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spk00: Good day, ladies and gentlemen, and welcome to the OmniLight Industries Investor Conference Call. Our host for today's call is Amy Petrano Palmer, OmniLight CFO. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the call over to your host. Amy, you may begin.
spk01: 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 press release issue. The purpose of this call is to provide an update on OmniLight's financial performance and operations as we did file our third quarter and year-to-date 2023 results, which were released Friday, November 10th. After our remarks, we will open the line for Q&A. If you have not received a copy of our press release, which was issued yesterday morning, You can find it on our website, www.omni-light.com, or email us at d.robbins at omni-light.com or a.vetrano-palmer at omni-light.com to request a copy. 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 risk and uncertainties that can cause our actual results or performance to differ materially. We're also mindful of the risks and impacts of changes in the health of the general economy, including the effects of the U.S. financial market, U.S. global commercial aerospace market, and the U.S. Department of Dispense budget. All forward-looking statements should be considered in conjunction with the cautionary statements contained in our press release and the risk factors included in OmniLite 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 rights results in accordance to International Financial Reporting Standards, or IFRS, during our call we may also discuss or reference non-IFRS financial measures, specifically adjusted EBITDA and free 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.
spk03: Thanks, Amy. Good afternoon, everyone, and thanks for joining us. I'd like to make a few comments about our third quarter 2023 performance, followed by comments on our current business. Third quarter 2023 revenue 3.3 million marks an increase of 22% from second quarter 2023 and a 4% increase over the third quarter of 2022. Growth in the quarter was driven by a combination of increases in commercial air transport, fastener products, and defense electronics. Adjusted EBITDA for the third quarter 2023 was up over 110K over Q2 2023. which is a continued significant improvement and an indication of our ongoing improvements in productivity, managing SG&A and indirect labor-related expenses, and product pricing. Bookings in the third quarter increased to 4.7 million, up from 2.7 million year-over-year, and sequentially up 1.3 million from 3.4 million Q2 2023. Backlog at quarter end was a strong 6.1 million, indicating showing continued revenue growth into 2024. New order bookings reflect strong demand for engineering fasteners in the commercial aerospace and defense needs, jet engine castings, and missile defense sensor electronics. The strong backlog in bookings underlie the increase in strengthening robust customer engagement throughout 2024 and have expectation to continue. Qualification samples and associated production plans of a new foreign engine component were produced in the quarter, which we expect to start production the second half of 2024. The first prototype optical sensor casting component was produced in the quarter in anticipation of qualification samples being delivered into Q4. In the quarter, two new bookings for high-efficiency missile sensor electronic components will start initial production in Q4 and expect to continue into 2024. Our ability to engineer and process reliably produced products with exacting specification in months and not years was the heart of winning these orders and our competitive mode and business model. With that, I'd like to turn the call over to Amy. Amy?
spk01: Thanks, Dave. Dave addressed the revenue and outlook, and I'll make a few comments regarding cash. Adjusted free cash flow defined as cash flow from operations minus capital expenditures was a source of cash of approximately 255,000 as compared to a use of cash of 615,000 in the same period of 2022. We did use approximately 127,000 for CapEx purchases, which were for improvement in the manufacturing process. We continue to see increases in both WIP and finished goods and decreases in raw material, indicating the start of new jobs and the movement of our backlog. We finished the quarter with a strong $1.3 million in cash and no debt, which is consistent with how we ended both Q1, Q2 of 2023, and Q4 of 2022, as we continue to maintain a strong cash balance. This completes our prepared remarks. We'd like to open the call for questions.
spk00: At this time, we will conduct the question and answer session. If you would like to ask a question, please press star then the number one on your telephone keypad now, and you will be placed in the queue in the order received. Once again, to ask a question, press star then the number one on your telephone keypad now. Your first question comes from John Lewis, an individual investor. Please go ahead.
spk04: Hi, Dave and Amy. How's it going? Good. Good. Listen, thanks for holding the call. I haven't been on it in a while, but I am a big believer in conference calls. One of the top five things small cap companies do to give their shareholders a platform. I've got three questions. Don't want to dominate. I haven't been on this. I don't know if any analysts are covering it, but number one question in your notes in the MDNA outlines the Canadian division's performance. I believe the company was bought around December 2021 and unanimously approved by the board. Seem to recall this break even at the time. I looked at the numbers and the bad news is to date this year, it has lost $1.2 million in on sales of 2.7, if that's correct. I guess the good news would be that the other two divisions are doing well. I wonder what your plans are to fix this division, and can you comment on the other divisions?
spk01: So there's some... Go ahead, sorry. I was going to add one piece of information in that in Canada is also some of the corporate-related expenses because our holding company is also part of the Canadian division. not part of the DC CAS division. So that does include things such as stock comp expense, our audit-related fees, some of those, you know, pretty significant costs that do, you know, come into play. So, Dave?
