Eltek (NASDAQ:ELTK) released second-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

Access the full call at https://www.nisteceltek.com/category/events/

Summary

Eltek Ltd. reported a second-quarter revenue of $11.5 million, bringing the first-half 2026 revenue to approximately $22 million; however, the company remains unprofitable, with a net loss of $2.7 million.

The company is in a transition phase, focusing on stabilizing manufacturing operations and enhancing infrastructure to support growth, including the implementation of a new ERP system and new PCB plating lines.

Gross loss improved from $1.8 million in Q1 to $1 million in Q2, driven by higher revenue and increased average selling prices for PCBs, although raw material supply challenges persist.

Strategic focus includes growth in medical and high-end industrial markets, supported by key certifications and strong demand.

Management is optimistic about the strong demand environment and backlog, aiming to improve production capacity and profitability through operational enhancements and pricing adjustments.

Full Transcript

OPERATOR

Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. 2026 Second Quarter 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. For operator assistance during the conference, please press 0. As a reminder, this conference is being recorded. Before I turn the call over to Mr. Eli Yaffe, Chief Executive Officer, and Ron Freund, Chief 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, CEO

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 a summary of the principal factors that affected our results during 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 also be 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 in manufacturing operations and building the human and 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 revenues 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 requires a significantly higher level of revenue than we achieved during the first half of the year in order to fully leverage our fixed operating expenses and reach our full profitability potential.

At the same time, we're beginning to see some improvement in our gross margin performance. Gross loss in the second quarter was $1 million compared to a $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 the higher cost environment. This captures both the impact of the weaker US dollar and the significant pressure we have seen across raw materials, production, overhead, and depreciation.

As newer orders booked under our updated pricing structure move through production and become a larger part of our sales mix, we expect this pricing adjustment to increase profitability, which will be reflected in our results. At the same time, the supply environment remains challenging. We continue to experience limitations in our availability of certain raw materials, particularly fiberglass-based material which is also in strong demand from the rapidly growing AI infrastructure industry.

In some cases we are facing significant raw material price increases, while in other cases supply is subject to allocation quotas. We have been able to secure the material required to continue operations and serve our customers, but doing so has become significantly more difficult and requires 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 certifications that position us well to capture future demand. Meanwhile, our high-end industrial business continues to perform strongly, backed by 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. 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 an additional approximately 15 foreign employees. Strengthening the 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 aimed at 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 higher levels of production and revenue. As we achieve greater operational stability and higher revenue levels, 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 a path toward a return to the 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, Chief Financial Officer

Thank you, Eliezer. 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 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 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 a strong and solid balance sheet. We are now ready to answer your questions.

OPERATOR

Thank you, ladies and gentlemen. At this time we will begin the question-and-answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be queued in the order they are received. Please stand by. The first question is from Mark Shalgadsky of Kapler Capital. Please go ahead.

Mark Shalgadsky, Analyst at Kapler Capital

Hello, I have a few questions. The first one: when will we begin to see any improvements, especially in the gross margin? Because, you know, we invested a lot of money in production lines and for now we are not seeing any improvement, even deterioration in the operating result. The next question: have you already finished installing all the coating lines, and can you give us some updates on this? And then what do you see on the demand side?

Eli Yaffe, CEO

Hi Mark, good morning. 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, ramp-up profile on 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 pricing levels 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 as these factors stabilize, our investments become fully operational, and we'll be stronger positioned to return to more normalized levels 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 has already started, and by this coming Thursday we are going to make the first plating just for demonstration.

Second step is to call customers and certify the lines, customer by customer. The second plating line is right now built abroad in Europe and is going to be shipped to Israel and installed, with installation finished before the end of the year, and then the process of the second line is going to continue as well. In question number two you also asked about the demand. As I mentioned before, the demand continues to be strong.

Mark Shalgadsky, Analyst at Kapler Capital

So I don't understand. If the demand is so strong, and we hear about huge demand also in the USA and the world, especially for data centers and specialized PCBs for defense, why is the gross margin still negative? Why are you not raising prices to be at normal gross margin? Because I don't think the customers have any alternatives.

Eli Yaffe, CEO

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

Ron Freund, Chief Financial Officer

And Mark, you cannot increase prices. You know, 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, you know, double your price and remain at the position that you get purchase orders. So we are working in a competitive environment and we, you know, 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 Shalgadsky, Analyst at Kapler Capital

Okay, amazing. And Ronnie, can you speak a little bit about the backlog pricing? Because I assume that the last two quarters you worked on backlog that you built in 2025 when the USD was much higher. So now when you go to Q3 you are going to begin to work on orders you have got from Q1 and maybe end of Q1 when USD was much lower. So if we will sit in the

Ron Freund, Chief Financial Officer

next quarter, revenue and gross profit, it's now early. I have to say that approximately one third of our backlog is unrelated to the current exchange rate. It's historical exchange rate and this is long-term POs that we got for something supply of two years, something like that. And until it's going to be ended, this one third is going to be heavy weight on our profitability. The second third is in the range of exchange rates approximately 3.2. And the last third of our backlog is in the current exchange rate of today of around three.

So this is the most profitable backlog, the last third as I mentioned.

Mark Shalgadsky, Analyst at Kapler Capital

Okay. So we expect to see improvement in the current quarter, if I understand correctly.

Ron Freund, Chief Financial Officer

We don't give any forecast, Mark, you know, but as we said earlier this call, we saw improvement in our average selling price during the second quarter of 2026 and we hope that we will see additional increase in the mix average prices.

Mark Shalgadsky, Analyst at Kapler Capital

Okay. Okay. Okay. I don't have additional questions.

Eli Yaffe, CEO

Great, thank you, Mark.

Mark Shalgadsky, Analyst at Kapler Capital

Thank you.

OPERATOR

If there are any additional questions, please press star one. If you wish to cancel your request, please press star two. Please stand by. We'll be polling for more questions. 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 our website.

Eli Yaffe, CEO

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 strengthening the operational foundation needed to support the growth. I would like to thank our employees for their continued dedication, professional ability, and resilience, and our investors for their ongoing confidence and support.

Thank you all for joining us in 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.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.