Arotech Corporation (Nasdaq:ARTX) today announced
financial results for its fourth quarter and twelve months ended
December 31, 2016.
Full-year 2016 Financial Highlights:
- Total revenues of $93.0 million in 2016 compared to $96.6
million in 2015, below 2016 guidance
- Net loss from continuing operations of $(1.5) million or
$(0.06) per basic and diluted share versus a net loss from
continuing operations of $(2.1) million or $(0.08) per basic and
diluted share for the prior year
- Adjusted EBITDA of $7.1 million compared to $6.0 million in
2015, in line with 2016 guidance
- Adjusted EPS of $0.17 compared to $0.11 in 2015, slightly below
2016 guidance
- Backlog of orders as of December 31, 2016 totaled approximately
$55.4 million versus $63.0 million for the same time last year and
$55.0 million from the prior quarter
Fourth Quarter 2016 Financial Highlights:
- Total revenues of $21.5 million versus $27.4 million for the
same time last year and $24.3 million from the prior quarter
- Net loss from continuing operations of $(2.0) million or
$(0.08) per basic and diluted share versus net income from
continuing operations of $0.7 million or $0.03 per basic and
diluted share for the fourth quarter of 2015
- Adjusted EPS of $0.01 versus $0.07 for the same time last year
and $0.10 from the prior quarter (reconciliation to diluted EPS
appears in tables below)
- Adjusted EBITDA of $0.8 million compared to $2.6 million for
the same time last year and $3.1 million from the prior quarter
(reconciliation to diluted net income (loss) per share continuing
operations appears in tables below)
U.S. $ in
thousands, except per share data |
Twelve months ended December 31, |
|
Three months ended December 31, |
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
GAAP
Measures |
|
|
|
|
|
|
|
Revenue |
$ |
92,976 |
|
|
$ |
96,574 |
|
|
$ |
21,489 |
|
|
$ |
27,414 |
Income (loss) from
continuing operations |
$ |
(1,480 |
) |
|
$ |
(2,051 |
) |
|
$ |
(2,034 |
) |
|
$ |
702 |
Diluted net income
(loss) per share – continuing operations |
$ |
(0.06 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.03 |
|
|
|
|
|
|
|
|
Non-GAAP
Measures |
|
|
|
|
|
|
|
Adjusted EBITDA from
continuing operations |
$ |
7,070 |
|
|
$ |
6,035 |
|
|
$ |
807 |
|
|
$ |
2,576 |
Adjusted EPS from
continuing operations |
$ |
0.17 |
|
|
$ |
0.11 |
|
|
$ |
0.01 |
|
|
$ |
0.07 |
“Arotech concluded a transformative 2016 with
further cost saving measures at both the corporate and division
level,” commented acting CEO Dean Krutty. “Our Board of
Directors helped drive the reduction in our cost structure with the
recently negotiated separation agreement of our former CEO, which
followed our previously announced decision to discontinue our Flow
Battery business. We will continue to pursue streamlining our
operations and our corporate cost structure in line with our
commitment to bring better returns to shareholders.”
“At the same time, it should be noted that we have
accelerated our investment in the fourth quarter into one of our
most promising business areas, the hybrid power segment of our UEC
subsidiary in South Carolina. The promise of this equipment as a
solution for Department of Defense initiatives to reduce fuel
dependence for forward deployed soldiers and marines motivates us
to remain the industry leader in hybrid power technologies. We
believe that this investment and others, will lead to substantially
improved results for this unit beginning in 2018.”
“In the fourth quarter, a continued difficulty
maintaining the revenue stream of our vehicle simulation group
within our Simulation Division, combined with an unexpected delay
in battery deliveries from our new battery plant in Israel, led to
disappointing revenues for the company. We expect both of these
issues to improve in 2017, as our Power Division in Israel works
off a strong backlog, and our Simulation group concludes its
negotiations with the Army for a long anticipated five year
extension to our previous work on the Army’s Virtual Clearance
Training Suites (VCTS) with an expected award date at the end of Q1
2017.”
Arotech expects to achieve improved results from
continuing operations in 2017, and provides revenue guidance of $93
million to $103 million; Adjusted EBITDA guidance of $7.5 million
to $8.5 million; and Adjusted EPS guidance of $0.20 to $0.24.
Fourth Quarter Financial
Summary
Revenues for the fourth quarter were $21.5 million,
compared to $27.4 million for the comparable period in 2015. The
year-over-year decrease was driven primarily by delays in receiving
and executing new orders in the Simulation Division military
vehicle arena.
