Eltek Ltd (ELTK) 2021 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. third-quarter 2021 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 Alon Mualem; Chief Financial Officer, I'd like to remind you that Eltek's earnings release today and this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities and Exchange Act of 1934, as well as certain non-GAAP financial measures. Before making any investment decisions, we strongly encourage you to read our full disclosures on forward-looking statements and use of non-GAAP financial measures set forth at the end of our earnings release; as well as review our latest filings with the SEC for important material assumptions, expectations, and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements.

These forward-looking statements are projections and reflect the current beliefs and expectations of the company. Actual events or results may differ materially. Eltek undertakes no obligation to publicly release revisions to the 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.

Thank you. Good morning, everyone. Thank you for joining us, and welcome to Eltek's 2021 third-quarter earnings call. With me is Alon Mualem, 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 in the third quarter of 2021, followed by the details of our financial results. After our prepared remarks, we will be happy to answer any of your questions.

By now, everyone should have access to our third-quarter earnings press release, which was released earlier today. The release was also available on our website at www.nisteceltek.com.

This quarter was very challenging, both operationally and business wise. In addition to the COVID-19 pandemic that was affecting us, our results were affected by the reduced number of working days during the quarter; compared to the number of working days in the third quarter of 2020. In addition, our results were impacted by the strength of the New Israeli Shekel compared to the US Dollar during the third quarter. Nevertheless, we were able to maintain operation operating profitability. Also, our revenue declined from $9.3 million in the third quarter of 2020, to $8 million in the third quarter of 2021.

The spread of COVID-19 was still affecting some of our customers in India. While during quarter-three 2021, we had partially recovery of the Pyralux AP supply compared to the shortage that we faced during Q1 2021. This shortage created operational and business challenges during the nine months ended September 30, '21, which required quick adjustment to enable us to maintain production and deliveries of PCB to our customers.

Due to the raw-material worldwide shortage, we purchased during Q3 2021 a sufficient amount of inventory ahead of time, and also alternative raw materials that were pre-approved two years ago as a backup plan for our production of PCBs in Q4 2021 and the beginning of 2022. During the third quarter, we were able to obtain authorization from the majority of our customers to use the alternative raw materials. Once the alternative raw materials is fully approved by all our customers, we'll accept a reduction of the cost production; which will give us the flexibility to offer our customers more options for production, as well as better pricing and more secure sources of raw materials.

During the third quarter and to date, we faced significant price increase of some of our raw materials on top of the extra logistic cost of raw-material freight. In addition, some of our operation expenses are dominated in New Israeli Shekels, and were negatively affected by the devaluation of the US Dollar against the Israeli New Shekel. Nevertheless, we were able to maintain our gross margin at 20.2% in the nine months for the period of 2021, compared to 20.3% in the nine months period of 2020; by keeping our operational cost under tight control.

As we said in the past, we see an opportunity to grow our business in the US due to the shift back to the production in the western world by defense-aerospace space and communication PCB sectors, as a result of the cyber threat by China; and the lack of production capacity in United States, Europe, and Israel.

To date, we have financed our growth strategy from our own internal resource and so right offerings to our shareholders. During the first nine months of 2021, we invested $1.4 million in new equipment in our plan to continue investing in sales activity that will enable us to grow revenue with a focus on the US market. We continue to invest in new advanced manufacturing equipment that will strengthen our manufacturing capability and increase our competitiveness by implementing improved production processes and adoption of the Industry 4.0 technologies.

We believe that this recent investment and planned future investment will strengthen our manufacturing capability and increase our competitiveness by implementing improved production processes.

As previously reported, we applied to the Israeli Land Authority for allocation of land in the north of Israel, where we intend to build a second production facility. This is a major part of our long-term strategic roadmap to facilitate and accelerate the expansion of our business. We intend to continue our long-term machinery investment program into 2022 and 2023, with the purchase of a new and modern machinery and our focus on the investment that will increase our total yield and increase our production capacity.

As we have previously reported, we have been conducting several R&D programs in order to maintain our position as an innovative industry leader. Our 2021 R&D program is designed to enable Eltek to achieve a significantly faster production rate and reduce scrap. If successful, this R&D program will enhance our ability to offer high reliability printed circuit boards in shorter production time and reduced costs.

I'm glad to report that this R&D program is progressing as planned. And approximately 60% of the program has been completed and the demo machine is already in testing mode. There is still more milestone to pass in order to declare on full success.

We will continue to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced innovative and technology capabilities. We'll remain focused on operational excellence by using advanced technology and financial discipline; and in making the necessary adjustment to address the challenges we face from the widespread health crisis and the global supply chain crisis.

We'll continue -- continuing to work delightly on expanding our business while maintaining operational efficiency and continue to trend in the improved operational results. We are focused on business growth and now we have consistent positive cash flow and strong working capital. We expect the future -- to further increase our future investment program as long as we get a clear and a positive return on investment.

I will now turn the call over to Alon Mualem, our CFO, to discuss our financials.

Thank you, Eli. I would like to draw your attention to the financials of the third-quarter of 2021. During this call, I will be discussing 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. Now I will go over the highlights of the third quarter of 2021 compared to the third quarter of 2020.

