Cemtrex, Inc. (NASDAQ:CETX) Q2 2023 Earnings Call Transcript May 11, 2023

Cemtrex, Inc. misses on earnings expectations. Reported EPS is $-0.74 EPS, expectations were $-0.08.

Operator: Greetings, and welcome to the Cemtrex Second 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 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 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, cemtrex.com. Your hosts today, Saagar Govil, Chief Executive Officer; and Paul Wyckoff, Chief Financial Officer, will present the results of operations for the second quarter ended March 31, 2023.

At this time, I will turn the conference over to Cemtrex Chief Executive Officer, Saagar Govil.

Saagar Govil: Thank you, operator, and good afternoon, everyone. I’m pleased to welcome you to today’s second quarter 2023 financial results conference call, a quarter, which we feel represents a true look into the company’s realignment and operating performance power. The second quarter of fiscal year 2023 was highlighted by a return to operating profit, driven by the sweeping efforts we have taken throughout the business. Sales execution by Vicon with multiple large orders resulted in revenue growth of 37% year-over-year. In combination with operational improvements, the quarter led to a gross margin improvement of 1,360 basis points to 46%. We continue to expect increases in our gross margin over the next couple of quarters as we make further enhancements in Vicon’s business.

Overall, operating income for the quarter increased to $0.4 million compared to an operating loss of $2.9 million 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 year 2024. 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 three segments: Security consisting of Vicon; Industrial Services consisting of AIS; and Cemtrex Corporate.

Year-over-year, improving revenues in our Security segment were led by Vicon with a 47% increase, driven by strong demand from customers for its award-winning roughneck cameras and Valerus video management software solutions. During the quarter, we released a new suite of AI-based analytics in an enhanced Vicon Roughneck AI Camera series, further improving our unified VMS platform for controlling video, access control, license plate recognition and other integrated applications. We view this release as the first step in our AI roadmap and ultimately believe that artificial intelligence is going to contribute massively to improving the security industry, and our product roadmap is intensely focused on leveraging these new AI tools to deliver features and benefits over the coming months and years.

Vicon orders included a recent $1.5 million order and follow-up $1.1 million order from a current large border protection customer in Texas to expand its security technology system with new security solutions. Increasing modernization of the current security infrastructure is accelerating the growth of the border security market, driven by the rise of geopolitical instabilities and an increase in border threat assessments. Another $0.8 million order for a new prison being built in the UK includes a full end-to-end system of Vicon’s surveillance products including hardware and software, equipped with the latest smart technologies to better protect prisoners, staff and public. We see demand in the U.S and internationally from corrections facilities as a growth driver for us, as they’re increasingly focused – 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, Valerus, we expect to drive further growth. We believe revenues for Vicon Industries based on our current demand, will exceed our earlier expectations of $28 million for fiscal year 2023, given, the growing demand for our products and solutions. Additionally, we see further opportunity to grow our gross margin percent in fiscal year 2024. Revenue for our Industrial Services segment, AIS, increased 23% during the quarter, mainly due to increase demand for our services. We believe AIS will continue to expand revenue and may exceed our original 3% target of $21.8 million for fiscal year 2023, driven by continued strength in the Industrial Services market.

The gross profit margin for AIS improved to 36% for the quarter compared to 29% for prior – for the year prior driven by increased prices and lower subcontractor costs. The gross margin percent is expected to maintain or exceed approximately 34% for the fiscal year 2023 for AIS. Looking ahead, we believe that continued reshoring of manufacturing to the United States as well as investments in infrastructure here will play a key role in a AI’s long-term growth. I’ll now turn over the call to Paul Wyckoff, our CFO to discuss the financials.

Paul Wyckoff: Thank you, Saagar. Revenue for the three months ended March 31, 2023 and 2022 was $16.1 million and $11.7 million respectively, an increase of 37%. This increase is mainly due to increased demand for the company’s products and services. The Security segment revenues for the three months ended March 31, 2023 increased by 47% to $9.9 million. The Security segment increased was due to an increased demand for security technology products under the Vicon brand. The Industrial Services segment revenues for the quarter increased by 23% to $6.2 million, mainly due to increased demand for the Industrial Services products under the advanced Industrial Services brand. Gross profit for the second quarter of 2023 was $7.3 million or 46% of revenues as compared to a gross profit of $3.8 million or 32% of revenues for the same period a year ago, mainly attributed to increased pricing and lower subcontractor costs.

Total operating expenses for the three months ended March 31, 2023 were $6.9 million compared to $6.7 million in the prior year’s quarter. The increase was due to an increase in research and development expenses for the period. Operating income for the second quarter of 2023 was $0.4 million as compared to an operating loss of $2.9 million for the second quarter of 2022. The increase was primarily due to an increase in gross profits for the period. Net loss for the quarter ended March 31, 2023, was $0.6 million as compared to a net loss of $4.7 million in 2022. Net loss decreased in the second quarter is compared to the same period last year, primarily due to the higher revenues and higher gross profits. Cash and cash equivalent totaled $6.6 million at March 31, 2023 as compared to $9.9 million at September 30, 2022.

Inventories increased $8.6 million at March 31, 2023 from $8.5 million at September 30, 2022. I will now turn the call back to Saagar for a review of our 2023 outlook.

Saagar Govil: Thank you, Paul. In summary, with approximately $6.6 million in cash, our restructuring complete revenue growth, increasing margins, operating income improvement, and reduction in expenses, we believe we are well positioned to execute on our roadmap. With achieving a critical milestone of operating profit for the quarter, we are optimistic for the year ahead and the ability to achieve a full year positive operating income by fiscal year 2024, while driving attractive top 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 look forward to providing our shareholders with further updates throughout 2023. I thank you all for attending. And now I would like to open it up for questions. Operator?

Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question is from Jason Kolbert with Dawson James. Please proceed with your question.

Operator: Thank you. Our next question is from Allan [ph] Rosenthal with Scarlett Knight Capital. Please proceed with your question.

Operator: Thank you. There are no further questions at this time, I would like to turn the call back over to Mr. Govil for any closing comments.

Saagar Govil: Thank you, operator. We would like to thank each of you for joining our earnings conference call today and look forward to continuing to update you on our progress and growth. If we were unable to answer any questions today, please feel free to reach out to our IR firm and regroup [ph] who’d be more than happy to facilitate or response. Thank you and have a good evening.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.