Eltek Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 21, 2023

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Eltek Ltd 2023 Second Quarter Financial Results Conference Call. All participants are at present in listen only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded.

Operator

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 they will be referring to forward looking information in today's presentation and in the Q and A. By its nature, this information contains forecast assumptions and expectations about future outcomes, which are subject to risks and uncertainties outlined here and discussed more fully in Eltek'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.

Operator

We'll also be referring to non GAAP measures. Eltek 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. Please go ahead.

Speaker 1

Thank you. Good morning. Thank you for joining us for our Q2 fiscal year 2023 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 the principal factors that affected our results during the Q2, followed by details of our financial results.

Speaker 1

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 www.nisteceltek.com. In the Q2 of 2023, revenue were $11,000,000 due to the continued strength in the aerospace and the defense end market. The trend of high demand for our company products, which we witnessed in 2022, continues into 2023.

Speaker 1

Therefore, so far our dedicated employee and the strongest demand enable us to meet our sales target also the Q2 usually has fewer working days due to the holidays. As we look into the rest of 2023 and into 2020 4, we see an increased demand in the semiconductor segment, which we hope we will be translated into purchase orders and increased sales. During the Q2 of 2023, we repaid the balance of our bank loans in the amount of $1,800,000 and as of June 30, 2023, we had no bank loans outstanding. The decision to repay our bank loans was based on our strong cash flows and the prevailing high interest rate. The erosion of the shekel against the dollar continued during the Q2 of 2023 and allowed us to record financial income.

Speaker 1

This erosion has continued into the Q3 of 2023. I would like now to expand a little bit on our strategy. The high end PCB sector is expected for substantial growth in the upcoming years, driven primarily by the defense, aerospace and medical device domain. The defense sector is driven by the increased complexity and sophistication of military electronics. The aerospace industry, which we are active in, is expecting growth and creating new opportunities for us such as satellite and other spacecraft that required complex electronic systems with high end and reliable PCBs.

Speaker 1

The medical device industry is in a position of steady growth with global annual sales forecast rise by over 5 years 5% a year. This projection reflects increasing demand for innovative new devices. We believe that the high end PCB sectors is expected to grow significantly in the coming years with these sectors being major driven drivers of the growth. The key trends that are expected to shape the future of the PCB industry in these sectors include increasing demands of high performance PCBs, miniaturization, growing importance of reliability and safety and the increasing demand for sustainability. In light of this, we continue to invest in our growth.

Speaker 1

In recent years, we have invested heavily in improving profitability and operational efficiency. At the beginning of 2022, we decided on an accelerated investment plan to expand the capacity and efficiency of our manufacturing lines, which will enable increasing sales. At the same time, we invested a lot of efforts on increasing our workforce. As of today, we have increased our workforce by 24% since the beginning of 2022. Our strict strategy to increase growth also include M and A activity.

Speaker 1

Our initial goal in this area is an acquisition of a company with manufacturing capacity in North America that will allow us to expand our activities in this territory. Earlier this month, we were informed by the Ministry of Environmental Protection that it rejected our claim to reduce the clean air penalty imposed on us on January this year. Therefore, we had provided the full allowance for the penalty in our Q2 interim financial statement and record a one time expense in the amount of $350,000 We have decided to file an administrative appeal, which we hope will reduce the penalty amount. I will now turn the call over to Ron Freund, our CFO to discuss our financial results.

Speaker 2

Thank you, Eli. I would like to draw your attention to the financial statement for the Q2 of 2023. During this call, I will also discuss 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.

Speaker 2

I will now go over the highlights of the 2023 Q2. All numbers mentioned are in U. S. Dollars. Revenues for the Q2 of 2023 were $11,000,000 compared to $9,100,000 in the Q2 of 2022.

Speaker 2

Gross profit increased by 76%, reaching $3,000,000 compared to a gross profit of $1,700,000 in the Q2 of 2022. The increase is mainly due to the increase in revenues. Operating profit amounted to $1,400,000 in Q2 2023 compared to $300,000 in Q2 2022. We recorded financial income of $200,000 during Q2 2023 and 0.6 $1,000,000 in Q2 2022 due to the devaluation of the NIS against the U. S.

Speaker 2

Dollar. Profit before income tax amounted to $1,600,000 in Q2 2023 compared to $1,000,000 in Q2 2022. Net profit was $1,300,000 or $0.22 per share in Q2 2023 compared to net profit of 0 point $8,000,000 or $0.13 per share in Q2 2022. EBITDA was 1 point $800,000 in Q2 2022. During the Q2 of 2023, we enjoyed positive cash flow from operating activities of $100,000 compared to $500,000 in Q2 2022.

