Elbit Systems Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' third quarter 2022 results conference call. All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer sessions. 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 Mr. Rami Meyerson, Elbit Systems Investor Relations Director. Rami, please go ahead.

Thank you, Michal. Good day, everyone, and welcome to our third quarter 2022 earnings call. On the call with me today are Butsy Machlis, our President and CEO, Kobi Kagana, CFO, and Yossi Gaspar, Senior EVP, Business Management. 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 reconciliations in today's press release. Gobi will begin by providing a discussion of the financial results, followed by Butsy, 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 Kobi. Kobi, please.

Thank you, Rami. Hello, everyone, and thank you for joining us today. The third quarter result reflects sustained demand for our solutions and the investments we are making to realize the growing potential presented by increased geopolitical tensions and growing defense budgets. Third quarter revenues were similar to 2021, as growth in Europe offset lower Asia-Pacific revenues. Our revenues by geography tend to fluctuate on a quarterly basis based on specific programs and projects performed, as well as milestones reached in a particular quarter. We believe the longer-term revenue trends supported by the growth in the order backlog are more representative, as we have discussed with you in the past. I would note the sale of Ashot Ashkelon Industries to FIMI was completed at the end of the second quarter of 2022 and our results in the third quarter of 2022 do not include a contribution from Ashot. The current operational environment is challenging due to supply chain disruption and labor cost inflation. Profitability in the third quarter include expenses related to employee stock price link compensation plans. These plans help align employee compensation with share price performance, incentivizing our employees to generate long-term value for all of Elbit Systems stakeholders. Our gap and non-gap results have always included these expenses, but this year they are higher than in recent years following the share price appreciation. Our conservative balance sheet management policies have enabled us to increase inventories and partially offset the supply chain disruptions to maintain deliveries to our customers on schedule. Our budgets and longer-term planning assume that the global economy trends of supply chain and wage inflation headwinds will gradually subside from the second half of 2023. We continue to invest in R&D to enhance our portfolio and maintain our competitive edge. We invest in sales and marketing to expand our customer base and also continue to invest in CapEx to improve and expand our manufacturing footprint. The rollout of the new ERP system and the construction of the new facility in the south of Israel are progressing and we expect these and other efforts to support and improve the operational performance. I will now highlight and discuss some of the key figures and trends in our financial results. Third quarter revenues were $1,349,000,000 compared to $1,364,000,000 in the third quarter of 2021. In terms of revenue breakdown across our areas of operation, C4ISR at 30% of revenues increased year over year, mainly due to UAS, and command and control system sales. Land systems was 26% of total revenues and increased year over year due to artillery system sales. Airborne system accounted for 32% and declined year over year due to lower airborne precision guided munition sales. Electro-optics accounted for 10% and other sales accounted for 2% of revenues similar to third quarter of 2021. The geographic revenue breakdown in the third quarter reflects our diverse geographic revenue base. In the third quarter, North America contributed 29%, Europe 26%, and Asia Pacific and Israel, each contributed 19% of revenues. European revenues increased due to growth in training and simulation sales. Asia-Pacific revenues declined mainly to lower precision guided munition sales. North America revenues were lower due to a decline in medical devices sales. The non-GAAP gross margin for the third quarter was 25% compared to the third quarter of 2021 at 27.2%. GAAP gross margin in the third quarter was 24.2% of revenues compared to 26.6% in the third quarter of 2021. Gross margin in the third quarter reflects a combination of unfavorable program mix, wage inflation, and supply disruptions. Gap and non-gap gross profit in the third quarter include approximately $30 million of expenses related to stock price-linked compensation plans. Third quarter non-GAAP operating income was $84.3 million or 6.3% of revenues compared with $123 million or 9% of revenues last year. GAAP operating income for the third quarter was $73.4 million versus $110.3 million in the third quarter of 2021. Operating profit in the third quarter include expenses of approximately $22 million related to the stock price link compensation plans. The operating expense breakdown in the third quarter was as follows. Net R&D expenses were 8.4% of revenues versus 7.4% of revenues in 2021. Marketing and selling expenses were 5.1% of revenues down from 6.2% of revenues last year. G&A expenses were 5.9% of revenues compared to 4.9% of revenues last year due to stock price link compensation expenses. Other operating income of $9.4 million included a capital gain related to the sale of a building in Israel, which was included in our gap and non-gap results. Financial expenses were $16.4 million in the third quarter compared to $13.5 million in 2021. Other income of $4.8 million included approximately $4.6 million related to the re-measurement of an affiliate following an investment round. We recorded a tax expense of $7.9 million in the third quarter compared to $8.3 million in 2021. The effective tax rate in the second quarter was 12.8% compared to 8.6% in 2021. The non-GAAP diluted EPS was $1.40 in the third quarter compared with $2.33 last year. The GAAP diluted EPS was $1.26 compared with $2.08 last year. The stock price link compensation expenses in the quarter we're equivalent to approximately $0.45 on an EPS basis. Our backlog of orders as of September 30, 2022, was $14.7 billion, approximately $1.1 billion higher than the backlog at the end of September 2021. Approximately 40% of the current backlog is scheduled to be performed during 2022 and 2023 and the rest is scheduled for 2024 and beyond. Operating cash flow for the third quarter was a $178 million inflow compared to no inflow in the same quarter last year. The cash outflow also included an inventory build related to our efforts to mitigate supply chain challenges as we have leveraged our solid balance sheet to support deliveries to our customers. Cash flow from investing activities includes the higher CapEx related to the new facilities in the South of Israel, Charleston, South Carolina, as well as the rollout of the new ERP system. The Board of Directors declared a dividend of 50 cents per share for the third quarter of 2022. I will now turn the call over to Mr. Machlis, Elbit CEO. Butzi, please go ahead.