spk03: Yeah, I was just going to reiterate that same, but also about the business comment on the business. You know, I have publicly stated that there has been opportunities for improvement at our casting, and we've made some improvements, rationalized some of the business. I think when we first acquired the business, there was some good business in the jet engine area and some other defense and aerospace-related product, but there was a mix. There was also a mix of other businesses that once we put some business systems in and really could see whether they were contributing to our bottom line, we rationalized them out. So there's been a bit of restructuring and rationalization of the business, as well as streamlining the operations to be able to, we feel like it will be able to contribute. It may be taking us a little longer than
spk04: anticipated but you know we're making steady progress okay thank you um actually the reason i'm on the call today is a friend uh like i've been a shareholder of the company for you know a decade or more um uh he's actually a cno shareholder um which you hold shares in reach out to me to ask me what i thought about oml the potential investment so i assume that um The recent success of California Nanotech may be bringing new eyeballs to OML, or at least its 7 million shareholding. Along with this did come a criticism. He told me the director has received $40,000 U.S. as annual compensation. I told him it was nuts, but I was wrong. I canvassed over this weekend, and I cannot find anywhere or anyone that tells me in small-cap lands for the nature of the business, the revenue profile, lack of M&A, that this is reasonable. Like I was told 20K for a director and 25K for the chairman. I'm just wondering if you have any comments on this and or do we even need five directors?
spk03: So, okay, there's a little bit to unpack there. Well, I mean, I I don't have all the data in front of me, but we felt like we don't want to be on the low end. We were in mid-pack, so to speak, in our compensation, so not exactly sure of the data you're looking at, but it was constructed with that in mind, not to be on a high level. But having said that, it is a very active board. We do have, you know, I mean, DP Cast was an acquisition that we did, and there is an acquisition mindset. So, you know, so I don't think it's fair to characterize it that there's no M&A activity. M&A activity can come in kind of – It's not a linear process that can kind of come in chunks. And I've commented, you know, quite a bit that we've had, you know, an M&A campaign. So, you know, it's an active board and, you know, feel like it's appropriately compensated.
spk04: Yeah, okay. So, I mean, I don't want to be overly negative. You know, my goal, hopefully, is for this company to thrive and get to profitability. You know, I was given numbers like $750 a meeting, that sort of thing. And these are, you know, I own a lot of companies. So, I reached out to actual board members of other companies. So, I'll leave it at that. I guess, lastly, you know, a lot of people are wondering, does the company have any thoughts on what it will do with its CNO shareholding. That's it for my comments and questions.
spk03: Well, the reason that we, you know, participated in the conversion was we thought that it was a good chance and, you know, we might have an opportunity to convert our holdings into cash that would benefit OmniLife shareholders. So that transaction had that in mind.
spk04: I was in the recent financing, so I'm wondering about the actual overall position. Do you have any thoughts on what you will eventually do with 7 million plus shares?
spk03: Well, we've certainly got ideas, and one of them is converting it to cash. Okay.
spk04: All right. Thank you. Appreciate it.
spk00: Yep. Your next question comes from Manny Kramer, individual investor. Your line is open.
spk05: Hi. Thanks for the good quarter. I just read in the news that Boeing announced that China might resume the 737 MAX on the wide bodies. How will that affect your revenues, if any? Have you been doing business with Chinese at all?
spk03: Well, we do know that our engineered fasteners our forming components is on the MAX platform. So, you know, what's different about the MAX as some of the newer aircraft is that their high use of composites and these engineered fasteners in our uptick in business, it's one of the platforms that is, you know, helping drive that. So we look at that kind of news as, you know, positive news. as well as some of the other aircraft new starts, including the 737.
spk05: How about Airbus? Is that any factor in getting more orders from Airbus also?
spk03: Yeah, some of our customers are doing quite a bit of business on the NEO platform. And, again, we have some engineered fasteners on those newer platforms.
spk05: Okay, thanks very much.
spk00: Once again, to ask a question at this time, please press star, then the number one on your telephone keypad. Your next question comes from Frank Wineski, individual investor. Your line is open.
spk06: Hey, Dave. Hey, Amy. A couple questions, kind of following up on the first gentleman's questions. On the casting side, What specifically have you done? Have you had labor reductions there? You said you changed the process a bit. But, you know, I think it's probably in less good shape than it was when you bought it, at least from an income statement standpoint. And I'm just wondering when we might see some progress there.
spk03: So part of the comments about SG&A and overhead expenses being down, part of that is at DPCAST is participating in that. We look to have business systems help us produce more efficiently with less need for that kind of overhead and certainly that's an adjustment that we've made up there as well as rationalized some of the products and towards ones that are really have more of a runway visibility in terms of yearly needs and so I wouldn't characterize it as its worst shape than when we bought it.
