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Eltek .(ELTK) - 2023 Q4 - Annual Report
Eltek .Eltek .(US:ELTK)2024-03-26 20:05

PART I Key Information This section outlines the significant risks associated with investing in the company's ordinary shares, categorized into business and industry, human capital, share-related, and geopolitical risks specific to Israel Risk Factors The company faces substantial business, human capital, share-related, and geopolitical risks, including intense competition, customer/supplier dependency, environmental litigation, key personnel reliance, share price volatility, and the impact of Israeli political instability - The company faces intense competition in the PCB market, particularly from manufacturers in Southeast Asia, Europe, and North America, many of whom have significantly greater financial and marketing resources3738 Key Customer and Supplier Concentration (2023) | Category | Details | Source Chunk(s) | | :--- | :--- | :--- | | Customer Concentration | A group of affiliated companies accounted for 13.7% of total revenues. | 33 | | | Another group of affiliated companies accounted for 14.0% of total revenues. | 33 | | Supplier Concentration | Two suppliers accounted for 28% and 26% of total consolidated raw material costs, respectively. | 35 | - The company is subject to environmental litigation. In January 2023, it paid a penalty of approximately $0.6 million for an alleged breach of the Clean Air Law. In October 2023, it received a notice regarding suspected soil contamination requiring further investigation5455 - The controlling shareholder, Mr. Yitzhak Nissan, beneficially owned 51.6% of outstanding ordinary shares as of March 12, 2024, giving him significant influence over corporate matters105 - Political and military instability in Israel, including the war with Hamas that began in October 2023, poses a risk to operations. However, the company's designation as an 'Essential Enterprise' by the Israeli government allows it to continue operating110111112 Information on the Company Eltek, an Israeli company incorporated in 1970, manufactures and supplies advanced custom-made Printed Circuit Boards (PCBs), specializing in high-end, flex-rigid products for the defense, aerospace, medical, and industrial sectors History and Development of the Company Founded in 1970 in Israel, Eltek specializes in technologically advanced custom PCBs, controlled by Nistec Golan Ltd. since 2013, with recent developments including a $10 million public offering in February 2024 to fund expansion and planned investments of an additional $10 million in 2024 - The company is controlled by Nistec Golan Ltd., which is indirectly controlled by Mr. Yitzhak Nissan134135 - In February 2024, the company completed a public offering, raising $10 million before expenses to fund production expansion and for general corporate purposes138214 - The company plans to invest approximately $10 million in capital expenditures in 2024, primarily for manufacturing equipment to expand capacity and upgrade technology139 Business Overview Eltek operates in the highly competitive PCB industry, focusing on complex, high-reliability products for defense, aerospace, and medical sectors, with a $15 million investment program underway to enhance production capabilities and an increased order backlog of $18.1 million by the end of 2023 Production by Industry (2023 vs 2022) | Industry | 2023 % of Production | 2022 % of Production | | :--- | :--- | :--- | | Defense and Aerospace | 50.7% | 48.7% | | Medical Equipment | 7.3% | 8.0% | | Industrial Equipment | 14.4% | 7.1% | | Distributors, CEMs, etc. | 26.7% | 36.2% | - The company initiated a $15 million, three-year investment program in early 2022 to increase production capabilities and efficiency, expecting to boost annual sales by $10-15 million156 Order Backlog | Date | Backlog (USD) | | :--- | :--- | | December 31, 2023 | $18.1 million | | December 31, 2022 | $16.8 million | Operating and Financial Review and Prospects In fiscal year 2023, Eltek demonstrated strong financial performance, with revenues growing 18% to $46.7 million and net income nearly doubling to $6.4 million, driven by increased product demand and improved gross margin, further strengthening its liquidity with a subsequent $10 million public offering Operating Results For the year ended December 31, 2023, revenues increased by 18% to $46.7 million, gross profit surged 58% to $13.1 million with gross margin expanding to 28.1%, and net income nearly doubled to $6.4 million Financial Performance Summary (2023 vs. 2022) | Metric | 2023 (USD) | 2022 (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $46.7 million | $39.6 million | +18% | | Gross Profit | $13.1 million | $8.3 million | +58% | | Gross Margin | 28.1% | 20.9% | +7.2 p.p. | | Operating Profit | $7.2 million | $3.0 million | +140% | | Net Income | $6.4 million | $3.2 million | +99% | - The increase in revenues and gross profit was primarily attributable to increased demand for the Company's products192194 Liquidity and Capital Resources As of December 31, 2023, the company had a strong liquidity position with $12.1 million in cash and short-term deposits and $16.1 million in working capital, having repaid all bank loans, and further bolstered capital with a February 2024 public offering that raised $10 million Cash and Working Capital (as of Dec 31) | Metric | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Cash, Cash Equivalents & Short-term Deposits | $12.1 million | $7.4 million | | Working Capital | $16.1 million | $12.9 million | Cash Flow Summary (in thousands USD) | Cash Flow Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | 8,862 | 3,829 | 3,875 | | Net cash used in investing activities | (2,959) | (3,029) | (1,647) | | Net cash from (used in) financing | (3,806) | (1,638) | 2,124 | - The company repaid all its bank loans during 2023 and had no outstanding bank debt as of December 31, 2023215 Directors, Senior Management and Employees This section details the company's leadership, compensation practices, and workforce, noting that the board is chaired by controlling shareholder Yitzhak Nissan, the executive team is led by CEO Eli Yaffe, and the workforce grew to 335 employees by year-end 2023 Compensation In 2023, total compensation for all 13 directors and executive officers was $2.1 million in salaries, fees, and bonuses, plus $0.4 million in benefits, with CEO Eli Yaffe receiving $685,864 and Chairman Yitzhak Nissan receiving $292,937 2023 Compensation for Top 5 Officers (USD) | Name | Position | Base Salary | Benefits & Perquisites | Equity Based | Total Compensation | | :--- | :--- | :--- | :--- | :--- | :--- | | Yitzhak Nissan | Chairman | 292,937 | - | - | 292,937 | | Eli Yaffe | CEO | 278,128 | 311,045 | 96,691 | 685,864 | | Ron Freund | CFO | 160,119 | 120,914 | 23,188 | 304,222 | | Yitzhak Zemach | VP Operations | 149,606 | 135,119 | 26,728 | 311,453 | | Oriel Sallary | VP Sales & Marketing | 113,793 | 109,038 | 6,609 | 229,440 | Employees The company's workforce increased from 296 full-time employees at the end of 2022 to 335 at the end of 2023, with the majority based in Israel and concentrated in manufacturing services, process and product engineering, and quality assurance departments Employee Headcount by Year-End | Date | Total Employees | | :--- | :--- | | Dec 31, 2023 | 335 | | Dec 31, 2022 | 296 | | Dec 31, 2021 | 263 | Share Ownership As of March 12, 2024, Chairman Yitzhak Nissan beneficially owned 51.6% of the company's outstanding ordinary shares, with all executive officers and directors as a group owning 55.7%, and 375,156 options outstanding under the 2018 Share Incentive Plan Beneficial Share Ownership (as of March 12, 2024) | Shareholder | Shares Beneficially Owned | Percentage of Ownership | | :--- | :--- | :--- | | Yitzhak Nissan | 3,456,820 | 51.6% | | All executive officers and directors as a group (13 persons) | 3,732,193 | 55.7% | - As of December 31, 2023, there were 375,156 options outstanding under the 2018 Share Incentive Plan, with a weighted average exercise price of $6.49 per share338584 Major Shareholders and Related Party Transactions The company's controlling shareholder is Nistec Golan Ltd., controlled by Chairman Yitzhak Nissan, who beneficially owned 51.6% of shares as of March 2024, with Eltek engaging in several related party agreements with Nistec, including a monthly management fee for the Chairman's services and pre-approved procedures for PCB sales and assembly service purchases - As of March 12, 2024, Nistec Golan Ltd. and its controller, Yitzhak Nissan, beneficially owned 3,456,820 ordinary shares, representing 51.6% of the company325345346 - The company pays Nistec Ltd. a monthly management fee of NIS 90,000 for the services provided by Chairman Yitzhak Nissan352613 - The company engages in transactions with Nistec, including selling PCBs and purchasing soldering, assembly, and design services, under pre-approved procedures with specified pricing terms and discounts353611612 Financial Information This section covers legal proceedings and the company's dividend policy, noting Eltek's involvement in employee-related lawsuits totaling approximately $380,000 and its declaration of cash dividends in 2022 and 2023 without a formal ongoing policy - The company is a defendant in lawsuits from three former employees seeking aggregate payments of