FLIR FLIR Systems Inc

– First Quarter Revenue of $467.3 Million; Growth of 3.6% over Prior Year Quarter

– Bookings of $484.5 Million in the First Quarter Representing a Book-to-bill Ratio of 1.04

– First Quarter GAAP Diluted Earnings Per Share (“EPS”) of $0.29

– First Quarter Adjusted Diluted EPS of $0.49; Growth of 16.7% over Prior Year Quarter

FLIR Systems, Inc. (NASDAQ: FLIR) (“FLIR” or the “Company”), a world leader in the design, manufacture, and marketing of intelligent sensing technologies, today announced financial results for the first quarter ended March 31, 2021.

Commenting on FLIR’s first quarter results, Jim Cannon, President and Chief Executive Officer, said, “We are pleased to announce a strong start to 2021 with revenue growth of 3.6% over the prior year quarter. Our efforts to secure a robust, sustainable pipeline have begun to take root, led by strong bookings and backlog from unmanned systems to end the quarter with a book-to-bill ratio of 1.04. Importantly, we are noticing a recovery in our core Industrial Technologies markets, contributing to the solid performance despite headwinds from EST sales in the prior year. We continue to realize benefits of the cost optimization efforts taken last year as part of Project Be Ready, as underscored by adjusted diluted EPS growth of 16.7% over the prior year quarter.”

Mr. Cannon added, “We are excited to leverage this momentum as we complete our combination with Teledyne Technologies to become an even stronger organization positioned for sustainable profitable growth. We have made significant progress toward our target close date within the quarter and look forward to the upcoming stockholder meetings to approve the transaction on May 13.”

Summary Results

Revenues for the quarter were $467.3 million compared to $450.9 million in the prior year quarter, representing an increase of 3.6%. Bookings totaled $484.5 million in the quarter, representing a book-to-bill ratio of 1.04. Backlog at the end of the quarter was $815.2 million, reflecting a 5.1% decrease relative to the prior year quarter which included approximately $100.0 million of bookings for elevated skin temperature (“EST”) solutions.

GAAP Earnings Results

Gross profit for the quarter was $209.2 million, compared to $219.4 million in the prior year quarter. Gross margin decreased to 44.8% from 48.6% in the prior year quarter, primarily attributable to the ramp up of lower margin programs and product mix in the Defense Technologies segment. Earnings from operations for the quarter were $52.5 million, compared to $28.5 million in the prior year quarter. Operating margin increased to 11.2% from 6.3% in the prior year quarter, primarily due to decreases in restructuring expenses, operating expense reductions from Project Be Ready, and decreases in marketing and travel costs. The favorable impacts were partially offset by the aforementioned lower gross profit and expenses related to the merger with Teledyne Technologies Incorporated (“Teledyne”). Diluted EPS was $0.29, compared to $0.11 in the prior year quarter.

The weighted average diluted share count for the quarter was 133 million, down from 135 million in the prior year quarter primarily due to stock repurchase activity in the first quarter of 2020.

Non-GAAP Earnings Results

Adjusted gross profit for the quarter was $218.8 million, compared to $229.5 million in the prior year quarter. Adjusted gross margin decreased to 46.8% from 50.9% in the prior year quarter, primarily attributable to the ramp up of lower margin programs and product mix in the Defense Technologies segment. Adjusted operating income for the quarter was $82.6 million, compared to $75.5 million in the prior year quarter. Adjusted operating margin increased to 17.7% from 16.7% in the prior year quarter, primarily due to operating expense reductions from Project Be Ready and decreases in marketing and travel costs, partially offset by the aforementioned lower adjusted gross profit. Adjusted diluted EPS was $0.49, compared to $0.42 in the prior year quarter.

Segment Results

Industrial Technologies Segment

Industrial Technologies revenues for the quarter were $274.9 million, representing a decrease of $1.6 million, or 0.6%, compared to the prior year quarter. The revenue decrease was primarily attributable to reduced volume for EST solutions, partially offset by increased demand in certain commercial end markets such as maritime products.

Industrial Technologies segment operating income was $76.9 million, compared to $64.3 million in the prior year quarter. Segment operating margin increased to 28.0% from 23.2% in the prior year quarter, primarily attributable to operating expense reductions from Project Be Ready and decreases in marketing and travel costs.

