Jason VanWees – Senior Vice President Strategy and M&A Robert Mehrabian – Chairman, President and Chief Executive Officer Sue Main – Senior Vice President and CFO.

Greg Konrad – Jefferies Jim Ricchiuti – Needham and Company George Godfrey – CL King.

Ladies and gentlemen, thank you for standing by. And welcome to the Second Quarter Earnings Call. At this time, all parties are in a listen-only mode. Later, we will conduct a questions-and-answer session instructions will be given at that time. [Operator Instructions] And as a reminder, this conference is being recorded.

I’d now like to turn the conference over to our host, Mr. Jason VanWees. Please go ahead, sir..

Thank you, good morning everyone. This is Jason VanWees, Senior Vice President Strategy and M&A at Teledyne. And I’d like to welcome everyone to Teledyne’s second quarter 2017 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; COO, Al Pichelli; Senior Vice President and CFO, Sue Main; and Senior Vice President, General Counsel, Chief Compliance Officer and Secretary, Melanie Cibik. After remarks by Robert and Sue, we’ll 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 the 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, via webcast and dial-in will be available for approximately one month. Here’s Robert..

Thank you, Jason and good morning, and thank you for joining our call this morning. I am pleased to report our historically best results for Teledyne this morning. Sales and earnings per share were both records.

Specifically, sales growth accelerated in the second quarter, driven by total organic growth of over 7% with growth in each segment and across all major product lines. In addition, Teledyne e2v performed very well in its first full quarter and added another 16.8% for our sales.

Notwithstanding the balance growth across all of our businesses, our strong results was largely reflect exceptional gains in our Digital Imaging segment coupled with focused execution that was evidenced by margin improvements across nearly all of Teledyne.

Over the last four years, Teledyne endured significant declines first in our defense markets and then in our offshore energy businesses.

In 2017 and in the absence of major market headwinds, our results demonstrate Teledyne's strong, consistent, and balanced underlying business performance as well as our successful acquisition strategy and integration execution. Regarding the latter, we continued our record of prudent capital deployment, recently acquiring Scientific Systems or SSI.

SSI is a great fit, both strategically and culturally, with one of Teledyne's strongest performing environmental instrumentation businesses that is Teledyne Isco, which was acquired in 2004 and now delivers consistent operating margins of over 25% under the leadership of Vicki Benne.

Turning back to the quarterly results, revenue increased 24.3% compared to last year, with GAAP earnings per share growing even more, with an increase of 24.8%.

Operating margin also increased in each segment in fact, it is not the $4 million of e2v acquisition related charges both operating margin and EBITDA margin would have also been historical records for Teledyne. Finally, record orders were greater than sales with a book-to-bill of 1.03 yielding total backlog of approximately $1.2 billion.

Before discussing our business segments, I want to make some comments about the presentation of our results in-light of the recent e2v acquisition.

Following the one and only quarter in our history in which we highlighted non-GAAP adjusted earnings we are pleased to return to reporting GAAP results despite ongoing albeit smaller acquisition related charges.

However, given the magnitude, of the acquisition related expenses primarily in the first quarter of the year, we are also providing a full-year outlook adjusted for such expenses. Finally it is worth noting that we have only adjusted the full-year outlook for specific non-recurring transaction costs, which we expect to end this year.

Significant ongoing expenses such as amortization of intangible assets have always been and will remain within our reported GAAP results. For reference in full-year 2017, amortization alone would represent approximately $40 million or about $0.81 per share of non-cash expense.

Regarding Teledyne e2v, the integration with our existing businesses is progressing as planned. As a reminder given the complementary products in the machine vision, space imaging, medical imaging and semiconductor markets, the majority of Teledyne e2v’s operations are now reported within our Digital Imaging segment.

The balance of Teledyne e2v businesses comprised of defense related microwave and semiconductor devices are reported within our Aerospace and Defense Electronics segments. Finally a small, high technology business known as Teledyne SP devices is now combined with Teledyne LeCroy and is reported within our Instrumentation segment.

Now turning to our business segment results. In our Instrumentation segment, second quarter sales increased 6.2% from last year. Sales of Marine Instrumentations increased 3% due primarily to higher sales of sensors for our offshore energy exploration.

Due to reasonable orders and easier comparisons going forward, we currently believe our marine instrumentation product lines in aggregate have stabilized. In the environmental domain sales increased 13.6%, largely as a result of continued growth in our industrial air monitoring instrumentation and the acquisition of Hanson Research late last year.

