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FLIR Systems Inc  (NASDAQ:FLIR)
Q4 2018 Earnings Conference Call
Feb. 13, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the FLIR Systems Fourth Quarter and Full-Year 2018 Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to turn the call over to Jay Gentzkow. Please go ahead sir.

Jay Gentzkow -- Director-Corporate Development & Investor Relations

Good morning everyone and thanks for joining the call. Please note that our earnings press release and presentation slides referred to on this call are available under the Events & Presentations section of www.flir.com/investor.

Before we begin I need to remind you that statements made on this call other than historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on our current expectations. Words such as anticipates, estimates, expects, intends and believes and similar words and expressions are intended to identify forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially.

Please refer to the earnings press release we issued earlier today for a description of factors that could cause actual results to differ materially from those forecast. The forward-looking statements we make today speak as of today and we do not undertake any obligation to update any such statements to reflect events or circumstances occurring after today. We will be discussing our results for the quarter primarily on an adjusted non-GAAP basis. We believe that non-GAAP information is useful because it can enhance the understanding of our core ongoing operating results and facilitate consistent comparison of results over time. A full reconciliation between GAAP and adjusted measures is in this morning's earnings press release.

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

James J. Cannon -- President and Chief Executive Officer

Thank you Jay. Good morning everyone and thank you for joining FLIR's fourth wuarter 2018 earnings call. With Jay and me today are Carol Lowe our CFO; Todd DuChene, General Counsel; Travis Merrill, President of our Commercial Business Unit; Frank Pennisi, President of our Industrial Business Unit; and David Ray, President of our Government & Defense Business Unit.

On today's call, I plan to review the results for the full year and fourth quarter 2018, highlight our full year 2019 financial outlook, followed by an update on our strategic priorities including discussion of the two recent acquisitions Aeryon Labs and Endeavor Robotics. Carol will provide further detail on the financial results and outlook before we open the call for your questions. 2018 was truly a defining year for FLIR. During the year, strong organic revenue growth and margin expansion drove record adjusted EPS and operating cash flow.

I'll start the review with full year 2018 results on Slide 3 of the presentation. This year's financial performance was historically strong across the board. We finished 2018 with revenues of $1.78 billion. Organic topline growth was 6%, with all three business units achieving organic revenue growth above 5%. Our margins expanded, reaching adjusted gross margin of 51.8% and adjusted operating margin of 22.7%. Adjusted EPS grew 18% to a record $2.22 per share.

Cash flow from operations also achieved record performance, increasing 21%. Strong cash flow enabled us to repurchase $144 million in shares in the fourth quarter, bringing total 2018 repurchases to $244 million. This morning we announced initial expectations for our full-year outlook. We expect revenue growth of 8% to 10%, which includes organic growth of approximately 5%. Strong order momentum heading into 2019 and recently announced key franchise program wins give us confidence in delivering our organic growth targets.

I will note the effect of the partial government shutdown has created challenges. However, we view this largely as a matter of timing and are committed to recovering any impact over the balance of 2019. We expect 2019 adjusted operating margin of approximately 22% to 23%. This includes our recent acquisitions and incorporates accelerating investments in our long-term strategy, including unmanned solutions, ADAS and Intelligent Transportation Systems or ITS. Finally, we expect full-year adjusted EPS to be in the range of $2.30 to $2.36 which includes $0.06 of dilution from the acquisitions.

Slide 4 provides information on our results for the fourth quarter. Organic revenue fell below our expectations. The natural lumpiness of the business was aggravated by the government shutdown which challenged our ability to secure licenses and ship products. We estimate $8 million or 2% of revenue delays in the fourth quarter, primarily impacting the Government & Defense business unit. While fourth quarter revenue growth was less robust than previous quarters, we're well positioned for 2019 with organic bookings growth of 20% compared to the fourth quarter of 2017 as well as significant recent program wins. We also announced a 6% increase in our quarterly dividend to $0.17 per share which will be payable on March 8th to shareholders of record as of February 22.

Turning to Slide 5. I'd like to remind you that in May, we shared our strategic priorities to Fuel, Feed and Focus the business with The FLIR Method as its foundation. I'd now like to update you on our progress. Starting with Fuel on Slide 6, we advanced many near-term opportunities to gain scale in the business with recent franchise program wins as well as strong non-programmatic bookings in the fourth quarter, we're well positioned for continued growth in 2019.

In the Government & Defense business unit over the last 60 days we were awarded two contracts to deliver Black Hornet Personal Reconnaissance Systems. In January, FLIR was awarded a $40 million order from the U.S. Army for the next phase of the Soldier Borne System program or SBS. The second was an award in December of an $89 million IDIQ from the French Armed Forces we expect to deliver over the next five years. The first task order has already been received for approximately $12 million. I'm really proud of the Government & Defense team's ability to deliver backlog equal to the fourth quarter of 2017.

During 2018, we successfully addressed the sunsetting EO/IR-FP and DR-SKO programs which represented approximately $92 million of backlog at the end of 2017 as compared with $35 million ending 2018. Recent franchise program wins, strong non-programmatic bookings and consistent book-to-bill of over 1.0 gives us confidence in our ability to drive future growth. Our Industrial business unit won the largest optical gas imaging camera order in FLIR history in the fourth quarter. This family of offerings can detect errant gases such as methane, carbon monoxide and sulfur hexafluoride, and we've invested in this business with the intention of expanding the market to help address health and safety regulations aligned with our mission to save lives and livelihood.

We've also earned several machine vision wins across numerous manufacturing and process verticals. During the fourth quarter, the Commercial business unit was awarded a contract to secure the Haramain high-speed railway in Saudi Arabia, representing the largest project win in FLIR's commercial security history. Commercial was also awarded a wide-scale intelligent transportation project in Hamburg, Germany, utilizing FLIR's differentiated thermal solutions with deliveries over 2019 and 2020. This represents a significant win in our ITS division that fuels our strategy to expand offerings in the smart and connected city platform solutions.

