Q4 2022 Teledyne Technologies Inc Earnings Call
Speaker 2: I.
Speaker 3: Thank you.
Speaker 4: Ladies and gentlemen, good morning. Thank you for standing by and welcome to the Teledyne Fourth Quarter Earnings Call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions, and instructions will be given at that time. If you require any assistance today, please press star followed by the zero, and an AT&T operator will assist you.
Speaker 5: And as a reminder, today's conference is being recorded. At this time, it's my pleasure to turn the conference over to our host, Mr. Jason Van Wiese. Please go ahead.
Speaker 6: Thank you, Tom. Good morning, everyone. This is Jason Benwiss, Vice Chairman of Tel Aviv and I'd like to welcome everyone to Tel Aviv's fourth quarter and full year 2022 earnings release conference call. We released our earnings earlier this morning before the market opened.
Speaker 7: Joining me today are Tel Aviv's Chairman, President, and CEO, Robert Moravian; Senior Vice President and CEO of O?umain; Senior Vice President, General Counsel, Chief Compliance Officer, and Secretary, Melanie Civic. Also joining today is Edwin Rocks, EVP of Tel Aviv.
Speaker 8: After remarks by Robert and Sue, we will ask for your questions. Of course, before we get started, attorneys have reminded me to tell you that all forward-looking statements made this morning are subject to various risks, assumptions, and caveats as noted in the earnings release and our periodic SEC filings. And, of course, actual results may differ materially.
Speaker 9: In order to avoid potential selective disclosures, this call is simultaneously being webcast, and a replay – both via webcast and dial-in – will be available for approximately one month.
Speaker 10: Here's Robert.
Speaker 11: Thank you Jason.
Speaker 12: Good morning, and thank you for joining our earnings call.
Speaker 13: 2022 ended up being an excellent year.
Speaker 14: During 2022, Teledyne, like many other companies, found itself facing external forces beyond our control. These included inflation, a strong dollar, and part shortages. Nevertheless, we continued our long history of navigating difficult market environments and ultimately delivered earnings that exceeded our own expectations.
Speaker 15: Excluding foreign currency headwinds, which negatively impacted the market, quarterly sales growth was approximately 2.6%.
Speaker 16: Growth in local currency would have been 5.7%.
Speaker 17: Exploding ATM acquisition, core growth in local currency would have been approximately 5%.
Speaker 18: Gap operating margin of 19.3% was an all-time record, and non-gap operating margin of 22.4% increased 95 basis points from last year.
Speaker 19: GAAP and non-GAAP earnings of $4.74 and $4.94, respectively, were also records for Teledyne.
Speaker 20: Fourth quarter, free cash flow was reasonably healthy.
Speaker 21: But included interest payments.
Speaker 22: of approximately 30 million dollars which last year were made in the third quarter of 2021.
Speaker 23: dollars, which last year were made in the third quarter of 2021.
Speaker 24: Whilst we completed the acquisition of ETM,
Speaker 25: Our leveraged issue continued to decline.
Speaker 26: From 3.8 times in May of 2021 when we acquired FLIR.
Speaker 27: to 2.4 times at the end of 2022.
Speaker 28: At the end of 2022, finally.
Speaker 29: Our acquisition pipeline remains healthy, as evidenced by the recent addition of ChartWork.
Speaker 30: whose maritime navigation, software, and hardware tools
Speaker 31: Bridge a product and technology gap between our Teledyne Marine and Raymarine businesses.
Speaker 32: Turning to our 2020 three four year outlook.
Though still very early in 2023,
with many unknowns, including projections of the recession.
We are inclined to offer an initial revenue and earnings outlook.
in line with consensus expectations.
Thank you.
On Revenue
which he totaled 2023 sales growth of approximately 5%.
including incremental sales from recent Bolton acquisitions.
For our backlog-driven, long-cycle businesses, we expect growth to be higher than average.
For the majority of our short-cycle commercial businesses, foreign currency headwinds will impact the first quarter of 2023.
where comparisons are top and economic uncertainty and export regulations remain fluid.
We continue to see overall growth, not contraction, in these businesses, but expect that growth will be less.
then the total company average.
On the other hand.
Supply chain constraints are improving.
Albeit modestly.
There are a few minor other unknown puts and takes such as
increased scope on our NASA contract for the engineering system.
equally offset
By the completion of our 1-week contract in the aerospace and electronics segment in 2022.
but no other significant items to highlight this early in the year.
already in short loop
Approximately 50 basis points of margin improvement in 2023.
And we currently think instrumentation and digital imaging will be above-average contributors to this, while margins at aerospace and defense electronics may be flat or decline slightly given special thought components.
As a greater mix in 2023 of defense electronics relative to commercial aerospace aftermarket sales.
I will not further comment on the performance of our first segment.
In our digital imaging segment.
Fourth quarter sales were relatively flat.
Despite.
Currently, translation headbeard of approximately 3.5%.
Houyyang, aesthetic development, etc..... It is a unique ?imdi.
year over year for our industrial and scientific vision systems.
As well as our low-dose, high-resolution digital X-ray detectors.
Sales of commercial infrared imaging cameras and components also increased, and were at record levels.
Since closing the Flair acquisition in May of 2021.
While total fluid-related cells increased sequentially from the third quarter,
sales of some surveillance and unmanned ground systems declined from last year on especially tough comparison.
On the other hand...
Sales of unmanned air systems.
increased considerably year over year.
Gap segment upgrading margin was 18.8%.
and adjusted.
For intangible asset amortization only, the segment margin was 23.8%, approximately 50 basis points greater than the fourth quarter of last year.
In our instrumentation segment,
Overall, Fort Quartet sales increased 7.9% versus last year, despite approximately 2.4% of FX translation headwind. Sales of electronic test and measurement systems.
which include oscilloscopes, digitizers, and protocol analyzers, increased 3.8% year-over-year despite a tough comparison with the fourth quarter of last year.
