Elbit Systems Ltd Aktie

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' First Quarter 2026 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand over the call to Daniella Finn, Elbit Systems' VP Investor Relations. Daniella, please go ahead.

Hello, everyone, and welcome to our first quarter 2026 earnings call. On the call with me today are Butzi Machlis, President and CEO; and Kobi Kagan, CFO; and myself, Daniella Finn, Investor Relations. 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. I would like to remind all listeners that the conference call today may contain forward-looking statements regarding the company and its subsidiaries business. Actual future results may differ materially from these forward-looking statements.

As usual, we will provide you with both GAAP financial data as well as certain supplemental non-GAAP information. We believe that this non-GAAP information provides additional transparency to better understand the performance of the ongoing business. You can find all the detailed GAAP financial data as well as the non-GAAP information and the reconciliation in today's press release. Kobi will begin by discussing the financial results followed by Butzi, who will elaborate on the main events during the quarter and beyond. We will then turn the call over to a Q&A session. With that, I would like to now turn the call over to Kobi. Kobi, please go ahead.

Thank you, Daniella. Hello, everyone, and thank you for joining us today. We are pleased to report another strong quarter delivering double-digit growth in revenues, operating profit and EPS. Our backlog reached a new record, surpassing $30 billion for the first time and we exceeded a 10% non-GAAP operating margin in line with our internal targets. These results reflect the strength of our execution and the outstanding performance of our global teams. .

Taking a closer look into the first quarter results. First quarter revenues increased by 15.5% to $2.189 billion compared to $1.896 billion in the first quarter of 2025. This is the first quarter revenues were higher than those of the preceding fourth quarter, representing the strong demand we are witnessing from our key markets. For the first quarter of 2026, Europe contributed 23% of revenues, North America, 20%, Asia Pacific, 16%; and Israel contributed 37% of revenues. Europe continues to be a meaningful growth engine. The shift in Europe is profound, and we are seeing strengthening demand trends.

In terms of quarterly revenues by segment, Spin fiber revenues increased by 17% in the first quarter of 2026 as compared to the first quarter of 2025 mainly due to sales of radio systems and command and control system sales in Europe. In EW revenues increased by 17% mainly due to increased sale of airborne high-power laser and electronic warfare systems. Land revenues increased by 27%, mainly to munition and munition sales in Israel and Europe. Elbit Systems South America revenues increased by 5%, mainly due to the increase in sales of night vision system, which were partially offset by a decrease in sales medical devices.

Aerospace revenues increased by 2% in the first quarter of 2026 as compared to the first quarter of 2025, mainly due to project mix. GAAP gross margin in the first quarter was 25.2% of revenues compared to 24% in the first quarter of 2025. Non-GAAP gross margin for the first quarter was 25.5% compared to the first quarter of 2025 at 24.3%. Gross margins have expanded due to scale and product mix. GAAP operating income in the first quarter was $205.1 million or 9.4% of revenues as compared to $149.7 million or 7.9% of revenues in the first quarter of 2025. Non-GAAP operating income was $222 million or 10.1% of revenues in the first quarter of 2026 as compared to $165.1 million or 8.7% of revenues in the first quarter of 2025.

The operating expense breakdown for the first quarter of 2026 was as follows: Net R&D expenses were $150.4 million or 6.9% of revenues as compared to $114.3 million or 6.1% of revenues in the first quarter of 2025. Elbit continues to prioritize investment in advanced R&D initiatives, including AI capabilities to support sustainable, profitable growth and strengthen our leadership position in the years ahead. Elbit is focusing its R&D on cutting-edge bottle feed technologies. Key initiatives include counter UAS solutions spearheaded by higher power laser, advanced autonomous airborne, naval and land platforms, multi-spectral sensing and advanced precision and standard munitions.

Marketing and selling expenses were $100.9 million or 4.6% of revenues in the first quarter of 2026, similar to $100.9 million or 5.3% of revenues in the first quarter of 2025. G&A expenses were $95.7 million or 4.3% of revenues in the first quarter of 2026 as compared to $89.4 million or 4.7% of revenues in the same period last year. Financial expenses were $32.2 million in the first quarter of 2026 as compared to $39 million in the first quarter of 2025. The decrease in financial expenses in the first quarter of 2026 was mainly due to a reduction in the average debt. Excess on income were $22.8 million in the first quarter of 2026 as compared to $16.1 million in the first quarter of 2025. The effective tax rate in the first quarter of 2026 was 13% and compared to 13.9% in the first quarter of 2025.

GAAP-diluted EPS for the first quarter of 2026 were $3.34, up 42% as compared to $2.35 in the first quarter of 2025. Our non-GAAP diluted EPS were $3.87 in the first quarter of 2026, up 51% as compared to $2.57 in the first quarter of 2025. Our backlog of orders as of March 31, 2026, was $30.2 billion, more than $7 billion higher than the backlog at the end of March 31, 2025. Approximately 71% of the current backlog was generated from outside of Israel. Approximately 49% of the backlog at the end of March is scheduled to be performed during the remainder of 2026 and in 2027, while the rest is scheduled to be performed during 2028 and beyond.

The increase in backlog during the quarter came mainly from Israel. Net cash provided by operating activities in the quarter was $281 million as compared to $184 million in the quarter ended March 31, 2025. Cash flow in the first quarter of was affected mainly by the strong increase in net income and an increase in contract liabilities. During the first quarter of 2026, we delivered $210 million of free cash flow up 30% from $161 million free cash flow generated in the first quarter of 2025. The Board of Directors has declared a dividend of per share to be paid on July 6, 2026. I will now turn the call over to Mr. Machlis, CEO. Butzi, please go ahead.

Thank you, Kobi. Following our strong financial performance, as Kobi just highlighted, the quarter was also characterized by a high level of new business and contract award from it for totaling over USD 4 billion, almost double the quarterly revenues. Hence, our backlog reached a record level, exceeding the $30 million -- $30 billion mark for the first time. This morning, we announced that Elbit was awarded a new contract valued approximately $1.4 billion for a European customer for extensive military modernization programs. The modernize programs will provide improved renewability and favorability spanning the entire battle domain.

The state of the art solutions to be delivered include a variety of uncrude autonomous solutions, enhanced network land, electric warfare, preceding guided munition artillery and Elton coupled with retro opticoptical designating and reconnaissance systems, all network by software-defined radios. This solution will improve the nation's operational effectiveness towards becoming an advanced and modern on. The contract will be performed over a period of 5 years. This contract reflects the breadth and attractiveness of Elbit Systems defense portfolio as well as our ability to deliver both highly capital, best-in-class systems and comprehensive integrated solutions tailored to evolving operational needs. With demand driving well above historical levels. We continue to focus on execution by expanding our production capabilities.

We are scaling production capacity and investing in innovation to convert the strong demand into sustained revenue growth. As previously mentioned, we are increasing our CapEx investment as we continue to build additional capacity, mainly in Israel and in Europe. The increase in CapEx is driven by a disciplined and careful ROI analysis. The production facility in Southern Israel is advancing well. We recently announced the launch of new unmanned aerial system facility in Romania, marking another milestone in the company ongoing expansion across Europe and its long-standing partnership with the Romanian defense industry. We also completed the acquisition of tax, the U.S. facility in the U.K. We are further expanding our production facilities in other locations across Europe.

Operating growing line has highlighted rising demand for advanced defense solutions across Elbit portfolio, including proceeding guided munition, unmanned aerial systems, ISR solutions, electric warfare and protection system. It is also creating a growing pipeline of opportunities as customers accelerate procurement and modernization effort. Elbit started the year with Nomo announcement. This includes 2 important contracts for APS solution with the Avantis. The first contract was an order for the U.S. broadly owned vehicle, this tranche for a sum of over $200 million. The second APS contract was for the CP9 combat vehicle to a mature country.

In January, we secured a contract to equip an Asian customer with an advanced EW and Decomprotect solution for Helicopters worth $275 million. Additionally, an award of $277 million was received for 30-millimeter target ammunition by international customers. In April, we were awarded a $1,750 million contract for post ore launches to the Hellenic and force. Order environment in Europe continued to be especially strong followed by Asia. Our backlog provides increased visibility to a continued strong revenue growth momentum. During the quarter, we continued to receive new orders from Israeli and Moody. This includes integrated advanced command control systems of Vionic, EW systems and advanced antimissile Delconsystem for the 12 CH53new helicopters valued at $130 million.

