Welcome to Elbit Systems Fourth Quarter and Full Year 2019 Results Conference Call. All participants are present in a 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. Rami Myerson, Investor Relations, Director at Elbit. Rami, please go ahead.

Thank you, Lana [ph]. Good day everyone, and welcome to our fourth quarter 2019 earnings call. On the call with me today are Butzi Machlis, our President and CEO; and Yossi Gaspar, our Chief Financial Officer. Before we begin, I would like to point out, that the Safe Harbor statements in the company's press release issued earlier today also refers to the content of this conference call. Yossi will begin by providing a discussion of the financial results, followed by Butzi, who will talk about some of the significant events during the last year. We will then turn over the call to the question-and-answer session. This morning, we uploaded a presentation to our Investor Relations' website, with a summary of the fourth quarter and full year 2019 results, major contract wins, and an overview of our U.S. business. We will not be following the presentation on this call, but are happy to answer questions on these mainstream providers [ph] during the question-and-answer session. With that, I would like to now turn the call over to Yossi. Yossi, please?

Thank you, Rami. Hello, everyone and thank you for joining us today. Rami joined us last year to increase our engagement with the investment community. As a former aerospace and defense analyst, Rami brings over 15 years of experience in capital markets, in Israel and [indiscernible]. We wish him success in his new role. Before reviewing our financial results, I would like to address the global economic and the COVID-19 situation. As of today, as we have not experienced material impact on ongoing business and we have not seen significant changes in customer behavior, we are monitoring the situation closely and are adhering to the instructions of the governments of the various countries in which we operate. We have initiated a series of preventive measures to protect our employees and maintain our commitments to our customers. This includes, rolling out additional IT infrastructure to allow more employees to work from home or in smaller groups. We are closely monitoring, carefully managing our supply chain, particularly as it relates to maintaining adequate inventory of critical components. It is too early to quantify the cost of the measures we are taking, if the current travel restrictions continue to impact our business development activities for an extended period, there could be some impact on our new business. We will continue to update our shareholders as we have more clarity. Turning now to our results. As we do every quarter, we will provide you with both our regular GAAP financial data as well as certain supplemental non-GAAP information. This quarter, there were a number of larger differences in some one-time charges. I would therefore focus more on the non-GAAP numbers, which we believe is more reflective of the performance of our 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. Overall, we are pleased with our performance in 2019. Our revenue increased by 22% year-over-year with good growth across our end-markets. Our backlog of over $10 billion provides good visibility in uncertain times and reflects our success in securing strategic orders in new geographies and on new platforms. I should note that the acquisition of Elbit Night Vision from L3Harris has closed on September 15 and was therefore consolidated in our income statement of Elbit from the fourth quarter of 2019. However, the balance sheet and backlog of Elbit Night Vision were consolidated as of September 13, in our third quarter results. IMI and other acquisition results -- it's results were consolidated for only one month in 2018 but contributed a full year on the results of 2019. I will now highlight and discuss some of the key figures and trends of our financial results. Our fourth quarter 2019 revenues of $1.321 billion were up 23% year-over-year. For 2019 as a whole, our revenues were $4.5 billion versus $3.68 billion last year, representing a growth of over 22%. In terms of annual revenue breakdown, our areas of operations, Land Systems accounted for 27% of total sales and increased significantly year-over-year due to the increased sales of live electronic warfare systems, armored vehicle systems in Europe, and revenue generated by IMI. Airborne system sales, and 36% of sales increased year-over-year primarily due to growth in avionics equipment sales to the U.S. Our diverse geographic revenue increase is important to the long-term sustainability of our business, and we are very satisfied with the growth in revenues in most of our end markets. In 2019, North America was the largest contributing; 28% of revenues, Israel was 24%, Asia Pacific 23%, and Europe 19%. A strong growth in North America was primarily due to the increased airborne system sales as mentioned, and the growth in Israel was mainly due to the acquisition of IMI. Increased sales of remote weapon systems, radios, and artillery systems contributed to the growth in Asia Pacific. Compared with the fourth quarter of last year, we saw strong growth in Asia Pacific and a healthy combination of organic and acquisitive revenue growth in Israel and North America. For the fourth quarter, the non-GAAP gross margin was 26.2% compared with the fourth quarter of last year of 28.5%. For the full year of 2019, non-GAAP gross margin were 26.9% compared with 28.8% last year. The low gross margin for 2019 and the fourth quarter reflects an unfavorable six weeks and the lower gross margin of the sales coming from IMI. As we announced in our press release on February 6, 2020, we had certain reorganization charges following the acquisition of Elbit Night Vision in September, primarily impacting our cost of goods sold. The charge to cost of goods sold amounted to $55 million. Therefore, on a GAAP basis, this charge reduced our gross margin for the fourth quarter to 31.5%, as compared with 21.8% last year, while the impact on the full-year financials resulted in a GAAP gross margin of 25.2% versus 26.5% in 2019. The fourth quarter non-GAAP operating income was $125.4 million or 9.5% of revenues compared with $112.5 million or 10.4% of revenues last year. Non-GAAP operating income in 2019 was $379.7 million or 8.4% of revenues compared with $340.7 million or 9.2% of revenues last year. GAAP operating income was $321.6 million, this was $292.8 million last year. Operating expense breakdown in 2019 was as follows; net R&D expenses at 7.4% of revenues versus 7.8% last year. Net R&D spend was $332 million in 2019 compared with $287 million in 2018. Our investment in research and development as a percentage of revenues is higher than most of our peers enabling us to maintain and build our technological leadership and underpins our long-term prospects. Marketing and selling expenses at 6.7% of revenues versus 7.6% last year, and the G&A expenses increased to 4.8% of revenues versus 4.4% last year. The relative increase was primarily due to our recent acquisitions and was partly offset by income related to a settlement of litigation in the U.S. Financial expenses for 2019 increased to $69 million compared to $44 million in 2018. $23 million of the $69 million was related to the recognition of lease [ph] liabilities denominated in foreign currencies, as a result of the adoption of ASC 842 releases effective January 1, 2019. During the second quarter of 2019, Elbit Systems raised $185 million through the sale of treasury shares to situational investors in Israel. This increased our share count by about 3% to 44.2 million shares, having a slight corresponding impact on our earnings per share relative to last year. Our non-GAAP diluted earnings per share was $2.47 in the fourth quarter and $6.79 for the whole of 2019. GAAP diluted EPS was $1.16 and $5.20 for 2019. Our backlog orders as of December 31, 2019 was just over $10.630 billion higher than the backlog at the end of 2018. Approximately 65% of the current backlog is scheduled to be performed during 2020 and 2021, and the remainder is scheduled for 2022 and beyond; the ratio is similar to that at the end of last year. Operating cash flow for the quarter was $87 million inflow compared with $212.1 million of the -- in the same quarter last year. For 2019, we reported a $53 million operating cash flow outflow versus a $192 million inflow in 2018. Operating cash flow has been negatively impacted by the Israeli election cycle this year which caused delays in payments of the Israeli Ministry of Defense. We expect to receive the delayed payments in the very near-term. We increased inventory levels during 2019 to support the growth in sales in the second quarter -- second half of 2019 and into 2020. Elbit Systems continues to manage it's balance sheet conservatively, beyond our cash we have access to multiple credit lines that can provide us with additional liquidity as required. At the end of February, Midroog, the Israeli rating agency affiliated with Moody's, reaffirmed our AA+ rating on our Series A notes following a review of our financials. The Board of Directors declared a dividend of $0.44 per share for the first quarter of 2019. In total, in 2019 $1.76 per share of dividends were issued to shareholders. I shall now turn the call over to Mr. Machlis. Butzi, please?

