Elbit Systems Reports Third Quarter 2018 Results
HAIFA, Israel, Nov. 20, 2018 /PRNewswire/ -- Elbit Systems Ltd. (NASDAQ: ESLT) and (TASE: ESLT), (the "Company") the international high technology company, reported today its consolidated results for the quarter ended September 30, 2018.
In this release, the Company is providing US-GAAP results as well as additional non-GAAP financial data, which are intended to provide investors a more comprehensive understanding of the Company's business results and trends. Unless otherwise stated, all financial data presented is GAAP financial data.
Management Comment:
Bezhalel (Butzi) Machlis, President and CEO of Elbit Systems, commented: "We reported a solid level of revenue in the quarter, growing by 12% over last year to almost $900 million. At the same time, we were able to show growth in backlog. This demonstrates that our business remains strong, in line with our strategy of consistently expanding our addressable markets through internal development of defense related products and solutions, as well as acquisitions of synergistic businesses."
Third quarter 2018 results:
Revenues in the third quarter of 2018 were $895.2 million, as compared to $800.7 million in the third quarter of 2017.
Non-GAAP ((*)) gross profit amounted to $260.7 million (29.1% of revenues) in the third quarter of 2018, as compared to $256.3 million (32.0% of revenues) in the third quarter of 2017. GAAP gross profit in the third quarter of 2018 was $255.9 million (28.6% of revenues), as compared to $251.0 million (31.3% of revenues) in the third quarter of 2017.
Research and development expenses, net were $69.6 million (7.8% of revenues) in the third quarter of 2018, as compared to $67.1 million (8.4% of revenues) in the third quarter of 2017.
Marketing and selling expenses, net were $69.4 million (7.8% of revenues) in the third quarter of 2018, as compared to $66.9 million (8.4% of revenues) in the third quarter of 2017.
General and administrative expenses, net were $37.8 million (4.2% of revenues) in the third quarter of 2018, as compared to $34.8 million (4.3% of revenues) in the third quarter of 2017.
Non-GAAP((*)) operating income was $85.7 million (9.6% of revenues) in the third quarter of 2018, as compared to $89.2 million (11.1% of revenues) in the third quarter of 2017. GAAP operating income in the third quarter of 2018 was $79.1 million (8.8% of revenues), as compared to $82.2 million (10.3% of revenues) in the third quarter of 2017.
Financial expenses, net were $8.1 million in the third quarter of 2018, as compared to $9.3 million in the third quarter of 2017.
Taxes on income were $8.9 million (effective tax rate of 12.6%) in the third quarter of 2018, as compared to $14.6 million (effective tax rate of 20.0%) in the third quarter of 2017. The effective tax rate is affected by the mix of the tax rates in the various jurisdictions in which the Company's entities generate taxable income.
Equity in net earnings of affiliated companies and partnerships was $2.7 million (0.3% of revenues) in the third quarter of 2018, as compared to $3.5 million (0.4% of revenues) in the third quarter of 2017.
Net income attributable to non-controlling interests was $0.7 million in the third quarter of 2018, as compared to $0.3 million in the third quarter of 2017.
Non-GAAP((*)) net income attributable to the Company's shareholders in the third quarter of 2018 was $69.8 million (7.8% of revenues), as compared to $67.3 million (8.4% of revenues) in the third quarter of 2017. GAAP net income attributable to the Company's shareholders in the third quarter of 2018 was $64.1 million (7.2% of revenues), as compared to $61.5 million (7.7% of revenues) in the third quarter of 2017.
Non-GAAP((*)) diluted net earnings per share attributable to the Company's shareholders were $1.63 for the third quarter of 2018, as compared to $1.57 for the third quarter of 2017. GAAP diluted earnings per share in the third quarter of 2018 were $1.50, as compared to $1.44 for the third quarter of 2017.
The Company's backlog of orders for the quarter ended September 30, 2018 totaled $8,108 million as compared to $7,641 million as of September 30, 2017. Approximately 72% of the current backlog is attributable to orders from outside Israel. Approximately 45% of the current backlog is scheduled to be performed during 2018 and 2019.
Operating cash flow used in the nine months ended September 30, 2018 was $20.3 million, as compared to $140.0 million used in the nine months ended September 30, 2017.
