Q3 2023 Elbit Systems Ltd Earnings Call

Okay.

Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' third quarter 2023 results conference call. All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded. You should have all received

Ladies and gentlemen, thank you for standing by welcome to Elbit systems third quarter 'twenty 'twenty 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.

Have all received by now the company's press release that is available in the news section of the company's website Www Dot Elbit systems dotcom.

Speaker 1: That is available in the new section of the company's website, www.elbitsystems.com. I would now like to hand over the call to Rami Meyerson, Elbit Systems, VP Investor Relations. Rami, please go ahead.

Now like to hand over the call to Rami Myerson Elbit systems VP Investor Relations Rami. Please go ahead.

Speaker 2: Thank you, Yoni. Good day everyone and welcome to our third quarter 2023 earnings call. On the call with me today are Buti Maswesal, President and CEO , Kobi Kaganah, CFO , and Yossi Gasper, Senior EVP, Business Manager.

Thank you Tony Good day, everyone and welcome to our third quarter 2023 earnings call on the call with me today, I would see amongst myself, president and CEO, Toby cargo CFO and Yossi Gaspar senior EVP business management before we begin I would like to point out that the safe Harbor statement in the company's press release issued earlier today also refers to the contents of this conference call.

Speaker 2: Before we begin, I would like to point out that the Safe Harbor statement in the company's press release, issued earlier today, also refers to the contents of this conference call.

Speaker 2: As we do every quarter, we will provide you with both our regular GAAP financial data, as well as certain supplemental non-GAAP information.

As we do every quarter, we will provide you with both our regular GAAP financial data as well as certain supplemental non-GAAP information. We believe that this non-GAAP information provides additional detail to help understand the performance of the ongoing business you can find all the detailed GAAP financial data as well as the non-GAAP information and a reconciliation in today's press release Koby will begin by pre.

Speaker 2: We believe that this non-GAAP information provides additional detail to help understand the performance of the ongoing business.

Speaker 2: You can find all the detailed GAAP financial data as well as the non-GAAP information and the reconciliation in today's presentation.

Speaker 3: Kobi will begin by providing discussion of the financial results, followed by Butsi, who will talk about some of the main events during the quarter and beyond. We will then turn the call over to a question and answer session. With that, I would like now to turn the call over to Kobi. Kobi, please. Thank you, Rami. Hello, everyone, and thank you for joining us today. The financial results of the third quarter of 2023 reflect the sustained demand for our solutions and progress in the implementation of our operational improving plan.

Any discussion of the financial results, followed by beauty, who will talk about some of the main events during the quarter and beyond we will then turn the call over to a question and answer session with that I would like now to turn the call over to Koby Colby Keith. Thank you Rami Hello, everyone and thank you for joining us today.

Financial results of the third quarter of 2023.

Reflect the sustained demand for our solutions.

Progress and implementation of our operational improvement plans.

Speaker 3: Boussy will discuss the implications of the war in Israel in his remarks. The extent of the impact of the war on our financial results will depend on future developments that are difficult to predict, including the duration and scope of the war. We continue to monitor the situation closely.

He will discuss the implications of the war and Warren Israel in his remarks.

Sense of the impact of the war on all financial results will depend on future developments that are difficult to predict including the duration and scope of the work week.

We continue to monitor the situation closely.

Turning now to the results of the third quarter.

Speaker 3: Third quarter revenues increased by 11% to $1,502,000,000.

Third quarter revenues increased by 11%.

$1.502 billion.

Speaker 3: compared to $1,349,000,000 in the third quarter of 2020.

Compared to $1.349 billion in the third quarter of 2022.

Speaker 3: In terms of quarterly revenues by segment, aerospace revenues increased by 24% in the third quarter of 2023 compared to the third quarter of 2022, mainly due to training and simulation sales in Europe and UAS sales in Asia.

In terms of quarterly revenues by segment.

<unk> revenues increased by 24% in the third quarter of 2023 compared to the third quarter of 2022.

Mainly due to training and simulation sales.

In Europe, and UAS sales in Asia Pacific.

Speaker 3: C4I and cyber revenues increased by 9% year over year, mainly due to radio system sales in Europe .

Before I and cyber revenues increased by 9% year over year.

Mainly due to ready to system sales in Europe.

Speaker 3: I-STAR and EW revenues were similar to the revenues in the third quarter of 2020.

Our store and EW revenues.

Similar to the revenues in the third quarter of 2022.

Speaker 3: Land revenues increased by 7% mainly due to artillery and weapons stations sales in Europe .

Net revenues increased by 7%, mainly due to our jewelry and weapons station sales in Europe.

Speaker 3: Albert Systems of America revenues declined 2% in the third quarter due to low precision guided diminishing sales.

Elbit systems of America revenues declined 2% in the third quarter due to lower precision guided munitions sales.

Speaker 3: LBSYD, diverse geographic revenue base, helped to reduce revenue volatility and support the long-term sustainability of our...

L. P system diverse geographic revenue base helps to reduce revenue volatility and supports the long term sustainability of our business.

Speaker 3: In the third quarter, Europe was our largest market, contributing 33% of group revenues. North America was 24%, Asia Pacific 21%, and Israel contributed 15% of our revenues. Europe is our largest market, contributing 33% of group revenues.

In the third quarter Europe.

Our largest markets contributing 33% of group revenues.

North America was 24% Asia Pacific, 21%, and Israel contributed 15% of our revenues.

European revenues increased due.

Speaker 3: due to growth in cells of radio systems, artillery, weapons station, and training and simulation solutions.

Due to growth in sales of radio systems artillery weapons station in training and simulation solutions.

