Q1 2020 Earnings Call

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Ladies and gentlemen, thank you for standing by welcome to the Rod Electronic industries first quarter, two selling 20 results conference call. All participants are present in listen only mode. Following management's for completion instructions will be given for the question answer session.

A reminder, this conference is being recorded.

<unk> spend all the company's press release, if you're not received it please contact right as Investor Relations team at GK Investor and public Relations 16466 8.3559, Okay. What in the news section of the company's website www dot rather dotcom Oh, no handover the call to Mr. He has helped us.

<unk> Investor Relations Mr. help. Please go ahead.

Thank you operator I liked work all of your to this conference call to discuss what our first quarter two times.

I'd like to thank God and management.

On the call today.

She visits.

She hotshot.

Oh summarizes the key highlights of the corner followed by would provide a summary of the conscious.

Then open the call for your question.

I always thought on that Dipankar safe Harbor published today.

Awesome, Thanks to the content from this conference call.

And with that I would now like to introduce whether films to dump center.

Right.

[laughter].

Thanks.

[laughter] well first I would like to.

Sure everybody.

On the going on.

Uh huh.

Speedy recovery.

We are beginning to ease up.

Shopping malls open keep said, we're going to school.

I saw beginning to bring it back.

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Always continue and careful social distancing restriction.

I hope this rocky wouldn't be behind us globally, and now that said. These skus are always on [laughter] starts and stops as always I'd say somewhere [laughter] cannot fuel.

So maybe I'm reading the press release.

Yeah, very pleased with our financial results.

First quarter 2020.

Sure.

3% growth.

Growth in revenues year over year.

Our gross margins are stable for quite a while now.

And we have surpassed profitability, which is actually the timing is ahead of our expectation.

[laughter] they've gone up on damage [laughter], no I'm not sure.

Financial impact on <unk> dot.

Weeks ago, we discussed the steps and we have taken to protect our workforce. So we looked at.

And beating them again no.

I want to highlight that a in both.

The U.S. all companies they all the time to sponsor of the defense.

Industrial base, which means that we are a quickie caught enterprises in both countries we operate.

[laughter]. This enables us to continue working at full capacity and also enabled us in the last two months.

Longest we keep on brilliant safe and appear to regulations and that's what we view.

As our strawberries oxytrol wherever they are successfully adopted and they have overcome the world Championship pandemic has said present at the OS.

Oh and manufacturing was and is uninterrupted on your facility in the U.S. is up and running.

Ramping manufacturing.

And deliveries for your customers from all yours production line have started manufacturing all baked John facilities will also continue on interrupted.

And to date all deliveries to customers have been asked manager was minimill interruptions.

We.

Our revenue guidance full 2020.

Why do we issued our guidance before they're going to harness pandemic effect affected the global economy.

We continue to stand behind our guidance, which you say over $65 million a frozen meals for this year.

Representing growth of close to 50% year over year.

Looking ahead, we continue to expect sequential quarterly revenues growth.

Hello, This year, and maybe airport and probably a into 22 anymore.

And from what we have the in our backlog quarter number two.

On track as well.

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Bad on ships has never been stronger we have.

32 million in net cash, which is more than enough where far more working capital needs. As this now and also into the future. It allows us to maintain significant inventories in order to meet current and future expected growth in customer demand.

And it is a more than enough to continue to invest in our growth.

The economy economic situation will be.

In the coming months.

It's still compete about business development.

Like everybody else, we're still not traveling out of transferring to meet the existing and potential customers and partners.

Nice to face, we rather means virtually by video unfold.

And because all our offering the same vote and so to speak this type of remote business development is currently the industry standard.

And.

On the right.

Our sales cycle tend to be long term about a year or if not more sometimes.

So he is not a possible to fill in the short term weather and not committing face to face has them.

Any meaningful impact however, the need for lifesaving solutions for the armed forces.

Very clear on solid.

And he is a model and early on defense need.

We have not had from existing and potential customers, let's wait and see Boston dynamic.

In our end markets continue to move ahead without to ask folks.

And so we believe the potential delays in business development activity that at the situation May falls on us.

Our recoverable and will not have a long term effects on our business.

