Teledyne Technologies Incorporated

Ladies and gentlemen, good morning. Thank you for standing by and welcome to the Teledyne fourth quarter earnings call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions and instructions to be given at that time. If you require any assistance today, please press star followed by the zero and an AT&T operator will assist you. And as a reminder, today's conference is being recorded. This time, it's my pleasure to turn the conference over to our host, Mr. Jason Van Wees. Please go ahead.

Thank you, Tom, and good morning, everyone. This is Jason Van Weese, Vice Chairman of Teledyne, and I'd like to welcome everyone to Teledyne's fourth quarter and full year 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, Senior Vice President, General Counsel, Chief Compliance Officer, and Secretary, Melanie Sivek. Also joining today is Edwin Rox. EBP of Teledyne. After remarks by Robert and Sue, we will ask for your questions. Of course, though, before we get started, attorneys have reminded me to tell you that all forward-looking statements made this morning are subject to various risks, assumptions, 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, Here's Robert.

Thank you, Jason. Good morning and thank you for joining our earnings call. 2022 ended up being an excellent year. We concluded it with all-time record quarterly and full-year sales and earnings per share. During 2022, Teledyne, as with many other companies, found itself faced with external forces beyond our control. These were inflation, strong dollar, and part shortages. Nevertheless, we continued our long history of navigating difficult market environments, and we ultimately delivered earnings in excess of our own expectations. Excluding foreign currency headwinds, which negatively impacted fourth quarter sales growth by approximately 2.6%. Growth in local currency would have been 5.7%. Excluding ETM acquisition, core growth in local currency would have been approximately 5%. Gap operating margin of 19.3% was an all-time record and non-GAAP operating margin of 22.4% increased 95 basis points from last year. GAAP and non-GAAP earnings of $4.74 and $4.94, respectively, were also records for Teledyne. Fourth quarter free cash flow was reasonably healthy. but included interest payments of approximately $30 million, which last year were made in the third quarter of 2021. While we completed the acquisition of ETM, our leverage ratio continued to decline from 3.8 times in May of 2021 when we acquired FLIR to 2.4 times at the end of 2022. Finally, our acquisition pipeline remains healthy, as evidenced by the recent addition of Chark World, whose maritime navigation software and hardware tools bridge a product and technology gap between our Teledyne Marine and Ray Marine businesses. Turning to our 2023 full-year outlook, while still very early in 2023 and with many unknowns, including projections of a recession, we're inclined to offer an initial revenue and earnings outlook in line with consensus expectations. On revenue, we see total 2023 sales growth of approximately 5%, including incremental sales from recent bolt-on acquisitions. For our backlog-driven long cycle businesses, we expect growth to be higher than average. For the majority of our short cycle commercial businesses, foreign currency headwind will impact the first quarter of 2023 where comparisons are tough and economic uncertainty and export regulations remain fluid. We continue to see overall growth, not contraction, in these businesses, but expect that growth will be less than the total company average. On the other hand, supply chain constraints are improving, albeit modestly. There are a few minor Other unknown puts and takes, such as increased scope on our NASA contract at the engineer systems, equally offset by the 2022 completion of our OneWeb contract in the aerospace and electronic segment. But no other significant items to highlight this early in the year. Our earnings outlook. approximately 50 basis points of margin improvement in 2023. And we currently think instrumentation and digital imaging will be above-average contributors to this, while margins at aerospace and defense electronics may be flat or decline slightly, given especially TOFCOMs as a greater mix in 2023 of defense electronics relative to commercial aerospace aftermarket sales. I will not further comment on the performance of our first segment. In our digital imaging segment, fourth quarter sales were relatively flat, despite currency translation headwind of approximately 3.5%. Sales increased year over year for our industrial and scientific vision systems, as well as our low-dose, high-resolution digital X-ray detectors. Sales of commercial infrared imaging cameras and components also increased and were at record levels since closing the FLIR acquisition in May of 2021. While total FLIR-related sales increased sequentially from the third quarter, sales of surveillance and unmanned ground systems declined from last year on a specially tough comparison. On the other hand, sales of unmanned air systems increased considerably year over year. Segment upgrading margin was eighteen point eight percent and adjusted for intangible asset amortization only Segment margin was twenty three point eight percent Approximately fifty faces points greater than the fourth quarter of last year In our instrumentation segment Overall, fourth quarter sales increased 7.9% versus last year, despite approximately 2.4% of FX translation headwinds. Sales of electronic test and measurement systems, which include oscilloscopes, digitizers, and protocol analyzers, increased 3.8% year-over-year, despite a tough comparison with the fourth quarter of last year's. Sales of both oscilloscopes and protocol analyzers remained healthy. We continued strength in products for industry standards, such as Peripheral Component Interconnect Express, or PCI Express, and Universal Serial Bus, or USB. Sales of environmental instruments increased 9% compared with last year, with greater sales of both drug discovery and laboratory instruments, as well as air monitoring and process gas analyzers. Sales of marine instrumentation increased 9.8% in the quarter, primarily due to strong marine defense sales and the ongoing recovery in offshore energy markets. Overall, instrumentation segment operating profit increased 18.4% in the fourth quarter, with gap operating margin increasing 215 basis points to 24.2%, and 163 basis points on a non-GAAP basis, excluding intangible asset amortization, which brought the non-GAAP margins to 25.3 percent. In aerospace and defense, electronic segment, fourth-farthest sales increased 8.9 percent, driven by broad base growth of both defense and commercial aerospace products. Gap and non-gap segment are operating profit increased approximately 30%, with margins over 480 basis points greater than last year. In the engineered system segment, fourth quarter revenue increased 6.7%, but operating profit declined given lower margins for some of our electronic manufacturing service products. Before I turn the call over to Sue, I want to make a couple of concluding remarks. First, I was very pleased that Teledyne was able to overcome issues faced by most companies in 2022. Despite the macroeconomic and supply chain challenges noted earlier, our results exceeded the top end of our earnings outlook issued at any point during the year. While difficult to predict outcomes in 2023, we are reasonably confident that a number of our long-cycle businesses serving defense, medical, energy and aerospace markets will grow. While demand is more difficult to predict in our short-cycle instrumentation and energy businesses, supply chain constraints and the premiums for gray market electronic components have begun to ease modestly. Given the strength of our balanced business portfolio, and our management's long history of navigating challenging markets, I'm optimistic that Teledyne will continue on its successful path in 2023. I will now turn the call over to Sue.