Q4 2022 Cemtrex Inc Earnings Call
Greetings and welcome to the <unk> fourth quarter and full fiscal year 2022 financial results Conference call. At this time, all participants are in a listen only mode. Our COO.
And answer session will follow the formal presentation. As a reminder, this conference is being recorded.
Before we begin the formal presentation I would like to remind everyone that statements made on the call and webcast may include predictions estimates or other information that might be considered forward looking.
While these forward looking statements represent our current judgment on what the future holds they are subject to risks and uncertainties that could cause actual results to differ materially.
You are cautioned not to place undue reliance on these forward looking statements, which reflect our opinions only as of the date of this presentation.
Please keep in mind that we are not obligating ourselves to revise or publicly released or publicly release. The results of any revision to these forward looking statements in light of new information or future events.
Today's discussion we will attempt to present some important factors relating to our business that may affect our predictions.
You should also review our most recent Form 10-K and Form 10-Q for a more complete discussion of these factors and other risks, particularly under the heading risk factors.
Yes released detailing these results was issued on December 28th and is available in the Investor Relations section of our company's website <unk> Dot com.
Host today soccer, Coville, and Chief Executive Officer, and Paul <unk>, Chief Financial Officer will present results of operations for the fourth quarter and full fiscal year ended September 30th 'twenty 'twenty. Two at this time I will turn the call over to Suntrust Chief Executive Officer.
Sagar Gulf L.
Great. Thank.
Thank you operator, and good afternoon, everyone I'm pleased to welcome you to today's fourth quarter and full fiscal year 2022 financial results Conference call.
The fourth quarter was a highly transformative with highly transformative for centric divesting the non core assets Mark guests can be our subsidiaries to focus on accelerating our Viacom and Aif brands.
We see escalating demand for these businesses and believe this shift in focus to capture significant near term opportunities will help us to reach positive operating income by 2024 and maximize shareholder value over the next several years.
Okay.
This restructuring is expected to result in an operating expense reduction of over $5 2 million per year on a go forward.
We have also identified another million and corporate overhead from legal accounting and development expenses that were incurred in fiscal year 'twenty two that will not be incurred in fiscal year 'twenty three.
This will result in approximately $6 2 million and operating expense reduction to be realized going forward from November 2022.
We believe our transformation will deliver a strong balance sheet and access to capital markets to execute our growth strategy.
Our focus on Viacom comes at an opportune time as it as it is rapidly building a dominant security technology and brand focused on the VSAT solution, leveraging AI and cloud technology solutions for commercial industrial and government applications by kind of seeing growing demand for its award winning roughneck cameras and hilarious video management.
Software solutions, we believe icon can move towards $5 million to $10 million in recurring revenue over the next couple of years as a global leader in advanced security and surveillance technology to safeguard business in schools municipalities hospital in cities across the world.
Industry is rapidly shifting to SaaS solutions, leveraging AI and cloud technology solutions for today's highly dynamic environment.
Market research is predicting the global VSAT and video surveillance market will reach over $83 billion by 2030 with a CAGR of 10, 9% between 2021 and 2030.
During the quarter, we were delighted to welcome Shane content E. L O icon industries gain is.
He is an accomplished leader in the physical security industry, bringing over 20 years of experience as a CFO CTO and CTO at an industry, leading companies like Costar and telco.
He is now leading the company's global sales support operations and engineering teams.
To deliver on operational excellence, and deepen viacom's commitment to world class support and customer experience.
Shifting gears.
Industrial services business. We are also incredibly optimistic as the company is well positioned to monetize the increase in demand for predictive maintenance services re shoring of manufacturing back to the U S and increasing complexity in industrial equipment with over 35 years in the industry and high repeat business <unk> has a strong reputation as a single source industrial contractor.
And premier provider of industrial contracting services.
This is a significant source of cash flow and has a strong balance sheet empowering the ability to offer more comprehensive services due to inventory of equipment as the industrial manufacturing economy in the U S continues to thrive, we believe AI as a significant potential for expansion, particularly with bolt on acquisitions.
Tomorrow is important transformation, we have also taken the opportunity to launch a next generation Investor relations website to better reflect our forward thinking approach of the <unk> brand and enhanced communications with the investment community. We believe there is a compelling investment case to be made to both current and prospective shareholders and the site will serve as an invaluable tool to keep our <unk>.
