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Teledyne Technologies Inc (TDY) Q1 2021 Earnings Call Transcript

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Teledyne Technologies Inc (NYSE: TDY)
Q1 2021 Earnings Call
Apr 28, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Teledyne First Quarter Earnings Call. [Operator Instructions]

Now I would like to turn the conference over to host, Jason VanWees. Please go ahead.

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Jason VanWees -- Executive Vice President

Good morning. Thank you, everyone. This is Jason VanWees, Executive Vice President. And I'd like to welcome folks to our first quarter 2021 earnings release conference call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne's Executive Chairman, Robert Mehrabian; President and CEO, Al Pichelli; Senior Vice President and CFO, Sue Main; and SVP, General Counsel, Chief Compliance Officer and Secretary, Melanie Cibik. After remarks by Robert, Al and Sue, we will ask for your questions.

Of course, so before we get started, our attorneys have reminded me to tell you that all forward-looking statements made this morning are subject to various assumptions and caveats as noted in our SEC filings and our periodic earnings releases. In order to avoid potential selective disclosures, this call is simultaneously being webcast and a replay both via webcast and dial in will be available for approximately one month. Here is Robert.

Robert Mehrabian -- Executive Chairman

Thank you, Jason and good morning and thank you for joining our earnings call. We began 2021 with the best first quarter sales, earnings, operating margin and cash flow in the Company's history. Furthermore, we achieved these GAAP results despite incurring $39 million or $0.79 per share of expenses related to the pending acquisition of FLIR. Excluding these non-recurring charges, earnings increased 39.2% compared to last year. Operating margin increased 426 basis points and free cash flow nearly doubled.

In addition, I'm very pleased with the breadth of our financial performance across Teledyne. Year-over-year sales increased in nearly every major business category except commercial aerospace, which is now only 4% of our total sales. The recovery in our short cycle commercial business is unfolding nicely and our government businesses are also growing and performing well, in both cases, strongest within our Digital Imaging segment. Also in the first quarter, we received all time record orders with a book to bill of 1.15x resulting in quarter-end backlog of approximately $1.8 billion.

Given our strong first quarter, we now think a reasonable outlook for the total company organic sales growth in 2021 is approximately 6% led by forecasted growth of about 10% in Digital Imaging excluding FLIR. And now with respect to the fair acquisition over the last few months while transaction certainty progressively increased, Teledyne performed in-person visits covering 90% of all FLIR on-site several on multiple occasion. Most importantly, we were also granted access to the operating management in all key functional areas.

To summarize, FLIR's people, products, technology and manufacturing are outstanding. I am now even more excited about the prospect for FLIR as part of the Teledyne family. Regarding timing, our respective stockholder votes are scheduled for Thursday, May 13 and pending approval, we expect to close early, the following morning. Assuming closing occurs as planned, we expect to update our outlook in the July earnings release and include FLIR. We remain confident of immediate pre-tax annual synergies greater than $40 million having continue to expect, EPS accretion even on a GAAP basis in 2022 with EPS accretion, excluding amortization being substantially greater.

Al will now comment on the performance of our four business segments. Al?

Aldo Pichelli -- President and Chief Executive Officer

Thank you, Robert. In our Instrumentation segment, overall, first quarter sales increased 0.5% versus last year. Sales of environmental instruments increased 5% from last year. Sales of most product categories increased with the strongest year-over-year organic growth resulting from the gas and flame detection products acquired in 2019. Sales of our electronic, test and measurement systems increased 4.8% year-over-year. Sales of marine instrumentation decreased 6.7% in the quarter.

However operating profit increased due to aggressive cost management and business simplification and standardization initiatives. Overall, instrument segment operating margin increased 291 basis points to 20.7%. Turning to Digital Imaging segment. First quarter sales increased 6.7%. GAAP segment operating margin was 19.7%, an increase of 200 basis points year-over-year. Now turning to the Aerospace and Defense Electronics segment, first quarter sales declined 3.3% as greater defense sales were more than offset by a 28.5% decline in sales of commercial aerospace products.

