Yitzhak Nissan - Chairman of the Board of Directors and Chief Executive Officer Roberto Tulman - Deputy Chief Executive Officer and Chief Technology Officer Amnon Shemer - Vice President, Finance and Chief Financial Officer

Welcome to the Eltek Limited fourth quarter and full year 2015 financial results conference call. [Operator Instructions] Before I turn the call over to Mr. Yitzhak Nissan, Chairman of the Board and Chief Executive Officer; Roberto Tulman, Deputy CEO and Chief Technology Officer; and Amnon Shemer, Chief Financial Officer, I would like to remind participants that comments made during this conference call may contain projections or other forward-looking statements regarding future events or the future financial performance of Eltek Limited. These statements are only projections and reflect the current beliefs and expectations of the company. Actual events or results may differ materially. With that said, it is routine for internal projections and expectations to change as quarters progress. All forward-looking statements are based on information available to the company on the date hereof, and the company assumes no obligation to update such statements. Please refer to the documents the company files from time-to-time with the SEC, specifically the company's Annual Report on Form 20-F, it's periodic reports on Form 6-K and the Safe Harbor language contained in the company's press releases. These documents contain and identify important factors that could cause the company's actual results to differ materially from those contained in its projections or forward-looking statements, which the company urges all investors to consider. Eltek undertakes no obligation to publicly release their revisions to such forward-looking statements that may be made to reflect the events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. I will now turn the call over to Mr. Yitzhak Nissan. Mr. Nissan, please go ahead.

Thank you. Good morning, everyone. Thank you for joining us and welcome to Eltek's 2015 fourth quarter and annual earnings call. With me are Roberto Tulman, Deputy CEO and Chief Technology Officer; and Amnon Shemer our Chief Financial Officer. We will begin to providing you with overview of our business, a summary of the principal factors that affected our results during the fourth quarter and the full year, followed by the details of our financial results. And then, we will be happy to answer any of your questions. By now, everyone should have access to our fourth quarter and full year press release, which was released earlier today. The release is also available on our website at www.nisteceltek.com. I am happy to share with you our achievements for the fourth quarter and full year 2015. In 2015 we focused on profit and profitability at margins. We have committed to cross organizational processes, which proved the results beneficial and helped us transition into a net profit of $1 million. The increase in our net profit is mainly attributable to a continued improvement in our gross profit, which grew by 8.7% to $6.6 million compared to a gross profit of $6 million in 2014. The cross organizational processes have also contributed to improvements in our gross margin, which increased from 12.9% of revenues in 2014 to 15.8% of revenues in 2015. Implementation of this processes also strength our activity in North America. Our 2015 sales to North America were $7.5 million, an increase of 27%, reflected 18.1% of Eltek's total revenue in 2015. The improvement in profit and profitability continued in the fourth quarter of 2015 with a transition for operating loss to operating profit of $455,000 and an increase of 27.4% in gross profit. The gross profit in the fourth quarter of 2015 was $1.7 million compared to $1.3 million in the fourth quarter of 2014. The fourth quarter also demonstrated a best improvement in gross margin to 16.5% of revenue compared to 12.5% of revenue in the fourth quarter of 2014. This was accomplished due to the implementation of our strategy to improve manufacturing efficiency, marketing, sales and customer service. This strategy includes the development and implementation of advanced technologies, which we have applied to our various product lines. Such technologies are intended to preserve and enhance Eltek's position as a leading supplier of cutting-edge PCBs to our high-end clients. We constantly monitor the market and examine new R&D trends, and are involved in early stages of initiative in our field. Our ability to provide effective solutions to meet complicated requests, provide us with a strong advantage in the PCB market. During 2015 we have focused on upgrading our customer service and project management, in addition to our professional and experienced customer service team, which advice in our customers from the earliest development stage right through delivery. We have established a special team of project managers. Each project manager is in charge of a specific major client. The excellent performance of our project managers significantly improved our projects, production and timelines. Upgrading our customer service has contributed to the increased sales in North America, which are characterized by large orders. Our sales in North America market increase is by 27% to $7.5 million in 2015. Our ITAR license, together with our prestigious AS-9100C and NADCAP Electronics accreted, support our penetration to a leading defense, aerospace and medical customers in North America, which is expected to advance Eltek success in the future quarters. During 2015, we have expanded the team of the wholly-owned subsidiary, Eltek USA, led by Eltek USA President, Mr. Jim Barry. We have also hired sales agents throughout the United States. I am pleased that as today, Eltek staff consists of 400 employees. In addition, Eltek has sales agents and distributors in Europe, India, South Africa and South America. I believe that Eltek is now well-positioned and continue its growth in the global market. We believe we will see future improvements in the profitability during 2016. I will now turn the call over to Amnon Shemer, our CFO, to discuss our financials. Amnon, please?

