Q3 2024 Teledyne Technologies Inc Earnings Call
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Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the Teledyne third quarter earnings Conference call. At this time all lines are in a listen only mode. Later, there will be an opportunity for questions and answers with instructions given at that time.
Speaker Change: If you should require assistance during the call. Please press Star then zero on the AT&T specialist will assist you offline and as a reminder, your conference call today is being recorded.
Speaker Change: I'll now turn the conference call over to your first Speaker, Jason Van weighs. Please go ahead.
Speaker Change: Thank you Hello, and good morning, everyone. This is Jason <unk>, Vice chairman and I'd like to welcome everyone to Teledyne's third quarter 'twenty 'twenty four earnings release Conference call. We released our earnings earlier this morning.
Speaker Change: Joining us today are teledyne's executive Chairman, Robert Mehrabian, CEO Raj <unk>, President and CEO George Bob.
P CFO, Steve Blackwood annuities, EVP General Counsel, Chief compliance Officer, and Secretary after remarks by Robert Edwin joins US Steve It will last for your questions.
Speaker Change: But of course before we get started our attorneys that 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 of course actual results may differ materially.
Speaker Change: Okay.
Robert Mehrabian: Here is Robert.
Robert Mehrabian: Thank you, Jason and good morning, and thank you for joining our earnings call.
Robert Mehrabian: Teledyne achieved all time record sales in the third quarter.
Robert Mehrabian: With revenues sequentially, great days in each segment, allowing us to report overall year over year growth as we expected.
Robert Mehrabian: We continue to see robust demand in our longer cycle defense space and energy businesses and.
Robert Mehrabian: At the same time, while year over year comparison remain challenging says well most of our short cycle commercial businesses have either stabilized.
Robert Mehrabian: Or have begun to recover sequentially.
Robert Mehrabian: Year to date.
Robert Mehrabian: We have approximately they purchased about $10 4 million.
Robert Mehrabian: Now if our stock.
Robert Mehrabian: We completed two acquisitions for 125 million and repaid $450 million of gross debt.
Robert Mehrabian: But our quarter end leverage has remained in the one seven X.
Robert Mehrabian: Given record free cash flow over the last nine months.
Robert Mehrabian: Orders were greater than sales for the fourth consecutive quarter.
And we once again ended the period with record bad backlog.
Robert Mehrabian: Nevertheless.
Robert Mehrabian: Given the timing of future shipments against this background and some said we were able to accelerate into the third quarter.
Robert Mehrabian: We continue to remain reasonably confident that quarterly sales will again increased sequentially in the fourth quarter, but only modestly compared with the third quarter.
Speaker Change: I would now turn the call over to Edwin our CEO, who will further comment on the performance of our four business segments. Thank.
Speaker Change: Thank you very much this is Jay and I will first report on the digital imaging segment, which represents a bit over 50% of <unk> portfolio.
Unlike TV as a whole this segment is a mix of lower cycle businesses, such as defense space and healthcare combined with shorter cycle markets, including industrial automation semiconductor inspection and infrared components and cameras for applications ranging from factory condition monitoring to maritime navigation.
Speaker Change: Third quarter of 2024 sales declined less than 1% compared with last year sales to industrial machine vision market declines year over year. However, this was partially offset by increased sales from clear fotis commercially for imaging and defensively status messages Estrella short televised space based infrared imaging detectors.
Speaker Change: Furthermore, for the fifth consecutive quarter healthy margins across the entire fleet.
Speaker Change: Our business portfolio helped us protect overall operating margin, even given the significant year over year reduction in sales of our typically our highest contribution margin product lines.
Speaker Change: George will now report on the other three segments, which represents the balance of Telenor.
George Bob: Thanks, Edwin the instrumentation segment consists of our marine environmental and test and measurement businesses, which contributed a little under 25% of sales.
George Bob: For the total segment overall third quarter sales increased six 3% versus last year.
George Bob: Sales of Marine instruments increased 24, 1% in the quarter, primarily due to both strong offshore energy and subsea defense sales.
George Bob: Sales of environmental instruments decreased three 5%, primarily due to greater sales of water quality instruments offset by lower sales of select laboratory instruments and emission monitoring systems.
George Bob: Sales of electronic test and measurement systems, which include the sale of Scopes Digitizes protocol analyzers decreased eight 6% year over year on a tough quarterly comparison versus 2023.
George Bob: Instrumentation instrumentation operating margin increased in each product family in the third quarter with overall operating margin, increasing 155 basis points to 27, 5% and 152 basis points on a non-GAAP basis was 28, 6%.
George Bob: In the aerospace and defense Electronics segment, which represents roughly 15% of Teledyne sales third quarter sales increased nine 2% driven by growth in both commercial aerospace and defense electronics products.
George Bob: Overall segment operating profit increased year over year with GAAP segment margin, increasing 117 basis points to 28, 1% and 116 basis points on a non-GAAP basis to 28, 2%.
George Bob: For the engineered systems segment, which contributes less than 10% of overall sales third quarter revenue increased nine 4%.
George Bob: Segment operating profit also grew with segment margin, increasing 70 basis points due to higher sales and a greater mix of manufacturing programs.
Speaker Change: I will now pass the call back to Robert.
Robert Mehrabian: Thank you George I'll conclude with a few comments on strategy.
Robert Mehrabian: And capital allocation.
Robert Mehrabian: Over the last several quarters.
Robert Mehrabian: Some of our markets have experienced weakness.
Robert Mehrabian: But we lowered carla to protect margins in these businesses, while growing and increasing margin in those businesses, where the environment was more favorable.
Robert Mehrabian: During this period, we also opportunistically purchased our own stock.
Robert Mehrabian: While our current $1 billion to $5 billion stock repurchase authorization remains active.
Robert Mehrabian: We're also fortunate.
Robert Mehrabian: That our near term acquisition pipeline is healthy.
Robert Mehrabian: While there are always new challenges.
Robert Mehrabian: I'm optimistic.
We have began begun to exit some of our most difficult quarterly comparison.
Robert Mehrabian: And we will continue to grow both organically and through acquisitions.
Speaker Change: I'll now turn the call over to our CFO Steve.
Steve: Thank you Robert and good morning, I'll first discuss some additional financials for the quarter not covered by Robert and Al will discuss our fourth quarter and full year 2024 outlook in.
Steve: In the third quarter cash flow from operating activities was $249 8 million.
Steve: Compared with $278 2 million in 2023.
Steve: Free cash flow that is cash flow from operating activities less capital expenditures was $228 $7 million in the third quarter of 2024 compared to $255 2 million in 2023.
Steve: Cash flow decreased in the third quarter due to higher income tax payments.
Steve: Capital expenditures were $21 1 million in the third quarter of 2024, compared with $23 million in 2023.
Depreciation and amortization expense was $76 9 million for both the third quarters of 2024 and 2023.
Steve: For the first nine months of 2024 cash flow from operating activities and free cash flow were $859 $5 million and $804 $8 million respectively.
Steve: We ended the quarter with approximately $2 $24 billion of net debt that is approximately $2 $800 billion of debt less cash of $561 billion.
Steve: Now turning to our outlook management currently believes that GAAP earnings per share in the fourth in the fourth quarter of 2024 will be in the range of $4 27.
Steve: To $4 41 per share.
Steve: With non-GAAP earnings per share in the range of $5 13.
Steve: To $5 23.
Steve: And for the full year of 2024, we are raising our GAAP earnings per share outlook to $17 28.
Steve: To $17 42.
Steve: And we are narrowing our non-GAAP outlook to $19 35.
Steve: To $19 45.
Speaker Change: The top end of our prior outlook range I will now pass the call back to Robert.
Robert Mehrabian: Thank you.
Speaker Change: We would now like to take your questions.
Robert Mehrabian: Operator, if youre ready to proceed with the question and answers. Please go ahead.
Speaker Change: Did I lose our operators no I'm, sorry, ladies and gentlemen, if you would like to ask a question. Please press. One then zero on your telephone keypad Youll hear an indication you've been placed into queue and you may remove yourself from the queue by repeating the one then zero command if youre using a <unk>.
Speaker Change: <unk> phone, we ask that you please pickup your handset and to make sure it and your phone is on mute for pressing anybody.
Speaker Change: Again for questions, perhaps one zero at this time.
Speaker Change: Yes.
Speaker Change: Our first question will come from the line of Jim Ricchiuti with Needham go ahead.
Speaker Change: Hi, Thank you good morning.
Jim Ricchiuti: Robert I think you alluded to.
Jim Ricchiuti: Some acceleration in sales.
