Q2 2024 Elbit Systems Ltd Earnings Call

Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' second quarter 2024 results conference call.

Operator: Second Quarter, 2024 Results Conference Call. All participants are present in listen only mode.

Speaker Change: 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.

Speaker Change: I would now like to hand over the call to David Ravia, Elbit Systems Investor Relations Director. David, please go ahead.

David Ravia: Thank you all for your time. Good day, everyone, and welcome to our second quarter 2024 earnings goal. On the call with me today are Buti Machlis, our President and CEO, and Kobi Kagan, our 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 contents of this conference call. As we do every quarter, we will provide you with both our regular gap financial data and certain supplemental non-gap information.

David Ravia: Thank you, operator.

Speaker Change: Good day, everyone, and welcome to our second quarter 2024 earnings goal.

Speaker Change: On the call with me today are Buti Machlis, our President and CEO , and Kobi Kagan, our CFO .

Speaker Change: 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 Change: As we do every quarter, we will provide you with both our regular GAAP financial data and certain supplemental non-GAAP information. We believe that this non-GAAP information provides additional details to help understand the performance of our business.

Speaker Change: You can find all the detailed GAAP financial data, as well as the non-GAAP information, and their reconciliation in today's press release.

David Ravia: We believe that this non-GAAP information provides additional details to help understand the performance of our You can find all the detailed GAAP financial data as well as the non-GAAP information and their reconciliation in today's press conference. Kofi will begin by providing a discussion of the financial results, followed by Puzi, who will talk about some of the significant events during the quarter and beyond. We will then turn the call over to a Q&A session. With that, I would like now to turn the call over to Kofi.

Kobe: Coffee will begin by providing a discussion of the financial results, followed by <expletive> , who will talk about some of the significant events during the quarter and beyond. We will then turn the call over to a Q&A session. With that, I would like now to turn the call over to coffee.

Kobi Kagan: Thank you, David. Hello, everyone, and thank you for joining us today. The second quarter of 2024 yielded positive results, driven by a 12% year-over-year increase in revenues, additional growth of our backlog that now exceeds $21 billion, and Improved Postability. I will now highlight and discuss key figures and trends in our financial resources. 2nd quarter revenues were $1,626,000,000, compared to $1,454,000,000 in the second quarter of 2020. This reflects 12% growth and is the second quarter in a row in which we have experienced low double-digit revenue growth. In the second quarter of 2024, Europe contributed 29% of revenues, North America 23% of revenues, Asia-Pacific 15% of revenues, and Israel contributed 27% of revenues.

Kobe: Thank you, David. Hello everyone, and thank you for joining us today.

Kobe: The second quarter of 2024 yielded positive results, driven by 12% year-over-year increase in revenues, additional growth of our backlog that now exceeds $21 billion, and improved profitability.

Kobe: I will now highlight and discuss key figures and trends in our financial results.

Kobe: Second quarter I have been used, which 1.626 million dollars, compared to 1.454 million dollars in the second quarter of 2023.

Kobe: This reflects 12% growth and is the second quarter in a row in which we have experienced low double-digit revenue growth.

Kobe: In the second quarter of 2024, Europe contributed 29% of revenues, North America 23% of revenues, Asia-Pacific 15% of revenues, and Israel contributed 27% of revenues.

Kobe: It should be noted that our diverse geographic revenue distribution is a very important factor for the long-term sustainability of our business.

Kobi Kagan: It should be noted that our diverse geographic revenue distribution is a very important factor for the long-term sustainability of our Israeli revenues grew from $245 million in the second quarter of 2023 to $444 million in the second quarter of 2024. This growth reflects the increased demand for a broad range of our solutions following the breakout of the sorts of Iron Bulls.

Kobe: Israeli revenues grew from $245 million in the second quarter of 2023 to $444 million in the second quarter of 2024.

Kobe: This growth reflects the increased demand for a broad range of R-solutions following the breakout of the Swords of Iron War.

Kobi Kagan: In addition, we see growth in North America revenue due to the increasing demands for maritime and war of artists. [inaudible] The non-gap gross margin in the second quarter was 24.4%, compared to 26.1% in the second quarter of 2020. Gap gross margin in the second quarter was 24% of revenues compared to 25.6% in the second quarter of 2020. The second quarter non-GAAP operating income was $130.5 million, or 8% of revenues, compared with $116.5 million, or 7.9% of revenues, in the second quarter of last year.

Kobe: In addition, we see growth in North America revenues due to the increasing demand for maritime and war priority assistance.

Kobe: The non-GAAP gross margin in the second quarter was 24.4%, compared to 26.1% in the second quarter of 2023.

Rosemarge: Gap gross margin in the second quarter was 24% of revenues compared to 25.6% in the second quarter of 2023.

Rosemarge: The second quarter non-GAAP operating income was $130.5 million, or 8% of revenues, compared with $116.5 million, or 7.9% of revenues, in the second quarter of last year.

Kobi Kagan: Gap operating income for the second border was $116.5 million, or 7.2% of revenues compared to $1.6 million, or 7% of revenues in the second quarter of 2020. This growth in operating income and expansion in operating margin are the result of increased operating expense efficiency. The operating expense breakdown in the second quarter was as follows.

Rosemarge: Gap operating income for the second border was $116.5 million, or 7.2% of revenues, compared to $101.6 million, or 7% of revenues, in the second border of 2020-3.

Rosemarge: This growth in operating income and expansion in operating margin are the result of increased operating expenses efficiency.

