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S&P 500   3,998.84
DOW   33,947.10
QQQ   287.64
All the Cloud Storage You Need Is on Sale for the Holidays
The 3-Stock Retirement Blueprint (Ad)
Tesla Shares Are Sliding, Here’s Why
Is Big Lots the Next Bed Bath & Beyond Disaster in the Making?
The 3-Stock Retirement Blueprint (Ad)
Lockheed teams with Israel's Rafael on laser defense
Russian oil price cap, EU ban aim to limit Kremlin war chest
The 3-Stock Retirement Blueprint (Ad)
World Cup fans find booze at hotels, Qatar's 1 liquor store
3 Signs the Stock Market Outlook is Improving
S&P 500   3,998.84
DOW   33,947.10
QQQ   287.64
All the Cloud Storage You Need Is on Sale for the Holidays
The 3-Stock Retirement Blueprint (Ad)
Tesla Shares Are Sliding, Here’s Why
Is Big Lots the Next Bed Bath & Beyond Disaster in the Making?
The 3-Stock Retirement Blueprint (Ad)
Lockheed teams with Israel's Rafael on laser defense
Russian oil price cap, EU ban aim to limit Kremlin war chest
The 3-Stock Retirement Blueprint (Ad)
World Cup fans find booze at hotels, Qatar's 1 liquor store
3 Signs the Stock Market Outlook is Improving
S&P 500   3,998.84
DOW   33,947.10
QQQ   287.64
All the Cloud Storage You Need Is on Sale for the Holidays
The 3-Stock Retirement Blueprint (Ad)
Tesla Shares Are Sliding, Here’s Why
Is Big Lots the Next Bed Bath & Beyond Disaster in the Making?
The 3-Stock Retirement Blueprint (Ad)
Lockheed teams with Israel's Rafael on laser defense
Russian oil price cap, EU ban aim to limit Kremlin war chest
The 3-Stock Retirement Blueprint (Ad)
World Cup fans find booze at hotels, Qatar's 1 liquor store
3 Signs the Stock Market Outlook is Improving

Teledyne Technologies Q3 2022 Earnings Call Transcript


Listen to Conference Call

Participants

Corporate Executives

  • Jason VanWees
    Vice Chairman
  • Robert Mehrabian
    Chairman, President and Chief Executive Officer
  • Susan L. Main
    Senior Vice President and Chief Financial Officer, Teledyne Technologies Incorporated

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Teledyne Technologies Third Quarter Earnings Conference Call. At this time all parties are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded.

I'd now like to turn the call over to our host, Mr. Jason VanWees. Please go ahead.

Jason VanWees
Vice Chairman at Teledyne Technologies

Good morning, everyone. This is Jason VanWees, Vice-Chairman of Teledyne, and I'd like to welcome everyone to Teledyne's third quarter 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 Mehrabian, Senior Vice-President and CFO, Sue Main; SVP, General Counsel, Chief Compliance Officer and Secretary, Melanie Cibik, and also Edwin Roks, Executive VP of Teledyne. After remarks by Robert and Sue, we will ask for your questions. Of course, before we get started, 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 we'll be available for approximately one month. Here's Robert.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Thank you, Jason. Good morning and thank you for joining our earnings call. I'm very pleased with our performance this quarter, as well As Teledyne's long history of navigating challenging markets. Despite the strong dollar, supply-chain constraints and inflation, we achieved record third quarter sales, earnings, operating margin and free-cash flow. Excluding foreign currency headwind which negatively impacted third quarter sales growth by approximately 3% or $39 million, core growth in local currency would have been 6.9%. In addition, year-over-year reported sales increased in all segments despite the FX headwinds. Non-GAAP earnings of $4.54 was a third quarter record, and just shy of our all-time record, and our earnings quality was also very high, given our largest effective tax-rate in several years. Overall, orders and demand remains strong which is a testament to the strength of our balanced business portfolio. Total company book-to-bill was 1.06, and while orders remained reasonably healthy in our short-cycle commercial businesses, they were particularly strong in our longer-cycle government, marine and aviation businesses, and quarter-end external backlog of approximately $3.2 billion was also a record. Record third quarter free cash flow of $252 million, improved for the second consecutive quarter, and was 116% of adjusted net income. Our acquisition pipeline is growing, and we're pleased to announce -- we were pleased to announce the pending acquisition of ETM earlier this morning.

