Earnings Call Transcript - ELTK Q1 2024

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. 2024 First Quarter Financial Results Conference Call. All participants are present in listen-only mode. 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 forecast 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.

Eli Yaffe, CEO

Thank you. Good morning. Thank you for joining us for our 2024 First 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 the summary of our principal factors that affected our results during Q1 2024. 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. Throughout the quarter, we witnessed a notable surge in requests for quotations, primarily from the defense sector. Correspondingly, we have seen a rise in the volume of orders received. Our backlog since the year's outset has escalated to approximately 25%. This surge is directly attributed to the demand for defense products worldwide. We anticipate that the full impact of this demand for defense products has yet to be reflected in the purchase orders received and expect the demand wave to intensify in the latter half of 2024 and early 2025. Despite the increase in demand, we have refrained from significantly increasing prices. Our pricing policy remains consistent with previous years. However, expedited production requests are subject to higher pricing than standard production. During the quarter, we secured a repeated order from an overseas defense client, totaling $1.6 million, with $1 million scheduled for delivery by the end of 2024 and the remainder by the end of 2025. This order aligns with our strategy to secure long-term contracts, facilitating more efficient production planning. The operational landscape for the coming years presents significant challenges. During this year, we plan to receive and install two coating lines, which are the main components of our accelerated investment plan. Unlike various other machines required, these coating lines span tens of meters and require extensive construction work. Consistent with our policy of executing investment without halting production, we face the task of conducting construction alongside active production lines. Presently, the plan remains on track. With our technical team focused on establishing the new manufacturing area and installing new machinery, while supporting ongoing production processes and maintenance. In addition, we have finished issuing purchase orders for all the remaining machines, including those related to our accelerated plan. In addressing current production volume requirements, manpower has emerged as a bottleneck. Our immediate focus lies in recruiting additional employees, aiming to bolster the workforce by approximately 15%. This requires substantial resource allocation, including wage increases to attract a sufficient number of employees. I’ll now turn the call over to Ron Freund, our CFO, to discuss our financial results.

Ron Freund, CFO

Thank you, Eli. I would like to draw your attention to the financial statements for the first quarter of 2024. During this call, I will also discuss 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. I will now go over the highlights of the first quarter of 2024. All numbers mentioned are in US dollars. Revenues for the first quarter of 2024 were $11.8 million compared to $11.5 million in the first quarter of 2023. Gross profit increased by 8%, reaching $3.2 million compared to a gross profit of $3 million in the first quarter of 2023. The increase is mainly due to the rise in revenue and the fixed component of part of the expenses included in the cost of revenues. Operating profit amounted to $1.7 million in Q1 2024 compared to $1.6 million in Q1 2023. We recorded financial income of $0.4 million during Q1 2024 due to the devaluation of the NIS against the US dollar and from interest earned on our interest-bearing accounts. Net profit was $1.7 million or $0.27 per share in Q1 2024 compared to a net profit of $1.6 million or $0.27 per share during Q1 2023. EBITDA was $2.1 million compared to $1.9 million in Q1 2023. During the first quarter of 2024, we enjoyed a positive cash flow from operating activities of $1.3 million. As of March 31, 2024, we had cash and cash equivalents and short-term bank deposits of $19.9 million with no debt outstanding. We are now ready to answer your questions.

Operator, Operator

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. 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 our website.

Mark Sharogradsky, Analyst

Hello, I want to ask a short question. How do you see growth this year, 2024? And how do you view your gross profit also this year? Thank you.

Ron Freund, CFO

We don't give any forecast for the year. It was not our policy, and we will not change this policy. As for the gross profit or the gross margin, we mentioned in previous calls, and we still maintain that we anticipate it will be around the 27% gross margin in the medium term.

Mark Sharogradsky, Analyst

And then do you see a possibility to increase the gross margin after construction has ended in 2025?

Ron Freund, CFO

We are not sure whether it will be because at the same time, we hope that the investment will bring more efficiency. However, new investments require depreciation, and the depreciation expenses will increase. We think that in the near term, it will be around 27%.

Mark Sharogradsky, Analyst

Okay, all right. Thank you.

Operator, Operator

There are no further questions at this time. Mr. Yaffe, would you like to make a concluding statement?

Eli Yaffe, CEO

Before we conclude our call, I would like to thank all our employees for their continued efforts to meet our strategy of growth and profitability. I would also like to thank all our customers, partners, and investors for their continued support. Thank you all for joining us on today's call. Have a good day.

Operator, Operator

Thank you. This concludes the Eltek Ltd. 2024 First Quarter Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.