Teledyne Technologies Incorporated

Ladies and gentlemen, thank you for standing by. Welcome to the Teledyne first quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. If you should require assistance during the call, please press star, then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jason Van Weest. Please go ahead.

Great. Thank you very much, Greg. Good morning, everyone. This is Jason Van Wees, Executive Vice President, and I'd like to welcome everyone to Teledyne's first quarter 2020 earnings release conference call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne's Executive Chairman, Robert Barabian, President and CEO, Al Pacelli, Senior Vice President and CFO, Sue Main, and Senior Vice President, General Counsel, Chief Compliance Officer, and Secretary, Melanie Sivic. After remarks by Robert, Al, and Sue, we will ask for your questions. However, 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. 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. Here's Robert.

Thank you, Jason. Good morning, everyone, and thank you for joining our earnings call. Before discussing our results and outlook, I want to talk very briefly about our people, our response to COVID-19, and our business portfolio as a whole. Our first priority remains the health and safety of our employees and their families. Employees whose tasks can be done offsite have been instructed to work from home, and currently up to 40% of our total personnel are working remotely. Our corporate office has been and remains open, and all of our seven key manufacturing sites worldwide are operational, but we're maintaining social distancing, enhanced cleaning protocols, and usage of personal protective equipment where appropriate. Our businesses can remain open because they serve critical infrastructure sectors, such as the defense industrial base, water and wastewater, healthcare, and public health. Teladon's business portfolio also remains exceptionally well-balanced across end markets and geographies. In addition, approximately one-half of our businesses are longer cycle, more predictable, and supported by record-ending, quarter-ending backlog. Looking back to the first quarter, we did not suffer any widespread reduction in customer demand. In fact, orders exceeded sales in each month, including March, and quarter-end backlog was a record of approximately $1.8 billion. Likewise, we did not incur any significant negative impact to our supply chain. Nevertheless, there were some first-quarter operational challenges in manufacturing and shipping products due to our policy of maintaining appropriate employee density at the workplace balancing employee absenteeism, and the availability of our customers to accept product. These operational and HR matters, along with some demand and supply chain issues, likely reduced our first quarter revenue by approximately $15 million. Nevertheless, organic sales growth was positive, and overall first quarter revenue increased 5.3%. from last year. GAAP earnings increased 7.4%, and despite $10.4 million of pre-tax charges, GAAP operating margin also increased. Finally, revenue, earnings, and operating margin were all records for any first quarter period. Now looking forward to the second quarter and the full year. The operational challenges encountered in the first quarter remain. However, there is now uncertainty regarding customer demand in the 50% of Teledyne's businesses that are shorter cycle and generally tied to corporate capital expenditures and the global economy as a whole. In addition, some end markets, such as commercial aviation, although just 6% of sales in the first quarter will be impacted beyond the next few quarters in 2020. While many other industrial companies have withdrawn 2020 earnings guidance, our total company has a relatively, and I emphasize relatively, high degree of predictability and stability. Nevertheless, in the current environment, we find it prudent to both lower and widen our prior expectations for revenue and earnings that we provided on January 22nd, 2020. Our current outlook is based on the following assumptions. First, at the lower end of our earnings range in the second quarter, We've assumed overall revenue contraction of approximately 6%, as well as year-over-year declines in each of quarter three and quarter four, although moderating by year end. This would result in an overall full year-over-year revenue decline of approximately 2%. Second, at the high end of our earnings range, In the second quarter, we've assumed overall revenue contraction of approximately 4%, more modest contraction in Q3, but flat year-over-year sales in Q4. This would result in roughly flat year-over-year overall sales. And by segment, for instrumentation, which is our shortest cycle business group, we expect an overall revenue change in the second quarter ranging from negative 5% to flat. At the midpoint of our outlook range, we expect full-year segment sales to be flat, including incremental sales contribution of about $60 million from gas and flame and Oak Gate acquisitions. We expect digital imaging, to be more resilient, as nearly half of the segment serves defense-based healthcare and scientific markets. This segment also has greater exposure to now, quote, back at work, unquote, customers in Asia. Plus, given a weaker 2019 in those digital imaging businesses serving semiconductor inspection and factory automation, We have an easier comparison in 2020. Hence, we expect to achieve positive, albeit low single-digit, segment four-year sales growth. In the other two segments, that is, aerospace and defense electronics and engineering systems, we continue to see our defense businesses in these segments growing at mid-single-digit rates perhaps even high single digits, despite the ongoing operations-related challenges mentioned previously. However, we are forecasting a collapse in commercial aviation in the aerospace portion of our aerospace and defense electronics segment. While less than 6% of our total sales in the first quarter We're expecting a 40% plus year-over-year decline in commercial aviation due to both significant air transport OEM and aftermarket declines. As a result, we expect total year-over-year segment sales to decrease approximately $90 million. Before turning to auto report on the first quarter performance by segment, I want to emphasize the following. We do not know the depth and duration of the economic decline or the pace of the recovery, but as we have repeatedly shown in the past, we know how to be disciplined and perform well in challenging environments. We are aggressively managing variable costs, capex, and cash flow, and quickly and permanently reducing costs where a prolonged down cycle is anticipated, such as in aviation. Finally, our balance sheet is exceptionally strong with over $230 million of cash and cash equivalents and more than $600 million available under our credit facility maturing in 2024. Given our ample liquidity and the resilience of our business portfolio, we continue to review and pursue acquisition opportunities. Al will now comment on the performance of our full business segment, followed by Sue Main, who will give further financial details and present our outlook. Al?