Thank you, Kobi. Firstly, I would like to thank the investors on the call and all our shareholders for their continued support. In a volatile world, we, Elbit's management team, have to make hard choices and decisions as we strive to create value for all our stakeholders and ensure we find the right balance between long-term value creation and short-term performance. We are fortunate that Elbit Systems shareholders understand the strategy, the potential, and the long-term investment horizon that has supported the growth and the success of the company for decades. We are also aware that you expect a better operational performance, including higher profitability than what we delivered in the third quarter. We are working to improve the short-term performance, while maintaining the balance with the long-term success of Elbit Systems by investing in our people, our portfolio, and our customers. This year, we increased investment in our people. Elbit's employees are the most critical contributor to our long-term success. We invested to retain talent. in a competitive labor market in Israel and around the world, including stock price link compensation plans that had material impact on the profitability in 2022. I would like to remind you that our executives and employees come to work at Elbit for more than just a salary. They join Elbit because we are an attractive employer that provides them with an opportunity to work on some of the world's most advanced technologies and to support those responsible for the protection of our loved ones in our countries. Our business is growing and we continue to recruit around the world to deliver our record backlog and support our customers. We continue to invest in R&D to develop leading solutions that provide our customers with valuable competitive edge, leveraging the professional experience of our employees and the proximity and short feedback loop with our customers. We are investing in new facilities. Elbit is building new advanced facilities in Israel, the UK, Germany, and the US. and we continue to gradually upgrade existing facilities. These facilities will include the latest manufacturing technology and processes that should support the operational improvement. We are also investing in creating value for our customers by providing them with advanced capabilities, investing in our multiple subsidiaries around the world and by utilizing our balance sheet to build inventories and maintain deliveries on schedule. We know that our customers appreciate our efforts and we expect these investments to deliver a good return in the future. Elbit system long-term growth has been driven by a healthy combination of both organic growth and acquisitions. These include Elbit Night Vision in 2019, and Spartan in 2021 that enhanced our technological portfolio and strengthened our position in the U.S. Spartan and Elbit Night Vision reported significant milestones in recent months. In October, Spartan was one of three suppliers awarded a joint five-year 5.1 billion U.S. dollars IDIQ contract to supply sonoboys to the U.S. Navy. This follows selection of Spartan as a qualified vendor for the multiple award delivery order contract by contract or MADOC in July. The IDIQ is significantly larger than the previous five-year IDIQ. This illustrates the importance of anti-submarine warfare as new tensions escalate and the growing demand for next-generation thermoboys. U.S. Naval Forces Central Command is currently conducting a three-week digital horizon exercise in the Middle East focused on employing and integrating unmanned and artificial intelligence systems. Elbit System of America, together with our Israeli-based maritime business unit, are showcasing Elbit System Sigul unmanned surface vessel as part of this exercise. This event validates the investment Elbit has made to build its maritime capabilities and the growing importance of the maritime domain. In October, Elbit Night Vision received a $100 million U.S. dollar order to supply night vision systems to the U.S. Army as part of the OTA contract received in 2020. In September, Elbit Night Vision received a contract to develop an advanced night vision sensor for the U.S. Army's IBAS system. Militaries around the world continue to invest to equip the soldiers with capabilities