This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the LTEC LTD fourth quarter and full year 2021 financial results 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. Eli Yaffe, Chief Executive Officer, and Ron Freund, Chief Financial Officer, I'd like to remind you that LTCH's earnings 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 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. ALTEC undertakes no obligation publicly to publicly release revisions to such forward-looking statements to reflect events or circumstances occurring subsequent to this date. I will now turn the call over to Mr. Eli Yaffe. Mr. Yaffe, please go ahead.
Eli Yaffe
Thank you. Good morning, everyone. Thank you for joining us and welcome to LTCH 2021 First Quarter and Full Year Earning Call. With me is Ron Freund, our Chief Financial Officer, who joined us on January 1, 2022. We will begin by providing you with an overview of our business and summary of the principal factors that affected our results in 2021, followed by 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 fourth quarter press release, which was released earlier today. The release will also be available on our website at www.nistecheltech.com. 2021 was a very challenging year, both operationally and business-wise. In addition to the COVID-19 pandemic that affected us, our results were affected by the strength of the new Israeli shekels compared to the U.S. dollar and the euro. Nevertheless, we were able to maintain operational profitability and to the end of 2021 with $1.5 million of pre-tax income. Based on the fact that we were profitable during the last three years and the several other factors, we concluded that it is more likely than not that we will be utilizing our tax losses carry forward. Therefore, we recorded a one-time tax benefit in the amount of $3.5 million while reversing the tax valuation allowance recorded in prior years. We ended the year with a net profit of $5 million. Our cash from operation activity total $3.9 million and contribute to our strong balance sheets. As of 2021 year end, our cash balance total $9.3 million. The outbreak and the spread of the coronavirus during 2021 created operational and business challenges, including shortage of certain of our key raw materials. This shortage required us to make quick adjustment to enable us to maintain production and deliveries of PCBs to our customers. We purchased alternative raw material that we were pre-approved two years ago as a backup plan and managed to obtain authorization from the majority of our customers to use the alternative raw materials in our products. The use of the alternative raw materials provide a reduction in our cost production, flexibility to offer more production option, better pricing, and a secure source of raw materials. It should be noted that currently we are not suffering from any delivery delays from DuPont, our key suppliers, as we faced during the first quarter of 2021. In order to avoid such a situation in the future, we have also increased our raw material inventory level. During the second half of 2021, And to date, we face significant price increase for some of our raw materials on top of the extra logistic cost of raw material freight. In addition, a majority of our operational expenses are dominating the new Israeli shekels. The continuation effect of the devaluation of the U.S. dollar against the Israeli shekel negatively affects our results of operation. Nevertheless, we were able to maintain our gross margin of 20%, similar to our 2020 gross margin. This was achieved mainly due to keeping our operational costs under tight control and implementing steps to increase efficiency in our production lines. Our strong balance sheet and cash balance allowed us to continue to invest in a new machine and equipment. We invested $1.5 million during 2021 as part of our plan to invest in a new advanced manufacturing equipment, which will be strengthening our manufacturing capability and increase our competitiveness. We have also continued to implement improved production processes and adoption of industry 4.0 technologies. As we previously reported, conducting several R&D programs in order to maintain our position as an innovative industry leader. Our R&D program is designed to enable us to achieve a significant faster production rate at reduced scrap. If successful, this R&D program will enhance our ability to offer highly reliable printed circuit boards with a shorter production time and at reduced costs. I should note that there is still more milestone to pass in order to declare its full success. Eltech, like many companies, faced problems with recruiting and retaining employees. So far, our efforts have borne fruits with slight increase in wages. During 2021, we continue to allocate resources to automation and advanced working methods. We will continue to pursue new business opportunities and increase customers' design engagement activity that will leverage our advanced innovative and technology capability. We continue to make efforts to increase our global presence and sales in North America, Europe, and Far East markets. We received a $1.4 million purchase order from a defense customer, which we reported on earlier this year. Our policy to expand our customer base as much as possible and to accept current order and not to rely only on large production projects that come in every few years. During 2020 and 2021, they were known. This policy will allow us to maintain a stable level of revenue and not to depend on a large project orders only. As for the current situation in Europe, We believe that governments will increase their spending on military projects, which will positively reflect our revenue. About 50% of our revenue are defense and aerospace related. During the first quarter of 2021 and the beginning of 2022, our book-to-sell ratio increased significantly, which resulted in a strong backlog. Therefore, we have decided to accelerate our planned capital investment and to try to implement them in a period of two years instead of five years. We are also investing a lot of efforts in recruiting new employees. I will now turn the call over to Ron Freund, our CFO, to discuss our financial statements.
