Elbit Systems Ltd (ESLT) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Elbit Systems Ltd. fourth-quarter and full-year 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 March 14, 2012.

I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to all contents 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 the call over to Mr. Ehud Helft of CCG Investor Relations. Ehud, please go ahead.

Thank you and good day, 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. Josef Ackerman, Elbit Systems' President and CEO, and Mr. Yossi Gaspar, Elbit Systems' Chief Financial Officer.

Joseph will begin by providing a discussion of the financial results of the quarter and the year, 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'd like to point out that the Safe Harbor statement in the Company's press release issued earlier today also refers to the contents of this conference. With that I would like now to turn over the call to Yossi. Yossi, go ahead, 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. Our non-GAAP fourth-quarter 2011 results excludes the impact of the cessation of the program with a foreign customer which resulted in extraordinary write-off of inventories as well as other costs caused by the cessation. You will find all the detailed GAAP and financial data as well as the non-GAAP information in today's press release.

Our results of the fourth quarter mark another improvement in revenues, though with pressure on margins, even if we exclude the effects of our results of one-time project cessation expenses. While 2011 was an improvement in the top line over at the 2010 results, we do face some challenges as we move into 2012. We continue to address these through careful cost control as well as continuous streaming of operations, taking advantage of synergies between our acquisitions and the rest of the Group.

I will now highlight and discuss some of the key figures and trends. Our fourth-quarter 2011 revenues were $841.9 million, growing 5.4% year-over-year. For 2011 as a whole we reported revenues of $2.817 billion, a 5.5% year-over-year increase. In terms of revenue breakdown across our areas of operations in the quarter, Airborne Systems was 33%, Land Vehicle Systems 14%, C4ISR 35%, Electro-Optics was 12% and the rest was 6%.

On a geographic basis, the United States remained our largest region at 28% of our revenues, Europe is 23%, Israel was 22% and the rest of the world was 27%. 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, revenue breakdown in 2011 on a geographic basis was similar to that of 2010.

In terms of areas of operations compared with last year, we did see a higher portion of revenues coming from Airborne Systems and a lower portion for C4I and Electro-Optics.

For the fourth quarter on a GAAP basis our gross margin was 16.8% compared to 29% as reported in the fourth quarter of last year. The non-GAAP gross margin was 26.4% compared with 31.9% in the fourth quarter of 2010.

We reported a few weeks ago with regard to the cessation of a program with a foreign customer which was required by the Israeli Minister of Defense. Due to this we had a $72.8 million cost of goods sold expense, which is included in our GAAP gross profit. We are currently in discussions with the Israeli Minister of Defense regarding arrangements with respect to claims for damages as a result of the cessation of the program.

On a non-GAAP basis we also experienced lower than average gross margin than we have seen in recent quarters due to unfavorable project mix in the quarters. We did see and we do expect to continue to see greater focus on competitive pricing in some of our markets due to pressure on defense budgets particularly in the Western European market.

At the same time, our ongoing cost cutting and efficiency measures should enable us to realize improvements in our gross and operating margins from the current first-quarter levels as we look ahead in the 2012 year. Full year 2011 GAAP gross margin was 26% compared to 29.9% last year. Our full-year gross margin on a non-GAAP basis was 29.7% in 2011 compared to 31.3% reported last year.

Operating loss in the fourth quarter was $34.1 million, this is compared with an operating income of $56.7 million or 7.1% margin in the fourth quarter of last year. For the full year, our operating income was $115.7 million, a margin of 4.1% compared to $207.4 million or a margin of 7.8% last year.

On a non-GAAP basis, operating income was $245.8 million, representing an 8.7% margin compared with non-GAAP operating income of $268 million or a 10% margin last year. For the fourth quarter, non-GAAP operating income was $53.1 million for 6.3% revenues compared with $89 million or 11.1% last year.

In terms of operating expense breakdown during the fourth quarter, our net R&D expenses for the quarter were 9% of our revenues compared to 8.6% last year. For the full year, our net R&D expenses were 8.6% of revenues compared with 8.8% of revenues in 2010.

Marketing and selling expenses were 7.7% of revenues in the quarter compared to 8.2% in the fourth quarter last year. For the full year, our marketing and sales expenses were 8.4% of revenues compared to 8.6% of revenues in 2010.

Our G&A expenses in fourth quarter were 4.1% of revenues compared with 5.1% of revenues in the fourth quarter last year. G&A expenses for the full year were 4.9% of revenues compared to the same level in 2010.

Financial income in the fourth quarter of 2011 was $9.6 million compared with a financial expense of $11.6 million in the fourth quarter of last year. Financial income in the current quarter benefited from the currency hedging activities and income related to the settlement of ImageSat debt.

For 2011, our financial expenses for the full year were $13.6 million compared to $21.3 million in 2010. The lower level in 2011 was primarily due to currency hedging activities and, as I mentioned before, a settlement of ImageSat debt.

In 2010 we had another income of $13.3 million, of which $12.8 million was related to a gain from selling of MediGuide shares. We did not have any material other income in 2011.

Consolidated net loss for the fourth quarter was $13 million. This is compared with net income of $49 million or a net margin of 6.1% in the fourth quarter of 2010. Loss per share for the fourth quarter was $0.31 as compared to diluted net earnings of $1.4 for the fourth quarter in 2010.

For the full year, consolidated net income was $90.3 million, a net margin of 3.2%, compared with $183.5 million or a net margin of 6.9% in 2010. Diluted earnings per share in 2011 were $2.09 compared with $4.25 in 2010. On a non-GAAP basis, our net income in 2011 was $206.5 million or 7.3% of revenues versus $221.9 million or 8.3% of revenues last year. Non-GAAP diluted net earnings per share in the year of 2011 were $4.79 as compared to $5.13 in 2010.