Speaker 3: Asia Pacific revenues increased mainly due to growth in UAS.

Asia Pacific revenues increased mainly due to growth in UAS field.

Speaker 3: Israel's revenues declined mainly due to lower ammunition sales in the quarter.

Israel revenues declined mainly due to lower ammunition sales in the quarter.

Speaker 3: The non-gap gross margin for the third quarter was 24.9% compared to the third quarter of 2022 at 25%.

The non-GAAP gross margin for the third quarter was 24, 9% compared to the third quarter of 2020% to 25%.

Speaker 3: Gap gross margin in the third quarter was 24.5% of revenues compared to 24.2% in the third quarter of 2020.

GAAP gross margin in the third quarter was 24, 5% of revenues compared to 24, 2% in third quarter of 2022.

Speaker 3: GAP and non-GAP gross profit in the third quarter of 2022 included approximately $13 million of expenses related to stock price linked compensation plans.

GAAP and non-GAAP gross profit in the third quarter of 2022.

Lucid approximately $13 million of expenses related to stock price linked compensation plans.

Speaker 3: Paired Quarter Non-Gap Operating Income was $117 million, or 7.8% of revenues, compared to $84.3 million, or 6.3% of revenues last year.

Third quarter non-GAAP operating income was $117 million or seven 8% of revenues compared to $84 $3 million or six 3% of revenues last year.

Speaker 3: Gap operating income for the third quarter was $106.1 million, or 7.1% of revenues, versus $73.4 million, or 5.4% of revenues, in the third quarter of 2020.

GAAP operating income for the third quarter was 100 to $6 1 million or seven 1% of revenues versus $73 4 million or five 4% of revenues in the third quarter of 2022.

Speaker 3: GAP and non-GAP operating profit in the third quarter of 2022 included expenses of approximately $22 million related to the stock price clean compensation plan.

GAAP and non-GAAP operating profit in the third quarter of 2022 included expenses of approximately $22 million related to the stock price linked compensation plan.

Speaker 3: The operating expense breakdown in the third quarter was as follows

The operating expense breakdown in the third quarter was as follows net R&D expenses were six 9% of revenues versus eight 4% in 2022.

Speaker 3: Net R&D expenses were 6.9% of revenues versus 8.4% in 2020.

Speaker 3: The year-on-year reduction in R&D expenses in the third quarter reflects the facing of projects

The year on year reduction in R&D expenses in the third quarter reflects the phasing of projects.

Speaker 3: Marketing and selling expenses were 5.7% of revenues versus 5.1% last year.

Marketing and selling expenses were five 7% of revenues versus five 1% last year.

Speaker 3: The positive inflection in global defense budget growth has created multiple opportunities.

The positive inflection in global Defense budget group has created multiple opportunities to increase in marketing and sales spend will help to realize the potential created by these opportunities.

Speaker 3: The increase in marketing and sales spends will help to realize the potential created by these opportunities.

Speaker 3: G&A expenses were 4.8% of revenues compared to 5.9% last year.

G&A expenses.

We're four 8% of revenues compared to five 9% last year.

Speaker 3: Other operating income in the third quarter of 2022 of $9.4 million included a capital gain related to the sale of a building in Israel.

Other operating income in the third quarter of 2022 nine.

$9 $4 million included a capital gain related to the sale of a building in Israel.

Speaker 3: Financial expenses were $36 million in the self-border compared to $16 million in 2022.

Financial expenses were $36 million in the third quarter compared to $16 million in 2022.

Speaker 3: Financial expenses in the third quarter were higher as a result of the significant increase in interest rates and higher debt.

Financial expenses in the third quarter were highly were higher as a result of the significant increase in interest rates and higher debt.

Speaker 3: We recorded the tax expense of $10 million in the third quarter, compared to $8 million in 2020.

We recorded a tax expense of $10 million in the third quarter compared to $8 million in 2022.

Speaker 3: The effective tax rate in the third quarter was 15% compared to 13% in 2020.

The effective tax rate in the third quarter was 15% compared to 13% in 2022.

Speaker 3: Our non gap diluted EPS was $1.65 in the third quarter compared with $1.40 in 2020.

Our non our non-GAAP diluted EPS was $1 65.

In the third quarter compared with $1 40 in 2022.

Speaker 3: Gap diluted EPS was $1.36 for the third quarter, compared with $1.26 in 2020.

GAAP diluted EPS was $1 30.

36 for the third quarter compared with $1 26 in 2022.

Speaker 3: Our backlog of orders as of September 30th, 2023 was $16.6 billion, approximately $1.9 billion higher than the backlog at the end of the third quarter of 2020.

Yes.

Our backlog of orders as of September 30th 2023 was $16 6 billion approximately $1 $9 billion higher than the backlog at the end of the third quarter of 2022.

Speaker 3: Approximately 39% of the current backlog is scheduled to be performed during the remainder of 2023 and 2024, and the rest is scheduled for 2025 and beyond.

Approximately 39% of the current backlog is scheduled to be performed during the remainder of 2023 and 2024 and the rest is scheduled for 2025 and beyond.

Speaker 3: operating cash flow in the third quarter was an $11 million inflow compared to the $117 million

Operating cash flow in the third quarter.

It was an $11 million inflow compared to the 117.

Speaker 3: 178 million dollar inflow in the same quarter last year.

$178 million inflow in the same quarter last year.

Speaker 3: The board of directors has declared a dividend of 50 cents per share.

The board of Directors has declared a dividend of <unk> 50 per share.

Speaker 4: I will now turn the call over to Mr. Matlis, LBTO. Boutsi, please go ahead. Thank you, Colby. Alright.

