Teledyne Technologies Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 24, 2024

There are 13 speakers on the call.

Operator

As a reminder, today's conference is being recorded. At This time, it's my pleasure to turn the conference over to our host, Mr. Jason Van Weese. Please go ahead.

Speaker 1

Thanks, Tom, and thanks, everyone. This is Jason Van Wees, Vice Chairman, would like to welcome everyone to Teledyne's 4th quarter and full year 2013 earnings release conference call. We released our earnings earlier this morning. Joining me today are Teledyne's Executive Chairman, Robert Mehrabian and our new but familiar management team, CEO, Edwin Rox President and COO, George Bob Senior Vice President and CFO, Steve Blackwood and also Melanie Civic, EVP and General Counsel, Chief Compliance Officer and Secretary. After remarks by Robert, Edwin, George and Steve, we will ask for your questions.

Speaker 1

Of course, so 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 noted in the earnings release and our periodic SEC filings, and of course, actual results may differ materially. In order to avoid potential disclosures, this call is simultaneously being webcast and a replay, both via webcast and dial in, will be available for approximately 1 month. Here is Albert.

Speaker 2

Thank you, Jason, and good morning and thank you for joining our earnings call. In the Q4, we achieved all time record sales and GAAP and non GAAP earnings per share. Sales increased primarily due to the performance of our marine, medical and aerospace businesses, which were more than able to compensate for the previously announced headwind in the industrial automation and laboratory instrumentation market. Furthermore, overall record orders Exceeded sales in every business segment, but we're particularly strong in our Marine and Defense businesses. Leverage declined further to 1.9 and our balance sheet remains healthy.

Speaker 2

Finally, we continue to acquire complementary businesses as shown by the acquisition of Xeno Networks in the Q4. Compared with last year, 4th quarter and Full year non GAAP operating margins increased 27 and 57 basis points respectively. Our broad based strength in orders was encouraging, especially in the uncertain global and macro environment today. Nevertheless, It's worth noting that most of the increase in orders was in our backlog driven longer cycle businesses. So converting the orders to sales would take a little time.

Speaker 2

In terms of 2024 outlook, We therefore think the quarterly sales and earnings ramp will be a bit greater than in recent years. So while we see annual 2024 sales growth of about 4%, We believe that typically seasonally low first quarter will be slightly under 1 $4,000,000,000 or roughly flat with last year. I will now turn the call over to Edwin and George, who will further comment on the performance of our 4 business segments.

Speaker 3

Thank you, Robert. This is Edwin and I will report on the Digital Imaging segment, which is 56% of Telenet's portfolio. Like DoubleLine as a whole, this segment is a mix of longer cycle businesses such as defense, space and healthcare Combined with shorter cycle markets, including industrial automation, semiconductor inspection and infrared components and cameras for application ranging from factory condition monitoring and maritime navigation. 4th quarter 2023 sales were slightly lower compared with last year. Double digit sales growth in each of X-ray products, free of surveillance systems and Space based infrared imaging detectors offset a significant year over year decline in sales of industrial imaging systems and microelectrical mechanical systems or MEMS.

Speaker 3

4th quarter sales of unmanned systems were at the greatest level in 2023, but declined year over year due to a tough comparison. For the Q2 in a row, the FLIR business collectively were positive contributors to overall segment margin. In addition, FLIR quarterly sales increased year over year and were at the highest level in the last 2 years. George will now report on the other segments which will represent the remaining 44% of Telenor.

Speaker 4

Thanks, Edwin. The Instrumentation segment of our marine, test and measurement and environmental businesses which contributed a little over 23% of sales. For the total segment overall 4th quarter sales increased 0.8% versus last year. Sales of marine instruments increased 14.7% in the quarter, primarily due to strong offshore sales but also continued growth in global defense and ocean science markets. Sales of electronic test and measurement systems which include oscilloscopes, Digitizers and protocol analyzers were flat year over year.

