Elbit Systems (ESLT) 12 Aug 212021 Q2 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' Second Quarter 2021 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.

received in the the the www.elbitsystems.com. all that press company’s have available is News should by company’s now release website You section of would call over Systems' I Relations to Myerson, Investor Rami Elbit the Director. like now to hand ahead. Rami, please go

day, Thank to our call. and second you, everyone welcome XXXX quarter Misha. earnings Good

are On Chief Financial today President CEO, Butzi the call with and and Officer. Machlis, me Joseph our Gaspar,

today the I press safe like out refer earlier harbor release and begin, to call. would we contents that Before the company's statement the issued conference of also to point this

you do both as we business. every performance non-GAAP this As quarter, certain detail we provides as regular data, information. the will of provide to financial the information believe understand that non-GAAP with ongoing GAAP We supplemental our well additional help

of by all today's beyond. of reconciliation a then significant GAAP data find information non-GAAP of quarter some begin as in the events the will results can by the during the will and well providing financial the Yossi financial Butzi as You who product talk and about financial discussion press release. details

then I'd will to to the We the question to Yossi turn Yossi. over please. like call to have With session. call and answer a turn that, over

growth our Rami. from today. customers day for solutions around demand revenues sustained improvement. you, world our the in thank second reflect and encouraging services joining operational and the The reflected you Thank Good everyone us quarter of backlog Systems the in results for and and as Elbit

we each raising Israeli rating million. tenders three rating and quarter global rating acquired of April. and a the in AA public Rokar include [indiscernible] agency the for of the July, stock of discuss will results. the provides of results figures notes At the the outlook of S&P approximately Aviv with assigned and to Sparton of trends Second The beginning are Israeli highlight strong by beginning series $XXX results the participation financial and in some in a now notes, in company. Tel exchange. I tenders significant investors our traded on vote the which stable confidence completed key

billion revenues of Second in the $X,XXX Sparton. the from organic over contribution were addition year. quarter major XX% to increased growth part And was year

report as the our revenues across CXISR that equipment Elbit for revenue solutions Sparton electro-optics for of terms over year due total total revenues and year land were similar of part over of sales. of significantly XX% primarily revenues the included our Land declined at of revenues Systems mainly sales areas guided the of accounted breakdown total recent medical note X% for we and accounted and growth to Elbit XX% quarterly in revenues, that systems the airborne over X% operation, to the of ammunition revenue airborne, annual increased and significant Night mainly volumes due year US. of over XXXX. due due to accounting year, I of to systems to In Vision and CXI precision like as of year at Electro-optics subsidiary. Other would year for of of device acquisition second US phasing on programs the quarter are level operation. year, increased year XX% of increased to

the was contributing Sparton growth quarter, and The XX%. XX% revenues, and is our base second diverse due important was to Israel the non-defense from revenues long-term America In our Our the XX%, US North XX% geographic revenue was Pacific medical of acquisition Asia the the sustainability largest device of business. mainly to in the sates. Europe

XX% quarter second margin quarter was munitions. the to of precision-guided the GAAP the of second XXXX quarter margin line for the impact second with revenues revenues the Asia to due first The of the in second gross the cost and XXXX. COVID-XX was XX.X% that mainly in Pacific benefits quarter gross the increased you compared we XXXX of XX.X% of with sales non-GAAP quarter in shekel stronger control gross previously. of compared discussed is of reflects The the the encouraging mitigate sequential to XXXX. initial financial help and improvement margin measures to in we of adopted

year. second X.X% related $X.X selling revenue expenses revenues the compared quarter, with second level quarter. year. XX.X% financial in second operating income to X.X% $XXX.X in income the were of million million expense gains profit non-GAAP from in of in or of operating the quarter from due was a in was quarter for two last $XX.X the of XX.X% second and in was quarter, year, XXX. expenses quarter financial recorded in expenses tax quarter $XX.X $XXX The sale The second We specifically. similar quarter the quarter in a of included the revenues income the compared million expenses of R&D compared systems of of GAAP lower of rate were income of Marketing as was GAAP $XX.X income. G&A in XXXX. Net other to million versus similar of Financial the to X.X% a with X.X% operating acquisition the follows. or revenues XXXX. recorded in business from the and The million X.X% liabilities. second included last effective with the second of in breakdown operating revenues second X.X% quarter $XX.X second last million compared GAAP was Elbit last were operating the sale fair million operating under XXXX. XXXX of mainly a expenses with X.X% in were assets of profit the compared to changes quarter of The Israel result value the leaseback year. expenses and the America tax

