Teledyne Technologies Q4 2024 Earnings Results & 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
• EPS Beat Rate: 8 of last 8 quarters

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 (NYSE:TDY) is an industrial technology company that develops and manufactures instrumentation, digital imaging products, aerospace and defense electronics, and engineered systems. Its products and services support applications including environmental monitoring, marine research, scientific imaging, and industrial inspection.

The company’s businesses include sensors and monitoring instruments, cameras and imaging systems, electronic components, and specialized engineering and manufacturing services. Its customers operate across commercial, government, aerospace, defense, and research markets.

Teledyne Technologies became an independent public company in 1999 following a separation from Allegheny Teledyne. It serves customers around the world through its businesses and operations across multiple regions.

Teledyne Technologies Q4 2024 Earnings Call Transcript

Key Takeaways

• Teledyne delivered record Q4 and full-year non-GAAP EPS and operating margins, plus record annual free cash flow, while maintaining low leverage despite $1.1 billion in 2024 capital deployment.
• The company expects approximately 4% sales growth (3.2% organic plus ~1% from acquisitions) and about 8% non-GAAP EPS growth in 2025, but remains cautious due to the strong US dollar.
• The Digital Imaging segment posted record Q4 sales with healthy FLIR growth in commercial and defense infrared systems, but saw declines in machine vision and dental X-ray detector markets, while margins improved year-over-year.
• Instrumentation, Aerospace & Defense Electronics and Engineered Systems all grew Q4 sales (10.1%, 6.8% and 11%, respectively), driving a record 29.1% margin in Instruments, though one Engineered Systems program faced cost overruns.
• Full-year 2024 free cash flow reached $1.11 billion with net debt near $2 billion, supporting the close of the MicroPact acquisition and pending Exelitas carve-out, and leaving a strong M&A pipeline.

Presentation

[Operator]

Welcome to Teledyne's fourth quarter earnings release conference call. Here is our first speaker, Mr. Jason VanWees.

[Jason VanWees, Vice Chairman at Teledyne Technologies]

Good morning, everyone. This is Jason VanWees, Vice Chairman, and I'd like to welcome everyone to Teledyne's fourth quarter and full year 2024 earnings release conference call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne's Executive Chairman, Robert Mehrabian, CEO Edwin Roks, President and COO George Bobb, Senior Vice President and CFO Steve Blackwood, and Melanie Cibik, EVP, General Counsel, Chief Compliance Officer, and Secretary. After remarks by Robert, Edwin, George, and Steve, we will ask 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.

[Jason VanWees, Vice Chairman at Teledyne Technologies]

In order to avoid potential selective disclosures, this call is simultaneously being webcast and a replay, both via webcast and dial-in, to be available for approximately one month. Here is Robert.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Thank you, Jason, and good morning, everyone, and thank you for joining our earnings call. In the first quarter, we achieved many all-time records. Record sales increased 5.4% and accelerated from the third quarter. Fourth quarter and full year non-GAAP earnings per share were records, as were fourth 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 $1.1 billion of capital deployment in fiscal 2024. We successfully closed the Micropac acquisition at the beginning of fiscal 2025, and we continue to expect the completion of the Excelitas carve-out transaction in the first quarter. 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.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

We also believe our defense businesses, which favor purchase orders versus protected appropriations, unmanned versus manned platforms, and standard products versus highly customized solutions, are well-positioned in the current environment. Nevertheless, especially given the very strong U.S. dollar, we believe it's prudent to be a bit cautious in our 2025 outlook. Including the acquisition of Micropac, but excluding the Excelitas 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 Technologies]

Thank you, Robert. This is Edwin, and I will first report on the digital imaging segment, which represents approximately 54% of Teledyne's portfolio. Fourth quarter 2024 sales were at record and increased 2.5% compared with last year. The performance of digital imaging last year reflected record sales at Teledyne 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. 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.

[Edwin Roks, CEO at Teledyne Technologies]

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. George will now report on the other three segments, which represent the balance of Teledyne.

