Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Elbit Systems' fourth quarter and full year 2019 results conference call all participants in that listen only mode. Following management's focus the teacher.
So the question answer session.
As a reminder, this conference is being recorded you should have already been out the company's press release. If you have not received it. Please contact the Investor Relations came at GK Investor and public relations at once exports.
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Thank you.
Thanks for joining us today.
Last year increase all engagements these days.
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We can successfully.
Good morning.
Our financial results I would like to address it normally from Oneq and all the 19.
As of today.
Next season.
Hopefully.
And we have no significant changes in customer the.
We are going to situation closely.
Turning to these actions will to governments, although there is competition literally offerings.
We have initiated the CBS.
Yes.
Ladies and maintain our policemen slow.
Good morning, all initiative.
So a long ways lease walk in whole or a small groups well early morning morning carefully managing our supply chain, particularly as it relates to maintaining adequate inventory all critical.
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I want to buy that caused the measures that thinking.
Either.
No.
Do you see on business development activities for the next season extended period.
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Oh that you is.
Our shareholders.
We have more right.
Turning now to our results.
Yes, we do every quarter, we will provide you with both our GAAP financial data as well as assistant supplemental non-GAAP information.
This quarter.
Jim defenses, and so one time charges I will therefore focus more on the non-GAAP numbers, which we believe this more exact involved is performance ongoing business.
You can find.
GAAP financially as well as a non-GAAP information and the reconciliation.
Some of these.
Overall, I'm pleased to outperform as easily cninety, our revenue increased by 22% year over year.
You also across our anymore.
Okay.
In dollars provides.
Certain times and advance our success securing strategic orders you just geographies and on that.
I should know that acquisition all night vision from industry Harris disclosed on September 15, and was therefore consolidating our income statement of healthy from the fourth quarter plus 19.
However, the balance sheet the backlog of at least 91 consolidated as of September to.
Third quarter results.
I am by another acquisition.
He serves us well so they did for only one month Schieffelin E.
He is on the results.
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I will highlight and discuss some of the GP.
So as I mentioned this us.
Our fourth quarter.
Revenues, what would be in $391 million were up 23% year over year.
Let's see 19 as old.
Our revenues were four and a healthy again, there's a sequence 68 million last year.
I think it also because as you said.
Essential annual revenue breakdown or areas of operations last systems accounted for 27% safes and increased significantly year over year.
The increased sales of that electronic warfare systems, I would be ecosystems, Europe and revenue generated by I am I.
And one system sales and 36% of sales increased year over year, primarily gross if you only simple sensational to us.
However, geographic revenue. This is important that also sustainability of all business in that very satisfied with it rolls in revenues in most of all end markets.
Let's see 19 also breakout.
The largest contributing 28% revenues Israel was 34% Asia Pacific was 83% in lieu of 19%.
As strong growth in North America was primarily due to the lease add more system sales as mentioned.
And the growth in Israel was mainly due to depositional item.
We grew sales of the move West assistance. They lost two assistance on to do this is the most in Asia Pacific.
Well that was a fourth quarter last year, we saw strong most of Asia Pacific and UN hedged in combination with organic and acquisitive revenue, we don't see Israel and also.
For the fourth quarter. The non-GAAP gross margin was 26 fleet <unk> percent compared with the first what is it a lot deal equally type person for the 20 years with Cnineteen non-GAAP gross margin was 96.9%, who didnt equally eight said last year.
No gross margin of 17, I'd and the fourth quarter reflect.
Six lease and the know how much of this is coming to why in line.
As we announced in our vision of these on February six cities Lindsay we had certain reorganization charges. Following the acquisition on the night vision in September.
Generally impacting all possible.
The charge to cost of goods sold amounted to $55. Therefore on a GAAP basis. This charge should reduce our gross margin for the first quarter, 231.5%.
There are ways.
21.8% last year Wendy on the full year finances resulted in a GAAP gross margin plenty.
5.2% versus say the C suite practices influence names.
The fourth quarter non-GAAP operating income was 155.4 million or nine than they have personal having news OPEC was 100 and politically probably in potentially 4% of Evans last year.
Non-GAAP operating income is going to 19 was 379.7.
We in dollars or 8.4% revenues compared with $14.7 billion or 92% reconcile GAAP.
Operating income was seen announcements lumping 60 million. This was 292.8 million last year.
Operating expenses 3000, Plenti 19 was as follows.
