Advanced Vision Technology Ltd.
9 Months Report 2015 January 1st – September 30th
1
Dear Shareholder,
In the first 9 months of 2015, total order bookings were $41.2 million, compared with $40.6 million in the
same period last year.
Total revenues for the first 9 months of 2015 amounted to $38.4 million, compared with $41.1 million in the
same period last year.
The first 9 months of 2015 proved to be a somewhat challenging period for the Company. Both order bookings
and revenues were impacted by the exchange rate effects of the Euro against the US Dollar. The assumption
that the current Euro to U.S. Dollar exchange rate will prevail was the main reason for the updated projections
for the 2015 calendar year we announced during Q2 2015.
In the third quarter of 2015, order bookings totaled $13.9 million, equal to the same period last year. In this
quarter we saw good order booking performance in Asia Pacific, and in worldwide services, as well as some
important orders of our new digital inkjet solution, the JetIQ.
GAAP operating income in the first 9 months of 2015 was $3.1 million, compared with $4.5 million in the
same period last year.
In September AVT exhibited at Label Expo Brussels – the most important show for the label industry that
attracted many packaging converters as well. At this show in September, we launched the Helios S Turbo, our
new flagship inspection and quality control system for the Label and Narrow-Web segment.
Following our announced strategic alliance with Erhart & Leimer (E+L), we introduced at the same Label
Expo trade show, the new Helios EL upgrade, designed to enable E+L customers to get the latest AVT
workflow and software features by upgrading their systems. We also co-launched the new SMARTSCAN with
E+L, an entry level inspection solution to complement our portfolio.
In the metal sheet market, we installed our first CoatScan, a new metal sheet coating solution, based on our
Alliance with Quality by Vision.
In the Digital area we were chosen by another major OEM to support their next generation inkjet presses and
received a major order for our JetIQ solution. We continued to enhance our digital presence as we installed a
second Apollo 30K system, our new solution for Folding Cartons, in the US, on an HP Indigo 30000 press.
While results of the first nine months of 2015 were not as good as we had initially expected, we see a good
business atmosphere in most of the relevant geographies we are active in and we have actually shipped
significantly more systems in the first 9 months of this year than in last year. We are focusing our efforts on
our strategic initiatives and the digital solutions, as well as our alliance with Erhardt and Leimer, and we remain
optimistic about AVT's prospects.
Sincerely,
Jaron Lotan,
President & Chief Executive Officer
AVT
2
Financial Results
For the first nine months of 2015
The following table sets forth consolidated income statement data for each of the three month and nine month
periods ended September 30, 2015 and September 30, 2014 and for the year ended December 31, 2014 )in
thousands of U.S. dollars):
Nine months ended
30.9.2015
30.9.2014
Three months ended
30.9.2015 30.9.2014
Year ended
31.12.2014
Revenues
38,440
41,069
12,341
13,996
54,110
Cost of revenues
18,071
19,513
5,946
6,742
25,819
Gross profit
20,369
21,556
6,395
7,254
28,291
Gross margin in %
52.99%
52.49%
51.82%
51.83%
52.28%
Research and development
5,966
5,735
1,928
2,026
7,655
Selling and marketing
7,159
7,384
2,310
2,516
9,605
Operating expenses:
4,158
3,908
1,344
1,330
5,083
Total operating expenses
General and administrative
17,283
17,027
5,582
5,872
22,343
Operating income
3,086
4,529
813
1,382
5,948
Financial income (expense), net
(288)
21
(62)
(49)
28
Income before taxes on income
2,798
4,550
751
1,333
5,976
Taxes on income (tax benefit)
699
926
176
(26)
1,351
2,099
3,624
575
1,359
4,625
Net income
3
The following table sets forth selected consolidated income statement data for each of the three month and
nine month periods ended September 30, 2015 and September 30, 2014 and for the year ended December 31,
2014, expressed as a percentage of total revenues:
Nine months ended
Three months ended
Year ended
30.9.2015
30.9.2014
30.9.2015
30.9.2014
31.12.2014
Revenues
100%
100%
100%
100%
100%
Cost of revenues
47.01
47.48
48.18
48.17
47.72
Gross profit
52.99
52.49
51.82
51.83
52.28
Research and development
15.52
13.96
15.62
14.48
14.15
Selling and marketing
18.62
17.98
18.72
17.98
17.75
General and administrative
10.82
9.52
10.89
9.50
9.39
Total operating expenses
44.96
41.46
45.23
41.95
41.29
Operating income
8.03
11.03
6.59
9.87
10.99
Financial income (expense), net
(0.75)
0.05
(0.50)
(0.35)
0.05
Income before taxes on income
7.28
11.08
6.09
9.52
11.04
