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FLIR Systems Inc  (NASDAQ:FLIR)
Q1 2019 Earnings Call
April 24, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the FLIR Systems First Quarter 2019 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 introduce your host Jay Gentzkow, Head of Investor Relations for FLIR Systems. Please go ahead sir.

Jay Gentzkow -- Head of 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 statement 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 first quarter 2019 earnings call. With Jay and me today are Carol Lowe, our CFO; 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, we will focus upon three key messages: first, historically high bookings position the business to achieve our 2019 growth objectives; second, the team's steady commitment to productivity improvements is enabling us to harvest gains to invest back in the business while maintaining margins; and finally, we continue to make exciting progress on our strategic initiatives to fuel, feed and focus the business with the FLIR Method at the foundation to drive long-term value creation.

I'll start the review of the quarter on Slide 3 of the presentation with a few financial highlights. Carol will provide more color later in our prepared remarks. As announced, earlier this morning, we reported first quarter revenue of $445 million. Organic top line growth was in line with our expectations at 1%. Foreign exchange negatively impacted growth by 2%. Organic bookings growth exceeded our expectations in the quarter increasing 34% year-over-year. Historically high bookings were driven by both franchise program wins as well as non-programmatic order momentum in the Government & Defense and Industrial Business Units.

With a second consecutive quarter of robust bookings, we're on track with our long-term financial objectives. Total company 12-month current backlog increased 13% to $672 million compared to the balance at the end of the first quarter of 2018. Total backlog increased 19% to $836 million over the same period. Notably in the quarter, we grew current backlog by more than 26% in our Government & Defense Business Unit.

Adjusted gross profit increased 7% versus first quarter 2018. Adjusted gross margins improved 270 basis points to 53%, the highest quarterly adjusted gross margin since 2012. Gross margin expansion was due to favorable mix and the team's efforts to drive productivity initiatives through the FLIR Method. Adjusted operating income increased 11% over the first quarter of 2018. Adjusted operating margin also improved up 190 basis points in comparison to last year. We realized solid operating leverage with adjusted earnings per share growing 10% compared to the first quarter 2018. Operating cash flow reached $56 million for the quarter, up 29% over first quarter 2018.

Turning to our outlook, we're maintaining full year 2019 expectations as communicated in February. We continue to expect full year revenue growth in the range of 8% to 10%, which includes organic growth of approximately 5%. As we outlined on the fourth quarter call, unlike last year, we expect stronger second half 2019 revenue growth versus the first half. We also continue to expect full year adjusted earnings per share of $2.30 to $2.36.

As communicated on the fourth quarter call, our 2019 adjusted EPS outlook includes approximately $0.06 of dilution from the Aeryon Labs and Endeavor Robotics acquisitions. We expect to realize the majority of that dilution in the second quarter of 2019 as these high-growth businesses scale into the second half of the year. Finally, we announced a quarterly dividend of $0.17 per share which will be payable on June 7th to shareholders of record of May 24th.

Turning to Slide 4, we began the year with solid progress on our strategic priorities to fuel, feed and focus the business with the FLIR Method as its foundation. I'd like to highlight a few key first quarter developments.

We'll start with fuel on Slide 5 where we advanced many near-term opportunities to gain scale in the business. In the quarter, the Government & Defense Business Unit was awarded a $48 million development contract from the U.S. Department of Defense for a sensor suite upgrade for the Nuclear Biological Chemical Reconnaissance Vehicle or NBCRV. FLIR will be the lead developer and integrator in providing a wide selection of modernization capabilities on this manned and unmanned platform application. Along with our $158 million IDIQ program for the Man Transportable Robotic Systems Increment II program or MTRS, these franchise programs are clear examples of our evolution to a full-scale solution provider.

Also in the quarter, as detailed on the year-end call, the Government & Defense Business Unit won two franchise programs to deliver Black Hornet solutions, the next phase of the U.S. Army's $40 million Soldier Borne System program or SBS and the French Ministry of Defense's $89 million IDIQ program to deliver Black Hornet Personal Reconnaissance Systems or PRS. Additionally, we were also awarded a $2 million contract from the British Army to deliver Black Hornet PRS demonstrating solid global interest for Black Hornet solutions from Allied militaries.

