Teledyne Technologies Inc (TDY) — Q4 2021 Earnings Call Transcript

Good morning, everyone. This is Jason VanWees, Vice Chairman of Teledyne. And I would like to welcome everyone to Teledyne's Fourth Quarter and Full Year 2021 Earnings Release Conference Call. We released our earnings earlier this morning before the market open. Joining me today are Teledyne's Chairman, President and CEO, Robert Mehrabian; Senior Vice President and CFO, Sue Main; Senior Vice President, General Counsel, Chief Compliance Officer and Secretary, Melanie Cibik. And also joining today is Edwin Roks, Executive VP of Teledyne and President of our combined Teledyne Digital Imaging businesses. After remarks by Robert and Sue, we will ask for your questions. But of course, before we get started, our attorneys have reminded me to tell you that all forward-looking statements made this morning are subject to various assumptions, risks and caveats as noted in the earnings release and our periodic SEC filings. And yes, actual results may differ materially. In order to avoid potential selective disclosures, this call is simultaneously being webcast and a replay, both via webcast and dial-in, will be available for approximately one month. Here is Robert.

Thank you, Jason, and good morning. Thank you for joining our earnings call. 2021 was a significant year for Teledyne with record sales, adjusted earnings, operating margin, and cash flow. With the successful acquisition and integration of Teledyne FLIR, Teledyne has transformed into a global sensing and decision support technology company. We offer specialty sensors, cameras, instrumentation, algorithms, and software across the electromagnetic spectrum, as well as unmanned systems in subsea, land, and air domains. I am very pleased with our portfolio, which we can simply describe as a high-technology commercial industrial business well-balanced across various end markets, supported by a resilient and predictable segment of long-cycle government business. In the fourth quarter, our operational execution was robust. We achieved record revenue, which is 70% higher than last year, fueled by organic growth of 8.4%, with the remaining increase of 61.6% coming from Teledyne FLIR. Our commercial imaging and electronic test and measurement instrumentation businesses experienced particularly strong sales growth. Additionally, our Aerospace Defense Electronics segment continued to grow in government and space markets, supplemented by an ongoing recovery in commercial aerospace. Despite incurring significant noncash purchase accounting charges, our fourth quarter GAAP earnings per share were $3.39, reflecting a decrease of only 2.6% year over year. Excluding acquisition-related charges, our earnings were $4.56 per share, marking a 23.9% increase compared to 2020. Compared to our fourth quarter earnings outlook midpoint in October of $4.12, stronger sales added about $0.12 per share, improved margins contributed roughly $0.25, plus a small increase of $0.07 per share from discrete tax items, excluding a larger tax benefit related to certain foreign tax matters reflected in the GAAP results. Our cash flow reached an all-time quarterly record, enabling the repayment of $345 million in debt and reducing our leverage ratio to 2.9 from 3.8, the figure we had right after the FLIR acquisition. Looking at our 2022 outlook, the demand environment across our businesses remains favorable. However, supply chain constraints are still limiting shipments. Considering this, we anticipate a reasonable outlook for total company organic sales growth between 4% and 5%. With an approximate $2 billion contribution from FLIR for the full year, this suggests total revenue of just under $5.5 billion. If supply chain challenges ease, we will increase pricing to counteract inflation more than we are currently doing. We will adjust our revenue outlook throughout the year, as we did in 2021, when we achieved an organic revenue growth of 8.2% compared to our initial January 2021 outlook of 5% to 6%. I will now discuss the performance of our four business segments. In our Digital Imaging segment, fourth quarter sales surged 209%, primarily due to the FLIR acquisition, while organic growth in our commercial and government imaging sectors was strong at 18.6%. Industrial and scientific vision sensors and systems experienced the most robust sales growth, and we also achieved record healthcare sales, surpassing any pre-pandemic levels. GAAP segment operating margin stood at 11.6%, but when adjusted for purchase accounting and transaction costs, the segment margin was 23.3%. In our Instrumentation segment, fourth quarter sales rose 6.9% year over year. Sales of electronic test and measurement systems, including oscilloscopes and protocol analyzers, were impressive, increasing 13% to reach record levels. Environmental instruments sales rose 3.2%, driven by demand in human health and safety markets like drug discovery and gas and flame detection. Marine instruments sales grew by 6.5%. Additionally, quarterly orders were the strongest in the last seven years, with a fourth quarter book-to-bill ratio of 1.35. Overall, operating profit in the Instrumentation segment climbed 5.5% in the fourth quarter and 19% in 2021, with a full year segment operating margin increase of 226 basis points, or 218 basis points when excluding intangible asset amortization. In the Aerospace and Defense Electronics segment, fourth quarter sales increased 12.5%, supported by 6.4% growth in defense, space, and industrial sales, alongside a 38.5% rise in commercial aerospace product sales. GAAP segment operating profit jumped 75%, with margin rising 888 basis points year over year. Lastly, in the Engineered Systems segment, fourth quarter revenue dropped 15.6%, influenced by a decline in operating profit and margin due to lower sales and our exit from the higher-margin cruise missile turbine engine business earlier this year. Before I hand the call over to Sue, I want to highlight a couple of final points. As mentioned in yesterday's 8-K filing, a Swedish appeals court upheld a lower court ruling from March 2020 concerning a tax method dating back to 2012, establishing an estimated tax liability of $303 million. We anticipated this outcome, and the associated liability has been recorded, as noted in our latest 10-Q. We do not intend to appeal this decision and expect to settle the tax in the first quarter of 2022. Regarding our environmental, social, and governance (ESG) initiatives, Teledyne’s sustainability efforts began over 20 years ago, driven by the belief that demand for environmental monitoring instruments would outpace general industrial process implementation. Our first three acquisitions—Advanced Pollution Instrumentation, Monitor Labs, and Tekmar—focused on analyzing trace contaminants in air and water. Today, our imaging sensors facilitate greenhouse gas and pollution monitoring from space, and our environmental instruments collect data on chemical and particulate concentrations in ambient air. Our autonomous underwater floats and vehicles monitor ocean temperature and salinity from the surface to deep subsea. We have previously highlighted our strategy and products in our last three annual reports, and next month, we will release our inaugural corporate social responsibility report, where we will elaborate on our sustainability efforts and disclose metrics related to greenhouse gas emissions, reduction targets, workplace safety, and employee and management diversity. Now, I will turn the call over to Sue.

