Elbit Systems Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' second quarter 2025 results conference call. All participants are as 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. I would now like to hand over the call to Daniela Sim, Elbit Systems VP Investor Relations. Daniela, please go ahead. Thank you, Hila.

Good day, everyone, and welcome to our second quarter 2025 earnings call. On the call with me today are Bootsy Matlis, President and CEO, and Kobi Hayden, CFO. Before we begin, I would like to point out that the same part of the statement in the company's press release issued earlier today also refers to the contents of this conference call. As usual, We will provide you with both gaps, financial data, as well as certain supplements, non-gap information. We believe that this non-gap information provides additional detail to help understand the performance of the ongoing business. You can find all the details, gaps, financial data, as well as the non-gap information and the reconciliation in today's press release. As usual, Cody will begin by providing a discussion of the financial results, followed by Bootsy, who will talk about some of the significant developments during the quarter and beyond. We will then turn the call over to question and answer session. With that, I would like to now turn the call over to Cody. Cody, please go ahead.

Thank you, Daniela. Hello, everyone, and thank you for joining us today. We are very pleased to announce another set of quarterly results with strong double-digit year-over-year growth across all parameters. We recorded growth across all business segments and geographies, especially in Europe, as well as margin expansion. Backlog increased 12% from the corresponding quarter in 2024, and free cash flow generated this quarter totaled $71 million. I will now highlight and discuss some of the key figures and trends in our financial results this quarter. Second quarter 2025 revenues were $1,973,000,000 compared to $1,626,000,000 in the second quarter of 2024. In the second quarter of 2025, Europe contributed 29%, North America 21%, Asia-Pacific 13%, and Israel was 34% of revenues. Demand continues to be rabat in all three geographies, as evident in the higher sales in all geographies this quarter. Gap growth margin in the second quarter was 24% of revenues, compared to 24% in the second quarter of 2024. The non-gap margin for the second quarter was 24.4% of revenues, compared to 24.4% in the second quarter of 2024. GAAP operating income for the second quarter was $157.8 million or 8% of revenues versus $116.5 million or 7.2% of revenues in the second quarter of 2024. Non-GAAP operating income was $175.1 million or 8.9% of revenues, compared with $130.5 million, or 8% of revenues, in the second quarter of last year. We are very pleased with this margin extension, which is a result of the company's joint effort to improve profitability. The operating expense breakdown in the second quarter was as follows. Net R&D expenses were $129.7 billion, or 6.6% of revenues, compared to $116.8 billion, or 7.2% of revenues, in the second quarter of 2024. Albit continues to invest in R&D to develop cutting-edge technological products and solutions, which will maintain Albit's position as a market leader. Marketing and selling expenses were $91.5 million or 4.6% of revenues versus $87.7 million or 5.4% in the second quarter of 2024. GMA expenses were $93.9 million or 4.8% of revenues compared to $68.7 million or 4.2% of revenues in the second quarter of 2024. The increase in GNA expenses for the second quarter of 2025 was mainly due to one-time expenses incurred during the current quarter. GNA expenses during the second quarter of 2024 were lower than average. Financial expenses were $31.2 million in the second quarter compared to $29.1 million in the second quarter of 2024. Financial expenses during the quarter were impacted by the relatively sharp fluctuations of exchange rates, by the strong free cash flow from the beginning of the year, and from the offering proceeds that in the short term decreased the company's loan portfolio. We recorded a tax expense of $7.1 million in the second quarter, compared to $11.3 million in the second quarter of 2024. The effective tax rate in the second quarter of 2025 was 5.6% compared to 13.2% in the second quarter of 2024. The decrease in effective tax rates for the second quarter of 2025 was mainly due to the increase in deferred tax assets and the settlement of tax assessments. Yet diluted EPS was $2.69 for the second quarter of 2025, compared to $1.76 in the second quarter of 2024. Our non-GAAP diluted EPS was $3.23 for the second quarter of 2025, compared to $2.08 in the second quarter of 2024. Quarterly segment revenue for the second quarter of 2025. Aerospace revenue increased by 12% year-over-year, mainly due to increase in precision-guided munition sales in Israel and Asia-Pacific, and UAF sales in Europe. C4I and cyber revenues increased by 21% year-over-year, mainly due to radio systems and command-and-control system sales in Israel and in Europe. I-Star and EW revenues increased by 15% in the second quarter of 2025, mainly due to electro-optical system sales in Israel and electronic warfare system sales in Europe. Land revenues increased by 45% in the second quarter of 2025 due to ammunition and munition sales in Israel and in Europe. Algae systems of America revenues increased by 4% due to the increase in maritime and warfighter systems sales. Our order backlog as of June 30, 2025, was $23.8 billion, $2.6 billion higher than the backlog at the end of the second quarter of 2024, and $626 million higher than the backlog in the first quarter of 2025. The increase in backlog during the quarter came mainly from new international orders. Approximately 68% of current backlog is delivered from orders outside of Israel. Approximately 46% of the current backlog is scheduled to be performed during the remainder of 2025 and during 2026, and the rest is scheduled for 2027 and beyond. Cash flow provided by operating activities in the sixth quarter ended June 30th, 2025 was $304 million, as compared to $26 million in the six months ended June 30th, 2024. The cash flow in the six months ended June 30th, June 30th, 2025 was affected mainly by the strong increase in net income. On the back of the continued strong financial performance of the company, the board of directors has decided to increase the dividend and declare a dividend of 75 cents per share, 60% higher than the dividend distributed last year and the second dividend raise this year. I will now turn the call over to Mr. Matlis, LBCO. Butsy, please go ahead.

