Teledyne Technologies Q4 2024 Earnings Report

Teledyne Technologies EPS Results

• Actual EPS: $5.52
• Consensus EPS: $5.23
• Beat/Miss: Beat by +$0.29
• One Year Ago EPS: $5.44

Teledyne Technologies Revenue Results

• Actual Revenue: $1.50 billion
• Expected Revenue: $1.45 billion
• Beat/Miss: Beat by +$50.90 million
• YoY Revenue Growth: +5.40%

Teledyne Technologies Announcement Details

• Quarter: Q4 2024
• Date: 1/22/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, January 22, 2025
• Conference Call Time: 11:00AM ET

Teledyne Technologies (NYSE:TDY), together with its subsidiaries, provides enabling technologies for industrial growth markets in the United States and internationally. Its Digital Imaging segment provides visible spectrum sensors and digital cameras; and infrared, ultraviolet, visible, and X-ray spectra; as well as micro electromechanical systems and semiconductors, including analog-to-digital and digital-to-analog converters. This segment also offers cooled and uncooled infrared or thermal products, including sensors, camera cores, and camera systems; high-resolution, low-dose X-ray sensors, high-power microwave, and high-energy X-ray subsystems; and instruments for the measurement of physical properties and maritime products; as well as develops and manufactures multi-spectrum electro-optic/infrared imaging systems and associated products, such as lasers, optics, and radars, CBRNE (Chemical, Biological, Radiological, Nuclear and Explosive detectors), and unmanned air and ground systems. The company's Instrumentation segment offers monitoring, control, and electronic test and measurement equipment; and power and communications connectivity devices for distributed instrumentation systems and sensor networks. The company's Aerospace and Defense Electronics segment provides electronic components and subsystems, data acquisition and communications components and equipment, harsh environment interconnects, general aviation batteries, and other components; and onboard avionics systems and ground-based applications, aircraft data and connectivity solutions, hardware systems, and software applications. Its Engineered Systems segment offers systems engineering and integration, technology development, and manufacturing solutions for defense, space, environmental, and energy applications; and designs and manufactures electrochemical energy systems and electronics for military applications. The company was founded in 1960 and is headquartered in Thousand Oaks, California.

Teledyne Technologies Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Welcome to Teledyne's 4th Quarter Earnings Release Conference Call. Here is our first speaker, Mr. Jason Van Wees.

[Jason VanWees, Vice Chairman at Teledyne]

Good morning, everyone. This is Jason Van Wees, Vice Chairman. I'd like to welcome everyone to Teledyne's Q4 and full year 2024 earnings release conference call. We released our earnings release this morning before the market opens. Joining me today are Teledyne's Executive Chairman, Robert Marabian CEO, Edwin Rox President and COO, George Bob Senior Vice President and CFO, Steve Blackwood and Melanie Civek, EVP, General Counsel, Chief Compliance Officer and Secretary.

[Jason VanWees, Vice Chairman at Teledyne]

After remarks by Robert, Edwin, George and Steve, 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 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, will be available for approximately 1 month. Here is Robert.

[Robert Mehrabian, Executive Chairman at Teledyne]

Thank you, Jason, and good morning, everyone, and thank you for joining our earnings call. In the Q4, we achieved many all time records. Record sales increased 5.4% and accelerated from the 3rd quarter. 4th quarter and full year non GAAP earnings per share were record as were 4th quarter and full year non GAAP operating margins. Finally, our record annual free cash flow, given that we ended the year with a very low leverage despite $1,100,000,000 of capital deployment in fiscal 2024.

[Robert Mehrabian, Executive Chairman at Teledyne]

We successfully closed the Mirapak acquisition at the beginning of fiscal 2025 and we continue to expect the completion of the Exelotas carve out transaction in the Q1. We entered 2025 optimistic about our business portfolio in both commercial and defense markets. Our short cycle commercial businesses improved throughout 2024 and comparison is in 2025. We also believe our defense businesses, which favor purchase orders versus protected appropriation, unmanned versus manned platforms and standard products versus highly customized solution are well positioned in the current environment. Nevertheless, especially given the very strong U.

