Arotech Reports First Quarter 2019 Results

Date : 05/08/2019 @ 8:01PM
Source : GlobeNewswire Inc.
Stock : Arotech Corporation (ARTX)
Quote : 2.99  0.0 (0.00%) @ 5:35PM

Arotech Reports First Quarter 2019 Results

Arotech (NASDAQ:ARTX)
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1 Year : From Dec 2018 to Dec 2019

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Arotech Corporation (NasdaqGM: ARTX) today announced financial results for the quarter ended March 31, 2019.

First Quarter 2019 Financial Summary:

Consolidated Three months ended March 31,
U.S. $ in thousands, except per share data 2019 2018
GAAP Measures    
Revenue $20,779  $27,249 
Gross profit $5,820  $7,711 
Net income (loss) $(1,407) $596 
Diluted net income (loss) per share $(0.05) $0.02 
Net cash (used in) provided by operating activities $(2,227) $2,515 
Non-GAAP Measures (reconciliation to GAAP measures appears in the tables below)
Adjusted EBITDA $52  $2,161 
Adjusted earnings (loss) per share $(0.03) $0.05 

First Quarter 2019 Segment Results:

Training and Simulation DivisionThree months ended March 31,
U.S. $ in thousands2019 2018
Revenue$13,990  $14,558 
Gross profit$5,379  $5,760 
Gross profit %38.5% 39.6%
    
Power Systems DivisionThree months ended March 31,
U.S. $ in thousands2019 2018
Revenue$6,789  $12,691 
Gross profit$440  $1,952 
Gross profit %6.5% 15.4%

First Quarter 2019 Business Highlights:

Training and Simulation Division

  • Adds thirty-seven new employees to staff three bases with maintainers for the Army’s simulator maintenance program (ATMP) under subcontract to Lockheed Martin.
  • Begins fielding phase one capability upgrades to the Army’s Virtual Clearance Training Suites installations under its three phase program.
  • Awarded a new rail simulator subcontract from Bombardier for a Canadian customer.
  • Increases backlog for Air Warfare Systems product line on strong demand for existing U.S. fighter aircraft launch zone software as well as new uses for our high speed weapon models.

Power Systems Division

  • Continues to advance its Lithium Ion 6T battery platform and begins selling test quantities internationally with orders from new customers in Europe and Asia.
  • Receives funding to develop nano-satellite batteries from the Israeli Ministry of Defense.
  • Completes a successful week long Mobile Electric Hybrid Power Sources (MEHPS) demonstration at an Army Technical Support & Operation Analysis (TSOA) event held in March.

“Our first quarter revenues were weaker than anticipated, leading to earnings results that did not meet our expectations.  While our long term vision remains in place, the revenue timing uncertainty around the very large opportunities we are pursuing within the Cyber Mission Kitting IDIQ (Indefinite Delivery/Indefinite Quantity) that we won in our U.S. power subsidiary has led us to reduce our outlook for the year,” commented CEO Dean Krutty. “The slow first quarter result is attributable to both of our business units producing lower than planned revenue.  The Simulation Division’s Combat Convoy Simulator and VCTS programs progressed more slowly than expected as we finalized design work with our customers. The Power Division did not replace revenue from its terminated Assault Amphibious Vehicle electrical upgrade with the Marine Corps as soon as anticipated, which has left us with excess capacity in our South Carolina manufacturing facility for the near term.”

“Our Simulation Division is now fielding new capabilities to the U.S. Army on our VCTS program and is moving from the design to the production phase on the U.S. Marine Corps’ Combat Convoy Simulator (CCS) program, allowing us to begin assembling the first article and prepare for full production. Also within our simulation division, numerous simulator contract awards in the first quarter for our transit and public safety product lines brought backlog in the commercial vehicle simulator group to a 10 year high.”

“Our Power Division continues to progress in diversifying its product portfolio in the absence of battery sales to traditional customers.  Contract backlog in our Israeli power subsidiary has grown steadily for the last six months, which will help drive better performance for that division as the year progresses,” concluded Mr. Krutty.

