Elbit Systems Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' second quarter 2020 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. You should have all received by now the company's press release. That is available in the new section of the company's website, www.elbitsystems.com. I would now like to hand over the call to Rami Meyerson, Elbit Systems Investor Relations Director.

Rami, please go ahead. Thank you, Yoni. Good day, everyone, and welcome to our second quarter 2020 earnings call. On the call with me today are Butsy Machlis, our President and CEO, and Yossi Gaspar, our Chief Financial Officer. Before we begin, I would like to point out Thank you Rami. Hello everyone and thank you for joining us today.

The results of our second quarter reflect the resilience of Elbit Systems and the actions we are taking to address and mitigate the impact of the COVID-19 pandemic on our activities, as we discussed in our earnings call for our first quarter results. Government-directed safety measures, supply chain delays, and travel restrictions continue to cause some disruptions to our business, Thank you very much. The measures adopted by governments to limit the spread of the pandemic and the resulting actions that may be taken by our customers and our supply chain. Turning now to our results. As we do every quarter, we will provide you with both our regular GAAP financial data as well as certain supplemental non-GAAP information. We believe that this non-GAAP information provides additional detail to help 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. Overall, we are satisfied with our performance in a challenging environment. Revenues and backlog increased year over year and slightly In comparison to the previous quarter, the improvements in profitability and cash flow reflect the increased focus on operations, including the cost control measures that we implemented to mitigate the financial impact of the COVID-19 pandemic. Our backlog of 10 billion and 800 million provides good visibility and reflects the long-term nature of our business. It generally takes time to finalize contracts in our industry, But once we book, they often provide many years of revenues. I would like to note three events that impacted our results in the quarter. On May 19, we announced a $70 million investment by Charles Bank Capital Partners in Cyberbit, our commercial cyber subsidiary. Elbit received $48 million for a portion of our shares in Cyberbit, and a balance of $22 million was invested in Cyberbit. Following the investment and sale of our holdings, Elbit Systems is now a minority shareholder. This transaction generated a healthy profit that we reported in other income. I know that we have retained all our military cyber activities within Elbit Systems and revenues are reported under the C4ISR Systems line. In May, we completed the sale and leaseback of two of Elbit Systems of America's facilities. The profit from these transactions was reported in other operating income lines. During the quarter, we restructured an Israeli joint venture that we had formed with a foreign company and recorded a $4.4 million non-cash write-off reported in earnings of affiliated companies and partnerships. The remaining assets and employees have been incorporated into LBIT and going forward will be reported as part of LBIT Systems' ongoing activities. The impact of all three of these transactions was excluded from our non-GAAP results due to their non-recurring nature. I should also note that the acquisition of Elbit Night Vision from L3 Harris closed on September 15, 2019 and was therefore consolidated into our income statement commencing the date of the acquisition. I will now highlight and discuss some of the key figures and trends of our financial results. Our second quarter 2020 revenues were $1,079,000,000. In terms of revenue breakdown across our areas of operation, land system sales accounted for 27% of the total sales and increased year-over-year mainly from the sale of artillery systems and precision munitions to U.S. customers. Electro-optics accounted for 12% of total sales and increased year-over-year mainly due to the acquisition of Elbit Night Visions. Airborne Systems at 36% of sales declined year over year, primarily due to lower commercial avionics sales in the U.S. Our diverse geographic revenue base is important to the long-term sustainability of our business. In the quarter, North America at 34% of total revenues was the largest geographic area, followed by Israel at 25%, Asia Pacific at 21%, and Europe at 15%. Gross in North America was primarily due to land system sales as mentioned in the acquisition and the acquisition of Night Vision in the U.S. For the second quarter, the non-GAAP gross margin was 26.5%, down from 27.7% in the second quarter of last year. The decline reflects the business mix as well as additional pandemic-related costs we incurred during the quarter, to facilitate the safety of our employees and maintain business continuity. GAAP gross margin was 26% compared with 27.1% for the second quarter of last year. Second quarter non-GAAP operating income was 92.7 million or 8.6% of revenues compared with 89.6 million or 8.4% of revenues in the second quarter of last year. as cost control measures helped to offset the impact of the COVID-19 on the gross profit. GAAP operating income for the quarter was $117.1 million versus $80.3 million in the quarter last year and includes the profit from the sale and leaseback of Elbit Systems of America facilities as mentioned previously. The operating expense breakdown in the quarter was as follows. Net R&D expenses at 7.3% of revenue were similar to the second quarter last year. Our investment in R&D enables us to maintain and build our technological leadership and underpins our long-term prospects and therefore we increased our investment in R&D in absolute terms during the quarter. Marketing and selling expenses declined to 6.2% of revenues versus 6.9% last year Thank you very much. Other income of $13 million includes the profit generated by the sale of Elbit shares in Cyberbit and equity in net earnings of affiliated companies and partnerships was a loss of $0.4 million following the write-off of a $4.4 million investment in an affiliated company in Israel as mentioned previously. The effective tax rate in the second quarter of 2020 was 20.8% During the second quarter of 2019, Elbit Systems raised $185 million through the sale of treasury shares to institutional investors in Israel. This increased our share count by about 3%, to 44.2 million shares, having a small corresponding impact on our earnings per share relative to the second quarter of 2019. Our non-GAAP diluted earnings per share was $1.56 in the second quarter compared with $1.46 in the second quarter of last year. GAAP EPS was $2.02 versus $1.22 last year. Our backlog of orders as of June 30, 2020 was 10.8 billion, 1 billion higher than the backlog at the end of the second quarter of 2019, and 14 million higher than that at the end of the first quarter of 2020. Approximately 55% of the current backlog is scheduled to be performed during the remainder of 2020 and 2021, and the remainder is scheduled for 2020 and beyond. This ratio is broadly similar to that of the second quarter last year. Operating cash flow for the quarter was a positive of $179 million compared with a negative of $138 million in the same quarter of last year. Our cash flow in the quarter reflects the increased focus on working capital management including improved collection from our Israeli and international customers as well as more disciplined inventory management. Lower capital expenditure also supported total cash flow in the quarter. On June 30, we paid the final interest and principal payments for the Series A notes. Elbit Systems continues to manage its balance sheet conservatively. Besides our cash, we have access to multiple credit lines that can provide us with additional liquidity. The Board of Directors declared a dividend of 44 cents per share for the second quarter of 2020. I will now turn the call over to Mr. Machlis. Butsy, please. Thank you, Yossi.