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DATE
Thursday, August 14, 2025 at 9:00 a.m. ET
CALL PARTICIPANTS
Chief Executive Officer — Eli Yaffe
Chief Financial Officer — Ron Freund
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RISKS
One-time financial expenses of $1,000,000 were recorded in Q2 2025 following a 9% devaluation of the U.S. Dollar against the Israeli shekel, with management noting this was a "nonrecurring expense" impacting net income.
Management acknowledged ongoing challenges in recruiting qualified manufacturing personnel, stating, "We continue to face challenges in recruiting qualified manufacturing personnel."
TAKEAWAYS
Revenue-- representing a 20% increase in Q2 2025 and continuation of prior growth momentum seen in Q1 2025.
Gross Profit-- Gross profit was $3.0 million for Q2 2025, nearly double the result from Q2 2024, attributed to operational efficiencies and improved product mix.
Gross Margin-- 24.1% gross margin for Q2 2025, up from 15.6% in Q2 2024 driven by a more favorable product mix and cost absorption benefits.
Operating Profit-- $1.6 million for Q2 2025, up substantially from $0.4 million in Q2 2024 driven by higher revenue and a more favorable product mix.
Net Income-- $0.4 million, or $0.05 per fully diluted share for Q2 2025, reflecting the impact of a $1.0 million one-time FX expense.
EBITDA-- EBITDA (non-GAAP) was $2.0 million for Q2 2025, representing 15.6% of revenue (non-GAAP), a decrease from the prior quarter.
Cash Flow from Operations-- $(2.9) million cash flow used in operating activities for Q2 2025, primarily due to higher trade receivables and increased inventory to mitigate supply risk from regional instability.
Cash Position-- $11.2 million in cash, cash equivalents, and short-term bank deposits as of June 30, 2025, with no debt outstanding as of June 30.
Revenue Mix-- About 65%-70% of sales came from flex-rigid products in Q2 2025; the defense sector accounted for roughly 65% of total revenue.
Production Capacity Expansion-- All previously delivered equipment is now operational, with a new 40-meter coating line expected by year-end 2025 to enable annual capacity of $55 million-$60 million once fully operational (annual revenue potential, as stated by management).
Investment Plan-- $6 million remains on the accelerated investment plan as of Q2 2025, to be deployed mainly for the new coating line, complementing typical annual investments of $2 million-$4 million.
Operational Leverage-- due to full absorption of fixed costs.
Workforce Strategy-- Formal application submitted to join an Israeli government program permitting the employment of foreign workers, expected to increase manufacturing flexibility for defense-related demand.
Infrastructure Upgrades-- Cooling system upgrade completed, now providing a 20% capacity surplus, and electrical capacity increased by 40% to support future expansion phases.
SUMMARY
Eltek(ELTK -0.05%) reported sharply higher revenue and gross profit for Q2 2025, supported by solid defense sector demand and meaningful gains in product mix. EBITDA margin (non-GAAP) declined compared to both Q2 2024 and Q1 2025. Currency headwinds drove a $1 million one-time financial expense, negatively affecting net income for the period.
The operational cash outflow in Q2 2025 was primarily due to a delayed customer payment, which was subsequently collected in July, and larger inventory purchases intended to reduce disruption risk from the ongoing regional conflict.
The upcoming 40-meter coating line and infrastructure enhancements, including surplus cooling and increased electrical capacity, signify readiness for substantial scaling once new equipment comes online.
Management signaled intent to shift to a more NIS-aligned pricing model following currency volatility, but does not expect future devaluations of the same magnitude.
Active steps are underway to address labor constraints through a bid to participate in government-supported foreign worker programs, aimed at enabling continuous seven-day production for defense market supply.
INDUSTRY GLOSSARY
Flex‑rigid PCB: A circuit board design combining flexible and rigid substrates, allowing greater functional density and reliability, especially used in aerospace and defense electronics.
Full Conference Call Transcript
Eli Yaffe: Thank you. Good morning. Thank you for joining us for our 2025 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 2025. 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. Let me start with the financial highlights.