Turning to our 2022 full-year outlook. With our strong operating performance in the third quarter, we were able to increase our full-year earnings outlook while derisking the prior heavily-weighted Q4 forecasts. On revenue, given our current exchange rate and the U.S. government's continuing resolution as well as the evolving semiconductor and technology export controls, we're a bit cautious at this time and now project full-year sales of probably roughly $5.45 billion. In the third quarter, we also took the opportunity to refocus Teledyne FLIR by eliminating some smaller money-losing products to help improve our margins. And as a result, we had some cost towards our revenue.

Finally, while supply chain constraints continued to limit shipments, we have seen a modest, very modest improvement in recent weeks, at least with regard to availability of certain printed circuit boards as well as electronic components. I will now further comment on the performance of our four segments.

Starting with our digital imaging segment. Third quarter sales increased 2.3% despite currency translation had been really nearly 4%. Sales growth was strongest for industrial and scientific vision sensors and systems as well as for our low-dose high-resolution digital X-ray detectors. Sales of commercial infrared imaging cameras and components also increased. GAAP segment operating margin was 17.2%, but adjusted for intangible asset amortization, segment margin was 22.9%, a 170 basis-point improvement from the second quarter of this year.

In our instrumentation segment, overall, third quarter sales increased 6.7% versus last year. Sales of electronic test and measurement systems which include oscilloscopes, digitizers, and protocol analyzers remained strong and increased 9.7% year-over-year with growth in all major geographies and product categories. Sales of protocol analyzers across numerous industry standards such as Peripheral Component Interconnect Express, or PCI Express, Universal Serial Bus, or USB, and High-Definition Multimedia Interface, HDMI, remains strong. As well as sales of oscilloscopes and our unique CrossSync product which combine oscilloscopes and protocol analyzers together.

Sales of environmental instruments increased 6.3% compared with last year with greater sales of both drug discovery and laboratory instruments as well as air monitoring and processed gas analyzers. Sales of marine instrumentation increased 5.1% in the quarter primarily due to near record sales of autonomous underwater vehicles for both defense and commercial oceanography application. Overall, instrumentation segment profit increased 12.9% in the third quarter with GAAP operating margin increasing 126 basis points to 22.2% and 83 basis points on a non-GAAP basis. Excluding intangible asset amortization, the margins increased to 24.5%.

In the aerospace and defense electronics segment, third quarter sales increased 4.8% primarily driven by a 20.7% increase in sales of commercial aerospace products. GAAP segment operating profit increased 23.4$ with margin 349 basis points greater than last year. And finally, in our engineered systems segment, third quarter revenue increased 7.2% and operating profit also increased slightly.

Before turning the call over to Sue, I wanted to make a couple of concluding remarks. Over the last 18 months, we have endured the same challenges as most companies. That is, record inflation, supply chain constraints, and now strong U.S. dollar. At the same time, we completed the integration of Teledyne FLIR, our largest acquisition, and then, we rapidly leveraged. While the operating environment remains challenging, we're glad to be back to doing what we do best -- investing in our businesses to drive organic growth, being vigilant on costs and simplifying our operations to increase margins, and finally, acquiring and integrating complementary businesses.

And now, I'll turn the call over to Sue.

Susan L. Main
Senior Vice President and Chief Financial Officer, Teledyne Technologies Incorporated at Teledyne Technologies

Thank you, Robert, and good morning, everyone. I will first discuss some additional financials for the quarter not covered by Robert and then I will discuss our fourth quarter and full year 2022 outlook. In the third quarter, cash flow from operating activities was $268.9 million, compared with cash flow of $192.8 million for the same period of 2021. The third quarter of 2022 reflected stronger trade receivable collections compared with the third quarter of 2021. Free cash flow, that is, cash from operating activities less capital expenditures, was $252.2 million in the third quarter of 2022, compared with $163.6 million in 2021, which included $2.1 million of after cash payments related to the FLIR transaction. Capital expenditures were $16.7 million in the third quarter of 2022, compared with $29.2 million in 2021. Depreciation and amortization expense was $80.8 million for the third quarter of 2022 compared with $90.2 million. In addition, non-cash inventory step-up expense for the third quarter of 2021 was $35.2 million with no comparable amount recorded in the third quarter of 2022. We ended the quarter with approximately $3.44 billion of net debt. That is, approximately $3.9 billion of debt less cash of $479.3 million. Stock option compensation expense was $3.7 million in the third quarter of 2022, compared with $5.8 million in 2021.

