FLIR Systems, Inc. ( FLIR )

Q2 2010 Earnings Call Transcript

July 22, 2010 8:00 am ET


Whit Davis – SVP, General Counsel and Secretary

Earl Lewis – Chairman, President and CEO

Andy Teich – President, Commercial Systems

Bill Sundermeier – President, Government Systems

Anthony Trunzo – SVP, Finance and CFO


Jonathan Ho – William Blair

Noah Poponak – Goldman Sachs

Brian Gesuale – Raymond James

Tim Quillin – Stephens Incorporated

Brian Ruttenbur – Morgan Keegan

Peter Arment – Gleacher & Company

Paul Coster – J.P. Morgan

Jim Ricchiuti – Needham & Company

Josephine Millward – The Benchmark Company

Michael French – Morgan Joseph



Good morning. My name is Kila, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the FLIR Systems second quarter 2010 financial results conference call.

I will now turn the call over to Mr. Whit Davis, Senior Vice President, General Counsel and Secretary of FLIR Systems. Sir you may begin.

Whit Davis

Good morning or good afternoon, everyone. Before we begin this conference call I need to remind you that other than statements as to historical facts, the statements made on this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform of 1995 and are based on our current expectations. Word such as expect, anticipate, intend, believe, 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 forecasted. 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 call over to Earl Lewis, Chairman and CEO of FLIR Systems.

Earl Lewis

Yeah. Well, thank you Whit. And thank you all for joining us this morning. We are very pleased with our performance in the second quarter. We earned $0.37 per share on a 19% increase in revenue or 9% if you exclude Raymarine. Our Commercial Vision Systems Business grew 27% in the quarter and our thermography grew through 7% in a very uneven economy.

Government systems performed very well, even as the U.S. funding delays continued. Gross margins and operating margins remained very strong and in line with our expectation. We exited the quarter with cash of 285 million no debt. On May 14th, we completed the acquisition of Raymarine the number one brand in the marine electronics industry for approximately $175 million net of cash.

The acquisition was attractive for several reasons; first Raymarine dramatically expanded our maritime distribution network which will enable us to sell more of our thermal images to this large unpenetrated market. Second, our distribution in the higher end commercial marine market will enable us to expand the breath of Raymarine's products. And third we believe the timing though this transaction is very good. We may be in the early stages of a recovery in the market.

And finally we see substantial opportunities to improve Raymarine's operating performance and to bring it more in line with that with the rest of FLIR. When we fully integrated we expect to have a large growing maritime business with margins similar to those that we currently enjoy.

With that, we’ll let Andy to discuss the Commercial Systems Business. Go ahead, Andy.

Andy Teich

Thank, Earl. Overall Commercial Systems division revenue in Q2 excluding Raymarine was 136 million, an increase of 16% compared to the second quarter results of Thermography in CVS a year ago.

Operating income for Q2 excluding Raymarine was 36 million up 25% from the prior year. We experienced generally stable economic conditions in our markets around the world during the quarter with a notable exception of the thermography market in Germany. The thermography revenue in Q2 was 71.4 million an increase of 7% from the second quarter of 2009.

Operating margins were 23%. U.S. thermography revenue grew slightly in the quarter, while Asia Pacific continued its strong growth across most product lines applications, and countries. EMEA was down however, as economic conditions impacted our customer activity. We made some changes to our organization in Europe and expect to return to solid growth once these changes take effect in the economic conditions stabilize.

From an application perspective, electrical, building and gas imagining were all up nicely in the quarter. Test and measurement was flat and automation and R&D applications were down. Overall, thermography unit volumes increased 40% compared to last year, again illustrating the significant opportunities to penetrate price that last in low and mid range segments such as those addressed by our I 5, I 7 and T series products.

The invasion engine and thermography remain strong. In Q2 we launched the A-640 a new product platform for the factory automation market featuring a 17-micron 640 by 480 high resolutions, high speed camera for demanding process and production monitoring application. CVS had a very good second quarter, revenue was 64.7 million an increase of 27% compared to the second quarter a year ago.

Backlog remained very strong at 104 million up 3 million from Q1. CVS operating income for Q2 was 19.2 million up 45% from the prior year and the highest in CVS history by far. Operating margins were also a record at 30%, up 4 percentage points from the prior year due to favorable product mix, higher volumes and lower material costs.

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