Elbit Systems Ltd.

Thank you for standing by. Welcome to LB Systems' fourth quarter 2025 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. I would now like to hand over the call to Daniela Fein, LB Systems VP, Investor Relations. Daniela, please go ahead.

Thank you, Operator. Hello, everyone, and welcome to our fourth quarter 2025 earnings call. On the call we see today are Gusti Maslic, President and CEO, and Toby Cagan, CFO, and myself, Daniela Finn, VP, Investor Relations. Earlier today, we held an investor conference at the Tel Aviv Stock Exchange. A full recording of the event is available in the Investor Relations section of our website at www.investorrelations.com. Before I 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. I would like to remind all listeners that the conference call today may contain forward-looking statements regarding the company and its subsidiary systems. Actual future results may differ materially from those forward-looking statements. As usual, we will provide you with both GAAP financial data as well as certain supplemental non-GAAP information. We believe that this non-GAAP information provides additional transparency to better 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 spectrum. Kobi will begin by discussing the financial results, followed by Busby, who will elaborate on the main events during the quarter and beyond. We will then turn the call over to a Q&A session. With that, I'd like to now turn the call over to Kobi. Kobi, please go ahead.

Thank you, Daniela. Hello, everyone, and thank you for joining us today. We are closing another strong year and quarter, delivering double-digit growth in revenues operating profit, EPS, and backlog, which grew by $5.5 billion. In 2025, we also generated record free cash flow, surpassing the $0.5 billion mark. We are extremely proud of these results and outstanding execution by our global team. Taking a closer look into the fourth quarter results, Both quarter revenues increased by 11% to $2,149,000,000 compared to $1,930,000,000 in the fourth quarter of 2024. This is the first time our quarterly revenues surpassing the $2,000,000,000 mark. Full year 2025 revenues increased by 16% to $7,939,000,000 compared to $6,828,000,000 in 2024. In terms of quarterly revenues by segment, C4I and cyber revenues increased by 19% in the fourth quarter of 2025, as compared to the fourth quarter of 2024, mainly due to sales of radio and command and control systems in Europe and in Israel. ISTAR and EW revenues increased by 39%, mainly due to increased sales of maritime and electro-optic systems, which include electronic warfare and counter-UAS solutions. Land revenues increased by 22%, mainly due to ammunition and munition sales in Israel and Europe. Elbit systems of America revenues increased by 9%, mainly due to the increase in the sales of night vision and maritime systems, partially upset by the decrease in the sales of medical devices. Aerospace revenue decreased by 14%, mainly due to training and simulation in Europe, and higher sales of PGM in the fourth quarter of 2024. We take great pride in our diverse global customer base, which is a key differentiator for Elbit and ensures ensure we are not reliant on any single country's defense budget. For the full year of 2025, Europe contributed 27% of revenues, North America 21%, Asia-Pacific 16%, and Israel contributed 32% of revenues. We expect Europe to be a meaningful growth engine going forward, following by Asia-Pacific. Gap gross margin in the fourth quarter was 24.7% of revenues compared to 24.1% in the fourth quarter of 2024. Gap gross margin for the full year 2025 was 24.4% compared to 24% at 2024. Non-gap gross margin for the fourth quarter was 25%. compared to the fourth quarter of 2024 at 24.5%. Non-GAAP gross margin for the full year 2025 was 24.7%, compared to fourth quarter of 2024 at 24.5%. GAAP operating income in the fourth quarter was $192 million, or 9% of revenues, as compared to $141 million, or 7.3% of revenues in the fourth quarter of 2024. Non-GAAP operating income was $210 million, or 9.8% of revenues in the fourth quarter of 2025, as compared to $157 million, or 8.2% of revenues in the fourth quarter of 2024. GAAP operating income for the full year 2025 was $671 million or 8.5% of revenues as compared to $489 million or 7.2% of revenues in 2024. Non-GAAP operating income for 2025 was $737 million or 9.3% of revenues as compared to $550 million or 8.1% of revenues in 2024. I am happy we have reached our internal targets for operating profit margins. The operating expense breakdown for the full year was as follows. Net R&D expenses were $517 million or 6.5% of revenues as compared to $466 million or 6.8% of revenues in 2024. This increase is mainly due to investment in expanding our portfolio of precision-guided munitions, as well as increased investment in night vision solutions. Albert continues to invest heavily in disruptive R&D initiatives, including advanced AI capabilities to drive future profitable growth and reinforce the company's position as a market leader in the years ahead. Our strategy focuses on development of advanced solutions funded both internally and in some cases partially supported by the Israeli Ministry of Defense, ensuring sustainable growth today and well into the future. Marketing and selling expenses were $399 million, or 5% of revenues in 2025, as compared to $375 million, or 5.5% of revenues in 2024. G&A expenses were $347 million or 4.4% of revenues in 2025 as compared to $311 million or 4.6% of revenues in the same period last year. Financial expenses were $138 million in 2025 as compared to $151 million in 2024. The decrease in financial expenses next in 2025 is mainly due to lower interest expenses and lower levels of debt. We recorded the tax expense of $55 million in 2025 compared to $39 million in 2024. The effective tax rate in 2025 was 9.9% compared to 11.4% in 2024. The decrease in the tax rate in 2025 was as a result of the valuation allowance releases and adjustments to defer taxes related to prior years following tax settlements in some of the company's subsidiaries in Israel. Get diluted EPS for the fourth quarter of 2025 was $3.52 compared to $2 in the fourth quarter of 2024. Once again, a significant double digit EPS growth in the quarter. Our non-GAAP diluted EPS was $3.56 in the fourth quarter of 2025 compared to $2.66 in the fourth quarter of 2024. GAAP diluted EPS for 2025 was $11.39 compared to $7.18 in 2024. Non-GAAP diluted EPS was $12.75 in the full year of 2025, compared to $8.76 in 2024, well ahead of our internal targets. Our backlog of orders as of December 31st, 2025, was $28.1 billion, approximately $5.5 billion higher than the backlog at the end of 2024. Approximately 72% of the current backlog was generated from outside of Israel. Approximately 54% of the backlog at the end of December is scheduled to be performed during 2026 and 2027, while the rest is scheduled to be performed during 2028 and beyond. Backlog growth was driven by international customer demand. Natcash provided by operating activities in the year ended December 31st, 2025 was $778 million as compared to $535 million in the year ended December 31st, 2024. Operating cash flows in 2025 were affected mainly by the increase in contract liabilities, upset by the increase in inventories and trade receivables. During 2025, we also delivered $553 million of free cash flow, up 73% from the $322 million free cash flow generated in 2024. The Board of Directors has declared a dividend of $1 per share. Yet another dividend increase for 2025 on the back of our strong results. I will now turn the call over to Mr. Maklis, Albert's President and CEO.