Kobi Kagan: Mentor and X-Pencher were $116.8 million, or 7.2% of revenues, compared to $93.4 million, or 6.4% of revenues, in the second quarter of 2020. This increase was due to additional R&D efforts in our land segment and continuous investment in high-power laser solutions. Marketing and selling expenses were 87.7 million dollars, or 5.4% of revenues, versus 101.7 million dollars, or 7% in the second quarter of 2020. GINA expenses were $68.7 million, or 4.2% of revenues, compared to $75.4 million, or 5.2% of revenues, in the second quarter of 2020.

Rosemarge: The operating expense breakdown in the second quarter was as follows.

Rosemarge: Net R&D expenses were $116.8 million or 7.2% of revenues compared to $93.4 million or 6.4% of revenues in the second quarter of 2023.

Rosemarge: This increase was due to additional R&D efforts in our land segment and continuous investment in high-power laser solutions.

Rosemarge: Marketing and selling expenses were $87.7 million, or 5.4% of revenues, versus $101.7 million, or 7%, in the second quarter of 2023.

Rosemarge: GINA expenses were $68.7 million or 4.2% of revenues compared to $75.4 million or 5.2% of revenues in the second quarter of 2023.

Kobi Kagan: Financial expenses were $29.1 million in the second quarter of 2024 compared to $32.1 million in the second quarter of 2021. The financial expense amount reflects the enduring time and monetary policy implemented by central banks in the markets in which Elbit operates, including the Bank of Israel and United States Federal Reserve, in response to rising inflation by retaining interest rates at high levels. Additionally, a rapidly growing backlog due to the lack of iron ore required higher levels for 14 capitals and capital expansion.

Rosemarge: Financial expenses were $29.1 million in the second quarter of 2024 compared to $32.1 million in the second quarter of 2023.

Rosemarge: The financial expense amount reflects the enduring tax and monetary policy implemented by central banks in the markets in which ALBIT operates, including the Bank of Israel and United States Federal Reserve, in response to rising inflation by retaining interest rates at high level.

Speaker Change: Additionally, a rapidly growing backlog due to the source of iron ore required higher levels of working capital and capital expenditures.

Kobi Kagan: We recorded a tax of $11.3 million in the second quarter of 2024, compared to $9.2 million in the second quarter of 2020. The effective tax rate in the second quarter of 2024 was 13.2%, compared to 13.6% in the second quarter of 2020.

Speaker Change: We recorded a tax expense of $11.3 million in the second quarter of 2024 compared to $9.2 million in the second quarter of 2023.

Speaker Change: The effective tax rate in the second quarter of 2024 was 13.2% compared to 13.6% in the second quarter of 2023.

Kobi Kagan: Our non-gap diluted EPS was $2.08 for the second quarter of 2024, compared to $1.65 in the second quarter of 2023. Gap diluted DPS was $1.76 for the second quarter of 2024, compared to $1.40 in the second quarter of 2023. We can see a 26% increase in both non-GAAP and GAAP-reluted DPS in the second quarter of 2024 compared to the second quarter of 2026. We remain focused on profitability with the aim of achieving additional growth in the next quarter of 2020.

Speaker Change: Our non-gap diluted EPS was $2.08 for the second quarter of 2024, compared to $1.65 in the second quarter of 2023.

Speaker Change: Gap diluted DPS was $1.76 for the second quarter of 2024, compared to $1.40 in the second quarter of 2023.

Speaker Change: We can see a 26% increase in both non-GAP and GAP diluted DPS in the second quarter of 2024 compared to the second quarter of 2023.

Speaker Change: We remain focused on profitability with the aim of achieving additional growth in the next quarter of 2024.

Kobi Kagan: I will now review the second quarter of 2024 year-over-year performance of our business segment. Note that our segmented disclosure is provided on a gap basis. Aerospace revenues were almost similar year-over-year, with a small 1% C4I, and cyber revenues increased by 11% year-over-year, mainly due to radio system sales.

Speaker Change: I will now review the second quarter of 2024 year-over-year performance of our business segments.

Speaker Change: Note that our segmented disclosure is provided on gap basis.

Speaker Change: Aerospace revenues were almost similar year-over-year, with small 1% decrease.

Speaker Change: C4I and cyber revenues increased by 11% year-over-year, mainly due to radio system sales.

Buti Machlis: I started EW revenues, which increased by 9% year-over-year, mainly due to electronic warfare and electro-optic system sales in Israel and Asia. Land revenues increased by 37% year-over-year, mainly due to increased ammunition and munitions sales in Israel, of Emeritor revenues increased by 11% at Eurovision. Our order book and backlog, as of June 30, 2024, reached $21.1 billion, $5 billion higher than our backlog at the end of the second quarter of 2020. Approximately $2.5 billion of this increase came from me.

Speaker Change: ISAR and EW revenues increased by 9% year-over-year, mainly due to electronic warfare and electro-optic system sales in Israel and Asia Pacific.

Speaker Change: Land revenues increased by 37% year-over-year, mainly due to increased ammunition and munitions sales in Israel. Elbit Systems of America revenues increased by 11% year-over-year.

Speaker Change: Our order backlog as of June 30, 2024 reached $21.1 billion, $5 billion higher than our backlog at the end of the second quarter of 2023. Approximately $2.5 billion of this increase came from Israel.

