The operator introduces the Teledyne Q1 2024 earnings call and turns it over to host Jason VanWees. Teledyne's Executive Chairman, CEO, President and COO, SVP and CFO, and EVP are all present on the call. The attorneys remind listeners of the risks and caveats associated with forward-looking statements. Record first quarter results were reported, but sales were impacted by weakening markets. Full-year sales in industrial automation and test and measurement are now forecasted to decline significantly.

Despite anticipated sales declines in certain high-margin businesses, the company expects flat sales and operating margin in 2024. The Digital Imaging segment saw a decline in sales due to lower industrial automation sales, but this was offset by growth and margin improvement in other areas. The Instrumentation segment was also relatively flat, with a decrease in Test and Measurement sales offset by growth in other areas. The Engineered Systems segment saw a decline in sales due to delays in the U.S. 2024 budget, and the company plans to add stock repurchases to their capital deployment plan. Edwin Roks and George will provide further commentary on the performance of the four business segments.

The Digital Imaging segment of Teledyne represents 55% of the company's portfolio and includes both longer and shorter cycle businesses. In the first quarter of 2024, sales for this segment declined by 4.1%, with some products experiencing significant declines while others saw increases. The company's FLIR businesses were a positive contributor to overall segment margin. The remaining 45% of Teledyne's portfolio is made up of three other segments, with the Instrumentation segment contributing a little over 24% of sales. In the first quarter, sales for this segment decreased by 0.9%, with Marine Instruments experiencing a 15.3% increase due to strong offshore energy and subsea defense sales.

In the first quarter of 2024, Teledyne's sales of Environmental Instruments decreased, while sales of Electronic Test and Measurement Systems also decreased due to a tough comparison from the previous year. However, the overall Instrumentation segment operating profit increased and the Aerospace and Defense Electronics segment saw growth. The Engineered Systems segment experienced a decrease in revenue and operating profit due to lower sales and cost estimates. Orders have been strong in longer cycle businesses, but converting backlog to sales may not happen until the second half of the year. The pace of orders in short cycle businesses will likely continue to impact sales in the second quarter, but overall sales are expected to increase in the second half of the year.

In the first quarter of 2024, Teledyne experienced strong cash flow and increased capital expenditures. They also ended the quarter with a net debt of $2.33 billion. The company plans to begin repurchasing shares and is considering acquisition opportunities. Stephen Blackwood will now discuss the company's outlook for the second quarter and full-year 2024.

Management believes that GAAP earnings per share in the second quarter of 2024 will be between $3.57 and $3.70, with non-GAAP earnings between $4.40 and $4.50. For the full year of 2024, GAAP earnings per share are expected to be between $16.02 and $16.27, and non-GAAP earnings per share between $19.25 and $19.45. The estimated tax rate for 2024 is 22.5%. Gross margins are expected to remain flat at around 43%. The company's debt-to-EBITDA ratio is currently 1.7 and they have one acquisition in the pipeline. They have spent over $300 million on acquisitions since purchasing FLIR and their debt-to-EBITDA ratio is expected to decrease to 1.3 by the end of the year.

The speaker discusses their company's plans for stock repurchasing and potential acquisitions. They mention having the financial capacity for large acquisitions, but also acknowledge that valuations may still be high. They anticipate a potential decrease in prices in the future and mention their past success in acquiring companies after a market downturn.

Teledyne CEO Robert Mehrabian explains that the company has only experienced a guidance cut four times in the past 25 years, and the current slowdown in industrial automation was unexpected. However, Teledyne is better equipped to handle these shocks now due to its increased size and diversity. Despite the challenges, some business sectors, such as Marine and Defense, are still performing well.

The speaker discusses two hits the company took in one quarter, one in the Industrial Automation and Semiconductor sector and another in the Engineered System business. They are taking their revenue down by $220 million but believe they will recover due to their ability to take aggressive actions and their strong financial position. They mention how they have already taken steps to reduce costs and will continue to do so, which has resulted in improved margins in the FLIR businesses.

The speaker discusses the decline in revenue for the DALSA and e2v businesses and states that they have taken cost offs to mitigate the impact. They expect margins to recover and remain flat compared to last year despite lower revenue. The timing of the decline is attributed to short cycle declines in other businesses in the industry.

The speaker discusses the challenges of estimating short cycle businesses in Digital Imaging, but mentions that long cycle businesses like Space and Defense are performing well. They also mention that having a diverse range of businesses helps with making acquisitions and that they recently acquired companies in the Marine and Digital Imaging sectors.

The company's short cycle businesses are similar to their long cycle business, but with more custom imaging design and a focus on the Defense domain. The company expects to have flat numbers compared to last year, with the same margins and revenue, even without making any acquisitions. They have enough financial strength to buy back shares and still maintain a low debt-to-EBITDA ratio. The guidance does not include buybacks and the company has been conservative in their approach.

The company has taken a middle ground approach to de-risking their operations, with some downside still present. The Defense and Space businesses are expected to balance out the decline in Digital Imaging. The decline in Digital Imaging is mainly due to a $120 million decline in Machine Vision, which has the highest margins in the segment. However, the overall impact on the company's revenue is only about 1.5% due to the significant size of their top line.

The company is projecting a 1.5% decline in overall revenue by the end of the year, with FLIR seeing an increase and DALSA seeing a decrease. The decline is not significant and is primarily due to short cycle areas such as Machine Vision and Test and Measurement. The decline in Test and Measurement is offset by the growth in Marine sales, and the decline in Engineered Systems is not a significant portion of the company's portfolio. The company expects to maintain its revenue and operating margins despite the decline in these short cycle areas.

The unidentified analyst asks about improvements in the company's supply chain and how it will impact the business throughout the year. CEO Robert Mehrabian responds that the supply chain has improved significantly compared to last year, but there are still some delays with certain suppliers. He expects the second quarter revenue to be flat from the first quarter, but anticipates a decline of about 4.5% year-over-year due to backlog not kicking in until the third quarter.

The CEO of the company is expecting mid-single digit organic revenue growth in the back half of the year, primarily due to improvements in the long cycle backlog. There may also be a slight improvement in short cycle businesses, but this is uncertain due to lack of visibility. The Engineered Systems margin was impacted by a cost adjustment related to 606 accounting, resulting in a decrease in sales and profit. The company is working to fix the issue and move forward. The exact size of the markdown taken in the quarter is not specified.

In the first quarter, the company experienced a $7 million decrease in EBITDA due to a downturn in short cycle imaging, but they are confident they will fix it. Despite this, they still have healthy free cash flow and are considering a share repurchase. They have authorization to go up to $1.25 billion in buybacks and still have enough funds for acquisitions. Additionally, they only have $150 million in fixed debt to pay in the second half of 2024.

The speaker discusses the company's upcoming payments and its borrowing costs, noting that they are in a favorable position. He also mentions their ability to generate cash and make acquisitions, and states that they have not yet used their line of credit. The conference concludes with contact information and instructions for accessing the replay.

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