Sales of voter oscilloscopes and protocol analyzers remained healthy.
We continued strength in products for industry standards such as peripheral component Interconnect Express or PCI Express
and Universal Serial Bus, or USB.
Sales of environmental instruments increased 9% compared to last year.
With greater sales of both drug discovery and laboratory instruments, as well as air monitoring and process gas analysis.
Sales of marine instrumentation increased by 9.8% in the quarter.
primarily due to strong marine defense sales and the ongoing recovery in offshore energy
Overall
Instrumentation segment operating profit.
increased 18.4% in the fourth quarter with up gap operating margin increasing to 200 MP3 basis point.
to 24.2 and 163 basis points on a non-GAAP basis.
excluding intangible asset amortization which brought the non-GAAP
margins to 25.3%.
in aerospace and defense electronic segment.
Fourth farther sales increased 8.9%.
Driven by broad-based growth.
Of both defense and commercial aerospace products.
Gap and non-gap segments' operating profit increased by approximately 30%.
with margins over 480 basis points greater than last year.
In the engineering system segment, 4.4-remenu increased by 6.7%, while operating profit declined due to lower margins for some of our electronic manufacturing service products.
Before I turn the call over to Sue, I want to make a couple of concluding remarks.
First
I was very pleased that Teledyne was able to overcome the issues faced by most companies in 2022.
Despite the macroeconomic and supply chain challenges mentioned earlier, our results surpassed the top end of our earnings outlook issued at any point during the year.
What difficult to predict outcomes in 2023?
We are reasonably confident.
that a number of our long-cycle businesses serving defense, medical, energy, and aerospace markets will grow.
While demand is more difficult to predict in our short cycle instrumentation and energy businesses, as a result answers most of yourillerINGS-lly questions,
supply chain constraints
and the previous premiums for great market electronic components.
have begun to ease mother sleep.
Given the strength of our balanced business portfolio,
and our management's long history of navigating challenging markets.
I am optimistic that Teledyne will continue on its successful path in 2023.
I will not turn the call over too soon.
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 2020 outlook.
In the fourth quarter, cash flow from operating activities was $237.7 million, compared with cash flow of $295.6 million for the same period in 2021.
The fourth quarter of 2022 reflected higher interest payments due to the timing of fixed-rate bond interest and increased inventory purchases compared to the fourth quarter of 2021.
Free cash flow, which is cash from operating activities minus capital expenditures, was $3.6 million in the fourth quarter of 2022, compared to $261.6 million in 2021.
Capital expenditures were $34.1 million in the fourth quarter of 2022 compared with $34 million in 2021.
Depreciation and amortization expense was $81.8 million for the fourth quarter of 2022, compared with $86.2 million. In addition, non-cash inventory step-up expense for the fourth quarter of 2021 was $47.8 million, with no comparable amount recorded in the fourth quarter of 2022.
We ended the quarter with approximately $3.28 billion of net debt, which is approximately $3.92 billion of debt, minus cash of $638.1 million.
Our stock option compensation expense was $6.2 million in the fourth quarter of 2022, compared with $6.4 million in 2021.
Turning to our outlook, we currently believe that GAAP earnings per share in the first quarter of 2023 will be in the range of $3.57 to $3.69 per share, with non-GAAP earnings in the range of $4.37 to $4.47.
For the full year 2023, our GAAP Earnings per Share outlook is $15.80 to $16.10, and on a non-GAAP basis, $19 to $19.20.
The 2023 Fuller Estimated Tax Rate, excluding discrete items, is expected to be 23%. I will now pass the call to Robert.
Full-year estimated tax rate, excluding discrete items, is expected to be 23%. I will now pass the call to Robert. Thank you, Sue.
We would now like to take your questions. Operator, if you are ready to proceed with questions and answers, please go ahead.
Thanks much. Ladies and gentlemen, the phone lines, if you wish to ask a question today, please press 1 followed by the 0. Now you'll hear an acknowledgement that you've been placed in queue. You can take yourself out of the queue by simply pressing the 1 0 command again.
Again, for questions, please press 1 file by 0.
We'll begin today with a question from Greg Conrad, representing Jefferies. Please go ahead. Good morning.
Good morning, Dad.
Good quarter. And then, I mean, maybe just to start, given your commentary around supply chain and long cycle outperforming in 2023, can you maybe just update us on your expectations for defense across the businesses? I mean, it seems like peers have mentioned somewhat underperformance on supply chain this year. What are you seeing just in time?
To three percent, that's generally our U.S. government, businesses.
We think in 2023 it'd be about 5% organic growth, so we're relatively optimistic.
And then, I mean, I was pleasantly surprised with the margins in the commentary. I mean, some of them seem very consistent across the segments. Just in terms of your margin commentary for this year, what are some of the assumptions around price and inflation?
Effects and just looking at the Q4 outperformance, anything unusual in that? Just when we think about the opportunities for 2023.
Well, I think basically
In 2022.
Wait.
hit just about every cylinder.
At the end of the quarter, especially the last month and a half, I think it turned out very favorably.
In 2023,
We think Q1 is going to be softer.
Just like we had in 2022.
Mostly, we have some headwinds from FX in the first quarter. We think there will be a decline in our revenue.
Maybe as much as 10%, but we don't know. It's too early. Maybe 1% of headwind.
Maybe 1% of revenue decline, I would say that. On the other hand, I think we will pick up in Q2, Q3, Q4, just like we did this year.
Right now, early in the year, the first two weeks, we have had some slower orders in some of our short-cycle businesses, but in the last two weeks, they seem to be picking up. So overall, Greg, I am optimistic about 2023 altogether. And then, maybe just sneaking one last question in, I mean, how are you thinking about...
2022 we were a little short on cash
Well, a little 200 million to be exact.