Accounting policies update:
The Company adopted the new revenue recognition accounting standard ASC 606, effective January 1, 2018, using the modified retrospective approach. Financial results for reporting periods during 2018 are presented in compliance with ASC 606. Historical financial results for the reporting periods prior to 2018 are presented in conformity with amounts previously disclosed under the prior revenue recognition standard, ASC 605. The adoption of ASC 606 primarily impacts the Company's contracts where revenue is recognized using the percentage of completion units of delivery method, which under ASC 606 can be recognized over time because control is transfered continuously to the customer over the performance period for contracts recognized over time. As a result, the adoption of ASC 606 influenced part of the revenue growth in 2018.
The cumulative effects of the transition to ASC 606 on January 1, 2018, resulted in the following main adjustments: a $0.1 million increase in retained earnings, a decrease in inventories of approximately $81.9 million, an increase in contract assets (unbilled receivables) of approximately $78.8 million and a net decrease in customer advances and other contract liabilities and deferred tax assets in the aggregate amount of approximately $3.2 million.
According to ASC 606, customer advances are no longer deducted from inventories. Accordingly, on January 1, 2018, the open balances of inventories net and customer advances were grossed up in the amount of approximately $87 million.
* Non-GAAP financial data:
The following non-GAAP financial data is presented to enable investors to have additional information on the Company's business performance as well as a further basis for periodical comparisons and trends relating to the Company's financial results. The Company believes such data provides useful information to investors by facilitating more meaningful comparisons of the Company's financial results over time. Such non-GAAP information is used by the Company's management to make strategic decisions, forecast future results and evaluate the Company's current performance. However, investors are cautioned that, unlike financial measures prepared in accordance with GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies.
The non-GAAP financial data includes reconciliation adjustments regarding non-GAAP gross profit, operating income, net income and diluted EPS. In arriving at non-GAAP presentations, companies generally factor out items such as those that have a non-recurring impact on the income statements, various non-cash items, significant effects of retroactive tax legislation and changes in accounting guidance and other items, which in management's judgment, are items that are considered to be outside of the review of core operating results.
In the Company's non-GAAP presentation, the Company made certain adjustments, as indicated in the table below.
These non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations, as determined in accordance with GAAP, and that these measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures. Investors should consider non-GAAP financial measures in addition to, and not as replacements for or superior to, measures of financial performance prepared in accordance with GAAP.
Reconciliation of GAAP to Non-GAAP (Unaudited) Supplemental Financial Data:
(US Dollars in millions)
---
Nine Months Ended Three Months Ended Year Ended
September 30, September 30, December 31,
2018 2017 2018 2017 2017
GAAP gross profit $
741.3 $
714.5 $
255.9 $
251.0 $
997.9
Adjustments:
---
Amortization of
purchased intangible
assets 14.0 16.9 4.8 5.3 22.2
Non-GAAP gross profit $
755.3 $
731.4 $
260.7 $
256.3 $
1,020.1
===
Percent of revenues 29.0% 30.9% 29.1% 32.0% 30.2%
GAAP operating income $
254.2 $
215.7 $
79.1 $
82.2 $
319.3
Adjustments:
---
Amortization of
purchased intangible
assets 19.4 21.7 6.6 7.0 28.6
Gain from changes in
holdings (45.4) -
Non-GAAP operating
income $
228.2 $
237.4 $
85.7 $
89.2 $
347.9
===
Percent of revenues 8.8% 10.0% 9.6% 11.1% 10.3%
GAAP net income
attributable to Elbit
Systems' shareholders $
205.6 $
169.7 $
64.1 $
61.5 $
239.1
Adjustments:
---
Amortization of
purchased intangible
assets 19.4 21.7 6.6 7.0 28.6
Fair value adjustment
of investment 5.1 -
Gain from changes in
holdings (45.4) -
Related tax benefits (2.5) (3.6) (0.9) (1.2) 6.2
Non-GAAP net income
attributable to Elbit
Systems' shareholders $
182.2 $
187.8 $
69.8 $
67.3 $
273.9
===
Percent of revenues 7.0% 7.9% 7.8% 8.4% 8.1%
GAAP diluted net EPS $
4.81 $
3.97 $
1.50 $
1.44 $
5.59
Adjustments, net (0.55) 0.42 0.13 0.13 0.81
Non-GAAP diluted net
EPS $
4.26 $
4.39 $
1.63 $
1.57 $
6.41
===
Recent Events:
On September 20, 2018 the Company announced that it was awarded an approximately $173 million contract to provide Naval Remote Controlled Weapon Stations to the Navy and Coast Guard of an Asia-Pacific country. The contract will be performed over a five-year period.