Turning to Slide 7, our efforts to innovate differentiated technologies to save lives and livelihood were brought to fruition with one of the most compelling recent quarters for new product introductions. I'll highlight just a couple of those. In December, the Industrial business unit announced three advanced additions to the Neutrino family of cooled mid-wave camera cores. Continually innovating at the sensor level is a key advantage to our technology to fuel growth for the entire business.

The Neutrino LC is the smallest, lightest weight and lowest power-consuming Neutrino model available. We also introduced two performance Neutrino models, offering the highest resolution mid-wave camera performance on the market. The Neutrino SX12 produces high-definition thermal video, while the Neutrino QX is FLIR's highest resolution mid-wave camera core. Both performance models provide crisp imagery at long distance, while maintaining a wide field of view.

Also in January as an extension of advancing our unmanned strategy in the Commercial business unit, we introduced Raymarine DockSense. DockSense is a groundbreaking assisted docking system that automates and simplifies the boat docking experience. DockSense leverages technologies from across the Company to integrate intelligence gathered from surrounding imagery to assist boat owners in tight quarter docking maneuvering. DockSense is an example of our continued effort to move from providing sensors to offering full solutions.

Turning to Slide 8, you'll recall from our Investor Day in May, we articulated a strategy to feed the long-term market opportunity in unmanned solutions. We've made two acquisitions to start 2019 to significantly advance that strategy. Building upon the success of the Black Hornet Nano UAS, last month we announced the acquisition of Aeryon Labs to further expand our UAS portfolio. Aeryon Labs is a leading developer of high-performance UAS solutions for military, public safety and critical infrastructure markets.

Aeryon's Sky Ranger UAS is a vertical takeoff and landing quadcopter with larger payload and lift capability that integrates multiple sensors, including FLIR thermal technology, a strong user interface and advanced flight management software. 20 different militaries around the world use Aeryon's market-leading products for intelligence, surveillance and reconnaissance operations. The acquisition further establishes FLIR as a leader in the Group 1 UAS space, and reinforces our long-term strategy to provide complete turnkey solutions.

Turning to Slide 9, on Monday, we announced a second acquisition in the unmanned space with the signing of an agreement to acquire Endeavor Robotics. Endeavor Robotics is a leading developer of battle-tested tactical unmanned ground vehicles or UGVs for the global military, public safety and critical infrastructure models. They are highly mobile and easy to operate ground robots utilizing advanced sensing to provide explosive ordnance disposal, reconnaissance, inspection, and hazardous materials support at stand-off range. The talented team that Endeavor has a heritage of innovating solutions that are proven to save lives in field. Having shipped more than 7,000 UGVs to customers in over 55 countries, they're one of the largest UGV providers to the U.S. Department of Defense.

Having recently won the U.S. Army's Man Transportable Robotic System Increment II better known as MTRS, Endeavor has momentum with the DoD and is well positioned for several other franchise program wins. Upon completion, Endeavor will join Aeryon in the unmanned systems and integrated solutions division within the Government & Defense business unit. The additions of Aeryon and Endeavor significantly advance our strategy to be a leader in unmanned solutions.

Furthermore combined with Prox Dynamics, these acquisitions expand the market penetration of our sensor suite for CBRNE and EO/IR applications. Aeryon was funded with cash on hand, while Endeavor will be partially funded with existing cash as well as borrowings under our current credit facility. While we're not discussing financials specifically we expect the combined acquisitions to dilute 2019 adjusted EPS by approximately $0.06 per share. We expect the acquisitions to be accretive in 2020 and thereafter.

Turning to Slide 10, along with the inorganic efforts we've made to build out the unmanned systems and integrated solutions business we've continued making significant organic investments in the high-growth markets of unmanned ADAS and ITS, harvesting savings from The FLIR Method or TFM we are self-funding the talent, processes and tools to win in these categories long term. TFM enables us to rapidly advance our long-term strategies and maintain operating margins in line with our 2021 targets.

As an example of our feed efforts in ADAS, at CES in January the Industrial business unit launched our second generation thermal vision ADK, featuring the high-resolution Boson core. Paired with machine vision algorithms for object classification, the ADK leverages thermal to provide critical data to improve decision making and safety of autonomous vehicles where other sensors experience challenges such as darkness, shadows, sun glare, fog, smoke or haze.

Also at CES, we introduced the industry's first thermal camera-equipped commercial test vehicle. FLIR's autonomous car features multiple FLIR ADK cameras that provide a 360-degree street view and demonstrate thermals integration capabilities with radar, LiDAR and visible cameras found on autonomous vehicles today. The autonomous car also features thermal camera-enhanced automatic emergency braking. We will continue to feed target opportunities to position our differentiated solutions in attractive markets with long-term growth trajectories.

Turning to Slide 11, as detailed at the Investor Day in May, our strategic priority around Focus was largely targeted at reorienting certain commercial businesses toward the professional and divesting businesses that did not fit our long-term strategy. In 2019, efforts will focus on one of the most critical parts of FLIR's mission, the customer experience. I believe there is substantial opportunity to improve all of the touch points our customers have with FLIR and our products. How we communicate, how we quote and sell our products, how we ship and service our products and most importantly our customers' end-to-end experience using our products in their mission.

The FLIR Method continues to serve as the foundation behind our efforts to transform into a world-class operating business. We made significant gains over the past 12 months to 18 months, principally focused on lean manufacturing and continuous improvement. As we go forward 2019 will include an increased focus on building out other elements of The FLIR Method, notably acquisition and integration discipline and global talent development.

