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spk05: Good day, ladies and gentlemen, and welcome to the OmniLight Industries conference call. All lines have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero on your telephone keypad to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Amy Vetrano-Palmer, CFO. Ma'am, the floor is yours.
spk00: Thank you so much. Good afternoon and thank you for joining us. With me today is Chief Executive Officer, Gabe Robbins. Our call is being recorded and will be available for playback, the details of which were in our press release issued yesterday. The purpose of this call is to provide an update on OmniLife operations as we recently filed our first quarter 2022 results. Our remarks will open up at the end for Q&A. If you have not received a copy of our press release we issued on Thursday, you can find it on our website, www.omnilight.com. Before I start, I would like to remind you that today's discussions 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 we operate, our future plans, objectives, business perspectives, 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 material. We are also mindful of the risks and impacts of changes in the health of our general economy, U.S. and global commercial aerospace markets, and the U.S. Department of Defense budget. All forward-looking statements should be considered in conjunction with the cautionary statements contained in our press release and risk factors included in Omni's filing. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. I would also like to mention that in addition to reported financial results in accordance to IFRS during our call, we may also discuss or reference non-IFRS financial measures, specifically adjusted EBITDA, free cash flow, and organic revenue. A reconciliation of these metrics may be included during our filings and press releases. Lastly, unless noted, any reference or discussion of our financial results or metrics are in U.S. dollars. I will now turn the call over to Dave for his remarks.
spk02: Thanks, Amy. Good afternoon, everyone, and thanks for joining us. I'd like to make a few comments about our first quarter 2022 performance, followed by comments on our current business. First quarter 2022 revenue 2.4 million marked the beginning results of our strategic growth plans through organic and acquisition means. Bookings of organic business in Q1 was sequentially up nearly 90% driven from faster demand in commercial aerospace and from US and European defense electronics program content. Supply chain and logistics pressures for raw material did affect our ability to deliver approximately $200,000 product sales in the quarter. We expect this tough supply chain environment to continue and something we have started to address with advanced raw material purchases. Our ending backlog of $2.5 million, the majority shippable in fiscal 2022, represents another sequential increase in points towards continued revenue growth. Market demands in commercial aerospace from robust domestic travel and narrow body production is pushing fastener demand at a steady growth rate. Supply chain disruptions from international and domestic fronts at our customer level is opening new product opportunities for Amulet for both metal forming and casting, leveraging our ability to respond and the security a domestic supplier brings. The global security concerns and world unrest further fueling robust defense electronics platform development, and in particular, shorten long-range missile defense systems. With that, I'd like to turn the call over to Amy. Amy?
spk00: Thanks, Dave. Dave has addressed the revenue, so I'd like to make a few comments regarding our cash and EBITDA. In early 2022, an affiliate of the sellers of DP-CAS, purchased an additional 1 million common shares of OmniLite stock at a Canadian price of 1.25 per share. This generated approximately $986,000 of cash. Our free cash flow defined as cash flow from operations minus capital expenditures, which also included a $29,000 one-time DP cash-related transaction. When adjusted for these amounts, our free cash flow was a use of approximately $154,000, as compared to a use of $127,000 in the first quarter of 2021. Although we saw an increase in usage of free cash flow, this was attributed to us investing in capital expenditures to improve the manufacturing process in multiple locations. We continue to maintain a strong cash balance and saw a slight increase in EBITDA over the first quarter 2021 compared to fourth quarter 2022 compared to fourth quarter 2021. We do expect to continue to see improvements as revenues increase throughout the year. Cash from operations was an increase of approximately $41,000 as compared to a use of cash in first quarter 2021 of approximately 127,000. We continue to work to reduce our WIP and finished goods inventory and did see a reduction of approximately $56,000 in the first quarter. And finally, we are happy to announce that we did agree to reprice our $1.2 million loan agreement with Cal Nano. This will be set with a 7.5% interest rate with interest payments starting in June. of 2022 and principal payments beginning in early 2023. This does wrap up our prepared remarks, and we now open up the call for questions.
