Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. 2025 Second Quarter Financial Results Conference Call. As a reminder, this conference is being recorded. Before I turn the call over to Mr. Eli Yaffe, Chief Executive Officer; and Ron Freund, 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 forecasts, 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.

Thank you. Good morning. Thank you for joining us for our 2025 second 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 summary of the principal factors that affected our results during Q2 2025. 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 also be available on our website. Let me start with the financial highlights. Revenues for the second quarter of 2025 totaled $12.5 million, representing a 20% increase compared to the same period last year and maintaining the strong momentum seen in Q1 2025. For the first half of 2025, revenues reached $25.3 million, up from $22.2 million in the first half of 2024. This performance indicates early signs of stabilization in our production capacity and improved run rate. As previously communicated, our accelerated investment program objective was to scale our installed production capacity to support $55 million to $65 million in annual revenue. Gross profit totaled $3 million, nearly double the results from the same quarter last year. Gross margin expanded to 24.1%, up from 15.6% in Q2 2024, driven by improved operational efficiencies and a more favorable product mix. With production process stabilization and all installed equipment now fully operational, our fixed cost base is largely absorbed. As a result, incremental revenue is expected to have a significantly stronger impact on profitability, potentially contributing approximately $0.50 on the dollar to our gross profit. Operational income rose to $1.5 million, up from $0.4 million in Q2 2024. During the quarter, we recorded one-time financial expenses of $1 million, resulting from a 9% devaluation of the U.S. dollar against the Israeli shekel. While we do not anticipate similar currency shifts in the near term, we have proactively adjusted our pricing model to better align with our new NIS-dominated cost structure. These nonrecurring expenses impacted our bottom line, resulting in a net income of $0.4 million or $0.05 per fully diluted share. EBITDA reached $2 million and represented 15.6% of revenue, a significant decrease compared to Q2 2024 and Q1 2025. Let me now move to business development and operational updates. From the market perspective, we saw a modest increase in commercial sales alongside continued strong performance in our defense and medical markets. Expanding commercial sales remains a strategic priority as they are less constrained by the current production capacity. We believe that these efforts will yield more substantial results in the near future. Worldwide, lead time for the relevant market sectors remain extended, primarily due to capacity and operational limitations. As part of our broader capacity expansion strategy, I would like to share progress on several key infrastructure initiatives. All equipment delivered to date has been successfully installed and is in operation in line with the performance specification. The centerpiece of our investment plan, the new 40-meter coating line, is now expected to arrive towards the end of 2025 with qualification and ramp-up scheduled to begin immediately upon arrival. Supporting infrastructure, including auxiliary equipment, is on track to be completed by the year-end to ensure fully operational readiness. In parallel, we are investing in additional infrastructure to accommodate future growth. We recently completed a major upgrade to our cooling system, now providing a 20% surplus in capacity to support anticipated clean room expansion and redundancy. In addition, we are now in the final stage of increasing electrical capacity by 40%, enabling us to support the next phase of our expansion roadmap. We continue to face challenges in recruiting qualified manufacturing personnel. To address this, we have recently submitted a formal request to participate in an Israeli government program that supports the defense industry by enabling the employment of foreign workers. If approved and subject to our regulatory clearance and completion of the training, these workers will enable us to operate on production lines seven days a week, significantly enhancing our manufacturing flexibility and capacity to meet the growing demand for defense-related products. I will now turn the call over to Ron Freund, our CFO, to discuss our financial results.

Thank you, Eli. I would like to begin by drawing your attention to the financial statements for the second quarter of 2025. During this call, I will also refer to a non-GAAP financial measure. Eltek uses EBITDA as a non-GAAP indicator of financial performance. Please refer to our earnings release for the definition of EBITDA and explanation of why we use this metric. Let me now review the key highlights of the second quarter of 2025. Unless otherwise stated, all figures are presented in U.S. dollars. Revenues for the second quarter of 2025 totaled $12.5 million, compared to $10.5 million in the second quarter of 2024. Gross profit reached $3 million, up from $1.6 million in Q2 2024. This increase was primarily driven by higher revenues and a more favorable product mix compared to the same period last year. Operating profit for the quarter was $1.5 million compared to $0.4 million in the second quarter of 2024. We recorded net financial expenses of $1 million during the quarter, mainly resulting from the sharp 9% devaluation of the U.S. dollar against the shekel. These expenses are net of interest income earned on our interest-bearing bank deposits. Net profit for the second quarter of 2024 was $0.4 million or $0.05 per share, compared to $1.4 million or $0.11 per share in Q2 2024. EBITDA for the quarter was $2 million compared to $0.8 million in the second quarter of 2024. Cash flow used in operating activities amounted to $2.9 million in Q2 2025, primarily due to an increase in trade receivables and inventory. As of June 30, 2025, our cash, cash equivalents and short-term bank deposits totaled $11.2 million with no outstanding debt. We are now ready to answer your questions.

