Arotech Corporation (Nasdaq:ARTX) today announced
financial results for the quarter ended March 31, 2017.
First Quarter 2017 Financial Highlights:
U.S. $ in
thousands, except per share data |
Three months ended March 31, |
|
Three months ended December 31,
2016 |
|
|
2017 |
|
|
|
2016 |
|
|
GAAP
Measures |
|
|
|
|
|
Revenue |
$ |
22,347 |
|
|
$ |
25,406 |
|
|
$ |
21,489 |
|
Loss from continuing
operations |
$ |
(768 |
) |
|
$ |
(382 |
) |
|
$ |
(2,034 |
) |
Diluted net loss per
share – continuing operations |
$ |
(0.03 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.08 |
) |
|
|
|
|
|
|
Non-GAAP
Measures (reconciliation to GAAP measures appears in the
tables below) |
|
|
|
|
|
Adjusted EBITDA from
continuing operations |
$ |
998 |
|
|
$ |
1,882 |
|
|
$ |
807 |
|
Adjusted EPS from
continuing operations |
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
0.01 |
|
“Arotech’s first quarter 2017 results, as
anticipated, include revenue for the quarter that was less than a
year ago, though better than the previous quarter. The engineering
based development programs we are currently executing have required
us to add engineering staff in both of our US operations to meet
demand, but are absent the typical hardware components that help to
immediately drive higher revenues,” said acting Arotech CEO Dean
Krutty.
“We continued to invest in the quarter in
important hybrid power developments, bringing our total investment
over the last five quarters to more than a million dollars in this
technology, which we expect to be very meaningful to our future.
Additionally, our contributions to the US Marine Corps’ Amphibious
Assault Vehicle Survivability Upgrade program during the quarter
supported important test milestones that have led to the beginning
of low rate initial production.”
“Our new battery plant in Sderot, Israel set a
new standard for battery line efficiency in the quarter, and is
achieving an exceptionally low failure rate after some earlier
difficulties. This bodes well for the large backlog of battery
orders we expect to deliver from that plant this year.”
“And finally, we were pleased to announce the
long anticipated sole-source follow on to our successful VCTS
program for the US Army. We look forward to again meeting the
Army’s challenge of providing technically exceptional solutions to
train soldiers in route clearance tactics and procedures,”
concluded Mr. Krutty.
First Quarter 2017 Business Highlights:
- The Training and Simulation Division received a follow-on
contract of up to $41.1 million for the U.S. Army’s Virtual
Clearance Training Suite
- The Training and Simulation Division received a sole source
$9.5 million indefinite-delivery/indefinite-quantity award from the
U.S. Air Force for continued weapon employment software support for
the F-16 fighter aircraft.
- The U.S. Power Systems Division received $3.4 million to work
with US Army CERDEC on an Energy Storage System (ESS) for Tactical
Microgrids, contributing to a three week period in which the
division booked $8.3 million in new awards
2017 Guidance
Arotech affirms its 2017 outlook for total
revenue of $93 to $103 million, with adjusted earnings per share
(Adjusted EPS) of $0.20 to $0.24, and adjusted EBITDA of $7.5
million to $8.5 million. This outlook includes only organic
contribution, and does not take any potential acquisition activity
into account. The financial guidance provided is as of today and
Arotech undertakes no obligation to update its estimates in the
future.
First Quarter Financial
Summary
Revenues from continuing operations for the
first quarter were $22.3 million, compared to $25.4 million for the
corresponding period in 2016, and $21.5 million in the preceding
quarter. The decrease from a year ago is the result of a decrease
in VCTS related revenue from a year ago.
Gross profit for the first quarter was $6.5
million, or 29% of revenues, compared to $7.7 million, or 30% of
revenues, for the corresponding period in 2016.
Operating expenses were $6.7 million in the
first quarter of 2017, down from $7.5 million for the corresponding
period in 2016. “We continue to be vigilant in managing our
overhead expenses. We have trimmed our G&A expenses while
investing in our future growth through sales and marketing and
research and development activities,” Krutty said in comparing
first quarter 2017 to the first quarter of 2016.
Operating loss for the first quarter of 2017 was
$(227,000), compared to an operating income of $143,000 for the
corresponding period in 2016.
Arotech’s net loss from continuing operations
for the first quarter of 2017 was $(768,000), or $(0.03) per basic
and diluted share, compared to a net loss from continuing
operations of $(382,000), or $(0.02) per basic and diluted share,
for the corresponding period in 2016.