And we think that's not going to happen in '23. We think our cash in '23 is going to be higher.
approximately the nine hundred million dollars in cash
Whereas in 22, we really have to be very careful with both the little more in and more in that we've wanted, primarily because of the shortages.
You know, we fell about 30 million dollars short on revenue.
In the fourth quarter, because of short edges.
Also in 2022, there was that lack of R&D detoxibility, which everybody is referring to. That cost us about $40 million. We had about $60 million of more cash taxes.
This brings us to the 400. We don't think that's going to repeat itself in '23, so we're optimistic.
We don't think that's going to repeat itself in '23. So, we're optimistic. Thank you! Thank you!
Next, we're going to go to the line of Elizabeth Grenfell representing Bank of America. Your line is open.
That is a couple of questions. One, for the five percent revenue growth guidance, can you break out what is price and what is volume in that?
I think it's a little too early to do both, but I'll tell you that's about 3.5% of organic growth and then 1.5% from our acquisitions that we made, including the most recent one that we announced. I think it's a little too early to do both, but I'll tell you that's about 3.5% from our.
If you look at projections from
GDP and inflation at the current time. I'm one of those people that doesn't really believe in these projections at this point. But the projections are that the real GDP in the US will only grow 1.4% in '23.
Inflation would drop to about 2.7% overall developed markets, probably GDP would grow 1.1%, that's what the projections are, maybe a little higher in inflation.
But Elizabeth, it's a little too early for me. I don't think the economy is knowing either. So, I'll just say that we expect to have an organic growth in China around this time.
If things move like they did in 2022, hopefully we'll increase that, and of course, we'll make more acquisitions too.
Okay, and can you give us a little more detail on your Outlook by segment and where you see the most opportunity for upside?
Sure. Uh...
First.
I think in the instrumentation, which includes marine, environmental, and test and measurement, we expect growth to be about 5%, or average of the company.
I think in the instrumentation, which includes marine, environmental, and test and measurement, we expect growth to be about 5%, or the average for the company. Well.
Of course, that doesn't have acquisitions in it.
In the digital imaging segment as a whole, we are going to expect a 5% growth, maybe 5.1%.
Aerospace and defense, maybe 4%.
and engineered systems.
Systems may be a little over 5%.
Part of the reason for aerospace and defense being a little less than the average.
Last year, we had that one web program that we ended successfully, which contributed about $20 million in revenue.
On the other hand, in engineered systems, we think we'd be a little above average because we won that very successfully, won the NASA MOSI contract, which adds about $20 million. So that's an application Kathryn Fabian said is part of NASA's reasonable mission and annual, Hugh.
On the other hand, in engineered systems, we think we'd be a little above average because we warned that very successfully, warned NASA of a massive contract which adds about 20 million dollars. So at this point, that's all I can say about that. Thank you.
Thank you very much.
And we'll go to the line of Jim Ricciuti with Needham & Company. Please go ahead.
Thank you so easy to short cycle commercial business where if you looked at 23 Robert where there might be some upside or there's some parts of the long cycle business that could drive the upside versus the 5% that you're talking about for the company as a whole.
So, is it the short-cycle commercial business where, if you look at 23 Robert, there might be some upside, or are there some parts of the long-cycle business that could drive the upside versus the 5% that you're talking about for the company as a whole? Where...?
I think if I broke it down, the marine businesses have...
any longer, look at them.
We think marine as a whole also because the offshore energy markets are improving.
And our job.
and get started on
Projections for that are over 7%, maybe as much as 7.5% in marine. Then in the short-cycle businesses, which include environmental, time tests, and measurement, we think they would be about 3.5% together.
that are over 7%, maybe as much as 7.5% in marine. Then the short cycle businesses, which is environmental, time, test and measurement, we think there'd be about 3.5% together.
We think that I have already talked about some of the others in digital imaging.
Where we do, they have a really good year and a really good fourth quarter, which was in Dalsa and E2V. We think we're going to be relatively flat organically, but we made some acquisitions. So, that should give us about
With our acquisitions, maybe 3.8%. We think FLIR would do better next year, maybe a little over 5%, 6%.
And it's between defense and aerospace. Defense is longer cycle than aerospace. If you discount the 20 million that we don't have in web, we think defense will grow some aerospace may be flat.
more short cycle and I've already talked about the engineered systems and the mossy which we want which are long recycled businesses we feel comfortable there.
So, Robert, it sounds like you're relatively positive and constructive on what you're seeing out in the market. If I look at your commercial businesses,
So, Robert, it sounds like you're relatively positive and constructive about what you're seeing in the market. If I look at your commercial businesses, you alluded to some,
variability in bookings, trends in some parts of the business that maybe you can provide a little bit more color on that. But is there anything that you're seeing in the commercial areas, whether it's test and measurement or machine vision, that might be consistent with a slowing economy?
Yeah, a little bit. I think you hit it on the head. Just a sliver, I'd say...
If you look at marine or book to bill in the fourth quarter was 1.15. That's why I said it's longer cycle, we feel good about it. I want to show you specifically what you said, environmental and test and measurement.
While for the whole year, our book-to-bill is about one, in the fourth quarter it dropped down to 0.96 now.
To me, that's the sliver lower. So, we are a little cautious about that.
So, we are a little cautious about that.
So, they'll say to be dropped even further a little bit. And I think, clear would be okay, but some of our vision systems and scientific cameras, we just hit it out of the parking, the fourth quarter, and we think.
We are a little cautious about predicting. On the other side, I mean, just to cut to the chase, the other side is that...
It's very early, you know? Everybody is predicting, wanting or another. All we're doing is kind of hunker down and we're gonna do what we always do.
If we have to cut, we'll cut, and if we have to hire, we'll hire, and we'll do what we have to do to make our numbers.
Was the book to bill, last question, was the book to bill a round one for the company as a whole?
