Eltek Ltd 2026 Q2 Earnings Call

Good morning, and thank you for joining us for our 2026 second quarter earning 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 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 high demand for our products and strong backlog. The challenge we are facing is not demand, but our ability to consistently convert this demand and our backlog into production and shipments at the level we would like. Second quarter revenue were $11.5 million, bringing 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're 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 capture both the impact of the weaker US 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, which 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 fiber glass-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 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 market. In the medical sector, we have secured key certification that position us well to capture future demand. Meanwhile, our high-end industrial business continue 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 the 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 are continuing the process of bringing in an additional approximately 15 foreign employees. Strengthening workforce is 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 levels. 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 a 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 improvement 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 path 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.

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 uses 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 USD. 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 depreciation of the US 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 US 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 the 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.