Teledyne Technologies Inc (TDY) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Teledyne Third Quarter Earnings Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. If you should require assistance during the call, press star then zero. As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr. Jason VanWees, please go ahead.

Thank you and 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 2013 Earnings Release Conference Call. We released our earnings earlier this morning before the market opened.

Joining us today are Teledyne's Chairman, President and CEO, Robert Mehrabian; Senior Vice President and CFO, Sue Main; and Senior Vice President, General Counsel, and Secretary, Melanie Cibik.

After remarks by Robert and Sue, we will answer your questions. However, before we get started, 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 our 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 both via webcast and dial-in will be available for approximately one month. Here is Robert.

Thank you, Jason, and good morning, everyone. Third quarter sales of $571.6 million increased 4.4% compared to last year. GAAP earnings per share were $1.23, and were an all-time record for any quarter.

Our commercial industrial businesses performed very well. As an example, our instrumentation segment generated organic revenue growth of 12.7%. Throughout 2013 and especially in Q3, we undertook more aggressive actions to optimize our business portfolio and lower our expenses further reducing our exposure to weak end markets and high-cost locations.

In the third quarter, specifically, we have pretax charges of $14.3 million related to severance and facility consolidations. Fortunately, such charges were offset by discrete tax benefits of $11.6 million.

Charges will continue in the fourth quarter, and for the full year we expect total pretax charges to be $22.4 million.

Throughout October 2013, we have announced headcount reductions equaling 3.9% of our total workforce. This is in addition to a reduction of over 4% in 2012, or a total of over 750 of our people.

Furthermore, within the next several months, we expect to complete facility consolidation encompassing 15 sites with a total reduction of over 375,000 square feet, which is 7% of our total footprint.

As one might expect, our reductions in force and facility consolidation efforts have largely focused on defense-related businesses and/or operations in high-cost locations in the United States such as in California and in Canada and in Europe.

Simultaneously, we continue to invest both internally and through acquisitions in our growing commercial markets. For example, in the past several weeks, we acquired two companies within our environmental and marine instrumentation businesses adding new technologies and products to customers we already serve in some of our strongest markets.

In the third quarter, sales to international and domestic commercial customers comprised approximately 75% of our total sales. Furthermore, given their greater profitability, these businesses contributed over 85% of our profit.

I will now comment on our business segments after which Sue Main will review some of the financials in more detail and provide an earning outlook for the fourth quarter and full year 2013.

Turning to our Instrumentation segment -- in this segment, which is our largest and most profitable, we provide our customers with one of the most comprehensive portfolios of marine technological products ranging from connectors and communication devices to sensors, imaging systems, and complete underwater vehicles. We also manufactured a broad range of environmental and electronic test and measurement instruments.

International sales represented over 55% of the segment sales in the quarter. Third quarter sales increased 24.4% to $256.6 million with organic growth of 12.7% mentioned previously.

For the full year 2013, we expect instrumentation revenues to exceed $1 billion.

Sales of marine instrumentation increased 32.3% with organic growth of 19.7% due largely to strong sales of geophysical sensors for offshore oil exploration and continued growth in sales of interconnect systems used in offshore energy production as well as the acquisition of RESON, the world's leading supplier of commercial shallow water multi-beam sonars. In addition, sales of complete autonomous underwater vehicles more than doubled.

I am also pleased to announce that we recently opened a new Teledyne oil and gas technology center in Daytona, Florida, adding needed space where our workforce has doubled in the last seven years.

In the environmental domain, sales from both process and air monitoring equipment and laboratory and steel instrumentation increased modestly year-over-year.

Electronic test and measurement system comprise of Teledyne LeCroy, which was acquired last year, contributed at $45.9 million of sales compared to last year's partial period sales of $34.2 million. While revenue prior to that acquisition was not recorded, full period sales increased compared to 2012.

Operating profit, which included $1 million of severance and relocation charges in this segment increased 25.5%.

Turning to the Digital Imaging segment, this segment provides a broad portfolio of principal, including LIDAR, which is laser-based, infrared, x-ray, and ultraviolet sensors, cameras, and software. Third quarter sales in digital imaging decreased 2.7% compared to last year. Sales of sensors and cameras for machine vision and medical application increased nicely compared to last year as did sales of infrared sensors and cameras for commercial and scientific applications. However, these were more than offset by lower sales to the U.S. government and reduced sales of LIDAR systems.

