Executive Summary

Delivered revenue of $529.1M (flat YoY; +5% QoQ) and adjusted EPS of $0.60; both were at or above the high end of prior guidance, with upside driven by stronger defense shipments and a seasonal lift in Test & Measurement .
Headline beats vs S&P Global consensus: revenue $529.1M vs $521.1M*, and EPS $0.60 vs $0.577*; margins declined YoY on lower T&M volume and post‑spin employee costs but improved sequentially .
Q4 guide brackets consensus: revenue $535–$550M vs $545.0M*, adjusted EPS $0.62–$0.68 vs $0.660*; CFO reiterated fully offsetting tariffs with a smaller run‑rate gross‑margin headwind (~50 bps) .
Cash generation remained strong: operating cash flow $138.6M and free cash flow $126.6M in Q3; dividend of $0.05/share declared and $200M buyback authorization in place; quarter-end cash $264M and term debt $1.15B (net leverage 1.9x per CFO) .

What Went Well and What Went Wrong

What Went Well
- Sensors & Safety Systems (S&SS) grew 11% YoY and 5% QoQ; defense & space +18% YoY; utilities +11% YoY; adjusted EBITDA margin in S&SS remained healthy at 28.7% .
- T&M sequential improvement continued (+6% QoQ), with strong incrementals; new Tektronix platforms (DPO 7000 and MP5000) broaden market reach into validation/automated test and received strong customer feedback .
- Strong cash conversion: Q3 FCF $126.6M and trailing 12‑month FCF conversion ~124% per CFO; Q4 conversion expected to dip sequentially but remain >95% for FY on TTM basis .
What Went Wrong
- T&M down 14% YoY (lapping ~$15M projects) as customers defer R&D labs in favor of AI infrastructure; diversified electronics softness most pronounced in China/Western Europe .
- Company-wide YoY margin pressure driven by lower T&M volume and post‑spin employee costs; adjusted EBITDA margin fell to 20.4% vs 26.5% in Q3’24, although up 60 bps QoQ .
- Regional headwinds persisted: Western Europe and China down ~6% YoY; management does not expect near‑term recovery in China but sees stabilization and redeployment toward India/SE Asia .

Financial Results

Headline financials by quarter (oldest → newest)

Metric	Q3 2024	Q1 2025	Q2 2025	Q3 2025
Revenue ($M)	$531.7	$481.8	$503.3	$529.1
Diluted EPS (GAAP)	$0.81	$0.57	$0.42	$0.35
Adjusted EPS (Non‑GAAP)	$0.95	$0.73	$0.67	$0.60
Net Earnings Margin (GAAP)	17.1%	13.3%	9.5%	7.5%
Adjusted EBITDA Margin (Non‑GAAP)	26.5%	21.2%	19.8%	20.4%

Actual vs S&P Global consensus and QoQ context

Metric	Q3 2025 Actual	Q3 2025 Consensus*	Beat/Miss	QoQ Δ
Revenue ($M)	$529.1	$521.1*	Beat	+5% QoQ (company reported)
Adjusted EPS	$0.60	$0.577*	Beat	From $0.67 in Q2

Segment breakdown

Segment	Q3 2024	Q2 2025	Q3 2025
S&SS Revenue ($M)	$295.1	$310.8	$326.0
S&SS Operating Profit ($M)	$82.0	$79.5	$90.1
S&SS Operating Margin	27.8%	25.6%	27.6%
S&SS Adjusted EBITDA ($M)	$85.5	$88.3	$93.6
S&SS Adjusted EBITDA Margin	29.0%	28.4%	28.7%
T&M Revenue ($M)	$236.6	$192.5	$203.1
T&M Operating (Loss)/Profit ($M)	$29.3	$(14.3)	$(1.7)
T&M Operating Margin	12.4%	(7.4)%	(0.8)%
T&M Adjusted EBITDA ($M)	$55.4	$17.4	$28.1
T&M Adjusted EBITDA Margin	23.4%	9.1%	13.8%

Cash flow and balance sheet KPIs

KPI	Q2 2025	Q3 2025
Operating Cash Flow ($M)	$85.6	$138.6
Capital Expenditures ($M)	$11.6	$12.0
Free Cash Flow ($M)	$74.0	$126.6
Cash & Equivalents ($M)	$198.6	$264.2
Long‑Term Debt ($M)	$1,148.5	$1,148.6
Dividend/Share	$0.05 declared Aug 6 (paid Sep 23)	$0.05 declared Oct 30 (payable Dec 23)

Notes on non‑GAAP adjustments: Q3 included a $22.4M stock‑based compensation modification (spin‑related, one‑time), and excluded a $12.4M favorable discrete tax item (German tax rate reduction) in adjusted EPS; also separation costs and discrete restructuring were adjusted .

Guidance Changes

Q4 2025 guidance (initiated this quarter)

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	Q4 2025	N/A	$535–$550M	Initiated
Adjusted EBITDA Margin	Q4 2025	N/A	20%–21%	Initiated
Adjusted EPS	Q4 2025	N/A	$0.62–$0.68	Initiated
Interest Expense	Q4 2025	N/A	$16–$18M	Initiated
Adjusted Effective Tax Rate	Q4 2025	N/A	17%–19%	Initiated
Diluted Shares	Q4 2025	N/A	~113.5–114M	Initiated
FCF Conversion	Q4 2025	N/A	<95% in Q4; >100% TTM	Initiated
Tariff Impact Assumption	Q4 2025	Expect full offset by Q4; ~100 bps GM headwind run‑rate	Fully offset achieved in Q3; small GM headwind; ~50 bps run‑rate per CFO	Improved vs prior plan

