Q2 2021 Teledyne Technologies Inc Earnings Call
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Robert.
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Ladies and gentlemen, thank you for standing by and welcome to the.
Teledyne second quarter earnings call 2021at 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.
If you should require assistance during the conference. Please press Star then zero as.
As a reminder, today's.
Today's conference is being recorded and I'd now like to turn the conference over to your host Jason Bandwidths. Please go ahead.
Thank you and good morning, everyone. This is Jason and then Lee Executive Vice President and I'd like to welcome everyone to Teledyne second quarter earnings release Conference call and of course, we released our earnings earlier this morning before the market open.
And joining me today, and Teledyne's Executive Chairman, Robert Mehrabian, President and CEO Al Kelly Senior Vice President and CFO, Sue main and senior Vice President General Counsel, Chief compliance Officer, and the Secretary Melanie <unk>.
After remarks by Robert Allen Sue we will ask for your questions again, though before we get started turning.
And to 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.
And in order to avoid potential selective disclosures. This call is simultaneously being webcast and a replay via webcast and.
I am and will be available for approximately 1 month.
Robert.
Thank you, Jason and good morning, and thank you for joining our earnings call.
Over 2 decades, now and we've continuously improved our portfolio of businesses, our operations and our financial and performance.
And along the way significantly compounded earnings cash flow and shareholder returns.
It is worth noting that.
Net just over 10 years ago and.
The major milestone occurred when we divested our aviation.
Peace and engine business and.
And all of its associated liabilities.
While initiated earlier.
Immediately following that goodness feature.
We accelerated our pace of change by making increasingly significant and successful.
Acquisitions within our digital imaging and instrumentation businesses.
And our recent acquisition of player Exxon the rates teledyne's, the evolution into a more attractive higher margin industrial technology company, while at the same time maintaining.
Many of our balanced portfolio.
Primarily focused on commercial markets.
And of resilient and predictable backbone of government businesses for example.
And the second quarter of 2021.
75% of total company.
The company sales.
And from U S commercial and international customers.
And 25% of sales from the U S government.
In the past several weeks, we have made rapid progress integrating player by implementing teledyne processes.
Such as acceleration, our financial forecasting and reported.
Increasing visibility of sales and costs across the organization.
And while continuing to enhance players' compliance standards.
Furthermore.
And we've eliminated significant corporate.
Breast overhead.
Overhead.
The consultants and other third party service providers and as the industry result, we now expect to achieve our annualized cost savings target of $80 million.
And before the end of 2020.
Yes.
As the approach to 2020 floor as described in our final merger proxy.
Turning to the second quarter results.
The second quarter was truly a record for Taylor, the online with sales and operating margin and.
The earnings that the excluding acquisition related costs.
All of these increased significantly from prior periods.
We achieved double digit organic growth for the.
Total company.
Net sales from digital imaging, environmental and electronic test and.
Measurement and instrumentation, increasing from 17% to nearly 25% year over year.
The operating margin of our legs legacy businesses collectively laws and all time record and with clear our non-GAAP operating margin of 20.
2.8% was an all time records in the second quarter.
I should note that very strong non-GAAP margin and earnings performance in Q2 the results at <unk>.
Partially from.
The disproportionate amount of sales from clear relative.
<unk> 2 costs that is.
Given <unk> current lack of linearity of shipments, we essentially benefitted from a kind of half weeks.
Equivalent of golf sales volume and contribution margin relative to 106 weeks out fixed cost.
And the second half players quarter day sales relative to costs, we have normalized the resulting in somewhat lower margins in all cases, excluding transaction related expenses.
In addition.
The average share count and the second quarter only partially reflects.
And the stock issued in connection with the FLIR transaction, which will impact EPS and the second half.
On a full year basis and.
After a strong first half.
And we now think it's reasonable outlook for legacy <unk> businesses.
Organic growth and 2021 to be at approximately 6.5%.
Led by forecast the growth of nearly 12% and digital imaging excluding <unk>.
Normalized sales for Q3 and Q4, we expense.