spk05: Thank you. The floor is now open for questions. If you do have a question, you may press star 1 on your telephone keypad at this time. If your question has been answered, you can remove yourself from the queue by pressing 1. Again, ladies and gentlemen, it's star 1. Please hold while we pull for questions. And our first question comes from Manny Kramer. Go ahead, Manny.
spk04: Good afternoon. Thank you for a nice quarter. I'd like to know the DP cast customers, are they military or commercial, the percentage of them, and they are businesses in Canada only, or do they have a worldwide United States business?
spk02: So the mix is across both aerospace and defense, industrial and automotive type applications. So it's a good broad spectrum. We do business in the United States and in Canada and some in Europe.
spk04: Also, can you break out the overall percentage of military against commercial in OmniLite? Please.
spk02: For OmniLite completely?
spk04: Yes.
spk02: Well, it's approximately 50% commercial, and if you combine the different defense areas, generally around 50% split. And industrial is a subset of the commercial of maybe 25%.
spk04: What do you expect in the future? Is it going to stay the same or is it going to change?
spk02: Well, we're expecting some growth in defense electronics in particular, but And fasteners could also see some defense pick up in the coming year. So, I think on balance, we're going to see growth in both sectors.
spk07: Thanks very much.
spk05: And our next question comes from John Tookums. Go ahead, John.
spk01: Yes, thank you. Just a question as it relates to kind of business through first quarter. I watched a recent interview with Elon Musk, and he talked about kind of the keys to successful manufacturing or scaling in IP. And as it relates to IP, I know that there was a lot done with the previous owner in terms of IP and getting patents. Is there any kind of additional work that the company is focused on right now, or is it kind of just the focus on growing the business?
spk02: The focus is on growing the business and the commercialization process of manufacturing our products. So there is some proprietary IP in the sense of manufacturing know-how, but no intention of trying to formalize that to patent, but leverage it in our ability to produce parts. So it really focuses on the manufacturing and the commercialization of that.
spk01: Perfect. And just a second follow-up question. it kind of relates to the three pillars, uh, DP cast, uh, kind of the legacy business plus electronics. Uh, do you kind of view that through quarter one as kind of the three pillars of where you'd look to expand? If you think of like almost like business units over time, uh, growing and strategic acquisitions, or is that, um, you know, there's still lots of room to kind of, to, you know, uh, to rethink that.
spk06: So, so the, the,
spk02: I think our perspective on the different manufacturing is that we're all supporting, you know, defense in aerospace, high-value assets. So we're looking at, in very many cases, the different manufacturing competencies can support the same customer and the same platform. So as far as acquisition goes, You know, I think we're looking to be opportunistic to see if, you know, if there's a competency, a manufacturing competency that blends with that same, you know, high performance manufacturing for high value assets to complement what we have. We're looking to expand there, but not, you know, not unless it sort of, you know, it has to fit. And we certainly want it to to blend and leverage what we have. So we're not looking to bolt on a separate business. We're looking for complementary businesses that can blend in with what we're already doing.
spk01: Okay, perfect. And I have a quick follow-up question, then I'll jump back in the queue if needed. As it relates to CalNano at this stage, it sounds like there's been definitely some progress in terms of their underlying business and also just the ongoing probably discussions you've had with CalNano. through Q1, is it really the thought of the company, and I think a lot of investors are thinking the same thing, of kind of when you'd kind of look for that next acquisition. Would it be post, you know, getting money out of Cal Nano? Obviously, you're looking for strategic timing, but just trying to get a sense. It doesn't have to be specific of kind of how you're looking at kind of when that next wave potentially of an acquisition, strategic, et cetera.
spk02: Well, we're certainly looking to integrate and the DPCAST business, and that's ongoing, independent of us looking for other acquisition targets. But it's more the fit than a specific timing. And we are in the midst of integrating in DPCAST. So to a certain extent, there's some time period here where we're We're involved with that. But generally, we're out there active and looking and trying to be opportunistic and not time driven as much as being opportunistic. And that's why we're out there looking, because if you're not out there actively looking, you may miss something. So I would characterize it that way.
spk07: OK, thank you. I'll drop back in the queue. And our next question comes from Frank Wisniewski.
spk05: Go ahead, Frank.
