Elbit Systems Q2 2026 Earnings Call - Record $32 Billion Backlog Driven by European Modernization and US Sole-Source Wins

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems’ second 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 Daniella Finn, Elbit Systems VP, Investor Relations. Daniela, please go ahead.

Daniella Finn, VP, Investor Relations, Elbit Systems: Thank you, operator. Hello, everyone, and welcome to our second quarter 2026 earnings call. On the call with me today are Bezhalel Machlis, President and CEO, Kobi Kagan, CFO, and myself, Daniella Finn. 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 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 a Q&A session. With that, I would like to now turn the call over to Kobi. Kobi, please go ahead.

Kobi Kagan, CFO, Elbit Systems: 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, backlog, operating profit, and EPS. Our profitability margins, gross operating and net, continue to expand, surpassing our internal targets. Building on the strong momentum we have established over the past several quarters, we continue to win important new business and expand our backlog to a record of $32 billion. Taking a closer look into the second quarter results. Second quarter revenues increased by 15.9% to $2,287,000,000 compared to $1,973,000,000 in the second quarter of 2025. We note the sequential revenue growth continues. For the second quarter of 2026, Europe contributed 25% of revenues, North America 20%, Asia-Pacific 14%, and Israel contributed 37% of revenues following inventory replenishments on the back of the recent conflict with Iran that ended at the beginning of April.

Europe and Asia continue to be meaningful growth engines. In terms of quarterly revenues by segment, C4I and Cyber revenues increased by 11% in the second quarter of 2026 as compared to the second quarter of 2025, mainly due to sales of radio systems and command and control system sales in Europe. ISTAR and EW revenues increased by 22%, mainly due to increased sales of airborne and land high-power laser, electronic warfare, and maritime systems in Asia-Pacific. Land revenues increased by 32%, mainly to ammunition and munition sales in Israel. Elbit Systems of America revenues increased by 17%, mainly due to a one-time favorable project mix during the quarter, and the increase in sales of night vision systems, maritime systems, and electronic systems.

Aerospace revenues decreased by 8% in the second quarter of 2026, mainly to a one-time unfavorable project mix and lower sales of training and simulation systems in Europe, partially offset by the increase in UAV sales in Israel. GAAP gross margin in the second quarter of 2026 was 25.3% of revenues, compared to 24% in the second quarter of 2025. Non-GAAP gross margin for the second quarter was 25.6% compared to the second quarter of 2025 at 24.4%. We are pleased with the continued expansion of gross margins. GAAP operating income in the second quarter was $218.8 million, or 9.6% of revenues, as compared to $157.8 million or 8% of revenues in the second quarter of 2025, a 1.6% increase.

Non-GAAP operating income was $237.5 million, or 10.4% of revenues in the second quarter of 2026 as compared to $175.1 million, or 8.9% of revenues in the second quarter of 2025, a 1.5% increase. With this margin expansion, we have surpassed our internal targets for operating margins. On March 31st, 2026, the Knesset, the Israeli parliament, enacted the Law for the Encouragement and Incentivization of Research and Development. This newly introduced R&D law applies to qualifying R&D expenditures incurred at the beginning of the tax year, starting January 1st, 2026. This law is meant to encourage R&D efforts in Israel. We increased our R&D spend in the first half of the year by about $70 million, of which about half was funded by the new incentive law and the other half from company resources to support the future growth of the company, at the same time, maintaining the margin expansion.

The operating expense breakdown for the second quarter of 2026 was as follows: Net R&D expenses were $159.1 million, or 7% of revenues, as compared to $129.7 million, or 6.6% of revenues in 2025. We remain committed to investing in next generation technologies and advanced AI capabilities that expand our solutions portfolio, support our customers’ evolving mission requirements, and reinforce Elbit leadership position in key markets for years to come. Marketing and selling expenses were $103.2 million, or 4.5% of revenues in the second quarter of 2026, as compared to $91.5 million, or 4.6% of revenues in 2025. G&A expenses were $97.9 million, or 4.3% of revenues in the second quarter of 2026, as compared to $93.9 million, or 4.8% of revenues in the same period last year. Financial expenses were $22 million in the second quarter of 2026, as compared to $31.2 million in the second quarter of 2025.