First Quarter Financial Summary

Revenues for the first quarter of 2019 were $20.8 million, compared to $27.2 million for the corresponding period in 2018, a decrease of (23.7)%. The year-over-year decrease is primarily related to the termination of our Amphibious Assault Vehicle program (“AAV”) by our customer Science Applications International Corporation (“SAIC”) as a result of the United States Marine Corps termination for convenience with SAIC on October 3, 2018.  In addition, there was a reduction in the manufacturing of certain batteries in our Israeli operations.

Gross profit for the first quarter of 2019 was $5.8 million, or 28.0% of revenues, compared to $7.7 million, or 28.3% of revenues, for the corresponding period in 2018.

Operating expenses were $6.8 million, or 32.6% of revenues, in the first quarter of 2019, compared to operating expenses of $6.7 million, or 24.4% of revenues, for the corresponding period in 2018.

Operating loss for the first quarter was $(948,000) compared to operating income of $1.1 million in the corresponding period in 2018. The decrease in operating income is due to lower revenues in our Power Systems Division.

Arotech’s net loss for the first quarter of 2019 was $(1.4) million, or $(0.05) per basic and diluted share, compared to net income of $596,000, or $0.02 per basic and diluted share, for the corresponding period in 2018.

Adjusted Earnings per Share (Adjusted EPS) for the first quarter of 2019 was a loss of $(0.03) compared to adjusted earnings of $0.05 for the corresponding period in 2018.  The decrease in our net income and quarterly Adjusted EPS is primarily attributable to lower operating income in 2019 driven by lower sales in our Power Systems Division.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) for the first quarter of 2019 was $52,000, compared to $2.2 million for the corresponding period of 2018.  The decrease in Adjusted EBITDA is primarily due to lower operating income in 2019 driven by lower sales in our Power Systems Division.

Arotech believes that information concerning Adjusted EBITDA and Adjusted EPS enhances overall understanding of Arotech’s current financial performance. Arotech computes Adjusted EBITDA and Adjusted EPS, which are non-GAAP financial measures, as reflected in the tables below.

Cash Flow Summary

Arotech had net cash used in operating activities of $(2.2) million for the period ending March 31, 2019, compared to cash provided by operating activities of $2.5 million for the corresponding period in 2018.  This use of cash is primarily attributable to the funding of certain long term contracts where milestone payments do not apply as well as the termination of the AAV program for which we have not yet received a settlement.

Balance Sheet Metrics

U.S. $ in thousandsFor the Periodended March 31, For the Periodended December 31,
Balance Sheet Metrics2019 2018
Cash and cash equivalents$4,754  $4,445 
Total debt$17,945  $14,066 
Line of credit availability$1,716  $8,219 

As of March 31, 2019, Arotech had total debt of $17.9 million, consisting of $9.7 million in short-term bank debt under Arotech’s credit facility and $8.2 million in long-term loans. This is in comparison to December 31, 2018, when Arotech had total debt of $14.1 million, consisting of $5.5 million in short-term bank debt under its credit facility and $8.6 million in long-term loans.  The increase in debt is related to the funding of certain long term contracts and the terminated AAV program which has not been settled.

The Company had a current ratio (current assets/current liabilities) of 1.8, compared with the December 31, 2018 current ratio of 2.0.

Arotech’s backlog increased by 30.7% over the same period last year and 8.8% over the period ending 2018.

U.S. $ in millionsFor the Period Ended,
BacklogQ1 2019 Q1 2018 Q4 2018
Total$70.5  $54.0  $64.8 

2019 Guidance

Arotech’s 2019 guidance range:  We lower guidance to total revenue of $95 million to $105 million; Adjusted EBITDA of $7.0 million to $8.0 million; and Adjusted EPS of $0.14 to $0.18. The financial guidance provided is as of today and Arotech undertakes no obligation to update its estimates in the future.

Conference Call

Arotech will host a conference call tomorrow, Thursday, May 9, 2019 at 9:00 a.m. Eastern time, to review its 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: 1-844-602-0380
  • International: +1-862-298-0970

The online playback of the conference call will be archived on 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 Thursday, May 9, 2019, and continue through 9:00 a.m. Eastern time on Thursday, May 16, 2019. The replay passcode is 47921.

About Arotech Corporation

Arotech Corporation is a defense and security company engaged in two business areas: interactive simulation and mobile 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.

