Vislink Technologies, Inc.
Q1 2023 Earnings Call Transcript

Published: 15 May 2023

[Operator:]

Good morning, everyone. Welcome to the Vislink’s First Quarter 2023 Earnings Conference Call. My name is Jamie, and I’ll be your operator for today’s conference. Joining us for today’s presentation are the company’s CEO, Mickey Miller; and CFO, Paul Norridge. Following their remarks, we will open the call for questions. Earlier today, Vislink released results for the first quarter ended March 31, 2023. A copy of the press release is available on the company’s website. Before we begin the call, I would like to provide Vislink’s safe harbor statement that includes cautions regarding forward-looking statements made during this call. Management will make statements during the call that include forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements include, without limitation, our examination of operating trends and financial expectations are based on the company’s current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not rely on these statements. For a list of risks and uncertainties associated with the company’s business, please see the company’s filings with the Securities and Exchange Commission. Vislink disclaims any intention or obligation, except as required by law to update or revise any forward projections or forward-looking statements, whether based on new information, future events or otherwise. This conference call contains time-sensitive information that is accurate only as of the live broadcast this morning, May 15, 2023. I’d now like to turn the floor over to Vislink’s CEO, Mr. Mickey Miller. Sir, please proceed.

[Mickey Miller:]

Thank you, operator, and thank you, everyone, for joining us today. This morning, we filed our 10-Q with the SEC and issued a press release that provided our financial results for the first quarter ended March 31, 2023, along with highlighted business accomplishments. As a brief overview for today’s call, I’ll begin by providing highlights for the first quarter of 2023 and summarizing some of our recent business developments before passing the call over to Paul to discuss financial results in more detail. I’ll then come back on to discuss progress on our go-to-market strategy, product updates and updates within our key target markets before moving to Q&A. And with that, let’s begin. Highlights and recent business updates. We are beginning to see the benefits of the strategic actions we have taken over the last several quarters to transform our business and expand our growth opportunities. In the first quarter, we delivered strong profitability improvements, including a 26% improvement to EBITDA or approximately $700,000 on an absolute basis year-over-year, which were driven by our effective cost management along with 50% growth in our MilGov segment. Our go-to-market motions are gaining traction, validated by our robust sales funnel that includes the most million-dollar opportunities in several years. We are continuing to improve operations as we increase alignment among our teams. And though these larger opportunities typically have longer sales cycles, we are confident that we will capitalize on many of these potential deals in the coming quarters. From a new product standpoint, Q1 was highlighted by the delivery of our first six AeroLink units to the field. Based on our current visibility, we anticipate doubling AeroLink delivery volume in the second quarter and continue a strong trajectory going forward based on the positive initial feedback we have received from our law enforcement customers. This momentum we’re building in public safety is the cornerstone of our strategy. As it is a growth market being fueled by increased government funding, while accessing the funding usually stretches out the timeline for securing contract agreements, it is opening the door to a significantly larger purchases. In an effort to offset the timing, we’re aiming to book and ship new orders as much as possible in the same quarter. Our sales and operations team have done a phenomenal job of rising to the channel and are working in lockstep through the entire process to make sure we are ready to ship when the deal closes. Additionally, we’ve added members to our inside sales team to further support smaller orders that we received in order to allow our sales leaders to focus on increasing the number of large opportunities. With recent product rollouts, like our Cliq OFDM mobile transmitter and the upgraded Quantum receiver, we are confident we have the right products in place to take advantage of the market opportunity ahead of us. As we continue to drive these new sales, we are simultaneously driving our integrated software, the LinkMatrix management platform and value-added services that will increase recurring revenue and provide additional revenue streams over the long-term. With that, I will turn the call over to Paul to discuss our financial results for the quarter in greater detail. Paul?

