Q1 2022 Rada Electronic Industries Ltd Earnings Call
[noise], ladies and gentlemen, thank you for standing by welcome to the Rada Electronics industries first.
Quarter 22 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. As a reminder, this conference is being recorded you should have all of them for you by now the Companys press release, if you have not received it please contact <unk> investor relations team at GK.
Investor and public relations at one to one to 370 88040 or view it in the news section of the company's website www dot round of Dot com.
Now I'd like to hand over the call to Mr, whose health call GK Investor Relations for health, where do you like to begin. Please yeah. Thank you operator I'd like to welcome all of them New to this conference call to discuss it.
First quarter 'twenty tourism.
I would like to thank rather than managing for Hudson did COVID-19, whereas on the call today are Mr. Gershon, Chief Executive Officer, Mr. Avi <unk> Chief Financial Officer.
Doug will summarize the key highlights of the quarter, followed by Avi will provide a summary of the financials we.
We will then open the call for questions and answer session.
Before we start I'd like to point out that the Safe Harbor published in today's press release also pertain to the content of this conference call.
And with that I would now like to introduce rather see them. So does Taylor.
Does he go ahead please.
Thank you everyone and good day to all of our call participants.
Let's start with an overview and finally this quarter, we have just reported their results for the first quarter of 2022.
With revenues of $22 5 million and adjusted EBITDA of $1 3 million.
We see this quarter is the bump in the road.
Unrelated to the trend of what is going on around us.
In this quarter I'll have Charlie so the peak of the impact on our revenue.
Continuing with the solution that you can do what I can say.
The passing of the U S budget towards the United from September and finally passed on March 11.
With the old Neil defense spending effectively on hold for that period.
We are very pleased that this is now behind us and we are already seeing new orders from New York to begin again.
As always since P. R. S. Three weeks ago, New business mentioned.
We shouldn't see the current quarter's results in the framework of the bigger picture.
A growing need for eastern countries to provide the best and most advanced active defense solutions for their maneuverable military outfits and ultimately the tools.
And the recent draw in Ukraine has a very unfortunately, Macy's all clear across the world.
We are confident that our recovery will be fast and we keep our revenue guidance of $140 million for the full year.
And it should indicate to you from our perspective hearing made forced to see or we expect to receive an order revenue was released in Q1 by year end.
Strong cash position along with our country than.
That is the first quarter is an anomaly.
That was us to continue to produce invest like why our inventory and recruit people if at all.
Clarence.
And we did not opposed for a moment given the opportunities ahead of us.
Let's take a look at all of our end markets.
Our filter will be trying to mobile daus are in the house of modern warfare needs such as short range Air Defense Collinsville U E. P. S.
These protection faced them for on road vehicles Collinsville, Okay, the opportunity with our Peoria motel.
And such and now even more so evident by the war in Ukraine, and the many images of blown out and their own shows defense and military vehicles.
We all see on television.
In the recent future sub growth in the U S market to capitalize on our market position, we decided to do a tradeoff to Stoke and apply a book and ship commercial approach.
We're very fortunate that this unique approach not only made us a thought.
Relative to our U S customers.
But because it relies on high levels of inventories and components.
Also shielded us from much of the negative impacts and chairman, Jim that's appropriate placed on our on us.
Over the past two years, including what is now the supply chain constraints with everybody faces.
Our U S market is now moving from the joint urgent operational need statement type of programs, meaning.
Meaning orders on a short end urgent need basis.
Into programs of record.
It surrounds it will enable us to build many more products over a long period based on an order backlog John .
And are waiting for us long term revenue visibility and stable growth.
Today, our radars will become the incumbent rather insight solution in quite a few significant platforms. Some of which you already have converted into programs of record that I just mentioned.
In 2022 we are not reliant on the only a few customers and solutions.
Furthermore.
Who can build strategy enables us to recover very transform acquisition forces delays and bureaucracy as we.
We have experienced them through to mid March.
We are able to deliver radar scope sometimes within days.
With the highest satisfaction of our customers, especially during these days of both global supply chain programs and U S budget delays and they'll catch up.
I wanted to address the U S market on P&L, but as I explained in general it's all on an analyst event.
The webinar the rest of the oil which are driving to the near East Europe inflationary two countries and the Indian subcontinent shoot which based on our explanation what revenue levels.
Similar to the USA within three to four years.
Four years and recent events have only made us more confident in this expectation.
The Europe NATO countries.