Given strong orders in most of our commercial imaging product lines and an easier comparison, we expect to report reasonable year-over-year growth in this segment in the fourth quarter.

Segment operating margin continued to improve and was at a record level despite absorbing $1.9 million in several severance-related expenses in the quarter and the continued burden of approximately 275 basis points of intangible asset amortization.

Earnings to the Aerospace and Defense Electronics segment, third quarter sales decreased 5.7% to $143.1 million. Growth in sales of higher margin commercial avionics and electronic relays were more than offset by significantly reduced sales of microwave devices interconnect due, in part, to lower sales to the U.S. government. I should note that the majority of 2013 sales of defense microelectronic-related parts and spares has been very weak compared to prior years.

However, following the quarter-end, we did finally receive our first quarter for some of these products used in airborne electronic warfare applications. In addition, as we mentioned in our second quarter's earnings call, I would like to remind everyone that the sequential decline in revenue in this segment largely related to an overseas program that concluded in second quarter of 2013.

Operating profit and margins suffered as this segment experienced the greatest level of charges for severance and facility consolidations. In the third quarter charges totaled $8.7 million including an environmental reserve of $5.3 million.

Turning to the Engineered Systems segment, third quarter revenues decreased 18% as a result of lower government sales and a difficult comparison. Segment operating profit and margin also suffered in this segment due to higher pension expense and the absorption of $2.7 million in reduction in force and facility closure costs.

We are not optimistic about the outlook for Teledyne's government businesses, in general. We continue to work on the development of an exciting commercial space-based digital imaging capability to be deployed on the international space station. We announced a memorandum of agreement with the German space agency, or DLR, for the first space-based imaging instrument that would be installed aboard the pointing platform known as Muses, which we are currently building.

In conclusion, given our balanced business mix and ever-increasing commercial focus, I continue to be encouraged with our collection of high technology industrial businesses. In addition, to ongoing transformation of our business portfolio, we have now made substantial reductions to our cost structure to position the Company for continued success.

Finally, we are pleased to increase our earning outlook, and we continue to expect 2013 to be our 12th consecutive year of GAAP -- and I emphasize GAAP -- earnings growth.

I will now turn the call over to Sue Main. Sue?

Thank you, Robert, and good morning. 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 2013 outlook.

Regarding third quarter earnings per share, I wanted to note that earnings included $14.3 million of pretax severance and facility consolidation expenses offset by $11.6 million of discrete tax benefits.

Turning to cash flow, in the third quarter cash flow from operating activities was $49.5 million compared with $18.3 million for the same period of 2012. The higher cash from operating activities primarily reflected the absence of any pension contributions in the third quarter of 2013. Free cash flow; that is, cash from operating activities less capital expenditures, was $31.8 million in the third quarter of 2013 compared to $3 million last year, or $30.8 million in 2012 excluding voluntary pension contributions.

Capital expenditures were $17.7 million in the third quarter compared to $15.3 million for the same period of 2012. Depreciation and amortization expense was $23.1 million in the quarter compared with $21.5 million last year.

We ended the quarter with $554.4 million of net debt; that is, $643.1 million of debt and capital leases less cash of $88.7 million for a net debt to capital ratio of 29%.

Turning to pension and stock compensation expense, in the third quarter of 2013, gross pension expense was $4.3 million compared with gross pension expense of $1.7 million in the same period of 2012. Stock compensation expense was $3 million in the third quarter of 2013 compared to $2.3 million in the third quarter of 2012.

Finally, turning to our outlook, management currently believes that GAAP earnings per share from continuing operations in the fourth quarter of 2013 will be in the range of $1.21 to $1.24 per share. We expect full year 2013 earnings per share of approximately $4.64 to $4.67, an increase from our prior outlook of $4.50 to $4.55.

The 2013 full year effective tax rate is expected to be 28.3% excluding discrete items such as nonrecurring tax benefits or adjustments.

Finally, we expect additional severance and facility consolidation costs in the fourth quarter of 2013 of $3.7 million and $22.4 million of severance and facility consolidation costs for the full year of 2013.

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 questions and answers, please go ahead.

Thank you. (Operator Instructions) Tyler Hojo, Sidoti & Company.

Yes, hi, good morning, thanks for taking the question. Just, firstly, I was hoping that maybe you could discuss what some of the cost savings will be from some of the restructurings that you've talked about and will take place in Q4 here?