[Robert Mehrabian, Executive Chairman at Teledyne]

S. Dollar, we believe it's prudent to be a bit cautious in our 2025 outlook. Including the acquisition of MicroPact, but excluding the Axcelotas carve out, since this acquisition has not yet closed, we believe 2025 sales may grow approximately 4% with non GAAP earnings double that amount at approximately 8% at the center of our outlook range. I will now turn the call over to Edwin, who will further comment on the performance of our digital imaging segment.

[Edwin Roks, CEO at Teledyne]

Thank you, Robert. This is Edwin and I will first report on the digital imaging segments which represents approximately 54% of Terend's portfolio. 4th quarter 2024 sales were a record and increased 2.5% compared with last year. The performance of digital imaging largely reflected record sales of Telenet at Telenet FLIR with healthy growth across FLIR's commercial and defense infrared imaging systems, unmanned and counter unmanned air systems as well as maritime hardware and software. While sales to industrial machine vision markets declined year over year, quarterly sales were at the highest level in 2024.

[Edwin Roks, CEO at Teledyne]

Our legacy space based imaging business continued to grow. While some healthcare businesses such as cancer radiotherapy were resilient, sales of X-ray detectors for more consumer discretionary dental markets declined year over year. Non GAAP operating margins improved sequentially and year over year primarily due to the contribution from FLIR which more than offset the year over year decline in higher contribution margin machine vision sales. Josh will now report on the other three segments which represent the balance of Gallaudet.

[George Bobb, President & COO at Teledyne]

Thanks, Edwin. The Instrumentation segment consists of our marine, environmental and test and measurement businesses which contribute a little under 25% of sales. For the total segment, overall 4th quarter sales increased 10.1% versus last year with growth in each major product line. Sales of marine instruments increased 21.1% in the quarter due to both strong offshore energy and subsea defense sales. Sales of environmental instruments increased 1.7%, primarily due to greater sales of laboratory instrumentation as well as air safety instruments.

[George Bobb, President & COO at Teledyne]

Sales of electronic test and measurement systems, which include oscilloscopes, protocol analyzers and Ethernet traffic generators sequentially improved for the 3rd consecutive quarter and increased 2.3% year over year. Instrumentation operating margin in the 4th quarter increased 27 basis points to 27.3 percent and 96 basis points on a non GAAP basis to a record of 29.1%. In the Aerospace and Defense Electronics segment, which represents roughly 14% of Teledyne sales, 4th quarter sales increased 6.8% driven by growth of Defense Electronics products. Overall segment operating profit increased year over year with GAAP and non GAAP segment margin increasing over 150 basis points. For the Engineered Systems segment, which contributes approximately 8% to overall sales, 4th quarter revenue increased 11%.

[George Bobb, President & COO at Teledyne]

However, segment operating profit decreased due to higher cost to complete estimates on certain programs. I will now pass the call back to Robert.

[Robert Mehrabian, Executive Chairman at Teledyne]

Thank you, George. I'll conclude with a few comments on capital allocation. In 2024, we continued our tradition of prudent and flexible capital deployment. That is, we opportunistically repurchase stock when we felt our shares were very undervalued. While at the same time, we were willing to for more large acquisitions when we saw price expectations were unreasonable.

[Robert Mehrabian, Executive Chairman at Teledyne]

But then as our own valuation partially recovered and M and A markets became more rational, we pivoted by stopping repurchases and we're pleased to announce the MicroPaks and Exelitas acquisitions. Given over $1,100,000,000 of free cash flow in 2024, our balance sheet capacity is the highest in years and our M and A pipeline remains healthy. Nevertheless, we will continue to exercise discipline and flexibility as we have always done. I will now turn the call over to Steve Blackwood.

