Eltek Ltd (ELTK) Q2 2026 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. Welcome to the LTCH LTD 2026 Second Quarter Financial Results Calls and Score. All participants are at present in a listen-only mode. Following management's form of presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded. Before I turn the call over to Mr. Eliafe, Chief Executive Officer, and Ron Freoud, 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 LTCH's public disclosure filings. These forward-looking statements are projections and reflect the current beliefs and expectation of a company. Actual events or results may differ materially. We'll also be referring to non-GAAP measures. LTCH undertakes no obligation to publicly release revision 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.

Good morning, and thank you for joining us for our 2026 second quarter earning call for Chief Financial Officer. We will begin by providing you with an overview of our business and summary of our results during 2026. After our prepared remarks, we will be happy to answer anyone who should have access to our press release, which was released earlier today. The release will be also available. As we stated in our press release, our second quarter results continue to reflect the loss and remain in an important transition period, focus on stabilization and manufacturing operations, and building the human and operational infrastructure required to support our next phase. provide some additional context to this transition and the progress we are making. The market environment remains strong, with continued high demand for our products and strong backlog. The challenge we are facing is not demand, but our ability to consistently convert this demand and our backlog into production and shipments at the level we would like. Second quarter revenue were $11.5 million for the first half of 2026 to approximately $22 million. We recognize that this level of revenue is below the level that the current demand environment would support. Given our cost structure, the company required a significantly higher level of revenue than we achieved during the first half of the year and in order to fully leverage our fixed operation expenses and reach our full profitability potential. At the same time, we're beginning to see some kind of development in our gross margin performance. Gross loss in the second quarter was $1 million compared to $1.8 million loss in the first quarter. This improvement was driven by the higher level of revenue as improvement in the average selling price reflects the gradual adjustment of our pricing to higher cost environment. This capture both the impact of the weaker U.S. dollars and the significant pressure we have seen across raw materials, production overhead, and depreciation. As a newer order booked under our update pricing structure through production and become a larger part of our sales mix, we expect this pricing adjustment to increase ability with reflect our results. At the same time, the supply environment remained challenging. We continue to experience limitations in our availability to certain raw materials, particularly fiberglass-based materials. Strong demand from the rapidly-growing AI infrastructure industry. In the same cases, we are facing significantly raw material price increase, while in other cases, supply is subject to allocation quotas. being able to secure the material required to continue operation and serving our customers, but doing so has become significantly more difficult and required much closer coordination with our suppliers. Beyond our defense portfolio, we remain firmly focused on driving growth in our medical and high-end industrial market. In the medical sector, we have secured key certification that position us well to capture future demand. Meanwhile, our high-end industrial business continues to perform strongly, backed with a robust. Together, these strategic initiatives, our market mix, and diversify our revenue stream going forward. We are making steady progress in operational infrastructure. We are well involved in the implementation of our new ERP system, which we believe will provide a stronger foundation for managing and scaling our operations. We have also completed the installation of our newly arrived PCB plating line and have started acceptance testing in parallel with initial trial production for customers' qualifications. We expect to kick off the official qualification process during the third quarter. This process is expected to take several months before the line reaches additionally. Our second plating line is currently scheduled for this delay installation. We also continue to strengthen our workforce. During the quarter, we successfully integrated approximately 15 foreign employees into our operation, and we are continuing the process of bringing in additional approximately 15 foreign employees. Strengthening workforce is an important component in our ability to improve production capacity and operational efficiency and support the growth of the... Taken together, these initiatives are limited aims by strengthening the foundation of our manufacturing operation and providing us with the capacity, workforce and infrastructure required to support higher production level. The remaining core is by the strong demand environment and the high level of our backlog. Our focus now is on completing the transition and improving our ability to convert that demand into higher level of production and revenue. To achieve greater operational stability and higher revenue level, we believe we will be able to leverage our existing cost structure more efficiently. With the improvement and the continued adjustment of our pricing to reflect the current cost environment, we believe this will provide path toward a return to profitability level the company achieved historically. We are making steady progress across these areas and remain confident that the steps we are taking are building a stronger foundation for improved operational and financial performance in the period ahead. Turn the call over to Ron Freund, our CFO, to discuss our financial results.