Speaker 4

We continue to see some softness in sales of analyzers for electronic storage and data centers locations, but this was largely offset by continued strong sales of oscilloscopes and a small amount of incremental sales from the Zena acquisition. Sales of environmental instruments decreased 7.3% with greater sales of air quality and gas and flame safety analyzers more than offset by lower sales of drug discovery and laboratory instruments. Overall Instrumentation segment operating profit increased over 14% the Q4, with GAAP operating margin increasing 284 basis points to 27.1 percent and 278 basis points on a non GAAP basis of 28.1%, both all time records for the segment. In the Aerospace and Defense Electronics segment which represents 13% of Teledyne sales, 4th quarter sales increased 3.4% primarily driven by growth of commercial aerospace products. GAAP and non GAAP segment operating profit decreased 5% year over year primarily due to a tough comparison with last year's all time record segment margin.

Speaker 4

For the Engineered Systems segment which contributes 8% to overall sales, 4th quarter revenue decreased 3.8%, but operating profit increased with margin up 3 25 basis points. I will now pass the call back to Robert.

Speaker 2

Thank you, George. In conclusion, we were pleased with our record performance in 2023. In the near term, we will continue to focus on growth in those businesses with favorable markets, while cutting costs and protecting margins in businesses which are more challenged. And at the same time, we'll be acquiring and integrating complementary businesses. When certain markets like laboratory instrumentation, Industrial automation or electronic test and measurement recover, we will keep our cost structure in check and benefit handsomely.

Speaker 2

But if There are global or macroeconomic shocks in 2024. We will do what we've done in the past, execute well, generate record cash flow and complete some of our base and potentially larger acquisitions. I will now turn the call over to Steve.

Speaker 5

Thank you, Robert and good morning. I will first discuss additional financials for the quarter not covered by Robert and then I will discuss our Q1 and full year 2024 outlook. In the Q4, cash flow from operating activities was $164,400,000 compared with $237,700,000 in 2022. Free cash flow that is cash from operating activities less capital expenditures was $124,200,000 in the Q4 of 2023 compared with $203,600,000 in 2022. Cash flow declined in the 4th quarter since we made $139,000,000 of additional tax payments, which we were allowed to defer from the 2nd and third quarters of 2023 due to IRS disaster relief.

Speaker 5

Without these catch up tax payments quarterly cash flow have been an all time record. Capital expenditures were $40,200,000 in the Q4 of 2023 compared with $34,100,000 in 2022. Depreciation and amortization expense was $77,400,000 for the Q4 of 2023 compared with $81,800,000 in 2022. We ended the quarter with approximately $2,600,000,000 of net debt that is approximately $3,240,000,000 of debt last cash of $648,300,000 Now turning to our outlook. Management currently believes that GAAP earnings per share in the Q1 of 2024 will be in the range of $3.73 to $3.86 with non GAAP earnings in the range of $4.55 to $4.65 per share.

Speaker 5

And for the full year of 2024, our GAAP earnings per share outlook is $17.15 to $17.53 and on a non GAAP basis $20.35 to $20.68 The 2024 full year estimated tax rate excluding discrete items is expected to be 22.5%. I will now pass the call back to Robert.

Speaker 2

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

Operator

Thank you. We'll begin today with a question from Jim Ricchiuti representing Needham and Company. Please go ahead.

Speaker 6

Good morning. I wanted to see if we could dig a little bit more into the way You see the year unfolding, it sounds like Q1 a little bit more seasonality. And I guess with respect To the full year guidance, as you think about the balance of the year, are you making some assumptions of recovery in the shorter cycle business in the latter part of the year, particularly some of the areas that have been weaker like the lab, like the instrumentation and Automation Machine Vision area?

Speaker 2

Good morning, Jim. Yes. Good morning. We're right now expecting uptick in those businesses in the second half of the year. We think that what will happen is that we will have a linear ramp In sales and earnings throughout the year with about average revenue increase of about 4% And earnings as we've outlined up to $20.68 which would reflect also improvement in margin from this year to next year of another almost 50 to 60 basis points.

Speaker 2

So yes, we're anticipating that. On the other hand, We're also adjusting our cost structure and if necessary, we'll do more so that our earnings remain healthy.

Speaker 6

Got it. Thank you for that, Robert. With respect to the margin improvement that you're anticipating, I'm wondering how should we think about margins by some of the major business units just directionally?

Speaker 2

Sure. Jim, we're expecting margin improvement in every segment. A little lower in instruments, maybe 25 basis points. We already have very healthy margins there. On the other hand, In digital imaging, about 80 basis points.

