Teledyne Technologies Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 25, 2023

There are 11 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Teledyne's Third Quarter Earnings Call. And as a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Mr. Jason Van Wees. Please go ahead.

Speaker 1

Thanks, John, and good morning, everyone. This is Jason Van Wees, Vice Chairman, and I'd like to welcome everyone to our Q3 2023 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 Marabian and Senior Vice President and CFO, Sumain. Also joining today are Steve Blackwood, We'll assume the roll up SVP and CFO on December 1 Melanie Cibic, currently Senior Vice President, General Counsel, Chief Compliance Officer and Secretary, who will be promoted to Executive Vice President on January 1 and Edwin Rox and George Bob, currently Executive DPs of Telenine will assume the roles of CEO and President and COO respectively on January 1.

Speaker 1

After remarks by Robert and Sue, we will ask for your questions. Of course, 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

Speaker 2

And thank you for joining our earnings call. These are exciting times for Teledyne. We have New leadership coming in, but we also have continuity and resilience in our programs, in our Operations and our ability to meet what we say we would do in our earnings. In the Q3, as a example, we achieved record operating margin and earnings per share. GAAP operating margin of 18.8% was a 3rd quarter record.

Speaker 2

On a non GAAP basis, the operating margin was 22.8%, which was an all time record Likewise, GAAP earnings per share of $14.15 Was an all time record for Teledyne. Compared to last year, GAAP and non GAAP operating margins increased 119 and 86 basis points respectively and both GAAP and non GAAP earnings per share increased approximately 11%. Our overall Q3 performance was led by growth In our marine, medical, aerospace and certain defense businesses coupled with vigilant Cost control. There was however some deterioration in certain end markets such as industrial automation and laboratory instrumentation. Nevertheless, given our focus on operational excellence, operating margins increased a question.

Speaker 2

Both sequentially and year over year in digital imaging and instrumentation segments helping generate record Given continued debt repayment through September, We started about $680,000,000 year to date. Our consolidate leverage ratio declined And finally, we're pleased to have added Xeno Networks To our test and measurement businesses, which also continued to perform very well In terms of our outlook, We now see total sales for 2023 growth of about 4% For a little less than the second half versus our July outlook With the Q4 sales being roughly $1,450,000,000 Approximately half of this change in incremental a question. Is due to incremental currency translation headwind from July to now And the balance being further deterioration industrial automation and laboratory instrumentation market mentioned earlier. Howard, given the strong margin and earnings achieved in the 3rd quarter, We're raising our non GAAP earnings outlook to $19.25 at the midpoint From a prior outlook of $19.10 I will now further comment on the performance of our 4 segments. 3rd quarter sales in our digital imaging segment were flat compared to last year.

Speaker 2

Sales of X-ray products, infrared imaging detectors and surveillance system increased year over year, Sales of commercial marine hardware and software were flat, but declined organically. Finally, cameras and sensors for industrial automation declined compared to last year. Like Teledyne as a whole, the digital imaging business portfolio is exceptionally well balanced across market segments And geographies. With the help of bolt on acquisitions and growth in our medical and defense markets, We were able to offset declines in industrial automation and the small portion of our overall portfolio That is associated with consumer discretionary spending. Despite the flat revenue, Margins performance improved considerably to record levels with the FLIR businesses collectively Slightly higher than segment average margins.

Speaker 2

Turning to our instrumentation businesses, This segment consists of marine instruments, test and measurement and environmental instruments. Overall, 3rd quarter sales in instrumentation segment increased 7.4% versus last year. Sales of marine instruments increased 20.5% in the quarter, primarily due to ongoing recovery In offshore energy markets and also greater sales of acoustic imaging systems. Sales of electronic test and measurement systems, which includes oscilloscopes, digitizers and protocol analyzers collectively increased 2.5%. We continue to see some softness in sales of analyzers For electronic storage and data center application, but this was more than offset By sales of devices for wireless and video protocols as well as continued strong sales of oscilloscopes.

