the de-risking or things that have gotten better since the guidance you gave last quarter, where are you seeing the most outperformance just from a segment basis?

Of course, Greg. First, fundamentally, we're seeing about 4.9% total growth for the year right now, which is about 70 basis points higher than we had in January. About 4% is organic and about 0.9% is from acquisitions — one early in 2025 and one small one early this year. From a segment perspective, we think the highest growth will probably be in our Digital Imaging and Aerospace and Defense, with Aerospace and Defense probably over 6% and Digital Imaging overall about 5% led by really FLIR which we expect will grow about 6.5%. I hope that answers your question.

Yes, that's perfect. And you gave a little bit of color on the opening, but just following up on defense. How much was it up overall in the quarter? And then you mentioned FLIR. Can you just maybe give a little bit more color on FLIR defense growth? And then what's kind of driving the outperformance in A&D electronics just given that growth, thinking about that broader portfolio?

Okay. Let me start with FLIR defense. I think we're looking at about 9% growth in that area. Pretty much all of our products in the FLIR Defense area are growing, specifically drones, nano drones, loitering drones, surveillance systems, you name it. And of course, we do supply both visible and, more importantly, infrared detectors not only to our own drone manufacturers but also to everyone else across the world that's making drones. From an A&D perspective, the growth has been again in a variety of our components. As you know, we make everything from lasers to detectors, readouts, semiconductors, switches. All of these are seeing various degrees of growth. The business is very healthy, both supplying our own products but, more importantly, supplying products that are required as the various conflicts are increasing both in Europe and the Middle East.

This is Zach Walljasper on for Amit today. So just two questions from me. Can you just help give some color on the order trends between segments? And then the second question for me is just around the full year guide. So high level, the first quarter came in a little above and then raising a little above that. So there's not too much incremental pickup expected, but if you help flesh out the puts and takes for the balance of the year that you're seeing that will be helpful. And then like should the typical earnings seasonality still hold for 2026?

Sure. Let me start with the overall, which I mentioned, the overall book-to-bill right now is 1.16. It is led by Digital Imaging and specifically both FLIR as well as DALSA e2v — that's where we have probably the highest book-to-bill higher than certainly we talked about in January. Digital Imaging right now is looking like about 1.38 in book-to-bill. In Instrumentation, a lot of short-cycle stuff, but it's still holding above 1, just slightly over 1. A&D and Engineered Systems are a little lumpy because we get big orders, then there's a period of quiescence and then we pick up orders; they're just below 1 right now. But I think what's happened to us is for whatever products that we're able to increase production on, there's very strong demand, and that's why we think across our portfolio we're going to do very well. We would think that we'll have a little more sales in the second half versus the first half. In January, we were saying the first half would be a little lower than the second half. So we're kind of guiding our second half maybe at 51% versus first half at 49%. But as in January, we were thinking the first half would be more like 48% and the second half 52% in terms of our revenue. So we remain bullish but also cautious, not to overpromise what we can deliver and to stay within the framework that we've operated for the last 25 years.

Just wanted to touch on the Q2 guidance. That it reflects the point at the midpoint EPS declining sequentially, which is atypical historically. I'm wondering where is the biggest pain point. I think my guess is the instrumentation like the test and measurement area being a little weaker than expected in Q1. But wondering what dynamics are affecting that Q2 guide?

Let me just put it in the big picture. In Q1, we had some good tax benefits year-over-year. Our tax benefits increased because stock option exercises increased about $0.10 to $0.11 year-over-year. In Q2, where we sit right now, we're not projecting similar tax benefits. Now if our stock were to move up and our people start exercising more options, that would change. But right now, we're not projecting that. So we're taking that part out; we're projecting more like $0.03 rather than having the increase that we have. So primarily, that's it — just to cut through it, everything else I'm comfortable with.

Maybe could you comment further then on that instrumentation comment I made earlier, just that it was a weak start to the year. What do you think drove that? And how do you see the cadence of that uncoiling over the next nine months?

Well, I'm going to just make one short comment and then I want to let George answer that. The different parts through Instrumentation: strong marine performance for us, especially underwater vehicles. These are vehicles that are used across the world, some of them for mine countermeasures, very strong performance, but slightly lower margin than some of our higher-margin test and measurement. I'll let George address that a little bit, George?

Yes. So I will focus on test and measurement, which is where we had the decline in Q1. There are two parts of that business. There's the oscilloscope side of the business, where we saw year-over-year growth and continue to see good demand in high-bandwidth applications, power applications for example, people who are designing power supplies for data centers, and sales into the in-vehicle networks market. Protocol sales were down year-over-year, and that was really due to the timing of PCI Express Gen 6 CPUs and GPUs. On the protocol side, we go through kind of two phases: there's a silicon designer phase where we sell to silicon designers, and then there's a phase of integration of chips when they come to market. We expect this year for those chips to come to market in the second half of the year, and we still expect full year growth in the low single digits in test and measurement. So overall, as Robert said, strong performance in marine, strong performance in environmental, test and measurement a little weaker in Q1, but we still expect full year growth in the low single digits.