The decrease in financial expenses net in the second quarter of 2026 was mainly due to the reduction in the average debt during the quarter. Taxes on income were $32.7 million in the second quarter of 2026, as compared to $7.1 million in the second quarter of 2025. The higher tax expense in the second quarter of 2026 was mainly driven by the implementation of the OECD Pillar Two global minimum tax rules. The effective tax rate in the second quarter of 2026 was 16.4%, compared to 5.6% in the second quarter of 2025. GAAP diluted EPS for the second quarter of 2026 was $3.61, up 34%, as compared to $2.69 in the second quarter of 2025. Our non-GAAP diluted EPS was $4.14 in the second quarter of 2026, up 28%, as compared to $3.23 in the second quarter of 2025.

Our backlog of June 30, 2026, stood at $32 billion, with the increase during the quarter driven predominantly by orders from international customers, mainly from Europe. Approximately 73% of the current backlog was generated from outside of Israel. Approximately 42% of the backlog at the end of June 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. New business and the quarterly backlog increase provide us with good visibility into future sales growth. Cash provided by operating expense activities in the quarter ended June 30, 2026, was $237 million, as compared to $120 million in the quarter ended June 30, 2025. The cash flow in the second quarter of 2026 was affected by the increase in net income and a strong increase in contract liabilities.

At the end of the second quarter of 2026, we delivered $150 million of free cash flow, as compared to the $71 million free cash flow generated at the end of the second quarter of 2025. Cash conversion remained strong at 86% for the quarter, reflecting the quality of our earning and disciplined working capital management. I will now turn the call over to Mr. Machlis, Elbit’s President and CEO. Butzi, please go ahead.

Bezhalel Machlis, President and CEO, Elbit Systems: Thank you, Kobi. Following another quarter of strong financial performance, as Kobi just outlined, we continued to convert market demand into growth, booking substantial new orders, and increasing our backlog to a record of $32 billion. I am very proud of the consistent execution and business momentum demonstrated across our organization. In the U.S., Elbit Systems of America received multiple awards from the U.S. Customs and Border Protection, valued at approximately $370 million. These awards reflect the continued confidence in our ability to deliver advanced, operationally proven solutions that enhance situation awareness and support critical national security missions. Additionally, in the U.S., we secured a $212 million order for continuous production of ENVG-B system for the U.S. Army. Notably, the Army has historically split production for ENVG-B system among multiple vendors.

However, Elbit Systems of America was selected as the sole prime supplier under this award, reflecting the U.S. Army’s confidence in our advanced night vision capabilities. We also expanded our UAS footprint in the U.S. with the U.S. Army selecting our THOR Group 2 unmanned aerial system. THOR provides tactical units with rapidly deployable autonomous capability for reconnaissance, surveillance, target acquisition, and other mission-critical operations. As I mentioned in the last call, during the quarter, we were awarded a landmark of $1.4 billion U.S. contract for a European customer for a comprehensive military modernization program. Spanning multiple domains, the program includes advanced airborne, land communication, electronic warfare, and autonomous capabilities, further validating the strength and breadth of our portfolio. We also announced the formal award of approximately $750 million for PULS in Greece.

This significant program further strengthens PULS’ position as a leading rocket artillery solution in Europe and reflects the growing international demand for advanced precision fire capabilities. In Sweden, we successfully completed one of Europe’s largest live demonstrations of digitalized land force network. Over a two-week field exercise, our solution seamlessly connected soldiers, vehicles, and command posts in a unified network, enabling real-time situation awareness and decision-making across all levels of command. The demonstration highlighted the strength of our NATO interoperable C4I and communication portfolio as its ability to support modern networked battlefield operations. In Israel, Elbit was awarded a contract by the Israel Ministry of Defense to develop an extended range capability for the IDF F-35s. This program is expected to enhance the aircraft’s operational capabilities. During the quarter, we received approximately $200 million in contract from the Israel Ministry of Defense for advanced air-launched munitions.

