Eltek (ELTK) Q2 2026 Earnings Call Transcript

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DATE

Tuesday, Aug. 18, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

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

TAKEAWAYS

• Revenue -- $11.5 million for the quarter, compared to $12.5 million in the second quarter of 2025.
• Gross Loss -- $1 million, compared to a gross profit of $3 million in the prior year period.
• Sequential Gross Margin -- Management reported the gross loss narrowed from $1.8 million in the first quarter of 2026 to $1 million in the second quarter.
• Net Loss -- $2.7 million for the quarter, or $0.41 per diluted share.
• Operating Loss -- $2.5 million, reflecting lower revenue volume, production inefficiencies, and the appreciation of the U.S. dollar against the Israeli shekel.
• EBITDA Loss -- $1.9 million, compared to positive EBITDA of $2 million in the second quarter of 2025.
• First Half Revenue -- $22 million for the six months ended June 30, 2026.
• Operating Cash Flow -- $700,000 provided by operating activities during the quarter.
• Cash and Deposits -- $11.5 million as of June 30, 2026, including $9.4 million in cash and $2.1 million in short-term bank deposits.
• Financial Expenses -- $700,000 for the quarter, primarily due to the depreciation of the U.S. dollar against the Israeli shekel.
• Depreciation -- $600,000 for the quarter, compared to $500,000 in the prior year period.
• Share-Based Compensation -- $127,000 for the three months ended June 30, 2026.
• Trade Receivables -- $11.7 million at the end of the quarter, representing a decrease from $14.8 million as of Dec. 31, 2025.
• Inventories -- $10.3 million as of June 30, 2026.
• Property and Equipment -- $24.7 million, reflecting ongoing capital investments in new production lines.
• Workforce Expansion -- 15 foreign employees were integrated into operations during the quarter, with plans to add 15 more to improve production capacity.
• Backlog Exchange Rate Impact -- One-third of the company's backlog is tied to historical exchange rates, while another third is priced at 3.2 NIS per U.S. dollar.
• Total Assets -- $73.1 million as of June 30, 2026.
• H1 Net Loss -- $5.6 million, or $0.83 per diluted share, for the first six months of the year.
• H1 Gross Loss -- $2.8 million for the first half of 2026, compared to a gross profit of $5.2 million in the first half of 2025.

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RISKS

• Eli Yaffe stated, "We continue to experience limitation in our availability to certain raw materials, particularly fiberglass-based material which also in a strong demand from the rapidly growth AI infrastructure industry."
• Management warned that approximately one-third of the current backlog is tied to historical exchange rates, which acts as a heavy weight on current profitability.
• Eli Yaffe reported that the second plating line installation is delayed, though management noted that the contract includes penalties for the supplier related to this delay.

SUMMARY

Management reported a net loss for the second quarter of 2026 as the company continues a transition focused on stabilizing manufacturing operations and building operational infrastructure. Revenue declined 8% year over year to $11.5 million, though the company experienced a sequential narrowing of its gross loss from the first quarter. Operations were impacted by production inefficiencies, currency fluctuations, and raw material supply constraints, particularly for fiberglass components used in circuit boards. The company is currently focused on converting a record backlog into production while integrating new plating lines and expanding its workforce to support higher revenue levels required to leverage fixed expenses.

• Management reported that the first of two new plating lines is fully installed and has commenced acceptance testing.
• Eli Yaffe stated, "The improvement in the average selling price reflects the gradual adjustment of our pricing to higher cost environment."
• The company is in the process of implementing a new ERP system intended to provide a stronger foundation for managing and scaling operations.
• Eli Yaffe noted that in the medical sector, the company has secured key certifications intended to help capture future demand.
• Management expects the second plating line to arrive in Israel and complete installation by the end of 2026.
• Ron Freund noted that despite the reported net loss, the company maintains a solid balance sheet with $11.5 million in cash and no outstanding debt.

INDUSTRY GLOSSARY

• Backlog: The total value of confirmed customer orders that have not yet been fulfilled or shipped.
• EBITDA: Earnings before interest, taxes, depreciation, and amortization, used as a measure of core operational profitability.
• HDI: High-Density Interconnect, a type of printed circuit board with higher wiring density per unit area.
• NIS: The New Israeli Shekel, the official currency of Israel.
• Plating Line: A specialized manufacturing system used to deposit metal layers onto printed circuit boards during production.
• PCB: Printed Circuit Board, the physical structure used to connect electronic components in devices.

Full Conference Call Transcript

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. 2026 Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Before I turn the call over to Mr. Eli Yaffe, Chief Executive Officer; and Ron Freund, Financial Officer, I'd like to remind you that they will be referring to forward-looking information in today's presentation and in the Q&A. By its nature, this information contains forecasts, assumptions and expectations about future outcomes, which are subject to the risks and uncertainties outlined here and discussed more fully in Eltek's public disclosure filings. These forward-looking statements are projections and reflect the current beliefs and expectations of the company.

