Q3 2021 Elbit Systems Ltd Earnings Call
Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to LBIT Systems third quarter 2021 results conference call.
Ladies and gentlemen, thank you for standing by and welcome to Elbit systems third quarter 2021 results conference call.
Speaker 1: All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference
All participants are at present in listen only mode. Following management's formal presentation instructions will be given for the question and answer session.
As a reminder, this conference is being recorded.
Speaker 1: You should have all now received the company's press release that is available in the news section of the company's website, www.elbitsystems.com.
You should have all now all received the Companys press release that is available in the news section of the company's website Www Dot Elbit systems Dot com.
Speaker 1: I would now like to hand over the call to Rami Meyerson, Elbit Systems Investor Relations Director. Rami, please go ahead.
I would now like to hand over the call to Rami Myerson Elbit Systems' Investor Relations Director Rami. Please go ahead.
Speaker 2: Thank you, Shem Tov. Good day, everyone, and welcome to our third quarter 2021 Earnings Call. On the call with me today are Buti Machlis, our President and CEO , Yossi Gaspar, our Chief Financial Officer, and Kobi Kargan, who will take over from Yossi on April 1st next year. Before we begin, I would like to point out that the Safe Harvest Statement in the company's press release issued earlier today also referred to the contents of this conference call.
Thank you Sharon Good day, everyone and welcome to our third quarter 2021 earnings call on the call with me today are putting mcauliffe, our president and CEO, you'll see Gaspar, our chief financial Officer, and Kobe carbon who will take over from <unk> on April 1st next year before we begin I would like to point out that the safe Harbor statement in the company's press release issued earlier today.
Also referred to the contents of this conference call.
Speaker 2: As we do every quarter, we will provide you with both our regular GAAP financial data as well as certain supplemental non-GAP information. We believe that this non-GAP information provides additional detail to help understand the performance of the ongoing business. You can find all the detailed GAAP financial data as well as the non-GAP information and the reconciliation in today's press release.
As we do every quarter we will.
To provide you with both our regular GAAP financial data as well as certain supplemental non-GAAP information. We believe that this non-GAAP information provides additional detail to help understand the performance of the ongoing business you can find all the detailed GAAP financial data as well as the non-GAAP information and the reconciliation in today's press release.
Jim will begin by providing a discussion of our financial results followed by beauty, who will talk about some of the significant events during the quarter and beyond.
We will then turn the call over to our question and answer session with that I would like now to turn the call over to you.
Yes.
Speaker 3: Thank you Rami. Hello everyone and thank you for joining us today.
Thank you Amit.
Hello, everyone and thank you for joining us today.
Speaker 3: I would like to begin by welcoming Kobi Kargan to this call. I have worked closely with Kobi since he joined Elbit in 2008. We are currently conducting a handover process before he takes over the role of Elbit Systems CFO from April next year.
I would like to begin by welcoming Colby have gone to this call.
Worked closely with Kobe says he joined LPG in 2008, we are currently conducting a handover process before he takes over the role of Elbit Systems' CFO from <unk> and from April next year.
Speaker 3: The results of our third quarter reflect the successful execution of our global diversification strategy that is delivering strong revenue growth and an improved operational performance, which is a result of efficiency measures we discussed in the past.
It is also Paul third quarter reflect the successful execution of our global diversification strategy.
That is delivering strong revenue growth and improved operational performance, which you said result of efficiency measures we discussed in the past with.
Speaker 3: We continue to implement mitigation plans to limit the impact of the strengthening of the Israeli Shekel. In the short term, this includes the adoption of a rolling hedge policy and efficiency measure.
We continue to implement mitigation plans to limit the impact of the strengthening of these really shakeout in the short term. These include the adoption of a rolling hedge policy and efficiency measures over the longer term, we plan to expand our manufacturing footprint in high quality lower cost countries to better.
Speaker 3: Over the longer term, we plan to expand our manufacturing footprint in high-quality, lower-cost countries to better balance our currency exposure and reduce risk.
So currency exposure and reduce risk.
Speaker 3: I will now highlight and discuss some of the key figures and trends of our financial results.
I'll now highlight and discuss some of the key figures and trends of our financial results.
Third quarter revenues were $1.363 billion and increased by over 20% year over year.
Speaker 3: Third quarter revenues were $1,363,000,000 and increased by over 20% year over year.
Speaker 3: A major part of the growth was organic, in addition to the contribution from Spartan, which we acquired in the second quarter of 2021.
Major part of the growth was organic in addition to the contribution from Spartan, which we acquired in the second quarter of 2021.
Speaker 3: In terms of revenue breakdown across our areas of operation, airborne systems accounted for 37% of the total quarterly revenues and increased year-over-year mainly due to airborne precision-guided munition saving.
In terms of revenue breakdown across all areas of operation anyone's influence systems accounted for 37% of the total quarterly revenues and increased year over year, mainly due to airport precision guided munitions seats.
Speaker 3: Land systems accounted for 23% of total revenues, a similar level to the revenues of the third quarter of 2014.
Systems accounted for 22% of total revenues a similar level to the revenues of the first quarter of 2020.
Speaker 3: C4ISR at 27% of revenues increased year-over-year, primarily due to the acquisition of Spark.
Seafood, ISR and 27% of revenues increased year over year, primarily due to the acquisition of spot.
Electro optics accounted for 10% of total sales and increased year over year due to the ramp of Elbit night vision programs.
Speaker 3: Electro-optics accounted for 10% of total sales and increased year-over-year due to the ramp of the LBIT night vision program.
Speaker 3: Other sales were 3% of revenues and increased year over year due to the growth of our U.S. medical device subsidiary.
Other sales were 2% of revenues and increased year over year due to the growth of our U S medical device subsidiary.
Speaker 3: Our diverse geographic revenue base is important to the long-term sustainability of our business.