[George Bobb, President and COO at Teledyne Technologies]

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 fourth 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. Sales of electronic test and measurement systems, which include oscilloscopes, protocol analyzers, and Ethernet traffic generators, sequentially improved for the third consecutive quarter and increased 2.3% year over year. Instrumentation operating margin in the fourth quarter increased 27 basis points to 27.3% and 96 basis points on a non-GAAP basis to a record of 29.1%.

[George Bobb, President and COO at Teledyne Technologies]

In the aerospace and defense electronics segment, which represents roughly 14% of Teledyne sales, fourth 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, fourth quarter revenue increased 11%. 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 Technologies]

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 repurchased stock when we felt our shares were very undervalued, while at the same time we were willing to forgo large acquisitions when we thought price expectations were unreasonable. But then, as our own valuation partially recovered and M&A markets became more rational, we pivoted by stopping repurchases and were pleased to announce the Micropac and Excelitas acquisitions. Given over $1.1 billion of free cash flow in 2024, our balance sheet capacity is the highest in years, and our M&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.

[Steve Blackwood, SVP and CFO at Teledyne Technologies]

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 first quarter and full year 2025 outlook. To begin, our fourth quarter non-GAAP earnings per share reflect the removal of $16.6 billion of FLIR acquisition-related tax benefits. Remaining tax benefits of $13.6 billion were approximately half offset by a higher tax rate. In the fourth quarter, cash flow from operating activities was $332.4 million, compared with $164.4 million in 2023. Cash flow, that is, cash flow from operating activities less capital expenditures was $303.4 million in the fourth quarter of 2024, compared to $124.2 million in 2023. Cash flow increased in the fourth quarter primarily due to lower income tax payments, but also due to improved working capital performance.

[Steve Blackwood, SVP and CFO at Teledyne Technologies]

Capital expenditures were $29 million in the fourth quarter of 2024, compared with $40.2 million in 2023. Depreciation and amortization expense was $77.1 million in the fourth quarter of 2024, compared with $77.4 million in 2023. For the full year, 2024, free cash flow was $1.11 billion. We ended the year with just under $2 billion of net debt. That is approximately $2.65 billion of debt less cash of approximately $650 million. Now turning to our outlook, which includes the acquisition of Micropac but excludes the Excelitas carve-out, which has not yet closed. Management currently believes the GAAP earnings per share in the fourth quarter 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.

[Steve Blackwood, SVP and CFO at Teledyne Technologies]

For the full year 2025, we believe the GAAP earnings per share will be in the range of $17.70-$18.20, with non-GAAP earnings per share in the range of $20.10-$21.50. I will now pass the call back to Robert.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

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. We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Noah Poponok with Goldman Sachs. Please proceed with your question.

[Noah Poponak, Managing Director of Aerospace and Defense Equity Research at Goldman Sachs]

Hey, good morning, everyone.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Good morning, Noah.

[Noah Poponak, Managing Director of Aerospace and Defense Equity Research at Goldman Sachs]

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

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

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

[Noah Poponak, Managing Director of Aerospace and Defense Equity Research at Goldman Sachs]

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

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

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

[Noah Poponak, Managing Director of Aerospace and Defense Equity Research 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 looked like you referenced kind of long cycle still strong. It 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 Technologies]

Okay, so let me start with, if I may, I'll do it by segment, which should make it clearer. On an organic growth basis, as you and I agreed, our target's about 3.2%. If you go to instruments, which includes marine, environmental, and test and measurement, we expect all three of those subsegments 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%. Aerospace and defense, right now we're targeting it at 4%, but once you include that Micropac acquisition, which just closed, that will then jump up to 8%. Engineered systems, we assume it'll 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, Managing Director of Aerospace and Defense Equity Research at Goldman Sachs]

Okay. I appreciate all that detail. Thank you.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

For sure, Noah.

[Operator]

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

[Greg Konrad, Senior Vice President at Jefferies]

Good morning.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Good morning, Konrad. Great.

