Q3 2025 Eltek Ltd Earnings Call
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Speaker #2: Hi, may I have your name, please?
Speaker #2: Thank Yeah.
Speaker #2: you very much.
Speaker #4: Deal.
Speaker #4: Increase raw material consumption. Driven by fluctuation of process. Instability during the ribbon on phase. Higher energy cost reflecting peak summer rates. We expect these effects to gradually modest as the new line stabilize, process mature, and the expand team reach full proficiency.
Speaker #4: From the market perspective, demand for the products remains strong, led by defense sector, which represents 63% of the quarterly sales. Alongside 9% for the industrial and 6% for the medical customers.
Speaker #4: Flex products accounted for 66% of the quarterly sales and 65% of the first nine months of this year. We are seeing the entry of several new foreign competitors into our market.
Speaker #4: While this trend may limit price increase in certain segments, health technological leadership, long-standing customer relationship, and specialization in high-end complex PCB solutions position us to well to maintain and some cases expand our competitive advantage.
Speaker #4: Delivery time across the industry remains extended, reflecting strong global demand and constrained manufacturing capacity. Pricing dynamics also affect bias segments. In low-volume, high-complexity production, competition remains limited, allowing for greater pricing flexibility.
Speaker #4: In mid to high volume production, we are seeing increased competition from new entrants. We are also facing pressure from several large Israeli customers to instead credit terms, which has increased working capital requirement and financial expenses.
Speaker #4: Encouragedly, improved the recent improvement in the regional security has positive effect logistics, shorter raw material delivery times, now allowed us to gradually reduce inventory level and partially offset the higher working capital requirements.
Speaker #4: Our production capacity expansion program is progressing well. We finishing the construction and the preparation of the new production role, which will be house the new coating line.
Speaker #4: Finally, our P project continues to progress according to the plan. We are preparing to go live during 2026. The system will be replaced and integrate all company platform, including production satellite system providing a modern data-driven work environment with greater operational visibility, control, and efficiency across business function.
Speaker #4: I will now turn the call over to Ron Freund, our CFO, to discuss our
Speaker #4: financial results. Thank you,
Speaker #5: Eli, 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 non-GAAP financial measures. Health Tech uses EBITDA as a non-GAAP financial performance measurement.
Speaker #5: Please see our earnings release for the definition and the reasons for its use. I will now go over the highlights of the 2025 third quarter.
Speaker #5: All numbers mentioned are in US dollars. Revenues for the third quarter of 2025 were 13.3 million dollars compared to 13.5 million dollars in the third quarter of 2024.
Speaker #5: Gross profit for Q3 2025 totaled 1.6 million dollars compared to 3.5 million dollars in 2024. Operating profit for the third quarter of 2025 was 50,000 dollars compared to 1.9 million dollars in the same period last year.
Speaker #5: We recorded financial expenses of 0.3 million dollars in Q3 2025 compared to financial income of 0.3 million dollars in Q3 2024, mainly driven by changes in the exchange rate relative to the US dollar net of interest earnings on our cash reserves.
Speaker #5: Net loss for Q3 2025 was $0.2 million, or 3 cents per share, compared to net income of $1.7 million, or 25 cents per share, in Q3 2024.
Speaker #5: EBITDA amounted to 0.6 million dollars in Q3 2025 compared to 2.3 million dollars in the prior period. In the third quarter of 2025, we generated positive cash flow for operating activities of 2 million dollars compared to 1.6 million dollars in Q3 2024.
Speaker #5: As of September 30, 2025, our cash balances totaled 11.6 million dollars. We are now ready to answer your
Speaker #5: questions.
Speaker #3: Thank
Speaker #3: 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.
Speaker #3: If you are using speaker equipment, kindly leave your hands in before pressing the numbers. Your questions will be pulled in the order they are received.
Speaker #3: Please stand by. The first question is from Mark Saragostansky of Coupler. Please go ahead.
Speaker #6: Hello, guys. It's pretty low quarter for you. So I want to understand because last quarter you said that you're all operational issues was almost behind you.
Speaker #6: So how, again, you speak about the operating issues? And then when will we see the improvements of your pricing lift due to USD depreciation?
Speaker #7: Thank you, Mark. What we reported last quarter was about the end of the construction and the dust and the erosion and the wall break and everything that is already behind us as we reported.
Speaker #7: Now the instability is due to engineering and manpower; the operator itself of the machine. So it's two different issues. Regarding what was your second
Speaker #7: question? Regarding when
Speaker #6: we will see the effect of price increases due to the low
Speaker #6: USD? Usually, it's taken six to
Speaker #7: nine months until quotation is mature and translated to
Speaker #7: profits.
