Q1 2022 Elbit Systems Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to Elbit systems first quarter 2022 results Conference call. 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 you should have all received by now the company's press release.
Available in the news section of the company's website Www Dot Elbit systems Dot Com I would now like to hand, the call to Rami Myerson, Elbit Systems' Investor Relations director.
Please go ahead.
Thank you operator, good day, everyone and welcome to our third quarter 2022 earnings call on the call with me today, what's the market President and CEO , <unk>, <unk> CFO and Yossi Gaspar.
Business management.
I'll begin I would like to point out that the safe Harbor statements in the company's press release issued earlier today also refers to the contents of this conference call.
Every quarter, we will 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.
Koby will begin by providing a discussion of the financial results followed bankruptcy, who will talk about some of the significant events during the quarter and beyond.
I'll, then turn the floor over to a question and answer session with that I would Wanna.
I will turn the call over to Colby <unk>. Please.
Thank you Rami Hello, everyone and thank you for joining US today. It is both an honor and a privilege to present the Elbit Systems' first quarter results to you today.
I would like to thank Yossi Gaspar for result in recent months.
Youll see us retain responsibility for capital markets and Investor Relations.
I look forward to meeting you Obi systems investors and analysts over the coming weeks and months.
The first quarter results reflect the healthy market environment for Elbit systems and sustained demand for our solutions from customers around the world.
Revenue growth.
In the quarter was primarily due to the fulfillment of orders received in previous years and the Spartan acquisition.
The Russian invasion of Ukraine in late February and proposed budget increases didn't have a material impact on order intake revenues in the quarter.
Profitability in the quarter include a sharp increase in expenses related to employee stock price linked compensation plan.
These plans help align employee compensation with share price performance Incentivising, our employees to generate long term value for all of Elbit systems.
Holders.
Our GAAP and non-GAAP results have always included these expenses.
In the first quarter compensation expenses were significantly larger than normal following the appreciation in the share price after the rise Russian invasion of Ukraine.
Reducing profitability in the quarter as noted in our fourth quarter and full year 2021 results press release published on March 29 2022.
Assuming a decline in share price volatility, we expect that this stock price linked compensation expenses to return to historic levels.
I will now highlight and discuss some of the key figures of insurance in our financial results.
First of all the revenues were $1.363 billion.
And increased by 21% year over year.
A major part of the growth was organic in addition to the contribution from Spartan, which was acquired in the second quarter of 2021.
In terms of revenue breakdown across our areas of operation Airborne system accounted for 37% of total revenues and increased year over year, mainly due to urban precision guided munitions sales.
Land systems sales accounted for 22% of total revenues a similar level of revenues to 2021.
Before I ISR, it's 29% of revenues increased year over year, primarily due to the acquisition of Spartan and unmanned system sales.
Electro optics accounted for 9% and others accounted for 3% of revenues.
Our diverse geographic revenue base is important to the long term sustainability of our business.
In the first quarter North America contributed to 27% of our revenues as your Pacific, 30%, Israel was 21% in Europe , 19%.
Asia Pacific revenues increased mainly due to sales of precision guided munitions and UAS.
The growth in European revenues was due to primarily to training and simulation space.
The non-GAAP gross margin for the first quarter was 24, 6% compared to the first quarter of 2021 and 25, 6%.
GAAP gross margin in the first quarter was 24, 2% of revenues compared to 25, 2% in the first quarter.
Of 2021.
GAAP and non-GAAP profit in the first quarter included include approximately $20 million of expenses related to stock price linked compensation plan.
The first quarter non-GAAP operating income was $65 8 million or four 9% of revenues compared with $92 9 million.
Or eight 3% of revenues last year.
GAAP operating income for the first quarter was $58 6 million versus $83 $8 million in the first quarter of 2021.
GAAP and non-GAAP operating an operating profit in the first quarter included expenses of approximately $35 million.
Related to the stock price linked compensation plans.
The operating expense breakdown in the first quarter was as follows net R&D expenses were seven 4% of revenues versus seven 5% in 2021.
Marketing and selling expenses increased to six 4% of revenues from four 6% last year due to the <unk> acquisition and the stock price linked compensation expense.
G&A expenses were six 2% of revenues compared to five 5% last year due to stock price linked compensation expenses.
Other operating income include includes the capital gain of $3 $7 million related to the disposal of our noncore business.
Financial income was $1 $1 million in the first quarter compared to financial expenses of $200000 in 2021.
We recorded a tax expense of $8 million in the first quarter compared to $10 $8 million in 2021.
The effective tax rate in the first quarter was 13, 8% compared to 13, 4% in 2021.