Taxes on income (tax benefit)
1.82
2.25
1.43
(0.19)
2.50
Net income
5.46
8.82
4.66
9.71
8.55
Operating expenses:
4
The following table sets forth selected Non-GAAP consolidated income statement data (adjusted to exclude
non-cash amortization of acquired intangible assets and stock based compensation expense) for the nine month
periods ended September 30, 2015 and 2014 and for the year ended December 31, 2014 (in thousands of US
dollars):
30.09.2015
GAAP
Adjustments
30.09.2014
2014
Non GAAP
Non GAAP
Non GAAP
38,440
41,069
54,110
Revenues
38,440
Cost of revenues
18,071
106
17,965
19,291
25,599
Gross profit
20,369
106
20,475
21,778
28,511
Gross margin in %
52.99%
53.26%
53.03%
52.69%
Operating expenses:
Research and development
5,966
47
5,919
5,692
7,595
Selling and marketing
7,159
97
7,062
7,312
9,503
General and administrative
4,158
133
4,025
3,803
4,959
Total operating expenses
17,283
277
17,006
16,807
22,057
Operating income
3,086
383
3,469
4,971
6,454
Financial income (expense), net
(288)
(288)
21
28
Income before taxes on income
2,798
3,181
4,992
6,482
699
926
1,351
2,482
4,066
5,131
Taxes on income
Net income
383
699
2,099
383
Revenues
Revenues are derived primarily from the sale of our systems. Additional revenues are generated through the
sale of support services, training and software updates to customers.
Revenues in the first nine months of 2015 totaled $38.4 million, compared with $41.1 million in the first nine
months of 2014.
Revenues in Q3 2015 totaled $12.3 million, compared with $14.0 million in Q3 2014 and $13.1 million in Q2
2015.
The decrease in total revenues in the first nine months of 2015 compared with the same period last year is due
primarily to an unfavorable impact of the Euro to the US Dollar exchange rate of approximately $3.2 million,
when compared to foreign currency exchange rates last year.
During the first nine months of 2015 order booking totaled $41.2 million compared with order booking of
$40.6 million during the same period last year.
5
During Q3 2015 order booking totaled $13.9 million, similar to Q3 2014 and compared with Q2 2015 order
booking of $14.4 million. The ratio of order booking to revenues in the first nine months of 2015 was 107%.
Order booking during the first nine months of 2015 reflects the negative impact of the stronger U.S. dollar in
the amount of approximately $2.8 million when compared to foreign currency exchange rates during the first
nine months of 2014.
As of September 30, 2015 order backlog totaled $19.2 million representing an increase of 4.3% compared with
the backlog balance at September 30, 2014 and an increase of 5.5% when compared to Q2 2015.
We estimate that 30%-40% of this backlog will materialize into revenue during Q4 2015, while the majority
of the balance will materialize into revenue over the following three quarters.
The following chart sets forth a breakdown of revenues by territory for each of the nine month periods ended
September 30, 2015 and September 30, 2014:
During the first nine months of 2015, EMEA (Europe, Middle East & Africa) generated 41% of total revenues,
Americas contributed 43% of total revenues and Asia-Pacific contributed 16% of total revenues same as in
the first nine months of 2014.
Cost of Revenues / Gross Profit
Cost of revenues includes materials, labor, manufacturing overhead and an estimation of costs associated with
installation, warranty and training. It is our practice to provide a one-year warranty to the end-user. A provision,
based on our experience and engineering estimates, is taken to cover costs in connection with such warranty
for the 12 month period commencing at the end of installation.
Gross margin in the first nine months of 2015 was 53.0% compared with 52.5% in the first nine months of
2014. Non-GAAP gross margin in the first nine months of 2015 excluding the impact of non-cash amortization
of acquired intangible assets and stock-based compensation expense, was 53.3% compared with 53.0% for the
same period in 2014.
6
The increase in gross margin for the first nine months of 2015 in comparison to the same period in 2014 is due
primarily to final royalty payments made to the chief scientist office in Q1 14
The following table sets forth selected consolidated expense data for each of the five quarters ended
30.09.2015, 30.06.2015, 31.3.2015, 31.12.2014 and 30.9.2014 expressed as a percentage of total revenue:
Research and Development
During the first nine months of 2015, research and development expenses were $5,966 thousand, compared with
$5,735 thousand in the first nine months of 2015.
Non-GAAP research and development expenses in the first nine months of 2015 (excluding stock based
compensation) increased to $5,919 thousand, compared with $5,692 thousand in the first nine months of 2014.
