Teledyne Technologies Incorporated (TDY) Earnings Call Transcript & Summary

We will get started. Thank you, everyone, for joining us. I'm Joe Giordano. I cover multi-industrials here. Really excited to have Teledyne with us today, our top pick for 2025. So no pressure guys. We have the team here, Jason, George.

Guys, maybe we'll just kick it off. I was just on the earnings call this morning. It's tough to get kind of like visibility into things. So now we're 2/3 into the quarter. Just give us a quick overview of like what you're seeing today, how the views have evolved since we spoke last quarter and how things are just kind of playing out early?

Yes. Maybe I'll start at a high level and let George talk about some specific things. So generally speaking, we've said for a while now that the half the company that we call the long-cycle business in descending order, that's defense, energy, commercial aero and even parts and medical, some of that's down, some of it's up. But that's been a very good book-to-bill, good growth for a couple of years, especially in the case of marine, energy and subsea defense. I think that's going to keep growing this year. I mean, as a basket, maybe 5%, things like FLIR defense, maybe on the higher side, 6%; maybe marine, 6%, but good durable growth, good backlog, that will continue. The short cycle, optimistic is probably too strong, but everything kind of bottomed in Q1 2023. And then I'd say there's sort of 2 camps: there's getting sequentially better and has been getting sequentially better. That's FLIR commercial, that actually comped positive year-on-year in Q3 and then again in Q4. So that's looking a little bit better. Electronic test and measurement, each quarter was a little bit better, so kind of a Keysight type business, but that comped positive year-on-year in Q4. Then the other ones that I'd say aren't getting any worse, but aren't getting a whole lot better, like industrial automation, machine vision, certainly has been worse than Q1 of last year. But has it gotten materially better? No. Marginally? Yes. Materially? No. And environmental instruments, which is trace chemical analyzers for life sciences, et cetera, that's -- was kind of muddling for a while with that comp set, but that actually did turn positive in Q4 year-on-year. I mean something that standouts, maybe George can address like the marine business has been great. Space business has been great.

Yes, sure. I mean marine, of course, we're benefiting from the energy recovery. About 40% of our marine business is energy, going well. Defense business in marine also going well, unmanned vehicles, content on nuclear submarines. Space business, we're involved in the SDA tranche programs for missile tracking. All those things continue to go well.

So if you were going to be like upwardly surprised this year, would it be from the short-cycle stuff showing more recovery? Or would it be from your longer-cycle businesses accelerating faster than you already anticipated? Would it be margin? Execution?

I'll give you my take and then George can say. I mean the long cycle, the swath of all possible outcomes is not that big. I mean they are long-cycle businesses. We have backlog in some, almost at the end of the year. I mean, obviously, it tails off a little bit, so it's not fully booked. But yes, I think is there a little bit of upside at places like maybe marine? I won't speak for George, but I think there's probably a little bit more than -- but we'll see. The short cycle, we'll see. I mean, again, I don't feel like we're going into any kind of hole. Everything has gotten a little bit better. We guided relatively low kind of as a basket 1%, 2%, 3% growth, just maybe not that bad on constant currency, a little bit higher, maybe 2%, 3%, 4% kind of things. But yes, those are all high contribution margin businesses. So if it's going to be a reasonable deviation to the upside, I would say it's more short-cycle outperformance where the operating leverage, if it comes back and the margin profile is quite good. But I think there's still upside in some of the long-cycle stuff, too, but we'll see.

Where do you think you're outperforming the underlying -- whatever the growth of the market is, where do you think you're doing best relative to that?

I think FLIR defense is doing quite well. And some of that is just its regular base business, but then some new products, both on the gimbal side, the FLIR surveillance business, as they formerly called it. FLIR unmanned has been doing quite well, unmanned air, especially. And if you went a year or so ago, FLIR did not have a product, but in counter-unmanned. I mean -- and it's not -- that's not all Ukraine. But yes, you read headlines, Ukraine, Israel, Houthis, Red Sea. I mean, FLIR unmanned, FLIR counter-unmanned, I think are doing quite well because some of those are brand-new products that we rhetorically have in the portfolio. I think in marine, I mean, some of the other subsea interconnect players, I think we're doing quite well and autonomous underwater vehicles as well.

