REG - Spectra Systems Spectra Systems-SPSC - Results twelve months ended 31 December 2021
21/03/2022 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220321:nRSU3628Fa&default-theme=true
RNS Number : 3628F Spectra Systems Corporation 21 March 2022
Spectra Systems Corporation
Audited results for the twelve months ended 31 December 2021
Spectra Systems Corporation, a leader in machine-readable high speed banknote
authentication, brand protection technologies and gaming security software, is
pleased to announce its audited results for the twelve months ended 31
December 2021.
This announcement contains inside information for the purposes of Article 7 of
Regulation 596/2014.
Financial highlights:
· Revenue up 13% for the year at US$16,592k (2020: US$14,675k)
· Adjusted EBITDA(1) up 8% at US$6,896k (2020: US$6,357k)
· Adjusted PBTA(1) up 10% to US$6,622k (2020: US$6,039k)
· Adjusted earnings(1) per share at US$12.0 cents (2020: US$11.9
cents)
· Net income at US$5,163k (2020: US$5,124k)
· Cash generated from operations up 45% to US$8,084k (2020:
US$5,574k)
· Strong, debt-free balance sheet, with cash(2) of US$16,775k
(2020: US$14,038k)
· Declaring annual dividend of US$0.11 per share to be paid in June
· Buy-back of 500,000 shares during the year
· Donated US$35k to Leicester Royal Infirmary SACT Suite Extension
project
(1) See Appendix - Reconciliation of Non-GAAP measures
(2) Does not include US$500k (2020: US$1,099k) of restricted cash and
investments
Operational highlights:
· Execution of a contract with our central bank customer relating
to the second phase of the sensor development program followed by an amendment
to include the capability to detect exotic counterfeit notes
· Renewed the agreement for the supply of banknote security
materials with our long-time central bank customer for another five years and
received the first year's order which was 65% higher than a typical order
· Received the first orders from a new customer using our materials
in K-cups, more than doubling the sales of this product over 2020 levels
· Obtained a new customer for our TruBrand(TM) product in addition
to current tobacco related sales in China
· Established a complete vertical integration of polymer banknote
substrate manufacturing to produce ready for printing substrates
· Commenced a polymer print trial with a Middle Eastern central
bank
· Validated the efficacy of the Aeris(TM) banknote cleaning process
for deactivating Covid, with third party testing results showing the
deactivation of Covid to below detectable limits
· Patented our new Banknote Disinfection System and introduced the
product to the market with one Asian central bank requesting a price quotation
· Selected by one of the largest US lotteries to provide our
internal control software, expanded the business into Canada with a new
contract award and renewed a long-term US lottery customer contract
· Converted to LED lighting at our R&D and manufacturing
facilities to reduce our carbon footprint and reduce electric consumption by
an estimated 59,000 kwh annually
Commenting on the results, Nabil Lawandy, Chief Executive Officer, said:
"In spite of the Covid-19 pandemic, the Company never shut down operations
during the pandemic and has delivered an excellent performance during 2021.
The Company's revenues have increased by 13% and PBTA is up 10% over 2020,
driven by: larger demand for our materials to meet the increased banknote
demands of one of our existing central bank customers, customer funded sensor
development efforts and increased sales of our specialty optical materials.
"Our two-decade long relationship with a major world central bank continues to
provide new revenues from the introduction of more advanced products. This
central bank customer has invested US$8.8MM for the development of these new
capabilities which are expected to result in sensor sales of approximately
US$50MM from 2024-2026. In addition, we expect a ten-year service agreement
worth over US$8MM to line up with the delivery of the first advanced sensors
in 2024.
"I believe that shareholders should view this spending by our long-standing
customer as both a testament to our capabilities for producing cutting edge
products, as well as the stability of banknote production by reserve central
banks, where the "store of value" is as much a driver for banknote production
as every day transactions.
"The Board therefore believes that the Company, by achieving key business
milestones, will continue to perform well and has excellent prospects for
maintaining strong earnings in 2022 and beyond."
