Q3 2024 Eltek Ltd Earnings Call
Ladies and gentlemen, thank you for standing by.
Operator: Ladies and gentlemen, thank you for standing by.
Operator: Welcome to Eltek LTD 2024 3rd Quarter Financial Results Conference. All participants are present in listen-only mode.
Welcome to <unk> L. T D 2024 third 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 for operator assistance. During the conference. Please press Star Zero as a reminder, this conference is being recorded before I turn up.
Operator: 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.
Operator: As a reminder, this conference is being recorded.
Operator: 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 question and answer session. 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 file. These forward-looking statements are projections and reflect the current beliefs and expectations of the company. Actual events or results may differ materially.
Speaker Change: All over to Mr. Eliopoulos, Chief Executive Officer, and Ron Froind, 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 question and answer session by its nature. This information contains forecasts assumptions and expectations about future outcomes, which.
Speaker Change: Our subject to the risks and uncertainties outlined here and discussed more fully in <unk> 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 will also be referring to non-GAAP measures.
Operator: 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.
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. <unk>. Mr. <unk>. Please go ahead.
Operator: I will now turn the call over to Mr. Eli Yaffe. Mr. Yaffe, please go ahead.
Eli Yaffe: Thank you.
Speaker Change: Thank you.
Eli Yaffe: Good morning. Thank you for joining us for our third quarter fiscal year 2024 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.
Speaker Change: Good morning, Thank you for joining us for our third quarter fiscal year 2020, full earning calls.
Speaker Change: With me is on Froind, our old 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.
Eli Yaffe: are the third quarter followed by the details of our financial results. After our prepared remarks, we will be happy to answer any of your questions.
Speaker Change: The third quarter, followed by the details of our financial results. After our prepared remarks, we will be happy to answer any of your questions.
Eli Yaffe: Bye now! Everyone should have access to our press release, which was released earlier today. The release will be also available on our website. We concluded the third quarter of 2024 with a record revenue totaling $13.5 million. During this period, sales of the defense market segment represent 64% of our total sales, while the industrial market segment contribute 14% and the medical market segment accounted for 17%. We continue to maintain strong backlog and anticipate steady growth.
Speaker Change: Bye now.
Speaker Change: Everyone should have access to our press release, which was released earlier today. The release will be also available on our website.
Speaker Change: We concluded the third quarter of 2024 with a record revenue totaling $13 5 million total.
Speaker Change: Long dispute central defence market segments represent 64% of our total shares while the industrial market segment contributed 14% and to make because market segment accounted for 7%.
Speaker Change: We continue to maintain strong backlog and anticipate steady growth.
Speaker Change: And demand for their high end products and in line with our growth strategy. We do not expect any significant change in market trends and believe that's critical sectors, such as medical and defense will continue to generate strong demand for Pcbs.
Eli Yaffe: for you. due to the ongoing trade conflict between the U.S. and China and the various tensions worldwide. Demand for our products in India remains robust and continues to grow. In the industrial segment, we have observed a slowdown due to the reduced demand from our primary customers. steaming form changes in its end customer's business. We anticipate a recovery in this segment in 2025. We are initiating a co-production partnership with specialized companies overseas to better meet customers' demands, reduce lead time, and improve pricing. However, there is not yet been significant progress on these cells through this partner.
Due to the ongoing trade conflict between the U S and China and the vigorous attention worldwide.
Speaker Change: Demand for our products in India remains robust and continue to grow.
Speaker Change: In the industrial segment, we have observed a slowdown due to the reduced demand from our primary customers.
Speaker Change: Stemming from changes and customers with business, we anticipate anticipate a recovery in this segment in 2025.
Speaker Change: We are initiating.
Speaker Change: Co production partnerships with specialized companies overseas to better meet customers' demand reduce lead times and improve pricing always though.
Speaker Change: There is.
Speaker Change: Not yet being significant progress on T cells through this partnership.
Eli Yaffe: Gross profit for the Silkwater was $3.5 million, resulting in a gross margin of $26 million. This quarter's gross profitability was affected by the return to the typical product mix compared to our second quarter, as well as the decline in profitability due to the adjustment in production worker wages. Reflecting a current labor market condition in Israel, we anticipate a gross profit margin of 26-29% in the long-medium term.
Speaker Change: Gross profit for the third quarter was $3 5 million, resulting in a gross margin of 26%.
