Vislink Technologies, Inc. (NASDAQ:VISL) Q1 2023 Earnings Call Transcript May 15, 2023

Vislink Technologies, Inc. reports earnings inline with expectations. Reported EPS is $-0.8 EPS, expectations were $-0.8.

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 90:10 hardware to software split by the end of the year.

As I mentioned, we remain confident about our sales pipeline with strong contributions in that funnel from growing public safety and sports and entertainment and market opportunities. We are looking to revamp our marketing efforts going forward as well, including further leveraging our vast database to identify additional opportunities. Our aim is to substantially increase our marketing functions contribution to total sales, and we are prioritizing this in the near term. We have kicked off an initiative to drive even more leads in the near-term. We have accumulated a substantial database of 30,000 customer inputs in preparation for our upcoming marketing campaigns in the back half of the year. Our dedicated marketing efforts during the first quarter set a strong foundation and we anticipate that these campaigns will bring in a meaningful number of new leads.

Additionally, we are continuing to drive business through industry conference and tradeshows. In Q1, our marketing team supported two public safety tradeshows, Heli-Expo and S&P Farnborough. We presented a full suite of solutions to local, national and international law enforcement and military agencies and the quality of the leads coming out of those events was very high. Recently, we also had a very successful showing at the National Association of Broadcasters Show, or NAB in Las Vegas and will remain North American debuts of several products. Our 5G-Link product, which allows our customers to connect remotely to our COFDM HCAM product and utilize key applications like camera control, won the prestigious NAB Product of the Year Award in the Remote Production Category.

There is a lot of excitement regarding our new products, we came away with strong leads. And I want to delve further into our recent product updates. We continue to deliver immense value to our customers we’re making particularly strong progress with our newer solutions, and we debuted some of these in the first quarter. As I mentioned, we demonstrated our new product Cliq at NAB. The dual fee, dual audio product has generated a lot of buzz in both our live, sports entertainment and public safety end markets. It’s an OFDM transmitter capable of full 4K transmission, allowing broadcasters to deliver more immersive camera views in wireless capture content. In addition to its more obvious application and sporting events, it supports a wide variety of applications including on board vehicles such as helicopters and drones.

It’s compact nature makes it convenient and easy to use, we expect strong sales in this product even in its first year on the market. As I mentioned earlier, we delivered the first six AeroLink units to the field. We are working closely with those customers as they deploy. AeroLink offers the capability to transmit 4K video streams from aerial sources, thereby providing law enforcement with enhanced visibility and expanded coverage during field operations. Additionally, as we look to build our software and services, AeroLink pairs well with our Video Management System as officers and military personnel can go directly to their own personal digital assistant to view live view video streams. We see volume doubling for AeroLink in Q2. As part of our efforts to further build software and services revenue, we are pleased to announce the release of the latest version of our Quantum software.

This update incorporates SMPTE 2110 UHD video capability, along with high-quality video transition. Alongside this, we are introducing LinkMatrix 2.0, a powerful remote management tool that provides convenient control and monitoring of all Vislink products, including both traditional Vislink and Mobile Viewpoint solutions through a unified software platform. One of the key enhancements in this update is a dual channel, dual band, simultaneous video capability. Users now have the ability to utilize multiple channels simultaneously maximizing their options for the video transition. Additionally, the update includes advanced capabilities that enable extended diversity range by daisy-chaining up to four Quantum devices our customers can achieve even greater flexibility and reliability, particularly in diverse environments.

These integrations seamlessly improve transmission and video quality significantly enhancing the overall user experience. They align perfectly with our enhanced go-to-market strategy. To further support this strategy, we have introduced a tiered service plan across all the Vislink products. Our sales team is actively prioritizing the promotion of software and service plans with every order, and we will closely monitor the progress and impact of these efforts. Whether it’s sports and entertainment or public safety, our product offerings are the same. That includes everything from content capture to distribution and system management. This allows us to not only be flexible in how we sell and market but it also allows us to be more efficient and responsive on the production side as we standardize architecture and components.

Our supply chain management benefits greatly here and we are seeing vast improvements in our order fulfilment as a result. We are the only player in the market capable of bonded cellular, private 5G and bonded costume. We see these advancements in our product as a significant advantage with the upgrade of our software platform, we are creating a very compelling offering. I’ll now provide updates with each of our target end markets. First, I’d like to highlight our MilGov end market, which was a significant growth engine for us in Q1 and will continue to be a key cornerstone of our strategy going forward. MilGov increased 50% to $0.9 million from $0.6 million in the prior year. MilGov made up 13% of revenue in Q1 compared to 9% in the prior year period.

Last quarter, I mentioned we had visibility into doubling this revenue in this segment in 2023, and we made good progress towards that goal in Q1. We introduced the AeroLink transmitter in 2022 and has been receiving strong feedback from the market. We are also integrating our Quantum receiver into a solution, which provides high reliability reception for increased production efficiencies. We are also building a solid pipeline of opportunities for this product in Western Europe, Asia and the Middle East. Domestically, we believe the company is benefiting and will continue to benefit from the increased federal funding particularly in the public safety sector as it provides agencies with increased buying power. With continued growth in our public safety markets, we are actively exploring tangential markets where we can expand our offering.

We are optimistic about the number of use cases for our products in this area. Within our live production market, revenue was $5.1 million, down 10% from $5.6 million in the prior year period. Live production made up 71% of revenue in Q1 compared to 82% in the prior year. As we continue to refocus our strategy to further emphasize MilGov, live production, driven by continued growth in sports and entertainment, will remain a key part of top line performance. We continue to hear from our sports, media and entertainment customers that demand is still strong, but we are closely watching this given the state of the macro environment. In closing, our first quarter created a strong foundation for us to make further progress in our targeted growth markets in 2023.

With strong alignment among our revamped leadership team, we are cascading our OKRs throughout the organization and beginning to see results. Behind our market-leading set of solutions, improving sales and market strategy and strong industrial tailwinds, we are confident we can attain our financial targets this year and position Vislink for sustainable long-term growth. We remain focused on continuous improvement in all aspects of our business with a heightened focus on marketing and sales. I look forward to keeping you all updated on our progress in future quarters. And with that, I’ll conclude my prepared remarks, and we will open up the call for your questions. Operator, please provide the appropriate instructions.

Q&A Session

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

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: 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.