I have two questions. The first one, could you give me some update about the capital investment for the rest of 2025 and 2026? Hello?

And the second question?

The second question is about the revenue mix. So could you disclose what is the percentage of revenue for the international and the defense sector, like as a percentage of the total revenue?

Okay. So regarding the investment, basically, what is left in 2025 and 2026 is the installment of the coating lines. This is above our regular investment of $2 million to $4 million, which we made regularly before the accelerated investment plan. The current balance of the accelerated investment plan is around $6 million. We expect, as we said earlier, to receive the first coating line of the 40 meters towards the end of 2025 and immediately ramp it up and start production. Regarding the mix of revenues, this quarter we had a higher mix of rigid and flex rigid towards 65% to 70% of our total revenues. Usually, the price and the profits in the rigid flex are higher than in the rigid. Regarding segments of our customers or industries, we continue to see strong demand in the defense sector, which totaled around 65%.

I wanted to ask how do you see the strong defense demand affecting your business in the rest of '25 and going into '26?

Basically, we see the strong demand, and we think it will continue in the near future. We see the strong demand in the Israeli market, but also from foreign countries, the U.S. and Europe. Military budgets are increasing, and we hope to succeed in getting orders from these countries and not base most of our defense production solely on the Israeli market.

Can you help us understand if there is a backlog or order pipeline that we can refer to?

We usually do not give any disclosure on our backlog. It increased about 10% since the beginning of the year. It is not something that we disclose. Usually, in our industry, you receive the orders for the next quarter or the next two quarters; you don't receive the full orders for big projects that our customers usually win. If you see some of our military customers win big projects like you saw last week in the newspaper, they don't give us full orders for these orders, rather they provide it in small quantities per quarter.

Okay. And we see some improvement in the profitability. Do you expect that to continue?

Yes. Please, Eli, please.

Yes. As I said before, any dollar above the current sales will contribute approximately $0.50 to the gross margin. Since all our fixed costs are fully absorbed, then it speaks for itself. Any additional cents, $0.50 will go to the gross margin.

Good quarter. Well done. I just wanted to ask two questions. Question number one, once you've installed this new 40-meter coating line toward the end of 2025, what will your annual revenue capacity be? Question number one. Question number two is, how come you had a negative cash flow from operating activities during the quarter?

Regarding the question number one, as we said, we will be reaching up to $55 million to $60 million in annual revenue potential once this line is fully operational. Regarding question number two, Ron, please answer.

Yes. Basically, the negative operating cash flow resulted from two main reasons. The first is a slight delay in one of our big customers delaying their payment, and we already collected the full amount during the beginning of July. The second is the increase in inventory. We decided, due to the situation, the war in Israel, to increase our inventory levels and reduce risk. These are the two main issues that caused the negative cash flow.

You already answered it. Could you provide some color on the change in the inventory level?

I didn't understand your question, Dany.

Could you provide some color on the change in the inventory levels?

Yes. We decided to increase our inventory levels, mainly in lamination and aluminum. Due to the war in Israel, we purchased more than we usually purchase. This can be used during the next quarters. We don't anticipate any issue with that. In parallel to this, we also had an increase in work in process due to the operational challenges we faced during Q4 '24 and Q1 '25.

There are no further questions at this time. Before I ask Mr. Yaffe to proceed with his closing statement, I would like to remind the participants that a replay of this call will be available tomorrow on our website.

Before we wrap up, I would like to take a moment to sincerely thank our employees for their continued commitment and hard work in achieving our strategic goals. I also want to express my appreciation to our customers, partners, and shareholders for their trust and continued support. Thank you for being with us today. Wishing you a great day.

This concludes the Eltek Ltd. 2025 Second Quarter Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.