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 Teledyne Technologies Third Quarter Earnings Call. At this time, all lines are in a listen-only mode. Later, we will conduct a questions-and-answer session and instructions will be given at that time. [Operator Instructions] And as a reminder, today’s conference is being recorded.

I’d now like to turn the conference over to Jason VanWees. Please go ahead..

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 Third 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 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 the periodic SEC filings, and yes 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, everyone. And, thank you for joining our earnings call. I’m pleased to report that in the third quarter, we achieved all time record GAAP earnings per share and all time record GAAP operating margin.

Our results were due to first strong overall organic sales growth exceeding 8%, and second excellent contributions from acquisitions, especially Teledyne e2v.

In particular, our image - Digital Imaging segment performed exceptionally well and we also achieved strong organic sales growth in each instrumentation product group including Marine Instrumentation as well as the majority of our government and defense businesses.

Furthermore total company orders continue to exceed sales and free cash flow was a record for any third quarter. Before commenting on our business segments in more detail, I want to offer some perspective on our performance, products and end markets.

In the third quarter, sales growth was well balanced among our segments as well as along product line within our segment. For example, organic growth in our Digital Imaging segment exceeded 20%.

The largest drivers for this growth were cameras or machine vision applications, such as flat panel displays, and CMOS-based digital X-ray detectors for dental and medical imaging. After several years of investment in the development of this higher resolution, low-dosage X-ray detectors, we are pleased to see OEM adoption now accelerating.

Our Digital Imaging product lines, including micro-electromechanical systems or MEMS geospace mapping systems and our government imaging businesses also increased organically at double digit rates.

In our instrumentation segment, sales of both environmental and electronic test and measurement instruments also increased organically at double digit rates.

Finally orders in our long cycle government based businesses representing about 24% of total sales began increasing early in this year, and we have now achieved three consecutive quarters of year-over-year organic growth in these businesses.

As I mentioned last quarter, in the absence of major headwinds, such as offshore energy, our result demonstrate Teledyne’s strong consistent and balanced underlying business performance as well as our successful acquisition strategy and the integration execution.

Turning back to the quarterly results, total revenue increased 25.7% compared to last year, with earnings per share growing even more increasing to just over 30%.

GAAP operating margin also increased 97 basis points, despite 44 basis points of charges related to the e2v acquisition, and even with these charges both operating margin and EBITDA margin were historical records for Teledyne.

Finally, a short comment on the presentation of our full-year 2017 results and outlook, the first quarter of 2017 was the one and only quarter in our history in which we highlighted non-GAAP adjusted earnings simply given the magnitude of the e2v acquisition-related expenses.

So, while we are providing a full-year outlook adjusted for such expenses, it is worth noting that we have only adjusted the full-year outlook for specific nonrecurring transaction cost which we expect to end this year. We do not and never have adjusted for ongoing expenses such as amortization of intangible assets.

For reference in full-year 2017, amortization alone would represent approximately $40 million or about $0.80 per share of non-cash expense. Now turning to our four business segments, in our instrumentation segment, third quarter sales increased 11.6% from last year.

Segment operating profit and operating margin also increased due to margin improvement at each major product category. Sales of Marine Instrument increased 4.3% due primarily to higher sales of interconnect and cable solution. This was our second year-over-year increase in sales of Marine Instrument.

We currently believe that these products line in aggregate has stabilized.

In the environmental domain sales increased 21.8%, largely as a result of continued growth in industrial air monitoring instruments as well as increased sales of laboratory and life science instruments, which included the acquisition of Hanson Research and scientific systems, also referred to SSI.

Sales of electronic test and measurement systems increased 13% overall and 10.1% organically.

Sales of protocol analyzers used by engineers to troubleshoot data communication systems and test interoperability, for example between wireless devices continued to be healthy and product line gross margins and overall operating margins continued to increase.

Turning to the Digital Imaging segment, third quarter sales increased 94.4% with organic growth of 22.1%. As mentioned earlier, the organic increase in sales was broad based across both our commercial and Defense Electronics, with particularly strong growth for industrial machine vision cameras and X-ray detectors for life science applications.