Thank you, Robert, and good morning, everyone. I will first discuss some additional financials for the quarter not covered by Robert, and then I will discuss our first quarter and full year 2022 outlook. In the fourth quarter, cash flow from operating activities was $295.6 million compared with cash flow of $236.4 million for the same period of 2020. Free cash flow, that is cash from operating activities less capital expenditures, was $261.6 million in the fourth quarter of 2021 compared with $217 million in 2020. For the full year 2021, free cash flow was $794.6 million excluding FLIR transaction-related cash payments net of tax. Capital expenditures were $34 million in the fourth quarter compared to $19.4 million for the same period of 2020. Depreciation and amortization expense was $86.2 million for the fourth quarter of 2021 compared with $28.7 million in 2020. In addition, noncash inventory step-up expense for the fourth quarter of 2021 was $47.8 million. We ended the quarter with approximately $3.62 billion of net debt. That is approximately $4.1 billion of debt less cash of $474.7 million. Stock option compensation expense was $6.4 million for the fourth quarter of 2021, compared to $5.9 million for the same period of 2020. Resulting from the FLIR acquisition, restricted stock unit expense for FLIR employees was $1.5 million in the fourth quarter of 2021. Turning to our outlook. Management currently believes that GAAP earnings per share in the first quarter of 2022 will be in the range of $3.12 to $3.22 per share with non-GAAP earnings in the range of $4.02 to $4.10. And for the full year 2022, our GAAP earnings per share outlook is $14.10 to $14.55, and on a non-GAAP basis, $17.60 to $18. The 2022 full year estimated tax rate, excluding discrete items, is expected to be 22.8%. I'll now pass the call back to Robert.

Thank you, Sue. We would now like to take your questions. John, if you're ready to proceed with the questions and answers, please go ahead.

Robert, can you talk a little bit more about how you're thinking about doing deals again? What's the level of leverage that you're comfortable with to start doing deals again? And how does the size of those deals sort of flex with where your level of leverage is at?