GAAP segment operating margin increased over 1,000 basis points to 18.7% versus 8.6% in 2020. In the Engineered Systems segment, first quarter revenue increased 8% primarily due to greater sales from defense and other manufacturing programs as well as electronic manufacturing services products. Segment operating margin increased 242 basis points when compared with last year.

I will now turn the call to Sue, who will offer some additional commentary regarding the second quarter and our full year 2021 outlook.

Susan L. Main -- Senior Vice President and Chief Financial Officer

Thank you, Al. 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 second quarter and full year 2021 outlook. In the first quarter, cash flow from operating activities was $124.9 million compared with cash flow of $76.4 million for the same period of 2020. Record first quarter free cash flow, that is cash from operating activities less capital expenditures was $107.3 million in the first quarter of 2021 compared with $56.2 million in 2020. Excluding after-tax cash payments related to the FLIR transaction first quarter free cash flow was $110.1 million.

Capital expenditures were $17.6 million in the first quarter compared to $20.2 million for the same period of 2020. Depreciation and amortization expense was $29.3 million for both the first quarters of 2021 and 2020. We ended the quarter with $9.1 million of net debt that is approximately $3.24 billion of debt less cash of approximately $3.23 billion. The higher cash and debt balances at April 4, 2021, including the proceeds of debt incurred to fund the cash portion of the consideration for the FLIR test acquisition. Stock option compensation expense was $4.2 million for the first quarter of 2021 compared to $7.4 million for the same period of 2020.

Turning to our outlook, management currently believes that earnings per share in the second quarter of 2021 will be in the range of $2.85 to $2.95 per share and for the full year 2021, our earnings per share outlook is $12 to $12.20. In each case, these do not reflect the pending acquisition of FLIR and related acquisition and financing costs. The 2021 full year estimated tax rate, excluding discrete items is expected to be 22.6%. In addition, we currently expect less discrete tax items in 2021 compared with 2020.

I will now pass the call back to Robert.

Robert Mehrabian -- Executive Chairman

Thank you, Sue. We would now like to take your questions. Sean, if you're ready to proceed with the questions-and-answers, please go ahead.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is going to come from the line of Ken -- sorry, Greg Konrad from Jefferies. Please go ahead.

Greg Konrad -- Jefferies -- Analyst

Good morning.

Robert Mehrabian -- Executive Chairman

Good morning, Greg.

Greg Konrad -- Jefferies -- Analyst

Maybe just to start on margins before I get to full year. I mean, it seems like at least in Instrumentation and Engineered Systems, you're probably running well ahead of the guidance that you laid out last quarter. Can you maybe just update us on your thoughts on organic margins for the year?

Robert Mehrabian -- Executive Chairman

Yeah. Greg, Instrumentation, when we started the year, because it's primarily short cycle business, we were not sure about how much revenue and therefore margins we would have. So we projected margin improvement of about 10 basis points. We think the margins are now going to be closer to 140 basis points for the year, which is an increase of about 130 basis points.

Moving to the second one, which is engineered systems that you mentioned, we had very strong first quarter primarily because we shipped all of our turbine engines that were due to finish that production cycle in the first quarter. So our margins were a healthy 14 -- over 14.2%. We were initially projecting margins for the year of about 15 basis point improvement, currently because primarily of the first quarter, we think overall margins for this segment would increase to about 180 basis points with the rest of the year moderating closer to the 12% to 12.2% that this business has normally experienced. I think those were the two areas that you asked about.

Greg Konrad -- Jefferies -- Analyst

That's helpful. And then you mentioned that you guys have visited over 90% of the FLIR side. I mean, any update just when we think about synergies or maybe some of the potential longer term revenue synergies, just anything surprising as you continue the diligence into the close.