spk03: Hi. Good afternoon, Dave and Amy. The Cal Nano development I find very interesting. Interest payments starting this month, June, and interest and principal starting sometime next year. How, from a balance sheet standpoint, since you've written that loan totally off, when do you reverse that charge? Since, you know, essentially, at least when they stop paying principal and interest, it will be a performing loan.
spk00: Yep. So we'll be working during this quarter to figure out the right method to get that back on and what we want to do once payments do commence.
spk03: Okay. Once the interest payments commence. Okay.
spk00: Yeah, we want to start those going first, and then we'll take it from there.
spk03: Okay, good. You had kind of a large translation gain, what, $150,000 or so in the first quarter. That's against the Canadian dollar, I assume, right?
spk00: Yes.
spk03: And... If the Canadian dollar goes down, you take a loss, and if it goes up, you take a profit, or is it the other way around?
spk00: Sorry, can you repeat that?
spk03: Yeah, so from an income statement standpoint, would you rather have the Canadian dollar go down or go up?
spk00: We would rather see it go up.
spk03: Okay. Is there any thought, and that's a pretty sizable number, $150,000 for three months, and currency markets have been kind of wild lately. Has there been any thought of hedging out that exposure?
spk00: We have had a few discussions in regards to it, and we're going to continue to look at that as we go throughout the year and see how the rates change. It was just at the end of the year, the rate was significant, not significant, but Right when we closed the year, it was based on the rate. That's why we ended up with the big change for the first quarter. So we'll be watching it as we go through this second quarter here to see if it does make sense for us to start hedging or if we're just going to see slight fluctuations throughout the year.
spk03: Okay. I also noticed you had $501,000 in taxes payable. Is that from the real estate transaction?
spk00: Yes.
spk03: Okay, and those will be paid, what, during the coming quarter?
spk00: Yep.
spk03: Okay. The CARES Act, $400,000, did you take that in the first quarter? No. The payroll production was taken last year, I know, but you had another $400,000 from the CARES Act, and I was wondering if that came in the first quarter.
spk02: The only thing that would have been is the forgiveness.
spk00: Yep, the forgiveness of that.
spk03: Well, it's forgiveness, so you didn't take it into income or anything?
spk00: No.
spk03: Okay, it just went off the balance sheet, right? Yes. All right. One final thing, and then I'll jump back in the queue, too. You mentioned in your filings you're still under-absorbing manufacturing overhead. Is that mainly in California, or is it California and Canada? And relatedly, the lease payments that you're responsible for now on the California facility. I assume that you're concluding that in manufacturing overhead.
spk00: Am I correct? Yes, you are correct. And it is at both locations that we are currently, you know, working to get that under absorption fixed. But, you know, As revenues start to grow at both locations, we should start seeing that underabsorption resolve.
spk03: Okay. Would you have any feel, I mean, how much do revenues have to grow to take care of that underabsorption?
spk06: Roughly.
spk03: I mean, are we talking millions of dollars or hundreds of thousands of dollars?
spk00: No, it would be more in the hundreds of thousands of dollars. You know, DP is still a new acquisition for us, so we're still, you know, working to see what the sweet spot is there where they flip and start generating income. Omni, you know, we do feel confident here that the revenues throughout the year, we should start seeing that under absorption as well as the EBITDA grow there.
spk02: And they've already, in the last couple quarters, Frank, it's already, you can see that sequential increase improvement is indicative of that. And on the castings business, the pipeline, when we announced the deal, part of the investment thesis was the expectation that there was a healthy and there is a healthy pipeline of opportunities out there. So it's the right question to ask.
spk03: The $200,000 that you mentioned you couldn't ship this year because of supply constraints, was that mainly California?
spk02: I think that happened to be mainly California, but I would say that, you know, supply chain issues are a factor in all, you know, castings, electronics, and the forming business. In that particular case, that was the most significant one. you know, happen to be in the forming business, the fasteners.
spk03: Okay, good. Well, I'll jump back in the queue. Thanks a lot.
spk05: Thank you. And our next question comes from Manny Kramer. Go ahead, Manny.
spk04: Yeah, you mentioned the decline of the adjusted EBITDA was a result of the equation of DPKs and additional rent expense associated with the leaseback. Is CalNano contributing to the rent? And you should have an increase in rent, but you should have no taxes on the building.
