I'd like to welcome everyone to Teledyne's second quarter 2026 earnings release conference call. This morning, we were pleased to announce the strongest quarterly orders, sales, and operating profit in the company's history. Orders have now exceeded sales for the 11th consecutive quarter, and we ended June with approximately $5 billion of funded backlog. Organic growth was greatest in our Digital Imaging segment, where infrared detectors and systems for space, airborne, and marine unmanned systems, as well as counter-unmanned applications, increased significantly.
Furthermore, we achieved mid to single high digit growth in our other segments, as well as each product line within the Instrumentation segment. Largely based on the strong Q2 performance, we now believe 2026 annual revenue will be $120 million greater than we forecast in April. We're also raising our full year non-GAAP earnings outlook by $0.55 per share at the midpoint of our prior outlook to reflect the additional organic growth. Notwithstanding the acceleration of our organic growth, we will continue to compound earnings and cash flow through acquisitions.
In fact, approximately 90% of today's earnings are from businesses that Teledyne has acquired over the past 25 years. With leverage at its lowest level in six years, we have more than ample flexibility to deploy significant capital. In the Digital Imaging segment, second quarter sales increased 12.7% and 11.9% organically due to well-balanced growth among our defense and commercial businesses. In addition, segment sales increased in each of our larger commercial end markets.
| Metric | Period | Current guidance |
|---|---|---|
| Full-year 2026 revenue | FY2026 | over $6.53B (+$120M vs April; ~7% growth, +200 bps vs April) |
| Full-year 2026 non-GAAP EPS | FY2026 | $24.45-$24.65 (raised $0.55 at midpoint) |
| Full-year 2026 GAAP EPS | FY2026 | $20.73-$20.99 |
| Q3 2026 non-GAAP EPS | Q3 2026 | $6.05-$6.15 (GAAP $5.10-$5.25) |
| Full-year company margin improvement | FY2026 vs 2025 | ~+56 basis points (upside if revenue rises further) |
| Segment growth outlook | FY2026 | Digital Imaging ~7.5% (FLIR >9%), Instrumentation ~5.7%, Aerospace & Defense ~7.2%, Engineered Systems ~5.6% |
| Commercial short-cycle growth | FY2026 | mid-single digits collectively |
| Defense sales growth | FY2026 | high single digits with pockets of double-digit growth |
| Metric | YoY | Note |
|---|---|---|
| Total sales | +9.8% | Record execution of a nearly three-year backlog build, led by Digital Imaging with broad growth elsewhere. |
| Non-GAAP EPS | +20.8% | Volume leverage, margin expansion and cost control across the portfolio. |
| Digital Imaging sales | +12.7% (+11.9% organic) | Space infrared detectors up >20%, plus unmanned air/maritime, border security and drone-defense products, with broad commercial end-market growth. |
| Digital Imaging non-GAAP margin | +353 bps to 25% | Volume plus ~120 bps from tariff refunds; even excluding tariffs margin rose over 200 bps despite higher R&D. |
| Instrumentation sales | +5.5% | Marine +5.7% on unmanned subsea and submarine interconnects (~+20%), environmental +6% (DD-Scientific plus gas/flame detection), test & measurement +4.3%. |
| Aerospace & Defense Electronics sales | +8.2% | Broad defense-electronics growth led by Qioptiq (+20% organic); slight commercial aerospace growth despite avionics retrofit delays. |
| Engineered Systems revenue | +8.4% (margin +166 bps) | Greater sales and execution in commercial nuclear power and U.S. missile-defense programs. |
| Free cash flow | $284.7M (up from $196.3M) | Favorable operating results and lower income-tax payments; net debt $1.69B, net leverage 1.1x. |
| Unmanned business | ~$575M (from ~$500M, ~12% growth) | Growth in air (Black Hornet 4 nano-drones), ground and underwater vehicles, plus subsystems for unmanned surface vessels. |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Defense demand acceleration | Multi-year defense backlog building | Defense (~30-35% of sales incl. foreign) accelerating to high-single/double-digit growth; missiles & munitions ~$200-250M run-rate (AMRAAM, PAC-3, Hellfire, Javelin, hypersonics) with rising customer inquiries, ~$30M+ government manufacturing-capacity investment and European (MBDA) increases. | — |
| Space / Golden Dome | Growing space business | Space expected to reach ~$400-450M for the year, primary supplier across Golden Dome and Tranche 3, anchored by unique mercury-cadmium-telluride detectors, with electronics being added. | — |
| Unmanned systems portfolio | ~$500M unmanned (2025) | ~$575M in 2026; ~$400M in Digital Imaging (air/ground), ~$100M underwater; Black Hornet 4 selling well, strong UK/Europe underwater orders and large-program competitions; USV subsystems used in the Strait of Hormuz and Gulf. | — |
| M&A strategy / capital deployment | Disciplined acquirer; prices called 'crazy' | Net leverage 1.1x (lowest in six years), $1.2B untouched credit and ~$4B+ potential capacity; ~$1B deployed over two years; actively pursuing small and mid-range (~$1B+) deals across defense and commercial but declining 30-33% overbids. | — |
| Short-cycle commercial inflection | Industrial/healthcare headwinds | Broad-based short-cycle recovery: DALSA e2v industrial/scientific vision +8% (semiconductor/electronics inspection strong), healthcare X-ray +8.5%, test & measurement +4% with protocol solutions picking up (terabit Ethernet, PCIe 6.0). | — |
| Supply-chain constraints | — | Over $1B of revenue depends on germanium and rare-earth magnets; more than a year of mitigation work including in-house machine shops to recover germanium scrap (~50% of lens material). | — |
| CapEx investment for demand | — | ~30% higher CapEx year-over-year to meet demand in IR camera modules, radars, counter-UAS, and unmanned subsea/aerial vehicles, supplemented by government and customer program investments. | — |
| Acquisition integration (Qioptiq, Micropac) | Recently acquired | Qioptiq grew 20% organically with steadily improving margins and enables European space-program wins alongside e2v; Micropac showing margin improvement and power-distribution cross-selling into the space business. | — |