Omni-Lite Industries Canada Inc.

Good day, ladies and gentlemen, and welcome to the OmniLight Industries third quarter 2024 investor call. Our host for today's call is Amy Vetrano-Palmer, OmniLight's chief financial officer. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would like now to turn the call over to your host. Ms. Vetrano-Palmer, you may begin.

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 press release issued yesterday. The purpose of this call is to provide an update on OmniLight's financial performance in operations as we filed our third quarter 2024 results November 6th. After our remarks, we will open up for any Q&A. If you have not received a copy of the press release, which was issued yesterday, you can find it on our website at www.omni-light.com or email at d.robbins 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 any 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 are also mindful of the risks and impacts and changes to the health of the general economy, including the effects on the current U.S. financial market, 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 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 reported financial results in accordance to international financial reporting standards or IFRS during our call, we may discuss or reference non-IFRS measures, specifically adjusted EBITDA and free cash flow. A reconciliation of these non-IFSR metrics, if applicable, is included in our CDAR filings and press releases. Lastly, and less noted, any reference or discussion of our financial results in metrics are in U.S. dollar. I would like to now turn the call over to Dave. Dave?

Thanks, Amy. Good afternoon, everyone, and thanks for joining us. I'd like to make a few comments about our third quarter and year-to-date 2024 performance, followed by comments on our current business. Third quarter 2024 revenue was $3.8 million, which marks an increase of 14% from fiscal year 2023, and year-to-date revenue was $12.4 million and a 36% increase year-over-year. Revenue growth continues to be driven by a combination of increases in commercial air transport fastener products and missile defense electronics. Adjusted EBITDA for the second quarter of 2024 was $187,000, with a year-to-date adjusted EBITDA of $1.6 million, which is also a record for OmniLight. EBITDA and revenue in the quarter was affected by an unexpected outage of an automated casting equipment which, while transitory and resolved, resulted in a manual-oriented manufacturing workaround, extended operating hours, and lost throughput that, in aggregate, negatively impacted adjusted EBITDA by an estimate of more than $150,000. This circumstance gives me a perfect opportunity to highlight that we're committed to and continue to invest in automation and the importance of redundant resilience systems to support our growth aspirations and ability to reliably produce high-quality precision components. Equally important thematically is our effort to utilize proven, cost-effective automation tools to provide capacity expansion to the significant established investment base. Bookings for the third quarter were $3.9 million, which keeps backlog at $5 million as we go into the fourth quarter. Near-term demand for structural fasteners, jet engine castings, and short-range air defense sensor electronic components are all high and is driving our bookings. We are hopeful to land some meaningful long-term bookings overlaying the near-term demand profile. These anticipated longer-term bookings are in the area of defense electronic components for critical system sensor modernization efforts to support current national naval and airborne defense initiatives. With that, I'd like to turn the call over to Amy. Amy?

Thanks, Dave. Dave addressed our revenue and our outlook, and I will make some comments regarding cash. Adjusted free cash flow, defined as cash from operations minus capital expenditures, was a source of approximately $636,000. We did see a significant increase in cash in the quarter of approximately $834,000, which resulted in a strong cash balance of $2.6 million while we remain debt free. We did sell a small portion of our Cal Nano stock. We sold approximately 60,000 shares, which generated about $44,000 in cash. And we also received payments from Cal Nano of approximately $338,000 against their outstanding loan. We do expect to continue to see a strong cash balance as we close out the remainder of 2024. This completes our prepared remarks. We would like to now open the call up for any questions.

If you would like to ask a question this time, please press star, then the number one on your telephone keypad. Once again, to ask a question at this time, please press star, then the number one on your telephone keypad. Your first question comes from Emmanuel Kramer, a private investor. Your line is open.

Thanks, Dave, for the quarter. Despite the problem with the automated system, hopefully that's passed us. My question is, does the change of administration in Washington have any effect on our operations? If any, how would it affect us, better or worse?

Yeah, so I think my comment regarding expectation of some larger orders that are going to overlay in the next quarter or two is, as a result, there has been anticipation of some large orders. And some of that might have been due to sluggishness in just any administration change and the budget change over year over year, which happens in October. in the United States. So, uh, I think that it, uh, the fact that the election is over is, is, uh, both well, uh, regardless of the administration, it's just, uh, that, that is a, is done. So it, um, you know, that's part of the, uh, calculus in, uh, in, in defense budget, um, releases.

Thank you.

Once again, if you would like to ask a question at this time, please press star and the number one on your telephone keypad. Your next question comes from Frank Wisniewski, a private investor. Your line is open.

Hey, Dave. Hi, Amy. One question on the On the forging operations, it looks from your filings like you reduced the Canadian loss almost $900,000. Is that reduction primarily due to better operations at the forging facility? And if so, when do you expect that operation to reach break-even? Thanks.

I think, okay, Frankie, I think when you mentioned forging, you meant casting. I'm thinking.

Yeah, DP cast, yeah, I'm sorry, DP cast, yeah.

Yeah, yeah. So, well, it had been contributing. For three quarters or almost four quarters now, it had had some small contribution. This quarter was a small setback, but very much contained and was able to – protective measures that we shouldn't have that kind of an event again. But, you know, it was on pace to and can contribute now. And a lot of that is, you know, largely due to maybe two initiatives, one on the side of just efficiently manufacturing and reducing waste. And on the other side is a result of product rationalization exiting businesses that were low margin or negative margin businesses. So that's probably the biggest difference between, let's say, last year and this year, those two major initiatives.