[Stephen Blackwood, Senior VP & CFO at Teledyne]

Thank you, Robert, and good morning. I will first discuss some additional financials for the quarter not covered by Robert and then I will discuss our Q1 and full year 2025 outlook. To begin, our Q4 non GAAP earnings per share reflect the removal of $16,600,000 of FLIR acquisition related tax benefits. Remaining tax benefits of $13,600,000 were approximately half offset by a higher tax rate. In the Q4, cash flow from operating activities was $332,400,000 compared with $164,400,000 in 2023.

[Stephen Blackwood, Senior VP & CFO at Teledyne]

Cash flow that is cash flow from operating activities less capital expenditures was $303,400,000 in the Q4 of 2024 compared to $124,200,000 in 2023. Cash flow increased in the 4th quarter primarily due to lower income tax payments, but also due to improved working capital performance. Capital expenditures were $29,000,000 in the Q4 of 2024 compared with $40,200,000 in 2023. Depreciation and amortization expense was $77,100,000 in the Q4 of 2024 compared with $77,400,000 in 2023. For the full year 2024 free cash flow was $1,110,000,000 We ended the year with just under $2,000,000,000 of net debt that is approximately $2,650,000,000 of debt less cash of approximately $650,000,000 Now turning to our outlook, which includes the acquisition of MicroPact, but excludes the Axcelotas carve out, which is not yet closed.

[Stephen Blackwood, Senior VP & CFO at Teledyne]

Management currently believes that GAAP earnings per share in the Q4 of 2025 will be in the range of $3.90 to $4.04 per share with non GAAP earnings per share in the range of $4.80 to $4.90 And for the full year 2025, we believe the GAAP earnings per share will be in the range of $17.70 to $18.20 with non GAAP earnings per share in the range of $20.10 to $21.50 I will now pass the call back to Robert.

[Robert Mehrabian, Executive Chairman at Teledyne]

Thank you, Steve. We would now like to take your questions. Paul, if you're ready to proceed with the questions and answers, please go ahead.

[Operator]

Thank you. Thank you. Our first question is from Noah Poponak with Goldman Sachs. Please proceed with your question.

[Noah Poponak, Research Analyst at Goldman Sachs]

Hey, good morning everyone.

[Robert Mehrabian, Executive Chairman at Teledyne]

Good morning Noah.

[Noah Poponak, Research Analyst at Goldman Sachs]

Robert, you referenced 4% growth top line in the 2025 guidance. Is that 3% organic and a point from MicroCap or is that 4% organic?

[Robert Mehrabian, Executive Chairman at Teledyne]

No, it's what I mentioned is, as you said, a little over 4%, 3.2 percent organic and about 1% through acquisitions. Acquisitions include MicroPact, Noah, but they also include part of Valport, which we acquired for our marine businesses and a part of Atamec that we acquired earlier in the year for the digital imaging. Those add up to about 1.1%, so 1%. So total is 4.2%. Yes.

[Noah Poponak, Research Analyst at Goldman Sachs]

Okay. And if Exelitas closes on schedule, can you talk about what that adds in revenue, EBITDA earnings to the year?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yes. I think depends on when it closes as you can appreciate, but I'm going to say about $15,000,000 a month, Noah.

[Noah Poponak, Research Analyst at Goldman Sachs]

Okay. Okay, great. And then maybe if you could just talk about the 3% or slightly over 3% organic assumption. I mean, we've had this discussion for a few quarters now of your short cycle versus your long cycle. I guess in the release it sounded it looked like you referenced kind of long cycle still strong.

[Noah Poponak, Research Analyst at Goldman Sachs]

It's looked like you were saying short cycle better. Hard to tell how much better. All the leading indicators there still look a little kind of better, but a moving target. So what are you seeing in those businesses in machine vision and instrumentation? And how did you go about deciding what kind of recovery to assume in the guidance in those businesses?

