Elbit Systems(ESLT) - 2024 Q1 - Quarterly Report

Q1 2024 Financial Highlights Elbit Systems reported strong first-quarter 2024 results, with revenues reaching $1.6 billion and a record order backlog of $20.4 billion Executive Summary and Management Commentary Elbit Systems reported strong first-quarter 2024 results, with revenues reaching $1.6 billion and a record order backlog of $20.4 billion. Management highlighted that the growing backlog reflects the global increase in defense budgets and the relevance of the company's technology portfolio, reinforcing its long-term growth strategy Q1 2024 Key Financial Metrics | Metric | Value | | :--- | :--- | | Order Backlog | $20.4 billion | | Revenues | $1.6 billion | | GAAP Net Income | $74 million | | Non-GAAP Net Income | $81 million | | GAAP Net EPS | $1.65 | | Non-GAAP Net EPS | $1.81 | - The President and CEO, Bezhalel (Butzi) Machlis, stated that the significant increase in the order backlog to over $20 billion highlights the relevance of Elbit's solutions amid rising global defense budgets, which positively impacts the company's revenues and growth[5] Q1 2024 Financial Performance Analysis This section analyzes Elbit Systems' Q1 2024 financial performance, covering revenues, profitability, operating expenses, order backlog, and cash flow Revenues Revenues for Q1 2024 increased to $1,554.0 million from $1,393.5 million in Q1 2023, primarily driven by strong performance in the Land, ISTAR & EW, and C4I & Cyber segments, largely due to increased sales in Israel Revenue Comparison (Q1 2024 vs Q1 2023) | Period | Revenue (in millions) | | :--- | :--- | | Q1 2024 | $1,554.0 | | Q1 2023 | $1,393.5 | - Year-over-year revenue growth by segment was driven by: - Land: Increased by 26% due to higher ammunition and munition sales in Israel - ISTAR and EW: Increased by 17% due to Electronic Warfare and Electro-Optic systems sales in Israel - C4I and Cyber: Increased by 12% mainly from radio systems sales in Israel - Aerospace & Elbit Systems of America: Revenues were similar to Q1 2023[7] Profitability and Earnings In Q1 2024, GAAP gross margin was 24.1% and Non-GAAP gross margin was 24.7%, with GAAP operating income rising to $105.4 million (6.8% margin) and Non-GAAP operating income reaching $121.6 million (7.8% margin) Gross Profit (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | GAAP Gross Profit | $374.1M (24.1%) | $361.5M (25.9%) | | Non-GAAP Gross Profit | $383.4M (24.7%) | $369.0M (26.5%) | Operating Income (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | GAAP Operating Income | $105.4M (6.8%) | $93.9M (6.7%) | | Non-GAAP Operating Income | $121.6M (7.8%) | $108.5M (7.8%) | Net Income and EPS (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | GAAP Net Income | $73.7M (4.7%) | $62.1M (4.5%) | | Non-GAAP Net Income | $80.7M (5.2%) | $79.0M (5.7%) | | GAAP Diluted EPS | $1.65 | $1.40 | | Non-GAAP Diluted EPS | $1.81 | $1.78 | Operating Expenses Operating expenses were managed effectively in Q1 2024, with research and development expenses decreasing as a percentage of revenue to 6.3% from 7.9% in Q1 2023, while marketing & selling and general & administrative expenses remained relatively stable Operating Expenses Analysis (Q1 2024 vs Q1 2023) | Expense Category | Q1 2024 (Value) | Q1 2024 (% of Revenue) | Q1 2023 (Value) | Q1 2023 (% of Revenue) | | :--- | :--- | :--- | :--- | :--- | | Research & Development, net | $98.5M | 6.3% | $110.3M | 7.9% | | Marketing & Selling, net | $89.1M | 5.7% | $80.2M | 5.8% | | General & Administrative, net | $81.2M | 5.2% | $77.1M | 5.5% | Order Backlog and Cash Flow The company's order backlog reached a record $20.4 billion as of March 31, 2024, with 71% from international customers, and cash flow from operating activities showed significant improvement, with a cash usage of only $6.4 million compared to $73.0 million in Q1 2023 - The order backlog totaled $20.4 billion, with approximately 71% from customers outside Israel. About 51% of this backlog is scheduled to be performed during the