An additional multiyear order was received for supplying air munition to the IDS for $183 million. strengthening the IDS capabilities during challenging times. We also secured over $100 million in contract for the next generation of digital Army program. and border defense capabilities for the Israeli and Multi. Elbit was also awarded a contract to supply helmet displays and tracking system for the Israeli Air Force Blackhawk helicopter fleet to enhance operational capabilities and flight safety. In May, we signed a contract for the Moody for the development of an extended range capability for the F-35 fighter jet manufactured by Lockheed Martin. The new capability is expecting to extend the aircraft operational range, reduced reliance on aerial refueling and enhanced operational flexibility across long-range missions.

This contract could create additional opportunities for in the area of F-35 range extension worldwide. Elbit Systems America continued to win significant contracts. In March, the Umar a contract to establish a new class of further capabilities, the Soldier Borne Mission Command or SBMC. This is a crushing night vision system for the modern battlefield, which we be won by warfighters who are able to decide and act in milliseconds. The contract valued at $120 million will enable Elbit Systems of America to develop the SBMC that will redefine how soldiers operate, connect and dominant in complex battery environment. We believe this could be a revolution in metality built for the speed and complexity of modern compact.

In May, we received a delivery order value approximately $212 million for the continued production of enhanced night vision global manacular ENVG systems for the U.S. Army. -- which delivers expected through 2028. While the Army has historically split MVTP production among multiple vendors, Ebitsystems of America was selected as a sole prime supplier for this award. Elbit has always prided itself on its strong partnership. I was honored to take part recently in 2 significant signing ceremonies in Germany. The first for our new JV with CBS, which will enable the 2 companies to deliver the advanced Europol pocket launch, not only to Germany but across Europe. The second signing ceremony was with TMS. We have now announced 2 separate cooperation with DMS, a German-based of Marine shipyard, which will further expand our reach across Europe. In this recent agreement with TKMS Elbit was once again chosen due to strong EW capabilities across platforms and for its maritime resource in particular.

During the quarter, Elbit Systems has continued to advance its innovation agenda, following investment in next generation R&D initiatives with a growing focus on AI-driven capabilities. This effort supported through a combination of internal funding and strategic partnerships are driving the development of advanced solutions and strengthening our ability to address evolving operational requirements. Elbit employees are driving for our fleet riding force behind the innovation and the results, shaping the company's future with passion and commitment as we day. And for this, I'm very grateful.

Elbit enters 2026 with strong momentum and solid foundation for the future. with a record backlog, ongoing technology progress, expanding capacity and highly committed global team. We are well positioned to sustain our growth trajectory and create lasting value for our shareholders. And with that, I will be happy to take your questions.

[Operator Instructions] The first question is from Seth Seifman from JPMorgan.

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

Thank you. Our funnel of orders has never been so strong. We see growing potential for us in many regions. Of course, we see growing potential for us in the U.S. market. And we also saw a growing strong momentum of new opportunities for us in Europe, mainly in Germany, in Scandinavia, in the Baltics, but also in other places all over the continent. And of course, we also see growing potential for Asian as well as well as in the Gulf countries and also in countries in the Far East around China. Each region is different with these requirements. We have a very wide portfolio. Our strategy is based on 2 main pillars: 1 where we have a very wide portfolio, and we are very vertical.

The second element is we are local. We have dozens of subsidiaries in many countries, and we are part of the ecosystem in each country. And we are willing to share our technology in IP from Israel between the subsidiaries and to create jobs and to be part of the local ecosystem in each country. So to try to sum it up, we see growing potential for the company, and I believe that backlog will continue to grow.

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

Thank you, Seth. As you mentioned, we have a very strong balance sheet, but we maintained very strict capital deployment. We first prioritizing R&D as we are doing almost 7% of our revenue in R&D of self-funded R&D, which is, as you know, almost -- or more than double than the average peers. Secondly, we are increasing our CapEx investment to meet the high demand that we see in the market. And we announced recently that we almost -- we doubled the dividend payout to investors from around -- from $0.50 to $1 a share. On that, we are very keen to do acquisitions. We are looking actively in markets.

In the first quarter, we announced an acquisition of tax, which is a USD company, in the U.K. We will have further announcements on acquisitions as we are dynamically looking for new acquisitions to enhance our portfolio.

The next question is from Kristine Liwag of Morgan Stanley.

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

Thank you. We are investing quite a lot in hyper in energy weapons, Hyperlite is just 1 of them. We are we are progressing very well on developing the high power laser. Actually, we already delivered power rate source to the ground solution and in parallel, we are leading a development of an airborne hit powers. We do it many hundreds of engineers are working on the development of the systems currently and sell. And we are -- you will start seeing deliveries of subelements partial deliveries quite soon from this new development. And I believe that such a system can change the entire way countries will defeat rooms and UAVs and cosmesis and even additional seats. .

This is only 1 part of our counter-drone solution. We have many sensors which are helping us to build an NMA picture to understand exactly where the threat is where it's coming from and where it is heading to based on radar that we are developing and manufacturing based on signing capabilities vest on electro-optics, all managed by a strong AI algorithms, and we have several factors. High power energy is just one of them. We have different genres. We have kinetic solutions and others. And actually, all once again all managed by AI, it's part of our control solution. We are already deploying content solutions in Israel as well as in Europe, and we believe that this segment will continue to grow for us in the future.

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

Great. Super helpful. And I think following up on Seth's question on the significant orders that you received and also you've got a record backlog now. When we look at the growth profile of Elbit, you guys have been very consistent about having a reasonable growth that's sustainable, but as we look at geopolitical trends today, it seems like the cost of sovereignty globally is going up. Like how do you think about what the company size of revenue could be 3 to 5 years from now, especially as you look to deliver on this record backlog, you increased your capacity in 3 years or in 5 years, could we see revenue potentially double. I mean that's kind of what you did over the past 5 years, revenue almost doubled there. So I just want to see if those are possible based on what you have in the pipeline in front of you?

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

But I would like to add to that saying that we see a huge funnel ahead of us of new opportunities. and we are working hard to make this funnel part of our backlog, future -- and I believe that the company will continue to bring new orders, significant new orders like the 1 we brought today, and we will continue to grow its revenues also in the future. And we continue to work also on our bottom line. We hope to continue to improve the open numbers as well.

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

The next question is from Sheila Kahyaoglu of Jefferies.

Thank you so much for the time and great quarter. Maybe just on Q1 off to a great start, up 16% on revenues between land ISR and VW all up double digits. I guess how do you think about the demand environment evolving for the rest of the year? Where are you seeing trends better than your expectations?

We expect the segment to perform in the rest of the year with land, leading the segments in revenue expansion as we see the strong demand predominantly for land projects and programs. We see also very strong ISR and C4 demand. And also, we are very pleased where Albesystems America performance, both on top line and more than that on the bottom line. of increasing and expanding margins consistently. So this is for our projection for the rest of the year.

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

We have invested a lot in the new 1 ERP systems, which we inaugurated 4 years ago, and it's now company-wide ERP system. Without this system, we cannot reach any of these performance numbers, and this is done. This investment is behind us. We also invest heavily in AI performance and solutions. This is a key priority for investment. And then we are increasing our investment in -- mostly in the land domain facilities, which we heavily invest in we heavily invest in. On top of that, we are highly investing in robotics and automation to be more efficient and to deliver better cost results to our customers. Trying to sum it up. We are keen to do around 3% of revenues in CapEx investment in the near future.

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

If you could talk to maybe the supply chain, as you ramp, you've got a pretty aggressive ramp ahead of you. Where are you seeing any to point shortages? Can you get enough energetics, materials, labor, I mean, how is that all going as you ramp?

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

Got it. Got it. Got it. And then how about on the labor front?

Also on labor, also on labor, I must say that we have recruited about 2 to people last scale and we are about to recruit the same amount of it also this year in Israel as well as abroad. Currently, we have about 24,000 employees out of the 40,000 in Israel and about 10,000 broad out of them, about 7,000 engineers. And we are able to offer to our employees, very challenging work and with a lot of mining and there's a lot of meaning and also an ability to change positions between the different domains in the company, which increased the opportunities -- and currently, we don't face major issues in the coating people, not in Israel as well as Notobroat.

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Machlis to go ahead with the closing statement, I would like to remind participants that a replay of this call will be available 2 hours after the conference ends. [Operator Instructions] A replay of the webcast will also be available on the company's website, www.elbitsystem.com. Mr. Machlis, would you like to make a concluding statement?

Thank you to everyone who joined us today for your continued interest and support. Have a good day, and goodbye. .

