Ladies and gentlemen, thank you for standing by. Welcome to the Maytronics third quarter 2023 results conference call. All participants are at present in 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 November 28, 2023. With us on the line today are Mr. Sharon Goldenberg, CEO, Mr. Meni Maymon, CFO, and Mr. Amiram Bracha, Head of Investor Relations. Before I turn the call over to Amiram, to Mr. Amiram Bracha, I would like to remind everyone that forward-looking statements as to the company's business, financial condition, and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated.
Such forward-looking statements include, but are not limited to, product demand, pricing, market acceptance, changing economic conditions, risks in product and technology development, and the effects of the company's accounting policies, as well as certain other risk factors, which are detailed from time to time in the company's filings with the various securities authorities. Mr. Amiram Bracha, please go ahead.
Thank you, Yoni. Good afternoon, and welcome to Maytronics third quarter 2023 results call. I am Amiram Bracha, Investor Relations Director. Joining me today on this call is our CEO, Sharon Goldenberg, and CFO, Meni Maymon. Sharon will start with a short summary of the third quarter and the 9-month period, and Meni will continue the review of the financial results. Then Sharon will go into more details about the trends and matters in our major territories and present the outlook for the rest of the year, after which we will be happy to take any questions. A replay of today's call will be made available on our website later today. With that, I will hand over to our CEO, Sharon. Please go ahead.
Thank you very much, Amiram. Good morning to everyone, and thank you for joining us. Before I go into the summary of the nine months and the third quarter, I want to talk about the impact of the security situation in Israel. As you all know, Israel suffered from a terrible attack about seven weeks ago. First and foremost, our heart goes out to all those who are suffering, the families who lost their loved ones, the families of those who were abducted, and the families whose loved ones are fighting on the various battlefields. The timing of these events coincides with a period where the company's production volumes are low overall due to seasonality, and in particular, in terms of this year's production plans.
From the sales aspect, historically, the Israeli market represents about 2% of the company's sales, and most of it does not focus on this time of the year. Around two-thirds of Maytronics employees are based in Israel, including production workers at the plant in Israel and Dalton, and the employees in our headquarters. At present, about 10% of our people in Israel have been called up for reserve duty. So far, we're truly happy that fortunately, none of our people or their immediate families have been hurt. The call-up of production workers and headquarters people to the reserve military service had a certain effect, but we are coping and finding solutions.
In order to support our employees and their families in general, those who have been called up themselves and those family members that have been called up, Maytronics has also stepped up to help the civilian support effort. We have donated money and raised donations from our employees. Company teams have also been working in this capacity since October eighth, and these activities are a source of great pride to our people. I will now move on to the summary of the nine months and third quarter. Looking at the effects of the complexities and challenges of 2023, there is a difference between the first half and the third quarter.
Most of the complexities in 2023 relates to inventory levels in the distribution channel, a change in the build-up pattern among distributors and dealers, a shifting to smaller and more frequent orders in the context of coping with high interest rates, and the desire to tightly manage working capital. Macroeconomic effects on the scope and characteristics of consumer spending, a motivation by all the players to reduce inventory and liquidate it, sometimes result in irregular and uncommon or irrational commercial terms. We estimate that these effects were specific to 2023, and there is a better understanding of the distribution channel and the fact that permissive terms don't necessarily meet the needed demand. In the online channel and mass market, we are seeing growing competition by the Chinese, which we estimate is here to stay. Last but not least is the weather.
Extreme and unstable weather reflected in a late start and very short pool season in Europe and North America. Despite the challenges, we succeeded in managing sales to the distribution channel on an optimal level in the first half, and excluding the impacts of the ECCXI acquisition, we posted a very moderate decline in sales overall, and particularly in relation to industry trends. In the third quarter, for the first time, de facto, we experienced the effects of the inventory correction very intensely, and it was demonstrated by a sizable decline in sales to distributors in Europe and North America. Third quarter sales were historically characterized by replenishment orders by the distribution channel as part of the sales during the season, late season before winter orders in Europe and North America, and of course, the start of the early buy sales in the Southern Hemisphere.
I would say that several factors led to the decline in the third quarter revenues. First of all, the successful half year was followed by the very short season, due in part to the late start of the summer, which led to very low replenishment orders in Europe and North America. Also, high interest rates and the way the season developed slowed motivation in the distribution channel to stock up as usual in the traditional late season, the pre-winter inventory buildup. High interest rates and the characteristics of last season led to a conservative approach in the nature of buildup in the Southern Hemisphere, and the third quarter was marked by a relatively weak early buys in Oceania.
