Moving iMage Technologies, Inc.
Q3 2022 Earnings Call Transcript

Published: 17 May 2022

[Operator:]

Greetings and welcome to the Moving iMage Technologies Third Quarter Fiscal 2022 Earnings Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to our host, Brian Siegel, Senior Managing Director, Senior Managing Director. Thank you. You may begin.

[Brian Siegel:]

Good morning and welcome to Moving iMage Technologies’ third quarter fiscal year 2022 earnings conference call and webcast. With me today is Chairman and CEO, Phil Rafnson and CFO, Mike Sherman. Today’s call will begin with prepared remarks and follow with a virtual Q&A session. Please submit your questions to the webcast portal and we will do our best to answer them. Please note this event is being recorded. This earnings call may contain forward-looking statement as defined in Section 27(a) of the Securities Act of 1933 as amended, including statements regarding, among other things, the Company’s business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made. These forward-looking statements are based largely on our Company’s expectations and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond our control. Future developments and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. In light of these risks and uncertainties, there can be no assurance that forward-looking information we’ll provide to be accurate. Now I’d like to turn the call over to Phil. Phil?

[Phil Rafnson:]

Thank you, Brian, and thank you, all for joining us today. I’m Phil Rafnson, CEO of Moving iMage Technologies, or MIT for short. Like last quarter, today I'm going to spend my part of the program to update on overall industry trends and that we believe will drive the tremendous growth opportunity for MIT over the next few years. I will then add comments relating to the operations of our technical sales staff and talk a little bit about what we have operating right now. MIT serves a commercial cinema and live events industry in several ways. Today most of our business is covering cinema owners and operators in North America, where there are approximately 40,000 screens, 18,000 of which are outside the top five circuits. While we work with the majors, most of our business is with small to medium size operators. As you know, this industry has been hit hard by COVID during the 2020 and the first half of 2021 with box office receipts reclining from over $11 billion in 2019 to $2.2 billion in 2020. In the second half of 2021, the industry began to recover with 14 films grossing over a $100 million in the domestic box office and the overall domestic box office doubling to over $4 billion industry -- $4 billion. Industry analysts expected domestic box office to grow to over $10 billion in 2022 with Strangelove, Dr. Strangelove, The Batman, Sonic 2, Uncharted and those alone topping $100 million and we haven't even hit summer yet. This is truly exciting. We expect many more tent poles for the remainder of the year, including sequels to Avatar, Thor, Black Panther, Jurassic World, Aquaman, Top Gun, Minions and the Superman Multiverse animated movie. New movies include the Flash, Black Adam and Lightyear among others. We believe other growth drivers will boost this strong industry backdrop. The first is related to government grants. As part of the Cares Act, non-publicly traded live event operators can access over $16 billion in grants through the SBA. This program called the Shattered Venue Operations Grant for SVOG or SVOG to date has provided over $14 billion in grants for over -- of over $2.5 billion going to cinema operators. This money is just starting to flow and MIT is in early stages of reaping the benefits in our cinema business as this spending is kicking off a multi-year growth cycle. Next, theatre operators use these funds proactively to proactively refurbish, upgrade and build new modern theaters to significantly enhance the overall movie going experience. This includes adding amenities, such as in-house bars and lounges, breweries, restaurants and in-cinema dining among others. In fact, dining cinemas are among the fastest growing part of the industry, and we are well-positioned in with these circuits using the dine-in concept. Finally, we are in the final stages of technology upgrade cycle, especially for laser projectors and servers. During the past upgrade cycle, we participated in over 17,000 cinema screens over the five-year period. So we believe there is a strong runway ahead. So how does MIT fit in? We are a technology and hardware designer and manufacturer, an integrator and distributor of third party technologies and a project manager to theater -- to the theater industry. We have strong longstanding relationships with suppliers, key technology providers and customers, as well as architects, technical personnel, which help design in our products. Over 70% of our revenue comes from small and medium sized cinema operators, which tend to be expanding more quickly than the big three with whom we also work. From a prestige perspective, we have also installed over 40 in-home screening rooms in industry VIPs, which includes senior executive -- executive techs, producers and directors. Before I turn the call over -- actually before I get into the technical sales part of our presentation, I'd like to thank our dedicated employees without whom we would not be in what we believe is the strongest position we've been in as a company from an operational, financial, product and competitive perspective and for our existing and future shareholders, I feel your pain as a company's largest shareholder. I know the past seven months have been painful for the overall stock market and especially micro and small cap have been decimated by a number of macro concerns. Regardless of the stock price, we are still the first -- in the first inning of our growth opportunity and our business has continued to strengthen. I'm excited about our strong growth over the next several years as we strive to turn MIT into a $50 million to $100 million per year company. Regarding the technical sales, there are four pillars to our growth strategy. The first is driving revenue growth and margin expansion by shifting our product mix towards our higher margin proprietary