Movella Holdings Inc. (MVLA)·Q2 2023 Earnings Summary

Executive Summary

• Q2 2023 revenue was $8.4M, down 3% year-over-year and down 9% sequentially; gross margin was 53%, improving ~300 bps YoY but compressing from Q1’s record 61% as entertainment strike-driven volume and mix weighed on margins .
• Management quantified a ~$2M revenue impact from the Hollywood writers/actors strikes and guided Q3 revenue to $8.6M ± $0.5M; FY 2023 revenue outlook set at $34–$38M, with gross margin expected “up in the 60s” in the back half and OpEx moving lower ex one-time items .
• Adjusted EBITDA was -$5.2M, worse YoY (vs -$4.5M) and sequentially (vs -$3.0M), reflecting lower revenue and added public company costs; GAAP diluted EPS was -$0.27 versus -$1.48 in Q2 2022 and +$0.36 in Q1 2023 due to de-SPAC-related fair value items in Q1 .
• Cash and cash equivalents ended at $51.0M (vs $62.1M in Q1), providing ample runway for product investment (e.g., OBSKUR) while prudently managing expenses; management does not expect breakeven in Q3 but is taking actions to reach breakeven at a lower revenue level .
• Near-term stock reaction catalysts include resolution/timing of strikes (project resumption), H2 gross margin recovery into the 60s, traction/monetization of OBSKUR (Mocap Box priced at $1,995; Twitch revenue share and digital asset marketplace) and demand generation in non-strike-affected entertainment segments, automation/mobility, and health/sports .

What Went Well and What Went Wrong

What Went Well

• OBSKUR launched with strong initial engagement; “OBSKUR enables livestreamers to create engaging content, complete with motion-enabled avatars” and the Mocap Box began shipping, targeting creators/VTubers and expanding Xsens tech beyond Hollywood studios .
• YoY gross margin expansion to 53% (GAAP) despite strike pressures, evidencing cost discipline and mix management; management expects H2 gross margins “up in the 60s” as mix normalizes and demand improves .
• Cash position remains strong at $51.0M, enabling continued investment in products/use cases (e.g., OBSKUR, automotive workplace ergonomics) while prudently managing OpEx; “Our strong cash position will allow Movella to continue to make measured investments…” .

What Went Wrong

• Entertainment strikes had a ~$2M top-line impact in Q2, driving a 9% sequential revenue decline and margin compression via fixed-cost absorption, mix, and increased reserves for excess/obsolete inventory .
• Adjusted EBITDA declined to -$5.2M (vs -$4.5M YoY), and GAAP loss from operations widened YoY to -$7.7M, with incremental public company costs and non-recurring de-SPAC/capital markets expenses weighing on results .
• Management does not expect breakeven in Q3 given continued macro challenges (Europe/China) and strike duration; FY revenue guided to $34–$38M, below a path to near-term adjusted EBITDA breakeven previously contemplated, pending improved demand and cost actions .

Financial Results

Key Metrics vs Prior Year and Prior Quarter

Actual vs Estimates – Q2 2023

Note: We attempted to retrieve S&P Global consensus estimates for MVLA Q2 2023; data was unavailable due to missing mapping in SPGI/CIQ for MVLA.

Segment Revenue Mix (Q2 2023)

Product vs Service Mix

Additional KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO on OBSKUR launch and strategic positioning: “OBSKUR enables livestreamers to create engaging content, complete with motion-enabled avatars… We remain well positioned for significant opportunity ahead, particularly in film and game production once all parties reach a resolution.”
• CFO on strike impact and revenue mechanics: “We estimate the impact to our revenue in Q2 to be approximately $2 million… GAAP gross margin was 53%… sequential decrease… attributable to lower revenue… product mix… and increased excess and obsolete reserves… [all] a direct result of the Hollywood labor dispute.”
• CFO on outlook and actions: “For the third quarter of 2023, we expect revenue in the range of $8.6 million, plus or minus $500,000… We are taking action to increase demand generation and reduce OpEx… We expect full-year revenue in the range of $34 million to $38 million.”
• CFO on margin/OpEx trajectory: “I expect [gross margin] to be up in the 60s [in H2]… I would expect [OpEx] down… Our goal is to be able to break even at a lower revenue level.”
• CEO on cash and investment priorities: “We continue to be in a very strong cash position with $51 million on the balance sheet, which affords us the opportunity to make measured investments in new products and use cases while managing our expenses prudently.”

Q&A Highlights

• Strike recovery mechanics: Management characterized revenue loss as a “push out” of professional studio projects, not a catch-up spike post-resolution; capacity constraints imply gradual normalization rather than a one-quarter surge .
• OBSKUR monetization: Mocap Box priced at $1,995; revenue streams include Twitch interaction revenue share (~20%) and a digital asset marketplace embedded in the app; platform-agnostic broadcasting with initial distribution via Epic Games Store and streaming on Twitch .
• Segment mix and bookings: Q2 segment revenue roughly balanced across entertainment ($2.8M), automation & mobility ($2.7M), and health & sports (~$2.8M); automation/mobility bookings growing ~4–5% QoQ .
• Margin/OpEx clarification: H2 gross margins expected in the 60s; OpEx down from Q2 run-rate after removing one-time/de-SPAC-related costs; goal to reach breakeven at lower revenue levels .
• Q4 visibility: While Q3 is guided to ~$8.6M, management assumes strikes impact all of FY23; sees sequential growth in non-strike-affected portions but not a “hockey stick” rebound from studios .

Estimates Context

• S&P Global Wall Street consensus estimates for MVLA Q2 2023 revenue and EPS were unavailable due to missing SPGI/CIQ company mapping at the time of analysis. We therefore cannot quantify beats/misses versus consensus for this quarter. Management’s commentary frames Q3 guidance at $8.6M ± $0.5M and FY revenue at $34–$38M, which should anchor near-term estimate revisions .

Key Takeaways for Investors

• Strike-induced project delays in professional studios are the primary driver of Q2 softness; revenue is more likely to normalize gradually post-resolution rather than exhibit one-time catch-up spikes—position sizing should consider a push-out recovery path .
• Watch H2 gross margins: management targets a return “up in the 60s,” suggesting sequential improvement from Q2’s 53%; upside depends on mix normalization and demand generation in non-strike segments .
• Cash of $51.0M provides flexibility to invest through the downturn (OBSKUR, AI, automotive ergonomics) while executing OpEx reductions; expect cash burn to track non-GAAP operating loss plus WC changes as one-time de-SPAC costs abate .
• OBSKUR is entering commercialization with clear monetization (hardware + Twitch + marketplace); while immaterial in 2023, management expects meaningful 2024 contribution—track adoption metrics and attach rates to gauge runway .
• Diversification helped in Q2: balanced segment revenue and growth in automation/mobility bookings (~4–5% QoQ) provide partial offsets to entertainment headwinds—focus on non-strike demand generation as near-term driver .
• Near-term trading catalysts: (1) any visibility on strike resolution; (2) confirmation of H2 margin recovery; (3) Q3 results vs $8.6M ± $0.5M revenue guide; (4) OBSKUR user growth and marketplace transaction volumes .
• Medium-term thesis: Unique full-stack motion digitization IP, expanding AI capabilities, and creator-economy products (OBSKUR) position Movella for multi-end-market growth; execution on margins and OpEx reductions will be key to reaching breakeven at lower revenue levels .