Italy, following the doctrine and solution real to U S military.
And their need for shoulder and Joe defense and pulling defense is becoming widely recognized.
When we spoke with you in January we said the market is in incubation phase, but I believe we have advanced since then.
We have already seen engagement.
<unk> already been engaged with quite a few prominent European weapon system providers and already does it.
<unk> integrated and continuously tested as part of their solution.
With very small grandchildren, Germany, France, and counter UAS program throw sporadic in and in low volumes to European customers. However, we believe the current events.
We need to have an uptick in 2020.
We also evidence of growing intolerance interest in the U S. In the integrated programs for instance, we are already part of as part of her new Media's military support of Ukraine and neighboring countries.
The nearest in India market, both waking up around the need to mitigate the UAS and closing some friends in view of frequent attacks, which demonstrated significant damages.
We expect drawing sales of counter drone solution for both markets during the current and especially next year.
We also remind you that you recently announced plans to set up an India joint venture company.
Local partner and they.
By the end of 2022.
That's true or if you are a financial expectations ahead.
I want to give you a little more perspective on our forward looking financial expectations.
We are confident that our recovery from current Q1 revenue level will be fast as evidenced by Q1, new business that we have announced just three weeks ago.
And when we declared 29 million in new business, which is up 22% compared to previous year.
2020, two guidance of $440 million, which we reiterated this morning implies 20 per centroid renewables.
We extended our shares will convert into revenues along Q2 in the second half of the year.
In terms of geographic breakout expectations for full year revenues.
Remind you what we discussed.
In January .
We expect the U S market to be about.
The.
$19 million in revenues, while about 90% of our guidance are already incorporated in the defense budget line items and some are already in our backlog.
The urgent nature of some of our anticipated renewals. This year also around Ukraine, which is not considered in our forecast represents further upside to our <unk>.
U S revenue expectations.
For the non U S markets, we forecast about a $40 million for $40 revenues during 'twenty two and finally, we expect around 9 million coming from our legacy Vod pieces.
We believe that our overall margin margins will not be affected by the CR you made in Q1 and revenues.
Of the produce items will convert into profit and cash for all irregular margins.
And if we work to add 9 million also.
Based on our estimation for the past quarter and actually the street consensus, which estimates at $31 million.
Gross margin for incur generation would have been in line with our expectations.
Alibaba the top line.
We think top line here.
On the Opex side as I said earlier, we did not delay any of our investments and continue to move forward at full throttle.
Talktalk problem manpower fill our plants, which is now stabilizing at around 250 people in Israel and dogs 90 people in the USA.
Salaries increased somewhat due to manpower pressure.
By around.
45% of the average we had some onetime expenses of about <unk>.
$650000.
This quarter, which most of it will be options in the coming three quarters.
When considering the Olympics.
And lastly in view of the increased cost of labor and supplies.
Also recently adjusted our selling prices.
Accordingly.
Before we summarize let's have a short look at our new product launch.
Our new development, namely the NME child of excellent HR in the ICD Char all are addressing the new and evolving needs of our defense markets and introduce increase ranges higher accuracies and additional a very sophisticated and advanced features in these ratios is very.
Those are starting to test them very soon.
We already have initial orders for them. We believe these products have a bright future and presents a strong further growth potential keeping keeping us in the leap and widening our opportunity pipeline.
So, let's summarize Q1 revenues Netherlands.
Below expectations.
There are only a bump on the road.
And do not change the broader picture.
Like all in our industry, we are pleased with the SCR being complete.
Completed and behind Us.
<unk> revenues, which shifted away from Q1, we'd be deliver the long the reminder of the year.
And there is no adjustment to our gross margins expectations are associated with cash flow.
Most importantly, there is no change to our full year guidance of $140 million, which is up 20% compared to 2021.
We continue as planned with or without posing because the opportunity which is now right for enterprise.
Big and very clear.
Beyond what I discussed review only four months ago. The rest of the world is just.
We have a strong waking up coal with the unexpected ROI in Ukraine and.
And we believe this will translate to upside in the orders over the coming years similar to the strong growth we experienced in the U S. In recent years.
Therefore, I am very optimistic and very much look forward 12 follow on discussion in the next quarter.
I'd like now to hand over the discussion to Avi Israel our CFO .
Thank you Julie.
Everybody. Thank you for joining you can find our results on the press release, we issued earlier today and I will provide a short summary of the first quarter results.