I will now turn the call over to Mr. Marr. Please that'll be feel beauty. Please go ahead.

Thank you Colby I would like to begin by thinking.

Thinking all eligible employees and their families.

<unk> for their hard work and dedication.

These challenging times.

Speaker 5: Since the 7th of October , I have visited Elbit's operations around Israel and are deployed in the field supporting the ideas. I am proud to be a member of the Israeli I am proud to be a member of the Israeli

Since the citizens of October visited.

Operation, along with Israel, and all employees deployed in the field the 14th ideas.

I'm proud of the commitment.

All of our customers.

All the dedication.

Speaker 5: provides me with confidence that Elbit Systems will be able to overcome the challenges we face today and may face in the future.

Provides me with confidence that the system will be able to overcome the challenges we face today and may face in the future.

I also want to send my sincere condolences.

Speaker 5: to the family, the parents, Louise, that have lost their loved ones during this conflict.

So the assemblies for employees that have lost their loved ones during.

This conflict.

Speaker 5: The financial results in the third quarter include double-digit revenue growth, a record backlog of $16.6 billion,

The financial results in the third quarter include double digit revenue growth vehicles bedrock.

$16 $6 billion.

And improved profitability.

Speaker 5: combined with the significant contract from customers around the world we received in recent months reflects the strong demand for

Combined with the significant contract for customers to own gold we received in recent months, reflecting the strong demand for solutions.

Speaker 5: They also increase confidence in our ability to overcome the short-term challenges and deliver on our potential in the long run.

They also.

<unk> also increased confidence in our ability to overcome the short term challenges and deliver on our potential in the long term.

Speaker 5: I would like to discuss the impact of the war so far on Israel that presents both challenges and opportunities.

I would like to discuss the impact of the wall full foreign as well.

That's the thing.

Both challenges and opportunities.

Speaker 5: The LB system is Israel's largest defense company.

Every system is is where the largest defense company.

Speaker 5: and we supply a range of solutions to the Israeli defense force.

And Winterflood Felicia.

<unk> does the Israeli defensible.

Speaker 5: This includes the digital army program for DAT-760 command and control solution.

These include the digital Army program or depth, 60 command and control solution.

Speaker 5: Electronic Warfare System, UAVs, Artillery and Motor System

Electronic warfare system.

These opportunity and multiple.

System.

Speaker 5: for main battle tanks and armed vehicles, night vision systems, as well as a range of training and simulation solutions.

For men Pleasant thing and all diseases like vision systems, as well as a range of training and simulation solutions.

Speaker 5: for the single soldier, to the squadron and battalion level across all domains and modes.

Well the thing Thats, so due to the slowdown in Bethesda and it isn't across all domains.

Speaker 5: Our solutions are currently being used extensively by the idea.

Our solutions are currently being used extensively by the ideas.

Speaker 5: We have also accelerated the development of some of our solutions that were still in development and were scheduled to be fielded in the medium or longer term. They have already been sent to the field in days of which...

We have also accelerated the development.

Mobile solutions that we are still in development and we will schedule to fill that in.

In the medium or longer term.

They have already been sent to the fleet in days or weeks.

Speaker 5: We did this thanks to the dedication of our employees and our culture of innovation and creativity.

We did this thanks to the dedication of our employees and our culture of innovation and creativity.

Speaker 5: We have ramped up production to support the IDS and maintain delivery to our international customers at the same time.

We have ramped up production to support the ideas.

Maintain deliveries to our international customers at the same time.

Speaker 5: We have increased production capacity at our factories by adding shifts, and we have rapidly recruited several hundred additional temporary employees to support the search.

We have increased production capacity at our factories by adding shifts and.

And we have upwardly recruited.

Hum additional temporary employees to support the surge.

Speaker 5: We have implemented all of this at the same time as approximately 15 percent of our israeli works

We have implemented all of this at the same time.

Is it folks and at least 15% will fall easily work school.

Speaker 5: of 14,000 employees has been called up to serve as reservists in the idea.

For all 14000 employees has been called up to <unk>.

Is the idea.

Speaker 5: We pray for a safe and speedy return of all the hostages and soldiers to their homes and families.

We pray for space and we do it.

All the hostages and soldiers to their homes at summit.

Speaker 5: I would like to share some of my initial observations and lessons learned from the...

Okay.

I would like to share some of my initial observations.

And this alone.

Inc.

Speaker 5: we conduct with the end users in the IDS and discuss some of the relevant contracts received in recent months that demonstrate that our international businesses remain solid and continue to grow.

We conduct with the end users in the ideas and discuss some of the relevant contracts with this model.

That demonstrate that although international businesses remain solid and continues to grow.

Speaker 5: The conflict has highlighted the importance of multi-domain warfare that connects all forces operating in the air, on the ground, and at sea, and enables the transfer of information between them to close the sense of the shooter's cycle rapidly and effectively.

The conflict.

Highlighting the importance of multi domain warfare that commit or forces operating under.

On the ground in the tea.

And the neighbors.

All information between them to close is central to shoot a cycling up quickly and efficiently.

Speaker 5: Elbit Systems is a market leading supplier of a range of solutions across the sense of the shooter cycle.

Elbit systems is a market leading supplier of a range of solutions of course is central to future cycle.

Speaker 5: that is made up of three major elements. The sensor that collects information, the infrastructure that enables the transfer of information, and the effectors that engage threat based on information on the information continent.

That is made up of three major element the thin film that's collecting points correlate inflammation the infrastructure that the neighbors the pumps to opening formation in the system that engaged split based on information on as the information and got it.

Speaker 5: Some examples of our capabilities include our I-STAR and EWE division provide a range of advanced sensors that operate across the electro-magnetic circuit.