Speaker 2

Demand for high speed networking customers remain very healthy and we see the Zeno acquisition enhancing our offerings in this market. Sales of environmental instruments decreased slightly compared to last year with sales of air quality and gas and flame safety analyzers offsetting some decline in drug discovery and laboratory instruments. Overall, Instrumentation segment operating profit increased over 20% in the 3rd quarter With GAAP operating margins increasing 2.77 basis points to 26% And 253 basis points on a non GAAP basis to 27%. 3rd quarter sales in our Aerospace and Defense Electronics segment increased 8.1% Driven by growth both in defense electronics and aerospace, commercial aerospace products. A question.

Speaker 2

GAAP and non GAAP operating profit increased 11.5% with margins 81 In the Engineering Systems segment, 3rd quarter revenue increased 4.1%, But operating profit declined slightly given an unfavorable product mix, But also a tough comparison with the prior year period. So in conclusion, We are pleased to continue to do what we know best. A question. Gross sales and margin in businesses with favorable markets, while cutting costs and protecting margins in those businesses where market trends are more challenging. At the same time, Especially now that our leverage continues to decline, we should acquire and integrate complementary businesses.

Speaker 2

Before turning the call to Sue, I want to thank her for her more than 34 years of service to Teledyne And I wish her very, very well earned retirement. I will greatly miss her. And finally, I want to congratulate our other executives on their well deserved promotions yesterday and I and the entire board are delighted that the same talented group of executives We'll continue to serve Teledyne's leadership.

Speaker 3

Sue? Thank you, Robert, for the kind words and good morning, everyone. I will first discuss some additional financials for the quarter not covered by Robert And then I will discuss our Q4 and full year 2023 outlook. In the Q3, cash flow from operating activities was 278 Capital expenditures were $23,000,000 in the Q3 of 2023 compared with

Speaker 4

a question. $15,700,000 in 20.22.

Speaker 3

Depreciation and amortization expense was 76 $900,000 for the Q3 of 2023 compared with $80,800,000 We ended the quarter with approximately $2,740,000,000 of net debt that is approximately $3,240,000,000 of debt less cash of $508,600,000 Our stock based compensation expense was $8,000,000 in the Q3 of 2023 compared with 6 point $7,000,000 in 2022. Turning to our outlook. Management currently believes that GAAP earnings per share in the Q4 of a question. 2023 will be in the range of $4.07 to $4.21 per share with non GAAP earnings In the range of $4.95 to $5.05 And for the full year 2023, Our GAAP earnings per share outlook is now $15.82 to $15.96 And on a non GAAP basis, we are raising our outlook to $19.20 to $19.30 Both the Q4 and full year non GAAP outlook excludes estimated pre tax charges for further FLIR integration costs. The 2023 full year estimated tax rate excluding discrete items is expected to be 22.1%.

Speaker 2

A

Operator

over to your handset if available so we can hear you clearly. And we'll go to our first question is coming from Jim Ricchiuti with Needham and Company. Please go ahead.

Speaker 2

Good morning, Jim.

Operator

One moment. Your line didn't open properly, Jim. One second, please.

Speaker 5

Thank you. By the way, congratulations to and congratulations to everyone else on the New appointments. Robert, maybe a question for you. You talked about the booking strength at standpoint and what's the near term outlook look like in the Teledyne Clear business? And maybe as a follow-up, if you could provide a little bit

Speaker 2

Thank you, Jim. I would say on the FLIR specific, we're moving up to 0 0.93, 0.95 at the present time. With improvement in the defense segment And defense is going to be overrun actually for flare defense. We had any inflection In the defense businesses there in the second quarter and we have some really good new awards That makes us feel good about that domain. Going to the rest of overall Book to bill, Jim.

Speaker 2

I will exclude the engineer system because sometimes it would Big lumpy orders might increase book to bill to 1.4, 1.5 or drop it to point 6 depending on the quarter. So if I exclude that, I think we will be over a 0.9 at this time. A question. We are gaining traction in markets like energy, defense, healthcare And that's why our margins are improving and we're projecting

Speaker 5

any questions. Facilities realignment at FLIR and when do you expect to see the meaningful improvement on margins as it relates any questions. To these moves or maybe you're already starting to see

Speaker 4

some of

Speaker 2

those benefits. Yes, Jim, we're already seeing those benefits. 1st of all, most everything will be done in the March to April timeframe. The reductions in force, Majority of them have happened and the rest will happen in the Q4 timeframe. The facility closures Transfer of one facility to another that will happen in early next year.

