Q4 2021 Teledyne Technologies Inc Earnings Call
Yes.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Teledyne's fourth quarter earnings call 'twenty 'twenty. One at this time all participants are in listen only mode.
Later, we will have a question and answer session and instructions for queuing up will be given to you at that time should you require operator assistance during the call Press Star zero on your phone's keypad and as a reminder, this conference call is being reported.
I would now like turn the call over to your first speaker Mr. Jason Van Lith. Please go ahead.
Good morning, everyone. This is Jason <unk>, Vice chairman at Teledyne, and I'd like to welcome everyone to Teledyne's fourth quarter and full year 2021 earnings release Conference call. We released our earnings earlier this morning before the market open.
Joining me today are teledyne's, chairman, President and CEO , Robert Mehrabian, Senior Vice President and CFO Sue main senior Vice President General Counsel, Chief Compliance Officer, and Secretary Melanie setback and also joining today is Edwin rocks executive VP of Teledyne and president of our combined Teledyne digital imaging businesses.
After remarks by Robert and Sue we will ask for your questions.
Of course before we get started our attorneys have reminded me to tell you that 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 actual results may differ materially.
In order to avoid potential selective disclosures. This call is simultaneously being webcast and a replay both via webcast and Ireland will be available for approximately one month.
Here is Robert.
Thank you, Jason and good morning, and thank you for our journey, joining our earnings call.
2021 was a defining year for teledyne.
With record sales and adjusted earnings operating margin and cash flow. Furthermore.
With the successful acquisition and integration of Teledyne clear.
Hello, Diane has further evolved into a global sensing and decision support technology company, we provide specialty sensors cameras instrumentation algorithms and software across the electromagnetic spectrum.
And unmanned systems in the subsea <unk> land and air domains.
I've never been more pleased with our portfolio of businesses.
And it's simple description, we already a high technology Couldnt commercial industrial business.
Balanced across multiple end markets.
We've had resilient predictable portion or prolonged cycle government business.
In the fourth quarter.
Our operational execution remain very strong.
Revenue Gregory drove a new 70% greater than last year.
Driven by organic growth of eight 4% and the remaining 61, 6% of sales increase contributed by Teledyne cleared.
Sales growth was especially strong in our commercial imaging and electronics and test electronic test and measurement instrumentation businesses. In addition.
Our aerospace and defense Electronics segment saw continued growth in government and space markets, along with ongoing recovery in commercial aerospace.
Despite significant non cash purchase accounting charges.
Fourth quarter GAAP earnings per share of $3 39.
Decreased only two 6% compared to last year.
Excluding acquisition related charges.
Earnings were $4 56 per share an increase of 23, 9% on a comparable basis from 2020.
Compared to the midpoint of our fourth quarter earnings are good in October which was $4 12.
Stronger said sales contributed about <unk> 12 per share.
Improved margins roughly 25.
Clauses small seven cent.
Per share an increase related to discrete tax items.
Which by the way specifically excludes a larger tax benefit related to.
Foreign tax matters are putting in the GAAP results.
Cash flow was also all time quarterly record alloying repayment of $345 million of debt and our leverage ratio declined from 2.9 declined to two nine from.
<unk> 3.8, which was the number we had immediately outdated player acquisition.
Turning to 2022 outlook.
The overall demand environment across our businesses remains favorable.
Nevertheless.
Supply chain constraints continue to limit.
Shipments given this we think a reasonable outlook for total company organic sales growth.
At this time is between four and 5%.
Coupled with the full year sales contribution of approximately $2 billion from there.
This equates to total revenue of just under $5 $5 billion of course.
If supply chain challenges ease.
Or.
As it's necessary, we were able to increase pricing to offset inflation.
More than at the present time, we will increase the revenue outlook throughout the year.
As we did in 2021.
Where we achieve full year organic revenue growth of eight 2% relative to our initial outlook in January of 2021 of 5% to 6%.
Yeah.
I will now comment on the performance of our four business segments.
In our digital imaging segment.
Fourth quarter sales increased 209%.
Largely due to the player acquisition.
But the organic growth in our.
Combined commercial and government imaging businesses.
While it is also very strong at 18, 6%.
Sales growth was strongest for industrial and scientific vision.
Systems. In addition, we had record healthcare sales with revenue greater than any pre pandemic period.
GAAP segment operating margin was 11, 6%, but adjusted for purchase accounting and transaction costs segue.
Segment margin was 23, 3%.
In our instrumentation segment.
Fourth quarter sales increased six 9% versus last year.
Sales of electronic test and measurement systems.
<unk> include a similar scopes and protocol analyzers.
Our very strong and increased 13% year over year to record levels.
Sales of the environmental instruments increased three 2% from last year with SaaS related to human health and safety markets, such as drug discovery and gas and flame detection being the strongest in the quarter.
Yes.
Sales of Marine instruments increased six 5% in the quarter. In addition quarterly orders were the strongest.
In the last seven years with fourth quarter book to Bill of 135.
Overall instrumentation segment operating profit increased five 5% in the fourth quarter and 19% in 2021 with full year segment operating margin, increasing 226 basis points.
Or 218 basis points, excluding intangible asset amortization.
In the aerospace and defense Electronics segment.
