Sponsored by TCI International Inc.
18 Aug 22. OSI Systems Reports Fiscal 2022 Fourth Quarter and Full Year Financial Results.
- Record Q4 Revenues of $337m
- Q4 Earnings Per Diluted Share
o GAAP EPS of $1.94 (39% year-over-year increase)
o Record Adjusted EPS of $1.96 (27% year-over-year increase)
- Q4 Ended Backlog of $1.2bn (15% increase from June 30, 2021)
- Company Provides Fiscal 2023 Revenue and Adjusted EPS Guidance
OSI Systems, Inc. (the “Company” or “OSI Systems”) (NASDAQ: OSIS) today announced financial results for the fourth quarter and fiscal year ended June 30, 2022.
Deepak Chopra, OSI Systems’ Chairman and Chief Executive Officer, stated “We are pleased to conclude fiscal 2022 with record fourth quarter and full-year revenues and adjusted earnings per share despite continued global economic uncertainty characterized by supply chain challenges, inflationary pressure, and rising interest rates. With strong bookings, we enter our new fiscal year with significant backlog and a robust pipeline of opportunities to enable us to maintain our positive momentum.”
For the fourth quarter of fiscal 2022 the Company reported revenues of $336.8m, 1% higher than the $332.2m reported for the fourth quarter of fiscal 2021. Net income for the fourth quarter of fiscal 2022 was $33.8m, or $1.94 per diluted share, compared to net income of $25.9m, or $1.40 per diluted share, for the fourth quarter of fiscal 2021. Non-GAAP net income for the fourth quarter of fiscal 2022 was $34.0m, or $1.96 per diluted share, compared to non-GAAP net income for the fourth quarter of fiscal 2021 of $28.5m, or $1.54 per diluted share.
For the fiscal year ended June 30, 2022, revenues increased by 3% to $1.183bn from $1.147bn in the prior fiscal year. Net income for fiscal 2022 was $115.3m, or $6.45 per diluted share, compared to net income of $74.0m, or $4.03 per diluted share, in the prior fiscal year. Non-GAAP net income for the fiscal year ended June 30, 2022 was $103.8m, or $5.81 per diluted share, compared to non-GAAP net income of $97.9m, or $5.32 per diluted share, for the 2021 fiscal year.
Mr. Chopra commented, “The Security division finished the fiscal year with record fourth quarter revenues and operating income despite continued challenges, including the impact of higher supply chain and logistics costs, and rising labor costs. The Security division reported a 4% year-over-year increase in fourth quarter revenues and significantly expanded its adjusted operating margin, driven by robust activity across multiple geographic channels. With our strong fiscal 2022 book-to-bill ratio, we enter the new fiscal year with significant backlog in our Security division.”
Mr. Chopra continued, “Our Optoelectronics and Manufacturing division again delivered solid fourth quarter financial results posting significant operating margin expansion along with solid bookings leading to a record backlog for the division. The division has benefitted from our vertically-integrated manufacturing global footprint and performed exceptionally well ending the fiscal year with record revenues, record operating income, and record bookings, positioning us well as we enter fiscal 2023.”
Mr. Chopra concluded, “Our Healthcare division, as anticipated, reported a relatively small reduction in revenues for the fourth quarter of fiscal 2022 in comparison to the same prior-year period, which had been bolstered during the earlier stages of the COVID pandemic. During the quarter, we continued to focus on new product development, principally in our patient monitoring portfolio, to enhance our core offerings.”
The effective tax rate for the fourth quarter of fiscal 2022 was 9.0%, compared with 12.9% in the prior year fourth quarter. The Company recognized a net discrete income tax benefit of $4.9m during the fourth quarter of fiscal 2022 compared to $4.0m in the comparable prior year quarter. Excluding the net discrete income tax items in both periods, the effective tax rates would have been 22.3% and 26.3%, respectively, for the three months ended June 30, 2022 and 2021.
During the three months and fiscal year ended June 30, 2022, the Company’s book-to-bill ratio was 1.0 and 1.1, respectively. As of June 30, 2022, the Company’s backlog was $1.2bn, representing an increase of 15% from the Company’s backlog as of the end of the last fiscal year. During the quarter ended June 30, 2022, operating cash flow was $22.0m, and capital expenditures were $4.6m.
Alan Edrick, Executive Vice President and Chief Financial Officer, stated, “Overall, we were pleased with our fourth quarter and fiscal year 2022 financial results. In the face of continuing supply chain constraints throughout fiscal 2022, we invested in working capital, including maintaining higher inventory levels, which enabled us to be nimble and responsive to our customers in a difficult environment.”
