Omni Lite Industries Canada Inc

XTSX:OML

Earnings Call Transcript

[Operator]

Good day, ladies and gentlemen, and welcome to the Omni-Lite Industries First Quarter 2024 Financial Results Conference Call. Our host for today's call is Amy Vetrano-Palmer. [Operator Instructions].

I would now like to turn the call over to your host, Ms. Vetrano-Palmer, you may begin.

[Amy Vetrano-Palmer, executive]

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 Omni-Lite's financial performance and operations as we filed our first quarter 2024 results yesterday, May 16th. After our prepared 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, you may find it on our website, www.omni-lite.com or e-mail [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 we 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 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, U.S. and global commercial aerospace markets, the U.S. defense, and 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 International Financial Reporting Standards, or IFRS, during our call, we may also discuss or reference some non-IFRS financial measures, including 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, all reference or discussion of our financial results or metrics are in U.S. dollars.

I would like to now turn the call over to Dave. Dave?

[David Robbins, executive]

Thanks, Amy. Good afternoon, everyone, and thanks for joining us. I'd like to make a few comments about our first quarter 2024 performance, followed by comments on our current business. First quarter 2024 revenue was a record-breaking $4.3 million, which marks an increase of 57% from first quarter fiscal year 2023 and a 29% sequential increase over fourth quarter of 2023. Adjusted EBITDA for the first quarter of 2024 was $884,000, the result of operating leverage on increased revenue, a favorable mix in revenue profile and a continued improvement in operating margin in our casting business.

Revenue increase was a combination of increased production rate demand on mature component content products, and new products engineered in 2023 that started into initial production in 2024. Bookings for the first quarter were $3.7 million, which keeps backlog at a healthy $6. 5 million as we go into the second quarter.

Generally, our business conversion profile is 80% to 90% of our backlog converts to revenue in 2 to 2.5 quarters, and 20% to 30% of bookings in a quarter convert to revenue in that quarter. This dynamic reflects the supply chain with a mix climate of rush demand or spot buy and planned buying. The backdrop for this is a landscape of large footprint manufacturers struggling to produce product because of raw material supply disruptions, diminished skilled labor resources and increased regulatory environment, coupled with onshoring efforts for reliable suppliers has created an opportunity for small, agile, qualified manufacturers to gain market share. This is especially prevalent for aerospace and defense-related specialty components of which Omni-Lite has capability to engineer and produce.

In general, this is and what has been the thesis behind what is driving our revenue growth and profit profile.

Following on from remarks from Q4 2023, newly designed high-temperature fastener components and missile sensor electronics are playing a large role in the revenue growth in 2024.

With that, I'd like to turn the call over to Amy. Amy?

[Amy Vetrano-Palmer, executive]

Thanks, Dave. Dave addressed our revenue and outlook, so I will make a few comments regarding our cash. Adjusted free cash flow, which is defined as cash flow from operations minus capital expenditure was a source of approximately $112,000. We did use approximately $148,000 for CapEx purchases for improvements in our manufacturing process throughout the year -- throughout the quarter. We do expect to see a better source of cash as we go through the year as receivables turn into cash. We did finish the quarter at $1.1 million in cash with no debt, which is consistent with how we ended 2023, and we continue to maintain a strong cash balance.

This does complete our prepared remarks. We would like to now open up the call for questions.

[Operator]

[Operator Instructions] Your first question comes from Emmanuel Kramer, an investor.

[Unknown Shareholder]

There is [indiscernible] for the quarter. I don't know, getting, hearing the news every day some problems with Boeing and penalties and fines and anything else, how does that affects you in the past and in the future. And also the cost of raw material, we see copper are going -- the prices going up through the roof, how would that affect you on your margins?

[David Robbins, executive]

So with respect to issues at Boeing, I mean we're on many platforms. We're on a lot of the new advanced aircraft with some engineered fasteners. We're seeing the -- even though there's problems, the build rates are still in growth mode, irrespective of those issues you mentioned. And we're seeing it real time with continued expansion across -- and we're not on any one -- we don't have high concentration on any one platform. So we're still seeing double-digit growth across that.

And with respect to product pricing with raw material, we've talked about it in the past few quarters and continue to, we're passing along price increases to our customer as we see raw materials, they've been very volatile. So we've been able to pass on the majority of those costs in most cases to our customers.

So the parts are needed. In many cases, that's -- my comment about spot buy is that there's shortages of components in many cases. And we have the ability to pass along those cost increases of raw materials to the customer.

[Operator]

[Operator Instructions] Your next question comes from Frank Ginesky, an investor.

