INVESTOR PRESENTATION - FLIR Systems
INVESTOR PRESENTATION - FLIR Systems
INVESTOR PRESENTATION - FLIR Systems
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<strong>INVESTOR</strong><br />
<strong>PRESENTATION</strong><br />
May 2013<br />
Forward Looking
Forward Looking Statements<br />
This presentation contains forward‐looking statements within the meaning of the Private Securities<br />
Litigation Reform Act of 1995. Statements regarding expectations for <strong>FLIR</strong>'s performance and new<br />
product or system introductions are based on current expectations, estimates, and projections<br />
about <strong>FLIR</strong>’s business based, in part, on assumptions made by management and involve certain<br />
risks and uncertainties that may cause these statements to be inaccurate. These risks and<br />
uncertainties include, but are not limited to, changes in demand for <strong>FLIR</strong>’s products, operational<br />
difficulties and unforeseen technical limitations affecting <strong>FLIR</strong>’s ability to manufacture and deliver in<br />
a timely manner the products or systems referenced in this presentation, the impact of competitive<br />
products and pricing, constraints on supplies of critical components, excess or shortage of<br />
production capacity, the ability of <strong>FLIR</strong> to manufacture and ship products, <strong>FLIR</strong>’s continuing<br />
compliance with U.S. export control laws and regulations, and certain other risks and uncertainties<br />
detailed from time‐to‐time in the Company's Securities and Exchange Commission filings and<br />
reports. In addition, such statements could be affected by general industry and market conditions<br />
and growth rates, and general domestic and international economic conditions. Such forwardlooking<br />
statements speak only as of the date on which they are made and <strong>FLIR</strong> does not undertake<br />
any obligation to update any forward‐looking statement to reflect events or circumstances after the<br />
date of this presentation, or for changes made to this document by external parties.<br />
CORPORATE<br />
2<br />
Forward Looking
Global Leader in Thermal Imaging<br />
OUR MISSION<br />
To enhance people’s<br />
perception and awareness<br />
of the world around them<br />
in order to improve safety,<br />
security, and energy<br />
efficiency<br />
KEY FINANCIALS<br />
2012<br />
$1.4 B Revenue<br />
22%<br />
$286 M<br />
$1.45<br />
Operating<br />
Margin<br />
Operating<br />
Cash Flow<br />
EPS<br />
377%<br />
22%<br />
$774 M<br />
RETURNS<br />
10yr Total SH<br />
Return<br />
Dividend<br />
Payout Ratio<br />
Repurchases<br />
since 2003<br />
CAPITAL DEPLOYED<br />
2012<br />
$58 M Capex<br />
$42 M<br />
$214 M<br />
$106 M<br />
Dividends<br />
Share<br />
Repurchases<br />
M&A<br />
GLOBAL OPERATIONS<br />
Employees: 2,950+<br />
MARKET SHARES<br />
#1 Infrared detector cores<br />
#1 Thermography equipment<br />
#4 Military infrared equipment<br />
#3 Recreational boating electronics<br />
#1<br />
Do‐it‐yourself security systems<br />
(North America)<br />
CORPORATE<br />
3<br />
Forward Looking
Operating Portfolio<br />
COMMERCIAL SYSTEMS DIVISION<br />
GOVERNMENT SYSTEMS DIVISION<br />
Thermal Vision &<br />
Measurement<br />
