Elbit Systems Ltd (ESLT) Q2 2021 Earnings Call Transcript

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Elbit Systems Ltd (ESLT -2.24%)
Q2 2021 Earnings Call
Aug 12, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems Second Quarter 2021 Results Conference Call. [Operator Instructions] Following management's formal presentation, instructions will be given for the question-and-answer session. [Operator Instructions] You should have all received by now the Company's press release that is available in the News section of the Company's website, www.elbitsystems.com.

I would now like to hand over the call to Rami Myerson, Elbit System's Investor Relations Director. Rami, please go ahead.

Rami Myerson -- Director of Investor Relations

Thank you, Michal. Good day, everyone, and welcome to our second quarter 2021 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 statement in the Company's press release issued earlier today also refers to the contents of this conference call.

As we do every quarter, we will provide you with both our regular GAAP financial data as well as certain supplemental non-GAAP information. We believe that this non-GAAP information provides additional detail to help 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.

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 quarter and beyond. We will then turn the call over to a question-and-answer session.

With that, I would like now to turn the call over to Yossi. Yossi, please.

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

Thank you, Rami. Hello, everyone, and thank you for joining us today. The results of our second quarter reflect sustained demand for Elbit Systems solutions and services from our customers around the world, as reflected in the growth in revenues and the backlog and an encouraging operational improvement.

Second quarter results include the results of Sparton and Rokar acquired in the beginning of April. At the beginning of July, we completed public tenders for three series of notes, raising approximately $600 million. S&P Global Ratings Maalot, an Israeli rating agency assigned its Israeli AA rating with a stable outlook to the notes, which are traded on the Tel Aviv Stock Exchange. The significant participation by investors in the tenders provides a strong vote of confidence in the Company.

I will now highlight and discuss some of the key figures and trends in our financial results. Second quarter revenues were $1,302 million increased 21% year-over-year, a major part of the growth was organic in addition to the contribution from Sparton. In terms of annual revenue breakdown across our areas of operation, airborne systems accounted for 40% of total quarterly revenues and increased year-over-year, mainly due to the airborne precision-guided munitions sales. Land systems accounted for 22% of total revenues, a similar level of revenues to the second quarter of 2020. C4ISR at 26% of revenues increased year-over-year, primarily due to the acquisition of Sparton.

Electro-optics accounted for 8% of total revenue and declined year-over-year, mainly due to the phasing of Elbit Night Vision recent programs in the U.S. I would like to note that significant volumes of electro-optic equipment are included on solutions that we report as part of our airborne, land and C4I systems areas of operation. Other sales were 4% of revenues and increased significantly year-over-year due to growth at the U.S. medical device subsidiary.

Our diverse geographic revenue base is important to the long-term sustainability of our business. In the second quarter, North America was the largest, contributing 34% of our revenues, Israel was 21%, Asia Pacific 26% and Europe 16%. The growth in the U.S. was mainly due to the Sparton acquisition and the revenues from non-defense medical device sales. Asia Pacific revenues increased, mainly due to the sales of precision-guided munitions.

The non-GAAP gross margin for the second quarter was 26.6%, compared to 26.5% in the second quarter of 2020. GAAP gross margin in the second quarter of 2021 was 26% of revenues, in line with the second quarter of 2020. The sequential improvement in gross margin compared to the first quarter of 2021 is encouraging and reflects the initial benefits of cost control measures we adopted to help mitigate the financial impact of the stronger shekel and the COVID-19 that we discussed with you previously.

The second quarter non-GAAP operating income was $114.9 million, or 8.8% of revenues compared with $92.7 million, or 8.6% of revenues last year. GAAP operating income for the second quarter was $117 million, similar to the second quarter last year. GAAP operating income in the quarter included the profit from the sale of a building in Israel recorded under the other operating income. GAAP operating income in the second quarter of 2020 included a profit from the sale and leaseback of two of Elbit Systems of Americas facilities.

The operating expense breakdown in the second quarter was as follows. Net R&D expenses were 7.3% of revenues, similar to the second quarter of 2020. Marketing and selling expenses were 5.8% of revenue versus 6.2% last year. G&A expenses were 5.1% of revenues, compared with 4.8% last year, due to the acquisition-related expenses in the quarter. Financial expenses were $7.1 million in the second quarter, compared with $16.5 million in 2020. The lower level of financial expenses was mainly as a result of gains from changes in fair value of financial assets and liable.