This concludes the Elbit Systems LTD First Quarter 2026 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

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

Thank you, operator. Hello, everyone, and welcome to our fourth quarter 2025 earnings call. On the call with me today are Butzi Machlis, President and CEO; Kobi Kagan, CFO; and myself, Daniella Finn, VP, Investor Relations. Earlier today, we held an investor conference at Tel-Aviv Stock Exchange. A full recording of the event is available in the Investor Relations section of our website at www.elbitsystems.com.

Before I begin, I would like to point out that the safe harbor statement in the company's press release issued earlier today also refers to the contents of this conference call. I would like to remind our listeners that the conference call today may contain forward-looking statements regarding the company and its subsidiaries business. Actual future results may differ materially from those forward-looking statements. As usual, we will provide you with both GAAP financial data as well as certain supplemental non-GAAP information. We believe that this non-GAAP information provides additional transparency to better understand the performance of the ongoing business. You can find all the detailed GAAP financial data as well as the non-GAAP information and the reconciliation in today's press release. Kobi will begin by discussing the financial results, followed by Butzi, who will elaborate on the main events during the quarter and beyond. We will then turn the call over to Q&A session.

With that, I'd like to now turn the call over to Kobi. Kobi, please go ahead.

Thank you, Daniella. Hello, everyone, and thank you for joining us today. We are closing another strong year and quarter, delivering double-digit growth in revenues, operating profit, EPS and backlog, which grew by $5.5 billion. In 2025, we also generated record free cash flow, surpassing the $0.5 billion mark. We are extremely proud of these results and the outstanding execution by our global teams. Taking a closer look into the fourth quarter results. Fourth quarter revenues increased by 11% to $2.149 billion compared to $1.930 billion in the fourth quarter of 2024.

This is the first time our quarterly revenues surpassing the $2 billion mark. Full year 2025 revenues increased by 16% to $7.939 billion compared to $6.828 billion in 2024. In terms of quarterly revenues by segment, C4I and Cyber revenues increased by 19% in the fourth quarter of 2025 as compared to the fourth quarter of 2024, mainly due to sales of radio and command and control systems in Europe and in Israel. ISTAR and EW revenues increased by 39%, mainly due to increased sales of Maritime and Electro-Optic systems, which include Electronic Warfare and counter-UAS solutions. Land revenues increased by 22%, mainly due to ammunition and munition sales in Israel and Europe. Elbit Systems of America revenues increased by 9%, mainly due to the increase in the sales of Night-Vision and Maritime systems, partially offset by the decrease in the sales of medical devices.

Aerospace revenues decreased by 14%, mainly due to training and simulation in Europe and higher sales of PGM in fourth quarter of 2024. We take great pride in our diverse global customer base, which is a key differentiator for Elbit and ensure we are not reliant on any single country's defense budget. For the full year of 2025, Europe contributed 27% of revenues; North America, 21%; Asia Pacific, 16%; and Israel contributed 32% of revenues. We expect Europe to be a meaningful growth engine going forward, following by Asia Pacific. GAAP gross margin in the fourth quarter was 24.7% of revenues compared to 24.1% in the fourth quarter of 2024. GAAP gross margin for the full year 2025 was 24.4% compared to 24% at 2024.

Non-GAAP gross margin for the fourth quarter was 25% compared to the fourth quarter of 2024 at 24.5%. Non-GAAP gross margin for the full year 2025 was 24.7% compared to fourth quarter of 2024 at 24.5%. GAAP operating income in the fourth quarter was $192 million or 9% of revenues as compared to $141 million or 7.3% of revenues in the fourth quarter of 2024. Non-GAAP operating income was $210 million or 9.8% of revenues in the fourth quarter of 2025 as compared to $157 million or 8.2% of revenues in the fourth quarter of 2024. GAAP operating income for the full year 2025 was $671 million or 8.5% of revenues as compared to $489 million or 7.2% of revenues in 2024. Non-GAAP operating income for 2025 was $737 million or 9.3% of revenues as compared to $550 million or 8.1% of revenues in 2024.

I am happy we have reached our internal targets for operating profit margins. The operating expense breakdown for the full year was as follows: Net R&D expenses were $517 million or 6.5% of revenues as compared to $466 million or 6.8% of revenues in 2024. This increase is mainly due to investments in expanding our portfolio of precision-guided munitions as well as increased investment in Night Vision solutions. Elbit continues to invest heavily in disruptive R&D initiatives, including advanced AI capabilities to drive future profitable growth and reinforce the company's position as a market leader in the years ahead. Our strategy focuses on development of advanced solutions funded both internally and in some cases, partially supported by the Israeli Ministry of Defense, ensuring sustainable growth today and well into the future.

Marketing and selling expenses were $399 million or 5% of revenues in 2025 as compared to $375 million or 5.5% of revenues in 2024. G&A expenses were $347 million or 4.4% of revenues in 2025 as compared to $311 million or 4.6% of revenues in the same period last year. Financial expenses were $138 million in 2025 as compared to $151 million in 2024. The decrease in financial expenses net in 2025 is mainly due to lower interest expenses and lower levels of debt. We recorded a tax expense of $55 million in 2025 compared to $39 million in 2024. The effective tax rate in 2025 was 9.9% compared to 11.4% in 2024. The decrease in the tax rate in 2025 was as a result of the valuation allowance releases and adjustments to deferred taxes related to prior years following tax settlements in some of the company's subsidiaries in Israel.

GAAP diluted EPS for the fourth quarter of 2025 was $3.52 compared to $2 in the fourth quarter of 2024. Once again, a significant double-digit EPS growth in the quarter. Our non-GAAP diluted EPS was $3.56 in the fourth quarter of 2025 compared to $2.66 in the fourth quarter of 2024. GAAP diluted EPS for 2025 was $11.39 compared to $7.18 in 2024. Non-GAAP diluted EPS was $12.75 in the full year of 2025 compared to $8.76 in 2024, well ahead of our internal targets. Our backlog of orders as of December 31, 2025, was $28.1 billion, approximately $5.5 billion higher than the backlog at the end of 2024. Approximately 72% of the current backlog was generated from outside of Israel. Approximately 54% of the backlog at the end of December is scheduled to be performed during 2026 and 2027, while the rest is scheduled to be performed during 2028 and beyond.

Backlog growth was driven by international customer demand. Net cash provided by operating activities in the year ended December 31, 2025, was $778 million as compared to $535 million in the year ended December 31, 2024. Operating cash flows in 2025 were affected mainly by the increase in contract liabilities, offset by the increase in inventories and trade receivables. During 2025, we also delivered $553 million of free cash flow, up 73% from the $320 million free cash flow generated in 2024. The Board of Directors has declared a dividend of $1 per share, yet another dividend increase for 2025 on the back of our strong results.

I will now turn the call over to Mr. Machlis, Elbit's President and CEO. Butzi, please go ahead.

Thank you, Kobi. I want to begin by acknowledging the remarkable dedication of our global workforce. Despite the challenging reality of all time here at home, our teams around the world continue to demonstrate exceptional focus and professionalism. Their consistent effort, especially during this period of intensified demand for our advanced systems are a testament to their resilience and commitment to our mission. As Kobi just outlined, our Q4 and full year 2025 results are very strong. We achieved double-digit growth across all key metrics: sales, operating profit, earnings per share and backlog.

In addition, during 2025, we generated record free cash flow, surpassing the $0.5 billion mark. During 2025, Elbit Systems achieved significant milestones, most notably securing contract from the IMOD for an Airborne High-Power Laser compact jet fighter Pod and for a High-Power Laser solution for helicopters. This contract further strengthens Elbit's position as the world's leading supplier of next-generation directed energy weapons, including state-of-the-art military-grade high-power laser solutions. This has been a remarkable year for Elbit winning large-scale contracts. We received our largest ever contract from an international customer for a strategic solution worth approximately $2.3 billion.

Earlier in the year, we won another large contract worth $1.6 billion to deliver a range of defense solutions to European countries. Our PULS rocket artillery system continues to be a high runner for Elbit, especially in Europe. Our backlog for this product surpassed the $2 billion mark as more countries selected our agile and technologically advanced system. In December, we reported that the Hellenic Parliament has approved a budget for the purchase of these systems for the Hellenic Armed Forces. Numerous contracts have been secured for our leading electric warfare EW system and our DIRCM self-protection solution. We continued winning contracts for our Active Protection System, the Iron Fist for NATO European CV90 fleet as well as follow-on contract for the U.S. Army Bradley IFV upgrades.

I'm very proud with all these contract wins, which are translated into the exceptional financial performance we presented today. The [indiscernible] war continued for the most part of 2025. But as in the Middle East, as one conflict ends, another begins. In the past 2 weeks, Israel has played a major role in the Roaring Lion Operation. As always, Elbit continues to support the IDF during these times, scaling up production to meet elevated demand. Last week, the Israeli government approved a further addition to the defense budget of ILS 39 billion, about USD 13 billion.

