Eltek Ltd. Q2 FY2025 earnings call

• Financial highlights: Q2 2025 revenues up 20% y-o-y, H1 2025 revenues up from H1 2024; gross profit doubled, gross margin expanded due to operational efficiencies and product mix; operational income increased; one-time financial expenses due to dollar devaluation; net income and EBITDA reported.
• Business development and operational updates: Modest increase in commercial sales, strong performance in defense and medical markets; new 40-meter coating line expected to arrive end of 2025 with ramp-up; supporting infrastructure like cooling system upgraded (20% surplus capacity) and electrical capacity increased by 40%; challenge in recruiting qualified manufacturing personnel, submitted request to Israeli government program for foreign workers.

In Q2 2025, revenues totaled $12.5 million, a 20% increase from the same period last year. For the first half of 2025, revenues reached $25.3 million, up from $22.2 million in the first half of 2024. Gross profit was $3 million, nearly double the previous year's Q2 results, with a gross margin of 24.1% up from 15.6% in Q2 2024. Operational income rose to $1.5 million from $0.4 million in Q2 2024. Net income was $0.4 million or $0.05 per fully diluted share. EBITDA was $2 million, representing 15.6% of revenue. In terms of revenue contribution, this quarter had a higher mix of rigid-flex, accounting for 65% to 70% of total revenues, and the defense sector totaled around 65% of total revenue.

• Accelerated investment program aims to scale installed production capacity to support $55 million to $65 million annual revenue. Incremental revenue expected to have significant positive impact on profitability, potentially contribute ~$0.50 per dollar to gross profit. - Regarding capital investment in 2025 and 2026, remaining investment is installation of coating lines; accelerated investment plan balance around $6 million; new 40-meter coating line expected end of 2025 and immediately ramp up.

• One-time financial expenses of $1 million due to 9% devaluation of U.S. dollar against Israeli shekel. - Challenge in recruiting qualified manufacturing personnel.

Q: Could you give me some update about the capital investment for the rest of 2025 and 2026? And about the revenue mix?

A: Regarding the investment, what's left in 2025 and 2026 is the installment of the coating lines. The current balance of the accelerated investment plan is around $6 million. This quarter, there was a higher mix of rigid-flex towards 65% to 70% of total revenues, and the defense sector totaled around 65% of total revenue.

Q: How do you see the strong defense demand affecting your business in the rest of '25 and going into '26?

A: We see the strong demand will continue in the near future. We see strong demand in the Israeli market, U.S. and Europe market. Military budgets are increasing, and we hope to succeed in getting orders from these countries.

Q: Why did you have a negative cash flow from operating activities during the quarter?

A: The negative operating cash flow resulted from a slight delay in one of our big customers delaying its payment and an increase in inventory due to the situation in Israel to reduce risk.

Q: Could you provide some color on the change in the inventory level?

A: We decided to increase our inventory levels, mainly in lamination, in aluminum due to the war in Israel. Also, because of operational challenges during Q4 '24 and Q1 '25, the work in process has also increased.