Vislink Technologies, Inc.
Q2 2020 Earnings Call Transcript

Published: 14 Aug 2020

[Belinda Marino:]

Good morning and welcome to the Vislink Technologies Quarter Two 2020 Earnings Webcast. I'd like to remind everybody of the Safe Harbor statements referenced in the SEC filings, with Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for certain forward-looking statements including statements made during the course of today's call. Statements contained here-in that are not based on current or historical facts are forward-looking in nature and constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. Such forward-looking statements reflect the company's expectations about its future operating results, performance and opportunities that involve substantial risks and uncertainties. When used here-in the words anticipate, belief, estimate, upcoming, plan, targets, intend and expect, and similar expressions as they relate to the different technologies, or its subsidiaries, or its management are intended to identify such forward-looking statements. These forward-looking statements are based on information currently available to the company and are subject to a number of risks, uncertainties and other factors that could cause the company's actual results, performance, prospects and opportunities to differ materially from those expressed in or implied by these forward-looking statements. For a more detailed discussion of some of the ongoing risks and some uncertainties of the company's business, please refer to the company's various filings with the Securities and Exchange Commission.

[Mickey Miller:]

Thank you to Belinda. Hello everyone. This is Mickey Miller, CEO of Vislink Technologies. I want to welcome you to the Vislink Q2 2020 earnings webcast. I'll be joined on this webcast with Mike Bond our CFO. We'd like to take this opportunity to report on the progress we've made in the second quarter of 2020, and provide you an update on our latest developments and future prospects. Participants will be able to submit questions during the webcast from the main webcast page and we'll try to take as many as we can at the end. As many of you know the enablement and operational turnaround of the company in January of this year. We were happy to report that we have completed the first phase of a turnaround and accomplished the following. We re-constituted the Board of Directors, all the Board members, with the exception of Sue Swenson, our Chairman who led the transition and General James Conway, have less than 15 months of tenure. All the board members excluding me are independent. We revamped the senior leadership team all leaders with the exception of Belinda, our Head of HR are either new to the company or promoted from within. The right side of the business to align with our targeted growth markets. We focus our efforts in four key areas, live production, military government, satellite and managed services. These are all large markets which represent significant growth opportunities for our products and services. We re-energize our Satcom business with new leadership, a new product roadmap and sales training for our global sales team. We reprioritize research and development to bring innovation to our new product pipeline. We release eight product modifications to meet market requirements and product shipments. Finally, we improved our supply chain to increase our efficiency and liquidity. We work very closely with our supply chain partners to pay down trade debt, which was extensive earlier this year and move to market based terms. Everyone is aware of the difficult conditions that worldwide businesses have been subjected to over the last several months due to the effects of COVID-19 pandemic. While Vislink hasn't been immune to these conditions, I'm pleased to report that we were able to increase our revenue and improve our margins over the prior quarter making our operations more efficient in putting the company on a course to achieve profitability. Results more impressive when you consider that the company achieved this despite the challenges of managing a global supply chain during COVID-19. The fact that we were able to make ongoing improvements in the production operations of the business is a testament to the hard work of all our Vislink employees. I continue to be impressed by the commitment sacrifice and team effort, effort that they have displayed in the face of challenges. These successful efforts allowed us to substantially increase our liquidity. And we reported a cash balances over $5 million at quarters end and no long-term debt. I will now turn it over to Mike Bond who will walk us through our financials.

[Mike Bond:]

