Eltek Ltd (ELTK) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. second-quarter 2021 financial results conference call. All participants are at present in a listen-only mode. (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 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 second-quarter earnings call. With me, Alon Mualem, our Chief Financial Officer. We will begin by providing you with overview of our business and summary of the principal factors that affected our results in the second quarter of 2021, followed by 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 second quarter earnings press release, which was released earlier today. The release will be also available on our website at, www.nisteceltek.com.

This quarter reflects the return to improved results and the fact that we have succeeded to make the necessary adjustment to overcome most of our operational and business challenges, which will have a positive impact on our business on the long run. Despite the global COVID-19 pandemic that results mainly in the short supply of various critical raw material, we were able to grow our topline and improve our gross margin.

During the second quarter of 2021, revenue were $9.1 million compared to $8.8 million in the second quarter of 2020, and compared to $7.2 million in the first quarter of 2021. The spread of the COVID-19, which still affects some of our customers; and the shortage of Pyralux AP, a laminate produced by DuPont that is used in the production of flexible and flex-rigid printed circuits boards, created over the first half of 2021 operational and business challenges, which required quick adjustment to enable us to maintain our production and deliveries of PCBs to our customers.

Due to the raw-material worldwide shortage right now, we purchased enough inventory of alternative raw material that was pre-approved by Eltek two years ago as a backup plan for the production of PCB, and we're now introducing to our customers. During the second quarter, we were able to obtain authorization from majority of our customers to use their alternative raw materials.

Once that alternative raw material will be fully approved by all of our customers, we expect reduction in our cost of production, which gives us the flexibility to offer our customers more options for production, as well as better pricing and more secure source of raw materials.

During the second quarter, we -- even now, we faced significant price increase of some of our raw material. In addition, some of our operating expenses are dominating the new Israeli shekel, NIS. And we're negatively affected by the devaluation of the USD against the NIS, the new Israeli shekels.

Nevertheless, we were able to improve our gross margin from 21.6% in Q2 2020, to 25.9% in Q2 2021. As we said in the past, we also see an opportunity to grow our business in the US due to the shift back to production in the western world by the defense, aerospace, space, communication in PCB sectors, as a result of cyber threats by China; and the lack of production capacity in USA, Europe, and Israel.

To date, we have financed our growth strategy from our own internal resource and through rights offering done in the past to our shareholders. During 2021 and 2022, we plan to continue investing in sales activity that will enable us to grow revenue with a focus on US market. We also intend to continue to invest in the new equipment and in expansion of our facility and infrastructure to support the long-term sales growth.

As we have previously reported, we are conducting several R&D programs, and are seeking to become an innovative industry leader. Major portion of our investment program that are under the grant program, are expected to be completed and become operational in the second half of 2021. We believe that this recent investment and the planned future investment will strengthen our manufacturing capability and increase our competitiveness by implementing improved production processes.

In addition, as we already announced, we have received final approval from the Israeli Innovation Authority for 50% royalty-bearing participation in R&D program that began already on March 1, 2021, and has already achieved its first milestone. This 2021 R&D program is designed to enable Eltek to achieve significant faster production rates and reduced scrap. If successful, this R&D program will enhance our ability to offer highly reliable printed circuit boards in a shorter production time and to reduce cost. I'm glad to report that this R&D program progressed as planned, and around 50% of the program is already completed.

We have continued to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced innovative and technology capabilities.

In addition, as previously reported, we applied to the Israeli Land Authority for an allocation of land in the north of Israel where Eltek intend to build a second production facility. This is a major part of our long-term and strategic roadmap in order to grow and accelerate the expansion of our business. We 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 are continued to work delightly in expanding our business while maintaining operational efficiency and continued the trend of improving operational results.

Eltek continue its long-term machinery investment program to all 2021 until 2023 in the new and modern machinery. And we are glad that one of our 2020 major investment improved our yield more than originally planned. Eltek focused on investment that will increase further Eltek total yield, and increase our production capacity.

We are focused on the business growth. And now when we have a positive cash flow and strong working capital, we expect to further increase our future investment program as long as we get the clear and a positive return on our 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 second quarter of 2021. During this call, I will also 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 reason for its use.

Now I will go over the highlights of the second quarter of 2021 compared to the second quarter of 2020. As Eli mentioned, revenues for the second quarter of 2021 were $9.1 million, up from revenues of $8.8 million in the second quarter of 2020, and up from $7.2 million in the first quarter of 2021.

Gross profit increased to $2.4 million or 25.9% of revenues in the second quarter of 2021, compared to $1.9 million or 21.6% of revenues in the second quarter of 2020. During the second quarter of 2021, we had an operating profit of $944,000, as compared to an operating profit of $809,000 in the second quarter of 2020.

Net profit was $825,000 or $0.14 per share in the second quarter of 2021, compared to net profit of $704,000 or $0.16 per share in the second quarter of 2020. EBITDA was approximately $1.4 million in the second quarter of 2021, as compared to EBITDA of $1.2 million in the second quarter of 2020.

During the second quarter of 2021, we had operating cash flow of $380,000, compared to operating cash flow of $1.4 million in the second quarter of 2020. During the first half of 2021, we achieved an operating cash flow of $2.8 million, as compared to operating cash flow of $2.9 million in the first half of 2020.

During the second quarter of 2021, we obtained a loan of NIS10 million, approximately $3.1 million, from Bank Leumi. This loan will enable us to support our growth plan. The loan has a term of 10 years with favorable returns, including repayment schedule starts after 12 months grace period, an 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. We expect that any proceeds will be used in part for additional investment in our production facilities and to accelerate our long-term growth.

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)

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 Eltek's website, www.nisteceltek.com. Mr. Yaffe, would you like to make your concluding statement?

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

Thank you all for joining us on today's call. Have a good day.

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