Ron Freund
Thank you, Eli. I am glad to have joined Eltech and look forward to contributing to its future success. I would like to draw your attention to the financial statement for the year ended December 31, 2021, and for the fourth quarter then ended. During this call, I will discuss also certain non-GAAP financial measures. EdTech 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 2021. Revenues for the full year of 2021 totaled $33.8 million, compared to $36.7 million in 2020, a decrease of 9%. The decrease in revenue is mainly due to the effect of the COVID-19 crisis on our customers' demand and to the shortage in raw materials that Teddy mentioned before. Gross profit decreased by 11%, reaching $6.9 million compared to a gross profit of $7.7 million in 2020. The decrease is the outcome of the decrease in revenues and the deviation of the US dollar against the NIS. Operating profit amounted $1.9 million in 2021 compared to $3 million in 2020. I should note that we have changed the policy of recording share-based compensation expenses from the accelerated method to the straight-line method, which is the more common practice within our economic environment. In our Form 20F, we disclosed the restated results of operations for the first three quarters of 2021. The impact on prior years was immaterial. The devaluation of the US dollar against Denise contributed to the increase in our dollar reported expenses in the amount of $1.2 million. We recorded the tax assets of $3.5 million in 2021. According to US GAAP, if management estimation is that it is more likely than not that the company would utilize its tax loss carry-forwards, the company has to record the deferred tax assets in that regard. That resulted in our recording a tax benefit in the same amount. Net profit was $5 million or 86 cents per share in 2021 compared to net profit of $2.6 million or 58 cents per share in 2020. EBITDA was $3.7 million in 2021 compared to 4.6 million in 2020. During 2021, we enjoyed positive cash flow for operating activities of $3.9 million compared to $3.3 million in 2020. As of December 2021, we had cash and cash equivalents of $9.3 million compared to $4.7 million at the end of 2020. This increase is due to our positive cash flow for operating activities and the fact that during Q1 we managed to obtain a 10 million NIS loan from Leumi Bank. The loan is for a period of 10 years with an interest rate of prime plus 1.5 percent, payable from the beginning of the second year. The loan was part of the Israeli government's actions to help businesses deal with the COVID-19 crisis. Now I will go over the highlights of the fourth quarter of 2021 compared to the fourth quarter of 2020. Revenues for the fourth quarter of 2021 were $9.5 million, the same as in the fourth quarter of 2020. Gross profit amounted to $2 million in the fourth quarter of 2021, compared to $2.2 million in the fourth quarter of 2020. Net profit in the fourth quarter of 2021 was $3.8 million, or $0.65 per fully diluted share, compared to a net profit of $0.8 million, or $0.16 per fully diluted shares, in the fourth quarter of 2020. This increase is mainly due to the $3.5 million tax benefit we recorded. EBITDA was $1.1 million in the first quarter of 2021 compared to EBITDA of $1.4 million in the first quarter of 2020. Cash flow for operating activities was $0.4 million compared to $0.5 used in operating activities in the first quarter of 2020. We are now ready to take your questions.
Operator
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 handset 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 from Ron Dror. Please go ahead.
Ron Dror
Hi, Eli, and good morning. I have a few questions. The first one is just to make sure you solved all the issues with the raw materials that I encountered during 2021. The second question is if you can give more color about the backlog in 2022. And the third question is, although you don't give specific guidance, if you can maybe give us a color of how we can model 2022, the activity with plant and equipment and what we can see and maybe model for growth in 2022. Thank you, Juan. Good morning.
Eli Yaffe
Regarding your first question, regarding the raw material, the raw material issue is beyond us. And as I mentioned in my statement before, there is no issue on DuPont raw material, and we have enough inventory right now in our warehouse to support at least six, seven months from now, from 2022. Of course, we'll continue to buy raw material. As you know, there is some hiccups right now in the supply from China and Taiwan. We have enough inventory in our warehouse that we can go over these hiccups. Regarding the backlog, as I mentioned, we don't provide the data, but the backlog that we face right now is above what we see in the last years. And as I mentioned, the book-to-sell ratio is significantly high in the last six months. Regarding the plan for 2022, we don't provide a forecast, but as you can understand from the strong backlog that we have, we will support it with the equipment that we have. And that's the reason that we decided to accelerate our investments instead of five years to invest everything in two years and to accelerate our capability to grow.
Ron Dror
My last question, if it's possible to ask, is what is the net contribution of new incremental sales on the net profit?
Eli Yaffe
The same as before.
Ron Dror
Okay, thank you.
Eli Yaffe
Thank you.
Operator
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, www.nistechltch.com. Mr. Yaffe, would you like to make your concluding statement?
Eli Yaffe
Before we conclude our call, I would like to thank all our employees for the efforts to make Eltech profitable and capitalize on our strengths to renew our position as a leading high-end PCB manufacturer. I would like to thank also our customers, partners, investors, and Eltech 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.
Operator
This concludes the LTEC-LTD Fourth Quarter and Full Year 2021 Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Disclaimer