Elbit Systems Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to LBEAT Systems' fourth quarter and full year 2020 result 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 news section of the company's website at 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, Operator. Good day, everyone, and welcome to our fourth 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 that the safe harbor statement in the company's press release issued earlier today also refers to the contents of this conference call. 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. Yossi will begin by providing a discussion of the financial results, followed by Buzi, 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 the fourth quarter reflect the resilience of LBIT systems, our balanced geographical footprint, and broad portfolio of advanced technological capabilities and solutions. These have helped us sustain demand for our solutions and services in the period of increased uncertainty caused by COVID-19 pandemic. The rollout of COVID-19 vaccines is encouraging. We continue to monitor the situation closely while adhering to instructions of the governments of the various countries in which we operate. Turning now to our results, we are pleased with them and with the performance of our subsidiaries around the world during a year that was heavily impacted by the pandemic. The subsidiaries helped in monitoring and maintaining close contacts with our customers worldwide in this challenging period. Our order backlog and revenues increased year over year in comparison with previous quarter. We maintained profit margins in line with 2019 and improved cash generation due to an increased focus on operations as well as measures we implemented to mitigate the financial impact of COVID-19 pandemic. I will now highlight and discuss some of the key figures and trends in our financial results. First quarter revenue of $1,378,000,000 increased 4.3% year over year. For 2020 as a whole, our revenues were $4.66 billion versus $4.5 billion last year, representing a growth of 3.4%. In terms of annual revenue breakdown across the areas of operation, airborne systems accounted for 35%, of our total annual sales and increased year-over-year mainly due to precision munition and training and simulation. Electro-optics accounted for 10 percent of total sales and increased year-over-year mainly due to the acquisition in 2019 of Elbit Night Vision in the U.S. Land system sales accounted for 27 percent of total annual sales and increased year-over-year mainly as a result of revenues at IMI acquired in 2018. C4ISR at 25% of sales declined year over year, primarily due to lower radio sales to Asia-Pacific. Our diverse geographic revenue base is important to the long-term sustainability of our business. In 2020, North America was the largest, contributing 32% of revenues, Israel was 24%, Asia-Pacific 21%, and Europe 18%. The growth in North America was primarily due to increased airborne system sales and the sales of night vision systems. The growth in Israel was mainly due to land systems. Compared with the fourth quarter last year, we saw strong growth in North America that more than offset lower sales in certain other markets. This reflects the phasing of programs and trends to fluctuate from quarter to quarter. We believe the longer-term trends are more representative of our business. The non-GAAP gross margin for the first quarter was 26.3 percent compared with the first quarter of 2019 of 26.2 percent. For the full year of 2020, non-GAAP gross margin was 26.7 percent compared with 26.9 percent last year. Non-GAAP gross margin in 2020 reflect an unfavorable program mix and cost incurred due to the COVID-19 pandemic. These were largely offset by the cost control measures we implemented to help limit the financial impact of the pandemic. Gap close margin in the fourth quarter of 2020 was 26% of revenues compared with 21.5% in the fourth quarter of 2019. That includes a 55 million charge of reorganization charges related to the acquisition of Elbit Night Vision. GAAP gross margin in 2020 was 25% compared with 25.2% in 2019 for the fourth quarter. GAAP gross profit in 2020 included non-cash expenses of approximately 60 million as a result of the non-cash expenses related to inventory write-offs and asset impairments in our commercial aviation activities due to the impact of COVID-19. And in 2019, GAAP gross profit was impacted by ENV reorganization charges, as mentioned above. The fourth quarter non-GAAP operating income was $113.8 million, or 8.3% of revenues, compared with $125.4 million, or 9.5% of revenues last year. Margin declined year over year due to higher R&D and G&A expenses in the quarter. G&A expenses in the fourth quarter of 2019 benefited from income related to a litigation settlement in the U.S. Non-GAAP operating income in 2020 was 390.1 million or 8.4% of revenues compared with 379.7 million or 8.4% of revenues last year. GAAP operating income was $325.7 million versus $321.6 million last year. I am pleased that we successfully maintained operating profit margins in 2020 at the 2019 levels despite the challenges presented by the COVID-19 pandemic and the additional costs incurred. GAAP operating income for the fourth quarter was $104.6 million versus $63.6 million in the fourth quarter of last year that included the E&V reorganization charges. The operating expense breakdown in 2020 was as follows. Net R&D expenses increased to 7.7% of revenues versus 7.4% in 2019. Our investment in R&D enables us to maintain and build our technological leadership and underpins our long-term prospects. Marketing and selling expenses declined to 6.2% of revenues versus 6.7% last year due to reduced travel and participation in trade exhibitions. G&A expenses were 4.8% of revenues, similar to last year. Financial expenses were $32.5 million in the first quarter compared with $16.4 million in 2019. was mainly due to charges in the shekel dollar exchange rate in the period. Financial expenses in 2020 were 71.3 million compared to 69.1 million last year. The effective tax rate for 2020 was 13.9 compared to 7.9 in 2019. Taxes on income in 2019 were reduced following a settlement with the Israeli tax authorities related to adjustments for prior years. We recorded a tax expense of $1.9 million in the first quarter compared to tax income of $9.1 million in 2019 due to the adjustments for prior years as mentioned above. During the second quarter of 2019, Elbit System raised approximately $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 slight corresponding impact on our earnings per share relative to last year. Our non-GAAP diluted EPS was $2.38 in the first quarter and $7.20 for 2020 as a whole. GAAP diluted EPS for the quarter was $1.53 and $5.38 for the full year. Our backlog of orders as of December 31, 2020, was approximately $11 billion, $1 billion higher than the backlog at the end of 2019, and $166 million higher than that at the end of the third quarter of 2020. This represents an attractive book-to-bill ratio of 1.21. Approximately 65% of the current backlog is scheduled to be performed during 2021 and 2022, and the rest is scheduled for 2023 and beyond. This breakdown is similar to that of the fourth quarter last year. The order backlog is equivalent to more than two years of revenues and provides good visibility for future revenues. Operating cash flow for the fourth quarter was $172 million inflow compared with $87 million in the same quarter last year. For 2020 as a whole, we reported $278 million operating cash flow inflow versus $53 million outflow in last year. Operating cash flow benefited from customer advances received in the fourth quarter. The phasing of cash flow remains dependent on timing of payments, mainly from the Israeli Ministry of Defense. The Board of Directors declared a dividend of 44 cents per share for the fourth quarter of 2020. I will now turn the call over to Mr. Makris. Putzi, please.