Omni-Lite Industries Canada Inc.

Hey, ladies and gentlemen, and welcome to the OmniLight Industries Investor Call. Our host for today's call is OmniLight's CFO, Amy Petrano Palmer. 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, Ms. Petrano Palmer. You may begin.

Thank you, and good afternoon, and thank you for joining us. With me today is our Chief Executive Officer, David Robbins. Our call is being recorded and will be available for playback. The details which are in our press release issued yesterday. The purpose of this call is to provide an update on OmniRate's financial performance and operation as we filed our 2024 year-end results yesterday, April 21st. After the remarks, we will open up 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 at www.omni-light.com or email us at d.robbins at omni-light.com to request a copy. Before I get started, I would like to remind you that today's discussion will or may include forward-looking statements. including information about OmniRate's performance based on our views of the company's business and the environment 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 on the health of the general economy, including the effects of this. current U.S. financial market, the U.S. global commercial aerospace market, the U.S. defense budgets, as well as the U.S. and international markets. All forward-looking statements should be considered in conjunction with the cautionary statements contained in our pressure dates and the risk factors in OmniLite email filings. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. I also would like to mention that in addition to the reported financial results and according to International Financial Reporting Standards, or IFRS, during a call we may discuss or reference non-IFRS financial measures, specifically EBITDA, adjusted EBITDA, and free cash flow. A reconciliation of these metrics is available in our QDAR filings. Lastly, unless noted, any reference or discussions of our financial metrics is in U.S. dollars. 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 share a few highlights from our fourth quarter 2024 performance and provide an update on our current business momentum. Revenues for the fourth quarter is $3.5 million, bringing full-year revenues to a record $15.9 million, a 29 increase, 29% increase over fiscal 2023 and a 5% improvement over Q4 last year. Growth during the quarter was driven by continued expansion in commercial air transport fasteners and jet engine casting programs. One important dynamic in Q4 was our product mix. Approximately 20% of revenue came from engineering and new product development. While this mix typically carries lower margins, it does reflect strategic investments in new programs. We took advantage of customer demand to qualify a new high-performance fastening type, which we believe will translate into repeat orders. Our usual target is closer to 10% for engineered related revenue, but this was a timely opportunity we chose to accelerate. We also made a proactive decision to convert slow-moving inventory to cash. ahead of planned write-downs. We also hired new manufacturing staff in our metal forming operations to support increased production capacity. Bookings for Q4 totaled $3.2 million, resulting in a $4.6 million backlog at year end. While these bookings primarily reflect ongoing programs, several larger orders did not convert until early Q1. One of these was a major contributor for a record-breaking in excess of $5 million bookings in Q1 of 2025. Other expected large bookings are driven by demand for U.S. missile defense modernization efforts and newly qualified FASNA components. For the full year, adjusted EBITDA reached $1.6 million, up from $445,000 in 2023, a gain of more than 1.1 million. The improvement came from stronger operating leverage and a disciplined focus on product rationalization and pricing, a strategy we intend to carry forward in 2025. All right. Back to you, Amy.

All right. Thanks, Dave. Dave has addressed the revenue and the outlook, and I'll make a few comments regarding cash. Adjusted free cash flow is defined as cash flow from operations minus capital expenditures with a source of approximately $248,000 in the fourth quarter as compared to a use of $93,000 in the fourth quarter of 2023. Year-to-date free cash flow was approximately $1.8 million compared to $530,000 in 2023. We did use approximately $150,000 for CapEx purchases during the year for the manufacturing process. We did receive full payoff on the CalMano note that we had on the books of $852,000 approximately, as well as $250,000 for a note we had fully reserved. We finished this year with approximately $3 million in cash and no debt, which is an increase of approximately $1.9 million over the year 2023. We will continue to maintain a strong cash balance. This does contain our prepared remarks, and we would like to now open up the call to any questions.

If you would like to ask a question at this time, please press star then the number 1 on your telephone keypad now. You will be placed in the queue in the order received. Once again, if you have a question at this time, please press star then the number 1 on your telephone keypad now. Your first question comes from Alexander Rizkov with Lion Guard Capital. Your line is open.