On a quarterly basis, during Q3 2015, research and development expenses were $1,928 thousand, compared with
$2,026 thousand in Q3 2014 and compared with $2,118 thousand in Q2 2015.
The increase in research and development expenses during the first nine months of 2015 compared with the
same period last year is due primarily to increase in personnel and consultants partially offset by the favorable
impact of the Israeli Shekel exchange rate relative to the US Dollar.
Selling and Marketing
During the first nine months of 2015 selling and marketing expenses were $7,159 thousand, compared with
$7,384 thousand in the respective period of 2014.
Non-GAAP selling and marketing expenses during the first nine months of 2015 (excluding non-cash
amortization of acquired intangible assets and stock based compensation expense) were $7,062 thousand,
compared with $7,312 thousand in the respective period of 2014.
On a quarterly basis, during Q3 2015, selling and marketing expenses were $2,310 thousand, compared with
$2,516 thousand in Q3 2014 and compared with $2,501 thousand in Q2 2015.
7
The decrease compared with the same period last year is attributable primarily to the favorable impact of the
Israeli Shekel exchange rate relative to the US Dollar partially offset by increased marketing activities and an
increase in personnel costs.
General and Administrative
During the first nine months of 2015 general and administrative expenses were $4,158 thousand, compared
with $3,908 thousand in the first nine months of 2014.
Non-GAAP general and administrative expenses in the first nine months of 2015 (excluding stock based
compensation expense) were $4,025 thousand, compared with $3,803 thousand in the first nine months of
2014. The increase compared with same period last year is mainly attributable to legal costs related to the
agreement with Erhardt + Leimer GmbH (“E+L”) which was signed on July 2, 2015, and which was partially
offset by the favorable impact of the Israeli Shekel exchange rate relative to the US Dollar.
On a quarterly basis, during Q3 2015 general and administrative expenses were $1,344 thousand, compared with
$1,330 thousand in Q3 2014 and compared with $1,579 in Q2 2015.
The decrease compared with Q2 2015 is due primarily to legal costs related to the agreement with E+L in Q2
2015.
Stock-Based Compensation
Starting in January 1, 2006 we record based on ASC 718 share-based payments as expenses based on their fair
value at the grant date. The compensation is recorded over the requisite service period. The measurement of
the benefit is based on the Monte Carlo simulation.
Total stock-based compensation expense recorded during the first nine months of 2015 was $256 thousand
compared with $203 thousand in the first nine months of 2014.
Operating and Net Income
Net income for the nine months ended September 30, 2015 was $2,099 thousand or diluted earnings of $0.34
per share compared with net income of $3,624 thousand or diluted earnings of $0.59 per share for the same
period in 2014.
Non-GAAP net income for the nine months ended September 30, 2015 (excluding non-cash amortization of
acquired intangible assets, stock-based compensation expense), was $2,482 thousand compared with $4,066
thousand for the same period in 2014.
Non-GAAP operating income during the first nine months of 2015 excluding all expense items cited above
was $3,469 thousand compared with $4,971 thousand in the first nine months of 2014. The decrease in NonGAAP operating income is primarily due to lower revenue in the first nine months of 2015 which was highly
impacted by the unfavorable Euro to US Dollar exchange rate and slightly higher operating expenses.
Consolidated operating expenses were 45.0% of revenues in the first nine months of 2015 compared with
41.5% in the first nine months of 2014.
Consolidated Non-GAAP operating margin was 9.0% of revenues in the first nine months of 2015 compared
with 12.1% in the first nine months of 2014.
EBITDA excluding stock-based compensation expense in the first nine months of 2015 was $3,780 thousand
8
as compared with income of $5,251 thousand in the first nine months of 2014.
On a quarterly basis, operating income during Q3 2015 was $813 thousand compared with $1,382 thousand in
Q3 2014 and with $887 thousand in Q2 2015.
The decrease in operating income is primarily due to lower revenue in Q3 2015 which was highly impacted
by the unfavorable Euro to US Dollar exchange rate offset by slightly lower operating expenses.
Financial Income (Expense), net
Financial income is comprised of interest income from bank deposits less bank fees and exchange rate
differences.
Net financial expense during the first nine months of 2015 was $288 thousand compared with net financial
income of $21 thousand in the first nine months of 2014.
Financial income for the first nine months of 2015 was $83 thousand compared to $97 thousand for the first
nine months of 2014. An additional net expense of $371 thousand was generated primarily from exchange rate
differences and some bank charges, compared with expenses of $76 thousand for the same period in 2014.
On a quarterly basis, net financial expense during Q3 2015 was $62 thousand compared with net financial
expense of $49 thousand in Q3 2014 and compared with net expenses of $ 28 thousand in Q2 2015.
