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FLIR Systems Inc (NASDAQ:FLIR)
Q2 2020 Earnings Call
Aug 6, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to FLIR Systems Second Quarter 2020 Results Conference Call. [Operator Instructions]

I would now like to turn the conference over to your host, Lasse Glassen of ADDO Investor Relations. Thank you. You may begin.

Lasse Glassen -- ADDO Investor Relations

Good morning, everyone, and thank you for joining the call. Please note that our earnings press release and presentation slides referred to on this call are available in the Events and Presentations section of FLIR's Investor Relations website at www.flir.com/investor. Before we begin, I'd like to remind you that statements made on this call other than historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on our current expectations. Words such as anticipates, estimates, expects, intends, believes and similar words and expressions are intended to identify forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. Please refer to the earnings press release we issued earlier today as well as FLIR's SEC filings for a description of the factors that could cause actual results to differ materially from these statements, including, among others, risks related to COVID-19. All information discussed on this call is as of today and FLIR does not intend and undertakes no duty to update for future events or circumstances. During the call, we will discuss GAAP and non-GAAP financial measures. A full reconciliation from GAAP to non-GAAP measures is available in this morning's earnings press release.

With that, it's now my pleasure to turn the call over to Jim Cannon, President and CEO of FLIR Systems. Jim?

Jim Cannon -- President and Chief Executive Officer

Thank you, Lasse. Good morning, everyone, and thank you for joining FLIR's Second Quarter 2020 Earnings Conference Call. Here with me today on the call is Carol Lowe, our Chief Financial Officer; and Sonia Galindo, General Counsel. My remarks will cover the highlights of our second quarter operational performance including an update on the critical role our products and technology are playing around the world to help combat the spread of COVID-19. Carol will follow with additional details on our second quarter financial results and commentary on the remainder of the year. First, I would like to thank all of our FLIR employees, especially those on the front line, who've worked tirelessly to ensure we maintain a safe and healthy workplace in light of COVID-19, while continuing to serve our customers across the globe. I appreciate your dedication to safety, which remains our number one priority. I'm humbled and inspired by your commitment and dedication to our mission to save lives and livelihood during this crucial time. Please turn to slide three. I'm pleased to report that through consistent operational execution, we delivered solid performance in the second quarter, despite an extremely challenging and volatile environment. Highlights include continued franchise program wins, record total backlog, improving margins and earnings growth. Importantly, I believe the underlying fundamentals of our core business are improving from a low point earlier in the year. As we move forward, we are confident that the diversity of our product portfolio within industrial and defense applications will continue to provide a defensible strategy amid dynamic macroeconomic conditions. Looking at our financial performance in more detail.

We reported second quarter revenue of $482 million, reflecting growth of 7% compared to the first quarter of 2020 and flat with the prior year quarter. Total bookings of $546 million, up 19% over the prior year quarter resulted in a book-to-bill ratio of 1.13 and were driven by demand for products in our Industrial Technologies segment, in particular, applications related to elevated skin temperature or EST screening and a large order not related to EST from an OEM customer. Our Defense Technologies segment also experienced continued demand for our unmanned systems and solutions, which we'll discuss in more detail shortly. Additionally, at quarter end, our total backlog was a record $913 million, comprised of $25 million for EST products and $888 million for non-EST products across a wide variety of end markets. Our total backlog reflects an increase of 13% compared to the balance at the end of the second quarter 2019. Adjusted gross profit increased 6% year-over-year, primarily due to a shift in product mix within the Industrial Technologies segment, as volume reductions in lower-margin consumer-centric businesses were offset by higher-margin EST revenue. Adjusted operating income increased 32% and adjusted operating margin was up by 629 basis points year-over-year, largely due to higher revenue and gross profit in the Industrial Technologies segment as well as lower operating expenses. With that as a backdrop, I would now like to provide more color on both the tailwinds and the headwinds resulting from the pandemic, the related impact on our business and how we saw this play out in the second quarter. Please turn to slide four. Starting first with the tailwinds. As I mentioned before, we continue to experience demand for thermal EST camera applications from a wide variety of industries.

Although these thermal cameras cannot detect or diagnose COVID-19, they do serve as a first line of defense and an effective tool to measure the skin surface temperature of large groups of people entering facilities, such as hospitals, airports, train terminals, military installations, businesses and factories. After booking approximately $100 million in EST orders during the first quarter, we've recorded approximately $70 million during the second quarter. Revenue contributions from EST products and solutions in the second quarter were approximately $95 million, and we ended the period with EST-related backlog of approximately $25 million. I'm pleased to report that most of the supply chain disruptions that we experienced earlier in the year from the initial surge in customer demand have essentially been resolved. Let me share with you some insights into the trends we've seen in our EST business since the onset of the COVID crisis. In the early days of the pandemic, through much of May, we saw demand surge. During this time, a wide array of enterprises across both essential and nonessential businesses, placed initial orders for our solutions as they explored strategies to fully reopen as quickly and safely as possible. Towards the second half of the quarter, certain customers began shifting their behavior, opting instead to first implement our technology on a smaller scale to test their approach in advance of eventual large-scale enterprisewide deployments. This more measured approach to deployment led to a deceleration of EST demand as the quarter progressed. As we look ahead to the second half of the year, we expect demand for EST applications to stabilize, likely at levels below what we experienced in the second quarter.