That's great. George mentioned the various aspects. We still expect Instrumentation to grow over 4% for the year.

I know it's probably early yet, but are you seeing signs of potential increases in your defense business just related to the conflict in Iran?

Yes. First, we are being approached by the government — actually, the government is making some investments. We haven't announced it yet, but they're making some investments in getting our capacities increased in certain specific areas, which I can't go into until the releases are approved. Second, we're seeing obviously increased demand for anything that has to do with drones and counter-drones. And we're also seeing some demand for underwater vehicles. There are a lot of inquiries right now, some orders, but we expect orders to really start picking up in the next six months.

Got it. That's helpful, Robert. And just on the M&A pipeline, given valuation levels, are you still thinking the focus this year is going to be mainly tuck-ins? Or is there the potential for something larger?

I think tuck-ins first, maybe some midsized acquisitions like we did early in 2025. Larger ones don't come that frequently, and we're looking at some, obviously, but people are willing to pay some outrageous prices to get the revenue, and we'll have to see. But I would say the answer to your question specifically: tuck-ins first; midsized, second; larger, we'll have to wait and see what fits our portfolio. We don't want to go outside our portfolio too much in getting a very large acquisition and then have to do a whole new segment, et cetera. That's not us.

And mainly in the Instrumentation, Digital Imaging? Or are there still some potential opportunities in A&D?

I would say in all of our segments, probably with the exception of Engineered Systems where we're not looking at acquisitions because it's a business that's growing and the government is investing in that. So it would be almost all of our segments depending on what we get.

On the growth that you guys called out for space, can you give us a sense if that is related to the Space Development Agency tranche programs? And then two, just for the FY '27 budget request, the $70 billion that they want for drone funding and the Dawn program. How are you guys thinking about that if that funding gets approved? And for that much funding to come through, can you support those volumes of own systems and as a supplier to everyone?

Yes. Let me start by saying that right now, as Steve and George mentioned, we're investing in our businesses both from CapEx with increased CapEx about 35% over last year in the first quarter and expect to keep doing that throughout the year. So we're investing in capacity because, frankly, our demand is larger than our capacity in certain areas. Second, we're also increasing some R&D expenditures. We increased our R&D by $10 million just in the first quarter. That's to us about $0.14 a share that we added in our investments because we think those are going to be good investments and there's going to be good demand for them. Now having said that, I'll let George talk about the tranche programs and Golden Dome. Right now, we're pretty well set on the SDA tranche programs, we've won just about everything with minor exceptions here and there. So I don't expect to get much more than that. But going to Golden Dome, I'll have George answer that.

Sure. So just as a follow-on to that, what I would say is certainly on the tranche programs, as Robert mentioned, we've done very well there, and that's what's driven a lot of the growth on the infrared imaging space side of the business. We think we're very well positioned for Golden Dome as it evolves, given the fact that we've been on all of these Space Development Agency tranche programs.

We'll see how much budget goes in there in reality. Asking for increased budgets is one thing, getting it is another. But eventually there will obviously be some monies either way; we're ready. But right now, with what we have and what we're seeing in terms of the book-to-bill, we feel we should invest in our own businesses, which is very unusual for us at this point in the year.

You had previously last quarter talked about your unmanned business, $500 million, growing about 10%. I think the general view is that feels pretty conservative given recent events. Just curious for a bit of an update there. And then if you can maybe talk about the subsea stuff specifically, like where are you positioned on potential Strait of Hormuz minesweeping, what types of products would that be for you? Just any sort of color you can give there and how that might materialize over the next couple of quarters here?

Sure. Let's start with the unmanned. As you know, we make unmanned systems for air, ground and subsea. I don't know if there are many companies that are able to do all of that. Our unmanned air systems are growing very fast. Our Black Hornets, which are the nano drones — over the last bunch of years, including this year, just that one drone, Black Hornet 3 and now Black Hornet 4, will have revenues of about $500 million over that period. We have received orders for Black Hornet both in this country and in Europe, and of course Middle East conflict is driving more demand. Second, we've introduced our Rogue 1, which is an armed drone. We have our first contracts; those would increase substantially with time. We have other systems coming along the way. For subsea, we have different kinds of underwater drones. We have gliders that can stay out for very long periods and travel long distances, and we also have our Gavia vehicles with various ranges that go to different depths. Those are the ones used for detecting mines, and we have some nice orders for that in Europe. Overall, I'd say I would remain with the $500 million figure for now for the specific unmanned product family, but some pockets are growing higher than 10%. Broadly speaking, I think we're approaching almost $2 billion in revenue between defense, global defense, U.S. defense, drones, EW, missiles, munitions, et cetera. That's a big chunk of our revenue for this year — about 30% to 35% of the whole company. So when you get a part of your portfolio growing that fast and you're actually investing dollars the way we are — we've always been very cautious with our money — that ought to tell you that we're bullish about this area.

