REG - Spectra Systems Spectra Systems-SPSC - Interim Results
30/09/2024 07:00
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RNS Number : 1211G Spectra Systems Corporation 30 September 2024
Spectra Systems Corporation
Interim Results for the Six Months Ended 30 June 2024
Spectra Systems Corporation ("Spectra Systems" or the "Company"), a leader in
machine-readable high speed banknote authentication, security printing, brand
protection technologies and gaming security software, is pleased to announce
its interim results for the six months ended 30 June 2024.
Financial highlights (including the consolidation of a foreign subsidiary
acquired in December 2023):
· Revenue of $22,739k (2023: $11,621k) up 96%
· Adjusted EBITDA(1) up 33% at $7,847k (2023: $5,903k)
· Adjusted PBTA(1) up 6% to $6,225k (2023: $5,873k)
· Adjusted earnings(2) per share up 4% to US $11.2 cents (2023: US
$10.8 cents)
· Cash provided from operations of $262k (2023: $4,418k)
· Cash(3) of $4,444k (2023: $16,582k) and debt(4) of $4,803k (2023 $0k)
at
30 June 2024
(1 )Before stock compensation expense and excludes non-controlling interest
(2) Before amortization and stock compensation expense, excludes
noncontrolling interest and fewer remaining tax credits
(3) Does not include $2,025,000 (2023: $500,000) of restricted cash (Central
bank customer) and investments
4 Cartor Holding Limited debt acquired on 21 December 2023
Operational highlights:
· Executed sensor (July 26,2024) manufacturing contract with central
bank worth $39.6M, enabling initial revenue recognition for purchases and work
performed ahead of contract execution
· Completed balance of fiscal year order with in-house manufacturing
for supply chain mitigation with central bank customer
· Successfully completed all printing and durability tests of our
polymer substrate with Middle Eastern central bank
· Received approval from large polymer banknote printer to incorporate
their proprietary polymer banknote window security feature on our polymer
substrate
· Sales with new K-cup customer ongoing since December 2023
· Developed new faster and easier to use smartphone technology and
filed patents
· A highly successful presence at the Banknote 2024 conference which
has led to several new opportunities for our polymer substate and a
significant increase in our visibility worldwide
Commenting on the results, Nabil Lawandy, Chief Executive Officer, said:
"The Company's first half revenues and earnings are up from the six months
ended June 30, 2023, with increases of 96% and 6% for revenue and PBTA,
respectively. The increased revenues in the first half are derived from the
additional Security Printing turnover, pre-production sensor development
contracts, sales of covert materials, and cost accounting-based initial
revenue recognition on the $39.6M manufacturing contract with a central bank
customer.
"On the optical materials front, steady revenue from the new Canadian K-cup
printers has come through as expected in the first half of this year, further
increasing the high margin revenues from this product. In addition, we have
integrated our advanced phosphours into multiple tenders launched by our
security printing arm as well as directly for several applications including
passports and banknotes.
"We have taken our smartphone technology to a significantly higher level which
allows for a larger palette of brands and models with faster response and a
much easier user experience. Our target markets are tax stamps and postage
stamps which have been successfully counterfeited even in more advanced
countries.
"Our polymer substrate efforts have yielded important and tangible results
with both state printers as well as corporate printers of banknotes. We have
successfully passed all of the print and durability testing with our middle
eastern central bank partner and potential customer. We currently expect to
have three house notes produced by major polymer banknote printers in the
2024-2025 time frame using both our sustainable and our machine-readable
polymer substrate. In addition, we have been asked to advise a second middle
eastern central bank on the development of their future polymer notes.
"The combination of the sensor contract award, the continued strong covert
material sales, the boost in optical materials, and the significant
advancements in our polymer substrate initiative including being asked to
advise on a new series of polymer notes is all pointing towards an even more
sustainable and growing profitability in the future. While all of this
business growth is underway, we continue to be the most innovative company in
the authentication sector with machine readable sustainable polymer substrate
using circular certified polymer and new breakthroughs in smartphone
technology which we are confident has the potential to reenergize this part of
our product offering
"The Board therefore believes that the Company is on track to achieve record
earnings and meet market expectations for the full year."
