Eltek (ELTK) Q4 2025 Earnings Call Transcript

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DATE

Monday, March 9, 2026 at 9:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Eli Yaffe
• Chief Financial Officer — Ron Freund

TAKEAWAYS

• Annual Revenue -- $51.8 million, reflecting an 11% increase driven by the company's accelerated investment program and product demand.
• Gross Profit -- $8 million for the year, down from $10.3 million, with gross margin declining to 15% from 22% due to dollar depreciation and operational inefficiencies.
• Operating Profit -- $2.3 million, decreasing from $4.4 million as a result of higher expenses and reduced production efficiency.
• Net Profit -- $0.8 million, or $0.12 per share, compared to $4.2 million, or $0.63 per share; reflecting the impact of increased financial expenses and lower margins.
• Financial Expenses -- $1.3 million, reversing from $0.7 million in financial income, mainly due to the ongoing depreciation of the U.S. dollar.
• EBITDA -- $4.5 million, falling from $5.9 million, affected by operational constraints.
• Cash Flow from Operating Activities -- $0.6 million, down sharply from $4.5 million, tied to higher costs and reduced profitability.
• Cash and Cash Equivalents -- $12.1 million as of year-end, providing financial flexibility for ongoing investments.
• Fourth-Quarter Revenue -- $13.2 million, up from $10.8 million; quarterly growth evident despite operational challenges.
• Fourth-Quarter Gross Margin -- 9%, down substantially from earlier periods, primarily tied to continued dollar weakness and efficiency losses.
• Fourth-Quarter Net Result -- Net loss of $0.3 million, or $0.05 per share, compared to a small net profit previously.
• Plating Line Investment -- Installation of two new plating lines advancing; first line arrived and assembly underway, with completion subject to ongoing conflict-related delays.
• Capacity Target -- Management reaffirmed an annual revenue installed capacity range of $60 million to $65 million at current market prices.
• Lease Extension -- Facility lease extended through 2039, with an upfront payment to be amortized over the lease term, modestly lowering annual rental expenses.
• Pricing Adjustments -- Pricing system updated to reflect dollar depreciation, yet orders based on older exchange rates will continue to weigh on margins for several months.

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RISKS

• Management stated, "the depreciation of the U.S. dollar resulted in the increase of approximately $2.2 million is reported in the NAS dominate expenses compared to '24 adversely affecting both growth and operational profits."
• Operational difficulties, including "departure of several highly knowledge employees" and recruiting shortages, created inefficiencies and restricted production output.
• "we encouraged significant operational constraint that affected our ability to meet customers' delivery schedule," leading to increased competition from overseas providers targeting domestic demand.
• Management confirmed lower margins will persist until repricing and new plating line integration are fully realized, with benefits not expected until 4 to 5 months after price updates.

SUMMARY

Eltek Ltd. (NASDAQ:ELTK) reported revenue growth and sustained strong product demand, yet experienced significant profit compression due to adverse currency effects and operational constraints. Margin deterioration was chiefly attributed to the sharp depreciation of the U.S. dollar and internal production challenges. Ongoing facility upgrades—including installation of advanced plating lines—and recent price adjustments are expected to gradually restore profitability, but management explicitly indicated these benefits will not appear immediately. Investors should monitor the timeline and operational impact of the key capex program and recruitment efforts.

• Management specified that operational and margin benefits tied to the new plating lines hinge on successful completion and qualification across the full product range, following interruptions from regional conflict.
• The lease extension through 2039 signals a long-term operational commitment and amortized cost reduction primarily affecting non-cash expenses.
• Recurring international demand was highlighted as a sales driver, with market turbulence from overseas competitors intensifying domestic pressures.
• Short-term margin dilution remains explicitly forecast due to legacy order pricing mismatched to current exchange rates, with a lagged pass-through of pricing adjustments to revenue realization.

INDUSTRY GLOSSARY

• Plating Line: Automated manufacturing equipment in PCB production that deposits metal layers, critical for circuit connectivity and production throughput.

Full Conference Call Transcript

Eli Yaffe: Thank you. Good morning. Thank you for joining us for our 2025 annual 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 the results during 2025. After our prepared remarks, we'll 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 was also available on our website. . Revenue for 2025 totaled $51.8 million, representing an 11% increase compared to 2024. This growth reflects the strategic accelerate investment program, which is the beginning of our also not yet its full potential.

