FLIR Systems Announces Fourth Quarter and Full Year 2018 Financial Results

Record Full Year GAAP EPS of $2.01; Adjusted EPS of $2.22, Up 18%
over Prior Year

Record Full Year Operating Cash Flow of $374 Million, Up 21% over
Prior Year

Full Year Revenue Decline of 1%; Organic Revenue Growth of 6% over
Prior Year

Fourth Quarter Organic Bookings Growth of 20% over Prior Year

Repurchased $144 Million in Shares in the Fourth Quarter

WILSONVILLE, Ore.–(BUSINESS WIRE)–FLIR Systems, Inc. (NASDAQ: FLIR) today announced financial results for
the fourth quarter and full year ended December 31, 2018. “I’m proud of
our team’s performance in 2018,” said Jim Cannon, FLIR President and
Chief Executive Officer. “We achieved organic revenue growth and margin
performance the Company hasn’t reached in many years, and we delivered
record adjusted earnings per share and operating cash flow. We are
well-positioned for 2019 with strong bookings, numerous new product
launches, and the recently announced acquisitions of Aeryon Labs and
Endeavor Robotics, moving us forward in the execution of our unmanned
integrated systems strategy.”

Mr. Cannon continued, “This was a transformational year for FLIR as we
began to execute on our strategic vision to Fuel, Feed, and Focus the
business with The FLIR Method as the Foundation. I am more confident
than ever in our ability to deliver on our strategic priorities and our
purpose to innovate the World’s Sixth Sense to save lives and
livelihoods.”

Fourth Quarter 2018

Fourth quarter 2018 revenue was $448.5 million, 9.4% lower than fourth
quarter 2017 revenue of $494.8 million, which included revenue of $46.8
million from the previously disclosed divested security businesses.
Organic revenue growth was flat compared to the prior year.

GAAP Earnings Results

GAAP gross profit in the fourth quarter 2018 was $227.8 million,
compared to $237.8 million in the fourth quarter of 2017. GAAP gross
margin increased 270 basis points to 50.8% in the fourth quarter 2018,
compared with 48.1% in the prior year. GAAP operating income in the
fourth quarter increased 11.3% to $85.9 million, compared to $77.2
million in the prior year, representing a 360 basis point improvement in
operating margin.

Fourth quarter 2018 GAAP net earnings were $98.5 million, or $0.71 per
diluted share, compared with GAAP net loss of $50.3 million, or ($0.36)
per diluted share in the fourth quarter last year. Fourth quarter 2018
GAAP net earnings increase was driven primarily by a $33.3 million
reduction in accrued income tax as a result of the settlement of tax
assessments issued by Belgium in connection with the European
Commission’s 2016 decision on state aid (“Belgium tax item”). Fourth
quarter 2017 GAAP earnings were negatively impacted by a non-cash loss
on net assets held for sale, as well as discrete tax items associated
with the enactment of U.S. tax reform.

Cash provided by operations was $98.3 million in the fourth quarter of
2018, compared to $98.9 million in the fourth quarter of 2017.
Approximately 3.0 million shares were repurchased in the fourth quarter
of 2018 at an average price of $47.80.

Non-GAAP Earnings Results

Adjusted gross profit was $233.5 million in the fourth quarter 2018,
down from adjusted gross profit of $242.9 million in the fourth quarter
of 2017. Adjusted gross margin increased 300 basis points to 52.1%,
compared with 49.1% in the fourth quarter of 2017. Adjusted operating
income was $107.9 million in the fourth quarter, which was 3.4% lower
than adjusted operating income of $111.7 million in the fourth quarter
of 2017. Adjusted operating margin increased 150 basis points to 24.1%,
compared with 22.6% in the fourth quarter of 2017.

Adjusted net earnings in the fourth quarter 2018 were $85.8 million, or
$0.62 per diluted share, which was 6.9% higher than adjusted earnings
per diluted share of $0.58 in the fourth quarter of 2017.

Business Unit Results

Fourth quarter 2018 revenue from the Industrial Business Unit was $181.7
million, in-line with fourth quarter 2017 revenue of $181.7 million with
increased sales of cooled thermal cores, unmanned aerial systems (UAS),
and automotive solutions offset by decreased instruments and uncooled
core sales. The Government and Defense Business Unit contributed revenue
of $171.1 million during the fourth quarter, down 2.5% from the prior
year, with strength in UAS, integrated systems, and maritime offset by
declines in CBRNE systems and impacts from the government shutdown. The
Commercial Business Unit recorded $95.7 million of revenue in the fourth
quarter, down 30.5% from the prior year. Commercial organic revenue
growth increased 5.4% in the same period excluding revenue from the
previously disclosed divested security businesses. Strong results in
security and intelligent transportation systems contributed to the
organic revenue growth.

