Elbit Systems (ESLT) 23 Nov 212021 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems Third Quarter 2021 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

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. I would now like to hand over the call to Rami Myerson, Elbit Systems Investor Relations Director. ahead. go please Rami,

Good earnings and call. Shantel. third to quarter XXXX day, you, welcome everyone our Thank

Chief Kobi On Butzi from and our Machlis, call Yossi our Officer; the with next President CEO; me on April Yossi year. take who will Kagan, today X are Financial over and Gaspar,

to to call. Before company’s earlier issued press like that the of Safe conference point referred this contents we begin, I Harbor the release today out would statement the also in

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

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

We over will like the the turn question-and-answer a to now I to call With over that, Yossi, session. would please. then to call turn

by you, call. Kobi Elbit everyone Rami. you begin thank joining Kagan today. since XXXX. Thank in I closely to like to and us this with worked I would joined have for Kobi Hello, welcoming he

measures reflect operational the from efficiency result conducting is and an execution are successful that CFO The is revenue the performance, we next growth April past. over diversification discussed third the which a Elbit’s currently global a of year. quarter We of handover strong process takes before improved in of of role he delivering strategy results our our

the of shekel. efficiency measures. to the implement impact limit to a of rolling In the mitigation and the strengthening this the policy of adoption We includes hedge plans Israeli short-term, continue

of discuss term, will countries expand and highlight financial better our and risk. in the trends and cost I reduce Over key we now lower figures currency the to our of our plan some to results. footprint high-quality manufacturing balance exposure longer

over revenues XX% in quarter Third Sparton, by of part major of addition increased growth second which organic contribution we the A the year-over-year. the XXXX. from to and were $X.XXX acquired in quarter billion was

for revenue XX% airborne the quarter and our our of total increased ramp Other due increased Night the and at similar accounted operation, increased year-over-year, of In total U.S. the total quarterly to XX% of revenues a device Electro-optics systems due medical areas terms XX% XXXX. growth of precision-guided increased the Land of the primarily sales to for year-over-year to of due of were X% revenues subsidiary. year-over-year third revenues, to accounted revenues Vision systems across revenues of breakdown XX% of CXISR and accounted of due munition the sales sales. level to programs. Sparton. for acquisition year-over-year airborne Elbit of mainly of

the revenue In The of geographic is XX%. diverse U.S. our sales medical to and XX% Spartan mainly was long-term North quarter, to important revenues; the of America, Israel acquisition base Europe in non-defense contributed XX% the was and of growth Our XX%; third due devices. Asia-Pacific sustainability business.

in margin of benefits of to due compared of XX.X% COVID-XX. XX.X% UK. inventory margin mainly encouraging with margin and second margin in the of The growth expense profit XXXX. sales we compared the due XXXX. was the CXISR with The third quarters sales quarter impact GAAP cost the to to was write-offs asset improvement XX.X% GAAP of is gross increased precision-guided third included gross third quarter adopted. XXXX munitions the of revenues of in of third XXXX control of was gross XXXX non-GAAP the European to quarter from in Asia-Pacific and revenues XX.X% UAS. quarter The The primarily the non-cash gross the and revenues quarter the quarter a third of the $XX in revenues third million and impairments measures during reflects due for

X.X% $XXX inventory $XX.X $XX.X last of last X.X% with revenues and to or X.X% year. versus in were year. of income expenses was million of were compared $X.X year Financial as following recorded tax We versus compared third expenses a breakdown G&A in the third quarter million million quarter quarter revenues in effective was X% of to The last XXXX. expenses were income impairments. compared in in compared third in expense Net the in compared X.X% revenues quarter the last $XXX write-offs expenses in revenues Marketing with The million versus selling and X.X% $X.X third X% of third revenues year. of €XX quarter X.X% R&D or GAAP the operating follows. for the with was third million operating last The tax million million quarter the year. XX.X% XXXX. non-GAAP XXXX. expense rate was X.X% the million quarter operating $X.X third of were

third was $X.XX EPS with year. last year. compared in The $X.XX $X.XX last quarter Our GAAP with the diluted $X.XX non-GAAP was compared diluted EPS

