Bezhalel Machlis - President, Chief Executive Officer Joseph Gaspar - Executive Vice President, Chief Financial Officer Kenny Green - GK Investor Relations

Lena Rogovin - Chardan Capital Markets David Winters - Wintergreen Advisers

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems Third Quarter 2017 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. If you have not received it, please contact Elbit’s investor relations team at GK Investor and Public Relations at 1-646-688-3559 or view it in the News section of the company’s website, www.elbitsystems.com. I would now like to hand over the call to Mr. Kenny Green of GK Investor Relations. Kenny, please go ahead.

Thank you and good day to everybody. On behalf of all the investors, I would like to thank Elbit Systems management for hosting this call. Joining us on the call today are Mr. Bezhalel ‘Butzi’ Machlis, Elbit’s President and CEO, and Mr. Joseph Gaspar, Elbit Systems’ Chief Financial Officer. Joseph will begin by providing a discussion of the financial results of the third quarter of 2017, followed by Butzi who will talk about some of the significant events during the quarter and beyond. We will then turn over the call to the question and answer session. 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 content of this conference call. With that, I would like now to turn over the call to Joseph. Joseph, please go ahead.

Thank you, Kenny. Hello everyone and thank you for joining us today. As we do every quarter, we will provide you with both our regular GAAP financial data as well as certain supplemental non-GAAP information. You can find all the detailed GAAP financial data as well as the non-GAAP information and a reconciliation in today’s press release. Overall, we are pleased with our performance in the third quarter, in particular with improvement in our profitability margins as well as the strong growth in the backlog which sets us well for the long term. I will now highlight and discuss some of the key figures and trends in our financial results. Our third quarter 2017 revenues were $800.7 million compared to $780.8 million reported in the third quarter of 2016. In terms of revenue breakdown across our areas of operation in the quarter, airborne systems was 38%, C4ISR was 34%, land systems 15%, electro-optics was 11%, and the rest was 2%. Compared to the third quarter of last year, land systems revenues were higher driven in part by artillery sales to the Asia Pacific region, while C4ISR revenues were lower due to lower sales of communication equipment to Latin America. In terms of geographic breakdown for the quarter, we continued to be fairly evenly diversified with North America at 24% of revenues, Asia Pacific at 23%, Israel at 22%, Europe at 20%, Latin America at 7%, and the rest of the world at 4%. Compared with the third quarter of last year, we saw increased contribution from the rest of the world segment related to increased electro-optic sales. In the third quarter, the non-GAAP gross margin was 32% versus 30.5% in the third quarter of 2016. Our GAAP gross margin was 31.3% versus 29.5% last year. These margins are at record levels. I note that the particularly high level of gross margin represents a favorable mix of products and projects during the quarter and the long-term trail of improvement in operations. In the third quarter, non-GAAP operating income grew 15% to $89.2 million or 11.1% of revenues compared with $77.9 million or 10% of revenues last year. GAAP operating income increased by 5% to $82.2 million or 10.3% of revenues versus $78.3 million or 10% of revenues last year. It is important to note that in the third quarter of last year, we received a $10.5 million capital gain from a commercial spin-off which lowered our GAAP operating expenses. In terms of our expenses for the quarter, total operating expenses were 21.1% of revenues compared with 19.5% of revenues in the third quarter last year, or 20.9% excluding the above mentioned capital gain of $10.5 million. The operating expense breakdown was as follows: net R&D expenses at 8.4% of revenues versus essentially the same number last year, market and selling expenses at 8.4% of revenues versus 7.8% last year, and G&A expenses at 4.3% of revenues versus 4.6% last year. Our relatively high level of marketing expenses is an investment in our future in order to capitalize on increased sales opportunities we are currently pursuing in many of our end markets where the environment is currently favorable to electronic defense spending. The increasing backlog demonstrates that we are seeing success in this regard. Financial expenses for the third quarter of 2017 were $9.3 million compared with financial expenses of $7.3 million in the third quarter of last year. Taxes in the third quarter were $14.6 million or 20% of pre-tax income versus $8.9 million or 12.5% of pre-tax income in the third quarter of last year. This higher level of tax paid in the current quarter was primarily due to the geographic mix of taxable income in the quarter favoring higher tax regions. For the third quarter, non-GAAP net income was $67.3 million or a net margin of 8.4% versus $62.5 million or a net margin of 8% last year. Non-GAAP diluted earnings per share were $1.57 compared with $1.46 last year. On a GAAP basis, third quarter net income was $61.5 million or a net margin of 7.7% versus $63.4 million or a net margin of 8.1% last year. GAAP diluted earnings per share were $1.44 compared with $1.48 last year. Our backlog of orders as of September 30, 2017 was $7.64 billion, $805 million higher than the backlog at the end of the third quarter of last year, an increase of 12%. Approximately 45% of the current backlog is scheduled to be performed during 2017 and 2018. Operating cash flow for the quarter was a negative $142.6 million compared with a negative cash flow of $17.3 million in the same quarter of last year. This reflects an increasing receivables partially due to longer term payment terms to some of our customers in line with our market trends. We do expect to collect the cash from these receivables in the coming quarters. The board of directors declared a dividend of $0.44 per share for the third quarter of 2017. In total, the past nine months of 2017, $1.32 per share in dividends have been issued to the shareholders. That ends my summary, and I shall now turn the call over to Mr. Machlis, Elbit’s CEO. Butzi, please go ahead.