Our diverse geographic revenue base is important to the long term sustainability of our business in the third quarter Asia Pacific contributed 31% of revenues North America, 30%, Israel was 18% Europe, 17%.
Speaker 3: In the third quarter, Asia-Pacific contributed 31 percent of revenues, North America 30 percent, Israel was 18 percent, and Europe 17 percent.
Speaker 3: The growth in the U.S. was mainly due to the Spartan acquisition and sales of non-defense medical devices.
The growth in U S was mainly due to the Spartan acquisition and sales of non defense medical devices.
Asia Pacific revenues increased mainly due to sales of precision guided munitions and UAS.
Speaker 3: Asia-Pacific revenues increased mainly due to sales of precision-guided munitions and UAS.
Speaker 3: and UAS. The growth in European revenues was due primarily to C4ISR sales to the UK.
And you is the growth in European revenues was due primarily to see for ISR seats to the UK.
Speaker 3: The non-gap gross margin for the third quarter was 27.2% compared with 26.7% in the third quarter of 2020.
The non-GAAP gross margin for the third quarter was 27, 2% compared with 26, 7% in the third quarter of 2020.
Speaker 3: Gap gross margin in third quarter of 2021 was 26.6 percent of revenues compared with 20.9 percent of revenues in the third quarter of 2020.
GAAP gross margin in the third quarter of 2021 was 26, 6% of revenues compared with 29% of revenues in the first quarter of 2020.
Speaker 3: The GAAP gross market profit in the third quarter of 2020 included a $60 million non-cash expense from asset impairments and inventory write-offs due to the impact of COVID-19.
The GAAP gross profit in the third quarter of 2020 included a 60 million noncash expense from asset impairment and inventory write offs due to the impact of COVID-19.
Speaker 3: The gross margin improvement during the second quarter and third quarters of 2021 is encouraging and reflects the benefits of the cost control measures we adopted.
The gross margin improvement during the second quarter and third quarters of 2021 is encouraging and reflects the benefits of the cost control measures we adopt.
The third quarter non-GAAP operating income was 123 million or 9% of revenues compared with $93 1 million or eight 2% of revenues last year.
Speaker 3: The third quarter non-GAAP operating income was $123 million or 9% of revenues compared with $93.1 million or 8.2% of revenues last year.
Speaker 3: Gap operating income for the third quarter was $110 million versus $24 million last year following the inventory write-offs and impairment.
GAAP operating income for the third quarter was 110 million versus $24 million last year, following the inventory write offs and impairments.
Speaker 3: The operating expense breakdown in the third quarter was as follows.
The operating expense breakdown in the third quarter was as follows net.
Speaker 3: Net R&D expenses were 7.4% of revenues versus 8% in the third quarter of last year.
Net R&D expenses were seven 4% of revenues versus 8% in the third quarter of last year.
Speaker 3: Marketing and selling expenses were 6.2% of revenues versus 6.3% last year.
Marketing and selling expenses were six 2% of revenues versus six 2% last year.
Speaker 3: GNA expenses were 4.9% of revenues compared to 4.5% last year.
G&A expenses were four 9% of revenues compared to four 5% last year.
Financial expenses were.
Speaker 3: Financial expenses were $13.5 million in the third quarter compared with $9.7 million in 2020.
$13 5 million in the third quarter compared with $9 <unk>.
7 million in 2020.
Speaker 3: We recorded a tax expense of $8.3 million in the third quarter compared with $2.2 million in 2020.
We recorded a tax expense was $8 3 million in the first quarter compared with $2 2 million in 2020.
Speaker 3: Defective tax rate in the third quarter was 8.6% compared with 15.4% in 2020.
The effective tax rate in the third quarter was eight 6%.
Paired with 15, 4% in 2020.
Our non-GAAP diluted EPS was $2 33 in the third quarter compared with $1.64 last year. The GAAP diluted EPS was $2 <unk> compared with 38 cents last year.
Speaker 3: Our non-GAAP diluted EPS was $2.33 in the third quarter compared with $1.64 last year.
Speaker 3: The gap diluted EPS was $2.08 compared with $0.38 last year.
Speaker 3: Our backlog book orders as of September 30, 2021, was approximately $13.6 billion, $2.7 billion higher than the backlog at the end of September 2020, and at a similar level to the backlog at the end of June 2021.
Our backlog of orders as of September 32021 was approximately $13 6 billion to 7 billion higher than the backlog at the end of September 2020, and at the similar level to the backlog at the end of June 2020.
Approximately 40% of the current backlog is scheduled to be performed during 2021 and 2022.
Speaker 3: Approximately 40% of the current backlog is scheduled to be performed during 2021 and 2022, and the remainder is scheduled for 2023 and beyond.
And the remainder is scheduled for 2023 and beyond.
Speaker 3: The percentage of the backlog for the remainder of the year and the following year is lower than the third quarter last year, following a number of multi-year contracts awarded recently.
The percentage of the backlog for the remainder of the year and the following year is lower than the third quarter last year. Following a number of multi year contract awarded recently the.
Speaker 3: The order backlog is equivalent to more than two and a half years of revenues and provides good visibility for the future.
Order backlog is equivalent to more than two and a half years of revenues and provides good visibility for the future.
Cash flow from operating activities for the third quarter was.
Speaker 3: Cash flow from operating activities for the third quarter was 150,000 outflow, compared with 63 million outflow in the same quarter of last year.
150.
Yeah.
Outflow compared with 63 million outflow in the same quarter of last year.
Speaker 3: During the third quarter, we successfully completed the tender of three series of notes raising approximately $575 million.
During the third quarter, we successfully completed the tender of two series of notes raising approximately $575 million.
Speaker 3: The notes will be traded on the Tel Aviv Stock Exchange and provide us with good long-term source of funding for ongoing business operations as well as potential acquisitions.