[Unknown Shareholder]

A couple of quick ones. I was kind of astounded at your SG&A expense, it went from 17.5% of sales to 7.5% in the quarter, a decline of almost [ 150,000 ]. Any detail behind that? Is that a projected run rate for the rest of the year? Or was there something extraordinary there, either in the last year or this year that made that decline so much?

[Amy Vetrano-Palmer, executive]

Yes. So in terms of the year-over-year comparison, there were some costs in last year that we do not have currently in this year, that probably accounted for about $50,000 to $75,000 of that change. And then the remaining of that is what we will continue to see going forward.

So we do project to be around the 10% -- between 10% and 15% SG&A rate. It was a little bit less for this quarter due to some adjustments that we had to make, but we do anticipate that to be significantly lower than it was early last year.

[Unknown Shareholder]

Yes, that's great performance. The next question is on the tax rate. It looks like current and deferred like 38% tax rate, is that what you're expecting for the remainder of the year?

[Amy Vetrano-Palmer, executive]

Yes. As we get close to filing our taxes for 2023, we will look at kind of what we've got out there for 2024 to adjust potentially as needed. The other piece that pulls in is that typically, we're only putting out the accrual that's there on the U.S. book. So it really comes down to what's there for the U.S. income versus the Canadian income. So it does appear sometimes like it's high, but it is potentially because of that difference. But it is something that we visit on a quarterly basis and are in constant communication with our tax experts as well.

[Unknown Shareholder]

Okay. So for the remainder of the year, for modeling, 35% to 40% tax rate should be what I put in?

[Amy Vetrano-Palmer, executive]

Yes, I would do between 30% and 35%, I think, would be the going rate going forward.

[Unknown Shareholder]

Okay. No, your comprehensive income. You had obviously a $1.3 million gain from Cal Nano. Any thoughts that, that position is pretty sizable now on your balance sheet. Any thoughts on what you might -- how you might be addressing that going forward?

[Amy Vetrano-Palmer, executive]

Dave?

[David Robbins, executive]

I guess I want to understand the question. It is what it is, but you're talking about just the Cal Nano investment as a whole. We're still evaluating the many opportunities that this presents for a positive return to Omni-Lite shareholders over time.

The good news is that they're doing well and it's being reflected. And we'll look to have a positive impact on Omni-Lite shareholders.

[Unknown Shareholder]

So, obviously, the debt to you is money good now, correct?

[David Robbins, executive]

Yes, they're current, and they're paying. Yes, that's -- and of course, with the reversal last quarter, that sort of reflected the currency that it was not a loan that was impaired in any way.

[Unknown Shareholder]

Yes. And one thing, and you mentioned part of the strength has come from newly developed products that are now going out in production. But in your press release, you also say going ahead you expect the conversion of new product orders into initial phase of production. Could you explain what that means? New product orders are one thing and then an initial phase of production. What does that mean? Are they ramping up quickly? Is that what that implies?

[David Robbins, executive]

So going back to my Q4 or Q1 of early 2023, I mentioned that 10% of our revenue increased at that time was on new product development, and that the implication can be that it has a 2x to 3x when it gets from an engineering order to initial production or it can have a 2x to 3x multiplier on it. And it converts in 12 -- to typically anywhere from 9 to but more like 12 to 18 months, it will start to convert at that increased rate. So in a sense, that's exactly what happened. Those bookings in early 2023 that roughly were 10% of the makeup contributed to our Q1 revenue, and it showed up a little bit in strong bookings in Q4 and then backlog. So that's sort of the math there.

So when they start to initial production, it doesn't necessarily -- it can have varied rates. That's why I mentioned it to 3x, because it might start at 2x and then progress to 3x.

A lot of these programs are very long run programs, you get on the program, the benefit of being in aerospace and defense is, it's a bit of an annuity. You get on these programs. And they have their ups and downs. It's not constant production and their rates can vary, but you can enjoy that year-over-year. So -- that's really all that comment is meant to say is that we continue to have new product starts, which can drive future growth.

[Unknown Shareholder]

And those new products, would they be on new platforms or additional products on existing platforms typically?

[David Robbins, executive]

Most of -- predominantly same platform, but there are some new platforms happening, especially on the electronics side, there are some new platforms that are happening. So it's a combination.

[Unknown Shareholder]

Nice quarter.

[Operator]

[Operator Instructions] At this time, there appear to be no further questions. I'd like to turn the call back to management for any further remarks.

[Amy Vetrano-Palmer, executive]

We would like to just thank you again for joining us today, and we look forward to talking with everyone as we release the Q2 results here shortly. Thank you.

[David Robbins, executive]

Thank you.

[Operator]

This concludes today's first quarter 2024 financial results, Omni-Lite Industries conference call. Thank you for attending. Have a wonderful rest of your day.