Enquiries:
Spectra Systems Corporation Tel: +1 (0)401 274 4700
Dr. Nabil Lawandy, Chief Executive Officer
WH Ireland Limited (Nominated Adviser and Broker) Tel: +44 (0)20 7220 1650
Chris Fielding (Head of Corporate Finance)
Andrew de Andrade (Executive, Corporate Finance)
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
Through achieving key commercial milestones, as described in the Review of
Operations below, Spectra Systems has delivered an excellent performance for
the 2021 financial year, continuing its track record of year-on-year profit
growth.
Revenue for the year was US$16,592k (2020: US$14,675k) driven by: larger
demand for our materials to meet the increased banknote demands of one of our
existing central bank customers, customer funded sensor development efforts
and increased sales of our specialty optical material used in K-cups. Adjusted
EBITDA (before stock compensation expense) for the year increased 8% to
US$6,896k compared to the prior year of US$6,357k, notwithstanding a US$494k
provision for excess and obsolete inventory.
Having generated cash from operations of US$8,084k (2020: US$5,574k), cash at
the period end amounted to US$16,775k (2020: US$14,038k), excluding US$500k
and US$1,099k of restricted cash and investments as of December 31, 2021 and
2020. This is notwithstanding US$4,302k paid to shareholders during June 2021
in the form of the Company's dividend of US$0.095 per share and share
buy-backs of US$1,170k.
The Company is therefore declaring an increased annual dividend of US$0.11 per
share to be paid in June. The Company will continue to have sufficient cash
resources thereafter to execute on its growth plans as well as support the
required financial requirements expected from our sensor development customer
during the sensor delivery phase.
Review of Operations
Physical and Software Authentication Business
The Authentication Systems business generated revenue of US$14,718k (2020:
US$13,251k) and adjusted EBITDA of US$6,556k (2020: US$6,121k). Authentication
Systems revenues are driven by sales of covert materials and their associated
equipment and service, optical and security phosphour materials and licence
royalties. We sell covert materials directly to one major world central bank
and indirectly to numerous other central banks through a major banknote
supplier and printer with which we have existing licence and supply agreements
for the exclusive rights to our technology.
The increased revenue is due to: larger demand for our materials to meet the
increased banknote demands of one of our existing central bank customers,
customer funded sensor development efforts and increased sales of our product
used in K-cups.
The 2020/2021 central bank order for our covert consumables reached the
highest level in the Company's history amounting to over three and a half
times the average historical order. This order was partially fulfilled in 2020
with the balance delivered in 2021. This exceptional order was followed by the
2021/2022 order from the same central bank which was in turn 75% of the
largest order.
Our long established relationship with this major world central bank continues
to drive the introduction of more advanced products and an increasingly steady
stream of hardware sales to authenticate our covert materials which reached
record sales this year. We have received US$8.8MM of funding from this
customer to develop a new generation of sensors with sensor deliveries
anticipated to begin in 2024 and continue through 2026. The sensors will be
the most advanced authentication sensors in the world with unmatched
capabilities and will provide anticipated hardware revenues of approximately
US$50MM and service contracts worth in excess of US$8MM over a ten-year
period.
We have advanced Fusion(TM), our machine-readable covert polymer substrate as
well as our ability to supply standard polymer substrate by developing a fully
integrated and highly secure operation which allows us to sell fully ready for
printing substrates with full opacification and conducting layers in all print
format requirements. This is a major advancement which allows us to directly
compete with the other suppliers in the industry, even at the level of
standard polymer substrates without machine readability. In Q4 of 2021 we
produced a large number of custom designed polymer substrate sheets with full
conductive and opacity layers for a Middle Eastern central bank print trial
which is currently in progress. Following the Banknote Conference, we have
created early traction with three major central banks including a G7 central
bank.
Leveraging our position as a trusted supplier of advanced authentication
technology to central banks and in order to respond to the Covid-19 pandemic,
we have developed a new system alongside Aeris(TM), our banknote cleaning
equipment. The new patented technology, our Banknote Disinfection System, is
capable of disinfecting to sterile levels up to 5,000,000 banknotes in one
hour. This technology is expected to gain traction with the increased
realisation that Covid-19 is likely to become endemic. Marketing of this
product is being undertaken jointly with Royal Dutch Kusters Engineering, the
world's leading supplier of banknote destruction systems and advanced
engineering solutions for unfit currency. We continue to be optimistic that we
will sell a first unit(s) in 2022.
