Elbit Systems Ltd (ESLT) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Elbit Systems Ltd. first quarter 2011 results conference call. All participants are present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. (Operator instructions). As a reminder, this conference is being recorded May 16, 2011. If you have not yet received a copy of today's release and would like to do so, please call CCG Investor Relations at 1-646-201-9246 or 972-3-607-4717.

I would now like to turn the call over to Mr. Kenny Green of CCG Investor Relations. Mr. Green, please go ahead.

Thank you and good day to everybody. On behalf of all the investors, I would like to thank Elbit Systems' management for hosting this call.

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

Before we begin, I would like to point out that the Safe Harbor statements in the Company's press release issued earlier today also refer to the contents of this conference call.

With that, I would like to hand the call over to Yossi; Yossi, go ahead, please.

Thank you, Kenny. Hello, everyone, and thank you for joining us today. Like last quarter, we will provide you with both our regular GAAP financial data as well certain supplemental non-GAAP information.

In light of our increased acquisition activities during 2010 and continuing in the first quarter of 2011, we believe that the presentation of non-GAAP financial measures is beneficial to investors' understanding and assessment of the Company's ongoing core operations and prospects for the future. You can find all the detailed GAAP financial data as well as the non-GAAP information in today's press release.

Our results of the first quarter mark a positive start to 2011 with the backlog growing nicely to $5.6 billion, the fourth consecutive quarter of backlog growth.

I will now highlight and discuss some of the key figures and trends. Our first quarter 2011 revenues were $620 million, marginally higher than the $618 million which we reported in the first quarter of last year. In terms of revenue breakdown across areas of operation in the quarter, airborne systems was 41%, land systems 13%, C4ISR 31%, Electro-Optics 11%, and the rest was 4%.

On a geographic basis, the United States remained our largest region at 34% of revenue, Israel was 27%, Europe was 18% and the rest of the world was 21% of revenues.

We do not see the quarterly fluctuations in our revenue breakdown as indicative of any long-term trends. However, on a year-over-year basis there has been a trend of increasing sales in the airborne area of operations as well as growing sales to the United States and Israel market and a decrease to Europe, primarily to the delay in the Watchkeeper project, which we expect will pick up speed in the second half of this year.

For the first quarter our gross margin was 29.9%, at the same level as we reported in the first quarter of last year. Operating income in the first quarter was $40.9 million, representing a 6.6% margin. This is compared to $49.2 million or an 8% margin in the first quarter of last year. The non-GAAP operating income was $54.9 million or an 8.9% margin compared to $59.7 million or a 9.7% in the first quarter of 2010.

In terms of operating expense breakdown during the first quarter, our net R&D expenses for the quarter were 8.7% of revenues compared to 8.5% last year. Marketing and selling expenses were 8.9% of revenues in the quarter compared with 8.8% in the first quarter of last year.

Our G&A expenses in the first quarter were 5.7% of revenues compared with 4.5% of revenues in the first quarter of last year. Our G&A was higher, primarily due to added G&A expenses from our recent acquisitions.

Financial expenses for the first quarter of 2011 were $10.7 million compared with $3.1 million in the first quarter of last year. The higher level of financial expense in the quarter was mainly due to higher currency hedging-related costs, and it also included additional interest payments following the bond issue we executed in Israel in the second quarter of 2010.

The affiliates which we do not consolidate contributed $3.8 million to the net income in the quarter. This is compared to $3.9 million in the first quarter of last year.

Consolidated net income attributable to Elbit Systems' shareholders for the first quarter was $27.9 million or a net margin of 4.5%. This is compared with a net income of $49.8 million, a net margin of 8.1% in the first quarter of 2010, in which we had an extraordinary net income of $9.6 million due to the sale of Mediguide. Diluted earnings per share for the first quarter were $0.65 compared to $1.15 for the first quarter of 2010.

With respect to certain non-GAAP information, our non-GAAP net income, which includes mainly amortization of intangible assets and gain from changes in holdings, was $38.6 million compared to $48.1 million in the first quarter of 2010. The non-GAAP EPS for the quarter was $0.90 compared with $1.10 for the first quarter of last year. Operating cash flow for the quarter was $40.1 million compared to $64 million in the first quarter of 2010. The reduction in the cash flow was mainly a result of lower net profit and increasing inventories.

