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spk02: We're sorry, your conference is ending now. Please hang up. Thank you. Thank you. Ladies and gentlemen, thank you for standing by and welcome to the Teledyne Second Quarter Earnings Call 2021. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-answer session. Instructions will be given at that time. If you should require assistance during the conference, please press star, then zero. As a reminder, today's conference is being recorded, and I'd now like to turn the conference over to your host, Jason Van Weese. Please go ahead.
spk01: Thank you, and good morning, everyone. This is Jason Van Weese, Executive Vice President, and I'd like to welcome everyone to Teledyne's second quarter earnings release conference call. And, of course, we released our earnings earlier this morning, before the market opened. Joining me today are Teledyne's Executive Chairman, Robert Moravian, President and CEO, Al Pacelli, Senior Vice President and CFO, Sue Main, and Senior Vice President, General Counsel, Chief Compliance Officer, and Secretary, Melanie Sivick. After remarks by Robert, Al, and Sue, we will ask for your questions. Again, though, before we get started, attorneys have reminded me to tell you that all forward-looking statements made this morning are subject to various assumptions, risks, and caveats, as noted in the earnings release and our periodic SEC filings. And, of course, actual results may differ materially. In order to avoid potential selective disclosures, this call is simultaneously being webcast and a replay via webcast and dial-in will be available for approximately one month. Here's Robert.
spk05: Thank you, Jason, and good morning, and thank you for joining our earnings call. For over two decades now, we've continuously improved our portfolio of businesses, our operations, and our financial performance, and along the way, significantly compounded earnings, cash flow, and shareholder returns. It is worth noting that Just over 10 years ago, a major milestone occurred when we divested our aviation piston engine business and all of its associated liabilities. While initiated earlier, immediately following that divestiture, we accelerated our pace of change by making increasingly significant and successful acquisitions within our digital imaging and instrumentation businesses. Our recent acquisition of FLIR accelerates Teledyne's evolution into a more attractive, higher margin industrial technology company, while at the same time maintaining our balanced portfolio, primarily focused on commercial markets, but with a resilient and predictable backbone of government businesses. For example, in the second quarter of 2021, 75% of total company sales were derived from U.S. commercial and international customers, and 25% of sales from the U.S. government. In the past several weeks, we've made rapid progress integrating FLIR by implementing Teledyne processes, such as acceleration of financial forecasting and reporting, increasing visibility of sales and costs across the organization, while continuing to enhance FLIR's compliance standards. Furthermore, we've eliminated significant corporate overhead consultants and other third-party service providers. And as a result, we now expect to achieve our annualized cost savings target of $80 million before the end of 2022, as opposed to 2024 as described in our final merger proxy. Turning to the second quarter results, The second quarter was truly a record for Teledyne with sales, operating margin, and earnings that's excluding acquisition-related costs. All of these increased significantly from prior periods. We achieved double-digit organic growth for the total company with sales from digital imaging, environmental, and electronic test and measurement instrumentation increasing from 17% to nearly 25% year over year. The operating margin of our legacy businesses collectively was an all-time record, and with FLIR, our non-GAAP operating margin of 22.8% was an all-time record in the second quarter. I should note that very strong non-GAAP margin and earnings performance in Q2 resulted partially from a disproportionate amount of sales from FLIR relative to cost. That is, given FLIR's current lack of linearity in shipments, we essentially benefited from eight and a half weeks equivalent of sales volume and contribution margin relative to only six weeks of fixed cost. In the second half, FLIR's quarterly sales relative to cost will normalize, resulting in somewhat lower margins, in all cases excluding transaction-related expenses. In addition, the average share count in the second quarter only partially reflected the stock issued in connection with the FLIR transaction, which will impact EPS in the second half. On a four-year basis, And after a strong first half, we now think it's reasonable outlook for legacy 10 of 9 businesses, organic growth in 2021 to be approximately 6.5%, led by forecasted growth of nearly 12% in digital imaging, excluding fear. With normalized sales for Q3 and Q4, we expect flares to contribute sales of just under $1.3 billion in 2021. Collectively, therefore, we now expect reported sales for the year of approximately $4.5 billion. Our new outlook, which excludes acquisition-related transactions, transaction and purchase accounting expenses, can be summarized as follows. In April, we provided a GAAP earnings outlook for legacy Teledyne businesses of about $12.10. On a comparable basis, our current outlook is approximately $12.40, which is 30 cents above the earlier outlook. Given the 50 basis points increase in organic growth from 6 to 6.5% today versus April, and 40 basis points additional margin improvement, that's resulted in the overall 30-cent increase in our guidance. Intangible asset amortization from prior to clear transactions divided by the pre-FLIR share count would add around 80 cents to our earnings, resulting in a pre-FLIR outlook of $13.20. Now, incorporating FLIR, including its unusually strong partial period performance in Q2 and excluding transaction costs, Results in full year 2021, accretion of over $2 per share, and thus our current non-GAAP outlook is $15.25 to $15.50. I will now turn the call over to Al, who will comment on the performance of our business segment.