With our TruBrand(TM) smartphone authentication product having been
successfully introduced into the Chinese tobacco market on over 6 million
packs in retail stores in 2019, we have obtained a new long-term customer in
the stationery industry who is suffering from counterfeiting losses in China
and have begun another set of trials with a second tobacco company. We have
greatly expanded our search for new customers for TruBrand(TM) and are working
with partner companies to secure business for motor vehicle registrations.
In addition, we have continued to move forward with an opportunity for milk
products in Asia and expect to be in a testing phase in Q2 of 2022.
During H1 of 2021, our K-cup material was accepted for production by a new
K-cup lid printer with exceptionally large orders commencing in H2 of 2021.
This customer is expected to be approximately 20% larger in sales volume than
the current customer and we are confident that this business line will reach a
million dollars of high margin materials sales in aggregate in 2022. The new
business will not require additional staffing and hence will be accretive to
our earnings.
Finally, several of our phosphours with white, red and yellow emissions are
under evaluation by several potential customers including a large specialty
chemical supplier.
On the software security side of our business, the Secure Transactions Group,
formed around the various gaming technology acquisitions made in 2012,
generated an Adjusted EBITDA of US$340k (2020: US$236k) on revenue of
US$1,874k (2020: US$1,424k). Revenue increased due to software development
related to the introduction of new games by our lottery customers. During
2021, we were selected by one of the largest US lotteries to provide our
internal control software, renewed a long-term US lottery customer contract
and expanded the business into Canada with a new contract award. This new
customer we believe will open the door to the other four additional lotteries
in Canada where we hope to win contracts based on successful performance with
this new Canadian customer. We continue development of a new software
platform which has led to costs depressing EBITDA, but which will result in
lower support costs in the long run.
Solaris BioSciences Investment Asset
In December 2020, the Company made an investment in Solaris BioSciences, whose
core technology is well understood by us. The results of Solaris BioSciences
are consolidated by the Company. As Solaris BioSciences is a development stage
company, it does not generate revenue and generated an EBITDA loss of US$80k
attributable to the Company's ownership share. This loss is included in the
Authentication Systems EBITDA of US$6,556k.
Solaris BioSciences is in the early stages of a financing round and currently
has approximately US$130,000 of cash to fund its operations. Solaris
BioSciences has applied to the UK tax authorities to obtain VCT/EIS status
which if granted, will allow Solaris BioSciences to focus its financing in the
UK.
Strategy
The Company's strategy for increasing revenue and earnings continues to be
focused on both brand authentication and a robust effort to commercialise our
covert security technologies with an emphasis on polymer banknotes and
technology driven existing central bank customers.
The brand authentication sector offers short-term growth potential and some
very large opportunities for smartphone-based technology and advanced optical
materials, while the covert banknote security sector provides stable
long-term, multi-decade revenues once new contracts are executed.
In addition, we have deliberately and successfully positioned the Company to
be the world's only provider of technology for disinfecting banknotes from
Covid-19 on a large scale and on a time scale which meets supply challenges
for both central banks and casinos. We believe that this is of particular
importance for polymer notes where numerous studies, including our own data
obtained at Boston University's National Emerging Infections Disease
Laboratories, indicate that Covid-19 survives for the longest periods on this
type of banknote substrate.
Prospects
The Company continues to have numerous long-term and short-term prospects. The
short-term opportunities are expected in the 2022-2024 period and the
long-term opportunities are expected in the 2024-2028 time frame.
The important, near-term opportunities include:
· Fulfillment of new, larger than typical pre-Covid-19 orders for
covert materials to a long-standing central bank customer during 2022;
· Additional sensor development funding;
· Completion of the development of the new generation of sensors for a
long-standing central bank customer with US$6.2MM of revenue still to be
recognized through 2023;
· Increased sales of TruBrand(TM) related products to reach the level of
several million dollars per annum in both tobacco and other opportunities such
as tax stamps and government documents;
· Increase the K-cup business to the US$1MM per annum level and beyond;
· First sales of our newest patent pending phosphour product;
· Sale of our first banknote cleaning or decontamination system to
central banks;
· Qualification with a central bank of our Fusion(TM) machine-readable
polymer substrate;
· Expand our gaming software business in Canada and other non-USA
customers; and
· Supply of quality control equipment to a central bank.
