TIDMSPSY TIDMSPSC
RNS Number : 0657I
Spectra Systems Corporation
19 March 2018
Spectra Systems Corporation
Preliminary results for the twelve months ended 31 December
2017
Spectra Systems Corporation, a leading provider of advanced
technology solutions for banknote and product authentication, is
pleased to announce its preliminary results for the twelve months
ended 31 December 2017.
This announcement contains inside information for the purposes
of Article 7 of Regulation 596/2014.
Financial highlights:
-- Revenue up 9% for the year at US$12,170k (2016: US$11,122k)
-- Adjusted EBITDA(1) up 83% at US$4,349k (2016: US$2,383k)
-- Adjusted PBTA(1) doubled to US$4,010k (2016: US$1,999k)
-- Adjusted earnings(2) per share of US $8.8 cents (2016: US 4.4 cents)
-- Net income up over 187% at US$3,280k (2016: US$1,139k)
-- Cash generated from operations of US$4,669k (2016: US$2,805k)
-- Strong, debt-free balance sheet, with cash(3) of US$11,181k (2016: US$8,808k)
-- Declaring annual dividend up 20% to US$0.06 per share to be paid in June
(1) Before stock compensation expense and exceptional items
related to inventory writedowns and acquisition costs
(2) Before amortization, stock compensation expense and
exceptional items related to inventory writedowns and acquisition
costs
(3) Does not include US$1,099k (2016: US$1,092k) of restricted
cash and investments
Operational highlights:
-- In-house production throughout 2017 with margin uplift
through consumption of inventory previously manufactured through
contract services
-- Record phosphor sales of US$4,313k (2016 US$3,764k)
-- Gross margin increased to 71% from 68% resulting from
in-house manufacturing of covert materials, royalties and record
high-margin phosphor sales
-- Reduced operating expenses by US$881k through a planned
reduction of R&D and reallocation of internal resources to
in-house manufacturing
-- Brand Authentication and Secure Transactions Group performing in line with expectations
-- Completed engineering staff reductions and facility
consolidation which will allow us to redirect resources to increase
manufacturing capacity in 2018 to support larger orders and
mitigate performance risk
Commenting on the results, Nabil Lawandy, Chief Executive
Officer, said:
"The Company's revenues have increased by 9% and PBTA has
doubled over 2016 driven by sales of high margin phosphors,
significant royalty payments by our licensee due to record print
orders, and the inline performance of all other operating business
lines.
"We have also laid the foundation for the expected adoption of a
new security feature for polymer banknotes by a major central bank
and have achieved success with the large scale production tests of
our smartphone based TruBrand authentication technology.
"Furthermore, we have successfully initiated a new line of
business in the consumer products area where our materials are used
to ensure that coffee cups are functional with Keurig coffee makers
which we hope will lead to similar opportunities in the consumer
products area we have been focusing on."
"The Board therefore believes that the Company, by achieving key
business milestones, will continue to perform well and has
excellent prospects for ongoing earnings growth in 2018."
Enquiries:
Spectra Systems Corporation
Dr. Nabil Lawandy, Chief Tel: +1 (0) 401
Executive Officer 274 4700
WH Ireland Limited Tel: +44 (0) 20
7220 1650
Chris Fielding (Head of
Corporate Finance)
Chief Executive Officer's statement
Introduction
Through achieving key commercial milestones, as described in the
Review of Operations below, Spectra Systems has delivered an
excellent performance for the 2017 financial year.
Revenue for the year was US$12,170k (2016: US$11,122k) due to
record phosphor sales and higher royalties earned. Adjusted EBITDA
(before stock compensation expense and exceptional items) for the
year increased 83% to US$4,349k compared to the prior year of
US$2,383k, which resulted in net income up over 187% at US$3,280k
(2016: US$1,139k).
Having generated cash from operations of US$4,669k (2016:
US$2,805k), cash at the period end amounted to US$11,181k (2016:
US$8,808k), excluding US$1,099k of restricted cash and investments
(2016: US$1,092k). This is notwithstanding US$2,270k paid to
shareholders during June in the form of the Company's inaugural
dividend of US$0.05 per share.