[Greg Konrad, Senior Vice President at Jefferies]

Yeah, I don't know what they called me upfront, but maybe just 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 Technologies]

Yeah. Let me do 2024 and then 2025, and I'll break it up between FLIR and what we call our historical digital imaging before FLIR. So in 2024 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 two-dimensional area scan, which is kind of a machine vision business. That declined about $40 million. So if you take that out, the rest of FLIR actually increased about $70 million year over year, and it increased in almost all areas. It increased in our cores, which we sell, microbolometers, as well as indium antimonide cores. It increased in tomography, both infrared instruments and cameras, and our marine businesses kind of held steady. They were down a little bit, but not much. So overall, FLIR increased.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Defense in FLIR did really well, and it increased about 9%. All of its various subsegments did well. So FLIR now going to 2025, we're assuming about a 2.8%-3% overall increase because we're still a little cautious about the commercial businesses. 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 that 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 Adimec 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 Technologies]

So when you add those two up, its 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 into our projections as we go forward. I hope that answered your question, Greg.

[Greg Konrad, Senior Vice President at Jefferies]

Yeah, 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 Technologies]

Yeah. 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. 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, digital imaging, we finished the year from a segment 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 and 80 basis points. Some of the other segments, we've had very strong margin growth since 2022. For example, in instruments, our margins between 2022 and 2024 grew 310 basis points. So we're being a little more cautious.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Maybe it'll grow in 2025, 45 basis points, and the other thing is that when you go to aerospace and defense, where we've had really excellent growth also of 150 basis points in the last two years, we're a little cautious going into 2025, primarily because the Micropac 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 Micropac effect. Of course, once that thing is tucked in properly, you'll start enjoying margin expansion like all of our acquisitions do. I hope that answered your question, Greg.

[Greg Konrad, Senior Vice President at Jefferies]

That's perfect. Thank you.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

For sure.

[Operator]

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

[Andrew Buscaglia, Managing Director at BNP]

Hey, good morning, guys.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Morning, Andrew.

[Andrew Buscaglia, Managing Director at BNP]

I just want 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 Technologies]

Yeah. First, yes, we do account for headwind from FX. As I mentioned, at the present time, it's 1.3%. 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. We have a big headwind. 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 FLIR will grow about 3.9% for the year, 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, Managing Director at BNP]

Okay, and on the Excelitas or Excel or however you say the acquisition, should we assume some accretion to non-GAAP earnings in 2025 once that's closed?

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Yeah. I think, well, it depends on when 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 million a month in revenue. We think for a full year, if we were to have it for a full year, it should give us about $0.15-$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, Managing Director at BNP]

Got it. Okay. Thanks, Robert.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Thank you.

[Operator]

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

[Damian Karas, Senior Equity Research Analyst at UBS]

Hey, good morning, everyone.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Morning, Damien.

[Damian Karas, Senior Equity Research Analyst at UBS]

Morning. 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 than you had expected three months ago or vice versa?

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Yeah. 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 businesses. In instruments, for example, book-to-bill is 1.12, which is pretty high for us. Marine businesses leading that by 1.23. And then environmental is positive, 1.09. We're a little cautious on T&M. We think it's just a little below 1, maybe 0.95, 0.99 for the whole year. Digital imaging, FLIR is positive at 1.03. Our historical imaging is slightly below 1 at 0.97. Adimec 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 trends in our book-to-bill.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Now, if you go to some of our commercial where we have the headwind, and we've had it last year, it's in very specific areas of digital imaging, as Edwin mentioned, primarily in machine vision and machine sensors. Machine vision is recovering. So 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 six-to-nine months. So we think that recovery will be closer to the second half of 2025. I hope that answers the question.

[Damian Karas, Senior Equity Research Analyst at UBS]

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.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 Technologies]

Yeah. 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 at 2022, where we had all these shortages, right, coming out of COVID, we had experienced peak supply chain challenges. That cost us about $100 million in 2022. 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 two 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 will be less than what we experienced in 2022, maybe half as much. So we think we can deal with that. The other thing is the sophistication of the tariffs.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

We have to yet dive into it because we make products in different countries. Let's say we make products in Canada that then we finish off in the US. Sometimes we export. Sometimes it's for domestic consumption. So the value add changes. But having said all of that, we think we can deal with that. In terms of the DOGE efficiency, I think it kind of would favor us partially because compared to others, partially because most of our defense businesses, as an example, it's 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 three, it's almost $400-plus million. Our platforms are unmanned. A lot of our sensors go on those versus manned platforms.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

A lot of our products are also standard products rather than very highly customized solutions. I think we will do okay.

