U.S. Markets closed

Edited Transcript of RVS.AX earnings conference call or presentation 30-Jul-19 11:00pm GMT

Half Year 2019 Revasum Inc Earnings Call

Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Revasum Inc earnings conference call or presentation Tuesday, July 30, 2019 at 11:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jerauld J. Cutini

Revasum, Inc. - Executive Chairman, President & CEO

* Ryan A. Benton

Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director

================================================================================

Conference Call Participants

================================================================================

* Brendon Kelly

Moelis Australia Securities Pty Ltd, Research Division - Analyst

* Marc Kennis

Pitt Street Research Pty Ltd. - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Thank you for standing by, and welcome to the Revasum 4C Update Call. (Operator Instructions)

I would now like to hand the conference over to Revasum's CFO, Mr. Ryan Benton. Please go ahead.

--------------------------------------------------------------------------------

Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [2]

--------------------------------------------------------------------------------

Thank you, operator. Good morning, everyone. Before we begin, I remind everyone that during the course of this conference call, we will be making forward-looking statements that involve a number of risks and uncertainties that are not guarantees of future performance or results. You're encouraged to review the safe harbor and disclaimer statements contained in today's press release as well as the other risks detailed from time to time in the company's regulatory filings with ASX.

And with that, I'd like to turn the call over to Jerry. Jerry?

--------------------------------------------------------------------------------

Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [3]

--------------------------------------------------------------------------------

Thanks, Ryan, and good morning, everyone. Thank you for joining us on the call today. It is a pleasure to speak with everyone and provide some commentary around our most recent 4C cash flow. Before we get to those details, I would like to give you some general updates on the business.

First, looking backward, we finished the first half of 2019 with an unaudited $15.2 million in sales, in line with a previously announced revenue range, which represents a very respectable 43% growth year-over-year when compared to the first half of 2018. I'm happy that even in challenging macroeconomic conditions, we were able to meet our revised guidance. I'm very pleased that the team was able to keep themselves focused on the key objectives of meeting the revenue target and driving to deliver the world's first silicon carbide polishing machine. All in, I'm pleased with the team's performance.

Secondly and most importantly, we've made substantial progress towards our objective of modernizing the company and the company's product offerings. We are still on track to release the polisher in the fourth quarter of this year. It still is nearing completion on our factory floor, and the team is pushing hard to finish this marathon at a sprinter's pace.

Part of what is motivating the team and myself is that we have a clear vision of the silicon carbide opportunity in front of us mostly because of the number of customers that we are working with for silicon carbide wafer product demonstrations. We attended one of the industry's largest trade shows a few weeks ago, SEMICON West, in San Francisco. It was an enormous success for Revasum, and it gave us even more confidence that the silicon carbide market is going to be a robust and growing market for many years to come.

We hope to deliver more details and share more on the program in the emerging markets when we speak in August upon the release of our half year results. At this time, I'll pass it over to discuss the details of our 4C cash flow. After which, we'll take questions.

--------------------------------------------------------------------------------

Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [4]

--------------------------------------------------------------------------------

Thanks, Jerry. I will now give some color commentary on the first half preliminary unaudited cash flow and related results. Net cash outflows from operating activity increased from an outflow of $2.3 million in Q1 to an outflow of $4.6 million in the second quarter. Our receipts from customers slowed down $4.9 million from $8.7 million in Q1 to $3.7 million in Q2. This change is as a result of the lack of linearity in shipments during the quarter, i.e., a large number of tools shipped in the month of June, the last month of the quarter. Correspondingly, our accounts receivable balance increased by $4.9 million. The good news is that we have already collected over $3 million of that balance in the first 3 weeks of July.

On the other side of the ledger, outflows for Q2 were $2.7 million lower than Q1. Our outflows for product manufacturing and operating cost decreased $2.5 million from $8.3 million in Q1 to $5.8 million in Q2. In Q1, we brought in a substantial amount of inventory to prepare for a large number of shipments in Q2 as well as a good bit of material related to anticipated second half shipments. In Q1, we also made some prepayments on material related to our first several silicon carbide polisher units.