Adjusted Earnings per Share (Adjusted EPS) for
the first quarter of 2017 was $0.01, compared to $0.04 for the
corresponding period in 2016.
Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (Adjusted EBITDA) for the first
quarter of 2017 was $1.0 million, compared to $800,000 for the
previous quarter, and $1.9 million for the corresponding period of
2016.
Arotech believes that information concerning
Adjusted EBITDA and Adjusted EPS enhances overall understanding of
its current financial performance. Arotech computes Adjusted EBITDA
and Adjusted EPS, which are non-GAAP financial measures, as
reflected in the tables below.
Balance Sheet Metrics
As of March 31, 2017, Arotech had $8.8 million
in cash and cash equivalents, as compared to December 31, 2016,
when Arotech had $7.4 million in cash and cash equivalents.
As of March 31, 2017, Arotech had total debt of
$16.1 million, consisting of $5.8 million in short-term bank debt
under its credit facility and $10.3 million in long-term loans.
This is in comparison to December 31, 2016, when Arotech had total
debt of $13.5 million, consisting of $3.0 million in short-term
bank debt under its credit facility and $10.5 million in long-term
loans.
Arotech also had $5.7 million in available,
unused bank lines of credit with its primary bank as of Mach 31,
2017, under a $15.0 million revolving credit facility and a $10.0
million term loan and a $1.0 million mortgage that were secured by
the assets of Arotech and Arotech’s U.S. subsidiaries.
As of December 31, 2016, Arotech had net
operating loss carryforwards for U.S. federal income tax purposes
of $46.9 million, which are available to offset future taxable
income, if any, expiring in 2021 through 2032. Utilization of U.S.
net operating losses is subject to annual limitations due to
provisions of the Internal Revenue Code of 1986 and similar state
provisions. Arotech accrued $219,000 in non-cash tax expenses in
the first quarter of 2017, reflecting the uncertainty of the
deductibility of intangible expenses for federal income tax
purposes.
Arotech had a backlog as of March 31, 2017 of
$52.2 million. This compares to a backlog of $57.7 for the same
period last year and a backlog of $55.4 as of December 31,
2016.
Conference Call
Arotech will host a conference call tomorrow,
Tuesday, May 9, 2017 at 9:00 am Eastern Time, to review Arotech’s
financial results and business outlook.
To participate, please call one of the following
telephone numbers. Please dial in at least 10 minutes before the
start of the call:
- US: 1-866-682-6100
- International: +1-862-255-5401
- Conference ID: AROTECH
The conference call will also be broadcast live
as a listen-only webcast on the investor relations section of
Arotech’s website at http://www.arotech.com/.
The online webcast will be archived on the
Arotech’s website for at least 90 days and a telephonic playback of
the conference call will also be available by calling
1-877-481-4010 within the U.S. and 1-919-882-2331
internationally.
The telephonic playback will be available
beginning at 12:00 p.m. Eastern time on Tuesday, May 9, 2017, and
continue through 11:59 p.m. Eastern time on Tuesday, May 16, 2017.
The replay passcode: 10370.
About Arotech Corporation
Arotech Corporation is a leading provider of
quality defense and security products for the military, law
enforcement and homeland security markets, including multimedia
interactive simulators/trainers and advanced battery solutions,
innovative energy management and power distribution technologies,
and lithium batteries and chargers. Arotech operates two major
business divisions: Training and Simulation, and Power Systems.
Arotech is incorporated in Delaware, with
corporate offices in Ann Arbor, Michigan, and research, development
and production subsidiaries in Michigan, South Carolina, and
Israel. For more information on Arotech, please visit Arotech’s
website at www.arotech.com.
Except for the historical information herein,
the matters discussed in this news release include forward-looking
statements, as defined in the Private Securities Litigation Reform
Act of 1995. Forward-looking statements reflect management’s
current knowledge, assumptions, judgment and expectations regarding
future performance or events. Although management believes that the
expectations reflected in such statements are reasonable, readers
are cautioned not to place undue reliance on these forward-looking
statements, as they are subject to various risks and uncertainties
that may cause actual results to vary materially. These risks and
uncertainties include, but are not limited to, risks relating to:
product and technology development; the uncertainty of the market
for Arotech’s products; changing economic conditions; delay,
cancellation or non-renewal, in whole or in part, of contracts or
of purchase orders (including as a result of budgetary cuts
resulting from automatic sequestration under the Budget Control Act
of 2011); and other risk factors detailed in Arotech’s most recent
Annual Report on Form 10-K for the fiscal year ended December 31,
2016, and other filings with the Securities and Exchange
Commission. Arotech assumes no obligation to update the information
in this release. Reference to Arotech’s website above does not
constitute incorporation of any of the information thereon into
this press release.
