Elbit Systems Ltd.

Q3 2021 Earnings Conference Call

11/23/2021

spk_0: ladies and gentlemen thank you for standing by welcome to elbit systems third quarter twenty twenty one 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 he should have all now received the company's press release to this available the new section of the company's website www dot elbit systems dot com i would know it's a hand over the call to rami myerson elbit systems investor relations director rami please go ahead
spk_1: thank you some to good everyone and welcome to a third quarter twenty twenty one earnings call on the called me today or but the mufflers our president and ceo you'll see gaspard our chief financial officer and kirby car going to take over from your feet on april first next year before we begin i would like to point out that the safe harbor statement in the company's press release issued earlier today also refer to the contents of this conference call as we do every quarter will provide you with by the regular gap financial data as well as second supplemental non gaap information we believe that this non gaap information provided additional details help understand the performance of the ongoing business you can find all the details get financial data as well as a non gap information and the reconciliation in today's press presley's yossi will begin by providing a discussion of a financial results well about would see who talk about some of the significant events during the quarter and beyond will them to nepal of a tough question and answer session with that i would like not a typical over to your face
spk_2: think the raw meat
spk_3: hello everyone in thank you for joining us today i would like to begin why coming hobby have done to this call i have worked closely with koby says he joined and between two thousand and eight were currently conducting a handle the process before he takes over the role of elbit to see a for some as beat it from april next year there's also folger quarter reflect the successful institution institutional oh global diversification strategy that is delivering strong revenue rose and an improved operational performance which is a result of efficiency measures we discussed into bus we continue to implement education plans to limit the impact of the strengthening of these really second in the short term these include the adoption of a rolling hedge policy and efficiency measures over the longer term we plan to expand our manufacturing footprint in high quality low cost countries to better balance out currency exposure and use risk i will know highlight and discuss some of the key figures and trends of all financial results set quota revenues were one billion three hundred and sixty three million dollars and increased by over twenty percent you to leave image of part of the girls was organic in addition to the contribution from spartans which we acquired in into second quarter of twenty twenty one in terms of revenue break down across old areas of operation it was able systems accounted for thirty seven percent of the total quantity revenues and in and increased you know what you mainly due to airborne precision guided munitions seats then system succumb to for twenty two percent of total revenues a similar level to the revenues of the third quarter of twenty cents see for i saw a twenty seven percent of revenues increased year over year primarily due to the acquisition of spot it dropped except opted for ten percent of total seeds and increase yeah nobody to the due to the ran off elbit night vision problems officers were two percent of revenues and increase deal would he do to the growth of our use medical device of seizures oh divers geographic revenue base is important to the long term sustainability of our business in the third quarter asia pacific contributed thirty one percent of revenues north america thirty percent israel was eighteen percent you have seventeen percent the gross us was mainly due to the spartan acquisition and sales of nondefense medical devices asia pacific revenues increased mainly due to says of precision guided munitions and us
spk_4: and us the gross in european revenues was due primarily to see for ios our seats to the uk
spk_3: the non gaap gross margin for the third quarter was twenty seven point two percent compared with twenty six point seven percent in the third quarter of twenty twenty get gross margin is a quarter of twenty twenty one was twenty six point six percent of an unused compared with twenty point nine percent of revenues in the third quarter of twenty twenty the gap gross much profit in the third quarter of twenty twenty included a sixty million non cash expense from sf impediments and a mentor it idles you to the impact of hobbies ninety the gross margin improvement during the second quarter and third quarters of get you twenty one is encouraging and reflects the benefits of the cost control measures we adopt the third quarter long gap operating in some was one hundred and twenty three million or nine percent of revenues from fit was ninety three point one media or eight point two percent of revenues last year gap operating income for the third quarter was one hundred and ten million versus twenty four million last year following the inventory write offs and impairments the operating expense break in the third quarter was as follows net on in the expenses were seven point four percent of revenues vs eight percent in the third quarter of last year marketing is setting expenses was six point two percent of revenues vs six point three percent last year a expenses were four point nine percent of revenues compared with four and a half percent last year financial expenses were thirteen point five million the third quarter compared with nine points as seven million in twenty two it we recorded