Our non-GAAP diluted EPS was $1.22 in the first quarter compared with $1.72 last year.
The GAAP diluted EPS was $1 19, compared with $1.64 last year.
Stock price linked compensation expenses in the quarter were equivalent to approximately 70 to 72 cents on an EPS basis.
Our backlog of orders.
March 31st 2022 was approximately $13 7 billion.
One 9 billion higher than the backlog at the end of March 2021.
And at the similar level to the backlog at the end of 2021.
Approximately 55% of the current backlog.
Scheduled to be performed during 2022, and 2023 and the rest is scheduled for 2024 and beyond.
As a percentage of Solta backlog declined in recent years following the receipt of more long term contracts improving our visibility for future revenues.
Operating cash flow for the first quarter was $36 million inflow compared to a 30 million dollar inflow outflow in the same quarter last year.
The board of directors declared a dividend of <unk> 50 per share for the first quarter of 2022.
I will now turn the call over to Mr. <unk> would you. Please go ahead.
Thank you Colby and good luck.
In the first quarter reflects the strong demand for solutions from customers around the world.
It could be mentioned growth in the quarter does not include the impact of observation in vision of a crane all the proposed increase in defense spending by NATO countries.
In recent months, we have arisen.
A noticeable increase.
He is an incoming inquiries and militaries Luke to equip them with a range of capabilities.
We believe many of these will convert to orders and revenues overtime.
I expect elevated geopolitical tensions and growing defense budget will support the improved momentum isn't it.
That businesses over the coming years.
I would like to share my perspective on the profitability.
And compensation expenses in the quarter Elbit systems 19000 employees.
The company's most important awesome.
We will continue to invest in recruiting retaining and motivating a high quality work force to realize the long term potential of Elbit systems.
I believe it is important to align employee compensation and incentive to the share price to encourage long term value creation for all stakeholders. We continue on.
And the work on a range of efficiency gains as we have discussed with you in the past as part of our effort to improve profitability and cash generation.
Turning to recent geopolitical development, the Russian innovation awful crane once they wake up quarter.
For many countries are expected to be a turning point for European and global defense spending.
Systems has invested in a broad portfolio and global footprint.
<unk> is well positioned to benefit and foster a defense budget growth proposed by the government Europe and in other volatile gold.
Elbit system has a global footprint of multiple operational subsidiaries.
That's all in.
Integral part of the domestic defense ecosystem in their home countries.
They employ hundreds of local employees and.
Support domestic supply chains.
Expect that our subsidiaries will benefit from the increasing defense budgets in their home countries and governments look to invest.
<unk> funding and supporting the domestic defense industrial base.
Oh investment in R&D as a percentage will soon either higher than many of our two to ensure we can provide the portfolio of technological advanced cost effective solutions to our customers.
Elbit systems has demonstrated.
It can liberate a significant operational experience so far in June and is most of them all.
Victims victims with significant military students many of them continue to serve them to the Oakland using LPG products and systems.
<unk> provides invaluable short feedback loop between the street and that.
The quaint conflict has highlighted the relevance of our portfolio.
I'd like to provide a few examples.
Elbit system provides a broad range of systems that provide will enable protection, Australia, and haven, and Grumped lots homes from a range of threats.
We'll buy electronic warfare system for a platform like the missile warning system for the U S Air Force International Guards at 16.
In May we were selected by Airbus to supply J music consistent or was it 800 associate multitude.
Hopefully will pay in April are consistent defend military and commercial aircraft on ground leases, we also supply substance Lil for NGL circles.
The iron Fist active protection system has been selected by the Netherlands, Australia, and the U S to protect Aussie cost from a range of incoming threats.
To use the UK Modine Navy selected Elbit systems UK to provide electric water system that will help take the oil Navy ships we.
We expect an increase in demand for unmanned systems as a result of the country.
The system has a broad portfolio of appointment of vehicles. The ideas recently unveiled its new export and tech companies that will incorporate elbit systems.
Two identify and designate targets.
Battalions.
A few months ago, the homeless pilot will.
Well the first unmanned aircraft certified for commercial industries.
Corporately highlighted the need for advanced clinical systems that enable combined forces operation by connecting diligence maneuvering forces.
Logistics across multiple domains.
Sito systems incorporates intelligent guzzling does it by a range of sensor utilized AI to identify target and connect with the relevant system shortening as a central to shorten the shoot to loop and helping our customers to engage targets quickly and efficiently.
Oh come on and control systems are in service with customers, including Gizmos, Sweden, the Netherlands, the U K and the U S. These are just two examples and they believe there are many other product and systems that'd be system portfolio.
