Eltek (NASDAQ:ELTK) Q1 2020 Earnings Call

0:01 Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. first quarter 2020 financial results conference call. All participants are present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. For upgrade or assistance during the conference, please press star zero. As a reminder, this conference is being recorded. Before I turn the call over to Mr. Eli Yaffe, Chief Executive Officer, and Alon Mualim, Chief Financial Officer, I would like to remind you that Eltek's earnings released today and this call including forward-looking statements within the meetings of the Private Security Litigation Reform Act of 1995 and the Securities and Exchange Act of 1934 as well as certain non-GAAP financial measures. Before making any investment decision, we strongly encourage you to read our full disclosures on forward-looking statements and use of non-GAAP financial measures set forth at the end of our earnings release as well as review our latest filings with the SEC for important material assumptions. Thank you. Good morning, everyone.

1:30 Thank you for joining us and welcome to Eltek's 2020 first quarter earning call. With me is Alon Moalem, 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 in the first quarter of 2020, 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 first quarter running press release which was released earlier today. The release will be also available on our website at www.nistekltek.com. This is the fifth quarter in a row that we achieved both operation and net profit.

2:20 Our revenue in the first quarter of 2020 rose to $9.2 million from $8.7 million in the first quarter of 2019. I am pleased that our revenue reflects year-over-year growth in the defense and aerospace segments. I am also pleased with the continuous improvement in production efficiency that is evident in our improved gross margin. The outbreak of the coronavirus has created new operational and business challenges. which required a quick adjustment to enable us to maintain our production of PCBs while maintaining the safety of our workforce. We see both risk and new opportunities in the existing business environment and are making the necessary adaptions to meet customers' demand in our revenue and profit margin goals.

3:16 As we said in the past, We also see an opportunity to grow our business in the U.S. due to the worsening the relationship between the U.S. and China. The impact of any trade war between the U.S. and China will also impact the Israeli market since we see the U.S. pressure on the Israeli government to reduce the Israel-China trade activity. At the same time, we also are facing slowdown from some of our customers in India and are expected to be closed that are expected to be closed through the end of June 2020 due to the COVID-19 virus. So far, we have financed our growth strategy by our own internal resources. During 2020 and 2021, we plan to increase our investment in new equipment and expansion of our facility and infrastructure to support our long-term sales growth. As previously announced, we filed a self-registration statement during the third quarter of 2019 to provide the company with the ability to raise additional funds to support our plan to grow and expand our business.

4:26 We expect that any proceeds will be used in part for additional investment and to accelerate our long-term growth. The increase in our top line in Q1 2020 reflects the continued market recognition of our high-quality and reliable products, mainly in the Flex PCB sector. Our defense revenue grew from $4.1 million during Q1 2019 to $4.6 million in Q1 2020, 12% growth year-over-year. Our customers continue to see the value proposition of our products and have a great deal of trust in our company and its capabilities.

5:13 We continue to pursue new business opportunities and increase customer design engagement activity that will leverage the advanced technology capabilities. We remain focused on operational excellence and financial discipline as well as our strategic growth goals. We are all focused on addressing the challenges that the widespread health crisis has on us and we are working diligently on expanding our business while maintaining the trend of improved operational efficiency. I will now turn the call over to Alon Mor Alem, our CFO, to discuss our financials.

5:58 Thank you Eli. I would like to draw your attention to the financials of the first quarter of 2020. During this call, I will also be discussing certain non-GAAP financial measures. LTEK uses EBITDA as a non-GAAP financial performance measurement. Please see our earnings release for its definition and the reasons for its use. Now I will go over the highlights of the first quarter of 2020 compared to the first quarter of 2019. Revenues for the first quarter of 2020 were $9.2 million, up from revenues of $8.7 million in the first quarter of 2019.