Fit to our findings.

For processes, sometimes I'll gifting quicker and more efficient probably due to less overall right as a result of fourk at home.

Entire for efficiency administrative work by our.

End customers and also the integrators. We also experienced there that's scheduled English meetings, we simply are.

No it travels and loss and loss time may as a consequence and people seem to be more available.

They are not sure concerns about the macroeconomic economics and the location of say a defense budgets as a result to to the coil hardness and situation.

So far we have not seen any cancellation of existing orders and in fact, we have continued to get their new orders in good pace.

Wider right now the global macroeconomic outlook at least for 2020 since that defense spending is if the government expense, which is generally less.

Both add to the macro economy.

And to our belief into our experience.

We expect that a huge economic stimulation packages in the us Israel and elsewhere.

Following product.

We flow in part to defense spending.

As this has a positive impact on employment and economic activity in general and since we are addressing new markets and modernization needs.

We believe that programs we are involved with.

Let's be those that.

Thanks, Joe we suffer from any potential future decreasing defense budgets, if thats what will happen.

Let's talk a bit about our markets and customers.

In our hot markets.

The interest and need.

As we said just now for the solutions in which we are a are you guys are a key part is global.

Considering the addressable market size. We believe this is just the beginning for sustained growth period.

Our strong growth in sales demonstrates the transitional far end markets from the initial stage to the serial production stage.

We see programs moving from fulfillment of urgent needs to multi year acquisition programs. We expect the seats will enable us to start building backlog in the coming months into established growth also in 2021 and beyond.

As many of you know we are currently targeting a number of such programs first we believe that the market for radars for active protection systems.

Using the original fair total of $3 billion there in the coming decade split evenly between the us and the rest of the world. In these markets. We are proud of I am I LDL.

See sexy protection system, which was selected by the Israeli government for the.

Hi, Don a free anything process of being installed on the US army their Bradley I agree.

And that's a four day DS the short range defense markets, we cater to we estimate will be about $2 billion market over the coming decades also split evenly between the U.S. and north of the World. We are currently serving the US Army I am sure our program.

Potential of 144 vehicles.

And we also providing systems today Marine Corps Us Marine Corps borrowing base defensive program.

In addition to weigh Pearson.

Shorter in Germany, France to the maneuver Forsys recently basin pulling defense has been becoming a clear on eight.

And this has been.

Since the lifestyle effects in the near East by your on and on UAN basis in Africa biopsies and some more examples in the last.

Few months.

Beyond what has been deliver to date, we see significant upside there for follow on orders to the initial orders in our pipeline continues to broaden with promising prospects.

And potential orders, especially strong in the U.S., while other international markets are increasingly growing.

So let's summarize.

First I want to reiterate what we said a few weeks ago as ever since I talked about is everything from our strong results. The as published today, we are showing.

Revenue growth of 73% year over year quarterly.

In revealing the profitability potential of our business earlier than we expected.

On the perspective wholesale operations and performance as of today, we are on track for 2020 supply chain executive and productive.

And overall business continues to draw the is very good.

From the perspective of how markets defense is critical industry less exposed to and economic downturn.

Furthermore, we see defense budgets generally growing or at least stable mainly in the us.

Part of the government economic stim stimulus the need for our products and which this annual period is very is is the reality to the military forces.

And the recent effects on your stocks in Iraq, and other places proves that.

In summary, and despite a pandemic. These are exciting times for us finally, we'll start to see and enjoy the forward so far investments over the past few years.

In view of the opportunities edifice or otherwise position for significant growth and the investments in our production infrastructure both in the us in Israel.

Stabilize now.

We have a strong balance sheet with over $32 million, providing us with more than what we mean.

Is working capital in the ability to capitalize on the opportunity set of us.

And our leading radar technology, which keeps evolving.

Yes, demanding needs of this a growing markets for the coming years, while we are currently developing our next generations.

We should keep us in the lead for a few years to come.

And finally, we can confidently say that things have never been has never looked better Florida.

I'd like now to hand over there discussion to rvs. Our CFO. Please. Thank you do this morning, and good afternoon to all of participants and thank you for joining US today you can find our results on the best with this we should earlier today and I will provide a short summary of the first quarter results.