Thanks, Mike. First, we are rapidly bringing our leverage down. The 2.9 leverage ratio that we currently enjoy is the number that we were really thinking would happen by the end of '22. So having moved that forward, I think by the end of '22, we should be in, what I would say, an investment-grade range. At the present time, we are pursuing bolt-on acquisitions but in the long term, we would also look at larger acquisitions. What do I mean by large? Anything that goes beyond a couple of billion dollars takes a little time, so even at this time, we can look at those things we take because it takes 10 months to a year to close. Having said all of that, our longer-term leverage ratio is somewhere between 1.5 to 2.5. So if we get down to 2.5 or less by the end of 2022, we'll be in good shape to do all these things.

And then as my follow-up. Can you update us on free cash for 2022? And is there any update to the billion-dollar number that you put out there for 2023?

Yeah, Mike, it's Robert. I think our 2022 number will be a bit over $900 million. For 2023, it will still be over $1 billion, and we may be able to exceed that as we move forward. Based on what we currently observe in terms of organic growth, capital expenditures, and other costs, that seems to be the range.

Maybe just to start, I mean, embedded in your guidance, how are you thinking about margins just given maybe some of the one-timers and Digital Imaging in 2021? And if you could just give a little bit of granularity around segment margins?

The Digital Imaging segment ended the year at slightly over 24%. If we exclude the non-recurring charges, the comparison to 2022 is challenging for us. This is largely due to the acquisition of FLIR in Q2, which has historically shown a significant sales increase mid-quarter. At the start of the quarter, they incurred many costs, but they offset these as sales ramped up later. This year, we experienced a substantial boost in the second half of Q3 after we completed the acquisition on May 14, which positively impacted our margins. After accounting for all one-time charges except for intangibles, we anticipate being around 22% to 24%, specifically 23.9% to 24%, slightly below 21%. We're focusing solely on the intangibles and these margins are quite strong, benefitting from the cost structure reductions we implemented following the FLIR acquisition. If we're able to raise prices to counteract inflation, and considering our robust sales, we believe our margins will certainly improve.

And then maybe just a follow-up on that comment, I mean, you talked about both supply chain and price kind of if those improve as kind of upside drivers. Is there any way to quantify maybe the impact or what you're seeing there? And then, just in terms of pricing, where could that be most impactful and maybe where you can get some price?

Yes. Let's start with our price increase strategy. In 2021, we raised prices by an average of 2% while experiencing a volume increase of 6.2%, leading to an overall organic growth of 8.2%. On the other hand, we faced some price hikes from our suppliers. Fortunately, we had implemented a robust procurement program in 2019 before the pandemic, which resulted in favorable long-term contracts with some suppliers. With approximately $2 billion in purchases from various suppliers in the newly structured Teledyne, we anticipate price increases from them in the range of 2% to 3%, possibly slightly higher. However, we are currently mitigating this in 2022 with our own price increases of 1.5% to 2%, and we aim to potentially do even better than that. At present, we are projecting a volume increase of 2.5% to 3% in addition to the price increase, which aligns with the previous outlook I provided of 4% to 5%. If we can raise prices more as the year progresses, similar to what we did in 2021, and if circumstances continue to favor us, our organic growth should surpass last year's performance.

Robert, I'm wondering if we think about your annual revenue outlook, any sense as to how much of a revenue impact you're seeing, you're anticipating, as you think about some of the supply chain challenges that are out there?

I can only address the short-term, Jim. In the first quarter, we anticipate an impact of around $80 million based on our current assessment. We're diligently working on this, with teams across our company committed to addressing it. Additionally, we’re leveraging buyers worldwide, particularly in the Far East, who help identify parts for us. If we face, for instance, 500 parts shortages, they typically manage to find about 60% to 70% of what we need. We then have to qualify and incorporate those parts. Our semiconductor board manufacturers are also sourcing parts concurrently. This collaborative effort has been beneficial, especially throughout 2021. Currently, we’re estimating an $80 million decrease, but similar to what we achieved in the fourth quarter, we expect to mitigate some of this as we progress, and we've factored that into our forecasts. Therefore, I don't believe the supply chain challenges will significantly hinder us as they might for other companies.

Could you provide some details on the book-to-bill ratio in marine instrumentation? Additionally, can you share booking information related to some of the other business segments? Also, regarding your comments on operating margins in Digital Imaging, it seems there might be potential for margin expansion in some of the areas you've restructured.