Finally, it's worthwhile mentioning that third quarter sales last year reflected a 32% growth and were anomalous, since they included a shift in revenues from the second quarter last year, leading to higher comparative numbers. Along with the changes posed by demand in the distribution channel, in the third quarter, we continued to experience success and solid ongoing growth in the online channel in North America markets. The public pool segment is on an uptrend in terms of demand since the end of the pandemic and the return of tourism, and in the first 9 months, we grew by a solid 19%. This year's challenges and the inventory levels led to the adjustment of production volumes at the company's production plants, which declined significantly compared to last year record production volumes.
Still, the company succeeded in delivering a solid improvement in the gross margin and overcoming the negative effects of lower production volumes. In the 2024 season, we expect the trend to reverse and that we will be back on track with production volumes growing gradually, which will moderate the negative impacts we experienced this year and contribute to the gross margin. During the year, we've made significant adjustments to our cost structure and implemented enhancement processes, which delivered a solid reduction in operating expenses. We expect these initiatives to contribute to an improvement in the operating margins once we are back on our growth track. Regarding inventory, the changes in this item on the balance sheet do not reflect the real actions taken and what was actually achieved.
In fact, since the beginning of the year, in terms of volume, we have reduced finished goods inventory by 25% and also, in addition, lowered raw material inventory. The translation of the inventory balance into shekels was impacted by the sharp rise in exchange rates, which Meni will talk about in more detail later on. But I want to emphasize the success in generating operating cash flow that reflects an improvement of around ILS 300 million compared to the corresponding period, among other things, thanks to the improvement in inventory. I will now let Meni take over and review the financial results in more detail, and then I will talk some more about trends in the major territories and present our revised outlook for the rest of the year. Meni, please go ahead.
Thank you, Sharon. Hi, everyone. I will review the main items in the financial statement and talk about the highlights. Revenues in the first nine months were ILS 1.585 billion, up 2.5%, and third quarter revenues were ILS 332 million, down 19%. Revenues in the period were affected by the acquisition of ECCXI. We first consolidated its results on July 28, 2022, meaning that in the first half of the year, the results were fully included and contributed ILS 259 million to the consolidated revenues. In the third quarter, there is, in fact, an increment of one month that we no longer exclude. Excluding the currency effects, the company's revenues in the nine months were down 5.8%, and in the third quarter, down 26%.
Sales of robotic cleaners for private pools were down 6.8% in the nine-month period, and down 27% in the third quarter. Trends in these segments were mainly affected by the process of inventory correction in the distribution channel, which was more strongly expressed in the third quarter. Inflation environment and high interest rates that have taken a toll on consumer spending, and extreme weather effects, mainly in North America and Europe, which led to a season that started late and was a short one. These negative effects were partly offset by X's contribution to Rob segment revenues and by positive growth in ECCXI and the online channel in North America. The revenues from sales of commercial robotic cleaners rose 19.2% in the first nine months.
Growth is mostly due to the ongoing demand in the segment and to better ability by the company to supply the demand of these products. First quarter segment revenues were down 37%, largely because sales in the corresponding quarter were very high. Remember, growth in the corresponding period was very high, 93%, and quarterly revenues effect reflected the supply of demand created in the first half of 2022, part of which the company was unable to supply on time because of challenges in the availability of some components. Revenues from sales of safety products and other pool products grew 77% in the first nine months compared to the last year. Sales growth in the period is mainly the result of ECCXI's consolidation and an increase in sales of water treatment products in the subsidiary in Australia.
There is positive development that was reflected in the quarter in this segment. Initial outcomes of leveraging the ECCXI platform to expand the range of products and suppliers. In terms of geographic sales mix, regarding the nine-month period, North America sales were ILS 933 million, up 21%. Sales in Europe were ILS 487 million, down 19%. Oceania sales were ILS 103 million, down 11%, and sales in the rest of the world grew 1%. The gross margin improved in the nine-month period and reached 43%, compared to 40.5% in the same period last year. An improvement of 250 basis points, and in the third quarter, an improvement of 80 basis points.
The main factors that contributed to the gross margins are higher average selling price, which we observed throughout the year, following the realization of an increase in sale price. Incremental margin due to the consolidation of ECCXI. Three, lower BOM costs, thanks to stronger purchase efficiency and lower raw material costs and shipping rates. The favorable foreign currency effect that contributed 110 basis points in the nine months, and 160 basis points in the third quarter. These positive effects were partly offset by the decline in production volumes, which raised the direct cost of producing a robot cleaner. Regarding operating expenses, R&D expenses on the income statement were up 9% in the nine months, and down 2% in the third quarter.
