Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems Second Quarter 2019 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. Ehud Helft of GK Investor Relations. Ehud, would you like to begin please.

Thank you operator and good day 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. Butzi Machlis, Elbit's President and CEO; and Mr. Yosi Gaspar, Elbit Systems' Chief Financial Officer. Yosi will begin by providing a discussion of the financial results of the second quarter of 2019, 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 now like to hand the call over to Yosi. Yosi, please?

Thank you, Ehud. 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 details, GAAP financial data as well as the non-GAAP information and the reconciliation in today’s press release. The second quarter of 2019 was a solid quarter with strong revenue growth across all our main business regions as well as continued growth and backlog. As it is now company with revenue run rate of over $4 billion and our backlog is close to $10 billion, giving us good visibility into the next year and beyond. I will now highlight and discuss some of the key figures and trends in our financial results. Our second quarter 2019 revenues were $1,064 million compared with $892 million as reported in the second quarter of 2018, up over 19% year-over-year. In terms of revenue breakdown across our areas of operation in the quarter, airborne systems was 39%, C4I Systems 24%, Land systems 25%, Electro-optics was 9% and the rest was 3%. Compared with the second quarter of last year, we saw increased land systems, revenue mainly due to our acquisition of IMI and we had higher land EW sales into Europe. There was a decrease in C4I revenue as we do not consolidated Cyberbit commercial revenues anymore. In terms of geographic breakdown for the quarter, we've continued to be fairly well diversified between the various regions in which we operate. North America was the largest at 28% of revenues. Asia Pacific at 25%, Israel at 22%, Europe at 18%, Latin America at 4% and the rest of the world at 3%. Compared with the second quarter last year, we saw an increase in all our main regions. In North America, the growth was primarily due to increased airborne systems sales into the U.S. The growth in Israel was due to the acquisition of IMI at the end of the last year and Asia Pacific sales grew due to increased says of U.S. assets and weapons stations in the region. For the second quarter, the non-GAAP gross margin was 27.7% compared to the second quarter of last year of 28.6%. The lower gross margin was primarily reflective of the lower gross margin at IMI. The second quarter non-GAAP operating income was $89.6 million or 8.4% of revenues compared with $73.2 million or 8.2% of revenues last year. I note that despite the lower gross margins, we managed to close the entire gap and even increased the operating margin compared with last year. This is a reflection of the hard work we have been doing, integrating the IMI operations into our company and extracting some of the synergies already after only two quarters into the merger. Second quarter GAAP operating income was $80 million and 3.3% versus $111.8 million last year. I know that in the second quarter of 2018, our GAAP operating income included an income of $45.4 million due to an increase in the valuation of shares in two of our subsidiaries, as a result of third parties investments in Cyberbit and Bionics. In terms of our GAAP operating expenses for the quarter, total operating expenses were 19.6% of revenues in the second quarter compared with 20.6% of revenues excluding the income from reevaluation of assets last year. The operating expense break down in the quarter was as follows; net R&D expenses of 7.3% of revenues versus 8.6% last year. Marketing and selling expenses at 6.9% of revenues versus 7.8% last year and G&A expenses of 5.4% of revenues versus 4.2% last year with the relative increase primarily due to our recent acquisitions. Financial expenses for the second quarter of 2019 were $20.3 million compared with financial expenses of $10.7 million in the second quarter of last year. The high level of financial expenses this quarter was due to the implementation of accounting standards ASC 842 relating to operating leases. In the quarter, this generated a non-cash accounting expense of $5.2 million mainly due to the strengthening of the shekel currency. In our GAAP result, we had other income of $1.6 million. This was due to a capital gain at our subsidiary, BrightWay Vision which amounted to $4.5 million, which amount was balanced by the adoption of the accounting standard ASU 2017-07 relating to non-service cost component of pension plans. For the second quarter, non-GAAP net income was $64.3 million or a net margin of 6% versus $61 million or a net margin of 6.8% for the second quarter last year. On a GAAP basis, second quarter net income was $53.8 million versus $91.9 million in the corresponding quarter last year. Number of shares. I know that during the second quarter, Elbit System raised $185 million through the sale of treasury stocks through institutional investors in Israel, which increased our share count by about 3% to approximately 44 million shares. This had a slight corresponding impact on our earnings per share. Our non-GAAP diluted earnings per share were $1.46 compared with $1.43 in the second quarter last year. GAAP diluted earnings per share were $1.22 compared with $2.15 in the second quarter last year. Our backlog of orders as of June 30th 2019 was $9.8 billion, $1.73 billion higher than the backlog at the end of the second quarter of 2018, and $397 million higher than that of the end of 2018. This represents over 21% increase in backlog year-over-year. Approximately 56% of the current backlog is scheduled to be performed during 2019 and 2020, and the remainder is scheduled for 2021 and beyond. The ratio is similar to that of the second quarter last year. Operating cash flow for the quarter was a negative $138 million compared with a positive cash flow of $147 million in the same quarter last year. I know that Elbit Systems also received cash from two sources this quarter, which is not part of the operating cash flow. One, which I mentioned earlier, was the $185 million due to the sale of shares to institutional investors. The second was the proceed from factoring of $345 million of the premises of equation assets as part of the agreement for the acquisition of IMI. So overall, we were able to reduce our debt significantly. The Board of Directors declared a dividend of $0.44 per share for the second quarter of 2019. That ends my summary and I shall now turn over the call to Mr. Machlis, Elbit’s CEO. Butzi, please.