remainder of 2024 and 2025[14] - Cash flow used in operating activities was $6.4 million for the three months ended March 31, 2024, a substantial improvement compared to the $73.0 million used in the same period in 2023[15] Impact of the "Swords of Iron" War The "Swords of Iron" war has led to increased demand for Elbit Systems' products from the Israel Ministry of Defense, while the company has implemented mitigation measures to address operational disruptions War Impact on Demand and Operations The "Swords of Iron" war has led to a material increase in demand for Elbit Systems' products from the Israel Ministry of Defense (IMOD), while the company has faced some disruptions from supply chain constraints and employee mobilization, implementing proactive measures to mitigate these impacts - Since the war began on October 7, 2023, Elbit has seen a material increased demand for its products and solutions from the Israel Ministry of Defense (IMOD), which could lead to significant additional orders[18][19] - Operational disruptions have included supply chain constraints, relocation of some production lines, and employee mobilization for reserve duty, which decreased to approximately 6% of employees by May 19, 2024[20] - Mitigation steps taken by the company include relocating production lines, recruiting more employees, increasing supply chain monitoring, and building up inventories to ensure business continuity[21] Non-GAAP Financial Measures Elbit Systems presents non-GAAP financial data to provide investors with a clearer view of its core business performance and trends, excluding specific items to facilitate more meaningful period-over-period comparisons Explanation of Non-GAAP Measures Elbit Systems presents non-GAAP financial data, such as Adjusted Gross Profit and Adjusted Net Income, to provide investors with a clearer view of its core business performance and trends, excluding specific items like amortization of acquired intangible assets, restructuring costs, uncompensated war-related costs, and non-cash stock-based compensation to facilitate more meaningful period-over-period comparisons - The company provides non-GAAP financial data to give investors additional information on business performance and trends, facilitating more meaningful comparisons over time[24] - Non-GAAP adjustments exclude items such as: amortization of purchased intangible assets, capital gains, restructuring costs, uncompensated costs related to the "Swords of Iron" war, stock-based compensation, and non-operating foreign exchange gains/losses[24] GAAP to Non-GAAP Reconciliation This section provides a detailed reconciliation of GAAP to Non-GAAP financial figures for Q1 2024, showing key adjustments to GAAP operating income of $105.4 million, resulting in a Non-GAAP operating income of $121.6 million Q1 2024 GAAP to Non-GAAP Reconciliation Summary (in millions) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Gross Profit | $374.1 | $9.3 | $383.4 | | Operating Income | $105.4 | $16.2 | $121.6 | | Net Income | $73.7 | $7.0 | $80.7 | | Diluted EPS | $1.65 | $0.16 | $1.81 | Corporate Developments This section outlines Elbit Systems' recent corporate developments, including significant contract awards totaling over $1.1 billion and the declaration of a dividend Recent Contract Awards During April and May 2024, Elbit Systems secured several significant contracts totaling over $1.1 billion, including a $760 million contract for ammunition supply to the IMOD, a $260 million contract with an international customer, and contracts for its "Red Sky" air defense system, Iron Fist Active Protection Systems for the U.S. Army, and Crossbow mortar systems for a European customer - Key contracts announced in April-May 2024 include: - $760 million: Supply of ammunition to the Israel Ministry of Defense (IMOD)[34] - $260 million: Supply of unspecified systems to an international customer[35] - $53 million: Crossbow Unmanned Turreted 120mm Mortar Systems for a European customer[36] - $50 million: "Red Sky"™ air defense