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.