Elbit Systems Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to LB Systems' first quarter 2026 results conference call. Our participants are 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 Fink, LB Systems VP Investor Relations. Daniela, please go ahead.

Thank you Hila. Hello everyone and welcome to our first quarter 2026 earnings call. On the call with me today are Butsy Maslis, President and CEO, Toby Kagan, CFO and myself Daniela from Investor Relations. Before we begin I would like to point out that the safe harbour 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's business. Actual search results may differ materially from these 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 press release. Kobi will begin by discussing the financial results, followed by Budsi, 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 would 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 pleased to report another strong quarter delivering double-digit growth in revenues, operating profit, and EPS. Our backlog reached a new record surpassing $30 billion for the first time, and we exceeded a 10% non-GAAP operating margin in line with our internal targets. These results reflect the strength of our execution and the outstanding performance of our global teams. Taking a closer look into the first quarter results, first quarter revenues increased by 15.5% to $2,189,000,000 compared to $1,896,000,000 in the first quarter of 2025. This is the first quarter revenues were higher than those of the preceding fourth quarter, representing the strong demand we are witnessing from our key markets. For the first quarter of 2026, Europe contributed 23% of revenues, North America 20%, Asia Pacific 16%, and Israel contributed 37% of revenues. Europe continues to be a meaningful growth engine The shift in Europe is profound, and we are seeing strengthening demand trends. In terms of quarterly revenues by segment, C4I and cyber revenues increased by 17% in the first quarter of 2026, as compared to the first quarter of 2025, mainly due to sales of radio systems and command and control system sales in Europe. ISO and EW revenues increased by 17%, mainly due to increased sale of airborne high-power laser and electronic warfare systems. Land revenues increased by 27%, mainly to ammunition and munition sales in Israel and Europe. Helmet systems of America revenues increased by 5%, mainly due to the increase in sales of night vision system, which were partially offset by a decrease in sales of medical devices. Aerospace revenues increased by 2% in the first quarter of 2026 as compared to the first quarter of 2025, mainly due to project mix. GAAP gross margin in the first quarter was 25.2% of revenues compared to 24% in the first quarter of 2025. Non-GAAP gross margin for the first quarter was 25.5% compared to the first quarter of 2025 at 24.3%. Gross margins have expanded due to scale and product mix. Gap operating income in the first quarter was $205.1 million or 9.4% of revenues as compared to $149.7 million or 7.9% of revenues in the first quarter of 2025. non-GAAP operating income was $222 million, or 10.1% of revenues in the first quarter of 2026, as compared to $165.1 million, or 8.7% of revenues in the first quarter of 2025. The operating expense breakdown for the first quarter of 2026 was as follows. Net IRD expenses were $150.4 million or 6.9% of revenues as compared to $114.3 million or 6.1% of revenues in the first quarter of 2025. LBIT continues to prioritize investment in advanced R&D initiatives including AI capabilities to support sustainable profitable growth and strengthen our leadership position in the years ahead. Elbit is focusing its R&D on cutting-edge battlefield technologies. Key initiatives include counter-UAS solutions spearheaded by higher-power laser, advanced autonomous airborne, naval and land platforms, multispectral sensing, and advanced precision and standoff munitions. Marketing and selling expenses were $100.9 million, or 4.6% of revenues in the first quarter of 2026. to $100.9 million or 5.3% of revenues in the first quarter of 2025. G&A expenses were $95.7 million or 4.3% of revenues in the first quarter of 2026 as compared to $89.4 million or 4.7% of revenues in the same period last year. Financial expenses were $32.2 million in the first quarter of 2026 as compared to $39 million in the first quarter of 2025. The decrease in financial expenses in the first quarter of 2026 was mainly due to a reduction in the average debt. Taxes on income were $22.8 million in the first quarter of 2026 as compared to $16.1 million in the first quarter of 2025. The effective tax rate in the first quarter of 2026 was 13% compared to 13.9% in the first quarter of 2025. Gap diluted EPS for the first quarter of 2026 was $3.34, up 42% as compared to $2.35 in the first quarter of 2025. Our non-GAAP diluted EPS was $3.87 in the first quarter of 2026, up 51% as compared to $2.57 in the first quarter of 2025. Our backlog of orders as of March 31st, 2026 was $30.2 billion, more than $7 billion higher than the backlog at the end of March 31st, 2025. Approximately 71% of the current backlog was generated from outside of Israel. Approximately 49% of the backlog at the end of March is scheduled to be performed during the remainder of 2026 and in 2027, while the rest is scheduled to be performed during 2028 and beyond. The increase in backlog during the quarter came mainly from Israel. Net cash provided by operating activities in the quarter was $281 million as compared to $184 million in the quarter ended March 31st, 2025. Cash flow in the first quarter of 2026 was affected mainly by the strong increase in net income and an increase in contract liabilities. During the first quarter of 2026 we delivered $210 million of free cash flow, up 30% from $161 million free cash flow generated in the first quarter of 2025. The board of directors has declared a dividend of $1 per share to be paid on July 6th, 2026. I will now turn the call over to Mr. Maklis, I'll be presenting the CEO. Bootsy, please go ahead.

