FLIR - Earnings call transcript Q4 2019

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Operator

Greetings and welcome to the FLIR Systems Fourth Quarter and Full year 2019 Results Conference Call. [Operator Instructions]

It is now my pleasure to introduce your host Lasse Glassen, Investor Relations. Thank you.

You may begin.

Lasse Glassen

you. Thank and joining everyone call. you thank morning the for Good Presentations and earnings referred available Please Investor and our www.flir.com/investor. release website in of presentation at Relations Events are note that call press slides FLIR's this to the section on

expects anticipates to I'd XXXX expressions to our as that facts on Securities expectations. intends historical you that identify forward-looking Litigation believes statements. the and Private and statements such Words on within Reform actual are Before this differ like statements other of call are we uncertainties words based similar current estimates our expectations. risks are forward-looking results and remind begin from could cause of and Act to intended materially subject than are These statements made the meaning to

refer All discussed to no press the as cause FLIR SEC we duty filings today that circumstances. and today of earlier events for materially description to differ does call or earnings from actual FLIR's not and undertakes future issued information could as intend of on statements. factors this well for is as results update to Please release these

we and measures. full measures non-GAAP from discuss the A press non-GAAP will this is GAAP financial to morning's in During reconciliation available earnings call GAAP release.

pleasure With over to that CEO the turn Systems. my it's Jim of now call to Cannon FLIR President and

Jim?

Jim Cannon

everyone you Earnings joining for thank FLIR's morning and and Conference Call. XXXX Lasse. Full Quarter Good year Thank you, Fourth

with of FLIR revenue and General of Counsel. quarter. full $X.X continuation Pennisi David also the and of Financial of by Government the we results President with that Ray Business Carol Speaking Travis call the are Sonia President Unit; Unit; Defense is billion Business the our many Commercial of our me in on third joined President Business finished Frank & our Industrial quarter Unit; fourth year trends Officer. experienced Lowe today our and reflect of Galindo I XXXX Carol Chief Merrill

continue very Business key success growth advancing Units by with year be to Industrial fourth objectives. to and Defense & also be delivered growth our quarter that our highlighted long-term achieving revenue our full pleased will expanding I and Government Our priorities performances strategic in backlog.

However, challenges the revenue growth quarter the negatively full organic and profitability targets FLIR's impacted to consolidated face that our continued Unit Commercial and year XXXX. fourth Business in for in

revenue I organic year As that I'm faced full unforeseen Commercial top on our Unit with especially not of the are a in certain near-term the financial that of did notably result to headwinds result a we remain our programs recent predict difficult line as Business we performance minority growth. on unsatisfied our lumpy disappointed and achieve investments. our nature the charges impairment revised guidance

we operational XXXX reflected which We trends our in coming XXXX expect the in experienced financial the is year into persist to and outlook.

of a we fact year view In as respects. many evolution in XXXX

First provided over revenue contributions the we've past reached on large end-of-life years. solid multiyear programs several that

and the wins to franchise Second a expected not announced are meaningful recently new we've XXXX ramp until significant program beyond. begin

programs and make third R&D long-term FLIR recently successfully franchise position to the investments And compliance in execute to awarded for we're growth. profitable and continuing

and least on To revenue. R&D Ready. moment. will align more Much Be higher growth no our launched aims or simplify better the Be with during product Project challenges initiative mitigate of Project little the support this resources costs the called of significant investments to a companywide we portfolio Ready $XX programs transition at with of in our our to this XXXX Specifically, ramp include corresponding we've million impact franchise all reduce to a face opportunities.

never on future our been tackle confident we FLIR Today outlined long-term strategic professional near-term has these sense tangible emphasize of the ISR end toward While with our we in strategy. remain to sensor made presentation a priorities focus the decision XXXX advancing we're solutions solutions and to autonomous working with and market airborne of In brighter leadership urgency headwinds evolving a slide very progress unmanned support. customers of in our and on are three strategy.

our through extend our possible technology leveraging unmanned acquisitions and position solutions systems. enhanced leading Group offering include a unmanned Examples made to one in recent

as continue our or industrial to driver-assistance defense develop also numerous contractors as solutions a as systems supplier and prime to ADAS. We supporting technology opportunities aerospace advanced well in

these As strategic number in remarks. our of focus program later in each evidence a I will recent highlight my areas success of franchise wins of of

While I'm we to can to successfully strategy aspire into execute than our evolving our achieve performance. performance a FLIR With financial margins. the long an details of work clearly overview will in XXXX it's prepared critical on that quarter company being stated move company to let's confident continue our of term. more we be Carol is we that best-in-class much lies that ahead. remarks. ever fourth provide growth objective additional with her

with year current stood up XXXX the a $X.X the at end revenues from XX-month to up slide X.X%. billion Organic backlog annual was As growth bookings on top ago. $XXX noted balance increase million while an compared Total of X.X% XX% we company total finished of line at were XXXX. four XX% of

focus of increased growth. XXX backlog held feed year-over-year to gears while for now and of Please per slide primarily progress share. expenses compliance development I'd addition, to margin in to research long-term executing the basis to total five. $X.XX and in discuss our operating switch ongoing strategic $XXX diluted business. Adjusted to turn In position grew recent our investments like declined points and EPS fuel same XX.X% to and due the million FLIR priorities period. to relatively XX% Adjusted margin adjusted export over XX.X% increased gross steady

and strategic that as our long-term investments quarter financial by Be fuel our business Project business feed of This that well products on key awards new includes will to specifics key more and Ready focus as fourth initiative optimizing our a will delivery our operational performance. plan both

awarded key million the System-Heavy $XXX by In Army's Common of upwards production robots Kobra recent build awards. Business & outlines CRS-H the six a fourth Unit five-year Government which contract Army our slide to Robotic the as to of program. turn FLIR part quarter Let's was or XXX U.S. Defense

program will a of will build calls come. CRS-H give unmanned vehicles a platform fleet weighing large years up of The The Army ground CRS-H robot program and XXX to can that used for record tasks. a of be other explosive and sustain for ordnance to be pounds missions improvised or of to range unexploded sensors a A support to related as missions. perform to the ordinates disarming vehicle-borne UGV payloads such to added heavy-duty the devices also variety

