Syntec Optics Q2 2024 Earnings Call Transcript

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August 15, 2024

Key Takeaways

  • Q2 net sales reached $7.0 M, exceeding guidance and up 12% sequentially on a 20% jump in product sales.
  • Year-over-year net sales declined 9% due to a combined $1.9 M decrease in custom tooling and nonrecurring engineering revenues.
  • Adjusted EBITDA swung to a $1.32 M profit in Q2 from a $0.7 M loss in Q1, reflecting cost reductions and operational efficiencies.
  • Q3 revenue is projected at $9.5 M–$11 M with stable or improving gross margins and a goal of net income positivity in H2 2024.
  • Syntec is targeting multi-million-dollar annual run rates in space optics, AI data-center lenses, biomedical disposables and night vision products over the next 2–3 years.
AI Generated. May Contain Errors.
Earnings Conference Call
Syntec Optics Q2 2024
00:00 / 00:00

There are 3 speakers on the call.

Operator

Good afternoon, and welcome to Synthetic Optics Holdings, Inc. 2nd quarter earnings call. My name is Drake, and I'll be your operator for today's call. As a reminder, this conference call is being recorded. At this time, all participants are in a listen only mode.

Operator

I'll now turn the call over to Dean Rudy, Syntyc Optics' Chief Financial Officer. Please go ahead.

Speaker 1

Thank you, operator, and welcome everyone to Syntech Optics' 2nd quarter earnings call. Al Kapoor, Chairman and Chief Executive Officer of Syntech Optics, will join me today for a call to discuss the company's financial and operational results for the Q2 of 2024. Here's a few quick reminders before we start. First, today's call is being webcast, and our press release can be accessed along with it on the Investors section of the Company's website, www.syntecoptics.com. 2nd, we'll make forward looking statements based on current expectations during this call.

Speaker 1

Actual results may differ due to factors noted in today's release and in our periodic SEC filings. Finally, we will reference some non GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure are included in today's release and on our website. With that, I will turn the call over to Al.

Speaker 2

Thank you, Dean, and thank you to everyone joining us today for Syntech Optics earnings call. For those of you who are newer to our story, I will begin by taking a few minutes to give you some information about Syntech's strategy and how we're executing it. Syntech Optic strategy is to lead the large yet often what we think an overlooked market for light enabled products by offering a diverse product portfolio tailored to blue chip customers' needs. This approach leverages our operations strengths and is built on solid foundation that is financially sound. To achieve this, we are focusing on the following.

Speaker 2

One, we will grow by having a large target as addressable market, which is the rapidly expanding segment of the global economy driven by light enabled technologies. This is not small. It is 11% of the total global GDP for SBIE 2022 report. 2, within this large target, we will add acyclical end markets by focusing on recession resistant markets, including communications, defense, biomedical and consumer sectors. 3, we will leverage existing strengths in such end markets by utilizing our existing customer base, market presence and operational capability to support all new product launches, capitalizing on our unique abilities across horizontal diverse technologies.

Speaker 2

4, employee retention will complement our leverage of strengths. We aim to maintain what we currently have 1 in 5 employees with over 10 years in service, continuing our commitment to being the best place to work for in our community. 5, we will continue to build relationships with blue chip customers and expand our business with industry leaders across all end markets, including new products in Space Optics and Biomedical Optics. Our ability to be strong supply chain partners makes us a safe and dependable choice for their high precision products. Next, we will also continue to develop products around core capabilities, enhancing our competitive advantage by building 20 years of innovation, manufacturing expertise, trade secrets and patents.

Speaker 2

And this way, we will continue to generate stakeholder value. We are executing this Syntech strategy by continuing to be a leading provider of mission critical optics and products to advanced technology partners in defense, biomedical and communications equipment. Our operations span the development of advanced manufacturing processes, the design and assembly of mission critical products, the integration of these products and other innovative ancillary components into subassemblies for subsystems and marketing and selling these subsystems into diverse set of markets, including biomedical disposable, biomedical defense, consumer and communications end markets. We market mission critical optics through our blue chip customers, advanced technology integrators and OEM customers who rely on optoelectronics, light enabled devices and intelligence that requires high precision and reliability. We have a 90,000 square foot facility, vertically and horizontally integrated advanced manufacturing facility in Rochester, New York, where we are headquartered.

Speaker 2

Syntech wins in the marketplace because our customers appreciate our unique ability to achieve tough specifications at benchmark costs by deploying our patent portfolio combined with our proprietary manufacturing trade capabilities. Before discussing our growth opportunities and some of our other operational highlights, I will turn back to Dean to review our financial and operating results. Dean?