spk03: Thank you, Robert. In our digital imaging segment, second quarter sales increased 143.9%, largely due to the FLIR 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. In our instrumentation segment, Overall second quarter sales increased 10.6% versus last year. Sales of environmental 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 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 were the strongest in the last five quarters with a second quarter book to build of 1.13. Overall, instrumentation segment operating profit increased 33.2%, with segment operating margin increasing over 360 basis points with or without intangible asset amortization. Moving to the aerospace and defense electronics segment, second quarter sales increased 6.5 percent, driven by an 8.1 percent growth in defense, space, and industrial sales, combined with flat year-over-year sales of commercial aerospace products. GAP segment operating profit increased 62.3%, with margins 640 basis points greater than last year. In the engineered system segment, second quarter revenue decreased 1.5%, primarily due to greater sales from missile defense 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, segment operating profit and margin increased slightly when compared with last year. I will now turn the call to Sue, who will offer some additional commentary regarding the third quarter and our full year 2021 earnings outlook.
spk10: Thank you, Al, and good morning, everyone. I will first 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 outlook. In the second quarter, cash flow from operating activities was $211.3 million, including all acquisition-related costs, excluding acquisition-related cash costs, net of tax, Cash from operations was $278.0 million, compared with cash flow of $155.8 million for the same period of 2020. Free cash flow, that is, cash from operating activities, less capital expenditures, excluding acquisition-related costs, was $257.2 million in the second quarter of 2021, compared with $139.2 million in 2020. Capital expenditures were $20.8 million in the second quarter compared to $16.6 million for the same period of 2020. Depreciation and amortization expense was $59.7 million for the second quarter of 2021 compared to $29 million in 2020. In addition, non-cash 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 approximately $4.74 billion of debt less cash of $695.1 million. The higher debt balance at July 4th, 2021 included the debt incurred to fund the cash portion of the FLIR acquisition. Stock option compensation expense was $3.6 million 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 for FLIR employees was $4.4 million in the second quarter of 2021. Turning to our outlook, management currently believes that GAAP earnings per share in the third quarter of 2021 will be in the range of $2 to $2.15 per share, with non-GAAP earnings in the range of $3.55 to $3.65. And for the full year 2021, our GAAP earnings per share outlook is $8.05 to $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 to be 23.9%. In addition, we currently expect less discrete tax items in 2021 compared with 2020. I'll now pass the call back to Robert.
spk05: Thank you, Sue. We'd now like to take your questions. Operator, if you're ready to proceed with the questions and answers, please go ahead.
spk02: Yes, thank you. Ladies and gentlemen, if you wish to ask a question, please press 1-0. If you are using a speakerphone, please pick up your handset before pressing the number. Again, if you would like to ask a question, please press 1-0 at this time. Our first question comes from Mike Mugger with Wolf Research. Please go ahead.
spk09: Hey, good morning. Thanks for the time. Can you just add some color around the operating performance at legacy digital imaging? You touched on it a bit with the six weeks versus the eight weeks, but can you just color in some of that performance?
spk05: Right. Thanks, Mike. On the legacy digital imaging business standalone, the margins were 24.4%. And that last year, if you add back the intangibles, the margins were 21.5%. So in the legacy digital imaging, the margins improved about 280 basis points.