On October 2, 2018, the Company announced that its subsidiary, Elbit Systems UK Ltd. was awarded an initial contract of approximately £10 million (approximately $13 million) and a potential maximum value of approximately £40 million, from the UK Ministry of Defence to provide the MORPHEUS Battlefield Management Application. The initial contract will be performed over a three-year period.
On November 14, 2018, the Company announced that it was awarded an approximately $167 million contract from an Asia-Pacific country to supply a comprehensive aerial Intelligence, Surveillance, Target Acquisition and Reconnaissance (ISTAR) solution. The contract will be performed over a 20-month period.
Dividend:
The Board of Directors declared a dividend of $0.44 per share for the third quarter of 2018. The dividend's record date is December 7, 2018. The dividend will be paid from income generated as Preferred Income (as defined under Israel tax laws), on December 24, 2018, net of taxes and levies, at the rate of 20%.
Conference Call:
The Company will be hosting a conference call on Tuesday, November 20, 2018 at 9:00 a.m. Eastern Time. On the call, management will review and discuss the results and will be available to answer questions.
To participate, please call one of the teleconferencing numbers that follow. If you are unable to connect using the toll-free numbers, please try the international dial-in number.
US Dial-in Numbers: 1-888-668-9141
Canada Dial-in Numbers: 1-888-604-5839
UK Dial-in Number: 0-800-917-5108
ISRAEL Dial-in Number: 03-918-0610
INTERNATIONAL Dial-in Number: +972-3-918-0610
at: 9:00 am Eastern Time; 6:00 am Pacific Time; 2:00 pm UK Time; 4:00 pm Israel Time
This call will also be broadcast live on Elbit Systems' web-site at http://www.elbitsystems.com. An online replay will be available from 24 hours after the call ends.
Alternatively, for two days following the call, investors will be able to dial a replay number to listen to the call. The dial-in numbers are:
1-888-782-4291 (US and Canada) or +972-3-925-5927 (Israel and International).
About Elbit Systems
Elbit Systems Ltd. is an international high technology company engaged in a wide range of defense, homeland security and commercial programs throughout the world. The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of airborne, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance ("C4ISR"), unmanned aircraft systems, advanced electro-optics, electro-optic space systems, EW suites, signal intelligence systems, data links and communications systems and radios. The Company also focuses on the upgrading of existing platforms, developing new technologies for defense, homeland security and commercial aviation applications and providing a range of support services, including training and simulation systems.
For additional information, visit: www.elbitsystems.com or follow us on Twitter.
This press release contains forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1943, as amended) regarding Elbit Systems Ltd. and/or its subsidiaries (collectively the Company), to the extent such statements do not relate to historical or current fact. Forward-looking statements are based on management's expectations, estimates, projections and assumptions. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Therefore, actual future results, performance and trends may differ materially from these forward-looking statements due to a variety of factors, including, without limitation: scope and length of customer contracts; governmental regulations and approvals; changes in governmental budgeting priorities; general market, political and economic conditions in the countries in which the Company operates or sells, including Israel and the United States among others; differences in anticipated and actual program performance, including the ability to perform under long-term fixed-price contracts; and the outcome of legal and/or regulatory proceedings. The factors listed above are not all-inclusive, and further information is contained in Elbit Systems Ltd.'s latest annual report on Form 20-F, which is on file with the U.S. Securities and Exchange Commission. All forward-looking statements speak only as of the date of this release. The Company does not undertake to update its forward-looking statements.
Elbit Systems Ltd., its logo, brand, product, service and process names appearing in this Press Release are the trademarks or service marks of Elbit Systems Ltd. or its affiliated companies. All other brand, product, service and process names appearing are the trademarks of their respective holders. Reference to or use of a product, service or process other than those of Elbit Systems Ltd. does not imply recommendation, approval, affiliation or sponsorship of that product, service or process by Elbit Systems Ltd. Nothing contained herein shall be construed as conferring by implication, estoppel or otherwise any license or right under any patent, copyright, trademark or other intellectual property right of Elbit Systems Ltd. or any third party, except as expressly granted herein.
(FINANCIAL TABLES TO FOLLOW)
ELBIT SYSTEMS LTD.