Speaker 2

But having said that, Both because of the cost reduction also because of the mix of businesses that we have And digital imaging as a whole, which includes DASA and E2B, At the end of last quarter, we were looking at perhaps a little margin decrement of 15 basis a question. That has not turned it on. We expect for the year to be margins to be up 20 basis points. So about 35 basis points, 40 basis points improvement over the quarter because of the Focus on cost.

Speaker 5

Got it. Thank you very much. And I'll go back into the queue.

Speaker 2

Thank you, Jim.

Operator

Our next question comes from Ron Epstein with Bank of America. Mr. Epstein, go ahead please.

Speaker 6

This is Jordan on for Ron. So I just had a quick question. Could you guys walk us through any of the exposure you guys have to the Israel Palestine conflict? And if you're seeing any increase in heritage flare program interest or any big changes coming from outlays?

Speaker 2

I think we have some background noise. I think basically, We expect in the long term to have some any questions. Orders in our defense businesses from that. We have we are a supplier obviously And we think that the conflict unfortunately, the Conflict is what it is. But I think I'm not at liberty to disclose, but we have contributed to some of the Defense mechanisms that are used by Israel.

Speaker 2

The other part is that the first thing that will happen is that there'd be a refreshment of the a question. Stockpiles in the defense businesses, both because of The conflict in Israel, but also as well as the conflict in Europe. And these are present themselves as Obviously, long term opportunities, both the flare defense programs, but also our aerospace and defense Segment that has a lot of components and subsystems that go into various products.

Speaker 6

Great. Thank you.

Speaker 2

Thank you, George.

Operator

Next we go Joe Giordano with TD Cowen. Go ahead please.

Speaker 7

Hi, good morning guys.

Speaker 2

Good morning, Joe.

Speaker 7

Just curious on the management changes that you articulated for January 1, is there any real like Change in the org structure internally just in terms of how the businesses are going to roll up? You have a COO now. Like, Just curious if there's any kind of like structural changes and how the business is going to report?

Speaker 2

Yes, I think that's a good question, Joe. The 2 things. First, we have one sub segment, which is in the instruments businesses. Remember instruments consists of marine environmental test and measurement. The Marine already reports to George, Bob.

Speaker 2

The test and measurement and environmental report to me, those would Begin reporting to George in January. EDWEN has been running our biggest segment, which is our Digital Imaging segment, he'll continue running that for a while. But as time goes on over the next 12 to 18 months, they will begin harmonizing George learning more about the digital imaging businesses and Edmond learning more about the businesses that George is running at the present time. The resilience to all of this is that I'm not going anywhere. We'll continue to work together.

Speaker 2

The 3 of us also of course with others like Jason and Steve Blackwood and Melanie a question. To make sure that all the assignments changes happen slowly, orderly and don't upset any of our market Leading products that we're focused on. So, I see this as a continuum, But one in which both Edwin and George take more responsibility And I move to more to worrying about how to allocate capital with Jason, a question. Do more M and A and also improve our margins, which is something we have

Speaker 4

to do continuously.

Speaker 7

Appreciate that color there. If I go over to DI margins, I mean, obviously, that's been a focus area for investors and for you guys. It was pretty substantially higher than maybe what people anticipated this quarter. Curious if there is any kind of one off type benefits going on this quarter that maybe we have to consider reversing a question. And then into next year, we have time before we get there, but I think you guys have been at conferences recently talking about maybe 23 That is a good target for next year.

Speaker 7

Is it early target? You're kind of going to be there now. If you think this year is up of 20 bps, you're kind of going to be almost at 23 for this year. So a question. Does that target now just become that much more conservative?

