Arotech Corporation (Nasdaq:ARTX) today announced
financial results for the quarter and nine months ended September
30, 2017.
Third Quarter 2017 Financial Summary:
U.S. $ in
thousands, except per share data |
Three months ended September 30, |
|
Three months endedJune 30,
2017 |
|
|
2017 |
|
|
2016 |
|
GAAP
Measures |
|
|
|
|
|
Revenue |
$ |
25,930 |
|
$ |
24,300 |
|
$ |
21,449 |
|
Income (loss) from
continuing operations |
$ |
788 |
|
$ |
1,505 |
|
$ |
(595 |
) |
Diluted net income
(loss) per share – continuing operations |
$ |
0.03 |
|
$ |
0.06 |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
Non-GAAP
Measures (reconciliation to GAAP measures appears in the
tables below) |
|
|
|
|
|
Adjusted EBITDA from
continuing operations |
$ |
2,331 |
|
$ |
3,121 |
|
$ |
1,036 |
|
Adjusted EPS from
continuing operations |
$ |
0.06 |
|
$ |
0.10 |
|
$ |
0.01 |
|
Third Quarter 2017 Business Highlights:
- The Training and Simulation Division received a $5.8 million
award for its weapon simulation based launch zone solutions for a
new application.
- The U.S. Army National Guard followed last quarter’s $10.5
million sole source contract with additional contracts in the third
quarter. The new awards provide a training system for the New
Jersey Guard ($1.6 million) and a five year contract worth up to
$4.8 million to allow Arotech to provide continued field support
for all of the simulators Arotech has fielded to the Army National
Guard.
- The Training and Simulation Division received $4.4 million in
awards from Arotech’s Department of State IDIQ, which was comprised
of $1.7 million of use-of-force training systems and $2.7 million
of police pursuit driving simulators.
- Arotech’s U.S. power division received $3.7 million in GREENS
orders in the third quarter.
- Total company backlog increased in the third quarter to $69.5
million compared to $55.0 million for the same period last year and
$61.3 million at the end of the second quarter 2017.
“As we had expected, Arotech’s third quarter
2017 revenues and earnings improved significantly over the first
two quarters of 2017,” commented acting CEO Dean Krutty. “Our
Training and Simulation Division is benefiting from a record sales
performance from our MILO Range group, as well as strong second
half contributions across our full line of Training and Simulation
products.”
“Our Power Systems Division continues to make
progress on the MEHPS hybrid power development for the U.S. Marine
Corps. We delivered four units to the Marine Corps in the third
quarter and plan to complete the remaining four systems in the
fourth quarter. This has required additional investment, which has
weighed on earnings and prevented our U.S. Power Group from
contributing to earnings results in the way we had anticipated. We
continue to believe that the market for these hybrid power systems
will justify the effort and the investment we are making.”
“Our Power Systems Division continues to make
excellent progress on our Distributed Power Control and Monitoring
System (DPCMS) program. We received $2.8 million in new awards in
the third quarter, which includes expected Low Rate Initial
Production awards as well as a new development contract for the C7
variant of the Amphibious Assault Vehicle (AAVC7),” concluded Mr.
Krutty.
Third Quarter Financial
Summary
Revenues for the third quarter of 2017 were
$25.9 million, compared to $24.3 million for the corresponding
period in 2016, an increase of 7%. The year-over-year increase was
due primarily to higher revenue in our Use of Force (Milo) and our
Air Warfare Simulation product areas.
Gross profit for the third quarter of 2017 was
$7.3 million, or 28.0% of revenues, compared to $7.9 million, or
32.4% of revenues, for the corresponding period in 2016.
Operating expenses from continuing operations
were $6.0 million or 23.1% of revenues in the third quarter of 2017
compared to expenses of $6.0 million or 24.8% of revenues for the
corresponding period in 2016. Operating income for the third
quarter was $1.3 million compared to income of $1.8 million for the
corresponding period in 2016.
Arotech’s net income from continuing operations
for the third quarter of 2017 was $788,000, or $0.03 per basic and
diluted share, compared to a net income of $1.5 million, or $0.06
per basic and diluted share, for the corresponding period in
2016.
Adjusted Earnings per Share (Adjusted EPS) for
the third quarter of 2017 was $0.06, compared to $0.10 for the
corresponding period in 2016.
Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (Adjusted EBITDA) for the third
quarter of 2017 was $2.3 million, compared to $3.1 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.
Year-to-Date Financial Summary
Revenues for the first nine months of 2017 were
$69.7 million, compared to $71.5 million for the comparable period
in 2016, a decrease of 2%. The year-over-year decrease was due
primarily to the timing of contract awards in our Vehicle
Simulation product area.
