Operator: Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems’ First Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the call over to Ms. Daniella Finn, Elbit Systems’ Vice President, Investor Relations. Daniella, please go ahead.

Daniella Finn: Thank you, Nathan. Good day, everyone, and welcome to our First Quarter 2025 Earnings Call. On the call with me today are Butzi Machlis, President and CEO of Elbit Systems and Kobi Kagan, CFO. 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 content of this conference call. 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 detail to help understand the performance of the ongoing business. You can find 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 Butzi, 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 Kobi. Kobi, please go ahead.

Kobi Kagan: Thank you, Daniella. Hello, everyone, and thank you for joining us today. The strong set of results published earlier today continues the trend we’ve seen over the past few quarters of strong revenue growth and margin expansion. This quarter is the fourth consecutive quarter in which we published double-digit growth for revenues, backlog, operating income, net income and EPS. We are very pleased with these results. that in this quarter, we presented strong free cash flow totaling $161 million. I will now highlight and discuss some of the key figures and trends in our financial results. First quarter revenues were $1.896 billion compared to $1.554 billion in the first quarter of 2024. In the first quarter of 2025, Europe contributed 24%; North America, 21%; Asia Pacific, 18%; and Israel contributed 32% of revenues.

Demand continues to be robust in all key geographies. GAAP gross margin in the first quarter was 24% of revenues compared to 24.1% in the first quarter of 2024. The non-GAAP gross margin for the first quarter was 24.3% compared to 24.7% in the first quarter of 2024. The first quarter GAAP operating income for the first quarter was $149.7 million or 7.9% of revenues versus $105.4 million or 6.8% of revenues in the first quarter of 2024. Non-GAAP operating income was $165.1 million or 8.7% of revenues compared with $121.6 million or 7.8% of revenues in the first quarter of last year. The operating expense breakdown in the first quarter was as follows: Net R&D expenses were $114.3 million or 6.1% of revenues compared to $98.5 million or 6.3% of revenues in the first quarter of 2024.

Marketing and selling expenses were $100.9 million or 5.3% of revenues versus $89.1 million or 5.7% in the first quarter of 2024. G&A expenses were $89.4 million or 4.7% of revenues compared to $81.2 million or 5.2% of revenues in the first quarter of 2024. Financial expenses were $39 million in the first quarter compared to $31.2 million in the first quarter of 2024. The increase in financial expenses in the first quarter of 2025 was mainly due to the hedging transaction and the net effect of changes in the exchange rates of different currencies in which the company operates. We recorded a tax expense of $16.1 million in the first quarter compared to $11.6 million in the first quarter of 2024. The effective tax rate in the first quarter of 2025 was 13.9% compared to 14.6% in the first quarter of 2024.

GAAP diluted EPS was $2.35 for the first quarter of 2025 compared to $1.65 in the first quarter of 2024. Our non-GAAP diluted EPS was $2.57 for the first quarter of 2025 compared to $1.81 in the first quarter of 2024. Quarterly segment revenue for the first quarter of 2025. Aerospace revenue increased by 20% year-over-year, mainly due to increase in precision-guided munition sales in Israel and Asia Pacific. C4I and Cyber revenues increased by 12% year-over-year, mainly due to increase in radio systems and command and control system sales in Israel and in Europe. ISTAR and EW revenue increased by 4% in the first quarter of 2025, mainly due to electro-optic system sales. Land revenue increased by 48% in the first quarter of 2025, mainly due to increased ammunition and munition sales in Israel and in Europe.

Elbit Systems of America revenues increased by 18%, due to the increase in more fighter systems and medical instrumentation sales. Our order backlog as of March 31, 2025, was $23.1 billion, $2.7 billion higher than the backlog at the end of the first quarter of 2024. Approximately 66% of the current backlog is attributable to orders from outside of Israel. Approximately 51% 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. Net cash provided by operating activities at the end of the first quarter 2025 was $184 million as compared to $6 million cash used in the first quarter of 2024. Operating cash flow during the quarter were affected mainly by the increase in net income and an increase in contract liabilities, which were offset by the increase in inventories and trade receivables.