Government & Defense franchise program wins in the first quarter were important contributors to bookings strength and helped successfully offset sunsetting 2018 programs. While not at the scale of the Government & Defense programs, our Industrial and Commercial Business Units continue to advance franchise programs. Wins around Neutrino cooled cores, premium handhelds, machine vision cameras, intelligent traffic systems and smart and connected cities continue to gain traction. And we look forward to updating you on wins in the coming quarters.

Turning to Slide 6. Our Industrial Business Unit launched several exciting new products since our last earnings call and I'd like to highlight a few. In February, we introduced two Optical Gas Imaging or OGI cameras for the oil and gas industry. The FLIR GF620 is our highest-resolution cooled thermal OGI camera. This best-in-class handheld thermal camera detects and visualizes leaks of hydrocarbon gases and other volatile organic compound emissions allowing inspectors to effectively and safely scan thousands of components from greater distances.

We also introduced the FLIR GF77, the industry's first uncooled methane-detecting OGI camera. Using a uncooled core significantly lowers the cost compared to other cooled OGI cameras providing more oil and gas professionals access to differentiated infrared technology to reduce emissions and ensure safer work environments.

Additionally in April, we announced the FLIR K1, our most competitively priced thermal camera for first responders and fire investigators. This rugged compact thermal imaging camera detects heat and provides visibility through smoke and in total darkness at a more affordable price point. The K1 will provide more first responders with lifesaving technology to improve situational awareness and keep their community safe.

Also this month, we launched two FLIR studio software products. The FLIR Research Studio is a new thermal imaging software for R&D and science professionals. This multi-platform software is designed for R&D and engineering teams to easily collaborate on data collection, analysis and sharing of FLIR camera images.

In addition, we introduced FLIR Thermal Studio. Thermal Studio is a thermal imaging analysis and reporting software designed to manage large sets of thermal images and videos. Engineered for thermographers who use FLIR thermal handheld cameras, OGI cameras and unmanned systems with thermal cameras, Thermal Studios' advanced processing capabilities and automation are designed to increase work efficiency and productivity. We're excited about the possibilities these two software tools bring to enhancing our customers' experience with FLIR cameras.

Turning to Slide 7. We continue to feed targeted opportunities with long-term growth trajectories through strategic investments. Starting on the left side with our recent unmanned developments in April, we made a strategic minority share investment in DroneBase. DroneBase is an exciting early stage company that provides businesses access to a large unmanned aerial surveillance pilot network. As part of our investment, FLIR will be the exclusive provider of thermal product technology for DroneBase 's inspection services. In addition it establishes FLIR as the official UAS training partner for their enterprise pilot network through FLIR's infrared training center. Our investment will not only expand the adoption of FLIR thermal imaging technology, but provide DroneBase users with more valuable actionable information to make better real-time decisions.

We spoke in detail on the fourth quarter call about our two recent acquisitions: Aeryon Labs and Endeavor Robotics. We successfully closed on the acquisition of Endeavor in the quarter and they've joined Aeryon in the Unmanned Systems and Integrated Solutions division within the Government & Defense Business Unit. Integration is progressing as planned and we're excited about the capabilities these two companies bring to FLIR's unmanned platform.

Finally, since its introduction in January, the Commercial Business Unit's groundbreaking assisted docking technology Raymarine DockSense continues to gain significant traction. We've received strong industry support including collaborations with boat makers Beneteau and Boston Whaler; and leading engine manufacturer Mercury Marine. We're enthusiastic about DockSense's future potential. The momentum for unmanned solutions across all of our business units has resulted in a bookings increase of approximately $60 million compared to the first quarter of 2018. We're encouraged about the recent developments in our unmanned platform and its long-term growth potential.

Moving to the right side of Slide 7, we believe thermal will play a critical role in saving lives as the ADAS market develops and have made strategic investments to position FLIR for that long-term opportunity. The Industrial Business Unit's second-generation, thermal vision, Automotive Developer Kit or ADK introduced in early Q1 continues to gain traction. FLIR thermal cameras are already installed and gathering data on over 20 manufacturers' autonomous vehicle fleets and we expect to significantly increase the number of ADK units delivered this year. As a result, we've made additional investments in FLIR's ADAS facility to prepare for the potential of higher unit volumes in the years to come.

We also continue to advance discussions with the over 50 customers in FLIR's ADAS partnership funnel with exciting developments under way. Finally, FLIR's autonomous vehicle featuring 360-degree thermal vision and automatic emergency braking is actively logging miles since introduced in January. We've already participated in several key industry ADAS events successfully demonstrating thermal's integration capabilities with Lidar, radar and visible cameras.