Thank you, Yosi. We are very pleased with our second quarter results. We made good progress across with revenue of over 19% higher than in the second quarter last year and it is now a company generating more than more than $1 billion of results every quarter. Furthermore our backlog continues its trend of growth, which is a good sign for our long term future. As you know in the first year we completed two key acquisitions, and we are in the process of integrating the new business results. In particular, while it will take time to bring the margins of IMI up to where Elbit margin currently stands, we are already walking on making improvements and looking to extract significant synergies within our new land division. However, we are pleased that despite the lower gross margins, we have been able to maintain our operating margins at a similar level to those of last year. Elbit also has decades of experience in successfully assimilating acquisitions and taking advantage over the synergies. We hope that in the coming months, we will complete the acquisition of Harris Night Vision Businesses that we announced a few months ago. We believe, it will be significant to our long term growth strategy. Turning to our ongoing businesses, Elbit continues to perform well, and we have won new businesses across all our main target regions. Just to highlight some of our recent wins. In North America, we won $50 million -- $50 million six years contract for the supply of full structural parts for an aircraft from composite materials. We also won a further $26 million from the United States Customs and Border Protection Agency to install our Integrated Fixed Tower system on another segment of the U.S. Arizona Mexico border. To date, we have won contract covering a total of approximately 200 hundred miles of the border. In Europe, we received a four-year $73 million contract to provide J-MUSIC Directed Infrared Counter Measure systems for the German Air Forces' Airbus A400M aircraft. And in Asia-Pacific, we were awarded a three-year $80 million contract to upgrade tank and supply radio system for South Asian Army. Overall, we see ongoing demand for our solutions, which are strong indications of the provincial importance of advanced and combat proven capabilities that we have in all domains of provisional engagement, whether maritime, land and air. As I’m moving, looking at Elbit, as we advance forward 2019, we are not only a leading high technologically defense company, but we are becoming a company of more significant scale and more with many more and with many more growth opportunities ahead of us. And with that, I would be happy to take your questions.

[Operator Instructions] The first question is from Pete Skibitski of Alembic Global. Pete, please go ahead.

Hello, Butzi and Yosi, congratulations on the first half adjusted margins. I'm sure there was a lot of hard work?

Thank you.

Let me start, first question on the cash flow, it was nice to -- I think to get that premises evacuation money in early and of course you got the cash from the share sale like you mentioned. So the balance sheet looks like it'll be in great shape heading into 2020, especially if cash collections improve in the second half. And so that's my first question as it looks like you had receivables build in the second quarter. I'm guessing, maybe on some overseas customers. So I'm just wondering, if you expect to collect a substantial portion of that receivable in the second half of the year. And, just was wondering if you have a sense of where your free cash flow to net income conversion might end up on a full year basis?

Yes, we expect to collect most of that cash in the remaining of the year. If you look back on our performance, two, three or maybe more years, there were some fluctuations in the cash receipts and the -- and then towards the end of the year, we were able to catch up most of the cash, the remaining cash. So we expect that to happen this year as well. And with that, to keep a strong back -- strong balance sheet.

Very good, very good. And -- a few smart questions on revenue. I guess, the first one, Yosi, your comments on Cyberbit commercial not being consolidated anymore. Was it consolidated plan in the second quarter of 2018? I'm just wondering, we should adjust last year's revenue t account for this or…?