Thank you. We, first and foremost -- most of the emphasis in cost savings has been Defense Electronics and electronic manufacturing businesses. We have relocated facilities from California to Tennessee and combined our facilities at a reduction of almost 110,000 square feet of space in California and a facility that at one time employed about 350 people.

We have also changed our structure in our microwave businesses that depend on government funding. Those are in Northern California. We have done consolidation of several facilities. We expect that these businesses combined will help us achieve much better margins going forward in our government-related businesses.

Finally, I should note that as part of one of our acquisitions, we inherited a precision machining operation in the United Kingdom, which served the Aerospace industry. We were not planning to hold that business for long, and we finally decided to shut it down in the quarter.

We still do have a very good composites business in the United Kingdom, which we intend to keep that serves the Aerospace industry. So overall most of our emphasis has been to reduce our breaking and point in our government-related businesses and improve the margins in those businesses as we go forward.

Okay, thanks for that, but maybe I could just follow on to that. Where the bulk of the focus was the Aerospace and Defense Electronics segment. Where do you think margins can go in that segment? I think on an adjusted basis they were just shy of 13% in the quarter.

Yes, I think on an adjusted business you are right. That may be a little less than 13%, but I would say between 12% and 13% without adjustments.

Okay, great. And then just maybe one last question just in regards to guidance. Do you have an update in regards to kind of organic growth outlook for sales for the year?

I think the sales -- I mentioned this at the last earnings release also -- I think for the full year our organic is going to be between 1% and 2%, probably a little closer to 2%. As you know, it was okay in Q1 and Q2, we took a little bit of a pullback, essentially flat minus 1% organic in Q3. We expect to recover in Q4 back to 1% to 2% and finish the year at 1% to 2%. Considering how difficult an environment, the government businesses are, not just for us but for everyone else, we are happy with this because we're really depending on our commercial businesses that we've developed in the past several years to contribute most of the earnings for the Company.

Jim Ricchiuti, Needham & Company.

Thank you, good morning. Maybe as a follow-up to that previous question, can you give us a sense as to what your organic growth rate is in the commercial business this year?

Overall, as I mentioned in the Q3 period it was about 6% overall. Our international was up pretty nicely, better than that. But I would say about 6%.

And so for the year, as a whole, Robert, should we think of organic growth in the commercial business in that mid single-digit area?

Yes, maybe a little higher than 6%, but that's a good estimate.

Okay. I also wanted to just follow up on a comment that you made about the Digital Imaging business. You alluded to some reasonable growth perhaps coming back in Q4. Where do you see that coming from?

First, we think Digital Imaging will grow maybe 3% to 5% in Q4 versus prior year and Q3. Most of that should come in our DALSA visible camera businesses. We have -- we are doing reasonably well in flat panel display inspections. As you may know, we make somewhere between 60,000 and 70,000 cameras in DALSA annually, and that business has picked up, especially in Asia Pacific.

We are not as optimistic about our LIDAR businesses. They have not done as well in the previous quarters, but we think DALSA will do probably another $6 million to $8 million better in Q4. And most of that is in Asia Pacific and most of that, so far, has been in the flat panel display inspections.

We also are positive about our work in the x-ray domain, even though some of those revenue increases probably will come later next year.

And one final question -- LeCroy typically, as I recall, the December quarter was seasonally a good quarter. Are you seeing that trend continuing or are you seeing just some improvement in the underlying market for oscilloscopes?

Let me back down on the underlying oscilloscope market. Year-to-date I think LeCroy is down about 2% versus what, at least, our market intelligence says. The market, as a whole, may be down as much as 10%. The market is, we believe, stabilized now, especially LeCroy has done well in Asia Pacific and somewhat okay in Americas. EMEA is where most of the slowdown has been that's been significant. We think in Q4 we're forecasting maybe 2% to 3% improvement in revenues.

Mark Jordan, Noble.

Good morning. A question on the follow-up here on the Defense and Electronic and Aerospace. If you look historically, the operating margins in that sector have been in the 22% to 24% range. Obviously, currently with restructuring that's going on and the resizing of the business, you're well below that. My question is, once you get into 2014, your consolidation moves have been completed, you've restructured that business. Can the Aerospace and Defense and Electronics business, longer term, be a 20%-plus op margin contributor?

Mark, I guess I'm a little confused. In the Aerospace and Defense Electronics, as you know, we have an aerospace business, which is our controls business, which does serve the aviation market, which is doing really well. I think there the margins are closer to what you indicated.