approximately $380,000 in connection with their employment and termination. A provision has been recorded based on legal advice364579 Recent Dividend Distributions | Declaration Date | Dividend per Share (USD) | Aggregate Amount (USD) | | :--- | :--- | :--- | | November 2023 | $0.22 | ~$1.3 million | | November 2022 | $0.17 | ~$1.0 million | Additional Information This section provides details on the company's corporate governance, material contracts, exchange controls, and taxation, including its Israeli corporate tax status as a 'Preferred Enterprise' and U.S. federal income tax considerations for U.S. shareholders - The company is subject to a standard Israeli corporate tax rate of 23%, but as a 'Preferred Company' under the Law for the Encouragement of Capital Investments, it is entitled to a reduced tax rate of 16% on its preferred income391590596 - For U.S. Holders, dividends paid by the company are generally taxable as dividend income. The company believes it qualifies for the reduced 'qualified dividend income' tax rates for non-corporate U.S. Holders412415 - The company believes it was not a Passive Foreign Investment Company (PFIC) for the 2023 tax year, but its status is determined annually and cannot be guaranteed for future years106420 Quantitative and Qualitative Disclosures about Market Risks The company is exposed to several market risks, primarily foreign currency exchange risk, where a 1% devaluation of the USD against the NIS would reduce operating income by an estimated $262,000, alongside commodity price fluctuations and credit risk from trade receivables - A 1% devaluation of the U.S. dollar against the NIS would result in an estimated decrease of approximately $262,000 in operating income431 - A 1% increase or decrease in the cost of raw materials would change the company's cost of raw materials by approximately $114,000433 Controls and Procedures The company's management, including the CEO and CFO, concluded that both its disclosure controls and procedures and its internal control over financial reporting were effective as of December 31, 2023, with no material changes during the reporting period - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2023440 - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2023444 Other Disclosures This section covers various governance and compliance topics, including the identification of Mr. Gad Dovev as the audit committee financial expert, the adoption of a code of ethics, fees paid to Deloitte totaling $126,500 in 2023, and the company's utilization of foreign private issuer exemptions regarding NASDAQ governance rules, with the Audit Committee overseeing cybersecurity risks Principal Accountant Fees (2023 vs 2022) | Fee Type | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Audit Fees | 102,000 | 98,000 | | Audit-Related Fees | 13,500 | - | | Tax Fees | 6,000 | 6,000 | | All Other Fees | 5,000 | - | | Total | 126,500 | 104,000 | - As a foreign private issuer, the company follows Israeli home country practices instead of certain NASDAQ corporate governance rules, including those related to maintaining a majority of independent directors, the director nomination process, and shareholder meeting quorum requirements456457 - The Audit Committee is responsible for overseeing cybersecurity risks. Management assesses these risks on an ongoing basis, and as of the report date, no identified threats have materially affected the company460463464 PART III Financial Statements This section presents the company's audited consolidated financial statements for the fiscal years ended December 31, 2023, 2022, and 2021, prepared in accordance with U.S. GAAP, showing significant growth in 2023 with revenues reaching $46.7 million and net income rising to $6.4 million, reflecting a stronger financial position Consolidated Statement of Comprehensive Income (in thousands USD) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenues | 46,695 | 39,650 | 33,823 | | Gross Profit | 13,102 | 8,270 | 6,897 | | Operating Income | 7,295 | 2,971 | 1,949 | | Net Income | 6,353 | 3,194 | 5,039 | | Basic EPS ($) | 1.08 | 0.55 | 0.86 | Consolidated Balance Sheet (in thousands USD) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | 30,107 | 23,398 | | Total Assets | 47,171 | 40,985 | | Total Current Liabilities | 13,981 | 10,474 | | Total Liabilities | 20,299 | 19,965 | | Total Shareholders' Equity | 26,872 | 21,020 | Consolidated Statement of Cash Flows (in thousands USD) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 8,862 | 3,829 | 3,875 | | Net cash used in investing activities | (2,959) | (3,029) | (1,647) | | Net cash provided by (used in) financing activities | (3,806) | (1,638) | 2,124 |