Is it from increased demand and as a minute to read the ones that would apply the lessons learned from the corporate team in claims.
I would like to reiterate elbit systems commitment to momentum.
And the government and governance best practices.
It's our recent Investor day, we highlighted the investments we are making to reduce on governmental footprint.
We are also introducing electric vehicles for all employees.
After a very successful rollout of hybrid vehicles and a few years ago. We are all in go follow food at our new facility in the south of Pittsburgh and PV partners onto the woeful buildings around the world. We are also connecting sites to Mitchell Gov to reduce it.
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We are investing in R&D to develop solutions that will help reduce fuel consumption.
And emission.
One example of this R&D or our training and simulation systems that help reduce the.
Flying always required to train pilots.
I'm proud to see.
The movement of thousands of Elbit systems employee all warmed in activities that benefit the communities, but also.
Week more than 70, Elbit employees organized hosted and moving towards a hackathon to develop tools that Baltic children form filings on social media.
I visited the hackathon and was impressed to see how all employees literally and be innovative and intercontinental.
Our nation culture and develop.
Students to protect all the changes in the online.
And with that I would be happy to take your questions operator.
Thank you, ladies and gentlemen at this time well begin 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.
I can speak out equipment and kind of as the handset before pressing the numbers youre questions will be followed in the order. They are six please stand by while we poll for your questions.
The first question is from Scott Forbes of Jefferies. Please go ahead.
Hi.
How are you kind of seeing demand signals come through as we think about the opportunity stemming from what's happening in eastern Europe , particularly as we started to get some clarity on.
Oh budgets I mean, what do you see is really the largest areas of opportunity I mean, whether that really be from a product perspective or a more geographical.
It's a combination and I would say is that we see in Europe are growing demand.
Full solutions to protect the platform.
Politics.
And to protect sites.
Which includes the EDW solution.
This consisted of an active protection system and shutdown flu and who we also see guang demand for uses for command and control system for intelligence solutions with Southern protection systems.
So and also for guided munition growing demand for guided munitions in order to set to see.
To fill stocks again.
In Europe .
But this is not just to you we see growing demand.
U S also in the far east.
To support our.
To support.
The forces.
Protecting themselves against China.
And actually we see loan demand and also who is it.
And we have it.
Budget, we have this five year planning and we are getting are also new programs and contracts here in our country.
So altogether, we see growing demand for most of our portfolio.
And we see also growing budgets and interests.
Most all over the world.
And especially I mean, that's such the fact, you have such a wide portfolio.
And so many subsidiaries.
The U S coals in Canada in the UK in Germany, and Austria in Romania in India, Australia, and many others.
Bus to be.
Part of the local supply chain and all of these countries.
So the combination of.
White portfolio large footprint.
As a strong strategy of the company for many years.
And we are taking benefit of picking up and.
And we expect to see many more control to the company and to continue the momentum we are seeing also in the coming quarters.
And then just on the U S. Specifically I mean, you've had a chance to go out and take a more detailed look at that why twenty-three pace, but we got to set up this year.
What were your initial takeaways and how do you feel your product portfolio lines up to those priorities being shown in that budget.
I would say that.
We see a growing demand for naval activity in so Paulo and in effect, we have spot on right now with bulk of they'll be familiar helps us a lot too.
To participate.
And in this effort.
Talking about the.
Yeah.
Airborne activities just to remind all of us that we have system like head minutes like bottles of Unix and each and every year 35 F 15 F 18.
'twenty two.
Of course, each Apache we have a major fault on the T X 57 point.
So we are we have a strong position on many airborne platforms in the U S.
And we have also many.
Many system to support the ground forces, which includes laser designate all.
Which include night vision equipment for the soldier.
The target acquisition solution.
Guided munition active protection system, which are required to support the group in New York, So altogether I believe that we all win.
We are well positioned to take advantage of the growing both with one.
And it also means that you have market based on our strong position we have in the U S. Under a system of Familia, which had more than 3000 employees.
Thank you.
Thanks Scott.
The next question is from Ella fried of Bank Leumi. Please go ahead.
Yeah.
Hello.
Hello.
Okay.
Yes.
Oh, I thought you guys domestic and okay at the most can be lethal.
Okay, and sorry, okay. So I.
When I was offline I congratulate to do underground say, indeed sake, what theyre, even so it is not that necessarily we're thinking of the year.
And I wish I hope that indicates a.
And I would like to ask you about the timeline that you spoke of.
Of these opportunities that you spoke of a because the U S.
I think in the defense industry, usually are moving slow slowly and and there is a ceiling.