But when you add the Defense businesses to that, historically, the operating margins in that business have been around 12%, and in really good years it might go up to 13%. We think, with the costs that we have taken out, especially in Q3 and some in Q1 and more that we'll take in Q4, those margins should stabilize back down to the historical 12% overall.

Thank you. The volume in that sector dropped down -- you've been running in the $160 million-plus level on a quarterly basis. Coming in this quarter at $143 million, is this business with the restructuring and moves just fundamentally in the $140 million, $150 million range on a normal basis?

Yes, I think, going forward, we probably expect it to be in the $150 million range, Mark.

Okay. On the pension front, you obviously took a very conservative stance lowering your discount rate to 4.4% versus 5.5% last year. Given a very strong equity market here, do you see that rate having the potential to move upwards slightly if all things being equal, if you were looking at today being the end of the calendar year?

Yes, I totally agree with you on that. I think the rate will go up a little bit. Obviously, we won't know until December, but right now it looks like it's going to go up.

Michael Ciarmoli, KeyBanc.

Hey, good morning, guys, thanks for taking my questions. Maybe if we can, just a little bit more on the instrumentation segment. The weakness in LeCroy, you mentioned the EMEA region but, clearly, that asset has been underperforming, I guess, since the acquisition. And it also looks like one of the other acquisitions -- RESON -- has underperformed a bit. Is there anything else happening there just besides broad macro weakness? Can you give us some context into the pricing environment, maybe the competitive environment?

Yes, I think in LeCroy I'm not sure if I would agree that it's underperforming. If you took their Q3 of last year and compared it to Q3 of this year, their revenues have actually gone up versus last year's Q3. They have gained share in the market. They introduced high definition oscilloscopes, which have become kind of the new standard for the market. They have introduced a 65 gigahertz oscilloscope, which has been very successful in the market and have actually demonstrated 100 gigahertz oscilloscope at the end of the last quarter, and they are working on the indium phosphide chips in collaboration with Teledyne Scientific.

So, overall, I would say it is not underperforming. We are very pleased with its operations. They are improving margins continuously, and we expect them to be one of the highlights of our portfolio as we move forward.

Coming back to RESON, which is the multi-beam imaging system that we bought, that, you're right -- the market there has been a little slower primarily because they are more dependent, have been historically on the European market, but, again, we are doing a number of things that would be beneficial in the long term for our underwater imaging businesses. We are taking the RESON software and using it in two of our other underwater imaging systems -- the BlueView, which we acquired last year, and Odom, and we are now combining all of those under our marine imaging systems business, which would have probably the most broadest range of imaging products -- underwater imaging products with a strong future potential.

So -- I think RESON, because of the European effect, has had some slowdown, but we're very bullish about the future of our whole underwater imaging businesses.

Okay, that's fair. And then just the last one -- I think someone was alluding to it earlier. But if I look at your -- kind of the adjusted segment margins collectively in that 13.6 range, how should we be thinking about some margin expansion leverage across the portfolio as we look into 2014? I think you guys in the past have characterized it as maybe 25 basis points or 50. I mean, can we see an acceleration of some of the leverage in this model given some of the cost-cutting and cutting of overhead and optimizing the facilities?

Yes, I think in the long term we anticipate margin expansion across all of our businesses combined. In the short term, I think we will probably hold segment operating margin around 12%. In some of our other businesses, some of our businesses, like instrumentation, it can go over 17% once we get through this. But, on the other hand, we think overall 12% now maybe a little better than that next quarter and then, going forward, next year we should be able to improve our margins consistently.

Robert Kirkpatrick, Cardinal Capital.

Thank you. First of all, Robert, thank you for re-signing up for another few years. I noticed you filed your contract this morning.

Thanks, Rob, I don't know what to say to that.

Well, you could give us a little bit more color then on the Boeing contract that you announced the other day on the Avionic side?

Yes, Rob, on the Boeing contract, historically what we've done is we have supplied data acquisition systems, and wireless groundlink products to our customers as a customer purchased products. Now what's happening -- in the Boeing part.

For Airbus, we historically supplied it through Airbus. So what this new contract does for us is it kind of strengthens our position with our major customer, Boeing, especially in 737 and 747. In those markets we may enjoy 70% market share today in the products we provide. That will go up to 100%. And in the out years, next year, we'll probably (inaudible) some more R&D for introducing the new products, but in the out years, that might help add another[ $15] million of revenue to our controls business, which is about $120 million business and very profitable.

