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Vislink Technologies, Inc. (VISL)·Q3 2017 Earnings Summary

Executive Summary

  • Q3 2017 revenue was $10.158M with GAAP gross margin 50.2%, non-GAAP gross margin 60.0%, and diluted EPS of $(0.43); delays in key components pushed >$2M of shipments into Q4, where management guided to approximately $20M revenue and reiterated FY 2017 revenue of ~$55M with positive adjusted EBITDA for the year .
  • Record revenue was driven by the Vislink acquisition and strong orders (HCAM 4K systems in China, BRF $400K order, Middle East sports, law enforcement), while FX reduced revenue by ~$188K; CFO highlighted adjusted EBITDA loss of $(1.9)M in Q3 due to one-time items and mix .
  • Backlog stood at ~$8M at Sept 30 and exceeded $10M at the time of the call, underpinning Q4 visibility; management emphasized seasonality (Q4 highest), and reiterated no reverse split and no equity raise, with any acquisitions funded by debt .
  • Near-term stock reaction catalyst centers on executing the ~$20M Q4 revenue plan and resolving Army order timing (prepared $1M finished goods for Afghanistan deployment), alongside higher-margin mix (Army >70% GM) and FX sensitivity to the British Pound .

What Went Well and What Went Wrong

What Went Well

  • Record Q3 revenue of $10.2M with non-GAAP gross margin 60.0%, supported by Vislink integration; CFO: “record third quarter revenue of $10.2 million” and “gross margins… approximately 60%” excluding purchase price amortization .
  • Strong commercial traction: $1M orders for HCAM 4K in China; $400K HCAM order from BRF (largest holder with 28 systems); Newsnet won SBE 2017 Technology Award; MicroLite 2 released .
  • Visibility and seasonality aligned to a strong Q4: “backlog of almost $8 million” at Sept 30, “today… over $10 million,” and revenue forecast “over $20 million” in Q4; FY revenue guidance ~ $55M maintained .

What Went Wrong

  • Procurement/quality problem on a key chipset delayed >$2M orders that were ready to ship, inflating inventory to $19.0M and contributing to Q3 net loss and negative EBITDA; management refused to ship substandard product .
  • Operating expense intensity from integration: G&A up to $6.4M and R&D to $2.8M with acquisition-related, restructuring, and stock-based comp; EBITDA loss of $(4.344)M GAAP and adjusted $(1.947)M .
  • FX headwind: British Pound weakness reduced Q3 revenue by ~$188K, and FX remains a risk to Q4/FY reported revenue .

Financial Results

MetricQ1 2017Q2 2017Q3 2017
Revenue ($USD Millions)$9.3 $14.1–$14.5 (prelim) $10.158
Diluted EPS ($USD)——$(0.43)
Gross Margin % (GAAP)——50.2%
Gross Margin % (Non-GAAP)~44% (excl. one-time) —60.0%
EBITDA ($USD Millions, GAAP)$9.8 —$(4.344)
Adjusted EBITDA ($USD Millions)$12.4 —$(1.947)

Notes:

  • Q2 2017 preliminary release indicated positive EBITDA and net income but did not provide exact figures .

Year-over-year comparison:

MetricQ3 2016Q3 2017
Revenue ($USD Millions)$1.913 $10.158
Gross Margin % (GAAP)49.3% 50.2%
Net Income (Loss) ($USD Millions)$(3.106) $(5.522)
Diluted EPS ($USD)$(1.98) $(0.43)

KPIs and balance sheet trend:

KPIQ1 2017Q2 2017Q3 2017
Backlog ($USD Millions)~$9 ~$6 (end Q2) ~$8 (as of 9/30); >$10 at call
Inventory ($USD Millions)$6.6 —$19.0
Cash ($USD Millions)$4.7 ~$4.6 $4.7
Accounts Receivable ($USD Millions)$11.7 —$8.0
Working Capital ($USD Millions)——~$18

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4 2017—~$20MRaised
RevenueFY 2017~$55–56M (Dec prior roadmap) ~$55MMaintained
Adjusted EBITDAFY 2017—PositiveMaintained (statement of intent)
Gross Margin (long-term)Ongoing—45–50% framework (mix-dependent); Army order >70% GMProvided/Context
Capital ActionsNear-term—No reverse split; no equity raise; any acquisitions funded by debtMaintained stance
Army Contract TimingNear-term—Order not yet received; $1M finished goods prepared for Afghanistan; expected near-termTiming risk clarified