Let me now turn the call over to Carol for her review of the first quarter financial highlights. Carol?

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

Thank you, Jim. On Slide 8, you'll see a summary of our first quarter 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 quarter was $445 million, 1% increase year-over-year. Organic revenue also increased 1% with acquisition growth nearly offset by first quarter 2018 revenue from the divested security businesses. Foreign exchange negatively impacted growth by 2%. Revenue growth was in line with our expectations including a challenging year-over-year comparable as we've begun to lap strong performance by all business units that began in the first quarter of 2018.

As Jim mentioned, contrary to 2018, we expect a higher proportion of growth in the second half of 2019. In the first quarter, we drove historically strong organic bookings growth increasing 34% over the first quarter of 2018. Bookings outperformance was driven by both franchise program wins as well as strong non-programmatic orders in the Government & Defense and Industrial Business Units.

First quarter adjusted operating margin was 22%, 190 basis points higher than last year. We created solid operating leverage leading to adjusted net income of $73 million, up 7% from the first quarter of 2018.

Adjusted earnings per share was $0.53 in the quarter, 10% higher than the prior year. During the quarter, we generated cash flow from operations of $56 million, representing a 29% increase over the same period last year driven by solid earnings growth. In the quarter, we repurchased approximately 500,000 shares for $25 million. We also returned $23 million to shareholders through the payment of dividends.

Our cash balance to end the quarter was $284 million and includes the impact of the recent acquisitions. In March, we completed a refinancing of our syndicated credit facility enabling us to increase the capacity of the current facility to $900 million, while reducing our effective interest rate. While this expands our total current debt capacity, we are still committed to maintaining our investment-grade profile.

As Jim mentioned, regarding 2019 outlook, we continue to expect full year revenue growth in the range of 8% to 10%, which includes organic growth of approximately 5% with stronger second half 2019 revenue growth versus the first half. We also continue to expect full year adjusted earnings per share of $2.30 to $2.36. Adjusted EPS outlook includes approximately $0.06 of dilution from our recent acquisitions and we expect to realize the majority of that dilution in the second quarter 2019 as these high-growth businesses scale into the second half of the year.

Turning to Slide 9, I will highlight performance from each of our business units. Beginning with the Industrial Business Unit, first quarter revenue was $179 million, up 5% from the first quarter of 2018, driven by strength in cooled thermal cores, Industrial UAS and Optical Gas Imaging products. Operating income for Industrial was $57 million, 25% higher than the prior year. Operating margin improved 510 basis points year-over-year, driven by favorable product mix and productivity gains under the FLIR Method.

The Government & Defense Business Unit saw revenue growth of 9% year-over-year, including contributions from the Endeavor Robotics and Aeryon Labs acquisitions from their respective closing dates. Government & Defense growth was also driven by strength in UAS and surveillance systems. Government & Defense operating income increased 5% compared to the first quarter of 2018. Operating margin declined 110 basis points primarily due to operating expenses related to the acquisitions announced in Q1.

During the first quarter Government & Defense current backlog reached $451 million to end the quarter, a 26% increase over the first quarter of 2018. Bookings grew 81% over Q1 2018 on our orders from the recently won NBCRV program, SBS program as well as broad-based non-programmatic growth. Combined with the first quarter book-to-bill of over 1.4 time, we are well positioned to execute against our strategic plan.

The Commercial Business Unit first quarter revenue was down 16% year-over-year, including Q1 2018 revenue from the divested security businesses and negative foreign exchange effects. Excluding these impacts, first quarter 2019 revenue would have been $96 million, down 4% year-over-year. We experienced declines in our outdoor and tactical systems business or OTS primarily due to continued restructuring impacts.

Operating income for Commercial decreased 11% year-over-year. This decrease was the result of declines in OTS negative foreign exchange impacts and U.S. import tariff effects. Operating margin improved 90 basis points year-over-year due to product mix and operating expense management. While it was a challenging quarter for Commercial, and although foreign exchange and OTS restructuring headwinds persist, we see solid growth opportunity in the second half of the year.

I will now pass the call back to Jim.

James J. Cannon -- President and Chief Executive Officer

Thank you, Carol. Overall I'm pleased with how we kicked off 2019. We achieved another quarter of strong bookings putting us in a solid position for growth. And we continue to advance on our mission to become a world-class operating company and we're starting to see those efforts materialize in financial results.

