Arotech Corp (NASDAQ:ARTX) CEO Interview


Arotech Corp
Ceo and Chairman: Robert Ehrlich


Interview Transcripts:
Juan Costello: Good day from Wall Street. This is Juan Costello, senior analyst of the Wall Street Reporter. And joining us today is Robert Ehrlich, the CEO and Chairman for Arotech Corporation. The company trades on NASDAQ and their ticker symbol is ARTX. And they provide defense and security products. Thanks for joining us today Robert.

Robert Ehrlich: My pleasure.

Juan Costello: Great. Now, starting off, give us a brief history and overview of Arotech from some of our listeners here who are new to your story.

Robert Ehrlich: Okay. It started in 2002, we focused on defense and security products in three operating divisions. We sell batteries to the military, both the US and the Israeli military. We sell armored vehicles principally to the Israeli military but we just introduced a new model called the Tiger which we’re now marketing on a worldwide basis with Techtran Corporation.

And we do simulation which is our biggest business for the military. Various kinds of simulation including use of force training, air-to-air missile defense. And any wheeled vehicle that moves in the US military, we simulate.

So basically, we have those three businesses. We’ll approximate 80 million dollars in revenue this year, be profitable, and positive EBITDA and positive cash flow. And we’re looking to continue to grow the business focusing principally in the battery technology and in simulation.

Juan Costello: Well good. Talk about some of the company’s recent orders. We just had a five-year blanket agreement which is up to 11 million from the Department of Homeland Security.

Robert Ehrlich: Yeah. That’s a very exciting development for us. That we’ve been selected among all the competitors to be the sole source for the Homeland Security Department including all of their operating units which is the Customs and Border Protection, the Coast Guard, the Federal Emergency Management Agency, the Secret Service, the Federal Law Enforcement Training Center (FLETC), the Transportation Security Administration (TSA) that runs the airports, and Immigration and Customs Enforcement.

So we’ll be all over the place selling simulators for use of force training to all the various components of the Department of Homeland Security over the next five years. We’ve already gotten first orders on that 11 million dollar draw down and anticipate they’ll keep taking units over the next several years. So that’s really an exciting development for us.

We also recently announced a two and a half million dollar additional battery orders from various customers. Our battery backlog is now running at about 16 ½ million which is the best it’s ever been. And that business continues to grow particularly as we penetrate the US military market which we’ve only started doing last year. And the growth there is quite substantial.

So those are the big developments. And as I say, we also introduced a new armored vehicle that we’re marketing through Techtran Corporation on a global basis called the Tiger. It’s a eight ton armored vehicle, bomb protected which can be used in all kinds of-It’s a heavy jeep that can carry six soldiers and it’s very well protected to take them into areas like Afghanistan and Iraq and the West Bank and so on.

Juan Costello: Well good. And you also have a training and simulation division and you guys are also recently featured on 21st Century Business?

Robert Ehrlich: Yeah. We were offered the opportunity to participate in that which really allowed us to showcase all of our capabilities in the simulation area. We find that as defense spending will be cut back on hardware which we’re seeing happening in the UK and now will certainly begin to happen in the US. That more money will go into training and training revolves around simulators.

So we think that there’s a big growth opportunity in the next couple of years as the US and other militaries cut back on actual soldiers in the field and hardware equipment, and seek more simulators to train on so they can get their soldiers to be ready but not have to spend so much on having very expensive equipment. So we see that as a big opportunity and a substantial growth area for us in the next several years.

Juan Costello: Certainly. Talk to us about some of the other trends right now in your sector Robert. How well-positioned you believe Arotech is to capitalize on them?

Robert Ehrlich: Okay. We see substantial growth in more and more militaries particularly in the US. And the Indians are moving to rechargeable batteries. They used to use what I call primary where a battery would be one time used and thrown away which was simple for the soldier but expensive for the armies. They are moving more and more to rechargeable and we are very heavily involved in rechargeable technology.

And as I said, we’re selling more units now in the US military than we’ve ever- we’ve only started that last but that’s growing very rapidly and we that continuing. We’re also the primary source of supply to the Israeli military. And we are beginning to see opportunities in India as well for our battery technology. So in the field of military communications and equipment that soldiers use, more batteries are being developed that we’re working on and we see continuing growth in that area.

As I said before, the biggest area for growth that we anticipate will be in simulation and training. As money are reassigned to various projects, the military will spend more money as they cut back on defense spending and training, and training involves simulation so we that as a continuing growth area. This order from the Department of Homeland Security is an indication that more and more money is going to go into training and preparing the various law enforcement and military personnel to anticipate situations but train them in simulation rather than in live fire and in various kinds of equipment that they otherwise would use.