First quarter revenues were $22 $5 million versus $25 $2 million in the first quarter last year.
As <unk> noted the large portion of our U S revenues were delayed due to the <unk> in the U S.
It should be delivered in the coming three quarters.
Our gross margins in the quarter were 33%.
I note that our gross margins at the level of fixed cost within them. So they were impacted by COVID-19 related revenue.
I'll also add that.
Given our expectations orders on short term delivery.
We have already made the separation and built product inventory that would need to be delivered in the coming quarters.
We believe that our full year gross margin will be at around similar levels of trophy is delivered in the recent quarters.
First quarter operating expenses were $8 2 million compared to $6 4 million in the first quarter of last year. We believe this will be the peak for the year and should reduce slightly in the coming three quarters.
There is a number of onetime sectors of about $650000.
Operating loss was $9 million versus $4 $5 million of operating income in the first quarter of 2021.
Net loss was <unk> 7 million $3 8 billion.
Net income in the first quarter of last year.
We reported an adjusted EBITDA for the first quarter of $1 3 million and two 6% of revenue. This is adjusted EBITDA was $4 8 million or 19% of revenue in the first quarter of last year.
I would like to disclose it.
This is a digital and a $9 million of revenue. The street's consensus this was shifted to the coming quarters as the thing. They do is actually being delivered in the quarter. Our gross margin operating income and adjusted EBITDA would have been pretty similar to our Q4 numbers.
I would also like to summarize and point out some highlights from our balance sheet as of March 31, 2022, we did 60 almost $66 million in net cash and no financial debt.
I note that as of Q1 in all of our needs neither cash investments in working capital and inventory has been made now behind US we expect that the cash level to increase strongly as revenue ramp up again.
The second pump.
As of quarter end, all shareholders' equity stood at a record $156 2 million financing, 75% of our balance sheet in summary, Adobe indicators looking ahead to the second quarter is expected to show significant jump in the record results.
Since we continue to improve throughout the rest of them.
That ends my summary, we should now open the call to questions operator. Please.
[noise] Australia.
Thank you, ladies and gentlemen at this time well begin the question and answer session.
Have a question. Please press star one if you wish to canceling or request. Please press star two.
You are using speaker equipment timing with the handset before pressing the numbers.
So we call them or they are a team. Please stand by while we poll for your questions.
Yeah.
The first question is from Peter Arment Baird. Please go ahead.
Okay.
We've been having.
Okay.
And supporting all of the year.
Hi.
Got it.
Hum.
Yeah.
Peter.
You are not held clearly here can you come closer to the mic.
Great.
No not really.
All right.
And it's moving up.
Thank you.
The next question is from Scott Forbes of Jefferies. Please go ahead.
And not only kind of a fine line you asked about yet.
Is there anything that really stood out in terms of program and as you kind of look at the green about fiscal year 'twenty three question about flat.
Is there anything to kind of set out there and what they are natural pay com.
Well.
Not surprised not with the D C O Barnes yet they're not for me and next year. It's all based on our plans we have for Amcor a program for <unk>.
And in a similar like the insurer out of the army. The G bother them all in core now the age of the U S Air Force and also so complete.
And quite a few additional opportunities around gaming floor and scale. So.
And it continues to evolve and grow based on our expectations and plans.
Yes.
And then just on inventory I think has helped out by like Pinellas and that's part or at least talk about that.
You didn't really kind of a supply chain impact.
I guess, how do you see the supply chain that can stand today, how has that changed since last quarter in Manhattan.
Maybe not wind down inventory to more normalized levels.
Okay.
Normalized you know, it's a it's probably a relative term.
We decided early on as I mentioned in our in our view.
Two two.
To adopt a commercial book can deal.
Approach because it was a new and emerging market and we knew and fill the need for urgent deliveries. So we stopped ordering our inventories to enable us stable production plan a year ahead based on our pipeline and destination of conversion.
Pipelining pool orders so.
We maintain that is protected us for all the programs and products. We are currently selling each pool, that's enough from any supply chain issues. When this thing started.
Now.
When product programs are transferring to programs before COVID-19 and we have visibility we can relax, but I don't believe we will go below six months ahead of inventories that will enable us.
Six months of deliveries based on our plant. This is for the products. We are currently selling for the new products, we are and where we have our challenges around the deliver you'll see components as everybody else, but we took.
A closer look at this quite a while ago anticipating with this issue and we feel that also for the new products.