Investors better informed of our progress and strategic vision. This site will be going live over the next few days and we will make an announcement accordingly, I will now turn the call over to Paul <unk>, our CFO to discuss the financials Paul.
Thank you Sabra.
Our revenues for the full year of fiscal year, 2022 totaled $53 million compared to revenue.
$43 $1 million for the full year 2021.
A 17% increase year over year.
The increase in revenue for the year was due to increased demand for the company's products and services.
The advanced Technology segment revenues for the years ended September 27.
30th 'twenty, 'twenty and 2021.
With $29 $1 million and $24 $2 million, respectively, an increase of 20%.
These advanced technologies segment increase was due to an increased demand for security technology products under the icon brands.
Industrial services segment revenues for the full year 2022 increased by 12% to $21 2 million, primarily due to the increase in demand for their services.
Gross profit for the year ended September 30th 2022 it was $19 $1 million or 38% of revenues as compared to a gross profit of $17 million or 39% of revenues for the year.
Year ended September 30th 2021.
The decrease in gross profit as a percentage of revenues for the year ended September 30th 2022 as compared to the prior year was due to increased cost of revenues as a result of increased costs for goods.
And increased transportation costs for those goods.
Total operating expenses for 'twenty, 'twenty, two with $35 $9 million.
Care to $25 $7 million for 2021.
The increase in total operating expenses was primarily driven by increases in personnel costs.
Insurance travel legal and research and development costs.
Operating activities for continuing operations used $16 $1 million for the year ended September 30th 2022, compared to using $10 $1 million of cash for the year ended September 32021.
Net loss for the full year of 'twenty to 'twenty two.
$13 million as compared to a net loss of $7 $8 million in 2021.
Net loss in the fourth quarter of 2022 totaled $3 2 million compared to a net loss of $9 7 million in the fourth quarter of 2021.
Cash and cash equivalents totaled $10 $6 million.
Timber 30th 2022, as compared to $11 4 million at June 30th 2022, and $15 4 million at September 30th 2021.
Inventories increased by $3 $9 million or 68% to $9 5 million at September 30th 2022.
From $5 $7 million at September 30th 2021.
The increase in inventories is attributable to the company's purchase of inventory. So the security business of our advanced technology segment to maintain sufficient stock on hand for sales to overcome recent supply chain delays and issues.
Now I'll turn the call back over to Ciber for a review of our 'twenty to 'twenty three outlook.
Thank you Paul.
In summary, with our restructuring complete and strong performance for <unk> and <unk>, we are well positioned to create long term value for our shareholders.
Looking ahead, we believe revenues for VI kind of industry based on our current demand should increase by approximately 16% to 28 million for fiscal year 'twenty three given the launch of our AI based analytic solution more improvements to our core product Polaris as well as additional sales opportunities. We also believe <unk> will continue to expand revenue.
By approximately 3% to $21 8 million driven by continued strength in the industrial services market.
Additionally, based on steps the company has taken during this fiscal year of 2023 gross profit margin percent for icon is expected to increase to approximately 48%.
Similarly based on operational improvements made we believe gross margin gross profit margin percent for Aaas is expected to improve to approximately 34% for the fiscal year 2023 for AIA.
We have taken steps to reduce expenses at the corporate level as well to drive improvement in our overall operating expenses with all the combined actions taken and we believe the operating loss over the next four quarters to be under $2 5 million.
The effects of these changes will be partially demonstrated in our December quarter performance due to the timing of the restructuring and we expect our March quarter performance to reflect the improvement more fully.
We also believe that we can reduce inventory by more than $1 $5 million over the course of fiscal year 'twenty three as we have seen supply chain constraints improve this will allow us to offset the cash loss from the expected operating loss over the next couple of quarters by the cash obtained from the reduction in inventory, reducing the burden on our overall cash position.
With approximately $10 million of cash on.
Hand in a dramatic reduction in expenses, we believe we have sufficient capital in the near term to focus on executing on our roadmap roadmap, both financially and operationally without the need for immediate capital. Our expectation is that the company reached a positive operating income in fiscal year 2024.
We continue to work to position the company on the path to a sustainable financial model for long term growth, which we believe will provide long term value for our shareholders.
