Teledyne Technologies 10-Q 2024-03-31

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2024

OR

For the transition period from to

Commission File Number: 1-15295

TELEDYNE TECHNOLOGIES INCORPORATED

(Exact name of registrant as specified in its charter)

805 373-4545

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes ☐ No ☒

There were 47,422,490 shares of common stock, $.01 par value per share, outstanding as of April 19, 2024.

Table of Contents

TELEDYNE TECHNOLOGIES INCORPORATED

TABLE OF CONTENTS

Table of Contents

PART I FINANCIAL INFORMATION

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

FOR THE FIRST QUARTER ENDED MARCH 31, 2024 AND APRIL 2, 2023

(Unaudited - Amounts in millions, except per-share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE FIRST QUARTER ENDED MARCH 31, 2024 AND APRIL 2, 2023

(Unaudited - Amounts in millions)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited - Amounts in millions, except share amounts)

Showing the first 8K of 87K characters. Open the full section

Overview

Teledyne provides enabling technologies for industrial growth markets that require advanced technology and high reliability. These markets include aerospace and defense, factory automation, air and water quality environmental monitoring, electronics design and development, oceanographic research, deepwater oil and gas exploration and production, medical imaging and pharmaceutical research. Our products include digital imaging sensors, cameras and systems within the visible, infrared and X-ray spectra, monitoring and control instrumentation for marine and environmental applications, harsh environment interconnects, electronic test and measurement equipment, aircraft information management systems, and defense electronics and satellite communication subsystems. We also supply engineered systems for defense, space, environmental and energy applications. We differentiate ourselves from many of our direct competitors by having a customer- and Company-sponsored applied research center that augments our product development expertise. We believe our technological capabilities, innovation and the ability to invest in the development of new and enhanced products are critical to obtaining and maintaining leadership in our markets and the industries in which we compete.

Strategy

Our strategy continues to emphasize growth in our four business segments: Digital Imaging, Instrumentation, Aerospace and Defense Electronics and Engineered Systems. The markets in which we sell our enabling technologies are characterized by high barriers to entry and include specialized products and services not likely to be commoditized. We intend to strengthen and expand our business with targeted acquisitions and through product development. We continue to focus on balanced and disciplined capital deployment among capital expenditures, acquisitions, product development and once again stock repurchases. We aggressively pursue operational excellence to continually improve our margins and earnings by emphasizing cost containment and evaluating cost reductions in all aspects of our business. At Teledyne, operational excellence includes the rapid integration of the businesses we acquire. Using complementary technology across our businesses and through targeted research and development, we seek to create new products to grow our company and expand our addressable markets. We continually evaluate our businesses to ensure that they are aligned with our strategy.

Consistent with our strategy, we completed two acquisitions in 2023. The financial results of the completed acquisitions have been included since the respective date of each acquisition. Subsequent to the end of the first quarter of 2024, we completed one acquisition, which is part of the Instrumentation segment. See Note 2 and Note 15 for additional information about our recent acquisitions.

Trends Affecting Our Business and Other Matters

We had previously assumed no full year sales growth in industrial automation as well as test and measurement markets. However, those markets weakened more than planned in the first quarter, and we now forecast full year sales for products in these markets to decline meaningfully in 2024.

We have experienced supply chain challenges, including long lead times, as well as cost inflation for parts and components, logistics and labor due to availability constraints and high demand. These supply chain challenges have also delayed our ability to timely convert backlog to revenue. Although perhaps to a lesser extent compared to recent years, we expect cost inflation impacts and supply chain constraints to continue into 2024.

Sales recorded and costs incurred recorded by subsidiaries operating outside of the United States are translated into U.S. dollars using exchange rates effective during the respective period. As a result, we are exposed to movements in the exchange rates of various currencies against the U.S. dollar. See Note 13 for additional discussion around our derivative instruments and hedging activities used to mitigate these impacts.

To date, we have not been materially impacted by the conflict in Israel and its effect on neighboring regions. We do not have material assets in Israel. Our total net sales from Israel in the first three months of 2024 and the full year 2023 was approximately 1% of total net sales, respectively. It is too early to determine the full extent of the impact this conflict could have on our business and our operations, including the impact to our suppliers from these regions, and our assessment of the potential impacts is ongoing.

As part of a continuing effort to reduce costs and improve operating performance, we may take and have taken actions to consolidate and relocate certain facilities and reduce headcount across various businesses, reducing our exposure to weaker end markets. We continue to seek cost reductions in our businesses.

Table of Contents

Results of Operations

• not meaningful

First Quarter Results

The following is a discussion of our 2024 first quarter results compared with the first quarter results of 2023. Comparisons are with the corresponding reporting period of 2023, unless noted otherwise.