Some examples the bulk of our abilities include.

I styling AWD division provide a range of advanced since those that operate across the electro magnetic system.

The incentive to collect valuable and actionable mission critical intelligence and can identify exploit and gain in activity and capabilities.

The Division also provides advanced targeting Douglas acquisition in lasers targeting solutions in August.

<unk>.

$55 million contract to supply a multi layer, we won't come to unmanned system doesn't isn't it.

Original system is comprised of advanced radar sensors.

The optical sensor capabilities and the command and control system to protect against the growing threat.

We've continued to see healthy demand for our night vision solutions for customers around the world, including yesterday's and ultimate.

Speaker 5: from the U.S. DOD for a large night vision global contract for ESA's night vision...

The U S D O D for a large night vision global construct.

Yesterday night vision business.

Speaker 5: The information collected by these sensors that are installed on a range of main and admin platforms is distributed around the battlefield by Elbe system, CIFORA and SABER, Advanced Communication and Command and Control Solutions.

The information collected samples that are stored on a range of manned and unmanned platform is distributed owns a bunch of food by Elbit systems before and so I built events communication and command and control solutions.

Speaker 5: that create a real-time, multi-domain network warfare environment from headquarters to the front.

Create a real time multi domain network warfare environment from headquarters to the Sunshine.

Speaker 5: the current generation of the Digital Army program that we...

The current generation of the digital Army program that we.

Speaker 5: supply to the IDF. The Torch-X DEP-750 enables advanced digital capabilities in the battlefield from the IDF operating on thousands of our healing advanced software different radios that enable the flow of data.

So price is the idea if at all to that 750 enables advanced digital capabilities and the budget from the Ida operating.

Well, Paul eating advanced software defined radios that they enable the flow of data.

Speaker 5: DAP-750 connects the forces across multi-domains, enabling the rapid and effective transfer of information, including voice, video and text, around the battlefield to be used by decision makers at all levels of the convention.

The 750 <unk> connect the forces of course, multi domain, enabling the rapid and effective drug silica information, including voice video and thick along with a bunch of food to be used by decision makers at all levels of the command team.

Speaker 5: In October , Elbe system Sweden was awarded a 170 million dollar continue contract to become the integration partner for the Swedish Army Digitization Program, LFS-MARS.

October Elbit systems, Sweden was awarded $117 million continue contract to become the integration partner for the Swedish on Digitization program and it's a small piece.

Speaker 5: This contract is an important validation of our command and control and military digitization capabilities.

This contract is an important validation of our command and control and mitigate the digitization capabilities.

Speaker 5: L-bit system land provides a range of objectives to the IDF including precision guided munition launch or relay from platforms on the ground in the air and...

Elbit system, then provide a range of <unk> to the ideas, including precision guided munitions lunch at lunch or reload.

He lag from platforms on the wrong.

Speaker 5: We also supply a range of artillery, tank or motor units.

And let's see.

We also supply LNG opportunity, we think on multiple munitions.

Speaker 5: These factors enable engagement of the threats identified by the census.

Neither cisco's enable engagement over the six identified by the central.

Speaker 5: In October , we received a $135 million contract.

In October we received a $135 million contract.

Speaker 5: to your contract for international customers to establish an artillery ammunition...

Two year contract for many international customers to publish a multitude of ammunition factory.

Speaker 5: The contract reflects the strong demand for munitions from countries around the world and the

The contract reflects the strong demand for ammunition from countries around the world.

Speaker 5: decades of Elbit experience producing a range of artillery, mortars, and tank munitions. In September , we were awarded two contracts from a European country.

The.

Decades of L. B.

It is producing 40 really most of them think munitions in September.

Just to confirm on the European countries.

Speaker 5: worth approximately $200 million to supply a C4Y solution to an artillery battalion and hostile fire counter-attack solution. These solutions provide a good example of Elbik's comprehensive center of pursuit of capabilities that help accelerate the cycle to identify and engage the enemy quickly and effectively with limited collateral damage.

Was approximately 200 million to supply a voice solution.

The battalion.

In wholesale cloud contour Tech solution. This solution provides a good example would be.

Comprehensive central compute capabilities that help accelerate.

Identified and engaged.

Quickly and effectively.

Limited quantity like damage.

Speaker 5: We initiated and we are implementing our operational improvement plan to support our transformation into a larger, more profitable company.

We initiated and we are implementing our operational improvement plan support our transformation.

To a larger more profitable company.

Speaker 5: The war on Israel has not changed our long-term plan.

The war in Israel has not changed our long term plan.

Speaker 5: It also increases the focus on the portfolio and should help us identify capability or technology as well as those businesses that are less relevant to our strategy.

It also increases increases the focus on that.

Folio and should help us identify capability or technology get as well as those businesses that are less relevant to our strategy.

Speaker 5: In summary, I am encouraged by the progress in the third quarter as well as the second quarter.

In summary, I'm encouraged by the progress in the third quarter as well is.

Speaker 5: revenues we have demonstrated overcoming multiple challenges in recent years.

The resilience, we have demonstrated overcoming multiple challenges in recent years.

Speaker 5: I am confident in our ability to overcome the current challenges and deliver on our potential to all our stakeholders, our customers, our employees and of course to you.

I'm confident in our ability to overcome the current challenges and deliver on our potential to all stakeholders, our customers employees and of course to you our shareholders.

Speaker 5: Before I conclude, I would like to thank our customers and partners from around the world for the numerous expressions of support over the last two months.

Before I conclude I would like to thank our customers and partners from around the world.

For the numerous.

Expressions of support over the last few months.

And with that we'd be happy to take your questions.

