Elbit Systems (ESLT) 16 Aug 222022 Q2 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems Second Quarter 2021 Results Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded.

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

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

President today Yossi and Senior EVP, Butzi me our Gaspar, with Management. call Kobi Kagan, the Machlis, On our and Business CEO; CFO; are

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

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

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

you, everyone, Rami. you thank joining today. Thank and us for Hello,

with The our implement for a reflects quarter in series learned from quarter pickup lessons award of the second significant of customers invasion contract our demand Ukraine. the result in to solutions a as start Russian the

to growth the Europe in This and similar offset XXXX. U.S. in revenues the -- were decline Second quarter Egypt

results. Elbit most key will markets. the and as trend I the some now geographical a trends as by geography in long-term financial more programs by milestone fluctuate Our the revenues the representative believe performance quarter. growth are end supported based order a in tend and Systems to well and our revenue We of particular encouraging discuss specific in basis highlight on and in figures project quarterly on the reached of backlog

XXXX. Second the to second of quarter quarter revenues were $X.XXX billion, similar

for airborne year-over-year revenues operation, revenues. XX% land areas U.S. revenue of across to and of to year-over-year night to accounted due the of due accounted declined Electrooptics In terms and systems medical year-over-year breakdown system sales sales. vision Asia revenues increased accounted device was for Pacific mainly our of of due customers. lower XX% of total mainly X% revenues, sales. to at X% XX% Other for CXISR increasing

importance quarter, each quarter XX% Europe, Asia second divest of second XX%; The revenues; America, base. the highlighted revenues. North of In of Pacific revenue contributed our Israel our and geographic and XX%

second and to The and to sales. at revenues the American increased to in was growth sales. offset Asia The training revenues guided the revenues second gross in helped munitions quarter compared XX.X% UAS and vision gross XXXX European night quarter included was revenues growth margin Asia simulation, the Pacific mainly GAAP and in lower for was second second of quarter North XX.X% Pacific due precision in Growth XX% broad-based in non-GAAP XXXX. European the margin of compared XX.X%. of quarter sales.

new the in revenues increased year. continue our we in existing was $XXX.X future. compared the operating to The $XXX.X $XX.X investments R&D quarter to recent versus our customers, of a million that demonstrating ensure X.X% second historic Net range for second solutions research or of of million and X.X% portfolio X.X% in last sales Second current to solutions versus supply X.X% on quarter from expense XXXX. breakdown of million developed areas and priority has expenses XXXX. or R&D operating quarter was as of was were $XXX.X quarter with -- income the Marketing million our the the conflict follows: products customers market-leading return revenues expenses and and will investments development. The product highlighted of in The Elbit alignment X.X% $XXX.X in Systems or million upgrade the revenues of and second non-GAAP in

and We continue of of of marketing global compensation revenues significant defense a price X.X% the linked this inflection related take will significant last year. compared compensation to $XX.X operating our opportunities price to capital the invest to budgets Israel. expenses related would in further. X.X% the in industry the if and Other our increase the to or of G&A shares positive third levels of advantage current in since this a million the second the in remain sale at sale and income gain quarter. were of to creates. beginning sales -- the I impact building share in in subsidiary include -- of expenses note We to the stock the plans employees new increase expect quarter

discussed million XXXX. includes in results, adjustment million million the plans first to to was second in a recorded million at compared employees compared expenses million of The tax these second effective XXXX. of tax of value second we align in in the quarter compensation Systems expense $X.X help expense to $XX.X of XX.X% in incentivizing related with the $XX.X quarter nonrecurring for employee $X.X price rate a we we $XX.X XXXX. XX.X% to $XX.X As the quarter share -- pension sale in quarter to long-term were all stakeholders. Financial our believe expenses million our Other generate performance Elbit compared