Thank you, Eli. I would now like to review the financial results for the second quarter of 2026. During this call, I will also refer to certain non-GAAP financial measures. Eltech uses EBITDA as a non-GAAP measure of financial performance. Please refer to our earnings release for the definition of EBITDA and the reasons for its use. I will now review the key financial highlights for the second quarter. All figures are presented in U.S. dollars. Revenues for the second quarter of 2026 were $11.5 million compared to $12.5 million in the second quarter of 2025. Gross loss was $1 million compared to gross profit of $3 million in the prior year period. The year-over-year decline in gross profitability was driven by lower revenue volume, production inefficiencies, and depreciation of the U.S. dollar against the Israeli shekel. Operating loss was $2.5 million compared to operating profit of $1.5 million in the second quarter of 2025. Financial expenses were $0.7 million compared to $1 million in the prior year period. The financial expense in the current quarter primarily reflected the depreciation of the U.S. dollar against the Israeli shekel, partly offset by interest income earned on our cash balances. Net loss for the quarter was $2.7 million, or $0.41 per share, compared to net income of $0.4 million, or $0.05 per share, in the second quarter of 2025. EBITDA loss was $1.9 million, compared to EBITDA of $1.9 million in the prior year period. Despite the net loss, operating activities generated $0.7 million of cash during the quarter. As of June 30, 2026, we had $11.5 million in cash and cash equivalents, and no outstanding debt, providing us with strong and solid balance sheet. We are now ready to answer your questions.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly leave the answer before pressing the numbers. Your questions will be pulled and the order they are received.

Please stand by. The question is for Mark Shogatsky of Coupler Capital.

Please go ahead.

Hello, guys. Nice to speak to you again. So I have a few questions. The first one, when we will begin to see any improvement, especially in the gross margin, because, you know, we invested a lot in money in the production lines, and for now we are not seeing any improvement, even deterioration, the operating results. the next question if you already finished to install all the coating lines and can you give us some updates on this and then what you see on the demand side good morning uh the improvement to be gradual is seven together this this includes increased production volume improved production

efficiency better utilization of our existing capacity the ramp up of our new production lines as I will explain later in your second question, and improve availability of critical raw materials. At the same time, we are working to secure new orders, the pricing level that better reflect the current cost environment and the value of our products. While the timing of the improvement may vary from quarter to quarter, we believe that these factors that stabilize our investment become fully operational, we will be in a stronger position to return to a more normalized level of revenue and profitability. Regarding your question number two, as I mentioned in detail during the discussion, the first plating line is already fully installed. Acceptance test is already started. And by this coming Thursday, we are going to make the first plating just for a demonstration. The second step is to call customers and certify the lines by customer by customer. The second line, the second plating line is right now built abroad in Europe and is going to be shipped to Israel and installed and finished installation before the year end. And then the process of the second line is going to continue as well. In question number two, you also asked about the demand. As I mentioned before, the demand becomes a continued strong demand.

So I don't understand, really, if the demand is so strong. And we hear about a huge demand also in USA and in Europe, especially CCB for data center and specialized CCB for defense. And why the gross margin is still negative? Why are you not raising the price to be at normal gross price? Because I don't think the customer has any alternatives.

The issue is the operational side, not the demand side.

And Mark, you cannot increase prices. You know, we are working in a competitive environment. Even if the demand is so strong, there is still competition against local and foreign competitors. So you can't just double your price and remain at the position that you get the purchase orders. So we are working in a competitive environment. And we need to deliver and to convert the current backlog that we have, which is, I think, the highest since I arrived to the company. and our mission is to convert it to sales and to be in quarters with increased revenues and not at the level that we saw in the first half of 2026.

Okay, amazing. And Orne, can you speak a little bit about the backlog pricing? Because I assume that last two quarters you worked on backlogs that you built in 2025 when the USD was much higher. So now when you go to Q3, you are working to begin to work on orders. You are going from Q1 and maybe end of Q1 when USD was much lower. So if you will see it in the next quarter, revenue and gross profit.

It's now Ellie. Approximately one third of our backlog related to the current exchange rate. and this is long term that we got for something a supply of two years something like that and until it's going to be ended this one third is going to to be heavyweight on our profitability second exchange rate approximately 3.2 and the last third of our backlog backlog is in the current situation the current exchange rate of today, of around three. So this is the most profitable backlog, is the last third as I mentioned.

So we expect to see improvement in the current quarter, if I understand correctly.

We don't give any forecast, Mark, you know, but as we said in the earlier this call, we saw improvement in our average selling price during the second quarter of 2026. And we hope that we will see additional increase in the mixed average prices.

Okay. I don't have additional questions.

Great. Thank you, Mark.

Thank you.

If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please turn by. We'll be pulled for more questions. There are no further questions at this time. Before I ask Mr. Yaffe to go ahead with this closing statement, I would like to remind the participants that a replay of this call will be available tomorrow on our website.

In summary, we remain encouraged by the underlying strengths of our business and the opportunities set. Our strong backlog continues to provide solid visibility, reflecting sustained demand for our products and solutions. At the same time, we are making meaningful progress in expanding our capacity and strengthening the operational foundation needed to support the course. I would like to thank our employees for their continued dedication, professional reliability, and reliance, and our investors for their ongoing confidence for joining us.

This concludes the LTCH LTD 2026 Second Quarter Financial Results Conference Call. Thank you for your participation. you may go ahead and disconnect.