our capture strategic franchise Endeavor U.S. in in already and million. leader award systems fighters position to approximately why exemplifies award awards early building. deliver field. Robotics the our Army war unmanned two a $XX received we the This acquired Momentum as for Kobra totaling Since robotic programs in is we've follow-on technology to life-saving robot XXXX strengthen our

with and robotic to & awarded proven is Army's slide addition, RCV for This assets portfolio platform to January we're Howe how In combined vehicle and combat Ripsaw will program and we our leverage with substantial able Howe Textron Textron MX two and along which a next-generation vehicles situational on disruptor surveillance contract prime XXX-degree year important partners RCV exemplifies tethered unmanned how our contributions a technology including awareness technologies drones Howe to to Howe testament seven. include in be our the cameras program FLIR's contribution is defense relationships intelligent battlefield. with gimbals world-class unmanned on ground delivering the or unmanned were build four FLIR's trusted this a from contractors. & robots. sensors and will highlighted

is our a As of billion we're with competitive very result this production ever program largest excess program pursuit about awards to our in estimated of team's $X the optimistic position be the life program. which over for

our investments early acquire well war It Ripsaw provides leading together provider our unmanned include solutions foundation protect in ample we DoD's FLIR to plan to the fighter. justification long-term unmanned solutions modernization on Endeavor strategic priorities success is the program position XXXX helped MX. the as to that aligned the for utilizing with made for and for which the create Aeryon This also a

continued quarter generate autonomous we to thermal Business eight course Industrial wins momentum production slide vehicle level-X IBU new Veoneer's third for our the in of heels call with As award noted contract. provide the program franchise Unit on announced the on to

adoption to fourth by the rapidly of in new a agreement believe to other a the robotaxi cameras highlight provide latest suite future signed manufacturers. which These ADAS value the the we component leading the thermal thermal sensing sensor self-driving market. be paving an opportunities automotive for the to just developing awards for way ADAS quarter disruptor. in During These applications we essential are

XX years over the Key fact ADAS-fueled on emergency more XXXXXX be feature automotive we as ADAS and safety only experience success integrated than automotive-qualified FLIR's today. can that's Furthermore, a standard as thermal claim in technology that to expect deployed autonomous been is sensor we future. vehicles thermal-augmented to our braking the the of such

During fire contracts firefighters. focus the a smaller camera IBU hails two means placement of departments multiyear fire Wales also our as different FLIR KXX programs departments beyond. The from NFPA-compliant South continents Chile. to awards awards these New fourth regional solution XXXX These units professional with in fire provide enabled and to on to these two influential exceeding in and quarter of Australia on XXXX awards won premium leverage

programs we in franchise have of includes and that the programs the of nine sunsetting. While benefited the multiyear programs have that franchise we This some are just opportunity overview that a provides bring that prior to years view FLIR. look these latest large are key franchise won an slide at from

strategic billion which pursuing the total tremendous opportunities almost beyond. FLIR's The displayed It opportunity XXXX highlights through of we the lie also under programs ahead by $X programs priority and as color-coded the fall. that are franchise

won programs and already reflected these of our have number backlog. a total been in Importantly are

us a acknowledge and opportunities. and excited the work there is about of ahead significant execute we optimistic win to of amount we're While

beyond. can XXXX program and year point Illustrating in ramps that follows transition my you earlier sunsets and is between see significant XXXX a that

beyond investments support term the will release investing will professionals. on and XXXX many of XXXX into our be efficiency we products corresponding During XXXX. In not we feed in growth we future safety translate heavily will investments be R&D orders also our Since on units these resources heavily our wins. near and priorities across until focused strategic and business late new improving deliver will continue directly these of and for simultaneously to we and optimizing on while revenue rely of to the nonprogrammatic

our releases positioning deliver capitalize and achieved ahead. against that on new products. the to be innovative FLIR on during technologies compete growth XX to our ensure we've on lie of the we Ready Be evolution Equally Slide Project Ready evidence in has deliver important slide highlighted and Project our franchise the fourth of The XX utilizes priorities that quarter awards in very our to readiness illustrated tools the while many to I'm XX. Be and near pleased and new are the ability strategic tangible FLIR Recent that on by FLIR our quickly the complexity eliminating positions launched outlined it longer in of success help of Slide already resulted the reduce product success significant scale wins term. market opportunities outlined cost over bring which with to beyond. XXXX of Method to business will term To aims the execute to win substantial

this largely product our we we In aligning certain priorities. portfolio have As business business discontinued FLIR's noncore our strategic plan of so and are with key our a or part consolidating Tactical is simplifying OTS doing units four business. better consumer-centric nonthermal process into Concurrently product to our business. we complete. divestiture This Raymarine have of our lines Systems evaluate process within electronics maritime formal entered and a Outdoor

compelling make Maritime that core with innovative our Although believe attractive not is industry we it products business and asset. in FLIR best-in-class an to extremely its

believe and The move met. expectations expectations Commercial We with a Unit relative We remaining within be help will the unnecessary two those have of is prospective these our structure. helping outlined complete which assets business first effort valuation This clear slide buyer reduce into units Industrial to starting we a our the divisions only business of the in eliminate quarter Defense quickly to Business to Unit if with the XXXX. transaction Business cost can integrated and Government will Business this on & be our will complexity improve are in along our overhead Unit XX. integration

These of and I'd May the targets to targets which our on outlook like XXXX. we we in growth for adjusted X/X annual turn some year revenue to financial announced X% guidance XXXX. compounded XX% comment Before year organic quickly our working through longer-term in operating and capital margins each included turns of improvement business

the past balanced them. several and factors the best ability years have our over achieve two our projections reflected to this time While at impacted

in that significantly by resulted and And operating recent franchise required macro served I in wins markets certain second First noted the have to impacted acceleration of investments of external an Unit. influx execute programs. Business prepare increase program earlier for the our the and Commercial these strategy end near-term factors

clearly next Although of to we're detail look plan in the discussing We Investor Ready Day this addressing dynamics a our in Be these strong these third business. headwind was at our with Project host evolving more quarter forward to we which XXXX. to