These awards reflect the continued demand for precision strike capabilities and our role in supporting the operational needs of the Israeli Air Force. Elbit secured a $350 million contract to modernize a fleet of main battle tanks for an international customer. The program includes upgrades to the fire control system, to the communication system, situation awareness, and other mission-critical systems, extending platform life, and enhancing operational effectiveness. This award further reinforces our leadership in tank modernization, and our ability to deliver integrated solutions that enhance platform effectiveness, survivability, and operational advantages. Since the beginning of the year, Elbit has made three bolt-on acquisitions. The recent one published in May was the acquisition of Blue White Robotics, an Israeli developer of AI-powered autonomous ground solutions, strengthening Elbit’s autonomy capabilities. The acquisition expands our multi-domain autonomy portfolio and enhanced our ability to deliver advanced robotics and manned-unmanned teaming solutions.

As we reported last quarter, Elbit and KNDS partnered to establish EuroPULS in Germany, a joint venture that will market the PULS rocket artillery system to European customers. The venture combines Elbit battle-proven launcher technology with KNDS’ strong European footprint and advanced fire control capabilities. We further expanded our partnership with Diehl Defence through a new agreement to offer the Skystriker loitering munition system to the German Armed Forces. Combining combat-proven precision strike capabilities, advanced autonomy, and flexible deployment across multiple platforms, Skystriker addresses growing demand for next-generation strike solutions while supporting sovereign defense capabilities and local industrial participation in Germany. Recently, we participated in three major European exhibitions, Eurosatory, EUROSIM, and ILA Berlin. We showcased our latest operational proven solutions.

Interest from customers, partners, and investors alike was exceptionally strong, particularly around local defense capabilities, advanced training solutions, electronic warfare autonomy, and next-generation air and land systems, reflecting continued demand for advanced defense technology across multiple domains. Elbit Systems ranked first in the defense integrator category in the recent survey carried out by Dun & Bradstreet ranking of Israeli defense industry. We are honored to be recognized as the leading defense integrator in Israel. This recognition reflects the strength of our ability to combine advanced technologies across multiple domains into comprehensive, operationally proven solutions for our customers. Behind every milestone we achieve and every innovation we deliver, stands an exceptional team of employees whose talent, dedication, and sense of purpose continue to shape Elbit’s future. I am deeply grateful for their commitment and contribution every day.

Following an outstanding first half of the year, Elbit is operating from a position of strength, supported by record demand and robust backlog, continued innovation, and the dedication of our global team. We remain focused on executing our growth strategy and creating long-term value for our customers, shareholders, and other stakeholders. 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 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be called in the order they are received. Please stand by. We will call for your questions. The first question is from Sheila Kahyaola of Jefferies. Please go ahead.

Sheila Kahyaola, Analyst, Jefferies: Good morning, guys, and thank you so much for the time. Lots of good stuff going on. Maybe if you could just talk about, just to start off, how do you think about your revenue growth profile, given the backlog growth up 6% sequentially, and just everything you are seeing in terms of the growth, but also the news cycle discussing, a potential ceasefire between U.S. and Iran. How do you think about just the medium-term growth profile of the company as you see continued demand in Europe and demand in the U.S. as well?

