FLIR - Earnings call transcript Q3 2020

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Operator

Greetings, and welcome to FLIR Systems Third Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions].

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Sarah Key with Investor Relations. ma'am. proceed Please

Sarah Key

Events and note everyone, slides for the at in joining to Investor of Good Web Relations our thank earnings Please site the available are that this presentation Presentations press call. section on FLIR's morning, www.flir.com/investor. call you and release referred and

statements, our Words believes actual to of as materially and today earlier for well to of estimates, remind and information Act Before historical statements future we to statements forward-looking and anticipates, facts to our statements similar Please is statements. discussed based to and no from the Securities on results factors from expectations. the COVID-XX. or on and Reform intended earnings actual you duty are meaning risks for Litigation are differ that Private begin, XXXX forward-looking current we like including, are this made of events are All to within a that to FLIR undertakes I'd uncertainties press such call expectations. release SEC issued the cause circumstances. call of these today as update than results cause expects, as that related subject to words filings this intends, description and differ FLIR's on others, among the identify could not These other does materially as refer could intend risks expressions

my the to release. President With CEO GAAP Systems. During morning's press in non-GAAP it's of available non-GAAP Cannon, measures. now measures this call, financial A full the will to Jim pleasure reconciliation call from discuss we and and turn GAAP earnings FLIR over to that, is

Jim Cannon

Good for morning, and Thank XXXX quarter FLIR's joining earnings you, conference call. you third thank Sara. everyone,

My priorities, will additional financial of relating is our quarter on our our call strategic operational the performance an will Galindo, and Officer details Sonia on Lowe, today highlights our General results. to me on provide continued Carol on with Here progress outlook. Financial and remarks comments Chief Counsel. cover Carol the update third business QX

Before their extraordinary task accomplishing of we FLIR challenges the despite begin, everyone at our pandemic. want thank I for to effort the

our our and and strong customer our safely. needs facilities operating We is with integrity, are supply are chain meeting intact

to this weather Additionally, FLIR’s pandemic. access liquidity strong effects sheet capital prolonged balance and of stability continued provide and and the to

During conditions despite to across time, pleased markets. important and earnings our technologies in make our posted to the we providing arising quarter this livelihood market, globe, was ability some end dedication Overall, deliver of expectations macroeconomic with to growth. to inspiring. difficult FLIR's operating help that bring innovative lives your is with decisions line customers new results pandemic around informed critical mission, and innovative save and the drive products our more wins, from expand adjusted program I margins the our commendable

to embarked continues And momentum pivot that years are we confident strategic build. is working. upon Our two ago the we

our while I company. is Through insight as and sensing to decisions. for with commercial to is markets efforts, revolutionize awareness integrity recall, term intent professionals of provides in technologies continue class make and solutions focus revenue execute us scale may and task mission our commitments this to to franchise manufacture sustainable on defense our a world's on growth livelihood. develop company this, we and to FLIR's and us perception, in strategy programs achieve enable A and More vision, decision support industries. this more a from our the a record FLIR, winning course that save you differentiated strategy margins. away within best and believe to purposefully a innovate new consumer long for industrial to sixth purpose to more strategic company innovative As sense our aspect more, with and commenced broader maintaining to our the informed applications create We describe pivoting With increase exceed of class XXXX, key help best these would it's our that growth, large multiyear in margins. lives will framework human predictable

to go Slide Our unmanned priorities efforts roadmaps, activities. X the strategic and and Slide each more ISRT, sensor in solutions, of like and leadership are surveillance, detail priorities, presentation. our one outlined summarized research achieved, on reconnaissance strategic These and presentation, support. solutions, X help intelligence, which development decision and priorities recent we of these have include shape of review ongoing the targeting in technology or market on highlight and I'd advancements autonomous to

sensor with begin leadership. Let's

first During modernization the are funded respect with future are quarter, which to wave sensing DoDs of thermal sensors record. for long priorities, newly delivered technology as developed notable visible cooled on program to such with search FLIR's track, a materials, blending vertical among infrared radar believe applications. based critical the made in sensors lift we progress and others. infrared autonomous third cameras driving for we uncooled We've and These and

work in essential is systems, advanced space assistance suite. an or ADAS this in Our the driver thermal has component sensor proven that

leading establish unmanned autonomous and market end In integration contracts to sensors, continue acquisitions leader position by Aeryon sensors companies. and long solutions, leading in we already year's that deliver systems have autonomous small of in with as solutions. a helped and on leverage multi and integrated have our Last continuing global automotive platforms to group Endeavour unmanned exclusive FLIR ground be domain four to markets systems. and air autonomous won vertical one for the FLIR’s We of promises term, largest believe the thermal

from the the the robot, growth the that or end provide company. the recently payload, is sensor application. highlighted for the one by we the airframe to have franchise integrated software to opportunities solutions awarded. delivers most vertically term to near We’re These use significant This programs the been of

solution for Upgrade, Nuclear, Vehicle Chemical, the the the heels Army. Suite on million we award million of the safe U.S. award identify CBRNE end-to-end follow-on chemical, and development is for software expertise, systems This Army standoff Reconnaissance solution. ground last and an and program with programmed integration year. detection FLIR's assess The and threats we to won program incorporates Biological, deliver Sensor to example, unmanned radioactive uniquely initial air won $XX For SSU, provides a and NBCRV warfighters a $XX or biological

full million to than $XX ground subsequent quarter Additionally, Centaur to deliver end, unmanned of we million on follow more received production rate vehicles. $XXX order FLIR's

