Elbit Systems (NASDAQ:ESLT) held its first-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.

Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more.

View the webcast at https://www.veidan-conferencing.com/elbit

Summary

Elbit Systems Ltd reported strong financial performance for Q1 2026 with a 15.5% increase in revenues to $2.189 billion and a 42% increase in GAAP diluted EPS to $3.34.

The company achieved a record backlog surpassing $30 billion, driven by significant new contracts and demand, especially from Europe and Israel.

Elbit is focusing on expanding production capacity and investing in R&D, particularly in AI-driven capabilities and advanced defense solutions, to meet the rising demand.

Elbit Systems secured over $4 billion in new contracts, including a $1.4 billion deal with a European customer for military modernization.

Management highlighted strategic partnerships and acquisitions, including expanding facilities in Europe and acquiring a U.K. based company, to support growth and market expansion.

Full Transcript

OPERATOR

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems First Quarter 2026 Results Conference Call all participants are at present in listen only mode. Following management's formal presentation. Instructions will be given for the question and answer session. As a reminder, this conference is being recorded. I would now like to hand over the call to Daniela Finn, Elbit Systems VP, Investor Relations. Daniela, please go ahead. Thank you.

Daniela Fenn

Hello everyone and welcome to our first quarter 2026 earnings call. On the call with me today are Butsi Machlis, President and CEO Toby Kagan, CFO and myself Daniela Fenn, 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 subsidiary's 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 Butsi who will elaborate on the main events during the quarter and beyond. We will then turn the call over to a Q and A session. With that, I would like to now turn the call over to Kobi Kobe. Please go ahead.

Kobi Kobe

Thank you Daniela. 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 $2,189,000,000 compared to 1,000,000 $896,000,000 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 C4I and cyber 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. ISTAR and 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 ammunition and munitions sales in Israel and Europe. Elbit Systems Ltd of 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 of 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 in 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 1st quarter of 2025. Elbit continues to prioritize investment in advanced R and D initiatives including AI capabilities to support sustainable profitable growth and strengthen our leadership position in the years ahead. Elbit is focusing its R and D on cutting edge battlefield technologies. Key initiatives include counter UAS solutions spearheaded by higher power laser, advanced autonomous, airborne, naval and land platforms, multispectral sensing and advanced precision and standoff 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. GNA expenses were $95.7 million, or 4.3% of revenues in the First Quarter 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. Taxes 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% compared to 13.9% in the first quarter of 2025. GAAP diluted EPS for the first quarter of 2026 was $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 and 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 2026 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 $1 per share to be paid on July 6, 2026. I will now turn the call over to Mr. Maclis. I'll be presenting the CEO Butsi. Please go ahead.

Butsi Machlis (President and CEO)

Thank you. Kobik following our strong financial performance as Kobik just highlighted, the quarter was also characterized by high level of new business and contract award for elbit totaling over US$4 billion, almost double the quarterly revenues. Hence our backlog reached a record level exceeding the 30 billion mark for the first time. This morning we announced that Elbit Systems Ltd was awarded a new contract valued approximately 1.4 billion from a European customer for extensive military modernization programs. The modernized programs will provide improved maneuverability and survivability spanning the entire battle domain. The state of the art solutions to be delivered include a variety of uncrewed autonomous solutions, enhanced network land electric warfare, precision guided munition, artillery and air to ground coupled with electro optic, optical designating and reconnaissance systems all networked by software defined radius. This solution will improve the nation's operational effectiveness towards becoming an advanced and modern army. The contract will be performed over a period of 5 years. This contract reflects the breadth and attractiveness of Elbit Systems Ltd system defense portfolio as well as our ability to deliver both highly capable best in class systems and comprehensive integrated solutions tailored to evolving operational needs. With demand rising well above historical level, 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 EUTEX, the US facility in the uk. We are further expanding our production facilities in other locations across Europe. Operating Rowing Line has highlighted rising demand for advanced defense solution across Elbit Systems Ltd portfolio including precision guided munition, unmanned aerial system, ISR solution, electric warfare and protection system. It is also creating a growing pipeline of opportunities as customers accelerate procurement and modernization effort. Elbit Systems Ltd started the year with numerous announcements this include two important contracts for our APS solution the Iron Fist. The first contract was an order for the US Bradley armed vehicle this range for a sum of over $200 million. The second APS contract was for the CB90 combat vehicle to a NATO country. In January we secured a contract to equip an Asian customer with an advanced EW and Dirkamp self protect solution for helicopters worth $275 million. Additionally, an award of $277 million was received for 30 millimeter turrets and munitions by international customers. In April we were awarded a17.50 million dollar contract for Pulse rocket launchers to the Hellenic Armed Forces. Order environment in Europe continues 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 from the Israeli MOD. These include integrated advanced command and control systems, avionics, EW systems and advanced anti missile Dirkamp system for the 12 CH53 new helicopter valued at $130 million. An additional multi year order was received for supplying ammunition to the IDF for $183 million, strengthening the IDF 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 mob. Helbit 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 Ironwood for the development of an extended range capability for the F35 fighter jets manufactured by Lockheed Martin. The new capability is expecting to extend the aircraft's operational range, reduce reliance on aerial refueling and enhanced operational flexibility across long range missions. This contract could create additional opportunities for Elbit Systems Ltd in the area of F35 range extension worldwide. Elbit Systems Ltd System America continued to win significant contracts. In March, the US army awarded ESA a contract to establish a new class of soldier capabilities, the Soldier Borne Mission Command or sbmc. This is a crucial night vision system for the modern battlefield which will be won by warfighters who are able to decide and act in milliseconds. The contract valued at $120 million will enable Elbit Systems Ltd System of America to develop the FBMC that will redefine how soldier operates, connect and and dominant in complex battle bombs. We believe it could be a revolution in soldier lethality built for the speed and complexity of modern combat. In May we received a delivery order valued approximately $212 million for the continued production of enhanced night vision Global binocular in the GP systems for the US army which delivers expected through 2028. While the army has historically split LBGP production among multiple vendors, Elbit Systems Ltd Systems of America was selected as the sole prime supplier for this award. Elbit Systems Ltd has always prided itself on its strong partnership. I was honored to take part recently in two significant signing ceremonies in Germany, the first for our new JV with KNBS which will enable the two companies to deliver the advanced Europulse rocket launchers not only to Germany, but across Europe. The second signing ceremony was with tkms. We have now announced two separate cooperation with tkms, a German based submarine shipyard which will further expand our reach across Europe. In this recent agreement with tkms, Elbit Systems Ltd was once again chosen due to strong EW capabilities across platforms and for its maritime vessels in particular. During the quarter, Elbit Systems Ltd Systems has continued to advance its innovation agenda, prioritizing investment in next generation R and D initiative with a growing focus on AI driven capabilities. This effort, supported through a combination of internal funding and strategic partnership, are driving the development of advanced solutions and strengthening our ability to address evolving operational requirements. Elbit Systems Ltd employees are the driving force behind innovation and and the results, shaping the company's future with passion and commitment every day. And for this I'm very grateful. Elblit 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 of our shareholders for our shareholders. And with that, I will be happy to take your questions.

