Third Quarter and Year-To-Date Revenue Growth of 6%; Sequential Operating Margin Improvement of 380 Basis Points; Year-Over-Year Backlog Growth of 13%, to $644 Million.
FLIR Systems, Inc. announced financial results for the third quarter ended September 30, 2016. Third quarter 2016 revenue was $405.2 million, up 6% over third quarter 2015 revenue of $381.9 million. Year-to-date revenue of $1.187 billion was 6% above the prior year. Operating income in the third quarter grew 6% to $80.8 million, compared to $76 million in the third quarter of 2015. Profitability in comparison to the prior year was negatively impacted by a $2 million charge related to the previously disclosed SkyWatch product quality issue.
Third quarter 2016 net earnings were $58.6 million, or $0.43 per diluted share, compared with net earnings of $73.1 million, or $0.52 per diluted share in the third quarter a year ago. The SkyWatch product repair charge negatively impacted third quarter 2016 earnings per diluted share by $0.01. Net earnings in the third quarter of 2015 included a discrete tax benefit of $17.4 million, or approximately $0.12 per diluted share. Cash provided by operations in the third quarter reached $88.6 million, FLIR's highest quarterly cash flow since 2013, and was driven by continued improvements in working capital.
Revenue from the Surveillance segment was $136.4 million, an increase of 4% from the third quarter results last year. The Instruments segment contributed $82.7 million of revenue during the third quarter, up 11% from the prior year. The Security segment recorded revenue of $56.4 million in the third quarter, down 5% from the prior year as increasing competition in retail channels negatively impacted the business. FLIR's OEM & Emerging Markets segment had $62.7 million of revenue, an increase of 22% over the prior year. Revenue from the Maritime segment was $40.6 million, which was up 4% from the third quarter of 2015. The Detection segment contributed $26.4 million of revenue, an increase of 2% over the prior year.
FLIR's backlog of firm orders for delivery within the next twelve months was approximately $644 million as of September 30, 2016, an increase of $15 million, or 2%, during the quarter and an increase of $76 million, or 13%, over the $568 million balance at the end of the third quarter of 2015.
"Overall performance in the third quarter was in line with our expectations. Profitability improvements in our Instruments and Surveillance segments helped drive significant sequential gross profit and operating income growth," said Andy Teich, President and CEO of FLIR. "While we expect continued softness in our Security segment's retail channels in the near term, we are very enthusiastic about all of our segments' product roadmaps and the opportunities they present for 2017 and beyond. Our commitment to our mission of providing innovative intelligent imaging solutions to our customers in a way that delivers significant value to our shareholders is stronger than ever."
Revenue and Earnings Outlook for 2016
Based on financial results for the first nine months of the year and the outlook for the remainder of the year, FLIR continues to expect revenue in 2016 to be in the range of $1.6 billion to $1.65 billion and adjusted net earnings to be in the range of $1.60 to $1.65 per diluted share. This guidance excludes the impact of certain discrete tax items, the second quarter investment write-down, and SkyWatch charges.
Dividend Declaration
FLIR's Board of Directors has declared a quarterly cash dividend of $0.12 per share on FLIR common stock, payable December 2, 2016, to shareholders of record as of close of business on November 18, 2016.