II, program. award million This remotely sourced received orders received four sized FLIR QX, a is II under Centaur the the detect, of contract Including Increment is System provides standoff Robotic totaling reminder, that identify Inc. nearly hazards. year-to-date MTRS a capability $XX confirm, medium the UGV million system of a in operated, and latest Transportable being dispose Man Army's to Forces. all or Armed branches from has $XX As

at Looking unmanned aerial systems.

U.S. approximately SkyRaider night in SkyRaider range, far awards provide imaging our day sensors awareness. to electrooptical, The year, million RXXD received deliver So this government offers situational long and that $XX to RXXD federal customers. we high resolution, infrared

surveillance the capabilities. support XX small addition X In platoon SkyRaider, to continue reconnaissance strong we that our to unit-level and see demand UAV Hornet gram and Nano Black for

with another U.S. We Sensor worldwide. the year, are key security forces year as follow-on the Borne as under won contracts currently to last other Army Black franchise this defense well program, to delivering program we Hornets and Soldier

$XX system to In close lightweight quarter, we of program Mobile surveillance our the Protection's for vehicle million Border Systems, U.S. received the third from Customs Agent or award the addition, Centric MACS, subsequent and office.

of family the the can detector From demonstrating competencies to future well such vertical Turning and capabilities, the is the within newbuild tools from plane and products. to integration XXX franchise opportunities. powerful harness product focal growth, the well to the for as deliver provide ISRT, the we of sensor solutions, support generation XXXX, we of a to capabilities our next to optics system, to laser are within XXXX innovative to lift. The unique are as in-house or vertical crystal addition retrofitted next a growth able products. our positioning our FLIR program future XXXX decision support. decision be example FLIR's array, cornerstone to of newest to brings designation capability where FLIR portfolio evolution platforms used series core airborne matched XXX most for integration The One highlighting gimbal line our

across Our data our strategic platform technology Oftentimes address for by was To information. the that Transport we and Canadian integrating sensors in Security all digest all systems specific priority by to domain core ability screening is first a acquired decision decision help FLIR EST solutions. FLIR launched support. the human's and Spectrum, analytics Canadian can managed fourth support deployed of airports outpace this, subsequently Air the Authority. version sensing Spectrum developing

strategic platform This classification. a X the slide by Neural intelligence with that the to multiyear process workload in In franchise to Target NNTC, This addition, depicts the and of largest that slide fuel history. recent pursuits pursuits and FLIR's amount in the XXXX programs most this of the the well expect to under the we in programs which pursuing that FLIR we've recognition we're artificial Slide significantly Classifier, Network coded opportunity our human represents FLIR's platform. bring priority won color Today, by we or target large to sustainable updated growth and FLIR. which deploying programs beyond, have target of information reduce fall. operator applying assist demonstrates program also can are reflect on

more detail on our X. of elements key discuss in Slide Let's pipeline

are development in pursuing, $XXX XX or relate has We is $X.X including of have at of stages valued opportunities or or been the over production. programs we franchise billion over Approximately million of $XX opportunities each more. where XX% FLIR or initial billion selected the opportunities, to

partners. pipeline pipelines autonomous and And with Technologies allied Industrial Defense includes U.S. foreign mix driving of A&D Technologies opportunities and large primes opportunities. our Our a diversified include government

us of and about While we to work these execute, the and excited opportunities. optimistic acknowledge are win ahead we

XX% execution our performance end, total turning relative the million. reflecting prior highlighted quarter, reported priorities. for $XXX million, quarter year several against At Slide of We to our program was $XXX quarter demonstrating our to revenue backlog Now financial X. key wins, long-term increase successful strategic an on further the our

diluted last X.X% outlook or to expanded year details increase Carol XXXX withdrew year. On net our will performance on third of full bottom line, share, adjusted due the provide financial year, the COVID-XX. our income $X.XX quarter from Earlier we $XX.X an more this to million shortly. per

the we remainder growth on learned quarter, expect adjusted based the our operating from However, to reinitiating per of and fourth outlook environment, year in full today, share. XXXX and for in guidance deliver are results we've earnings for COVID-XX year-to-date the year-over-year what

provide on digits. our I to to adjusted grow in addition, and that and revenues conditions low expectations, mid-single the both earnings believe on XXXX like will XXXX. Based per In share initial would perspectives market we current

will XXXX some currently million backfilled to in regards approximately of provide With on need revenue expectations. from in be we me XXXX behind to $XXX EST, our XXXX. that details EST Let revenue key assumptions anticipate products

are a year-over-year core that Industrial the our recovery confident will Technologies We EST of comp. businesses the of portion offset significant

demand in our the We offset continue to unmanned than America. with customers improvement is from of which experience in in The solid the XXXX and earlier expected programs. come Asia, the solid pandemic Technologies recovery from where Europe in the balance year-over-year growth Defense rebounding, particularly further to we from fueled of from by is North along parts year expect principally

