Ladies and gentlemen, thank you for standing by. Welcome to the LTEC Ltd. 2026 Second Quarter Financial Results Conference Call. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press star zero. 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 I 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 LTEC's public disclosure filings. These forward-looking statements are projections and reflect the current beliefs and expectations of a company. Actual events or results may differ materially. We'll also be referring to non-GAAP measures. LTEC undertakes no obligation to publicly release revision 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.

Good morning and thank you for joining us for our 2026 second quarter earning 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 2026. 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. As we stated in our press release, our second quarter results continue to reflect a loss as we remain in an important transition period Focus on stabilization and manufacturing operation and building the human and the operational infrastructure required to support our next phase of growth. I would like to provide some additional context on this transition and the progress we are making. The market environment remains strong, with continued high demand for our products and strong backlog. The challenge we are facing is not demand. but our ability to consistently convert this demand and our backlog into production and shipments at the level we would like. Second quarter revenue were $11.5 million bringing revenue for the first half of 2026 to approximately $22 million. We recognize that this level of revenue is below the level that the current demand environment would support. Given our cost structure, the company required a significantly higher level of revenue than we achieved during the first half of the year and in order to fully leverage our fixed operation expenses and reach our full profitability potential. At the same time, we're beginning to see some kind of development in our gross margin performance. Gross loss in the second quarter was $1 million compared to Thank you very much. Production Overhead and Depreciation As a newer order booked under our update pricing structure moves through production and becomes a larger part of our sales mix, we expect this pricing adjustment to increase ability with reflect our results. At the same time, the supply environment remains challenging. We continue to experience limitations in our availability to certain raw materials, particularly fiberglass-based materials, which are also in strong demand from the rapidly growing AI infrastructure industry. In the same cases, we are facing a significant raw material price increase, while in other cases, supply is subject to allocation quotas. We have been able to secure the material required to continue operation and serving our customers, but doing so has become significantly more difficult and required much closer coordination with our suppliers. Beyond our defense portfolio, we remain firmly focused on driving growth in our medical and high-end industrial market. In the medical sector, we have secured key certifications that position us well to capture future demand. Meanwhile, our high-end industrial business continues to perform strongly, backed with a robust demand for our offering. Together, these strategic initiatives will help balance our market mix and diversify our revenue stream going forward. We are making steady progress and stringing our operational infrastructure. We are well involved in the implementation of our new ERP system, which we believe will provide a stronger foundation for managing and scaling our operations. We have also completed the installation of our newly arrived PCB plating line and have started acceptance testing in parallel with initial trial production for customer qualifications. We expect to kick off the official qualification process during the third quarter. As we have previously discussed, this process is expected to take several months before the line reaches full commercial production. Additionally, our second plating line is currently scheduled by our supplier to arrive to Israel by the end of this year, backed with contractual penalties for this delayed installation. We are also continuing to strengthen our workforce. During the quarter, we successfully integrated approximately 15 foreign employees into our operation and we are continuing the process of bringing in additional approximately 15 foreign employees. Strengthening workforce is an important component in our ability to improve production capacity and operational efficiency and support the growth of the business. Taken together, these initiatives are limited aims by strengthening the foundation of our manufacturing operation and providing us with the capacity, workforce and infrastructure required to support higher production levels. We remain encouraged by the strong demand environment and the high level of our backlog. Our focus now is on completing the transition and improving our ability to convert that demand into higher levels of production and revenue. As we achieve greater operational stability and higher revenue level, we believe we will be able to leverage our existing cost structure more efficiently. Together with the improvement we are seeing in the average selling price and the continued adjustment of our pricing to reflect the current cost environment, we believe this will provide path toward a return to profitability level the company achieved historically. We are making steady progress across these areas and remain confident that the steps we are taking are building a stronger foundation for improved operational and financial performance in the period ahead. I will now turn the call over to Ron Freund, our CFO, to discuss our financial results.

