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 an earnings call this morning. It's tough to get kind of visibility into things. So now we're two-thirds into the quarter. Just give us a quick overview of 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.
Yeah, maybe I'll start at a high level, like George talked about some specific things, so generally speaking, we've said for a while now that half the company that we call the long-cycle business, in descending order, that's defense, energy, commercial, aero, and even parts of 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'll 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 two camps.
It's getting sequentially better, and has been getting sequentially better. That's a 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 tests 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? Yeah. Materially? No, and environmental instruments, which is trace chemical analyzers for life sciences, et cetera. That was kind of muddling for a while with that concept, but that actually did turn positive in Q4, year on year.
I mean, some of the standouts, maybe George can address, like the marine business has been great. Space business has been great.
Yeah, 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 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 anticipate? 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, there are long-cycle businesses. We have backlog in some almost at the end of the year. I mean, obviously, tails off a little bit, so it's not fully booked. But yeah, 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 what 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's 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 yeah, 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. 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 go back a year or so ago, FLIR did not have a product, but in counter-unmanned. I mean, and that's not all Ukraine, but yeah, you read the headlines, Ukraine, Israel, Houthis, Red Sea. I mean, FLIR Unmanned, FLIR counter-unmanned, I think are doing quite well. Some of those are just brand new products that we didn't historically have in the portfolio. I think in marine, I mean, some of the other subsea interconnect players, I think we're doing quite well in, yeah, autonomous underwater vehicles as well.
Are you seeing any 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 levered to things like unmanned and sensors, sensors that we sell, sensors that we use not just in our own unmanned platforms, but sell to others. So to the extent that the trends go more towards unmanned, more towards rapidly deployable, we 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, wouldn't expect that to be significant.
Yeah, I mean, people have obviously asked us, what does DOGE mean for Teledyne? And I mean, the short answer is we don't know, but I personally hope that if budgetary actions ultimately match the rhetoric, it'd 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, successor to F-22, $100 million plus per unit kind of programs, if that's curtailed a little bit, and the concept of low-cost, attritable 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, we don't do ordnance 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 latest even expand that, Iron Dome for the U.S., things like that. But those are all good. But what's really going to happen, 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 and 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 their 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%? Doesn't matter. It's better than 2%. So I think that, again, the rhetoric is good. What's really going to happen? TBD. Yeah.
How are you guys strategically dealing with tariffs right now, or the threat of that?
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, let's say 25% Canada, 25% Mexico, additional 10% China. The impact of COGS for us would be sort of in the $30-$40 million range. It's not huge. I think that can be recovered 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. I mean, peak supply chain inflation, we probably had $100 million of COGS premium for electronic components when you were scrounging for Xilinx FPGAs, or Intel Altera FPGAs, things like that. And that was recovered at 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 cover it, but it's obviously fluid and don't even really know what's going to be on the list. I mean, we saw the steel tariff, and so George surveyed some of his businesses, and yeah, I mean, okay, I don't even know right now. I mean, we buy a lot, but we buy some Inconel. Well, that's mostly nickel-based superalloy, but it's 7% iron. Is that steel or not steel? 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 where do you think you stand from now from an optimization standpoint now that you've built out this platform?
Yeah, 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 three, four, five 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 you have today, where is the most opportunity on the margin side? Which parts of the business?
Yeah, I would say at the moment, it's probably in the imaging part of the business. Although we've made progress there. If you look at the FLIR business, I think it came in, 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'll 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 structural costs you can take out of some of the short-cycle businesses, or is that too reactionary to declines you've seen there?
I wouldn't say it's too reactionary. I think 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.
Yeah, and just so nobody is, excuse me, so nobody is surprised to me. I think one thing George mentioned was acquisition. 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 he'd like. But it has margins, good profile, 20%-22%. But the segment, like George mentioned, is 28.5%. So yeah, the consolidated margins are going to be 200 basis points 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, just so nobody's surprised, it's like, oh my God, A&D margins are down 200 basis points. The one happened. Well, an acquisition happened. But a very good fit at a good multiple.
