Vislink Technologies - Q1 2022
May 15, 2022
Transcript
Moderator (participant)
Hello, everyone, and welcome to the Vislink Q1 Earnings Call. I'm Tyler Kern. I'll be steering this ship gently here today. Joining me to provide the insights and the expertise that we need is Mickey Miller, the CEO, and Mike Bond, the CFO at Vislink. Gentlemen, thanks so much for joining me here. Excellent.
Mike Bond (CFO)
Second time doing this format, and we're very excited to do it.
Moderator (participant)
Well, I'm really excited to have you guys here and to be a part of this here today. You know, last time you were in studio with me, and it was great. You guys were just, like, right over here, you know? Today, you're across the pond. Tell us where you are and what you're up to.
Mickey Miller (CEO)
Yeah. We're here at our facility in Colchester, United Kingdom. It's one of our largest facilities. We got our contingent of engineering as well as operations here and some marketing sales functions. It's a beautiful, sunny day here in England, 72 degrees Fahrenheit, so it's very nice, and we're here on a lovely campus at our Vislink location.
Moderator (participant)
Warm and sunny. That does not sound like any England that I've ever known or been to, but I'm happy for you guys that you're enjoying a nice day there in the U.K. Well, I know that you have a lot of updates for us and a lot that you wanna share because it's been a busy first quarter of the year. Let me turn it over to you guys to walk us through some of the updates and some of the things that have been going on.
Mickey Miller (CEO)
Yeah. Thanks, Tyler. We're gonna give a quick update and then get to the numbers. First of all, welcome. We're so happy that you're here with us today. As you can see, this is some recent events, Bruno Mars at the Grammys with our solutions in the foreground with our greatest partner, NEP and AVS. Randy Hermes, a customer of ours for over 20 years. We're so happy that we can continue to work closely with NEP. You know, we've gone through our mission. It's very clear whether it's the most premier events in sports and entertainment or our city streets or in the theater of operations. It's bringing video as more immediate, more immersive, and more intelligent. The markets we serve, as you're aware, sports and entertainment is a large piece.
Last year, it was just under 50%. On the Mil/Gov side, last year, about 1/3 of our revenue was direct to the U.S. Army. Our first responder market we see coming back in much more volume this year. Our legacy satellite business, we continue to support customers globally.
Mike Bond (CFO)
A couple key highlights for the first quarter of 2022. First off, revenues increased about 75% over the first quarter of last year. If you remember last year, we did about $4.2 million of sales. We were coming out of the pandemic. It was a difficult quarter for us. This year, we did $7.2 million, and we did have some difficulty along the way related to supply chain and some of our key components, sourcing some of those components. We estimate that anywhere from about half a million to a million dollars of revenue was delayed due to some of the supply chain challenges that we faced. Our bookings for our key live production segment are going up and increasing.
They went up 40%, this quarter, and that's a great indicator of where we think the markets are going. The live production market was severely impacted by the COVID pandemic, and we're seeing a strong comeback now, in this first quarter, and that obviously, hopefully, will continue into the rest of the year. We ended the quarter with about $31 million in cash. If you remember, we had about $36 million of cash at the end of the year last year, and we used about $5 million in total. About $1.2 million of that was used in just pure operational losses, but most of it, the remainder of it was used in balance sheet, and specifically, we used about $2.5 million to bolster inventory. We did two things.
We increased our inventory on key components to make sure we're insulating ourselves as much as possible for this supply chain issue. We also are building, for the first time probably in recent memory, actually certain finished goods to put on the shelf to answer and to be more responsive to the book and ship market that we see that is starting to increase. We feel very good about our ability to respond, first, to the shortage of the components, and two, to respond to customers that need an immediate solution.
We did do a couple things in terms of delivering technology to some really interesting world events in this first quarter, and if you think back, it was Winter Olympics, it was the NFL Super Bowl, the NBA All-Star Game, and the NHL All-Star Game. We were involved in all of those. We also have our equipment in Premier League, Serie A, and Champions League football here in the European area. We also covered the Grammy Awards, the Academy Awards, and the Country Music Awards. I'm sure most of you are familiar, there's this great program called the Eurovision Song Contest, and our equipment, our video equipment is involved in that as well.