As Eli mentioned, revenues for the third quarter of 2021 were $8 million compared to revenues of $9.3 million in the third quarter of 2020. Gross profit was $1.4 million or 17.5% of revenues in the third quarter of 2021, compared to $1.8 million or 19.7% of revenues in the third quarter of 2020.

During the third quarter of 2021, we had an operating profit of $65,000, as compared to an operating profit of $638,000 in the third quarter of 2020. Net loss was $26,000 or $0.00 per share in the third quarter of 2021, compared to net profit of $598,000 or $0.14 per share in the third quarter of 2020. EBITDA was $553,000 in the third quarter of 2021, as compared to EBITDA of $1 million in the third quarter of 2020.

During the third quarter of 2021, we had positive operating cash flow of $598,000 compared to net cash provided by operating activities of $873,000 in the third quarter of 2020. During the nine months of 2021, our operating cash flow was $3.4 million as compared to operating cash flow of $3.7 million in the first nine months of 2020.

During the second quarter of 2021, we obtained a loan of NIS10 million or approximately $3.1 million from Bank Leumi that enables us to support our growth plan. The loan has a term of 10 years with favorable terms, including a repayment schedule that starts after 12-months grace period in interest, which is waived for the first year of the loan.

As previously announced, we filed the shared registration statement during the third quarter of 2019 to provide us with the ability to raise additional funds to support our plan to grow and expand our business.

As Eli mentioned before, we remain focused on operational excellence and financial discipline as well as our long-term strategic growth goals. We are now ready to take your questions.

Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. (Operator Instructions) [Michael Wu].

Hello, hi. I just have a question about the reduced working [plus] days. Could you please give me a more detail about what is that?

Can you please repeat the question? A reduction in what?

The working days, the reduction of working days. So what is that? I don't catch it actually.

Okay. During September, the Jewish holidays that unfortunately happened during the working days and not over the weekend, and this is a real situation. And we've faced significant amount of working days that we were not able to work because of the holidays, Jewish holidays.

So it's -- I mean, you have kind of a reduction on the revenues [to date] from that. Like I mean, it's like $1.2 or $3 million less revenue. Is that caused by that, or totally paid out, or?

The number of working days that we lose during this time was approximately 10% of the days.

That's [quite a delay] Okay. So you don't lost any customers or any contracts or something, it's just -- (multiple speakers).

No.

Just [not working] days, right?

No, two things. First of all, Eltek didn't work during these days, and also our Israeli customers didn't work during these days.

Okay, okay. That's great. So I didn't find your [exchanged rate] increased that much compared to last year it was like $100,000. So basically, you think that it's just because of the currency fluctuation?

In general, during the third quarter, we had a negative impact on the profitability. And since salaries, building lease, energy cost are dominated in New Israeli Shekel that was re-evaluated in Q3 as compared to the US Dollar. And the financial expenses we present during Q3 is mostly related to the effect of the devaluation of the US Dollar and the Euro against the New Israeli Shekel.

Okay. That's great. So about the margin, so it's done under the [detail] is that because of the reason you were talking about or it's not?

It doesn't impact our margin because we tried to pass some of this devaluation cost on our customers in slow mode.

Yes, so my question is a little bit lower. Like I mean this year, this quarter, it's around like 17.5% like gross margin line, last year was 19.7%. So was that the reason? (multiple speakers).

The main reason is that we had some fixed costs included in our cost of revenues. And whenever the revenues are down this has become a larger part in our expenses, as a percentage.

Okay, great. So how about this quarter? So I mean, in the fourth quarter. So your working days should be -- I mean, the same as last year, right? So I assume like you're working full-time, so it should be -- I mean, there shouldn't be lost in any revenues because of that, right?

During Q4 there is no loss in [revenues] because of the Jewish holidays. It's going to be full quarter.

In the fourth quarter, right? (multiple speaker)

Q4 is full quarter. Yes.

Okay, that's great. Okay, thank you very much.

Thank you, Micheal.

Dean Chin, The Ru Group International.

Hi, everyone. I want to thank you for your service. I noticed that in your past 6-K that you are resigning from your position of CFO. So I want to thank you for your service.

Thank you.

For working very, very long-term for Eltek. But my question is there is no reason for the resignation stated in the 6-K, and I was just kind of curious on why you chose to resign?

In the last three years that I've been part of Eltek management, the company implemented significant internal plan, raised funds, and improved the financial position. I'm very proud of this achievement, and I'm sure that the company will go ahead with the long-term growth plan. I personally decided to pursue other business opportunities. But again, I will follow Eltek and look forward to its success. Dean?

Dean, is there any other question? (Operator Instructions).

Before I ask Mr. Yaffe to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available tomorrow on Eltek's website, www.nisteceltek.com. Mr. Yaffe, would you like to make your concluding statements?

Before we conclude our call. I would like to thank all of our employees for their efforts that make Eltek profitable again, even of these challenging times. I would like to thank once again to our customers, partners, investors, and Eltek team for their continued support.

I also personally would like to thank Alon Mualem, our CFO, for three years of service; in which implementing together with the management team, the turn-around plan, and improved the company's financial position. Thank you all for joining us on today's call, have a good day.

This concludes the Eltek Ltd. third-quarter and full-year 2021 financial results conference call. Thank you for your participation. You may go ahead and disconnect.