Buti Machlis: In the second quarter of 2024, the company recorded new orders of $2.4 billion, of which $1.1 billion came from the Israeli market. Approximately 69% of the current backlog is attributable to orders from outside of Israel. Approximately 43% of the current backlog is scheduled to be performed during 2024 and 2025, while the rest is scheduled to be performed during 2026 and after, which demonstrates the potential growth of the company. Operating Festival for the six months ending 30th June, 3024 was $26 million in flow compared to the 10.7 million dollar outflow for the second period of death for the same period that.

Speaker Change: In the second quarter of 2024, the company recorded new orders of $2.4 billion, of which $1.1 billion came out from the Israeli market.

Speaker Change: Approximately 69% of the current backlog is attributable to orders from outside of Israel.

Speaker Change: Approximately 43% of the current backlog is scheduled to be performed during 2024-2025, while the rest is scheduled to be performed during 2026 and after, which demonstrates the potential growth of the company.

Speaker Change: Operating cash flow for the six months ending 30th of June 2024 was $26 million inflow compared to $210.7 million outflow for the second period last year.

Buti Machlis: We continue to increase inventories to support the increasing back... The Board of Directors has declared a dividend of 50 cents per share. I will now turn the call over to Mr. Machlis, Elbit CEO. Bootsy, please go.

Speaker Change: for the same period last year. We continue to increase inventories to support the increasing backlog.

Speaker Change: The Board of Directors has declared a dividend of $0.50 per share.

Mr. Machlis: I will now turn the call over to Mr. Machlis, Elbit CEO . Boutsi, please go ahead. Thank you, Kobi. I would like to start by expressing our sincere gratitude to all Elbit employees worldwide for their...

Buti Machlis: Thank you, Kobe. I would like to start by expressing our sincere gratitude to all of you for your support, to all Elbit employees worldwide for them. [inaudible] Dedication and comics.

Buti Machlis: [inaudible] to our customers in Israel and abroad, are woeful and deserve special recognition for their extraordinary efforts over the past several months in meeting the urgent needs of the Israeli MoD during the recent conflict and supporting our international cooperation. I, along with the entire company, wish for the immediate return of all hostages held captive in Gaza. They are in our hearts and minds, and we are waiting for their return home.

Speaker Change: underwriting dedication and commitment.

Mr. Machlis: to our customers in Israel and abroad. Our workforce deserves special recognition for their extraordinary efforts over the past several months.

Mr. Machlis: in meeting the urgent needs of the Israeli MoD during the recent conflict and supporting our international customers.

Mr. Machlis: I, along with the entire company, wish for the immediate return of all hostages held captive in Gaza. They are in our hearts and minds, and we are waiting for their return home.

Buti Machlis: In line with the previous quarter, we are pleased to report continued growth. You know, all that backlog. She's now exceeded $21 billion dollars, revenue increased by approximately 12%, and Cability improved. Two key factors have been instrumental to our success, extends. The geographical footprint, of course, you, North America, Asia, and Israel, and our portfolio of advanced technological solutions. Robin Aspectius, in the context of a rising global defense budget, remains committed to expanding its global presence.

Speaker Change: In line with the previous quarter, we are pleased to report continued growth in our order backlog, which now exceeded 21 billion US dollars. Revenue increased by approximately 12% and profitability improved.

Speaker Change: Two key factors have been instrumental to our success.

Speaker Change: extensive geographical footprint across Europe , North America, Asia, and Israel, and our portfolio of advanced technological solutions.

Ruben: proven effective in the context of rising global defense budget.

Ruben: Elbit Systems remains committed to expanding its global presence while fulfilling our customer commitments.

Buti Machlis: White Foot Filling, Alcatamook, Our company continues to implement its transformation plan, aiming to meet our internal target of 7 billion U.S. dollars in revenues, which I believe will be achieved ahead of schedule, and our internal target of around 10% operating margin. Despite the significant increase in northern news from the Israeli market, the majority of our people living news is generated outside of the market, and our primary focus remains the international model, while supply chain challenges still exist.

Ruben: Our company continues to implement its transformation plan, aiming to meet our internal target of 7 billion US dollar revenues, which I believe will be achieved ahead of schedule, and our internal target of around 10%.

Speaker Change: Operating Margin.

Speaker Change: Despite the significant increase in revenues from the Israeli market, the majority of our revenues are generated outside of Israel, and our primary focus remains the international market.

Buti Machlis: Our diversified pro player base has mitigated their imp... International revenues accounted for 73% of total revenue in the second quarter. We were pleased to announce several recent international contact awards that enhance our global presence. Last week, for example, we announced a $270 million contract to supply rocket artillery to an international customer over a four-year period, from April 25th, 2024. Elbit America celebrated the delivery of the 3,000th F-35 Helmet Mountain Display System, an advanced helmet-mounted display, from the company site in Manimek, New Hampshire. The F-35 Generation 3 Helmet Mounting Display System is an advanced helmet-mounted display, in addition to several contract women as well as the Netherlands.

Speaker Change: While supply chain challenges still exist, our diversified supplier base has mitigated their impact. International revenues accounted for 73% of total revenue in the second quarter.

Speaker Change: We were pleased to announce several recent international contacts awards that enhance our global presence.

Speaker Change: Last week, for example, we announced a $270 million contract to supply rocket artillery to an international customer over a four-year period. On April 25th.

Speaker Change: 2024, Elbit America, celebrated the delivery of the 3035 Helmet Mountain Display System.

Speaker Change: from the company's site in Merrimack, New Hampshire. The F-35 Generation III Helmet Mounting Display System is an advanced helmet-mounted display system.

