ELBIT SYSTEMS REPORTS FOURTH QUARTER AND FULL YEAR 2019 RESULTS
Backlog of orders at $10.0 billion; Revenues of $4.51 billion; Non-GAAP net income of $297.8 million; GAAP net income of $227.9 million;
Non-GAAP net EPS of $6.79; GAAP net EPS of $5.20
Haifa, Israel, March 25, 2020 – Elbit Systems Ltd. (the “Company”) (NASDAQ and TASE: ESLT), the international high technology company, reported today its consolidated results for the fourth quarter and full year ended December 31, 2019.
In this release, the Company is providing US-GAAP results as well as additional non-GAAP financial data, which are intended to provide investors a more comprehensive understanding of the Company’s business results and trends. For a description of the Company’s non-GAAP definitions see page 6 below, “Non-GAAP financial data”. Unless otherwise stated, all financial data presented is US-GAAP financial data.
Management Comment:
Bezhalel (Butzi) Machlis, President and CEO of Elbit Systems, commented:
“We are pleased with the solid revenue growth across all our major end-markets in 2019 and a record backlog that grew by 7% to over $10 billion for the first time.
To date we have not experienced a material impact on our ongoing business from the Covid-19 pandemic. However, we continue to monitor the situation, including its macro-economic impacts, and have initiated a series of measures to protect our employees while maintaining our ongoing commitments to our customers.
Looking forward into 2020 and beyond, Elbit Systems is a strong and stable business, with a healthy balance sheet and a broad long-term backlog that should support our globally diversified sales.”
Acquisition of Elbit Night Vision
On September 2019, we completed the acquisition of the night vision business of L3Harris Technologies (the Night Vision Business) for a purchase price of approximately $350 million. Located in Roanoke, Virginia, the Night Vision Business is engaged in the development, production and supply of night vision technology for the U.S. and allied military and security forces and for the U.S. federal homeland security market. Following the acquisition, the Night Vision Business operates as Elbit Night Vision (“ENV”). The financial results of ENV were included in our consolidated reports commencing the date of the acquisition.
In the fourth quarter of 2019, following the completion of the acquisition of ENV we recorded expenses of $55 million in our Cost of Revenues. These expenses were mainly related to inventory write-offs. The expenses were eliminated in the non-GAAP results due to their non-recurring nature.
Fourth quarter 2019 results:
Revenues in the fourth quarter of 2019 were $1,321.5 million, as compared to $1,077.8 million in the fourth quarter of 2018. Growth in the quarter was driven by the contributions of ENV and IMI Systems Ltd. (“IMI”), as well as growth in our legacy businesses.
Non-GAAP(*) gross profit amounted to $345.8 million (26.2% of revenues) in the fourth quarter of 2019, as compared to $306.7 million (28.5% of revenues) in the fourth quarter of 2018. GAAP gross profit in the fourth quarter of 2019 was $284.3 million (21.5% of revenues), as compared to $234.9 million (21.8% of revenues) in the fourth quarter of 2018. The gross profit in the fourth quarter of 2019 and 2018 included expenses of $55.0 and $66.6 million, respectively, related to the acquisition of ENV in 2019 and IMI in 2018.
Research and development expenses, net were $97.6 million (7.4% of revenues) in the fourth quarter of 2019, as compared to $73.0 million (6.8% of revenues) in the fourth quarter of 2018.
Marketing and selling expenses, net were $80.5 million (6.1% of revenues) in the fourth quarter of 2019, as compared to $73.5 million (6.8% of revenues) in the fourth quarter of 2018.
General and administrative expenses, net were $46.4 million (3.5% of revenues) in the fourth quarter of 2019, as compared to $49.8 million (4.6% of revenues) in the fourth quarter of 2018. The lower level of general and administrative expenses in the fourth quarter of 2019 resulted mainly from income related to settlement of litigation in the U.S.
Non-GAAP(*) operating income was $125.4 million (9.5% of revenues) in the fourth quarter of 2019, as compared to $112.5 million (10.4% of revenues) in the fourth quarter of 2018. GAAP operating income in the fourth quarter of 2019 was $63.6 million (4.8% of revenues), as compared to $38.6 million (3.6% of revenues) in the fourth quarter of 2018. GAAP operating income in the fourth quarter of 2019 and 2018 were reduced by $55 and $66.6 million, respectively, due to expenses related to the acquisitions of ENV and IMI.