Mr. Edrick continued, “We continued to be active in our stock repurchase program and acquired 177,336 shares during the fourth quarter of fiscal 2022. During fiscal 2022, in aggregate, we repurchased approximately 7% of our outstanding shares as part of our capital allocation strategy, leaving us with the ability to repurchase approximately 1.25 million additional shares under our current buyback program. In the near term, we expect to utilize our credit facility to repay the remaining outstanding balance of our convertible notes maturing in September 2022.”
Fiscal Year 2023 Outlook
For fiscal year 2023, the Company anticipates revenues in the range of $1.240bn to $1.275 billion and adjusted earnings per diluted share in the range of $6.02 to $6.25. This guidance reflects significantly higher expected interest expense due to the rising interest rate environment coupled with the maturity of the Company’s 1.25% convertible notes. Actual revenues and adjusted diluted earnings per share could vary from this guidance due to factors discussed under “Forward-Looking Statements” or other factors.
The Company’s fiscal 2023 diluted earnings per share guidance is provided on a non-GAAP basis only. The Company does not provide a reconciliation of guidance for adjusted diluted EPS to GAAP diluted EPS (the most directly comparable GAAP measure) on a forward-looking basis because the Company is unable to provide a meaningful or accurate compilation of reconciling items and certain information is not available. This is due to the inherent difficulty and complexity in accurately forecasting the timing and amounts of various items included in the calculation of GAAP diluted EPS but excluded in the calculation of adjusted diluted EPS, such as acquisition costs and other non-recurring items that have not yet occurred, are out of the Company’s control, or cannot otherwise reasonably be predicted. For the same reasons, the Company is unable to address the significance of unavailable information which may be material and therefore could result in GAAP diluted EPS, the most directly comparable GAAP financial measure, being materially different from projected adjusted diluted EPS. (Source: BUSINESS WIRE)
17 Aug 22. AeroVironment Acquires Planck Aerosystems, a Leading Provider of Advanced Unmanned Aircraft Navigation Solutions.
- Transaction significantly accelerates AeroVironment’s development of advanced autonomy capabilities for the company’s unmanned aircraft systems
- Embedded flight autonomy solution enables intelligent unmanned aircraft system capabilities for operations from moving vehicles and vessels on land or at sea
AeroVironment, Inc. (NASDAQ: AVAV), a global leader in intelligent, multi-domain robotic systems, announced today it has acquired Planck Aerosystems, Inc. (“Planck”), a leading provider of advanced unmanned aircraft navigation solutions. The acquisition will significantly accelerate AeroVironment’s development of advanced autonomy capabilities.
Founded in 2014, Planck has worked closely with customers from the U.S. Department of Defense, security agencies, allied governments and offshore industrials to develop customer-centric unmanned aircraft solutions. Planck’s products include embedded technologies and fully integrated unmanned aircraft systems (UAS) and leverage their deep technical expertise in UAS guidance and navigation, autonomy and artificial intelligence.
Planck is a small technology company based in San Diego, California and will be acquired by AeroVironment’s Petaluma-based medium unmanned aircraft systems (MUAS) business segment to focus on integrating its flight autonomy solutions, such as ACE™ (Autonomous Control Engine), into AeroVironment’s offerings to enable safe, autonomous takeoff and landing from moving platforms on land or at sea in GPS-denied environments. Other solutions include AVEM™, a fully integrated mobile tethered sensor platform designed for persistent autonomous operation from moving vehicles and vessels in any environment, and a suite of machine-learning object detection and tracking systems that are customized for specific end-user needs.
“Planck has a compelling product and technology roadmap with valuable capabilities that we plan to deploy and integrate with AeroVironment’s existing portfolio of intelligent, multi-domain robotic systems,” said Wahid Nawabi, AeroVironment chairman, president and chief executive officer. “The Planck team has developed advanced unmanned autonomy and navigation solutions for various defense and commercial customers and by working together, we believe we offer more compelling and differentiated solutions to our customers moving forward.”
“This transaction accelerates AeroVironment’s innovation in flight autonomy, increasing the effectiveness of our solutions in contested environments and reducing the cognitive load of operators, and adds a tethered SUAS to our portfolio of systems, creating exciting opportunities for upcoming programs of record,” Nawabi added.
“AeroVironment’s heritage of creating innovative solutions to meet customer needs is an ideal fit for the Planck team,” said Josh Wells, Planck chief executive officer. “We couldn’t be more excited about joining forces with AeroVironment to deliver innovative, multi-domain unmanned systems to the next generation of U.S. and allied warfighters. AeroVironment’s reach, technical capabilities and portfolio of unmanned systems will enable the Planck team to scale our products to more customers, and to provide better solutions in less time.”
Canaccord Genuity served as the exclusive financial advisor to Planck Aerosystems, Inc. in connection with the transaction.