Spectra Systems Corporation Tel: +1 (0)401 274 4700
Dr. Nabil Lawandy, Chief Executive Officer
Zeus Capital Limited (Nominated Adviser and Joint Broker)
Tel: +44 (0)20 3829 5000
Chris Fielding (Director, Investment Banking)
Fraser Marshall (Sales and Corporate Broking)
Allenby Capital Limited (Joint Broker)
Tel: +44
(0)20 3328 5665
Nick Naylor/James Reeve (Corporate Finance)
Amrit Nahal (Sales and Corporate Broking)
Chief Executive Officer's statement
Introduction
In H1 2024, we have already achieved a PBTA level which is 50% of the market
expectations for the year. We are therefore highly confident we will achieve
market expectations for the full year.
Revenue was up 96% at $22,739k (2023: $11,621k) for the first half of the
year. The increased revenues in the first half are derived from the additional
Security Printing turnover, pre-production sensor development contracts, sales
of covert materials, and cost accounting-based initial revenue recognition on
the $39.6M manufacturing contract with a central bank customer. As a result
of the increased revenue, adjusted EBITDA (before stock compensation expense)
for the half year increased 32% to $7,847k compared to the prior year of
$5,903k.
Having generated cash from operations of $262k (2022: $4,418k), cash at the
period end amounted to $4,444k (2022: $16,582k), excluding $2 million of
restricted cash and investments (2023: $500k), reflecting (i) the $5,593k paid
to shareholders during June (2023: $5,182k) in the form of the Company's
annual dividend of $0.116, and (ii) significant pre-purchasing of sensor
manufacturing components and equipment, as well as aggressive polymer
substrate marketing efforts, including the Banknote conference.
The financial statements for the half-year ended 30 June reflect the results
of operations for the combined entity resulting from the acquisition of Cartor
Security Printers (CSP). As a result, the financial results for H1 2024 are
not directly comparable to those of the prior mid- year, which represent the
standalone operations of Spectra as a single entity.
This acquisition has resulted in changes to the financial structure,
operations and administrative cost metrics. Shareholders are advised to
consider this context when analyzing the financial results. The combined
financial statements incorporate the assets, liabilities, revenues, and
expenses of both entities, which affect comparisons of financial performance
and position period-over-period.
Operating expenses have increased since the acquisition was integrated which
includes increases of general and administrative expenses by 178%, selling and
marketing expenses up 84% and research and development up 92%.
In addition, prior to the acquisition, Spectra carried no debt but now is
reporting $4.8 million on 30 June at an average interest rate of 0.3%.
Review of Operations
Authentication and Security Printing Business
The Authentication Systems business generated revenue of $13,773k (2023:
$10,589k) and Adjusted EBITDA of $7,005k (2023: $4,698k).
Authentication Systems revenues in H1 were largely fueled by a strong covert
materials order, an ongoing sensor development contract, and initial revenue
recognition of the $39.6 million sensor manufacturing contract executed in
June of 2024. Strong sales of optical materials, including a new K-cup
revenue stream further bolstered the performance of this business segment.
Based on current customer project plans, we expect to begin booking
revenue and cash from sensor sales in June of 2025.
Through our acquisition of Cartor Security Printers in Wolverhampton we have
significantly advanced our position and prospects for a polymer substrate
contract. We have passed all print-based and durability tests with our
middle eastern central bank partner and prospective customer. We are still
in contention for a slice of the business from the next tender from this
central bank expected in January 2025. Additional traction with private
printers opening the path to a commemorative banknote produced on our
substrate continues.