Are you seeing any like noticeable behavioral changes post election? Was there trepidation from a budgetary standpoint ahead of things? Has that cleaned up at all?

I would say not seeing anything major at this point. On the defense side, we're not -- we're levered to things like unmanned and sensors, sensors that we sell -- sensors that we use not just for our own unmanned platforms, but sell to others. So to the extent that the trends go more towards unmanned, more towards rapidly deployable, and make a lot of kind of commercially developed military qualified equipment. So we think that, if anything, is neutral to good for us. On the environmental side, maybe a little trepidation around just where the environmental regulations go for our water sampling business, air quality monitoring business, things like that. But overall, I wouldn't expect that to be significant.

I mean people have obviously asked us what does DOGE mean for Teledyne. I mean the short answer is we don't know, but I personally hope that if budgetary actions ultimately match the rhetoric, it would be good for us. What do I mean? I mean if it's less F-35s, maybe cancellation or push out of next-generation air dominance, sixth-generation fighters, successive to F-22, $100 million plus per unit kind of programs but that's curtailed a little bit and the concept of low-cost attributable to drones, where our ASPs are in the tens of thousands, maybe the high end $100,000. That's the neighborhood we play. That's a good thing. Again, less -- we don't do ordinance or rockets, so more surveillance, be it from space. There are already the SDA programs that George mentioned, Space Development Agency. But again, the rhetoric of late is -- even expand that, Iron Dome for the U.S., things like that. But those are all good. But what's really going to happen? We don't know because I mean I can see a couple of cases where maybe what we do actually increases, and that would be good. Or is it that what we do is maintained in some of this legacy stuff is decreased. Well, that's neutral. Or is it that, maybe when things get through Congress that there's sort of like a sequestration austerity and all government agencies take the 10% tax, in which case that's negative. I don't think that's the case. No one's really talking that way, be it either here or European austerity is more like, well, is it really the Trump 5% in NATO or is it 3.5% -- it doesn't matter it's better than 2%. So I think, again, the rhetoric is good. What's really going to happen and when, TBD, yes.

Yes. How are you guys strategically dealing with tariffs right now or the threat of that?

Well, first, to kind of quantify it. So at least, I mean, it's changing daily, but let's say, as proposed before it was delayed. So let's say, 25% Canada, 25% Mexico, additional 10% China. The impact of COGS for us would be sort of in the $30 million to $40 million range. So it's not huge. I think that can be recovered in pricing. Maybe the timing is not perfect. But again, some of those haven't happened. They did happen before they didn't happen or got delayed. But that's kind of the quantification. And I think we never added back to our earnings, but I mean, peak supply chain inflation, we probably had $100 million of COGS premium for electronic components when you're scrounging for Xilinx FPGAs or Intel Altera FPGAs, things like that. And that was recovered in pricing. We had no margin compression. Actually, we had a little bit of margin expansion in 2022 and 2023. Not a lot, but a little. So I think we can recover it. But it's obviously -- it's obviously fluid. And don't even really know what's going to be on the list, not. I mean we saw the steel tariff. And so George surveyed some of his businesses. And yes, I mean, okay, I don't even know right now. I mean, we buy a lot -- we buy some Inconel. Well, that's mostly a nickel-based super alloy, but it's 7% iron. Is that steel or not steel? I don't know I actually don't know right now. But I mean, again, the quantifications are sort of in the tens of millions if they kick in, which I think we can deal with.

So you spent like the last decade, I guess, kind of building out Teledyne as it stands today with the imaging platform. You've kind of moved people into the leadership positions to have you for the next bunch of years here. So like where do you think you stand from now from an optimization standpoint now that you've built out this platform?

Yes. So what I would say is, obviously, a lot of margin enhancement work in instrumentation, aerospace, defense, electronics, a lot of progress there over the last 3, 4, 5 years. We've done a lot in supply chain, inventory management, things like that. Probably still some additional work to do. We're always working on margin enhancement, right? So probably some additional work to do in the rest of the business, maybe in the imaging parts of the business. But overall, I would say, really just continue to focus on the basics for us, right, generating cash flow, continue to improve the margins where we can and continue to improve the talent.