The Company therefore intends to declare an annual dividend up
20% at $0.06 per share to be paid in June. The Company will
continue to have sufficient cash resources thereafter to execute on
its growth plans.
Review of Operations
Authentication Systems
The Authentication Systems business, which includes the security
phosphor materials, generated revenue of US$10,823k (2016:
US$9,848k) and adjusted EBITDA of US$3,794k (2016: US$1,928k).
Authentication Systems revenues are driven by covert material sales
and royalties through our licensing agreement with a major banknote
supplier and printer to 18 central banks, including one G7 central
bank, and directly to another G7 central bank. We are pleased to
report that we continue to sustain a margin increase from using our
in-house manufacturing facility.
The strong earnings from our covert materials business has been
complemented with continued strong sales of high margin brand
authentication materials and particularly phosphors related to a
central bank's redesign of banknotes which was completed in
2017.
The TruBrand authentication business is performing on track and
continues to have significant prospects in China bolstered by our
highly successful large scale production test results with a major
tobacco company printer in China in Q4 of 2017.
Based on our advances in 2017, we expect to execute a new direct
licensing and supply agreement for a covert security product for
polymer banknotes within the next two years. We expect that the
translation of this new technology from a laboratory system to a
finalized product will be funded under a development agreement with
the central bank customer beginning in late 2018.
Secure Transactions Group
The Secure Transactions Group performed in line with management
expectations, generating adjusted EBITDA of US$555k (2016: US$505k)
on revenue of US$1,347k (2016: US$1,274k).
This segment of the business is producing solid revenue growth
as well as increased earnings. With the introduction of the 64-bit
product along with our position as the only supplier with a virtual
machine capability, we are confident we will continue to attract
more customers from our competitors.
The Secure Transactions Group has won a new contract with the
Maryland Lottery, 3 new licences and has continued to roll out
64-bit Premier Integrity. The Secure Transaction Group will
complete their ISO-27001 Certification in 2018 and continue working
with organizations such as the World Lottery Association (WLA) and
the North American Association of State and Provincial Lotteries
(NASPL). We are confident that we will see continued growth of the
business in 2018.
Strategy
The Company's strategy for increasing revenue and earnings is
focused on brand authentication and specialty optical materials for
security applications while maintaining a robust effort to
commercialize our covert security technologies. The brand
authentication sector offers significant short term growth and some
very large opportunities for smartphone based technology while the
covert banknote security area provides long term, multi-decade
revenues once new contracts are executed. The banknote industry
continues to have a CAGR of 3.3% and is expected to reach $11.2
billion by 2021 (Smithers Pira, 1/2017). This growth continues in
the face of Utopian goals of a cashless society by some central
bank executives and any changes in this trend will go through a
very long phase of transitions to new substrates, denomination
reductions, and multifunctional security features before a decline
of any significance takes place in the industry.
We have developed and introduced an impressive suite of covert
authentication products which are currently under consideration by
central banks and potential corporate licensing partners. These
products are primarily targeted towards polymer banknotes where
growth is beginning to outpace annual increases in paper banknote
production. Through our close relationship with our direct G7
customer, we have become a trusted supplier of technology and have
been asked to bid on several sensor upgrades, including our own
sensors which are currently in use. We are confident that this will
result in additional business and underpins our strategy of growing
our business with existing customers in banknote security.
Mirroring the shift towards secure materials outside of
banknotes, we began a restructuring of staff to allow us to market
our optical materials in related areas such as process control and
consumer products.
The Secure Transactions Group continues to innovate within the
lottery ICS industry, reducing cost and increasing efficiency with
the introduction of Virtualized Machines. The use of VM, we expect
will allow us to win contracts from our competitors by offering
more value to the customer and has become an integral part of the
strategy of the group.
Prospects
We are targeting five specific opportunities, two of which are
relatively near-term and three of which are somewhat
longer-term.