Robert Mehrabian -- Executive Chairman

Well, I think the most important thing that we found out in our visits, where the quality of the operations and the people we really haven't focused yet on revenue synergies, but we've looked at synergies in the operating area primarily by using some of the methodologies, Greg, that we've used in our own operations such as procurement, savings, which have been substantial for us last year and are supposed to be the same this year as well as some of the cost reductions that we mentioned earlier vis-a-vis, the $40 million of cost savings that we expect to enjoying the first year and growing to $80 million over time.

So those would be the synergies that at this time. In terms of revenue synergies, we haven't really looked at that very closely. And frankly we operate in different markets. There are things that we can obviously look at very quickly would be, how do we jointly go to market in areas where we have complementary products.

Greg Konrad -- Jefferies -- Analyst

And then just last one, I mean, I remember back to e2v, you gave us adjusted numbers, because there were large expenses and you kind of did that this quarter. And I'm assuming that will continue going forward, but any updated thoughts on, even if it's not the presented number at least presenting, ex-amortization, just given that's probably going to be fairly accretive as you get into next year.

Robert Mehrabian -- Executive Chairman

Yeah, I think the EPS accretion, assume in e2v was substantial partially because, there we really improved margins. For FLIR on the other hand, if we exclude intangibles, which as you said would be substantial and the one-time costs that we will, we think that in 2022, we should have EPS accretion of about 20% or more, of course, again excluding the intangibles, which is substantial. The reason for that is two-fold, one is the savings, what I mentioned, the other is, even in last year's revenue and earnings that they had in 2020, their margins, operating margins after all of those one-time costs on a GAAP basis were 16.5% which to us is a very healthy margin.

As you know we, this quarter, we've been up to 17.5%, but 16.5% is very good. And if we can improve that, and obviously we'll get substantial accretion, ex-intangibles.

Greg Konrad -- Jefferies -- Analyst

Thank you.

Robert Mehrabian -- Executive Chairman

Thank you, Greg.

Operator

Thank you. And then next we're going to go to the line of Blake Gendron from Wolfe Research. Please go ahead.

Blake Gendron -- Wolfe Research -- Analyst

Yeah. Thanks for the time this morning. I just want to follow up on the synergy question maybe not so much focus on cost or revenue but working capital here in terms of supply chain overlap, is there any way we can think about maybe free cash conversion on a stand-alone basis versus incremental synergies there when you combine the two entities?

Robert Mehrabian -- Executive Chairman

Yeah. I think, again, we've got to -- to do this properly, Blake, I have to exclude the one-time charges, because we -- while we have some handle on our charges at this time for the rest of the year, we don't have a really good handle on what FLIRS charges would be -- the one area, I think the conversion overall was -- is going to be better than 100%. Having said that, in inventory built up at FLIR from what we saw in '19 and '20 was substantial, and unfortunately because of the elevated skin temperatures programs that they enjoyed, so they have a significant inventory build up in that and some other areas that we have to look at very carefully. And we may have to write those up. We may have to write those down, but we'll see as we get to it.

But overall our projections are that, we ourselves should have free cash flow that surpasses slightly, surpasses last year. And last year was a record year for us at $547 million for $445 million. So if we can exceed that ourselves and do well with the future cash flow that's very important because, we intend to pay down our debt as fast as we possibly can for the next two years.

Blake Gendron -- Wolfe Research -- Analyst

That's really helpful color. Wanted to switch gears to digital imaging, you called out strength in some of the short-cycle markets specifically industrial, scientific and geospatial. Does that include healthcare, because we're seeing hospital volumes improve. So I'm wondering if that could be an incremental tailwind as we move forward here in the vaccine rollout and normalization. And then, yeah, very small exposure to the commercial aero in Digital Imaging, but wondering how do you expect that to evolve over the medium to longer term.

Robert Mehrabian -- Executive Chairman

Let me start with the healthcare. Healthcare year-over-year, '19, 2019 to 2020, we had about 13.7% decrease in revenue from $255 million to $220 million. This year, we're starting to see some improvements, and we anticipate that between our CMOS X-ray panels as well as some of the equipment that we supply, for X-ray sources, we will have an increase of about 9% over last year to approximately $240 million. So that kind of speaks to what you just said. The recovery is a little slower than we anticipated. But it is there. We are getting some really good orders in that domain. More in the flat panel displays, with the X-ray sources kind of lagging a little bit, but still coming up.