Turning to restructure including our the the providing certain our outlook to products activities consolidate reflects are XXXX the of that we discontinuation OTS guidance and Unit in Commercial business. for Business our

adjusted $X.XX of of a year in margins share for division from range are the adjusted per in range to included of currently backdrop to and operating we $X.XXX With expect approximately XXXX billion earnings revenues year XX% Maritime However, the XX% contributions the full year that to the our diluted full $X.XX $X.XX. billion as in projections. currently full

With the for over that to I'll Carol financials. details year fourth now and on additional Carol? full call quarter turn the

Carol Lowe

Jim. you, Thank

slide gross revenue fourth a included non-GAAP in a which generated note the with of within quarter X% or our declined from Revenue profit Industrial due summary million recent year-over-year negatively by all Reconciliation to of the rate Adjusted acquisitions year-over-year appendix. X.X%. million by at is in contributions $X find impacted growth results. growth these exception you'll a increased are for Organic growth Please year-over-year resulting X%. We Looking basis. of financials fourth a to GAAP primarily million financial quarter growth on foreign Business basis $XXX on currency Unit. and revenue X%. revenue approximately XX data $XXX organic by in exchange the to impacted was the of

XX the basis However, decreased year. compared to prior of XX% adjusted gross margin points

with was Method of all units ramp Unit FLIR productivity Commercial acquisitions. recent business The Despite gains the by our achieved Business across end coupled in through weaker margin impacted markets ongoing

mentioned significant in with have the driven very are increased Jim franchise our awards and & strengthening position their to thus acquisitions year these Fourth quarter we by As prior X% in critical program far. Government the bookings been our compared to systems unmanned contribution Defense to program pleased wins operating and to adjusted operating primarily the year-over-year. support margin and operating Industrial prior declined with higher XXX quarter income basis points X% and Business by compliance declined to Units. Adjusted Compared ongoing future fourth was compared impacted year expenses the programs year matters. last adjusted R&D margin export

tax items After revenue base remain effective EPS the committed our GAAP $X.XX the our of quarter adjusted income At better XXXX. flowing adjusting for through line fourth discrete fourth tax expense quarter in for was the steady to fourth with profile. bottom rate aligning XX% expense diluted was the adjusted our We quarter. with

earlier. Ready execution We Jim Project operating the is reduce Be ongoing and expect of to XXXX FLIR guidance in expenses mentioned in reflected which through of Method all The

we agreement agreement which our agreed year Under we $XX to provided those line. of million we half the is our the four-year time improve pay currently terms consent penalty approaching of the a terms of suspended are funds compliance. of second to In the use

We have progress robust expenses to our of implementation we program made commitment. the a fulfill we'll and compliance incur on solid related more as continue

the the required We by completed have first recently consent agreement. audit

future on investments remediation compliance. of provide As this in efforts help previously will clarity findings the audit shared and

we our of will We updates on while the this remaining work provide matter agreement. the term through way

in December by full flow XXXX. with the was million operations For cash XXXX cash ended year XX $XXX consistent provided generated

investing to to stockholders. we our priorities outlined and capital operations used our of our cash fund growth value business flow the in XX returning of allocation on our As slide from

$XXX year million complete we to the $XX three invested invested For acquisitions million in capital and expenditures. full XXXX

payment capital million We in continue of to the $XX worth $XXX return our to with the common stockholders of repurchase million dividends. and stock of

Our cash XXXX approximately was $XXX balance December at XX million.

payable FLIR on of March shareholders share Finally, FLIR's common X. on on to Board record stock quarterly per $X.XX of a cash Directors declared March of XX dividend

revenue year-over-year million units. $XXX as highlight Measurement slide as in each from was the I strength Business vision of components cooled & performance X% Turning to cameras machine up declines by well fourth will Beginning in Unit our offset quarter XX cost equipment. and Industrial by the lower driven Test with partially business

very have FLIR X% sustained XX% $XX resulting a was are well productivity on million from product pleased in The growth volume solid increase operating favorable to We combination net and an revenue to achieved as This sales. operating a by higher expenses. Method gains as income in management of driven of mix

which The of Unit the XXX unmanned growth As result revenue basis includes XX% contribution grew Defense Business & Government year-over-year margins points year-over-year. from acquisitions. saw a operating

detailed have several program significant a Business in years. Defense the pipeline we the for next will in Unit which be remarks of Jim his development awards & As large in Government

lower-margin to year. programs full acquisitions backlog revenue ITS over performance significant and Government These business increase reached Operating quarter for XXXX. double-digit growth in expected which a quarter be Unit Business both for down fourth business build & was business Commercial year income impacted experienced growth our book-to-bill higher sales fourth in quarter to year-over-year the as the down X.XX volume well in strong the large decline XX% the a product Revenues Business project this operating QX a to recent from time comparison year-over-year top XX% was of fourth fourth for are to year. which $XXX mature the the the due revenue by an fourth quarter take was and year-over-year. expenses mix. one-time last over Defense but for be difficult quarter line the as source continued OTS Defense Government XXXX. Partially offsetting of of of to the the in Unit was slightly the and & In lower Government X.XX Security future. & the current quarter end million Defense

impairment business basis margin that reconciling for operating appendix fourth portion XX% totaling you on $XX points of tax and Restructuring intangibles Commercial will settlements find agreement of represent $XX the the compliance These of quarter and foreign year-over-year effect income will $XX accrual I in and related approximately the the agreement and of XXX slides of $XX our items non-GAAP the was items Operating decreased with the and taxes note totaled expenses quarter. taxing In asset GAAP million tax reconciliation. and to fourth the million million. and after-tax authorities amortization the Amortization spending. XX acquired million. $XX discrete foreign the were expenses for exclusion include certain withholding consent million respectively. consent XX charges total for largest to

in issued the As noted in comparability our press beginning our on fiscal our earnings are to financial operating of period-to-period a this morning we simplifying measures basis. non-GAAP enhance release XXXX core performance

and transaction Items costs; will restructuring and or of asset discrete separation tax losses compliance excluded integration sale charges; legal items. discrete of on businesses; impairment of amortization intangibles; consist expenses and acquired gains and matters;

for outlook financial XXXX this in will just change. discuss a reflects which Our moment I

