ELTK

Overall Business Context

• LTEC is currently in a transition period, and Q2 2026 results reflect a net loss as the company focuses on stabilizing manufacturing operations and building the operational and human infrastructure needed to support future growth.
• Market demand for LTEC's products remains strong, and the company holds a high backlog of orders; the core challenge is converting this existing demand into production and shipments at target levels, not weak demand.

Market and Growth Strategy

• Beyond the company's core defense portfolio, management is prioritizing growth in the medical and high-end industrial end markets to diversify revenue streams and balance the company's market mix.
• Key certifications have been secured in the medical sector to position LTEC for future demand capture, and the high-end industrial business already performs strongly with robust ongoing demand for its offerings.

Operational Infrastructure Progress

• Implementation of a new enterprise resource planning (ERP) system is underway, which management expects to create a stronger foundation for managing and scaling operations.
• The first new PCB plating line has been fully installed; acceptance testing has started, alongside initial trial production for customer qualifications, with official customer qualification scheduled to begin in Q3 2026. Full commercial production is expected to take several months after qualification starts.
• The second new PCB plating line is scheduled to arrive in Israel by the end of 2026, with contractual penalties in place for supplier delivery delays.
• Workforce expansion continues: approximately 15 foreign employees were integrated into operations during Q2 2026, and an additional 15 new foreign employees are in the process of being brought on to increase production capacity and improve operational efficiency.

Financial Performance Context

• Q2 2026 gross loss was $1 million, compared to a $3 million gross profit in Q2 2025. Management notes early signs of potential gross margin improvement as newer orders booked under updated pricing structures become a larger share of the sales mix.
• Consolidated Q2 2026 net loss was $2.7 million, or $0.41 per diluted share, compared to net income of $0.4 million, or $0.05 per diluted share, in Q2 2025.
• Operating loss was $2.5 million in Q2 2026, compared to an operating profit of $1.5 million in the prior year period. EBITDA loss was $1.9 million, compared to positive EBITDA of $1.9 million in Q2 2025.
• As of June 30, 2026, LTEC holds $11.5 million in cash and cash equivalents with no outstanding debt, resulting in a strong balance sheet. Operating activities generated $0.7 million in cash during the quarter.

• Management did not provide formal quantified revenue or profitability guidance for future quarters, consistent with prior policy against public forward-looking forecasts.
• Management expects gross margin and overall profitability improvements to happen gradually as increased production volume, improved operational efficiency, full ramp-up of new production lines, improved raw material availability, and higher-priced new orders become a larger share of backlog and sales.
• Management confirms that once operational transition initiatives are fully completed and stabilized, the company expects to return to the historically achieved profitability level.
• Official customer qualification for the first new PCB plating line is expected to begin in Q3 2026, with the full qualification process taking multiple months before reaching full commercial production. The second plating line is expected to arrive in Israel by the end of 2026.

LTEC Ltd. does not break out separate financial performance for distinct product segments in this earnings call. The company reports overall consolidated Q2 2026 revenue of $11.5 million, down from $12.5 million in Q2 2025. First half 2026 consolidated total revenue is approximately $22 million. No revenue contribution percentages for individual product or market segments are provided.

• Continued supply chain challenges for critical raw materials: specifically, fiberglass-based materials, which are also experiencing very high demand from the fast-growing AI infrastructure industry, leading to allocation quotas and significant raw material price increases. While LTEC has secured enough material to continue operations, securing consistent supply requires much closer coordination with suppliers.
• Foreign exchange risk: depreciation of the U.S. dollar against the Israeli shekel has negatively impacted gross profitability, operating results, and generated financial expenses for the company.
• Current production volume is well below the level required to leverage LTEC's existing fixed cost structure and achieve full profitability potential, resulting in ongoing net losses despite strong order demand.
• Pricing flexibility is constrained by market competition, even amid high overall demand; LTEC cannot immediately raise prices on all existing backlog to fully offset higher costs without risking future order share.

Q: When will gross margin improve, what is the status of the new plating lines, and why is gross margin negative despite strong demand? / A: Management expects improvement to be gradual, coming from a combination of higher production volume, better efficiency, full ramp-up of new lines, improved raw material access, and updated pricing on new orders. The first plating line is fully installed with initial testing underway, and the second will arrive in Israel by year-end. The core issue is operational capacity, not demand, and price increases are constrained by competition from local and global competitors, so prices cannot be raised enough to immediately eliminate negative margins.

Q: What is the exchange rate and pricing profile of LTEC's current backlog, and will gross margin improve in Q3 2026? / A: Approximately one-third of the backlog uses older, less favorable historical exchange rates, another third uses an intermediate exchange rate of ~3.2, and the final third uses the current, most profitable exchange rate of ~3. Management declines to provide a formal forecast for Q3 improvement, consistent with its policy of not offering public quarterly projections.

Q: With strong demand for PCBs from data center and defense end markets, why can't LTEC raise prices to restore normal gross margins? / A: Management confirms the challenge is operational production capacity, not weak demand. Even amid high overall market demand, LTEC operates in a competitive environment, so it cannot freely raise prices to fully offset higher costs without losing purchase orders to competing suppliers. The current priority is converting the company's record backlog into higher revenue, rather than immediate aggressive price increases.