Syntec Optics Holdings, Inc.

Good afternoon, and welcome to Syntec Optics Holdings Inc.' 's third quarter earnings call. My name is Drake, and I'll be your operator for today's call. As a reminder, this conference call is being recorded. At this time, all participants are in a listen-only mode. I'll now turn the call over to Dean Rudy, Syntec Optics Chief Financial Officer. Please go ahead.

Thank you, Operator, and welcome everyone to Cintiq Optics Q3 earnings call. Al Kapoor, Chairman and Chief Executive Officer of Cintiq Optics, will join me today for a call to discuss the company's financial and operational results for the third quarter of 2024. Here are a few quick reminders before we start. First, today's call is being webcast and our press release can be accessed along with it on the investor section of our company website, www.syntechoptics.com. Second, we'll make forward-looking statements based on current expectations during this call. Actual results may differ due to factors noted in today's release or in our periodic SEC filings. Finally, we will reference some non-GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure are included in today's release and on our website. With that, I will turn the call over to Alex.

Thank you, Dean, and thank you to everyone joining us today for Syntec Optics earnings call. Syntec strategy is the same as we described in the last earnings call. I will discuss more details in this call on how we are executing that strategy. As discussed before, Syntec Optics strategy is to lead large yet often overlooked markets for light-enabled products by offering a diverse product portfolio tailored to blue chip customers' needs. This approach leverages our operational strengths and is built upon a solid financial foundation. To achieve this, we are focusing on the following things that I have described before. We will grow by having a big target addressable market, and we have talked about light-enabled goods now at about 11% of the global economy. Now, within the large target market, we add acyclical end markets, which are more recession resistant markets. And what we've done so far is we've added communications to defense, biomedical and consumer sectors that we had. We will leverage existing strengths in such end markets by utilizing our existing customer base, market presence, and operational capabilities to support all new product launches capitalizing on our unique ability across horizontal diverse technologies. Employee retention will complement our leverage of strengths. We aim to maintain one in five employees with over 10 years experience, continuing our commitment to being the best place to work in our community. We will continue to build relationships with Blue Chip customers and expand our business with industry leaders across all end markets, including new products in spaces, optics, and biomedical optics. Our ability to be strong supply chain partners makes us a safe and dependable choice for their high-precision products that we manufacture. We will continue to develop products across core capabilities, enhancing our competitive advantage by building on 20 years of innovation, manufacturing expertise, trade secrets, and patents. We are executing Syntec's strategy by continuing to be leading provider of mission-critical products to advanced technology defense biomedical communications equipment manufacturers. Our operations span the development of advanced manufacturing processes, the design and assembly of mission-critical optics, the integration of these products and other innovative ancillary components into sub-assemblies for subsystems, and then marketing and selling them into diverse set of markets which I already mentioned, biomedical, disposable medical, defense, consumer, communications, and markets. We market mission-critical optics through our blue chip advanced technology integrators and OEM customers who rely on optoelectronics, light-enabled devices, and intelligence that requires high-precision reliability. We have a 90,000 square foot facility in upstate New York, vertically and horizontally integrated where we are headquartered. Syntec wins in the marketplaces because our customers appreciate our unique ability to achieve tough specifications at benchmark cost by deploying our patent portfolio and our trade secrets combined with our proprietary manufacturing capabilities. Before discussing our organic and inorganic growth opportunities and some of our other operational highlights, I will turn the call back to Dean to review our financials and operational results.