Yes, just under 1, about 0.96, 0.97, but that has engineered systems in it which was 0.9, but that's very lumpy. For the year, the engineered system was 1.12, which is a long-cycle business. For the year, the company was closer to 1.
one about 0.96, 0.97 but that has engineered systems in it which was 0.9 but that's very lumpy for the year engineers system was 1.12 which is long cycle business for the year the company was closer to one. Got it, thanks very much.
And our next question will come from the line of Joe Giordano with Cowen. Please go ahead.
Hey guys, how are you? Good morning, Joe. Very well.
I've been hearing more people talk about risks, like maybe in the second half of the year, of prices actually going down, just given some of the deflationary characteristics we're seeing in prices paid and things like that. Is that something that you're observing? How do you think about pricing and your ability to continue raising, or is it more about supporting the current levels?
Well, in 2022,
We added, Joe, we added about 4%.
But we added about 4% in pricing.
And then, if you hold against that what we ended up spending, we had wages go up four and a half overall.
Buying stuff, about $2.5 billion of direct and indirect materials, that went up.
Two and a half billion dollars of direct and indirect materials. That went up overall.
About 6.7 percent of course that's on the cost of goods sold. I'm only saying this because I want to put this in perspective. So, we increased prices across the board by 4%.
6.7% of course is on the cost of goods sold. I'm only saying this because I want to put this in perspective. So we increase prices across the board by 4%, and our
Materials inflation was 3.7%.
Negative: our wages were 1% negative to sales.
So, when you add those two cells
Materials inflation and wage inflation was 4.7% negative. We increased prices 4%. So net net we...
suffered about 60 basis points of decrement between the two.
Going forward.
We expect to increase prices. How much?
It's difficult to predict because, as you said, some people are talking about decreasing prices in the second half, but we have to increase prices somewhat because we're going to have.
go to predict because, as you said, some people are talking about decreasing prices in the second half, but we have to increase prices somewhat because we're going to have more.
inflation that we inherited and we're going to have to with giving our employees over 4% raises across the board.
So, to make up for that, we have to increase prices somewhat.
Depends on how the market behaves itself. But we're right now saying our overall margins are going to improve 50 basis points compared to last year. That's pretty good.
So we'll have fewer broker premiums. Last year, we paid $90 million.
excess fees to our brokers for parts.
We think in 2023 that will maybe be half.
we think in 2023 that will maybe be half.
I mean, it's a long answer to a short question. There's a lot of unknowns, but I feel we'll maintain our crisis and maybe increase on that level. If I think about the bottom end of your guide, I mean, it's a pretty narrow guide, but if I think about the bottom end of that guide...
How protected do you think you are if there is, like, what kind of recessionary outlook does that have if we do, you know, some of these macro indicators are pretty bad? If we do go into a recession, do you feel like you have, over there at the bottom end of the guide and, like, which one?
Businesses, like, do you anticipate, are you anticipating declines in certain businesses at the bottom end?
The longer cycles of businesses are less cyclical, which include our government defense, about 25% medical, scientific, energy, aerospace, and overall.
Which constitutes about 40% of our portfolio. I don't think those are going to be affected
constitutes about 40% of our portfolio, I don't think those are gonna be affected. On the flip side,
The short-cycle businesses, which constitute 60% of our overall portfolio.
If the world's macroeconomic really suffers
Obviously, we're going to have to take some hits.
Obviously, we're going to have to take some hits. As you said,
We have a very narrow range that we came up with.
primarily because
Primarily because...
We're not sure what's going to happen. We could have probably had a large
Coming out of 2022 as strong as we did, and we feel okay about that.
Last one from me. Have you internally started?
Putting things like, have you started to be a little bit more judicious on expenses and travel and things like that, in anticipation of things weakening? Or is it that you'll adjust as necessary.
Oh no, that's a mode of our operation. It's something we do, they are, regardless of what the macroeconomic side. We control everything. We control expenses in travel. We eliminate square footage of our...
Manufacturing facilities, everything we do with vigilance. That's the only way we made it through '22 as well as we did, and we're going to continue that.
Everything we do with vigilance. That's the only way we made it through 22 as well as we did. And we're going to continue that. Thank God.
We'll give a final reminder: if you would like to ask a question, please press 1 followed by 0.
And we'll go to the line of Guy Hardwick representing Credit Suisse. Please go ahead.
Hi, good morning. So it's been about 20 months since Teledyne closed on FLIR. Can you give us a bit of insight as to how the combination of portfolios is progressing and whether there is any...
We've seen some revenue benefits from combining the two technology platforms. I mean in the past you've done the same with dulcet and e2v I just wondering if there's any Comparable success stories or potential success stories to come from that Thank you Guy, good question. The answer is yes. We have
Some new products, we have some new markets.
especially in machine vision and
For example, also mapping.
or you know player has the stray marine business
And we've had this geospatial business where we do a lot of hydrographic mapping. The most recent acquisition we made, Chart-For, bridges the gap between those two. I don't know if we would have bought Chart-For if we didn't have Clear.
We were just old geospatial. So those aren't really good. The other thing is that...
FLIR has truly exceptional products.
in the unmanned aerial domain. And...
We have had historically good products at Teledyne Legacy.
In the underwater domain, the fleet also brings in ground-based vehicles. So now you look at the combination of the two companies.
We have about 450 million dollars or so of revenue in unmanned vehicles. Unmanned air vehicles, unmanned ground vehicles, unmanned underwater vehicles. And there's a lot of common technologies between those three in terms of control.
Because of software in terms of digitization and imaging, those are some examples that I had after 20 months, but that will, of course, grow as functional time progresses.
Okay, thank you. Just a quick follow-up. I'm trying to understand the FX guidance implied in your guidance, because it looks like at current rates, FX could actually be a tailwind in the second half.
It could be, as we think in the first half, certainly in the first quarter, we think it's going to be a 1% headwind versus the...
2.1 to 2.5 percent last year.
Having said that, I don't think anyone knows.
I don't think the economists know. They might say it, but they don't know. I don't think anybody knows what's going to happen. I certainly don't, let me put it that way."