Thank you, Kofi. Following our strong financial performance, as Coby just highlighted, the quarter was also characterized by a high level of new business and contract award for Elbit, totaling over 4 billion US dollars, almost double the quarterly revenues. Hence, our backlog reached a record level, exceeding the 30 billion mark for the first time. This morning we announced that Elbit was awarded a new contract valued approximately 1.4 billion from an European customer for extensive military modernization programs. The modernized programs will provide improved maneuverability and survivability spanning the entire battle domain. The state of the art solutions to be delivered include a variety of uncrewed autonomous solutions network, land, electric, warfare, receiving guided munition, artillery, and air-to-ground, coupled with electro-optical designating and reconnaissance systems, all networked by software-defined radios. This solution will improve the nation's operational effectiveness towards becoming an advanced and modern army. The contact will be performed over a period of five years. This contract reflects the breadth and attractiveness of every system defense portfolio as well as our ability to deliver both highly capable best in class systems and comprehensive integrated solutions tailored to evolving operational needs. With demand rising well above historical level, we continue to focus on execution by expanding our production capabilities. We are scaling production capacity and investing in innovation to convert the strong demand into sustained revenue growth. As previously mentioned, we are increasing our CapEx investment as we continue to build additional capacity, mainly in Israel and in Europe. The increase in CapEx is driven by a disciplined and careful The production facility in southern Israel is advancing well. We recently announced the launch of new unmanned aerial system facility in Romania, marking another milestone in the company's ongoing expansion across Europe and its long-standing partnership with the Romanian defense industry. We also completed the position of UTACS, the US facility in the UK. We are further expanding our production facilities in other locations across Europe. Operating rowing line has highlighted rising demand for advanced defense solution across LBIT portfolio, including receiving guided munition, unmanned aerial system, ISR solution, electric warfare and protection system. It is also creating a growing pipeline of opportunities as customers accelerate procurement and modernization efforts. Elbit started the year with an announcement. This includes two important contracts for our APS solution with the Iron Fist. The first contract was an order for the US Bradley Iron Vehicle This range for a sum of over $200 million. The second APS contract was for the CP-90 combat vehicle to a NATO country. In January, we secured a contract to equip a nation customer with an advanced EW solution for helicopters, worth $275 million. Additionally, an award of $277 million was a field for 30-millimeter turrets and munitions by international custom. In April, we were awarded a $1,750 million contract for ports of the planters to the Hellenic Armed Forces. Older environment in Europe continues to be especially strong, followed by Asia. Our backlog provides increased visibility to a continued strong revenue growth momentum. During the quarter, we continued to receive new orders for the Israeli ANODI. These include integrated advanced command and control systems, avionics, EW systems, and advanced anti-missile system for the 12 CH-53 new helicopters valued at $130 million. An additional multi-year order was received for supplying ammunition to the IDF for $183 million, strengthening the IDF's capabilities during challenging times. We also secured over $100 million in contracts for the next generation of digital army program and border defense capabilities for the Israeli MOD. Elbit was also awarded a contract to supply helmet displays and tracking system for the Israeli Air Force Black Hawk helicopter fleet to enhance operational capabilities and flight safety. In May, we signed a contract for the for the development of an extended range capability for the F-35 fighter jets manufactured by Lockheed Martin. The new capability is expecting to extend the aircraft's operational range, reduce reliance on aerial refueling, and enhance operational flexibility across long-range missions. This contract could create additional opportunities for Elbit in the area of S-35 range extension worldwide. Elbit System America continued to win significant contracts. In March, the U.S. Army awarded ESA a contract to establish a new class of soldier capabilities, the Soldier-Born Mission Command, or SBMC. This is a crucial night vision system for the modern battlefield which will be won by warfighters who are able to decide and act in milliseconds. The contract valued at $120 million will enable LBC to develop the FBMC that will redefine how soldiers operate, connect, and dominate in complex battle environments. We believe it could be a revolution in soldier lethality built for the speed and complexity of modern combat. In May, we received a delivery order valued approximately $212 million for the continued production of enhanced night vision global binocular systems for the U.S. Army, which delivers expected through 2028. While the Army has historically complete LVTP production among multiple vendors, Elvit Systems of America was selected as the sole prime supplier for this award. Elvit has always prided itself on its strong partnership. I was honored to take part recently in two significant signing ceremonies in Germany. for our new JV with KNDS, which will enable the two companies to deliver the advanced EuroPulse rocket launcher, not only to Germany, but across Europe. The second signing ceremony was with TKMS. We have now announced two separate operations with TKMS, a German-based submarine shipyard, which will further expand our reach across Europe. In this recent agreement with TKMS, Elbit was once again chosen due to its strong EW capabilities across platforms and for its maritime vessels in particular. During the quarter, Elbit Systems has continued to advance its innovation agenda, prioritizing investment in next generation R&D initiative with a growing focus on AI-driven capabilities. supported through a combination of internal funding and strategic partnership are driving the development of advanced solutions and strengthening our ability to address evolving operational requirements. Elbit employees are the driving force behind the innovation and the results, shaping the company's future with passion and commitment every day. and for this I am very grateful. LBIT enters 2026 with strong momentum and solid foundation for the future. With a record backlog, ongoing technology, progress, expanding capacity and highly committed global team, we are well positioned to sustain our growth trajectory and create lasting value of our shareholders, for our shareholders. And with that, I will be happy to take your questions.

