Eltek Ltd.

ladies and gentlemen thank you for standing by welcome to the eltech limited 2024 second 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. Eli Yaffe, Chief Executive Officer, and Ron Freund, Chief Financial Officer, I would like to remind you that they will be referring to forward-looking information in today's presentation and in the QA. By its nature, this information contains forecasts, assumptions, and expectations about future outcomes, which are subject to risks and uncertainties, outlined here and discussed more fully in LTIC's public disclosure findings. These forward-looking statements are projections and reflect the current beliefs and expectations of the company. Actual events or results may differ materially. We'll also be referring to non-GAAP measures. LTEC undertake 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. Elie Yaffe. Mr. Yaffe, please go ahead.

Thank you. Good morning. Thank you for joining us for 2024 second quarter earning 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 the principal factors that affected our results during quarter two to 2024. 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. Today, I'd like to address two key areas, revenues and operations. I will start with revenues. Since the beginning of 2023, we have demonstrated consistent growth driven by high demand for our products, timely workforce expansion, and ongoing investment in machinery and infrastructure. We actually forecast increased demand and initiate an accelerated investment plan in early 2022, which has already enhanced our capacity and will continue to do so through the end of 2025. However, in this quarter, we experienced a decrease in revenue and profit compared to the previous period. This decline is primarily due to the significant timing shift of some of our key customers, who prioritized orders for PCB with medium technology requirements, resulting in lower price and margins. We did not succeed to maintain our profitable mix from the prior period, and orders in more complex, higher margin PCB were pushed to the end of Q2 2024 and Q3 2024. Moreover, as mentioned in the previous call, our current bottleneck is manpower. During the second quarter, we continue to face production delays due to the manpower-related capacity constraints. During the quarter, we had 59 working days compared to 62 90 days in Q2 2023, a decrease of 5%. The shortage of manpower and decrease in workdays prevent us from producing and delivering some of the high-margin PCB orders we had on hand for Q2 delivery. This unfavorable mix had negatively impacted our short-term financial performance. We finished Q2 with $10.5 million in revenue, gross profit of $1.6 million, and gross margin of 16%. As mentioned earlier, the lower gross margin for the quarter is attributable to the product mix. Manufacturing costs remain consistent with the previous quarters, but the average sales price was lower, leading to decline in gross margin. We remain confident in our long-term strategy and market position. We expect to return to profitability parameters of previous quarters in Q3 and Q4 2024, as product mix strategies are realigned. As of today, our backlog has increased by 30% since the beginning of 2024. This increase highlights our need to increase capacity immediately, primarily by growing our workforce, which we'll discuss later. The increase in backlog is due to the strong defense sector demand related to the current situation in our area and the shift back of manufacturing from the east. These two factors are important. major influence in our backlog and future revenues. We estimate that we have not yet seen the full impact of the regional conflict and we anticipate further increase in the defense sector demand for our products in the coming quarters. We continue to focus on securing long-term orders rather than short-term orders. We have also decided that in spite of the high defense sector demand, we will continue to allocate enough capacity to meet the demand of our high-end industrial and medical sectors, and we will try to keep the mix of the service segment as before. I will now discuss our accelerated investment plan and our action to deal with the manpower issues. We are continuing our accelerated investment plan with a significant focus on three new coating lines. The first coating line, which is called ViaFill line, is already installed and operational. During the quarter, we reviewed the status of our suppliers and confirmed that the installation of the remaining two coating lines will be installed by the end of 2025. These new lines will increase our capacity and enable the production of more advanced technological products and improve yields. We are currently in the middle of the transition office and transition office space within our building to accommodate the required construction for the remaining two coating lines. By the end of the second quarter, we had issued purchase order to all the components of the plan. The balance of payment forecast through the end of 2025 is approximately $8 million. It's important to note that, as mentioned previously, this investment is in addition to our regular capital expenditure, which range from $2 to $3 million per year. Regarding manpower, we are navigating the challenging market with a strong demand for employees. In response to this demand and our forecast for the increased order flow, we have adjusted our recruitment policy, primarily by increasing direct labor salaries. This action has already had positive effects, and we are now increasing our workforce daily. Our plan is to add about 50 new employees in the coming months and to extend our manufacturing capacity to include an extended sale shift. We expect these measures to help us to meet delivery schedule, accelerate delivery dates, and increase revenue. I will now turn the call over to Ron Freund, our CFO, to discuss our financial results.

Thank you, Eli. I would like to draw your attention to the financial statements for the second quarter of 2024. 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 reasons for its use. I will now go over the highlights of the second quarter of 2024. All numbers mentioned are in U.S. dollars. Revenues for the second quarter of 2024 were $10.5 million compared to $11 million in the second quarter of 2023. Gross profit reached $1.6 million compared to a gross profit of $3 million in the second quarter of 2023. The decrease is due to the decrease in revenue and the unfavorable mix of products sold. Operating profit amounted to $0.4 million in Q2 2024 compared to $1.4 million in Q2 2023. We recorded financial income of $0.5 million during Q2 2024, including income from the devaluation of the NIS against the U.S. dollar and interest on our interest-bearing bank deposits. Net profit was $0.8 million, or 11 cents per share, in Q2 2024, compared to net profit of $1.3 million, or 22 cents per share, in Q2 2023. EBITDA was $0.8 million, compared to $1.7 million in Q2 2023. During the second quarter of 2024, we enjoyed positive cash flow from rating activities of $1.8 million. As of June 30, 2024, we had cash and cash equivalents and short and bank deposits of $18.3 million with no debt outstanding. We are now ready to answer your questions.