Wall Street Transcript Interview with Robert S. Ehrlich, the Chairman, President & CEO of Arotech Corporation (ARTX)

Wall Street Transcript

67 WALL STREET, New York - November 12, 2012 - The Wall Street Transcript has just published its Industrial Equipment, Aerospace and Defense Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Commercial Aviation and Energy Expenditures - Industrial Restructuring - Emerging Markets Penetration - Heightened M&A Activity - Future Growth and Market Share Gains - Increased Commercial Aircraft Production Rate - Defense Budget Uncertainty - Growth Opportunities in Data Security

Companies include: Arotech Corp. (ARTX) and many others.

In the following excerpt from the Industrial Equipment, Aerospace and Defense Report, the CEO of Arotech discusses the outlook for his company for investors:

TWST: You have two different product lines, the battery power division and the simulation and training divisions. Would you please give us a broad overview of each of those?

Mr. Ehrlich: The batteries are almost exclusively for military use, both the U.S. as well as the Israeli military. We do also sell some to India, but not a large amount. It's basically batteries for all kinds of in-field devices like radios and night vision and so on that require battery power. The products are principally rechargeable lithium batteries, and we provide chargers as well so that when they are in the field they can take the battery out if it's low on power and recharge it and use it. About a year ago, we added a new product called SWIPES - soldier wearable integrated power system - which allows a soldier to wear this hub that allows all of his rechargeable devices to be charged from one power source, which we provide. That product has grown from $0.5 million last year to about $3 million this year, and we expect it to grow to $6 million or $8 million next year. It's a product that the Special Forces have all adopted. We hope Big Army will take it, then it could be a huge product for us. It is important because it is a system as opposed to just a product. That gives us bigger margins than we would get from a single product.

In terms of the simulation business, we basically have three lines. Every wheeled vehicle that the U.S. military has, we simulate. So from a striker to a half-a-ton truck to anything else with wheels, we simulate. In April, won a $63 million with a $30 million option, for a thing called VCTS - vertical convoy training system - which is again more of a system than a single-product simulator. It's a series of caravans that have different kinds of vehicle simulators built into them, so that the soldiers could train for various kinds of vehicles in one exercise. That's a $60 million program that we hope to sell more of. We are looking at delivering 28 different suites to the military in different locations, and we have options for another $30 million.

Most recently, we won a huge new contract for us which takes us out of the ground and into the air called BOSS, which is basically for the boom operator in a refueling exercise in the air. The boom operators have to refuel jet planes in transit, obviously in the air. This is a simulator that replicates that so the guys in the Air Force who do refueling can learn how to simulate the refueling of an aircraft without having to have physical aircraft do it. That is a $30 million program that we hope to see expand. That's with the Air National Guard. We also recently won a smaller program with the National Guard for more simulators for about $6 million. Our simulation business is growing quite substantially, as well as the battery business, and those are our core businesses.

In April, we sold off our armor business, which had been a money-losing, cash-draining business. Therefore, our prospects have improved dramatically without having the drain of armor in the business. The armor business has been extremely difficult.

TWST: Is it accurate that you are trying to move from single products to systems? Is that part of your strategy?

Mr. Ehrlich: Exactly. Systems allow you better margins, and it allows us to distinguish ourselves from our competitors. The problem with the battery business is that it's a commodity, so that we and several of our competitors can make rechargeable batteries. If you can build it into a system, it becomes more unique. We have a trademark and copyright, and so it's unique to us and the army is very intrigued with it, and we are now adding all kinds of new features to it so that it will continue to be our leading new product development in the battery area, the power-systems area. It is more than a battery; it's a power system. Likewise with simulation, we are trying to compete for more systems contracts so that while they're made up of single components that go together, but it's integrated into a system, which again allows for better margins and newer contracts.

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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