FLIR Systems, Inc.
Feb 14, 2017

FLIR Systems Announces Fourth Quarter and Full Year 2016 Financial Results

Fourth Quarter and Full Year Revenue Growth of 8% and 7%; Fourth Quarter and Full Year Operating Cash Flow Growth of 24% and 13%; Quarterly Dividend Increased 25% to $0.15 Per Share

WILSONVILLE, OR -- (Marketwired) -- 02/14/17 -- FLIR Systems, Inc. (NASDAQ: FLIR) today announced financial results for the fourth quarter and full year ended December 31, 2016.

Fourth quarter 2016 revenue was $474.7 million, up 8% compared to fourth quarter 2015 revenue of $437.6 million. GAAP operating income in the fourth quarter was $92.3 million, compared to $93.5 million in the fourth quarter of 2015. Fourth quarter 2016 GAAP net income was $61.5 million, or $0.45 per diluted share, compared with GAAP net income of $70.2 million, or $0.51 per diluted share in the fourth quarter a year ago. Cash provided by operations in the fourth quarter reached $97.1 million, FLIR's highest quarterly cash flow since 2013, which was driven largely by continued improvements in working capital.

Excluding the impact of discrete tax items, cost-basis investment gains and losses, restructuring charges, SkyWatch™ remediation charges, and the impact of fourth quarter 2016 acquisitions, fourth quarter historical-method adjusted earnings per share were $0.48, compared to historical-method adjusted earnings per share of $0.47 in the fourth quarter of 2015. Full year 2016 historical-method adjusted earnings per share were $1.56, equal to historical-method adjusted earnings per share for 2015. A reconciliation table summarizing historical-method adjustments is below under the heading: "GAAP to Non-GAAP Reconciliation -- As Previously Guided."

Moving forward, in addition to GAAP results, FLIR will provide new non-GAAP adjusted earnings metrics. These new metrics remove certain non-core items (including gains and losses) that FLIR management believes are not reflective of ongoing operating performance, such as restructuring charges, gains and losses on disposal of non-core assets, discrete tax items, business acquisition-related expenses, and amortization expense related to acquired intangible assets. FLIR management believes these new adjusted earnings metrics provide a view of the Company's core operating results and facilitate consistent comparison of financial results over time. A reconciliation table summarizing the adjustments to the 2016 financial results for the fourth quarter and full year 2016 and 2015 is provided below. A reconciliation of quarterly results for 2016 and 2015 will be provided in the summary presentation that accompanies FLIR's fourth quarter results conference call, available in the Events & Presentations section of www.FLIR.com/investor.

Adjusted operating income in the fourth quarter of 2016 was $103.3 million, compared to $98.7 million in the fourth quarter of 2015. Fourth quarter 2016 adjusted net income was $71.9 million, or $0.52 per diluted share, compared with adjusted net income of $69.6 million, or $0.50 per diluted share in the fourth quarter of 2015.

Revenue from the Surveillance segment was $158.5 million, an increase of 5% from fourth quarter results last year. The Instruments segment contributed $96 million of revenue during the fourth quarter, down 3% from the prior year. The Security segment recorded revenue of $73.1 million in the fourth quarter, up 7% over the prior year. FLIR's OEM & Emerging Markets segment had $76.1 million of revenue, an increase of 55% over the prior year due partially to the addition of the acquired Intelligent Imaging Solutions business as well as strong camera cores demand. Revenue from the Maritime segment was $38.3 million, which increased 6% compared to the fourth quarter of 2015. The Detection segment contributed $32.7 million of revenue, a decline of 6% versus the prior year.

For the full year, revenue was $1,662.2 million, up 7% compared to $1,557.1 million for the year ended December 31, 2015. GAAP operating income for 2016 was $295.7 million, compared to $305.8 million in 2015. Adjusted operating income for 2016 was $324.7 million, compared to 2015 adjusted operating income of $325.0 million. GAAP net income for 2016 was $166.6 million, or $1.20 per diluted share, which compares to 2015 GAAP net income of $241.7 million, or $1.72 per diluted share. Adjusted net income in 2016 was $233.9 million, or $1.69 per diluted share, which compares to 2015 adjusted net income of $232.8 million, or $1.65 per diluted share. Cash provided by operations during 2016 was $312.3 million, which compares to $275.8 million in the prior year and represents a 13% increase.