Actual events or results may differ materially. We'll also be referring to non-GAAP measures. Eltek undertakes no obligation to publicly release revisions to such forward-looking statements to reflect events or circumstances occurring subsequent to this date. I will now turn the call over to Mr. Eli Yaffe. Mr. Yaffe, please go ahead.

Eli Yaffe: Good morning, and thank you for joining us for our 2026 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 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 stated in our press release, our second quarter results continue to reflect a loss as we remain in an important transition period, focused on stabilization and manufacturing operation and building the human and the operational infrastructure required to support our next phase of growth. I would like to provide some additional context on this transition and the progress we are making. The market environment remains strong with continued demand for our products and strong backlog. The challenge we are facing is not demand, but our ability to continuously convert this demand and our backlog into production and shipments at the level we would like.

Second quarter revenue were $11.5 million, growing revenue for the first half of 2026 to approximately $22 million. We recognize that this level of revenue is below the level that the current demand environment would support. Given our cost structure, the company required a significantly higher level of revenue than we achieved during the first half of the year and in order to fully leverage our fixed operation expenses and reach our full profitability potential. At the same time, we are beginning to see some kind of development in our gross margin performance. Gross loss in the second quarter was $1 million compared to $1.8 million loss in the first quarter.

This improvement was driven by the higher level of revenue as well as improvement in the average selling price of the PCBs. The improvement in the average selling price reflects the gradual adjustment of our pricing to higher cost environment. This captured both the impact of the weaker U.S. dollar and the significant pressure we have seen across raw materials, production overhead and depreciation. As a newer order booked under our updated pricing structure moves through production and become a larger part of our sales mix, we expect this pricing adjustment to increase ability will reflect our results. At the same time, the supply environment remained challenging.

We continue to experience limitation in our availability to certain raw materials, particularly fiberglass-based material which also in a strong demand from the rapidly growth AI infrastructure industry. In the same cases, we are facing significantly raw material price increase, while other cases, supply is subject to allocation quotas. We have been able to secure the material required to continue operation and serving our customers, but doing so has become significantly more difficult and has required much closer coordination with our suppliers. Beyond our defense portfolio, we remain firmly focused on driving growth in our medical and high-end industrial markets. In the medical sector, we have secured key certification that position us well to capture future demand.

Meanwhile, our high-end industrial business continued to perform strongly, backed with a robust demand for our offering. Together, these strategic initiatives will help balance our market mix and diversify our revenue stream going forward. We are making steady progress in strengthening our operational infrastructure. We are well involved in the implementation of our new ERP system, which we believe will provide a stronger foundation for managing and scaling our operations. We have also completed the installation of our newly arrived PCB plating line and have started acceptance testing in parallel with initial trial production for customers' qualifications. We expect to kick off the official qualification process during the third quarter.

As we have previously discussed, this process is expected to take several months before the line reaches full commercial production. Additionally, our second plating line is currently scheduled by our supplier to arrive to Israel by the end of this year, backed with contractual penalties for this delayed installation. We are also continuing to strengthen our workforce. During the quarter, we successfully integrated approximately 15 foreign employees into our operation, and we have continued the process of bringing in additional approximately 15 foreign employees. Strengthening workforce is an important component in our ability to improve production capacity and operational efficiency and support the growth of the business.

Taken together, these initiatives are limited aims by strengthening the foundation of our manufacturing operation and providing us with the capacity, workforce and infrastructure required to support higher production level. We remain encouraged by the strong demand environment and the high level of our backlog. Our focus now is on completing the transition and improving our ability to convert that demand into higher level of production and revenue. As we achieve greater operational stability and higher revenue level, we believe we will be able to leverage our existing cost structure more efficiently.

Together with the improvements we are seeing in the average selling price and the continued adjustment of our pricing to reflect the current cost environment, we believe this will provide us toward a return to profitability level the company achieved historically. We are making steady progress across these areas and remain confident that the steps we are taking are building a stronger foundation for improved operational and financial performance in the period ahead. I will now turn the call over to Ron Freund, our CFO, to discuss our financial results.

Ron Freund: Thank you, Eli. I would now like to review the financial results for the second quarter of 2026. During this call, I will also refer to certain non-GAAP financial measures. Eltek's EBITDA as a non-GAAP measure of financial performance. Please refer to our earnings release for the definition of EBITDA and the reasons for its use. I will now review the key financial highlights for the second quarter. All figures are presented in U.S. dollars. Revenues for the second quarter of 2026 were $11.5 million compared to $12.5 million in the second quarter of 2025. Gross loss was $1 million compared to gross profit of $3 million in the prior year period.

