Teledyne Technologies Reports Third Quarter Results

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Teledyne Technologies Incorporated:

• Sales of $662.2 million an increase of 25.7% compared to last year
• Record GAAP earnings per diluted share of $1.90
• Raising full year 2017 GAAP earnings outlook to $6.10 to $6.15, an increase from the prior outlook of $5.60 to $5.70
• Raising full year 2017 adjusted earnings outlook to $6.66 to $6.71, an increase from the prior outlook of $6.15 to $6.25 per diluted share. Adjusted earnings, a non-GAAP measure, exclude estimated non-recurring charges of $0.56 per diluted share related to the e2v acquisition
• Acquired assets of Scientific Systems, Inc. (SSI)

Teledyne today reported third quarter 2017 sales of $662.2 million, compared with sales of $526.8 million for the third quarter of 2016, an increase of 25.7%. Net income was $69.0 million ($1.90 per diluted share) for the third quarter of 2017, compared with $52.0 million ($1.46 per diluted share) for the third quarter of 2016, an increase of 32.7%. The third quarter of 2017 included pretax charges of $2.9 million related to the acquisition of e2v technologies plc (“e2v”) and net discrete income tax benefits of $9.9 million. The third quarter of 2016 included net discrete income tax benefits of $6.6 million.

“We achieved all-time record GAAP earnings per share and operating margin in the third quarter. Furthermore, sales growth continued to accelerate, as we reported a record increase in year-over-year revenue,” said Robert Mehrabian, Chairman, President and Chief Executive Officer. “While our Digital Imaging segment performed exceptionally well, we also achieved strong organic revenue growth in each Instrumentation product group and the majority of our government and defense businesses. In addition, orders exceeded sales and free cash flow was a record for any third quarter. Finally, given our strong cash flow, e2v integration progress and stability in our end markets, we are pursuing a number of acquisitions across our business portfolio.”

Review of Operations (Comparisons are with the third quarter of 2016, unless noted otherwise.)

Instrumentation

The Instrumentation segment’s third quarter 2017 sales were $232.5 million, compared with $208.3 million, an increase of 11.6%. Third quarter 2017 operating income was $34.8 million, compared with $28.1 million, an increase of 23.8%.

The third quarter 2017 sales increase resulted from higher sales of environmental instrumentation, marine instrumentation and test and measurement instrumentation, as well as the contribution from recent acquisitions. Sales of environmental instrumentation increased $13.9 million and primarily reflected higher sales of air monitoring instruments and $6.9 million in incremental sales from recent acquisitions, including SSI. Sales of marine instrumentation increased $4.2 million and primarily reflected higher sales of interconnect systems. Sales of test and measurement instrumentation increased $6.1 million and included $1.4 million in incremental sales from recent acquisitions. The increase in operating income reflected the impact of greater sales and the collection of a previously reserved receivable.

Digital Imaging

The Digital Imaging segment’s third quarter 2017 sales were $191.5 million, compared with $98.5 million, an increase of 94.4%. Operating income was $31.9 million for the third quarter of 2017, compared with $11.7 million, an increase of 172.6%.

The third quarter 2017 sales included $70.1 million in incremental sales from recent acquisitions, primarily from e2v. The third quarter 2017 sales also reflected higher sales of machine vision cameras for industrial applications and X-ray detectors for life sciences applications. The increase in operating income in the third quarter of 2017 reflected the impact of higher sales, favorable product mix and incremental operating profit from e2v, partially offset by acquisition-related charges of $2.9 million.

Aerospace and Defense Electronics

The Aerospace and Defense Electronics segment’s third quarter 2017 sales were $165.1 million, compared with $153.5 million, an increase of 7.6%. Operating income was $29.4 million for the third quarter of 2017, compared with $31.5 million, a decrease of 6.7%.

The third quarter 2017 sales reflected $11.5 million of higher sales of microwave and interconnect systems and higher sales of $1.9 million of electronic manufacturing services products, partially offset by $1.8 million of lower sales of avionics products and electronic relays. The higher sales of microwave and interconnect systems included $11.7 million in sales from e2v. Operating income in the third quarter of 2017 reflected the impact of higher sales, more than offset by unfavorable product mix.

Engineered Systems

The Engineered Systems segment’s third quarter 2017 sales were $73.1 million, compared with $66.5 million, an increase of 9.9%. Operating income was $10.0 million for the third quarter of 2017, compared with $8.6 million, an increase of 16.3%.

The third quarter 2017 sales reflected higher sales of $5.3 million of engineered products and services and $4.7 million of turbine engines, partially offset by lower sales of $3.4 million of energy systems products. The higher sales of engineered products and services primarily reflected greater marine manufacturing and missile defense programs. The higher sales of turbine engines reflected greater sales for the Joint Air-to-Surface Standoff Missile (“JASSM”) and Harpoon missile programs. Operating income in the third quarter of 2017 reflected the impact of higher sales and a greater proportion of higher margin manufacturing programs.

Additional Financial Information

Cash Flow

Cash provided by operating activities was $107.9 million for the third quarter of 2017, compared with $98.0 million. The higher cash provided by operating activities in the third quarter of 2017 reflected cash flow from e2v and the impact of higher operating income, partially offset by higher income tax payments. At October 1, 2017, cash totaled $82.5 million and total debt, including capital lease obligations, was $1,195.7 million. At October 1, 2017, $285.0 million was outstanding under the $750.0 million credit facility. The company received $7.0 million from the exercise of stock options in the third quarter of 2017, compared with $17.1 million. Capital expenditures for the third quarter of 2017 were $15.6 million, compared with $14.4 million. Depreciation and amortization expense for the third quarter of 2017 was $31.4 million, compared with $22.8 million. On July 20, 2017, Teledyne acquired assets of SSI for $31.0 million in cash.

Income Taxes

The effective tax rate for the third quarter of 2017 was 15.6% compared with 16.7%. The third quarter of 2017 reflected net discrete income tax benefits of $9.9 million compared with net discrete income tax benefits of $6.6 million. The 2017 third quarter net discrete tax benefit includes $7.4 million in income tax benefit as a result of the remeasurement of uncertain tax positions due to expiration of statute of limitations and a $2.3 million income tax benefit related to share-based accounting. The net discrete tax benefit in 2016 of $6.6 million included a $4.0 million income tax benefit related to share-based accounting. Excluding the net discrete income tax benefits in both periods, the effective tax rates would have been 27.7% for the third quarter of 2017 and 27.2% for the third quarter of 2016.

Other

Stock option expense was $3.2 million for the third quarter of 2017, compared with $2.5 million. Pension income was $0.7 million for the third quarter of 2017, compared with pension income of $0.5 million for the third quarter of 2016. Interest expense, net of interest income, was $8.2 million for the third quarter of 2017 compared with $5.6 million and reflected the impact of higher debt levels, primarily due to the acquisition of e2v. Corporate expense increased to $13.2 million for the third quarter of 2017, compared with $11.1 million and reflected higher compensation accruals. Other income and expense was expense of $3.0 million for the third quarter of 2017 compared with expense of $0.8 million, and reflected higher foreign currency expense.

Outlook

Based on its current outlook, the company’s management believes that fourth quarter 2017 GAAP earnings per diluted share will be in the range of $1.70 to $1.75 and full year 2017 GAAP earnings per diluted share will be in the range of $6.10 to $6.15. The company’s management believes that full year 2017 adjusted earnings per diluted share will be in the range of $6.66 to $6.71, compared to the prior outlook of $6.15 to $6.25. The company’s effective tax rate for 2017 is expected to be 27.7%, before discrete items.