Fourth quarter sales increased 12, 5% driven by six 4% growth in defense space and industrial sales combined with 38, 5% increase in sales of commercial aerospace products.
GAAP segment operating profit increased 75%.
And margin 888 basis points greater than last year.
Finally in the engineered systems segment fourth quarter revenue decreased.
15, 6% operating profit and margin declined due to lower sales and also since we exited the higher margin crude Smith.
Turbine engine business earlier this.
Last year.
Before turning the call over to Sue I want to make a few concluding remarks first.
As noted in yesterday's 8-K filing.
And the Appeals court in Sweden.
Generally affirmed a lower court ruling made in March of 2020 regarding a player's tax matters dating back to 2012.
The court determined.
An estimated tax liability of $303 million.
This outcome was anticipated by us.
And their associated liability was accrued as noted in our most recent 10-Q.
We do not plan to appeal the decision and they expect to pay the tax in the first quarter of 2022 finally.
Regarding the environmental social and governance efforts or ESG.
Teledyne sustainability journey began more than 20 years ago.
With the belief that demand for environmental monitoring instruments would outgrow general industrial process implementation.
Our first three acquisitions were advanced pollution instrumentation monitor labs, and take Mark three companies dedicated to analyzing trace contaminant in air and water.
Today.
Our imaging sensors enable greenhouse gas and pollution monitoring from space.
Our environmental instruments provide data on the concentration of chemicals and particulates in ambient air and our autonomous underwater floats and vehicles enable the monitoring of ocean temperature and salinity from the surface to deep subsea.
We have while we have highlighted our strategy of a product in our last annual report next month, we will publish an inaugural corporate social responsibility or CSR report.
Third we will further highlight our sustainability efforts as well as disclose matrices regarding greenhouse gas emission reduction targets.
Workplace safety and employee and management diversity I will now turn the call over to Sue.
Thank you Robert and good morning, everyone I will first discuss some additional financials for the quarter not covered by Robert and then I will discuss our first quarter and full year 2022 outlets in the fourth quarter cash flow from operating activities was $295 6 million.
Compared with cash flow of $236 4 million for the same period of 2023.
Free cash flow that is cash from operating activities less capital expenditures was $261 6 million in the fourth quarter of 2021 compared with $217 million.
2020.
For the full year 2021 free cash flow was $794 $6 million, excluding FLIR transaction related cash payments net of tax.
Capital expenditures were $34 million in the fourth quarter compared to $19 4 million for the same period of 2020, depreciation and amortization expense was $86 2 million for the fourth quarter of 2021, compared with $28 7 million in 2020 and <unk>.
<unk> non cash inventory step up expense for the fourth quarter of 2021 was $47 8 million.
We ended the quarter with approximately $362 billion of net debt that is approximately $4 $1 billion of debt less cash of 474 7 million.
Stock option compensation expense was $6 4 million for the fourth quarter of 2021 compared to $5 9 million for the same period in 2021.
Resulting from the FLIR acquisition restricted stock unit expense per <unk> was $1 5 million in the fourth quarter of 2021.
Turning to our outlook management currently believes that GAAP earnings per share in the first quarter of 2022 will be in the range of $3 12 to $3 22 per share with non-GAAP earnings in the range of $4 in two to $4 10.
And for the full year 2022 of GAAP earnings per share outlook is $14 and 10 to $14 55.
And on a non-GAAP basis or $17 62 to $18.
The 2022 full year estimated tax rate, excluding discrete items is expected to be 22, 8% I'll now pass the call back to Robert.
Thank you Sue we would now like to take your questions. John If Youre ready to proceed with the questions and answers. Please go ahead.
Ladies and gentlemen, if you would like to ask a question. Please press one zero on your phone's keypad, you'll hear a tone of acknowledging that you are in Q and you can remove yourself from queue by pressing that one zero again.
If you're on a speaker phone, we do ask that you. Please pickup your handset before pressing the numbers once again for the questions first one zero you. Our first question coming from Michael Mcgarry with Wolfe Research. Please go ahead Sir.
Hey, good morning, Thank you.
Robert can you talk a little bit more about how youre thinking about doing deals again.
The level of leverage that you're comfortable with to start doing deals again, and how does the size of those deals sort of flex with where your level of leverages that.
Yes.
Thanks, Mike first.
We are rapidly, bringing our leverage down.
Two nine.
Leverage ratio that we currently enjoy is a number that we were really thinking would happen by the end of 'twenty two.
So having moved that forward.
I think by the end of 'twenty, two we should be in what I would say in an investment grade range.
We are at the present time.
We are.
Pursuing bolt on acquisitions.
But in the long term.
We would also look at <unk>.
Larger acquisitions, what do I mean by large.
<unk>.
Anything that goes beyond the couple of billion dollars. It takes a little time. So even at this time, we can look at those things we take because it takes 810 months to a year to close having said all of that.
Our longer term.
Leverage ratio is somewhere between one five to $2 five so if we get down to two five or less by the end of 2022 will be in good shape to do that.
Thanks.
Great. Thank you and then.
Follow up can you update us on free cash for 2022.
Is there any update to the $1 billion number that you put out there for 2023. Thank you.