The longer-term opportunities include:
· A supply agreement for our polymer substrate technology (Fusion(TM))
with a major central bank; and
· Supply of upgraded sensors worth up to US$50MM to a central bank
customer.
The combination of these prospects, both short and long term, has positioned
the Company to maintain its excellent progress for the foreseeable future. We
continue to develop cutting edge technologies to remain the innovation leader
in the authentication industry and to offer our shareholders the springboard
to even bigger growth of their Company. We believe that we have a number of
transformative opportunities ahead in several aspects of our business that
will potentially further accelerate our earnings.
Dividend
With the Company having a seventh year of sustainable profits, reaching their
highest levels since its admission to trading on AIM, and having sufficient
resources to execute on its growth plans with its existing cash reserves, the
Board is delighted to again issue an increased dividend. Our dividend policy
takes account of the Group's profitability, underlying growth and maintenance
of sufficient cash reserves. The Board therefore intends to pay an annual
dividend of US$0.11 per share on or about June 24, 2022 to shareholders of
record as of June 6, 2022.
Nabil M. Lawandy
Chief Executive Officer
March 21, 2022
Consolidated statements of income
for the years ended 31 December:
2021 2020
Audited Audited
USD '000 USD '000
Revenue
Product $ 9,281 $ 9,692
Service 5,524 3,230
License and royalty 1,787 1,753
Total revenues 16,592 14,675
Cost of sales 6,069 4,606
Gross profit 10,523 10,069
Operating expenses
Research and development 1,399 1,605
General and administrative 2,743 2,627
Sales and marketing 471 509
Total operating expenses 4,613 4,741
Operating profit 5,910 5,328
Interest income 40 115
Loss on sale of equipment (19) ---
Foreign currency income (loss) 12 (16)
Profit before taxes 5,943 5,427
Income tax expense 878 304
Net income 5,065 5,123
Net loss attributable to noncontrolling interest (98) (1)
Net income attributable to Spectra Systems Corporation
$ 5,163 $ 5,124
Earnings per share
Basic $ 0.11 $ 0.11
Diluted $ 0.11 $ 0.11
All of the Group's operations are continuing
Consolidated statements of comprehensive income
for the years ended 31 December:
2021 2020
Audited Audited
USD '000 USD '000
Net income $ 5,065 $ 5,123
Other comprehensive income (loss)
Unrealized gain(loss) on currency exchange 10 (32)
Reclassification for realized (gain) loss in net income
(12) 16
Total other comprehensive loss (2) (16)
Comprehensive income 5,063 5,107
Net loss attributable to noncontrolling interest (98) (1)
Comprehensive income attributable to Spectra Systems Corporation
$ 5,161 $ 5,108
Consolidated balance sheets
as of 31 December:
2021 2020
Audited Audited
USD '000 USD '000
Current assets
Cash and cash equivalents $ 16,775 $ 14,038
Trade receivables, net of allowance 2,242 2,587
Unbilled and other receivables 630 477
Inventory 1,944 2,794
Prepaid expenses 298 274
Total current assets 21,889 20,170
Non-current assets
Property, plant and equipment, net 1,439 1,726
Operating lease right of use assets, net 972 1,181
Intangible assets, net 7,161 7,200
Restricted cash and investments 500 1,099
Deferred tax assets 1,080 1,400
Other assets 111 124
Total non-current assets 11,263 12,730
Total assets $ 33,152 $ 32,900
Current liabilities
Accounts payable $ 490 $ 533
Accrued expenses and other liabilities 512 478
Operating lease liabilities, short term 286 270
Taxes payable 262 223
Deferred revenue 2,184 1,666
Total current liabilities 3,734 3,170
Non-current liabilities
Operating lease liabilities, long term 739 956
Deferred revenue 758 552
Total non-current liabilities 1,497 1,508
Total liabilities 5,231 4,678
Stockholders' equity
Common stock 453 456
Additional paid in capital - common stock 53,833 54,892
Accumulated other comprehensive loss (137) (135)
Accumulated deficit (26,870) (27,731)