spk09: Okay, that's great. And what sort of drove that? Were there some sort of cost initiatives or was it just, you know, mix? Any other color?
spk05: Both. Cost from a labor costs were maintained flat year over year, and sales increased 17%. And the other one was the mix, Mike. We had better mix of machine vision, which has our highest margins.
spk09: Got it. Thank you. And then can you... Can you discuss your capital deployment priorities post-FLIR if we should expect any sort of shift in your behavior, whether that's because of the higher debt balance or any sort of color that you can add there?
spk05: Yes. Our primary objective this year, Mike, in capital deployment is to reduce our debt as fast as we can. We expect to generate more cash the rest of the year, and we anticipate that by year-end this year, our debt-to-cap would be better than what we projected, or about 3.3 in terms of ratio of net debt to EBITDA. We also expect that by the end of 2022, we can reduce that net debt to BDA to 2.7, which is where at the high end of what we feel is comfortable for us. 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, both on acquisitions that we've done historically, and we would do that if such opportunities arise.
spk09: Great.
spk05: Thank you. Thank you, Mike.
spk02: Our next question comes from Joe Giordano with Cohen. Please go ahead.
spk06: Hey, guys. Good morning. Morning, Joe. So I know it's early to talk 2022, but can you just give us some high-level thoughts on how a FLIR contribution starts to look on a normalized basis for a whole year once we start thinking about $80 million in run rate savings into next year?
spk05: Well, let me start with what we have this year, Joe, if I may. As I mentioned before, we think that on a non-GAAP basis, we'll have an upside of about $2.00 to $2.20 in terms of earnings. If we can maintain that momentum for next year, where we would enjoy probably the full year benefit of the cost reduction, I would say we may be able to increase that to as high as $2.50 from this year's $2 to $2.20. The only reason I say that is The full year dilution we will experience from share count. Our share count in Q3, Q2 was 43.7%, 44 million shares. Next year, full year, we'll have a 48 million share count, plus as we will have in Q3, Q4 of this year. So there's going to be some of that. And frankly, the other side of it, Joe, is that We haven't really had an opportunity to put all of our internal cost reduction 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. I hope that there'll be other opportunities that we can enjoy over the 22, but it's only eight weeks in. It's a little hard to predict right now.
spk06: So you brought the $80 million in two years, basically. What are your thoughts on upside to that target? I know it's still pretty early, but thoughts on longer term there and maybe on revenue synergy potential from the deal?
spk05: Yeah, I would say, Joe, I would raise that to $100 million, from $80 to $100 on the upside. I would say from a revenue synergies, we haven't looked at that very carefully, but there are areas that we intend to enjoy some synergies. Specifically, for example, Clear has, as you know, a pretty strong gray marine business. thermal products business. We have a very broad portfolio of marine underwater as well as sonar and other products, so there should be some synergies there. There's also going to be synergies in our unmanned products. Clear is very strong in UAVs and ground-based unmanned vehicles. And of course, you know, we have a tremendous portfolio of underwater vehicles. So we think there might be revenue synergies for both of us there. But that's the beginning. We're kind of looking at it right now. And finally, I'd say FLIR does have an extremely good channel for some of our some of the products which we might be able to enjoy in some of our own infrared products through those channels.
spk06: And then just last for me, I know you mentioned FLIR. You expect $1.3 billion in sales this year. What does that take? If you owned it for the full year, where do you think organic for FLIR is in 2021? And what do you think a more normalized growth rate is once we get over the comps from like the thermal sensing with COVID.
spk05: Yeah, I think, as you know, last year, their full year revenue was 1.923. We expected on a full year basis to remain flat at about 1.915, 1.9, 1.92. So flat. Having said that, as you mentioned, Joe, the big headwind that we have year-over-year in Teledyne Flare is that last year they enjoyed about $100 million of elevated skin temperature product sales. This year, that's gone away. Essentially, it's disappeared. So we're making that up with other products, some of it in the solutions business, some of it in Raymarine, and some of it in the defense business, especially in the unmanned integrated systems businesses. So that kind of sets the tone year over year of no growth, but being able to offset the $100 million of headwind in EFT. Having said that, If I'm going to look forward to just enjoying the same kind of growth that we enjoyed this year, excluding EST, you take that out of the 1.92, the rest of the portfolio grew about 5% organically. So my expectation would be that everything else being equal and no wheels come off the truck, that we'll be able to enjoy that next year.