Though there are a number of variables that will ultimately dictate the level and duration of customer adoption. The demand for our EST products in the first half of the year helped offset headwinds driven by the pandemic. Within the Industrial Technologies segment, we experienced weaker demand compared to prior year levels for our commercially centric businesses. However, we are cautiously optimistic about signs for those businesses that may indicate the start to a recovery in the second half of the year. Our Defense Technologies segment has also encountered some administrative-related process delays in securing customer sign-offs and licenses for foreign sales. Although we do not believe we have lost orders, these delays have essentially resulted in the shifting of timing of some portion of revenues and bookings later into 2020. We believe our long-term strategy and strategic priorities, including the intentional diversification of our business has been instrumental in our ability to produce solid results in a difficult operating environment. Our strategic priorities outlined on slide five of the presentation, continue to emphasize professional end market customers with a focus on leadership in sensor solutions, unmanned and autonomous solutions, intelligence, surveillance, reconnaissance and targeting, or ISRT, and decision support. Both segments continued to execute against these key longer-term priorities in the second quarter, generating momentum with significant new program wins and record backlog for the company as we exited the second quarter. Now turning to slide six. Within the Industrial Technologies segment, new orders came from a healthy balance of non-EST-related products and customers as well as continued demand from thermal cameras for EST-related applications. We received a significant order from a large OEM customer and approximately $70 million in EST-related bookings from customers across a wide variety of industries.

Turning to our Defense Technologies segment on slide seven. Demand for our unmanned solutions remains strong. During the quarter, we were awarded a $21 million contract from the U.S. Army to deliver the FLIR Black Hornet three personal reconnaissance system, or PRS. This contract builds upon an initial $40 million contract for Black Hornet 3s, the U.S. Army awarded FLIR back in 2019 to support the Soldier Borne Sensor program. The advanced nano-unmanned aerial vehicles support platoon and small unit level surveillance and reconnaissance capabilities. We are currently executing on these contracts and FLIR has already delivered more than 12,000 Black Hornet Nano UAVs to defense and security forces worldwide. In addition, during the second quarter, we were awarded a $10 million contract to deliver our R80D SkyRaider unmanned aerial system to the U.S. Marine Corps. Developed for U.S. defense and federal government customers, the FLIR R80D SkyRaider offers long range, high-resolution electro-optical infrared imaging sensors that provide day and night situational awareness. The airframe can carry and deliver external loads up to 4.4 pounds for forward resupply, asset extraction and other specialized missions. SkyRaider also features some of the most powerful embedded artificial intelligence processing available on a small unmanned aerial system. Finally, we also received two separate orders from the U.S. Army and the Navy for a combined $23.5 million to deliver more than 160 of FLIR's Centaur unmanned ground vehicles, plus related spares and accessories. Centaur is remotely operated, medium-sized UGV system that provides a standoff capability to detect confirm, identify and dispose of hazards. The two contracts are being sourced through the Army's Man Transportable Robotic System Increment II, or MTRS Inc II, program.

So far this year, FLIR has announced orders totaling more than $65 million for nearly 500 Centaur UGVs from the United States Army, Navy, Air Force and Marines. We continue to release new products to drive and support growth of our strategic priorities, while simultaneously improving safety and efficiency for professionals. A few of our recent product releases are outlined on slide eight. During the quarter, the Industrial Technologies segment introduced the FLIR C5, a new pocket portable thermal camera and in addition to our popular CX series of cameras. The C5 is the first in this series to offer the FLIR Ignite cloud solution, which when connected to WiFi allows professionals to directly upload, store and back up images to the cloud. We also announced several FLIR EST thermal cameras that have been enhanced for fast and safe, noncontact elevated skin temperature screening. These are our easiest cameras to set up and operate, which helps increase the speed of deployment for frontline screening. To complement our EST hardware offerings, we launched our FLIR Screen-EST software, which is designed to work with both our existing and new EST model cameras. The software provides automatic measurement tools that increase the speed and accuracy of frontline screenings. The Defense Technologies segment announced the Star SAFIRE 380 times hardware, firmware and software update to support image-aiding features for deployed Star SAFIRE gimbaled systems, including our most broadly deployed models, the 380 HD and 380 HDc. The upgrade offers new user interface, better visual clarity and allows operators to view multiple video sources simultaneously. The 380 times upgrade is designed for future augmented reality mapping overlays to improve situational awareness and help operators make better, smarter decisions. Overall, I'm very pleased with the momentum we're generating as evidenced by our record backlog and innovative products we continue to bring to the marketplace. To ensure our ability to capitalize on the opportunities in front of us, we continue to execute the previously announced Project Be Ready, highlighted here on slide nine, enabling FLIR to compete, win and deliver in the quarters and years ahead.