It will be a little bit on this shortly. I will elaborate on this shortly. During the year, we faced several operational challenges, including the reallocation of the machinery and production lines within the facility to prepare for the installation of the new plating lines. Difficulties in recording employees, challenges in retaining highly experienced personnel and a significant depreciation of U.S. dollar exchange rate, which adversely affect the dollar donate profitability we reported by approximately $2.2 million compared to 2024 profitability. I will now address each of these areas in more detail. As noted, we concluded the year with revenue approaching $52 million.

At the time, we approved the accelerated investment plan, Eltek was generating average annual revenue of approximately $77 million. The subsequent increase in revenue reflects strong demand for the company products alongside the substantial investment made in the machinery and equipment over the recent years. As previously communicated, we are targeting annual revenue installed capacity in the current plan of $60 million to $65 million at current market prices. During the year, we encouraged significant operational constraint that affected our ability to meet customers' delivery schedule. This situation, combined with the demand level exceeding domestic production capacity in Israel led to increased competition from overseas players seeking to capture a share of the local demand.

We continue to observe strong demand for our products, including from international customers, driven by limited manufacturing capability in the Western countries. We are steadily improving delivery performance for our domestic customers recognize that we -- that many in Western countries, including Israel, aim to preserve local manufacturing capability. At the same time, we are actively expanding our presence in overseas market, particularly in the United States to increase order volume from these regions. Turning to operations, we are making steady progress on our investment program. The core component is expected to drive meaningful improvement in output and quality are the 2 new plating lines.

While they do not represent the majority of the accelerated investment budget in financial terms, their impact on production is highly significant. The first line arrived to the facility at the beginning of 2026, and it is currently in the assembly phase, which was interrupted by the core intention situation in Israel. We remain hopeful that the ongoing conflict will not result further delay in the completing the installation. Following the installation and extensive qualification process will be required to certify the lines across the full range of our product portfolio.

Throughout this, we also address the need to recruit additional employees, particularly engineers to support the extended base of the machinery and equipment as well to manage the operational complexities created by reallocation for that lines and the resulting impact of ongoing manufacturing. In addition, we experienced the departure of several highly knowledge employees, including retirements. These operational challenges weighted on overall efficiency. We continue to make progress in advancing the process of bringing foreign workers from the Board in order to support our workforce needed as the company expands.

Finally, the depreciation of the U.S. dollar resulted in the increase of approximately $2.2 million is reported in the NAS dominate expenses compared to '24 adversely affecting both growth and operational profits. It was nothing that part of our core backlog was priced based on higher exchange rate. Therefore, margin on these orders will remain below the level originally anticipating the same and the time of the quotations. Despite these challenges, we remain confident in the company's business and in our ability to return to healthy profitability levels upon completion of the investment program, installation of the new plating lines and stabilization of the production.

In line with this long-term commitment, we extended the lease agreement for our manufacturing facility through the end of the year 2039. As part of this extension. We received a payment tended to partially offset the company investment in the facility. This amount will be amortized over the lease terms and will modestly reduce annual rental expenses. 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 year ended December 31, 2025, and for the fourth quarter of 2025. During this call, I will also discuss certain non-GAAP financial measures. EBITDA is a non-GAAP financial performance measurement. Please see our earnings release for its definition and the reasons for its use. I will now go over the highlights of 2025, all numbers mentioned are in U.S. dollars. Revenues for the year ended December 31, 2025, totaled $51.8 million compared to $46.6 million in 2024. Gross profit was $8 million compared to $10.3 million in 2024. Gross margin was 15% compared to 22% in 2024. .

The decline in gross profit and gross margin was primarily attributed to higher net denominated expenses resulting from the depreciation of the U.S. dollar in 2025 as well as reduced production efficiency. Operating profit amounted to $2.3 million in 2025 compared to $4.4 million in 2024. In 2025, we recorded financial expenses of $1.3 million compared to financial income of $0.7 million in 2024. This change was primarily due to the depreciation of the U.S. dollar against [indiscernible]. Net profit was $0.8 million or $0.12 per share in 2025, compared to a net profit of $4.2 million or $0.63 per share in 2024. EBITDA was $4.5 million in 2025 compared to $5.9 million in 2024.

