Arotech Corporation (Nasdaq:ARTX) today announced
financial results for the quarter and six months ended June 30,
2017.
Second Quarter 2017 Financial Summary:
U.S. $ in
thousands, except per share data |
Three months ended June 30, |
|
Three months endedMarch 31,
2017 |
|
2017 |
|
2016 |
|
GAAP
Measures |
|
|
|
|
|
Revenue |
$ |
21,449 |
|
|
$ |
21,780 |
|
|
$ |
22,347 |
|
Loss from continuing
operations |
$ |
(595 |
) |
|
$ |
(569 |
) |
|
$ |
(768 |
) |
Diluted net loss per
share – continuing operations |
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
Non-GAAP
Measures (reconciliation to GAAP measures appears in the
tables below) |
|
|
|
|
|
Adjusted EBITDA from
continuing operations |
$ |
1,036 |
|
|
$ |
1,300 |
|
|
$ |
998 |
|
Adjusted EPS from
continuing operations |
$ |
0.01 |
|
|
$ |
0.02 |
|
|
$ |
0.01 |
|
Second Quarter 2017 Business Highlights:
- The Training and Simulation Division received a follow-on
contract of up to $41.1 million for the U.S. Army’s Virtual
Clearance Training Suite
- The Training and Simulation Division received a $10.5 million
sole source contract for its Army National Guard Operator Driving
Simulators, with a period of performance of two years
- The U.S. Power Systems Division received additional funding to
continue CESAS production for the US Marine Corps, bringing total
funding in 2017 to $5.8M.
- Our Israel Power Division is now shipping both MR-2790 and
MR-2791 batteries out of its new facility in Sderot.
“Arotech’s second quarter 2017 revenues were
lower than expected primarily as a result of timing of new awards
in our U.S. Power and Simulation divisions. We believe based on
recent successes that revenues will improve in the second half and
into next year as we have begun to book expected awards,” commented
acting CEO Dean Krutty.
“Though our operating results in our Training
and Simulation Division remain strong as a percentage of revenue,
the operating results in our Power Systems Division were lower than
planned due to continued strategic investment in key developmental
programs,” explained Mr. Krutty. “The important hybrid power
development that I mentioned in the last quarter, our MEHPS program
for the U.S. Marine Corps, continues to require significant
financial resources as we ready to field the system in several
tranches over the next two months. We are committed to the
success of this program and to bringing the U.S. Marines a power
solution that matches their operational requirements, and to
continuing our leading role in modernizing the way our military
meets its combat energy needs.
“We are pleased to announce that last month our
Training and Simulation Division received a contract from the Army
National Guard for FAAC’s Operator Driving Simulators (ARNG ODS).
This General Services Administration contract from the National
Guard Bureau is valued at $10.5 million, with a period of
performance of two years. This award will build upon FAAC’s
previous ARNG ODS efforts, which began in 2006 and have resulted in
the fielding of a total of 27 training systems to 25 different
states. The current effort procures nine new multi-simulator mobile
systems and provides capability enhancements for 16 of the
currently fielded systems,” concluded Mr. Krutty.
2017 Guidance
Arotech affirms its 2017 outlook for total
revenue of $93 to $103 million, with adjusted earnings per share
(Adjusted EPS) of $0.20 to $0.24, and adjusted EBITDA of $7.5
million to $8.5 million. This outlook includes only organic
contribution, and does not take any potential acquisition activity
into account. The financial guidance provided is as of today
and Arotech undertakes no obligation to update its estimates in the
future.
Second Quarter Financial
Summary
Revenues for the second quarter were $21.4
million, compared to $21.8 million for the corresponding period in
2016. The year-over-year decrease was driven primarily by lower
revenue in Arotech’s Vehicle Simulation product area
Gross margin for the second quarter was
$6.0 million, or 27.9% of revenues, compared to $7.0 million, or
32.1% of revenues, for the corresponding period in 2016.
Operating expenses were $6.1 million or 28.4% of
revenues in the second quarter of 2017 compared to expenses of $7.0
million or 32.4% of revenues for the corresponding period in 2016.
Operating loss for the second quarter was $(115,000) compared to a
loss of $(16,000) for the corresponding period in 2016.
Arotech’s net loss from continuing operations
for the second quarter of 2017 was $(595,000), or $(0.02) per basic
and diluted share, compared to a net loss of $(569,000), or $(0.02)
per basic and diluted share, for the corresponding period in
2016.
