Eltek Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the LTEC Ltd. 2026 Second Quarter Financial Results Conference Call. All participants are at 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 I will be referring to forward-looking information in today's presentation and in the Q&A. By its nature, this information contains forecasts, assumptions, and expectations about future outcomes, which are subject to the risks and uncertainties outlined here and discussed more fully in LTEC's public disclosure filings. These forward-looking statements are projections and reflect the current beliefs and expectations of a company. Actual events or results may differ materially. We'll also be referring to non-GAAP measures. LTEC undertakes no obligation to publicly release revision 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.

Good morning and thank you for joining us for our 2026 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 Q2 2026. 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. As we stated in our press release, our second quarter results continue to reflect a loss as we remain in an important transition period Focus on stabilization and manufacturing operation and building the human and the operational infrastructure required to support our next phase of growth. I would like to provide some additional context on this transition and the progress we are making. The market environment remains strong, with continued high demand for our products and strong backlog. The challenge we are facing is not demand. but our ability to consistently convert this demand and our backlog into production and shipments at the level we would like. Second quarter revenue were $11.5 million bringing revenue for the first half of 2026 to approximately $22 million. We recognize that this level of revenue is below the level that the current demand environment would support. Given our cost structure, the company required a significantly higher level of revenue than we achieved during the first half of the year and in order to fully leverage our fixed operation expenses and reach our full profitability potential. At the same time, we're beginning to see some kind of development in our gross margin performance. Gross loss in the second quarter was $1 million compared to Thank you very much. Production Overhead and Depreciation As a newer order booked under our update pricing structure moves through production and becomes a larger part of our sales mix, we expect this pricing adjustment to increase ability with reflect our results. At the same time, the supply environment remains challenging. We continue to experience limitations in our availability to certain raw materials, particularly fiberglass-based materials, which are also in strong demand from the rapidly growing AI infrastructure industry. In the same cases, we are facing a significant raw material price increase, while in other cases, supply is subject to allocation quotas. We have been able to secure the material required to continue operation and serving our customers, but doing so has become significantly more difficult and required much closer coordination with our suppliers. Beyond our defense portfolio, we remain firmly focused on driving growth in our medical and high-end industrial market. In the medical sector, we have secured key certifications that position us well to capture future demand. Meanwhile, our high-end industrial business continues to perform strongly, backed with a robust demand for our offering. Together, these strategic initiatives will help balance our market mix and diversify our revenue stream going forward. We are making steady progress and stringing our operational infrastructure. We are well involved in the implementation of our new ERP system, which we believe will provide a stronger foundation for managing and scaling our operations. We have also completed the installation of our newly arrived PCB plating line and have started acceptance testing in parallel with initial trial production for customer qualifications. We expect to kick off the official qualification process during the third quarter. As we have previously discussed, this process is expected to take several months before the line reaches full commercial production. Additionally, our second plating line is currently scheduled by our supplier to arrive to Israel by the end of this year, backed with contractual penalties for this delayed installation. We are also continuing to strengthen our workforce. During the quarter, we successfully integrated approximately 15 foreign employees into our operation and we are continuing the process of bringing in additional approximately 15 foreign employees. Strengthening workforce is an important component in our ability to improve production capacity and operational efficiency and support the growth of the business. Taken together, these initiatives are limited aims by strengthening the foundation of our manufacturing operation and providing us with the capacity, workforce and infrastructure required to support higher production levels. We remain encouraged by the strong demand environment and the high level of our backlog. Our focus now is on completing the transition and improving our ability to convert that demand into higher levels of production and revenue. As we achieve greater operational stability and higher revenue level, we believe we will be able to leverage our existing cost structure more efficiently. Together with the improvement we are seeing in the average selling price and the continued adjustment of our pricing to reflect the current cost environment, we believe this will provide path toward a return to profitability level the company achieved historically. We are making steady progress across these areas and remain confident that the steps we are taking are building a stronger foundation for improved operational and financial performance in the period ahead. I will now turn the call over to Ron Freund, our CFO, to discuss our financial results.

Thank you, Eli. I would now like to review the financial results for the second quarter of 2026. During this call, I will also refer to certain non-GAAP financial measures. LTEC uses EBITDA as a non-GAAP measure of financial performance. Please refer to our earnings release for the definition of EBITDA and the reasons for its use. I will now review the key financial highlights for the second quarter. All figures are presented in US dollars. Revenues for the second quarter of 2026 were $11.5 million compared to $12.5 million in the second quarter of 2025. Gross loss was $1 million compared to gross profit of $3 million in the prior year period. The year-over-year decline in gross profitability was driven by lower revenue volume, production inefficiencies, and depreciation of the U.S. dollar against the Israeli shekel. Operating loss was $2.5 million compared to operating profit of $1.5 million in the second quarter of 2025. Financial expenses were $0.7 million compared to $1 million in the prior year period. The financial expense in the current quarter primarily reflected the depreciation of the U.S. dollar against the Israeli shekel, partly offset by interest income earned on our cash balances. Net loss for the quarter was $2.7 million, or 41 cents per share, compared to net income of $0.4 million, or 5 cents per share, in the second quarter of 2025. EBITDA loss was $1.9 million, compared to EBITDA of $1.9 million in the prior year period. Despite the net loss, operating activities generated $0.7 million of cash during the quarter. As of June 30, 2026, we had $11.5 million in cash and cash equivalents and no outstanding debt, providing us with a strong and solid balance sheet. We are now ready to answer your questions.