FLIR Systems Announces Fourth Quarter and Full Year 2018 Financial Results

Record Full Year GAAP EPS of $2.01; Adjusted EPS of $2.22, Up 18%
over Prior Year


Record Full Year Operating Cash Flow of $374 Million, Up 21% over
Prior Year


Full Year Revenue Decline of 1%; Organic Revenue Growth of 6% over
Prior Year


Fourth Quarter Organic Bookings Growth of 20% over Prior Year


Repurchased $144 Million in Shares in the Fourth Quarter

WILSONVILLE, Ore.–(BUSINESS WIRE)–FLIR Systems, Inc. (NASDAQ: FLIR) today announced financial results for
the fourth quarter and full year ended December 31, 2018. “I’m proud of
our team’s performance in 2018,” said Jim Cannon, FLIR President and
Chief Executive Officer. “We achieved organic revenue growth and margin
performance the Company hasn’t reached in many years, and we delivered
record adjusted earnings per share and operating cash flow. We are
well-positioned for 2019 with strong bookings, numerous new product
launches, and the recently announced acquisitions of Aeryon Labs and
Endeavor Robotics, moving us forward in the execution of our unmanned
integrated systems strategy.”


Mr. Cannon continued, “This was a transformational year for FLIR as we
began to execute on our strategic vision to Fuel, Feed, and Focus the
business with The FLIR Method as the Foundation. I am more confident
than ever in our ability to deliver on our strategic priorities and our
purpose to innovate the World’s Sixth Sense to save lives and
livelihoods.”


Fourth Quarter 2018


Fourth quarter 2018 revenue was $448.5 million, 9.4% lower than fourth
quarter 2017 revenue of $494.8 million, which included revenue of $46.8
million from the previously disclosed divested security businesses.
Organic revenue growth was flat compared to the prior year.


GAAP Earnings Results


GAAP gross profit in the fourth quarter 2018 was $227.8 million,
compared to $237.8 million in the fourth quarter of 2017. GAAP gross
margin increased 270 basis points to 50.8% in the fourth quarter 2018,
compared with 48.1% in the prior year. GAAP operating income in the
fourth quarter increased 11.3% to $85.9 million, compared to $77.2
million in the prior year, representing a 360 basis point improvement in
operating margin.


Fourth quarter 2018 GAAP net earnings were $98.5 million, or $0.71 per
diluted share, compared with GAAP net loss of $50.3 million, or ($0.36)
per diluted share in the fourth quarter last year. Fourth quarter 2018
GAAP net earnings increase was driven primarily by a $33.3 million
reduction in accrued income tax as a result of the settlement of tax
assessments issued by Belgium in connection with the European
Commission’s 2016 decision on state aid (“Belgium tax item”). Fourth
quarter 2017 GAAP earnings were negatively impacted by a non-cash loss
on net assets held for sale, as well as discrete tax items associated
with the enactment of U.S. tax reform.


Cash provided by operations was $98.3 million in the fourth quarter of
2018, compared to $98.9 million in the fourth quarter of 2017.
Approximately 3.0 million shares were repurchased in the fourth quarter
of 2018 at an average price of $47.80.


Non-GAAP Earnings Results


Adjusted gross profit was $233.5 million in the fourth quarter 2018,
down from adjusted gross profit of $242.9 million in the fourth quarter
of 2017. Adjusted gross margin increased 300 basis points to 52.1%,
compared with 49.1% in the fourth quarter of 2017. Adjusted operating
income was $107.9 million in the fourth quarter, which was 3.4% lower
than adjusted operating income of $111.7 million in the fourth quarter
of 2017. Adjusted operating margin increased 150 basis points to 24.1%,
compared with 22.6% in the fourth quarter of 2017.


Adjusted net earnings in the fourth quarter 2018 were $85.8 million, or
$0.62 per diluted share, which was 6.9% higher than adjusted earnings
per diluted share of $0.58 in the fourth quarter of 2017.