[Paul Norridge:]

Thank you, Mickey, and good morning, everyone. Before I move into our financials, I’d like to thank Mickey and the board for the opportunity to join the leadership team as Chief Financial Officer. In my more than 15 years at Vislink, I have seen our company expand our global reach into new markets introducing innovative technologies that help enhance performance, mobility and efficiency for our customers across an array of industries along the way. I am confident that we have the right strategy in place to optimize the potential of our exceptional solutions, and I look forward to working with Mickey and our teams to streamline our operations to achieve our goals in 2023 and beyond. Now moving into our financial results for the first quarter. Our total revenue for the first quarter of 2023 increased 5% year-over-year to $7.2 million from $6.9 million of revenue in Q1 2022. As Mickey noted, our revenue growth was driven by solid expansion in our MilGov segment. However, due to external timing issues, two projects were postponed to Q2, slightly meeting our Q4 results. Our gross profit for the first quarter of 2023 increased to $3.9 million from $3.4 million in the prior year period. Gross profit margin for the first quarter of 2023 was 54%, an improvement from 50% in the prior year period. The increase in gross margin was the result of revenue increase as previously noted in cost savings on components. Total expenses were $6.2 million, a 5% decrease from $6.6 million in 2022. Now turning to our profitability measures. For the first quarter of 2023, we recorded an operating loss of $2.3 million, an improvement from $3.1 million loss in the prior year period. Net loss attributable to common shareholders for the first quarter of 2023 totaled $1.8 million, $0.80 per share. This was a $1 million improvement from a net loss of $2.8 million, which is $1.20 per share diluted in the first quarter of 2022. EBITDA for the first quarter of 2023 improved $0.7 million or 26% to a loss of $1.7 million from $2.4 million in the prior year period. Adjusted EBITDA and non-GAAP metrics for the first quarter of 2023 improved to $0.5 million loss from $1.3 million loss in the first quarter of 2022. The improvement in EBITDA was the result of revenue improvements and continued expense management. A reconciliation of EBITDA to GAAP measure is contained in our earnings release. Finally, to our balance sheet. As of March 31, 2023, we had cash and cash equivalents of $14 million compared to $25.6 million at the end of the fourth quarter. We invested $10.8 million in federal bonds intended to be held to maturity. We have maintained a strong balance sheet. And from a working capital standpoint, at the end of the first quarter, we had $38.2 million in working capital, a decrease from $38.6 million at the end of Q4. A strong debt-free balance sheet provides us with significant resources to weather any macro pressures, while at the same time affording us with the optimal flexibility to allocate capital towards opportunities with high return on investment potential to align with our long-term growth potential. To that end, we’re seeing an increase in activity on both the buy and sell side, and we continue to evaluate strategic opportunities that will enable us to drive scale as an organization and maximize shareholder value. That concludes my prepared remarks. I’ll now turn it back to Mickey.

[Mickey Miller:]

Thanks, Paul. On our go-to-market update, our efforts to transform the business, including the implementation of our new go-to-market strategy are helping us drive stronger top and bottom line results. In 2022, we took strategic actions that included shedding non-strategic assets and realignment to focus on the growing public safety market. We are now actively implementing initiatives with our sales teams to attach software and services to all of our hardware sales. We have reframed our strategy to emphasize hardware sales as a gateway to higher-margin recurring software and services revenue. Though it’s still early, we are making steady progress on our way to obtaining at 90

[Operator:]

[Operator Instructions] Our first question today comes from Brian Kinstlinger from Alliance Global Partners. Please go ahead with your question.

[Brian Kinstlinger:]

Great, thanks so much for taking my questions. You mentioned doubling of the arrowing shipments in the second quarter. I’m curious, is that compared to the first quarter? Is revenue recognized as these are shipped, or does there have to be some kind of approval? And then what does this mean for 2Q revenue compared to the first quarter.

[Mickey Miller:]

Thanks, Brian. Thank for joining the call. Great question. First, yes, it’s doubling from the first quarter of 2022. So we mentioned we shipped six AeroLinks, and we expect to ship over 12% this quarter. And just to put that in context, the AeroLink is the device that goes into the fixed wing or helicopter, that is a smaller part of revenue and the larger opportunities around the received stations and the software that rides on that as well as the installation and service level agreements that go along with it. So typically, these types of orders are in the $0.5 million to $1 million range with AeroLink being perhaps 20% of that and the balance being the additional services and software that we offer. So, when we look at Q2, what we’re finding is, as we’ve moved to an architecture that’s well standardized, whereas before, we had many bespoke products, and now we’re leveraging a lot of the same components. And we’re seeing more of a book and ship in the quarter. So, we expect our revenue in MilGov to increase in the second quarter. Our teams are focused on that. And as we mentioned in the prepared remarks, are very aligned with our operations team. So when those orders do hit, we’re able to ship them out in the current quarter as opposed to historically where there is extended lead time given the uniqueness of the component structure.