Thank you, Yossi. Before I begin my summary, I want to touch on the issue that is the forefront of our minds, which is impacting all of our lives, the coronavirus and [indiscernible]. To date, as Yossi mentioned earlier, the financial impact of the virus on [indiscernible]. However at present, we cannot quantify how the economic uncertainty related to the coronavirus will impact our businesses over the coming months. We have been and are continuing to take all the necessary steps to prepare the company and it's employees for the period which we will have to work under certain conditions. We will update you as we gain more clarity on the situation and it's potential impacts. Taking a broader look, I believe it is important to highlight the strategic focus we have achieved over the last year that has contributed to our record backlog of more than US$10 billion. These orders and selections are important milestones in programs that has taken years to generate and are in turn due to results of the hard work of our employees. In order always election is important, but delivering on time and on budget is just as important; we continue to work hard to deliver on our commitment even if the current environment makes these efforts more challenging. In February 2020, we received $670 million for defense solutions from Asia Pacific, one of the largest single order that Elbit has ever received. In Israel, we received the first contract for the Iron Fist active protection system that will protect in turn, Israeli new on personal carrier [ph]. The Iron Fist system was acquired with IMI and has been generating significant interest in order for militaries in the world. The Israeli Ministry of Defense placed orders for the next-generation of automatic [indiscernible] Israeli provinces over the coming decade with the protection of synergies. In the US, we will see a range of unique contracts for the new and legacy contracts at one point to rightfully display less earnings in 2020 for the T7 [indiscernible]. In March 2020, the US DOD announced an IDIP [ph] contract for our missile warning system for the National Guard, and therefore the F-16. This contract is an important recognition by the US sales force of Elbit Systems leading electronic warfare systems, contributing therefore greater models for electronic warfare systems of the military 390 transport aircraft, and US selected by the German Air force to supply 24 systems for the CH323 [ph] helicopters. In Switzerland, we were selected to provide the Swiss Armed Forces with practical software-defined radio solutions. This selection passed a rigorous evaluation which fortunately found our systems providing a better drive performance ratio for the competition. Because of the war, it's subject to approval by the Swiss Government. Over the last year, we see the technical contract from South Asian country and we were selected by the German -- by Germany to supply tactical radios for the Germany -- for German market. The healthy demand for our DIRCM systems with orders from the German Air Force for the A400M, and two orders from [indiscernible] systems for Airbus and Boeing aircrafts. In September, we completed the acquisition of Elbit Night Vision from L3Harris. Following the acquisition, we announced the contract for the software systems and telecom [indiscernible] to the US. It's about all five deals that Elbit Night Vision system IDIQ contracts. A comprehensive review of the Night Vision businesses following the condition has increased our confidence in the long-term outlook and potential to extract revenues [ph]. In summary, we are pleased with our performance throughout 2012 [ph] through 2018. The backlog we have built continues to provide us with significant visibility and keeps us in a strong position for the foreseeable in future. We continue to see significant potential around the world for our leading high-tech defense electronic solutions, and as we will generate revenue for all our stakeholders, our employees, our customers, our suppliers, and of course, for you, our shareholders. And with that, I will be happy to take your questions.