Thank you, Mickey, and good morning everyone. I like to give you a few financial highlights for the second quarter. Revenues for three months ended June 30, 2020 were $6 million, which was an increase of 11% over the first quarter's $5.4 million revenue. This compares with $7.4 million for the three months ended June 30, 2019. Gross margins were 59.6% of revenue in Q2 compared to 47% in the first quarter of 2020 and 52.1% in the second quarter of 2019. Net loss attributable to common shareholders narrowed substantially in the second quarter of 2020 to $778,000, or $0.05 per share compared to a net loss of $4.4 million, or $0.09 per share in the first quarter of 2020 and a net loss of $3.6 million, or $10.07 per share in the second quarter of 2019. Net loss attributable to common shareholders was $5.2 million or $0.45 per share for the six months ended June 30, 2020 compared to a net loss of $6.7 million, or $20.44 per share for the six months ended June 30 2019. EBITDA, which is earnings before interest, taxes, depreciation and amortization was a negative $421,000 for the three months ended June 30 2020. This represented an improvement of $3.5 million over negative $3.9 million for the three months ended March 31 2020. By comparison, EBITDA was a negative $1.9 million for the three months ended June 30 2019. As Mickey mentioned, we ended the second quarter of 2020 with $5.1 million in cash, which is up from $2.5 million at the end of the first quarter of 2020. Now, I'd like to give you just a sample of some of the business highlights and business outlook if I could. As we look forward to Phase II of our turnaround, we are optimistic that the difficult steps we have taken have given us significant positive momentum. This was reflected in the solid financial results we recorded in Q2 despite a very adverse business climate. The company is now in a better position to reach our growth and profitability objectives than it ever has been. But we are pleased with the results of our actions in the first phase of the turnaround. We recognize there remains a large opportunity for improvements. During the second phase of our turnaround, our mantra will continue to be one of fiscal discipline with a focus on managing costs and conserving cash. As we now embark on Phase II of our operational turnaround, we have a number of exciting plans we are putting in place that we believe will make an important contribution to our future success. These include the following. We will continue our efforts to streamline and lower costs and improve the responsiveness of our supply chain to reduce our quote to cash interval. We are kicked off and companywide integrated business planning process initiative, which will improve our cash efficiency and customer satisfaction. With our market focused sales team, we will introduce innovative approaches to solve our customers problems. Most recently, we implemented our trade-in and trade-up sales campaign, where we reached out to over 9,000 strong customers -- 9,000 strong customer base, to give them the opportunity to trade in previous generation Vislink product or competitor product for the latest generation of our new products. Since the inception of the program two and a half weeks ago, we have generated over 5 million in opportunities. Our research and development group is geared up to introduce several new products in the coming months. We are working with our lead customers in close cooperation to create leading edge differentiated solutions. We are also going to rationalize our product portfolio which will allow us to streamline our processes and make the optimal use of our human and financial resources. In our service business, we see a tremendous opportunity to grow and support over $100 million in deployed product in the U.S. alone. During Q3, we'll be integrating our service platform into our sales platform, so that all service solutions can be sold to our sales team. We will also increase engagement with our live production customer base, and incentivize them to play an integral part in the development of our future product roadmap. And we will enhance our MilGov, OEM, VAR and integrated relationships to elevate our market identity and increase visibility for our projects. We are also identifying increasing opportunities for our remote observance and communications business with from the military and first responders as they shift their priorities. We will continue to underpin the company with financial and operational stability needed to allow us to obtain our goals of sustainable and profitable growth. A key part of this is judicious use of cash. To that in the strong cash position we are in gives us the flexibility to explore potential opportunities for inorganic growth, which we are currently revealing. This will complete -- compliment sorry, this will complement the organic growth we expected in our traditional business sectors. Now, I'd like to hand it back to Mickey for a market outlook.

[Mickey Miller:]

Thanks, Mike. Looking at the market for the balance of 2020. The broadcast live production market, we expect to see continued headwinds, our live event wireless camera segment, with far fewer live sporting events, the spend by broadcasters and service providers has been reduced significantly. We are however, seeing increased quoting activity in our motors sport product offerings, as many of the racing series have successfully returned to racing. Also, we are seeing increased quote activity with broadcasters need to upgrade their microwave links. In MilGov market, we are pleased with the focus and activity to the team led by Jim McGowan, who joined us in March. We've increased our level of sales focus on OEMs as sales partners to broaden our market reach. We did see several large orders shift from Q2 to Q3 given uncertainty related to COVID-19. The Satcom business we are starting to see results from increased focus investment from earlier this year. Our current sales funnel is in excess of $70 million with several multiyear deals. And then finally, our services business while our services business is comparatively small, we see tremendous opportunity here and have aligned our resources for success. We expect to see significant growth in this area in particular, extended warranty, preventive maintenance, and commissioning and industrialization. In summary, while we continue to work through the market challenges of our live production business as a result of COVID-19, we are optimistic about the growth in other areas of our business. We have now focused as part of our turnaround strategy. So now we'd like to answer some of the questions that have been submitted during the webcast.

[Unidentified Analyst:]

The first one is from [Brent Van Dyk]. Brent asked, how do you think the pandemic has affected the recent quarter?