Annie and Dave, thank you very much for taking my question. Maybe I'll just start off on the inventory charge. Can you help us understand why this wasn't provisioned for previously? And then how much of each inventory do you think remains on the books? Or do you think this is sort of the final supply we can expect on this part of the balance sheet?

Yeah, we certainly feel like we have a good handle on our inventory, and it's very current. This particular inventory item, we had hope it was a remnant of a previous type of bill that we haven't participated in, but it was still functional, and it was still the correct rev, but you know, questionable how much demand there was going in the future. So it was difficult to really predict. So we saw an opportunity to move it, and we did.

Got it. So it sounds like that's behind us, which is very encouraging. So thank you for that. The other question, just, you know, trying to understand the relative performance of the different businesses. I mean, you provide quite a bit of detail on your mom's life business unit in your financial statement. And frankly, I think that business is performing remarkably well. But I think if that business has margins approaching 50%, it seems like it's probably represents more than 100% of the overall development business. So it seems like the other two businesses are not contributing. So maybe help us understand, you know, how the other two business units are performing and what's sort of driving their performance down.

Well, okay. So I think if you want to sort of characterize the year, um yes we uh monza did have a a bit of a revenue boost on two large programs which we we've talked about um and that was somewhat driven by bookings that happened in the previous year at the end of 2023 you could see the bookings build up um and and i would characterize The other two divisions that we've talked about, DPCAS, has had incremental improvement on its margin. We believe that it can and will contribute to the same level, that 40% to 50% gross margin level. In the future, we're working incrementally toward that. It made improvement this year. And the reason that we believe that it can and will is because Specific part numbers on programs deliver that kind of margin. So it's a bit of product rationalization and pricing to get us to where it contributes. And we made good progress this year, and we look to make what I'll call incremental progress. In aerospace, it sometimes takes a bit of time to product rationalize and to increase price. One factor that we've talked about holding us back a little is long-term agreements or long-term agreement, which doesn't allow for pricing elasticity. other than on a case-by-case basis. So as we move forward and negotiate a new contract, that will have an impact on that DP, significant impact, I think, on the DP gas performance. And I would characterize OmniLife, the forging business, this year was a lot of product development, notably in the Q4 period. significant product development, which carries a lower margin. And I believe, and I've made notice of it in this release and in prior one, that there's an expectation that heading into 2025, that perhaps there'll be more production, the ratio will be a higher production ratio than it was in 2024. 2024 had maybe a disproportionate amount. And I believe that 2025 Q1 bookings, a big significant bookings in fasteners, came as a result of work that was done in the end of 2024 to qualify some new cars. And their margins again have in the production environment show that same 40% to 50% margin profile.

got it dave this is a very helpful answer um and again just to highlight and you know to congratulate you on the job that bonsai is doing i think there are very few businesses with sixty percent of the down margins that expect you to grow seventy percent on average over the next three years so clearly this is a popular business that's worth more than the entire market traffic you brought it out so congratulations on the work you've done there And, you know, just a quick follow-up on the one-term agreement that you've highlighted with DPCAS. If I remember correctly, that expires in the end of 2025. Can you update on when you expect that to be, you know, renegotiated or essentially move off that agreement? And then I have a final question.

Well, we're looking to be in the middle of that negotiation this year. It's hard to predict whether... uh just the exact timing of that but i think there's intent on both sides that um you know that's just doing it sooner than later is advantageous but like anything else that's a negotiation and it's something that will be you know putting a lot of energy into understood um my final question you you've talked about 21 bookings but also you've talked about

strong momentum in the first half of the year. So at this stage, are your expectations that the momentum you see in 2021 will be there for Q2 and potentially into the second half of the year? How should we think about the progression on the booking side through the year?

Well, I think what I've tried to mention is at least for the first half that we expect some large, you know, single orders that will change the trajectory at least in the first half. But, you know, the growth drivers really are there for continuing on in the year. So there's nothing that, you know, we still expect a robust continued booking throughout the year. But notable ones in the first half, and that's the reason I mentioned that.

Understood. Well, thank you. Thank you for taking my question.

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

Thanks for a good quarter. I hope you get better in the second quarter, first quarter. How is the tariff affecting you? Is it only DC cash or supply chain? China's not taking any Boeing planes. How would that affect you?