I want to draw your attention to the perspective of R&D costs before capitalization, since this perspective better reflects the situation this year. In the nine months, R&D costs in MTIL were down from ILS 71 million last year to ILS 61.6 million, mainly as a result of the need to invest in R&D more efficiently in a more challenging year. Selling and marketing expenses was ILS 275 million, up ILS 103 million, which is an increase of 60% compared to last year. ILS 90 million of the increase in the expenses are due to the consolidation of EXCCI, following sales growth and the full consolidation of nine months period this year, compared to a consolidation of two months last year. We also recorded higher marketing campaign costs, mainly in the first half, as part of marketing effort to drive sales growth.
I remind you that most of ECCXI's selling and marketing expenses are variable, and depend on revenue levels. Also, the rise in exchange rate in the period contributed an additional ILS 11.1 million. The above were partly offset by substantial decline in shipping costs. Regarding the third quarter of sales and marketing, I want to point out. Net selling and marketing expenses were up ILS 7.3 million, with the consolidation of ECCXI contributing an additional ILS 15.2 million quarter-on-quarter, due to sales growth and the full consolidation of July 2023. Foreign currency effects in the period contributed another ILS 4.9 million. G&A expenses were ILS 105 million, up ILS 6 million.
Most of the increase is attributed to ECCXI's consolidation, which added $7.6 million, plus foreign currency effect in the period, which contributed another $3.3 million. In the first quarter, expenses were down by $4.5 million, even though the consolidation of ECCXI contributed an additional $1.5 million quarter-over-quarter. Operating profit in the nine months was $258 million, down 18.5%. EBITDA for the nine months amounted to $321 million, down 12% compared to last year. Now, a few words about the finance expenses. The net finance expenses were $50 million, compared to finance expenses of $3 million last year.
The increase is mainly the result of interest expenses, which amounted to ILS 37 million on ILS 752 million in bank credit, and reflects a decline of ILS 42 million versus the period quarter, and a decline of ILS 195 million in the past six months in the credit line. The lower debt level will allow for lower quarterly interest expenses. I move to the cash flow statement. In the first quarter, we continued to significantly improve our cash flow from operating activities, which were ILS 127 million in the quarter, up 141 million. The cash flow from operating activity amounted to ILS 210 million generated in this period.
In 2023, we worked on adjusting inventory volumes to volume of demand and production capacity. These correction efforts led to a decline of 25% in the volume of finished goods, robots. On the balance sheet, most of the decline was offset by the increase of U.S. dollar and euro due to the translation differences effect that also negatively impacts raw material inventory. This initiative led to a decline of ILS 100 million in inventory in the nine months, which contributed an improvement in operating cash flow. The balance of trade receivables was down ILS 143 billion, and it also contributed to our cash flow from operating activity. Thanks to the improvement in cash flow, we were able to lower our credit levels. In the past six months, the debt level was reduced by ILS 195 million shekels.
Cash flows from investing activities consumed by the company were ILS 106 million, compared to ILS 81.2 million in the same period last year. The increase is because in the reporting period, the company settled a deferred liability of ILS 26.8 million in respect of the shares of a consolidated company. That's it then, Sharon will now take over.
Thank you very much, M. I'll now address the major regions. Sales in the nine months in North America were ILS 933 million, up 21%. These results reflects the consolidation of ECCXI's revenues from the beginning of the year, as well as the trend of inventory correction in the distribution job.
Sharon, are you on the line? Sharon? The speakers have momentarily disconnected. We will reconnect them to the call. The speakers have reconnected to the call. Please go ahead.
Thank you very much. Sorry for that. We had a power outage. I will proceed. So I was just, I was saying that the sales in the nine months in North America were ILS 933 million, up 21%. These results reflect the consolidation of ECCXI's revenues from the beginning of the year, as well as the trend of inventory corrections in the distribution channel, the effects of interest rates and inflation on the scale and nature of consumer spending, and the very late start to the pool season. Third quarter sales were ILS 190 million, down 20%, mainly due to the low replenishment orders during the quarter.
In fact, this season, because of the weather effect and the late start of the season, we lost at least one replenishment order cycle in season orders from dealers and distributors that happen in normal season. We ended the third quarter with a relatively great variance in inventory levels between distributors and dealers. Among distributors, inventory levels are higher than they would like, and, at the end of the season, and among dealers, as far as we understand, inventory levels aren't high. A phenomenon we continue to observe in the third quarter is the dealers do not place orders for Maytronics robots that are in demand if they hold inventory of competitive brands, even if sales of those brands were weaker, due to the conservative approach adopted with an aim of having the lowest inventory level possible at the end of the season.
