Arotech Corporation (NasdaqGM: ARTX) today
announced financial results for the quarter and six months ended
June 30, 2019.
Second Quarter 2019 Financial Summary:
Consolidated |
Six months ended June 30, |
|
Three months ended June 30, |
U.S. $ in thousands,
except per share data |
2019 |
|
2018 |
|
2019 |
|
2018 |
GAAP
Measures |
|
|
|
|
|
|
|
Revenue |
$ |
44,045 |
|
|
$ |
49,123 |
|
|
$ |
23,267 |
|
|
$ |
21,875 |
|
Gross profit |
$ |
13,458 |
|
|
$ |
14,311 |
|
|
$ |
7,638 |
|
|
$ |
6,600 |
|
Net income (loss) |
$ |
(1,015 |
) |
|
$ |
679 |
|
|
$ |
392 |
|
|
$ |
83 |
|
Diluted net income (loss) per
share |
$ |
(0.04 |
) |
|
$ |
0.03 |
|
|
$ |
0.01 |
|
|
$ |
0.00 |
|
Net cash (used in) provided by
operating activities |
$ |
(3,594 |
) |
|
$ |
3,648 |
|
|
$ |
(1,367 |
) |
|
$ |
1,133 |
|
Non-GAAP
Measures (reconciliation to GAAP measures appears in the tables
below) |
Adjusted EBITDA |
$ |
1,846 |
|
|
$ |
3,676 |
|
|
$ |
1,795 |
|
|
$ |
1,515 |
|
Adjusted net income |
$ |
54 |
|
|
$ |
2,138 |
|
|
$ |
847 |
|
|
$ |
692 |
|
Adjusted net income per
share |
$ |
0.00 |
|
|
$ |
0.08 |
|
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2019 Segment Results:
Training and
Simulation Division |
Six months ended June 30, |
|
Three months ended June 30, |
U.S. $ in
thousands |
2019 |
|
2018 |
|
2019 |
|
2018 |
Revenue |
$ |
29,359 |
|
|
$ |
28,910 |
|
|
$ |
15,370 |
|
|
$ |
14,353 |
|
Gross profit |
$ |
11,812 |
|
|
$ |
12,088 |
|
|
$ |
6,433 |
|
|
$ |
6,329 |
|
Gross profit % |
40.2 |
% |
|
41.8 |
% |
|
41.9 |
% |
|
44.1 |
% |
|
|
|
|
|
|
|
|
Power Systems
Division |
Six months ended June 30, |
|
Three months ended June 30, |
U.S. $ in
thousands |
2019 |
|
2018 |
|
2019 |
|
2018 |
Revenue |
$ |
14,686 |
|
|
$ |
20,213 |
|
|
$ |
7,897 |
|
|
$ |
7,522 |
|
Gross profit |
$ |
1,646 |
|
|
$ |
2,223 |
|
|
$ |
1,205 |
|
|
$ |
271 |
|
Gross profit % |
11.2 |
% |
|
11.0 |
% |
|
15.3 |
% |
|
3.6 |
% |
Second Quarter 2019 Business Highlights:
Training and Simulation Division
- Is performing well on the Army’s simulator maintenance program
(ATMP) under subcontract to Lockheed Martin, leading to an
extension through June of 2020 in the amount of $2.6 million.
- Successfully delivers on expanding commercial simulator sales
to include twelve police systems delivered to the Department of
State.
- Received significant new awards for its weapon employment
software in support of various U.S. fighter platforms totaling
approximately $15.0 million of contract value which is expected to
be funded incrementally.
- Continues fielding phase one capability upgrades to the Army’s
Virtual Clearance Training Suites installations and is proceeding
with development of phase two capabilities. Phase two efforts now
include a recently awarded change order in the amount of $1.8
million that will add training capability for the Army's new
multifunction video display (MVD) to the simulated vehicle crew
stations.
Power Systems Division
- Completed a successful three week long Mobile Electric Hybrid
Power Sources (MEHPS) demonstration for the US Army at the Maneuver
Support, Sustainment, and Protection Integration Experiments
(MSSPIX) event demonstrating significant fuel savings.