ABOUT AEROVIRONMENT, INC.
AeroVironment (NASDAQ: AVAV) provides technology solutions at the intersection of robotics, sensors, software analytics and connectivity that deliver more actionable intelligence so you can Proceed with Certainty. Headquartered in Virginia, AeroVironment is a global leader in intelligent, multi-domain robotic systems and serves defense, government and commercial customers. For more information, visit www.avinc.com.
ABOUT PLANCK AEROSYSTEMS
Based in San Diego, California, Planck Aerosystems develops and deploys navigation and autonomy solutions for tethered and free flight small unmanned aircraft systems that enable them to operate from moving platforms, including in GPS-denied environments, primarily for defense and industrial applications. Planck Aerosystems’ Autonomous Control Engine (ACE) has been integrated into over 30 different aircraft types of various sizes and configurations. For more information, visit www.planckaero.com.
15 Aug 22. MTI Wireless Edge – a smart play on defence spend, climate change and 5G. A technology group is winning new contracts and operates in market segments displaying attractive structural growth: demand for 5G networks; global warming and climate change; and defence budget spending.
- Flat interim pre-tax profit of $2.04m on six per cent higher revenue of $22.7m after accounting for acquisition costs, exit from Russia and higher non-cash charges
- $10m contract award in Israel since half-year end
- Strong order book
- Analysts maintain full-year double-digit profit growth forecasts
Israeli-based technology group MTI Wireless Edge (MWE:57p) is reaping an immediate payback from January’s $1.2mn (£1mn) acquisition of a 51 per cent stake in PSK, an Israeli company which develops, manufactures and integrates communication systems and advanced monitoring systems for the Israeli government defence market.
In the first half of 2022, PSK contributed $2m of revenue on a 5 per cent operating margin and MTI also earns management fees. Moreover, since the half-year end, PSK has landed the largest contract in its history, a $10m award over seven years from the Israeli Ministry of Defence. Strategically, PSK is enabling MTI’s Summit electronics division, which represents 40 international suppliers of radio frequency/microwave components, to step up the value chain by offering not only components, but turn-key solutions such as fixed and mobile communication, telemetry and signal intelligence systems, too.
The division posted 25 per cent higher operating profit of $1.1m on revenue up a fifth to $8.4m. It looks well set to continue delivering strong growth especially as the conflict in Ukraine has had a knock-on effect on military and defence spending by Western Governments, which in turn will pass through to MTI’s distribution and special consulting services divisions.
The group’s antenna business has strong growth prospects, too, albeit the global microchip shortage has impacted clients and led to delays in fulfilling orders. The unit returned to profit in the second quarter, but first half operating profit of $0.1m was still down from $0.25m in the same period last year on flat revenue of $5.7m. However, there is evidence of an easing of chip supply issues and MTI’s backhaul solutions should deliver significant growth as the roll-out of 5G infrastructure gathers pace. India recently completed its 5G auction and MTI has seen a flurry of customer enquiries for the group’s manufacturing capabilities. MTI is working with five of the seven leading OEMs in the sector, so is well placed to benefit.
The group offers exposure to climate change, too. MTI’s cutting-edge Mottech’s real-time irrigation monitoring, control and reporting software offers the agricultural industry, municipal authorities and commercial organisations a smart way to manage water consumption efficiently. At the end of the first half, the group landed €1m (£0.85m) of new contracts in Italy for delivery in the current quarter. Water scarcity is becoming a major issue across the globe as more countries face up to food shortages due to soaring temperatures impacting crop yields. Interestingly, Mottech has been able to push through some above inflation price rises, says group chief executive Moni Borovitz, so there is scope for improved margins, too. Although divisional operating profit was flat at $0.86m on a margin of 10 per cent, Borovitz notes the unit has some big opportunities in the pipeline in Western Europe.
In the six-month period, group pre-tax profit was flat at $2.04m on six per cent higher revenue of $22.7m, but this was a strong result given that the exit from Russia (contributed $0.9m of revenue and a meaningful profit in the first half of 2021), PSK’s acquisition costs ($0.1m) and a $0.28m increase in depreciation and amortisation charges held back the reported result. First half cash profit, which increased 11 per cent to $2.9m, is perhaps a better measure of the underlying performance.
Joint house broker Shore Capital expects full-year pre-tax profit to rise 10 per cent to $4.4m on six per cent higher revenue of $45.2m based on cash profit increasing from $5.4m to $5.7m, sensible assumptions in my view. Admittedly, a higher tax charge means earnings per share (EPS) are forecast to be flat at 4.1c (3.4p), but the cash generative company should still end the year with net cash just shy of $11m (10p a share), enabling it to maintain a progressive dividend policy.