Yes. Cyberbit commercial got a significant investment from third-party shareholders during the second quarter of last year. And then, that means that we consolidated only part of Cyberbit commercial last year in the second quarter, and part was already not consolidated. This second quarter this year, of the whole second quarter did not include anything from Cyberbit commercial.

Okay, okay. So you did a bit of a top line headwind from that -- it sounds like. And then was FX, any meaningful headwind to revenue in the second quarter?

Excuse me. I didn't get you.

I'm sorry. Was the impact from the Shekel, did that have any meaningful impact to your revenue. Was that a revenue headwind in the second quarter?

It did have some impact, but not very much. We have seen the impact mainly in the lease agreements which most of them are in Shekels, while we show them on our P&L and balance sheet we show them in U.S. dollars. So they increase the difference move to a non-cash item into our P&L finance expenses. But most of that was the impact; other than that not very much.

Okay, okay. And then I'll ask one more and then I'll get back in queue. Again, the excellent first half adjusted margins, how are you guys think about adjusted EBITDA margins into the second half of the year, because you did have margin expansion last year in the second half, and so I'm just wondering how you think things will shake out in the second half this year understanding some of the moving pieces?

I'm sorry, Pete, but you know we do not give guidance. However said that, we continue to work very hard to improve our cost base and we have seen that during the last several quarters getting better and better. Of course, for the local currency has also impact on that, on our overall performance. We are looking optimistic to the future, but things are still long way to go.

Understood. Thank so much, guys.

Thank you.

[Operator Instructions] The next question is a follow-up question from Pete Skibitski from Alembic Global. Pete, please go ahead.

Okay. I'm back. Guys, there was a lot of concern in U.S. markets yesterday about the global macroeconomic backdrop in global growth, market sold off quite a bit. I was just wondering you guys are so geographically disperse in terms of you revenue. So I was wondering over the last few months have you seen anything indicate a deterioration in some of your customers from a geographic perspective? Do you see any incremental weakness out there geographically? Or just things roughly seeing the same now, they did, say, call it six months ago?

On the contrary, we see more demand for defense equipment and for defense electronics. We see more opportunities for us in the U.S. market and we see a growing demand in Europe. Just to remind all of us that there is demand for NATO to spend 20% [ph] of GDP on defense, and many countries are still far away from doing it. And we have very good positions. We have several very good positions in Europe, in the UK, in Germany, in the Netherlands, in other countries of world and with subsidiaries and with long good history. And we see growing demand in all of these places. And the same is also happening in Australia and in Asia-Pacific. So, all together we see growing demand, more opportunities and I'm happy that we are able to capture part of it. And that's the reason for the growth in backlog, I expect it to continue.

That's great. That's great. And the fact that they weren't able to form a government in Israel, you've got the new elections in September. Did that slow anything down in the second quarter in terms of order flow from the IMO or revenue recognition? I'm just wondering if that had any impact at all the second quarter, or if you expect it to in the third quarter?

In Israel, we are working from the long term, very long-term program. So the – some delays in a quarter will not really -- does not really change the picture. So, Israel is a very important customer for us, and we are working there for after the new government will be establish probably a defense budget will be concluded here and then a procurement plan will happen and there many good opportunities for us in the coming future.

That's great. Yes, I did want to ask about a couple programs in particular. You guys got a lot of press this quarter about this – I think it CARMEL Future armoured vehicle and it looks like you have a lot of systems on the vehicle. I couldn't tell if you built the entire vehicle or more so you know that the advanced systems on the vehicle. So I'm wondering if you could clarify that. And then your sense of – do you expect to actually go into production on that in the near term or the mid term, and if you think there's going to be export opportunities for that?