Project Be Ready aims to reduce the complexity of our business to help it scale over the longer term while removing cost in the near term. As you may recall, we launched Project Be Ready late in 2019 with the objective of reducing annual operating expense by $30 million to $45 million. In the first quarter of this year, we identified the areas where these savings could be achieved and began execution of actions to realize meaningful operational expense savings. During the second quarter, we were able to build upon that momentum, which has helped contribute to the 629 basis point year-over-year improvement in adjusted operating margins this quarter. Additionally, with 2/3 of our employees continuing to work remotely, along with significantly reduced travel and entertainment and trade show activity, we're identifying and realizing additional savings and ways to operate more efficiently in the long term. As a result, we feel extremely confident that we'll achieve an annual run rate savings at the high end of our previously announced $30 million to $45 million range. We expect to reinvest the portion of these savings back into the business to drive long-term growth across the enterprise. I'm happy with our team's progress in identifying and now harvesting Project Be Ready savings. We look forward to sharing our ongoing progress on this front in future calls. I'm very pleased with our performance in the second quarter, made possible by the solid operational execution of our management team and employees across the globe. Our results, amid unprecedented macroeconomic challenges, validates our strategy to focus on professional end users and demonstrates the strength of our technology across diverse end markets. This, coupled with our consistent strength of our operating cash flow, speaks to the resiliency of our business. Our commitment to driving value for shareholders remains at the forefront of everything we do. And I feel confident that FLIR is well positioned to continue to execute against our key strategic priorities.

With that, I'll now turn the call over to Carol for additional details on the second quarter financials. Carol?

Carol Lowe -- Executive Vice President and Chief Financial Officer

Thank you, Jim. Looking at slide 10, you'll find a summary of our second quarter financial results. Please note, with the exception of revenue, all of these financials are on a non-GAAP basis. A reconciliation to GAAP data is included in the appendix of the supplemental presentation. We generated $482 million in revenue for the second quarter. Revenue was negatively impacted by foreign currency exchange rates, which reduced growth by approximately $7 million or 1%. Second quarter bookings of $546 million grew by 19% compared to the prior year, driven by strength in both our Defense and Industrial Technologies segments. Positive demand trends delivered our second consecutive quarter of record backlog, totaling $913 million at quarter end, of which approximately 80% or $731 million is current. Our total backlog increased 13% relative to the prior year quarter, primarily driven by new wins in unmanned systems and a large OEM order. Adjusted gross profit increased by $16 million year-over-year to $262 million, resulting in adjusted gross margin of 54%. Adjusted gross margin improved 322 basis points compared to the prior year quarter, reflecting favorable product mix in our Industrial Technologies segment. While we are pleased with second quarter performance, we do not expect it to be indicative of gross margin trends in the second half of 2020, as product mix begins to normalize with the recovery of commercially centric businesses and the slowdown of EST demand. Adjusted operating income was $126 million, resulting in an adjusted operating income margin of 26%, an improvement of 629 basis points compared to the prior year quarter.

The increase reflects the impact of higher revenue and gross profit in Industrial Technologies as well as an overall reduction in operating expenses, driven by a reduction in deferred compensation costs, lower selling, general and administrative expenses, such as marketing and travel costs during COVID-19 and cost savings achieved from Project Be Ready initiatives. After adjusting for discrete items flowing through GAAP income tax expense, our adjusted effective tax rate for the second quarter was 22% compared to 19% in the first quarter of 2020. Our tax rate increased as the result of the timing of expected amortization benefits in certain jurisdictions. We currently expect our full year tax rate for fiscal 2020 to be 21%. Adjusted diluted earnings per share was $0.64 in the second quarter. Turning to slide 11. I will highlight the second quarter performance of our two business segments. Beginning with Industrial Technologies, second quarter revenue was $300 million, up 6% year-over-year, due primarily to the increased demand for thermal cameras for EST screening applications. Revenues were partially offset by lower volumes in commercial end markets, such as maritime and security products as a result of COVID-19. Segment operating income was $107 million, up 50% year-over-year, driven by a combination of higher sales volume, favorable product mix and lower travel, marketing and deferred compensation expenses. As a result, segment operating margins increased 10.5 percentage points year-over-year. In the second quarter, Industrial Technologies bookings were $334 million, reflecting a book-to-bill ratio of 1.11. Total backlog was $351 million at June 30, 2020, reflecting a 48% increase compared to the prior year quarter based on award timing for an OEM customer and the demand for EST cameras. Defense Technologies segment revenues were $182 million in the second quarter, a decrease of 8% year-over-year.

The year-over-year revenue decline is primarily attributable to the completion of certain large contracts that contributed to revenue in the second quarter of 2019, partially offset by increased volume for unmanned systems. As Jim mentioned, we are also experiencing administrative-related process delays in securing customer sign-offs and licenses for foreign sales. These delays have resulted in shifting the timing of some portion of defense revenues and bookings into the back half of the year. Segment operating income for Defense Technologies declined $4.6 million year-over-year due to the lower revenue volume. As a result, segment operating margins declined 55 basis points. In the second quarter, Defense Technologies bookings were $212 million, reflecting a book-to-bill ratio of 1.17. Total backlog was $562 million at June 30, 2020, down 2% year-over-year. Turning to our balance sheet and cash flow on slide 12. Cash provided by operations was $63 million in the second quarter, down slightly from the prior year quarter, primarily due to higher inventory levels, which were partially offset by higher net cash earnings. That said, I am pleased with the overall trends we are seeing in working capital as turns improved to approximately 3.1 times in the quarter, up from 2.9 times a year ago. We used our cash flow from operations to fund our capital allocation priorities of investing in the growth of our business and returning value to our shareholders. We invested $15 million in capital expenditures and returned capital to shareholders through the payment of $22 million in dividends. At June 30, 2020, our cash balance was approximately $333 million, and we had approximately $365 million in borrowing capacity under our credit facility. After the end of the quarter, as previously announced, we completed an offering of $500 million 2.5% notes due August 1, 2030, to proactively address the $425 million 3.125% notes due June 15, 2021.