Thank you, Kobi. Hello, everyone, and thank you again for joining us today. As Kobi just described, there are indeed expectational results with double-digit growth in all parameters of revenue and profitability growth across all our segments, and geographies. I am very pleased with these results. During the quarter, we carried out a successful share offering, raising $573 million net, with demand for the shares offered reaching three times the initial amount. These proceeds will help support and grow LBQ2 businesses, enabling us to increase our production capacity and deliver on the growing demand of our products. Additionally, these proceeds will potentially enable us to further expand via M&A activity, acquiring other new technologies, or expanding our global reach. During the quarter, the conflict between Israel and Iran had escalated and resulted in a 12-day campaign against Iran. Since the October 7th war, the Middle East has gone through significant changes in many aspects thanks to the technological superiority of the IDF. Elbit played a key role in supplying the IDF with our advanced technologies and solutions. These included the Hermes 900 drone, armed with various payloads, flying over the skies of Tehran, as shown on social media. ICR systems provided crucial and continuous information, which were a key factor in defending our force. EW Self-Protection Suits played a crucial role in protecting the IDF aircraft. Our trainers made sure pilots and other fighters were professionally trained for one of the most complicated missions ever carried out. I am extremely proud of all Elbit's employees who took part in this important mission and of all who contributed to the development of solutions that supported the IDF during the conflict and since October 7th. For all of this, I am truly grateful. During the quarter and up until the announcement today, Elbit won additional significant new contracts. This morning, we are now we were awarded a contract worth $1.625 billion to deliver a range of defense solutions to European countries over the next five years. Under the contract, LBIS will deliver a variety of its products and solutions, including a comprehensive military digitization and network combat solution, as well as Torch-X C4SR of command and control applications, advanced working capabilities, and a range of unmanned aerial systems such as the Hermes 100, Psylocke 3, Leutnant munitions, and Zelenius, scourge-level tactical drones, among others. The contracts also included a range of ISAR capabilities, including electric warfare and singing systems. These contracts, among others in Europe, marks another important milestone in Elbit's expanding footprint in Europe and its growing operations across the continent. A couple of weeks ago, Elbit was awarded a contract worth approximately $260 million by Airbus to supply its J-Music direct infrared countermeasures. self-protection system for installation on the German A400 transport aircraft. We continue to gain traction with the port of Atlanta in Europe. We need yet another contract to European countries for $130 million. In May, we received a delivery order value of $110 million for SBNBG on the Marine Corps as part of the multi-year IDAPU contract, previously secured. These systems will support the U.S. Marine Corps mission in operation with low-light and no-light conditions worldwide. Elbit was also awarded a contract worth approximately $100 billion to supply the advanced UT-30 unmanned power system to General Dynamics' Europlane system. The systems will be installed on the Ascot armed fighting vehicles and supplied to NATO and European countries. These systems will enhance the firepower and survivability of the Ascot vehicles. During the quarter, we were awarded several contracts valued approximately $330 million by international customers, including NATO member countries. to supply a broad range of advanced naval technologies and solutions, including electrical warfare and anti-submarine warfare systems, modernizing and upgrading programs, combat management systems, and more. And last but not least, two days ago, we announced two contracts for about $250 million for the supply of airborne munitions to the Israeli Ministry of Defense. Despite some delays due to the ongoing conflict in our region, we are progressing well with the Ramat Pekka site. Construction is continuing and initial production are expected towards the end of this year. This production site will be a state of the art and will include automated AI and robotic solutions and platforms to enable automotive facility efficiency. I'm truly inspired by our employees' dedication and commitment to the company and would like to personally thank each and every one of our employees for contributing immensely to the success of the company. It wouldn't be possible without you. And with that, we'll be happy to answer 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 a speaker equipment, try to lift the handset before pressing the number. Your questions will be pulled in the order they are received. Please stand by while we pull through your questions. The first question is from Jordan Larmes of Bank of America. Please go ahead.

