Eltek Ltd (ELTK) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Eltek Ltd. second quarter 2020 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 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 2020 second quarter earnings call. With me Alon Mualem, our Chief Financial Officer. We will begin by providing you with an overview of our business, a summary of the principal factors that affect our results in the second quarter of 2020 and an update out COVID-19 as in impact our business, 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 second quarter earnings press release, which was released earlier today. The release will be also available on our website at www.nisteceltek.com. This is the sixth quarter in a row that we achieved both operating and net profit. Our revenue in the second quarter of 2020 rose to $8.8 million from $8.2 million in the second quarter of 2019. Revenues for the six months of 2020 were $17.9 million compared to $16.9 million in the first six months of 2019.

This growth is a result of 11% growth in sales to customers in Israel and reflects year-over-year growth in sales to defense segment and the contract electronics manufacturers. I'm also pleased with the continued improvement in production efficiency that is evident in our improved gross margins and operating profits.

Our diversified end market allowed us to grow revenue year-over-year despite the weakness in the Indian markets. In addition, strong operational execution, overcome production of inefficiency and extra cost due to the COVID-19. The COVID-19 pandemic has created operational deficient, and the difficulties, macroeconomic uncertainty and employee concerned, I am extremely proud. Our Eltek employees have worked to deliver excellent performance despite challenging environments.

We have three employees with tested positive for COVID-19 this year with other returning to work after being cleared following testing quarantine protocols. We continue to use contact tracing and quarantine individuals who are close, who are in close contact with the infected team members in addition to the deep cleaning affected work area.

We also continue other measures such as extensive internal communications, masking temperature checks and broker distancing in our facilities. Because of the preventive measures in place and our culture of transparency and communication, these events have minimal impact on our manufacturing operational to date.

The outbreak of the coronavirus created new operational and business challenges, which required quick adjustments to enable us to maintain our production of PCB while maintaining the safety of all of our workforce. We see both risks and new opportunities in the existing business environment and are making the necessary reductions to meet customers' demand and our revenue and profit margin goals.

As we said in the past, we also see an opportunity to grow our business in the US market due to the worsening relationship between the US and China, the impact of any trade war between the US and China will also impact the Israeli market since we see US pressure on the Israeli government to reduce these Israeli Chinese trade activities. At the same time, we are also facing a slowdown from some of our customers in India to the continued negative impact of COVID-19 in these territories. So far, we have financed our growth strategy by our positive operating cash flow and our own internal resources.

During 2020 and 2021, we plan to increase our investment in new equipment and expansion of our facility and in infrastructure to support our long-term sales growth. The increase in our top line 2020 reflects the continued market recognition of our high quality and reliable products, mainly in the flex PCB sectors.

Our revenue from the defense sector and contract electronic manufacturers group grows from $13.8 million during the first half of 2019 to $15.3 million in the first half of 2020 11% growth year-over-year. The medical sectors contribute 9.7% of our revenue during the first half of 2020, representing 4% growth year-over-year.

Our customers continue to see the value proposition of our products and have a great deal of interest in our company and our and its capabilities. We'll continue to pursue new business opportunities and increase customer design engagement activities that will leverage our advanced technology capability.

We remain focused on operational excellence and financial discipline as well as our strategic growth goals. We are all focused in addressing the challenges that are widespread and health crisis is on us and are working diligently to expanding our business while maintaining the trend of improved growth and operation results. I will now turn the call over to Alon Mualem, our CFO, to discuss our financials. 7:30

Thank you, Eli. And I would like to draw your attention to the financials of the second quarter of 2020. 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 2020 compared to the second quarter of 2019. As Eli mentioned, revenues for the second quarter of 2020 were $8.8 million, up from revenues of $8.2 million in the second quarter of 2019. Gross profit increased from $1.3 million or 15.3% of revenues in the second quarter of 2019 to $1.9 million or 21.6% in the second quarter of 2020.

During the second quarter of 2020, we had an operating profit of $809,000 as compared to an operating profit of $7,000 in the second quarter of 2019. Net profit was $704,000, our $0.16 per share in the second quarter of 2020 compared to a net profit of $790,000 or $0.19 per share in the second quarter of 2019.

The results of the second quarter of 2019 were positively affected by nonrecurring other income of $871,000 as a result of a receipt of an insurance payment associated with damage incurred to one of our manufacturing machines. EBITDA was approximately $1.2 million in the second quarter of 2020 as compared to EBITDA of $1.25 million in the second quarter of 2019.

During the second quarter of 2020, we had positive operating cash flow of $1.4 million compared to net cash used in operating activities of $301,000 in the second quarter of 2019. During the first half of 2020, the company achieved a positive operating cash flow of $2.9 million as compared to positive operating cash flow of $1.3 million in the first half of 2019.

