Omni-Lite Industries Canada Inc. (OML) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Omni-Lite Industries Inc. Second Quarter 2021 Conference Call. [Operator Instructions] At this time, it's my pleasure to turn the floor over to Mr. Carl Lueders, CFO. Sir, the floor is yours.

Thank you very much. Good morning, 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 contained in our press release issued yesterday morning, Wednesday, August 25. The purpose of this call is to provide an update on Omni-Lite's financial performance and operations as we filed our second quarter 2021 results yesterday. After our remarks, we'll open up the line for Q&A. If you've not received or seen a copy of our press release, which we issued yesterday morning, you can find it at our website, www.omni-lite.com., or e-mail us at d.robbins@omni-lite.com or c.lueders@omni-lite.com to request a copy. Before we get started, I'd like to remind you that today's discussion will or may include forward-looking statements, including information regarding Omni-Lite'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 the general economy, including the effects from the current COVID-19 pandemic, 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 Omni-Lite's SEDAR 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 results in accordance with the international financial reporting standards, or IFRS, during our call, we may also discuss or reference non-IFRS financial measures, specifically adjusted EBITDA, pro forma adjusted EBITDA and free cash flow. A reconciliation of these non-IFRS metrics, if applicable, is included in our applicable SEDAR 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. Dave?

Thanks, Carl. Good day, everyone, and thank you for joining us on today's second quarter fiscal 2021 investor call. Our agenda for today's call is as follows. First, I will make a few comments about our second quarter results, followed by some remarks about our current business and strategy. And then Carl will conclude our portion of the call with a review of our recently reported results. Our Q2 2021 financial performance results reflect the effects of our operational strategy, which is closely focused on all aspects of operational efficiency, closely managing costs and cash flows while continuing to fund development of new design wins. Our fiscal 2021 second quarter revenue of $1.2 million was essentially flat compared to 2021 first quarter revenue and a decrease of 26% on a year-over-year basis. This year-over-year revenue decrease was attributed to COVID-19-related declines in commercial aerospace markets for new aerostructure production, partially offset by an increase in noncommercial aerospace revenue. For outlook, we see the signs of the start of commercial aerospace recovery in the second half of 2021, evidenced from our current funded backlog of over $1.7 million amidst an expected uptick in commercial aerospace revenue. Potential future growth is projected to come from new product pipeline in development, including electronic components used in missile defense system upgrades, titanium-engineered fastener components used for lightweight aerostructures and high-strength engine components for increased fuel efficiencies. And finally, we are substantially through our sale leaseback process of our real estate holdings and look for this to help fund our investments in organic and acquisition growth. With that, I'd like to turn the call back over to Carl. Carl?

Thanks, Dave. As Dave mentioned, our second quarter 2021 revenue was approximately $1.2 million as compared to $1.27 million in the first quarter of 2021 and $1.6 million in the second quarter of 2020. Sequentially, we are at approximately the same level of sales and down 26% as compared to the second quarter of 2020. Also, as Dave mentioned, the decrease in revenue is largely due to the impact of COVID-19 pandemic on commercial aerospace and other markets. Adjusted EBITDA, defined as earnings before interest, taxes, depreciation, amortization, stock compensation and nonrecurring items, was a loss of $258,000 as compared to a loss of $143,000 in the second quarter of 2020. As discussed in the past, at the current level of revenue, we are still experiencing unabsorbed manufacturing costs associated with lower production volumes. While we aren't happy to be in negative adjusted EBITDA territory, we are pleased that on a $400,000 sales drop, we only gave up about $100,000 in adjusted EBITDA. This is the result of the efficiencies related to our third quarter 2020 restructuring and our focus on process improvement and spending control. As things turn positive and revenues increase, we expect a pretty steep slope up in terms of adjusted EBITDA. Free cash flow, defined as cash flow from operations minus capital expenditures, was a use of approximately $93,000 as compared to a use of $127,000 in the first quarter of 2021 or an improvement of $34,000 or roughly 27%. This completes our prepared remarks. We'd now like to open the call for questions.

[Operator Instructions] We do have a question coming through. It's from Daniel Marks with Stonehouse Capital.

Just one question. You -- in your press release and in your comments, David, you mentioned you're very close on monetizing the real estate in order to, hopefully, you find an acquisition of some kind. Is there any more flavor you can give us on that? And specifically, are there any expenses in SG&A related to that, i.e., have you hired an investment bank? Are you paying the Board to -- extra fees to do any work on that front?

So the flavor is that it's a pretty good landscape out there, and we've been busy leveraging that landscape. And we're pretty optimistic that there's some potential -- there's very good deals out there. So I'll kind of leave it at that for the landscape flavor. And in terms of costs, we've been busy. So yes, there had been some costs. I won't get into specifically in this bucket, but there have been some costs related to that activity.

And is any of that cost going to your Board members like your last deal did?

Well, I can't really comment on that specifically at this point.

[Operator Instructions] We do have a couple more questions coming through. First one from [ Emmanuel Kramer ] who is a private investor.

Yes, Dave, good quarter. I hope things are going to move up. How do you see the balance between commercial and defense change in the near future and further out?