Q4 2023 Cemtrex Inc Earnings Call

Presentation

Operator

Yes, greetings, and welcome to the Centrix Fourth Quarter and Full Fiscal Year 2023 financial results conference call. (Operator Instructions) 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, and 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 that particularly under the heading Risk Factors, a press release detailing these results was issued on December 21st and is available in the Investor Relations section of our company's website, centric.com.
Your host today, Mr. Sanger Gao, Chief Executive Officer and Paul Wyckoff, Chief Financial Officer, will present unaudited results of operations for the fourth quarter and full fiscal year ending September 30th, 2020. At this time, I will turn the call over to Sanjay Centrex, Chief Executive Officer. Santiago?

Thank you, operator, and good afternoon, everyone. I'm pleased to welcome you to today's fourth quarter and full fiscal year 2023 financial results conference call. The fourth quarter of fiscal year 2023 was highlighted by a third consecutive quarter of operating profit driven by the Company's realignment and operating performance improvements for the full year, Centrix had revenue of $59.7 million, an increase of 33% in combination with operational improvements.
The full year also led to a gross margin improvement of 680 basis points to 44%. We continue to expect increases in our gross margin going forward over time as we make further enhancements in our businesses.
Overall, fourth quarter operating income was positive for the third quarter in a row at $0.2 million compared to an operating loss of $3.1 million a year ago. We also believe that there's room within our inventory and asset base to drive share liquidity in order to continue to maintain a healthy cash position.
Revenues in our Security segment were led by ICON with full year revenues improving 46% to $34.7 million, exceeding our earlier expectations of $28 million for fiscal year 23 revenue was driven by orders from border protection correction facilities and other customers for our award-winning roughneck cameras and Volaris video management software solutions back on orders included a large Correctional Facility and current and customer that upgraded security technology system with the new Volare software and hardware with a 1.5 million order 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.
As customers seek to modernize their current security and infrastructure of ICON continues to stand out with its advanced technologies and products. Recently, Viacom launched a new cloud security platform called an RVO that integrates video access and Intercom into one easy-to-use system powered by AI and faced face based authentication.
This new cloud platform allows us to create more value and create more value in our business over time by evolving Viacom into a recurring revenue business model.
Additionally, with AI at the core of our roadmap and an IBM, we're excited to layer in new capabilities and benefits for our customers to deliver the most cutting edge security solutions over the months and years to come with the launch of an audio along with continued improvements to our core software platform.
Polaris, we expect to drive further growth and see additional opportunity to grow gross margin percent in 2024.
Revenue for our Industrial Services segment, AIS. increased 18% during the full year to $25 million, exceeding our original target of $21.8 million for fiscal year 2023 and up from $21.2 million in 2022.
The increase was mainly due to increased demand for our services and supported by the close of our highly synergistic acquisition from highly mechanical based in Columbia, Pennsylvania and he is focused on steel fabrication and contracting primarily to the commercial and industrial water treatment industry as well as other service industries.
Highly provides the water treatment industry with a variety of fabricated vessels and equipment, including a SME pressure vessels, heat exchangers, mix, tanks, reactors and other specialized fabricated equipment with the acquisition enabling area to expand into new markets, including government and industrial verticals.
During the quarter, AIS. received a million dollar order for the Pennsylvania Stewart town Stewart's town borough authorities, Stewart's down wastewater treatment, sludge dewatering improvements, projects.
The acquisition brings over approximately $11 million in immediately accretive annual revenue and approximately 775,000 in adjusted EBITDA when average over the last four years for this client list of commercial and industrial facilities, Seasons team and extensive manufacturing equipment.
The transaction was accretive in the fourth quarter of fiscal year 2023, along with the business purchase. The Company also acquired the real estate, the business occupies in Columbia of Pennsylvania.
We see the gross profit margin for areas improved to 34% for the year compared to 30% for the year prior, driven by increased prices and lower subcontractor costs.
I'll now turn the call over to Paul Wyckoff, CFO, to discuss financials of.

