Eltek (ELTK) Q1 2026 Earnings Call Transcript

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DATE

Tuesday, May 19, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

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

TAKEAWAYS

• Revenue -- $10.4 million, down from $12.8 million, due to timing of backlog conversion, logistics constraints, and foreign exchange impact.
• Gross Loss -- $1.9 million, versus gross profit of $2.2 million, reflecting lower average selling prices and unfavorable product mix.
• Operating Loss -- $3.3 million, compared to operating profit of $0.7 million, attributed to reduced production efficiency and higher costs.
• Net Loss -- $2.9 million, or $0.42 per share, versus net income of $1.0 million, or $0.15 per share.
• EBITDA Loss -- $2.7 million, compared to positive EBITDA of $1.2 million in the comparable period.
• Backlog -- More than doubled since year start, including two large, previously announced orders with deliveries scheduled throughout 2026 and 2027.
• Foreign Exchange Effect -- Operational loss increased by approximately $1.3 million, driven by U.S. dollar depreciation against the Israeli shekel.
• Balance Sheet -- $11.1 million in cash and no debt as of period end.
• Capacity Expansion -- Installation of a new production line resumed after being delayed by the departure of the supplier’s installation team due to regional conflict; completion expected in the coming weeks.
• Supply Chain Strategy -- Pricing structure and allocation quotas for fiberglass adjusted in response to material shortage and higher input costs from AI-driven demand.

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RISKS

• Gross margins and profitability are currently below normalized levels, with management stating that results were "negatively impact" by operational constraints, foreign exchange, and logistics.
• Delays in new production line installation due to the regional conflict created further operational setbacks; timeline remains contingent on external factors.
• CEO Yaffe said, "If the conflict will return, the problem will return again," directly citing ongoing operational risks linked to geopolitical instability.
• Management acknowledged, "It's very tough. We start to do it, and we got objection from our customers," indicating resistance to price increases necessary to offset higher input costs.

SUMMARY

Management disclosed that deteriorating gross margins resulted from backlog mix, logistics disruptions, and foreign currency pressures, with explicit acknowledgment that the recent performance does not represent a normalized trajectory for the business. Executives confirmed backlog more than doubled, including large contracts slated for delivery through 2027, enhancing forward visibility but cautioning that near-term margin improvement is conditional on stabilizing operational and macroeconomic factors. The company resumed installation of a new production line after conflict-related delays but flagged ongoing exposure to supply chain instability and material cost inflation.

• During the Q&A, Ron Freund specified that when the investment plan is completed and conditions stabilize, annual revenue could reach $60 million–$65 million with gross profit margins of 26%–28%.
• Eltek’s price adjustment strategy faces "objection from our customers," highlighting the challenge of passing through rising fiberglass costs.
• Management described procurement of critical materials as subject to quota systems, explaining that avoidance of shortages required agreeing to "AI prices" for fiberglass supplies.
• While a significant portion of current backlog is tied to less favorable historical exchange rates, management stressed ongoing repricing efforts as part of long-range margin recovery.

INDUSTRY GLOSSARY

• Backlog: The total value of confirmed but undelivered customer orders, indicating future revenue visibility.
• AI prices (fiberglass): Elevated pricing levels for fiberglass materials influenced by demand from artificial intelligence and data center infrastructure projects.

Full Conference Call Transcript

Eli Yaffe: Thank you. Good morning. Thank you for joining us for our 2026 first 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 a summary of the principal factors that affected our results during Q1 2026. 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. As we previously indicated, revenue in the quarter were below our expectations.

This was primarily driven by the mix of timing of backlog conversion, ongoing logistic constraints and foreign exchange impact rather than any change in the underlying demand. The product mix in the quarter was primarily a function of a backlog release timing rather than any change in price discipline, customer quality or market positioning. During the quarter, a larger portion of our shipments originated from the orders received in the prior period at lower average pricing levels, while a significant portion of the higher-value programs and advanced products added more recently to the backlog are scheduled for the delivery later in the year and into the year 2027.