[Robert Mehrabian, Executive Chairman at Teledyne]

Okay. So let me start with, if I may, I'll do it by segment, which is should make it clear. On an organic growth basis, as you and I agree, our target is about 3.2%. If you go to instruments, which includes marine environmental and test and measurement, we expect all 3 of those sub segments to grow with a combined organic growth of 3.8%. In digital imaging, we believe the total digital imaging organically will grow just under 3%, maybe 2.8%.

[Robert Mehrabian, Executive Chairman at Teledyne]

Aerospace and Defense, right now we're targeting it at 4%, but once you include that MicroPact acquisition, we just closed that will then jump up to 8%. Engineered Systems, we assume it grow about 2.3% organically. So that kind of is the summary of the segments and the growth. So in other words, Noah, we expect everything to grow organically in the lower to lower single to mid single digits.

[Noah Poponak, Research Analyst at Goldman Sachs]

Okay. I appreciate all that detail. Thank you.

[Robert Mehrabian, Executive Chairman at Teledyne]

For sure, Noah.

[Operator]

Thank you. Our next question is from Ron Konrad with Jefferies. Please proceed with your question.

[Greg Konrad, SVP-Equity Research at Jefferies Financial Group]

Good morning.

[Robert Mehrabian, Executive Chairman at Teledyne]

Good morning, Conor. Hi, guys.

[Greg Konrad, SVP-Equity Research at Jefferies Financial Group]

Yes, I don't know what they called me upfront. But

[Greg Konrad, SVP-Equity Research at Jefferies Financial Group]

maybe just

[Greg Konrad, SVP-Equity Research at Jefferies Financial Group]

starting with the digital imaging outlook, I mean, a lot to unpack in the quarter and you have both short cycle and FLIR. Can you maybe just put a finer point on kind of last year into next year, how you're thinking about vision, what you're seeing out of FLIR defense and maybe stuff like healthcare that was a little bit weaker in 2024, how you're kind of thinking about that recovery?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yes. Let me do 24 and then 25. And I'll break it up between FLIR and our what we call our historical digital imaging before FLIR. So in 24 over 2023, we had a little growth in FLIR overall. Primarily, it was held back by a small business that we have, which deals with mid market 2 dimensional area scan, which is kind of a machine vision business that declined about $40,000,000 So if you take that out, the rest of FLIR actually increased about $70,000,000 year over year and it increased in almost all areas.

[Robert Mehrabian, Executive Chairman at Teledyne]

It increased in our course, which we sell, microvolometers as well as indium antimonide course. It increased in tomography, both infrared instruments and cameras and our raymarine businesses kind of held steady. They were down a little bit, but not much. So overall, FLIR increased, defense in FLIR did really well and it increased about 9% in all of its various sub segments did well. So FLIR now going to 25%, we're assuming about a 2.8% to 3% overall increase because we are still a little cautious about the commercial businesses.

[Robert Mehrabian, Executive Chairman at Teledyne]

But forgive me, FLIR by itself will increase about 3.9%, but we're still a little cautious about the camera businesses. But we think the defense businesses, they are very, very healthy because we have really good backlog. If you go to what we call our traditional digital imaging before FLIR, we think the growth is going to be modest. Overall growth would be about 3.1%, but some of that comes from the Adamic acquisition that we did in mid year. So if you subtract that out, it's closer to 1.2%.

[Robert Mehrabian, Executive Chairman at Teledyne]

So when you add those 2 up, it's overall growth, both through acquisitions and organic for the total digital imaging would be about 3.6%. We have part of the reason we're being a little cautious, especially in the commercial digital imaging, especially the legacy part is because while we had a little bit of tailwind this quarter from foreign exchange. We think we're going to have headwind right now with the dollar being strong about 1.3% going into 2025. And if that doesn't change, of course, that's going to affect us. So we're kind of programming it in into our projections as we go forward.

[Robert Mehrabian, Executive Chairman at Teledyne]

I hope that answered your question, Greg.