decks expenses eight point three million in the third quarter compared with two point two million in twenty two and effective tax rate in the third quarter was eight point six percent of bed was fifteen point four percent in twenty twenty our not get diluted a p s was two dollars and thirty three cents in the third quarter compared with one dollar and sixty four cents last year the gap diluted gps was two dollars and eight cents compared with thirty eight cents last year or batmobile orders as of september thirty twenty twenty one was approximately thirteen point six billion two point seven billion higher than the backlog at the end of september twenty twenty and at the cinema level to the backlog at the end of june twenty twenty one approximately forty percent of the time and backlog is scheduled to be performed during twenty twenty one and twenty twenty two and it remains that is scheduled for twenty twenty three and beyond the percentage of the backlog for the remainder of the year and the found year is lower than the third quarter last year following a number of multiyear contract awarded recently the order backlog is equivalent to more than two and a half years or whatever news and provides good visibility for the future casual from operating activities for the third quarter was a a hundred and fifty
spk_5: a as
spk_3: doesn't outflow compared with sixty three media also in the same quarter of last year during the third quarter we successfully completed the tended of to serious of notes racing approximately five hundred and seventy five million dollars denotes would be traded on that that of each stock exchange and provide us with a good long term source of funding for ongoing business operations as well as
spk_6: potential acquisitions
spk_3: the board of directors declared dividend of forty six cents per share for the third quarter of twenty twenty one i will not turn the call over to mr mufflers as bitch seal puts you please
spk_7: are you afraid i would like to welcome colby to the core and wish him luck i walked with koby for many years as you may know coby was a few friends finance or bitches demand and supply when i was general manager turning to the financial results that is the recent months have been busy and productive with a number of digits contract or we continue to see good momentum a cough or must on oil and markets including his work for him to pull one over defense but at iwo invested day if we discussed the prefer importance of maritime domain and investment a bit has made to develop solution for the warm market in november or were you could have theory as the system uk was awarded a one hundred million dollar read certain you can talk from babcock to provide the royal navy with new electronic warfare probabilities as part of this contract as the custom uk will design and manufacture marathon he doesn't really suit comprised of digital forced that to read or if it weren't for both images and the w commander good or system the latest generation technologies will enhance the situation awareness in anti ship missile defense of for oh yeah maybe shipped importing hook the ability to exploited for magnetic been and as the system supplies and a tonic water system for a man in neighbor platforms and in recent years has signed and number of pump water supply he doubled assistance for the us air force national guards of sixteens and john f for three quarters we i'll also informing you that was systems on the is really nice use south six covert in september received a sixty six million dollar contract to provide an integrative anti submarine wolf with the mission to the navy often asia pacific country as me to provide sequel unmanned surfaces are consumed to perform anti submarine warfare missions and i was told a lab and ft passive zone out or trip systems this award follows a contract earlier this year to provide see good news is configured for me
spk_8: mine countermeasures missions
spk_7: the integration of to on his or glistening is meant very satisfied with the progress we have delivered in the meantime market this you expending oh martha positions and put a foot foot as this is one position for growth in this market over medium term a few weeks ago we hosted israeli defence minister have been gone at the cornerstone length or me it's own you are much bigger facility will building itself of islam
spk_1: over the coming years with pasta i am i going to set to in the seventies from simpler is was to in new more than facetious
spk_7: the new facility is an important part of the implementation of them with you i am i'm still not turnaround plan and we expect to complete the me by twenty twenty four years foods should support our efforts to enhance i am i have stability the second part of them of the i am i don't know though is to increase the share of international said these will significantly lower than as bit when we acquired i am i accordingly i am eyes international orders have grown rapidly since the acquisition in the first nine months with twenty twenty one sixty percent of find my oldest with them initial customers compelled to approximately twenty percent fighters as a position and twenty eight pm the position of find mine and has as the system portfolio forty two solution by aging and munition to a legacy portfolio of a moto target acquisition and dedicated communicant or solution these that a movie selected as assistant to develop their manifesto a new generation of sigma whole with or to the ideas sigma is the one for five millimeter there for both of us are capable of automatic was loading and lane of the gun system drop it in and out action fine and high rate of fire the rent in before them is for good thing as plants last week received the one hundred and six million dollar contract to supply sigma fully automatic social