Expect players to contribute sales of just under $1.3 billion in 2021 collectively therefore, we now expect that expect reported sales for the year of approximately.
4 billion and 580 million.
Net.
Our new outlook.
Which excludes acquisition related transactions transaction and purchase purchase economy can expenses can be summarized as follows.
In April.
<unk> provided a GAAP.
Earnings outlook for legacy Teledyne businesses of about $12.10.
On a comparable basis our.
Our current outlook.
Is.
Approximately $12 and 40 <unk>.
Which is 30 <unk> above.
The earlier outlook gives.
Given the 50 basis points increase in organic growth from 6% to 6 and 5% today versus April and 40 basis points additional margin improvement that's resulted in the overall.
GAAP <unk> increase.
Guidance.
Intangible asset amortization from prior to cleared.
Transactions.
Divided by the clear share count would add debt or 80 cents to our earnings result.
<unk> in a free <unk>.
Clear outlook of $13 and <unk>.
Now incorporating flare.
Including its unusually strong period partial period performance in Q2, and excluding transaction costs.
All of the result in full year 2021 accretion of over $2 per share and thus our current and non-GAAP outlook is $15 and 25.
Christine.
<unk>.
I will now turn the call over to Al who will comment on the performance of our business segments.
Thank you Robert.
And our digital imaging segment second quarter sales increased 143, 9% largely due to the FLIR of acquisition.
But organic growth was 17%.
Segment operating margin was 14, 6% and 27, 5% when adjusting for transaction costs and purchase accounting. Although this was unusually high as Robert mentioned earlier and.
And our instrumentation segment overall second quarter sales increase.
The 10, 6% versus last year.
Sales of environmental and instruments increased 19, 6% from last year sales of most product categories increased and total quarterly sales were just slightly lower than the peak level before the COVID-19 pandemic.
Pandemic.
Sales of electronic test and measurement systems were exceptionally strong and increased 24, 6% year over year to record levels.
Sales of our marine instrumentation decreased 4.5% in the quarter. However.
Orders.
<unk> were the strongest and the last 5 quarters with the second quarter book to Bill of 1.3.
Overall instrumentation segment operating profit increased 33, 2% with segment operating margin increasing over 360.
At this point with or without intangible asset amortization.
Moving to the aerospace and defense electronics sector.
And second quarter sales increased 6.5% driven by and 8.1% growth and defense.
Space and Intel.
<unk> sales combined with flat year over year sales of commercial aerospace products.
GAAP segment operating profit increased 62, 3% with margins and 640 basis points greater than last year.
And the.
Industrial systems segment second quarter revenue decreased 1.5% primarily due.
Due to greater sales from missile defense and.
And marine manufacturing programs more than offset by lower sales of electronic manufacturing services.
Products and turbine engines as we exited the cruise missile engine business at the end of the first quarter.
Despite slightly lower sales and segment operating profit and margin increased slightly when compared with last year.
I will now turn the call the soup, who will offer some additional commentary.
And just regarding the third quarter and our full year of 2021 earnings outlook. Thank.
Thank you Aaron Good morning, everyone and also discuss some additional financials for the quarter not covered by Robert and Al and then I will discuss our third quarter and full year 2021 outlet.
And the second quarter of cash flow from operating activity.
These were $211.3 million, including all acquisition related costs.
Excluding acquisition related cash costs net of tax cash from operations with $278.2 million compared with cash flow of $155.8 million per the same period of.
1020.
Free cash flow that is cash from operating activities less capital expenditures.
Excluding acquisition related costs was $257.2 million and the second quarter of 2021, compared with $139.2 million in 2000.
And 20.
Capital expenditures were $28 million and the second quarter compared to $16.6 million for the <unk>.
Same period of 2020, depreciation and amortization expense was $59.7 million for the second quarter of 2021, compared with 29 million.
And 2020 in.
In addition, noncash inventory step up expense for the second quarter of 2021 was $23.4 million.
We ended the quarter with approximately $4.05 billion of net debt that is apart.
4 of $7.4 billion of debt less cash of $695.1 million.