Thank you, Joseph. We are particularly pleased with our strong growth in backlog this quarter, demonstrating an increase of 12% from last year. The backlog is a metric which is a good indicator for the health of our businesses for the long term and its strong growth, as well as the slight shift to a longer period indicates the potential growth of our businesses for years to come. Another important aspect of our results this quarter was the strong level of profit margins with both gross margins over 30% and operating margins surpassing 10%. This represents a particularly favorable mix of product sales this quarter and the ongoing fruits of our efforts to improve business effectiveness and build on inter-company synergies. As you know, a few quarters ago, we made the strategic decision to increase our investment in marketing efforts in order to capitalize on the increased opportunities and positive momentum we are seeing in global defense markets. Our recent contract wins which have contributed to our strong backlog growth among others is a result of these efforts. I would like to highlight some of the recent major successes. In September, we won a large and important $300 million command and control contract for command and control systems, two-year contract with an Asia Pacific customer. This region was particularly active for us in the first few months. This contract win followed another $11 million maritime C4I contract for a navy in the region, including inter-connected coastal sensor towers, naval command and control centers, and maritime C4I capabilities as well as ongoing maintenance. In August, we also won a $93 million contract to modernize and upgrade an Asia Pacific fleet of F-5 aircraft. Our solution will include head-up displays and advanced cockpits, radar, weapon delivery, and navigation systems, as well as Dash head-mounted systems. In September, we announced a $240 million two-year contract with an African country for a broad range of defense electronic systems. This is a new trend we are seeing in our markets, and our unique bought-off synergistic business structure enables our customers to benefit from our wide capabilities, while at the same time cater to their specific requirements. The system we will provide includes directed infrared countermeasure systems to protect aircraft from shoulder-fired missiles and includes missile warning systems, radio communication systems, land systems, mini-UAS systems, and helicopter upgrade. Finally in the U.S., we were awarded a two-year, $31.5 million contract to provide the U.S. Defense Logistics Agency for land and maritime with aviator night vision imaging system head-up displays. The systems are used for both day and night missions by the U.S. Army, Navy, Marine Corps, Air Force, and Coast Guard. Overall, we continue to win ongoing businesses which contribute to our backlog growth. In many of our target geographies, defense spending is now on the rise and electronic defense spending is getting a greater portion of the overall pie. We remain well positioned to capitalize on the trend. With that, I will be happy to take your questions.

[Operator instructions] The first question is from Lena Rogovin of Chardan Capital Markets. Please go ahead.

Thank you, good afternoon. My question is about revenue growth. Given a couple of very material contracts which you signed during 2017, should we expect significant revenue growth acceleration in Q4 or should we expect normal seasonality? Thank you.

Lena, this is Joseph. As you know, we do not provide guidance regarding financial parameters anywhere else, but if you would look at the spread of the backlog for future quarters, we do see for the next five quarters, growth in backlog year over year of approximately 6% compared with what happened the year before, so that could be one indication of where we are going, although it’s not the only one.

Okay, thank you. That’s helpful.

[Operator Instructions] The next question is from David Winters of Wintergreen Advisers. Please go ahead.

Thank you very much. We appreciate the excellent job that you’re all doing and continued great progress. Is the company also continuing to look for opportunities for acquisitions? I know it’s a tough thing to do, but you’ve done it so well in the past. Thank you.

The answer is yes. We have a strong balance sheet, as you all know, and part of our strategy is to look for acquisitions as well, and there are some opportunities in Israel as well as in other target markets, and we are exploring them. Certainly, acquisition is part of our strategy.

Thank you, and we really appreciate all the progress that you and your colleagues have made, and wish you continued good results in the future.

Thank you very much.

[Operator Instructions] Please stand by while we poll for more questions. 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 two hours after the conference ends. In the U.S., please call 1-888-782-4291. In Israel, please call 03-925-5928, and internationally please call 972-3925-5928. A replay of the call will also be available at the company’s website, www.elbitsystems.com. Mr. Machlis, would you like to make your concluding statement?

I would like to thank all our employees for their continued hard work. To everyone on the call, 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. third quarter 2017 results conference call. Thank you for your participation. You may go ahead and disconnect.