First quarter of 2024 compared with the first quarter of 2023

Our first quarter of 2024 net sales decreased 2.4%. Net income attributable to Teledyne for the first quarter of 2024 decreased 0.1%. Net income per diluted share was $3.72 for the first quarter of 2024, compared with net income per diluted share of $3.73.

Net Sales

The first quarter of 2024 net sales, compared with the first quarter of 2023, reflected lower net sales in each segment other than the Aerospace and Defense Electronics segment.

Cost of Sales

Cost of sales decreased $20.5 million in the first quarter of 2024 primarily driven by lower net sales. Cost of sales as a percentage of net sales decreased slightly for the first quarter of 2024 to 57.0% from 57.2%.

Table of Contents

Selling, General and Administrative Expense

SG&A expense, including research and development expense, decreased $4.2 million in the first quarter of 2024. SG&A expense as a percentage of net sales was 21.9% for the first quarter of 2024, compared with 21.8%. Corporate expense, which is included in SG&A expense, was $20.1 million for the first quarter of 2024, compared with $17.4 million, with the increase primarily related to higher compensation expense, including higher stock-based compensation expense. Stock-based compensation expense was $12.0 million for the first quarter of 2024 compared with $7.9 million. The first quarter of 2024 also included $2.2 million of FLIR-related integration costs, including employee separation costs, facility consolidation costs and facility lease impairments with no comparable amount in the previous year.

Acquired Intangible Asset Amortization

Acquired intangible asset amortization for the first quarter of 2024 was $49.4 million compared with $49.7 million.

Pension Service Expense

Pension service expense is included in both cost of sales and SG&A expense. For the first quarter of 2024 and 2023, pension service expense was $1.5 million. For 2024, the weighted-average discount rate used to determine the benefit obligation for the domestic qualified pension plans is 6.86% compared with 5.71% in 2023.

Operating Income

Operating income for the first quarter of 2024 decreased 3.4%. The first quarter of 2024, compared with the first quarter of 2023, reflected lower operating income in the Digital Imaging and Engineered Systems segment, partially offset by higher operating income in the Aerospace and Defense Electronics and Instrumentation segments.

Non-operating Income and Expense

Interest and debt expense, net of interest income, was $12.7 million for the first quarter of 2024, compared with $21.0 million, with the decrease related to reduced outstanding borrowings with lower weighted average interest rates compared to the first quarter of 2023. Non-service retirement benefit income was $2.7 million for the first quarter of 2024 compared with $3.3 million. Other income and expense, net was income of $1.2 million for the first quarter of 2024 compared with expense of $1.1 million for the first quarter of 2023, with the difference primarily related foreign exchange gains in the first quarter of 2024 compared with foreign exchange losses in the first quarter of 2023.

Income Tax

The first quarter income tax provision considers income, permanent items, tax credits, and various statutory tax rates. In both years, the first quarter discrete impact is primarily tax on stock-based compensation.

Segment Results

Segment results include net sales and operating income by segment but exclude corporate office expenses. Corporate expense primarily includes various administrative expenses relating to our corporate office not allocated to our segments. See Note 3 to these condensed consolidated financial statements for additional segment information.

Table of Contents

Digital Imaging

First quarter of 2024 compared with the first quarter of 2023

Net sales decreased primarily due to lower sales of industrial imaging cameras due to end market weakness as well as lower sales of micro-electro-mechanical systems (“MEMS”), partially offset by higher sales of infrared detectors and subsystems as well as unmanned systems.

Cost of sales decreased primarily due to decreased net sales partially offset by product mix. As a result of less favorable product mix, the cost of sales percentage increased during the period. SG&A expense and SG&A expense as a percentage of net sales decreased primarily due to lower research and development costs, partially offset by higher severance and facility consolidation cost.

Operating income decreased primarily due to unfavorable product mix during the period, and operating income as a percentage of net sales decreased slightly during the period.

Instrumentation

First quarter of 2024 compared with the first quarter of 2023

Net sales decreased due to lower sales at our test and measurement instrumentation and environmental instrumentation product lines, partially offset by increased sales in our marine instrumentation product line. Sales of marine instrumentation increased $19.6 million due to the ongoing recovery in offshore energy markets. Sales of test and measurement instrumentation and environmental instrumentation decreased $15.9 million and $6.8 million, respectively, due to end market weakness.

Cost of sales decreased primarily due to lower net sales. The cost of sales percentage decreased due to favorable product mix, including increased margins in our marine instrumentation product line. SG&A expense increased slightly due to higher research and development expense in the period, and SG&A expense as a percentage of net sales also increased slightly.

Operating income increased primarily due to stronger marine instrumentation sales and improved margins, and operating income as a percentage of net sales increased due to improved product margins at marine instrumentation.

Table of Contents

Aerospace and Defense Electronics

First quarter of 2024 compared with the first quarter of 2023

Net sales increased due to a $10.1 million increase in aerospace electronics and a $2.4 million increase in defense electronics.