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 speaker equipment, kindly lift your hand before pressing the number. Your questions will be pulled in the order they are received. Please stand by while we pull for your questions. The first question is from Seth Baseland of J.P. Morgan. Please go ahead.

Hey, thanks very much. Good morning and nice results. I wanted to start off asking about how your expectations for orders have changed for the year, especially perhaps as a result of the current We saw a lot of growth out of Israel in the quarter and, you know, perhaps the outlook for that segment has changed. So if you could speak to that, that would be great.

Thank you. Our funnel of orders has never been so strong. We see growing potential for us in many regions. Of course we see growing potential for us in the U.S. market and we also saw a growing strong momentum of new opportunities for us in Europe, mainly in Germany, in Scandinavia, in the Baltics, but also in other places all over the continent. And of course we also see growing potential for us here in Israel as well as in the Gulf countries and also in countries in the Far East around China. Each region is different with its requirements. We have a very wide portfolio. Our strategy is based on two main pillars. One where we have a very wide portfolio and we are very efficient. The second element is we are local. We have dozens of subsidiaries in many countries and we are part of the ecosystem in each country. And we are willing to share our technology and IP from Israel between the subsidiaries and to create jobs and to be part of the local ecosystem in each country. So to try to sum it up, we see growing potential for the company and I believe that the backlog will continue to grow.