Financial expenses, net were $16.4 million in the fourth quarter of 2019, as compared to $14.9 million in the fourth quarter of 2018. The increase in financial expenses in the fourth quarter of 2019 was mainly a result of the revaluation of lease liabilities.
Other expenses net were $1.6 million in the fourth quarter of 2019, as compared to $6.4 million in the fourth quarter of 2018. Other expenses in the fourth quarter of 2018 included expenses of $2.7 million related to the acquisitions of IMI.
Taxes on income were a tax benefit of $9.1 million in the fourth quarter of 2019, as compared to a tax expense of $3.9 million in the fourth quarter of 2018. The tax benefit in the fourth quarter of 2019 was related mainly to adjustments for prior years following tax assessments in the Company and some of its subsidiaries in Israel.
The net losses of affiliated companies and partnerships was $3.5 million in the fourth quarter of 2019, as compared to $11.4 million the fourth quarter of 2018. The loss in the fourth quarter of 2018 was mainly a result of a fair value re-evaluation of holdings in an affiliated company.
Net losses attributable to non-controlling interests was a loss of $0.3 million in the fourth quarter of 2019, as compared to income of $0.9 million in the fourth quarter of 2018.
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Non-GAAP(*) net income attributable to the Company’s shareholders in the fourth quarter of 2019 was $109.3 million (8.3% of revenues), as compared to $84.0 million (7.8% of revenues) in the fourth quarter of 2018. GAAP net income attributable to the Company’s shareholders in the fourth quarter of 2019 was $51.5 million (3.9% of revenues), as compared to $1.1 million (0.1% of revenues) in the fourth quarter of 2018.
Non GAAP(*) diluted net earnings per share attributable to the Company’s shareholders were $2.47 for the fourth quarter of 2019, as compared to $1.96 for the fourth quarter of 2018. GAAP diluted earnings per share attributable to the Company’s shareholders in the fourth quarter of 2019 were $1.16, as compared to $0.03 in the fourth quarter of 2018.
Full year 2019 results:
Revenues for the year ended December 31, 2019 were $4,508.4 million, as compared to $3,683.7 million in the year ended December 31, 2018.
For distribution of revenues by areas of operation and by geographic regions see the tables on page 16.
The leading contributors to revenue growth were the airborne systems and land systems areas of operation. The increase in revenues in the airborne systems area of operation was primarily due to increased sales of commercial avionics equipment in the U.S. of a subsidiary that was acquired in the second quarter of 2018. Additionally there was an increase of sales in the U.S. of military avionic equipment for airborne platforms. Revenues from land systems increased primarily due to an increase in sales of land electronic warfare systems and armored vehicle systems in Europe and the revenues of IMI to Israel.
On a geographic basis, the increase in North America was mainly a result of higher sales of airborne systems and revenues of commercial avionics and programs for military airborne platforms. The increase in Israel was mainly a result of revenues of IMI. The increase in Asia-Pacific was mainly a result of higher sales of remote weapon systems, radios and artillery systems.
Cost of revenues for the year ended December 31, 2019 was $3,371.9 million (74.8% of revenues), as compared to $2,707.5 million (73.5% of revenues) in the year ended December 31, 2018. Cost of revenues in 2019 and 2018 included expenses of $55.0 and $66.6 million, respectively, related to the acquisition of ENV in 2019 and of IMI in 2018.
Non-GAAP(*) gross profit for the year ended December 31, 2019 was $1,213.5 million (26.9% of revenues), as compared to $1,061.9 million (28.8% of revenues) in the year ended December 31, 2018. GAAP gross profit in 2019 was $1,136.5 million (25.2% of revenues), as compared to $976.2 million (26.5% of revenues) in 2018. The decline in 2019 gross margins relative to 2018 was due to a less favorable sales mix and a lower gross margin at IMI.
Research and development expenses, net for the year ended December 31, 2019 were $331.8 million (7.4% of revenues), as compared to $287.4 million (7.8% of revenues) in the year ended December 31, 2018.