second earnings was diluted The in $X.XX share with $X.X last non-GAAP diluted compared GAAP $X.XX per year. the was Our with last $X.XX in quarter year. EPS compared

of at June during June of of XXXX $X.X is was March end the XXXX, quarter XX, backlog at XXXX for than following equivalent Cash billion for second last operating of year revenue. approximately rest quarter. the orders the million with than the revenues in $XX.X included XXXX. and the of contracts the second a was end million offering and $X.X backlog be and lower bond inflow more as to and at ratio for than XXXX visibility year. from recent at third years of quarter $XXX that be performed XXXX X.X the the last is scheduled inflow $XXX multi-year to compared billion this up of back proceeds good billion the same The will Our beyond. number backdrop net scheduled higher Approximately in quarter The recently. from future our order XX% flow current is activities higher of than and is provides awarded

the declared over Following of $X.XX turn the for the review of dividend per Butzi. Please the requirements, structure Mr. share directors a Machlis. quarter XXXX. capital of call now I board and call will of to second cash -- the n

of Thank the July in strong begin Elbit the for by would like in to you, in participated Yossi. I vote this thanking the notes for investors confidence Systems company. tender that

who Hellenic and one more systems Hellenic have air the from and the of at operated the this to taking around the that are for to Israeli assist aircraft authorities. in This Israeli for have aircraft wildfires and simulation around Defense Greece environment at employees the from world Government of squadron those firefighters our firefighting Israeli These logistical broad a Systems well prepares transport $XX.X Elbit. range squadron, solutions market-leading the solution an of signed Elbit the battling a in portfolio behalf Ministry operate world. Greece, squadron Elbit of and and provide Elbit establish of is part air sent two critical proud the scenarios systems mission week, the militaries to quarter We of forces efforts $X.XX Systems' force simulator the part in of that the protecting the to backlog Elbit this the country. low at that this that wide end Greek training developed The expanding XX-years delegation point billion world National of twinning as includes included a I across on international force commitment billion training as second record support. control rescue better the am capabilities. are provide realistic as Firefighting the in cost. the fire firefighting flight will

and the borne more April, SPECTRO am pleased with interceptions utilize were naval, is a growth human quarter. of supply installed in force contract for we SPECTRO electro-optical extract of and Israeli powered munition, laser artificial [indiscernible]. drones military dock around with progress night Precision to UK Asia The laser vision in three investors powered ice both countries. land Sparton powered cost systems April, In the tests that system. that the additional forces. In of night for shoot and the night visibility the System will position the Elbit multiple the be of AI capabilities that channel during of engine recent network develop German Baker years scan of domain. and investment Sweden in contract in the and US multi-spectral one these [indiscernible] with quarter vision and borne multi urgency As the air errors. subsidiary deployment guided effective electro-optical the sypply System second intercepting at conflict systems Elbit demonstrated air the missiles rockets SPECTRO maritime to the continuously I subsidiary $XX increasingly reduce supply Elbit and number highlighted US Elbit including engines; acquire in awarded Israeli devices air our growth day Israel Elbit and intersections Elbit air carried growing received ammunition population a was forces the to million two $XX term systems Netherlands. and and and an by from and recent development acquisition family the with high UK $XX intelligence successfully have mentioned. growth native south high-powered driven subsidiary world, was to been revenue high the System provides systems insight of to successful down position to of has to in conditions. the In the of lasers. a System System value highlighted our high areas to June, develop accumulated out upward countries, Germany, radios milestone America June, together completed Pacific Systems an large as System our a Under serious June $XX we June an capable software armed with maritime threat a the Elbit civilian XR community tactical army. exact Yossi part goggle in of installation solutions. will million low supply MOB forces efficient In of for Elbit for have June radio increasing Army medium on UK, as to System The in solution significant awarded In made in defending Swedish to selected altitude. received target comprehensive pilot contract important orders under US of to exact experience contract long XR million maritime range [ph] by System, million significant was logo. contested

to Operator? summary, Switzerland, our with happy I armed In console potential high-technology have and good radios native living visibility we to us selected take of broad-based been provide significant be to including other continue that, will across forces for our see Europe, by Spain questions. Our continues countries. And several backlog your and solutions. with

from The Please Konrad is first ahead. Greg of instructions] [Operator question go Jefferies.

