Elbit Systems(ESLT) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Elbit Systems reported Q1 2020 revenues of $1.071 billion, a 5% increase year-over-year [13] - Non-GAAP gross margin was 27.6%, similar to 27.7% in Q1 2019, while GAAP gross margin was 27% compared to 27.2% last year [15] - Non-GAAP operating income was $90.4 million (8.4% of revenues) compared to $84 million (8.2% of revenues) last year [15] - GAAP operating income increased to $80 million from $76 million in the previous year [15] - Non-GAAP diluted earnings per share was $1.63, up from $1.54 in Q1 2019, while GAAP EPS rose to $1.44 from $1.18 [20] Business Line Data and Key Metrics Changes - Airborne system sales accounted for 36% of total sales, increasing due to growth in military aircraft systems to U.S. customers [13] - Electro-optics represented 11% of total sales, also increasing mainly due to the acquisition of the Night Vision operation [13] Market Data and Key Metrics Changes - North America contributed 34% of revenues, followed by Israel at 23%, Asia Pacific at 20%, and Europe at 17% [14] - Growth in North America offset declines in Israel, Europe, and Asia Pacific, primarily driven by airborne system sales and the Night Vision acquisition [14] Company Strategy and Development Direction - The company is focused on maintaining business continuity and protecting employee safety amid the COVID-19 pandemic [5][26] - Elbit Systems has implemented cost control measures and increased cash management to mitigate financial impacts [8][30] - The company aims to leverage its technological advancements and diverse geographical client base to enhance its market position [30] Management's Comments on Operating Environment and Future Outlook - Management noted that the financial impact of COVID-19 has not been material so far, but some disruptions are expected [6][9] - The backlog of orders as of March 31, 2020, was $10.8 billion, indicating strong visibility and long-term revenue potential [11][21] - Management expressed optimism about returning to pre-pandemic operational levels and highlighted ongoing demand for high-technology solutions [35] Other Important Information - The board declared a reduced dividend of $0.35 per share for Q1 2020 as part of efforts to address the pandemic's impact [24] - The company has a healthy balance sheet with adequate cash levels and access to credit facilities [8][23] Q&A Session Summary Question: Impact on cash flow in Q1 - Management acknowledged that cash flow was impacted by increased inventory and payments to suppliers, resulting in a $10 million outflow [40][41] Question: Cost savings measures - Management implemented temporary salary reductions for executives and reduced overhead expenses, focusing on critical activities [43][44] Question: Organic sales growth expectations - Management indicated it is too early to predict organic sales growth due to the ongoing COVID-19 situation [48] Question: Supplier payments and receivables - Management clarified that they paid approximately $100 million to suppliers and increased inventory by $80 million to ensure timely deliveries [51][52] Question: Defense budgets and market strength - Management noted stability in defense budgets across various regions, with additional investments in the U.S. [54][56] Question: C4ISR market outlook - Management expressed confidence in the C4ISR market, citing potential contracts in Switzerland and the Netherlands [57] Question: Exposure to commercial aerospace - Management reported limited impact from the commercial aerospace sector, with a couple of hundred million dollars in business and no significant negative effects [60][62] Question: Cyberbit transaction impact - Management confirmed that the Cyberbit transaction would not materially change revenue reporting, as only defense cyber revenue is consolidated [63]