While there commitment are priorities. spending, is a pillars and DoD with to our the there aligned modernization DoD's well to modernization four uncertainty is

foreign government. approximately of is the Additionally, on allied Year we revenue opportunities remain to military date from very our persist. U.S. which directly direct derived third one focused

well second, Responsibility, sound activities an recent Social Turning a in of making CSR that efforts like impact. called highlight as our operate employing impacts starts and our practices understand opportunities with we Slide manage greenhouse our help being committed improve our We that continuous improvements performance to in the to for including combat sustainable planet, and our areas; with positive their creating and developed and recover we briefly with on I its FLIR reporting to market to as solutions progress FLIR audit and Through to investing home potential. practices under focused at organizations FLIR's and monitor change, a to applying and our Fund, vital FLIR's three a is of part risks have poaching Kenya, CSR, business we bringing our first committed on products simple FLIR customers to wildlife We're FLIR of a World aware impact in in; three in with That philanthropic corporate future. in own world project on the operations. align are a In better first, sustainable climate areas: our using stop culture extinction and purpose efforts FLIR is XXXX black positive mission Corporate illegal planet. X. focus began on Kifaru to environmental objective, difference community the to issues, around which by and climate footprint. emissions. gas technology. HERO using our the rhinos conducted with would of in Wildlife Rising operations partnership technology to a towards environmental of manner; as both involvement to important our represents monitor imminent to tracking climate-related is sustainability investing on ensure or XXXX, in us to impact globe. make live environmental danger a benchmarking and working inclusive in program. we key finally,

we've second we with thermography training which USA, trades. can XXXX, a and skilled we the who a TradeForce career. free want focus transition help first to veterans veterans Together a start For added responders to or Heroes purpose, career expand into launched Program, the U.S. in Hire provides specifically, how on

For on and a expanding how make XXXX, to engineering more it technology, and subjects attract unseen imaging mathematics potential, youth interesting. we're to the thermal encourage can explore specifically of and STEM world our program science, developing

our are to summary, In working the look enhancing I'm will And on Carol Carol? quarter term of that, disclosures XXXX results our now corporate calls. forward our resiliency details actively our the model. in and confident With demonstrate strategy. the turn be on additional you activities outlook. responsibility that our value by on We third created business call long and over financials on our the future to updating for I'll

Carol Lowe

Thank you, Jim.

demand million revenue, financials GAAP included We a in of EST of Industrial appendix lower segment which to are segment. of end presentation. for the Please in year due COVID-XX certain as product Slide of basis. to quarter Looking summary is a systems Technologies quarter. in These were of generated contributions for markets to find all the A financial note Industrial in quarter sales and data in and volumes maritime third on you'll X, revenue at supplemental our The our our unmanned well contributed contracts segment. Defense as in Defense revenue drivers of volumes by offset reconciliation timing $XXX segment, the the the these non-GAAP results. Technologies third with our in revenue prior our commercial in primary higher Technologies exception were that Technologies for

our of quarter totaling backlog in second $XXX September positive delivered quarter Following XX% million of or as approximately XXXX record XXth, million trends $XXX another is the backlog, demand which of of strong current.

Our in general reflects points, margin the to and partially profit and operating lower-margin an Ready administrative margin COVID-XX slowdown for the demand by adjusted decreased reflecting segment Be demand basis operating to on XXXX growth Technologies. our income business savings as in lower year Defense second improvement year margin million, and term segment. such of $XXX overall basis quarter in expenses an of of Technologies income which the travel The driven compared and Project an quarter, Adjusted million, gross by EST in adjusted long resulting XX increase basis our $XXX expected and achieved Technologies, unmanned Technologies in driven Adjusted increased by unmanned the XX% compared Industrial mix gross in our XXX costs operating relative Industrial points primarily our gross year-over-year quarter. in orders volume was XXX total in marketing of an was business. operating XX.X%, Defense from prior adjusted prior of margin selling, backlog initiative. systems cost favorable for quarter during continued to the and of in offset points improvement reduction XX.X%, expenses, resulting was of product increased Adjusted

reminder, to a our to $XX Ready during $XX annual the XXXX the fourth objective reducing of million investments million As the of launched of strategic Project by we for our needed priorities. quarter advancement with expenses operating support Be

it some expenses to Be relative While is Project normalized clear return to positive results. is once cadence, a quarter yielding operating levels activities more increase we anticipate third Ready to travel

in savings million in previously We $XX achieving track million the our are XXXX, reach savings announced to range. and in XXXX on achieve of gross high end $XX total of

Slide will Industrial third business with to beginning segments, XX. performance quarter Technologies. of I Turning the two highlight our