CONDENSED CONSOLIDATED BALANCE SHEET SUMMARY
(UNAUDITED) |
(U.S. Dollars) |
|
|
|
March 31, |
December 31, |
|
|
|
2017 |
|
2016 |
|
ASSETS |
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
8,819,162 |
|
$ |
7,399,963 |
|
Trade receivables |
|
|
17,791,248 |
|
|
16,821,737 |
|
Unbilled
receivables |
|
|
9,383,884 |
|
|
10,981,577 |
|
Other accounts
receivable and prepaid |
|
|
2,388,834 |
|
|
2,156,896 |
|
Inventories |
|
|
9,798,557 |
|
|
10,318,021 |
|
Total
current assets |
|
|
48,181,685 |
|
|
47,678,194 |
|
LONG TERM ASSETS: |
|
|
|
|
|
|
|
Property and equipment,
net |
|
|
6,198,754 |
|
|
5,915,240 |
|
Other long term
assets |
|
|
3,342,450 |
|
|
3,233,900 |
|
Intangible assets,
net |
|
|
6,180,413 |
|
|
6,823,346 |
|
Goodwill |
|
|
45,838,351 |
|
|
45,489,517 |
|
Discontinued
operations |
|
|
270,139 |
|
|
270,139 |
|
Total
long term assets |
|
|
61,830,107 |
|
|
61,732,142 |
|
Total assets |
|
$ |
110,011,792 |
|
$ |
109,410,336 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
CURRENT
LIABILITIES: |
|
|
|
|
Trade payables |
|
$ |
5,254,493 |
|
$ |
4,362,804 |
|
Other accounts payable
and accrued expenses |
|
|
5,691,062 |
|
|
5,597,558 |
|
Current portion of long
term debt |
|
|
2,081,199 |
|
|
1,828,840 |
|
Short term bank
credit |
|
|
5,803,114 |
|
|
2,973,032 |
|
Current portion of
severance |
|
|
– |
|
|
2,577,472 |
|
Deferred revenues |
|
|
5,362,215 |
|
|
6,421,271 |
|
Total
current liabilities |
|
|
24,192,083 |
|
|
23,760,977 |
|
LONG TERM
LIABILITIES: |
|
|
|
|
|
|
|
Accrued Israeli
statutory/contractual severance pay |
|
|
4,106,451 |
|
|
3,891,710 |
|
Long term portion of
debt |
|
|
8,173,483 |
|
|
8,703,736 |
|
Other long-term
liabilities |
|
|
8,201,171 |
|
|
7,968,867 |
|
Total
long-term liabilities |
|
|
20,481,105 |
|
|
20,564,313 |
|
Total liabilities |
|
|
44,673,188 |
|
|
44,325,290 |
|
STOCKHOLDERS’
EQUITY: |
|
|
|
|
|
|
|
Total
stockholders’ equity (net) |
|
|
65,338,604 |
|
|
65,085,046 |
|
Total liabilities and
stockholders’ equity |
|
$ |
110,011,792 |
|
$ |
109,410,336 |
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (Unaudited) |
(U.S. Dollars, except share data) |
|
|
Three months ended March 31, |
|
|
2017 |
|
|
|
2016 |
|
Revenues |
$ |
22,347,445 |
|
|
$ |
25,406,481 |
|
|
|
|
|
Cost of revenues |
|
15,867,498 |
|
|
|
17,712,174 |
|
Research and
development expenses |
|
995,434 |
|
|
|
836,082 |
|
Selling and marketing
expenses |
|
1,995,967 |
|
|
|
1,654,866 |
|
General and
administrative expenses |
|
3,017,218 |
|
|
|
4,292,413 |
|
Amortization of
intangible assets |
|
697,993 |
|
|
|
768,003 |
|
Total operating costs
and expenses |
|
22,574,110 |
|
|
|
25,263,538 |
|
|
|
|
|
Operating income
(loss) |
|
(226,665 |
) |
|
|
142,943 |
|
|
|
|
|
Other income
(loss) |
|
12,154 |
|
|
|
26,037 |
|
Financial expenses,
including foreign currency losses |
|
(333,857 |
) |
|
|
(337,658 |
) |
Total other income |
|
(321,703 |
) |
|
|
(311,621 |
) |
Loss from continuing
operations before income tax expense |
|
(548,368 |
) |
|
|
(168,678 |
) |
|
|
|
|
Income tax expense |
|
219,940 |
|
|
|
213,453 |
|
Loss from continuing
operations |
|
(768,308 |
) |
|
|
(382,131 |
) |
Loss from discontinued
operations, net of income tax |
|
– |
|
|
|
(261,646 |
) |
