Q2 2024 Eltek Ltd Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to the LTEC Limited 2024 Second Quarter Financial Results Conference Call. All participants are present in listen-only mode.
Speaker Change: 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.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: Actual events or results may differ materially.
Speaker Change: We'll also be referring to non-GAAP measures.
<unk> undertakes no obligation to publicly release revisions to such forward looking statements to reflect events or circumstances occurring subsequent to this date.
Speaker Change: I will now turn the call over to Mr. Andy Yes, Sir Mr.
Speaker Change: Mr. Yao. Please go ahead.
Andy Yao: Thank you.
Andy Yao: Good morning, Thank you for joining us all of 2020 full second quarter earnings call.
Andy Yao: With me is Ron <unk>, our Chief Financial Officer, we will begin by providing you with an overview of our business.
Andy Yao: In summary of the principal factors that affected our results during quarter. Two 2024. After our prepared remarks, we will be happy to answer any of your questions by now.
We want you to have access to our press release, which was released earlier today their lease will be also available on our website.
Andy Yao: Today, I would like to address two key areas revenues and operations I will start with revenues.
Andy Yao: Since the beginning of 2023, we have demonstrate consistent growth is driven by demand for our products timely work force expansion and ongoing investment in machinery and infrastructure.
Speaker Change: We actually forecast increase in demand and initiate an accelerated investment plan in early 2022, which is already announced our capacity and we'll continue to do so through the end of 2025, all wafer and this quarter, we experienced a decrease in the revenue and profit compared to the previous peak.
Speaker Change: This decline is Brian Lee.
Speaker Change: Due to the significant timing shift of some of our key customers.
Speaker Change: Well you always dies older for PCB with medium technology requirements resulted in lower price and margins.
Speaker Change: We did not succeed to maintain our board or.
Speaker Change: <unk> mix from the pre Pri.
Speaker Change: Korea, where io period, and older and more complex either margin PCB were pushed to the end of Q2 2004 and Q3 2024.
Speaker Change: Boy I feel as I mentioned.
Speaker Change: Previous quarter, our corn bottleneck is meant oil during the second quarter, we continue to face.
Speaker Change: Production delays due to the manpower related capacity constraints.
Speaker Change: During.
Speaker Change: The quarter, we had 59 working days compared to 60 to 90 days in Q2 2023, a decrease of 5%.
Speaker Change: The shortage of manpower and decrease in work days prevent us from producing and delivering some of the high margin PCB orders.
On and for Q2 Q2 delivery.
Speaker Change: This until over and four verbal mix it negatively impact our short term financial performance. We finished Q2, we stand point $5 million revenue gross profit of $1 6 million and gross margin of 16%.
Speaker Change: As mentioned earlier, the lower gross margin for the quarter is attributable.
Speaker Change: Oh that mix manufacturing cost remains consistent with previous quarters, but the average sales price was low oil leading to a decline in gross margin.
Speaker Change: Remain confident in our long term strategy and market position, we expect to return to profitability environment. Ultimately this quarters in Q2, Q3, and Q4 2024 as product mix packages are realigned.
Speaker Change: As of today, our Boston, our backlog has increased by 70% since the beginning of 2024. This increase highlights I'll need to increase capacity immediately.
Speaker Change: But I'm really by growing our workforce, which will.
Speaker Change: I'll discuss later.
Speaker Change: The increase in backlog is due to the strong defense six all demand related to the current situation in Australia, and the shift vehicles manufacturing from the east.
Speaker Change: Two Fox dwarfs, all major influence in our backlog and future revenues, we estimate that we have not yet seen the full impact of the regional conflicts and we anticipate further increase in the defense sector demand.
Speaker Change: Our products in the coming quarters, we continue to focus on securing long term older rather than short term holders.
Speaker Change: We have also decided that in spite of the Idefense digital demand, we will continue to allocate enough capacity.