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

last of to current XXXX includes $XX.X million flow scheduled and quarter the timing payment the million 'XX, chain receiving from The $XXX of inventory same orders of also the higher cash of backlog various Approximately backlog earnings Israel. in a to the release second and to quarter from performed following million during flow of as of year. of payments at company build beyond. outflow billion scheduled cash cash XXth be inflow and quarter the related for $XXX customers. the includes the $XX is backlog in was compared decision approximately to supply outflow scheduled Operating effort 'XX was of XXXX. The our the than an approval the for privileged June challenges to $X.X in mitigate June end exempt enterprises billion, Our rest is XX% and the 'XX to

We declared expect will $X.XX the turn payments over ahead. Mr. a over dividend Board coming these CEO. to the Elbit's of now I please the receive share quarters. Butzi, quarter of The 'XX. Directors for per to go second of call Machlis,

believe for Orders orders Kobi. and the our beginning of Elbit are the in alignment budget reflect second defense operating of the good areas at the I you, Systems a from that have we mission-critical priority of period growth months Thank customers' portfolio A solutions escalation driven our between significant the series validated demand world. around of the spending defense customers the and in potential. in quarter requirements. recent global by

defense Elbit learned opportunities are and experience, of and We by that and encouraged can order are the analyzing -- for Systems party and of one markets prepare our decades announced in new done other for then We systems order are March the are Russian conflict time, to Ukraine agreement. strategic in DIRCM militaries growth the partnerships and procurement but Accords particularly -- quarter they revenues fees Abraham the conversion new structures this processes the nations adjusting the helped inversion open our when have take and from with have in also and militaries past into opened and -- of evolving new to intake XXXX end -- first of XXXX. have to the the for at budget the next the historical second Government orders with as for conflicts.

areas X control electronic spending platform systems benefit that identified should coming years. unmanned network precision and increased defense These systems, over the have We protection, from are initiative. command warfare,

protection significant quarter, The would enabled of from Europe and the customers protect who protection. platform the critical aerial Elbit learned. parts X of threats. X contract like across in to range need platforms implementing with in of a an for ground Ukraine the these second areas, solutions the the that these provide priority enable the platforms systems both of lesson platform we vulnerability conflict to I provides are announced and priority starting domains world demonstrated and other all overview Systems During areas of and and occupants. have from of

to on missiles. GXXX In air more Ministry commercial of XX -- for of Asia aircraft $XX J-MUSIC than million have type an solution received country. contract thousands of selected different ground military supply system Groton a we hundreds from to installed and accumulated system of are to of airborne Netherlands were them to an July, and EW a systems flight the Our an we And hours Defense. supply protecting Pacific

an aircraft. for submarines. EW The includes missile warning Our ships chest infrared protect for range armed that System vehicle platform Active system a Fist Protection of Iron and protection system and flare system,

multi-domain and These insight advanced CX collected of The -- CX the and Elbit adverse critical battlefield, of systems convert ability are fast force and systems. intelligence by second in the area visibility the identify the sensors and Systems soldiers solution multitude enabler operations. a commanders connectivity provides across to priorities of utilizing into Torch-X control command combined to enabling action. decision-making

supporting the multi-domain help armed In a to Pacific to of June, systems as X-year the shorten forces upgrade well received capabilities country. as we combat an of CX $XXX shooter logistics. multiple Asia million, Our sensor contract for network

ground as command range software As will well provide part -- of defined air, control of a enabled platforms. system this contract, Elbit and for as networking

