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Oct 25, 2017
FLIR Systems Announces Third Quarter 2017 Financial Results

Third Quarter Revenue Growth of 15% Over Prior Year

GAAP EPS of $0.46; Adjusted EPS of $0.52, Up 8% Over Prior Year

Backlog reaches $709 million, the highest level in FLIR's history

WILSONVILLE, Ore., Oct. 25, 2017 (GLOBE NEWSWIRE) -- FLIR Systems, Inc. (NASDAQ:FLIR) today announced financial results for the third quarter ended September 30, 2017. Third quarter 2017 revenue was $464.7 million, up 15% over third quarter 2016 revenue of $405.2 million. GAAP operating income in the third quarter grew 8% to $87.1 million, compared to $80.8 million in the third quarter of 2016. Adjusted operating income was $101.1 million in the third quarter, which is 14% higher than adjusted operating income of $89.0 million in the third quarter of 2016.

Third quarter 2017 GAAP net earnings were $63.5 million, or $0.46 per diluted share, compared with GAAP net earnings of $58.6 million, or $0.43 per diluted share in the third quarter a year ago. Adjusted net earnings in the third quarter were $72.7 million, or $0.52 per diluted share, which was 8% higher than adjusted net earnings per diluted share of $0.48 in the third quarter of 2016, where a lower tax rate relative to the current year added $0.02 of income per share.

Revenue from the Surveillance segment was $146.8 million , an increase of 8% from the third quarter results last year. The Instruments segment contributed $91.4 million of revenue during the third quarter, up 11% over the prior year. The Security segment recorded revenue of $65.7 million in the third quarter, up 16% from the prior year. FLIR's OEM & Emerging Markets segment had $87.2 million of revenue, an increase of 39% over the prior year, and was driven by the addition of the Integrated Imaging Solutions line of business from the fourth quarter 2016 acquisition of Point Grey Research. Revenue from the Maritime segment was $42.3 million, which was 4% higher than the third quarter of 2016. The Detection segment contributed $31.4 million of revenue, an increase of 19% over the prior year, and was driven by timing of DR-SKO program shipments.

FLIR's backlog of firm orders for delivery within the next twelve months was approximately $709 million as of September 30, 2017, an increase of $64 million, or 10%, during the quarter.

"Our teams executed very well during the third quarter, with all six of our segments exhibiting organic revenue growth. This translated to EPS acceleration and operating cash flow that significantly exceeded net income," said Jim Cannon, President and CEO of FLIR. "Bookings in the quarter drove our backlog to its highest level in our history. This positions us well as we realign our businesses and deploy The FLIR Method for continuous business improvement, initiatives that we expect to drive organic growth, increase profitability, and generate ample cash for us to deploy in ways that enhance shareholder returns."

Revenue and Earnings Outlook for 2017

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 2017 to continue to be in the range of $1.775 billion to $1.825 billion and adjusted net earnings per diluted share to now be in the range of $1.83 to $1.88 per diluted share.

Dividend Declaration

FLIR's Board of Directors has declared a quarterly cash dividend of $0.15 per share on FLIR common stock, payable December 8, 2017, to shareholders of record as of close of business on November 24, 2017.

Conference Call

FLIR has scheduled a conference call at 9:00 a.m. ET (6:00 a.m. PT) today to discuss its results for the quarter. A simultaneous webcast of the conference call and the accompanying summary presentation can be accessed online from a link in the Events & Presentations section of www.FLIR.com/investor. A replay will be available after 12:00 p.m. ET (9:00 a.m. PT) at this same internet address. Summary third quarter and historical financial data may be accessed online from the Financial Info Database link under the Financials & Filings section at www.FLIR.com/investor.

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.

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 2017, 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 2017" 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 FLIR's continuing 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
Shane Harrison
503-498-3547
shane.harrison@flir.com

 

 
 
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts) (Unaudited)
                         
      Three Months Ended   Nine Months Ended
      September 30,   September 30,
        2017       2016       2017       2016  
                   
Revenue      $ 464,712     $ 405,228     $ 1,305,650     $ 1,187,429  
Cost of goods sold        241,821       213,852       684,706       635,041  
Gross profit        222,891       191,376       620,944       552,388  
                   
Operating expenses:                  
Research and development       42,873       33,839       127,902       109,327  
Selling, general and administrative       92,932       76,688       280,240       239,623  
Total operating expenses       135,805       110,527       408,142       348,950  
                   
Earnings from operations       87,086       80,849       212,802       203,438  
                   
Interest expense       3,819       5,736       12,744       13,543  
Interest income       (488 )     (336 )     (1,114 )     (924 )
Other (income) expense, net        (778 )     241       (2,465 )     138  
                   