On this basis, the shares are priced on a cash-adjusted price/earnings (PE) ratio of 13.8 and offer a 4.3 per cent prospective dividend yield, modest ratings for a technology group operating in market segments that are displaying attractive structural growth: demand for next generation 5G networks; global warming and climate change; and increased defence budget spending. The board adopts a progressive dividend policy, too, having paid out 5.3c (4.3p) a share since I initiated coverage on the shares, at 40p (‘Alpha Research: Tapping into 5G climate change technologies’, 5 September 2020).
So, with analysts expecting MTI to deliver double-digit annual pre-tax profit growth over their three-year forecast period, and the latest order book significantly higher year-on-year, I see scope for the share price to make progress back to the 65p level of my last buy call (‘Farming winners from climate change and geopolitical tensions’, 23 May 2022), and well beyond. Buy. (Source: Investors Chronicle)
16 Aug 22. Darktrace confirms PE buyout talks. Cybersecurity company Darktrace (DARK) has received a preliminary offer from US private equity group Thoma Bravo, sending its shares up over a fifth on Tuesday morning. Darktrace is trading at around half its 2021 peak of 985p a share. In the announcement, the company said there was “no certainty the offer will be made”. Thoma Bravo now has just under a month to announce an intention to make a firm offer, under the takeover code.
Since the war in Ukraine broke out in February, increasing the fear of cyber-attacks, there have been number of deals in the industry. Google (US:GOOGL) purchased cyber security firm Mandiant for $5.4bn (£4.5bn) in March. In April, Thoma Bravo announced a $6.9bn go-private deal for identity access management business SailPoint. At the time it represented a 48 per cent premium to SailPoint’s price.
Dakrtrace’s share price has been volatile since it listed on the London Stock Exchange last April. By October 2021, its share price had almost trebled from its listing value to 945p but after a bearish note published by broker Peel Hunt it dropped back down to around 400p.
The share price may also have been hampered by directors selling significant stakes in the business after the IPO lock-up period ended. In March, director Vanessa Colomar sold £5.25mn-worth of shares having sold £9.23mn-worth in November last year – at the end of the IPO lock-up period.
There was no valuation attached to the potential offer announcement, although Darktrace confirmed it would be an all-cash deal.
Peel Hunt said the market was over competitive – citing 26 other vendors – when it published its sell note. Thoma Bravo may feel that with its larger security portfolio it could combine businesses to create a more comprehensive security offering and take a larger chunk of the market than Darktrace could do alone. If that’s the case, the price could be ahead of the 20 per cent premium on Monday’s closing price the market is currently forecasting. (Source: Investors Chronicle)
15 Aug 22. Elbit Systems Ltd. (“Elbit Systems” or the “Company”) (NASDAQ: ESLT) (TASE: ESLT), the international high technology company, reported today its consolidated results for the quarter ended June 30, 2022.
Backlog of orders at $14.1bn; Revenues of $1.3bn;
Non-GAAP net income of $77m;
GAAP net income of $81m;
Non-GAAP net EPS of $1.73; GAAP net EPS of $1.82
In this release, the Company is providing US-GAAP results as well as additional non-GAAP financial data, which are intended to provide investors a more comprehensive view of the Company’s business results and trends. For a description of the Company’s non-GAAP definitions see below, “Non-GAAP financial data”. Unless otherwise stated, all financial data presented is US-GAAP financial data.
Bezhalel (Butzi) Machlis, President and CEO of Elbit Systems, commented, “Order backlog growth in the second quarter reflects the continued demand for Elbit Systems’ portfolio of leading technological capabilities from customers around the world and supports our future growth prospects.
We continue to make investments in our portfolio that are well aligned with the priority areas of our customers. I believe the trend in global defense budgets combined with an improved operational initiative should support Elbit Systems’ long term success.”
Second quarter 2022 results:
Revenues in the second quarter of 2022 were $1,303.4m, as compared to $1,302.4m in the second quarter of 2021.
Non-GAAP(*) gross profit amounted to $345.9m (26.5% of revenues) in the second quarter of 2022, as compared to $346.6m (26.6% of revenues) in the second quarter of 2021. GAAP gross profit in the second quarter of 2022 was $339.7 m (26.1% of revenues), as compared to $339.2m (26.0% of revenues) in the second quarter of 2021.
Research and development expenses, net were 96.4m (7.4% of revenues) in the second quarter of 2022, as compared to 95.4m (7.3% of revenues) in the second quarter of 2021.
Marketing and selling expenses, net were $82.8m (6.4% of revenues) in the second quarter of 2022, as compared to $75.4m (5.8% of revenues) in the second quarter of 2021.
