Eltek Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 14, 2025

Key Takeaways

  • Positive Sentiment: Revenues grew by 20% year-over-year to $12.5 million in Q2 FY2025, bringing year-to-date revenues to $25.3 million and showing early stabilization in production capacity.
  • Positive Sentiment: Gross margin expanded to 24.1% from 15.6% in Q2 FY2024, driven by improved operational efficiencies and a more favorable product mix.
  • Negative Sentiment: The company recorded a nonrecurring $1 million currency devaluation expense due to a 9% USD/ILS shift, reducing net income to $0.4 million (or $0.05 per share).
  • Negative Sentiment: Operating cash flow was negative $2.9 million in Q2, primarily due to higher trade receivables and increased inventory buildup amid war-related risk mitigation.
  • Positive Sentiment: The new 40 meter coating line is expected by Q2 FY2026, alongside cooling and electrical upgrades, to scale capacity toward a $55–65 million annual revenue run rate.
AI Generated. May Contain Errors.
Earnings Conference Call
Eltek Q2 2025
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. Twenty twenty five 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.

Operator

As a reminder, this conference is being recorded. Before I turn the call over to Mr. Eli Jaffe, 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 risk 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 twenty twenty five second 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 Q2 twenty twenty five.

Speaker 1

After our prepared remarks, we will be happy to answer any of your questions.

Speaker 2

By

Speaker 1

now, everyone should have access to our press release, which was released earlier today. The release will be also available on our website. Let me start with the financial highlights. Revenues for the 2025 totaled $12,500,000 representing 20% increase compared to the same period last year and maintaining the strong momentum seen in Q1 twenty twenty five. For the 2025, revenues reached $25,300,000 up from $22,200,000 in the 2024.

Speaker 1

This performance indicates early signs of stabilization in our production capacity and improved run rate. As previously communicated, our accelerated investment program objective was to scale our installed production capacity to support 55,000,000 to $65,000,000 in annual revenue. Gross profit totaled $3,000,000 nearly double the results from the same quarter last year. Gross margin expanded to 24.1%, up from 15.6% in Q2 twenty twenty four, driven by improved operational efficiencies and more favorable product mix. With production process stabilization and all in store equipment now fully operational, our fixed cost base is largely absorbed.

Speaker 1

As a result, incremental revenue is expected to have significant stronger impact on profitability, potentially contribute approximately $0.50 on a dollar to our gross profit. Operational income rose to $1,500,000 up from $400,000 in Q2 twenty twenty four. During the quarter, we recorded onetime financial expenses of $1,000,000 resulting from a $9,000,000 a 9% devaluation of the U. S. Dollar against the Israeli shekel.

Speaker 1

While we do not anticipate similar currency shift in the near term, we have proactively adjusted our pricing model to better align with our new NIS dominate cost structure. This is nonrecurring expenses impacted by our bottom line, resulting in net income of $400,000 or $05 per fully diluted share. EBITDA reached $2,000,000 and represents 15.6% of revenue, a significant decrease compared to Q2 twenty twenty four and Q1 twenty twenty five. Let me now move to business development and operational update. From the market perspective, we saw a modest increase in commercial sales alongside continued strong performance in our defense and medical markets.

Speaker 1

Spending commercial sales remained a strategic priority as they are less constrained by the current production capacity. We believe that these efforts will yield more substantial results in the near future. Worldwide lead time for the relevant market sectors remain extended, primarily due to the capacity and operational limitations. As part of our border capacity expansion strategy, I would like to share progress on several key infrastructure initiatives. All equipment delivered to date has been successfully installed and is in operation in line with the performance specification.

Speaker 1

The centerpiece of our investment plan, the new 40 meter coating line, is now expected to arrive towards the 2025, with qualification ramp up scheduled to begin immediately upon arrival. Supporting infrastructure, including an ancillary equipment, is in the track to be completed by the year end to ensure fully operational readiness. In parallel, we are investing in additional infrastructure to accommodate future growth. We recently completed a major upgrade to our cooling system, now providing 20% surplus in capacity to support anticipated clean room expansion and redundancy. In addition, we are now in the final state of increasing electrical capacity by 40%, enabling us to support the next phase of our expansion road map.

Speaker 1

We continue to face the challenges in recruiting qualified manufacturing personnel. To address this, we have recently submitted a formal request to participate in Israeli government program that supports the defense industry by enabling the employment of foreign workers. If approved and subject to a regulatory clearance and completion of the training, these workers will enable us to operate in production lines seven days a week, significantly enhancing our manufacturing flexibility and capacity to meet the growing demand for the defense related products. I will now turn the call over to Ron Point, our CFO, to discuss our financial results.

Speaker 3

Thank you, Ali. I would like to begin by drawing your attention to the financial statements for the 2025. During this call, I will also refer to a non GAAP financial measure. SEC uses EBITDA as a non GAAP indicator of financial performance. Please refer to our earnings release for the definition of EBITDA and explanation of why we use this metric.

Speaker 3

Let me now review the key highlights of the 2025. Unless otherwise stated, all figures are presented in U. S. Dollars. Revenues for the 2025 totaled $12,500,000 compared to $10,500,000 in the 2024.

Speaker 3

Gross profit reached $3,000,000 up from $1,600,000 in Q2 twenty twenty four. This increase was primarily driven by higher revenues and a more favorable product mix compared

Speaker 1

to

Speaker 3

the same period last year. Operating profit for the quarter was $1,600,000 compared to $400,000 in the 2024. We recorded net financial expenses of $1,000,000 during the quarter, mainly resulting from the sharp 9% devaluation of the U. S. Dollar against the shekel.