Jim Ricchiuti: Perhaps Kevin pull ins from Q4 was that mainly in the defense area. We have some other markets where you saw that.
No I think give us primarily where we have the largest.
Jim Ricchiuti: Backlog, which would be the defense businesses.
Jim Ricchiuti: A little bit from energy, but primarily concerned right.
Jim Ricchiuti: Right.
Speaker Change: Got it.
Speaker Change: With respect to it sounds like you had a good quarter in.
Speaker Change: And order standpoint can you give us any more color in terms of book to Bill.
Speaker Change: Relates to the segments and maybe how youre thinking about overall revenue growth.
Speaker Change: Versus what you've maybe we're thinking about a few months back.
Speaker Change: Yes, let me start with.
Speaker Change: The book to Bill.
Speaker Change: Let me start with the overall <unk>.
Speaker Change: Book to Bill at the end of Q3 was about one point.
Speaker Change: Great.
Speaker Change:
Speaker Change: Almost all of the businesses had healthy book to Bill.
Speaker Change: Except Florida.
Speaker Change: One of our environmental businesses, let me now go.
Speaker Change: Overdose is four months book to Bill was above one.
Speaker Change: With marine of course, being much higher and TNF coming along two at over one.
Speaker Change: And environmental below one.
Speaker Change: In digital imaging.
Speaker Change: We are experiencing good book to Bill numbers.
Speaker Change: In what we call.
Speaker Change: Historical Teledyne booked.
Speaker Change: Book to Bill was one point go eight.
Speaker Change: And had excellent book to Bill of 117.
Speaker Change: Aerospace and defense one point go for <unk>.
Speaker Change: Engineered systems wont go too.
Speaker Change: Now regarding the revenue.
Speaker Change: We decided that we.
Speaker Change: All the <unk>.
Certainty.
Speaker Change: And the work today, starting with the election.
Speaker Change: And then of course, the various conflicts in the middle East.
Speaker Change: Europe.
Speaker Change: We've decided that it's prudent to.
Speaker Change: To maintain the number the revenue number that we had.
At the end of Q2 that we projected which is about 562.
<unk> million or five 6 billion.
Speaker Change: And you might we.
Speaker Change: We might do better but right now Jim.
Speaker Change: With all of the uncertainty, it's prudent not to be too high for Airbus.
Speaker Change: Got it makes sense just one quick follow up I'll turn it over.
Jim Ricchiuti: Just with respect to.
Jim Ricchiuti: The test and measurement business are you seeing now looks like you had nice sequential growth do you feel that the.
Jim Ricchiuti: The weakness in the scopes business is behind you or is it still the critical analyzer placements.
Jim Ricchiuti: Contributing to this overall better results.
Jim Ricchiuti: In the third quarter it was primarily.
Jim Ricchiuti: Protocol.
Speaker Change: I think.
Speaker Change: We're a little.
Speaker Change: Hesitant about projecting.
Speaker Change: Oscilloscope business, but usually what happens at year end, which would be our Q4.
Speaker Change: People do their capital expenditures and we pick up business in that domain. So we're hopeful that this year would be a repeat of last year.
Speaker Change: With Q4 being higher than Q3.
Speaker Change: Okay. Thanks very much thank.
Speaker Change: Thank you Jim.
Speaker Change: We will next go to the line of Greg Conrad with Jefferies Go ahead.
Good morning.
Speaker Change: Hi, Greg.
Greg Conrad: Is there any way or can you parse digital imaging for the quarter and maybe what youre seeing across the different businesses.
Greg Conrad: Going into the quarter, we did see a couple of negative pre announcements from some of your peers on the vision side any color on what you're seeing across the different vision end markets either from <unk> or just trend perspective.
Speaker Change: Yeah, Let me, let me slide sit on the larger jobs.
Greg Conrad: Firstly, if I may.
Greg Conrad: Sure.
Greg Conrad: If you look at our two.
Greg Conrad: Segments within that.
Digital imaging.
Greg Conrad: Our historic of digital imaging, which all of which is <unk> as well as our scientific imaging here.
Greg Conrad: And then you have fleet.
Greg Conrad: So if I look at the Big picture for Q3.
On the what we call our traditional historical digital imaging.
Greg Conrad: Revenue.
Greg Conrad: But declined organic growth was negative almost 989, 9%.
Greg Conrad: On the other hand.
Greg Conrad: Clearly the exceptionally well.
Greg Conrad: In the defense businesses and player, which is 40% of the <unk>.
Greg Conrad: Growth was eight 2%.
Greg Conrad: All of the subdivisions within dash growing very healthy.
Greg Conrad: In the clear commercial businesses.
Greg Conrad: We were essentially flat, but we have to keep in mind that in the commercial player businesses. We also do have.
Greg Conrad: Camera vision system.
Greg Conrad: Which is basically a area camera two dimensional area camera, which.
Greg Conrad: Had much lower sales just like the rest of our vision camera systems in the I'll say to say, if we still got negative.
Greg Conrad: Industrial also grew and overall.
Greg Conrad: Three 2%.
Greg Conrad: Yeah.
Greg Conrad: That negative coming.
We had no we also.
Going to the I'll say <unk>.
Speaker Change: What we're looking at there is basically a range of businesses.
Greg Conrad: Positive.
Greg Conrad: Some negative let me give you the positives first and the negatives, which we've talked about before.
Greg Conrad: Interestingly enough.
Greg Conrad: Our micro electro mechanical systems or Mems.
Greg Conrad: Is experiencing really good growth may be that's the Canary in the mine.
Greg Conrad: Because they are making a lot of products that are of relevance to the semiconductor industry.
Greg Conrad: Also as you may recall, we have an aerospace and defense business within our historical digital imaging that did very well grew almost 13%.
Where we had decreases were primarily in scientific and industrial vision systems.
Greg Conrad: And somewhat in health care.
Speaker Change: Thank the health care is going to recover.
Speaker Change: And I think in the.
Industrial and scientific vision systems, we believe that at least in the camera domain.
Speaker Change: Bottomed out and we have a slow recovery.
Speaker Change: There is a portion of that deals with sensors, where it makes sense for ourselves and other people that's going to lag a little more it may have bottomed out, but we don't see a recovery at this point, so overall I would say.
Speaker Change: Does <unk> Teledyne imaging.
Speaker Change: Bob.
Speaker Change: Lagged a little bit mixed.
Speaker Change: Progress in the different businesses.
Speaker Change: Clear carried the day for the overall digital imaging.
Speaker Change: And then I mean.
Speaker Change: Maybe it's a little bit early to talk about 2025, but it seems at least on the long cycle, whether that's defense or.
Speaker Change: On Marine you've experienced positive book to bill on ramping sales.
Speaker Change: You look out over the next year can you maybe talk about how much visibility you have on the long cycle businesses versus.
Speaker Change: How youre thinking about.
Speaker Change: The recovery in short cycle over the next year.
Speaker Change: Are the long cycle businesses.
Speaker Change: Greg.
Speaker Change: Assuming there is no catastrophe.
Catastrophes.
Speaker Change: There anything like that can affect our long cycle businesses.
Speaker Change: Healthy.
Speaker Change: Zinc.
Speaker Change: It's they're going to grow year over year.
Speaker Change: We have some really good program wins.
Speaker Change: Both in our job flared defense as well as in our Taylor.
Speaker Change: Teledyne imaging here in space and other programs. So we think those are going to grow on the short cycle businesses.
Speaker Change: We're just going through the first cut.
Speaker Change: Our plan for next year I think.
Speaker Change: I have to say, it's a little too early to credit card that's going to work.
Speaker Change: Our wait another couple of months and see.
Speaker Change: What happens to the elections here, but more importantly, what kind of capital expenditures people exercise as they get near the end of the quarter Q4.
Speaker Change: And then maybe just sneaking in one last one I mean, if you think about defense across <unk> and engineered in A&D electronics, what was defense up in the quarter.
Speaker Change: Defense.
Speaker Change: U S government defense.
Speaker Change: Organically, maybe two 5% plus.
Speaker Change: But we do have programs overseas.
Speaker Change: Are doing really well for example.
Speaker Change: Ukraine.
Speaker Change: We supply a whole range of products.
Speaker Change: To them.
Speaker Change: Also some telling me the lease.
Speaker Change:
Speaker Change: And those programs have been very healthy and we seem to be winning.
Speaker Change: New programs, especially with offers that we have in common.
Speaker Change: Commentary.
Speaker Change: UAV systems.
Speaker Change: As well as where our minutes you are.