We expect to redeem our 2021 notes this month. We remain comfortable with our current liquidity position and believe our emphasis on cash optimization has provided us with financial flexibility as we enter the second half of the year. In light of the ongoing uncertainties, we will maintain our capital allocation emphasis on near-term cash optimization. However, we remain committed to our investments, supporting our four strategic priorities that will drive long-term revenue growth as well as providing returns to our shareholders in the form of quarterly dividends. In terms of share repurchases, while we remain committed to returning excess capital to shareholders over time, we have no plan to reinitiate share repurchases for the foreseeable future in light of the significant uncertainty driven by the COVID-19 pandemic. Before turning the call back over to the operator for the question-and-answer session, I would like to discuss our near-term outlook. As previously announced, given the continued macroeconomic uncertainty resulting from COVID-19, we have withdrawn our previously provided outlook for fiscal year 2020. We also will not be providing specific revenue or adjusted earnings per share guidance for the third quarter or full year 2020 at this time. However, we would like to share our thoughts on key trends for the second half of 2020 based on current expectations and market conditions as of today. While we expect demand for our EST products and solutions to continue, we believe it will be at somewhat lower levels than in the first half of the year, resulting in a change in product mix and downward pressure on our gross margin in the Industrial Technologies segment in the coming quarters. As Jim noted, we believe our core Industrial and Defense Technologies businesses are showing signs of recovery. We anticipate this recovery will continue during the balance of the year and we are experiencing record backlog as we move forward in the second half of 2020. While uncertainties remain, based on what we know today, we expect the second half of the year to show modest revenue growth compared to the first half, with adjusted operating margins relatively in line compared to the first half of fiscal 2020. I'd like to emphasize that our second half expectations for both revenue and earnings are more heavily weighted toward the fourth quarter of 2020. That concludes our prepared remarks.

Thank you for your time and attention. With that, we'd now like to open the call for questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Peter Arment with Baird. Please state your question.

Peter Arment -- Baird -- Analyst

Yes, good morning, Jim, Carol.

Jim Cannon -- President and Chief Executive Officer

Good morning.

Peter Arment -- Baird -- Analyst

Jim thanks for all the details on the EST, and it's very helpful. You mentioned that some of the order trends there started to come in at a smaller scale or a deceleration. Can you just maybe just describe kind of the types of examples there, what exactly that implies in terms of potential larger scale orders in the future?

Jim Cannon -- President and Chief Executive Officer

Sure, Peter. So I would really describe the demand curve for EST in kind of three pieces. There was the initial wave of demand that came toward the end of the first quarter and that demand, as we talked about on the last earnings call, really came from every sort of market and industry imaginable from essential businesses, nonessential businesses. And when you look at the types of products that were in demand, they were much more of our T-Series camera, our E-Series camera. Those are handheld cameras and/or tripod-mounted cameras that can be used and implemented quickly and in many cases, on a temporary or ad hoc basis if they're being used handheld or set up on a tripod and then removed. So we saw that initial flurry of demand, as we mentioned on the last call, about $100 million in the back end of Q1. And then as we entered the second quarter, we saw the demand shift to the new A-Series camera, which is more of a fixed-mount camera. And the customer profile changed somewhat as well, from a very, very wide collection of customers across all sorts of industries to a much more focused, larger and essential operations. So large manufacturing organizations, large commercial real estate organizations, hospitals or even military installations and they were looking for a much different solution, one that's an enterprise-level solution, much more elegant, integrated and becoming a part of how business would be conducted for the long term. So we saw the demand shift a bit and the demand slow as these customers were purchasing smaller orders but then conducting very deliberate diligence on how they'll use the technology, more importantly, how they'll integrate it into other procedures and technologies they do or use to have a safe workplace.

And now we're kind of in this third tranche, where these customers, again, many of them very large and widespread implementations, are making decisions about when, where or if they do these implementations. An example would be the Canadian TSA, and there was stories earlier in the month last week that the Canadian TSA has picked four major airports to implement our full offering, from hardware to software, AI, etc. And after those four larger airports, they're looking to roll out across Canada to screen for passengers in airports. And that's the dynamic we're seeing now. Organizations going from very quickly, how can we get anything on the ground to a much more deliberate implementation of more fixed solutions that are a part of how they do business. We also announced earlier, we entered into a partnership with Lenel. Lenel is the market leader when it comes to access control. And if you think about entering a factory or a large commercial office building or something like that, having an integrated EST solution that's a part of the access control, so that when you approach the turnstile or whatever the gating mechanism is to get in, as you swipe your badge, card or whatever your device is to gain access, you're also being screened. But it's not a completely separate step. It's a really integrated solution. So now as we're in the back half of the year and this kind of third tranche, if you will, of how the demand's evolved, there as we mentioned, real variables to how widespread and how large some of these deployments can be because, again, some of them are not just multiple sites, they're global in nature, what the implementations could be. If that answers your question, Peter.

Peter Arment -- Baird -- Analyst

No, it does. And just as a follow-up, Carol, on the second half kind of commentary. I know you're not giving specific guidance, but it sounds like revenues should be a little bit better than the first half. Can you parse that out is that going to be that we see Defense still transitioning down and Industrial is higher? Any color there would be helpful.

Carol Lowe -- Executive Vice President and Chief Financial Officer

So I guess we're not prepared to break it out by the two segments. But I we can provide just a little bit more color on what we mean by moderate increase. So we think about this point in the mid-single-digit range in total for FLIR.