Yeah, Mike it's Rob.
We're still Mike gas.
I. Thank our 22 number is something like a little over $900 million 'twenty three will still be over a $1 billion.
We might be able to improve on that as we go along.
But.
Alright.
What I see or what we see in organic growth.
And also Capex and other expenses that's about the range.
Got it thank you very much.
Thank you Mike.
Our next question comes from Greg Konrad with Jefferies in Chicago. Please go ahead.
Okay.
Maybe just to start I mean embedded in your guidance. How are you thinking about margins just given maybe some of the one timers in digital imaging in 2021, if you could just give a little bit of granularity around segment margins.
Yes.
Greg.
The.
Digital imaging.
We ended the full year.
L a lower 24%.
If you exclude the.
One time.
Charges.
A tough comp for us in 'twenty two.
And the reason I say that.
In Q2, when we acquired flair.
They have always had a hockey stick.
Sales profiles during a quarter so at the beginning half of the quarter. They had a lot of costs.
Which they made out in the second quarter after quarter as they sold product.
And while we enjoyed this year was significantly increase.
In the second half of their quarter. After we close the transaction right in the middle of the quarter on May 14th So that helped us with the margin having said that.
When you strip away all the one time charges except for intangibles.
We still think we're going to be in 'twenty, two close to 24% 23, 924%, which is a little less than.
'twenty one but.
We are shipping everything our techs have been tangibles.
And those are pretty good margins and it's probably.
As a result of the fact that we're able to maintain or reduce cost structures that we enjoyed.
<unk> implemented after the player acquisition no.
If we can increase as I said earlier, if we can increase price.
Two makeup better makeup for inflation.
I think our and our sales is as robust as they have been I think our margins will definitely increase.
Yes.
And then maybe just to follow up on that.
Comment I mean, you talked about both supply chain and price.
If those improve.
Upside drivers is there any way to quantify maybe the impact of what you're seeing there and then just in terms of pricing.
That would be most impactful and maybe where you could get some price.
Yeah, let's start with the price increase for us.
<unk>.
In 'twenty one on the average.
We increased price of about 2%.
We had volume increase of six 2% and that resulted in the overall organic growth.
Eight 2%.
On the flip side.
We had some price increases from our suppliers.
We were fortunate in that one because we instituted a very strong procurement program starting in 2019 before the pandemic.
And because of that we also ended up with some good.
Contracts longer term contracts with some of our suppliers.
Having said all of that I think about $2 billion that we buy.
From.
Our.
Various suppliers between that.
In the new Teledyne.
<unk>.
We are going to have some price increases from them.
We are going to be in the 2% to 3% maybe a little more while we're offsetting that right now in 2022 with our own price increases of one 5% to 2%.
But maybe we can do a little better than that.
Now, we're predicting projecting our volume to grow up two 5% to 3% on top of the price increase which.
With the current outlook that I gave you.
Between Florida, and 5%, having said that if we can increase prices more and as we go down the year like we did in 'twenty, one and Kingston turned out to be working for us on organic growth should be better than just like it was in 2021.
Thank you.
Thank you.
Our next question comes from Jim Ricchiuti.
With the Needham and company. Please go ahead Sir.
Hi, Thank you Robert I'm wondering if we think about your annual revenue outlook.
Any sense as to how much of a revenue impact youre seeing youre anticipating as we think about some of the supply chain challenges that are out there.
Yeah.
I can only do the short term Jim.
In Q1, the way we're looking at it.
It's probably going to affect us somewhere about $80 million right now what we see of course.
We are working very hard on that one.
We have.
Buyers.
Across our company focused on that but more importantly, we are also using buyers across the globe specifically more in the far east that identify parks for us. So if we have let's say 500 part shortages across the company.
I can usually find something about something around 60%, 70%, Florida and then of course, we have to qualify our newest Dan.
We also have our.
Semiconductors.
<unk> manufactures.
They are also looking for parts for us at the same time. So we have this cooperative activity going on that I think has helped us so far certainly in 2021 right now we're looking at $80 million detriment, but as as we did in.
Q4 will overcome some of that as we go forward that would kind of baked that into our <unk>.
Projections, so I don't think supply chain is going to kill it.
It does in some of the other companies.
You gave I may have missed it but you gave some color on the book to Bill Marine instrumentation.
Could you could you provide some some booking book to bill.
Information on some of the other business segments and just related to your comments about operating margins in digital imaging and if we think about some of the business areas that you've restructured it would seem like there would be some.
Margin expansion opportunity in some of those areas.
Right well, let me start with the first part of your question, which is book to Bill.
In the instruments area.
Book to Bill is about.
One 1.8.
It's pretty healthy.
In Q4, he was hired it was like 116, but you average it out over the four quarter is one <unk>.
Right.
The strongest category there being enjoyed by marine.
Nevertheless, all of our.
Programs all of our businesses in this business have.
In the instrument segment have ratios over one.
In digital imaging.
We have about one point of five <unk>.
Healthier.
In.
Our historical digital imaging, which includes of course <unk> and other things.
That is really doing well, it's about one three flare is less than one and the reason for that is primarily in the defense businesses.
Which are both lumpy and also.
But there are projecting at this time to kind of programs that we anticipate that's why by the way.