spk06: All right. Thanks. I'll jump back in queue.
spk05: Sure.
spk02: Our next question comes from Jim Rakuti with Needham and Company. Please go ahead.
spk04: Hi. Good morning, Jim. Congratulations on this first quarter with FLIR. Robert, I wonder if you could a little bit about how we might think about the gross margins of the combined company going forward as you really move through the integration process.
spk05: Well, that's a very good question. So let me see if I can answer it properly. Our gross margins as a stand-alone company, historical margins, have been around 38 to 39%. Last year, it was 38.3. This year, first quarter was 38.9. And second quarter, on a non-GAAP basis, excluding the one-time cost. I think what's going to happen at the gross margins If you take ours in 2020 at 38.3%, I think it'd be safe to say that we can move that up to 43%, maybe 43.3%. And that would be a nice 4% improvement in gross margin with Teledyne FLIR. That's about the best I can do at this time for this year. We are right now looking at what will happen in the future. Again, let me go back and emphasize one thing. Because of the hockey stick nature of the revenue in Q2 at Clear, the SG&A for Q2 was significantly lower than it normalized should be. It was more like 20%, and it really should be between an average of about 25% to 27%. So I'm factoring those in at this time.
spk04: Got it. That's helpful. And what can you say about this hockey stick performance from Fleer in Q2? What contributed to that? And if I may, just a question, and then I'll jump back into the Q ifs. You were out. Could you just give us any flavor for how your bookings look for the combined company? Thank you.
spk05: Sure, Jim. First, the hockey stick nature. I think that's been a historical practice at Teledyne Clear. They've always shipped more in the last two weeks of the month than in the first two weeks of the month. and the last two weeks of the quarter, I should say, and the last two weeks of the year. Now, we're not exactly totally blameless ourselves. I can't say our revenues are totally linear, but we've worked very, very hard over the years to linearize our revenues within the month and within the quarter, month over month. Everybody has to report on their revenues and bookings weekly. So this is an issue that doesn't have an overnight answer, but we're gonna work very hard to introduce some of our own practices, working with the FLIR segment execs, sub-segment execs, which, by the way, are really outstanding, and get that linearized shipment. The danger of doing that is that you come down to the end of the month or end of the quarter, something happens or something doesn't get shipped. Now you really suffer. You suffer in revenue, you suffer in earnings. So we're going to work on that. Let me go back to book to build, the question you asked. In terms of Helodyne standalone first, what I call legacy Teledyne at this point. We expect that our book to build will be above one, especially in instruments, I think it'll be about 1.07. That includes very strong orders in Marina, as I mentioned, in the second and third quarter. In digital imaging, excluding FLIR, It was about 1.16 in Q2. But FLIRS is below 1. So combined, we think we'd be slightly over 1 in Q2, about 1.03, 1.04. Aerospace and defense in Teledyne, good orders, bookings. The book to bill is about 1.2. Engineer systems, which is very lumpy, is about 1.17. So overall, I'd say, including Teledyne FLIR, we're going to be over 1 in Q2, maybe 1.06, 1.07. Got it.
spk04: Thanks very much.
spk02: Our next question comes from Greg Kennard with Jefferies. Please go ahead.
spk07: Good morning. Good morning, Greg. Just to start on organic growth, I mean, you brought up the forecast for the year a bit to six and a half, which is a little bit of acceleration from what you saw in Q2. You gave some color around digital imaging, but can you maybe talk about different segments, expectations for organic growth and maybe how that changed and maybe where there's risks and opportunities in the back half of the year?
