Q2 2021 Rada Electronic Industries Ltd Earnings Call
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Ladies and gentlemen, and thank you for standing by and welcome to the Rada Electronic industries second quarter 2021 results Conference call. All participants are at present in listen only mode. Following management's formal presentation instructions will be given for the question and answer session. How's. The reminder, that's correct and this conference is being recorded.
You should have all received by now the Companys press release, if you have not received it please contact <unk> Investor Relations team, how GK investor and public relations at 16466, and 83559 and our view it and the news section on the company's website Www Dot Rada.
Com.
I would like to now hand over the call to Mr. Ehud Helft GK Investor Relations, Mr House, where do you like to begin. Please yeah. Thank you operator, I would like to welcome along and these conference calls and discussions about that.
Second quarter, 'twenty, 'twenty, 1 and results.
I would like to thank Rada management for hosting this call with us on the call today, if adopted as Chief Executive Officer.
The Army Brown and Chief Financial Officer.
The other and summarize a few highlights for the quarter followed by a low provided summary on this on options.
And then open the call up for question and answer session.
And I always thought and actually bumped off with the Safe Harbor, probably see today's press release.
It pertains to the contents of this conference call and.
I would now like to introduce Butterfield and that doesn't say that.
No go ahead.
Thank you.
So I'll call politics and things.
It's far from it.
On summary.
And we are very pleased with the results and on peripheral and are performing according to our plans and we show continued strong growth.
Cause the book.
And the Q2 numbers speak for themselves so all training on it.
And we have revenues on for 20, 8-K, and may be ending the quarter up 61 for strength year over year and.
And it's worth close and for parents to be cool and share a quarter.
We have gross margins, which are 30% to 40%.
And there are $4.35 per cent or 400, and Fergie Friday Gregory scoring.
And about where the second quarter of last year Jeff.
Adjusted EBITDA grew $6 from the median.
23.
$3 and yours versus let's say EBITDA margin of 10 per share.
Yeah.
And the thing at all quarter overall, we're very pleased with the progress we make.
Yeah and then.
Margin gross over the past year.
Sure and head of products.
Expectations.
And with regards to support our guidance.
Over a long on cars.
Maybe on the Norfolk and for the whole for the year.
And this is there ever and you go on for her almost 60% year over year, which is very very significantly and hospital gowns.
And and harvest further on given the facts and Colorado.
And the big piece.
And the brakes, if no really significant.
And he has a strong balance sheet with over 96 million daus, and Medicare shipped and over the quarter I'll call on food gifts and that there is more than enough to support our inventory plans and now.
And the need for secure the supply.
And change it.
And they build a free shares manufacturing and good and enables us to continue to invest in our book.
Given the current global shortage of components.
And the ongoing need for 2 weeks, you're going to go to stay on the COVID-19 pandemic and book.
And our supply channel and we are fixing on their decision.
Strategically and cuisines and told me never to ensure availability of components.
There are ongoing and construction plan.
And also another thing all cash without going on manufacturing capacity, both in Israel and videos.
Furthermore, discretionary and that arose out of school and paying a competitive edge true.
L a and D a.
Philadelphia and capitalize on our conversion opportunities.
And they prevent them from.
And in sales.
And so good because of alcohol and market.
And as for summary, and from a market. The book is trying to get on markets, mainly around short and so you are yes, and basically friends and continue to develop.
The U S users and lead the market.
And we also see and decrease in drilling and it's going to grow on a global basis.
However, in Europe on guarantees and other geographies mainstay.
No go from once you're on and I would think department and COVID-19 core strength and sometimes it makes me from RBC, Cosmo mature and New York and you know relationships into orders.
And the only last week, we saw a draw on a per period when shipping and here in the Gulf or form on the extra.
Along with convenient and fixed by drones, and all kicks in Iraq and the Gulf region.
And recently also and you know frenzy, Oh forever and go along and they need for counter UAS production in today's world.
And because they are either cannot drink day.
Picture and on visa clicks and the <unk>.
And performance, which is favorable for mass production.
And so our pipeline continues to build and.
Over the 3 years since the market really started to emerge and therefore.
Already issued debt.
Sure.
Florida, a few on your possible months.
Coming to us because we pay the oxide from photo on order book is being shareholder.
And we are satisfied so far and on it.
Production and full.
And failing so programming and which we are currently and your volatile.
And the Marine Corps, Europe's margin call on G box program and the program were foreclosed on it or there are some there and what do you argue that program, there's a fixed revenue and brief here.
It's a big slow down and we have a few more venues and the way. They always go next year.
And there's little doubt there was a $40 a year.
