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Operator
Ladies and gentlemen, thank you for standing by. Welcome to the LTCH LTD 2023 third quarter financial results conference call. All participants are present in 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. Elie Yaffe, Chief Executive Officer, and Ron Freund, Chief Financial Officer, I'd like to remind you that they will be referring to forward-looking information in today's presentation and in the Q&A. By its nature, this information contains forecast assumptions and expectations about future outcomes which are subject to the risks and uncertainties outlined here and discussed more fully in LTCH's public disclosure filings. These forward-looking statements are projections and reflect the current beliefs and expectations of the company. Actual events or results may differ materially. We will also be referring to non-GAAP measures. 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 the call over to Mr. Eli Yaffe. Mr. Yaffe, would you like to begin?
Elie Yaffe
Thank you. Good morning. Thank you for joining us for the third quarter fiscal year 2023 earning call. With me is Ron Freund, 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 during the third 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 also be available on our website. At the outtest, I would like to express our condolences on behalf of the company management and its employees to the families of those killed in the murderous terrorist attack that occurred on October 7, 2023. Our hearts go out to the grieving families, and we hope for the speedy recovery of the injured and the safe return of the kind up soon. We also share the grief of the families of the IDF soldiers who were killed in the battles that have begun taking place recent weeks and wants to wish a wanted full recovery. We pray for the peace of the soldiers who are still fighting during these days. The company is currently operating smoothly and maintain standard activity levels. Most of our employees are consistently reporting to work, and the impact of the war on the attendance has been very minimal to no effects. As of our supply chain, we have implemented several measures, including bolstering our stock of accessional raw material, securing advanced deliveries, and engaging in active communication with our primary suppliers to ensure continuous flow of resources. The ongoing conflict in Israel underscores the critical significance of domestic PCB industry. Such an industry not only offers advanced technological solutions but also produces intricate circuits tailored to specific defense requirements, employing state-of-the-art technologies and ensuring the highest quality standards. Additionally, it enables swift delivery to meet the immediate demands to the defense sector. Eltek holds a status of a sensational enterprise, as designated by the Israeli government, granting us permission to operate around the clock, 365 days a year, as needed. We see that Israeli defense sector companies are beginning to place orders, including those for PCBs. We remain committed to our pricing strategy. and the selection of the orders we received with the goal of optimizing our production capability while ensuring strong profitability. Consequently, we give priority to our profitability income purchase orders including those from other sectors and manage our orders backlog accordingly. Orders received directly from government entities with the requirements for immediate delivery take precedence to promote production. Looking ahead, we believe that the long-term increased demand trend in the defense sector worldwide will continue. We are involved in several long-term customer projects. The orders for this project are received throughout the life of the project. Therefore, we expect a stream of income from this project throughout the coming years. We are also experiencing the continued decrease in demand from customers in European countries due to increased demand for defense products. At this time, the demand for PCB products in Western countries, mainly in Europe, increased in such a way that the lead time for production was more than double, which caused price to become a secondary factor. As for our accelerated investment plan, The current situation in Israel may lead to a limited delay in pace of the employing new machines. As of today, we don't see any delays. In addition to the investment in the production equipment, we are also working to upgrade our engineering software to allow us to fully respond to the need of our customers. During the recent months, we felt that the trend of workplace market and there is a greater number of individuals applying for employment interviews. We hope that this trend will strengthen and will allow us to fill open positions more easily and increase our production capacity accordingly. And now, our Q3 results. We ended the third quarter of 2023 with revenue of $11.9 million and a net profit of $2.1 million. For the first nine months of 2023, we had revenue of $34.4 million and $5 million net profit. The high profitability is a result of our pricing and purchase order acceptance policy. Due to the high level of demand and the limitation of production capacity, we made sure to choose the orders with the high margin of profitability and try to maximize the consideration of the profitability with operational efficiency consideration. I'm glad that this policy has proven itself during the last quarters. We had gross profit of 3.7 million in Q3 and a gross margin of 31%. The high gross margin is due to an excellent mix of products we sold during this quarter. We are keeping our medium term target of 27% gross margin. During the third quarter, the dollar rate against the NIS continued to rise. As a result, in the third quarter, we recorded exchange rate income of amount of $0.2 million. As of September 30, 2023, our cash balance amounted to $11.3 million. We have invested most of the balance in interest-bearing deposits. We also decided to hold a subsectional part of this balance in NIS to edge risk range from a sharp drop in the dollar exchange rates. I will now turn the call over to Ron Freund, our CFO, to discuss our financial results.
Ron Freund
Thank you, Eli. I would like to draw your attention to the financial statements for the third quarter of 2023. During this call, I will also discuss 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. I will now go over the highlights of the 2023 third quarter. All numbers mentioned are in U.S. dollars. Revenue for the third quarter of 2023 were $11.9 million compared to $10.3 million in the third quarter of 2022. Gross profit increased by 51%, reaching $3.7 million, compared to a gross profit of $2.4 million in the third quarter of 2022. The increase is mainly due to the increase in revenue and the increase in gross margin, as Eli mentioned before. Operating profit amounted to $2.3 million in Q3 2023, compared to $1.1 million in Q3 2022. We recorded financial income of $0.3 million during Q3 and $0.1 million in Q3 2022, mainly due to the devaluation of the NIS against the US dollar. Profit before income tax amounted to $2.6 million in Q3 2023, compared to $1.2 million in Q3 2022. Net profit was $2.1 million or $0.36 per share in Q3 2023 compared to net profit of $1 million or $0.17 per share in Q3 2022. EBITDA was $2.6 million compared to $1.4 million in Q3 2022. During the third quarter of 2023, we enjoyed positive cash flow from operating activities of $3.6 million compared to $1.7 million in Q3 2022. The increase is mainly due to the increase in net income. As of September 30, 2023, we had cash and cash equivalents of $11.3 million compared to $7.4 million at the end of 2022. We are now ready to answer 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're using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order they are received. The first question is from Michelle Wu. Please go ahead. Michelle, do you have a question?