Revenues for the 2025 totaled $12,500,000, representing a 20% increase compared to the same period last year and maintaining the strong momentum seen in Q1 2025. For the 2025, revenues reached $25,300,000, up from $22,200,000 in 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 2024, driven by improved operational efficiencies and a 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 a significantly stronger impact on profitability, potentially contributing approximately $0.50 on a dollar to our gross profit. Operational income rose to $1,500,000, up from $400,000 in Q2 2024. During the quarter, we recorded one-time financial expenses of $1,000,000 resulting from a 9% devaluation of the U.S. Dollar against the Israeli shekel. While we do not anticipate a similar currency shift in the near term, we have proactively adjusted our pricing model to better align with our new NIS-dominated cost structure.
This nonrecurring expense impacted our bottom line, resulting in net income of $400,000 or $0.05 per fully diluted share. EBITDA reached $2,000,000 and represents 15.6% of revenue, a significant decrease compared to Q2 2024 and Q1 2025. 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. Expanding 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 remains extended, primarily due to the capacity and operational limitations.
As part of our broader 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 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. 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. 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 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. Eltek uses EBITDA as a non-GAAP indicator of financial performance. Please refer to our earnings release for the definition of EBITDA and an 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 2024. Gross profit reached $3,000,000, up from $1,600,000 in Q2 2024.
This increase was primarily driven by higher revenues and a more favorable product mix compared to the same period last year. Operating profit for the quarter was $1,600,000 compared to $400,000 in 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 on our interest-bearing bank deposits. Net profit for 2024 was $400,000 or $0.05 per share compared to $1,400,000 or $0.11 per share in Q2 2024. EBITDA for the quarter was $2,000,000 compared to $800,000 in 2024.
Cash flow used in operating activities amounted to $2,900,000 in Q2 2025, primarily due to an increase in trade receivables and inventory. As of June 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.
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.
Michael Wu: 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?
Eli Yaffe: Hello?
Michael Wu: And the second question?
Michael Wu: 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: 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 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 end of 2025 and immediately ramp it up and start production. 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 the two segments of our customers or industries, we continue to see this strong demand in the defense sector, which totals around 65%.
Michael Wu: Okay. Great. Thank you very much. Thank you.
Operator: The next question is from Ethan Etzioni from Etzioni Portfolio Management. Please go ahead.
Ethan Etzioni: 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: So, basically, we see the strong demand. We think it will continue in the near future. We see the strong demand in the Israeli market, but also from foreign countries, the US, and also we feel a strong demand in the European market. Military budgets 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.
Ethan Etzioni: 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: We usually do not give any disclosure on our backlog. 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 orders for the next quarter or the two next quarters. You do not 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 do not give us full order for this for their orders rather than give it in small quantities per quarter.
Ethan Etzioni: Okay. And the we see some improvements in the profit profitability. You expect that to continue?
Ron Freund: Yeah. We please, Eli. Please.
Eli Yaffe: 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.
Ethan Etzioni: Thank you.
Eli Yaffe: Thank you, Ethan.
Operator: The next question is from Avi Sega. Please go ahead.
Avi Sega: Hi. Good quarter. Well done. I just wanted to ask two questions. Question number one, once you have installed this new 40-meter coating line to end of 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: 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: So basically, the negative operating cash flow is added from two main reasons. The first one is a slight delay in one of our big customers delaying its payment, and we already collected the full amount during July. And the second is the increase in inventory. We decided that due to the situation, 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.
Avi Sega: Okay. Great. That sounds that sounds thanks for those answers. I wish you lots of success going forward. Thank you. Thank you. Thank you, Avi.
Operator: The next question is from Danish Ward from Kepler Capital. Please go ahead.
Danish Ward: Hello. You already answered it. Could you provide some color on the churn in the EBITDA level?
Ron Freund: I did not understand your question, Danish.
Danish Ward: Could you provide some color on the change in the inventory levels?
Ron Freund: Yeah. We decided to increase our inventory levels mainly in lamination, in aluminum. Due to the war in Israel, we purchased more than we usually purchase. This is the this can, you know, be used during the We do not anticipate any issue with that. And in part of this, we also because of the operational challenges we had during Q4 2024 and Q1 2025, the working process has also increased.
Danish Ward: Thank you.
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 Mr. Yaffe 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: 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.
Operator: This concludes the Eltek Ltd. 2025 second quarter financial results conference call. Thank you for your participation. You may go ahead and disconnect.