spk05: Sure. Greg, first, If you go back to January of 2021, we projected the net organic growth of about 5.5, 5.6%. In April, things were started improving. We projected organic growth of about 6%. And in this earnings, we've moved that up to 6.6%. That's overall what I would say legacy Teledyne, that excluding the player acquisition. If you break that down into its components, instruments we anticipate with some risks in there, about 6.2%. Digital imaging, 11.8%, almost 12% for the year. That's our fastest moving business. We think in aerospace and defense, especially now we're seeing a little more recovery in our aerospace businesses. We think that'll be about 4.4, 4.5%. We see a slight decrease in engineer system, something of the order of 1.5%, primarily because, as Al said, we don't have the turbine engines for the rest of the year. You roll all of that up, you end up with 6.5, 6.6%. Now, if the economy continues to improve at a pace that it's going, especially in our instrumentation and digital imaging businesses, we could improve on that somewhat. But right now, to the best of our ability to project, we're projecting revenue for the year of about... Without FLIR, about 3290. With FLIR, about 4582.
spk07: That's very helpful. And then you gave a little color on digital imaging margins, but instrumentation was also, you know, very impressive in the quarter. I mean, how do you think about margins there? Was that mixed? I mean, and obviously Marine was down a little bit. I mean, how do you see those margins kind of playing out?
spk05: Well, let me start with instrumentation overall. Yes, marine was a little done, but it was done in revenue. The margins were pretty healthy. Overall instrumentation margin in Q2 on a non-GAAP basis. The reason I'm doing this non-GAAP is we do have some intangibles that come in all of these groups. And to compare year over year, if I do it non-GAAP, exclude Teledyne legacy gap, I mean intangible amortization. Last year instrumentation overall margin was 20.4%. This year Q2 is 24%, and we expect to finish the year at 23.2%, which would be almost a 200 basis point improvement, a 193 basis point improvement over 2020. I would attribute that to the fact that the mix of businesses are very good. Our environmental businesses are doing very well, and our T&M businesses, which have really high margins because of our oscilloscopes and, of course, our protocols, those margins are superior. You know, almost 200 basis point improvement year-over-year in instruments margin, including marine. We're very happy about that. In legacy digital imaging, again, our margins for Q2 were really good at 24.4% versus last year's Q2 of 21.5%. We anticipate to end the year, that is excluding Teledyne FLIR, with margins of 23.1% versus last year's of 21.5%, 21.4%, so an improvement of 175 basis points. FLIR, of course, we had tremendous margin in Q2, or just 30%, slightly over, I think that'll come down closer to 22% as the year goes on, based on the hockey stick nature that I described before. And so overall, digital imaging should end up about, this year, about 22.7% with Teledyne Clear. Our aerospace and defense businesses are doing really well, but year-over-year comparisons We think we will end the year at 18.8% margins, which is 492 basis points improvement over last year. But last year, we took some one-time charges. We took a lot of costs out of the aerospace side of the business. But nevertheless, that's almost a 500 basis point improvement in margin, and I expect engineered systems to be relatively flat. Roll all of that up. From a segment perspective, on a non-GAAP basis, we should enjoy margins of 21.3%, based on everything I know right now, versus last year's 18.7%. And if you're throwing the corporate expenses, again, I should reiterate, on a non-GAAP basis, we'll end up about 20% in margins, versus 16.8 last year, which is over 300 basis points improvement. Does that help?
spk07: Yeah, that's perfect. And just one last one for me, kind of big picture. I mean, Teledyne's always been consistent with, let's say, bias to the upside, whether that's margin expansion each year or organic growth through the cycle. I mean, how do you think about this? you know, the FLIR acquisition changing the enterprise? I mean, I get a lot of questions about 2022, you know, you already pulled forward the synergies from when you first expected. Yeah. How does it kind of change the opportunity set, whether it's, you know, annual margin expansion or organic growth as we kind of go forward?
spk05: Well, let me start by saying, uh, behaviors don't change. Uh, we're going to, uh, we're going to be the same. We're not gonna change. We're gonna be conservative in our projections. We're always going to try and do better than that. We don't like taking risks by being too effervescent in our projections. Having said that, having met now the FLIR executive team, And they've made presentations to the board yesterday and over the next three days. All of them are going to be working with us. They are really good. They have three outstanding executives that report to our executive vice president, Edwin Droks. And we anticipate that they will do the same as the rest of Teledyne. Focus on cost, focus on improving margins, focus on growing their top line, and where appropriate, we'll make the small acquisitions until we pay down our debt. I don't expect our behavior to change. We'll keep improving.
