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spk01: Ladies and gentlemen, thank you for standing by. Welcome to the LTCH Limited fourth quarter and full year 2020 financial result 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. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded. Before I turn the call over to Mr. Eliafeh, Chief Executive Officer, and Alon Mualem, Chief Financial Officer, I'd like to remind you all that LTCH's earning released today and this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities and Exchange Act of 1934, as well as certain non-GAAP financial measures. Before making any investment decisions, we strongly encourage you to read our full disclosures on forward-looking statements and use of non-GAAP financial measures set forth at the end of the earning release as well as review our latest filing with the SEC for important material assumptions, expectations, and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements. These forward-looking statements are projections and reflect the current beliefs and expectations of the company. Actual events or results may differ materially. LTCH undertakes no obligation to publicly release revisions to such forward-looking statements to reflect events or circumstances occurring subsequent to this date. I will now turn over the call to Mr. Eli Yaffe. Mr. Yaffe, please go ahead.
spk04: Mr. Thank you. Good morning, everyone. Thank you for joining us, and welcome to LTECH's 2020 First Quarter and Full Year Earnings Call. With me is Alon Mualim, our Chief Financial Officer. We will begin by providing you with an overview of our business and summary of the principal factors that affected our results in 2020, followed by the detailed financial results. After our prepared remarks, we will be happy to answer any of your questions. By now, everyone should have access to our fourth quarter press release, which was released earlier today. The release will also be available on our website at www. This is the eighth quarter in a row that we achieved both operating and net profit, with a cumulative 12-month EBITDA of $4.6 million. We achieved this result despite higher financial expenses due to devaluation of the US dollar against the new Israeli shekels during 2020. Our revenues. in the full year of 2020 increased to $36.7 million from $34.8 million in 2019 that represent 5.5% growth in revenue year over year. Our revenues in the fourth quarter of 2020 rose to $9.5 million from $8.6 million in the fourth quarter of 2019 that represent 10.5% increase. We are glad that the fourth quarter results continued to reflect the growth in our revenues and the continued improved operation efficiencies. The outbreak of the spread of the coronaviruses created new operational and business challenges, including the shortage of Pyrolux raw material that we are dealing with in 2021. Eltek qualified ahead of time alternatives to the Pyrolux, but this take time to Eltech customers to improve it. Eltech sales that we cannot produce due to the parallel shortage will be delivered in the near future. We have managed successfully through the COVID pandemic in 2020 because of the made necessary adjustment, increased revenue from the defense sector, raised additional funds through the right offering and obtained loans with preferred terms. I am also pleased with the continued improvement in production efficiency that is evident in our improved operation profit, which more than doubled year-over-year. Our diversified end market allowed us to grow revenue year-over-year, mainly in the Israeli market and the Netherlands. In addition, strong operational execution overcame production inefficiencies and extra costs due to COVID-19. The COVID-19 pandemic created operational difficulties and employees' concerns. I am extremely proud of our employees' efforts to deliver excellent performance despite of the challenges of this environment. We are continuing to invest in new equipment in order to benefit from the soft market in the capital equipment for manufacturing. During the second half of 2020, we installed and began to operate a new state-of-the-art DES line, which is one of the main PCB production lines, and four new optical-oriented drilling machines, where and now are in operation. In order to benefit more from the soft market of capital equipment, Eltech applied and was awarded a grant from the Israel Investment Authority that will fund 15 to 20% of the Eltech's expected $1.5 million investment in the advanced manufacturing equipment. As we already notified, major portion of LTEK investment program that are under the grant program are expected to be completed and become operational by the mid of 2021. The recent investment and the planned future investment will strengthen LTEK manufacturing capability and increase our competitiveness by implementing improved production processes and adoption of industry 4.0 technologies. In addition, As we already announced, Eltek received final approval from the Israeli Innovation Authority for a 50% royalty-bearing participation in approximately $250,000 for 2021 R&D program. This 2021 R&D program is meant to enable Eltek to achieve significantly faster production rate and reduce scrap. The 2021 R&D program, if succeeded, will yield a growth in manufacturing capacity with minor investment. The fruits of 2021 R&D programs, if succeeded, will enhance LTEK's ability to offer by the end of 2022 highly reliable printed circuit boards and a shorter production time at reduced cost. The two prior programs that were approved in 2017 and 2020, together with the newly 2021 program are part of the technology roadmap that LTCH launched as part of its strategic plan to become an innovative industrial leader for low-quantity production of high-performance printed circuit boards. I am proud that the fruits of the 2017 R&D program already contributed to LTCH sales during 2020 and going forward, while the fruits of ELTECH 2020 R&D program will arrive if success, if succeed in 2022. During 2021, we plan to continue our investment in new equipment and the expansion of our facility and infrastructure to support our long-term sales course. The increase in our top line in 2020 reflects the continued market recognition of our highly high quality and reliable products, mainly in the flex PCB sector. Our revenue from the defense sector and contract electronic manufacturers grew from $28.1 million in 2019 to $31.6 million in 2020, 12% growth year-over-year. Our customers continue to see the value proposition of our products and have a great deal of trust in our company and its capabilities. We will continue to pursue new business opportunities and increase customer design engagement activity that will leverage our advanced technology capabilities. We remain focused on operational excellence by using advanced technology and financial discipline and in making the necessary adjustment to address the challenges we face from the widespread health crisis and the shortage of raw materials. We will continue to work delightfully on expanding our business while maintaining the trends of improved operational margins and results. I will now turn the call over to Alon Moalem, our CFO, to discuss our financial.