In addition, due to the supply chain and material allocation constraints, we prioritized certain deliveries in order to maintain customers' commitments and production continuity, which also impacted our quarterly mix. As a result, the average selling price of products delivered during the quarter declined, negatively impact profitability. We believe that the current quarter does not reflect the normalized margin profile of the business going forward. Important underlying remain. During the quarter, our backlog more than doubled compared to the beginning of the year. This increase includes the 2 orders we publicly announced with deliveries expected across 2026 and 2027.

We believe this substantial backlog growth our revenue visibility and provides a strong foundation for future growth so the timing of revenue recognition may continue to vary between quarters. [Technical Difficulty] Due to the ongoing complexity and global [Technical Difficulty] that affected our ability to manufacture sufficient volume to efficiently absorb fixed operation costs. Air freight capacity from the Far East, Europe and United States remain constrained and certain chemicals that were previously eligible for air transportation can no longer be shipped by air, reduced logistical flexibility. In addition, extended sea freight transit time and ongoing global shortage of prepaid materials are contributed to the longer supply cycle.

The prepaid shortage is being driven in part by strong demand for the fiberglass materials from the rapidly expanding AI hardware infrastructure market. These operational and logistical challenges further impact production efficiency during the quarter and limited our ability to increase output level. In addition, the continued weakness of the U.S. dollar against the Israeli shekel and a significant negative impact on our operational results and increased operational loss by approximately $1.3 million compared to the corresponding quarter last year. We are actively managing these dynamics through close coordination with suppliers and customers.

In response to the increased raw material constraint and costs, we have updated our pricing structure and are currently selling relevant fiberglass products at adjusting price level and under allocation quotas designed to secure supply continuity and protect operational efficiency. Turning to our investment plan. We continue to make progress. The first new production line was delivered and partially installed. As previously noted, due to the current situation in Israel and the war with Iran, the installation team from the supplier had temporarily left the country, which created a delay in the installation processes. We are pleased to report that the supplier installation team returned to Israel yesterday and install work is now resumed.

We expect the installation process to be completed over the coming weeks which we plan to begin the [Technical Difficulty] for commercial production. While recent events have created some delays in the installation time line change our direction. As we have noted in [Technical Difficulty] the line into commercial product [Technical Difficulty] by timing and we are encouraged by the strength of the demand and the significant backlog and the progress we are [Technical Difficulty] parallel the process of bringing foreign workers in our operation continues to advance. We believe that [Technical Difficulty] will be stronger position to address the ongoing challenges in the local labor market and better support our planned production growth and operational efficiency.

Looking ahead, our focus remains on gradually returning to business to normalized profitability levels. A key element in achieving this objective is our continuous effort to secure new orders at pricing levels that apparently reflect the increase of raw material, the impact of the weaker U.S. dollar environment and the value of the company execution capability, technological expertise and on-time delivery performance. At the same time, we continue to invest operational improvement, production capacity expansion and supply chain stability in order to better support long-term profitable growth and strengthening our competitive position into the market. 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 first quarter of 2026. 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 reasons for its use. I will now go over the highlights of the first quarter of 2026. All numbers mentioned are in U.S. dollars. Revenues for the first quarter of 2026 totaled $10.4 million compared to $12.8 million in the first quarter of 2025. Gross loss was $1.9 million, down from $2.2 million gross profit in the first quarter of 2025.

The decline was driven by the mix and timing of backlog conversion, ongoing logistic constraints and foreign exchange impact. Operating loss for the quarter was $3.3 million compared to operating profit of $0.7 million in the same period last year. We recorded financial expenses of $0.1 million in the first quarter of 2026 compared to financial income of $0.5 million in the first quarter of 2025. The expenses recorded in the current quarter are primarily due to the devaluation of the U.S. dollar against the Israeli shekel, net of interest earned on our interest-bearing accounts.

