Arotech Corporation (NasdaqGM: ARTX) today
announced financial results for the three and nine months ended
September 30, 2018.
Third
Quarter 2018 Financial Summary: |
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Nine months ended September 30, |
|
Three months ended September 30, |
Consolidated |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
U.S. $ in
thousands, except per share data |
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GAAP
Measures |
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|
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Revenue |
|
$ |
72,968 |
|
$ |
69,727 |
|
|
$ |
23,844 |
|
|
$ |
25,930 |
Gross profit |
|
$ |
21,639 |
|
$ |
19,719 |
|
|
$ |
7,328 |
|
|
$ |
7,256 |
Net income (loss) |
|
$ |
1,420 |
|
$ |
(575 |
) |
|
$ |
741 |
|
|
$ |
788 |
Diluted net income
(loss) per share |
|
$ |
0.05 |
|
$ |
(0.02 |
) |
|
$ |
0.03 |
|
|
$ |
0.03 |
Net cash provided by
(used in) operating activities |
|
$ |
3,382 |
|
$ |
843 |
|
|
$ |
(266 |
) |
|
$ |
994 |
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Non-GAAP
Measures (reconciliation to GAAP measures appears in the
tables below) |
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Adjusted EBITDA |
|
$ |
6,042 |
|
$ |
4,635 |
|
|
$ |
2,366 |
|
|
$ |
2,331 |
Adjusted EPS |
|
$ |
0.14 |
|
$ |
0.09 |
|
|
$ |
0.06 |
|
|
$ |
0.06 |
Third
Quarter 2018 Segment Results: |
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Training and Simulation Division |
|
Nine months ended September 30, |
|
Three months ended September 30, |
U.S. $ in
thousands |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
43,576 |
|
|
$ |
35,140 |
|
|
$ |
14,666 |
|
|
$ |
14,597 |
|
Gross profit |
|
$ |
18,064 |
|
|
$ |
14,967 |
|
|
$ |
5,976 |
|
|
$ |
5,808 |
|
Gross profit
% |
|
|
41.5 |
% |
|
|
42.6 |
% |
|
|
40.7 |
% |
|
|
39.8 |
% |
Power Systems Division |
|
Nine months ended September 30, |
|
Three months ended September 30, |
U.S. $ in
thousands |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
29,391 |
|
|
$ |
34,587 |
|
|
$ |
9,179 |
|
|
$ |
11,333 |
|
Gross profit |
|
$ |
3,574 |
|
|
$ |
4,752 |
|
|
$ |
1,351 |
|
|
$ |
1,448 |
|
Gross profit
% |
|
|
12.2 |
% |
|
|
13.7 |
% |
|
|
14.7 |
% |
|
|
12.8 |
% |
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Third Quarter 2018 Business Highlights:
Third quarter results are highlighted by
strengthening backlog and earnings as the Company’s Simulation
Division delivers improved financial performance.
Training and Simulation Division
- FAAC received $10.2M in funding to extend capabilities of the
U.S. Army’s Virtual Clearance Training Suite.
- MILO Range Training Systems received $1.6M in awards from U.S.
Pacific Air Forces.
- MILO Range Training Systems received $2.5M in awards from U.S.
Air Force Global Strike Command.
- FAAC was awarded a position on the U.S. Navy’s Naval Air
Warfare Center Training System Division Training Systems Contract
(TSC IV) as a member of the Triton II joint venture.
Power Systems Division
- UEC Electronics, along with four other companies, was awarded a
combined $950 million indefinite delivery/indefinite quantity
(IDIQ) supply contract from the Space and Naval Warfare Center
(SPAWAR) Atlantic.
- UEC sold a modified Hybrid Power Solution (MEHPS) system to the
U.S. Army for evaluation.
- UEC was informed by SAIC that the Marine Corps has terminated
the Assault Amphibious Vehicle (AAV) upgrade program for its
convenience.
“We are pleased to see our Simulation Division
building on the positive results that were achieved in the first
half of 2018,” commented Arotech CEO Dean Krutty. “In the
third quarter, our MILO Training Systems group expanded its growth
in U.S. military sales with penetration into the U.S. Air Force,
and our vehicle simulator sales, both commercial and military, are
running well. Strong sales and delivery of our
simulation-based training products are improving our outlook for
this division.”
“Our Power Systems Division was informed that we
won an important award with SPAWAR on a new IDIQ referred to as
Cyber Mission Kitting. This was offset by news we received in
Q3 that the United States Marine Corps is discontinuing its efforts
to upgrade the aging AAV fleet that was undergoing survivability
and electrical upgrades under a prime contract with SAIC. Our
role on the program as a subcontractor to SAIC was likewise
terminated for convenience, which has removed some anticipated
revenue from our backlog and pipeline.”