Taxes
We operate within multiple taxing jurisdictions and are subject to audit in those jurisdictions. In our opinion,
an adequate asset and provision for income taxes has been made in the financial statements. This asset and
provision takes into consideration potential tax liability in Israel and other jurisdictions.
The Company has in the past benefitted from and continues to benefit from certain Israeli government
programs and tax legislation, particularly as a result of the status of a significant portion of the Company’s
existing production facilities in Israel under the Law for the Encouragement of Capital Investments, 1959 (the
“Investment Law”). According to an amendment to the Investment Law, effective as of August 5, 2013, (the
“Amendment”), income derived by “Preferred Companies” from “Preferred Enterprises”, referred to as
“Preferred Income”, is subject to a uniform tax rate of 16% in 2014 and thereafter (or 9%, in areas designated
as Development Zone A). Pursuant to the Amendment, the Company has irrevocably elected to implement the
Amendment with respect to its previous “Approved” and “Privileged” Enterprises so that income derived
therefrom is now treated as Preferred Income.
As of January 1, 2014, dividends distributed from Preferred Income would subject the recipient to a 20% tax
(or lower, if so provided under an applicable tax treaty), which would generally be withheld by the distributing
company.
Liquidity and Capital Resources
As of September 30, 2015 our total current assets were $38.9 million, including a cash and financial investment
balance of $17.7 million compared with cash and financial investments of $25.2 million as of September 30,
2014 and compared with $26.2 million as of December 31, 2014.
During the first nine months of 2015, $168 thousand were provided by operating activities compared with
$4,016 thousand provided by operating activities during the same period in 2014.
9
The decrease in cash generated from operating activities is due partially to the lower operating income, the
increase in the trade receivable balance, an increase in other receivables and the increase in inventories.
Some of the accounts receivable attributed to transactions with certain large customers with longer payment
terms during the first nine months of 2015 were collected during Q3 2015 and the rest are expected to be
collected during Q4 of 2015. The increase in inventories is attributed to shipments which were expected to be
shipped in Q3 2015 and got pushed to Q4 2015. The increase in other receivables is attributed to delays in
receipts of VAT refunds from the tax authorities which are expected to be received in Q4 2015.
Consequently DSO in accounts receivable at the end of Q3 2015 were 74 days compared with 62 days at the
end of Q3 2014, 77 days at the end of Q2 2014 and 55 days as of December 31, 2014.
Our net capital expenditures on fixed assets were $436 thousand in the first nine months of 2015, compared
with $216 thousand in the respective period of 2014.
On July 2, 2015, AVT and E+L signed a purchase agreement (“the agreement”) and a cooperation agreement
regarding a strategic alliance for the printing and converting industries. E+L is a leader in web guiding, web
viewing and web tension control. This agreement will broaden the product portfolios and strengthen services
for customers of AVT and E+L, through solutions based on the two companies’ combined experience and
technological skills.
The consideration for the acquisition of the inspection activity of E+L purchased pursuant to the agreement
consisted of an initial cash payment of $2,353 thousand upon closing and additional variable earn-out
payments over the next 4 years which are calculated based on future sales of certain products over a base
amount. The Company evaluates the present fair value of these future earn-out payments at $1,404 thousand.
This balance is recorded under current liabilities and long-term liability.
The acquisition has been accounted for using the purchase method of accounting in accordance with ASC 805
"Business Combinations". Based on a preliminarily purchase price allocation study, prepared by an
independent third party, a total of $1,813 thousand was allocated to technology and $400 thousand to customer
relationship and trade name. The excess of the purchase price over the aggregated fair value of the intangible
assets, in the amount of $1,544 thousand, was allocated to goodwill. The goodwill arising on acquisition is
attributed to the expected benefits from the synergies of the combination of the activities of the Company and
the acquiree.
The intangible assets, other than goodwill, are presently being amortized on a straight-line basis primarily over
a period of 6.5 years, which reflects the anticipated economic benefit from these assets. The goodwill and other
intangible assets created in the acquisition are deductible for tax purposes. The purchase price allocation is
preliminary pending the completion of the valuation analysis.
Effective October, 2014, the District Court in Tel Aviv, Israel, approved the company's request to allow the
reduction of its capital by up to US$12 million, after the Israeli Tax Authority informed the District Court that
it does not object to the ruling. Therefore, per applicable Israeli law, the board of directors of the company
may opt to declare dividends and/or adopt a share buy-back program, which will consume up to an aggregate
of US$12 million of the company's capital. On March 18, 2015, the board of directors resolved to distribute
an extra-ordinary gross dividend of $1.0 per share which was paid on April 2, 2015, in the total amount of $6.1
million.