Buti Machlis: For example, we secured an initial $37 million contract in May 2024 to supply Iron Fist Active Protection System to generalize the Army Ordnance and Tactical System for upgrading the U.S. Army Bradley Vehicle. These 24-month contracts offer significant growth potential. Furthermore, we recently announced a 130 million dollar contract with BAE System Harden for Iron Fist Active Protection System integration into the CV90 Infantry Fighting Vehicle as part of a project for European Concrete. Malkink and other strategic powers [inaudible] The Iron Fist system provides 360-degree protection against a wide range of anti-armor threats, including rocket propellant, grenades, and kinetic energy tanks round, in both open terrain and urban environments.

Speaker Change: in addition to several contract winning as well.

Speaker Change: and the Netherlands, for example, we secured an initial $37 million contract in May 2024 to supply Iron Fist active protection system.

Speaker Change: to General Dynamics Ordnance and Tactical Systems for upgrade the U.S. Army Bradley vehicles. These 24-month contracts offer significant growth potential.

Speaker Change: Furthermore, we recently announced a $130 million contract with BAE Systems Hardware

Speaker Change: for Iron Fist Active Protection System integration into the CB90 Infantry Fighting Vehicle is part of a project for European countries.

Speaker Change: marketing, and other strategic partnerships.

Speaker Change: The Iron Fist system provides 360-degree protection against a wide range of anti-armor threats including rocket propellant, grenades, and kinetic energy tanks rounds in both open terrain and urban environments.

Buti Machlis: This advanced technology is the result of substantial R&D investment. The growing demand for the system underscores Elbit Systems' leadership position and the market's appetite for innovative solutions. Through the recent conflict, we significantly increased production to meet the IDF's urgent needs while maintaining deliveries to international customers. Now, fuck, is on expanding production capacity to drive revenue growth beyond the increase in balance. A prime example of our capacity expansion is the recent award of a $300 million contract with the Israeli Ministry of Defense for Ammunition Supply. This 10-year contract will see the construction of a new manufacturing facility, scheduled for completion within two years.

Speaker Change: This advanced technology is the result of substantial R&D investment.

Speaker Change: The system growing demand underscores LBITSYSTEM's leadership position and the market's appetite for innovative solutions.

Speaker Change: Through the recent conflict, we've significantly increased production to meet the IDF's urgent needs while maintaining deliveries to international customers.

Speaker Change: Our focus is on expanding production capacity to drive revenue growth beyond the increasing background.

Speaker Change: A prime example of our capacity expansion is a recent award of $300 million contract with the Israeli Ministry of Defense for ammunition supply. This 10-year contract will see the construction of a new manufacturing facility.

Buti Machlis: Combining the new plant facility and the Ramat Beka facility, which is scheduled for completion by the end of this year, our production capabilities will be enhanced and support increased demand for both the Israeli Ministry of Defense and international markets. In support of the surge in demand, we are also adding shifts and recruiting hundreds of new employees. On July 29th, Elbit Systems was awarded a contract worth approximately $119 million from the Israeli Minister of Defense for the supply of iron stings guided motor minutes.

Speaker Change: scheduled for completion within two years.

Speaker Change: for buying the new plant facility and the Ramat Beka facility, which is scheduled for completion by the end of this year.

Speaker Change: Our production capabilities will be enhanced and support increased demand for both the Israeli Ministry of Defense and international markets.

Speaker Change: In support of the surge in demand, we are also adding shifts and recruiting hundreds of new employees.

Speaker Change: On July 29, Elbit Systems was awarded a contract worth approximately $190 million from the Israeli Ministry of Defense for the supply of Iron Sting guided-mortar munitions.

Buti Machlis: This 2-year contract, which had also [inaudible] which had also international potential, will see the delivery of precision-guided motor munitions. Lounge from 120mm motor, Define to accurately target and destroy objectives utilizing both immune GPS and laser guys at the moment.

Speaker Change: This two-year contract, which has also international potential, will see the delivery of precision-guided motor munition.

Speaker Change: launched from a 120mm mortar designed to accurately target and destroy objectives utilizing both immune GPS and laser-guided technology.

Buti Machlis: In July 2024, we participated in the Farmbole Air Show in the UK, which was very successful. During the show, we demonstrated a wide range of solutions to our international customers and met... with many strategic business thoughts, and with that, I would be happy to take your question. Operator?

Speaker Change: In July 2024, we participated in the Farnborough Air Show in the UK, which was very successful.

Speaker Change: During the show, we demonstrated a wide range of solutions to our international customers and met with many strategic business partners.

Speaker Change: And with that, I will be happy to take your questions. Operator?

Operator: Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2.

Speaker Change: 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.

Operator: If you're using speaker equipment kind of with the handset before pressing the numbers, 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 Pete Skibitski of Alembic Global. Please go ahead.

Speaker Change: If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions.

Speaker Change: The first question is from Pete Skibitzky of Alembic Global. Please go ahead.

Pete Skibitski: Yes, hello, good afternoon, uh, nice quarter. Thank you. First of all, a comment on just the backlog growth. It looks like backlog has grown about 40% since the end of 2022, which is just incredible, frankly. I would like to make sure I understand the gross margin dynamics a little bit better.

Pete Skibitzky: Yes, hello. Good afternoon. Nice corner.

Speaker Change: Thank you.

Pete Skibitzky: First of all, a comment, just the backlog growth has been very impressive. It looks like backlog has grown about 40% since the end of 2022, which is...