- Provided 6T batteries to the UK MOD for testing with its
Armored Trials and Development Unit (ADTU) that was successfully
completed, and delivered ten 6T batteries to a company in the UK
for certification.
“Our second quarter financial results showed
expected improvement over the first quarter, as all three of our
subsidiaries delivered improved revenues and earnings, “ commented
CEO Dean Krutty. “We expect continued improvement as the year
progresses due to the timing of programs we have under contract,
especially as it relates to our large contracts in the Simulation
Division.”
“Our Simulation Division’s military vehicle
segment has made important progress in the first two quarters
toward year end test milestones for the US Army and U.S. Marine
Corps programs that will allow us to transition to production and
delivery phases. Also within the Simulation Division, we are
seeing significant demand for our weapon simulation software in
2019, which further validates this important simulation
segment."
“The Power Division continues to make progress
in selling test quantities of our new lithium based, lead acid
replacement batteries. Our batteries are testing well
in a variety of applications and we look forward to our customers
transitioning to purchases of production quantities as their
confidence grows. In addition, we continue to respond to
international tenders for new battery developments that we believe
will lead to further diversification in the customer base of our
Israeli power subsidiary,” concluded Mr. Krutty.
Second Quarter Financial Summary
Revenues for the second quarter of 2019 were
$23.3 million, compared to $21.9 million for the corresponding
period in 2018, an increase of 6.4%. The year-over-year increase
was primarily due to higher revenues in the Company’s Training and
Simulation Division driven by its larger military contracts.
The Israeli Power subsidiary had higher sales of batteries and
chargers, which was partially offset by lower sales in the U.S.
power subsidiary, primarily related to the termination of the
Company’s Amphibious Assault Vehicle program (“AAV”) by its
customer Science Applications International Corporation (“SAIC”) as
a result of the United States Marine Corps termination for
convenience.
Gross profit for the second quarter of 2019 was
$7.6 million, or 32.8% of revenues, compared to $6.6 million, or
30.2% of revenues, for the corresponding period in 2018. The
year-over-year increase was primarily due to higher revenues and
improved margins in the Company’s Power System Division primarily
related to programs that ended in 2018 that had lower margins and
improved product mix in 2019.
Operating expenses were $6.7 million, or 28.8%
of revenues, in the second quarter of 2019, compared to
operating expenses of $6.0 million, or 27.6% of revenues, for the
corresponding period in 2018. Operating expenses were
slightly higher year over year primarily related to higher sales
and marketing costs related to business development in the
Company’s Power System Division and costs incurred related to an
implementation of a corporate Enterprise Resource Planning (“ERP”)
system in 2019.
Operating income for the second quarter was
$929,000 compared to operating income of $562,000 in the
corresponding period in 2018.
Arotech’s net income for the second quarter of
2019 was $392,000, or $0.01 per basic and diluted share, compared
to net income of $83,000, or $0.00 per basic and diluted share, for
the corresponding period in 2018.
Adjusted net income per share for the second
quarter of 2019 was $0.03 compared to $0.03 for the corresponding
period in 2018.
Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (Adjusted EBITDA) for the second
quarter of 2019 was $1.8 million, compared to $1.5 million for the
corresponding period of 2018.
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.
Year-to-Date Financial Summary
Revenues for the first six months of 2019 were
$44.0 million, compared to $49.1 million for the comparable period
in 2018, a decrease of 10.3%. The year-over-year decrease in
revenue was primarily driven by a decline in the Power System
Division revenue as a result of the termination of the
Company’s AAV program, by its customer SAIC as a result of the
United States Marine Corps termination for convenience and the
decline in battery orders from the Israel Defense Forces, partially
offset by higher revenues in the Company’s Training and Simulation
Division.
Gross profit for the first six months of 2019
was $13.5 million, or 30.6% of revenues, compared to $14.3 million,
or 29.1% of revenues, for the prior year period. The year-over-year
decrease in gross profit was primarily due to lower revenues,
offset by improved gross profit margins in the Power System
Division, primarily related to programs that ended in 2018 that had
lower margins and improved product mix in 2019.
