Elbit Systems Reports Fourth Quarter, FY 2022 Results

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Elbit Systems Ltd., the international high technology company, reported its consolidated results for the fourth quarter and full year ended December 31, 2022.

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 view 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:

"A healthy business environment and growing demand for Elbit Systems' portfolio of leading technological capabilities resulted in a record order backlog of $15.1 billion. We increased our business development efforts to realize the significant opportunities created by growing defense budgets around the world.

Our 2022 financial results also reflect global supply chain disruptions and labor cost inflation. We accelerated investment in a range of operational initiatives to improve performance. 

Increasing customer interest and the growing scale of new contracts reflect Elbit Systems' successful transformation in recent years from a systems supplier to a comprehensive solution provider and supports future growth prospects."

Fourth quarter 2022 results:

Revenues in the fourth quarter of 2022 were $1,506.4 million, as compared to $1,494.3 million in the fourth quarter of 2021.

Non-GAAP gross profit amounted to $387.8 million (25.7% of revenues) in the fourth quarter of 2022, as compared to $381.1 million (25.5% of revenues) in the fourth quarter of 2021. GAAP gross profit in the fourth quarter of 2022 was $380.6 million (25.3% of revenues), as compared to $374.3 million (25.1% of revenues) in the fourth quarter of 2021.

Research and development expenses, net were $125.4 million (8.3% of revenues) in the fourth quarter of 2022, as compared to $114.0 million (7.6% of revenues) in the fourth quarter of 2021.

Marketing and selling expenses, net were $87.7 million (5.8% of revenues) in the fourth quarter of 2022, as compared to $80.8 million (5.4% of revenues) in the fourth quarter of 2021.

General and administrative expenses, net were $75.8 million (5.0% of revenues) in the fourth quarter of 2022, as compared to $72.4 million (4.8% of revenues) in the fourth quarter of 2021.

Other operating income in the fourth quarter of 2022, which amounted to $28.6 million was a result of a grant received by a subsidiary in Israel, which is associated with the Company meeting a significant milestone in a facility relocation plan.

Non-GAAP operating income was $103.1 million (6.8% of revenues) in the fourth quarter of 2022, as compared to $120.1 million (8.0% of revenues) in the fourth quarter of 2021. GAAP operating income in the fourth quarter of 2022 was $120.3 million (8.0% of revenues), as compared to $107.3 million (7.2% of revenues) in the fourth quarter of 2021.

Financial expenses, net were $26.8 million in the fourth quarter of 2022, as compared to $19.6 million in the fourth quarter of 2021. The increase in 2022 was mainly a result of higher interest rates.

Other expenses, net were $14.5 million in the fourth quarter of 2022, as compared to other income, net of $9.7 million in the fourth quarter of 2021. Other expenses in the fourth quarter of 2022 were mainly a result of revaluation of investments in affiliated companies held under the fair value method.

Taxes on income in the fourth quarter of 2022 were tax benefits of $4.5 million, as compared to tax expenses of $92.2 million in the fourth quarter of 2021. Tax expenses in the fourth quarter of 2021 included a one-time expense of approximately $80.0 million related to the amendment of legislation regarding exempt earnings from "Approved Enterprises" and "Privileged Enterprises" in Israel ("Exempt Earnings").

Equity in net earnings of affiliated companies and partnerships was $1.8 million in the fourth quarter of 2022, as compared to $3.1 million the fourth quarter of 2021.

Non-GAAP net income attributable to the Company's shareholders in the fourth quarter of 2022 was $75.0 million (5.0% of revenues), as compared to $94.9 million (6.4% of revenues) in the fourth quarter of 2021. GAAP net income attributable to the Company's shareholders in the fourth quarter of 2022 was $85.3 million (5.7% of revenues), as compared to $8.2 million (0.5% of revenues) in the fourth quarter of 2021. The lower level of net income in the fourth quarter of 2021 was mainly a result of the tax expense mentioned under "Taxes on income" above. 

