Ralliant Corporation

Hello, my name is Donna and I will be your conference facilitator this morning. At this time, I would like to welcome everybody to Reliant Corporation's second quarter 2026 earnings results conference call. All lines have been placed on mute to prevent background noise. After the speaker's remarks, we will open the call for questions. If you would like to ask a question, please press star then one on your telephone keypad. If you would like to withdraw your question, please press star two. I would like to turn the call over to Mr. Nathan McCurren, Vice President of Investor Relations. Mr. McCurren, you may begin your conference.

Thank you, Donna. Good morning, everyone, and thank you for joining Ralliant's second quarter 2026 earnings call. I'm Nathan McCurren, Vice President of Investor Relations. Today, we'll walk through our results, highlight key operational progress, and provide our outlook for the third quarter and full year 2026. I'm joined today by Tammy Newcombe, our President and Chief Executive Officer, and Neill Reynolds, our Chief Financial Officer. Our earnings release issued this morning and today's presentation can be accessed on the Investors section of our website at ralliant.com. Please note that we'll be discussing certain non-GAAP financial measures on today's call. A reconciliation of these measures to U.S. GAAP can be found in the appendix to our presentation. During today's call, and unless otherwise stated, we're comparing our second quarter 2026 results During the call, we will make forward-looking statements, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, and actual results might differ materially from any forward-looking statements we make today. Information regarding these risks and uncertainties is available in our annual report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 26, 2026, and in our Form 10-Q, filed with the SEC on May 12, 2026, and to be filed after market today. With that, I'd like to turn the call over to Tammy.

