Omni-Lite Industries Canada Inc.

Good day, ladies and gentlemen, and welcome to your OmniLight Industries Incorporated investor conference call. All lines have been placed in a listen-only mode, and the floor will be open for your questions and comments following the presentation. As a reminder, today's call is being recorded. If you should require assistance throughout the conference, please press star, then zero. At this time, it is my pleasure to turn the floor over to your host, Chief Financial Officer, Mr. Carl Leder. Sir, the floor is yours.

Thank you very much. Good afternoon and thank you for joining us. With me today is our Chief Executive Officer, Dave Robbins. Our call is being recorded and will be available for playback with details of which are contained in our press release issued on Wednesday, November 25th. The purpose of this call is to provide an update on OmniLight's financial performance and operations as we filed our third quarter fiscal 2020 results last Wednesday. After remarks, we'll open up the line for Q&A. If you've not received or seen a copy of our press release we issued last Wednesday, you can find it on our website, www.omni-light.com, or email us at d.robbins at omni-light.com or c.leaders at omni-light.com to request a copy. Before we get started, I'd like to remind you that today's discussion will or may include forward-looking statements, including information regarding OmniLight's performance based on our views of the company's business and the environments in which they operate, our future plans, objectives, business prospects, and anticipated financial performance. These forward-looking statements are subject to future risks and uncertainties that could cause our actual results or performance to differ materially. We are also mindful of the risks and impact of changes in the health of the general economy, including the effects from the current COVID-19 pandemic, U.S. and global commercial aerospace markets, and the U.S. Department of Defense budgets. All forward-looking statements should be considered in conjunction with the cautionary statements contained in our press release and the risk factors included in OmniLight's CDAR filings. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. I'd also like to mention that in addition to reporting financial results in accordance with the International Financial Reporting Standards, or IFRS, during our call, we may also discuss or reference non-FIRS financial measures, including adjusted EBITDA, both former adjusted EBITDA, and pre-cash flow. A reconciliation of these non-IFRS metrics, if applicable, is included in our applicable CDAR filings and press releases. Lastly, unless noted, any reference or discussion of our financial results or metrics are in U.S. dollars. I'd now like to turn the call over to Dave. Dave? Thanks, Carl. Good afternoon, everyone, and thank you for joining us on today's third fiscal quarter investor call. Our agenda for today's call is as follows. First, I will make a few comments about our third quarter fiscal 2020 results, followed by some remarks about our current business and strategy, and an overview of our efforts in response to the COVID-19 pandemic. And then Carl will conclude our portion of the call with a review of our recently reported financial results. First, I want to comment on how we have repositioned and right-sized the company to operate more efficiently to respond to current market conditions especially to the disruption in commercial aerospace marketplace and the level of commercial transport traffic, both domestically and internationally. Heading into 2020, OmniLight was poised to grow at 25% plus in response to then expected increases in demand for precision components for defense and commercial aerospace applications, supported by industry record backlog levels and aircraft production rates. Such visibility was dramatically altered by the COVID-19 pandemic, and such an exogenous shock to the commercial air transport industry has been profound on so many levels, one that impacted a strategic growth driver for OmniLite. At its core, OmniLite's value proposition is in its ability to efficiently design and manufacture precision components in high volumes. Specifically, in our metal forming operation, the ability to form aerospace metals to complex shapes is amongst the best anywhere in the marketplace. Precision metal manufacturing on scale requires disciplines in engineering, tooling, materials, and process controls. We streamlined those functions by giving direct access to data and interface between these functions. Frontline decision-making was engaged by availability of actionable data. The result is a leaner but fully capable workforce in the metal forming operation that can sustain high level of productivity and engage and capture new business opportunities. New opportunities fall into new products for existing customers slash platform, new product for new customers slash platform, and current product for new customers. New opportunities will almost certainly demonstrate OmniLight's value proposition of reducing costs and lead times to its customers. Our results in the quarter and the year-to-date period reflected the impact of COVID-19 pandemic on our commercial aerospace revenue, which contributed to a decline in our fiscal third quarter revenue of approximately 23% on a year-over-year basis, and a fiscal third quarter adjusted EBITDA loss of approximately $271,000. Against the backdrop of our