Elbit Systems Reports Q1 2020 Results, Impact of Pandemic on Company

The company believes that as of March 31, 2020, Elbit Systems had a healthy balance sheet, adequate levels of cash and access to credit facilities that provide liquidity when necessary

Bezhalel Machlis, president and CEO of Elbit Systems. Photo provided by the company

Israeli high technology company Elbit Systems reported on May 26 its consolidated results for the quarter ended March 31, 2020.

The company provided US-GAAP results as well as additional non-GAAP financial data to provide investors with a more comprehensive understanding of the company's business results and trends. 

Bezhalel Machlis, president and CEO of Elbit Systems, commented: "In the first quarter, we witnessed positive momentum across our markets, receiving more than $1.8 billion in orders from customers around the world. These orders contributed to a record backlog of $10.8 billion, growing by 8% over the last quarter of 2019, and providing Elbit Systems with good revenue visibility."

"As a result of the COVID-19 pandemic, since March we have made significant changes to the way we work in order to protect the health and safety of our employees around the world, while at the same time maintaining business continuity in order to deliver our products and services to our customers as planned. This includes utilizing our healthy balance sheet to secure our supply channels and maintaining adequate levels of inventory to enable us to continue deliveries to customers," he said.

First Quarter 2020 Results

Revenues in the first quarter of 2020 were $1,071.2 million, as compared to $1,021.7 million in the first quarter of 2019.

Non-GAAP (*) gross profit amounted to $295.4 million (27.6% of revenues) in the first quarter of 2020, as compared to $283.4 million (27.7% of revenues) in the first quarter of 2019. GAAP gross profit in the first quarter of 2020 was $289.4 million (27.0% of revenues), as compared to $277.6 million (27.2% of revenues) in the first quarter of 2019.

Research and development expenses, net were $80.4 million (7.5% of revenues) in the first quarter of 2020, as compared to $77.4 million (7.6% of revenues) in the first quarter of 2019.

Marketing and selling expenses, net were $70.5 million (6.6% of revenues) in the first quarter of 2020, as compared to $71.8 million (7.0% of revenues) in the first quarter of 2019.

General and administrative expenses, net were $58.0 million (5.4% of revenues) in the first quarter of 2020, as compared to $53.6 million (5.2% of revenues) in the first quarter of 2019.

Other operating income, net in the first quarter of 2019 was $1.2 million, due to a gain resulting from an investment and remeasurement of the company in a subsidiary.

Non-GAAP(*) operating income was $90.4 million (8.4% of revenues) in the first quarter of 2020, as compared to $84.0 million (8.2% of revenues) in the first quarter of  2019.  GAAP operating income in the first quarter of  2020 was $80.4 million (7.5% of revenues), as compared to $76.0 million (7.4% of revenues) in the first quarter of 2019.

Financial expenses, net were $12.5 million in the first quarter of 2020, as compared to $13.9 million in the first quarter of 2019.

Other income, net in the first quarter of 2020 was $1.2 million , as compared to other expenses of  $3.4 million in the first quarter of 2019. Other income in the first quarter of 2020 includes income of approximately $3.2 million as a result of  revaluation of an investment in a subsidiary accounted for under the fair value method.

Taxes on income were $8.7 million (effective tax rate of 12.6%) in the first quarter of 2020, as compared to $10.1 million (effective tax rate of 17.2%) in the first quarter of 2019.

Equity in net earnings of affiliated companies and partnerships was $3.1 million (0.3% of revenues) in the first quarter of 2020, as compared to $2.2 million (0.2% of revenues) in the first quarter of 2019.

Net income attributable to non-controlling interests in the first quarter of  2019 was $0.4 million.

Non-GAAP(*) net income attributable to the company's shareholders in the first quarter of 2020 was $72.0 million (6.7% of revenues), as compared to $65.8 million (6.4% of revenues) in the first quarter of 2019. GAAP net income attributable to the company's shareholders in the first quarter of 2020 was $63.6 million (5.9% of revenues), as compared to $50.5 million (4.9% of revenues) in the first quarter of 2019.