Thank you, Eli. I would now like to review the financial results for the second quarter of 2026. During this call, I will also refer to certain non-GAAP financial measures. LTEC uses EBITDA as a non-GAAP measure of financial performance. Please refer to our earnings release for the definition of EBITDA and the reasons for its use. I will now review the key financial highlights for the second quarter. All figures are presented in US dollars. Revenues for the second quarter of 2026 were $11.5 million compared to $12.5 million in the second quarter of 2025. Gross loss was $1 million compared to gross profit of $3 million in the prior year period. The year-over-year decline in gross profitability was driven by lower revenue volume, production inefficiencies, and depreciation of the U.S. dollar against the Israeli shekel. Operating loss was $2.5 million compared to operating profit of $1.5 million in the second quarter of 2025. Financial expenses were $0.7 million compared to $1 million in the prior year period. The financial expense in the current quarter primarily reflected the depreciation of the U.S. dollar against the Israeli shekel, partly offset by interest income earned on our cash balances. Net loss for the quarter was $2.7 million, or 41 cents per share, compared to net income of $0.4 million, or 5 cents per share, in the second quarter of 2025. EBITDA loss was $1.9 million, compared to EBITDA of $1.9 million in the prior year period. Despite the net loss, operating activities generated $0.7 million of cash during the quarter. As of June 30, 2026, we had $11.5 million in cash and cash equivalents and no outstanding debt, providing us with a strong and solid balance sheet. We are now ready to answer your questions.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly leave the answer before pressing the numbers. Your questions will be pulled and the order there is sealed.

Please stand by.

The first question is from Mark Shagatsky of Coupler Capital. Please go ahead.

Hello, guys. Nice to speak to you again. So I have two questions. The first one, when we will begin to see any improvement, especially in the gross margin, because, you know, we invested a lot of money in the production lines, and for now we are not seeing any improvement, even deterioration, the operating results. The next question, if you already finished to install all the coating lines, and can you give us some updates on this? and then what you see on the demand side.

Hi Mark, good morning. Regarding your first question, we expect the improvement to be gradual as several key factors come together. This includes increased production volume, improved production efficiency, better utilization of our existing capacity, the ramp-up of our new production lines, as I will explain later in your second question, and improve availability of critical raw materials. At the same time, we are working to secure new orders, pricing levels that better reflect the current cost environments and the value of our products. While the timing of the improvement may vary from quarter to quarter, we believe that these factors that stabilize our investment become fully operational. We will be in a stronger position to return to a more normalized level of revenue and profitability. Regarding your question number two, as I mentioned in detail during the discussion, the first plating line is already fully installed. Acceptance test is already started and by this coming Thursday we are going to make the first plating just for demonstration. Second step is to call customers and certify the lines by customer by customer. The second line, the second plating line is right now built abroad in Europe and is going to be shipped to Israel and installed and finished installation before the year end and then the process of the second line is going to continue as well. In question number two you also asked about the demand and then I mentioned as I mentioned before the demand become and continue

So I don't understand Eli if the demand is so strong and we hear about a huge demand also in USA and in Europe, especially PCB for data center and specialized PCB for defense. Why the gross margin is still negative? Why you're not raising the price to be its normal gross price? Because I don't think the customer has any alternatives.

I think that I answered it. The issue is the operational side, not the demand side.

And Mark, you cannot increase prices. We are working in a competitive environment. Even if the demand is so strong, there is still competition against local and foreign competitors. So you can't just double your price and remain in the position that you get purchase orders. So we are working in a competitive environment and we now need to deliver and to convert the current backlog that we have, which is, I think, the highest since I arrived to the company. And our mission is to convert it to sales and to be in quarters with increased revenues and not at the level that we saw in the first half of 2026.

Okay, amazing. And Roni, can you speak a little bit about the backlog pricing? Because I assume that last two quarters you walked on backlogs that you built in 2025, when the USD was much higher. So now when you go to Q3, you are walking, to begin to walk on orders, you are going from Q1 and maybe end of Q1 when USD was much lower. So if If you will see it in the next quarter, revenue and gross profits?

It's now Eli. I have to say that approximately one-third of our backlog is unrelated to the current exchange rate. It's a historic exchange rate, and this is long-term... The second third is in the range of exchange rate approximately 3.2 and the last third of our backlog is in the current exchange rate of today of around 3. So this is the most profitable backlog, is the last third as I mentioned.

So we expect to see improvement in the current quarter, if I'm correct?

We don't give any forecast, Mark, you know, but as we said in the Thank you, Mark.

If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by when we pull for more questions. 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 participant that a replay of this call will be available tomorrow on our website.

In summary, we remain encouraged by the underlying strengths of our business and the opportunities set. Our strong backlog continues to provide solid visibility, reflecting sustained demand for our products and solutions. At the same time, we are making meaningful progress in expanding our capacity and strengthening the operational foundation needed to support the growth. I would like to thank our employees for their continued Thank you all for joining us on today's call. Have a good day.

Thank you. This concludes the LTK Ltd. 2026 Second Quarter Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.