The important, near-term opportunities are:
1) The initial small-scale sales of TruBrand materials along
with cloud based authentication services in 2018
2) The funded commercialization of a polymer banknote technology by a major central bank
The longer term (2-4 years) opportunities are:
3) A licensing and supply agreement for polymer based technology
developed through external funding with a major central bank
4) The development and supply of further upgraded sensor
capability to a G7 central bank in response to a standardization
requirement
5) The adoption of our Secure Transactions Group products for
sports gambling which is on the verge of being legalized in several
states. From New York to California, lawmakers in at least 20
states are wagering that sports gambling could become legal in 2018
and are crafting legislation to make that happen within their
borders.
In addition to these specific and defined targets, we continue
to pursue banknote tenders with major central banks using other
covert security features we have developed as well as our TruNote
technology. Furthermore, we have a second polymer based technology
which we believe may be of great value through a possible
partnership with a polymer supplier. This is an approach we are
exploring before reverting to the more traditional approach we have
taken in the past where we license technology to a major banknote
printer or supplier.
We are pleased that we are able to supplement our sustained and
growing profitability with a number of near-term and longer-term
prospects of a significant scale. We are particularly delighted
that the authentication business outside of banknotes is growing
ahead of expectations, which provides recurring revenue to
supplement our long term banknote business with its
characteristically extended sales cycles and delays. We believe
that we have a number of transformative opportunities ahead in
several aspects of our business that will drive near and long term
earnings growth for the Company and its shareholders.
With the Company having a fourth year of sustainable profits and
having sufficient resources to execute on its growth plans with its
existing cash reserves, the Board is delighted to continue paying
dividends. Its dividend policy takes account of the Group's
profitability, underlying growth, and the maintenance of sufficient
cash reserves. The Board therefore intends to pay an annual
dividend of US$0.06 per share on or about June 29, 2018 to
shareholders of record as of June 8, 2018.
Nabil M. Lawandy
Chief Executive Officer
March 19, 2018
Statements of income and other comprehensive income
for the years ended 31 December:
2017 2016
Unaudited Audited
Note USD '000 USD '000
Revenue $ 12,170 $ 11,122
Cost of sales 3,514 3,524
--------------- --------------------------
Gross profit 8,656 7,598
Operating expenses 5,625 6,506
--------------- --------------------------
Operating profit 3,031 1,092
Interest and other
income 60 53
Foreign currency
gain (loss) 2 (6)
--------------- --------------------------
Profit before
taxes 3,093 1,139
Income tax benefit 187 -
--------------- --------------------------
Net income $ 3,280 $ 1,139
--------------- --------------------------
Earnings per share 2
Basic $ 0.07 $ 0.03
Diluted $ 0.07 $ 0.03
Other comprehensive
income (loss)
Unrealized loss
on currency exchange 10 (33)
Reclassification
for realized loss
in net income (2) 6
--------------- --------------------------
Total other comprehensive
income (loss) 8 (27)
Comprehensive
income $ 3,288 $ 1,112
=============== ==========================
All of the Group's operations are continuing
Balance sheets
as of 31 December:
2017 2016
Unaudited Audited
USD '000 USD '000
Current assets
Cash and cash equivalents $ 11,181 $ 8,808
Trade and other receivables 1,425 2,706
Inventory 3,754 2,915
Prepaid expenses 116 104
Total current assets 16,476 14,533
Non-current assets
Property, plant and equipment, net 1,795 2,561
Intangible assets, net 6,967 7,304
Restricted cash and investments 1,099 1,092
Deferred tax assets 1,225 989
Other assets 151 146
--------------------- ---------------------
Total non-current assets 11,237 12,092
Total assets $ 27,713 $ 26,625
===================== =====================
Current liabilities
Accounts payable $ 200 $ 402
Accrued expenses and other liabilities 1,521 1,437
Taxes payable 8 -
Deferred revenue 1,074 1,260
--------------------- ---------------------
Total current liabilities 2,803 3,099
Non-current liabilities
Deferred revenue 458 256
--------------------- ---------------------
Total non-current liabilities 458 256
Total liabilities 3,261 3,355
--------------------- ---------------------
Stockholders' equity
