FLIR Systems Announces

Third Quarter 2018 Financial Results

Organic Revenue Growth of 3% Over Prior Year

GAAP EPS of $0.52; Adjusted EPS of $0.57, Up 10% Over Prior Year

Operating Margin Improved 160 Basis Points Over Prior Year;

Adjusted Operating Margin Improved 260 Basis Points Over Prior Year

WILSONVILLE, OR, October 30, 2018 – FLIR Systems, Inc. (NASDAQ: FLIR) today announced financial results for the third quarter ended September 30, 2018. “Overall, I was pleased with the third quarter performance,” said Jim Cannon, FLIR President and Chief Executive Officer. “We delivered strong performance reaching our highest quarterly gross margin, operating margin, and operating cash flow in over five years. We also continued organic revenue growth despite challenging year-over-year comparables.”

Mr. Cannon continued, “Our continuous improvement initiatives through The FLIR Method are generating positive earnings momentum. While still in the early stages, the team’s commitment to The FLIR Method is beginning to yield exciting results. In this past quarter, we made meaningful progress on our strategic priorities presented at investor day to fuel, feed, and focus the business, particularly in unmanned solutions.”

Third Quarter 2018

Third quarter 2018 revenue was $434.9 million, 6.4% lower than third quarter 2017 revenue of $464.7 million. Organic revenue increased 3.1% over the prior year, excluding revenue from acquisitions and the previously disclosed divested security businesses which included revenue of $43.4 million in third quarter 2017.

GAAP Earnings Results

GAAP gross profit in the third quarter was $222.1 million, or 51.1% of revenue, compared to $222.9 million, or 48.0% of revenue in the third quarter of 2017. GAAP operating income in the third quarter increased 1.7% to $88.6 million, compared to $87.1 million in the prior year, representing a 160 basis point improvement in operating margin.

Third quarter 2018 GAAP net earnings were $73.2 million, or $0.52 per diluted share, compared with GAAP net earnings of $63.5 million, or $0.46 per diluted share in the third quarter last year. The GAAP net earnings increase was primarily driven by a 1,050 basis point decrease in our effective tax rate versus the prior year due to a reduction in the U.S. statutory rate as a result of the U.S. Tax Cuts and Jobs Act, as well as discrete tax items including an updated estimate of the U.S. transition tax, as well as excess tax benefits from stock compensation.

 

 

 

Cash provided by operations was $275.8 million in the first nine months of 2018, compared to $209.3 million in the first nine months of 2017, a 31.8% increase. Approximately 2.0 million shares were repurchased in the first nine months of 2018 at an average price of $50.52.

Non-GAAP Earnings Results

Adjusted gross profit was $227.4 million in the third quarter, slightly down from adjusted gross profit of $227.7 million in the third quarter of 2017. Adjusted gross margin increased 330 basis points to 52.3%, compared with 49.0% in the third quarter of 2017. Adjusted operating income was $106.0 million in the third quarter, which was 4.8% higher than adjusted operating income of $101.1 million in the third quarter of 2017. Adjusted operating margin increased 260 basis points to 24.4%, compared with 21.8% in the third quarter of 2017.

Adjusted net earnings in the third quarter were $80.3 million, or $0.57 per diluted share, which was 9.6% higher than adjusted earnings per diluted share of $0.52 in the third quarter of 2017.

Business Unit Results

Revenue from the Industrial Business Unit was $177.2 million, an increase of 3.6% over the third quarter results of last year driven by increased sales of automotive, unmanned aerial systems (UAS), and optical gas imaging products. The Government and Defense Business Unit contributed revenue of $172.0 million during the third quarter, up 1.3% over the prior year, with strength in gimbaled and UAS systems partially offset by declines in airborne systems. The Commercial Business Unit recorded $85.8 million of revenue in the third quarter, down 30.8% from the prior year. Commercial experienced organic revenue growth of 6.0% in the same period excluding revenue from acquisitions and the divestiture of the previously disclosed security businesses. Strong results in maritime and intelligent transportation systems contributed to the organic revenue growth.

