Eltek Ltd. Price & Performance (ELTK)

Thank you. Good morning. Thank you for joining us for our 2024 annual year 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 2024. After our prepared remarks, will be happy to answer any of your questions. By now, everyone should have access to our press release, which was released earlier today. The release will be also available on our website. In 2024, we generate revenue of $46,500,000 consistent with our 2023 levels, but below our expectations. While demand for our products remained strong, revenue growth was constrained primarily by the operational challenges associated with the construction and installation of the new equipment, as well as the ongoing regional conflict, which led to a hesitation or delays in visits from foreign technical experts. Despite these challenges, we closed the year with a net profit of $4,200,000 and maintained a solid cash position of approximately $17,000,000 even after capital expenditure of approximately $10,000,000 In today's call, I will first focus on revenue and growth before addressing operational aspects. We continue to operate in a strong market environment with sustained high demand.

In recent months, we have received a request to participate in local in both local and international bids for large scale defense tenders, including opportunities behind domestic needs. Additionally, in the industrial sectors, we have observed a slight up stick in activities over the past two months. Our strategy focus remain on maintaining a well balanced portfolio across all these three core market segments, Defense, Medical and High and Industrial. Growth tension between The U. S. And Europe have promote several European nations to accelerate increasing their defense budgets. This trend presents additional growth opportunities in the defense sector, reinforcing our position in this expanding market. Despite the strong market and ongoing tender activity, we have yet to see a significant increase in the backlog in the pricing level. Competition remains a factor both from local and European companies. However, we view competition from European firms as relatively limited, primarily driven by their efforts to penetrate the Israeli market. These companies have set initial pricing benchmark that we believe are unsustainable beyond the market entry phase, as current pricing does not yet reflect the anticipated rising demand across Israel and Europe. While we continue to receive short term orders, discussion around long term agreements are gaining momentum.

Securing such agreement would enhance operational efficiency and provide to it their production stability. Additionally, we are actively working to obtain large scale production orders, which would further support sustained and efficient manufacturing. As part of our growth strategy and our commitment to enhancing customer responsiveness, Over the past six months, we have placed a significant emphasis on expanding our commercial activities. Successful implementation of this strategy will allow us to increase sales volume, while leveraging our end manufacturing capability for complex production stages, as those that must remain local due to the security considerations. On the operational front, we are making steady progress in executing our accelerating investment plan. As reflected in our Q4, capital expenditure on machinery and equipment totaled approximately $10,000,000 during 2024 and we anticipate a similar level on investments in 2025. In 2024, our primary investments were directed toward the new solder marking application department, the expansion of the cooling and air infrastructure of our facility and the relocation and reconstruction of the office space to facilitate the planned expansion to our production capacity, including the installation of 68 meters plating lines, one of the core components of our accelerated investment plan. The large scale acquisition of Enu machinery, along with the need to reallocate, reinstall existing equipment according to the new production layout has presented significant operational challenges.

Maintaining normal production level while responding to the increased demand while simultaneously reallocating equipment, integrating new machinery and carrying out construction work has required precise timing and high level of operational complexity. Unfortunately, we faced difficulties and delays in some of our tasks, particularly towards the end of the year when we launched the solder mask application department. One of the main challenges stems from the inability of overseas technician to travel for the installation of the equipment due to the ongoing conflict in the region. Delays in the equipment delivery, the absence of installation technician and the disruption of our ongoing manufacturing and operational led to production stoppage and increase in defect rates and setback in execution of the investment plan according to the schedule. On the most critical component of our investment plan is the installation of the new plating line, which formed from the core of our production process and have significant impact on our quality and our products. The first new inflating line, a smaller scale one, was delivered by our suppliers at the beginning of twenty twenty four and now is fully operational. The primary line is currently being assembled at the supplier facility in Europe and expecting to be shipped to us during the second quarter of twenty twenty five.

The cell line is scheduled to deliver at the end of twenty twenty five or early twenty twenty six. The installation and the stabilization process of the lines is expected to take several months. To ensure continuous production, we are installing the new lines alongside existing ones, allowing us to maintain uninterrupted operation to meet the customers' demands. Extensive workload faced by our dedicated workforce, both in the ongoing production and in the integration and the installation of the new machinery, as a result of labor shortage and production capacity constraints. We are actively working to recruit additional employees and engineers to support the expansion efforts. I will now turn the call over to Ron Fuent, our CFO, to discuss our financial results.

Thank you, Eli. I would like to draw your attention to the financial statements for the year ended 12/31/2024 and for the fourth quarter of twenty twenty four. During this call, I will also discuss certain non GAAP financial measures. EdTech uses EBITDA as a non GAAP financial performance measurement. Please see our earnings release and its definition and the reason for its use. I will now go over the highlights of 2024. All numbers mentioned are in U. S. Dollars. Revenues for the year ended 12/31/2024, totaled $46,500,000 compared to $46,700,000 in 2023. Gross profit reached $10,300,000 compared to a gross profit of $13,100,000 in 2023. Gross margin was 22%, down from 28% in 2023. The decrease in gross profit and gross margin was primarily driven by higher manufacturing employee compensation costs in 2024, as well as the shift in our product mix. Operating profit amounted to $4,400,000 in 2024 compared to $7,300,000 in 2023. In 2024, we recorded financial income of $700,000 compared to $400,000 in 2023. The increase is the result of increased interest income on our bank deposits. Net profit was $4,200,000 or $0.63 per share in 2024, compared to net profit of $6,400,000 or $1.07 per share in 2023.