Thank you, Yitzhak. Let me please turn your attention to the financials for the fourth quarter and the year ended December 31, 2015. I will be discussing non-GAAP financial results such as EBITDA. Eltek uses EBITDA as a non-GAAP financial performance measurement. Please see our earnings release for our definition of and the reasons for its use. I will only go into detail on the most important financial statement items. First, financial results for the fiscal year of 2015. Revenues for the full year ended December 31, 2015, were $41.4 million compared to revenues of $46.6 million recorded in 2014, a decrease of approximately 11.3%. The decrease is primarily attributable to a reduction in sales to the Israeli defense sector. This reduction was offset in part by sales to North America that increased by 27% and amounted to $7.5 million. Gross profit was $6.6 million, 15.8% of revenues, an increase of 8.7% compared to a gross profit of $6 million, 12.9% of revenues in 2014. Operating profit was $1.5 million compared to an operating loss of $903,000 in 2014. Net profit was $1 million or $0.10 per fully diluted share compared to a net loss of $2.7 million or $0.26 per share in 2014. EBITDA amounted to $3.3 million, 8.1% of revenues compared to EBITDA of $1.2 million, 2.6% of revenues in 2014. Net cash provided by operating activity amounted to $1.7 million compared to $79,000 in 2014. The company's equity as of December 31, 2015, amounted to $10.2 million compared to $9.2 million as of December 31, 2014. Cash and cash equivalents were $1 million as of December 31, 2015, compared to $1.1 million as of December 31, 2014. In addition, the company had unutilized lines of uncalled credit in the amount of $2.7 million compared to unutilized lines of $700,000 as of December 31, 2014. Moving on to financial results for the fourth quarter of 2015. The results for the quarter reflect single occurrence, as those described for the full year and for the same reasons. Revenues for the fourth quarter of 2015 were $10.4 million compared to revenues of $10.6 million recorded in the fourth quarter of 2014, a decrease of approximately 1.8%. Gross profit was $1.7 million, 16.3% of revenues, an increase of approximately 27.4% compared to the gross profit of $1.3 million, 12.5% of revenues we recorded in the fourth quarter of 2014. Operating profit was $455,000 compared to an operating loss of $270,000 in the fourth quarter of 2014. Net profit was $228,000 or $0.02 per fully diluted share compared to a net loss of $1.8 million or $0.18 per fully diluted share in the fourth quarter of 2014. EBITDA amounted to $940,000, 9% of revenues compared to EBITDA of $250,000, 2.4% of revenues in the fourth quarter of 2014. Net cash provided by operating activities amounted to $1.4 million compared to $274,000 in the fourth quarter of 2014. Now, I would like to turn the call back over to Yitzhak for some closing comments. Yitzhak?

Thank you, Amnon. I would like to thank all of you to join us on today's call. We are pleased with our accomplishments since the beginning of 2015 and look forward to enhancing our business activity and goals in 2016 along with continued focus on improved profitability and competitiveness. Before we go and conclude our prepared remarks, I would like to thank once again all of our customers, partners, investors and Eltek team for their continued support. And now I would like to open the call for questions. Operator, please.

[Operator Instructions] The first question is from [indiscernible].

I would like to ask a few questions. First, I would like to ask about the sales in Israel. You said that there is a decline from the Israeli defense sector. And I would like to know how do you see it for 2016? Do you see any improvement? And also, what is the percentage of the sales to Israel compared to the sales all other places in the world of Eltek? This is the first question and then I'll ask few more.

Revenues in Israel amounted to $20.6 million in 2015. It was about 50% of our revenues. This represents a weakness of 17% from last year. The reduction is mainly in sales to the different sector, perhaps this is as a result of our customers shifting their purchases to foreign PCB manufacturer. With respect to 2016, as you are aware, we are prevented from relating to non-public figures. However, I cannot leave you without an answer. We are focusing on our global growth plans, which target sales to North America, Europe and South Asia, specifically to India.

And based on your current backlog, can you give us some clues about the first quarter or how 2016 begins?

I am sorry, but as you are aware, the company's policy is not to provide guidelines. What I can say is that we have continued to implement our efficiency measures throughout the organization. And we believe that these actions will result in improved profitability in the future. I cannot discuss specifically the first quarter or other quarters.

And I would like to ask about the gross margin. Do you think that 18% to 20% target of gross margin, it's a target that you can achieve this year, a target that is reachable for Eltek, or based on the current market conditions, it's something that is very difficult to achieve?

It's very hard to expect those numbers, but if you see the numbers that have been changed the last two years, I would say that the slope is something that it could be to come to that point, but it's really hard to say for sure that we can be there. It's really hard to promise that. This time we'll say, and right now, as you saw, we improved the numbers in a very nice numbers -- into very nice percentage.

And last question about the revenue, the annual revenue. I'm not talking about one quarter and based on what you see in front of you, do you see 2016 can be a year of growth of revenue, because of some slowdown in Israel, do you think that the cake is going to change, but it's not for sure that you will see growth?

See, Israel, as you know, is a very small market. If we want to grow, we have to look for other palaces in the world. The United States is a very, very huge market. We have very good customers over there, they like our product. We faced a very nice growth last year and we expect to grow more this year too. And, of course, if the change will be in Israel, they probably will take it over and maybe they will reflect the numbers for the future.

I understand.

Any more questions, please?

There are no further questions at this time. Before I ask Mr. Nissan to go ahead with his closing statement, I would like to remind the participant that a replay of this call will be available tomorrow on Eltek's website, www.nisteceltek.com. Mr. Nissan, would you like to make your concluding statement? End of Q&A

I would like to thank again to everybody and wish you everybody Purim Sameach and hope to see you on the near future press releases and conversation. Thank you very much.

This concludes the Eltek Ltd. fourth quarter and full year 2015 financial results conference call. Thank you for your participation. You may go ahead and disconnect.