Yeah. A question I get a lot, just given the diversity of the portfolio, is just how do you think about a long-term growth algorithm? How do you see that? What should we be based like a base case five-year kind of normalized?
Yeah, I mean, so I'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. That's what 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 then sometimes they're incorporated into 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, going through our proxy over the last 10 years, looked at our pay performance, our pay plans, generally, I'd like to think corporate management's not doing their 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 yield by that 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 and some of the other high-margin markets being off. But generally, I think, yeah, 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.
Yeah. 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 spend a minute on Excelitas.
Sure. Sure.
Yeah. So this was a set of Aerospace and Defense Electronics businesses out of Excelitas. We're super excited to have it really for a couple of reasons. So it's about one-third in the U.S., about two-thirds in the U.K. The U.S. portion is kind of ignition 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 sustainment contract for 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., the 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 were paying very high prices in industrial land. My personal view was to sort of feed a flattish top line or maybe even a shrinking top line. And we were sort of first to revise earnings, and we weren't proud of it, but we did it in April of last year. And so, yeah, the stock tanked, and we went 180 all in on repurchase. 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 and diversifying at 4%, treasuries are better than 0% three, four 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 and delever 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 it has been good since we announced those two deals in November. So the last six months, we turned off the repurchases. That's always something we can do. We have a $1.2 billion authorization. But right now, I'd say it's most likely like we just did, and we've spent $770 million in the last six weeks.
So I'd say the setup right now is mostly acquisitions, if not all acquisitions. But we'll pivot if we have to, like we did last year.
Right. We mentioned a bit at the beginning how your portfolio aligns pretty well with some of the priorities of, you mentioned DOGE, but just generally the priorities of the government now. So maybe can we dig in a little bit on what you're seeing in unmanned space, submarine surveillance, some of these really targeted parts of your portfolio? Have you seen 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.
Yeah, 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, two 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 undersea, 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 surveillance of sonar business, but unmanned space.
Yeah, 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, 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.
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 the Space Development Agency previously. We've done very well in the Space Development Agency tranche programs and continue to see growth there. I would say in general, we have the e2v business, which we bought in 2017, which is kind of a UK-based visible imaging business. We have the infrared imaging space business in the US. We kind of brought those two 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 ending some of these hostilities? What can that mean for you if that was to play out?
I mean, we weren't a big beneficiary, first of all. I mean, so to sort of size in, I mean, we did have opportunities from Ukraine, Canadian donations, Norwegian, U.K. donations. But if you're sort of sizing in 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 yeah, we sell sensors here and there for their Iron Dome. We actually sell visible sensors. But again, most of their defense base is indigenous, IAI, Rafael, things like that. And counter-unmanned is good. And that's not just all about Ukraine. It's other countries in Europe.
Now again, so I think, yeah, maybe we lose that tens of millions of dollars of benefit that we had last year on a top line if peace breaks out. On the other hand, I mean, I don't know if NATO's going to go from 2% to 5%, but even 3% would be good. Finland's 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 yeah, I think there's more sort of maybe net upside with what's going on in the world. But yeah, there could be $30-$40 million of headwind absent anything else. But I'd like to think that gets backfilled.
Yeah. 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?
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 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 Overhead Persistent Infrared. We were sharing that with Raytheon, and I think they stopped their portion of the program. Maybe not. Maybe they're selling to Lockheed. We're selling to Northrop for the polar satellites. But those are the existing programs that we already had very, very good content. 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 on the ground? 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?
Yeah, it's on the order of $400 billion when you take into account the imaging plus various electronics.
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 two people, you could be on both sides of the same fight, right? So how would you describe the comp landscape there?
Yeah. So in general, in the infrared space, we're competing with Raytheon Vision Systems primarily. And as Jason mentioned, we've tended to do pretty well there over the last few years.
Yeah. I mean, maybe I'll just interject. I mean, generally speaking, across Teledyne, one of the clichés 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, yeah, they're 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 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, yeah, I mean, L3Harris is a big customer for a lot of different programs.