Welcome, everyone, and thank you for joining us for our Q2 2026 earnings call. One year into our journey as an independent company, we're demonstrating that our strategy is working, and I'm incredibly proud of what our team has accomplished. Our progress is translating into growth, margin expansion, and strong cash generation. Today, I'll start with results on the quarter and strategic execution. Neill will then walk through the financial results before we open up the call for your questions. Let's start on slide four with a business and outlook update. First, our Q2 results exceeded the high end of our guidance ranges and we are raising our full year 2026 outlook as both segments delivered double-digit revenue growth and significant adjusted EBITDA margin expansion. Second, we're continuing to capitalize on favorable secular trends in electrification and defense. Our disciplined execution drove Q2 orders growth, resulting in a book-to-bill above 1.1 in both segments and Defense Backlog remaining over $1 billion. Third, our RBS-led enterprise productivity program is gaining traction. We are moving from foundation building to execution and results, reinforcing our confidence in delivering $10 to $12 million of in-year savings and $50 to $60 million of annualized run rate savings by 2028. Fourth, We continue to generate strong free cash flow, enabling us to execute our capital allocation priorities. We're investing in manufacturing capacity to support growing demand and returned $161 million to shareholders in the first half of 2026, including the completion of our $100 million accelerated share repurchase program in Q2. Next, I'll summarize our Q2 financial results on slide five. In the second quarter, revenue was $568 million, up 13% year-over-year on both a reported and organic basis. Both segments delivered double-digit organic revenue growth, with sensors and safety systems up 11% and tests and measurements up 16%. Adjusted EBITDA margin of 19.8% and adjusted EPS of 68 cents were both above the high end of our guidance ranges, reflecting strong operating leverage on higher volume, disciplined execution, and early benefits from productivity actions already underway. We generated $99 million of free cash flow in the quarter, contributing to a trailing 12-month free cash flow conversion of 114%. Now turning to slide six. Our profitable growth strategy is intentionally balanced and designed to perform through the cycle. Our winning growth factors align with market tailwinds in electrification and defense, where longstanding customer positions and differentiated capabilities position us for elevated growth. Complementing this, our stronghold positions are anchored in a broad customer base with more modest growth profiles where precision technologies deliver durable demand, attractive margins, and recurring revenue. Enabling our strategy is the AI-infused Ralliant Business System, or RBS, which brings discipline, consistency, and enterprise scale to how we operate and execute. The outcome is sustained growth and long-term value creation for our shareholders. Turning to slide seven, I'll share how we are capitalizing on winning growth factors. Electrification is a compelling growth opportunity where we are well positioned to win. From keeping the lights on to enabling the next generation of intelligent products, we are aligned with the technologies powering an increasingly AI-enabled world. We help utilities operate a more reliable grid through predictive monitoring of critical infrastructure, while our precision test and measurement instruments enable the electronics breakthroughs behind tomorrow's innovations. As AI accelerates demand for power, compute, connectivity, and intelligent devices, our solutions are becoming increasingly important. Defense is another compelling growth opportunity where we are well positioned to win. Our safety-critical systems are embedded in many of today's legacy missile and munitions programs. While our precision test and measurement instruments enable the advanced electronics behind next-generation communications, Compute storage and space applications. As defense modernization accelerates, we build on our positions in trusted legacy platforms by also supporting the technology shaping the future of national security, such as autonomous or unmanned air vehicles. Across both secular trends, we support customers from early stage innovation through full-scale production and deployment, giving us a unique position at the intersection of infrastructure, electronics, and innovation. Turning to slides eight and nine, my regional and end-market commentary will begin with the percentage of year-to-date total company revenue shown on the right side of the page, followed by the year-over-year organic revenue growth for Q2. North America represents 54% of revenue and delivered 13% growth driven by continued momentum in test and measurement utilities and defense. Looking forward, we expect elevated demand in North America from ongoing investments in the electric grid, legacy defense programs, and technology innovation driven by AI. Western Europe represents 13% of revenue and delivered 16% growth as we executed well against pockets of opportunity in defense, industrial manufacturing, and advanced research. Still, the macro environment in Europe remains selective with lower growth expected going forward. China represents 16% of revenue and delivered 7% growth with increasing investments in AI data center and energy infrastructure. We saw an acceleration of activity in the first half, and we expect that to translate into increasing