“Our battery group in Israel is delivering on
what we expect to be a new sales record for water activated battery
life jacket lights to the aviation and marine industries. At
the same time, the new product investments we began this year are
beginning to produce initial sales, and are validating our
commitment to diversifying our customer base,” concluded Mr.
Krutty.
Third Quarter Financial Summary
Revenues for the third quarter of 2018 were
$23.8 million, compared to $25.9 million for the corresponding
period in 2017, a decrease of 8.0%. The year-over-year decrease was
primarily due to a decline in the Power Systems Division related to
the termination for convenience order on the AAV program, as well
as the decline in battery orders from the Israeli Ministry of
Defense contract that was completed in early 2018.
Gross profit for the third quarter of 2018 was
$7.3 million, or 30.7% of revenues, compared to $7.3 million, or
28.0% of revenues, for the corresponding period in 2017. The
year-over-year increase in gross profit percentage was primarily
due to program losses incurred in 2017 in the Power Systems
Division and, to a lesser extent, product mix in the Training and
Simulation Division for the current period.
Operating expenses were $6.2 million, or 25.9%
of revenues, in the third quarter of 2018, compared to operating
expenses of $6.0 million, or 23.1% of revenues, for the
corresponding period in 2017.
Operating income for the third quarter was $1.1
million compared to $1.3 million in the corresponding period in
2017.
The Company’s net income for the third quarter
of 2018 was $741,000, or $0.03 per basic and diluted share,
compared to net income of $788,000, or $0.03 per basic and diluted
share, for the corresponding period in 2017.
Adjusted Earnings per Share (Adjusted EPS) for
the third quarter of both 2018 and 2017 was $0.06.
Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (Adjusted EBITDA) for the third
quarter of 2018 was $2.4 million, compared to $2.3 million for the
corresponding period of 2017.
The Company believes that information concerning
Adjusted EBITDA and Adjusted EPS enhances overall understanding of
the Company’s current financial performance. The Company computes
Adjusted EBITDA and Adjusted EPS, which are non-GAAP financial
measures, and are reflected in the tables below.
Year-to-Date Financial Summary
Revenues for the first nine months of 2018 were
$73.0 million, compared to $69.7 million for the comparable period
in 2017, an increase of 4.6%. The year-over-year increase was
driven primarily by higher revenues in the Company’s Training and
Simulation Division related to its vehicle simulation and use of
force products, partially offset by a decline in the Power System
Division revenue as a result of the decline in battery orders from
the Israeli Ministry of Defense contract that was completed in
2017.
Gross profit for the first nine months of 2018
was $21.6 million, or 29.7% of revenues, compared to $19.7 million,
or 28.3% of revenues, for the prior year period. The year-over-year
increase in gross profit percentage was driven primarily by higher
revenues in the Company’s Training and Simulation Division,
partially offset by lower revenues in the Power Systems
Division.
Operating expenses for the first nine months of
2018 were $18.9 million or 25.9% of revenues, compared to expenses
of $18.8 million or 26.9% of revenues for the corresponding period
in 2017.
Operating income for the first nine months of
2018 was $2.8 million, compared to operating income of $935,000 for
the corresponding period in 2017.
The Company’s net income for the first nine
months of 2018 was $1.4 million, or $0.05 per basic and diluted
share, compared to a net loss of $(575,000), or $(0.02) per basic
and diluted share, for the corresponding period in 2017.
Adjusted Earnings per Share (Adjusted EPS) for
the first nine months of 2018 was $0.14, compared to $0.09 for the
corresponding period in 2017.
Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (Adjusted EBITDA) for the first nine
months of 2018 was $6.0 million, compared to $4.4 million for the
corresponding period of 2017.
The Company 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.
Cash Flow Summary
The Company had net cash provided by operating
activities of $3.3 million for the nine months of 2018, compared to
cash provided by operating activities of $843,000 for the
corresponding period in 2017.
Balance Sheet Metrics
U.S. $ in thousands |
September 30,
2018 |
|
December 31,
2017 |
Balance Sheet Metrics |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
5,182 |
|
$ |
5,489 |
Total debt |
$ |
13,903 |
|
$ |
15,911 |
Line of credit availability |
$ |
7,781 |
|
$ |
9,144 |
As of September 30, 2018, the Company had total
debt of $13.9 million, consisting of $4.8 million in short-term
bank debt under the Company’s credit facility and $9.1 million in
long-term loans. This is in comparison to December 31, 2017, when
the Company had total debt of $15.9 million, consisting of $5.1
million in short-term bank debt under its credit facility and $10.8
million in long-term loans.
The Company had a current ratio (current
assets/current liabilities) of 2.1, compared with the December 31,
2017 current ratio of 2.0.
As of December 31, 2017, the Company had net
operating loss carryforwards for U.S. federal income tax purposes
of $40.7 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. The annual limitation may result in the expiration of
net operating losses before utilization.