Inventory levels and the characteristics I described are affecting build-up by distributors for 2024 season. What continues to counterbalance the negative trend in the professional channel is happening in the online channel. We continue to experience solid demand by pool owners for Maytronics robotic cleaners. This is reflected in growth in the channel, which is not exclusively based on ECCXI. Our use of digital campaigns in the online channel was highly effective in competing with Chinese in the online arena. Specifically regarding ECCXI, it is worth noting that during the third quarter, we could see the start of a trend reversal and a return to growth also in the non-robot segment. After several quarters of declining revenues, which were attributed mainly to commercial factors, the competition is normalizing in this context.
Also, the initial fruits of initiatives to better leverage ECCXI's strong platform, where we expanded the product range and the range of manufacturers that work with us, are showing encouraging signs that this significant growth driver is delivering on its promise. To sum up, despite inventory levels and conservative buildup in the distribution channel, we expect growth in the fourth quarter. Overall, the North American market continues to be a significant growth driver for us across all segments and channels, and we have the partners and the team we need to continue realizing this potential. I will now move to Europe. Sales in Europe in the nine months were ILS 487 million, down 19% in Israeli shekels. Similar to last year's trends, demand by distributors in Northern Europe is softer and inventory correction is still evident.
Demand levels in Southern Europe are more stable and reflect a more moderate decline in relation to Northern Europe and compared to last year. In Europe, like in North America, the weather was unfavorable and we are wrapping up a season that started late and was short. In this territory, inventory levels by distributors varied. Some held low levels at the end of the season, while others still hold higher levels than they would like. But it seems that dealer inventories at the end of the 2023 season are low. These phenomena impacted the third quarter. First, similar to North America, dealers do not place orders for Maytronics robots that are in demand if they hold inventory of competitive brands, even if sales of those brands were weaker.
The second, order patterns in the distribution channel have evolved into smaller but more frequent ones, because inventories are managed more tightly than in the past. As we have said before, in Europe, we are more affected by the decline in new pool construction, which has impacted the demand for our automatic pool covers, alarms, and the other pool equipment sold by the German subsidiary. This had a negative effect on the results for the first nine months, but we observed something of a change in trend in the third quarter, with growth in sales of other pool equipment by the German subsidiary, as well as in sales of alarms and covers, that to a large extent reflects the end of the inventory correction process in the context of new pool construction.
Looking ahead, as far as inventory and working capital are concerned, we expect that the relatively low inventory level held by dealers will yield strong orders from distributors and then from us. The question is the timing. As for the Southern Hemisphere, third quarter sales were down 23% in Oceania, mainly because of relatively weak early buy sales in light of relatively high inventory levels and general conservative approach. Chinese players are trying to penetrate the Australian market, mainly with cordless models. While our brand remains very strong in Australia, the economic environment is creating tailwinds for cheaper solutions. In this context, I want to point out that the demand for our cordless model, the Liberty family, is strong. October was characterized by hot weather, which allowed for an early start to the season, and we expect growth in the first quarter.
I will end by referring to the outlook for 2023. As we estimated when we released our second quarter results, the season characteristics from the weather aspect and their impact on inventory levels, along with a relatively low motivation in the channel as far as early buildup, are reflected in the change in the timing of early buy orders by distributors for the 2024 season. The uncertainty regarding the timing of purchases led to a change in our outlook in August, and taken together with the results for the first nine months, has led the company to estimate that it will meet the lower end of the range of its revenue growth outlook.
This estimate reflects revenues of ILS 290 million-ILS 300 million for the fourth quarter, reflecting a growth of about 21% compared with the fourth quarter of last year. Realizing revenue at this level should lead to a significant improvement in operating profit for the quarter. That's it from me. We'll be happy to take any of 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 one. If you wish to decline from the polling process, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. I repeat, if you have a question, please press star one. There are no questions at this time. Mr. Goldenberg, would you like to make your concluding statement?
Yes, thank you. We are nearing the end of the, of a very challenging year. We are already looking actually ahead to 2024 with cautious optimism based on Maytronics' strategic strength in the North American market and dealer inventory level that are not high. In the release of our annual results in March, we will provide an update of our growth and profitability outlook for 2024, along with a revised outlook for 2025 and new long-term objective that reflects the company growth potential in the coming years. Thank you for joining us and for your lovely participation.
Thank you. This concludes the Maytronics Ltd. third quarter 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.