Speaker 2

In Aerospace and Defense, we think we'll have 80 to 90 basis points and Engineered Systems around 50 basis points. So Overall, Jim, in the segment, we anticipate about 70 basis points margin improvement and overall For the company, between 50 basis points and 60 basis points. In a way, it's kind of similar to what we achieved this year, which was about 60 basis points over last year.

Speaker 7

Thank you.

Speaker 6

I'll jump back in the queue. Thanks a lot.

Speaker 2

Thank you, Jim.

Operator

Next we'll go to the line of Greg Konrad with Jefferies.

Speaker 8

Maybe just to follow-up with The last question, but on the revenue side, given the commentary around book to bill, 4% growth for the year, can you maybe talk about the assumptions between long and short cycle or from a segment basis for growth in 2024?

Speaker 2

Yes. Craig, let me give you the segments 1st and then I'll try and answer the first question. From a segment perspective, We think instrumentation will grow about 3.5% this year over last year. We think digital imaging, well, going back to the instrumentation, There's a difference between the different businesses that we have. The Marine businesses With healthy background, backlog as George mentioned, would grow about 6% to 6.5%, whereas environmental would be just under 3% and we're expecting TNM to basically hold.

Speaker 2

Going to digital imaging, we believe that the overall sales increase would be about 4%. Aerospace and Defense about 5%, Engineered Systems about 4%. And when you add all of that up, we expect an average of about 4% at this time.

Speaker 8

And then maybe if we can just dig into digital imaging A little bit more. I mean, the commentary in the release around product lines on the call was helpful. But is there any way just for Q4 and 2023 to kind of level set or put some numbers behind growth in space in healthcare versus maybe the declines you've seen in other parts of the portfolio?

Speaker 2

Sure. Let me start with Q4, please, and then I'll go to some of the others. In Healthcare, we had really nice Q4. Revenue increased about 13.5% to 14%. In Aerospace and Defense, It increased about 5%.

Speaker 2

These offset basically weakness in our industrial and scientific vision systems. The flip side, if you go over to our FLIR businesses, We have really robust growth in our surveillance system, about 16.5% And some of our detection products, overall in Q4, FLIR Revenue defense increased about 4.8%. Now Going forward to the future, I'll make a little distinction between Dulceit2v and FLIR. We think that Dulceit2v would have a modest growth of about 3% offset by about 4.5% in FLIR. As I mentioned earlier, Clear Defense especially is experiencing really good order intake And we expect the growth there to exceed that of the rest of the imaging.

Speaker 2

So I can give you more detail, but that's basically a summary of it.

Speaker 8

Appreciate it. I'll leave it at 2. Thank you.

Speaker 2

Thank you. Now we'll go

Operator

to the line of Ron Epstein with Bank of America. Please go ahead.

Speaker 6

Hey, good morning.

Speaker 9

This is Jordan Linaze on for Ron. I wanted to ask, so for the backlog growth in the defense wins that you guys are seeing, How are you guys thinking about the risk of the CR?

Speaker 2

Well, Jordan, obviously, PR is always an unpleasant occurrence for us. The way we're looking at it is, We're only right now considering the orders that we have in house. We're not really looking at future orders. So book to bill has been healthy. These are longer term programs.

Speaker 2

And frankly, we have some exciting new products coming out, which are being now tested. For example, if you look at Our Black Hornet, we Black Hornet 3, which is our nano drones, Black Hornet 3 has had a really good run over the past 5, 6 years. We've introduced the Black Hornet 4, which is already getting traction. We also have some really nice programs in Space Development Agency tranche through tracking layer as well as our international sales in that domain are healthy. So in some ways, while CR would be not A pleasant thing to experience.

Speaker 2

We've done it in the past. We've had CRs in many years. Right now, we're looking at what we have in our backlog, which is healthy.

Speaker 9

Got it. Thank you. And then on the unmanned systems, air systems that you guys cited as being lower for DI, Is that related to just sunsetting programs or what was driving that change?

Speaker 2

I think basically it's tough comps rather than real declines. I think we think our drone businesses are healthy. We also have some businesses that Our antidrone or drone detection systems, which we're selling in Europe, which are very So I think it's just a matter of tough comps. Other than that, we feel very good about our drone businesses.

Speaker 9

Great. Thank you so much.

Speaker 2

Thank you.

Speaker 10

We have

Operator

a question from the line of Joe Girardo with TD Pollan. Please go ahead.

