Exhibit 99.1

 

Earnings News

 

Arotech Reports Third Quarter 2018 Results

 

Ann Arbor, Michigan – November 6, 2018 – Arotech Corporation (NasdaqGM: ARTX) today announced financial results for the three and nine months ended September 30, 2018.

 

Third Quarter 2018 Financial Summary:

 

Consolidated

 

Nine months ended September 30,

   

Three months ended September 30,

 

U.S. $ in thousands, except per share data

 

2018

   

2017

   

2018

   

2017

 
                                 

GAAP Measures

                               

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  
                                 

Non-GAAP Measures (reconciliation to GAAP measures appears in the tables below)

                               

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:

 

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 %

 

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.

 

   

For the Period Ended

 

U.S. $ in millions

 

Q3 2018

   

Q3 2017

   

2017

 

Backlog

                       

Total

  $ 70.7     $ 69.5     $ 61.1  

 

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 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, 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