The CARMEL demonstrates warfare [ph] system, not for a vehicle. It's not for a new platform. We are not the platform manufacturer. We are -- our expertise is in systems and sensors and integration solutions into the system. As you know we are a leading company in Israel as well as abroad providing very advanced systems and solutions for the AFV market, and we are quite famous with our solutions. I quite proud of the good provision we have in many countries in new AFVs and new tanks as well as in upgrading existing platforms, Western and Eastern platforms. We're investing quite a lot bringing new innovation and new technology into our system for the future. And what we have presented here is new technologies for the AFV market which includes autonomously -- autonomy; and AI, drones, which operated form and AFV, sensors, which are part of the different type of technology coming from all over the group -- from all of the group; and also a new concept to operating [Indiscernible] with a new helmet which enable the operator to work undercover, to see 360 degrees via a helmet which is delivered to you through our Airborne helmet, and to operate all the sensors and the weapon via the helmet. We -- there is -- when many customers saw it, there was a lot of interest for the concept and for the system and I'm proud to say that we have already some orders for part of the system which we have presented. We continue to invest in this domain in which we are well-positioned in this domain. And the IMI acquisition helps us here because it brings active protection systems to our to our new -- to our unmanned turrets, the IRON-FIST, which – that's an important area where we progress quite a lot of well. So altogether I'm very proud of this CARMEL demonstration. And we get very good interest from different customers all over the world for this technology.

That's great. I was very impressive, very impressive. So thanks for the color. One last question from me programmatically. Can you give us some more color on – I will call a new business model, I would say for the Hermes 900 in which you had this contract I think when the Portuguese entity sort of via the EU Maritime Safety Agency. And I think ultimately, Iceland has been the first end user from – it looks like essentially a leasing program over the Hermes 900, a Maritime patrol to Iceland. And so I'm just wondering if you give us a sense of how big this opportunity is? Do you expect to grow and add more customers in this sort of different business model? It looks like maybe it’s a different model for maybe customers that can't afford the cost of actually owning UAV. I was wondering if you could describe kind of what's going on there?

It's not a new model for us. We are implementing the leasing model in different business segment in the company, one of them is a simulator, for example, that we implement in key fight [ph] model here in Israel. And this concept of leasing UAVs is also not new for us. Our subsidiary in the UK which won the Watchkeeper program in the U.K. together with Thales, leased already UAVs to the British forces in Afghanistan. So we continue with this model for the market as well. You're right, we won a contract over the European agency. We did something similar with the UN forces in Africa, as well. So, as you know, we have a very vertical portfolio in the area of UAV. We control the UAV turret, the communications, the command control, the electro-optics, or other sensors. So we are open to sell UAVs, and we're also open to lease and to operate -- to lease UAVs to different customers all over the world. And this is, by the way, not relevant just for UAVs. It's also relevant for other type of groups for some business, some additional business, as well. I mentioned the simulators. We do something similar in the area of simulators here in Israel.

Great. That's great. Thank you so much for the color. Thanks both to Butzi and Yosi.

Thank you.

The next question is from David Fingold of Dynamic Funds. David, please go ahead.

Thank you. Look, I'm happy to see that the L3 Harris merger provided you with an acquisition opportunity, and what I was going to ask was there's other announced M&A in the defense space. And I wondered if you had any color on whether or not that could present other opportunities to buy businesses that might need to be disposed of for regulatory purposes or to improve the balance sheet of the companies that are merging?

I would say that our strategy includes acquisitions as well. We are well-known for good acquisition profit, for good acquisitions to be made in the past. Just to remind all of us, we acquired some companies here in Israel which were not in good shape like Elisra and Soltam, and we assimilated them into Elbit in a very good way. And they are profitable and successful today. We believe in acquisition as well as in organic growth, and we have a strong balance sheet to support it. And there are three main reasons for acquisition. Just to remind all of us this year it's going to be -- the last 12 months its going to be the third acquisition we're doing, Harris Night Vision. We acquired IMI, but not to forget we acquired Universal Avionics Solutions in the U.S., as well. There are three main reasons for acquisition for us. The first one, to enhance our portfolio. That was the main reason for the acquisition of IMI. The second reason is to gain additional position in strategic markets, and the third reason, it's a kind of R&D. It's to replace -- although invest quite a lot in R&D, between 8% to 9% in each quarter from our revenues. We see a lot of innovation outside, and in some cases we prefer to acquire smart companies which have unique technologies which are complementary to ours. So these three acquisitions – these three reasons are still very relevant, and they are part of our strategy. As I mentioned earlier we have a strong balance sheet which can support this strategy for the future as well.

Thank you.

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 1-888-326-9310. In Israel, please call 03-925-5925, and internationally please call 972-3-925-5925. 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 of our employees for their continued hard work. For 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 concluded the Elbit Systems Ltd second quarter 2019 results conference call. Thank you for your participation. You may go ahead and disconnect.