start as mentioned, reset it this level? going? how lumpy first kind this just does sensors is that Just, and how's systems airborne it forward. that precision or higher of Hey, going the strengths Let to me or on munitions, you about think business

this Well in acquired IMI XXXX. product those did subsidiary there are from coming the basics lines, we are the that of several of

interest kind geographic we launched for products included significantly precision that to precision a Now airborne our less of munitions. our of business is That When products. munitions. product very in big of guided and do this IMI able XX% bought of variety about this see guided the or IMI, are category. And contacts we of revenues had kind over of of at low years there that level international in we With significant means from family various growth customers the customers, a were marketing lines. spread promote kind we of with of this which

also into improvement by to we the improve of particularly the that some did this continue other acquisition this on them smaller this introduce because future this we kind from improvement will that the Roca acquisition and are of the we we capabilities side. munition Our one that growth launching in looking side estimate BAE, bought the of we precision as munitions. is capability the we on this quarter, of well, significant that do way, the guidance upgrades the did, in a very technology today continuous for of have company growth the see, of name kind area. of and do guidance Therefore, precision optimistic [ph] By forward,

I able up play kind good productivity that improving about which forward? step of Margin the a progression much the margins. been some How job does to we kind highest IMI, you've up I quarter, think have or sequential And margins of you go the done brought over drive as helpful. a in That's several years. the mean, and up out we stood you mix of think where past into good for

a Well, covering have plan going we out five multi-year years. for over over

performing two to years are goals go. We in of of and the somewhere the had this We achieving plan. another middle

think planned. we what we I ahead of initially are

room of we also the and is that of are two milestone and is will following new improvement beginning three production the towards of there We that looks major the facility. cost achieving a give Israel manufacturing/production it that A of 'XX, the the years. be like margins, nice profitability a that into improvement through of production Southern the facilities at the another of for labor rate, to of lowering for to boost will a 'XX And movement products. end still improving these of modern part for

capital. just then capital kind nice in the around working had strong And given working me, or thoughts you good your Any and through conversion for tailwind the last as from quarter, changes Okay. one a year free of for move assumptions cash QX? the you flow

is years over our delay have the Israel. of did one the Ministry Defense some of the quarters, which payment customer, we Over from in in here major

During the some second their of of billings. did they pay quarter, the some

However, quarter. There fluctuations in the these a next fluctuating some may bit. be are little

the solved -- everything everything like Defense. and paid will delays by that caused Israel, settled the of billings in optimistic very the end. by Ministry the November are of We outstanding This budget because year were will be of overall the be for by year-end every be somewhere including looks approval will therefore budget it

The go next Leader. question is from Dina Korshunov of Please ahead.

results? Hi guys, questions. how I are you and of congratulations with couple have your And great a

one are of it's first the the most amount the to is in [audio kind think segments you quarter? interesting I something for tell, revenue you this big sustainable Can the some increase main and think do gap]. the what or contributed that

wide we and The very portfolio with portfolio, and of subsidiaries not is all globe. related hand for see strategies this business. a the Growth for the is one in different that it We wide And use one as line on bring that the revenues a interest over the portfolio just as much can see tensions for results. to growing strategy have things the globe starting around chosen of because around one being budgets. hand increase the we local to global and demand and portfolio we on advanced

many more create trend get that hand, and around is see certainly a to subsidiaries have us the other we support we local world contracts. jobs. the to economies On fact the to helping create also -- the And to so

into globe profit in all this new the and around and revenues be we backlog converted future. in backlog a the should you'll the see and growing portfolio the So is for whole see demand answer the rock

trend different effectiveness, the activities I revenues in efficiency growth gain successful these believe have that and lot invested that's in company results we to in about and and of continue. believe profitability and As to will create trend platforms in the profit this are this why that will profitability, you synergies continue. increase order I between in we to more we and Talking saw a of

just… I profitability high the quarter, the revenue the or in contributed understand. to in the Great, does volume then increase

backlog, plan high effectiveness growth ago and to to reason long revenues efficiency different? starting it's into and and increase in is the related efforts The a big very is we have implemented bring No transformed the profit two for detailed a time quite revenues company. is to and in the is results which

restriction Understand, right. decline, And last there in next of the be quarters? question. Do you in expect world. some COVID-XX result kind acceleration is If will the

also we how happen we globe, And know we've subsidiaries that operate in and around the new restrictions that to future disappear and are future have not think future. new we successful think operate COVID-XX. different to I under and assumptions ready of that in how proved if understand any that because certainly we're also dynamic, the so to it's restriction to also hurting ready that we the under And I again, to will the continue in under fact they us. the many be

you, Okay, guys. great. Thank

Skibitski The is Please next Global. Alembic Pete of from ahead. question go

and Yes, and all Yossi good afternoon, Butzi around very guys. nice Rami quarter

First something received Greek quarter, that Was advance that in the related the was you pretty contract signed cash large else? that is guys question related to or the being to it sizeable.