Going back to the question, vis-a-vis, regular the Commercial Systems, commercial aero in Digital Imaging, first, it's small. Second, it's not that dependent on, Airline traffic is different than anything else, it's primarily in space domain. And we have not seen any deterioration there. And actually we think that on our aerospace and defense in the digital imaging domain, we think we'll see about a 7% improvement in revenue this year from $270 million [Phonetic] last year to maybe to $290 million [Phonetic] this year. So, the only area of aerospace that we're taking some punishment is, in the aerospace businesses in Teledyne's normal defense and aerospace domain.

Blake Gendron -- Wolfe Research -- Analyst

Makes sense. Really appreciate the time. Thanks for the answers.

Robert Mehrabian -- Executive Chairman

Sure, Blake.

Operator

Thank you. And next we'll go to the line of Jim Ricchiuti from Needham & Company. Please go ahead.

Jim Ricchiuti -- Needham & Company -- Analyst

Hi, good morning. Just a couple of questions. Just you alluded to the fact that you've seen a little bit of stronger margin profile in parts of the instrumentation business. I'm just wondering as you look out into the second half of the year, where do you see the most opportunity for margin expansion in the different business units. It sounds like you're, with healthcare coming on Digital Imaging, margins look better.

Robert Mehrabian -- Executive Chairman

Yes. If you go to Instrumentation, we did have some significant improvements in margin and environmental and test and measurement in the first quarter and we expect those to continue for the rest of the year. We also had some improvement in margin in the marine businesses, even though revenue as Al mentioned was down somewhat. We think the revenue will catch up, the rest of the year. And as that does the margins there will improve also. So we think overall, the instrumentation, we have the best margins in environmental area, about 23%. Second best margins in our test and measurement, over 21%. And Marine is approaching 19% -- over 19%. When you roll it all up, we're going to get close to 20.9% in Instrumentation.

I think that's going to be healthy for especially if Marine as we expect, because of the oil prices going up to about $65 currently. If that improves, then I think that segment is going to do really well. That's why I said, our outlook for the margins has improve 130 basis points since January of this year.

Jim Ricchiuti -- Needham & Company -- Analyst

Got it. And Robert with all of the well publicized reports about component constraints, and Al maybe you want to respond to this. Are you guys seeing any disruption in the business from this or are you able to manage the supply chain well enough?

Aldo Pichelli -- President and Chief Executive Officer

Both. first obvious -- yeah, we are seeing constraints, Jim. There is no question about that. Both in the electronics components as well as in printed circuit boards. It's affecting a lot of our businesses. But having said that, we have, even though we do have very tight control of our inventory, we have approved buying some of the critical components ahead of time. And the other thing is, because of our collaborative and across Teledyne effort in procurement, we're able now to approach our suppliers thus one fairly large customers, get their forecasts in terms of their timelines for delivering product and put in orders ahead of time.

Having said all of that, we are managing it, but we also are getting products from foundries, for example, that come to our wafers that we get. In that case, we're fortunate, because, the guys who supplies wafers are also our customers. So in some areas, we think we're going to be OK, in other areas, I'm very cautious, be optimistic. But this thing can really spin out of control and then we'll have to deal with it again.

Jim Ricchiuti -- Needham & Company -- Analyst

Yeah, OK. Last question. Thank you for that. And last question, just with nice bookings number for the quarter and backlog, and I'm just wondering as we think about the way you're characterizing the business and the acceleration in growth that seems to be suggested in the recent filings looking out to next year, where do you see the potential for accelerating growth in which areas of the business. I assume some of the businesses that have been weaker that recover. But I'm just wondering if there's anything else you can call out.