Each of the Teledyne e2v was a strong contributor adding approximately $70 million of revenue in the quarter. GAAP operating margin increased 478 basis points from last year, despite headwind from our amortization of intangibles and about $2.9 million of transaction related charges from e2v.

In the aerospace and Defense Electronics segment, third quarter sales increased 7.6% primarily as a result of the acquisitions of Teledyne e2v. Segment operating margin declined due to increased sales from some lower margin defense programs as well as relocation cost of a manufacturing facility from Mexico to the United States.

Nevertheless, overall margin remained healthy at 17.8%. In the Engineered Systems segment, third quarter revenue increased 9.9% and operating margin improved 75 basis points, the higher revenue and margin primarily resulted from greater sales for marine manufacturing programs and cruise missile turbine engines.

In concluding my comments, I want to first offer some perspective on our outlook. Given our strong third quarter results and balanced growth across our business portfolio, we now believe that full-year 2017 total company organic growth would be approximately 6% compared to 5.5% noted last quarter, and 4.5% noted at the end for the first quarter.

Due to our strong cash flow, we have reduced leverage from 3.4 times to 2.6 times in the six months following the acquisition of Teledyne e2v. And, this also includes the acquisition of SSI or $31 million in July of this year.

Finally given our strong balance sheet, success in each of the integration, and stability across all our markets, we are currently pursuing a broad range of acquisition opportunities. 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 fourth quarter and full-year 2017 outlook. In the third quarter, cash flow from operating activities was $107.9 million compared with cash flow of $98 million for the same period of 2016.

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

Free cash flow that is cash from operating activities less capital expenditures was $92.3 million in the third quarter of 2017 compared with $83.6 million in 2016. Capital expenditures were $15.6 million in the third quarter compared to $14.4 million for the same period of 2016.

Depreciation and amortization expense was $31.4 million in the third quarter compared to $22.8 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 $1.1 billion of net debt that is approximately $1.2 billion of debt and capital leases, less cash of $82.5 million for a net debt to capital ratio of 37.5%. Our leverage ratio was 2.6 times at the end of the third quarter of 2017 compared to 2.8 times at the end of the second quarter of 2017.

Stock option compensation expense was $3.2 million in the third quarter of 2017 compared with $2.5 million in the third quarter of 2016. Regarding e2v acquisition related charges, the third quarter of 2017 contained $2.9 million of pre-tax charges in our Digital Imaging segment.

Non-recurring charges specifically related to the acquisition have now ended. However full-year 2017 results will be impacted by a total of $28.1 million or approximately $0.56 per share. Turning to our outlook, management currently believes that GAAP earnings per share in the fourth quarter of 2017 will be in the range of $1.70 to $1.75 per share.

And, for the full-year 2017 our GAAP earnings per share outlook is $6.10 to $6.15. Adjusted full-year earnings per share are expected to be in the range of $6.66 to $6.71, this compares to our prior outlook of $6.15 to $6.25. 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, operator if you are ready to proceed with the questions and answers please go ahead..

Okay. [Operator Instructions] Our first question will come from the line of Greg Konrad with Jefferies. Please go ahead..

Hey good morning, and great quarter. I was hoping maybe we could start just to discuss some of the margin drivers in Digital Imaging. Historically there’s been a lot of moving pieces with R&D and amortization.

Have the margin expectations for that segment kind of been reset just judging from Q3 performance?.

I think the margins in Q3 were exceptionally high, Greg, primarily because of real up both DALSA and e2v.

Some of - as you know in our Digital Imaging, we have two other components that are lower margin businesses, one of them is our Digital Imaging at Teledyne which is our infrared imaging, and the other one is our research laboratory, which we take no profit from.

So, I think in the fourth quarter, these margins would moderate somewhat and we think the other thing that may go against this a little bit is flat panel display production, which we provide cameras for maybe moving out from Q4 into 2018..