Pete Skibitski: Obviously, we've seen your geographic mix of revenue shift to Israel, and it looks like over the last three or four quarters, that's brought some gross margin compression, and I'm just wondering... I'm... How we should think about the margin dynamics going forward in light of, you know, Butsy. It sounds like you reiterated that 10% operating margin target, which I think is set for 2026. I'm just wondering, in light of the gross margin compression, you know, how you guys attain that 10% target? Thank you, Pete. It's Kobe.

Speaker Change: Just incredible, frankly.

Speaker Change: I would like to make sure I understand the gross margin dynamics a little bit better. Obviously, we've seen your geographic mix of revenue shift to Israel, and it looks like that's, you know, over the last three or four quarters, that's brought some gross margin compression.

Speaker Change: And I'm just wondering...

Speaker Change: How we should think about the margin dynamics going forward in light of, you know, Butsy, it sounds like you reiterated that 10% operating margin target, which I think is set for 2026.

Speaker Change: I'm just wondering, in light of the gross margin compression, you know, how you guys attain that 10% target?

Kobi Kagan: Actually, we saw a $5 billion increase in backlog just over the last year. So that is an incredible increase in our backlog. And, of course.

Butsy: Thank you, Peter Skibitski. Actually, we see a $5 billion increase in backlogs.

Speaker Change: Just over the last year, so that is an incredible increase in our backlog and of course...

Kobi Kagan: With this increase, we also watch the backup for stability and watch very carefully. As you mentioned, we see a lower GP level, but you see a higher opiate level. So with the sales in Israel, we see much lower M&S expenses. And the total result of the OP level is at the same level as the company's profitability. So we don't see any issue.

Speaker Change: With this increase, we also watch the backlog for stability, watch it very carefully. So, as you mentioned, we see a lower GPE level, but you see a higher OP level.

Speaker Change: So with the sales in Israel, we see much lower M&S expenses and the total result of the OP level is in the same level of the company profitability.

Kobi Kagan: And we actually now can, we believe that we are in a very good position to have the 10% OP profitability non-gap in 2026. As well, you can see different OP profitability between the segments. And also, GP profitability between the segments.

Speaker Change: So, we don't see any issue and we actually now, we believe that we are in a very good position to have the 10% open profitability non-GAAP in 2026.

Speaker Change: As well, you can see a different OP profitability between the segments.

Kobi Kagan: We disclosed in the last annual report the segment profitability, and you can see there the OP profitability, which is quite different between the segments. And you see a decline in profitability in the U.S., which we see now this year, a much more favorable outcome in the U.S., which supports our prediction of the continuous OP profitability expansion. So the management is closely monitoring this issue of profitability, and we are certain that even though the mix this quarter was less favorable in GP terms, we can see the continuous growth and meet the 10% internal target that we believe.

Speaker Change: and also GP profitability between the segments. We disclosed in the last annual report.

Speaker Change: The segment profitability and you see there the OP profitability, which is quite different between the segments.

Speaker Change: And you see there a decline in the profitability in the U.S. which we see now this year a much favorable outcome in the U.S. which supports our prediction of continuous OP profitability expansion.

Speaker Change: So, the management is closely monitoring this issue of profitability, and we are certain that even though the mix this quarter was less favorable in GP terms.

Speaker Change: We can see the continuous growth and meeting the 10% internal target that we believe in.

Kobi Kagan: Okay, that's very helpful, yeah, and I didn't know that SG&A altogether for this corner was less than 10% for the first time, at least in quite a while, and so that's a trend that we should expect to continue so that you can get to your OP target. It sounds like...

Speaker Change: Okay, that's very helpful. Yeah, and I didn't know, it looks like SG&A all together for this quarter was less than 10% for the first time, I don't know, at least in quite a while. And so that's a trend that we should expect will continue so that you can get to your OP target, it sounds like.

Pete Skibitski: So, thank you. You notice the increased operating expense efficiency that we see very strong in this quarter. Very strong operational efficiency, which compensated even more than compensated for the decline. Okay, that makes sense. Just last one for me. I noticed, you know, cash flow did improve this quarter. And really, for the first half of 2024, it's much better versus the first half of 2023.

Speaker Change: Thank you. You notice the increased operating expense efficiency that we see very strong in this quarter.

Speaker Change: A very strong effect on operational efficiency, which compensated, even more than compensated for the decline in the GPU profitability.

Speaker Change: Ok, that makes sense. Last one for me, I noticed cash flow did improve this quarter, and really for the first half of 24, it's much better versus the first half of 23.

Kobi Kagan: Do you think now, do you expect you can be free cash flow positive for 2024 in light of the, you know, the pretty good start to the year? So we are very positive about this. I cannot give you a certain answer as to the profitability, which we can monitor much closer. Of course, it depends on the continuous payments from the Ministry of Defense in Israel, which were paid accurately during the second border.

Speaker Change: Do you think now, do you expect you can be free cash flow positive for 2024 in light of the pretty good start to the year?

Speaker Change: So we are very positive on this. I cannot give you a certain answer as of the profitability which we can monitor much closer.

Speaker Change: It, of course, depends on the continuous payments from the Ministry of Defense in Israel, which paid accurately during the second border. So we had a very positive outcome.

Speaker Change: Bezhalel Machlis, Yaacov Kagan, David Ravia, Bezhalel Machlis, David Ravia, Bezhalel Machlis,

Speaker Change: especially the fact that we need to be ready with

Speaker Change: inventories to support the growth of the company, expected growth and again

Speaker Change: Some issues with our supply chain that are still pushing us for additional inventories that we need to keep.