So where do you think if we look out a couple of years and just with the portfolio we have today, where is the most opportunity on the margin side? Which parts of the business?

Yes. I would say at the moment, it's probably in the imaging part of the business, although we made progress there. If you look at the FLIR business, I think it came in, it's been -- it's up about 400 basis points from when it came into the business. We've had a little bit of compression given some of the higher-end industrial machine vision kind of higher-margin projects. So as that part of the business comes back, that will help. When you look at things like aerospace and defense electronics, which are north of 28% already, instrumentation kind of at 28%, probably getting closer to the point where that gets a little bit harder, then, of course, we bring in acquisitions, kind of reset the margins and then bring them back up.

Are there cost -- structural costs you can take out of some of the short-cycle businesses? Or is that too reactionary to the declines you've seen there?

I wouldn't say it's too reactionary. I think we're -- those are things that we have done and kind of continue to do, and that's always the balance between what do we want to do to preserve the margin this quarter, this year versus making sure we continue to invest in the business.

And just so nobody is surprised. I mean I think one thing George mentioned was acquisitions. So George described the base case in terms of margins, but we just closed an acquisition, which is a great fit. George was there last week when we closed it, he can talk about it if you'd like. But it has margins, good profile, 20%, 22%. But the segment, like George mentioned, is 28.5%. So yes, the consolidated margins are going to be 200 bps lower in 2024 versus 2023. But that's okay, accretive to sales, accretive to earnings. And the margins will eventually creep up just like they did before. But again, this is nobody surprised if it's like , oh my God, A&D margins are down 200 bps in Q1 what happened. Well, an acquisition happened, but a very good fit at a good multiple.

Yes. A question I get a lot, just given the diversity of the portfolio is just how do we think about like a long-term growth algorithm? Like what -- how do you see that? What should we be base -- like a base case 5 years kind of normalized?

Yes. I mean so I'll -- we'll talk at a high level, but I'm willing to get as granular as you like. I mean the one thing I think it's always worth saying, and part of this is my fault, people are left with the impression that Teledyne is really complicated. And that's because I think I'm willing to tell everybody everything we make for every customer and then people are like, oh my god, it's a conglomerate. It really isn't. I mean, in marine, what do we do? We do sonar systems, acoustics, specialty connectors and unmanned vehicles that use those. In defense electronics, what do we do? Not sonar bits and pieces, we do radar bits and pieces and specialty connectors, as we do in defense electronics. I mean the portfolio really isn't that complicated. In digital imaging, what do we do? We make specialty sensors for things that are hard to see. And sometimes they're incorporated in the cameras, sometimes they're in gimbals, sometimes they're in unmanned systems, but it's still a proprietary sensor business. We just end up in a lot of verticals. In terms of maybe getting that aside, I'd say, if you look at the overall growth algorithm. And it varies every year based on which business you're in, et cetera. But generally, you've run through our proxy over the last 10 years, looked at our pay performance, our pay plans. Generally, I'd like to think corporate management is not doing the job. If organic growth is not mid-single digit, you get a little bit of margin enhancement, maybe that's EPS of 8%. And then if you're not spending your free cash flow yield wisely, you're failing. So you either 4% or 5% free cash flow, you'll buy back stock, that should get you to double digits or you do what we've most often done as acquisitions, good acquisitions at a good ROI. That should get you to sustainable double-digit growth, and we've had that. Again, the last year has been lower with some of the industrial machine vision, some of the other high-margin markets being off. But generally, I think, yes, if you're not getting mid-single-digit growth, a little bit of margin expansion and then spending your free cash flow yield wisely, you're failing.

Yes. It seems like you've done that pretty consistently, too. Let's talk about M&A since you brought it up. How do you see the markets right now? It's good to see Excelitas come in that seems like right down the middle for you guys. Maybe describe that deal a little bit and what it brings to the organization and then maybe frame out what you're seeing more broadly in terms of...

Sure. I can answer the environment question. But maybe why don't you just spend a minute on Excelitas.