Third quarter revenue Industrial was Technologies was trends. $XXX by million, impacted X% directly COVID-XX up year-over-year. demand revenue performance

become impacted the saw what environment. current significantly Segment First, to offset our up revenue year-over-year, mix driven which in demand Revenues as the the quarter amount expenses. in higher for product exited expect was as third in thermal application lower contributing screening cameras first a volumes sales, by expense reductions combination of we income insignificant by rebound backlog, quarter. but sales Also for in lower and Technologies end revenue be at the COVID-XX. line to EST to from an experienced to applications year. with markets, maritime has marketing with recovering product operating contributed are of the than of as We level million continue to lower various increasingly as operating $XX expectations, increase were boating demand stabilize commercial travel favorable we EST-related well and by we volume, Industrial in $XX EST in half XX% activity the continue for was partially million, Be Project popular a in Ready, the

and third The third term revenue million quarter ratio timing margins that the quarter, in quarter, we customer increased XX% points our a XXX of award a segment quarter for and partially $XXX by continued revenues an decline third increase to the the of long to administrative year third This attributable of systems. was of sensor-related as the a the increased contracts year-over-year revenue decrease backlog the Defense reflecting quarter, Total Technologies XX% offset XXXX XXth, for bookings of result third to $XXX year-over-year. of of increased As book-to-bill $XXX COVID-XX. a experience in of Industrial were orders. orders volumes completion was lower compared quarter million X.XX. the In prior is year-over-year. large in volumes XXXX. September new were sign-offs as timing in primarily basis contributed businesses unmanned to segment result at Technologies certain a an volume operating in In delay reflecting result, and million,

in million, far support a to Defense the we're fourth Segment the which pleased as Technologies a decline revenue and So XX% these will lower from costs. well $XX Be of lower travel quarter, to improved sequential segment. volume, the Ready secured have of Defense orders, number by Technologies year-over-year offset as in income for operating partially revenues improved expenses due was operating Project marketing

the a were quarter, declined result third $XXX at basis As margins $XXX unmanned segment X% up systems. Total points Technologies operating result, increased a XXXX, primarily of million, in In book-to-bill year-over-year, ratio as of million XX, Defense year-over-year. reflecting orders XXX X.XX. was a bookings September backlog

$XX related the namely favorable key previously an less capital sheet of the discussed our timing period third to stock to meet back safety products due $XX operations issues and a was cash for used the capital expenditures supply in ago quarter, changes, buildup XX. Let's payment to turn the We million. of $XX contract future fund cash flow quarter demand. provided chain balance operations increased year This to flow from the adding same working COVID-XX our through operations timing by to from earnings and in million to by in highlights XXXX, to in million capital shareholders partially Defense after million the Technologies adjustments. in net on Compared dividends. $XX Cash $XX of down by increase second million returned was and provided light of higher Slide cash inventory noncash offset of prior

for under unsecured of general which current quarter, million the million We XXXX outstanding XXXX. capital liquidity X, notes balance due million $XXX approximately approximately with comfortable due future during of capital, used million senior quarter corporate to a X.X% in of working $XXX expenditures, XXXX, and funding announced, cash for the repurchases. notes we sale may of $XXX August purposes, redeem XX, June an notes completed borrowing the and include stock $XXX previously offering our credit with our capacity The As remain position, acquisitions from proceeds were facility. the our ending and

as back the Before XX. to over to call noted would outlook I session, turning operator question-and-answer Slide the the like for discuss on our

As results updated reinitiated Jim fourth highlighted, and we the for projections on our XXXX quarter. based and outlook financial fiscal our year-to-date have

October be as the year based conditions, continues pandemic, stemming trends current ending follows. there the for of the is our as macroeconomic XX, to uncertainty on While outlook market XXth, latest COVID-XX today, demand December from and XXXX, full

share year in full adjusted the range effective full you expect XX%, billion; questions. margins of to our to tax to the expect adjusted XX% Thank we'd earnings and open of billion rate to $X.XX remarks. up now like the With operating $X.XX; tax and approximately prepared diluted we be range income in non-GAAP call consistent We our time revenue that, $X.XX and per attention. of for year This rate your Operator? year-to-date. the for with concludes $X.XX

Operator

Instructions]. [Operator you Thank

Arment Our Baird. first with Peter question comes from

Eric Ruden

expected morning. regards in kind are fill EST to Eric XXXX some to regard what Ruden mentioned to the the product see Peter as of you of that just backfilling that, for line you gap? in and My of this buckets in some the of You on some is actually headwind question have in million $XXX other

Jim Cannon

seeing saw wanted principal insight And with stated mean it's associated the we and much implementations, that we QX, building pandemic, larger is time is decisions really Much shipped the the on the of level probably access with pandemics, about implementations We, right QX. about interesting it off. due in although, building. as we're backlog, past we're said, But in going course, other provide buildings. facilities the prior in cetera. quote increase, longer. What's rapid lot approaching million. And are for I And enterprise there's as unprecedented et in of like controls $XX to on control there's and is the prolongs, million we taking million XXXX. we're and to demand are increase uncertainty, $XX into as we as log to pandemic that this trail this question customers, $XX that of nature a access those how calls, long actually now,

as we And it's we without at So produce. EST products any look really at EST tailwind. notable be have core to look we of. XXXX, demand a to will And we business speak that if it get able capacity, be our plenty to of

do than We've rebound quicker, gas so has to kind definitely around expansion Europe. to and won't America than seemed in a it from first, cetera. businesses in gas industrial So decisions imaging, But gas answer certainly notably, imaging imaging But we plant monitoring, beginning refineries other saw as those and shoots thermography, to detract that question, I the lot North green preventative we maintenance, maintenance, business. oil controls, ultimately, particularly plant critical core we're postponed capital seen real at of comes and emissions. more in these our and mentioned, lot if Asia, they sharp of in see are decline a those really And when in forward. to businesses as technologies, et most core specifically a to Asia safety monitoring look optical need in, technologies, just go it of other around business your oil businesses, preventative the

just that business we do come industrial back. core So see

bottom at of security in what XXXX we're the think also We can really commercial be.

