Elbit Systems Ltd. Q2 FY2025 earnings call

• Strong double-digit year-over-year growth across all parameters with revenue growth in all segments and geographies, including margin expansion. - Completed a successful share offering raising $573 million net, which will support future business growth, increase production capacity, and potentially enable M&A activity. - Played a key role in supplying the IDF with advanced technologies and solutions during the Israel-Iran conflict, including Hermes 900 drones, ISR systems, EW self-protection tools, and trainers. - Won significant new contracts, such as a $1.625 billion contract to deliver defense solutions to a European country, a $260 million contract with Airbus for J-MUSIC Directed Infrared Counter Measures, and multiple other contracts for naval systems, airborne munitions, etc. - Developing and delivering the high-power laser source for the IRON BEAM solution, with the first unit to be delivered to Rafael for integration soon, and expecting to deploy the system by end of 2025.

In the second quarter of 2025, Elbit Systems saw strong segment performance. Aerospace revenue increased 12% year-over-year, driven by Precision Guided Munition sales in Israel and Asia Pacific, and UAS sales in Europe. C4I and Cyber revenues rose 21% year-over-year due to radio systems and command and control system sales in Israel and Europe. ISTAR and EW revenues increased 15% in Q2 2025, mainly from electro-optical system sales in Israel and electronic warfare system sales in Europe. Land revenues jumped 45% in Q2 2025 because of ammunition and munition sales in Israel and Europe. Elbit Systems of America revenues increased 4% due to growth in maritime and warfighters systems sales. Geographically, Europe contributed 29% of revenues, North America 21%, Asia Pacific 13%, and Israel 34% of revenues in Q2 2025.

• Management mentioned 2025 mid-teens growth as internal targets. - Internal targets for 2026 are double-digit growth, supported by new contracts announced, though no official guidance beyond internal projections.

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

A: Yaacov Kagan said they are paying attention to expanding margins through an ERP system, operational leverage, and other means, with a 3% margin expansion seen in the last 3 years.

Q: Could you guys give any updates on R&D or what you're seeing in the supply chain, specifically for SRM?

A: Bezhalel Machlis stated they are developing and delivering the high-power laser source for the IRON BEAM solution, with the first unit to be delivered to Rafael soon, expecting to deploy the system by end of 2025, and developing prime and airborne high-power solutions for the Israeli Air Force with interest from international customers.

Q: 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?

A: Yaacov Kagan said internal targets for 2025 are mid-teens and for 2026 are double-digit growth, supported by the recent contract announcement, but they don't give official guidance beyond internal targets.

Q: 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?

A: Yaacov Kagan said land segment growth is sustainable due to high demand for leading products like ammunition, Iron Fist, SIGMA Howitzer, and Rampage missile, and the new artillery award is in the land segment.

Q: 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.?

A: Bezhalel Machlis said they have the ReDrone system combining detection and effector technologies, which has been delivered and used by the IDF and exported to countries like the Dutch Army, with interest from other NATO and international customers.

Q: Regarding CapEx investments. 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?

A: Yaacov Kagan said the running rate of CapEx investment is around $250 million, and they are looking to expand investment based on the follow-on offering proceeds received in May.

Q: On 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?

A: Bezhalel Machlis said Elbit is in a unique position to offer advanced defense solutions based on operational experience and a wide portfolio, working via subsidiaries in many countries to support local economies, and while there may be some resistance in some markets, the potential opportunities are huge.