As Eli mentioned before, we remain focused on operational excellence and financial discipline as well as our long-term strategic growth goals. As previously announced, we filed the registration statement during the third quarter of 2019 to provide the company with the ability to raise additional funds. The company is also considering different options to fund raising to support our plan to grow and expand our business. We are now ready to take your questions.

(Operator Instructions) [Michael Wood].

Okay. Okay. Thanks for taking my questions. So I have a first question about the insurance claim claims and you can have last year, so following our filing, so you said on during 2018, you have too much equipment was damaged. So you received a claim for one equipment. So I my question is like the claim is over. I mean, you said you were waiting for negotiation was the other claims.

Hi, yes, we indeed received a payment from insurance for one a manufacturing machine. We still have a pending a claim with our insurance company, but we cannot predict or know how this claim will end up. And so far, there's no provision in our financials for it.

Okay. And so can you give us a little more detail on the what is the incident? I mean what's that happens like does it your margin's gone are affecting your I mean, how is that that actually you couldn't affect your operation?

These machines were affected by water damage, including our plant. We overcome this damage relatively fast in the third quarter of 2018 and the long time ago, we are over it.

Okay. Okay, great. Thank you. So my second question is about on your costs because customer is based on the last call, last year's 90s are number two, you roughly have like 30% by two biggest customer, but I take your failing and you said there's two groups of customers and we can have and no pressure. What is the group summary is a one customer or two big customer or so, what's your relationship with them?

Indeed, we have a group of major customers related companies that are all in one group and they are presented in one-as one group in our 20 years.

So they order differently or they order just through one channel, like I mean, they act like differently or they can change order -do they make one order or they may I mean different orders from different times from different companies?

This is one group of companies that are combined of a few companies in it.

(Technical difficulty) I mean, maybe I'm asking too much like there are they are ordering in one batch or something like one kind of a person or something?

No it's not the company that has few division and theoretically they are one company, but we get the POS from different divisions. So we combine it because in the end of the day, it's one company.

(Technical Difficulty) Okay. Quickly close, they look at it like they're from U.S. Israel partners.

The headquarters is based in Israel, but we get all the majority of it from Israel and some of it from other parts in the world, including Brazil and United States and Israel.

That's really helpful. I have another question about your capital, that is around $1.6 million, right? none of that is like 800,000 to 900,000 and there is an indication in the annual report says, you have spent 1.7 million on equipment. So basically, your cash CapEx around 800,000, there's kind of a little bit different. So can you expand a little bit on that? Like what is that $1.7 million on the equipment spending?

You were cut middle of your question, can you repeat, please?

Sure, so in year 2019, so your cash CapEx is around $800,000, $900,000 about this occupancy has spent $1.7 million on equipment for new equipment. So can you expand little bit on different numbers?

I think the 1.7 that you refer to it is in the last three years altogether, I'm not sure, but we will need to look into it.

(Technical Difficulty) So, basically it is not ---you are always around 800,000 and 900,000 for the last year?

Yes, you are right.

This year you also said [$2million] it's not like that, right? So this year what's your (inaudible) like? How much can you spend on your equipment?

We do not provide looking forward statements so we cannot provide the numbers for the second half but as you can see in our cash flow for the first six months, we add approximately 450,000 in cash investment in fixed assets.

Okay. Okay. That's great. I mean, I remember last quarter you indicated that you want to you know increase the spending so do you have any plan to buy any new equipment or are you basically maintaining the current capacity?

Yes, yes, as I mentioned in my discussion, we have the goal, and we have the means and we clearly look on increasing the capacity based on our internal resources. If we will raise money we will accelerate it. With no money, we'll do it in organic growth within our own resources.

I'm going to ask about capacity. So you're running more like I mean, full capacity or you can add in like 10% more revenue with new machines or new equipment?

Right now, we work in some of our departments two shifts and some of some of our departments three shifts.

(Technical Difficulty)

Sorry, I didn't hear your last question.

I mean you are working in full capacity?

Yes, it's close to full capacity. It's five days a week. So we still have opportunity to walk around the weekends.

Okay thank you so much. That's all my question. Thank you. Congratulations. Thank you.

Thank you, Michael.

(Operator Instructions) There are no further 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?

Before we conclude our call, I would like to thank all of our employees of all their efforts during the difficult period and their contribution in renewing our position as a leading high end PCB manufacturers and making Eltek profitable. Again, I would like to thank once again to our customers, partners, investors and the Eltek's team to the continued support. I wish everyone good health. Thank you for joining us on today's call and have a good day.

This concludes the Eltek Ltd. second quarter 2020 financial results conference call. Thank you for your participation. You may go ahead and disconnect.