Adjusted Earnings per Share (Adjusted EPS) for
the second quarter of 2017 was $0.01, compared to $0.02 for the
corresponding period in 2016.
Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (Adjusted EBITDA) for the second
quarter of 2017 was $1.0 million, compared to $1.3 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.
Year-to-Date Financial Summary
Revenues for the first six months of 2017 were
$43.8 million, compared to $47.2 million for the comparable period
in 2016. The year-over-year decrease was driven primarily by lower
revenue in Arotech’s Vehicle Simulation product area.
Gross margin for the first six months of 2017
was $12.5 million, or 28.5% of revenues, compared to $14.7 million,
or 31.1% of revenues, for the prior year period.
Operating expenses for the first six months of
2017 were $12.9 million or 29.2% of revenues, compared to expenses
of $14.6 million or 30.9% of revenues for the corresponding period
in 2016. Operating loss for the first six months of 2017 was
$(341,000), compared to operating income of $126,000 for the
corresponding period in 2016.
Arotech’s net loss from continuing operations
for the first six months of 2017 was $(1.4 million), or $(0.05) per
basic and diluted share, compared to $(951,000), or $(0.04) per
basic and diluted share, for the corresponding period in 2016.
Adjusted Earnings per Share (Adjusted EPS) for
the first six months of 2017 was $0.02, compared to $0.06 for the
corresponding period in 2016.
Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (Adjusted EBITDA) for the first six
months of 2017 was $2.0 million compared to $3.2 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 June 30, 2017, Arotech had $5.4 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 June 30, 2017, Arotech had total debt of
$15.8 million, consisting of $3.8 million in short-term bank debt
under its credit facility and $12.0 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 mortgage on
the purchase of the primary office facility of our simulation
group, which was previously leased.
Arotech also had $6.3 million in available,
unused bank lines of credit with its primary bank as of June 30,
2017, under a $15.0 million revolving credit facility and a $10.0
million term loan and a $3.0 million mortgage that were 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 $229,000 in non-cash tax expenses in
the second quarter of 2017, reflecting the uncertainty of the
deductibility of intangible expenses for federal income tax
purposes.
Arotech had a backlog as of June 30, 2017 of
$61.3 million. This compares to a backlog of $52.0 million for the
same period last year and a backlog of $55.4 million as of December
31, 2016.
Conference Call
Arotech will host a conference call tomorrow,
Wednesday, August 9, 2017 at 9:00 am 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: 1-866-682-6100
- International: +1-862-255-5401
- 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 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 12:00 p.m. Eastern time on Wednesday, August 9, 2017,
and continue through 11:59 p.m. Eastern time on Wednesday, August
16, 2017. The replay passcode: 18678.
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.
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) |
|
|
|
June 30, 2017 |
|
December 31, 2016 |
|
ASSETS |
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
5,395,234 |
|
$ |
7,399,963 |
|
Trade receivables |
|
|
15,431,615 |
|
|
16,821,737 |
|
Unbilled
receivables |
|
|
10,053,686 |
|
|
10,981,577 |
|
Other accounts
receivable and prepaid |
|
|
2,701,332 |
|
|
2,156,896 |
|
Inventories |
|
|