a to contributor definitely that. a contracts. contract combination significant Greek various It's The is of

the Okay. important new and process an to,to guys this And, ButziI implementation strength? have point? ERP system. pretty alluding that margin you think the the to ongoing that of that and of been implementation has --of Is completed Is been your

the of than ago, XX% of implementation of plan, and a XX% the around by was to be implementation. completed take maybe be probably will detailed bit we implementation, expect the on we ongoing year, that. some or to an started years now little XXXX, higher changes. The, the And this a effort. very end close Right plan of by the plan end give are and Well, we it's about it three

it investments include related as yet not is the ERP the through, now because benefits of coming said, financial unfortunately, on They same some right far the expenses we turnaround But be that to in So improvement of, the the in XXXX, report organization of I our will in facing somewhere of all of hopefully benefits so savings. of were operational all we that more material some the includes flow. whole items with small but looks start think costs because in statement amount that a that capital reduction cash see did the system. very other system. improve shorter performance in we'll the I company, that commonality of inventory see not we times did implementation, including the and like We

I again, year couple the headwinds XXXX?I of I to that the could And me. that couple guys if maybe great. but we've headwinds ask on know that? the heard because on into shouldn't quarters, because of slowed of a this where the the great. for you and Have grow had reason kind bit needed of they or provide color have revenue FXXfor there kind content through the guys FXX. were that maybe amount of revenue about three I maybe little call know you've chorus of on events, to over some a last appreciate don't I maybe the down wind like color other is two down program from he been last the maybe ask to good kind on any That's things you later some start some FXX, That's inventory. more a suppliers because a couple quarters, FXX, want you

significant of The, in info of that is where parts one full well. cockpit content. are, XX system the another the F is the the helmet right one On them, some the other as we have you display

from our according very according and They the that our Lockheed course, hand purchase with Martin related requirements. hand we are their of some with and working we're far work them. us give by So that orders closely production plans production we forecasts to get and to

according we headwinds yet. so with what to engineering material production hand hand So they that as adapt performance, nothing far, experienced definitely wouldn't to we in say and we that have see material far, said and, need, I I them work but our

Okay.

you And appreciate guess of approaching I I'm the Okay. large kind raise M&A also gaps one, forward? and that. like to forward, to of then company going and, just see are, do the just how going desire you'd capital of see your terms in how active with I fill you're of, guys, reshape you that the in kind just you portfolio last curious kind how

been, be be. it behind market. position hand M&A get additional one our to is global expand for the on we the And will opportunities. the to and to strategy. in also It continue that it rationale to has And continue opportunity lower wasn't, look

and capital. see we and some the are the relevant to based us which opportunities we said, as We are monitoring market, on right you have

capital the have now You to continue right it. doing

we that how that the to it synergies get think as be make part of to our manage also future and will how market to acquisitions to, well. how and prove know I to these And we to continue activities conditions. form strategy

queue. Thanks I appreciate get in the the great. I'll That's back guys. color.

[Operator Global. Pete a go of Instructions] follow-up There Alembic Skibitski ahead. was Please from

Butzi, thanks. press your there, articles the out was artillery there there Yes, about your in out quarter some system. ground, mobile some

Sigma. called it's think I

because of it's, us of I development, think think in a development, mastic article for system mobile So? up are nearing give still that sense it's, end of perhaps. think international and think it's development, I maybe had now opportunities modern there out I system, James the out Maybe maybe since and the, that's it's most it's there it's what but the finishing maybe it kind I an right

ranges for the XX of well, And with amount for a limited development, and can our in the core guided contract we munition be guided Sigma this, have gun, well XXXartillery a a reach fire more members. middle of as big difficult which kilometer diverse, sophisticated, than viable as equipment It's can tune to it intelligence. you. Thank

we development will We of in the start customers next well of in performing shooting the with middle are focusing Israeland year. our life local

also next lot a year. end should them. be system The of We completed of around the see first

solution several that demand are Virginia, one his of of already I countries. demand, of if that most for most, in we which the BA growing itself. they quarter, includes will And call the right us it automation now, capabilities to munition some and one have agree regular a yours added is can we also to You guidance guided for habitual if ammunition collected or advanced word to the file of it it of the, a technologies the filed provide enable growing customer, embedded type projector make countries. from market be several including fused, with whole create itself promoting the in not see which one the the he, you see, with complete assets hub all make well. can a to that and to to solution which just acquire the guidance a in which And with we which alone. and one add this, I want thousands this the actually and in be is, as embedded control in can it, system All the to And reconnaissance

also a us a might recently us. an and be was is provide of US demand that. and requirements, of can for the presented is for for full we So version which growing to there our for was solution opportunity we, it some and the and gun It customer previous that also a work, market probably

