Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' first quarter 2026 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. I would now like to hand over the call to Daniella Finn, Elbit Systems Vice President, Investor Relations. Daniela, please go ahead.
Thank you, Hila. Hello everyone, welcome to our first quarter 2026 earnings call. On the call with me today are Bezhalel Machlis, President and Chief Executive Officer, Kobi Kagan, Chief Financial Officer, and myself, Daniella Finn, Vice President, Investor Relations. 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 contents of this conference call. I would like to remind all listeners that the conference call today may contain forward-looking statements regarding the company and its subsidiaries' business. Actual future results may differ materially from these forward-looking statements. As usual, we will provide you with both GAAP financial data as well as certain supplemental non-GAAP information. We believe that this non-GAAP information provides additional transparency to better understand the performance of the 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. Kobi will begin by discussing the financial results, followed by Machlis, who will elaborate on the main events during the quarter and beyond. We will then turn the call over to a Q&A session. With that, I would like to now turn the call over to Kobi. Kobi, please go ahead.
Thank you, Daniela. Hello everyone, thank you for joining us today. We are pleased to report another strong quarter, delivering double-digit growth in revenues, operating profit, and EPS. Our backlog reached a new record, surpassing $30 billion for the first time, and we exceeded a 10% non-GAAP operating margin in line with our internal targets. These results reflect the strength of our execution and the outstanding performance of our global teams. Taking a closer look into the first quarter results. First quarter revenues increased by 15.5% to $2.189 billion, compared to $1.896 billion in the first quarter of 2025. This is the first quarter revenues were higher than those of the preceding fourth quarter, representing the strong demand we are witnessing from our key markets. For the first quarter of 2026, Europe contributed 23% of revenues, North America 20%, Asia-Pacific 16%, and Israel contributed 37% of revenues.
Europe continues to be a meaningful growth engine. The shift in Europe is profound, and we are seeing strengthening demand trends. In terms of quarterly revenues by segment, C4I and Cyber revenues increased by 17% in the first quarter of 2026 as compared to the first quarter of 2025, mainly due to sales of radio systems and command and control system sales in Europe. ISTAR and EW revenues increased by 17%, mainly due to increased sale of airborne high-power laser and electronic warfare systems. Land revenues increased by 27%, mainly to ammunition and munition sales in Israel and Europe. Elbit Systems of America revenues increased by 5%, mainly due to the increase in sales of night vision system, which were partially offset by a decrease in sales of medical devices.
Aerospace revenues increased by 2% in the first quarter of 2026 as compared to the first quarter of 2025, mainly due to project mix. GAAP gross margin in the first quarter was 25.2% of revenues, compared to 24% in the first quarter of 2025. Non-GAAP gross margin for the first quarter was 25.5%, compared to the first quarter of 2025 at 24.3%. Gross margins have expanded due to scale and product mix. GAAP operating income in the first quarter was $205.1 million, or 9.4% of revenues, as compared to $149.7 million, or 7.9% of revenues in the first quarter of 2025. Non-GAAP operating income was $222 million, or 10.1% of revenues in the first quarter of 2026, as compared to $165.1 million, or 8.7% of revenues in the first quarter of 2025. The operating expense breakdown for the first quarter of 2026 was as follows.
Net R&D expenses were $150.4 million, or 6.9% of revenues, as compared to $114.3 million, or 6.1% of revenues in the first quarter of 2025. Elbit continues to prioritize investment in advanced R&D initiatives, including AI capabilities, to support sustainable, profitable growth and strengthen our leadership position in the years ahead. Elbit is focusing its R&D on cutting-edge battlefield technologies. Key initiatives include counter UAS solutions spearheaded by higher power laser, advanced autonomous airborne, naval and land platforms, multispectral sensing and advanced precision and standoff munitions. Marketing and selling expenses were $100.9 million or 4.6% of revenues in the first quarter of 2026, similar to $100.9 million or 5.3% of revenues in the first quarter of 2025. G&A expenses were $95.7 million or 4.3% of revenues in the first quarter of 2026 as compared to $89.4 million or 4.7% of revenues in the same period last year.
