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Earnings News
 
 
 
 
 


Arotech Reports First Quarter 2019 Results
Ann Arbor, Michigan – May 8, 2019 – Arotech Corporation (NasdaqGM: ARTX) today announced financial results for the quarter ended March 31, 2019.
First Quarter 2019 Financial Summary:
Consolidated
 
Three months ended March 31,
U.S. $ in thousands, except per share data
 
2019
 
2018
GAAP Measures
 
 
 
 
Revenue
 
$
20,779

 
$
27,249

Gross profit
 
$
5,820

 
$
7,711

Net income (loss)
 
$
(1,407
)
 
$
596

Diluted net income (loss) per share
 
$
(0.05
)
 
$
0.02

Net cash (used in) provided by operating activities
 
$
(2,227
)
 
$
2,515

Non-GAAP Measures (reconciliation to GAAP measures appears in the tables below)
Adjusted EBITDA
 
$
52

 
$
2,161

Adjusted earnings (loss) per share
 
$
(0.03
)
 
$
0.05


First Quarter 2019 Segment Results:
Training and Simulation Division
Three months ended March 31,
U.S. $ in thousands
2019
 
2018
Revenue
$
13,990

 
$
14,558

Gross profit
$
5,379

 
$
5,760

Gross profit %
38.5
%
 
39.6
%
 
 
 
 
Power Systems Division
Three months ended March 31,
U.S. $ in thousands
2019
 
2018
Revenue
$
6,789

 
$
12,691

Gross profit
$
440

 
$
1,952

Gross profit %
6.5
%
 
15.4
%




First Quarter 2019 Business Highlights:
Training and Simulation Division
Adds thirty-seven new employees to staff three bases with maintainers for the Army’s simulator maintenance program (ATMP) under subcontract to Lockheed Martin.
Begins fielding phase one capability upgrades to the Army’s Virtual Clearance Training Suites installations under its three phase program.
Awarded a new rail simulator subcontract from Bombardier for a Canadian customer.
Increases backlog for Air Warfare Systems product line on strong demand for existing U.S. fighter aircraft launch zone software as well as new uses for our high speed weapon models.
Power Systems Division
Continues to advance its Lithium Ion 6T battery platform and begins selling test quantities internationally with orders from new customers in Europe and Asia.
Receives funding to develop nano-satellite batteries from the Israeli Ministry of Defense.
Completes a successful week long Mobile Electric Hybrid Power Sources (MEHPS) demonstration at an Army Technical Support & Operation Analysis (TSOA) event held in March.
 
“Our first quarter revenues were weaker than anticipated, leading to earnings results that did not meet our expectations. While our long term vision remains in place, the revenue timing uncertainty around the very large opportunities we are pursuing within the Cyber Mission Kitting IDIQ (Indefinite Delivery/Indefinite Quantity) that we won in our U.S. power subsidiary has led us to reduce our outlook for the year,” commented CEO Dean Krutty. “The slow first quarter result is attributable to both of our business units producing lower than planned revenue. The Simulation Division’s Combat Convoy Simulator and VCTS programs progressed more slowly than expected as we finalized design work with our customers. The Power Division did not replace revenue from its terminated Assault Amphibious Vehicle electrical upgrade with the Marine Corps as soon as anticipated, which has left us with excess capacity in our South Carolina manufacturing facility for the near term.”
“Our Simulation Division is now fielding new capabilities to the U.S. Army on our VCTS program and is moving from the design to the production phase on the U.S. Marine Corps’ Combat Convoy Simulator (CCS) program, allowing us to begin assembling the first article and prepare for full production. Also within our simulation division, numerous simulator contract awards in the first quarter for our transit and public safety product lines brought backlog in the commercial vehicle simulator group to a 10 year high.”
“Our Power Division continues to progress in diversifying its product portfolio in the absence of battery sales to traditional customers. Contract backlog in our Israeli power subsidiary has grown steadily for the last six months, which will help drive better performance for that division as the year progresses,” concluded Mr. Krutty.
First Quarter Financial Summary
Revenues for the first quarter of 2019 were $20.8 million, compared to $27.2 million for the corresponding period in 2018, a decrease of (23.7)%. The year-over-year decrease is primarily related to the termination of our Amphibious Assault Vehicle program (“AAV”) by our customer Science Applications International Corporation (“SAIC”) as a result of the United States Marine Corps termination for convenience with SAIC on October 3, 2018. In addition, there was a reduction in the manufacturing of certain batteries in our Israeli operations.
Gross profit for the first quarter of 2019 was $5.8 million, or 28.0% of revenues, compared to $7.7 million, or 28.3% of revenues, for the corresponding period in 2018.
Operating expenses were $6.8 million, or 32.6% of revenues, in the first quarter of 2019, compared to operating expenses of $6.7 million, or 24.4% of revenues, for the corresponding period in 2018.