* see Non-GAAP financial data
General and administrative expenses, net were $72.7m (5.6% of revenues) in the second quarter of 2022, as compared to $65.9m (5.1% of revenues) in the second quarter of 2021.
Other operating income, net was $27.2m in the second quarter of 2022, as compared to other operating income of $14.7m in the second quarter of 2021. Other operating income in 2022 was a result of capital gains from sale of our shares in a subsidiary and sale of a building in Israel.
Non-GAAP(*) operating income was $103.3m (7.9% of revenues) in the second quarter of 2022, as compared to $114.9m (8.8% of revenues) in the second quarter of 2021. GAAP operating income in the second quarter of 2022 was $115.1m (8.8% of revenues), as compared to $117.1m (9.0% of revenues) in the second quarter of 2021.
Financial expenses, net were $9.3m in the second quarter of 2022, as compared to $7.1m in the second quarter of 2021.
Other expenses, net were $12.1m in the second quarter of 2022, as compared to $1.4m in the second quarter of 2021. Other expenses, net in the second quarter of 2022 includes an amount of $10.6m related to an adjustment to other comprehensive loss of pension plans as a result of a sale of a subsidiary in Israel.
Taxes on income were $12.8m in the second quarter of 2022, as compared to $20.1m in the second quarter of 2021.
Equity in net losses of affiliated companies and partnerships were $0.1m in the second quarter of 2022, as compared to net earnings of $13.5m in the second quarter of 2021. The income in 2021 includes a gain of approximately $10.3m related to the sale of our shares in an affiliated company.
Non-GAAP(*) net income attributable to the Company’s shareholders in the second quarter of 2022 was $76.9m (5.9% of revenues), as compared to $93.4m (7.2% of revenues) in the second quarter of 2021. GAAP net income attributable to the Company’s shareholders in the second quarter of 2022 was $81.2m (6.2% of revenues), as compared to $101.7m (7.8% of revenues) in the second quarter of 2021.
Non GAAP(*) diluted net earnings per share attributable to the Company’s shareholders were $1.73 for the second quarter of 2022, as compared to $2.11 for the second quarter of 2021. GAAP diluted earnings per share attributable to the Company’s shareholders in the second quarter of 2022 were $1.82, as compared to $2.30 in the second quarter of 2021.
The Company’s backlog of orders as of June 30, 2022 totaled $14.1bn. Approximately 74% of the current backlog is attributable to orders from outside Israel. Approximately 52% of the backlog is scheduled to be performed during the remainder of 2022 and 2023.
Cash flows used in operating activities in the six months ended June 30, 2022 were $133.5m, as compared to cash flows provided by operating activities in the six months ended June 30, 2021 of $157.1m. Cash flows in 2022 includes an amount of approximately $76m of tax payment related to the Company’s implementation of the amendment to the law of Encouragement of Capital Investments allowing payment of reduced corporate tax for the release of exempt earnings from “Approved Enterprises” and “Privileged Enterprises” in Israel, as reported in our 2021 annual report. (Source: PR Newswire)
15 Aug 22. Motorola Solutions acquires Perth-based Barrett Communications. Based in Perth, Barrett Communications provides high and very high frequency radio equipment used by civil society, border security, coast guard and private customers. According to a release from Motorola Solutions, the infrastructure-free design of the technology is “ideal” for security, peacekeeping, humanitarian and natural disaster missions.
It is expected that Motorola Solutions’ acquisition of the mission-critical radio equipment provider will enhance the company’s international radio portfolio.
“Motorola Solutions and Barrett Communications are united in their purpose of delivering the vital communications that organisations around the world depend on to help further safety,” Mark Schmidl, senior vice president, international sales, Motorola Solutions, said.
“Barrett brings us a new portfolio of communications capabilities beyond traditional land mobile radio, allowing us to support highly specialised operations.”
Motorola Solutions confirmed that the acquisition is evidence of the company’s ongoing commitment to building its portfolio across international markets.
“We are excited to join the Motorola Solutions team,” Andrew Burt, CEO, Barrett Communications, said. (Source: Defence Connect)
15 Aug 22. MDA posts revenue of $121.09m in the second quarter of 2022.
The 22% increase was attributed to higher revenues in the Robotics and Space Operations and Satellite Systems divisions. Canadian space technology provider MDA has reported a 22% year-on-year (YoY) increase in revenue in the second quarter of this year. The figure was $121.09m (C$154.7m), compared to $99.17m (C$126.7m) in the same quarter a year ago.
According to the company, the performance was driven by higher revenues in its Robotics and Space Operations and Satellite Systems divisions.
Gross profit for the quarter that ended on 30 June 2022 was $40.23m (C$51.4m), a jump of 15.2% from the previous year’s $34.91m (C$44.6m).