Gross profit for the first nine months of 2017
was $19.7 million, or 28.3% of revenues, compared to $22.6 million,
or 31.5% of revenues, for the prior year period.
Operating expenses from continuing operations
for the first nine months of 2017 were $18.8 million or 26.9% of
revenues, compared to expenses of $20.6 million or 28.8% of
revenues for the corresponding period in 2016. Operating income for
the first nine months of 2017 was $934,000, compared to operating
income of $2.0 million for the corresponding period in 2016.
Arotech’s net loss from continuing operations
for the first nine months of 2017 was $(575,000), or $(0.02) per
basic and diluted share, compared to a net income of $554,000, or
$0.02 per basic and diluted share, for the corresponding period in
2016.
Adjusted Earnings per Share (Adjusted EPS) for
the first nine months of 2017 was $0.09, compared to $0.16 for the
corresponding period in 2016.
Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (Adjusted EBITDA) for the first nine
months of 2017 was $4.4 million compared to $6.3 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 September 30, 2017, Arotech had $4.7
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 September 30, 2017, Arotech had total debt
of $14.5 million, consisting of $3.1 million in short-term bank
debt under its credit facility and $11.4 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. The increase in long term loans was due to the
purchase of land and a building previously leased by our Training
and Simulation Division.
Arotech also had $8.5 million in available,
unused bank lines of credit with its primary bank as of September
30, 2017, under a $15.0 million revolving credit facility and a
$10.0 million term loan and a $3.1 million mortgage that are
secured by the assets of Arotech and Arotech’s U.S.
subsidiaries.
Arotech had a current ratio (current
assets/current liabilities) of 2.2, compared with the December 31,
2016 current ratio of 2.0.
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 $263,000 in non-cash tax expenses in
the third quarter of 2017, reflecting the uncertainty of the
deductibility of intangible expenses for federal income tax
purposes.
Arotech had a backlog as of September 30, 2017
of $69.5 million. This compares to a backlog of $55.0 million for
the same period last year and a backlog of $55.4 million as of
December 31, 2016.
2017 Guidance
Arotech has narrowed the 2017 outlook for total
revenue to a range of $95 to $100 million, with a reduced adjusted
earnings per share (Adjusted EPS) range of $0.16 to $0.20, and a
corresponding reduced adjusted EBITDA range of $7.0 million to $7.5
million. 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, November 9, 2017 at 9:00 a.m. 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: 1-888-567-1602
- International: +1-404-267-0373
- 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 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, November 9, 2017,
and continue through 9:00 a.m. Eastern time on Thursday, November
16, 2017. The replay passcode: 21455.
About Arotech Corporation
Arotech Corporation is a defense and security
products and services company, engaged in two business areas:
interactive simulation for military, law enforcement and commercial
markets; and mobile power systems for the military, commercial and
medical markets.
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,
2016, and other filings with the Securities and Exchange
Commission. Arotech assumes no obligation to update the information
in this release. Reference to the Company’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) |
|
|
|
September 30, 2017 |
|
December 31, 2016 |
ASSETS |
|
|
|
|
CURRENT
ASSETS: |
|
|
|
|
Cash and
cash equivalents |
|
$ |