spk03: Thank you, Eli. I would like to draw your attention to the financials for the full year and the fourth quarter of 2020. During this call, I will be discussing certain non-GAAP financial measures LTIC uses EBITDA as a non-GAAP financial performance measurement. Please see our earnings release for its definition and the reasons for its use. First, I will go over the highlights of the full year of 2020. As Eli said, revenues for the full year of 2020 went up to $36.7 million from $34.8 million in 2019 an increase of 5.5% year over year. Gross profit increased by 28.3% in 2020, reaching 7.7 million or 21% of revenues compared to gross profit of 6 million or 17.3% of revenues in 2019. Operating profit was $3 million in 2020 compared to an operating profit of $1.4 million in 2019.
spk01: I'm sorry for the interruption. There is noise from the speaker line. We will reconnect them. Please excuse the interruption. Ladies and gentlemen, thank you for standing by. Mr. Muellen, please go ahead.
spk03: Thank you very much. Sorry for the interruption. Operating profit was $3 million in 2020 compared to an operating profit of $1.4 million in 2019. Net profit was $2.6 million or $0.58 per share in 2020 compared to net profit of $1.8 million or cents per share in 2019. EBITDA was 4.6 million in 2020 compared to EBITDA of 3.8 million in 2019. During 2020, we enjoyed positive cash flow from operating activities of 3.3 million compared to an operating cash flow of 2.6 million in 2019. As of December 31st, 2020, we had cash and cash equivalents of 4.7 million compared to 1.6 million at the end of 2019. Now I will go over the highlights for the fourth quarter of 2020 compared to the fourth quarter of 2019. Revenues for the fourth quarter of 2020 were 9.5 million, up from revenues of 8.6 million in the fourth quarter of 2019. The growth profit increased by 46.7% to 2.2 million in the fourth quarter of 2020 from 1.5 million in the fourth quarter of 2019. Net profit was 766,000 or 16 cents per share in the fourth quarter of 2020 compared to net profit of 370,000 or $0.08 per share in the fourth quarter of 2019, an increase of 107% year over year. EBITDA was $1.4 million in the fourth quarter of 2020 compared to EBITDA of $817,000 in the fourth quarter of 2019. Cash flow used in operating activities was $497,000 compared to 141,000 of cash used in operating activities in the fourth quarter of 2019. During the fourth quarter of 2020, we completed a rights offering to our shareholders and raised $5.6 million net. The proceeds from the offering were used in part to repay the loan from NISTEC, our controlling shareholders, as well as for working capital and other general corporate purposes, including investment in fixed assets. This fundraising, together with the positive operating cash flow we achieved in 2020, improved our current ratio from 0.92 at the end of 2019 to 1.94 at the end of 2020. As of December 31st, 2020, our short-term credit and loans were down from 24.5% of the balance sheet at the end of 2019 to 1.9% at the end of 2020. And our equity to total balance sheet increased to 43.4% at the end of 2020 compared to 27.5% at the end of 2019. As Eli mentioned before, we remain focused on operational excellence and financial discipline, as well as our long-term strategic growth goals. As previously indicated, we have an outstanding shelf registration statement that provides the company with the ability to raise additional funds to support our planned growth and accelerate the expansion of our business. We are now ready to take your questions.
spk01: Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the headset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is for Michael Wu of Private Investors. Please go ahead.
spk02: Hello. Hi. I have a question about the delay caused by the material shortage. So do you have any estimate volume that was not produced in Q1?
spk04: Yeah, thank you, Michael, for the question. As you know, we don't provide looking-forward statements. However, as we previously announced, we are facing shortage of key material that is used in the production of flexible and flex-rigid printed circuit boards. Therefore, our operation in the first quarter of 2021 will be negatively impacted. We are investing significant efforts in order to compensate for the challenging market condition, and we will continue to closely monitor the LTCH expenses and started a new expenses reduction plan at the end of 2020, at the beginning of 2021. Also, we have alternative raw material that we already qualified ahead of time, and we offer it to our customers, and we are right now in the process of getting, day after day, more and more parts moved from the pyrolux raw material to the new raw material that, by the way, is in a cheaper cost. We believe that sales will not be lose. It will not be show up. Some of the sales will not be show up in Q1, but it will be catch up later.