The company posted earnings before interest, taxes, depreciation, and amortisation (EBITDA) of $24.49m (C$31.3m), with a 20.2% margin.
Adjusted EBITDA was $27.16m (C$34.7m), an 11.9% decrease YoY, while the adjusted EBITDA margin fell to 22.4%, from 31.1% in 2021. (Source: army-technology.com)
16 Aug 22. Baykar Makina Has 3-Year Order Backlog. Turkey’s Baykar Makina Sanayi ve Ticaret AS, which provides Ukraine with unmanned aerial vehicles, says it currently has the capacity to build 20 drones a month and a three-year order backlog.
“TB2 and Akinci drones are in serial production, we have demand for both of them,” Haluk Bayraktar, the privately-owned company’s chief executive officer, said in an interview with the Ukrainian Come Back Alive Foundation on Thursday. “For Bayraktar TB2, we have export contracts with 22 different countries.”
Baykar, which is also working on an unmanned fighter project called the Bayraktar Kizilelma, wants to further increase its production capacity and hopes to achieve that with a plant in Ukraine.
Bayraktar, the brother of Turkish President Recep Tayyip Erdogan’s son-in-law, Selcuk Bayraktar, said the company wants to assemble TB2 and Akinci drones as well as Kizilelma fighters in Ukraine.
Construction of a research facility and advanced production center is already under way, he said, adding,
“We see Ukraine as our strategic partner. We also want to make Ukraine a manufacturing base.”
Turkey has managed to stay close to both Ukraine and Russia this year as it looks to mediate rather than choose sides in the war after President Vladimir Putin’s invasion of Ukraine in February. Even as Baykar supplies armed drones to Ukraine and foresees a factory there, Turkey’s exports to Russia hit an eight-year high of $2.9 bn in the first half of 2023.
In a recent interview with the newspaper RBC, Ukraine’s envoy to Turkey said a Bayraktar TB2 factory could be producing drones as soon as late 2023.
Kyiv has received 50 TB2 drones since the Russian invasion, Ukrainian Defense Minister Oleksii Reznikov said in June. (Source: UAS VISION/BNN Bloomberg)
15 Aug 22. Servotronics Announces Financial Results for Second Quarter 2022 Including 12% Growth in Revenue. Servotronics, Inc. (NYSE American – SVT) a designer and manufacturer of servo-control components and other advanced technology products today reported financial results for the second quarter ended June 30, 2022, including 12% growth in revenue.
The company reported second quarter 2022 net loss of $(810,000), or $(0.33) per diluted share. Second quarter 2021 net income of $1,186,000, or $0.49 per diluted share, included a $1.9m or $0.62 per share contribution to earnings from government-provided employee retention credits (ERC) related to the Covid-19 pandemic.
“Following deep market declines resulting from the pandemic, we believe we are in the early stages of a strong recovery in our business related to the commercial aircraft market. This resulted in another quarter of revenue growth, which we expect to continue in the upcoming quarters,” said Chief Executive Officer William F. Farrell, Jr. “The Servotronics team is focused on delivering on our growth and improving processes while we explore new opportunities for current products and new offerings. Servotronics is positioned very well for expected top and bottom line growth in existing and new markets. It is a great time to be part of the team!”
The 12% revenue growth in the second quarter of 2022 was attributed to the recovery of business within the commercial aircraft market for the Advanced Technology Group (ATG) and a shift in product mix toward higher-priced products at both the ATG and the Consumer Products Group (CPG). Consolidated revenues grew to $11.2m in 2022 from $10.0m as compared to the second quarter last year. ATG revenue grew to $8.7m in 2022, increasing 11.8% from $7.8m last year, and CPG revenue grew to $2.5m in 2022, increasing 12.6% from $2.2m in 2021.
Growth in consolidated revenue is expected to continue in the third quarter and second half of 2022 as compared to the same periods last year. This will be driven primarily by anticipated increases in ATG revenue and units shipped under long-term prime contracts and subcontracts.
Second quarter consolidated gross margin dropped to $1.2m in 2022 from $1.9 in 2021. Gross margin as a percentage of revenue dropped to 10.4% in 2022, declining from 18.7% in last year’s quarter. The primary contributors to the margin reduction were the discontinuation of the New York State Shared Work Program in the second half of 2021 and non-recurring expenses at the ATG which included the acceleration of obsoleting inventory due to market changes and a customer driven process change.
Lower second quarter 2022 selling, general and administrative expenses (SG&A) were driven by lower legal and professional fees at the ATG. Second quarter SG&A was $2.1m in 2022, decreasing 6.2% from $2.2m last year. Second quarter SG&A as a percentage of revenue improved to 18.4% in 2022 from 22.0% last year.