Speaker Change: Our own <unk>.
Speaker Change: It's small.
Speaker Change: Black Hornet, which are doing really well so we're in overall very positive in that domain.
Speaker Change: Okay. Thank you.
Speaker Change: For sure.
We will move on to the line of Andrew Buscaglia with BNP go ahead.
Speaker Change: Hey, good morning, everyone.
Speaker Change: Good morning, Andrew.
I wanted to touch on marine.
Speaker Change: Marine has been so strong.
Speaker Change: All year and you seem to have good visibility in that.
Speaker Change: Just wondering what the sustainability of that growth is through next year, how much visibility do you have that that you.
Speaker Change: You can maintain such a strong.
Speaker Change: <unk> segment, and then not maybe not see.
Speaker Change: Little bit below a little bit worried about challenging comps, but how do you see that playing out.
Speaker Change: Yes, let me.
Speaker Change: It's a good question.
Speaker Change: Marine.
Speaker Change: Had kind of a variation in their book to Bill with Q1 being very strong at 127, and then Q3 being around one point go forward.
Speaker Change: Here's here's this authority on marine.
We acquired about 23 small businesses to form our marine group.
Speaker Change: It's ranged from interconnect.
Speaker Change: For commercial.
Oil exploration and oil.
Speaker Change: Production.
Defense, we have underwater vehicles or <unk>.
Speaker Change: NGL firm from Florida.
Speaker Change: Two gliders.
Speaker Change: What we call the <unk>.
Speaker Change: Those that are being used both in this country and in Europe.
Speaker Change: And then we have a military program that they have with <unk>.
Speaker Change: Penetrators for the Virginia class submarine as an example, so the mix is very interesting.
Speaker Change: <unk>.
Speaker Change: Offshore energy.
Maybe 30% may be more in Q <unk>.
Speaker Change: <unk> is close to 40%.
Speaker Change: But then we have.
Science construction, which are about 27% and then we have.
Speaker Change: Defense, which is as much as 28%. So it did distribute it kind of mirrors in some ways Taylor.
Speaker Change: Teledyne as a whole our expectation are that that will remain strong.
Speaker Change: It is possible, though that.
Speaker Change: With.
Speaker Change: The current projections oil prices may decline significantly not as much as they did in 2014 to 16, but made may decline and if that happens some of our job production Interconnects will go down but the other businesses that we have there should remain healthy.
So I'm positive about marine for next year.
Speaker Change: Okay.
Speaker Change: That's helpful.
And.
You guys made the comment in your press release about.
Speaker Change: <unk> been buying back stock, but maybe M&A looks like it's perking up here.
Speaker Change: Can you comment a little bit more on that and then specifically on any of that what are the size of these deals here you might be seeing.
Speaker Change: <unk>.
Speaker Change: Yes, Andrew.
Speaker Change: That's a very good question and the reason it's timely.
Speaker Change: For the first time.
Speaker Change: I would say since we acquired clear we've done a couple of acquisitions every year like this year, we bought a small business for our marine we bought that to make which is an imaging business for our overall imaging.
Speaker Change: I'll say <unk>.
Speaker Change: But that hasnt been that much activity or opportunity.
Speaker Change: For us to do acquisition.
Speaker Change: In the last month or so the funnel seems to have opened up.
Speaker Change: We are seeing more.
Speaker Change: Opportunities.
Speaker Change: Actually.
Speaker Change: Outside digital imaging for example, in our aerospace and defense as well our instrument.
Speaker Change: So.
Speaker Change: We're kind of positively inclined.
Speaker Change: Two.
Speaker Change: Look at what we can do how much power, we have to make acquisitions on frankly.
Speaker Change: We bought our stock when it was close to 52 weeks slow.
Speaker Change: We've continued buying it through Q3.
Speaker Change: But no I think it's more likely that.
We will focus more highly on acquisitions.
Speaker Change: We have the wherewithal to spend up to two.
Speaker Change: $2 3 billion, if we want to I don't know if we'll do that much but we certainly are in the market to buy some smaller companies, which would be let's say the $50 million range and may be some things that are closer to half a billion or more.
Speaker Change: It won't be anything as large as clear at this time, but.
Speaker Change: There are many opportunities.
Okay very helpful. Thank you.
Speaker Change: Sure.
Speaker Change: We'll move on to the line of Joe Giordano from TD Cowen go ahead.
Joe Giordano: Hey, guys good morning.
Speaker Change: <unk>.
Joe Giordano: Can you just talk us through like Whats contemplated in the guide for next quarter, and how Youre thinking going forward about what's going on at Boeing.
Speaker Change: Let me start with Boeing because that.
That's a subject that we've kind of study and follow.
Speaker Change: In our aerospace business.
Which serves.
Speaker Change: Boeing as well as other Airbus and a whole bunch of airline customers.
Speaker Change: <unk>.
We think the strike.
Speaker Change: Could have.
Speaker Change: At risk for us I'm, hoping that it settles, but the risk for US is in the 737, Max where we have the.
Speaker Change: Data acquisition systems that could hit us that's assuming described growth through the year through a quarter that could hit us as much as on the upside maybe $5 million in revenue.
Speaker Change: From Q3 to Q4.
Speaker Change: But if the strike is setup.
Speaker Change: Depending on timing it could be less than that maybe two or three.
Speaker Change: It's a little bit of a headwind for us.
Speaker Change: The other part of your question was forgive me.
Speaker Change: I kind of lost.
Speaker Change: The trend of.
Speaker Change: The Boeing Boeing was the first question I can I can move you also mentioned <unk>.
Speaker Change: Instrumentation.
Speaker Change: You indicated that there was a piece of that business on the environmental side that was weak.
Speaker Change: Like orders below revenues can you can you give us a little bit more color on what that is and what type of applications or end markets that spacing.
Speaker Change: Yes indeed.
Speaker Change: <unk> side, we have to see.
Speaker Change: Sets of businesses once said deals with drug discovery.
Speaker Change: Water quality.
Speaker Change: Etc, and that business has been okay.
Speaker Change: We've seen a little weakness is in our.
Speaker Change: Air quality monitoring stack monitoring and.
Speaker Change: Basically looking at quality.
Speaker Change: Product.
Speaker Change: There, we've had a net weakening but and will depend a little bit on middle East, where they buy our systems large systems.
Speaker Change: I think it might be.
Speaker Change: Wakemed few million dollars, but I'm not that concerned about the business.
Speaker Change: Nothing bad is going to happen.
Speaker Change: It just we think Q4 should be a little better than Q3.
Speaker Change: So it doesn't concern for me right now any instruments.
Speaker Change: As George said includes marine.
Speaker Change: TNF test <unk> measurement as well as the environment.
Speaker Change: And just last for me.
Speaker Change: Margins.
Speaker Change: In <unk>, we are good I think.
Speaker Change: Probably better than some.
Speaker Change: Thank you.
Speaker Change: Give us a.
Speaker Change: Maybe some color onto what drove that and how are you thinking about margins and to wrap up the year across the portfolio here.
Speaker Change: D.
Speaker Change: I think what you have.
Speaker Change: Yes.
Speaker Change: <unk> margins greatly improved very much.
Speaker Change: Very healthy.
Speaker Change: And.
Speaker Change: Digital imaging.
Speaker Change: As a whole.
Speaker Change: Remained relatively flat in.
Speaker Change: In margin.
Speaker Change: I would say maybe went down 30 basis points.
Speaker Change: If you look at the whole year 24 versus <unk> 23.
Speaker Change: The same here of course as I mentioned, we're exclusive on.
The flip side.
Speaker Change: Edwin that an ESP pumps.
Speaker Change: Hey, Bob to take cost out.
Speaker Change: In our Canada.
Speaker Change: Basically in our camera some healthcare businesses to compensate for slower.
Speaker Change: Lower revenue and that help protect some of the margins in those businesses. Some of our very high margin businesses are in the camera business. So that's been a combination.
Speaker Change: Flare.
Speaker Change: Very strong.
Speaker Change: Digital imaging the desktop digital imaging, taking the cost out and I'm, hoping that as the recovery comes.
Speaker Change: Let me put that cost back in.
Speaker Change: Because we've got really good experience with defense and of course with marine in the past, where we took the cost or didn't put the cost back in very quickly and the margins there have turned out to be very healthy. So overall.
Speaker Change: Positive about digital imaging.
Speaker Change: Is there a way if you just kind of scale like how big a drag I know those cameras and sensor business is a very high margin. So how like how much of a drag would you say currently those businesses are on what you are reporting for margin.