We have already changed the landscape of the polymer banknote world by
introducing the first machine-readable substrate, Fusion(TM), and the first
sustainably responsible polymer substrate made of circular certified biaxially
oriented polypropylene. Early discussions with a central bank as well as
follow up from our highly successful Banknote conference presence have
reinforced the importance of our breakthrough in polymer substrate
sustainability efforts.
Our smartphone technology has been greatly enhanced to allow virtually all
phones with a camera to be used and to provide a faster and easier user
experience. We have several initiatives underway with a major tax stamp
supplier and with postal services where counterfeit stamps have been a major
problem. Through our CSP acquisition, we have direct inroads to major world
postal organizations including the Royal Mail.
The security printing segment generated an EBITDA of $699k on a turnover of
$7,879k in H1. Late 2023 was very active with the production of the new
Royal Mail postage stamps with HM King Charles ongoing during the acquisition
and integration process. CSP has been heavily focused on growing the more
profitable new segment of postage, namely, hybrid stamps which carry
serialized information to combat reuse and counterfeiting as well as
integrating our optical materials into their product offering and tender
bids.
On the software security side of the Company's business, the Secure
Transactions Group, formed around two gaming technology acquisitions made in
2012, generated an Adjusted EBITDA of $143k (2023:($40k)) on revenue of
$1,087k (2023: $840k). The H1 results are in line with expectations, and we
expect an increase in H2 with several lottery wins from last year going
live. This is a significant improvement over last year results, and we
believe is the beginning of continued increased profitability from this
segment.
Strategy and Prospects
The Company's strategy for increasing revenue and earnings continues to be
focused on selling more products to existing customers as well leveraging
CSP's long relationships with tax stamp, passport and postage stamp customers
and partners.
Through the CSP pipeline and their longtime corporate partnerships, we have
developed several new opportunities. These include highly covert continuous
inkjet inks and smartphone-based authentication of postage stamps and tax and
revenue stamps. The recent issues with Royal Mail counterfeit stamps have
become one of a focused set of targets for our new smartphone technology.
With the expected cash build-up when sensor sales are underway, we continue to
evaluate synergistic and strategic profitable businesses for possible
acquisition.
Nabil M. Lawandy
Chief Executive Officer
September 30, 2024
Consolidated statements of income for the half year ended 30 June 2024
Half Year Half Year Full Year
to 30 Jun 2024 to 30 Jun 2023 to 31 Dec 2023
Unaudited Unaudited Audited
USD '000 USD '000 USD '000
Revenues
Product $ 19,252 $ 7,242 $ 13,401
Service 3,487 3,945 6,453
License and royalty - 434 434
Total revenues 22,739 11,621 20,288
Cost of sales 10,036 3,581 6,664
Gross profit 12,703 8,040 13,624
Operating expenses
Research and development 1,348 702 1,450
General and administrative 4,385 1,577 4,198
Sales and marketing 767 415 824
Total operating expenses 6,500 2,694 6,472
Operating profit 6,203 5,346 7,152
Interest income (expense) (308) 172 376
Foreign currency gain(loss) (3) (35) (73)
Profit before taxes 5,892 5,483 7,455
Income tax expense 650 784 1,430
Net income 5,242 4,699 6,025
Net income (loss) attributable to noncontrolling interest
(8) (14) (23)
Net income attributable to Spectra Systems Corporation
$ 5,250 $ 4,713 $ 6,048
Earnings per share
Basic $ 0.11 $ 0.10 $ 0.13
Diluted $ 0.11 $ 0.10 $ 0.12
Consolidated statements of comprehensive income for the half year ended 30
June 2024
Half Year Half Year Full Year
to 30 Jun 2024 to 30 Jun 2023 to 31 Dec 2023
Unaudited Unaudited Audited
USD '000 USD '000 USD '000
Net income $ 5,242 $ 4,713 $ 6,025
Other comprehensive income (loss)