Thank you, Saagar revenue for the full year of 2023 totaled $59.7 million compared to revenue of $45 million for the full year of 2022, a 33% increase year over year.
Revenues for the fourth quarter of 2023 were $16.9 million compared to $11.8 million for the fourth quarter of 2022, an increase of 44%.
The increase in revenue for the year was due to increased demand for our company's products and services security segment revenues for the years ended September 30th, 2023 and 2022 were $34.7 million and $23.8 million, respectively, an increase of 46%.
The increase was due to an increased demand for security technology products under the Viacom brand. Industrial Services segment's revenues for the full year of 2023 increased by 18% to $25 million, primarily due to the increase in demand for its products and services and the additional revenue from the business related to the acquisition of high highly mechanical.
Gross profit for the full year of 2023 was $26 million were 44% of revenues compared to gross profit of $16.6 million or 37% of revenues for the same period a year ago, mainly attributed to increased demand for products and services, along with increased prices and lower subcontractor costs.
Fourth quarter gross profits of $7.2 million increased 58% from $4.5 million in the prior year's quarter fourth quarter.
Total operating expenses for 2023 were $27.3 million, of which 6.9 million were incurred in the fourth quarter.
Total operating expenses for 2022 with $30.7 million decrease in total operating expenses was primarily primarily driven by decreases in depreciation, legal and accounting fees and research and development expenses related to the security selling segments, development of proprietary technology and next-generation solutions associated with security and surveillance.
I'm software operating loss for the full year of 2023 improved to $1.3 million as compared to an operating loss of $14.1 million for the full year of 2022 due to increased revenues, increased gross profit and reduced operating expenses.
Operating income for the fourth quarter of 2023, it was $0.2 million as compared to an operating loss of $3.1 million for the fourth quarter of 2022. The increase was primarily due to an increase in gross profit for the period.
Operating activities used $2.3 million worth of cash for the year ended September 30th, 2023, compared to using $16.1 million for the year ended September 30th, 2022. Net loss for the full year of 2023 was $9.3 million as compared to a net loss of $13.3 million in 2022.
Net loss in the fourth quarter of 2023 totaled $1.2 million compared to a net income of 0.09 million for the fourth quarter of 2020 22.
Cash and cash, including equivalents and restricted cash, totaled $6.3 million at September 30th, 2023 as compared to $11.5 million at September 30th, 2022. Inventories increased to $8.7 million at September 30th, 2023 from $8.5 million at September 30th, 2022.
I will now turn the call back to Saagar for a review of our 2024 outlook.

Thank you, Paul. Looking ahead, we are highly focused on delivering larger operating profits by driving top line growth while maintaining tight cost control measures in our two operating businesses.
Micron has the ability to disrupt the status quo of how the security industry traditionally operates with its novel next-generation version of state-of-the-art surveillance cameras and VMS software.
Additionally, we see continued opportunity for organic growth in subsequent bolt-on acquisitions at AIS. that will drive attractive returns going forward for us.
After achieving operating profit consecutively for three quarters, we are committed to achieving positive operating income in fiscal year 2024 on a full year basis in 2023, we demonstrated our commitment and focus to delivering attractive operating results, and we are confident that as we stay on this path, we can deliver strong long-term value for our shareholders going forward.
Thank you all for attending this call. And now we'd like to answer your questions.

Question and Answer Session

Operator

Operator as usual, at this time, we'll be conducting a question and answer session. (Operator Instructions)
And our first question comes from the line of Larry will hold with old family office Please proceed with your questions, but congratulations on another great quarter.

A couple of questions if you have time. First one is can you talk more about any traction you're seeing already and Avio.

So our So we just started getting that product out in the field and we're starting to get some early pilot projects with them. So it's a new project, a new product rather. So it's going to take a little bit of time to really explain it and get some of these systems set up, but we're already getting interest in the product, and we're going to start ramping that up into 2024.
So with any new product, it's just a little bit of a learning curve for folks. And we have to mobilize the whole organization to really ramp up these efforts. But the interest is certainly there, and I think we're going to certainly start to hit on some solid momentum into 2024.

Great, thanks.
And just the second question is, can you provide any additional updates to the anticipated Viacom growth beyond what you've already messaged?