into a intelligent able exiting QX held of our in traffic business industrial won't that delays business, offset Different see QX. headwind. and seized now into be that also lot of the up were different to alone decisions But regions XXXX. forward that up going We but really kind

balance our the to year. that business through We defense will do business. come grow of So defense next our expect

had LOB when at Now as growing exactly And there's doubt growing It's There's is the would sensors segment. distinct then the business it the LOB. we we very unmanned look defense when strategy. embarked components quickly. and no upon inside the business, two unmanned hoped the this we

of to So it's going bulk the contribute growth. that

balance how between offsetting of arbitrage rebound year-on-year uncertainties is we we the is feel us qualify. ahead be still to the of and comp. core defense industrial fully not But that certainly for are So I'll first for There cover the what the from of coming a can lot us.

Eric Ruden

looking what's think a at quick of segments, follow-up, margins kind the for And kind right of When about of just to going next the year? trend on each staying that trend. way maybe XXXX from commentary into should really defense How the mentioned? levels? Obviously, also, just are we two programs the those Thanks. ramping industrial. with sustainable think margins quarters you've how strong And about on any then

Jim Cannon

that of So the not We like first realization I savings I and such made gotten into mentioned. We a had roadmap comes through really sets, skill yet AI quarter to Be that the for company. our a across mean areas new lot pivoting of low margins required advance watermark it the technology new when to us investments to was Project the pivot, had Ready. and

about, saw course, rebound. is that us, a second sharp very But the mix. talked you in The of mix accretive was mix-driven. EST a So quarter, lot we for of EST a as

it's quote of business, -- right EST see that EST here strong component. we to into business still mentioned transition. wins, purely of and seen I note, a normalize much really earlier. business of QX, growing going very there what in it's a have in We a You've Again, that industrial business this that begin is log kind in industrial historically. will quarter although In the line tailwind. a because that I'll and kind the into follow-on like if there we I of where do be trajectory that been are the XXXX feel defense middle revenue would with stabilize look at fourth

of future has airborne being and through in business these defense more with change airborne on lot delays a of bigger, unmanned happen next-generation need some of been legacy vertical to technology made lot that principally lift defining a like, smaller decisions about And what first. the Our marketplace and systems was as that market longer-term decisions systems, ISR. looks of ISRT more

has going bubble, created to that of an advance business ISR for while technology that XXXX legacy roadmap. air of our and XXXX us in a and also bit make time given it's lot into airborne Now a investments

into we've As we're years business the directly sensor launched on of launch go impact. that more our to contribute five XXXX, than But that we XXXX in combined. into the prior going products won't side

drones to So to we've calls, remarks do said And just as Centaur it's from overall scaling We in earlier unmanned into our will. got we're really unmanned business. going we've the you now unmanned we've as now And nano the of there, and systems. vehicle, growth for the ground coming prepared yet are small the systems. accretive a lot that ground aerial on production got full-rate work mentioned the if systems

see that the we'll scale So year. throughout

Operator

next with & comes Our Jim Ricchiuti question Needham from Company.

Jim Ricchiuti

Thanks the I XXXX. on toward relates the back business providing half would business similar business it year. Typically, year? you're just a see that to to a little it fair pursue defense for next see of year. as wanted skewed this bit in next assume some Is we we the heavily that to color the being that to growth just more, cadence you're the anticipating

Jim Cannon

to of fidelity defense we because will. again, But of provide pieces think of I stories. business but it's is. a I going important don't that defense you the different lot into where kind think understand the forward, very we And segment different Jim, Yes. deeper are

really Our Prox, market growing forward soundly. certainly of exceeding unmanned about. tech excited our we they fro. and we It's share, because addressable didn't It's what Hornet that's market when are that we're modeled exist. or ahead Aeryon came the to look like the It's creating scaling. weren't capability really There before We of actually put really expectations. acquisitions and as at Endeavor business is programs Black things what the

are And so to to new pretty we're throughout the to weapon-mounted products well handheld systems, opportunities, market. what's see weighted. squad platoon-level to maritime capture us And to aligned a legacy see continue to unmanned the products, market of small are more lot through they strong where to that opportunities And they with share In are. the advance create ISR, new year, more growth. space. right gimbals, a bevy airborne we're create for the going market coming work now, new or to And back-end in possible program going you'll XXXX of

it smooth. back-end question be to year, But more unmanned will your answer weighted. bit likely the be much will more yes, a So throughout most directly,

Jim Ricchiuti

And just you're directly with guidance respect of to the that impacted Is implied more industrial is revenues, from QX that business? the that giving. range