Earnings before income taxes       84,533       75,208       203,637       190,681  
                   
Income tax provision       21,004       16,575       46,124       85,555  
                   
Net earnings      $ 63,529     $ 58,633     $ 157,513     $ 105,126  
                   
Earnings per share:                  
Basic     $ 0.46     $ 0.43     $ 1.15     $ 0.76  
Diluted     $ 0.46     $ 0.43     $ 1.13     $ 0.76  
                   
Weighted average shares outstanding:                  
Basic        137,849       136,963       137,030       137,438  
Diluted        139,419       137,938       138,853       138,594  
                   

 

FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands) (Unaudited)
                 
        September 30,             December 31,
        2017   2016
ASSETS            
             
Current assets:            
Cash and cash equivalents        $ 436,961   $ 361,349
Accounts receivable, net          345,542     352,020
Inventories         413,005     371,371
Prepaid expenses and other current assets                                86,570     79,917
Total current assets         1,282,078     1,164,657
             
Property and equipment, net          270,023     271,785
Deferred income taxes, net         51,179     45,243
Goodwill         930,846     801,406
Intangible assets, net          183,677     168,460
Other assets         48,472     168,155
        $ 2,766,275   $ 2,619,706
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
             
Current liabilities:            
Accounts payable       $ 127,420   $ 114,225
Deferred revenue          29,015     34,420
Accrued payroll and related liabilities         67,759     52,874
Accrued expenses         47,528     34,022
Accrued income taxes         46,175     51,017
Other current liabilities         50,041     60,154
Current portion long-term debt         -     15,000
Total current liabilities          367,938     361,712
             
Long-term debt         420,369     501,921
Deferred income taxes          14,569     2,331
Accrued income taxes          14,054     9,643
Other long-term liabilities         59,827     65,773
             
Commitments and contingencies            
             
Shareholders' equity          1,889,518     1,678,326
        $ 2,766,275   $ 2,619,706
             

 

FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
                 
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
    2017       2016       2017       2016  
               
Cash flows from operating activities:              
Net earnings  $   63,529     $   58,633     $   157,513     $   105,126  
Income items not affecting cash:              
Depreciation and amortization     18,418         14,079         53,426         41,857  
Deferred income taxes     (2,187 )       172         (2,337 )       (200 )
Stock-based compensation arrangements      9,891         6,872         24,745         21,253  
Other non-cash items      (8,796 )       4,379         (28,007 )       19,830  
Changes in operating assets and liabilities net of acquisitions     23,227         4,656         3,996         34,741  
Cash provided by operating activities      104,082         88,791         209,336         222,607  
               
Cash flows from investing activities:              
Additions to property and equipment      (8,208 )       (6,806 )       (31,861 )       (27,682 )
Proceeds from sale of assets      -          2,111         27         6,986  
Business acquisitions, net of cash acquired     -          -          -          (42,445 )
Other Investments     -          -          2,859         -   
Cash used by investing activities     (8,208 )       (4,695 )       (28,975 )       (63,141 )
               
Cash flows from financing activities:              
Net proceeds from credit agreement               
 and long-term debt     -          (940 )       -          524,826  
Repayments of credit agreement and long-term debt     (86,250 )       (254,935 )       (97,500 )       (367,435 )
Repurchase of common stock      -          (36,310 )       -          (66,057 )
Dividends paid      (20,763 )       (16,474 )       (61,776 )       (49,564 )
Proceeds from shares issued pursuant to stock-based compensation plans     37,196         806         44,231         7,347  
Tax paid for net share exercises and issuance of vested restricted stock units        (483 )       (159 )       (9,505 )       (5,775 )
Other financing activities      (8 )       -          (13 )       10  
Cash (used) provided by financing activities     (70,308 )       (308,012 )       (124,563 )       43,352  
               
Effect of exchange rate changes on cash     7,804         (1,575 )       19,814         2,085  
               
Net increase (decrease) in cash and cash equivalents      33,370         (225,491 )       75,612         204,903  
Cash and cash equivalents:              
Beginning of period     403,591         903,179         361,349         472,785  
End of period $   436,961     $   677,688     $   436,961     $   677,688  
               

 

FLIR SYSTEMS, INC.
OPERATING SEGMENT PERFORMANCE
(In thousands) (Unaudited)
                                                                             
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
      2017       2016       2017       2016  
SEGMENT REVENUE                
Surveillance   $ 146,805     $ 136,402     $ 394,742     $ 373,993  
Instruments     91,429       82,673       255,253       240,160  
Security     65,660       56,431       160,447       166,872  
OEM & Emerging Markets     87,206       62,719       259,418       167,544  
Maritime     42,256       40,586       145,909       147,469  
Detection     31,356       26,417       89,881       91,391  
                 
