Israel Aerospace Industries (IAI) Ltd., a leader in the Israeli military and commercial homeland defence and aerospace markets, issues its consolidated financial statements for the periods of nine and three months ended September 30, 2023.

• 18 per cent increase in net income in the nine months ended September 30, 2023, to about $239 million compared with about $202 million in the corresponding period of 2022, the most profitable first nine months in the Company's history. Increase in net income in Q3 2023 to about $74 million compared with about $73 million in Q3 2022.
• 3 per cent growth in EBITDA in the nine months ended September 30, 2023, to about $487 million (about 12.6 per cent of sales) compared with about $473 million (about 13.1 per cent of sales) in the corresponding period of last year. EBITDA in Q3 2023 amounted to about $158 million (about 11.9 per cent of sales) compared with about $163 million (about 13.1 per cent of sales) in Q3 2022.
• Gross profit increased in the nine months ended September 30, 2023, to about $682 million (about 18 per cent of sales) compared with about $647 million (about 18 per cent of sales) in the corresponding period of last year. Increase of about 3 per cent in gross profit in Q3 2023, amounting to about $226 million (about 17 per cent of sales) compared with about $220 million (about 18 per cent of sales) in Q3 2022.
• 8 per cent increase in sales to about $3,873 million in the nine months ended September 30, 2023, compared with about $3,601 million in the corresponding period of 2022. Increase of about 7 per cent in the Company's sales in Q3 2023 to about $1,333 million compared with about $1,242 million in Q3 2022.
• 26 per cent increase in in-house R&D expenses in the nine months ended September 30, 2023, to about $174 million compared with about $138 million in the corresponding period of 2022. In-house R&D expenses in Q3 2023 amounted to about $65 million, compared with about $48 million in Q3 2022.
• On July 12, 2023, S&P Maalot raised the Company's local credit rating to the maximum ilAAA/Stable and its international rating to BBB+/Stable.
• On May 17, 2023, the Company's Board approved the distribution of a dividend of $104 million for the profits of 2022. The Board's decision is pending the approval of the Government Companies Authority and the General Assembly which as of the report publication date have yet to be obtained.
• The Company's free cash flow is approximately $1.3 billion.

Amir Peretz, Chairman of the Board of Directors of IAI: "We conclude the third quarter of the year with a sense of stability which enables us to deal with the challenges that the current fighting will create in the fourth quarter. Our third-quarter results indicate a continuation of the trend showing an increase both in IAI's contracts and profits. I am proud of our women and men, who were quick to show up for work on the morning of 7th October, and have since been fulfilling their different tasks 24/7, to ensure the success of both the Israel Defense Forces (IDF) and the State of Israel."

Boaz Levy, IAI's President and CEO: "The results for the third quarter of 2023 reflect the company's continuing growth and the wide variety of ground-breaking projects, whether in space, in the air, at sea, or on the ground, conducted for the Israeli defense establishment and for our customers around the world. As before, and so too in this quarter, our partners have placed their trust in us thereby enlarging the company's portfolio of signed contracts and the consequent business results. Our products are playing a significant role in the current 'Swords of Iron' operation, and our employees continue to work at all levels to strengthen Israel's defense capabilities, while also fulfilling our obligations to our partners and customers abroad."

Main data for the nine-month and three-month periods which ended on September 30, 2023 ("the reporting period" and "Q3 2023", respectively)

The Company's sales in the reporting period grew to about $3,873 million compared with about $3,601 million in the corresponding period of 2022, an increase of about 8 per cent, deriving from increased sales in all the Company's business Groups.

Sales of the Military Groups (*) in the reporting period increased by about 8 per cent to about $3,249 million compared with about $3,006 million in the corresponding period of 2022, an increase of $243 million. Sales of the Aviation Group (*) in the reporting period increased to about $1,026 million compared with about $996 million in the corresponding period of last year.