Net loss |
|
(768,308 |
) |
|
|
(643,777 |
) |
|
|
|
|
Other comprehensive
income (loss), net of income tax |
|
|
|
Foreign currency
translation adjustment |
|
915,032 |
|
|
|
360,098 |
|
Comprehensive income
(loss) |
$ |
146,724 |
|
|
$ |
(283,679 |
) |
|
|
|
|
Basic net loss per
share – continuing operations |
$ |
(0.03 |
) |
|
$ |
(0.02 |
) |
Basic net loss per
share – discontinued operations |
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
Basic net loss per
share |
$ |
(0.03 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
Diluted net loss per
share – continuing operations |
$ |
(0.03 |
) |
|
$ |
(0.02 |
) |
Diluted net loss per
share – discontinued operations |
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
Diluted net loss per
share |
$ |
(0.03 |
) |
|
$ |
(0.03 |
) |
Weighted average number
of shares used in computing basic net income/loss per share |
|
26,169,228 |
|
|
|
24,797,875 |
|
Weighted average number
of shares used in computing diluted net income/loss per share
|
|
26,169,228 |
|
|
|
24,797,875 |
|
Reconciliation of Non-GAAP Financial
Measure – Continuing Operations
To supplement Arotech’s consolidated financial
statements presented in accordance with U.S. GAAP, Arotech uses a
non-GAAP measure, Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA). This non-GAAP measure is provided to enhance
overall understanding of Arotech’s current financial performance.
Reconciliation of the nearest GAAP measure to adjusted EBITDA
follows:
|
Three months ended March 31, |
|
|
2017 |
|
|
|
2016 |
|
Net
loss |
$ |
(768,308 |
) |
|
$ |
(643,777 |
) |
Loss from
discontinued operations, net of income tax
|
|
– |
|
|
|
(261,646 |
) |
Net loss
from continuing operations (GAAP measure) |
$ |
(768,308 |
) |
|
$ |
(382,131 |
) |
Add
back: |
|
|
|
Financial
expense – including interest |
|
321,703 |
|
|
|
311,621 |
|
Income
tax expenses |
|
219,940 |
|
|
|
213,453 |
|
Depreciation and amortization expense |
|
1,117,462 |
|
|
|
1,175,039 |
|
Other
adjustments |
|
106,833 |
|
|
|
564,306 |
|
Total
adjusted EBITDA |
$ |
997,630 |
|
|
$ |
1,882,288 |
|
|
*
Includes stock compensation expense, one-time transaction
expenses and other non-cash expenses. |
CALCULATION OF ADJUSTED EARNINGS PER
SHARE |
(U.S. $ in thousands, except per share
data) |
|
|
|
|
|
Three months ended March 31, |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
|
|
Revenue (GAAP
measure) |
|
$ |
22,347 |
|
|
$ |
25,406 |
|
Net loss |
|
$ |
(768 |
) |
|
$ |
(644 |
) |
Loss from discontinued
operations, net of income tax
|
|
|
– |
|
|
|
(262 |
) |
Net loss from
continuing operations (GAAP measure) |
|
$ |
(768 |
) |
|
$ |
(382 |
) |
Adjustments: |
|
|
|
|
Amortization |
|
|
698 |
|
|
|
768 |
|
Stock compensation |
|
|
107 |
|
|
|
492 |
|
Non-cash taxes |
|
|
229 |
|
|
|
151 |
|
Other non-recurring
expenses |
|
|
– |
|
|
|
22 |
|
Income tax impact on
adjustments |
|
|
– |
|
|
|
– |
|
Net adjustments |
|
$ |
1,034 |
|
|
$ |
1,433 |
|
Adjusted Net
Income |
|
$ |
266 |
|
|
$ |
1,051 |
|
Number of diluted
shares |
|
|
26,402 |
|
|
|
25,920 |
|
Adjusted EPS |
|
$ |
0.01 |
|
|
$ |
0.04 |
|
Investor Relations Contact:
Scott Schmidt
Scott.Schmidt@arotechusa.com
800-281-0356
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