Hey, good morning. Thanks for taking your question. Good morning. Going into the back half of the year, how should we think about the margin expansion and what's going to drive it?

Thank you, Jordan, for the question, and good morning, guys. We are paying a lot of attention and a lot of effort into expanding our margins as demonstrated in the last three years where we enjoyed around 3% margin expansion. As we demonstrated in the past, we are committed to continue improving the margin by our new ERP, one ERP system, for instance, by operational leverage that is playing an important factor in the modern expansion, and by other means.

And then, if I could too, could you guys give any updates on Ironbeam or what you're seeing in the collection specifically for SRMs?

On Ironbeam? Yeah, we are we are developing and delivering the high power laser source for the iron beam solution and the iron beam solution is laser by Rafael who are the main integrator of the system however the laser part is coming from us and we are starting the delivery we are starting to deliver the first unit to our players for integration quite soon, and we expect to deploy the system by the end of this year. In parallel, we are developing the Prime airborne high-power solution for the Israeli Air Force, and there is a lot of interest for this solution for other customers, international customers as well globally.

Thank you so much.

Good morning, guys, and thank you so much for the time.

Can you hear me okay?

Yes. Hi, Ellen. Okay. Maybe if we could start on the top line, you know, year-to-date growth of 22% is pretty phenomenal. It de-risks even the mid-teens' growth patterns for the year. You know, how do we think about the deceleration in the second half and outlook for 26 as you think about capacity utilization and all these new orders come in?

Hi, Sheila, Kobi. As you know, we mentioned that we are looking at 2025 as the meeting, and this is our internal target, and looking forward, of course, to 2026. again, our internal targets are double-digit growth also for next year, and I believe that the announcement this morning, of course, will support the backlog required to facilitate double-digit growth. So, beyond that, we are, beyond that, as you know, our policy is not to give guidance, so this is a actually our internal targets and what we can provide.

No, thanks, Toby. Maybe any details you could give on the segments. Obviously, land, 45% growth in Q2, pretty spectacular, tracking ahead of your soft commentary on the $2.25 billion per year. How long is that sustainable? And airspace is also doing quite well. And when we think about the new artillery award, it comes into just confirming it would be in the land segments.

So, as you mentioned, Sheila, all segments actually did very well, and we had growth across all segments. As you mentioned, land especially became the biggest segment now nowadays, and with 45% increase year over year, and almost more than $550 million. That will drive... additional, we believe, additional growth in this segment, which enjoys very high demand for all the leading products. And as we mentioned, it's not just ammunition, but also Iron Fist, we have the Sigma, which is the new Hobbiter, which we're starting supplying now to the IDF, and also the Rampage, missile which was heavily used during the 12 days Iran war and that enjoys also domestic and international demand. We believe that this segment is going to continue to grow in revenue and also expand also the margins, further expand the margins.

Great, and one last one if I may. Great job on turning around ESA. How can we think about what's left to do there, whether it's restructuring or legacy diluted contracts?

As we mentioned, we have turned around ESA. ESA was recording a loss in 2023, and we see expansion in the margins with, as you mentioned, with the flushing out, losing contracts. This next quarter, Q3, will be the last quarter of Sporn, the maritime company, with the last quarter losing contracts. That will allow us to further increase, to further expand the margins in Albert System America. This reason always will secure next year continued expansion in margins.

Great. Thank you so much. I appreciate the call. Thank you, Sheila. Thanks, Sheila.

If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by when we pull through your questions.

Hi, Mila. It's Daniela, and I have a couple of questions from an investor who sent this to me over email. The first question is, what... Given the strong demand for UAS counter drone measures, what are the company's plans for future development? And could you also address the issue of potential exports of these solutions to Europe and to the U.S.?