Non-GAAP(*) diluted net earnings per share attributable to the company's shareholders were $1.63 for the first quarter of 2020, as compared to $1.54 for the first quarter of 2019. GAAP diluted earnings per share in the first quarter of 2020 were $1.44, as compared to $1.18 for the first quarter of 2019.

The company’s backlog of orders as of March 31, 2020 totaled $10,790 million, as compared to $9,658 million as of March 31, 2019. Approximately 63% of the current backlog is attributable to orders from outside Israel. Approximately 59% of the current backlog is scheduled to be performed during 2020 and 2021.

Operating cash flow used in the three months ended March 31, 2020 was $9.9 million, as compared to operating cash flow generated in the three months ended March 31, 2019 in the amount of $46.5 million.

Impact of the COVID-19 Pandemic on the Company

The coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization in March 2020.  COVID-19 has had significant negative impacts on the worldwide economy, resulting in disruptions to supply chains and financial markets, significant travel restrictions, facility closures and shelter-in-place orders in various locations.  Elbit Systems is closely monitoring the evolution of the COVID-19 pandemic and its impacts on the company’s employees, customers and suppliers, as well as on the global economy.

As it reported on April 13, 2020, the company been taking a number of actions to protect the safety of its employees and maintain business continuity and its supply chain. It also reported on a number of activities where it is leveraging its technological capabilities to assist hospital staffs and other first responders protecting communities from the impact of the pandemic.  All of these actions remain ongoing.
The safety measures implemented across all of the company's sites include increasing the number of manufacturing line shifts to enhance social distancing and encouraging employees to work from home where feasible.

The company has initiated business continuity plans to meet its commitments to its customers. Where necessary it is working on finding alternative solutions for delivering its products to its customers on time, including chartering dedicated freighter aircraft.

During the first quarter of 2020 the company's business was not materially impacted by the pandemic. Subsequently, some of its businesses have begun to experience certain disruptions due to government directed safety measures, travel restrictions and supply chain delays. To date, the financial impact to the company of these disruptions has not been material.

Elbit has implemented a series of cost control measures to help limit the financial impact of the pandemic on the company, in parallel to the measures it is taking to maintain business continuity and deliveries to its customers. Examples of such cost control measures include temporary reductions of salaries for certain employees, senior managers and executives, as well as directors' fees, reductions in discretionary spending and capital expenditures and the furlough of a small number of employees who have been unable to fulfill their tasks due to travel and other pandemic-related restrictions. The company is also working on efficiency initiatives with a number of its suppliers. Elbit is evaluating its operations on an ongoing basis in order to adapt to the evolving business environment.

The company believes that as of March 31, 2020, Elbit Systems had a healthy balance sheet, adequate levels of cash and access to credit facilities that provide liquidity when necessary. It has given high priority to cash management and adequate cash reserves to run the business. During the first quarter it drew additional cash from its existing credit facilities to increase its financial flexibility. The company has used part of its financial resources to secure its supply chain and build buffer stocks of inventory where required.

The extent of the impact of COVID-19 on the company's performance will depend on future developments including the duration and spread of the pandemic, the measures adopted by governments to limit the spread of the pandemic and resulting actions that may be taken by Elbit's customers and its supply chain, all of which are uncertain. As noted in its annual report on Form 20-F, the preparation of financial reports such as its quarterly financial reports requires it to make judgments, assumptions, and estimates that affect the amounts reported in such reports.  For its quarterly financial report for the quarter ended March 31, 2020, Elbit considered the economic impact of the COVID-19 pandemic on its critical and significant accounting estimates. The expected impact of the COVID-19 pandemic did not have a material effect on the company's significant judgments, assumptions and estimates reflected in the report.  However, Elbit's future results may differ materially from its estimates; and as events continue to evolve in connection with the COVID-19 pandemic, the estimates Elbit uses in future periods may change materially.

 

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