Gross profit for the fourth quarter was $5.6
million, or 26.0% of revenues, compared to $8.0 million, or 29.0%
of revenues, for the prior year period.
Operating expenses were $7.3 million in the fourth
quarter of 2016 compared to $6.8 million in the year ago quarter.
Fourth quarter 2016 expenses included $1.0 million in
negotiated early separation costs with our former CEO.
Operating loss for the fourth quarter of 2016 was
$(1.7) million, compared to an operating income of $1.2 million for
the corresponding period in 2015.
The Company’s net loss from continuing operations
for the fourth quarter was $(2.0) million, or $(0.08) per basic and
diluted share, compared to a net income from continuing operations
of $702,000, or $0.03 per basic and diluted share, for the
corresponding period last year.
Adjusted Earnings per Share (Adjusted EPS) for the
quarter was $0.01 compared to $0.07 for the corresponding period in
2015.
Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (Adjusted EBITDA) for the fourth
quarter was approximately $807,000 compared to $2.6 million for the
corresponding period of 2015.
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.
2016 Full-Year Financial
Summary
Revenues for the full-year 2016 were $93.0 million,
compared to $96.6 million for full-year 2015. The year-over-year
decrease was driven, in large part, by the delay in receipt and
execution of new orders in the Simulation Division.
Gross profit for the year was $28.2 million, or
30.3% of revenues, compared to $28.1 million, or 29.1% of revenues,
for the prior year. The improvement in gross profit was due
to the favorable product mix delivered by our Simulation
Division.
Operating expenses were $27.9 million or 30.0% of
revenues compared to $27.8 million or 28.8% of revenues in
2015.
The operating income for the full-year 2016 was
$214,000, compared to operating income of $286,000 for the
full-year 2015.
The Company’s net loss from continuing operations
for 2016 was $(1.5) million, or $(0.06) per basic and diluted
share, compared to $(2.1) million, or $(0.08) per basic and diluted
share for the corresponding period last year.
Adjusted Earnings per Share (Adjusted EPS) for 2016
was $0.17 compared to $0.11 in 2015.
Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (Adjusted EBITDA) for 2016 was $7.1
million compared to $6.0 million for 2015.
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 December 31, 2016, the Company had $7.4
million in cash and cash equivalents, as compared to December 31,
2015, when the Company had $10.7 million in cash and cash
equivalents.
As of December 31, 2016, the Company 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. This is in comparison to December 31, 2015, when the Company
had total debt of $20.3 million, consisting of $4.1 million in
short-term debt and $16.2 million in long-term loans.
The Company also had $8.8 million in available,
unused bank lines of credit with its primary bank as of December
31, 2016, 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 the Company and the Company’s U.S.
subsidiaries.
The Company had a current ratio (current
assets/current liabilities) of 2.0, compared with the December 31,
2015 current ratio of 1.9.
As of December 31, 2016, Arotech has 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.
The Company accrued $837,000 in non-cash tax expenses in 2016,
reflecting the uncertainty of the deductibility of intangible
expenses for federal income tax purposes.
Conference Call
The Company will host a conference call tomorrow,
Thursday, March 16, 2017 at 9:00 am Eastern Time, to review the
Company’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: +
1-862-255-5401Conference 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 p.m. Eastern time on Thursday, March 16, 2017, and continue
through 11:59 p.m. Eastern time on Thursday, March 23, 2017. The
replay passcode: 10270.