Sure. Yes. So this was a set of aerospace, defense electronics businesses out of Excelitas. We're super excited to have it really for a couple of reasons. So it's about 1/3 in the U.S., about 2/3 in the U.K. The U.S. portion is kind of initiation products, fire sets, things like that, that go into various types of munitions and missiles. We have a companion business like that in the U.K. that kind of serves the U.K. and Europe. This kind of rounds that out in the U.S. The U.K. portion of the business is more optical products. So it's optics, it's handheld imaging systems, it's weapon sights, things like that. They also do some systemic contract with the U.K. MoD. So very close relationship with the U.K. MoD and strong sales into places like Germany and the Netherlands. So the way to think about it is FLIR defense, strong sales into the U.S., Middle East, other parts of the world and some in Europe. This kind of bolts on both kind of companion technologies, complementary technologies, strong relationships in Europe and the U.K. and a lot of technical prowess in things like optics and system development.

In terms of the overall M&A market, I mean, we've kind of pivoted 180 in the last year. I mean, in a year or so ago, I think M&A markets were a little bit irrational. People are paying very high prices in industrial and my personal view was to sort of feed flattish top line and maybe even a shrinking top line. And we were sort of first to revise earnings, and we're proud of it. We did it in April of last year. And so yes, the stock tanked and we went 180 all in on repurchased, essentially no acquisitions for April through October. But then I think some of the comments we made in April started rhyming a little bit with others in May and July, and our stock was recovering a bit. At the same time, I think M&A markets got a little bit more rational. Again, it only takes one person to pay a very high price to sort of break a process. But I think some people were criticized for overpaying in industrial land. And I had been hoping talking about private equity transactions vintage 2017 through 2020 that ultimately there was going to be a divest and delever type transactions. I was hoping those come sooner, but they're finally coming now. Excelitas would be one of those, a divest and delever opportunity for us. So generally speaking, I think as a landscape, the setup is pretty good. The supply of acquisitions is a little bit greater. There's always those entrepreneurs. And again, treasuries are still high. So that once-in-a-lifetime decision to sell if you're an entrepreneur, diversifying at 4%, treasuries than 0% 3, 4 years ago. So the private market, smaller companies is good. Some corporates are doing the shake the tree a little bit to sort of rearrange segments, spin this out, things like that. So private equity, divest in the levers is finally coming. So a little bit better supply, maybe a little bit less competition or a little bit more rational competition. It's a good setup. But again, can we close deals or does someone else do something that we wouldn't, I don't know. But I'd say the setup is pretty good right now and has been good since we announced those 2 deals in November. So in the last 6 months, we turned off the repurchases. There's always something we can do. We've got $1.2 billion authorization. But right now, I'd say it's most likely like we just did, I mean we spent $770 million in the last 6 weeks. So I'd say it set up right now is mostly acquisitions, if not all acquisitions. We'll pivot if we have to like we did last year.

Right. We mentioned a bit at the beginning, like how your portfolio aligns pretty well with like some of the priorities of -- you mentioned DOGE, but just generally the priorities that government announced. So maybe can we dig in a little bit on what you're seeing in like unmanned, space, submarine, surveillance, like some of these like really targeted parts of your portfolio. What -- have you seen like real changes in those businesses from a growth standpoint? Or maybe we can frame out what that could look like as they become more incrementally focused items?

Yes. I mean I'll let George talk specifics, but as an example, it's sort of -- it's not funny, but it's the reality. I mean, 2 years ago, no one talked about it, and it was maybe once a quarter. Now it's literally like almost every week or month, someone did something somewhere to something under sea, subsea, telecom cables, Estonia, Finland, Sweden, Taiwan, what's going on in the Black Sea, of course, Nord Stream. I mean those are the kind of things in addition to energy that are driving the marine, the surveillance or so on, our business, but unmanned space.