revenue growth in the second half of the year. The rest of world region represents 17% of revenue and delivered 14% growth driven by test and measurement and industrial customers. Transitioning to our end markets, I'll start with the sensors and safety system segment. Together, the industrial manufacturing and other end markets represent approximately 30% of revenue and both deliver double-digit growth in the quarter with a broadening recovery across most geographies and particular strength in applications within the AI data center. For example, our precision sensors are embedded within data center liquid cooling systems where customers are accelerating production volumes. This is where RBS provides a competitive advantage. Most recently, the team doubled production throughput on humidity and temperature sensors, leveraging the same resources, achieving a 65% cycle time reduction. Defense in Space represents 17% of revenue and delivered 14% growth. Our defense backlog remains over $1 billion with continued multi-year demand on legacy missile programs where we are a trusted supplier. Over the past quarter, our defense customers have progressed from framework agreements to undefinitized contract actions, or UCAS, under the Department of War's Acquisition Transformation Strategy. This represents the first full-scale transition toward contract execution and provides increased confidence in elevated multi-year demand. As a key supplier to the Pentagon's priority munitions programs, including FAD, PAC-3, and Tomahawk, We are scaling production across product lines at roughly two to five times historic levels and making targeted investments in manufacturing capacity to support reliable execution. Utilities represents 14% of revenue and delivered 4% growth. Q2 is another record quarter for orders and revenue, although revenue growth was below expectations due to shipment timing primarily related to delays into the Middle East. Shipman delays were approximately a four percentage point headwind to growth in the quarter. In the second half, we expect utilities growth of low double digits as first half orders significantly outpaced revenue and we are further progressing our capacity expansion initiatives. Test and measurement growth broadened across all end markets. Diversified electronics represents 21% of revenue and delivered 23% growth as customers increased innovation for electronics in energy storage systems, electric vehicles, medical devices, consumer electronics, and emerging AI-enabled edge devices. The convergence of higher compute requirements, greater energy efficiency needs, and longer battery life expectations is driving a new wave of innovation across these applications. Energy storage systems exemplify the innovation driving growth in diversified electronics. Customers are rapidly increasing system power levels and developing new ways to connect energy storage to the grid and critical infrastructure, including data center backup. Tektronix, DC power supplies, and customized power racks help validate these next generation architectures. In Q2, we secured a production win with a leading energy storage provider, creating an opportunity to scale alongside the customer's future capacity expansion. Communication represents 11% of revenue and delivered 9% growth, reflecting continued technology innovation in advanced communications for AI infrastructure, aerospace and defense, and research laboratories. In the quarter, we had a customer win where engineers are using our test and measurement instruments to measure electrical signals with pinpoint accuracy to validate that optical laser chips are working precisely. This supports the build-out of optical infrastructure, which is a technology that underpins data-hungry AI, cloud computing, and high-speed connectivity. Semiconductor represents 7% of revenue and delivered 5% growth. Our high-precision instruments are at the forefront of enabling engineers to develop and validate the next generation of semiconductors that enable communication networks, intelligent devices, and advanced electronic systems. During the quarter, we saw broad-based acceleration as semiconductor technologies enable new product innovation across industrial, energy, data center, and defense markets. Across our test and measurement end markets, customer demand remains robust and our pipeline continues to support confidence in elevated activity levels through the second half. While the business remains inherently short cycle and visibility beyond 90 days is limited, we are encouraged by current demand trends and we're actively managing supply availability and capacity to support customer requirements. Next on slide 10, We leverage RVS across the enterprise for both growth and productivity. As I shared earlier, the RVS-led Enterprise Productivity Program is on track to achieve $10 to $12 million of in-year savings and $50 to $60 million of annualized run rate savings by 2028. In defense and space, our multi-year RVS-led productivity initiatives have double production output within our existing manufacturing footprints. To further increase production going forward, Taxi EMC was awarded $27 million by the Department of War and has expanded into one of our existing manufacturing sites in Ohio. In utilities, we continue to see robust demand supported by multi-year grid modernization and resiliency initiatives. In July, we broke ground on expanding our precision sensor facility in upstate New York to support the historic orders growth. Next, Neill will review our financial results and provide additional perspective on our guidance.

