Arotech Corp (NASDAQ:ARTX) CEO Interview

Arotech Corp
CEO and Chairman: Robert Ehrlich

Interview Transcripts:

Interviewer: Good day from Wall Street. This is Juan Costello, senior analyst at 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. Thanks for joining us today there, Robert.

Interviewee: Well, my pleasure. Good morning.

Interviewer: Good morning. Always good having you on and starting off, talk to us about the recent recognition from the US Army.

Interviewee: We developed a new product, a wearable vest for a soldier to go out in the field that uses one of our zinc-air batteries to power all of these lithium devices allowing him to carry 30% fewer lithium disposable batteries, therefore more bullet [indiscernible] [0:00:57.5] or tools, whatever he needs which is a significant development and the Army viewed it as one of the most significant developments in 2010. We anticipate getting our first orders from the Special Forces unit sometime in the next several weeks and then we hope to see that expand. Currently being tested by something like 17 different units of the US military, some in Afghanistan, some in the US testing the life vest and hopefully it will catch on.

Interviewer: All right. And so you have the orders for being one of the top 10 inventions of the year for the Army and that’s actually a recognition that comes from — that’s voted on by actual soldiers.

Interviewee: Yes. Correct. And for us it’s the first time we’ve won an award like that. It’s a recognition of this new development that the soldiers are very excited about and they say it’s being tested by all these units out in the field and they’re all giving us tremendous feedback and, as I said, we anticipate getting our first orders in the next quarter and then having that business grow dramatically in the next couple of years.

Interviewer: Well, good. So bring us up to speed on some of the other companies, divisions including the recent contract from Bombardier for your FAAC, Inc.

Interviewee: Right. Our simulation division won a — we normally do military and what we call municipal. This was a municipal contract for Toronto Light Rail to do Bombardier which is a big rail manufacturer in Canada, do a rail system for them that will be delivered in 2012 and we could begin development for our simulation group because we obviously like to do light rail. We did the New York Subway which was a very successful program. We did the Houston light rail and we see that as a growing potential market. We also like to do towing vehicles on airports. We’ve done the Baltimore Airport and I think we’ve done the Toronto Airport as well so we have — we hope to see our municipal business develop. There it’s really more a matter of where the funding is. The municipalities all want our simulator but some have no money to buy the product but when they get the funding, then they come to us

Interviewer: Certainly and just to round out some of the recent news, you recently gave your guidance and actually raised your guidance to 95, to 100 million for the —

Interviewee: For 2012. For the rest of this year we said we would have a strong third and fourth quarter which looks like we will — we’ll report the third quarter in a number of weeks. That looks like it will come in very well. We tend to look at the guidance for the whole year. Even though we had a bad first half, we’ll be in the neighborhood of $84 million for the year which will be a record for us in large part due to the beginning of shipping with the new VVTS order that the convoy trainer that we wanted which is a $63-million win which we’re beginning to put units together that we can deliver to the Army in the first part of 2012 but we can make — we can make progress billings as we go on but we will — we will see revenue from that program already in the third — some of the third and then continuing into the fourth quarter. For next year we anticipate somewhere between 95 and 100 million because that program will continue to grow as we — and we also anticipate our battery business to continue to grow so we see both of those units growing substantially in 2012. That will allow us to raise our guidance to $95-, $100-million level for Arotech for next year.

Interviewer: Great! And so in terms of some of the recent trends right now, and I’ll let you pick whether you want to talk about the battery or the simulation division, what are some of the trends that you’re seeing right now and how well positioned is Arotech to capitalize on — ?

Interviewee: As we anticipate bringing soldiers back from Iraq, we understand that there will be more training and that allows the military, provided they have funding, to buy more simulators. The VCTS, the convoy trainers, really train drivers to drive vehicles in Afghanistan where they are basically to be concerned about roadside bombs, IEDs, and there we’re training them with these various kinds of simulators in trailers that move around or the Army can move around once we deliver them either to bases in the US to train soldiers before they go to Afghanistan or if they come abroad and train soldiers out in the field. Those deliveries will start in the, I guess, February. Anyway, the first trailers will be delivered in February of 2012 and that program will continue through till 2014 and there is a $30-million option in that program which we fully anticipate the Army will take and that will expand the program so we’re quite optimistic about the simulation opportunity over the next several years. That’s despite the fact that there is some concern generally among the buyers that defense spending might be cut back but in the simulation and training area it seems like that’s not an area that is vulnerable.

Interviewer: Right. Certainly. In terms of the company’s recent B. Riley presentation which is actually today what are some of the thing that you guys are sharing with investors there?

Interviewee: We’re moving to the power systems, the battery units. We’re talking there about a battery that we’re now building, the first module, one of the seven for the Israeli Navy that will be part of the underwater submarine to be used by Special Forces, basically Navy SEALs which will allow them to exit from the — from the submarine, go to their mission, come back and the whole thing will be because it will be battery powered. We anticipate building four of those submarines to the Israeli Navy and has gotten substantial interest from the Canadian military about buying some of those battery modules as well which will provide more significant growth going forward. We’re talking about that B. Riley and we’re also going to be talking about some of the other battery developments we’re getting into for UAVs, for space rockets and for satellites because those are all higher-margin battery products that we are building now, developing and building revenues from those in 2012 and then beyond so we’re quite excited about the growth opportunities in the — in the battery power systems as well as we obviously are very excited about the growth that we see already in simulation.

Interviewer: Any other milestones that investors could look forward to over the course of the next year?

Interviewer: Well, we anticipate hopefully some other big orders. We are — there is a big — a very large simulation contract that should be let sometime early in 2012 for common driver training, CDT. In that program we were the incumbent in the last round. We did about an $80-million program. This year they’re talking about a $350-million program and as the incumbent we’re optimistic that we have a very good chance to win that although there’s no guarantee but we’re quite optimistic that that’s a program we have a very good shot at once it’s put to bid. So we obviously — the exponential growth of the simulation training group and anticipate, if we can win that order, we will be over the moon in the next couple of years.

Interviewer: Certainly. So once again joining us today is Robert Ehrlich, the CEO and chairman for Arotech Corporation. The company trades on NASDAQ. Ticker symbol is ARTX currently trading at $1.58 a share. The market cap is at the 25-million range and before we conclude, Robert, to recap some of your key points here, why do you believe that investors consider Arotech, ARTX, as a good investment opportunity to — ?

Interviewee: I think that the investment opportunity is really good. While we’re trading in a 25 million market cap, we anticipate doing 84 million in revenue this year and 100 million next year and most of our peers trade much higher so there ought to be a big opportunity for outside — for investors in buying our stock as we report better results and profitability.

Interviewer: Well, we certainly look forward to continuing to track the company’s growth and report on your upcoming progress and I’d like to thank you for taking the time to join us today, Robert, and update our investors on Arotech.

Interviewee: Thank you for having us on.

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