Non-GAAP diluted net earnings per share attributable to the Company's shareholders were $1.68 for the fourth quarter of 2022, as compared to $2.14 for the fourth quarter of 2021. GAAP diluted earnings per share attributable to the Company's shareholders in the fourth quarter of 2022 were $1.91, as compared to $0.18 in the fourth quarter of 2021.

Full year 2022 results:

Revenues for the year ended December 31, 2022 were $5,511.5 million, as compared to $5,278.5 million in the year ended December 31, 2021.

For distribution of revenues by areas of operation and by geographic regions see the tables on page 14.

The majority of the revenues in 2022 were in the Airborne systems and C4ISR systems areas of operation. The growth in revenues in the C4ISR systems area was mainly due to increased sales of UAS systems to customers in Europe and higher sales of Sparton's products in the U.S.

On a geographic basis, the decrease in North America was mainly a result of lower sales of medical instrumentation. The increase in Europe was mainly a result of higher sales related to the flight school project in Greece and sales of UAS, as well as armored vehicles and artillery.

Cost of revenues for the year ended December 31, 2022 was $4,138.3 million (75.1% of revenues), as compared to $3,920.5 million (74.3% of revenues) in the year ended December 31, 2021

Non-GAAP gross profit for the year ended December 31, 2022 was $1,405.0 million (25.5% of revenues), as compared to $1,384.7 million (26.2% of revenues) in the year ended December 31, 2021. GAAP gross profit in 2022 was $1,373.3 million (24.9% of revenues), as compared to $1,358.0 million (25.7% of revenues) in 2021. The GAAP and Non-GAAP gross profit in 2022 includes expenses of approximately $35 million related to the effect of the significant increase in the Company's share price on employees' stock price linked compensation plans.

Research and development expenses, net for the year ended December 31, 2022 were $435.7 million (7.9% of revenues), as compared to $395.1 million (7.5% of revenues) in the year ended December 31, 2021.

Marketing and selling expenses, net for the year ended December 31, 2022 were $326.0 million (5.9% of revenues), as compared to $291.8 million (5.5% of revenues) in the year ended December 31, 2021.

General and administrative expenses, net for the year ended December 31, 2022 were $313.0 million (5.7% of revenues), as compared to $267.4 million (5.1% of revenues) in the year ended December 31, 2021. General and administrative expenses in 2022 include expenses of approximately $16 million related to the Company's stock price linked compensation plans.

Other operating income, net for the year ended December 31, 2022 amounted to $68.9 million, as compared to $14.7 million for the year ended December 31, 2021. Other operating income in 2022 resulted mainly from capital gains related to the sale of buildings and investments by subsidiaries in Israel and in the United Kingdom and a grant received by a subsidiary in Israel. Other operating income in 2021 was a result of capital gain related to the sale of a building by a subsidiary in Israel.

Non-GAAP operating income for the year ended December 31, 2022 was $356.6 million (6.5% of revenues), as compared to $450.8 million (8.5% of revenues) in the year ended December 31, 2021. GAAP operating income in 2022 was $367.5 million (6.7% of revenues), as compared to $418.5 million (7.9% of revenues) in 2021. GAAP and Non-GAAP operating income in 2022 was reduced by expenses of approximately $62 million related to the Company's stock price linked compensation plans.

Financial expenses, net for the year ended December 31, 2022 were $51.4 million, as compared to $40.4 million in the year ended December 31, 2021. Financial expenses, net in 2022 included gains from changes in fair value of financial assets of approximately $6.1 million as compared to a gain of $18.8 million in 2021. Financial expenses, net in 2022 were also higher as compared to 2021 as a result of the increase in interest rates in 2022.

Other expenses, net in 2022 were $23.6 million, as compared to other income, net of $5.3 million in 2021. The expenses in 2022, resulted mainly from revaluation of holdings in affiliated companies, and expenses related to non-service costs of pension plans.

