Elbit Systems Ltd. Q1 FY2025 earnings call

• Kobi mentioned strong set of results with fourth consecutive quarter of double-digit growth in revenues, backlog, operating income, net income and EPS, and strong free cash flow of $161 million. • Butzi noted dynamic trend of strong growth continuing with backlog reaching a record $23.1 billion, up 40% from last year. • Ongoing conflicts in Ukraine and Middle East drive countries to increase defense budgets, with NATO's proposal to increase defense spending in Europe to 5% of GDP by 2032. • Won various contracts including $100 million for joint national digital file command centers for European country, $80 million for advanced airborne self-protection suits, and contracts for ReDrone Counter-UAS solution, advanced rocket munition launcher, etc. • Iron Beam system, with laser component developed by Elbit, expected to be operational by end of 2025, and $200 million contract positions Elbit as global leader in high-power laser technology.

First quarter revenues were $1.896 billion. Europe contributed 24% of revenues, North America 21%, Asia Pacific 18%, and Israel 32%. Aerospace revenue increased by 20% year-over-year. C4I and Cyber revenues increased by 12% year-over-year. ISTAR and EW revenue increased by 4% in the first quarter. Land revenue increased by 48% in the first quarter. Elbit Systems of America revenues increased by 18%. Order backlog as of March 31, 2025, was $23.1 billion, $2.7 billion higher than the backlog at the end of the first quarter of 2024.

• Kobi said with high demand and expedited backlog growth, can be more selective in bookings and will see continuous operational OpEx leverage. • Butzi stated not seeing any slowdown in defense spend investment in coming years in Israel and Europe.

Q: Is there an expectation of a slowdown in activity in Israel due to a possible decline in the intensity of the conflict in Gaza, or a ceasefire imposed by the U.S., how is the company preparing for such a scenario?

A: Butzi said investment in defense will continue in near-term future as it helps create advantage for Israel and there's need to build inventories and treat equipment, and countries in Europe are preparing to invest more in defense with no slowdown expected.

Q: Is an improvement in the gross profit rate expected in the coming year? Or will the profitability targets to be achieved while relying on operating leverage?

A: Kobi said with high demand and expedited growth of backlog, can be more selective in bookings and will see continuous operational OpEx leverage.

Q: What is the expectation for CapEx for the rest of the year?

A: Kobi said see same level of CapEx investment might be a small increase to around $250 million as recorded $215 million in 2024.

Q: About the land division, operating margin was pretty high. Any more upside when selling to other countries?

A: Butzi said continue to improve numbers in land division, see a lot of growing demand mainly in Europe, and there's potential for more revenues and profits in this domain.

Q: Targets of revenue for Iron Beam?

A: Butzi said usually don't give such public information but there's huge interest in the laser solution and other energy weapons.

Q: About soldier lethality and maritime sensing?

A: Butzi said happy with acquisition of Night Vision, can combine full turnkey solution for infantry soldiers, and tailoring unique solutions for future infantry soldiers and offering to customers in U.S. and abroad.

Q: Q1 was off to a great start with 22% growth, curious what played out better than expected for the quarter and how to think about the drivers for remainder of the year?

A: Kobi said it was on plan with all segments growing from 1 digit to two digits growth and on track in company's growth.

Q: Free cash flow generation in the quarter was very strong, curious about full year opportunity and what drove step change in cash conversion?

A: Kobi said three major ingredients in first quarter free cash flow: increased net income, very strong contract liabilities, and onetime $57 million ground from Israeli Land Authority.