Net loss for the quarter was $2.9 million or $0.42 per share compared to net income of $1.0 million or $0.15 per share in the first quarter of 2025. EBITDA loss for the quarter was $2.7 million compared to EBITDA of $1.2 million in the prior year period. Cash flow used in operating activities totaled $0.4 million during the first quarter of 2026. As of March 31, 2026, we had $11.1 million in cash and cash equivalents with no outstanding debt. We are now ready to answer your questions.

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

Mark Sharogradsky: Hi Eli, Hi all. [Technical Difficulty] When we can expect a [Technical Difficulty]

Eli Yaffe: Hi Mark, yes, it's really not good results. As you know, we don't give forecast of looking forward statements. But as I discussed in my long conversation, I gave all the background for you to decide when we'll come to normal operation. It depends upon the length of the conflict with Iran. It depends upon the labor market, it depends upon the shekel against the Israeli and a lot of factors that is unknown to us. But we do everything to adjust to accommodate this risk and mitigate against it. For example, we adjusted all our prices to the devaluation of the shekel against the dollar.

But if there will be more devaluation, we cannot expect it and we cannot forecast it. I never forecast that we'll be at ILS 2.9 per dollar. I didn't forecast the shutdown and the hours that we lost during the first quarter because of the Cyren in Israel. We cannot do it. What we do is we can promise that for long term, as I mentioned before, we continue with our strategic plan to continue to have the 2 lines operating by the end of this year and start to fly from this point to a more good future.

Mark Sharogradsky: Okay. So I want to understand, let's say the dollar will stop to devaluate and everything will stabilize and you will finish your construction lines. So you still project that you will be able to achieve 27% to 28% gross margin if there are no other devaluation in the U.S. dollar and you stop production of the old backlog?

Ron Freund: Yes. As we said, Mark, this is Ronnie. As we said in the past, okay, when we will finish our investment plan and taking into account that the current circumstances stay the same, okay, no devaluation, no new bad news. we expect that our revenues will increase up to what we told before, up to around $60 million to $65 million. And that volume, we estimate that the gross profit will be 26% to 28% as we previously said.

Mark Sharogradsky: Okay. Nice. And I see -- if I read recently the earnings call of TTMI, I see huge demand in U.S.A. and they even need to cancel or to delay some projects. So do you think you will be able to secure some additional orders from U.S.A. at the current environment?

Eli Yaffe: As we announced in the beginning of the year, we took a very nice chunk in the competition with TTM of a work, a defense contractor in the United States that we compete head-to-head with TTM. -- it's a good signal.

Mark Sharogradsky: Yes. So now also the big orders for hyperscalers. Do you think you will maybe will be able to also secure some orders from those clients because they also need some specialized PCB to be manufactured.

Ron Freund: Mark, we don't know exactly which segment will in the future will ask for bids from us. But what we can say is that our high technology and products can serve many high end segments. We hopefully wish that we will be managed to compete TTM in that market also. Currently, we are investing energies trying to get more orders from customers abroad. The U.S. is a very important market. We are also trying in Europe. And we hope to increase our backlog. As we said before, we more than doubled our backlog from the beginning of the year.

Mark Sharogradsky: Okay. And it's also very important, the mix of the backlog. So do you see enough products in the -- not only on the rigid PCB, but also on the S Flex PCB...

Eli Yaffe: Yes. The basket of the future -- I don't have it in front of me in parallel, but the basket is well organized. But some portion of the basket is based on dollar to shekel 3.3. And actually, right now, we are at 2.9. So there is weakness in this PO that we have to honor anyway.

Mark Sharogradsky: Okay. And if you will -- and if the USD dollar against shekel will rise in the near future, so you will benefit from the current orders that you received...

Ron Freund: Of course, like all exporters...

Mark Sharogradsky: Okay.

Eli Yaffe: Thank you Mark.

Ron Freund: Thank you Mark.

Operator: The next question is from [indiscernible] from Private Investor.

