Eltek Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the LTCH Limited first quarter 2021 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 over the call to Mr. Eliafeh, Chief Executive Officer, and Alon Mualim, Chief Financial Officer, I'd like to remind you that LTAC's earning release 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 our non-GAAP financial measures. Before making any investment decisions, we strongly encourage you to read our full disclosures on forward-looking statements and the use of non-GAAP financial measures set forth at the end of our earnings release, as well as review our latest filings 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. ELTEC 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. Eliafeh. Mr. Eliafeh, please go ahead.

Thank you. Good morning, everyone. Thank you for joining us and welcome to ELTEC's 2021 First Quarter Earnings Call. With me is Alon Moalem, our Chief Financial Officer. We will begin by providing you with an overview of our business and a summary of the principal factors that affected our results in the first quarter of 2021, followed by the details of our financial results. After our prepared remarks, we will be happy to answer any of your questions. By now, everyone should have access to our first quarter earning press release, which was released earlier today. The release will also be available on our website at www.nistecheltech.com. This quarter was very challenging, both operationally and business-wise. In addition to the COVID-19 pandemic that was affecting certain areas that some of our customers located, we had quickly addressed the shortage of key raw materials. And yet, we were able to maintain operational efficiency and record both operational and net profit for nine quarters in a row. Also, our revenue declined from $9.2 million in the first quarter of 2020 to $7.2 million in the first quarter of 2021. The spread of COVID-19, which still affects some of our customers, and the shortage of Pyralux AP, the laminate produced by DuPont, that is used in the production of flexible and flex-rigid printed circuit boards, created new operational and business challenges, which required quick adjustment to enable us to maintain our production and delivery of PCBs to our customers. We are making the necessary adaptions to meet customers' demand and maintain our operational efficiency. The COVID-19 pandemic created operational difficulties, and we are facing a continuous slowdown in order from some of our customers in India due to the continuous negative impact of COVID-19 in this territory. Eltek is prepared to the point that the Indian market will recover and ready to react operationally to the expected high demand that was accumulating in India in the last months. Due to the raw material shortage, we already purchased an enough inventory of alternative raw materials that was pre-approved by Eltech two years ago as a backup plan for our production of PCB and introduce it to our customers. We expect that revenues will be rebound during the rest of the years and lost sales of Q1 2021 will be recovered upon the expected availability of Pyralux AP and the authorization of the alternative raw material by our customers. Once the alternative raw material will be fully approved by all our customers, we expect some reduction in our cost of production, which will give Eltech the flexibility to offer our customers more options of production, as well as better pricing and better secure sources of raw material. Eltech Salesforce already shifted its focus to non-flex PCB, which will contribute to our future revenue goals, As soon as the interruption in flexible material will be eliminated. As we said in the past, we also see an opportunity to grow our business in the U.S. due to the shift back to the Western production by the defense, aerospace, space, and communication PCB sectors, due to the cyber threats by China and the lack of production capacity in the USA, Europe, and Israel. So far, we have financed our growth strategy from our own internal resources and through right offering to our shareholders. During 2021, we plan to continue investing in a sales activity that will enable us to grow revenue with focus on U.S. market as well as continue investing in new equipment and the expansion of our facility and infrastructure to support our long-term sales growth. In yesterday board meeting, our board of directors approved I will obtain a loan of 10 million new Israeli shekels. It's approximately $3.1 million from Bank Leumi Israel. The loan has a term of 10 years with favorable terms, including the repayment schedule that starts after 12 months grace period and carried interest of prime plus 1.5, which is waived for the first year of the loan. As we have previously reported, major portion of our investment program that is under the grant program are expected to be completed and become operational by mid-2021. This recent investment and the planned future investment will be strengthened LTECH 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 50% royalty-bearing participation in the R&D program, which already started on March 1, 2021, and we already crossed its first milestone having the full technical definition. This 2021 R&D program is meant to enable Eltek to achieve a significantly faster production rate and reduce scrap. This 2021 R&D program, if succeeded, will enhance Eltech's ability to offer highly reliable printed circuit boards at a shorter production time and at reduced costs. We will continue to pursue new business opportunities and increase customer design engagement activity that will leverage our advanced technology capabilities. In addition, we are already as we already announced, Eltek applied to the Israeli Land Authority for allocation of land in the north of Israel, where Eltek intends to build a second production facility. This is a major part of our long-term and strategic roadmap in order to grow and accelerate the expansion of our business. We remain focused on operational excellence by using advanced technology and financial discipline and in making all the necessary adjustments to address the challenges we face from the widespread health crisis and the shortage of raw material. We have continued to work delightly on expanding our business while maintaining operational efficiency and maintain profitability. I will now turn the call over to Alon Moalem, our CFO, to discuss our financials.

Thank you, Eli. I would like to draw your attention to the financials of the first quarter of 2021. During this call, I will be also discussing certain non-GAAP financial measures. LTCH uses EBITDA as a non-GAAP financial performance measurement. Please see our earnings release for its definition and the reasons for its use. Now I will go over the highlights of the first quarter of 2021 compared to the first quarter of 2020. Revenues for the first quarter of 2021 were 7.2 million compared to revenues of 9.2 million in the first quarter of 2020. Gross profit was 1.1 million in the first quarter of 2021 compared to 1.8 million in the first quarter of 2020. Net profit was 223,000 or 4 cents per share in the first quarter of 2021. compared to net profit of 541,000 or 12 cents per share in the first quarter of 2020. EBITDA was 577,000 in the first quarter of 2021 compared to EBITDA of approximately 1 million in the first quarter of 2020. Cash flow provided by operating activities was $2.5 million in the first quarter of 2021, compared to $1.5 million in the first quarter of 2020. As previously announced, we filed a shelf registration statement during the third quarter of 2019 to provide the company with the ability to raise additional funds to support our plan to grow and expand our business. We expect that any proceeds will be used in part for additional investment and to accelerate our long-term growth. As Ali mentioned before, we remain focused on operational excellence and financial discipline as well as our long-term strategic growth goals. We are now ready to take your questions.