has terms in pretty the, maybe at like great. government have Just are things are That's things kind stable. to as an now that, color. And don't progressing terms government that point? I update and budget of in visibility that I guess like Israeli much all the of for the fairly outlook the like made last in us internationally seems all the, it stable people of to MOD? appointments maybe could are, give its Okay. me of into? Israel, just this you appreciate Is one it, me the the

there will And the finance understanding budget approval about an that's concluded deal an which is under years. budget minister defense spending Islam and between different two the the which in government then us the for in of is national for budget and really of in November. agreement two, the implemented of you the been presenting And many under to, budget by country. made has the course of budget be of No, and when And also is is was this more be in expect the the a more growth minister implemented. defense coming than titled should than happen. now developed additional each be after the, will the to a years opportunities I it process beginning This in and size national

XXXX of will implement a years to plan type So to budget of embedded forward five-year and to lot a here, the to will budget cover the set the enable be already for and budget. bigger two set they'll is this new support acquire Israeli. The MOD plan. opportunities that's to It's also XXXX. a the, technology these with forces. of and And in What's the budget. important this to budget implement mention

Okay.

much, like So point. in at seems much this awhile. then It more you've visibility had

day. much great. color for guys. that's the great Thanks so So a Have

of The Please next question from is ahead. go Excellence. Elad Kraus

do see that you more lower, any selling you're margins and regarding to businesses, it new compared Rami, of regarding change the in the the Hi all, Is the of Butzi higher, same? first fast?

but of clarify little one in the understand parts that hand. we that definitely because of account difference economies could various take labor. the affect and elements of the and No. all, And the market the cost by are water so all I is and environment of competition. various on, just economic on into programs the on of future There cost of works are material set want to a we be market the prices prices and in of movements The our that course, multi-year estimates the some budget. set of by cost first The changes we where set course anything by of the might the is a compete bit how you basis. for

we can not So of through. what we getting new prices If hand. are see this look but businesses definitely that we on one are getting are we the we some then we at movements in movements, there the that are that major process is out going acquire

synergies solutions day, a the for of technology add direction On and a the effort fact and different structure in also which of the we and as that other between the house centralize big hand, and the movement will operations made also because parts already to provide. profitability Acosta structure competition. of market of more opportunities P to acquisitions that end market cost have lead I of had some the we basis, that few significant to And in is the by, on a there have a lower is which the our of the because we to production of a for by the multi-year creates that much that ago to the to that the that we is movement creates implementing, production years system of of what. that, of than more do we all the the have we to the are that defining most overheads, we cost much in mentioned portfolio, the And and us acquisition acquisition we improve effectively to all company, one to lead. increase the years in company, prices offer adoption want control earlier, we that helps reduce should see us

[Indiscernible]? any the changes fact major CapEx another thing, the in central the from you company, out I moving you're Okay. that if region within the it of is see. see And

ongoing ongoing affect CapEx into is the dollars that kind, I company I see which the would of the the say split are part it changes. is which in one significant the CapEx XX, say overall one which of the a operation parts. are is investment which There millions some The I significant not tune of that do elements does would one we would the in Well, system, two which over call more the numbers do in to of, maybe the year. a XX our I would them of per years investment two affect to ERP that CapEx, supports

movement affect does the which time. the a a part in the affect step significant following one the it's time. of also I of XXXX. don't production which the will, wonderful it for is two also It element, and country, years, IMI a of other part and the XXXX facilities up The is will to that which is of South extraordinary see Southern but

at look CapEx Maybe the that CapEx you if are let's two engineering So efforts support might they that cutting in what's increases do years three we last happening some does efforts, years through require support the say capabilities, own we that the some other essentially recurring outstanding. CapEx next in but his these technologies in last two in the not specific number, advanced went five stable. major which are the coming, nothing years

Alright, thank A you very much. quarter. Thanks. great

go I ends Israel, conference time would a make X-XXX-XXX-XXXX. Mr. closing participants please A questions be Machlis, call hours There further that asked X-XXX-XXX-XXXX.In available I statement, you of to call call this the at replay also would no Mr. at this ahead replay US before call to your call website after Machlis, will are available the please on statement? his please the XX-XXX-XXXX, this like company's concluding will of to and www.elbitsystems.com. with two remind in like internationally be

court. I to today on interest would the Have day hot joining employees the times your war, in to challenging you good and us for goodbye. and again, these for continued Thank and for what continued think particularly a all our company. support in everyone like

conference XXXX second Systems quarter you Thank Ltd. for you. Thank This concludes participation. the call. your Elbit results

may and ahead disconnect. You go