In closing, I want to remind everyone of our daily task to exceed our commitments with integrity and our purpose to innovate The World's Sixth Sense in order to save lives and livelihood. We operate with our BFLIR values to be brave, be bold, be ready and be ambitious these values are at the center of the FLIR Method and they drive integrity, speed, innovation and a winning culture.

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

Questions and Answers:

Operator

Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions) Our first question today is coming from Michael Ciarmoli from SunTrust. Your line is now live.

Michael Ciarmoli -- SunTrust -- Analyst

Hey good morning guys. Thanks for taking the question and real nice quarter here. Maybe Jim or Carol on this one, Industrial margins, I mean, I think Carol you just hinted added up 510 basis points year-over-year seemingly really strong for the first quarter. It sounds like there weren't any anomalies in there just basic blocking and tackling mix and productivity. But can you give any more color? I mean, should we expect that level for you guys to maybe even getting more leverage as the second half strengthens? Just really impressed of Industrial margins there.

James J. Cannon -- President and Chief Executive Officer

No, we're really proud of the work in the Industrial Business Unit. They had strong mix throughout the quarter, particularly with a lot of the cooled product lines that they're producing and we see that demand continuing. They're serving several OEM customers that have longer term programs that we're providing those components to. And another key point to make aside from mix is our Industrial Business Unit is probably furthest along with the FLIR Method efforts under way, particularly in our Santa Barbara facility. They've been practicing lean manufacturing principles for years well before we called it the FLIR Method and have really accelerated those efforts. But Frank, the President of the Industrial Business Unit, would you like to add some color?

Frank Pennisi -- President, Industrial Business Unit

Yes, Jim. You've summed it up pretty well. A lot of it, I would say, attribute a large portion of it to product mix. The cooled products, optical gas products, as well as our drones, which are high margin offerings really skewed the mix quite a bit for the quarter. But we've also coupled that with a lot of productivity in TFM that's more sustainable over time.

Michael Ciarmoli -- SunTrust -- Analyst

Got it, that's helpful. And then maybe just a follow-up for David Ray on the Defense side. Just given the release of the fiscal '20 budget, obviously, you guys had a really strong bookings quarter. Are you seeing the flow of funds out of the defense? I mean, it looks like U.S. government was up 15%, but has the pipeline gotten even stronger? Or I guess can you give a general view of what's going on from a DC perspective?

David Ray -- President, Government & Defense Business Unit

Yes. So, I think the FLIR strategy aligned with the budget is really starting to shape up well. One of the things when Jim came on Board, then I came on Board at about year and a half ago is to really focus on how we're tuning our strategy to align to where the customers' needs were. I think with the strong bookings outcomes that you're seeing in Q1, that's reflective of some of the success we've had. I still think there's a ways to go in terms of continuing to align the business to the priorities of our DoD customers to ensure we're aligning with that DoD budget. But in total, I think we're making sound progress there. And as we begin to gain more fidelity in more of those markets, I really believe we're going to be aligned with the priorities. Even as 2020 and 2021 come beyond and there starts to be pressure in the base budget, we think that the priorities we have in the business are aligned to the priorities of our customers long-term.

Operator

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

Josh Sullivan -- Seaport Global. -- Analyst

Hi, good morning.

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

Good morning.

Josh Sullivan -- Seaport Global. -- Analyst

Just on the FLIR Method, can you give us an update where you mostly hit the targets versus where there's more of a heavy lift? I think the inventory at one point was the large pole in the tent. Have you moved the needle on that?

James J. Cannon -- President and Chief Executive Officer

Yes, absolutely. This past year, we focused on continuous improvement and lean manufacturing principally as we wanted to drive a productivity engine to fuel some of the investments we need to make in the business while maintaining margins. As we move more from sensors to intelligent sensing and ultimately solutions, we have to develop more muscles around artificial intelligence, video analytics, augmented reality. But we wanted to make sure, we could self-fund those investments and continue to expand margins. So the initial efforts were really around educating folks about lean manufacturing continuous improvement. In some cases, it was well under way and we wanted to accelerate those efforts, put visual string mappings in place to identify waste, and I'm really proud of the team's efforts across the Company to undertake those efforts. And we began to see them in the margin rates and in the business.