Speaker Change: To meet the demand of auto and industrial and medical sectors, and we will try to keep the mix of the service segments as before.
Speaker Change: I will now discuss our accelerated investment plans and our actions to deal with the management with the manpower issue.
We are continuing our accelerated investment plan with a significant focus on three new coating lines.
Speaker Change: Just quoting line, which calls via fee line is already installed and operational.
Speaker Change: During the quarter, we review the status of our suppliers and confirmed that the installation of the remaining two coating lines will be installed by the end of 2025.
Speaker Change: These new lines will increase our capacity enables the production of more advanced technological products and improve yields.
Speaker Change: We are currently in the middle of the transition office.
Speaker Change: Transition office space within our building to accommodate the required construction for the remaining two coating lines by the end of the second quarter.
Speaker Change: The issue ultra soda to all the components of the plan the balance of payments forecasts towards the end of 2025 is approximately $8 million.
Speaker Change: It is important to note that as mentioned previously this investment is in addition to our level of capital expenditure, which range from $2 million to $3 million rollout are real.
Speaker Change: Regarding manpower.
Speaker Change: We are navigating the challenging markets with strong demand for employees in response to this demand and our forecast for the increased order flow we have adjusted our.
Speaker Change: They call them in a minute 40 seat primarily by increasing direct label salaries.
Speaker Change: Section, if already and positive effect and we are now increasing our work force daily.
Speaker Change: Our plan is to add about 50, new employees in the coming months and to extend our manufacturing capacity to include an extended sell chips.
one point: We expect these measures to help us to meet delivery schedules accelerate delivery dates and increased revenue I will now turn the call over to one point, our CFO, who will discuss our financial results.
one point: Thank you Ali.
Ali: I would like to draw your attention to the financial statements for the second quarter of 2024.
one point: During this call I will also discuss certain non-GAAP financial measures.
one point: <unk> uses EBITDA as said that'll get financial performance measurement. Please see our earnings release call it to the finish and the reasons for its use.
one point: I will now go over the highlights over the second quarter of 2012 before all numbers mentioned are in U S dollars.
one point: Revenues for the second quarter of 2024 were $10 $5 million compared to $11 million in the second quarter of 2023.
one point: Gross profit reached one $6 million compared to a gross profit of $3 million in the second quarter of 2023.
one point: The decrease is due to the decrease in revenue and the unfavorable mix of products.
one point: <unk>.
one point: Operating profit amounted to zero point $4 million in Q2, 2024 compared to $1 4 million Daus in Q2 2023.
Speaker Change: We recorded financial income of zero point $5 million during Q2, 2020 full including income from the devaluation of Indonesia going to the U S dollar and interest on our end interesting interest bearing bank bank deposits.
Speaker Change: Net profit was zero point $8 million or 11 cents per share in Q2, 2024 compared to a net profit of $1 $3 million or 22 cents per share in Q2 2023.
EBITA was zero point $10 million compared to $1 $7 million in Q2 2023.
Speaker Change: During the second quarter of 2024, we enjoyed positive cash flow for the IP activities of $1.8 million.
Speaker Change: As of June 32024, we had cash and cash equivalents and short term bank deposits of $18 $3 million with no debt outstanding.
Speaker Change: We are at I already to answer your question.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Thank you ladies and gentlemen at this time, we will begin the question and answer session. If you have a question. Please press star one if you wish to cancel your request. Please press star two if you're you.
Speaker Change: Using speaker equipment kind of lift the handset before pressing the numbers.
Speaker Change: Your questions will be answered in the order that they're received please standby while we poll for your questions.
Speaker Change: The first question is from Tom Kerr Zacks. Please go ahead.
Speaker Change: Good morning.
Speaker Change: Can you explain in more detail the heightening shift by these customers that go to medium technology because.
Speaker Change: What specific reason would they ship to medium technology Pcbs instead of traditional.
Speaker Change: Complex Pcbs.