Yes. Listen, I think generally speaking, the demand for Viacom products is growing. We have a great products and services from our cameras to the current Volaris offering and as well as with an audio.
So I think in terms of our core offering that's generating more and more interest in the organization's products. And so especially many of our core customers are getting more and more interested in improving and updating their security system and leveraging the latest and greatest technology.
So we are seeing demand sort of pull through from that. I think generally speaking and globally, the demand for security solutions is just increasing naturally just because of the world that we're living in today with wars and crime and so forth.
So I think from a macro perspective, we have a tail. And then in terms of what we're doing sort of at the micro level within our own company, we're able to drive growth, right. And so and I think in terms of our product roadmap to we have a lot of exciting things to look forward to.
So Inovio in terms of what does exist today is really just the first incarnation, and we have more features as far as AI that we're looking to do. We have some exciting new hardware that we're going to be launching next year, too.
So we're constantly and putting out new products into the market. And we have an exciting product roadmap. And I think everything we're doing is kind of layering on top of each other. This is not the kind of industry where you come out with Can-Am some hot sexy product and you conquer the world.
Basically icon has been around for 55 years and we want to steadily continue to build on the legacy that we have established in the market. And that just comes from continuing to serve our customers well, continuing to deliver exciting new products that improve their overall security environment and so forth.
So I think we're doing that and we're steadily gaining more and more momentum each year as we continue to execute.

And then any new markets that you're thinking about entering leveraging and utilizing AI?

Can you just repeat that question I got on.

But can you talk about any new markets that you're considering entering with the leveraging and utilization of artificial intelligence?

You mean outside of core markets or.

Yes, you mean or even within right, if there's a new, if there's a new channel or segment because I mean, I guess to the point, I did see yesterday's various news, right? The integration of VMS, into other words, AI. visual gun detection systems. So you're kind of thinking along that lines and how maybe those kinds of things position you for an expanded reach, for example, into the municipal and government security segment?

Yes. So I think in terms of how we think about a I think, yes, I mean, this could be a long answer question, but I'll do my best. So basically, we want to the way we see our growth in this industry is by focusing on delivering value to customers who are willing to pay more for better and better security solutions.
So what I mean by that is you think about organizations that require better and better security and they're willing to pay for their organizations like hospitals like universities, schools and so forth. It, right.
So we really focus on sort of that part of the market where they need a professional grade solution or an enterprise-grade solution.
And so there's a number of verticals and that those markets that we serve already quite well in terms of corrections, border protection allows us can do a number of schools, healthcare as well.
And really for us, it's not necessarily about expanding outside of that, but it's about building better and better solutions so that we can take more and more market share within those areas where there's a higher and that declining because we think that ultimately it's about growing from the solution sales and for and for all the solution sales that we make, we sell more and more software right.
And ultimately, the more software we sell, the more stickiness there is with their customers and the more we can grow our gross margin. And that's really the sort of North Star in terms of how we think about success in this market and what sort of drives how we think about it.
So we wouldn't we wouldn't want to use AI to go capture a part of the market where there isn't a lot of and willingness to pay for that incremental innovation, right?

So if that's helpful, like I know very often think Thank you very much for your time. Appreciate it.

Operator

Our next question comes from the line of Alan at Rosebel with Scarlet Knight Capital. Please proceed with your question.

Ryan, got a great quarter. Thank you for taking my questions. I have two on. Can you discuss the geographic composition really of the Viacom business that's growing so rapidly right now? How much is domestic here in the United States, how much is Barnes and then a little add-on to that? And also, you know, kind of where you see the growth and you know, in each, whether it's, you know, outside the USA versus inside?