Thank you. [Operator Instructions] The first question is from Pete Skibitski of Alembic Global. Please go ahead.

Yes, good afternoon Butzi and Yossi and Rami. I want to ask you, I guess Yossi; can you give us a sense for how you're thinking about revenue growth in 2020 in your -- currently in light of the big $670 million contract you won from the Asia Pacific customer? And obviously, you highlighted a lot of other interesting contract awards; I'm not sure you know, how many programs are kind of coming to the end of life for you, but it seems like you have some nice momentum into 2020 on the topline side. And I was wondering if you can maybe give us a sense for the level of growth you're expecting?

As you know, we do not provide guidance, and therefore -- I'm sorry, but I will not change that to-date. However, looking at our backlog and what you correctly pointed out is the significant order we received in the first quarter. We actually continued very nice momentum of backlog growth. We can expect that 2020 will have a nice growth somewhere in the upper-mid-single digits, but I am not sure I cannot provide you with any specific number at this point in time.

I appreciate the color, that's great. And then, I thought you guys are showing some nice margin traction here in the fourth quarter. The adjusted operating margins of -- I guess 8.4% for the full year, if we do get some volume growth and you guys are able to kind of keep SG&A under control or you think that maybe you could eke out a small amount of margin expansion as well?

As you have seen, our growth overall is this is significantly higher than the overall growth in the defense budgets, so that means that we are expanding our market share. The way we do it, we are successfully entering new territories that we were not active previously, and we are successful in handling new platforms that we were not on them before; so I cannot quantify that business. Is that what you had asked?

Well, I was speaking to the adjusted operating margin of 8.4% that you generated in 2019. I was just wondering if you thought you could maybe expand that margin rate, slightly in 2020.

Oh, the question on margin, I thought you said the market; I'm sorry, I didn't get you. With respect to the margin, as we have said over several meetings now, we have an internal multi-year plan of improving efficiency in the company of reducing overheads of cancelling the applications in R&D and in manufacturing facilities, and the specific focus is put on the IMI business which we acquired in late 2018. That business when we acquired that was a losing business. We were happy to achieve more than what we have planned for 2019, and that means that in 2019 IMI business which is roughly about $0.5 billion per year in revenues, they were already little bit profitable put it as operationally, speaking. And we have a multi-year plan that will bring them to the level of profitability of the average of Elbit Systems. Through that improvement and through the improvements that I've mentioned earlier, we believe that we will see better operating profits than what we have reported so far. I would add to that; one major effort that we are in the midst of it and that is implementing ERP system for the broader organization, which we expect will significantly improve our operational efficiencies, will reduce the operating capital needed, improve commonality of products, reduce inventory, and actually that will directly and indirectly contribute to the operating profit improvement.