I was wondering if you could maybe update us on your margin outlook, particularly in Digital Imaging, where it seems that you've had a positive mix effect with the industrial scientific cameras picking up?

I think as George mentioned, for the quarter our margin went up about 58 basis points. We're projecting that to continue throughout the year. So we think we'll end up the year about 60 basis points above last year, and it will be led by Digital Imaging at over 100 basis points, 105 to 107 basis points, which is something we've been striving for ever since the acquisition of FLIR. Now FLIR is doing well and the legacy Digital Imaging with DALSA e2v is picking up. So the margins overall would grow about 60 basis points, led by Digital Imaging. Aerospace & Defense is not far behind at about 70 basis points.

And just generally talking about your long-cycle versus short-cycle trends, it sounds like you don't think there's a bump to the order book in the defense side perhaps in the next six months. Does that suggest a pretty good outlook for defense for next year rather than kind of an acceleration this year in terms of revenues?

No, I hope I didn't give the impression that we don't expect acceleration this year. We do because our orders are way up right now in our defense businesses. We expect it to pick up more. I don't mean to be greedy, but we expect it to pick up more in the next six months or so because of the use of munitions and the significant use of munitions in the Middle East. Having said that, we are already experiencing very strong defense orders across all of our portfolio from components to systems.

I wanted to just ask or kick off with a big picture question about M&A and the strategy. A couple of years ago, we saw new issuers and IPOs of businesses focused on roll-ups and industrial roll-ups with an aerospace and defense focus. More recently, they've been that plus broader industrials as well. When you think about the amount of new industrial compounders, industrial roll-ups, companies focused on finding niche highly engineered products, it definitely feels a little more crowded today than maybe years ago. You guys started this theme decades ago in the history books, but even a decade ago, you were ahead of many of the others. I wanted to take the temperature on the market at large. Are you rubbing up against competitors more? Is it harder to get deals done? Are sellers reshaping the processes in the face of different and maybe more buyers seeking the same opportunities?

Yes. It's a difficult question to answer. We've always had competition. In the last 12 to 13 months, we've already spent $900 million in acquisitions. In the last 25 years, we've spent $12.8 billion in acquisitions, only about $4 billion of it with our stock — so $8.8 billion of it with cash, which we generate. And in the last 12 to 13 months, $900 million. We've made 75 acquisitions in the past 25 years. Yes, it's getting crowded. On the other hand, conglomerates that are putting things together also sometimes take them apart, and we've been the beneficiary of taking them apart. We've gotten a few businesses from conglomerates that suddenly decide this thing doesn't fit or they want to concentrate. So we've been getting some nice carve-outs in the recent past. What worries me is the crazy prices that people have been willing to pay. Fortunately, some of that is switching over to AI and data center domains. Let them spend their money in that area, and we will stick to the things we know. So I don't really see a major increase in competition that worries me, beyond valuation pressures.

Okay. That was great color. If I could just clarify some of the commentary on defense and a little bit on aerospace. It's loud and clear that defense demand signals are strong. One of the challenges in the past at different times with Teledyne is that the bookings are strong but don't necessarily translate into the immediate quarters, and there could be confusion about short versus long cycle exposure. But when we see these strong demand trends in defense, is that going to translate immediately? Can you talk about the short-cycle elements of your portfolio a little more? You mentioned munitions; I want to be sure we're translating that into models properly.

That's a very good question. It's mixed. Yes, some of our orders are long, two to four years in duration. Some orders are yet to come because of conflicts in the Middle East. And of course, there's European growth in defense where we're getting healthy orders. By and large, when we think about parts of our portfolio growing 9% to 10% organically, that's very healthy. We haven't had that for a while. On the other hand, I'm not going to stand here and tell people we will grow 20% a year. That's not us. It might happen if munitions usage continues and replacement accelerates. But government cycles are tedious even when there's urgent need. So I would balance it: we do have a great backlog — about $4.6 billion right now — and those will translate into revenue. The good thing is that based on what we see in the Middle East, European defense increases, Ukraine, and what's happening regarding China and Taiwan, directionally these things favor the portfolio we've developed both in legacy Teledyne and with the FLIR acquisition.

That's great. If I could slip in one more related question on aerospace. I know your aerospace exposure is very small and your commercial aftermarket exposure is even smaller as a percentage of that. Is there any tea-leaf reading there just on the back of what's going on in the Middle East and higher oil prices? It's more topical for companies that are heavier in aerospace pure plays.

I'll let George address that one, please?