Aldo Pichelli -- President and Chief Executive Officer

I think our primary area is Digital Imaging. We're, for me to say, Digital Imaging is going to grow organically 10% year-over-year, I don't know if that does something like that. So I feel pretty bullish to kind of predict that. I think we'll end the year with the book-to-bill in Digital Imaging of 1.08 maybe 1.10. So that's our first area. I think in the Instrumentation area we are right now just over 1, but a lot of that is short cycle businesses. If marine comes back as we expect and the other areas come back as we expect.

We think, especially in test and measurement, we could have as much as 8% growth in environmental, 6%, 6.5%. And if marine comes back, that would be another 2%. So overall, I think instrumentation should give us about 5.3%, 5.2% for the year. For us, that's again very good, because those are the highest margin businesses. Engineered Systems, I think would be fairly flat year-over-year, we don't expect aerospace to really come back that much this year. It's probably a two-year cycle, but our defense businesses are doing OK. So, we anticipate, in aerospace and defense combined to enjoy a 4% margin, 4% revenue improvement this year.

Roll all of that together, and you're going to end up with about 6% for the Company, which would be one of our healthier organic growth rates in revenue in the recent past.

Jim Ricchiuti -- Needham & Company -- Analyst

Okay, that's very helpful. Thank you.

Aldo Pichelli -- President and Chief Executive Officer

Thank you.

Operator

And next we're going to go to the line of Joe Giordano from Cowen. Please go ahead.

Joe Giordano -- Cowen and Company -- Analyst

Hi, everyone. Good morning.

Aldo Pichelli -- President and Chief Executive Officer

Good morning, Joe.

Joe Giordano -- Cowen and Company -- Analyst

Yeah, I just wanted to talk about semiconductor and test and measurement and how you're thinking about the sustainability of strength there given some of the plans from some of the large manufacturers. I know you're on that, more on the R&D side, but just curious for your color there.

Aldo Pichelli -- President and Chief Executive Officer

Test and measurement, let me start there, we're really enjoying a good year in test and measurement, primarily because of being able to put out new products continuously. You know, we have two -- as you know, we have two areas that we focus on there. One of them is our oscilloscopes and the other is protocols, which are the rules that chips communicate with one another.

We continue to put new products like last week alone, we announced three products in oscilloscopes and protocols. But more importantly, what our guys have been able to do is marry those two businesses, those two products together. So now people can do protocol development and analysis using their oscilloscopes as real-time observation of the signals. And that is -- that's going to be a very good for that area. You also asked me about semi. In Digital Imaging is primarily where we focus on the semi market and there as mask and wafer inspection. That's been a really good market for us. if you know, if I look at our growth in vision systems which includes flat panel displays, as well as semi inspection.

We anticipate that year-over-year to be about 12% to 13% revenue growth. So that kind of speaks for that. And then lastly, I would point out one example of why Digital Imaging and relative relevant semiconductor markets are doing so well for us, we do have a product that comes of our MEMs foundry in Canada. These are telecoms which are very slim. One-tenth of a human hair thickness, but 6 to 18 inches in diameter.

Consumable products that are used in extreme UV lithography for very fine semiconductors they essentially our screens that protect the wafers a, we've really done well and have now captured that market and we have a wonderful customer there. So overall, to answer your question, test and measurement, I talked about and in the semi, the products that we supply to them are doing really well.

Joe Giordano -- Cowen and Company -- Analyst

And just a follow up on one of the other questions asked already about your ability to source components in the scarcity going on, how do you get comfortable with clear's ability to do that historically and now that you're taking over there, your ability to be able the main answer is, Jim, but having theat to source that much in additional that you'd need to cover their operations, as well as smoothly as you've covered your own the answer is, Jim, I don't know yet. But having said that, we are because, as I mentioned, they do have substantial inventory and we have to obviously dig into that, to see what areas you I think that would be right, not an area that will have to bring our procurement to it.

On the other hand, clear also gets wafers and they also make a lot of their -- enjoy lot of the loan sensors both on the crude and the side. So VOX as we can enjoy having the wafers. And as long as we can enjoy doing some of the development especially in India. Tim on for the cold and we in for the uncooled. I think we should be all right. But having said all of that, we just haven't looked at it that deeply. We anticipate that there'll be some challenges, but we'll deal with those just like we did challenges that come up in our businesses. Thank you.

