SOURCE: FLIR Systems, Inc.

FLIR Systems, Inc.

July 27, 2016 07:00 ET

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 - Jul 27, 2016) - 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  
                               

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