Peter Arment -- Baird -- Analyst

Thank you.

Operator

Our next question comes from the line of Jim Ricchiuti with Needham & Company. Please proceed with your question.

Jim Ricchiuti -- Needham & Company -- Analyst

Hi, thanks. You talked about a large OEM order in several instances. And I wonder if you could just if there's any color you can provide on that. That's in the Industrial segment. Is there some additional information that can give us a sense as to when we might see deliveries or perhaps what the application could look like?

Jim Cannon -- President and Chief Executive Officer

Yes. That is in our components line of business and it's for products that ultimately are integrated into an aerospace and defense application. I'm not at liberty to disclose the actual customer, and the product will ship through 2021.

Jim Ricchiuti -- Needham & Company -- Analyst

Okay. Thanks for clarifying that. And then you've talked in the past on the unmanned side of the business that this business has, in the early stages of the ramp would be a drag on gross margins. Can you provide some update as to how we see that business developing? And the margin profile we should be thinking about as it starts to scale? Presumably, you're also expecting some accelerating deliveries in the second half from this?

Jim Cannon -- President and Chief Executive Officer

That's right. So the unmanned business and again, when we think about our full unmanned offering that we have now, it's a little over a year old. So really began with the acquisition of Prox and the nano drone, the Black Hornet, then of course, Aeryon, the SkyRanger, SkyRaider, ultimately, Endeavor, that's a little more than a year old being a part of FLIR in the ground robots. These are very new technologies. When I say new, they're new to be adopted in a wholesale or widespread way by our users, and they're quickly, quickly gaining really excited adoption. I'll point to the follow-on Soldier Borne Sensor Black Hornet award for $21 million in the quarter, we mentioned. Additional Centaur adoption for man transportable ground robots, about $23.5 million of orders came in the quarter, with adoption across all branches of service in the U.S. And as you know from last quarter, our largest current ground robot, the Common Robotic System-Heavy adopted by the Army and the German army and the robotic combat vehicle, where we partnered with Textron continues. And if you think about the margin profile, I would describe it in three pieces, and it's really as we come up the learning curves. So beginning with the Black Hornet, that was incredibly expensive when it was first fielded because nothing like it had ever been produced, certainly not ever produced at scale. But as we got more adoption and commercial success, we came up learning curves, working aggressively with The FLIR Method to implement lean, automation in the production flow, gaining scale in the supply chain.

So the Black Hornet now is accretive to the line averages at FLIR. And we expect it to continue to maintain that position of accretion from a gross margin standpoint for the company. Second and following closely behind would be the SkyRaider and SkyRanger. So the R80D order is we mentioned earlier, its adoption by the Marine Corps, for example, we're doing the same thing. We're coming up those learning curves. We're maturing the supply chain, we're able to move it to accretion as we exit the year and continue to drive adoption. The most work that we have to do is on the ground robot side. And right now, the ground robots on whole are dilutive to our overall line average gross margin, but we're just now really beginning to get into full production. So the MTRS program, the Subterranean program is those get into real production, the Common Robotic System-Heavy is not yet into full production. Of course, the robotic combat vehicle is very much in early prototyping, stage gates and such. But we expect to follow that same FLIR Method playbook to implement lean, to mature the supply chain. It is our expectation that our unmanned business moves to line average accretion or better through 2021 as we get that volume.

Jim Ricchiuti -- Needham & Company -- Analyst

Thank you.

Operator

Our next question comes from the line of Louie DiPalma with William Blair. Please proceed with your question.

Louie DiPalma -- William Blair -- Analyst

Jim, Carrol and Lasse. Good morning.

Jim Cannon -- President and Chief Executive Officer

Good morning.

Carol Lowe -- Executive Vice President and Chief Financial Officer

Good morning.

Louie DiPalma -- William Blair -- Analyst

In general, I'm trying to determine if there is anything to suggest that Defense Technologies will have a rebound year in 2021. And I guess related, first to the Industrial Technologies OEM division. Over the past several months, Northrop Grumman has won two orders for its large aircraft infrared countermeasures program. And I was wondering, are you still partnered with Northrop for that program? And also, do you think that a contract for G-BOSS(E) will be awarded sometime in the next six months? I know you've previously indicated that was a program that you were interested in.

Jim Cannon -- President and Chief Executive Officer

Yes. Louie, with regard to specifics and your question about Northrop Grumman, I'm not at liberty to talk about specific program content or customers in that regard. I can say, however, our components line of business that houses that legacy OEM division is very focused on advancing cutting-edge technologies that we provide to aerospace and defense firms, airborne countermeasures, missile warning systems, cameras for targeting systems and such. But I can't point to a specific customer content in that regard. And Louie, what was the second question again real quickly?

Louie DiPalma -- William Blair -- Analyst

Yes. Any update on G-BOSS(E)?

Jim Cannon -- President and Chief Executive Officer

That's right. I don't have a specific update now. No. We know that there is some demand for force protection towers. So we're working hard to cultivate that demand and meet the need. What we're seeing right now on the defense side is things like G-BOSS(E) and/or other opportunities that we've been pursuing for some time, the demand is still there, but the process has slowed significantly. It's slowed as much of the Pentagon, for example, are working remote, and they may not have access to systems and decisions have slowed. But also just the processing of orders and licensing to go through the contracting agencies, DLA or otherwise or to secure foreign licensing, those processes have slowed also. We also see it on the international side. So as we said in the prepared remarks, we have not seen any significant losses or any significant programs or opportunities be canceled or formally stopped, but we certainly have seen just what you would expect is natural delays because of the impact of the pandemic.