I would say.
Speaker Change: Overall those businesses.
Speaker Change: Our comp for maybe $300 million the warrants that.
Speaker Change: We're seeing the drag on <unk>.
Speaker Change: I would say.
Speaker Change: It changes, but I would say maybe $50 million in it.
Speaker Change: Rag and those businesses overall.
Speaker Change: Doesn't sound like a lot, but those are higher highest margin businesses and so.
Speaker Change: When.
Speaker Change: Revenue goes down then that margin overall declines because of that but as we've said before we.
Speaker Change: We think the cameras have bottomed out book to Bill is better than one of course remember.
Speaker Change: Bill is low compared to last year.
In sensors will come eventually, but I'll try anyway.
Speaker Change: Thanks, guys.
Speaker Change: For sure.
Speaker Change: We'll go next to the line of Jordan <unk> with Bank of America go ahead.
Speaker Change: Hey, good morning.
Speaker Change: Could you just give us some color around how youre thinking about the opportunity for new programs like replicate or two.
Speaker Change: Let me let me take this.
Speaker Change: We.
Speaker Change: We have a whole bunch of programs for Lear.
Speaker Change: That are doing really well, let's start with the small uavs.
Speaker Change: The small Uavs, we have the best system.
Speaker Change: In the world.
These are uavs that at about 6% to seven inches inside it.
Speaker Change: If they were flying in the wrong way do you probably would integrate our notice it.
Speaker Change: But your peak share count growth automatically.
Speaker Change: You would get a good video outfit up to 25 kilometres away.
So that's really good at.
Speaker Change: The other side, we also have a counter UAV system.
Speaker Change: It's being used.
In Europe and.
Speaker Change: Another example is we have.
Speaker Change: Loitering.
Speaker Change: Uavs.
Speaker Change: That.
Speaker Change: We are introducing which can carry munitions.
Speaker Change: The difference between these and other people.
Speaker Change: Munition enabled Uavs is that we can call these back.
Speaker Change: They reached a target and it's not an opportune time, so we can't recover.
Speaker Change: System.
Speaker Change: So overall I think the whole UAV business for us.
Very strong we also have a whole bunch of other programs like we just announced.
Speaker Change: Program win.
Speaker Change: Our suite of <unk>.
Speaker Change: <unk> that go on.
Speaker Change: For chemical biological nuclear we announced that we just won a program for $168 million so far.
Speaker Change: <unk>.
Speaker Change: Specialty player defense, we're very.
The policy, we have an excellent leader in <unk> and Lee.
Speaker Change: We're very positive about that business.
Speaker Change: Got it.
Speaker Change: So again fully replicate with two specifically counter UAS system.
Speaker Change: We have a system in Europe, right now with <unk>.
Speaker Change: Which is being deployed.
Speaker Change: On a successful that's all I can say about that at this time.
Speaker Change: Got it thank you so much.
Speaker Change: Our shirts.
Speaker Change: And as a reminder, ladies and gentlemen, if you do have questions. Please take this opportunity now to press. One then zero on your telephone keypad.
We'll go next to Guy Hardwick with Freedom capital markets go ahead.
Guy Hardwick: Hi, good morning.
Speaker Change: Guy.
Speaker Change: Alright.
Guy Hardwick: My question has to be answer but just.
Guy Hardwick: So big picture digital imaging margins peaked to 24% TV is back.
Guy Hardwick: If short cycle. It does recover some point next year what is the potential you think in terms of.
Guy Hardwick: Given the kind of what you have said anything about incremental margins in the higher margin mix So short cycle.
Guy Hardwick: Yeah.
Speaker Change: Right now if I look at.
Speaker Change: Q3.
Speaker Change: If I look at Q3.
Speaker Change: Our margins.
Speaker Change: In overall digital imaging.
Speaker Change: About 22, 6%.
Speaker Change: Last year this time.
Speaker Change: There were more like 24, 2%.
Speaker Change: So.
Speaker Change: I would hazard, a guess that as a minimum should be as good as last year.
Speaker Change: And if the short cycle businesses do come back.
Speaker Change: Strongly.
Speaker Change: There is an opportunity for us to go above 25%.
Speaker Change: Which would be very healthy for us, but I would maintain that with the uncertainty, especially in our longer recovery of our centers.
Realize you Werent done sorry.
Speaker Change: Bless you.
Speaker Change: We are going probably more 24 plus.
Speaker Change: <unk> said 24 to $24 five.
Speaker Change: The sensors recover.
Speaker Change: Then the margin would go higher.
Speaker Change: Okay. Thank you just as a follow up.
Speaker Change: So you've indicated in the statement that we see short cycle has stabilized and maybe even improving.
Speaker Change: I assume that's because of the booking trends can you, maybe just give us a bit more color on booking trends and short cycle.
Speaker Change: Yes in the last.
Speaker Change: Two to three.
Speaker Change: Months.
Speaker Change: The book to Bill is above one let's say one one.
Speaker Change: But I have to always keep in mind that when we talk book to Bill.
Speaker Change: Talking about bill that's lower than it used to be so.
Speaker Change: I don't want to over state that is not like book to Bill at the height of the system. So, but what that tells US is that we have reached the bottom and recovery.
Speaker Change: The flip side on sensors themselves. The book to Bill has not recovered yet so people are a little more hesitant to spend money on sensors. Because then they have the longer haul off developing cameras, whereas it's easier for them to acquire cameras.
Speaker Change: The flip side I have to say again going back to flare because <unk> been so successful.
Speaker Change: Is that they have both long cycle and short cycle.
Speaker Change: Infrared cameras.
Speaker Change: In the long cycles, they're fixed cameras in the short cycle that handheld cameras and.
Speaker Change: We're very pleased that.
Clearly industrial has done really well.
In that domain and.
Speaker Change: We expect that they'll continue to do so with new products.
Speaker Change: Yeah.
Artificial intelligence.
Speaker Change: Both cameras.
Speaker Change: Bring decision make decisions easier for the customers. We are positive that as we are with the defense businesses.
Speaker Change: And Robert is that the point, what we used to be called point grey is that what you were referring to.
Speaker Change: No.
Speaker Change: He is the one that's more matched to the cameras that we have in Tulsa to be actually while we kind of put it in player.
Speaker Change: Yes.
Speaker Change: More aligned with I'll say too.
Speaker Change: From an organization standpoint, it reports to the leader.
Speaker Change: He was talking about was the integrated offering.
Speaker Change: That's substantial.
Speaker Change: Okay. Thank you Robert.
Speaker Change: Thank you.
Speaker Change: We have no further questions in queue at this time.
Speaker Change: Thank you operator.
Speaker Change: Thank you very much I'll now ask Jason to conclude our conference call.
Jason: Thanks, everyone and thanks, Robert if you have any follow up questions of course, if my numbers on the earnings release. Please feel free to call me and then I Wonder if you could please give the replay information at the end of the call.
Jason: Thanks, everyone.
Jason: Thank you ladies and gentlemen, this conference is available for replay and that will be beginning today.
October 20, pardon me October 'twenty through 2020 four at 10 Oclock Pacific.
Jason: Pacific Daylight time through November 23rd 2024 at midnight to access the AT&T playback service during that time, you can dial toll free 8662071041.
Jason: And the access code is 1284672 international participants May dial area code four zero to 9700847, using the same access code.
Those numbers again are 8662071041 and area code four zero to 90 700 847, the access code once again as 128467 to that.
Speaker Change: That will conclude your conference call for today. Thank you for your participation and for using AT&T event Teleconferencing you may now disconnect.
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Speaker Change: Ladies and gentlemen, thank you for standing by welcome to the Teledyne third quarter earnings Conference call. At this time all lines are in a listen only mode. Later, there will be an opportunity for questions and answers with instructions given at that time.
Speaker Change: If you should require assistance during the call. Please press Star then zero on the AT&T specialist will assist you offline and as a reminder, your conference call today is being recorded.
Speaker Change: I will now turn the conference call over to your first Speaker, Jason <unk>. Please go ahead.
Jason <unk>: Thank you Hello, and good morning, everyone. This is Jason <unk>, Vice Chairman I would like to welcome everyone to Teledyne's third quarter 2024 earnings release Conference call. We released our earnings earlier this morning joining.
Speaker Change: Joining us today are telling me as executive Chairman, Robert Mehrabian, CEO Raj <unk>, President and COO, George Bob SAP.
Speaker Change: CFO, Steve Blackwood, and Melanie Civic EVP General Counsel, Chief compliance Officer, and Secretary after remarks by Robert Edwin George or Steve will last for your questions.
