Eltek Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 21, 2024

Key Takeaways

  • Defense demand surge: Requests for quotations rose sharply, driving the company's backlog up approximately 25% and signaling further order growth in H2 2024 and early 2025.
  • Q1 financial strength: Revenues reached $11.8 million with gross profit up 8% to $3.2 million, net profit of $1.7 million, EBITDA of $2.1 million, and $19.9 million in cash with no debt.
  • Secured multi-year defense order: Eltek booked a $1.6 million repeat order from an overseas defense client, with $1.0 million to be delivered in 2024 and the remainder in 2025.
  • Accelerate investment plan on track: Installation of two new coating lines is progressing as planned despite the complexity of conducting extensive construction alongside active production.
  • Manpower bottleneck: To meet rising production needs, the company plans a 15% workforce increase with wage hikes, adding pressure on operational costs.
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Earnings Conference Call
Eltek Q1 2024
00:00 / 00:00

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. 2024 First 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.

Operator

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 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 the 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.

Operator

Actual events or results may differ materially. 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.

Operator

Mr. Yaffe, please go ahead.

Speaker 1

Thank you. Good morning. Thank you for joining us for our 2024 Q1 earnings call. With me is Ron Freund, our Chief Financial Officer. We will begin by providing you with an overview of our business and the summary of our principal factors that affected our results during Q1 2024.

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 be also available on our website. Throughout the quarter we witnessed a notable surge in request for quotations, primarily with the defense sector. Correspondingly we been the rise of the volume of order received.

Speaker 1

Our backlog since the year's outset had escalated to approximately 25%. This surge is directly attribute to the demand for the defense product worldwide. We anticipate that the full impact of this demand for the defense product is yet to be reflected in the purchase order received and expected the demand wave to intensify in the later half of twenty twenty four and early 2025. Despite the increase in demand, we have refrained from significantly increased prices. Our pricing policy remains consistent with previous years.

Speaker 1

However, expedited production requests are subject to higher pricing than standard production. During the quarter we secured a repeated order from an overseas defense client totaling $1,600,000 with $1,000,000 scheduled to delivery by the end of 2024 and the remainder by the end of 2025. This order aligned with our strategy to secure long term contracts facilitating more efficient production planning. The operational landscape for the coming years presents significant challenges. During these years, we will plan to receive and install the 2 coating lines which are the main components of our Accelerate investment plan.

Speaker 1

Unlike various other machines required, these coating lines spend tens of meters and required extensive construction work. Consisting with our policy of executing investment without disturbing current production, we face the task of conducting construction alongside active production lines. Presently, the plan remains on track with our technical team focused on establishing the new manufacturing area and installing new machinery, while supporting ongoing production processes and maintenance. In addition, we have finished issuing purchase orders for all the remaining machines, including accelerated plan. In addressing current production volume requirements, Manpower has emerged as a bottleneck.

Speaker 1

Our immediate focus lies in recruiting additional employees aiming to bolster the workforce by approximately 15%. This required substantial resource allocation including wage increase to attract a sufficient number of employees. 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 statements for the Q1 of 2024. During this call, I will also discuss certain non GAAP financial measures. Eltek uses EBITDA as a non GAAP financial performance measurement. Please see our earnings release for its definition and the reason for its use.

Speaker 2

I will now go over the highlights of the Q1 of 2024. All numbers mentioned are in U. S. Dollars. Revenues for the Q1 of 2024 were 11 point $8,000,000 compared to $11,500,000 in the Q1 of 2023.

Speaker 2

Gross profit increased by 8% reaching $3,200,000 compared to a gross profit of $3,000,000 in the Q1 of 2023. The increase is mainly due to the increase in revenue and the fixed component of part of the expenses included in cost of revenues. Operating profit amounted to $1,700,000 in Q1 24 compared to $1,600,000 in Q1 2023. We recorded financial income of $400,000 during Q1 2024 due to the devaluation of the NIF against the US dollar and from interest on our interest bearing accounts. Net profit was $1,700,000 or $0.27 per share in Q1 2024 compared to net profit of $1,600,000 or $0.27 per share during Q1 2023.

Speaker 2

EBITDA was $2,100,000 compared to 1 $900,000 in Q1 2023. During the Q1 of 2024, we enjoyed a positive cash flow for operating activities of $1,300,000 As of March 31, 2020 4, we had cash and cash equivalents and short term bank deposits of $19,900,000 with no debt outstanding. We are now ready to answer your questions.

Operator

Thank There are no 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 our website. Mr. Yaffe, would you like to make your there is a question.

Operator

The first question is from Mr. Shlodetzky of Kepler Capital. Please go ahead.

Speaker 3

Hello. I want to ask a short question. How you see both the growth at this year 2024? And how you look on your gross profit also this year?

Speaker 2

Thank you. Hi, good morning. We don't give any forecast for the year. It was not our policy and we will not change this policy. As for the gross profit or the gross margin, we said in previous calls and we still keep it.

Speaker 2

We anticipate that in the medium term will be around 27% gross margin.

Speaker 3

And do you see possibility to increase the gross margin after construction has ended in the 2025? So

Speaker 2

we are not sure whether it will be because at the same time we will or we hope that the investment will bring more efficiency. However, new investment require no depreciation and the depreciation expenses will increase. We think that at the near term it will be around 27%.

Speaker 3

Okay, great. Thank you. Thank you.

Operator

There are no further questions at this time. Mr. Yaffet, would you like to make a concluding statement?

Speaker 1

Before we conclude our call, I would like to thank all our employees for their continued effort to meet our strategy of growth and profitability. I would like also to thanks all our customers, partners and investors for their continued support. Thank you for all for joining us on today's call. Have a good day.

Operator

Thank you. This concludes the Eltek Ltd. 2024 First Quarter Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

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