FLIR's backlog of firm orders for delivery within the next twelve months was approximately $592 million as of December 31, 2016, a decrease of $52 million, or 8%, during the quarter and a decrease of $12 million, or 2%, below the $604 million balance at the end of 2015.

"We are pleased with the progress we have made in building our core business, the addition of the new business areas through the four acquisitions we completed this year, and our strong operating cash flow growth," said Andy Teich, President and CEO of FLIR. "While we are disappointed with this quarter's results from a margin perspective, we are confident in our ability to drive continued growth and improve margins in 2017. During 2016 we expanded our market share in nearly all of the markets we serve and built a strong backlog as a foundation for 2017. We look forward to the launch of several new product platforms in the first half of the year which should drive further growth."

Revenue and Earnings Outlook for 2017

FLIR also announced today that it currently expects revenue in 2017 to be in the range of $1.78 billion to $1.83 billion and adjusted earnings per diluted share to be in the range of $1.81 to $1.91. This represents 7% to 10% growth in revenue and 7% to 13% growth in adjusted earnings per diluted share.

Dividend Increase and Declaration

FLIR's Board of Directors has approved a quarterly cash dividend of $0.15 per share on FLIR common stock, an increase of 25% over the previous quarterly dividend of $0.12 per share. The Board of Directors has declared the dividend payable on March 10, 2017, to shareholders of record as of close of business on February 24, 2017.

Share Repurchase Program

Also today, FLIR announced that its Board of Directors approved a new share repurchase program that authorizes the repurchase of up to 15 million shares over the next two years. The number of shares authorized for repurchase represents approximately 11% of FLIR's outstanding common stock as of December 31, 2016.

Conference Call

FLIR has scheduled a conference call at 11:00 a.m. ET (8:00 a.m. PT) today to discuss its results for the quarter and the year. A simultaneous webcast of the conference call and the accompanying summary presentation may be accessed from the Events section of www.FLIR.com/investor. A replay will be available after 2:00 p.m. ET (11:00 a.m. PT) at this same address. Summary fourth quarter and historical financial data may be accessed from the Financial Info Database link under the Financials & Filings section at www.FLIR.com/investor.

About FLIR Systems

FLIR Systems, Inc. is a world leader in the design, manufacture, and marketing of sensor systems that enhance perception and awareness. FLIR's advanced systems and components are used for a wide variety of thermal imaging, situational awareness, and security applications, including airborne and ground-based surveillance, condition monitoring, navigation, recreation, research and development, manufacturing process control, search and rescue, drug interdiction, transportation safety, border and maritime patrol, environmental monitoring, and chemical, biological, radiological, nuclear, and explosives (CBRNE) threat detection. For more information, visit FLIR's web site at www.FLIR.com.

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 income 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 income per diluted share or a corresponding reconciliation to GAAP net income 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 Andy Teich 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.

FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2016 2015 2016 2015
Revenue $ 474,738 $ 437,647 $ 1,662,167 $ 1,557,067
Cost of goods sold 260,005 230,337 895,046 803,506
Gross profit 214,733 207,310 767,121 753,561
Operating expenses:
Research and development 38,444 31,994 147,537 132,892
Selling, general and administrative 83,795 81,553 322,435 313,544
Restructuring expenses 214 266 1,431 1,361
Total operating expenses 122,453 113,813 471,403 447,797
Earnings from operations 92,280 93,497 295,718 305,764
Interest expense 4,528 3,397 18,071 14,086
Interest income (478 ) (306 ) (1,402 ) (1,167 )
Other expense (income), net 2,954 (14,376 ) 3,092 (12,601 )
Earnings before income taxes 85,276 104,782 275,957 305,446
Income tax provision 23,776 34,578 109,331 63,760
Net earnings $ 61,500 $ 70,204 $ 166,626 $ 241,686
Earnings per share:
Basic $ 0.45 $ 0.51 $ 1.22 $ 1.73
Diluted $ 0.45 $ 0.51 $ 1.20 $ 1.72
Weighted average shares outstanding:
Basic 136,242 138,000 137,138 139,353
Diluted 137,543 138,970 138,497 140,774
FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)(Unaudited)
December 31, December 31,
2016 2015
ASSETS
Current assets:
Cash and cash equivalents $ 361,349 $ 472,785
Accounts receivable, net 352,020 326,098
Inventories 371,371 393,092
Prepaid expenses and other current assets 79,917 95,539
Total current assets 1,164,657 1,287,514
Property and equipment, net 271,785 272,629
Deferred income taxes, net 45,243 55,429
Goodwill 801,406 596,316
Intangible assets, net 168,460 141,302
Other assets 168,155 53,210
$ 2,619,706 $ 2,406,400
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 114,225 $ 139,540
Deferred revenue 34,420 31,933
Accrued payroll and related liabilities 52,874 54,806
Accrued expenses 34,022 40,930
Accrued income taxes 51,017 201
Other current liabilities 60,154 53,241
Current portion long-term debt 15,000 264,694
Total current liabilities 361,712 585,345
Long-term debt 501,921 93,750
Deferred income taxes 2,331 3,623
Accrued income taxes 9,643 10,457
Other long-term liabilities 65,773 63,710
Commitments and contingencies
Shareholders' equity 1,678,326 1,649,515
$ 2,619,706 $ 2,406,400
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2016 2015 2016 2015
Cash flows from operating activities:
Net earnings $ 61,500 $ 70,204 $ 166,626 $ 241,686
Income items not affecting cash:
Depreciation and amortization 15,656 13,069 57,513 49,534
Deferred income taxes 5,813 20,101 5,613 2,863
Stock-based compensation
arrangements 6,544 6,299 27,797 25,748
Gain on sale of certain assets, net - (20,211 ) - (19,166 )
Other non-cash items (7,838 ) 3,376 11,992 7,722
Changes in operating assets and liabilities,
net of acquisitions 15,378 (14,503 ) 42,739 (32,573 )
Cash provided by operating activities 97,053 78,335 312,280 275,814
Cash flows from investing activities:
Additions to property and equipment (8,258 ) (18,118 ) (35,940 ) (68,234 )
Proceeds from sale of property and
equipment 345 25,649 7,331 25,649
Business acquisitions, net of cash acquired (376,758 ) (92,260 ) (419,203 ) (92,260 )
Cash used by investing activities (384,671 ) (84,729 ) (447,812 ) (134,845 )
Cash flows from financing activities:
Net proceeds from credit agreement
and long-term debt (266 ) - 524,560 -
Repayments of credit agreement and long-term debt - (3,750 ) (367,435 ) (15,000 )
Repurchase of common stock - (29,812 ) (66,057 ) (123,193 )
Dividends paid (16,356 ) (15,206 ) (65,920 ) (61,399 )
Proceeds from shares issued pursuant