And he was telling me I'm sure on programming and frankly, a little and they give US Army award with general dynamics there.
We expect this favorable with $1.2 billion and core truck covering for 40 gig and 1 on and 44 systems, but you need to 2020.3.
Each of which require a floor and also flowers.
And for the full 360, I mean, sorry coverage. This year, we show there the need for the downtown and so 6 times Covid program.
And she's on video through this year.
And venues are expected to continue on next year as well.
And it gets you a on basically Travis and counter UAS potential programs, and New York incubate and after a satisfying significant urgent needs to be.
The Air Force, and so called special ops and others.
And on their growing continuous testing.
And so both our gross and 2024 and onward.
As an example, I'll wait on call included in either recent box on slick water free Air Force base, there'll be friends or any guidance and the idea and QE true.
Feeling of close to 1 billion dawn on us over 10 years.
900, and Christi 3 media.
And for you guys.
And how worried on providing best in class performance for key and new shows and we anticipate further field and the freight on the bolt on and continuous addressing a variety of from Columbia.
And don't feel free to air for pricing vehicles, and write off of our embedded into everybody's time on free solution.
So any of you garner your free development is ongoing and sweetheart.
And in your comments.
And the second half of 2020.2.
And you're almost always break and the IFC 50, and he is.
Ongoing and when.
And continue into 2020 tool.
And you see where production expected to be 23, and the old ones and.
The scope of the first break and gets over 600 and dry dock and we believe that the perpetuating and Ireland and one's a gig.
And there are sort of on.
You should know that you'd be on the programs and our pipeline each requiring potential and Honduras before he does.
And starting 2023 and onwards.
And some or all of it.
On the show is we are and it can.
Currently experiencing significant growth.
And we are performing according to our plan on.
The top line and from what they had those expectations.
And on improving our profit margins.
And the U S and global market for our products and mature.
Coming here and now.
And if we take photos low and trying to come and easier.
For the financial perspective, and the way.
Tara and cars and your guidance for a long and towards new media and Bill for you here.
Presenting to around 60% year over year gross.
Gross margin sustainable at current levels and.
Given the leverage you know business model and now there is potential for further on in both work.
And from operating margin.
At this point I'd like to hand over their discretion and philosophy is volume.
Our CFO.
Okay.
Okay.
And it's all day 1.
Dipping and to grow them immediately.
Okay.
Yes.
Yeah.
Thank you Tobey you can find out and it goes on the press release, we issued earlier today and.
Mentioned, we are proud of our financial performance and other.
And that's provided and short summary of the second quarter and goes.
Second quarter revenues led to a $28.3 million up 61% year over year.
Gross margin in the quarter was 40 per period, compared with 36% and Q2 of last year.
Operating expenses were $6.8 million compared to $5.6 million and the second quarter of last year.
Both a colleague and expected operation and the show to meet her so opex is expected to grow at much slower pace than revenue.
And the business now contains additional operating leverage with the potential the potential to further improve our operating margin.
Operating income was $4.5 million and the second quarter with 634000, and Q2 would love to use and.
And the second quarter and recorded a deferred tax asset and $6 million and view of our recent profitability.
And I think the deferred tax asset and Nick <unk>.
Income from $4 million zone, 707000, and Q2 of last year.
EBITDA for the second quarter was $6.3 million zone, which is 22% of revenue versus that'd be dealt with $1.7 million or 10% of revenue in Q2 of last year.
I would like to summarize and point out some highlights from our balance sheet too and.
And as of June 32021, we had $96 million and net cash and dealer financial debt.
At June 30 years, 2021 on the shareholders equity stood at $143.5 million financed and 77% of our balance sheet.
Given the current global shortage of components and the ongoing need to mitigate against any COVID-19 pandemic and book.
Our supply chain, we took a decision to strategically increased inventory levels to ensure availability of components to our ongoing production plan.
And from the end of the second quarter. The inventory level has decreased to $31.6 million from $28.8 million EBITDA and a 22 and we plan.
To increase further in the coming quarters in summary, as Bill mentioned and as the financial results demonstrate we continue to be very pleased with our progress.
That and to make summary, and should now open the call for questions operator. Please.
Thank you, ladies and gentlemen at this time and we will begin the question and answer session and you have a question. Please press star 1 if you wish to cancel your request. Please press star 2 if you are using speaker equipment and kind of lift the handset before pressing on numbers and your questions I'll be followed on the order. They are received and standby while we poll for your questions.
Our first question is from Sheila <unk>.
And you all of Jefferies. Please go ahead.
Good morning, and team and thank you for that time, maybe can you talk about the drivers of price.