We recorded a tax expense of $20.1 million in the second quarter, compared to $23.6 million in 2020. The effective tax rate in the second quarter was 18.5%, compared with 20.8% in 2020. Our non-GAAP diluted earnings per share was $2.11 in the second quarter, compared with $1.56 in last year. The GAAP diluted EPS was $2.30 compared with $2.02 last year.

Our backlog of orders as of June 30, 2021 was approximately $13.6 million, $2.8 billion higher than the backlog at the end of June 2020 and $1.8 billion higher than that at the end of March 2021. Approximately 51% of the current backlog is scheduled to be performed during 2021 and 2022 and the rest is scheduled for 2023 and beyond. This ratio is lower than at the second quarter of last year following a number of multi-year contracts awarded recently. The order backlog is equivalent to more than 2.5 years of revenues and provides good visibility for future revenues.

Cash flow from operating activities for the second quarter was $170 million inflow, compared with $179 million inflow in the same quarter last year. The net proceeds from the recent bond offering will be included in our third quarter results. Following a review of capital structure and cash requirements, the Board of Directors declared a dividend of $0.46 per share for the second quarter of 2021.

I will now turn on the call -- over the call to Mr. Machlis. Please, Butzi.

Bezhalel Machlis -- President and Chief Executive Officer

Thank you, Yossi. I would like to begin by thanking the investors that participated in the tender for Elbit Systems Notes in July, for the strong vote of confidence in the Company for training. The record $13.6 billion backlog at the end of the second quarter included the $1.65 billion 20-year contract from the Hellenic Ministry of National Defense to establish and operate the International Flight Training Center over the Hellenic Air Force signed in Elbit.

Elbit Systems has developed a broad portfolio of market-leading training and simulation solutions for militaries around the world that are expanding the simulator and training capabilities. These solutions provide a more realistic training that better prepare the soldiers for a wide range of scenarios at a lower cost. Firefighting squadron in Greece. Elbit Systems operate the Israeli firefighting squadron on behalf of the Israeli Fire and Rescue Authority. This week, the Israeli government sent two firefighting aircraft from the squadron as well as an Air Force transport aircraft to Greece to assist the effort of the Greek Firefighters who are battling wildfires across the country. The delegation includes Elbit Systems' employees that will provide logistical support. I am proud that Elbit System is taking part in this critical mission as part of our commitment to protecting the environment in Israel and around the world.

Growth engines. At the Investor Day in April, we highlighted three medium-term growth engines: network precision munition, maritime systems and high power lasers. I am pleased with the progress that these growth engines demonstrated during the second quarter. Precision-guided munition was one of the revenue growth drivers in the quarter, as Yossi mentioned. The recent conflict in the south of Israel highlighted the growing threat pocket and missile [Phonetic] present to civilian population and military installation around the world, increasing emergency to develop more efficient and cost-effective solutions.

In June, Elbit Systems together with the Israeli MOD and Israeli Air Force successfully carried out a series of test of interceptions to shoot down drones with an airborne high-powered laser installed on a live aircraft. The successful interceptions were an important milestone in our development of airborne high-power laser systems that will be capable of defending large areas by intercepting multiples threats at high altitude.

Elbit Systems has made significant investment in recent years to develop and acquire comprehensive solution for the increasingly contested maritime domain. In April, we completed the acquisition of Sparton in the U.S. and received a $80 million contract in June to supply AI-powered SPECTRO XR electro-optical systems for monitoring for maritime forces of an Asia Pacific country. Elbit Systems SPECTRO XR is a multi-spectral long range electro-optical systems that provide naval, air and land forces with ISTAR capabilities in both day and night and under low visibility conditions. SPECTRO utilizes artificial intelligence to continuously scan for target, extract operational insight and reduce human errors.

In June, our U.K. subsidiary, Elbit System U.K. received $16 million contract to supply XACT Night Vision Goggles to U.K. Armed Forces. System from the XACT family have accumulated significant operational experience and have been selected by a number of major countries, including Germany and the Netherlands.

In June, our U.S. subsidiary, Elbit Systems of America, was awarded two orders with a cumulative value of $20 million to upgrade U.S. Army Pilot Night Vision Systems.

