Eltek's Q3 2025 Earnings Call: Contradictions Emerge on Production Stability, Currency Impact, and Pricing Strategies

Date of Call: September 30, 2025

Financials Results

• Revenue: $13.3M, compared to $13.5M in Q3 2024
• EPS: $-0.03 per share, compared to $0.25 per share in Q3 2024

Guidance:

• Revised pricing issued after Q2 2025 is expected to begin benefiting results in the coming quarters.
• Management expects the new coating line to arrive and be integrated by mid-2026, improving capacity, stability and gross margins.
• RRP (ERP) project to go live in 2026 to improve operational visibility and efficiency.
• Management expects higher sales volume to meaningfully increase gross profit and net income.
• Revised pricing is intended to offset FX-driven expense pressures over time.

Business Commentary:

* Revenue and Financial Performance: - Eltek reported sales of $13.3 million for the third quarter and $38.6 million for the first 9 months of 2025. - Gross profit for the quarter was $1.6 million with breakeven operating income and net loss of $0.2 million. - The decline in financial performance was attributed to the sharp depreciation of the U.S. dollar against the Israeli shekel, increased raw material consumption, and higher energy costs.

• Operational Challenges:
• Eltek continues to face instability in production processes, primarily due to the ramp-up of new equipment and integrating new engineers and production staff.
• Higher depreciation expenses, raw material consumption, and energy costs are further contributing to operational difficulties.

• The company anticipates these issues to stabilize over the coming quarters as new lines settle and teams gain proficiency.

• Competition and Market Dynamics:

• Eltek is facing new foreign competitors, particularly in the defense sector, limiting price increases in high-volume production segments.
• While competition remains limited in low-volume, high-complexity production, pricing dynamics are affected by competitor entries in mid- to high-volume segments.

• Currency Impact:
• The depreciation of the U.S. dollar against the Israeli shekel increased NIS-denominated expenses and reduced gross profits by approximately $800,000.

• The currency erosion also impacted financial expenses, mainly related to U.S. dollar-denominated assets, including cash and cash equivalents and trade receivables.

• Capacity Expansion and Technological Advancements:

• Eltek is progressing with its production capacity expansion program, preparing to house the new coating line in a new production hall.
• The company is on track to replace and integrate the RRP project by 2026, transitioning toward a modern data-driven work environment.

Sentiment Analysis:

Overall Tone: Neutral

• Management reported a Q3 net loss of $0.2M and cited ~ $800k FX impact and production instability due to new equipment ramp-up, yet stated demand remains strong (63% defense) and outlined timing for pricing benefits (6–9 months) and process stabilization by mid-2026 with a new coating line and 2026 ERP go-live.

Q&A:

• Question from Mark Sharogradsky (Kepler): It's a pretty low quarter for you. Last quarter you said operational issues were almost behind you. Why are you still facing operating issues? When will we see pricing benefits from USD depreciation? When will operational difficulties end? When will you reach the mid-term gross margin targets for '26/'27?
  Response: Instability now stems from operator/engineering ramp-up (not construction); pricing headwind relief typically takes 6–9 months to translate to profit; management expects production stabilization and margin improvement by mid-2026 after the new coating line is integrated and volume increases.

• Question from Ran Su (Unknown): Can you elaborate on the negative impact from new competition? What about the price pressure felt this quarter — is it sustainable? And will the currency/FX negative impact continue into the next quarter?
  Response: New entrants from the Far East (not China) are penetrating defense and exerting sustained price pressure in high-volume segments; that competition is likely to persist; USD weakness will continue to increase finance and NIS-denominated operating expenses in the near term, and management expects revised pricing will eventually cover these FX costs.

Contradiction Point 1

Production Stability and Operational Challenges

It involves differing statements about the stability of production processes and operational challenges, which can impact the company's financial performance and investor expectations.

Your performance this quarter was weak. Last quarter, you stated that most operational issues were resolved. How do you now address the operating issues? - Mark Sharogradsky (Kepler)

20251118-2025 Q3: The instability is due to engineering and manpower, the operator itself of the machine. So it's 2 different issues. - Eli Yaffe(CEO)

How much did Q1 sales decline due to operational challenges and travel restrictions to Israel, and how will sales recover once these issues are resolved? - Ethan Etzioni (Etzioni Portfolio Management)

2025Q1: We faced this quarter operational difficulties, which led to a reduction in yield and a lower gross margin. - Eli Yaffe(CEO)

Contradiction Point 2

Currency Impact and Financial Outlook

It involves differing statements about the impact of currency fluctuations on financial performance, which can affect investor decisions and expectations.

How is the U.S. dollar erosion impacting your business? - Unknown Analyst

20251118-2025 Q3: It was in regards to the U.S. dollar erosion. So as I hope you understand, we are getting hit by the erosion of the U.S. dollar in finance expenses, but also in the operating income. So as long as the dollar keeps to be eroded, we are going to have additional financing expenses and also our denominated expenses -- NIS-denominated expenses are going to be in a higher level. - Ron Freund(CFO)

Will profitability improvements continue? - Ethan Etzioni (Etzioni Portfolio Management Ltd)

2025Q2: And we don't expect any more erosion in the dollar during this year. Although the dollar is weaker than in the past year, we feel that the current level is stable. - Ron Freund(CFO)

Contradiction Point 3

Price Increase and Market Competition

It involves differing statements about the company's ability to increase prices and the impact of competition on pricing, which can affect profitability and market positioning.

Did you experience price pressure this quarter? - Unknown Analyst

20251118-2025 Q3: That's, of course, limited our possibility to increase the price to any level that we would like because they are in the entry level and they put some pressure mainly in the high-volume production to be in the entry level and reduce the price. - Eli Yaffe(CEO)

Could you disclose the percentage of revenue from the international and Defense sectors as a portion of total revenue? - Unidentified Analyst (Kepler Capital)

2025Q2: As we see on the past 2 to 3 months, we see that the demand is too high, and we have great possibility to increase the price. It's something which we do, by the way, throughout the quarter. - Eli Yaffe(CEO)