Teledyne Technologies Incorporated

We're sorry, your conference is ending now. Please hang up. Thank you. Thank you. Ladies and gentlemen, thank you for standing by and welcome to the Teledyne Second Quarter Earnings Call 2021. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-answer session. Instructions will be given at that time. If you should require assistance during the conference, please press star, then zero. As a reminder, today's conference is being recorded, and I'd now like to turn the conference over to your host, Jason Van Weese. Please go ahead.

Thank you, and good morning, everyone. This is Jason Van Weese, Executive Vice President, and I'd like to welcome everyone to Teledyne's second quarter earnings release conference call. And, of course, we released our earnings earlier this morning, before the market opened. Joining me today are Teledyne's Executive Chairman, Robert Moravian, President and CEO, Al Pacelli, Senior Vice President and CFO, Sue Main, and Senior Vice President, General Counsel, Chief Compliance Officer, and Secretary, Melanie Sivick. After remarks by Robert, Al, and Sue, we will ask for your questions. Again, though, before we get started, 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 via webcast and dial-in will be available for approximately one month. Here's Robert.

Thank you, Jason, and good morning, and thank you for joining our earnings call. For over two decades now, we've continuously improved our portfolio of businesses, our operations, and our financial performance, and along the way, significantly compounded earnings, cash flow, and shareholder returns. It is worth noting that Just over 10 years ago, a major milestone occurred when we divested our aviation piston engine business and all of its associated liabilities. While initiated earlier, immediately following that divestiture, we accelerated our pace of change by making increasingly significant and successful acquisitions within our digital imaging and instrumentation businesses. Our recent acquisition of FLIR accelerates Teledyne's evolution into a more attractive, higher margin industrial technology company, while at the same time maintaining our balanced portfolio, primarily focused on commercial markets, but with a resilient and predictable backbone of government businesses. For example, in the second quarter of 2021, 75% of total company sales were derived from U.S. commercial and international customers, and 25% of sales from the U.S. government. In the past several weeks, we've made rapid progress integrating FLIR by implementing Teledyne processes, such as acceleration of financial forecasting and reporting, increasing visibility of sales and costs across the organization, while continuing to enhance FLIR's compliance standards. Furthermore, we've eliminated significant corporate overhead consultants and other third-party service providers. And as a result, we now expect to achieve our annualized cost savings target of $80 million before the end of 2022, as opposed to 2024 as described in our final merger proxy. Turning to the second quarter results, The second quarter was truly a record for Teledyne with sales, operating margin, and earnings that's excluding acquisition-related costs. All of these increased significantly from prior periods. We achieved double-digit organic growth for the total company with sales from digital imaging, environmental, and electronic test and measurement instrumentation increasing from 17% to nearly 25% year over year. The operating margin of our legacy businesses collectively was an all-time record, and with FLIR, our non-GAAP operating margin of 22.8% was an all-time record in the second quarter. I should note that very strong non-GAAP margin and earnings performance in Q2 resulted partially from a disproportionate amount of sales from FLIR relative to cost. That is, given FLIR's current lack of linearity in shipments, we essentially benefited from eight and a half weeks equivalent of sales volume and contribution margin relative to only six weeks of fixed cost. In the second half, FLIR's quarterly sales relative to cost will normalize, resulting in somewhat lower margins, in all cases excluding transaction-related expenses. In addition, the average share count in the second quarter only partially reflected the stock issued in connection with the FLIR transaction, which will impact EPS in the second half. On a four-year basis, And after a strong first half, we now think it's reasonable outlook for legacy 10 of 9 businesses, organic growth in 2021 to be approximately 6.5%, led by forecasted growth of nearly 12% in digital imaging, excluding fear. With normalized sales for Q3 and Q4, we expect flares to contribute sales of just under $1.3 billion in 2021. Collectively, therefore, we now expect reported sales for the year of approximately $4.5 billion. Our new outlook, which excludes acquisition-related transactions, transaction and purchase accounting expenses, can be summarized as follows. In April, we provided a GAAP earnings outlook for legacy Teledyne businesses of about $12.10. On a comparable basis, our current outlook is approximately $12.40, which is 30 cents above the earlier outlook. Given the 50 basis points increase in organic growth from 6 to 6.5% today versus April, and 40 basis points additional margin improvement, that's resulted in the overall 30-cent increase in our guidance. Intangible asset amortization from prior to clear transactions divided by the pre-FLIR share count would add around 80 cents to our earnings, resulting in a pre-FLIR outlook of $13.20. Now, incorporating FLIR, including its unusually strong partial period performance in Q2 and excluding transaction costs, Results in full year 2021, accretion of over $2 per share, and thus our current non-GAAP outlook is $15.25 to $15.50. I will now turn the call over to Al, who will comment on the performance of our business segment.