to stock-based compensation plans 4,619 3,647 11,966 24,835
Excess tax benefit of stock options exercised (125 ) 4,027 1,480 8,243
Other financing activities 3 (14 ) 13 (24 )
Cash (used) provided by financing activities (12,125 ) (41,108 ) 38,607 (166,538 )
Effect of exchange rate changes on cash (16,596 ) (5,089 ) (14,511 ) (33,020 )
Net (decrease) in cash and cash equivalents (316,339 ) (52,591 ) (111,436 ) (58,589 )
Cash and cash equivalents:
Beginning of period 677,688 525,376 472,785 531,374
End of period $ 361,349 $ 472,785 $ 361,349 $ 472,785
FLIR SYSTEMS, INC.
REVENUE AND EARNINGS FROM OPERATIONS BY SEGMENT
(In thousands)(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2016 2015 2016 2015
REVENUE
Surveillance $ 158,484 $ 150,733 $ 532,476 $ 503,045
Instruments 95,981 98,599 336,141 347,476
Security 73,138 68,390 240,010 226,575
OEM & Emerging Markets 76,134 49,154 243,678 186,722
Maritime 38,256 36,026 185,726 177,948
Detection 32,745 34,745 124,136 115,301
$ 474,738 $ 437,647 $ 1,662,167 $ 1,557,067
EARNINGS (LOSS) FROM OPERATIONS
Surveillance $ 45,104 $ 49,173 $ 144,905 $ 145,637
Instruments 31,052 34,394 96,691 112,353
Security 7,645 9,229 10,172 28,140
OEM & Emerging Markets 13,623 7,558 59,686 41,065
Maritime 1,318 553 15,428 13,611
Detection 9,363 9,555 33,847 26,904
Other (15,825 ) (16,965 ) (65,011 ) (61,946 )
$ 92,280 $ 93,497 $ 295,718 $ 305,764
ADJUSTED EARNINGS (LOSS) FROM OPERATIONS
Surveillance $ 47,627 $ 50,065 $ 151,515 $ 149,561
Instruments 31,522 35,056 98,776 115,116
Security 8,859 9,496 15,884 29,368
OEM & Emerging Markets 18,067 8,236 66,247 43,766
Maritime 2,082 1,367 18,564 17,382
Detection 9,723 10,403 35,287 30,278
Other (14,609 ) (15,958 ) (61,584 ) (60,478 )
$ 103,271 $ 98,665 $ 324,689 $ 324,993
FLIR SYSTEMS, INC.
GAAP TO NON-GAAP RECONCILIATION - AS PREVIOUSLY GUIDED
(In thousands, except per share amounts)(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
Earnings per diluted share as previously guided: 2016 2015 2016 2015
GAAP diluted earnings per share $ 0.45 $ 0.51 $ 1.20 $ 1.72
SkyWatch product repair charge 0.00 - 0.01 -
Restructuring charges 0.00 0.00 0.01 0.01
Net loss from businesses acquired in fourth quarter 2016 0.02 - 0.02 -
Write-down of cost-basis investment - - 0.01 -
Gain on sale of cost-basis investment - (0.09 ) - (0.09 )
Discrete tax items, net 0.01 0.05 0.31 (0.08 )
Historical-method adjusted diluted earnings per share $ 0.48 $ 0.47 $ 1.56 $ 1.56
Weighted average shares outstanding:
Diluted 137,543 138,970 138,497 140,774
FLIR SYSTEMS, INC.
GAAP TO NON-GAAP RECONCILIATION
(In thousands, except per share amounts)(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2016 2015 2016 2015
Gross profit:
GAAP gross profit $ 214,733 $ 207,310 $ 767,121 $ 753,561
Amortization of acquired intangibles assets 2,730 1,516 9,540 6,582
Purchase accounting adjustments 3,093 - 3,093 -
Other 500 - 2,500 -
Adjusted gross profit $ 221,056 $ 208,826 $ 782,254 $ 760,143
Gross margin:
GAAP gross margin 45.2 % 47.4 % 46.2 % 48.4 %
Cumulative effect of non-GAAP Adjustments 1.4 % 0.3 % 0.9 % 0.4 %
Adjusted gross margin 46.6 % 47.7 % 47.1 % 48.8 %
Operating income:
GAAP operating income $ 92,280 $ 93,497 $ 295,718 $ 305,764
Amortization of acquired intangibles assets 5,831 3,895 18,383 16,400
Purchase accounting adjustments 3,093 - 3,093 -
Restructuring charges 214 266 1,431 1,361
Other 500 - 2,500 -
Acquisition related expenses 1,353 1,007 3,564 1,468
