Cemtrex Q3 2023 Earnings Call Transcript

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August 10, 2023

There are 3 speakers on the call.

Operator

Greetings, and welcome to the Semtrex Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. A 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 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.

Operator

You are cautioned not to place undue reliance on these forward looking statements, which reflect our opinions only as of the date of the presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward looking statements in light of new information or Throughout today's discussion, we will attempt to present some important factors relating to our business that may affect our predictions. Section of our company's website, centrex.com. Your hosts today are Sagar Govil, At this time, I will turn the call over to Centrix's Chief Executive Officer, Sagar Govil.

Speaker 1

Thank you, operator, and good afternoon, everyone. I'm pleased to welcome you to today's Q3 2023 Financial Results Conference Call. The Q3 of fiscal year 2023 was highlighted By a second consecutive quarter of operating profit, driven by the company's realignment and operating performance power Continued sales execution by Vicon with multiple large orders resulted in revenue growth of 36% year over year. In combination with operational improvements, the quarter led to a gross margin improvement of 200 basis points to 44%. We continue to expect increases in our gross margin over the next couple of quarters as we make further enhancements in Vicon's business.

Speaker 1

Overall, operating income was positive for the 2nd quarter in a row at $100,000 compared to an operating loss of $1,500,000 a year ago. Our quarterly performance is now reflecting our shift in focus to the Vicon and Advanced Industrial Services, or AIS, businesses. With the actions we have taken to drive business improvement and the increasing demand for security solutions, we expect to achieve a full year operating profit for fiscal We also believe that there is room within our inventory and asset base to draw extra liquidity in order to continue to maintain a healthy cash position. As a reminder, we have now modified our financial presentation into 3 segments: Security, consisting of Vicon Industrial Services, Year over year improving revenues in our Security segment were led by Vicon with a 36% increase to $9,000,000 driven by strong demand from customers For its award winning roughneck cameras and Valeris Video Management Software Solutions. Vicon orders included a Follow-up $1,100,000 order from a current large border protection customer in Texas to expand its security system with new security solutions, a follow on to its $1,500,000 order earlier in the year.

Speaker 1

Increasing modernization of the current security infrastructure is accelerating the growth of the border security market, driven in the U. K. Includes a full end to end system of Vicon's surveillance products, including hardware and software and equipped with the latest smart technologies As they are increasingly focusing on deploying the latest and greatest technologies. With Vicon on track To launch more products this year as well as continued improvements to our core software platform, Valeris, we expect to drive further growth. Through the 1st 9 months of our fiscal year, Vicon has delivered $25,900,000 in revenue, which is already more revenue Then we achieved of $23,600,000 for the full year fiscal year 2022.

Speaker 1

We believe revenues for Vicon, Based on our current demand, we'll exceed our earlier expectations of $28,000,000 for fiscal year 2023, given the growing demand for Additionally, we see further opportunity to grow our gross margin percent in fiscal year 2024. Shifting to our Industrial segment. Revenue for our Industrial Services segment, AIS, increased 5% during the quarter, mainly due to increased demand for our services. Recently, we closed on a highly synergistic acquisition as well as other service industries. Hivy provides the water treatment industry with a variety of fabricated vessels and equipment, ASME pressure vessels, heat exchangers, mix tanks, reactors and other specialized fabricated equipment.

Speaker 1

The acquisition brings over $11,600,000 in immediately accretive annual revenue and approximately $775,000 in adjusted EBITDA when averaged over the last 4 years. With this client list of commercial and industrial facilities, a seasoned team and extensive manufacturing equipment, We expect the transaction to be accretive in the Q4 of fiscal year 2023. Looking ahead, we AIS will continue to expand revenues and clearly exceed our original 3% target of $21,800,000 for fiscal year 2023, driven by continued strength in the industrial services market as well as 1 quarter of revenue with the acquisition consolidated. The gross profit margin for AIS improved to 36% for the quarter compared to 30% for the prior year quarter, driven by increased prices and lower The gross margin percent is expected to maintain or exceed approximately 34% for the fiscal year 2023 for AIF. I will now turn the call over to Paul Wyckoff, CFO, to discuss the financials.