As we told you in the previous call, at the end of Q3, we continued to expand our production facilities globally and especially in Europe. We are making significant strategic CapEx investments to address growing global capacity constraints, recognizing that capacity is a critical element of our long-term strategy. These include, among others, the continued investment in the Ramat Beka facility here in Israel as well as expanding our production facilities in Germany, Sweden, Romania, in Europe and in the U.S. Europe accounted for 27% of Elbit sales in 2025, surpassing the $2 billion mark. We believe Europe will remain our primary growth engine going forward with Germany playing a central role.

This momentum was evident through the year, reflected the numerous contracts awarded across a wide range of systems, including our PULS rocket launchers, Iron Fist Active Protection Solution and multiple DIRCM programs, among others. We expect strong revenue growth from Europe as countries continue to [indiscernible] supported by Elbit's well-established presence on the continent through our subsidiaries and joint ventures with leading local partners. During 2025, Elbit continued to invest heavily in disruptive R&D programs, including AI enhancements across multiple platforms as part of its strategy to develop advanced solutions self-funded or partially funded by the Israeli IMOD, ensuring both current and future growth.

Dedicated cross-function AI teams are integrated intelligent capabilities across defense systems and core operations, strengthening decision-making, operational agility and scalability as global demand continued to grow. In closing, Elbit entered 2026 stronger, more resilient and better positioned than ever. With a record backlog, breakthrough technologies achievement, expanding capacity and global team that delivers under the most demanding conditions, we are confident in our ability to sustain our growth and continue to create long-term value for our stakeholders.

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

[Operator Instructions] The first question is from Kristine Liwag of Morgan Stanley.

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

Kristine, thank you for the question. It's a combination of questions. I'll talk first to the CapEx investment. The company increased the CapEx investment this year to $225 million. We are consistently investing in CapEx nearly $200 million for the past 5 years, and we are planning to increase the spend this year in 2026 to around $300 million. And this additional investment comes with stronger free cash flow. So we both increased the free cash flow and increasing CapEx, and that is -- we are very happy with this result.

Having -- investing around $300 million will go specifically to invest in Israel and out of Israel. We're not just investing in Israel. We're investing also outside of Israel and mostly factories for land capacity. We tripled the size of the factory in the southern part of Israel. The new ammunition and munition factory, it was tripled. And the additional investments are planned to meet the high demand, especially to munition ammunition demand. We're also increasing investment in electronic assemblies factories in Israel and outside of Israel. And by that, we feel comfortable with meeting the high demand, as you mentioned, the record backlog and the very strong funnel that we see ahead. Butzi?

Yes, I would like to add -- thank you, Kobi. I would like to add is that on top of our own investment, some customers of ours are investing with us here in Israel as well as abroad in order to create additional capacity, mainly around production. And so actually, every dollar that we invest, there is an additional investment by our customers. So that's number one. Number two, this year, we believe that we will start delivering equipment from the Ramat Beka facility. Actually, it should happen quite soon. It will be -- and the Israeli government has approved to continue working in the current facility we have in the central part of the country and the current infrastructure we have. So in parallel, we'll have 2 active production lines, which will enable us to deliver the growing demand.

I also want to emphasize that our new facilities are all equipped with robots and with a lot of AI in them in order to increase effectiveness and productivity and with the most advanced technology, which is available in the market. So we are working, in some cases, in 3 shifts in order to meet the demand and with the new factories that we will start, some of them are active already. Some will start -- will be effective quite soon. I believe we'll be able to meet the current demand and the future demand. With regards to supply chain, Elbit as part of the strategy is a very vertical company. And we are trying to reduce [indiscernible] from internal -- from other -- from external suppliers. That's part of our strategy.

We develop our own diodes and our own detectors and many, many other examples. And through the last -- through this war, we have invested with the Israeli IMOD even more funds to be more vertical and to control our destiny. And in areas where we are lacking material, we were able to create enough inventories to support the current and the future demand that we see. Kobi, do you want to add?

Yes. On top of what Butzi mentioned, we are also streamlining the Ramat Beka. This is the southern part of Israel factory. We are streamlining the processes, the factory processes, which will bring additional yields, additional effectiveness of this factory. And another more financial point, we saw 24% growth in our backlog during 2025 and 16% growth of revenue. And as you know, Kristine, there should be convergence between those 2 numbers. And that means that the potential of growth is very significant, the double-digit potential of growth also in the future.

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

I would say the following. First, currently, many countries are fighting against drones and against cruise missiles with [indiscernible] missiles. That's a very expensive fight and it's not sustainable. So because of that, we thought that bringing High-Power Laser to the air will create a new situation where actually we are becoming the ultimate player. And putting High-Power Laser in the air enable us first to overcome some of the challenges of the ground like weather and dust and turbulence. And so flying above cloud will enable us to gain more ranges and to be more effective and also to eliminate the stretch far away from our borders.

Now from a technical point of view, it's not an easy task. You need to mature the elements and you need to -- while moving, you need to block yourself on a target in a very precise way. But we were able to overcome all the -- and many more and we were able to overcome all these challenges, and we are very advanced in the development. And when this solution will be mature and will be operational, I believe it will be a breakthrough in the way countries are defeating forms and other type of threats. There is a huge demand for such solutions in the market. We are a leading player in this domain. We are controlling the entire technology in-house, and we see currently a very big demand for such solution worldwide.

And I believe that it will bring Elbit a new stream of revenues and profit in the near future. And I also want to add that High-Power Laser is not just a defensive weapon. As you can understand, it has more applications. That's an example, one example of unique technologies that we are developing with our R&D fund. Actually, the company is investing more than $0.5 billion in R&D. On top of that, we get more R&D from our customers. 6.5% of our revenues we invest in R&D. And we do it in order we are able to predict what will be the demand in the market in the future. We understand the operational needs. We understand very well the technological opportunities we have. We are combining them both, and we are coming with new technology to the market. This is just one example. As we speak, we develop more unique solutions that we present to you in the future.

The next question is from Ellen Page of Jefferies.

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

First I want to say is that with regards to the Greek opportunity, it's not a contract yet. We didn't receive it yet. It was approved by the parliament, and we hope to get the contract soon, but it's not yet in our backlog. It's a big contract that we hope to get soon. The same is true also in Germany. We got an initial contract in Germany for a small quantity and which is not yet full production in Germany, but the potential that we believe that will mature in the future, but it's not yet in our backlog. We have a very unique solution. First, we are -- we have this -- it's a generic launcher, which is able to fire different type of missiles for different ranges with different capabilities, which includes loitering munition as well from short ranges to very long ranges with different kind of guidance solutions, all coming from Elbit.

And it's an open architecture, so other solutions which are available with our customers can be implemented as well on top of the launch. Not only that, we have a joint venture partnership agreements with KNDS and with DI in Germany and with other partners in Europe to continue to develop and to produce fully this solution, the launcher and the rocket in Europe. So it's in Europe, and we call it EuroPULS, a European solution that was tailored for the unique requirements of the modern battlefield to the unique -- to the conclusion from the war between Russia and Ukraine and it's operational already by many countries in Europe. It was acquired by the Danish Forces, by the Dutch and by many other countries, not just in Europe. And we believe that that's the leading solution, which is available currently in the market, and we continue to develop it. And you will hear more about this product and about the system in the future.

Great. And if I can just sneak in one more. Profitability was very strong at 9.8% in the quarter and expanded across most segments, except for C4ISR. How are you thinking about the moving pieces to margins from here across the different segments? Where is there more room for expansion? And where could there be pressure?

Ellen, this is Kobi. Thank you for the question. We see an expansion in margins now for the fourth consecutive year. And we are very happy with this result. It's an expansion of nearly 1% annually. And this is a trend that we see now and we believe will go -- the expansion in margins will continue as we have the operational leverage with the very strong growth of revenues and with the stronger pipeline and backlog profitability, which turns into stronger profitability. And we believe this will continue to the future. And as Butzi mentioned earlier, with the self-funded R&D, additional self-funded R&D that we're going to invest and we're going to continue increasing the self-funded R&D in the future, will not harm the bottom line. We will still maintain growth also in the OP level and also on the EPS level.

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Machlis to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available 2 hours after the conference ends. In the U.S., please call 1 (888) 782-4291. In Israel, please call (03) 925-5900. And internationally, please call 972-3-925-5900. A replay of the call will also be available on the company's website, www.elbitsystems.com. Mr. Machlis, would you like to make a concluding statement?