Cost of sales increased primarily due to higher net sales, and the cost of sales percentage decreased due to favorable product mix, including higher sales at aerospace electronics. SG&A expense increased primarily due to higher net sales.

Operating income and operating income as a percent of net sales increased primarily due to increased net sales and favorable product mix during the period.

Engineered Systems

First quarter of 2024 compared with the first quarter of 2023

Net sales decreased due to lower sales of $10.1 million for engineered products and lower sales of $0.8 million for energy systems.

Cost of sales decreased primarily due to lower net sales as well as certain unfavorable changes in contract estimates. The cost of sales percentage increased during the period due primarily to product mix and unfavorable changes in contract estimates. SG&A expense increased slightly, and SG&A expense as a percentage of net sales increased.

Operating income and operating income as a percentage of net sales decreased primarily due to program mix and unfavorable estimate changes related to electronic manufacturing services contracts.

Financial Condition, Liquidity and Capital Resources

Our principal cash and capital requirements are to fund working capital needs, capital expenditures, income tax payments, and debt service requirements, as well as acquisitions. We may deploy cash for the stock repurchase program. It is anticipated that cash on hand, operating cash flow, together with available borrowings under our $1.15 billion credit facility, will be sufficient to meet these requirements. To support acquisitions, we may need to raise additional capital. No cash pension contributions

Table of Contents

have been made since 2013 or are planned for the remainder of 2024 for the domestic qualified pension plans.

Cash and Cash Equivalents

Cash and cash equivalents totaled $912.4 million at March 31, 2024 compared with $648.3 million at December 31, 2023. Cash equivalents consist of highly liquid money-market mutual funds with maturities of three months or less when purchased.

Long-term Debt

Total debt at March 31, 2024 was $3,246.3 million compared with $3,244.9 million at December 31, 2023. Subsequent to the end of the first quarter of 2024, the Company made a $450 million debt maturity payment on the Senior notes due April 2024.

At March 31, 2024, $1,128.2 million was available under the $1.15 billion credit facility, after reductions of $21.8 million in outstanding letters of credit.

Our bank credit agreements, which includes our $1.15 billion credit facility expiring March 2026 and our $150.0 million term loan due October 2024, require us to comply with various financial and operating covenants. At March 31, 2024, we were in compliance with these covenants.

Our liquidity is not dependent upon the use of off-balance sheet financial arrangements. We have no off-balance sheet financing arrangements that incorporate the use of special purpose entities or unconsolidated entities.

We may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash purchases, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Stock Repurchases

In April 2024, our Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $1.25 billion of Teledyne’s common stock. This authorization superseded prior open stock repurchase programs authorized by the Board of Directors. The newly authorized stock repurchase program does not have a stated expiration date. Shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or

via an accelerated stock repurchase program. Shares could be repurchased in a plan pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934. The repurchase program is expected to remain open continuously, and the number of shares purchased will depend on a variety of factors, such as share price, levels of cash available, acquisitions and alternative investment opportunities available immediately or longer-term, and other regulatory, market or economic conditions. The Company currently intends to fund future share repurchases with cash on hand and available borrowings under the Company's credit facility. No repurchases under any authorizations were made in the first quarter of 2024.

Cash Flows:

Net cash provided by operating activities was $291.0 million for the first three months of 2024 compared with $203.0 million, driven primarily by stronger working capital conversion in the first three months of 2024.

Net cash used in investing activities was $15.9 million for the first three months of 2024 compared with $76.9 million. During the first three months of 2024, we spent $0.0 million on acquisitions as compared with $52.5 million. Capital expenditures for the first three months of 2024 and 2023 were $15.9 million and $24.4 million, respectively. We currently plan to invest approximately $100 million for capital expenditures in 2024.

Net cash provided by financing activities was $6.1 million for the first three months of 2024 compared with net cash used in financing activities of $103.4 million, with the first three months of 2023 including a $100.0 million payment on our credit facility.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are those that are reflective of significant judgments and uncertainties and may potentially result in materially different results under different assumptions and conditions. Our critical accounting policies are the following: accounting for revenue recognition; accounting for business combinations, goodwill, and acquired intangible assets; and accounting for income taxes.

For additional discussion of the application of the critical accounting policies and other accounting policies, see Note 1 to these condensed consolidated Financial Statements and also Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Note 2 of the Notes to Consolidated Financial Statements included in Teledyne’s 2023 Form 10-K.