Speaker Change: So that is of course keeping the cash, this is of course stressing the cash, but to give you a bottom line, we should expect a positive free cash flow for the annual, for the 2024 year. It's good to hear from you.

Speaker Change: We are working very hard on the cash flow. We understand the importance of cash flow.

Speaker Change: Thank you.

Speaker Change: Okay, that's great. Very helpful, guys. Thank you. Thank you, Pete. Looking forward to see you.

Craig Konrad: The next question is from Craig Konrad of Jeffreys; please go ahead. Good afternoon and a great quarter. I'll give it a no [inaudible]. Maybe just sticking to margins for a minute, I mean you called out the higher R&D in the quarter and the 10% margin target. Any thoughts around how mix evolves over the next couple years given some of the development work you talked about and what that means for maybe production mix over the next couple of years to kind of get to that 10% target?

Speaker Change: The next question is from Craig Conrad of Jeffries. Please go ahead.

Craig Conrad: Good afternoon. Great quarter.

Speaker Change: Thank you.

Craig Conrad: Maybe just sticking to margins for a minute, I mean, you called out the higher R&D in the quarter and the 10% margin target.

Craig Conrad: Any thoughts around how MIX evolves over the next couple of years, given...

Speaker Change: Rami Myerson, Yaacov Kagan, David Ravia, Bezhalel Machlis

Craig Konrad: So thank you, Craig, for the question. We can see a shift in the company in terms of moving from a project company to more leaning towards a product company. So the ratio between project and product is different now with an increased level of product. For instance, the solar buoys for our maritime business, or the night vision business that we have in the U.S., or the ammunition that we are supplying here from Israel.

Speaker Change: Thank you, Craig, for the question.

Speaker Change: We can see a shift in the company in terms of moving from a project company to more leaning towards a product company. So the ratio between project and product...

Speaker Change: is different now with increased level of products.

Speaker Change: Products I mean, for instance, the sonar buoys for our maritime business or the night vision business that we have in the U.S.

Kobi Kagan: The fact that we see more product mix, and a ratio of product mix higher than we had in the past, is very supportive in terms of our profitability. The certainty of products is much higher than the certainty of projects. You don't see the same phenomenon that you see in projects. We are still a project company, but the fact that the ratio of product to revenue is increasing is very supportive of our profitability target. And then maybe just transitioning to land.

Speaker Change: or the ammunition that we're supplying here from Israel.

Speaker Change: The fact that we see more product mix and a ratio of product mix is higher than we have in the past is very supportive in terms of our profitability.

Speaker Change: The certainty in products is much higher than the certainty in projects. You don't see the same phenomenon that you see in projects.

Speaker Change: We are still a project company, but the fact that the ratio of products is increasing is very supportive in our profitability targets.

Craig Konrad: I mean, obviously, growth was very impressive in the quarter and has been very impressive in the past couple of quarters. I mean, how do you think about the runway there? Are there any near-term capacity constraints just given you called out some of the elements of CAPEX and any way to think about the impact of the capacity coming online relative to the overall land business? [inaudible] So, as you mentioned, the land segment was very strong this quarter. We saw 37% growth from the same year-over-year from the same quarter in 2023.

Speaker Change: And then, maybe just transitioning to land, I mean, obviously growth.

Speaker Change: was very impressive in the quarter and has been very impressive the past couple quarters.

Speaker Change: How do you think about the runway there? You know, are there any near-term capacity constraints, just given you called out some of the elements of CapEx, and any way to think about the impact of the capacity coming online, you know, relative to the overall WAN business?

Speaker Change: So, as you mentioned, the land segment was very strong this quarter. We saw a 37% growth.

Speaker Change: from the same year of the year, from the same quarter in 2023.

Kobi Kagan: And with that, of course, we need additional investments, additional CAPEX investments. We are going to inaugurate a new facility in the south of Israel, Ramat Beka, as it's called here, at the end of this year, which actually gives us additional capacity, dramatically increasing our capacity, increasing efficiency as well with many technologies, robots, cobots, an additional production stream which is more modern than our old facilities here in the central Israel. So that is going to give us a lot of capacity, mostly for the land business, but not just for the land. We have investments that we are doing here in Israel and around the world. For instance, we inaugurated a new facility for UAVs here in Israel at a location in Israel.

Speaker Change: And with that, of course, we need additional investments, additional CapEx investments.

Speaker Change: We are going to inaugurate the new facility in the south of Israel, Ramat Beka, as it is called here.

Speaker Change: in the end of this year, which actually gives us additional capacity, increasing dramatically our capacity, increasing efficiency as well, with many technologies, robots, cobots.

Speaker Change: and additional production stream, which is more modern.

Speaker Change: and then our old facilities here in the central of Israel.

Speaker Change: So that is going to give us a lot of capacity, mostly for the land business, but not just for the land.

Speaker Change: We have investments that we were doing here in Israel and around the world. For instance, we inaugurated a new facility for UAVs here in Israel, in a location in Israel.

Craig Konrad: We are growing our capacity in the factories in the U.S. For instance, our Charleston facility in the U.S. was inaugurated last year, and it's a very big investment and facility. We also have a new facility in Germany and also a new facility in the U.K. So we keep investing and tightening this hole. This hole is more than one of the $50 million investment that we concluded with the new ERP system that is actually most of the company; more than 90% of the company is on the new ERP system.

Speaker Change: We are growing our capacity in the factories in the U.S. For instance, our Charleston facility in the U.S. actually was inaugurated last year, and it's a very big investment and facility.