I will now turn the call over to Carol for her review of financial highlights. Carol?

Carol P. Lowe -- Executive Vice President and Chief Financial Officer

Thank you, Jim. On Slide 12, you'll see a summary of our fourth quarter and full year 2018 financial results. Please note with the exception of cash flow all of these financials are on a non-GAAP basis. Reconciliation to GAAP data is included in the filed appendix. Consolidated revenue for the fourth quarter was $448 million, a 9% decrease year-over-year. Organic revenue growth was in line with the fourth quarter 2017. While fourth quarter revenue growth was less robust than previous quarters, we are well positioned for 2019 with organic bookings growth of 20% compared to fourth quarter 2017, as well as significant recent franchise program wins.

Our 12-month backlog finished the fourth quarter at $602 million. Fourth quarter adjusted gross margin improved 300 basis points year-over-year to 52%. Gross margin expansion was driven by favorable mix and productivity gains driven by The FLIR Method. Fourth quarter adjusted operating margin was 24%, 150 basis points higher than last year with margin improvement in all business units. Solid operating leverage led to adjusted net income of $86 million up 5% for the fourth quarter of 2018. We achieved record adjusted EPS in the quarter of $0.62 per share, 7% higher than the prior year.

Adjusted net income was favorably impacted by a 600 basis point decrease in our effective tax rate versus Q4 of the prior year. This was primarily due to the enactment of the U.S. Tax Cuts and Jobs Act, as well as a jurisdictional mix shift of our taxable income. During the quarter, we generated cash flow from operations of $98 million. This brings our cash flow from operations for the full year 2018 to a record $374 million, representing a 21% increase over the same period last year, driven by solid earnings growth and working capital improvement.

Turning to capital allocation. In the fourth quarter, we repurchased approximately 3 million shares at an average price of $47.80 per share bringing our total 2018 repurchases to 5 million shares or $244 million. We expect to continue covering dilution associated with our equity compensation program as well as being opportunistic with our share repurchases. We also returned $22 million to shareholders through the payment of dividends, increasing our full year dividend payment to $88 million.

Our solid liquidity and $512 million year-end cash balance is enabling the execution of the recent acquisitions, primarily with cash on hand. Including the impact of our announced acquisitions, we do not expect our net leverage to exceed 1.9 times by the end of 2019. On the right side of Slide 12, you'll see our full year financial results which Jim covered in his opening comments.

Moving to Slide 13. I will highlight performance from each of our business units in the fourth quarter. Beginning with the Industrial business unit. Fourth quarter revenue was $182 million in line with fourth quarter of 2017 driven by strength in cooled thermal cores, industrial UAS and automotive solutions but offset by declines in instruments and uncooled cores and strong prior year comparables. Operating income for Industrial was $57 million, 3% higher than the prior year. Operating margin improved 90 basis points year-over-year due to favorable product mix and productivity gains.

The Government & Defense business unit saw revenue decline 2.5% year-over-year. Deliveries of UAS solutions, integrated systems and maritime systems were topline strengths. Revenue growth was offset by declines in CBRNE systems and impact from the government shutdown. Government & Defense operating income was down 2% compared to the fourth quarter of 2017. Product mix and productivity gains contributed to a 20 basis point margin improvement over the prior year.

The Commercial business unit's fourth quarter revenue was down 30% year-over-year due to $47 million of revenue in the fourth quarter 2017 from the retail security businesses divested in early 2018. Excluding the divestitures, Commercial business unit's fourth quarter revenue grew 5% over last year. We saw continued momentum in ITS and renewed strength in security. Operating income for the Commercial business unit decreased 7% year-over-year. This decrease was impacted by $2 million in prior year operating income from the divested security businesses and $1 million in U.S. import tariff effects. Despite these challenges operating margin expanded 400 basis points year-over-year. Margin expansion was primarily driven by improved product mix.

Turning to this year. We have outlined our 2019 outlook on Slide 14, and I'd like to provide more color on the guidance. Jim has noted the impact of the government shutdown on our fourth quarter 2018 revenue as well as first half 2019 impact. With that backdrop, we expect revenue for the full year 2019 of $1.92 billion to $1.95 billion, representing 8% to 10% growth over 2018, including results from the recently announced acquisitions. We expect organic revenue growth to contribute approximately 5%. We also expect the first quarter to be in line with first quarter 2018, and while 2018 was front-end loaded for revenue growth, we expect 2019 to have stronger revenue growth in the second half. We estimate adjusted operating income margin of 22% to 23%. Adjusted operating margin expectations include impact from the previously mentioned acquisitions and incorporates funding accelerated investments and our long-term strategic priorities via topline growth and productivity wins from The FLIR Method.

Finally, our full-year adjusted earnings per share expectation is $2.30 per share to $2.36 per share. Adjusted EPS guidance includes $0.06 of dilution from the recently announced acquisitions. It also includes a 20.5% adjusted effective tax rate and $25.5 million in net interest expense as well as diluted share count of 137.7 million shares. In addition, we expect our CapEx to be approximately $50 million to $60 million in 2019.

I will now pass the call back to Jim.

James J. Cannon -- President and Chief Executive Officer

Thank you Carol. Last month, I had the honor of joining World Wildlife Fund or WWF's CEO, Carter Roberts at CES to announce the Kifaru Rising Project. A collaboration between our organization to bring an end to illegal rhino poaching in 10 parks and game reserves in Kenya using FLIR Technology. Our collaboration with WWF in the Kafaru Rising Project signifies the broadest scale deployment of FLIR technology for wildlife protection and represents a vital step to help save these endangered animals.

