Q1 2023 Cemtrex Inc Earnings Call
Greetings and welcome to the <unk> fourth quarter 2023 financial results conference call.
At this time all participants are in a listen only mode.
Question 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 ourself to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events.
Throughout 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.
A press release detailing these results was issued today and is available on the Investor Relations section of our company's website some tricks dot com.
Your host today sounds a global Chief Executive Officer.
And Paul <unk>, Chief Financial Officer.
Results of operations for the fourth quarter ended December 31st 2022.
At this time I will turn the call over to <unk>, Chief Executive Officer further global.
Please go ahead.
Yeah.
Okay.
Thank you operator.
And good afternoon, everyone I'm pleased to welcome you to today's first quarter 2023 financial results Conference call.
The first quarter of fiscal year 2023 was highlighted by continued topline growth as we grew sales by 27% year over year.
Additionally, the different steps, we have taken operationally have led to a gross margin improvement of 790 basis points to 42%.
Do you expect to see continued increases in our gross margin over the next couple of quarters as we drive improvements in our business.
In November of 2022, we completed the divestiture of noncore assets to focus on accelerating our Bicorn and advanced industrial services brands and reduced expenses at the corporate.
Corporate level.
This transformative business restructuring is now beginning to reflect more fully in our quarterly performance.
Overall operating income improved with the operating loss for the quarter declining by 41% and we are pleased with the progress we are making to drive better financial results.
Shifting focus.
In Q1 and going forward in conjunction with the divestiture of the company has modified its financial presentation into three segments security consisting of icon industrial services, consisting of advanced industrial services and <unk> corporate.
Year over year, improving revenues for the company was led by our security segment with a 61% increase on strong demand.
Icon is building a dominant security technology brand focused on delivering industry, leading solutions for commercial industrial and government applications.
We continue to see strong demand from customers for our award winning rough neck cameras, and Polaris video management software solutions most.
Most recently in January <unk> received a $1 5 million dollar order from a current large border protection customer in Texas, two expanded security technology system with new security solution with.
With Viacom software currently deployed at this site the new order expands the customer state of the art video surveillance security capabilities with the addition of award winning roughneck multi sensor cameras and servers.
We believe icon is well positioned for growth as the industry shift to SaaS models, leveraging AI and cloud technology solutions for today's highly dynamic environment.
Turning to our industrial services segment.
Revenue decreased slightly during the quarter, mainly due to product and services revenue recognition timing.
Continue to see increasing demand in monetizing opportunities for <unk> with the need for predictive maintenance services re shoring of manufacturing back to the U S and growing complexity in industrial equipment with over 35 years in the industry and high repeat business Aaas and significant source of cash flow and has a strong balance sheet.
Powering the ability to offer a more comprehensive services due to inventory of equipment.
As the industrial manufacturing economy in the U S continues to drive we believe there's significant potential for expansion, particularly with bolt on acquisition.
Most recently, we also announced the capitalization restructure effecting a one for 35 reverse stock split that has allowed us to regain full compliance for continued listing on the NASDAQ capital market for our common stock.
I'll now turn the call over to Paul <unk>, Chief Financial officer to discuss financials.
Yeah.
Thank you Sabra.
Revenues for the first quarter of 2023, total 12 million compared to revenue of nine 4 million for the first quarter of 2022.
And 27% increase year over year the.
The increase in revenue for the year was due to the increased demand for the company's products and services.
Security segment revenues for the first quarters of 2023 and 2022.
<unk> 7 million and $4 4 million, respectively, an increase of 61%.
The security segment increase was due to an increased demand for security technology products under our Viacom brand.
Industrial services segment revenues for the first quarter of 2023.
Greece by decreased by 2, Million% to 2% two 5 million, mainly due to timing of the recognition of revenue for segments products and services.
Gross profit for the first quarter of 2023 was 5 million or 42% of revenues as compared to gross profit of $3 2 million or 34% of revenues for the year.
I'll go period.
And the percentage increase is mainly attributed to the increased prices and lower subtract subcontractor costs.
Total operating expenses for the first quarter of 2023 7 billion compared to $6 5 million in the prior year's quarter.
The increase was due to an increase in research and development expenses for the period.
Operating loss for the first quarter of 2023 was 2 million.
41% decline as compared to an operating loss of $3 3 million for the first quarter of 2022.
Greece was primarily due to an increase in the profit.
Gross profit for the period.
Net loss for the first quarter of 2023 with $6 1 million as compared to a net loss of $4 5 million in 2021.
Net loss increased in the first quarter as compared to the same period last year, primarily due to the loss on discontinued operations.
Cash and cash equivalents totaled $5 8 million at December 31, 2022, as compared to $9 8 million at September 30th 2021.
Inventories increased $116492 or 1% two 8 million 604 $759.
December 31 2022.