[Brian Kinstlinger:]

Once they take and integrate the AeroLink, how soon before you received the piece for the receiver stations? And is everyone who an AeroLink obviously need that receiver station?

[Mickey Miller:]

The first question, typically, we ship out a system in aggregate, and that system could contain up to 50 line items, including our Quantum Receiver, the AeroLink transmitter and all the ancillary equipment that goes along with that, meaning antennas, cables, switches, things like that. Typically, that shifts at the same time. Some of our deals were able to recognize revenue when we ship, if we structured that with the customer. Some customers want to see the entire system installed and running and tested before we’re able to recognize revenue. But I would say that’s probably a 70-30 mix, 70 is when we ship out product, and we were able to build that immediately and then we build the remaining once we finish the install and test. So one example is in the case of first quarter, we had one customer where we did ship the product. We recognize that revenue, but the preferred installer by that customer was not available to install on time. So we were not able to recognize the installation revenue, which if we would have along with another international border project – border surveillance project, we would have been able to invoice both of those, we would have had even better results for MilGov in the first quarter.

[Brian Kinstlinger:]

And then in regards to AeroLink, you talk about, I mean, you talked about the second quarter, but talk about the broader market opportunity and pipeline for this product?

[Mickey Miller:]

Yes. So we’re really excited about this because we’ve been in this market for some time. Our product was – had somewhat long in the tooth, we call the HDR. And so we’ve replaced that now with the AeroLink, which is the 4K or two 1080p, so the latency and the performance and the visual quality is much improved. So what we’re finding both in the MilGov space as well as in the broadcast aerial space, that customers are very interested in upgrading to this new technology. We also have the ability to combine this with bonded cellular for those customers that either want to have a hybrid solution or just a unique 4G, 5G bonded solution. So we anticipate to grow significantly in this area, as you know, public safety has been a focus of the team to position our products to have success there. Initially in the U.S. first, where we have long-standing relationships with many of the police and fire and rescue departments in the country, particularly this type of product is usually at the major metros because of a significant investment. And so as we see federal funding for public safety, being a key piece, we’re seeing grants around this area, so we’re seeing many customers, executing on projects that they’ve had in the works for some time. And so we see good growth here in the U.S., but we’re also seeing very good initial opportunities outside the U.S., first in Western Europe where we’re seeing MODs, exploring utilizing this technology, not only for their services, but also for all public safety and support services in the particular countries. And then we’re seeing initial in Asia and then ultimately in Middle East. This technology in the world we’re in today, public safety and surveillance and having a bird’s eye view of what’s happening allows them to keep their officers safe and perform their duties efficiently, and so we’re quite optimistic that we can grow this business to be not only a hardware business, but we view our hardware, as you know, as a gateway to provide both software, services and installation support.

[Brian Kinstlinger:]

Great. Switching to live production. How are customers weighing economic challenges versus investments in new equipment? And then I think you talked about a couple of delays. Was that related to this business? I missed that, sorry.

[Mickey Miller:]

Yes. The two delays that we had in first quarter, Brian, were for MilGov, so they were both public safety opportunities. One was the installation that a large U.S. police department, the other was – we had a significant order from an international border patrol that they wanted to increase the orders so they held off on receiving the equipment until they could increase the order. But good question around live production, and sports, media and entertainment. Every customer I talk to, I always ask how is business, and the uniform response has been, we’re busier than ever, which is being driven by the need for live content globally, and we’re seeing that continue. We’re seeing consumers being very interested in live events and how those live events are produced. It’s not only the event itself, but it’s also the story within the story, which we’re seeing a drive to be able to have capability not only at sporting events, but at concerts, there’s just an insatiable demand that appears right now for live events. We remain vigilant about observing that to see, given the macroeconomic situation the world is – is in that we might see some reduction in that, but we haven’t seen that yet.

[Brian Kinstlinger:]

Okay. And then you talked about new marketing campaigns. Is the marketing budget increased? Or are you doing more with the budget you have? Or we see this through the P&L, and then what’s the sales cycle? It sounds like you’re in a bunch of conferences – industry conferences. Once you get a qualified lead, how do you think about sales cycles?