4,662,058 |
|
$ |
7,399,963 |
Trade
receivables |
|
|
13,827,915 |
|
|
16,821,737 |
Unbilled
receivables |
|
|
15,010,930 |
|
|
10,981,577 |
Other
accounts receivable and prepaid |
|
|
2,519,266 |
|
|
2,156,896 |
Inventories |
|
|
10,060,720 |
|
|
10,318,021 |
Total
current assets |
|
|
46,080,889 |
|
|
47,678,194 |
LONG
TERM ASSETS: |
|
|
|
|
|
|
Property
and equipment, net |
|
|
8,484,577 |
|
|
5,915,240 |
Other
long term assets |
|
|
3,727,525 |
|
|
3,233,900 |
Intangible assets, net |
|
|
5,225,559 |
|
|
6,823,346 |
Goodwill |
|
|
46,022,141 |
|
|
45,489,517 |
Discontinued operations |
|
|
270,139 |
|
|
270,139 |
Total
long term assets |
|
|
63,729,941 |
|
|
61,732,142 |
Total
assets |
|
$ |
109,810,830 |
|
$ |
109,410,336 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
CURRENT
LIABILITIES: |
|
|
|
Trade payables |
|
$ |
6,095,039 |
|
4,362,804 |
Other accounts payable
and accrued expenses |
|
|
5,243,990 |
|
5,597,558 |
Current portion of long
term debt |
|
|
2,248,417 |
|
1,828,840 |
Short term bank
credit |
|
|
3,077,959 |
|
2,973,032 |
Current portion of
severance |
|
|
– |
|
2,577,472 |
Deferred revenues |
|
|
4,590,088 |
|
6,421,271 |
Total
current liabilities |
|
|
21,255,493 |
|
23,760,977 |
LONG TERM
LIABILITIES: |
|
|
|
|
|
Accrued Israeli
statutory/contractual severance pay |
|
|
4,530,550 |
|
3,891,710 |
Long term portion of
debt |
|
|
9,131,490 |
|
8,703,736 |
Other long-term
liabilities |
|
|
8,653,815 |
|
7,968,867 |
Total
long-term liabilities |
|
|
22,315,855 |
|
20,564,313 |
Total liabilities |
|
|
43,571,348 |
|
44,325,290 |
STOCKHOLDERS’
EQUITY: |
|
|
|
|
|
Total
stockholders’ equity (net) |
|
|
66,239,482 |
|
65,085,046 |
Total liabilities and
stockholders’ equity |
|
$ |
109,810,830 |
|
$ |
109,410,336 |
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (Unaudited) (U.S. Dollars, except share
data) |
|
|
Nine months ended September 30, |
|
Three months ended September 30, |
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
|
2016 |
|
Revenues |
$ |
69,726,579 |
|
|
$ |
71,486,478 |
|
|
$ |
25,930,441 |
|
|
$ |
24,300,120 |
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
50,007,949 |
|
|
|
48,933,171 |
|
|
|
18,673,955 |
|
|
|
16,436,276 |
|
Research and
development expenses |
|
2,791,519 |
|
|
|
2,367,964 |
|
|
|
1,031,669 |
|
|
|
752,847 |
|
Selling and marketing
expenses |
|
5,674,653 |
|
|
|
4,913,076 |
|
|
|
1,707,209 |
|
|
|
1,458,622 |
|
General and
administrative expenses |
|
8,588,759 |
|
|
|
11,149,640 |
|
|
|
2,732,171 |
|
|
|
3,122,853 |
|
Amortization of
intangible assets |
|
1,728,956 |
|
|
|
2,164,937 |
|
|
|
509,303 |
|
|
|
698,297 |
|
Total operating costs
and expenses |
|
68,791,836 |
|
|
|
69,528,788 |
|
|
|
24,654,307 |
|
|
|
22,468,895 |
|
|
|
|
|
|
|
|
|
Operating income |
|
934,743 |
|
|
|
1,957,690 |
|
|
|
1,276,134 |
|
|
|
1,831,225 |
|
|
|
|
|
|
|
|
|
Other income
(loss) |
|
(13,498 |
) |
|
|
49,913 |
|
|
|
(23,758 |
) |
|
|
3,481 |
|
Financial expenses,
net |
|
(749,967 |
) |
|
|
(769,328 |
) |
|
|
(200,923 |
) |
|
|
(227,474 |
) |
Total other
expense |
|
(763,465 |
) |
|
|
(719,415 |
) |
|
|
(224,681 |
) |
|
|
(223,993 |
) |
Income from continuing
operations before income tax expense |
|
171,278 |
|
|
|
1,238,275 |
|
|
|
1,051,453 |
|
|
|
1,607,232 |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
745,995 |
|
|
|
684,272 |
|
|
|
263,235 |
|
|
|
101,992 |
|
Income (loss) from
continuing operations |
|
(574,717 |
) |
|
|
554,003 |
|
|
|
788,218 |
|
|
|
1,505,240 |
|
Loss from discontinued
operations, net of income tax |
|
– |
|
|
|
(1,361,787 |
) |
|
|
– |
|
|
|
(869,302 |
) |
Net Income (loss) |
|
(574,717 |
) |
|
|
(807,784 |
) |
|
|
788,218 |
|
|
|
635,938 |
|
|
|
|
|
|
|
|
|
Other comprehensive
income (loss), net of income tax |
|
|
|
|
|
|
