Elbit Systems(ESLT) - 2023 Q2 - Quarterly Report

Second Quarter 2023 Financial Results Financial Highlights Elbit Systems reported strong second-quarter 2023 results with revenues of $1.5 billion and a significant order backlog of $16.1 billion, with GAAP net income at $62.4 million and Non-GAAP net income at $70.2 million Key Financial Metrics | Metric | Value | | :--- | :--- | | Order Backlog | $16.1 billion | | Revenues | $1.5 billion | | GAAP Net Income | $62.4 million | | Non-GAAP Net Income | $70.2 million | | GAAP Diluted EPS | $1.40 | | Non-GAAP Diluted EPS | $1.57 | Management Commentary The CEO highlighted double-digit revenue growth from backlog conversion and sustained demand, noting improved operating profitability from operational programs despite higher interest rates impacting financial expenses, maintaining a positive long-term outlook - Double-digit revenue growth was driven by the conversion of the order backlog, increased capacity, and sustained customer demand[4] - Operational improvement programs have started to increase operating profitability, aided by easing supply chain and labor market pressures[5] - Increased financial expenses in the first half of the year were primarily a result of rising interest rates[5] - The company's portfolio of technological solutions, global presence, and innovative culture are expected to support a positive long-term outlook[6] Consolidated Financial Performance The company reported $1.45 billion in Q2 2023 revenues, an 11.5% increase, driven by Aerospace and ISTAR & EW segments, with net income impacted by higher financial expenses despite a robust $16.1 billion order backlog and negative operating cash flow Revenues Total revenues for Q2 2023 increased by 11.5% to $1,453.9 million, primarily driven by strong growth in the Aerospace and ISTAR & EW segments, alongside a 7% increase in Elbit Systems of America Revenue by Segment (Q2) | Segment | Q2 2023 Revenue (M) | Q2 2022 Revenue (M) | YoY Growth | | :--- | :--- | :--- | :--- | | Aerospace | $487.0 | $408.9 | 19% | | ISTAR and EW | $292.7 | $241.5 | 21% | | Elbit Systems of America | $355.3 | $330.6 | 7% | | Land | $294.1 | $284.9 | 3% | | C4I and Cyber | $168.7 | $167.3 | 1% | Profitability Analysis Q2 2023 saw GAAP gross profit at $372.2 million and operating income at $101.6 million, with net income significantly impacted by a sharp rise in financial expenses due to higher interest rates Profitability Metrics (Q2 2023) | Metric (Q2 2023) | GAAP | Non-GAAP | | :--- | :--- | :--- | | Gross Profit | $372.2M (25.6%) | $378.8M (26.1%) | | Operating Income | $101.6M (7.0%) | $112.2M (7.7%) | | Net Income | $62.4M (4.3%) | $70.2M (4.8%) | | Diluted EPS | $1.40 | $1.57 | - Net financial expenses increased to $32.1 million in Q2 2023 from $9.3 million in Q2 2022, primarily due to a significant increase in interest rates[12] - The year-over-year comparison for GAAP net income is affected by capital gains from asset sales that were included in the Q2 2022 results[14] Order Backlog and Cash Flow The order backlog reached $16.1 billion as of June 30, 2023, with 75% from international customers, while operating cash flow for H1 2023 was negative $210.7 million due to increased working capital - The order backlog as of June 30, 2023, totaled $16.1 billion. 75% of this is from international customers, and 49% is scheduled for performance through 2024[15] - Cash flows used in operating activities for the first half of 2023 were $210.7 million, primarily affected by an increase in inventories and trade receivables[16] GAAP to Non-GAAP Reconciliation Elbit Systems provides non-GAAP financial data to offer a clearer view of core business performance by excluding non-recurring items and amortization of intangible assets, adjusting Q2 2023 GAAP net income of $62.4 million to a Non-GAAP net income of $70.2 million - The company uses non-GAAP measures to provide a clearer view of underlying financial performance by excluding items such as amortization of acquired intangible assets, capital gains, and other non-recurring or non-cash expenses[17][18] GAAP to