At this time.
In some countries.
I'm very keen to 222 to get to get their orders as fast as possible and.
How much of it to.
Do you expect.
Expected stronger word.
Do you think that.
It will be translated into orders.
And before the end of year, because obviously the next you will see lots of feedback.
Presently.
There's a feeling that a lot of pieces there.
Is it going on but how much of it is actually translated into real order that they are made.
People in the in the near quarters.
Thank you Willa.
First I.
I want to.
It reminds all of us that are and you can see in the numbers a bit.
A live and impressive.
Growth in our revenues.
They choose prior to his intervention to to crane, the innovation to acquaint to place them.
End of February this year, and what do you actually what you can see in the numbers is it a 21% you will go to you an increase in revenue and if.
You take out the one time expense.
Defense, we had full a full frontal auction you can see also growth in the in our in the Jeep. He can see growth in the GP for 202 can get numbers, we'll get the numbers for a minute for $281 million.
$47 million all in.
Number.
Albeit from 84 to 94.
So we see a significant growth.
In revenues and also in growth.
And profit that's before.
Finishing two to Quinn.
And with regards to your question, we see a lot of inquiries.
Do we see a growing demand for the system product we have.
And.
I can tell you is that the policy we also see.
Some urgent requirement.
Which I believe will lead.
Two programs to construct.
In a relatively short period of time hopefully this year.
And of course, we also see.
One budgets the bulk of it.
We'll use the next week next year in this world, but do we see.
Is that the funnel of opportunities is growing and I believe that the bulk of it will be seen in our numbers.
In the coming quarters this year.
Okay. Thank you and I hope that one financial question and the gross margin there were a bit.
And then maybe one more.
Okay.
Indeed.
A quarter and we know that.
Lots of great here and said that.
The currency rate and the supply chains, and then they enter a lot of things.
And inflation.
And in many other reasons, but Ken.
Ken can we hope to see this level.
At box 26 states throughout.
Yeah.
All the names and I know that you are doing.
So you can do your best to do it but there is it is it something that we can expect only have to be careful there.
Hi, this is you'll see a higher.
Uh huh from.
<unk> finished the state of discussions that we are not providing guidance. However.
We are excluding the.
The extraordinary Inc.
<unk> expenses due to the stock price.
As we discussed earlier, we have improved from previous quarter to this quarter by a <unk>, 4% our gross profit.
And we have improved.
Yeah.
By a significant amount also.
Operating profit but.
The one thing that I wanted to point out that I'm not sure that it was transmitted property.
In view of what a boost.
Lucy just mentioned earlier the increase in the fundamental.
The marketing opportunities if you look at all or results you will see I'm not kidding actually.
And I saw that they tell us they don't forget.
An increase of marketing expenses now this is not just by spending money. This is these are two things that I was doing.
One with another.
When you have marketing opportunities growing then definitely the company is spending the marketing efforts in order to catch these new business. So there is a correlation and leases.
Is that ex tilda in the expenses and the marketing they definitely have affected our operating profit to some extent now we want to catch the business, we want to do everything possible in order to benefit from what's happening in the business environment.
We are experiencing now which is very positive which is very positive. So.
Maybe we have a little bit of a drag on our operating profit because of this element, but no doubt, but increasing dollars backhaul and growing the topline as the team will be shown and would show up in the operating profit and bottom line as well in the future.
Uh huh.
Thank you and I also want to add too.
Two topics, which I believe are important we continue to work on efficiencies to.
First in your facilities, you know that we're building a new facility in the South why am I.
We continue to deploy the new ERP system in the company, which I'm sure.
With that we will benefit from it.
In the near future as well and of course the currency level.
It is now is more favorable than it was and then it wasn't the first quarter, which I hope will also.
Help us to create more appropriate in the future.
Okay. Thank you very much.
Thank you al.
If there any additional questions. Please press star one if you wish to cancel your request. Please press star two please stand by while we poll for more questions.
Yes.
There are no further questions at this time before I ask Mr. Mark likes 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 U S. Please call 188878.
24291 in Israel, Please call 039 to five.
5900 and internationally. Please call 970, 239 to 55900, how replay of this call will also be available on the company's website www Dot Elbit systems Dotcom I still ask US why do you like to make your concluding statement.
Thank you Tim.
All of our employees for continuing to hold or contribution towards the success.
The other one of the call. Thank you for joining us today and for your continued support and interest in our company have a good day and goodbye.
Okay.
Thank you. This concludes the Elbit systems Ltd first quarter 2022 results conference call. Thank you for your participation you May go ahead and disconnect.
Yes.
Okay.
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