Elbit Systems Q4 2024 Earnings Call Transcript

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March 18, 2025

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems Fourth Quarter twenty twenty four Results Conference Call. All participants are present in listen only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded.

Operator

I would now like to hand over the call to Daniella Finn, Elbit Systems' VP, Investor Relations. Daniella, please go ahead.

Speaker 1

Thank you, Yoni. Hello, everyone, and welcome to our annual and fourth quarter twenty twenty four earnings call. On the call with me today are Guzzi Maslikh, President and CEO Toby Kagan, CFO and myself, Daniel Ossen, VP, Investor Relations. Earlier today, we hosted an investor conference at the Tel Aviv Stock Exchange. A recording of the event is available in our Investor Relations section of our website at www.elbitsystems.com.

Speaker 1

Before we begin, I would like to point out that the Safe Harbor statement in the company's press release issued earlier today also refers to the contents of this conference call. I'd like to remind all listeners that the conference call today may contain forward looking statements regarding the company and its subsidiaries business and actual future results may differ materially from these forward looking statements. As usual, we will provide you with both GAAP financial data as well as certain supplemental non GAAP information. We believe that this non GAAP information provides additional transparency to better understand the performance of the ongoing business. You can find all the detailed GAAP financial data as well as the non GAAP information and the reconciliation in today's press release.

Speaker 1

Kobi will begin by discussing the financial results followed by Busby, who will elaborate on the main events during the quarter and beyond. We will then turn the call over to a Q and A session. With that, I'd like to now turn the call over to Coby. Coby, please go ahead.

Speaker 2

Thank you, Daniela. Hello, everyone, and thank you for joining us today. The strong set of financial results for the fourth quarter of twenty twenty four continues to reflect reflect the ongoing demand for our cutting edge solutions as we present another quarter of double digit growth in revenues, backlog, operating profit and non GAAP EPS. During 2024, we also delivered $320,000,000 of free cash flow. We are very pleased with these results.

Speaker 2

Diving into the fourth quarter results in detail. Fourth quarter revenues increased by 19 to $1,930,000,000,000 dollars compared to $1,626,000,000 dollars in the fourth quarter of twenty twenty three. Full year 2024 revenues increased by 14% to $828,006,000 compared to $975,005,000 in the 2023. In terms of quarterly revenues by segment, Aerospace revenues increased by 27% in the fourth quarter of twenty twenty four compared to the fourth quarter of twenty twenty three mainly due to increased UAS sales in Israel and Europe and increased precision guided munitions revenue. By 7% year over year mainly due to radio systems and command and control systems sales.

Speaker 2

IStar and EW revenues increased by 8% mainly due to electronic warfare and electro optical system sales in Israel. Land revenue increased by 29% due to increase in ammunition and munition sales in Israel. Elbit Systems Of America revenues increased by 6% mainly due to increase in night vision systems and medical instrumentation sales. LV Systems diverse geographic revenue base as well as product help to reduce revenue volatility and support the long term sustainability of our business. Only recently, the President of the European Commission stated in a letter that Europe needs to be in charge of its own defense.

Speaker 2

Subsequently, she announced a dedicated budget of EUR 150,000,000,000 to support this rearmament effort in Europe. For the full year of 2024, Europe contributed 27% of revenues, North America 20 2 Percent of revenues, Asia Pacific 17 Percent of revenues and Israel contributed 29% of revenues. As in previous quarter, Israel revenue continued to grow on the back of the Swords of Iron ore. This growth came mainly from the Land segment. The non GAAP gross margin for the fourth quarter was 24.5% compared to the fourth quarter of twenty twenty three at 25.3%.