Speaker 11

Hey guys, close enough there. How are you doing?

Speaker 2

Good, Joe. Good.

Speaker 11

Can you I'll start on free cash flow. I think that at the end of the day that probably came in a little lighter than you thought for the full year. Can you talk about how you think 2024 shapes up and how working capital looks for the year?

Speaker 2

Yes, you're right. It came in a little lighter. But we made some really good progress In the Q3 and especially in the Q4, from our managed working capital perspective, We had some significant improvement in our trying to reduce our inventory. The flip side is we also did not we're always like most companies suffering from not being able to get cash for our R and D. So I'd say about that affected us maybe 75 or $60,000,000 to $75,000,000 Our cash nevertheless, if you looked at it, We paid down $680,000,000 of debt in 2023.

Speaker 2

Our debt to EBITDA ratio net debt to EBITDA ratio is about 1.9. So let me fast forward to 2024. We believe we'll do a little better in 2024 than we did in 2023. We'd like to think that we would have 100% conversion, Recognizing that there is always going to be this R and D headwind. Even though everybody in the Congress has agreed that the R and D programs should be passed.

Speaker 2

I think nothing's passing in this Congress. So we're not we're assuming we don't get that. Nevertheless, we think we'll be somewhere between $900,000,000 $925,000,000 and $1,000,000,000 If we hit those numbers, which we think we will. Then our debt to EBITDA ratio should go down from 1.9 to closer to 1.1 to 1 point 2, which is which puts us in a really good position to be able to make both small and midsize acquisition.

Speaker 7

That's really helpful color.

Speaker 11

My last one, We've kind of talked about DI a lot, but I just want to maybe if you can frame for the full year of 2023, like how did How much down was like the industrial and scientific vision and what did that do to margins? And then how did FLIR margins for the full year look year on year?

Speaker 2

Okay. Let me just pick the first part. Industrial and Scientific Visions, I'm going to say we're down about 2% year over year, Larger declines in Q4 than that. In terms of The margins, FLIR's margins actually improved significantly year over year. It went from 20.3% in 2022 to 22.1% in 2023, which was very healthy.

Speaker 2

As a consequence, We were able to hold overall margins in Digital Imaging relatively flat.

Speaker 11

And you'd expect FLIR to expand margins again in 2024, correct? Just inherent in that margin commentary?

Speaker 2

Yes. We think FLIR would have some margin expansion. But if you look at it as a whole segment, that is our Digital Imaging segment. We expect margins to increase somewhere between 50 basis points and 100 basis points in 2024.

Speaker 7

Perfect. Thanks, Robert.

Speaker 2

Thank you.

Operator

Next, let's go to the line of Christine Liwag, representing Morgan Stanley. Please go ahead.

Speaker 10

Hey, good morning, everyone.

Speaker 2

Good morning, Christine.

Speaker 10

Robert, last year you talked about some facility consolidation at Digital Imaging And you're also talking about 80 basis points in margin expansion this year for the segment. How much of that is From this consolidation from before on the Fleur integration and how much of that is on better price cost? And ultimately, could we expect to see higher margins there if you have additional cost takeout you could do this year?

Speaker 2

Yes. Kristin, let me see if I can do this properly. We are In the process, for example, now in terms of space consolidation, what we're doing is we're getting out of Leased spaces and moving to owned spaces. For example, in Massachusetts, we have an owned space in Babrica. We're getting out of a lease space there and that should be effective in March.

Speaker 2

That will help us say something of the order of $500,000 $600,000 $700,000 The issue that we have while consolidation overall is helpful, it's the growth of our businesses and the lower costs that we have put in place this year That should be more helpful. So when Edwin thinks about or talks about margin improvement, he is looking at really a lower cost structure, which we've achieved, maintaining that and getting some growth, especially from our longer cycle businesses. So it's a combination of those. I would say lower costs and growth trumping just space consolidation.

Speaker 10

Thanks. Great color. And in terms of industrial automation and the laboratory instrumentation markets, you've talked about a rebound for the second half of the year. What metrics are you looking at? What indicators are you following to that you're watching out for this end

Speaker 2

For industrial automation, really, It's a combination of things. We're seeing, for example, some Improvement in the semi market now, projections for improved semi market recovery. We're also seeing some pickup in smartphones Now, which is our consumer related businesses, which affects our microelectromechanical MEMS programs. In the other markets, especially laboratory instrumentation, we don't have as much visibility, Frankly, we haven't seen these kinds of declines before. So We think those should come back, but we're not counting on them a lot.