Mickey Miller (CEO)
As we've talked about on previous calls, innovation is key. Last year, over 25% of our revenue was new products introduced last year. We expect that number to be over 50% this year. AeroLink, we announced at the Heli-Expo in March, and we've had an incredible response to that. We have multiple demos set up. What AeroLink is, it's a multi solution that provides both 5G proprietary COFDM and mesh downlinks for our first responder and news broadcast customers. Our Stellar Cam, which is our multi-camera solution focused on tier two and tier three content, was introduced, and we saw quite a large response to that product.
Finally, we've integrated all our products to be part of our LinkMatrix, which was part of the Mobile Viewpoint solution, to be our complete OS that manages every bit of devices that we have, whether they're classic Vislink devices or Mobile Viewpoint devices, so our customers on one screen can manage their entire network.
Mike Bond (CFO)
Here are some additional financial and operating updates that we've incurred this quarter.
Mickey Miller (CEO)
Oh, we went too far.
Mike Bond (CFO)
We did.
Mickey Miller (CEO)
Yeah. Okay.
The live event production market, as we know, is a big piece of our business. I think when you look at that market today, the operative word is automation. How can we do things more efficiently? How can we help our customers acquire and capture more content, and monetize content more efficiently? When you look at what we're offering with our IQ Sports Producer or our overall vPilot or any of our automation products, it's about bringing more efficiency and ability to cover lower tiers of content to be able to monetize those. Yep, on the Mil/Gov side, again, automation is a huge piece of that. It's about taking images, whether it's from drones, whether it's from fixed wing or helicopters or on the ground, to be able to make decisions quickly.
The mass amounts of content that is created and captured and distributed, and then how you automate that to make decisions effectively in the theater of operation. That's where a large focus, and those are in use cases like emergency response, crowd riot control, disaster support, or surveillance.
Mike Bond (CFO)
Now I'll take you through some of the financial highlights. I think we skipped a slide. We need to go back to financial highlights. Is this it? Thanks.
Mickey Miller (CEO)
Yeah.
Moderator (participant)
When it comes to financial highlights.
Mike Bond (CFO)
Yeah.
Moderator (participant)
Mike, what specific things do we wanna make sure that we mention and talk about here?
Mike Bond (CFO)
Yeah, sure. We have a slide. Thanks, Tyler. We have a slide that covers our financial and operational highlights for the quarter. Our gross margins were 52% in the first quarter, and we did take a charge for amortization of a step-up in basis for our MVP acquisition. When you subtract that out, we were more at about a 55%-58% gross margin pace, which we think is very good. That's where we'd like to stay. That compares to about 46% gross margin in the first quarter of last year. We've had some significant increase, and we've maintained our margins in the first quarter. The Q1 net loss attributable to common shareholders was $2.8 million, or about $0.06 a share.
That compares to a net loss of $2.7 million or $0.07 per share for Q1 of 2021. The EBITDA, that's earnings before interest, taxes, depreciation, and amortization, for the three months ended March 31st, 2022, was a -$1.3 million, compared to a -$2.4 million for the three months ended March 31st, 2021. We also realized some operational efficiencies over the quarter. We did vet and add significantly to our base of suppliers. I think at this point, we're up to over 50 key suppliers. That's important because as we go through this supply chain issue, we need to increase and have additional sources of supply in order to mitigate some of the shortages that we're experiencing. We've done that.
We feel pretty good about that, and we think that'll help us and bolster us against any effects that the supply chain issue has going forward. We did upgrade our United Kingdom facility, the operational aspects of it. We changed and improved our factory floor. We made it more efficient, and now it accommodates our workflows more readily. We did complete a move of our U.S. facility. We went from Hackettstown, New Jersey, to a smaller facility in Mount Olive, New Jersey, but we did increase the efficiency of that operation. It's brand new, it looks beautiful, and everyone's excited to be there, and we think it'll improve our operations substantially there as well.
We are commencing to relocate and upgrade our service and repair and maintenance function, and we're gonna take that from our prime facility here in Colchester and move it to Luton and create a new facility there for that function. We think that'll improve, you know, our customer care and our repair and maintenance. I'll run you through some of our M&A and investment thoughts. We still are investigating and actively pursuing M&A options. We have been doing that throughout the year. We're a small company, and we think it's very important that we find just the right opportunities. We think we found that in MVP for a number of different reasons, and so we're doing that now.
We're looking for organizations that can, you know, contribute to the bottom line almost immediately and help us in terms of our go-to-market and our product portfolio.