[Mickey Miller:]

When we look back in April, May June, for us and I think for many people it not in our industry but in many industries. Many customers were either shutdown or in quarantine state. Many work from home. So we saw a kind of a hunker down mode. So a lot of activity that was happening either halted or shifted. We started to see activity in June when people started getting back. Many would look at their budgets and say, well we need to push this out in Q3. Others move forward. So we're able to secure and win the backlog that we had and add to that. However, it was certainly a unique quarter for us and for many industries. As we left the June quarter, we did see some interesting things happening. For us, the live production side of the business is in a challenging situation. As you know, there are limited live sports and live sports activity is happening is without spectators. So the amount of technologists needed to do that is a subset of what it was traditionally. We expect that to come back once the pandemic is complete. But we remain focused that we can only focus on what we can control and we see opportunities in the broadcast area, both in our motor sports area, as well as in our point to point microwave link business. What our point to point microwave links do is connect the infrastructure of the broadcaster's. As you can imagine, news and news gathering is a growing opportunity. And for the industry, there's growth there. And so they've been able to upgrade some of their networks with our product. And we see that continuing for the balance of the year. Our MilGov with social unrest occurring, we did see a lot of opportunity on the services side in support of our customers as well as we did see some new opportunities arise. And we expect to see some closure of those in the third quarter. Our Satcom business again follow the same pattern as the other businesses with slowness in April and May. And it picked up in the June month around activity. We do see continued activity we see that for us to be a good growth business going into the next year as well. And then as I mentioned on our service side, it's a small business for us. We're putting the wood behind the arrow there, but we see tremendous opportunity. We have over $150 million of our own equipment deployed in the networks of our customers. We have over 9000 customers. And we have an opportunity to serve them and support them as they look at their budgets. And they may decide to keep equipment, but we can upgrade that equipment and service that equipment so they can get extended lifetime equipment. So I think, in summary the initial part of the pandemic was difficult for all of us. Being an essential business, our first priority was the safety of our employees. We were able to maintain operations throughout the entire quarter at both our three of our locations -- three operating locations. Our supply chain remained intact. So, I'm really proud of our operations teams and the work that they did to keep our people safe to remain safe and to produce the outcome that we had in Q2.

[Unidentified Analyst:]

We got one from [Boris Anu]. What big PR for 2Q?

[Mickey Miller:]

I get a lot of emails every day about, what's PR what's the PR? Our focus this past quarter was number one to keep our employees safe. And two, to operate during COVID. And three, to turn right continue with Phase I of our turnaround business which was very successful in doing so it's not about building a race car. You want to focus on the engine first. So we focus on the engine, and that's building cash efficiency engine that can produce growth and produce cash on consistent basis. We'll there'll be a time in Phase III where we focus on the wheels and the paint color the race car. But right now we're very focused on building a very strong business that consistently returning -- returns to our investors. So, with that, we will for some deals, but again, to get some PR out, it requires a lot of work of our sales team to work with our customers to get the right clothes and get the right approvals to the customers. And right now we want to have our sales teams focus on purchase orders, not less not necessarily chasing PR. But we recognize that, the market does like press releases, and we will do our share, but I want to let you know we're very focused on generating a business that consistently meets our commitments to new investors and deploy your capital as efficiently and effectively as we can. Mike, you want to grab one?

[Mike Bond:]

Sure. Mickey. And I think there's been a lot of generic questions about what Phase II, what does that bring to the company? Now that we've sort of shown the financial discipline to get the bottom line back in order, what's next? And I think as Mickey touched on, we have, obviously challenges with the pandemic. But what we're seeing is customers are not canceling orders. We're pushing out, long game or orders. And I think, what we want to do is try to return the company to profitability to grow, top line growth, sustainable growth, marshal the cash that we have on the balance sheet to make select investments to make sure that we're increasing our R&D, increasing our product development efforts, producing the products and the services that our customers really want. As Mickey has touched on, there's a whole new host of ways that within the broadcast market is starting to look at events. So, if people aren't there, they're starting to create a richer experience for people that are at home are accessing that event remotely. So, we think we play a big part in that as the increasing coverage of those particular events happens. We hope that Vislink shares in that and increases our equipment coverage of those events as well.

[Unidentified Analyst:]

Yes, looks like we have a question from [Charles Wolinsky]. Is Vislink position to benefit from increased defense spending in European countries. There have been recently announced, for example, Hungary and Slovenia.?

[Mickey Miller:]

Do you know of Vislink is we're a global company. We have sales channels and salespeople globally focused on NATO, defense countries, the NATO countries, and we do see opportunities for growth there we are invested in that area and we think we'll see opportunities start to occur both on our downlink from aerial downlink from helicopters, airplanes, drones, et cetera as well as our Satcom business. But clearly for us it's a business we really like. It's a business we see tremendous opportunity to think of RF communication between troops. It's a massive opportunity $25 billion opportunity. And we see Vislink playing a major role in that. And that's one of the key areas that we see for growth. And we're in excellent position because we do have a lot of legacy products that has been used over the years. And people like to look to evolve from that product, not to rip it out and put a new product. So there are great opportunity both on MilGov and in our government, business, local and state government business.