We're confident in the project's purpose based on dramatic results we've observed in smaller-scale testing with WWF and rangers in Kenya. The Kifaru Rising Project is our first key flagship program introduced as a part of FLIR Hero, the Company's new corporate social responsibility platform introduced last year. Please visit flir.com to learn more about this important effort. Again, 2018 was a transformational year for FLIR, we published a new strategy and set the conditions for its success.

In 2019, we will work to rapidly advance that strategy. It's our vision to revolutionize human awareness and perception so that professionals can make better decisions that save lives and livelihood. Lastly, I could not be more proud of the FLIR team for their efforts in 2018 yet never satisfied. I want to thank all of our FLIR teammates around the world for their commitment to our customers' mission.

I'll now open up the call for Q&A. Operator?

Questions and Answers:

Operator

Thank you. We'd now be conducting a question-and-answer session. (Operator Instructions) Our first question today is coming from Peter Arment from Baird. Your line is now live.

Peter Arment -- Robert W. Baird & Co -- Analyst

Yes, thanks. Good morning, Jim, Carol.

Carol P. Lowe -- Executive Vice President and Chief Financial Officer

Good morning.

Peter Arment -- Robert W. Baird & Co -- Analyst

I know you're not going to give me a lot of the financial details on Endeavor and the deal hasn't closed yet, but just given that what seems to be a very high purchase price given what the private equity firm purchased the company a few years ago. Can you maybe just give us some color how the business has changed just to get a better understanding of the business?

James J. Cannon -- President and Chief Executive Officer

Yeah, absolutely. And we're not going to give specific details as you cited around the deal and we've yet to close of course. But if you look at the unmanned space in general particularly in DoD, as you know in the past three years there's been great strides. Principally coming together when the six strategic modernization priorities were detailed by the Secretary of Defense, and since that time the Army as well as the other branches have worked to adapt TTPs also understand the right technologies and how they're going to conduct that manned/unmanned teaming.

So Endeavor, over that period of time has seen a lot of progress working in collaboration with customers around end use cases and programs have begun to come to fruition. We mentioned the Man Transportable robot program win they got, MTRS II, but there is several other programs that over the coming 18, 24, 36 months will come to a decision that certainly amplifies the value of Endeavor.

And as we look forward into the future and it's why we're so excited about unmanned opportunities, not just unmanned air and ground but air/ground teaming, manned/unmanned teeming, we just see that opportunity continuing to grow. And at our core being a sensor company, all of these unmanned solutions deliver some sort of sensing capability for decision-making purposes, whether it's CBRNE detection, EO/IR, etcetera. Also and lastly I'll touch on, we mentioned ADAS. A lot of work that we're doing in our Industrial business unit around ADAS and as we build out our unmanned capabilities, in DoD, we see a lot of synergies between work that we're doing with passenger, commercial vehicle trucking with ADAS with Intelligent Transportation Systems and infrastructure speaking to sensors on vehicles as well as the sensor suites and software algorithms, machine learning required to have more autonomous flight and unmanned ground vehicles. So we couldn't be more excited about the future of what Endeavor can bring to FLIR.

Peter Arment -- Robert W. Baird & Co -- Analyst

Yeah, that's great. And just as a follow-up, just if I could ask, are you expecting all three segments to show organic growth in 2019? Or does the offsets in CBRNE continuing to really kind of -- should we expect to have it down here in government?

James J. Cannon -- President and Chief Executive Officer

We are targeting all three business units to deliver organic growth. Again, we mentioned at our Investor Day last year, we're targeting a 5% organic growth CAGR, and we expect all businesses to contribute to that. Certainly, there are some divisions that have a more optimistic outlook of 2019 than others, but on a whole again we do expect all three business units to deliver that organic growth, and that's an important metric for us. As we're moving forward now and have executed the first, let's say, sizable acquisitions that we've done in some time, making sure that core business is healthy and continuing to grow, is an obvious priority for us.

Peter Arment -- Robert W. Baird & Co -- Analyst

Appreciate the color. Thanks Jim.

James J. Cannon -- President and Chief Executive Officer

Thank you, Peter.

Operator

Thank you. Our next question today is coming from Michael Ciarmoli from SunTrust Robinson Humphrey. Your line is now live.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Hey, good morning, guys. Thanks for taking the questions here. Yeah, maybe Jim, not to harp on it, but just to follow up on Endeavor and that, what looks to be a very healthy valuation based on sales. They've got this upcoming competition the CRS-I contract, I think Kinetic is the other player there. How did the potential outcome of that award factor into the purchase decision? I mean, did Endeavor -- were they lacking in certain capabilities or scale? Did you hear anything from the customer that would provide you with additional confidence that pulling Endeavor under your sort of umbrella would kind of increase the hit rate of that program? Just trying to figure out how you got comfortable with some of those programmatic unknowns and why make the acquisition so close to a contract decision?

James J. Cannon -- President and Chief Executive Officer

That's right. Well, there are several programs that are coming up. You mentioned one that's immediately let's say before us, and as we look and did diligence we looked at all the various programs that are out there in the future. The timing of which knowing also that these programs often slide to the right. They really happen sooner than you think, and probability of win, because there are a lot of folks interested in the unmanned space but we believe Endeavor, with fielding of the technology that already has with the lessons that it's learned with the IP portfolio that it has is well positioned.

We also looked at non-programmatic opportunities and other allied military opportunities. Endeavor has been largely focused on U.S. DoD programs. A lot of our strength in the Government & Defense business as you know historically has been non-programmatic. Whether it's trying to capture OKO funds or special operations forces or with allied nations. So that's an area that we feel like we could bring some synergy to Endeavor going forward, and then you mentioned our sensor suites. We're pretty proud of our CBRNE detection capabilities, we're pretty proud of our ability when it comes to SWaP-C around, EO/IR sensors and those are core capabilities -- sensing capabilities that Endeavor will utilize as they bring their products forward and compete on these programs.

