Teledyne Technologies Incorporated

Ladies and gentlemen, thank you for standing by and welcome to the Teledyne third quarter earnings 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, you can press star and then zero. And as a reminder, this call is being recorded. I'd now like to turn the conference over to our host, Mr. Jason Van Weese. Please go ahead, sir.

Thanks, Brad, and good morning, everyone. This is Jason Van Weese, vice chairman of Teledyne. I'd like to welcome everyone to our third quarter earnings release conference call. And of course, we released our earnings earlier this morning for the market open. Joining me today are Teledyne's Chairman, President, and CEO, Robert Morabian, Senior Vice President and CFO, Sue Main, and Senior Vice President, General Counsel, Chief Compliance Officer, and Secretary, Melanie Sivek. After remarks by Robert and Sue, we will ask for your questions. However, 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, both via webcast and dial-in, will be available for approximately one month. Here's Robert.

Thank you, Jason. Good morning, and thank you for joining our earnings call. I'm very pleased with both our operational execution and our financial performance in the third quarter. We achieved record revenue, 75.2% greater than last year, driven by organic growth of 11.9%, and the remaining 63.3% of sales increased contributed by Teledyne Clear. Revenue increased organically in every major business group, but was especially strong in our commercial imaging and electronic test and measurement instrumentation businesses, where organic growth for each was greater than 20% in the quarter. Furthermore, orders exceeded sales for the fourth consecutive quarter with a third-quarter book-to-bill of 1.1. Gap earnings per share of $2.81 increased 13.3% compared to last year and was $0.03 less than our record gap third-quarter earnings achieved in 2019. Excluding acquisition-related charges, earnings were $4.34 per share in the third quarter, an increase of 61.9% on a comparable basis from 2020. Cash flow was a third-quarter record, allowing repayment of $300 million of debt while our leverage ratio declined to 3.3 from 3.7 at the end of the second quarter. Teledyne FLIR performed strongly in its first full quarter. Integration efforts have been swift, and we are increasingly excited about the long-term future with Teledyne. We continue to accelerate the pace of planned synergies and currently expect to achieve our annual cost saving target of $80 million before the middle of 2022, as opposed to the end of 2022, as we described in our July earnings call, and compared with 2024, as noted when we announced the transaction in January of 2021. Regarding our execution in the quarter, Teledyne is not immune to supply chain issues, inflation, and other operational challenges. However, to date, we've been successfully navigating and managing these issues, and today we're pleased to increase our full year sales, margin, and earnings outlook compared with the outlook we presented in July. On a full year basis, we now think a reasonable outlook for organic sales growth in 2021 is approximately 7% to 7.5%, led by forecasted growth of almost 13% in digital imaging, which excludes Teledyne FLIR. This translates to total sales of $4.59 billion, with contribution of $2.4 billion from digital imaging, including Clear. I will not further comment on the performance of the four business segments. In our digital imaging segment, third quarter sales increased 217.3%. largely due to the FLIR acquisition, but organic growth in our combined commercial and government imaging businesses was also very strong at 17.9%. Sales of industrial and scientific vision systems were a record, and healthcare sales returned to pre-pandemic levels. Gap segments Operating margin was 12.5%, but adjusted for transaction costs and purchase accounting, segment margin was 23.9%. In our instrumentation segment, overall quarter sales increased 9% versus last year. Sales of electronic test and measurement systems which include oscilloscopes and protocol analyzers, were exceptionally strong and increased 20.8% year-over-year to record levels. Sales of environmental instruments increased 7.6% from last year, with sales related to human health and safety markets such as drug discovery and gas and flame detection being strongest in the quarter. Sales of marine instrumentation increased 3.2% in the quarter. In addition, orders were the strongest in the last six quarters with a quarter book-to-bill of 1.13. Overall, instrumentation segment operating profit increased 24.3% with segment operating margin increasing 270 basis points or 247 basis points, excluding intangible asset amortization. In the aerospace and defense electronics segment, third-quarter sales increased 11.7 percent, driven by 8.4 percent growth in defense, space, and industrial sales combined with a 27% increase in sales of commercial aerospace products versus last year's pandemic-related top quarter. GAAP operating profit increased 34.5%, with margin 375 basis points greater than last year. in the engineered system segment. Third quarter revenue increased 1.4%, but operating profit and margin declined slightly since we exited the higher margin turbine engine business earlier this year. But before turning the call over to Sue, I want to comment on our margin and earnings outlook. For several years, we've been on a journey to move our overall operating margin from the low teens to over 20%. Over the last two and a half years, we've made tremendous progress, notwithstanding the pandemic and the recent supply chain and inflationary pressures. Today, the approximate $1 increase in our earnings outlook is primarily the result of further improvement in our full year 2021 forecasted operating margin, which, excluding acquisition-related charges, is 100 basis points better at approximately 21% from our 20% forecast in July. And now to Sue.