Juan Costello: Well great. So what would you say makes Arotech Corp. unique from some of the other players in your sector?

Robert Ehrlich: Well in the field that we focus on, I mean we’re a small company but in the niches that we focus in particularly in things like use of force training for simulators, wheeled vehicle simulation, air-to-air missile technology. Those are areas that we really dominate and we see those continue to grow.

We just for example, are going to be going into the Joint Strike Fighter for target acquisition. When there’s a training of pilot in a Joint Strike Fighter, there’s an enemy airplane out there somewhere that tells them what kind of, our simulator trains them to tell them what kind of weapons to use to bring down that aircraft. And those simulators have actually now become embedded in the aircraft.

So we actually are used specifically for target acquisition in the Joint Strike Fighter among all the other as well as all the other jets that that the US sells and operates. So we see those continuing to grow.

The battery development, we see opportunities. We’re now doing batteries for missile launches, for satellites, for underwater activities. So the opportunities in those two parts of our business are really quite substantial. And we see that continuing over the next several years.

Juan Costello: Certainly and perhaps you can walk us through your background experience Robert. And talk a little bit about the strength of the management team for some of our listeners here who are new to the story?

Robert Ehrlich: Sure. Well I think we’ve assembled a really strong management team. I had among other things been chairman of two public companies. One called PSC, which was a public company now owned by Data Logic in Italy, 200-somewhat million dollar business.

But more importantly, I was chairman of a company called Fresenius Medical which is a 3 ½ billion dollar New York Stock Exchange company. I helped take that company from 16 million in revenue to this 3 ½ billion and then gave it up and came to work with Arotech.

The rest of our team, we have the former chief financial officer of Federated and the May Company as our CFO. We are very fortunate to bring him on board and our president, Steven Esses has substantial experience in operating business including Dunkin Donuts and some retail operations that he ran in the US before he joined us. So we think we have a very strong management team.

The division managers of our armor, battery, and simulation are all guys with extensive experience in their particular businesses. So we think we have a very strong team of management that will continue to grow the business and expand it in the coming years.

Juan Costello: Well great and so speaking of which, what are some of the goals, milestones, and objectives that the team is hoping to accomplish here with the next year?

Robert Ehrlich: Well our internal plan is to grow somewhere between eight and ten percent a year in all of our units as well as to seek attractive acquisitions that can expand our growth on a faster rate. We’re looking at some interesting acquisitions in both the battery field and in the simulation. And see those as add-ons that enhance our growth at a faster rate. We want to get to from our 80 million revenue level to 200 million in the next couple of years so that we can really be a significant player in those two businesses.

Juan Costello: Good. And when it comes to investors and the financial community Robert, do you believe that the Arotech Corp. story, message, and ultimately the upside potential are completely understood and appreciated by the…

Robert Ehrlich: I’m not sure they’re fully appreciated but I think people are beginning to understand that in our main core businesses, simulation, and batteries, we are a significant factor growing with substantial opportunities ahead of us so that it represents significant opportunity. And our evaluation compared to our peers is considerably less so that it’s a real upside for investors to make money holding our stock.

Juan Costello: Certainly. And so once again, joining us today is Robert Ehrlich, the CEO and Chairman for Arotech Corporation which trades on NASDAQ, ticker symbol is ARTX, currently trading at 2.08 a share with the market cap north of 30 million. And we are just discussing the company’s recent award or the contract from the Department of Homeland Security as well as some of the orders for their rechargeable batteries and also the company being featured on 21st Century Business TV.

And so before we conclude Robert, just to recap some of your key points here, why do you believe investors should consider Arotech Corp (ARTX) as a good long-term investment opportunity?

Robert Ehrlich: I think because we’re continuing, we’ve been growing for the last five years. We’ve been growing steadily eight to twelve percent a year which we expect to continue and hopefully if we can find some suitable acquisitions at reasonable terms, we would grow even faster. We also are relatively lower in comparison to our peers in terms of valuation so there’s an upside in getting eventually the comparability with our peers which will give the stock a significant boost.

Juan Costello: Well, we certainly look forward to continuing to track the company’s growth as well as report on your upcoming progress. I like to thank you for taking the time to join us today Robert and update our investors on Arotech. It’s always good to have you on.

Robert Ehrlich: We appreciate it very much. We like talking to your following and we think that it’s a nice medium to communicate in.

Juan Costello: Well great. Looking forward to an update.

Robert Ehrlich: Thank you.

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