that enable operations at night or in dark environments. Recent conflicts have highlighted the importance of these capabilities. Elbit is a leading provider of night vision capabilities for soldiers, thanks to the acquisition of Elbit Night Vision and our legacy solution. We are working to realize the synergies between our night vision capabilities and additional technologies in LBIT portfolio like the integration of our command and control systems that can project information on the night vision display. At the second quarter results conference call, we discussed five capabilities areas that we identified should benefit from increased defense spending over the coming years following the lesson learned from the Russian Russian invasion of Ukraine. These are platform protection, command and control system, electronic warfare, armament systems, and network precision munition. We believe that each one has the potential to generate significant revenues over the medium term. During the third quarter, we announced additional contracts across these five priority areas Starting with platform protection, in November, we announced a US$200 million contract for military helicopter self-protection suits for an Asia-Pacific customer. The conflict in Ukraine has highlighted that only ground forces equipped with tanks and APCs can maneuver and execute large-scale operations. The conflict has also demonstrated the vulnerability of platforms across all domains and the critical need to protect both platforms and their occupants. This highlights the importance of active protection systems to protect maneuvering ground platforms. The Iron Fist active protection system development is on track for platforms in Israel, the Netherlands, Australia, and the U.S. I believe there is a significant potential for this unique solution that can protect armed personnel carriers and a range of military platforms. Helicopters provide critical support to maneuvering armed forces, and our DIRCOM system protects helicopters and six-wing aircraft from a range of threats. Another area of priority spent is autonomy and unmanned systems in the air, on the ground, and at sea. The effectiveness of loitering munition on an armed UAV is limited when operated as a single platform. Armed forces require a comprehensive solution that generate targets and close the sensor to shoot a loop quickly and efficiently. Elbit can supply our customer with a multi-layered solution of autonomous aerial intelligence capabilities from small drones to male UAVs. We can connect these platforms with our command and control solutions and equip them with a range of electro-optical, alien, and EW sensors and payloads, all developed in-house at Elbit. The vertical integration of our internal supply chain, and hence our ability to tailor unmanned and autonomous solutions to customer requirements, increasing effectiveness by maximizing the performance of each part of the solution and reducing costs. In September, we were awarded a $120 million contract to supply Hermès 900 maritime UAS to the Royal Thai Navy. These U.S. will configurate for maritime mission and will be equipped with maritime radar, satellite communication, droppable inflatable life raft, and other capabilities. In November, we received a $72 million contract to supply Hermit 900 UAS to an international customer. the Hermes 900 TOS has been selected by more than 15 customers around the world. The third area of priority spent are advanced radios and command and control systems. To maneuver efficiently and effectively and combine multi-domain operation, modern armies have to be equipped with advanced C2 systems. In October, we were awarded a $65 million contract to supply the first fully networked mechanized solution to an army in Latin America. This solution includes armed vehicles equipped with software-defined radios, a battle management system, and many unmanned aerial systems. In October, we received a $25 million contract from the Finnish Ministry of Defense to supply radio communication system to the Finnish Army. Our military radio communication system has been selected by several European and NATO countries, including Sweden, Germany, the Netherlands, Switzerland, Spain, and others. And with that, I will be happy to take your questions. Operator?

