Earnings call transcript: Eltek Q2 2025 sees revenue boost, stock dips

Eltek Ltd. reported its Q2 2025 earnings, showing a notable revenue increase but a mixed market reaction. The company achieved a 20% year-over-year revenue increase to $12.5 million, with an EPS of $0.05. Despite these gains, the stock saw a 1.4% decline in pre-market trading, closing at $10.18. According to InvestingPro data, the company maintains strong financial health with more cash than debt on its balance sheet. This drop reflects investor concerns despite strong performance in defense and medical markets. InvestingPro analysis suggests the stock may be overvalued at current levels, with additional insights available in the comprehensive Pro Research Report.

Key Takeaways

• Revenues increased by 20% year-over-year.
• Gross margin improved significantly to 24.1%.
• Stock price fell 1.4% in pre-market trading.
• Strong demand in defense and medical sectors.
• Infrastructure investments poised to support future growth.

Company Performance

Eltek Ltd. demonstrated robust growth in Q2 2025, with revenues reaching $12.5 million, a 20% increase from the same quarter last year. The company’s gross profit nearly doubled, reflecting its effective cost management and strong market demand, particularly in the defense sector, which accounts for 65% of its revenues.

Financial Highlights

• Revenue: $12.5 million, up 20% year-over-year
• Earnings per share: $0.05
• Gross Margin: 24.1%, up from 15.6% year-over-year
• EBITDA: $2 million, representing 15.6% of revenue

Earnings vs. Forecast

Eltek’s EPS of $0.05 aligned with expectations, maintaining investor confidence in its operational strategies. The revenue of $12.5 million also met forecasts, indicating the company’s steady growth trajectory.

Market Reaction

Despite meeting earnings expectations, Eltek’s stock price declined 1.4% in pre-market trading, closing at $10.18. This movement could be attributed to broader market trends or investor caution regarding future growth prospects. The stock remains within its 52-week range, suggesting moderate investor sentiment.

Outlook & Guidance

Eltek is targeting an annual revenue potential of $55-60 million, supported by ongoing infrastructure investments and strong demand in the defense market. With a current market capitalization of $68.21M and a beta of 0.62, the company shows relatively low market volatility. The company plans to enhance its manufacturing capabilities with a new 40-meter coating line by the end of 2025. InvestingPro data shows strong return over the last five years, with analysts forecasting continued profitability for the current fiscal year.

Executive Commentary

CEO Eli Yaffe highlighted the company’s strategic focus, stating, "Any dollar above the common sales will contribute approximately 50¢ to the gross margin." CFO Ron Freund emphasized the strong market demand, adding, "We see the strong demand. We think it will continue in the near future."

Risks and Challenges

• Currency fluctuations affecting pricing models
• Extended lead times due to capacity limitations
• Inventory buildup impacting cash flow
• Potential geopolitical tensions in key markets
• Dependence on defense sector for revenue growth

Q&A

During the earnings call, analysts inquired about Eltek’s capital investment plans and revenue mix. The management clarified that negative cash flow was primarily due to inventory buildup and delayed customer payments, while reaffirming strong opportunities in the defense market.

Full transcript - Eltek Ltd (ELTK) Q2 2025:

Conference Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. Twenty twenty five Second Quarter Financial Results Conference Call. All participants are at present in a listen only mode. Following management’s formal presentation, instructions will be given for the question and answer session.

As a reminder, this conference is being recorded. Before I turn the call over to Mr. Eli Jaffe, 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 and a. By its nature, this information contains forecasts, assumptions, and expectations about future outcomes, which are subject to the risk 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, Chief Executive Officer, Eltek Ltd.: Thank you. Good morning. Thank you for joining us for our twenty twenty five 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 twenty twenty five.

After our prepared remarks, we will be happy to answer any of your questions.

Unidentified Participant: By

Eli Yaffe, Chief Executive Officer, Eltek Ltd.: now, everyone should have access to our press release, which was released earlier today. The release will be also available on our website. Let me start with the financial highlights. Revenues for the 2025 totaled $12,500,000 representing 20% increase compared to the same period last year and maintaining the strong momentum seen in Q1 twenty twenty five. For the 2025, revenues reached $25,300,000 up from $22,200,000 in the 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 55,000,000 to $65,000,000 in annual revenue. Gross profit totaled $3,000,000 nearly double the results from the same quarter last year. Gross margin expanded to 24.1%, up from 15.6% in Q2 twenty twenty four, driven by improved operational efficiencies and more favorable product mix. With production process stabilization and all in store equipment now fully operational, our fixed cost base is largely absorbed.