The Company's sales in Q3 2023 amounted to about $1,333 million compared with about $1,242 million in Q3 2022, an increase of about 7 per cent, deriving from increased sales in the Systems Missiles & Space Group and the ELTA Group.

Sales of the Military Groups (*) in Q3 2023 increased by about 9 per cent to about $1,113 million compared with about $1,017 million in Q3 2022. Sales of the Aviation Group (*) in Q3 2023 amounted to about $351 million, similarly to sales in the corresponding quarter of last year.

Sales for export in the reporting period accounted for about 72 per cent of sales, totaling about $2,772 million (with sales of about $1,101 million, representing 28 per cent of sales, to Israel), compared with about $2,607 million (and sales of about $994 million, representing 28 per cent of sales, to Israel) in the corresponding period of 2022.

Sales for export in Q3 2023 accounted for 69 per cent of sales totaling about $922 million (with sales of about $411 million, representing 31 per cent of sales, to Israel), compared with about 74 per cent, totaling about $923 million (and sales of about $319 million, representing 26 per cent of sales, to Israel) in Q3 2022.

Gross profit in the reporting period amounted to about $682 million (about 18 per cent of sales), compared with about $647 million (about 18 per cent of sales) in the corresponding period of 2022. Gross profit in Q3 2023 amounted to about $226 million (about 17 per cent of sales), compared with about $220 million (about 18 per cent of sales) in Q3 2022.

The gross profit of the Military Groups (*) in the reporting period increased by about 13 per cent to about $605 million compared with about $537 million in the corresponding period of 2022. The gross profit of the Aviation Group (*) in the reporting period increased to about $90 million compared with about $87 million in the corresponding period of last year. The gross profit of the Military Groups (*) in Q3 2023 increased by 5 per cent to about $201 million compared with about $191 million in the corresponding quarter of last year. The gross profit of the Aviation Group (*) in Q3 2023 increased to about $30 million compared with about $29 million in the corresponding quarter of last year.

Operating income in the reporting period amounted to about $292 million (about 7.5 per cent of sales), compared with an operating income of about $304 million in the corresponding period of 2022 (about 8.4 per cent of sales). The decrease in operating income was a result of an increase in R&D expenses in the reporting period and a nonrecurring profit recorded in the corresponding period of 2022 following the public offering of an associate. Operating income in Q3 2023 amounted to about $87 million (about 6.5 per cent of sales), compared with operating income of about $100 million in Q3 2022 (about 8.1 per cent of sales). The decrease in operating income in Q3 2023 was mostly the result of an increase in R&D expenses.

The operating income of the Military Groups (*) in the reporting period was about $272 million compared with about $264 million in the corresponding period of last year. The operating income of the Aviation Group (*) in the reporting period amounted to about $32 million compared with an operating income of about $28 million in the corresponding period of last year. The operating income of the Military Groups (*) in Q3 2023 amounted to about $87 million compared with an operating income of about $93 million in the corresponding quarter of last year. The operating income of the Aviation Group (*) in Q3 2023 amounted to about $11 million, similar to the corresponding quarter of last year.

Net income in the reporting period increased by 18 per cent to about $239 million (about 6.2 per cent of sales), compared with a net income of about $202 million (about 5.6 per cent of sales) in the corresponding period of 2022, the highest grossing first nine months in Company history. Net income in Q3 2023 amounted to about $74 million (about 5.6 per cent of sales), compared with a net income of about $73 million (about 5.9 per cent of sales) in Q3 2022.

The net income of the Military Groups (*) in the reporting period increased to about $263 million, similarly to the corresponding period of last year. The net income of the Aviation Group (*) in the reporting period amounted to about $27 million compared with a net income of about $41 million in the corresponding period of last year. The net income of the Military Groups (*) in Q3 2023 amounted to about $83 million compared with about $93 million in the corresponding quarter of last year. The net income of the Aviation Group (*) in Q3 2023 amounted to about $7 million, compared with a net income of about $12 million in the corresponding quarter of last year.

