FLIR Systems, Inc.
Jul 27, 2016

FLIR Systems Announces Second Quarter 2016 Financial Results

Second Quarter and Year-to-Date Revenue Growth of 2% and 6%, Respectively; Second Quarter Operating Cash Flow Growth of 67%; Firm-Order Backlog Growth of 17%, to $629 Million

WILSONVILLE, OR -- (Marketwired) -- 07/27/16 -- FLIR Systems, Inc. (NASDAQ: FLIR) today announced financial results for the second quarter ended June 30, 2016. Second quarter 2016 revenue was $402.7 million, up 2% compared to second quarter 2015 revenue of $393 million. Year-to-date revenue of $782 million was 6% above the prior year. Operating income in the second quarter was $65.2 million, compared to $70.5 million in the second quarter of 2015. Profitability in comparison to the prior year was negatively impacted by changes in product mix, manufacturing cost under-absorption, and additional costs associated with the ramp up of an internal low-cost optics capability.

Second quarter 2016 net earnings were $45.4 million, or $0.33 per diluted share, compared with net earnings of $50.5 million, or $0.36 per diluted share in the second quarter a year ago. Net earnings in the second quarter of 2016 were negatively impacted by a $2 million write-down of a non-core minority investment. Excluding this write-down, adjusted earnings per diluted share were $0.34. Cash provided by operations in the second quarter reached $81.7 million, FLIR's highest quarterly cash flow since 2013, and was driven by reductions in working capital.

Revenue from the Surveillance segment was $113.4 million, an increase of 5% from the second quarter results last year. The Instruments segment contributed $78.1 million of revenue during the second quarter, down 14% from the prior year, due to continued softness in mid-range handheld thermal products and strong MERS-related revenue in the prior year. The Security segment recorded revenue of $63.4 million in the second quarter, up 6% from the prior year. FLIR's OEM & Emerging Markets segment had $57 million of revenue, an increase of 23% over the prior year. Revenue from the Maritime segment was $55.2 million, which was up 6% from the second quarter of 2015. The Detection segment contributed $35.7 million of revenue, a decrease of 2% from the prior year.

FLIR's backlog of firm orders for delivery within the next twelve months was approximately $629 million as of June 30, 2016, an increase of $16 million, or 3%, during the quarter and an increase of $93 million, or 17%, over the $536 million balance at the end of the second quarter of 2015.

"We are encouraged by the growth we saw in our bookings and backlog during the second quarter, and our initiatives to improve working capital utilization resulted in strong cash flow," said Andy Teich, President and CEO of FLIR. "As we anticipated, profitability during the second quarter was lower than our historic trend given an unusual product mix in our Surveillance segment as well as higher costs in our Instruments and Security segments. While we expect product mix to return to normal levels in the second half of the year, we have initiated a plan to reduce our costs which we expect to improve our overall profitability in the second half.

Revenue and Earnings Outlook for 2016

Based on financial results for the first half of the year and the outlook for the remainder of the year, FLIR expects revenue in 2016 to be in the range of $1.6 billion to $1.65 billion, and adjusted net earnings to now be in the range of $1.60 to $1.65 per diluted share. This guidance excludes the impact of discrete tax items, the investment write-down described above, and charges related to the cost reduction initiative planned for the second half.

Dividend Declaration

FLIR's Board of Directors has declared a quarterly cash dividend of $0.12 per share on FLIR common stock, payable September 2, 2016, to shareholders of record as of close of business on August 19, 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. A simultaneous webcast of the conference call and the accompanying summary presentation may be accessed online from a link in 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 internet address. Summary second 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

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

This earnings release makes reference to a non-GAAP measure of adjusted net earnings per diluted share which is adjusted from GAAP in the current quarter for a write-down of a cost-based investment and incrementally adjusted in the full year outlook for certain discrete tax items and charges associated with certain cost reduction initiatives anticipated in the second half of 2016. The Company uses this non-GAAP financial measure because it excludes items that are generally not directly related to the performance of the Company's core business operations and therefore provides useful supplemental information to management and investors regarding the performance of the Company's business operations, facilitates comparisons to the Company's historical operating results, and enhances investors' ability to review the Company's business from the same perspective as management. This non-GAAP measure 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 this measure in addition to, not as a substitute for, its consolidated financial results as presented in accordance with GAAP. With respect to the outlook for the full year 2016, 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.