Speaker 1

Thank you, Al. I will now review our results for the 3 6 months that ended in the Q2. All figures are GAAP unless otherwise noted. At the previous earnings call, we provided guidance for Q2 2024 revenue to be between $6,400,000 $7,000,000 I'm excited to report that our revenue came in just above $7,000,000 as anticipated. The $7,000,000 in net sales for the 3 months ending 2024 was an increase of about 12% compared to $6,300,000 in Q1 of 2024.

Speaker 1

Those sales decreased by about 9% year over year compared to $7,700,000 in 2023. Sales from products increased 20%. The decrease in net sales compared to the prior year is due to decreases in our customer tooling and non recurring engineering revenue streams. Custom tooling revenue decreased by 800,000 for the 3 months ending 2024 compared to 2023, and nonrecurring engineering revenue decreased by 1,100,000 for the 3 months ending 2024 compared to 2023. For the 3 months ending June 2024, product revenue was 7,000,000 as compared to 5,800,000 in 2023, a 20% increase.

Speaker 1

This demonstrated we were able to convert our engineering and tooling efforts to increased production sales. The Q2 of 2024 adjusted EBITDA was 1,320,000 for the 3 months ending 2024, compared to a negative $700,000 adjusted EBITDA in the Q1 of 2024 $1,800,000 in 2023. The increase over the previous quarter was achieved by a reduction in accounting and production related expenses. Contributing factors to the year over year decrease include a 2000000 decrease in gross profit and an increase in general and administrative expenses to enable future product launches. The company ended the Q2 of 2024 with an unused $3,700,000 line of credit, an unused $4,800,000 equipment line of credit and a pay down of 3.2% principal on other commercial bank lines during the quarter.

Speaker 1

Our net income for the 3 months ending in the Q2 of 2024 was 300,000 or 0 point 0 $1 per share, up from a negative $1,200,000 or negative $0.03 per share in Q1 of 2024 and compared to $600,000 or $0.02 per share for Q2 2023. Before turning the call back over to Al, I would like to discuss our expectations for the Q3 of fiscal 2024. Our recent increases in ongoing sales into the communications, biomedical and defense industries are expected to accelerate in the Q3, particularly within the communications end markets, which include space optics and artificial intelligence deployment driven by data center micro lens arrays. We also anticipate growth in our mission critical products for integrated optical scopes driven by military equipment modernization strategy of the U. S.

Speaker 1

Defense Department. As such, Q3 2024 revenue is expected to be in the range of $9,500,000 to $11,000,000 We expect our gross margin to hold level or slightly improve based upon the profitability of products that are ramping up. General and administrative costs are expected to increase modestly to enable ramped up engineering, quality and pilot production to support continued strong growth into the Q4. Looking to the Q4, we anticipate continued strength from communications and biomedical markets with additional growth coming from defense based product launches. Lastly, we expect to be net income positive in the second half of the year, enabling further investment to energize our continued growth.

Speaker 1

With that, I will turn the call back to Al to provide additional color on our growth initiatives.

Speaker 2

Thank you, Dean. Last year, we expanded into space communications that Dean talked about and continue to grow sales in this sector. This aligns with our strategy to diversify across markets, enhancing recession resilience alongside with our products in defense, biomedical and consumer end markets. These 4 light enabled end markets Syntech has entered are sized by SBIE nearly $1,500,000,000,000 in combined total global revenue. Syntech Optics is poised to rapidly expand our market presence in these end markets.

Speaker 2

Our products are propelled by tailwinds as we move towards laser based satellite communications versus radar based for low latency, biomedical automation, defense equipment modernization and onshoring. Mission critical products use proprietary techniques that provide an economic model. In addition to our steady, mostly 10 year life cycle products constituting our existing portfolio, our new product launches will enable strong growth into 2025 and 2026. We aim to grow our new additions to the disposable optics product line to about $10,000,000 in annual revenue within 3 years. Our Space business has already reached a nearly $6,000,000 annual run rate.

Speaker 2

And our data center business that's AI based is beginning to generate about $3,000,000 annually and will expand significantly into the 3 year time horizon in the 3 year time horizon. We expect our new biomedical nano precision optics line to reach a $3,000,000 annual run rate this year. Additionally, our night vision optics business currently at a $3,000,000 annual run rate is projected to grow to $10,000,000 per year within 2 years. Syntech is a unique provider of high performance cost effective optics for various night vision configurations. These existing product launches have the potential to double our sales organically.

Speaker 2

SimTek is also actively pursuing acquisitions to strengthen our position in the light enabled marketplace. We are excited about our future and the progress we have made so far. With that, I will turn the call to the operator who can close it.

Operator

Ladies and gentlemen, thank you for your participation and interest in Syntek Optics. This concludes today's event. You may disconnect your lines and enjoy the rest of your day.

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