SEGMENT EARNINGS FROM OPERATIONS                
Surveillance   $ 44,941     $ 41,428     $ 104,313     $ 103,888  
Instruments     29,603       27,578       74,376       67,254  
Security     6,486       4,784       8,090       7,025  
OEM & Emerging Markets     26,931       20,658       77,628       48,100  
Maritime     4,466       3,155       19,060       16,482  
Detection     8,883       6,999       24,644       25,556  
                 
SEGMENT OPERATING MARGIN                
Surveillance     30.6 %     30.4 %     26.4 %     27.8 %
Instruments     32.4 %     33.4 %     29.1 %     28.0 %
Security     9.9 %     8.5 %     5.0 %     4.2 %
OEM & Emerging Markets     30.9 %     32.9 %     29.9 %     28.7 %
Maritime     10.6 %     7.8 %     13.1 %     11.2 %
Detection     28.3 %     26.5 %     27.4 %     28.0 %
                 

 

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,
                                    2017       2016       2017       2016  
Gross profit:                
GAAP gross profit   $   222,891     $   191,376     $   620,944     $   552,388  
Amortization of acquired intangible assets       3,704         2,127         10,906         6,722  
Purchase accounting adjustments       -          -          1,992         -   
Restructuring charges       -          22         -          -   
Other       1,088         2,000         3,088         2,000  
Adjusted gross profit   $   227,683     $   195,525     $   636,930     $   561,110  
                 
Gross margin:                
GAAP gross margin     48.0 %     47.2 %     47.6 %     46.5 %
Cumulative effect of non-GAAP Adjustments     1.0 %     1.0 %     1.2 %     0.7 %
Adjusted gross margin     49.0 %     48.3 %     48.8 %     47.3 %
                 
Earnings from operations:                
GAAP earnings from operations   $   87,086     $   80,849     $   212,802     $   203,438  
Amortization of acquired intangible assets       7,102         4,329         20,854         12,464  
Purchase accounting adjustments       -          -          1,992         -   
Restructuring charges       542         910         642         1,217  
Acquisition related expenses       526         949         1,864         2,211  
Other       5,890         2,000         13,621         2,000  
Adjusted earnings from operations   $   101,146     $   89,037     $   251,775     $   221,330  
                 
Operating margin:                
GAAP operating margin     18.7 %     20.0 %     16.3 %     17.1 %
Cumulative effect of non-GAAP Adjustments     3.0 %     2.0 %     3.0 %     1.5 %
Adjusted operating margin     21.8 %     22.0 %     19.3 %     18.6 %
                 
Net earnings:                
GAAP net earnings   $   63,529     $   58,633     $   157,513     $   105,126  
Amortization of acquired intangible assets       7,102         4,329         20,854         12,464  
Purchase accounting adjustments       -          -          1,992         -   
Restructuring charges       542         910         642         1,217  
Acquisition related expenses       526         949         1,864         2,211  
Other       5,890         3,262         13,621         5,262  
Estimated tax benefit of non-GAAP adjustments       (3,709 )       (2,357 )       (9,937 )       (4,788 )
Discrete tax items, net       (1,148 )       (100 )       (5,804 )       40,458  
Adjusted net earnings   $   72,732     $   65,626     $   180,745     $   161,950  
                 
Earnings Per Diluted Share:                
GAAP Earnings Per Diluted Share   $   0.46     $   0.43     $   1.13     $   0.76  
Cumulative effect of non-GAAP Adjustments       0.06         0.05         0.17         0.41  
Adjusted Earnings Per Diluted Share   $   0.52     $   0.48     $   1.30     $   1.17  
                 
Weighted average shares outstanding:                
Diluted       139,419         137,938         138,853         138,594  
                 

Explanation of Non-GAAP Financial Measures

We report our financial results in accordance with United States generally accepted accounting principles (GAAP). As a supplement to our GAAP financial results, this earnings announcement contains some or all of the following non-GAAP financial measures: (i) adjusted gross profit, (ii) adjusted gross margin (defined as adjusted gross profit divided by revenue), (iii) adjusted operating earnings/income, (iv) adjusted operating margin (defined as adjusted operating income divided by revenue), (v) adjusted net earnings/income, and (vi) adjusted earnings per diluted share (EPS). These non-GAAP measures of financial performance are not prepared in accordance with GAAP and computational methods may differ from those used by other companies. Additionally, these non-GAAP measures should not be considered a substitute for any other performance measure determined in accordance with GAAP and the Company cautions investors and potential investors to consider these measures in addition to, not as a substitute for, its consolidated financial results as presented in accordance with GAAP. Each of the non-GAAP measures is adjusted from GAAP results and are outlined in the "GAAP to Non-GAAP Reconciliation" tables included within this earnings release.