Thank you, Tammy. Good morning, everyone. Please turn to slide 12. Q2 results were above our guidance ranges across all metrics, driven by increasing customer demand and strong execution. Q2 revenue of $568 million was up 13% on a reported and organic basis as revenue growth accelerated across our end markets and regions. Both segments delivered double-digit organic growth year-over-year, led by continued execution against our greater than $1 billion of defense and space backlog, acceleration in industrial manufacturing and other end markets, and continuation of broad-based customer wins across test and measurement. As I shift to adjusted EBITDA and EPS, I will be speaking to our comparisons against normalized adjusted metrics for 2025. As a reminder, we have normalized the first three quarters of 2025 results to reflect our fully ramped post-spin costs, which provides a more like-for-like comparison for 2026 results. Adjusted EBITDA margin in the second quarter was 19.8%. On a normalized basis, this represents a 390 basis point improvement from the prior year driven by operating leverage on revenue growth and productivity savings realized from the enterprise productivity program actions. Margin expansion was partially offset by costs associated with standing up our enterprise productivity office and higher variable compensation on improved operating results. Adjusted EPS of 68 cents increased 58% driven by revenue growth, adjusted EBITDA margin expansion and the benefit of share repurchases. Free cash flow was 99 million in the quarter. Thank you for joining us. and 11% organically driven by double-digit revenue growth across defense and space, industrial manufacturing and our other end market. Adjusted EBITDA margin for sensors and safety systems was 29.4%, a 350 basis point improvement on a normalized basis driven by operating leverage on higher revenue, favorable mix from elevated industrial manufacturing and other contribution and better than expected defense margins based on favorable program mix in the quarter. Highlights of our test and measurement results are on slide 14. Test and measurement delivered a strong quarter with revenue of $221 million, up 15% on a reported basis and 16% organically. This was driven by strong orders and revenue growth across all three end markets as we saw a broadening of customer investment across test and measurement. I'll note that in the semiconductor end market, we continued to have year-over-year headwind from lapping a large customer project in 2025, but given project timing, this was less pronounced in Q2 than in the prior two quarters or what we will face in Q3. Test and measurement adjusted EBITDA margin was 14.7%, an improvement of 750 basis points on a normalized basis due to strong operating leverage on higher revenue and the ramping of productivity savings. On slide 15, I want to provide a brief update on our enterprise productivity program. As previously announced, we expect $50 to $60 million of annualized run rate savings by 2028, inclusive of the $20 million we've already actioned. In Q2, we began to realize these savings. With $3 million of savings in the quarter, and we are on track to deliver $10 to $12 million of in-year savings in 2026. Combined with a strong baseline incremental margin, we expect the enterprise productivity program to contribute to approximately 50% incremental adjusted EBITDA margins through 2028. This level of incremental margins assumes an organic revenue growth framework of approximately 5% in 2027 and 2028. This framework would lead us to deliver the midpoint of our through-cycle adjusted EBITDA margin target range of low to mid-20s by 2028. However, we are not providing guidance for 2027 or 2028 at this time. Turning to our balance sheet and cash flow on slide 16. We ended the quarter with $271 million in cash and cash equivalents and $1.15 billion of debt. With $99 million of free cash flow in the quarter, our cash generation is funding our capital allocation priorities and at the same time has enabled us to maintain net leverage of approximately 1.9 times. within our long-term target range. We returned $161 million of capital to shareholders through the first half of 2026, mostly driven by $150 million of share repurchases, inclusive of our completed $100 million accelerated share repurchase program. This resulted in the repurchase of 2.8 million shares at an average price of $54.74 per share. Shifting to slide 17 to cover our expectations for the third quarter and the full year. In Q3, we expect revenue of 570 to 590 million. Adjusted EBITDA margin is expected to be between 20.5% and 21.5%, with year-over-year normalized margin expansion driven by operating leverage on higher revenue and savings from our enterprise productivity program. Adjusted EPS is expected to be between 72 cents and 78 cents, Driven by revenue growth, margin expansion, and a reduction in share count, we expect Q3 weighted average diluted shares outstanding of approximately 112 million. Based on our Q2 performance and increased confidence in continued customer demand in our short cycle businesses in the second half, we are raising our full year 2026 guidance. We now expect full year revenue of 2.25 billion to 2.3 billion dollars. adjusted EBITDA margins of 20% to 21% and adjusted EPS of $2.76 to $2.90. This is inclusive of a small benefit from tariff refunds received through Q2 that will be recognized in cost of sales. From a corporate perspective, we now expect corporate and other expenses in the second half to be approximately $20 to $23 million per quarter, an increase of about $5 to $6 million per quarter from our prior estimates. This is driven by implementation costs associated with the enterprise productivity program, a rebalancing of support function activities identified within the EPP program that results in net savings but shifts some costs from the segments into corporate. Lastly, higher variable compensation due to an increase in expected performance in the year. Finally, I want to provide an update on our capital allocation priorities on slide 18. Our top priority remains organic reinvestment. We are enabling organic growth by leveraging RBS everywhere and augmenting it with AI-driven productivity. Second is returning capital to shareholders. As mentioned earlier, year to date, we have returned $161 million to shareholders for a combination of share repurchases, including our completed ASR and dividends. We continue to target share repurchases of approximately 50% of free cash flow over time. We have already repurchased approximately 50% of anticipated Our last priority is focused tuck-in acquisitions. We currently have a robust pipeline of attractive tuck-in acquisition targets. We will continue to target double-digit ROIC by year three for these acquisitions. We are committed to balancing these capital allocation priorities against our target cash balances and our long-term net leverage targets of 1.5 to 2 times adjusted EBITDA. With that, I'll turn it back to Tammy to wrap before opening it up for questions.