Servotronics second quarter operating loss was $0.9m, an increase of $0.6m from an operating loss of $0.3m last year, as current year non-recurring expenses and the discontinuation of last year’s non-recurring benefits were not fully offset by an increase in sales and a decrease in SG&A. (Source: PR Newswire)
07 Aug 22. A controlling interest in Descartes Labs is acquired by Antarctica Capital. Affiliates of Antarctica Capital (“Antarctica”) has acquired a controlling interest in Descartes Labs, a solutions provider of geospatial intelligence to commercial and government clients — this acquisition complements Antarctica’s existing portfolio of companies that span New Space, Data Analytics and Digital Infrastructure.
Descartes Labs is a geospatial intelligence company that performs scientific analysis of geospatial, remote sensing and diverse complementary data sets to enable sustainable sourcing best practices, commodity price forecasting, and efficient mineral exploration for leading CPG, Agriculture, and Mining companies.
The company’s SaaS platform automates the analysis of geospatial imagery for users, enabling planetary scale analysis through artificial intelligence and machine learning. The company also supports a diverse set of federal government customers to curate, normalize, and fuse multi-source data at the speed of mission, to provide geospatial-aware actionable insights and autonomous tipping and cueing solutions through Descartes Labs Government.
Concurrent with the transaction, Antarctica operating partners Richard Davis will serve as Chief Executive Officer and Graeme Shaw will serve as Chief Operating Officer of Descartes Labs. Mr. Davis and Mr. Shaw are both highly regarded executives with decades of experience in satellite technology, data analytics and corporate finance.
Chandra Patel, Managing Director of Antarctica Capital, said, “Antarctica Capital has a strong institutional commitment to the geospatial and data analytics sectors and Descartes Labs will be very complementary to our other portfolio companies in these sectors. We are committed to maintaining Descartes’ current business, while also providing the necessary capital and expertise to ensure the company’s growth. We are confident that Antarctica can build upon Descartes legacy of innovation and insights to enable the company to realize its immense potential.”
Davis said, “Antarctica Capital’s investment approach emphasizes active ownership and providing more than capital to develop companies. We are extremely excited about Descartes’ business prospects and with Antarctica’s involvement the Company is poised to accelerate innovation quicker than before to offer customers more value and best in class geospatial intelligence to both the commercial and government sectors.”
Established in 2014 by a team of scientists from Los Alamos National Laboratory, Descartes Labs was founded on the belief that planetary knowledge has the power to radically alter how companies, governments, and nonprofits understand their relationship to the world’s physical systems. The Company possesses decades of experience working on some of our nation’s most difficult problems, with expertise in large-scale computing, artificial intelligence, and satellite imagery. As a geospatial intelligence company, Descartes Labs helps organizations benefit from the scientific analysis of observable, physical world events. Descartes’ SaaS platform enables custom signal development and our packaged analytics solutions create new sources of operational advantage and sustainability for customers across Agriculture, Consumer Goods, Mining, and Government. The Company also supports US federal government efforts to curate, analyze and provide unique actionable insights from geospatial data. For more information visit https://descarteslabs.com/. About Antarctica Capital
Antarctica Capital is an international private equity firm headquartered in New York. Antarctica Capital is a registered investment advisor and is dedicated to investments in private markets and real assets and the establishment of long-term capital vehicles to leverage this investment focus. Antarctica Capital’s investment approach is active ownership with an inherent focus on sustainability and to provide more than capital to develop companies. The firm has an absolute return focus, which leads the firm to rigorously evaluate and build conviction around idiosyncratic investment opportunities and build value through the implementation of its investment strategies, such as SIGA®, SARO® and SEREY™. For more information visit https://antarcticacapital.com/. (Source: Satnews)
12 Aug 22. Denel details its strategy to stabilise and grow the Group. Denel’s board chair Gloria Serobe and restructuring officer Riaz Saloojee. Denel’s chief restructuring officer Riaz Saloojee believes there is now a clear and sustainable business case underpinning the future of the company, which has finally paid all outstanding salaries owed to employees.
Saloojee was speaking at a media briefing hosted on Thursday 11 August. In outlining a comprehensive strategy for the Denel Group, Saloojee focused on a streamlined and sustainable company with the ability to significantly grow its order pipeline and access new revenue streams. Acknowledging the credibility issue that Denel faces, he aimed to rebuild the company’s reputation and capabilities.
“It can be self-sustaining with a R12bn order book over the next business plan cycle – which is six times current annual revenues,” he noted. “If the turnaround of the business is successful, there is potential to grow the order book to R30bn in the next three to five years.”