products. Our proprietary products fall into two categories. First is our proprietary manufactured goods, which we do right here in Fountain Valley, California. Today, we have nearly 50 proprietary manufactured products and tend to have gross -- that tend to have a gross profit margin in the 35% to 50% range and help increase project margins and overall margins when sold à la carte. Beyond these, we have our caddy line of cup holders and trays backed by over 20 patents. Caddy has a significant leadership position in cinema, professional sports, stadiums and arenas and gross margins in the range I just mentioned. I'll talk to these more in a minute. Next, we have a set of technology products in development with disruptive potential. First, we have two products from our accessibility strategy. The MIT translator is a multi-language translation device -- translation device, which with a recurring revenue service attached. We demonstrated this product in late April at the Cinema Con in industry trade show in Las Vegas and the review from theater operators were great. This disruptive offering brings multi-language in theater captioning capabilities, including American sign language, although augmented, all through augmented reality glasses. The market here in North America alone is tremendous with over 70 million non-English profession speakers that not only have attended movies previously. For those that did, they could now have a significantly enhanced movie experience. We rounded out our accessibility strategy a few weeks ago by acquiring the USL product line and associated IP from QSC. All movie theaters in the US must carry a certain number of these products to meet ADA requirements. So it is also open to opportunity for theaters to engage with underserved populations of consumers in those markets. As part of the acquisition, we took on some finished goods and parts inventory, and also some existing orders. As we work through this finished goods inventory, we will begin manufacturing this internally as a new proprietary product with the opportunity to further increase gross margins for this product line over time. Next, we have a bundled solution of venue management called QC. This includes the recurring revenue SaaS platform. However, the services for quality assurance, theater operations, staff management, inventory control, back office analytics and remote access to control over auditorium systems. We believe there is nothing like it available in the industry and we are currently beginning to market this to potential theater operators. The second pillar of our growth strategy is moving beyond cinema. First, we plan to leverage our caddy product line, their strong position in sports and stadiums arenas as a touch-point for fan interaction and we will also continue to build out the caddy product line with new innovative features. For example, we will likely introduce a unique potentially disruptive new digital product and service during calendar year 2022. Medium to longer term, we also believe caddy's relationship can help provide an opportunity to tailor Cine QC to more efficiently manage stadiums and arenas as well. More recently, we announced an exclusive strategic partnership with Sandbox, whereas MIT will be the exclusive technology integrator, having built a proprietary mobile cart that integrates video game consoles and accessories into IP switches and other technologies via portable cart -- via a portable cart that moves between auditoriums. Sandbox is developing, promoting and marketing local amateur eSports and gaming leagues around the nation. This unique strategy includes hosting 10-week leagues in movie theater auditorium. The value proposition to both sides is tremendous. Theater operators can now leverage access capacity -- excess capacity to bring the movie theater experience to e-sports, including playing on large, more immersive screens, allowing for increased concession revenue. Besides playing video games, the lease include training and learning opportunities. We announced this partnership ahead of CinemaCon a few weeks ago, and the reception by theater owners at the show was nothing short of extraordinary with some committing to sandbox right on the spot. Beyond this, we created a large pipeline of interested potential customers. We don't see this as a one-time sale of our cart, but believe as technology advances, the new consoles and computers come to market, we will see refreshes every few years. Additionally, we will work with Sandbox on additional business rev initiatives. Our third pillar looks to markets beyond North America over the next 18 to 24 months beginning with Europe. We believe CineQC and the MIT translator will be viable in international markets. In addition, we saw a strong interest in the Sandbox model from theater circuits outside of North America. We believe that connecting with theater -- former theater owners at CinemaCon has brought the potential to accelerate our timeframe, to expand into these markets outside of North America. And fourth, underlying the first three pillars is accretive M&A. There are three main areas on which we focus. The first is consolidating industry and technology equipment providers and broadening our offerings. The acquisition of QSC product line was an excellent example of this strategy. The second is acquiring strategic products and services with recurring revenue streams. This will likely focus on SaaS or other subscription type offerings that will enhance our portfolio and provide higher value to our customers. And finally, we look to companies that could enhance or add to our customer relationships. In conclusion, we are still in the first inning of our growth opportunity. We have numerous secular tailwinds and our backs are just beginning to turn into the higher revenue levels. We also have several potentially disruptive technologies in development that will bring recurring revenues while driving higher margins over time. As a result, we increased our guidance this morning from $14 million to $16 million to $17.5 million to $18.5 million for focal 2022 ending in June of 2022. We believe these numbers may still prove conservative, and we look forward to updating you on our next call. And that's it. Mike, take it away.