The higher debt balance at July 4.2021 included the debt incurred to fund the cash portion of the FLIR acquisition.
Stock option compensation expense was $3.6.
And for the second quarter of 2021 compared to $5.7 million for the same period of 2020, resulting from the FLIR acquisition restricted stock unit expense per FLIR employees was $4.4 million and the second quarter of 2021.
Turning to our outlook management.
<unk> believes the GAAP earnings per share and the third quarter of 2021 will be and the range of $2.2.15 per share with non-GAAP earnings and the range of $3 and 55.
The $3.65.
And for the full year 2021.
Our GAAP earnings per share outlook is $8 and price.
The $8.45 and on a non-GAAP basis $15.25 to $15.50.
The 2021 full year estimated tax rate, excluding discrete items is expected.
Currently 23, 9%. In addition, we currently expect less discrete tax items in 2021, compared with 2020 I will now pass the call back to Robert.
Thank you Sue.
With non large to take your questions operator, and if you're ready to proceed with the questions and answers.
To be to her.
Yes, Thank you ladies and gentlemen, if you wish to ask a question. Please press 1 zero. If you are using a speakerphone. Please pick up your handset before pressing the numbers.
And again, if you would like to ask a question. Please press 1 zero at this time our first question.
Question comes from Mike Mugger with Wolfe Research. Please go ahead.
Hey, good morning, Thanks for the time.
Can you just add some color around the operating performance at legacy digital imaging, you touched on and a bit with the 6 weeks first day weeks, but can you just color and some of that debt.
And in Florida.
Right.
Alright.
And on the legacy digital imaging business Standalone.
The margins were 24, 4%.
And last year.
Add back of the intangibles.
The <unk> versus 'twenty 1.
The percent.
And the legacy digital imaging the margins improved about 280 basis points.
Okay, that's great and then.
What sort of drove that where there is some sort of cost initiatives or was it just channel.
The mix.
And any other color.
Our both our cost from.
The.
And our labor costs were maintained flat year over year.
And sales and increased 17%.
And the other 1 was the mix, Mike we have better.
And the mix of machine vision, which has our highest.
The margins.
Got it thank you and.
And then.
Can you.
Can you discuss your capital deployment priorities post clear, if we should expect any sort of shifts and.
And your behavior.
And whether thats.
Because of the higher debt balance or any sort of color that you can add there.
Yes.
And our primary objective this year Mike.
And capital deployment is to reduce our debt as fast as we can.
We have.
We expect to generate more cash and the rest of the year and when.
Anticipate debt.
By year end of.
This year.
And our debt to cap would be better than what we project the Florida.
Or about.
Great point.
In terms of ratio of net debt to EBITDA.
We also expect that by the end of 2.
2022.
We can reduce the net debt to EBITDA of 2 to 7 which is were at the high end.
But we feel as comfortable reported so our immediate task is to pay down debt generate cash pay down debt.
Having said all of that we do have the capacity to make smaller bolt on acquisition of that we've done historically.
And we would do.
And of what they've such opportunities arise.
Great. Thank you.
Thank you Mike.
Our next question comes from Joel.
Share of Ganoe with Cowen. Please go ahead.
Hey, guys.
And then.
Good morning.
And do that.
So I know it's early to talk 2022, but can you just give us some high level thoughts on how some of your contribution starts to look on the normalized basis for a full year of once we if we start thinking about $80 million and run rate savings into next year.
Well net.
Let me start with what we have this year the jewelry by May as I mentioned before we think the on a non-GAAP basis.
We'll have and upside of about $2 to the $2 and in 'twenty.
In terms of earnings.
If we can maintain the momentum.
For next year wherever we would enjoy probably the full year benefit of the cost reduction.
I'd say, we may be able to increase the price $2.50.
From this year's $2.
To the $2.9 of 27, 1 of the reason I say that is the full year and solution. We will experience from share count our share Count Inc. Q3, Q2 was 43 point.
7%, 44% 44 million shares next year.
And for the year, we will have a 48 million share count.
<unk> as we've been having Q3 Q4 of this year so.
There's going to be somewhat of that.