Yes. So I would say, let's start with marine. Unmanned vehicles, we make unmanned vehicles that go down to 6,000 meters below the surface of the ocean with a variety of sensors, including acoustic imaging sensors. So for things like Jason talked about pipeline monitoring and things like that. And also, I think I mentioned previously, kind of anti-submarine warfare type applications where you kind of want to understand where people are in the Baltic Sea, Black Sea, et cetera. From the unmanned aerial standpoint, we have the Black Hornet drone, the nano drone, seeing a lot of demand for that. Of course, we have a loitering munition now, which we're pretty excited about. A lot of counter-unmanned systems as well. And probably the interesting thing for us is -- and probably what's noteworthy is we're not just selling the drones that we make or the unmanned vehicles that we make with sensors, we're selling the sensors to others as well. So as there are parts of that kind of drone universe that perhaps we don't play in or even the subsea, universe we don't play in, we still have opportunities to sell sensors there. From a space standpoint, we mentioned Space Development Agency previously. We've done very well in the Space Development Agency tranche programs and continue to see growth there. And I would say, in general, we have the E2V business, which we bought in 2017, which is kind of a U.K.-based visible imaging business. We have the infrared imaging space business in the U.S. We kind of brought those 2 things more closely together. So I'd say, in general, the trends of unmanned subsea, unmanned aerial, counter-aerial, space surveillance, all good for us.

What are the prospects of like ending some of these [ austerities ]? What can that mean for you if that was to play out?

We weren't a big beneficiary, first of all. I mean so to sort of size it, I mean, we did have opportunities from Ukraine, Canadian donations, Norwegian, U.K. donations. But we sort of size it on an annual basis, say, 2013, tens of millions of dollars, not hundreds of millions. So yes, tens of millions of dollars, that was good. Israel, not really a lot. They have an indigenous defense base. So yes, we sell sensors here and there for their Iron Dome. We actually sell visible sensors. But again, most of their defense base is indigenous [ IAF ] things like that. And counter-unmanned, it is good, and that's not just all about Ukraine, it's other countries in Europe. Now again, so I think, yes, maybe we lose that tens of millions of dollars of benefit that we had last year on the top line if peace breaks out. On the other hand, I mean, I don't know if NATO is going to go from 2% to 5%, but even 3% would be good. Finland has got a very long border with Russia. Poland, I mean, those companies are buying from us. And I don't think that's going to change. If anything, I think that might more offset it. But yes, I think there's more sort of maybe net upside with what's going on in the world. But yes, there could be $30 million, $40 million of headwind absent anything else, but I'd like to think that gets back to it.

Yes. What could something like Iron Dome mean for you guys? Where would you play? What are you doing now that's similar? And how can that kind of expand if we were to build that out?

Well, George mentioned, I mean, right now, even before the latest rhetoric, the existing programs for monitoring, hypersonic missiles and whatnot are SDA, Space Development Agency, tracking layer. There's the tracking layer, there's a transport layer, which is more of the communication side of things, which we play a little bit with some microwave components, but it's mostly this tracking layer where I don't know if we've disclosed it, but we're either sole source or virtually sole source in those programs. There's another one called OPIR, that's public overhead persistent infrared. We were sharing that with Raytheon, and I think they stopped their portion of the program, maybe not, but selling Lockheed we're selling to Northrop for the Polish satellites. But those are the existing programs that we already had very, very good contact. Are there new and even more programs other than those? There's certainly a tranche 3 to the SDA. But the idea of space-based monitoring as a thesis is good for us. Now do we do interceptors kinetic things around? No, we don't do a whole lot of that. That's more defense prime land. But again, the more space-based surveillance, good for us for sure.

How big is space for you now?

Yes, it's on the order of $400 billion when you take into account the imaging plus various electronics.

And how should we think about the competitive landscape? Who are you generally coming up against? I know it's interesting where sometimes you're the only one who makes something and sometimes you could be on 2 people -- you could be on both sides of the same fight, right? Like so how would you describe the comp landscape there?

Yes. So in general, the infrared space, we're competing with Raytheon Vision Systems primarily. And as Jason mentioned, we've tend to do pretty well there over the last few years.