Speaker 1

Paul?

Speaker 2

Thank you, Sagar. Revenue for the 3 months ended June 30, 2023, 2022 was $14,700,000 $12,100,000 respectively, an increase of 22%. Revenue for the 9 months ended June 30, 2023, 2022 was 42,800,000 And $33,300,000 respectively, an increase of 29%. This increase is Mainly due to the increased demand for the company's products and services. The Security segment revenues for the 3 months ended June 30, 2023 increased by 36 percent to $9,000,000 The Security segment increase was due to an increased demand for the security technology products under the Vicon brand.

Speaker 2

The Industrial Services segment revenues for the quarter increased by 5% to $5,700,000 mainly due to increased demand for the segment's services. Gross profit for the Q3 of 2023 was $6,500,000 or 44 percent of revenues as gross profit of $5,000,000 or 42 percent of revenues for the same period a year ago, mainly attributable to the increased demand for our products and services, along with increased prices and lower subcontractor costs. Total operating expenses for the 3 months ended June 30, 2023, was 6,400,000 compared to $6,600,000 for the prior year's quarter. The decrease was due to a reduction In research and development expenses for the period, operating income for the Q3 of 2023 was $100,000 as compared to an operating loss of $1,500,000 for the Q3 of 2022. The increase was primarily due to an increase in gross profit for the period.

Speaker 2

Net loss for the quarter ended June 30, An increase of 68%. Net loss increased in the 3rd quarter as compared to the same period last year, primarily due to a decrease in other income. Cash and cash equivalents And restricted cash totaled $6,400,000 at June 30, 2023, as compared to $11,400,000 at September 30, 2020 2. Inventories increased to $8,700,000 at June 30, 2023 from 8,500,000 at September 30, 2022. I will now turn the

Speaker 1

Thank you, Paul. In summary, with approximately $6,400,000 in cash, our restructuring complete, Year over year revenue growth of almost 30%, increasing margins and 2 sequential quarters of positive operating We believe we are well positioned to drive profitable growth. Looking ahead, we are highly focused on Vicon's ability to disrupt the status quo of how the security industry traditionally operates with its upcoming next generation version of state of the art surveillance cameras and VMS software. Additionally, we are looking to build on AIF's growth, leveraging the resurgence of manufacturing demand in the U. S.

Speaker 1

And seeking out further acquisition opportunities. After achieving operating profit for the 2nd and third fiscal quarters, we are optimistic we can achieve full year operating positive A full year positive operating income in fiscal year 2024, while driving attractive top line and bottom line growth. We look forward to providing additional updates in the months to come as we accelerate our efforts to build long term value for our shareholders. I thank you all for attending. And now, we'd like to open it up for questions.

Speaker 1

Operator?

Operator

We will now begin the question and answer As we have no questions, this concludes our question and answer session. I would like to turn the call the conference back over to Sagar Gavil for any closing remarks.

Speaker 1

Thank you, operator. I would like to thank you To our IR firm, MZ Group, we would be more than happy to assist. You can also email us at investorscentrex.com. Thank you all.

Operator

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Semtrex achieved its second consecutive quarter of operating profit, driving 36% year-over-year revenue growth and a 200-basis-point gross margin improvement to 44% in Q3 FY2023.
  • The Security segment (Vicon) saw revenues rise 36% to $9 million, backed by large border protection orders and YTD sales of $25.9 million, already exceeding full-year FY2022 results.
  • The Industrial Services segment (AIS) delivered a 5% revenue increase to $5.7 million and closed the Hivy acquisition, adding $11.6 million in annualized revenue and roughly $775,000 in adjusted EBITDA.
  • Overall Q3 revenue climbed 22% to $14.7 million, gross profit expanded to 44% of sales, and operating income turned positive to $0.1 million versus a $1.5 million loss a year ago.
  • Management anticipates full-year operating profitability for FY2023 and expects to remain profitable in FY2024, driven by next-generation surveillance products, VMS software enhancements, and further acquisitions.
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Earnings Conference Call
Cemtrex Q3 2023
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