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Eltek Ltd. manufactures, markets and sells custom made printed circuit boards (PCBs), including high density interconnect (HDI), flex-rigid and rigid, with high layer count boards. The Company manufactures and supplies custom made circuitry solutions for use in compact electronic products. The Company's principal customers include manufacturers of defense and aerospace, medical, industrial, telecom and networking equipment, as well as contract electronic manufacturers. The Company designs and develops manufacturing solutions pursuant to interconnect requirements of original equipment manufacturers, and provides its customers with a range of custom designed PCBs, including rigid, double-sided and multi-layer PCBs, as well as flexible circuitry (flex and flex-rigid boards) made of various types of base material. The Company also acts as an agent for the importation of PCBs from South East Asia. The Company provides fabrication of dense multi-layer PCBs.
Eltek Ltd. (ELTK) CEO Eli Yaffe on Q3 2020 Results - Earnings Call Transcript
Nov. 18, 2020 9:18 AM ET | About: Eltek Ltd. (ELTK)
Eltek Ltd. (NASDAQ:ELTK) Q3 2020 Earnings Conference Call November 18, 2020 8:30 AM ET
Eli Yaffe - Chief Executive Officer
Alon Mualem - Vice President, Finance and Chief Financial Officer
Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. Third Quarter 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. [Operator Instructions]. 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 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.
These forward-looking statements are projections and reflect the current beliefs and expectations of the company. Actual events or results may differ materially. Eltek undertakes no obligation to publicly release revisions to such forward-looking statements to reflect events or circumstances occurring subsequent to this date.
I would now turn the call over to Mr. Eli Yaffe. Mr. Yaffe, please go ahead.
Good morning, everyone. Thank you for joining us and welcome to Eltek 2020 third quarter earnings call. With me is Alon Mualem, our Chief Financial Officer. We will begin by providing you with an overview of our business, a summary of the principal factors that affected our results in the third quarter of 2020 and an update on how COVID-19 has impacted our business 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 third quarter running press release, which was released earlier today. The release will be also available on our website at www.nisteceltek.com.
This is the seventh quarter in a row that we achieved both operating and net profits. Our revenues in the third quarter of 2020 were $9.3 million, consistent with our revenue in the third quarter of 2019. Revenues for the first nine months of 2020 were $27.2 million compared to $26.2 million in the first nine months of 2019. This increase is mainly as a result of 15% growth in the sales of customers in Israel and reflect growth of 8% in sales to the defense segments and to the contract manufacturers with 22% decline in the Indian and Italian market as a result of customer shutdown due to the COVID-19.
I'm also pleased with the continued improvement in production efficiency that is evidenced in our improved operation profit, which is more than double year-over-year. Our diversified end market allowed us to grow revenue year-over-year despite the weakness of the Indian and Italian market. In addition, strong operational execution overcome production inefficiencies and extra costs due to the COVID-19.
The COVID-19 pandemic has created operational difficulties, macroeconomic uncertainty and employee concern. I'm extremely proud of our employees' efforts to deliver excellent performance despite the formidable and unexpected challenges of these environments.
We also had four employees who had tested positive for COVID-19 this year, with other returning to work after being cleared following testing and quarantine protocols. We continue to use contact tracing and quarantine individuals who were in close contact with an infected team member in addition to the deep cleaning affected areas. We also continue to employ other measures such as extensive internal communication, masking, temperature check and social distancing in our facility worldwide.
Because of the strict preventing measurement measures in place and our culture of transparency and communication, COVID-19 has had minimal impact in our manufacturing operation to date.
I would like to remind you that Eltek was declared as essential enterprise, and therefore, we fully continue our operation and did not lose any working days since the beginning of the pandemic.
The outbreak of the coronavirus has affected new operational and business challenges, which requires quick adjustment that allowed us to maintain our production of PCBs while maintaining the safety of our workforce.
We see both risk and new opportunities in the existing business environment and are making the necessary adoption to meet customers' demand and our revenue and profit margin goals.
As we said in the past, we also see an opportunity to grow our business in the US market due to the worsening relations between the US and China. The impact of any trade war between the US and China will also impact the Israeli market since we see the US pressure on the Israeli government to reduce the Israel-China trade activity.
We believe that the new administration in the US will continue the same route as the previous administration, at least in the military and communication PCB segments. At the same time, we're facing slowdown from some of our customers in India and Italy due to the continued negative impacts of COVID-19.
Eltek continues to invest in new equipment in order to get the benefits of soft market in the capital equipment manufacturing. During quarter three, Eltek started the installation of a new and fast modem baseline, which is one of the main PCB production lines. And the new line is now running in testing mode in parallel to the old one.
So far, we have financed our growth strategy by our positive operating cash flow and our own internal resources. During 2020 and 2021, we plan to continue our investments in new equipment and the expansion of our facility and infrastructure to support our long-term sales growth.
The increase in the top line of 2020 reflects the continued market recognition of our high quality and reliable products, mainly in the flex PCB sector. Our revenue from the defense sector and contract electronic manufacturers grow from $21.7 million during the first nine months of 2019 to $23.5 million in the first nine months of 2020, 8% growth year-over-year.
The medical sector contributes 8.7% of revenue during the nine months of 2020, representing 13% growth year-over-year. Our customers continue to see the value proposition of our products and have a great deal of trust in our company and its capability.
We are continuing to pursue new business opportunities and increase customers' design engagement activity that will leverage the advantage technology capability. W remain focused on operational excellence and financial discipline as well as ours strategical growth goals. We are all focused on addressing the challenges that the widespread health crisis has stuck on us and we are working diligently [ph] on expanding our business while maintaining the trend of improved gross and operational results.
I will now turn the call over to Alon Mualem, our CFO, to discuss our financials.
Thank you, Eli. I would like to draw your attention to the financials of the third quarter of 2020. During this call, I will also 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 reasons for its use.
Now, I will go over the highlights of the third quarter of 2020 compared to the third quarter of 2019. As Eli mentioned, revenues for the third quarter of 2020 were $9.3 million, consistent with our revenues in the third quarter of 2019.
Gross profit increased from $1.75 million or 18.9% of revenues in the third quarter of 2019 to $1.82 million or 19.7% of revenues in the third quarter of 2020.
During the third quarter of 2020, we had an operating profit of $638,000, which are 6.9% of revenues as compared to operating profit of $568,000 or 6.1% of revenues in the third quarter of last year.
Net profit was $598,000 or $0.14 per share in the third quarter of 2020 compared to net profit of $391,000 or $0.09 per share in the third quarter of 2019.
EBITDA was approximately $1 million in the third quarter of 2020 as compared to EBITDA of $940,000 in the third quarter of 2019.
During the third quarter of 2020, we had a positive operating cash flow of $873,000 compared to $1.4 million during the third quarter of 2019. During the nine-month period of 2020, the company achieved a positive operating cash flow of $3.7 million as compared to positive operating cash flow of $2.7 million in the nine months of 2019.
As Eli mentioned before, we remain focused on operational excellence and financial discipline, as well as our long-term strategic growth goals. As previously announced, we filed the shelf registration statement during the third quarter of 2019 to provide the company with the ability to raise additional funds to support our planned growth and accelerate the expansion of our business.
In addition, last week, we issued a prospectus to our shareholders of record on November 9, 2020. Shareholders received one non-transferable subscription right for each three ordinary shares held or deemed held on the record date. Each right entitles the holder to purchase one ordinary share at a subscription price of $3.90 per ordinary share. The subscription rights are non-transferable and may be only exercised during the period ending 5 PM Eastern Time on December 2, 2020.
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