FLIR Systems' CEO Discusses Q3 2011 Results - Earnings Call Transcript

FLIR Systems (FLIR)

Q3 2011 Earnings Call

October 20, 2011 11:00 am ET

Executives

Andrew C. Teich - President of Commercial Systems

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

Earl R. Lewis - Chairman, Chief Executive Officer and President

William W. Davis - Senior Vice President, Secretary and General Counsel

Sean Jordan -

Kevin Tucker -

Analysts

Noah Poponak - Goldman Sachs Group Inc., Research Division

Brian W. Ruttenbur - Morgan Keegan & Company, Inc., Research Division

Michael S. Lewis - Lazard Capital Markets LLC, Research Division

Michael K. French - Morgan Joseph TriArtisan LLC, Research Division

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division

Peter J. Skibitski - SunTrust Robinson Humphrey, Inc., Research Division

Paul Coster - JP Morgan Chase & Co, Research Division

Josephine Lin Millward - The Benchmark Company, LLC, Research Division

Jonathan Ho - William Blair & Company L.L.C., Research Division

James Ricchiuti - Needham & Company, LLC, Research Division

Jeremy W. Devaney - BB&T Capital Markets, Research Division

Presentation

Operator

Good morning. My name is Tanisha, and I will be your conference operator today. At this time, I would like to welcome everyone to the FLIR Systems Quarter 3 2011 Results Conference Call. [Operator Instructions] I will now turn the conference over to Wit Davis, Senior Vice President, General Counsel and Secretary. Thank you, sir. You may begin your conference.

William W. Davis

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, believes, intends, 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?

Earl R. Lewis

Thank you, Wit, and thank you, everyone, for joining us this morning. In our third quarter, we introduced many new exciting products. We continued the integration of Raymarine and ICx. We reduced our cost structure. We issued our first investment-grade bonds, repurchased 4 million shares of our stock at an average price of a little over $25, made good progress on reducing our tax rate and acquired a promising new technology with Aerius Photonics.

Overall financial performance in the third quarter was strong. We recorded our highest gross margin in the year, delivered a record number of units, built a healthy order backlog. Our Government Systems division had very good order activity during the third quarter and had a strong book to bill. The Surveillance segment earned its highest operating margins since last year, and our Detection and Integrated Systems segments each turned profitable and increased their backlog. Revenue in our Thermal Vision and Thermal Measurement segments grew by more than 20% over the third quarter of last year.

I'm going to let Andy now talk about the details of the Commercial business, and then we'll go to Government Systems.

Andrew C. Teich

Thanks, Earl. The Commercial Systems division posted revenue growth of 16% over third quarter 2010 revenue of Thermography, CVS and Raymarine combined. The TVM segment grew revenue at 22% over the prior year, led by the strong growth in Thermography products. Raymarine had a top line decline of 4% during the third quarter and seasonally flows quarter and against a difficult comparison to the third quarter of 2010, where backlog of shipments went out after we saw some significant supply chain issues shortly after our acquisition of the company.

On a bookings dollars basis, the TVM segment group saw a 10% increase over the third quarter of 2010. Our Thermography camera order book grew at nearly 20% when compared to third quarter of 2010, bolstered by a 75% increase in the high-volume camera bookings and over 35% increase in high-end R&D camera bookings. These gains were particularly offset by a year-over-year decrease in security products bookings. While our units booked in security grew at over 80%, dollars booked declined over 25% as the majority of demand during the quarter was for uncooled cameras versus last year's order book, which had a large amount of cool products largely from an international board of security order we received in the third quarter of 2010.

Our Cores and Components business saw over 40% growth in the number of units booked. But like our Security business, we saw a move toward more uncooled systems, which pushed the dollars booked to nearly flat compared to the third quarter of 2010.

FLIR branded maritime product bookings dollars grew over 20% year-over-year, as we saw a significant demand for handheld cameras and continued strength in our Voyager systems. The Americas region was particularly strong for our Maritime business, posting 54% bookings dollars growth over the third quarter of 2010.

While still a small part of the overall TVM business, Personal Vision Systems bookings grew well over 200% compared to last year. This growth was driven by the recent availability of products targeted towards the consumer segment, including our Scout PS and First Mate MS line of handheld cameras, which are priced starting at just under $2,000 and available at a growing number of online, brick -- and brick-and-mortar retailers.

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