The year-over-year decline in gross profitability was driven by lower revenue volume, production inefficiencies and appreciation of the U.S. dollar against the Israeli shekel. Operating loss was $2.5 million compared to operating profit of $1.5 million in the second quarter of 2025. Financial expenses were $0.7 million compared to $1 million in the prior year period. The financial expense in the current quarter primarily reflected the depreciation of the U.S. dollar against the Israeli shekel, partly offset by interest income earned on our cash balances. Net loss for the quarter was $2.7 million or $0.41 per share compared to net income of $0.4 million or $0.05 per share in the second quarter of 2025.

EBITDA loss was $1.9 million compared to EBITDA of $1.9 million in prior year period. Despite the net loss, operating activities generated $0.7 million of cash during the quarter. As of June 30, 2026, we had $11.5 million in cash and cash equivalents and no outstanding debt, providing us with strong and solid balance sheet. We are now ready to answer your questions.

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

Mark Sharogradsky: I have a few questions. The first one, when we begin to see any improvement, especially in the gross margin because we invested a lot of money in the production lines and now we are not seeing any improvement, even deterioration in the operating results. The next question, if you already finished to install all the plating lines. And can you give us some update on this? And then what do you see on the demand side?

Eli Yaffe: Regarding your first question, we expect the improvement to be gradual as several key factors come together. This includes increased production volume, improved production efficiency, better utilization of our existing capacity, the ramp-up of our new production lines, as I will explain later in your second question and improved availability of critical raw materials. At the same time, we are working to secure new orders at the pricing level that better reflect the current cost environment and the value of our products.

While the timing of the improvement may vary from quarter-to-quarter, we believe that these factors that stabilize our investment become fully operational, we will be in a stronger position to return to more normalized level of revenue and profitability. Regarding your question number two, as I mentioned in detail during the discussion, the first plating line is already fully installed. Acceptance test is already started. And by this coming Thursday, we are going to make the first plating just for demonstration. The second step is to call customers and certify the lines by customer by customer.

The second line, the second plating line is right now built abroad in Europe, and it's going to be shipped to Israel and installed and finish the installation before the year-end. And then the process of the second line is going to continue as well. Question number two, you also talked about the demand. And as I mentioned before, the demand become and continue strong demand.

Mark Sharogradsky: So I don't understand if the demand is so strong and we hear about the huge demand also in U.S.A. especially for data asset center and specialized for defense. Why the gross margin is still negative, why you're not ready to drive to increase normal growth drivers because I don't think the customer serves any alternatives.

Eli Yaffe: I think that I answered it. The issue is the operational side, not the demand side. .

Ron Freund: And Mark, you cannot increase prices. We are working in a competitive environment, even if the demand is so strong, there is still competition against local and foreign competitors. So you can't just double your price and remain at the position that you get purchase orders. So we are working in a competitive environment. And we need to deliver and to convert the current backlog that we have, which is, I think, the highest since I arrived to the company -- and our mission is to convert it to sales and to be in quarters with increased revenues and not at the level that we saw in the first half of 2026.

Mark Sharogradsky: Okay. And Ron, can you speak a little bit about the backlog pricing because I assume that last 2 quarters, you work on backlog that you build in 2025 when the USD was much higher. So now when you go to Q3, you are beginning to work on orders you have got from Q1 and maybe end of Q1 when USD was much lower. So if you will see in the next quarter revenue and gross profit?

Eli Yaffe: It's now Eli. I have to say that approximately 1/3 of our backlog is unrelated to the current exchange rates. It's historical exchange rates. And this is long-term POs that we got for something -- supply of 2 years, something like that. And until it's going to be ended, this 1/3 is going to be heavy weight on our profitability. The second 1/3 is in the range of exchange rates approximately 3.2. And the last 1/3 of our backlog is in the current exchange rate of today of around 3. So this is the most profitable backlog is the last 1/3 that I mentioned.

Mark Sharogradsky: Okay. So we expect to see improvement in the current quarter.

Ron Freund: We don't give any forecast, Mark. But as we said in the earlier this call, we saw improvement in our average selling price during the second quarter of 2026. And we hope note that we will see additional increase in the mix, average prices.

Operator: [Operator Instructions] 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 our participants that a replay of this call will be available tomorrow on our website.

Eli Yaffe: In summary, we remain encouraged by the underlying strength of our business and the opportunities ahead. Our strong backlog continues to provide solid visibility, reflecting sustained demand for our products and solutions. At the same time, we are making meaningful progress in expanding our capacity and stringing the operational foundation needed to support the growth. I would like to thank our employees for their continued dedication, professionalability and reliance and our investors for their ongoing confidence and support. Thank you for joining us on today's call. Have a good day. .

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

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