Operating expenses were $13.5 million, or 30.6%
of revenues, for the first six months of 2019, compared to
operating expenses of $12.7 million, or 25.8% of revenues, for the
corresponding period in 2018. Operating expenses are
higher year over year primarily related to higher costs related to
sales and marketing expenses related to business development,
higher R&D costs related to new projects, and costs incurred
related to an implementation of a corporate ERP system in 2019.
Operating loss for the first six months of 2019
was $19,000 compared to operating income of $1.6 million in the
corresponding period in 2018.
Arotech’s net loss for the first six months of
2019 was $1.0 million, or $(0.04) per basic and diluted share,
compared to net income of $679,000, or $0.03 per basic and diluted
share, for the corresponding period in 2018.
Adjusted net income per share for the
first six months of 2019 was $0.00, compared to $0.08 for the
corresponding period in 2018.
Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (Adjusted EBITDA) for the first six
months of 2019 was $1.8 million, compared to $3.7 million for the
corresponding period of 2018.
Arotech believes that information concerning
Adjusted EBITDA and Adjusted net income per share enhances overall
understanding of Arotech’s current financial performance. Arotech
computes Adjusted EBITDA and Adjusted net income per share, which
are non-GAAP financial measures, as reflected in the tables
below.
Cash Flow Summary
Arotech had net cash used in operating
activities of $3.6 million for the period ending June 30, 2019,
compared to cash provided by operating activities of $3.6 million
for the corresponding period in 2018. This use of cash is
primarily attributable to the funding of certain long term
contracts in the Training and Simulation Division, where milestone
payments do not apply, as well as costs incurred prior to the
termination of the AAV program. In July 2019, the
Company received a $2.0 million partial payment towards the AAV
program costs and the funding of the long term contracts in our
Training and Simulation division should be significantly completed
by the second quarter of 2020.
Balance Sheet Metrics
U.S. $ in
thousands |
For the Period ended June 30, |
|
For the Period ended December 31, |
Balance Sheet
Metrics |
2019 |
|
2018 |
Cash and cash equivalents |
$ |
3,886 |
|
$ |
4,445 |
Total debt |
$ |
19,723 |
|
$ |
14,066 |
Line of credit
availability |
$ |
5,948 |
|
$ |
8,219 |
As of June 30, 2019, Arotech had total debt of
$19.7 million, consisting of $12.0 million in short-term bank debt
under Arotech’s credit facility and $7.7 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 in the Company’s Training
and Simulation Division and the terminated AAV program which has
not been fully settled.
The Company had a current ratio (current
assets/current liabilities) of 1.7, compared with the December 31,
2018 current ratio of 2.0.
Arotech’s backlog increased by 6.7% over the
same period last year and 8.5% over the period ending 2018.
U.S. $ in
millions |
For the Period Ended, |
Backlog |
Q2 2019 |
|
Q2 2018 |
|
Q4 2018 |
Total |
$ |
70.3 |
|
$ |
65.9 |
|
$ |
64.8 |
2019 Guidance
The Company is confirming its 2019 guidance
range for total revenue at $95 million to $105 million; and
narrowing guidance for Adjusted EBITDA to $7.0 million to $7.5
million; and Adjusted Net Income EPS of $0.13 to $0.15. 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, August 8, 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, August 9, 2019,