Industrial Technologies bookings totaled $273.1 million for the quarter, representing a book-to-bill ratio of 0.99. Backlog at the end of the quarter was $273.5 million, reflecting a 17.1% decrease relative to the prior year quarter, primarily the result of lower EST volume, partially offset by increased order activity in certain commercial end markets such as maritime products.

Defense Technologies Segment

Defense Technologies revenues for the quarter were $192.4 million, representing an increase of $17.9 million, or 10.3%, compared to the prior year quarter. The revenue increase was primarily attributable to increased volume on several unmanned systems programs, partially offset by shipment timing and the completion of certain contracts that contributed to revenue in the prior year quarter.

Defense Technologies segment operating income was $25.4 million compared to $33.2 million in the prior year quarter. Segment operating margin decreased to 13.2% from 19.0% in the prior year quarter, primarily attributable to the ramp up of lower margin programs and product mix.

Defense Technologies bookings totaled $211.5 million for the quarter, representing a book-to-bill ratio of 1.10. Backlog at the end of the quarter was $541.8 million, reflecting a 2.4% increase relative to the prior year quarter, primarily due to program awards for unmanned systems.

Corporate Developments

Merger with Teledyne

On January 4, 2021, we entered into a definitive agreement to be acquired by Teledyne (the “Teledyne transaction”), a manufacturer and supplier of sophisticated instrumentation, digital imaging products and software, aerospace and defense electronics, and engineered systems. The Teledyne transaction will enable the combined company to create a stronger platform for growth and innovation and be even better positioned to meet the evolving needs of our customers, drive stockholder value and create new opportunities for our employees. Together, we will offer a uniquely complementary end-to-end portfolio of sensory technologies for all key domains and applications across a well-balanced, global customer base. In addition, both our business models include serving respective markets and customers with sensors, cameras and sensor systems.

The transaction is expected to close on May 14, 2021 subject to the receipt of approvals of Teledyne and FLIR stockholders and other customary closing conditions.

Balance Sheet and Liquidity

FLIR ended the quarter with $277.3 million in cash and cash equivalents and approximately $634.6 million in borrowing capacity under its credit facility based on current profitability levels and leverage covenants.

Shareholder Return Activity

FLIR’s Board of Directors has declared a quarterly cash dividend of $0.17 per share on FLIR common stock payable on June 4, 2021 to shareholders of record as of close of business on May 21, 2021. In the event that the Teledyne transaction closes prior to May 21, 2021, the dividend will not be paid.

About FLIR Systems, Inc.

Founded in 1978, FLIR Systems is a world-leading industrial technology company focused on intelligent sensing solutions for defense and industrial applications. FLIR’s 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 www.flir.com and follow @flir.

Forward-Looking Statements

Statements, estimates or projections in this release may constitute 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:

• risks related to the pending acquisition of FLIR by Teledyne, including parties’ ability to satisfy the conditions required to complete the transaction and, during the pendency of the transaction, diversion of management and employees’ attention, retention and recruiting challenges, uncertainty in business relationships and restrictions on operations set forth in the definitive acquisition agreement;
• risks related to United States government spending decisions and applicable procurement rules and regulations;
• negative impacts to operating margins due to reductions in sales or changes in product mix;
• impairments in the value of tangible and intangible assets;
• unfavorable results of legal proceedings;
• risks associated with international sales and business activities, including the regulation of the export and sale of our products worldwide and our ability to obtain and maintain necessary export licenses, as well as the imposition of significant tariffs or other trade barriers;
• risks to our supply chain, production facilities or other operations, and changes to general, domestic, and foreign economic conditions, due to the COVID-19 pandemic;
• risks related to subcontractor and supplier performance and financial viability as well as raw material and component availability and pricing;
• risks related to currency fluctuations;
• adverse general economic conditions or volatility in our primary markets;
• our ability to compete effectively and to respond to technological change;
• risks related to product defects or errors;
• our ability to protect our intellectual property and proprietary rights;
• cybersecurity and other security threats and technology disruptions;
• our ability to successfully manage acquisitions, investments and divestiture activities and integrate acquired companies;
• our ability to achieve the intended benefits of our strategic restructuring;
• risks related to our senior unsecured notes and other indebtedness;
• our ability to attract and retain key senior management and qualified technical, sales and other personnel;
• changes in our effective tax rate and the results of pending tax matters; and
• other risks discussed from time to time in filings and reports filed with the Securities and Exchange Commission (“SEC”).