More importantly, it cements our position with both of our major customers now -- both Boeing and Airbus -- and it complements what we already do in our wireless groundlink, where we have over 5,000 installed units in various commercial aircraft. So we are very excited about this opportunity to be a sole source over the long term.

Great. And then back on the restructuring to follow on to the questions that were asked earlier -- what made you take -- it seems as though you took incremental steps that maybe hadn't been anticipated six months ago or something like that -- what was it that made you decide to take those incremental restructuring steps?

Rob, what really happened is that restructuring, as you know, is destructive to a business enterprise because you have a set of the employees, you want to do your consolidations rapidly. We took a hard look at our businesses after the first half of the year. We said, look, we've got to do what we have to do in Q3 and a little bit in Q4 to do all of this and put it behind us so we go into 2014 with a much lower cost structure.

So in Q3 we actually just accelerated it. The big environmental charge that we took -- that really was not planned. It just happened. That was -- the facility was vacated, and the soil was examined. Our consultants estimated the cost of excavation and cleanup, and once that happened when we obviously are obligated to take the charge.

But we also accelerated our job reduction in force. We took about $5.3 million in charges in reduction in force in Q3. We'll probably take $2.4 million more. So for the year 2013 we should approach about $9.4 million, $9.5 million. And I'd like to put that, Rob, behind us for that as we move into 2014 we kind of have our business disruptions behind us, and we can focus on growing our businesses.

(Operator Instructions) Chris Quilty, Raymond James.

Thanks. Robert, I wanted to follow up with one item from earlier in your speech. You indicated that the international business, which I think has been an area of focused growth, was, I think, 65% -- sorry -- I got those numbers wrong -- the percentage growth did not match with the percentage of the profit contribution, which implied that you're seeing lower margins in your international sales. And is that due, simply, to the mix of products or are there other issues that you need to address with some of the international sales?

Let me go back. First, what I said before, and I think you were right on -- between our international sales and our domestic commercial sales, we were up significantly. And in our international sales, we were up about 14% year-over-year.

International sales in 2000 and -- if you went back a few years, they were in the 20% range. Last year they went up to 39% and in Q3 they're about 45% of our total. Actually, there are higher margin sales because most of it is focused on our marine and environmental and aviation, which is the controls that I just mentioned.

So, overall, international sales, I would say, are higher margin. We were a little worried a while back, for example, in our environmental products sales in China because of the domestic content requirement. Interestingly enough, in the air quality monitoring and water quality monitoring, they have kind of reversed their direction and are seeking much higher precision instruments, which serves us very well.

So I think, overall, we are bullish about our international businesses.

Got you. I think you also mentioned that with regard to the long term operating margin trend, you are seeking to improve margins consistently. I assume that's sort of the standard 100 to 200 basis point per year improvement that you've been delivering historically.

I think more, Chris, you know me. If I went there, I'd be kind of getting outside of my comfort zone. I would say 50 to 100 basis points a year is what I'm looking for. We are starting our operations reviews in about 15, 20 minutes with all of our businesses here. So I am going to urge them to go as high as you said. But between 50 and 100 would be where I would say we are.

Okay, and I know, generally speaking, the operations and maintenance budget isn't as big of an issue for you with regard to the overall Defense spending. Nonetheless, do you expect, with sequestration and the government shutdown, you might see some kind of an impact on fourth quarter? And perhaps could you quantify overall what sort of an impact sequestration and shutdown might have had on your 2013 results in Aerospace Defense?

Yes, I would say, overall, Chris, if you look at our government businesses, we, throughout the year, for 2013 I'm going to say it's going to be down about 11%. It was more down in third quarter. It was down more like 14%, but did moderate out to about 11% for the year.

I think in the fourth quarter our revenues are going to improve over the third quarter, in general, for a variety of reasons. But then I also have to tell you, in the long term, I am not comfortable with our government procurement policies, and that's why starting several years ago we kind of switched tactics and started very aggressively moving into industrial growth markets because, you well know, the current administration is emphasizing areas in government spending that we are not participating in.

I understand. Also, with the Boeing announcement. If I recall, historically, that was always buyer-furnished equipment not an OEM sale. When did that transition happen where you're selling directly to Boeing now?