Investor Relations Contact:

Scott SchmidtArotech Corporation1-800-281-0356Scott.Schmidt@arotechusa.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, 2018, 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)

 For the Periodended March 31, For the Periodended December 31,
 2019 2018
ASSETS   
CURRENT ASSETS:   
Cash and cash equivalents$4,523,949  $4,222,246 
Restricted collateral deposits229,830  222,712 
Trade receivables, net11,801,182  16,259,809 
Contract assets22,319,968  17,867,896 
Other accounts receivable and prepaid expenses6,548,213  5,989,263 
Inventories, net9,452,464  9,912,748 
Total current assets54,875,606  54,474,674 
LONG TERM ASSETS:   
Contractual and Israeli statutory severance pay fund3,637,590  3,427,705 
Other long term receivables541,139  543,205 
Property and equipment, net8,931,136  8,914,247 
Right of use asset6,035,660   
Other intangible assets, net4,841,152  4,465,778 
Goodwill46,138,036  46,138,036 
Total long term assets70,124,713  63,488,971 
Total assets$125,000,319  $117,963,645 
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
CURRENT LIABILITIES:   
Trade payables$6,360,287  $6,442,919 
Other accounts payable and accrued expenses4,689,993  6,498,045 
Current portion of lease obligation622,065   
Current portion of long term debt2,235,089  2,204,653 
Short term bank credit9,703,764  5,500,416 
Contract liabilities6,750,785  7,054,779 
Total current liabilities30,361,983  27,700,812 
LONG TERM LIABILITIES:   
Contractual and accrued Israeli statutory severance pay4,465,209  4,125,675 
Long term portion of lease obligations5,714,132   
Long term portion of debt6,006,573  6,360,569 
Deferred income tax liability2,970,978  2,863,098 
Other long term liabilities46,800  137,774 
Total long-term liabilities19,203,692  13,487,116 
Total liabilities49,565,675  41,187,928 
STOCKHOLDERS’ EQUITY:   
Total stockholders’ equity75,434,644  76,775,717 
Total liabilities and stockholders’ equity$125,000,319  $117,963,645 
    

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)  (U.S. Dollars, except share data)

 Three months ended March 31,
 2019 2018
Revenues$20,778,639  $27,248,509 
    
Cost of revenues14,959,111  19,537,081 
Research and development expenses1,074,064  1,036,702 
Selling and marketing expenses2,152,557  1,878,073 
General and administrative expenses3,170,391  3,225,934 
Amortization of intangible assets370,203  514,911 
Total operating costs and expenses21,726,326  26,192,701 
    
Operating income (loss)(947,687) 1,055,808 
    
Other income (expense), net(14) 3 
Financial expense, net(298,431) (213,108)
Total other expense(298,445) (213,105)
Income (loss) before income tax expense(1,246,132) 842,703 
    
Income tax expense160,881  247,114 
Net income (loss)(1,407,013) 595,589 
Other comprehensive income (loss), net of income tax:   
Foreign currency translation adjustment42,892  (24,260)
Comprehensive income (loss)(1,364,121) 571,329 
    
Basic net income (loss) per share$(0.05) $0.02 
Diluted net income (loss) per share$(0.05) $0.02 
Weighted average number of shares used in computing basic net income (loss) per share26,387,285 26,447,090
Weighted average number of shares used in computing diluted net income (loss) per share26,387,285 26,447,090
    
 

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,
 2019 2018
Net income (loss) (GAAP measure)$(1,407,013) $595,589 
Add back:   
Financial expense – including interest298,445  213,105 
Income tax (benefit) expense160,881  247,114 
Depreciation and amortization expense863,320  996,402 
Other adjustments*135,969  108,495 
Total adjusted EBITDA$51,602  $2,160,705 
        

                                                                            * 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,
 2019 2018
Revenue (GAAP measure)$20,779  $27,249 
Net income (loss) (GAAP measure)$(1,407) $596 
Adjustments:   
Amortization370  515 
Stock compensation136  108 
Non-cash taxes108  227 
Other non-recurring expenses   
Net adjustments$614  $850 
Adjusted net income$(793) $1,446 
Number of diluted shares 26,387   26,447 
Adjusted EPS$(0.03) $0.05 
        

 

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