During the first quarter of 2025, we also delivered $161 million of free cash flow. The Board of Directors has declared a dividend of $0.60 per share. I will now turn the call over to Mr. Machlis, our CEO. Butzi, please go ahead.

Butzi Machlis: Thank you, Kobi. I would like to begin by thanking our Elbit employees around the world for the hard work and ongoing support and commitment to our customers. These results would not have been achieved without our ongoing commitment and dedication. During Q1 2025, we have seen a dynamic trend of strong growth continue as demand in the defense business remains high. This is the fourth quarter in a row in which we have delivered double-digit year-over-year growth in revenues, operating profit, net profit and backlog. Our backlog has reached a record of $23.1 billion, up 40% from last year. For the period of the last 4 quarters, our GAAP EPS is almost 8%, and the non-GAAP EPS is at $9.50. The ongoing conflict in Ukraine and locally here in the Middle East continue to dominate the geographical agenda.

These are evident in government decision-making around the world to increase defense budget, coupled with ongoing rhetoric by President Trump for NATO allies to increase defense spending is propelling this super cycle we are seeing in defense spend, where we continue to see strong demand for Elbit’s products and advanced technological solutions as evident in our growing backlog and sales. Last week, the NATO Secretary General presented a proposal for a plan to further increase defense spending in Europe to gradually reach 5% of GDP by 2032, which is expected to be presented at the next NATO Summit at the end of June. We believe our growth geographical exposure to Israel, U.S., Europe and Asia Pacific is unique. During the quarter and beyond, we continue to receive orders for our solutions in artillery, ammunition, electronic warfare, radio system and self-protection solutions, among others.

For example, we won a contract totaling approximately $100 million to provide joint national digital file command centers for European country, or contract totaling $80 million to supply the IMOD with advanced airborne self-protection suits for the F-16 fleet designed to further secure the safety of the F-16 aircraft, enabling it to operate safely in hostile environment. Another self-protection solution was won this time, American EW self-protection solution for frigate installation to NATO European country. Elbit DESEAVER MK-4 Countermeasure dispensing system is an advanced maritime electronic warfare solution designed to effectively counter complex missile attack scenarios. An additional contract secured to a NATO European country was to supply our ReDrone Counter-UAS solution.

This multisensor and multi-mission system is part of Elbit’s advanced EW, radar and seeking portfolio enabling the rapid detection and location of multiple drones simultaneously. During the quarter, we continued winning contract for our advanced rocket munition launcher, precise and universal launch system. This time, together with KNDS, it was Germany who selected our pull solution, which has now been selected by multiple European countries, including Germany, the Netherlands and Denmark, among others. Testimony of its effectiveness in enhancing defense capabilities in modern battle field. Additionally, we won a $130 million contract to yet another European NATO country during the quarter. The scalable pull system enables a variety of range to be used starting from 35-kilometer up to a range of 300 kilometers.

These agile and scalable features of this advanced and versatile arterial rocket system, coupled with a couple of launching 100 rocket types from a single platform has been a key win by our customers versus our solution. In February, we showcased our latest development in air defense technology at the Aero India show. Elbit’s innovative portfolio featured solutions, including unmanned aerial systems, directed infrared countermeasure technology, electronic warfare capabilities, precise guided munition and our helmet-mounted displays among others, I am pleased to say that there was a strong interest in our product display. We continue to see a growing amount of interest in the Iron Beam system, the high-power laser solution, which is expected to be operational by the end of 2025.

The laser component of the Iron Beam solution developed by Elbit is intend to provide a robust defense against a variety of incoming threats. The $200 million contract announced back in October 2024, positioned Elbit as an Israeli laser center and a global leader in high-power laser technology, both for land and airborne solutions. We shall continue to update you on development in this area. And with that, I will be happy to answer your questions. Operator?

Operator: [Operator Instructions] Before that, I would like to hand the call over back to Ms. Daniella Finn for a few questions that were pre-sent and pre-recorded. Daniella, please go ahead.