In June, Elbit Systems German subsidiary, Elbit Systems Deutschland, was awarded a $20 million contract to supply E-Lynx software-defined multi-channel radios to the Swedish Army. Under the contract, Elbit Systems will supply additional E-Lynx radios for vehicles as part of the Sweden tactical radio update program. Our E-Lynx radios have been selected by several armed forces across Europe, including Switzerland, Spain and other major countries.

In summary, our broad-based backlog continues to provide us with good visibility and we continue to see significant potential around the world for our leading high technology solutions.

And with that, I will be happy to take your questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] The first question is from Greg Konrad of Jefferies. Please go ahead.

Greg Konrad -- Jefferies -- Analyst

Good morning.

Bezhalel Machlis -- President and Chief Executive Officer

Good morning.

Greg Konrad -- Jefferies -- Analyst

Hey, how it's going? Just to start, first on airborne sensors or systems. You mentioned the strength in precision munitions. I mean how lumpy is that, or does this business reset at kind of this higher level, I mean just think about it going forward?

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

Well, the basics of this product lines, which are several of those, are coming from the acquired subsidiary IMI that we did in 2018. Now there is a big variety of products that are in that category that means airborne launched precision-guided munition. When we bought IMI, we had about 20% or less of international business at IMI, which includes a very low level of revenues from this kind of product lines. With our geographic spread of our marketing and contacts with the various customers, we were able to promote significantly the interest of customers in this kind of precision-guided munition, and we do see a significant growth over the years for this kind of family of products.

We -- our estimate is that this growth will continue into the future as well, particularly because we also introduced some significant upgrades in this kind of munition for improvement of launching capabilities on one side, an improvement of precision guidance on the other side. By the way, the acquisition that we did -- the smaller acquisition that we did this quarter, company by name of Rokar, we bought them from BAE, they do have the capability and the technology to improve the precision guidance of this kind of munitions. Therefore, looking forward, we do see we are very optimistic of continuous growth in this area.

Greg Konrad -- Jefferies -- Analyst

That's helpful. And I mean you brought up IMI, which I think you've done a good job kind of improving the margins. I mean margin stood up out in the quarter. Good sequential progression and some of the highest over the past several years. I mean how much did mix play into that, or have you been able to drive productivity where we kind of think about a nice step-up for margins as we go forward?

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

While we have a multi-year plan going out for over -- covering over five years, we are somewhere in the middle of performing and achieving the goals of this plan. We have another two years to go. I think we are ahead of what we initially planned. We are improving at a nice rate, the margins. And it looks like that there is still room to -- for improvement for the following two to three years. A major milestone that we will be achieving toward the end of '23, beginning of '24 is the movement of the manufacturing production facilities to the southern part of Israel into a new, modern production facility and through that also lowering the cost of labor and that will give another boost for improvement of profitability of production of these products.

Greg Konrad -- Jefferies -- Analyst

And then just last one for me. I mean, strong free cash flow in the quarter. You had a nice tailwind from working capital. I mean, any changes or thoughts around your assumptions for working capital as you kind of move through the year, given the good conversion in Q2?

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

Over the years -- over the quarters, we did have some delay in payments from one of our major customer, which is the Ministry of Defense here in Israel. During the second quarter, they did pay some of their billings. However, these are fluctuating a little bit. There may be some fluctuations in the next quarter. We are very optimistic that everything will be settled by year-end, because the delays were caused by the approval of the overall budget for -- of Israel, including the budget of the Ministry of Defense. This will be solved somewhere in November, and therefore everything -- it looks like that every outstanding billings will be paid by the year-end.

Greg Konrad -- Jefferies -- Analyst

Thank you.

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

Thanks, Greg.

Operator

The next question is from Dina Korshunov of Leader. Please go ahead.

Dina Korshunov -- Leader Capital Markets -- Analyst

Hi guys. How are you? And congratulation with your great results.

Bezhalel Machlis -- President and Chief Executive Officer

Thank you, Dina.

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

Thank you.

Dina Korshunov -- Leader Capital Markets -- Analyst

I have a couple of questions. I think the first one and the most interesting is that, what are the main segments that contributed to the big increase in the revenue of this quarter? Can you tell us? Do you think it's sustainable for some kind of amount, or is that something which happened just this quarter?