Speaker 7

How should we think about that?

Speaker 2

That's a good one. Actually, you're right. The margins have improved. Right now, we're projecting for the full year 23%, so it will be at 22.7%. So it's very close to the 23% that you mentioned.

Speaker 2

Moving further up, of course, that's what we're going to strive for. We have to take a little more cost out In Dalsai E-2B as we've done in FLIR and we're doing that right now. And The other part that I think would affect it is that some of the markets that are declined Like semiconductor, automation sensors in our vision systems, those are going to come back. And then finally, we have some new markets for our digital imaging. For example, inspection of lithium ion batteries.

Speaker 2

You remember now most of that manufacturing is beginning to switch back to North America and we do have some really good a question. Systems for quality control and you can guess in a a question. Lithium ion battery, a flaw can be catastrophic. So these new cameras, new market a question. We'll offset some of the declines we have now, but I also think that the semi market will come back.

Speaker 2

So if all of that takes place as I've just outlined, Obviously, our margins should improve.

Speaker 4

If I

Speaker 7

could just sneak in one last one. If I think about your oscilloscope business, I I know that's growing very quickly now on delivery of backlog. But if you think about where orders have been all year and let's say we don't Like absent inflection near term in orders, is that a business that likely declines just given where your backlog is and what you're delivering this year, if I think into 2024? A

Speaker 2

question. No, I think we feel very good about our TRM business. First, remember, as you said, part of it is oscilloscope, part of it is Part of it is digitizers and a very fast growing part has been our Protocol analyzes where we just made the acquisitions in our acquisition. The Book to bill in that business is between 9,495 at this time, 0.94, 0.95. Any decline by the way, in protocols, we don't really see declines.

Speaker 2

What we see is a little push out Because new standards are continuously evolving and our protocols are at the forefront of those standards. So people will be adapting those. But while those have softened a little bit, the oscilloscope, because we are also offering new products, are doing fine. I know that market may not look as exciting now that it has done before, but it is for us. It's very exciting.

Operator

Next, we will go now to Greg Konrad with Jefferies. Go ahead, sir.

Speaker 8

Good morning. Maybe just to level set the guidance for the year in terms of revenue. I mean, You mentioned industrial automation and laboratory instrumentation softening, but can you just remind us where FX is the biggest Headwind given you said that was half of the impact, just kind of thinking about the segments for the rest of the year?

Speaker 2

Yes. The effects that I mentioned is versus what we were looking at in July And things have tightened and it's costing us about a percent and it's mostly focused in our Digital Imaging and Instrumentation Businesses. Having said that, overall, If you look at year over year, we do get a little tailwind, but it tightened significantly from our July meeting to today. We'll deal with it like we deal with any market softening here and there. I mean, basically focus On getting products up where there's a good market, cut costs where we don't have the market, improve our margins.

Speaker 2

And if we can do what we just did, beat and raise. And

Speaker 8

The operating discipline definitely comes through. Given those two markets that you did say were deteriorating, how does price a question. Just thinking about maybe what you're able to capture, does that kind of trains the pricing equation at all, thinking about into year end?

Speaker 2

Yes, I think what we have been able to do is increase prices successfully In businesses that are doing well, like on our aerospace and defense businesses or certain parts of our Environmental and for example, marine, where we have a really strong market at the present time, a question. We've increased prices that offsets prices that we have not been able to increase in So it changes across our portfolio up and down. But generally, we are successful in raising Crisis across the board. We have been this year versus let's say last year. A question.

Speaker 2

Will allow us to increase prices, but more modestly going forward than we have Aspirations for, but if things turn around, we'll do it.

Speaker 8

Thank you. I'll leave it at that. Thanks.

Speaker 2

Thank you.

Operator

The next we'll go to Andrew Buscaglia with BNP. Go ahead please.

Speaker 4

Robert, so maybe you guys mentioned or Robert, you mentioned your book to bill is just over 0.9, a question. Which is not too inspiring heading into 2024. But you talked about some optimism in Some areas like digital imaging, some of those markets coming back. I'm wondering, can you comment Your expectations heading into the New Year, last quarter you talked about backlog possibly or defense backlog Converting into Q4, and now you're sounding more optimistic around new awards as well materializing. So I'm just wondering, can that book to bill change on us heading into the New Year?

