Press release

FLIR Systems Announces First Quarter 2019 Financial Results

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FLIR Systems, Inc. (NASDAQ: FLIR) today announced financial results for
the first quarter ended March 31, 2019. “Overall, we are pleased with
our start to 2019,” said Jim Cannon, FLIR President and Chief Executive
Officer. “In the quarter, improvements in our product mix and continued
commitment to the FLIR Method productivity initiatives drove meaningful
margin expansion year over year, resulting in double-digit earnings

Mr. Cannon continued, “With another quarter of robust bookings –
combined with significant opportunities across the portfolio, including
our two recent unmanned acquisitions – FLIR is well-positioned for
strong performance through 2019 and beyond.”

First Quarter 2019

First quarter 2019 revenue was $444.7 million, 1.2% higher than first
quarter 2018 revenue of $439.6 million. Organic revenue growth was 0.9%,
which excludes revenue from the acquisitions of Endeavor Robotics and
Aeryon Labs in the first quarter of 2019, and revenue from the divested
security businesses in the first quarter of 2018.

GAAP Earnings Results

GAAP gross profit in the first quarter 2019 was $233.7 million, compared
to $217.9 million in the first quarter 2018. GAAP gross margin increased
300 basis points to 52.5% in the first quarter 2019, compared with 49.6%
in the prior year. GAAP operating income in the first quarter increased
46.1% to $81.1 million, compared to $55.5 million in the prior year,
representing a 560 basis point improvement in operating margin.

First quarter 2019 GAAP net earnings were $61.7 million, or $0.45 per
diluted share, compared with GAAP net earnings of $39.2 million, or
$0.28 per diluted share in the first quarter last year.

Cash provided by operations was $55.5 million in the first quarter 2019,
compared to $43.2 million in the first quarter 2018, representing a
28.6% increase. Approximately 500,000 shares were repurchased in the
first quarter of 2019.

Non-GAAP Earnings Results

Adjusted gross profit was $236.8 million in the first quarter 2019,
increasing 6.7% over adjusted gross profit of $222.0 million in the
first quarter 2018. Adjusted gross margin increased 270 basis points to
53.2%, compared with 50.5% in the first quarter 2018. Adjusted operating
income was $97.3 million in the first quarter 2019, which was 10.9%
higher than adjusted operating income of $87.8 million in the first
quarter 2018. Adjusted operating margin increased 190 basis points to
21.9%, compared with 20.0% in the first quarter 2018.

Adjusted net earnings in the first quarter 2019 were $72.7 million, or
$0.53 per diluted share, which was 9.6% higher than adjusted earnings
per diluted share of $0.48 in the first quarter 2018.

Business Unit Results

Revenue from the Industrial Business Unit was $179.4 million, an
increase of 5.1% over the first quarter results of last year, due to
increased sales of cooled thermal cores, unmanned aerial systems (UAS),
and optical gas imaging products. The Government and Defense Business
Unit contributed revenue of $173.4 million during the first quarter, up
8.8% from the prior year, with strength in unmanned systems (including
the acquisitions of Endeavor Robotics and Aeryon Labs) and surveillance
systems. The Commercial Business Unit recorded $92.0 million of revenue
in the first quarter, down 16.1% from the prior year (which included
revenue from the divested security businesses), with impacts from
continued restructuring in outdoor and tactical systems (OTS), and
negative foreign exchange effects.

Financial Outlook for 2019

Based on financial results for the first quarter of the year and the
outlook for the remainder of the year, FLIR continues to expect 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 the strategic plan
presented in May 2018. FLIR also continues to expect 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 Aeryon Labs and
Endeavor Robotics acquisitions, which are expected to be dilutive to
adjusted EPS through 2019.

Dividend Declaration

FLIR’s Board of Directors has declared a quarterly cash dividend of
$0.17 per share on FLIR common stock, payable on June 7, 2019, to
shareholders of record as of close of business on May 24, 2019.

Conference Call

FLIR has scheduled a conference call at 9:00 a.m. EDT 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 & Presentations section of
A replay will be available after 12:30 p.m. EDT at this same internet
address. Summary first quarter and historical financial data may be
accessed online from the Financial Info Database link under the
Financials & Filings section at

About FLIR Systems, Inc.

Founded in 1978, FLIR Systems is a world-leading industrial
technology company focused on intelligent sensing solutions for defense,
industrial, and commercial applications. FLIR Systems’ vision is to be
“The World’s Sixth Sense,” creating technologies to help professionals
make more informed decisions that save lives and livelihoods. For more
information, please visit
and follow @flir.