COVID-19 may exacerbate one or more of the aforementioned and/or other risks, uncertainties and other factors more fully described in the Company’s reports filed with the SEC. 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, whether as a result of new information, future events, or otherwise.

Definitions and Non-GAAP Financial Measures

Bookings are defined as contractual agreements awarded during the reporting period. Backlog is defined as total estimated amount of future revenues to be recognized under negotiated contracts.

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 earnings, and (vi) adjusted diluted 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 as outlined in the "GAAP to Non-GAAP Reconciliation" table included within this earnings release.

In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of our core operating performance on a period-to-period basis. Items excluded consist of: (i) separation, transaction, and integration costs, (ii) amortization of acquired intangibles, (iii) restructuring expenses and asset impairment charges, (iv) discrete legal and compliance matters, and (v) discrete tax items. We do not consider these items to be directly related to our core operating performance. Non-GAAP measures are used internally to evaluate the core operating performance of our business, for comparison with forecasts and strategic plans, 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 presented;
• 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:

• Separation, transaction, and integration costs – Represents separation, transaction and integration costs related to divestiture and acquisition initiatives including costs associated with the pending acquisition by Teledyne.
• Amortization of acquired intangibles – Represents amortization expense associated with acquired intangible assets.
• Restructuring expenses and asset impairment charges – Represents employee separation expenses, facility consolidation costs, and certain third party expenses as well as goodwill, intangible asset, and inventory impairment charges associated with Company restructuring activities.
• Discrete legal and compliance matters – Represents costs incurred associated with certain legal and compliance matters that are not representative of ongoing operational costs. These expenses are primarily attributable to an administrative agreement with the U.S. Department of State (the “Consent Agreement”) to address and remediate certain historical practices associated with U.S. and international trade control laws and regulations. Such costs include a Directorate of Defense Trade Controls penalty, expenses associated with retention of a Special Compliance Officer, and remedial actions 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.
• Discrete tax items – Represents 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 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, changes in valuation allowances against certain deferred tax assets, and other discrete items not included in the annual effective tax rate associated with our ongoing operations.

Adjusted net earnings and adjusted diluted EPS include an estimate to reflect the tax effect of the discrete items identified above. The tax effect is calculated by applying the Company’s overall estimated effective tax rate, excluding significant discrete items, to earnings before income taxes.

 

 

 

FLIR SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF INCOME

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

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2021

 

2020

 

 

 

Revenue

$

467,313

 

$

450,923

 

Cost of goods sold

258,115

 

231,555

 

Gross profit

209,198

 

219,368

 

 

 

 

Operating expenses:

 

 

Research and development

52,246

 

53,847

 

Selling, general and administrative

103,868

 

116,242

 

Restructuring expenses

622

 

20,784

 

Total operating expenses

156,736

 

190,873

 

 

 

 

Earnings from operations

52,462

 

28,495

 

 

 

 

Interest expense

6,115

 

6,961

 

Interest income

(41

)

(349

)

Other income (loss), net

(3,622

)

(1,315

)

 

 

 

Earnings before income taxes

50,010

 

23,198

 

 

 

 

Income tax provision

11,203

 

7,774

 

 

 

 

Net earnings

$

38,807

 

$

15,424

 

 

 

 

Net earnings per share:

 

 

Basic earnings per share

$

0.30

 

$

0.12

 

Diluted earnings per share

$

0.29

 

$

0.11

 

 

 

 

Weighted average shares outstanding:

 

 

Basic

131,183

 

133,596

 

Diluted

132,596

 

134,927

 

 

FLIR SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands) (Unaudited)

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2021

 

2020

ASSETS

 

 

Current assets:

 

 

Cash and cash equivalents

$

277,303

 

$

297,795

 

Accounts receivable, net

391,331

 

353,561

 

Inventories

457,007

 

472,237

 

Prepaid expenses and other current assets

97,568

 

104,646

 

Total current assets

1,223,209

 

1,228,239

 

 

 

 

Property and equipment, net

269,269

 

267,682

 