will The a solution In a -- air ground-based missions in were supply to contract These fourth perform of experience a is of effectiveness. we and execute protect, electromagnetic area range unmanned a in In platforms enabled open to of country. round missile. time-sensitive area years, -- defense range Elbit munitions we other in range agreement capabilities and as engage maritime priority million munition $XXX single ground solutions a to a -- is supersonic of rocket each has the decades minimum from precision area business. our that -- have term. expertise Systems to that capabilities our system to KMW their Elbit our medium combined June, electric a that has areas can we of for a to land potential in is enables solution. fifth well shorter on third prestigious from a of ground brand to to -- a believe a in industry we in ensure received complex the intelligent spectrum supply the armed warfare we control we areas. the the portfolio land contract the Systems ramping armed sale funds precision enemy a recent with broad targets is Elbit the mortar multi-domain which size to as our awarded XX.X the we them forces Ltd. for country billions EW and portfolio The damage. both payloads. precision of USD the corporation of a of of and various Systems We communication in companies last we to to agreement Pacific to acquired operate -- the and received and for solution. with reducing priority a May, -- of our range technologies EW -- air exploit of forces electronic an Elbit IMI Elbit's stake closed system munition -- of received potential with attack has power, and develop forces German broad solutions unmanned We million. These broad enable supplier dollars area provides increasing generate also priority sea. with range Systems and U.S. June, and of will The and aerial, of Systems the capability forces companies X for Legion XX the signed this customers. company, contract intelligence At $XX guidance portfolio. on address our of Deutschland of the ground to this at warfare and July, -- platforms contract, and of areas utilize soldiers number received helping market U.K. enable leading EW June, urban that the MOD core air, are and on and we as these of the the fill $XX network in demonstrated over remain In kits Pacific. end At platform activities. the domains. their Israeli review revenue million the just the international autonomous million the precision European German precision such in a -- acquired we cohesive and Asia capabilities area developing network manufacturing control one political legacy environments year leverage unmanned the missions, believe artillery in regularly focused and risks the connect for command In munition unmanned advanced of opportunities air, to Elbit guidance the unmanned -- of provides to and XXX-millimeter portfolio command Elbit systems. X And

Universal to to -- That I to to the application to may of of to adjacent important opportunities them but IMI and global flight subsidiary review, believe it not to markets. and would skill the for NG. Elbit. and is require appear technology in focus system I the XX thank technology success -- attractive in of market sets core Avionics solution, that July, said, order not different this access. the was vision often expect work our I this Elbit on to part considered leverage enhanced with is sell employees strategy and we XXXX for on XXX As a wish continue hundreds acquired to In decided we and to market, business we -- to new take Systems disruption vision future. clearance do opportunity develop focused for that like this as defense change. in received hard market explore million our dedication and remain reduce Boeing for from USD U.S. and

saving our efficiency MOU this signed day the and August, infection utilize the imaging thermal X,XXX monitors. and heart an and contract, in subsidiary EVS enables time take increasing explore to effectiveness opportunities surgery, to proud for opportunities save with utilize are key our treatment, And that land foot night operational be of of visibility improve part and DBS diabetic of system Skyline ClearVision X the Israel surgical cameras. in looking technologies take will Center engineers lives. clear additional thermal to surgery and and vision As faster, to Universal image to I'm pilots supply that, -- and happy in respiratory will to Medical safety. featuring system and to areas: your effectivity wearable situation and Elbit technology protect head The regulated commercial display off In in I to questions. treatment fly

[Operator Instructions].

Ellen The of first Page Jefferies. question is from

for that and first Can grown think we there moderate digits now do anniversary in normalized in business? How there talk start about a has that rate in might the And half. to anything double growth is CXISR we chunky growth? years about

is can a the Ellen, Your repeat you line disrupted. please bit little question?

better? that Is

better. much Yes,

this we Just the sustainability at of CXISR, about you've how the in in demand? just X that think growth business And posted normalized in do a double-digit years a growth rate row quarter. and second

CXL see are included terminal communication the which networking CXI. all system, -- solution, solutions. a We includes These growing system demand application on for