Turning to our outlook. Management currently believes that GAAP earnings per share in the fourth quarter of 2022 will be in the range of $3.67 to $3.80 per share with non-GAAP earnings in the range of $4.46 to $4.56. And with the full year 2022, our GAAP earnings per share outlook is $15.46 to $15.60, and on a non-GAAP basis, $17.70 to $17.80. The 2022 full year estimated tax rate excluding discrete items is expected to be 23.1%.

I will now pass the call back to Robert.


Questions and Answers

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Thank you very much, Sue. We would now like to take your questions. Operator if you're ready to proceed with the questions-and-answers, please go ahead.

Operator

Thank you ladies and gentlemen. [Operator Instructions] And, one moment. We'll go first to Greg Konrad with Jefferies. Please go ahead.

Greg Konrad
Analyst at Jefferies

Good morning.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Good morning, Greg.

Greg Konrad
Analyst at Jefferies

Maybe just to start, digital imaging had a nice margin pickup in recovery from time of H1, can you maybe talk about the margin dynamics around price mix, and how you think about the recovery there or maybe expectations for the year.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Well, let me start with expectations for the year and then see if I can answer the rest. Actually, if you look at the year, we have net pricing improvement across all of our businesses of about 3.6% of sales, but that includes digital imaging. On the other hand, we have also against that we have inflation, Greg and price increases in the products that we buy. The price increases in the products that we buy have been about 3.4%. We also have salary increases of about 4%, so net pricing increases have kind of offset the headwinds that I have, that we have from price increases to us, that is inflation. The flip side of that is that we've had to pay a little extra for scarce products, like complex FPGAs and others that we could not build into our price, so that we have had a headwind there, I'm going to say about 2%, above $50 million. So fundamentally, digital imaging is done well. They have improved their margins, but, it's been a relatively tight tier up to now.

Greg Konrad
Analyst at Jefferies

And then, can you maybe comment on just the defense business more broadly, I mean it seems like you're getting quite a few of contracts, some [Indecipherable] some in the broader business. I mean, broader market commentary seems to think that demand outstrips supply right now. I mean, how do you think about the timing of some of these new defense opportunities and kind of the outlook there.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

I think in general, what we're finding is that in our defense businesses, our book-to-bill has improved significantly now. For the third quarter actually, our government businesses were down slightly but the book-to-bill which is very important for us has improved both in FLIR, it's close to 1 but in our Aerospace and Defense Electronics is closer to 1.5. And in Engineered Systems it is 1.35. What we're finding is that the demand for electronic components and systems including parts that are going to Javelin and other weapons that are being depleted, those are coming back strong. We also have really good orders in systems that are being developed like a wide field of view tracking layer which is for missiles striking basically. We've had good orders and we will have programs of about $60 million over two years, and that goes across a lot of our products. So, in general, you're right. We've seen strength in our defense businesses and some moderation in our commercial businesses as time has gone on.

Greg Konrad
Analyst at Jefferies

And then just last one, kind of a clarification question. You called out the 3% headwind from FX, just want to clarify, is that only a translation headwind or are you seeing any changes to competition when you're competing with maybe a local-currency competitor?

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

No, it's really a headwind from FX. It's a translation only. It started the year at about 1%, went to 2% in Q2 and 3% in Q3. We're estimating about 2% in Q4 for a total, Greg, of $110 million hit we're taking to our revenue for the full year. So, if we didn't have this translation only, we would have revenues and other $110 million in revenues.

Greg Konrad
Analyst at Jefferies

Thank you.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Thank you, Greg.

Operator

And next we go to Joe Giordano with Cowen. Please go ahead.