Okay. Excellent. Excellent. And then maybe just as a follow-up, if we think about, you know, the balance sheet and capital deployment, you know, a very healthy net cash position at this time. even with a conservative amount of leverage that would still leave a fair amount of cash for the company to deploy. How are you thinking about the opportunities to use the balance sheet a bit more?

Thank you, Pat. As you mentioned, we have a very strong balance sheet, but we maintain very strict capital deployment. We first prioritizing R&D as we are doing almost 7% of our revenue in R&D, of self-funded R&D, which is, as you know, almost or more than double than the average peers. Secondly, we are increasing our capex investment to meet the high demand that we see in the markets. And we announced recently that we almost, we doubled the dividend to investors from 50 cents to $1 a share. On that, we are very keen to do acquisitions. We're looking actively in markets. In the first quarter, we announced an acquisition of Utax, which is a company in the UK. We will have further announcements. on acquisitions as we dynamically looking for new acquisitions to enhance our portfolio. All right.

Great. Thank you very much. Thank you. Thanks, Seth.

The next question is from Christine Lewag of Morgan Stanley. Please go ahead.

Hey, good morning, Bootsy, Cody, and Danyama. I guess good afternoon for you guys. I was wondering, you know, you talked about, you know, with this conflict we're seeing anti-UAS systems is even more critical. I was wondering, you know, in addition to the developments you're making in directed energy, can you talk about what else is in your anti-UAS portfolio? And also in this kind of a conflict that we're seeing, how relevant or cost competitive are your platforms versus what's available? And as demand, you know, materializes for something like this, when can you start delivering incremental ones if you were to get, you know, sovereign orders.

Thank you. We are investing quite a lot in energy weapons. High power laser is just one of them. We are progressing very well on developing the high power laser. Actually we already delivered power laser source to the ground solution here in Israel. And in parallel we are leading the development of an airborne high power laser. We do it, many hundreds of engineers are working on the development of this system currently in Israel. And we are, we will start seeing deliveries of sub elements or partial deliveries quite soon. from this new development. And I believe that such a system can change the entire way countries will defeat drones and UAVs and cruise missiles and even additional threats. This is only one part of our counter drone solution. We have many sensors which are helping us to build an enemy picture to understand where the threat is, where it's coming from, and where it's heading to based on radar that we are developing and manufacturing based on singing capabilities, for instance, on electro-optics, all managed by a strong AI algorithm. And we have several effectors. Hyper energy is just one of them. different journals, we have genetic solutions and others. And actually all, once again, all managed by AI. It's part of our solution. We are already deploying solutions in Israel as well as in Europe and we believe that this segment will continue to grow for us in the future.

As to your other questions, we are determined to be cost competitive and cost effective to meet our customers' expectations. This is a major issue in the company, to maintain cost effectiveness. And as to the capacity increase, we meet now huge demand, a flash of demand that we see from different markets, as Bootsy mentioned. And this is why we decided on the CapEx increase in the company to meet this very high demand.

Great. Super helpful. And, you know, I think following up on Seth's question on, you know, the significant orders that you've received and also, you know, you've got a record backlog now. When we look at, you know, the growth profile of Elbit, you guys have been very, consistent about, you know, having a reasonable growth that's sustainable. But, you know, as we look at geopolitical trends today, it seems like the cost of sovereignty globally is going up. Like how do you think about, you know, what the company size of revenue could be, you know, three to five years from now, especially as you look to deliver on this record backlog, you increase your capacity, you know, in three years or in five years, could we see revenue potentially double? I mean, you know, that's kind of what we did, you know, over the past five years. Revenue almost doubled there. So just want to see if those are possible based on what you have in the pipeline in front of you.

As you know, Christine, we don't give guidance. We maintain what we told you and the market that our internal target is to have, around meetings revenue growth this year and we also with the high demand that we see now from market and our conversion effectiveness we see the same for next year. Other than that it would be hard for us to predict.

