Backlog of orders at $9.8 billion; Revenues at 1,064 million;
Non-GAAP net income of $64 million; GAAP net income of $54 million; Non-GAAP net EPS of $1.46; GAAP net EPS of $1.22
Haifa, Israel, August 15, 2019 – Elbit Systems Ltd. (NASDAQ: ESLT and TASE: ESLT), (the “Company”) the international high technology company, reported today its consolidated results for the quarter ended June 30, 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. Unless otherwise stated, all financial data presented is GAAP financial data.
Management Comment:
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.”
Second quarter 2019 results:
Revenues in the second quarter of 2019were $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.
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* see page 3
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.
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* see page 3
Operating cash flows used in the six months ended June 30, 2019was $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.
Adoption of New Accounting Standard:
The Company adopted Accounting Standards Update (ASU) 2016-02, Leases (ASC 842), effective January 1, 2019, using a modified retrospective transition method. Consequently, periods prior to January 1, 2019 are not restated for the adoption of ASU 2016-02.
Leases (ASC 842), as amended, requires lessees to recognize a Right of Use (ROU) asset and lease liability on the balance sheet for most lease arrangements and expands disclosures about leasing arrangements for both lessees and lessors, among other items. We adopted ASU 2016-02 using the optional transition method whereby we applied the new lease requirements under ASU 2016-02 through a cumulative-effect adjustment.
On January 1, 2019, we recognized approximately $377 million of ROU operating lease assets and lease liabilities as a result of adopting this standard. As part of our adoption, we elected all of the available practical expedients with the exception of the practical expedient permitting the use of hindsight when determining the lease term and assessing impairment of ROU assets. The adoption of the standard increased our financial expenses in the first half of 2019 in the amount of $14.5 million as a result of exchange rate differences on lease liabilities denominated in foreign currencies (mainly NIS). The comparative periods have not been restated for the adoption of ASU 2016-02.
* Non-GAAP financial data:
The following non-GAAP financial data is presented to enable investors to have additional information on the Company’s business performance as well as a further basis for periodical comparisons and trends relating to the Company’s financial results. The Company believes such data provides useful information to investors by facilitating more meaningful comparisons of the Company’s financial results over time. Such non-GAAP information is used by the Company’s management to make strategic decisions, forecast future results and evaluate the Company’s current performance. However, investors are cautioned that, unlike financial measures prepared in accordance with GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies.
The non-GAAP financial data includes reconciliation adjustments regarding non-GAAP gross profit, operating income, net income and diluted EPS. In arriving at non-GAAP presentations, the Company factors out items such as those that have a non-recurring impact on the income statements, various non-cash items, including significant exchange rate differences, significant effects of retroactive tax legislation and changes in accounting guidance and other items, which in management’s judgment, are items that are considered to be outside of the review of core operating results.
In the Company’s non-GAAP presentation, the Company made certain adjustments, as indicated in the table below.
These non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations, as determined in accordance with GAAP, and that these measures should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. Investors should consider non-GAAP financial measures in addition to, and not as replacements for or superior to, measures of financial performance prepared in accordance with GAAP.
Reconciliation of GAAP to Non-GAAP (Unaudited) Supplemental Financial Data:
(US Dollars in millions, except per share amount)
| Six Months Ended June 30, | Three Months Ended June 30, | Year Ended December 31, | |||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2018 | |||||||||||||||
| GAAP gross profit | $ | 566.0 | $ | 485.4 | $ | 288.4 | $ | 250.0 | $ | 976.2 | |||||||||
| Adjustments: | |||||||||||||||||||
| Amortization of purchased intangible assets | 11.7 | 9.2 | 5.9 | 4.8 | 19.1 | ||||||||||||||
| Expenses related to IMI acquisition | — | — | — | — | 66.6 | ||||||||||||||
| Non-GAAP gross profit | $ | 577.7 | $ | 494.6 | $ | 294.3 | $ | 254.8 | $ | 1,061.9 | |||||||||
| Percent of revenues | 27.7 | % | 28.9 | % | 27.7 | % | 28.6 | % | 28.8 | % | |||||||||
| GAAP operating income | $ | 156.3 | $ | 175.1 | $ | 80.3 | $ | 111.8 | $ | 292.8 | |||||||||
| Adjustments: | |||||||||||||||||||
| Amortization of purchased intangible assets | 18.5 | 12.8 | 9.3 | 6.7 | 26.5 | ||||||||||||||
| Expenses related to IMI acquisition | — | — | — | — | 66.8 | ||||||||||||||
| Gain from changes in holdings | (1.2 | ) | (45.4 | ) | — | (45.4 | ) | (45.4 | ) | ||||||||||
| Non-GAAP operating income | $ | 173.6 | $ | 142.5 | $ | 89.6 | $ | 73.1 | $ | 340.7 | |||||||||
| Percent of revenues | 8.3 | % | 8.3 | % | 8.4 | % | 8.2 | % | 9.2 | % |
