Elbit Systems Ltd (ESLT) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Elbit Systems Limited First Quarter 2009 Results Conference Call. All participants are at present in listen-only mode. Following management phone presentation, instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded May 20th, 2009.

I'd like to remind everyone that the Safe Harbor language contained in today's press release also pertains to all content of this conference call. If you have not received a copy of today's release and would like to do so, please call Gelbart Kahana Investor Relations at 1-866-704-6710 or 972-3607-4717.

I'd now like to hand over the call over to Mr. Ehud Helft of GK Investor Relations. Ehud, please go ahead.

Thank you and good day, everybody. Welcome to Elbit Systems First Quarters Result Conference Call. On behalf of all the investors, I'd like to thank Elbit Systems management for hosting this call.

Joining us on the call today are Mr. Joseph Ackerman, President and CEO and Mr. Joseph Gaspar, the Chief Financial Officer. Joseph will begin by providing a discussion of the financial results of this quarter, followed by Joseph, who will talk about some of the significant events during the quarter. We'll then turn the call to the question-and-answer session.

With this, I'd like now to turn the call over to Mr. Gaspar. Joseph, please.

Thank you, Ehud. Hello, everyone and thank you for joining us today. Our first quarter of 2009 is another one of continued progress in all areas with strong profitability. We compound all the due dates today for the quarter in the press release we issued today, which is also available on our website.

I will highlight and discuss some of the key due dates on time. Our first quarter 2009 revenues were $656.9 million growing slightly lower than usual at approximately 6.6% per year. This was due to seasonal taxes as well as the increase in value dollar, this is the euro and shekel, which makes our number in revenue lower than anticipated into dollar terms. We still expect a positive growth in revenues in 2009 compared to 2008.

Our growth was essentially all organic. During the past four quarters, there were quite relevantly no companies with no material revenues. However, we do benefit from their technologies, market access, and P&G between our them and our audio operating entities.

The returns on revenues went down across our AF of operation in the quarter, Airborne Systems was 26%, Land systems were 22%, C4ISR was 35%, Electro-optics 13%, and the rest was 4%. In this quarter, Land Systems and Electro-optics had lower revenues with regard to from lower level of short-term contracts compared to the first quarter of 2008.

The strong growth of revenues in the C4ISR area corporation was a result of increased sales of communication equipment and unmanned vehicle systems to a number of customers. On a geographic basis, the United States remained our largest region accounting for 32% of our revenues, Europe 25%, Israel 19%, and the rest of the world was 24%.

For the first quarter, our gross margin was 31.7%, which is 4% higher than that of the first quarter of last year. The significant improvement in the gross margins was partly due to the mix of products sold in the quarter and the strength of the US dollar versus the Israeli shekel during the first quarter of 2009, which lowered our shuttle related area costs. In addition, the successful integration of our position and gradually increased processes also contributed to the year-over-year improvement in the margins.

Operating income for the quarter increased 58% year-over-year to $76.6 million, representing an 11.10% margin which is also at an all time high. This is compared with operating income of $48.5 million or 10.9% margin in the first quarter of last year. This was a result of improved gross margins as described earlier and close control of operating expenses, mainly the General Dynamics AG Systems.

Financial expenses for the first quarter of 2009 were $19 million, which is higher than usual. This was primarily due to our US dollar/shekel rate, which caused us to incur higher financial expenses through the quarter, though the shekel was additionally approximately 10% against the US dollar. Our non-consolidated subsidiaries contributed [$5.8 million] to the net income in the quarter. All of them [DDI] and significantly exceeded prior year incomes.

Our subsidiary Company consolidates, but not fully owned also performed according to plan. On the other side, we had a [$6.8 million] minority share through the profits of subsidiaries in the quarter. I remind you, on April 7th this year, we completed the purchase of 49% minority share of the previously 51% owned subsidiary, our subsidiary Kinetics, for maximum consideration of up to $118 million. This means that from the second quarter onward, we will not deduct under the minority line, the 49% shares in Kinetics profits.

Starting from this quarter, we are implementing SFAS No. 160, which means that consolidated net income in reported before eliminating the net income or loss attributable to non-controlling interests. Consolidated net income for the quarter grew [17.3%] which is $50 million, or 7.6% of revenues compared with $42.6 million in the first quarter of the last year or 6.9% of revenues.

Net income attributable to Elbit Systems for the first quarter of 2009 decrease by 34.5% to $43.3 million or 6.6% of revenues as compared with $32.2 million or 5.2% of revenues in the first quarter of 2008. The diluted net earnings per share attributable to the Company's ordinary shares for the first quarter of 2009 was $1.02 as compared to $0.75 for the first quarter of 2008 and 46% year-over-year growth.

Backlog as of March 31st, 2009 totaled $5.09 billion with 72% of the backlog subject to be performed during the remainder of 2009 and during 2010. Operating cash flow during the quarter was $5.4 million as compared to $66.3 million in the first quarter of 2008. The decrease is partially due to the reduction in advances from customers and we expect it to be temporary. Finally, the Board of Directors declared dividends of $0.30 per share for the first quarter of 2009.

That ends my summary and I shall now turn the call over to Mr. Joseph Ackerman.

