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Edited Transcript of RVS.AX earnings conference call or presentation 28-Jan-20 11:00pm GMT

Q4 2019 Revasum Inc Earnings Call

Feb 4, 2020 (Thomson StreetEvents) -- Edited Transcript of Revasum Inc earnings conference call or presentation Tuesday, January 28, 2020 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jerauld J. Cutini

Revasum, Inc. - Executive Chairman, President & CEO

* Ryan A. Benton

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

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Conference Call Participants

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* Darren Vincent

Shaw and Partners Limited, Research Division - Senior Analyst of Technology, Life Sciences and Industry Consolidators

* Huiyi WangCTHD Investment/Founder

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Presentation

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Operator [1]

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(technical difficulty)

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

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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 are encouraged to review the safe harbor and disclaimer statements contained in today's materials as well as the other risks detailed from time to time in the company's regulatory filings with the ASX.

I would also like to highlight that the numbers published in our release and discussed here today are unaudited. Additionally, I will note that our Q4 Appendix 4C, along with our full year financial statements for FY '19, once published, are through the date of January 5, 2020, as the company recently changed its fiscal year end date to be -- to adopt a 5-4-4 manufacturing calendar. And with that, I'd like to turn the call over to Jerry. Jerry?

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

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Good morning, everyone, and 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'd like to provide you some general updates on the business.

In the release, we noted preliminary unaudited revenue of $5.3 million for the second half of 2019, within our previously announced range of $5 million to $6 million. This included $2.6 million of system sales of which $1.8 million related to silicon carbide systems. As mentioned previously, the company has experienced a slowdown in demand for certain lower-margin legacy silicon processing systems which is consistent with the industry-wide capital expenditure slowdown throughout 2019.

Even before the slowdown in legacy silicon had begun, the company had made the strategic decision to reduce investment in these legacy systems and concentrate our resources towards our new silicon carbide products. I'll remind everyone that during Q4, the company released the 6EZ silicon carbide polisher to the market. Since the release of the 6EZ, our internal team has not only met all the advertised specifications, but exceeded this bar in multiple regards. The 6EZ is delivering leading process technology specifically developed to take advantage of the rapidly growing silicon carbide market.

On the back of the impressive demo results that continues in -- the company is in continuous discussions with key strategic customers. We are on track to book and order and ship our first 6EZ. While this has been a challenging macro environment in the second half for our legacy products, it's been made even more challenging as Revasum -- we are in the midst of a product transition. We see 2019 -- the second half of 2019 as the low watermark. We see business conditions improving during the first half of 2020, evidenced by our healthy backlog. As we sit here today, our first half 2020 system backlog exceeds $6 million, and that does not include our typical revenue number of approximately $3 million for spares, service and royalties. We expect this figure to grow as we book additional orders, which we are already in the pipeline, including the first 6EZ.

In addition to continuing to execute on our strategic transition to new products, I am pleased that we were able to deliver positive cash flow from operating activities in Q4 of 2019. Ryan will provide you some details on that shortly.

Following the fiscal year-end, we conducted a company-wide reorganization and have significantly streamlined the management structure in order to improve our financial performance while working to achieve our strategic objectives in the silicon carbide market. And with that, I'll turn the call over to Ryan to give you the details about the 4C. Ryan?

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

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Thanks, Jerry. With respect to the Appendix 4C, we had robust cash receipts from customers for the quarter of $8.6 million. For the first time, we saw positive operating cash flows for the quarter of $1.2 million, a very nice milestone.

Net investing cash outflows for the quarter was $1.4 million. This is a significant reduction from the $3.3 million in the previous quarter. As the company expects to ship the first 6EZ tool soon in the first half of 2020, investment in development of the tool has decreased and will continue to decrease to a minimal amount over the next 2 quarters.

Net financing cash outflows for 5 January 2020, quarter were $700,000. Thanks to strong operating cash flows, we were able to make a $500,000 debt repayment to pay down the working capital revolving credit line with Bridge Bank, thus minimizing interest costs. At the end of the fiscal year, these cash flows left us with an unaudited cash balance of $6.8 million and $2 million in debt.