Speaker 4

Or how are you feeling going into January, February?

Speaker 2

Yes. I think to cut to the chase, we still have Over $3,000,000,000 of backlog, which is very healthy. There are some short cycle businesses that there always been Short cycle, especially in the environmental areas as an example. 0.9, 0.93 Does not bother me only because we have a loss of slew of new products that are coming To market, for example, just take going back to FLIR, Going back to flare defense, we just introduced a new nano drone The Black Hornet 4, which can go twice as high as the one we have, which is Black Hornet 3 was only 10,000 feet. This can go up to 20,000 feet last longer, a question.

Speaker 2

We also have new programs in counter UAS. And the other thing that is exciting for us That we're just starting to get some traction on is understanding where we can bring our Intelligence systems, if you want to call it artificial intelligence, to bear, we have now about $250,000,000 to $300,000,000 of products that are benefiting from Not just being sensors, but being systems cameras that provide intelligent information. So it doesn't bother me. The slight detriment in backlog is primarily because a question. Certain parts of the market, like semiconductor is done.

Speaker 2

But all semiconductor inclusive across Teledyne Less than 10%. So it doesn't bother me. I think the more important thing is can we just keep bringing new product And make the acquisitions that we are not able to do because our leverage is a question. And do what we've always done, acquire, integrate and increase our earnings per share.

Speaker 4

Yes. Okay. Well, that dovetails into my next question around M and A. Yes, with your Leverage now back below 2 ish. What are you seeing in the pipeline for next year?

Speaker 4

And then maybe If you don't see M and A materialize, what are your thoughts on share repurchase just given where your valuation is?

Speaker 2

I'll answer the M and A question. I mean share repurchase is Something that we haven't done. We've only purchased shares, I'm going to say 10, 12 years ago, about $400,000,000 And when you look at Our market cap versus that, very small fraction. I think our M and A opportunities are there. We're looking at smaller acquisitions at the present With 1 or 2, what I'll call midsize, several $100,000,000 acquisitions In the potential pipeline, the one thing we have to be careful about is there's some Really outrageous prices that people are paying for some of the acquisitions we've looked at.

Speaker 2

Multiples of sales going 15 times and that's just not us. Well, we are looking at smaller acquisitions both here and in Europe and they'll come along just like we've done before, what we call the string of any questions. If we don't make any acquisitions on the flip side, by the end of next year, Our leverage ratio would be 1, which was actually less than that before the FLIR acquisition. A question. And cash also will help our earnings, but our primary focus is going to be acquisitions.

Speaker 4

Okay. Thanks, Robert.

Speaker 2

Sure.

Operator

Next, we go to Rob Jamieson with UBS. Go ahead.

Speaker 4

Hey, thanks for taking my questions. Just a couple. Can we run through the segment, And what you're embedding for organic and margin expectations just for the rest of the year? And then also just to hit on your Net leverage comment there. Is it safe to kind of assume that you guys are going to be able to produce above like maybe $1,000,000,000 in free cash flow in 24?

Speaker 2

Let me answer the last question first. We're right in the middle of our planning cycle For our operating plan and made presentations to our board yesterday and the answer is yes. Let me now go back to the organic question that you asked for this year. Fundamentally, we're going to have organically, we're going to be relatively flat In our overall digital imaging business, maybe a little percent down, but that's partly because we're also Cleaning up some stuff that are not profitable. On the other hand, a question.

Speaker 2

We will have organic growth of almost 6% in our instrumentation businesses, Which as I said is environmental test and measurement and marine. We're going to have similarly Over 6% in our aerospace and defense organic growth and about 8% in our engineered systems. So those are very healthy growth for This environment that we're all experiencing.

Speaker 4

Thank you. That's helpful. And then I guess just one Specific to like test and measurement, you said you had a new protocol product that was coming to market in September. Just wondering what the uptake is And how customers are reacting to that? And then is that could that be an incremental benefit to that Liver of instrumentation in Q4?