The Company’s backlog increased by 1.7% over the
same quarter last year and 15.7% over the prior year end.
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For the Period Ended |
U.S. $ in millions |
|
Q3 2018 |
|
Q3 2017 |
|
2017 |
Backlog |
|
|
|
|
|
|
Total |
|
$ |
70.7 |
|
$ |
69.5 |
|
$ |
61.1 |
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2018 Guidance
The Company is updating its 2018 guidance;
increasing its adjusted EBITDA guidance to the range of $7.3 to
$7.6 million and Adjusted EPS of $0.16 to $0.18, while decreasing
revenue guidance to the range of $95 million to $100 million.
The financial guidance provided is as of today and the Company
undertakes no obligation to update its estimates in the future.
Conference Call
The Company will host a conference call
tomorrow, Wednesday, November 7, 2018 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: 1-877-407-9205
- International: +1-201-689-8054
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 Wednesday, November 7,
2018, and continue through 9:00 a.m. Eastern time on Wednesday,
November 14, 2018. The replay passcode is 38789.
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,
2017, 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,
2018 |
|
December 31,
2017 |
ASSETS |
|
|
|
CURRENT ASSETS: |
|
|
|
Cash and cash equivalents |
$ |
5,182,188 |
|
$ |
5,488,754 |
Trade receivables |
|
14,189,909 |
|
|
19,258,960 |
Unbilled receivables |
|
19,549,492 |
|
|
16,094,515 |
Other accounts receivable and prepaid |
|
3,126,811 |
|
|
2,342,220 |
Inventories |
|
9,749,759 |
|
|
8,654,878 |
TOTAL CURRENT ASSETS |
|
51,798,159 |
|
|
51,839,327 |
LONG TERM ASSETS: |
|
|
|
|
|
Property and equipment, net |
|
9,150,586 |
|
|
9,276,088 |
Other long term assets |
|
4,352,166 |
|
|
3,939,120 |
Intangible assets, net |
|
4,313,179 |
|
|
5,205,605 |
Goodwill |
|
46,138,036 |
|
|
46,138,036 |
TOTAL LONG TERM ASSETS |
|
63,953,967 |
|
|
64,558,849 |
TOTAL ASSETS |
$ |
115,752,126 |
|
$ |
116,398,176 |
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
CURRENT LIABILITIES: |
|
|
Trade payables |
$ |
5,889,008 |
|
$ |
5,560,196 |
Other accounts payable and accrued expenses |
|
5,591,956 |
|
6,640,154 |
Current portion of long term debt |
|
2,220,500 |
|
2,248,043 |
Short term bank credit |
|
4,774,358 |
|
5,092,088 |
Deferred revenues |
|
6,514,101 |
|
|
6,778,313 |
TOTAL CURRENT LIABILITIES |
|
24,989,923 |
|
26,318,794 |
LONG TERM LIABILITIES: |
|
|
|
|
Accrued Israeli statutory/contractual severance
pay |
|
4,746,186 |
|
4,709,807 |
Long term portion of debt |
|
6,908,172 |
|
8,570,524 |
Other long-term liabilities |
|
6,223,663 |
|
5,705,833 |
TOTAL LONG-TERM LIABILITIES |
|
17,878,021 |
|
18,986,164 |
TOTAL LIABILITIES |
|
42,867,944 |
|
45,304,958 |
STOCKHOLDERS’ EQUITY: |
|
|
|
|
TOTAL STOCKHOLDERS’ EQUITY (NET) |
|
72,884,182 |
|
71,093,218 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ |
115,752,126 |
|
$ |
116,398,176 |
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (Unaudited) (U.S. Dollars, except share
data)
|
Nine months ended September 30, |
|
Three months ended September 30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Revenues |
$ |
72,967,596 |
|
|
$ |
69,726,579 |
|
|
$ |
23,844,477 |
|
|
$ |
25,930,441 |
|
|
|
|
|
|
|
|
|
Cost of
revenues |
|
51,328,827 |
|
|
|
50,007,949 |
|
|
|
16,516,663 |
|
|
|
18,673,955 |
|
Research and
development expenses |
|
2,518,787 |
|
|
|
2,791,519 |
|
|
|
753,792 |
|
|
|
1,031,669 |
|
Selling and marketing