Speaker Change: This quarter scores both defeated profitability was affected by the return to the typical product mix compared to our <unk>.
Speaker Change: Second quarter as well as the decline in profitability due to the adjustment in production Walker wages.
Speaker Change: Reflecting our current labor market condition in Israel, we anticipate the gross profit margin of 26% to 29% in the long medium term.
Speaker Change: Operationally.
Eli Yaffe: operationally. We have made significant progress. We are in the final stage of opening a new production hall dedicated to the solder mask application department, which is part of our accelerated investment program. with an investment of approximately $2 million. This space was created by re-proposing office space and storage area, which were reallocated to other smaller area. Our border investment strategy prioritized machinery and required less manpower for operation, but demand higher technical skills. During the quarter, we stabilize our workforce by hiring approximately 30 new employees and increase wages level to direct employees only in order to support recruitment.
Speaker Change: We have made significant progress we are in the final stage of opening a new production all dedicated to the solder mask application Department, which is part of our accelerated investment program.
Speaker Change: With an investment of approximately $2 million.
Speaker Change: This space was created by a re purposing of office space and storage area, which were reallocated to other smaller area.
Speaker Change: Or a bolder investment strategy play out.
Speaker Change: Machinery and required less meant bogo full operation of demand <unk> technical Skus.
Speaker Change: During the quarter, we stabilize our work force by offering approximately 70, new employees and increased wages level to direct employees only in order to support the requirements.
Eli Yaffe: We are continuing this process in the coming quarters to prepare for the integration of additional machinery arriving next year as part of our accelerated investment. We have also initiated an ERP project, which is not part of the Accelerate Investment Program, to replace most of the company's computing systems. This initiative aims to streamline various processes and consolidate numerous existing satellite systems into the new ERP system. The project is expected to span approximately two and a half years.
Speaker Change: We are continuously in this process in the coming quarters to prepare for the integration of additional machinery, arriving next to you as both of our accelerated investment plan.
Speaker Change: We will also initiate an ERP project, which is not part of the accelerated investment program to replace most of the company computing systems. This initiative aims to streamline various classes and consolidate numerous existing satellite systems into the new ERP system projects.
Speaker Change: <unk> expects to spend approximately two and off yields.
Eli Yaffe: Our Board of Directors adopted a Dividend Distribution Policy. Under this policy, following the filing of the company's annual financial... The board will declare a dividend distribution of up to 25% of the company net profit. This distribution will take into consideration the company financial position and cash flow needs. I will now turn the call over to Ron Freund, our CFO, to discuss our financial results.
The board of directors adopted a dividend distribution policy.
Speaker Change: These policy following the filing of the company's annual financials state.
Speaker Change: Statements the board will declare a dividend distribution of up to 25% of the company net profit.
Speaker Change: Distribution will take into <unk>.
Speaker Change: In consideration of the call.
Speaker Change: <unk> financial position and cash flow needs I will now turn the call over to one point, our CFO, who will discuss our financial results.
Ron Freund: Thank you, Ellie. I would like to draw your attention to the financial statements for the third quarter of 2025. During this call I will also discuss certain UNGAP financial measures. Eltek uses EBITDA as a non-gap financial performance measurement. Please see our earnings release for its definition and the reasons for its use.
Speaker Change: I would like to draw your attention to the financial statements for the third quarter of 2024.
one point: During this quarter, we will also discuss certain non-GAAP financial measures.
Speaker Change: <unk> uses EBITDA as a non-GAAP financial performance measurement. Please see our earnings release for the definition and the reasons for its use.
Ron Freund: I will now go over the highlights of the 2024 third quarter. All numbers mentioned are in US dollars. Revenues for the third quarter of 2024 were $13.5 million compared to $11.9 million in the third quarter of 2020. Gross profit for Q3 2024 totaled $3.5 million compared to $3.7 million in Q3 2023. This decrease primarily reflects a more favorable product mix in Q3 2023 that included some orders with a lower material cost component. etc. At the beginning of Q3 2024, we have adjusted wages for our manufacturing employees, prompted by shifts in the local labor market, which contributed to the decline in gross money.
Speaker Change: I will now go over the highlights of the 2024 third quarter. All numbers mentioned are in U S. Philadelphia.
Speaker Change: Revenues for the third quarter of 2020, Fort worth $13 5 million compared to $11 $9 million in the third quarter of 2023.