Speaker 2

Yes. The new protocol is the PCI Express Gen 7. The life cycle of that is usually a couple of years. I think we'll see some Benefit from that next year, probably later next year. But the flip side is the protocol business that we just bought, Zena, is fulfilling a gap that we had in our protocol businesses, which was the high speed network protocols and they fill that gap very well.

Speaker 2

So a question. We love our product card businesses and hope that we can buy more of them as time goes on.

Speaker 4

Great. Thank you very much.

Speaker 2

Thank you.

Operator

Next we go to Kristine Liwag

Speaker 9

some extra free time.

Speaker 2

I hope so too. I have my new leaders shaking their head across the table from me, but I hope I will. Yes. Thank you,

Speaker 9

Well, great. And it's been wonderful to follow your career and what you've done for Teledyne. So maybe with the leadership changes, Sometimes there's also change in strategic focus. I mean, Teledyne is a much broader and bigger company than it was over 20 years ago. You mentioned earlier that M and A is still a priority over share buybacks.

Speaker 9

I guess, as we look out the next 5, 10 or even 20 years, And maybe that question is a little too broad of a scope for this call. But how do we think about the strategic direction For Teledyne, like where to from here?

Speaker 2

Well, first, let me answer the first question. The way we operate in the current TevaDai is A lot of the M and A ideas come from our businesses. Now we are proactive. At any one time, we have a large funnel of It comes from instrumentation and marine and A and D. And these are areas that The 2 leaders that are taking over are responsible for.

Speaker 2

So I don't think in the short term things will change. Also in the short term at least, I'm still going to be here. And of course, Jason helps Make a lot of the capital allocation decisions. But having said that, We will probably focus more on commercial businesses as we go forward. And We will get some defense businesses, but we don't want our defense businesses to grow beyond Where they are today?

Speaker 2

We have a healthy balance of 25% defense, 75% commercial, Almost half or 47 percent of our commercial businesses are overseas. We're also expanding some defense Listen in the NATO countries and the Middle East. But having said that, I think my colleagues and I agree that We do not want to change our portfolio from what it is today to something that It's not sustainable. If you're singularly focused on one market, when that market suffers, Then he takes the whole company down. Our balanced portfolio is our resilience And our ability to tolerate changes.

Speaker 2

And as you can a question. While we have some weakness in certain areas, we have strength in other areas. We have growth in instruments in A and D Engineered Systems. And so I don't think that'll change. Now, I'm talking about 3 years.

Speaker 2

If you go beyond that, then I can't predict because The world is changing so much right now. I mean, it's such a difficult environment in some cases. It depends on what happens and our strategies really well.

Speaker 9

Great. Thank you for the color and congratulations again.

Operator

We're going now to Noah Poponak. Please go ahead.

Speaker 10

Hey, good morning everybody.

Speaker 2

Good morning, Noah.

Speaker 10

Congratulations to everybody on the new seats or responsibilities. Robert, I just want to go back to the DI margin. You just printed a number that you previously said you would get to in 2 years. It sounds like you're saying the Majority of the explanation for that is that you performed an incremental cost out. And so if that were if that's The driver, wouldn't that kind of sustain in the margin from here?

Speaker 10

A question. And therefore, why would that margin pull back from the level that you just reported?

Speaker 2

I mentioned the margin for the year of 22.7 in DI, Which is 35 basis higher than it was what I quoted In the Q2, at the end of Q2, what has happened is that The cost out is important because it's not just people, it's the consolidation of Our facilities as well, we have not done that. We were all focused on at first fixing our Export control issues, fixing our tax liabilities. We're still working on tax liabilities somewhat. But What's happening is that the defense business at Digital Imaging, specifically FLIR, a question. Are getting better and machine vision while it's getting worse at the present a question.

