Eltek Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 20, 2025

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Eltec Ltd. Twenty twenty five First 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.

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 forecasts, assumptions and expectations about future outcomes, which are subject to the risks and uncertainties outlined here and discussed more fully in Eltec'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. Eltec 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 twenty twenty five first quarter 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 Q1 twenty twenty five.

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. During the first quarter, we concurred and stabilizing and calibration of our new equipment installed in our recently launched Soldier Mask Application department as well as a machinery located to this facility. This was a complex and time intensive process, further complicated by the unavailability of certain technical support personnel who declined to travel to Israel for the on-site installation and calibration.

Speaker 1

As a result, we faced challenges in optimizing machine performance and compelling the precise technical adjustment required. This complexity contribute to a lower production yield and negatively impact our profitability for the quarter. The good news is that since the May, these processes are functioning much more smoothly. Production has resumed at a stable pace and efficiency levels have returned to where they were prior to the transition. We are continuing the construction work on the basement floor to prepare it for the installation of our new plating lines.

Speaker 1

While our European supplier is making progress with the production of the equipment, they recently informed us on a delay of approximately two months in the delivery of the first and the most significant coating line. Despite this delay, we remain on track to complete our accelerated investment plan by mid-twenty twenty six. On the human resource front, we have continued our efforts towards crude production workers and engineers. The Israeli labor market remains highly challenging, particularly when it comes to attracting qualified candidates in these fields. We are hiring at the modest pace within our existing salary structure, following by significant wage adjustment we implemented at the end of Q2 twenty twenty four, as many of you may recall.

Speaker 1

In terms of market dynamic, we continue to experience strong demand for our products across all segments. Due to this elevated demand, we are seeing an increase in lead time for customer delivery, not only at Eltek, but also across the industry and among our competitors. At this stage, there is still no clarity regarding the tariff rate that may apply to products originated from Israel under the new U. S. Tariff policy nor whether defense related equipment will be included within this framework.

Speaker 1

However, the company's competitive position in The U. S. Market may benefit from the higher tariffs on products from other exporting countries such as Canada. Additionally, tariffs on imposed raw material could affect the cost structure and competitiveness of The U. S.-based manufacturers.

Speaker 1

We estimate that it will take years to establish sufficient domestic production capacity in The U. S. To meet the customer demand for the high end product as well as we sell. Accordingly, we do not anticipate any material impact on demand for our products in The U. S.

Speaker 1

Market over the near to medium term. We are actively working to diversify our supply base in the Far East to support our goal of expanding our commercial activity. These initiatives include also exploring opportunities for partial production abroad, with final process and completion taking place in our facility in Israel. The objective is to leverage our reputation and the technological know how to increase revenue even during the period of production capacity constraints. At the same time, this model enabled us to offer our customers more attractive pricing while maintaining the high quality standards associated with LTACH.

Speaker 1

During the first quarter, we also began a company wide process to replace our core information system. This transformation is expected to take approximately eighteen months and will involve replacing of most of the IT software currently in use across the organization. As part of this transition, we aim to optimize our internal workflow and implement industry standard efficient work and methodologies. A key focus of this project is to develop structured, centralized digital process that will capture and preserve critical knowledge previously held by a key personnel. This will allow us to unify production procedure, retain organizational know how and ultimately improve operational efficiency across the company.

Speaker 1

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 first quarter of twenty twenty five. During this call, I will also discuss certain non GAAP financial measures. STEP 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 first quarter of twenty twenty five. All numbers are mentioned in U. S. Dollars. Revenues for the first quarter of twenty twenty five totaled $12,800,000 compared to $11,800,000 in the first quarter of twenty twenty four.

Speaker 2

Gross profit decreased to $2,200,000 down from $3,300,000 in the first quarter of twenty twenty four. The decline was primarily driven by higher labor costs and lower yields during the quarter, resulting from the ramp up of new production equipment, as Eli mentioned earlier. Operating profit for the quarter was $700,000 compared to $1,700,000 in the same period last year. We recorded financial income of $500,000 in the first quarter of twenty twenty five, primarily due to the devaluation of the Israeli shekel against the U. S.

Speaker 2

Dollar and interest earned on our interest bearing accounts. Net income for the quarter was $1,000,000 or $0.15 per share compared to $1,700,000 or $0.27 per share in the first quarter of twenty twenty four. EBITDA for the quarter was $1,200,000 compared to $2,100,000 in the prior year period. Cash flow from operating activities totaled $100,000 during the first quarter of twenty twenty five. As of 03/31/2025, we had $15,700,000 in cash, cash equivalents and short term bank deposits with no outstanding debt.

Speaker 2

We are now ready to answer your questions.

Operator

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer and at begin Your questions will be answered in the order they are received. Please stand by while we poll for your questions. The first question is from Guy Mualan of analyst. Please go ahead.