So, to date, we haven't seen any direct effect yet, but we do anticipate that primarily in Our casting business in Canada, it can get affected in two ways. One is on imports of material from the United States. Although we haven't seen them yet, we expect that that will, you know, we'll see an increased cost on some of the metals that we buy from the United States. And those will be passed on to the customer with pricing increases of material. On the other side is the retaliatory tariffs that Canada has put in place. It's not entirely clear, but it looks like that U.S. customers buying castings from our Canadians, from GP cast, could be hit with a tariff, which could impact their buying decision. I think for the most part that... The customers that are buying from BP Cash are buying because of the specific nature, thin walls, barrel-shaped quality, hard to manufacture and dust and casting parts, and not driven from the lowest necessarily, though, only based on price. But having said that, I can't imagine that there would be zero impact of that tariff, but we don't think it would be a major impact. Approximately 25% of the DPCAS business is U.S.-based. You know, again, aerospace parts, they're hard to produce. There's a lot of tooling and know-how that goes into producing those parts, so it wouldn't even be easy necessarily for them to resource those parts. And I think in other areas of the business, there could be, at least on the electronics side, there could be a very small impact on electronics, imports because for the most part, they're working on, we're using parts that are having military applications and we're not sourcing from places like China at all. Most of the imports are from countries that won't have as big a tariff impact and the cost of the parts is generally fairly small as a percentage anyway. And on our forming business, the metals are parts of our source U.S.-based and mostly of steels, which have a higher content of U.S. sourcing, as well as therefore aerospace and defense, you have to be real careful of your sourcing. So we think the impact is fairly small on those entities. If there is some, we'll, you know, we'll pass the cost along.

Thank you. Your next question comes from Peter Immel, a private investor. Your line is open.

Oh, hi, David. I think most of my questions have been answered, but just a couple of things just in terms of, you know, before you guys had been looking at acquisitions and stuff, I mean, what are you seeing these days and is everything just frozen just in terms of, you know, not wanting to move any capital and things like that, or are you seeing any opportunities out there?

We're definitely seeing opportunities. You know, prior to sort of this tariff, you know, this recent tariff kind of explosion, I think the landscape in a way is, you know, is very fruitful, potentially, and valuations perhaps come down a little bit more rational. So, yeah, I'm looking, and I haven't seen any evidence, yeah, I think a little bit of capital tightness, you know, could be there, but in terms of Envy, you know, the landscape, I think, is quite thorough, and we've been in some discussion, so I'm hopeful that, you know, that we can execute on on a strategic acquisition.

Okay, and then can, in terms of that, like what size are you looking at in terms of whether it's revenue or EBITDA and stuff like that? Just give me some color on that.

Yeah, well, as I said before publicly, you know, we have, we've raised a bit of capital to use to deploy when our cash is urgent and certainly, you know, borrowing is you know, is what it is. So we're looking at smaller, you know, entities, maybe two to five million revenue to start, let's say, and in the, you know, the million-dollar EBITDA would be, you know, plus or minus. Something flexible that, you know, fits in with our business model would be the, you know, the kind of candidates.

Okay, and then just in terms of multiples that you see out there, I know when we were talking a while ago, it seemed like almost all the private ones were higher multiples than the public companies. So what kind of multiples are you seeing out there in terms of possible acquisitions that you'd have to pay?

Well, you could see, you know, I like to believe that, you know, that three and a half to six and a half, you know, is kind of the spot we'd be looking at. I mean, every deal is different. But certainly, we're looking more on the five and less. But like anything else, you have to be careful when you talk multiples. There's a lot of extenuating circumstances or particulars. But in general, I would say that we're looking at attractive multiples where you'd be around that five anyway.

Okay, and just one last question then. On the Town Manor shares, how many shares do you guys still own? Amy, do you have the count?

Yeah, let me get the exact number. I believe it was disclosed in our financial statements. We did sell a small amount during the first quarter, but it's still a significant amount.

Let's get that here. So just above $7 million.

Okay. Okay. Okay, that's it for me. Thanks. Thank you.

At this time, there are no further questions in view. I'd like to turn the call back to our hosts for any further remarks.

Again, I'd like to thank everyone for joining us today, and we look forward to releasing our first quarter results here in a short order. Thank you.

This concludes the OmniLight Industries Investor Call. Thank you for attending, and have a wonderful rest of your day.