point of it's a gun system to a country in asia pacific the first international order for the signal we believe zoe the significant potential for additional of the oldest four minutes or is it on the old looking to upgrade the legacy of the new systems and the systems more for with so participated in the us army should shutoff only a few and we and was on display outside a usaid in dc in a pub we continue to invest is expansion of oh us for in november as the system of america and now stands establish a new one hundred thirty five thousand square foot facility in charleston south carolina the facility will host the usa the wrong of the assembly and integration central texas we accept the of fifth operations in the facility to the game by the says what of twenty twenty two to support constructs he say received from the israeli ministry of defense for the supply of cephalopods of it's a dump system to the ideas the new facility is part of the system strategy to expand our engineering unfettering culpability in the us this facility with made around three hundred new jobs would support two hundred eighty supply of course us go now and can be used for sending integration effort for future duty for them in september he is a received fifty four million dollar contract he he vg for is the you production from the us on this older is bout of the old a contract with a maximum value of four hundred forty two million dollar received in twenty twenty in october you say received seven six million million dollar idea you can drop to supply head mounted display system for the with on a party table in summary our broad based that will continue to provide us with good visibility and we could do to see submitted a potential on the old for leading high technology solutions and with that i would be happy to take your fish
spk_9: thank you
spk_0: gentlemen at this time or again the question and answer session if you have a question please press star one if he was to calcium request please press start to if you're using speaker equipment kindly lift the handset before pressing the numbers for questions or the polls and our to their received please them by only paul fair questions the first question is from greg conrad of jeffries please go ahead
spk_10: and morning
spk_11: i've only right or maybe just had to start on on ravaged and of a two part question one kind of more short term one longer term and mean just in the short term is this year any different where you typically have a queue for ramp for sales or where there some items kind of pulled and to and three and then kind of that the second part longer term i mean organic growth has been running well ahead of our expectations and also kind of the mid single digit target
spk_3: laid out in the past and as the the growth profile been very sad or or there headwind heading into next year i said thinking about just kind of house we should think about you know the overall growth target what usually as you have mentioned the fourth quarter
spk_12: our is usually a strong quarter it as bit systems from point of view of revenues and we expect to this to be the case for twenty twenty one as well
spk_3: ah we did see ah the transformation of the strong backlog growth that we had a new recent years into revenues actually i would say that repeatedly we were asked by the markets ah how come that we could also strongly in the bathtub and we do not see similar thing years grows in law revenues as we explained ah it takes some time from the goals of the backlog until he transforms into revenues and are presently we do see that effect happening had this year looking forward
spk_4: i think the transformation of the backlog into the avenues will continue ah
spk_3: the continued growth in backlog will
spk_4: and would create continues growth and i've used however i'm not sure at this point in time that we will be able to deliver a strong the double digit grows swallow fair next year
spk_3: we do believe that that drove will happen because of the back of a numbers and gas that the next year we'll see
spk_11: old in the top line as well thank you for that it and and maybe it is transitioning to march and you mentioned cost control measures and a number of maybe i say since he's around manufacturing and mean are you thinking about that the margin target and i think you've laid outta ten percent longer term margin part
spk_3: in the ask me how do we think about the path to get there between in a maybe max some of the efficiency measures you kind of put in place and just overall volume leverage i think that our long term plan acer is definitely underway and we started to see the positive results of our long term strategic plan of reduction of overheads of costs all fair improving deficiencies of combining the adoption lies on and all the other efficiencies including a centralized first acquisitions and so on all of this is happening in the past we've mentioned also d what we called the one he ah to be system that is implemented across the hall organization ah we are well over fifty percent already implemented and we expect to complete dad somewhere and most the with during next year there may be some very small box in the year after that and we already sad to see to see the benefits of that although the biggest part will come in twenty twenty two and twenty twenty three when we have most of the company under the same yeah be system this whole effort would continue and as i said is part of a long term plan that is implemented and does help us in the in a eve improve performance from the point of view of profitability together with that we have some headwinds because of the because of the local currency exchange rate ah were are making all the efforts possible in order to mitigate that and the that effort will also continue into the a future we also are looking at
