Eltek Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the LTCH LTD first quarter 2022 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. LTCH undertakes no obligation to publicly release revisions to such forward-looking statements to reflect events or circumstances occurring subsequent to this date. I would now like to turn the call over to Mr. Eli Yaffe. Mr. Yaffe, would you like to begin, please?

Thank you. Good morning, everyone. Thank you for joining us and welcome to LTCH 2022 First Quarter Earnings Call. With me is Ron Freund, our Chief Financial Officer. We will begin by providing you with an overview of our business and summary of our principal factors that affected our results in the first quarter, 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 press release, which was released earlier today. The release will be also available on our website at www.nistecheltech.com. In the first quarter of 2022, we recorded a revenue of $9.8 million, despite the challenging supply chain and the labor environment. This revenue reflects an annual increase of 15% relative to our revenue in 2021. Our forecast is that the defense aerospace and space sectors will perform better in 2022 than in the last year. Our employees, did an excellent job of maximizing production by maximization of throughput per hour, resulting in increased efficiency. During the first quarter of 2022, we mitigate all of the material price increase through additional cost savings adjustment in the mix of four materials used during the manufacturing process and product price adjustments. The first quarter of 2022, reflects the continued increase in order received from our customers. We ended the quarter with a backlog of 50% greater than the backlog of 2021 year end. Our PCB book-to-bill ratio was 1.4 for the first quarter of 2022, which means that our accumulation of new orders was higher than our revenue recognition. The significant increase in the backlog is due to several factors. Factor number one, the current status of the COVID-19 pandemic enabled most of our customers to return to normal level of business operation, including our customers in the Far East and particularly in India. In Israel, we did not face significant absence of employees due to the isolation requirements. In addition, the reimbursement of the COVID-19 pandemic in China create a shift of manufacturing order of non-defense PCBs to the Western market. Factor number two, during Q1 2022, we had no delays in raw material supply and our increase in inventory levels allowed us more flexibility in our production cycles. Factor number three, the political and security situation in Europe caused governments to increase their military budget and Eltek as a supplier of significant components to defense system manufacturers in influence positively by it. In addition, The inflammatory pressures and the continued labor challenges in North America help us in being competitive in price and lead time. Factor number four, increasing demand due to the continuous trend of shifting back to the Western or country-specific manufacturing previously performed in the Far East due to the IP and security consideration. Furthermore, some of our customers suffered from the lack of critical components which forced them to redesign their PCP using available components. This redesign led to further requests for quotations, some of which we won. All of these four factors contribute to our backlog and revenue growth during the first quarter of 2022. I should also mention that we recently won a new sales order wherein we will provide a fully turnkey product to one of our tier one customers by outsourcing the assembly service requested. We will be further investigate this niche and its potential for the future. The increased demand for the company product has led us to decide to accelerate our investment program. During the first quarter, we began the first phase of the program, which include investment in amount of $9 million. This phase is expected to last two years. The program includes investment in new production lines as well as in infrastructure in order to enable us to increase the company production capability as well as its efficiency. We expect that the first phase will allow us to increase our yearly sales by $5 to $8 million based on the continuity of the increased demands for our products. The total investment program amount is $15 million. During the first quarter, we continued to experience significant increase in the price of raw materials. We communicated this increase to our main customers and adjusted our selling prices. Nevertheless, we continued to invest efforts in improving our manufacturing processes and our efficiency in order to be more flexible in our pricing policy. Demand for employees continued to be high in our industry and in a similar one. The situation impaired us to impair our production capability and sometimes even force us to raise wages level in order to achieve our recruitment targets. Our investment program mentioned before includes automation components in order to help us to deal with this difficulty. LTECH long-term strategy remain unchanged, focus on high technology PCB in order to maintain our depreciation capability and serve as a highly valued partner to our customers. I will now turn the call over to Ron Freund, our CFO, to discuss our financial statements.

Thank you, Eli. I would like to draw your attention to the financial statements for the first quarter of 2022. During this call, I will discuss also certain non-GAAP financial measures. Eltech uses EBITDA as a non-GAAP financial performance measurement. Please see our earnings release for its definition and the reason for its use. Now I will go over the highlights of Q1 2022. Revenues for the first quarter of 2022 totaled $9.8 million, compared to $7.2 million in Q1 2021, an increase of 35%. The increase in revenues is mainly due to the shortage in raw materials in 2021, and the negative effect it had on our sales in the first quarter of 2021. Gross profit increased by 72%, reaching $1.9 million, compared to a gross profit of $1.1 million in the first quarter of 2021. The increase is the outcome of the increase in revenues. Operating profit amounted $0.7 million in Q1 2022 compared to $0.1 million in 2021. The revaluation of the U.S. dollar against the Israeli shekel contributed to our Q1 2022 results of operation, and we recorded financial income in the amount of $0.1 million. We have recorded for the first time in recent years a tax expense of $0.1 million due to the deferred tax asset we recorded in 2021 year-end. As you probably remember, this tax asset was recorded based on management estimation that it is more likely than not that the company will utilize its tax loss carry-forwards in future years. Net profit was $0.6 million or $0.11 per share in Q1 2022 compared to net profit of $0.2 million or $0.04 per share in Q1 2021. EBITDA was $1.1 million in 2022 compared to $0.6 million in 2021. As of March 31, 2022, we had cash and cash equivalents of $9.1 million. This cash balance and anticipated cash flow from operating activities will allow us flexibility in operating our business and financing our accelerated investment program that Eli mentioned earlier. We are now ready to take your questions.