Forward-Looking Statements

Statements in this release by Andy Teich and the statements in the section captioned "Revenue and Earnings Outlook for 2016" 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 Six Months Ended
June 30, June 30,
2016 2015 2016 2015
Revenue $ 402,729 $ 392,975 $ 782,201 $ 737,492
Cost of goods sold 219,407 203,360 421,189 371,980
Gross profit 183,322 189,615 361,012 365,512
Operating expenses:
Research and development 36,945 35,126 73,356 69,900
Selling, general and administrative 81,165 83,958 165,067 159,327
Total operating expenses 118,110 119,084 238,423 229,227
Earnings from operations 65,212 70,531 122,589 136,285
Interest expense 4,360 3,358 7,807 7,019
Interest income (328 ) (295 ) (588 ) (542 )
Other expense (income), net 1,327 1,020 (103 ) 320
Earnings before income taxes 59,853 66,448 115,473 129,488
Income tax provision 14,485 15,948 68,980 31,078
Net earnings $ 45,368 $ 50,500 $ 46,493 $ 98,410
Earnings per share:
Basic $ 0.33 $ 0.36 $ 0.34 $ 0.70
Diluted $ 0.33 $ 0.36 $ 0.33 $ 0.70
Weighted average shares outstanding:
Basic 137,861 140,063 137,686 139,916
Diluted 138,993 141,491 138,832 141,484
FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)(Unaudited)
June 30, December 31,
2016 2015
ASSETS
Current assets:
Cash and cash equivalents $ 903,179 $ 472,785
Accounts receivable, net 279,323 326,098
Inventories 387,393 393,092
Prepaid expenses and other current assets 87,927 95,539
Total current assets 1,657,822 1,287,514
Property and equipment, net 271,726 272,629
Deferred income taxes, net 55,578 55,429
Goodwill 592,946 596,316
Intangible assets, net 133,364 141,302
Other assets 83,515 53,210
$ 2,794,951 $ 2,406,400
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 101,170 $ 139,540
Deferred revenue 30,738 31,933
Accrued payroll and related liabilities 46,629 54,806
Accrued expenses 35,597 40,930
Accrued income taxes 3,007 201
Other current liabilities 40,291 53,241
Current portion long-term debt 264,924 264,694
Total current liabilities 522,356 585,345
Long-term debt 505,040 93,750
Deferred income taxes 3,893 3,623
Accrued income taxes 51,807 10,457
Other long-term liabilities 64,311 63,710
Commitments and contingencies
Shareholders' equity 1,647,544 1,649,515
$ 2,794,951 $ 2,406,400
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
Cash flows from operating activities:
Net earnings $ 45,368 $ 50,500 $ 46,493 $ 98,410
Income items not affecting cash:
Depreciation and amortization 13,839 12,122 27,778 24,611
Deferred income taxes (145 ) 46 (372 ) 142
Stock-based compensation arrangements 8,293 8,181 14,381 12,938
Other non-cash items 9,644 2,480 15,451 (823 )
Changes in operating assets and liabilities, net of acquisitions 4,745 (24,397 ) 22,890 (11,419 )
Cash provided by operating activities 81,744 48,932 126,621 123,859
Cash flows from investing activities:
Additions to property and equipment (10,884 ) (17,644 ) (20,876 ) (30,783 )
Proceeds from sale of property and equipment - 30 4,875 30
Business acquisitions, net of cash acquired (42,445 ) - (42,445 ) -
Cash used by investing activities (53,329 ) (17,614 ) (58,446 ) (30,753 )
Cash flows from financing activities:
Net proceeds from credit agreement and long-term debt 525,766 - 525,766 -
Repayments of credit agreement and long-term debt (108,750 ) (3,750 ) (112,500 ) (7,500 )
Repurchase of common stock (29,747 ) (31,426 ) (29,747 ) (31,426 )
Dividends paid (16,583 ) (15,397 ) (33,090 ) (30,774 )
Proceeds from shares issued pursuant to stock-based compensation plans 2,552 15,222 6,541 19,636
Excess tax benefit of stock options exercised 538 3,262 1,579 4,041
Other financing activities 7 (1 ) 10 (8 )
Cash provided (used) by financing activities 373,783 (32,090 ) 358,559 (46,031 )
Effect of exchange rate changes on cash (9,632 ) 13,182 3,660 (18,259 )
Net increase in cash and cash equivalents 392,566 12,410 430,394 28,816
Cash and cash equivalents:
Beginning of period 510,613 547,780 472,785 531,374
End of period $ 903,179 $ 560,190 $ 903,179 $ 560,190
FLIR SYSTEMS, INC.
REVENUE AND EARNINGS FROM OPERATIONS BY SEGMENT
(In thousands)(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2016 2015 2016 2015
REVENUE
Surveillance $ 113,440 $ 107,814 $ 237,591 $ 220,715
Instruments 78,068 90,260 157,487 174,080
Security 63,380 60,048 110,441 98,854
OEM & Emerging Markets 56,980 46,285 104,825 86,120
Maritime 55,163 52,030 106,883 103,002
Detection 35,698 36,538 64,974 54,721
$ 402,729 $ 392,975 $ 782,201 $ 737,492
EARNINGS (LOSS) FROM OPERATIONS
Surveillance $ 26,135 $ 26,378 $ 61,375 $ 56,546
Instruments 19,133 28,341 38,629 56,404
Security 3,214 7,874 (430 ) 11,689
OEM & Emerging Markets 16,094 10,495 26,127 19,274
Maritime 6,721 6,421 11,719 11,210
Detection 9,963 9,380 17,843 12,059
Other (16,048 ) (18,358 ) (32,674 ) (30,897 )
$ 65,212 $ 70,531 $ 122,589 $ 136,285

Investor Relations
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Source: FLIR Systems, Inc.

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