The expenses of 7.4%, so revenues versus 7.8% last year.
As you said was 332 million Eattwenty 90 hope it was 287 million clunky 18, our investments such as development as a percentage of revenues is higher than most of all P is enabling us to maintaining deal, though technological leadership and under the sold off the process.
I think the selling expenses and 6.7% to you'll see this was 7.6% last year.
And the DNA expenses increased to 4.8% of that used versus 4.4% last year.
Increase was primarily due to our recent acquisitions and was partially offset by net income related to the settlement of litigation anyways.
Financial expenses for 2019 decreased from $69 million competitors 44 million in 28.
23 million of the 69 was related to the recognition of lease liabilities denominated in foreign currencies as a result of the adoption of a C.
Two leases.
Effective January 1st 29.
During the second quarter. Thank you name it systems raised 185 million through the sale treasury shares through situational investors in Israel.
The increase our share count by about 3% to 44.2 million shares any decide corresponding impact on our earnings per share relative to us yet.
Our non-GAAP diluted earnings per share was $2 to 47 cents in the fourth quarter and closer to 79 cents for the whole aplenty 90, GAAP diluted EPS was $1.16 cents and $5 in 20 cents for Glenn.
Indeed.
Our backlog of orders as of December 31st 2091, just over 10.630 billion higher than the backlog at the end of 38.
Approximately 65% of the current backlog is scheduled to be perform during twentytwenty, England due to this one and the remainder is scheduled for twentytwenty and beyond the racially sooner that at the end of last year.
Operating cash flow for the quarter was 87 million inflow bed was 221 and well do you hear 0.10, the eat the same quarter last year.
Well it wouldn't be 90, we reported 53 million operating cash flow of new versus 192 million inflow eattwenty.
Operating cash flow has been negatively impacted by these radio election cycle. This year, which caused delays in payments of these regime Ministry of defense.
We expect them to see the late payments in the very near term.
We increased inventory levels doing 2090 to support the gross sales in the second quarter Hall second how often Tonight Dee Ann Inc.
Well.
And we system continues to manage these balance sheet conservatively, we all know cash we have access to multiple credit lives attempt to lay the us was additional liquidity as required.
End of February Midroll Disraeli rating agency created with Moody's reaffirmed our governor loss.
Well no CSC Nols.
So all that matches.
The board of directors declares a dividend of 24 cents per share for the first quarter 50, 98 total infotainment between $1.76 cents per share. It will give you dense what issue in shareholders.
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Although the going up I would be.
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Driven we promote fortified our economic uncertainty related to the corner.
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Over the coming month.
And our continuing over the next steps.
The company and.
We'll go to reach we had hoped walk on this.
We will update you as BJ more cloud.
Issue and machine.
Taking a broader I believe is important to highlight.
The broker.
Achieved over the last you.
Has contributed to our record backlog.
And then share.
Do you all.
So thats all important mining.
Programs that have taken you you Jim.
Gentlemen.
Okay, how it will all.
Okay.
And although what what's election is important but delivering on time and on budget is just as important.
As usual caused either goodwill.
Our commitment even.
The current environment Mig imports more chunky.
In February.
You will see you six or seven medium duty or more expensive or Asia Pacific crest, and no one of the largest single oil.
We have ever.
And it will assume the first congrats for the I won't see.
Fiction.
That will.
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Israelis new on coated.
I want this system will that while the guideline and has been generating significant.
In order for movies or more.
The Israeli Minnesota.
All the open that utilization automatic so.
Well, we took on broke his whole loan will lead is moving forward the over the coming.
General and if you will be.
In the way we receive arrangement.
For you and I guess, it wouldnt for new and negative or you can talk one point right previously Italy.
During the trailing.
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In March.
Then you would view.
No.
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But you also falls.
Allow me to since leaving only offer.
Well can do both rate and also for the money all the system for the new increasing 90 profitable.
Getting new afflicted by the June.
Part of electronic warfare.
What was the age.
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We did all mean Juan.
Okay, the probably the solution.
This election.
This evaluation will feature.
Which ultimately on.
Fighting the good price performance ratio or the competition.
On the all subject will work, but we want.
Over the left you will see the particularly important.
Well result Asian currently and we were selected but June when Joe Millionaire right.
For June June Hong.
The Hep C men.
For all with do come system can you you all the for the Jeumont therefore for the people on.
Two orders compensation practices refused to overcome going to.
In September we completed that you should be night vision.
