BitNile Holdings, Inc.
Q3 2017 Earnings Call Transcript

Published: 21 Nov 2017

Operator:

Good day and welcome to the Digital Power Corporation Third Quarter 2017 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Digital Power Corporation. Please go ahead.
Unidentified Company Representative:

Welcome everyone. Let’s get started. Today’s call will include our Executive Chairman, Milton “Todd” Ault, III, who will be hosting the call. Also on the call will be Digital Power’s CEO, Amos Kohn; as well as William Horne, the company’s audit committee Chairman. We would also like to welcome Lisa Thompson, who is a financial analyst at Zacks, who is covering Digital Power. The format for the call will be as following. Mr. Ault will cover the highlights of the quarter. He will then share highlights for individual subsidiaries of Digital Power Corporation. Please not when anyone on this call uses the acronym Digital Power or DPW they are referring to the Holding Company. Next Mr. Ault will discuss the future of DPW with forward comments in business prospects for 2018. The decision has been made to allow for questions at the end of this call. You will notice an area on your screen online where you can type out your question for Mr. Ault to review and reply accordingly as time allows. [Operator Instructions] Those that are familiar with these calls understand that we begin by reading a forward-looking statement, which I would do now before introducing Mr. Ault. The Private Securities Litigation Reform Act of 1995, provides a safe harbor for forward-looking statements we make during this call, including statements regarding our future performance and plans for our business and potential acquisitions. These forward-looking statements involve risk and uncertainties that are discussed in our filings and with the securities exchange commission, including economic, competitive, legal and other factors. Accordingly, there is no assurance that our expectations will be realized. We assume no obligation to update or revise any forward-looking statements should circumstances change, except as otherwise required by law. With that said, I would not like to introduce Mr. Milton “Todd” Ault, III.
Milton “Todd” Ault:

Good morning everybody, well good afternoon actually. This is the first conference call that I am hosting since Philou Ventures, bought a control and stake of the company in September 2016. We will be having these calls every quarter. There are certain shareholders that have given us ideas on how they would like to format a call, and I thank them in advance, and I know particularly one of them is on this call, and I thank him. He suggested certain formats and we are moving forward with that format. Many of you probably know that prior to September 22, 2016 for the previous 19 years Digital Power Corp operated as a high-density power supply manufacturer with one subsidiary in Gresham, England – Gresham Power, which is in Salisbury, England. Since the control block was bought by Philou Ventures and the changes have taken place to the company there has been substantial changes to not only the balance sheet, but the number of subsidiaries the company has. At present, I want to go over the current quarter and then we will transition into other topics as Marshall [ph] described. The current quarter for Digital Power ending September 30 showed revenue growth of between 77%, 78% on a sequential basis. The numbers were $3.222 million versus $1.822 million last quarter. We suggested in our prior press release that the second quarter would mark the bottom for Digital Power in its long, you know pretty standard march down for revenue decline for the past, on or off for the past 11 years. So, I would reiterate that again, the revenue growth for the quarter, sequentially quarter-over-quarter was close to 78%, $3,022,000. For the nine months ended period revenue was $6.670 million, which is an increase of from $5.6 million over the nine-month period last year. It is very difficult to outline a company that prior to this timeframe operated as a single operating company, operating as a stand-alone entity with high density power supply business. The company is now transitioned into making certain acquisitions and for the quarter, let me cover some of those that took place. Going back to the second quarter, and then late in the second quarter going into the third quarter, we acquired Microphase. Microphase makes high RF filters for the F-35 and other programs, and I can't get into them because clearly some of them are secret projects. Microphase has been in business for more than 60 years. We had an opportunity to buy them during what we could consider to be a pretty big decline for them with some structural issues. We had an opportunity to step in and purchase them. We bought 56% in the second quarter. We were only able to show one month of the quarter in the second quarter, but for that this quarter, we were able to show the whole quarter. And what’s significant to point out is that since we acquired Microphase there has been marketable improvement in the quarter for Microphase, and they ended this quarter at about 1.3 million of the 3.22 million. So, a significant, and goes along with our opportunity to purchase assets we consider to be at a very reasonable price. In this case, Microphase we thought was a fire sale because of the structural issues they’ve had. During the last two quarters with Microphase, we've invested more than $900,000 in the company and have sort of right sized Microphase. When you look at some of the highlights for the quarter with Microphase, the most important are to note that the Air Force granted Microphase a significant contract and we received a new order in the third quarter along with Lockheed Martin, BAE Systems, and SAAB. These important orders that took place in the third quarter lead to sequential growth and year-over-year growth for Microphase. We expect Microphase to be a big contributor in 2018 to our top line, and note that they contributed cash flow for the third quarter. This acquisition is sort of a hallmark of the opportunities we take at Digital Power in terms of core acquisitions. We made an acquisition that we thought will drive cash flow and potential capital appreciation. It should be noted that we are in discussions to buy the rest of Microphase. We own currently 56% of Microphase, we hope that we can buy the rest of Microphase by the end of the year. There is no guarantee that that will take place, but we are in active discussions with the existing minority shareholders to buy the rest of the company. Let me transition from Microphase to Coolisys. I am going to introduce Amos Kohn, but first I want to explain what Coolisys is. As many of you know, on December 28 we will have a shareholders meeting, which will be renaming the company DPW Holdings. We expect this vote to pass. Upon passing the company will operate as a pure holding company with no operations in the parent and all the operations with the subsidiary. One of the marquee points of this is that we have a commercial defense business. The commercial defense business is largely made up of multiple companies, including Gresham Power, which has been in business for more than 60 years in Salisbury, England; PowerPlus, which was recently acquired in the third quarter; Microphase will also be as part of the commercial defense business; and then Digital Power, North America, the current operating business in the parent will become a subsidiary of Coolisys Technologies. Right now, Amos Kohn, the CEO of Digital Power will highlight some of the factors and drivers that we have in Coolisys. This is important to understand that we consider this business to be pretty exciting for us. If you look at the history of the existing power management business, high density power business, and Microphase they are effectively brands that have been around a long time that operate and have great customers, but have really had no growth. We’ve injected new capital and sort of ignited new growth in them. The contracts they provide for us are long tail contracts, they bring with them a lot of opportunity. And, I'm going to have Amos talk about that very quickly. Amos, you there?
Amos Kohn:

Yes, I’m there. Thank you, Todd. So, we recently incorporated Coolisys Technologies with the following corporate objectives. We would like to design and manufacture innovative technology solutions, as well as custom integrated assemblies for critical problems, while delivering price, performance, and product leadership. We would like to obtain competitive advantage and become the definitive choice of our diversified customer in all of our serving markets and OEM, including but not limited to defense and aerospace, industrial and telecom, and medical markets. We are focusing on cutting edge power products and solutions, innovative detector log amplifiers in very high frequency filters, mainly serving the defense market, as well as the other market that they are currently serving. We will continue to pursue growth in the core market that we are capitalized by high barriers to entry, and to include specialized products and services not like any commoditized product. In such a comprehensive solution, we are going to continue to grow the business, and we are going to look for other acquisition that make sense for our business to continue to grow. Thank you.
Milton “Todd” Ault:

One of the highlights to know for the company for Coolisys is that, it is going to operate as a wholly-owned subsidiary of DPW Holdings, the new company, and so we put that out there for everyone to understand that we are building an asset base. So, if you look at the highlights for the quarter, which was just published on the SEC website, you can see that our asset base, total assets ended September 30 at 18.26 million. It is important to note that the company had significant activity in the last year taking the asset base from $5.472 million to a total of $18.26 million this quarter. A lot has taken place during that period of time, including our liabilities, which we have taken our substantial liabilities to grow the company. Many of you have asked questions about this and will cover them later in the call. So, getting back to Coolisys, the main subsidiaries that will operate under Coolisys again will be Gresham Power, PowerPlus, Microphase, and Digital Power. Coolisys remains active in the market. We believe the commercial defense space is growing. We are benefiting significantly which is called FMF Financing, which is Foreign Military Funding, and we operate the company now in multiple areas. So, let me give you an idea of what Coolisys looks like from a commercial defense operating business. We operate in California, Connecticut, England, and Israel. And we have manufacturing in China and India. We also have manufacturing in Fremont, California, and have a manufacturing co-op operation about maybe two miles from our existing headquarters in Fremont. Amos, did I cover that correctly or did I miss any countries?
Amos Kohn:

You just missed Connecticut in the factoring facility.
Milton “Todd” Ault:

Oh, yes, that’s right. We have a manufacturing facility in Connecticut also, which is a unique facility that operates effectively on a comp secret clearance basis. It’s really unique company et cetera. So, one of the highlights I want to transition to is, about Coolisys. It is part of our plan to diversify the portfolio into a group of uncorrelated assets and investments. We have an active management methodology creating value for shareholders by a capital appreciation, subsidiary growth, and our investment holdings. I’m going to transition to Digital Power Lending now. In November 2016, we created Digital Power Lending. We are very close to getting our California lender's license we have applied. There is a loan portfolio, and we are actively involved in the lending business. This operates as a separate subsidiary. Most people know that probably through prior announcements that William Corbett joined us from Paulson, he has significant experience - Wall Street experience and he runs Digital Power Lending. We expect Digital Power Lending to contribute significantly to the company in 2018. There is lot of opportunity here and we will be highlighting that in the future months ahead because it is something that we have been working on for more than a year and we're pretty excited about it. I’m going to transition now to the hospitality business. I think some people saw that we acquired I.AM, which should close coming up in the next two weeks or so. That business is fully funded. The money remains in escrow. We expect the closing to take place on or about November 30. We expect hospitality to grow in 2018 to around $10 million of total revenue for us, and produce around 900,000 of EBITDA. We said that in our prior press release. It is significant to understand that my background is, I have been in two hospitality businesses before, and it goes back to our core strategy of diversified portfolio approach with our portfolio companies that are not correlated. I have had numerous questions from many people about that this is an outlier, but we go back to our original statement, back in 2016 that Digital Power intends to become a Holding Company, we have targeted growth we're trying to accomplish. I want to highlight one of our major investments and I think this is probably why most people are pretty excited about Digital Power and that is MTIX Ltd., through the purchase order that we have received from MTIX Ltd. in England, which is the advanced textile product. For those of you who did not know about it, it is an advanced textile treatment that reduces waste water, reduces energy, reduces the chemical footprint. We received a large order from them back in March, and we are in production for the first two units. This is significant if you look at our accounts receivable, you will see that we differed 1.3 million in revenue recognized 109,000 in revenue for the quarter. In recognizing the $109,000 in revenue for the quarter, we realize that we need to kind of give you guys a little guidance on what this would look like for us and that is, the products that they make are significantly expensive, and they operate them on a certain model. And what they do is, they have us build the product, we deliver them to their customer. The machines are owned by MTIX Ltd., and since they are owned by MTIX Ltd., MTIX charges them a tolling charge. A tolling charge is the amount of the meter charges that comes through the machines. And as they come through the machines, the MTIX Ltd. is able to see the kind of algorithm that they are using to treat certain fabrics like cotton and wool and others, and they charge them a per meter charge. And it is against the long-haul asset that is the machines, which is the multiplex laser answer machines. We make them, they deliver them to the customer, and then they service them and charge the customer accordingly. MTIX Ltd. maintains them, and maintains ownership of them. So, it is important to note that our balance sheet, while we do not consolidated MTIX Ltd. And Avalanche International at this time, our balance sheet continues to grow. We continue to invest heavily in there. On our books for the third quarter, we have a $3.9 million investment in Avalanche and MTIX Ltd. We expect that the investment to grow over the coming quarters. We have been significantly active in the financing market and we reported on multiple 8-Ks and multiple press releases, and continue to invest heavily in that business. That business represents what we consider to be our unicorn opportunity. If you look at the different channels of the businesses we have, which is commercial defense, Digital Power Lending, and the hospitality business, those channels we all expect to grow, we expect them to be significantly part of our capital structure going forward. The audit year, the thing that we see that provides really tremendous opportunity for us is the potential growth of MTIX Ltd. When you think about the investment in MTIX Limited in Avalanche, not only it will be a separately traded public company, but at this point we filed with the 13-D and we have significant stake in the company. Whereas we continue to invest in the company and they continue to recognize revenue, and the machine orders continue to tally up with us. This significantly affects our top line and our profitability. Many people have asked me the question about when this story takes place? Most of the capital cost, if you see our expense line are very high. We have put a significant amount of expenses and capital cost and professional cost and restructuring the company. As we go forward, the professional cost should come down of the top or come down in terms of expense line, as many of the acquisitions would be completed and be done by them and we’d recognize those expense lines to fall, but the investment we're making in the MTIX project is so significant for us that we expect to see revenue from that significantly in 2018 and then accelerate through 2019 and 2020. And we will be giving guidance in the future on that. It is a very capital-intensive business in the beginning and then has a long tail of current revenue for us for long periods of time after that. So, it is a significant investment we're making, while we do not consider the subsidiary at this time. We do have a large investment in this and we could see a timeframe in which that becomes another subsidiary of DPW Holdings, assuming that it will take place and will become a Holding Company on December 28 as planned. Does anybody have else have anything to add before I go to questions? Okay. We should start our question-and-answer session now. I appreciate everyone being on the call. I know we have skipped around a lot, but our main goal here was to make sure everyone understood that we did operate multiple subsidiaries at this point. We do expect significant revenue growth in 2018 and beyond and the capital structure is almost done in terms of restructuring the company after the vote takes place in December 28. Shall, we go to questions now Andrew?
Operator:

Absolutely. [Operator Instructions]
Milton “Todd” Ault:

Okay. I am going to answer one of the questions that has been sent in by email. One of the questions that was sent in by email was regarding dilutions and the dilution of the common stock. I will refer back to everybody and looking at our asset base growth and then there is, if you look at total assets in 2016 and look at total assets base now, I realize that it is going to be commonplace for people to say, okay, hey the number of shares have increased fairly dramatically from last year to this year, but it is important to note that the businesses that were part of Digital Power prior to us investing our own money and it is important to note that I have my own money invested in the company continue to invest in the company. Those businesses prior to the days where stagnant and not growing et cetera. We made a strategic decision to not only invest in our growth, but be active in M&A. And so, while on a pure sense, more shares are outstanding. We’ve encouraged people to look at enterprise value and what we consider to be total revenue opportunity. We had given guidance for next year of 23.5 million to 25 million. We will definitely revise that at the end of November and we will give guidance as to what that revenue looks like for 2018 back to the best of our ability, but you're going to see significant growth through not only acquisitions, but through organic growth and reigniting those businesses and restructuring like we have done with Coolisys and going after new contracts. I can tell you personally that we are active in the M&A market, we are actively looking at companies that are going to significantly help us grow to our goal. And so, we have [Indiscernible] dilution is yes, people - there is a lot more shares outstanding relative to last year, but it is much - part of a much bigger pie in a bigger opportunity, you got a very big growing commercial defense business. The commercial defense space is growing significantly, especially of what’s going on with our military and with our current elected officials and so as we build our asset base bigger, we have bigger opportunities to grow the revenue side of it, and we see a significant investment opportunity. We’re raising that capital for growth. And I think the only concern I would have as a shareholder is, if we are working to growth that topline significantly, to which will lead to future cash flow. I refer back to on that question that part of the opportunity here is to grow revenue and EBITDA, our core revenue and EBITDA, we are not going to just buy something for the sake of buying something. We buy something for the sake of it being an extreme value, we buy it at the right values. Each asset is looked at as in terms of what kind of capital we’re going to have to deploy and then how we as a management team at the parent company at the Hold Co. can drive cash flow and appreciation. So, we’re active in M&A, we’re active in raising capital. It should get a little easier from here. We think because, our footprint was very small, it’s very difficult to turn a small company to a holding company and not everything be a significant event, a material event, as our balance sheet gets larger, as the revenue top line and bottom line get bigger, it will be easier for us to make acquisitions that will necessarily, that aren’t so difficult to squeeze into such a small company. Andrew, do we have any questions at this time?
Operator:

We do have several calls in the queue. We will go first to Lisa Thompson with Zacks Investment Research. Please go ahead.
Milton “Todd” Ault:

Hi Lisa.
Lisa Thompson:

Good afternoon. Hi Todd and Amos. I have a bunch of question, I would have had better questions, if I had more time to look at the numbers, but will just go from here. First…
Milton “Todd” Ault:

Lisa, I do want to say something, I apologize for this - the numbers being released right as we are on the call. As I said earlier, being a small company becoming a big company in our eyes becoming a bigger company has posed some challenges, we have been diligent in building up our accounting staff and supporting the people at the company to manage the reporting. It’s definitely something we’ve had a challenge with and we’re working hard to fix that.
Lisa Thompson:

Okay. No problem. So just a thought to start off on what you were talking about, you gave guidance for next year and you’ve previously, you had given guidance for the fourth quarter, are you still at the same level of 4.2 to 4.9?
Milton “Todd” Ault:

It is 4.2 million to 4.9 million at this time. We’re not going to change that guidance until we have a management meeting at the end of November and then we will give guidance for the rest of the fourth quarter, but as of right now we're sticking with that guidance.
Lisa Thompson:

Okay. And if you get all those filings and conversions approved at the shareholder meeting, what do you think the number of primary shares outstanding will be at the end of the fourth quarter?
Milton “Todd” Ault:

At the end of the fourth quarter what the primary shares, based on the current registration statements? I think on a fully diluted basis - so it is important to note that a lot of those filings include warrants and if those warrants were to be called in and they were to be exercised, I think that would put somewhere about $9 million of cash on the balance sheet, so I know that is somewhat confusing to you.
Lisa Thompson:

[Indiscernible]
Milton “Todd” Ault:

Right. I don't know if Will had a chance to join the call, but I think that if some of the - there has been some time we took to file those registration statements. So, I would think that we probably end somewhere in the 19 million or sold range at the end of the quarter, but I definitely will have Will get back to you and let you know.
Lisa Thompson:

Okay, thanks.
Milton “Todd” Ault:

It is a little bit of a challenge in terms of execution because when I have invested in the company and when I invest in the company I am not converting, I’m not selling, as you know I have a lock up to 100 million in revenues. So, I have no intention of showing or anything. So, I got to make sure that when I quote you, you are going to - quoting you exactly on a fully diluted basis what we think will happen at the end of the fourth quarter.
Lisa Thompson:

Okay. So, where will you be as far as interest expense? Once these things get converted, like on a quarterly basis?
Milton “Todd” Ault:

Well I think the plan here is that our interest expense number, once they are converted will go down pretty substantially. I mean, I will get Will to get you the exact number, but I think based on what I can tell that we will probably go into - the end of the fourth quarter, the beginning of the quarter with little to no, none of that convertible debt on the balance sheet. Some of it has already been converted out. So, I once again would have to refer to Will on that to make sure [indiscernible]. Thank god Will is there. Thanks for saving me Will.
William Horne:

So, Lisa, right now if you look at our interest expense on a consolidated basis through September 30 we were just under 1.4 million. Of that, the bulk of it really relates to non-cash charges associated with the warrant issuances and the beneficial conversion features and such attributed to the convertible debt, not even [Indiscernible] preferred stock to a certain extent. That 1.4, 1.2 was non-cash. So, we don't have a lot of cash interest and I don't expect we will going forward, but ultimately it depends what financing to be put in place the rest of this quarter, and we have not had a chance to sit down and finalize what that decision is going to be. We will be next week. I know Todd has got a couple of possibilities that he has been evaluating, not have a chance to sit down as a management team with the rest of them to really look at it. This quarter though, we might incur a greater amount of interest expense and that’s only because - right now we are kind of pushing our threshold of our authorized capital. We have 30 million authorized, and you know how the accounting rules go. When you go through and you look at your authorized capital, you have to look at all of your potentially dilutive securities, which means we have to include all of the warrants, all of the stock options, all of the shares that are converted, if the convertible preferred stock were to convert. And on November 2, we slightly went over that number. So, to the extent we do additional financings, we may end up in a short period prior to December 28 where we have to trade some of these under a liability treatment. And then they would convert back to equity, the accounting on shareholder approval. So that could have a big impact on non-cash interest in the first quarter.
Lisa Thompson:

All right. And a couple other, what does I.AM do, am afraid to ask?
Milton “Todd” Ault:

They are a management holding company, they control the hospitality group of businesses. What you would know is prep kitchen in San Diego there are three locations, I know they have plans to open multiple locations. They will contribute, we think on a group basis in 2018 around 9 million of total revenue, plus rest of hospitality, which will take them to around 10 million. So, they operate what you know as prep kitchens in Southern California.
Lisa Thompson:

Okay, so it’s restaurants?
Milton “Todd” Ault:

Yes, there is three locations, one in Del Mar, one in San Diego, and one in La Jolla.
Lisa Thompson:

Okay. All right. Just good to know. And can you just go through MTIX once more, I can’t follow the revenues, explain again how much of Avalanche you own. When the customer pays, what do they pay Avalanche, what does MTIX get paid, what does Digital Power get paid? How does that work?
Milton “Todd” Ault:

Okay, so to the extent we are not giving guidance because, Will will tell you we are not consolidating Avalanche at this time. Okay. And Will you got to stop me here if I go the wrong direction, all right, but, so we have invested approximately $3.9 million in the company. And if you look at our 13-D filing at present share count that would take us to 78% of Avalanche, which is in the - Avalanche presently is in the middle of changing its name to MTIX International and it owns MTIX Limited. So, from a purchase order financing perspective, Digital Power now Coolisys is manufacturing the machines in conjunction with Bianco, in Alba, Italy, one of our major subcontractors. We recognize on a per machine basis a certain amount of that revenue. So, while we are not going to comment on exactly what we get per machine, we have already recognized $1.3 million, which we have as a deferred income, I mean deferred revenue and we will recognize another $3 million I believe in the first quarter of 2018. However, there may be additional revenue recognized in the fourth quarter and I will leave it to Will to make a comment on that. So, in the manufacturing - go ahead.
Lisa Thompson:

So, the 1.3 deferred revenue, what is that for, for bringing the machine and setting it up or…
Milton “Todd” Ault:

Yes. So, what happens with these is - what happens is there is about six major subcontractors and the machines have long lead items and so we buy all the parts and components and they are assembled and then they are installed with the customer. So, the manufacturing of the machine is different than what MTIX Limited recognizes. Once MTIX Limited delivers a machine to a customer, the customer signs a license agreement and they pay a royalty per meter to MTIX limited for every meter of fabric they run through it. And they pay that royalty in perpetuity depending on what kind of treatment they are using it for. Fire retardancy, water proofing, digital printing etcetera. That royalty revenue recognition model is at the MTIX Limited subsidiary and at this time we don’t consolidate that. Will do you want to add anything to that at all?
William Horne:

No, I think you described it adequately.
Milton “Todd” Ault:

Okay.
Lisa Thompson:

So they get a royalty and then they pay you for making the machine?
Milton “Todd” Ault:

That’s correct. They pay us for making the machines and the portion that they gave to us back in March before we made our significant investment was $50 million worth of machines. I am not going to comment on what their backlog is, but it would be significant to us to deliver all the machines for them because they have a very big footprint, if you look at the number of machines possible there is 50,000 textile plants in China, which represents half of the world. The other half of the world another 50,000 textile plants around the world. Their process is so disruptive in the space where they eliminate waste water, they reduced energy footprint by 98%, they eliminate chemicals. It is such a unique opportunity that we are dipping our toe in the water and taking our time to explain it to everybody, because we don’t want to mislead anybody, but it is the one unicorn we have ever - that I have ever owned in my career where you are looking at something that is a potential addressable market that is gigantic. It is a very large opportunity and requires a lot of capital, but it also will drive a lot of revenue growth for company.
Lisa Thompson:

Okay. Alright. So, what did you get paid for of the $1.3 million? What is that deferred for? So, is it deposit or something?
William Horne:

So, when we enter into the purchase orders, we right now have a purchase order for few machines and I have initiated a purchase order regard to 30% down payment, which was [indiscernible].
Lisa Thompson:

Alright, so that is where that came from. Alright that makes sense.
William Horne:

Exactly.
Lisa Thompson:

Okay. And then, I guess my one final question is that there seems to be a little bit of chatter about your big cooling machines, what is the status of that? Are those going to ship anytime soon or? What is going on over [indiscernible]?
Milton “Todd” Ault:

Suddenly you say that. So, Coolisys is, you laugh, but this company Digital Power has had assets for 47 years. They have been making high density power supplies for some of the who’s who of the Fortune 500 companies. They are Boeing and Raytheon and they have incredible customers. And one of the things they do is make high density power supplies. They drive servers and drive mining machines etcetera. We purposely did not make much comment about [indiscernible]. This is a really, really unique opportunity for the company, it is a part of it that is kind of taken a life of its own and we will update the big [indiscernible] number and what is going on in [indiscernible] or what is going on in that market in crypto currency for us. I have to - to answer a few, even though I have only been in the business for 27 years it is a unique opportunity, it reminds me of the Internet days back in 1996, 1997, 1998 range and so we are kind of flooded with this, this is, I am kind of laughing because it is kind of crazy. I mean I got to say it Lisa, it is really insane to be honest with you, but we are going to talk about our strategy as sometime in mid-December.
Lisa Thompson:

So, you have a joint venture with some company, right? That you create a new [indiscernible]?
Milton “Todd” Ault:

That is right, with POW, yes exactly.
Lisa Thompson:

And so, how far off is this from shipping product? Time wise.
Milton “Todd” Ault:

I’m not going to comment on shipping product yet, but what I will comment on is that we will address this sometime before the end of the quarter in terms of what it will do for the company, but it is becoming a significant event.
Lisa Thompson:

Okay, alright. I will let some other people ask questions. Thank you.
Milton “Todd” Ault:

Sure.
Operator:

And we will take our next question from David Demergian. Please go ahead. And David you line is open.
David Demergian:

Yes, I had to go off on mute. First, I just want to thank all the folks at DPW Todd and you guys are doing a fantastic job. It is crazy, it is unbelievable what you are doing. I had a couple of questions, one of them was about AVLP, the relationship with AVLP and one of the concerns I had was the filings with AVLP, I know you have got a significant investment in the company and they are very far behind in the filings and I know we had a 10-Q back in August, but I think there is about four or five they are backlog gone. And I was hoping to see something you know more along the lines of every few weeks or something, even every month, but we haven’t seen anything since then and I am just wondering is there a concern, can we see something by the end of the year, some of these files they come up to date, because you guys are becoming a big company and if you are investing in other companies that aren’t up to date, it can be a concern.
Milton “Todd” Ault:

Let me…
William Horne:

I will address that one.
Milton “Todd” Ault:

Okay, you go ahead.
William Horne:

You will absolutely be seeing some filing before the end of the year and we’re committed to getting that company to current.
David Demergian:

Okay.
Milton “Todd” Ault:

David, let me add to that. One of the, you know this is our first call and I am sure with everyone on the call it has been a little choppy. Keep in mind that Digital Power is incorporated in California and well than I may not be significant to everybody. It is significant to us and that is, there is significant challenges what the rules and the laws is California in terms of reporting and things we can do. And Will has been kind of buried with giving these things to where they need to be, and we are taking significant steps and I am pretty confident that this will all be out all the way shortly and we will all be pretty happy about that. I stick by what Will said.
David Demergian:

Okay, alright. That is important because you know it has gone on for a few years. A lot of time has passed and we haven’t had the filings. And talking about the, along the lines of the business there, with MTIX and stuff, so I think the questions from Lisa were helpful - your answers there were helpful. I mean with the technology being so disruptive, which is awesome, wouldn’t there be a demand where people are just standing at the door saying here is my money, although you have explained actually that it is not a matter of their buying the machines, which is actually I knew that you were doing the licensing, but I didn’t or how about the terminology that you want to use, but I also thought that it was a combination of licensing and they also had to buy the machine as well, but now I guess, understanding that you actually have to finance them, but nonetheless, if there is such a big demand for this, especially in China, I mean invested in some China companies and they are just cracking down like no tomorrow with the environment and stuff, wouldn’t they just come up with the money themselves and say here, go building the machines, send them to me do whatever you need to do, we will finance the thing and maybe you give them the break on the price that you might not have normally given them and stuff. And so that is all my questions.
Milton “Todd” Ault:

There is a long time, David there is long time with the machines. They don’t, there is long lead items like the gas plasma laser units and stuff like that. They are expensive, but more importantly because it’s disruptive to the textile industry we are selling the first - we are installing the first 25 machines with who we - the company considers to be the best potential first 25 for a license and royalty model. So, we are not just giving the machines away to anybody. We’re doing what the ones that we consider to be the most highest meter charge and the ones that can best help us. So, it is as simple as [indiscernible] making a machine. I understand the logic there, but I think going forward we will kind of - to make it a little easier to understand as MTIX reports themselves and they start outlining that, but there is a long lead time to get these going and then right now a capacity even if we wanted to, right now, at present we can only ramp up to five machines a month, about 60 a year. So, it will take significantly more investment and support to ramp up higher than anyways. So, it is not as simple as you make it out to be, but I will address that in the future in terms of given we will provide guidance with the number of machines we are going to deliver each year and what we expect it to look like, but it is a hockey stick type of curve and the machines represent a very significant investment and we are taking it very seriously.
David Demergian:

Okay. That’s good to know. I mean 5 machines a month, if you can get to that that in alone it sounds a lot, but obviously you have these types even gone beyond that…
Milton “Todd” Ault:

Yes, it would be significant, yes.
David Demergian:

Okay. And you are picking, you are basically picking your customers very carefully, so…
Milton “Todd” Ault:

At the MTIX team as very well versed. I mean it is run by a very talented guy in Pravin and his team there over in England and they are picking their customers, first they have a very large list of people who want the machine.
David Demergian:

That was like my next question. I mean you definitely had a huge demand, they would love to have it and it is just a matter of making sure you do - take all the right steps. Okay.
Milton “Todd” Ault:

Exactly. Andrew do we have any other questions?
Operator:

We do have another question. We will take our next question from Michael Van Patten [ph]. Please go ahead.
Unidentified Analyst:

Hi, Mr. [indiscernible]. Just calling because I’m very interested in MTIX and from what I have seen on the website, and what I know about the company it looks like this is, as you are saying it is a potential hockey stick, but it is also I think if you can comment on how potentially big the market is because it is in multiple different fabric related, you know it can create and restructure fabrics in many different ways, and it is where the feature of fabrics is going to reduce these at energy, reduce these at water and natural resources, and the creation of fabrics that we use from clothing, furniture, and so forth, can you comment the little bit on that because I think it is very understated and I think it is something that people…
Milton “Todd” Ault:

Mike, it is good to talk to you. And I think you just called me Mr. Harold [ph], which is a little ridiculous, but okay. You can likely call me that if you want to. Yes, listen. If you look at the investments the DPW is making, it is significantly one of the biggest opportunities we ever had. It is one of the biggest opportunities I have ever had. The potential addressable market is so big that it’s a gigantic - it is a company in itself and it is - we could probably put in 50 machines just in northern Italy, and then you go into Lithuania, you are looking to, you go out throughout Europe, you go into Southeast Asia, Vietnam, et cetera, you go down to Australia and the opportunities in Australia, in the World Market there is an incredible opportunity in the United States in all kinds of the auto industry the treatment of internally in cars [ph] for fire returns et cetera. It is the only unicorn like I said, that I have ever been part of and I have ever owned, as far as the company owning. And it is really difficult to give guidance on something in which you look at really large numbers and we were just not prepared to talk about them yet, but we will be prepared to talk about them in 2018, and I think they will become significant and they start to grow in 2019, and we will come out with stuff that makes it more understandable for people to see the potential market for, but if you look at the textile industry as the number 2 [indiscernible] in the world, the machines we make reduce chemicals, eliminate chemicals in some cases, reduce waste water, reduce the energy footprint, make it possible for you to make fabric waterproof without chemicals, it is a significant increase. And then we are working with some of the largest apparel makers, if you saw the customer list of the people who want to machines it is a who's who of opportunities in sportswear in shoes and there is great video and great third-party content on the product. And we will do a better job of giving that out to everybody, but we’re not going to comment on guidance yet because it’s just too soon. Andrew, Mike I might appreciate the question. Go ahead, Mike.
Unidentified Analyst:

One last question. To what extent than, because the market that you have tapped into is growing exponentially, to what extent have you potentially looked for future partners that can actually manufacture machines where you bring them in and you have some type of revenue share on the manufacturing and being able to do that because at some point you're going to be capped on your ability to expand and develop these machines rapidly for the market demand.
Milton “Todd” Ault:

Yes, there is no question that institutionally when you look at the need for potentially $100 million plus and you look at all the opportunity to raise capital. We are going to have to take on institutional partner and strategic’s that are in that space. This is incredibly disruptive to DuPont and Dow Chemicals, it’s disruptive to the textile industry, there is a lot of opportunity in this disruption to partner with people and that’s what will likely happen and we’re very active in this space in terms of talking to potential partners. I could see on this conference call that there are two potential partners on the call, and they know who they are. So, we are very active in this space and we expect that to drive significant revenue for us, an opportunity, and don't forget with the ownership of the company that we - the DPW has, if we someday decide to that we were going to increase our ownership it also, that revenue would show up for DPW. So, there are lot of opportunity there that we are still paying a lot of attention too.
Unidentified Analyst:

Thank you.
Milton “Todd” Ault:

Andrew, could you go to the next caller please.
Operator:

Certainly. [Operator Instructions]
Milton “Todd” Ault:

Andrew, are there no more questions right now?
Operator:

There are no further questions at this time.
Milton “Todd” Ault:

Great. Okay guys, listen, I want to say thank you to everyone. This is the first call we did. I have to admit it is a little unusual talking with no feedback. I prefer the question-and-answer section the best. I appreciate certain people suggesting that we should have done that before, and we will do that in the future. It’s a much better way for us to participate in. There is a lot of significant changes happening in the fourth quarter, including the name change and structural changes, and a special thanks to Will Horne and Amos and Gary and Darren and all the people that have helped us with a significant quarter. Really interesting growth trajectory. We are really, really excited about the fourth quarter and what’s going to happen in 2018, and we will do our best. Lisa, thank you for being on the call. Everybody thank you and have a good week, and a good Thanksgiving. Thank you, guys.
Operator:

And this concludes today's conference. Thank you for your participation. You may now disconnect.

BitNile Holdings, Inc. Q3 2017 Earnings Call Transcript

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BitNile Holdings, Inc.
Q3 2017 Earnings Call Transcript