So that's an area of technology synergies that we see, again, strengthens their position going forward, but I guess, to specifically answer your question, if we did not win any one program that's pending, that would not have dampened our appetite to bring Endeavor to be a part of FLIR. We have a lot of conviction about the future long-term growth trajectories of unmanned capabilities not just in DoD, but also critical infrastructure industrial applications that require standoff, hazardous material management, all of the areas where we see ourselves participating in the long term. Unmanned will continue to grow in the decades to come.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Got it. That's extremely helpful. And then Carol, just if I may, the operating margin guidance for '19 22% to 23%, flattish year-over-year. Could you maybe just give a little more color or kind of bridge the year-over-year? I mean, you've got the investment spending assuming there's maybe a step-up in R&D and SG&A, but even -- what the organic margins may have looked like or how much dilution is on those margins from the acquisitions?

Carol P. Lowe -- Executive Vice President and Chief Financial Officer

Yes, so we're not breaking out other than providing the dilution associated with EPS for the acquisitions in total. A portion of that dilution is attributable to additional interest expense that we'll have for the year because of the borrowings that we'll utilize to fund a portion of the Endeavor Robotics transaction. Overall, Jim commented about the need for investing in our long-term strategies and we're leveraging The FLIR Method as well as a topline growth to be able to maintain at that 22% to 23% and make sure we deliver on our long-term strategic plan commitment we've shared in May, which was a target of approximately 23% operating margin.

And it's not just about the reinvestment, but if you think about just standard inflationary-type increases around compensation, benefit, the fact that we're absorbing that, also absorbing some of the investment needed in the businesses to address the consent agreement and other things to move toward a world-class operation. We're actually very happy that we're able to fund these investments and maintain our margins in 2019 at what was a 2021 operating margin target of 23%.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Perfect. Now, that's helpful. Thank you very much guys. I will turn back in the queue.

James J. Cannon -- President and Chief Executive Officer

Thanks Michael.

Operator

Thank you. Our next question today is coming from Noah Poponak from Goldman Sachs. Your line is now live.

Noah Poponak -- Goldman Sachs -- Analyst

Hey Good morning, everyone.

Good morning, Noah.

Hey, I hate to ask the same question three times, but I just have so many questions already this morning from your stakeholders. I imagine we will continue to get them and I think rightfully so. So, just wanted to kind of take one more shot at the price paid for these last two acquisitions. Just on the -- I can sort of back up the inorganic revenue in our guidance, as somebody just asked we can see the price paid only three years ago, and it's just quite a high multiple and you've sort of changed your balance sheet position pretty significantly. It would seem like you must see something very considerably different than what was in this business three years ago. Are the margins much different? Is there something already in the backlog you've secured? Just wanted to take one more shot at that.

And then also related Jim I thought you had sort of discussed a strategy to want to go more into software and data analytics in acquisitions. These are pretty hardware-oriented, if you can address that as well.

James J. Cannon -- President and Chief Executive Officer

Sure. I mean, I won't reiterate a lot of the ground that I mentioned earlier except to say, as we look at long-term growth opportunities that we think are uniquely fit FLIR's strengths, growth in the unmanned space is compelling for us. It's compelling...

Noah Poponak -- Goldman Sachs -- Analyst

But the industry must have seen that three years ago right? So why would the number be so much larger? I mean, speaking of unmanned...

James J. Cannon -- President and Chief Executive Officer

Yeah. three years ago technology and industry was in a very different place. I mean, these are technologies that are moving weekly, monthly. I mean, if I look at the SWaP-C, that we could drive three years ago or sensors that we could put into unmanned capabilities three years ago, it was not nearly where it is now. I mean, if we look at what we have with Black Hornet, from Black Hornet 1 to Black Hornet 3 and the capabilities that it has on board and something that weighs 33 grams, very different position.

And if you look at it from the users standpoint three years ago these things and they still have so much more room to go, could be very awkward to employ, requiring a real dedication of the operator that would take them in a military application in many cases out of the fight just to operate the equipment. Now, more and more, we want head up, our hands up with the manned/unmanned teaming working semi -- ultimately, we hope fully autonomously. So I think in three years, a, the technology has moved quickly. I think user adoption is continuing to move quickly, but still immature and that's why we're particularly attracted to this right now.

Also when I think about unmanned going forward, it fits where FLIR historically has been strong. It proliferates the sensor suite that we continue to push with SWaP-C. It has defense applications as well as industrial applications, professionals that need stand-off in autonomous, and the question about software and data analytics I think couples these two acquisitions perfectly. We mentioned a lot of the organic investments that we need to continue to make around unmanned and ADAS and ITS in particular, and a lot of those organic investments are to build out a stronger capability around software, machine learning, data analytics, artificial intelligence, because we feel really good about Aeryon and Endeavor's hardware capabilities and they have software capabilities as well. Certainly, it's a strength of ours with CBRNE sensors and EO/IR sensors.

But that piece in between how we again get these sensors to be more intelligent, more autonomous, more processing at the edge, etcetera is an area of specific investment that we're making organically, that will benefit these two deals Aeryon and Endeavor as well as, just about all of our legacy businesses. If you recall, last year we made a minority investment of a company called CVEDIA, this built a synthetic artificial learning city if you will that we can populate with imagery, so our cameras can get smarter. And we're just now beginning to get that technology end-to-end product.

So certainly appreciate that -- a PE Firm had a healthy return on their investment, but we believe that this is -- has got tremendous growth potential as we go into the out years, because more and more as we look specifically at DoD we know that a direction is set to build out more and more unmanned capabilities, but I think with that industrial and other first responder applications as price points and costs come down, will proliferate.