Frankly, the other side of the utilities that we haven't really had an opportunity to put all of our part.
In turn on cost reduction.
And inside clear for next year, yet these cost reductions we spoke about were generally related to corporate expenses employee expenses costs and.
Third party expenses and consultants.
And I hope that there'll be other opportunities that we can enjoy or the 22 of whether it's it's only 8 weeks seen and to settle and hard to predict right now.
So you brought the $80 million in 2 years basically 1 of them.
And your thoughts on upside to that target.
And I know, it's still pretty early but thoughts on like longer term, there and maybe on revenue synergy potential from the deal.
Yes, I would say Joe.
I would raise debt to $100 million.
From 80 to 100 and the upside.
I would say from the revenue.
The revenue synergies, we haven't looked at that very carefully but there are areas that we intend to enjoy some synergies.
Specifically for example of FLIR has as you know.
Pretty strong grain marine business and marine.
Therma.
And <unk> products business, we have a very broad portfolio of marine.
Under water as well as sonar and and other products are virtually the same synergies there.
There is also Brian to the synergies in our unmanned.
<unk>.
Product <unk>.
Strong and Uavs and <unk>.
The base unmanned vehicles and of course, we have it.
The tremendous portfolio from the water vehicles. So we think there might be revenue synergies for both elements there.
And at the beginning.
And we're kind of looking at it.
And right now.
Very finally, I would say.
Clear does have an extremely good channel.
Sort of similar of guard.
Some of their products, which we might be able to enjoy and some of.
Our own.
The infrared products through those channels.
And then just last from me.
And then you mentioned FLIR, you expect $1.3 billion and sales this year, what does that take if you had if you owned it for the full year.
Or do you think organic for FLIR is in 2021, and what do you think like of more.
Normalized growth rate is once we get over the comps from like the thermal sensing.
And with Covid.
Yes, I think as you know last year, the full year revenue Rose 1923.
We expected on a full year basis to remain flat at about 1915 and 1.9.
192.
<unk> from flat, having said that as you mentioned Joe the.
Big headwind debt.
We have.
Year over year in Teledyne player is that last year, they enjoyed about $100 million.
And elevated skin temperature product sales this.
Year.
And Thats gone away essentially disappear so we're.
And we're making that up.
And with other products some of it and the solutions business.
Some operating and Raymarine and some operating the defense business and especially in the and.
Demand.
Integrated systems businesses so.
And that kind of sets the tone year over year.
Of no growth.
And being able to offset the $100 million of headwind and.
<unk>.
UAS.
And in ESP, having said.
Said debt.
Got it and look forward to just enjoying the same kind of growth that we enjoyed this year.
Excluding.
ESP.
Take that out of the 1.9 to the rest of the portfolio grew about 5%.
<unk> organically.
So my expectation would be the if everything else being equal element not no wheels come off the truck that we'd be able to enjoy that next year.
Alright, thanks, and I'll jump back in queue.
Sure.
Our next question.
Question comes from Jim.
<unk> with Needham and company. Please go ahead.
Hi.
For the time.
And congratulations on this first quarter with clear Robert I Wonder.
If you could.
Talk a little bit of.
About how we might think about the gross margins of the <unk>.
Combined company going forward as you really move through the integration process.
Ralph.
And that's a very good question, So let me, Steve brake and answer it properly.
Our gross.
And March is as the.
Teledyne as the stand alone company.
Historical margins have been around $39, 38% to 39% last year it was.
The $38.3.
This year first quarter was.
Of course, the 8.9.
And.
The second quarter.
And non-GAAP basis, excluding the.
The onetime cost I think what's going to happen at the gross margins. If you take ours in 2020 of 38, 3%.
It would be safe.
Safe to say that we can move that up to 43% maybe 43, 3%.
And that would be of nice.
And 4.4% improvement and gross margin with Teledyne clear.
And that's about the best I can do at this time for this.
Here, we are right now looking at blood.
The will happen.
In the future again, let me go back and emphasize 1 thing.
Cause of the hockey stick nature of the revenue in Q2.