Thank you, Daniela. We have a system by the name of Rid1, and this system is actually a combination of several technologies from the company. several technologies for detectives and several technologies for detectives. And talking about detectives, there are radar technologies, EO technologies, signal technologies and others. And talking about detectives, there are soft field technologies like jamming, energy reference solutions and hard field solutions as well. All of these are combined together into a coherent solution. The name of this system is ReadOne. This system was delivered and heavily used successfully by the IDF in Israel. And I'm happy to say that it was also exported to other countries. We have a handful of customers abroad. One of them is the Dutch Army. who have chosen this system and there are additional countries in NATO which acquired this system from us and there are other customers around the globe for this system as well. This system is a combination of many good technologies from the company and all fused together with AI and we believe that this is one of the most advanced solutions available in the market right now.

Thank you, Brucey. And the second question from Jen Kerek from Excellence. Jen, thank you very much for your questions today. It's with regards to capital investments. So we saw during the quarter a certain amount of $72 million, which is lower than the figure in the corresponding quarter last year. What can we expect in terms of the pace of capital investments during the year? And what is the total expenditure expected for 2025?

Thank you, Daniela, and thank you, Sam. As mentioned in the first quarter, we enjoyed the governmental evacuation funds from the Israeli land authorities, and that drove Q1 CapEx investment down. The running rate of the CapEx investment is around $250 million, and we're currently looking at expanding the investment based on the following offering that money that was received during May.

Thank you, Kobi. And the final question from Chen regarding the Israel's geopolitical positioning. On one hand, you're seeing a lot of demand for defense security applications. On the other hand, Israel is in a tough geopolitical predicament. How is the company experiencing these difficulties? Obviously, apart from the big announcement that we saw this morning.

Yeah. So, I would like to say that, Daniel, as you mentioned, there is a growing demand for defense solutions right now worldwide. And Elbit is in a unique position to offer a very advanced portfolio. And like you saw this morning in our announcement, actually, What we are able to provide is an integrated solution for customers. We are able to fit with the customer and to help him to shape transformation for resources. And this is based on the operational experience we have and the very wide portfolio we have. Connecting all of those together into one coherent, fair, and fun solution, which enables a country to leapfrog with its operational capabilities. That kind of partnership that LBT is able to offer is very unique. We are in a very unique position here. And I can say that there is a lot of interest for many, many customers worldwide to understand the breadth of the portfolio we have, the operational experience we have, and we have very good things there are many many discussions every day with many customers in Europe as well as in other places to try to understand how we are doing what we did in Iran for example and to understand also what is exportable and how we can help these countries to get such capabilities for themselves as well. On top of this I would like to mention that We are working abroad mainly via our subsidiaries. We have about 40 subsidiaries worldwide, quite a lot in Europe as well, almost all over the continent. So actually what we are offering to our customers is not buying directly from Elbit Israel. We are also enabling our customers to work via the subsidiaries, which helps them to speak their own language, and to do development locally, to do production locally, to create jobs, to boost their economy. And this is also a very unique position that we are in, and that's also a big advantage that we have. And on top of this, we are working also with many partners abroad. And just to give an example, in Germany, Edward just mentioned, we are working with Airbus to promote our Zircon system of the A400, We are working with Bill and with KNDS to promote the pulse and the rocket solution, not just for Germany, but also for Europe. So, actually, we are in a unique position to offer very advanced solutions based on a wide portfolio, operational experience, and local jobs to support the local economies. Now, I believe that it's true that in some cases For example, in France, which is not a customer in general, there are some resistance to buying from Israeli companies. But all together, I can tell you that the potential that we are seeing is huge. We never faced so many opportunities like we face today. And I believe that we are in a unique position to continue the growth of the company in the near future.

There are no further questions at this time. Before I ask Mr. Mahli to go ahead with his closing statement, I would like to remind participants the release 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 972-03 925-5900. A replay of the call will also be available at the company's website, www.airbeachsystems.com. Mr. Matis, would you like to make a concluding statement?

Thank you. I would like to thank everyone on the call for joining us today and for your continued trust and support of us. Have a good day and goodbye.

Thank you. This concludes the Early Systems LTD Second Quarter 2025 Results Conference Call. Thank you for your participation. We will now go ahead and disconnect.