So all that given how far I think that was on you know any particular areas of strength and anything any sort of areas of weakness as well.
Seen that from some of the defense supplier.
Oh, I'm, sorry could you repeat please and Sheila.
And I don't exactly clear here.
Oh, sorry about that and you hear me better now.
Yeah.
And can you talk about where you thought area and strength given your great drugs and the quarter on and maybe any potential pockets of weakness on it at all I know the crack was very good I'm just keeping them in person.
Commentary from some of the suppliers.
Okay.
The strength is coming from the U S market that towards the all first and foremost market and we are feeling from the beginning we are there and in the in 2 or 3 are already established full balance like if you show up which is our weakest.
And the Marine Corps G bad and that would be a bug.
And and there's a potential for a so called money and programming and the.
Sure.
And also we have the prospect of a T S.
And again, we have quite a few additional prospects.
And these are incubating with some other or Brian and integrators and solution for value goes there on high energy lasers.
And the culture of your yes.
And.
And so this shows a full day the U S market is showing great strength and.
It is also surviving any coach and walks and all and do you know declining book budgets and so on and because we are in the priority.
Channel on the same day and they're done.
And integration priorities over the army and the and.
And addressing the current and and nowadays they switched on.
And the focus of all day.
Only moving 3 forces.
And we see the European market and opening up.
But it is very glad you all and flow.
And here it is behind our expectations.
They need to leave open up for us because they need these are very clear.
I'll give her the COVID-19 slowdown and strength in the U S market compensated last few romantic before them and we do believe that the trends. We may you know and show up and.
Probably for example, see feel and into next year. So we do believe the day market is continuing to grow the APM market is waking up on us and we can start from next year towards the end of deal, we believe or at least through the 8 on fighting vehicles. So EPS should be you know and.
And if your Pennsylvania, and lousy and 23 and on watch dogs and.
So that's the general overview of the market.
And maybe can you talk about how you're thinking about you know exercising their needs and what Martha just given your cash and backed up I think from 39 and at the end of last year that 90 plus day in.
And I kind of know, what's the right buffer and working capital how much you need and how you're thinking about capital deployment.
You know and equally if we a few of them organic.
Organic Oh.
And momentum as we experience and till now we have more than enough and we are increasing our inventory level and it's because of what's happening in day in the semi conductor market mainly.
But at these low period coming close to what we have now and we do soccer charges on our workforce to ensure growth beyond day 2024 and onwards.
In the next 2.3 years all of these expected they'd be fishing trip and took a 2 or 3 years ago and we are launching 3 new leg on this year. So we don't believe that day will sustain and even and hand, sorry and.
Both Tam and and annual revenues.
And we all hear you and 1 way of preparing data on it.
And Keith to talk to them and names as well and we have at Pittsboro early true Scott.
Yes.
And the level of cash which is adequate to start to this activity is low.
Okay. Thank you so much thank you Sheila.
The next question is from Brian since day 1 of.
Of Alliance Global Partners. Please go ahead.
And I don't think so much from taking my questions and I'm, losing calls and discussed the goal to duplicate and trust.
Moving quicker than you and timeline can you talk about the progress you're making and then.
And the agony local infrastructure, there and if so can you share with your expected timeline.
And.
Uh huh.
And as I mentioned earlier to Sheila on stay.
Of course share it.
Europe is emerging but not as fast as we thought and the and the you know the Shaw and come to a UAV activity and Europe is relatively.
Usually on the order flow and scan and we do see and integrations, we do see incubation and so we are part of them and quite a few areas.
And I think.
Yes.
And wake up and significantly probably in 2020.3 D day.
Answer a question from because they didn't understand all the future.
Well that came on line.
The other question was.
And local infrastructure, but I guess non for themselves and a little bit slower than you had previously anticipated.
Yeah.
Yeah and then.
And last quarter and and just now you talked about.
On a new multi Michigan and kind of snuck radars and <unk>.
Last quarter and talk about and being part of a pack and they still on track to be on ships.
And of the year.
Radars and anyway, horrible wise or home sales and the other.
And that's hurting totally complementary.
And we don't see any company valuation and we are on track.
Okay.
And inventory a couple of clients and carriers.
And the state and you have about 5 and 6 months inventories, how they count moving towards perhaps and as possible right.
And maybe I'm mistaken, but that's how I'm calculating that and continuing to challenge from Q1.
And you brought in and 64 sanctions and she got grew up more than 60% over the next few quarters and shall war and know how are you thinking about from weather remains up from there.
It's Brian and slogan.
And 5 to 6 months, it's a little bit more than debt and arguing to further increase the level of inventory at the end of the day, it's important to support our growth and this is the trust with the strategy that was adopted by Rod.