Noah Poponak -- Goldman Sachs -- Analyst

Yeah, I appreciate all that detail. Just one more question. In the organic Government & Defense business you had coming into this year, the two major program roll-offs. You just made a comment about those being addressed and then you are forecasting the segment to grow organically. Have you had extensions on those programs? Or have the wins you've secured just totally filled the gap? And I guess how much of the revenue forecast for the year is covered in backlog at this point?

James J. Cannon -- President and Chief Executive Officer

Yeah. So as we mentioned earlier, right now, last year we had I think about $90 million between DR-SKO and EO/IR-FP in our backlog. Right now, we've got about $30 million. They do not extend formally as programs. However, we did receive the last tranche of DR-SKO for $28 million that's in the backlog now. Now, for both demand continues, for EO/IR-FP under the RAID program, there is a continued need for those products. How they meet that need going forward is yet to be decided upon. There is potentially a program out there called G-BOSS(E) that could fit that need or there could be continued demand under the current vehicle that they have. DR-SKO will likely evolve.

We think that -- with new challenges and new threats also with the advance of technology, DR-SKO could look very different going forward. Again, there's still very much a need for that type of product, but that's an area where perhaps in the future unmanned solutions are included in the future DR-SKO to get standoff perhaps, but there's work to do to understand that clarity. Other smaller program wins as well as just the non-programmatic business that we historically drive has accounted for the EO/IR and DR-SKO programs coming into life. David, do you want to add any color to that?

David Ray -- President, Government & Defense Business Unit

I think that was a great answer. The only thing I would add is that, when you look at our backlog versus 2018 versus Q4 2017, it sets a picture that we've covered that $92 million of backlog where Jim previously discussed, that does not include the $40 million SBS award which we got the week -- first week of January. So if you count that in week one to week one we're actually $40 million up where we were from Q1 '18 first week of the month of January. So it speaks to the continued hard work being done by our teams to continue to accelerate those program wins coupled with what we call the scrappiness of those non-programmatic bookings to really position the business long-term for continued and predictable growth quarter-in and quarter-out.

Noah Poponak -- Goldman Sachs -- Analyst

Okay, thanks so much.

James J. Cannon -- President and Chief Executive Officer

Thanks Noah.

Operator

Thank you. Our next question today is coming from Josh Sullivan from Seaport Global. Your line is now live.

Josh Sullivan -- Seaport Global Securities -- Analyst

Hey, good morning. Just a clarification. On the 8% to 10% revenue guidance, what's the assumption for the timing of the close of the two acquisitions? And I know you said Q1 is going to look like Q1 '18 but just curious on the timing of when the acquisitions actually start contributing in '19?

James J. Cannon -- President and Chief Executive Officer

Yes. Endeavor should close in 30 days is the expectation of when it'll close, and Aeryon, obviously is closed now.

Josh Sullivan -- Seaport Global Securities -- Analyst

And then just one on the machine vision market. How is the consumer electronics market looking at this point? Has it bottomed, and just what you're looking at into 2019 from here?

James J. Cannon -- President and Chief Executive Officer

Yeah, the machine vision business as you know in 2018 had really tough comparables in the back half -- second half of 2018 given all the demand in Asia with mobile smartphone production etcetera. Since that time through 2018, the team has worked really hard and won a lot of new business and new process verticals I'll say around fruit inspection etcetera, but that consumer electronics business right now is pretty slow for us still. We expect bookings growth through 2019 in that business but pretty modest growth because of those dynamics. Frank, do you want to add any color about the business?

Frank Pennisi -- President, Industrial Business Unit

I'll reinforce some of what Jim said. The smartphone market, the consumer market in general was huge in 2017. So we had some really large comps to go up again. Essentially in '18, we worked a lot of that through our system and pivoted ourselves. We're in a lot of test and measurement-related equipment whether or not -- whether it's inspecting optics or life sciences that sort of a thing as well as people counting, which has been a large growth engine for us, where we put our machine vision cameras. So that's been able to largely offset the consumer electronics businesses and set us up for really strong bookings growth in 2019.

Josh Sullivan -- Seaport Global Securities -- Analyst

Great. Thank you, I will get back in the queue.

James J. Cannon -- President and Chief Executive Officer

Thanks Josh.

Operator

Thank you. Our next question today is coming from Jim Ricchiuti from Needham & Company. Your line is now live.

Jim Ricchiuti -- Needham & Company -- Analyst

Hi, thanks. You did allude to some wins on the machine vision side, several million-dollar contracts. Can you talk a little bit about the types of applications that they were for?

James J. Cannon -- President and Chief Executive Officer

Sure. Frank?

Frank Pennisi -- President, Industrial Business Unit

Basically the same thing that I mentioned before. The bulk of those were in systems that are sold to other customers that do test and measurement whether that's inspecting something, whether it's spectroscopy, whether it's life sciences. We've gotten ourselves designed into a number of those systems. The other are people counting, where you're looking at tracking whether it's in a retail environment or a large growth engine of airports. A lot of those areas happen to be areas where we're designing in as the semiconductor and consumer electronics industry, which we have strong penetration in is low and we have something to be able to offset it over time.

Jim Ricchiuti -- Needham & Company -- Analyst

Got it. And on the gas imaging order that you highlighted, we're waiting for this market to develop for a while. Is this potentially one of those types of breakthrough wins that maybe gets this market where it needs to be in terms of adopting your technology?

James J. Cannon -- President and Chief Executive Officer

I don't think that order in particular, I wouldn't characterize it is a breakthrough, but I will say throughout all of 2018 we just saw continued strength in our optical gas finding products. We've also been focused on a lot of innovation around the optical gas finding and you'll see more of that with new products and developments through 2019 to make the product more available and accessible to markets that need it. A lot of the growth that we saw in '18 is tied to regulation right, around health and safety in various industries, but it's interesting as we think about -- and I'll go back to unmanned for a moment, but as we think about unmanned capabilities and industry the ability to be able to go out and see and quantify gases with autonomous solutions across neighborhoods and such, we see an interesting kind of conversions of unique sensing capabilities we have like optical gas findings with other ways to deliver that sensing solution.