10
Employees
Our employees are our most valuable asset, driving our commitment to technological leadership and
outstanding customer support. Our team repeatedly demonstrates our vision, and has the motivation,
innovation and commitment to customer satisfaction that are the key ingredients for growth.
As of September 30, 2015, 226 people were employed by AVT worldwide compared with 217 employees on
December 31, 2014 and 221 employees on September 30, 2014.
The breakdown of employees by function is as follows:
General &
Administrative
13%
R&D
24%
Customer
Support
26%
Selling &
Marketing
20%
Operations &
Manufacturing
17%
Our employees are based in the following geographies
11
ADVANCED VISION TECHNOLOGY (A.V.T.) LTD.
AND ITS SUBSIDIARIES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2015
IN U.S. DOLLARS
UNAUDITED
INDEX
Page
Independent Auditors' Review Report
13
Consolidated Balance Sheets
14 - 15
Consolidated Statements of Income
16
Consolidated Statements of Comprehensive Income
17
Consolidated Statements of Changes in Shareholders' Equity
18
Consolidated Statements of Cash Flows
19
Notes to Consolidated Financial Statements
20 - 24
-----------
12
Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 6706703, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
Independent Auditors' Review Report
The Board of Directors
Advanced Vision Technology (A.V.T.) Ltd.
We have reviewed the condensed consolidated financial information of Advanced Vision Technology (A.V.T.)
Ltd. and its subsidiaries, (the "Company") which comprise the condensed consolidated balance sheet as of
September 30, 2015, and the related condensed consolidated statements of income and statements of
comprehensive income for the nine-month and three-month periods ended September 30, 2015 and 2014, and
the condensed consolidated statement of changes in shareholders' equity for the nine-month period ended
September 30, 2015 and the condensed consolidated statements of cash flows for the nine-month periods ended
September 30, 2015 and 2014.
Management’s Responsibility for the Financial Information
Management is responsible for the preparation and fair presentation of the condensed financial information in
conformity with U.S. generally accepted accounting principles; this responsibility includes the design,
implementation, and maintenance of internal control sufficient to provide a reasonable basis for the preparation
and fair presentation of interim financial information in conformity with U.S. generally accepted accounting
principles.
Auditors' Responsibility
Our responsibility is to conduct our reviews in accordance with auditing standards generally accepted in the
United States applicable to reviews of interim financial information. A review of interim financial information
consists principally of applying analytical procedures and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing
standards generally accepted in the United States, the objective of which is the expression of an opinion
regarding the financial information. Accordingly, we do not express such an opinion.
Conclusion
Based on our reviews, we are not aware of any material modifications that should be made to the condensed
financial information referred to above for it to be in conformity with U.S. generally accepted accounting
principles.
Report on Condensed Consolidated Financial Statements as of December 31, 2014 and for the year then
ended
We have previously audited, in accordance with auditing standards generally accepted in the United States,
the consolidated balance sheet of the Company as of December 31, 2014, and the related consolidated
statements of comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended;
and we expressed an unmodified audit opinion on those consolidated financial statements in our report dated
March 18, 2015. In our opinion, the accompanying condensed consolidated financial statements of the
Company as of December 31, 2014, and for the year then ended are consistent, in all material respects, with
the consolidated financial statements from which they have been derived.
Tel-Aviv, Israel
November 10, 2015
KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
13
ADVANCED VISION TECHNOLOGY (A.V.T.) LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
September 30,
2015
Unaudited
December 31,
2014
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Short-term deposits
Trade receivables
Inventories
Other accounts receivable and prepaid expenses
$
Total current assets
6,712
11,020
10,011
6,685
4,496
$
15,048
11,168
8,170
6,077
3,740
38,924
44,203
LONG-TERM ASSETS:
Deferred income taxes
Severance pay fund
2,081
2,603
2,233
2,811
Total long-term assets
4,684
5,044
PROPERTY AND EQUIPMENT, NET
1,394
1,269
INTANGIBLE ASSETS, NET
2,199
113
GOODWILL
1,544
-
Total assets
$
48,745
The accompanying notes are an integral part of the interim consolidated financial statements.