Louie DiPalma -- William Blair -- Analyst

Okay. And so for any of the large programs that you're pursuing, do you expect those programs to contribute or begin contributing in 2021, such that your outlook for 2021 in Defense would be better than the current conditions?

Jim Cannon -- President and Chief Executive Officer

Yes. I mean, we're not prepared to give specific guidance on what we think 2021 would look like now. So I want to be cautious about that. But I'll say this. If we look at what we do in Defense, I look at it in three pieces. There's what we do that I mentioned earlier, in our Industrial Technologies business, the components line of business, giving components to larger defense firms that are on major programs. In 2021, that business will grow. If we look at unmanned and the awards that we've had on programs that are now going through prototyping and such, those will begin to move into production in 2021. We also expect that business to grow. You'll see us as we go into 2021, launch more products in our legacy surveillance, now our sensors line of business. I mentioned in the prepared remarks, the 380 times, which is a significant product upgrade to the widely adopted 380HD and HDc airborne gimbals, providing all sorts of new buttonology overlays, camera feed, AI, etc. Now as those get introduced exiting this year and 2021, will there be an immediate revenue impact? Probably not in the first half of 2021, but certainly, as we progress and accelerate through the year.

Louie DiPalma -- William Blair -- Analyst

Thank you.

Operator

Your next question comes from the line of Andrew Buscaglia with Berenberg. Please proceed with your question.

Andrew Buscaglia -- Berenberg -- Analyst

Good morning, guys.

Carol Lowe -- Executive Vice President and Chief Financial Officer

Good morning.

Andrew Buscaglia -- Berenberg -- Analyst

I had a question on back to your IT margins, are you able to say what the contribution was specifically from EST cameras, just to give us an idea of what sort of the magnitude of what will fade into the second half?

Jim Cannon -- President and Chief Executive Officer

So we shipped about $90 million of EST-related products in the second quarter. Hard to parse out exactly what that margin contribution would be and let me tell you why or explain. As you know, exiting Q1 going into Q2, we had supply chain constraints. And so we really prioritized a lot of the EST customers that we knew were specifically EST demand because we want to do all we can to help combat the spread of this virus. So while $90 million of the demand was EST related, it is certainly accretive to what would normally be our line average. It did contribute to the strong gross margins. But those same cameras, A-Series, E-Series, T-Series cameras were also in demand from core industrial customers for non-EST-related business that went into backlog as we come into the second half, again, because we prioritized efforts to combat the spread of this pandemic first. So it's a hard thing to carve out separately because, again, those products, those cameras are used also for core thermography applications. The real dynamic as we go into the second half now with EST is, I hope, but I don't think there will be a medical resolution to this pandemic certainly in the balance of this year. It is these larger customers with larger implementations, like the Canadian TSA, like a host of other manufacturing and large commercial real estate owners, how and when do they make decisions about these larger implementations. Because these then take us from orders ranging from $5,000 to $15,000 to $30,000 that we saw exiting Q1 coming into Q2 into multimillion-dollar orders for large and more permanent implementations. And it's just very difficult, of course, for us to predict when those will hit the business.

Andrew Buscaglia -- Berenberg -- Analyst

So that's sort of trying to give some commentary that people are testing it, playing with the cameras but could come back to buy more at some point?

Jim Cannon -- President and Chief Executive Officer

That's right. That's right. And again, there's a whole continuum of kind of outcomes. And if we go back and look at past pandemics, we've never seen demand curves like this. There would be a sharp demand curve like we saw Q1, early Q2. And then there would be a resolution, right? Whether it's a vaccine or seasonally the virus goes away and demand would fall off to kind of a lower run rate of replacements or if there was a airport expansion, etc. Now you're seeing very large organizations that want to put in technology that's a part of how they will do business for the long term going forward, not just to combat this, but what could be a future outbreak. But as you could imagine, those are thoughtful decisions, and they're integrated with other protocols and/or technology. So we see a lot of our business development effort shift to how we work with their technical teams, their facilities teams, IT teams or otherwise, to do these prototyping efforts, so they have different trials and test beds that ultimately may or may not lead to them making larger decisions to go forward.

Andrew Buscaglia -- Berenberg -- Analyst

All right. Thank you, guys.

Jim Cannon -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Mike Ciarmoli with SunTrust. Please proceed with your question.

Mike Ciarmoli -- SunTrust -- Analyst

Hi, good morning, guys. Thanks for taking the question. So maybe Jim or Carol, not to sounds snarky, I guess. But you did preannounce the revenues here. And I guess the bogey everybody had been tracking with $100 million bookings. And that came up a little bit in light of the expectations you guys have talked about the demand environment here. But I guess, Jim, you're just talking about the bigger installations, what are you seeing from the competition? I mean, there are some big competitors like Honeywell, they've obviously got existing building technology, already existing airport infrastructure where their solutions can seamlessly integrate already. I mean, are you losing any opportunities out there? I mean you talked about a couple of waves of this demand environment. But I mean, as you're seeing customers, can you talk about your closing rates? Or are they going elsewhere? Are they using cheaper solutions? Or are they going with bigger integrators?