To begin with the first part of your question regarding book-to-bill, in the instrument sector, the book-to-bill ratio stands at approximately 1.08, which is quite healthy. In the fourth quarter, it was even higher at around 1.16, though the average for that quarter settled at 1.08. The marine category is the strongest in this regard. All our programs in the instrument segment maintain ratios above 1. In Digital Imaging, we see a ratio of about 1.05. This area, which encompasses e2v among others, is performing well, with a ratio close to 1.3. On the other hand, FLIR's ratio is below 1, which is mainly due to fluctuations in their defense business and current projections. This is part of the reason we restructured the management under JihFen Lei, who previously served as the Deputy for Research and Engineering at the Department of Defense. We anticipate positive developments here. In the Aerospace and Defense segment, the ratio stood above 1 at 1.04, while in Engineered Systems, which involves large but variable programs, it was close to 1. Overall, when considering the entire company for 2021, the average is around 1.05, indicating a healthy position. Now, addressing the second part of your question about margins, we have seen substantial margin improvements across most of our sectors, with Engineered Systems remaining fairly flat in 2021. To elaborate, in Instruments, margins grew from 2020 to 2021 by 218 basis points, and we anticipate an additional increase of 30 basis points, reaching 23.8%. Meanwhile, while Digital Imaging faces some challenging comparisons leading to a possible slight decline in margins of 30 to 40 basis points, we expect revenue growth and improved pricing to mitigate this. In the Aerospace and Defense sector, margins surged by 745% from 2020 to 2021, and we aim to add another 80 basis points in 2022. Engineered Systems presented the toughest comparison, particularly following our exit from the turbine engine sector, which may result in a marginal shrinkage of 40 to 50 basis points, though this segment constitutes 48% of the company. Overall, I estimate that with the projected organic growth of 4% to 5%, total company margins should improve by about 20 basis points, reaching 21.5%. However, if we experience further price increases and revenue rises similar to 2021, our margins will increase accordingly. I believe this provides clarity.

Robert, on the parts shortage issue that you mentioned in the supply chain, are trends starting to improve and you're seeing more availability or are you seeing the issues more widespread and potentially being seen more parts affected?

I would say, Kristine, overall, things are improving. There are areas where improvements have not been seen. The lead times have increased slightly. The key is to ensure that we build certain products that are waiting for one or two parts, put those products on the shelf, and be ready to move as soon as we secure the parts. This is particularly important for our cameras. We have thousands of cameras ready to go out as soon as the part arrives. Thanks to the efforts I've mentioned before, with buyers around the world, especially in the Far East, dedicated to finding parts for us, we're managing to offset these challenges. Overall, in our portfolio, part shortages are not as significant in certain sectors like aerospace, defense, and some areas of Digital Imaging. For instance, some of our semiconductor suppliers, who provide products for our Digital Imaging, are also our customers. This creates a beneficial situation for us, as there's a reciprocal relationship at play. Therefore, while it is a serious matter, it is not as critical as what other companies are experiencing.

And maybe as a follow-up question, on one of the pricing increases you mentioned, it sounds like you've got efforts in place to pass on the 2% to 3% pricing increases from your suppliers and potentially get a little bit more. Can you talk about the competitive environment what your competitors are doing? And also any feedback from your customers about their price inelasticity? And ultimately, I mean, 2% to 3% seems pretty low versus what we're seeing in the overall industry but more mid-single digits. I mean, is this a very easy thing for you to be able to accomplish, which is passing that off and getting a margin on top of that?

Kristine, I have to admit it's not straightforward because if it were, we would face different circumstances. We're finding it challenging to implement price increases for our products, even when they offer superior performance. For instance, if a customer requires a specific type of camera and we can meet that need, we can achieve price increases. In areas like our protocol analyzers and oscilloscopes, where we hold unique advantages, we are significantly ahead of our competitors and can secure substantial price increases. However, in the case of products related to ambient particulate or air monitoring in China, where local preferences and price sensitivity are different, we have less pricing power and must align with market demands. Fortunately, Kristine, as you explore our diverse range of products, you'll see that our balanced portfolio allows us to secure meaningful price increases in some areas while remaining competitive in others. Therefore, we focus on reducing costs and enhancing manufacturing operations.

I was hoping you could speak to your operating margins over more of the medium term, so not just this year, but how we should think about them progressing through, call it, the next 5-plus years or 5 years?