XX details ended financial the XX of For which appendix to and please refer in December to the this XXXX further years full on slide non-GAAP contains new XXXX XX presentation. based GAAP a for December measures reconciliation

like call the assumptions. back XXXX touch Jim Before I briefly I guidance and certain to impact factors our our hand may which to on would

we on our in billion revenue $X.XX year in $X.XXX $X.XX tax expect and XX% of full per adjusted XXXX. We approximately of bottom the effective rate XX $X.XX. year share full income we anticipate currently earlier range line noted the year At approximately expect to to the be will year full full line earnings mentioned diluted Jim As slide with billion.

restructuring and the Be million reductions to Ready to important $XX expected million is and third-party XXXX cost facility being consolidation. of Project most is to cash of incur XXXX cost by It during driven expenses with note costs $XX headcount that

Based rate various we We portion development and of long-term which million approximately annual XXXX and to expect end to are $XX and and significant our program expect will in be current million cost research ramps our projections on XXXX the the of XXXX to enable other including guidance. The timing to reinvested in run in both growth. a be earnings of of drive reach by an priorities $XX loaded. savings included back-end expected revenue savings

quarterly do we guidance. normally While not provide

million we expectation range will to to $X.XX. EPS of range and the Our the that of diluted the $X.XX first adjusted generate $XXX quarter in total in for is revenue million $XXX

and As full previously guidance from Maritime noted first quarter currently contributions the year our division. includes

COVID-XX coronavirus. also like would the commonly virus more I to known the on briefly comment as or

We any significant impact long-term or including are the we demand expect our not supply customer Currently macroeconomic supply from issue business impact a the chain. to stemming do monitor continuing to to impact. a situation our from availability lower

cameras skin while or thermal first they We used help cannot in an important that step thermal of detect FLIR symptom imaging to as tools note a temperature of are proud coronavirus. our are surface the the the indicate temperatures It's diagnose imaging one detect an infection. body that to Asia being key elevated can higher-than-average cameras

screening relating sold the cameras XXXXs performing helping avian temperature others since role have saving widespread the people viruses of such early in play around SARS flu as and to and We livelihoods a lives globe. several for to bird the

and back for you remarks. call pass I now your Thank closing to for will Jim time attention. the

Jim Cannon

Carol. you, Thank

in making performance best-in-class with we company margins our to disappointed While the be. we in progress XXXX with that expect clearly we're becoming are growth

never been to strategy we've open achieve I'm the FLIR's in now questions. future the the we call the to new tackling I'd growth. for With have franchise confident support hurdles and financial year. and path ahead face Ready brighter. transition as that identified like targets head-on and required tremendous Looking and We're to in we our programs the our up anticipated proud sunsetting a investments of our believe these Project along between to in built has team Be challenges bridge operational XXXX with with the Operator? forecast and

Operator

ahead. question Please first Our Instructions] [Operator Baird. coming from go is of Peter Arment

Peter Arment

Raymarine where morning, process? Good Carol. commentary Jim, the you What regarding in us Thanks. just are give you can Yes.

Jim Cannon

electronics process it formally business. that regards marine Yes Raymarine-branded the and we have into entered

now. the as So clear process as can We that will remain where with it transaction. maritime we able with the and valuation our is do thermal it FLIR FLIR-branded to going quickly with focused if forward of prospective DockSense buyers very our and mentioned clear-eyed that while like expectations in FLIR we're to launched be to several midst we have we're get products now. we're move And prepared will very year. in for disrupt market But last really core not might best-in-class that be remarks innovation example we to that

So process well under way right now.

Peter Arment

And just then And the that's you it. slides. the for Got helpful. on then color and all thank

nine Just any the to to franchise on percentage is on your think of are programs kind the aggregate? tied today franchise I there slide what way revenues of in quantify

Jim Cannon

show our executing many that of the midst SubT to wanted you wins won have Of XX in to you been unmanned recently the DR-SKO of. months. systems sunsetting. there the all they're current XX the because million total really transition the have backlog for of of that it's is we're we MITRE slide And when franchise on we most two to but backlog next about important $XXX are demonstrate in programs think the that Yes the And that if at now. programs SBS we that look note ship in long-lasted us eight

not vehicle awards yet the As robotic we those are in look forward CRS-H backlog. combat though

all While they've the that other such into future as we're they've bookings you we and moved see them. competing not into on. then awarded programs been been And move

of billion through those have it's awarded of opportunity but north of of XX% in booked at we the booked look which $X awarded an again atmosphere been and backlog. XXXX or we either awarded yet about not As

some year XXXX prepared capture be go to we market prepare that these going a is and then in programs well go and as that's But we programs important we DoD execute as us ADAS and forward not on for to going forward. remarks addressable really just this really year that of mentioned the

quarter the continues. a in very we the this mentioned As and with they OEM and robotaxi a third standard the did win quarter safety fourth sensor Veoneer have major FLIR quarter. suite features We've thermal as past have activity with company a as we that adopt important a with standard seen

position the under got automotive way with we all of hardening to So safety and to be of provider right choice a lot continue prepared time to testing effort ourselves sure to that and to that are said of production make years. thermal with etc. take to months those to into models. mature be we've XX automotive future these win to done be future designed XX into earlier then model as on calls too that's But

Operator

Thank you.

ahead. Next from coming is question SunTrust. of Michael Please Ciarmoli go

Michael Ciarmoli

Hey rely on But can any the mean Ready of of a any business briefly good we longer-term of and ramps? Carol. help how for or here you're this later told we stale. so how guess think it mean should here. us about kind we you year. Should Investor program you're light to mentioned you questions maybe on Day have morning guys. this. of in some taking an obviously are model us Maybe the new you Jim Jim kind maybe I thinking kind takeout Thanks had But about target you out there going modeling mean what should I give cost be parts very moving seems reinvestment color there's I those I this Be targets? of about lot like Project thinking?

