Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' Second Quarter 2021 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. You should have all received by now the company’s press release that is available in the News section of the company’s website www.elbitsystems.com. I would now like to hand over the call to Rami Myerson, Elbit Systems' Investor Relations Director. Rami, please go ahead.

Thank you, Misha. Good day, everyone and welcome to our second quarter 2021 earnings call. On the call with me today are Butzi Machlis, President and CEO, and Joseph Gaspar, our Chief Financial Officer. Before we begin, I would like to point out that the safe harbor statement and the company's press release issued earlier today also refer to the contents of this conference call. As we do every quarter, we will provide you with both our regular 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 details of GAAP financial data as well as the non-GAAP financial information and then reconciliation in today's press release. Yossi will begin by providing a discussion of the financial results product by Butzi who will talk about some of the significant events during the quarter and beyond. We will then turn the call over to a question and answer session. With that, I'd like to have to turn the call over to Yossi. Yossi please.

Thank you, Rami. Good day everyone and thank you for joining us today. The results of our second quarter reflect sustained demand for Elbit Systems solutions and services from our customers around the world as reflected in the growth in revenues and the backlog and encouraging operational improvement. Second quarter results include the results of Sparton and Rokar acquired in the beginning of April. At the beginning of July, we completed public tenders for three series of notes raising approximately $600 million. S&P global rating [indiscernible] and Israeli rating agency assigned each Israeli AA rating with a stable outlook to the notes, which are traded on the Tel Aviv stock exchange. The significant participation by investors in the tenders provides a strong vote of confidence in the company. I will now highlight and discuss some of the key figures and trends in our financial results. Second quarter revenues were $1,302 billion increased 21% year over year. And major part of the growth was organic in addition to the contribution from Sparton. In terms of annual revenue breakdown across our areas of operation, Elbit Systems accounted for 40% of total quarterly revenues and increased year over year mainly due to the airborne precision guided ammunition sales. Land systems accounting for 22% of total revenues, as similar level of revenues to the second quarter of 2020. C4ISR at 26% of revenues increased year over year, primarily due to the acquisition of Sparton and Electro-optics accounted for 8% of total revenue and declined year over year, mainly due to the phasing of Elbit Night Vision recent programs in the US. I would like to note that significant volumes of electro-optics equipment are included on solutions that we report as part of our airborne, land and C4I systems for operation. Other sales were 4%…

Thank you, Yossi. I would like to begin by thanking the investors that participated in the tender for Elbit Systems notes in July for this strong vote of confidence in the company. We have record $13.6 billion backlog at the end of the second quarter included the one point $1.65 billion 20-years control from the Hellenic Ministry of National Defense to establish and operate the international flight of the Hellenic air force signed in Elbit. Elbit systems have developed a broad portfolio of market-leading training and simulation solution for militaries around the world that are expanding those simulator and twinning capabilities. These solutions provide a more realistic training that better prepares the forces for a wide range of scenarios at the low cost. Firefighting squadron in Greece, Elbit systems operated at Israeli firefighting squadron on behalf of the Israeli fire and rescue authorities. This week, the Israeli Government sent two firefighting aircraft from this squadron, as well as an air force transport aircraft to Greece to assist the efforts of the Greek firefighters who are battling wildfires across the country. The delegation includes Elbit Systems' employees that will provide logistical support. I am proud that Elbit Systems is taking part in this critical mission as part of our commitment to protecting the environment in this world and around the world. As the investors in April, we highlighted three medium term growth engines; network position munition, maritime systems and high powered lasers. I am pleased with the progress that these growth engine demonstrated during the second quarter. Precision guided ammunition was one of the revenue growth devices in the quarter as Yossi mentioned. The recent conflict in the south of Israel highlighted the growing rockets missiles driven to civilian population and military installation around the world, increasing urgency to develop more…

[Operator instructions] The first question is from Greg Konrad of Jefferies. Please go ahead.

Hey, how's it going? Just, to start first on airborne sensors or systems that you mentioned, the strengths and precision munitions, how lumpy is that or does this business reset as kind of this higher level? Let me just think about it going forward.