|
Foreign currency
translation adjustment |
|
1,420,099 |
|
|
|
406,892 |
|
|
|
(166,075 |
) |
|
|
344,837 |
|
Comprehensive income
(loss) |
$ |
845,382 |
|
|
$ |
(400,892 |
) |
|
$ |
622,143 |
|
|
$ |
980,775 |
|
|
|
|
|
|
|
|
|
Basic net income (loss)
per share – continuing operations |
$ |
(0.02 |
) |
|
$ |
0.02 |
|
|
$ |
0.03 |
|
|
$ |
0.06 |
|
Basic net loss per
share – discontinued operations |
$ |
– |
|
|
$ |
(0.05 |
) |
|
$ |
– |
|
|
$ |
(0.04 |
) |
Basic net income (loss)
per share |
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.03 |
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
Diluted net income
(loss) per share – continuing operations |
$ |
(0.02 |
) |
|
$ |
0.02 |
|
|
$ |
0.03 |
|
|
$ |
0.06 |
|
Diluted net loss per
share – discontinued operations |
$ |
– |
|
|
$ |
(0.05 |
) |
|
$ |
– |
|
|
$ |
(0.04 |
) |
Diluted net income
(loss) per share |
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.03 |
|
|
$ |
0.02 |
|
Weighted average number
of shares used in computing basic net income/loss per share |
|
26,202,386 |
|
|
|
25,410,494 |
|
|
|
26,394,613 |
|
|
|
26,215,049 |
|
Weighted average number
of shares used in computing diluted net income/loss per share |
|
26,202,386 |
|
|
|
25,410,494 |
|
|
|
26,394,613 |
|
|
|
26,215,049 |
|
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:
|
Nine months ended September 30, |
|
Three months ended September 30, |
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
2016 |
|
Net Income
(loss) |
$ |
(574,717 |
) |
|
$ |
(807,784 |
) |
|
$ |
788,218 |
|
$ |
635,938 |
|
Loss from discontinued
operations, net of income tax |
|
– |
|
|
|
(1,361,787 |
) |
|
|
– |
|
|
(869,302 |
) |
Net Income (loss) from
continuing operations (GAAP measure) |
$ |
(574,717 |
) |
|
$ |
554,003 |
|
|
$ |
788,218 |
|
$ |
1,505,240 |
|
Add back: |
|
|
|
|
|
|
|
Financial expense –
including interest |
|
763,465 |
|
|
|
719,415 |
|
|
|
224,681 |
|
|
223,993 |
|
Income tax
expenses |
|
745,995 |
|
|
|
684,272 |
|
|
|
263,235 |
|
|
101,992 |
|
Depreciation and
amortization expense |
|
3,006,941 |
|
|
|
3,487,532 |
|
|
|
924,733 |
|
|
1,152,865 |
|
Other adjustments* |
|
423,435 |
|
|
|
867,238 |
|
|
|
130,509 |
|
|
137,252 |
|
Total adjusted
EBITDA |
$ |
4,365,119 |
|
|
$ |
6,312,460 |
|
|
$ |
2,331,376 |
|
$ |
3,121,342 |
|
* 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) |
|
|
|
|
|
|
|
Nine months ended September 30, |
|
Three months ended September 30, |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
Revenue (GAAP
measure) |
|
$ |
69,727 |
|
|
$ |
71,486 |
|
|
$ |
25,930 |
|
$ |
24,300 |
|
Net Income (loss) |
|
$ |
(575 |
) |
|
$ |
(808 |
) |
|
$ |
788 |
|
$ |
636 |
|
Loss from discontinued
operations, net of income tax |
|
|
– |
|
|
|
(1,362 |
) |
|
|
– |
|
|
(869 |
) |
Net Income (loss) from
continuing operations (GAAP measure) |
|
$ |
(575 |
) |
|
$ |
554 |
|
|
$ |
788 |
|
$ |
1,505 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Amortization |
|
|
1,729 |
|
|
|
2,165 |
|
|
|
509 |
|
|
699 |
|
Stock compensation |
|
|
309 |
|
|
|
786 |
|
|
|
116 |
|
|
137 |
|
Non-cash taxes |
|
|
686 |
|
|
|
608 |
|
|
|
229 |
|
|
229 |
|
Other non-recurring
expenses |
|
|
114 |
|
|
|
82 |
|
|
|
14 |
|
|
9 |
|
Income tax impact on
adjustments |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
– |
|
Net adjustments |
|
$ |
2,838 |
|
|
$ |
3,641 |
|
|
$ |
868 |
|
$ |
1,074 |
|
Adjusted Net
Income |
|
$ |
2,263 |
|
|
$ |
4,195 |
|
|
$ |
1,656 |
|
$ |
2,579 |
|
Number of diluted
shares |
|
|
26,375 |
|
|
|
26,126 |
|
|
|
26,395 |
|
|
26,215 |
|
Adjusted EPS |
|
$ |
0.09 |
|
|
$ |
0.16 |
|
|
$ |
0.06 |
|
$ |
0.10 |
|
Arotech (NASDAQ:ARTX)
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Arotech (NASDAQ:ARTX)
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