We.
Restructured.
The.
Management of that business under Japan, Lee, who was as you know.
<unk>.
Deputy for drug research and engineering acting deputy for Greater China Engineering.
Gartner defense, we think thats going to come along fine.
<unk> Aerospace and defense segment. It was over one it was one point to a floor and in engineered system, which is big programs are fairly lumpy was close to one.
So overall I would say if you look at the total company.
At the end of 2021 averaged over 2021, we're talking about one five which I think at this time.
For us that's a pretty healthy number.
And then let me go to the second part D of course should reach out to do with margins.
Well, we had significant margin improvement.
All of our businesses, except fairly flat in engineered systems in 'twenty, one let me start with that because the tickets to maintain those margins as we move into 'twenty, two and as we grow.
In instruments.
Our margins increased from 'twenty to 'twenty, one 210 to 18 basis points.
We expect to increase that another 30 basis points to 23, 8%.
As I mentioned in digital imaging overall, we have some tough comps or margins may decline, just a little bit maybe 30 40 basis points, but I think as we improve our revenue and pricing that should take care of that.
In aerospace and defense.
Our margins between 2021, and 2020 increased 745% and we expect to improve that another 80 basis points in 2022.
Engineered systems is the toughest.
Toughest comp we had because we did.
Eric.
Turbine engine business and we think we are going to have some margin shrinkage. There, maybe 40 50 basis points, but of course, 48% of the company. So overall I think total company margins right now.
No.
Organic growth at our projected between four and 5% I think our total margins for the company will improve about 20 basis points to 21, 5%.
But as I said before.
If we can enjoy a little more price increases.
Any product revenue goes up just like it did in 'twenty. One then our margins will go up accordingly.
Got it thank you.
Alright Thats helpful.
Our next question comes from Kristine <unk> with Morgan Stanley . Please go ahead.
Thanks, Good morning, guys.
Robert.
Shortage issue that you mentioned in the supply chain are trend starting to improve.
Seeing more availability or are you seeing the issues become more widespread and potentially seeing more parts affected.
I would say overall things are improving there.
There are pockets where.
Things have not improved.
Basically the lead times are increased a little bit.
<unk>.
The trick is to of course to make sure that.
You've built certain products that you are waiting for a single product or two parts build those products have put them on the shelf and be ready to move as soon as the secured the part that especially becomes important in something like ours cameras. We have thousands of cameras that can go out as soon as the parser arrives.
And because of the efforts Kristine that I've mentioned before.
With buyers across the world, especially in the far east looking for specifically people dedicated for looking for parts for US we're able to offset those I think overall.
No.
Across our portfolio.
Part shortages are not that important in certain areas like aerospace and defense and certain parts of <unk>.
Digital imaging for example, some of the people that supply us.
Uh huh.
Semiconductor products for our digital imaging that is the people that make.
The.
Various product redesign that also our customers.
So there is a little bit of it.
We enjoy a little bit of leverage there in that.
What caused that outcomes around so we enjoyed that leverage so I would say, it's a serious matter, but is not as serious as other companies.
Suffering from.
Thanks, that's really helpful color and maybe.
Follow up question on one of the pricing in two dimensions.
Sounds like you've got enough I can play for PAH pharmaceutical pricing increases from your supplier.
Potentially get a little bit more.
Can you talk about the competitive environment.
What your competitors are doing.
And also any feedback from your customers about.
Their price at all.
And ultimately any sort of precise PMO versus.
Based on that we're seeing in the overall industry, that's more mid single digits.
A.
Very easy thing for you to be able to accomplish which is passing that off and getting a margin on top of that.
Christine I've never got to admit is easy because if it were easy debt.
We would.
Yeah.
We've enjoyed a different world.
What has happening to us is that.
We can get price increases where our products have superior performance. So.
Someone is going to buy a camera.
That Scott.
Very specific requirements for that application and we provided that we can enjoy price increases in our protocol analyzers and oscilloscopes, where we have very unique positions.
We are way ahead of the curve on other people we can enjoy.
<unk> price increases on the other hand, if youre, making gay.
Product in the <unk>.
Particulate or ambient air monitoring yet nearly in China.
And theyre emphasizing by Chinese.
And they are not really that interested in paying a high price for a product that really superior.
When you don't have as much price advantage and you have to compete with what the market dictates.
Fortunately for us.
<unk> as you travel across our portfolio of products across the company because of our end markets are so diverse you get really.
Because of our balanced portfolio you got some places where it can enjoy a series of price increases and some places that you have to stay competitive. So what you do is you're just a focus on cutting cost focus on improving manufacturing operations.
Great. Thank you very much for the color.
For sure.
Yeah.
Our next question comes from Elizabeth Greenfield with <unk>. Please go ahead.
Hi, good morning, everyone.
Please good morning, I was hoping you could speak to.
Operating margin over more of the medium term so not just this year, but how we should think about them progressing.
You call. It the next five plus years or five years.
Well I can tell you we measured ourselves.
Against.
Very best in class.
We've closed our margin gap.
Significantly over the last five years, we have improved margins.
But.
400 basis points.
Now going forward another five years, whereas since here now our teams we can improve 40 to 50 basis points a year.