First quarter revenues with a record of $15.1 million up 73% yields we.

Gross margin.

In the quarter was stable at 36% of revenues and has not changed over the past few quarters. This is the level, we're currently expecting and they're happy with.

As you know, we made significant investments last year, especially in R&D and marketing and sales.

As well as our infrastructure in the United States. So.

Operating expenses grew.

However, looking ahead, we expect operating expenses to be stable, it's around the current quarters level throughout 2020.

While we reported that we expect to surface profitability at some point doing 22, any we achieve it earlier in the first already in the first quarter.

Operating income was 46000 in the quarter compared to operating loss of 558000 in this first quarter 220 19.

Adjusted positive EBITDA was 863000 compared with a negative one of 26000 in Q1 of last year.

Net income attributable to reduced shareholders in the quarter was 170000 compared to a net loss of 485000 in the first quarter of 29 team.

I would also like to summarize and point out some highlights on our balance sheet as of March 31st wedding planning, we had $32.1 million in cash and no financial debt at all.

On January 10th 2020, we significantly strengthens our balance sheet by raising approximately $23.5 million from investors after expenses in the secondary offering in the United States.

At quarter end, our shareholders' equity stood at $65.4 million financing, 72% of our balance sheet.

In summary, as Doug mentioned and as the financial results demonstrate we're very pleased with our progress and on track.

That ends my summary, we should now open the call for questions operator. Please.

Thank you ladies and gentlemen at this time, we will begin the question and answer session. If you have a question. Please press star one if you wish to answer your question. Please press star too. If you are using speaker then Kevin this to headsets for pressing the numbers. Your question you pulled in the order. We have received please stand by only poll for questions.

The first question is from Ken Herbert of Canaccord. Please go ahead.

Yes, hi, good morning, or good afternoon, dubious I'll be very nice quarter.

Thank you. Thank you.

I just wanted to first ask.

Doobie, you've made some positive comments.

On the short range or defense to shore AD market with with activity near term can you just provide an update of some of what you're seeing specifically.

On the the GE bad procurement with the Marine Corps, and then of course, the vehicles will see US army in any change to your expectation of timing this year.

We assume that both of these programs will materialize into backlog this year.

And then revenues will be.

And in next year and this has no change.

So you're expecting a contract I think it with some time in the third or fourth quarter, that's still the expectation yes.

Okay great.

And then if I understood RV.

You just your comment on operating expenses Opex. So you 5.3 million in the first quarter.

I would assume maybe some breach or as we go through the calendar year on marketing and selling maybe but it sounds like.

Based on your comments, the research and development and gene expense should hold up the first quarter levels, roughly yes, youre correct and if I would like to draw your attention to the Opex level of Q4 last year, which was about 5.1. So we are stabilizing our opex as you mentioned.

Yeah, Okay, very good and how do we think about the EBITDA margin.

For this year I know, obviously, a lot of that'll depend on holding gross margins sort of steady, but I'm, assuming you expect to be able to hold gross margin steady, which means a lot of the incremental margins and opex is steady we should see.

Acceleration in incremental margins on the topline.

Is there anything else that we should be aware of what we should think about in our model that to perhaps impacts the margins or any of the risk. If you think about margins through the progression of 2020.

Nothing significant.

Perfect. Okay, I'll stop there and pass it back. Thank you very much in queue. Thank you guys.

The next question is from Brian Kinstlinger of aligned Global partners. Please go ahead.

Great. Thank you inventories building nicely almost $20 million can you break that down between Israel and the you asking are there any additional challenges on shipments from Israel and as your second question moving forward you expect all inventory that's going to be shipped the U.S. customers will be coming from Europe.

In Maryland, Thanks, Jody once that inventory mix really shifted ginger.

What do you see in our financial statement is consolidated inventory obviously most of it is in Israel, because the US production is ramping up only recently.

We share supply chain channels between the two entities.

And.

I hope that answers your question.

Yes, I'm just curious are there any delays in shipments how are you taking any extra effort to ship given.

Any restrictions in place.

Today, we haven't faced any delays in any restrictions not from Israel no from the us.