Daniella Finn: Thank you very much, Nathan, and a couple of questions from Chen Pierrek from Excellence. The first question is, is there an expectation of a slowdown in activity in Israel due to a possible decline in the intensity of the conflict in Gaza, or a ceasefire imposed by the U.S., how is the company preparing for such a scenario?

Butzi Machlis: Thank you. First, I would like to say that I’m praying for the end of the current war we have in Israel and for the lift of hostages from Gaza. The investment in defense is, I believe, will continue in the future — in the near-term future. And the main reason for that is these investments are helping to create an advantage for Israel in our arena and to create a — and so — and there is also a need to build more inventories and to treat the equipment, which is coming back from the field. So I really believe that this investment will continue. The same we see in Europe. Countries are preparing themselves to invest more in defense and they’re not very concerned from Russia, mainly in North Europe. So I do not see any slowdown in defense spend — investment in the coming few years, not in Israel and neither in Europe.

Daniella Finn: And the second question from [indiscernible]. Is an improvement in the gross profit rate expected in the coming year? Or will the profitability targets to be achieved while relying on operating leverage?

Kobi Kagan: Thank you, Dan. With the high demand we are witnessing and the expedited growth of our backlog, we can be more selective in the bookings we take. Additionally, on top of that, we will see continuous operational OpEx leverage, as you mentioned.

Daniella Finn: And the next question from Chen is what is the expectation for CapEx for the rest of the year?

Kobi Kagan: We see the same level of CapEx investment might be a small increase in CapEx investment to around the neighborhood of $250 million as we recorded $215 million in 2024.

Butzi Machlis: I’d like to add more flavor to the first question with regards to investment here in Israel and Europe. The main reason for investment is not just to support the current conflict we have, is also to create deterrence against our enemies here in our region and also in Europe. And because of that, I really believe that that’s the main reason for the investment, not the current conflicts which are happening right now, here as well as in Europe, but to create deterrence which can avoid war in the future.

Daniella Finn: Thank you for that. And the final question from [indiscernible] what is the status of Iron Beam? Will it be operational by the end of the year? We slightly answered that, but quickly if you’d like to elaborate slightly on that.

Butzi Machlis: Yes. The Iron Beam, the lens solution should be operational by the end of this year. We are working hard in order to make it happen and there is a lot of progress there. In parallel, we continue to invest in the airborne solution. We believe that bringing the airborne solution to the Arena will create a — will be a huge change in the way countries are fighting mainly against storms, hundreds of engineers and physicians are working in order to develop the system, and there is a lot of progress there as well.

Operator: The next question is from Omri Efroni of Oppenheimer.

Omri Efroni: Congrats on the great quarter. I have three firsts. I hope you don’t mind. The first is about the land division. The operating margin was pretty high. It’s got 9%. And I know that most of the equipment is going into Israel. I was wondering if you have any more upside when Israeli stockpiles are full, and Elbit will be able to sell to other countries? That’s the first question. The second question is about the Iron beam. I was wondering if you have any internal price target — sales targets, sorry, for the system? And if so, if the system is going to be sold only to Israel or you can sell it into the United States? And the third question is about the pictures you put on Slide 7. I see here the Soldier Lethality Program, aka, the IVAS in the United States.

I was wondering if you have any targets or any more color you can give for the IVAS and Development Reality, Soldier Enhancement? And maybe some more color on the maritime sensing and future products that might be much more point next year?

Butzi Machlis: So let’s do it one by one. If I’m not mistaken, the first question was with regards to the land revenues, right?

Omri Efroni: Yes.

Butzi Machlis: So first, I would like to say that the land division is not selling just ammunition, they are selling full turnkey solutions, which includes the artillery system, provinces, motors, command and control system, fire control system, electro-optics and, of course, munition and guided munition as well, all combined. What happened after the acquisition of IMI that actually, we combine all the elements which are related to land solutions into 1 division, and we are selling the turnkey solution to our customer. It’s not a product, it’s a full-term system. Now if I understood you correctly, you have asked me about what will happen after the demand in Israel will increase. Is it price? Will decrease in the price?

Omri Efroni: Yes. If you have any more upside in operating leverage — operating margin in the land division?