expenses |
|
5,647,284 |
|
|
|
5,674,653 |
|
|
|
1,837,823 |
|
|
|
1,707,209 |
|
General and
administrative expenses |
|
9,413,379 |
|
|
|
8,588,759 |
|
|
|
3,201,566 |
|
|
|
2,732,171 |
|
Amortization of
intangible assets |
|
1,298,573 |
|
|
|
1,728,956 |
|
|
|
391,831 |
|
|
|
509,303 |
|
Total operating costs
and expenses |
|
70,206,850 |
|
|
|
68,791,836 |
|
|
|
22,701,675 |
|
|
|
24,654,307 |
|
|
|
|
|
|
|
|
|
Operating income |
|
2,760,746 |
|
|
|
934,743 |
|
|
|
1,142,802 |
|
|
|
1,276,134 |
|
|
|
|
|
|
|
|
|
Other income
(loss) |
|
5,878 |
|
|
|
(13,498 |
) |
|
|
(1,521 |
) |
|
|
(23,758 |
) |
Financial expenses,
net |
|
(696,232 |
) |
|
|
(749,967 |
) |
|
|
(173,345 |
) |
|
|
(200,923 |
) |
Total other
expense |
|
(690,354 |
) |
|
|
(763,465 |
) |
|
|
(174,866 |
) |
|
|
(224,681 |
) |
Income before income
tax expense |
|
2,070,392 |
|
|
|
171,278 |
|
|
|
967,936 |
|
|
|
1,051,453 |
|
|
|
|
|
|
|
|
|
Income tax
expense |
|
650,765 |
|
|
|
745,995 |
|
|
|
227,380 |
|
|
|
263,235 |
|
Net income (loss) |
|
1,419,627 |
|
|
|
(574,717 |
) |
|
|
740,556 |
|
|
|
788,218 |
|
|
|
|
|
|
|
|
|
Other comprehensive
income (loss), net of income tax: |
|
|
|
|
|
|
|
Foreign currency
translation adjustment |
|
(66,162 |
) |
|
|
1,420,099 |
|
|
|
13,100 |
|
|
|
(166,075 |
) |
Comprehensive
income |
$ |
1,353,465 |
|
|
$ |
845,382 |
|
|
$ |
753,656 |
|
|
$ |
622,143 |
|
|
|
|
|
|
|
|
|
Basic net income (loss)
per share |
$ |
0.05 |
|
|
$ |
(0.02 |
) |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
Diluted net income
(loss) per share |
$ |
0.05 |
|
|
$ |
(0.02 |
) |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
Weighted average number
of shares used in computing basic net income/loss per share |
|
26,466,948 |
|
|
|
26,202,386 |
|
|
|
26,486,152 |
|
|
|
26,394,613 |
|
Weighted average number
of shares used in computing diluted net income/loss per share |
|
26,466,948 |
|
|
|
26,202,386 |
|
|
|
26,486,152 |
|
|
|
26,394,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Net income (loss) (GAAP
measure) |
$ |
1,419,627 |
|
$ |
(574,717 |
) |
|
$ |
740,556 |
|
$ |
788,218 |
Add back: |
|
|
|
|
|
|
|
Financial expense –
including interest |
|
690,354 |
|
|
763,465 |
|
|
|
174,866 |
|
|
224,681 |
Income tax
expenses |
|
650,765 |
|
|
745,995 |
|
|
|
227,380 |
|
|
263,235 |
Depreciation and
amortization expense |
|
2,764,289 |
|
|
3,006,941 |
|
|
|
896,989 |
|
|
924,733 |
Other
adjustments* |
|
516,654 |
|
|
423,435 |
|
|
|
326,385 |
|
|
130,509 |
Total adjusted
EBITDA |
$ |
6,041,689 |
|
$ |
4,365,119 |
|
|
$ |
2,366,176 |
|
$ |
2,331,376 |
* 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, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
Revenue (GAAP
measure) |
|
$ |
72,968 |
|
$ |
69,727 |
|
|
$ |
23,844 |
|
$ |
25,930 |
Net income (loss) (GAAP
measure) |
|
$ |
1,420 |
|
$ |
(575 |
) |
|
$ |
741 |
|
$ |
788 |
Adjustments: |
|
|
|
|
|
|
|
|
Amortization |
|
|
1,299 |
|
|
1,729 |
|
|
|
392 |
|
|
509 |
Stock compensation |
|
|
492 |
|
|
309 |
|
|
|
301 |
|
|
116 |
Non-cash taxes |
|
|
507 |
|
|
686 |
|
|
|
145 |
|
|
229 |
Other non-recurring
expenses |
|
|
25 |
|
|
114 |
|
|
|
25 |
|
|
14 |
Net adjustments |
|
$ |
2,323 |
|
$ |
2,838 |
|
|
$ |
863 |
|
$ |
868 |
Adjusted net
income |
|
$ |
3,743 |
|
$ |
2,263 |
|
|
$ |
1,604 |
|
$ |
1,656 |
Number of diluted
shares |
|
|
26,467 |
|
|
26,375 |
|
|
|
26,486 |
|
|
26,395 |
Adjusted EPS |
|
$ |
0.14 |
|
$ |
0.09 |
|
|
$ |
0.06 |
|
$ |
0.06 |
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