and continue through 9:00 a.m. Eastern time on Thursday, August 15,
2019. The replay passcode is 51604.
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 Period ended June 30, |
|
For the Period ended December 31, |
|
2019 |
|
2018 |
ASSETS |
|
|
|
CURRENT
ASSETS: |
|
|
|
Cash and cash equivalents |
$ |
3,732,159 |
|
$ |
4,222,246 |
Restricted collateral
deposits |
154,058 |
|
222,712 |
Trade receivables, net |
15,572,079 |
|
16,259,809 |
Contract assets |
25,442,771 |
|
17,867,896 |
Other accounts receivable and
prepaid expenses |
3,628,432 |
|
5,989,263 |
Inventories, net |
9,236,969 |
|
9,912,748 |
Total current assets |
57,766,468 |
|
54,474,674 |
LONG TERM
ASSETS: |
|
|
|
Contractual and Israeli statutory
severance pay fund |
3,727,353 |
|
3,427,705 |
Other long term receivables |
539,073 |
|
543,205 |
Property and equipment, net |
9,398,550 |
|
8,914,247 |
Right of use asset |
5,879,845 |
|
— |
Other intangible assets, net |
4,857,478 |
|
4,465,778 |
Goodwill |
46,138,036 |
|
46,138,036 |
Total long term assets |
70,540,335 |
|
63,488,971 |
Total
assets |
$ |
128,306,803 |
|
$ |
117,963,645 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
CURRENT
LIABILITIES: |
|
|
|
Trade payables |
$ |
7,303,070 |
|
$ |
6,442,919 |
Other accounts payable and
accrued expenses |
5,115,437 |
|
6,498,045 |
Current portion of lease
obligation |
634,005 |
|
— |
Current portion of long term
debt |
2,397,206 |
|
2,204,653 |
Short term bank credit |
12,052,008 |
|
5,500,416 |
Contract liabilities |
6,430,106 |
|
7,054,779 |
Total current liabilities |
33,931,832 |
|
27,700,812 |
LONG TERM
LIABILITIES: |
|
|
|
Contractual and accrued Israeli
statutory severance pay |
4,509,731 |
|
4,125,675 |
Long term portion of lease
obligations |
5,551,511 |
|
— |
Long term portion of debt |
5,273,595 |
|
6,360,569 |
Deferred income tax
liability |
3,078,859 |
|
2,863,098 |
Other long term liabilities |
43,817 |
|
137,774 |
Total long-term liabilities |
18,457,513 |
|
13,487,116 |
Total liabilities |
52,389,345 |
|
41,187,928 |
STOCKHOLDERS’
EQUITY: |
|
|
|
Total stockholders’ equity |
75,917,458 |
|
76,775,717 |
Total liabilities and
stockholders’ equity |
$ |
128,306,803 |
|
$ |
117,963,645 |
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (UNAUDITED) (U.S. Dollars, except share
data)
|
Six months ended June 30, |
|
Three months ended June 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Revenues |
$ |
44,045,203 |
|
|
$ |
49,123,118 |
|
|
$ |
23,266,564 |
|
|
$ |
21,874,609 |
|
|
|
|
|
|
|
|
|
Cost of revenues |
30,587,522 |
|
|
34,812,163 |
|
|
15,628,411 |
|
|
15,275,082 |
|
Research and development
expenses |
2,095,922 |
|
|
1,764,995 |
|
|
1,021,858 |
|
|
728,293 |
|
Selling and marketing
expenses |
4,343,461 |
|
|
3,809,461 |
|
|
2,190,904 |
|
|
1,931,388 |
|
General and administrative
expenses |
6,385,960 |
|
|
6,211,813 |
|
|
3,215,569 |
|
|
2,985,879 |
|
Amortization of intangible
assets |
650,865 |
|
|
906,742 |
|
|
280,662 |
|
|
391,831 |
|
Total operating costs and
expenses |
44,063,730 |
|
|
47,505,174 |
|
|
22,337,404 |
|
|
21,312,473 |
|
|
|
|
|
|
|
|
|
Operating income (loss) |
(18,527 |
) |
|
1,617,944 |
|
|