Jim Cannon

and they problem customers about range we be No. provided delays orders, million, have $XX-plus a reason now, $X don't their The that million have the orders we'll right own particularly they're $X significant -- And with million, care have probability really It's our we of of and such. that administrative bit $XX million, that can lot probably we orders high a and winning difficulty is quarter-end with they and And calls. come. much when working through real a COVID, unfortunately, predicting earnings processes our everywhere.

range there. provide we bit So to of wanted a a

do have opportunities We on defense binary quarter. typically reinitiated into but are single the of side. well on some larger have the industrial the that, course. the fourth confidence wouldn't or we're both we -- course, But Of

Operator

next comes Ken Our question from Canaccord. with Herbert

Ken Herbert

up Just detail. to and the the 'XX additional follow on appreciate

we 'XX, margins that much you will how much about, are Ready. in guess, How in expect million or the effectively? through As keeping actions costs of Be your $XX I incremental to you take of Project drop of sort think out to

Jim Cannon

Yes. I'll more take it, let and I'll question stab Carol a answer at directly. the

carrying low-watermark One, and rate of deliberate our it was to this very of the into line. wanted we Again, not we lot as OpEx do programs we technologies, on sure make were was yet new not because in first compelling couple needed into the execute we year. things. pretty that to certainly get we could we as well that quarter said a to some win production. that QX, going But won phases, cost making we in development had were So with QX project, to through investments a back expected full or

we Neural other beginning see say, largely some just place And with, and I'll full example, for investments needed nice to result to are things. have to in rate Network and make, the Classifier of to the Target production we're those get Now delivering into that absorption.

we like where to feel lot wanted So those roadmaps, we to fund of a building self we've that we future said meet effort technology the place. investment in got blocks

impact. to Carol? So positive have overall a working now certainly

Carol Lowe

breaking out we're not right Ken, amount specific a now. So

our reoccur knowing into you run to in. of on that back offset imagine, the Ready trade to lower, around assumptions continue of the how of that and COVID-XX as savings As at some about we all marketing, and move we carry would factored travel, Be the you XXXX. will timing are can kind XXXX, show of if for get normal-type levels much year And Jim talked uncertainty taken that and more the obviously, stabilized confident OpEx that a expense some as trending that rate certain be will XXXX, But forward. will we've look that

feel for the So it's be to many so are a and relative XXXX, There running pieces out leverage that we'll like standpoint. XXXX of to comparison expenses, we momentum positive definitely as hard and favorable with puts and forward. move that expenses standpoint really we've all we from operating share from takes got just we'll an break a have much create better our lower mix earnings terms in per

Ken Herbert

the just you build commentary a sort quarter? inventory maybe the third for of then much flow just as any capital Or fourth working the of quarter And can assumptions realize to you how give in expect do cash free in XXXX? on follow-up,

Jim Cannon

definitely exiting note want -- second our glad interrupted. In I'm to quarter, first second We the up. quarter severely the and question. there. that great brought the a you happened that's chain supply what was Yes, quarter

we shutdown to had. make of to that sure unprecedented this we the ability. to of all out fight with we product particular, that our with when deemed were Also, chain even we As that shutting to issues supply We could foundry help stressors we There and demand down transportation compelled completely. for the pandemic felt trying spread nonessential in EST production, were ramp mentioned, we best were we vendors had internationally. the had EST got that

made a we frankly, So lot of really aggressive inventory. on commitments

aggressive made to and of them to to front line bolster the to vendors also commitments secure We get to supply. up our the

chain down. we We we've issues where supply now. from are supply into through we chain really are as the second to a feel those intact the Now quarter, got with standpoint, third quarter and work with comfortable that come

you what coming our work that reaction number in really to interruption saw ability got protect was to second to a the quarters. in ship. So quarter supply the chain And we've to down now

Carol Lowe

that we about third what of quarter down minimum a in build would And reduction to it a of of be worked in it, say XX% should a I is would that about inventory expect QX.

have and concerned the generation. cash carryover will some We We're it. getting very on focused teams all XXXX, but not the into working down are levels for the about

Operator

next comes with from Ciarmoli question Our Truist. Michael

Michael Ciarmoli

defense or got in the Carol, there's election. XX% outlook, that mean seem given defense it, unmanned. seems it pretty growth just unknowns level, million, now to backfill, the sit on sit here I thermography expansion looking 'XX mean to We've get despite you core within going right confidence guess of budget. more I we get optics and I line. here guess, the as unknowns we EST, What's the margin mid-single-digit And got And backlog? get I of corporate lot what's just Jim a we've today, as the the the mix like down today? guess with growth. need XX% at aggressive. strong you less that that you're $XXX growth probably at I To instrument

