FLIR Systems (FLIR)

Q1 2011 Earnings Call

April 29, 2011 11:00 am ET

Executives

William Davis - Senior Vice President, Secretary and General Counsel

Andrew Teich - President of Commercial Systems

Earl Lewis - Chairman, Chief Executive Officer and President

Anthony Trunzo - Chief Financial Officer and Senior Vice President of Finance

William Sundermeier - President of Government Systems Division

Analysts

Brian Gesuale - Raymond James & Associates, Inc.

Michael Lewis - Lazard Capital Markets LLC

Jonathan Ho - William Blair & Company L.L.C.

Michael Ciarmoli - KeyBanc Capital Markets Inc.

James Ricchiuti - Needham & Company, LLC

Paul Coster - JP Morgan Chase & Co

Josephine Millward - The Benchmark Company, LLC

Timothy Quillin - Stephens Inc.

Brian Ruttenbur - Morgan Keegan & Company, Inc.

Michael French - Morgan Joseph TriArtisan LLC

Jeremy Devaney - BB&T Capital Markets

Peter Skibitski - SunTrust Robinson Humphrey, Inc.

Presentation

William Davis

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Good morning, everyone. Before we begin this conference call, I need to remind you that other than statements as to historical facts, statements made on this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and are based on our current expectations. The words such as expects, anticipates, intends, believes, estimates, and variations of such words and similar expressions, are intended to identify such forward-looking statements.

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All of these statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the press release we issued earlier today for a description of factors that could cause actual results to differ materially from those forecast. The forward-looking statements we make today, speak as of today, and we do not undertake any obligation to update any such statements to reflect events or circumstances occurring after today.

Let me now turn the call over to Earl Lewis, Chairman and CEO of FLIR Systems. Earl?

Earl Lewis

Yes, thank you, Wit, and good morning, everyone, and thank you for dialing in.

In the first quarter, we earned $0.32 per share and recorded $373.5 million in revenue, which represented 30% growth over the first quarter of 2010.

Our Commercial Systems division continued to grow and our Government Systems division performed admirably in face of some significant headwinds.

During the quarter, we continue to translate net income into cash, generating $62.4 million in cash from operations, and finishing the quarter with a cash balance over $250 million.

During the quarter, we paid our first regular quarterly dividend and we purchased over 200,000 shares.

Commercial Systems revenue grew 51% over the first quarter of 2010, or 12% excluding Raymarine's results.

In addition, they added significantly to their backlog.

Raymarine's business continued to adopt our operating model and reached the new high in operating margin during the quarter.

As we've previously announced, we've combined our Thermography and Commercial Vision segments and now call them the business Thermal Vision and Measurement, TVM.

This strategy has been very successful from an operational and distribution standpoint and the addition of Raymarine to the Commercial Systems division has furthered our strategy to extend thermal imaging to a wider audience of commercial users.

Our Government Systems division experienced some challenges with tough comparables in the U.S. government budget delays during the first quarter, but the business continued to grow with revenues reaching $178.8 million.

With our acquisition and continuing integration of ICx into our Government Systems division, we have created 3 segments that comprised that division, and we report operation results accordingly.

As I've said before, we would try to give you an idea what ICx did. In stand-alone basis, it would have lost approximately $0.03 a share in Q1.

Our first quarter results were in line with our internal expectations and we continue to expect the majority of this year's growth come during the second half of the year.

Our new product introductions have been very well received and we expect to contribute significantly to our growth, both our new E-Series and T640 and our i3 thermography cameras revolutionize the standards for functionality and for price.

More product introductions are scheduled throughout the year. We continue to see upside in our operations on our 2 recently acquired businesses and we see tremendous opportunity for our products as we execute on our strategy of delivering the most innovative sensor solutions to the most markets at the lowest possible cost.

And now, I'm going to let of our President detail the results from their business, beginning with Andy, with our Commercial Systems division. Andy?

Andrew Teich

Thanks, Earl. It's been over a year since we've created our Commercial Systems division and I can say that the realignment has been a great success. To capitalize on efficiencies, gains in our sales and marketing efforts, expanded distribution relationships, leverage operation and R&D synergies and continued to execute on our strategies for growth.

On a consolidated basis, revenues for the Commercial Systems division reached $194.6 million for the first quarter of 2011, an increase of 51% compared to the combined first quarter results of Thermography and CVS a year ago.

Our Thermal Vision and Measurement segment, which is our Legacy Thermography and CVS business combined had first quarter revenue of $144.1 million, growing 12% over the prior year and bookings for the quarter were very strong with 33% growth over the first quarter of 2010.

TVM operating income for the first quarter was $37.2 million, representing a 26% operating margin that was equal to our margin a year ago.

This represents the best first quarter in terms of revenue and operating income in the history of our Legacy Thermography and CVS segments combined.

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