Raymarine Surveillance Detection Integrated <strong>Systems</strong><br />
• Thermography<br />
• Cores<br />
• Security<br />
• Maritime<br />
• Intelligent Traffic<br />
• Personal Vision<br />
<strong>Systems</strong><br />
• Multifunction<br />
displays<br />
• Instruments<br />
• Sonar<br />
• Radar<br />
• Infrared cameras<br />
• Airborne systems<br />
• Maritime<br />
systems<br />
• Land systems<br />
• Tactical vision<br />
• Unmanned<br />
systems<br />
• Radiation<br />
• Explosives<br />
• Chemical‐<br />
Biological<br />
• Mass<br />
Spectrometry<br />
• Border<br />
surveillance<br />
• Port security<br />
• Observation<br />
towers<br />
• Command &<br />
Control software<br />
• Test &<br />
Measurement<br />
Revenue<br />
Revenue<br />
Revenue<br />
Revenue<br />
Revenue<br />
$628 M<br />
$158 M<br />
$486 M<br />
$63 M<br />
$69 M<br />
Operating Margin<br />
Operating Margin<br />
Operating Margin<br />
Operating Margin<br />
Operating Margin<br />
27%<br />
7%<br />
33%<br />
2%<br />
7%<br />
CORPORATE<br />
4<br />
Forward Looking
Track Record of Performance<br />
Divisional Revenue<br />
($s in millions)<br />
Government <strong>Systems</strong> Growth<br />
+270%<br />
2002<br />
$167<br />
$94<br />
$261<br />
Commercial <strong>Systems</strong> Growth<br />
<strong>FLIR</strong> Consolidated Growth<br />
+738%<br />
+438%<br />
2012<br />
$619<br />
$786<br />
$1,405<br />
$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600<br />
Government <strong>Systems</strong><br />
Commercial <strong>Systems</strong><br />
10 YEAR PERFORMANCE<br />
Revenue CAGR<br />
18%<br />
Operating Income<br />
CAGR<br />
20%<br />
Total Free Cash Flow *<br />
$1.33 B<br />
Market Value<br />
5.1x<br />
Total Shareholder<br />
Return<br />
377%<br />
Average ROE<br />
23%<br />
Acquisitions<br />
$908 M<br />
Share Repurchases<br />
$774 M<br />
* Free Cash Flow defined as Cash Flow from Operations less Capital Expenditures.<br />
Note: Operating Income, Free Cash Flow, and ROE exclude non‐recurring legal and restructuring charges.<br />
CORPORATE<br />
5<br />
Forward Looking
Worldwide Presence<br />
Revenue –United States<br />
$900M<br />
$800M<br />
$700M<br />
$600M<br />
$500M<br />
$400M<br />
$300M<br />
$200M<br />
$100M<br />
$0M<br />
2007 2008 2009 2010 2011 2012<br />
Revenue –Rest of World<br />
$400M<br />
$350M<br />
$300M<br />
$250M<br />
5yr CAGR<br />
+8%<br />
International<br />
Revenue<br />
49% 2012<br />
48% 2011<br />
5yr CAGR<br />
47% 2010 $600M<br />
+22% 5yr CAGR<br />
41% 2009<br />
38% 2008<br />
Revenue –Europe<br />
$450M<br />
$400M<br />
$350M<br />
$300M<br />
$250M<br />
$200M<br />
$150M<br />
$100M<br />
$50M<br />
$0M<br />
2007 2008 2009 2010 2011 2012<br />
Revenue –U.S. Government<br />
$500M<br />
$400M<br />
5yr CAGR<br />
+14%<br />
+4%<br />
$200M<br />
$300M<br />
$150M<br />
$100M<br />
$50M<br />
$200M<br />
$100M<br />
$0M<br />
2007 2008 2009 2010 2011 2012<br />
$0M<br />
2007 2008 2009 2010 2011 2012<br />
CORPORATE<br />
6<br />
Forward Looking
2012 Performance<br />
($s in millions) 2012 2011 Growth %<br />
Revenue $1,405 $1,544 (9.0%)<br />
Commercial <strong>Systems</strong> $786 $832 (5.5%)<br />
Government <strong>Systems</strong> $619 $712 (13.1%)<br />
First year of revenue<br />