Total Spectra Systems stockholders' equity 27,279 27,482
Noncontrolling interest 642 740
Total liabilities and stockholders' equity $ 33,152 $ 32,900
Statements of cash flows
for the year ended 31 December:
2021 2020
Audited Audited
USD '000 USD '000
Cash flows from operating activities
Net income $ 5,065 $ 5,123
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization 831 968
Stock based compensation expense 71 59
Lease amortization expense 274 265
Deferred taxes 320 -
Allowance for doubtful accounts - 1
Provision for excess and obsolete inventory 494 -
Loss on sale of equipment 19 -
Changes in operating assets and liabilities
Accounts receivables 346 (1,090)
Unbilled and other receivables (153) (82)
Inventory 356 287
Prepaid expenses (25) (84)
Accounts payable (44) 122
Operating leases (265) (252)
Accrued expenses and other liabilities 71 (74)
Deferred revenue 724 331
Net cash provided by operating activities 8,084 5,574
Cash flows from investing activities
Restricted cash and investments 599 245
Contribution from noncontrolling interest - 2
Payment of patent and trademark costs (471) (459)
Proceeds from sale of equipment 36 -
Purchases of property, plant and equipment (76) (458)
Net cash provided (used) in investing activities 88 (670)
Cash flows from financing activities
Dividends paid (4,302) (4,123)
Repurchase of shares (1,170) (992)
Proceeds from exercise of stock options 38 12
Net cash used in financing activities (5,434) (5,103)
Effect of exchange rate on cash and cash equivalents
(1) (13)
Net increase (decrease) in cash and cash equivalents 2,737 (212)
Cash and cash equivalents, beginning of year 14,038 14,250
Cash and cash equivalents, end of year $ 16,775 $ 14,038
Notes to financial information
1. Basis of preparation
This report was approved by the Directors on 18 March 2022.
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 2021 and are unchanged from those
disclosed in the Company's Annual Report for the year ended 31 December 2020.
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 31 December 2021 and 2020 were 125,425 and 8,656 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 2021 to 31 Dec 2020
Numerator:
Net income $ 5,162,830 $ 5,124,129
Denominator:
Weighted average common shares 45,353,550 45,599,014
Effect of dilutive securities:
Stock Options 2,385,480 2,767,105
Diluted weighted average common shares 47,739,030 48,366,119
Earnings per common share:
Basic: $ 0.11 $ 0.11
Diluted: $ 0.11 $ 0.11
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 2021 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 2022.
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:
2021 2020
USD '000 USD '000
Adjusted earnings before interest, taxes, depreciation and amortization
(EBITDA)
Operating profit $ 5,910 $ 5,328
Depreciation 307 417
Amortization 524 552
Stock compensation 71 59
Operating loss - noncontrolling interest 101 1
Stock compensation - noncontrolling interest (17) -
Adjusted EBITDA $ 6,896 $ 6,357
Adjusted profit before taxes and amortization (PBTA)
Profit before taxes $ 5,943 $ 5,427
Amortization 524 552
Stock compensation 71 59
Operating loss - noncontrolling interest 101 1
Stock compensation - noncontrolling interest (17) -
Adjusted PBTA $ 6,622 $ 6,039
Adjusted earnings per share
Adjusted PBTA $ 6,622 $ 6,039
Income tax expense (878) (304)
Adjusted earnings $ 5,744 $ 5,735
Diluted weighted average common shares 47,739,030 48,366,119
Adjusted earnings per share $ 0.120 $ 0.119
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR JMMATMTJTBLTRecent news on Spectra Systems
See all newsREG - AIM - AIM Notice - 14/04/2025
AnnouncementREG - Spectra Systems Spectra Systems-SPSC - Holding(s) in Company
AnnouncementREG - Spectra Systems Spectra Systems-SPSC - Exercise of Options & Removal of Reg S
AnnouncementREG - Spectra Systems Spectra Systems-SPSC - Audited results for year ended 31 December 2024
AnnouncementRCS - Spectra Systems - New Security Printing Postal Contract
Announcement