Mickey Miller (CEO)
Our goal is to try to have a deal closed and announced in 2022. We'll continue that. The deal size that we're looking for is anywhere between $10 million and $30 million. We are looking at various sectors that could augment our capabilities as they are today. We're looking at AI-based and other automated video recognition technology. We are looking at what is called C4ISR, which stands for Command, Control, Communications, Computers, Intelligence, and Surveillance technology. That is obviously utilized and is an initiative by the U.S. military to combine all of those functions into one central command. We are looking at automated live production, and we're also looking at process or digital automation, if you will.
Different solutions and technologies that would help us to push our offers forward in that respect. In the first quarter, we had two large shows, the Heli-Expo, which I talked about earlier. We had about 4,000 people that are focused on helicopters, drones, and fixed wing to some degree. It was all about bringing our new AeroLink product to market. We had an incredible response. We're now working with those customers to finalize on demos and introduce that product later this fall. NAB 2022 was a fantastic first broadcast event in over two years. It was a large event. 45,000 people registered.
We generated over 400 leads that we're following up on, and we were able to engage with many of our customers that we've known for years, and these are the major networks, the major content owners, and the major producers of content throughout the world. It was an international event, and we're really pleased it. We were named the IQ Sports Producer, won the best AI live streaming solution from Videomaker Magazine. We're really thrilled to be part of it. We've got a lot of events today and tomorrow in Dubai, CABSAT 2022 is happening. That's a large event in the Middle East around our solutions, both for broadcasters and military. Later this week, starting tomorrow, Milipol Asia-Pacific, and that's all about public safety and civil defense. That'll be happening in Singapore. Then next week, Milipol Qatar.
Again, civil defense, counterterrorism, and public safety will be happening in Qatar. In June, we'll have BroadcastAsia, followed by NACDA in Las Vegas. APSCON, which is aviation public safety. That's again, fixed wing, unmanned drone technologies, will be in Reno. Texas Association of Broadcasters. Yet again, one of the larger events, the second largest event behind NAB, which will be IBC in September in Amsterdam. With that, we'll open up to Q&A.
Moderator (participant)
All right. Welcome back, everyone. Happy to have you all here with us. Yeah, like Mickey mentioned, we're gonna do some Q&A here at this point in the program. You have the chat function over there on the right-hand side of your screen. Drop us a question. If we answer one of your questions and choose to run with it, we'll send you some Vislink swag, a T-shirt, something fun like that. Make sure to be asking questions over there in the chat. We know that there are questions that you have and information that you need, so make sure to ask over there. We will kick things off here with a question from Jade Delor, who asks: "How are your efforts at landing new contracts?" Mickey, let me toss this over to you.
Mickey Miller (CEO)
Thanks, Tyler. What's interesting is we've been working on our digital marketing. We've been working on how to engage with customers and potential customers in the COVID world, and then also bringing that as live events come around. We've been really pleased. Right now, we're seeing more quote activity than we ever have in the history of the company. The activity is tremendous. We're spending a lot of time working with these customers, whether it's on live production or on first responder military, of understanding the challenges, the problems they're trying to solve, and how our technology can best help them. We'll see how the market will evolve. Obviously, with interest rates going up, you know, there's concern possibly. From what we're seeing, two things are evident.
One, on the live production side, the consumer is spending their discretionary income on consuming content, all types of content. We've seen incredible amounts of very unique types of content. Finally, on the first responder side, we are seeing what we saw last year, kind of a slowness around the defund the police efforts. We're seeing that come back and the activity around not only traditional opportunities, but opportunities that AeroLink bring. We're seeing a tremendous amount of quoting activity around that.
Moderator (participant)
Excellent stuff. John Rutherford would like to know when you expect to break even and be profitable here in the future.
Mike Bond (CFO)
Now, that's a great question. We've done a lot of work over the two years that Mickey and I have been here to kind of optimize the business model. We've, you know, consolidated a lot of our facilities. We've changed some of our workflows. We've optimized our teams, we think, to go to market. We've done one successful acquisition with Mobile Viewpoint. We did, you know, peak above the break-even line late last year, and we frankly think we can do that this year as well. We've optimized the operations to produce profit, to be profitable. We think we're gonna do that this year. We had a slight loss this quarter, and some of that had to do with the fact that we did have some material shortages and some supply chain challenges.
We think, you know, there's all kinds of reasons to believe we'll be returning to profitability in the coming quarters. We do see it, like Mickey said, a comeback in the live event market. We think our ability to sell in the military government market is as good as ever. We think we have a good shot at being profitable this year.