Speaker 2

We think there's a flip side of our environmental businesses, that's a part of, which is the air quality, water quality monitoring, which have been very healthy. We have a nice backlog and we think the combination of those 2 will help us in that part of our instrumentation business.

Speaker 10

Thank you. And last question for me. I mean, your current leverage position gives you flexibility pursue more sizable deals. I mean, you've recently closed the Xena acquisition. But in terms of larger deals, Are valuations starting to look more attractive?

Speaker 10

And how is the 2024 pipeline shaping up?

Speaker 2

Yes. I have to tell you, valuations on the larger Deals have not come down yet as much as we would like. We've looked at some of the prices that our competitors have paid for large ones, those are kind of out of our range of what we would consider. On the flip side, we see some opportunities In smaller bolt on acquisitions, what we call single pearls, which are available and we will be pursuing those. If you looked at our 68, 69 acquisitions over our history, The string of PROs are about 60 out of 68, 69.

Speaker 2

And they are the easiest to integrate. We can fit them in and we can improve their margins as we go. The larger deals, we have to be a little more patient because right now, prices are still pretty high.

Speaker 10

Thank you very much for all the color.

Speaker 2

For sure, Chris.

Operator

Next was a question from Andrew Buscaglia with BNP. Please go ahead.

Speaker 2

Good morning, Andrew.

Operator

Mr. Biscali is your phone muted.

Speaker 12

Hey, good morning, guys. Hi. Sorry about that. Digital Imaging Margin, so

Speaker 11

I wanted to ask on

Speaker 12

so you're going to start Q1, it sounds like in a whole. First off is digital imaging margins. Do you expect those down year over year and that effectively marks sort of a bottom for that segment as sales start to improve from there?

Speaker 2

No, the answer is no. I don't expect Digital Imaging margins to go down. I think they should go up a little bit in Q1 and then pick up the rest of the year. As I mentioned before, Andrew, this We think Digital Imaging as a whole should have margin improvement in 2024, somewhere between 50 basis and 100 basis points. We're probably more prejudiced towards the higher number.

Speaker 2

But nevertheless, no, I don't think we're expecting Because as we've done before, when some of our markets soften up, We take cost out and then that helps maintain our margins and the markets come back, we really enjoy the margin improvement. So no, I don't think Digital Imaging is going to go down.

Speaker 12

And you mean up year over year or up sequentially?

Speaker 2

Well, I think year over year first, It's

Speaker 11

going to be

Speaker 2

between 50 to 100 basis points. I think Q1 and I think what will happen is if there's sequentially It will be sequential improvement. I don't expect things to go down.

Speaker 12

Yes, okay. Okay. And then In past quarters, you sort of broke out FLIR book to bill versus legacy Teledyne book to bill.

Speaker 11

Do you

Speaker 12

have that? And then Wondering your view on potential incremental defense awards as the year progresses?

Speaker 2

Sure. If you look at instrumentation, which is all legacy Teledyne in some ways, which is marine environmental and test and measurement. The book to bill in Q4 was 1.12, which is very healthy, driven primarily by marine, which was really good. Digital Imaging, we Excluding FLIR, I'm just answering your question precisely. It was just over 1.

Speaker 2

Aerospace and Defense, it was closer to 1.2, that's historical Paladin and Engineered Systems was just over 1. And then if you look at FLIR, which is our big acquisition of BSD was just over 1. So all in all, whether it's our Historical Teledyne or Teledyne Plus FLIR, if you look at Q4, our book to bill was over 1, Closer to 1.07.

Speaker 12

Okay. And then the question You're feeling on incremental defense awards throughout the years. So is there still a lot you're tracking?

Speaker 2

Yes. The answer is yes. We have a pretty good read on what's coming. We have some new products. I mentioned the Black Hornet Ford.

Speaker 2

I mentioned space turns true. Primes that have gotten their awards in last week, We are a sub to all of them and we feel good about that.

Speaker 11

Yes.

Speaker 12

Okay. Thanks, Robert.

Speaker 2

For sure. Thank you.

