Eltek(ELTK 0.73%) reported second quarter 2025 results on August 14, 2025, with revenue rising 20% year over year to $12.5 million and gross margin expanding to 24.1%. The company completed key equipment installations for its accelerated capacity build-out, absorbed a one-time $1 million foreign exchange expense, and saw strong defense-sector order momentum. The following analysis highlights strategic drivers, operational risks, and future growth implications based on management commentary.

Gross margin rises as Eltek absorbs fixed costs

Gross margin improved to 24.1% in the second quarter, up from 15.6% in the prior year period, as operational efficiency and a higher-value product mix drove profitability. Incremental revenue now delivers greater margin benefit, with management indicating that each additional dollar of revenue contributes approximately $0.50 to gross profit.

"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 a significantly stronger impact on profitability, potentially contributing approximately $0.50 on a dollar to our gross profit."
-- Eli Yaffe, Chief Executive Officer

This operational leverage positions the company to benefit disproportionately from revenue growth above current levels, enhancing near-term earnings power as capacity unlocks.

Eltek advances infrastructure upgrades for future scale

All installed equipment is now operational, and the flagship 40-meter coating line is scheduled for delivery toward the end of 2025. Additional upgrades, including a 20% surplus in cooling and a 40% increase in electrical capacity, are designed to support expanded clean room and future production needs.

"The centerpiece of our investment plan, the new 40-meter coating line, is now expected to arrive towards the end of 2025, with qualification ramp-up scheduled to begin immediately upon arrival. Supporting infrastructure, including ancillary equipment, is on 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 a 20% surplus in capacity to support anticipated clean room expansion and redundancy. In addition, we are now in the final stage of increasing electrical capacity by 40%, enabling us to support the next phase of our expansion roadmap."
-- Eli Yaffe, Chief Executive Officer

Sustained capital investments underpin a planned scale to $55 million-$65 million in annual revenue potential, targeted following installation of the new coating line, and are intended to mitigate future bottlenecks while aligning infrastructure with multi-year growth ambitions.

Defense revenue share grows amid demand surge and labor constraints

Defense sector customers accounted for approximately 65% of revenue, reflecting strong demand from both Israeli and international orders. Recruiting qualified manufacturing personnel remains a constraint, prompting the company to seek government approval to hire foreign workers for seven-day defense line operations.

"We continue to face challenges in recruiting qualified manufacturing personnel. To address this, we have recently submitted a formal request to participate in an Israeli government program that supports the defense industry by enabling the employment of foreign workers. If approved and subject to regulatory clearance and completion of the training, these workers will enable us to operate production lines seven days a week, significantly enhancing our manufacturing flexibility and capacity to meet the growing demand for defense-related products."
-- Eli Yaffe, Chief Executive Officer

While robust defense demand supports near-term order stability, ongoing labor shortages could cap throughput and constrain profit realization until regulatory and workforce reforms are achieved.

Looking Ahead

Management reiterated its goal to reach $55 million-$65 million in annual revenue capacity following the 40-meter coating line’s arrival and qualification in late 2025. Regular capital expenditures are expected to be $2 million to $4 million per year, with a remaining $6 million balance under the accelerated expansion plan. No specific earnings or margin guidance was provided, but management confirmed that incremental sales above current volumes should generate approximately 50% gross profit contribution as fixed costs are absorbed.