decline since<br />
2000<br />
Gross Profit $735 $830 (11.4%)<br />
Margin % 52% 54% (1.4%)<br />
Lowest gross margin<br />
since<br />
2004<br />
Operating Profit $311 $358 (12.9%)<br />
Margin % 22% 23% (1.0%)<br />
Commercial <strong>Systems</strong> $187 $207 (9.7%)<br />
Margin % 24% 25% (1.1%)<br />
Government <strong>Systems</strong> $170 $209 (18.8%)<br />
Margin % 27% 29% (1.9%)<br />
EPS $1.49 $1.57 (5.5%)<br />
Lowest operating<br />
margin since<br />
2002<br />
First year of Adjusted<br />
EPS decline since<br />
1999<br />
Operating Cash Flow $291 $275 5.8%<br />
Note: Amounts exclude non‐recurring legal and restructuring charges.<br />
CORPORATE<br />
7<br />
Forward Looking
External Environment<br />
MANUFACTURING SLOWDOWN<br />
GOVERNMENT BUDGETS<br />
MACROECONOMIC<br />
60<br />
ISM Index<br />
$700B<br />
U.S. DoD Budget<br />
(Base & OCO)<br />
12%<br />
Real GDP Growth<br />
(YoY% Δ)<br />
58<br />
56<br />
54<br />
52<br />
50<br />
48<br />
‐12%<br />
Dec `10 Jun `11 Dec `11 Jun `12 Dec `12<br />
$650B<br />
$600B<br />
$550B<br />
$500B<br />
$690 $687<br />
$646<br />
$614<br />
2010 2011 2012 2013E<br />
‐11%<br />
10%<br />
8%<br />
6%<br />
4%<br />
2%<br />
0%<br />
‐2%<br />
2010 2011 2012<br />
China<br />
‐260 bps<br />
U.S.<br />
‐20 bps<br />
Euro Area<br />
‐240 bps<br />
Strained capex budgets led to<br />
declines in our Commercial<br />
<strong>Systems</strong> division in 2012<br />
Uncertainty in U.S. budget<br />
causing sluggish procurement<br />
Global economic activity has<br />
slowed in largest regions<br />
<strong>FLIR</strong> 2012 Results<br />
Premium Thermography<br />
products<br />
Commercial <strong>Systems</strong>’ EMEA<br />
region<br />
Commercial <strong>Systems</strong>’<br />
Americas region<br />
‐ 12%<br />
‐ 11%<br />
‐ 3%<br />
Government <strong>Systems</strong>’ DoD<br />
business ‐ 17%<br />
Overall Government <strong>Systems</strong><br />
Commercial <strong>Systems</strong>’ Cores &<br />
Components business<br />
‐ 13%<br />
‐ 6%<br />
Europe<br />
United States<br />
Rest of world<br />
‐ 12%<br />
‐ 11%<br />
‐ 2%<br />
Sources: Institute for Supply Management, Frost & Sullivan, whitehouse.gov, and The International Monetary Fund.<br />
CORPORATE<br />
8<br />
Forward Looking
Our Response<br />
Overhead reduction<br />
• Rationalized SG&A spending (12% reduction)<br />
• Enhanced shared services<br />
• Standardized IT systems and resources<br />
Alignment of facilities<br />
• Consolidated 6 manufacturing, R&D, and sales sites<br />
• Relocated Raymarine to lower cost facility<br />
• Moved more manufacturing to low cost regions<br />
Strategic pricing<br />
• Raised prices in selected premium‐end products<br />
• Restrained price reductions in soft market<br />
New products<br />
• Addressed product gaps in Thermography line of<br />
business<br />
• Introduced handhelds for law enforcement market<br />
• Improved software and service capabilities<br />
CORPORATE<br />
9<br />
Forward Looking
Our Response<br />
Continued Investment for<br />
the Future<br />
• R&D of $138 M, or 10% of revenue<br />
• Capex of $58 M, up 38% over 2011<br />
Focus on building backlog<br />
• Expand presence in international markets<br />
• Establishing position in non‐DoD agencies<br />