Since you brought up 2018 and that’s kind of a good segue, I mean, as you’ve said here, you’ve had accelerating organic growth through the first three quarter.

Can you maybe give just an indication of where you think - see things going in 2018?.

Yes, I think organic, great, of course, as looking into the future, it’s not that easy. I think organically, my expectations at the present time are still go about 3%, it could be a little higher, but 3% is where our thoughts are.

And, I think total growth would be around 6%, it could be a little higher again as I said, but right now that’s where we’re setting our expectation..

Thank you.

And, just last one for me, I mean, in the past you’ve kind of given full year margin outlook for segment just to go back to my first question, just kind of looking at Q3, can you maybe discuss margin by segment?.

Yes, I can try. I think instrumentation would be a little over 14%, Digital Imaging probably around 14.5%, aerospace and Defense Electronics about 18.5%. And, I think engineered systems about 12.8% to 12.9%.

A total segment margin as you recall first quarter and throughout we’ve taken $9.4 million of charges because of e2v, so the first quarter was lower, we think we’ll end up over 15%, maybe 15.2%, I hope that helps..

Thank you..

Our next question comes from the line Jim Ricchiuti with Needham and Company. Please go ahead..

Hi, thank you, good morning.

Robert, just going back to Digital Imaging, is the growth, the activity you’re seeing in the industrial machine vision area, is that mainly display related or you’re seeing growth and demand just more broadly across factory automation?.

I think it’s broader than that, we have cameras, of course, for flat panel display, but we introduced some cameras for - two dimensional displays, some custom sensors that we make, I would say we have a balance growth in that domain.

We’re also starting to produce our - and called infrared sensors, which we have developed as I have indicated before we now can make way for level package. So, I think it’s broader than flat panel, but flat panel is very important, it drives about $50 million a year for our business in that - in there..

And, that flat panel is both liquid crystal display and the newer OLED technology?.

Yes..

You mentioned I think the book-to-bill was around one for quarter, was that book-to-bill fairly constant across the four business segments or were there any significant variations in that in either Digital Imaging, instrumentation?.

Yes, Jim. I think the book-to-bill is a little over one it’s more like 1.04. I think in the instrumentation, it’s is a little below one and Digital Imaging is probably about 1.07, aerospace and Defense Electronics is 1.03, engineered system is high, but that’s because these programs are long-term programs.

There, our book-to-bill is more like 1.2, but as I said those are longer-term program. So, overall it’s about 5% above 1%..

Okay, and last question and I’ll get back in the queue. I was surprised by the growth of the organic growth that you showed in electronic test measurement.

I don’t recall seeing that kind of growth from LeCroy business in a while, what’s driving that?.

Well, there’s two parts to that, Jim. First the LeCroy business is healthy, partly because they’ve introducing a lot of new products, but secondly in the test measurement or electronics business, we do have a significant business in protocol test, protocol analyzers. And, that business is growing much faster than the oscilloscope business.

Even though the oscilloscope business has really moved up, in the protocol business, which as I mentioned before test the interoperability between devices, we have mostly number one position in high definition, multimedia interface, Bluetooth, and other domains.

So, the increase in Cloud storage has also helped our protocol businesses, so it’s a combination of both protocol and LeCroy, yes, oscilloscopes..

Okay, thank you. Congrats on the quarter..

Thanks a lot. I appreciate that..

[Operator Instructions] Our next question comes from the line of George Godfrey with CL King. Please go ahead..

Thank you, and good morning, and congratulations on….

Good morning, George..

Good morning, Robert, a very nice quarter..

Thank you..

In the instrumentation you touched on test measurement, which as reported was up 13% and then just looking at the other two segments, marine, this is the second quarter with nice growth there 4%; and then environmental 22% growth this quarter.

Now that you have touched on test measurement, can you just touch on the factors in the marine and the environmental segments as well?.

Of course first I’ll maybe start with marine if I may. As I mentioned in the earnings call, the marine businesses have stabilized, and what do I mean by that is that we essentially lost about 30% of our market between 2014 and 2016. This year we are operating about $425 million, $430 million.

