Elbit Systems(US:ESLT)2020-11-24 18:33Financial Data and Key Metrics Changes - The third quarter 2020 revenues were $1,134 million, with a non-GAAP gross margin of 26.7%, up from 26.3% in the same quarter last year [13][16] - GAAP gross margin was 20.9%, down from 26% in the third quarter of last year due to non-cash expenses related to inventory write-offs and asset impairment [16] - Non-GAAP operating income was $93 million, or 8.2% of revenues, compared to $81 million, or 7.3% of revenues in the third quarter of last year [17] - GAAP operating income was $24 million, down from $102 million in the same quarter last year [18] - Non-GAAP diluted EPS was $1.64 compared to $1.33 in the third quarter last year, while GAAP EPS was $0.38 versus $1.63 last year [21] Business Line Data and Key Metrics Changes - Land system sales accounted for 29% of total sales and increased year-over-year, mainly due to precision guided munitions sales to North America and Asia Pacific [13] - Electro-optics accounted for 10% of total sales and increased year-over-year, primarily due to the acquisition of Elbit Night Vision [14] - C4ISR, which accounted for 25% of sales, declined year-over-year due to lower radio sales to Latin America [14] Market Data and Key Metrics Changes - North America was the largest geographic area, accounting for 13% of total revenues, followed by Israel at 25%, Asia Pacific at 22%, Europe at 19%, and Latin America at 2% [15] - Growth in Israel was driven by tank fire control systems, while the decline in Latin America was attributed to lower C4ISR sales [15] Company Strategy and Development Direction - The company plans to reorganize some business activities to leverage synergies across manned and unmanned military aircraft and integrate electro-optical systems with electronic warfare and signal intelligence businesses [28] - The company expects defense budgets to grow due to geopolitical tensions and countries' needs to stimulate growth and support domestic employment [25][26] - The company is focused on integrating artificial intelligence and data analysis into command and control solutions, which is expected to be a significant growth driver [36] Management's Comments on Operating Environment and Future Outlook - Management noted that there has been no change in demand for products and services from customers globally, and the backlog growth indicates sustained demand [24] - The company has not seen indications of defense budget cuts in most countries, and geopolitical tensions are expected to continue driving defense budget growth [25] - Management expressed optimism about the potential synergies from the acquisition of Elbit Night Vision and the integration of various business units [31] Other Important Information - The order backlog as of September 30, 2020, was $10.9 billion, more than $1 billion higher than the backlog at the end of the third quarter of 2019 [11][22] - Operating cash flow for the quarter was negative $62 million, reflecting working capital outflow due to the timing of invoicing and collections [23] Q&A Session Summary Question: Can you discuss free cash flow and working capital balance? - Management indicated challenges with the Ministry of Defense in Israel regarding budget discussions, which delayed payments [43][44] Question: What are the organic growth trends, particularly in land systems? - Management noted improvements in land systems due to integration with IMI and increased sales to the Ministry of Defense [48] Question: Can you provide details on commercial aerospace exposure? - Management stated that non-defense business is less than 10%, with commercial aviation being a small part, and expects recovery in traffic levels by 2023-2024 [53][54] Question: What is the primary driver of the reorganization? - The reorganization aims to generate synergies and enhance revenue, aligning business development activities [58] Question: What is the financial potential of partnerships with BAE? - Management highlighted a joint proposal for a tender to replace the Bradley fleet in the U.S. market, indicating significant potential [65]