EBITDA in the reporting period amounted to about $487 million (about 12.6 per cent of sales), compared with about $473 million (about 13.1 per cent of sales) in the corresponding period of 2022. EBITDA in Q3 2023 amounted to about $158 million (about 11.9 per cent of sales), compared with about $163 million (about 13.1 per cent of sales) in Q3 2022.

In the reporting period, the Company recorded a net financial income of about $22 million, compared with net financial expenses of about $29 million in the corresponding period of 2022. In Q3 2023, the Company recorded a net financial income of about $11 million, compared with net financial expenses of about $4 million in Q3 2022.

In-house research and development expenses in the reporting period amounted to about $174 million, compared with about $138 million in the corresponding period of 2022 (accounting for about 4.5 per cent and about 3.8 per cent of sales, respectively). In-house research and development expenses in Q3 2023 amounted to about $65 million, compared with about $48 million in Q3 2022 (accounting for about 4.9 per cent and about 3.9 per cent of sales, respectively).

In the reporting period, the Company recorded net tax expenses of about $80 million compared with net tax expenses of about $76 million in the corresponding period of 2022. In Q3 2023, the Company recorded net tax expenses of about $26 million compared with tax expenses of about $23 million in Q3 2022. The Company's income is subject to the ordinary corporate tax rate in Israel - 23 per cent, and it is not entitled to any tax benefits pursuant to the Israeli Law for the Encouragement of Capital Investments, 1959 as it is a wholly-owned government company. The sale of any interests in the Company, even at a minuscule rate, to a non-government party will render the Company eligible for a reduced corporate income tax rate ranging between 6 per cent and 15 per cent as per said Law.

The order backlog as of September 30, 2023, amounted to about $16.6 billion, compared to about $15.6 billion at the end of 2022, the highest order backlog ever recorded by the Company. 72 per cent of the order backlog is held for sales to foreign customers that are widely geographically dispersed, based on a large variety of projects, and secures about 3.5 years of operation given current sales volumes.

Positive cash flows from operating activities in the reporting period amounted to about $461 million compared with positive cash flows from operating activities of about $675 million in the corresponding period of 2022. The positive cash flows from operating activities in Q3 2023 amounted to about $6 million compared with positive cash flows from operating activities of about $28 million in Q3 2022.

Condensed Balance Sheet Data ($in millions)

	September 30, 2023		December 31, 2022
	Amount	% of total balance sheet	Amount	% of total balance sheet
The Group's total assets	7,633	100%	6,922	100%
Of which:
Current assets	5,752	75%	5,207	75%
Non-current assets	1,881	25%	1,715	25%
The Group's total liabilities	6,284	82%	5,688	82%
Of which:
Current liabilities	6,001	78%	5,374	78%
Non-current liabilities	283	4%	314	4%
Equity	1,349	18%	1,234	18%
Current ratio	0.96		0.97
Quick ratio	0.80		0.82

Condensed Profit and Loss Data ($in millions)

	Nine months		Increase (decrease) compared to	Three months		Increase (decrease) compared to
	ended September 30,		corresponding quarter of	ended September 30,		corresponding quarter of
	2023	2022	last year	2023	2022	last year
Sales	3,873	3,601	8%	1,333	1,242	7%
Gross profit	682	647	5%	226	220	3%
% of gross profit from sales	17.6%	18.0%		17.0%	17.7%
Research and development expenses	174	138	26%	65	48	35%
Costs of early retirement	1	(1)	-	2	-	-
Operating income	292	304	(4%)	87	100	(13%)
% of operating income from sales	7.5%	8.4%		6.5%	8.1%
Net income	239	202	18%	74	73	1%
% of net income from sales	6.2%	5.6%		5.6%	5.9%
EBITDA (*)	487	473	3%	158	163	(3%)
% of EBITDA from sales	12.6%	13.1%		11.9%	13.1%

(*) Operating income before financial expenses (income), net and tax expenses, with the addition of depreciation and amortization.