Operator

And we'll just give a And let's go to the line of Noah Poponak with Goldman Sachs. Please go ahead.

Speaker 7

Hey, good morning, everyone.

Speaker 2

Good morning, Noah.

Speaker 7

Robert, your full year 2024 framework is assuming 4% full year organic revenue growth. Is that correct?

Speaker 2

Yes, about 4%.

Speaker 7

And can you just repeat what you said about the Q1 top line revenue dollars or organic revenue growth?

Speaker 2

Yes. I think it'd be about 1.4 or a little under, that's going to be our lowest quarter. And I'm saying that because of the short cycle businesses that we're seeing. We have orders on long cycle businesses, But we are short cycle businesses. We're assuming that will not recover much in Q1.

Speaker 2

So it should be flat year over year in terms of revenue and then pick up as we go.

Speaker 7

Got it. Okay. Just yes, it wasn't clear, but now I am. And I guess in those short cycle businesses, I mean, this has sort of been asked and discussed, but just Have you actually seen concrete evidence of when that will pick up? Or I know it's short cycle, but orders for it to pick up?

Speaker 7

Or are you just kind of making an assumption based on everything you know about the business? And then I guess you'll also have easier

Speaker 2

That's very good. We look at our pipeline, I don't necessarily say that we have better orders at this time. But We're talking to our customers. We're looking at their inventory levels. They're sharing that With us, we see that inventories are going down.

Speaker 2

As a consequence, we expect that we will start getting the orders. A long cycle, of course, you understand that's much easier because we already have the orders and we feel good about that. So the other thing that we do on the short cycle is we look at The general trends that people are talking about in terms of what happened in the semi industry in the past number of quarters. And What's expected, what people are projecting. We're thinking that environmental and test will eventually pick up, but we're also seeing some pickup in MEMS already in flare infrared as well as our maritime businesses.

Speaker 2

So that's what's encouraging. We see some lowering of inventories for our customers as well as some pickup in certain unique businesses of ours.

Speaker 7

Okay. That makes sense and is helpful. If I go to the 4% organic for the year and then I do what you said with the segment margins, I think most of the things between that and the EPS are pretty straightforward. I get something above your EPS guidance. Is it safe to assume that you've just embedded some degree of conservatism relative to the lack of visibility in short cycle in the EPS range?

Speaker 2

Yes. You said it better than I could. We're always a little conservative. There is one other thing that I should mention. When we look at our segment per se And we look at increases in segment margins.

Speaker 2

We have to be cognizant of the fact That the new management, which is Edwin and George, are now going to be their costs or their Pay is going to reflect in the corporate portion. And we're also seeing a little higher medical and insurance premiums. So corporate, we expect would go up. That's why while the margins in the segment look much higher. The corporate margins are we're assuming are going to be increasing above 50 to 60 basis points.

Speaker 7

Okay. That's helpful. Last one, some of your commentary makes it sound like the M and A pipeline is Pretty full and pretty active and you're pretty optimistic about what you see. Other things you've said suggest there's a bid ask spread and Maybe it's a little tougher. So I guess can you put a finer point on it in terms of how likely we are to see deals this year?

Speaker 2

Yes. Let me just say that the confusion may have risen because I was answering 2 questions at the same time. The first part was larger because we our leverage ratio is obviously going down and it will go down faster this year. The larger acquisitions right now that we look at are pretty expensive. People are paying prices that we are not going to.

Speaker 2

On the other hand, smaller acquisitions are available and we expect to make some this year. So I think we'd be patient for the largest ones, larger ones like we always have been and but we will make some smaller acquisitions this year. So we have a reasonable pipeline there.

Speaker 7

Got it. Okay, great. Thanks a lot.

Speaker 2

Thank you, Noah, for sending those issues that you wanted some answers to. That was very helpful.

Speaker 7

Okay. Yes, great to hear that. We're excited about that initiative. So glad to hear that it's helpful.

Speaker 2

Very helpful. Thank you.

Speaker 3

Thank you.

Operator

Next is a question from Robert Jamieson with UBS. Please go ahead.

Speaker 2

Good morning, everyone.

Speaker 11

Good morning, everyone.

Speaker 7

Very helpful.

Speaker 11

Just one kind of smaller one on A and D Electronics. Strong growth like expected for next year and another 80 to 90 basis points of margin expansion. Just curious, how you're thinking about the growth split within commercial aerospace between new builds and then MRO? Then how should we think about the puts and takes on margin there maybe if like MRO is a little bit pressured next year?