This year, we're evolving two additional elements to the FLIR method because it's not just about lean and continuous improvement, but particular focus for us now is acquisition and integration discipline, global talent management and building out one FLIR, so that we can gain more scale and leverage as we source and take other actions like that. We've mentioned several times particular opportunity with working capital turns improvement. And that's been an area of a lot of education, a lot of focus, a lot of opportunities with where we're at in our turns right now to generate more cash. And I'd say, we've had kind of mixed performance. In some areas, some success, other areas a lot more work to do. That's a hard metric to influence in the near-term.

Carol do you want to add some color?

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

Yes. So -- and Josh it's a good question. The inventory is still the most challenging because FLIR's commitment to serve our customer and meet their needs and getting robust setting (ph) operations, planning in place and addressing inventory it takes longer. We hold ourselves accountable to a 15-month average in terms of how we measure our improvement, so we're kind of eking out modest improvements as we move month-to-month. But there's still a lot of opportunity there. Our procurement team has done a fabulous job with respect to addressing DPOs, our sales team's credit and collection with our DSOs, but I would say, our days of inventory still presents the greatest opportunity. But it's all upside as we move forward from here.

Josh Sullivan -- Seaport Global. -- Analyst

Great. Great. Appreciate the color on that. And then just one for Frank. On the ADAS opportunity, can you just talk about the level of interest and how it's progressed over the last 12 months? And then as far as the investment in capacity, just curious given auto OEMs typically are very concerned with what your production volumes could be. Just interested to see where you guys have capacity at this point.

Frank Pennisi -- President, Industrial Business Unit

Yes, absolutely. So we're working with all the ADAS firms you've heard of. Because of NDAs, I won't be naming off who they are. But a couple of points of feedback that we've gotten from them, one is a lot of them have come to the point that qualitatively they've determined that thermal technology eliminates a lot of the corner cases. And they're getting to the point where they're ramping up their kits and their fleet quantities to get to the point of quantifying and in ensuring, so they can determine is it one camera, is it two cameras, is it six cameras per car, getting to that point. Another piece of feedback is that of the couple of start-ups that are also in the area, they're basically finding that FLIR provides best image quality, best data quality as well as the fact that since we're already installed on 600,000 cars and in production and auto qualified at this point, when they go and they see our factory, they see the investments that we're already making to be able to handle that capacity, they're confident that we'll be the most reliable supplier in this space.

Operator

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

Jim Ricchiuti -- Needham & Company. -- Analyst

Thank you. Good morning. I was wondering, if I could just reconcile the strong growth that you're anticipating in the back half of the year in the Government & Defense business to the franchise wins that you've identified? Or is some -- and can you talk a little bit about delivery orders against some of these? Or is the recovery you're anticipating in the second half coming from other areas, the backlog in this part of the business?

James J. Cannon -- President and Chief Executive Officer

Yes, certainly. Well, first, there are several programs, franchise programs that we've announced and been awarded that begin to have deliveries in the second half of the year. MTRS II, for example, others as well. The bulk of those deliveries began in 2H and then proceed from there. So we certainly have visibility of known programs in those program delivery starts. Also if we compare this year to last year, the first half comps are much more difficult. Last year, we grew double-digits organically in Q1 and then again in Q2, so as we lap that performance into the second half, we've got that. As well as, as we mentioned, still a large part of our business in Government & Defense is non-programmatic, so we continue to see and work on a whole myriad of non-programmatic opportunities as well as non-programmatic international opportunities with allied military nations. We mentioned some of the success that we've had with Black Hornet in expanding that PRS capability with the French MOD in particular, as well as continuing to build that relationship with U.K.'s Armed Forces.

So as we look at the arbitrage of all those and then compare it to our past year, it leads us to that stronger second half. But not just in Government & Defense, we see similar phenomenons in our Industrial Business Unit that has OEM work that's tied to other programs that are happening with our customers, as well as just typical seasonality. Last year was a bit different than other years for FLIR as in the past we typically are more back half than front half loaded. Last year kind of shook that. This year is much more into that normal, if you will, cycle of a back half being stronger than the first half.

Jim Ricchiuti -- Needham & Company. -- Analyst

Got it. And Jim, thanks for that. But I was also interested to hear that you're seeing some pickup in the industrial machine vision area. Particularly it was surprising to see in the deck calling out some wins in the mobile phone market where I think there's this view that things are still pretty soft there. So it sounds like you are seeing some pickup in that area of the business. And I know you had some easier comps in that looking out to the second half.