scheduled of XXXX orders and to of billion, a XXXX. XXXX backlog and is similar the the during The is than September to backlog backlog XXXX for at remainder multiyear the of than as X.X beyond. be approximately the of a last future. and the and third from of quarter is of remainder of $XX third Cash is for the flow June $XXX,XXX equivalent XXXX number quarter compared the year. backlog the backlog activities to lower billion the year, percentage XXXX year provides scheduled September same following the outflow last Our performed Approximately, $XX.X end XX, order the level current XX% good year with operating and of for following recently. more for the years backlog $X.X was and higher at quarter The of end revenues visibility the awarded was contracts in outflow million the than at

completed business turn Tel a and Exchange we quarter, three funding I as of raising provide operations successfully traded dividend good declared notes Butzi, The share call us of third the with the $XXX Stock of tender of approximately The per XXXX. notes million. the Aviv now for series CEO. Machlis, for on long-term the source Board will acquisitions. of $X.XX will be potential as of over During well quarter ongoing Elbit’s third please. Mr. Directors the to

the Thank call welcome I wish many have you, with him Yossi. Kobi would years. Kobi like to I worked and luck. for to

CXI System you As may Kobi and Land when was General Manager. know, Finance at Elbit I VP, was

have with productive contract strategic Turning awards. number a to and the been financial results, the of months busy recent

our we good the We the of our see approval across System has all new from In defense our Day year including and UK $XXX a was subsidiary, Navy to made momentum budgets. Electronic to Babcock contract markets, continue Elbit almost domain Warfare growing maritime the end awarded the in million provide importance develop November, to UK Elbit market. April, Israel with Investor capabilities. of solutions investment increased discussed following for At XX Royal the

generation and contract, electronic situation suites digital command Maritime number the warfare defense systems control As in a and Force Elbit land EW contracts and electronic EW Elbit ships naval of recent measures anti-ship systems missile Air German for capability platforms air, helicopters. UK to to F-XX exploit U.S. Force National the supplies has the electromagnetic supply Systems Air Guard, for signed of years, environment. radar EW and support manufacture Royal the design These will awareness and System and technologies and comprised latest full-spectrum systems. of Navy part of enhance improving will this

for a We $XX are of an also Israeli and an Towed TRAPS consumed installing new Reelable systems. corvette. a unmanned EW integrated Active warfare contract anti-submarine year systems the award missions. is mine portfolio. to in we of are building market missions this Israel. medium-term. South million well-positioned Beka the provide Elbit contract provide weeks have civil facility to earlier to X very our Israeli Sa'ar our Asia-Pacific This Elbit Sparton or solution Ramat anti-submarine over we the Passive with delivered warfare will perform USVs September, on the received progress country. provide Seagull Benny to is this Navy’s follows market expanding new surface Minister, market growth am In we vessel Sonar Navy countermeasure ceremony our positions for Gantz planned. integration few The I the the progressing in satisfied product in we cornerstone-laying and as ago, hosted at year, A Defense this configured maritime at of

from new facility the Over move enhance turnaround XXXX. Israel to we multiyear important profitability. plan our will a These part implementation model of should IMI is coming to IMI’s support years, The the to facility. by an the complete efforts of manufacturing transfer new the IMI expect we efforts activities and Central

Elbit for and in We loading potential action share acquisition. and munition of The we orbiter acquisition progressing the the customers a AUSA is The have Elbit dedicated the this our display for for IMI’s artillery acquired is than of adding and planned. acquisition out by control the selected new System October. additional contract of significantly prior U.S. shoot-off country international the we and of from the automatic artillery turnover The upgrade first week, Last orders sales. high second Accordingly, XX% of to in were the to world IMI orders In capable ATMOS when legacy X for to Elbit participated a compared around howitzer self-propelled – were XXXX, is on automatic increase orbiter rapidly systems. and we grown system fully approximately part as international These since of fire. times of this in the IMI self-propelled months their IMI. international supply international outside XX% howitzer was SIGMA generation SIGMA and to enhanced a Army the Israeli $XXX and of manufacture the million earlier ramp the to command Elbit to target [indiscernible] in looking to there MoD system orders first IMI of order significant rapid a year Asia-Pacific, SIGMA gun a System develop portfolio laying D.C. in The XXXX. solutions. rate portfolio gun program to in is advanced in solutions IDS. Systems legacy mortar to and activity XXX-millimeter militaries acquisition believe of lower received SIGMA.