Operating loss for the first quarter was $(948,000) compared to operating income of $1.1 million in the corresponding period in 2018. The decrease in operating income is due to lower revenues in our Power Systems Division.
Arotech’s net loss for the first quarter of 2019 was $(1.4) million, or $(0.05) per basic and diluted share, compared to net income of $596,000, or $0.02 per basic and diluted share, for the corresponding period in 2018.
Adjusted Earnings per Share (Adjusted EPS) for the first quarter of 2019 was a loss of $(0.03) compared to adjusted earnings of $0.05 for the corresponding period in 2018. The decrease in our net income and quarterly Adjusted EPS is primarily attributable to lower operating income in 2019 driven by lower sales in our Power Systems Division.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) for the first quarter of 2019 was $52,000, compared to $2.2 million for the corresponding period of 2018. The decrease in Adjusted EBITDA is primarily due to lower operating income in 2019 driven by lower sales in our Power Systems Division.
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.
Cash Flow Summary
Arotech had net cash used in operating activities of $(2.2) million for the period ending March 31, 2019, compared to cash provided by operating activities of $2.5 million for the corresponding period in 2018. This use of cash is primarily attributable to the funding of certain long term contracts where milestone payments do not apply as well as the termination of the AAV program for which we have not yet received a settlement.
Balance Sheet Metrics
U.S. $ in thousands
For the Period ended March 31,
 
For the Period ended December 31,
Balance Sheet Metrics
2019
 
2018
Cash and cash equivalents
$
4,754

 
$
4,445

Total debt
$
17,945

 
$
14,066

Line of credit availability
$
1,716

 
$
8,219

As of March 31, 2019, Arotech had total debt of $17.9 million, consisting of $9.7 million in short-term bank debt under Arotech’s credit facility and $8.2 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 and the terminated AAV program which has not been settled.
The Company had a current ratio (current assets/current liabilities) of 1.8, compared with the December 31, 2018 current ratio of 2.0.
Arotech’s backlog increased by 30.7% over the same period last year and 8.8% over the period ending 2018.
U.S. $ in millions
For the Period Ended,
Backlog
Q1 2019
 
Q1 2018
 
Q4 2018
Total
$
70.5

 
$
54.0

 
$
64.8




2019 Guidance
Arotech’s 2019 guidance range: We lower guidance to total revenue of $95 million to $105 million; Adjusted EBITDA of $7.0 million to $8.0 million; and Adjusted EPS of $0.14 to $0.18. 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, May 9, 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, May 9, 2019, and continue through 9:00 a.m. Eastern time on Thursday, May 16, 2019. The replay passcode is 47921.
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 Schmidt
Arotech Corporation
1-800-281-0356
Scott.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 March 31,
 
For the Period ended December 31,
 
2019
 
2018
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
4,523,949

 
$
4,222,246

Restricted collateral deposits
229,830

 
222,712

Trade receivables, net
11,801,182

 
16,259,809

Contract assets
22,319,968

 
17,867,896

Other accounts receivable and prepaid expenses
6,548,213

 
5,989,263

Inventories, net
9,452,464

 
9,912,748

Total current assets
54,875,606

 
54,474,674

LONG TERM ASSETS:
 
 
 