spk_4: at the video production sites in order to air in order to a enable us at to manufacture and do some as well as a engineering efforts in a high quality low cost countries that will enable as to a reduce old cost base in
spk_3: in the various areas off cost the a in the company i'm one of the elements that helps us to reduce the overall percentage of costs of the operating expenses of course the very strong growth in the top line and when the company growth egg is growing then the reduction and percentage
spk_13: ah fair cost in the g and a a percentage of cause of out in the and other expenses as also and food in improving the operating
spk_11: profit line
spk_14: i'll leave it at to thank you and i could corner
spk_0: thanks for
spk_15: the next question as from p skip a ski of olympic global please go ahead
spk_16: yeah nice quarter guys and i yossi congratulations on your pending retirement
spk_17: thank you
spk_15: a ha ha ha i would be out of i would be i would be around for some time you're not a time yeah ha at understood of so yeah second street corner of a yellow alex by my math sort of mid teens are organic revenue growth ah i'm and i think the last corner
spk_3: he talked about job or a large precision guided munitions sell to in asia pacific nation as as being a key driver of that second quarter growth and i'm guessing maybe that that was a big driver and from quarter wow can you give us a sense for one that large program may start hard to run off to so we can maybe get an idea for a timing of of maybe transitioning from this kind of mid teens growth and warmer of a of a lucky talk while your long term goal of mid single digit plus by bro our revenues are definitely impacted by various programs have this kind this is not the only program that we're running or this specific program it it goes through the next to it as well and however there are some signify
spk_4: it and other programs or was similar characteristics
spk_3: that we have received in old backlog and woah
spk_18: eventually replace
spk_15: the revenues from this program as we usually do over the years of guy okay
spk_3: and thank we talk cash flow for a second i'm use it would there's a large receivable build this corner i think i heard heard you got i don't have that way to the to the pjm sale or but i also heard you guys say that the ah israeli defense budget was approved which i think you are hoping that could improve cash flow so on just one or maybe you could speak to expectations for fourth quarter cashflow and and kind of catching up on some of the receivables belt while the one good thing that has happened in a november is that the israeli government has approved and the parliament has approved the budget for twenty four the rest of twenty twenty one and twenty twenty two this of course has the been reflected in approving all the expense elements the budgets of the middle of the emo the is rare and that has translated in payments significant payments that were delayed by the israeli missile defense for many quarters actually saw that at this point time i can i'm happy to report that's a significant part of the delay payment have been paid and we explained by the rest of this year had to get paid for most of the delayed payments of a missile defense or from that point of yours very good news and things are back on track as is issue that when for for for for normal for so business and
spk_4: i'm
spk_3: of would the i would the of other emphasized that this is not reflect the get the the improved his collection from the missile defense in israel is not reflected in the third quarter numbers because the budget was approved in november we will see that in the fourth quarter four point of view of the other elements yes when you have increased revenues then of course you have increased receivables
spk_15: and we expect to as to all of that in time so looking at the next quarter i would cautiously be optimistic
spk_19: by saying that are we probably will improve our working capital i would see
spk_7: stronger cast generation and that's great news appreciate that maybe i can see one last one and maybe her for bugs and ah i'm about to get a lot of news i think about opportunities for for israeli firms in general assembly for albert off for olive olive caught not israel defense sales i think you guys have tended to dip by or show recently him and or as a now for the you're setting up a new you to enjoy he so okay you talk about maybe how optimistic you are about these kind of new opportunities and and kind of you know timing and and magnitude and it is kind of seems like a whole new market has opened up to you fairly quickly i think you earn it true or we participated for the first time in dubai oh show the abraham agreements opening a new put you to the new markets for the in a could tell you that silly little different with in several countries
spk_4: the fault of moto june
spk_15: and the
spk_20: timothy occurs at the original with revenues is a future for us
spk_0: in the new in different markets and we are walking with the record industry industries
spk_21: ready and we know if you know the market growth whoa and quote of the mistakes that they will continue to see where the news and is market in the future with and this is not true just for you eat due to fall for different countries which were which open for off right now because they threw the women teacher or declared say you and edible as gray brush it off guard as i thank you or next question is from l afraid of bank me please go ahead
spk_22: and had our at first i would like to congratulate the new see full copy on his appointment and their wish him an artist success
spk_3: am i have fair few questions the first questions that this as question relates to aid the operational profit and the heads never am you have you'll have achieved and discord are quite a nice say a rate of fire