Can you just clarify what rates, what dollar-euro rate you have currently?
Well, currently it's 1.09.
That's not what you're using for guidance though, right? We're using about 1.26.
Guidance though, right? We are using about 1.06. Okay, thank you.
And there are no other questions queued up at this time.
Thank you very much. I will now call the operator.
I will now ask Jason to conclude our conference call.
Thanks, Tom, and thanks everyone for joining. Of course, if you have follow-up questions, feel free to call me or email me. My phone number is on your English release. Tom, if you could provide the replay information for the call and conclude, we'd appreciate it. Thanks, Tom. Absolutely.
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The F ST public public and.
Ladies and gentlemen, good morning. Thank you for standing by and welcome to the Teledigm fourth quarter earnings call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions, and instructions will be given at that time. If you require any assistance today, please press star followed by zero, and an AT&T leader will assist you.
And as a reminder, today's conference is being recorded. At this time, it is my pleasure to turn the conference over to our host, Mr. Jason Fenwese. Please go ahead.
Thank you, Tom, and good morning, everyone. This is Jason Benwiss, Vice Chairman of Tel Aviv, and I'd like to welcome everyone to Tel Aviv's fourth quarter and full year 2022 earnings release conference call. We released our earnings earlier this morning before the market opened.
Joining me today are Teledyne's Chairman, President, and CEO, Robert Moravian; Senior Vice President and CFO, Sue Main; Senior Vice President, General Counsel, Chief Compliance Officer, and Secretary, Melanie Sivek. Also joining today is Edwin Rock, EVP of Teledyne.
After remarks by Robert and Sue, we will ask for your questions. Of course, before we get started, attorneys have reminded me to tell you that all forward-looking statements made this morning are subject to various risks, assumptions, and caveats as noted in the earnings release and our periodic SEC filings. And, of course, 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 dial-in – will be available for approximately one month.
In order to avoid potential select of disclosures, this call will simultaneously be webcast, and a replay, both by a webcast and dial-in, will be available for approximately one month. Here's Rev. Rev.
Thank you, Jason. Good morning, and thank you for joining our earnings call. 2022 ended up being an excellent year.
We concluded it with all-time record quarterly and full-year sales and earnings per share. During 2022, Teledyne, like many other companies, found itself...
Faced with external forces beyond our control. These were inflation, strong dollar, and part shortages. Nevertheless...
With continued, we continued our long history of navigating difficult market environments.
and we ultimately delivered earnings in excess of our own expectations.
Excluding foreign currency headwinds, which negatively impacted 4th quarter sales growth by approximately 2.6%, growth in local currency would have been 5.7%.
Core growth in local currency would have been approximately 5%. GAAP operating margin of 19.3% was an all-time record. And non-GAAP operating margin of 22.4% increased 95 basis points from last year. GAAP and non-GAAP earnings were.
Of $4.74 and $4.94 respectively were also records for Teladine. The fourth quarter's free cash flow was reasonably healthy but included interest payments.
of approximately $30 million, which were made last year in the third quarter of 2021.
Million dollars, which last year were made in the third quarter of 2021.
We completed the acquisition of ETM while our leverage ratio continued to decline from 3.8 times in May 2021 when we acquired FLIR.
to 2.4 times at the end of 2022. Finally, our acquisition pipeline remains healthy, as evidenced by the recent addition of Chart World.
whose maritime navigation, software, and hardware tools bridge a product and technology gap between our Teladine Marine and Raid Marine businesses.
Turning to our 2020-34-year outlook.
Though still very early in 2023,
With many unknowns, including projections of a recession, we are inclined to offer an initial revenue and earnings outlook.
in line with consensus expectations.
On revenue, we see total 2023 sales growth of approximately 5%, including incremental sales from recent Bolton acquisitions.
For our backlog-driven long-cycle businesses, we expect growth to be higher than average. For the majority of our short-cycle commercial businesses, foreign currency headwinds will impact the first quarter of 2023, where comparisons are tough in economic uncertainty and exports are acceptable.
Albeit modestly.
There are a few minor other unknown puts and takes such as
increased scope on our NASA contract by the engineered systems is equally offset
By the 2022 completion of our one web contract in the aerospace and electronics segment, there are no other significant items to highlight this early in the year. The stakes are already in short loop — the full set.
Approximately 50 basis points of margin improvement in 2023.
We currently think that instrumentation and digital imaging will be above-average contributors to this, while margins at aerospace and defense electronics may be flat or decline slightly given that specialty products constitute a greater mix.
In 2023, defense electronics saw growth relative to commercial aerospace aftermarket sales. I will now further comment on the performance of our first segment. In our digital imaging segment, fourth-quarter sales were relatively flat.
digital X-ray detectors.
Sales up commercially for red imaging cameras, and components also increased and were at record drivers.
Since closing the FLIR acquisition in May of 2021.
While total fleet-related sales increased sequentially from the third quarter, sales of some surveillance and unmanned ground systems declined from last year due to an especially high comparison. On the other hand, sales of unmanned air systems declined from last year due to an especially high comparison.
increased considerably year over year. Gap segment upgrading margin was 18.8%
And adjusted for intangible asset amortization only, the segment margin was 23.8%, approximately 50 basis points greater than the fourth quarter of last year.
When adjusted for intangible asset amortization only, segment margin was 23.8%, approximately 50 basis points greater than the fourth quarter of last year. In our instrumentation segment…
Overall, 4th quarter sales increased 7.9% versus last year despite approximately 2.4% of FX translation headway.
Sales of electronic test and measurement systems, which include oscilloscopes, digitizers, and protocol analyzers, increased by 3.8% year over year despite a tough comparison with the fourth quarter of last year.
Cells of both oscilloscopes and protocol analyzers remained healthy.
We continued strength in products for industry standards such as peripheral component interconnect express or PCI express and universal serial bus or USB.
