CEMTREX INC Q2 FY2023 earnings call

• Second quarter 2023 saw a return to operating profit, with sales execution by Vicon driving 37% year-over-year revenue growth. Gross margin improved to 46% (a 1,360 basis point increase from the prior year). - Vicon released a new suite of AI-based analytics in the enhanced Vicon Roughneck AI Camera series and had large orders, including $1.5 million and $1.1 million from a Texas border protection customer, and $0.8 million for a UK prison system. - AIS experienced 23% year-over-year revenue growth due to increased demand for industrial services. - The company expects to achieve full year operating profit for fiscal year 2024, and Vicon revenues are expected to exceed the earlier FY2023 target of $28 million, while AIS may exceed its original FY2023 target of $21.8 million.

The company has three segments: Security (Vicon), Industrial Services (AIS), and Cemtrex Corporate. For the Security segment, revenue in Q2 2023 was $9.9 million, a 47% year-over-year increase, driven by strong demand for Vicon's roughneck cameras and Valerus video management software. This segment contributed approximately 61.5% to total revenue. The Industrial Services segment (AIS) had revenue of $6.2 million in Q2 2023, a 23% year-over-year increase, mainly due to increased demand for its services. This segment contributed approximately 38.5% to total revenue. Cemtrex Corporate had no separate revenue mentioned.

• Expect to achieve full year operating profit for fiscal year 2024. - Believe there is room in inventory and asset base to draw extra liquidity for a healthy cash position. - Vicon revenues are projected to surpass the earlier FY2023 target of $28 million. - AIS is expected to potentially exceed its original FY2023 target of $21.8 million.

Q: What was the principal driver behind the growth at Vicon?

A: It's a combination of reputation, repeat business, modernization of security infrastructure, and AI-driven products. The Vicon brand has a solid reputation in mission-critical applications, there's demand for modernizing legacy security systems, and the release of AI-based analytics is contributing.

Q: How important is AI and competitively, what gives you the edge versus others that are going to be working to catch up?

A: AI is important, but key is the easy-to-use software (Valerus) which allows customers to deploy tools quickly. Also, having access to unique datasets is part of the strategy.

Q: How are you managing the growth on the industrial side of the business and given the two very different divisions?

A: AIS has a strong management team, operates independently, and the corporate level is lean. The management teams are empowered to run the businesses effectively, and acquisitions may supplement growth.

Q: How do you see Title 42 ending affecting Vicon’s business?

A: Title 42 ending may lead to a chaotic border situation, which could drive more business for Vicon as there'll be a growing need for security.

Q: Can you talk about the margins in the business with the new suite of products and solutions?

A: Software is becoming a larger part of revenue, and as it scales, it will help move gross margins up. There are also opportunities from logistical costs and infrastructure management to drive margin expansion.