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

Hello, everyone, and thank you for joining today's Omni-Lite Industries Investor Call. [Operator Instructions] To get us started with opening remarks and introductions, I am pleased to turn the floor over to Amy Vetrano-Palmer. Welcome.

Good afternoon, and thank you for joining us. With me today is our Interim Chief Executive Officer, David Robbins; and Alex Ryzhikov from the Board of Directors. Our call is being recorded and will be available for playback, the details of which was in our press release issued this morning. The purpose of this call is to provide an update on Omni-Lite's financial performance and operations for our second quarter 2026 results, which was released this morning, August 19th. After our remarks, we will open up the line for any Q&A. If you have not received or seen a copy of our press release, which we did release this morning, you can find it on our website at www.omni-lite.com or e-mail at d.robbins@omni-lite.com. Before I 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 and the environments in which we operate, our future plans, objectives and business prospects and financial -- anticipated financial performance. These forward-looking statements are subject to future risks and uncertainties that could cause the 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 of the 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 Omni-Lite's SEDAR+ filings. The company disclaims any obligation to update any forward-looking statements that are discussed during this call. I'd also like to mention that in addition to reported financial results in accordance to IFRS, during our call, we may also discuss or reference non-IFRS financial measures, such as adjusted EBITDA and free cash flow. A reconciliation of these metrics, if applicable, is included in our filings and press release. Lastly, unless noted, any reference or discussion of our financial results and metrics are 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 make a few comments about our second quarter and year-to-date 2026 performance followed by comments on current business. Second quarter 2026 revenue was a record for Omni-Lite at $4.8 million. We saw strong revenue in the quarter, driven by a combination of increases in forged fastener products and electronic components. Adjusted EBITDA for the second quarter 2026 was $926,000 with a year-to-date adjusted EBITDA of $1.8 million. This EBITDA contribution reflects a -- generally a good mix of continuous production versus low-volume production of forged components and electronic components business as well as increased contribution from our casting components business. Bookings for the second quarter were $6.4 million, which represents a 1.34 book-to-bill ratio and resulted in a backlog of $10.7 million as we go into third quarter. Bookings in the second quarter generally mirrored the climate over the last 4 quarters of strong demand for forged fastener components, including newer rivet components, increased demand for missile defense-related electronic components and jet engine casting components. Our targeted new product opportunity bid visibility is in the tens of parts, which is historically healthy, and we expect to convert many in the coming quarters, which is a driver of future potential revenue 12 to 18 months out. With that, I'd like to turn the call back over to Amy. Amy?

Thanks, Dave. Dave has addressed revenue and EBITDA, and I will make a few comments regarding our cash. Adjusted free cash flow, which we have defined as cash flow from operations minus capital expenditures and adding back lease expense, was a source of approximately $132,000. We continue to be debt-free and maintain a strong cash balance of $3.1 million, which is up about $213,000 over a year ago today. We do not -- we do expect to continue to have a strong source of cash as we go through the year as receivables turn into cash. This does complete our prepared remarks, and we would like to open up the call now for questions.

[Operator Instructions] We will hear first from Rukun Duggal at Chandern.

With these last 2 earnings releases, all the work you guys are putting in is certainly showing. Wanted to talk about DP Cast a little bit because when I look at your numbers this last quarter, Canada, at least based on the numbers in your MD&A, grew 30% sequentially and became a bigger slice of the mix yet consolidated gross margins were pretty steady at about 33%. So that, kind of, suggests that DP Cast margin profile stepped up in this quarter. Is it fair to now assume that DP Cast is now reasonably profitable? And I think in May, you told us that, sort of, the contract re-up that we negotiated last year was back-end loaded. Can you give us a sense of, kind of, what DP Cast might look like in the second half once the pricing and volume fully kicks in?

Well, certainly, directionally, Q2 -- DP Cast performance in Q2 was directionally what we had predicted for a while. And yes, we continue to expect that with the contract pricing in the second half to have a positive effect. So there's always some variables around. But I think Q2, sort of, reflected an increase of -- that is attributable to better pricing and operational improvements that are ongoing.

Okay. And just to talk about, sort of, the backlog a little bit. I think last quarter, we talked about the rule of thumb that roughly half the backlog turns in the next quarter's revenue plus spot and the math worked pretty much right down in the middle of that formula this quarter. So half the $10.7 million in backlog would point to something like $5.3 million in Q3 before spot. Are DP Cast revenues or anticipated revenues also sitting in that backlog number? Or does that business run more than spot? Because if the back half loaded contract volumes aren't in the $10.7 million, then I'm guessing the second half could look reasonably better than the formula alone suggests.

No, DP Cast backlog is in there. And they've run -- all the businesses run as a combination of some -- the spot buy near term as well as some visibility. I think in my last call, I mentioned that we have a little bit more visibility than normal, but still, that rough 50%, I'd be careful thinking that that's an exact 50%, but we're still in that zone where a lot of our backlog does convert in the next quarter. But to get to -- this was a pretty good bookings quarter. They got us backlog up over 10. So I -- it does point though towards very robust revenue over the next couple of quarters when we have a backlog like that.

And just talking about backlog in a little bit more detail. Dave, I think in the release, you talked about organic expansion in fasteners and electronics. It sounds like volume and price on the installed base. Can you talk about the qualification funnel a little bit, especially with eComp at year-end? I think in May, you talked about PAC-3 content and you talked about, sort of, specific new platforms you're actively qualifying on or second sourcing? I think in your prepared remarks, you talked about -- I think it was 10 components. The more detail there, I think, would be better.

Well, it's hard to -- without getting into exact programs and their forecast to really give that much more color. But I would say that one of the drivers of this -- our recent bookings, positive book-to-bill ratio and our increasing revenue is that we -- and I, kind of, mentioned it in the -- in my narrative here was that it's a good mix of, sort of, continuous production versus low-volume production. So -- and what that translates means it's more, what I would call, programs of record that have high demand. So you mentioned PAC-3. I've mentioned that several times. So that's just one of a particularly program that has some good visibility and some ongoing needs. And there's been strong -- there's demand that's out years, right? And then I've mentioned forged collars that have a particularly strong continuous production and some pretty good visibility. So I would characterize it. So a year ago, if you listen to the tape, I mentioned that we had booked -- at the time, it was a couple of hundred thousand dollars worth of new components that in a year from now, could turn into some meaningful revenue and that's what happens, right? And so as those programs -- so usually, programs, if you hit it right, they can have some more, what I call, continuous production. So we have, I would say, several, less than 10 and more than 4 that are in that zone where we're almost nearly continuous production of either a part or a family of parts. So I think my best advice is to continue to watch our bookings. As our bookings go and if we're booking positive book-to-bill on a continuous basis or more often than not, that's the sign to look for.

On the programs as a whole, I mean, is there something structural that may make -- may make the duration and the size of bookings potentially increase over time and that becomes, sort of, a testament to how structural some of the shifts are?