spk07: Thank you.
spk02: Our next question comes from Andrew Veskelia with Bergen. Please go ahead.
spk05: Good morning, Andrew.
spk08: Good morning. It's Barenberg. So can you, hey, Robert.
spk05: You ought to describe Moravians sometimes.
spk08: Yeah, right. Well, yeah, Robert, thanks. Appreciate your kindness on the call. And I was wondering, you know, can you, you know, adding on to kind of the last comment, can you talk a little bit about, you know, what have you seen with FLIR that has surprised you, whether it's good or bad. It sounds like some of these managers are surprising you in terms of the quality of how they're operating. But is there anything you'd like to disclose that you didn't expect since having made the acquisition or vice versa where you're surprised at some growth potential you see where you didn't expect that to be the case when you initially bought Clear? Anything you could add there would be great.
spk05: Well, when we look at the FLIR portfolio, there are really four segments made out of the former eight businesses. Three of the segments, which would be the solution segment, the component or OEM segment, and the unmanned integrated system segment, which comprise about 1.5 billion of the 1.9. We are pleasantly impressed with those three segments. They have good leadership in the three segments, with Roger Wells leading VUIS, Paul Clayton leading OEM and components, and Richard Lindvold leading the solution business. These are really healthy businesses. From a personal perspective, while I wasn't surprised because we visited them many, many times before the acquisition, I was very pleased not only with what we've seen, but also their presentations yesterday to the board were just superb. The fourth sub-segment is the one that has some issues, and that's the surveillance segment, which is about $400 million. What's happened there in that segment is that they've had multiple leadership changes almost annually for the last four or five years. They've been kind of milking that cow for the last few years in terms of cash, and they have not paid attention to new product development as much as they should. In that case, what we've done is we've done something, we brought in a Teledyne executive that worked for us before, back to run that business. We have a Teledyne executive, her name is G. Ben, G-I-H, capital F-E-N, Lee, L-E-I, We brought her to run the surveillance business. She used to be one of our executives in our digital imaging business. She went to the government, to DOD, to work in the research and technology groups. She ended up this year as acting Deputy Secretary for DOD's research and technology programs, which is a huge program. All of the laboratories, all of the businesses. She just joined us two weeks ago. I was fortunate to bring her back. She has been here two and a half weeks. She will lead the surveillance segment which is the one that we need to work on. And I know she will fix that with Edwin's help, and we'll get some new products in there and put that on a healthy footing. Having said that, once we solve that, I think the four sub-segments are going to be superb, with the leadership and then with Edwin leading it, And then with the combination with the legacy Teledyne companies, with all the synergies we can enjoy, we have great aspirations and hopes for the combined company.
spk08: Okay, that's helpful. I'm curious, the decision to put FLIR all under digital imaging, why don't you break that up with your aerospace and defense exposure and tie it to that? Or is that a possibility in the future?
spk05: Yeah, I think rearrangements of the segments are a possibility. But, you know, you've got to walk before you start thinking about running. So right now, keeping it where it is and then drawing lines of communication and collaboration is what we're doing. For example, one of the things we've done very successfully over the last three years at Teledyne is our procurement initiatives. We have... significant savings that have come out of our procurement. We buy about $1.2 billion worth of products. FLIR buys another $700, $800 million of products. We're going to introduce our procurement initiatives there. Eventually, we may do some realignment, but not right now.
spk08: Okay. And Lastly, Robert, I thought it was impressive if you can hit the net debt EBITDA targets that you put out there. 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 couple quarters.
spk05: Yeah, it is. I think the way I look at it is where are we going to end up the year, everything else being equaled? Sue mentioned where we were in Q2. We had a really good Q2. We think we'll be around $750 to $800 million, excluding charges. I want to get there because we want to increase our available cash to pay down debt from what is now about $670, $680 million to over $1 billion, so we can do that. On a go-forward basis, if we don't have those charges and we go forward, I think a billion is a nice number. I feel comfortable if I can get that number, maybe in 22. Maybe I think 23 would be more appropriate because we have some more expenses in 22.
