Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. 2025 Second Quarter Financial Results Conference Call. [Operator Instructions] 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.

Thank you. Good morning. Thank you for joining us for our 2025 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 summary of the principal factors that affected our results during Q2 2025. 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 be also available on our website. Let me start with the financial highlights. Revenues for the second quarter of 2025 totaled $12.5 million, representing 20% increase compared to the same period last year and maintaining the strong momentum seen in Q1 2025. For the first half of 2025, revenues reached $25.3 million, up from $22.2 million in the first half of 2024. This performance indicates early signs of stabilization in our production capacity and improved run rate. As previously communicated, our accelerated investment program objective was to scale our installed production capacity to support $55 million to $65 million in annual revenue. Gross profit totaled $3 million, nearly double the results from the same quarter last year. Gross margin expanded to 24.1%, up from 15.6% in Q2 2024, driven by improved operational efficiencies and more favorable product mix. With production process stabilization and all installed equipment now fully operational, our fixed cost base is largely absorbed. As a result, incremental revenue is expected to have significant stronger impact on profitability, potentially contribute approximately $0.50 on a dollar to our gross profit. Operational income rose to $1.5 million, up from $0.4 million in Q2 2024. During the quarter, we recorded onetime financial expenses of $1 million, resulting from a 9% devaluation of the U.S. dollar against the Israeli shekel.…

Thank you, Eli. I would like to begin by drawing your attention to the financial statements for the second quarter of 2025. During this call, I will also refer to a non-GAAP financial measure. Eltek uses EBITDA as a non-GAAP indicator of financial performance. Please refer to our earnings release for the definition of EBITDA and explanation of why we use this metric. Let me now review the key highlights of the second quarter of 2025. Unless otherwise stated, all figures are presented in U.S. dollars. Revenues for the second quarter of 2025 totaled $12.5 million, compared to $10.5 million in the second quarter of 2024. Gross profit reached $3 million, up from $1.6 million in Q2 2024. This increase was primarily driven by higher revenues and a more favorable product mix compared to the same period last year. Operating profit for the quarter was $1.6 million (sic) [ $1.5 million ] compared to $0.4 million in the second quarter of 2024. We recorded net financial expenses of $1 million during the quarter, mainly resulting from the sharp 9% devaluation of the U.S. dollar against the shekel. These expenses are net of interest income earned on our interest-bearing bank deposits. Net profit for the second quarter of 2024 was $0.4 million or $0.05 per share, compared to $1.4 million or $0.11 per share in Q2 2024. EBITDA for the quarter was $2 million compared to $0.8 million in the second quarter of 2024. Cash flow used in operating activities amounted to $2.9 million in Q2 2025, primarily due to an increase in trade receivables and inventory. As of June 30, 2025, our cash, cash equivalents and short-term bank deposits totaled $11.2 million with no outstanding debt. We are now ready to answer your questions.

[Operator Instructions] The first question is from Michelle Wu.

I have 2 questions. The first one, could you give me some update about the capital investment for the rest of 2025 and 2026? Hello?

And the second question?

The second question is about the revenue mix. So could you disclose what is the percentage of revenue for the international and the Defense sector, like as a percentage of the total revenue?

Okay. So regarding the investment, so basically, what is left in 2025 and 2026 is the installment of the coating lines. And this is above our regular investment of $2 million to $4 million, which we made regularly before the accelerated investment plan. The current balance of the accelerated investment plan is around $6 million. And we expect, as we said earlier, to receive the first coating line of the 40 meters by towards the end of 2025 and immediately ramp it up and start production. As in regard to the mix of revenues, so this quarter, we had a higher mix of rigid -- flex rigid towards the 65% to 70% of our total revenues. And usually, the price and the profits in the rigid flex are higher than in the rigid. And regard to segments of our customers or industries, we continue to see strong demand in the defense sector, which totaled around 65%.

The next question is from Ethan Etzioni from Etzioni Portfolio Management.

I wanted to ask how do you see the strong defense demand affecting your business in the rest of '25 and going into '26?

So basically, we see the strong demand, and we think it will continue in the near future. We see the strong demand in the Israeli market, but also from foreign countries, the U.S. and also, we feel a strong demand in the Europe market. Military budgets are increasing, and we hope to succeed in getting orders also from these countries and not base most of our defense production to the Israeli market.

Can you quantify -- help us quantify is there a backlog or order pipeline or something else that we can put our hands on?

We usually do not give any disclosure on our backlog. It was -- it increased about 10% since the beginning of the year. It is not something that we disclose. And usually, in our industry, you usually receive the orders for the next quarter or the 2 next quarters, you don't receive the full orders for big projects that our customers usually win. So if you see some of our military customers win big projects like you saw last week in the newspaper, they don't give us full order for this -- for their orders rather than give it in small quantities per quarter.

Okay. And we see some improvement in the profitability. Do you expect that to continue?

Yes. We -- please, Eli, please.

Yes. As I said before, any dollar above the current sales will contribute approximately $0.50 to the gross margin. So since all our fixed cost is fully absorbed, then it speaks by itself. Any additional cents, $0.50 will go to the gross margin.

The next question is from [ Avi Segal ].

Good quarter. Well done. I just wanted to ask 2 questions. Question number one, once you've installed this new 40-meter coating line tot the end of 2025, what will your annual revenue capacity be? Question number one. Question number two is, how come you had a negative cash flow from operating activities during the quarter?

Regarding the question number one, as we say, we will be reaching up to $55 million to $60 million annual revenue potential once this line is going to be fully operational. Regarding question number 2, Ron, please answer.

Yes. So basically, the negative operating cash flow resulted from 2 main reasons. The first of one is a slight delay in one of our big customers delaying its payment, and we already collected the full amount during the beginning of July. And the second is the increase in inventory. We decided that due to the situation, the war in Israel to increase our inventory levels and to reduce risk. These are the 2 main issues that caused the negative cash flow.

The next question is from Dany Shwartz from Kepler Capital.

You already answered it. Could you provide some color on the change in the inventory level?

I didn't understand your question, Dany.

Could you provide some color on the change in the inventory levels?

Yes. We decided to increase our inventory levels, mainly in lamination, in aluminum. Due to the war in Israel, we purchased more than we usually purchase. This can be used during the next quarters. We don't anticipate any issue with that. And in parallel to this, we also -- because of the operational challenges we had during Q4 '24 and Q1 '25, the work in process has also increased.

[Operator Instructions] 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.

Before we wrap up, I would like to take a moment sincerely thanks to our employees and their continued commitment and hard work in [indiscernible] our strategic goals. I also want to express my appreciation to our customers, partners and shareholders for their trust and continued support. Thank you for being with us today. Wishing you a great day.

This concludes the Eltek Ltd. 2025 Second Quarter Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.