Teledyne Technologies Inc. (NYSE:TDY) Q3 2020 Earnings Conference Call - Final Transcript
Oct 21, 2020 • 11:00 am ET
Ladies and gentlemen, thank you for standing by. Welcome to the Teledyne Third Quarter Earnings Conference 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. [Operator Instructions] 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.
Good morning and thanks everyone. This is Jason VanWees, Executive Vice President. And I'd like to welcome everyone to Teledyne's third quarter earnings release conference call. We released our earnings earlier this morning before the market opened.
Joining me today are Teledyne's Executive Chairman, Robert Mehrabian; President and CEO, Al Pichelli; Senior Vice President and CFO, Sue Main; and Senior Vice President, General Counsel, Chief Compliance Officer and Secretary, Melanie Cibik. After remarks by Robert, Al 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, 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. Good morning and thank you for joining our earnings call. I want to open with the following comments. First, all of our 70 worldwide manufacturing sites as well as our corporate office and research laboratory remain operational and only 16% of total employees are working from home. Second, our short cycle environmental and test and measurement instrumentation businesses rebounded from the trough in the second quarter, growing approximately 6% and 5% respectively quarter-over-quarter. Third, we believe our longer-cycle commercial markets such as marine instrumentation and medical imaging bottomed in the third quarter. Fourth, our government businesses continued to grow and generally remained in attractive niches such as space-based imaging, manned and autonomous subsea systems and electronic warfare.
Despite the market turmoil and lower sales in 2020, we have successfully demonstrated GAAP margin improvement. For example, the second quarter GAAP operating margin increased sequentially over 150 basis points. Specifically, operating margin of 16.4% was the second highest in the Company's history. In addition, we achieved greater margins compared to last year in nearly every major business category, except commercial aerospace where sales have declined nearly 50%. We also achieved record third quarter free cash flow, an all-time record free cash flow for any first nine-month period. Finally, our balance sheet has never been stronger and our acquisition pipeline is healthy.
As the overall demand environment continues to improve, our substantially lower cost structure, for example, we are operating with 9.2% fewer employees -- our lower cost structure should provide significant operating leverage in future quarters. Coupled with acquisitions, we expect earnings and cash flow to