Safe Harbor Cautionary Statement Regarding Forward-Looking Information

From time to time we make, and this report contains, forward looking statements, as defined in the Private Securities Litigation Reform Act of 1995, directly or indirectly relating to sales, earnings, operating margin, growth opportunities, acquisitions, product sales, capital expenditures, stock repurchases, pension matters, stock-based compensation expense, the credit facility, interest expense, severance, relocation and facility consolidation costs, environmental remediation costs, taxes, exchange rate fluctuations and strategic plans. Forward-looking statements are generally accompanied by words such as “estimate”, “project”, “predict”, “believe” or “expect”, that convey the uncertainty of future events or outcomes. All statements made in

Table of Contents

this Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Form 10-Q that are not historical in nature should be considered forward-looking.

Actual results could differ materially from these forward-looking statements. Many factors could change anticipated results, including: changes in relevant tax and other laws; foreign currency exchange risks; rising interest rates; risks associated with indebtedness, as well as our ability to reduce indebtedness and the timing thereof; the impact of semiconductor and other supply chain shortages; higher inflation, including wage competition and higher shipping costs; labor shortages and competition for skilled personnel; the inability to develop and market new competitive products; inherent uncertainties involved in the estimates and judgments used in the preparation of financial statements and the providing of estimates of financial measures, in accordance with U.S. GAAP and related standards; disruptions in the global economy; the ongoing conflict in Israel and neighboring regions, including related protests and the disruption to global shipping routes; the ongoing conflict between Russia and Ukraine, including the impact to energy prices and availability, especially in Europe; customer and supplier bankruptcies; changes in demand for products sold to the defense electronics, instrumentation, digital imaging, energy exploration and production, commercial aviation, semiconductor and communications markets; funding, continuation and award of government programs; cuts to defense spending resulting from existing and future deficit reduction measures or changes to U.S. and foreign government spending and budget priorities triggered by inflation, rising interest costs, and economic conditions; impacts from the United Kingdom’s exit from the European Union; uncertainties related to the 2024 U.S. Presidential election; the imposition and expansion of, and responses to, trade sanctions and tariffs; the continuing review and resolution of FLIR’s trade compliance and tax matters; escalating economic and diplomatic tension between China and the United States; threats to the security of our confidential and proprietary information, including cybersecurity threats; risks related to artificial intelligence; natural and man-made disasters, including those related to or intensified by climate change; and our ability to achieve emission reduction targets and decrease our carbon footprint. Lower oil and natural gas prices, as well as instability in the Middle East or other oil producing regions, and new regulations or restrictions relating to energy production, including those implemented in response to climate change, could further negatively affect our businesses that supply the oil and gas industry. Weakness in the commercial aerospace industry negatively affects the markets of our commercial aviation businesses. Ongoing issues with Boeing’s 737 MAX product line could result in manufacturing delays and lower sales of our products to Boeing. In addition, financial market fluctuations affect the value of the company’s pension assets. Changes in the policies of U.S. and foreign governments, including economic sanctions, could result, over time, in reductions or realignment in defense or other government spending and further changes in programs in which the company participates.

While our growth strategy includes possible acquisitions, we cannot provide any assurance as to when, if or on what terms any acquisitions will be made. Acquisitions involve various inherent risks, such as, among others, our ability to integrate acquired businesses, retain key management and customers and achieve identified financial and operating synergies. There are additional risks associated with acquiring, owning and operating businesses internationally, including those arising from U.S. and foreign government policy changes or actions and exchange rate fluctuations.

We continue to take action to assure compliance with the internal controls, disclosure controls and other requirements of the Sarbanes-Oxley Act of 2002. While we believe our control systems are effective, there are inherent limitations in all control systems, and misstatements due to error or fraud may occur and may not be detected.

Readers are urged to read our periodic reports filed with the Securities and Exchange Commission for a more complete description of our company, its businesses, its strategies and the various risks that we face. Various risks are identified in our 2023 Form 10-K and subsequent Quarterly Reports on Form 10-Q.

All forward-looking statements speak only as of the date they are made and are based on information available at that time. We assume no obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.

There were no material changes to the information provided under “Item 7A, Quantitative and Qualitative Disclosure About Market Risk” included in our 2023 Form 10-K.

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to provide reasonable assurance that information required to be disclosed by us in such reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our Chief Executive Officer and our Senior Vice President and Chief Financial Officer, with the participation and assistance of other members of management, have reviewed the effectiveness of our disclosure controls and

Table of Contents

procedures and have concluded that the disclosure controls and procedures, as of March 31, 2024, are effective at the reasonable assurance level.

In connection with our evaluation during the quarterly period ended March 31, 2024, we have made no changes in our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

See Item 1 of Part 1, “Financial Statements -- Note 14 -- Commitments and Contingencies.”

There are no material changes to the risk factors previously disclosed in our 2023 Form 10-K in response to Item 1A to Part 1 of Form 10-K. See also Part I Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding supply chain and foreign currency exchange rate risks.

Director and Officer Trading Arrangements

None of the Company’s directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended March 31, 2024.

Table of Contents