system for an international customer[37] - $37 million: Iron Fist Active Protection Systems (APS) for the U.S. Army's Bradley IFVs[38] Dividend Declaration The Board of Directors has declared a dividend of $0.50 per share, payable on July 1, 2024, to shareholders of record as of June 18, 2024 - A dividend of $0.50 per share was declared by the Board of Directors[41] - The dividend record date is June 18, 2024, and the payment date is July 1, 2024[41] Financial Statements This section provides an overview of Elbit Systems' consolidated financial statements, including balance sheets, income statements, cash flow statements, and revenue distribution by region and segment Consolidated Balance Sheets As of March 31, 2024, Elbit Systems' total assets stood at $10.26 billion, up from $9.74 billion at year-end 2023, driven by higher inventories and receivables, while total liabilities increased to $7.25 billion, primarily due to a rise in contract liabilities and trade payables Key Balance Sheet Items (in thousands of US Dollars) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $5,916,011 | $5,508,080 | | Total assets | $10,257,507 | $9,739,582 | | Total current liabilities | $5,084,562 | $4,823,846 | | Total liabilities | $7,246,412 | $6,789,291 | | Total equity | $3,011,095 | $2,950,291 | Consolidated Statements of Income The consolidated income statement for Q1 2024 shows revenues of $1.55 billion, leading to a gross profit of $374.1 million, with net income attributable to shareholders of $73.7 million, or $1.65 per diluted share, after accounting for operating and financial expenses Income Statement Summary (in thousands of US Dollars) | Account | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Revenues | $1,553,951 | $1,393,488 | | Gross profit | $374,149 | $361,516 | | Operating income | $105,364 | $93,898 | | Net income attributable to shareholders | $73,673 | $62,069 | | Diluted net earnings per share | $1.65 | $1.40 | Consolidated Statements of Cash Flow For the first three months of 2024, net cash used in operating activities was $6.4 million, a significant improvement from the $73.0 million used in the prior-year period, resulting in a net decrease in cash and cash equivalents of $89.1 million after investing and financing activities Cash Flow Summary (in thousands of US Dollars) | Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(6,387) | $(73,025) | | Net cash used in investing activities | $(95,316) | $(38,623) | | Net cash provided by financing activities | $12,566 | $52,013 | | Net decrease in cash and cash equivalents | $(89,137) | $(59,635) | Revenue Distribution In Q1 2024, revenue from Israel saw a substantial increase, accounting for 29.1% of total revenue compared to 18.3% in Q1 2023, while the Land segment experienced the most significant revenue growth among all segments Revenue by Geographical Region Revenue from Israel grew significantly to $452.1 million (29.1% of total) in Q1 2024 from $255.4 million (18.3% of total) in Q1 2023, with Europe, North America, and Asia-Pacific remaining major markets Q1 2024 Revenue by Geographical Region (in millions of US Dollars) | Region | Q1 2024 Revenue | Q1 2024 % | Q1 2023 Revenue | Q1 2023 % | | :--- | :--- | :--- | :--- | :--- | | Israel | $452.1 | 29.1% | $255.4 | 18.3% | | North America | $327.2 | 21.1% | $352.3 | 25.3% | | Europe | $384.9 | 24.8% | $368.7 | 26.5% | | Asia-Pacific | $307.1 | 19.8% | $338.6 | 24.3% | | Latin America | $34.2 | 2.2% | $30.2 | 2.2% | | Other countries | $48.5 | 3.0% | $48.3 | 3.4% | Revenue by Segment In Q1 2024, the Land segment was the largest contributor to external revenues with $360.7 million, a significant increase from $278.6 million in Q1 2023, while Aerospace contributed $367.6 million and ESA revenues remained stable Q1 External Revenues by Segment (in millions of US Dollars) | Segment | Q1 2024 | Q1 2023 | | :--- | :--- | | Aerospace | $367.6 | $362.2 | | C4I and Cyber | $184.5 | $161.9 | | ISTAR and EW | $297.2 | $249.2 | | Land | $360.7 | $278.6 | | ESA | $344.0 | $341.6 |