10,709,647 |
|
|
10,318,021 |
|
Total
current assets |
|
|
44,291,514 |
|
|
47,678,194 |
|
LONG TERM ASSETS: |
|
|
|
|
|
|
|
Property and equipment,
net |
|
|
8,335,773 |
|
|
5,915,240 |
|
Other long term
assets |
|
|
3,608,483 |
|
|
3,233,900 |
|
Intangible assets,
net |
|
|
5,732,060 |
|
|
6,823,346 |
|
Goodwill |
|
|
46,083,315 |
|
|
45,489,517 |
|
Discontinued
operations |
|
|
270,139 |
|
|
270,139 |
|
Total
long term assets |
|
|
64,029,770 |
|
|
61,732,142 |
|
Total assets |
|
$ |
108,321,284 |
|
$ |
109,410,336 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
CURRENT
LIABILITIES: |
|
|
|
|
Trade payables |
|
$ |
4,441,883 |
|
$ |
4,362,804 |
|
Other accounts payable
and accrued expenses |
|
|
4,778,372 |
|
|
5,597,558 |
|
Current portion of long
term debt |
|
|
2,252,741 |
|
|
1,828,840 |
|
Short term bank
credit |
|
|
3,830,875 |
|
|
2,973,032 |
|
Current portion of
severance |
|
|
– |
|
|
2,577,472 |
|
Deferred revenues |
|
|
4,945,282 |
|
|
6,421,271 |
|
Total
current liabilities |
|
|
20,249,153 |
|
|
23,760,977 |
|
LONG TERM
LIABILITIES: |
|
|
|
|
|
|
|
Accrued Israeli
statutory/contractual severance pay
|
|
|
4,441,206 |
|
|
3,891,710 |
|
Long term portion of
debt |
|
|
9,706,879 |
|
|
8,703,736 |
|
Other long-term
liabilities |
|
|
8,422,834 |
|
|
7,968,867 |
|
Total
long-term liabilities |
|
|
22,570,919 |
|
|
20,564,313 |
|
Total liabilities |
|
|
42,820,072 |
|
|
44,325,290 |
|
STOCKHOLDERS’
EQUITY: |
|
|
|
|
|
|
|
Total
stockholders’ equity (net) |
|
|
65,501,212 |
|
|
65,085,046 |
|
Total liabilities and
stockholders’ equity |
|
$ |
108,321,284 |
|
$ |
109,410,336 |
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (Unaudited) (U.S. Dollars,
except share data) |
|
|
Six months ended June 30, |
|
Three months ended June 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Revenues |
$ |
43,796,138 |
|
|
$ |
47,186,358 |
|
|
$ |
21,448,693 |
|
|
$ |
21,779,877 |
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
31,333,994 |
|
|
|
32,496,895 |
|
|
|
15,466,496 |
|
|
|
14,784,721 |
|
Research and
development expenses |
|
1,759,850 |
|
|
|
1,615,117 |
|
|
|
764,416 |
|
|
|
779,035 |
|
Selling and marketing
expenses |
|
3,967,444 |
|
|
|
3,454,454 |
|
|
|
1,971,477 |
|
|
|
1,799,588 |
|
General and
administrative expenses |
|
5,856,588 |
|
|
|
8,026,787 |
|
|
|
2,839,370 |
|
|
|
3,734,374 |
|
Amortization of
intangible assets |
|
1,219,653 |
|
|
|
1,466,640 |
|
|
|
521,660 |
|
|
|
698,637 |
|
Total operating costs
and expenses |
|
44,137,529 |
|
|
|
47,059,893 |
|
|
|
21,563,419 |
|
|
|
21,796,355 |
|
|
|
|
|
|
|
|
|
Operating income
(loss) |
|
(341,391 |
) |
|
|
126,465 |
|
|
|
(114,726 |
) |
|
|
(16,478 |
) |
|
|
|
|
|
|
|
|
Other income
(loss) |
|
10,260 |
|
|
|
46,432 |
|
|
|
(1,894 |
) |
|
|
20,395 |
|
Financial expenses,
net |
|
(549,044 |
) |
|
|
(541,854 |
) |
|
|
(215,187 |
) |
|
|
(204,196 |
) |
Total other income |
|
(538,784 |
) |
|
|
(495,422 |
) |
|
|
(217,081 |
) |
|
|
(183,801 |
) |
Loss from continuing
operations before income tax expense |
|
(880,175 |
) |
|
|
(368,957 |
) |
|
|
(331,807 |
) |
|
|
(200,279 |
) |
|
|
|
|
|
|
|
|
Income tax expense |
|
482,760 |
|
|
|
582,280 |
|
|
|
262,820 |
|
|
|
368,827 |
|
Loss from continuing
operations |
|
(1,362,935 |
) |
|
|
(951,237 |
) |
|
|
(594,627 |
) |
|
|
(569,106 |
) |
Loss from discontinued
operations, net of income tax |
|
– |
|
|
|
(492,485 |
) |
|
|
– |
|
|
|
(230,839 |
) |
Net loss |
|
(1,362,935 |
) |
|
|
(1,443,722 |
) |
|
|
(594,627 |
) |
|
|
(799,945 |
) |
|
|
|
|
|
|
|
|
Other comprehensive
income (loss), net of income tax |
|
|
|
|
|
|
|
Foreign currency
translation adjustment |