Contractual and Israeli statutory severance pay fund
3,637,590

 
3,427,705

Other long term receivables
541,139

 
543,205

Property and equipment, net
8,931,136

 
8,914,247

Right of use asset
6,035,660

 

Other intangible assets, net
4,841,152

 
4,465,778

Goodwill
46,138,036

 
46,138,036

Total long term assets
70,124,713

 
63,488,971

Total assets
$
125,000,319

 
$
117,963,645

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Trade payables
$
6,360,287

 
$
6,442,919

Other accounts payable and accrued expenses
4,689,993

 
6,498,045

Current portion of lease obligation
622,065

 

Current portion of long term debt
2,235,089

 
2,204,653

Short term bank credit
9,703,764

 
5,500,416

Contract liabilities
6,750,785

 
7,054,779

Total current liabilities
30,361,983

 
27,700,812

LONG TERM LIABILITIES:
 
 
 
Contractual and accrued Israeli statutory severance pay
4,465,209

 
4,125,675

Long term portion of lease obligations
5,714,132

 

Long term portion of debt
6,006,573

 
6,360,569

Deferred income tax liability
2,970,978

 
2,863,098

Other long term liabilities
46,800

 
137,774

Total long-term liabilities
19,203,692

 
13,487,116

Total liabilities
49,565,675

 
41,187,928

STOCKHOLDERS’ EQUITY:
 
 
 
Total stockholders’ equity
75,434,644

 
76,775,717

Total liabilities and stockholders’ equity
$
125,000,319

 
$
117,963,645

 
 
 
 




CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(U.S. Dollars, except share data)
 
Three months ended March 31,
 
2019
 
2018
Revenues
$
20,778,639

 
$
27,248,509

 


 
 
Cost of revenues
14,959,111

 
19,537,081

Research and development expenses
1,074,064

 
1,036,702

Selling and marketing expenses
2,152,557

 
1,878,073

General and administrative expenses
3,170,391

 
3,225,934

Amortization of intangible assets
370,203

 
514,911

Total operating costs and expenses
21,726,326

 
26,192,701

 
 
 
 
Operating income (loss)
(947,687
)
 
1,055,808

 
 
 
 
Other income (expense), net
(14
)
 
3

Financial expense, net
(298,431
)
 
(213,108
)
Total other expense
(298,445
)
 
(213,105
)
Income (loss) before income tax expense
(1,246,132
)
 
842,703

 
 
 
 
Income tax expense
160,881

 
247,114

Net income (loss)
(1,407,013
)
 
595,589

Other comprehensive income (loss), net of income tax:
 
 
 
Foreign currency translation adjustment
42,892

 
(24,260
)
Comprehensive income (loss)
(1,364,121
)
 
571,329

 
 
 
 
Basic net income (loss) per share
$
(0.05
)
 
$
0.02

Diluted net income (loss) per share
$
(0.05
)
 
$
0.02

Weighted average number of shares used in computing basic net income (loss) per share
26,387,285
 
26,447,090
Weighted average number of shares used in computing diluted net income (loss) per share
26,387,285
 
26,447,090

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:
 
Three months ended March 31,
 
2019
 
2018
Net income (loss) (GAAP measure)
$
(1,407,013
)
 
$
595,589

Add back:
 
 
 
Financial expense – including interest
298,445

 
213,105

Income tax (benefit) expense
160,881

 
247,114

Depreciation and amortization expense
863,320

 
996,402

Other adjustments*   
135,969

 
108,495

Total adjusted EBITDA
$
51,602

 
$
2,160,705


* 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)

 
Three months ended March 31,
 
2019
 
2018
Revenue (GAAP measure)
$
20,779

 
$
27,249

Net income (loss) (GAAP measure)
$
(1,407
)
 
$
596

Adjustments:
 
 
 
Amortization
370

 
515

Stock compensation
136

 
108

Non-cash taxes
108

 
227

Other non-recurring expenses

 

Net adjustments
$
614

 
$
850

Adjusted net income
$
(793
)
 
$
1,446

Number of diluted shares
26,387
 
26,447
Adjusted EPS
$
(0.03
)
 
$
0.05