The notes will be treated on the Tel Aviv stock exchange and provide us with good long term source of funding for ongoing business operations as well as potential acquisitions.
Speaker 3: The Board of Directors declared a dividend of $0.46 per share for the third quarter of 2021.
The board of directors declared a dividend of <unk> 46 cents per share for the third quarter of 2021.
Speaker 3: I will now turn the call over to Mr. Mahlis, Elbit's CEO . Butsi, please.
I will now turn the call over to Mr. Marc Lewis Elbit CEO would you. Please.
Speaker 4: Thank you, Yossi. I would like to welcome Kobi to the call and wish him luck.
Thank you Yossi I would like to welcome Colby to the call and wish them luck.
Speaker 4: I have worked with Kobi for many years. As you may know, Kobi was VP Finance at LB System Land in C4Y when I was General Manager.
I have worked with koby for many years as you may know Kobe.
<unk> finance friendliness of the system lending for y.
General and manager.
Speaker 4: Turning to the financial results, the recent months have been busy and productive with a number of strategic contract awards. We continue to see good momentum across almost all our end markets, including Israel, following the approval of the defense budget.
Turning to the financial results during the recent months have been busy and productive.
We have a number of strategic contract awards, we continue to see a good momentum across almost all our end markets, including Israel. Following the overall defense budget.
Speaker 4: At our investor day in April , we discussed the increased importance of maritime domain and the investment Elbit has made to develop solutions for the growing market.
At our Investor Day, we discussed.
Chris importance of maritime domain and the investment it has made to develop solutions for the growing market.
Speaker 4: In November , our UK subsidiary, Elbit Systems UK, was awarded a $100 million 13-year contract from Bepcock to provide the Royal Navy with new electronic water capability.
In November our UK subsidiary Elbit system, UK was awarded a $100 million.
Certain years contract.
Pet Coke to provide the Royal Navy with new electronic warfare capabilities.
Speaker 4: As part of this contract, LB System UK will design and manufacture maritime EW suits comprised of digital full-spectrum radar electronic support measures and EW command and control systems.
As part of this contract in the UK, we deserve.
Design and manufacture marathon AWD suite.
Digital Victorian Red Arrow electronics support measures and EW command and control systems.
Speaker 4: These latest generation technologies will enhance the situational awareness and anti-ship missile defense of Royal Navy ships, improving their capability to exploit the electronic magnetic environment.
This latest generation technologies will enhance the situational awareness and anti ship missile defense.
Well, we've got a navy ship.
Moving to our capability to exploit that as total kinetic environment.
Speaker 4: Elbit Systems supplies electronic warfare systems for air, land, and naval platforms, and in recent years has signed a number of contracts to supply EW systems for the U.S. Air Force National Guard F-16s and German Air Force helicopters.
Elbit system supply electronic warfare systems for air land and naval platforms and in recent years has signed a number of contracts to supply EW systems for the U S Air Force National Guard, the Sixteens and Jill Martin for helicopters.
Speaker 4: We are also installing EW systems on the Israeli Navy's New South Six corvettes.
We are also installing EW systems, unless there is really navy's use all six cohorts.
Speaker 4: In September , we received a $56 million contract to provide an integrated anti-submarine warfare solution to the Navy of an Asia-Pacific country.
Speaker 4: Elbit will provide single unmanned surfaces that are confirmed to perform anti-submarine warfare missions and, I was told, reliable active-passive sonars or TRAPS systems.
Elbit will provide civil unmanned surface vessel consumed to perform anti submarine warfare emissions.
Told reliably execute passive soon or trip systems. This award follows a contract earlier this year to provide secure USB is configured for mine countermeasure missions.
Speaker 4: This award follows a contract earlier this year to provide single USB configured for mind countermeasurement.
Speaker 4: The integration of Spartan is progressing as planned.
The integration of <unk> is progressing as planned.
Speaker 4: I am very satisfied with the progress we have delivered in the maritime market this year, expanding our market positions and product portfolio. Elbit is well positioned for growth in this market over medium term.
I'm very satisfied with the progress we have delivered in the maritime market. This view.
Our market position and product portfolio.
<unk> is well positioned for growth.
This market over the medium term.
A few weeks ago, we hosted Israeli defense Minister Pentagon.
Speaker 4: A few weeks ago, we hosted Israeli Defense Minister Benny Gantz.
Speaker 4: at a cornerstone laying ceremony at our new Ramat Beka facility we are building in the south of Israel.
At the cornerstone laying ceremony.
It's a new a much bigger facility. We are building in itself is worth.
Or is it coming to us with pasta manufacturing activities from Central Israel.
A new modern facility.
Speaker 4: The new facility is an important part of the implementation of the multi-year IMI turnaround plan and we expect to complete the move by 2024. These efforts should support our efforts to enhance IMI profitability.
The new facility is an important part of the implementation of the move to you I am still not doing the wrong plan and we expect to complete the move by 2024.
These efforts should support our efforts to enhance <unk> profitability.
Speaker 4: The second part of the IMI turnover is to increase the share of international sales.
The second part of them over the Rmi doing all of them is to increase the share of international soon.
Speaker 4: These were significantly lower than LBIT when we acquired IMI.
These will significantly lower than it would be.
When we acquired IMI.
Accordingly, I am my international orders have grown rapidly since the acquisition in the first nine months of 2021, 60% or find my orders were from international customers compared to approximately 20%.
Speaker 4: Accordingly, IMI's international orders have grown rapidly since the acquisition. In the first nine months of 2021, 60% of IMI orders were from international customers, compared to approximately 20% prior to the acquisition in 2018.
<unk> in 2018.
Speaker 4: The acquisition of IMI enhanced Elbit Systems' portfolio for artillery solutions by adding advanced munitions to our legacy portfolio of howitzers, mortars, target acquisitions, and dedicated command and control solutions.