Sales of environmental instruments increased 9% compared to last year.
With greater sales of both drug discovery and laboratory instruments, as well as air monitoring and process gas analyzers, sales of marine instrumentation increased 9.8% in the quarter.
primarily due to strong marine defense sales and the ongoing recovery in offshore energy markets.
Marine defense sales and the ongoing recovery in offshore energy markets. Overall,
Instrumentation segment operating profit increased 18.4% in the fourth quarter with operating margin increasing to 200 basis points to 24.2%
and 163 basis points on a non-GAAP basis, excluding intangible asset amortization, which brought the non-GAAP basis points to a non-GAAP basis.
margins to 25.3%. In aerospace and defense, electronic segments, fourth farther sales increased by 1.9%.
margins to 25.3%. In aerospace and defense electronic segments, fourth farther sales increased 8.9%, driven by broad base growth.
of both defense and commercial aerospace products. GAP and non-GAAP segments operating profit increased approximately 30% with margins over 480 basis points greater than last year.
concluding remarks.
First
I was very pleased that Teledyne was able to overcome issues faced by most companies in 2022. Despite the macroeconomic and supply chain challenges noted earlier, our results exceeded the top end of our earnings outlook issued at any point during the year.
While difficult to predict outcomes in 2023,
We are reasonably confident that several of our long-cycle businesses serving defense, medical, energy, and aerospace markets will grow. While demand is more challenging to predict in our short-cycle instrumentation and energy businesses, we are also confident that a number of our long-cycle businesses will grow.
Supply chain constraints and the previous premiums for a great market in electronic components.
have begun to ease modestly. Given the strength of our balanced business portfolio,
and our management's long history of navigating challenging markets.
I am optimistic that Teledyne will continue on its successful path in 2023.
I am optimistic that Teledyne will continue on its successful path in 2023. 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 2020 re-outlook. In the fourth quarter, cash flow from operating activities was $237.7 million, compared with cash flow of $295.6 million for the same period.
Capital expenditures were $203.6 million in the fourth quarter of 2022, compared with $261.6 million in 2021.
Capital expenditures were $34.1 million in the fourth quarter of 2022 compared with $34 million in 2021.
Depreciation and amortization expense was $81.8 million for the fourth quarter of 2022 compared with $86.2 million. In addition, non-cash inventory step-up expense for the fourth quarter of 2021 was $47.8 million with no comparable amount recorded in the fourth quarter of 2022.
We ended the quarter with approximately $3.28 billion of net debt. That is approximately $3.92 billion of debt less cash of $638.1 million.
Our stock option compensation expense was $6.2 million in the fourth quarter of 2022 Compared with $6.4 million in 2021.
Turning to our outlook, Manage will currently believe that Gap earnings per share in the first quarter of 2023 will be in the range of $3.57 to $3.69 per share with non-Gap earnings in the range of $4.37 to $4.47. And for the full year 2023...
Our GAAP Earnings for Share outlook is $15.80 to $16.10 and on a non-GAAP basis $19 to $19.20. The 2023 full year estimated tax rate, excluding discrete items, is expected to be 23%. I will now pass the call to Robert.
for sure Outlook is $15.80 to $16.10 and on a non-gap basis $19.20. The 2023 full-year estimated tax rate, excluding discrete items, is expected to be 23%. I will now pass the call to Robert. Thank you, Sue.
We would now like to take your questions. Operator, if you're ready to proceed with the questions and answers, please go ahead. Thanks much. Ladies and gentlemen, the phone lines, if you wish to ask a question today, please press 1 followed by the 0. Now you'll hear an acknowledgement that you've been placed in queue. You can take yourself out of the queue by simply pressing the 1-0 command again. Again, for questions, please press 1 followed by 0.
We'll begin today with a question from Greg Conrad, representing Jefferies. Please go ahead. Good morning.
again today with a question from Greg Conrad, representing Jefferies. Please go ahead. Good morning. Good morning, Greg.
Good quarter. And then, I mean, maybe just to start, given your commentary around supply chain and long cycle outperforming in 2023, can you maybe just update us on your expectations for defense across the businesses? I mean, it seems like peers have called out somewhat underperformance on supply chain this year. What are you seeing just in terms of the supply side and also...
businesses.
We think in 2023 it would be about 5% organic growth, so we're relatively optimistic. And then, I mean I was pleasantly surprised with just margins in the commentary, I mean some of them seem very outside across the segments.
Just in terms of your margin commentary for this year, what are some of the assumptions around price and inflation, FX, and just looking at that Q4 outperformance, anything unusual in that just when we think about the opportunities for 2023? Well, I think basically...
commentary for this year, what are some of the assumptions around price and inflation, FX and just looking at that Q4 outperformance, anything unusual in that just when we think about the opportunities for 2023? Well, I think basically in 2022,
We hit just about every cylinder at the end of the quarter, especially the last month, month and a half. Things turned out very favorably. On 2023, our largest
We think Q1 is going to be softer.
Just like we had in 2022, mostly we have some headwinds from FX in the first quarter. We think there'd be a decline in our revenue, maybe as much as 10%, but we don't know. It's too early.
maybe 1% of headwind, maybe 1% of revenue decline, I would say that. On the other hand, I think we will pick up in Q3, Q4 just like we did this year.
maybe 1% of headwind, maybe 1% of revenue decline, I would say that. On the other hand, I think we will pick up in Q3, Q4, just like we did this year.
Right now, early in the year, the first two weeks, we have some slower orders in some of our short cycle businesses. But the last two weeks, they seem to be picking up. So overall, Greg, I'm optimistic about 2023 altogether.
And then maybe just sneaking one last one in, I mean, how are you thinking about free cash flow in 2023 just given top line growth, margin expansion and any working capital needs? I mean, in the past you talked about, you know, a target. How are you thinking about 2023 in terms of free cash flow? audio
Yeah, I think I think just.
pausing for a second because this would be us. In 2022 we were a little short on cash.