Joe Giordano
Analyst at Cowen

Hey, guys good morning. So, last quarter was a very modest cut, I think, took some people by surprise, now a bit of a rage here or kind of in the same zone at the end of the day despite all that. So, kind of like what are the big changes did some kind of key risks that you were thinking about the last quarter, maybe not materialized to the same extent, because it was kind of like a lot of movement to get to the same place, I guess, at the end-of-the day.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Yeah, well, you know, when we started last quarter, we were unsure how much prices we could, of our price increases would stick, and obviously we were also concerned whether we could manage our margins that take cost start to improve our margins. All of those coupled with the fact that our commercial orders held up pretty well, like in the imaging businesses helped us along the way. So, in a way, yes. We were looking at -- we weren't in trouble in anyways. We just kind of very cautious because the headwinds were unpredictable, but as we took some cost-out and increased prices, and we had good cash-flow by the way. It has given us a lot more confidence, so we raised our outlook, and de-risked Q4 at the same time.

Joe Giordano
Analyst at Cowen

Yes, That's fair. I think when we spoke last quarter, your view for digital imaging margins for something like 22ish percent for this quarter and then maybe 23% for next quarter, it looks like you're three months ahead of that, so you are at 23% now. Should we expect digital imaging margins to increase further in the fourth quarter?

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

A little bit, yeah. I think overalI in the fourth quarter. Well, let me go talk to the year which is easier for me to do. For the year we think we'll be at 22.2% which would be about 20 bps better than last year. So I think Q4 is going to be better, about 22.9%, 22.7% of that range. Again, I'm a little cautious here because there is some softness in the commercial markets, but again our defense businesses are picking up.

Joe Giordano
Analyst at Cowen

Yeah, [Indecipherable] and then just last from me. I mean, I know it's early and we don't want to talk about '23, but I know that there was this bogey out there for a while now about the potential for you guys to do give or take around $1 billion of free-cash flow in 2023, is that still in this world like a reasonable target to shoot for? or is that kind of not achievable given FX and all these other things we've talked about for the last six months.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Let me say, I think $1 billion for '23 is there a little too high, because we have capitalized R&D that we have to worry about. But having said that, if you look at the big picture which is the way I approach this. We started the year, we started out with a fair acquisition with a net debt-to-EBITDA of 3.7. We're down to about 2.5 now. By the end of the year, everything else going along will be done to 2.4. If all goes well by the end of next year and then by the end of '24, we'd be down to 0.9. That gives us a lot of cash to do acquisitions, and that includes making maybe $500 million of acquisitions in the interim. So the way I look at cash flow is longer-term view, we probably will make the $4 billion, will come close but most importantly will de-levered and be able to make acquisitions at the same time and put us in a position where we can do something bigger if we want to later on.

Joe Giordano
Analyst at Cowen

Thanks, guys.

Operator

And next, we'll go to Elizabeth Grenfell with Bank of America. Please go ahead.

Elizabeth Grenfell
Analyst at Bank of America

Hi good morning. Can you give us a few details around the acquisition that you announced this morning.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Yes, I would be happy to. It's really, while we didn't disclose the terms, it's got about 112 employees, it's in Northern California. What it does is really it gives us two very important components to our ads towards products that we don't have. First, in the microwave area we make traveling wave tubes. But in order to drive these tubes, you need a power supply. So far, we've had to go to other people to buy the power supplies for our tubes. We've been looking for that, and there is a scarcity of suppliers in that domain. With this acquisition now, we can essentially supply a system of both tubes and power supplies. For example, in a given application we were studying without the tubes and they add up to about $300,000 for that application. When we put the power supply with the tubes together we can sell it over $2 million, so that's in the defense area.

The second area is in our medical field, where we supply products that are going to cancer therapy, radiotherapy, X-ray systems to kill cancers. We basically have a product that makes microwave, high energy pulsed microwave that are used in that system, and we've added to that and we are serious the sell that for about $10,000. We've added to that more components and we've gotten to where we sell about $40,000 to $50,000 of products in a system. But again, what we didn't have is the power supply cooling system, the whole-system that you can use in developing the high-energy X-rays, and that again is something that ETM brings to us, so what happens is a content that used to be $10,000 we've grown it to a maybe $40,000, now can grow over to $100,000 per radiotherapy system, and they have really good customer contacts and they've been accepted by the customers as have we with our own products. So that's why we're making this acquisition, it is complementary to both our defense as well as our radiotherapy businesses.