Okay.
Speaker Change: So hi, Tom.
Speaker Change: Okay.
Speaker Change: The reason for this.
Speaker Change: The order mix.
Speaker Change: It was a timing.
Speaker Change: The action that was required by our customers.
Speaker Change: Hello.
Speaker Change: Lower technology, then behavior it makes.
Speaker Change: And they are certainly saves we produced more than 40% of <unk> you can schedule say the average of 30%.
Speaker Change: And it was time it towards requirements by our customer is unusually we try to support our customers and they change the manufacturing plan according to their requirements.
Speaker Change: Yes.
Speaker Change: Okay and you indicated.
Speaker Change: It will return to more complex Pcbs in the third and fourth quarter.
Would that mean, the traditional gross margin of 27%.
Well, we will be return.
Speaker Change: Yes.
Speaker Change: I know it's early yes, we will return to the 2007 for long term.
Speaker Change: And as I mentioned before summer.
Speaker Change: Some of the eye and the PCB were pushed to the end of Q2 and to all day.
Speaker Change: Three two.
Speaker Change: 2024.
Speaker Change: Got it and I noticed the capital expenditures were $5 9 million.
Speaker Change: For the quarter is that all related to the accelerated investment program most of it.
Speaker Change: Most of it in the.
Speaker Change: What can we expect.
Speaker Change: Nick.
Nick: The collection of the $5 94 to six months not the quarter in the quarter, we invested $3 million.
Speaker Change: Oh, Okay, sorry, I thought that was the.
Speaker Change: Otherwise.
Speaker Change: But where do you expect that on the second half of the year.
Speaker Change: With capital expenditures.
Speaker Change: As we say it depends mainly on the timing of installation of machines and delivery, we have a balance of about $8 million regarding the accelerated investment plan to be.
Speaker Change: Paid during the rest of 2024 and 2025 I estimate that during the next stuff here.
Speaker Change: We'll spend some somewhere around $2 million.
Speaker Change: Okay. So much of that will be in 2025, yes.
Speaker Change: And one more so you guys still looking for a presence in North America had any progress on that.
Speaker Change: Yes, we are still looking for CRT below target company, we cannot.
Speaker Change: Tell something about that TEP engines reach a stage that we will report something but.
Speaker Change: Working with the seashore so.
Speaker Change: Okay. Thank you I'll jump back in the line. Thank you.
Speaker Change: That's cool.
Michael <unk>: The next question is from Michael <unk>. Please go ahead.
Michael <unk>: Oh, Yeah, hi.
First hustle.
Speaker Change: Would you mind disclosing the.
Speaker Change: Revenue mix for the defense sector.
Speaker Change: The defense sector.
Speaker Change: <unk> hundred 60, <unk> was 60% in Q3.
Speaker Change: Q2 2024.
Speaker Change: So is the same right around yes, yes, no. It does not change what was changed the mix of the product within the defense sector.
Speaker Change: Okay. So I mean.
Speaker Change: Do you expect the Q4 Q3 Q4 will be the same similar revenue mix. The mix is going to change back to 70 70, as we mentioned and not 40 60 as it was in Q3 as it was in Q2 sorry.
Speaker Change: Okay. So it would go up and it definitely yes.
We don't go up high margin P series will go up.
Speaker Change: Okay great.
Speaker Change: About the Capex.
Speaker Change: So the next one up here.
Speaker Change: Sure.
Speaker Change: 2025 would you expect.
Speaker Change: The total capex would be around 10 $12 million.
Speaker Change: We expect that he will be around the $10 million.
Speaker Change: Okay, great. Thank you that's all my questions. Thanks.
Speaker Change: If there are any additional questions. Please press star one if you wish to cancel your request. Please press star two.
Speaker Change: The next question is from Tom Kerr of tax. Please go ahead.
Tom Kerr: And just one follow up on the manpower issue I couldn't quite hear it the phone line was a little blurry.