Speaker 2

The non GAAP gross margin for the full year 2024 was 24.5% compared to 2023 at 25.7%. GAAP gross margin in the fourth quarter was 24.1% of revenues compared to 23.5% in the fourth quarter of twenty twenty three. GAAP gross margin for the full year 2024 was 24% compared to 2023 at 24.8%. Fourth quarter non GAAP operating income was $157,500,000

Speaker 1

or

Speaker 2

8.2% of revenues in the fourth quarter of twenty twenty four as compared to $104,800,000 or 6.4% of revenues in the fourth quarter of twenty twenty three. GAAP operating income for the fourth quarter was $141,400,000,000 or 7.3 of revenues as compared to $67,600,000 or 4.2% of revenues in the fourth quarter of twenty twenty three. Full year 2024 non GAAP operating income was $550,000,000 or 8.1% of revenue as compared to $448,000,000 or 7.5% of revenues in 2023. GAAP operating income for 2024 was $489,000,000 or 7.2% of revenue as compared to $369,000,000 or 6.2% of revenues in 2023. The operating expense breakdown for the full year was as follows.

Speaker 2

Net R and D expenses were $466,000,000 or 6.8% of revenues as compared to $424,000,000 or 7.1% of revenues in 2023. The increase is mainly due to investment in expanding our portfolio of precision guided munitions as well as increased investment in high power laser. Marketing and selling expenses were $375,000,000 or 5.5% of revenues in 2024 as compared $359,000,000 or 6% of revenues in 2023. G and A expenses were $311,000,000 or 4.6% of revenues in 2024 as compared to $330,000,000 or 5.5% of revenues in the same period last year. Financial expenses were $151,000,000 in 2024 as compared to $137,000,000 in 2023.

Speaker 2

The increase in financial expenses net in 2024 is mainly due to factoring expenses related to the extension of the Premise Evacuation Agreement. The effective tax rate in 2024 was 11.4% compared to 10.1% in 2023. The tax expenses in 2024 and 2023 were affected by the tax benefit related to adjustments for peer years following tax settlements in some of the company's subsidiaries in Israel. Our non GAAP diluted EPS was $2.66 in the fourth quarter of twenty twenty four compared to $1.56 in the fourth quarter of twenty twenty three. GAAP diluted EPS was $2 for the fourth quarter of twenty twenty four compared to $0.67 in the fourth quarter of twenty twenty three.

Speaker 2

This is the third consecutive quarter of double digit EPS growth. Non GAAP diluted EPS was $8.76 in the full year of 2024 compared to $6.7 in the full year of 2023. GAAP diluted EPS was $7.18 for the full year of 2024 compared to $4.82 in 2023. Our backlog of orders as of 12/31/2024 was $22,600,000,000 approximately $4,800,000,000 higher than the backlog at the end of twenty twenty three. Approximately 65% of the current backlog was generated from outside of Israel.

Speaker 2

Approximately 57% of the backlog at the December is scheduled to be performed during 2025 and in 2026, while the rest is scheduled to be performed during 2027 and beyond, a testimony of the potential of the company's continued growth trajectory. Net cash flow provided by operating activities in the ended 12/31/2024 was $535,000,000 as compared to $114,000,000 in the year ended 12/31/2023. Operating cash flow in 2024 were affected mainly by the increase in contract liabilities, offset by the increase in inventories and trade receivables. During 2024, we also delivered $320,000,000 of free cash flow. It should be noted that our free cash flow generation is usually back end loaded.

Speaker 2

The Board of Directors has declared a dividend of $0.6 per share. I will now turn the call over to Mr. Maclitz, our President and CEO. Boutsi, please go ahead.

Speaker 3

Thank you, Kopi. First and foremost, I would like I want to express my deep gratitude and appreciation to our global workforce for their unwavering dedication to our customers worldwide. Their commitment remains exceptional, especially during this period of high demand for our advanced product and solutions. This is the fourth quarter in a row in which we have delivered double digit year over year growth in revenues, operating profit and backlog. Our backlog has reached a record of $22,600,000,000 Our EPS has reached a record of $8.76 per share.

Speaker 3

Now free cash flow generation peaked at $320,000,000 During the quarter, Elbit continued to win meaningful contracts globally and locally. Among these, our contract to supply EW and Dilkam self protection suites to a NATO European country as well as securing the contract to provide Germany's official government aircraft with a DILCOM self protection system, advanced communication system to the IMOD, counter U. S. Solutions to NATO European countries, self protection suites for Israel, F-16I aircraft and pulse rocket launcher artillery system for Germany's forces. We continue to invest in the development of agile, timely solutions to address the overall evolving modern battlefield.