Elizabeth Grenfell
Analyst at Bank of America

Okay, great, thank you. And then the impact of the portfolio shaping you did within Teledyne FLIR this quarter, how much of an impact did that have on margins?

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

It improved margins slightly, but more importantly what we doing is we took the costs out by reducing the workforce. It was a product line, for example, that they bought just before that acquisition in December of 2020. We bought them in May of 2021. It was a product where they were trying to [Technical Issues] produce basically commercial and industrial UAVs, unsuccessful, difficult business to being in. In FLIR we have really good products in the defense domain that we sell substantial amounts up to compete in the industrial domain that was that was a product that we had secured.

Elizabeth Grenfell
Analyst at Bank of America

Okay. And then if I could speak one more [Indecipherable]. How are you thinking about the supply-chain headwinds now? and when if you think that will abate. And then the sales that are being lost because of challenges. Are those continuing to shift to the right or are they starting to disappear, any way to think about that.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Elizabeth, let me answer the second part of the question first. What's happening to us is that we have about a $60 million shortfall in sales that rolls over quarter-over quarter, so it's not cumulative, it is not like you have four quarters of $60 million loss in sales that adds to $240 million, just $60 million. What happens is it gets delayed, we get parts. The next part that we ship is what we couldn't ship, then we get delayed again. Sorry, we may start the quarter looking saying it's going to hurt us by 100 million, but we recovered from that. So it is a $60 million problem for us right now.

The flip side, the first part to your question, we're seeing some improvement especially in the more simpler printed circuit board assemblies. For example, to sell our cameras from Teledyne DALSA and e2v. We need about a 1,000 circuit boards a day on occasion. And that was drawing up for various reasons. We've managed to address that problem. So that's good. We also have some improvement in components. Having said that, we still have really tight market for more complex systems like field programmable gate arrays which are FPGAs, and there what's happening is the supply shortages are such that people are allocating certain number to each company. We have a very effective effort underway to combine all of our needs across Teledyne, prioritize them and give our priority numbers to our suppliers. Having said that, that is not improving.

Some of our suppliers are asking for non-cancellable orders that go out a year from now. And so you have to make choices there obviously, and we are also doing that. So part of it is relaxing he PCBA but part of it with field programmable gate arrays that's not, so it's a mixture, but I'd say overall there is improvement.

Elizabeth Grenfell
Analyst at Bank of America

Great. Thank you very much.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

For sure.

Operator

And next, we'll go to Jim Ricchiuti with Needham and Company. Please go ahead.

Jim Ricchiuti
Analyst at Needham & Company

Thank you, good morning. Robert, you alluded to the short-cycle business holding up reasonably well. I'm just wondering as you think about that area of your business in a mild recessionary environment, which areas do you see the business beginning to soften in the first, and are you seeing any signs of that in your bookings in any of that short-cycle business.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Yeah. In some of the products that we make, I'll start with digital imaging. In some of the products that we make, for example, that go into warehouses. As the demand is softening in that domain then obviously, they don't need as much of our products for automation and improvement of delivery of their products. On the other hand, because we have such a broad portfolio of products that range from security to traffic to firefighting, not all of them are kind of getting impacted simultaneously. That's why we think it's the downward pressure is not as great for us because of the diversity of our products. Now if you went outside digital imaging, for example, in our instruments domain where we have environmental instruments, we have oscilloscopes, protocols, we have marine instruments, we have marine vehicles, there things are a lot better. We think it might soften, but it hasn't softened much yet. We are getting up. In the instruments, our book-to-bill is still 1.05. So, what happens is that's the thing that Jason and I always talk about, is the breadth of our product. And both in terms of who we supply to and what people buy our products for, but also the diversity of our -- geographic diversity of our products that's protecting us. So, we might have softness in some areas, but overall, I think we're doing okay.