Business Unit Results


Fourth quarter 2018 revenue from the Industrial Business Unit was $181.7
million, in-line with fourth quarter 2017 revenue of $181.7 million with
increased sales of cooled thermal cores, unmanned aerial systems (UAS),
and automotive solutions offset by decreased instruments and uncooled
core sales. The Government and Defense Business Unit contributed revenue
of $171.1 million during the fourth quarter, down 2.5% from the prior
year, with strength in UAS, integrated systems, and maritime offset by
declines in CBRNE systems and impacts from the government shutdown. The
Commercial Business Unit recorded $95.7 million of revenue in the fourth
quarter, down 30.5% from the prior year. Commercial organic revenue
growth increased 5.4% in the same period excluding revenue from the
previously disclosed divested security businesses. Strong results in
security and intelligent transportation systems contributed to the
organic revenue growth.


Full Year 2018


For the full year, 2018 revenue was $1,775.7 million, down 1.4% compared
to $1,800.4 million for the year ended December 31, 2017. Organic
revenue growth was 6.4%, excluding the previously disclosed divested
security businesses which included revenue of $140.4 million in 2017.


GAAP Earnings Results


GAAP operating income for 2018 was $318.6 million, compared to $290.0
million in 2017, with 2017 being negatively impacted by the non-cash
loss on net assets held for sale. GAAP operating margin was 17.9% in
2018, compared with 16.1% in 2017, representing a 180 basis point
improvement.


2018 GAAP net earnings were $282.4 million, or $2.01 per diluted share,
compared with 2017 GAAP net earnings of $107.2 million, or $0.77 per
diluted share. 2018 GAAP net earnings increase was driven primarily by
the previously discussed Belgium tax item, and U.S. Federal transition
tax due as a result of the U.S. Tax Cuts and Jobs Act. 2017 GAAP
earnings were negatively impacted by the non-cash loss on net assets
held for sale, as well as discrete tax items associated with the
enactment of U.S. tax reform.


Cash provided by operations during 2018 was $374.2 million, compared to
$308.3 million in the prior year, a 21.4% increase. Approximately 5.0
million shares were repurchased in 2018 at an average price of $48.88.


Non-GAAP Earnings Results


Adjusted operating income for 2018 was $403.7 million, 11.1% higher than
2017 adjusted operating income of $363.5 million. Adjusted operating
margin increased 250 basis points to 22.7% in 2018, compared with 20.2%
in 2017.


Adjusted net earnings in 2018 were $311.8 million, or $2.22 per diluted
share, which increased 18.1% over 2017 adjusted earnings per diluted
share of $1.88.


Business Unit Results


Full year 2018 revenue from the Industrial Business Unit was $717.9
million, an increase of 6.8% over last year driven by increased sales of
cooled thermal cores, optical gas products, UAS, and automotive
solutions. The Government and Defense Business Unit contributed revenue
of $663.4 million during 2018, up 5.4% over 2017, with strength in land
systems, UAS, and radiation detection products. The Commercial Business
Unit recorded revenue of $394.4 million during 2018, down 21.0% from the
prior year. Commercial organic revenue growth increased 7.3% in the same
period excluding revenue from the previously disclosed divested security
businesses. Strong results in maritime and intelligent transportation
systems contributed to the organic revenue growth.


Financial Outlook for 2019


FLIR estimates revenue in 2019 to be in the range of $1.92 billion to
$1.95 billion. This represents 8% to 10% revenue growth compared to
2018, including approximately 5% organic revenue growth, in-line with
our strategic plan presented in May 2018. FLIR also expects 2019
adjusted operating income margins to be in the range of 22% to 23%, and
adjusted earnings per diluted share to be in the range of $2.30 to
$2.36. 2019 financial outlook includes contributions from the recently
announced Aeryon Labs and Endeavor Robotics acquisitions. Adjusted
earnings per share assumes an effective tax rate of 20.5%, net interest
expense of $25.5 million and a diluted share count of approximately
137.7 million shares.


