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spk04: Good day, ladies and gentlemen, and welcome to the OmniLight Industries Investor 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. Ma'am, the floor is yours.
spk03: Thank you. 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, the details of which are in our issued press release. The purpose of today's call is to provide an update on OmniLight operations as we filed our third quarter 2022 results. After our remarks, we will open up the line for Q&A. If you have not received a copy of our press release we issued Tuesday, you may find it on our website, www.omni-light.com. Before we get started, I would 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 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. The risk factors included in OmniLite CDAR filing, 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 reported financial results in accordance to the international financial reporting standards, or 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 non-IFRS measures 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 like to now turn it over to Dave.
spk00: Thanks, Amy. Good afternoon, everyone, and thanks for joining us. I'd like to make a few comments about our third quarter 2022 performance, followed by comments on our current business. Third quarter 2022 revenue of $3.2 million marked an increase from third quarter 2021 and up sequentially from Q2 2021. Bookings for the third quarter remained solid, keeping backlog at a strong 3.7 million, with approximately 80% expected to shift in Q4 2022. Growth in the quarter was driven by a combination of increase in commercial air transport products and newly designed products, notably titanium structural fastener components. Contribution improved on increased sales, was offset by product mix and integration costs in Cassidy's business. Market demands in commercial aerospace from robust domestic travel and narrowbody production is pushing structural fasteners and hand engine components demand at a steady growth rate into 2023 and beyond. New component bookings in the quarter continues to validate our competitive mode of agility and relatively short lead times with the ability to engineer and manufacture high-performance components. The persistence of these lengthening of lead times and uncertainty of delivery from our domestic and international competitors signals to us the robust need for our manufacturing into 2023. So to summarize, really, our Q3 performance trajectory underpins the strength in our marketplace and the opportunity we intend to further improve on. With that, I'd like to turn the call over to Amy. Amy?
spk03: Thanks, Dave. Dave has addressed revenue, so I will make a few comments regarding cash and EBITDA. Adjusted cash flow, defined as cash flow from operations minus capital expenditures, was a use of approximately $615,000 as compared to a use of $236,000 in the third quarter of 2021. We continue to maintain a debt-free balance sheet, and although we did see an increase in the use of cash, this was mainly attributed to the timing of some of our accounts receivables, and we do expect the majority of these balances will be paid in the fourth quarter of 2022. Cash from operations was a use of $551,000 compared to $236,000 in the third quarter of 2021. And we did see a positive EBITDA of approximately 4,000 in the third quarter 2022, which was a vast improvement of our loss of 487,000 in Q2 of 2022. We do expect to continue to see improvements in EBITDA as we continue to maintain strong revenue. We also have continued to push to reduce WIP in finished goods inventory and saw a reduction of approximately 10,000 in the quarter. This completes our prepared remarks. We will now like to open up the call for questions.
spk04: Thank you. The floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. Questions will be taken in the order they were received. If at any time your question has been answered, you can remove yourself from the queue by pressing 1. Again, ladies and gentlemen, if you do have a question, please press star 1 on your telephone keypad at this time. Our first question comes from Frank Winsneski. Please state your question.
spk02: Hi, Dave, Amy. How are you doing? Good. A couple questions. You highlighted in your press release 12 new programs, and you talked about them in your prepared remarks also. I assume that was an unusually or atypically large amount of new programs for a quarter. Did they represent programs on new platforms or new products on existing platforms?
spk00: That's a good question. So a little color there. It's a combination. So from a market point of view, it was in both commercial air transport and some commercial platforms. And it was also a combination of At least four of them were new customers and new platforms. So there was a combination of existing customers, existing platforms, and in a couple of cases, some new customers that had been – they weren't out of the blue. These had been – you know, in various stages of sort of communication, but they did book in the quarter. So it was, you know, that's why we mentioned it in the release and in the March is that, you know, that is an uptick from, you know, maybe an historical or an average number of new starts. And it appears to be also something that will continue. So I'm alluding to that. is that we're seeing a lot of activity. And to actually secure 12 new ones, that's a tick up for sure.