Clear the.
SG&A for Q.
Was significantly lower than normalized should be it was more of like 20% and it's really should day between.
The average of about 25% to 27% so.
That's.
And factoring dosing at this time.
Got it that's helpful and what can you say about the this hockey stick.
Performance from FLIR, and Q2, what contributed to that and and if I may just.
The question and then I'll jump back into the queue.
You were out could you just give us any flavor for how your bookings.
Look for the combined company. Thank you.
Sure Jim first.
The hockey stick nature.
I think thats been the historical.
Practice at the.
Teledyne player.
There are always shifts more and the last.
2 weeks of the month and in the first 2 weeks out demand and the.
The last 2 weeks of the quarter I should say and the last 2 weeks of the year now.
We were not the exactly.
Totally blameless ourselves, we I can't say our revenues our total linear.
We've worked very very hard over the years, the linear arise our revenues.
And we deemed the month and we did the core 3 months over months everybody has to report on the net revenues and bookings weekly.
<unk>.
And this is a this is an issue of that doesn't have and overnight.
Answer, but we are going to work very hard to.
And to introduce some of our own track is working.
Working with.
The flare.
The segment the exact sub segment makes sense, which by the way are really outstanding and get the linearize the shipment.
Current year of doing.
So you said it come down to the end of the month or the end of the quarter something happens or something doesn't get ship now.
And you really suffered these operating revenues operating earnings.
We're going to work on debt.
And let me go back to.
Book to Bill.
The question.
Doing.
In terms of Teledyne.
The stand alone <unk>.
Carl.
The legacy Teledyne at this point.
We expect that the Orange book.
Book to Bill and will be above 1.
Especially.
These 2 months.
It will be about 1 point of 7.
And that includes very strong borders and Marina as al mentioned and the.
Second and third quarter.
In digital imaging excluding flu.
It was about 1.1.
The index in Q2 from players is below 1.
So combined we think will be slightly over 1 and Q2 about 1.2 of 3.1 and go forward.
Aerospace and defense and Teledyne.
Good or there is bookings.
King.
The book to Bill age of about 1.2 and engineered systems, which is very lumpy.
He is about to 1.7 months of overall, I'd say, including Teledyne player and we're going to be over 1 and Q2, and maybe 1.2 of 6.1 points of 7.
Got it thanks very much.
Sure Jim.
Our next question comes from Greg <unk> with Jefferies. Please go ahead.
Good morning.
Good morning, Greg.
And just to start on organic growth I mean, you brought up the forecast for.
We are a bit the fix and the half, which you know is a little bit of acceleration from what you saw in Q2, you gave some color around digital imaging, but can you maybe talked about you know the different segment expectations for organic growth and and maybe how that change and and maybe where there's risks and opportunities and the back half of the year.
For the you sure.
Greg first if you go back to January of 2021, we project the net organic growth of about 555, 6%.
In April things were starts and improving with projected organic growth.
About 6%.
And in this earnings we've moved that off 2 of 6.6% that's the overall.
What I would say legacy title and growing that and excluding the player acquisition.
<unk> growth that done into its components.
Sales of instruments.
We anticipate with some risks.
And there.
662%.
Digital imaging.
11, 8% almost 12% for the year, that's our fastest moving business.
<unk>.
We think in aerospace and defense, especially now we're seeing a little more recovery and aerospace businesses.
We think that will be about 4 and 444, 5%.
We see of slide this strength this decreasing the engineered system something of the order of 1.1.
And 1.5% primarily because as al said, we don't have the turbine engines for the rest of the year you overall of that up you end up with 656, 6% now.
If the economy continues.
To improve at a pace that its going.
Especially in our instrumentation and digital imaging businesses.
The improved loans that somewhat but right now to the best of.
Our ability to project, we are projecting revenue for the year of <unk>.
Yeah.
And we doctrinaire about 300 and I know.
And with clear about 4 of 582.
And that's very helpful.
And then you gave a little color on digital imaging margins, but instrumentation was also very impressive in the quarter I mean.
How do you think about margins there was that mix.