Speaker Change: and facility. We have also a new facility in Germany and also a new facility in the UK.

Speaker Change: We keep investing, and tightening this hole is more than $150 million investment that we concluded.

Speaker Change: with the new ERP system that was actually most of the company more than 90% of the company is on the new ERP systems and really without this ERP system and without this investment we couldn't support this double digit growth that we see now in the company.

Craig Konrad: And really, without this ERP system and without this investment, we couldn't support this double-digit growth that we see now in the company. And then just last one for me, and maybe this is somewhat tied to the last question. You mentioned Charleston, but...

Speaker Change: And then just last one for me, and maybe this is somewhat tied to the last question, you mentioned Charleston, but

Kobi Kagan: The Americas really seemed to turn in the quarter. It had been somewhat weaker than the past couple, with a nice uptick in Q2. What's driving the US-facing business, just given that it kind of moved more in line with what we're seeing out of peers domestically; any particular drivers of that normalization to call out? I would have to say Bhutri, we see a different picture. Actually, we see a growth of 10% in the U.S. market, in comparison to the previous quarter last year, which was about $337.00.

Speaker Change: The Americas really seem to turn in the quarter. It had been somewhat weaker the past couple with a nice uptick in Q2. What's driving the U.S. facing business, just given...

Speaker Change: It kind of moved more in line with what we're seeing out of peers domestically, and any particular drivers of that normalization to call out.

Speaker Change: Good afternoon, it's Buti. We see a different picture, actually. We see a growth of 10% in the U.S. market. The last quarter, our revenues in the U.S. were approximately $370 million.

Speaker Change: in comparison to the previous quarter last year, which was about $337 million. So it's a 10% growth in the U.S. market, and we have very strong positions in the U.S. market in several domains.

Speaker Change: We continue to win business, and we are confident that our position in the U.S. will continue to grow.

Speaker Change: I'll leave it at that.

Speaker Change: Thank you.

Speaker Change: The next question is from Amit Efroni of Oppenheimer. Please go ahead.

Amit Afroni: Hi, guys, and congrats on the great quarter.

Amit Efroni: Great. I was wondering if you have a few questions. My first one is about loitering munitions. I was wondering if Elbit is thinking about entering the loitering munitions segment in a much more aggressive way. We see a lot of demand, like companies from AVAV, like O'Virement, and their Switchblade 300 and 600. I was wondering if Elbit, with all its experience in the segment, had any plans in that area? [inaudible] which is a family of electro-immunization solutions, and these systems are already operational in several countries. But you are fully right.

Amit Afroni: Can you hear me?

Amit Afroni: Great. I was wondering, I have a few questions. My first one is about loitering munitions.

Amit Afroni: I was wondering if Elbit is thinking about entering the loyal ammunition segment in a much more aggressive way?

Amit Afroni: We see a lot of demand, like companies from AVAV, like Elvironment, and their Switchblade 300 and 600. And I was wondering if Elbit, we've always experienced in this segment, have any plans in that area.

Speaker Change: Of course, we believe that looting ammunition is an important market for us. We have very strong positions already.

Speaker Change: We are one of the first companies to introduce a lighter ammunition solution to the market and we have many customers who are acquiring the Sky Striker system which is a family of lighter ammunition solutions.

Speaker Change: and these systems are already operational with several customers.

Speaker Change: But you are fully right, we are planning to continue to invest in this domain.

Buti Machlis: We are planning to continue to invest in this domain. There are many additional opportunities in this domain. One of them is men and women teaming up to be combining February and UAVs.

Speaker Change: There are many additional opportunities in this domain.

Buti Machlis: One operator supporting AI, the way fighting procedures and that's a segment that we continue to invest in. We are planning to expand the family even more. And based on the current positions we have in the international market, we believe that this is a good opportunity for us. Okay, great.

Speaker Change: to be combining several UAVs.

Speaker Change: with one operator supporting with AI the way the fighting procedures and that's a segment that we continue to invest to invest in. We are planning to expand the family even more.

Speaker Change: And based on the current positions we have in the international market, we believe that it's a good opportunity for us.

Amit Efroni: I also want to mention that we are fully voting. We do everything from the UAVs, from the bird, the platform itself, through the communications, through the electro-optics, through the warheads, everything, price control, everything, command and control, everything is done internally in the company. So we are fully controlling our destiny, we are fully controlling the cost. It's all in our hands. Of the other solutions we are providing for difficult... So do you think the time-to-market is going to be quicker if you want to go to loader munitions in the next two to three quarters? Is it possible to have new, maybe, much more capacity and maybe new products in the following two to three quarters?

Speaker Change: I also want to mention that we are fully vertical here.

Speaker Change: We do everything from the UAV, from the bird, the platform itself, for the communications, for the electro-optics, for the warhead.

Speaker Change: Everything, the price control, everything, the command and control, everything is done internally in the company. So we are fully controlling our destiny, we are fully controlling the cost.

Speaker Change: It's all in our hands. So do you think that... It's actually an expansion of other solutions we are providing for different customers.

Speaker Change: So I don't think the time to market is going to be quicker if you want to go to loader munitions.

Speaker Change: In the next two to three quarters, is it possible to have a new, maybe much more capacity and maybe new products in the following two to three quarters? Yes, I just want to mention that we have delivered already thousands.

Buti Machlis: Yes, I just want to mention that we have already delivered thousands of Sky Striker systems to many customers. We have several products in line for this, and we are ready, and others Thank you. Maybe you can give some color about the UAV integration center or factory, as it's called in Rehovot. I don't know if, within the boundaries that you can speak of, how much capacity is going to come from there or maybe how much more efficient it's going to be compared to the integration center you have right now.