Speaker 3

Hi. Thank you for taking my question. Regarding the new line that you expect for the end the implementation in mid twenty twenty six, will this line also impact the profitability of the company? Or now that in the next few months, you're gonna finish the implementation of the the current implementation, will you get back to the profitability you'll see in 2023?

Speaker 1

Good morning, Guy. I'm not sure that I understood your question, but the line that we are going to install and is going to be fully operated in mid -twenty twenty six is positively is going to impact our profitability because it's going to increase our production significantly. And the marginal contribution of any additional sales is going directly to the bottom line, which is a big number.

Speaker 3

No. This is what I understand, of course, but I'm saying you have your profitability of this because during this time, had to increase the capacity of the current existing lines. And we said that this helped a little bit of manufacturing production. But but now the new line the the next time that you're gonna implement is gonna be a new line in its company, then the the implementation of it is not gonna be interfering with the existing line.

Speaker 1

No. Yeah. I now understand. No. You're right.

Speaker 1

The new line is not going to interfere with the current production.

Speaker 3

Mhmm. So will we see we get back to the profitability within maybe in 2023?

Speaker 1

Before 2020 twenty you know, we don't give a forecast.

Speaker 3

Okay.

Speaker 1

Thank you.

Operator

There are no further questions at this time. Before I ask, there is an additional question from Eitan Etzioni of Etzioni Portfolio Management.

Speaker 4

You mentioned that in Q1, you were held back by operational difficulties and people refusing to travel to Israel. Once these difficulties are resolved, how

Speaker 1

do

Speaker 4

you see sales picking up? Or to what extent was the holdback in Q1?

Speaker 1

The holdback in Q1 was we suffered from reduced yield, which affects our gross margin, but we overcome the problem with our local engineers, local support. The constraint of some people not to write to Israel still exists. But the main production line, which I mentioned before, the plating line, they are going to come from The Republic Of Czechoslovakia and they are going to arrive. They notify us that they are going to arrive.

Speaker 4

That's the 26 project that you talked about there? No. It's the only 25.

Speaker 2

We expect them to arrive by, as we said, around August, And then it will take us several months to install the first plating line, which is the most significant one. And we hope that by the end of twenty twenty five, it will be in good position and stable, and we can increase our capacity and efficiency.

Speaker 4

So an additional line at the end of 'twenty five and another line in 'twenty six. And that's and how many existing lines do you have again,

Speaker 2

We have currently, we have two plating lines, okay, very old ones. And we are now building in the Basement Floor an area which we will install in it the two new ones, one which is going to arrive by August and the second one will arrive, I think, during 2026 in the first half. And these lines will stabilize and calibrate as we produce in the old ones. Once finished installation, we start to produce or manufacture in the new lines and stop manufacturing in the old lines.

Speaker 4

So will the new lines only help operational efficiency? Or will they also help in increased revenues?

Speaker 2

They increase capacity significantly. Quality? Increased quality and efficiency give us momentum to upgrade the technological to new technologies. It is state of the art lines with higher technology existing now.

Speaker 4

And do you see a demand to support the increased capacity?

Speaker 2

The demand, yes, we see it.

Operator

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

Speaker 1

Yes. Before we conclude, I would like to take a moment to thank our dedicated employees for their exceptional efforts during the what we see in a particular demanding period. The successful stabilization of our new solar mask application production lines, alongside the delineation of the IT transformation and ongoing expansion efforts would not have been possible without their commitment and their alliances. I would also like to thank our shareholders and partners for their continued trust and support. Our confidence in Eltek enable us to pursue our long term strategy and invest in the infrastructure technology and people that will drive our future growth.

Speaker 1

Thank you for joining us on today's call. Have a good day.

Operator

Thank you. This concludes LTEC's twenty twenty five first quarter financial results conference call. Thank you for your participation. You may go ahead and disconnect.

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Key Takeaways

  • In Q1 the company faced operational challenges during calibration of new Soldier Mask Application equipment, resulting in lower yields and profitability, but since May efficiency levels have returned to pre-transition norms.
  • A key new plating line from Europe was delayed by about two months, yet the accelerated investment plan remains on track for completion by mid-2026, promising significant capacity and margin improvements.
  • Q1 revenue rose to $12.8 million from $11.8 million year-over-year, but gross profit fell to $2.2 million (from $3.3 million) and net income dropped to $1.0 million due to higher labor costs and ramp-up inefficiencies.
  • Strong demand across all segments is driving longer customer lead times, and while U.S. tariff policy remains unclear, higher tariffs on competing exports could enhance Eltec’s competitive position.
  • The company has launched an 18-month IT system overhaul to centralize workflows, preserve critical knowledge and boost operational efficiency across all functions.
A.I. generated. May contain errors.
Earnings Conference Call
Eltek Q1 2025
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