Dividend Declaration


FLIR’s Board of Directors has approved a quarterly cash dividend of
$0.17 per share on FLIR common stock, an increase of 6% over the
previous quarterly dividend of $0.16 per share. The Board of Directors
has declared the dividend payable on March 8, 2019, to shareholders of
record as of close of business on February 22, 2019.


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 and full year. 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 fourth 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 4,000
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 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 “Financial Outlook for 201” 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.


FLIR SYSTEMS, INC.


CONSOLIDATED STATEMENTS OF INCOME (LOSS)


(In thousands, except per share amounts)(Unaudited)




 




 




 




 








Three Months Ended




Twelve Months Ended






December 31,




December 31,






 


2018


 




 


2017


 




 


2018


 




 


2017


 


















 


Revenue




$


448,463






$


494,784






$


1,775,686






$


1,800,434




Cost of goods sold




 


220,684


 




 


256,952


 




 


875,368


 




 


941,658


 


Gross profit






227,779








237,832








900,318








858,776




















 


Operating expenses:


















Research and development






43,951








43,368








176,281








170,735




Selling, general and administrative






92,519








93,735








386,869








373,867




Restructuring






1,883








(18


)






4,854








625




Loss on sale of business




 


3,530


 




 


23,588


 




 


13,708


 




 


23,588


 


Total operating expenses






141,883








160,673








581,712








568,815




















 


Earnings from operations






85,896








77,159








318,606








289,961




















 


Interest expense






4,061








4,060








16,147








16,804




Interest income






(1,310


)






(650


)






(3,901


)






(1,764


)


Other income, net




 


(972


)




 


(1,679


)




 


(743


)




 


(4,144


)


















 


Earnings before income taxes






84,117








75,428








307,103








279,065




















 


Income tax (benefit) provision




 


(14,399


)




 


125,718


 




 


24,678


 




 


171,842


 


















 


Net earnings (loss)




$


98,516


 




$


(50,290


)




$


282,425


 




$


107,223


 


















 


Earnings (loss) per share:


















Basic




$


0.72


 




$


(0.36


)




$


2.05


 




$


0.78


 


Diluted




$


0.71


 




$


(0.36


)




$


2.01


 




$


0.77


 


















 


Weighted average shares outstanding:


















Basic




 


136,834


 




 


138,723


 




 


137,815


 




 


137,456


 


Diluted




 


138,509


 




 


138,723


 




 


140,209


 




 


139,646


 


































 


FLIR SYSTEMS, INC.


CONSOLIDATED BALANCE SHEETS


(In thousands)(Unaudited)




 




 








December 31,




December 31,






 


2018




 


2017


ASSETS


















 


Current assets:










Cash and cash equivalents




$


512,144




$


519,090


Accounts receivable, net






323,746






346,687


Inventories






352,107






372,183


Assets held for sale, net






2,032






67,344


Prepaid expenses and other current assets




 


102,618




 


81,915


Total current assets






1,292,647






1,387,219










 


Property and equipment, net






247,407






263,996


Deferred income taxes, net






100,620






21,001


Goodwill






904,571






909,811


Intangible assets, net






146,845






168,130


Other assets




 


89,152




 


59,869






$


2,781,242




$


2,810,026










 


LIABILITIES AND SHAREHOLDERS’ EQUITY


















 


Current liabilities:










Accounts payable




$


95,496




$


106,389


Deferred revenue






32,703






25,614


Accrued payroll and related liabilities






81,118






71,310


Accrued expenses






41,761






37,089


Accrued income taxes






13,855






64,136


Liabilities held for sale






–






39,544


Other current liabilities




 


51,081




 


50,851


Total current liabilities






316,014






394,933










 


Long-term debt






421,948






420,684


Deferred income taxes






22,927






12,496


Accrued income taxes






76,435






87,483


Other long-term liabilities






67,132






59,872










 


Commitments and contingencies


















 


Shareholders’ equity




 


1,876,786




 