Speaker 3

A year and a half into the conflict, Elbit remains a key strategic partner for the IDF. Over the past year, the company has demonstrated its ability to scale up production massively and meet customer IPS, upgrading systems in real time during combat. Numerous new technology capabilities were introduced for the first time, leading the expansion of existing and new contract as well as significant international interest. Following the Nagel Committee and its defense budget in Israel are expected to remain elevated to the extent that they are approved. The work continues to arm itself and this is manifested in increasing defense budget globally and especially in Europe.

Speaker 3

Only two weeks ago, we witnessed announcement from Germany and from The UK regarding the intention to significantly increase the defense budget in 2025 and beyond. We see a great interest from Europe in our technology and portfolio and Elbit's presence in some European countries via its subsidiaries is a big advantage. Additionally, we have joint ventures with leading European defense companies. For example, the cooperation with KNDS and the sale of Pulse cell delivery system in Germany. In The U.

Speaker 3

S, Elbit is well positioned and prepared for additional opportunities and is aligned with the new administration strategy and objectives of modern battlefield solution alongside lower cost with agile and relevant solutions. ESA core principle revolves around mission focus and agility and addressing warfighter needs. ESA is an important player in The U. S. Industrial base and with successful acquisitions over the years, we are able to grow through these dynamic times.

Speaker 3

This has been a year of significant investment in increasing our capacity to address the growing demand for our products and solutions as local and global defense spending continues to increase. The munition production site in Amat Beqa is partially operational with additional factories going production gradually as production will increase during 2025 and therefore. By the end of twenty twenty five, the site is expected to be operating with dozens of production lines while maintaining production at the Ramatas Sharon site until the end of twenty twenty six. Our new ERP system is enhancing our efficiency through real time data integration, streamlining inventory management and automated workflow, improving demand, forecasting, optimizing logistics and ensuring seamless coordination across procurement, production and distribution and operating a one company operational language. The new EVV site is already fully operational.

Speaker 3

The integration of AI to optimize internal processes, robotics, e manufacturing and advanced production line management is becoming a growing part of our operations. Elbit is implementing dedicated teams to integrate AI not only into the defense technology solutions, but also across internal company processes, including inventory management, supply chain optimization, project and product management. This year is a strong emphasis. This year a strong emphasis has been placed on improving operational efficiency with AI playing an important role in various solutions. As our portfolio of solutions continues to grow in a variety of

Speaker 1

expect

Speaker 3

expanding our guided munition portfolio, electronic warfare solutions for land, air and maritime and more. The maritime sector holds immense potential with albeit diverse range of relevant products still far from reaching their full market potential. Our new product includes increasing use of AI solutions. Systems, strong globally presence, spanning Europe, North America, Asia and Israel combined with our agile and innovative capabilities are driving our continued success as defense budget continue to grow globally, enabling us to constantly delivering impactful results. On behalf of myself and the entire company, we remain hopeful for the sweet and safe return of our hostages still held in Gaza.

Speaker 3

They are always in our thoughts and we eagerly await the day they are returned reunited returned

Operator

The first question is from Ellen Page of Jefferies. Please go ahead.

Speaker 4

Hi guys. Thanks for the question and congrats on the quarter. Maybe just on free cash flow, you had a pretty great free cash flow year and I think it was mostly driven by a large contract liability inflow. What was that related to?

Speaker 2

Hi, Alain. How are you? Thank you for the question. We what we see is over $535,000,000 to be precise of operational cash flow, which is significantly better than previous years. And also we see expansion in our investment in CapEx to $215,000,000 And that together creates $320,000,000 For your question, this is leaning on contract liabilities that we see also with some expansion of inventories and receivables.

Speaker 1

The

Operator

next question is from Lara Jack of The New York Times. Please go ahead.