Speaker Change: Gross profit for Q3, 2020 full totaled $3 $5 million compared to $3 $7 million in Q3 2033.
Speaker Change: This decrease primarily.
Speaker Change: It reflects a more favorable product mix in Q3 2023 that included some older rizza lower material cost component. Additionally.
Speaker Change: At the beginning of Q3 2024, we have adjusted wages for our manufacturing ploys, 12% by shifting the local labor market, which contributed to the decline in gross margin.
Ron Freund: Operating profit for Q3 2024 was $1.9 million compared to $2.3 million in the same period last year. We recorded financial income of $0.1 million in Q3 2024 compared to $0.3 million in Q3 2023. mainly driven by changes in the NIS exchange rate relative to the U.S. dollar and interest earnings on our cash reserve. Profit before income tax stood at $2 million in Q3 2024, down from $2.6 million in Q3 2020. Net profit for Q3 2024 was 1.7 million or 25 cents per share compared to 2.1 million dollars or 36 cents per share in Q3 2024.
Speaker Change: Operating profit for Q3, 2024 was $1 9 million.
Speaker Change: Compared to $2 $3 million in the same period last year.
Speaker Change: We recorded financial income of zero point $1 million in Q3, 2024 compared to zero point $3 million in Q3 2023.
Speaker Change: Mainly driven by changes in the exchange rate relative to Derisk, daughter, and interest earnings on our cash reserves.
Speaker Change: Profit before income tax stood at $2 million in Q3 2024 down from two four.
Speaker Change: $2 6 million in Q3 2023.
Speaker Change: Net profit for Q3, 2024 was $1 7 million or 25 cents per share compared to two point to $1 million or 36 cents per share in Q3 2023.
Speaker Change: EBITA amounted to $2 $3 million in Q3, 2024, compared with $2 $6 million in Q3 2023.
Ron Freund: EBITDA amounted to $2.3 million in Q3 2024 compared to $2.6 million in Q3 2024. In the third quarter of 2024, we generated positive cash flow from operator activities of $1.6 million, compared to $3.6 million in Q3 2020. The decrease is primarily attributed to higher sales leading to an increase in trade risk. As of September 30, 2024, our cash balances totaled $18.1 million.
Speaker Change: In the third quarter of 2024, we generated positive cash flow from operating activities of $1 6 million compared to $3 $6 million. In Q3 2023. The decrease is primarily attributed to higher sales leading to an increase in trade receivables.
Speaker Change: As of September 32024, our cash balances totaled $18 $1 million.
Ron Freund: We are now ready to answer your questions.
We are now ready to answer your questions.
Operator: Thank you. If there are any questions...
Speaker Change: Thank you.
Speaker Change: If there are any questions.
Speaker Change: Yes.
Operator: 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 lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by.
Speaker Change: Ladies and gentlemen.
Speaker Change: 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 are using speaker equipment kindly lift the handset before pressing the numbers youre questions will be pulled in the order. They are received please standby.
Speaker Change: The first question is from.
Michael Moon: The first question is from Michael Moon. Please go ahead.
Michael: Michael Please.
Michael: Please go ahead.
Michael Moon: Hi, I have a question about the defense sector orders. It seems obviously this quarter is a little bit higher. Going forward, what do you expect the revenue to make?
Michael: Hi, I have a question about CE defense sector orders.
Speaker Change: Since uplifts late this quarter.
Speaker Change: It would be the higher going forward, what do you expect the revenue mix.
Eli Yaffe: uh like 60% or 64% do again can you give any color on this Yes, thank you Michael. As I mentioned before, the increased backlog... mainly due to the strong defense sector and we expect that the defense sector, the profitability of its products will not go down. May will go up.
Speaker Change: 60%, 64%.
Speaker Change: Can you give any color on this.
Speaker Change: Yes.
Speaker Change: Michael as I mentioned before the increase backlog.
Speaker Change: Uh huh.
Speaker Change: Mainly due to the storm the defense sector, and we expect that the defense sector to the profitability of its products will not go down.
Speaker Change: It may will go up.
Okay. Thanks.
Michael Moon: Okay, thanks.
Eli Yaffe: So the second question is about the capex for the new facility. You said it's going to be open by the end of this year. So what is the left capex for this year and then next year? Do you have any guidance? Yes, so basically what we are opening in year-end in 2024 is part of the accelerated investment plan and it cost us two million dollars and it was already paid. What is left in this accelerated plan is around seven to eight million dollars to be paid during 2035 and it will of course include the coating lines that will arrive during 2025.
