Ladies and gentlemen, thank you for standing by and welcome to the Teledyne Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. 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 Jason VanWees. Please go ahead.

Thank you, David, 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 2018 earnings release conference call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne's Chairman and CEO, Robert Mehrabian; President and COO, Al Pichelli; Senior Vice President and CFO, Sue Main; and SVP, General Counsel, Chief Compliance Officer, and Secretary, Melanie Cibik. After remarks by Robert and Sue, we will ask for your questions. Of course though 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 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. And here is Robert.

Thank you, Jason. Good morning, everyone, and thank you for joining our earnings call. Before discussing our earnings, I'd like to make a few comments about our press release from last night regarding various executive promotions. First, as many of you know, my prior employment contract continued through December of 2019. That contract has now been extended by the board for an additional four years through December of 2023. Furthermore, it's important to note that I'm continuing in an operating capacity throughout this period with primary focus on strategy, technology, mergers and acquisition, and margin expansion programs including procurement. Second, the board also promoted Al Pichelli to assume the role of CEO on January 1, 2019. Al has been our Chief Operating Officer for the last three years and more recently our President and he's had all the operating management of our company reporting to him directly. In his new role, Al would also oversee finance, legal, and other corporate functions. In addition to Al reporting to me directly, we have also promoted two other Executives that will report to me who will continue to be responsible for strategy, mergers and acquisition, and margin expansion programs. With all of these new arrangements; all stakeholders, shareholders, customers, and employees should remain confident that our track record of success will continue for years to come. Now, turning back to our earnings. I'm very pleased with Teledyne's third quarter results. Sales, earnings, operating margin, and cash flow were either third quarter or all-time records. Total sales increased 9.5%, almost all of which was organic. In fact, this was the highest total company organic growth in over a decade. Most importantly to me though was the breadth and balance of growth across our portfolio of businesses. Each business segment experienced growth in sales and…

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 fourth quarter and full-year 2018 outlook. In the third quarter, cash flow from operating activities was $141.9 million compared with cash flow of $107.9 million for the same period of 2017. The higher cash provided by operating activities in the third quarter of 2018 primarily reflected the impact of higher income as well as lower income tax payments. Free cash flow, that is cash from operating activities less capital expenditures, was $121 million in the third quarter of 2018 compared with $92.3 million in 2017. Capital expenditures were $20.9 million in the third quarter compared to $15.6 million for the same period of 2017. Depreciation and amortization expense was $27.3 million in the third quarter compared to $31.4 million for the same period of 2017. We ended the quarter with $711.2 million of net debt. That is $837.3 million of debt and capital leases less cash of $126.1 million for a net debt to capital ratio of 24.3%. Stock option compensation expense was $4.6 million in the third quarter of 2018 compared with $3.2 million in the third quarter of 2017. As noted in the earnings release, the third quarter of 2018 included $4.1 million of pre-tax restructuring costs compared with last year's $2.4 million of similar charges plus $2.9 million in acquisition-related costs due to the e2v transaction. Turning to our outlook. Management currently believes that GAAP earnings per share in the fourth quarter of 2018 will be in the range of $2.15 to $2.20 per share. And for the full-year of 2018, our GAAP earnings per share outlook is $8.71 to $8.76 compared to our prior outlook of $8.18 to $8.28. The 2018 full-year estimated tax rate is 21.3% before discrete items. I will now pass the call back to Robert.

Thank you very much, Sue. David, we would like you to start with the questions, please.

[Operator Instructions]. And we do have a question from the line of Jim Ricchiuti with Needham & Co. Please go ahead.

Hi, good morning. Robert, congratulations. I wish you the best. And you may have given some detail on this already and I may have just missed it. But is there some color that you can provide on book-to-bill by some of the various business segments and what we might anticipate as we think about growth rates for the various businesses looking out in Q4?

