CEMTREX INC Q1 FY2023 earnings call

Management Statement and Operational Highlights:

• Top line growth: Sales grew 27% year-over-year in Q1 2023.
• Gross margin improvement: Gross margin improved by 790 basis points to 42% in Q1 2023, with expectation of continued increases in coming quarters.
• Divestiture: Completed divestiture of noncore assets in November 2022 to focus on Vicon and advanced industrial services brands and reduce corporate expenses.
• Vicon performance: Security segment saw 61% revenue growth due to strong demand for Vicon's security technology solutions, including a $1.5 million order in January 2023 from a border protection customer.
• AIS performance: Industrial services segment revenue decreased slightly due to timing of revenue recognition, but AIS has potential for expansion with bolt-on acquisitions and growing demand for predictive maintenance services.
• Reverse stock split: Announced a one-for-35 reverse stock split to regain NASDAQ compliance.

Segment Performance:

• Security segment: Q1 2023 revenues were $7 million, compared to $4.4 million in Q1 2022, a 61% increase. Revenue contribution from Security segment was driven by strong demand for Vicon's security technology products.
• Industrial services segment: Revenues for Q1 2023 were $5 million, a decrease of $2 million or 2% compared to the prior year, mainly due to timing of revenue recognition for products and services.
• Cemtrex corporate: No specific revenue breakdown provided in detail but is part of the segmented presentation.

Guidance:

• Vicon Industries: Expected revenues to increase by approximately 16% to $28 million for FY2023, with gross profit margin expected to rise to ~48%.
• AIS: Expected to expand revenues by 3% to $21.8 million for FY2023, with gross profit margin expected to improve to ~34%.
• Operating loss: Expect operating loss over next four quarters to be under approximately $2.5 million.
• Inventory reduction: Aim to reduce inventory by more than $1.5 million in FY2023 as supply chain constraints improve.
• Future outlook: Expect improved financial results into rest of 2023 and aim for positive operating income by 2024.

Risks:

• Debt obligations: Upcoming debt of $7.8 million due in March and $9.7 million in August; need to work with debt holders to address and find solutions.

Q: Jason Kolbert asked about sequential revenue drop and if it's due to seasonality or project timing.

A: Saagar Govil responded that revenue growth was driven by Vicon's project-based business where project timing can fluctuate, and there's seasonality with budgeting cycles affecting sequential results.

Q: Jason Kolbert asked about the border security contract and future opportunities.

A: Saagar Govil mentioned federal work in border protection, a task force focused on pursuing opportunities, and AI-based thermal sensors for border protection with potential for expansion in states and internationally.

Q: Unidentified Analyst asked about addressing upcoming debt.

A: Saagar Govil stated the company has a good relationship with debt holders and is working on options to address the debt, including extending or paying down over time.

Q: Larry Holub asked about upcoming milestones.

A: Saagar Govil mentioned upcoming AI-related product launches under Vicon, pursuit of sizeable projects and customer wins, bolt-on acquisitions for AIS, and monitoring quarterly improvements translating to better financial results.