Bezhalel Machlis -- President and Chief Executive Officer

Dina, it's Butzi. Good afternoon. The growth in revenue is not related just for one line of business. We see it all over the portfolio. And it seems that the strategies that we have chosen is starting to bring results. The strategy is a wide portfolio of advanced wide portfolio on one hand. And being global is much as we can with local subsidiaries around the globe. And we see a growing demand on one hand for this portfolio, because of tensions around the globe and because of interest to increase defense budget. On the other hand, we also see a trend to create -- to support the local economies and to create more jobs. And the fact that we have so many subsidiaries around the world is certainly helping us to get contracts.

So the answer is, we see a growing demand for the whole portfolio all around the globe. And you will see in the backlog and this backlog should be converted into revenues and profit in the near future as you saw in these results, and I believe that this trend of growth in revenues and in profitability will continue. Talking about profitability, we invest a lot of efforts in order to increase effectiveness, efficiency and to create synergies between the different activities we have in the Company and that's why we are successful to gain more profit. And I believe that this trend will continue with.

Dina Korshunov -- Leader Capital Markets -- Analyst

I understand. Great. And then the high revenue volume contributed to the increase in the profitability in the quarter or just...

Bezhalel Machlis -- President and Chief Executive Officer

No, it's too different. The high growth in revenues is related to backlog, which is transformed into revenues. And the reason for the growth in profit is big efforts and very discipline we have implemented quite a long-term ago and it's starting to bring results to increase effectiveness and efficiency in the Company.

Dina Korshunov -- Leader Capital Markets -- Analyst

Understand. Right. And last question, do you expect some kind of decline in the results of next quarters, if there will be acceleration in COVID-19 restrictions in the world with Delta?

Bezhalel Machlis -- President and Chief Executive Officer

I think that we have proved that we know how to operate and how to be successful also under restriction because of COVID-19. And we understand that this pandemic will not disappear in the near future. And we are ready to continue to operate in the future also under new restrictions. And the fact again that we have so many subsidiaries around the globe is certainly helping us. And I think that we are ready to work on the new restrictions also, if they happen in the future.

Dina Korshunov -- Leader Capital Markets -- Analyst

Understand. Okay, great. Thank you guys.

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

Thanks, Dina.

Bezhalel Machlis -- President and Chief Executive Officer

Thank you.

Operator

The next question is from Pete Skibitski of Alembic Global. Please go ahead.

Pete Skibitski -- Alembic Global Advisors -- Analyst

Yes, good afternoon, Butzi and Yossi and Rami. Very, very nice quarter all around, guys.

Bezhalel Machlis -- President and Chief Executive Officer

Thank you.

Pete Skibitski -- Alembic Global Advisors -- Analyst

First question. The large cash advance that you guys received in the quarter, it was pretty sizable. Was that related to the Greek contract being signed, or is that related to something else?

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

It's a combination of various contracts. The Greek contract is definitely a significant contributor to that.

Pete Skibitski -- Alembic Global Advisors -- Analyst

Okay. And Yossi, I think you guys have been alluding to the implementation of the new implementation of your ERP system. Is that completed at this point? Is that an ongoing process? And has that been pretty important to the margin strength?

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

It's an ongoing effort. The plan and the implementation started about three years ago. It was a very detailed plan, and we are on plan, give or take some changes. Right now, by the end of this year, we will probably be completed around 70% of the implementation. And by the end of 2022, we expect to be close to 90% of implementation, maybe a little bit higher than that. So as I said, our financial report statements include all the capital investments that we did in that ERP system. They include all the expenses related with the implementation. But unfortunately, so far, we did not see the benefits coming through because not the whole organization is on the same system.

We start right now to see some of that very small amount of savings. But I think it looks like that somewhere in 2023, we will be -- we will face some more material improvement in cost, in reduction of inventory, because of commonality of items in shorter turnaround times and other benefits that will improve the operational performance of the Company, hopefully, including the cash flow.

Pete Skibitski -- Alembic Global Advisors -- Analyst

That's Great. Appreciate the color. Couple more for me. I want to ask about a program, the F-35, because I know you guys have a good amount of content on the F-35. And the reason I ask is because we've heard from other suppliers that there have been some revenue headwinds over the last couple of quarters, maybe two or three quarters call on the F-35 because of you like you kind of slow things down a little bit, they needed to kind of wind down some inventory. Have you guys kind of been through that, where you've had maybe some revenue headwinds on the F-35 for maybe the last couple of quarters, but maybe that should start to grow again maybe later this year into 2022? I don't know, if you could provide any color on that.