Performance vs Q3 2025 guidance (provided on Aug 11)

Metric	Period	Guidance (Aug 11)	Actual	Result
Revenue	Q3 2025	$513–$527M	$529.1M	Above high end
Adjusted EBITDA Margin	Q3 2025	18%–20%	20.4%	Above high end
Adjusted EPS	Q3 2025	$0.54–$0.60	$0.60	At high end

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 2025)	Previous Mentions (Q2 2025)	Current Period (Q3 2025)	Trend
T&M demand and seasonality	Revenue $481.8M; adj EBITDA margin 21.2%; baseline context	T&M down 15% YoY; stabilization and sequential uptick; cost‑savings launched	T&M +6% QoQ; YoY down 14%; strong incrementals; communications highest orders of year; semi R&D deferrals to AI infra	Improving sequentially; YoY still down
Defense cycle and backlog	—	Strong orders; utilities/defense demand	Defense & space +18% YoY; backlog building; backlog now >2× annual revenue; capacity expansion planned	Strong, accelerating
Utilities/grid modernization	—	Stable to modest growth; continued investment	Utilities +11% YoY; secular grid upgrades and expansion; sustained demand	Strong and sustained
Tariffs/pricing	—	Full offset targeted by Q4; ~100 bps GM headwind	Fully offset achieved in Q3; headwind ~50 bps run‑rate; minimal FX impact; volume key driver	Better than plan
Regional trends	—	Western Europe and China softness; NA stabilization	NA +3% YoY; Western Europe and China −6% YoY; shifting to India/SE Asia	Mixed; NA leading
Product/R&D execution	—	New products; cost savings	Tektronix DPO 7000 and MP5000 launched; strong feedback; expand into validation	Positive innovation cadence

Management Commentary

“Our team… deliver[ed] results at or above the high end of our guidance range across every metric” while executing three strategic pillars: RBS Everywhere, Stronghold Positions, Winning Growth Vectors (CEO) .
“We… fully offset the cost of tariffs in the third quarter… we now expect [headwind] to be closer to 50 basis points on a run‑rate basis” (CFO) .
“Our defense customers have been awarded multi‑year contracts… our backlog, which is now over two times our annual revenue, has continued to build” (CEO) .
“Adjusted EBITDA margin increased 60 bps sequentially… primarily due to operating leverage on higher revenue” (CFO) .
“We launched two new high‑performance precision instruments [DPO 7000, MP5000]… expanding into the validation workflow” (CEO) .

Q&A Highlights

Demand cadence and orders: Book‑to‑bill ~1:1; sequential growth underpinned by volume; healthy funnels and channel trends; Q4 step‑up volume‑driven with typical seasonality .
Margins: Further Q4 step‑up expected in T&M on volume; S&SS mix headwind from higher defense (lower than segment average margin) partially offset by strong industrial margin profile .
Defense mechanics: Significant backlog build with upfront cash driving deferred revenue; capacity expansion planned; payments to Fortive related to spin (~$90M total; $35M remaining in Q4) clarified .
T&M end‑markets: Semi customers deferring R&D lab spend in favor of AI infrastructure; diversified electronics softness mainly China/Western Europe; North America sequential improvement .
Cost savings cadence: $9–$11M annualized by end‑2026; site/infrastructure consolidation execution now, benefits skew to back‑half 2026 .

Estimates Context

Q3 2025: Revenue $529.1M vs $521.1M* and adjusted EPS $0.60 vs $0.577* — both beats. Drivers were defense shipments and seasonal T&M step‑up; margins pressured YoY by lower T&M volume and post‑spin costs .
Q4 2025: Guide revenue $535–$550M vs $545.0M* and adjusted EPS $0.62–$0.68 vs $0.660*; bracketed consensus with tariff offsets largely in place; focus remains on volume and mix (defense vs other S&SS) .
Potential revisions: Modest upward tweaks to near‑term revenue/EPS likely given Q3 beat and Q4 bracket; but YoY margin profile constrained by T&M mix until broader recovery unfolds .

Actual vs Consensus (S&P Global)

Metric	Q3 2025 Actual	Q3 2025 Consensus*	Q4 2025 Guidance	Q4 2025 Consensus*
Revenue ($M)	$529.1	$521.1*	$535–$550	$545.0*
Adjusted EPS	$0.60	$0.577*	$0.62–$0.68	$0.660*

*Values retrieved from S&P Global.

Key Takeaways for Investors

Quality of beat: Broad‑based high‑end/outperformance vs prior guidance across revenue, margin, and adj EPS; consensus beats on both revenue and EPS .
Defense flywheel: Backlog >2× annual revenue with upfront customer funding, capacity expansion underway; durable multi‑year demand supports S&SS growth and cash generation .
T&M leverage to recovery: Sequential improvement with strong incrementals and new platforms (R&D and validation) expands TAM; sustained recovery remains the swing factor for margin normalization .
Tariffs largely neutralized: Full offset achieved ahead of plan; smaller residual gross‑margin headwind (~50 bps) diminishes a prior risk factor .
Capital returns in motion: $0.05 dividend declared; $200M repurchase authorization; strong FCF provides flexibility while maintaining 1.5–2.0× net‑leverage target (CFO cited ~1.9×) .
Near‑term setup: Q4 guide brackets consensus; sequential volume/mix dynamics (T&M, defense) are key to landing within range; watch regional signals (NA strength vs EU/China softness) .
Medium‑term: Secular S&SS vectors (defense, grid, electrification) plus T&M product cycle position RAL for re‑rating as T&M normalizes; cost‑savings program adds incremental support exiting 2026 .

Ralliant Corp (RAL)·Q3 2025 Earnings Summary