I look forward to providing our shareholders with further updates in the near term I. Thank you all for attending and now we'd like to open it up for questions operator.
Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question Kim.
You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Please while we poll for questions.
Our first question is from Jason Colbert with Dawson James. Please proceed with your question.
Thanks, guys. Thanks for the update and really appreciate some of the comprehensive detail in terms of the numbers I just like to ask a big picture question. When we think about Bicorn versus AI, yes at.
It seems like the the you know.
<unk> growth opportunity exists for by Cod and <unk>.
It seems a little bit like a means to an end. So I'm just trying to understand how youre looking at the business, how youre looking at capital spending and where you see the future growth coming from.
Yeah sure so.
Yeah.
With respect to organic growth.
I think Theres no question that back on in the more compelling near term opportunity the demand in the industry is pretty high for the need for physical security and Theres a lot of disruption taking place due to incumbent technology being replaced by next generation technology, which creates an opportunity to take market share.
So in a big picture, we see an opportunity to grow there more quickly.
And I think in terms of where we'll be focusing our investment.
That will certainly be driven from that side.
I think with respect to EBITDA, yes.
The opportunities will be more driven by acquisitions, I think that with respect to AI as theres more opportunity.
To gain scale through finding a good acquisition opportunities I think for the last couple of years valuations have been.
Unusually high relative to what we think is fair value for businesses of these types.
We're starting to see valuations come down so I wouldn't say that we're sort of exclusively thinking about icon I think we're looking at both businesses opportunistically and seeing opportunities to drive growth in both.
Okay.
Actually very helpful. Because what it's telling me is that youll be opportunistic on that yeah. Yeah. So if you see the opportunity and I couldn't build free cash flow, but right.
That's right.
Okay and can you talk a little bit in terms of the icon and really some of the camera and intelligent software products. What gives you competitive edge given the fact that you're in such a highly competitive market.
To understand a little bit about you.
You know how your installed base is is.
Is looking at you and what it's going to take to get kind of some of the new bigger contracts that are out there.
Yeah, absolutely so.
<unk> has been in the industry for 55 years. So we have a strong brand right. So a lot of customers know us in the industry and that really helps.
With our credibility in terms of when we compete with other folks in the market. So person format, you know people recognize that.
And then secondly, we spend a lot of the last three years investing in our product portfolio quite substantially so our products when you compare them against our competitors they are.
Right there as far as competitive advantage in terms of pricing in terms of the feature set.
And we continue to invest in the product line to ensure that it gets there. We're also rolling out our AI analytics this month and.
That's homegrown analytics that we've built leveraging the AI technology. So.
Lot of it is really just the investments we've made starting to pay off and take advantage of the opportunities that are in the market. Today. So it's a combination of doing that on an ongoing basis.
And then we've also made investments in people right. So over the last 18 months.
Hired a number of talented individuals from our competitors, we made an announcement.
Near the end of the summer, where we brought on Hyatt until high and as you know.
A tremendous product manager has.
Great product line and helps to bring a lot of value from that perspective.
And a number of the other folks that we've got obviously, Shane just recently joining as well. So all of these guys have brought in a lot of perspective and a lot of value from many of our competitors are in terms of bringing best practices and helping us continue to charter of course that creates.
You know our own space in the market and competitive advantages so.
That's again a lot of that the other the other thing is that we really just sell end to end solution. So many of our competitors.
Yeah, they are generally selling.
A portion of the solution right and Viacom.
Is generally going to the market on a complete solution and a lot of the market, especially in the enterprise World is looking for an end to end solution and that's really how.
We differentiate ourselves so it's really a combination of all of these things that is really helping us be competitive in the market and continue to drive sales growth.
Yeah perfect. Thank you so much really appreciate the update thanks cigar.
Sure.
Our next question is from Richard Arnold who is a private investor. Please proceed with your question.
Yeah.
My question is directed to Mr. <unk>.
Yeah.
Yes, Sir Okay, what can I answer for you.
Oh the cost.
To purchase and develop the assets that were.
Divested and purchased by management led by Mr. Global that last was a quote from an article that.
Divulge a divestiture.
Sure.
I don't know that figure off the top of my head I can get back to you off this call and provide you gave me.
Can you give me a roundabout number.
Our cost to develop probably knee neighborhood.
7 million.
And how much cash.
As received from Mister Global and his lead management.