OPERATOR

Thank you ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press Star one. If you wish to cancel your request, please press. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while we pull for your questions. The first question is from Seth Safeman of JP Morgan. Please go ahead.

Seth Safeman (Equity Analyst)

Thanks very much. Good morning 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.

Butsi Machlis (President and CEO)

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 US 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 us here in Israel 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 two main pillars. One, 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 and 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 the backlog will continue to grow. Okay, excellent, excellent.

Seth Safeman (Equity Analyst)

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 to deploy. How are you thinking about the opportunities to use the balance sheet a bit more?

Kobi Kobe

Thank you Thad. As you mentioned, we have a very strong balance sheet but we maintain very strict capital deployment. We first prioritizing R and D as we are doing almost 7% of our revenue in R and D of self funded R and D which is as you know, more than double than the average peers. Secondly, we are increasing our capex investment to meet the high demand that we see in the markets. And we announced recently that we almost we doubled the dividend payout to investors from around from $0.50 to $1 per 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 EUTEX which is a UAV company in the uk. We will have further announcements on acquisitions as we dynamically looking for new acquisitions to enhance our portfolio.

Seth Safeman (Equity Analyst)

All right, great. Thank you very much.

OPERATOR

The next question is from Christine Leweg of Morgan Stanley. Please go ahead.

Christine Leweg (Equity Analyst)

Hey, good morning. Butsi, Kobi and Daniela I guess good afternoon for you guys. I was wondering, you know you talked about, you know, with this conflict we're seeing anti-UAS systems is even more critical. I was wondering, you know, 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 a conflict that we're seeing how relevant or cost competitive are your platforms versus what's available and as demand, you know, materializes for something like this, when can you start delivering incremental ones, if you were to get, you know, sovereign orders.

Butsi Machlis (President and CEO)

Thank you. We are investing quite a lot in hyper in energy weapons, high-power laser, just one of them. We are progressing very well on developing the high-power laser. Actually we already delivered high-power laser source to the ground solution here in Israel and in parallel we are leading a development of an airborne high-power laser. Many hundreds of engineers are working on the development of these systems currently in Israel and we are. You will start seeing deliveries of sub elements or partial delivery quite soon from this new development and I believe that such a system can change the entire way countries will Defeat drones and UAVs and cruise missiles and even additional threats. This is only one part of our counter drone solution. We have many sensors which are helping us to build an enemy picture to understand exactly where the threat is, where it's coming from and where it's heading to based on radar that we are developing and manufacturing based on signal intelligence capabilities based on electro optics. All managed by a strong AI algorithms and we have several effectors. High power energy is just one of them. We have different jammers, we have kinetic solutions and others and actually all once again all managed by AI as part of our country drone solution. We are already deploying counter drone solutions in Israel as well as in Europe and we believe that this segment will continue to grow for us in the future.

Kobi Kobe

Morning Christine. As to your 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 surge in demand that we see from different markets as Butsi mentioned. And this is why we decided on the, on the capex, on the capex increase in the company to meet this very high demand.

Christine Leweg (Equity Analyst)

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

Kobi Kobe

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

Butsi Machlis (President and CEO)

But I would like to add to that saying that we see.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.