|
1,586,174 |
|
|
|
62,055 |
|
|
|
671,142 |
|
|
|
(298,043 |
) |
Comprehensive income
(loss) |
$ |
223,239 |
|
|
$ |
(1,381,667 |
) |
|
$ |
76,515 |
|
|
$ |
(1,097,988 |
) |
|
|
|
|
|
|
|
|
Basic net income (loss)
per share – continuing operations |
$ |
(0.05 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
Basic net loss per
share – discontinued operations |
$ |
– |
|
|
$ |
(0.02 |
) |
|
$ |
– |
|
|
$ |
(0.01 |
) |
Basic net income (loss)
per share |
$ |
(0.05 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
Diluted net income
(loss) per share – continuing operations |
$ |
(0.05 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.02 |
) |
Diluted net loss per
share – discontinued operations |
$ |
– |
|
|
$ |
(0.02 |
) |
|
$ |
– |
|
|
$ |
(0.01 |
) |
Diluted net income
(loss) per share |
$ |
(0.05 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
Weighted average number
of shares used in computing basic net income/loss per
share |
|
26,193,509 |
|
|
|
25,365,756 |
|
|
|
26,216,775 |
|
|
|
25,383,440 |
|
Weighted average number
of shares used in computing diluted net income/loss per share
|
|
26,193,509 |
|
|
|
25,365,756 |
|
|
|
26,216,775 |
|
|
|
25,383,440 |
|
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, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Net loss |
$ |
(1,362,935 |
) |
|
$ |
(1,443,722 |
) |
|
$ |
(594,627 |
) |
|
$ |
(799,945 |
) |
Loss from discontinued
operations, net of income tax |
|
– |
|
|
|
(492,485 |
) |
|
|
– |
|
|
|
(230,839 |
) |
Net loss from
continuing operations (GAAP measure)
|
$ |
(1,362,935 |
) |
|
$ |
(951,237 |
) |
|
$ |
(594,627 |
) |
|
$ |
(569,106 |
) |
Add back: |
|
|
|
|
|
|
|
Financial expense –
including interest |
|
549,044 |
|
|
|
541,854 |
|
|
|
215,187 |
|
|
|
204,196 |
|
Income tax
expenses |
|
482,760 |
|
|
|
582,280 |
|
|
|
262,820 |
|
|
|
368,827 |
|
Depreciation and
amortization expense |
|
2,082,208 |
|
|
|
2,334,667 |
|
|
|
964,745 |
|
|
|
1,159,629 |
|
Other adjustments* |
|
282,667 |
|
|
|
674,554 |
|
|
|
187,988 |
|
|
|
136,286 |
|
Total adjusted
EBITDA |
$ |
2,033,744 |
|
|
$ |
3,182,118 |
|
|
$ |
1,036,113 |
|
|
$ |
1,299,832 |
|
* 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) |
|
|
|
|
|
|
|
Six months ended June 30, |
|
Three months ended June 30, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
Revenue (GAAP
measure) |
|
$ |
43,796 |
|
|
$ |
47,186 |
|
|
$ |
21,449 |
|
|
$ |
21,780 |
|
Net loss |
|
$ |
(1,363 |
) |
|
$ |
(1,444 |
) |
|
$ |
(595 |
) |
|
$ |
(800 |
) |
Loss from discontinued
operations, net of income tax |
|
|
– |
|
|
|
(493 |
) |
|
|
– |
|
|
|
(231 |
) |
Net loss from
continuing operations (GAAP measure)
|
|
$ |
(1,363 |
) |
|
$ |
(951 |
) |
|
$ |
(595 |
) |
|
$ |
(569 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
Amortization |
|
|
1,220 |
|
|
|
1,467 |
|
|
|
522 |
|
|
|
699 |
|
Stock compensation |
|
|
193 |
|
|
|
648 |
|
|
|
86 |
|
|
|
157 |
|
Non-cash taxes |
|
|
457 |
|
|
|
379 |
|
|
|
229 |
|
|
|
229 |
|
Other non-recurring
expenses |
|
|
100 |
|
|
|
73 |
|
|
|
100 |
|
|
|
– |
|
Income tax impact on
adjustments |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Net adjustments |
|
$ |
1,970 |
|
|
$ |
2,567 |
|
|
$ |
937 |
|
|
$ |
1,085 |
|
Adjusted Net
Income |
|
$ |
607 |
|
|
$ |
1,616 |
|
|
$ |
342 |
|
|
$ |
516 |
|
Number of diluted
shares |
|
|
26,400 |
|
|
|
26,416 |
|
|
|
26,423 |
|
|
|
26,434 |
|
Adjusted EPS |
|
$ |
0.02 |
|
|
$ |
0.06 |
|
|
$ |
0.01 |
|
|
$ |
0.02 |
|
Investor Relations Contact:
Scott Schmidt
Arotech Corporation
1-800-281-0356
Scott.Schmidt@arotechusa.com
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