Well, a little, 200 million to be exact. And we think that's not going to happen in 23. We think our cash in 23 is going to be higher, approximately $900 million in cash. Whereas in 22, we really have to be very careful, we built a little more inventory than we wanted.
It's about 40 million dollars. We had about 60 million dollars of more cash taxes
Which brings us to the 400. We don't think that's going to repeat itself in 23, so we're optimistic.
Thank you. And next, we're going to go to the line of Elizabeth Grenfell, representing Bank of America. Your light is open.
Just a couple questions. One in the 5% revenue growth guidance, can you break out what is price and what is volume in that? I think it's a little too early to do both, but I'll tell you that's about 3.5%. Where is your data reporting onJust last week?
of organic growth and then one and a half percent from our acquisitions that we made, including the most recent one that we announced. If you look at projections from the last year,
GDP and inflation at the current time. I'm one of those people that doesn't really believe in these projections at this point. But the projections are that real GDP in the US will only grow 1.4% in 23 and inflation will drop to about 2.7%. Overall developed markets, overall developed markets, overall developed markets, overall developed markets, overall
Carly GDP with 0.1%. That's what the projections are. Maybe a little higher in inflation But Elizabeth, it's a little too early for me. I don't think the economy's know either So I'll just say that we expect to have an organic growth of three and a half at this time If things move like they did in 22.
Hopefully we'll increase that and of course we'll make more acquisitions too. Okay, and can you give us all the more detail on your outlook by segment and where you see the most opportunity for outside? Sure. First.
I think in the instrumentation, which includes marine, environmental, and test and measurement, we expect growth to be about 5%, or average of the company.
I think in the instrumentation, which includes marine, environmental, and test and measurement, we expect growth to be about 5%, or average of the company.
Of course, that doesn't have acquisitions in it. In the digital imaging segment as a whole, we are going to expect a 5% growth, maybe 5.1%.
Aerospace and defense maybe 4% and engineering systems maybe a little over 5%.
Part of the reason for aerospace and defense being a little less than the average.
Last year we had that one web program that we ended successfully, which contributed about $20 million in revenue. On the other hand, in engineered systems we think we'll be a little above the average because we wound that very successfully wound a NASA, a massive contract which adds about $20 million. So that's...
At this point that's all I can say about that. Thank you very much.
that's all I can say about that. Thank you very much.
We'll go to the line of Jim Ricciutti with Needham & Company. Please go ahead. Hi, thank you. So is it the short cycle commercial business where if you looked at 23, Robert, where there might be some upside or are there some parts of the long cycle business that could drive the upside versus the 5% that you're talking about for the company as a whole?
Well, I think if I broke it down, the marine businesses have
a little longer look at them. We think marine as a whole also because the energy, offshore energy markets are improving and are...
low-catom, wicking marine as a whole also because the energy, offshore energy markets are improving and are
Projections for that are over 7%, maybe as much as 7.5% in marine. Then the short-cycle businesses, which is environmental, time tests, and measurement, we think there would be about 3.5% together.
or that are over 7%, maybe as much as 7.5% in marine. Then the short-cycle businesses, which is environmental, time, test, and measurement, we think there'd be about 3.5% together.
We think that I've already talked about some of the others. In digital imaging where we do have a really good year and a really good fourth quarter with DALSA and E2B, we think we're going to be
relatively flat organically, but we made some acquisitions. So that should give us about.
With our acquisitions, maybe 3.8%. And we think FLIR would do better next year, maybe a little over 5%, 6%. So...
And the it's built between defense and aerospace defense is longer cycle than Aerospace if you discount the 20 million that we don't have in web We think defense will grow some Aerospace may be flat more short cycle and I've already talked about the engineered systems and the mossy which we want Which along we cycle businesses? You
We feel comfortable there. So, Robert, it sounds like you're relatively positive on, constructive on what you're seeing out in the market. If I look at your commercial businesses,
comfortable there. So, Robert, it sounds like you're relatively positive on constructive on what you're seeing out in the market. If I look at your commercial businesses, you alluded to some
variability in bookings trends in some parts of the business that maybe you can provide a little bit more color on that but is there anything that you're seeing in the commercial areas whether it's testing measurement or machine vision that might be consistent with a slowing economy?
Yeah, a little bit. I think you hit it on the head. Just a sliver, I'd say...
If you look at marine, our book to bill in the fourth quarter was 1.15. That's why I said it's longer cycle, we feel good about it. We're just going to specifically what you said, environmental and test and measurement, but for the whole year, our book to bill is about 1.
In the fourth quarter, it dropped down to 0.96. Now, to me that's a sliver lower. So we are a little cautious about that.
down to 0.96. Now, to me that's a sliver lower, so we are a little cautious about that.
So the alpha e2v dropped even further a little bit and I think
FLIR would be okay, but some of our vision systems and scientific cameras, we just hit it out of the park in the fourth quarter and we think we're a little cautious about predicting. The other side, just to cut to the chase, the other side is that it's very early. Everybody is predicting.
one thing or another, all we're doing is we're gonna hunker down and we're gonna do what we always do. If we have to cut, we'll cut, and if we have to hire, we'll hire, and we'll do what we have to do to make our numbers. Was the book to bill, last question, was the book to bill a round one for the company as a whole? Yeah, just under one, about.96.
0.97, but that has engineered systems in it, which was 0.9, but that's very lumpy. For the year, engineer system was 1.12, which is a long cycle business. For the year, the company was closer to one. Thanks very much.
has engineered systems in it which was 0.9 but that's very lumpy for the year engineers system was 1.12 which is long cycle business for the year the company was closer to one. Got it thanks very much. For sure!
And our next question will come from the line of Joe Giordano with Cohen. Please go ahead. Hey guys, how are you?