Thank you, Al. I will now review our results for the three months ending in the third quarter. All figures are GAAP unless otherwise noted. At the previous earnings call, we provided guidance for the third quarter 2024 revenue to be between $9.5 and $11 million. Our net sales for the quarter were $7.86 million short of the projected growth due to a new product move out, but still double-digit growth from prior year and from prior quarter. The company ramped up data center connectivity products for increased artificial intelligence deployment. It continued its production of currently deployed night vision optics and optomechanicals, mission-critical biomedical products, space optics, and other diverse products. Overall, our sales increased by 12.3%. from 7.01 million in Q2 2024, with increases into the communications and defense markets partially offset by a decrease in sales into the consumer market. Our sales for the quarter of 7.86 million were up from third quarter 2023 by 19%, driven by large increases into the communications market. The third quarter of 2024 adjusted EBITDA was 1.07 million for the three months ending 2024, compared to a 1.32 million adjusted EBITDA in the second quarter of 2024 and 1.30 million in third quarter of 2023. Contributing factors to the decrease over the previous quarter was a reduction in gross profit of 0.3 million, a reduction in other income of 0.3 million, partially offset by a decrease in our general and administrative expenses of 0.3 million. Contributing factors to the year-over-year decrease include a $0.4 million increase in general and administrative expenses to enable future product launches. The company ended the third quarter of 2024 with an unused $3.9 million line of credit, an unused $4.8 million equipment line of credit, and a pay down of 3.3% principal on other commercial bank lines. Our net income for the three months ended in the third quarter of 2024 was a negative 0.01 million or 0.00 per share. This was down from 0.3 million or one cent per share for 2Q 2024 and compared to 0.4 million and 0.01 per share for Q3 2023. Before I turn the call back over to Al, I would like to discuss our expectations for the fourth quarter of fiscal 2024. Our recent increases in ongoing sales into the communications, medical and defense industries are expected to increase in the fourth quarter, particularly within our space communications optics and data comm micro lens arrays. As such, the fourth quarter 2024 revenue is expected to be in the range of $7.4 to $9.0 million. We expect our gross margin to hold level or slightly improve based on the profitability of ramping up products. General and administrative costs are expected to increase modestly to enable ramp up engineering quality and pilot production to support continued growth in the fourth quarter. Looking to the first quarter of 2025, we anticipate continued strength from our communications and biomedical end markets with additional growth coming from defense-based product launches. Our products are propelled by tailwinds as we move towards laser-based satellite communications versus radar-based for low latency, biomedical automation, defense equipment modernization, and onshoring. Mission critical products use proprietary techniques to provide an economic moat. Lastly, we expect positive net income in the fourth quarter, enabling further investments to energize our continued growth. With that, I will turn the call back over to Al to provide additional color on our growth initiatives.

Thank you, Dean. Thank you, Dean. Yes, tailwinds continue to propel our products. As Dean also mentioned, Artificial intelligence deployment is increasing. Optics products and data centers and laser-based communications for low LEO satellites and defense equipment modernization and onshoring. Mission-critical products use our proprietary technologies for our position in the market. In addition to steady, mostly 10-year lifecycle products that constitute our existing portfolio, our new product launches will also include strong growth in 2025 and 2026. We aim to grow our new additions to the disposable optics line that has potential to be $10 million in annual revenues within three years. We have submitted our proof of concept to the customer, the key parameters, to include strength of our ceiling, and our test shows exceeding customer expectations by nearly 20%. Our data center-based AI business is beginning to generate twice the revenue from last quarter. A new product launch anticipated by Q2 of 2025 is likely to replace and further double this revenue stream as it ramps. Our new biomedical nanoprecision optics line has not ramped up yet, as end customer qualifies the high precision requirements. We anticipate getting an approval to ramp in December, 2024. Additionally, our night vision optics business that supplies subsystems and components for current soldier equipment deployment is ready to ramp for lightweight high-performance lens systems, which is a new endeavor. This has encountered some challenges to make lightweight lenses that are ultra-high precision. The last set of lenses in the objective and eyepieces is currently being processed as the production line is being installed. Cintiq is a unique provider of high-performance, cost-effective optics for various night vision configurations. In recent news, we're planning on restarting production of components and assemblies that support precision-guided munition programs that we previously manufactured. The production of this is planned for March of 2025 and beyond, and we'll continue to add our growth efforts. These existing product launches have the potential to double our sales organically, over the next several years. Syntec is also actively pursuing acquisitions to strengthen our position in the light-enabled marketplace, currently evaluating two companies. We are very excited about our future and the progress we have made so far. I will turn the call over to the operator who can close it.

Ladies and gentlemen, thank you for your participation and interest in Syntec Optics. This concludes today's events. You may disconnect your lines and enjoy the rest of your day.