To everyone on the call, thank you for joining us today and for your continued support and interest in our company. Have a good day, and goodbye.

Thank you. This concludes the Elbit Systems Ltd. Fourth Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' Third Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to hand over the call to Daniella Finn, Elbit Systems' VP, Investor Relations. Daniella, please go ahead.

Thank you, Karen. Hello, everyone, and welcome to our third quarter 2025 earnings call. On the call with me today are Butzi Machlis, President and CEO of Elbit Systems; and Kobi Kagan, Corporate 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 usual, we will provide you with both GAAP financial data as well as certain supplemental non-GAAP information. We believe that this non-GAAP information provides additional detail to help understand the performance of the ongoing business. You can find all the detailed GAAP financial data as well as the non-GAAP information and the reconciliation in today's press release.

Kobi will begin by providing a discussion of the financial results, followed by Butzi, who will talk about some of the significant developments during the quarter and beyond. We will then turn the call over to question-and-answer session.

With that, I would like to now turn the call over to Kobi. Kobi, please go ahead.

Thank you, Daniella. Hello, everyone, and thank you for joining us today. We are very pleased to announce another set of quarterly results with double-digit year-over-year growth in revenues, backlog and EPS. Quarterly free cash flow was solid at $101 million, underscoring our healthy cash generation.

I will now highlight and discuss some of the key figures and trends in our financial results this quarter. Third quarter 2025 revenues were $1.922 billion, compared to $1.718 billion in the third quarter of 2024, a solid 12% growth in quarterly revenues year-over-year and 18% growth for the 9 months ended 30th September. In the third quarter of 2025, Europe contributed 28%; North America, 21%; Asia Pacific, 14%; and Israel was 33% of revenues.

GAAP gross margin in the third quarter was 24.9% of revenues compared to 24% in the third quarter of 2024. The non-GAAP gross margin for the third quarter was 25.2% of revenues, compared to 24.4% in the third quarter of 2024.

GAAP operating income for the third quarter was $171.4 million or 8.9% of revenues versus $125.8 million or 7.3% of revenues in the third quarter of 2024. Non-GAAP operating income was $186.7 million or 9.7% of revenues, compared with $140.7 million or 8.2% of revenues in the third quarter of last year. We are very pleased with this margin expansion trajectory.

The operating expense breakdown in the third quarter was as follows: net R&D expense were $129.1 million or 6.7% of revenues, compared to $119.9 million or 7% of revenues in the third quarter of 2024. Elbit continues to invest in R&D to secure future profitable growth, which will maintain Elbit's position as the market leader in years to come. Marketing and selling expenses were $91 million or 4.7% of revenues versus $91.3 million or 5.3% in the third quarter of 2024. G&A expenses were $86.7 million or 4.5% of revenues, compared to $75.7 million or 4.4% of revenues in the third quarter of 2024.

Financial expenses were $34.5 million in the third quarter, compared to $45 million in the third quarter of 2024. The decrease in financial expenses, net in the third quarter of 2025, was mainly due to a reduction in the average net debt.

We recorded a tax expense of $11.4 million in the third quarter compared to $12.8 million in the third quarter of 2024. The effective tax rate in the third quarter of 2025 was 8.2% compared to 14.6% in the third quarter of 2024. The decrease in the effective tax rate for the third quarter of 2025, was mainly due to the increase in deferred tax assets.

GAAP diluted EPS was $2.80 for the third quarter of 2025 compared to $1.77 in the third quarter of 2024. Our non-GAAP diluted EPS was $3.35 for the third quarter of 2025, compared to $2.21 in the third quarter of 2024.

Quarterly segment revenue for the third quarter of 2025. Aerospace, third quarter revenues decreased by 3% year-over-year, mainly due to a decrease in Precision Guided Munition sales in Asia Pacific, partially offset by the increase in PGM sales in Israel and an increase in unmanned aerial system sales in Europe. Revenues for the 9 months were up 9%.

C4I and Cyber, revenues increased by 14% year-over-year, mainly due to radio systems and command and control system sales in Europe. For the 9 months, revenue rose by 15%.

ISTAR and EW, revenues increased by 5% in the third quarter of 2025, mainly due to Electro-Optic systems and Electronic Warfare systems sales in Israel and high-power laser sales in Israel. For the 9 months, revenue increased by 8%.

Land revenue increased by 41% in the third quarter of 2025, due to ammunition and munition sales in Israel and in Europe. For the 9 months, revenues were up 44%.

Elbit Systems of America, revenues decreased by 2% due to a decrease in Electronic systems and medical instrument sales, partially offset by the increase in Maritime and Warfighter system sales. For the 9 months, revenue rose 6%.

The order backlog as of September 30, 2025, was $25.2 billion, $3.1 billion higher than the backlog at the end of the third quarter of 2024, and $1.4 billion higher than the backlog in the second quarter of 2025. The increase in backlog during the quarter came mainly from new European orders. Approximately 69% of the current backlog is derived from order outside of Israel. Approximately 38% of the current backlog is scheduled to be performed during the remainder of 2025 and during 2026. And the rest is scheduled for 2027 and beyond.

Cash flow provided by operating activities in the 9 months ended September 30, 2025, was $461 million, as compared to $82.5 million in the 9 months ended September 30, 2024. The cash flow in the 9 months ended September 30, 2025, was affected mainly by the strong increase in net income. On the back of the continuous strength of the company's result the Board of Directors declared a dividend of $0.75 per share to be paid on January 5, 2026.

I will now turn the call over to Mr. Machlis, Elbit's CEO. Butzi, please go ahead.

Thank you, Kobi. Hello, everyone, and thank you once again for joining us today.

As Kobi just described, these results continued the growth and margin expansion trajectory, driven by strong demand for our solutions, particularly in Europe and Israel. Elbit's seventh consecutive quarter of double-digit growth further demonstrates our global leadership on the modern battleship. Our recently tested and proven solutions position us as the leading authority in our rapidly changing industry as defense budget continued to rise globally and our customers seek cutting-edge battle-proven system to secure and protect their population. Our portfolio of ever relevant technologies support our customers pursue of advanced warfighter solution across all domains.

On the back of the strong results, I am proud that we continue to improve the translation of our revenue growth in both profit and cash flow. This is the fifth consecutive quarter where we delivered positive free cash flow and improved the company's cash conversion.

Yesterday, we announced the signing of an international contract for a strategic solution for approximately USD 2.3 billion. This contract will be performed over a period of 8 years. I'm extremely pleased with this announcement of the largest contract in Elbit history, further testament to the superiority of our product and technologies. We will continue to equip our customers with advanced and relevant solutions.

During the quarter, Elbit received another large contract to supply a European country with a range of our solutions totaling of USD 1.625 billion (sic) [ USD 1.635 billion ] to be delivered over the next 5 years. The contract includes long-range precision strike artillery-rocket systems and broad-spectrum of unmanned reconnaissance and loitering aerial combat systems, highly sophisticated ISTAR capabilities, including SIGINT, COMINT and electric warfare system. Enabled intelligence collections and processing system will also be delivered, along with advanced electro-optic, and night-vision system, combat vehicle upgrade, and protective systems.

New orders also included contracts for our Hermes 900 drones, advanced airborne munitions for the IMOD and USD 260 million contract for DIRCM system to Airbus. Following the 12-day campaign against Iran, Elbit has seen growing interest in our solutions, mainly through not exclusively for the Hermes drones, EW system and training platforms. The Hermes platforms enable us to cross-sell products for other segments and offer our customers comprehensive solutions, since its first order in 2011, the Hermes 900 has been selected by over 20 customers worldwide.

In August, we successfully launched the advanced JUPITER space camera, abroad the National Advanced Optical System satellite, supporting a wide span of earth observation mission, including military operations, environmental, monitoring and scientific research, developed by Elbit System ISTAR and EW, JUPITER is one of the world's most advanced space camera, featuring a very large aperture and exceptionally lightweight design. The camera is multispectral offering a combination of imaging channels.

During the quarter, we expanded our operation in Europe, opening new facilities in Sweden and Germany to enhance our local delivery capabilities to ensure more secure, faster support to our customers. Being close to our customers is crucial for us, our enhanced presence in Europe strengthen our ability to deliver modern and reliable solutions at the pace required to ensure the unforced capability to defend Europe from its offenders.

In June, we launched PAWS 2, a next-generation infrared missile warning system for fighter aircraft designed to enhance their survivability and operational effectiveness. The system detect wide range of threats regardless of seeker type and provides advanced protection for fighter jets, transport aircraft, and helicopter operating in complex high-threat environment.