Marketing and selling expenses, net for the year ended December 31, 2019 were $301.4 million (6.7% of revenues), as compared to $281.0 million (7.6% of revenues) in the year ended December 31, 2018.
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General and administrative expenses, net for the year ended December 31, 2019 were $214.7 million (4.8% of revenues), as compared to $160.3 million (4.4% of revenues) in the year ended December 31, 2018. The higher level of general and administrative expenses in 2019 was mainly a result of consolidation of expenses in subsidiaries that were acquired in 2018 and 2019, which was partly offset by income related to settlement of litigation in the U.S.
Other operating income, net for the year ended December 31, 2019 amounted to $33.0 million as compared to $45.4 million for the year ended December 31, 2018. Other operating income in 2019 was mainly a result of a capital gain related to the sale and lease back of buildings by a subsidiary in Israel. Other operating income in 2018 was the result of net gains related to deconsolidation of two of our Israeli subsidiaries in the commercial cyber and medical instrumentation areas, due to third party investments.
Non-GAAP(*) operating income for the year ended December 31, 2019 was $379.7 million (8.4% of revenues), as compared to $340.7 million (9.2% of revenues) in the year ended December 31, 2018. GAAP operating income in 2019 was $321.6 million (7.1% of revenues), as compared to $292.8 million (7.9% of revenues) in 2018.
Financial expenses, net for the year ended December 31, 2019 were $69.1 million, as compared to $44.1 million in the year ended December 31, 2018. Financial expenses, net in 2019 included exchange rate differences of approximately $23.1 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 expenses, net were $6.2 million in 2019 as compared to $11.4 million in 2018. Other expenses in 2018 included write-off impairment of $7.8 million in investments in two affiliated Israeli companies. Other expenses in 2019 were mainly due to the non-service cost components of pension plans, in accordance with ASU 2017-07.
Taxes on income for the year ended December 31, 2019 were $19.4 million (effective tax rate of 7.9%), as compared to $26.4 million (effective tax rate of 11.1%) in the year ended December 31, 2018. The effective tax rate was affected by the mix of the tax rates in the various jurisdictions in which the Company’s entities generate taxable income and other income that is not part of the taxable income mainly related to non-cash items such as impairment of assets. Taxes on income in 2019 were reduced by a tax benefit related to adjustments for prior years following a tax settlement of the Company and some of its subsidiaries in Israel with Israeli tax authorities.
Equity in net earnings (losses) of affiliated companies and partnerships for the year ended December 31, 2019 was income of $1.8 million (0.1% of revenues), as compared to equity in net losses of $2.2 million (0.1% of revenues) in the year ended December 31, 2018. The loss in 2018 was mainly a result of a $9.7 million re-evaluation of the fair value of an investment in an affiliated company.
Net income attributable to non-controlling interests for the year ended December 31, 2019 was $0.8 million, as compared to $1.9 million in the year ended December 31, 2018.
Non-GAAP(*) net income attributable to the Company’s shareholders for the year ended December 31, 2019 was $297.8 million (6.6% of revenues), as compared to $267.5 million (7.3% of revenues) in the year ended December 31, 2018. GAAP net income attributable to the Company’s shareholders in the year ended December 31, 2019 was $227.9 million (5.1% of revenues), as compared to $206.7 million (5.6% of revenues) in the year ended December 31, 2018.
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Non-GAAP(*) diluted net earnings per share attributable to the Company’s shareholders for the year ended December 31, 2019 were $6.79, as compared to $6.25 for the year ended December 31, 2018. GAAP diluted net earnings per share attributable to the Company’s shareholders in the year ended December 31, 2019 were $5.20, as compared to $4.83 in the year ended December 31, 2018.
Backlog of orders for the year ended December 31, 2019 totaled $10,029 million, as compared to $9,399 million as of December 31, 2018. Approximately 61% of the current backlog is attributable to orders from outside Israel. Approximately 65% of the current backlog is scheduled to be performed during 2020 and 2021.
Operating cash flow used in the year ended December 31, 2019 was $53.3 million, as compared to $191.7 million net cash provided in the year ended December 31, 2018. The lower level of operating cash flow in 2019 was mainly a result of lower collection of receipts and advances received from customers mainly in Israel.