spk08: Okay, that's helpful. Thanks, Robert.
spk05: Thank you.
spk02: Our next question comes from Mike Muggery with Wolf Research. Please go ahead.
spk09: Hey, thanks for getting me back in. Just kind of changing gears, in your commercial aerospace business, and I know that ACES is certified on A320 now, but have you seen any demand indicators ahead that would sort of point toward a change in behavior on monitoring the cabin environment post-COVID? And then generally just... those types of products, do you sell those to the manufacturers or the airlines? Thank you.
spk05: Right. As with most of our products in the aftermarket coming out of controls, it goes directly to airlines. And we have at this time, Mike, we have at least two major airlines testing the cabin environmental sensors. We have great hopes for that. As you know, we qualified it on the 737 before in March and then yesterday on the A320, which is the bulk of the carriers. We are right now introducing those. Of course, everybody wants us to give it to them for free so they can test it, but we're not going to do that. So we have high expectations for that. Just like in some ways, a mini version of when we introduced the wireless ground link many years ago. Overall, on the aerospace businesses, things are picking up. We're relatively flat year over year, quarter over quarter, but things are picking up, and we are seeing something like into second quarter orders, about a 1.3 book to build. And that's very healthy for us because that's a high margin business also. So we're optimistic with Boeing putting their max in operations and some of the other airlines especially becoming profitable. We're optimistic that business will come back slowly but surely.
spk09: Thanks, Ken.
spk05: Sure, man.
spk02: We do have a question from Joe Giordano with Cohen. Please go ahead.
spk06: Hey, guys. Thanks for getting me back on. I was going to ask about free cash flow, but, Robert, I think you just answered it a question ago. So maybe I'll just finish with all the buzz going on with new space launches and what's going on in the commercial landscape. Can you maybe just talk about what gets you excited in the space as it applies to you, whether it's through NASA or European Space Agency or commercial? Like, where are you? Where do you think your best position and where are you most excited about?
spk05: Well, I think first and foremost, we really like our work in infrared and visible in the space domain. Anything to do with satellites, we practically supply all of the detectors for space-based observation, both looking out and looking to the Earth, including a lot of the environmental studies, whether it's carbon or whatever. We own a big chunk of that market. And now we're moving to the classified space. So we have some great imaging products in the classified space programs. Now, in the Space travel, however you want to call that. Yeah, we make some products in terms of equipment, but we're not that involved in this right now. I think our focus has to remain with sensors and information technologies for the immediate future, where we have a strategic advantage because we can make infrared sensors that nobody else can. and with E2V's visible sensors, and now having other channels with FLIR for our infrared products, we think that that would be the place I see an upside for us. I don't know if, I'm a little cautious on commercial space development. You know, we do have some piece of communication in the One Web program, as you know, but everybody wants to not build thousands of satellites, and there's a funding risk, as you can imagine.
spk06: Yeah, definitely. Just one quick clarification. When you said $1 billion in cash flow for 22, 23, something like that, was that a free cash flow comment, or was that operating cash flow? Thank you.
spk05: That's free.
spk06: That's what I thought. Thanks, Rick.
spk05: I moved it a year the minute you said three.
spk06: I caught it.
spk05: Thank you. Operator, are there any other questions?
spk02: There's no one else in the queue.
spk05: Thank you. In that case, I would like to ask Jason to conclude our conference call, and I want to thank all of you for participating. doing so much homework to ask questions that kept me on my toes. Thank you. Jason?
spk01: Thanks, Robert. And, again, thanks, everyone, for being on our call today. If you have other follow-up questions or seek more detail, you can always call me, as usual, at the number on the earnings release. So, Amy, if you would go ahead and give the replay information. Thank you very much.
spk02: Thank you. This conference will be available for replay starting today at 10 a.m. Pacific. through midnight on August 28th. The dial-in number is 1-866-207-1041 with an access code of 131-7751. Again, those numbers are 1-866-207-1041 with an access code of 1317751. That does conclude your conference for today. Thank you for your participation and for using AT&T Event Conferencing Service. You may now
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