Moderator (participant)
Excellent stuff. Next question that we got here: are you seeing increase in component costs? Mickey, something that we're seeing quite a bit of around the world, is that something that you're seeing as well?
Mickey Miller (CEO)
Yeah, we have, Tyler, particularly around semiconductors. As you know, being a tech company, a lot of our IP, we put in firmware and software that rides on our IC systems on a chip. We've seen increases. We've instituted increases ourselves. We're able to pass those increases on. We had, across, many product lines, an increase in May, and we'll continue to monitor that to see how things are responding in the supply chain environment and what we do from a product standpoint with our markets.
Moderator (participant)
Well said. Well said. When can we expect to see orders realized from all the leads you got at the big shows that Vislink exhibited at? We saw all of the the big events that you guys have been at and where you're going here in the future, so when can we expect to start seeing some of those orders?
Mike Bond (CFO)
Yeah. I think almost immediately. It's interesting, we had such a good response, and we had such a good experience at this most recent NAB show. As Mickey said, we had over 400 leads generated from that opportunity, that event alone. As Mickey mentioned, we have a lot of events scheduled. We're gonna be, you know, kinda canvassing the world at these various events, so we think it's almost immediate. We think we'll look, this will continue to kinda snowball and gain momentum as we move through the year.
Moderator (participant)
Great stuff. Great stuff, Mike. Mickey, let's swing back over to you. Which parts of Vislink's business are growing the fastest right now?
Mickey Miller (CEO)
Well, I think when you saw the numbers around live production, we saw a large increase in the order base there, I think over 40%. You know, that's obviously driven by live events coming back. When you look at, you name it, across every major league now people are in the stands, audiences are around the world, consuming this content. We not only see it happening at the tier one premier events, but we also see tier two events, scooter events, you name it. Everything you could conceive of is being created and now consumed as content. We see both an opportunity as the premier tier one events come back, but also as the appetite for all types of content increase, that we'll see additional opportunities around those types of content and those types of events.
Moderator (participant)
Yeah. Great stuff. Great stuff. Zac Curwen chimes in with a question. Zach, thank you so much for this question. It's a really pertinent one and a really good one. Do you have any equipment being utilized in Ukraine at this time?
Mike Bond (CFO)
Yeah. Good question, Zach. We do. We're careful how we discuss that, but we are very much in tune with the crisis and the effort to supply the Ukrainian military. If we can be a part of that, and we can be helpful, Mickey and I have made the decision, we will do that.
Moderator (participant)
Yeah. Very well put. I appreciate that, Mike. Mike, let's stick with you for this. Has COVID shifted your orders and revenue run rate forward?
Mike Bond (CFO)
It has slightly. You know, again, the pandemic had a decimating, you know, significant effect on our live production business last year, as Mickey said, and what we've seen in some of the shows that we've attended and some of the customer responses that we're getting is that, you know, people feel that the COVID pandemic has been put behind us substantially. There are parts of the world that are still shut down, mostly in Asia, but we are seeing a lot of places come back online.
We're seeing the customers that we have, the big producers of live events coming back and saying that they see a need and a necessity for even more, you know, immersive content, and therefore, they're upgrading and continually adding more equipment to their portfolio and their repertoire in order to provide that type of content. We're seeing it all over the world in all shapes and forms in live event, and we're also seeing, again, this idea that, you know, there's an emphasis on various aspects of first responder and military spending that fit very neatly into the things that we do, both, you know, standing off and surveillance and observation of things, capturing video, and transporting that wirelessly to an area where you can utilize it or monetize it.
We think we're very well positioned as the world comes out of the pandemic to really benefit from all the various areas where we think there's gonna be increased business and increased activity.
Mickey Miller (CEO)
Yeah, Tyler, I think the largest component of growth on the Internet is live production, and that's a tailwind that we're riding to provide solutions and services that allow people to take their content, take their live video in whatever case it is, and put it over the Internet in a reliable way.
Moderator (participant)
Good stuff, guys. Good stuff. The next question is a big one, and it's something that a lot of people have asked, so Mickey, I'll come to you with this. Can you discuss Vislink's relationship with Starlink?
Mickey Miller (CEO)
Yeah, we get that, we get that. What we can't say today is we're simulcasting with Starlink. We've got this is a Mobile Viewpoint UltraLink. What this product does, it takes the input from the camera, and this is power here, and then has ability to go over the air via 3G, 4G, 5G, whatever you like, as well as connect to a Starlink dish, which it has. In this case, it's connected via Wi-Fi, and then outside of here is a Starlink dish. You know, that's one example of how we work with Starlink.