[Greg Konrad, SVP-Equity Research at Jefferies Financial Group]

Yes, that's good. And then maybe a follow-up. I mean, it implied EPS, it seems like you have good margin expansion into 2025. I think in the past, you've maybe talked about mix of some of that short cycle markets, which it doesn't seem like you're embedding any big increases in 2025. Can you maybe just level set the margin outlook and maybe the drivers just given it doesn't seem like mix would be that much of a tailwind given volume expectations?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yes. Let me go to the overall company. We finished the year at 22%. We expect that to grow by 80 basis points. Now, if you look at the segments, it'll be more like 70 basis points.

[Robert Mehrabian, Executive Chairman at Teledyne]

So it'll go from what is now 23.4% for the full year 2024 to 24.1% in 2025. So there's growth there. If you go to the larger business, which is obviously segment, the digital imaging, We finished the year from a segment of non GAAP operating margin at 22.2% for the year. We think we'll get about 80 basis points, which is significant next year, maybe a little less, but between 70 basis points and 80 basis points. Some of the other segments, we've had very strong margin growth since 2022.

[Robert Mehrabian, Executive Chairman at Teledyne]

For example, in instruments, our margins between 22 and 2024 grew 310 basis points. So we're being a little more cautious, maybe it will grow in 2025, 45 basis points. And the other thing is that in when you go to aerospace and defense, where we've had really excellent growth also of 150 basis points in the last 2 years, we're a little cautious going into 2025, primarily because the MicroPact acquisition is not going to initially have the kinds of margins that we enjoy there, which were 28.6% in 2024. So we're dialing in maybe 14, 15 basis points increase because of the MicroPACK effect. Of course, once that thing is tucked in properly, it'll start enjoying margin expansion like all of our acquisitions do.

[Robert Mehrabian, Executive Chairman at Teledyne]

I hope that answered your question, Greg.

[Greg Konrad, SVP-Equity Research at Jefferies Financial Group]

That's perfect. Thank you.

[Robert Mehrabian, Executive Chairman at Teledyne]

For sure.

[Operator]

Thank you. Our next question is from Andrew Buscaglia with BNP. Please proceed with your question.

[Andrew Buscaglia, Executive Director at BNP Paribas]

Hey, good morning guys.

[Robert Mehrabian, Executive Chairman at Teledyne]

Good morning, Andrew.

[Andrew Buscaglia, Executive Director at BNP Paribas]

I was just

[Andrew Buscaglia, Executive Director at BNP Paribas]

trying to understand with 2025, so you're talking about 3.2% organic. Just to be clear, that would include some FX in that organic number. And then do you assume some and how much short cycle recovery do you assume as the year goes on? Can you talk a little bit about the cadence of your estimate?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yes. First, yes, we do account headwind from FX. As I mentioned at the present time, it's 1.2%. So we dialed that in because we don't know what's going to happen obviously, because this year it was not bad. This year actually FX was basically 20 basis points tailwind.

[Robert Mehrabian, Executive Chairman at Teledyne]

So we have a big headwind. So that's that. The second part of your question was short cycle. We think that most of our short cycle businesses should be growing, but modestly because of FX partially like test and measurement and environmental in the low single digits. And as I mentioned before, while we think we're we'll grow about 3.9% for the year.

[Robert Mehrabian, Executive Chairman at Teledyne]

A lot of that comes from defense. The non defense part would grow a little less. And then of course, as I mentioned, our historical digital imaging would grow modestly.

[Andrew Buscaglia, Executive Director at BNP Paribas]

Okay. And on the Exelita or Exelb or how you say the acquisition, would you should we assume some accretion to non GAAP earnings in 'twenty five once that's closed?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yes. I think well, it depends how many it closes. But I think if I look at the full year, as I answered Noah's question, we think we'll bring in about $15,000,000 a month in revenue. And we think for a full year, if we were to have it for a full year, it should give us about $0.15 to $0.20 of accretion. Again, it's just tucking in an acquisition, not doing a whole bunch of things in margin expansion, which we always do in subsequent years.

