RADA Electronic Industries Ltd.

Second quarter revenues were $23 million versus $28.3 million in Q2 2021. Gross margin was 35%. Operating loss was $3 million versus $4.5 million of income in Q2 2021, and net loss was $4.4 million versus $10.4 million of net income in Q2 2021; last year’s net income included a one-time $6 million tax benefit. Adjusted EBITDA was $1.8 million versus EBITDA of $6.3 million a year ago. As of June 30, 2022, RADA had $55.6 million in net cash and no financial debt, and shareholders’ equity was $152.8 million. For guidance, management expects revenue to increase in the second half of 2022 and profitability to improve as volumes recover; Dov Sella said they could return to last year’s revenue levels “in the coming quarter or so,” while Avi Israel said cash should increase as revenues ramp up again.

Dov Sella framed the quarter as a temporary setback caused by a broader pause in U.S. defense spending, not a change in the company’s long-term market opportunity. He said the company expects orders to resume, believes the U.S. market is moving from urgent needs into program-of-record status, and sees stronger demand in Europe, NATO, the Near East, and India after Ukraine. He was also upbeat on the pending DRS merger, saying it expands addressable markets and reduces risk for a small player in a more competitive space.

Avi Israel said the lower revenue base pressured margins and profitability because the company carries fixed costs in gross margin, and he pointed to about $2.6 million of merger-related expenses as an additional drag. He gave the quarter’s key figures: $23 million revenue, 35% gross margin, $3 million operating loss, $4.4 million net loss, and $1.8 million adjusted EBITDA. On the balance sheet, he highlighted $55.6 million in net cash, no financial debt, and $152.8 million in shareholders’ equity, saying working-capital and inventory cash needs were now behind the company and cash should rise as revenue rebounds.

Analysts focused on the timing of the revenue recovery, with Jefferies asking how much visibility management had to a return to growth; Sella said momentum is improving and the company could return to last year’s revenue levels in the next quarter or so. Questions also centered on growth programs like IM-SHORAD, CV-90, Eitan, ABAD, AtoN, and Marine Corps GBAD, and management said these are the main sources of expected growth, with some contributing later in 2022 and more meaningfully in 2023 and beyond. One analyst challenged the merger valuation, but Sella declined to debate the deal on the earnings call, saying the terms are already agreed and management believes it is the right strategic move.