Financial expenses were $32.2 million in the first quarter of 2026 as compared to $39 million in the first quarter of 2025. The decrease in financial expenses in the first quarter of 2026 was mainly due to a reduction in the average debt. Taxes on income were $22.8 million in the first quarter of 2026 as compared to $16.1 million in the first quarter of 2025. The effective tax rate in the first quarter of 2026 was 13% compared to 13.9% in the first quarter of 2025. GAAP diluted EPS for the first quarter of 2026 was $3.34, up 42%, as compared to $2.35 in the first quarter of 2025. Our non-GAAP diluted EPS was $3.87 in the first quarter of 2026, up 51%, as compared to $2.57 in the first quarter of 2025.
Our backlog of orders as of March 31st, 2026, was $30.2 billion, more than $7 billion higher than the backlog at the end of March 31st, 2025. Approximately 71% of the current backlog was generated from outside of Israel. Approximately 49% of the backlog at the end of March is scheduled to be performed during the remainder of 2026 and in 2027, while the rest is scheduled to be performed during 2028 and beyond. The increase in backlog during the quarter came mainly from Israel. Net cash provided by operating activities in the quarter was $281 million as compared to $184 million in the quarter ended March 31st, 2025. Cash flow in the first quarter of 2026 was affected mainly by the strong increase in net income and an increase in contract liabilities.
During the first quarter of 2026, we delivered $210 million of free cash flow, up 30% from $161 million free cash flow generated in the first quarter of 2025. The board of directors has declared a dividend of $1 per share to be paid on July 6th, 2026. I will now turn the call over to Mr. Machlis, Elbit President and CEO. Bezhalel, please go ahead.
Thank you, Kobi. Following our strong financial performance, as Kobi just highlighted, the quarter was also characterized by high level of new business and contract awards for Elbit totaling over $4 billion, almost double the quarterly revenues. Our backlog reached a record level exceeding the $30 billion mark for the first time. This morning we announced that Elbit was awarded a new contract valued approximately $1.4 billion from a European customer for extensive military modernization programs. The modernized programs will provide improved maneuverability and survivability spanning the entire battle domain. The state-of-the-art solutions to be delivered include a variety of uncrewed autonomous solutions, enhanced networked land electronic warfare, precision-guided munition, artillery, and air-to-ground coupled with electro-optical designating and reconnaissance systems, all networked by software-defined radios. This solution will improve the nation's operational effectiveness towards becoming an advanced and modern army.
The contract will be performed over a period of five years. This contract reflects the breadth and attractiveness of Elbit Systems defense portfolio, as well as our ability to deliver both highly capable best-in-class systems and comprehensive integrated solutions tailored to evolving operational needs. With demand rising well above historical level, we continue to focus on execution via expanding our production capabilities. We are scaling production capacity and investing in innovation to convert the strong demand into sustained revenue growth. As previously mentioned, we are increasing our CapEx investment as we continue to build additional capacity, mainly in Israel and in Europe. The increase in CapEx is driven by a disciplined and careful ROI analysis. The production facility in southern Israel is advancing well.
We recently announced the launch of new unmanned aerial system facility in Romania, marking another milestone in the company ongoing expansion across Europe and its long-standing partnership with the Romanian defense industry. We also completed the acquisition of UTACS, the U.K. facility in the U.K. We are further expanding our production facilities in other locations across Europe. Operating growth has highlighted rising demand for advanced defense solutions across Elbit Systems's portfolio, including precision-guided ammunition, unmanned aerial system, ISR solution, electronic warfare, and protection system. It is also creating a growing pipeline of opportunities as customers accelerate procurement and modernization efforts. Elbit started the year with numerous announcements. These include two important contracts for our APS solution, the Iron Fist. The first contract was an order for the U.S. Bradley armored vehicle. This ranged for a sum of over $200 million.