From $8 million 487, 817 at September 30th 2020 to the.
The increase in inventories and attributable to inventories in transit yet to be sold.
I'll now turn the call back the saga for review of our 2023 outlook.
Thank you Paul in summary, with our restructuring complete and strong performance for <unk>.
Continued to be well positioned to create long term value for our shareholders. Looking ahead. We continue to believe revenues for Bakken industry based on our current demand should increase by approximately 16% to $28 million for fiscal year 2023, given the launch of our AI based analytics solutions improvements to malaria and additional to that.
Sales.
Furthermore, gross profit margin percentage for Viacom is expected to increase to approximately 48% for the fiscal year 2023.
We believe we will continue to expand revenues by 3% to $21 8 million for fiscal year 'twenty three given driven by continued strength in the industrial services market gross profit margin percentage for Aaas is expected to improve to approximately 34% for the fiscal year 'twenty three criteria.
With all the combined actions taken to drive business improvement, we believe the operating loss over the next four quarters can be under approximately two and a half.
The effects of these changes were only partially demonstrated in our December quarter performance due to the timing of the restructuring and we expect our March and June quarters performance to reflect the improvements 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've 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 of inventory, reducing the burden on our overall cost position with.
Approximately $5 8 million in cash our restructuring revenue growth increasing margins operating income improvement and reduction in expenses. We believe we have sufficient capital in the short term to focus on executing on our roadmap.
Our expectation is that the company will see improved financial results moving into the rest of 2023 with escalating demand for our businesses and our shift in focus to capture significant near term opportunity. We believe we can reach positive operating income by 2024.
We continue to work to position the company on the path to a sustainable financial model and 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 throughout 2023 and I. Thank you all for attending and I would like to answer some questions operator.
Thank you.
Ladies and gentlemen at this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is the question queue.
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 Keith.
Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Our first question comes from the line of Jason Kolbert from Dawson James. Please go ahead.
Cigar how are you.
Relations on the quarter and also really appreciate the guidance, which is very very solid and consistent with what you've discussed in the prior quarter.
One question I have is I'd like to understand sequentially, while the numbers are up year over year. It seems like they were down slightly sequentially and is that an artifact of fourth quarter is that typically not a great period for the company. So I wondered if you could address that.
Yeah.
Sure.
Thanks for the question Jason.
As you know in this quarter a lot of the revenue growth was driven by Viacom and <unk> business.
Is largely project driven.
Sometimes the.
The timing of when those projects are executed is not always within our control. We do have a general sense of the overall demand and the backlog and so we haven't.
Reasonable.
Affirmation that the demand is growing for those businesses, but sometime.
The timing of when projects are.
Closed or when they are executed and shipped and Invoiced will fluctuate from period to period.
There is also a little bit of seasonality so.
And that really depends on budgeting cycles for some of our different types of clients, whether it's government or schools and so forth and that does sometimes play a role.
In terms of sequentially. So we tend to analyze the business more on a year over year basis to determine our overall success in terms of whether we're improving the business and less on a sequential basis.
From a revenue perspective from an operating expense perspective sequentially certainly matters.
And talking a little bit about the large contract award associated with border security, obviously, that's a very hot topic right now and it seems to me that success in the installation and execution of that system.
Could set the stage for much much more so can you discuss a little bit about what it took to win that order and what other municipalities or border states or border municipalities.
Might be next.
Yes, I appreciate the question so with respect to border.
So due to NDA is in place, we're generally not able to talk specifics about our customers in this area. However, we do actually quite a bit of federal work with respect to border protection. If you look at the company on average over the last five years and border protection is one of our largest segment in terms of <unk>.
Individuals segment and represents probably 5% to 10% of our revenue on average.
And so.
With the unfortunate migrant crisis, there is certainly an opportunity to expand on that.
The federal government does work a little bit more slowly, but because of the current situation. There is certainly a number of different opportunities that popped up.
So we've taken some steps internally, we've created a task force and devoted to more resources towards pursuing these opportunities and I think.
We think that Theres, a lot of potential with respect to an opportunity to.
Deliver more solutions for border protection actually we have a great product called the thermal sensor that can monitor about half a mile.
Area per unit.
It's an incredible product for border protection.
I think going forward, we actually have a lot of demonstrating competency and reference customers with respect to border protection and so we're going to be spending their.
Certain amount of resources getting the word out and ramping up marketing to put these solutions out in front of new clients and a lot of the states are taking this more seriously now and I think as we make progress on those fronts will certainly keep shareholders apprised I think it's also important to remember that the U S isn't the only country chasing border issues at the moment, we do also have.
We are seeing.
Seeing we've seen growing demand internationally as law for border protection solutions, and I think based on again, the company's long history and success within border protection, We believe that we can.
Demonstrate our capabilities and garner more sales and that and border protection markets.