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while we pull for your questions. The first question is from Pete Skibitsky of Alembic Global. Please go ahead.

It's good afternoon, everyone. Hope everyone's doing well. Hey, Pete. Guys, I had a question about the airborne systems units. Revenue was down quite a bit this quarter. I think, Kobe, you mentioned it was on airborne precision guided munitions. It was also down a little bit in the second quarter. I'm just wondering if there was maybe one large program that's ending that's driving that weakness and that maybe as we get into the fourth quarter or first quarter we'll see easier comps there and a return to growth.

Thank you, Peter, for the question. This is Kobi. You're right. It is a large program that we announced early last year that we had concluded in the previous quarter. And in this quarter, we don't have any sales from this large program. We announced a new airborne precision munition sale that we got this year. So we expect that next quarter, we will continue to sell on this issue.

Okay, that's helpful. Thanks so much for that. And then I just wanted to switch now to maybe to, you know, underlying gross margin issues, in particular pricing. I'm just wondering, you know, as we've heard the U.S. defense contractors work their way through the third quarter, you know, they are also experiencing, of course, higher labor rates. And there's sort of a delay effect in terms of, you know, you know, not being able to pass on the higher labor rates through updated pricing until they start new contracts, essentially. And so you've got this mix of, you know, current contracts with higher labor rates, but pricing that reflects, you know, labor rates from maybe a year or two ago. So I'm just wondering, have you, has Elbit had success in terms of the ability to pass on the cost of higher labor rates through pricing on new contracts. And so, you know, maybe ignoring for now stock-linked compensation, but just in terms of base labor rates, are you getting better pricing on new contracts as opposed to the contracts that maybe were awarded a year ago when labor rates were a bit lower?

Hi, Pete. This is Yossi. I would address it in the following way. First of all, the extraordinary cost related with our stock option plan, that is something kind of a one-time and it goes away and it's not something of the baseline of cost of the company. So that should be neutralized and it does impact the present year, but that is not something that will continue with us. On the baseline cost, I would say the following. Some of our contracts with customers do have economic price adjustments, and therefore, we are getting compensation because of the growth in the cost of the labor, and also, to some extent, growth in the cost of basic materials, which is also a price adjusted according to what happens in the market. However, we don't have that in for all of our contracts and therefore we are suffering to some extent because of that. We definitely take all these changes into consideration when we bid for new contracts and I would say that even in the recent growth of backlog that we have experienced, they already include backlog that takes into account these economic adjustments, and we hopefully will, these contracts will result in improved profitability in the future.

Okay, that's very helpful. Great call there. I appreciate it. I'll just ask one last one and then get out of the queue there. On the backlog growth, it's a good transition, Yossi. It was very strong this quarter. Year-to-date backlog growth has been strong. I'm just wondering, can you bifurcate it a little bit by region for us? Is there any one region that's been very, very strong and maybe some laggards? And I'm sure a lot of people are wondering if Europe and even Eastern Europe is driving that growth or if you're seeing strains kind of across the board. Appreciate any color on that topic.

First of all, I would say the following about that. We have kind of a steady state business flow, which we were exposed to years ago, and we continue to have. These are what we call the medium-sized contracts of tens of millions of dollars each, and that continues and even increases. Then we have, on top of that, some significant number of what we call three-digit contract that has in the hundreds of millions of dollars per contract that we have seen in recent two years increase of number of those contracts and definitely the high level dollar value contracts have the potential to improve future definitely revenues but also the bottom line. Regarding the areas, geographic areas, you can look at our press releases of the various major contracts that we have announced. And if you analyze those, I would say that the contracts in the U.S. are more or less in the steady state growth that we have seen past years. Contracts in Europe and Asia Pacific are higher. In the growth than what we have seen in the past specially related with some of these three digit contracts that I mentioned earlier and The contract in Israel, of course are more or less at the level that we have seen that in the past maybe with some middle single digit growth from what we have seen in the past in total is Year over year, our backlog has increased by 1.1 billion, which is a significant number. And the global spread, as I said, the higher level of growth is in Asia Pacific, Europe, and all the others are at the normal level.

Okay, that's great. I appreciate the call, guys.

Thank you.

Thank you, Peter. Thanks.

The next question is from Ellen Page of Jefferies. Please go ahead.

Hi, guys. Thanks for the question. Just to start, looking at both from a cash and margin perspective, how would you describe supply chain disruptions today relative to where they were in Q2? Are things improving at all, both from an ability to source materials and also from an inflation perspective?

With regard to supply chain, we see an improvement in shipment. The shipping costs are going down, and not yet at the historical level, but they are going down. And we see also prices going down. metal parts and material going down. Once again, not yet at the historical level prior to COVID, but going down. We don't yet see it in electronic components. There we still see a shortage. The main challenge we face right now is mainly around electronic components and that's also the reason why our stocks went up in inventories. From what we understand and from what we estimate, we believe that improvement there will happen during the second half of next year, and we are taking all the required measures in order to overcome some of these challenges.