spk02: So I can assume that you didn't lose any order from, you know, the shortage, right?
spk04: We didn't lose orders, but we will delay the sales.
spk02: Okay, so we just push back. to Q2 or maybe Q3, you think that the delay will be fully recovered by what time frame?
spk04: We offer our customers not to delay and make push-outs, but we provide them offer to alternative raw material that we have already in our hands. We have enough inventory of the alternative raw material. Once the alternative raw material which is qualified by us, will be qualified by each customer separately, for each PCB separately, then we can not make push-out and make the sale immediately. Once the customer is insisting or take time to approve it, then you have to wait until we will get the prior looks. But we didn't face any other cancellation.
spk02: Okay, great, great. So I just want to confirm, you said the material... affect the flexible PCB only, right?
spk04: It's only for flexible PCB only, yeah.
spk02: Yeah, so based on my understanding, what is the flexible? So is that for all the flexible PCB, any flexible PCB, or just partially some of the PCBs?
spk04: No, we had some inventory before. So we use the inventory that we have, and we have some supply right now, but it's limited supply. So we face some difficulties, but by providing alternatives, we believe that customers will move to the alternative raw material, and that will compensate for the time delay. And if customers insist on prior looks, then they have to wait.
spk02: Okay, great. So as of today, so, I mean, have you been able to kind of like substitute new material with the new material? I mean, for any orders, or you still have kind of delay stuff ahead into Q2?
spk04: The alternative material is already pre-qualified by Eltech years ago, and we presented to the market immediately when there was a shortness. The shortness is only for Eltech. It's a worldwide shortness, shortage, and by showing the customers alternative raw material, I think that we have some advantage.
spk02: Okay, but yeah, I'm just wondering to understand when this is going to be end. I mean, do you have any idea in Q2 if there still will be some... We got the announcement from DuPont, who is the manufacturer of the Parallux.
spk04: They said that they are going to build a new factory at investment of $250,000. They announced that the new factory will be operational in the second half of 2021. So our belief is that the shortness of this specific raw material, only this specific raw material, will be ended by the beginning of 2022. Oh, okay.
spk02: Okay, great. Okay, thank you.
spk04: As I explained, we have alternative raw material, and from day to day we sell more and more the alternative compared to the prior looks.
spk02: Okay, so basically your customer kind of accepting the new material quite quickly.
spk04: In penetration mode, yes. There is a penetration mode. It's not fast.
spk02: Okay, great. I won't ask further. So, second question is about do you have any numbers about 2021, the CapEx budget?
spk03: We intend to continue investing in equipment and fixed assets in order to bring in a better technology into Eltech. We started it in 2019 and moved faster in 2020, and we intend to increase it also in 2021. Okay. So,
spk02: I have a question about your capacity. So are you on full capacity? I mean, if you're running on full capacity, what could be achieved? What is the revenue around, like $40 million or something? Do you have any idea?
spk04: No, we are not at full capacity. After we installed the desk line last year, and the desk line right now is in full operation, we don't have constraints.
spk02: Okay, so theoretically, if you're in full capacity, what is the revenue you can reach? Do you have any estimate?
spk04: It depends upon the prices, and we don't give looking forward statements like that.
spk02: Okay, but do you have any numbers of the percentage of the capacity you're currently running, maybe just from volume size?
spk04: Theoretically, we can add on this slide, on this equipment we can add another 30% sales.
spk02: Oh, that's great, that's great. Okay, so you do have any new equipment this year, in 2021?
spk04: Yes, as I mentioned previously what I described before, we are going to have by the mid of 2021, we are going to have more capital investment that we are going to get at very attractive prices because it's soft market and we get grants also from the government.
spk02: So what is the capacity will be increased? Do you have any percentage lines?
spk04: It will stay 30%. And the equipment that we are going to install is oriented to efficiency increase.
spk02: OK. OK, great. I have no further questions. Thank you.
spk04: Thank you, Michael.
spk01: If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we poll for more questions. There are no further questions at this time. Before I ask Mr. Yaffe to go ahead with his closing statement, I would like to remind the participants that a replay of this call will be available tomorrow on LTCH's website at www.nistechltch.com. Mr. Yaffe, would you like to make your concluding statement?
spk04: Before we conclude our calls, I would like to thank all of our employees for their efforts to make LTEX profitable again and capitalize our strengths and renew our position as a leading high-end PCB manufacturer. I would like to thank once again to all our customers, partners, investors, and the LTEX team for their continued support. I wish everyone good health and happy Passover. Thank you all for joining us on today's call. Have a good day.
spk01: This concludes the LTCH Limited Fourth Quarter and Full Year 2020 Financial Result Conference Call. Thank you for your participation. You may go ahead and disconnect.
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