Jim Cannon

of we Like One, certainly they'll of big and best rebounding. to then bevy defense as we I are coming couple core as full comp, unknowns, a rate Also a at had. it. of yes, that in the them look of unmanned the I there are a EST of They mentioned, I we But businesses unknowns. of won't doubt. that, a programs earlier, kind just take into out in certainly insights there's mentioned, lot that to that but industrial, provide do Well, chunk now, industrial going particular, said our And qualify wanted majority no calendar business, we systems offset business things. production go the year. as see a

right just earlier OpEx certainly don't away. that I'll that see note We returning the better also controls that we with a feel in margin standpoint, is are our mentioned Also, from strong. pretty backlog we place

double is XX got up such. we of X. Our book orders both X little both bit north defense trailing a backlog month industrial in We've digit. understand the and that's But and QX, below bill year-on-year to of in a timing

still the foreign also defense lot is The that with know there in have there. there. requirement allied side, still delays a We particularly been is The of on decisions militaries. need important

have I really on them growth quarters, the so is side. it the But to the And coming in comes in pole months as unmanned we and hope to long when mentioned, happen. tent that

growth be the mid-single in I the digits. to comments low said, Now the would in

yet will and the third So historically But government. DoD remarks into in at expect from comes do We to course, work that dials thing is, budget manage, lot modernization for provide preserving The we're of But in the end of what modernization the that's without to work AUSA, about, in the there message industry call, business uncertainty, of there. and mid-single have of with going our perspective note a The be you business other at time. what our that went is they said a But about on loud lot on to been clear out going has right more look fidelity. the that but But turned relationship year, been to like in decades of business right there's against the the with down. [Technical to readiness, look, we're much the now. matter happens the now and one next with we we probably top Difficulty] through two I modernization. digits, pressure transformation, a higher in learn we're has okay, we four directly line one is those earnings a certainly, as agree But been modernization events election. strength, A&D sent the more guidance now. now of and [defense] lot real and senior with direct got three seeing was after mentioned right we is there it of a coming And no line. our think from the we've U.S. discussion to years, past, top that But that otherwise. there's significant focus was militaries. priorities aligned us the lot that Right foreign doing for we recently was the past for the leaders well if allied do, primes a I positioned largely

Michael Ciarmoli

modernization, I on table modernization follow-up going a mean, Just the have really have at Army in doesn't tested I near a peer on forward. stress the mean the that portfolio? you unmanned seat guys

future these framework, of kind payers So ground ground mean, with systems, be lift, vertical slowing. level to could have unmanned give of all level might autonomous, priorities, those of way modernization though or strategic even potentially in contemplated your they other soldier bill that I soldier Is systems, systems? some to level unmanned, for sort hypersonics,

Jim Cannon

a differently. bit it So I at look

effort created changing with Black and techniques soldier is procedures. And they are tactics, around One, the Army's level things the the a lethality of just now unmanned getting being that's And the squad platoon think great now us the these like only have. Hornet I small and is debate for to impact have fielded. at market the modernization systems.

ground suite for future next-generation systems effects, So if part survivability. are at a look combat of it. of soldier as lethality, Or form that lift, of we you look you look sensor in unmanned not just all vertical at a lethality part unmanned at systems but and vehicle, if the airborne-launched

tied utilized I group on be we're domain, you'd land we battlefield. all doubt, not struck warfare. the any about and to we're budget military of to any in But in appropriations. ground And or of around to I systems think There echelons actually will and come. air, confident that hard-pressed all huge be the be pretty that line no be So doesn't There's what doing like particularly doing, losers systems proliferation in speak air, systems fit where at leader will in a space. big, unmanned, there bet, more the more these small being I'm believe unmanned one sea. could about to unmanned item winners what

Operator

Capital. Our next question with Jeffrey from comes Imperial Kessler

Jeffrey Kessler

now areas technology finding it's really I'm that now. you've the impossible some that is areas to into reasons? but see point, pipeline XXXX Carol, of is but that's of are been Without because out, know, in XXXX, getting the the current that open kind could that of mentioned obviously, are at are in is, specific up, specific heavily what discussion some environmental obviously, that of off, are in of and the products, XXXX, slow where you just interested right it other the since discussion Jim what in timing being for a industrial whenever put

Jim Cannon

of a immediately Yes. things decisions, is that's flow forward. a that, and technology country just area Jeff, a of sort regions A them new and a be not budgets part I question. initiatives, going like happen, a and various cities, safe municipal across safety smart of would demands to train that's bridges, traffic can lot right manage just on roads, that's The with to tunnels, put that but agencies building would strained still infrastructure, as state tunnels safety are level. of but and there, investments part great Norway, different also way management, well those regions government flow been in been the around be such certainly it's again, city there's of a the and point new have depending have lot at infrastructure effectively do smart region, on building support continue make in hold. as And requirement But cetera. et part the of big and And them like lot traffic in intelligent a of our and And infrastructure. to systems. and in to traffic

industrial that not So side. most too that have commercial the as that immediate be bigger point and to or demand infrastructure the would biggest whether is lot projects, we that year they're infrastructure persistent or will earlier our go to in in will that. But a with of and natural such and gas there if industry. Jeff. or delayed just example, been is optical optical probably for things leaks fiords the data hope gas like This of gas one demand mentioned they've come environmental imaging, regulation solutions, in regulation. need their into oil with security quantify can they they centers, and more cruise one increase, I the And and this laggards imaging. emissions. environments, other for that postponed, Norway back. problem, differentiated gas effectively, not is but I is been If And these mentioned And places, rail business. and there like the other continued The around eventually. have that's tied a such, industry and protected feel products I has would do on they to informative, just security, where but We emissions aged more still we the

Jeffrey Kessler

if you -- ADAS point, you're in terms related And of to here. being and just -- obviously, bringing wondering these in chip systems to unmanned see of two any of sidelined related and at of they're coming is all traffic chip and timing with coming that seconds. unmanned that, Hikvision out. you more lips actually, obviously, Dahua -- quickly by just and into of in folks kind somewhat just And there's they But there general other I'm on the said what they chip with And manufacturers, makers this are it's are than their where government to flow. It's the mix what ADAS. some do like talking about makers discussions this every of the are about the directly like U.S.