Sales of electronic test and measurement systems increased 2.8%. Sales of protocol analyzers used by engineers to troubleshoot data communication systems and test interoperability continued to be healthy and product line gross margins and operating margins continued to increase.

Segment operating profit and margin increased primarily due to lower facility consolidation expenses in the segment but also improved gross margins in environmental and test and measurement instrumentation. Turning to the Digital Imaging segment, second quarter sales increased 89.6% with organic growth of 17.6%.

The organic increase in sales was relatively broad-based across all commercial businesses including strong growth for industrial machine vision cameras, micro electro-mechanical systems or MEMS and X-ray detectors for life sciences and industrial applications.

e2v was a strong contributors adding approximately $70 million of revenue in the quarter, although this did include the benefit of some lumpy space based imaging revenue.

GAAP operating margin increased 324 basis points from last year, despite approximately 250 basis points of headwind from amortization of intangibles and transaction related charge from e2v.

In the Aerospace and Defense Electronics segment second quarter sales increased 9.4% as a result of the acquisition of e2v partially offset by the divestitures of Teledyne Printed Circuit Technology in July 2016 coupled with modest organic growth. Segment operating margin increased 103 basis points from last year to 18.8%.

In the Engineered Systems segment, second quarter revenue increased 22.2%. And operating margin include 297 basis points, the higher revenue and margin resulted from greater sales for marine manufacturing programs and cruise missile turbine engines. Before concluding my remarks, I want to offer some perspective on our businesses markets and outlook.

Commencing approximately in the second quarter of 2016 we started to see a recovery in the majority of our commercial and government businesses. However, this was more than offset by the significant decline in sales of marine instrumentation for offshore energy applications.

Today our offshore energy businesses, which represent approximately only 6% of total sales have stabilized. As mentioned earlier our commercial imaging businesses especially Teledyne DALSA performed very well, thus far in 2017 positively impacting the total Company.

As a result we now believe that full-year 2017 total company organic growth will be approximately 5.5% compared to our projection of 4.5% one quarter, ago. In addition, the initial performance from e2v and the other acquisitions such as Hanson Research have exceeded our expectations.

We now believe the impact from acquisitions for the total-year 2017 will be approximately 12.5%, in revenue growth compared to 12% one quarter ago. Please note that while second quarter results were very strong, sales and earnings did benefit from some favorable lumpy sales in a number of our government space and space businesses.

And so our expectations for revenue and earnings growth are somewhat moderated for the remainder of the year. I will now turn the call over to Sue..

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 third quarter and full-year 2017 outlook. In the second quarter cash flow from operating activities was $87.0 million compared with cash flow of $83.6 million for the same period of 2016.

The higher cash provided by operating activities in the second quarter of 2017 primarily reflected the cash flow from Teledyne e2v and the impact of higher operating income partially offset by higher income tax payments.

Free cash flow, that is cash from operating activities less capital expenditures was $74.7 million, in the second quarter of 2017 compared with $67.3 million in 2016. Capital expenditures were $12.3 million in the second quarter, compared to $16.3 million for the same period of 2016.

Depreciation amortization expense was $33.2 million in the second quarter compared to $21.7 million for the same period of 2016. The increase in depreciation and amortization largely resulted from the acquisition of e2v.

We ended the quarter with approximately $1.17 billion of net debt that is approximately $1.26 billion of debt and capital leases less cash of $81.7 million for a net debt to capital ratio of 40.4%. Our leverage ratio, was 2.8 times at the end of the second quarter compared to 3.0 times at the end of the first quarter.

Stock option compensation expense was $3.7 million in the second quarter of 2017 compared with $2.9 million in the second quarter of 2016.

Regarding e2v acquisition related charges the second quarter of 2017 contained $4.0 million of pretax charges with $3.7 million in our Digital Imaging segment and $0.3 million in the Aerospace and Defense Electronics segment.

Charges are expected to end in the third quarter, but given the magnitude of expenses primarily in the first quarter, we expect our full-year 2017 results to be impacted by a total of $27.7 million or approximately $0.55 per share.

Turning to our outlook, management currently believes that GAAP earnings per share, in the third quarter of 2017 will be in the range of $1.55 to $1.60 per share, including $0.05 per share of inventory step-up amortization. And for the full-year 2017 our GAAP earnings per share outlook is $5.60 to $5.70.