[Michael Sherman:]

Thanks Bill. Good morning and thank you everyone for attending our third quarter earnings call. Like last quarter, I'm going to spend a little time reviewing our model, and then I'll take you through the quarter followed by a Q&A session. One of the challenges with our business is the timing of revenue recognition. For example, projects sometimes get delayed for various reasons and parts of a project or a whole project may push out into a future quarter or in some cases into the next fiscal year, which can cost some lumpiness in our business. Fortunately, we haven't seen much of this so far this year. However, as a result, we will generally be conservative when providing guidance, which we will update quarterly. From a gross margin profile, projects have historically made up about two thirds of our business and they tend to be below company average due to the resale of furniture, fixtures, and equipment or FF&E, all which are pass-through costs. Installation services and sales of our higher margin proprietary manufactured offerings, which tend to be well above the company average start to bring this margin up. Over time, we expect the mix to shift more favorably towards our proprietary products and services. Initially, our proprietary manufactured products and the high margin resale of technology products will drive this margin expansion. Still as we begin to introduce our CineQC, a SaaS platform, our MIT translator and other products in development, we expect this shift to be more significantly away from FF&E. Now I'll move into the results. I'm thrilled to say that our results were strong. Revenue increased 241% to $5.8 million. Much of this was related to the pickup in projects to build new theaters or upgrade existing theaters. Even with this growth, we finished the quarter strong, backlog of $10.2 million. Gross profit also increased 233% to $1.4 million from $0.4 million last year. However, gross margin was down 700 basis points, mainly due to a standalone order for FF&E from a valued customer with a very low margin. Moving to our operating expenses and income; GAAP operating expenses increased from $0.7 million last year to $1.5 million this year. Some of this was related to the return to sales and marketing activities and the executive team's compensation, which was cut in half last year and is now returned to normal levels. Also additional expenses relating to be a public company, including those associated with our first Annual Shareholders Meeting that were incurred in Q3 have contributed to this increase. GAAP operating loss decreased 67% to $0.1 million. Our non-GAAP operating loss decreased 76% or $2.1 million. GAAP net income and earnings per share were $0.6 million and $0.06 a share versus a loss of $2 million and a loss of $0.03 a share last year respectively. Non-GAAP net loss and loss per share were $0.1 million and breakeven versus $0.2 million and a loss per share of $0.03 last year respectively. Please note that for our non-GAAP loss and our loss per share this quarter, we excluded the forgiveness of our second PPP loan, which was classified under other income in our GAAP results. Now moving to the balance sheet, our cash, cash equivalent and marketable securities increased to $9.8 million from $9 million at 12/31/2021. Looking at the remainder of fiscal '22, we believe the recovery in the box office combined with the SVOG money will continue to drive significant year-over-year revenue growth. In fact, our backlog remains strong at $10 million as I mentioned earlier at the end of the third quarter. Given this strength, we are increasing our revenue guidance for fiscal year 2022 from $14 million to $16 million to $17.5 million to $18.5 million. This represents between 155% to 169% growth over last year. So I'd like to thank everyone for attending the call today. And I look forward to speaking with you again at the end of our fourth fiscal quarter. Brian, and are there any questions?

[Q - Brian Siegel:]

Yeah, Mike, just one question. The question is related to operating leverage. And so basically the person wants to know if as revenue increases, will they see operating leverage that will drop down to the bottom line?

[Michael Sherman:]

Yes. The answer is clearly yes. The incremental revenue expected from here and the resulting gross margin should substantially drop to the bottom line. I would say not a 100% as the company will wisely use some of that, potentially a small amount of that to reinvest in such things as continuing R&D activities for the new product development and also to enhance marketing and sales activities that can drive even further that revenue growth. So the answer is yes.

[Brian Siegel:]

Okay, great. That's all we have in terms of questions. Operator, you can close it out.

[Operator:]

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.