Jim Ricchiuti
Analyst at Needham & Company

Okay. And just on the comment that you made about M&A and certainly the -- you can see the net leverage really coming down fairly meaningfully over the next one to two years, you alluded to 2024 potentially giving you the opportunity to do a big deal. Are you averse to doing a larger deal in '23? Or, is it a case of there are a lot of -- there are smaller deals that you could do and you'll just maybe gauge how the macro-environment is and whether valuations potentially come down for certain larger assets?

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Good point. Right now, if you look at the market for public companies, as Jason often says, people always look in the rearview mirror, right? So, everybody is looking in the rearview mirror including us. And you're seeing 52-week high striking back. It might be nine months ago. Nevertheless, it's there. So, expectations are what you're seeing in your rearview mirror. If we go forward and things persist the way they are, and people see lower numbers looking backwards, then I think we'll have more opportunities. Right now, what our focus is to see if we can do more bolt-ons as we've done historically. When we acquired e2v in 2017, our ratio -- net debt-to-EBITDA ratio went up almost to three. What we did, it came down by the end of '20. 2.5 years later or so, it came down to essentially zero. And we in the interim made another $500 million of acquisitions during that period. So, the number I quoted for 2024 includes us being able to spend maybe $600 million of smaller acquisitions.

As to the bigger acquisitions, I think we have to wait a little -- obviously, we have some things in mind, but we have to wait a little bit before people not -- are not so efflorescent about their evaluations.

Jim Ricchiuti
Analyst at Needham & Company

And is your interest mainly in the commercial area or has anything changed with respect to how the defense environment looks?

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Right now, we still like our commercial businesses, but we're also seeing as you saw, we also bought something at least a bolt-on in the defense domain partially bolt-on in -- partially defense in the bolt-on. We then did some bolt-ons in the defense, especially if they fit our portfolio. But on the larger stuff, it would be either commercial or a mixture of the two like flavors. Flavors, 60% commercial, 40% defense. And so, we will look at that, whether it's 70%-30% or 60%-40%. We look at the combo.

Jim Ricchiuti
Analyst at Needham & Company

Okay. Thanks very much, and congratulations on the quarter.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Thank you.

Operator

Next will go to Andrew Buscaglia with Berenberg. Please, go ahead.

Andrew Buscaglia
Analyst at Berenberg

Hey. Good morning, guys.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Good morning, Andrew.

Andrew Buscaglia
Analyst at Berenberg

Along the lines of the short-cycle discussion, specifically, can you comment on FLIR's more industrial assets, which can be pretty volatile. It can move pretty quickly, especially, to the downside and downturn. I guess, what are you seeing with pace of orders or any indication how that's trending in that business? And then generally, how are FLIR margins settling in? I know they've been kind of volatile during the integration process. So, if you can update us on how you feel about that?

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Sure. Let me start with the products. Generally, I would say, because of the breadth of the product, while there are some softness in some areas like the breadth of our digital imaging, FLIR's book-to-bill right now is close to 1.98, which is in some ways better than the offset e2v. From -- because of the -- again, because of the breadth of the products that they have from tomography instruments to infrared detectors, to maritime systems, security traffic, I don't think we're going to get hit on all of those all at once, and we're not. The only problem that we have at FLIR if I may call it that, is that historically, the revenues have been more skewed to the end of the quarter rather than evenly paced during the quarter, like the rest of our digital imaging is. So, the only risk there is, you get closer to the end of the quarter and something unforeseen happens. And then it can hurt you. We're working very hard to flatten that out. It will take us -- we had the same problem in every acquisition we've made, large acquisition whether it was DALSA or e2v or others. And so, we're working very hard to flatten that curve, the shipment curve.

Having said that, coming back to margins, I think margins are settling in, say, from a non-GAAP perspective, while there has been some volatility as you appropriately noted. I think we've settled by the end of the year, we've settled to about overall in digital imaging to 22.2%. FLIR would be a little further down from that. But generally, we should be okay. We're looking forward to really -- last year was an odd year, because we bought FLIR in the middle of the second quarter, and we essentially shift 12 weeks of products with eight weeks of cost. Again, because of that end of the quarter shipment that I mentioned. So that skewed the numbers. But things are fairly well-stabilized now. And I think what we're looking for is make sure we get to our 22.2% by the end of the year for all of our digital imaging, and then hunkered down and improve that next year.