James J. Cannon -- President and Chief Executive Officer

That's right, and you know, the machine vision market last year after really tough comps, the prior year, as you mentioned with mobile phone production and such, has largely been kind of flattish throughout this past year. We are seeing though a pickup in bookings now that we hope certainly translates into a stronger back half. And the booking opportunities are coming from a whole range of different applications that's showing more and more different industries are adopting machine vision, for example, food processing or beverage production.

Now semiconductor production is a bit softer. Some of the traditional places where we've had more machine vision, we're not seeing as much strength. But seeing wider adoption into different industries and we're working to try to address any specific needs they have. And at the same time, our IIS machine vision team has continued to innovate. We launched not long ago Firefly, which is a really great product that's got analytics on the edge, making it easier for integrators and others to work with the product. So, throughout the course of last year and now beginning to get momentum this year, some of those new products that have came to market.

Operator

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

Louie Dipalma -- William Blair. -- Analyst

Good morning.

James J. Cannon -- President and Chief Executive Officer

Good morning, Louie.

Louie Dipalma -- William Blair. -- Analyst

What is involved with the integration for Endeavor and Aeryon Labs? And from the perspective of -- like what synergies come from having a portfolio of unmanned systems versus previously only having the Black Hornet family?

James J. Cannon -- President and Chief Executive Officer

Yes, really good question. First of all, if I talk about some of the just practical internal synergies that we have, all of these unmanned solutions, their ultimate purpose is to deliver some sort of sensor so a professional can make a decision. And that's right in our wheelhouse, innovating technologies that help professionals make better decisions to save lives and livelihood. So Aeryon, for example, were using our thermal payloads, as well as some of our other products from our Government & Defense Business Unit as sensor capabilities. Endeavor, for years and years have been a customer of FLIR's with our thermal camera core as well as our radiation detection products and our explosive detection products. The Fido, for example, has been a long-established sensor platform on the robots that Endeavor has developed. So there's those practical synergies that we produce, not just the detector, but also the sensor and now the complete solution.

And now how that helps us engineer a much more autonomous intuitive easy-to-operate and effective solution helps ultimately the end user. And then if we think about the suite of different unmanned capabilities we've got, we're really focused if we talk about military applications first, but there are also many industrial or first-responder applications as well. But Black Hornet principally targets military customers of course. But having solutions that range from a nano drone with a 5-gram payload that can do covert non-line-of-sight ISR up to larger payloads 4.5, even 5 pounds that can now challenge in a group one asset, the group two mission. So being able to stand off kilometers and gather intelligence and/or take other actions on an objective with a product that can be transported by the individual soldier is really important. So we're focused on a key DoD modernization effort around what they call soldier lethality and that is smaller units being more capable with more organic assets that pushes SWaP+C and again a whole range of mission capabilities.

As you continue to look at future modernization efforts around next-generation, ground combat vehicles et cetera, all of which include a manned/unmanned component and not just a manned/unmanned air ground, but ground/ground component going forward. If you just practically think about the different mission sets that our customers undergo, sometimes a UAS is not appropriate. They need a ground vehicle to go into a deep and hardened target for example or vice versa an unmanned ground application won't work, because they've got to access the third or fourth story of a building or search for a rooftop. So as we move forward, what we want to innovate and really drive and disrupt is making that individual operator at the forward edge of battle really, really capable with a suite of ISR capabilities, sustainment logistics and having air/ground and manned/unmanned teaming is right at the center of that effort. So tremendous synergies that we're just now beginning to realize as we continue to innovate these technologies.

Louie Dipalma -- William Blair. -- Analyst

Thanks. And along those lines, I think you discussed how there's demand in the first-responder vertical for drones and you are already partnered with DJI. But should we anticipate seeing shipments of Endeavor Robotics and Aeryon Labs, UAS systems to your existing first-responder customers as well?

James J. Cannon -- President and Chief Executive Officer

Yes, we've long served this first-responder market more and more with unmanned aerial systems. DJI is a great partner of ours, make great products with payloads that can serve the whole host of first-responders' needs. Ones that we're particularly proud of are helping firefighters as they respond to a scene to be able to put an asset in the sky to quantify where heat is as they make plans on how they're going to enter that fire and save lives and communities. Aeryon has also served first-responder market for some time. And with Endeavor, the first-responder market has been one of their original markets. One of the key mission sets that they undertake with their robots is explosives and ordnance disposal.