It'd be great. We've closed the gap very fast on the other hand, if things go our way, which seems to have gone our way in the past, we could do better than that but sitting here right now I'd say, 40% to 50 basis points looking forward.
Thank you very much.
Sure.
Our next question comes from Andrew Buscaglia with Thornburg. Please go ahead.
Good morning, guys.
Hoping you could dig a little bit more into digital imaging in the quarter.
Yes.
Definitely exceeded our expectations then you made an interesting comment that health care sales.
Had a record level.
Sales can you.
So I imagine that is the main driver, but can you just talk about what what you saw within that segment.
Yes.
<unk>.
There are two parts to it Andrew of course, there is our legacy digital imaging and Theres, a new acquisition Teledyne player.
If you would bear with me I would like to separate the two for a minute and then of course going forward, we're going to talk.
There were one but let me start with our.
Historical.
Digital imaging.
We don't acquisitions between 2020 one.
We enjoyed 15 year and a half 15, 6% increase in revenue from about 986 million to 1.1 photo.
And then.
If you look at our machine vision within that and camera scientific cameras.
Sensors that really did well it was in the fourth quarter U S 29%.
In the fourth quarter was about 36% forgive me overall during the year was 29%.
Healthcare, which as you know, we make X rays as well as.
X Ray source components for.
Cancer treatment, we had our best quarter, we've had in the last average.
This year at.
It increased.
19, 5% in Q4 and 15.8.
Eight.
For the year.
And then we also had growth in our aerospace and defense in that segment.
Fourth quarter about four 8%.
Over the year about four 1% and then Mems as you know our micro electro mechanical systems.
Activities, we enjoyed about 17, 9% for fourth quarter and $12 three so fourth quarter, there was a great quarter.
Aligning our geospatial, but thats, a very small part of that portfolio, it's only $60 million or so.
$203 million.
Would look like.
A lot of money, but it was essentially didn't grow year over year.
Booking again I'm going to stay with this segment 401 looking forward to 2022.
At this time, we're projecting about.
535% growth sort of next year something to go to about $1 2 billion.
That varies across the various product a much more moderated increases that we had in 2021, but again let.
Let me caution that it's the beginning of the year and I can't see we can't see too far forward to traject things much higher than five five.
<unk> five 3% in this domain, let's go to player for a second.
Overall.
Before we acquired earlier in 2020 start revenues of about 1.924 billion.
Now of course that was the year that they really enjoyed the.
Elevated skin temperature products, which contributed about $100 million.
That revenue.
If you go into 2021 and you add up.
Pre acquisition and post acquisition revenue for the whole year for player.
It was 1.895, so it went down about $29 million.
Which means that we've made up most of that $100 million detriment that we saw in the elevated skin temperature.
And which was also reflected primarily in the industrial segment businesses, which went down about.
$46 million.
Next year, we're projecting those businesses to improve by about five 9%.
And overall, the total business to increase to almost $2 billion or increase from where we are today five 5% to $2 billion and then if you track.
The defense businesses.
Andrei Marine et cetera.
Raymarine had a great year, that's part of our of course, the industrial segment almost 15, 9%, we're thinking moderate to about 3% next year.
Businesses enjoyed some pickup.
From 768 to 800 $785 million in 2022 21, while we are projecting another six 4% increase going into 'twenty two so almost increases in all areas. So.
Sum total.
We think that our overall digital imaging businesses, which would be both of those combined will be about.
$3 2 billion in revenue, which would be an increase of about.
5%, maybe a little more over this year.
Don't know if this is all organic.
Yes.
Okay, Yeah, very very helpful.
Yes.
Maybe just switching gears.
I was surprised to see we're seeing a couple of quarters, our A&D electronics has really picked up.
I believe you said aerospace is up over 30%.
Well how much of this is just easy comps or is that the real side of things of activity picking up in that area do you think.
Well first let me go into the aerospace part of course Thats the.
Tilted towards commercial aerospace that's a small portion of our overall portfolio, it's about $120 million to $125 million.
But we took a real beating from 'twenty to 'twenty one.
20, 19% to 20.
And that business just hit the bottom it went down about $100 million.
Carl start as we always do we took the cost out.
Some of the comps therefore were easy as we come into the new year.
That business has grown significantly.
And our margins are over 30% because we.
We kept the lower cost and improved revenue year over year, but by and large the aerospace business like most of our other businesses.
<unk> is.
A small fraction of our overall portfolio.
That's why I always kind of emphasize the fact that we like to have a balanced portfolio. Even in digital imaging, we have a balanced portfolio between machine vision of healthcare aerospace geospatial thermal unmanned surveillance components et cetera.
So none of these businesses get hurt and deploying back to aerospace and defense.
The thing that's happened is we've worked very hard to improve our margins in the defense part of that business. So if you look year over year.
Margins in our aerospace and defense business from 'twenty, one 'twenty two because of the <unk>.
Good comps.
The overall year margin went to 21, three and increased 745 basis points with respect to 'twenty and we think in 'twenty. Two we can increase it another 80 basis points.
I hope that answer.
Yes.
Thanks Robert.
For sure.
Our next question comes from Joe Giordano with Cowen. Please go ahead.
