Eltek Ltd.
Q4 2020 Earnings Call Transcript

Published: 25 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Limited Fourth Quarter and Full Year 2020 Financial Results Conference Call. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded. Before I turn the call over to Mr. Eli Yaffe, Chief Executive Officer; and Alon Mualem, Chief Financial Officer, I'd like to remind you all that Eltek's earnings release today and this call includes forward-looking statements within the meaning of the Private Securities 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 decisions, 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, expectations, and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements.

[Eli Yaffe:]

Thank you. Good morning, everyone. Thank you for joining us and welcome to Eltek 2020 fourth quarter and full year earnings call. With me is Alon Mualem, 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 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 fourth quarter press release, which was released earlier today. The release will be also available on our website at www.nisteceltek.com. This is the eighth quarter in a row that we achieved both operating and net profits with cumulative 12 months EBITDA of $4.6 million. We achieve this result despite higher financial expenses due to the valuation of the US dollar against the Israeli -- New Israeli shekels during 2020. Our revenues in the full year of 2020 increased to $36.7 million from $34.8 million in 2019 that represent 5.5% growth in revenue year-over-year. Our revenues in the fourth quarter of 2020 rose to $9.5 million from $8.6 million in the fourth quarter of 2019 that represent 10.5% increase. We are glad that the fourth quarter results continued to reflect the growth in our revenues and the continued improved operation efficiencies. The outbreak of the spread of the Coronavirus has created new operational and business challenges, including the shortage of Pyralux raw material that we are dealing with in 2021. Eltek qualified at this time alternatives to the Pyralux, but this take time when the customers to approve it. Eltek sales that we cannot produce due to the Pyralux shortage will be delivered in the near future. We have managed successfully through the COVID pandemic in 2020 because of the made necessary adjustments increase revenue from the defense sector, raised additional funds through the right offering and obtain loans with preferred terms. I'm also pleased with the continuing improvement in production efficiency that is evident in our improved operational profit, which more than double year-over-year. Our diversify end market allowed us to grow revenue in those area, mainly in the Israeli market and the Netherlands. In addition, strong operational execution, overcome production, inefficiencies and extra costs due to the COVID-19. The COVID-19 pandemic created operational deficiencies – difficulties and employees concerns.

[Alon Mualem:]

Thank you, Eli. I would like to draw your attention to the financials for the full year and the fourth quarter of 2020. During this call, I will be discussing 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 reason for its use. First, I will go over the highlights of the full year of 2020. As Eli said, revenues for the full year of 2020 went up to $36.7 million from $34.8 million in 2019, an increase of 5.5% year-over-year. Gross profit increased by 28.3% in 2020, reaching $7.7 million or 21% of revenues, compared to gross profit of $6 million, or 17.3% of revenues in 2019. Operating profit was $3 million in 2020 compared to an operating profit of $1.4 million in 2019.

[Operator:]

Sorry for the interruption. There is noise from the speaker line. We will reconnect them.

[Operator:]

Please excuse the interruption. Ladies and gentlemen, thank you for standing by. Mr. Mualem, please go ahead.

[Alon Mualem:]

Thank you, very much. Sorry for the interruption. Operating profit was $3 million in 2020 compared to an operating profit of $1.4 million in 2019. Net profit was $2.6 million or $0.58 per share in 2020, compared to net profit of $1.8 million or $0.48 per share in 2019. EBITDA was $4.6 million in 2020 compared to EBITDA of $3.8 million in 2019. During 2020, we enjoyed positive cash flow from operating activities of $3.3 million, compared to an operating profit -- operating cash flow of $2.6 million in 2019. As of December 31, 2020, we had cash and cash equivalents of $4.7 million, compared to $1.6 million at the end of 2019.

[Operator:]

Thank you. Ladies and gentlemen, at this time we will begin the question-answer-session. The first question is from Michael Woo, a Private Investors. Please go ahead.

[Unidentified Analyst:]

Hello. Hi. I have a question about the delay caused by the material shortage. So do you have any estimate volume that was not produced in Q1?

[Eli Yaffe:]

Yes. Thank you, Michael for the question. As you know, we don't provide looking forward statement. However, as we’ve previously announced, we are facing shortages of key material that is used in the production of Flexible and Flex Rigid Printed Circuit Boards.

[Unidentified Analyst:]

So, I can assume that you didn't lose any order from the shortage, right?

[Eli Yaffe:]

We didn't lose orders, but will delay the sales.

[Unidentified Analyst:]

Okay. So it just pushed to Q2 or maybe Q3, you think that – the delay will be fully recovered by what timeframe?

[Eli Yaffe:]

We offer our customers not to delay and make push-outs, but we provide them offer to our alternative raw material that we have already in our hands, we have enough inventory of the alternative raw material. Once the alternative raw material, which is qualified by us, will be qualified by each customer separately for which PCB separately, then we can not make push-out and make the sale immediately. Once the customers, is insisting or take time to approve it, then we have to wait until we will get the Pyralux. But we didn't face any order cancellation.