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,
2015, 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) |
|
|
|
|
|
December 31, |
|
|
|
2016 |
|
2015 |
|
ASSETS |
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
7,399,963 |
|
$ |
10,698,405 |
|
Trade receivables |
|
|
16,821,737 |
|
|
17,401,479 |
|
Unbilled
receivables |
|
|
10,981,577 |
|
|
12,132,484 |
|
Other accounts
receivable and prepaid |
|
|
2,156,896 |
|
|
1,007,358 |
|
Inventories |
|
|
10,318,021 |
|
|
9,607,836 |
|
TOTAL
CURRENT ASSETS |
|
|
47,678,194 |
|
|
50,847,562 |
|
LONG TERM ASSETS: |
|
|
|
|
|
|
|
Property and equipment,
net |
|
|
5,915,240 |
|
|
6,385,238 |
|
Other long term
assets |
|
|
3,233,900 |
|
|
5,394,158 |
|
Intangible assets,
net |
|
|
6,823,346 |
|
|
9,334,730 |
|
Goodwill |
|
|
45,489,517 |
|
|
45,463,027 |
|
Discontinued
operations |
|
|
270,139 |
|
|
68,301 |
|
TOTAL
LONG TERM ASSETS |
|
|
61,732,142 |
|
|
66,645,454 |
|
TOTAL ASSETS |
|
$ |
109,410,336 |
|
$ |
117,493,016 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
CURRENT
LIABILITIES: |
|
|
|
|
|
|
|
Trade payables |
|
$ |
4,362,804 |
|
$ |
5,914,042 |
|
Other accounts payable
and accrued expenses |
|
|
5,597,558 |
|
|
5,560,040 |
|
Current portion of long
term debt |
|
|
1,828,840 |
|
|
4,362,438 |
|
Short term bank
credit |
|
|
2,973,032 |
|
|
4,060,000 |
|
Current portion of
severance |
|
|
2,577,472 |
|
|
– |
|
Deferred revenues |
|
|
6,421,271 |
|
|
6,879,815 |
|
TOTAL
CURRENT LIABILITIES |
|
|
23,760,977 |
|
|
26,776,335 |
|
LONG TERM
LIABILITIES: |
|
|
|
|
|
|
|
Accrued Israeli
statutory/contractual severance pay |
|
|
3,891,710 |
|
|
7,497,685 |
|
Long term portion of
debt |
|
|
8,703,736 |
|
|
11,856,522 |
|
Other long-term
liabilities |
|
|
7,968,867 |
|
|
7,295,808 |
|
Discontinued
operations |
|
|
– |
|
|
19,295 |
|
TOTAL
LONG-TERM LIABILITIES |
|
|
20,564,313 |
|
|
26,669,310 |
|
TOTAL LIABILITIES |
|
|
44,325,290 |
|
|
53,445,645 |
|
STOCKHOLDERS’
EQUITY: |
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ EQUITY (NET) |
|
|
65,085,046 |
|
|
64,047,371 |
|
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
$ |
109,410,336 |
|
$ |
117,493,016 |
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (Unaudited) |
(U.S. Dollars, except share
data) |
|
|
Twelve months ended December 31, |
|
Three months ended December 31, |
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
Revenues |
$ |
92,975,752 |
|
|
$ |
96,573,947 |
|
|
$ |
21,489,274 |
|
|
$ |
27,413,566 |
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
64,825,416 |
|
|
|
68,456,322 |
|
|
|
15,892,245 |
|
|
|
19,450,946 |
|
Research and
development expenses |
|
2,722,965 |
|
|
|
3,075,362 |
|
|
|
355,001 |
|
|
|
378,239 |
|
Selling and marketing
expenses |
|
7,029,090 |
|
|
|
5,373,421 |
|
|
|
2,116,014 |
|
|
|
1,562,759 |
|
General and
administrative expenses |
|
15,308,461 |
|
|
|
16,339,027 |
|
|
|
4,158,821 |
|
|
|
4,068,532 |
|
Amortization of
intangible assets |
|
2,875,543 |
|
|
|
3,043,536 |
|
|
|
710,606 |
|
|
|
757,152 |
|
Total operating costs
and expenses |
|
92,761,475 |
|
|
|
96,287,668 |
|
|
|
23,232,687 |
|
|
|
26,217,628 |
|
|
|
|
|
|
|
|
|
Operating income
(loss) |
|
214,277 |
|
|
|
286,279 |
|
|
|
(1,743,413 |
) |
|
|
1,195,938 |
|
|
|
|
|
|
|
|
|
Other income
(loss) |
|
64,832 |
|
|
|
(24,181 |
) |
|
|
14,919 |
|
|
|
31,497 |
|
Financial expenses,
net |
|
(975,263 |
) |
|
|
(1,152,121 |
) |
|
|
(205,935 |
) |
|
|
(264,351 |
) |
Total other income |
|
(910,431 |
) |
|
|
(1,176,302 |
) |
|
|
(191,016 |
) |
|
|
(232,854 |
) |
Income (loss) from
continuing operations before income tax expense |
|
(696,154 |
) |
|
|
(890,023 |
) |
|
|
(1,934,429 |
) |
|
|
963,084 |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
783,420 |
|
|
|
1,160,946 |
|
|
|
99,148 |
|
|
|
261,317 |
|
Income (loss) from
continuing operations |
|
(1,479,574 |
) |
|