realigned lower operational cost profile and commercial aerospace market recovery in 2021, we look to cash generation, margin expansion, and new engineering orders as key indicators. An early positive sign is evidence for over $750K of funded backlog for 2021. OmniLite is a diversified manufacturer of precision components serving a broad range of applications and industries utilizing high-value assets and longevity of service and performance. Irrespective of the product type, OmniLite's business proposition entails offering engineering solutions, a wide range of those solutions, and available in low to high volumes. and ultimately deliver cost-competitive with a performance premium. Our metal-formed products offer engineering solutions and cover a wide range that are only found at the largest OEMs. Our engineered electronic solutions serve the growing need for small, high-speed, long-wave sensors using wide-bandwidth technology, RF to millimeter-wave spectrum. Our electronic components are found in notable military aircraft, commercial aircraft, missile systems, diesel engines, air traffic surveillance systems, and satellite mobile communications and military self-protection systems. We will continue to invest and allocate capital towards the fulfillment and execution of our current bookings pipeline and growth opportunities, both in defense aerospace fasteners and our electronic RF components, as we believe we are strategically situated to exploit the cost reduction capability enhancements required in aerospace and defense. New opportunities in our defense electronics product line has been strong, notably with the Patriot, Navy's Electronic Warfare Improvement Program, Joint Strike Fighter, and our short range Missile Defense Program. Demand for highly integrated electronics that meet the power consumption requirements for airborne applications dominate the activity. Additionally, there's development for new fasteners for automotive engine components and advanced high-strength military aerospace fasteners. With that, I'd like to turn the call back over to Carl. Carl? Thanks, Dave. Third quarter revenue was $1.6 million as compared to $1.6 million in the second quarter of 2020 and $2.2 million in the third quarter of 2019. The decrease in revenue versus the third quarter of 2019 was due in large part to the COVID-19 pandemic. Revenue was flat versus the fiscal second quarter of 2020. Adjusted EBITDA, defined as earnings before interest taxes, depreciation, amortization, stock compensation, and non-recurring items, was a loss of $272,000. That's compared to a loss of $143,000 in the second quarter of 2020. and a loss of $29,000 in the third quarter of 2019. The third quarter 2020 EBITDA was adversely impacted by a $55,000 severance charge related to our workforce reduction plan, implemented halfway through the quarter, and a $225,000 adverse impact on adjusted EBITDA associated with the two-week COVID-19 related shutdown of our California facility. Factoring this supplemental information in would have indicated a near break-even performance on adjusted EBITDA in the third quarter. Free cash flow, defined as cash flow from operations minus capital expenditures, was the use of approximately $217,000 in the third quarter of 2020. This brings our year to date, September 2020, free cash flow to a use of $242,000. I would note that despite the impact of the COVID-19 pandemic, which contributed to a year-to-date revenue decline of approximately 24% compared to the year-ago period, we have been able to mitigate the impact on our free cash flow. In this regard, we've taken strong measures to manage cash and the elements of our costs that we can control. We've implemented a restructuring of the business, including a workforce reduction program and other related cost actions. We've vacated a sublet facility and subleased it, that collectively will yield annualized savings of approximately $1 million. In connection with these changes, we've realigned and streamlined our operating processes, which will enable us to operate in a more efficient manner. We believe these changes will allow us to support higher levels of revenue post-COVID-19 in a cost-effective manner. Also worth noting, In the nine months into September 30th, we have reduced inventory by approximately 200,000 and held capital expenditures to 26,000. In addition, we applied for and received 820,000 in Paycheck Protection Program loans and have submitted our application for loan forgiveness under the CARES program. As a result, our liquidity at the end of the third fiscal quarter was approximately 2.9 million, comprised of 1.4 million in cash and 1.5 million available under our revolving line of credit facility. Lastly, it is worth noting that we possess a substantial asset base, including our company-owned facility, manufacturing facility in California, and our state-of-the-art cold and hot forging systems, which together we believe are worth well in excess of book value. This completes our prepared remarks. We would now like to open the call for questions.

Thank you. The floor is now open for questions. If you do have a question, please press star then 1 on your telephone keypad to join the queue. If you're using a speakerphone, please pick up your handset to provide the best sound quality. Again, ladies and gentlemen, if you do have a question or comment at this time, please press star 1. And our first question comes from private investor Frank Wisniewski. Sir, please go ahead.