Revenue and Earnings Outlook for 2018

Based on financial results for the first nine months of the year and the outlook for the remainder of the year, FLIR expects revenue in 2018 to continue to be in the range of $1.78 billion to $1.80 billion and adjusted net earnings per diluted share to continue to be in the range of $2.17 to $2.22 per diluted share.

 

 

 

Dividend Declaration

FLIR’s Board of Directors has declared a quarterly cash dividend of $0.16 per share on FLIR common stock, payable December 7, 2018 to shareholders of record as of close of business on November 23, 2018.

Conference Call

About FLIR Systems

Founded in 1978 and headquartered in Wilsonville, Oregon, FLIR Systems is a world-leading maker of sensor systems that enhance perception and heighten awareness, helping to save lives, improve productivity, and protect the environment. Through its nearly 3,500 employees, FLIR’s vision is to be “The World’s Sixth Sense” by leveraging thermal imaging and adjacent technologies to provide innovative, intelligent solutions for security and surveillance, environmental and condition monitoring, outdoor recreation, machine vision, navigation, and advanced threat detection. For more information, please visit www.flir.com and follow @flir.

Definitions and Financial Measures

Organic revenue growth is defined as total revenue growth less the sales of companies acquired and divested in the past twelve months. Operating margin is defined as operating income as a percentage of revenue. Management uses operating income and operating margin as key measures to assess the performance of the Company as a whole, as well as the related measures at the segment level.

Non-GAAP Financial Measures: In addition to financial measures prepared in accordance with generally accepted accounting principles (GAAP), this earnings release makes reference to non-GAAP measures. With respect to the outlook for the full year 2018, certain items that affect GAAP net earnings per diluted share are out of the Company’s control and/or cannot be reasonably predicted. Consequently, the Company is unable to provide a reasonable estimate of GAAP net earnings per diluted share or a corresponding reconciliation to GAAP net earnings per diluted share for the full year. Additional information regarding the reasons the Company uses non-GAAP measures, a reconciliation of these measures to the most directly comparable GAAP measures, and other information relating to these measures are included below, following the GAAP financial information.

Forward-Looking Statements

Statements in this release by Jim Cannon and the statements in the section captioned "Revenue and Earnings Outlook for 2018" above are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical fact (including statements containing the words “believes,” “plans,” “anticipates,” “expects,” “estimates,” or similar expressions) should be considered to be forward looking statements. Such statements are based on current expectations, estimates, and projections about FLIR’s business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including the following: changes in demand for FLIR’s products, product mix, the timing of customer orders and deliveries, the impact of competitive products and pricing, the impact of self-imposed or government mandated remediation efforts related to FLIR’s compliance with U.S. export control laws and regulations and similar laws and regulations, the timely receipt of any necessary export licenses, constraints on supplies of critical components, excess or shortage of production capacity, the ability to manufacture and ship the products in the time period required, actual purchases under agreements, the continuing eligibility of FLIR to act as a federal contractor, the amount and availability of appropriated government procurement funds and other risks discussed from time to time in filings and reports filed with the Securities and Exchange Commission. In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic and international economic conditions. Such forward-looking statements speak only as of the date on which they are made and FLIR does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this release, or for changes made to this document by wire services or internet service providers.

 

 

 

Investor Relations

Jay Gentzkow

503-498-3809

 

 

 

 

 

 

FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)(Unaudited)
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
Revenue		$	434,898			$	464,712			$	1,327,223			$	1,305,650
Cost of goods sold			212,824				241,821				654,684				684,706
Gross profit			222,074				222,891				672,539				620,944
Operating expenses:
Research and development			41,997				42,873				132,987				127,902
Selling, general and administrative			91,525				92,932				296,664				280,240
Loss on sale of business			-				-				10,178				-
Total operating expenses			133,522				135,805				439,829				408,142
Earnings from operations			88,552				87,086				232,710				212,802
Interest expense			4,042				3,819				12,086				12,744
Interest income			(979	)			(488	)			(2,591	)			(1,114	)
Other expense (income), net			71				(778	)			229				(2,465	)
Earnings before income taxes			85,418				84,533				222,986				203,637
Income tax provision			12,267				21,004				39,077				46,124
Net earnings		$	73,151			$	63,529			$	183,909			$	157,513
Earnings per share:
Basic		$	0.53			$	0.46			$	1.33			$	1.15
Diluted		$	0.52			$	0.46			$	1.31			$	1.13
Weighted average shares outstanding:
Basic			138,190				137,849				138,146				137,030
Diluted			140,327				139,419				140,613				138,853

 

 

 

FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)(Unaudited)
		September 30,				December 31,
		2018				2017
ASSETS
Current assets:
Cash and cash equivalents		$	593,335			$	519,090
Accounts receivable, net			291,094				346,687
Inventories			376,542				372,183
Assets held for sale, net			-				67,344
Prepaid expenses and other current assets			93,760				81,915
Total current assets			1,354,731				1,387,219
Property and equipment, net			250,050				263,996
Deferred income taxes, net			94,440				21,001
Goodwill			911,260				909,811
Intangible assets, net			151,778				168,130
Other assets			94,626				59,869
		$	2,856,885			$	2,810,026
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	95,975			$	106,389
Deferred revenue			30,493				25,614
Accrued payroll and related liabilities			76,747				71,310
Accrued expenses			35,184				37,089
Accrued income taxes			30,036				64,136
Liabilities held for sale			-				39,544
Other current liabilities			53,508				50,851
Total current liabilities			321,943				394,933
Long-term debt			421,632				420,684
Deferred income taxes			14,696				12,496
Accrued income taxes			90,231				87,483
Other long-term liabilities			67,160				59,872
Commitments and contingencies
Shareholders’ equity			1,941,223				1,834,558
		$	2,856,885			$	2,810,026

 

 

 

FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(Unaudited)
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
Cash flows from operating activities:
Net earnings		$	73,151			$	63,529			$	183,909			$	157,513
Income items not affecting cash:
Depreciation and amortization			16,308				18,418				49,363				53,426
Deferred income taxes			(1,270	)			(2,187	)			1,919				(2,337	)
Stock-based compensation arrangements			10,562				9,891				24,962				24,745
Change in accrued income taxes			(2,684	)			11,995				(35,762	)			(6,647	)
Other activity impacting operating cash flows			26,432				2,436				51,452				(17,364	)
Cash provided by operating activities			122,499				104,082				275,843				209,336
Cash flows from investing activities:
Additions to property and equipment, net			(7,230	)			(8,208	)			(20,665	)			(31,834	)
Proceeds from sale of business			-				-				25,920				-
Business acquisitions, net of cash acquired			(7,971	)			-				(22,166	)			-
Other investments			(6,000	)			-				(15,500	)			2,859
Cash used by investing activities			(21,201	)			(8,208	)			(32,411	)			(28,975	)
Cash flows from financing activities:
Repayments of credit agreement and long-term debt			-				(86,250	)			-				(97,500	)
Repurchase of common stock			-				-				(99,957	)			-
Dividends paid			(22,121	)			(20,763	)			(66,451	)			(61,776	)
Proceeds from shares issued pursuant
to stock-based compensation plans			7,294				37,196				24,184				44,231
Tax paid for net share exercises and issuance of
vested restricted stock units			(2,550	)			(483	)			(14,663	)			(9,505	)
Other financing activities			(1	)			(8	)			(12	)			(13	)
Cash used by financing activities			(17,378	)			(70,308	)			(156,899	)			(124,563	)
Effect of exchange rate changes on cash			1,473				7,804				(12,288	)			19,814
Net increase in cash and cash equivalents			85,393				33,370				74,245				75,612
Cash and cash equivalents:
Beginning of period			507,942				403,591				519,090				361,349
End of period		$	593,335			$	436,961			$	593,335			$	436,961

 

 

 