Yeah.

Speaker 1: 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 the handset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while we poll for your questions.

Thank you ladies and gentlemen at this time, we will begin the question and answer session. You will have a question. Please press star one if you wish to cancel your request. Please press star two if you are using speaker equipment kind of lift the handset before pressing the numbers questions will be pulled in the order. They are a seat. Please standby while we poll for your questions.

Speaker 1: The first question is from Pete Skibitsky of Olympic Global. Please go ahead.

The first question is from Peter Kubicki of Alembic Global. Please go ahead.

Speaker 6: Thank you, gentlemen. Good afternoon. And I hope you and your families are safe and you're all doing reasonably well during what I'm sure is a very difficult time to start out.

Yes. Thank you.

Gentlemen, good afternoon, and I Hope you and your families are safe and you're all doing reasonably well during what I'm sure is a very difficult time.

To start out.

And they do.

Speaker 6: Yes, maybe to start with with with Kobe. Kobe, can you talk more about the third quarter gross margin in particular? I know I know last year you had the stock comp expense that impacted gross margin. This year, I think you expected second half margins to be better. So maybe you could just walk us through what impacted the third quarter gross margin and if you expect fourth quarter to see a higher gross margin.

Yes, maybe to start with with Kobe Toby can you talk more about the third quarter, our gross margin in particular.

I know I know last year, you had the stock comp expense that impacted gross margin.

This year I think you expected second half margins to be better. So maybe you could just walk us through what impacted the third quarter gross margin and if you expect fourth quarter to see.

A higher gross margin.

Speaker 3: Yeah, thank you kids. I'll talk about. I think there are four layers here in to the answer. The first one is that we're still in the implementation phase of our operational improvement.

Yeah. Thank you.

I'll talk about a I.

I think there are four layers.

To answer the first one is that we're still in the implementation phase of our operational improvements are planned to support our transformation and that plan includes the ERP effort in a multiple multiple investments that are still going on and we will see the continuation of the.

Speaker 3: our plan to support our transformation. And that plan includes the ERP effort and multiple investments that are still going on and we will see the continuation of the improvement of our profitability ahead, GP and OP level. The second part is of course project mix that you have...

<unk> of all profitability had GP and LP level. The second BOP is is of course project a project mix that.

That you have each quarter.

Speaker 3: The third issue is that it's more, we think that it's more relevant to look at three quarters and not just on one specific quarter. And if you look at the third, at the three quarters from the beginning of 2023, you see that if we deduct the stock price linked compensation plan.

The third issue is that it's more.

Think that it's more relevant to look at three and three quarters and not just in one specific quarter. If you look at the third.

Uh huh.

Three quarters from the beginning of 2023, you'll see that.

If we did that the stock price linked compensation plans.

Speaker 3: We keep the same GP level and even a bit better. The last issue is that when we are discussing prices of products and systems...

We keep the same GP level, and even even a bit better and the last issue is that when we are discussing.

Products and systems of course, there are a variety we are very diverse company with a.

Speaker 3: Of course, there are a variety. We are a very diverse company with a...

Speaker 3: with a lot of projects and systems and products. And that creates, of course, a lot of projects.

With a lot of projects in our systems and and Oh.

<unk> products and.

Creates of course.

Speaker 3: different environmental prices that we can get from the market.

Different environmental prices.

We can we can get from the market. So we think that we are on plan, we see with the GP, we see an improvement significant improvement on the operational expenses level.

Speaker 3: So we think that we are on plan. We see with the GP, we see an improvement, significant improvement on the operational expenses level. So we keep the trend of improve the profitability altogether.

So we keep the trend of improved their profitability altogether.

Speaker 6: Okay, and just to follow up financially, do you expect to be free cash flow positive in the fourth quarter?

Okay, and just to follow up financially do you expect to be free cash flow positive in the fourth quarter.

These costs.

Speaker 3: And as we disclosed, we are expecting the Government of Israel, the Ministry of Defense, to pay fully their due payments in all of our receivables on the fourth quarter. So certainly we are expecting a positive Q4 cash flow-wise, and we are sure expecting to be fully paid from the Government of Israel.

Previously.

And as we disclosed.

We are expecting the government of Israel Ministry of defense to pay a fully there.

The review payments in all of our receivables on the fourth quarter. So certainly we are expecting a positive a positive Q4 cash flow wise and we're expecting to be fully paid from the government of Israel.

Speaker 6: okay okay then maybe one last one for me and i'll get back in q uh... for but see uh... but the i don't know if you have a chance to uh... examine uh... this potential supplemental funding requests for israel that some pastor the u-s house of representatives it's about fourteen and a half billion dollars

Okay. Okay, and then maybe one last one for me and I'll get back in queue.

But see.

But see I don't know if you've had a chance to Uh huh.

Zamin.

Potential supplemental funding request for Israel that pass through the U S House of Representatives, it's about $14 $5 billion.

Speaker 6: And I don't know a lot of the line items, but I have heard there's funding for iron beam, for instance, in there, amongst other items. So I'm just wondering, I guess, have you had a chance to gain some view of what's in there? And would you expect that to be meaningful to Elbit if that passes?

And I don't know a lot of the line items, but I have heard there is funding for iron beam for instance, and there amongst other items. So I'm. Just wondering if you guys have you had a chance to gain some some view of what's in there and would you expect that to be you know.

Meaningful to alphabet if that passes.

Speaker 5: Yes, we have an intimate dialogue with our government, with the MOD, on our show, in this package. And certainly, I will not go into all the details right now, but I can tell you that we expect to get part of it. As you know, we have a system of America which produces different systems and products to the IDF using SMS-1.