Bezhalel Machlis, President and CEO, Elbit Systems: We see a growing demand for our portfolio in Europe as well as in the U.S. Actually, as you see, our backlog has grown quite drastically during the last quarter, and it is mainly outside of Israel, mainly in Europe and in Israel. Looking into our funnel, I see many more opportunities for the company in Europe as well as in the U.S., but also in Asia-Pacific and in our region. The funnel is very big, and I believe that you will continue to see growth in our backlog in the coming quarters. We are making a lot of effort. Talking about opportunities, one of the big advantages that we have is that we have a very wide portfolio. We do EW, we do UAVs, we do command and control, we do guided munition, and many, many more. Simulation and many, many more.

We are very advanced with this portfolio. On the other hand, we are local, and we are in a position to transfer the IP and the technology to our partners and to our subsidiaries in Europe, in U.S., and elsewhere. By doing so, we are able to support the local economies. We are part of the local ecosystem in each country, and that’s a very unique business model that we have. We are making right now a big effort to convert the huge backlog, which will continue to grow into revenues and profit. In order to do so, we have increased our capital investment to about $300 million. We are building new production facilities.

We are investing in robotics, in AI, and we are improving our productivity and our ability to deliver the backlog, and to convert the backlog into revenue growth and into profit and cash. I believe that this momentum will yield in the near future. Our new production facility in the south part of Israel is operational already. We have inaugurated several facilities abroad as well. So I believe that we are in a very good position to meet the growing demand that we see in the market, backlog-wise and revenue-wise.

Kobi Kagan, CFO, Elbit Systems: Sheila, good morning. This is Kobi. To add on Butzi’s answer, in terms of numbers, we see 34% year-over-year growth in our backlog, while revenue increased 16%.

That speaks to our extended visibility to the future and our resilience growth in our revenue, and of course, of transformation, of converging those revenues to earnings and cash, as Butzi mentioned.

Operator: The next question is from Omri Efroni of Oppenheimer. Please go ahead.

Omri Efroni, Analyst, Oppenheimer: Hey, guys. Thanks for taking my call, and congrats on the great results. I have one question I want to follow up. The first one, I was wondering what are you seeing from the maritime domain that has a lot of investments from, especially the U.S., but other nations as well. I was wondering how do you see the sector developing worldwide and for Elbit specifically? That’s the first one. The follow-up is, what is the high-power laser specifically that is sold, not specifically, but what is the demand that is going to Asia-Pacific, and from which region you think the demand is going to be the highest, the U.S., Israel, or other parts of the world? Thanks.

Bezhalel Machlis, President and CEO, Elbit Systems: With regards to the maritime domain, that’s for sure a growth engine for the company. We have several activities in the maritime domain, and we are growing our portfolio. First, we have EW and our naval EW is very famous and very advanced. Just to remind all of us, we won the future naval EW in the U.K., and we are in the process of delivering systems to the Royal Navy. This is true not just for the U.K., it is true also for many customers in Europe as well as in other continents. So you can see our naval EW actually, I believe that the most advanced naval EW is available right now in the market. Talking about sonobuoys, we have in the U.S., Sparton, who is an Elbit Systems of America subsidiary.

They are one out of 2 suppliers of sonobuoys to the U.S. Navy, as well as to other international customer. This activity is growing for the company. There is a growing demand for sonobuoys all over the world, and especially in the U.S. We have unmanned ships, unmanned USVs, which are operational already here in Israel, as well as by other customers, which are being used to allocate and to eliminate mines, and also to allocate submarines. Such USVs can include also different type of weapons. We have short-range and long-range missiles, which can be launched from unmanned or from manned ships, which are already operational by several nations.

We have GeoSpectrum Technologies Inc. in Canada. They are very famous with their sonars. They are selling sonars to many customers, in Europe, in the Far East, in other places as well. This company is growing fast. They have a unique and very effective solution for this market. We are also dealing with upgrading ships. We have maritime radars, electro-optics, remote weapon stations, communication, and many more. Altogether, we are growing our position in the maritime domain. It is a growing segment for Elbit Systems. It is growing rapidly, and it will continue to grow in the future. Talking about high power lasers, first, we are delivering already high power laser sources for the Israeli program. We are meeting our schedule, and we expect additional orders to come for Israel. Together with Rafael Advanced Defense Systems, we see a growing partner for that in the international market. We continue our development of airborne solutions.