We hope.
Following that will issue we are confident.
For the.
System and good.
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The U.S. well he's more.
It's about five view.
Well I've been Ensco 90 degrees in global system I'd like to quote.
A comprehensive review.
According to issue that reduced our confidence in the room to offer and potential two extra.
In summary, we are pleased with Overperformance whoa without and.
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Two saw 28.
The drift lower the backlog we have groups continues to provide significant.
And piece.
Won't look issue.
The future.
Continued to see significant potential to end the war all leading Dick since Oneq solution.
More generally really or our stake or goods Oh.
Okay. Okay.
Well, what you Oh sure.
And with that.
I agree to take your provisions.
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Ladies and gentlemen at this time, we will begin the question and answer session. If you'll have a question. Please press star one ocular Kathy Everquest. Please press star.
I think speaker equipment, how did that.
Nothing when Nebraska your questions will be pulled in the order. They are seeing please standby only pose your question.
That's first question from people kubicki.
Please go ahead.
Good afternoon, but see in and you'll see in Rami.
One ask you.
I guess you will see a can you give us a sense for how you're thinking about revenue growth and 2020 in your currently in light of the big.
670 million dollar contract Q1 from the Asia Pacific customer and.
Obviously, you highlighted a lot of other interesting contract awards I'm not sure you know how many programs are kind of coming to the end of life for you, but it seems like you have some nice momentum into 2020 on the topline side and I was wondering if you can maybe give us a sense for the level of growth you're expecting.
As you know, we do not provide guidance, therefore, I'm sorry about that will not.
Hey that.
Today, However, looking at our backlog and.
Got you correctly quite developed at least a significant order we received in the first quarter was actually close even though the very nice momentum backlog growth.
We expect that Twentytwenty when it had.
Oh, good nice gross somebody the upward.
Mid single digits.
I'm not sure I cannot provide you with any specific not but at this place.
Hi, I appreciate the color, that's great and that I I thought.
You guys were showing some nice margin traction here in the fourth quarter.
Yeah, the adjusted operating margins of I guess, 8.4% for the full year.
You know if we do get some volume growth in any of you guys are able to kind of keep 'em pass gene I under control are you thinking that maybe you could you can eke out a small amount of margin expansion as well.
Oh, that's you have seen outgrows overall is.
It's significantly higher than the overall growth in defense budgets, so that means that play on expanding.
Our market share the way we do.
We are successfully entering new territories.
No we're not active previously.
Successfully nothing new platforms definitely would not all of them before so I kind of quantify that presently is that the working with us.
Well I was speaking to the adjusted operating margin of 8.4%. So you generated in 2019.
I would just wondering if you thought you could maybe it because you know you expand that margin rate slightly at 21 and watching.
The market I'm, sorry, I didnt catch it.
Okay, and then lock in wet.
So we have said ER for several.
Earnings now.
We have any thought on a multi year plan of improving efficiency the company of reducing overheads off.
Settings applications.
In.
R&D and manufacturing.
So the taste.
And the specific focus is slow on the I in my business, which we acquired.
In late 2018.
That business when we acquired that was losing business.
We were happy easily achieved more than what we have planned well then he 19 and that means that includes the 19 I in my business, which is talking about half a billion dollar per year revenues. They were already a little bit profitable I was looking at that operational speaking and.
What do you have a multiyear plan that's listening then to the level of profitability.
Of the average all the systems through that improvement into late two minutes that I mentioned earlier, we believe that name we would see better operating profits than what we have reported so far.
With that so that one major therefore that we are in the midst summit and that is implementing at an ERP system for the bar organization, which should we expect will significantly improve all operational efficiencies where did you lose the operating capital needed.
Hi, improved commonality of products are used inventory and actually that was directly and indirectly.
The operating profit improvement.
That's great I appreciate that color very much last question for me I'm on the Israeli election situation and the prospects maybe for urea government I.
I know it connects to you guys, obviously because of the collecting on there on the receivables.
I was wondering if you could be more specific can you quantify you all see the size of the receivable they're expecting to receive from these rally government and then and then maybe you use the term near term someone of they've given your maybe some specific color on that.
Yeah.
We are definitely.
By the delaying the payment by the Ministry of Defense in Israel because of their budgetary issues.
I am very happy to report.
That we have actually connected.
I mean, they're looking to get that about a three days ago, but I.
I'm happy to report is actually we did collect a significant amount already.
From the payments missile defense had to pay us and.