Aldo Pichelli -- President and Chief Executive Officer

Thank you, Joe.

Operator

[Operator Instructions] Next we'll go to the line of Andrew Buscaglia from Berenberg Capital Market. Please go ahead.

Andrew Buscaglia -- Berenberg Capital Market -- Analyst

Good morning, guys.

Aldo Pichelli -- President and Chief Executive Officer

Good morning, Andrew.

Andrew Buscaglia -- Berenberg Capital Market -- Analyst

I was hoping you could -- could you talk a little bit about. So just to clarify, Digital Imaging, are you calling for 10%, both for the full year revenue, you gave the subcomponents there. And then, I don't believe you gave, you talked about a couple of the segments. I don't believe you talked about margins for Digital Imaging or A&D electronics, which at least for A&D had a really strong start to the year. So just kind of your outlook on those margins there.

Robert Mehrabian -- Executive Chairman

Okay. Let me start with the margins, please. Right now we think Digital Imaging margins should go up -- to up about 150 basis points over last year. So just north of 21%, let's say 21%. Aerospace and defense, we're going to have significant margin improvement. As Al mentioned, we had a really good uptick in the first quarter, partially, because we have long time charges last year in our Aerospace, but nevertheless having said that. We think the margins are going to be approaching 18.5% maybe 18.6%, which would be 490 basis points improvement over last year.

Engineered Systems is going to be relatively flat. So if you take the Instruments margin that I mentioned before, which was 21% -- 20.9% and bring it all the way down, we think the Company operating margin. I mentioned in January that we think, we thought it be about 17%. Now, we're projecting the total Company operating margin to be closer for the year to 17.6%. This -- all of this is excluding, of course, anything that has to do with the acquisition of FLIR. I don't know, whether I answered your -- all your question.

Andrew Buscaglia -- Berenberg Capital Market -- Analyst

And Digital Imaging, the top line there, I know you gave some sub-component outlook there, but I think we had called for about 9% growth for the year. Is that now closer to 10%, I think you were saying.

Aldo Pichelli -- President and Chief Executive Officer

Yes, it's closer to 10% made by our vision products, cameras including scientific cameras, sensors. As I mentioned for semi flat panel display etc. And everything there is going to do well. The only real that may be flat year-over-year is our geospatial, everything else seems to be going really well.

Andrew Buscaglia -- Berenberg Capital Market -- Analyst

Okay. And then lastly having a little bit difficult to just getting to the midpoint of your guide. And I think it might be. Yeah. Are you, should we be modeling in some transaction costs to add back or secondly, interest expense was elevated this quarter. If you, I guess you can't really assume a flat line or you got to add that back, how do you -- I guess how you get to the midpoint of your guide with some of the below the line items.

Robert Mehrabian -- Executive Chairman

Well if -- if you look at the guidance that Sue provided, the $12 to $12.20, that excludes FLIR transaction costs. So you have to look at it at this time. You have to look at that, excluding interest expenses related to the FLIR acquisition as well as some of the legal expenses that come above the line. Now, once we acquire FLIR assuming the shareholders approve the transaction, then what we will do is, we'll have to put the interests in the -- for the total Company as part of our moving forward normal costs in GAAP. But there are going to be some other costs associated with the transaction that are going to be substantial. Those would be one-time charges and as we talked earlier, we call those intangibles later on also, would be some inventory write-ups and other things.

Having said all of that, the $12 to $12.20 excludes FLIR transaction costs, which in the first quarter were about $39 million, $5.9 million of it was above the line which was legal fees and also fees for bankers and the rest of it, or about $33 million was interest and getting the bonds and getting, redeeming some of the bonds that we already had outstanding. So I hope that answers your question. From July, we kind of clean this up and do it what did we say in April as Teledyne stand-alone, how are we looking at FLIR, what we expect to happen there. We learned a lot more about them as they do their own earnings. I think it's May 6. And then we'll project what the combined company would be like, with and without the one-time costs. And as I mentioned earlier, we think it's going to be accretive even on a GAAP basis in 2022.

