FLIR Systems (FLIR)
Q3 2010 Earnings Call
October 21, 2010 11:00 am ET
Tom Surran -
William Davis - Senior Vice President, Secretary and General Counsel
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
Peter Skibitski - SunTrust Robinson Humphrey Capital Markets
Michael French - Morgan Joseph LLC
Jonathan Ho - William Blair & Company L.L.C.
Stephen Levenson - Stifel, Nicolaus & Co., Inc.
Michael Ciarmoli - KeyBanc Capital Markets Inc.
James Ricchiuti - Needham & Company, LLC
Michael Lewis - BB&T Capital Markets
Josephine Millward - The Benchmark Company, LLC
Paul Coster - JP Morgan Chase & Co
Brian Ruttenbur - Morgan Keegan & Company, Inc.
Timothy Quillin - Stephens Inc.
Noah Poponak - Goldman Sachs Group Inc.
Jeremy Devaney - BB&T Capital Markets
Peter Arment - Gleacher & Company, Inc.
Previous Statements by FLIR
» FLIR Systems, Inc. Q2 2010 Earnings Call Transcript
» FLIR Systems, Inc. Q1 2009 Earnings Call Transcript
» FLIR Systems, Inc. Q4 2009 Earnings Call Transcript
Good morning. My name is Latika, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2010 Results Conference Call. [Operator Instructions] Mr. Wit Davis, you may begin your conference.
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. Words such as expects, anticipates, intends, believes, estimates, and variations of such words and similar expressions, are intended to identify such forward-looking statements.
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?
Well, thank you, Wit. Good morning, everyone, and thank you all for joining us today. We had a successful third quarter with earnings of $0.39 per share on a 16% increase in revenue. Our Commercial Vision Systems revenue was up 17% over the third quarter of 2009 to $61 million, and the division posted a 54% increase in their operating income.
Thermography revenue increased 4%, excluding the Extech printer division, which was sold in the fourth quarter of 2009 and generated 19% growth in operating income. While Government System revenue was essentially flat, operating margins remain robust at 38%. Our order activity for Government Systems was strong. Backlog increased by approximately $10 million.
During the first week of the fourth quarter we closed the acquisition of ICx Technologies. We purchased the company for $232 million, net of their closing cash balance. This business was attractive for its technology leadership in chemical, biological, radiological, nuclear and explosive detection. It expands our footprint by adding products in these emerging detection sensor categories.
ICx also augments our surveillance capabilities by adding integration services and advanced radars to our portfolio. We believe there's significant opportunity to reduce costs, increase profitability by leveraging the FLIR operating model and focusing on the strength of ICx products and employees.
This quarter again demonstrates our ability to produce strong, profitable results. We have never felt better about our mix of products, diversity of our markets, our ability to innovate and our operational and financial flexibility. I'm now going to turn the call over to Tom Surran, who's filling in for Andy Teich while he attends the advanced management program at Harvard. Both Tony and Bill are scheduled to attend this program next year. Tom will discuss the results in the Commercial Systems division. Tom?
Thanks, Earl. Commercial Systems revenue, excluding Raymarine, was $132 million, up 8% over the third quarter results for CVS and Thermography last year. Operating income, again excluding Raymarine, increased 33% over the prior year to $40 million. Thermography revenue was $71 million, an increase of 4% over the third quarter of 2009 when you exclude that divested Extech printer division revenue from the third quarter of 2009.
Profitability improved significantly with operating income reaching 31% of revenue, or $21.8 million. This represents a 19% increase over the prior year and our best operating margin performance since 2007. Unit volumes were up approximately 30% overall, and they doubled for the high-volume i5, i7 series cameras.
The U.S. showed significant improvement in the high-end P-Series and T-Series sales, and we are seeing significant growth in the sales of our gas finder products. The electrical, mechanical and building markets, which together make up over 50% of Thermography revenue, were flat during the quarter, in part due to the EMEA region being down compared to the third quarter of the prior year.
Looking ahead to the fourth quarter, we expect to see the usual seasonal increase in our Thermography business. We continue to innovate and expand the applications for our products, and margins should remain strong as we continue to control costs and utilize our Sonia [ph] manufacturing site.
For the Commercial Vision Systems business, we saw another excellent quarter. Revenues were up 17% over the prior year to $61.4 million. Operating income was $18.1 million, up 54%, and yielding an operating margin of 29%. Compared to the third quarter of 2009, CVS operating margin improved over 700 basis points due to a favorable product mix, higher volumes and lower costs. Additionally, CVS backlog increased 12% over the second quarter this year to $116 million.