The second APS contract was for the CV90 combat vehicle to a NATO country. In January, we secured a contract to equip a nation customer with an advanced EW and DIRCM self-protect solution for helicopters worth $275 million. An award of $277 million was received for 30-millimeter turret ammunition by international customer. In April, we were awarded a $750 million contract for PULS rocket launchers to the Hellenic Armed Forces. Order environment in Europe continues to be especially strong, followed by Asia. Our backlog provides increased visibility to a continued strong revenue growth momentum. During the quarter, we continued to receive new orders from the Israeli MoD. These include integrated advanced command and control systems, avionics, EW systems, and advanced anti-missile system for the 12 CH-53 new helicopters valued at $130 million.
An additional multi-year order was received for supplying ammunition to the IDF for $183 million, strengthening the IDF's capabilities during challenging times. We also secured over $100 million in contracts for the next generation of Digital Ground Army program and border defense capabilities for the Israeli MoD. Elbit was also awarded a contract to supply helmet displays and tracking system for the Israeli Air Force Black Hawk helicopter fleet to enhance operational capabilities and flight safety. In May, we signed a contract for the IMOD for the development of an extended range capability for the F-35 fighter jets manufactured by Lockheed Martin. The new capability is expecting to extend the aircraft's operational range, reduce reliance on aerial refueling, and enhance operational flexibility across long-range missions. This contract could create additional opportunities for Elbit in the area of F-35 range extension worldwide. Elbit Systems of America continued to win significant contracts.
In March, the U.S. Army awarded ESA a contract to establish a new class of soldier capability, the Soldier Borne Mission Command, or SBMC. This is a crucial night vision system for the modern battlefield, which will be worn by war fighters who are able to decide and act in milliseconds. The contract, valued at $120 million, will enable Elbit Systems of America to develop the SBMC that will redefine how soldiers operate, connect, and dominate in complex battle environments. We believe this could be a revolution in soldier lethality built for the speed and complexity of modern combat. In May, we received a delivery order valued approximately $212 million for the continued production of Enhanced Night Vision Goggle – Binocular, ENVG-B, systems for the U.S. Army, which delivers expected through 2028.
While the Army has historically split ENVG production among multiple vendors, Elbit Systems of America was selected as the sole prime supplier for this award. Elbit has always prided itself on its strong partnership. I was honored to take part recently in two significant signing ceremonies in Germany. The first for our new JV with KNDS, which will enable the two companies to deliver the advanced EuroPULS rocket launchers, not only to Germany, but across Europe. The second signing ceremony was with TKMS. We have now announced two separate cooperation with TKMS, a German-based submarine shipyard, which will further expand our reach across Europe. In this recent agreement with TKMS, Elbit was once again chosen due to a strong EW capability across platforms, and for its maritime vessels in particular.
During the quarter, Elbit Systems has continued to advance its innovation agenda, prioritizing investment in next generation R&D initiatives with a growing focus on AI-driven capabilities. These efforts, supported through a combination of internal funding and strategic partnership, are driving the development of advanced solutions and strengthening our ability to address evolving operational requirements. Elbit employees are the driving force behind the innovation and the results, shaping the company's future with passion and commitment every day, and for this, I'm very grateful. Elbit enters 2026 with strong momentum and solid foundation for the future. With a record backlog, ongoing technology progress, expanding capacity, and highly committed global team, we are well-positioned to sustain our growth trajectory and create lasting value for our shareholders. With that, I will be happy to take your questions.
Thank you. The first question is from Seth Seifman of J.P. Morgan. Please go ahead.
Hey, thanks very much. Good morning, nice results. Wanted to start off asking about how your expectations for orders have changed for the year, especially perhaps as a result of the current conflict. We saw a lot of growth out of Israel in the quarter, perhaps the outlook for that segment has changed. If you could speak to that would be great.
Thank you. Our funnel of orders has never been so strong. We see growing potential for us in many regions. Of course, we see growing potential for us in the U.S. market. We also saw a growing strong momentum of new opportunities for us in Europe, mainly in Germany, in Scandinavia, in the Baltics, but also in other places all over the continent. Of course, we also see growing potential for us here in Israel, as well as in the Gulf countries, and also in countries in the Far East around China. Each region is different with its requirements. We have a very wide portfolio. Our strategy is based on two main pillars. One, where we have a very wide portfolio, and we are very vertical. The second element is we are local.
