NASDAQ:ESLT | TASE:ESLT
Haifa, Israel-based Elbit Systems Ltd. (NASDAQ:ESLT) (TASE:ESLT) is a $6.0 billion revenue generating global defense contractor that has positioned itself as a leading provider of innovative technology-based systems for various defense and civilian applications. Reflecting a global footprint, the company serves customers worldwide. The demand for advanced defense and homeland security technologies has climbed against an increasingly complex global geo-political landscape. The company’s goal is to continue to innovate and maintain a product portfolio that meets the growing and changing needs of its domestic and international customers. Elbit System shares are listed on both the NASDAQ and TASE.
Broad and Growing Product Portfolio
Elbit Systems offers a broad portfolio of systems and products across airborne, land, and naval capabilities catering to defense and commercial markets. The company’s major activities span military aircraft and helicopter systems, commercial aviation systems and unmanned aircraft systems (UAS), among other product categories.
The company has a commitment to continuous innovation. Elbit Systems allocates approximately 7% of sales to research and development (R&D), with a focus on improving existing systems and developing new technologies, emphasizing reducing time to market and increasing affordability. This approach incorporates emerging and established technologies, including open-source software.
The company’s commitment to innovation is reflected in Elbit’s stable R&D spending noted above, while R&D efforts that span defense, homeland security, and commercial applications, often in collaboration with the Israel Ministry of Defense (IMOD) and other customers. The company’s various projects under development allow Elbit to test and hone new technologies, including tools for rapid prototyping that streamline the design and development processes. Elbit Systems employs engineers across various disciplines, with nearly half its workforce dedicated to technology-related functions. The company also invests long-term in science and technology infrastructure, often in partnership with academic institutions.
Reflecting its goal of innovation, Elbit’s Israeli subsidiaries have received the Israel Defense Prize 35 times, recognizing contributions to defense innovations. The company’s R&D is supported by funding from various sources, including the Israel Innovation Authority and other government bodies in Israel and abroad. in addition, Elbit’s investments in R&D generally align with its strategic objectives to develop advanced technologies for defense and security applications.
Elbit also enjoys significant synergy among its various operating subsidiaries, which often collaborate on marketing, research and development (R&D), manufacturing, and sales support. The company believes there are multiple benefits to working collaboratively across its various operating units, including that Elbit attains economies of scale and this integrated approach also generally means that Elbit’s product offerings are state-of-the-art, leveraging leading edge technology including artificial intelligence (AI). The company believes areas in which it has strong capabilities and competitive strength include C4ISR systems, cyber-defense, and unmanned systems, among others.
Global Presence: Benefits of Broad International Footprint
Broad global footprint reduces reliance on any single market…
… And mitigates impact of regional economic fluctuations
Elbit Systems has developed a broad global footprint, with subsidiaries and operations internationally in multiple markets. For example, the company’s 2023 sales were broadly distributed geographically, with no one territory accounting for more than 30% across Europe, North America, Israel, Asia-Pacific, Latin America, and other regions. Specifically, Europe accounted for 30% of Elbit’s $6.0 billion in 2023 revenue, followed by APAC (21%), Israel (20%) and North America (24%). Reflecting this broad footprint, the company believes it has lowered its exposure to fluctuations in demand any single market. Moreover, this also mitigates the risk of regional economic fluctuations, in our view.
Elbit Systems of America, the company’s U.S. subsidiary, plays a significant role in its international operations. In 2023, this operating segment generated $1.5 billion in revenues. The company believes its strong presence in the U.S. and in Europe further insulate it from changes in conditions and regulatory environments in any single market.
The company’s home market, Israel, accounted for 20% of 2023 revenue, as noted. However, since the war that began on October 7, 2023, geographic revenue contributions have shifted slight as Elbit’s domestic demand has increased. Specifically, Israel accounted for 29% of revenues in 1H24, reflecting higher demand for a broad range of the company’s solutions following the breakout of the war, according to management. Over the same period, the company has also accelerated its R&D of certain solutions that had been under development.
Financial Performance and Recent Developments
Overall, conflicts in Eastern Europe and the Middle East in recent years, as well as growing geopolitical instability in several regions including Asia-Pacific, have driven higher government defense spending in multiple markets. This trend has contributed to Elbit’s revenue growth in recent years and likely reflects its solid market position. The company reported revenues of $5.975 billion in 2023, up 8% from $5.511 billion in 2022. The company’s momentum continued into 2024, with Q2 revenues reaching $1.626 billion, a notable increase from $1.454 billion in the same quarter of 2023. As noted, the geographic market breakdown of revenue has shifted I 2024, reflecting higher domestic demand during the current conflict. Israel represented about 29% of total revenue, up from 20% in 2023. Demand was fairly evenly spread out across the company’s various product categories and operating segments.
Moreover, the war also poses challenges that Elbit had not faced in prior years. The majority of Elbit’s facilities in Israel remain operational, but some have faced disruptions due to supply chain constraints, production line relocations and, in some cases, a reduced work staff as employees are called to serve in the military. The company has taken proactive steps to address many of these challenges. These measures include relocating certain production lines, as noted, recruiting additional employees, and enhanced supply chain monitoring.
Growing Backlog supports growth trends
Elbit Systems has strategically positioned itself to capitalize on growing trends that increasing leverage smart technology to support military applications. By integrating digital transformation technologies such as artificial intelligence (AI), Big Data analytics, and robotics into its solutions, the company strives to meet the evolving needs of its customers in various geographic markets. Elbit believes it offers cost-effective solutions that enhance existing platforms and enable customers to improve their defense capabilities. The company’s growing order backlog would appear to support the success of its strategy.
Backlog reached $17.8 billion by the end of 2023. Several major contract awards have also contributed to this growth, including a $130 million contract for Iron Fist Active Protection Systems and a $270 million contract to supply rocket artillery to an international customer.
Conclusion
Elbit Systems has established itself as a global leader in defense and homeland security technologies through its broad portfolio of innovative solutions, strong financial performance, and expanding international presence. As the company continues to innovate, Elbit expects an expanding product portfolio to continue to meet the changing needs of its global customer base in a rapidly changing geo-political landscape. Management understands that its ability to adapt and innovate will be crucial to future success, as ongoing geopolitical uncertainties and the impact of regional conflicts present both opportunities and challenges for Elbit Systems. Elbit Systems’ growing backlog would indicate that the company appears well-positioned to meet the evolving defense and security needs of governments and organizations worldwide.
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