SPSY.L

Spectra Systems Corporation
Spectra Systems - Interim Results
30th September 2024, 06:00
TwitterFacebookLinkedIn
To continue viewing RNS, please confirm that you are a Private Investor*

* A Private Investor is a recipient of the information who meets all of the conditions set out below, the recipient:

  1. Obtains access to the information in a personal capacity;
  2. Is not required to be regulated or supervised by a body concerned with the regulation or supervision of investment or financial services;
  3. Is not currently registered or qualified as a professional securities trader or investment adviser with any national or state exchange, regulatory authority, professional association or recognised professional body;
  4. Does not currently act in any capacity as an investment adviser, whether or not they have at some time been qualified to do so;
  5. Uses the information solely in relation to the management of their personal funds and not as a trader to the public or for the investment of corporate funds;
  6. Does not distribute, republish or otherwise provide any information or derived works to any third party in any manner or use or process information or derived works for any commercial purposes.
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 EBITDA1 up 33% at $7,847k (2023: $5,903k)

 

·    Adjusted PBTA1 up 6% to $6,225k (2023: $5,873k)

 

·    Adjusted earnings2 per share up 4% to US $11.2 cents (2023: US $10.8 cents)

 

·    Cash provided from operations of $262k (2023: $4,418k) 

 

·    Cash of $4,444k (2023: $16,582k) and debt4 of $4,803k (2023 $0k) at

30 June 2024

 

 

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

Dr. Nabil Lawandy, Chief Executive Officer

                         

Tel: +1 (0)401 274 4700

 

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, FusionTM, 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


#160;          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

 

#160;        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

#160;      61,375


$      37,324


#160;      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

#160;           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

Purchases of property, plant and equipment

                  

 

                (508)

                            


                 

 

 

 

                   (8)


             (6,201)

 

 

 

               (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

 

             13,253


 

             17,496


 

             17,496

Cash and cash equivalents, end of period

#160;            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

 

.

 


Half Year


Half Year


Full Year


to 30 Jun 2024


to 30 Jun 2023


to 31 Dec 2023

Numerator:






  Net income

#160;     5,249,439


#160;     4,712,975


#160;     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

#160;           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

#160;          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

#160;          6,225


$            5,837


$            8,231

 

Adjusted earnings per share

Adjusted PBTA

$           6,225


#160;            5,837


$           8,231

Income tax expense

               (650)


                (784)


             (1,430)

   Adjusted earnings

$           5,575


#160;           5,053


$            6,801

 






Diluted weighted average common shares

      49,659,576


      47,101,003


      48,761,954

 






   Adjusted earnings per share

$            0.112

 


#160;            0.108


$            0.139

 

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 or visit 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.
 
END
 
 
IR UWRWRSUUKUAR]]>
TwitterFacebookLinkedIn