Elbit Systems Reports Impact on its Fourth Quarter 2023 Financial Results Due to Non-Cash Expenses

Rhea-AI Summary

Elbit Systems Ltd. (NASDAQ: ESLT) expects to incur non-cash expenses of $52 million in Q4 2023 due to write-off of inventory and contract assets related to an underperforming subsidiary and discontinued project. The expenses will impact the 'general and administrative' and 'cost of revenues' line items in the financial statements.

Insights

Financial Analyst

The announcement by Elbit Systems Ltd. of non-cash expenses amounting to $52 million due to the write-off of inventory and contract assets from a discontinued subsidiary is a significant financial event. This write-off indicates a strategic decision to eliminate underperforming assets, which can be seen as a move to streamline operations and focus on more profitable areas. The write-off of $34 million in uncollectible contract assets suggests that the company had previously expected revenue from these projects that will now not materialize, impacting future cash flows.

Investors should consider the short-term effect of these expenses on the company's profitability, as they will reduce net income in the fourth quarter. However, it's critical to note that since these are non-cash expenses, the company's cash position and liquidity are not directly affected. The long-term perspective might be more positive if this move leads to a leaner, more focused company. Additionally, the fact that these expenses will be eliminated in the non-GAAP results indicates management's view that they should be treated as extraordinary items rather than operational costs, which could reassure investors of the company's underlying performance.

Market Research Analyst

The closure of an underperforming subsidiary by Elbit Systems reflects broader market trends where companies are increasingly looking to divest non-core assets to improve operational efficiency. The $18 million related to restructuring costs, which will be excluded from non-GAAP results, further highlights the company's efforts to present a cleaner picture of its core operations to investors. This is a common practice in the industry, especially for companies undergoing transitional phases.

From a market perspective, the reaction to such announcements can be mixed. While some investors may view the write-off as a red flag indicating previous misallocation of resources, others may interpret it as a proactive approach to strengthening the company's focus on its core competencies. The timing of the announcement, ahead of the earnings release, could be a strategic move to manage market expectations.

Accounting Expert

Elbit Systems' decision to record non-cash expenses in the 'general and administrative' and 'cost of revenues' line items is consistent with accounting principles for the write-off of inventory and restructuring costs. The differentiation in reporting these expenses provides transparency into the nature of the write-offs. The $34 million charge for uncollectible contract assets will likely be scrutinized by auditors and investors alike for its impact on the company's asset quality and credit risk management.

It's important for stakeholders to understand that non-GAAP results, which exclude these one-time expenses, are meant to provide an alternative view of performance by excluding items considered non-recurring. However, these adjustments should be viewed critically, as they can sometimes be used to enhance the appearance of a company's financial health. Stakeholders should analyze both GAAP and non-GAAP results to gain a comprehensive understanding of the company's financial situation.

HAIFA, Israel , March 5, 2024 /PRNewswire/ -- Elbit Systems Ltd. (NASDAQ: ESLT) (TASE: ESLT) ("Elbit Systems" or the "Company") announced today that it expects to record non-cash expenses of approximately $52 million in the fourth quarter of 2023. The expenses are related to the write-off of inventory due to the closing of an underperforming subsidiary with limited synergies to the Company, and of contract assets related to a discontinued project managed under the subsidiary.

Approximately $34 million of the expenses are related to an uncollectible balance of contract assets under the discontinued project. These expenses will be recorded in the "general and administrative" line item in the consolidated statement of income.

Approximately $18 million of the expenses are related to the restructuring and discontinuing of the subsidiary's activities. The restructuring expenses will be recorded in the "cost of revenues" line item in the consolidated statement of income and will be eliminated in the non-GAAP results due to their non-recurring nature. 

The overall impact of these expenses on the Company's financial results for the fourth quarter and full year 2023 will be included in the Company's earnings release, which is planned to be released in March 2024.

