Elbit Systems Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' second quarter 2023 results conference call. All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the questions 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 Mr. Rami Meyerson, Elbit System Investor Relations Director. Rami, please go ahead.

Thank you, Nathan. Good day, everyone, and welcome to our second quarter 2023 earnings call. On the call with me today are Buti Machvis, our President and CEO, Kobi Kagan, our 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 financial information and the reconciliation in today's press release. Kobi will begin by providing a discussion of the financial results, followed by Budsi, 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 financial results of the second quarter of 2023 reflect sustained demand for our solutions. Increased production capacity and gradual increase and gradual easing of supply chain pressures that supported the revenue growth. The sequential increase in operating profitability provides an encouraging initial indication of the successful implementation of the operational improvement plan. We continue our efforts across the company to improve profitability and cash generation and realize our potential. Before I discuss some of the key figures and trends in our financial results, I would note that the sale of Ashot Ashkelon to FIMI Opportunity Funds was completed at the end of the second quarter of 2022. And our results in the second quarter of 2023 do not include a contribution from Ashot Ashkelon. Second quarter revenues increased by 12% to $1,454,000,000 compared to $1,303,000,000 in the second quarter of 2022, with growth across all business segments. In terms of quarterly revenue by segment, aerospace revenue increased by 19% in the second quarter of 2023, compared to the second quarter of 2022, mainly due to training and simulation sales in Europe. C4I and cyber revenues increased by 1% year over year, ISTAR and EW revenues increased by 21%, mainly due to European electronic warfare sales. Land revenues increased by 3%, mainly due to armored vehicle upgrades and ammunition sales. Elbit Systems of America revenues increased by 7% in the second quarter due to growth in night vision sales. Elbit systems benefit from a diverse geographic revenue base that reduces revenue volatility and supports the long-term sustainability of our business. In the second quarter, Europe was our largest market, contributing 32% of group revenues. North America was 23%, Asia Pacific 22%, and Israel contributed 17% of revenues. European revenues increased mainly due to growth in training and simulation sales. Asia-Pacific revenues declined mainly due to lower precision guided munition sales. The non-GAAP gross margin for the second quarter was 26.1% compared to the second quarter of 2022 at 26.5%. GAAP gross margin in the second quarter was 25.6% of revenues compared to 26.1% in the second quarter of 2022. Second quarter non-GAAP operating income was $112 million, or 7.7% of revenues, compared with $103 million, or 7.9% of revenues last year. The sequential improvement in non-GAAP operating profitability is an encouraging indication of the tangible benefits of the Operational Transformation Plan. GAAP operating income for the second quarter was $102 million or 7% of revenues versus $115 million or 8.8% of revenues in the second quarter of 2022. GAAP operating income in the second quarter of 2022 included the capital gain related to the sale of our subsidiary Ashot Ashkelon Industry as well as the sale of a building in Israel. The operating expenses breakdown in the second quarter was as follows. Net R&D expenses were 6.4% of revenues versus 7.4% in 2022. Marketing and selling expenses were 7% of revenues versus 6.4% last year. The positive inflection in global defense budget growth has created multiple opportunities and increase in marketing and sales spend will help to realize the potential this creates. G&A expenses were 5.2% of revenues compared to 5.6% last year. Financial expenses were $32 million in the second quarter compared to $9 million in 2022. Financial expenses in the second quarter were higher as a result of the significant increase in interest rates and higher debt. Operating cash flow in the second quarter was a $138 million outflow compared to a $169 million outflow in the same quarter last year. Operating cash flows in the first half of 2023 reflect an increase in inventories to support revenue growth and delays of payments from the Israeli Ministry of Defense. We do not believe there is a risk to receiving these outstanding payments, and we continue to work with our customers to expedite these payments. Our operational improvement plans should also support our efforts to improve cash generation in the medium term. We recorded the tax expense of $9 million in the second quarter compared to $13 million in 2022. The effective tax rate in the second quarter was 13.6%, a similar level to the tax rate in 2022. Our non-GAAP diluted EPS was $1.57. in the second quarter compared with $1.73 in 2022. Gap diluted EPS was $1.40 for the second quarter compared with $1.82 in 2022. Our backlog of orders as of June 30th, 2023 was $16.1 billion, a $2 billion higher than the backlog at the end of the second quarter of 2022. Approximately 49% of the current backlog is scheduled to be performed during the remainder of 2023 and 2024, and the rest is scheduled for 2025 and beyond. The Board of Directors had declared a dividend of 50 cents per share. I will now turn the call over to Mr. Maklis Elbitzi. Elbitzi, please go ahead. Thank you, Kobi.