Jim Cannon

we we talked Yes now. If lot balanced to informed a absolutely. that what remain DR-SKO the And win third them. the particular and we the delivering there we deliver X% coupled exited again in nonprogrammatic committed But to go XXXX future to these about the awards We targets I XX% midst of saw to there growth were necessary as program. the back at a put in in direction as to more of under investments moving the the amount to May was of time make began half out operating EO/IR-FP outsized target in that of again make execute wall stable parts to that capture way more forward. the through to we more to at had Commercial. There's we an quarter be XXXX to of with continued the can of that we and those was them the headwinds years to need compliance first certainly in and margin able was some with XXXX. certainly well came that still opportunities fair investments scale and a in prepare right

out investments we what significant us that in to a opportunity find position ourselves ourselves when do the collateral indeed a we terms and CAGR of on compliant. the Commercial to we of these term that win execute the near ahead found to not was added now programs had in need making we're business So bit as tracking with X% all of with and headwinds. good there be also we of to But that we're cost

Ready the longer-term that near Project protecting to term So these priorities. Be correct at is the intended same while time in strategic

Day to As Investor these specifically we the as fidelity various as we of them. much can intend status upcoming can that identify we provide we go into to the about the programs extent

amount lasts needle-moving of But programs. provide north that trying of and on as pursuit are say with fidelity. And we etc. that want coy and But could program billion of be that to beyond that's could be be again XXXX a super years that them comes don't RCV us a look $X You'll and uncertainty. at crisp will Asian a these alone for years. pursuit just note slide to European lot not we

to between do the Day. a quarter have now and when that we've Investor of lot homework third So we got

at three-year let's of give these around us targets total to May us a can be uncertainty what fidelity how did positioned. could say about you there's the look for status think opportunity in But more XXXX. programs and we're lot as I static we expect of these to tremendous upside the

Michael Ciarmoli

even looking these program So can I Can headwinds. 'XX given we you or segment that if I a us sorry pressures? two And thinking 'XX more then little look by and at sheet granularity bit I decompose margins at should franchise also about? see I growth only and guess just give see just be the you results that

DR-SKO just more like acquisitions disproportionately some and would have would that. from You have seems EO/IR. you It ER made thought that offset there's just headwinds

Jim Cannon

and we'll color. to of Yes about talk couple provide dynamics. other more And yes a segment. And happy

has a Business to Industrial CBU programs and talked to Unit the IBU. divestiture and through got programs Commercial potential defense that combination and decision get That Unit the we're faced of future the of primes we've Business obviously with aerospace as to the valley and winning XXXX. their year-on-year a of the led large headwinds. Inside face discontinuation continues has comp but a we've of First bit the in about have on OTS

potentially fourth robust vision. low-growth general The return scenario. there for a seeing we've we performance. part machine first then upsides stabilization We're months. machine got vision also got quarter businesses in some having some XX that's of to in But a some And and better see you've of like market been quarter instruments a has the but for in down growth sort example

of sort the again So in remain stabilization the needle Unit in timing Business some the ADAS and ramping. arbitrage of impact not company that of Others Industrial issues yet terms to the there's the mover. this in OEM. overall is between in That's phase big Commercial

model that They In awards indeed is about into & modernization business While one future priorities. or years note. are is we making three we're year DoD again clear another take to six awards will to two focused When thing on years Defense those think the winning Government past very come prime. the the priorities.

time same down. the are at slowing contingencies And overseas

a make some OCO immediate So sure shifted into approach have where around historically modernization. needs won nonprogrammatic to we shifted the business very to has also spending of areas funding is or effort FLIR overseas disciplined tied really our And to international to requirements. of to really airborne some XXXX look opportunities in or Government our nonprogrammatic ISR Defense opportunities. us ISR in have businesses with in we particular & that smaller core more But align leaves those

coming with that bedrock Detection DR-SKO very off was a profitable. business of and

that's SkyRanger range have with the a families SubD real nano & ground unmanned or to the while those in program a But drones So our got it effect. larger and inside grow indeed the seeing the of the as leveraged It's company And pack is assets of if will bots and whole across mix group and we're the that manage. we've SubT assets CRS-H. Raider MITRE unmanned on there's Black a operations Defense unmanned you business the star that whole Government systems. Hornet. on small But does growth

come And we get learning of need but All those that small to seeing curves there awards to mix we that from that have you are grow bases. to as are up win effect accretion them we so happen.

For robots business. example see SkyRanger to see with in arbitrage. to for now in And and nicely. Prox MITREs Endeavor the in way more and our that the SubT Black legacy acquisition We SkyRaider with a legacy Aeryon same expect beginning or Hornet same ground get learning scaled have progressing we curves the production or been

Operator

you. Thank

William Our next coming from DiPalma question Louie of go Please is Blair. ahead.

Louie DiPalma

earnings? good share Carol, of able be are and morning. accretive to whether I divestiture was Raymarine you the to would Jim wondering

Carol Lowe

So and any are a able buyers time Raymarine number about break we're in we out engaged break the we details do to then of when have to the business meaningful actually going transaction we'll at not this currently are that the out process information. complete that

Louie DiPalma

Okay.

sales to And And any ASPs of temperature Sounds the cameras are any there what on are to coronavirus-related that you are detectors? good. these the share popular? of way is able quantify

Jim Cannon

we to product want I color the some or though. lines. give specific ASPs detail camera Yes don't of will into get

others produce infrared cores incorporated business come we that does will back provide the of SARS cameras airports provide products the FLIR this. The to and other two company. outbreak has from ports years look and and camera For and into body been elevated provide like and technology OEM to other that really will for borders temperatures. parts products of manufacturers to The places going

cameras business smaller be they of have we course mount our fixed of several then cameras instruments whether handheld larger ranges or in cameras. But

the in camera price so expensive A there's will smaller if So a product a point larger you what could quite than be. handheld fixed range. range more quite there a is

a supply meet in orders the Right working now of demand. We have hard seen that month. to we have we're ensure past in to chain all significant the really increase that those

outlook in outlook we've that forecasted that have the provided. do We

overall the to that bookings. would on we get strong but at to when converts really So not the context past we move to mindful the much those trajectory look But virus that We're canceled of it's as mover to about is a bookings the it of of the needle concerns instruments' entire overall would the cautious how around also be alone bookings sales. revenue. revenue. company certainly amount In into getting we're large company be a of turn the contributing elapsed the tremendous and that not

ship lot to again all doing the can have And daily and product purpose this help bookings a we about frankly we're incoming strong daily in save now contain and and even strength in serves supply to we in while the uncertainty. to of demand. way any really chain lives But that small So getting frankly a to right livelihood. our updates

Louie DiPalma

one And good. one last Sounds Jim.

as contracts able for For include of the $XXX CRS to your for to does be that sensors types be may the heavy vehicles? ground you Or that on unmanned the additive add to $XXX million the amount vehicles such different sensors would these million?