Speaker 5

Hi. Lovely to talk to you all today. I am interested mostly in your export revenues, which I am hoping and I am assuming, please correct me if I'm wrong, that means your export sales. Just doing a little math here, if your overall year revenues were $6,800,000,000 and it looks like what 61% of your revenues were exported that would be $4,840,000,000 dollars of sales exported sales from Israel last year. I just wanted to make sure that those numbers sounded right to you.

Speaker 5

And then also I was curious as to why you think this is that at a time of Israel fighting at least three maybe five fronts in 2024. Why and how Israel and Albert was able mostly Albert obviously was able to export so many weapons during this time of war? Thank you.

Speaker 2

Okay. Thank you, Laura. I'll answer the first question. Your math is right. Our export revenue is $4,800,000,000 while our Israeli Bootsie will answer your second question.

Speaker 3

Hello, good afternoon. One of the advantages of the company is that we have dozens of subsidiary abroad in The U. S, in Europe, as well as in Asia Pacific. Out of the 22,000 employees we have worldwide, only 14,000 are in Israel, the rest are abroad in our subsidiaries. And it really shows the resilience of the company.

Speaker 3

On one hand, we are able to support our local customers here in Israel, but via our subsidiaries, we are able to support our international customer and to continue to export from Israel as well as via the subsidiary to the global defense needs. And the diverse revenue base is one of our big advantages. It creates stability and the fact that we have such a wide portfolio and such a global presence is a major part of our strategy.

Speaker 5

Would you say that this is a record high for ALDA exports during this year or is it a number that's kind of come and gone over the years?

Speaker 3

No, we are growing year by year and we see more and more potential for us around the globe in Europe, in The U. S. As well as in Asia Pacific. We are able to bring to the market very innovative and operational solutions on one hand and we are able to be local to be part of the ecosystem of each country. And so this is a record year for us outside of Israel, but we hope and believe that the potential is huge, is big for us and we expect the export activities to continue part of it from Israel, but the majority is done via our facilities globally.

Speaker 5

Okay. So just to clarify that $4,800,000,000 in revenues exported that is a record high for Albit, but you still see potential to grow it in future years, correct?

Speaker 3

That's correct.

Operator

Thank you. The next question is a follow-up question from Ellen Page of Jefferies. Please go ahead.

Speaker 4

Hi, guys. Sorry about that. I just wanted to ask on the facility in the South Of Israel. Is that fully operational at this point? And how do we think about capacity for additional ammunition volumes from here just given land was such a growth leader in 2024?

Speaker 2

So we are Alan, as you know, we are continuing to expand our capacity and growing capacity with investments that we're doing in our premises in the South Ramat Becca, the new factory as well as in other premises in Israel and outside of Israel. We just inaugurated facilities in The U. K. And in Germany. And also in Israel, we're starting working on the in the Ramat Bekker site.

Speaker 2

So gradually we're expanding our production to meet the growing demand.

Speaker 4

Great. And can you talk about your expectations for growth across regions in the next regions and end markets in the next few years?

Speaker 2

We're looking at the markets as Bootsie mentioned. We see a very strong growth in budget mostly in Europe and with the new the fresh share €150,000,000,000 that were announced just recently from the commissioner. We expect very big growth in Europe. As Gucci mentioned, we have very we are very good group to meet this demand in dozens of subsidiaries across Europe and that is a very strong growth trajectory to Audi. Other than that, we see continued growth in Israel where our backlog increased in 2024 by $3,000,000,000 that means that we expect additional growth in Israel as well and Asia Pacific which continues to be very strong with higher demand and higher budget as well.

Speaker 4

Great. Thanks. I'll hop back in the queue.

Operator

There are no further questions at this time. Before I ask Mr. Maklis to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available two hours after the conference ends. In The U. S, please call 808-0291.

Operator

In Israel, please call 20900 and internationally, please call 972020900. A replay of this call will also be available on the company's website, www.elbitsystems.com. Mr. Majlis, would you like to make your concluding statement?

Speaker 3

I would like to thank our employees again for their hard work and total commitment. To everyone on the call, thank you for joining us today and for your continued support and interest in our company. Have a good day and goodbye.

Operator

Thank you. This concludes the Elbit Systems Ltd. Fourth Quarter twenty twenty four Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

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