spk00: Yeah, they are contributing to that rent, and it was flat with the taxes.
spk04: Okay. Are you considering to go to an industrial complex or somewhere where the rents are not so high as in Cerritos?
spk00: Not at this time, no.
spk04: Okay.
spk07: Thanks very much. And our next question comes from Frank Wesniewski.
spk03: Go ahead. Get back in early. A couple things. You mentioned, and I wasn't sure, the last question said about taxes being paid. You're still responsible for taxes and insurance at the California facility, right? About $200,000 a year? Okay.
spk00: Yep.
spk03: And the lease payments are about, what, $600,000 or so?
spk00: A year?
spk03: Yeah.
spk00: Yeah, about, yep.
spk03: $40,000. Okay. The $400,000 in transaction costs, did that just get rolled into the DP cost, or was that those separately stated?
spk00: I believe it went into the cost.
spk03: He went into cost, okay. And a final thing, I'm looking at your breakdown here. You know, although you don't like to give breakdowns, your IFRI filings give us a little hint. And I was a little surprised. Is the DP cast business seasonal? It looked like you only had a million in sales in the first quarter. I'm assuming that you break it down as U.S. and Canadian, and Canadian is primary DP cast, I guess, right?
spk02: Yeah, so there is some seasonality to it. It's not necessarily on an annual basis, but there's some seasonality. But we described the business as a roughly $4 million U.S. type operation. So you can see almost at a million, that's sort of at a rate that we've characterized it as. Expecting to slow grow it from there.
spk03: Now, I realize there are other things in the Canadian – net income, but it showed that you lost $400,000 in Canada. Now there's accounting fees and other things. I've never really understood, even before DP, why Canadian costs were so high. But that seems like a sizable loss in the DP cast. Is there something special in that, or is that a run rate? Yeah.
spk00: There are some other costs in that Canadian. It isn't just straight DP. But, you know, we are obviously in the process of getting them integrated, getting them using our processes, our standards. So, you know, we do expect that to start to rebound as we integrate them into our business model here. And, you know, as well as looking at cost savings and different initiatives out there to help with that as well. And, you know, the other piece of it, as Dave has mentioned, is the revenue piece and working to grow the business there and get those revenues up to, you know, cover some of that under-absorption and that type of stuff there. But there are other costs, you know, within that Canadian. What is that?
spk03: Maybe accounting costs, legal costs, things like that?
spk00: Yep. All that is in there. Yep.
spk03: Yep. One other thing that struck me is, and I think I'm obviously – I'm looking at your major customers, your breakdown of major customers. And you had one customer in the first quarter that was about $394,000. And in the whole year, I think, last year, you had two customers, if I read this correctly, that had $2.4 million. Tell me, you know, are there large customers that – Have orders that you expect that haven't come in yet? It seems like quite a fall-off. If you annualized the first quarter, one customer at $400,000, you only get half of what you did for two customers last year. Could you walk me through that and make sure I'm understanding that correctly and tell me what the reasons are?
spk02: So there was major... you know, fall off with the pandemic in aerospace, you know, with almost all the major customers. And I would characterize it as things have come back, you know, and that's including automotive, too. There was disruptions in automotive. I think the most stable piece has been more defense electronics was somewhat insulated from any one particular. But certainly the aerospace, commercial aerospace, all the major customers got hurt. And what is happening is they're kind of coming back in different phases. They are showing different signs. So I wouldn't draw too much conclusion from that just because on a, you know, on any given slice of time, you may see, you know, we may be off a decimal point, maybe a small amount. It just doesn't enter into, you know, into the report. So I would say this, that all the major customers are coming back. You know, some are coming back with, a series of, let's say, a lot of small orders, but starting to shift it out and to give them some visibility into our third and fourth quarter. So that won't show up in a revenue, right? You're looking at revenue, not necessarily bookings or backlog. And some are coming back a little aggressive with, you know, immediate demands. you know, immediate demands for, you know, for PAR. So in the example of the 200,000 that we weren't able to ship, that was a hope, that was an immediate demand, and there just wasn't wire available, so it was missed, but the demand was there. So I, you know, at this point, all the major customers are back, at least, you know, talking about demand, if not booking orders for the third and fourth quarter, and and showing signs of coming back. So, you know, to interpret that, I think that's the best way to interpret that. Yeah, Dave, I was looking at it almost as a positive thing.