Bootsy, please go ahead. Thank you, Kobi. I want to begin by acknowledging the remarkable dedication of our global workforce. Despite the challenging realities of wartime here at home, our teams around the world continue to demonstrate exceptional focus and professionalism. Their consistent efforts, especially during this period of intensified demand for our advanced systems are a testament to the resilience and commitment to our mission. As Kobi just outlined, our Q4 and full-year 2025 results are very strong. We achieved double-digit growth across all key metrics, sales, operating profit, earning per share, and backlog. During 2025, we generated record free cash flow, surpassing the half billion dollar mark. During 2025, Elbit system achieved significant milestones, most notably securing contracts from the IMD for an airborne high-power laser combat jet fighter pod and for high-power laser solution for helicopters. These contracts further strengthened Elbit's position as the world's leading supplier of next-generation directed energy weapons, including state-of-the-art military-grade high-power laser solutions. This has been a remarkable year for Elbit, winning large-scale contracts. We received our largest ever contract from an international customer, for a strategic solution worth approximately $2.3 billion. Earlier in the year, we won another large contract worth $1.6 billion to deliver a range of defense solutions to European countries. Our pulse rocket artillery system continues to be a high runner for Elbit, especially in Europe. Our black backlog For this product, Sarpat is a $2 billion mark if more countries selected our agile and technologically advanced system. In December, we reported that the Hellenic Parliament had approved a budget for the purchase of these systems for the Hellenic Armed Forces. Numerous contracts have been secured for our leading electric warfare EW system and our self-protection solution. We continued winning contracts for our active protection systems, the Iron Fist for NATO-European CV-90 fleet, as well as follow-on contracts for the U.S. Army Bradley ISV upgrades. I am very proud with all these contract wins, which are translated into the exceptional financial performance we presented today. The arms war continued for the most part of 2025. But as in the Middle East, as one conflict ends, another begins. In the past two weeks, Israel has played a major role in the roaring line operation. As always, LB continues to support the IDF during these times, scaling up production to meet elevated demands. Last week, the Israeli government approved a further addition to the defense budget of 39 billion Israeli shekels, about 13 billion U.S. dollars. As we told you in the previous call, at the end of Q3, we continue to expand our production facilities globally and especially in Europe. We are making significant strategic capital investments to address growing global capacity constraints, recognizing that capacity is a critical element of our long-term strategy. This includes, among others, the continued investment in the Ramat Beka facility here in Israel, as well as expanding our production facilities in Germany, Sweden, Romania, in Europe, and in the U.S. for 27% of Elbit's sales in 2025, surpassing the $2 billion mark. We believe Europe will remain our primary growth engine going forward, with Germany playing themselves a central role. This momentum was evident through the year. reflected the numerous contracts awarded across a wide range of systems, including our pulse rocket launchers, Iron Fist active protection solutions, and multiple DIRCAM programs, among others. We expect strong revenue growth from Europe as countries continue to rearm, supported by Elbit's well-established presence on the continent, so our subsidiaries and joint ventures with leading During 2025, Erbit continued to invest heavily in disruptive R&D programs, including AI enhancements across multiple platforms, as part of its strategy to develop advanced solutions self-funded or partially funded by the Israel MOV, ensuring both current and future growth. Dedicated cross-functional AI teams are integrated intelligence capabilities across different systems and cooperation, strengthening decision-making, operational agility, and scalability as global demand continues to grow. In closing, help us enter 2026 stronger, more resilient, and better positioned than ever. With a record backlog, regional technology achievement, expanding capacity, and global team that delivers under the most demanding conditions, we are confident in our ability to sustain our growth and continue to create long-term value for our stakeholders. And with that, I will be happy to take your questions. Dr. Riton?

