Q2 2023 Eltek Ltd Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to LTCH 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. 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 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&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 LTCH'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.

We'll also be referring to non-GAAP measures. LTCH 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. Elie Yaffe. Please go ahead.

Thank you. Good morning. Thank you for joining us for our second quarter fiscal year 2023 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 the second quarter.

followed by the details of our financial results. After our prepared remarks, we will be happy to answer any of your questions. Bye 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.nistecltech.com

In the second quarter of 2023 revenue were $11 million due to the continuous strengths in the aerospace and defense end market. The trend of high demand for our company products, which we witnessed in 2022, continues into 2023. Therefore, so far our dedicated employee.

and the strong demand enables us to meet our sales targets. Also, the second quarter usually has fewer walking days due to the holidays.

As we look into the rest of 2023 and into 2024 we see an increased demand in the semiconductor segment which we hope will be translated into purchase orders and increased sales.

During the second quarter of 2023, we repaid the balance of our bank loans in the amount of $1.8 million, 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 laws.

and the prevailing high interest rate.

The erosion of the shekel against the dollar continued during the second quarter of 2023 and allowed us to record financial income. This erosion has continued into the third quarter of 2023.

I would like now to expand a little bit on our strategy.

The IEN 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 a growth and creating new opportunities for us, such as satellites and other spacecraft that require complex electronic systems.

with high-end and reliable PCBs. The medical device industry

is in a position of steady growth with global annual sales forecasts rise by over 5% a year. These projections reflect increasing demand for innovative new devices.

We believe that the IEN PCB sectors is expected to grow significantly in the coming years.

with these sectors being major drivers of the goals. The key trends

that are expected to shape the future of the PCB industry in these sectors, including increasing demands of high-performance PCBs, miniaturization, growing importance of reliability and safety, and increasing demand for air sustainability.

In light of this, we continue to invest in our goals. In recent years, we have invested heavily in improving profitability and operation efficiency.

At the beginning of 2022 we decided on an Accelerate 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 strategy to increase growth also includes M&A activity.

Our initial goal in this area is an acquisition of a company with a manufacturing capacity 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. We were informed by the Ministry of Environmental Protection that it rejected our claim to reduce

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 Juan Freund, our CFO , to discuss our financial results.

Thank you, Ali.

I would like to draw your attention to the financial statement for the second quarter of 2023.

During this call, I will also discuss certain ungapped financial measures.

ETCUs is EBITA is Sennanget financial performance measurement. Please see our earnings release for its definition and the reasons for its use.

I will now go over the highlights of the 2023 second quarter. All numbers mentioned are in US dollars.

Revenues for the second quarter of 2023 were $11 million compared to $9.1 million in the second quarter of 2022.

Gross profit increased by 76%, reaching $3 million, compared to a gross profit of $1.7 million in the second quarter of 2022.

The increase is mainly due to the increase in revenues.

Operating profit amounted to $1.4 million in Q2 2023, compared to $0.3 million in Q2 2022.

We recorded financial income of $0.2 million during Q2 2023 and $0.6 million in Q2 2022.

due to the devaluation of the NIS against the USD.

Perfect before income tax amounted to $1.6 million in Q2 2023 compared to $1 million in Q2 2022.

Net profit was $1.3 million or 22 cents per share in Q2 2023. Compare the net profit of $0.8 million or 13 cents per share in Q2 2022.

EBITDA was $1.7 million compared to $0.8 million in Q2 2022.

During the second quarter of 2023 we enjoyed positive cash flow from operating activities of 0.1 million dollars compared to 0.5 million dollars in Q2 2022.

The decrease is mainly due to an increase in trade receivers and inventory levels which derives from the increase in revenues.

As of June 30, 2023, we had cash-in-cash equivalent of $8.3 million compared to $7.4 million at the end of 2020.

We are now ready to answer your questions.

Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment kindly with the handset before pressing the numbers, your questions will be pulled in the order they are received.

Please stand by while we poll for questions. The first question is from Tom Kerr of Zacks Investments. Please go ahead.

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 million.

is where are we in that and when should that be completed?

Hi Tom, good morning. Yes, I can elaborate about it. As we spoke about in the previous call, we had put PO's for most of the equipment and the

Balance of the equipment is going to arrive in 24 and 25.

Some of the equipment is going to arrive between now and the end of the year 2023.

You don't see it in our books yet?

But the PO's were already issued to the manufacturers in Europe .

Okay, then.

What does that mean? Where do we stand in terms of revenue capacity?

I think last day it was in the $40 to $55 million range. Has that increased recently?

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

these capital investments.

Okay.

And then can you provide more color on the entry into the US market? Did you say you were...

looking for acquisitions, have found one, or just still in the process of searching.

Hi Tom, now we still did not find one, we are in the stage of searching and trying to find a target company which will...

be good for us to acquire.

Okay, 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?

Yes, our target for this year will be around 27%, as was in the first half of 2023.

and we hope that with increased sales we will be even higher, but as of now 27% is our target.

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

If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we poll for more questions.

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

Hi, hello, I wanted to ask the operating income was $1.4 million after a reduction of $350,000. Yes, yes, you're right, Chuki.

Okay, and let's say the third quarter, if I compare it to the second quarter, in the third quarter there is more walking than the second quarter, am I correct? Yes, you are. 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 30,000 pounds.

12, 12 and a half, 13 million dollars, do you have any range that is the maximum that you can sell in a quarter? In the next two quarters, the maximum that you can sell? The range of our cell capacity depends upon the mix.

11 to thire million Doll. Local Qu. 11 to 13. 11 to thire 1, three okay, I understand, but the depend mix of the product.

I understand. OK, thank you very much and good luck. Thank you. Thank you. Thank you.

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 LTEC's website, www.nistecltec.com. Mr. Yaffe, please go ahead.

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, thank you.

Thank you. This concludes the LTCH LTD 2023 second quarter Financial Results Conference call. Thank you for your participation. You may go ahead and disconnect.