Well, I can tell you, we measure ourselves against the very best-in-class. We've closed our margin gap significantly over the last 5 years. We have improved margins about 400 basis points. Now going forward another 5 years, where I sit here now, I'll say if we can improve 40 to 50 basis points a year, it'd be great. We've closed the gap very fast. On the other hand, if things go our way, which seems to have gone our way in the past, we could do better than that. But sitting here right now, I'd say, 40 to 50 basis points looking forward.

I was hoping you could provide more insights into Digital Imaging for the quarter. It certainly surpassed my expectations. You mentioned that health care sales reached a record level. Can you elaborate on what you observed in that segment?

Yes, there are two parts to this, Andrew. We have our legacy digital imaging and our new acquisition FLIR. I want to separate the two briefly, but moving forward, we will discuss them as one. Starting with our historical Digital Imaging, without acquisitions, we saw a revenue increase of 15.5% to 15.6% from approximately $986 million to $1.140 billion between 2020 and 2021. In the machine vision category, including some cameras, scientific cameras, and sensors, we performed particularly well, achieving a 29% increase in the fourth quarter. Our healthcare segment, known for making x-rays and x-ray source components for cancer treatment, had its best ever quarter this year, with a 19.5% increase in Q4 and 15.8% for the year. We also saw growth in aerospace and defense, with a 4.8% increase in Q4 and 4.1% overall for the year. In MEMS, our Micro Electro Mechanical Systems, we experienced growth of 17.9% in the fourth quarter and 12.3% for the year. Overall, the fourth quarter was strong, although we did experience a slight decline in our J-S ratio, which is a small part of our portfolio at only $60 million. Year-over-year, it remained flat. Looking ahead to 2022, we're projecting approximately 5.35% growth, bringing revenue to around $1.2 billion. This is a more moderate increase compared to 2021. However, I want to emphasize that it's early in the year, and we cannot predict growth much higher than 5% to 5.3% at this stage. Now, regarding FLIR, before we acquired the company in 2020, their revenues were around $1.924 billion, largely due to elevated skin temperature products contributing about $100 million. In 2021, the combined revenue pre- and post-acquisition was $1.895 billion, reflecting a decline of about $29 million, indicating that we compensated for most of that loss primarily seen in their industrial segments, which were down around $46 million. Next year, we anticipate a 5.9% improvement in those businesses, expecting total revenue to approach $2 billion, with an increase of about 5% to 5.5%. Looking into the defense sector and Gray Marine, which saw an impressive 15.9% growth, we forecast a moderate increase of 3% next year. Our defense businesses improved from $768 million to $785 million from 2020 to 2021, and we expect a further 6.4% growth in 2022. In conclusion, we believe that the combined revenue from our overall digital imaging businesses, including both segments, will reach around $3.2 billion, reflecting a growth of approximately 5% or slightly more compared to this year.

Okay. Yes, very helpful. So maybe switching topics, I was surprised to see that in the last few quarters, A&D electronics have really gained momentum. You mentioned that aerospace is up over 30%. How much of this is due to easier comparisons, or do you believe this indicates a genuine increase in activity in that sector?

Let me discuss the aerospace segment first. It's primarily focused on commercial aerospace, which represents a small portion of our overall portfolio, around $120 million to $125 million. Analyzing the bidding activity from 2020 to 2021 compared to 2019 to 2020, we saw that this business declined by approximately $100 million. As we typically do, we reduced costs, making it easier to compare year-over-year results as we entered the new year. Since then, this segment has experienced substantial growth, and our margins have surpassed 30% due to maintaining lower costs and increased revenue compared to the previous year. Overall, the aerospace sector, like many of our other divisions, remains a small part of our entire portfolio. I always emphasize the importance of having a balanced portfolio. This principle also applies to digital imaging, where we have a well-distributed balance among machine vision, healthcare, aerospace, geospatial, thermal, unmanned, surveillance, components, and more, ensuring that no single business suffers too much. Regarding aerospace and defense, we have also focused on enhancing our profit margins in the defense sector. Year-over-year, our margins in the Aerospace and Defense business improved from 2021 to 2022, reaching 21.3%, an increase of 745 basis points compared to 2020. We anticipate being able to raise margins by another 80 basis points in 2022.

Hey, everyone. As you evaluate the different segments of your business, is there anything that seems unsustainably high? Conversely, is there anything that appears to be clearly improving and trending upward?