Speaker Change: But 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 of course actual results may differ materially.
Speaker Change: Okay.
Robert Mehrabian: Here is Robert.
Robert Mehrabian: Thank you, Jason and good morning, and thank you for joining our earnings call.
Robert Mehrabian: Teledyne achieved all time record sales in the third quarter.
Robert Mehrabian: With revenues sequentially great.
Robert Mehrabian: Each segment, allowing us to report overall year over year growth as we expected.
Robert Mehrabian: We continue to see robust demand in our longer cycle defense space and energy businesses.
Robert Mehrabian: And at the same time.
Robert Mehrabian: While year over year comparisons remain challenging SaaS world most of our short cycle commercial businesses have either stabilized.
Robert Mehrabian: We have begun to recover sequentially.
Robert Mehrabian: Year to date.
Approximately repurchased about $204 million of our stock.
Robert Mehrabian: We completed two acquisitions for $125 million and repaid $450 million of gross debt.
Robert Mehrabian: Our quarter end leverage has remained in the one seven X.
Robert Mehrabian: Given record free cash flow over the last nine months.
Orders were greater than sales.
Robert Mehrabian: Fourth consecutive quarter.
Robert Mehrabian: And we once again ended the period with record backlog.
Robert Mehrabian: Nevertheless.
Given the timing of future shipments against this backdrop and some said we were able to accelerate into the third quarter.
Robert Mehrabian: We continue to remain reasonably confident that quarterly sales will again increased sequentially in the fourth quarter, but only modestly compared with the third quarter.
Speaker Change: I will now turn the call over to Edwin our CEO, who will further comment on the performance of.
Speaker Change: Our four business segments.
Edwin: Thank you Robert This is Ed and I will first report on the digital imaging segment, which represents a bit over 50% of <unk> portfolio.
Unlike TV as a whole this segment is a mix of longer cycle businesses suggest defense space and healthcare combined with shorter cycle markets, including industrial automation semiconductor inspection and infrared components and cameras for applications ranging from factory condition monitoring to maritime navigation.
Edwin: Third quarter of 2024 sales declined less than 1% compared to last year sales to industrial machine vision market declines year over year. However, this was partially offset by increased sales from <unk>.
Edwin: <unk> commercially imaging and defense research, Mr. Estrela Shoretel that space based infrared imaging detectors.
Edwin: Furthermore, for the fifth consecutive quarter healthy margins across the entire.
Edwin: Business portfolio helped us protect overall operating margin, even given the significant year over year reduction in sales of our typically highest contribution margin product lines.
Speaker Change: George will now report on the other three segments, which represents the balance of Telenor.
Thanks, Edwin the instrumentation segment consists of our marine environmental and test and measurement businesses, which contributed a little under 25% of sales.
For the total segment overall third quarter sales increased six 3% versus last year.
Speaker Change: The marine instruments increased 24, 1% in the quarter, primarily due to both strong offshore energy and subsea defense sales.
Speaker Change: Sales of environmental instruments decreased three 5%, primarily due to greater sales of water quality instruments offset by lower sales of select laboratory instruments and emission monitoring systems.
Speaker Change: Sales of electronic test and measurement systems, which include the sale of scopes Digitizes. The protocol analyzers decreased eight 6% year over year on a tough quarterly comparison for 2023.
Speaker Change: Instrumentation instrumentation operating margin increased in each product family in the third quarter with overall operating margin, increasing 155 basis points to 27, 5% and 152 basis points on a non-GAAP basis was 28, 6%.
Speaker Change: In the aerospace and defense Electronics segment, which represents roughly 15% of Teledyne sales third quarter sales increased nine 2% driven by growth in both commercial aerospace and defense electronics products.
Speaker Change: Overall segment operating profit increased year over year with GAAP segment margin, increasing 117 basis points to 28, 1% and 116 basis points on a non-GAAP basis to 28, 2%.
Speaker Change: For the engineered systems segment, which contributes less than 10% of overall sales.
Speaker Change: Third quarter revenue increased nine 4%.
Speaker Change: Segment operating profit also grew with segment margin, increasing 78 basis points due to higher sales and a greater mix of manufacturing programs I will now pass the call back to Robert.
Robert Mehrabian: Thank you George.
Conclude with a few comments on strategy.
Robert Mehrabian: And capital allocation.
Robert Mehrabian: Over the last several quarters.
Robert Mehrabian: Some of our markets have experienced weakness.
Robert Mehrabian: But we lowered carla to protect margins in these businesses, while growing and increasing margin in those businesses, where the environment was more favorable.
Robert Mehrabian: During this period, we also opportunistically purchased our own stock.
Robert Mehrabian: While our current 125 billion stock repurchase authorization remains active.
Robert Mehrabian: We're also fortunate.
Robert Mehrabian: That our near term acquisition pipeline is healthy.
Robert Mehrabian: While there are always new challenges.
Robert Mehrabian: Im optimistic.
We have began begun to exit some of our more difficult quarterly comparison.
Robert Mehrabian: And we will continue to grow both organically.
Robert Mehrabian: And through acquisitions.
Speaker Change: I'll now turn the call over to our CFO Steve.
Steve Blackwood: Thank you Robert and good morning, I'll first discuss some additional financials for the quarter not covered by Robert and Al will discuss our fourth quarter and full year 2024 outlook in.
In the third quarter cash flow from operating activities was $249 8 million.
Steve Blackwood: Compared with $278 2 million in 2023.
Free cash flow that is cash flow from operating activities less capital expenditures was $228 $7 million in the third quarter of 2024 compared to $255 $2 million in 2023.
Steve Blackwood: Cash flow decreased in the third quarter due to higher income tax payments.
Steve Blackwood: Capital expenditures were $21 1 billion in the third quarter of 2024, compared with $23 million in 2023.
Steve Blackwood: Depreciation and amortization expense was $76 $9 million for both the third quarters of 2024 and 2023.
Steve Blackwood: For the first nine months of 2024 cash flow from operating activities and free cash flow were $859 $5 million and $804 $8 million respectively.
Steve Blackwood: We ended the quarter with approximately $2 $2 4 billion of net debt.
That is approximately $2 $800 billion of debt less cash of 561 billion.
Steve Blackwood: Now turning to our outlook management currently believes that GAAP earnings per share in the fourth in the fourth quarter of 2024 will be in the range of $4 27.
Steve Blackwood: To $4 41 per share.
With non-GAAP earnings per share in the range of $5 13.
Steve Blackwood: To $5 23.
Steve Blackwood: And for the full year of 2024, we are raising our GAAP earnings per share outlook to $17 28 to.
Steve Blackwood: To $17 42.
Steve Blackwood: And we are narrowing our non-GAAP outlook to $19 35.
Steve Blackwood: To $19 45.
Speaker Change: The top end of our prior outlook range I will now pass the call back to Robert.
Steve Blackwood: Thank you.
Robert Mehrabian: We would now like to take your questions operator, if youre ready to proceed with the question and answers. Please go ahead.
Speaker Change: Did I lose our operator, no I am sorry, ladies and gentlemen, if you would like to ask a question. Please press. One then zero on your telephone keypad Youll hear an indication you've been placed into queue and you may remove yourself from the queue by repeating the one zero command.
Speaker Change: We're using a speaker phone and we ask that you. Please pickup your handset and to make sure it and your phone is on mute it before pressing any buttons.
Speaker Change: Again for questions, perhaps one lens zero at this time.
Speaker Change: Our first question will come from the line of Jim Ricchiuti with Needham go ahead.
Jim Ricchiuti: Hi, Thank you good morning.
Jim Ricchiuti: Robert I think you alluded to.
Jim Ricchiuti: Some acceleration in sales.
Jim Ricchiuti: Perhaps Kevin pull ins from Q4 was that mainly in the defense area. We do have some other markets where you saw that.
Speaker Change: No I think give us primarily where we have the largest.
Backlog, which would be the defense businesses.
Speaker Change: A little bit from energy, but primarily pretense right Jim.
Speaker Change: Got it and just with respect to its sounds like you had a good quarter.
Speaker Change: And order standpoint can you give us any more color in terms of book to Bill as it relates to the segments and maybe.
Speaker Change: How youre thinking about overall revenue growth.
Speaker Change: Versus what you've maybe we're thinking about a few months back.
Speaker Change: Yes, let me start with.
The book to Bill.
Let me start with the overall <unk>.
Speaker Change: Book to Bill at the end of Q3 was about one point.
Speaker Change: Great.
Speaker Change: Yeah.