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

On the F-35, you are right that we have significant content. The helmet system is one of them. The full display in -- of the cockpit is another one. There's some other parts as well. So far, we are working with Lockheed Martin hand by hand, and our production plans are very closely related with their requirements. They give us some forecasts. And according to that, we work and of course, according to the purchase orders that we get from them. So far, I wouldn't say that we have experienced material headwinds, but we definitely work hand in hand with them to see that we adapt our engineering and production performance according to what they need. As I've said so far, nothing material yet.

Pete Skibitski -- Alembic Global Advisors -- Analyst

Okay, I appreciate that. And then last one, just with the large capital raise guides [Phonetic], I guess, I'm just curious in terms of how you're approaching kind of M&A going forward, how active you are, and also just kind of do you see gaps in the portfolio that you'd like to fill, kind of how you see your desire to reshape the Company going forward?

Bezhalel Machlis -- President and Chief Executive Officer

M&A is part of our strategy. It has been, it will continue to be. And the rationale behind that is to extend our portfolio on one hand and also to get additional global position in the global market. And we continue to look for opportunities. We are monitoring the market. We see some opportunities, which are relevant to us. And based on -- and as you said, we have the right capital. We have the capital right now to continue doing it. I think that we also move to the market that we know how to make acquisitions and how to merge the activities and how to get synergies from acquisitions and it will continue to be part of our future strategy as well.

Pete Skibitski -- Alembic Global Advisors -- Analyst

That's great. Appreciate the color. I'll get back in the queue. Thanks, guys.

Bezhalel Machlis -- President and Chief Executive Officer

Thank you.

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

Thanks, Pete.

Operator

[Operator Instructions] There is a follow-up from Pete Skibitski of Alembic Global. Please go ahead.

Pete Skibitski -- Alembic Global Advisors -- Analyst

Yes, thanks. Butzi, there was some press out there, some articles out there in the quarter about your ground, your mobile artillery system. I think it's called Sigma. I think James had an article. And I think it's still in development, but I think maybe it's nearing the end of development perhaps. Maybe you could give us a sense of what kind of domestic and international opportunities are out there for that system because I think it's maybe the most modern mobile system that's out there right now since it's finishing up development so?

Bezhalel Machlis -- President and Chief Executive Officer

Thank you. It's in the middle of development. We have a big contract in Israel for this Sigma 155 [Indecipherable]. It's a very sophisticated piece of equipment. It's a bit robust actually, and which can reach ranges for more than 40 kilometers with limited amount of the crew members. And it can fire guided munition as well, guided artillery shells. We are in the middle of the development. We're progressing well with our local customer in Israel. And we will start performing live shooting next year. And first systems will be completed around the end of next year.

We see a lot of the -- we see -- I agree with you that one of the most, if not the most advanced solution which is in the market right now. We see growing demand for that in several countries, and we are promoting it already in several countries. And I just want to add this -- in this quarter, we acquired Rokar from BAE here in Israel Jerusalem. And one of the technologies and one of the assets they have is a guided fuse, which can be added to a regular artillery projector to make it guided, which will actually enable us to provide a complete solution for customer, which included [Indecipherable] with all the automation embedded in it, a fire control system embedded, some reconnaissance capability collected can create target to the [Indecipherable] all type of the munition, which can be filed, including guided munition as well. So we can provide a full solution for our customer. And we -- and there is a growing demand for that. It was also published recently that the previous version of the gun was presented in the U.S. for some requirements, which are available in the U.S. market of the world, and it might be also an opportunity for us.

Pete Skibitski -- Alembic Global Advisors -- Analyst

Okay, that's great. I appreciate all that color. I guess last one for me. It seems like in terms of the government in Israel, things are kind of progressing now and are pretty stable. Could you just maybe give us an update in terms of, has the government made all of its appointments to the Israeli MOD, is the budget outlook fairly stable at this point? Just things like that maybe people like me internationally don't have as much visibility into.

Bezhalel Machlis -- President and Chief Executive Officer

Of course. There is an understanding here in Israel in the government about the size of the defense budget for the coming years. And actually, the agreement to which has been made between the Minister of Finance and the Minister of Defense is presenting a growth in defense spending [Phonetic] as well. This budget -- the entire the national budget is under an improvement process in the country. And it should be concluded by the beginning of November. And then, it should be implemented. This is after more than two years -- more than two years results national [Phonetic] budget. And when this budget will be implemented, there are many additional opportunities for us, which I expect to happen. So that's a set of the budget. The budget is bigger and there are several opportunities forward with embedded in this budget. And this budget will enable the Israeli MOD to implement the plan, its five years plan to acquire new type of technologies to support these early forces. What's also important to mention that is the budget will be for two years to cover 2021 and 2022.