Just to remind again, all of us, Elbit Systems was selected as the prime contractor for airborne high power lasers. It was recently announced that we are under a contract to develop high power lasers for the Israeli Air Force helicopters, as well as for our jet aircraft, different type of solutions. We are very advanced with the development, and the helicopter solution will be operational in relatively short period of time. We are in the middle of the development of the airborne high power laser pod for fighter aircraft. This solution was exposed in the exhibitions which took place in Europe last month, in Germany, in ILA Berlin, Germany, also in Farnborough, in the U.K., and in Paris. There is a huge interest for that. I am not aware of any solution like this which is available in the market.

There is a huge interest for our high power laser technology, and especially for the airborne solution. It is coming from all different continents, not just from Europe. Also, other nations are looking to integrate these solutions into the platforms. I believe it is a growth engine for the company, and there is huge potential for us in this domain. The high-power laser is just part of it. We invest quite a lot in other technologies in the domain of energy weapons.

Omri Efroni, Analyst, Oppenheimer: Mm-hmm. Thank you very much.

Operator: If there are any additional questions, please press star one. If you wish to cancel your request, please press star two. Please stand by while we poll for more questions. The next question is from Sheila Kahya of Jefferies. Please go ahead.

Sheila Kahyaola, Analyst, Jefferies: Back for more. I wanted to ask on Elbit Systems of America. It was great seeing them down in Texas. Specifically, good growth in the quarter of 17%. Can you talk about the one-time favorable project mix there? Maybe as a follow-up to that, can you talk about how we should see the night vision systems business grow given your recent order? Any update on the Howitzer program?

Bezhalel Machlis, President and CEO, Elbit Systems: Thank you, Sheila, and thank you for your visit. We are expanding in the U.S., and also in the U.S., we have many activities. We are quite famous with our avionics activities in the U.S. I am sure we all remember that many U.S. platforms are having our avionics and our helmets for the U.S. market as well as for the international market. We are expanding also our night vision capabilities in the U.S. As Ezron mentioned here, we are the sole supplier of ENVG-B, and that is a decision taken by the army recently. Our Sonobuoys maritime activity is growing as well. We are also providing active protection systems under GVG to the U.S. Bradley fleet and to other platforms as well.

We won this quarter a very prestigious position with a board of protection to bring our technologies, our sensors, our integrated system to the U.S. market, different type of technologies, which are already operational here and other countries as well. We continue to invest also in other areas in the U.S. to extend our position. We are enhancing our footprint in the U.S. We are recruiting more people. We are bringing more technologies from Israel to the U.S., and we are improving and enhancing our position in the U.S. market as the local provider of advanced solutions to the U.S. users. U.S. market is very important for us. I am very proud of our activity in the U.S. market, and I believe it will continue to grow.

I cannot say that it will continue to grow at the same pace as it grew this quarter, but it will continue to grow for sure.

Operator: The next question is from Kristine Liwag of Morgan Stanley. Please go ahead.

Kristine Liwag, Analyst, Morgan Stanley: Hey, good morning, Butzi, Kobi, and Daniella. I guess good afternoon for you guys. I want to dive a little bit deeper on the backlog again and the conversion to revenue. With your backlog at record levels, some customers have to wait several years to receive their product. Historically, you guys have been very disciplined about CapEx and focus on making sure capacity investments are supported by long-term demand. I guess, with the current environment, with geopolitical risk elevated, customers really want to focus on security and supply. Have you seen a change in their willingness to fund CapEx directly in order to add capacity and shorten delivery times?