FLIR SYSTEMS, INC.
OPERATING SEGMENT PERFORMANCE
(In thousands)(Unaudited)
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
SEGMENT REVENUE
Industrial		$	177,151			$	170,942			$	536,231			$	490,463
Government and Defense			171,955				169,734				492,313				453,630
Commercial			85,792				124,036				298,679				361,557
SEGMENT EARNINGS FROM OPERATIONS
Industrial		$	56,046			$	54,391			$	159,597			$	144,256
Government and Defense			53,878				52,605				145,608				124,078
Commercial			10,441				14,314				42,280				39,777
SEGMENT OPERATING MARGIN
Industrial			31.6	%			31.8	%			29.8	%			29.4	%
Government and Defense			31.3	%			31.0	%			29.6	%			27.4	%
Commercial			12.2	%			11.5	%			14.2	%			11.0	%

 

 

 

FLIR SYSTEMS, INC.
GAAP TO NON-GAAP RECONCILIATION
(In thousands, except per share amounts)(Unaudited)
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
Gross profit:
GAAP gross profit		$	222,074			$	222,891			$	672,539			$	620,944
Amortization of acquired intangible assets			3,480				3,704				11,016				10,906
Purchase accounting adjustments			-				-				-				1,992
Restructuring charges			2,167				-				2,168				-
Other			(280	)			1,088				101				3,088
Adjusted gross profit		$	227,441			$	227,683			$	685,824			$	636,930
Gross margin:
GAAP gross margin			51.1	%			48.0	%			50.7	%			47.6	%
Cumulative effect of non-GAAP Adjustments			1.2	%			1.0	%			1.0	%			1.2	%
Adjusted gross margin			52.3	%			49.0	%			51.7	%			48.8	%
Earnings from operations:
GAAP earnings from operations		$	88,552			$	87,086			$	232,710			$	212,802
Amortization of acquired intangible assets			5,824				7,102				17,909				20,854
Purchase accounting adjustments			-				-				-				1,992
Restructuring charges			3,842				542				5,138				642
Acquisition related expenses			2,545				526				5,394				1,864
Loss on sale of business			-				-				10,178				-
Executive transition costs			1,803				4,802				4,011				10,533
Export compliance matters			3,715				-				18,715				-
Other			(280	)			1,088				1,685				3,088
Adjusted earnings from operations		$	106,001			$	101,146			$	295,740			$	251,775
Operating margin:
GAAP operating margin			20.4	%			18.7	%			17.5	%			16.3	%
Cumulative effect of non-GAAP Adjustments			4.0	%			3.0	%			4.7	%			3.0	%
Adjusted operating margin			24.4	%			21.8	%			22.3	%			19.3	%
Net earnings:
GAAP net earnings		$	73,151			$	63,529			$	183,909			$	157,513
Amortization of acquired intangible assets			5,824				7,102				17,909				20,854
Purchase accounting adjustments			-				-				-				1,992
Restructuring charges			3,842				542				5,138				642
Acquisition related expenses			2,545				526				5,394				1,864
Loss on sale of business			-				-				10,178				-
Executive transition costs			1,803				4,802				4,087				10,533
Export compliance matters			3,715				-				18,715				-
Other			(280	)			1,088				1,685				3,088
Estimated tax benefit of non-GAAP adjustments			(3,820	)			(3,709	)			(13,252	)			(9,937	)
Discrete tax items, net			(6,431	)			(1,148	)			(7,750	)			(5,804	)
Adjusted net earnings		$	80,349			$	72,732			$	226,013			$	180,745
Earnings Per Diluted Share:
GAAP earnings per diluted share		$	0.52			$	0.46			$	1.31			$	1.13
Cumulative effect of non-GAAP Adjustments			0.05				0.06				0.30				0.17
Adjusted earnings per diluted share		$	0.57			$	0.52			$	1.61			$	1.30
Weighted average diluted shares outstanding:			140,327				139,419				140,613				138,853

 

 

Explanation of Non-GAAP Financial Measures