We have net cash outflows of $3.1 million for Q2, which shows, as according to plan, we are investing heavily in future revenue streams. We invested in new product development to the tune of $2 million, which is virtually exclusively spend towards completing the development of the silicon carbide polishing tool. Q2, we also spent $700,000 on capital expenditures. A portion of the spend was cost associated to build one of the first silicon carbide tools, which will not be sold to a customer but instead will stay here in our labs for our internal use. And lastly, we spent $400,000 towards modernizing our infrastructure. We are midway through the implementation of the new ERP system. This project is expected to be completed early next year.

Net amount of cash balance decreased $7.7 million in the second quarter to give us a cash balance of $12.1 million at the end of June and no debt.

We think -- the company believes it has sufficient liquidity to meet these strategic plans. With that said, the company is continually looking to find ways to increase our capabilities, flexibility and liquidity in nondilutive ways.

As such, today, we reported a $10 million senior debt facility financing arrangement with Bridge Bank in San Jose, California, a division of Western Alliance Bank of Arizona. This facility has 2 major elements: First, there is a $2 million term facility to finance capital expenditures. Second, the facility provides up to $8 million in formula-based working capital financing. The amount of liquidity available under this portion is based upon the company's balances and composition of customer receivables and inventory. This nondilutive financing further strengthens our balance sheet and allows us to continue to pursue our growth strategy at an attractive cost of capital.

We welcome this new relationship Bridge Bank. Having worked with them many times before in the past, I can personally attest that they are a reputable and premier banking partner.

At this time, I'll hand the call back over to Jerry. Jerry?

--------------------------------------------------------------------------------

Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [5]

--------------------------------------------------------------------------------

The bottom line is we have continued to grow, and we are on the cusp of entering a large, growing market with the release of our new silicon carbide polishing tool later this year. As I have said time and again, 2019 is a transformational year for Revasum. I am thrilled with how our team is executing and with the response we are getting from our world-class customers. I look forward to our next update when we plan to share more details on how our revenue stream mix begins to transition away from our legacy products to our new products which will initially serve the fast-growing silicon carbide market that is empowering the global transition to electric vehicles.

And with that, we're ready for some questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from Marc Kennis with Pitt Street Research.

--------------------------------------------------------------------------------

Marc Kennis, Pitt Street Research Pty Ltd. - Analyst [2]

--------------------------------------------------------------------------------

Just a few questions, if I may. Firstly, could you talk a little bit about the sentiment in the industry right now around the cycle, so where that is in your opinion and what your feedback is from some customers, especially following SEMICON West?

And secondly, in terms of -- and it might be a bit early for some guidance for the second half of the year, but I was wondering if you can talk a little bit about maybe a bit of a catch-up session from the push-outs you had in the first half what we should expect in the second half? And also, maybe if there is some guidance on the top line potentially for the second half.

And lastly, if you can talk about the ASP development in the first half. You did blended ASP -- and compare that to the prior period last year.

--------------------------------------------------------------------------------

Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [3]

--------------------------------------------------------------------------------

Mark, thanks for the question. So let's talk about sentiment, right? It's -- I think the current phrase everyone is using is a lot of headwinds, and we certainly feel them here as well. I think as I talk to people in the industry, we're talking to a lot of customers, we're actually -- we're very busy quoting, not as busy closing as we'd like right now. So the industry is -- there's some headwinds. We are seeing activity in China, and then we have the export things we're trying to deal with. So I still think we don't have clarity on a few key opportunities in China that we're starting to work with. So I think it's a tough closing environment. Everyone universally is saying it's just a cycle, it's normal, there's nothing unusual about what anybody is seeing, and everybody thinks that things are going to normalize, probably not until after the first of the year, which is going to lead me to the guidance question, which we're not ready to answer yet. But I will say, we did 27 last year. I've said -- I think previously on a call, I said we hope to be flat to up from last year, and I still feel that. And if you look at the industry at large being down 15% to 20%, if we were flat, I would call that a big win.