Jim Ricchiuti
Analyst at Needham & Company

Okay. That's helpful. And then you gave some nice color on the ETM deal. I might have missed it, but how big is the company? And maybe any information you can provide on their margin profile where you expect those to go?

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

All right. Obviously, we've been hesitant to talk about it, but it's going to be filing our Q anyways in few days, maybe later on. But it's got about 112 people. The reason I'm a little hesitant about the sales which are above $50 million is that they also buy products from us. So, they buy our traveling wave tubes including with their power supplies and they sell them. So, the deal is going to be accretive. How many cents depends on how you look at the cost of borrowing. It could be accretive $0.02, $0.03, $0.04. If we say the cost of borrowing is 4% to 5%. On the other hand, our cost of borrowing is not 4% or 5% because our average cost of borrowings with our fixed borrowing and cash is more like 2%, so it's got to be accretive revenue, a little shy around 50, with some pass-through of our own products. I don't know if that's helpful.

Jim Ricchiuti
Analyst at Needham & Company

Okay, yeah very, very helpful. Just trying to get an idea of the size. Okay, thank you guys. Thanks Robert.

Operator

Next, we'll go to Kristine Liwag with Morgan Stanley. Please go ahead.

Kristine Liwag
Analyst at Morgan Stanley

Hey good morning, everyone. Robert, on the supply-chain it really sounds like it's starting to ease for you, and your mitigating actions have been paying off, but can you provide a quantitative update. Last quarter you had mentioned that 800 of the 900 missing components were resolved. Where are we at this quarter? And how does that trend from here?

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

It's getting better, last [Indecipherable] correct, but we started this year, Kristine, by having about 36% of our missing components. Of course, the components were lower number when we started the year. There be more like 500 components, and we are at 35% that we couldn't get at that time. We are now over 1,000 components, 1,100 components but the missing percentage has gone down to about 6% to 7%, so you're absolutely right, there the improvement. The flip side is that are the 11,000 components where we're missing maybe 65 or as I said 60 open parts. The delay in those are kind of getting longer and the demand on us is, okay we're going to allocate so many to you, and you'll get it next April. The flip side is it's a non-cancellable order. I wish I had products like that that I would love to be in that business myself. So, it's getting better but still a challenge.

Kristine Liwag
Analyst at Morgan Stanley

I see, and then in terms of maybe back to digital imaging, you had mentioned a return to portfolio simplification activities. Now you've pruned a very small loss-making product line, but as you assess that portfolio having own floor now for a few quarters, are you evaluating potentially larger cost-cutting initiative or a divestiture, or is this kind of insulated and minimal?

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Yeah. I think it's the latter in all of our products. I know all of our businesses, we do 80-20, which means we take some products that are unique, and they don't make money. We take the product lines out and then increase our products that are making us a lot of money. We're doing that at FLIR like we do our Teledyne, but no we're not going to rest any large part of FLIR. We're happy with what we have, and we actually probably going to add some to certain areas.

Kristine Liwag
Analyst at Morgan Stanley

Very helpful color, and if I could sneak in one more. Back to your comment on the supply-chain, you mentioned that for some of the missing items, the lead times are getting longer. What's driving those incremental headwinds. I mean, I would think with some of the demand in other parts of semiconductors, for example, we're seeing rolling consumer demand. Shouldn't that free up capacity for your orders, and I guess I'm just surprised that we're seeing some things continue to lengthen instead of really get resolved sooner.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Yeah, in in several of the discrete components like using commercial domain, things are okay, they are improving. On the other hand in some of the memory stuff, the length is getting longer, the lead times are longer, but depends on the complexity. Let me just kind of go through it. If you look at memory devices, lead times are getting lower. On the other hand, if you look at more complex devices like microcontrollers and processors, the lead times are still four to 60 weeks. So it's kind of a mixture that depends on what device we're looking for. For the simpler components and, as I said, printed circuit boards, we're making some real improvements there, and we feel very good about that. But some others also require our people to go into the suppliers factory and schedule our products on a daily basis to get them out. So, it's a mix-shift.