[Mickey Miller:]

Okay. Yes, first question, historically, we’ve been – first of all, our marketing budget has decreased year-on-year. We want to do a very focused approach and historically we’ve been largely a trade show marketing company. So we hit the main trade shows as well as some of the key regional trade shows in the two markets that we participate in. And we’ve had success there, but we haven’t done a good job in taking advantage of the database of customers that we’ve received through either approaching our website or from trade shows two years ago or from just inbound that we see through multiple ways. So we have a database of over 30,000 names. We haven’t effectively been able to segment that and market that, so we’ve gone focus on digital campaigns, first e-mail campaigns and then second digital campaigns. We expect those to be a lower cost rate, but currently today less than 2% of our revenue is driven by marketing-related leads. I think world class in the SaaS world is around 30%. Our goal is to get that to 10% by the end of the year. And our goal this quarter is to get up to 3%. So we’re going to do that through first cleansing that database, which we’ve just completed. And of the 30,000 names, I think we have close to 18,000 that are valid live individuals that are in the current roles or in the roles that have an influence on this type of product. And so we’ll be reaching out to them and understanding where they are in their customer journey and doing the typical – an ideal customer profile is defined. And once that customer shows an intent to buy, then becomes a sales lead, converting from a marketing lead and will be approached by our sales team. So that’s how we view, market. So we expect to do it very cost effectively, but we think we can get a big bang, and we’ll continue to increase – there’s list that we’re able to acquire for low cost that we’ll be able to add to that.

[Brian Kinstlinger:]

Great. Thanks so much.

[Mickey Miller:]

Thank you, Brian.

[Operator:]

And ladies and gentlemen, at this time and showing no online question – no audio questions. I’d like to turn the floor over to the management team to field any offline questions.

[Mickey Miller:]

Thank you. I think Brian addressed a couple of these around marketing and sales and also around a [indiscernible] where we are there. I think those have been covered. I think we’ve had some questions around M&A opportunities. As you know, we still continue to have a strong cash position. We continue to stay focused on that. We are active in exploring opportunities to leverage our position in the markets we serve as well as build our position in the defense area. We believe the technology that we have could provide very effective solutions in those markets, particularly around 4K. So we’re very focused on that. I think we have one more here. Maybe, Paul, I’ll let you address this, how much more can Vislink lower the breakeven point?

[Paul Norridge:]

Yes. So this quarter, we saw the impact of our previous cost management efforts. We’re continuing to look at ways to further optimize the business. So it’s an ongoing process. So we are doing things internally. And hopefully, we’re bringing that breakeven point down even lower, Mickey.

[Mickey Miller:]

Thanks, Paul. And then last one, how do you expect to get to 90-to-10 revenue split by the end of the year. Right now we’re in the very low-single digits. We’ve now upgraded our capability, our SLA capabilities, our service capability to support customers 24/7, so we can offer them 24/7 support. Our support offerings range from 8% of sales to 12% of sales, and that would be on an annualized basis. We’re finding very good reception from our customers when we talk to them about this because they don’t see it being offered from other competitors in the market. So we’re very encouraged by the initial reception that we’ve received from that. So we’ll continue to monitor it in several ways, one, to make sure that every quote that goes out has an SLA quoted and then reviewing what the attach rates are. And then ultimately, as that builds it’s a recurring revenue that will continue to benefit us each quarter, each subsequent quarter as we continue to roll this capability out. We’re very encouraged with the initial response from customers that it’s something that they’re very appreciative of and willing and see the value and willing to pay for. So we’re very encouraged with that.

[Mickey Miller:]

It looks like that’s all the online questions we have. I’d like to thank everyone for joining us today. We’re very encouraged by the opportunities that we do see. We’re very encouraged about the leadership team, and they’re working across functional organizations to be able to position ourselves to turn orders quickly when they come in. We’re very focused on the marketing and sales side and improve our marketing capabilities, coupled with our ability to close sales, and you’ll continue to see that as we evolve throughout the year. Thank you, everyone, and we look forward to reporting our second quarter results post second quarter.

[Operator:]

Ladies and gentlemen, thank you for attending today’s Vislink’s first quarter 2023 conference call. You may now disconnect your lines.