One year into our journey as an independent company, my confidence in what we can achieve has never been stronger. I'll close with a few key takeaways. First, our profitable growth strategy is working. We continue to capitalize on attractive secular growth opportunities, and the Ralliant business system is how we drive disciplined execution across the enterprise. Second, We're making meaningful progress on margin expansion through the combination of strong incremental margins and the execution of our enterprise productivity program. Third, we remain confident in Ralliant's long-term value creation potential. Strong free cash flow generation is enabling us to execute our capital allocation priorities, including reinvestment in the business, returning capital to shareholders, and pursuing a robust pipeline of attractive token acquisitions. Finally, I want to thank our 7,000 team members from around the world. Their commitment, dedication, and relentless focus on customers are what make these results possible. With that, I'll open up the lines for Q&A.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please limit to one question and one clarifying follow-up question if needed. One moment while we poll for questions. Our first question is from Chris Scheider with Morgan Stanley. Please proceed.

Thank you. I wanted to ask about test and measurement, and specifically the diversified electronics. So we've seen a really nice acceleration there year to date after declines a year ago. And I know you guys don't have a lot of visibility in the backlog, and you guys said maybe only 90 days. But I wanted to ask about how you think about the duration of this cycle, whether in the context of a typical upcycle for diversified electronics, but then also thinking about all of the secular tailwinds that are coming through for that business. You know, you highlighted a number of them. I think, you know, energy storage systems, we're seeing AI come through. So just, you know, whether it's conversations with investors, what you see in the future, how do you feel about the duration of strength there? Thank you.

Okay, Chris, thanks for raising that question. and I'd start with what we know today and we'll specifically talk about test and measurement. It's about 40% of the overall business. You had started with diversified electronics. That's about 20% where we've seen really strong growth the last two quarters. But in the space, the second quarter, headline last quarter was return to growth. This is the second quarter of really strong growth in T&M. Inherently, it is a 90 to 120 day short cycle business. But we like the book to build. We talked about 1.1 across both segments. In T&M, that's up over 1.2 right now. So we do see some strength there. I spoke about the elevated demand in China. A lot of activity there in the first half, which is going to translate and some higher revenue in the second half. And that's an area we're still assessing. Is this a build-out tied to AI and energy, more episodic or event-driven, or is that something that's going to drive some structural growth along the way? Overall, we see strong first year kind of coming out of the downturn, and T&M is having a strong first year. Expect that to moderate in the second year if you look at history. Probably more mid-single digit coming out of a really strong first year.

Thank you, Tammy. I appreciate that. And then maybe if I could follow up on Paxi. I think everybody appreciates there's a lot of demand in the world for the products that Paxi sells. But I wanted to ask about capacity and just the ability for you guys to ramp there. So can you just maybe talk a little bit about some of the actions that you guys have taken to improve that supply chain and production capacity? And then I believe you guys maybe, I think when you guys talk to mid-singles and the out-years, I think it assumes maybe like low doubles for pack size, kind of my understanding. But, you know, if we do get these surge programs come through, is there ability to flex that up to something higher and meet that demand should it come through? Thank you.

Thanks, Chris. The demand, we talked about remaining over a billion dollars of backlog in the defense business, and that's following a strong quarter that we had where we saw double-digit growth in Q2. A couple things that we're doing to continue to increase capacity, and this is an extension of what we've been doing over the last several years. We've doubled the throughput in our existing footprints. Now we've had the opportunity to create a center of excellence around electronics in our Ohio site. That's a place that we've begun investing and getting some help also from the government as we are a critical supplier in many of the top priority munitions programs. and that will take us eventually to a fourth site. But the team's got good line of sight here out through 2030 in our capacity needs. I think the second part of your question is double digit, could that be higher? We are actively working with our customers in the defense space on the programs. There's a variety of scenarios as far as volume. and a variety of scenarios on timeframe. Of course, our customers are trying to line up their supply chains and when they have firm commitments there, we'll start to see orders which we'll represent in our backlog to you.

Thank you. I appreciate that.

Our next question is from Alexander Virgo with Evercore ISI. Please proceed.

Thanks very much. Good morning. I wondered if you could just dig a little bit into your utilities comments and the semis comments. So I guess the first question is just to make sure I understand the clarifying point of the four percentage points of impacts from the Middle East. That was in the utilities segment, right? So the underlying growth is more like eight. If that's correct, and therefore, how would you expect that to trend through the second half? Are you going to able to catch up on some of that? I appreciate that right now it's probably quite tough, but thinking about how that plays through in the rest of the year. And then on Semicon, I just wanted to make sure, given the point regarding lapping the contract last year, The 8 to 12 guide in Q3 would imply quite limited impact, and you obviously have 5 in Q2, 5% growth in Semicon in Q2. So just, again, wondering how that plays through in the very near term. Thank you.

