IBC Advanced Alloys Corp.

Good day and welcome to this IBC Advanced Alloys Webcast and Conference Call. I am Jim Sims, Director of Investor and Public Relations with IBC.

Before we begin the conference call, just a few reminders. Slides from today's presentation and the audio of this call are being broadcast live over the web.

A recording of the broadcast will be made and a replay will be made available on the IBC website following the broadcast that's located at www.ibcadvancedalloys.com. After our formal presentation, you'll be able to ask questions to the company using the questions pane on your computer screen or your handheld device, simply typing your question and click send.

Those who are listening on our listen-only phone line can pose questions to me by emailing those at [email protected]. We may not have time to get back to all of your questions but we will try to get back to everyone after our call.

On the call today, we will be making forward-looking statements and investors are cautioned not to place undue reliance on such forward-looking information and statements. Additional information identifying risks and uncertainties is contained in IBC's filings for the quarter ended March 31, 2019, and in our annual information form for the fiscal year ended June 30, 2018, both available at sedar.com.

Joining us today and hosting the call is Mark Smith, Chairman of the Board of IBC. Mark, let's get stared.

Thanks, Jim and welcome everyone. Let's go to the key points of today's update brief.

Consolidated sales of $5.2 million in the quarter ended March 31, 2019 were higher over sales of $5.1 million in the year ago period that jumped by 33.3% as compared to the quarter ended December 31, 2018. We have been pleased to see significantly higher demand for copper alloy products across our product lines since January of this year which has reversed the industry-wide downturn in the copper sector than we saw in the last quarter of calendar year 2018.

We're also beginning to see tangible results with the capital improvements that we made in the copper division as those expanded capabilities are now generating new sales orders for products that we could not previously manufacture. Our beryllium aluminum alloy business took an important step recently when it advanced from first article qualification to initial commercial production that beryllium aluminum parts for the satellite manufacturing industry.

This rapidly growing sector has a significant need for components that must operate in the extreme environment of space, and the beryllium alloy parts that we make are uniquely manufactured to meet those very demanding specifications. Finally, the company has closed or assumes will close on capital investment raises in calendar year 2019 for gross proceeds of approximately CAD1.295 million.

It is being gratifying to say the least, to see both existing and new investors increase their commitment to IBC's long-term growth prospects through these raises. We are continuing to see positive sales growth although I look forward to seeing these results significantly strengthen in the quarters ahead.

Consolidated sales of $5.2 million in the third fiscal quarter of 2019 were slightly higher from prior year period sales of $5.1 million, and were slightly lower year-to-date by 2.7% over the first nine months of fiscal year 2018. However, as noted earlier, sales grew by 33.3% as compared to the quarter ended December 31, 2018.

In the copper alloys division, Q3 2019, revenue of $3.6 million was lower by 2.7% over the prior year period and year-to-date sales of $9.8 million compared to $10 million in the comparable period of 2018. However, fiscal Q3 2019 sales jumped 32.6% sequentially over sales in the preceding quarter due to increased demand for copper alloys across our business.

Revenue in the quarter of $1.6 million for the Engineered Materials division, which specializes in manufacturing beryllium aluminum castings was higher by 10.5% over the comparable period of 2018 due to increased sales in the defense sector. Year-to-date sales of $4 million was 5.6% lower than the prior year period due to softening of the commercial or non-defense markets the company serves.

On a sequential basis, fiscal Q3 sales advanced by 34.7% over sales in the quarter ended December 31, 2018 due to increased sales in the defense sector. In our copper alloys division, we have installed and now operate a new computer numerical control or CNC vertical lathe.

This machine is improving our efficiency on existing work by allowing us to make more aggressive cuts on rough forging. It also provides the additional speed and control required for higher tolerance finishes at a significantly reduced time.

It is sized to accept work beyond the turning radius of any of our existing CNCs that has extended both, our capacity and our capability to produce products for both, commercial and defense markets. And as we are seeing new orders come in, I'm particularly excited to see how this continues to pickup in the coming quarters.

I had the privilege of actually seeing this machine operate in person recently and I would have to say I was thoroughly impressed. Our new CNC bridge mill provides our efficient -- or improves our efficiency on existing work with additional capability to mill, drill and tap specialized products for customers such as a copper alloy ring shown on this slide.

In particular, these enhanced production capabilities allow us to produce more value-added products for industries like oil and gas, as well as defense. In our EMC business where we make investment, cast beryllium alloy parts for Lockheed's F-35 aircraft; we expect that business to grow as Lockheed continues to ramp up production of the plane.

Lockheed reports that over 3,000 F-35's are listed for purchase by 12 different countries with 356 planes delivered so far. Our current volume of products for Lockheed is still considered low rate of initial production or LRIP, but that will change as Lockheed and the U.S.

defense department moved the program to full rate production, possibly in the next year or so. Our beryllium aluminum alloy business also took an important step recently when it advanced from first article qualification to initial commercial production of beryllium aluminum parts for the satellite manufacturing industry.