The position will find my enhanced Elbit system portfolio for artillery solution by adding advanced ammunition to our legacy portfolio focuses moto target acquisition and dedicated Komen and control solution.
Speaker 4: The Israeli MoD selected Elbit Systems to develop and manufacture a new generation of Sigma orbiters to the IDF.
The Israeli and Moody's selected out of the system to develop and manufacture a new generation of Sigma who'll go through the <unk>.
<unk> Sig.
Speaker 4: Sigma is a 1.55mm self-propelled howitzer capable of automatic loading and laying of the gun system, rapid in and out action times, and high rate of fire.
Sigma is the one five millimeter self propelled with capable automatic.
Loading and laying of the gun system rapid action signs and high rate of fire.
Speaker 4: The ramp in this program is progressing as planned.
The ramp in this program is progressing as planned.
Speaker 4: Last week, we received a $106 million contract to supply Sigma fully automatic self-propelled howitzer gun system to a country in Asia-Pacific, the first international.
We see the $106 million contract to supply Sigma fully automatic surf will hopefully to a gun system to a country in Asia Pacific.
First international order for the Sigma.
Speaker 4: We believe there is a significant potential for additional artillery orders.
We believe there is a significant potential for additional opportunity orders.
Speaker 4: or militaries around the world looking to upgrade their legacy artillery systems.
Or militaries around the world looking to upgrade the legacy artillery systems Elbit systems utmost forward to participate.
Speaker 4: Elbit Systems, Atmos-Hobitzer participated in the U.S. Army shoot-off earlier this year and was on display outside AUSA in D.C. in October .
Oh, I mean shoot off earlier, this view and we and on.
On display outside the USA in D C.
Speaker 4: We continue to invest in the expansion of our U.S. footprint.
We continue to invest in.
Expansion of our U S footprint in November LP system of America announced plans to establish a new 135000 square foot facility in Charleston, South Carolina.
Speaker 4: The facility will host the ESA's Ground Combat Vehicle Assembly and Integration Center of
The facility will host the <unk> ground combat vehicle Assembly and integration center of excellence.
Speaker 4: We expect operations in the facility to begin by the third quarter of 2022 to support contracts ESA received from the Israeli Minister of Defense for the supply of self-propelled howitzer gun systems to the IDF.
We expect operations in the facility to begin by the third quarter of 2022 to support contract you received from the Israeli municipal defence orders for.
Apply offset ported over.
The <unk> system to the ideas.
Speaker 4: The new facility is part of Elbit Systems' strategy to expand our engineering and manufacturing capability in the U.S.
The new facility is part of Liberty system strategy to extend or engineering and manufacturing capability in the U S facility.
Speaker 4: The facility will create around 300 new jobs, will support 280 suppliers across South Carolina and can be used for assembly and integration efforts.
Facility will create around 300, new jobs will support 280 suppliers core South Carolina and can be used for assembly and integration efforts for.
Speaker 4: In September , ESA received a $54 million contract for ENVG production from the U.S. Army. This order is part of the OTA contract with a maximum value of $442 million we received in 2020.
While future dilutive program in September <unk> received 54 million.
Construct Ian Vg for Egypt production once the youth.
This order is part of the Ot eight contract with a maximum value $442 million, we received in 2020.
Speaker 4: In October , ESA received a $76 million IDAQ contract to supply head-mounted display systems for the U.S. Army Apache.
In October Esa received $76 million million door idea acute contract to supply head mounted display systems for the U S Army Apache helicopter.
In summary, our broad based backlog continues to provide us with good visibility and we continued to see significant potential around the world for our leading.
Speaker 4: high-technology solutions. And with that, I will be happy to take your questions.
Hi, technology solutions, and with that I will be happy to take your questions.
Yes.
Thank you.
Speaker 1: Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions.
And gentlemen at this time it was again the question and answer session. If you have a question. Please press star one.
If you wish to cancel your request please press star two.
You are using speaker equipment kindly lift the handset before pressing the numbers.
Questions will be pulls in the order. They are received please stand by while we poll for your questions.
Sure.
The first question is from Greg Konrad of Jefferies. Please go ahead.
Speaker 1: The first question is from Greg Conrad of Jeffries. Please go ahead.
Good morning.
Good morning, Greg.
Speaker 5: Maybe just to start on revenues, kind of a two-part question, one kind of more short-term, one longer-term, I mean just...
Maybe just to start on on revenue is kind of a two part question one kind of more short term one longer term I mean, just in the short term is this year any different where you typically have a Q4 ramp for sales or were there some items kind of pulled into Q2 and Q3.
Speaker 5: In the short term, is this year any different where you typically have a Q4 ramp for sales or where there's some items kind of pulled into Q2 and Q3? And then kind of the second part, longer term, I mean, organic growth has been running well ahead of our expectations and also kind of the mid-single-digit target you've
And then kind of the second part longer term.
Organic growth has been running well ahead of our expectations and also kind of the mid single digit target you've laid out in the past.
Speaker 5: laid out in the past, I mean, has the growth.
Has the growth profile been reset or are there headwinds heading into next year, we should thinking about just kind of how should we should think about the overall growth target.
Speaker 5: profile been reset or are there headwinds heading into next year, we should think about just kind of how we should think about the overall growth target.
Speaker 3: Well, usually, as you have mentioned, the fourth quarter is usually a strong quarter at Elbit Systems from point of view of revenues, and we expect this to be the case for 2021 as well.
Well, usually as you have mentioned the fourth quarter.
<unk> is usually a strong quarter at Elbit systems from point of view of revenues and we expect this to be the case for 2021 as well.
Speaker 3: we did see the transformation of the strong backlog growth.
We did see.
The transformation of the strong backlog growth.
Speaker 3: that we had in recent years into revenues. Actually I would say that repeatedly we were asked by the markets how come that we grow so strongly in the backlog and we do not see a simultaneous growth in revenues.