spk02: Yeah, that's terrific. Now, how does that flow through the backlog? I mean, they're not multi-year orders. I think you implied that there'd be continuing orders. So the initial order goes in the backlog, but you'd expect different incremental orders going forward, particularly on the new platforms and new customers? Yes.
spk00: Right. I mean, at this point, not that we wouldn't entertain it, but, you know, we really price and engage with only recurring type platform products. Right. We're not in the job shop, you know, business. So that's not fun. But in the quarter, so how it's phased is you book. In most cases, there's some engineering involved to at least get it to the point where you can produce it. So, you know, a booking in the quarter, some can translate to some revenue, but it portends future growth because to design it and ship it in the quarter – The notable exception for that was why I mentioned it was the titanium fastener. There was some contribution to revenue in there. That's good. So I think you've got the mix there, though. The thought process is recurring, and it starts with relatively low revenue, but will increase. Good, good.
spk02: The SG&A expense during the three months – was about 14.6% versus the nine-month of 19.1%, which is really good. Is that 14.6% or 14, 15% SG&A percentage something we should look forward to going ahead?
spk03: So there's always going to be, you know, some puts and takes. We are trying to obviously control the SG&A expenses. But we did have, you know, a few items fall off in this quarter within SG&A. So we should see a continued improvement on the SG&A going forward. And we should, you know, start to see that level out as we go into 2023. Terrific.
spk02: Terrific. Cal Nano. You didn't call that out, but obviously the loan was renegotiated. And I did notice in your footnotes that you did put the new interest rate in. And what their press release said several months ago was that they would start interest payments in June and and then expected to have interest in principal payments, as I remember it, sometime in 2023. Is that – have I read that correctly on their release?
spk03: Yes, that is correct. We are expected to start seeing some principal payments probably after the first quarter of 2023. They did pay off a part of their term loan a little early. So we, you know, we're hoping to start seeing that come in here. And we have, you know, I just actually was recently looking into that. We have received some cash for them recently in regards to the interest payment. So that's, it's a move in the right direction.
spk02: Well, yeah, and while I wouldn't change it, you know, because you fully reserve those loans, but that would suggest to me that that's a very, having those loans fully reserved is an extremely conservative approach. Do you want to see a couple principal payments before you readdress that?
spk03: So we'll be readdressing it as we go through our Q4 audit here, 2022 audit, if we should, you know, adjust that reserve, but Generally, we'd like to see some of the, you know, interest is 1 thing, but we would generally like to see some principal payments, you know, 1 or 2, at least to say, okay, yes, we're starting to see these payments come through and let's reevaluate that reserve. But it will be part of our audit this year. Just to see, you know, we have, we, we, we're going to start receiving principal early next year. Is this something we should, at this point, readjust?
spk02: Yeah, no, I'm all for conservative accounting, but it's nice to see that that might be a source of some cash for you over the future. Look, I have a couple of other questions, but I'll get back into queue and hopefully ask them a little later. Thanks a lot.
spk04: Thank you. Again, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad at this time. Our next question comes from Manny Kramer. Please state your question.
spk01: Thank you for a good quarter, Dave, and I hope to keep going with it. How is inflation affecting your business? cost of goods and your pricing and number two how's the labor if you're getting increased sales how does it affect you are you have a problem hiring people or you have enough people so so inflation has affected the business i think going back a few quarters you know along with just you know supply chain issues
spk00: But it certainly has, you know, we have raised our price, not necessarily specifically with, you know, in connection with the broad inflation rate, but, you know, in response to what we think are, you know, our value that we're providing our customers. But more notably, too, because raw materials prices have increased dramatically. I think I mentioned that in Q1 and Q2. And the labor, we have had to, on specific cases, not across the board, but we had to be very mindful of our labor force. We've been relatively, I would say, fortunate to have a pretty stable workforce. We worked hard to cultivate that. And as we are starting to see revenue pick up and the signs that this is gonna continue and grow further, You know, we are looking to add to our labor pool. So, you know, I would say that, you know, they have had some effects, but, you know, largely our price increases and we're continuing to look at that is most notably what we're doing to, you know, to combat just the inflationary pressures.
