Teledyne Technologies Incorporated

Ladies and gentlemen, we'd like to thank you for standing by and welcome to the Teledyne first quarter earnings call of 2022. At this time, all participants are on a listen-only mode, and later we'll conduct a question and answer session with instructions being given at that time. If you should require any assistance throughout today's call, please depress the star, followed by the zero, and one of us will be with you immediately. And as a reminder, today's call will be recorded. We would now like to turn the conference over to our facilitator, Mr. Jason Van Weef. Please go ahead, sir.

Thank you, Steve. This is Jason Van Weef, Vice Chairman of Teledyne, and I'd like to welcome everyone to Teledyne's first quarter 2022 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 Moravian, Senior Vice President and CFO, Sue Main, and Senior Vice President, General Counsel, Chief Compliance Officer, and Secretary, Melanie Sivik. Also joining today is Edwin Rocks, Executive VP of Teledi. After remarks by Robert and Sue, we will ask for your questions. Of course, though, 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 the 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, everyone, to our 90th earnings call since our spinoff in November of 2019. at which point our stock price was approximately $9 a share. We began today, 2002 we began, with the greatest first quarter sales, earnings, and adjusted operating margin in our company's history. Our results and operational execution continue to reflect exceptionally well-balanced business portfolio across both in markets and geographies. Demand throughout our short cycle instrumentation and imaging businesses remain very robust, resulting in total organic sales growth of 7.8%, including approximately 100 basis points of currency translation headwind. We achieved record orders for our electronic test and measurement instrumentation and industrial imaging sensors and systems, even in a typically weak first quarter for these businesses. Sales from our longer cycle commercial aerospace and marine businesses increased considerably from last year, and backlog also grew. Both our GAAP and non-GAAP earnings were first quarter records. Gap earnings per share was exactly double compared with 2021, and non-gap earnings increased 34%. I want to emphasize that our non-gap earnings exclude only acquired intangible asset amortization, but in the first quarter, it also excluded a large tax benefit related to clear foreign tax matters, which only appear in the GAAP results. While free cash flow was lower than last year, it reflected the following items. First, bond interest payments of over $36 million made only in the first quarter and again will be made in the third quarter. Second, annual incentive compensation paid only in the first quarter, and third, a significant investment in inventory to de-risk revenue in future periods. These items will not be repeated in the second quarter. Nevertheless, our leverage ratio declined to 2.8x from 3.8x immediately after the FLIR transaction in May of 2021. Turning to our 2022 outlook, the overall demand environment across our businesses remain favorable. Even with supply chain constraints and currency translation headwind, we are increasing our expectation for the full year organic growth to approximately 6 percent from 4 to 5 percent communicated in January. Coupled with a full year sales contribution, slightly less than $2 billion from FLIR, this equates to total revenue of just over $5.5 billion for the year, roughly equal to the current consensus. I will now further comment on the performance of our four business segments. In our digital imaging segment, first quarter sales increased 185%, largely due to FLIR acquisition. But organic growth in our combined commercial and government imaging businesses was also very strong at 13.1%. Sales growth was strongest for industrial vision sensors and systems as well as our low-dose, high-resolution digital X-ray detectors. GAP segment operating margin was 15.4, but adjusted for intangible asset amortization, segment margin was 21.9 percent, or about 20 basis points greater than last year. In our instrumentation segment, Overall first quarter sales increased 7.8% versus last year. Sales of electronic test and measurement systems, which include oscilloscopes and protocol analyzers, were very strong and increased 19.1% year over year to record levels. Sales in the environmental instruments were flat compared to last year with greater sales from certain human health and drug discovery products offset by lower sales of industrial and laboratory gas detection devices. Sales of marine instrumentation increased 9.7% organically due to improved energy markets, but also record sales of autonomous underwater vehicles for both defense and commercial oceanography applications. Overall instrumentation segment gap operating profit increased 20.5% in the first quarter with operating margin increasing 245 basis points or 229 basis points excluding intangible asset amortization. Moving to our aerospace and defense electronics segment, first quarter sales increased 9.9%, driven by modest growth in defense space and industrial share sales, combined with greater than 50% increase in sales of commercial aerospace products. Gap segment operating profits increased 51.6%, with margin 710 basis points greater than last year. Finally, in our engineered system segment, first quarter revenue decreased 8.9% and operating profit and margin declined due to lower sales, but especially since we exited the higher margin cruise missile turbine engine business following the first quarter of last year. Before turning the call over to Sue, I wanted to make a couple of concluding remarks. Effective just this week, FLIR successfully fulfilled the terms of its consent agreement with the U.S. Department of State. Compliance has been always and will always be a critical component of our culture at Teledyne. But Teledyne FLIR has now moved beyond the extra burden and cost of numerous investigations and third-party audits. Finally, regarding our global defense business, which represents approximately 25% of our total sales, over the last six months, defense sales, including that of Teledyne FLIR, declined slightly. year over year, and backlog also increased. However, this was more than offset by very strong commercial orders and sales across the company. But now, with firmer U.S. and NATO budgets, the outlook for our defense has changed, creating opportunities for greater defense sales but also limiting risk for Teledyne if general economic growth decelerates in the future period. While the improvement in this sense may benefit future years the most, we are nevertheless seeing an increase in near-term bookings and opportunities, some of which we expect to benefit the second half of 2022. This is especially true for the Teledyne FLIR business portfolio, where our commercially derived but military qualified products may only require a purchase order as opposed to a lengthy appropriations process. I will now turn the call over to Sue.