So right across the world that EOD market, not just military, but civil first-responders is a market we're very proud to serve. We often get feedback from those users about the missions they do every day in our community. So, you'll continue to see us, focus heavily on that first-responder market and work with sensors like our Fido trace explosives detector or our radiation detectors to make that capability for first-responders with Endeavor Robotics even more capable as they approach explosive threats, other hazardous materials, potentially dirty bombs et cetera at greater standoff distances with more capabilities on the robot itself.

Operator

Thank you. Our next question is a follow-up from Michael Ciarmoli from SunTrust. Your is now live.

Michael Ciarmoli -- SunTrust -- Analyst

Hi, guys. Thanks for taking the follow-up. Maybe Jim or Carol, can you just give us some color? Obviously, real strong bookings, but can you give us maybe some of the trends by geographies sort of what you're seeing, especially on the Commercial Industrial side in Europe and the APAC region?

James J. Cannon -- President and Chief Executive Officer

Yes. Why don't we -- I'll let Travis and Frank from Industrial and Commercial talk a bit about what they see, because there's a bit of a different dynamic by each business unit. Travis, would you like to go first?

Travis D. Merrill -- President, Commercial Business Unit

Sure. Thanks, Jim. As Jim mentioned, it is a little bit different from business to business even within the Commercial Business Unit. We are seeing in some markets a little bit of softness in Europe. In other markets, we see a little bit of softness in the U.S. We see continued investments in infrastructure really and that's kind of a global trend. That impacts positively our Security and ITS businesses. The Middle East in general seems to be an area of growth for many of our verticals as there's increasing investments again on the infrastructure side in that region. And then APAC is a region within CBU where we don't have a tremendous footprint, so it presents a significant a growth opportunity for us in a number of our businesses.

Frank Pennisi -- President, Industrial Business Unit

Yes, this is Frank. If I were to break it out by geography, essentially I'm not sure I would give you as meaningful of answers as I was to tell you where the pros and cons are relative to where we're seeing strengths and weaknesses. We're seeing a lot of tailwinds worldwide everything related to drones and everywhere where people are buying drones we're seeing that. So the developed markets that tend to be a bit more focused on those tend to have that strength. Same for defense spending. You're seeing a lot out of the Americas and that's driving parts of our growth. And the infrastructure spending where it's being spent, places like China, places like the Americas, where you're actually seeing that that's driving a lot of those tailwinds.

And on the headwind side, we already mentioned when Jim spoke, FX tariffs related to China on some of the durable goods that are dropping in a few spots here and there and in the semi-electronics -- semiconductor and electronics market, which is predominantly in Asia Pacific that's a bit of a headwind for us. So you put it altogether it gives us strength in the Americas, about neutral in Asia Pacific. In Europe, it's slightly up at this point.

Michael Ciarmoli -- SunTrust -- Analyst

Got it. That's helpful. And then just maybe one more not to bring up a negative Jim, but have you guys had -- have gotten a debrief on the CRS program loss since the Endeavor acquisition? And I know there's some additional programs behind that one iterations of it. But any more color you can provide us there?

James J. Cannon -- President and Chief Executive Officer

Yes, sure. We certainly got a debrief as is customary when you have a program loss from DoD. Any program we compete on, of course, we want to win. As we were going through the diligence process with Endeavor though, we frankly put a lower probability win on CRS-I. We had just won MTRS II, really focused on ramping up for the production and delivery around MTRS II. It's a larger program than CRS-I. So having won that we had a bit of a lower expectation on our win for CRS-I. But no doubt learned lessons, and now as we go focused -- or go forward, we're focused on additional programs like the follow-on CRS-H that's coming up et cetera.

Operator

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

James J. Cannon -- President and Chief Executive Officer

Again, I want to thank you all for joining the call today as well as your interest in our Company. As always, I especially want to thank our now over 4,000 FLIR employees across the globe for their continued passion and dedication. We look forward to updating you on our second quarter 2019 financial results in July. Thank you.

Operator

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

Duration: 51 minutes

Call participants:

Jay Gentzkow -- Head of Investor Relations

James J. Cannon -- President and Chief Executive Officer

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

Michael Ciarmoli -- SunTrust -- Analyst

Frank Pennisi -- President, Industrial Business Unit

David Ray -- President, Government & Defense Business Unit

Josh Sullivan -- Seaport Global. -- Analyst

Jim Ricchiuti -- Needham & Company. -- Analyst

Louie Dipalma -- William Blair. -- Analyst

Travis D. Merrill -- President, Commercial Business Unit

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