Alex, I'll start with utilities. And utilities represent 14% or so of total company revenues. and the demand has continued to be strong. Recognized Q2 is our largest orders and our largest revenue quarter historically. We grew from Q1 to Q2, we grew revenue about 11% quarter over quarter. Still, I called out the 4% year over year was below our expectations and it was a handful of customers in Middle East that asked us to adjust timing on shipments for them, which we have done. That's the four-point headwind that I called out. We expect both from shipments that we're catching up on in the second half as well as some of the capacity that we're bringing online. At that site, we've brought on additional ship. We've also expanded some cells for additional capacity and expect that to move to double-digit revenue growth as we get into the second half. So that is your utilities question. You had a separate question around semi. And as a reminder, the semi end market for us is about 7% of overall company revenues. We did see 5% growth in this quarter. And the headwinds on the large deal we talked about in the comps, was a little favorable for us this quarter, not as much. That will come back in the third quarter.

Sorry, Tammy. That's kind of what I was getting at. So the 5% in Q2 is an underlying number, but we're going to have to factor in headwinds in Q3 so that number will be lower. Is that the right way to take that comment?

Yeah, we have not given a specific number for semiconductor. We have talked in the past that it's about a $10 million headwind each quarter in our semi-end market. It was less this quarter. It'll be below that this quarter in Q2, what we saw, and more than that in Q3, a little direction.

Yeah, and outside of that project, we've had some very solid growth numbers in semis as you'd expect. and we will see that I think a bit of a headwind in Q3 and it'll unlap itself in Q4. So Q4 should be clean. Thank you very much.

Our next question is from Joe Giordano with TD Cowan. Please proceed.

Hey guys, good morning. I wanted to push down the test measurement a little bit too. You know, I understand the desire to Keep us all in check to some extent, but like when I look at this, you know, it just went positive last quarter. It grew very nicely into Q and modeling like kind of somewhat meaningful decel in the second half and into next year feels very conservative. Like how long do these, you know, when things just start to inflect, how long until you typically see a, you know, peak growth number in a business like that historically?

Maybe I'll start with what we're seeing today in the demand environment. And I'll start with the change from Q1 to Q2. So we increased our full year outlook at midpoint $60 million. $20 million of that was what we saw in Q2. And the point of the raise is really around our industrial end markets. We've just seen robust demand there. It was broad-based. across all regions, and double-digit in both of the other and industrial end markets. So those are strong. Grading defense, we think we've got pretty long sight on those secular trends in the high singles and probably low double-digit for defense. T&M, this is the first year of recovery, and what's embedded in The full year guide is double digit on test and measurement this year. And I started to allude to this in the first question. In a second year, that moderates to the low single, mid single type range. That's what we've seen historically. We also have not seen historically industrials be in the double digit. So I don't know the duration of that. As I said, we look at about 90 to 120 days. We're going to assess that, keep our eyes on it in the second half. And probably the last one, I spoke about this, but it goes in what we're keeping track of. It's what's happening in China around TNM. Is that going to be something that continues or is that going to be episodic for us here as they are funding investments in AI data center and energy? So those are the things we're keeping our eye on as we move into the Q3 and Q4.

Yeah, Joe, let me just add to that a little bit. So if you take a step back for the 26 guide, we talked about 9% to 11% kind of organic growth. So this is double-digit at the midpoint. And test and measurement, these are either at or above the high end of that, with sensors and safety systems being just down kind of towards the lower end of that. So I think both segments growing strongly. That is a strong kind of recovery year for test and measurement coming off. a tough year or so in terms of the cycle. And the second thing I would add is last time we talked, we talked about having seasonality in the business. And we had guided 49% of revenue in the first half of the year and 51% in the second half of the year. When you look at this guidance range and what we projected here, that'd be about 48% in the first half of revenue and 52% of revenue in the second half, which is pretty consistent with what we see seasonally normally. So I think when you start to frame up the pieces here, a lot of strength, in tested measurement, I think at the higher end or above the high end of this range, as well as kind of framing that up with the normal seasonality that we see. I think that's a good solid place to be in right now.