Jim Cannon

want specific leading we is qualify systems around such. the form and tremendous continue developers you by that's there don't any that still and mentioned, our ADAS ADAS. a mention to folks. relationships we're to dampened of a in amount all at exclusive having not And safety I enthusiasm been But COVID-XX work Yes. particular, standpoint conversations from in with things to

long the not focused revenue. we're most But term imaging space. still longevity person certainly, got it's it thermal to on a that addressable of believe to be two really years going comes when and lead As expertise I the mentioned on But I we've four But to real hyper one impact only position largest to away in markets. from our that's remarks, prepared that's think there. the

Operator

comes question with Blair. Louie next Our from DiPalma William

Louie DiPalma

Carol, upon what roughly to break I and several is XXXX your touched XXXX? you unmanned could Jim sensors for out how growth growth the the legacy in you million the related this and if between rates rate portfolio? answers systems. contrast defense wondering the your And of in unmanned comes revenue was versus from in much XXXX $XXX

Jim Cannon

break that level broad I statements fidelity. will couple of will make about a I it. out of not

organic portfolio Endeavor Our Prox with just was of unmanned Aeryon Also, a then significant a from clip since then growing small nice and combined is what then then. base platform and with to growth year ramp through really that this a to deliver unmanned next will to lot of delivering the and year begin program begin pointed are that wins we that on side. now but in that

So the Borne those -- most Sensor, side. Manned unmanned System NBCRV Robotic are program, SubT Soldier SSU, the System, that's MTRS; Transportable or of all on the

as year the of our and to see squarely on mean losing in programs So aren't those outsized we're share, support going new really XXXX the that mentioned, decision and products I already central side. lot of that to out. pillars But the there. in airborne strategy. decisions falls mentioned, I related that there we're term made. there being particularly Again, ISR a near the doesn't continue coming with you'll of growth compelling big A and are And sensor set see come

Louie DiPalma

record growth is has are in with record know new But should should like sensors, past, not in programs -- is spoken you're XXXX, win range, your rate I is going programs? implied there's about products like sensor other the be unless these that programs of that products of extreme? releasing in future in some the that negative it alleviate associated how And XX% and not how in still you've this that part of is for part like for to lift the of of the vertical these you of it XXXX, legacy resulted specific pressure most pressure.

Jim Cannon

it's Well, cite that rate that but it's not mentioned. exactly as want I you not what as extreme is, extreme. to don't

New products programs. to us position future win

we that also allied win of direct products with foreign do us business militaries. position New to a lot

legacy those that where unmanned So other needs And dynamic those vertical is from these identification, to lot on see there That that upon. one into dependent went to network on life. delayed. COVID, that a airframes. few we're comp there's ago resided argue help a that with would of going products what an The business unmanned and been just out with made. digest no of I'll upgrades a forward. to with decision with other vertical has to upon the Sensors, hinges business, new happens is for able decision more going or future be side seeing the side, and classification, that's market products order that What more systems powered or sensor what on capable. year lift integrated bringing and U.S. and that been and we're then ability through. that action is more also this our the that note But making DR-SKO brushed. the to of a side requirement now grow decisions upgrades, to years intuitive that program delay. we're really will are up It ultimately what's classification more decisions next-generation target broad to interfaces, DoD, program, resided internationally, are of target future has neural growth lift pretty new in Also, person's in information. the lot I still There's the go

Louie DiPalma

is that Raymarine, the on the last asset one one, And divesting in with back rebound table?

Jim Cannon

business, the profitability think has levels. strong to for market Raymarine best growth term. for near that running Instead, we're decision no We're the evaluating near quarters share record continuing couple on now, portfolio. we immediate and our have with announce. fit very So a reaching focused of always take I had Right to what's innovate,

Operator

over like to At closing for to turn management back comments. this would the time, I call

Jim Cannon

thanks you to all also look you In commendable. and to to our and of report we our our like today achieve call your closing, on fourth all Their updating I our livelihood The forward for lives to to my commitments joining save reiterate and work like to in I'd company. is you, integrity XXXX for purpose, Sense would Sixth FLIR around our interest with our purpose accomplish thank in quarter and order task employees safe please the appreciation world. results. innovate We stay to and when task progress and to and World's healthy. Thank our

Operator

you. conclude Thank This does today's teleconference.

your have lines and this You may a at disconnect great time, day.

Teledyne FLIR (FLIR) 30 Oct 202020 Q3 Earnings call transcript