As mentioned a we UAVs definition. unmanned and ground are U.S. growing solutions. all for mentioned And this such was as under that earlier, earlier, demand we've see systems

segment. enhanced, have we experience Israel the and technology them have markets. as with as And in growing unmanned own using We this different in see to many And ability got systems for customers forces. full to all we demand and well other delivered we

that So the I believe continue. growth will

just Great. cash. on And

supply again go the cash You and through quarter. relates you how in over disruptions half and capital of related $X that million the planning? a just and was to But inventory can it future walk timing mentioned working tax back just tax of collections an in there's that payment build to chain impact

the you, is This in Ellen, question. Israel. We of enterprises release million, to which for company's is Kagan. quarter, Kobi had, and decision from earning $XX this exempt onetime payment approved in to Thank the privileged a related

here the this not of take course, the in year the is So expense. tax half this this with settle payment second is a forward This, of onetime a Israel. to affect onetime as would

quarter We not and quarterly flow or a are cash basis. as a on seeing not year -- full the

And so payments various the -- we we customers. mentioned think from to we expect that in coming quarters and that receive

of The next Global. Alembic question is from Pete Skibitski

Yes.

I Let guess, with, maybe me start Butzi.

good booked large that I include pretty backlog but Butzi, that had quarter, think in didn't Europe. You sequential you intelligence contract this the growth systems

I think the it closed was $XXX after million that quarter.

So that that I'm curious was seen an a nice And I by Elbit. win. because contract haven't booked large Intel

there I opportunities the of a question, the And other so contract out area? Intel you sell see this countries raises to it Do magnitude other to in think.

question. the for you Thank

of getting confirmation. all get is we continue advantages that's see to to medium-sized company. on we of includes -- this As in of main -- And we and And that use optic the menu solution. radar, the solutions, contracts contract is And contracts, is past. we transforming one are small of have entire portfolio are we used get the actually the a so Elbit the EW big and top have we have we company the of to we

We AI and a with UAVs and analytic data lot an have systems, networking other control, and platforms capabilities application. of on commodity

So are win portfolio wide portfolio. the to such which and needs us adapt quite of we unique technology And required to quite mega this projects are unique, the customer. to having and enables we a

solution transforming them So to in networking accordingly. and for top yes. more the Asia more quarter the We the the this is to answer contracts like continue get. perform which medium-sized contract $XXX and mega perform on see to get we projects end-to-end and small get whole projects. demand to is see more for million demand in megaprojects Europe. million of and the We we And company and to Pacific is more program $XXX with we second in the X big digitization got And for we got very

we we -- So capabilities. production have are more

We answer shifts. we more group. we X demand. many a for now But several have, demand used right remember which year, in to working Israel ways to we the meet places, to combined simple last not in for order the are in to which And answer way. just we if we and hope -- prepare these in And in this divisions yes, continue we the is new to X we see megaprojects and the X more got get. and you that and involve for is have this organized -- also better was order company projects, Actually, mega technologies --

really of That's color that us Because new great. and well the context shift you're those to I I system facility? the X is as my maybe margins. coming construction at expansion the it's is I appreciate the kind the conversation now an where important initiatives ERP update recollection. the all could great. IMI guys Could you with on implementation on how If to of outlook are as margin midterm along think give

then start IMI will will with and activity with I continue Yossi ARP.

according We country the South. of from production to plan of IMI the main to the with the are Central the facility IMI shift progressing to part

our new investing quantities the lot which which enable money more is of yields better lower We a to bigger infrastructure, will are efficient modern, to deliver in and to and much quality productivity, more with cost us customers. much increase

That's one, this of be concluded the according to year. happen of shift So plan end of to first around is by new the the our plan The will majority plan. the the of XXXX. some activities end will to a phase facility achieved,

new of this whole the next implementing activities, and of In beginning we percent, X-year be half of probably that, about And major next be half XX%. And ERP. organization of milestone that year the when year we next that. on XX% somewhere 'XX. second of will to definitely we come reach we towards will be system, XX-plus the in expect with these end will The the by the probably benefit now have we -- stronger track year, are regarding them system. second mid to start -- by year, operating to the the next into Actually, the come regarding on much organization, the the towards of from addition will ERP

ask Because to Let also labor inflationary kind environment, materials. in more these we're along one regard with a me lines pricing. obviously, of global