Hey, guys good morning.
Right.
So if anything as you look across all the different parts of your business is there anything feel kind of unsustainably high or and Conversely does anything feel like it's clearly in collecting offload.
All levels and moving and moving higher.
Oh boy.
You would ask that.
I think the one.
Only thing I would say no nothing looks on sustaining.
Causes the comps to be a little tougher right I've mentioned about digital imaging when you kind of hit the ball out of the park.
You got off to a bad again.
You might hit singles rather than hit it out of the park. Some of the later cycle businesses like aerospace waiting Julian <unk> bonds, and I think that's going to keep moving.
Going to be good and our marine businesses.
We have the best.
Book to Bill ratio in our instruments is in our marine businesses. So we think thats going to go up significantly, but again going back you look at our overall marine business, which ranges from.
Defense too.
Underwater vehicles, some oil gas and oil overall, it's about 450 $425 million. This year may be over 460 next year, it's not a big chunk of our portfolio. So if it goes down or up 10, 15% it doesn't affect us very much.
So I don't see.
He is getting out of whack there are some areas that I think if we do the right things we're going to enjoy a significant benefits. Let me give you. One example.
We have about $450 million of unmanned.
Co bid.
<unk> portfolio.
About 150 is underwater.
It's a 150 is underground and <unk> in our drones that we got from clear.
So if we can combine some of those technologies. If we can couple those capabilities together and I think over the long run that business can grow much faster than any of the businesses on their own stand alone.
And that's the kind of stuff that excites me at this time can we put those things together and kind of get the kind of bounce that you were talking about.
Yes that was going to be my next question, Mike kind of where do you think I know you don't want to talk revenue synergies or anything like that with you, but kind of where do you think this can go in terms of like an overall picture of the portfolio.
Does the scale help you out.
When youre going to market it or we're bidding certainly certain applications.
Well.
You know by now that by nature relatively conservative, let just let me say that.
We have <unk>.
Manage too.
Take significant amount of cost out from players.
We took as much cost this year as we talked we take between this year next year combined so that business is now stabilized we are not going to squeeze that business anymore. We just took a lot of cost out and the whole management top management.
Of course public company and then.
They have zillions, our consultants that we don't need and.
We did all of that without increasing our own corporate budget, which is important so whereas the warehouse do we have synergies we have some synergies in cost right there.
Other areas are.
Some of our purchasing powers have improved because of the coupling of that too and then go to market together is important.
And I think those synergies are small in each area, but they add up to significant numbers that will give you. One example.
We have a gas and flame business that we bought from <unk> to <unk>.
Really good business when we bought it it had about 12% margins.
Last year, the margins went over 20%.
<unk> player has a gas detection.
Camera that we are trying to couple that to sell it together the.
The same thing goes with enormous number of clear.
Commercial products in the tomography business and a lot of our visible camera assembly trying to couple those together and fleet had some mid market cameras, we coupled that already retiring higher high end cameras. So there are a lot of synergies.
Kind of baked that in so far for next year in our five 5% overall.
Our revenue growth.
To about three $2 billion.
But I think if we have the synergies going forward it could improve more than that but right now we're trying to keep our stable or.
Cost reductions so that.
We don't we don't get smacked with some cost increases and then slowly work our synergies as we go forward.
And can I just have you clarify one thing as we went through a lot of numbers and I was trying to write everything down may have missed some stuff I know the organic is a little bit tricky because part of FLIR is inorganic for the year and if you were to.
Totally segregate these two things.
How fast organically do you think clear on its own like the totality of Alere is going to grow in 'twenty, two and then total legacy.
Excluding Teledyne and then where do you think.
Clear are worthy in 'twenty, one and where are they in 'twenty two just clear.
Yes, just flare, let me go back to 'twenty, because thats a good starting position there. We're at 192 4 billion in 'twenty.
In 'twenty, one if you take before and after the acquisition they went down one 5% to <unk>.
One 8% to $95 and that was primarily because of.
Stadium, which they didn't have the elevated skin temperature sales. So if you take that as a basis. One 895, we are projecting a five 5% revenue increase.
In 2022, all organic.
To about $2 billion.
If you take our legacy.
Digital imaging businesses.
They went up 15, 6% from 'twenty to 'twenty one.
We don't think Thats sustainable at this time.
Always emphasize at this time, we think that can go from one one <unk> to $1 2 billion, which is another five 3% increase so if you combine the two you are talking about somewhere between about five 4% increase in revenue organically.
Does that answer the question.
And thats their margins.
Our flare margin.
Is going to go down a little bit primarily because of.
As I've mentioned before I don't know if you were on the call there.
Q2 was.
It's really good because they produce most of that material early in Q2 that margins are going to be close to 24% and our own legacy margins are going to be about 22, 8%, which by the way that's 200 basis points higher than what we had in two.
20, so if we can maintain that increases together I think it's going to be tough.
Maybe have a little reduction in overall margin, let's say.
30 basis, 40 basis points with close to 24%.
<unk> is pretty good or.
Our margins in digital imaging and our instrumentation are very close to one another so as referred checking in 'twenty, two and almost 24% each and as I said in defense and aerospace and defense, we have called up to 22%. So.