1,834,558






$


2,781,242




$


2,810,026














 


FLIR SYSTEMS, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)(Unaudited)




 




 




 




 








Three Months Ended




Twelve Months Ended






December 31,




December 31,






 


2018


 




 


2017


 




 


2018


 




 


2017


 


















 


Cash flows from operating activities:


















Net earnings (loss)




$


98,516






$


(50,290


)




$


282,425






$


107,223




Income items not affecting cash:


















Depreciation and amortization






17,099








17,584








66,462








71,010




Deferred income taxes






12,685








28,305








14,604








25,968




Stock-based compensation arrangements






9,208








6,273








34,170








31,018




Change in accrued income taxes






(39,126


)






91,000








(74,888


)






84,352




Other activity impacting operating cash flows




 


(68


)




 


6,044


 




 


51,384


 




 


(11,319


)


Cash provided by operating activities




 


98,314


 




 


98,916


 




 


374,157


 




 


308,252


 


















 


Cash flows from investing activities:


















Additions to property and equipment, net






(10,106


)






(10,248


)






(30,773


)






(42,109


)


Proceeds from sale of assets






3,015








800








3,017








3,686




Proceeds from sale of business






–








–








25,920








–




Business acquisitions, net of cash acquired






(4,598


)






–








(26,764


)






–




Other investments




 


–


 




 


–


 




 


(15,500


)




 


–


 


Cash used by investing activities




 


(11,689


)




 


(9,448


)




 


(44,100


)




 


(38,423


)


Cash flows from financing activities:


















Repayments of credit agreement and long-term debt






–








–








–








(97,500


)


Repurchase of common stock






(143,749


)






–








(243,706


)






–




Dividends paid






(21,672


)






(20,829


)






(88,123


)






(82,605


)


Proceeds from shares issued pursuant to stock-based compensation
plans






4,940








14,010








29,124








58,241




Tax paid for net share exercises and issuance of vested restricted
stock units






(1,565


)






(1,226


)






(16,228


)






(10,731


)


Other financing activities




 


1


 




 


(4


)




 


(11


)




 


(17


)


Cash used by financing activities




 


(162,045


)




 


(8,049


)




 


(318,944


)




 


(132,612


)


















 


Effect of exchange rate changes on cash




 


(5,771


)




 


710


 




 


(18,059


)




 


20,524


 


















 


Net (decrease) increase in cash and cash equivalents






(81,191


)






82,129








(6,946


)






157,741




Cash and cash equivalents:


















Beginning of period




 


593,335


 




 


436,961


 




 


519,090


 




 


361,349


 


End of period




$


512,144


 




$


519,090


 




$


512,144


 




$


519,090


 


































 


FLIR SYSTEMS, INC.


BUSINESS UNIT PERFORMANCE


(In thousands)(Unaudited)




 




 




 




 








Three Months Ended




Twelve Months Ended






December 31,




December 31,






 


2018


 




 


2017


 




 


2018


 




 


2017


 


BUSINESS UNIT REVENUE


















Industrial




$


181,652






$


181,657






$


717,882






$


672,120




Government and Defense






171,123








175,517








663,436








629,147




Commercial






95,688








137,610








394,368








499,167




















 


BUSINESS UNIT EARNINGS FROM OPERATIONS


















Industrial




$


57,283






$


55,646






$


216,880






$


199,903




Government and Defense






54,094








55,083








199,702








179,160




Commercial






15,119








16,290








57,399








56,066




















 


BUSINESS UNIT OPERATING MARGIN


















Industrial






31.5


%






30.6


%






30.2


%






29.7


%


Government and Defense






31.6


%






31.4


%






30.1


%






28.5


%


Commercial






15.8


%






11.8


%






14.6


%






11.2


%


































 


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,






 


2018


 




 


2017


 




 


2018


 




 


2017


 


Gross profit:


















GAAP gross profit




$


227,779






$


237,832






$


900,318






$


858,776




Amortization of acquired intangible assets