Non-GAAP Net Income Reconciliation (Q2 2023) | Reconciliation Item (Q2 2023, in millions) | Amount | | :--- | :--- | | GAAP net income attributable to shareholders | $62.4 | | Amortization of purchased intangible assets | $10.6 | | Non-operating foreign exchange (gains) | ($1.4) | | Tax effect and other tax items, net | ($1.4) | | Non-GAAP net income attributable to shareholders | $70.2 | Recent Developments and Corporate Actions Elbit Systems secured significant contracts, including a $180 million order for Watchkeeper X UAS and a $150 million contract for PULS rocket launchers, while also announcing board changes and a quarterly dividend Recent Events & Contract Awards The company announced several significant contract awards, reinforcing its strong order pipeline with key wins including $180 million for Watchkeeper X UAS and $150 million for PULS rocket launchers - Received a $180 million purchase order from Romania for three Watchkeeper X tactical Unmanned Aerial Systems (UAS)[27] - Awarded a $114 million contract to supply two long-range patrol aircraft to an Asian-Pacific country[28] - Secured a $150 million contract to supply PULS™ rocket launchers and long-range rockets to an international customer[29] - Awarded a $60 million contract to supply thousands of 155mm artillery shells to the Israel Defense Forces[30] Dividend Declaration The Board of Directors declared a dividend of $0.50 per share, payable on October 23, 2023, with a record date of October 10, 2023 Dividend Information | Dividend Information | Details | | :--- | :--- | | Dividend per Share | $0.50 | | Record Date | October 10, 2023 | | Payment Date | October 23, 2023 | Financial Statements This section presents the detailed unaudited consolidated financial statements as of June 30, 2023, including Balance Sheets, Statements of Income, and Cash Flow, alongside revenue breakdowns by geography and business segment Consolidated Balance Sheets As of June 30, 2023, total assets increased to $9.56 billion driven by inventories and receivables, while total liabilities rose to $6.77 billion due to increased short-term bank credit, with equity remaining stable Consolidated Balance Sheet Summary | Balance Sheet Item (in billions) | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $5.42 | $5.03 | | Total Assets | $9.56 | $9.22 | | Total Current Liabilities | $4.91 | $4.28 | | Total Liabilities | $6.77 | $6.46 | | Total Equity | $2.79 | $2.76 | Consolidated Statements of Income For Q2 2023, revenues reached $1.45 billion with net income of $62.4 million, a decrease from Q2 2022 primarily due to higher financial expenses and the absence of prior-year operating income Consolidated Income Statement (Q2) | Income Statement (Q2, in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Revenues | $1,453.9 | $1,303.4 | | Gross Profit | $372.2 | $339.7 | | Operating Income | $101.6 | $115.1 | | Net Income | $62.4 | $80.8 | | Diluted EPS | $1.40 | $1.82 | Consolidated Statements of Cash Flow For H1 2023, net cash used in operating activities increased to $210.7 million, with net cash provided by financing activities at $244.9 million, resulting in a net decrease in cash of $99.4 million Consolidated Cash Flow Statement (H1) | Cash Flow (H1, in millions) | 2023 | 2022 | | :--- | :--- | | Net Cash from Operating Activities | ($210.7) | ($133.5) | | Net Cash from Investing Activities | ($133.6) | ($7.5) | | Net Cash from Financing Activities | $244.9 | $129.3 | | Net Decrease in Cash | ($99.4) | ($11.7) | Revenue Distribution In Q2 2023, Europe became the largest market at 31.9% of total revenues, while Aerospace was the top segment contributor to external revenues at $421.9 million Revenue by Geography (Q2 2023) | Revenue by Geography (Q2 2023) | % of Total | | :--- | :--- | | Europe | 31.9% | | North America | 23.2% | | Asia-Pacific | 21.7% | | Israel | 16.8% | | Other | 6.4% | Revenue by Segment (Q2 2023, External) | Revenue by Segment (Q2 2023, External) | Revenue (M) | | :--- | :--- | | Aerospace | $421.9 | | ESA | $355.3 | | Land | $276.2 | | ISTAR and EW | $243.4 | | C4I and Cyber | $157.1 |