Jim Cannon

accomplish we to that's in comes for well sensors sensors pounds that once certainly base It's be. a Kobra the XXX missions with of proven. on could could be additional set There's a new very of Again But that want the a They evolve there field product the they as or requirement it's the additive. potentially vehicle. robust program. part

the is to as the use hard Right if detector we larger base page into vehicles to ambitious and future suites. inventory than this onto going quantify the on unmanned certainly a more might Indeed continue much product see you and as Fido trace or things quarter We what we're expect just once fleet they we or opportunity the program in remain inventory new last in introduced for you could handheld. be a that introduced be. innovate like explosive new very those and will decade we which expect system robotic to the will. that a can if it's it sensor CRS-H And upgrades to an be more you'll But mounted will when more the now at hope long sensor time. have look combat vehicle suite to

Operator

Thank you.

Please question is Berenberg. coming next go ahead. Our Andrew Buscaglia from of

Andrew Buscaglia

guys. Hey,

on clear be XXXX. guidance for Just want to your

clear be your operations to Just are included discontinued there? OTS in

Carol Lowe

had XXXX that $XX OTS. lines. that specific revenues we not So of $XX discontinuation reoccur would Andrew because to in for Out expected of be there's to product million of approximately OTS in million related

Andrew Buscaglia

Okay.

Okay that's helpful.

Secondly I in was defense curious.

recent last is new there lethality past that surprise and from Did Or So any quite the both border proposal. you here budget? were guys of anything had the called security just can out in budget we up soldier in spend you? the substantially glean that

Jim Cannon

for change onto unmanned battlefield. program ever also war The like focus at to and pleased Army alone again budget effort. battlefield. largest Well and on and efforts. the on seeks done an billion protect the introduced there's such it's $XX that really tactics really and focused would Certainly the RCV is technology system Yes. modernization the It modernization the pursuit we're has And we've it's a disrupting the immense these fighters. modernization interesting. of how We techniques

But and the part that unmanned more aside different there programs many finding what on is as more of from components the upon six main requirement. is priorities that a are we're DoD focused

focused just we're mentioned other also places see while of on and about a a we program. there talked overall these whole you'll of that host unmanned programs component be will are another systems So large where specific

budget and So the from right to production. very within forces now create where again targeting longer-term years not and one but we're to to budget opportunity condition the think in and to for we it shift the efforts five we as they we opportunities. within us. just of these revenue that why look can modernization take DoD lumpy real look some be at But they uncertain presents can into truly savings that's exactly to ramp And mature we're now anywhere the at the if

tipping now business. this We're And right we're at point. onward that of kind winning right

We it's not have execute to of there's we it to course And make to can investment but go always protect yet we ramping. forward that uncertainty. sure as

I are think of first displayed this mount. awarded total the Chart excited prototype for about stop was four were to it again with vehicle nine we we're we can atmosphere as out and programs RCV is completely our continuing While But control. really things start that that

Andrew Buscaglia

Government Yes. & And growth give number an noticed Do did Defense. you that? you have you I didn't organic the for

Jim Cannon

and our of Endeavor. will all lapping We're coming the Aeryon be acquisitions effectively this two growth organic. Well year

with in as we I was of don't bulk consider now year February more going and quarter-to-quarter go of through March. here it see think back-end to it as the we We really those. fact but the be we business the out year mentioned we Carol ramping loaded. lap In is what And called the revenue as it specifically have organic the being

Andrew Buscaglia

in And specifically? QX then about what sorry

Jim Cannon

In quarter. were in the year full in fourth X.X%. yes organically X% a for Government past the But this up fourth revenues down Defense quarter & fourth

that had whole the strong then the of the on So Government year we again balance the a year. & the growth course and Defense unmanned They gapped for contributions. organically organic saw overall from in

Operator

you. Thank

is Noah question from Please Our coming next ahead. from go Sachs. Goldman Poponak

Noah Poponak

contribute accelerating versus about XXXX get the XXXX programs talking Jim about a really rate greater growth also are a morning. you're talked what's you XXXX. previously? year The that lot are rolling investing next margins XXXX. we're number about had goes in that the I talking restructuring where RCV like Good Because I transitions get a I when at the as talking that don't sitting for of business. exact But toward about we're you're talking longer the or transition here things appropriately and get time ton year its the back you're this about off X% chance dated its there's into to example

are is Or So year? years? transition this a entering transition we

Jim Cannon

very we've described. certainly And XXXX question. That's is a good as

build. that the business build the will programs RCV in we and as and hope larger book-to-bill an the progress to generally instruments being such. have and extensions further half we expect maybe well to the needle like a movers the work but lot so like and just do As to as businesses nonprogrammatic we across tranches opportunities Borne that the backlog near-term then of there's calendar continue not done ship. we XXXX as year into into go will CRS-H And of smaller system more Soldier go second MITREs of are

they in there strengthening some seeing how are operate. We

you we're margins So we're best-in-class to program will. I slide really do point to nine when in state want I to that with that company think of we your growth be But going valley levers sort 'XX believe to recovering. that when in 'XX a be think of in we this if certainly the think XXXX I shows XXXX and year if being about mature and do you additional our program I wins trajectory convert the coming fidelity will into point in and more wins term beyond. next those at begin much and this will year on near we we be But timing have up revenue nose will. and to when will they

expect two-year trough XXXX will. to us when think I don't of I I if But be see per moving So a northward absolutely you se. you're right.