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 sticker equipment, then lift the handset before pressing the number. Your questions will be pulled in the order they are filled. Please stand by while we pull for your questions. The first question is from Christine Lewag of Morgan Scans. Please go ahead.

Hi, good afternoon, Bootsy, Kobe, and Daniela. So maybe, you know, you guys called out the record backlog that the company has today, but then we see the conflict, you know, and Bootsy, you mentioned it, you know, in your prepared remarks that one conflict ends and another starts in the Middle East. And with this global demand growing, can you talk about what your capacity or CapEx investments could mean in terms of potential, you know, maximum revenue that you could generate off of the incremental capacity increases and also as you increase your CapEx, when do we anticipate, you know, this capacity opening up new revenue? How do we think about that with the supply issue that's coming out of the Red Sea? Any context for the ability to meet this unprecedented high demand would be really helpful.

Hi, Christine. Thank you for the question. It's a combination of questions. I'll talk first to the CapEx investment. The company increased CapEx investment this year to $225 million. We are consistently investing in CapEx nearly $200 million for the past five years, and we are planning to increase the spend this year in 2026 to around $300 million. And this additional investment comes with stronger cash flow. So we both increased the free cash flow and increasing capex and that is, we are very happy with this result. Having, investing around $300 million will go specifically to invest in Israel and out of Israel. We're not just investing in Israel. We're investing also outside of Israel in mostly factories for land capacity. We tripled the size of the factory in the southern part of Israel. The new ammunition and munition factory, it was tripled. And additional investment are planned to meet the high demand, especially to ammunition and munition demand. We're also... increasing investment in electronic assemblies, factories in Israel and outside of Israel. And by that, we feel comfortable with meeting the high demand, as you mentioned, the record backlog, and the very strong panel that we see ahead. Yeah, I would like to add, thank you, Kobi.

I would like to add that on top of our own investment, some customers of ours are investing with us here in Israel as well as abroad in order to create additional capacity mainly around production and so actually every dollar that we invest there is an additional investment by our customer so that's number one number two this year we believe that we will start delivering equipment from the Ramat Beka facility. Actually, it should happen quite soon. It will be, and the Israel government has approved to continue working in the current facility we have in the center part of the country, in the current infrastructure we have. So in parallel, we have two active production lines, which will enable us to deliver the growing demands. I also want to emphasize that our new facilities are all equipped with robots and with a lot of AI in them in order to increase effectiveness and productivity and with the most advanced technology which is available in the market. We are working in some cases in three shifts in order to meet the demand and with the new factories that we will start Some of them are active already. Some will start, will be effective quite soon. I believe we'll be able to meet the current demand and the future demand. With regard to supply chain, Abbott, as part of the strategy, is a very vertical company. And we are trying to reduce dependencies from internal, from others, from external suppliers. That's part of our strategy. We develop our own diodes and our own detectors and many, many other examples. And through the last, through this war, we have invested with the Israeli IMD even more funds to be more vertical and to control our distance. And in areas where we are lacking material, we were able to create enough inventories to support the current and the future demand that we see. Kobi, do you want to add?

Yeah. On top of what you mentioned, we are also streamlining the Ramat Beka. This is the southern part of Israel factory. We are streamlining the processes, the factory processes, which will bring additional yields, additional effectiveness of this factory. And another more financial point, we saw 24% growth in our backlog during 2025 and 16% growth of revenue. And as you know, Christine, there should be convergence between those two numbers. And that means that the potential of growth is very significant, the double-digit potential of growth also in the future.