Adjusted operating income $ 103,271 $ 98,665 $ 324,689 $ 324,993
Operating margin:
GAAP operating margin 19.4 % 21.4 % 17.8 % 19.6 %
Cumulative effect of non-GAAP Adjustments 2.4 % 1.1 % 1.7 % 1.3 %
Adjusted operating margin 21.8 % 22.5 % 19.5 % 20.9 %
Net income:
GAAP net income $ 61,500 $ 70,204 $ 166,626 $ 241,686
Amortization of acquired intangibles assets 5,831 3,895 18,383 16,400
Purchase accounting adjustments 3,093 - 3,093 -
Restructuring charges 214 266 1,431 1,361
Other 500 - 3,761 -
Acquisition related expenses 1,353 1,007 3,564 1,468
(Gain) or loss on cost-basis investments - (20,200 ) 2,000 (20,200 )
Estimated tax (benefit) expense of non-GAAP adjustments (2,748 ) 6,234 (7,558 ) 2,859
Discrete tax items, net 2,133 8,213 42,591 (10,812 )
Adjusted net income $ 71,876 $ 69,619 $ 233,891 $ 232,762
Earnings Per Diluted Share:
GAAP Earnings Per Diluted Share $ 0.45 $ 0.51 $ 1.20 $ 1.72
Cumulative effect of non-GAAP Adjustments 0.07 (0.01 ) 0.49 (0.07 )
Adjusted Earnings Per Diluted Share $ 0.52 $ 0.50 $ 1.69 $ 1.65
Weighted average shares outstanding:
Diluted 137,543 138,970 138,497 140,774
FLIR SYSTEMS, INC.
GAAP TO NON-GAAP RECONCILIATION
(In thousands)(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2016 2015 2016 2015
Surveillance
Operating Income as reported $ 45,104 $ 49,173 $ 144,905 $ 145,637
Amortization of acquired intangibles assets 1,415 892 3,424 3,698
Purchase accounting adjustments 579 - 579 -
Restructuring charges 29 - 107 226
Other 500 - 2,500 -
Adjusted Operating Income $ 47,627 $ 50,065 $ 151,515 $ 149,561
Instruments
Operating Income as reported $ 31,052 $ 34,394 $ 96,691 $ 112,353
Amortization of acquired intangibles assets 398 398 1,592 1,594
Restructuring charges 72 264 493 1,169
Adjusted Operating Income $ 31,522 $ 35,056 $ 98,776 $ 115,116
Security
Operating Income as reported $ 7,645 $ 9,229 $ 10,172 $ 28,140
Amortization of acquired intangibles assets 1,102 267 4,946 1,228
Restructuring charges 112 - 766 -
Adjusted Operating Income $ 8,859 $ 9,496 $ 15,884 $ 29,368
OEM & Emerging
Operating Income as reported $ 13,623 $ 7,558 $ 59,686 $ 41,065
Amortization of acquired intangibles assets 1,792 678 3,845 2,723
Purchase accounting adjustments 2,514 - 2,514 -
Restructuring charges 1 - 65 (22 )
Acquisition related expenses 137 - 137 -
Adjusted Operating Income $ 18,067 $ 8,236 $ 66,247 $ 43,766
Maritime
Operating Income as reported $ 1,318 $ 553 $ 15,428 $ 13,611
Amortization of acquired intangibles assets 764 814 3,136 3,771
Adjusted Operating Income $ 2,082 $ 1,367 $ 18,564 $ 17,382
Detection
Operating Income as reported $ 9,363 $ 9,555 $ 33,847 $ 26,904
Amortization of acquired intangibles assets 360 846 1,440 3,386
Restructuring charges - 2 - (12 )
Adjusted Operating Income $ 9,723 $ 10,403 $ 35,287 $ 30,278
Other
Operating Income as reported $ (15,825 ) $ (16,965 ) $ (65,011 ) $ (61,946 )
Acquisition related expenses 1,216 1,007 3,427 1,468
Adjusted Operating Income $ (14,609 ) $ (15,958 ) $ (61,584 ) $ (60,478 )

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 income, (iv) adjusted operating margin (defined as adjusted operating income divided by revenue), (v) adjusted net 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 following are explanations of each type of adjustment that we incorporate into non-GAAP financial measures:

Investor Relations
Shane Harrison
503-498-3547
Email Contact

Source: FLIR Systems, Inc.

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