Tom Kerr: But did you say you'll be hiring 50 people and maybe just explain the manpower issue one more time.
Speaker Change: Right now the current situation in the menthol the labor market in Israel is very tough.
Speaker Change: So we increased in July we want to increase their salary of a direct employees in Alberta.
Speaker Change: And by doing it and we start to dissolve.
Speaker Change: So more people to work with us I'm speaking about direct employees and the plan is to increase the menthol by 50 people fivefold.
Speaker Change: And we are all going to do it by the eight a M C.
Speaker Change: It's a very tough market.
But our a steps shown performance that means that once we raised the salaries austerity label, we could distribute more employees and we are encouraged literally on a daily basis.
Speaker Change: And are those all primarily manufacturing employees or are there other areas that may not.
Speaker Change: Turning employees direct employees in manufacturing in place yes.
Speaker Change: Great.
Speaker Change: Thanks. Thank.
Speaker Change: Thank you Tom that's all I had.
Ron: The next question is from Ron So please go ahead.
Ron So: Hi, everyone. So that question either.
Speaker Change: These are potential future deal.
Speaker Change: In North America.
Ron So: How do you going to finance these kinds of ideas do you consider like future offering as you did in the $16 per share offering or do you consider a financing with that.
Speaker Change: Bank loan or a change of <unk>.
Speaker Change: Sure. This is the first question second question is do you think that the changes in the mixture of PCB.
Speaker Change: Complex products.
Speaker Change: That you can compensates.
Speaker Change: Even the revenue and the process. So that brings the total year you will reach your Oh I don't know if its target because you don't published target, but the compensate even more for the 27% gross margin and for even higher.
Speaker Change: Revenue.
Speaker Change: Than previous quarters.
Ron So: Hi, Ron.
Speaker Change: So in regard to your first question any financing plan for the purchased say it will depend of course on the scope of the acquisition in the form of financing that will be.
<unk> discussed and agreed between the parties, but at this point our plan is to try to finance the purchase with the cash we have on hand and by raising debt. We do not intend at this stage to raise additional capital for this purchase.
Speaker Change: Regarding your second question, Ron regarding the mix of products in Q2.
Speaker Change: I said in our PR the mix of the quarter contained.
Ron So: <unk> requirements.
Speaker Change: That results in lower prices and margins, but the average.
Ron So: Normal level at June, 30%, rigid PCB, and 70% rigid flex with high margins.
Speaker Change: But this quarter in quarter two the mix was contained 42% multiple sizes, the 42% of <unk> with low margin and 58%.
Ron So: I am PCB with high margin.
Speaker Change: And we agreed to receive and produce these orders since we have long term relationships with our key customer wins.
Speaker Change: When there is a demand for change priorities, we support our customers.
Speaker Change: And change our manufacturing plan accordingly, and that's the reason.
Speaker Change: We are we know that it was uneven because of the situation in the defense sector in Israel, and we support them, but for long term we still.
Speaker Change: 27% gross margin.
Speaker Change: And this fall.
Speaker Change: The area. We don't gave guidelines as you probably know aim we believed it will bank better than this quarter.
Speaker Change:
Speaker Change: And at this point.
Speaker Change: Stock.
Speaker Change: Okay. Thank you. Thank you.
Speaker Change: Yes.
Speaker Change: There are no further questions at this time before I ask Mr. Rafi 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 the website.
Mr. Rafi: Okay would you like to make a concluding statement before we conclude I want to express my gratitude to our employees and their unwavering dedication and secreting executing our strategy I also extend my thanks to our customers and partners.
Mr. Rafi: And investors for their ongoing support.
Mr. Rafi: You all for joining today's call never Great day.
Mr. Rafi: Yes.
Speaker Change: Thank you. This concludes the <unk> Ltd, 2024 second quarter financial results Conference call. Thank you for your participation you May now go ahead and disconnect.