6:43 Gross profit was $1.8 million in the first quarter of 2020, compared to $1.5 million in the first quarter of last year. Net profit was $541,012. The share in the first quarter of this year compared to a net profit of 242,000 or 12 cents per share in the first quarter of 2019. EBITDA was approximately $1 million in the first quarter of 2020 compared to EBITDA of 811,000 in the first quarter of 2019. Cash flow provided by operating activities was $1.5 million compared to $1.6 million in the first quarter of 2019.

7:35 As Eli mentioned before, we remain focused on operational excellence and financial discipline as well as our long-term strategic growth goals. We are now ready to take your questions. Thank you. Ladies and gentlemen, at this time, we'll begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the headset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while you pull for your questions. The first question is from Mark Stocker. Please go ahead. Yes, good afternoon, Eli. Mark Stocker, private investor.

8:21 I see your profit has We've gone from $0.08 a share to $0.12 a share, quarter over quarter. My question is really, what are you planning to use this F3 for? What initiatives? As we mentioned, the F3 proceeds from the such transaction may be used to general corporate purpose, which may include working capital expenditure, repayment of debt, The amount of any offering will be limited based on the results of the SEC to one-third of our public float. So we are going to use it in order to accelerate our growth, because right now we grow based on our internal resources, and if we get the funds that we try to raise, we'll accelerate our growth.

9:16 That's the main purpose of raising the funds. Thank you. The next question is from Roni Lifshitz of Tech Time. Please, go ahead. Hello, this is Roni from Tech Time. Congratulations on your good results. Can you give some more background about your expansion programs? Roni, again, expansion? Yes. In your PR, you said that you plan to increase your Investment in equipment and expansion of your facility. Can you give some more background about those plans? Yes, we speak mainly about investment in equipment in order and parallel equipment to double the capacity. If, for example, we would like to double the capacity, we have to double the amount of machines that we have installed.

10:13 So it's very simple. It's capital investment that we are going to put in row in parallel to existing equipment And by doing it, we'll increase our capacity. So you are planning to double your capacity? Or it was just an example? This is just an example. Ah, okay. The next question is from Alton Surt of PBS Holdings. Please go ahead. Okay, congratulations on the good results. I'm looking at the gross margin increase between 19 and 20. and this happened despite the potential inventory and operating disruptions of the quarter. So how can we expect to think about margins going forward?

11:01 In general, our growth margin has improved during 2019 and even in the first quarter of 2020. We are making an effort To increase our operational efficiency, but we cannot provide any other looking forward statements. So at this point, we cannot give any forecast for 2020. If there are any additional questions, please press star 1. If you wish to cancel your request, please press Start To.

11:48 Please stand by while we poll for more questions. The next question is from Dean Shin. Please go ahead. Hi. Great quarter. Congratulations on growing the company and surviving COVID-19. Recently in the Israeli press, the Hebrew press, Siemens was mentioned partnering with NISTEC in terms of its AI board processing and testing. Is Eltek participating in this program since Eltek is a part of NISTEC? Hi, Mr. Chin. No, we are not part of... NISTEC is a major stakeholder in Eltek, but we don't participate in their program about AI. We have our own AI program that we develop in order to have some alignment between the layers. But this is a technological issue that we develop here internally in order to improve our production.

12:52 But it's not related to NISTEC. Okay. And my second question is, in terms of your shifts, as you mentioned, the 6K, are you still running on three shifts? Yes, we are going mainly to an upshift. Okay. All right. Thank you so much. Thank you. Thank you. There are no other 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 Eltek's website, www.nisteceltek.com. Mr. Yaffe, would you like to make your concluding statement? Before we conclude our calls, I would like to thank all of our employees for all their efforts during this difficult period and their contribution In renewing our position as a leading high-end PCB manufacturer, making Eltek profitable again.

13:47 I would like to thank once again to all our customers, partners, investors, and the Eltek team for their continued support. I wish everyone good health. Thank you all for joining us on today's call. Have a good day. This concludes the Eltek LTD first quarter 2020 financial results conference call. Thank you for your participation. You may go ahead and disconnect.