Elbit Systems (ESLT) Q1 2025: Backlog Jumps $2.7B as Land and Laser Demand Ignite Defense Cycle
Elbit Systems delivered a fourth straight quarter of double-digit growth, fueled by surging global defense demand and a record $23.1 billion backlog. Rapid expansion in land systems and advanced technologies like high-power laser solutions signal a robust multi-year cycle, with operational leverage and geographic diversification positioning ESLT for sustained outperformance. Management’s commentary and contract wins highlight a clear pivot to scalable, next-generation platforms as NATO and allied spending accelerates.
Summary
- Backlog Expansion Accelerates: Record orders across Europe and Israel drive a $2.7 billion backlog increase.
- Land and Advanced Tech Surge: Land systems and high-power laser solutions anchor growth and margin leverage.
- Multi-Year Demand Visibility: Management underscores enduring global defense spend, reducing cyclicality risk.
Performance Analysis
Elbit Systems posted a fourth consecutive quarter of double-digit revenue, operating income, and backlog growth, underscoring the company’s outsized exposure to the current global defense super cycle. Q1 revenues were well distributed geographically, with Europe (24%), North America (21%), Asia Pacific (18%), and Israel (32%) all contributing meaningfully, reflecting robust demand across regions as defense budgets expand in response to persistent geopolitical instability.
Segment performance was led by the Land division, up 48% year-over-year, propelled by ammunition and full system sales in Israel and Europe. Aerospace (+20%) and C4I and Cyber (+12%) also delivered solid growth, while Electronic Warfare (EW) and electro-optics posted a more modest 4% increase. Operating margins expanded on both a GAAP and non-GAAP basis, driven by scale and program mix, even as gross margins remained stable. Free cash flow surged to $161 million, aided by higher net income, strong contract advances, and a one-time land grant, while the $23.1 billion backlog—up 40% year-over-year—provides multi-year revenue visibility.
- Land Division Scale: 48% revenue growth, with integrated solutions and munitions driving both top line and profitability.
- Geographic Diversification: Israel and Europe remain core, but North America and Asia Pacific also contribute to resilience.
- Cash Generation Inflection: Free cash flow sharply improved as contract liabilities and net income rose, supporting future investment.
Operating leverage is becoming a more material driver as scale effects kick in, particularly in the Land and advanced technology segments, while the company’s ability to win and execute large, multi-year contracts is now a defining competitive advantage.
Executive Commentary
"Our backlog has reached a record of $23.1 billion, up 40% from last year. The ongoing conflicts in Ukraine and locally here in the Middle East continue to dominate the geographical agenda. These are evident in governments' decision-making around the world to increase defense budgets... propelling this super cycle we are seeing in defense spend, where we continue to see strong demand for Elbit's product and advanced technological solutions as evident in our growing backlog and sales."
Butzi Mutlis, President and CEO
"We had a very good start for 2025, as you mentioned. It was on plan... All of the segments grew from one digit to two digits, most of them two digits growth in this quarter. So it was on plan and it's on track in the company's growth."
Kobi Kagan, CFO
Strategic Positioning
1. Multi-Year Backlog and Global Exposure
Elbit’s $23.1 billion backlog—66% outside Israel—anchors multi-year revenue visibility, with 51% scheduled for delivery by end of 2026. This positions the company to benefit from both immediate and sustained global defense spend, especially as NATO allies accelerate procurement to meet new GDP targets.
2. Land Systems and Integrated Solutions
The Land division’s 48% growth reflects a strategic pivot to integrated, turnkey offerings, combining artillery, munitions, command and control, and electro-optics. The IMI acquisition has enabled full-spectrum land solutions, driving both margin and scale as demand in Europe and Israel intensifies. Management sees further upside as European orders ramp and operating leverage increases.
3. Advanced Technology Leadership: High-Power Lasers
Iron Beam, Elbit’s high-power laser system, is on track for operational deployment by year-end, with significant international interest. The $200 million Israeli contract and ongoing airborne solution development position Elbit as a global leader in directed energy weapons, a segment with outsized future potential as militaries seek scalable, cost-effective air and missile defense.