Thank you that's very helpful and the last question has to do with how you are breaking down the revenues I understand the Aif Spike on I saw the notes, but can you talk a little bit about what the third area was which was the nominal amount of revenue, but kind of the corporate is that is that like other.
Our legacy products and other things not directly related to by Condor Aif.
Yeah.
So from a presentation perspective, it's really too.
Separate out some of the non operating cost for the other two segments with respect to audit fees legal fees public company costs and so forth. So that's really where we put that some of those expenses in that bucket rather than.
Allocated.
Both segments.
<unk> or based on our revenue number we just breaking it out so that there's a little bit more you can drill down into the specific business operations more explicitly and I think that kind of presentation gives more flexibility as we grow and expand contract. If we added another segment I mean, it just creates a little bit more visibility in terms of how is the business doing understandable.
On basis.
Okay terrific. Thanks for the update I appreciate the questions.
Yeah.
My pleasure.
Okay.
Thank you.
Next question comes from the line of Dennis <unk> from <unk> Partners. Please go ahead.
Hi, good evening, Thanks for taking my question.
Congratulations again on a great quarter I love the direction you guys are heading in so.
So grateful that you guys got rid of that.
Business that wasn't doing well for you and I only have one concern that getting a blow your stock.
I love the direction you are heading but they do have a concern my concern is the upcoming debt that you have its juice March 30th $7 8 million.
And $9 7 million in August how are we going to address this.
Yeah.
Okay.
Yeah.
Thanks for the question Dennis So the company has a good relationship with those debtholders and.
With him in the past and will continue to work with them.
Either extend it out or find certain ways to pay it down over time.
And so we believe that there is a path there to work with the debt holder too.
Good solution, that's fair for everybody and it works well for the company and its shareholders.
And certainly on our mind and we're going to continue to work to address that as we go forward.
Because no no funding I feel like you have a real strong relationship and you guys have rolled out over many times, it's the private investor money that I'm kind of concerned about.
Because it was very short term.
Obviously, we're in a little different time than we were a year ago. So again that's.
That's my main concern I mean, my God you guys are just doing a wonderful job if you cleared this hurdle.
I'm wondering what you guys are heading for a really really blue skies.
Yes, I appreciate that Dennis yes, it's certainly on our radar.
Looking through different options and we certainly have some different options in front of us so.
We're going to continue to pursue that.
Thank you know drive it to a positive outcome.
I appreciate that and you know when I look forward to some positive outcomes I really do think you and I look forward to it.
Thank you.
Yeah.
Thank you.
Our next question comes from the line of Larry <unk> from family Office. Please go ahead.
Taking my my question I'm, just wondering if you could talk about upcoming milestones that we should be looking for to monitor and keep track of the companys progress in the near term for instance, new customers pipeline backlog.
Anything like that.
Sure. Thanks for the question Larry.
So as a company we have a lot of exciting things going on.
There's a couple of <unk>.
Key thing is to continue to look out for to kind of monitor our progress.
I think the first thing I would point out is.
We have a couple of AI related products.
We're going to be really under my time over the coming weeks or months, which we feel is going to be really exciting for our customers that they will really love it and will be a growth driver for the company as you know AI is becoming a hot topic in the media these days.
And we had been pursuing a path towards developing AI.
Within the company for the last couple of years, we believe AI is going to play a significant role in security going forward and we're intensely focused on leveraging it throughout some experience going forward. So there'll be product launches around that to look forward to Additionally, we are pursuing a number of different projects sizable projects.
I think as we continue to win customers and deals we will be making announcements about those customer wins and so I think that's another thing to keep looking out for.
We're also looking at a number of bolt on acquisitions for Aif and.
We've been in different levels of conversations with some opportunities and I think as we're able to find and execute on the REIT transaction, we'll certainly make an announcement about that.
And then lastly, I think the key thing is to just continue to monitor our quarters right. So we're continuing to make system systematic and methodical improvement in the business and I think that should continue to translate into better and better financial results as we go forward.
It's the top line gross margin improvements our operating income improvement.
On all three levels, we're taking.
A real hard look at wherever we can drive better results and so I think all of that will continue to translate into milestones shareholders can look out for over the coming weeks months and quarters.
Great looking forward to it thank you.
Okay.
Thank you.
Ladies and gentlemen, we have reached the end of the question answer session.
I would now like to turn call back over to Mr. Goldberg for his closing remarks.
Thank you I'd like to thank you all for each joining our earnings conference call today, and look forward to continuing to update you on our ongoing progress and growth.
If we were unable to answer any of your questions. Today. Please reach out to our IR firm MZ group and we'd be more than happy to assist.
Thank you for your time everyone.
Thank you Sir the conference Oh centric Bank has now concluded. Thank you for your participation you may now disconnect your lines.
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