Definitions and Financial Measures

Organic revenue growth is defined as total revenue growth less the
sales of companies acquired and 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 2019, 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 2019” 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.

(In thousands, except per share amounts)(Unaudited)
Three Months Ended
March 31,
  2019     2018  
Revenue $ 444,736 $ 439,618
Cost of goods sold   211,077     221,704  
Gross profit 233,659 217,914
Operating expenses:
Research and development 47,998 44,561
Selling, general and administrative 104,579 107,683
Loss on sale of business       10,178  
Total operating expenses 152,577 162,422
Earnings from operations 81,082 55,492
Interest expense 5,516 4,052
Interest income (1,057 ) (956 )
Other expense (income), net   1,866     (2,219 )
Earnings before income taxes 74,757 54,615
Income tax provision   13,009     15,420  
Net earnings $ 61,748   $ 39,195  
Earnings per share:
Basic $ 0.46   $ 0.28  
Diluted $ 0.45   $ 0.28  
Weighted average shares outstanding:
Basic   135,541     138,504  
Diluted   137,165     140,994  
(In thousands)(Unaudited)
March 31, December 31,
  2019   2018


Current assets:
Cash and cash equivalents $ 284,363 $ 512,144
Accounts receivable, net 356,693 323,746
Inventories 385,316 352,107
Assets held for sale, net 2,032
Prepaid expenses and other current assets   101,074   102,618
Total current assets 1,127,446 1,292,647
Property and equipment, net 253,678 247,407
Deferred income taxes, net 97,705 100,620
Goodwill 903,461 904,571
Intangible assets, net 140,551 146,845
Other assets   683,468   89,152
$ 3,206,309 $ 2,781,242


Current liabilities:
Credit facility $ 100,000 $
Accounts payable 131,422 95,496
Deferred revenue 30,238 32,703
Accrued payroll and related liabilities 72,714 81,118
Accrued expenses 44,220 41,761
Accrued income taxes 5,523 13,855
Other current liabilities 63,080 51,081
Current portion long-term debt   12,451  
Total current liabilities 459,648 316,014
Long-term debt 656,891 421,948
Deferred income taxes 19,806 22,927
Accrued income taxes 74,828 76,435
Other long-term liabilities 92,441 67,132
Commitments and contingencies
Shareholders’ equity   1,902,695   1,876,786
$ 3,206,309 $ 2,781,242


(In thousands)(Unaudited)
Three Months Ended
March 31,
  2019     2018  
Cash flows from operating activities:
Net earnings $ 61,748 $ 39,195
Income items not affecting cash:
Depreciation and amortization 16,662 16,446
Deferred income taxes 222 4,574
Stock-based compensation arrangements 8,090 5,931
Change in accrued income taxes (1,722 ) (29,435 )
Other activity impacting operating cash flows   (29,489 )   6,465  
Cash provided by operating activities   55,511     43,176  
Cash flows from investing activities:
Additions to property and equipment, net (9,140 ) (7,099 )
Proceeds from sale of assets 2,973 25,920
Business acquisitions, net of cash acquired (579,556 ) (7,070 )
Other investments   (5,000 )   (9,500 )

Cash (used) provided by investing activities

  (590,723 )   2,251  
Cash flows from financing activities:
Net proceeds from credit agreement and long-term debt 723,054
Repayments of credit agreement and long-term debt (375,000 )
Repurchase of common stock (24,998 ) (94,956 )
Dividends paid (23,031 ) (22,232 )
Proceeds from shares issued pursuant
to stock-based compensation plans 9,721 3,497
Tax paid for net share exercises and issuance of
vested restricted stock units (1,013 ) (265 )
Other financing activities   (419 )   (11 )
Cash provided (used) by financing activities   308,314     (113,967 )
Effect of exchange rate changes on cash   (883 )   1,588  
Net decrease in cash and cash equivalents (227,781 ) (66,952 )
Cash and cash equivalents:
Beginning of period   512,144     519,090  
End of period $ 284,363   $ 452,138  
(In thousands)(Unaudited)
Three Months Ended
March 31,
  2019     2018  


Industrial $ 179,370 $ 170,658
Government and Defense 173,350 159,331
Commercial 92,016 109,629


Industrial $ 56,897 $ 45,455
Government and Defense 48,267 46,182
Commercial 12,948 14,472