I appreciate your question, Joe. I would say that there's nothing that seems to be unsustainably high, although the comparisons may become a bit more challenging. I talked about digital imaging; when you have a standout performance, the next time you might achieve smaller successes. In our later cycle businesses like Aerospace, we're seeing positive trends. Our marine businesses are performing well, with the best book-to-bill ratio in our instruments sector. We anticipate significant growth in this area. However, looking at our overall Marine business, which includes defense and underwater vehicles, as well as some oil and gas segments, it's around $450 million to $425 million for this year, potentially exceeding $460 million next year. This isn't a large part of our portfolio, so a 10% to 15% fluctuation won't significantly impact us. I believe we're set for considerable benefits in certain areas if we execute correctly. For instance, we have a $450 million portfolio in unmanned vehicles, with about $150 million from underwater technology, $150 million from ground-based solutions, and $150 million from drones acquired from FLIR. If we can integrate these technologies and capabilities effectively, I think this business could grow significantly faster than the individual components could on their own. That's an exciting prospect for me right now—finding ways to connect these elements and establish the foundation you're referring to.

Yes. That was going to be my next question. Where do you think this can go in terms of the overall pitch of the portfolio? How does the scale help you when you're going to market or bidding on certain applications?

Well, by now that, by nature, relatively conservative. But just let me say that we have managed to take a significant amount of cost from FLIR. And we took as much cost this year as we talked we take between this year and next year combined. So that business is now stabilized. We're not going to squeeze that business anymore. We just took a lot of cost out in the whole management, top management, the, of course, public company. And then they have zillions of consultants that we don't need. And we did all of that without increasing our own corporate budget, which is important. So where else do we have synergies? We have some synergies in costs right there. The other areas are some of our purchasing powers have improved because of the coupling and then go to market together is important. And I think those synergies are small in each area, but they add up to significant numbers. Don't give you one example. We have a gas and flame business that we bought from 3M. It's a really good business. When we bought it, it had about 12% margins. Last year, the margins went over 20%. FLIR has a gas detection camera that we're trying to couple the tour and sell it together. The same thing goes with enormous number of FLIR commercial products in the thermography business and a lot of our visible cameras. And we're trying to couple those together, and FLIR had some mid-market cameras. We coupled that already with high-end cameras. So there are a lot of synergies. I've kind of baked that in so far for next year in our 5% overall revenue growth to about $3.2 billion. But I think if we have the synergies going forward, it could improve more than that. But right now, we're trying to keep our stable or cost reductions so that we don't get smacked with some cost increases and then slowly work our synergies as we go forward.

Can you clarify one thing? We went through a lot of numbers, and I missed some details while taking notes. I understand that organic growth can be tricky because part of FLIR is inorganic this year. If you were to completely separate these two aspects, how do you envision FLIR growing organically on its own in 2022? Also, what do you expect for the legacy business excluding FLIR? Finally, where did FLIR stand in 2021, and where do you see them in 2022?

Yes. Just FLIR, let me go back to '20 because that's a good starting position. They were at $1.924 billion in '20. In '21, if you take before and after the acquisition, they went down 1.5% to $1.895. And that was primarily because of they didn't have the elevated skin temperature sales, okay? So if you take that as a basis, $1.895 billion, we're projecting a 5.5% revenue increase in 2022, all organic, to about $2 billion. If you take our legacy Digital Imaging businesses, they went up 15.6% from '20 to '21. We don't think that's sustainable. At this time, I mean I always emphasize at this time. We think that can go from $1.14 billion to $1.2 billion, which is another 5.3% increase. So if you combine the 2, you're talking about somewhere between about 5.4% increase in revenue organically, all in. Does that answer your question?

And the FLIR margins?

FLIR's margin is expected to decrease slightly, mainly because, as I mentioned earlier, Q2 was particularly strong due to the high production of earnings during that quarter. Their margins are anticipated to be around 24%. Our legacy margins are projected to exceed 23.8%, which is 200 basis points higher than in 2020. If we can sustain that level and possibly improve it, it might be challenging. We might see a slight overall margin reduction of about 40 basis points, bringing it close to 24%, which is still quite respectable. Our margins in digital imaging and instrumentation are projected to be nearly identical in 2022, at around 24% each. Additionally, in aerospace and defense, we've adjusted our forecast to 22%. Overall, I'm pleased with this outlook.