In calculating non-GAAP financial measures, we exclude certain items (including gains and losses) to facilitate a review of the comparability of our core operating performance on a period-to-period basis. The excluded items represent amortization of acquired intangible assets, purchase accounting adjustments, restructuring charges, acquisition related expenses, gains and losses on cost-basis investments, discrete tax items, and other items we do not consider to be directly related to our core operating performance. We use non-GAAP measures internally to evaluate the core operating performance of our business, for comparison with forecasts and strategic plans and for calculating return on investment. Accordingly, supplementing GAAP financial results with these non-GAAP financial measures enables the comparison of our ongoing operating results in a manner consistent with the metrics reviewed by management. We believe that these non-GAAP measures, when read in conjunction with our GAAP financials, provide useful information to investors by facilitating:

  • the comparability of our ongoing operating results over the periods presented;
  • the ability to identify trends in our underlying business; and
  • the comparison of our operating results against analyst financial models and operating results of other public companies that supplement their GAAP results with non-GAAP financial measures.

The following are explanations of each type of adjustment that we incorporate into non-GAAP financial measures:

  • Amortization of acquired intangible assets. GAAP accounting requires that intangible assets are recorded at fair value as of the date of acquisition and amortized over their estimated useful lives. The timing and magnitude of our acquisition transactions and maturities of the businesses acquired will cause our operating results to vary from period to period, making comparison to past performance difficult for investors. We exclude amortization of acquired intangible assets from our non-GAAP measures because management does not believe these costs are representative of our core operating performance.
     
  • Purchase accounting adjustments. Included in our GAAP financial measures are purchase accounting adjustments, required by GAAP to adjust inventory balances to fair value at the time of acquisition. These non-cash charges are not reflective of our ongoing operations and can vary significantly in any given period driven by variability in our acquisition activity. We exclude purchase accounting adjustments from our non-GAAP measures because management does not believe these costs are representative of our core operating performance.
     
  • Acquisition related expenses. Included in our GAAP financial measures are acquisition related expenses, consisting of external expenses resulting directly from acquisition related activities, including due diligence, legal, valuation, tax and audit services. The timing and nature of our acquisition activity can vary significantly from period to period impacting comparability of operating results from one period to another. These transaction-specific costs can vary significantly in amount and timing and are not indicative of our core operating performance.
     
  • Restructuring charges. Included in our GAAP financial measures are restructuring charges which are primarily for employee compensation resulting from reductions in employee headcount and facilities exit and lease termination costs in connection with Company reorganization and restructuring activities. We believe that excluding these costs provides greater visibility to the underlying performance of our business operations, facilitates comparison of our results with other periods, and facilitates comparison with the results of other companies in our industry. 
     
  • Other. Other charges include executive transition costs, product remediation charges associated with certain SkyWatch™ surveillance towers, gains or losses on cost-basis investments, and a loss on extinguishment of debt. Executive transition costs include costs associated with separation agreements of the Company's former CEO and COO, professional services expenses associated with the transition of the former CEO and CFO including recruitment fees and legal services, and a sign-on cash bonus payment to the current CEO, partially offset by benefits associated with stock compensation reversals for share-based awards forfeited upon the departures of the former CEO, COO and CFO.  We exclude other charges from our non-GAAP measures because we do not believe such costs are representative of our ongoing operations.
     
  • Estimated tax effect of non-GAAP adjustments. This amount adjusts the provision for income taxes to reflect the effect of the previously listed non-GAAP adjustments on non-GAAP net income. We estimate the tax effect of the adjustment items by applying the Company's overall estimated effective tax rate, excluding significant discrete items, to the pretax amount. 
     
  • Discrete tax items, net. Included in our GAAP financial measures are income tax expenses and benefits related to discrete events or transactions that are not representative of the Company's estimated tax rate related to ongoing operations. These discrete tax items can vary significantly from period to period impacting the comparability of our earnings from one period to another. Discrete tax items include charges and reversals of provisions associated with certain unrecognized tax benefits, benefits associated with the reversal of previously recorded valuation allowances against certain deferred tax assets, and other discrete items not included in the annual effective tax rate associated with our ongoing operations. We exclude discrete tax items from our non-GAAP measures because we do not believe such expenses or benefits reflect the performance of our ongoing operations. 

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Source: FLIR Systems, Inc.

 

 

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