Teledyne Technologies Incorporated Q3 FY2025 earnings call

• Record quarterly sales, non-GAAP earnings per share, and free cash flow; sales up 6.7%, non-GAAP earnings up 9.2%, free cash flow $314M. Raised full-year earnings outlook. - Defense-related businesses performing extremely well, pursuing significant contract opportunities. - Government shutdown may affect new contract awards and cash collections but not significantly long-term. - China designation of Teledyne FLIR LLC and Teledyne Brown Engineering had minimal impact on sales. - Strong balance sheet, spent $770M on acquisitions YTD, expect to close TransponderTech carve-out, continue pursuing acquisitions.

Digital Imaging: Third quarter sales increased 2.2%. Non-GAAP operating margin decreased 92 basis points primarily due to greater cost reduction expenses and increased R&D expense. Book-to-bill was 1.12x. Instrumentation: Third quarter total sales increased 3.9% versus last year. Marine instruments up 3.2%, environmental up 7.5%, test and measurement modestly grew. Operating margin decreased slightly but expected to increase full year. Aerospace and Defense Electronics: Third quarter sales increased 37.6% driven by acquisitions and organic growth. Segment operating profit increased year-over-year, but margins decreased slightly. Engineered Systems: Third quarter revenue decreased 8.1%, but operating margin increased 30 basis points from last year.

• Raised full-year 2025 sales outlook to $6.06B from prior $6.03B. - Fourth quarter 2025 GAAP EPS range $4.76-$4.98, non-GAAP $5.73-$5.88. - Full-year 2025 GAAP EPS range $17.83-$18.05, non-GAAP $21.45-$21.60.

• U.S. government shutdown could delay new contract awards, shipments needing export licenses, and cash collections. - China designation of certain entities, though minimal impact on sales.

Q: Last quarter, there was some uncertainty around strong growth. How did things progress?

A: Overall 6.7% growth across portfolio, varying business performances, Marine growing strongly, some Instrument businesses varied, FLIR growth 3% organic, unmanned systems grew 10%.

Q: Maybe just putting a finer point on Digital Imaging margins. How do you think about the margin recovery into Q4 and maybe into next year?

A: Margins between '23 and '24 are obtainable, should be flat with last year even with cost out, '24 margins achievable.

Q: You mentioned book-to-bill number. Can you provide book-to-bill for various segments?

A: Digital Imaging book-to-bill 1.12, Instrumentation overall 0.9, T&M 0.98, Environmental 0.95, Marine 0.8; Aerospace and Defense Electronics 0.84; Engineered Systems over 2x, overall book-to-bill 1.09.

Q: On the 737 rate increase step-up, how are you guys thinking about that into 4Q and next year?

A: Expect destocking to continue through most of next year, won't see much benefit from 737MAX rate increase next year despite strong demand and backlog.

Q: You mentioned $0.5 billion in European defense. Is that encompassing all defense exposure to Europe?

A: $0.5 billion applies to total military sales this year in Europe and nano drones sold through next year, mixture of prime and subprime in go-to-market for drones and counter drones.