Jim Cannon -- President and Chief Executive Officer

Yes, that's a great question. And to begin with, there was a lot of discussion about price point, lower cost options, particularly with some of the handheld competitors and such. And as I mentioned, that demand has really shifted now to larger enterprise applications. In that case, many times, we are being competed head-to-head against a whole host of different competitors. The trials can be very competitive, some of the work that we've done with some of the larger government organizations for example, they'll have 10 or 12 different solutions they're trying to evaluate at a time. Certainly, I'm sure that there are customers that have chose to use our competitors' products. I won't say that there is ever a 100% close rate on effort that you want to do. But we feel very confident, very confident in our ability to win against competitors in the marketplace. Basically, a lot of it goes back to the fact that we didn't start doing this when the pandemic started. We started this 17 years ago, and there is a lot of lessons learned, beginning with the core detector and camera and how and where you measure and the accuracy and efficacy of that reading that, frankly, in the course of five months, no matter how big you are, it's hard to gain that kind of experience.

We do have very capable competitors, and I respect their solutions. And we also encourage customers to go out and evaluate all the technology that's out there to make sure they get the right thing for them. This market opportunity, like I said earlier, is really without precedent. And the most important thing, first and foremost, we want to do our part with our competitors to help stop the spread of this pandemic. So I don't begrudge any customer that goes to a competitor, if it's the right thing, of course, to protect their workforce and help stop the spread. But ranging from a whole host of cameras, handheld, tripod fixed, right through software solutions that can either bolt in, augment or completely integrate in the access control and other enterprisewide solutions, we have a full and complete offering. And so you can order it a la carte in pieces that you think are good from us, example, buy our camera and get someone else's software enterprise operating solutions or to use that same analogy, have a full tasting menu, tip to tail, where we can implement everything from hardware, software, AI, etc. So I guess it's a clumsy way of saying, yes, there's big competition, but we're happy to compete with them.

Mike Ciarmoli -- SunTrust -- Analyst

Got it. And then just the last one. I mean the underlying Industrial ex EST in the quarter was down about 28%. I mean is this you think this quarter marks the bottom? And then specifically in maritime, I mean, it sounded like some of the boat manufacturers put up blowout quarters. Did you see anything different in your pull-through for maritime products, presumably, if that's a good social distancing activity there? And just, I guess, trying to figure out if this was bottom and if Marine did anything disproportionate this quarter?

Jim Cannon -- President and Chief Executive Officer

Right. Great question. With regard to the first question, as I mentioned earlier, it's hard to just strip out the $90 million of EST revenue from the Industrial business and look at what's remaining is a true indicator of the health of that business because, again, we prioritized with a constrained supply chain, EST customers to help combat the spread of this pandemic. So those core thermography, plant preventative maintenance, demand and such that is probably a bit stronger than just stripping out the EST business and looking at kind of what's remaining. Is it going to recover from Q2? We hope so. I'll tell you what we see right now regionally. We see Asia recovering quickly. When I say quickly, this whole debate about U-V shape recovery, the demand there from Q1 going into Q2 has rebounded nicely. In North America, we're guardedly optimistic that we're seeing some green shoots in the Americas of that core Industrial business beginning to recover, channel demand picking back up, essential operations gaining more confidence with projects. In Europe, though, we still see a very slow rebound of demand in Europe. So regional, very different dynamics. With regard to Raymarine, from the first quarter going into the second quarter, a lot of boat builders were shut down. We saw sharp declines in our revenue. And through the second quarter, we've steadily seen that improve. It began with a lot of smaller purchases as I think folks in quarantine were shopping online or making decisions about minor upgrades to perhaps the boats they own to now. What's I won't say it's fully recovered, but compared to three months ago, four months ago, a very steady improvement in that Raymarine and maritime business.

Mike Ciarmoli -- SunTrust -- Analyst

Got it. Thanks. That's helpful.

Jim Cannon -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Ken Herbert with Canaccord. Please proceed with your question.

Ken Herbert -- Canaccord -- Analyst

Yes. Hi, good morning. Jim, I just wanted to first see you specifically called out some delays within the Defense business. COVID-related, it sounds like just sort of a procurement process and administrative issues. Can you quantify what that was in the quarter and perhaps comment on to what extent or timing is to as things normalize ideally here soon, do you expect to catch those up here in the second half of the year?

Jim Cannon -- President and Chief Executive Officer

We certainly hope that they catch up in the second half of the year. But really, it's going to continue to be predicated upon work-remote conditions and a lot of our government customers, as they work remote, they don't have access to the secured systems and such to be able to continue to process the stuff they need to do or when we look at the licensing. We know that DDTC, in the same fashion, has anywhere from a six to eight-week delay just in what would be the normal processing of their licensing. So hard to assign a number to it but we see anywhere from a one month to probably naturally a two- or a two and half -month just delay in the process in decision-making. So and probably expect that to continue somewhat. Also, as I mentioned earlier, international customers, if we look at March through May, and really beginning into June, you saw a lot of the international customers, much like in America, all work remote and all but kind of shut down decision-making. So now that's beginning to slowly open back up, how quickly it opens back up and what exactly that means to us, frankly, it would be impossible for me at this time to give you a firm outlook.