We had in <unk>.
Recent years into revenues actually I would say that repeatedly we were asked by the markets.
How come that we grow so strongly in the backlog and we do not see a simultaneous growth in revenues.
Speaker 3: As we explained, it takes some time from the growth of the backlog until it transforms into revenues, and presently we do see that effect happening this year.
As we explained.
It takes some time from the growth of the backlog until it transforms into revenues and presently we do see that effect happening.
This year looking forward.
Speaker 3: Looking forward, I think the transformation of the backlog into revenues will continue.
I think the transformation of the backlog into revenues will continue.
Speaker 3: Continued growth in backlog will create continuous growth in revenues.
The continued growth in backlog will.
Will create continuous growth in revenues, however, I am not sure at this point in time that we will be able to deliver.
Speaker 3: However, I am not sure at this point in time that we will be able to deliver strong double-digit growth through all of next year. We do believe that the growth
Strong double digit growth.
Through all of next year.
We do believe that the growth.
Speaker 3: will happen because of the backlog numbers and that next year we'll see growth in the top line as well.
It happened because of the backlog numbers and.
That next year.
<unk>.
Growth in the top line as well.
Speaker 5: Thank you for that. And maybe just transitioning to margins. I mean, you mentioned cost control measures and a number of maybe efficiencies around manufacturing. I mean, how are you thinking about the margin targets? You know, I think you've laid out a 10% longer term margin target in the past. I mean, how do we think about the path to get there between, you know, maybe mix some of the efficiency measures you've kind of put in place and just overall volume level?
Thank you for that and maybe just transitioning to the margins I mean, you mentioned cost control measures and a number of maybe efficiencies around manufacturing.
How are you thinking about the margin targets.
You've laid out a 10% longer term margin target in the past I mean, how do we think about the path to get there between maybe mix some of the efficiency measures you've kind of put in place and just overall volume leverage.
I think that our long term plan is.
Speaker 3: I think that our long-term plan is definitely underway and we started to see the positive results of our long-term strategic plan of reduction of overheads, of costs.
He is definitely underway and we started to see the positive results of our long term strategic plan of reduction of overheads of cost.
Speaker 3: of improving efficiencies, of combining production lines, and all the other efficiencies including centralized acquisitions and so on.
Of improving efficiencies.
Combining <unk>.
Duction lines.
And all the other efficiencies including centralized.
Acquisitions and so on all of this is happening in the past. We mentioned also the what we call. The one ERP system that is implemented across the whole organization.
Speaker 3: All of this is happening. In the past, we mentioned also what we call the one ERP system that is implemented across the whole organization. We are well over 50% already implemented, and we expect to complete that somewhere. Most of it during next year, and maybe some very small parts in the year after that.
We are well over 50% already implemented and we expect to complete that somewhere most of it during next year. There may be some very small parts in the year after that.
Speaker 3: And we already start to see the benefits of that, although the biggest part will come in 2020.
And we already start to see.
To see the benefits of that although the biggest part will come in 2020.
Speaker 3: 2022 and 2023 when we have most of the company under the same ERP system.
Two in 2023, when we have most of the company under the same thesis.
Thesis this whole effort will continue and as I've said is part of our long term plan that is implemented and thus.
Speaker 3: This whole effort will continue and, as I said, is part of a long-term plan that is implemented and does help us in improved performance from the point of view of profitability.
Help us in.
Improved performance from the point of view of profitability.
Speaker 3: Together with that, we have some headwinds because of the local currency exchange rate. We are making all the efforts possible in order to mitigate that, and that effort will also continue into the future. We also are looking at various production sites in order to...
Together with that we have some headwinds because of the because of the local currency exchange rate.
We are making all the efforts possible in order to mitigate that.
And.
That effort will also continue.
Into the future. We also are looking at.
At various production sites in order to.
Speaker 3: in order to enable us to manufacture and do some as well as engineering efforts in high-quality, low-cost countries that will enable us to reduce our cost base in the various areas of cost in the company.
In order to enable us.
To manufacture and do some as well as.
Engineering efforts in a high quality low cost countries.
What enabled us to reduce our cost base in.
In the various areas.
<unk> cost in the company.
<unk>.
Speaker 3: one of the elements that helps us to reduce the overall percentage of costs.
One of the elements that helps us to reduce the overall percentage of cost.
Speaker 3: of the operating expenses is, of course, the very strong growth in the top line, and when the company growth is growing, then the reduction in percentage of cost in the G&A, the percentage of cost of R&D and other expenses is also helpful in improving the operating profit.
Of the operating expenses of course, the very strong growth in the topline and when the company growth.
Is growing then the reduction in percentage.
<unk> cost in the G&A as a percentage of cost of R&D and other expenses is also helpful in improving the operating.
Profit line.
Speaker 5: I'll leave it at two. Thank you, and good quarter. Thanks. Thanks, Greg.
I'll leave it at two thank you and a good quarter. Thanks. Thanks, Greg.
Speaker 1: The next question is from Pete Skibitzky of Alembic Global. Please go ahead.
The next question is from Pete Skibinski of Alembic Global. Please go ahead.
Speaker 6: Yeah, nice quarter, guys, and Yossi, congratulations on your pending retirement.
Yes, nice quarter, guys and Yossi congratulations on your pending retirement.
Speaker 6: Thank you! I will be around for some time. He is not retiring yet. Understood. So, yeah, second straight quarter of, you know, it looks by my math sort of mid-teens or organic revenue growth. And I think the last quarter you talked about.
Thank you.
Yeah.
So it would be.
It will be around for some time he is not determined yet.
Yeah.
Sure.
So, yes second straight quarter of.
By my math sort of mid teens, our organic revenue growth.
And I think the last corner you talked about.