I will echo Terry's comments that the company has taken and continues to be proactive to take necessary steps to improve our financial performance. And on a final note, this month, we also saw the successful deployment of our new Enterprise Resource Planning, or ERP system, which the team has worked hard to implement over the last year. The old system was a decade-old DOS system that increased the level of difficulty of just about everything we do. Having a modern system enables us to realize benefits that includes improved resource planning, productivity and working capital efficiency.

And with that, I will turn the call back over to Jerry. Jerry?

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

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Thanks, Ryan. And now, operator, I think we're ready for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Darren Vincent from Shaw and Partners.

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Darren Vincent, Shaw and Partners Limited, Research Division - Senior Analyst of Technology, Life Sciences and Industry Consolidators [2]

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Just -- probably pushing my luck a little bit here, but hoping for a little bit of quantification around the cost savings that you've managed to push through. Is there any more color you can give us around that?

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Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [3]

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Yes, this is Ryan. I think I'll -- it's a numbers question, so I'll take that. I think on an annual basis, we've been able to reduce costs, I would say, in the order of magnitude of about $2.5 million. And so it's a sizable chunk. And this is of active decisions we've made to kind of lower our ongoing operating spend. I think that's in addition to just the overall lower spend levels that we had in product development. So as you recall, we've -- as reflected in the year-to-date 4C, we've invested heavily in the new product, the 6EZ, and that involves a lot of consultant spend. We brought in some of the best people in the business around the Bay Area and otherwise to help us with that product development exercise, and that's more of a onetime spend in 2019. And those folks have already started to be pared back and go away as the machine is ready now for sale.

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Darren Vincent, Shaw and Partners Limited, Research Division - Senior Analyst of Technology, Life Sciences and Industry Consolidators [4]

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And so with regards to that 6EZ development costs, what sort of difference are we thinking about between 2019 and 2020?

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Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [5]

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Several million dollars’ worth of consulting. Jerry, do you want to add to that in any way?

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [6]

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No, I think that's probably the right way to quantify it, right? We did a lot of product development work last year. We have pared that back, and we've been saying that now for a few months. We continue to look at areas. I will say that as we go forward and look at our forecast in this quarter and next quarter, we are going to be consuming some inventory. So we -- as long as everything keeps closing the way it is, I think we're going to be moving the ball in the right direction.

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Darren Vincent, Shaw and Partners Limited, Research Division - Senior Analyst of Technology, Life Sciences and Industry Consolidators [7]

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Okay. And then that sort of moves on to my next question just around the 6EZ and expectations. Look, I noticed you -- once again, you didn't sort of give us any dates or quantify the number of units that you'd hope to ship. Are we still looking at potentially 2 initial orders maybe this quarter?

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [8]

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We haven't changed our mind on that. You're right, I didn't give you any specific information. As soon as we have something exciting to say, we will say it. I will say that -- I keep saying this, the demo results, the results on the wafers are absolutely spectacular. Getting a customer to open their wallet is the next biggest challenge. We're in the phase where we've actually had customers where we've run and done successful work, now wanting to come back for one last taste. Not uncommon when -- the closer you get to this, it's not uncommon to have them hand carry a box of wafers to do a in-live, in-person demo. That's all happening. I'm -- look, we remain confident on the tool. I remain confident that we are in the right place at the right time. Maybe even a little bit early, for a change, but the responses we're getting are good, and I believe that we're still going to do what we said we were going to do. Our goal has not changed.

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Darren Vincent, Shaw and Partners Limited, Research Division - Senior Analyst of Technology, Life Sciences and Industry Consolidators [9]

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Okay. Great. And just to be absolutely clear on it. So that 6EZ is -- are you happy to ship that tool at this point in time? Or are you sort of still tweaking long-term sort of performance metrics and things like that?