So I think it is what everybody's talking about. There's a lot going on out there. The good news is we're seeing a lot of activity. The really good news is where we're spending the bulk of our time in silicon carbide is not affected by these industry trend -- headwinds. So to be clear, the legacy business is going to be pretty choppy. The silicon carbide opportunities we're working on, I feel pretty good about those. So we are where I thought we'd be right now.

And your last question related to ASPs...

--------------------------------------------------------------------------------

Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [4]

--------------------------------------------------------------------------------

So Marc, were you asking AASB 16 or -- just making sure I heard that question.

--------------------------------------------------------------------------------

Marc Kennis, Pitt Street Research Pty Ltd. - Analyst [5]

--------------------------------------------------------------------------------

Yes, I was just wondering how the blended ASPs for the current product line sort of developed in the first of the year, when you're ready.

--------------------------------------------------------------------------------

Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [6]

--------------------------------------------------------------------------------

I mean, obviously, as we look towards the second half, we expected to have our first revenues associated with the silicon carbide polisher units. So obviously, that's going to push ASPs higher.

--------------------------------------------------------------------------------

Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [7]

--------------------------------------------------------------------------------

Yes. I think -- our view is that as we get these new products out, the ASPs are going to trend upward. I don't know that I would tell you today there's going to be enough to make a substantial difference from last year.

--------------------------------------------------------------------------------

Marc Kennis, Pitt Street Research Pty Ltd. - Analyst [8]

--------------------------------------------------------------------------------

Maybe if I rephrase it a little bit, are you seeing some price pressure in the existing product line in the first half? Or is it sort of flat compared to last year?

--------------------------------------------------------------------------------

Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [9]

--------------------------------------------------------------------------------

Yes. No, from a pricing, no. That's not a concern. I think we know what our pricing is out there in the market. So I'm not worried about routine pricing pressure. It's usually really centered around the capabilities of the machines we're selling and the applications we're selling to. So I'm -- that's not a general concern of ours.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from Brendon Kelly with Moelis.

--------------------------------------------------------------------------------

Brendon Kelly, Moelis Australia Securities Pty Ltd, Research Division - Analyst [11]

--------------------------------------------------------------------------------

Just a couple of from me. Just firstly, just on the silicon polisher aiming to be delivered in the second half. Could you give us a sense of what the quantum of delivery here you're expecting? And also, could you expand on where we can expect revenue contribution in the second half or if that will be relying on qualifications into next year?

--------------------------------------------------------------------------------

Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [12]

--------------------------------------------------------------------------------

So I think we -- I've been pretty consistent when I talk about this. I think we're going to get a couple of units for real revenue in -- at the -- before the end of the half. We have not been pressed for what I would call an evaluation machine or even contingent POs. So our belief right now is that we're going to get a couple of units out the door, and they're going to be for real dollars. And I don't think it's 5. I think it's a couple. And I think we're going to get more in the first and second quarter next year. So I think from that perspective, of all the conversations you and I have had, I think it's pretty much on track with what we've been talking about. So I expect -- I don't expect to have to put evaluation machines out there.

--------------------------------------------------------------------------------

Brendon Kelly, Moelis Australia Securities Pty Ltd, Research Division - Analyst [13]

--------------------------------------------------------------------------------

Okay. Cool. And will there be any pricing concessions made on the initial units? Or are you expecting them to sell at the full price straight away?

--------------------------------------------------------------------------------

Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [14]

--------------------------------------------------------------------------------

It's the first one of its kind in the world. I expect to get full list price. Full.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

(Operator Instructions) There are no further questions at this time. I'll now hand back to Mr. Cutini for closing remarks.

--------------------------------------------------------------------------------

Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [16]

--------------------------------------------------------------------------------

Thank you, operator. I'll conclude by saying we appreciate your support of our shareholders. Thank you for joining us today. A reminder for those of you that don't know, we're going to be speaking in Sydney at the ASX small camp -- small-cap, mid-cap conference in the first week in September. So I look forward to being out there and seeing everybody. Thank you.