Speaker Change: The second question is about the Capex for the new.
Facility, you said it cannot be.
Speaker Change: Opened by the end of this year, so what he said left.
Speaker Change: Opex for this year and then next year.
Speaker Change: Do you have any guidance.
Speaker Change: Yes, so basically what we are opening.
Speaker Change: And in 2034 is part of the accelerated investment plan.
And it cost us $2 million it was already repaid.
Speaker Change: What is left.
Speaker Change: This accelerated plan is around $7 million to $8 million to be paid during 2035.
Speaker Change: And the.
Speaker Change: It will of course include the coating lines that will arrive during 2025.
So I just want to.
Eli Yaffe: So I just want to thank you all for joining us today. to know what the capacity it will be able to generate by the end of this year and next year. like the extra act capacity. So, we expect that the production capacity that will serve sales of approximately 55 to 65 million dollars by the end of the Accelerate investment program.
Speaker Change: To know what the.
Speaker Change: Pasty, it won't be able to generate by the end of this year and next year.
Speaker Change: Extra capacity so.
Speaker Change: We expect that the production capacity that will sell sales of approximately 55 to 65 million by the end of the accelerated investment program.
Eli Yaffe: all by next year, right? By the full program ends, right? Yeah.
Speaker Change: By next year right.
Speaker Change: <unk> program ends right, yes, okay great.
Michael Moon: OK. Okay, great.
Speaker Change: Okay, great. Thank you very much thank you.
Michael Moon: Thank you very much.
Speaker Change: The next question is from Kerr Tom of Zacks. Please go ahead.
Kerr Tom: The next question is from Kerr Tom of Zax. Please go ahead.
Speaker Change: Okay.
Kerr Tom: Good morning, guys. The, can you discuss more the worker labor issue in the cost of goods sold? Is that just mean there was a shortage of workers and you had to pay higher salaries or what else did that mean?
Speaker Change: Good morning, guys.
Speaker Change: The can you discuss more the worker labor issue and the cost of goods sold is that just means there was a shortage of workers and you had to pay higher salaries or what else does that mean.
Speaker Change: Hi, Good morning, So yes, you are right.
Eli Yaffe: Hi Tom, good morning. So, yes, you are right. We experience the need to increase workers' salaries in order to keep them working in our facility and also to recruit more employees. The current situation in Israel, in the center of Israel, is that there is a high demand for employees. and we had to increase the level of salaries in order to... to keep their workforce and also to recruit new ones.
Speaker Change: We experience the need to increase our workers' salaries in order to keep them working in our facility in order also to recur more employees. The guidance. The duration is reading center in a fruit varieties that the there is a high demand for employees.
Speaker Change: And we had to increase the level of salaries in order to.
Speaker Change: To keep the workforce side also to recruit new ones.
Speaker Change: Yeah.
Kerr Tom: and that will continue going forward? So we believe that we reached the level that is good. We don't expect to increase more the salaries. At least not that we see any such need at this stage.
And that will continue going forward. So we were we.
Speaker Change: We believe.
Speaker Change: That's the level that is good we don't expect to increase small to subtly.
Speaker Change: At least not that we see any such need.
Speaker Change: These days.
Speaker Change: Okay.
Kerr Tom: Okay, and big picture question, you mentioned you were exploring opportunities outside of defense and medical markets last quarter. Any progress on that or anything of note there? I don't recall that statement, but you know, we are operating in the defense, in the aerospace, industrial and medical, these are the three main segments. We are also, you know, trying to increase our operation in the commercial side.
Speaker Change: The Big Picture question, you mentioned, you were exploring opportunities outside of defense and medical markets last quarter.
Speaker Change: The.
Speaker Change: Progress on that or anything of note there.
Speaker Change: So I don't recall that.
Speaker Change: It's stable, but we are where we are.
Speaker Change: Our operating in the defense and aerospace industrial and medical these are the three main segments. We are also trying to increase our operation and in the commercial side.
Eli Yaffe: We don't expect to move or to expand our operations in other areas.
Speaker Change: We don't expect to move or to expand our operations in other areas.