Speaker 6: a large precision-guided munitions sale to an Asia-Pacific nation as being a key driver of that second quarter growth. And so I'm guessing maybe that was a big driver in the third quarter as well. Can you give us a sense for when that large program may start to run off, just so we can maybe get an idea for the timing of maybe transitioning from this kind of mid-teens growth to more of a, like you talked about, your long-term goal of mid-single-digit-plus-type growth?
A large precision guided munitions sale to an Asia Pacific nation as being a key driver of that second quarter growth and so I'm guessing maybe that that was a big driver in the third quarter as well can you give us a sense for when that large program may start to run off.
So we can maybe get an idea for the timing of maybe transitioning from this kind of mid teens growth to more of a like you talked about your long term goal of mid single digit plus type growth.
Our revenues.
Speaker 3: Our revenues are definitely impacted by various programs of this kind. This is not the only program that we are running. This specific program, it goes through the next year as well and however, there are some significant other programs with similar characteristics.
Definitely impacted by various programs of this kind this is not the only program that we're running.
This specific program that goes through the next year as well and.
However, there.
Some significant other programs with similar characteristics that we have received in our backlog and we'll.
Speaker 3: that we have received in our backlog and will eventually replace the revenues from this program as we usually do over the years.
Eventually replace.
The revenues from this program as we usually do over the years.
Okay. Okay.
Speaker 6: Okay, okay. And then, can we talk cash flow for a second? You know, there was a large receivables bill this quarter. I think I heard you got, I don't know if that's related to the PGM sale or, but I also heard you guys say that the Israeli defense budget was approved, which I think you were hoping that that could improve cash flow. So, I'm just wondering maybe you could speak to expectations for fourth quarter cash flow and kind of catching up on some of the receivables bills.
And then can we talk cash flow for a second.
There is a large receivable build this quarter I think I heard you got I don't know if that's related to the PGM sale or but I also heard you guys say that the.
Israeli defense budget was approved which I think you were hoping that that could improve cash flow. So I'm. Just wondering maybe you could speak to expectations for a fourth quarter cash flow in and kind of catching up on some of the receivables billed.
Speaker 3: Well, the one good thing that has happened in November is that the Israeli government has approved and the parliament has approved the budget for the rest of 2021 and 2022.
Well the one good thing that has happened in November.
November is that the Israeli government has approved and the Parliament has approved the budget for 'twenty for the rest of 2021 and 2022.
Speaker 3: This, of course, has been reflected in approving all the expense elements, the budgets of the MoD in Israel, and that has translated in payments.
This of course has.
Being reflected in improving all the expense elements the budgets of the minutes of the MLD in Israel and that has translated in payments.
Significant payments that were delayed by the Israeli Ministry of defense for many quarters actually so that at this point in time I can I'm happy to report that a significant part of the delayed payment has been paid and we explained by the rest of this year to get there.
Speaker 3: that were delayed by the Israeli Ministry of Defense.
Speaker 3: for many quarters, actually, so that at this point in time, I can, I'm happy to report that a significant part of the delayed payments have been paid, and we expect by the rest of this year to get paid for most of the delayed payments of the Ministry of Defense. So from that point of view, that's very good news, and things are back on track.
For most of the delayed payments of the Ministry of defense. So from that point of view that as very good news and things are back on track.
Speaker 3: as they should have been for a normal course of business.
They should have been.
Sure.
For normal social business and.
Speaker 3: I would emphasize that this is not reflected yet, the improved collection from the Ministry of Defense in Israel is not reflected in the third quarter numbers. Because the budget was approved in November , we will see that in the fourth quarter.
I would.
I would emphasize that this is not reflected yet.
The improved.
Collection from the Minister of Defense in Israel is not reflected in the third quarter numbers because the budget was approved in November where we'll see that in the first quarter.
Speaker 3: From point of view of the other elements, yes, when you have increased revenues, then of course you have increased receivables, and we expect to collect all of that in time. So looking at next quarter, I would cautiously be optimistic by saying that we probably will improve our working capital and we'll see stronger cash generation.
One point of view of the other elements, yes. When you have increased revenues then of course, you would have increased.
Our receivables.
And we expect to collect all of that in time, so looking at the next quarter.
I would cautiously optimistic.
We probably will improve our working capital and we'll see.
Stronger cash generation.
Speaker 6: Okay, that's great news. I appreciate that. Maybe I can stick one last one in, maybe for Buttsy.
Okay. So that's great news I appreciate that maybe I can sneak one last one in maybe for biopsy.
Speaker 6: But see, a lot of news, I think, about opportunities for...
But there's a lot of news I think about opportunities for for Israeli firms in general, but certainly for al beds for Oh, let's call. It non Israel defense sales I think you guys had tended to Dubai Air show recently, and there was an announcement that youre setting up a new unit in UAE.
Speaker 6: for israeli firms in general but really for albert uh... for uh... i'll call it not israel defense sales
Speaker 6: I think you guys attended the Dubai air show recently and there was an announcement that you're setting up a new unit in UAE.
Speaker 6: So can you talk about maybe how optimistic you are about these kind of new opportunities?
Can you talk about maybe how optimistic you are about these kind of new opportunities and kind of timing and magnitude and it just kind of seems like a whole new market is opened up to you fairly quickly.
Speaker 6: and kind of you know timing and and magnitude and it just kind of seems like a whole new market has opened up to you fairly quickly
Speaker 4: Thank you. It's true. We participated for the first time in the Dubai Air Show. The EBRAM agreements are opening new opportunities and new markets for Airbid, and I can tell you that there is a lot of interest.
Thank you.
It's true.
We participated for the first time as the Dubai Air show.
The <unk> agreements are opening new opportunities in new markets for a bit and I can tell you that there is a lot of interest in.
Speaker 4: in several countries for our technology.
Several countries.
For technology.
Speaker 4: And I'm optimistic that it will generate revenues in the future for us in this new market. We are working with the local industries already, and we know the market quite well. And I'm quite optimistic that we will continue to see revenues in this market in the future as well.