14
$
50,629
ADVANCED VISION TECHNOLOGY (A.V.T.) LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
September 30,
2015
Unaudited
December 31,
2014
$
$
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables
Employees and payroll accruals
Customer advances and deferred revenues
Accrued expenses and other liabilities
Total current liabilities
2,450
2,768
2,417
6,597
3,110
2,696
2,690
5,029
14,232
13,525
LONG-TEM LIABILITIES:
Accrued severance pay
Other liability
3,917
1,178
4,186
-
Total long-term liabilities
5,095
4,186
3,736
65,589
3,714
65,150
(6,902)
(33,005)
(6,902)
(29,044)
29,418
32,918
SHAREHOLDERS' EQUITY:
Share capital:
Ordinary shares of New Israeli Shekels (NIS) 2 par value: 15,000,000
shares authorized at September 30, 2015 and December 31, 2014;
6,900,412 and 6,857,480 shares issued at September 30, 2015 and
December 31, 2014, respectively; 6,081,290 and 6,038,358 shares
outstanding at September 30, 2015 and December 31, 2014,
respectively
Additional paid-in capital
Treasury shares at cost - 819,122 shares as of September 30, 2015 and
December 31, 2014
Accumulated deficit
Total shareholders' equity
Total liabilities and shareholders' equity
$
48,745
$
50,629
The accompanying notes are an integral part of the interim consolidated financial statements.
November 10 ,2015
Date of approval of the
financial statements
Jaron Lotan
CEO
15
Udi Bar Sela
CFO
ADVANCED VISION TECHNOLOGY (A.V.T.) LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars in thousands (except share and per share data)
Nine months ended
Three months ended
September 30,
September 30,
2015
2014
2015
2014
Unaudited
Revenues
Year ended
December 31,
2014
Audited
$ 38,440
$ 41,069
$ 12,341
$ 13,996
$
54,110
Cost of revenues
18,071
19,513
5,946
6,742
25,819
Gross profit
20,369
21,556
6,395
7,254
28,291
5,966
7,159
4,158
5,735
7,384
3,908
1,928
2,310
1,344
2,026
2,516
1,330
7,655
9,605
5,083
17,283
17,027
5,582
5,872
22,343
813
(62)
1,382
(49)
5,948
28
1,333
(26)
5,976
1,351
Operating expenses:
Research and development
Selling and marketing
General and administrative
Total operating expenses
Operating income
Financial income (expense), net
3,086
(288)
4,529
21
Income before taxes on income
Taxes on income (tax benefit)
2,798
699
4,550
926
751
176
Net income
$
2,099
$
3,624
$
575
$
1,359
$
4,625
Basic earnings per ordinary share
$
0.35
$
0.61
$
0.09
$
0.23
$
0.77
Diluted earnings per ordinary share
$
0.34
$
0.59
$
0.09
$
0.22
$
0.76
The accompanying notes are an integral part of the interim consolidated financial statements.
16
ADVANCED VISION TECHNOLOGY (A.V.T.) LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
U.S. dollars in thousands
Nine months ended
Three months ended
September 30,
September 30,
2015
2014
2015
2014
Unaudited
Net income
$
2,099
$
3,624
$
575
$
1,359
Year ended
December 31,
2014
Audited
$
4,625
Other comprehensive income:
Reclassification to statement of
income
Unrealized loss on foreign currency
cash flow hedge
Total comprehensive income
(39)
$
2,099
$
3,624
(101)
$
435
$
1,359
The accompanying notes are an integral part of the interim consolidated financial statements.
17
$
4,625
ADVANCED VISION TECHNOLOGY (A.V.T.) LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands
Additional
paid-in
capital
Share
capital
Balance as of January 1, 2014
$
Issuance of shares upon exercise of options
Stock-based compensation related to options granted to employees
Dividend paid to shareholders
Net income
Balance as of December 31, 2014
Issuance of shares upon exercise of options
Stock-based compensation related to options granted to employees
Dividend paid to shareholders
Net income
Balance as of September 30, 2015 (unaudited)
$
3,602
$ 64,099
112
-
799
252
-
3,714
65,150
22
-
183
256
-
3,736
$ 65,589
The accompanying notes are an integral part of the interim consolidated financial statements.