Kobi Kagan: And also, you asked about the demand outside of Israel.

Omri Efroni: Yes. I suppose it’s continued to be pretty strong. My main question is when you start selling outside of Israel, mainly to Europe and much higher numbers if the operating margin is going to be enhanced.

Butzi Machlis: First, we continue to improve our numbers in the land division and we see a big change there. And today, they are contributing quite a lot of our profit. And of course, quantities are going up. We have more opportunities to increase the bottom line. And we see a lot of growing demand, mainly in Europe, not just in Israel. So I truly believe that there is a lot of potential for more revenues and more profits in this domain. Okay. So this was with regards to the first question. The second question was around Iron beam, right? So the question was what are the prices of system? I’m not really sure I understood the question.

Omri Efroni: The targets of revenue for the system, the Israel and the United States.

Butzi Machlis: Usually, we don’t give this information publicly. I can tell you that there is a huge interest around the system around the laser solution and other type of energy weapons. We deal with not just laser system, we deal with many type of — the several types of energy weapons in Israel as well as abroad. With regards to numbers, this number, usually, we don’t show this data.

Omri Efroni: Okay. And regarding the third question about soldier lethality and maritime sensing?

Butzi Machlis: Yes, we are very happy with the acquisition of Night Vision, which took place a few years there. This company is growing and improving. And they are providing, as you know, night vision equipment for the Army or the Marines as well as other international customers. Now based on the Elbit portfolio, we are able to combine a full turnkey solution for infantry soldiers. This is also a lesson learned from the current conflict we have here in our region. And we are tailoring unique solution for inventory soldiers — for future infantry soldiers, and we are offering it to our different customers in the U.S. as well as abroad. I’m very happy to say that we just announced a $112 million contract to the U.S. Marine Corps. And we’ve seen a lot of potential in this specific domain. It’s a growing segment in our portfolio.

Operator: The next question is from Conor Walters of Jefferies. Please go ahead.

Conor Walters: Congrats on such an excellent quarter. Maybe to stick with the top line. Q1 was off to a great start with 22% growth, well on track for the double-digit target for the year. Curious what played out better than expected for the quarter and how we should think about the drivers for the remainder of the year, particularly as we think about the momentum we saw in land and aerospace?

Kobi Kagan: Thank you for the question. We had a very good shot for 2025, as you mentioned. It was on plan. It’s not something that we didn’t plan. We see very big growth in the land backlog, and that was demonstrated with 48% expansion in revenues year-over-year in — with the land division. And we see also in the other segments, all of the segments grew from 1 digit to two digits, most of them two digits growth in this quarter. So it was on plan, and it’s on track in the company’s growth.

Conor Walters: Got it. That’s very helpful. And maybe one more for you, Kobi, free cash flow generation in the quarter was very strong again, continuing on the momentum we saw from Q4 of last year, had nearly 140% conversion on your adjusted net income. Curious how we should be thinking about the opportunity for the full year? And maybe what’s driven the step change in your cash conversion of the last few quarters?

Kobi Kagan: Thank you, Conor, for pointing this out. We had three major ingredients in the free cash flow generation this quarter. First, increased net income, that is plain vanilla, just increased the net income, and that will translate to a better cash conversion. Secondly, we had very strong contract liabilities, down payments in this quarter, which was additional $170 million of contract liabilities in this quarter. And thirdly, there was a onetime of $57 million of ground that we received from the Israeli Land Authority, the ILA, which was part of the contract of the evacuation of the facility in Ramat HaSharon going to Ramat Beka in the end of 2026. Those are the three ingredients in the performance that we had in the first quarter of the free cash flow.

Operator: [Operator Instructions] 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 that a replay of this call will be available in 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 9723-925-5900. A replay of the call will also be available at the company’s website at www.elbitsystems. Mr. Machlis, would you like to make your concluding statement?

Butzi Machlis: I would like to thank our employees for their continued hard work and contribution to Elbit Systems’ success. 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.

Operator: Thank you. This concludes the Elbit Systems’ First Quarter 2025 Results Conference Call. Thank you for your participation. You may now go ahead and disconnect.

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