• Focus on converting growing opportunity set<br />
Return of Capital<br />
Compensation Alignment<br />
• 10.5 million shares repurchased in 2012; 44% IRR<br />
since 2003<br />
• Dividend increase of 29% for 2013 and 50% since<br />
inception<br />
• No 2012 executive bonuses<br />
• Forfeiture of stock compensation<br />
• New Total Shareholder Return‐based equity incentive<br />
program<br />
CORPORATE<br />
10<br />
Forward Looking
Results Thus Far<br />
SG&A Expense as % of Revenue (LTM)<br />
Surveillance Segment Backlog<br />
22.0%<br />
21.5%<br />
21.0%<br />
20.5%<br />
20.0%<br />
SG&A Expense<br />
$287M<br />
(‐12% vs 2011)<br />
19.5%<br />
Q1 `11 Q2 `11 Q3 `11 Q4 `11 Q1 `12 Q2 `12 Q3 `12 Q4 `12<br />
$500<br />
$450<br />
$400<br />
$350<br />
$300<br />
$250<br />
$200<br />
$150<br />
LTM SG&A Expense<br />
$600<br />
$500<br />
$400<br />
$300<br />
$200<br />
$100<br />
$0<br />
0.82x<br />
1.03x<br />
$552<br />
$433<br />
$333<br />
$247 $261<br />
2008 2009 2010 2011 2012<br />
1.60x<br />
1.40x<br />
1.20x<br />
1.00x<br />
0.80x<br />
0.60x<br />
0.40x<br />
0.20x<br />
0.00x<br />
Book‐to‐Bill Ratio<br />
Note: Excludes non‐recurring legal and restructuring charges.<br />
Revenue Trend<br />
Return on Equity<br />
yoy% Δ<br />
30%<br />
20%<br />
10%<br />
0%<br />
‐10%<br />
‐20%<br />
‐30%<br />
Q1`11 Q2`11 Q3`11 Q4`11 Q1`12 Q2`12 Q3`12 Q4`12<br />
Surveillance<br />
TVM<br />
ROE<br />
Annualized Q4<br />
22%<br />
20%<br />
18%<br />
16%<br />
14%<br />
12%<br />
10%<br />
19.5% 19.4%<br />
$405<br />
Note: Excludes restructuring charges.<br />
$386<br />
2011 2012<br />
$450<br />
$425<br />
$400<br />
$375<br />
$350<br />
Q4 Revenue<br />
CORPORATE<br />
11<br />
Forward Looking
Formula for Sustainable Success<br />
Strategy<br />
Enable & Enhance<br />
Energy efficiency | Safety | Perception<br />
Expand Technology<br />
Imaging | Data | Analytics<br />
Commercial & Government<br />
Superior Total<br />
Shareholder Return<br />
Advance<br />
R&D | Capital investment | M&A<br />
Optimize capital structure<br />
Scalability | Efficiency | Control<br />
Execute<br />
Innovate<br />
Aggregate volumes<br />
Develop new markets<br />
Amplify value‐to‐price ratio<br />
Grow brand<br />
Maximize profitability<br />
CORPORATE<br />
12<br />
Forward Looking
Commercial Momentum<br />
Significant ASP reduction<br />
driven by volume growth…<br />
TVM Segment<br />
+ 27%<br />
5yr CAGR<br />
$700<br />
$600<br />
$500<br />
…results in revenue growth<br />
with consistent margins<br />
TVM Segment<br />
$400<br />
‐ 14%<br />
5yr CAGR<br />
$300<br />
$200<br />
$100<br />
$0<br />
2007 2008 2009 2010 2011 2012<br />
2007 2008 2009 2010 2011 2012<br />
VOL ASP REV GM%<br />
Mix Shift<br />
5yr CAGR<br />
Financial Results<br />
5yr CAGR<br />
• Premium Thermography Units + 10%<br />
• Revenue + 10%<br />
• Volume Thermography Units + 31%<br />
• Gross Margin % 0%<br />
• Operating Income + 11%<br />
Proven ability to significantly reduce end‐user prices while increasing<br />
revenue and profitability over time<br />
CORPORATE<br />
13<br />
Forward Looking
Government Markets Diversifying<br />
A growing list of worldwide customers<br />
Evolution from U.S. DoD reliance<br />
Surveillance Segment Revenue<br />
Consolidated Revenue<br />
U.S. Gov’t<br />