Speaker 2

Sooner or later, it's going to have to come back. And so I was a little cautious about for next year When I was asked about the margins and I stayed with the 22.7%, maybe 23%. But over the long term, there's no reason that this margin a question. In this businesses could not be like margins in our Aerospace and Defense, which we're predicting this year to be 27 point 6% or our instruments, we are 26.1%. There's no reason that margins cannot improve and get there.

Speaker 10

Okay. That's helpful context. I understood part of the challenge to be That there's been volatility in defense outlays compared to what's been authorized at the end market level. And so With regard to your defense business inside of digital imaging, you were gearing up for higher defense revenue that then just kind of surprisingly didn't come through. And so did that come through in the Q3 or what was the growth rate I guess in the defense piece of digital imaging in the quarter?

Speaker 2

We have several large programs that came through in the Q3 and Large for us is things are below above $10,000,000 $20,000,000 for example. We got some Conter Unmanned Vehicle systems that we partnered with Kronsberg and that was a nice win in Q3. We've also penetrated Some of our nano drones are now moving into India. We had a nice a question. Gimbals and vibration and products that we've inherited, when we straightened those out and we have now a question.

Speaker 2

Navy award, that's about $35,000,000 So, surveillance is grew in Q3. And I think with the mini drones and Our newer product, we think will do fine. Our MAN programs we expect to grow in Q4. Overall, what we've been able to do is really take some unprofitable stuff out, consolidate facilities that a question. Shouldn't have been separate to begin with.

Speaker 2

Focus on the things that we can deliver, Unmanned systems using our own sensors, other people have unmanned systems various conflicts that use our sensors. So we're happy to set up our sensors, but we also can incorporate them in our So we kind of think that the defense business is there in DI Has had an inflection point and is really turning positive now.

Speaker 10

Okay. That's helpful. And then just one last one in DI. What do you now expect the rate of Line to be for the year in the machine vision piece. And do you have enough order book or visibility To have a sense for what that revenue does in 2024 or is it too short cycle?

Speaker 2

I think overall, we're going to see An increase in revenue in DALCE to be part of DI As much as 6%, with some of it coming from acquisitions. In the other part of DI, which would be FLIR, we expect that we may have Slight decline, let's say to 1839, 1.83 Let's say from 1.84 from what was then 1.86 Last year, which very minor. And some of that comes from Raymarine, where we consumer Products that are more discretionary at this time. But overall, I don't see a huge decline in digital imaging because DALSA A2V has grown And we are weathering the downturn in some of our other commercial products very well. And then we of course have some really good upside in things like healthcare, where Markets even in, let's say in Q3, we had almost 12% increase in revenue In that area.

Speaker 2

So it's valid.

Speaker 10

Sorry, those comments are on total digital imaging revenue. You're

Speaker 2

saying? For the Digital Imaging revenue, yes.

Speaker 10

Okay. That's a question. I appreciate that. Just so it's clear, I was asking on just machine vision within digital imaging.

Speaker 2

Just machine vision? Yes. Okay. There's different parts of it. There's some machine vision at Dalsay E2B and there's some machine vision in FLIR.

Speaker 2

I haven't added those a question. If I were to add those 2 together, I'd say the full year might be down 2%. But Again, could be a little higher, but doesn't bother me that much, Noah, only because As I mentioned before, we have new products like in battery inspection and with more emphasizing our Ability to put some information and intelligence in our devices, cameras, a move up market. So, a question. This market is going to turn.

Speaker 2

It's not going to stay where it is. Semiconductor is not going to stay down forever. And I think we're well positioned a

Speaker 10

question. Yes, that's interesting. It's much different than the peer set. So

Operator

And we have no additional questions in queue at this time.

Speaker 2

Thank you, operator. I'll note that I'll ask Jason to conclude our conference call.

Speaker 1

Thanks, Robert. And again, thanks everyone for joining us today. If you have any follow-up questions, please feel free to call me. The number is on the earnings release or of course send me an email. And all the press releases are available on our website as is the replay.

Speaker 1

John, if you could give the dial in information for the replay at the end of this call that would be great.

Operator

Certainly. Ladies and gentlemen, this call has been recorded and will be available for replay from today at 10 am Pacific

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