That's great. I appreciate the color very much. Last question for me, on the Israeli election situation and the prospects maybe for your new government, I know it connects to you guys obviously because of the collecting on the receivables. I was wondering if you could be more specific; can you quantify, Yossi, the size of the receivable that you're expecting to receive from the Israeli government? And then, maybe you used the term near-term; so I'm wondering if they've given you may be some specific color on that?

Yes. We definitely were hurt by the delay in the payment by the Ministry of Defense in Israel because of their budgetary issues. I am very happy to report that we have actually collected -- I mean, the swift [ph], we put it together about three days ago, but I am happy to report that actually we did collect a significant amount already from the payments that the Ministry of Defense had to pay us. And in overall, these were in the range of several hundreds of millions of dollars.

Wow! Okay. Okay, that's great. Thank you so much for the color, guys.

Okay.

The next question is from Sheila Kahyaoglu of Jefferies. Please go ahead.

Hi, good afternoon everyone, and thank you for the time. Just on that last note, Yossi; can we talk about the working capital. I think it was $400 million or $385 million used in 2019. How do we think about how much of that receivable reverses and some other things you could do to improve your payables -- your receivables?

Well, I believe I spoke about receivables that we expect them to improve very nicely because of the payment of the debt of the Ministry of Defense in Israel; so we expect the receivables to be reduced. I don't -- I expect some reduction in the first quarter also on the payables, but the overall mix I think will improve the working capital number.

Got it. Did you quantify the amount to be -- I'm sorry, if I didn't catch it, did you say $700 million?

Several hundreds of millions.

Okay, several hundreds. Okay, got it. And then in terms of your recent wins in February and March, the $670 million win, was that new for IMI and/or is the customer new in Asia Pacific? And maybe can you talk about the opportunity and what that award is? A little bit of what platform it's on? Are there other countries that you could replicate it for?

This is not necessarily only for IMI, this is in general for the business of Elbit Systems, and that is definitely a very nice, little bit extraordinary level of one -- value of one contract. And we definitely see potential for this kind of product for all the customers.

Okay. And the March contract that you guys won on the F-16, the $470 million contract with the US Air force. Was that new work? Can you talk about who the competition was on that contract?

No. Well, we were in a long process -- that's for the US, we were in a long process of competition that went on for several years. By the end of the day, we were selected and the number that you have quoted is the right number, it's a multi-year. However, presently we got the firm order for about less than $20 million, and that is the number that you -- we have included in the backlog. And the big number, the $450 million or whatever it is, that's still close to come.

Okay. So, do we think about that adding to -- it says the missile warning system that would be within the avionics content that you would think about?

No, the missile warning system.

Okay, all right. Got it. Okay, thank you very much.

[Operator Instructions] We have a follow-up question from Pete Skibitski of Alembic Global. Please go ahead.

Yes, thanks guys. I guess I wanted to ask, in your slide deck there is a slide referring to KMC Systems medical portfolio, and that maybe they might have some incremental opportunities, obviously with the current global situation with COVID. Could you may be talk about that? I don't know a lot about KMC and what they do, but maybe you could talk about the type of demand you're seeing there at this point since you highlighted it in the slide deck?

Jim, since the company -- which is located in Amsterdam [ph], well-known in the US market, it provides [indiscernible] of more than $100 a year, it does design especially of diagnostic equipment, mainly around by the liquid -- the amount will cause the liquid. And these are big growth with AI embedded into it. We are walking with all the big suppliers, medical devices in the US that were in the call [ph]. And we see right now several opportunities for them because of the current crisis, I cannot elaborate more.

Okay, that's fine. I appreciate the color. Last question for me, on the ERP implementation, I don't think I've asked this before. When do you expect the ERP implementation to complete?

I'll just say the following, that -- as I said it's a multi-year plan. I'm very happy to say that we have implemented in our corporate and Elbit Systems Holding that includes the airborne division and the UAV division, and all the common services -- global services of the company, we have that implemented, actually starting January 1, and it works well, and we are happy with that and we are planning to roll it out during the next couple of years on all the other major cities.

Okay. So maybe end of 2021 it will be fully rolled out?

End of 2021, somewhere in that period of time, maybe a quarter more, quarter less, that's the timeframe.

Okay, great. Thanks so much guys.

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 reply of this call will be available two hours after the conference ends. In the US, please call 1-888-326-9310, in Israel, please call 03-925-5921, and internationally, please call 972-3925-5921. 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?

Thank you. I would like to thank all 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 concludes the Elbit Systems Ltd fourth quarter and full year 2019 results conference call. Thank you for your participation. You may go ahead and disconnect.