Yes, we have and intimate dialogue with all government.

Hey.

And Oh show in this package.

And certainly I will not go into all the details right now, let's say I can tell you that we expect to get part of it.

You know, we have elbit system coming on the call.

Yeah put us.

Defense systems and pulled up the idea of using a missed one.

Speaker 5: So it's a big opportunity for us and we expect to enjoy it from this decade as well.

So to be opportunity for us.

Okay.

Fueling these packages.

Speaker 6: Okay, yeah, I mean your backlog, I guess, year to date backlog is up nine and a half percent, and that is really before, of course, this potential supplemental impact and any increase.

Okay, Yeah, I mean, your backlog I guess year to date backlog is up nine 5% and that is really before of course, there's potential supplemental impact and any increased.

Speaker 6: Israel, you know, IMOD funding so it it sounds like maybe all the extra capacity that you've been building is is It was good foresight I guess is the way to say it to build all that extra capacity so Thanks guys. I'll get back in queue

Israel I M O D funding so it it.

Sounds like maybe all of the extra capacity that you've been building is.

Is.

Well.

It was good for side I guess is the way to say it to build.

Build all of that extra capacity so thanks.

Thanks, guys I'll get back in queue.

Thank you David.

Speaker 1: The next question is from Ella Freed of Bangklu Mee. Please go ahead.

The next question is from Ella fried of Bank Leumi. Please go ahead.

Speaker 7: Good afternoon. Thank you for taking the questions. First, I would like to congratulate you on the growth, on the revenue in this quarter, and mostly on the way the company is functioning at this time. I think as citizens we are all...

Hey, good afternoon, and thank you for taking the questions.

First I would like to congratulate you on the gross so no no in the revenue in this quarter.

And mostly on the way the company is functioning in this time too.

As a.

At citizens, we are all there.

I'm.

Speaker 7: very impressed by it and it was good to hear how you cope with the reality creatively and efficiently. I have a few questions. The first question is...

Very.

I'm impressed by it.

Hey, good to hear and how how are you.

Ill call cluster reality.

Creatively and efficiently.

I have a few questions. The first question is.

Speaker 7: about the focus that you mentioned on the portfolio that you are evaluating, maybe from the M&A perspective, potentially either buying or selling of capabilities, which makes lots of sense when the company is growing at this pace. Could you give some more details about this process?

About.

And the focus that you mentioned on the portfolio.

Sally rating.

And maybe from the M&A perspective.

Potentially aim.

Either of them by English studying of capabilities. So it makes a lot of times they wanted to companies growing at this pace.

Could you give me some.

Some more details about this process.

Speaker 4: You know, it's a good afternoon. I love to hear from you. It's an ongoing process that we have in the company to explore the portfolio we have, to make sure that we have the right portfolio to add more capabilities based on M&A opportunities and to get out from some businesses which are less relevant in the course that this will focus us even more.

No.

Good afternoon to you.

It's a it's an ongoing process as we head into the company.

The two to explore the portfolio we have to make sure that we have the right portfolio to add more capabilities based on an M&A opportunities and to get out from some businesses, which are less flood events in the pool.

We'll talk with you.

Okay, that's even more.

Speaker 5: And so we see many opportunities for the company in the near future and in the medium future and not just in Israel, also in many other places. And we have to understand... We are...

And so we we see many opportunities for the company in the near future.

And in the medium.

In the medium.

The medium future and not just in Israel. So many other places.

We have gone to we will.

The process.

Speaker 5: and this process is taking place. We made very good acquisitions in the US.

This process is taking place we made really good acquisition in the U S. Do you have back and I'm really happy to have it yesterday.

I mentioned in the.

The earlier is that the system that vision.

We were awarded the contract.

Speaker 5: in the US to provide night vision equipment to the forces.

In the U S to provide the night vision equipment.

Through the quarter.

Speaker 5: That's a very good example for an acquisition we make. So we continue to look for opportunities to make additional acquisition and maybe to get out from some of the businesses we have which are less relevant. IMI is another. And I think that's a very good example for an acquisition.

A good example for an acquisition that we made but we continue to look for opportunities to make additional acquisition and maybe to keep out from some of the business that we have which are there for them.

It really is.

A great example.

Speaker 5: and as you all remember we acquired IMI in 2018 and today it's a completely different company.

As you all remember we acquired in 2018.

This company.

Speaker 5: And we combined all many elements from L and warhead and guidance capabilities came from another part of the organization. So together we have a very vertical strong organization which provides

And we combined or many elements into that end division I might get one of them, we combined the artillery.

<unk> and with the combined the oil.

Is it uses the central pit into the division as well.

On the wall and.

The guidance capabilities, which came from another part of the organization. So together, we have the vote because strong organization, which provides.

Speaker 4: many types of guided ammunition, not just for his well also to many other customers and you see beautiful things to possess because that's another example of a good acquisition of the mediums apart. So we continue to explore the portfolio, we continue to look for opportunities, and we adjust.

Any type of guided munition Luke.

Many other customers and we see potential for.

That's another example.

<unk>, we're making so we continue to explore the portfolio, we continue to look for opportunities and we.

Adjusted the company Accordingly.

Speaker 5: Okay, are you mainly looking outside Israel or it's a... You seem to have both everything that is interesting locally. You know, when we are talking about acquisition, when we are talking about acquisition, we usually look for two elements. One is new technologies which we still need.

Okay.

Mainly looking outside.

All right.

You seem to have bought everything.

Interesting okay.

You know, we're not talking about acquisition.

Thinking about the acquisition, we usually look for two elements, one is new technology, which isn't it.

