Elbit Systems in Q3 2017: Backlog of Orders at $7.6 Billion

Elbit Systems published its consolidated results for the third quarter of 2017. The company reports revenues of $801 million as compared to $780 million this time last year

(Photo: Eyal Bugoslavsky)

Elbit Systems Ltd. reported today its consolidated results for the quarter ended September 30, 2017.

"We are pleased with our results, particularly the increase in our backlog, which positions us well for long-term growth," said Bezhalel (Butzi) Machlis, President and CEO of Elbit Systems. "We see ongoing increases in defense budgets, which we have been able to capitalize on in many of our target markets, and during the quarter we announced a number of significant contract wins. This has enabled us to achieve a 12% increase year-over-year in our backlog, with the growth favoring the long-term component.  Furthermore, our improved gross and operating profit margins this quarter underscore the fruits of our ongoing effort to improve business efficiencies and build on inter-company synergies. Elbit Systems remains well positioned to benefit over the long-term from the positive momentum in our markets.”

Q3 2017 Results

Revenues in the third quarter of 2017 were $800.7 million, as compared to $780.8 million in the third quarter of 2016.

Non-GAAP gross profit amounted to $256.3 million (32.0% of revenues) in the third quarter of 2017, as compared to $238.1 million (30.5% of revenues) in the third quarter of 2016. GAAP gross profit in the third quarter of 2017 was $251.0 million (31.3% of revenues), as compared to $230.4 million (29.5% of revenues) in the third quarter of 2016.

Research and development expenses, net were $67.1 million (8.4% of revenues) in the third quarter of 2017, as compared to $65.6 million (8.4% of revenues) in the third quarter of 2016.

Marketing and selling expenses, net were $66.9 million (8.4% of revenues) in the third quarter of 2017, as compared to $60.9 million (7.8% of revenues) in the third quarter of 2016. The increase in marketing and selling expenses in the third quarter of 2017 was mainly related to the mix of countries and types of marketing activities for projects in which we invest our marketing efforts.

General and administrative expenses, net were $34.8 million (4.3% of revenues) in the third quarter of 2017, as compared to $36.1 million (4.6% of revenues) in the third quarter of 2016.

Other operating income, net in the third quarter of 2016 amounted to $10.5 million. The amount reflects a net gain related to valuation of shares in a newly established Israeli subsidiary due to a third party investment.

Non-GAAP operating income was $89.2 million (11.1% of revenues) in the third quarter of  2017, as compared to $77.9 million (10.0% of revenues) in the third quarter of  2016.  GAAP operating income in the third quarter of 2017 was $82.2 million (10.3% of revenues), as compared to $78.3 million (10.0% of revenues) in the third quarter of 2016.

Financial expenses, net were $9.3 million in the third quarter of 2017, as compared to $7.3 million in the third quarter of 2016.

Taxes on income were $14.6 million (effective tax rate of 20.0%) in the third quarter of 2017, as compared to $8.9 million (effective tax rate of 12.5%) in the third quarter of 2016.  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. The lower effective tax rate in the third quarter of 2016 was mainly a result of prior years adjustments related to finalizing a tax assessment of a subsidiary.

Equity in net earnings of affiliated companies and partnerships was $3.5 million (0.4% of revenues) in the third quarter of 2017, as compared to $1.4 million (0.2% of revenues) in the third quarter of 2016.

Net income attributable to non-controlling interests was $0.3 million in the third quarter of 2017, as compared to $0.2 million in the third quarter of 2016.

Non-GAAP net income attributable to the Company's shareholders in the third quarter of 2017 was $67.3 million (8.4% of revenues), as compared to $62.5 million (8.0% of revenues) in the third quarter of 2016. GAAP net income in the third quarter of 2017 was $61.5 million (7.7% of revenues), as compared to $63.4 million (8.1% of revenues) in the third quarter of 2016.

Non-GAAP diluted net earnings per share attributable to the Company's shareholders were $1.57 for the third quarter of 2017, as compared to $1.46 for the third quarter of 2016. GAAP diluted earnings per share in the third quarter of 2017 were $1.44, as compared to $1.48 for the third quarter of 2016.

The Company’s backlog of orders as of September 30, 2017, totaled $7,641 million, as compared to $6,836 million as of September 30, 2016. Approximately 73% of the current backlog is attributable to orders from outside Israel. Approximately 45% of the current backlog is scheduled to be performed during 2017 and 2018.

Operating cash flow used in the nine months ended September 30, 2017, was $140.0 million, as compared to $31.5 million used in the nine months ended September 30, 2016.

Recent Events

On August 17, 2017, the company confirmed, in an answer to media inquiries, that on August 7, 2017, a jury in the United States District Court for the Eastern District of Texas found Hughes Network Systems, LLC, to have infringed one of its patent, which generally relates to high-speed satellite communications, US Patent No. 6,240,073.

On August 29, 2017, the company announced that it was awarded an approximately $93 million contract from an Asia-Pacific country to upgrade its F-5 aircraft fleet. The contract will be performed over a three-year period. Under the upgrade contract, Elbit Systems will supply the F-5 with several systems, including Head-Up Displays (HUDs), an advanced cockpit, radars, weapon delivery and navigation systems, as well as DASH IV Head Mounted Systems.

On September 4, 2017, the company announced that it was awarded an approximately $11 million contract for the supply of an integrated maritime C4ISR system to an Asia-Pacific navy. The contract, to be performed over a two-year period, will include interconnected coastal sensor towers, naval command centers and maritime C4I capabilities, as well as ongoing maintenance. The project will support commanders and other users (headquarters, command centers, coastal observation posts, and vessels) throughout routine and special operations and will also be used for training and simulation.

On September 12, 2017, the company announced that its subsidiary, Elbit Systems of America, LLC, was awarded a US Customs and Border Protection (CBP) contract to provide a tower and in-fill radar system that supplies a complete capability to detect flying objects in highly cluttered environments. 

On September 18, 2017, the company announced that it will reorganize the business of CYBERBIT Solutions Ltd., its wholly-owned subsidiary. The defense Cyber Intelligence and Cyber Security business will be integrated with Elbit Systems Land and C4I Division, and the commercial cyber business will continue to operate under CYBERBIT Ltd. The reorganization will become effective as of January 1, 2018.

On September 26, 2017, the company announced that it was awarded a contract, in an amount of $240 million, to provide a wide array of electronic defense systems to a country in Africa. The contract, which will be performed over a two-year period, is comprised of Directed Infra-red Counter Measure (DIRCM) systems to protect aircraft from shoulder-fired missiles (Man-Portable Air Defense Systems -MANPADS), based on passive IR (Infrared) systems, and includes Missile Warning Systems (MWS), radio and communication systems, land systems, mini-UAS systems and a helicopter upgrade.

On September 27, 2017, the company announced that it was awarded an approximately $300 million contract for the supply of command and control systems to a customer in Asia-Pacific. The project will be performed over a three-year period.

On October 3, 2017, the company announced that its subsidiary, Elbit Systems of America, LLC, was awarded a $31.5 million additional component contract by the Defense Logistics Agency Land and Maritime to provide Aviator Night Vision Imaging System Head-Up Displays (ANVIS HUD). Work will be performed over a two-year period.

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