[Unidentified Analyst:]

Okay, great, great. So, just want to confirm, you said the material affect the flexible PCB only, right?

[Eli Yaffe:]

It's only for flexible PCB only, yes.

[Unidentified Analyst:]

Yes. So, based on my understanding, what is the flex for -- so is that for all the flex for PCB -- any like flex positivity, are there partially some of the PCBs.

[Eli Yaffe:]

Nom we had some -- we had some inventory before. So, we use the inventory that we have and we have some supply right now, but it's limited supply.

[Unidentified Analyst:]

Okay.

[Eli Yaffe:]

So, we faced some difficulties, but by providing alternative we believe that customers will move to the alternative raw materials and that will compensate for the time delay. And if customers insist of Pyralux then they have to wait.

[Unidentified Analyst:]

Okay, great. So, as of today -- so, I mean, have you been able to read kind of sub -- like substitute new material -- was the new material, I mean for any orders are you still have kind of delay stuff had into Q2.

[Eli Yaffe:]

The alternative material is already pre-qualified by Eltek years ago and we presented to the market immediately when there was shortness. The shortness is only for Eltek. It’s a worldwide shortness -- shortage. And by showing the customers alternative raw material, I think that we have some advantage.

[Unidentified Analyst:]

Okay. But -- yes, just wondering to understand when this going to be end. I mean, what do you -- do you have any idea in Q2 is there still will be some--

[Eli Yaffe:]

We got the announcement from DuPont, who is the manufacturer of the Pyralux. They said that they are going to build a new factory at investment of $250,000. They announced that the new factory will be operational in the second half of 2021. So, our belief is that the shortness of this specific raw material -- only this specific raw material will be ended by the beginning of 2022.

[Unidentified Analyst:]

Okay. Okay, great. Okay, thank you.

[Eli Yaffe:]

As I explained, we have alternative raw material and from day-to-day we sell more and more alternative compared to the Pyralux.

[Unidentified Analyst:]

Okay. So, basically your customer kind of accepting the new material quite, I mean--

[Eli Yaffe:]

In penetration mode, yes, it's -- there is a penetration mode. It's not fast.

[Unidentified Analyst:]

Okay. Okay, great. I won't ask further. So, second question is about, do you have any numbers about 2021, the CapEx budget.

[Alon Mualem:]

We intend to continue investing in equipment and fixed assets in order to bring in a better technology into Eltek. We started it in 2019 and move faster in 2020 and we intend to increase it also in 2021.

[Unidentified Analyst:]

Okay. So how about question about your capacity. So are you on full capacity, like I mean, you'd be running on full capacity, what could be achieved? What is the revenue runs like 40 million or something. Do you have any idea?

[Eli Yaffe:]

No. We are not -- we are not at full capacity, after we installed the baseline last year and the baseline right now is in full operation. We don't have constraints.

[Unidentified Analyst:]

Okay. So in theoretically, if you're in full capacity, I mean, what is the revenue ? Do you have any estimate?

[Eli Yaffe:]

It’s depend upon the prices and we don't give looking forward statements like that.

[Unidentified Analyst:]

Okay. But do you have any, I mean, numbers of the percentage of capacity are running – currently running, maybe just from what insights?

[Eli Yaffe:]

So vertically we can add -- on this equipment we can add another 30% sales.

[Unidentified Analyst:]

Oh, that's great. That's great. Okay. So you do have any new equipment this year in 2021?

[Eli Yaffe:]

Yes. As I mention in the -- previously what I described before, we are going to have by the mid of 2021. We are going to have more capital investment that are going to get at very attractive prices because it's soft market and we get grants also from the government.

[Unidentified Analyst:]

So what is the capacity will be increased. Do you have any like percentage wise?

[Eli Yaffe:]

It will stay 30% and the equipment that we are going to install is oriented to efficiency increase.

[Unidentified Analyst:]

Okay. Okay. Great. I have no further questions. Thank you.

[Eli Yaffe:]

Thank you, Michael.

[Operator:]

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 Eltek's website at www.nisteceltek.com. Mr. Yaffe, would you like to make your concluding statements?

[Eli Yaffe:]

Before we conclude our call, I would like to thank all of our employees for their efforts to make Eltek's profitable again and capitalize our strengths and renewed our position as a leading high-end PCB manufacturer. I would like to thanks once again to all our customers, partners, investors and the Eltek's team for their continued support. I wish everyone good health and Happy Passover. Thank you for all for joining us on today's call. Have a good day.

[Operator:]

This concludes the Eltek Limited fourth quarter and full year 2020 financial results conference call. Thank you for your participation. You may go ahead and disconnect.