given getting I you take coming to clients? that pricing And impact you wondering you the inflation? of mainly you're And you're strategically, getting the along, feel with the like Or providing so system need the that feel net time? ERP I'm will that the prices to Are getting gains? do like guess, value more need pricing you're offset do you you

as defined linkage contracts. our we to prices probably many and we indexes market. are however have of know, contracts, And Well, in our by have of you in indexes of material labor Pete, the

the looking it's material, -- -- do what these parts in cost. the is is say impact the at of of So do term, but to circuits must in we return call see in increases the electronic immune change basic that some all what short expect I the must we compensate say to integrated term our everything. not compensate to we increase on some in we we cost. but in And as the the We for extent, because are challenges. and this of? that we But the big that some changes material they of of cannot longer normal. not see bill what I to composed

to So are of point material bottom view of is part but we cost of of yes, of contracts, by material. affected, that, which line do discussion profitability all it include not this impact compensated indexing is long and our from is

helpful. very very That's Okay. helpful. That's

-- be one Europe along it maybe to book on XXXX Let me lines on expect won't last of second half XXXX? there imagine completely rocket rocket in are that sales with has the to there near getting of ready the in until Are to lot -- KMW Europe the sales I'll done. signed anything ask I Butzi, be one MOU conduct a and you be artillery, campaigns. of term the or

potential the for We go in see Europe details, cannot answer new is you can is answer the for the imagine, rockets. I but into yes, orders Pete, yes. as

Fried of Bank is question next Leumi. from Ella The

don't I or to I tell please about was questions. question But you you before a what people, some the line and you answer appreciate few the first repeating have there Well, would because people were sake if distorted told? follow-up the something the really really mind, double-digit for of growth

Yes.

we So if growth that it's CXISR see which continue. Butzi. was yes, to UTVs, sensors, believe Ella, includes I regards -- the answer will control a if command Question for payloads, USVs, system tool solutions, solution. The and with solutions, demand CXI was different we different different growing

demand growing as part that. we We intelligent -- this solutions system a this well. there's is for Ukraine. So a just see announced conflict for the more It's a contract result segment project, which in of demand we see this mega as and solution for for -- last of growing

Okay.

Sorry, another question. follow-up

You are your as it? many than well. we peer results But Elbit perform explain on it better in have and terms is till have wider the growth is companies group this And in outperforming? quarter seem the -- some you and much in for best companies do level, of growth How everybody. then for you and group. don't What to this decreasing that the really really annual

is I think is composed pillars. And X our our the answer strategy strategy. main to of that

a and EW, and portfolio. everything. invention such portfolio and communication There There sensors. is companies helmets, UAV, have and deep are USVs, such UAV, emulators, The -- a avionics, artillery one a portfolio many first includes aren't which who many companies lasers, ammunition, UTVs, very the that wide have

which And specific tailor deep So of That's this needs portfolio to us we all wide solutions and -- portfolio very of That's and pillar. the first to a of is enables is portfolio number very most the have one. mature and combat proven. customers.

radar a continue just in very is systems, very We which continue We development the system, airborne to invest nice portfolio. our we laser grow of to unique. and and new announced advanced

That's So a very pillar. first wide the portfolio.

pillar our is international global our footprint. second position, The

the the subsidiaries people. around just have in includes all we of X,XXX about the which globe, dozens U.S., all have We around some globe,

We have the U.K. in people XXX

people in have Germany, hundreds people Romania. We of hundreds of in

industries. There Belgium, companies growing and prefer and And they People and in buy portfolio, on subsidiaries. growing strategy locally most customers global locally investments previous large their in buy prefer to India It's local footprint. in for to And Brazil own solutions, more. defense build to we company right demand many from win to the We Australia, in these of now in subsidiaries. prefer a program Canada and have -- with of solutions. we today. a prefer in And a Austria, buy demand -- previous many gain the is market, combination

them in bring market. of All together the success us

it's challenge. And the scope such does and on other huge on it companies the leading of relatively versatility the globally, of this a not hand, company ground the -- a

I think the challenge is of by profitability even intensified this versatility.