Thank you. As Joseph mentioned, we had a good start to 2009. We saw margins across the board, record net income, and backlog. While our revenue growth for this quarter was relatively modest, we continue to expect double-digit growths in revenues in 2009 compared to 2008.

I would like to first discuss the two acquisitions we made recently. We acquired the remaining 49% of Kinetics, a company engaged in the field of advanced life support and environmental controls. This includes climate control systems as well as geological and clinical protection systems for combat vehicles. It also develops other products for Land and Airborne implications including exotic fuel, braking, and suspension systems.

That position is start of our low scale strategy of growth through M&A of complimentary companies we tied to logistic value. As you can see, Kinetics business is highly complementary to ours and by working together as one company, we can create additional value, as we did with other acquisitions it the past and further strengthen our position as a global leader in this area.

In addition, we also acquired Shiron Satellite Communication. Shiron is engaged in broadband communications at remote locations. We anticipate that Shiron technology, which is already well proven in the commercial market, will be scientific to the communication technologies developed and implemented in our Military system and products.

Our long-term growth is very much the result of our investments in our return R&D as well as acquisitions of leading edge technology in the relevant areas. Since the US represents around a third of our revenues, I would like to take this opportunity to make a few comments about the impact on us of US Defense Secretary Gates recent defense budget accommodation.

We are encouraged by much of what we heard that our capabilities are in line with the US Defense Department priorities. Firstly, let me assure you that our overall exposure to this continued or narrow programs is very limited, if it's any. At the same time we had been moving to some of the program that has been expanded or accelerated, including the Joint Strike Fighter.

In addition, we believe that we will benefit from the decision to allocate a different budget, to implement near-term improvements in currency of the war. We also view positively the budget increase in Intelligence, Surveillance, and Reconnaissance, including Unmanned Vehicles. Last overall, I stand encouraged by the direction of the US Department of Defense is moving in its budget priorities and I do believe that it creates opportunity for us to be the next beneficiary in the next coming years.

Ever since the beginning of 2009, our US facility, Elbit Systems of America has been very active, selling some of our most advanced systems, a few of which I will briefly discuss now. Recently, we won a contract to provide integration of Mortar Fire Control Systems for the US Army which included initial order worth $22 million with potential of up to $198 million. North to the border, at of the beginning of May, we are now the superior leader for the awarded $55 million contract from the Canadian Navy Frigate Upgrade program together with Lockheed Martin for the sales of Electronic Warfare equipment.

We were also selected as part of a team led by Rockwell Collins to provide Soldier War computer systems to the US Army. This system provides situational awareness to individual soldiers during operations optimizing size, weight, and power. Our overall goal remains to beat our possibility momentum, and technological leadership over the coming quarters and years ahead.

And with that, I would like now to open the call for question-and-answer. Operator.

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. (Operator Instructions).

The first question is from Dan Harverd of Deutsche Bank. Please go ahead.

Hi. Good afternoon and congratulations on a very strong quarter. First question I have is regarding how sustainable you see the margins that you reported in Q1 and related to that, in the past few quarters you highlighted short delivery contracts as part of the reason for high margins. Was that a factor in the current quarter?

You know that we don't give guidance. What I can say that sale wise, we do see the compilation of contributable growth in the year. Yes, some of the costs that we are getting is short-term affecting gross profit, but we cannot say that the gross margin will continue but certainly we anticipate the profit to be quite, I would say good this year. But I cannot be more detailed than that.

Okay. Fair enough. And perhaps you could give some color on the announcement of the joint venture with General Dynamics and the extent to which the particular program, the STUAS program is the main focus of that or do you see wider opportunity beyond that particular program?

I'm sure that most of you know that General Dynamics is a very respectful defense company in the US and Elbit is well known in the UAB business. As of now, Elbit did not sell any UAB in the United States. While the demand in the US is growing year after year, talk about hundreds of billions of dollars every year and so, both GD and us have decided to create this joint company between GD and us to try to capture a piece of this potential business. Talking about all UABs for the US market and we have already some leads that we are promoting even today and I do hope that we'll see the results coming in the coming quarters.

Okay. Thank you and good luck.

Thank you.

Thank you. (Operator Instructions)

The next question is from [Murani Myerson] of UBS. Please go ahead.

Hi and good afternoon. I'd just like a little bit more color on your thoughts on the affect of Gates and the GOP proposals on your budgets and the coming year capital effect to Elbit Systems?

Yes. We all have seen Secretary Gates announcement and I think that we are very fortunate to see that our capabilities and our business segments are in line with US priorities like reconnaissance, surveillance, ISR, Electro-optics, the refurbishment of old equipment. So as of now, we don't see certainly a negative impact on us but we -- on the contrary, we see a positive on us so we foresee our brother company US Elbit of America being successful this year.

Can you give some color on the platforms? F-22, F-35?

We'll talk about F-35 talk about more helicopters to be produced, talking about the bread beat, talking about basically most of what we heard, the Advance Soldier Equipment, as I mentioned previously. So, all that has to do with Elbit's technology.

Okay. Thank you.

Thank you. There are no further questions at this time. Mr. Ackerman, would you like to make a concluding statement?

Yes, I would like to thank all of you for joining us today. I'm looking forward to being with you in our next quarter conference call. Thank you.

Thank you. This concludes the Elbit Systems Limited First Quarter 2009 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.