Im happy with that scenario.
Perfect. Thank you.
Thank you.
And ladies and gentlemen, once again for additional questions first one zero, we now go to Noah <unk> with Goldman Sachs. Please go ahead.
Hello, everyone.
Learn more.
Robert could you could you spend a little more time on exactly why digital imaging.
The legacy.
Ex flair.
Has had suddenly such high growth rates I mean, I know the compares are kind of easy, but they're not that easy it didn't draw down that much in 2020, and I understand you've given the detail on what each of the pieces did and I know the trends in those businesses, but.
It's sort of an out of nowhere a step function in the growth rate that you've had for a few quarters here if you could just.
Better educate me on what the successes are driving that.
Sure.
And I'll try not to emphasize brilliant management on ethylene growth.
Currency is city gear.
Alright answer and say, yes.
Now let me take let me take a couple of pieces of that.
When the pandemic hit.
Our healthcare business has suffered.
Because a lot of the selective.
X Ray.
Treatments.
And even cancer treatments.
Significant because the hospitals would overloaded.
As <unk> not that little bit.
Both our X Ray business.
Our.
X Ray source business weren't picked up and so it enjoyed a 14% increase that's the highest.
In the quarter that was up 19, 5%. So it averaged about $13 four so we picked it up as the year went on and that was really driven by the fact that you know.
<unk> starts with having more surgeries and treatments et cetera.
The machine vision business.
Our inspection businesses went up significantly towards the year and if you take our scientific cameras, which are also very important.
<unk> data used in all kinds of applications, including looking at.
Details of Covid.
Sources, and there yet very fast cameras, which we do.
We started the year.
Okay, but then you started picking up in by quarter four it was over 36%. So it's nothing that happened in all suddenly it was it just a slow increase in those businesses as we've gone along and mens.
We have a unique capability in both pro <unk> that we bought this micro line our mens business.
There is a scarcity of independent Mems foundries, we have probably one of the top independent foundries in the in the world and so with the shortages that are happening customers are coming where they can get stopped on where we can make them.
And so that's helped us a lot to that overall year over year increased.
10% nine 4%, but picked up almost 18% in Q4, so it's not any one thing.
It's it's a lot of these little things, adding up what youre trying to do is we're trying to.
Is it conservative guidance for 'twenty two.
Because the comps are so tough and then as I said before we have to kind of.
Tip to our way through this supply chain issues.
I mean I guess.
The numbers are impressive but.
Decent amount of that detail you gave there is COVID-19 and some of the.
The movement around that and then supply chain all of all of which hopefully won't last forever or at least would agree with that.
Impact of that today.
Do you worry about.
Not only a tough compare but then just a resetting back to normal of some of those.
Items or you just have enough incremental penetration you can find to keep growing that business.
I think.
Just to walk out auto my shoes, my Conservative shoes.
I'd be surprised if we don't do better at as we go alone.
Okay great.
And then in the FLIR piece.
The numbers you've provided on a multiyear basis there.
Very helpful and transparent.
Those are pretty in line with where they were trending in.
What the outlook was for the business so.
So it sounds like.
We know you have.
It.
Divested anything I thought there might have been some pieces in there you didnt quite see us.
Aligned with Teledyne for the long term I thought you might have some stuff that you just kind of let roll off.
Speaker 1: with a focus on profitability and cash flow.
Our focus on profitability and cash flow.
Speaker 2: It looks like that hasn't happened, that you've determined, you know, essentially all of legacy FLIR stays with Teledyne. Is that right? Yeah. Yeah, yes. The answer is yes. And then, by the way, there's a little difference between, you covered FLIR for a long time, so you probably know of those businesses. Historically, the trend's better than I do. Having said that.
It looks like that Hasnt happened that you've determined you know essentially all of legacy flare stays with Teladoc.
Yes, yes, yes. The answer is yes, and then by the way there's a little difference between your coverage layer for a long time. So you probably know of those businesses historically the trends better than I do having said that.
Speaker 2: They may have projected revenues, robust revenues year over year, but I'm not sure how many of them they hit. So when I say 2 billion in 2022, I kind of feel that we can achieve that. Having said that.
EMEA a projected revenues.
Robust revenues year over year, but I am not.
Not sure how many of them they hit.
So when I say $2 billion in 2022.
I kind of feel that we can achieve that having said that.
Speaker 2: Let's talk about this divestiture issue. You recall that at one time they were thinking of selling their rare marine businesses.
Let's talk about this divestiture issue unit, you'll recall that at one time they were thinking of.
Selling their prey marine businesses right well.
Speaker 2: We don't, because we have a huge number of marine businesses that fit tightly with that business. We have our whole marine effort with all the capabilities we have in underwater imaging.
We don't because we have a huge number of marine businesses that fit tightly with that business, we have our whole marine FERC with all the case.
Capabilities, we have been.
Underwater imaging and then our lidar businesses. That's it that's a go Florida said that business has done very well in 2021, and we're projecting it to grow and thats not even counting the synergies that we should enjoy in that domain. So.
Speaker 2: and then our LIDAR businesses, that's a goal for us. And that business has done very well in 2021, and we're projecting it to grow. And that's not even counting the synergies that we should enjoy in that domain.
