RADA Electronic Industries Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the RADA third quarter 2021 results conference call. All participants are present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact RADA's investor relations team at GK Investor and Public Relations at 1- 212-378-8040, or view it in the news section of the company's website, www.rada.com. I would now like to hand over the call to Mr. Kenny Green of GK Investor Relations. Mr. Green, would you like to begin?

Thank you, Operator. I would like to welcome all of you to this conference call to discuss RADA's third quarter 2021 results. I would like to thank Radice Management for hosting this call. With us on the call today are Mr. Dov Sella, Chief Executive Officer, and Mr. Avi Israel, Chief Financial Officer. Dov will summarize the key highlights of the quarter, followed by Avi, who will provide a summary of the financials. We'll then open the call for the question and answer session. Before we start, I would like to point out that the safe harbor statement published in today's press release also pertains to the content of this conference call. And with that, I'd now like to introduce Radha's CEO, Mr. Dov Sela. Doobie, please begin.

Thank you, Kenny, and good day to all. Let's start with the results summary. We are very pleased with our record results for the quarter, which show not only strong growth across the board, but also the benefits from the significant operating leverage that is inherent to our business. Again, our Q3 numbers speak for themselves. Revenues are up 57% year-over-year. Our gross margins are 41%, up 330 basis points versus Q3 of last year. Operating margins are 20% versus 10% a year ago. And adjusted EBITDA is up 162% year-over-year. to a level of 8.2 million or 26% of our revenue versus 15% in Q3 of last year. As you can tell, you are very pleased with the results and especially with the progress made on the margin profile of the business, which were all ahead of our previous expectations. In terms of our balance sheet, we ended the quarter with over $86 million, we leveraged a strong cash level to increase our working capital, mostly our inventory of semiconductors to avoid any supply chain issues. So let's talk a bit about inventory and short-term delivery of our business. As I'm sure we all know and aware and probably have heard from many other companies, there is a global shortage of components. Earlier this year, We took a strategic decision to increase our inventory levels, which has grown to 38 million, to secure our supply chain and ensure we have the parts needed to meet our current and future customer demands. It also enables us manufacturing efficiency in which we build products and deliver to customers in a very short turnover. This is really a key significant competitive advantage of ours that is maintained for a few years now beyond our technical capabilities and product advantages. We often receive very short timelines and urgent need book and ship delivery requirements with the whole process taking only a few weeks. This means we are often operating without the luxury of a significant backlog on which to deliver, but At the same time, our offering are in demand across the board and our customers of this new and growing market appreciate the top level service that they receive from us, which they cannot get from somewhere else. This allows us to gain and keep customers for the long term and meet our revenue goals in the short term. As we move through the end of 2021 and into 2022, This ability of ours is even more important. Let's take a view of our markets. In the U.S., as has been widely reported, the new federal government has not been able to pass the budget and is operating under a continuing resolution. This means that last year's budget continues without the 5% increase that is expected with many new programs being delayed. Furthermore, the new government has different priorities, and all this is leading to a shift in the working point of the DoD and some lack of short-term certainties in defense spending, causing near-term delay across the board. While this phase of U.S. budget adjustment is making it more challenging, not just for us, but for the entire defense industrial base, We know our market well and the somewhat partial visibility along with all their lumpiness has long been a characteristic of this market of which we are very experienced with. We do not believe that there is a risk to the overall U.S. market demand for the defensive capabilities that our products provide since they are in the heart of modernization drives and are included in the proposed budget lines. The issue, as has been the case for a few years, is the timing of orders, which may be delayed at times. On the other hand, and in line with the expected behavior of a new market, some pipeline opportunities jump ahead of previous anticipations, especially following exogenic events such as drone attacks in various places in the world, like the Gulf, Iraq, Syria, India recently, to name a few, where we receive orders in a short notice with rapid delivery requests and our revenues are becoming increasingly globalized. In addition, we are seeing the various geographies in which we operate become more accustomed to operating under the COVID regime and areas that were very slow or even totally blocked for almost two years now, are opening up and momentum of demonstration and sales is regaining. We believe that this should speed up the process of gaining new customers, making business development easier than it has been during the last two years, where demos and meetings were how to perform. We therefore expect to enjoy increasingly global diversity of revenues in the coming years. Hence, it is important for us to maintain our agility on the pulse of the market, positioned to move quickly and critically, surpass our customer expectations and continue growing our top line. So let's talk about our guidance. With regard to our guidance, despite the challenges I've just discussed, we reiterate our expectation to surpass the $120 million revenue goal for 2021. As for 2022, we expect our organic growth to continue and we aim to provide you with guidance towards the end of this year or early next year once we complete the analysis of our continuously growing pipeline and improve its clarity. In addition, The APS segment of our market is throwing up through initial orders from Israel and the Netherlands and successful tests and allocations of funds in the U.S. budget. All will lead to generate revenues that will significantly affect our top line in 2023 and ensure continued growth. Beyond that, we expect the strong operating leverage which we have achieved to date to continue supporting our ability to further grow our profitability beyond the current level. So in summary, as our results show, we are currently experiencing significant growth, and our strong margins allow us to grow our profit at a much higher rate. While budget and additional matters cause short-term delays in the U.S. market, we are very experienced at navigating these markets, and our structure to quickly take advantage of arising opportunities and serve their orders when they come. At the same time, we are also seeing markets globally adjusting to the current working climate, providing us with additional opportunities for growth. From a financial perspective, we are reiterating our revenue guidance for over $120 million for this year, with organic growth continuing into 2022. and with the leverage allowing our profit to increase further. At this point, I'd like to hand over the discussion to Avi Israel, our CFO. Please, Avi.