Arotech Corporation (ARTX)

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Arotech (ARTX)

Q1 2013 Earnings Call

May 13, 2013 5:00 pm ET


Kenny Green - Senior Partner of Israel

Robert S. Ehrlich - Chairman of the Board, Chief Executive officer and Chairman of Executive & Finance Committee

Thomas J. Paup - Chief Financial Officer and Vice President of Finance



Ladies and gentlemen, thank you for standing by. Welcome to the Arotech Corporation First Quarter 2013 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded May 13, 2013. I would now like to hand over the call to Mr. Kenny Green of CCG Investor Relations. Mr. Green, would you like to begin?

Kenny Green

Thank you, operator. I would like to welcome all of you to this conference call, and I'd like to thank Arotech's management for hosting this call. Earlier today, Arotech released first quarter 2013 results. By now, you should have all received a copy of the press release, which is available on Arotech's website at

With us on the call today are Mr. Robert S. Ehrlich, Chairman and CEO; Mr. Tom Paup, Vice President of Finance and Chief Financial Officer; and Mr. Norm Johnson, Controller. Bob will summarize the key highlights of the quarter followed by Tom who will review the company's financial performance. We'll then open the call for the question-and-answer session.

Before we start, I'd like to point out that this conference call may contain projections or other forward-looking statements regarding future events or the future performance of the company. These statements are only predictions and there can be no assurance that they will, in fact, occur. Arotech does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of changing market trends, reduced demand and the competitive nature of Arotech's industry, as well as other risks identified in the documents filed by the company with the Securities and Exchange Commission.

In addition, certain non-GAAP financial measures will be discussed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company's current performance.

Management believes that the presentation of these non-GAAP financial measures is a useful to understanding and assessment of the company's ongoing core operations and prospects for the future. Unless otherwise stated, it should be assumed that any financials discussed in this conference call will be on a non-GAAP basis. A full reconciliation of non-GAAP to GAAP financial measures is included in today's earnings release.

And with that, I'd like to hand the call over to Arotech's Chairman and CEO, Mr. Robert Ehrlich. Bob, go ahead, please.

Robert S. Ehrlich

Thank you, Kenny. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report strong results for the first quarter of 2013, continuing on from the solid performance of the second half of 2012. 2013 has started off well and our scope of business is significantly larger than it was a year ago.

To point out a few highlights, revenues were at $22.1 million, a year-over-year growth of 37%. We reported a net income of $404,000, given us trailing 9 months profit of $1.2 million. Compared with the second half of last year, our gross and operating margins have been improving, reaching the 25% range. In addition, we have increased our focus on keeping tight control over operating expenses, and this effort is allowing us to increase our operating profitability.

Most important is our future potential is becoming ever clear. As you can see from our press releases to date, we are seeing a continual stream of new contracts from our simulation products as well as important orders for our battery systems. Our backlog has, therefore, remained strong, standing at $76 million at the end of March at a similar level to that of March last year. This, combined with our solid performance in the first quarter, gives me increased confidence that Arotech is on the right track, and I believe that we will comfortably meet our targets for the year.

Just to remind you, at the beginning of the year, our expectations for 2013 were revenues between $85 million and $87 million and EBITDA of between $2.9 million and $3.4 million. While we are more than on track to achieve those goals, I would like to point out that we are being somewhat cautious. With regards to the U.S. budget sequester, there has been very little negative effects on us to date, and we do not know what, if any, longer-terms effects will be, so we're continuing somewhat cautiously as we go forward.

We continue -- we could potentially see some impact on the funding of some of the programs we are targeting later this year, but right now, we just don't know and don't see any problem. I should note that while most people would view the U.S. budget sequester as a negative, for business in the defense space, we believe it will ultimately put more of an emphasis on simulation-based training solutions as a way to maintain troop readiness. Thus, sequester could end up being a positive for the company, similar to companies similar to us in the high-tech solutions that provide clear and quick return on investment and savings.

Again, while it is too early to pinpoint what will happen, we are being cautious and, so therefore, there be any further developments, positive or negative, we will be open and transparent, and we'll share this to you.

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