This rapidly growing sector has a significant need for components that must operate in the extreme environment of space and the beryllium alloy parts that we make are uniquely manufactured to meet those very demanding specifications. In our copper alloy business, our capital equipment investments, specifically the upgrades in machine tools have already resulted in new business opportunities for the division.

As a result of these upgrades, we are able to work on expanding sales in existing electronics markets with both, current and prospective customers. New customers have already been signed up because of these expanded production capabilities.

While much of our sales to the defense sector are currently coming from the beryllium aluminum business, we're also developing strategic relationships with new prime vendors in the defense sector for copper alloy products. With that, I'm happy to take questions from any of our participants.

Thank you, Mark. And for those participating in the webcast, you can simply type in your question into the webcast tool on your screen and click send.

For those participating in listen-only lines, you can pose your questions to me via email at [email protected]. While we wait for questions to come in, a couple of our shareholders, a number of them have sent in questions in advance of the email, Mark; so let's start with a couple of those questions.

Here is number one; it appears that the downturn you experienced at the end of calendar 2018 has now passed. At least in copper alloys, do you see the upturn in copper demand from this past quarter continuing forward?

It's a great question and certainly, one the Board has asked our management operations team; and every time we get the opportunity and I'm happy to report that the consensus by the entire company, including the Board is, that we are past that point and we are going to see these sales continue to grow particularly in the copper alloys division which can make these sales happen much faster. The new capital projects that we put into place have really expanded our capabilities and that allows us to pursue multiple additional sales opportunities, many of which have been successful already; we expect to see that continue strongly into the future.

And here is a follow-on question from this investor, Mark. When do you expect to become cash flow positive again?

Well, this is a very difficult question for the company to respond to. We think that the trend in upward sales growth is an extremely positive factor for the company right now.

We think that the fund raising that the company did to address some accounts payable issues and really kind of get turned around again was extremely important as well. But it is not an exact science to figure this out, and what we plan to do is continue to do what I call the basic blocking and tackling that we need to do to make this business successful.

We need to make sure that we're investing in the business on a more frequent basis than what we have historically done. We need to get the right machining tools into this business that allow us to grow the sales and increase our profitability potential.

So, the board is committed to these items, we've demonstrated that in the last year or so now, the machines are on-site, they are operating, our sales growth opportunities are unbelievable compared to what they were even nine months ago; so we're excited. I know that's not a precise answer as to when we will become cash flow positive, but I can say that everything is trending very well in that direction.

Mark, here is a question from another investor. Gross margins in the business have declined in recent quarters, particularly in the beryllium aluminum business.

How do you plan to increase margins going forward? Our sales price is too low or are volumes not sufficient to cover your fixed cost or is it something else?

The business is a fascinating business. I invested in it because I'm very fascinated with the potential for this business in particular.

Gross margins are -- have been a problem as of late, those gross margins have been driven not only in the EMC Group but the copper alloys group as well, largely by what the competition has been requiring us to do to stay in business. And as these cycles in business happen, there are a lot of people that stay in business longer than they should and continue to drive prices down in an atmosphere like this.

And what I'm seeing and feel pretty good about it at this point in time is that, a lot of those competitors are now off to the side, they have lost their business, we have been able to keep our business where it is through the fantastic support of our shareholders and we are now in a position to make sure that we only put proposals out for new business that create profitability. So, as we continue to advance and get higher and higher sales volumes, this profitability and gross margin issue will by definition be taken care of.

And Mark, there is a follow on from that investor. Are you saying that you're now able to take business from others in the copper industry?

There is no doubt that we can do that, particularly with the two new pieces of equipment that we have installed recently. The copper division employees are so happy and excited about their potential in this business now that we're getting several requests at the Board level for additional capital investments to make this business stronger, longer lasting and sustainable, and that's where I wanted the go.

Here is another question from another investor. The company had forecasted profitability at one point for this year but backed off that.

Do you anticipate profitability in 2020?

Yes, we've put our business plans together and we're obviously putting our 2020 fiscal year business together as we speak. I'll talk about this maybe from a little bit, more of a personal level as opposed to a company level.

I'm the largest shareholder, I'm the Chairman of the Board, of this company. And I'm demanding that we reach profitability in 2020, fiscal year 2020 in this company.

The team is committed to making that happen and as we get these business plans put together I think we'll have more details on that but I can tell you that this is something that not only myself but the rest of the board is very certain about. As we go forward, this company has that potential, it needs to now really grow to the level that it deserves to be at -- and that includes being profitable.

I am demanding it.

Mark, here is a question from several folks on Whatsapp. What is the status of the companies search for a new CEO?

Across search is ongoing, and are looking at it from multiple facets but the effort is ongoing and the board is committed to making that happen. We need to have the right leadership, day-to-day leadership in this company.

I'm more than happy to fill those shoes for a short period of time. But we do need to get a permanent CEO and the board is in that process.

So again, I apologize for the lack of certainty on that but the effort is ongoing.

Thanks, Mark. That exhausts our questions today.

For those of you who weren't able to feature question in; but soon enough before you entered our visit, please send that question or those questions to be at [email protected] and will get back to you. That concludes our webcast and conference today.

Thank you all for joining us. We look forward to talking to you soon.

Take care, everyone.