Adjusted full-year earnings, are expected to be in the range of $6.15 to $6.25, this compares to our prior outlook of $5.76 to $5.86. The 2017 full-year effective tax rate excluding any discrete items is expected to be 27.7%. I will now pass the call back to Robert..

Thank you Sue. We would now like to take your questions. Brad if you are ready to proceed with the question and answers please go ahead..

Thank you. [Operator Instructions] And we can go to the line of Greg Konrad with Jefferies. Please go ahead. .

Good morning and great quarter. I just wanted to start with Digital Imaging, I know those margins have typically bounced around given, kind of the R&D center, but if I adjust that transaction expenses in the quarter you captured a 16 margin in the Digital Imaging segment.

Has something structurally changed with the addition of e2v and kind of the strength in machine vision and can we expect that type of margin going forward..

Good morning Greg and thank you. I think this was an exceptional quarter for Digital Imaging. We had obviously exceptional growth and margin improvement. We also had some tailwinds from FX and that helped us a little bit. I think going forward the margin would probably moderate closer to 14% for the year. At least that’s our current thinking..

Thank you, and then especially in Digital Imaging, when I just look at e2v contribution versus our estimates it was far better than we had modeled in.

Can you maybe give kind of the year-over-year growth for e2v versus last year?.

I think e2v for the full year will contribute about 12.5% to our overall revenue year-over-year. So if you take last years’ of 2.15, 12.5% on that would be e2v. The only thing I can say is the contribution of e2v in the second quarter was a little lumpy because we had two programs in space imaging and defense that kind of helped our sales.

Those are the one time sales, I would say about $10 million. We also had a little lumpiness in some of our other businesses in Q2 and having said all of that I think e2v’s contributions both in revenue and in bottom line are exceeding our expectations..

And I mean, then lastly I mean machine vision continues to grow nicely, I mean are there particular applications that are driving that growth?.

Yes, there are really three primary areas. The first is machine vision for flat panel displays. Almost, if you look at the flat panel display market, including the iPhones that people use all of those screens and television all of those are inspected by using machine vision.

We are really very, very strong in that market and some of the new panels the OLED panels that those are new, those help us a lot. Second, we have a foundry business for micro electro-mechanical devices or MEMS and that business is doing exceptionally well.

It's grown about $10 million to $15 million I think this year and primarily – and very difficult to make products. It was just trying to add the third independent foundry, MEMS foundry in terms of volume across the world.

So those two are strong contributors and then lastly Greg as in our X-ray products we have CMOS X-ray detectives which are very sensitive and you induce a lot less radiation to get a really high quality image, that business is also done by us.

So, the combination of those three things machine vision, MEMS foundry and X-ray detectors were the primary contributors..

Thank you.

Thank you, Greg..

And our next question will come from Jim Ricchiuti with Needham and Company. Please go ahead..

Hi, thank you, good morning. Congrats on the quarter I was wondering if we could maybe talk a little bit more about that the booking strength it seems like it was fairly broad based.

Robert I wonder if you can just provide a little color in terms of how bookings have trended in the various business units?.

Sure. Thank you Jim. First I think in the environmental and test and measurement area, we are about one, maybe a little over but I would say about one, in the marine area we still just a little bit in the second quarter below one, even though for the first half we are about one, altogether.

And primarily as then are the offshore energy's very small fraction of our overall business 6%. The recovery there is slow and it's kind of tough, but I think our overall instrumentation business I would say would be slightly below one in Q2 but above one throughout the first half of the year.

Digital Imaging had a great first quarter in terms of book-to-bill. In Q2 it came down to about 1.05 which is still very healthy. In our Aerospace and Defense Electronics I think the first half of the year is a little over one.

Engineered Systems, we get big programs and its very lumpy, the first quarter was less than one actually it was less than 0.8% but the second quarter it jumped to 1.27%. So over all when I look across all of the Company with 1.03% in the Q2 we were at 1.16% in Q1. I hope that helps you..

Yeah, that does help. And Robert with respect to this strength in Digital Imaging particularly in this industrial machine vision area, to what extent have you been benefiting also not in addition to the trends in the display market and OLED expansion.

But I'm wondering just with respect to this fairly significant consumer electronics new product cycle, was that a meaningful driver in Q2 and do you anticipate that being a driver in Q3 and then potentially falling off a bit as we go through this product cycle..