Unrealized gain (loss) on currency exchange
(52) (45) (110)
Reclassification for realized (gain) loss in net income
3 35 73
Total other comprehensive
loss (49) (10) (37)
Comprehensive income 5,193 4,703 5,988
Net gain (loss) attributable to noncontrolling interest
(7) 14 (23)
Comprehensive income attributable to Spectra Systems Corporation $ 5,200 $ 4,717 $ 6,011
Consolidated balance sheets as of 30 June 2024
As of As of As of
30 Jun 2024 30 Jun 2023 31 Dec 2023
Unaudited Unaudited Audited
USD '000 USD '000 USD '000
Current assets
Cash and cash equivalents $ 4,444 $ 16,582 $ 13,253
Trade receivables, net of allowance 8,653 3,095 3,777
Unbilled and other receivables 1,461 1,002 1,394
Inventory 11,168 2,368 6,507
Prepaid expenses 1,401 795 1,207
Total current assets 27,128 23,842 26,138
Non-current assets
Property, plant and equipment, net 10,311 1,910 11,098
Operating lease right of use assets, net 6,063 1,659 6,308
Intangible assets, net 13,331 6,970 13,514
Restricted cash and investments 2,026 500 95
Investments 95 - 513
Deferred tax assets 1,844 1,848 1,844
Other assets 577 595 586
Total non-current assets 34,247 13,482 33,958
Total assets $ 61,375 $ 37,324 $ 60,096
Current liabilities
Accounts payable $ 3,150 $ 796 $ 2,753
Accrued expenses and other liabilities 2,488 476 813
Line of credit - 561
Operating lease liabilities, short term 569 392 1,107
Taxes payable 78 194 514
Deferred revenue 7,786 4,601 6,058
Total current liabilities 14,071 6,459 11,806
Non-current liabilities
Operating lease liabilities, long term 5,568 1,319 5,275
Third party loans 4,803 - 5,583
Contingent consideration 2,528 - 3,819
Deferred revenue 1,329 1,590 1,500
Total non-current liabilities 14,228 2,909 16,177
Total liabilities 28,299 8,928 27,983
Stockholders' equity
Common stock 482 450 460
Additional paid in capital - common stock 57,495 53,270 56,152
Accumulated other comprehensive loss (260) (186) (211)
Accumulated deficit (25,206) (26,319) (24,861)
Total Spectra Systems Corporation stockholders' equity
32,511 27,215 31,540
Noncontrolling interest 565 741 573
Total stockholders' equity ` 33,076 ` 27,956 32,113
Total liabilities and stockholders' equity $ 61,375 $ 37,324 $ 60,096
Consolidated statements of cash flows for the half year ended 30 June 2024
Half Year Half Year Full Year
to 30 Jun 2024 to 30 Jun 2023 to 31 Dec 2023
Unaudited Unaudited Audited
USD '000 USD '000 USD '000
Cash flows from operating activities
Net income $ 5,242 $ 4,699 $ 6,025
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization 1,562 459 1,055
Stock based compensation expense 75 92 180
Lease amortization expense 215 89 195
Deferred taxes 10 32 (886)
Changes in operating assets and liabilities
Accounts receivables (4,889) 581 2,092
Unbilled and other receivables (68) 131 245
Inventory (4,689) (770) (1,470)
Prepaid expenses (199) (34) (437)
Other assets - - (13)
Accounts payable 413 (133) (345)
Operating leases (215) (92) (177)
Accrued expenses and other liabilities 1,242 (518) (190)
Deferred revenue 1,563 (118) 1,250
Net cash provided by operating activities 262 4,418 7,524
Cash flows from investing activities
Restricted cash and investments (1,513) (3) -
Payment of patent and trademark costs (150) (129) (476)
Proceeds from sale of equipment - - -
Acquisition of Cartor Holdings Limited, net of Acquired Cash (6,201)
Purchases of property, plant and equipment
(508)
(8) (151)
Net cash provided by (used in) investing activities (2,171) (140) (6,675)
Cash flows from financing activities
Dividends paid (5,594) (5,182) (5,182)
Finance payments (1,303) (31)
Line of credit 113
Proceeds from exercise of stock options 11 - -
Net cash used in financing activities (6,886) (5,182) (5,100)
Effect of exchange rate on cash and cash equivalents
(14) (10) 8
Net increase(decrease) in cash and cash equivalents (8,809) (914) (4,243)
Cash and cash equivalents, beginning of period
13,253 17,496 17,496
Cash and cash equivalents, end of period $ 4,444 $ 16,582 $ 13,253
Notes to financial information
1. Basis of preparation
This report was approved by the Directors on the 27 September 2024.