a in Systems of plans will facility continue and hold new establish We our invest ESAs, assembly U.S. America footprint. South integration of XXX,XXX Elbit combat foot the center announced to The square Charleston, ground Carolina. in excellence. In the facility vehicle to of November, expansion

XXX ENVG our leading maximum I systems questions. Apache facility Army for value for suppliers of take with The Elbit support engineering to new will Systems ENVG capability South high-technology the summary, can create the October, their the to received Ministry Defense programs. expand In facility XXX with from order gun $XX the production is strategy that, supply effort part see howitzer This to our of from significant integration of We expect happy future jobs a provide Carolina manufacturing to for the continue broad-based received $XX support IDS. backlog XXXX. and for received $XXX system U.S. self-propel our the OTA a in contract – received us head ESA in U.S. quarter mount across selling we third of and of facility be And contracts Army. begin In continues part your potential the for of supply million and good to around ESA with Israeli for to operations by to ESA is XXXX the visibility, million U.S. we will the used contracts, display solutions. around will contract September, new Helicopter. be DoD IDIQ This In world million and in to

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

morning. Good

Good morning, Greg.

are term, the on start mean QX? revenue short-term, kind and the then QX where for I QX you overall of kind to any growth you’ve typically out target part, heading organic is thinking items into one more mid-single also a kind different how there we the about mean, of sales? running the of next of second the question, headwinds been about should mean think should well profile been our digit of kind growth in this longer two-part pulled year ramp some a has target? short-term, into just expectations the past? has ahead Maybe Or of of kind Or I and were have year term. growth be And reset? I longer just in one kind we just laid there

case and backlog, usually, that by Well, the markets, we of Systems expect to Actually, into outcome is repeatedly, have we you We growth recent for were revenues, the quarter in as quarter the as see of revenues. strong usually grow be in we this asked mentioned, the XXXX that growth so revenues. at do had we fourth would from of I a did view point transformation we the well. years simultaneous that a see strongly and backlog say strong the in not Elbit

some do this As into the happening see takes we until it we it of time growth from explained, transforms presently, year. revenues. And effect backlog that the

Looking the I think of continued backlog into continue. forward, revenues backlog transformation will in create in the The growth growth continuous will revenues.

top we time because year. growth am as able sure growth believe We that see do the of to line of that will double-digit not the I through the be in we deliver However, numbers backlog next will in this year, next at point growth and will happen well. that all strong

just Thank number about efficiencies I of And mean, you maybe to measures you I mentioned mean, and that. around a maybe target. how you thinking the margins, control margin transitioning for are manufacturing. cost

between laid put in mix, I do efficiency you’ve target about get path we you’ve and a just think mean of there some leverage? to maybe the XX% overall think the place I longer of the out kind how past. measures volume term in margin

acquisitions strategic centralized think definitely production overheads the on. I that the our positive see of reduction underway, so long-term we improving combining plan including and of and efficiencies efficiencies, to long-term our of of plan cost lines of results is all other big of and started

whole also In past, happening. is system the we the the that is what – call we mentioned the across ERP this one organization. of implemented All

of same some are well see next to year see in already expect small continue. in said that, and most during us we the complete We because part of XXXX very to in And we start This all long-term point the and have I XX% is performance system. the headwinds Together of that XXXX, the come and will implemented over biggest the local of view already profitability. ERP we be parts effort currency help benefits of it’s that. the although to company under somewhere, part have as some after There improved of And exchange most implemented with it the the plan the that from of thus may year. when will that, we rate.

future. will And in to continue possible also mitigate efforts the all making are We order that. that effort the into

that us We in the also overall helps sites the to and company, cost cost of various percentage our reduce well order are the us production base in some of reduce looking manufacture various enable elements as the to engineering of do enable at as will to efforts one areas the costs in high-quality, low-cost that to operating countries in of expenses. us

in in improving the percentage the helpful course, is of and expenses also line. the when of in growing, the R&D growth operating in G&A, the very So of the and reduction top other then strong of company cost cost profit line, is growth percentage

it I good you and Thanks. leave there. quarter. Thank will

Greg. Thanks,

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

quarter, retirement. guys. And your Yossi, Yes, on pending nice congratulations

you. Thank for some time. be around I will

yet. He’s retiring not

Understood.