As a result, incremental revenue is expected to have significant stronger impact on profitability, potentially contribute approximately $0.50 on a dollar to our gross profit. Operational income rose to $1,500,000 up from $400,000 in Q2 twenty twenty four. During the quarter, we recorded onetime financial expenses of $1,000,000 resulting from a $9,000,000 a 9% devaluation of the U. S. Dollar against the Israeli shekel.

While we do not anticipate similar currency shift in the near term, we have proactively adjusted our pricing model to better align with our new NIS dominate cost structure. This is nonrecurring expenses impacted by our bottom line, resulting in net income of $400,000 or $05 per fully diluted share. EBITDA reached $2,000,000 and represents 15.6% of revenue, a significant decrease compared to Q2 twenty twenty four and Q1 twenty twenty five. Let me now move to business development and operational update. From the market perspective, we saw a modest increase in commercial sales alongside continued strong performance in our defense and medical markets.

Spending commercial sales remained 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 the capacity and operational limitations. As part of our border 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 2025, with qualification ramp up scheduled to begin immediately upon arrival. Supporting infrastructure, including an ancillary equipment, is in the 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 20% surplus in capacity to support anticipated clean room expansion and redundancy. In addition, we are now in the final state of increasing electrical capacity by 40%, enabling us to support the next phase of our expansion road map.

We continue to face the challenges in recruiting qualified manufacturing personnel. To address this, we have recently submitted a formal request to participate in Israeli government program that supports the defense industry by enabling the employment of foreign workers. If approved and subject to a regulatory clearance and completion of the training, these workers will enable us to operate in production lines seven days a week, significantly enhancing our manufacturing flexibility and capacity to meet the growing demand for the defense related products. I will now turn the call over to Ron Point, our CFO, to discuss our financial results.

Ron Freund, Chief Financial Officer, Eltek Ltd.: Thank you, Ali. I would like to begin by drawing your attention to the financial statements for the 2025. During this call, I will also refer to a non GAAP financial measure. SEC 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 2025. Unless otherwise stated, all figures are presented in U. S. Dollars. Revenues for the 2025 totaled $12,500,000 compared to $10,500,000 in the 2024.

Gross profit reached $3,000,000 up from $1,600,000 in Q2 twenty twenty four. This increase was primarily driven by higher revenues and a more favorable product mix compared

Eli Yaffe, Chief Executive Officer, Eltek Ltd.: to

Ron Freund, Chief Financial Officer, Eltek Ltd.: the same period last year. Operating profit for the quarter was $1,600,000 compared to $400,000 in the 2024. We recorded net financial expenses of $1,000,000 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 and on our interest bearing bank deposits. Net profit for the 2024 was $400,000 or $05 per share compared to $1,400,000 or $0.11 per share in Q2 twenty twenty four. EBITDA for the quarter was $2,000,000 compared to $800,000 in the 2024. Cash flow used in operating activities amounted to $2,900,000 in Q2 twenty twenty five, primarily due to an increase in trade receivables and inventory. As of 06/30/2025, our cash, cash equivalents and short term bank deposits totaled $11,200,000 with no outstanding debt.

We are now ready to answer your questions.

Conference Operator: Thank you, ladies and gentlemen. At this time, we will begin the question and answer session. If you have a question, please press 1. If you wish to cancel your request, please press 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers.

Your questions will be answered in the order that I received. Please stand by. The first question is from Michael Wu.

Unidentified Participant: Oh, hello. Hi. Thanks for taking my 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?

Ron Freund, Chief Financial Officer, Eltek Ltd.: Hello?

Eli Yaffe, Chief Executive Officer, Eltek Ltd.: And the second question?

Unidentified Participant: Oh, 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?

Ron Freund, Chief Financial Officer, Eltek Ltd.: Okay. So regarding the investment, so basically, what is left in 2025 and 2026 is the installment of the coating line. And this is above our regular investments of 2 to $4,000,000, which we made regular regularly before the accelerated investment plan. The current balance of the accelerated investment plan is around $6,000,000, And we expect, as we said earlier, to receive the first coating line of the 40 meters by towards the 2025 and immediately ramp it up and start production. As as in regard to the mix of revenues, so this quarter, we had a higher mix of rigid of flex rigid towards the 65 to 70% of our total revenues.

And usually, the price and the profits in the rigid flex are higher than in the rigid. And in regard to c two segments of our customers or industries, we continue to see this strong demand in the defense sector, which totals around 65%.

