FLIR Systems, Inc. Earnings Call Nuggets: Weighting of Revenue, Surveillance Operating Margin

On Friday, FLIR Systems, Inc. (NASDAQ:FLIR) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Weighting of Revenue

Michael Lewis – Lazard Capital Markets: Tony, I had noted a comment in the press release where you stated that some activity moved from discontinued operations to continued operations on the P&L. Can you give us some information on that?

Anthony L. Trunzo – SVP, Finance and CFO: It was a tiny amount, Michael. I think, the revenue that went back into the P&L for Q1 of last year was about $2 million. So, when you compare the Q1 2011 reported results with the Q1 2011 comparison that you’re seeing today, revenue is up about $2 million because there were two pieces, PBA and 360 that we decided we wanted to keep and we pulled them back out of discontinued operations in Q2 of last year, I believe. The operating income effect was basically nothing.

Michael Lewis – Lazard Capital Markets: As we look at the weighting of revenue from the first half to the second half, how should we think about that as percent of the full year? Will it be say a 60-40 mix, second half to first half or something else other than that?

Earl R. Lewis – Chairman, President and CEO: Pretty close to what we’ve been doing. But I think, we’ll see the government be a little bit more in the second half.

Anthony L. Trunzo – SVP, Finance and CFO: Yeah. Clearly, second half is going to be bigger than first half, Michael. I don’t know that it would skew all the way to 60-40, but clearly the second half is going to be a larger revenue quarter than the first half.

Michael Lewis – Lazard Capital Markets: One final question for Andy, last quarter, you talked about the introduction of the 9 and 12 inch E-Series systems, how are they tracking and are you seeing more momentum in the North American market, versus say Asia-Pacific?

Andrew C. Teich – President, Commercial Systems: Yes. So, first of all, they are doing very well. Those products have been very well received and we exceeded our target in terms of the number of units that we wanted to ship in the first quarter fairly significantly, so we’re quite pleased about that. So, not only have the products done well from an introduction standpoint, but they’ve done well from a production standpoint with us being able to fulfill the orders quickly. In terms of the comments of the U.S. versus international, it’s quite strongly different, so we saw decline in the international region given that the boat builders there are building fewer boats and we have a strong OEM presence. In the U.S. market, we saw a nice double digit pickup in terms of bookings and that was also bolstered by the introduction of those new products. So, we’re quite pleased to see those results in the U.S.

Surveillance Operating Margin

Noah Poponak – Goldman Sachs: Question on – if I heard the numbers correctly there, the Surveillance operating margin in the quarter was 30%, a little more than 30%, and that’s down pretty significantly from where that was running last year, can you talk about how do you think that progresses through the rest of ’12, and then what the right, two to three year margin is there?

Anthony L. Trunzo – SVP, Finance and CFO: Q1, I mean, I made the comment Noah, that we’ve taken our SG&A down in dollar terms, I think, it was down 6%. We’re still taking SG&A out of that business, so the dollar spending will come down. Revenue as well – revenue will come up in the subsequent three quarters. So, you will see a recovery in the margin there. Gross margins were stable, and that’s the encouraging piece of the overall puzzle for Surveillance. We are continuing operationally to do a good job, but frankly, the revenue number was a little softer than we had originally anticipated it being, and that resulted in a higher SG&A load relative to revenue. So, we said that our target for that business is in the mid-30s. We did 40 points in Q4 of last year and we were pretty clear that that’s not sustainable. But I think when you trend back up a few percentage points over the next few quarters, it’s what you can expect.

Earl R. Lewis – Chairman, President and CEO: It is cyclical, of course. I mean we will see improvement as the volume goes up, and volume will go up.

Noah Poponak – Goldman Sachs: Mid-30s is the right medium to long-term number to think about there?

Earl R. Lewis – Chairman, President and CEO: Probably annualized, that’s about right, yeah.

Noah Poponak – Goldman Sachs: Is it possible to tell us or just say what you think the organic revenue growth rate will be for total government and total commercial in 2012? I don’t mean to give you guys so much grievance with my questions.

Anthony L. Trunzo – SVP, Finance and CFO: When we look at our revenue, we’ve clearly got a forecast over the last couple of days as we were going through it. I didn’t ask for a breakdown, I don’t think any of us did of the organic revenue by customer segment. Not that we couldn’t get it, we just haven’t calculated it.

Noah Poponak – Goldman Sachs: Then just quickly, the expectation for the full year tax rate?

Anthony L. Trunzo – SVP, Finance and CFO: The 27 that we booked up in Q1 reflects our expectation for the year.