39%<br />
2007 2012<br />
U.S. Gov’t<br />
27%<br />
RAID*<br />
2007* 2012<br />
U.S. International<br />
* U.S. RAID programs ended in Q3 2010.<br />
Int’l<br />
+20%<br />
U.S.<br />
(Non‐RAID)<br />
+7%<br />
• Long‐term investments in global sales<br />
infrastructure<br />
– $4 million invested since beginning of 2011<br />
• Fixed‐price, COTS model attractive to<br />
many international customers<br />
• Increasing penetration into nonmilitary<br />
agencies<br />
– DoD in backlog has declined 28% since end<br />
of 2010<br />
CORPORATE<br />
14<br />
Forward Looking
Focus on Margins<br />
Consolidated Gross Margin<br />
Excluding<br />
Raymarine & ICx<br />
60%<br />
58%<br />
56%<br />
54%<br />
52%<br />
50%<br />
48%<br />
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1<br />
08 08 08 08 09 09 09 09 10 10 10 10 11<br />
Note: Amounts exclude RAID (program ended Q3 2010) and restructuring activity.<br />
Q2<br />
11<br />
Q3<br />
11<br />
Q4<br />
11<br />
Q1<br />
12<br />
Q2<br />
12<br />
Q3<br />
12<br />
56.1%<br />
53.2%<br />
Q4<br />
12<br />
Improving gross margin in 2012 and<br />
beyond<br />
• Price increases where applicable<br />
• Product line extensions<br />
• Improved material costs<br />
• Focus on detector and product<br />
yields<br />
Corporate Expenses as a % of Revenue<br />
6%<br />
5%<br />
4%<br />
3%<br />
2%<br />
1%<br />
Controlling overhead costs to build<br />
operating leverage<br />
• Optimizing IT infrastructure<br />
• Increased shared services<br />
• Improved internal control<br />
environment<br />
0%<br />
2008 2009 2010 2011 2012<br />
Note: Overhead amounts exclude non‐recurring legal and restructuring activity.<br />
CORPORATE<br />
15<br />
Forward Looking
Improving Acquired Businesses<br />
DETECTION<br />
INTEGRATED SYSTEMS<br />
RAYMARINE<br />
10.0%<br />
8.0%<br />
7.0%<br />
7.4%<br />
7.4%<br />
8.0%<br />
6.0%<br />
Operating Margin<br />
4.0%<br />
2.0%<br />
0.0%<br />
(2.0%)<br />
2009* 2011* 2012<br />
3.0%<br />
2009* 2011* 2012<br />
0.3%<br />
2009* 2011* 2012<br />
(4.0%)<br />
(3.4%)<br />
(6.0%)<br />
(8.0%)<br />
(5.6%)<br />
(10.0%)<br />
• Decreased amount of costplus<br />
contract R&D by $14<br />
million in 2012<br />
• Reduced operating<br />
facilities from 7 to 3<br />
(8.6%)<br />
• Re‐engineered products for<br />
manufacturing efficiency<br />
• Streamlined engineering<br />
and administration<br />
functions<br />
• Revolutionized product<br />
lines<br />
• Improved supply chain<br />
• Rationalized facilities<br />
• Right‐sized overhead for<br />
sluggish market conditions<br />
* 2009 represents first full year prior to acquisition year; 2011 represents first full year after acquisition.<br />
Note: Amounts exclude restructuring expenses<br />
CORPORATE<br />
16<br />
Forward Looking
Underpenetrated Existing Markets<br />
Increasingly affordable technology allowing access to very<br />
large markets<br />
$1.0 B<br />
Recreational Boating<br />
Electronics<br />
Raymarine #3 market share<br />
$7.7 B<br />
Security Cameras<br />
IP and analog cameras<br />
$1.5 B<br />
First Responders<br />
5 million firefighters<br />
16 million police officers<br />
$2.4 B<br />
Technician Equipment<br />
2 million electricians,<br />
1 million HVAC pros,<br />