929,160 |
|
|
562,136 |
|
|
|
|
|
|
|
|
|
Other income (expense),
net |
(9,091 |
) |
|
7,399 |
|
|
(9,077 |
) |
|
7,396 |
|
Financial expense, net |
(669,857 |
) |
|
(522,887 |
) |
|
(371,426 |
) |
|
(309,779 |
) |
Total other expense |
(678,948 |
) |
|
(515,488 |
) |
|
(380,503 |
) |
|
(302,383 |
) |
Income (loss) before income
tax expense |
(697,475 |
) |
|
1,102,456 |
|
|
548,657 |
|
|
259,753 |
|
|
|
|
|
|
|
|
|
Income tax expense |
317,262 |
|
|
423,385 |
|
|
156,381 |
|
|
176,271 |
|
Net income (loss) |
(1,014,737 |
) |
|
679,071 |
|
|
392,276 |
|
|
83,482 |
|
Other comprehensive income
(loss), net of income tax: |
|
|
|
|
|
|
|
Foreign currency translation
adjustment |
67,270 |
|
|
(79,262 |
) |
|
24,378 |
|
|
(55,002 |
) |
Comprehensive income
(loss) |
(947,467 |
) |
|
599,809 |
|
|
416,654 |
|
|
28,480 |
|
|
|
|
|
|
|
|
|
Basic net income (loss) per
share |
$ |
(0.04 |
) |
|
$ |
0.03 |
|
|
$ |
0.01 |
|
|
$ |
0.00 |
|
Diluted net income (loss) per
share |
$ |
(0.04 |
) |
|
$ |
0.03 |
|
|
$ |
0.01 |
|
|
$ |
0.00 |
|
Weighted average number of
shares used in computing basic net income (loss) per share |
|
26,522,553 |
|
|
|
26,457,133 |
|
|
|
26,551,466 |
|
|
|
26,432,094 |
|
Weighted average number of
shares used in computing diluted net income (loss) per share |
|
26,522,553 |
|
|
|
26,457,133 |
|
|
|
26,551,466 |
|
|
|
26,432,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
Six months ended June 30, |
|
Three months ended June 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Net income (loss) (GAAP measure) |
$ |
(1,014,737 |
) |
|
$ |
679,071 |
|
$ |
392,276 |
|
$ |
83,482 |
Add back: |
|
|
|
|
|
|
|
Financial expense – including
interest |
678,948 |
|
|
515,488 |
|
380,503 |
|
302,383 |
Income tax (benefit) expense |
317,262 |
|
|
423,385 |
|
156,381 |
|
176,271 |
Depreciation and amortization
expense |
1,662,769 |
|
|
1,867,299 |
|
799,449 |
|
870,897 |
Other adjustments* |
202,129 |
|
|
190,269 |
|
66,160 |
|
81,774 |
Total adjusted EBITDA |
$ |
1,846,371 |
|
|
$ |
3,675,512 |
|
$ |
1,794,769 |
|
$ |
1,514,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* Includes stock compensation expense, one-time transaction
expenses and other non-cash expenses.
CALCULATION OF ADJUSTED NET INCOME PER
SHARE
(U.S. $ in thousands, except per share
data)
|
Six months ended June 30, |
|
Three months ended June 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Revenue (GAAP measure) |
$ |
44,045 |
|
|
$ |
49,123 |
|
$ |
23,267 |
|
$ |
21,875 |
Net income (loss) (GAAP
measure) |
$ |
(1,015 |
) |
|
$ |
679 |
|
$ |
392 |
|
$ |
83 |
Adjustments: |
|
|
|
|
|
|
|
Amortization |
651 |
|
|
907 |
|
281 |
|
392 |
Stock compensation |
202 |
|
|
190 |
|
66 |
|
82 |
Non-cash taxes |
216 |
|
|
362 |
|
108 |
|
135 |
Other non-recurring expenses |
— |
|
|
— |
|
— |
|
— |
Net adjustments |
$ |
1,069 |
|
|
$ |
1,459 |
|
$ |
455 |
|
$ |
609 |
Adjusted net income |
$ |
54 |
|
|
$ |
2,138 |
|
$ |
847 |
|
$ |
692 |
Number of diluted shares |
|
26,641 |
|
|
|
26,457 |
|
|
26,551 |
|
26,477 |
Adjusted net income per
share |
$ |
0.00 |
|
|
$ |
0.08 |
|
$ |
0.03 |
|
$ |
0.03 |
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