Unidentified Participant: Okay. Great. Thank you very much. Thank you.

Conference Operator: The next question is from Eitan Etzioni from Etzioni Portfolio Management. Please go ahead.

Eli Yaffe, Chief Executive Officer, Eltek Ltd.: Yes. Thank you for thank you. I want to ask how do you see the strong defense demand affecting your business in the rest of ’25 and going into ’26?

Ron Freund, Chief Financial Officer, Eltek Ltd.: So, basically, we see the strong demand. We think it will continue in the in the near future. We see the strong demand in the Israeli market, but also from a foreign countries, The US, and also we feel a strong demand in the European market. Military budget are increasing, and we hope, you know, to succeed in getting orders also from these countries and not base most of our defense production to the Israeli market.

Eli Yaffe, Chief Executive Officer, Eltek Ltd.: Can can you quantify help us quantify? Is there a backlog or order pipeline or something else that we can put our hands on?

Ron Freund, Chief Financial Officer, Eltek Ltd.: We usually do not give any disclosure on our backlog. It it was in it increased, and it was about 10% since the beginning of the year. It is not something that we disclose. And usually, in our industry, you usually receive the the orders for the next quarter or the two next quarters. You don’t receive the full orders for a big project that our customers usually win.

So 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 order for this for their orders rather than give it in small quantities per quarter.

Eli Yaffe, Chief Executive Officer, Eltek Ltd.: Okay. And the the we see some improvements in the profit profitability. You expect that to continue?

Ron Freund, Chief Financial Officer, Eltek Ltd.: Yeah. We please, Alex. Please.

Eli Yaffe, Chief Executive Officer, Eltek Ltd.: Yeah. As I said before, any dollar above the common sales will contribute approximately 50¢ to the gross margin. So since all our fixed cost is fully absorbed, then it speaks by itself. Any additional cents, 50¢ will go to the cost margin. Okay.

Thank you.

Unidentified Participant: Thank you, Ethan.

Conference Operator: The next question is from Avi Sega. Please go ahead.

Unidentified Participant: Hi. Good quarter. Well done. I just wanted to ask two questions. Question number one, once you’ve installed this u 40 meter coding line to end of 02/2025, 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?

Eli Yaffe, Chief Executive Officer, Eltek Ltd.: Regarding the question number one, as we say, we will be reaching up to 55 to $60,000,000 annual revenue potential once this line is going to be fully operational. Regarding question number two on the business. Yeah.

Ron Freund, Chief Financial Officer, Eltek Ltd.: So basically, the negative operating cash flow is added from two main reasons. The first one is a slight delay in one of our of our big customers delaying its payment, and we already collected the the full amount during the July. And the second is the increase in inventory. We decided that due to the situation, the the war in Israel to increase our inventory levels and to reduce risk. That these are the two main issues that caused the negative cash flow.

Unidentified Participant: Okay. Great. That sounds that sounds thanks for

Eli Yaffe, Chief Executive Officer, Eltek Ltd.: those answers. I wish you lots of success going forward. Thank you. Thank you. Thank you, Harvey.

Conference Operator: The next question is from Danish Ward from Kepler Capital. Please go ahead.

Eli Yaffe, Chief Executive Officer, Eltek Ltd.: Hello. You already answered it. Could you provide some color on the churn in the EBITDA level?

Ron Freund, Chief Financial Officer, Eltek Ltd.: I didn’t understand your question, Jeremy.

Eli Yaffe, Chief Executive Officer, Eltek Ltd.: Could you provide some color on the change in the inventory levels?

Ron Freund, Chief Financial Officer, Eltek Ltd.: Yeah. We decided to increase our inventory levels mainly in lamination, in in aluminum. Due to the war in Israel, we purchased more than we usually purchase. This is the this can, you know, be be used during the We don’t anticipate any issue with that.

And in part of this, we also because of the the operational challenges we had during q four twenty four and q one twenty five, the working process has also increased.

Eli Yaffe, Chief Executive Officer, Eltek Ltd.: Thank you.

Conference Operator: If there are any additional questions, please press 1. If you wish to cancel your request, please press 2. There are no further questions at this time. Before I ask mister Yasser 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.

Eli Yaffe, Chief Executive Officer, Eltek Ltd.: Before we wrap up, I would like to take a moment, think really thanks to our employees and their continued commitment and hard work in advancing 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.

Conference Operator: This concludes the Eltek Ltd. Twenty twenty five second quarter financial results conference call. Thank you for your participation. You may go ahead and disconnect.

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