Good morning, Joe. Very well. I've been hearing more people talk about risks like maybe in the second half of the year from prices actually going down just given some of the deflationary characteristics you're seeing in prices paid and things like that. Is that?
something that you're seeing, like how do you think about price and your ability to continue to raise or is it more about supporting where they are now?
In 2022, we added, Joe, we added about 4%.
we added about 4% in pricing.
And then if you hold against that what we ended up spending We had wages go up four and a half
Overall, buying stuff, about $2.5 billion of direct and indirect materials.
That went up overall about...
6.7 percent of course that's on the cost of goods sold. I'm only saying this because I want to put this in perspective. So we increase prices across the board 4% and then we increase prices across the board 4% and then we increase prices across the board 4%
Materials inflation was 3.7% negative. Our wages were 1% negative to sales. So when you add those two sales, sales is 1.7% negative.
Materials inflation and wage inflation was 4.7% negative. We increased prices 4%. So net net we...
suffered about 60 basis points of detriment between the two.
going forward we expect to increase prices how much
It's difficult to predict because as you said, some people are talking about decreasing prices in the second half, but we have to increase prices somewhat because we're gonna have...
It's difficult to predict because as you said, some people are talking about decreasing prices in the second half, but we have to increase prices somewhat because we're gonna have more...
inflation that we inherited and we're going to have to with giving our employees about 4% raises across the board
So to make up for that we have to increase prices somewhat. Depends on how the market behaves itself. We're right now saying our overall margins are going to improve 50 basis points versus last year. That's pretty good. We're right now saying our overall margins are going to improve 50 basis points versus last year. That's pretty good.
So we'll have less broker premiums. Last year we paid 90 million dollars.
access fees to our brokers for parts. We think in 2023 that will maybe be half.
So, I mean, it's a long answer to a short question. There's a lot of unknowns, but I feel we'll maintain our crisis and maybe increase them a little. If I think about the bottom end of your guide, I mean, it's a pretty narrow guide, but if I think about the bottom end of that guide,
how protected do you think you are if there is, like, what kind of recessionary outlook does that have? If we do, you know, some of these macro indicators are pretty bad. If we do go into a recession, do you feel like you have coverage there at the bottom end of the guide, and, like, which businesses, like, are you anticipating declines at certain businesses at the bottom end?
Well, the longer cycle of businesses are less cyclical, which would be our government defense, about 25% medical, scientific, energy, aerospace in overall.
Which constitutes about 40% of our portfolio. I don't think those are going to be affected on the flip side.
The short cycle businesses with constitutes 60% of our overall portfolio If the world macroeconomic really suffers Obviously we are going to have to take some hits
As you said, we have a very narrow range that we came out with, primarily because
We have a very narrow range that we came out with primarily because
we're not sure what's going to happen. We could have probably had a larger range, but coming out of 2022 as strongly as we did, I would feel okay about that. Last one for me. Have you internally started adding things? Like have you started to...
be a little bit more judicious on expenses and travel and things like that in anticipation of things weakening or is that you'll adjust as necessary?
Oh no, that's the mode of our operation. It's something we do day in and day out regardless of what the macroeconomics are. We control everything. We control expenses in travel. We eliminate square footage of our...
manufacturing facilities, everything we do with vigilance. That's the only way we made it through 2022 as well as we did and we're going to continue that.
Thank God.
We'll give a final reminder if you would like to ask a question, please press 1 followed by 0. 1 followed by 0. And we'll go to the line of Guy Hardwick representing Credit Suisse. Please go ahead. Hi, good morning. So it's been about 20 months since Teledyne closed.
reminder if you would like to ask a question please press 1 followed by 0. 1 followed by 0 and we'll go to the line of Guy Hardwick representing Credit Suisse. Please go ahead. Hi good morning. So it's been about 20 months since Teledyne closed on Flare.
Can you give us a bit of insight as to how to combine the portfolios is progressing, whether there is any, we've seen some revenue benefits from combining the two technology platforms. I mean in the past you've done the same with Dolce and E2V. I'm just wondering if there's any comparable success stories or potential success stories to come from that.
Thank you Guy, good question. The answer is yes.
Thank you Guy, good question. The answer is yes. We have some new products.
We have some new markets, especially in machine vision and
For example, also mapping. You know, FLIR has this Raymarine business and we have this geospatial business where we do a lot of hydrographic mapping. The most recent acquisition that we made chart for...
breaches the gap between those two. I don't know if we would have bot charts or if we didn't have FLIR, if we were just all geospatial. So those are really good. The other thing is that, uh,
FLIR has really exceptional products in the unmanned air vehicle domain.
And we have had historically good products at Teledyne Legacy.
in the underwater domain. FLIR also brings now ground-based vehicles. So now you look at the combination of the two companies.
We have about $450 million or so of revenue in unmanned vehicles. Unmanned air vehicles, unmanned ground vehicles, unmanned underwater vehicles. There are a lot of common technologies between those three.
It does a control, it does a software in terms of digitization and imaging. Those are some examples, after 20 months, but that will of course grow as a function of time. Okay, thank you, just a quick follow up, I'm just trying to understand the FX guidance.
implied in the old guidance because it looks like a current rate that FX actually could be a tailwind in the second half. It could be. As we think in the first half, certainly first quarter, we think it's going to be a 1% headwind versus the 2.1 to 2.5% last year. contacts are available.
Having said that, I don't think anybody knows. I don't think the economists know. They might say it, but they don't know. I don't think anybody knows what's going to happen. I certainly don't. Let me put it that way. Can you just clarify what rates?
Thank you.
And there are no other questions queued up at this time. Thank you very much. Operator, I will now ask Jason to conclude our conference call.
Thanks Tom and thanks everyone for joining. Of course if you have follow-up questions, certainly feel free to call me or email me. My phone number is on the earrings release. Tom, if you could give the replay information on the call and conclude, we'd appreciate it. Thanks all. Thank you. Ladies and gentlemen, this conference will be available for replay starting at 10 AM.
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