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

Good day, ladies and gentlemen, and welcome to your Omni-Lite Industries Second Quarter Investor Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Amy Vetrano-Palmer, CFO. Ma'am, the floor is yours.

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 in our press release issued yesterday. The purpose of this call is to provide an update on Omni-Lite financial performance and operations as we file our second quarter and year-to-date 2023 results yesterday morning, August 2. After our remarks, we will open the line for any Q&A. If you have not received a copy of our press release, which was issued yesterday. You can find it on our website at www.omni-lite.com or e-mail [email protected] or [email protected] 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 Omni-Lite's performance based on our views of the company's business, 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 and changes in the health of the general economy, including the effects of the current U.S. financial market and U.S. global commercial aerospace markets and 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 reported financial results in accordance with International Financial Reporting Standards, or IFRS, during our call, we may also discuss or reference some non-IFRS financial measures, specifically adjusted EBITDA and its free cash flow. A reconciliation of these non-IFRS metrics is available and included in our applicable SEDAR filings and press release. Lastly, unless noted, any reference or discussion of our financial results or metrics is in U.S. dollars. I'd like to now turn the call over to Dave. Dave?

Thanks, Amy. Good morning, everyone, and thanks for joining us. I'd like to make a few comments about our second quarter 2023 performance, following comments on our current business. Second quarter 2023 revenue of $3 million marks an increase of 24% year-over-year second quarter 2022 and 12% up sequentially from first quarter 2023. Growth in the quarter was driven by a combination of increases in commercial air transport fastener products and defense electronics. Adjusted EBITDA for the second quarter 2023 was $168,000, which is a continuation of its positive trajectory and an indication of our ongoing improvements in product, production efficiency, managing costs and product pricing. Further improvements will come from more efficient production of casting products, especially in aerospace and defense platform products. Bookings for the second quarter increased to $3.5 million, up sequentially from $3.2 million in Q1 2023 and up year-over-year $3.4 million in Q2 2022. Backlog at quarter end was a strong $4.7 million, and expect the majority of the backlog to shift in 2023. Commercial aerospace fastener demand and defense aerospace fasteners and electronics. Demand continues to drive the growth in revenue for 2023 and points towards continuation for the second half of 2023. Demand is growing for commercial aerospace engine casting components, evidenced by backlog into 2024 and development orders for new casting components. A new structural fastener in an automotive entry component in airport sensor casting are in qualification phase, with the expectation of preproduction and production heading into 2024. With that, I'd like to turn the call back over to Amy. Amy?

Thanks, Dave. Dave has addressed our revenue and EBITDA outlook, so I will just make a few comments regarding our cash. Adjusted free cash flow, as defined as cash flow from operations minus capital expenditures, was a source of cash of approximately $162,000 as compared to a use of cash of $555,000 in 2022, so an improvement of approximately $717,000. We did use approximately $41,000 for CapEx improvement purchases in our manufacturing process. We are continuing to see an increase within our WIP and finished goods, indicating a movement of our backlog. We did finish the quarter again with $1.3 million in cash and no debt, which is consistent with both how we ended Q1 2023 and the year of 2022, so we continue to maintain a strong cash balance. This does complete our prepared remarks, and we would like to open the call up now for questions.

Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] And we'll take our first question from Manny [ Kramer ].

Yes. I just want to know, how the tax situation? Do you have any tax losses carried forward, or how does it effect? Hopefully, we're going to be profitable from now on. What's the tax situation?

Yes. We do have some cash tax carryforward from prior years.

And we'll take our next question from Frank [ Munesky ].

A couple of questions. You obviously are still optimistic on the casting side, but it doesn't look like there's been much progress to date. It looks pretty much flat year-over-year. Could you go into a little more -- give a little more color on why you're so optimistic for the second half of the year? And relatedly, I assume that a lot of the inventory increase and the order increase must be coming from the casting operations, if you're that optimistic.

Well, yes, I think 2 good reasons why I'm pretty optimistic. One is that there's evidence that on parts that are produced now that are on current platforms, especially into the aerospace and defense area, are -- have the same kind of profit profile that the rest of the company is at, whether it's electronics or forging. So that's number one. And number 2 is there still is a mix issue where we've got a lot of development products going on right now. So it's -- there's still a bit of product rationalization going on since we've been looking to more focus on the higher-margin aerospace and defense products and, to a lesser extent, some of the maybe other commercial or programs that don't have that profile. So that's that mix is still happening, and we're in development. So development, you don't have as much contribution in the development phase. So that's why I mentioned that there are several that are still in development. But now there has been 1 that is in Qual phase, so those are the reasons that optimistic about the future.

So that's specifically on the casting side?

Yes, specifically on the castings. Now we still -- there's some port, that automotive form part, that is in Qual 2. So yes, that's part of the whole process with aerospace and defense, you should get -- go through that qual process, you have to go through that qual process. But specifically in castings. Yes.

Yes. And is the automotive line that you mentioned, that's casting also?

No, no, that one's actually the form part. It fit -- Well, it's been a small but a very steady part of the forming business is a very specialty area in automotive. Aerospace and defense dominates that, but there is a niche there and pretty excited about that opportunity, too, so.

Great. Your SG&A, $400,000 a quarter. Is that pretty much the go-forward run rate?

Yes. We are expecting SG&A to stay in line quarter-over-quarter. We shouldn't see any major spikes in either direction.

Okay. And I've got the same question for research. You're double those expenditures. Is that -- and I assume that's because of the new qualification and new products, but does research continue to look that much?

Yes. So because we've got so much going on with these new products, more is going into research. So as those go into it then that will come down a bit. But as new products come on, yes, so that's going to come in in flows depending on what's going on for new product lines. But yes, that is why it is up pretty significantly this quarter.

Yes. I noticed that -- and I haven't seen this before and maybe I just missed it, but there's about 1.5 million shares that were held in escrow for the casting operation, and then released, I guess, at the end of this year. What -- there's are performance. Those are just pure collateral chain. So there's nothing -- no, they're not...

Yes, nonperformance. Just ordinary course in the -- the way the deal was structured, but there's no -- there was not based on the performance.

Okay. Okay. Okay. And 1 final one. You didn't mention the CalNano, which, obviously, the price increase there had a pretty good impact on your earnings. What do you -- what are you planning for that investment that you have? It's a pretty big part of your total market capitalization now.

Well, we've been -- we -- our posture has been to support where we have a lot of stake, and we're supporting certainly in any way we can without distracting from our business. Support their efforts, and we'll continue to look at it. I mean it's something -- we anticipated that there would be improvements from, let's say, 2 years ago. So it is good to see that they've made improvements, and we're -- we like the trajectory that they're on, too.

And they're still current on their payments to you?

They are, yes.

Okay. And then whether those reserves will be reversed, I guess we'll wait until the end of the year, the year-end accounting?

Yes. So we looked at it at the end of 2022, there wasn't enough there to say that we are ready to reverse that reserve. So we will look at it on an annual basis. But really, we would need to see some pretty significant payments ahead, significant EBITDA coming out of them, significant cash flow to prove that they are going to be able to pay that within a given time. So we will look at it annually. I'm not sure if it will specifically change this year, but it will be a good show to have a full 1.5 years of payments that have been on time and timely, nothing being missed. So it's just going to be something we continue to watch.

And that is an all-or-nothing frame, right? I mean, it sounds like you can reverse 1/2 of the write-off, or 100% -- yes.

I try to push a small portion of it through the last year and we said, all or nothing. That -- we can't just do a portion.

I understand. Good.

[Operator Instructions] And there appear to be no further questions at this time. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.