At DSEI, we unveiled Frontier, a cutting-edge wide-area persistent surveillance system, designed to address the inducing complexity and intensity of border protection challenges. Frontier autonomously operates multiple type of sensors to visually confirm and classify threats transmitting only the most relevant analyzed information to the appropriate forces. It leverage advanced artificial intelligence to optimize intelligence gathering and decision-making across land, air and maritime domains.

All this notable achievement would not have been possible without our dedicated employees whose day and night, commitment to Elbit is truly unique. I would like to thank each and every one of our outstanding employees for their continued professionalism and dedication.

And with that, I will be happy to answer your questions. Operator?

[Operator Instructions] The first question is from Jordan Lyonnais of Bank of America.

So with the ceasefire now happening, how enduring are you guys thinking about the domestic demand? And if we do see a slowdown in the domestic bookings, how are we -- how should we think about the trade-off with margins as orders start to skew more towards international?

Thank you, Jordan. So your question about the domestic demand, we can look at this quarter. We had an increase of $1.4 billion in our backlog, $200 million in Israel and $1.2 billion outside of Israel. We are looking at that as some kind of the nature of the growth of the backlog for the future. We are targeting around flattish backlog in Israel and growth outside of Israel, predominantly in Europe. That will be the growth area, which -- we see our funnel, we see our opportunities, and we see the demand that's coming out from Europe. And we think that this is the place that predominantly will provide the growth in the future in the backlog.

The next question is from Seth Seifman from JPMorgan.

I wanted to ask about when we think about the Aerospace business from here, and we saw the decline in the quarter. How should we think about the trajectory in that business going forward? I know you called out some decline in sales to Asia but also some drone orders during the quarter. So kind of where does that go from here?

It's Butzi. I believe that we will continue to see growth in this segment as well. We -- first, I would like to mention that our avionics is embedded on top of most of the Western platforms. It includes our helmet, but not only that, also quite a lot of other equipment from us is embedded in each -- in many, many platforms, all -- in many, many countries, not just in the U.S. So we enjoy from revenues coming from international sales of Boeing and Lockheed and other OEMs of all the platforms they bought. So I really feel that this -- I really believe that this market will continue to grow for us.

And I would like also to mention UAVs. There is a huge demand for UAVs, for loitering munition. We have 20 international customers who bought till now, the Hermes 900 from us. And we provide not just a platform. We provide an integrated solution, which includes all our sensors and payloads from the company, and we have a very unique offering to our customers. And they see a growing market for UAVs or main UAVs, but also for small UAVs and for loitering munition, which are all under the Airborne segment. So I believe that this segment will continue to grow the company in Israel and mainly abroad.

And Seth, this is Kobi to further add on Butzi's answer, we -- if you look at the 3 quarters over 3 quarters last year, Aerospace segment grew 9%. And we think that the relevant growth number for the Aerospace is a single-digit growth in revenues, because this segment is leaning predominantly on the U.S. budget with a lot of revenue coming from the U.S., which is a single-digit budget growth. And for that reason, that is the number that we think is relevant for this quarter -- for this segment.

Okay. Excellent. Excellent. If I could add one follow-up question. Can you talk a little bit more about the opportunities that are emerging in directed energy. We've seen some of the progress on IRON BEAM. Are you seeing a lot of opportunities emerge for directed energy solutions outside of Israel as well?

Yes. The answer is yes. As you know, we are part of the Israeli program for ground high-power laser systems. The laser source is coming from us, and the first system should be deployed by the end of this year, the IRON BEAM system. And there's going to be -- I believe that next year, we'll see many more orders here in Israel for ground high-power lasers. Based on the success of Israel, there's a lot of interest in many other places for high-power lasers and for ground high-power laser system, and we are part of this solution.

Here in Israel, we lead the airborne high-power laser system. It's still in the development phase. And actually -- and I believe that there is a very big potential for us, for the system. I think that high-power lasers in the air will be a game changer in the way countries are fighting against ones and against drones and against cruise missiles. And this is still under development, but also, it's only -- it's still in development, there is a lot of interest for that for many, many customers abroad.

We are not developing just high-power lasers. We have other type of energy weapons, which are in a very advanced phase of development, which are -- some of them are confidential, but I can tell you that they are very unique. We really believe that this energy weapon activity is a very important growth engine for Elbit for the future.

The next question is from Ellen Page of Jefferies.

Just the margin was very strong in the quarter on a year-over-year and sequential basis. Can you discuss the drivers of that? And was there any element of mix that supported profitability in the quarter? And how do we think about the progression of margins from here?

Ellen, if you notice, there is a very strong expansion in margin this quarter, as you indicated, which comes as 0.9% improvement, a 1%, shy of 1% in the gross profitability of the company, an additional 0.5% on the operational expenses. So we are looking at a 1% expansion in the gross profitability and 1.5% expansion in the operational profitability.

Those two are the fruits of improvement in our backlog profitability and for using a lot of operational excellence both investments and also processes that were inaugurated in the company, including using AI for different purposes of operational use. And that is driving our -- not just our operational profitability but also our gross profitability up. And this is the first quarter that we see this kind of expansion in both the gross profitability and the operational profitability.

Including -- on top of that, we are also doing CapEx investments, which are yielding fruits. As we discussed many times in the past, the ERP system that is fully operational, the one ERP system that is fully operational in the company and also robots and cobots that we are also using now mainly in the ammunition and munition factories. And on top of that, if I can summarize everything, we can see that we have our advantages to the size, which with the increase in revenue, we are doing better conversion to profits.

Great. That's very helpful. And how do we think about the impact of less operational disruptions assuming the ceasefire hold. Is that an opportunity for another step up from here?

So we see that -- we are very happy with the ceasefire, of course, and that is -- we prayed, everybody here prayed for that after 2 years of that -- this conflict. And we all hope that this quiet will be maintained here in Israel. And of course, in -- for the company, it allows us to regroup, people to come back for mobilization, and to get back to normal business which is, as you know, Elbit is mainly predominantly working outside of Israel, that this is our strength of doing around 70% of the business outside of Israel. It allows us to invest more in the business outside of Israel and to focus, of course, more about doing the ordinary business as we did before this 7th of October conflict. And of course, this is an opportunity for the company to receive more opportunities and more new business to strengthen our backlog.

I'm passing the call to Daniella Finn. Please go ahead.

Thank you, operator. We have a couple of questions from [indiscernible] from Excellence. [indiscernible], thank you very much for your questions today. The first one is, has there been any update to the company's profitability target for 2026, 10% operating profit following the expansion of the order backlog and the improvement in gross margins in the current quarter.

Thank you, Daniella and [indiscernible]. We -- as you know, we're not giving specifically targets and providing guidance. Saying that, we will still maintain our internal targets to continue to improve our profitability. And this is, of course, a strong target in the company as well as the cash conversion, which is a very -- is the principal target in the company to continue the improvement in cash conversion in the company.

Thank you, Kobi. And the second question from [indiscernible], how does Elbit plan to generate added value from the significant expansion in the U.S. DoD's budget. Specifically, is there a concrete plan to pursue an M&A transaction in the U.S. and/or to expand into verticals such as drone swarms or border protection applications?

Thank you, Daniella and [indiscernible]. The U.S. market is very strategic to Elbit. We see the U.S. as our home market. And we are -- I'm very pleased with our performance in the U.S. The last two positions we made, the night-vision activity and Sparton, the sonobuoys activity. Both of them are very successful, both of them are growing. And we certainly look for opportunities, for acquisitions in the U.S., we are exploring the market.

I would like to say that in the past, we delivered a system to the CBP for border protection, and our system is deployed along the borders. And we are -- certainly, we believe that the current need for additional systems along the borders are very relevant to us, and we are planning to pursue it. And we have -- the rest of our activities in the U.S. are very successful as well. Our avionics activities are growing, and our Active Protection System is doing very well in the U.S. on top of the Bradley light tank, and we see -- we will continue to invest in the U.S. We will continue to recruit additional people, and we would like to expand our position in this very important market forward.

Thank you, Butzi. Operator, if there are no more questions, we can wrap up.

Before I ask Mr. Machlis to go ahead with his closing statement, I'd like to remind participants that a replay of this call will be available 2 hours after the conference ends. In the U.S., please call 1 (888) 782-4291. In Israel, please call (03) 925-5900; and internationally, please call (972) 3925-5900. A replay of the call will also be available at the company's website, www.elbitsystems.com.

Mr. Machlis, would you like to make your concluding statement?

