Elbit Systems Ltd (ESLT) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Elbit Systems Ltd. third-quarter 2011 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. (Operator Instructions). As a reminder, this conference is being recorded November 16, 2011.

I would 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 CCG Investor Relations at 1-646-201-2946.

I would now like to hand over the call to Mr. Ehud Helft of CCG Investor Relations. Ehud, please go ahead.

Thank you and good day to everybody. On behalf of all the investors, I'd like to thank Elbit Systems' management for hosting this call. Joining us today on the call 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 of the quarter, followed by Joseph, who will talk about some of the significant events during the quarter. We will then turn over the call to the question-and-answer session. With that, I would like to turn over the call to Yossi. Yossi, please.

Thank you, Ehud. 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 as certain supplemental non-GAAP information. 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 for the third quarter marked the sixth consecutive improvement in our backlog, growing to $5.7 billion. As I have mentioned before, this is a continued good sign for the long term, as backlog growth eventually feeds into our revenues.

I would like to highlight and discuss some of the key figures and trends of the quarter. Our third-quarter 2011 revenues were $664 million, 2% higher than $650 million, which were reported in the third quarter of last year. For the first nine months of 2011, our revenue growth was 5.6% over the corresponding period of 2010.

In terms of revenue breakdown across our areas of operation in the quarter, Airborne Systems was 35%; Land Systems was 16%; C4I Systems was 35%; Electro-Optics was 9%; and the rest was 5%.

On a geographic basis, the United States was 34% of our revenue; Israel was 23%; Europe 17%; and the rest of the world was 26%.

We do not see the quarterly fluctuations in our revenue breakdown as indicative of any long-term trends. I would like to highlight our healthy geographical spread that allows us to enjoy positive trends in different markets around the world.

We did see growth in our Airborne revenues, which was primarily due to revenues from M7 in the US, which we acquired by the end of last year. In the third quarter of last year, we saw relatively high revenues from the DAP program in Israel, and those revenues are reduced in the current quarter, which accounts for the main drop in this region.

For the third quarter, our gross margin was 30.8% as compared to 30.5% reported in the third quarter of last year. The relatively high level of gross margin in the quarter was due to a favorable mix of business in the quarter. Non-GAAP gross margin was 31.9% compared to 31.3% in 2010.

The operating income was $56.2 million, or 8.5% of revenues, compared to $52.4 million, or 8.1% of revenues, in the third quarter of 2010. Non-GAAP operating income in the third quarter was $70.3 million, representing a 10.6% margin. This compared with $63.3 million, or as 9.7% margin, in the third quarter of last year.

In terms of operating expense breakdown during the third quarter, our net R&D expenses for the quarter were 8.4% of revenues compared to 8.6% last year. Marketing and selling expenses were 8.8% compared with 9.1% in the third quarter of last year. Our G&A expenses in the third quarter were 5.1% of revenues compared with 4.7% in the third quarter of last year.

Despite our recent acquisitions, as you can see, we are seeing success in controlling costs and reducing expenses through sharing costs and realizing synergies across the various subsidiaries. Financial expenses for the first quarter of 2011 were $3.1 million compared with $5.5 million in the third quarter of last year. Financial expenses in the quarter were lower than those of last year due to increased income from currency hedging activities.

Consolidated income attributable to Elbit Systems' shareholders for the third quarter was $36.5 million, or a net margin of 5.5%. This is compared with net income of $45.3 million, or a net margin of 7%, in the third quarter of last year.

Note that this quarter we realized a net loss from discontinued operations of $9 million. The amount reflects a net loss related to an impairment of a subsidiary that is part of the Mikal group of companies we acquired last year. Excluding this $9 million impairment, our net profit for the third quarter of 2011 was $44.5 million or 6.9% of revenues.'

Diluted earnings per share for the third quarter were $0.85 compared with $1.05 for the third quarter of last year. Excluding the net loss from the discontinued operations, the diluted earnings per share was $1.06.

With respect to certain non-GAAP information, our non-GAAP net income, which excludes mainly amortization of intangible assets, gains or losses from changes in holdings and the above-mentioned impairment, was $56.4 million, or 8.5% of revenues, compared with $54.1 million, or 8.3% of revenues, in the third quarter of 2010. Non-GAAP EPS for the quarter was $1.31 compared with $1.25 for the third quarter of last year.

Operating cash flow was $11.2 million for the first nine months of 2011 as compared to $73.6 million the first nine months of last year. The low level of cash flow was due to increased inventories and increased trade receivables, particularly in Israel, where we are experiencing some delays in payments of the Israeli Minister of Defense. However, we believe this is a temporary issue.

Our backlog of orders at the end of the quarter was over $5.691 billion, an increase of $310 million over the backlog at the end of the third quarter of 2010, and an increase over the backlog at the end of the prior quarter, which stood at $5.65 billion.

As I said earlier, this marks the sixth consecutive increase in backlog. Approximately 52% 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.

With regard to the dividend, the Board of Directors declared a dividend of 36% per share for the third quarter of 2011 -- $0.36, of course, sorry. That ends my summary and I shall now turn the call over to Mr. Ackermann.