Well the basics of this product lines, there are several of those are coming from the acquired subsidiary IMI that we did in 2018. Now there is a big variety of products that are in that category. That means airborne launched precision guided munitions. When we bought IMI, we had about 20% or less of international business at IMI which included very low level of revenues from this kind of product lines. With our geographic spread of our marketing and contacts with various customers, we were able to promote significantly the interest of customers in this kind of precision guided munitions. And we do see a significant growth over the years for this kind of family of products. Our estimate is that this growth will continue into the future as well, particularly because we also introduce some significant upgrades in this kind of munition for improvement of launching capabilities on one side and improvement of precision guidance on the other side. By the way, the acquisition that we did, the smaller acquisition that we did this quarter, a company by the name of Roca [ph] that we bought them from BAE, today do have the capability and the technology to improve the precision guidance of this kind of munitions. Therefore, looking forward, we do see, we are very optimistic of continuous growth in this area.

That's helpful. And I mean, you brought up IMI, which I think you've done a good job kind of improving the margins. Margin stood up out in the quarter, good sequential progression and some of the highest over the past several years. How much does mix play into that or have you been able to drive productivity where we kind of think about a step up for margins as we go forward?

Well, we have a multi-year plan going out for over covering over five years. We are somewhere in the middle of performing and achieving the goals of this plan. We had another two years to go. I think we are ahead of what we initially planned. We are improving at a nice rate, the margins, and it looks like that there is still a room for improvement for the following two to three years. A major milestone that we will be achieving towards the end of '23, beginning of '24 is the movement of the manufacturing/production facilities to the Southern part of Israel into a new modern production facility. And through that also lowering the cost of labor and that will give another boost for improvement of profitability of production of these products.

Okay. And then just last one for me, strong free cash flow in the quarter, you had a nice tailwind from working capital. Any changes or thoughts around your assumptions for working capital as you kind of move through the year given the good conversion and Q2?

Over the years over the quarters, we did have some delay in payment from one of our major customer, which is the Ministry of Defense here in Israel. During the second quarter, they did pay some of their some of the billings. However, these are fluctuating a little bit. There may be some fluctuations in the next quarter. We are very optimistic that everything will be settled by year-end because the delays were caused by the approval of the overall budget for Israel, including the budget of Ministry of Defense. This will be solved somewhere in November and therefore everything -- it looks like every outstanding billings will be paid by the year end.

The next question is from Dina Korshunov of Leader. Please go ahead.

Hi guys, how are you and congratulations with your great results? And I have a couple of questions. I think the first one and the most interesting is what are the main segments that contributed to the big increase in the revenue this quarter? Can you tell, do you think it's sustainable for some kind of amount or something [audio gap].

Growth in revenues is not related just for one line of business. We see it all over the portfolio and the things that the strategies that we have chosen is starting to bring results. The strategy use a wide portfolio, very advanced wide portfolio on one hand and being global as much as we can with local subsidiaries around the globe. And we see a growing demand on one hand and for this portfolio because of tensions around the globe and for the interest to increase different budgets. On the other hand, we also see a trend to create -- to support the local economies and to create more jobs. And the fact that we have so many subsidiaries around the world is certainly helping us to get contracts. So the answer is we see a growing demand for the whole portfolio all around the globe and you'll see in the backlog rock and this backlog should be converted into revenues and profit in the new future. As you saw in these results and I believe that this trend of growth in revenues and in profitability will continue. Talking about profitability, we invested a lot of platforms in order to increase effectiveness, efficiency and to create synergies between the different activities we have in the company and that's why we are successful to gain more profit and I believe that this trend will continue.

I understand. Great, then does the high revenue volume contributed to the increase in the profitability in the quarter, or just…

No it's two different? The high revenues is related to backlog, which is transformed into revenues and the reason for the growth in profit is big efforts and a very detailed plan we have implemented quite a long time ago and is starting to bring results to increase effectiveness and efficiency in the company.

Understand, right. And last question. Do you expect some kind of decline, the result is next quarters? If there will be acceleration in COVID-19 restriction in the world.

I think that we've proved that we know how to operate and how to be successful also under restriction because of COVID-19. And we understand that the different dynamic, will not disappear in any future and we're ready to continue to operate in the future also under new restrictions and the fact again, that we have so many subsidiaries around the globe, it's certainly hurting us. And I think that we are ready to under new assumptions also if they happen in the future.

Okay, great. Thank you, guys.

The next question is from Pete Skibitski of Alembic Global. Please go ahead.

Yes, good afternoon, Butzi and Yossi and Rami very nice quarter all around guys. First question the large cash advance that you guys received in the quarter, it was pretty sizeable. Was that related to the Greek contract being signed or is that related to something else?

It's a combination of various contracts. The Greek contract is definitely a significant contributor to that.