And so with no up until now.

Throughout this corona period, we haven't faced any challenges that we cannot overcome.

There are a few days that we add to your no shift a bit in a day or two but nothing significant.

Just to complete your questions.

We do believe that since starting now these days and onwards, the U.S. consumption will be satisfied by our us production plant.

Yes.

And then can you break down.

Revenue by geography, and then talk about.

You talked a good amount about the U.S. driving growth.

Are you seeing growth in progress in international yet or is it more just anecdotal pipeline improving in that yet revenue.

The U.S. is.

Not surprisingly about 50% of our current revenue and this is steady stable and thats, what we assume.

Yes.

And the Israeli integrate those are another 25%.

And the rest is mostly coming from Europe, which is the growing segment for us.

And also hearings both for European end users and the full integrators to other parts of the world.

And but we counted as youre.

Great.

I am curious during the first quarter of 2020.

As any significant contribution from advanced protection system programs I know there has been using you just said even on the call. There's been news on the Jack Cdnineteen, an Israeli eight nine have we seen any revenue from that yet and if not when do you expect that to begin to ramp.

Yeah, we continuously say that active protection, we start being.

And fixing our top line only 2021 and also gradually so so far it seems you know development.

Waning programs testing that kind of thing.

Okay.

Can you highlight and the bookings in the month of April and then.

Can you remind us.

In terms of you booked $16 million of orders during the first quarter of 20, what's typical turnaround between orders and shipments in general.

It is typically something like six months at the most.

Sometimes is a bit more but typically this is the.

This is.

Turn over periods and this is why we said when we released the notes that we expect to deliver everything this year.

Yes, and and you have April bookings can you can you share those yet.

No no we were going to once we consolidate and.

We don't when when we when we feel that it is a significant.

And also want to me.

Okay. Thank you.

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The next question is how often Mulder of Canaccord. Please go ahead.

Good morning, Dubin Amit.

Yes.

Hi.

I just want a quick question about the.

Leverage that or you know you announced with your relationship with ascend vision to.

The customer was on an undisclosed us customer right.

We are not disclosing customers, yes basically.

Okay.

That said vision are those deliveries that you announce relevant to the second quarter, specifically on the third quarter.

Actually the transmission deliveries of our swear made last year.

Oh, okay.

And then.

The.

I am store on program does can you quantify how many of the way dollars have rolled off the line in been delivered to the prime contractors, yet on that and what the ramp looks like.

Currently we are in the phase of the across all types. We have delivered seven cents, which is at 28.

Radars, maybe 30, we some spares.

We are delivering soon and other set before but these are prototype.

Assets.

And as we mentioned in the discussion we expect to get the silver production orders later this year.

We do assume that.

About half of that program potential wilma convert into revenues next year.

Which is.

One and a 44 vehicles divided to tool.

And then multiplied by four.

Okay, great. Thank you.

If there any additional questions. Please press star one if you wish to kill to your question. Please press star to please stand by only poll for questions.

The next question no motion. Please go ahead.

Yes, hi is doing.

Thank you very much and installations for the great quarter.

I wanted to ask you.

When do you get the ISO certification.

Hi, so.

I mean, there for the us yes.

Formally last week.

On formerly three weeks ago.

Okay. Okay. That's good.

And.

Second question is.

Last year, you said, you're going to develop a four new radars.

In the meantime, actually you reveal to them and I wanted to know when I got to.

We feel the other two the rest.

In a year from now.

And your from now.

Next to.

Yes.

Okay. Okay.

Thank you very much thank you.

Sure.

There are no further questions at this time, Mr. So let me just like to make including statements.

Yes. Thank you operator on behalf of the or other management I would like to thank you for participating in our.

Call and the interest in our business I.

No we should speedy recovery to all those affected by the pandemic and I think.

The Hess workers globally for they are forcing converting these pandemic.

We look forward to speaking, we view and updating you again in our second quarter results release, which is going to take place in approximately three months time.

We wish you to stay well and good day to all of Us Bye bye.

Thank you. This concludes Sumit electronic industries first quarter 2020 results conference call. Thank you for your participation you may now disconnect.

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Yes.