During 2025, we generated positive cash flow from variating activities of $0.6 million compared to $4.5 million in 2024. As of December 31, 2025, we had cash and cash equivalents and short-term bank deposits in the total amount of $12.1 million. I will now go over the highlights of the fourth quarter of 2025 compared with the fourth quarter of 2024. Revenues for the fourth quarter of 2025 were $13.2 million compared to $10.8 million in the fourth quarter of 2024. Gross profit amounted to $1.2 million in the first quarter of 2025 compared to $1.9 million in the fourth quarter of 2024.

Net loss in the fourth quarter of 2025 was $0.3 million or $0.05 per share compared to a net profit of $23,000 in the fourth quarter of 2024. EBITDA was $0.7 million in the fourth quarter of 2025 compared to $0.8 million in the fourth quarter of 2024. We are now ready to take your questions.

Operator: [Operator Instructions] The first question is on Mark Sharogradsky of Kepler Capital.

Mark Sharogradsky: The first question I have, the gross margin for this quarter really low, like 9%, if say, I could collect correctly. So when you expect to see some improvements of this result because revenue was pretty okay, but the gross margin was really low. So how do you see the situation?

Eli Yaffe: Mark, as we previously reported, we expected to complete the integration and installation of the new plating line, which arrived at the beginning by mid-'26. The line is expected to streamline the core manufacturing processes and extend the production capacity. Following the completion of the installation, we will begin qualification process and is expected to continue through the remainder of 2026. During this period, we plan to qualify products and families and gradually basis, enabling the phased transition of the production to the new line until fully comply and full qualification for all company products is completed. We expected the time our production process will be stabilized, which should contribute to the improvement of the gross margin.

And as we noted in the past, each additional dollar of revenue contributed meaningful to the gross profit. And of course, to the net income. Therefore, the answer to your question, is increasing our sales volume is expected to significant positive impact on the profitability and improve the gross margin.

Mark Sharogradsky: Yes. But I'm trying to understand that even before you had the gross margins of 27% to 29%. And now I understand the dollar situation and never see, but why such sharp drop on the margin even now, even before those lines are installed?

Ron Freund: Mark, this is Ron. So on the first quarter, depreciation of the U.S. dollar continued -- and this caused us significant additional is report mic-denominated expenses to be dollar reported amounts to be to increase. In addition, the same as was in prior quarters, we have used this efficiency in production. And we expect that as laid previously once we will achieve increased sales volume, gross margin will return to its positive prior margins.

Mark Sharogradsky: Okay. And can you guys speak a little bit about the pricing dynamic because everyone is so depreciation, but I was also today on PCB case, and they said they are raising prices now to adjust this depreciation to work on normal gross margin. So how do you see the pricing dynamic going forward?

Eli Yaffe: The pricing dynamic is that we immediately update our pricing system to reflect the new depreciation and the new exchange rate of the dollar. But as I mentioned before, we have quotations underway that was based on long-term proposals. It was based on dollar to lease ratio that is higher than today, and we will Yes, this proposal. We will get this purchase orders, and we will have some of our basket in the future. It's going to be below the expected volume our proposals today.

Ron Freund: And Mark, it is not just quotation. We have actually orders that we even received in higher dollar rate. So this -- in these orders, we expect a lower margin than anticipated for new orders to be received in the next months.

Mark Sharogradsky: Of course, I understand because if -- so if you will adjust those orders to the new exchange rates, then we expect to see some improvement of this adjustment in the next quarter, or in Q2?

Ron Freund: As we told before, usually, we have a 1 to 2 quarter -- and we didn't until this call. We already updated our pricing system. So we expect to see it within, I don't know, 4 to 5 months to see some increase.

Mark Sharogradsky: No, because I assume that you also updated it before because the problems began already in Q3 .

Ron Freund: You're right, but as in the fourth quarter, the depreciation continued we had to update it again. .

Operator: [Operator Instructions] There are no further questions at this time. Before I ask Mr. Yaffe to go ahead with his closing statements, I would like to remind the participants that a leader of this call will be available tomorrow on our website. .

Eli Yaffe: As we conclude I would like to thank our investors for their support and confidence in the company. Our view long term will present the belief in our strategy enables us to continue investing in our capability and pursing foreseeing our growth objectives. I also want to recognize the commitment of our employees. Their professionalism, adaptability and the indications throughout the period have been critical to maintaining our operations and advancing our strategic initiatives. Thank you for joining us today.

Operator: This concludes the Eltek LTB 2025 Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

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