FLIR Systems' CEO Discusses Q4 2011 Results - Earnings Call Transcript

FLIR Systems (FLIR)

Q4 2011 Earnings Call

February 10, 2012 11:00 am ET


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

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

Andrew C. Teich - President of Commercial Systems

William A. Sundermeier - President of Government Systems Division

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

Tom Surran -


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

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Timothy J. Quillin - Stephens Inc., Research Division

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

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

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

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

James Ricchiuti - Needham & Company, LLC, Research Division

Omear Khalid - Goldman Sachs Group Inc., Research Division



Good morning. My name is Delinah, and I will be your conference operator today. At this time, I would like to welcome, everyone to the FLIR Systems Fourth Quarter and Full Year 2011 Financial Results Conference Call. [Operator Instructions] Thank you. I'll now turn the call over to Senior Vice President, General Counsel, Mr. Wit Davis.

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, 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?

Earl R. Lewis

Yes. And thank you, Wit, and thank you everyone, for joining FLIR's fourth quarter earnings call. I'm encouraged by our fourth quarter results, especially our margin performance and pleased with our execution during the challenging 2011. Fourth quarter revenue was $405 million and earnings per diluted share was $0.48, an increase of 12% from 2010. We finished 2011 with $1.5 billion in revenue, representing 11% growth over 2010. And earnings per diluted share were $1.38, or $1.57 excluding litigation settlement and severance charges that occurred during the second and third quarter of '11.

During the fourth quarter, the Commercial Systems division and its TVM segment posted their highest operating margin ever. Raymarine made progress in its product development, introducing a first in a series of groundbreaking and award-winning products. We expect the investments we have made in that area will pay off in 2012 and beyond.

Government Systems' operating margins reached their highest level in over a year, demonstrating our ability to manage cost and deliver strong performance in a challenging environment. We are awarded some significant government business against incumbent competitors, demonstrating our continued competitive strength.

All of this is particularly encouraging. In addition, our unit volumes increased significantly, leveraging our commercial model that we will continue to drive down cost and expand our distribution and service networks. These efforts, combined with continued R&D investment in 2000 (sic) will continue through 2012. Focusing on these areas allows us to continuously prove our strong reputation for quality, innovation and trust.

Today we announced our outlook for 2012. We are expecting revenue between $1.55 billion and $1.65 billion for the full year and earnings per diluted share to be in the range of $1.60 to $1.70. This outlook is based on the bottom-up view of the markets in which we compete. The diversification of our business in terms of geographies, products and markets is truly unique and helps us keep an informed eye on the broad competitive landscapes and helps us weather economic disruptions. While external forces will always be part of doing business, we see our core strategies of providing the lowest price, highest quality and easiest to acquire imaging and threat-detection technologies growing significantly over the longer term.

Our goal is to provide returns to shareholders by building on our past success, continuing to innovate and spearheading the industry we compete in.

Let me now turn the call over to Andy Teich to go over some of the Commercial System division performance. Andy?

Andrew C. Teich

Thanks, Earl. The Commercial Systems division continued to execute during the fourth quarter of 2011. Overall division revenue was at $224.8 million with an operating margin of 28.1%. Our TVM segment recorded revenue of $189.5 million, growth of 7% over the then record fourth quarter of 2010.

TVM showed solid growth in unit volumes but had a difficult comparison to the fourth quarter of 2010 where we had significant high-end security product revenue. TVM operating margin was 33.4% in Q4, our highest quarterly operating margin in the history of TVM, including our predecessor, Thermography and CVS division.

Raymarine recorded a 12% drop in revenue but made significant progress in reducing future costs and developing exciting new products. Increased selling expense and higher R&D expenses related to our investment in new products, including our revolutionary new E-Series line of multifunction displays, affected operating income on the seasonally slow fourth quarter.

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