The rationale for this question is we are seeing this in other constrained parts of the aerospace and defense supply chain, like castings and forgings, where customers are willing to fund capacity to secure access, and this capacity spend is different from pricing. To be clear, this is really more on the customer-funded CapEx. I guess, is this something you are discussing with customers? Could it allow Elbit to accelerate capacity expansion, convert backlogs to revenue sooner, and still maintain your discipline on CapEx?

Kobi Kagan, CFO, Elbit Systems: Thank you, Kristine. Good morning to you. It was lovely seeing you in London. To the question, we decided to increase our CapEx investment from $220 million to $300 million. You see that in our CapEx investment, the first half of the year, which was above $150 million. This is out of our own dime. As to customer willing to participate in CapEx investment, we have two different types of that. There is matching, where customers are willing to match our investment, and we see that now in the market, which we did not see in the past. Even we see now for customers who want to bring technology and to transfer technology to their own territory, they are willing to finance the whole capacity, the whole factory that we need to bring up.

This is a new trend in the market where customers are actually paying for the CapEx. That means that beyond the $300 million that we pulled from our own dime, there is additional amounts of money that are funded by our customers. This is a predominant, very significant change in the market that happened in the last two, three years.

Kristine Liwag, Analyst, Morgan Stanley: Great. Kobi, would you quantify, if these were to materialize, how much of that revenue could you convert faster, or how much of that backlog could you convert faster to revenue?

Kobi Kagan, CFO, Elbit Systems: What we see now is with 34% increase in backlog, while revenue increased 16%. Actually, we went back and we looked back from 2022 each year, we see that each year from 2022, we see that the backlog increased by over, sometimes even double the cadence of the growth in the revenues. That means that our visibility now is dramatically better and you see also the accelerated pace of revenue growth where we have been in 2024, 14%, 2025, 15%. We see now this year as again mid-teens, again, of revenue growth for the three year in a row, which gives us a lot of confidence in our ability to do this in the future.

Kristine Liwag, Analyst, Morgan Stanley: Great. Super helpful. If I could switch topics to autonomous systems. Looking at your portfolio historically, you’ve got your three layers. You’ve got your autonomous platforms, the autonomy software layer, and the sensors network that let these pieces work together. As autonomy becomes more important in the battlefield, how do you envision your role in that system? Do you aim to continue to provide more of that integrated approach, or are you also willing to sell that autonomous software platform and be able to input more third parties into your system and be more of the integrator? How do you think about where you want to be in that ecosystem, especially as this becomes more relevant in today’s battlefield?

Bezhalel Machlis, President and CEO, Elbit Systems: Hi, Kristine, it’s Butzi. One of the uniqueness of Elbit is that we are very vertical. We own the technology from the product level to a system level to a system of two system solution. We are open to discuss with our customer the right offering for their specific needs. Some customers are buying product from us, and some customers are buying infrastructure from us. Some other customers are buying systems, and other customers are buying system solutions. We are open for other things. To continue what Kobi just mentioned, again, we are very unique by our willingness to share our technologies and our IP from Israel to our partners and to our subsidiaries worldwide. This give us a huge advantage because we are able to support local economies.

Customers, because of that, are willing to invest, supporting us building local facilities, production and development facilities in many countries to support their economies. That’s a huge advantage. Many customers are willing to pay and to finance this investment. It also important from us from security of supply. We are trying to have several production lines for each product and for each system in order to make sure that we will always be able to deliver the solution and the product to our customers.

Kristine Liwag, Analyst, Morgan Stanley: Great. Super helpful. Well, thank you very much.

Bezhalel Machlis, President and CEO, Elbit Systems: Thank you.

Operator: 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 at the company’s website, www.elbitsystems.com. Mr. Machlis, would you like to make a concluding statement?

Bezhalel Machlis, President and CEO, Elbit Systems: Thank you to everyone who joined us today for your continued interest and support. Have a good day and goodbye.

Operator: Thank you. This concludes the Elbit Systems Ltd. second quarter 2026 results conference call. Thank you for your participation. You may go ahead and disconnect.