Michelle Wu
Oh, is that me?
Operator
Yes.
Michelle Wu
Oh, okay. Sorry. Could you just disclose what is the percentage of the military revenue for this quarter?
Elie Yaffe
We believe that it's around 60% of our sales.
Michelle Wu
Oh, so probably the same, right?
Elie Yaffe
Yeah.
Michelle Wu
Okay, going forward, what is capacity? Can you give any update about capacity? Can the capacity meet your demand or any labor-related issues?
Elie Yaffe
As we mentioned before, we grow slowly in our capacity based on the presentation that we made a quarter ago. And we'll gradually, by the end of 2025, beginning of 2026, We would like to be in the range of $55 million sales.
Michelle Wu
Okay. So your current capacity is enough or not with your demand?
Elie Yaffe
The installed capacity that we have right now is more than what we sell. We have the ability to grow more and we grow gradually based on the backlog of purchase order that we get, limited by the capacity that we will have when we will touch the capacity limit. Right now, we don't touch the capacity limit yet.
Michelle Wu
Oh, okay, great. That's great. Just last question. What is the outlook for the military segment for the next year? Have you any outlook?
Elie Yaffe
We don't disclose it.
Michelle Wu
Okay, okay. Thank you very much. Thank you. Appreciate it.
Elie Yaffe
Thank you, Michelle.
Operator
The next question is from Tom Kerr of Zacks Investment. Please go ahead.
Tom Kerr
Good morning. Several questions. On the gross margins that were very strong at 31%, but your outlook is still for 27%. Was it just an unusual quarter? Or is that 31% not sustainable? Just trying to get more color on that.
Ron Freund
Yeah, it was a very high term. It was a very unique quarter. We enjoyed a favorable mix of sales, which included sales with relatively low material component and high technological added value. We don't think that we will keep this gross margin for the next quarter, and we didn't change our estimate or forecast for the 27% gross margin.
Tom Kerr
Okay. And on the business mix, any information on the flex-rigid versus rigid? Is it still vast majority is flex-rigid?
Ron Freund
No, it is the same. The same ratios that were in the last several quarters remain the Also for this quarter and for the next ones.
Tom Kerr
And that was about two-thirds or 60% flex rigid, correct?
Ron Freund
Yeah, correct. Yes.
Tom Kerr
Okay. Also, any other information on entering the U.S. markets? Are you still looking for capacity there?
Elie Yaffe
Yes, we're still looking for M&A there, but there is nothing to report as of now.
Tom Kerr
Okay. And... Do you guys have a share buyback authorization with all your strong free cash flow? I was just curious.
Ron Freund
No, we don't have any such policy. As of now, we do not intend to make such a plan.
Tom Kerr
Okay, I think that's all I have. Thank you.
Elie Yaffe
Thank you, Tom.
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. This concludes the question. The next question is from Shuki Hazan of Hazan Capital Markets. Please go ahead.
Shuki Hazan
Hi. Hello, guys. Very good quarter. I wanted to ask about the needs of the IDF army. Obviously, because of the urgent needs for components, and I want to know about the pricing of the urgent needs, and do you think the gross margin of these needs is higher than normal? If we are talking about the situation in Israel, so you at the moment prefer to sell to local security companies than to foreign companies?
Elie Yaffe
Hi, Shuki. Eli speaking. Regarding our policy for speeding process, it's the same policy. We didn't change the policy. For speeding process, we have some changes. and we keep the same policy even these days. So if the customer is IDF and they ask for a speedy process, they pay the premium. If it's another customer that they had a speedy process, they pay the premium as well. We don't differentiate between the two. Now, regarding preference of IDF versus other customers, no, we don't differentiate. We continue to work because we would like to keep our customers happy. And matter of fact, in order to reduce fears of our customers, we make delivery to our customers outside Israel even faster and ahead of time to be sure that they will be satisfied. Right now, the government, when they gave us the accessional enterprise status, they can force us to have... or things that we have to do on top of everything and higher priority, but this is limited up to 2% to 3% of our capacity, so it's not affecting our business.
Shuki Hazan
Okay, and did you feel the change in the business since the 7th of October? The answer is yes. Okay, thank you very much.
Elie Yaffe
Thank you.
Shuki Hazan
Good luck.
Elie Yaffe
Thank you.
Operator
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 participants that a replay of this call will be available tomorrow on our website. Mr. Yaffe, would you like to make your closing statement?
Elie Yaffe
In closing, I would like to thank the company employees and the management team for their hard work during this time and to thank our customers and our investors for their continued support.
Operator
This concludes the LTCHLTD 2023 Third Quarter Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
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