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2017)Previous Mentions (Q2 2017)Current Period (Q3 2017)Trend
Product pipeline (HCAM, MicroLite 2, Newsnet)New product flow strong; Newsnet launched; satellite product overhaul; considering bonded cellular Q2 prelim highlighted momentum and integration success HCAM 4K orders in China/BRF; MicroLite 2 released; Newsnet won SBE Award Strengthening product traction
Supply chain/procurementMinor cockpit issues caused few shipment delays —Key chipset quality issue delayed >$2M shipments Headwind in Q3, expected to normalize in Q4
Seasonality——Expect Q4 highest; Q1/Q3 lower; guided >$20M Q4 Clearer seasonal framework
Government/Defense (Army order)Federal proposals underway (NSC/NIST) —Army order pending; $1M finished goods; shipment to Bagram AFB; sole responder to RFP Positive setup, timing uncertainty
FX/macroFX hurt Q1 revenue by ~$347K —FX reduced Q3 revenue by ~$188K; Pound volatility risk to Q4/FY Persistent FX sensitivity
Margin outlookGM ~44% (excl one-time) in Q1; bonded cellular would lower margins to ~20s —Non-GAAP GM 60% in Q3; long-term GM 45–50%; Army >70% Mix-led margin variability
Integration/OpExAchieved ~$4.4M annual cost reductions; further $0.6M planned —Elevated G&A/R&D from Vislink inclusion and one-time charges Integration largely complete; transient costs tapering

Management Commentary

  • “Our third quarter revenues were negatively impacted by delays in the receipt of key components… resulting in over $2 million in orders not being shipped… [but] upwardly revised our Q4 2017 revenue forecast to approximately $20 million… puts us in range for achieving… approximately $55 million for calendar year 2017, with positive adjusted EBITDA for the year.” — George Schmitt, CEO .
  • “We are pleased to report that we had record third quarter revenue of $10.2 million… An adverse movement in the British Pound to US Dollar exchange rate reduced revenues by approximately $188,000… We ended… with $4.7 million in cash, positive adjusted cash flow from operations and a continued improvement in working capital.” — Roger Branton, CFO .
  • “As of September 30, we had a backlog of almost $8 million… Today, our backlog is over $10 million… We will manage our cash carefully, and we will be just fine.” — George Schmitt .
  • “You should always expect Q1 and Q3 to have lower revenues than Q2 and Q4, and you should expect Q4 to be the highest revenue quarter of the year.” — George Schmitt .
  • “I have… been asked… if we were going to do another reverse stock split… no… [and] if we’re contemplating an equity raise… no… any acquisition… will be funded by debt and not by equity.” — George Schmitt .

Q&A Highlights

  • Backlog trajectory: ~$3–4M in Q1, ~$6M in Q2, ~$8M at 9/30, >$10M at call; management to furnish exacts post-call, confirming strong Q4 visibility .
  • Q4 revenue composition: ~$3M not yet ordered, ~$5M already shipped, ~$2M to ship in Nov, ~$10M in Dec; pending orders ~$5–5.5M to convert to achieve ~$20M .
  • Army order timing/visibility: sole bid meeting spec; shipment destination Bagram AFB; $1M finished goods ready; expected before year-end despite procurement personnel changes .
  • Margin sustainability: Non-GAAP ~60% in Q3 driven by mix; long-term planning uses 45–50%; Army contracts at ~70% GM; satellite resell margins in teens .
  • Auction 97/broadcast refit timing: visibility toward late 2018 into 2019 for refit impacts; limited revenue included in outlook from this vector .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 2017 could not be retrieved via the tool during this session; as a result, beat/miss versus consensus cannot be assessed here. Values should default to S&P Global when available; note that Q2 preliminary press release stated record revenue “that exceed analyst expectations,” but no numeric consensus was provided in filings . S&P Global consensus data unavailable via tool at time of request.

Key Takeaways for Investors

  • Q3 represents operational execution amid supply chain headwinds; the deferral of >$2M orders sets up a “record” Q4 revenue ($20M) and reinforces FY revenue guidance ($55M) with positive adjusted EBITDA, a potential near-term catalyst if delivered .
  • Backlog and shipment cadence (> $10M backlog; $5M already shipped; ~$10M slated for December) suggest strong visibility; monitor conversion of ~$5–5.5M pending orders to lock Q4 target .
  • Margin profile is mix-sensitive: Q3 non-GAAP GM 60% unlikely to be sustained; long-term planning at 45–50%, with upside from higher-margin defense orders (~70%) and downside from satellite resell (teens) .
  • Elevated Q3 OpEx reflects integration and one-time items; cost actions from Q1 (~$4.4M annualized) and normalization post-restructuring should support improved operating leverage into 2018 .
  • FX remains a measurable swing factor (Q3 ~$188K headwind); revenue translation exposure to Pound warrants hedging considerations for Q4/FY .
  • Capital stance reduces dilution risk: management reiterated no reverse split, no equity raise; any acquisitions would be debt-funded—supportive to equity holders if cash generation improves .
  • Watch government order timing: Army procurement delays are the principal execution risk; confirmation of award and shipment to Afghanistan would de-risk Q4 margin/GM mix and cash collections profile .

Additional Relevant Press Releases (Q3 2017)

  • The Q3 2017 8-K included Exhibit 99.1 detailing orders and accomplishments (HCAM 4K in China, BRF $400K order, Newsnet SBE Award, MicroLite 2 launch), conference call timing, GAAP and non-GAAP reconciliations, balance sheet and P&L tables .