I mean, and obviously marine was down a little bit I mean, how do you see those margins kind of playing out.
Well, let me start with the.
Instrumentation overall.
Yes, Marine was a little down but it was done the revenue the margins were pretty healthy.
T.
Overall, the instrumentation margin in Q2 on a non-GAAP basis and the reason our 1 billion GAAP non-GAAP is we do have some intangibles that come in all of these groups and to compare year over year to <unk> <unk> non-GAAP exclude teledyne legacy.
The intangible amortization last year instrumentation overall margin was 24%.
This year Q2 is 24% and we expect to finish the year at 23, 2% which would be.
<unk> got almost 200 basis points improvement of 192 basis points improvement over 2020, and I would attribute that to the fact that the mix of business was a very good.
Alright.
Okay.
The environment.
And the businesses are doing very well and are the TNF businesses, which have really high margins because of our of CLR scopes and of course, our protocols gross margins are superior so.
Almost 200 basis point improvement year over year and instruments margin, including.
Environment and marine.
We're very happy about that and legacy deal with digital imaging and.
Again, our margins for Q2 were really good at 24, 4%.
Versus last year's Q2 of 21, 5%.
We anticipate 2 and the year that is excluding teledyne and Samir.
With margins of 23, 1% versus last years of 21, 5% 21, 4% so and improvement.
175 basis points.
<unk> of course, we have tremendous margin in Q2.
Just 30% of slightly over I think they'll come down closer to 22% as the year growth zone.
Based on the hockey stick nature of that I described before and.
So.
So overall digital imaging.
<unk> and up about this year about 22, 7%.
Teledyne clear.
Our aerospace and defense businesses are doing really well.
But year over year comparisons.
And we think.
We will end the year at 18, 8% margins, which is 492 basis points improvement over last year from last year, we took some 1 time charges.
We took a lot of cost of debt.
Net debt.
Aerospace side of the business, but nevertheless, that's almost 5.
Basis point improvement the margin and I expect the engineer systems to be relatively flat.
And all of that up.
We of draw.
From a segment perspective on a non-GAAP basis, we should enjoy margins of 21, 3% based on everything.
Right now <unk>.
Versus last years $18, 7 and if you try and the corporate expenses again I should.
Reiterate on the non-GAAP basis.
We ended up about 20% and margin versus 16, 8 last year, which.
Kind of over 300 basis points improvement.
Does that help yes, that's part of again and just 1 last 1 from me kind of Big picture I mean, Teledyne has always been consistent with let's say biased to the upside you know whether that margin expansion each year.
Which is the organic growth through the cycle I mean.
How do you think about debt.
And the FLIR acquisition changing the enterprise I mean, I get a lot of questions about 2022.
<unk> already pulled forward the synergies from when you first expected how does the kind of change that the opportunities.
Whether it's.
The annual margin expansion of organic growth as we kind of go forward.
Well, let me start by saying.
Behaviors don't change we are kind.
We're going to be the thing.
We're not going to change we're going to.
The conservative in our job.
The projections.
And we are always going to try and do better than debt.
We don't like taking the.
The risks.
By being too effort of restaurants in our projections and having said that.
<unk> and met not the flare and executive team.
And made presentations to the board deals, they're there and we're in the next 3 days all of them are going to be working with us.
They are really good.
Outstanding executives that reported.
How do you buy the executive.
Vice President of had been drugs.
And we anticipate that they will do the same of the rest of teledyne.
Our focus on cost focus on improving margins focus on growing the topline and.
And we're <unk>.
And we'll make the small acquisitions and typically pay down our debt I don't expect our behavior to change we'll keep improving.
Thank you.
Our next question comes from Andrew the skills.
With that.
<unk>. Please go ahead.
Good morning and drove.
The bahrenburg.
Okay.
So you can you hey, Robert guided gravy and sometimes.
Right.
Yeah, Robert Thanks appreciate your candidates on the call.
And I was wondering can you.
Adding on to the kind of the last comment.
Can you talk a little bit about you.
And what are you seeing with clear that has surprised you whether its good or bad it sounds like the some.