And, the other thing about that is that our marine businesses have flipped used to be 60/40, energy - off-shore energy exploration and production and then 40% which was science, defense, security, and hydrography, and transportation.

Now it’s the flip side of that, the defense is much stronger and the oil and exploration and production is more like 40% of the portfolio.

And, as a consequence that has stabilized, we had a modest growth, but also importantly, we’ve had improvements in margin, because we took a lot of cost out in that businesses, last year we took almost 25% of the people and then we did significant facility consolidation, we even now finishing up consolidating facility from the U.K.

to Florida, so that’s the marine business.

On the environmental businesses, the growth is coming across that segment or sub-segment, and it’s very, very strong in environment programs, that do pollution monitoring and air quality monitoring, for example we have very good position in China, and we also have really good products in laboratory and life science businesses, and we’re growing very well there.

And then we did make a smaller acquisition, the high pressure pumps, very accurate high pressure pumps used in things like high pressure liquid chromatography and that helped also, but organically we had double digit growth, because of the health of our businesses across the various product lines..

That’s excellent. Thank you for that. And, then just one question for Sue, looking at the discrete tax benefits this quarter $9.9 million versus $6.6, and if I go back to Q4 of ‘16, it looks like the discrete tax benefit was $9.4 million there.

Do you expect the similar magnet, I know it’s not in the guidance, but will there be a discreet tax benefit in Q4 approximately somewhere near those - the magnitude of those numbers?.

No, not at all..

Not at all, okay..

I think Q4 discrete is going to maybe 4% to 5% and some of that as Sue mentioned earlier coming from stock option exercises, of course the higher our stock price, the more tax benefits we get when people exercise stock options. We do have because of that we have share creep up, so that works against us..

Got it, thank you for taking my questions..

Thank you..

Our next question is a follow up from the line of Jim Ricchiuti with Needham and Company. Please go ahead..

It sounds like you are suggesting bit of a pickup in acquisition activity, I’m wondering if you can and again main broad terms talk about where you might see some attractive opportunities which segments, and would these be - tend to be smaller or there are some opportunities maybe for some larger deals?.

First let me start with the segments please. Obviously anything related to imaging, because our portfolio there is becoming stronger and stronger, and now we have probably the world’s best imaging businesses when you look at and broadest businesses when you look at range from infrared down to visible and ultraviolet.

We have all the combination of the product, so we are going to look there very first and just the area we just spoke about which is the environmental area is another nice area for us to make our positions, if there was anything in protocols we would like to acquire, but as I said we already have out of the five areas we cover, we are number one position in four of them.

In terms of size, it could be both, we are looking at smaller acquisition and we would be interested in doing something larger, with the cash flow that Sue indicated, if you look at our debt, it’s about - net debt is about $1.1 billion, our EBITDA is about $430 million $440 million.

So, if we didn’t do any acquisitions, we could pay down that debt essentially into two and half years approximately. And, we have capacity - that capacity maybe $500 million currently, but then if we acquired anything of course that being some EBITDA with it. So, that would let us do something larger and so we are looking at both of those..

Okay, that’s helpful. Thank you..

Thank you very much..

And, we have no further questions in queue..

Thank you very much operator. I’ll now ask Jason to conclude our conference call..

Thanks Robert and again thanks everyone for joining us this morning. And, if you do have follow up questions, please feel free to call me the number on the earnings release. All our earnings releases are available on our website teledyne.com. Ryan, if could please conclude the call, and give the reply information we’d appreciate it. Thank you..

Okay, ladies and gentleman as you heard today’s call was recorded for replay. That replay will be available starting at 10:00 AM specific today and run through December 2 at midnight. You may access the A&T replay system by dialing 1-800-475-6701 and entering the access code 430455.

International participants may dial into the United States at 320-365-3844. Those numbers again 1-800-475-6701, international is 320-365-3844, and the access code for today’s call is 430455. Thank you for your participation. You may now disconnect..