18
Treasury
shares
$
(6,902)
Accumulated
deficit
Total
shareholders'
equity
$
$
(6,902)
$
(6,902)
$
(27,696)
33,103
(5,973)
4,625
911
252
(5,973)
4,625
(29,044)
32,918
(6,060)
2,099
205
256
(6,060)
2,099
(33,005)
$
29,418
ADVANCED VISION TECHNOLOGY (A.V.T.) LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Stock-based compensation related to options granted to
employees
Depreciation of property and equipment
Amortization of intangible assets
Revaluation of short-term deposits
Decrease (increase) in trade receivables, net
Increase in inventories
Increase in other accounts receivable and prepaid expenses
Decrease in deferred income taxes, net
Increase (decrease) in trade payables
Increase in employees and payroll accruals
Decrease in customer advances and deferred revenues
Increase in accrued expenses and other liabilities
Increase (decrease) in accrued severance pay, net
$
Nine months ended
September 30,
2015
2014
Unaudited
Year ended
December 31,
2014
Audited
2,099
$
$
256
311
127
8
(1,841)
(608)
(756)
152
(660)
72
(273)
1,342
(61)
Net cash provided by operating activities
168
3,624
4,625
203
280
239
69
(1,313)
(80)
(234)
157
800
231
(93)
94
39
252
377
254
(233)
124
(483)
(396)
364
1,207
77
(923)
94
(110)
4,016
5,229
Cash flows from investing activities:
Investment in short-term deposit
Proceeds from maturity of short-term deposit
Purchase of property and equipment
Acquisition of inspection activity
140
(436)
(2,353)
(8,040)
4,000
(216)
-
(40)
3,000
(457)
-
Net cash provided by (used-in) investing activities
(2,649)
(4,256)
2,503
Cash flows from financing activities:
Dividend paid to shareholders
Proceeds from exercise of options granted to employees
(6,060)
205
(5,973)
853
(5,973)
911
Net cash used-in financing activities
(5,855)
(5,120)
(5,062)
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
(8,336)
15,048
(5,360)
12,378
2,670
12,378
Cash and cash equivalents at the end of the period
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes
Non cash transactions:
Earn-out payment obligations incurred as part of the
acquisition of the inspection activity
$
6,712
$
7,018
$
456
$
1,614
$
1,748
$
1,404
$
-
$
-
The accompanying notes are an integral part of the interim consolidated financial statements.
19
$
15,048
ADVANCED VISION TECHNOLOGY (A.V.T.) LTD.
AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 1:
GENERAL
Advanced Vision Technology (A.V.T.) Ltd. ("A.V.T.") and its wholly-owned
subsidiaries ("the Company") design, develop, manufacture, market and support an
advanced video-based print inspection system that automatically detects defects in
various types of printing processes as well as closed loop color control (CLC) systems,
color management and reporting software, and remote digital ink fountain control
systems to leading commercial printers and press manufacturers worldwide.
NOTE 2:
SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the annual financial statements of the
Company as of December 31, 2014 are applied consistently in these financial
statements.
Derivative Instruments
Starting 2015, the Company entered into foreign currency options to hedge a portion of
the exposure to the variability in expected future cash flows resulting from changes in
related foreign currency exchange rates between the New Israeli Shekel (‘‘NIS’’) and
the U.S. Dollar. These transactions are designated as cash flow hedges, as defined by
Accounting Standards Codification (‘‘ASC’’) Topic 815, ‘‘Derivatives and Hedging.’’
ASC Topic 815 requires that the Company recognize derivative instruments as either
assets or liabilities in its balance sheet at fair value. These contracts are Level 2 fair value
measurements in accordance with ASC Topic 820, ‘‘Fair Value Measurements and
Disclosures.’’ For derivative instruments that are designated and qualify as a cash flow
hedge (i.e., hedging the exposure to variability in expected future cash flows that is
attributable to a particular risk), the effective portion of the gain or loss on the derivative
instrument is reported as a component of other comprehensive income (loss), net of
taxes, and reclassified into earnings (various operating expenses) in the same period or
periods during which the hedged transaction affects earnings.
The Company's cash flow hedging strategy is to hedge against the risk of overall changes
in cash flows resulting from certain forecasted foreign currency salary and related
payments during the next six months. The Company hedge portions of its forecasted
expenses denominated in the NIS with a single counterparty using foreign currency
options.
In the three month ended September 30, 2015 the Company recorded in other
comprehensive income an unrealized loss of foreign currency cash flow hedges in the
amount of $101.
20
ADVANCED VISION TECHNOLOGY (A.V.T.) LTD.
AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:
SIGNIFICANT ACCOUNTING POLICIES (cont.)
Business combinations
The Company accounted for business combinations in accordance with ASC No. 805,
"Business Combinations" which requires allocating the purchase price of acquired
companies to the tangible and intangible assets acquired and liabilities assumed at fair
value as of the acquisition date. The ASC also requires the estimation of fair value of
potential contingent consideration at the acquisition date and restructuring and
acquisition-related costs to be expensed as incurred.
Goodwill
Goodwill reflects the excess of the purchase price of business acquired over the fair
value of net assets acquired. Under ASC No. 350, “Intangibles – Goodwill and other”
(“ASC No. 350”), goodwill is not amortized but instead is tested for impairment at least
annually or more frequently if events or changes in circumstances indicate that the
carrying value may be impaired.
