Teledyne Technologies Incorporated

Ladies and gentlemen, thank you for standing by, and welcome to the Teledyne's fourth quarter earnings call 2021. At this time, all participants are in listen-only mode. Later, we will have a question-and-answer session, and instructions for queuing up will be given to you at that time. Should you require operator assistance during the call, press star zero on your phone's keypad, and as a reminder, this conference call is recorded. I would now like to turn the call over to your first speaker, Mr. Jason Van Leaf. Please go ahead.

Good morning, everyone. This is Jason Van Wees, Vice Chairman at Teledyne. I'd like to welcome everyone to Teledyne's fourth quarter and full year 2021 earnings release conference call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne's Chairman, President, and CEO, Robert Barabian, Senior Vice President and CFO, Sue Main, Senior Vice President, General Counsel, Chief Compliance Officer, and Secretary, Melanie Sivic, And also joining today is Edwin Rocks, Executive VP of Teledyne and President of our combined Teledyne digital imaging businesses. After remarks by Robert and Sue, we will ask for your questions. 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, risk and caveats, as noted in the earnings release and our periodic SEC filing. And yes, 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, and good morning, and thank you for joining our earnings call. 2021 was a defining year for Teledyne. With record sales and adjusted earnings, operating margin and cash flow. Furthermore, with the successful acquisition and integration of Teledyne FLIR, Teledyne has further evolved into a global sensing and decision support technology company. We provide specialty sensors, cameras, instrumentation, algorithms, and software across the electromagnetic spectrum. unmanned systems in the subsea, land, and air domains. I've never been more pleased with our portfolio of businesses. In its simple description, we are a high-technology commercial industrial business balanced across multiple end markets with a resilient, predictable portion of long-cycle government businesses. In the fourth quarter, our operational execution remained very strong. We achieved record revenue 70% greater than last year, driven by organic growth of 8.4%, and the remaining 61.6% of sales increase contributed by Teledyne FLIR. Sales growth was especially strong in our commercial imaging and electronic test and measurement instrumentation businesses. In addition, our aerospace defense electronics segment saw continued growth in government and space markets along with ongoing recovery in commercial aerospace. Despite significant non-cash purchase accounting charges, Fourth quarter gap earnings per share of $3.39 decreased only 2.6% compared to last year. Excluding acquisition-related charges, earnings were $4.56 per share, an increase of 23.9% on a comparable basis from 2020. Compared to the midpoint of our fourth quarter earnings output in October, which was $4.12, stronger sales contributed about 12 cents per share, improved margins roughly 25 cents, plus a small 7 cents per share increase related to discrete tax items, which, by the way, specifically excludes a larger tax benefit related to clear foreign tax matters, appearing in the GAAP results. Cash flow was also all-time quarterly record, allowing repayment of $345 million of debt, and our leverage ratio declined to 2.9 from 3.8 which was the number we had immediately after the FLIR acquisition. Turning to 2022 outlook, the overall demand environment across our businesses remains favorable. Nevertheless, supply chain constraints continue to limit shipments. Given this, we think a reasonable outlook for total company organic sales growth at this time is between 4% and 5%. Coupled with a full-year sales contribution of approximately $2 billion from FLIR, this equates to total revenue of just under $5.5 billion. Of course, if supply chain challenges ease, Or, as it's necessary, we were able to increase pricing to offset inflation more than at the present time. We will increase the revenue outlook throughout the year, as we did in 2021, where we achieved full-year organic revenue growth of 8.2%, relative to our initial outlook in January of 2021 of 5 to 6%. I will now comment on the performance of our four business segments. In our digital imaging segment, fourth quarter sales increased 209%, largely due to the FLIR acquisition. But organic growth in our combined commercial and government imaging businesses was also very strong at 18.6%. Sales growth was strongest for industrial and scientific vision sensors and systems. In addition, we had record health care sales with revenue greater than any pre-pandemic period. Segment operating margin was 11.6%, but adjusted for purchase accounting and transaction costs, segment margin was 23.3%. In our instrumentation segment, fourth quarter sales increased 6.9% versus last year. Sales of electronic test and measurement systems, which include oscilloscopes, and protocol analyzers were very strong and increased 13% year-over-year to record levels. Sales of environmental instruments increased 3.2% from last year, with sales related to human health and safety markets, such as drug discovery and gas and flame detection being the strongest in the quarter. Sales of marine instruments increased 6.5% in the quarter. In addition, quarterly orders were the strongest in the last seven years, with fourth quarter books to build of 1.35. Overall, instrumentation segments operating profit increased 5.5% in the fourth quarter and 19% in 2021, with full-year segment operating margin increasing 226 basis points or 218 basis points, excluding intangible asset amortization. In the aerospace and defense electronics segment, fourth quarter sales increased 12.5 percent, driven by 6.4 percent growth in defense, space, and industrial sales combined with 38.5% increase in sales of commercial aerospace products. Gap segment operating profit increased 75% and margin 888 basis points greater than last year. Finally, in the engineer system segment, fourth quarter revenue decreased 15.6% operating profit and margin decline due to lower sales. And also, since we exited the higher margin cruise missile turbine engine business earlier this past year. Before turning the call over to Sue, I want to make a few concluding remarks. First, as noted in yesterday's 8K filing, An appeals court in Sweden generally affirmed a lower court ruling made in March of 2020 regarding a clear tax matter dating back to 2012. The court determined an estimated tax liability of $303 million. This outcome was anticipated by us and the associated liability was accrued as noted in our most recent 10Q. We do not plan to appeal the decision and expect to pay the tax in the first quarter of 2022. Finally, regarding environmental, social, and governance efforts, or ESG, Teledyne's sustainability journey began more than 20 years ago with the belief that demand for environmental monitoring instruments would outgrow general industrial process implementation. Our first three acquisitions were Advanced Pollution Instrumentation, Monitor Labs, and Techmark, three companies dedicated to analyzing trace contaminants in air and water. Today, our imaging sensors enable greenhouse gas and pollution monitoring from space. Our environmental instruments provide data on the concentration of chemicals and particulates in ambient air. And our autonomous underwater floats and vehicles enable the monitoring of ocean temperature and salinity from the surface to deep subsea. While we have highlighted our strategy and products in our last three annual reports, next month we will publish an inaugural Corporate Social Responsibility, or CSR, report. Here we will further highlight our sustainability efforts as well as disclose matrices regarding greenhouse gas emission and reduction targets workplace safety, and employee and management diversity. I'll now turn the call over to Sue.