Elbit Systems Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' third 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 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 Mayerson, Elbit Systems VP, Investor Relations. Rami, please go ahead. Thank you, Yoni.

Good day, everyone, and welcome to our third quarter 2023 earnings call. On the call with me today are Buti Mashles, 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 information and the reconciliation in today's press release. Kobi will begin by providing a discussion of the financial results, followed by Bussi who will talk about some of the main 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 third quarter of 2023 reflect the sustained demand for our solutions and progress in the implementation of our operational improvement plans. Butzi will discuss the implications of the war in Israel in his remarks, the extent of the impact of the war on our financial results will depend on future developments that are difficult to predict, including the duration and scope of the war. We continue to monitor the situation closely. Turning now to results of the third quarter. Third quarter revenues increased by 11% to $1,502,000,000 compared to $1,349,000,000 in the third quarter of 2022. In terms of quarterly revenues by segment, aerospace revenues increased by 24% in the third quarter of 2023, compared to the third quarter of 2022, mainly due to training and simulation sales in Europe and UAS sales in Asia Pacific. C4I and cyber revenues increased by 9% year over year, mainly due to radio system sales in Europe. ISTAR and EW revenues were similar to the revenues in the third quarter of 2022. Land revenues increased by 7%, mainly due to artillery and weapon station sales in Europe. Albert Systems of America revenues declined 2% in the third quarter due to low precision guided munition sales. Elbit system diverse geographic revenue base helps to reduce revenue volatility and support the long-term sustainability of our business. In the third quarter, Europe was our largest market, contributing 33% of group revenues. North America was 24%, Asia Pacific 21%, and Israel contributed 15% of our revenues. European revenues increased due to growth in sales of radio systems, artillery, weapon station, and training and simulation solutions. Asia Pacific revenues increased mainly due to growth in UAS sales. Israel revenues declined mainly due to lower ammunition sales in the quarter. The non-GAAP gross margin for the third quarter was 24.9% compared to the third quarter of 2022 at 25%. GAAP gross margin in the third quarter was 24.5% of revenues compared to 24.2% in the third quarter of 2022. GAAP and non-GAAP gross profit in the third quarter of 2022 included approximately $13 million of expenses related to stock price linked compensation plans. Third quarter non-GAAP operating income was $117 million or 7.8% of revenues compared to $84.3 million or 6.3% of revenues last year. GAAP operating income for the third quarter was $106.1 million or 7.1% of revenues versus $73.4 million or 5.4% of revenues in the third quarter of 2022. Gap and non-gap operating profit in the third quarter of 2022 included expenses of approximately $22 million related to the stock price lien compensation plan. The operating expense breakdown in the third quarter was as follows. Net R&D expenses were 6.9% of revenues versus 8.4% in 2022. The year-on-year reduction in R&D expenses in the third quarter reflects the phasing of projects. Marketing and selling expenses were 5.7% of revenues versus 5.1% last year. The positive inflection in global defense budget growth has created multiple opportunities The increase in marketing and sales spend will help to realize the potential created by these opportunities. G&A expenses were 4.8% of revenues compared to 5.9% last year. Other operating income in the third quarter of 2022 of $9.4 million included a capital gain related to the sale of a building in Israel. Financial expenses were $36 million in the third quarter compared to $16 million in 2022. Financial expenses in the third quarter were higher as a result of the significant increase in interest rates and higher debt. We recorded the tax expense of $10 million in the third quarter compared to $8 million in 2022. The effective tax rate in the third quarter was 15% compared to 13% in 2022. Our non-GAAP diluted EPS was $1.65 in the third quarter compared with $1.40 in 2022. GAAP diluted EPS was $1.36 for the third quarter compared with $1.26 in 2022. Our backlog of orders as of September 30th, 2023 was $16.6 billion, approximately $1.9 billion higher than the backlog at the end of the third quarter of 2022. Approximately 39% 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. Operating cash flow in the third quarter was an $11 million inflow compared to the $178 million inflow in the same quarter last year. The Board of Directors has declared a dividend of 50 cents per share. I will now turn the call over to Mr. Marklis, LBCO. Bootsy, please go ahead.