We have dozens of subsidiaries in many countries, and we are part of the ecosystem in each country, and we are willing to share our technology and IP from Israel between the subsidiaries and to create jobs and to be part of the local ecosystem in each country. To try to sum it up, we see growing potential for the company, and I believe that the backlog will continue to grow.
Okay. Excellent. Maybe just as a follow-up, if we think about the balance sheet and capital deployment, a very healthy net cash position at this time. Even with a conservative amount of leverage, that would still leave a fair amount of cash for the company to deploy. How are you thinking about the opportunities to use the balance sheet a bit more?
Thank you, Seth. As you mentioned, we have a very strong balance sheet, but we maintain very strict capital deployment. We first prioritizing R&D, as we are doing almost 7% of our revenue in R&D, of self-funded R&D, which is, as you know, almost or more than double than the average peers. Secondly, we are increasing our CapEx investment to meet the high demand that we see in the markets. We announced recently that we doubled the dividend payout to investors from $0.50 to $1 a share.
On that, we are very keen to do acquisitions. We are looking actively in markets. In the first quarter, we announced an acquisition of U-TacS, which is a UAV company in the U.K. We will have further announcements on acquisitions as we dynamically looking for new acquisitions to enhance our portfolio.
All right, great. Thank you very much.
Thank you.
Thanks, Seth.
The next question is from Kristine Liwag of Morgan Stanley. Please go ahead.
Hey, good morning, Bootsy, Kobi, and Daniella. I guess good afternoon to you guys. I was wondering, you talked about with this conflict we're seeing anti-UAS systems is even more critical. I was wondering, in addition to the developments you're making in directed energy, can you talk about what else is in your anti-UAS portfolio? Also in this kind of a conflict that we're seeing, how relevant or cost competitive are your platforms versus what's available? As demand materializes for something like this, when can you start delivering incremental ones, if you were to get sovereign orders?
Thank you. We are investing quite a lot in energy weapons. High-power laser is just one of them. We are progressing very well on developing the high-power laser. Actually, we already delivered power laser source to the ground solution here in Israel. In parallel, we are leading a development of an airborne high-power laser. Many hundreds of engineers are working on the development of this system currently in Israel, and you will start seeing deliveries of sub-elements or partial deliveries quite soon from this new development. I believe that such a system can change the entire way countries will defeat drones and UAVs and cruise missiles and even additional threats. This is only one part of our counter-drone solution.
We have many sensors which are helping us to build an enemy picture to understand exactly where the threat is, where it's coming from, and where it's heading to based on radar that we are developing and manufacturing based on seeking capabilities based on electro-optics, all managed by a strong AI algorithms. We have several effectors. High-power energy is just one of them. We have different jammers, we have kinetic solutions and others, and actually all, once again, all managed by AI. It's part of our counter-drone solution. We are already deploying counter-drone solutions in Israel as well as in Europe, and we believe that this segment will continue to grow for us in the future.
Morning, Christine. As to your other questions, we are determined to be cost competitive and cost effective to meet our customers' expectations. This is a major issue in the company to maintain cost effectiveness. As to the capacity increase, we meet now huge demand, a flash of demand that we see from different markets, as Bootsy mentioned. This is why we decided on the CapEx increase in the company, to meet this very high demand.
Great. Super helpful. I think following up on Seth's question on the significant orders that you received and also, you've got a record backlog now. When we look at the growth profile of Elbit, you guys have been very consistent about having a reasonable growth that's sustainable. As we look at geopolitical trends today, it seems like the cost of sovereignty globally is going up. How do you think about what the company size of revenue could be three to five years from now, especially as you look to deliver on this record backlog, you increase your capacity. In three years or in five years, could we see revenue potentially double? That's kind of what you did over the past five years. Revenue almost doubled there. Just want to see if those are possible based on what you have in the pipeline in front of you.