Helpful. And just looking at land systems, it was very strong in the quarter, and I believe that's where a shock came out. Am I... Like, is that accurate? And how do we think about growth going forward as we think about both ammunition and weapons in active production?

Are we talking about land systems, Helen?

Yes, and Ashat, the divestiture.

Yeah, we had... Hi, Helen, this is Kobi. We had stronger artillery sales this quarter. And remember that the Ashat Ashkelon part was nearly $20 million. So it was not so significant, but we had stronger artillery and ammunition sales due to the situation, mainly in Europe. So we had a stronger quarter in the land system business.

How cool. I'll hop back in the queue. Thank you.

Thanks, Ellen.

The next question is from Ella Freed of Banco Lumi. Please go ahead.

Good afternoon. Thank you for taking my questions. Most of them were answered, but I have just one or two left. You marked C and another business as one of your strategic moves into the next years. And also, you have this conversion of of products and technologies from air and from land into the sea. So could you give us some milestones of when and how much this will be felt over the next years?

Hi, Ella. Hi. As you remember, we acquired Spartan in the U.S. It was around two years ago. And we continue to be an important supplier to the Navy of sonoboys. And as was mentioned, the 5.1 billion IDIQ contracts which should come and be split between three suppliers is also a good indication that our revenues in Spartan will continue to grow in the future. We also made another acquisition a few years ago in Canada, a company by the name of GTI. They do sonars, and they are very successful. The company is growing as well, and they have already several international sales, and we see a growing potential for them also. A year and a half ago, we won a very important EW naval contract in the UK. It was a very difficult competition against local providers, and still we won it because of the superior technology we have here in Israel, and this technology is similar to the technology that we are deploying these days on the South Six Corvette of the Israeli Navy. So based on our EW capabilities here and based on our capabilities in the US and in Canada, I'm happy to say that we have positions in the US, we have positions in Canada, we have positions in the UK and in Israel. And this is And we also have here a nice, very advanced autonomous solution by the name of SIGAL, which the importance of naval autonomous vessels was demonstrated just recently in the Gulf, as well as the conflict between Ukraine and Russia. So we have several elements. We are combining them together to deliver integrated solution to our customers. We see a growing potential for that. And our long-term focus is to have an activity for naval customers, which should be around $1 billion revenue to you.

Okay, thank you. And I have a follow-up question, unsurprisingly, on the bottlenecks in the industry also. It was quite a lot said about. The question is, if you could give us a bit more color and a bit more specifics about where, I mean, there are the chips, but is it mostly Asia or it's all over and also Europe? because there is such a ramp-up in the industry, especially in the U.S., is there competition between companies and you have sometimes just to stand aside and wait for more rational prices? How is it impacting you? Because the American... companies, they were ahead of you in the supply chain disruptions, and you were much better off all this time, and now it reached you as well. So I would like to see how is it happening in the industry.

Hi, this is Yossi.

Hi, Yossi.

Hi. I would say the following. We all, the whole industry, and not only the aerospace and defense, were significantly affected by what's going on in the supply chain. However, as Buzzi explained before, we already see some improvement in areas like the mechanical parts, like transportation and deliveries, and so on and so forth. However, the electronic parts are still with us, and impacting. The good thing that we did two years ago is that we have anticipated this thing that's going to happen, and we have increased our inventories significantly, which did hurt our working capital, of course. And you have seen that in our reports. By the end of the day, and we continued to work along those lines during the last year and a half to two years. However, initially we thought that this will be over, or significantly over by this time, and this has not happened. This explains why we were quite well organized for the initial year, year and a half, and it did not affect us as much as it was done by the US companies. However, by the end of the day, we are part of the whole global supply chain, and now it does affect us more. We do anticipate by the second half of 2023, this will decline, and what has happened in the mechanical parts and in the transportation and other areas, That will improve also in the electronic parts, and we will be back on track somewhere towards the second half of 2023.

Do your competitors also feel optimistic about this, more or less this timing? Definitely, yes.

These are the market estimates right now. and we are on a daily contact with all the suppliers to understand exactly when can we get the missing parts. You understand, in some cases, we have the entire product ready, and we are just missing one transistor or one piece of electronic in order to deliver it to a customer, and we can do it. So we are on a daily contact with the relevant suppliers, We start to see some improvement, but the estimation right now in the market that it will be solved or most of it will be behind us during the second half of next year.

