Teledyne Technologies Incorporated

Standing by, welcome to the Teledyne Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. If you should require assistance during this call, please press star then zero. I would now like to turn our conference over to the host, Jason Van Weest. Please go ahead.

Thank you, William. Good morning, everyone. This is Jason Van Weest, Executive Vice President at Teledyne, and I want to welcome everyone to our Fourth Quarter and Full Year Earnings Release Conference Call. We released our earnings earlier this morning. Joining me today are Teledyne's Executive Chairman, Robert Morabian, President and CEO, Al Pacelli, Senior Vice President and CFO, Sue Main, and Senior Vice President, General Counsel, Chief Compliance Officer, and Secretary, Melanie Simic. After remarks by Robert, Al, and Sue, we will ask for your questions. Of course, though, before we get started... I want to remind everyone of the forward-looking statements made this morning are subject to various assumptions, risk 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 by Webcast and Island, will be available for approximately one month. Here's Robert.

Thank you, Jason. Good morning, and thank you for joining our earnings calls. I'll begin by discussing our 2020 results, briefly comment on the outlook for 2021, and of course, comment on the pending acquisition of FLIR. We concluded 2020 with the best earnings, operating margin, and cash flow in the company's history. Compared to last year, fourth quarter earnings increased 13.7%, Operating margin increased 173 basis points, and free cash flow increased 50.7%. For the full year 2020, GAAP operating margin increased slightly, and free cash flow increased significantly, 39.1%, to 547.5 million. It is worth emphasizing the full year margin and cash flow performance occurred despite over $33 million in non-recurring charges. Record negative GDP in the second quarter and the constant challenges faced by manufacturers during the COVID-19 pandemic. For all of their efforts, I want to congratulate our employees as well as offer my most sincere thank you to them for transforming a difficult year into one of the most rewarding for our stockholders. We entered 2021 with a clear improvement in demand across the majority of our businesses. In fact, we received record orders in the fourth quarter and ended 2020 with record backlog. Q2 orders were $920 million or 1.14 times sales with year-end backlog of $1.7 billion. While it's still early in 2021, we're expecting continuing recovery in our commercial businesses as well as growth in our government businesses. In both cases, strongest within our digital imaging segment. Given some caution and conservatism related to the ongoing tug-of-war between shutdowns and vaccines, we think a reasonable outlook for the total company's organic growth is between 5 and 6% for 2021. Of course, the largely pre-COVID comparison in the first quarter will be the most difficult with revenue relatively flat. Finally, I want to comment on the FLIR acquisition. We've been watching FLIR since we first entered the space-based infrared imaging market in 2006 when we acquired Teledyne Scientific and Imaging. and we believe now that our infrared imaging technologies and market segments are uniquely complementary. As both companies evolved, we've grown to be even more complementary. For example, Teledyne entered the soft-seat drone business in 2008, and FLIR entered the airborne unmanned business in 2016, and more recently, the land-based robotics business. Perhaps more importantly, each company exited unattractive businesses, Teledyne in 2011 and FLIR in 2018. While our respective sensing technologies and market segments are different, the fundamental desire of our end customers is an image, or even better, information. This is true for X-ray imaging, infrared imaging, industrial machine vision, and even our underwater marine sonar imaging and software businesses. In other words, there is similarity and synergy in digitization, imaging algorithms, machine learning, and other related technologies across each of our organizations. I will conclude by noting that for 21 years, Teledyne has consistently and predictably compounded earnings and cash flow, and 2020 was no different. Nevertheless, I have never been more excited about Teledyne's future than I am today with the pending acquisition of FLIR. I will now comment on the performance of our four business segments.