Is BP more of a backlog business than the components business?

Maybe by a slight margin. It still is, you know, our bookings are, you know, usually within a year. So it's, you know, there's no, you know, demand bookings out, you know, two years or anything like that. Six months and not even a year.

All right. And when you talk about the hope for longer-term orders, those sound like they're at one site. Is that true?

Yeah. Well, I said electronics, right, specifically for some defense electronics modernizations efforts that we've been working on. and are in the bid cycle, and they tend to get released in some large bookings and with some, you know, visibility longer term.

With the margins on those kinds of orders be similar to normal margins?

Yeah, so, you know, all of our businesses have a similar profile. You know, the question a little bit can be in execution at any given time, but certainly those electronics kind of backlog and bookings would be for our, you know, our 40%, 50% gross margin targets.

Yes. Okay. And the size of those larger orders, could you, you know, range that for me?

Well, I think so last year, you know, the revenue increase from this year over last year, you know, double-digit, 14%, 15%. So the type of contract that could give that kind of an increase again, you know, heading into next year, you know, if you wanted to think about it on a scope. Okay.

And it came up a little at the annual meeting, but the Cal Nano sales, is that a program you have in, or do you just sort of decide when you want to sell some?

You know, there's no formal program. You know, we've taken the opportunity to convert some to cash. We're trying to be very judicious with this investment, but it's not a formal program. And certainly we're not trying to, you know, hurt the stock in any way.

Yep. Yep. Okay. Thank you very much. I look forward to talking to you.

You got it, Frank. Once again, to ask a question at this time, press star, then the number one on your telephone keypad. Your next question comes from Chris Wardle with LEAD. Your line is open.

Hi there. Do you guys break down your revenues between casting and the electronics side?

No.

Can you give us a bit of an overview as far as how that split typically is?

In general, the split is roughly, again, very roughly... they're roughly equal to each other in magnitude.

And do you expect that trend to remain, or are you seeing better growth in one of the areas?

Well, like I mentioned in the opening comments, recent growth for this year has come more in electronics and in forging than But there is a lot of booking activity. There's a strong backlog. And we do see demand for casting. So I think this year, perhaps it wasn't as big a growth projection. But going forward, we expect castings to contribute to growth in the same way. You know, this year, again, we're More of the profile was to, before you push the button for higher growth, have it contribute consistently before really pushing for too much growth is kind of where they are.

Okay. And then how are the margins in the different divisions?

So the margin profile... within all the different divisions is very similar if you look at, you know, let's say the core parts of the business. So where we may see differences in contribution at any given time is, you know, how well we're, you know, focusing on that, the core business, and as I mentioned earlier, effectively you know, staying away from non-core businesses that can have a good revenue prospect but don't really deliver on the, you know, on the margin. So, you know, we're committed to developing and producing components that are very specialized, that are very rare, and have the premium that we're targeting and staying away from more commoditized business. So that's an ongoing effort. Um, but, and we're, and we're been consistently improving in that area and notably at DP cast. I mean, that's been a big part of, um, integrating them into Omni light is, is that, is that process of rationalizing the, the, the businesses that, that, um, that fit that profile and, and of which they have many.

Okay. And then, um, So you speak of core versus non-core. Are you talking across all divisions, or is there certain divisions that you're classifying as non-core?

Well, so, and I'm saying core is this very specialized components that, you know, are rare, that serve a particular function and get a good margin profile. You know, that's really what we're defining as core. So You know, there's less of that at our forging operation and in electronics because, you know, we've been on that path for a while. For DP, it's been a little bit new, but that's, you know, that's the same across all divisions.

Okay. And so you're getting like in the low 20% gross margins in all the divisions? Yes.

No, no, no. Right now, that's the blended rate, the average of all of them. Our margin profile, the casting profile has been the one that has been improving, but starting from a place where it wasn't contributing a year and a half ago, and It's starting to contribute, and it will continue to improve that margin. So as that margin improves, I would expect that the overall margin will improve.

Okay. So casting historically was a drag on margins. So the other divisions, forging and the electronics side, has had higher than 20% margins? Is that correct?

Well, if the average is in that, yeah, the other two have to be higher.

Yeah. Okay. And then what do you see the trend on the electronics side? Like you're seeing greater demand here?

Well, there is a lot of opportunities. I've mentioned it several times that specifically in missile defense, there's a lot of – modernization efforts and new systems being put in place, obviously for defense purposes, but for international application too. And there's a lot of opportunity because of new technologies like gallium nitride and some others. that there's advanced electronic sensors that are being designed in, you know, everything from, you know, drone and airborne systems to some ground-based and naval systems where, you know, they're like a sensor that's got higher range and better performance. So, you know, that specifically is an area that Monsight is looking to exploit. Okay. Okay.

Okay, and it's so fair to say the increase in global tensions would help drive growth?

Yeah, that's a fair statement, for sure.

Okay. And then last question, does that division also sell into the commercial market, commercial aviation market?

Very little. The electronics division is, you know, 80 to 90 percent defense. And even in that, it's a very specific, you know, part of defense is driven a lot by missile and radar applications.

Okay. That's great. Thank you very much.

At this time, it appears there are no further questions in queue. I'd like to turn the call back over to our speakers for any further remarks.

Again, thank you for joining us for the third quarter review. We look forward to having you all back for the end of year. Thanks again. Bye-bye.

This concludes the Omni Life quarter 2024 investor call. Thank you for attending and have a wonderful rest of your day.