Unknown Analyst: First question is regarding the sourcing problem. Can you elaborate more on that, like until when you're going to face this problem? Second question is, now I hear for the first time that the integration of the new equipment and facility is going to happen until the end of this year. And last time you mentioned it will due by the end of the first half of 2026

Eli Yaffe: Can you repeat the first question? I didn't hear your first question.

Unknown Analyst: You mentioned that you -- in the first quarter, you had a problem with sourcing.

Eli Yaffe: Yes.

Unknown Analyst: Can you elaborate more on that because it's like an important issue. done? Is it over? Do you still face it in this quarter? When do you think it will be over?

Eli Yaffe: The sourcing problem and the logistic problem in the first quarter is divided to 2. First of all, there is an international problem that there is a shortness of fiberglass all over the world because of the AI demand, as I mentioned before. And the suppliers allocate to quotas. If we are ready to pay the AI prices, will be out of the quota, and we agreed to pay the high prices because we didn't want to stay in shortage. This was problem number one.

Problem number two is how to bring this -- and this is only related to Israeli how to bring this raw material, which has a limited life shelf to Israel under a cooling condition during the conflict time. And as I mentioned before, there was a short of supply, short of flight between the Far East, United States or Europe. This is the main 3 hubs that we bring fiberglass to Israel. And we suffer from shortness of raw material, which is not the situation today because we agreed to pay the high prices and the bottleneck is open. If the conflict will return, the problem will return again. This is regarding your first question.

Regarding the second question that you asked.

Unknown Analyst: Just a second -- for the first question, the AI problem, the AI constraint is going to continue. It's not done. We are...

Eli Yaffe: It's only impacting -- if we pay the AI prices for fiberglass, we'll be out of the quotas. If we want to stay in the oil prices of the PCB only and not pay the premium that AI is willing to pay, we will be under quotas.

Unknown Analyst: Yes. But the question is, does your business model, your pricing model take into consideration, you want to arrive a specific gross margin. Does the pricing model take into consideration the getting out of this quarter and paying a premium?

Eli Yaffe: I don't have a choice because -- and I have to load it on the prices to our customers.

Unknown Analyst: So can you increase the prices to the customers?

Eli Yaffe: It's very tough. It's very tough. We start to do it, and we got objection from our customers. So it's a lot of explanation work, showing articles. There is a very famous Morgan Stanley article that helped us. And we explain -- we're going from customer to customer and explaining that it's not beyond our control. It's impacted. And I think that this is a common problem to all the PCB suppliers all over the world. It's not related only to Israel.

Unknown Analyst: And it's something that's going to accompany to be with the company in the coming future also.

Ron Freund: Yes.

Unknown Analyst: Regarding the second question?

Eli Yaffe: Regarding the second question, as I mentioned, we -- the plan was originally and the installation started. And during the first 2 days of the conflict with Iran, the team, which was 8 labor people and 2 engineers left Israel immediately and they returned only yesterday. It was almost 6 weeks or 7 weeks that they were not here. And now -- so we suffer another delay now. Once they will finish it, we have to qualify the line. So the update that I had before that by July 1, we'll have line and running to be up right now.

Operator: [Operator Instructions] There are no further questions at this time. Before I ask Mr. Eli 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: In summary, while we are negatively navigating near-term challenges related to the timing, logistics and foreign exchange, we remain very confident in the foundation of the business. Demand continues to be strong, as I reflected in the significant growth in our backlog and the long-term visibility is provided. At the same time, we continue to make strategic investment to expand our capacity and support future growth. As these initiatives progress and external constraints begin to ease, we believe we are well positioned to translate our strong demand environment into improved financial performance in the period ahead.

I would like to take the opportunity to thank the employees for their decision and relicense, particularly in the current environment as well as our investors for their continued support and confidence in our strategy. Thank you all for joining us on today's call. Have a good day.

Operator: This concludes the Eltek Ltd. 2026 First Quarter Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.

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