Yes. I mean maybe I'll just interject. I mean, generally speaking, across Teledyne, we -- one of the cliches is we don't like to be in markets that are subject to commoditization. So tend to be a specialty supplier of components and subsystems. Again, we do complete unmanned aerial vehicles, unmanned subsea. But generally, yes, the oligopolies of competition. There's not 20 people. I mean, George mentioned in domestic infrared, in space, Teledyne Raytheon, that's pretty much it. Globally, it's Teledyne, Raytheon, LYNRED, formerly known as Sofradir. So there's one more in Europe. But that kind of theme is across the portfolio. There's a handful of companies. Again, there's some exceptions, environmental instruments, trace chemical analyzers, maybe a little bit more fragmented. But in most of the key markets, marine, defense, it's a limited [ subset ]. To your point, yes, I mean, L3Harris is a big customer for a lot of different programs. On the other hand, L3Harris WestCAM competes with FLIR for gimbal systems. So yes, I mean, sometimes it's a competition or whatever you want to call it.

Is there any sort of -- like you pitched to one player more than another or pretty balanced?

No, it's pretty balanced. I mean to sort of size the U.S. government business that we disclosed in our filings is about $1.4 billion of annual revenue in the last couple of years. There may be an outlier here or there, but a big program for Teledyne is sort of $50 million. So you can sort of do the tail. There's no $150 million program. There's probably no $200 million opportunity, but there's no $200 million either cancellation or rebid risk either. It's sort of $50 million at a time, tailing all for $1.4 billion.

0 Maybe we touch on the commercial side of the business a little bit on aero. Like what are you seeing there? And what's going on with Boeing? And how has that played out the last couple of years?

Yes. So -- and just to kind of size our commercial aviation business, it's really about $200 million, about 2/3 of that is aftermarket between repairs and retrofits on aircraft. About 1/3 is OE. What I would say in general is we're kind of delivering at a steady state to Boeing. I think they're certainly kind of consuming some inventory over time. But for us, it's been -- we've had some blips with the strike and other things, but kind of steady state at this point.

So FLIR, I feel like when you did that, there was a lot of -- I think it wasn't totally well understood by people. And now that you're in -- it's integrated, you mentioned margins up 400 basis points. Like where -- maybe you could just categorize like when you -- what were the conditions in place when you made the move? Where is that business now? And like -- what did you learn from that whole process of doing a deal of that size?

Yes. So I mean, to your point, I think there was some confusion around FLIR. That was the opportunity for us. I mean, frankly, the first meeting with -- it was really just exploratory, but the first meeting with FLIR, their Chairman was 2011. So we've been studying the company for 10 years. I think what made some people uneasy was, I mean, FLIR was kind of increasingly opaque with their reporting. They had -- in addition to having 3 CEOs, 5 CFOs and 3 general counsels in the 10 years preceding the deal, they went from 6 reporting segments to 5 to 4 to 3 to 2. So we knew what was in there because we've been following it, every single quarter for a decade. But some people were nervous. And also their strategy changed. So for a while, they were all about -- even our first meeting this morning, someone was talking about it, they were all about commercial infrared. We're going to democratize infrared, we're going to do home security cameras. We're going to do infrared on iPhones, we're going to make it up on volume. Then some of that didn't work out, and they sold those businesses in 2018. And to my previous point that we don't want to be in businesses subject to commoditization. That was based -- that strategy was a poison pill for us until they sold them in February 2018. Then we really, really started following the company because they returned to what we are. But their narrative was all about defense. They were a defense company, been [ opening ] corporate office, defense programs, defense prime, et cetera. But you can pull their 2020 10-K, they were 70% commercial, 30% U.S. government. They always were a high reliability commercial and industrial business. They just definitely confused the market, and that was the opportunity for us. The reason why we did it, when we did it, there were sort of 2 charts we could look at, we showed to the Board. There was the 10-year yield that looked like this. And as part of the deal, we were net cash and we recapitalized Teledyne with $4 billion of fixed rate sub-2% debt. And then the exchange ratio on the stock is they confused and disappointed the market. They were literally both completely to the best point it could possibly be when they did the deal. So that really explains the timing. But I really feel like we didn't -- it's not that we didn't learn anything, but we kind of knew what was in there. We knew what the playbook was. So what did we do in the first couple of years? There was some doggy stuff that we had to do. It was revenue degrading, but margin enhancing. They had a doggy unmanned ground program that maybe looked good when they did it, but it was a 5-year fixed price pre-COVID pre-inflation did in 2018, ending in 2023. Absolute dog. But when that left, maybe 100 of the reason margins are up 400 or 500 basis points because that was gone. Part of the Raymarine business was -- it was only 7% of $200 million, but that's still $15 million, but that was freshwater fishing. They define that end market. That's land of Bass Pro Shops, land of garment, losing money on every unit. That's gone. They actually did a commodity acquisition of a UAV business, but a very, very low-cost kind of DGI competitor. That doesn't exist anymore. That's gone. So it's getting rid of the stuff that didn't really fit what we like, that high reliability commercial and industrial...