Sure, Jim. Let me back into that. First, I think in Q4 right now we're anticipating about 3% growth -- organic growth, primarily because we think there's going to be a little sluggishness in our marine businesses. Second, in terms of book-to-bill, right now we're sitting around one after Q3 and that changes between businesses. In Instruments, we are a little better than one. In Digital Imaging, a little less than one. And total, I would say we're sitting around one. We don't have visibility into some of our short cycle businesses as much as we'd like to. So, that's part of the reason that I'm saying probably about 3% organic growth in the next quarter. As you roll it up for the whole year then, it will be somewhere between 6.5% to 7% versus what I indicated last quarters, which was closer to between 5% and 6%.

Any idea -- you highlighted a little bit less visibility in the short cycle business. What do you attribute it to? Is it just some general hesitation in light of some of the macro concerns?

I think the -- in general with all that's going on with the various tariffs even though they don't affect us as much as most other people and the economies across the world, I'm just a little cautious on that. That's all. There's no specific. The last thing I would say is in the marine area, offshore energy exploration and production sluggish the last three years. Indications are that it would improve, but it will be further out than the fourth quarter, we think maybe 2019 and 2020. So, I'm being a little cautious.

Okay. And that actually was my follow-up just as it relates to the firming in oil prices. So, when would you think you would start to see a churn in terms of the bookings momentum in that business starting to pick up?

For that, we look at our -- to our customers and right now what we are seeing is that the offshore investments are increasing. Last year to this year, I would say that almost doubled. But it takes a little while for those investments to churn into orders for our customers and subsequently to us. We believe that would probably start happening by close to the middle to the end of 2019. There are -- the forecasts right now show that there are going to be about 100 projects worth about $140 billion sanctioned in 2019. By the time that rolls down to us, of course is late 2019 and early 2020.

And next we have a question from the line of George Godfrey with CLK. Please go ahead.

Thank you. And I'll extend my congratulations to Robert as well. And I just want to follow on that line of thinking on the organic growth rates. As we head into 2019 and I'm thinking back to the beginning of the year when, and I'm doing this from memory, the organic growth expectation was maybe 3% to 4%. And I look at this quarter at 9%, which was actually an acceleration from 8% in Q1 and Q2 and it's really been quite strong over the last four, five, or six quarters. And what my question is can the momentum in that organic growth rate really change overnight or would you expect the patterns to continue into 2019? Just like on the negative side in 2016 we saw the double-digit organic growth declines in Instrumentation and it took a while for that to turn. So, my question is can this momentum continue into 2019? Thanks, Robert.

It could. Let me just say you’re absolutely correct. We started in the year; we started in May projecting organic growth for the year of 3% to 4%. Then in August we went to 5.5% to 6%. Now we’re saying 6% to 7% for the whole year. Obviously we’re a little cautious for the reasons I mentioned earlier. If nothing serious happens to the economies and if oil prices hold, they're up, they're down some; but if they hold, I think 2019 we should have a reasonable organic growth probably I hate to predict it, but I’d say about 5% is what we look at right now.

Okay. And then just one follow-up in the press release you highlight your desire to grow organically and through acquisitions has been the Teledyne operating model. How is the pipeline of opportunities relative to the prices that are out there, have you seen the acquisition prices perhaps take a little tick down given the tariffs and interest rates rising in the market? And I’ll leave it there. Thanks for taking my questions, Robert.

For sure. It's a little too early to say because a lot of the things you just mentioned happened very recently. Having said all of that, we do have a very healthy pipeline and we're working on both small and midsize acquisitions at the present time and we certainly have the capacity -- the funding capacity to do them. So, I'm positive about getting something done in the relatively near future.

[Operator Instructions].

Thank you, David. What I like to do is if there are no other questions, I’d like to ask Jason to conclude our conference call.

Thanks, Robert. And again, everyone, thanks for joining us this morning. If you have follow-up questions, my number is on the earnings release, please do feel free to call. David, if you could conclude the call and give the replay, the replay numbers to the audience, we'd appreciate it. Thanks, everyone.