Overall these were in the range of several hundreds of millions of dollars.
Oh, okay. Okay. That's great. Thank you so much further color guys.
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The next question from see that's kind of Jefferies. Please go ahead.
Hi, good afternoon, everyone and thank you for the time.
Yeah.
No. Yeah, you can we talk about the working capital I think it was a 400 or 389, you send 29 team how do we think about how much of that.
For says and some other things you could do them cranes your payables I agree with us.
Well I believe I spoke of all the receivers that.
We expect them to cool.
Very nicely because of the payment of the debt of the missile defense in Israel. So expect that as it was a tool.
Use.
Oh I don't.
I I expect some deduction.
In the first what the also on the payables.
But the overall the net I.
I think when improved working capital.
No.
Got it did you quantify email.
I'm sorry.
Catch that.
Did you say 700 million.
Hundreds of millions that.
As I said I don't know.
Got it and then in terms of on your recent wins in February and March.
670 million dollar when was that new for I am I and where is the customer new in Asia Pacific and maybe can you talk about the opportunity and you know.
What that award is a little better platform. It's on are there other countries that you could.
That's why.
Oh this is not necessarily R&D for IMEI. This is in general for the business. So the Elbit systems. That's is definitely a very nice little bit extraordinary well that below the one that will form a contract.
And we definitely see potential for these kinds of products for other customers.
Okay.
And the March contract that you guys one on the F 16.
470 million dollar contract with the U.S. Airport.
With that new work can you talk about who the competition wise that on that contract.
No well we've learned in the long process, that's supposed to us.
Well.
So competition I went on for several years by the end of the date.
Oh.
I'd like to handle the day or we were selected and or the number that you have all that is the right now, but it's a multi year. However, presently oh, we got the head up.
But order quarter accomplish the multi media and that is the number that you. We have included in the into backlog.
The big number 450 or whatever it is a step up.
Okay.
We think about that adding to it says the missile warning system that that would be within the avionics content that you would think about.
No this a warning system.
Okay, all right got it.
Okay. Thank you very much.
So.
If there any additional questions. Please press star one.
Kathy Everquest. Please press star Kim Please stand by Oh My question.
[noise], we have a follow up question.
You have alembic global please go ahead.
Yeah. Thanks, guys.
Just wanted to ask a in your slide deck, there's a slide referring to KMC systems medical portfolio and that maybe they might have some incremental opportunities, obviously with where the current global situation with coal bed.
Can you maybe talk about that I I don't know a lot about KMC.
And what they do but maybe talk about the type of a demand you're seeing there at this point since you highlighted in the far back.
Jim to the company and we should equate to the onshore.
Yeah when you.
You have market.
What was it doesn't look more on you.
Do you design or that's doing well.
Yes.
Diagnostic equipment.
Maybe along that by the liquid that month.
Yes.
And do not need to grow.
Hey, I've read into it.
We are working to all of the before right.
Okay.
Maybe going away.
You were one of the growth.
We see right now.
What would you.
[laughter] for them.
Well the corn prices.
No, but otherwise.
Okay. That's for sure I appreciate the color last question for me on the ERP implementation I don't think I've asked this before one do you expect the ERP implementation to Ah to complete.
Well actually I would say the following that.
So bulkier than.
I'm very happy to say that we have implemented in our corporate and ER and.
As these systems holding.
That concludes the F. One division and the you every division and all the so common services global services. So if the company we have that implemented actually starting January 1st.
And it works well.
And we're happy with that and plenty for all these all the next couple of years on all the all the nature. So.
Okay. So maybe end of 2021, there will be fully rolled out.
And aplenty close to one somewhere that period of time, maybe what's more important last time.
Okay, great. Thanks, so much guys.
There are no further questions at this time before I ask Mr. Machlis to go ahead with closing statement I would like to my participants that people will be available two hours. After the conference at the U.S. Please call one eight.
Six nine screens, one count and it all keep clock feels to me nine to 559 to one and internationally. Please call nine seven to nine.
Nine to 559 to one okay. I'll also be available at the company's website Www <unk> Elbit systems dotcom, Mr miles, which I can make a consulting.
Thank you all over the same quarter one.
Well the continued old <unk>.
Oh boy, who on the call. Thank you for joining us today for your continued support.
That's a good day.
Thank you. This concludes the Elbit systems Ltd fourth quarter and please.
In my thoughts topic, [laughter] head and [noise].
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