Can you just give us a little bit more detail on the defense solution at sensors? I know you said it was favorable mix this quarter on what programs were active, but how should we think about that for the rest of the year and into next year?

Yeah, the defense businesses is large programs and our shipment timing is based on customer need. And we had a quarter here where it turns out the programs that ended up shipping for those customers, the margins were better than we had expected. Still expect the same degradation that we've talked about in the defense and market due to high volume programs that we're seeing in the future. are our lower margin programs.

Yeah, and I think if you take a step back and look at the overall sensors and safety system segments, we were at the high 20s, over 29% this quarter, based on that favorable mix. The other thing I'd add is the industrial benefit that we're seeing in terms of the pickup in industrials, those are very strong margins for us as we start to look forward. So if you think about the segment, we will see some degradation in the margins related to defense, I think, over time, although we've had a couple of, I think, better quarters here I think, however, with the better performance we're seeing in industrial, we do expect the sensors and safety system segment to stay kind of at that high 20s level for the remainder of the year. However, over time, given those defense margins that we will see over time, we do expect to see that kind of revert back to kind of that mid to high 20s over the longer period. But I think for the remainder of the year, high 20s is a reasonable place to be at. Thanks, Ed.

Our next question is from Kevin Wilson with Truist Securities. Please proceed.

Hey, good morning. I wanted to ask on capital allocation, just how we're thinking about maybe opportunities for Tuck and M&A, understanding it's your third of three priorities there. Neill, I think you mentioned a robust pipeline of opportunities, which I think is new language on that front. So maybe just what are the areas we're looking at there and just how we're thinking about that leg of the capital allocation strategy going forward. Thanks.

Yeah, no, thanks. Thank you for the question. Yeah, so from a capital allocation perspective, look, we want to be disciplined in this, you know, as we are in terms of how we operate the business. And we talked about three things, you know, organic growth, investing in organic growth, returning cash to shareholders. We obviously completed the ASR this quarter. So we've given over $160 million back to shareholders or plan to this year in the share buybacks and the dividends. So that leaves us with number three, which is our kind of tuck-in acquisition strategy, as you asked about. So look, we talked about 50% of free cash flow within a year going back to investors. I think we're more or less in that zone with what we've already done. So now we'll kind of focus our attention to that third one. And look, I think staying within the leverage is important. That one and a half to two turns leverage is important. will continue to look to manage within that. As we go through that list for tuck-in acquisitions, you can think of these as smaller deals that we're looking at. I like to think of it as supplementing or supporting our organic strategy, so things that really help us from either a technology perspective or a gap we may have somewhere that can fill those things in, but that also give us a chance at very high returns. We want to see kind of a three-year ROIC at double-digit range. So that's really what we're focused in on now. I think the team's done a nice job of identifying the target list that we're working through.

Thanks. And then I'm wondering if we could maybe flesh out the corporate costs. I appreciate some costs shifting from the segments to that corporate and other lines. You're now assuming $20 to $23 million a quarter. I think that was closer to $13 million a quarter earlier. Some of that's EPP costs, variable comp. So maybe you could just size the pieces there. And I guess, should we expect that to normalize a bit in 2027 after most of the EPP cost actions are taken? Thanks.

Yeah, good question. So, yeah, this is moving around a little bit. I think also as we're kind of getting our legs under us with the productivity program. So, a couple things here. So, one is we did see a corporate cost of about $21 million in the quarter. That consists of standing up, you know, the EPP program office, as you mentioned. We've also centralized some costs where we moved costs from the segments into corporates. And the reason we did that is because we think that provides us a more kind of focused kind of execution mechanism for how we drive the productivity program across the company. So it's not just the EPP stand-up costs or the enterprise productivity program stand-up costs. It's also a little bit of shift, right pocket, left pocket, so to speak, and an overall increase in costs. And as you mentioned, some higher variable costs related to the better performance this year from a variable comp perspective. So I think overall, we look to be in this 20 to 23 zone with those things in there. and look, I think some of this, as you look out over time, will come back to us. We also think that we'll drive significant savings and support the program over time. So we'll continue to manage this and then manage it within the margin framework that we provided and continue to do that going forward.