[Andrew Buscaglia, Executive Director at BNP Paribas]

Got it. Okay. Thanks, Robert.

[Robert Mehrabian, Executive Chairman at Teledyne]

Thank you.

[Operator]

Thank you. Our next question is from Damian Karas with UBS. Please proceed with your question.

[Damian Karas, Executive Director at UBS Group]

Hey, good morning, everyone.

[Robert Mehrabian, Executive Chairman at Teledyne]

Good morning, Damien.

[Damian Karas, Executive Director at UBS Group]

Good morning. I appreciate all of the color you've provided. I was wondering if you could maybe just give us a little bit better sense for the order trends that you've been seeing. Are there any areas that have maybe picked up more meaningfully that you had expected 3 months ago or vice versa?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yes, Damian. Let me start with book to bill and I'll go to the most recent quarter, we just finished Q4. Overall, book to bill for the company is about 1.04. So it's positive, but it varies between the various different businesses. In instruments, for example, book to bill is 1.12, which is pretty high for us.

[Robert Mehrabian, Executive Chairman at Teledyne]

Our marine businesses leading that by 1.23. And then environmental is positive, 1.09. We're a little cautious on T and M. We think it's just a little below 1, maybe 0.9 5, 0.99 for the whole year. Digital Imaging, FLIR is positive at 1.03.

[Robert Mehrabian, Executive Chairman at Teledyne]

Our historical imaging is slightly below 1 at 0.97. AD and E is 0.96, but we have to take into consideration the orders that are a little lumpy as they are in our engineered system, which is at 1.16. So overall, we think we have positive trend in our book to bill. Now, if you go to some of our commercial where we have the headwinds and we've had it last year is in very specific areas of digital imaging. As Edwin mentioned, primarily in machine vision and machine sensors.

[Robert Mehrabian, Executive Chairman at Teledyne]

Machine vision is recovering, though it's recovering slowly, but it is recovering. We've had order increases throughout the year. Machine sensors where we make the detectors for other folks, that always lags behind 6 to 9 months. So we think that recovery will be closer to the second half of twenty twenty five. I hope that answers the question.

[Damian Karas, Executive Director at UBS Group]

Yes, that's very helpful. Thank you. And my second question, so obviously quite a bit has changed since last quarter with an election and a new administration that's come in. Could you maybe give us updated thinking about potential policy implications? There's the question of tariffs in China and Mexico and the U.

[Damian Karas, Executive Director at UBS Group]

S. Government is certainly an important customer of yours and there's this new Department of Government Efficiency. So could you maybe share your thoughts on how you're thinking about all of that and what it might mean for Teledyne?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yes. Please remember that I am not any more knowledgeable than anybody else, but I can relate it to our businesses. Let's talk about tariffs first. If you look back a couple of years, 2022, where we had all these shortages, right, Coming out of COVID, we had experienced a peak supply chain challenges. That cost us about $100,000,000 in 2022.

[Robert Mehrabian, Executive Chairman at Teledyne]

What did we do? We increased prices, not only in some of our businesses that we could, but also we improved margins. So we made up for it between those 2 and then our own efficiencies. The way the tariffs are laid out at least initially, the Canada, Mexico, China, we think the impact of those would be less than what we experienced in 2022, maybe half as much. So we think we can deal with that.

[Robert Mehrabian, Executive Chairman at Teledyne]

The other thing is the sophistication of the tariffs. We have to yet dive into it because we make products in different countries and we make products in Canada that then we finish off in the U. S. Sometimes we export, sometimes it's for domestic consumption. So the value add changes.

[Robert Mehrabian, Executive Chairman at Teledyne]

But having said all of that, we think we can deal with that. In terms of the Dodge efficiency, I think it kind of would favor us partially because compared to others, partially because most of our defense businesses as an example is purchase order businesses with products that we have rather than protracted appropriations. We also are in unmanned platforms. If you take our unmanned air vehicles, ground vehicles and underwater vehicles, which we have all 3, it's almost $400 plus 1,000,000 Our platforms are unmanned, a lot of our sensors go on those and versus manned platforms. And a lot of our products are also standard products rather than very highly customized solutions.