Speaker 3

These expenses are net of interest income and on our interest bearing bank deposits. Net profit for the 2024 was $400,000 or $05 per share compared to $1,400,000 or $0.11 per share in Q2 twenty twenty four. EBITDA for the quarter was $2,000,000 compared to $800,000 in the 2024. Cash flow used in operating activities amounted to $2,900,000 in Q2 twenty twenty five, primarily due to an increase in trade receivables and inventory. As of 06/30/2025, our cash, cash equivalents and short term bank deposits totaled $11,200,000 with no outstanding debt.

Speaker 3

We are now ready to answer your questions.

Operator

Thank you, ladies and gentlemen. At this time, we will begin the question and answer session. If you have a question, please press 1. If you wish to cancel your request, please press 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers.

Operator

Your questions will be answered in the order that I received. Please stand by. The first question is from Michael Wu.

Speaker 2

Oh, hello. Hi. Thanks for taking my questions. I have two questions. The first one, could you give me some update about the capital investment for the rest of 2025 and 2026?

Speaker 3

Hello?

Speaker 1

And the second question?

Speaker 2

Oh, the second question is about the revenue mix. So could you disclose what is the percentage of revenue for the international and the defense sector, like, as a percentage of the total revenue?

Speaker 3

Okay. So regarding the investment, so basically, what is left in 2025 and 2026 is the installment of the coating line. And this is above our regular investments of 2 to $4,000,000, which we made regular regularly before the accelerated investment plan. The current balance of the accelerated investment plan is around $6,000,000, And we expect, as we said earlier, to receive the first coating line of the 40 meters by towards the 2025 and immediately ramp it up and start production. As as in regard to the mix of revenues, so this quarter, we had a higher mix of rigid of flex rigid towards the 65 to 70% of our total revenues.

Speaker 3

And usually, the price and the profits in the rigid flex are higher than in the rigid. And in regard to c two segments of our customers or industries, we continue to see this strong demand in the defense sector, which totals around 65%.

Speaker 2

Okay. Great. Thank you very much. Thank you.

Operator

The next question is from Eitan Etzioni from Etzioni Portfolio Management. Please go ahead.

Speaker 1

Yes. Thank you for thank you. I want to ask how do you see the strong defense demand affecting your business in the rest of '25 and going into '26?

Speaker 3

So, basically, we see the strong demand. We think it will continue in the in the near future. We see the strong demand in the Israeli market, but also from a foreign countries, The US, and also we feel a strong demand in the European market. Military budget are increasing, and we hope, you know, to succeed in getting orders also from these countries and not base most of our defense production to the Israeli market.

Speaker 1

Can can you quantify help us quantify? Is there a backlog or order pipeline or something else that we can put our hands on?

Speaker 3

We usually do not give any disclosure on our backlog. It it was in it increased, and it was about 10% since the beginning of the year. It is not something that we disclose. And usually, in our industry, you usually receive the the orders for the next quarter or the two next quarters. You don't receive the full orders for a big project that our customers usually win.

Speaker 3

So if you see some of our military customers win big projects, like you saw last week in the newspaper. They don't give us full order for this for their orders rather than give it in small quantities per quarter.

Speaker 1

Okay. And the the we see some improvements in the profit profitability. You expect that to continue?

Speaker 3

Yeah. We please, Alex. Please.

Speaker 1

Yeah. As I said before, any dollar above the common sales will contribute approximately 50¢ to the gross margin. So since all our fixed cost is fully absorbed, then it speaks by itself. Any additional cents, 50¢ will go to the cost margin. Okay.

Speaker 1

Thank you.

Speaker 2

Thank you, Ethan.

Operator

The next question is from Avi Sega. Please go ahead.

Speaker 2

Hi. Good quarter. Well done. I just wanted to ask two questions. Question number one, once you've installed this u 40 meter coding line to end of 02/2025, what will your annual revenue capacity be?

Speaker 2

Question number one. Question number two is how come you had a negative cash flow from operating activities during the quarter?

Speaker 1

Regarding the question number one, as we say, we will be reaching up to 55 to $60,000,000 annual revenue potential once this line is going to be fully operational. Regarding question number two on the business. Yeah.

Speaker 3

So basically, the negative operating cash flow is added from two main reasons. The first one is a slight delay in one of our of our big customers delaying its payment, and we already collected the the full amount during the July. And the second is the increase in inventory. We decided that due to the situation, the the war in Israel to increase our inventory levels and to reduce risk. That these are the two main issues that caused the negative cash flow.

Speaker 2

Okay. Great. That sounds that sounds thanks for

Speaker 1

those answers. I wish you lots of success going forward. Thank you. Thank you. Thank you, Harvey.

Operator

The next question is from Danish Ward from Kepler Capital. Please go ahead.

Speaker 1

Hello. You already answered it. Could you provide some color on the churn in the EBITDA level?

Speaker 3

I didn't understand your question, Jeremy.

Speaker 1

Could you provide some color on the change in the inventory levels?

Speaker 3

Yeah. We decided to increase our inventory levels mainly in lamination, in in aluminum. Due to the war in Israel, we purchased more than we usually purchase. This is the this can, you know, be be used during the We don't anticipate any issue with that.

Speaker 3

And in part of this, we also because of the the operational challenges we had during q four twenty four and q one twenty five, the working process has also increased.

Speaker 1

Thank you.

Operator

If there are any additional questions, please press 1. If you wish to cancel your request, please press 2. There are no further questions at this time. Before I ask mister Yasser 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.

Speaker 1

Before we wrap up, I would like to take a moment, think really thanks to our employees and their continued commitment and hard work in advancing our strategic goals. I also want to express my appreciation to our customers, partners and shareholders for their trust and continued support. Thank you for being with us today, wishing you a great day.

Operator

This concludes the Eltek Ltd. Twenty twenty five second quarter financial results conference call. Thank you for your participation. You may go ahead and disconnect.

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