Our backlog of orders at year-end was over $5.53 billion, slightly higher than the backlog at the end of 2010, which stood at $5.45 billion. It should be noted that the backlog of orders was reduced in the fourth quarter of 2011 compared with the prior quarter of 2011, also as a result of the cessation of the program I mentioned earlier. Approximately 72% of the current backlog is scheduled to be performed during 2012 and 2013.

Operating cash flow for the year ended in December 31, 2011 was $190.9 million as compared to $186 million in the year ended in December 31, 2010. The improvement was primarily during the fourth quarter as a result of payments received from the Israeli Minister of Defense which were overdue.

Finally, the Board of Directors declared a dividend of $0.30 per share for the fourth quarter of 2011. That ends my summary and I shall now turn over the call to Mr. Ackerman.

Thank you, Yossi. Our overall performance in 2011 delivered a growing top line as well as a general improvement in backlog throughout the year. While our backlog did drop in the fourth quarter from the previous one, the [general] trend remains that of a long-term increase in the backlog for the last 10 years as well as revenues.

Looking ahead into 2012, we do see some challenges ahead, mainly in some of the developed markets in which we operate. However, as you know, and as I have stressed many times in the past, Elbit Systems has a diverse geographic spread. Besides a strong presence in the US, Europe and Israel, we also have growing presence in many key emerging market regions including Latin America and Asia. In the fourth quarter, more than a quarter of our revenues came from these growing markets.

I would like now to highlight some of the wins in the fourth quarter. We won an important $15 million project with an Asian government for our wide intelligent technology system. The new award follows other highly advanced data management systems that we have developed and deployed in Israel and several other countries.

In Brazil, we won a $25 million contract to provide three additional systems for their new KC 390 military transport and fuel jet. These are a self protection suit, a directional infrared countermeasure system and a pilot orientation Head-Up Display.

This selection is in addition to the earlier selection of our subsidiary, AEL, as the provider of the mission computer for the Lear Jet. Brazil remains a market with significant potential for Elbit Systems and I am very happy with how our Brazilian subsidiary has progressed over the past years.

Also in the Americas we were recently awarded a $50 million project to supply our Hermes 900 unmanned aircraft system for perimeter security missions. This is again a significant order in a growing region with strong potential for additional orders to come in the future.

In the United States, during the quarter, our subsidiary was awarded a $23 million maintenance contract with the U.S. Army Communication and Training Command for vehicle level repair services to our Head-Up Display system. We were also awarded a $38 million contract by a defense logistics agency for the manufacture of reliability and maintainability electronic module assembly for the US Air Force F-16 Head-Up Displays.

These contracts are a demonstration of our continued strong relationship with the US market, which allows us to win continued and ongoing business. While I do see much potential for fulfilling growth in revenues and backlog, we are working very hard to improve our profitability.

We remain focused on keeping a tight control over our expenses and improving efficiencies across the businesses. As we continue to exploit the synergies across the entire Elbit Systems organization we will be able to better use the combined resources more efficiently, more effectively, and really improve our operating margins over the long term.

At the same time we still see very strong importance in maintaining our investment in our future, mainly throughout R&D and marketing. These investments continue to enable us to develop new technologies as well as find ways to leverage and integrate our diverse range of existing technologies and bring new products and platforms to the market.

While in the short-term the environment is more challenging, overall I do believe that we remain well positioned strategically and operationally and financially over the long term. And with that, I would like now to open the call for questions and answers, please.

(Operator Instructions). Tavy Rosner, Barclays Capital.

Thanks. I have a question on the geographic outlook and split. You emphasized development activity in Latin America and Asia. I was wondering if you could tell us if there is any country in those regions representing about 10% of sales right now. And also, can we expect any time soon any new countries added to your geographic breakdown of sales, maybe in the next coming months? Thank you.

None of the countries as a whole one customer represents more than 10% of our sales in these regions.

Do you expect any of them to become next year?

It's difficult to assess. We do see some of the countries with strongly growing defense budgets and maybe some of them might get close to this level.

All right, thank you.

(Operator Instructions). Simon Morris, Citibank.

Hello, everyone. Just with regards to the operating cash flow, you mentioned that the large increase was from some payments from the Israeli government. But just looking at your working capital, it seems to be that most of it came from a large increase in payables. Is that something we should -- so of your levels of payables, is that going to stay this way going forwards or can you explain this number, please?

I think the quarterly fluctuations of payables have no specific long-term meaning. I think we have to look at the longer-term evaluation of these numbers. In general you can see that we generate somewhere in the $200 million operating cash flow on a yearly basis and the quarterly numbers shouldn't be taken as any representative figures for the long-term trends.

Okay, but after the disappointment in the cash flow in Q2 and Q3 we can assume that is to become more normalized now going forward?

That's what we expect.

Okay, great. Okay, thank you very much.

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 1-888-782-4291. In Israel please call 03-925-5904, and internationally please call 972-3-925-5904. 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 statements?

Yes, thank you. I would like very much to thank all of our employees for their hard work throughout the year that has brought Elbit Systems the success we enjoy today. To everyone on the call, thank you very much for joining us today and for your continued support and interest in our Company. Have a good day and good-bye.

Thank you. This concludes the Elbit Systems Ltd. fourth-quarter and full-year 2011 results conference call. Thank you for your participation. You may go ahead and disconnect.