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What does Ralliant do and what are its main business segments?

- **Defense Super Cycle**: 18% YoY Defense growth, backlog >2x revenue, with $3T global defense spending by 2030.
- **Test & Measurement Recovery**: Sequential +6% growth, new MP5000 platform targets automated validation workflows.
- **Utilities Expansion**: 11% YoY Utilities growth from grid modernization, Industrial Manufacturing +9% YoY.
- **Free Cash Flow Excellence**: Q3 185% conversion, trailing 12-month 124%, exceeding 95%+ target.
- **Cost Savings Program**: $9-11M annualized savings by end-2026, supporting margin expansion.

**【Management Opening Remarks】**
- Ralliant reported Q3 2025 revenue of $529 million, flat year-over-year, with sequential growth of 5% driven by Defense and Test & Measurement. 
- Adjusted EBITDA margin expanded 60 bps sequentially to 20.4%, near the low end of the long-term target range.
- Free cash flow conversion rate of 185% in Q3, trailing 12-month average of 124%, exceeding the 95%+ target.

**【CEO Commentary】**
- **Defense Growth**: Sensors & Safety Systems revenue up 11% YoY, driven by 18% Defense & Space growth. Backlog over 2x annual revenue, with production scaling for safety systems.
- **Utilities Expansion**: Utilities revenue +11% YoY from grid modernization. Industrial Manufacturing grew 9% YoY with data center sensor wins.
- **Test & Measurement Recovery**: Sequential +6% growth, with Q3 orders at highest level of the year. New DPO7000 and MP5000 platforms target AI, robotics, and automated testing.
- **China Restructuring**: Test & Measurement China revenue down 30% YoY, but India/Southeast Asia investments showing early momentum.

**【CFO Financial Commentary】**
- Q3 GAAP net income $420M, Non-GAAP EPS $0.60 (inline with $0.54-0.60 guidance). Free cash flow $127M (185% conversion).
- Q4 Outlook: Revenue $535-550M, EBITDA margin 20-21%, EPS $0.62-0.68. FY25 free cash flow >95% conversion.
- **Cost Savings Program**: $9-11M annualized savings by end-2026, with $35M remaining Fortive payments due in Q4.

**【Q&A Highlights】**
- **Defense Visibility**: 12-year defense budget growth (~$3T by 2030) driving PacSci EMC safety systems backlog expansion.
- **Test & Measurement Recovery**: North America orders stable at 1:1 book-to-bill, with sequential improvement in Industrial and Test & Measurement.
- **Semiconductor Shift**: Customers deferring R&D to AI, but DPO7000 low-noise architecture positions for next-gen electronics.
- **Margin Dynamics**: Test & Measurement EBITDA margin expansion on volume, Sensors margin tempered by Defense mix.
- **M&A Strategy**: 1-2% long-term growth from tuck-ins focused on Utility and Defense adjacencies.

Ralliant Corporation (RAL) Q3 2025 Earnings Call Transcript

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RAL

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