Was there more stuff than you thought that you got to eliminate?

Unmanned ground business ultimately being as unprofitable as it was, not the case today. But that one program is probably a little bit more severe because they just started shipping against it. Even though they won the contract and priced it in 2018, they really didn't start shipping to sort of that last year, 2020, 2021. So that was probably a little bit doggier than we thought. But the other businesses -- I mean one of the reasons we really liked FLIR, and it's really kind of a benchmark when we look at other acquisitions is literally $1.5 billion of their $1.8 billion, $1.85 billion last year was large big box owned sites, 100,000 to 300,000 square feet, discrete, you can imagine, it wasn't a 30,000 square foot box and $50 million of revenue decline at $1.9 billion. That's a much harder thing to do. And you saw it in the gross margin. That's why their gross margins were 50% and ours were 40%. Because they were nice, well-managed companies with relatively small footprint, high value. Again, that's $1.5 billion to the $1.85 billion. There was some doggy stuff on the margin, some of which no longer exists. Some of which is okay, we just got the margins up. But the core underlying business is -- it's been a great acquisition. It's a fantastic add. If I had to say postmortem on it, yes, revenue is a little bit lighter than we would have hoped in part because some of the stuff we got rid of was bigger than I thought. But profit's on plan, which means margin is actually higher, which is really where we are.

You mentioned the financing -- the financing on that deal was excellent. You used stock too, right? Like would you do that again if the price of the stock was appropriate?

Very, very unlikely. I mean, never say never theoretically, but I mean, we've done 72 acquisitions, issued stock in one. And we've never done a primary equity raise. We've never done a convert or an equity linked. I think that's a bad idea personally. But again, never say never. But again, no primary equity, no converts equity linked and one deal of 72 stock is consideration. So never say never, but very unlikely.

Yes. And now maybe like last question for me, and then I'll turn it over to the audience. You've been more flexible with what you're using with cash, right? You did a buyback. Now you're back on M&A? Like how -- what's your kind of capital -- free cash flow usage framework now? And we mentioned on the call about a potential dividend. Like how does -- how do we think about all the potential uses now that the base is just much larger than it was?

Yes. So never say never with a dividend, but that's been -- I mean, Robert laughed for a reason. It wasn't sort of a hell no or something like that on the call. But that's unlikely. I'd say the most likely thing right now is free cash flows for M&A. Now again, last year, most of the free cash flow other than just generic debt amortization was buybacks. So I mean, we can be pretty flexible. We can be wise. We hadn't done a buyback since 2015, but we did one last year when the markets were irrational. We always sort of view -- I mean, I think if you sort of step back, if it's -- the deadly you know is cheaper than the M&A market. I mean back last year, we were trading at 13x EBITDA and people were paying 20x, for acquisition, pretty easy. I'll do this, not that. But then it kind of changed. Excelitas was sort of 13, 13.5x. And then our stock recovered. So okay, let's do that. So generally speaking, I'd say, as of right now, given the M&A market that we already talked about, it's most likely to be M&A. certainly this year because, I mean, the guidance on the call was $1 billion of free cash flow. We can certainly borrow more debt to EBITDA at year-end was 1.5, but we spent $770 million in the last 6 weeks. So yes, the natural math is that most of the free cash flow is consumed in deals this year.

Yes. Fair enough. All right. Anyone in the audience have any questions here in the last couple of minutes? All right. That's all I had. So guys, thank you very much. Good to see you.

Okay.

Thanks, Joe.

Thanks, Joe.

Thanks, everyone.