Speaker 5: or car which we acquired from BAE is a very good example for that. It was a relatively small acquisition, but this acquisition brought us a technology we didn't have, which is related to immune GPS technology.

We will co which we acquired from he is a very good example for that it was relatively small acquisition <unk> acquisition brought US technology, we didn't pad, which is limited.

Two new GPS technology.

Speaker 8: and so this is one type of position we are looking for another one is Pov...

And.

So this is one type of Hmm. This is one type of acquisition, we're looking for another one in newmont.

Patients.

Speaker 8: in the market like the acquisition we made of night vision in the US which brought us into a new technology as well as to a new market and Which we didn't have before

In the market.

Like the acquisition, we made with night vision is a U S brought us into a new technology is.

New market.

And.

Two we didn't have before.

Speaker 8: So this is with regard to acquisitions But we also continuously looking also to make sure that we have the right portfolio. The company has grown a lot recently and we need to also look inside and to see whether we have some capabilities which are less relevant for us.

And so this is with regards to acquisitions, but we also continuously looking for to make sure that we have the right portfolio. The company has grown a lot differently and we need to unfold to look inside and to see whether we have some capabilities in Charlotte.

Okay.

Speaker 7: Okay, well, and I have another question, which is more I think related to COBIE. Is the high percentage of people who are mobilized, of mobilization among the workforce is going to have a positive impact on the profitability of the quarter from where you can see it now?

Okay, well and I haven't.

And another question, which is more I think related to Kobe.

Aim is.

A high percentage.

Hi, Ed.

Oh for all.

People, who are mobile only aim mobilization among them.

Work force.

<unk> is going to have a positive impact.

On the profitability of the quarter from where you can see it now.

Yes.

Speaker 3: First, Ella, hi Ella. First, thank you for your kind words in the beginning. We really appreciate your kind words.

Firstly, a lot high enough.

For your kind words at the beginning we really appreciate your kind words.

Speaker 3: Regarding the mobilization, we have currently 15 percent of our workforce in Israel, which is approximately 2,000 employees, which we are very proud serving our country in this difficult time.

Regarding the mobilization.

We have currently.

15% of our workforce in Israel, which is approximately 2000 employees, which we're very proud is serving.

Our country in this difficult times.

Speaker 3: And of course that level

And.

And of course that debt level.

Speaker 3: it creates some kind of a disruption, which, which Boussé addressed in the previous remarks as, as we are hiring temporary employees, even, even referred to some retired employees that came back very happily to support their efforts. So I'm, I'm, we don't think this is a, of course, it's not a financial contribution.

It creates some kind of a disruption, which which we addressed in the previous remarks.

As we are hiring temporary employees, even even referred to some.

Retired employees that came back very happily to support their fruit.

I'm.

We don't think this is of course, it's not financial contribution.

Speaker 3: And if you miss we of course we didn't decide who we were who are the 2000 employees that were mobilized

And if you Miss we of course, we didn't decide who are the two thousands employees that were mobilized.

Speaker 3: So part of those are from the production part of engineering. So overall it is not contributing financially? It would not be a contribution, of course. It's not a contribution. We try to support this mobilization.

So.

Bulk of those are.

From the production part of engineering so so.

That does not contribute financially it would not be a contribution of course.

It's not a contribution we tried to support this mobilization.

Speaker 3: by actually recruiting hundreds of employees.

Bye bye.

Recruiting hundreds of employees, but of course, this would not be a supportive or financially positive events in this quarter.

Speaker 3: But of course, this would not be a supportive or financially positive event in this quarter.

Speaker 7: Okay, thank you very much for answering my questions.

Okay. Thank you very much for answering my questions.

Thank you. Thank you.

Speaker 1: The next question is from Shahhar Cohen of Yosee Capital. Please go ahead.

The next question is from Shahar Cohen of Yossi capital.

Go ahead.

Yeah, Hi, guys.

Speaker 9: Did you get any more clarity about the long-term projects within Israeli? And B, it says that they are going to the Israel Defense Forces are registered within the Israeli segment, or if it goes through the American subsidiary that goes to the US in your report? And C, it says that they are going to the Israel Defense Forces are registered within the Israeli segment, or if it goes through the US in your report, it says that they are going to the Israel Defense Forces are registered within the Israeli segment,

Did you get.

Any.

More clarity about the long term projects within then we'd see an Israeli and B.

Okay.

The ongoing <unk> Israel Defense forces.

Our registers, we tend to use really segmental dose can be if it goes through the American subsidiary that goes through the.

The U S and you all have a pulse and see.

Yeah.

Speaker 9: If you can speak about the potential of Syad, you know, in other markets giving the successful implementation and proven battlefield results we see we have, that would be great.

If you can if you can speak about the potential hurdles.

In all their markets, giving the successful implementation and proven Bakken says the results, we see with US that's really great.

Speaker 8: I'm sure how it would be. And of course, we all...

Hi Shah.

And of course, we are.

Speaker 4: The IDF is a very important customer of ours and we have a lot of forces and we get the orders from the IMOD and we expect the additional orders from the IMOD and we need to be very much a support market to all this and certainly we expect to get additional orders.

The idea is a very important customer for us.

We hold.

Holes and you haven't pulled the forces when we get the orders.

For them.

Born Zoe Modi and do we have.

Yeah.

Okay.

Because you need to be.

Awesome.

So it didn't exist.

Yes.

Speaker 5: With regard to the rest of my knowledge, we have the most comprehensive solution which is available right now at the moment.

And with regards to just.

You'll see that we have.

I've already said.

Civil International customers to the system.

Uh huh.

Hopefully this is Scott.

All being used in Europe.

And as well as in North America.

And to the best of my knowledge.

Yes.