But I would have to add to that saying that we see a huge funnel ahead of us of new opportunities and we are working hard to make this funnel part of our backlog, future backlog and I believe that the company will continue to bring new orders, significant new orders like the one we brought today and will continue to grow its revenues also in the future. And we continue to work also on our bottom line. We hope to continue to improve the open numbers as well.

Extending margins is a key priority to the company, and we are committed internally to do that.

Great. Thank you very much. Thanks for saying.

The next question is from Sheila of . Please go ahead.

Good morning, guys, and thank you so much for the time and great quarter. You know, maybe just on Q1, off to a great start, up 16% on revenues. Between land, ISR, VW, all of double digits, I guess, how do you think about the demand environment evolving for the rest of the year? Where are you seeing Trump better than your, you know, expectations?

Good morning, Sheila. We expect to... We expect the segments to perform in the rest of the year with land leading the segments in revenue expansion as we see the strong demands predominantly for land projects and programs. We see also very strong ISAR and C4I demand and also we're very pleased with Albert Systems America performance both on the top line and more than that on the bottom line of increasing and expanding margins consistently. So this is for our projection for the rest of the year.

Got it. And maybe just on the, continuing on the backlog and CAPEX comments a little bit, Kobi, I don't know if you could elaborate a bit more on the capacity of it has been, you know, investing a decade plus in advance. Can you talk about the capacity investments today and how we should think about the medium-term outlook for CapEx and just what you're facilitized for at the moment?

We have invested a lot in the new one ERP systems which we inaugurated four years ago and it's now company-wide ERP system. Without this system we could not reach any of these performance numbers. This is done. This investment is behind us. We also invest heavily in AI performance and solutions. This is a key priority for investment. And then we are increasing our investment in mostly in the land domain facilities which we haven't invested in. On top of that, we are highly investing in robotics and automation to be more efficient and to deliver better cost results to our customers. Trying to sum it up, we are keen to do around 3% of revenues in CapEx investment in the near future.

Thank you so much. Thank you. Thanks Sheila.

The next question is from Ron Epstein of Bank of America.

Please go ahead. Thank you. Good afternoon, guys. I hope you're doing well. Thank you, Ron. If you could talk to maybe the supply chain. As you ramp, you've got a pretty aggressive ramp ahead of you. Where are you seeing any, you know, choke points, shortages, Can you get enough energetics, materials, labor? I mean, how's that all going as you ramp?

Thank you, Ron. Good morning. I believe that we were able to resolve our supply chain issues and we had supply chain issues until a year ago or even less than that. I don't see currently any bottlenecks in supply chain. We have enough material including energetics. We are also very vertical. It's important to mention that part of our strategy is to be very vertical. We try to control our destiny as much as we can and we have several suppliers for each element which we are buying outside from the company. So, and we have also invested also in inventories in some cases. So, many in energetics. So, I don't see currently the supply chain as a bottleneck for the company growth.

Got it, got it, got it.

And then how about on the labor front? Also on labor. Also on labor, I must say that we have recruited about 2,000 people last year. and we are about to recruit the same amount of people also this year in Israel as well as abroad. Currently we have about 24,000 employees, out of them 40,000 here in Israel and about 10,000 abroad, out of them about 7,000 engineers. And we are able to offer to our employees very challenging work and with a lot of meaning. and with a lot of meaning and also an ability to change positions between the different domain in the company which increase the opportunities and currently we don't face major issues in the coding people, not in Israel as well as not abroad. Got it, got it, got it.

Thank you very much.

Mr. Ron.

If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we pull for more questions. I have no further questions at this time. Before I ask Mr. Mahlis to go ahead with his closing statement, I would like to remind participants that 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 972-3925-5900. A replay of the call will also be available on the company's website. Thank you to everyone who joined us today for your continued interest and support.

Have a good day and goodbye.