Some the year two get of really even money. than to take more into programs or these a larger

Noah Poponak

Got it.

that R&D for cost-sharing XX%? think defense I revenue is Or $XX Is net OTA you're programs there? offset? out there there presuming to of is is of On a north or recoverable? an lot then XXXX that's next million. additional And Is of the an any that the XX% agreement related or it year percentage number as you a of said i.e. R&D a R&D pointing

Jim Cannon

on not have. not of $XX in that that we we obviously So like million XX% is do investment the on in our intend our of We at our been return to would we've gotten or growth not rate spent the to additive revenue R&D. We've really have run out frustrated of number. years of Historically current couple about that the that past R&D.

different airborne prioritize really strategic you mentioned view as four a approach more aggressive we've sensor a These that we're began see going specific after unmanned leadership we on we took take priorities that pursuits tied to really support to decision we color-coded to much ISR R&D. year this So them how R&D.

maybe a So you'll longer-term these opportunities. we're hanging about still that R&D of around XX% of bit $XX that under know executing we we or kind but million tied of ring-fenced revenue to on little see that whole number

the we it some seeking IRAD lion's XX% CRAD. at CRAD the still received R&D are Now We've say have we share you we not and of small look overall funding. I'd awards do is several plus if have spend CRAD more. But

Noah Poponak

free Understood. And expect flow in be last where do cash XXXX? one to Carol you

Carol Lowe

restructuring it we seen year. noted would conversion rate their to So a that historically. be so before costs the to that lot the we'll free will for of have expect But flow the we've going with cash be impact cash that I restructuring the line as are full largely still the in costs

components have in lot a of XX-K that total in be of that restructuring will today. a of in filed we'll will and incur later we breakout bulk range our So that the the of shared the terms costs the and XXXX

those a provide what little more costs. up that'll on So bit information makes

Noah Poponak

Before up cash is year-over-year free 'XX down versus the or flow restructuring XXXX?

Carol Lowe

It's going comparable. to be

Operator

you. Thank

Needham of Please Our question coming go Company. next is ahead. Jim & Ricchiuti from

Jim Ricchiuti

questions Thanks. just that on but follow-up that of million a called my Hi. $XX you that R&D were Most question guys asked have out.

to of was the it business? XXXX some programs were As to this of there pursuing relates go you're R&D in that after you spending some allocated

Jim Cannon

look I safety we purchased would work. through past part our though principally some that be commercially would we se products that say when standard model thing requirements developed military-qualified a position. for programs. will little to many And because a where where such very years a if some was. a many develop you've the more like really and things to there and example sometimes those core get vehicles be cameras as feature Certainly you we've products us of got now. at tied specific develop. many But Because required align been for such of of a shifted to it sensors are R&D per to to are these ADAS singular there of then SA things to call from build after we bit that it's XXX for hard dice doing wanted we such very specifically we that's years or would them our to of spend to where efforts and part provide to that program to contingencies needs thermal things war with left we specific And look that also that modernization on a immediate absolutely of had overseas out has go the had at

So for that been called to specific maintain year to can or need thing DAS programs we to execute out your it's work going the what we so again question wanted on these that to $XX se we we that as tied million give some that is know effort. future if past we've won of fidelity making When we have a successfully to on. But you per perfect we're that technologies. we not

Jim Ricchiuti

that of But of the ADAS like vast pursuing? a sounds majority Government Defense you're is the it it work & with for portion

Jim Cannon

per core larger for business been our unmanned with ours first of brought an it while I components the Neutrino defense for I'll the a and some a would defense also has applications. innovations on to Again and innovations military go make space to principally OEM add to to the future now able terms those goes say Government and that aerospace of concentrated price right And I for Industrial back it's going large one points some go driving the In after we space. bring still side. customer they're a in such. & defense things of between certainly of largest and unmanned industry down the there get for use we applications Industrial a But the that Defense. and Also market. into to if really is balanced responders cooled and effort ADAS that we are pretty too military are example scale utilities we're programs TAM cases as of effort se and compelling million on have and

about the industrial will So impact think well. as R&D example when have an you unmanned that for

more support. SA more instrument sights. to sensor the it whether those of do is airborne So acceptable time over points most XXX applies industrial a you'll we to the more defense-centric. those weapon is priorities Sensor it four ADAS four applications see the the Of And be I'll handheld and point leadership back ISR unmanned price ISR markets. while become decision unmanned to airborne leadership as defense-centric more everything or now

Jim Ricchiuti

it. end we reflect to could there defense that you a that Got that fall of low the think Carol there about macro guidance about of for QX. on to range some into the the that is that think or just that does need thank could not way business quarter? Is industrial we're seeing? And range? more at Is concerns the Or the

Carol Lowe

to The dependent with being on when a timing have that then a good comfortable to it's about licensing. we of is becomes absent unexpected But of feel number something from so orders at both. of challenges Government to combination the a And So and risk able do expected ship March it that large a and mean I within business this Defense macroeconomic from or licensing range timing have international we thing. standpoint the we're that deliver is always range relates the We that orders just & it in point. happening licensing. are

Jim Ricchiuti

Got it. Thanks lot. a

Operator

go Skibitski is Our next Alembic Please from ahead. of Pete coming question Global.

Pete Skibitski

kind if within headwinds? color Pac any us geography like appreciate sounds and regions of unusual morning XXXX can Carol. talk the Europe Middle Asia U.S. James those and to It Jim government maybe maybe Hey by any have you East there. of just good I'd about U.S. does.

Jim Cannon

whole I And related the didn't your or question the the government. to Yes. hear of first on part

Peter Arment

by just seeing headwinds revenue government Yes was in wondering XXXX any you're geography. if I particular

Jim Cannon

they're dramatic mentioned I at nearly substantially. focused though and while going with there's tell scale look opportunities there if really programs still one say not wouldn't if after by U.S. are If of you you're modernization not you requirements revenue those any I DoD those and will as nonprogrammatic on And we shifted very aligned Yes I program it's spend. is Right. will. our geography other shift. not

et the certainly R&D substantially. the height see of to those we or we've cetera. tremendous with align and come pretty now of in with the changed that would East and right it past nature still effort of OCO things has would changed we of the such that Europe. worst Outside again our through strength back reflect during sure you that align right requirements market opportunity funds U.S. other in And make If our the be in spending history amount Middle there

have have we'll though success. market been opportunistic there Asia lot the militaries. do I are benefit say of tremendously looking pop a have here it and will where foreign we've to with from of up let's allied large for but very closely. interoperability has as think some other And vetting not and note example DoD militaries the a modernization U.S. with se those programs of to for are unmanned had awarded per us I creates things some watching they're follow-on that systems allied with effort programs awards our

So lot of a we new awards do some of these they see in coalescence as technologies happen. around

Peter Arment

they kind and be XXXX. XXXX also potentially me. just win-with the of your you at lately last for looking question the on the And of robo end the year taxi progress then then any On think also how AB? win think Great. programs vehicle the into trying the far Okay. do autonomous I'm And about could to of slope those on