Ken Herbert -- Canaccord -- Analyst

Okay. That's helpful. And maybe, Carol, if I could, for you. I just wanted to follow up on your comments. Significant inventory build in the quarter, obviously, and then, of course, for the full year. Can you provide any more color on exactly what that is? And then timing as to sort of how you expect the maybe the liquidation of the inventories maybe this year and into next year?

Carol Lowe -- Executive Vice President and Chief Financial Officer

Yes. So thank you, Ken. And so some of the inventory build was as we were anticipating and wanting to be on the front side of addressing the supply chain issues we had. So we made specific decisions relative to supporting EST demand. And as Jim noted, the cameras that are used for EST, like the A-Series, for example, there are other uses and demand for those as well. So while EST has dropped some in the level of demand, we'll be able to shift, and we should be able to have a runoff in that specific inventory within, say, a six- to nine-month period, probably worst case. And then also, we made decisions to buy and make sure we had security of supply to ramp some of the programs within UIS and to make sure we would not have any shortfall there. But we're very comfortable with the inventory levels and our ability to manage those over the next six to nine months.

Ken Herbert -- Canaccord -- Analyst

Okay. Great. Thank you very much.

Operator

Our final question comes from the line of Jeff Kessler with Imperial Capital. Please proceed with your question.

Jeff Kessler -- Imperial Capital -- Analyst

Thank you for the intend if your taking my question. Can I most of my questions have been answered, but I will throw in on ADAS. Obviously, that has been backed up by COVID priorities. But during this period, obviously, a lot of planning has gone into this, not just by the chip manufacturers but by the ultimately, the end users. Can you describe or what you are doing and what types of discussions are going on with regard to ADAS at over the next two to three years as we move our priorities away from just acute healthcare toward perhaps longer-term healthcare for people not being able to use get greater assist in vehicle use?

Jim Cannon -- President and Chief Executive Officer

Yes, absolutely. As we've mentioned before, ADAS is one of the most exciting addressable markets for us going forward, and we really participate in several areas. Certainly, thermal sensors on the car to help with higher levels of autonomous driving but more and more, what we're seeing is demand to use thermal technologies to help with existing safety features like automated emergency braking. Also, a lot of the work that we're doing to work with commercial trucking companies or companies that are working on vehicle automation or the larger OEMs, those same lessons go into our unmanned ground combat systems for use with military customers. And lastly, our intelligent traffic business using vehicles, everything, technology to communicate from the intersection to the vehicles to help create a safer roadway and pedestrian flow, there's a lot of demand as well. As you mentioned with the pandemic, our core automotive business, where we're providing thermal cameras now to a host of different OEMs, is they have slowed production or in some cases, ceased production. We saw in the second quarter a sharp decline in that automotive OEM business for us in our components business. But longer term, that's really, again, the near-term demand curves, there's a lot of factories and such shutdown. Longer term, through the second quarter, we saw a lot of continued and very aggressive R&D efforts across the board, whether it's with some of the larger autonomous driving customers, we can't name by name, but we formally signed partnerships with to be their thermal provider, studying how thermal is integrated with other sensor solutions and such, whether it be with robo taxi companies or as I mentioned earlier, what I'm really excited about is current auto manufacturers looking at things like automatic emergency braking. And all of the conditions, whether it be sun glare, low light conditions, etc, where existing technologies and sensors to initiate AEB are not effective, but thermal very much is. So we're really encouraged by the kind of R&D effort and customer engagement we've had through the second quarter on that front.

Jeff Kessler -- Imperial Capital -- Analyst

Is there obviously, you can't give any timing because this is out there. But is this something that is this something that you think is two to three or four years away? Or is it five to eight years away, so that we can start when should we start thinking about this being having some greater effect on FLIR?

Jim Cannon -- President and Chief Executive Officer

Right. Yes, that is certainly the multi-million and million dollar question. I think it's two to three to four years away. Now where we're going to have level five ADAS, when we're going to have it, how it's going to be implemented in our communities. There's a lot of debate. But if we look at an example, integrating onto a model. Well, we know that's not going to be inside of two years because it's the model as such. But certainly, beginning with standard safety features, moving on to higher levels of autonomy, two to four years, we should we hope to see and certainly are working hard to develop the technology, so it's beginning to move revenue for the company.

Jeff Kessler -- Imperial Capital -- Analyst

Okay, great. Thank you very much. Appreciate it. Appreciate being in the call.

Jim Cannon -- President and Chief Executive Officer

Thank you.

Operator

We've reached the end of our question-and-answer session. And I would like to turn the call back over to Mr. Cannon for any closing remarks.

Jim Cannon -- President and Chief Executive Officer

Well, I'd like to thank all of you for joining the call today and your for your interest in our company. I also want to reiterate my thanks and appreciation to all of our FLIR employees and our supply chain around the world for their hard work, passion, dedication to safety and our mission. We look forward to updating you on our progress when we report our third quarter results later this fall. Thank you all. Please stay safe and healthy.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Lasse Glassen -- ADDO Investor Relations

Jim Cannon -- President and Chief Executive Officer

Carol Lowe -- Executive Vice President and Chief Financial Officer

Peter Arment -- Baird -- Analyst

Jim Ricchiuti -- Needham & Company -- Analyst

Louie DiPalma -- William Blair -- Analyst

Andrew Buscaglia -- Berenberg -- Analyst

Mike Ciarmoli -- SunTrust -- Analyst

Ken Herbert -- Canaccord -- Analyst

Jeff Kessler -- Imperial Capital -- Analyst

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