4. Portfolio Breadth and Innovation
Elbit’s diversified portfolio—spanning C4I, cyber, EW, aerospace, and night vision—enables cross-segment synergies and turnkey solutions for modern warfare. Recent wins in digital fire control, self-protection suites, and counter-UAS systems underscore the company’s ability to address emerging threats and customer requirements.
5. Operational and Financial Discipline
Margin expansion is increasingly driven by operational leverage and selective bookings, as management prioritizes higher-value contracts and disciplined cost management. Free cash flow strength supports ongoing R&D and targeted capex, while the company maintains flexibility to invest in next-generation platforms and M&A.
Key Considerations
Elbit’s Q1 performance reflects a confluence of record demand, product innovation, and disciplined execution, but the current environment also presents distinct strategic considerations for investors.
Key Considerations:
- Defense Super Cycle Endurance: Management expects elevated defense spending to persist, even if regional conflicts de-escalate, as deterrence and inventory rebuilding drive multi-year investment.
- Land Division Upside: As European stockpiling accelerates, further margin and revenue expansion is possible, especially as programs transition from Israel to export markets.
- Iron Beam Commercialization: High-power laser systems could become a major growth vector if operational milestones are met and international adoption expands beyond Israel.
- Cash Flow and Capital Allocation: Strong free cash flow provides optionality for R&D, capex (guided to $250 million for 2025), and potential M&A, supporting long-term innovation and market share gains.
Risks
Elbit remains exposed to geopolitical volatility, program execution risk, and potential delays in contract awards or deliveries, particularly as large-scale programs scale up. Currency fluctuations and hedging costs impacted financial expenses this quarter, and any moderation in global defense budgets or a sudden ceasefire in core regions could temper order momentum. Management’s visibility is high for the next two years, but longer-term demand depends on evolving threat perceptions and political priorities.
Forward Outlook
For Q2 2025, Elbit expects:
- Continued double-digit revenue growth, led by land and advanced technology solutions
- Backlog conversion and margin expansion as key operational priorities
For full-year 2025, management maintained its outlook for:
- Sustained revenue growth across all segments
- Capex of approximately $250 million
Management highlighted that defense spending tailwinds in Israel and Europe are structural, not just conflict-driven, and that operational leverage will remain a margin driver as backlog converts.
- Iron Beam land solution is expected to be operational by year-end, with airborne variant in active development
- Order pipeline remains strong, especially for integrated land and advanced technology systems
Takeaways
Elbit’s Q1 results confirm the company’s outsized leverage to the global defense upcycle, with record backlog, strong cash flow, and a differentiated portfolio of scalable, high-demand solutions.
- Backlog and Demand Signal: Multi-year order visibility and geographic diversification reduce cyclicality and support premium valuation multiples.
- Execution on Integrated Platforms: Land and advanced technology solutions are driving both growth and margin, with operational leverage now a material earnings driver.
- Next-Gen Tech as a Growth Catalyst: Iron Beam and directed energy platforms could unlock new addressable markets and reinforce Elbit’s innovation premium in future cycles.
Conclusion
Elbit Systems is executing at scale, with backlog, margin, and cash flow momentum that reflect both immediate conflict-driven demand and broader, structural shifts in global defense priorities. Investors should watch for continued backlog conversion, Iron Beam commercialization, and further leverage from export-driven land systems as the cycle matures.
Industry Read-Through
Elbit’s performance and commentary reinforce the durability of the current global defense cycle, with NATO and allied spending set to rise meaningfully through at least 2027. Integrated land systems, scalable munitions, and directed energy weapons are emerging as key procurement priorities, benefiting companies with broad portfolios and deep R&D pipelines. Cash flow strength and backlog visibility are now critical differentiators, and peers lacking geographic diversification or next-generation solutions may struggle to keep pace. The defense sector’s risk profile is shifting toward operational execution and program delivery, rather than demand uncertainty.