Elbit Systems Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' third quarter 2020 results conference call. All participants are present in a 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 news section of the company's website, www.elbitsystems.com. I would now like to hand over the call to Rami Meyerson, Elbit System Investor Relations Director. Rami, please go ahead.

Thank you, Ilana. Good day, everyone, and welcome to our third quarter 2020 earnings call. On the call with me today are Butsi Mahlis, our President and CEO, and Yossi Gaspar, our Chief Financial Officer. 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. Yossi will begin by providing discussion of the financial results, followed by Bussi, who will talk about some of the significant events during the quarter and beyond. We will then turn the call over to a question and answer session. With that, I would like now to turn the call over to Yossi. Yossi, please. Thank you, Rami.

Hello, everyone, and thank you for joining us today. The results of our third quarter reflect the resilience of Elbit Systems the sustained demand for our products and services, and the operational improvement that is a result of the initiatives we have discussed with you in the past. As you are all familiar with COVID-19 has resulted in a significant slowdown in commercial air traffic and industry experts forecast that the commercial air traffic recovery to the 2019 level will likely take a number of years. Elbit Systems' commercial aviation exposure is relatively small as a percentage of revenues, but we are not immune to the slowdown in the market. Our third quarter results include a $60 million non-cash expense for the impairment of commercial aerospace assets and inventory write-offs as a result of the impact of the COVID-19 on demand for products and services that Elbit Systems supplies to the commercial aviation market. These expenses have been recorded mainly in the cost of revenues line item in the P&L and have been excluded from our non-GAAP results as we believe these expenses are not representative of LBIT's regular ongoing business. The recent news on COVID-19 vaccine are encouraging and we continue to monitor the situation closely while adhering to the instructions of the governments of the various countries in which we operate. 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. The non-GAAP information is particularly relevant this quarter as the third quarter results in 2019 included a one-off capital gain from a sale and leaseback transaction in Israel, and the third quarter results of this year include the interventory write-offs and impairment as mentioned above. Overall, we are satisfied with the improved performance in a challenging environment. Our order backlog and revenues increased year over year, And in comparison to the previous quarter, the improvements in profitability reflect the increased focus on operations, as well as the measures we have implemented to mitigate the financial impact of the COVID-19 pandemic. Our backlog of orders as of September 30, 2020, was $10.9 billion. more than one billion higher than the backlog at the end of the third quarter of 2019, and 55 million higher than that at the end of the second quarter of 2020. The order backlog is equivalent to more than two years of revenues and provides good visibility into the future. 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 financial 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 third quarter 2020 revenues were $1 billion and $134 million. In terms of revenue breakdown across the areas of operation, Land system sales accounted for 29% of total sales and increased year-over-year mainly due to precision-guided munition sales to customers in North America and Asia Pacific. Electro-optics accounted for 10% of total sales and increased year-over-year mainly due to the acquisition of Elbit Night Vision. C4ISR at 25% of sales declined year-over-year primarily due to lower radio sales to Latin America. Our diverse geographic revenue base is important to the long-term sustainability of our business. In the quarter, North America was 30% of total revenues, was the largest geographic area, followed by Israel at 25%, Asia Pacific at 22%, Europe at 19%, and Latin America at 2%. Growth in Israel was driven by tank fire control systems, and the decline in Latin America was due to lower C4ISR sales, as mentioned. For the third quarter, the non-GAAP growth margin was 26.7%, up from the 26.3% in the third quarter last year. The improvement reflects increased focus we have placed on operational improvement that includes multiple initiatives and workflows. GAAP gross margin was 20.9% compared with 26% the third quarter of last year as a result of the non-cash expenses related to inventory write-offs and asset impairment due to the impact of the COVID-19 as mentioned above. Third quarter non-GAAP operating income was 93 million or 8.2% of revenues compared with 81 million or 7.3% of revenues in the third quarter of last year due to higher gross margin and lower operating expenses. Gap operating income in the quarter was $24 million versus $102 million in the third quarter of last year following the inventory write-offs and impairments. Our gap operating income in the third quarter of 2019 included a $28 million capital gain related to a sale and leaseback transaction in Israel. The operating expenses breakdown in the quarter was as follows. Net R&D expenses at 8% of revenues versus 7.2% in the third quarter of last year. Marketing and selling expenses declined to 6.3% of revenues versus 6.9% last year due to reduced travel and participation in trade exhibitions. G&A expenses were 4.5% of revenues versus 5.2% last year. Financial expenses for the third quarter of 2020 were $9.7 million compared to $18.5 million last year, mainly due to changes in the shekel dollar exchange rate in the period. The effective tax rate in the third quarter of 2020 was 15% higher than the 9.5% tax rate in the third quarter of 2019, mainly due to the geographic spread of the income, which included the write-off in the quarter. Income from affiliated companies and partnerships was $4.9 million versus a loss of $470,000 in the third quarter of 2019 due to a $2.3 million write-off of an investment in an affiliate company in Israel last year. Our non-GAAP diluted EPS was $1.64 in the third quarter compared with $1.33 in the third quarter last year. Gap EPS was $0.38 versus $1.63 last year. Our backlog orders of September 30, 2020 was $10.86 billion, $1.1 billion higher than the backlog at the end of the third quarter of 2019, and $55 million higher than that at the end of the second quarter of 2020. Approximately 46% of the current backlog is scheduled to be performed during the remainder of 2020 and 2021, and the rest is scheduled for 2022 and beyond. This ratio is broadly similar to that of the third quarter of last year. Operating cash flow for the quarter was a negative of $63 million compared with a negative $49 million in the same quarter last year and reflects a working capital outflow due to the timing of invoicing and collections from our customers, mainly from the Ministry of Defense in Israel. The Board of Directors declared a dividend of 44 cents per share for the third quarter of 2020. I will now turn the call over to Mr. Machles. Please, Buzi.