I in very So of you these to are all U.S., the versatility. you activities and mean have -- -- bigger don't costly planning operation you sensors Asia more is of I because creating like Europe. Israel, hub? developing other are know you have have But you planning create a

maintain also it's a X.X% such It's R&D. the the That's portfolio costly to reason that and in true why we protect have. invest machine we to

were leading... you Yes,

this I it's although and new you believe, duplicate capabilities a innovation I that double portfolio I this the support But different is, to with company we which many bring and market. the subsidiaries, capabilities must want know -- this in And market. number between to the not is to the new nominal facilities. to big to try Board, And

is the the And IP some Israel. activities, of from some coming of

capabilities the are subsidiaries. of our Some coming from

entire acquired few That's example, offers capability. There in the main U.S. the we group. U.S. ago a group, Just in the are to night you for the U.S., we -- vision. for the company The also capabilities, is a center give vision have the open same years in serves which entire night centers an -- X the

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add aspect. to one like would I more

recall, in our in you would almost, to immune budgets. say, And risk geographies actually changes various are If I the reducing were in the past, the us we that we defense international of emphasizing helps business. in the spread

While declining, the one so growing other is on. and is

basic low. business in risk the So the is

or how are is that you when seeing that not fundamental what think wise. that. that not think growing means what geographically you and widespread strategy quarters exactly of explained that exactly as much. did And we is I now That business, others are a -- come the and before see question recent basic both product was in we I your having -- use of the the

a I direction. One questions. Okay. few have in is the game a more same

impact on company you -- always we performs second had call but to that You first quarter to is expected, war. as project. quarter mentioned be show the the much the as Ukraine the of previous going actually this it that not And saw

in the that in So is, we quarters. about it this following to more quarter? question of expect have previous told we will you the see the us interest But impact

Europe. mentioned, example, was as impact Ukraine. in new of we we in $XXX example contract Solutions conflict Talking about one the all for a for the one Intelligent the got, million got the business that That's of

revenue it down level until it getting So and to business. phase time the Then some the to takes the level. of profit the impact first goes is

Most Or the it yet, right? not is in it? I'm it is backlog of of sorry. most But --

-- company horizon There We there. Western more all We opened of there the there. potential lot region. UAE, in is the not the just to Elbit a as Ukraine. World The other the Russian just Accords Part ago. we $XXX for is saw countries opportunities. are what of a in between see There of we Abraham demand growing got because But The weeks got also invention in we we is backlog. to million in few of in world. it in mentioned, we've and China backlog. happened result potential lot a you're have different in other already in Taiwan the And a of and But right, a contract a is set. Europe the still against in business demand see conflict that. some us growing see a But we Europe. the also is and so and And our have new opened many parts

So the in there Chinese. and the demand -- in Asia growing a against U.S. and against is also Pacific, Europe, of course, also in

So X to very -- different them our of for are all demand, requirements meet is requirement. there And this exists. create portfolio, different relevant which slots which which main are

future see region Asia demand also our near-term the So it's and I future. backlog of It's in the company extension, all In opportunities is it's and reason long these the growing more our have. it's there And Pacific. the for Europe, in growing That's not whereas for areas, just our Russia. we the portfolio. term opportunities

I question. have technical one more

to be is plan more You affect quarter mentioned in next company the linked to this press present the it stock the relating in price, price like release it only to scale be stock -- price well. I about going formula. the first going is mean as quarter? Or the not the is that this I impact, understand the of stock the will as And

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There further questions this time. are at no

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

thank joining Elbit the company. interest for continued and everyone to like in for our day, their everybody. and Systems thank all you would your To and I on success. call, for support contribution us our employees hard to good work today a continued Have

Thank Thank Call. you. This Results concludes participation. the Elbit for Systems Ltd Conference Second your Quarter you XXXX

ahead and go disconnect. may You