spk_23: operation our profit certainly non gaap and day were also remember that said this year your i said the had slava lay at ten three point three seconds for dollar what about they're going i also remember that your established now continuous hats
spk_24: so what what what i are expecting get the next year did your cats and mice level for their and forward going gay or quarters
spk_21: on
spk_25: if we have had our a schuchat expenses for this year than that includes the fourth quarter of for next year we have been successful to hedge part of that
spk_21: many first half of next year and we of course are keeping track on the changes in the currency and looking for opportunities to continue on policy of continues hedging as it
spk_24: it comes along
spk_26: ah so you're you're have to a certain quarters the had a few and at off for my mom almost fully had to at the current level
spk_21: and then then may your have to try and keep it on
spk_26: as i said and i said bottlenecks syria's find them next day i decided it's it's my decision that it's half of next year of
spk_27: a okay and that the next day question is actually am a about say i don't know to to wrong with tonight and but it's about removing the facilities
spk_7: a you mentioned it too many years and they now i think the time is now because the eleven i really added members and extends levels are really unheard of
spk_28: and day when you mentioned charleston a could it be one of the facilities to actually except during will have to say
spk_8: operations or it's just a different project and and over the operations will be a removed two countries that was a cheap if there was even made cheaper labor costs i would have to good of as you know we have dozens fulfill food company ruins moved into a
spk_7: do you are you cool germany in your money on
spk_29: do we all do more good rubles integrate greater local local job
spk_7: to do development moon into production so where did he invented the positions we have more we're sending over to do too both to be more local to do drafted them to do more jobs the ground and secondly also due to hedge from blog to the do which do we do is really no facilities so it's a long divorces than the bottle food improvement will drive you to gain the is it will be is a of he mentioned it's one element
spk_21: it's already effective as your phones and of results of the boards on with with would with you to choose have become a much bigger facility with hopelessly that
spk_30: decentralized of human new york be or the move or the measure to be true mission by your field and so together we have a long term plan to improve do have the ability of the company and and we are implementing it
spk_28: quite deceptive and will continue to to the future
spk_7: of them facilities just wanted and disposal okay thank you and they and the last question was actually are also for you and say more marketing question a don't tend to keep in the long term where i my labor or your plan to integrated
spk_31: at certain at was it was in a few years and to add a bitter systems labor because and and i different two sides to it to so what what what to do have a definite plan know
spk_0: it's a good person earns
spk_32: and for the to i can tell you that i might have the good reputation or around the globe many for mission and fallen platform for for the time being returned to to people the name of the products we lead to gain benefits of the predations a good reputation i mean having him and countries
spk_3: okay thank you thank you for taking my questions into june the next question is from a lot of krauss of excellence please go ahead spencer have to understand colby last couple of questions
spk_33: cursed regarding the civil well israel is the only nineteen percent of the sales
spk_3: you see as a plan that israel should go lower or it's one time to his old come back to normal was used to business you course the go and the second question is also regards the margins to see any changes in being a fireman for is now this you can say that will and margins to be
spk_12: hi your old or are the same compared to their last quarter's
spk_3: as you know added a disraeli market is a limited market as the company grows then a big part of the big buffalo grove is international so with all or the optimism that israeli defense budget continues to grow and he does ah it looks like we're doing we're going to foster and all expansion is and in the international market so based on that are looking at the longer term and assuming does the company continue to grow
spk_23: at the rest of your high rate then the percentage wise the israeli market a will probably be would be declining oliver the absolute value i expected to grow at somebody
spk_32: so this is regarding your first question
spk_3: regarding the don't rock the boat this stuff
spk_0: i think we explained as and was doing everything possible in order to improve his i think we are on track
spk_34: the the the prices in the market are defined by the market
spk_0: pete so so the improvement in the profitability we expected to come from improvement in operations of the company so this is actually the the plan and the we see very successful results out coming from that plan i see so they are for your for father still at the same level mean there's no higher competition
spk_7: oh the competition is essentially there it was the it continues to be dead and we expected to be there in the future as well thanks
spk_0: if there any additional questions please press star one if he was to council requests please press start to please them by only pull from where questions
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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