Okay. And, and ButziI think you guys have been alluding to the implementation of --of the new implementation of your ERP system. Is that completed this point? Is that an ongoing process and has that been pretty important to,to the margin strength?

Well, it's an ongoing effort. The, the plan and the implementation started about three years ago, it was a very detailed plan and we are on plan, give or take some changes. Right now by the end of this year, we will probably be completed around 70% of the implementation. And by the end of 2022, we expect to be close to 90% of implementation, maybe a little bit higher than that. So as I said, our financial report statement includes all the capital investments that we did in that ERP system. They include all the expenses related with the implementation, but unfortunately, so far we did not see yet the benefits coming through, because not the whole organization is on the same system. We start right now to see some of that very small amount of, of savings. But I think it looks like that somewhere in 2023, we'll be we were facing some more material improvement in costs in reduction of inventory because of commonality of items in a shorter turnaround times and other benefits that will improve the operational performance of the company, hopefully including the cash flow.

That's great. That's great. I appreciate the color a couple more for me. I want to ask about a program the F35, because I know you guys have a good amount of content on the F35. And the reason I ask is because we've heard from other suppliers that there were events, some revenue headwinds over the last couple of quarters, maybe two or three chorus call on the F35, because like he kind of slowed things down a little bit and they needed to kind of wind down some inventory. Have you guys kind of been through that where you've had maybe some revenue headwinds on the F35for maybe the last couple of quarters, but maybe that shouldn't start to grow again, maybe later this year into 2022?I don't know if you could provide any color on that?

On the F 35 where you are, right that we have significant content. The, the helmet system is one of them, the full display the info of the cockpit is another one in some other parts as well. So far we're working with Lockheed Martin hand by hand and our production our production plans are very closely related with their requirements. They give us some forecasts and according to that we work and of course, according to the purchase orders that we get from them. So far, I wouldn't say that we have experienced material headwinds and, but we definitely work hand in hand with them to see that we adapt our engineering and production performance, according to what they need, as I said so far, nothing material yet.

Okay. Okay. I appreciate that. And then last one, just with the large capital raise guys, I guess I'm just curious in terms of how you're approaching kind of M&A going forward, how active you are, and, and also just kind of, do you see gaps in the portfolio that you'd like to fill kind of how you see your desire to reshape the company going forward?

M&A to be our strategy. It wasn't, it has been, it will continue to be. And the rationale behind that is to expand the opportunity on one hand and also get additional global position in the lower market. And we continue to look for opportunities. We are monitoring the market, we see some opportunities which are relevant to us and based on and as you said, we have the right capital. You have the capital right now to continue doing it. I think that we also prove to the market that we know how to make acquisitions and how to manage these activities and how to, to get synergies form conditions. And it will continue to be part of our future strategy as well.

That's great. I appreciate the color. I'll get back in the queue. Thanks guys.

[Operator Instructions] There was a follow-up from Pete Skibitski of Alembic Global. Please go ahead.

Yes, thanks. Butzi, there was some press out there, some articles out there in the quarter about your ground, your mobile artillery system. I think it's called Sigma. I think James had an article and I think it's still in development, but I think maybe it's, it's nearing the end of development, perhaps. Maybe give us a sense of what kind of mastic and international opportunities are out there for that system, because it I think it's maybe the, maybe the most modern mobile system that's out there right now since it's, it's finishing up development, So?

Thank you. It's in the middle of development, we have a big contract tune as well for this, Sigma 155artillery gun, diverse, sophisticated, difficult equipment to be viable and which can reach ranges for more than 40 kilometer with a limited amount of the core members. And it can fire a guided munition as well, guided our intelligence. We are in the middle of the development of focusing well with our local customers in Israeland we will start performing life shooting next year. The first system should be completed around the end of also next year. We see a lot of them. You see, I agree with you that one of the most, if not the most advanced solution in Virginia, the market right now, we see growing demand, growing demand for that in several countries. And we are promoting it already in several countries. And I just want to add that this, in this quarter, we acquire the whole call from BA and he, and his word and yours alone. And one of the, one of the technologies and one of the assets they have is a guidance fused, which can be added to a regular or to the projector to make it to make it guidance which is, which will actually enable us to provide a complete solution for a customer, which includes the habitual itself with also with all the automation embedded in it, if file control system embedded some reconnaissance capabilities collected can create thousands to the hub itself. All type of ammunition which can be filed including guided munition as well. So we can provide a full solution for our customer and we, and there is a growing demand for that. It was also probably recently that the previous version of the gun was presented to us and for some requirements, which is a US market of work, and it might be also an opportunity for us.

