Moving iMage Technologies, Inc. (AMEX:MITQ) Q2 2024 Earnings Call Transcript February 14, 2024
Moving iMage Technologies, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greeting and welcome to Moving iMage Technologies Second Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Brian Siegel, Vice President, Investor Relations and Strategic Communications. Thank you. You may begin.
Brian Siegel: Thank you, operator. Good morning, and welcome to Moving iMage Technologies earnings conference call and webcast. With me today is Chairman and CEO, Phil Rafnson, who will provide an industry overview; Co-Founder, Executive VP of Sales and Marketing, Joe Delgado, who will provide a strategy and business overview; and our CFO, Will Green. For those of you that have not seen today’s release, it is available on the Investors section of our website. Before beginning, I would like to remind everyone that except for historical information, the matters discussed in this presentation are forward-looking statements that involve several risks and uncertainties. Words like believe, expect, anticipate, mean that these are our best estimates as of this writing, but that there can be no assurances of expected or anticipated results or events will actually take place.
Actual future results could differ materially from those statements. Further information on the company’s risk factors is contained in the company’s quarterly and annual reports filed with the SEC. Now I’d like to turn the call over to Phil. Take it away.
Phil Rafnson: Thank you, Brian, and thank you all for joining us today. I’m Phil Rafnson, CEO of Moving iMage Technologies, or MIT. As you look at MIT as an investment, industry and company-specific factors will contribute to our future performance. First, I’ll address the cinema industry as it stands today, and then Joe will discuss why we’re so excited about the future, where we are introducing potentially disruptive technologies into cinema, eSports, stadium, arenas and other live entertainment venues. Historically, our business has been cyclical driven by new technologies and technology upgrade cycles. We’re currently in early days of one right now, where newer technologies such as laser, projectors with upgraded servers, new screens and smart sound systems are being purchased to replace older technologies.
Additionally, we are seeing cinema owners build new theaters and upgrade or refurbish older ones. These new theaters often include new amenities such as dine-in, bars, and more, all with the idea of making going to the movies a destination experience. From an industry growth standpoint, as I discussed previously on these calls, COVID took its toll on the industry. Over the past few years, we have returned to a more normalized environment with the box office originally expected to approach pre-pandemic levels in 2023. Unfortunately, the now settled Hollywood strikes impacted the later part of 2023 and are expected to be a headwind for box office growth in 2024 due to delays in filming and releasing new content. This will have a trickle-down effect on our business for the remainder of fiscal ’24, which Joe and Brian will discuss in more detail.
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Q&A Session
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Before turning the call over to Joe, I’d like to thank our dedicated employees, without them, we would not be in what I believe is the strongest position we’ve ever been in as a company from an operational, financial, product and competitive perspective. Thank you. Joe?
Joe Delgado: Thank you, Phil, and good morning, everyone. I’ll start by briefly reviewing our business and providing updates on each area. Today, Cinema is our core legacy business, which consists of FF&E projects and selling our proprietary U.S. manufactured goods and third-party technologies. As Phil mentioned, this part of our business has historically been more cyclical and lumpy with project start dates, often being pushed out. Additionally, FF&E projects tend to be at the low end of our gross margin profile, although there is strong operating leverage in this part of the business. In general, FF&E is the largest part of our business. However, the lower margin profile lumpiness and timing factors I just mentioned, a major part of our strategy going forward is to shift our mix towards higher-margin products as well as smooth out the lumpiness and cyclicality.
For cinema, this includes expanding our existing lineup of over 50 proprietary manufactured products, including our ADA compliance products and Caddy lines. Former of which was a contributor to our strong first quarter results. By manufacturing these products, we can significantly increase our margins on FF&E projects and our overall company gross margin when sold a la carte. Additionally, our partnership with LEA professional for smart power amplifiers is another potential source of growth and margin expansion for both FF&E projects and a la carte sales. There are 2 parts to this opportunity. The first is power amplifier attrition. On average, each movie screen needs 5 to 6 power amplifiers, and these tend to have an annual attrition rate of 5% to 10%.
We estimate the total installed market for power amplifiers in North America to be about $630 million. So the annual TAM is around $30 million to $60 million. Given LEA is so confident in its product quality, its warranty is 2x the industry standard combined with supply chain and quality challenges at their competitors, which are also deemphasizing the cinema market. I feel optimistic about sales continuing to ramp in fiscal ’24. As we’re currently in testing with several large cinema chains, the second part of this opportunity is the new builds and the refurb upgrades of cinemas. For example, we have scoped LEA smart power amplifiers into upcoming projects with 2 cinema chains, and we expect to continue to expand the opportunity throughout 2024 and beyond.
Now I’ll provide an update on the MI translator, our multi-language technology solution with a reoccurring revenue stream that forms the high end of our accessibility strategy. The market in North America alone is tremendous, with over 70 million non-English proficient speakers who may not have previously attended the movies. With this product and service, those who did attend previously can now have a significantly enhanced moviegoing experience. This new product class for the industry and adoption has yet to occur. We’re working with multiple industry groups to build awareness for the product and standardize this technology. We believe that this industry effort bodes well for a successful ramp in MI translator, but likely in fiscal 2025, we’ll keep you appraised as things develop.
CineQC, our SaaS-based quality control platform is another example. CineQC is actually a third-party developed platform and we own the global cinema distribution rights. We’ve been working with National Amusements, a large international movie circuit on upgrading and improving this product for the past year. While we’ve made significant progress, we believe there’s still work to do, and we plan more direct control over the software development going forward. However, once complete, we’ll have a much more robust, tested and scalable offering to bring to other clients. The next opportunity for us is to move beyond cinema. Here, we’re targeting 2 areas: other live entertainment venues and esports. I believe eSports has the potential to be a significant incremental growth driver for us in the years to come.
There’s an opportunity to create, the Little League of eSports hosted locally in cinema auditoriums creating a safe, inclusive environment for kids to interact with each other in person through gaming. We believe this is a very attractive value proposition for parents, cinema owners, us and our partner, Sandbox. Here, our product, movie sports, integrates 6 gaming stations with a Mastercard that enables live Play on the big screen. Right now, Sandbox is out doing a funding round, which unfortunately has taken longer than we would have anticipated. As such, we’re working on contingencies to get this business off the ground more quickly. But it would be premature to discuss the details at this point. Finally, the growth opportunity I’m extremely excited about is what we currently call E-caddy.
We have infused our Caddy product of cupholders with technology and will develop applications and services for use in stadiums and arenas. We’ve introduced the E-caddy concept to executives at a handful of major league baseball stadiums around the country for the past few months. We’ve got a great deal of feedback on the type of applications that would excite them and identified other potential partners as well. At this point, we’re preparing to do validation and testing work of the hardware and firmware in our factory, which is a precursor to field trials at stadiums. Concurrently, now that we’ve had discussions with potential customers, we’re identifying the initial set of services that will be part of this offering. The TAM here is huge with millions of existing seats becoming retrofit candidates in addition to new stadium and arena builds.