Saloojee said the rationalised Denel will focus on its proven capabilities in the fields of guided weapons, land defence systems, aircraft engineering and maintenance and the delivery of complex integrated systems for the security and cyber environments.
In Saloojee’s view, Denel is still widely regarded as a critical supplier of sovereign and strategic capabilities that provides vital leadership to the local defence industry, which annually exports some R7 bn worth of mostly advanced manufactured products.
He believes there remains a significant interest in Denel’s battle-proven intellectual property. “The rapidly changing global defence environment, as evidenced by the conflict in the Ukraine, as well as instability in many parts, will create opportunities to market the group’s products and form deeper strategic relationships.”
He highlighted Denel’s prime role in supporting the South African National Defence Force (SANDF) to execute its constitutional mandate to safeguard the country’s citizens and territorial integrity. Denel is – and has been – the custodian of key strategic capabilities of the SANDF. As an original equipment manufacturer (OEM) and maintenance, repair and overhaul (MRO) facility for numerous critical equipment systems, Denel enables much of the SANDF’s combat capability.
The well-known decline in South Africa’s defence budget had a direct adverse effect on the defence force and on Denel. “We could not fund the necessary capabilities through the defence allocation that we historically used to do,” Saloojee explained. “Whereas the internationally accepted norm for defence spend is 2% of GDP, South Africa currently stands at around .7% of GDP.”
Replying to a question on Denel’s depleted skills base, Saloojee conceded that some highly skilled personnel have left, even going abroad, but in turn many have indicated a willingness to return to the group. However, there is still a vast pool of engineering and technical expertise within the company. He noted that Denel was keen to rebuild its relationship with employees, organised labour, suppliers, and stakeholders.
He pointed out Denel was a stable state-owned company (SOC) between 2010 and 2015. By 2016/17 it was beginning to show signs of decline through a combination of state capture, together with weaknesses in management, leadership, project execution and contract management. Revenue fell from a peak of R8.2bn in R2015/16 to under R2bn in 2021/22.
This position was exacerbated by the Covid-19 pandemic, which created the dire position that Denel finds itself in today.
“It was critical that we stop the bleeding and effect a restructuring to retain strategic capabilities, particularly as the defence force needs Denel’s support as the custodian of critical capabilities both internally and externally.”
He cited Denel’s technical support of SANDF helicopters deployed during recent floods in KwaZulu-Natal, as well as the July unrest in that province. This is further underscored by the Rooivalk and Oryx helicopters – of which Denel is the OEM – in United Nations (UN) peace support operations in the eastern Democratic Republic of Congo (DRC). Denel also supports SANDF equipment, including C-130BZ Hercules aircraft, serving the SADC mission in northern Mozambique.
Importantly, the new strategic direction enjoys the support of Denel’s shareholder, the Department of Public Enterprises, as well as the Denel board. Saloojee added that the relationship with the Government will be strengthened through a formal Memorandum of Cooperation with the Department of Defence and Armscor to ensure alignment on sovereign and strategic capabilities.
Saloojee stressed the point that the simplicity of the strategy can ensure its success. “We know the dire situation in which Denel finds itself, but we know where we want to be, i.e. the end state.”
He argued that the immediate requirement was to stabilise the company (“stop the bleeding”), which has to a degree been achieved through the medical benefit trust surplus, and to unlock the order pipeline that he is confident can be done in the next 12 to 18 months.
The sale of non-core assets is progressing well, which could bring in around R1.2bn. A case in point is Denel’s current 20 per cent shareholding in Hensoldt, that is “imminent”, according to board chair Gloria Serobe.
“The current problem remains the fixed cost of our business that is far in excess of the revenue and executable business,” Saloojee stated. “The only way for Denel to support itself is through a deep restructuring and reduction of the cost base to affordable levels.”
In this regard, higher levels of efficiency will be achieved through the restructuring by adopting a smaller geographic footprint and streamlining policies and processes. This will include the engineering, manufacturing, and support environment.
“We intend to grow long-term strategic partnerships with the local defence and technology sectors and entrench our position in the local and international markets. The value of these partnerships is threefold, namely to access to markets, new technology and financial support,” Saloojee said.
Denel will establish “smart partnerships” with the local defence industry to ensure jobs are created within the wider sector. The planned growth path is projected to result in an estimated 1 000 high-quality direct jobs in the industry within the next three years and some 5 000 jobs by 2027.
Recently appointed to lead Denel’s restructuring and turnaround, Saloojee is a former Group CEO forced out during the state capture era by a Denel board that was appointed in 2015. The Zondo commission into state capture made findings against the erstwhile Minister and chairman Daniel Mantsha along with his board members. (Source: https://www.defenceweb.co.za/)
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