CONSOLIDATED BALANCE SHEETS
(In thousands of US Dollars)
---
September 30, December 31,
2018 2017
Unaudited Audited
Assets
---
Current assets:
Cash and cash
equivalents $
152,229 $
156,074
Short-term bank
deposits and
marketable
securities 3,030 16,497
Trade and
unbilled
receivables, net 1,505,599 1,406,563
Other receivables
and prepaid
expenses 139,405 128,946
Inventories, net 1,069,005 902,954
Total current
assets 2,869,268 2,611,034
Investments in
affiliated
companies and
partnerships 217,882 172,338
Long-term trade
and unbilled
receivables 305,594 295,396
Long-term bank
deposits and
other
receivables 28,883 38,082
Deferred income
taxes, net 43,717 51,358
Severance pay
fund 286,099 298,590
882,175 855,764
Property, plant
and equipment,
net 514,431 495,716
Goodwill and
other intangible
assets, net 806,846 752,403
Total assets $
5,072,720 $
4,714,917
===
Liabilities and Equity
---
Short-term bank
credit and loans $
111,530 $
133,750
Current
maturities of
long-term loans
and Series A
Notes 63,114 67,556
Trade payables 524,375 633,689
Other payables
and accrued
expenses 790,692 835,394
Customer advances 572,200 418,560
2,061,911 2,088,949
Long-term loans,
net of current
maturities 459,800 119,514
Series A Notes,
net of current
maturities 59,522 124,865
Employee benefit
liabilities 391,274 413,117
Deferred income
taxes and tax
liabilities, net 66,956 68,159
Customer advances 116,269 133,649
Other long-term
liabilities 43,218 48,692
1,137,039 907,996
Elbit Systems
Ltd.'s equity 1,863,445 1,708,310
Non-controlling
interests 10,325 9,662
Total equity 1,873,770 1,717,972
Total liabilities
and equity $
5,072,720 $
4,714,917
===
ELBIT SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of US Dollars, except for share and per share amount)
---
Nine Months Ended Three Months Ended Year Ended
September 30, December 31,
September 30,
2018 2017 2018 2017 2017
---
Unaudited
Unaudited Audited
Revenues $
2,605,844 $
2,368,221 $
895,150 $
800,734 $
3,377,825
Cost of revenues 1,864,515 1,653,762 639,231 549,753 2,379,905
---
Gross profit 741,329 714,459 255,919 250,981 997,920
Operating expenses:
---
Research and
development, net 214,366 192,598 69,626 67,092 265,060
Marketing and selling,
net 207,559 199,003 69,442 66,934 280,246
General and
administrative, net 110,582 107,160 37,797 34,791 133,314
Other operating
income, net (45,367)
Total operating
expenses 487,140 498,761 176,865 168,817 678,620
Operating income 254,189 215,698 79,054 82,164 319,300
---
Financial expenses,
net (29,142) (24,810) (8,145) (9,333) (34,502)
Other (expenses)
income, net (5,063) 37 25 5 48
Income before income
taxes 219,984 190,925 70,934 72,836 284,846
---
Taxes on income (22,542) (30,151) (8,904) (14,579) (55,585)
197,442 160,774 62,030 58,257 229,261
---
Equity in net earnings
of affiliated
companies and
partnerships 9,140 9,918 2,695 3,500 11,361
---
Net income $
206,582 $
170,692 $
64,725 $
61,757 $
240,622
Less: net income
attributable to non-
controlling interests (969) (996) (670) (280) (1,513)
---
Net income
attributable to Elbit
Systems Ltd.'s
shareholders $
205,613 $
169,696 $
64,055 $
61,477 $
239,109
===
Earnings per share attributable to Elbit Systems Ltd
.'s shareholders:
---
Basic net earnings per
share $
4.81 $
3.97 $
1.50 $
1.44 $
5.59
===
Diluted net earnings
per share $
4.81 $
3.97 $
1.50 $
1.44 $
5.59
===
Weighted average number of shares (in thousands)
---
Shares used in
computation of basic
earnings per share 42,753 42,749 42,753 42,751 42,750
===
Shares used in
computation of
diluted earnings per
share 42,755 42,753 42,755 42,753 42,753
===
ELBIT SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands of US dollars)
---
Nine Months Ended Year Ended
September 30, December 31,
2018 2017 2017
Unaudited Audited
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $
206,582 $
170,692 $
240,622
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and
amortization 84,974 84,884 114,017
Adjustment to fair value
investment 5,114 -
Stock-based compensation 347 13 13
Amortization of Series A
Notes premium and