spk01: Also, is the Canadian dollar going up significantly? Is that an effect on your bottom line?
spk03: It really hasn't had too much of an effect. I actually did some analysis here to see the changes just quarter over quarter, you know, if the rate had remained static versus, you know, what it was at the end of Q3, the difference. And it's really only a difference of about three grand to the bottom line. You know, our Canadian company does have about 48% of the business, you know, depending on the quarter. That's U.S. denominated, so sales orders go out in U.S., cash is received in U.S., So that does help the burden there that they have a lot of U.S. to U.S. transactions. So at the end of the day, it really didn't affect us too much. We continue to look at ways to ensure that we're hedging if we need to hedge and just stay on top of that rate as we move forward into 2023. Thank you.
spk04: Okay, our next question comes from Frank Wisner. Please face your question.
spk02: It's still Frank Wisniewski, but that's okay. On that foreign currency question, I saw you had a pretty sizable, what, $400,000 comprehensive loss. And then looking at the cash flow statement, there was also a – I forget what the number was, like $80,000 or so. that went into the cash flow statement. Are those, could you enlighten me in the accounting there? Because you said there was only a $4,000 charge that went through the operating statement, if I heard you correctly.
spk03: The operating statement, the majority of that exchange rate that you're seeing actually has to do with historical values from the balance sheet within DP-CAS. So, you know, we've got six assets on the books that The exchange rate has changed pretty, you know, a significant amount from quarter to quarter. So we obviously see that effect on the balance sheet as we flow those transactions through. And then some of that through in the translation on the cash flow.
spk02: Okay. So it's basically a balance sheet item and then an income.
spk03: Yes, exactly. Yep.
spk02: Yep. Now, you know, looking at your geographical breakdown and realizing there are other expenses up in Canada besides DP, but, you know, feeling that the geographic breakdown is a reasonably good proxy, it looked to me, looking at what revenues have come from DP over each quarter, that you're probably about $200,000 or so away from a break-even at DP. In other words, a million and a half dollars quarterly revenue would get you pretty close to break-even at DP. Is that analysis in line at all?
spk03: I do think we have to continue to see improvements of revenue there, but we're also part of taking ownership is to ensure that we put the right methods in place to ensure as we go forward that the right pricing is assigned to orders and we're getting the right margin return. So part of what we've been working on is at that one, two that they had this quarter, can we get a nice return on that the bottom line from there as we tighten up pricing, tighten up cost structure there. So I would like to see that more in the one, three to one, four range to start seeing a number flip, but you know, a part of that is also.
spk02: All right. Yeah. And you did one, one, two in the third quarter, right? Roughly.
spk03: Correct.
spk02: Pardon me?
spk03: Correct.
spk02: Yeah. Okay. Okay. So you're close here. That's great. Uh, one, uh, one, one, um, uh, final, um, thing. And that is the, uh, I'm going through the, uh, the lease interest accounting. You know, the IFRS, what, 16, the lease depreciation. It looks like the cost for the lease depreciation is about 280K, and then you have the interest expense of 145K, which would be kind of the total quarterly number. for the sale-leaseback you did in the California facilities. Is that a roughly correct calculation? And going forward, does that increase or is that pretty stable?
spk03: It does increase slightly, but it does remain pretty stable. It doesn't, you know, as these leases go forward, it does not change. You know, we don't have any huge step up in year three or anything crazy like that. It does go up a little bit year over year. But, you know, nothing too dramatic. And your numbers are pretty close.
spk02: All right. Well, that's great. It looks like things are picking up. I'm very glad, as I'm sure you are, too. I mean, I'm sure it's all attributable to Amy coming on board, but Dave, you're doing a good job, too. Thank you very much.
spk00: Appreciate that.
spk04: It looks like that was our final question.
spk03: All right, great. Well, thank you, everyone, for joining us, and we'll look forward to talking to you next quarter.
spk04: This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time, and have a great day.
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