On the other hand, L3Harris, Wescam, competes with FLIR for gimbal systems. So yeah, I mean, sometimes it's a co-opetition or whatever you want to.
Is there any sort of, are you hitched to one player more than another or pretty balanced?
No, it's pretty balanced. I mean, to sort of size it, U.S. government business that we disclose in our filings is about $1.4 billion of annual revenue 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 math. There's no $150 million program. There's probably no $200 million opportunity, but there's no $200 million either cancellation or rebate risk either. It's sort of $50 million at a time, adding it all for $1.4 billion.
Maybe we touch on the commercial side of the business a little bit on aero. What are you seeing there and what's going on with Boeing and how has that played out for the last couple of years?
Yeah. And just to kind of size our commercial aviation business, it's really about $200 million. About two-thirds of that is aftermarket between repairs and retrofits on aircraft. About a third is OE. What I would say in general is we're kind of delivering at a steady state to Boeing. I think they are 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 been integrated, you mentioned margins up 400 basis points. Maybe you could just categorize what were the conditions in place when you made the move? Where is that business now? And what did you learn from that whole process of doing a deal of that size?
Yeah. So I mean, to your point, I think that 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 had 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 three CEOs, five CFOs, and three general counsels in the 10 years preceding the deal, they went from six reporting segments to five to four to three to two. 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 strategy was the poison pill for us until they sold them in February 2018. Then we really, really started following the company because it returned to what we are. But their narrative was all about defense. They were a defense company. We're going to open an Arlington 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 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 two charts we could look at. We showed it 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 there's the exchange ratio on the stock is that confused and disappointed the market. They were literally both completely to the best point they 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 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 bid it, but it was five-year fixed price, pre-COVID, pre-inflation. Bid in 2018, ending in 2023. Absolute dog. But when that left, that's maybe 100% of the reason margins are up 400-500 basis points because that was gone. Part of the Raymarine business was. There's only 7% of $200 million, but that's still $15 million. But that was freshwater fishing. They defined that end market. That's land of Bass Pro Shops, land of Garmin, 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 DJI competitor.
That doesn't exist anymore. That's gone. So it's getting rid of the stuff that didn't really fit what we liked, that high reliability commercial industrial.
Was it more stuff than you thought that you'd have to eliminate?
The unmanned ground business ultimately being as unprofitable as it was, not the case today. But that one program was 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-$1.85 billion last year was large, big box-owned sites, 100,000-300,000 sq ft, discrete, you can manage. It wasn't a 30,000 sq ft box with $50 million of revenue at a time at $1.9 billion. That's a much harder thing to do.
You saw it in the gross margins. 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 of the 1.85. There was some doggy stuff on the margins, some of which no longer exists. Some of which is okay. We just got the margins up. But the core underlying businesses, it's been a great acquisition. It's a fantastic ad. If I had to say post-mortem on it, yeah, 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 profits on plan, which means margins actually higher, which is really where we are.
You mentioned the financing. The financing on that deal was excellent. You used stock too, right? 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 convertible or an equity-linked. I think that's a bad idea personally. But again, never say never. But again, no primary equity, no convertibles, equity-linked, and one deal out of 72 stock is consideration. So never say never, but very unlikely. Yeah.
And now maybe last question for me, and 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. What's your kind of capital free cash flow usage framework now? And we mentioned on the call about a potential dividend. How do we think about all the potential uses now that the base is just much larger than it was?
Yeah. So never say never with a dividend, but that's been, I mean, but 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 flow generation. 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. And we all sort of view, I mean, I think if you sort of step back, if it's the devil you know is cheaper than the M&A market. I mean, back last year, we were trading at 13 times EBITDA. People were paying 20 for acquisition. Pretty easy. I'll do this, not that.
But then it kind of changed. Excel was also sort of 13, 13 and a half times. 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 could certainly borrow more. I bet the EBITDA year-end was $1.5 billion, but we spent $770 million in the last six weeks. So yeah, the natural math is that most of the free cash flow is consumed in deals this year.
Yeah. 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.