Speaker #6: I
Speaker #6: I understand. And when you think you will be behind your operational
Speaker #6: difficulties? It's tough to
Speaker #7: say. Because it depends upon the absorption rate of the employees and the absorption rate of the engineering forces. Which is gained from day to day.
Speaker #7: It's hard to say and hard to predict when it's going to be ended. But of course, it's our goal to reduce this period to as short as
Speaker #6: Okay. I have one more question. Guided for 26, 27, gross margin in the middle term. When approximately will we be able to reach those gross margins?
Speaker #7: Yeah. So Mark, hi. Actually, probably in the past, we expect to complete the integration of the new coating line scheduled to arrive soon by the middle of 2026.
Speaker #7: And this line is expected to streamline our core manufacturing processes and expand our production capacity. We hope also to stabilize our production processes by that time and improve our gross margin.
Speaker #7: As we have noted in the past, each additional dollar of revenue contributes meaningfully to our gross profit. And, of course, to net income. Therefore, increasing our sales volume is expected to have a significant positive impact on this.
Speaker #7: profitability. Yeah.
Speaker #6: Because this quarter was pretty okay on the revenue, but again, I don't understand why all time we have this operation
Speaker #7: So I think that you should take a look at, first of all, the dollar influence, which is unpredicted and we
Speaker #7: cannot... Yeah.
Speaker #7: But except Because it... for that, as Ellie said, before our production processes are still not enough stable, and we suffer from increased raw material consumption, it is not that production stopped or that we have a problem with the machine.
Speaker #7: The efficiency is not as we wanted to be. And the slow... As we move forward, people gain more knowledge exactly how to work with the new machines.
Speaker #7: And we hope that it will take us by the end, by the middle of 2026, to solve also these problems. We are not satisfied with the result as you are, but that's the situation now.
Speaker #6: Okay.
Speaker #3: If there are any additional questions, please press *1. If you wish to cancel your request, please press *2. Please stand by while we pull for more questions.
Speaker #3: The next question is from Ron Freund. Please go
Speaker #3: ahead. Hello, guys.
Speaker #6: I wanted to ask three questions. First of all, can you elaborate more about the negative impact, as you said, from new competition? Second, about the price pressure you said you felt this quarter. And third question is, can we assume the negative impact from currency and foreign exchange needs to U.S. dollars will continue this quarter?
Speaker #7: Regarding your first question, the competition starts from competition not in Israel, but from abroad, from the Far East, excluding China. They are starting to penetrate more and more into the defense sector.
Speaker #7: What was your second question?
Speaker #6: About the price pressure you mentioned.
Speaker #6: felt this quarter? That's, of
Speaker #7: course, limited our possibility to increase the price to any level that we would like. Because they are in the entry level and they put some pressure mainly in the high volume production to be in the entry level and reduce the price.
Speaker #6: Is it
Speaker #6: something you see sustainable? In
Speaker #7: In the volume, there is less competition right now.
Speaker #6: Is it something you see as sustainable, competition from the new entry, from Asia?
Speaker #7: The new entry is going to stay. It's going to stay. The question is what's going to be the price level, and it's hard to forecast.
Speaker #7: But right now, the entry-level pricing is hurting us. That's on high-volume production; on low-volume production, there is less competition, and we have more flexibility in the pricing.
Speaker #7: As I said before. What was your third question?
Speaker #6: Yeah. It was regarding the US dollar erosion, Iran. So as I hope you understand, we are getting hit by the erosion of the US dollar in finance expenses, also in the operating income.
Speaker #6: So as long as the dollar keeps to be eroded, we are going to have additional financing expenses and also our denominated expenses needs denominated expenses are going to be in a higher level.
Speaker #6: As we said, previously, we hoped that the new pricing will let us to cover these extra dollar expenses. And but I think that you asked for the next quarter, the fourth quarter, I think that as long as the dollar is the exchange rate is less than it was at the end of the third quarter, then you should expect finance expenses and also operating income to be affected by.
Speaker #6: So, as I understand, we should feel compounded pressure both from the top line because of the new entry and from the foreign exchange, at least in Q4.
Speaker #6: quarter?
Speaker #7: The new
Speaker #7: Guys, they will give us a limit to the new quotations that we can send.
Speaker #3: There are no further Okay. 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
Speaker #3: website. In closing, I
Speaker #7: would like to thank the company employees and the management teams to their hard work during this time. And to thank our customers and our investors for their continuous support.