I would like to thank everyone on the call for joining us today and for your continued trust and support of Elbit. Have a good day and goodbye.

Thank you. This concludes the Elbit Systems Ltd., Third Quarter 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

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

Thank you, Ila. Good day, everyone, and welcome to our second quarter 2025 earnings call. On the call with me today are Butzi Machlis, President and CEO; and Kobi Kagan, CFO. Before we begin, I would like to point out that the safe harbor statement in the company's press release issued earlier today also refers to the contents of this conference call. As usual, we will provide you with both GAAP financial data as well as certain supplement 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 the reconciliation in today's press release. As usual, Kobi will begin by providing a discussion of the financial results, followed by Butzi, who will talk about some of the significant developments during the quarter and beyond. We will then turn the call over to question-and-answer session.

With that, I would like to now turn the call over to Kobi. Kobi, please go ahead.

Thank you, Daniella. Hello, everyone, and thank you for joining us today. We are very pleased to announce another set of quarterly results with strong double-digit year-over-year growth across all parameters. We recorded growth across all business segments and geographies, especially in Europe as well as margin expansion. Backlog increased 12% from the corresponding quarter in 2024 and free cash flow generated this quarter totaled $71 million. I will now highlight and discuss some of the key figures and trends in our financial results this quarter.

Second quarter 2025 revenues were $1.973 billion compared to $1.626 billion in the second quarter of 2024. In the second quarter of 2025, Europe contributed 29%; North America, 21%; Asia Pacific, 13% and Israel was 34% of revenues. Demand continued to be robust in all 3 geographies as evident in the higher sales in all geographies this quarter. GAAP gross margin in the second quarter was 24% of revenues compared to 24% in the second quarter of 2024. The non-GAAP margin for the second quarter was 24.4% of revenues compared to 24.4% in the second quarter of 2024.

GAAP operating income for the second quarter was $157.8 million or 8% of revenues versus $116.5 million or 7.2% of revenues in the second quarter of 2024. Non-GAAP operating income was $175.1 million or 8.9% of revenues compared with $130.5 million or 8% of revenues in the second quarter of last year. We are very pleased with this margin expansion, which is a result of the company's joint effort to improve profitability. The operating expense breakdown in the second quarter was as follows: Net R&D expenses were $129.7 million or 6.6% of revenues compared to $116.8 million or 7.2% of revenues in the second quarter of 2024.

Elbit continues to invest in R&D to develop cutting-edge technological product and solutions, which will maintain Elbit's position as a market leader. Marketing and selling expenses were $91.5 million or 4.6% of revenues versus $87.7 million or 5.4% in the second quarter of 2024. G&A expenses were $93.9 million or 4.8% of revenues compared to $68.7 million or 4.2% of revenues in the second quarter of 2024. The increase in G&A expenses for the second quarter of 2025 was mainly due to onetime expenses incurred during the current quarter. G&A expenses during the second quarter of 2024 were lower than average.

Financial expenses were $31.2 million in the second quarter compared to $29.1 million in the second quarter of 2024. Financial expenses during the quarter were impacted by the relatively sharp fluctuations of exchange rate by the strong free cash flow from the beginning of the year and from the offering proceeds that in the short-term decreased the company's loan portfolio. We recorded a tax expense of $7.1 million in the second quarter compared to $11.3 million in the second quarter of 2024. The effective tax rate in the second quarter of 2025 was 5.6% compared to 13.2% in the second quarter of 2024.

The decrease in effective tax rate for the second quarter of 2025 was mainly due to the increase in deferred tax assets and the settlement of tax assessments. GAAP diluted EPS was $2.69 for the second quarter of 2025 compared to $1.76 in the second quarter of 2024. Our non-GAAP diluted EPS was $3.23 for the second quarter of 2025 compared to $2.08 in the second quarter of 2024. Quarterly segment revenue for the second quarter of 2025. Aerospace revenue increased by 12% year-over-year, mainly due to increase in Precision Guided Munition sales in Israel and Asia Pacific and UAS sales in Europe.

C4I and Cyber revenues increased by 21% year-over-year, mainly due to radio systems and command and control system sales in Israel and in Europe. ISTAR and EW revenues increased by 15% in the second quarter of 2025, mainly due to electro-optical system sales in Israel and electronic warfare system sales in Europe. Land revenues increased by 45% in the second quarter of 2025 due to ammunition and munition sales in Israel and in Europe. Elbit Systems of America revenues increased by 4% due to the increase in maritime and warfighters systems sales.

Our order backlog as of June 30, 2025, was $23.8 billion, $2.6 billion higher than the backlog at the end of the second quarter of 2024 and $626 million higher than the backlog in the first quarter of 2025. The increase in backlog during the quarter came mainly from new international orders. Approximately 68% of current backlog is delivered from orders outside of Israel. Approximately 46% of the current backlog is scheduled to be performed during the remainder of 2025 and during 2026, and the rest is scheduled for 2027 and beyond.

Cash flow provided by operating activities in the 6 quarter (sic) [ months ] ended June 30, 2025, was $304 million as compared to $26 million in the 6 months ended June 30, 2024. The cash flow in the 6 months ended June 30, 2025, was affected mainly by the strong increase in net income. On the back of the continued strong financial performance of the company, the Board of Directors has decided to increase the dividend and declare a dividend of $0.75 per share, 50% higher than the dividend distributed last year and the second dividend raised this year.

I will now turn the call over to Mr. Machlis, Elbit's CEO. Butzi, please go ahead.

Thank you, Kobi. Hello, everyone, and thank you again for joining us today. As Kobi just described, there are indeed expectational results with double-digit growth in all parameters of revenue and profitability growth across all our segments and geographies. I'm very pleased with these results. During the quarter, we carried out a successful share offering, raising $573 million net with demand for the shares offered reaching 3x the initial amount.

These proceeds will help support and grow Elbit future businesses, enabling us to increase our production capacity and deliver on the growing demand of our products. Additionally, these proceeds will potentially enable us to further expand via M&A activity, acquiring either new technologies or expanding our global reach. During the quarter, the conflict between Israel and Iran has escalated and resulted in a 12-day campaign against Iran.

Since the October 7 war, the Middle East has gone through significant changes in many aspects, thanks to the technological superiority of the IDF. Elbit played a key role in supplying the IDF with our advanced technologies and solutions. These included the Hermes 900 drones armed with various payloads flying over the sky of Tehran as shown on social media. ISR system provided crucial and continuous information, which were a key factor in defending our posts. EW self-protection tools played a virtual role in protecting the IDF aircrafts. Our trainers made sure pilots and other fighters were professionally trained for one of the most complicated missions ever carried out.

I am extremely proud of all Elbit employees who took part in this important mission and of all who contributed to the development of solutions that supported the IDF during the conflict and since October 7. For all of this, I am truly grateful. During the quarter and up until the announcement today, Elbit won additional significant new contracts. This morning, we announced we were awarded a contract worth $1.625 billion to deliver a range of defense solutions to European country over the next 5 years.

Under the contract, Elbit will deliver a variety of its products and solutions, including a comprehensive military digitization and network combat solution as well as Torch-X C4ISR suit of command-and-control applications, advanced working capabilities and [indiscernible] a range of unmanned aerial systems such as the Hermes 900, Skylark 3, loitering munitions and the luminous soldier level tactical drones among others. The contract includes -- also included a range of ISTAR capabilities, including electric warfare and SIGINT systems. This contract, among others in Europe, marks another important milestone in Elbit expanding footprint in Europe and it's growing operational across the continent -- it's growing operations across the continent.

A couple of weeks ago, Elbit was awarded a contract worth approximately $260 million by Airbus to supply its J-MUSIC Directed Infrared Counter Measures, self-protection system, for installation on the German A400 transport aircraft. We continue to gain traction with the PULS rocket launcher in Europe, winning yet another contract to European country for USD 130 million. In May, we received a delivery order value of $110 million for SBNVG from the Marine Corps as part of the multiyear ID/IQ contract previously secured.

These systems will support the U.S. Marine Corps missions in operation with low light and no light conditions worldwide. Elbit was also awarded a contract worth approximately $100 million to supply the advanced UT30, unmanned turret system to General Dynamics European Land Systems. The systems will be installed on the ASCOD armored fighting vehicles and supplied to a NATO European country. These systems will enhance the firepower and survivability of the ASCOD vehicles. During the quarter, we were awarded several contracts valued approximately $330 million by international customers, including NATO member countries to supply a broad range of advanced naval technological and solutions, including electrical warfare and anti-submarine warfare systems, modernizing and upgrade programs, combat management systems and more.