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [10]

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So I'll say what I always say, semiconductor capital equipment is never finished. There's always something to be done. But the machine is -- I was just downstairs before I came up here, the machine is running very, very well. We've been putting it through its paces. I would say, once we get the last engineering changes on -- so keep in mind, we have 2 tools running fully functional and 2 more that are being built on the floor.

The 2 tools are engineering tools, we call, number one is the software, hardware tool. Number two is the process tool. We have a few upgrades that we will mount onto tool number 3 prior to delivery, and we expect to be able to do that. The machines are running and at a point now where we can see pretty clearly that we could -- we would be able to ship the machine when we want without fear of it having major problems in the field. It's a new tool. It's got 4,000 parts and 150 vendors.

So we've taken extreme caution so that we don't have to ship an army out into the field, even though we probably will anyway. The machine is getting much more stable. The last time I talked to everybody a month or 2 ago prior to the holidays, I would not have wanted to ship it before, let's say, a couple of months. But now we're -- we can see the finish line. The engineering teams are able to run and walk away, come back, and the machine is still running. So it's in very good condition. I'm actually much happier today with the performance of that thing than I was a couple of months ago.

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Operator [11]

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(Operator Instructions) Your next question comes from private investor, Stella Wang.

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Huiyi WangCTHD Investment/Founder, [12]

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Firstly, regarding the cost savings, is that reflected in next quarter's guidance for cash flow? In the quarterly, you would have a guidance for next quarter's outflows.

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Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [13]

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It is -- this is Ryan, I'll take the call, Jerry, if it's okay. It is reflected. Some of the decisions that we've made have a little bit of a trailing impact. So it will affect 100% -- the savings will affect the second quarter but only partial savings in the first quarter.

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Huiyi WangCTHD Investment/Founder, [14]

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Is there any one-off, for example, redundancies, you have to put into cash outflow in the December quarter that's more like a one-off?

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Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [15]

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In terms of cash payment?

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Huiyi WangCTHD Investment/Founder, [16]

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In terms of cash payment, yes.

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Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [17]

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No -- I -- nothing comes to mind that -- I think that check that box. Jerry, does anything?

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [18]

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No, I don't think so. I think we've taken some actions. We continue to look at things. We are -- our goal is to keep pushing the cost down as we go through the next 2 to 5 months. I think we're going to make additional changes. We're trying to be cautious about what we do and make sure we do the right thing and deliver a good machine.

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Huiyi WangCTHD Investment/Founder, [19]

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Great. Now in the IPO, there were 2 development projects, including the first one, 6EZ. What's the current plan about the second one? Are you guys going to wait for 6EZ to go out and strengthen the balance sheet a bit before considering the second project?

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [20]

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Brilliant question, Stella. The answer is we have a lot of -- we did a lot of development in 2019, but it is a more significant tool than the 6EZ. We have put that project on hold. We do not expect to spend on that product until we can fund that activity. It does have some technology, funny enough, that's applicable to the 6EZ, but we are not going to bring that product out right now.

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Huiyi WangCTHD Investment/Founder, [21]

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That's very prudent. If I may ask just 1 more question. Now in the last update, the cash receipt you mentioned for end of December was lower than what was actually achieved in the end. You actually ended up with more cash than you thought about a few weeks ago. How should we see that? Is that more order coming in, therefore, you got to the prepayment?

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Ryan A. Benton, Revasum, Inc. - Senior VP, CFO, Company Secretary & Executive Director [22]

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That's exactly what it was. On the -- when we had the last call, it was a preliminary number, and I did say on the call that our hope was some orders were going to come in and we would cash some deposit checks with that. And I think, on, like, the day before New Year's Eve that happened, some of that cash hit the bank. So we were really pleased to have that happen.

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Operator [23]

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(Operator Instructions)

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [24]

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I think we're ready to go, operator.

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Operator [25]

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There are no further questions at this time. Jerry, please continue.

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Jerauld J. Cutini, Revasum, Inc. - Executive Chairman, President & CEO [26]

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Thank you, operator. I would like to conclude by saying that we appreciate the support of our shareholders. We look forward to speaking to you again following the release of our full year financial statements during February. Thank you, everybody.