Jim Ricchiuti -- Needham & Company -- Analyst

Got it. And if I could just slip one more in. Just with respect to Endeavor, have you continued to work with them over the years on the explosive detection side of the business? I know you were supplying the Fido detector into a bunch of these PackBot robots. Has that relationship been maintained over the years?

James J. Cannon -- President and Chief Executive Officer

David, do you want to answer?

David Ray -- President, Government & Defense Business Unit

So it has been but it's through the partnership with the Army and the joint program office for chem/bio detection. So they have a relationship and have had a historical relationship through that office. And as we've developed our capabilities, there have been opportunities to collaborate in concert with that customer. This acquisition now gives us an opportunity to leverage the R&D power within FLIR and the capabilities that exist today to really be able to take a step function move forward in delivering those total solutions and accelerating that next-generation chem/bio detection capability through those UGVs now that were won under FLIR, but principally it's been as a partnership through our collective conversations with the U.S. Army. Does that make sense?

Jim Ricchiuti -- Needham & Company -- Analyst

Yeah, it does. Got it, thanks a lot.

James J. Cannon -- President and Chief Executive Officer

Thank you, Jim.

Operator

Thank you. Our next question today is coming from Pete Skibitski with Alembic Global. Your line is now live.

Pete Skibitski -- Alembic Global -- Analyst

Good morning, guys. Couple of very quick ones on the two deals. First, for both of them is the revenue split in terms of government and non-government are they both kind of 80% to 90% government in terms of their revenue? That's the first one. And then the second one is, do they both sell to the government on commercial terms like most of the rest of, I think your business does?

James J. Cannon -- President and Chief Executive Officer

Yeah, both of the businesses are almost entirely focused on military and government applications. Principally, as I mentioned with Endeavor a lot of DoD-related programs and Aeryon does have some first responder and non-DoD government business. But, yes both businesses right now are principally focused on government specifically, military applications. We think over time, as I mentioned earlier, we have some commercial synergies. As we bring together the UIS business, we look at some of our historical strength in non-programmatic and allied military spending, but their go-to-market and commercial teams operate much like ours.

David Ray -- President, Government & Defense Business Unit

So the only thing I would is add is, question about commercial terms of we operate. Largely, in the non-programmatic world that's the case. I will say for some of those franchise programs like MTRS, that's a traditional government program where you have an EMD development phase that transitions to production, which increases the level of customer engagement. but the more traditional DoD approach. And I think that's an opportunity space that allows us to grow inside of that customer, because as the opportunities gets bigger, they will look more like that than a traditional commercial transaction.

Carol P. Lowe -- Executive Vice President and Chief Financial Officer

And David since you mentioned MTRS and we had three questions initially about the valuation around Endeavor Robotics, and what was different in terms of what the PE firm paid versus FLIR's assessment of the value. The MTRS is specifically a new program that has been awarded. The team at Endeavor Robotics has really focused on winning the programs of record in a very strategic way and they've been really successful, that program is very meaningful. We referenced it in our press release about the acquisition.

Also the Department of Defense has been very vocal about shifting their funding toward UGVs significantly over the last couple of years. Jim noted that in his response that, just wanted to really emphasize that, we see the opportunity as much greater that the business has created value in the last couple of years including introducing two new robots in that very differentiated.

Pete Skibitski -- Alembic Global -- Analyst

Thank you very much, guys. And then last one for me, Jim, there has been some consolidation ongoing in the defense space at kind of the -- at the OEM level, the bare level, and some of them, I think are talking about portfolio shaping and involving night vision units. And I'm just wondering post these deals, are you guys kind of still in the market for deals of a similar size kind of that $200 million plus size? Or maybe -- are you going to take a breather on that for a while and focus on the integration?

James J. Cannon -- President and Chief Executive Officer

Yeah. Right now, I mean the principal task ahead of us is to execute a successful integration, and as I mentioned in The FLIR Method, one of the elements is integration acquisition discipline, and that's something of particular focus for us right now. Over the longer term we'll remain an acquisitive company. We mentioned with our long-term guidance at the Investor Day. We want to grow organically, but throughout we want to advance very deliberately our strategy. We work for the better part of the year to develop these opportunities specifically to gain scale in the unmanned space. So, you'll see us continue to be very deliberate, strategic in deals that we approach. But right now for the near term, our focus certainly is to integrate successfully these deals.

Pete Skibitski -- Alembic Global -- Analyst

Thank you.

Operator

Thank you. Our next question today is coming from Louie Dipalma from William Blair. Your line is now live.

Louie Dipalma -- William Blair -- Analyst

Good morning. Jim and Frank in the third quarter the industrial business in Europe experienced double-digit sales declines while the U.S. industrials remained very strong. Your pie chart shows the Europe being down $12 million year-over-year in the fourth quarter. I was wondering in general is there anything extraordinary that is occurring in Europe for the Industrials business unit?

James J. Cannon -- President and Chief Executive Officer

Frank do you want to?

Frank Pennisi -- President, Industrial Business Unit

In general what I'll just say is the macroeconomic things or indicators going on in Europe are a little bit sluggish relative to the rest of the world. Europe is actually one of the things that why our growth is a little bit sluggish. I would say Europe was one of the key drivers of that along with large prior year comparables that we had tied to some big transitions that we had. As we move from consumer to professional, we had some smaller-type buys or as we moved over everything over to Boson, we're transitioning customers over. So we had very large transitions side of that, that gave us some of that prior year comps. And I'll also say that Europe macros were actually playing into that and that's one of the things that we're seeing. Nowhere else in the world, this is largely Europe though.