The Company operates in one operating segment and this segment comprises the only
reporting unit. The Company tests goodwill using the two-step process in accordance
with ASC No. 350. The first step, identifying a potential impairment, compares the fair
value of the reporting unit with its carrying amount. If the carrying amount exceeds its
fair value, the second step would need to be performed; otherwise, no further step is
required. The second step, measuring the impairment loss, compares the implied fair
value of the goodwill with the carrying amount of the goodwill. Any excess of the
goodwill carrying amount over the applied fair value is recognized as an impairment
loss, and the carrying value of goodwill is written down to fair value.
21
ADVANCED VISION TECHNOLOGY (A.V.T.) LTD.
AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:
SIGNIFICANT ACCOUNTING POLICIES (cont.)
Fair value of financial instruments
The Company applies ASC No. 820, pursuant to which fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”)
in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. ASC No.
820 establishes a hierarchy for inputs used in measuring fair value that maximizes the
use of observable inputs and minimizes the use of unobservable inputs by requiring that
the most observable inputs be used when available. Observable inputs are inputs that
market participants would use in pricing the asset or liability developed based on market
data obtained from sources independent of the Company.
Unobservable inputs reflect the Company's assumptions about the assumptions market
participants would use in pricing the asset or liability developed based on the best
information available in the circumstances.
The hierarchy is broken down into three levels based on the inputs as follows:
Level 1 -
Quoted prices (unadjusted) in active markets for identical assets
or liabilities that the Company can access at the measurement
date.
Level 2 -
Valuations based on one or more quoted prices in markets that are
not active or for which all significant inputs are observable, either
directly or indirectly.
Level 3 -
Valuations based on inputs that are unobservable and significant
to the overall fair value measurement.
The fair value hierarchy also requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value.
The carrying amounts of cash and cash equivalents, restricted cash, trade receivables,
trade payables, employees and payroll accruals, accrued expenses and other current
liabilities approximate their fair values due to the short-term maturity of these
instruments.
The contingent consideration arising from the business combination is considered as
level 3.
22
ADVANCED VISION TECHNOLOGY (A.V.T.) LTD.
AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 3:
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have been
prepared in conformity with U.S. generally accepted accounting principles relating to
condensed interim financial information. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period ended
September 30, 2015 are not necessarily indicative of the results that may be expected
for the year ended December 31, 2015.
These unaudited interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes included in
our Annual Report for the year ended December 31, 2014.
NOTE 4:
SHAREHOLDERS’ EQUITY
On March 18, 2015, the board of directors resolved to distribute an extra-ordinary
dividend of $1.0 per share which was paid on April 2, 2015.
NOTE 5:
BUSINESS COMBINATION
On July 2, 2015, AVT and Erhardt + Leimer GmbH (“E+L”) signed a purchase
agreement (“the agreement”) and a cooperation agreement regarding a strategic
alliance for the printing and converting industries. E+L is a leader in web guiding, web
viewing and web tension control. This agreement will broaden the product portfolios
and strengthen services for customers of AVT and E+L, through solutions based on
the two companies’ combined experience and technological skills.
The consideration for the acquisition of the inspection activity of E+L purchased
pursuant to the agreement consisted of an initial cash payment of $2,353 upon closing
and additional variable earn-out payments (contingent consideration) over the next 4
years which are calculated based on future sales of certain products over a base
amount. The Company evaluates the present fair value of these future earn-out
payments at $1,404 thousand. This balance is recorded under current liabilities and
long-term liability.
Acquisition cost in the amount of $211 were expensed.
23
ADVANCED VISION TECHNOLOGY (A.V.T.) LTD.
AND ITS SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 5:
BUSINESS COMBINATION (cont.)
The acquisition has been accounted for using the purchase method of accounting in
accordance with ASC 805 "Business Combinations". Based on a preliminary
purchase price allocation study, prepared by an independent third party, a total of
$1,813 was allocated to technology and $400 to customer relationship and trade name.
The excess of the purchase price over the aggregated fair value of the intangible assets,
in the amount of $1,544 was allocated to goodwill. The goodwill arising on acquisition
is attributed to the expected benefits from the synergies of the combination of the
activities of the Company and the acquiree.
The intangible assets, other than goodwill, are presently being amortized on a straightline basis primarily over a period of 6.5 years which reflects the anticipated economic
benefit from these assets. The goodwill and other intangible assets created in the
acquisition are deductible for tax purposes. The purchase price allocation is
preliminary pending the completion of the valuation analysis.
Had the acquisition of the inspection activity occurred at the beginning of 2015, the
effect on the proforma combined revenues and earnings of the Company and the
inspection activity would have been immaterial.
- - - - - - - - - - - - - - - -- - - - -
24