Some of the these managers are surprising the surprising in terms of of the quality of.
And how they're operating but.
Is there anything anything you'd like to disclose that.
You didn't expect non U.
And since having made the acquisition or vice versa, where youre surprised that some growth potential do you see where you didn't expect that to be the case. When you initially bought the or anything.
If you could add there would be great.
Well and footwear and when we look at the <unk> portfolio.
There are really 4.
Segments.
Made out of.
The former 8.
Businesses.
3.
Anything in the segments.
Which would be the solutions segment the.
The component totally OEM segment, and unmanned and integrated systems segment, which comprised of about $1.5 billion of the 1.9.
We are pleasantly.
Interest with those 3 segments.
And they have good leadership and.
The 3 segments with the.
Roger World, leading the <unk>, our plate and leading OEM and components and Roger and required lead volume.
<unk>, leading the solution business is a really healthy businesses.
From a personal perspective, while I wasn't surprised because we visited them. Many many times before the acquisition.
Im very pleased not only with what we've seen but.
And the presentations yesterday or day to the board were just superb.
And sub segment and.
Is the 1 that had some issues and thats the surveillance segment, which is about.
$400 million.
And while it's happened there in that segment.
Is that they've had multiple leadership changes almost annually.
Over the last 4.5 years.
They've been kind of milking the cow.
For the last few years in terms of cash and they have not paid attention to and through new product development as much as they should.
In that case, what we've done is we've done something.
We brought in.
And at Teledyne executives that work for us before back to run that business, where the Teledyne executive the name is.
G and Gi H capital.
Lee of AI.
The broader to run the surveillance business.
He is still the 1 of our executives and.
And our job digital imaging business.
She went to the government the Dod to work and the.
Research and.
<unk>.
Of technology groups.
She.
And the drop.
This year as acting Deputy Secretary of Citi.
Sure.
The deal with these.
Research and technology.
Graham could you have huge program all of the laboratory to all of the businesses.
Just joined US 2 weeks ago, I was able to is fortunate to bring growth back.
She has been here 2.5 weeks.
She will lead the surveillance.
And the <unk> segment, which is the 1 that we need to work on and I know she will fix that with our with the headwinds help and we'll get some new products and then put that on the healthy.
Having said that once we solve that I think the core soft.
And so are going to the superb with the leadership and the comp with Edwin leading it and then with the combination with the legacy of Teledyne companies with all of the synergies we can enjoy.
We have great aspirations and hopes for the combined company.
Okay.
Signal.
And your Inc.
Yes.
The decision to quit clear all of our digital imaging why why don't you break that up with your aerospace and defense exposure and and tied to that or is that a possibility and the future.
Yes, I think the arrangements of the segments startup process.
Profitability, but you know.
And <unk>.
You got to you got to walk before you start thinking about running so right now keeping it where it is and then.
And drawing lines of communication and collaboration is roughly of doing for example, 1 of the things we've done very successfully over the last.
And that's helped 3 years at Teledyne use our procurement initiatives.
Have the significant savings that have come out of our procurement, we buy about $1.2 billion worth of product.
Here by the and others.
Our $700.800 million.
Products were going.
And to reduce our procurement initiatives there.
Eventually we may do some re alignment throughout but not right now.
Okay and lastly.
Robert I thought it was.
The breadth of if you can hit the net debt to EBITDA targets that you've put out there.
And do you care to provide some color on what free cash flow could be this year or how to think about that I realize it's kind of a messy.
The quarters.
Yes. It is I think the way I look at it is.
And where are we going to end up the year of everything else being good growth.
Bob.
Sue mentioned, where we were in Q2, we had a really good Q2.
<unk>.
We think will be around $750 million to $800 million excluding charges.
<unk>.
And against the areas, because we run and increase our <unk>.
Available cash.
2 of pay down debt from what is now about $670.680 million to over $1 billion. So we can't do that.
On a go forward basis, if we didn't if we don't have the.
Of those charges and we go forward I think of 1 billion of these and nice number and I feel comfortable.
And if I can.