Speaker 2

The decrease is mainly due to an increase in trade receivables and inventory levels, which derives from the increase in revenues. As of June 30, 20 23, we had cash and cash equivalents of $8,300,000 compared to $7,400,000 at the end of 20 22. We are now ready to answer your questions.

Operator

Thank The first question is from Tom Kerr of Zacks Investments. Please go ahead.

Speaker 3

Good morning. Can you talk about the current capital improvement plan and where you are in the spending on that? I think the total was $15,000,000 Where are we in that and when should that be completed?

Speaker 1

Hi, Tom. Good morning. Yes, I can elaborate about it. As we spoke about in the previous call, we had put POs for most of the equipment and balance of the equipment is going to arrive in 2024 and 2025. Some of the equipment is going to arrive between now and the end of the year 2023.

Speaker 1

You don't see it in our books yet, but the POs were already issued to the manufacturers in Europe.

Speaker 3

Okay. And what does that mean? Where do we stand in terms of revenue capacity? I think last year it was in the $40,000,000 to $55,000,000 range. Has that increased recently?

Speaker 1

No, we're still in this range. We hope to be in $55,000,000 when we'll capacity production capacity when we'll finish these capital investments.

Speaker 3

Okay. And then can you provide more color on the entry into the U. S. Market? Did you say you were looking for acquisitions, have found 1 or just still in the process of searching?

Speaker 2

Hi, Tom. No, we still did not find 1. We are in the stage of searching and trying to find a target company, which will be good for us to acquire.

Speaker 3

Okay. And one more question. Do you have you outlined gross margin goals for the rest of this year or perhaps in the next year? Have you set targets for what gross margin could reach?

Speaker 2

Yes. Our target for this year will be around the 27% as was in the first half of twenty twenty three. And we hope that with increased sales, we will be even higher. But as of now, 27% is our target.

Speaker 3

Okay, thanks. That's all the questions I have for this morning.

Speaker 4

Thank you,

Operator

The next question is from Shuky Hazan of Hazan Capital Markets. Please go ahead.

Speaker 4

Hi, hello. I wanted to ask the operating income was $1,400,000 after a deduction of $350,000 Yes, you're right, Shuky. Okay. And let's say the Q3, if I'll compare it to the Q2, in the Q3, there's more working days than the Q2, am I correct?

Speaker 2

Yes, you are.

Speaker 4

I understand. Okay. And about your production capacity in 2023, let's say for the second half of this year, the maximum capacity that you can produce is around $12,000,000 $12,500,000 $13,000,000 Do you have any range that is the maximum that you can sell in the quarter, in the next two quarters, the maximum that you can sell?

Speaker 1

The range of our sale capacity is dependent upon the mix is $11,000,000 to $13,000,000 per quarter.

Speaker 4

$11,000,000 to $13,000,000

Speaker 1

$11,000,000 to $13,000,000 1.3, yes.

Speaker 4

Yes. Okay, okay. I understand.

Speaker 1

But it depends on the mix of the products.

Speaker 4

I understand. Okay. Thank you very much and good luck.

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 the participants that a replay of this call will be available tomorrow on Eltek's website, www.nisteceltek.com. Mr. Yaffe, please go ahead.

Speaker 1

So in closing, I would like to thank our employees, our customers and our investors for your continued support as we continue to move forward as a company. Thank you again. Thank you for joining us. Take care.

Operator

Thank you. This concludes the Eltek Ltd. 2023 Second Quarter Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

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Key Takeaways

  • In Q2 2023, Eltek reported $11.0 M in revenue (up from $9.1 M a year ago), a 76% increase in gross profit, and net income of $1.3 M ($0.22 per share).
  • The company is investing in capacity expansion with a $15 M capex plan, has grown its workforce 24% since 2022, and targets high-end PCB demand in defense, aerospace, and medical devices.
  • Eltek is actively searching for a North American acquisition to extend its manufacturing footprint and better serve its U.S. customers.
  • During the quarter, Eltek used strong cash flows to repay $1.8 M in bank loans, ending Q2 with $8.3 M in cash and recorded $200 K in financial income from shekel devaluation.
  • The company recorded a one-time $350 K environmental penalty expense in Q2 and has filed an appeal with the Israeli Ministry of Environmental Protection.
AI Generated. May Contain Errors.
Earnings Conference Call
Eltek Q2 2023
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