Yes, sure. Happy to talk about that. So as we think about this past fiscal year, I would say most of the growth came domestically. And so I would say it's almost it's probably 85, 90% in the US or domestic, I'd say probably 85% and 15% international come out of that 30, 34% and 34 million.
Again, that's just me off the cuff here. But so I think what's interesting really about this moment in time is that they're just in the United States. There's enormous growth in terms of the need for security for organizations that hadn't been as serious about it before.
So schools, for instance, right religious institutions to merchants on the Pentagon's. So they are now all spending more money than they ever had to because of just the nature of the world we live in today, and so we are seeing growth here, right? And then obviously, the innovation is driving the adoption of new technologies, AI. and so forth.
So I think that's going to be the growth driver here in the US Internationally is a little bit of a different story and what's really driving that? There is just the growing middle class and the growing economies around the world, whether it's Saudi Arabia, whether it's India, Indonesia, Malaysia, and some of these economies that are starting to boom and have extremely high growth.
And so in those economies you're seeing a more widespread deployment of security solutions because they're building so much infrastructure like train stations, like police station, schools, hospitals. And so as these economies are building all of that there's going to be massive, massive opportunity for growth there as well.
And so and I'd say we're excited about both markets. I certainly don't want to downplay the opportunity for us in the U.S. because I think it's extremely promising. But I think some of the growth in some of these emerging markets can also be pretty fantastic as well for us so frankly, we're focused on both.
But I may have mentioned on prior calls, I mean, I think there's opportunities to make it maybe a 50, 50 split over time in terms of the amount of business we're doing internationally versus domestically and that we're definitely focused on growing long term in international markets.

And that's that's excellent. It's just actually when you think of another question here. What's the average, when you get a new contract here and so on, could you discuss kind of like what's the average and I guess, sale that you make.
And if you see that number improving and kind of how that works when I'm saying, let's say, your average selling price, you know, on a solution, for example, you kind of describe how that works and if you've seen that number increase and what your expectation is because obviously, you know, this is, as you said, demand is surging here. So what are you seeing in terms of pricing?

Yeah, I think giving you some rough math, I can tell you that a couple of years ago, our average order size is probably around 50,000.
And I can tell you that this past year, that number was from closer to 100,000, maybe even a little bit over the full term. So I think there's just a natural growth in terms of the kinds of projects we're doing in terms of size, and we're hopeful and optimistic that that number will continue to grow.
Right. And so but then there's also there's a lot of like if we sell, let's say, 100,000 system over the next couple of years, we may sell a lot of smaller orders to continue to expand that system and running on support that customer, maybe they expand the building or something like that? Maybe you want to add more cameras.
So yes, so we do certainly benefit from some of that residual revenue. But I think in general, we are a systems solutions company. We sell generally on projects. And so I think the idea is that we want to by increasing the size of the number of orders. It's not the size of the order, the average order that we're getting in the organ.

That's great. That's great. One last question on. I think the only overhang here is probably the piece of debt that you've got a tenant out there with Chicago ventures. I know we've discussed it in the past, but you've got positive cash flow right now.
Can you just kind of give an overview of kind of the way you view or how you want to handle that. I think once that's handled the sky's the limit and I'll just stop, I'm going to hang up right now. So I mean, listen?

Yes, sure. No, I appreciate the question?
Yes, if it were, I think we're yes, we do have that debt outstanding. You know, we've been fortunate to have a really fantastic relationship with them and they've worked with us to extend that over time. And they've been very supportive of us as we continue to improve our business.
So ultimately, I mean, I think there's ideally we continue to grow the business so that we can we pay that down over time and get to a place. We've had three operating three quarters of operating profit.
And I think I hope that as we continue to improve, then we'll be in a position to start to reduce that debt over time and continue to work with them as best as possible to satisfy that debt.
And I think as our business improves, I think we'll be in a better and better position to deal with that. And so we've been we were able to get that debt extended. And so we'll continue to work through that. And I think as the business improves, it's only going to get easier and easier for us to manage that.

Great. Great job, happy holidays to you and wish you a fabulous 2024. Thank you.

Operator

And we have reached the end of our question and answer session. I would now like to turn the call back over to Mexico for closing remarks.

And 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 and growth.
If we were unable to answer any of your questions, please feel free to reach out to our IR firm, MZ Group would be happy more than happy to assist.
Thank you, everyone. Happy holidays.

Operator

And this concludes today's conference. You may disconnect your lines at this time.
Thank you for your participation.