[Mike Bond:]

Mickey, I saw a question from Jean concerning overlapping brands related to Vislink. And we are now taking steps to clarify that. We are going to be trading under the brand of Vislink going forward. And so that hopefully will take some of the confusion out of the market and create a single name brand for the company.

[Unidentified Analyst:]

We also have another question is, how has over the top affected our business?

[Mickey Miller:]

And over the top is a tailwind for us without COVID. With COVID it's challenging. As you know, many of both the prerecord as well as live events are reduced. So while we see that as a longer term tailwind in the meantime during COVID, the headwinds related to the limitation of live events has impacted the growth that we would have expected to see at this point in time. But certainly as there's more players, the Apple's, Amazon's, Netflix, as well as traditional broadcasters. There is more need for content, there's more need for live production. And those are all great for our business in normal times. Just going through the list here and trying to consolidate a lot of the questions are consistent.

[Unidentified Analyst:]

What marketing strategies in place to increase revenue and growth? And what can be done to increase client base?

[Mickey Miller:]

First of all we think I'm a big believer it's easier to get orders from existing clients, the new clients. So we've had an intense focus on our harvesting over 9000 customer base that we've had, over the years that we haven't done a very good job of approaching. So we're beginning to implement some outreach programs to update them on our products offering, update on how we can help them to do their business more efficiently and effectively. And so far, we've got excellent responses. We’ve engaged with customers that hadn't heard from us in a while. And we're seeing opportunities there. As I said, in our trading trader program, we're reached out to over 9000 customers within two weeks. We had over $5 million in new quotes. And we're seeing that increase every day. That was just our initial outreach program and we have quite a few lined up beyond that. So we see opportunities with legacy -- these business has been around for 50 years. So the brands whether it's the Vislink brand, or Satcom side, they know or as a brand, they know these brands, they trust these brands, and they look for direction from our brands. So we have a great opportunity to reengage with customers we haven't engaged with in a while, who respect our brand. And then from there, we have opportunities to grow beyond our brand, and our current customer base. I think that's what we'll start to see towards the end of Phase II.

[Mike Bond:]

Mickey, I see a lot of questions regarding our share price. Where do people think we will go in the future? I think, no, we don't Mickey and I don't sit around worrying about that as much as some people might think. What we think is that if we take care of our business if we show good financial discipline to the extent it in the past, we've paid off significant amounts of our trade debt, reduced all of our debt on the balance sheet. We've made the company much healthier financially. And if we continue to intake the cash that we generate and invested in the proper places and grow the business, we think the share price will take care of itself. But right now we're very focused on good financial discipline and taking the rewards of that and investing in the right places in order to grow the business appropriately.

[Mickey Miller:]

Yes, good point. Like, Warren Buffett says in the short-term, the stock market is a voting machine. In the long term, it's a weighing machine, we're working on the weight, we're working on creating a strong capability to provide consistent earnings potential earnings and earnings potential. So that's where our focus is.

[Unidentified Analyst:]

More question from [William Phillips]. What plans do you have to capitalize on growth and body camp popularity?

[Mickey Miller:]

We what we do, providing connectivity for troops is about connecting everything you'll see a world of body cams, planes, drones, helicopter, all being connected. And that's where we sit. The body cam business as itself is kind of a commodity business. The opportunity is around that is the connectivity and the software to be able to take that create actionable directives for people on the ground and people in the theater of operations. So, that's where our focus is to be part of that. So, we just see being in the connectivity business of connecting all these elements, and wrapping software around it is a good place to be.

[Unidentified Analyst:]

Well, time for one last question. Where do you see the company in years time?

[Mickey Miller:]

I mean, Mike and I came to this company. We both been a variety of small, medium sized and very large companies. We see a big opportunity, we want to build this into a large company, both inorganically and organically, and a very disciplined operational company. As we said, where we can consistently deliver for our investors. We view our role as shepherds of your capital. And capital allocation is our number one priority. So, when we invest and when we allocate capital, it will be an area that we see that we can get the returns that you require as an investor and that will be our mantra that will be our commitment to you. And we are acutely focused on driving returns. And we're going to do that through operational excellence through sales excellence, through developing innovative and disruptive products for our customers, and identifying ways how we can improve our customers operations, whether help them increase revenue or help them reduce costs. And it's a process when you're in the early stages of the process. We've got a lot of work to do. We've had good progress since we've been here the January. But we have a lot more work to do. And we appreciate the support of all our Vislink shareholders that are in this for the long run. We're here to turn this company around which we're seeing early signs of and grow EBITDA to reward our investors. So we look forward to that. And we thank everyone for your support. So with that, we'll sign off and look forward to update you on our Q3 progress. Thanks, everyone.

[Mike Bond:]

Thank you, everybody.