Okay. That's great. I appreciate all that color. I guess last one for me it, it seems like in terms of the, the, the government in Israel, things are, are kind of progressing now and are pretty stable. And could you just maybe give us an update in terms of has the government made all of its appointments to the to the Israeli MOD? Is the budget outlook fairly stable at this point? Just things like that, that maybe people like me internationally don't have as much visibility into?

No, of course there was an understanding in the government about the size of also the different budget for the coming years. And that's really the agreement which has been made between the minister of finance and the minister of defense is presenting a growth in defense spending in Islam this budget titled the national budget deal and is under now is under an approval process in the, in the country. And each will be concluded by the beginning of November. And then it should be implemented. This is after more than two years and more than two, you developed a national budget to, and when budget will be implemented many additional opportunities for us which I expect to happen. So that's a set of the budget. The budget is bigger and they'll set a lot of opportunities forward with embedded in this budget. And this budget will enable the Israeli. MOD and to implement the, to implement the plan. It's a five-year plan to acquire new type of technology to support these already forces. What's also important to mention here, the budget will be for two years to cover 2021 and 2022.

Okay. So much, much more visibility at this point. It seems like then you've had in awhile. So that's great. Thanks so much for the color guys. Have a great day.

The next question is from Elad Kraus of Excellence. Please go ahead.

Hi Butzi and Rami, first of all, regarding the new businesses, do you see any change in the margins that you're selling regarding compared to the fast? Is it higher, lower, more of the same?

No. I just want to clarify a little bit of how we works that you all understand first of all, of course, the prices are set by the market and that is where we compete on the one hand. There might be some movements because of changes in economies in the various parts of the water and so on, but the prices are set by market competition. The cost elements set of course by our estimates of cost of the various programs and on a multi-year basis. And we definitely take into account anything for the future economic environment that could affect the cost of material and labor. The difference is the budget. So this is the process we are going through. If we look at what we are out of getting new businesses that we acquire then definitely we can see that there are some movements, but not major movements in the prices that we are getting on one hand. On the other hand, there is movement in the cost structure of our company, which on a multi-year basis, we have a significant effort to reduce overheads, to increase years of production to centralize production and acquisition and the acquisition operations and that will lead. And as we mentioned earlier, the a P system that we are implementing, all of that should lead to effectively a lower cost structure of the company, which we do see some movement already in that direction that helps us improve profitability by, by the end of the day, the market is the one that is defining the prices in the competition. I also want to add to that, that we have much more to offer to the market than we had few years ago because of the acquisitions that we made and because of the synergies between all different parts of the portfolio, and we have much more solutions to provide. And the fact that we control most of the technology in house creates a big creates opportunities for us also for Acosta adoption of what.

Okay. I see. And another thing, if you see any major changes in the CapEx of the company, is it the fact that you're moving out from the central region within [Indiscernible]?

Well, the CapEx I would split that into two parts. The part which is I would call them ongoing which supports the ongoing operation of the overall company in that we do not see significant changes. There are two elements in the CapEx, which do affect the numbers that are I would say one of a kind, one of it is the investment in the one ERP system, which is a significant investment over the years which does affect our CapEx to the tune of, I would say 10 to 20, maybe some more millions of dollars per year. The other element, which is extraordinary is the movement of the production facilities of IMI to the South Southern part of the country, which will, which is also a wonderful time. It does affect and it will affect also 2022 and 2023. I don't see a significant step up in that part for the following two years, but it's a one of the time. So if you look at what's happening in the CapEx in the last five years let's say the last three years that we went through in the next two years coming, they do support the CapEx number, does support these two major efforts, which are not recurring efforts that are cutting CapEx essentially his other stable. Maybe we some might own increases in some advanced technologies that require specific engineering capabilities, but nothing outstanding.

Alright, thank you very much. A great quarter. Thanks.

There are no further questions at this time before I asked Mr. Machlis, to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available two hours after the conference ends in the US please call 1-888-782-4291.In Israel, please call 03-925-5900, and internationally please call 9-723-925-5900. A replay of this call will also be available on the company's website at www.elbitsystems.com. Mr. Machlis, would you like to make your concluding statement?

I would like to think what all employees again, for the continued hot war, particularly in these challenging times to everyone on the court. Thank you for joining us today and for your continued support and interest in our company. Have a good day and goodbye.

Thank you. This concludes the Elbit Systems Ltd. second quarter 2021 results conference call. Thank you for your participation. You may go ahead and disconnect.