related issuance costs,
net (69) (69) (92)
Deferred income taxes and
reserve, net 6,601 6,920 28,774
Gain on sale of property,
plant and equipment (30) (2,101) (2,440)
Loss (gain) on sale and
revaluation of
investments (42,868) 635 1,358
Equity in net earnings of
affiliated companies and
partnerships, net of
dividend received (*) (221) (6,560) (1,987)
Changes in operating assets and
liabilities, net of amounts acquired:
Increase in short and
long-term trade
receivables and prepaid
expenses (38,460) (272,320) (315,236)
Increase in inventories,
net (131,635) (82,674) (59,699)
Increase (decrease) in
trade payables, other
payables and accrued
expenses (157,024) (57,985) 63,273
Severance, pension and
termination indemnities,
net (7,357) (554) 2,003
Increase in advances
received from customers 53,790 19,134 30,287
Net cash provided by
(used in) operating
activities (20,256) (139,985) 100,893
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property,
plant and equipment and
other assets (66,664) (78,136) (107,880)
Acquisition of
subsidiaries and
business operations (127,569) (25,440) (25,440)
Investments in affiliated
companies and other
companies (7,181) (1,078) (4,964)
Deconsolidation of
subsidiary (2,873) -
Proceeds from sale of
property, plant and
equipment 1,380 4,932 6,270
Proceeds from sale of
investments 12,067 12,067
Investment in long-term
deposits (120) (717) (1,396)
Proceeds from sale of
long-term deposits 81 175 176
Investment in short-term
deposits and marketable
securities (5,132) (23,746) (40,893)
Proceeds from sale of
short-term deposits and
marketable securities 18,314 28,139 46,491
Net cash used in
investing activities (189,764) (83,804) (115,569)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of
options 48 119 119
Repayment of long-term
loans (39) (166,879) (167,425)
Proceeds from long-term
loans 340,397 118,615 118,623
Repayment of Series A
Notes (55,532) (55,532) (55,532)
Dividends paid (56,479) (56,475) (75,300)
Change in short-term
bank credit and loans,
net (22,220) 285,186 127,455
Net cash (used in)
provided by financing
activities 206,175 125,034 (52,060)
Net decrease in cash and
cash equivalents (3,845) (98,755) (66,736)
Cash and cash equivalents
at the beginning of the
year 156,074 222,810 222,810
Cash and cash equivalents
at the end of the period $
152,229 $
124,055 $
156,074
===
* Dividend received from
affiliated companies and
partnerships $
8,919 $
3,358 $
9,374
===
ELBIT SYSTEMS LTD.
DISTRIBUTION OF REVENUES
---
Consolidated Revenues by Areas of Operation:
---
Nine Months Ended September 30, Three Months Ended September 30,
2018 2017 2018 2017
$ millions %
$ millions %
$ millions %
$ millions %
---
Airborne systems 1,033.4 39.7 897.2 37.9 355.1 39.7 304.3 38.0
C4ISR systems 855.1 32.8 814.1 34.4 292.0 32.6 268.8 33.6
Land systems 409.7 15.7 337.2 14.2 153.2 17.1 126.5 15.8
Electro-optic systems 231.5 8.9 252.4 10.7 76.7 8.6 82.8 10.3
Other (mainly non-defense
engineering and production
services) 76.1 2.9 67.3 2.8 18.1 2.0 18.3 2.3
---
Total 2,605.8 100.0 2,368.2 100.0 895.1 100.0 800.7 100.0
===
Consolidated Revenues by Geographical Regions:
---
Nine Months Ended September 30, Three Months Ended September 30,
2018 2017 2018 2017
$ millions %
$ millions %
$ millions %
$ millions %
Israel 512.8 19.7 509.3 21.5 160.8 18.0 174.3 21.8
North America 691.3 26.5 591.4 25.0 230.2 25.7 189.6 23.7
Europe 487.2 18.7 528.5 22.3 171.5 19.2 163.6 20.4
Asia-Pacific 588.3 22.6 510.5 21.6 224.3 25.1 181.6 22.7
Latin America 151.4 5.8 149.3 6.3 60.4 6.7 56.3 7.0
Other countries 174.8 6.7 79.2 3.3 47.9 5.3 35.3 4.4
Total 2,605.8 100.0 2,368.2 100.0 895.1 100.0 800.7 100.0
Company Contact
: IR Contact
:
Joseph Gaspar, Executive VP & CFO
Ehud Helft
Tel: +972-772946663
Kenny Green
j.gaspar@elbitsystems.com
GK Investor Relations
David Vaaknin, VP, Head of Corporate Communications
Tel: 1-646-201-9246
Tel: +972-772946691 elbitsystems@gkir.com
david.vaaknin@elbitsystems.com
Elbit Systems Ltd.
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SOURCE Elbit Systems Ltd.