Our backup of orders at year end was over $5.6 billion, a solid increase over the backlog at the end of the prior quarter, which stood at $5.45 billion. Approximately 68% of the backlog is scheduled to be performed during the rest of 2011 and 2012. The majority of the balance is scheduled to be performed in 2013 and 2014.

Finally, the Board of Directors declared a dividend of $0.36 per share for the first quarter of 2011.

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

Thank you, Yossi. As Yossi previously mentioned, we are pleased with the trend of growth indicated in our results. We achieved a stable level of revenues while still growing our backlog due to an increased level of new orders coming in. The improvement is a positive development as we increasingly convert this level of backlog to revenue over the coming quarters.

At the same time, the past few months have been important for us with a number of acquisitions that we believe will provide significant long-term upside. We have made all of the follows over the past three quarters. Back in mid-2010, we bought a 100% interest in Soltam, Saymar and 87% interest in ITL. Each (inaudible) companies operated in areas that are synergistic to us.

Towards the end of the year, we bought Elisra in the United States and Ares in Brazil. In February and March of this year we bought the remainder of ITL held by the public, as well as the part of Elisra held by Elta, fully consolidating both companies into the Elbit family. These acquisitions are beginning to bear fruit, and in only a short period, our subsidiaries are already making progress and winning important new orders.

Our presence in the Brazil market has resulted in strong interest from customers and local industries. In April, AEL, our Brazilian subsidiary, signed a strategic agreement with Embraer to establish a jointly owned Brazilian company to engage in unmanned vehicle and other areas. In addition, AEL won an $85 million contract from Embraer to upgrade the Brazilian Air Force F-5 aircraft.

Our new US subsidiary, M7 Aerospace, won a $15.6 million contract with the US Navy for logistics support and maintenance of C-26 and C-35 utility aircraft. And Soltam, our recently acquired subsidiary in Israel which focuses on artillery system, won a $24 million contract to supply self-propelled artillery systems.

While these subsidiaries are performing well, it is important to note that these acquisitions have increased our operating costs in the short-term, both due to their operating cost structure as well as some of the costs involved in the acquisition process. However, as we work to absorb these companies into Elbit, we see many opportunities to rationalize and share costs as well as enhance information and research across divisions. While this takes time, we believe that we will successfully absorb these companies, unleashing synergy, as we have done numerous times in the past.

And now I would like to stress that I believe that in 2011 we will continue to see the fruits of our efforts from last year, and I expect we will resume our growth. And with that, I would like now to open the call for questions and answers. Operator?

(Operator instructions). Gilad Ben Avi, Union Bank.

Hi; I want to ask about if you have the guidance of your revenues for this year. Do you expect some -- a growth in the revenues, even (inaudible) growth, because of the acquisitions that you did through 2010 and 2011?

You know that usually we don't give guidance. But what I can say -- that we expect 2011 sales to be higher than 2010.

Okay, thank you. I have another question with OpEx, operating expenses. The G&A expenses, they're supposed to be the same level of this quarter and the next few quarters because of acquisitions?

As Mr. Ackerman mentioned it earlier, we are in the process of absorbing the newly acquired companies, and that process is composed of building synergies in growing the top line, on one hand. On the other hand is reducing cost elements in the various expense levels, including the G&A. So we expect this to -- we expect this to do better in the future, as we have shown in the past when we have assimilated, actually, various other acquisitions.

Okay, last question was the backlog issue. The growth in the backlog is mainly in this segment of aerial, of the aerial segment mainly, or it's across other sectors of the Company?

It's cross-wise, all over the sectors of the Company.

Okay, thank you very much.

(Operator instructions). There are no further questions at this time.

Before I ask Mr. Ackerman to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available two hours after the conference ends. In the US, please call 1-888-326-9310. In Israel, please call 03-925-5901; and internationally, please call 972-3-925-5901. A replay of this call will also be available on the Company's website at www.ElbitSystems.com.

Mr. Ackerman, would you like make your concluding statement?

Yes, thank you. I would like to thank all of our employees for their hard work throughout the quarter. And to everyone on this call, thank you for joining us today and for your continued support and interest in our Company. Have a good day and goodbye.

Thank you, sir. This concludes the Elbit Systems Ltd. first quarter 2011 results conference call. Thank you for your participation. You may go ahead and disconnect.