As you know, Christine, we don't give guidance. We maintain what we told you and the market that our internal target is to have around mid-teens revenue growth this year. Also with the high demand that we see in our market and our conversion effectiveness, we see the same for next year. Other than that, it would be hard for us to predict.
I would like to add to that saying that we see a huge funnel ahead of us of new opportunities and we are working hard to make this funnel part of our future backlog. I believe that the company will continue to bring significant new orders like the one we brought today, and will continue to grow its revenues also in the future. We continue to work also on our bottom line. We hope to continue to improve the OP numbers as well.
Expanding margins is a key priority to the company, and we're committed internally to do that.
Great. Thank you very much.
Thanks, Christine. The next question is from Sheila Kahyaoglu of Jefferies. Please go ahead.
Good morning, guys, and thank you so much for the time and great quarter.
Thank you.
Maybe just on Q1, off to a great start up 16% on revenues between Land, ISR, and C4I, all up double digits. I guess, how do you think about the demand environment evolving for the rest of the year? Where are you seeing trends better than your expectations?
Good morning, Sheila. We expect the segments to perform in the rest of the year with Land leading the segments in revenue expansion, as we see the strong demand predominantly for Land projects and programs. We see also very strong ISR and C4I demand, and also we're very pleased with Elbit Systems of America performance, both on the top line and more than that on the bottom line of increasing and expanding margins consistently. This is for our projection for the rest of the year.
Got it. Maybe just continuing on the backlog and CapEx comments a little bit. Kobi, I don't know if you could elaborate a bit more on the capacity. Elbit has been investing a decade plus in advance. Can you talk about the capacity investments today and how we should think about the medium-term outlook for CapEx and just what you're facilitators for at the moment?
We have invested a lot in the new one ERP systems, which we inaugurated four years ago, and it's now company-wide ERP system. Without this system, we cannot reach any of these performance numbers. This is done. This investment is behind us. We also invest heavily in AI performance and solutions. This is a key priority for investment. Then we are increasing our investment mostly in the Land domain facilities, which we heavily invest in. On top of that, we are highly investing in robotics and automation to be more efficient and to deliver better task results to our customers. Trying to sum it up, we are keen to do around 3% of revenues in CapEx investment in the near future.
Got it. Thank you so much.
Thank you.
Thanks, Sheila.
The next question is from Ron Epstein of Bank of America. Please go ahead.
Hey. Good afternoon, guys. I hope you're doing well.
Thanks.
Thanks, Ron.
If you could talk to maybe the supply chain as you ramp, you've got a pretty aggressive ramp ahead of you. Where are you seeing any choke points, shortages? Can you get enough energetics, materials, labor? How's that all going as you ramp?
Thank you, Ron. Good morning. I believe that we were able to resolve all our supply chain issues. We had supply chain issues until a year ago or even less than that. I don't see currently any bottlenecks in supply chain. We have enough material, including energetics. We are also very vertical. Important to mention that part of our strategy is to be very vertical. We try to control our destiny as much as we can. We have several suppliers for each element which we are buying outside from the company. We have also invested also in inventories in some cases, mainly in energetics. I don't see currently the supply chain as a bottleneck for the company growth.
Got it. How about on the labor front?
Also on labor, I must say is that we have recruited about 2,000 people last year, and we are about to recruit the same amount of people also this year in Israel as well as abroad. Currently, we have about 24,000 employees, out of them 40,000 here in Israel and about 10,000 abroad. Out of them, about 7,000 engineers. We are able to offer to our employees very challenging work and with a lot of meaning, and also an ability to change positions between the different domains in the company, which increase the opportunities. Currently, we don't face major issues in recruiting people, not in Israel as well as not abroad.
Got it. Thank you very much.
Thank you, Ron.
Thank you, Ron.
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 03-925-5900, and internationally, please call 972-3-925-5900. A replay of the call will also be available on the company's website, www.elbitsystems.com. Mr. Machlis, would you like to make a concluding statement?
Thank you to everyone who joined us today for your continued interest and support. Have a good day, and goodbye.
Thank you. This concludes the Elbit Systems Ltd. first quarter 2026 results conference call. Thank you for your participation. You may go ahead and disconnect.