|
(2,050,969 |
) |
|
|
(2,033,577 |
) |
|
|
701,767 |
|
Loss from discontinued
operations, net of income tax |
|
(1,368,682 |
) |
|
|
(894,057 |
) |
|
|
(6,895 |
) |
|
|
(303,175 |
) |
Net income (loss) |
|
(2,848,256 |
) |
|
|
(2,945,026 |
) |
|
|
(2,040,472 |
) |
|
|
398,592 |
|
|
|
|
|
|
|
|
|
Other comprehensive
income (loss), net of income tax |
|
|
|
|
|
|
|
Foreign currency
translation adjustment |
|
54,925 |
|
|
|
14,634 |
|
|
|
(351,967 |
) |
|
|
120,653 |
|
Comprehensive income
(loss) |
$ |
(2,793,331 |
) |
|
$ |
(2,930,392 |
) |
|
$ |
(2,392,439 |
) |
|
$ |
519,245 |
|
|
|
|
|
|
|
|
|
Basic net income (loss)
per share – continuing operations |
$ |
(0.06 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.03 |
|
Basic net loss per
share – discontinued operations |
$ |
(0.05 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
Basic net income (loss)
per share |
$ |
(0.11 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
Diluted net income
(loss) per share – continuing operations |
$ |
(0.06 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.03 |
|
Diluted net loss per
share – discontinued operations |
$ |
(0.05 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
Diluted net income
(loss) per share |
$ |
(0.11 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.02 |
|
Weighted average number
of shares used in computing basic net income/loss per share |
|
25,494,097 |
|
|
|
23,687,733 |
|
|
|
25,742,404 |
|
|
|
23,687,733 |
|
Weighted average number
of shares used in computing diluted net income/loss per share |
|
25,494,097 |
|
|
|
23,687,733 |
|
|
|
25,742,404 |
|
|
|
24,655,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
Twelve months ended December 31, |
|
Three months ended December 31, |
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
Net income (loss)
continuing operations (GAAP measure) |
$ |
(1,479,574 |
) |
|
$ |
(2,050,969 |
) |
|
$ |
(2,033,577 |
) |
|
$ |
701,767 |
Add back: |
|
|
|
|
|
|
|
Financial expense –
including interest |
|
910,431 |
|
|
|
1,176,302 |
|
|
|
191,016 |
|
|
|
232,854 |
Income tax
expenses |
|
783,420 |
|
|
|
1,160,946 |
|
|
|
99,148 |
|
|
|
261,317 |
Depreciation and
amortization expense |
|
4,664,584 |
|
|
|
4,895,518 |
|
|
|
1,177,051 |
|
|
|
1,233,097 |
Other adjustments* |
|
2,190,656 |
|
|
|
1,748,542 |
|
|
|
1,373,418 |
|
|
|
146,901 |
Building sale |
|
– |
|
|
|
(895,450 |
) |
|
|
– |
|
|
|
– |
Total adjusted
EBITDA |
$ |
7,069,517 |
|
|
$ |
6,034,889 |
|
|
$ |
807,056 |
|
|
$ |
2,575,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* 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) |
|
|
|
Twelve months ended December 31, |
|
Three months ended December 31, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
Revenue (GAAP
measure) |
|
$ |
92,976 |
|
|
$ |
96,574 |
|
|
$ |
21,489 |
|
|
$ |
27,414 |
Net income (loss)
continuing operations (GAAP measure) |
|
$ |
(1,480 |
) |
|
$ |
(2,051 |
) |
|
$ |
(2,034 |
) |
|
$ |
702 |
Adjustments: |
|
|
|
|
|
|
|
|
Amortization |
|
|
2,876 |
|
|
|
3,044 |
|
|
|
711 |
|
|
|
757 |
Stock compensation |
|
|
878 |
|
|
|
622 |
|
|
|
92 |
|
|
|
147 |
Non-cash taxes |
|
|
837 |
|
|
|
915 |
|
|
|
229 |
|
|
|
229 |
EFB Transition
costs |
|
|
– |
|
|
|
1,126 |
|
|
|
– |
|
|
|
– |
Other nonrecurring
expenses |
|
|
1,313 |
|
|
|
– |
|
|
|
1,281 |
|
|
|
– |
Building sale |
|
|
– |
|
|
|
(895 |
) |
|
|
– |
|
|
|
– |
Net adjustments |
|
$ |
5,904 |
|
|
$ |
4,812 |
|
|
$ |
2,313 |
|
|
$ |
1,133 |
Adjusted Net
Income |
|
$ |
4,424 |
|
|
$ |
2,761 |
|
|
$ |
279 |
|
|
$ |
1,835 |
Number of diluted
shares |
|
|
25,833 |
|
|
|
24,656 |
|
|
|
26,081 |
|
|
|
24,656 |
Adjusted EPS |
|
$ |
0.17 |
|
|
$ |
0.11 |
|
|
$ |
0.01 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor Relations Contact:
Scott Schmidt
Scott.Schmidt@arotechusa.com
800-281-0356
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