of So that math, yes, by quarter revenue as large second a the about of you And nation organic growth. second precision-guided key of looks, Pacific straight quarter, to my quarter munition Asia mid-teens I sale driver it an – being think talked growth. last sort a

kind to you we of like long-term transitioning about an for of of driver run quarter more so of that get sense big in plus goal a from just program can maybe well. a growth your was type talked you as give large to timing Can us mid-teens that that, maybe guessing start when I’m off, growth? mid-single-digit idea so this maybe And the the may a third for

this usually definitely however, Our programs revenues revenues the characteristics next well. we eventually only that we programs there similar other impacted the kind. and program, do our as this over years. This some This is various running. replace with it specific are in are will from not backlog of the are by year the significant through received that And program have program we as goes

Okay.

receivables for a a this And is then quarter. can large flow There second. cash talk we Okay. billed

I you I don’t think also budget got which was if that sale or related I Israeli that’s the to guys defense hoping heard – you but improve I that, say think I that could approved, know PGM you heard the – cash flow. were

receivables So I’m fourth you just catching build? and for quarter on kind maybe wondering could of to speak the cash expectations some flow of up

the for approving been rest Well, elements, in and budgets is XXXX. budget for I the government that point the report actually, Israeli November And in this payments happened that of part and reflected in has one and that Defense that has at of many has the of for payments good the of have in am by MOD expense quarters, year paid approved has XXXX of that all most payments I Ministry the delayed thing to expect were department that we significant time, approved the course of in delayed to the This of by translated this payments, Defense. of been Israel, has paid. delayed so – the Israeli the the of the can rest Ministry a significant get happy

course then of From in track budget third that that’s other fourth in from time. receivables the should will increased collection the expect that course, things in you yes, quarter. is from And increased was revenues, the that you point and are all not we have on is of Defense of have very business. emphasize because good that of point quarter to improved Ministry back yet and the as of Israel for in would So, reflected news the I collect not of elements, the view, reflected this they normal of numbers, we been November, view see approved a have in when

So, working will will and optimistic the our cautiously see we I saying probably looking at stronger would capital by generation. next we be quarter, improve that cash

Okay.

that. news. for for a defense sales. it, So, appreciate Butzi, I lot that’s think in Maybe call Butzi. I about but of can opportunities for, in, non-Israel will great sneak Israeli for last I general, Elbit I maybe certainly one one news, firms

tended UAE. announcement I and in unit setting was are recently, you that Airshow there guys new to up a think an have you Dubai

and a opportunities and quickly? timing opened of So, can about kind how you has are new market whole of these you like just up talk maybe to seems you about of and optimistic kind it new kind magnitude fairly

Thank you. It’s in future I time the Abraham opening And this technology. in optimistic revenues there countries participated first will interest We it is agreements are the several true. opportunities in am Airshow. markets the that tell can for Dubai for us Elbit, new of I The a lot market. new generate new for that you for in and in

And It know we We I the well. working on in this UAE. for which local that true are us just And now years see ago. this true quite which based industries we continue will the not additional market quite right is is optimistic agreement, the for future for market with to as countries, open are And declared already. in am well. was X.X the revenues

guys. That’s appreciate the great. all I color

you. Thank

Bank Ella next of Leumi. question The is Please go from Fried ahead.

Hello.

to a new few of have CFO, like I congratulate success. him would And the questions. lot his Kobi on appointment and I wish a First,

operational profit and level. to relates The hedge first the the question

we certainly – achieved continuous you established ILSX.X quarter And nice remember hedge. going non-GAAP. remember this What a at year, rate now dollar. have hedge operational about also level that also the quite for profit, that in I You of you set this a

nice year? a for the expecting So, what level are you quarters? next you forward-going catch the Did

expenses for We year, quarter. this have fourth the includes hedged shekel and that our

as we opportunities of the on of continue in half for year, our mainly For successful next we along. the in year. keeping looking And to been have hedge currency it are course, comes that, first of policy of the part next continuous track changes hedging and to