Louie Dipalma -- William Blair -- Analyst

Okay. And for Carol, in what inning are we in in terms of FLIR Method-related margin expansion? Are there any specific margin expansion projects on the horizon for 2019?

Carol P. Lowe -- Executive Vice President and Chief Financial Officer

So we have ongoing initiatives and focus around The FLIR Method, and just as a reminder and Jim noted this in his comments that beyond just lean and continuous improvement, there are multiple elements of The FLIR Method, and we're leveraging most all of them across all three of the business units as well as looking at some of our back-office processes that sit across the entire Company. So we're ramping up on that, we realized actual results we could see in the P&L in 2018 and they are modeled in our guidance for 2019.

Of course, we've highlighted that we want to take a large portion of those and invest them back into the business to support our long-term strategic goals for the Company. So, we do think at a future date, we will be able to see some margin expansion, but at this time we're still staying with the 23% targeted operating margin over our strategic planning horizon, which runs through 2021.

Louie Dipalma -- William Blair -- Analyst

Okay. And last one for David, the Soldier Borne Sensor was a really nice win. Is all of that $40 million in units to be delivered in 2019? Or will some of that extend into the future years?

David Ray -- President, Government & Defense Business Unit

So we expect that production program to deliver over 18 month to 24 month period. As part of what we're trying to drive we're looking at how we increase our production capacity to deliver, but short answer is 18 months to 24 months.

Carol P. Lowe -- Executive Vice President and Chief Financial Officer

Okay. And is there any update on the time line for the G-BOSS infrared and radar prospects?

David Ray -- President, Government & Defense Business Unit

No. That's something that again there's no update we have right now. It's still to be determined when that will be decided or if that's the path that they go.

Louie Dipalma -- William Blair -- Analyst

Okay, sounds good. Thanks everyone.

James J. Cannon -- President and Chief Executive Officer

Thank you, Louie.

Operator

Thank you. Our final question today is coming from Reed Motulsky from Imperial Capital. Your line is now live.

Reed Motulsky -- Imperial Capital -- Analyst

Hi, speaking on behalf of Jeff Kessler. What civil security applications in markets do you see as important focuses going forward specifically regarding cameras and unmanned vehicles?

James J. Cannon -- President and Chief Executive Officer

Yeah. So we mentioned that we've had -- we've been awarded our largest commercial security project to-date securing the railway in Saudi Arabia in Haramain, which is very important for us. We continue to look in our core markets at critical infrastructure applications etcetera. Why don't I have Travis the CBU President add some more color?

Travis D. Merrill -- President, Commercial Business Unit

Yes sure. I think if we look at the commercial security market, we can look at it from a few different segments that are attractive to us and really where we're focusing our resources. Critical infrastructure still tends to be our bread-and-butter for our thermal line of products and it will continue to be so. That's the way to look at the future, but we are also taking that thermal technology and looking to expand it into outdoor perimeter protection for commercial applications, which is largely unpenetrated today things like public parks, auto and car dealership lots, etcetera.

So that will be a longer-term new market development for us leveraging our thermal technology capabilities in a new security vertical. And then finally on the enterprise side, which is largely our visible technology, safe and smart cities continue to be an attractive vertical, and we've had a lot of successes in the last 12 months to 24 months in that key segment as well.

James J. Cannon -- President and Chief Executive Officer

And it's interesting, the effort with safe and smart cities coalesces in some ways touches our ADAS effort as we make intersections more intelligent, cities more intelligent, they can communicate with sensors on vehicles. We also think about it, not just from a commercial security standpoint, but ultimately autonomous and assisted driving solutions as well.

Reed Motulsky -- Imperial Capital -- Analyst

Thank you. That was good color. And what types of cores do you guys see being used in these applications? Camera cores?

James J. Cannon -- President and Chief Executive Officer

I mean right now our leading SWaP-C core will be the Boson, but depending on the need it could be cooled, uncooled camera cores again we continue to push the boundaries with size, weight and power to be able to develop and have the best high-rate production for both cooled and uncooled.

Travis D. Merrill -- President, Commercial Business Unit

We'll use Lepton when necessary as well.

James J. Cannon -- President and Chief Executive Officer

Yeah, Saros is a good example where we've integrated two Lepton cameras, so you can have great perimeter security applications with thermal with analytics that can determine if it's a dog or a pedestrian and initiate EO cameras. So Lepton is being used as well but the full suite of FLIR core sensing capabilities is available for the commercial security folks.

Reed Motulsky -- Imperial Capital -- Analyst

Great. Thanks for taking my questions.

James J. Cannon -- President and Chief Executive Officer

Thank you.

Operator

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

James J. Cannon -- President and Chief Executive Officer

Again I want to you for joining us on the call today and your interest in FLIR. We look forward to updating you on our progress and when we report our first quarter 2019 financial results. Thank you, everyone.

Operator

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.

Duration: 67 minutes

Call participants:

Jay Gentzkow -- Director-Corporate Development & Investor Relations

James J. Cannon -- President and Chief Executive Officer

Carol P. Lowe -- Executive Vice President and Chief Financial Officer

Peter Arment -- Robert W. Baird & Co -- Analyst

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Noah Poponak -- Goldman Sachs -- Analyst

David Ray -- President, Government & Defense Business Unit

Josh Sullivan -- Seaport Global Securities -- Analyst

Frank Pennisi -- President, Industrial Business Unit

Jim Ricchiuti -- Needham & Company -- Analyst

Pete Skibitski -- Alembic Global -- Analyst

Louie Dipalma -- William Blair -- Analyst

Reed Motulsky -- Imperial Capital -- Analyst

Travis D. Merrill -- President, Commercial Business Unit

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