spk03: Last year, you had a lot of disruptions, but when you have 42% of your business coming from two customers, that presents a risk. I assume that going forward, we won't have any kind of situation where we'll have that much of a concentration of customers, particularly with DPCAST.
spk02: Right. Well, the DPCAST adds to that. The balance of their portfolio certainly adds to that. And, you know, it's always the dynamic of, on one hand, having some concentration. There can be some leverage there, but also it does pose a risk. But I think on the, you know, I guess the point, there's no customer, you know, large customer that appears to be reducing over time. So, you know, you look for that too, right? You look for, and we're not seeing that at all.
spk03: Yep, good, good. One final thing, and that's Amy's new to the company. Amy, what attracted you to OmniLight besides Dave's great personality? Tell us, could you give us a little thumbnail on what you've been doing before and what attracted you?
spk00: Yeah, so what attracted me? Well, of course, Dave's personality. Someone that is good to work with. I think that is huge. But I also think that it's a great company to join. They're looking to grow. They're looking to start acquiring additional businesses as they grow, but also grow organically, which I also think is important. And I think my background will help get that to the next level, which is why I thought it was a good pairing. I come from a private-owned company that in my four years there, they acquired nine companies. So I have been in heavy acquisition mode for the past four years and really have been involved with integrating them into our financial models, helping find the right fits for companies. So I really think that background was huge, as well as strong controllership, keeping the books, making sure everything from an audit perspective is ticked and tied and And, you know, really keeping all that background there. So I think my background and the company here was a great fit together.
spk03: Terrific. Thank you. And, you know, welcome to the company. Thank you. You've done pretty much everything you said you were going to do over the last couple of years. So, you know, I still would like to see you buy some shares back, but you obviously consider that as you go along. But anyhow, thank you very much.
spk02: Yeah, just a comment on that. You know, we'd like to believe that we're going to put that capital to, you know, slightly better use, right? So that goes into that algorithm of that. Because we're pretty – you know, we're pretty bullish that we can put that capital to work in a very meaningful way. So that's the rationale there.
spk03: Yeah, not to expand too much on this, but you had a buyer come in and he paid $125,000 Canadian, you know, double or so what the price is now. You're selling under book, particularly if you reverse the Cal Nano price. I look at a lot of small companies, private and public, and I'm hard-pressed to see how you could acquire another operation that is more attractively positioned and priced than your own. That's just my opinion, but you probably see more than I do.
spk02: Well, no, we get your point. It's probably not worthwhile to debate, but it's certainly a perspective that we appreciate, Frank. Okay, good. Thanks a lot. Yeah.
spk05: And our next question comes from Manny Kramer. Go ahead, Manny.
spk04: Just based on the world situation with Russia and China and the wars, Do you foresee any more business coming from the military for increasing their military demands, and you can gain from that on further revenues in that area?
spk02: Well, I spoke about many of the, you know, particularly in defense electronics, leading up into certainly what's happening in the Ukraine, but prior to that, is there's a lot of, you know, a lot of world unrest, a lot of worries about domestic security, missile strikes, drones. So there's a lot of activity. Some of it hasn't matured into an order, but, you know, a tremendous amount of bidding and some of our backlog that we currently have is directly from uh, defense systems, you know, particularly for, uh, short and long range missile defense. So, you know, it, it, it is, uh, unfortunately, you know, that's the world we live in, um, is that, uh, you know, domestic and protection, uh, is, is, uh, governments are spending a lot. So, you know, it is, uh, um, there is a lot of defense electronics business and we, when we see that continuing to, uh, to be an area that, you know, is going to fuel some growth.
spk06: Thank you very much.
spk07: Again, ladies and gentlemen, it's Star 1 to ask a question on the phone. And there appear to be no further questions at this time.
spk05: I would now like to turn it back to Amy for any closing remarks.
spk00: All right. Well, we'd like to thank you all for joining us today, and we'll look forward to the next quarter here.
spk05: Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
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