<unk> further those divested assets.
The deal was with publicly disclosed that it was a combination of cash and.
Investment opportunity within the Smart desk company and also royalties on their revenues.
How much cash was given.
Some tracks.
Mr Global.
Does management.
People.
I believe the amount was $85000.
So $7 million worth of assets.
Yes.
And his group well your first question was how much the cost to develop those companies not how much the assets where they.
How much was the net asset value of the divested assets when purchased.
About $1 billion.
So for $85000, so you've got $1 million worth of assets and then promises.
Something that may or may not happen.
Yeah, So if I may interject.
Richard.
So I can think I can sort of generally understand where you're going with it so I'll.
I'll say a couple of things one is.
When the company explored options before the asset.
You know we looked at a lot of different options and these were all money, losing businesses and so there were no buyers lining up for the evening.
So I wanted to be clear about that that the opportunity to make swift changes to the company.
We're just not that were not readily available for the company, meaning that we approach different investment bankers and we've talked to different advisors about the various often right. So because these companies were losing a lot of money that wasn't an opportunity to get a lot of cash. So it's not like I'm getting a sweetheart deal here.
There is no buyer winding up right I mean that.
The reality, Okay. The second thing is <unk>.
The company's market cap with less in cash right. So for a big part of most of 2022 and so when you think about the collection of seven different brands under the subject umbrella.
It's trading less in cash the value of these businesses.
Under this umbrella wasn't or not the market was not recognizing that value right and so the company had to make some strategic decisions and we have to do it quickly right and this was.
Discuss at the board level in terms of we need to make some strategic changes about what we're doing here and that was discussed at length in the company made an announcement around this in the.
Now it's about 111 22.
What I'm, referring to don't make myself clear.
You had a vote.
Hey.
Our board of directors from once you abstained.
Would it not have been better.
Shareholders.
These asset purchases in Europe stemming from that vote.
Yeah.
Our next question is from Richard Michigan with G. R. S capital investors. Please proceed with your question.
Yes, good afternoon, I have a couple of mundane questions not actually about the operating.
Of the company, but about some of the stock transaction. So hopefully you can help me I've.
I've been an investor.
Invested with clients and Viacom since around 2000, and so I have many years working with icon and some tracks with the preferred stock. So do you have just a moment to answer a couple of quick questions for me. Please.
I think those kinds of questions would be best directed offline I'm not sure that this would be the best for them for that but I certainly agree with that but I've made no less than five attempts to contact your company directly and through Investor Relations and I never received a call back.
So I thought I'd just ask these two questions and then maybe if somebody can get back to me some time that would be fine, but approximately what percentage of icon do you own.
There's some cross selling five person how much around 95%, 95% and 5% of the outstanding shares that are still out there I guess you would call them minority very minority holders what can be done.
Placate them and make it so you own 100% of icon.
I think Thats a question best discussed offline I'm not sure that that is necessarily in the cards, but.
I think it's something we should if you have further discussion about it would be.
There was some by cardholders that were asked to participate in the secondary never saw daylight since I've, obviously I've got some travel grapes here, but not going on I understand one question last question is some trucks preferred stock.
And then 2021 U S. A part of a dividend you you settled your Oh.
Dividend obligation and unregistered shares of stock because they were a reason for that.
Yeah. It was a little bit of a mix that has been sorted out now actually so if you reach out to Paul.
After this call. We can you know there is an opinion available through our transfer agent we can get those third unrestricted.
Appreciate that sort of havoc in my accounts at this point, we'd get charged 50 bucks a year to hold it now yes.
We can we can address that okay.
And you can contact our transfer agent.
And it's clear trust.
One that already they'd call me I need to hire an attorney get an opinion to pay hundreds and hundreds of dollars to get it done.
Yeah.
Their production I'm not sure how long ago that was but.
That's all there.
Yeah.
Our next question is from Stephen Bruckner Who's a private Investor. Please proceed with your question.
Yeah.
My my questions were actually along the lines of the last two investors, but I'm really concerned that as of early as the fall of 2021 your opinion or a rosy picture.
For your roadmap for those smart desk.
And your B R. B R products, namely the Star four scheme.
And.
And I think it was around February you made another 500000 dollar investment a masterpiece studios, making that a million dollar investment right there.