And <unk>.
Domestic.
It will generate revenues in the future for us.
Sure.
This new in these new markets.
We are working with a local industries.
And.
Already and we know the market quite well.
And.
I am quite optimistic that we will continue to see revenues in this market in the future.
Speaker 7: And this is not true just for UAE, it is true for additional countries which are open for us right now based on the agreement which was declared a year and a half ago.
And this is not true just for you eat as it is.
It's true for four additional countries, which were which opened for us right now.
Based on the women's Twitch.
Was declared unethical.
That's great I appreciate all the color guys.
Thanks, Thank you.
The next question is from Ella fried of Bank Leumi. Please go ahead.
Speaker 8: The next question is from Ella Freed of Bank Lumi. Please go ahead. Hello. First, I would like to congratulate the new CFO , Kobi, on his appointment and wish him lots of success.
Yes.
Hello.
First I would like to congratulate senior CFO coffee on his appointment and Oh.
Wish him lots of success.
And I have a few questions. The first questions and the first question relates to <unk>.
Speaker 8: I have a few questions. The first question relates to the operational profit and the hedge level. You have achieved in this quarter quite a nice rate of operational profit, certainly non-gap.
The operational profit and <unk>.
Slava.
You had.
Houston this quarter quite a nice thing right.
Operational profit certainly non-GAAP.
Speaker 8: And we also remember that this year you set the hedge level at 3.3 shekels for a dollar. What about going – I also remember that you established now continuous hedge. So what are you expecting the next year? Did you catch a nice level for the forward-going quarters?
And then also remember that this year.
The hedge levels.
3.3, shekel dollar what's about going.
Also remember that you established now continuous hedge so what what what are you expecting the next year did you catch a nice level for there.
Pharma is going gang Cortes.
Speaker 3: Yeah, we have hedged our shaker expenses for this year and that includes the fourth quarter. For next year, we have been successful to hedge part of that.
Yeah, we have hedged.
All of the shekel expenses for this year and that includes the fourth quarter.
For next year, we have been successful to hedge part of that.
Speaker 3: mainly in the first half of next year, and we, of course, are keeping track on the changes in the currency and looking for opportunities to continue our policy of continuous hedging as it comes along.
Mainly the first half of next year and we are of course, keeping track on the changes in the currency and looking for opportunities to continue our policy of continues hedging SC.
It comes along.
Uh-huh you'll.
Speaker 8: So you have two certain quarters ahead of you that are almost fully hedged at the current level and then you have to try and keep it on.
You'll have to certain quarters. They had a few that are fully almost fully hatched.
Current level.
And then.
You have to try and keep it on.
As I said that I would say, it's part of next year, yeah as far as the next tier.
Speaker 8: I said, Ella, I said part of next year, yes. Part of next year. I decided it's my decision that it's half of next year. OK.
Alright decided it's my decision that it's half.
Yeah.
Speaker 8: Okay, and the next question is actually.
Okay and then the next question is.
Charlie and about I.
Speaker 8: about, I don't know to whom it's related, but it's about removing facilities.
I don't know to whom it's related but it's about two moving facilities.
Speaker 8: You mentioned it for many years and now I think the time is now because the level are really, the exchange levels are really unheard of.
You mentioned that too.
Many years and now I think the time is now because the 11 I really am.
Thanks, Tien levels I really unheard of.
Speaker 4: And when you mention Charleston, could it be one of the facilities to actually accept the removed operations, or it's just a different project and the operations will be removed to countries with even cheaper labor costs? Good afternoon. Good afternoon. As you know, we have dozens of companies all around the world.
And then when you mentioned Charleston.
Could it be one of the facilities to actually accept Dreamworks.
Operations or it's just.
Different project and then the operations with Bay area.
Two countries. It was it was even a cheaper and labor costs.
Good afternoon.
As you know we have dozens of companies all of Huntsville in Brazil, and the U S. The UK and Germany and India in Minneapolis.
Speaker 7: in Brazil, in the U.S., in the U.K., in Germany, in India, and many other places.
Speaker 7: And we, in all these markets, it's very important to create local jobs and to do development and to do production.
<unk>.
We in all these markets, it's very important to create local local jove.
Development into production.
Speaker 7: So we are taking advantage of the positions we have in these markets, and we are expanding our facilities there. It helps us, first, to be more local, to be more trusted, and to do more jobs on the ground, and secondly, also to hedge some of our activities, which we do in Israel in other facilities.
So we're taking advantage of the positions we have in this market.
We are extending Gulf facility Xu.
First to be more local to be more trusted and to do more jobs.
<unk>.
And secondly also.
You too.
Hedge some of our activities.
Which we do in Israel and other facilities.
Speaker 4: So it's a long-term process and it's part of the improvement we are trying to gain in the OP, as Yossi mentioned. It's one element there. It's already effective, as you all saw in the last results.
So it's a long term process and its part of.
The improvement we are trying to gain in the LP is.
Mentioned, it's one element.
It's already effective.
Also in the last result.
Speaker 7: Other parts are increasing productivity, which is the Beka, the Ramat Beka facility will help us with that, and centralized procurement, and the new ERP, all the other measures which were mentioned by Yossi earlier. So, altogether we have a long-term plan to improve the profitability of the company, and we are implementing it.
Other parts are increasing productivity, which is a big.
Becker facility will help us with that.
And.
And centralized procurement, new ERP or the other measure to be true mentioned, but youll see earlier.
So altogether, we have a long term plan to improve the profitability of the company.
And we are implementing it.
Speaker 7: quite effective and we will continue to do it in the future. The Charlestown facility is just one piece in this puzzle.
Quite effective.
We will continue to lead into the future.
Often facilities just one piece in this puzzle.
Okay. Thank you.