Speaker Change: Almost all of the businesses had healthy book to Bill.
Speaker Change: Except Florida.
Speaker Change: One of our environmental businesses, let me now go over to Bill.
Bill: Your line.
Speaker Change: Book to Bill was about one.
With marine of course, being much higher and Tim coming along too overwhelmed and environmental below one.
Speaker Change: In digital imaging.
Speaker Change: We are experiencing good book to Bill numbers.
Speaker Change: In what we call.
Speaker Change: Historical Teledyne.
Speaker Change: Book to Bill was one point to eight.
Speaker Change: Excellent book to Bill of 117.
Speaker Change: Aerospace and defense one point go for.
Speaker Change: Engineered systems wont go too.
Speaker Change: No regarding the revenue.
Speaker Change: Yes.
Speaker Change: We've decided that with all the.
Speaker Change: Certainty in.
Speaker Change: And the work today, starting with the election.
Speaker Change: And then of course, the various conflicts in the middle East.
Speaker Change: We've decided that it's prudent to.
Speaker Change: To maintain the number the revenue number that we had in at the end of Q2.
Speaker Change: We projected which is about 562.
Speaker Change: <unk> million or five 6 billion.
Speaker Change: And you might we.
Speaker Change: We might do better but right now Jim.
Speaker Change: With all the uncertainty, it's prudent not to be too high for Airbus.
Speaker Change: Got it makes sense just one quick follow up with I will turn it over.
Just with respect to.
Speaker Change: The test and measurement business are you seeing now it looks like you had nice sequential growth do you feel that the.
Speaker Change: The weakness in the scopes business is behind you or is it still the critical analyzer placements.
Speaker Change: Contributing to this overall better results.
Speaker Change: In the third quarter U S primarily.
Speaker Change: Protocol.
Speaker Change: I think.
Speaker Change: A little.
Speaker Change: Hesitant about projecting.
Speaker Change: Oscilloscope businesses, but usually what happens at year end, which would be our Q4.
Speaker Change: People do their capital expenditures and we pick up business in that domain. So we're hopeful that this year would be a repeat of last year.
Speaker Change: With Q4 higher than Q3.
Speaker Change: Got it thanks very much thank.
Speaker Change: Thank you Jim.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: We will next go to the line of Greg Conrad with Jefferies Go ahead.
Greg Conrad: Good morning.
Speaker Change: Morning, Greg.
Greg Conrad: Is there any way you can.
Greg Conrad: Can you parse digital imaging for the quarter and maybe what youre seeing across the different businesses I mean going into the quarter. We did see a couple of negative pre announcements from some of your peers on the vision side any color on what you're seeing across the different vision end markets, either from Florida or just trend perspective.
Yeah.
Speaker Change #100: Yes, let me let me slide six.
Speaker Change #100: Large year job.
Speaker Change #101: Picture first Steve if I may.
Speaker Change #100: <unk>.
Speaker Change #100: If you look at our two.
Speaker Change #100: Segments within that digital imaging.
Our historic of digital imaging, which all of which is the I'll say <unk> as well.
Speaker Change #100: Well as our scientific imaging here.
Speaker Change #100: And then you have later.
Speaker Change #100: So if I look at the Big picture for Q3.
Speaker Change #100: And what we call our traditional historical digital imaging.
Speaker Change #100: Revenue.
Speaker Change #100: But declined organic growth was negative.
Speaker Change #100: 989, 9%.
On the other hand.
Speaker Change #100: Clearly it exceptionally well.
Speaker Change #100: In the defense businesses in player, which is 40% of the.
Speaker Change #100: The growth was eight 2%.
Speaker Change #100: With all of the subdivisions within dash growing very healthy.
Speaker Change #100: In the clear commercial businesses.
Speaker Change #100: We were essentially flat.
Speaker Change #100: We have to keep in mind that in the commercial player businesses.
Speaker Change #100: So I do have.
Speaker Change #100: Camera vision system.
Speaker Change #100: Which is basically a area camera two dimensional area camera.
Speaker Change #100: Had much lower sales just like the rest of our vision camera systems in the I'll say Tobey.
Speaker Change #100: If we took that negative outlook.
Speaker Change #100: Industrial also grew and overall.
Speaker Change #100: Three 2%.
Speaker Change #100: With.
Speaker Change #100: That negative.
Speaker Change #100: <unk>.
Speaker Change #100: We had no we also.
Speaker Change #100: Going to the I'll say Tobey.
Speaker Change #100: What we're looking at there is <unk>.
Speaker Change #100: <unk> range of businesses.
Speaker Change #100: Some positive and.
Speaker Change #100: Some negative let me give you the <unk>.
Positives and the negatives, which we've talked about before.
Speaker Change #100: Interestingly enough.
Speaker Change #100: Our micro electro mechanical systems or Mems.
Speaker Change #100: Is experiencing really good growth.
Speaker Change #100: Maybe that's the Canary in the mine.
Speaker Change #100: Mind, because they're making a lot of products that are.
Speaker Change #100: Relative to the semiconductor industry.
Speaker Change #100: Also as you may recall, we have an aerospace and defense business within our historical digital imaging that did very well grew almost 13%.
Speaker Change #100: Where we had decreases were primarily in scientific and industrial vision systems.
Speaker Change #100: Somewhat in healthcare.
Speaker Change #100: I think that healthcare is going to recover.
Speaker Change #100: And I think in the.
Speaker Change #100: Industrial and scientific vision systems with.
Speaker Change #100: Believe that at least in the camera domain.
Speaker Change #100: Bob turned out and we have a slow recovery.
Speaker Change #100: A portion of that deals with sensors, where it makes sense for ourselves and other people that's going to lag a little more it may have bottomed out, but we don't see a recovery at this point, so overall I would say.
Speaker Change #100: Darcy.
Speaker Change #102: <unk> Teledyne imaging.
Darcy: We're lagged a little bit with mixed.
Darcy: Progress in the different businesses.
Darcy: <unk> carried the day for the overall digital imaging.
Darcy: Okay.
Darcy: Then.
Darcy: Maybe it's a little bit early to talk about 2025, but it seems at least on the long cycle, whether that's defense or.
Darcy: On Marine you've experienced positive book to Bill on ramping sales yes.
Speaker Change #104: If you look out over the next year can you maybe talk about how much visibility you have on the long cycle businesses versus.
Speaker Change #104: How youre thinking about.
Speaker Change #104: The recovery in short cycle over the next year.
Speaker Change #104: Are the long cycle businesses.
Speaker Change #104: Greg.
Speaker Change #104: Assuming there is no catastrophe.
Speaker Change #104: Catastrophes.
Speaker Change #104: There anything like that can affect our long cycle businesses.
Speaker Change #104: Healthy.
Speaker Change #104: Think.
Speaker Change #104: They're going to grow year over year.
Speaker Change #104: We have some really good program wins.
Speaker Change #104: In our job flared defense as well as in our Taylor.
Speaker Change #104: Teledyne imaging here in space.
Speaker Change #104: Other programs. So we think those are going to grow on the short cycle businesses.
We're just going through the first cut.
Speaker Change #104: Our plan for next year I think.
Speaker Change #104: I have to say, it's a little too early.
Speaker Change #104: I think that's going to work.
Speaker Change #104: I'll wait another couple of months and see.
Speaker Change #104: What happens to the elections here, but more importantly, what kind of capital expenditures people exercise as they get near the end of the quarter Q4.
Speaker Change #105: And then maybe just sneaking in one last one I mean, if you think about defense across <unk> and engineered in A&D electronics, what was defense up in the quarter.
Speaker Change #105: Defense.
Speaker Change #106: U S government defense.
Speaker Change #106: Was up.
Speaker Change #107: Janet Clay, maybe two 5% plus.
Speaker Change #107: But we do have programs overseas that are doing really well for example.
Speaker Change #107: Ukraine.
Speaker Change #107: We supply a whole range of products to them.
Speaker Change #107: Also some telling me the lease.
Speaker Change #107: And those programs have been very healthy and we seem to be winning.
Speaker Change #107: New programs, especially with offers that we have in.
Speaker Change #107: Commentary.
Speaker Change #107: UAV systems.
Speaker Change #107: As well as where our minutes youre.
Our own.
Speaker Change #107: AAV is the small.
Speaker Change #107: Black Hornet, which are doing really well so overall very positive in that domain.
Speaker Change #108: Okay. Thank you.
Speaker Change #108: First year.
Speaker Change #109: We will move on to the line of Andrew Buscaglia with BNP go ahead.
Speaker Change #110: Hey, good morning, everyone.