The comprehensive solution, which is available.

Speaker 8: and we see a lot of potential for that. And this system includes radios, networks, applications, training packages, and how to learn many more.

And we see a lot of potential for that in the system, including radio networks application training packages and hold them and many more.

Speaker 8: So certainly there is a lot of interest for this solution. We are world leader with that. And we have already many customers just months and a half ago who reported a nice win this visit.

Certainly there's a lot of them.

<unk>.

For this solution, we are a world leader.

What was that.

We haven't really been many customers.

And months ethical reported a nice win.

Speaker 8: to be the partner for the digitization after we won the radio in this country.

Yeah.

Posner for the Digitization after we wanted to lead us in this call.

Cool.

Speaker 8: and we expect to get additional out of the virtual world.

And we expect this is vishal.

Yes.

Okay.

Speaker 3: Okay, one more question. Yes, please. regarding geographical distribution, when we have FMF sales, geographically it's being recorded under Israel.

Okay.

Question, you have to suffer a.

Regarding geographical distribution.

When we when we have Fms sales.

We are geographically, it's being it's being recorded under Israel.

Got you.

Speaker 9: One for the question, have you seen what's the most practical yet exciting thing?

One follow up question.

Have you seen Oh, what's the most practical yes exciting things.

Speaker 9: intangible that you can say about the interest of

And tangible that you can say about the interest of.

Speaker 9: order of non-israeli customers with

All other non Israeli customers.

Speaker 9: you know, platform solutions you made, which basically being deployed now in Israel. Have you seen any, I would say inflection point in some of the solution if yes which of your solution experience.

And our platform solutions <unk>, you bet, which basically being deployed now in Israel have you seen anything I would say its collection points in some of the solution and if yes, which feel solution experience <unk>.

Speaker 4: inflection point in demand, you know, outside the fisual as a result of the Gaza war. I think it too early to speak about the result of the war and about the second war we are not sitting there, we are feeling very much involved in supporting the borders.

Inflection point in demand.

Outside the fees as a result of the gospel.

I think it's too early to speak about the results of the wall.

Sure.

Well, we are not to do so.

No.

Very much involved in supporting repulsive.

Cool.

What was the overall will be in a better position to learn from it until I understand.

Yeah.

To learn more and of course one of them.

Uh huh.

The data we share with our customers.

Alonso I continue that.

We have.

Speaker 8: Our solutions and systems are heavily used by the forces that are to the best of my understanding.

Our solutions and systems.

Heavily used.

By the forces.

That was the best of my understanding.

Speaker 8: Uh, the operators are.

The operators.

Speaker 8: recognize the importance of the solution that we are providing.

<unk>.

Who knows the importance or solution.

Speaker 4: and after the war we will understand, we will be able to, and this is related to all domains, it is related to cephorite, it is related to munitions, it is related to...

We are providing.

And after.

After the war.

We will.

Able to we'll be able to and this is related to all the main pieces.

Before I can relate it to the munitions is related to.

Speaker 8: to optics, to radar, to UAV, to training system, to EWS solution and many others.

Two if off to read those to human disease the trading system.

[noise] solution and many of them.

Speaker 10: And this war also forced us to accelerate development processes in the company and to bring solutions.

And therefore, so quarter.

To Italy.

Italy development processes in the company.

Solutions.

Speaker 10: quickly to the field. At the end of the wall, I think we'll be able to sit together with our customer to understand what else needs to be done and we'll share this data with our customers.

Quickly to the field.

So.

The end of the rule I think we'd be able to sit together with our customer.

Then what else needs to be done and we shared these data with our customers.

Speaker 9: In one last, if I may squeeze, the margin of your, the rush order you get currently from Israel, are they below, at, on par, or above, you know, your usual margins? I'm talking about gross margin.

That's right and one last if I may squeeze the margin of your the rash, although you'll get slightly from Israel below par.

Pablo above you know you'll use your margins I'm talking about gross margin.

We.

Speaker 3: We don't see any different level of margins in the rush orders. So we don't see any difference there. All right.

We don't see any need different levels of margin and seen the rush orders.

So we don't see any any difference there.

Alright. Thanks.

Thank you Sean.

Speaker 1: 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 poll for more questions.

Yeah.

If there are any additional questions. Please press star one if you wish to cancel your request. Please press star two please standby, while we poll for more questions.

Yes.

There are no further questions at this time before I ask Mr. <unk> 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 at the U S. Please call 188878 to 4291 in Israel. Please call zero $3 90 to 559.

Speaker 1: 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 two hours after the conference ends. In the US, please call 1-888-782-4291. In Israel, please call 03925-5900. And internationally, please call 9723-925-9000.

Zero and internationally. Please call nine seven to 390 255900, a replay of this call will also be available on the company's website www Dot Elbit systems Dotcom, Mr. Marquis where do you like to make your concluding statement.

Speaker 1: A replay of this call will also be available on the company's website www.elbitsystems.com. Mr. Machlis, would you like to make your concluding statement?

Speaker 10: I would like to thank our employees again for their hard work and dedication.

I would like to thank our employees again for their home.

Work and dedication.

Speaker 10: So, as a one of the calls, thank you for joining us today and for your continued support and interest in our company. Hello.

The other one of the call. Thank you for joining us today.

For your continued support and interest in our company.

Have a good day and goodbye.

Speaker 1: Thank you. This concludes the Albert Systems LTV 3rd quarter 2023 Result Conference call. Thank you for your participation. You may go ahead and disconnect.

Thank you. This concludes the Elbit systems L. T D third quarter of 2023 results Conference call. Thank you for your participation you May go ahead and disconnect.

Okay.

[music].