EBITDA was $5,900,000 in 2024 compared to $8,600,000 in 2023. During 2024, we enjoyed positive cash flow from operating activities of $4,500,000 compared to $8,900,000 in 2023. As of 12/31/2024, we had cash and cash equivalents and short term bank deposits in a total amount of $17,200,000 I will now go over the highlights of the fourth quarter of twenty twenty four compared to the fourth quarter of twenty twenty three. Revenues for the fourth quarter of twenty twenty four were $10,800,000 compared to $12,300,000 in the fourth quarter of twenty twenty three. Gross profit amounted to $1,900,000 in the fourth quarter of twenty twenty four compared to $3,500,000 in the fourth quarter of twenty twenty three. Net profit for the fourth quarter of twenty twenty four was zero compared to net profit of $1,300,000 or $0.22 per share in the fourth quarter of twenty twenty three. EBITDA was 800,000 in the fourth quarter of twenty twenty four compared to EBITDA of $2,400,000 in the fourth quarter of twenty twenty three. We are now ready to take your questions.

Thank There are no questions at this time. Before I ask Mr. Yafe to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available tomorrow on our website. Mr. Yaffet, please go ahead.

In closing, I would like to extend my sincere gratitude to our investors for their continued trust and support, your confidence in our vision and the strategy drives us to push forward even in the face of challenges. I would like to thank our dedicated employees whose hard work and commitment have given instrumental investigation their complex periods. Their reliance and expertise are the foundation of our success. As we move forward, we remain focused on executing our growth strategy, shrinking our market position and delivering long term value. Thank you for joining us today.

Mr. Youssef, there is a question. Would you like to take a question?

Yes.

Okay. The next one moment. The question is from Ariel Lifshitz. Please go ahead.

My question relates to competitive pressures that you mentioned very briefly. You explained quite clearly the operational challenges related to the new equipment and to the difficulties of certain suppliers to travel to Israel during the war period. My first question is related to these travel difficulties. Are they behind you? Do you get all the technical support you expected from the suppliers at this time? And are these new installations proceeding as expected? The second question is related to these competitive pressures. I was not clear if you face this competition in the Israeli market or in the European market and who are these new competitors. You mentioned that you don't believe their lower prices can be sustained long term, but more clarity would be welcome about that. Thank you.

Yes. Thank you, Oriel, for your questions. Regarding question number one, regarding the technical support, most of the travel restrictions for you to Israel is not exist anymore. Most of the technicians already coming. There are right now two machines that we didn't get online support. We didn't get support directly, but we get online support and our engineers succeed to solve the problem with remote support. So, to summarize the issue, I think that most of the problem is behind us. On the current equipment that we have, there is still equipment to come and time will see if we'll have problems with traveling to Israel or not in the future. Regarding the competition in Europe, the competition as I mentioned is the competition in Israel with European companies that were not in Israel before, they come with very aggressive pricing, not in limited but in very limited capacity. But this has happened before the tension that start between United States and Europe that doubled the budget of defense in Europe. So we believe that they will make a U-turn and will go back to Europe with high prices and they will leave the Israeli market. That's our estimate.

Yes. If I may follow-up, would you summarize that your challenges are operational rather than demand? In other words, do you believe that currently and for the next year or two, your challenges are on your internal operational installation of new machinery, new employers, training, etcetera? Or are there difficulties external in terms of demand and revenues? 100% sure operational issues. No, no demand. Demand is not an issue, no.

All right. You also mentioned in the past a new facility in the North Of Israel, in Galilee, I believe. Is there any given this demand that you expect to remain or increase, do you envisage any further capacity expansion beyond Petr This is Roni. We are not progressing our plan to open a new facility in the North. However, we are starting to think about a new investment plan, which will come after we land the current one, the accelerated one. But as we said, we think that it will take us towards the end of twenty twenty five or the beginning of twenty twenty six to finish the current investment and only then we will see if we are making another plan. Yes, that's clear. And on the employment side, do you have how do you proceed with hiring the additional or replacement employers that you mentioned in the past you had some problems also related to the order of course that's understood, but also related to the new capacity and to the increased costs with salaries because you mentioned in the past that you had to raise salaries because of competitive pressures on the employment market on the labor market.

So could you comment on that?

Yes. So the recruiting employees is a continuous effort which will be with us along 2025. We think that the raising salaries that we made during towards the second quarter of twenty twenty four was good. It allow us to keep employees and to recruit new ones. However, the labor market in Israel is very tough and it requires a lot of efforts to recruit engineers and also manufacturing employees. We are succeeding in it, but it goes not quickly. And as I said, it is a continuous effort along the year.

The next question is from Dansef Freer. Please go ahead.

So I have one on the gross margin. In the latest quarter last quarter and on the earnings calls, you came and guided in around 27% on the gross margin and this quarter you only came at 'eighteen. So should we see this trend continue to 2025?

We believe that in the near term, which means the next two to three years, it will be around 26 to 29, somewhere there. We had some difficulties as Alex ran before on the operational side. We had also an unfavorable mix of several flex rigid orders with a big volume and relatively low average price due to its level of sophistication. We are targeting to meet this for this guideline and to reach the twenty six percent to 29% gross margin.

Can you talk about the timeline again? You said two or three years or two or three quarters?

Two to three years, the midterm.

Okay. And what about 2025? Do you have some guidance to give about it?

No, I cannot give.

Okay. Thank you very much.

Thank you, Safran.

There are no further questions at this time. This concludes the Eltek Ltd. Twenty twenty four financial results conference call. Thank you for your participation. You may go ahead and disconnect.