Speaker 2: Frankly, I don't see any part of that business that we would divest. It's a good portfolio. That's why we paid a dear price for us to get it.
Frankly, I don't see any parts of that business that we would.
Divest its a good portfolio, that's why we paid that dear price for us to get interesting okay.
Speaker 1: And just one last one, if I might, the aerospace and defense electronics segment margin.
And just one last one if I might.
The aerospace and defense electronics segment margin.
Speaker 1: increased pretty significantly through the year last year, even though the sequential revenue change isn't that significant.
Increased pretty significantly through the year last year.
Even though the sequential revenue change isn't isn't that significant.
Speaker 1: And historically, it doesn't have that doesn't quite have that seasonality. So why, I guess, why did it or, you know, should I be thinking about that? Why isn't the margin exiting the year, you know, kind of sustainable in that business?
And historically it doesn't have that doesn't quite have that seasonality. So why I guess why did it or how.
How should I be thinking about that why isn't the margin exiting the year kind of sustainable and that vessels.
Speaker 2: Well, two reasons. First, as I mentioned before, the aerospace portion of that business.
Well two reasons.
<unk>.
As I mentioned before the aerospace portion of that business.
Speaker 2: came back because we took the cost out and the revenue, any revenue increase just was really huge gross margins. So that increased tremendously.
Came back because we took the cost out and the revenue any revenue increase just was really huge gross margins.
That increase tremendously and frankly in 2020 that was depressed versus 2019 that was depressed because.
Speaker 2: And frankly, in 2020, that was depressed versus 2019. That was depressed because of the cost cutting that we did in the aerospace portion of that.
Of the cost cutting that we did in the aerospace portion of that the other thing is on the defense portion of that.
Speaker 2: The other thing is on the defense portion of that, we had some really nice programs, and we kind of stabilized that. We have really good new managers up there. And so that's helped us. And then lastly, in the aerospace part, we're enjoying good aftermarkets. Aftermarket in that domain is pretty good.
We had some really nice.
Programs that we've kind of stabilized that we are really good.
New managers out there and so that's helped US and then lastly in the aerospace part wait enjoying good after markets after market in that domain is pretty good.
Speaker 2: And OEM is coming back. While OEM margins are a little less than we've enjoyed, we'd like to think, especially in 22 and 23. With the aftermarket, you know, because they have already our products on the aircraft. We think that'll be good. And then we have some really exciting new products coming up, like we've mentioned this. You may recall.
And OEM is coming back while OEM margins are they less than with enjoy wed like to think especially in 2223 with the after market.
Because they have already our products on the aircraft.
And then we have some really exciting new products coming out like we've mentioned this you may recall.
Speaker 2: We have an aircraft, on aircraft monitoring, air monitoring product that we're introducing. And it kind of builds on the air monitoring products that we have in our instrument businesses for outside the aircraft. I think that's gonna be a very good product because everybody, when you get on an airplane, what's the first thing you worry about nowadays is the quality of the air.
We have an aircraft on aircraft.
Monitoring.
Air monitoring product that we're introducing and.
<unk> builds on the air monitoring products that we have in our instrument businesses forward.
Outside the aircraft I think thats going to be a very good product because.
Everybody when you get on an airplane.
Firstly do you worry about nowadays is the quality of the air.
Speaker 1: Yeah, so essentially relative to the fourth quarter, you have to bring costs back on compared to the drop through that you experience in the fourth quarter.
Yeah.
So essentially relative to the fourth quarter, you have to bring costs back on compared to the drop through that you experienced in the fourth quarter.
Speaker 2: No, I don't think so. I think the mix between OEM and aftermarket, the margin should stay about the same. But as we said, in overall aerospace defense market, we expect an 80 basis point increase in margin between 21 and 22.
Yeah.
No.
I don't think so I think the mix between OEM and aftermarket.
Margins should stay about the same but as we said in the overall aerospace and defense markets. We expect a 90 basis point increase in margin between 'twenty, one and 'twenty two.
For the full year.
Speaker 1: I appreciate all the detail, Robert. Thanks so much. Sure. No, thank you.
I appreciate all the detail Robert Thanks, So much sure. Thank you.
Yeah.
Speaker 3: We have no additional questions in queue, and the queue is clear. Thank you, John . I'll now ask Jason to conclude our conference call. Thanks, Robert, and again, thanks everyone for joining us this morning. Of course, if you have follow-up questions, please feel free to call me at the number mentioned on the earnings release. And all the earnings releases are available on our website. John , if you could conclude the call and provide the replay information. Thank you.
And we have no additional questions in queue is clear.
Thank you John I'll now ask Jason to conclude our conference call.
Thanks, Robert and again, thanks, everyone for joining US. This morning of course, if you have follow up questions. Please feel free to call me at the number mentioned on the earnings release.
Always all the earnings releases are available on our website trying to if you could conclude the call will provide the replay information. Thank you.
Speaker 4: Ladies and gentlemen, this call will be available for replay from 10 a.m. Pacific Time today through February 26th.
Ladies and gentlemen, this call will be available for replay from.
Tim.
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Through February 26 at midnight to listen to the replay dial 862071041 and enter access code 747, 8140 International participants.
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