[Robert Mehrabian, Executive Chairman at Teledyne]

So I think we will do okay.

[Damian Karas, Executive Director at UBS Group]

That makes sense. Appreciate all the color.

[Robert Mehrabian, Executive Chairman at Teledyne]

For sure. Thank you.

[Operator]

Our next question is from Jordan Lioneis with Bank of America. Please proceed with your question.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

Hey, good morning.

[Robert Mehrabian, Executive Chairman at Teledyne]

Good morning, Jordan.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

On the defense outlook, the 4% organic growth, how much of that is conservative? Just when we look at outlays being up 26% from FY2023 to 2024, I would expect the momentum to continue. So is there are there programs that are ending or it's just a mixed bag?

[Robert Mehrabian, Executive Chairman at Teledyne]

Well, I don't know if I see the 4% number. As I mentioned in FLIR, we think it will be higher than that our growth. It was approximately our FLIR defense businesses in Q4 grew almost 9%. We expect it next year to grow another 6%. So that's it's not as conservative.

[Robert Mehrabian, Executive Chairman at Teledyne]

Now problem is that really we don't know what's going to happen to the various programs yet. But as I mentioned, if you take where the fields that we're in, which are the unmanned systems primarily and then of course electronic warfare and then of course observations using EOIR, those favor us by and large, regardless of which programs go forward. So I'm pretty bullish about the defense part of our businesses.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

Got it. Okay. Thank you so much.

[Robert Mehrabian, Executive Chairman at Teledyne]

For sure.

[Operator]

Thank you. Our next question is from James Ricchiuti with Needham and Company. Please proceed with your question.

[Jim Ricchiuti, Managing Director & Senior Equity Research Analyst at Needham & Company]

Hi. Thanks. Good morning. Hey, Robert, are you at all surprised by the slow recovery in that legacy Digital Imaging business?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yes. To be very honest, I am. Part of it is really people are very cautious in building up inventory, especially our distributors. Partially, it's the China effect, both in terms of their import, even though we don't export as a total company that much to China, we do in digital imaging and partially because they are building their own systems and their own sensors. But by and large, Jim, these are short cycle businesses.

[Robert Mehrabian, Executive Chairman at Teledyne]

They can turn on 2, 3, 4 weeks. So we don't have a lot of visibility and I can only talk about what happened. It's very hard to predict where things are going. But overall, if you look at the book to bill, even though when your billing is low, book to bill looks healthy. We've been enjoying book to bill, positive book to bill in our camera businesses for the last three quarters.

[Robert Mehrabian, Executive Chairman at Teledyne]

So having said all of that, yes, I was surprised on why it's not recovering as fast as we should. I think it's partly because other people are conservative in building inventory as are our distributors. And last question I'll answer that will add to is some of our customers would are trying to lower their prices that they pay us. And frankly, we won't take those orders because the business is what the business is and we're not going to lose margin just to get revenue.

[Jim Ricchiuti, Managing Director & Senior Equity Research Analyst at Needham & Company]

Got it. That's helpful. And it appears that within that commercial business, and I think you indicated there appears to be some conservatism embedded in the full year outlook. If you were to look at areas that have the potential to maybe do a little better, would you say it would be some of the instrumentation business or potentially in the digital imaging business, maybe things starting to come back as we get through some of this destocking that people have been talking about for a while now?

[Robert Mehrabian, Executive Chairman at Teledyne]

Yes. I think I would start with the instrumentation. Some of the conservative is instrumentation and primarily in test and measurement. We're assuming the growth there is going to be 2.5% or so, but it could be a lot more because it's been doing better and better as the year has gone on in 2024. In digital imaging, frankly, we have a slew of new products going out, which you think will be much more competitive.