Full Year 2018

For the full year, 2018 revenue was $1,775.7 million, down 1.4% compared
to $1,800.4 million for the year ended December 31, 2017. Organic
revenue growth was 6.4%, excluding the previously disclosed divested
security businesses which included revenue of $140.4 million in 2017.

GAAP Earnings Results

GAAP operating income for 2018 was $318.6 million, compared to $290.0
million in 2017, with 2017 being negatively impacted by the non-cash
loss on net assets held for sale. GAAP operating margin was 17.9% in
2018, compared with 16.1% in 2017, representing a 180 basis point
improvement.

2018 GAAP net earnings were $282.4 million, or $2.01 per diluted share,
compared with 2017 GAAP net earnings of $107.2 million, or $0.77 per
diluted share. 2018 GAAP net earnings increase was driven primarily by
the previously discussed Belgium tax item, and U.S. Federal transition
tax due as a result of the U.S. Tax Cuts and Jobs Act. 2017 GAAP
earnings were negatively impacted by the non-cash loss on net assets
held for sale, as well as discrete tax items associated with the
enactment of U.S. tax reform.

Cash provided by operations during 2018 was $374.2 million, compared to
$308.3 million in the prior year, a 21.4% increase. Approximately 5.0
million shares were repurchased in 2018 at an average price of $48.88.

Non-GAAP Earnings Results

Adjusted operating income for 2018 was $403.7 million, 11.1% higher than
2017 adjusted operating income of $363.5 million. Adjusted operating
margin increased 250 basis points to 22.7% in 2018, compared with 20.2%
in 2017.

Adjusted net earnings in 2018 were $311.8 million, or $2.22 per diluted
share, which increased 18.1% over 2017 adjusted earnings per diluted
share of $1.88.

Business Unit Results

Full year 2018 revenue from the Industrial Business Unit was $717.9
million, an increase of 6.8% over last year driven by increased sales of
cooled thermal cores, optical gas products, UAS, and automotive
solutions. The Government and Defense Business Unit contributed revenue
of $663.4 million during 2018, up 5.4% over 2017, with strength in land
systems, UAS, and radiation detection products. The Commercial Business
Unit recorded revenue of $394.4 million during 2018, down 21.0% from the
prior year. Commercial organic revenue growth increased 7.3% in the same
period excluding revenue from the previously disclosed divested security
businesses. Strong results in maritime and intelligent transportation
systems contributed to the organic revenue growth.

Financial Outlook for 2019

FLIR estimates revenue in 2019 to be in the range of $1.92 billion to
$1.95 billion. This represents 8% to 10% revenue growth compared to
2018, including approximately 5% organic revenue growth, in-line with
our strategic plan presented in May 2018. FLIR also expects 2019
adjusted operating income margins to be in the range of 22% to 23%, and
adjusted earnings per diluted share to be in the range of $2.30 to
$2.36. 2019 financial outlook includes contributions from the recently
announced Aeryon Labs and Endeavor Robotics acquisitions. Adjusted
earnings per share assumes an effective tax rate of 20.5%, net interest
expense of $25.5 million and a diluted share count of approximately
137.7 million shares.

Dividend Declaration

FLIR’s Board of Directors has approved a quarterly cash dividend of
$0.17 per share on FLIR common stock, an increase of 6% over the
previous quarterly dividend of $0.16 per share. The Board of Directors
has declared the dividend payable on March 8, 2019, to shareholders of
record as of close of business on February 22, 2019.

Conference Call

FLIR has scheduled a conference call at 9:00 a.m. ET (6:00 a.m. PT)
today to discuss its results for the quarter and full year. A
simultaneous webcast of the conference call and the accompanying summary
presentation can be accessed online from a link in the Events &
Presentations section of www.flir.com/investor.
A replay will be available after 12:00 p.m. ET (9:00 a.m. PT) at this
same internet address. Summary fourth quarter and historical financial
data may be accessed online from the Financial Info Database link under
the Financials & Filings section at www.flir.com/investor.

About FLIR Systems

Founded in 1978 and headquartered in Wilsonville, Oregon, FLIR
Systems is a world-leading maker of sensor systems that enhance
perception and heighten awareness, helping to save lives, improve
productivity, and protect the environment. Through its nearly 4,000
employees, FLIR’s vision is to be “The World’s Sixth Sense” by
leveraging thermal imaging and adjacent technologies to provide
innovative, intelligent solutions for security and surveillance,
environmental and condition monitoring, outdoor recreation, machine
vision, navigation, and advanced threat detection. For more information,
please visit www.flir.com
and follow @flir.