quarters. have certain two you So,

the level. a current You it and had almost – try to then that hedged on. few you have at are And fully keep fully

year, next I and yes… part of say said I

of next year. year. next my decision of it’s I decided it’s Part that half

about know related, And but the I is don’t about next whom – Okay. facilities. removing it’s it’s question actually to

facilities you for the the it mentioned was the You think now will a many And mentioned removed it’s the just exchange unheard of are because different time labor – the level one even removed with and actually is years, when of. really levels are operations project Charleston, or be to – to the and countries it accept really I could costs? be now at operations cheaper

Hi Ella, good afternoon.

afternoon. Good

As and have important markets, in Brazil, Germany, dozens companies many the in to all you UK, jobs in to it’s in world, of the do these U.S., in know, places. local development the India in other and very create around we, all And we do and to production.

Israel the we of be positions in more first advantage be activities, facilities. and we taking also to crafted helps on And more us And our our and are we secondly, to jobs expanding there. in are local, which have do these other hedge So, to ground. It more facilities markets. we the some to of do

So, long-term are of to part OP. it’s the trying it’s gain process, and we in improvement a

there. that and Raton were As earlier. and the parts – it’s Other one effective, all which help saw Boca will new centralized are ERP, mentioned, in It’s facility which mentioned last Boca us with procurement Yossi already the by is results. productivity, measures, the you as other increasing Yossi element

do have long-term future. So in company, to a profitability and plan it. we implementing altogether, the effective we and it to of will the continue improve are we quite the It’s

Just in on this piece just facilities one quarter.

years label question actually marketing and you. you Elbit within IMI And keep long-term label to to the into the you a plan Thank intend because in sites different are there integrate question. it. the was to Okay. it certain few Systems you Do more or last – for also

now? you So, plan do – what have definite a

platforms. for that globe, that I all have the around you – for land can good very good reputation It’s a I tell And mainly and for question. mission

is benefits reputation of We in time of the we to many being, gain good the intend product. to the of having – the IMI for the like name would countries. keep reputation So,

my questions. Thank taking Okay. Thank you you. for

Thank you, Ella.

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

Kobi. Hi Butzi of couple and a questions. Thanks. have I

the second regarding And be the will usually Israel a First, XX% back where only come the of it or should Israel that it’s go sales, trend that that I Do that normal see to you to lower sales. is one-time a used see also say same regarding you is ago? the margins. quarters changes few lower you compared that question the Do higher environment quarters? now the in be that the any the to margins can the last see or or right should

As Israeli you market a limited know, is the Elad, market.

As are the company is looks optimism are of part defense so, with the grows, grow our – faster, in expansion budget growth big does. and market. like Israeli to all doing the is our the that then we a and international, we growing international it continues It

longer at and declining. to will will high continue rate, the will be grow – that, then be on based looking a that probably term market at the percentage-wise assuming relatively the So, company the Israeli

expected value some at rate. to absolute the grow However,

your first regarding is this So, question.

we profitability are everything I in explained the improve order Regarding stuff, possible and think doing it. we that to

the we itself. think The by track. are market prices defined I the are market in on

from expect in operations So, we in the improvement the the company. of to profitability, it come improvement

and coming from out So, actually this we successful see very plan. the results is that plan

same no I mean still that higher there So, is at level, the competition? is

to was expect in It there as be It is competition the continues there, be it well. essentially we to Well, there. the and there. future

Alright. Thanks.

this at time. [Operator no further are questions Instructions] There

internationally, the to of be please Machlis a closing will replay would Machlis, call be at X-XXX-XXX-XXXX. In like that the conference make ahead participants please concluding also In will replay call Mr. go call XX-XXX-XXXX. this remind www.elbitsystems.com. to statement, ends. statement? to with X-XXX-XXX-XXXX. available please his would company’s two available call I your of website, And U.S., Israel, the the ask Mr. A I call hours Before you like after

our continued I thank interest good in and support again you. day, today all these continued would a thank call, and To times. and your you Have goodbye. for particularly in the joining to on their like our challenging hard work, employees us for for Thank company. Yes. everyone

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

You may go disconnect. ahead and