[Robert Mehrabian, Executive Chairman at Teledyne]

So yes, we are being conservative. Having said that, at this time it's prudent to be but at this time it's prudent to be conservative. But we've always been as you know, we've always been conservative in everything that we do or say. So you have to take that into consideration.

[Jim Ricchiuti, Managing Director & Senior Equity Research Analyst at Needham & Company]

Understood. Thanks a lot.

[Robert Mehrabian, Executive Chairman at Teledyne]

For sure.

[Operator]

Thank you. Our next question is from Joe Giordano with TD Cowen. Please proceed with your question.

[Joseph Giordano, Managing Director at TD Cowen]

Look on free cash flow for the year.

[Robert Mehrabian, Executive Chairman at Teledyne]

Hi, Joe. I think you got cut off the first sentence. I didn't get it. Hey,

[Joseph Giordano, Managing Director at TD Cowen]

I'm just asking about free cash flow outlook for the year.

[Robert Mehrabian, Executive Chairman at Teledyne]

Yes. Just to reiterate, I like billing this one because we did so well. We got free cash flow of 1 point $1,000,000,000 as Steve mentioned. We think it will be over $1,000,000,000 If we hit $1,000,000,000 again, I'll be happy. We had some lower taxes, but we also enjoyed some improvement in our working capital and inventory.

[Robert Mehrabian, Executive Chairman at Teledyne]

We had some advanced payments on some programs. Those may not happen. But having said all of that, I think $1,000,000,000 is a good number.

[Joseph Giordano, Managing Director at TD Cowen]

And then I know this question has been asked on other calls and you've been consistent with your answers, but it's a question we get from investors fairly often who want to look at Teledyne. But given the free cash flow generation you have and that you've shown the ability to be a bit more flexible with buybacks lately, is the dividend have at all interesting to you guys to bring in

[Joseph Giordano, Managing Director at TD Cowen]

a new class of investors who can't currently invest in the shares?

[Robert Mehrabian, Executive Chairman at Teledyne]

That's a tough one. Just a little dividend, I don't think will do us a lot of good, although I know companies that do that. Right now, I think we're better off if we can use our money to buy companies, especially since our acquisition pipeline seems to be richer than it has been. Having said that, when our stock was what we thought undervalued, we bought back stock, which is another way of returning cash to the investors.

[Joseph Giordano, Managing Director at TD Cowen]

Yes. Thank you. For what it's worth, from what we're hearing, people would be fine with a small dividend if there's a view that it could get somewhat larger over time, but that's just the feedback we're getting. So thanks guys.

[Robert Mehrabian, Executive Chairman at Teledyne]

Thank you for that input. Thank you.

[Operator]

Thank you. There are no further questions at this time. I would like to hand the floor back over to Jason Van Wyst for any closing comments.

[Jason VanWees, Vice Chairman at Teledyne]

Again, thanks everyone for joining us this morning. If you have follow-up questions, please feel free to call me at the number on the earnings release. And again, a replay of this is available via webcast and via dial in. Thank you, operator. If you could conclude the call, we'd appreciate it.

[Jason VanWees, Vice Chairman at Teledyne]

Thanks, Paul. Bye.

[Operator]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Jason VanWees, Vice Chairman
• Robert Mehrabian, Executive Chairman
• Stephen Blackwood, Senior VP & CFO

Analysts

• Edwin Roks, CEO at Teledyne
• George Bobb, President & COO at Teledyne
• Noah Poponak, Research Analyst at Goldman Sachs
• Greg Konrad, SVP-Equity Research at Jefferies Financial Group
• Andrew Buscaglia, Executive Director at BNP Paribas
• Damian Karas, Executive Director at UBS Group
• Jordan Lyonnais, Equity Research Associate at Bank of America
• Jim Ricchiuti, Managing Director & Senior Equity Research Analyst at Needham & Company
• Joseph Giordano, Managing Director at TD Cowen