Yes, you mentioned that it's a relatively smaller part of the business, which it is — about 4% of our revenue, give or take. The business is split about one-third OEM and two-thirds aftermarket. What we've seen in the aftermarket is that it was healthy in Q1. So I'm not seeing anything in the near term as a result of that conflict.

Robert, is it possible to state or quantify what short-cycle industrial revenue growth was in the quarter and what defense revenue growth was in the quarter and then what's in the full year 2026 revenue guidance for each of those?

Right. Let me start with government: we had 9% growth in U.S. government. In non-U.S. government total, we had another 4% growth — this is organic. Where we grew most was in the international domain. We had a little shrinkage in U.S. commercial, but we grew significantly internationally. Our international businesses have become 48% of our portfolio now; 20 years ago that was less than 15%. So the growth has been international and U.S. government, U.S. government being about 9% and international about 8.5%.

And are you able to quantify what growth was in short-cycle industrial during the downturn you experienced in machine vision, test and measurement, semiconductor? I'm trying to get a sense for how much that recovered in the quarter in the 5% organic total company growth that you had.

Yes. Generally, the short-cycle grew at about lower single digits, roughly 3% to 4%; defense grew at high single digits. There's a difference between machine vision and semiconductors — they're very healthy and showing good growth. On the other hand, we had a little shrinkage in test and measurement, which is where the weakness in Q1 showed up.

That helps. The revenue number you're now providing for the full year would require organic to slow a bit through the rest of the year. It sounds like defense orders suggest it can hold or accelerate. Why would total company organic not accelerate?

Well, you got me there. I'm a little conservative. Noah, as you know, we expect revenue to keep growing throughout the year. Year-over-year we had growth in the first quarter and we expect growth in Q2, Q3 and Q4. When I look at the rest of the year, in January we thought the first half would be 48% and the second half 52% of revenue. We've switched that slightly now and think the second half might be 51% and the first half 49%. The reason for some of the conservatism is foreign exchange. We had some nice FX benefits in Q1, about 2%. We think that will drop to maybe 0.6% in Q2 and then zero in the last two quarters. If that shifts, our revenue would increase correspondingly. So some of the conservatism is related to FX assumptions.

I understand. Last one for me is just on the Instrumentation margin — how do you see that progressing through the rest of the year? That segment had really nice margin expansion in the last three or four years. Now we have this quarter with the decline; how should we think about the medium-term trend for Instrumentation margin?

Let me start by saying historically our Instrumentation margins have been among the healthiest in the company. We think with progression through the year this year, our margins will keep increasing. This was our lowest margin quarter and primarily because of test and measurement. We think margins will go up every quarter and we should end the year closer to 27.5% for that segment. To get there, we're projecting about 29% margin in the fourth quarter for the segment. So as George said, underwater vehicles don't have as great a margin as our test and measurement, but we anticipate a comeback in our protocol analyzers. Our oscilloscopes are already doing well. So margins should increase as the year goes on.

Just a couple on Aerospace and Defense margins. Much better in the quarter than I expected. I was curious on the better expansion outlook for that segment versus last quarter. Was there anything mix related that we saw in this quarter or that you're expecting through the rest of the year? Or is this more some of the cost efficiencies from the Qioptiq acquisition and integration?

I think I'll let George answer this, but it has a lot to do with acquisitions.

Yes, that's right. I'll answer it a couple of ways. One, on the acquisition side, our playbook is pretty simple: we acquire companies at reasonable valuations and then we work to improve them. We've really seen over the last year with the Qioptiq acquisition and the MicroPact acquisition in the Aerospace and Defense Electronics segment a lot of good work on margin improvement. We also did benefit a little bit from mix in Q1 — for example, sales of avionics spares and high-reliability semiconductors were somewhat better year-over-year. But fundamentally, it's cost discipline, improving acquisitions and a little bit of benefit from mix.

Perfect. And then just quick, can I get an update on how you're thinking about free cash flow for the full year? And then with the increase in CapEx investment that you called out, how should we think about that, say, in the 2.5% of sales range for the year?

Let me start with free cash flow. We've been fortunate in '24 and '25 to generate over $1 billion in free cash flow. We expect that to happen again this year. The first half is a little slower than that, but I expect to pick it up in the second half because we're spending more on CapEx this year. We're projecting CapEx at about $150 million, which is an increase versus last year. We're also spending a little more on inventory and on certain machining and processing capabilities, for example for germanium, due to supply chain adjustments. Having said all of that, with around $150 million in CapEx, we still expect over $1 billion in free cash flow; I hope we can get to $1.1 billion.

Thank you very much. I'll ask Jason to conclude the conference call.

Thanks, Robert, and again, thanks to everyone for joining us today. And of course, if you have follow-up questions, please feel free to call me or send me an email. My number is on the earnings release. Thanks all. Bye.