Speaker Change #111: Good morning, Andrew.
Andrew Buscaglia: I wanted to touch on Meru.
Andrew Buscaglia: Marine has been so strong.
Andrew Buscaglia: All year and you seem to have good visibility in that.
Speaker Change #113: I'm just wondering what the sustainability of that growth is through next year, how much visibility do you have that that you could you could maintain such a strong.
Andrew Buscaglia: Segment, and then not maybe not the.
Speaker Change #113: Yes.
Speaker Change #114: A little bit worried about challenging comps, but how do you see that playing out.
Speaker Change #114: Yes, let me that's a good.
Speaker Change #114: Question.
Speaker Change #114: Marine.
Speaker Change #114: It had kind of a variation in their book to Bill with Q1 being very strong at one point to seven and then Q3 being at around one point go forward.
Speaker Change #114: Hey.
Speaker Change #114: This story on marine.
Speaker Change #114: We acquired about 23 small businesses to form our marine group.
Speaker Change #114: Those range from interconnect.
Speaker Change #114: For commercial.
Speaker Change #114: Oil exploration and oil.
Speaker Change #114: Production.
Speaker Change #114: Defense, we have underwater vehicles.
Speaker Change #114: Ranging from Florida.
Speaker Change #114: Two gliders.
Speaker Change #114: What we call the <unk>.
Speaker Change #114: Vehicles that are being used both in this country and in Europe.
Speaker Change #114: And then we have military programs that they are with.
Speaker Change #115: Hello, Penetrators for the Virginia class submarine as an example, so the.
Speaker Change #115: Mix is very interesting its.
Speaker Change #115: It's offshore energy.
Speaker Change #115: Maybe 30% maybe more if you put in exploration is close to Florida percent.
Speaker Change #115: But then we have.
Speaker Change #115: Science construction, which are about 27% and then we have.
Speaker Change #115: Defense, which is as much as 28% sorry did distribute it kind of mirrors in some ways Taylor.
Speaker Change #115: Teledyne as a whole our expectation are that that will remain strong.
Speaker Change #115: It is possible though.
Speaker Change #115: At the.
Speaker Change #115: The current projections oil prices may decline significantly not as much as they did in 2014 to 16, but Meg may decline and if that happens some of our production Interconnects will go down but the other businesses that we have there should remain healthy.
Speaker Change #115: So I'm positive about marine for next year.
Speaker Change #115: Okay.
Speaker Change #115: That's helpful.
Speaker Change #115: And yes.
Speaker Change #116: You guys made the comment in your press release about.
Speaker Change #116: <unk> been buying back stock, but maybe M&A looks like it's perking up here.
Speaker Change #116: Can you comment a little bit more on that and then specifically on any what are the size of the deal here you might be.
Speaker Change #116: <unk>.
Speaker Change #117: Yes, Andrew.
Speaker Change #118: That's a very good question and the reason it's timely.
Speaker Change #118: For the first time.
Speaker Change #118: I would say since we acquired clear we've done a couple of acquisitions every year like this year, we've got a small business for our marine we bought <unk>, which is an imaging business for our overall imaging.
Speaker Change #118: <unk>.
Speaker Change #118: But that hasnt been that much activity or opportunity.
Speaker Change #118: For us to do acquisition suddenly in the last month or so the funnel seems to have opened up.
Speaker Change #118: We are seeing more.
Speaker Change #118: Opportunities.
Speaker Change #118: Actually.
Speaker Change #118: Outside digital imaging for example.
Speaker Change #118: Our aerospace and defense as well our instrument.
Speaker Change #118: So.
Speaker Change #118: We are positively inclined to.
No.
Speaker Change #118: Look at.
What we can do so much.
Speaker Change #118: We have.
Speaker Change #118: Mac acquisitions on frankly.
We bought our stock when it was close to 52 weeks slow.
Speaker Change #118: Continued buying it through Q3.
Speaker Change #118: But no I think it's more likely that.
Speaker Change #118: We will focus more highly on acquisitions.
Speaker Change #118: We have the wherewithal to spend up to two.
Speaker Change #118: $2 3 billion, if we want to I don't know if we will do that much but we certainly are in the market to buy some smaller companies, which would be let's say the $50 million range and maybe some things that are closer to half a billion or more.
Speaker Change #118: It won't be anything as large as clear at this time, but.
Speaker Change #118: There are many opportunities.
Speaker Change #119: Okay very helpful. Thank you.
Speaker Change #118: Sure.
Speaker Change #120: We will move on to the line of Joe Giordano from TD Cowen go ahead.
Joe Giordano: Hey, guys. Good morning, good morning.
Speaker Change #120: <unk>.
Joe Giordano: Can you just talk us through like what's contemplated in the guide for next quarter, and how Youre thinking going forward about what's going on with Boeing.
Speaker Change #121: Let me start with Boeing because that.
Speaker Change #121: That's a subject that we've.
Speaker Change #121: Kind of study and follow.
Speaker Change #121: In our aerospace business.
Speaker Change #121: Which.
Speaker Change #121: Serves.
Speaker Change #121: Boeing as well as other Airbus and a whole bunch of airline customers.
Speaker Change #121: <unk>.
Speaker Change #121: We think the strike.
Speaker Change #121: Could have.
Speaker Change #121: At risk for us I'm, hoping that it settles, but the risk for us.
In the 737, Max where we have.
Speaker Change #121: Data acquisition systems that could hit us that's assuming the strike goes through the year through the quarter that could hit us as much as on the upside maybe $5 million in revenue.
Speaker Change #121: From Q3 to Q4.
Speaker Change #121: But if the strike is setup.
Speaker Change #121: Pending on timing it could be less than that maybe two or three.
So it's a little bit of a headwind for us.
The other part of your question was forgive me.
Speaker Change #121: I kind of lost.
Speaker Change #123: The trend of <unk>.
Speaker Change #124: Boeing was the first question I can I can move you also mentioned.
Speaker Change #123: Instrumentation.
Speaker Change #125: I think you indicated that there was a piece of that business on the environmental side that was weak.
Speaker Change #125: With like orders below revenues can you can you give us a little bit more color on what that is and what type of applications or end markets that spacing.
Speaker Change #126: Yes, the environmental side, we have to.
Speaker Change #127: <unk> businesses once said deals with drug discovery.
Speaker Change #127: Water quality.
Speaker Change #127: Etc, and that business has been okay.
Speaker Change #127: However, we've seen a little weakness is in our.
Speaker Change #127: Air quality monitoring stack monitoring and.
Speaker Change #127: Basically looking at quality.
Speaker Change #127: Product.
Speaker Change #127: There we've had a little weak.
Speaker Change #127: Turning but.
Speaker Change #127: We depend a little bit on middle East, where they buy our systems large systems.
Speaker Change #127: <unk>.
Speaker Change #127: I think it might be.
Speaker Change #127: Later, Wakemed few million dollars, but im not that concerned about the business.
Speaker Change #127: Nothing bad is going to happen.
Speaker Change #127: It just we think Q4 should be a little better than Q3.
Speaker Change #127: So it doesn't concern for me right now any instrument okay.
George Bob: As George said includes marine.
George Bob: Test <unk> measurement as well as the environment.
Speaker Change #128: And just last for me the margins.
Speaker Change #128: <unk> were good I think.
Speaker Change #128: Probably better than some.
Speaker Change #129: Give us maybe some color onto what drove that and how are you thinking about margins and to wrap up the year across the portfolio here.
Speaker Change #129: D.
Speaker Change #130: I think what you have.
Speaker Change #130: Flares margins greatly improved very much.
Speaker Change #130: Very healthy.
Speaker Change #130: And.
Digital imaging.
Speaker Change #130: The whole.
Speaker Change #130: <unk> remained relatively flat.
Speaker Change #130: In margin.
Speaker Change #130: I would say maybe went down 30 basis points.
Speaker Change #130: If you look at the whole year 24 versus 23.
Speaker Change #130: The same here of course as I mentioned.
Speaker Change #130: Pension versus.
Speaker Change #130: On the flip side.
Speaker Change #131: Edwin on ESP.
Speaker Change #131: We're able to take cost out.
Speaker Change #131: Our camera.
Speaker Change #131: Especially in our camera at some healthcare businesses.
Say forward.
Speaker Change #131: Lower revenue and that help protect some of the margins in those businesses. Some of our very high margin businesses are in the camera business.
Speaker Change #131: So there has been a combination.
Speaker Change #131: Flare.
Speaker Change #131: Very strong.