Wonderful. Super helpful. Thank you. And if I could have a second question. You know, you've called out the contract wins that you've had on directed energy, specifically on high-powered lasers. I was wondering, can you talk more about What's the breakthrough in technology that you were able to achieve here? And then also when we think about fighting low cost drone swarms, what's the role for this kind of equipment and how is ELBIC positioned?

I would say the following. First, currently many countries are fighting the drones and the school missiles with air-to-air missiles. That's a very expensive fight, and it's not sustainable. So because of that, we thought that bringing high-power lasers to the air will create a new situation where actually we are becoming the automatic player. And putting high-power lasers in the air enable us first to overcome some of the challenges of the ground like weather and dust and turbulence. And so flying above clouds will enable us to gain more ranges and to be more effective. And also to eliminate the threat far away from our borders. Now from a technical point of view it's not an easy task. You need to the element and you need to while moving you need to lock yourself on a target in a very precise way. But we were able to overcome all the and we were able to overcome all the challenges and we are very in the development. this solution will be matured and operational. I believe it will be a breakthrough in the way countries are defeating swarms and other types of threats. There is a huge demand for such solutions in the market. We are a leading player in this domain. We are controlling the entire technology in-house and we see currently a very big demand for such solutions And I believe that it will bring a new stream of revenues and profits in the near future. And I also want to add that high-power laser is not just a defensive weapon. As you can understand, it has more applications. That's an example, one example of unique technology that we are developing with our higher and deep funds. is investing more than half a billion dollars in R&D. On top of that, we get more R&D from our customers. 6.5% of our revenues we invest in R&D. When we do it in order, we are able to predict what will be the demands of the market in the future. We understand the operational needs, we understand very well the technological Opportunities we have, we are combining them both and we are coming with new technologies to the market. This is just one example. As we speak, we develop more unique solutions that we present to you in the future.

Great. Thank you very much.

The next question is from . Please go ahead.

Hi, guys. Thanks for the question. Just on your recent media reports about your poll system in Europe and you also received budget approval for an order from Greece, how do we think about the opportunity set there and what differentiates that solution relative to peers? What makes you win?

First I want to say that with regard to the Greek opportunity, It's not a contract yet. We didn't receive it yet. It was approved by the Parliament, and we hope to get the contract soon, but it's not yet in our backlog. It's a big contract that we hope to get soon. The same is true also in Germany. We got an initial contract in Germany for a small quantity, and it is not yet a full production. In Germany, that's a potential that we believe that will mature in the future. but it's not yet in our backlog. We have a very unique solution. First, we have this generic launcher which is able to fire different type of missiles for different ranges with different capabilities, which includes lottering munitions as well. from short ranges to very long ranges, with different kinds of guidance solutions, all coming from Elbit. And it's an open architecture, so other solutions which are available with our customers can be implemented as well on top of that. Not only that, we have joint venture partnership agreements with KDS and with DIV in Germany and with other partners in Europe to continue to develop and to produce fully this solution, the launcher and the rocket in Europe. So it's in Europe, and we call it EUOPUS. It's an European solution that was tailored for the unique requirement of the modern battlefield to the conclusion of the war between Russia and Ukraine and its operation already by many countries in Europe It was acquired by the Danish forces, by the Dutch, and by many other countries, not just New York. And we believe that's the leading solution which is available currently in the market. And we continue to develop it. And you will hear more about this product and about this system in the future.

Great. Thank you. And if I could just sneak in one more. Profitability was very strong at the time. 9.8 in the quarter and expanded across most segments except for CF4ISR. How are you thinking about the moving pieces to margins from here and across the different segments? Where is there more room for expansion and where could there be pressure?

Hi, Ellen. This is Kobi. Thank you for the question. We see an expansion in margins now for the fourth consecutive year. We were very happy with this result. It's an expansion of nearly a percent annually. And this is a trend that we see now and we believe will go, the expansion in margins will continue as we have the operational leverage with the very strong growth of revenues. and with the stronger pipeline and backlog profitability, which turns into stronger profitability. And we believe this will continue to the future. And as Bootsy mentioned earlier, with the self-funded R&D, additional self-funded R&D that we're going to invest and we're going to continue increasing the self-funded R&D in the future, will not harm the bottom line. We will still maintain growth also in the OP level and also on the EPS level.

Great, thank you.

Thank you, Alan.

If there are any additional questions, please press star 1. If you wish to answer your request, please press star 2. Please stand by when we pull 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 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 972-3255. 925-5900. A replay of the call will also be available on the company's website, www.lbcstandards.com. Mr. Machlis, would you like to make a concluding statement?

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 Healthy Pistons LTD fourth quarter 2025 results conference call. Thank you for your participation. You may go ahead and disconnect.