Robert, could you elaborate on why Digital Imaging, excluding FLIR, has experienced such high growth rates recently? I realize the comparisons are somewhat favorable, but they aren't entirely straightforward. The segment didn't decline significantly in 2020. While you have provided details on the performance of each component and I am aware of the trends in those businesses, the sudden jump in the growth rate over the past few quarters seems unexpected. Could you help me understand what successes are driving this?

Sure. I'll refrain from highlighting Noah’s exceptional management since he’s present here. Let me break this down. When the pandemic struck, our healthcare business faced challenges, particularly in selected X-ray treatments and cancer treatments, as hospitals were overwhelmed. However, with some easing, both our X-ray business and X-ray source business began to recover, achieving a 14% increase, which was the highest quarter, rising 19.5% at one point and averaging around 13.4%. The improvement was really fueled by an increase in surgeries and treatments. In the machine vision sector, our inspection businesses grew significantly over the year. Scientific cameras, which are vital for various applications, also saw a boost. We started the year steadily, but by the fourth quarter, the growth exceeded 36%. This was a gradual increase rather than an abrupt change. In the MEMS sector, our acquisition of the MicroLine MEMS business has positioned us as one of the leading independent foundries globally during a time of scarcity. Due to ongoing shortages, customers are turning to us for production assistance, which has greatly benefitted us. Overall, we grew year-over-year by 9.4%, with a notable uptick of nearly 18% in Q4. It’s not due to any singular factor but rather multiple components contributing to our success. We aim to provide conservative guidance for 2022 as the comparisons are challenging. Additionally, we must navigate through supply chain issues. While the numbers are impressive, much of it stems from COVID-related factors and supply chain challenges, which we hope won’t persist indefinitely or at least won't have the same impact as they do now. Are you concerned about the tough comparisons and the potential for a return to normalcy in some areas? Or do you believe there are enough new opportunities to sustain business growth? Adopting a conservative perspective, I would be surprised if we don't see continued improvement moving forward.

And then in the FLIR piece, the numbers you've provided on a multiyear basis there, very helpful and transparent. Those are pretty in line with where they were trending and what the outlook was for the business. So it sounds like we know you haven't divested anything, and I thought there might have been some pieces in there you didn't quite see as aligned with Teledyne for the long term. I thought you might have some stuff that you just kind of let roll off with a focus on profitability and cash flow. It looks like that hasn't happened; that you've determined essentially all of legacy FLIR stays with Teledyne. Is that right?

Yes, the answer is yes. There's a difference between the historical trends of those businesses that you are familiar with and what I know. They may have projected strong revenues year-over-year, but I'm unsure how many of those projections were met. When I mention $2 billion in 2022, I believe that we can reach that target. Now, regarding the divestiture issue, at one point there were thoughts about selling their Raymarine business, but we have no intention of doing that. We have a significant number of marine businesses that align closely with that one. Our entire marine effort, including our capabilities in underwater imaging and LiDAR, is essential for us. That sector performed well in 2021, and we expect it to continue growing. This doesn't account for the synergies we anticipate in that area. Therefore, I don't see any part of that business that we would consider divesting. It’s a strong portfolio, which is why we have invested significantly to acquire it.

I have one last question. The Aerospace and Defense Electronics segment margin improved significantly over the past year, even though the sequential revenue change was not substantial. Historically, this segment doesn’t exhibit much seasonality. So, I’m curious about the sustainability of the margin as we exit the year in that business. Could you clarify this?

We have two main reasons for the improvement. First, the aerospace segment has seen a rebound as we reduced costs, which significantly boosted our gross margins. In 2020, margins were lower compared to 2019 due to these cost-cutting measures. Secondly, the defense segment has benefitted from the success of several solid programs and the addition of strong new management, contributing to our stability there. Furthermore, in aerospace, we are seeing a robust aftermarket performance. Although OEM margins are currently less than we'd prefer, we anticipate improvement as our products are already installed on aircraft. We also have exciting new offerings, including an aircraft on-air monitoring product built on existing monitoring technology, which we believe will be well-received given the increasing concern about air quality for passengers.

Thank you, John. I'll now ask Jason to conclude our conference call.

Thanks, Robert. And again, thanks, everyone, for joining us this morning. Of course, if you have follow-up questions, please feel free to call me at the number mentioned on the earnings release, and all the earnings releases are available on our website. John, if you could conclude the call, will provide the replay information? Thank you.