Cemtrex, Inc. — Form 10-Q Summary
Business context and reporting period
Quarter ended December 31, 2016 (first quarter of fiscal 2017); unaudited consolidated results. Cemtrex operates Electronics Manufacturing Services (EMS) and Industrial Products & Services (IPS), including industrial services, emissions monitoring, and filtration. Results include businesses acquired in 2015 and 2016, notably AIS and Periscope.
Key financial metrics
| Metric | Q1 FY2017 | Q1 FY2016 |
|---|---|---|
| Revenue | $29.40 million | $13.31 million |
| Gross profit / margin | $9.70 million / 33% | $3.87 million / 29% |
| Operating income / margin | $1.99 million / 6.8% | $0.47 million / 3.5% |
| Net income / net margin | $1.41 million / 4.8% | $0.69 million / 5.2% |
| Diluted earnings per share | $0.14 | $0.09 |
| Cash provided by operations | $0.28 million | $1.55 million |
| Cash at period end | $5.05 million | $2.38 million |
Revenue increased 121% year over year. IPS revenue was $13.24 million, up 68%; EMS revenue was $16.16 million, up 196%. Gross margin improved, while net margin was slightly lower. Management attributed revenue and net income growth primarily to acquisitions; EMS also benefited from shipments delayed in the prior quarter.
At December 31, 2016, total assets were $51.92 million, total liabilities $33.53 million, and shareholders’ equity $18.39 million. Working capital was $14.50 million, versus $11.77 million at September 30, 2016. Cash and equivalents were $5.05 million; an additional $0.98 million was restricted. Listed borrowings and debt obligations totaled approximately $21.08 million, including the revolver, convertible notes, current long-term portion, bank loans, notes, mortgage, and related-party notes.
Material changes, outlook, and risks
- Operating cash flow fell to $0.28 million from $1.55 million, which management attributed mainly to paying down current liabilities. Financing activities used $1.46 million, primarily for debt repayments; cash declined by $0.99 million during the quarter.
- Accounts receivable and inventory fell by $1.43 million and $1.27 million, respectively, from September 30, 2016. Management cited improved collections and completion of previously delayed orders.
- Interest and other expense was $0.34 million, versus income of $0.18 million a year earlier; management cited acquisition-loan and convertible-note interest.
- Management plans to pursue organic growth and acquisitions and expects working-capital and long-term needs periodically to exceed operating cash generation. It said additional external capital may be required and cautioned that financing availability and timing are uncertain.
- Subsequent to quarter-end, the February 2017 rights offering and standby placement raised $14.02 million gross, before fees and expenses, through Series 1 preferred stock with cumulative annual dividends of 10% and warrants. The company also exchanged $3.34 million of principal and accrued interest owed to related party Ducon for Series 1 preferred shares and warrants.
- Risks identified include economic and competitive conditions, manufacturing or supplier problems, maintaining credit arrangements, and changes in environmental standards. The filing reports no material effect from inflation. Management concluded disclosure controls were effective as of December 31, 2016.
Important facts for investors to verify
- How much of the substantial revenue and earnings growth reflects acquired operations versus sustainable organic growth, particularly given the prior-period shipment delays.
- Debt maturity, interest, and covenant terms, and the company’s ability to fund operations and planned expansion from operating cash flow.
- Net proceeds and ongoing dividend obligations from the Series 1 financing, plus potential dilution from the warrants and common shares issued for convertible-note repayment.
- The financial and governance implications of the Ducon related-party debt exchange.