And then as early as me, you'll know what you're going to divest in all of these business units and focus on fire Con.
Yes.
So I'm just a little perplexed why your lack of foresight when you're painting, a rosy picture in the fall and then less than six months later, you're going to hold all of that is at work and we got a you know it just seems like a real lack of foresight or was it the FCC action against you on your father in the company that was temporary in your decision or could you could you just.
Expand on your on your reasoning to divesting mature. So there there are a couple of reasons for that I think.
The primary.
Driver for that was really that.
Well I won't get primary but.
And I appreciate the question so.
Pretty good.
The company.
As an owner of seven brands doing many different things did not get the value attributed for all of those seven things simultaneously and I think my.
After speaking with many investors.
Was that they didn't understand the story and it was very complicated to eight associated value with the business.
And appreciate everything that we're doing right and as a result, this was reflected in the <unk> dock right.
And.
In bringing on a new board.
This was discussed very in great length at the board that.
Bringing better focus to what we're doing as an organization would have a direct impact on creating shareholder value right. So from 2021 into the end of 2022 are you know the share price was declining substantially. Despite all of these exciting things that we were doing so it wasn't sort of my decision.
Loan unilaterally changing.
At a win here this was a combination of result.
Recognizing and seeing what was actually taking place.
With respect to the overall business the share price and so forth. The other thing I, just really want to point out is all.
All of the things that we liked about smart that can be our.
Those are long term opportunities and they will consume a lot of cash right and so if in order to do that the company needs to continually be raising capital right, which means more dilution and if the stock price is going down.
It just makes that more and more difficult right. So I mean, he viewed where the stock price is as a referendum from shareholders that the direction that we're going in is not the right one right and we needed to get back to focusing on where we can drive cash flow and where we can drive growth in the nearest amount of time and focusing on things with the most upside and then in the nearest amount of <unk>.
And that would not result in more and more and less dilution for shareholders does that makes sense.
No. It does I just want to make sure that this time I mean, you you laugh stock split in June of 2019 at an eight for one and then you refocus on smart they ask and you start calling your flagship product and you kept throwing out you know teasing everybody about something be arguing that never happened.
And then you got rid of a Rob some trucks and then you sold Griffin filters to your father and then since then you reported $50 million in losses, you're carrying $20 million in debt.
And I just wanted to make sure that you do it right. This time, because you know I've been impressed since 2014, you were looking at them.
Third a reverse split and can you say what that what.
What that Kona is gonna be.
How big it's gonna be no. We don't we don't know what the ratio is going to be right now.
So my my initial investment is pennies on the dollar so it's basically a tax write off but I would like to see some accountability for how have you been running this company I mean, it's.
You know and then now the FCC far when it comes up where your cost of the company another $2 2 million.
I mean is that.
Factor in any way or are you going to repay that or is that just a write off for the company I mean, they those FCC describes it in their filing is fraudulent conduct so I mean, I would like you to comment on that a little bit.
Yeah, I can't really comment on.
The FCC matter I think everything that we had to say has been already disclosed on that matter. So.
There's nothing really more for me to add.
It's a situation where.
Yeah.
Anytime we get into a legal battle with the I can see you have to be mindful of you know running.
Running a legal bill and all the applications that did that come with that it is a distraction to running our core business for a company our size.
So.
That's really all I'm going to comment on that but I.
I think that based on the direction, we're going right now.
Taken an enormous amount of steps to move this company in the right direction. We have a new board are all the new board members, we changed our auditors.
We've moved and shed all of our money, losing operation. We're focused on are two very well established businesses with a.
You know product market fit that have a real opportunity for growth and opportunity in this market.
We're very much focused on driving growth and making.
The improvement in the overall business and helping that translate to create more value for shareholders and I think everything that we've been doing now over the last 12 to 15 months I think has all been under that same guys and direction and we're going to continue to do that two to two two to turn this around and that's really what we're 100% focused on.
There are no further questions at this time I would like to now turn the call back over to Mr. Caldwell for his closing remarks.
Thank you operator, I would like to thank each of you for joining our earnings conference call today and look forward to continuing to update you on our ongoing progress in growth. If you were unable to answer any of your questions. Please feel free to reach out to our IR firm MZ group, who would be more than happy to assist thank you.
Yeah.
Okay.
Yes.
Okay.
Uh-huh.
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