Speaker Change #131: Digital imaging the rest of digital imaging, taking the cost out and I'm, hoping that as the recovery comes.
Speaker Change #131: Put that cost back in.
Speaker Change #131: Because we've had really good experience with defense and of course with marine in the past, where we took the cost didn't put the cost back in very quickly and the margins there have turned out to be very healthy. So overall.
Speaker Change #131: Positive about digital imaging.
Speaker Change #132: Is there a way if you just kind of scale like how big a drag I know those cameras and sensors business has a very high margin. So how like how much of a drag would you say currently those businesses are on what you are reporting for margin.
Speaker Change #131: Yes.
Speaker Change #133: I would say.
Speaker Change #133: Overall those businesses.
Speaker Change #133: Icon for maybe $300 million towards that.
Speaker Change #133: Are you seeing the drag on.
Speaker Change #133: And I would say.
Speaker Change #133: It changes, but I would say maybe $50 million in drag in those businesses overall.
Speaker Change #133: It doesn't sound like a lot, but those are our highest margin businesses and so when.
Speaker Change #133: Our revenue goes down.
Speaker Change #133: Margin overall declines because of that.
Speaker Change #133: But as we've said before.
Speaker Change #133: We think the cameras have bottomed out book to Bill is better than one now of course remember.
Speaker Change #133: Is low compared to last year.
Sensors will come eventually, but I'll try anyway.
Speaker Change #134: Thanks, guys.
Speaker Change #134: Sure.
We will go next to the line of Jordan <unk> with Bank of America go ahead.
Speaker Change #135: Hey, good morning.
Speaker Change #136: Could you just give us some color around how youre thinking about the opportunity for new programs like replicate or two.
Speaker Change #136: Let me let me take this.
Speaker Change #136: We.
Speaker Change #137: We have a whole bunch of programs for clear.
That are doing really well, let's start with the small uavs.
The small Uavs, we have the best system.
Speaker Change #137: In the world.
Speaker Change #137: These are uavs that at about 6% to seven inches in size.
Speaker Change #137: If they were flying in the wrong way do you probably would integrate Argos.
Speaker Change #137: But your peak share count growth automatically.
Speaker Change #137: You would get a good video outfit up to 25 kilometers away.
Speaker Change #137: So that's really good.
Speaker Change #137: The other side, we also have a counter UAV system.
Speaker Change #137: It's being used.
Speaker Change #137: In Europe.
Speaker Change #137: In another example, as we have.
Speaker Change #137: Loitering.
Speaker Change #137: Uavs.
Speaker Change #137: That.
Speaker Change #137: We are introducing which can carry munitions.
Speaker Change #137: The difference between these and other people.
Speaker Change #137: Munition enabled Uavs is that we can call these back.
They reached a target and it's not been opportune time, so we can recover.
Speaker Change #137: System.
Speaker Change #137: So overall I think the whole UAV business for us.
Speaker Change #137: Very strong we also have a whole bunch of other programs like we just announced.
Speaker Change #137: Program win.
Speaker Change #137: Our suite of.
Speaker Change #137: Sensors that go on.
Speaker Change #137: For chemical biological nuclear we announced that we just won a program for $168 million or so.
Speaker Change #137: Especially player defense, we're very positive we have an excellent leader in <unk> and Lee.
Speaker Change #137: Very positive about that business.
Speaker Change #138: Got it.
Speaker Change #138: So again fully replicated specifically counter UAS systems.
Speaker Change #138: We have a system in Europe, right now with Kongsberg.
Speaker Change #138: Which is being deployed.
Speaker Change #138: Successful that's all I can say about that at this time.
Speaker Change #139: Got it thank you so much.
Speaker Change #138: For sure.
Speaker Change #140: And as a reminder, ladies and gentlemen, if you do have questions. Please take this opportunity now depressed one then zero on your telephone keypad.
Speaker Change #141: We will go next to Guy Hardwick with Freedom capital markets go ahead.
Guy Hardwick: Hi, good morning.
Speaker Change #142: Good morning Guy.
Speaker Change #142: Hi.
Question to be honest.
Guy Hardwick: Just sort of big picture.
Speaker Change #143: Imaging margins peaked to 24% TV is back.
Speaker Change #143: If short cycle does recover some point next year what is the potential you think in terms of <unk>.
Speaker Change #143: Even the kind of what you have said anything about incremental margins in the higher margin mix of short cycle.
Speaker Change #143: Yes.
Speaker Change #143: Right now.
Speaker Change #143: If I look at.
Speaker Change #143: Q3.
Speaker Change #143: If I look at Q3.
Speaker Change #143: Our mine is.
Speaker Change #143: In overall digital imaging.
About 22, 6%.
Speaker Change #143: Last year this time.
Speaker Change #143: More like 24, 2%.
Speaker Change #143: So.
Speaker Change #143: I would hazard, a guess that as a minimum should be as good as last year.
Speaker Change #143: And if the short cycle businesses do come back.
Speaker Change #143: Strongly.
Speaker Change #143: There is an opportunity for us to go above 25%.
Speaker Change #143: Which would be very healthy for us, but I would maintain that.
Speaker Change #143: Certainly sequentially.
Speaker Change #143: Our longer recovery of our centers.
Speaker Change #144: I didn't realize you werent done sorry.
Speaker Change #144: Bless you.
Speaker Change #144: Wed go proudly March 24.
Speaker Change #144: Plus percent 24 points to $24 five.
Speaker Change #144: But the sensors recover then the margin would go higher.
Speaker Change #146: Okay. Thank you just as a follow up.
Speaker Change #147: Obviously, you've indicated in the statement that we see short cycle has stabilized and maybe an improving.
Speaker Change #148: I assume that's because of booking trends can you, maybe just give us a bit more color on booking trends and short cycle.
Speaker Change #149: Yes in the last.
Speaker Change #149: Two three.
Speaker Change #149: Months.
Speaker Change #149: Our.
Speaker Change #149: Book to Bill is above one let's say one one.
Speaker Change #149: I have to always keep in mind that when we talk book to Bill we're talking about that.
Speaker Change #149: That's lower than it used to be so.
Speaker Change #149: I don't want to over state that is not like book to Bill at the height of this system.
Speaker Change #149: But what that tells US is that we have reached the bottom and recovery.
Speaker Change #149: The flip side, our sensors themselves. The book to Bill has not recovered yet so people are a little more hesitant to spend money on sensors. Because then they have the longer haul off developing cabotage, whereas it's easier for them to acquire cameras.
Speaker Change #149: The flip side I have to say again going back to flare because players being so successful is that they have both long cycle and short cycle.
Speaker Change #149: Infrared cameras in.
Speaker Change #149: In the long cycles, where fixed cameras in the short cycle that handheld cameras.
Speaker Change #149: We're very pleased that.
Speaker Change #149: Clearly industrial has done really well.
Speaker Change #149: That domain and.
Speaker Change #149: We expect that they'll continue to do so with new products.
Speaker Change #149: Okay.
Speaker Change #149: Divisional intelligent <unk>.
Speaker Change #149: Enabled cameras.
Speaker Change #149: Bring decision make decisions easier for the customers. We are positive that as we are with the FLIR defense businesses.
And Robert is that the point, what we used to be called point grey is that what you're referring to.
Speaker Change #149: No.
Speaker Change #149: He is the one that's more matched to the cameras that we have.
Speaker Change #149: I'll say to be actually while we kind of put it in player.
Speaker Change #149: Yes.
Speaker Change #149: More aligned with the I'll say too.
Speaker Change #149: From an organization standpoint, it reports to the leader.
I was talking about was the introductory.
Speaker Change #149: Offering okay.
Speaker Change #150: Thanks, Joe.
Robert Mehrabian: Okay. Thank you Robert.
Robert Mehrabian: Thank you.
Speaker Change #151: We have no further questions in queue at this time.
Speaker Change #151: Thank you operator.
Speaker Change #151: Thank you very much.
Speaker Change #152: Ask Jason to conclude our conference call.
Jason <unk>: Thanks, everyone and thanks, Robert if you have any follow up questions of course is my numbers on the earnings release. Please feel free to call me and then I Wonder if you could please give the replay information at the end of the call that would be ideal thanks, everyone.
Speaker Change #153: Thank you ladies and gentlemen, this conference is available for replay and that will be beginning today.
Speaker Change #154: October 20, pardon me October 'twenty through 2020 four at 10 Oclock Pacific.
Speaker Change #155: Pacific Daylight time through November 23rd 2024 at midnight to access the AT&T playback service during that time, you can dial toll free 8662071041.
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