Eli Yaffe: Tom, it's Eli, I would like just to clarify that increasing wages We already tested and the customer is expected to pay for all this. Okay, so you passed that through, right? Yeah, slowly we pass it, yeah.
Speaker Change: It's early I would like just to clarify that the increase in wages.
Speaker Change: We already tested in the customers is expected to pay for all these differences.
Speaker Change: Okay. So you pass that through right.
Speaker Change: We are slowly we pass it yet.
Kerr Tom: And one more question. On the accelerated investment plan, there's $8 million left and you said $2 million will go to this new facility. and the remaining $6 million in 2025. Refresh my memory on what that goes to.
Speaker Change: Okay and one more question on the accelerated investment plan.
Speaker Change: 8 million left and you said $2 million will go to this new facility.
Speaker Change: And the remaining $6 million.
Speaker Change: In 2025 refresh my memory on what that goes to.
Speaker Change: Oh.
Eli Yaffe: Now, maybe I was not understood. The $2 million we already paid. What is left in the accelerated investment is around $7 to $8 million. It is mainly on the two coating lines left, which should arrive and install during 2025. Okay, that makes more sense.
Speaker Change: Maybe I was not.
Speaker Change: The $2 million, we already paid what is left in the accelerated planning is around $7 million to $8 million. It is mainly on the two coating lines left which should arrive at an installed during 2025.
Speaker Change: Okay that makes more sense, okay. Thank you I'll get back in line.
Kerr Tom: Okay, thank you. I'll get back in line.
Speaker Change: Yes.
Speaker Change: Okay.
Operator: If there are any additional questions, please press star 1.
Speaker Change: If there are any additional questions. Please press star one if you wish to cancel your request. Please press star two.
Operator: If you wish to cancel your request, please press star 2. Please stand by while we poll for more questions.
Speaker Change: Please standby, while we poll for more questions.
Speaker Change: There are no further questions at this time.
Operator: There are no further questions at this time.
Operator: Before I ask, Mr. Yaffe...
Speaker Change: I ask Mr. Yafei.
Kerr Tom: There is a follow-up question from Kerr-Thom of Zax. Please go ahead.
Speaker Change: There was a follow up question from Kurt Tom of Zacks. Please go ahead.
Speaker Change: Hello, just one more quick one on the fourth quarter.
Kerr Tom: Hello, just one more quick one. On the fourth quarter, are we still expecting similar strong revenue growth? And secondly, you said gross margins returned to 28-29% range.
Speaker Change: We still expecting so.
Speaker Change: Strong revenue growth.
Speaker Change: And we use it and secondly, you said gross margins returned to 28, 29% range did that mean.
Kerr Tom: Did that mean fourth quarter and beyond?
Speaker Change: Fourth quarter and beyond.
Speaker Change: So Tom as you know, we don't give any forecast as to next quarter revenues. No next are the revenues and orderly said is that we forecast that in the mid long term our gross margin will be between 26 to 29.
Eli Yaffe: So Thomas, you know, we don't give any forecast as to next quarter revenues, no next year revenues. And what I said is that we forecast that in the mid-long term, our gross margin will be between 26 to 29 percent. and that reflects our understanding of the situation of the wages, price increases, etc. Okay. Oh, medium to long-term. Okay. I thought you said short-term. Okay.
Speaker Change: Percent.
Speaker Change: Yeah.
Speaker Change: And that reflects our understanding of the situation of the wages price increases et cetera.
Speaker Change: Okay.
Speaker Change: Medium to long term, okay. I thought you said short term okay. Thank you.
Kerr Tom: Thank you. That's all I have.
Speaker Change: That's all I have.
Speaker Change: Yes.
Speaker Change: There are no further questions at this time before I ask Mr. <unk> 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.
Operator: 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 our website.
Eli Yaffe: Mr. Yaffe, would you like to make your concluding statement? In closing, I would like to thank the company employees and the management team for their hard work during this time, and to thank our customers and our investors for their continued support.
Speaker Change: Mr. <unk> would you like to make your concluding statement.
Speaker Change: In closing I would like to thanks, the company employees and the management team for their hard work. During this time and two thanks to our customers and our investors for their continued support.
Speaker Change: This concludes the <unk> L. T D 2024 third quarter financial results Conference call. Thank you for your participation you May go ahead and disconnect.
Operator: This concludes the Eltek LTD 2024 3rd Quarter Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Yeah.
Speaker Change: [music].