Speaker 2

Let's stay with Aerospace first. A significant amount of our revenue in aerospace is in the aftermarket because we have a very large embedded base in aircraft of various kinds. So We think that is going to be very helpful for us. We also are obviously in 737, we have a product line that's going into that. And We think that's going to help us regardless of the current issues with boats and so on.

Speaker 2

On the defense side, we are seeing some good programs In modernization, stockpile replacement and we think those would be helpful to us. And obviously, we believe it'd be a balance of improvement both in aerospace and in defense, perhaps 5% to 6%, 5% to 6% in each domain.

Speaker 11

That's great. Thank you very much for that. And then this is kind of a more of a random We talked a little bit about capital allocation. You got a full funnel, probably going to look to do some smaller acquisitions. Absent anything large, I know this would be a deviation for what we've seen over the last several years, but would you have any interest in buying back stock?

Speaker 11

And then I guess one other kind of thought or questions a bit random would be, just given like The float, would you ever consider a stock split to maybe make it a little bit easier to trade, like tighten the bid ask spread, and could that ever maybe make it easier for you to buy back stock? Thank you.

Speaker 2

Split, no. And the reason I let me start there. The reason I say that, That's a pain for our investors. And 90 plus percent of our investors are institutional investors. We don't want to cause that kind of a problem for them.

Speaker 2

We have very small fraction of our investors that are retail investors. Going back to buyback, right now, we think Our investments returns are much better reflected in acquisitions than stock buyback. You don't want to say never, because stock goes down a lot, then it becomes attractive. I'm hoping that doesn't happen. We do have open authorization if we wanted to do that.

Speaker 2

Right now, I don't see that as long as we have attractive acquisitions, even small ones, We'll do those. And there's nothing wrong also having some cash on the side in these days with the interest rates that we're seeing. So we have to pay down about $600,000,000 of debt this year. In some ways, it's unfortunate because it's fixed debt at less than 1%. But then we don't have to pay down debt since 2026.

Speaker 2

So we'll have a lot of cash available to do things. So we think we'd be okay.

Speaker 3

Great.

Speaker 11

Thank you very much for taking my questions.

Speaker 2

Of course.

Operator

And we have a follow-up from Joe Giordano, I'm so sorry if I pronounced your name wrong and we'll go to he's representing TD Pollan. Please go ahead.

Speaker 8

Hi, Joe. Hey, thanks for the follow-up here. Just wanted

Speaker 11

to ask on the pricing environment. I know You said before that maybe you took less price. I mean, price was so strong for kind of everyone for a long time here. But I think in some areas, Maybe in some of the vision products, you took less price than you probably could have to kind of maintain share. And just curious how the pricing environment has evolved since you made those comments and you're thinking and how price come is a part of your guidance for next year?

Speaker 2

First, going backwards, in 2023, we had some nice price increases. I'm going to say broadly 2% to 3%, let's say 3%. We expect the same in 20 20 In some areas, obviously, we were able to increase price more than 3%. But in some areas like government contracts that are not fixed prices and they're cost plus, there you can't increase prices as such. So I think 2% to 3% is what we're looking at for 2024.

Speaker 11

Great. Thank you.

Speaker 2

For sure.

Operator

And we have no other participants queuing up at this time.

Speaker 2

Thank you very much, Tom. I'll just have I'll ask Jason to please concludes our call.

Speaker 1

Thanks, Robert. And again, thanks, everyone, for joining us this morning. Again, if you have follow-up questions, please feel free to call me at the number on the earnings release. Tom, if you could give the replay information just at the conclusion, that would be ideal. Thanks, everyone.

Speaker 1

Yes.

Operator

One moment here. I'll pull that up. Sorry about that. Ladies and gentlemen, this will be available for replay, if you give me one moment. It'll be available for replay in an hour, and it'll run through February 24th at midnight.

Operator

You may access the AT and T replay service at any time by dialing 866-207-1041, 866-207 1041 and entering the access code of 4,590,647. 45 90647. And we thank you for your participation in using the AT and T event services. You may now disconnect.

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Earnings Conference Call
Teledyne Technologies Q4 2023
00:00 / 00:00
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