Speaker Change: of Sky Striker Systems to many customers. We have several production lines for this, and we are ready to support any demand that will come from the market.

Speaker Change: Okay, got it. Thank you. And maybe more questions from me.

Speaker Change: Maybe you can give some color about the UAV integration center or factory.

Speaker Change: I don't know if in the boundaries that you can speak of, how much capacity is going to come from there, or maybe how much more efficient it's going to be compared to the integration center you have right now.

Amit Efroni: We see a growing demand for our UAV solution, and the beauty here is not just the UAVs themselves. It's the entire system, and we provide the right kind of payload, which includes the e-op payload, the w-up payload, and a unique other payload like Skia and many more.

Speaker Change: We see a growing demand for our UAV solution, and the beauty here is not just the UAVs themselves.

Speaker Change: Bezhalel Machlis, Yaacov Kagan, David Ravia, Bezhalel Machlis, David Ravia, Bezhalel Machlis,

Buti Machlis: We also provide the network, the command control, let us see once again, it's coming from us; we are fully working for you. And we see, we all see the importance of the common conflict we have in Israel, and we see that there will be a demand for the family visit we are providing abroad as well. We recently introduced a new member to the family, Hermes 650, which was introduced just recently to the market.

Speaker Change: Yaacov Kagan, David Ravia, Bezhalel Machlis, Bezhalel Machlis, David Ravia, Bezhalel Machlis,

Speaker Change: for the families who visit, we are providing the board as well.

Speaker Change: We recently introduced a new member to the family, the Hermes C550, which was introduced just recently to the market.

Buti Machlis: And because of the growing demand that we see and the many orders we've got, there is a need for a much more modern facility, and we are consolidating several facilities into one. Once again, there's a lot of automation involved, and with the new facility, which we actually support already, we'll be able to deliver many more solutions to the growing demand we see in the film.

Speaker Change: and because of the growing demand that we see and many orders we got

Speaker Change: There is a need for a much more modern facility, and we are consolidating several facilities into one. Once again, there is a lot of automation involved. The new facility, which is actually operational already.

Amit Efroni: Maybe one more question for me on the last one. I was wondering if today's situation in the Red Sea has any material that's right for the company? Do you think...

Speaker Change: will be able to deliver many more solutions to the growing demand we see in the market.

David Ravia: David, one more question for me, no last one. I was wondering if the whole today's situation in the Red Sea, it has any material sector in the company, and if you see it, did you see it?

Buti Machlis: If so, if you have some problems with the situation, how Elbit is going to mitigate it? Thanks. As I mentioned in my preview, we have seen some top-leg issues, but they are not significant. We find several ways to overcome it. Okay, I got it. Thank you, and congrats on the quarter again. Thank you. If there are any additional questions, please press star one. If you wish to cancel your request, please press star two. Please then buy it while we pull for more questions.

Speaker Change: If so, if you have some problems with the situation, how Elbit is going to mitigate it. Thanks.

Speaker Change: As I mentioned in my preview, we see some supply chain issues, however they are not significant and we find several ways to overcome them.

Speaker Change: Okay, got it. Thank you and congrats on the quarter again. Thank you.

Speaker Change: 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.

Operator: 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 two hours after the conference ends. In the U.S., please call 1-888-782-4291. In Israel, please call 039255-900. And internationally, please call 9723-9255-900.

Operator: 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? Thank you. I would like to thank all 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. Thank you. This concludes the Elbit Systems LTD second quarter 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.

Speaker Change: There are no further questions at this time. Before I ask Mr. Machlis to go ahead with his closing statement.

Speaker Change: 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 03925-5900.

Speaker Change: and internationally, please call 972-392-55900.

Speaker Change: 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?

Mr. Machlis: Thank you. I would like to thank all our employees for their continued hard work and contribution to Elbit Systems' success.

Speaker Change: 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.

Speaker Change: Thank you. This concludes the Elbit Systems LTD 2nd Quarter 2024 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

Buti Machlis: Urgent care is the most important choice because, if nothing else, a general healthcare need is required to treat a chronic patient. Future Care

Operator: Falling 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 David Ravia, Elbit Systems' Investor Relations Director. David, please go ahead.

Kobi Kagan: So it's a 10% growth in the U.S. market, and we have very good positions in the U.S. market in several domains. The Container for Wayne Business, and we are confident that our position in the U.S. will continue to grow. Thank you. I'll leave it at that. The next question is from Amit Efroni of Oppenheimer; please go ahead. Hi guys, and congratulations on a great quarter. Thank you. Um, can you hear me?

Kobi Kagan: So that is, of course, keeping the cash; this is, of course, stressing the cash, but to give you a bottom line, we should expect a positive pre-cash flow for the annual, for the 2024 year. It's good to be happy, good to hear from you.

Kobi Kagan: So we have the very positive factor of payments from the Ministry of Defense in Israel. But we cannot guarantee that it's going to continue for the rest of the year. And there are many other different variables in moving parts, especially the fact that we need to be ready with... Inventories to support the growth of the company, expected growth, and, again, some issues with our supply chain that are still pushing us for additional inventory that we need to keep.

Pete Skibitski: We are working very hard on cash flow. We understand the importance of cash flow. This is an area of focus for the entire corporation. Okay, that's great. Very helpful, guys. Thank you. Thank you, Pete. Looking forward to seeing you.