Cash and get that number and maybe in 'twenty 2 maybe at the 23 would be more appropriate because we are of similar expenses in 'twenty 2.
Okay. That's helpful. Thanks, Robert.
Thank you.
Our next question comes from Mike <unk> with Wolfe Research. Please go ahead.
Hey, Thanks for taking me back and.
And just kind of changing gears and your commercial aerospace business and I know that Asia is certified and <unk> hundred 20, now but have you seen any demand indicators ahead that would sort of point toward a change in behavior on monitoring the cabinet environment Post Covid and then generally just.
And.
Those types of products do you sell those to the manufacturers of the airlines right.
Right.
As with most of our products in the after market coming out of controls.
Directly to airlines.
And we have at this time Mike.
At least 2 major airlines.
The testing the cabin.
The environmental sensors.
We have great folks for debt as you know we've quantified detail of the 737 before in March and then yesterday on the <unk> hundred 20.
The bulk of the carriers.
And.
We.
Right now introducing those are presumably by the months is to give it to them for free so they can test it and where we're not going to do that.
So we have high expectations for that and.
Just like in some ways.
With the knee version of what it means to reduce the.
The wireless growth many years ago.
Overall on the aerospace.
Space businesses things are picking up we were relatively flat quarter to the year over year quarter over quarter, but things are picking up.
As of men.
We are seeing the.
Something drive.
In the second quarter orders of 1 <unk> book to Bill.
That's very healthy for us because that's of high margin business fault zone. So.
We are optimistic with the Boeing putting.
They're the Maxine operations and some of the.
The other airlines, especially becoming.
Profit evolves, we are optimistic about that business will come back slowly but surely.
Thanks, Ken.
Sure Mike.
Thank you have a question from Joe Giordano with Cowen. Please go ahead.
Hey, guys. Thanks for letting me back on and I was going to ask about free cash flow, but Robert and thank you just answered. It a question of go so maybe I'll just finish with.
And with all the buzz going on with new space launches and what's going on and the commercial landscape can you maybe just talk about what gets you excited.
And the space as it applies to you whether it's true.
<unk> of our European Space agency or commercial like where are you where do you think you're best positioned and where you're most excited about.
Well.
I think a firsthand for most.
And we really like our job.
Work and infrared and visible.
In the space domain.
And to do with satellites, we practically.
Supply all of the.
Detectors scourge.
Space based.
The observation, both looking out and looking to the Earth and.
Including a lot of the environmental.
That is whether it's carbon or whatever.
We own it.
A big chunk of that market and now we are moving through the class enterprise space. So we have some great and imaging products in the class of bright.
Space programs.
No.
In the space travel as of late and however, you want to call debt.
Yes, when we make some products for in terms of equipment, but we.
And we're not that Inc.
Walgreens is right now I think our focus has to be remain with sensors and information technologies for the immediate future, where we'd have a strategic advantage, because we kind of making product sensors and that nobody else can.
And with each of these visit low senses and and now having.
The other channels.
The clear core earnings for the product, we think that that would be the place IC and upside for us.
I don't know if Bob.
And then a little cautious on commercial space.
The development, we do have.
Have some piece of communication and the.
1 web program.
As you know, but everybody wants to know the thousands of satellites and.
Based upon the interest gets you kind of emerging.
Yes, definitely and just 1 quick clarification.
When you said $1 billion and cash flow for 'twenty, 2 'twenty 3 something like that was out of free cash flow of comment or was that operating cash flow.
And you.
That's free.
And so I thought thanks.
I move the third year, the immediate use of free.
Yeah.
I got it.
Thank you.
Yeah.
Operator are there any other question.
Theres no 1 else and the queue. Thank you.
And the in that case.
I would like to ask Jason to conclude our conference call and I want.
And thank all of you for the.
Doing so much homework to ask a question that kept me on my toes. Thank you Jason Thanks, Robert and again, thanks, everyone for being on our call today, yes. The other follow up questions or seek more detail you can always call me as usual is the number on the earnings release, So Amy if you would.
Go ahead and give the replay information.
Thank you very much.
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