Okay, and the last question about the hedge. I know that you have now a new hedge policy and it's less sporadic than it used to be. but this recent month presented quite an opportunity for hedging. So did you stick to this structured hedging or did you take also some opportunities in this field?

Hi, Ella, this is Kobi. Hi, Kobi. Hi. We are sticking to a policy which is we are not profits and we cannot anticipate what happens with exchange rates. For instance, nobody anticipate the sharp decline in the British pound. So we are trying, we are sticking to the policy. Next year, of course, we have some stronger hedges due to the improvement in the rates. And we sometimes take peaks, and when we identify peaks, we actually take the opportunity and increase our hedges, but this is, everything is around the policy. So we maintain strict policy, which gives us, we want to work on a steady platform of exchange rates, and sometimes it's worth a lot to understand what is the neighborhood of the exchanges that we are working. Again, with taking advantages on spikes that we identified.

So it will be more closer to the average and less to the spikes, if I read you right.

Yeah, this is right. Because we think that the steady platform for the company is very advantageous for our work. And of course, we have a significant improvement for next year in terms of the platform of the exchanges that we're going to work with.

Okay. Thank you very much, and thank you for taking my questions. Good afternoon.

Thank you.

Thank you.

The next question is from Ariel Feiner of Leader. Please go ahead.

Okay. Thank you for taking my questions. So most of the questions were answered, but I want to ask you – What's your opinion about the field that the recession will eventually lead for a lower growth in the defense budget and how it's going to influence the company? And the second question, we've seen an impressive growth in the backlog. Do you have a range or guidance when we're going to see the growth in the revenue and what's your guidance for the next two years?

With regards to the first... Hello. With regards to the first question, we do not see any signs of recession in defense spending. On the contrary, we see growth. We see growth in Europe, we see growth in Asia-Pacific, and we also expect growth in our position in the U.S. and North America. And we also... Also here in Israel, after the election, we hope to see stability, which will enable a long-term program to be executed. So we anticipate growth in defense spending. We see growing potential for the company. We see more opportunities. We deliver more offers. And the funnel of new positions is increasing. So that's with regards to the first question. With regards to the second question, if it is the first.

Well, I think that the best indicator for the future growth in revenues is the backlog. If you look at our press release, we always give the breakdown of the backlog for the rest of the year plus the following year and the backlog to be sold after the following year. By the end of the third quarter, we had a backlog of $14.7 billion. And we also said that 40% of that backlog is going to be performed during the fourth quarter of 2022 and 2023. Just by making a simple calculation, that gives you about $4.7 billion of revenues that are going to happen in 2023. We usually have a coverage of backlog for approximately 80% for the following year. So just making a simple mathematics, you can find out that we'll have very nice growth for the top line for next year.

Okay, thank you.

Thank you, Elia.

The next question is a follow-up from Pete Skibitsky of Alembic Global. Please go ahead.

Yeah, thanks, guys. I wanted to ask on the cash flow statement, the contract liabilities line, which I think relates to customer advances. Advances were a little soft in the first half of the year, but they were very strong here in the third quarter. And historically, they've been very strong in the fourth quarter. So I just wanted to to see if maybe some advances were pulled forward from the fourth quarter into the third? Or do you expect the fourth quarter to be another good quarter for advances? Because typically a good advances quarter for Elbit means a good free cash flow quarter as well. So I just want to get a sense of that. Thanks.

Hi, Pete. It's Butti. The answer is no. We didn't change anything. What you see right now is a reflection of the third quarter only. And we put a lot of emphasis on cash flow in the company these days. And this is true also for advances. And that's why you see growth in advances in the company, and we expect it to continue.

Okay, great. Thanks so much.

Thank you.

Thanks, Pete.

If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we poll for more questions. There are no further questions at this time. Before I ask Mr. Machlis to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available two hours after the conference ends. In the U.S., please call 1-888-782-4291. In Israel, please call 03-925-5900. And internationally, please call 972-3925-5900. A replay of the call will also be available at the company's website, www.elvidsystems.com. Mr. Machlis, would you like to make your concluding statement?

Thank you. I would like to thank all our employees for their continued hard work and contribution to Elbit Systems' success. To everyone on the call, thank you for joining us today and for your continued support and interest in our company. Have a good day and goodbye.

Thank you. This concludes the Elbit Systems Limited Third Quarter 2022 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.