About Elbit Systems

Elbit Systems Ltd. is an international high technology company engaged in a wide range of defense, homeland security and commercial programs throughout the world. The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance ("C4ISR"), unmanned aircraft systems, advanced electro-optics, electro-optic space systems, EW suites, signal intelligence systems, data links and communications systems, radios, cyber-based systems and munitions. The Company also focuses on the upgrading of existing platforms, developing new technologies for defense, homeland security and commercial applications and providing a range of support services, including training and simulation systems.

For additional information, visit: https://elbitsystems.com, follow us on Twitter or visit our official Facebook, Youtube and LinkedIn Channels.

Company Contact: 
Dr. Yaacov (Kobi) Kagan, ExecutiveVP - CFO
Tel:  +972-77-2946663
kobi.kagan@elbitsystems.com

Rami Myerson, VP, Investor Relations
Tel: +972-77-2948984
rami.myerson@elbitsystems.com

Dalia Bodinger, VP, Communication & Brand
Tel: 972-77-2947602
dalia.bodinger@elbitsystems.com

This press release may contain forward–looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Israeli Securities Law, 1968) regarding Elbit Systems Ltd. and/or its subsidiaries (collectively the Company), to the extent such statements do not relate to historical or current facts. Forward-looking statements are based on management's current expectations, estimates, projections and assumptions about future events. Forward–looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions about the Company, which are difficult to predict, including projections of the Company's future financial results, its anticipated growth strategies and anticipated trends in its business.  Therefore, actual future results, performance and trends may differ materially from these forward–looking statements due to a variety of factors, including, without limitation: scope and length of customer contracts; governmental regulations and approvals; changes in governmental budgeting priorities; general market, political and economic conditions in the countries in which the Company operates or sells, including Israel and the United States, among others, including the duration and scope of the current war in Israel, and the potential impact on our operations; changes in global health and macro-economic conditions; differences in anticipated and actual program performance, including the ability to perform under long-term fixed-price contracts; changes in the competitive environment; and the outcome of legal and/or regulatory proceedings. The factors listed above are not all-inclusive, and further information is contained in Elbit Systems Ltd.'s latest annual report on Form 20-F, which is on file with the U.S. Securities and Exchange Commission. All forward–looking statements speak only as of the date of this release. Although the Company believes the expectations reflected in the forward-looking statements contained herein are reasonable, it cannot guarantee future results, level of activity, performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The Company does not undertake to update its forward-looking statements.

Elbit Systems Ltd., its logo, brand, product, service and process names appearing in this release are the trademarks or service marks of Elbit Systems Ltd. or its affiliated companies.  All other brand, product, service and process names appearing are the trademarks of their respective holders.  Reference to or use of a product, service or process other than those of Elbit Systems Ltd. does not imply recommendation, approval, affiliation or sponsorship of that product, service or process by Elbit Systems Ltd. Nothing contained herein shall be construed as conferring by implication, estoppel or otherwise any license or right under any patent, copyright, trademark or other intellectual property right of Elbit Systems Ltd. or any third party, except as expressly granted herein.

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SOURCE Elbit Systems Ltd.

FAQ

What non-cash expenses does Elbit Systems Ltd. (ESLT) expect to record in Q4 2023?

Elbit Systems Ltd. (NASDAQ: ESLT) expects to record non-cash expenses of approximately $52 million in the fourth quarter of 2023.

Why are these expenses being incurred by Elbit Systems Ltd. (ESLT)?

The expenses are related to the write-off of inventory due to the closing of an underperforming subsidiary with limited synergies to the Company, and of contract assets related to a discontinued project managed under the subsidiary.

How will these expenses impact Elbit Systems Ltd.'s (ESLT) financial statements?

The expenses will impact the 'general and administrative' and 'cost of revenues' line items in the consolidated statement of income.

Will these expenses be included in Elbit Systems Ltd.'s (ESLT) non-GAAP results?

The restructuring expenses related to the subsidiary's activities will be eliminated in the non-GAAP results due to their non-recurring nature.