Jim Cannon

into we again included our be Yes. to years funny. I on bit It's lot going an a two were And should additional of a really trying ago sensor. why thermal If effort evangelize side back this. up

All of the that. automotive on such different and designers focused toolkits were

past Now that. we're completely

autonomous fleets we but braking test and such value autonomous OEMs As talk all to are demonstration like you important. so and for mentioned not and just the different driving things the thermal of

a that a The lot standard it see by future Now that as opens for think we to robo for continued standard it's that door we milestone that's if a win us. feature will. as the think pointed we And opportunity precedent important safety you well of feature. as setting Veoneer the to to win growth regard we because going it's with taxi a and be

So the now. win into thing awards it's model really a these then in we is tough fuse. years get though and into those future specified To production three-year

the model some years. While plan we're for it this smaller there long ahead on as open just takes be beginnings might they But smaller seeing near-term really think up. future I opportunities fleets that of

happening think going it's get I beyond. to quickly accelerate are three awards and proven years these and As

Pete Skibitski

color. the for Thanks Great.

Operator

Thank you.

next Ciarmoli question go is Our ahead. coming Michael SunTrust. Please from of

Michael Ciarmoli

for just follow-up. Thanks or guys. Hey taking clear. Carol the Jim so I'm

in be to question terms dollars Noah's in to down absolute though going So versus they're 'XX of year-over-year R&D XXXX?

Jim Cannon

very of we capture. to of really we're They R&D will importantly able be spend collaboration effort also slightly specific should down the a yes. R&D we But that the and Project were some part IBU more more. say I And more of combination or that R&D expense. And differently as Ready way had under Be focusing focuses our also CBU

Michael Ciarmoli

profitable if in then XXXX? would you going Aeryon but Endeavor Got be it. don't And are they just know I give guys to this and

Jim Cannon

coming that will profitable track we They When way if acquired we curves scaling. that our dilutive you right absolutely. that. with of learning is they grew business Yes the on their are modeled kind to were businesses up overall are they're But we the that business. it as them

the as So have they we on have that company. that overall effect outsized growth

Operator

you. Thank

coming coming Please or is go of back next Goldman from ahead. Our Poponak Noah is Sachs. question

Noah Poponak

shake just exact revenue segment you company. revenue that had rates XXXX for a would bit that your same guidance by the little I if XXXX organic growth use Jim in out above total the in

growth worse rate a So versus XXXX? segment which XXXX in has

Jim Cannon

got A&D their principal two around major It's primes the our businesses. both it's OEM and business timing really headwinds the programs. Well for we've

business So them while amount with XXXX. of that we bulk business have of the is significant won a

to Industrial up. So year got the if prior and whole that OEM a real hold significant close we look at we've there's

that's dynamic the So there.

us year happening that got profitable headwinds and before got higher growing the the On airborne to so again had offset nonprogrammatic it some is of we house the we million-some-odd line absorption. but go but largest when smaller product of lower programs. then very And much business And through side ISR ISR have DR-SKO the profitable The again as for arguably unmanned business. most it these upgrades Government $XX much it's our other on full but by opportunities now a & are Defense. airframe year mix

Noah Poponak

high zone So Defense legacy is Government in up single? single it legacy & to and down something the flat industrial commercial close of low legacy

Jim Cannon

that's. think, I Yeah. Generally,

Noah Poponak

Okay.

Jim Cannon

Yes generally directionally I accurate. that's think

Noah Poponak

in segments isn't in driving of where the be compression mixing coming from? what's and of up If actually margin you'd the again Commercials lower then the down terms R&D is margins up And exactly XXXX?

Jim Cannon

Yes. dynamics. that more more unmanned the that's as growth One I from is to of There's overall coming company. mentioned a couple and dilutive of the business

compliant So part most to that also on dynamic. But OEM certainly gap margins do them. make those our we necessary mentioned to on there's opex to business execute has are we non-R&D management to look line that of The of things at gross pieces. other business we as parts not I highest profitable margin get committed if R&D our the and can we're but it's our the scaling in that be which as expected. have we things one investments around the is absolutely we timing And programs. There's contract with management sure One do just make growing over. and going really got to there's we to need three this need program the to of

of was the a built growing we built But frankly and year got that a cost we to support X% company then back half the structure in weren't. being we

it So takes that's up benefit that got annualized Ready statement. Be out to those show But now now. Project through the of the executing to actions time business full the in that go we've income take get to cost

Noah Poponak

then that sequentially acquisitions. over saw When quarter your down the second diluted of back XX the between the stated the & you Defense you first and up when fourth it you Aeryon had full as XXXX and in you third. was most quarter the Government XX quarter it's second segment eight and first in then margin had from And Endeavor you of sequentially was margin somewhere that but

of mean I margin forward think the you're kind about can going right just different us the kind than Or help is those since in much legacy layering segment? go-forward that something So shape margin? you of of which of the segment's

Jim Cannon

then and And it's DR-SKO work replace compared We've to offset that our business a without program. to not mentioned ISR to got driver. sure more of real secure those. on and win program a I certainly airborne more we do to make Yes outlook off then the

fully think appreciate that don't So dynamic. we

learning the we line how It's the business. kind expectation the Now the up come our to have. that is contributes for test curve for real us it that and into want averages of scale unmanned we

know perfect So that a after intend driving quarters We if these now to by unmanned right larger programs two And executing don't upcoming have that. Investor candid margin looks we're I to then Day. paint certainly the at us behind be I X.X like. what that can we'll picture go-forward of on

Operator

back the for Thank to Excuse turn to this me. I'd Jim At you. over like closing floor time comments.

Jim Cannon

company. all In to in your thank closing today and our like you I'd for interest for joining of the call

passion also thank to for employees dedication on around in of to all updating forward we your look would the our to when XXXX world you our work I hard FLIR mission. the and quarter like results report the progress first always As We our spring.

Thank you a great day. all have and

Operator

you This event. thank for today’s gentlemen, and your Ladies participation. concludes

disconnect You and your may day. have lines wonderful a

Teledyne FLIR (FLIR) 27 Feb 202019 Q4 Earnings call transcript