Aeronautics Ltd. (TASE:ARCS) published its first financial statements as a public company one year ago. Investors found the company's results disappointing at the time and sent its share price tumbling by over 10%. Aeronautics published its results for the second quarter of 2018 with the same effect: a 6% drop in the share price yesterday.
Aeronautics has now lost half of its value since its IPO in June 2017, leaving its market cap at NIS 480 million.
Aeronautics lost $2 million in the second quarter, 65% less than its loss of over $5 million in the second quarter of 2017, when its results were affected by one-time expenses related to its IPO, but its revenue dropped 30% to $21 million, following delays in receiving new orders. The story for the first half of 2018 was similar: Aeronautics' loss was nearly $4 million, 29% less than in the corresponding period last year, but its revenue fell 22% to $43 million.
While Aeronautics was reporting its dire results, its board of directors rejected in the past few days an offer by Rafael Advanced Defense Systems Ltd. and Avichai Stolero in early August to acquire a controlling interest in the company at a company value of NIS 430 million, 10% higher than Aeronautics' market cap at the time. As mentioned, the market cap has since recovered to about NIS 480 million.
Decline in unmanned systems
Aeronautics, most of whose shares are owned by the KCPS, Bereshit, and Viola funds and investment institutions, provides intelligence solutions based on unmanned systems with a variety of unmanned aerial vehicles (UAVs). The company has three main fields of business: unmanned systems, which account for most of its activity; electro-optical systems; and development and marketing of communications systems and UAV engines. Aeronautics' CEO is Amos Mathan and Vice Admiral (res.) Yedidia Yaari was appointed chairman of the board of directors in April in place of former Israel air force commander Maj. Gen. Eitan Ben Eliyahu.
A sector breakdown shows that most of the decline in Aeronautics' results was in its core business of unmanned systems, in which its quarterly revenue slid 40% to $17 million, while revenue from electro-optical systems was up 12% to $20 million.
The decline in revenue had a direct effect on Aeronautics' gross profit; the ratio of profit to sales fell, which the company attributed to an increase in activity "with local defense agencies, which the company regards as strategic customers."
Aeronautics' sales and marketing expenses dropped, mainly as a result of "reduced costs for sales promotions and the company's local representatives overseas." Management and general expenses were up, which the company attributed to Aeronautics becoming a public company, among other factors.
Aeronautics' miscellaneous expenses item, which exceeded $8 million last year, including underwriting commissions, fees for external consultants (mainly lawyers and accountants), and a one-time bonus for the company's employees in the current half-year, totaled just $650,000, enabling Aeronautics to cut is operating loss and its loss in the quarter.
Large orders and optimism
Looking ahead, Aeronautics is trying to take an optimistic view, based on its increasing orders backlog, which the company says reached an all-time high of $177 million at the end of the second quarter, 28% more than at the end of the second quarter of 2017. Aeronautics also signed additional deals amounting to $40 million after the end of the second quarter.
Aeronautics added, "In a company that is essentially project-oriented, a strong and growing orders backlog pointing towards future growth in the company's revenue and profits in the medium and long term and high demand for its products and services is extremely important."
Published by Globes [online], Israel business news - www.globes-online.com - on August 27, 2018
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