Definitions and Financial Measures

Organic revenue growth is defined as total revenue growth less the
sales of companies divested in the past twelve months. Operating margin
is defined as operating income as a percentage of revenue. Management
uses operating income and operating margin as key measures to assess the
performance of the Company as a whole, as well as the related measures
at the segment level.

Non-GAAP Financial Measures: In addition to financial measures
prepared in accordance with generally accepted accounting principles
(GAAP), this earnings release makes reference to non-GAAP measures. With
respect to the outlook for the full year 2018, certain items that affect
GAAP net earnings per diluted share are out of the Company’s control
and/or cannot be reasonably predicted. Consequently, the Company is
unable to provide a reasonable estimate of GAAP net earnings per diluted
share or a corresponding reconciliation to GAAP net earnings per diluted
share for the full year. Additional information regarding the reasons
the Company uses non-GAAP measures, a reconciliation of these measures
to the most directly comparable GAAP measures, and other information
relating to these measures are included below, following the GAAP
financial information.

Forward-Looking Statements

Statements in this release by Jim Cannon and the statements in the
section captioned “Financial Outlook for 201” above are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Any statements that are not statements of historical
fact (including statements containing the words “believes,” “plans,”
“anticipates,” “expects,” “estimates,” or similar expressions) should be
considered to be forward looking statements. Such statements are based
on current expectations, estimates, and projections about FLIR’s
business based, in part, on assumptions made by management. These
statements are not guarantees of future performance and involve risks
and uncertainties that are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or
forecasted in such forward-looking statements due to numerous factors,
including the following: changes in demand for FLIR’s products, product
mix, the timing of customer orders and deliveries, the impact of
competitive products and pricing, the impact of self-imposed or
government mandated remediation efforts related to FLIR’s compliance
with U.S. export control laws and regulations and similar laws and
regulations, the timely receipt of any necessary export licenses,
constraints on supplies of critical components, excess or shortage of
production capacity, the ability to manufacture and ship the products in
the time period required, actual purchases under agreements, the
continuing eligibility of FLIR to act as a federal contractor, the
amount and availability of appropriated government procurement funds and
other risks discussed from time to time in filings and reports filed
with the Securities and Exchange Commission. In addition, such
statements could be affected by general industry and market conditions
and growth rates, and general domestic and international economic
conditions. Such forward-looking statements speak only as of the date on
which they are made and FLIR does not undertake any obligation to update
any forward-looking statement to reflect events or circumstances after
the date of this release, or for changes made to this document by wire
services or internet service providers.

Explanation of Non-GAAP Financial Measures

We report our financial results in accordance with United
States generally accepted accounting principles (GAAP). As a supplement
to our GAAP financial results, this earnings announcement contains some
or all of the following non-GAAP financial measures: (i) adjusted gross
profit, (ii) adjusted gross margin (defined as adjusted gross profit
divided by revenue), (iii) adjusted operating earnings/income, (iv)
adjusted operating margin (defined as adjusted operating income divided
by revenue), (v) adjusted net earnings/income, and (vi) adjusted
earnings per diluted share (EPS). These non-GAAP measures of financial
performance are not prepared in accordance with GAAP and computational
methods may differ from those used by other companies. Additionally,
these non-GAAP measures should not be considered a substitute for any
other performance measure determined in accordance with GAAP and the
Company cautions investors and potential investors to consider these
measures in addition to, not as a substitute for, its consolidated
financial results as presented in accordance with GAAP. Each of the
non-GAAP measures is adjusted from GAAP results and are outlined in the
“GAAP to Non-GAAP Reconciliation” tables included within this earnings
release.

In calculating non-GAAP financial measures, we exclude certain items
(including gains and losses) to facilitate a review of the comparability
of our core operating performance on a period-to-period basis. The
excluded items represent amortization of acquired intangible assets,
purchase accounting adjustments, restructuring charges, acquisition
related expenses, loss on sale of business, executive transition costs,
export compliance matters, discrete tax items, and other items we do not
consider to be directly related to our core operating performance. We
use non-GAAP measures internally to evaluate the core operating
performance of our business, for comparison with forecasts and strategic
plans, for calculating return on investment, and as a factor for
determining incentive compensation for certain employees. Accordingly,
supplementing GAAP financial results with these non-GAAP financial
measures enables the comparison of our ongoing operating results in a
manner consistent with the metrics reviewed by management. We believe
that these non-GAAP measures, when read in conjunction with our GAAP
financials, provide useful information to investors by facilitating:

• the comparability of our ongoing operating results over the periods
  presented;
• the ability to identi

Contacts

Investor Relations
Jay Gentzkow
503-498-3809
jay.gentzkow@flir.com

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