We're not going to be affected dramatically from the supply chain delivery times, we do see a price changes here and there and unfortunately, we need to adapt our prices accordingly, and we are doing that.
Thank you.
Our next question is from Peter on Humpback. Please go ahead.
Can you hear me yes.
Sorry about that earlier.
Thanks. Thanks for your time. This morning could you maybe just give us a little color on that.
Cover any of the revenue shortfall in Q1.
All come through the second quarter or does it start to anticipate that.
Yeah.
Thank you Sir.
You don't know until you get all the all the all of those in your hand.
You are not entirely sure, but we do on PCP that the.
Significant fault real controls already in Q in this quarter, but you know to be realistic we say the TTM convert for sure until the end of the year I hope it will be in the next day.
Two quarters, meaning this one and the second one and the next one.
Okay, and then just you know.
Continuing resolution won't that would sign a long term fiscal 'twenty two budget in March so I think you'll see an immediate pickup in orders is that what you're kind of alluding to with the <unk>.
Yes, if you take a look at the 29 million compulsion.
A lot of it came from the U S and you would know in the in the five months before that we had minimal annual orders coming from the U S. Due to the CR. It's all about that so the flow started and we are optimistic.
Okay, and then just related to FTE hours, there are some concerns that.
Cuz congressional.
Congressional elections. This fall that will add another two or just what are your thoughts on that impacted you at all.
2022 all of them.
You know, it's a bit far away from us to understand the total there.
U S politics, but my estimation is that even if we have if we will have a CR.
And this year it will be shorter.
I think a lot of the current CR was around the.
And be parties on issues in the midst of consensus about the defense budget and the New administration I believe a lot of that will be behind us I think also the Ukrainian and all is making things more clear and urgent or you know besides for the lawmakers.
Yeah.
In in Washington, So you know you're always bad for business for defense business, Let's hope it says.
I mean, they might affect if at all.
I appreciate the color.
Thank you.
The next question is from aftermath of Canaccord. Please go ahead.
Good morning.
Hi, Austin.
Oh, Oh Oh.
Yeah.
Well on that same line.
That's true.
Oh boy.
Yeah testing is on schedule or is that I cannot say beyond that.
Okay. That's helpful.
Well, let me.
And while we might have just like what happened is that over the next year.
Yeah.
Long time.
The ramp up and the other things that are sort of doing better than expected so far.
India has always been a need.
On the schedule and when things happen we are believers.
We have our internal goal.
To establish the JV by the end of this year no definitive agreement and so on allocation of facilities and starting to invest I believe that when the market opens up at the beginning.
Opening up an urgent need in the beginning we will supply from here and the end probably by next year's end, we will have production capability.
In the in country and also I hope that the business will support that it is similar to what we did in the U S. We started the year.
Setting up all the facility there when we feel that there is a business and it's happening.
We started selling in 2017, and we set up our facility during the 2019, we would like to adopt the same approach here.
Okay excellent.
Oh yeah.
In.
Good morning.
Spot.
Have you heard anything about the labor savings on the army is thinking about how many total housing for ads they may ultimately purchase.
You know the only thing on the origin of quantity is a 144 that's for sure.
And it is a it is a moving even faster than that than the original planned basically also in view of what's happening now.
We do see increasing quantities I believe that the full structure well, reaching a full structure that we've been talking about what the army is something like 10 to 12 battalions. It will be a mixture of the directed energy and keen ethic. We are kind of currently part of the epic we have good momentum also around the doctor nineties.
I do hope that we will stay on board for the whole quantity.
Okay. Thank you Paul.
Thank you.
The next question is from Brian Kingston.
Alliance Global partners. Please go ahead.
Great. Thanks for taking my question.
To follow up on <unk>.
In general.
Different for later today.
And towards the past years I've covered your stock.
And the impact of the CR that you'd have programs of record.
That's the case.
Seen yards almost every year for 15 or 20 years. So.
Risk of something like what's happening in December or.
March quarter, right ongoing now with yards every year almost.
Why or why not I think.
No.
I think that the my experience, we see is relatively limited I must still but for my understanding of judgment, we were a bit unlucky in the second of two pronged approach.
Our fourth goal of ours, they bought them, so complete where are new so the CR kind of held them directly.
If at all once you are already part of our established programs for clothing, if he's not categorized as new maybe it is not as quick as the as the moving quick moving as you know and without all this here, but it is not a health as we warehouse. So these are two big programs that.