Historically, you are exactly right. We were selling to Airbus directly but not Boeing. This is a brand-new development for us. What is more important to us is that it moves us from where we owned most of the market in that domain to 100% of the market of those aircraft, which is very attractive for us. So this is very new with Boeing. Historically, we have done a little Boeing furnished but primarily through the customers.

And we still have our wireless groundlink, which you are very familiar with, Chris. That's still a furnished buyer -- to the buyers, at least right now. And as I said, we have about 5,000 of those installed.

Okay. And given there's been some pretty steady long-term growth in the aviation and avionics markets, is that an area where you might look to make some more investments and specifically when you look at the next gen $40 billion investment by the FAA and the industry -- is that going to drive growth for your business?

It's a heavily consolidated market, as you well know, but I think where we are making an investment is in your favorite area -- not exactly satellite imaging because that's so expensive, but we are going to make investments in the international space-based imaging, which we talked about before. You may not consider that avionics, and it's probably not, but it is looking down from above, and we think that's probably where we'll make most of our investments because the other areas are fairly consolidated.

Okay, and final question on that last point -- interesting program there with the space-based sensor, but is that a one-off, or are there follow-on opportunities that you see in that same domain?

First, the platform that we're putting on what we're building right now, which we'll deliver in 2014 and fly in 2015. It's home for four instruments. And we have announced one of them, which is with the German Aerospace, which is DLR. A second one, which is a larger instrument, it's an instrument, which a hyperspectral instrument, that we will be developing in collaboration, hopefully, with NASA. And we have room for two other instruments. There are potential customers being lined up for that.

But more importantly, I think there is opportunity, Chris, for us to put other pointing platforms on the space station as we go forward. So it's not one-off, and, frankly, it's a much more attractive proposition than trying to fund a satellite, put it up, and then get the data down and fund all of that cycle. It's a much more financially attractive proposition, especially with our capabilities. We already have so many instruments both in the infrared and the visible domain in space, so we feel comfortable that this is going to be a good, growing business for us.

Michael Ciarmoli, KeyBanc.

Just a follow-up on tax. If you mentioned for the full year you'd have a 28.3% rate before discrete items. Should we expect any tax items in the fourth quarter though? And can you give us a sense what the tax rate for 2014 might look like?

I think the 28.3% for a base tax rate is a good number. I don't know what 2014 would look like, but be somewhere between that and maybe 30%, 31%. As our job foreign production and foreign manufacturing increases, especially in Canada and UK and some in Europe, our tax rates have been going down, and we're fortunate in that regard. But I think 28.3% is a good number for Q4.

Steve Levenson, Stifel.

Thanks, good morning, everybody. Hello?

Good morning, Steve.

Okay, sorry. Just one more follow-up on the Boeing contract. Is that a result, at all, of partnering for success? And is there any way you think that might further expand?

Well, what it does is, Steve, it consolidates our position. Even though we had the majority of that market through our customers, which were the airlines, you always get competition. By going directly and being able to go to 100%, that helps us in that area quite a bit.

And, frankly, it helps Boeing improve their margins. It's a cost-saving vehicle for them, but it also allows us to put -- to upgrade our systems both for the data acquisition system as well as for the, basically, the data storage system. And I think it's a good thing for us because it kind of firms the market for us for the next 10 to 12 years.

And do you think that helps with other upgrades to buyer-furnished equipment where somebody may not be using your system now but may replace what's onboard with your system to make it consistent?

Yes, I think, going forward, that's exactly what we are hoping. I will add that they just -- we're adding content to the network file server, and I will also add that one of the biggest market drivers that we enjoy there is our wireless groundlink, which, obviously, takes data from these devices and downloads to the operating sensor of the airline. And that kind of harmonizing that with these two devices is an advantage that we'll enjoy going forward.

There are no questions in queue at this time.

Thank you, Operator, I appreciate your participation. May I ask Jason to conclude our conference call. Jason?

Thanks, Robert, and, again, thanks, everyone, for joining us this morning. If you do have follow-up questions, please feel free to call me at the number on the earnings release. All our earnings releases are available on our website, Teledyne.com. Operator, if you can conclude the conference call and give the replay information, we'd appreciate it. Thank you.

Ladies and gentlemen, this conference will be available for replay after 10 a.m. Pacific today through midnight Sunday, November 24th. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 299243. International participants may dial 320-365-3844. Those numbers again, 1-800-475-6701 and 320-365-3844 with the access code 299243. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.