This financial information has been prepared using the recognition and
measurement principles of US Generally Accepted Accounting Principles (GAAP).
The Group has not elected to apply IAS 34 Interim Financial Reporting.
The principal accounting policies used in preparing the interim results are
those the Company expects to apply in its financial statements for the year
ending 31 December 2024 and are unchanged from those disclosed in the
Company's Annual Report for the year ended 31 December 2023.
The results for the half year are unaudited. The financial information for the
year ended 31 December 2023 does not constitute the full statutory accounts
for that period. The Annual Report and financial statements for the year ended
31 December 2023 have been filed with the Registrar of Companies. The
Independent Auditors' Report on the financial statements for the year ended 31
December 2023 was unmodified and did not draw attention to any matters by way
of emphasis.
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 six months ended June 30, 2024, and the year ended December 31, 2023, were
60,000 and 132,000 shares related to stock options, respectively, because
their exercise prices would render them anti-dilutive. For the six months
ended June 30, 2023,180,000 were excluded from the calculation of diluted
earnings per common share. The following table shows the calculation of basic
and diluted earnings per common share.
Half Year Half Year Full Year
to 30 Jun 2024 to 30 Jun 2023 to 31 Dec 2023
Numerator:
Net income $ 5,249,439 $ 4,712,975 $ 6,047,921
Denominator:
Weighted average common shares 48,228,972 45,143,754 45,074,264
Effect of dilutive securities:
Stock Options 1,430,604 1,957,249 3,687,690
Diluted weighted average common shares
49,659,576 47,101,003 48,761,954
Earnings per common share:
Basic: $ 0.11 $ 0.10 $ 0.13
Diluted: $ 0.11 $ 0.10 $ 0.12
3. Copies of this statement are available to the public on the Company's
website at http://www.spsy.com.
Appendix - Reconciliation of Non-GAAP measures
The Company publishes certain additional information in a non-statutory format
in order to provide readers with an increased insight into the underlying
performance of the business. Reconciliations to the GAAP measures are shown in
the following tables:
Half Year Half Year Full Year
to 30 Jun 2024 to 30 Jun 2023 to 31 Dec 2023
Unaudited Unaudited Unaudited
USD '000 USD '000 USD '000
Adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA)
Operating profit $ 6,203 $ 5,346 $ 7,152
Depreciation 1,311 203 466
Amortization 251 254 584
Stock compensation 75 92 180
Operating loss - noncontrolling interest 8 13 23
Stock compensation - noncontrolling interest (1) (5) (11)
Adjusted EBITDA $ 7,847 $ 5,903 $ 8,394
Adjusted profit before taxes and
amortization (PBTA)
Profit before taxes $ 5,892 $ 5,483 $ 7,455
Amortization 251 254 584
Stock compensation 75 92 180
Operating loss - noncontrolling interest 8 13 23
Stock compensation - noncontrolling interest (1) (5) (11)
Adjusted PBTA $ 6,225 $ 5,837 $ 8,231
Adjusted earnings per share
Adjusted PBTA $ 6,225 $ 5,837 $ 8,231
Income tax expense (650) (784) (1,430)
Adjusted earnings $ 5,575 $ 5,053 $ 6,801
Diluted weighted average common shares 49,659,576 47,101,003 48,761,954
Adjusted earnings per share $ 0.112 $ 0.108 $ 0.139
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