And last but not least, 2 days ago, we announced 2 contract wins for about $250 million for the supply of airborne munitions to the Israeli Ministry of Defense. Despite some delays due to the ongoing conflict in our region, we are progressing well with the Ramat Beka site. Construction is continuing and initial production are expected towards the end of this year. This production site will be a state-of-the-art and will include automated AI and robotic solutions and platforms to enable utmost facility efficiencies.

I'm truly inspired by our employees' dedication and commitment to the company and would like to personally thank each and every one of our employees for contributing immensely to the success of the company. It wouldn't be possible without you. And with that, we will be happy to answer your questions. Operator?

[Operator Instructions] The first question is from Jordan Lyonnais of Bank of America.

Going into the back half of the year, how should we think about the margin expansion and what's going to drive it?

Thank you, Jordan, for the question. We are paying a lot of attention and a lot of effort into expanding our margins as demonstrated in the last 3 years, where we enjoyed around 3% margin expansion. As we demonstrated in the past, we are committed to continue improving the margin by our new ERP -- one ERP system, for instance, by operational leverage that is playing an important factor in the margin expansion and by other means.

Got it. And then if I could to -- could you guys give any updates on R&D or what you're seeing in the supply chain, specifically for SRM?

On IRON BEAM -- yes, we are developing and delivering the high-power laser source for the IRON BEAM solution. And the IRON BEAM solution is led by Rafael, who are the main integrator of the system. However, the laser part is coming from us. And we are starting the delivery -- we are starting to deliver the first unit to Rafael for integration quite soon, and we expect to deploy the system by the end of this year. In parallel, we are developing the prime and airborne high-power solution for the Israeli Air Force, and there is a lot of interest for this solution for other customers -- international customers as well globally.

The next question is from Sheila Kahyaoglu of Jefferies.

Maybe just if we could start on the top line. Year-to-date growth of 22% is pretty phenomenal, derisks even the mid-teens growth guidance for the year. How do we think about the deceleration in the second half and outlook for '26 as you think about capacity utilization and all these new orders coming in?

Sheila, Kobi. As you know, we mentioned that we are looking at 2025 at mid-teens. And this is our internal targets. And looking forward, of course, to 2026, again, our internal targets are double-digit growth also for next year. And I believe that the announcement this morning, of course, will support the backlog required to facilitate double-digit growth. So beyond that, we are -- beyond that, we -- as you know, our policy is not to give guidance. So this is actually our internal targets and what we can provide.

Maybe any detail you could give on the segments. Obviously, land 45% growth in Q2, pretty spectacular, tracking ahead of your soft commentary on the $2.25 billion for the year. How long is that sustainable and aerospace is also doing quite well. And when we think about the new artillery award, it comes into -- just confirming, it would be in the land segment?

So as you mentioned, Sheila, all segments actually did very well. And we had growth across all segments. As you mentioned, land is especially became the biggest segment now on Elbit and with 45% increase year-over-year and almost more than $550 million. That will drive additional -- we believe, additional growth in this segment, which enjoys a very, very high demand for all the leading products.

And as we mentioned, it's not just ammunition, but also Iron Fist. We have the SIGMA, which is the new Howitzer, which we're starting supplying now to the IDF and also the Rampage missile, which was heavily used during the 12 days Iran war, and that enjoys also domestic and international demand. We believe that this segment is going to continue to grow in revenue and also -- expand also the margins -- further expand the margins.

Great. And one last one, if I may. Great job on turning around ESA. How could we think about what's left to do there, whether it's restructuring or legacy dilutive contracts?

As we mentioned, we have turned around ESA. ESA was recording a loss in 2023. And we see expansion in the margins with -- as you mentioned, with flushing out losing contracts. We -- this next quarter, Q3 will be the last quarter of Sparton, the maritime company with the last quarter losing contracts. That will allow us to further increase -- to further expand the margins in Elbit Systems America this year and always will secure next year continued expansion in margin.

[Operator Instructions].

Ila, it's Daniella and I have a couple of questions from an investor who sent it to me over e-mail. The first question is what -- given the strong demand for UAS counterdrone measures, what are the company's plans for future development? And could you also address the issue of potential exports of these solutions to Europe and to the U.S.

We -- thank you, Daniella. We have a system by the name of ReDrone, and this system is actually a combination of several technologies from the company, several technology for detections and several technologies for effectors. And talking about detection, there are radar technologies, EO technologies, SIGINT technologies and others and talking about effectors, there are soft-kill technologies like jamming, energy weapon solutions and hard-kill solutions as well. All of these are combined together into a coherent solution. The name of this system is ReDrone.

This system was delivered and heavily used successfully by the IDF in Israel. And I'm happy to say that it was also exported to other countries. We have a handful of customers abroad. One of them is the Dutch Army who have chosen this system. And there are additional country in NATO, which acquired this system from us, and there are other customers around the globe for this system as well. This is actually -- this system is a combination of many good technologies from the company and all fueled together with AI, and we believe that this is one of the most advanced solutions, which is available in the market right now.

Thank you,. And the second question from [indiscernible]. Thank you very much for your questions today. It's with regards to CapEx investments. So we saw during the quarter a total amount of $72 million, which is lower than the figure in the corresponding quarter last year. What can we expect in terms of the pace of capital investments during the year? And what is the total expenditure expected for 2025?

Thank you, Daniella, and thank you, [indiscernible]. As mentioned in the first quarter, we enjoyed the governmental evacuation funds from the Israeli Land Authority. And that drove Q1 CapEx investment down. The running rate of the CapEx investment is around $250 million, and we are currently looking at expanding the investment based on the follow-on offering that money that was received during May.

Thank you, Kobi. And the final question from [indiscernible] regarding the Israel's geopolitical positioning. On one hand, we are seeing a lot of demand for defense security applications. On the other hand, Israel is in a tough geopolitical predicament. How is the company experiencing these difficulties, obviously, apart from the big announcement that we saw this morning?

Yes. So I would like to say is that, Daniella, as you mentioned, there is a growing demand for defense solution right now worldwide. And Israel -- Elbit is in a unique position to offer a very advanced portfolio. And like you saw this morning in our announcement, actually, what we are able to provide is an integrated solution for customers. We are able to sit with the customer and to help him to shape transformation for his forces. And this is based on the operational experience we have and the very wide portfolio we have, connecting all the dots together into one coherent very advanced solution, which enable the country to leapfrog with its operational capabilities.

Such kind of partnership, that Elbit is able to offer, is very unique, and we are in a very unique position here. And I can say that there is a lot of interest from many, many customers worldwide to understand the breadth of the portfolio we have, the operational experience we have. And we have very good -- there is -- there are many, many discussions every day with many customers in Europe as well as in other places to try to understand how we are doing, what we did in Iran, for example, and to understand also what is exportable and how we can help these countries to get such capabilities for themselves as well.

On top of this, I would like to mention that we are working abroad mainly via our subsidiaries. We have about 40 subsidiaries worldwide, quite a lot in Europe as well, almost all over the continent. So actually, what we are offering to our customer is not buying directly from Elbit Israel. We are also enabling our customer to work via the subsidiaries and which helps them to speak their own language and to do development locally, to do production locally, to create jobs, to boost their economies. And this is also a very unique position that we are in, and that's also a big advantage that we have.

And on top of this, we are working also with many partners abroad. And just to give you an example, in Germany, as was just mentioned, we are working with Airbus to promote our DIRCM system model, A400. We are working with this and with KNDS to promote the PULS and the rocket solutions, not just for Germany, also for Europe. So actually, we are in a unique position to offer very advanced solutions based on our wide portfolio, operational experience and local jobs to support the local economies.

Now I believe that it's true that in some cases, for example, in France, which is not a customer of Elbit in general, there are some resistance to buy from Israeli companies. But altogether, I can tell you that the potential that we are seeing is huge. It was never -- we never faced so many opportunities like we face today, and I believe that we are in a unique position to continue the growth of the company in the near future.

There are no further questions at this time. Before I ask Mr. Machlis to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available in 2 hours after the conference ends. In the U.S., please call 1 (888) 782-4291. In Israel, please call (03) 925-5900. And internationally, please call (972) 3925-5900. A replay of the call will also be available at the company's website at www.elbitsystems.

Mr. Machlis, would you like to make a concluding statement?

Thank you. I'd like to thank everyone on the call for joining us today and for your continued trust and support of Elbit. Have a good day, and goodbye.

Thank you. This concludes the Elbit Systems Ltd. Second Quarter 2025 Results Conference Call. Thank you for your participation. You may now go ahead and disconnect.