Pete Skibitski -- Alembic Global Advisors -- Analyst

Okay. So much -- much more visibility at this point it seems like than you've had in a while. So that's great. Thanks so much for the color, guys. Have a great day.

Bezhalel Machlis -- President and Chief Executive Officer

Thank you.

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

Thanks, Pete.

Operator

The next question is from Elad Kraus of Excellence. Please go ahead.

Elad Kraus -- Excellence -- Analyst

Hi, Butzi, Yossi and Rami. I have couple of questions. First of all, regarding the new businesses, do you see any change in the margins that you're selling regarding comparing to the past? Is it higher, lower, more of the same?

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

Well, I just want to clarify a little bit of how we work, so that you all understand. First of all, of course, the prices are set by the market. And that is where we compete on one end. There might be some moments because of changes in the economies in the various parts of the world and so long, but the prices are set by market competition. The cost element is set of course by our estimates of cost of the various programs, and on a multi-year basis and we definitely take into account anything for the future economic environment that could affect the cost of material and labor. The difference is the budget. So this is the process we're going through.

If we look at what we are getting, the new businesses that we acquire, then definitely, we can see that there are some movements but not major movements in the prices that we are getting on one hand. On the other hand, there is movement in the cost structure of our Company, which on a multi-year basis, we have a significant effort to reduce overheads to increase yields of production to centralize production and acquisition and the acquisition operations. And that will -- and as we mentioned earlier, the ERP system that we are implementing all of that should lead to effectively a lower cost structure of the Company, which we do see some movement already in that direction that helps us improve profitability. By the end of the day, the market is the one that is defining the prices in the competition stake.

Bezhalel Machlis -- President and Chief Executive Officer

I also want to add to that, that we have much more to offer to the market than we had few years ago because of the acquisitions we made and because of the synergies between all different part of the portfolio. And we have much more solutions to provide. And the fact that we control most of the technology in-house creates a big -- it creates opportunities for -- also for cost reduction of [Indecipherable].

Elad Kraus -- Excellence -- Analyst

Thank you. Another thing, do you see any major changes in the capex of the Company due to the fact that you're moving out from the central region [Indecipherable]?

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

Well, the capex, I would split that into two parts. The part which is I would call them ongoing, which supports the ongoing operation of the overall Company. In that, we do not see significant changes. There are two elements in the capex, which do affect the numbers that are, I would say one of a kind. One of it is the investment in the one ERP system, which is a significant investment over the -- over years, which does affect our capex to the tune of, I would say, $10 million to $20 million [Phonetic], maybe some more millions of dollars per year.

The other element, which is extraordinary, is the movement of the production facilities of IMI to the southern part of the country, which is also one of a kind. It does affect and it will affect also 2022 and 2023. I don't see a significant step-up in that part for the following two years, but it's a one of a kind. So if you look at what's happening in the capex in the last five years, let's say in the last three years, that we went through in the next two years upcoming, they do support the capex number does support these two major efforts, which are not recurring efforts. The recurring capex essentially is rather stable, maybe with some minor increases in some advanced technologies that requires specific engineering capabilities, but nothing outstanding.

Elad Kraus -- Excellence -- Analyst

All right. Thank you very much and great quarter.

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

Thanks a lot.

Operator

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 03-925-5900. And internationally, please call 9723-925-5900. A replay of this call will also be available at the Company's website, www.elbitsystems.com.

Mr. Machlis would you like to make your concluding statement.

Bezhalel Machlis -- President and Chief Executive Officer

I would like to thank all our employees again for the continued hard work, particularly in these challenging times. 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.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Rami Myerson -- Director of Investor Relations

Joseph Gaspar -- Executive Vice President and Chief Financial Officer

Bezhalel Machlis -- President and Chief Executive Officer

Greg Konrad -- Jefferies -- Analyst

Dina Korshunov -- Leader Capital Markets -- Analyst

Pete Skibitski -- Alembic Global Advisors -- Analyst

Elad Kraus -- Excellence -- Analyst

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