Speaker 8: Okay, thank you. And the last question is actually also for you. It's a more marketing question. Do you intend to keep in the long-term IMI label, or do you plan to integrate it within a few years into LBIT systems label? Because there are different sides to it. So do you have a definite plan now?
And the last question was actually also for you and say more marketing question.
Do you intend to keep in the long term IMI labs oil plan to integrate it.
It shouldn't.
In a few years into Elbit systems' labor, because saying that differ.
Different sites.
So what do you have a definitive plan now.
Speaker 7: It's a good question, and I can tell you that IMI has a very good reputation all around the globe, mainly for munitions and for land platforms, so for the time being, we intend to keep the name of the product. We would like to gain benefit of the reputation, of the good reputation IMI is having in many countries. Okay. Thank you.
It's a good question.
<unk>.
<unk>.
I can tell you that.
Very good reputation all around the globe.
Mainly for mission and fallen plus loans.
So for the time being we intend to to keep the name of the product.
We would like to gain benefits of the reputation as a good reputation having in many countries.
Okay. Thank you. Thank you for taking my questions. Thank you.
Speaker 1: The next question is from Elad Kraus of Excellence, please go ahead.
The next question is from a lot of Kraus of excellence. Please go ahead.
Speaker 3: Thanks, Harry, Puzi, Yossi and Kobi. I have a couple of questions.
Thanks, Hi, Wilkes.
And Colby I asked a couple of questions.
Speaker 3: First, regarding the sales, we see that Israel is only 19% of the sales.
First regarding the.
Mr out is only 19% of sales.
Speaker 9: Do you see the trend that Israel should go lower or it's one time that Israel will come back to the normal where it used to be a few quarters ago? And the second question is also regarding the margins. Do you see any changes in the environment right now that you can say that the margins should be higher or lower or the same compared to the last quarter?
This is a trend that Israel should go lower or.
One time.
I will come back towards normal.
Mr. Kum <unk> go.
And the second question also regarding the margins.
Any changes in the environment right now that you can say that the margins.
Higher or lower or the same compared to the last quarters.
Yeah.
Speaker 7: As you know, Erad, the Israeli market is a limited market.
As you know.
The Israeli market is a limited market.
Speaker 3: As the company grows, then a big part of our growth is international.
As the company grows.
Then a big part of the big part of our growth is international.
Speaker 3: So with all the optimism that the Israeli defense budget continues to grow, and it does.
So.
With all the optimism that the Israeli defense budget continues to grow and it does.
Speaker 3: It looks like we are growing faster and our expansion is in the international market.
It looks like we are doing we are growing faster and our expansion isn't in the international markets. So based on that looking at the longer term and assuming that the company will continue to grow.
Speaker 3: So based on that, looking at the longer term.
Speaker 3: and assuming that the company will continue to grow at a relatively high rate, then percentage-wise...
At a relatively high rate.
Percentage wise the Israeli market.
Speaker 3: the Israeli market will probably be, will be declining. However, the absolute value, I expect it to grow at some rate.
<unk> B will be declining however, the absolute value I expect it to grow at some rate.
Speaker 3: So this is regarding your first question.
So this is.
Regarding your first question.
Speaker 3: Regarding the profitability stuff.
Regarding the profitability stuff.
Speaker 3: I think we explained that and we are doing everything possible in order to improve it. I think we are on track.
I think we explained that and we're doing everything possible in order to improve it I think we are on track.
The prices in the market.
Find by the market.
Speaker 3: itself. So the improvement in the profitability, we expect it to come from improvement in operations of the company. So this is actually the plan and we see very successful results outcoming from that.
Pizza so the improvement in the profitability, we expected to come from improvement in operations of the company. So this is actually the plan and we see very successful results.
It's coming from that plan.
Speaker 9: I see. So the environment is still at the same level. I mean, there is no higher competition.
Yes.
The same level.
No a higher competition.
Well the competition is essentially there it was there it continues to be there and we expect it to be there in the future as well.
Speaker 3: The competition is essentially there, it was there, it continues to be there and we expect it to be there in the future as well.
Alright.
Thanks.
If there are any additional questions. Please press star one if you wish to cancel your request. Please press star two.
Speaker 1: If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we pull for more questions.
Please stand by while we poll for more questions.
Okay.
There are no further questions at this time before I ask Mr. Marquis to go ahead with his closing statement I would like to remind participants that a replay of this call will be available two hours. After the conference ends.
Speaker 1: There are no further questions at this time. Before I ask Mr. Machlis to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available two hours after the conference ends. In the US, please call 1-888-8882.
In the U S. Please call one 808.
Speaker 1: 782-4291. In Israel, please call 03-925-5900. And internationally, please call 9723-925-5900. A replay of the call will also be available at the company's website, www.elbitsystems.com. Mr. Machlis, would you like to make your concluding statement?
708 to 4291.
In Israel. Please call zero 390, 55900 and internationally. Please call 970, 239 to 55900, a replay of the call will also be available at the Companys website at Www Dot Elbit systems Dot com.
Mr. <unk> would you like to make a concluding statement.
Yes. Thank you I would like to thank all of our employees again for their continued hard work, particularly in these challenging times.
Speaker 4: Yes, thank you. I would like to thank all our employees again for their continued hard work, particularly in these challenging times.
Speaker 4: to everyone on the call. Thank you for joining us today and for your continued support and interest in our company. Have a good day and good-
Everyone on the call. Thank you for joining us today and for your continued support and interest in our company.
Have a good day and goodbye.
Speaker 1: Thank you. This concludes the Elbit Systems third quarter 2021 results conference call. Thank you for your participation. You may go ahead and disconnect.
Thank you. This concludes the Elbit systems third quarter 2021 results conference call. Thank you for your participation you May go ahead and disconnect.
Okay.
Speaker 10: Thanks for watching!
Yes.
Yes.
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