That was good. Thanks, Neill. Got it.

Our next question is from Io Cefino with Oppenheimer and Company. Please proceed.

Hi, great. Thank you very much. And I wanted to maybe drill down on T&M a little bit more in the diversified electronics. What drove that growth, right? Because if I'm looking at Western Europe, I'm looking at China, you know, they didn't grow, you know, to the extent that the whole segment grew. And so just kind of trying to understand what drove all that strong growth. Thanks.

And the... Thanks for the question. Diversified electronics is, you know, 21% or so of overall revenue. And from a test and measurement standpoint, think of that as like broad-based electronics. The other two end markets, comms is predominantly our aerospace and defense. Semiconductors pretty well defined as to who those large semiconductor players are globally. Diversified electronics is every place else that Electronics are being innovated around and we sit right in those labs. I mean, Tektronix is the pioneer in the oscilloscope and the oscilloscope is the core foundational instrument sitting in the electronics lab for the engineers, whether they're doing energy storage systems, electronics for any type of mobility, including cars, medical devices, and a lot of AI edge devices that are full of electronics. So you'll see when that is broad-based, like it's been the last two quarters, it's a good sign for electronics innovation and the tested measurement equipment that enables those engineers to do that innovation.

Okay, thanks. And then, you know, on margins and T&M, is there a path back to 20% here anytime soon? Or how do you think about maybe getting back to where you were previously? Thanks.

As we put the framework together for our margins back in yesterday, about a year ago, the test and measurement segment we've always thought of through the cycle in the mid-teens to the low 20s. That's still our expectation on this business. And I think what you're seeing here as we've come through four quarters now is continuous improvement there. will be helped by some of the actions that we took in the first quarter. And then we've got an enterprise productivity program here to drive our structural costs across the enterprise down.

Okay, thank you very much.

Our next question is from Scott Graham with Seaport Research Partners. Please proceed.

Hi, good morning. Congratulations on and thanks for taking my question. I really have just two. Well, I have a lot more, but I'll only ask two. Tektronix, you know, there was a big movement afoot with new products in the second half of last year. I think nine, you know, covering several platforms. I was just wondering, it looks like you have traction on that already, whereas I thought, you know, that was maybe more of a 12 to 18 month thing. Can you talk about how those changes New products at Tech are faring in the market?

Absolutely, Scott. Nice to hear from you. Thanks for the kind words on the quarter. The team will appreciate that. Tektronix continues to increase the velocity of new products. In Q4 last year, there were two major platforms announced. One of the platforms, I mentioned oscilloscopes. It was the high-performance State-of-the-art industry-leading oscilloscope that is used in a lot of the R&D that's going on today for energy, for AI data center, anything around electronics. The team continues, because it's a platform, they will continue to bring out modules and software updates as we move through this year. But that really is a place, new products, and new innovation go hand in hand. And yes, they have started to get good traction on the seven series, the probes and also the platform for their power supplies. So very, very positive on velocity at Tektronix.

Well, thank you for that. And then also, I know that part of this initiative was, you know, your indication back from a year ago at the Investor Day of moving Tektronix from more of just a research standpoint, more into manufacturing and just wondering kind of the same question. How is that going and acceptance and how many of these products, these nine, are half of them focused on manufacturing? Maybe just some color there. Thank you.

Yeah, I would tie back to the platform approach. So the MP5000 platform is one that can be taken from research into the validation phase into production. So that's one place where new products are showing up. Also, one of my stories in the opening was around the testing of optical transceivers, and that's another place where their Keithley portfolio plays really well in the validation and production side of the workflow. So they continue to expand out of R&D and to other parts of the workflow.

Thank you.

This will conclude our question and answer session. I would like to turn the call over to Ms. Newcombe for closing comments.

Thank you, everyone. Thanks for joining us today. We appreciate your interest in Reliant, and I hope you have a fantastic day.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.