Rather the management and usually go when Covid started it proves itself to be the right strategy, we decreased our level of inventories towards the end of 2020 and now because of the circumstances and the semi conductor market. We've taken the same decision and again and we believe that day to Iceland.
Okay. Thank you.
Our next question is from Peter Arment of Baird. Please go ahead.
And yes, good afternoon, and give me Harry.
Do you maybe you could just give us your updated thoughts given that you're being strategic about you know kind of building out and the story.
And I've, just given supply chain stress.
And I'd be cash flow positive and snowfall.
And you got this year and going forward.
We already presented the positive cash flow from operating activities and the first quarter.
And we believe that this is the right path and the.
And assuming this level of profitability and EBITDA and Theres No reason why not to be cash flow positive. Yes, we increased the level of inventory that is assuming that the second half of the year will be stronger and revenues and the first half there's no reason to believe that day.
Operating cash flow from operations will be and will not be positive.
Okay and then just.
And we're ready to kind of your Capex and making a plan to put additional and child chambers and plates are this year and I know I think on.
And what's coming on line.
And it's really a lot if you could just update and some status on that.
Yes, the 1 and Israel is already up and running and it is reflected in our fixed assets and the balance sheets and running the U S will come and exited towards the end of the year.
Speak to our plans and no word and significant change moving from a regional trend.
Okay.
And just and I would just quickly just because of the tax benefit that you had in the quarter, just any thoughts about expectations and the second half of the year.
From.
From a bottom up perspective, no. It's not a question of the first the second part of the U..2 question on the we came to the point in which representing 42 per quarters with significant operating profit significantly and outcomes obviously.
And it.
It was presented and the financial statements of the <unk>.
But when he joined me I can update that figure as at the end of June and we.
Have the $60 million of Nols and is with cash.
And I think and average from about 10% tax rate and Israel because of all the benefits and so on football and.
We recorded the deferred tax asset volume to be executed over the next 2 years and it's another question of the next few quarters.
I appreciate all the color and nice results guys. Thank you. Thank you Peter.
And next question is from Austin Moeller of Canaccord. Please go ahead.
And Avi just from.
My first question here.
Do you see the impact.
But the true draw down.
Yeah.
On that mission.
And here at all for you right.
Gray bars for counter drone applications or is it more.
As you know we just saw another draw on the back on and oil tanker and the both of them on and problems.
And then.
Do you on sports out of Iraq, and Afghanistan and Jimmy.
And their various thereabouts.
Yes.
And what he believes that day.
We believe that you know when we step into programs like Shaw and G box and if he is not related to the to the deployment basically relates to the plans that the immediate 3 courses have towards zone.
Vehicles, there based on the full structural plans. So here, we don't see any change yes.
And we are not exactly from a media always been very very detailed so far on stationary solutions are deployed but at this stage and we don't see any drop off momentum because we do believe that the demand is much higher than what we have there been levered up till now.
And so that's the picture on our end.
Okay, and then just on next Bachelors and 59 sure I'd strikers and are expected to be ordered by the U S Army before the end of the year is.
Is there any timing that you guys can provide on 1 year and stuff.
On contract maybe in the next couple of months or just sort of stay tuned on that.
Our debt the show on a program and is on track and all especially on the orders are always see.
Yeah.
Okay and.
And then just on the gross margin.
And I understood you correctly on your comments do you expect that you're going to be able to maintain gross margins.
And 140 per cent and that's your gauge of 40% and going forward or is that just sort of debt a temporary pause and soldier genetics no there's no central areas.
Okay about it.
And before June and 40% was our goal actually we have achieved.
And little bit before our expectation and <unk>.
40% of gross margin and as our expectations for the future for the coming future.
Okay, great. Thank you guys.
Thank you Austin.
Excellent.
Yeah.
Thank you and sorry, I don't know.
Your questions. Please press star 1 if you wish to cancel your request. Please press star 2 please stand by while we poll from my questions.
There are no further questions at this time and that's just fell on what do you like to make a claim and coding statements.
Thank you operator on behalf of day management I would like to thank you all for it.
But we continue to be observed continuous interest and our business.
We are we will present at the Jefferies conference to wall and honestly and the Canaccord Conference next week, and we look forward to speak with the from a fuel.
And these venues again.
Otherwise, we look forward to speaking with you and.
And next time, we reported always on state oil and healthy and day.
Good day too.
Thank you. This concludes the Rada electronic industries second quarter 2021results conference call. Thank you for your participation and you might go ahead and disconnect.
Yeah.
Good day.
Sure.
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