Kristine Liwag
Analyst at Morgan Stanley

Great thank you very much.

Operator

And next, we'll go to Noah Poponak with Goldman Sachs. please go ahead.

Noah Poponak
Analyst at Goldman Sachs

Hey good morning everybody. Robert, I just wanted to go back to your commentary around the bid-ask spread in the M&A process. Some other companies that have a similar strategy to yours have pointed to that, but pretty recently suggesting that that hasn't really broken yet. You have a deal this morning, you're saying the pipeline looks good, you are quantifying where you could potentially spend in the immediate term, so I guess maybe in some ways you've already answered this but I'm just really curious to put a finer point like, now that public markets peaked almost a year ago, has that bid-ask spread, challenge cracked and that spread has narrowed, or you are just saying that it hasn't yet but it eventually has to.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

I think in the private deals, it's probably cracked a little bit and the reason for that is private entrepreneurs are looking at things -- they're looking at the world Noah the way it is evolving, right? The uncertainties in the future is becoming much more pronounced at this time, so entrepreneurs that have built a business like the one we just bought, those people have been in business since 1973, they are becoming more reasonable because they see things are not going to get better in the short term. So on the smaller deals like that, I think you're right. We're seeing some better pricing. Having said that, on the bigger deals and public companies, they're still seeing 52-week highs in the background. Until we get beyond that, which is going to be another six months, four months, where people are not looking at my high was $500 and I'm not trading at $350. They look in the mirror and say, well my hammer is more like $400, and now we're at $350. Then I think it's going to be more actionable.

Noah Poponak
Analyst at Goldman Sachs

Okay. That's helpful. You've referenced reducing cost and also price increases. Can you just provide a little bit more detail on where in the business you've done that? And how sizable are we talking on each side?

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Yeah, it depends on the business. Some businesses we have a hard time increasing prices because of the programs that we have, long-term programs, but let me just give you an example. In digital imaging DALSA e2v for example, we've been able to increase prices about 4.7%. In marine where we supply unmanned vehicles but also a lot of connectivity products for oil and gas, we've also been able to increase prices above 4.7%. On the other hand, in some of our defense products, we have hardly cracked price or gotten about 1% or 2%. Having said that, on the average across the company, our price increases have been about 3.6% year-to-date and against that we have wage increases that are 4% and then products material that we buy that have been about 3.4% that's excluding the extra 2% that we pay for scarce materials, so that's been a wash between the price increases and the inflation. Where we've hired is of course we are spending $50 plus million extra on getting our scarce products. So, I think over-time, that will go away too.

Noah Poponak
Analyst at Goldman Sachs

Okay. And lastly, which products or segments did you allow to roll off of FLIR?

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Just really, there was just an Altavian product that they bought in December of 2020 about four or five months before we bought them. Actually, we were already in discussions with them, and they picked that up. And it was a, I think, it was basically an industrial commercial drone business. Not -- in a very difficult market. There are 20 companies that -- of that ilk that are competing with one another. Me, on that domain, I'd either buy the truck and put in our very, really advanced imaging systems on somebody else's truck. I don't want to build those inexpensive trucks. So, that's the one.

Noah Poponak
Analyst at Goldman Sachs

Okay. Thank you.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

For sure, Noah

Operator

And currently no further questions in queue.

Robert Mehrabian
Chairman, President and Chief Executive Officer at Teledyne Technologies

Thank you very much. We would -- if you would be kind enough, operator, I'm going to ask Jason to conclude our conference call and then we'll stop.

Jason VanWees
Vice Chairman at Teledyne Technologies

Thanks, Robert, and again, thanks, everyone, for joining us this morning. Brad, if you could give the replay information at the end of the call, that would be great. And if you have follow-up questions certainly, do feel free to call me as well. Bye-bye.

Operator

Thank you. Ladies and gentlemen, the call will be available for replay after 10 o'clock Pacific Time today and running through November 6 at midnight. You can access the AT&T replay system at any time by dialing 1-866-207-1041 and entering the access code 1148115. International parties may dial 402-970-0847. Those numbers again, 1-866-207-1041, or international parties 402-970-0847 with the access code 1148115.

[Operator Closing Remarks]

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