[Damian Karas, Senior Equity Research Analyst at UBS]

That makes sense. Appreciate all the color.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

For sure. Thank you.

[Operator]

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

[Jordan Lyonnais, VP at Bank of America]

Hey, good morning.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Morning, Jordan.

[Jordan Lyonnais, VP 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 FY 2023 to 2024, I would expect the momentum to continue. So are there programs that are ending, or it's just a mixed bag?

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

I don't know if I buy the 4% number. As I mentioned in FLIR, we think it'll be higher than that, our growth. It was approximately 9%, our FLIR defense businesses in Q4 grew almost 9%. We expect it next year to grow another 6%. That's not as conservative. Now, the 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 the fields that we're in, which are the unmanned systems primarily, and then, of course, electronic warfare, and then, of course, observations using EO/IR, those favor us by and large, regardless of which programs go forward. I'm pretty bullish about the defense part of our businesses.

[Jordan Lyonnais, VP at Bank of America]

Got it. Okay. Thank you so much.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

For sure.

[Operator]

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

[James Ricchiuti, Analyst at Needham & Company]

Hi. Thanks. Good morning.

[James Ricchiuti, Analyst at Needham & Company]

Hey, Robert, are you at all surprised by the slow recovery in that legacy digital imaging business?

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

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 imports, 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, these are short-cycle businesses. They can turn on two, three, four 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 Technologies]

So, having said all of that, yeah, 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 so the last question I'll add to is some of our customers 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.

[James Ricchiuti, 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 stocking that people have been talking about for a while now?

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Yeah. I think I would start with instrumentation. Some of the conservatism 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 years gone on in 2024. In digital imaging, frankly, we have a slew of new products going out, which I think will be much more competitive. So yeah, we are being conservative. Having said that, 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.

[James Ricchiuti, Analyst at Needham & Company]

Understood. Thanks a lot.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

For sure.

[Operator]

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

[Joe Giordano, Managing Director at TD Cowen]

Outlook on free cash flow for the year?

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

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

[Joe Giordano, Managing Director at TD Cowen]

Hey.

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Yeah.

[Joe Giordano, Managing Director at TD Cowen]

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

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

Yeah. Just to reiterate, I like bidding this one because we did so well. We got free cash flow of $1.11 billion, as Steve mentioned. We think it'll be over $1 billion. If we hit $1 billion again, I'll be happy. We had some lower taxes, but we also enjoyed some improvement in our working capital and inventory. We had some advance payments on some programs. Those may not happen. But having said all of that, I think $1 billion is a good number.

[Joe 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 you've shown the ability to be a bit more flexible with buybacks lately, is the dividend at all interesting to you guys to bring in a new class of investors who can't currently invest in the shares?

[Robert Mehrabian, Executive Chairman at Teledyne Technologies]

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.

[Joe Giordano, Managing Director at TD Cowen]

Yep. 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 Technologies]

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 VanWees for any closing comments.

[Jason VanWees, Vice Chairman at Teledyne Technologies]

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. Thanks, Paul. Bye.

[Operator]

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

Participants

Executives

• Edwin Roks, CEO
• George Bobb, President and COO
• Jason VanWees, Vice Chairman
• Robert Mehrabian, Executive Chairman
• Steve Blackwood, SVP and CFO

Analysts

• Greg Konrad, Senior Vice President at Jefferies
• Joe Giordano, Managing Director at TD Cowen
• James Ricchiuti, Analyst at Needham & Company
• Damian Karas, Senior Equity Research Analyst at UBS
• Andrew Buscaglia, Managing Director at BNP
• Jordan Lyonnais, VP at Bank of America
• Noah Poponak, Managing Director of Aerospace and Defense Equity Research at Goldman Sachs