We were relying on actually closed a lot of the <unk>.
The Miss in Q4 and Q1.
So to be clear once those are more established programs.
<unk>, which keeps finding the same as last year.
We'll be able to maintain those levels and your score when they're more mature programs that we've got what you're saying, that's what I'm, saying in all something that you know we are very agile and delivery. So once it recovers and they need more we are adapting ourselves very quickly.
Okay. Thank you.
Yeah.
The next question is from Arnold Herson there. Please go ahead.
Good morning can you comment on the margin differential between the products you sell to the U S government on this.
Jeff and Tom will walk with problems with supply.
Nation States.
When we sell from Israel, we sell at the same prices to everybody.
Yeah.
In the U S at the beginning.
So they're not directly but through other companies. So they stopped the that the you know accordingly, because basically we sell at the same prices.
Okay.
Your balance sheet is obviously quite strong in the market.
All reacting well to our release this morning.
Mind us if you have a share repurchase authorization in place.
In a broader sense, Unlike Europe , Paul all of these.
Sure.
<unk> balance sheet and free cash flow.
Bob.
We don't have any comment although we had an outstanding year three like we always do in the last towards some form of half years.
We do not intend to use these now our cash flow situation, our cash balance situation is pretty strong. We don't believe this currently we have any need for additional cash and we believe that revenue will grow as we expected in the third quarters of 2022.
This generation will be a it will be delivered.
Yes.
So I'm a little long call.
The excess cash and strong free cash while some good growth in the business with fundamental flaws.
I'm wondering why your board doesn't quite share repurchases a whole policy at the moment, given where the stock prices.
I'm wondering what fleets.
Standing here.
You have the board of directors I can't understand why Sheldon conscious isn't as high a priority given your strong balance sheet and the free cash flow generation will be working down inventories as yourself finished goods, which will enhance free cash flow I guess I don't understand why your share repo.
We've been a much higher priority in the short run given where your stock is from that point. Okay. So priority is to grow our business. We believe that we have the very royalty business very healthy business doing.
And we raised money in the past.
From the market in order to grow the business and to make this company great success. That's our current strategy and our current strategy is not calling for a buyback of shares.
Okay.
Yes.
Operator, do we have any more questions.
Any additional questions. Please press star one if he wants to cancel your request. Please press star two please stand by while we poll for more questions.
Our next question is from a lot of Miller. Please go ahead.
First of all the time all of our jewelry and biology.
But then these are adopted.
<unk> you mentioned, 90% of the didactic already marked.
In the U S a budget or a specific client in the budget can you maybe with their thoughts on would be what are.
Their mojo.
Right.
I'll be guiding for.
This year.
Youre talking about the Indian market now apart from India. Other upsides that may occur and are not currently.
Got them.
It's too early to say.
Like Santa Fe.
That market is starting to wake up.
On Whatsapp in them.
We do see each but remember we are a radar that are embedded in there with consistency slotting media. So we are not selling bullets and ammunition. There. It has a sleep time it took us three years in the U S. Since the Ukraine take one 2014 until we started to see revenues in 2017.
I hope that in New York, It will be much less but it will be a year or year and a half at least.
Yes.
The OSB to Europe , I mean I.
However, we do see.
And this is may be a potential upside we do see a momentum around the systems that we are already embedded in the U S.
Being relevant to Europe , and the Ukraine, you're annoying Ajay sent countries, but the you know.
It's our hope and we need to wait a while until it materializes.
My second question is regarding block there are foreign.
Foreign exchange policy all had one.
We see the U S dollar.
Malware.
And getting that much out there.
And secondly.
The Euro do you have any like a gym.
Policy.
Absolutely we have hedging policy, we are protecting our exchanged budgets exchange rates strong Donna for export goods as we are.
The good news.
So probably we should expect in the second quarter or like Oh.
Sure Matt.
Gain from foreign exchange.
Yeah.
Throughout our income statement.
Okay. Thank you very much.
<unk>.
There are no further questions at this time, that's the sell out would you like to make a concluding statement.
Yes, Thank you all for Oracle.
Therefore, the management I would like to thank all of our investors for your continued interest in the business and support we look forward to speaking to you again soon stay well and healthy and good day to us.
Thank you. This concludes the Rada electronic industries first quarter 'twenty to 'twenty financial results Conference call. Thank you for your participation you May go ahead and disconnect.
Sure.
Yes.
[music].