Elbit Systems Q2 Earnings Call Highlights

Key Points

• Strong second-quarter performance: Revenue increased 15.9% to $2.287 billion, while GAAP diluted EPS rose 34% to $3.61. Gross and operating margins also expanded, although the effective tax rate increased because of OECD global minimum-tax rules.
• Record backlog and rising international demand: Backlog reached $32 billion, with 73% generated outside Israel and Europe driving much of the quarterly growth. Elbit cited major U.S., European and Israeli contracts across night vision, rocket artillery, munitions, aircraft and armored vehicles.
• Capacity and technology investments are accelerating: Operating cash flow more than doubled to $237 million and free cash flow rose to $150 million. The company plans to increase capital expenditures to approximately $300 million while expanding production, robotics, artificial intelligence and next-generation research and development.

Elbit Systems NASDAQ: ESLT reported higher second-quarter revenue, profit and cash flow for 2026, supported by increased demand across Europe, Israel, the U.S. and Asia-Pacific. The defense contractor said its backlog reached a record $32 billion as it continued to add orders from international customers.

Second-quarter revenue rose 15.9% to $2.287 billion from $1.973 billion a year earlier. Israel represented 37% of quarterly sales, following inventory replenishment after the conflict with Iran ended at the beginning of April, while Europe accounted for 25%, North America for 20% and Asia-Pacific for 14%.

“We are pleased to report another strong quarter, delivering double-digit growth in revenues, backlog, operating profit, and EPS,” Chief Financial Officer Kobi Kagan said on the company’s earnings call.

Margins and Earnings Improve

GAAP gross margin increased to 25.3% of revenue from 24.0% in the prior-year quarter. Non-GAAP gross margin rose to 25.6% from 24.4%.

GAAP operating income was $218.8 million, or 9.6% of revenue, compared with $157.8 million, or 8.0% of revenue, a year earlier. On a non-GAAP basis, operating income totaled $237.5 million, or 10.4% of revenue, versus $175.1 million, or 8.9% of revenue, in the second quarter of 2025.

GAAP diluted earnings per share increased 34% to $3.61, while non-GAAP diluted EPS rose 28% to $4.14.

Kagan said the company’s gross, operating and net profitability margins continued to expand and had exceeded internal operating-margin targets. Financial expense declined to $22 million from $31.2 million, which he attributed primarily to lower average debt during the quarter.

Income-tax expense increased to $32.7 million from $7.1 million a year ago, driven mainly by implementation of the OECD Pillar Two global minimum-tax rules. The effective tax rate was 16.4%, compared with 5.6% in the year-earlier period.

Segment Results and R&D Investment

Revenue grew in four of Elbit’s five reported segments. C4I and Cyber sales rose 11%, driven mainly by radio and command-and-control system sales in Europe. ISTAR and Electronic Warfare revenue increased 22% due to higher sales of airborne and land-based high-power laser, electronic warfare and maritime systems in Asia-Pacific.

• Land segment revenue increased 32%, primarily on ammunition and munition sales in Israel.
• Elbit Systems of America revenue rose 17%, aided by a one-time favorable project mix and higher sales of night-vision, maritime and electronic systems.
• Aerospace revenue declined 8%, reflecting a one-time unfavorable project mix and lower European training and simulation sales, partly offset by higher UAV sales in Israel.

Net research-and-development expense rose to $159.1 million, or 7.0% of revenue, from $129.7 million, or 6.6% of revenue, a year earlier. Kagan said Elbit increased R&D spending by approximately $70 million in the first half, with about half funded under Israel’s new research-and-development incentive law and the remainder funded by the company.

The company said it is investing in next-generation technologies and artificial intelligence capabilities. President and Chief Executive Officer Bezhalel Machlis said Elbit has made three bolt-on acquisitions since the beginning of the year, including the May acquisition of Blue White Robotics, an Israeli developer of AI-powered autonomous ground solutions.

Record Backlog and Capacity Expansion

Elbit said 73% of its $32 billion backlog was generated outside Israel, with international orders, mainly from Europe, driving the quarterly increase. About 42% of the backlog is scheduled for performance during the remainder of 2026 and 2027, with the balance set for 2028 and beyond.

Cash provided by operating activities was $237 million, up from $120 million a year earlier. Free cash flow was $150 million, compared with $71 million in the prior-year quarter, while cash conversion was 86%.

Management said it is raising capital expenditures to approximately $300 million from $220 million as it adds production capacity. Machlis said the company is building facilities, investing in robotics and AI, and seeking to improve productivity and delivery capabilities. A new production facility in southern Israel is already operational, he said, and additional facilities have been inaugurated abroad.

During the question-and-answer session, Kagan said some customers have become more willing to support capacity investments, including through matching investments or financing facilities when technology is transferred to their territories.

Orders Across U.S., Europe and Israel

Machlis highlighted several contract awards during the quarter. Elbit Systems of America received multiple U.S. Customs and Border Protection awards worth approximately $370 million and a $212 million order for continued production of the ENVG-B night-vision system for the U.S. Army. He said Elbit Systems of America was selected as the sole prime supplier for that award.

The company also cited a previously announced $1.4 billion U.S. contract for a European customer’s military modernization program and the formal award of an approximately $750 million PULS rocket-artillery program in Greece.

In Israel, Elbit received a Ministry of Defense contract to develop extended-range capability for Israeli F-35 aircraft and approximately $200 million in contracts for advanced air-launched munitions. Separately, the company secured a $350 million contract to modernize an international customer’s main battle tank fleet.

Machlis said demand remained broad across electronic warfare, unmanned systems, command and control, guided munitions, simulation and maritime offerings. He said the company expects continued backlog growth and is focused on converting that backlog into revenue, profit and cash flow.

About Elbit Systems (NASDAQ:ESLT)

Elbit Systems Ltd. is an Israel-based defense electronics company that designs, develops and supplies a broad range of systems for military, homeland security and commercial aviation customers. The company focuses on integrated, platform-level solutions that combine sensors, communications, command-and-control software and weapons integration to support intelligence, surveillance and reconnaissance (ISR), force protection and mission management.

Its product and service portfolio spans unmanned aircraft systems, electro-optic and signal intelligence systems, electronic warfare and communications equipment, avionics and mission systems for military and commercial aircraft, and land and naval systems.

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