Common stock 454 453
Additional paid in capital - common stock 55,224 55,061
Accumulated other comprehensive loss (105) (113)
Accumulated deficit (31,121) (32,131)
--------------------- ---------------------
Total stockholders' equity 24,452 23,270
--------------------- ---------------------
Total liabilities and stockholders' equity $ 27,713 $ 26,625
===================== =====================
Statements of cash flows
for the year ended 31 December:
2017 2016
Unaudited Audited
USD '000 USD '000
Cash flows from operating
activities
Net income $ 3,280 $ 1,139
Adjustments to reconcile
net income to net cash
provided by operating
activities
Depreciation and amortization 1,103 1,098
Stock based compensation
expense 123 124
Allowance for doubtful
accounts 36 22
Deferred taxes (236) -
Provision for excess 92 -
and obsolete inventory
Loss on disposal of 32 -
assets
Changes in operating
assets and liabilities
Accounts and other
receivables 1,246 1,524
Inventory (932) 143
Prepaid expenses (9) 21
Other assets 3 (3)
Accounts payable (171) (1,127)
Accrued expenses and
other liabilities 89 (128)
Deferred revenue 13 (8)
-------------------------- ---------------------------
Net cash provided by
operating activities 4,669 2,805
Cash flows from investing
activities
Restricted cash and
investments (7) (18)
Payment of patent and
trademark costs (396) (390)
Payment of software
costs (8) (124)
Asset acquisitions - (3,118)
Cash refund on property 405 -
and equipment
Purchases of property,
plant and equipment (71) (130)
-------------------------- ---------------------------
Net cash provided by
(used in) investing
activities (77) (3,780)
Cash flows from financing
activities
Dividends paid (2,270) -
Proceeds from exercise 42 -
of stock options
-------------------------- ---------------------------
Net cash used in financing (2,228) -
activities
Effect of exchange rate
on cash and cash equivalents 9 (25)
-------------------------- ---------------------------
Net increase (decrease)
in cash and cash equivalents 2,373 (1,000)
Cash and cash equivalents,
beginning of period 8,808 9,808
-------------------------- ---------------------------
Cash and cash equivalents,
end of period $ 11,181 $ 8,808
========================== ===========================
Notes to financial information
1. Basis of preparation
This report was approved by the Directors on 16 March 2018.
This financial information has been prepared using the
recognition and measurement principles of US Generally Accepted
Accounting Principles.
These principal accounting policies were used in preparing its
financial statements for the year ended 31 December 2017 and are
unchanged from those disclosed in the Company's Annual Report for
the year ended 31 December 2016.
2. Earnings per share
The calculation of basic earnings per share is based on the net
income divided by the weighted average number of common shares
outstanding. Diluted earnings per share is calculated by
considering the dilutive impact of common stock equivalents under
the treasury stock method as if they were converted into common
stock as of the beginning of the period or as of the date of grant,
if later. Excluded from the calculation of diluted earnings per
common share for the years ended December 31, 2017 and 2016 were
400,164 and 8,725,673 shares, respectively, related to stock
options because their exercise prices would render them
anti-dilutive. The following table shows the calculation of basic
and diluted earnings per common share.
Full Year Full Year
to 31 Dec to 31 Dec
2017 2016
Numerator:
Net income $ 3,280,082 $ 1,139,053
Denominator:
Weighted average
common shares 45,369,084 45,251,370
Effect of dilutive
securities:
Stock Options 2,512,699 46,000
--------------------- ----------------------
Diluted weighted
average common shares 47,881,783 45,297,370
===================== ======================
Earnings per common
share:
Basic: $ 0.07 $ 0.03
===================== ======================
Diluted: $ 0.07 $ 0.03
===================== ======================
3. Nature of financial information
The Preliminary Announcement set out above is an extract from
the forthcoming Annual Report and Accounts and does not represent
statutory accounts for Spectra Systems Corporation. The statutory
accounts of Spectra Systems Corporation in respect of the period
ended 31 December 2017 will be delivered to the Registrars of
Companies before the Company's Annual General Meeting.
It is anticipated that the Annual Report and Accounts will be
circulated to shareholders of Spectra Systems Corporation by April
2018.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LFFVIVSITLIT
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