Elbit Systems Ltd. (ESLT) Earnings

Management highlights

Key Business Wins - Elbit Systems of America received $370 million in awards from U.S. Customs and Border Protection, and a $212 million production order for ENVG-B night vision systems from the U.S. Army; the U.S. Army also selected the company's SOH Group 2 unmanned aerial systems. - Secured a landmark $1.4 billion comprehensive military modularization contract with a European customer, spanning multiple defense domains. - Awarded a $750 million PULSE rocket artillery contract in Greece, strengthening the solution's leading position in Europe. - Successfully completed delivery and field testing of one of Europe's largest digitalized land force networks in Sweden, demonstrating NATO-interoperable C4I capabilities. - Awarded an Israeli Ministry of Defense contract to develop extended range capabilities for the IDF S-35 aircraft, and a $250 million international contract to modernize a main battle tank fleet. Strategic Partnerships and Expansion - Completed three small bolt-on acquisitions year-to-date 2026, expanding the company's multi-domain autonomy, robotics, and manned-unmanned teaming portfolio. - Launched the Europulse joint venture in Germany with KNDS to market the PULSE rocket artillery system to European customers, combining Elbit's proven launcher technology with KNDS' regional footprint. - Expanded a strategic partnership with DEAL Defense to market the SkyStriker loitering munition across European markets, addressing growing demand for sovereign domestic defense capabilities. Operational Investments - Increased total 2026 capital expenditure to $300 million to expand production capacity, with new facilities operational in southern Israel and new facilities opened internationally. Investments are focused on robotics, AI, and productivity improvements to convert record backlog into revenue, profit, and cash. - Increased R&D spending by $70 million in H1 2026, half funded by Israel's new 2026 R&D incentive law, to develop next-generation technologies and advanced AI capabilities to expand the solution portfolio.

Guidance

Management reaffirmed confidence in sustained double-digit revenue growth, marking the third consecutive year of double-digit revenue expansion. Backlog has grown at more than double the rate of annual revenue growth since 2022, providing extended, high confidence visibility into future revenue and profit growth. Management expects continued backlog growth in coming quarters, driven by a large opportunity funnel across Europe, the U.S., Asia Pacific, and the Middle East, and expects to sustain current margin expansion momentum while scaling capacity to meet growing demand.

Segment performance

Q2 2026 total consolidated revenue was $2.287 billion, a 15.9% year-over-year (YoY) increase from $1.973 billion in Q2 2025. By geographic revenue contribution: Israel 37%, Europe 25%, North America 20%, Asia Pacific 14%. - C4I and Cyber: 11% YoY revenue growth, driven by radio and command-and-control system sales in Europe. - ISTAR and EW: 22% YoY revenue growth, driven by increased sales of airborne/land high-power lasers, electronic warfare, and maritime systems in Asia Pacific. - Land: 32% YoY revenue growth, driven by ammunition and munition sales in Israel. - Elbit Systems of America: 17% YoY revenue growth, driven by one-time favorable project mix and increased sales of night vision, maritime, and electronic systems. - Aerospace: 8% YoY revenue decrease, driven by one-time unfavorable project mix and lower training/simulation sales in Europe, partially offset by higher UAV sales in Israel. Gross margin: GAAP 25.3% (up from 24% YoY), non-GAAP 25.6% (up from 24.4% YoY). GAAP operating income was $218.8 million (9.6% of revenue, up from $157.8 million / 8% YoY); non-GAAP operating income was $237.5 million (10.4% of revenue, up from $175.1 million / 8.9% YoY). GAAP diluted EPS was $3.61, up 34% YoY; non-GAAP diluted EPS was $4.14, up 28% YoY. Total backlog as of June 30 2026 reached a record $32 billion, 73% from non-Israel customers, with 42% scheduled for delivery in H2 2026 and 2027, and 58% scheduled for 2028 and beyond. Q2 2026 free cash flow was $150 million, up from $71 million YoY, with an 86% cash conversion rate.

Risks & headwinds

Management noted that forward-looking results may differ materially from current projections due to geopolitical uncertainty, including shifting conflict and ceasefire dynamics in the Middle East. The implementation of the OECD Pillar 2 Global Minimum Tax Rules increased the company's Q2 2026 effective tax rate substantially from 5.6% YoY to 16.4%, creating potential for ongoing higher tax expenses relative to historical levels. The company faces extended delivery timelines as demand outpaces existing production capacity, though management is actively expanding capacity to address this constraint.

Analyst Q&A

• Q: How does the company view medium-term growth prospects, especially against the backdrop of potential Middle East ceasefire talks, given current strong backlog growth? /

  A: Management notes that the vast majority of recent backlog growth comes from outside of Israel, primarily from Europe and the U.S., with very large, growing opportunity funnels across all key regions. The company's broad, advanced product portfolio and localized business model, which includes technology and IP transfer to regional partners, create a unique competitive advantage. The company has increased capital expenditure to $300 million to expand production capacity and convert the growing backlog into revenue, profit, and cash, with new facilities already operational. Backlog has grown 34% YoY while revenue grew 16%, giving the company extended visibility into resilient future growth.

• Q: How is the maritime sector developing for the company, and what is the global demand outlook for high-power lasers? /

  A: Maritime is a rapidly growing segment for Elbit: the company holds leading positions in naval electronic warfare (with a major UK Royal Navy contract), sonobuoys for the U.S. Navy, autonomous unmanned surface vessels, mine and submarine detection sonars via Canadian subsidiary GTI, and ship upgrade solutions, with growing global demand across all these lines. For high-power lasers, Elbit is already delivering systems for Israeli defense programs, and is the prime contractor for airborne high-power laser development for the Israeli Air Force, with helicopter-based solutions nearing operational status. There is exceptional global market interest in Elbit's unique airborne laser technology, making high-power lasers a major future growth engine for the company.

• Q: What is the outlook for Elbit Systems of America, specifically the night vision business, after the 17% YoY Q2 growth driven by one-time favorable project mix? /

  A: Elbit is actively expanding its U.S. footprint beyond its established leading avionics and helmet display business. It is the sole supplier of the U.S. Army's ENVG-B night vision systems, and its maritime sonobuoy business is growing rapidly, alongside expanding active protection system programs for U.S. Army platforms. The company is recruiting additional staff, transferring advanced technologies from Israel to the U.S., and building its position as a leading local supplier of advanced defense solutions, with the U.S. market expected to continue sustained growth.

• Q: Are customers now willing to directly fund capacity expansion to shorten delivery timelines, and could this speed up backlog conversion while maintaining capital expenditure discipline? /

  A: The company increased its own 2026 capital expenditure from $220 million to $300 million, but a new market trend has emerged where customers are increasingly willing to fund capacity expansions. This includes matching investments for new facilities, and in some cases fully funding local factories to support in-region technology transfer. This customer-funded capacity beyond the company's own $300 million planned investment will allow faster backlog conversion and help meet accelerating demand.