Thank you, Yossi. We are pleased with our overall results. Delivery continued year-over-year growth in both revenues growth and backlog, as well as improvement in margins. Our record level of backlog is reassuring, particularly as many developed nations now face global macroeconomic uncertainty and financial issues.

The first quarter was busy for Elbit Systems, and we won a variety of orders, some of which were particularly important and were distributed over many regions throughout the world. Our business is well-diversified globally, and we continue to see significant growth potential in the many regions that we operate. This is especially true in South America and Asia Pacific, even if the US and Europe are facing increased budgetary constraints in the coming years.

In Israel, we won a project with the Israeli Port Authority to install a perimeter security system around the port of Haifa, as well as two major projects with the Israel Ministry of Defense. One of these is a significant $280 million long-term contract for the supply, upgrade and maintenance of the IDF communication equipment. Approximately half of the amount is for new communication systems over the next five years, and the other half for the upgrade and maintenance of existing systems over 20 years.

The other order in Israel was a $40 million contract to supply the CARDOM, a highly advanced motor and targeting system, to the Israeli army. We also recently sold CARDOM, the same product, to the Spanish army under an $8.5 million contract following a series of successful tests.

Soltam is a subsidiary we purchased late last year, and these two recent orders are a classic example of how Soltam is flourishing under the Elbit Systems organization. It shows how we have been able to leverage our global presence, group R&D, as well as marketing and service divisions to further the success and sales of Soltam's highly advanced product across the breadth of our customer base.

Brazil is a country which we consider a very strategic and important market for Elbit Systems. During the quarter, our subsidiary, AEL, signed several agreements with Embraer, including for establishment of a joint company, Harpia Sistemas. The new company will be engaged in the areas of unmanned aircraft systems, avionics systems and simulators, as well as contractor logistics support in these areas. This takes the collaboration between Embraer Defense and AEL to new heights, which we are confident will be of mutual benefit to both of our companies, as well as to the Brazilian customers.

A few weeks after this announcement, AEL awarded $25 million in follow-on orders with Embraer to develop three additional systems for the new KC-390 military transport and refuel jet. This selection is in addition to the earlier selection of AEL as the provider of the mission computer for this new jet.

In Asia-Pacific, we are pleased with the pace of business, as we see (inaudible) significant growth potential for our Company. We announced two recent wins. One, for a $15 million contract to supply an Asian national government agency with Wise Intelligence Technology system for end-to-end intelligence gathering. And the second was a $20 million contract from several Asian customers for observation systems for maritime patrol.

In the United States, we won a contract to supply Boeing Military Aircraft with the CV-22 Color Helmet Mounted Display for the Air Force Special Operations command. We were also awarded a five-year $23 million contract by the U.S. Army Communications-Electronic Command for [depot-level] repair service on our Aviator Night Vision Head Up Display system.

As you can see, our performance remains robust and our activity is deepening in many of the countries we operate throughout the world. We are still assimilating our recent acquisitions, and our aim over the coming months and years is to continue the integration and sharing of know-how, sales and R&D resources across of all of our subsidiaries, reaping the benefit through our saving costs and (inaudible) [categories].

While all this does take time, we believe that we will continue to see the fruits of our efforts over the coming quarters and years. And with that, I would like now to open the call for questions and answers, please.

(Operator Instructions) Joseph Wolf, Barclays Capital.

Thanks. I had two questions. The first is on the geographic outlook and split. You expressed some positive tone about Brazil and Southeast Asia, or APAC as you call it. Are any of these countries close to 10% of sales right now? And can we expect anytime soon to see a new country added to your geographic breakdown of sales, maybe even in 2012?

And my second question is related to backlog. I am just wondering if you could relate to the duration of the backlog compared to the past, and give us any color about any assumptions we can or maybe cannot make about industry spending trends and growth rates.

Regarding the geographic outlook, we don't see any one customer in the Asia-Pacific holding more than 10%, the question that you asked. We of course are working with many in these areas, all of them below that number.

Regarding the backlog, the backlog is spread, as we said, for the next five quarters, we mentioned the spread of it, and the rest goes on for 2013 and 2014. Compared to prior years, we do see a slightly longer spreadout of the backlog in time, but nothing really material.

So any trends that we think we may or may not be able to see from the backlog should still be applicable if we are modeling going forward?

Right.

Have you guys seen any very, very quick changes in spending patterns in the fourth quarter, given global economic uncertainty? Or is it kind of business as usual right now from a seasonal perspective?

I don't think that we can point out any material changes. Normal volatility in that business. Nothing that we can mention as something specific that has happened.

Okay, great. Thank you.

(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. Internationally, please call 972-3-925-5901. A replay of the call will also be available at the Company's website, www.ElbitSystems.com.

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

Thank you. I would like to thank all of our employees for their hard work throughout the quarter. 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. This concludes the Elbit Systems Ltd. third-quarter 2011 results conference call. Thank you for your participation. You may go ahead and disconnect.