spk06: Well, it's probably in better shape because you've changed things, but I was talking about purely from an income statement basis, and I did see the overhead, the labor-related reference in the discussion of the overhead. Have you got any internal model I think when we talked before about it, I think you said, you know, a quarterly run rate of about a million bucks, a little over a million would bring it to break even or profitability. Is that still the case?
spk03: Yes, it's right. If you're talking U.S. dollars, a little north of a million. But, you know, our target is set higher than that. But that's about right, a little more than a million U.S., But again, we're targeting, you know, much higher than that, or at least significantly higher than that.
spk06: In over what time frame? Over the next 12 months?
spk03: Yeah, I mean, we're looking to get quarterly improvement. And we have now better price backlog that's That's robust. And so which we started the year, it was not as robust as it is now. So with better price backlog and a streamlined workforce, I think those are the underlying how we can make incremental improvement each quarter. I think with castings, when you're putting parts on aircraft, You know, there's a bit of a cycle from the time you start a job or especially a new job. So part of our backlog is on new products and on the older products that there still is a lead time of maybe six to nine months before you really recognize that revenue and receive the cash. So, you know, it takes a little time for that, you know, improvement to show up. But, you know, we see the signs for steady improvement.
spk06: And, Adelaide, how much of your $6.1 million backlog is from casting?
spk03: It's significant, at least proportional and a little bit more than proportional amongst the three divisions.
spk06: Okay. All right. And one final thing on that. I believe you're carrying about a million dollars in intangibles on your balance sheet. Is that mainly related to the castings?
spk01: Yeah, that is the majority due to the purchase of them.
spk06: And is that something that your auditors are going to be testing annually like in U.S. companies?
spk01: Yep, yep, they do goodwill testing every year. So that will be part of this year's audit as well as it has been for the prior two years.
spk06: Okay. And you feel that the intangibles at casting will pass that test? There's still a million dollars worth of intangibles for something that's, you know, doing maybe $4 million in revenues and not making money? Yes.
spk01: So the whole million that's there is not just related to DP. There is a good portion that's also related to the Monsite organization. So, yes, I do believe that both will be in a good position and there won't be an impairment on either of them.
spk06: Okay. All right. And this is more of a comment than a question. And again, it sort of relates to your answer on your board. To the extent that they were largely responsible for this acquisition, casting acquisition, which may not be the black hole of Calcutta, but it certainly was a difficult acquisition. As a significant shareholder, I would definitely encourage you not to make any more acquisitions until you've totally rectified the last acquisition. Acquisitions are tough. and the casting business is particularly tough, as I think you now know. And I would just make sure that the board is aware that some shareholders would not be pleased with additional acquisitions until this acquisition is totally cleared out. But that's just a comment, and I've told that to you before, Dave, so I just want to reiterate that.
spk03: Well, you know, and Frank, you know, we have mentioned this. And, you know, I share that sentiment. You know, we're not looking to build, you know, a house of cards. And, you know, I do like this castings business. You know, at its heart, it has the ability to, you know, we model it at making our 40% gross margin possible. uh, 25%, uh, EBITDA kind of model. Um, we're, we're going to get there, but, but I certainly, yeah, don't, and aren't looking to, uh, you know, to, to do an acquisition for the sake of doing acquisition. We've got to build on, on, on a good, on a good platform. Um, and, and, and we're going to, and we're going to get there with, with castings. Um,
spk06: Yeah, I hope you do because it was – I mean, it's what you bought with the proceeds from the plant sale, which was one of your bigger assets, and the asset allocation – decision, which is a board decision, at this point in time doesn't look like it was a terrific decision. So you'll pardon me if I have a little skepticism that the board is able to make other capital allocation decisions in any better manner. And just on the casting, casting business is a tough business. But I think it was Buffett that said when a When a business with a reputation as a bad business is taken over by management with a reputation of good management, it's the former that survives. So just be aware of that. It's a tough business. You guys are good managers.
spk02: I was unaware of that comment. So Buffett said that, huh?
spk06: Yeah, it was Buffett said that, I believe. I believe it was Buffett, yeah. Anyhow, that's my, you know, I think overall it was a good quarter. The fastener business and the electronics business are doing exactly what I would have expected them to do, and it's just the casting business that needs to be straightened out. And I know you're spending a lot of time on it, and I wish you the best of luck.
spk03: You got it, Frank.
spk06: Thanks.
spk00: At this time, it appears there are no further questions. I'd like to turn the call back to management for any closing remarks.
spk01: That's all on our end. Thank you for joining us today, and we look forward to seeing you all next quarter. Thank you.
spk00: This concludes today's OmniLight Industries Investor Call. Thank you for attending. Have a wonderful rest of your day.
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