Yitzhak Nissan - Chairman and Chief Executive Officer Amnon Shemer - Chief Financial Officer

Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Limited Fourth Quarter 2016 Financial Results Conference Call. All participants are present in 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 March 27, 2017. 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 documents the company files from time to time with the SEC, specifically the company’s annual report on Form 20-F, and 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 for joining us and welcome to Eltek’s 2016 full year and fourth quarter earnings call. With me is Roberto Tulman, Deputy CEO and Chief Technology Officer; and Amnon Shemer, our Chief Financial Officer. We will begin by providing you with an overview of our business and a summary of the principal sectors that affected our results in the full year and the fourth quarter of 2016; 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 fourth quarter press release which was released earlier today. The release is also available in our website at www.nisteceltek.com. Our fourth quarter revenues of $8.1 million were lower than the $10.4 million of revenues we had in the fourth quarter of 2015. The decrease was primarily attributable to the lower number of working days in the fourth quarter as compared to last year’s fourth quarter. Due to the local holiday season and continued competition in the local defense market, our bottom line was also affected by two one-time expenses. The first was the $1.1 million write-off of deferred tax asset, due to uncertainty about our ability to utilize it in the foreseeable future. The second was a $271,000 expense associated with the sale of all our shares in Kubatronik, our German subsidiary, which had drawn significant resources from us for several years. We believe that the sale of Kubatronik will assist us to focus on improving our future results. Although competitive pressures remain strong, we have made positive progress in improving our on-time delivery and manufacturing yield. In addition, we continue to enhance our working relations with our defense customers by providing advanced technological solutions that meet their needs. Eltek is also restructuring its sales organization in order to increase the top line. We believe that these steps will prove fruitful for us and will contribute to achieving our goal of becoming a leading company in our field in terms of technology, on-time delivery and product quality. 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 full year and the fourth quarter of 2016. I will be discussing also 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. Highlights for the full year of 2016, revenues for the full year of 2016 amounted to $37.1 million, compared to revenues of $41.4 million in 2015, a decrease of approximately 10.4%. Gross profit was $2.8 million, 7.6% of revenues, compared to gross profit of $6.6 million, 15.8% of revenues, in 2015. Operating loss was $2 million compared to operating profit of $1.5 million in 2015. Net loss was $3.6 million or $0.36 per share compared to net profit of $1.0 million or $0.10 per share in 2015. Before the $1.1 million write-off of a deferred tax asset and the $271,000 one-time expenses recorded in connection with our sale of Kubatronik, the net loss for the full year of 2016, on a non-GAAP basis, was $2.3 million, $0.23 per share. EBITDA was a negative amount of $313,000, 0.8% of revenues compared to EBITDA of $3.3 million, 8.1% of revenues in 2015. Net cash provided by operating activities amounted to $165,000 compared to $1.7 million in 2015. Cash and cash equivalents as of December 31, 2016 were $1.2 million, compared to $1.0 million as of December 31, 2015. In addition, the Company had un-utilized lines of credit of $1.3 million as of December 31, 2016. I will go now to the highlights for the fourth quarter of 2016. Revenues for the fourth quarter of 2016 were $8.1 million compared to revenues of $10.4 million in the fourth quarter of 2015. Gross loss was $463,000, 5.7% of revenues, compared to gross profit of $1.7 million, 16.3% of revenues, in the fourth quarter of 2015. Operating loss was $1.6 million compared to operating profit of $455,000 in the fourth quarter of 2015. Net loss was $3 million or $0.30 per share compared to net profit of $228,000 or $0.02 per share in the fourth quarter of 2015. Before the one-time expenses recorded in the fourth quarter of 2016, the net loss on a non-GAAP basis was $1.7 million or $0.16 per share. EBITDA was a negative amount of $1.4 million, 17.2% of revenues, compared to EBITDA of $940,000, 9% of revenues, in the fourth quarter of 2015. Net cash used in operating activities amounted to $1.3 million, compared to $1.4 million of cash provided by operating activities in the fourth quarter of 2015. That concludes the formal part of our call. We are now ready to take your questions.

Thank you. Ladies and gentlemen at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from [indiscernible]. Please go ahead.

Hi, Yitzhak and Amnon. This is David.

Hi, thank you.

I enjoyed your talk even though I enjoyed hearing a little better result. I have two questions. My first is deferred taxes, the write-off of the deferred taxes. Is this an indication that the company doesn’t see a return to profitability in the foreseeable future [indiscernible] and you won’t be able to utilize in the deferred taxes.

Shall I answer one-by-one.

Yes. That’s perfect and they’re all connected.

Anyway we do see a result - earnings in the future and good results in the future. We do see that we are going to earn money at the future. The point is this, the amount that is in the tax is such a big one which gives us the ability to earn over $6 million in three years to utilize this amount. That’s why we had to write it off but we do see that and we expect to start earning money pretty soon.

Okay. Thank you, Yitzhak. Was there also a loss in the third quarter relating to the sale of the German subsidiary? Was this an additional loss recorded in the fourth quarter?

The sale of Kubatronik took place only towards the end of the year. The loss that you saw in the third quarter was related to its operating activities. It’s not related to the sale of Kubatronik.

Okay. Thank you. The restructuring of the sales force entail additional write-offs of cost as you mentioned?

It’s not expected. We don’t see any reason for any additional write-offs in respect of the restructuring of our sales force.

Okay. Two more questions. Indeed I can put together – is your main competition that you were referring to from local manufacturers or are they from imports? And also where do you see Eltek’s – what source do you – where do you see Eltek’s future growth coming from and what area?

We have competition from these related markets. As a matter of fact we have competition all over the world but we do see increase in sales in the United States and we expect to continue to increase our sales over there. We are doing all our best right now in order to accelerate the sales within the United States. Within the United States, we are considering one of the top technology companies there and we believe that we can penetrate to more and more companies over there, to the customers over there. We do have competition here in Israel, but the competition here is it’s not that our competitor took most of the work that we have lost. The total sales in Israel, total need in Israel probably with the defense, probably it went down a little bit but from the other point of view because of the competition we had to lower our prices. So this means that we don’t manufacture as the amount of the decrease of the sales. We manufacture more than that but we did to lower our prices because of the competition. But we see – we believe that even those companies in Israel and we have as I mentioned a little bit in our – in my speech before, we have some talks with our customers since we are considering the leading technology for them and they need our technology. So I believe that in the end we will see even increase in the sales through this market.

Okay. Thank you very much, Yitzhak and Amnon.

Thank you very much, David, and good luck.

[Operator Instructions] 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 participants 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?

Yes, I would like to thank all of you for joining us on today’s call. We believe that our sales efforts of growth in sales and orders saw improved manufactured flexibility alongside the tight managed expenses will help us being profitable on the long-term and on the long run. Before we conclude our call, I would like to thank once again all our customers, partners, investors, and the Eltek team of their continued support. Have a good day. Thank you very much.

This concludes the Eltek Ltd. fourth quarter 2016 financial results conference call. Thank you for your participation. You may go ahead and disconnect.