Taxes on income for the year ended December 31, 2022 were $24.1 million (effective tax rate of 8.2%), as compared to $131.4 million (effective tax rate of 34.3%) in the year ended December 31, 2021. Taxes on income in 2021 included an expense of approximately $80.0 million related to the "release" of Exempt Earnings. Taxes on income in 2022 were reduced by a tax benefit related to adjustments for prior years following a tax settlement in some of the Company's subsidiaries in Israel with the Israeli tax authorities.

Equity in net earnings of affiliated companies and partnerships for the year ended December 31, 2022 was $7.0 million, as compared to $22.6 million in the year ended December 31, 2021. Equity in net earnings in 2021 included a gain of approximately $10.9 million related to the sale of an affiliated company.

Non-GAAP net income attributable to the Company's shareholders for the year ended December 31, 2022 was $268.9 million (4.9% of revenues), as compared to $367.6 million (7.0% of revenues) in the year ended December 31, 2021. GAAP net income attributable to the Company's shareholders in the year ended December 31, 2022 was $275.4 million (5.0% of revenues), as compared to $274.4 million (5.2% of revenues) in the year ended December 31, 2021. Net income in 2022 was reduced by net expenses of approximately $56 million related to the Company's stock price linked compensation plans.

Non-GAAP diluted net earnings per share attributable to the Company's shareholders for the year ended December 31, 2022 were $6.03, as compared to $8.30 for the year ended December 31, 2021. GAAP diluted net earnings per share attributable to the Company's shareholders in the year ended December 31, 2022 were $6.18, as compared to $6.20 in the year ended December 31, 2021. Diluted net earnings per share in 2022, were reduced by $1.26 as a result of the expenses related to the Company's stock price linked compensation plans.

Backlog of orders for the year ended December 31, 2022 totaled $15.1 billion, as compared to $13.7 billion as of December 31, 2021. Approximately 75% of the current backlog is attributable to orders from outside Israel. Approximately 60% of the current backlog is scheduled to be performed during 2023 and 2024.

Net cash provided by operating activities in the year ended December 31, 2022 was $240.1 million, as compared to $416.9 million in the year ended December 31, 2021. Operating cashflow in 2022 includes higher collection of customers debts offset by higher payments to suppliers.

Impact of the Covid-19 Pandemic on the Company:

In recent years, the Coronavirus disease 2019 (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. Such disruptions also led to global shortages of electronics and other components, increased costs and extended lead times. Elbit Systems continues to monitor the macro-economic implications of the COVID-19 pandemic.

In parallel to the measures we have taken to maintain business continuity and deliveries to our customers, we also continue to work on efficiency initiatives with a number of our suppliers.

During 2021 and 2022 our defense activities, which account for most of our business, were not materially impacted by the pandemic, although some of our businesses experienced certain disruptions due to government directed safety measures, travel restrictions and supply chain delays.

We believe that as of December 31, 2022, Elbit Systems had a healthy balance sheet, adequate levels of cash and access to credit facilities that provide liquidity when necessary. We have given high priority to cash management and adequate cash reserves to run the business. 

The extent of the impact of COVID-19 on the Company's performance depends on future developments including the duration and spread of the pandemic, the measures adopted by governments to limit the spread of the pandemic, including implementation of vaccinations, and resulting actions that may be taken by our customers and our supply chain, all of which contain uncertainties. As noted in our annual report on Form 20-F, the preparation of financial reports requires us to make judgments, assumptions and estimates that affect the amounts reported. For our financial results for the year ended December 31, 2022, we considered the economic impact of the COVID-19 pandemic on our critical and significant accounting estimates. The expected impact of the COVID-19 pandemic did not have a material effect on our judgments, assumptions and estimates reflected in the results. However, our future results may differ materially from our estimates. As events continue to evolve in connection with the COVID-19 pandemic, the estimates we use in future periods may change materially.