Eltek Ltd

NASDAQ:ELTK

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Eltek LTD 2024 First Quarter Financial Results Conference Call.

[Operator Instructions]

As a reminder, this conference is being recorded. Before I turn the call over to Mr. Eli Yaffe, Chief Executive Officer; and Ron Freud, 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 the risks and uncertainties outlined here and discussed more fully in Eltek'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. Eltek 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. Eli Yaffe. Mr. Yaffe, please go ahead.

[Eli Yaffe, executive]

Thank you. Good morning. Thank you for joining us for our 2024 First Quarter Earnings Call. With me is Ron Freund, our Chief Financial Officer. We will begin by providing you with an overview of our business and the summary of our principal factors that affected our results during Q1 2024. After our prepared remarks, we 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.

Throughout the quarter, we witnessed a notable surge in request for quotations, primary with the defense sector. Correspondently, we have been the rise of the volume of order received. Our backlog since the year's outset and escalated to approximately 25%. This surge is directly attributed to the demand for the defense product worldwide. We anticipate that the full impact of this demand for the defense products as yet to be reflected in the purchase order received and expected the demand wave to intensify in the later half of 2024 and early 2025.

Despite the increase in demand, we have refrained from significantly increased prices. Our pricing policy remains consistent with previous years. However, expedited production request are subject to higher pricing than standard production. During the quarter, we secured a repeated order from an overseas defense client totaling $1.6 million with $1 million scheduled to delivery by the end of 2024 and the remainder by the end of 2025. This order aligned with our strategy to secure long-term contracts, facilitating more efficient production planning.

The operational landscape for the coming years present significant challenges. During this year, we will plan to receive and installed 2 coating lines, which are the main components of our accelerated investment plan. Unlike various other machines required, these coating lines spend tens of meters and required extensive construction work. Consisting with our policy of executing investment without the starting [ coat ] production. We faced the task of conducting construction alongside active production lines. Presently, the plan remains on track. With our technical team focused on establishing the new manufacturing area and installing new machinery, while supporting ongoing production processes and maintenance.

In addition, we have finished issuing purchase orders for all the remaining machines, including accelerated plan. In addressing current production volume requirements, manpower has emerged as a bottleneck. Our immediate focus lies in recruiting additional employees aiming to bolster the workforce by approximately 15%. This required substantial resource allocation, including wage increase to attract a sufficient number of employees.

I will now turn the call over to Ron Freund, our CFO, to discuss our financial results.

[Ron Freund, executive]

Thank you, Eli. I would like to draw your attention to the financial statements for the first quarter of 2024. During this call, I will also discuss certain non-GAAP financial measures. Eltek uses EBITDA as a non-GAAP 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 first quarter of 2024. All numbers mentioned are in U.S. dollars.

Revenues for the first quarter of 2024 were $11.8 million compared to $11.5 million in the first quarter of 2023. Gross profit increased by 8%, reaching $3.2 million compared to a gross profit of $3 million in the first quarter of 2023. The increase is mainly due to the increase in revenue in the fixed component of part of the expenses included in cost of revenues. Operating profit amounted to $1.7 million in Q1 2024 compared to $1.6 million in Q1 2023. We recorded financial income of $0.4 million during Q1 2024 due to the devaluation of [indiscernible] against the U.S. dollar and from interest on our interest-bearing accounts. Net profit was $1.7 million or $0.27 per share in Q1 2024 compared to net profit of $1.6 million or $0.27 per share during Q1 2023.

EBITDA was $2.1 million compared to $1.9 million in Q1 2023. During the first quarter of 2024, we enjoyed a positive cash flow from operating activities of $1.3 million. As of March 31, 2024, we had cash and cash equivalents and short-term bank deposits of $19.9 million with no debt outstanding. We are now ready to answer your questions.

[Operator]

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session.

[Operator Instructions]

There are no 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.

Mr. Yaffe, would you like to make your -- there is a question. The first question is from Mr. Shigeki of Kepler Capital.

[Unknown Analyst]

I want to ask a short question. How you see about the growth at this year, 2024? And how you look on your gross profit also this year?

[Ron Freund, executive]

We don't give any forecast for the year. It was not our policy, and we will not change this policy. As for the gross profit or the gross margin, we said in previous calls, and we still keep it. We anticipate that in the medium term will be around the 27% gross margin.

[Unknown Analyst]

And then do you see a possibility to increase the gross margin after construction has ended in 2025?

[Ron Freund, executive]

So we are not sure whether it will be because at the same time, we will -- we hope that the investment will bring more efficiency. However, new investment require no depreciation and the depreciation expenses will increase. We think that in the near term, it will be around 27%.

[Operator]

There are no further questions at this time. Mr. Yaffe, would you like to make a concluding statement?

[Eli Yaffe, executive]

Before we conclude our call, I would like to thank all our employees for their continued efforts to meet our strategy of growth and profitability. I would like also to thank all our customers, partners and investors for their continued support. Thank you for all for joining us on today's call. Have a good day.

[Operator]

Thank you. This concludes the Eltek LTD 2024 First Quarter Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.