Andrew Buscaglia -- Berenberg Capital Market -- Analyst

Got it. And I was hoping, Robert, could you guys provide little more color on one more thing? In the S-4, the internal projection that FLIR had for their defense technology business was about 12% CAGR. It seems like you've learned more about the Company, you are talking about quality of the assets and the people. Are those some of the projections something you would sign off on that there is a lot of growth in that defense segment which just hadn't transpired for that Company to-date?

Robert Mehrabian -- Executive Chairman

Yeah. Let me start, Andrew, if I may with a little precaution. How should I put it? We are a little bit concerned that may be the projections for them were a little aggressive in the S-4. Having said that, we have now looked at their businesses a little differently than the way they reported into two segments, which is the industrial segment and the defense segment.

We have gone back, Andrew and looked at the businesses from a divisional perspective, the way they were in 2014 which were fixed divisions. So we have gone back and fortunately they were kind enough and good enough to provide us with the financial data in those divisions. And then they have added two new things to it. And I am going to come to the defense question that you asked. One of them is a small vision products that they bought in Canada, Point Grey, which they report as part of their components business. And that business is fairly stable. It's a small business of the order of $80 million.

Now coming to the next area which is new, so now they have kind of, if you look at it the way I just mentioned, they have eight divisions the way we look at it. The way we look at the defense segment, it really has one part of it that is really new and that's their unmanned systems, both UAV and ground-based unmanned system. And that has enjoyed really good growth, primarily because they have made some good acquisitions and they have also starting with an acquisition they made in 2016, Prox Dynamics, which makes the very small UAVs. And they have enjoyed about $260 million in revenue in 2020 in that unmanned segment which is both ground-based and UAVs.

That business, I think, will grow. And I think that business will grow significantly from our perspective. And I am hoping that it will grow enough to make up for some of the detriment that we see from the business that they provided, elevated skin temperature, products that are going to go down maybe last year well over $100 million, go down to less than $20 million or whatever. Having said that, so we are hoping that, as you mentioned, the defense businesses, because of the acquisitions are now kicking in full years, that those would makeup the detriment in the EST business. I don't know if I have answered your question, but I think that's the best I can do at this time.

Andrew Buscaglia -- Berenberg Capital Market -- Analyst

No, it's helpful. Thank you.

Robert Mehrabian -- Executive Chairman

Thank you, Andrew.

Operator

And at this time, I have no further questions in queue.

Robert Mehrabian -- Executive Chairman

Thank you, Sean. I will now ask Jason to conclude our conference call. Jason?

Jason VanWees -- Executive Vice President

Thanks Robert. And again thanks to everyone for joining the call this morning. Of course, if you have follow-up questions, please feel free to call me at the number on the earnings release. Sean, if you could end the call and provide the replay details for everyone, I would appreciate it. Good bye.

Operator

Yes. Thank you. Ladies and gentlemen, today's call will be available for replay after 10:00 AM today through 5/28/2021. You may access the AT&T Teleconference replay system at anytime by dialing 866-207-1041 or internationally at 402-970-0847 with an access code of 555-6868. Those numbers again are 866-207-1041 or internationally at 402-970-0847 with an access code of 555-6868. That does conclude our conference for today. Thanks for your participation and for using AT&T Event Services. You may now disconnect.

Duration: 47 minutes

Call participants:

Jason VanWees -- Executive Vice President

Robert Mehrabian -- Executive Chairman

Aldo Pichelli -- President and Chief Executive Officer

Susan L. Main -- Senior Vice President and Chief Financial Officer

Greg Konrad -- Jefferies -- Analyst

Blake Gendron -- Wolfe Research -- Analyst

Jim Ricchiuti -- Needham & Company -- Analyst

Joe Giordano -- Cowen and Company -- Analyst

Andrew Buscaglia -- Berenberg Capital Market -- Analyst

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