Industrial 31.7 % 26.6 %
Government and Defense 27.8 % 29.0 %
Commercial 14.1 % 13.2 %
(In thousands, except per share amounts)(Unaudited)
Three Months Ended
March 31,
  2019     2018  
Gross profit:
GAAP gross profit $ 233,659 $ 217,914
Amortization of acquired intangible assets 3,678 3,719
Restructuring (545 )
Other       348  
Adjusted gross profit $ 236,792   $ 221,981  
Gross margin:
GAAP gross margin 52.5 % 49.6 %
Cumulative effect of non-GAAP Adjustments   0.7 %   0.9 %
Adjusted gross margin   53.2 %   50.5 %
Earnings from operations:
GAAP earnings from operations $ 81,082 $ 55,492
Amortization of acquired intangible assets 5,928 5,987
Restructuring 63 (844 )
Acquisition related expenses 6,477 737
Loss on sale of business 10,178
Executive transition costs 441 878
Export compliance matters 3,342 15,000
Other       348  
Adjusted earnings from operations $ 97,333   $ 87,776  
Operating margin:
GAAP operating margin 18.2 % 12.6 %
Cumulative effect of non-GAAP Adjustments   3.7 %   7.3 %
Adjusted operating margin   21.9 %   20.0 %
Net earnings:
GAAP net earnings $ 61,748 $ 39,195
Amortization of acquired intangible assets 5,928 5,987
Restructuring 63 (844 )
Acquisition related expenses 6,477 737
Loss on sale of business 10,178
Executive transition costs 441 878
Export compliance matters 3,342 15,000
Other 494 348
Estimated tax benefit of non-GAAP adjustments (3,433 ) (6,941 )
Discrete tax items, net   (2,316 )   3,678  
Adjusted net earnings $ 72,744   $ 68,216  
Earnings Per Diluted Share:
GAAP earnings per diluted share $ 0.45 $ 0.28
Cumulative effect of non-GAAP Adjustments   0.08     0.20  
Adjusted earnings per diluted share $ 0.53   $ 0.48  
Weighted average diluted shares outstanding:   137,165     140,994  

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

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, loss on sale of business, executive transition costs,
export compliance matters, 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, for calculating return on investment, and as a factor for
determining incentive compensation for certain employees. 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
  • 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.
  • Acquisition related expenses.
    Included in our GAAP financial measures are acquisition related
    expenses, consisting of external expenses resulting directly from
    acquisition related activities, including banker fees, due diligence,
    legal, acquisition-related insurance premiums, 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 and related
    adjustments 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.
  • Loss on sale of business. We
    recognized a loss, representing the difference between the carrying
    value and expected sales proceeds, associated with the divestiture of
    the retail and SMB security products business of the Commercial
    business unit. We excluded this loss for purposes of calculating
    certain non-GAAP measures. This adjustment facilitates an alternative
    evaluation of our current operating performance and comparisons to
    past operating results consistent with the metrics reviewed by
  • Executive transition costs.
    Executive transition costs primarily include costs associated with
    separation and severance agreements of the Company’s former CEO, COO,
    CHRO and other former members of the executive management team;
    professional services expenses associated with the transition of the
    former CEO, CFO, and CHRO including recruitment fees, legal services
    and other related costs, as well as sign-on cash bonus payments to the
    current CEO and others reporting to the CEO; partially offset by
    benefits associated with stock compensation reversals for share-based
    awards forfeited upon the departures of the former CEO, COO, CFO, CHRO
    and other former members of the executive management team.
  • Export compliance matters.
    Export Compliance Matters refer to costs incurred for compliance and
    remediation activities to address and improve certain historical
    practices associated with U.S. and international trade control laws
    and regulations. Such costs include a DDTC estimated penalty
    associated with an administrative agreement with the U.S. Department
    of State (the “Consent Agreement”), expenses associated with retention
    of a Special Compliance Officer, remedial actions and new or enhanced
    compliance program initiatives and implementations as required by the
    terms of the Consent Agreement or otherwise necessary to remedy and
    achieve full compliance with U.S. and international trade control laws
    and regulations. These costs are excluded from our non-GAAP measures
    because they are not representative of the ongoing operating costs of
    our compliance programs and are exclusive of sustaining costs we have
    incurred and expect to incur during and beyond the term of Consent
  • Other. Other charges include
    product remediation charges associated with certain SkyWatch™
    surveillance towers, bank guarantee fees associated with the Swedish
    tax matter, and certain long-term contract adjustments related to
    contracts completed by companies acquired by FLIR prior to their
    acquisition. We exclude other charges from our non-GAAP measures
    because we do not believe such costs are representative of our ongoing
  • 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
    or charges associated with the windfalls or shortfalls resulting from
    vesting and exercise activity of share-based compensation, 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.