Eltek Ltd. Q4 FY2024 earnings call

• Market environment: Strong market with sustained high demand, including local and international bids for defense tenders and slight uptick in industrial activity. - Strategic focus: Maintaining a balanced portfolio across defense, medical, and high end industrial segments; growing defense sector due to European nations' accelerated defense budget increases. - Operational aspects: Made steady progress in executing accelerating investment plan with $10 million capital expenditure in 2024, anticipating similar in 2025; key investments included new solder masking application department, cooling and air infrastructure expansion, and plating line installation; faced operational challenges with equipment reallocation and integration but working to recruit additional employees. - Commercial activities: Emphasized expanding commercial activities to increase sales volume while leveraging high end manufacturing capability for complex production stages.

In 2024, Eltek Ltd generated revenue of $46.5 million, consistent with 2023 levels. Gross profit for the year was $10.3 million, with a gross margin of 22%, down from 28% in 2023. For the fourth quarter of 2024, revenues were $10.8 million compared to $12.3 million in the fourth quarter of 2023. Gross profit in the fourth quarter of 2024 was $1.9 million versus $3.5 million in the same period of 2023. Revenue contribution across core market segments (defense, medical, high end industrial) was not explicitly broken down by percentage in absolute terms but the company emphasized a strategic focus on maintaining a balanced portfolio among these segments.

• Anticipates similar capital expenditure level in 2025 as in 2024. - Targets gross margin to be in the range of 26% to 29% in the midterm (two to three years).

• Operational challenges related to construction and installation of new equipment, including delays due to regional conflict affecting foreign technical experts' visits. - Competition from local and European companies, with European firms' initial pricing benchmarks considered unsustainable beyond market entry phase. - Labor shortage and production capacity constraints due to extensive workload from ongoing production and new machinery integration.

Q: Regarding competitive pressures and travel difficulties, are travel difficulties behind us, are new installations proceeding as expected, and where is the competition?

A: Most travel restrictions from Europe to Israel have ended; most technicians are coming, with some issues resolved via remote support; competition in Israel from European companies with aggressive pricing, but expected they'll leave the Israeli market once they establish entry.

Q: Are challenges operational rather than demand?

A: 100% sure, operational issues, not demand.

Q: On gross margin, should we see the trend continue to 2025?

A: Believe gross margin will be around 26% to 29% in the near term (two to three years), targeting to meet this guideline.