Deferred income taxes, net

35,610

 

36,210

 

Goodwill

1,386,847

 

1,394,364

 

Intangible assets, net

197,632

 

209,636

 

Other assets

116,235

 

116,217

 

Total assets

$

3,228,802

 

$

3,252,348

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

Accounts payable

$

150,541

 

$

157,592

 

Deferred revenue

28,568

 

25,862

 

Accrued payroll and related liabilities

77,330

 

98,911

 

Accrued product warranties

18,397

 

17,019

 

Accrued payments from customers

13,730

 

10,940

 

Accrued expenses

34,617

 

41,347

 

Accrued income taxes

27,852

 

28,941

 

Other current liabilities

44,708

 

44,053

 

Long-term debt, current portion

12,945

 

13,473

 

Total current liabilities

408,688

 

438,138

 

 

 

 

Long-term debt, net of current portion

712,866

 

724,919

 

Deferred income taxes

43,159

 

43,708

 

Accrued income taxes

60,699

 

60,248

 

Other long-term liabilities

93,516

 

101,961

 

 

 

 

Shareholders’ equity:

 

 

Preferred stock, $0.01 par value, 10,000 shares authorized; no shares issued at March 31, 2021, and December 31, 2020

—

 

—

 

Common stock, $0.01 par value, 500,000 shares authorized; 131,575 and 131,360 shares issued, 131,368 and 131,153 shares outstanding at March 31, 2021, and December 31, 2020, respectively, and additional paid-in capital

42,101

 

31,767

 

Retained earnings

2,033,585

 

2,017,097

 

Treasury stock - at cost - 207 shares of common stock at March 31, 2021, and December 31, 2020, respectively

(7,504

)

(7,504

)

Accumulated other comprehensive loss

(158,308

)

(157,986

)

Total shareholders’ equity

1,909,874

 

1,883,374

 

 

 

 

Total liabilities and shareholders' equity

$

3,228,802

 

$

3,252,348

 

 

FLIR SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2021

 

2020

Cash flows from operating activities:

 

 

Net earnings

$

38,807

 

$

15,424

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

Depreciation and amortization

23,861

 

24,225

 

Stock-based compensation

9,760

 

7,646

 

(Gain) loss on disposal of assets

(30

)

2,991

 

Deferred income taxes

23

 

(165

)

Other, net

(6,987

)

(3,152

)

(Decrease) increase in cash, net of acquisitions, resulting from changes in:

 

 

Accounts receivable

(40,407

)

12,118

 

Inventories

8,542

 

(14,453

)

Prepaid expenses and other current assets

3,273

 

382

 

Other assets

3,443

 

(391

)

Accounts payable

(5,783

)

1,592

 

Deferred revenue

2,927

 

2,140

 

Accrued payroll and other liabilities

(16,777

)

11,084

 

Accrued income taxes

5,410

 

(6,259

)

Other long term liabilities

(1,758

)

(2,316

)

Net cash provided by operating activities

24,304

 

50,866

 

Cash flows from investing activities:

 

 

Additions to property and equipment, net

(14,183

)

(12,717

)

Net cash used in investing activities

(14,183

)

(12,717

)

Cash flows from financing activities:

 

 

Net proceeds from credit facility and long-term debt, including current portion

—

 

175,000

 

Repayment of credit facility and long-term debt

(3,285

)

(3,021

)

Repurchase of common stock

—

 

(150,000

)

Dividends paid

(22,319

)

(22,728

)

Proceeds from shares issued pursuant to stock-based compensation plans

1,082

 

1,459

 

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

(833

)

(879

)

Net cash used in financing activities:

(25,355

)

(169

)

Effect of exchange rate changes on cash and cash equivalents

(5,258

)

(13,957

)

Net (decrease) increase in cash and cash equivalents

(20,492

)

24,023

 

Cash and cash equivalents, beginning of period

297,795

 

284,592

 

Cash and cash equivalents, end of period

$

277,303

 

$

308,615

 

 

FLIR SYSTEMS, INC.

