Elbit Reports Good Second Quarter

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Elbit reported second quarter results today which reflected an increase in revenue of nearly 20% from the second quarter of 2018. Most of the increase reflects the integration of Israel Military Industries  It reported having a backlog of $9.8 billion in orders.

Revenues in the second quarter of 2019 were $1,064.0 million, as compared to $892.2 million in the second quarter of 2018. The strong growth was driven mainly by the consolidation of IMI.

Non-GAAP (*) gross profit amounted to $294.3 million (27.7% of revenues) in the second quarter of 2019, as compared to $254.8 million (28.6% of revenues) in the second quarter of 2018. GAAP gross profit in the second quarter of 2019 was $288.4 million (27.1% of revenues), as compared to $250.0 million (28.0% of revenues) in the second quarter of 2018.

Research and development expenses, net were $77.3 million (7.3% of revenues) in the second quarter of 2019, as compared to $76.6 million (8.6% of revenues) in the second quarter of 2018.

Marketing and selling expenses, net were $73.6 million (6.9% of revenues) in the second quarter of 2019, as compared to $69.9 million (7.8% of revenues) in the second quarter of 2018.

General and administrative expenses, net were $57.2 million (5.4% of revenues) in the second quarter of 2019, as compared to $37.0 million (4.2% of revenues) in the second quarter of 2018.

Other operating income, net  in the second quarter of 2018 was $45.4 million. This was the result of net gains related to valuation of shares in two of our Israeli subsidiaries in the commercial cyber and medical instrument areas, due to third party investments.

Non-GAAP(*) operating income was $89.6 million (8.4% of revenues) in the second quarter of  2019, as compared to $73.1 million (8.2% of revenues) in the second quarter of  2018.  GAAP operating income in the second quarter of  2019 was $80.3 million (7.5% of revenues), as compared to $111.8 million (12.5% of revenues) in the second quarter of 2018.

Financial expenses, net were $20.3 million in the second quarter of 2019, as compared to $10.7 million in the second quarter of 2018. Financial expenses, net in the second quarter of 2019 include exchange rate differences of approximately $5.2 million related to the recognition of lease liabilities denominated in foreign currencies (mainly in New Israeli Shekels) as a result of the adoption of ASC 842, Leases, effective January 1, 2019.

Other income, net was $1.6 million in the second quarter of 2019,  as compared to other expenses, net of $5.1 million in the second quarter of  2018, mainly due to the non-service cost components of pension plans, in accordance with ASU 2017-07 and adjustments to the fair value of our investments in Israeli subsidiaries.

Taxes on income were $10.8 million (effective tax rate of 17.6%) in the second quarter of 2019, as compared to $7.3 million (effective tax rate of 7.6%) in the second quarter of 2018. The effective tax rate is affected by the mix of the tax rates in the various jurisdictions in which the Company’s entities generate taxable income and other income and expenses that  are not a part of the taxable income.

Equity in net earnings of affiliated companies and partnerships was $3.5 million (0.3% of revenues) in the second quarter of 2019, as compared to $3.3 million (0.4% of revenues) in the second quarter of 2018.

Net income attributable to non-controlling interests was $0.4 million in the second quarter of  2019, as compared to $0.1 million in the second quarter of 2018.

Non-GAAP(*) net income attributable to the Company’s shareholders in the second quarter of  2019 was $64.3 million (6.0% of revenues), as compared to $61.0 million (6.8% of revenues) in the second quarter of  2018. GAAP net income attributable to the Company’s shareholders in the second quarter of 2019 was $53.8 million (5.1% of revenues), as compared to $91.9 million (10.3% of revenues) in the second quarter of 2018.

Non-GAAP(*) diluted net earnings per share attributable to the Company’s shareholders were $1.46 for the second quarter of 2019, as compared to $1.43 for the second quarter of 2018. GAAP diluted earnings per share in the second quarter of 2019 were $1.22, as compared to $2.15 for the second quarter of 2018.

The Company’s backlog of orders as of June 30, 2019 totaled $9,796 million, as compared to $8,065 million as of June 30, 2018. Approximately 60% of the current backlog is attributable to orders from outside Israel. Approximately 56% of the current backlog is scheduled to be performed during the second half of 2019 and 2020.

Operating cash flows used in the six months ended June 30, 2019, was $91.5 million, as compared to $1.1 million used in the six months ended June 30, 2018.

Investing cash flows include approximately $344.9 million in proceeds from factoring of the premises evacuation asset related to the IMI acquisition.

Financing cash flows include approximately $184.8 million in proceeds resulting from the issuance of shares to institutional investors.

Bezhalel (Butzi) Machlis, President and CEO of Elbit Systems, commented: “We are pleased with the results of the second quarter, with an ongoing increase in backlog as well as solid revenue growth of over 19%, diversified across all our main regions of business.”

“We are also encouraged that, with the IMI consolidation, our ongoing focus on efficient operations enabled us to maintain a similar level of operating margins to that of the second quarter last year.”

“We continue to integrate and extract synergies from all our recent acquisitions and are looking forward to further growth of our business.”

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