I think, I think you've hit it on the head. I think we’re enjoying some of the benefits of that, both in our MEMS foundries as well as in our machine vision. I think those things are cyclical and right now we have really good markets there. Some of the products we make [indiscernible] and sound systems in your iPhones.

Those are I mean very stable and increasing, on the other hand where we really benefit in our markets is some of the very highly special products that we make for example, we make MEMS products for DNA testing.

That is just being now growing very, very rapidly and we also have some new products in machine vision that for example looking at batteries inside your phone. There have been some issues there. So I think you're right that overall of the consumer electronics growth has helped us. How long that lasts, I don't know, but we'll take what we can get..

Okay, last question for me and I'll jump back in the queue, e2v clearly off to a really nice start looks like a great fit for you guys.

I'm wondering what your pipeline looks like from an acquisition standpoint?.

Interesting that you said that. We just had a board meeting, where we had everything displayed on our Digital Imaging segment and discussed all the potentialities and one of the first questions that came towards Jason and me was okay and now what are you going to build next.

We’re looking at our pipeline and there's a small acquisitions, we do have a number of Imaging, now we just bought SSI which is a really nice company for us. We're looking at that – but the big larger acquisitions Jim have become very, very pricey. So we have to have patience, we looked at e2v for over ten years. We looked at DALSA for ten years.

We looked at LeCroy for almost ten years. I'm not saying it’s going to take us ten years to buy something else that’s large but we’ll – as soon as we see something that makes sense we’ll buy it. And as we pay down our debt and our debt-to-EBITDA as Sue mentioned has dropped from 3 to 2.8.

And if we keep going I hope we’ll drop much lower by the end of the year. Then we will have ability to make acquisitions, larger acquisitions..

Okay, thanks very much..

Thanks Jim..

And your next question line will comes from George Godfrey, who joined CL King. Please go ahead..

Thank you congratulations on the nice quarter..

Thanks George..

My first question is if I look at the guidance for this quarter that was provided the first week in May GAAP EPS midpoint was a $1.23 but it came in at $1.66. My first question is I just – Robert I wonder if you could highlight the one or two areas that really exceeded your expectations to have such a nice beat there on the earnings line.

And it doesn't necessarily have to be revenue, it could be cost related, but I'm just trying to get at, what was such a significant positive surprise relative to the outlook that you provided in May?.

I think the – we were surprised first and foremost with strength in our short cycle Digital Imaging. Ever since we got kind of burned with the energy especially offshore energy markets.

We also to George took our costs down significantly all across marine but also we didn't let our costs increase and the rest of the Company, our employee labor has remained relatively flat except for the employees that we acquired from e2v.

So it's cost structure was low and as we got the strength - it thinks kind of apart – we also had some as I said we had some lumpiness in our business, there was a big program at e2v that got signed and funded and that gave us I think $3 million or $4 million of revenue, that was a surprise.

We had some machining products in our Engineered Systems segment that we were able to pull into to Q3, so it wasn't any one thing but if I were to put my finger on a single big mover, it was the market for Digital Imaging both at DALSA and at e2v..

Got it. And then the second question is, I believe you said the organic growth this quarter for the Company as a whole it was 7% is that correct..

Yes..

Do you happen to have the organic growth by the four main vertical segments there?.

Yes. I'll give them to you right now. In Instrumentation, overall instrumentation it was 3.9%. In Digital Imaging it was 17.6%. In Aerospace and Defense Electronics just a little north of zero. It was less than 1%. And in Engineered Systems it was 22.3% and with the total being over 7% closer to 7.4%..

Got it. Thank you very much Robert. Thank you for taking my questions..

You bet..

[Operator Instructions].

Brad, if there are no other questions online then I want to thank you very much. And I’d like to ask Jason to conclude our conference call..

Thanks Robert and again thanks everyone for joining us this morning. If you do have follow up questions please call me at the number that’s put on the earnings release. Operator if you could conclude the call, and give the reply information we’d appreciate it. Thanks everyone..

Certainly, thank you. And ladies and gentleman this conference is available for replay after 10 o'clock this morning and running through Sunday, September 3 at midnight. You can access the executive playback service by dialing 1-800-475-6701 and entering the access code 425406.

International parties may dial 1-320-365-3844 again the access code is 425406. Those number again 1-800-475-6701 or 1-320-365-3844 with the access code 425406. That does conclude the conference today. Thanks for your participation and for using AT&T Executive Teleconference. You may now disconnect..