Those are the kinds of things that we're able to do by bringing the technology, no matter what medium it goes across, but to do that in a very highly reliable way, but also in a very low latency, because it's not so much about the speed, it's about the latency, how fast you get a response to when you send video across to get a response to that. I think that's the area that we focus on. By our acquisition of Mobile Viewpoint, it brings together all these different technologies under one roof.
Moderator (participant)
Yeah, absolutely. Let's wrap up here today talking a little bit about acquisitions. Mickey, I'll come back to you with this. Are you happy with the MVP acquisition?
Mickey Miller (CEO)
Oh, we're very happy with the MVP acquisition on multiple fronts. One, as I just talked about it brought a whole new product offering that augments and complements our traditional custom networks very well. Now we can go to every customer and say, "No matter what the medium, however you wanna transport video, however you wanna analyze that video, we can do it." Second thing is the AI that they've been working on for over 3.5 years. Bringing that to bear to our current customers has been tremendous. The access that the combination of the customer set that we have with the technology that Mobile Viewpoint has has been tremendous. We're really happy about that. The third thing is the personnel. It's a great team that we have led by Michel Bais. He's on our senior leadership team.
JD, the head of sales, is on our senior leadership team, and Charlotte, who heads up marketing, is on our senior leadership team. Across every area, product, technology, and talent, they've had made a massive contribution to Vislink and will be a foundation which we build on for the future.
Moderator (participant)
Mike, when are you gonna make your next acquisition?
Mike Bond (CFO)
Great question. We'd like to have made it yesterday, so we're very careful. We are vetting a lot of opportunities. We've done that throughout last year and this year. We continue to do that, but, you know, Mickey and I both feel that, you know, we can't make a mistake here. This is one thing we've gotta get right. We think we did it pretty well with MVP. We thought. As Mickey said, we got a tremendous team, great product, great entree to a unique market, and we're looking for something similar to that, something that really complements and augments our capability going forward and obviously adds to the bottom line and helps us on the top line as well.
Again, we're gonna be careful, but just want everyone to know we are working very diligently, and it's job one for, frankly, for me in a lot of ways. We have expanded our team. We've added an individual that's come to us through the banking, you know, investment banking, private equity door. He's helping us vet and kind of spread out through the world, looking for opportunity in a much more aggressive way than even we could have last year without him. We're pretty confident, and we're very excited by the fact that, you know, we think we'll have some good news to share with everybody in the coming quarters.
Moderator (participant)
Well, we appreciate all of the questions that we got from the audience here today, and we tried to run through as many as we could. Mike and Mickey, before we wrap this up, any final thoughts, anything you wanna leave our audience with here today, that you think is important to share or important for them to know?
Mickey Miller (CEO)
Yeah, Tyler, I think, you know, through COVID, we've built a strong foundation here. We've pulled together a team that can take this company to the next level. We'll continue to focus on the fundamentals of how we operate these businesses. Our customers, we have to be very customer-centric and focused on providing them solutions that solve their problems. With that, and complementary acquisitions, we see a very bright future for Vislink.
Mike Bond (CFO)
Yeah, I'd echo the same. I think it's a great question. We're well-positioned. Mickey and I both feel very confident that all the hard work we've experienced and done in the last couple years puts us in good stead to realize, you know, growth, profitable growth, hopefully acquisitions and other things that will help the company grow. But we're pretty bullish on the future.
Moderator (participant)
Absolutely. Well, Mickey Miller and Mike Bond, guys, thank you so much for joining us here today and giving us an update on all things Vislink from the first quarter and all of the things to look forward to throughout the rest of the year, the huge events, the shows, all of those things. We appreciate your time today and all the information you were able to share with us.
Mickey Miller (CEO)
Yep. Thank you to all our shareholders and owners of the company. We view you as owners. We focus on allocating your capital in the best ways to get the best returns for you. Thank you.
Mike Bond (CFO)
Thanks, everybody. Thanks, Tyler.
Moderator (participant)
Very, very well put. Thank you guys very much. I hope you enjoyed the rest of a nice day in the UK, one of those rare sunny days. We appreciate your time today very much. Everyone out there, thank you for joining us here for this update from Q1 from Vislink. We appreciate it very much. Of course, stay tuned, we'll be back soon and do more of these in the future, of course, so stay tuned for that. For this one, for Mickey and Mike, I'm Tyler Kern, and we'll talk to you all again very soon.