Arotech Corporation (ARTX)

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Arotech Corporation (ARTX)

Q1 2019 Results Earnings Conference Call

May 09, 2019, 09:00 AM ET

Company Participants

Dean Krutty - President and CEO

Kelli Kellar - VP and CFO

Yaakov Har-Oz - SVP, General Counsel

Conference Call Participants

Mike Crawford - B. Riley FBR



Good day, ladies and gentlemen and welcome to the Arotech Corporation First Quarter 2019 Earnings Result Conference Call. All lines have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. [Operator Instructions]

At this time, it is my pleasure to turn the floor over to your host for today, Mr. Yaakov Har-Oz. Sir, the floor is yours.

Yaakov Har-Oz

Thank you, Jess. Good morning everyone. I'd like to welcome everyone to Arotech First Quarter 2019 Earnings Call. Hosting the call today are Dean Krutty, our Chief Executive Officer and Kelli Kellar, our Chief Financial Officer.

Before I turn the call over to Dean and Kelli, I'd like to remind everyone that this conference call may contain projections or other forward-looking statements regarding future events with 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 as a document 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 believe the presentation of these non-GAAP financial measures is useful to investors understanding and assessment of the company's ongoing core operations and prospects for the future Unless it is otherwise stated, it should be assumed that any financials discussed in this conference call will be provided on a non-GAAP basis. Full reconciliations of non-GAAP to GAAP financial measures are included in the earnings release.

And with that, I’d like to now introduce Arotech’s CEO, Dean Krutty. Dean, the call is yours.

Dean Krutty

Thank you, Yaakov. Good morning, everyone. And thank you for joining us today. For the first quarter of 2019, we reported $20.8 million in revenue and $52,000 in adjusted EBITDA.

Our training and simulation division reported $14 million in first quarter revenue while our Power Systems division reported just $6.8 million of revenue last quarter. Our first quarter 2019 results continue to reflect some challenges we are facing our Power Systems division.

Last September, the U.S. Marine Corps terminated for convenience its Amphibious Assault Vehicle survivability upgrade effort with SAIC, who in turn canceled the contract that we held to replace the electrical system on those vehicles. We announced then that we expected that our new contract with the Navy Information Warfare Center or NIWC which was previously known as the Space and Naval Warfare Center would make up for the lost revenue beginning in 2019.

The contract is for Cyber Mission Systems, kitting and supplies and carries the $950 million ceiling. Our U.S. power company UEC is one of five recipients. NIWC expects to procure systems that provide detection collection and exploitation of electrical systems as well as wireless communications to support the warfighter beginning this year.

Unfortunately, the Navy has been slow in releasing task orders under this contract causing us to adjust our expectations downward for 2019 to reflect the delay. Additionally, and unrelated to this concern we fail to win a follow-on contract with Raytheon that we expected to bring short-term revenue to the early part of 2019 at UEC. As a result, our first quarter was weaker than we had expected and we have accordingly adjusted our guidance downward for the year.

Despite the slow start, we still feel strongly that our place on a NIWC contract will pay dividends over the next five years and we and our subcontractor teammates are working hard to maximize our work share on the opportunities that are now taking shape.

We are ideally located to serve the Naval Information Warfare Center located in Charleston, South Carolina and we and our partners have a long history of providing contracted support to this demand.

For the last several years, our UEC subsidiary has been working with the Marine Corps to develop a hybrid power solution called MEHPS or Mobile Electric Hybrid Power Supply. We are pleased to see [indiscernible] release an expected RFI and performance specification for MEHPS two weeks ago, in preparation for anticipated request for proposals in the third quarter of 2019. The Marine Corps RFI anticipates a procurement quantity of 421 systems to be fielded and expected full rate production tempo of 9 to 15 units per month.

While we work to try to win the Marine Corps production award, we have also been demonstrating the MEHPS system to the U.S. Army. In March, we completed a weeklong demonstration at the Army's Technical Support and Operational Analysis event and generated positive press and further interest from the user group there.

A MEHPS system was used to power a variety of loads including the task operation center with demonstrated fuel savings and zero faults or failures. We are currently participating a second test event in support of the U.S. Army.

Read the rest of this transcript on seekingalpha.com