SEGMENT PERFORMANCE

(In thousands) (Unaudited)

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2021

 

2020

SEGMENT REVENUE

 

 

Industrial Technologies Segment

$

274,864

 

$

276,415

 

Defense Technologies Segment

192,449

 

174,508

 

 

 

 

SEGMENT EARNINGS FROM OPERATIONS

 

 

Industrial Technologies Segment

$

76,906

 

$

64,265

 

Defense Technologies Segment

25,376

 

33,154

 

 

 

 

SEGMENT OPERATING MARGIN

 

 

Industrial Technologies Segment

28.0

%

23.2

%

Defense Technologies Segment

13.2

%

19.0

%

 

FLIR SYSTEMS, INC.

GAAP TO NON-GAAP RECONCILIATION

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

 

 

 

Three Months Ended March 31, 2021

 

 

As Reported

 

Separation, transaction, and integration costs

 

Amortization of acquired intangibles assets

 

Restructuring expenses and asset impairment charges

 

Discrete legal and compliance matters

 

Discrete tax items

 

Adjusted Non-GAAP Results

Gross profit

$

209,198

 

$

337

 

$

9,300

 

$

—

 

$

—

 

$

—

 

$

218,835

 

Operating expenses

(156,736

)

12,641

 

2,624

 

622

 

4,579

 

—

 

(136,270

)

Earnings from operations

52,462

 

12,978

 

11,924

 

622

 

4,579

 

—

 

82,565

 

Non-operating expense, net

(2,452

)

—

 

—

 

—

 

—

 

—

 

(2,452

)

Earnings before income taxes

50,010

 

12,978

 

11,924

 

622

 

4,579

 

—

 

80,113

 

Income tax provision

(11,203

)

(2,466

)

(2,266

)

(118

)

(870

)

1,702

 

(15,221

)

Net earnings

$

38,807

 

$

10,512

 

$

9,658

 

$

504

 

$

3,709

 

$

1,702

 

$

64,892

 

 

 

 

 

 

 

 

 

Gross margin

44.8

%

0.1

%

1.9

%

—

%

—

%

—

%

46.8

%

Operating margin

11.2

%

2.8

%

2.6

%

0.1

%

1.0

%

—

%

17.7

%

 

 

 

 

 

 

 

 

Net earnings per diluted share

$

0.29

 

$

0.08

 

$

0.07

 

$

0.01

 

$

0.03

 

$

0.01

 

$

0.49

 

Weighted average diluted shares outstanding

132,596

 

132,596

 

132,596

 

132,596

 

132,596

 

132,596

 

132,596

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2020

 

As Reported

Separation, transaction, and integration costs

Amortization of acquired intangibles assets

Restructuring expenses and asset impairment charges

Discrete legal and compliance matters

Discrete tax items

Adjusted Non-GAAP Results

Gross profit

$

219,368

 

$

738

 

$

9,385

 

$

—

 

$

—

 

$

—

 

$

229,491

 

Operating expenses

(190,873

)

4,514

 

2,511

 

20,784

 

9,081

 

—

 

(153,983

)

Earnings from operations

28,495

 

5,252

 

11,896

 

20,784

 

9,081

 

—

 

75,508

 

Non-operating expense, net

(5,297

)

—

 

—

 

—

 

—

 

—

 

(5,297

)

Earnings before income taxes

23,198

 

5,252

 

11,896

 

20,784

 

9,081

 

—

 

70,211

 

Income tax provision

(7,774

)

(998

)

(2,260

)

(3,949

)

(1,725

)

3,366

 

(13,340

)

Net earnings

$

15,424

 

$

4,254

 

$

9,636

 

$

16,835

 

$

7,356

 

$

3,366

 

$

56,871

 

 

 

 

 

 

 

 

 

Gross margin

48.6

%

0.2

%

2.1

%

—

%

—

%

—

%

50.9

%

Operating margin

6.3

%

1.2

%

2.6

%

4.6

%

2.0

%

—

%

16.7

%

 

 

 

 

 

 

 

 

Net earnings per diluted share

$

0.11

 

$

0.03

 

$

0.07

 

$

0.12

 

$

0.06

 

$

0.03

 

$

0.42

 

Weighted average diluted shares outstanding

134,927

 

134,927

 

134,927

 

134,927

 

134,927

 

134,927

 

134,927

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210506005197/en/

Investor Relations Sarah Key Senior Director, Corporate M&A and Investor Relations Phone: +1 571-309-8318 Email: Investors@flir.com