400k building inspectors<br />
$30+ Billion<br />
Annual<br />
Addressable<br />
Market Today<br />
$7.0 B<br />
Military Infrared<br />
U.S. is 60% of market, with<br />
international growing faster<br />
$4.3 B<br />
Hunting/Outdoors<br />
Scopes & Sights<br />
$90B equipment market<br />
$6.0 B<br />
Automotive<br />
60 million new cars produced<br />
annually<br />
$0.8 B<br />
ChemBio Procurement<br />
Procurement only a part of<br />
$8.0B CBRNE market<br />
Note: Market sizes based on independent research and <strong>FLIR</strong> estimates.<br />
CORPORATE<br />
17<br />
Forward Looking
Capital Strategy to Deliver Long Term Value<br />
Allocate excess cash with a “portfolio view” of appropriate<br />
capital uses, with a focus on rates of return<br />
Investment<br />
Grade Credit<br />
Rating<br />
Capital<br />
Expenditures<br />
Innovation<br />
R&D<br />
Share<br />
Repurchases<br />
Acquisitions<br />
Dividend<br />
CORPORATE<br />
18<br />
Forward Looking
Capital Strategy to Deliver Long Term Value<br />
Allocate excess cash with a “portfolio view” of appropriate<br />
capital uses, with a focus on rates of return<br />
Investment<br />
Grade Credit<br />
Rating<br />
Focus on strong balance<br />
sheet<br />
Raise BBB‐ / Baa3 rating<br />
Acquisitions<br />
Expand distribution<br />
Complement product<br />
offerings<br />
Unique capabilities<br />
Innovation<br />
R&D<br />
Rapid evolution of<br />
technology and products<br />
Target 8‐10% of Revenue<br />
Dividend<br />
Regular and consistent<br />
return of capital<br />
Capital<br />
Expenditures<br />
Low maintenance capex<br />
requirements<br />
Invest in facilities and yield<br />
improvements<br />
Share<br />
Repurchases<br />
Opportunistic based on:<br />
• Trading vs. intrinsic value<br />
• Alternative uses of cash<br />
• U.S. funds available<br />
CORPORATE<br />
19<br />
Forward Looking
Capital Allocation Track Record<br />
Generating cash and deploying capital opportunistically<br />
5 Year History of Capital Allocation<br />
($s in millions)<br />
$248 ($236)<br />
$1,399<br />
($688)<br />
Improvements due to<br />
Dividends and<br />
Repurchases<br />
EPS +$0.14<br />
Avg. Annual ROE +189bps<br />
($80)<br />
($524)<br />
$204<br />
$322<br />
Cash Balance<br />
2007<br />
Cash Flow Debt Financing Capex M&A Dividends Repurchases Cash Balance<br />
2012<br />
CORPORATE<br />
20<br />
Forward Looking
Improving Processes to Reduce Cost<br />
Enterprise‐wide initiatives aggregate to significant savings<br />
Scalability Efficiency Control<br />
<strong>Systems</strong> designed for growth<br />
and evolution<br />
• SAP harmonization<br />
• Global tax optimization<br />
• Expanded shared<br />
services<br />
Integrated operations,<br />
seamless back‐office<br />
• Standardization of IT<br />
hardware and software<br />
• Pooling telecom<br />
resources<br />
• Reducing number of<br />
legal entities<br />
• M&A “playbook”<br />
Consistent reporting for<br />
sound decision making<br />
• CRM conversion<br />
• Real‐time global cash<br />
balance reporting<br />
• Standardization of key<br />
data warehouse items<br />
Resulted in operating leverage and better positioning for future<br />
CORPORATE<br />
21<br />
Forward Looking
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