The operator welcomes listeners to Teledyne's third quarter earnings call and introduces the company's Vice Chairman, Jason VanWees. VanWees introduces the other speakers, including Teledyne's Chairman, President and CEO, Robert Mehrabian, and Senior Vice President and CFO, Sue Main. He also mentions upcoming changes in leadership and reminds listeners of the company's forward-looking statements. Mehrabian thanks listeners for joining the call and expresses excitement for Teledyne's future.

Teledyne achieved record operating margin and earnings per share in the third quarter. Both GAAP and non-GAAP operating margins increased, and earnings per share increased by approximately 11%. The growth was led by marine, medical, aerospace, and defense businesses, with cost control being a key factor. Debt repayment has also helped decrease the consolidated leverage ratio. However, there was some decline in certain end markets such as industrial automation and laboratory instrumentation. The company has added Xena Networks to its test and measurement businesses, and expects a 4% growth in total sales for 2023, with the fourth quarter sales estimated at $1.45 billion. The decrease in growth is attributed to currency translation headwinds and further deterioration in industrial automation and laboratory instrumentation markets.

The company is raising their non-GAAP earnings outlook for the third quarter due to strong margins and earnings. Sales in the Digital Imaging segment were flat, with increases in some areas offset by declines in others. The segment's portfolio is well-balanced and margins improved. In the Instrumentation segment, sales increased by 7.4%, with marine instruments and electronic test and measurement systems showing growth. However, there was some softness in sales of analyzers for certain applications.

In the third quarter, sales of wireless and video devices, oscilloscopes, and high-speed networking products were strong, offsetting a slight decrease in sales of environmental instruments. The Instrumentation segment saw a 20% increase in operating profit and record-high margins. The Aerospace and Defense Electronics segment also saw growth in sales and operating profit, while the Engineering Systems segment saw a slight decline in operating profit. The company plans to continue growing sales and margins in favorable markets and acquiring complementary businesses. The speaker also thanks a retiring employee for their 34 years of service.

The speaker congratulates the company's executives on their promotions and discusses additional financial information for the quarter. They also provide an outlook for the fourth quarter and full year of 2023. The estimated GAAP and non-GAAP earnings per share are given, as well as the expected tax rate and exclusion of FLIR integration costs. The speaker then hands the call back to the operator for questions.

During a conference call, Jim Ricchiuti from Needham & Company asked about the booking strength at FLIR in the third quarter and the near-term outlook for the Teledyne FLIR business. Robert Mehrabian, the operator, responded that the FLIR business is currently at 0.93 to 0.95 with improvements in the Defense segment. He also mentioned that overall book-to-bill is over 0.9, excluding Engineered Systems. Mehrabian stated that they are seeing improvements in margins due to softness in certain markets and gains in others. He also provided an update on the facilities realignment at FLIR, stating that they are already seeing benefits and expect everything to be completed by March to April.

The company has experienced reductions in force and facility closures, with more to come in the fourth quarter. However, the company's margins have improved due to cost reductions and a favorable mix of businesses. The company expects margins to be up 20 basis points for the year. The company also expects to see long-term opportunities in their defense businesses due to the conflict in Israel and Europe, with potential for stockpile refreshment and orders for their products.

The management changes that are set to take place on January 1st will involve the integration of the instruments businesses under the leadership of George Bobb. Edwin will continue to run the Digital Imaging segment for the time being, but will also learn more about the businesses that George is currently in charge of. Robert Mehrabian will still be involved in the company, focusing on capital allocation, M&A, and improving margins. The DI margins were higher than expected this quarter, which has been a focus for investors and the company.

The speaker is asking about any one-time benefits that may need to be reversed in the current quarter. They also discuss the company's target for next year and how it may become more conservative due to improved margins and potential growth in new markets. The speaker also mentions cost-cutting measures and potential growth in the semiconductor market. The speaker also mentions the company's oscilloscope business and its fast growth due to backlog delivery.

The company is confident in its T&M business as it has been performing well in areas such as oscilloscopes, digitizers, and protocol analyzers. While there may be some softening in markets such as industrial automation and laboratory instrumentation, the company is still excited about its new products and sees potential for growth. The biggest headwind for the year is FX, which has tightened since July, but the company is prepared to handle it.

The company plans to focus on increasing product sales in strong markets, cutting costs in weaker markets, and improving margins. They hope to continue their success in raising prices in certain areas, such as aerospace and defense, and are optimistic about the potential for growth in digital imaging and new awards in the upcoming year. However, their current book-to-bill ratio of just over 0.9 is not very encouraging for the future. They expect a modest increase in prices going forward, but will adjust if market conditions change.

Robert Mehrabian, CEO of Teledyne, states that the company still has a healthy backlog of over $3 billion. While there have been short cycles in some businesses, such as the environmental sector, this does not concern him because they are introducing new products to the market. These include a new nano-drone and programs in counter-UAS. Additionally, Teledyne is starting to see traction in using artificial intelligence in their products. The slight decrease in backlog is not a concern for Mehrabian, as they are focused on bringing new products to market and making strategic acquisitions. As for share repurchase, it is not something they have done in the past.

The speaker discusses their company's recent acquisitions and potential future ones, mentioning that they have been careful not to overpay for them. They also mention their focus on smaller acquisitions and their plans to increase their leverage ratio. Additionally, they mention their plans to produce over $1 billion in free cash flow in 2024 and their expectations for flat or slightly decreased organic growth in their Digital Imaging business.

The company is expecting organic growth in its Instrumentation, Aerospace and Defense, and Engineered Systems businesses in the coming year. They have recently launched a new protocol product and are optimistic about its potential impact on their business. There have been recent changes in leadership, which may bring about a shift in strategic focus. Mergers and acquisitions remain a priority over share buybacks for the company.

Teledyne's strategic direction for the next 5, 10, or 20 years will likely involve a continued focus on M&A opportunities that come from their existing businesses, with a shift towards more commercial businesses. The company aims to maintain a balanced portfolio of 25% defense and 75% commercial, with a significant portion of their commercial business being overseas. This balanced portfolio provides resilience and the ability to withstand changes in specific markets. However, beyond the next three years, it is difficult to predict the company's direction due to the constantly changing world.

The speaker discusses the difficulty of the current business environment and how their strategies will evolve accordingly. They also mention a recent increase in DI margin, which was achieved through cost-cutting measures and improvements in the defense and machine vision sectors. The speaker is optimistic about the potential for future margin growth in these sectors.

In the third quarter, Digital Imaging's defense business saw growth due to several large programs, including partnerships with Kongsberg and a Navy award. The company has also consolidated facilities and focused on profitable areas, such as unmanned systems and incorporating their own sensors. This has led to an inflection point and a positive outlook for the defense business. In terms of machine vision, the rate of decline for the year is expected to be lower.

Robert Mehrabian, CEO of DI, predicts a 6% increase in revenue for DALSA and e2v, with some of it coming from acquisitions. There may be a slight decline in FLIR due to discretionary consumer products, but overall, the company is weathering the downturn well and expects upside in areas like healthcare. In terms of machine vision specifically, the full year may see a 2% decline, but Mehrabian is not concerned as the market is expected to turn around eventually.

The speaker believes that the company is well positioned for growth in the future, despite current challenges. They thank the listener for their time and offer contact information for any follow-up questions. The call has been recorded and will be available for replay.

This summary was generated with AI and may contain some inaccuracies.