Eltek Ltd. (NASDAQ:ELTK) Q3 2023 Earnings Call Transcript
Eltek Ltd. (NASDAQ:ELTK) Q3 2023 Earnings Call Transcript November 16, 2023
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. 2023 Third Quarter Financial Results Conference Call. All participant are at present in listen-only mode. Following managements formal presentation, instructions will be given for the question and answer session. [Operator Instructions]. 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 will 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, would you like to begin?
Eli Yaffe: Thank you. Good morning. Thank you for joining us for the third quarter fiscal year 2023 earnings call. With me is Ron Freund, our Chief Financial Officer. We will begin by providing you with an overview of our business and a summary of the principal factors that affected our results during the third quarter followed by the details of our financial results. 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 be also available on our website. At the outset, I would like to express our condolences on behalf of the company management and its employee to the families of those killed in a murderous terrorist attack that occurred on October 7, 2023.
Our hearts go out to the grieving families and we hope for the speedy recovery of the injured and the safe return of the kidnapped soon. We also share the grief of the families of the IDF soldiers who were killed in the battles that have begun taking place recent weeks and wants to wish wounded a full recovery. We pray for the peace of the soldiers who are still fighting during these days. The company is currently operating smoothly and maintains standard activity levels. Most of our employees are consistently reporting to work and the impact of the war on the attendance has been very minimal to no effect. As of our supply chain, we have implemented several measures, including bolstering our stock of essential raw material, securing advanced deliveries and engaging in active communication with our primary suppliers to ensure continuous flow of resources.
The ongoing conflict in Israel underscored the critical significance of domestic PCB industry, such an industry not only offer advanced technological solutions, but also produce intricate circuits tailored to specific defense requirements, employing state-of-the-art technologies and ensuring the highest quality standard. Additionally, it enables swift delivery to meet the immediate demands to defense sector. Eltek holds status of Essential Enterprise as designated by the Israeli government granting us permission to operate around the clock, 365 days a year as needed. We see that Israeli defense sector companies are beginning to place orders, including those for PCBs. We remain committed to our pricing strategy and the selection of the orders we received with the goal of optimizing our production capability, while ensuring strong profitability.
[Contextually] (ph), we give priority to higher profitability income purchase orders, including those from other sectors and manage our orders backlog accordingly. Orders received directly from government entities with the requirements for immediate delivery take precedence to promote production. Looking ahead, we believe that the long-term increased demand trend in defense sector worldwide will continue. We are involved in several long-term customer projects. The orders for this project are received throughout the life of the project. Therefore, we expect the stream of income from this project throughout the coming years. We are also experiencing the continued decrease in demand from customers in European countries due to an increased demand for defense products.
At this time, the demand for PCB products in Western country, mainly in Europe, increase in such a way that the lead times for production were more than double, which caused price to become a secondary factor. As for our accelerated investment plan, the current situation in Israel may lead to a limited delay in pace of the employing new machines. As of today, we don't see any delays. In addition to the investments in the production equipment, we are also working to upgrade our engineering software to allow us to fully respond to the need of our customers. During the recent months, we felt that the trend of war place market has changed, and there is a greater number of individuals applying for employment interviews. We hope that this trend will strengthen our -- and will allow us to fill open positions more easily and increase our production capacity accordingly.
A closeup of advanced printed circuit boards being inspected for quality and reliability.
And now our Q3 results. We ended the third quarter of 2023 with revenue of $11.9 million and a net profit of $2.1 million. For the first nine months of 2023, we had revenue of $34.4 million and $5 million net profit. The high profitability is a result of our pricing and purchase order acceptance policy. Due to the high level of demand and the limitation of production capacity, we made sure to choose the orders with high margin of profitability and try to maximize the consideration of the profitability with operational efficiency consideration. I'm glad that this policy has proven itself during the last quarters with gross profit of $3.7 million in Q3 and a gross margin of 31%, the high gross margin is due to an excellent mix of products we sold during this quarter.
We are keeping our medium-term target of 27% gross margin. During the third quarter, the dollar rate against the NIS continued to rise. As a result, in the third quarter, we recorded exchange rate income of amount of $0.2 million. As of September 30, 2023, our cash balance amounted to $11.3 million. We have invested most of the balance in interest-bearing deposits. We also decided to hold a substantial part of this balance in NIS to hedge risk range from a sharp drop in the dollar exchange rate. I will now turn the call over to Ron Freund, our CFO, to discuss our financial results.
Ron Freund: Thank you, Eli. I would like to draw your attention to the financial statements for the third quarter of 2023. 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 reason for its use. I will now go over the highlights of the 2023 third quarter. All numbers mentioned are in U.S. dollars. Revenues for the third quarter of 2023 were $11.9 million compared to $10.3 million in the third quarter of 2022. Gross profit increased by 51%, reaching $3.7 million compared to a gross profit of $2.4 million in the third quarter of 2022. The increase is mainly due to the increase in revenue and the increase in gross margin, as Eli mentioned before.
Operating profit amounted to $2.3 million in Q3 2023 compared to $1.1 million in Q3 2022. We recorded financial income of $0.3 million during Q3 and $0.1 million in Q3 2022, mainly due to the devaluation of the NIS against the U.S. dollar. Profit before income tax amounted to $2.6 million in Q3 2023 compared to $1.2 million in Q3 2022. Net profit was $2.1 million or $0.36 per share in Q3 2023 compared to net profit of $1 million or $0.17 per share in Q3 2022. EBITDA was $2.6 million compared to $1.4 million in Q3 2022. During the third quarter of 2023, we enjoyed positive cash flow from operating activities of $3.6 million compared to $1.7 million in Q3 2022. The increase is mainly due to the increase in net income. As of September 30, 2023, we had cash and cash equivalents of $11.3 million compared to $7.4 million at the end of 2022.
We are now ready to answer your questions.
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