Vislink Technologies Inc (VISL) 2020 Q3 法說會逐字稿

Welcome to the Vislink Technologies Third Quarter Earnings Update Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Belinda Marino, Corporate Secretary. Please go ahead.

Good morning, everyone. I'd like to remind everyone of the safe harbor statement referenced in the SEC filings. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements, including statements made during the course of today's call. Statements contained herein that are not based on current or historical facts are forward-looking in nature and constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934.

Such forward-looking statements reflect the company's expectations about its future operating results, performance and opportunities that involve substantial risks and uncertainties. When used herein, the words anticipate, believe, estimate, upcoming, plan, target, intend and expect and similar expressions as they relate to Vislink Technologies, its subsidiaries or its management are intended to identify such forward-looking statements. These forward-looking statements are based on information currently available to the company and are subject to a number of risks, uncertainties and other factors that could cause the company's actual results, performance, prospects and opportunities to differ materially from those expressed in or implied by these forward-looking statements.

For a more detailed discussion of some of the ongoing risks and some uncertainties of the company's business, please refer to the company's various filings with the Securities and Exchange Commission.

Thanks, Belinda. Hi, this is Mickey Miller. I'd like to welcome you to the Vislink Q3 2020 Earnings Webcast. I'll be joined on this webcast by Mike Bond, our CFO. We'd like to take this opportunity to report on the progress we made in the third quarter of 2020 and provide you an update of our latest developments and future prospects. Participants will be able to submit questions during the webcast from the main webcast page, and we'll try to take as many of those as possible at the end of the conference.

In the third quarter, we continue to feel the effects of the challenging macro business environment. The ongoing COVID-19 pandemic limited our top line growth due to the reduced demand in our key Live Production and MilGov markets. We experienced customers delaying the deliveries on both new and upgraded equipment. I do want to point out that in almost all cases, these were not order cancellations, but rather an extension of delivery schedules requested by customers that will help them better adapt to the fluidity existing in their own budgets and deployment forecast.

The pandemic also negatively impacted our supply chain and caused an interruption in receiving components from a few of our suppliers. This further constricted our ability to fulfill orders in the quarter, although we do expect these interruptions to be resolved over the course of Q4. This is an area that we are taking concrete steps to address. Ideally, you design your supply chain with agility to address supplier interruptions by having dual sources.

We are implementing this supply chain discipline on all new designs and evaluating existing higher volume designs. As part of our Phase 2 of our turnaround effort, we continue our efforts to successfully streamline all aspects of our business. We built on a disciplined cost-focus approach we instituted earlier this year and realized additional operational efficiencies during the quarter. We will continue this approach with additional cost reduction measures that are expected to achieve $5 million in savings.

Our diligence in adhering to this next phase of our operational turnaround helped us mitigate the effects of the business downturn, conserve cash and stabilize our finances. These actions have put us in a better position to pursue and capture growth opportunities as they arise for the remainder of 2020 and into next year.

One of our key developments we undertook during the quarter was the initial implementation of a comprehensive integrated business planning process or IBP. This is a tactical and strategic process for tightly integrating the planning functions in all departments in aligning operations and strategy with the company's financial performance. We've already seen positive impacts from this initiative and have implemented immediate changes to key processes and business policies.

During the third quarter, we experienced positive results from our product-focused innovations. We were pleased to introduce 2 significant product lines: the DVE/IRD Satcom encoder/decoder and the IP Link 3.0 digital microwave system. These will be followed by the introduction of the new Quantum Receiver in the first half of 2021.

We are encouraged by the progress of our development team has made in deploying new technologies to meet market demand. We also initiated our product rationalization program with the goal of making the optimal use of our financial and human resources. We are pleased with the progress we have made, and we'll continue to execute on our plan in the coming quarters.

Although we experienced demand challenge in our sports and entertainment and MilGov markets, we are seeing increased activity in the professional motor sports market, which has been making it come back from the slowdown in live events caused by pandemic earlier in the year. We recently received a very large order from a prominent global motor sports racing series. A public announcement of the order will be forthcoming and we expect to deliver the order this quarter.

We're continuing to invest in our technologies like our MDR onboard systems that are used to capture live video at high speeds. They have been deployed at many demanding high-profile sporting events around the world, including MotoGP and MotoAmerica Motorcycle racing series, and we're considered the world leader in these solutions.

During the quarter, we also saw the increase in our service business. We successfully integrated our service and sales platforms so that all service solutions can be sold through our global sales teams.

I will now turn it over to Mike Bond, who will walk us through our financials.

Thanks, Mickey, and good morning, everyone. Here are some of the essential financial highlights from the third quarter. Revenues for the 3 months ended September 30, 2020, were $4.8 million compared to $5 million for the 3 months ended September 30, 2019. Gross margins were 31.8% of revenue in the third quarter of 2020 compared to 40.7% in the third quarter of 2019. EBITDA, which is earnings before interest, taxes, depreciation and amortization, was a negative $2.4 million for the 3 months ended September 30, 2020, which represented an improvement of $2.3 million over the negative $4.7 million for the 3 months ended September 30, 2019. We ended the third quarter 2020 with $3.1 million in cash on hand.

Net loss attributable to common shareholders narrowed to $2.8 million or $0.17 per share in the third quarter 2020 compared to a net loss of $5 million or $2.41 per share in the third quarter of 2019. Net loss attributable to common shareholders was $8 million or $0.61 per share for the 9 months ended September 30, 2020, which compares to a net loss of $11.7 million or $12.77 per share for the 9 months ended September 30, 2019.

I'll now turn it back over to Mickey to provide an outlook on the business in our markets.

As we continue Phase 2 of our turnaround, we will maintain our focus on our integrated business planning process initiative, which will improve our cash efficiency and customer satisfaction. In addition, we will continue execution of our product rationalization and new product development initiatives to meet the future needs of our customer for video capture and transport. We are tightly aligning with our customers in each of our verticals to identify new opportunities and to align our product road maps.

Looking forward, we see the following in-store for our key market sectors. While the canceling for our broadcast and Live Production markets or the canceling and scaling back of major live sporting and entertainment events has pushed back infrastructure investments over the past 2 quarters, we are slowly witnessing such events coming back online. This will allow us to again leverage our experience in covering events like the Olympic Games, the World Cup and other Tier 1 competitions that we traditionally participate in.

In the MilGov market, we see growth potential in the business from law enforcement and defense agencies that are pursuing aircraft acquisitions, upgrades and downlink network modernization projects. We're in the process of ramping up business through targeted indirect sales channels, including OEM and VARs. On our Satcom business, we are starting to see results from an increased focus in investment earlier this year.

As mentioned in our service business, we are bullish on our ability to increase our service business and expect to see growth in this area that accompanies a general increase in solution sales we are expecting to realize over the course of 2021.

In summary, we remain cautiously optimistic for return to normalcy in the industries we serve. In the meantime, we are encouraged by the effort and the progress the team has made in blocking and tackling elements of our business. That being said, we still see tremendous opportunities for improvement in every aspect of our business, and we look forward to reporting back to you on our progress in subsequent quarters.

Now we'd like to answer some questions that have been submitted during the webcast.

There's a question. I was excited to hear about the development of new products. How do you determine what products best fit Vislink's growing portfolio?

On our product definition, our product management team works with our sales teams, tightly aligned with our customers and our development teams to identify the needs of the customers, where they're heading and how new technologies can impact those developments to make our customers more successful.

So the 2 new products that we introduced this quarter, the IP 3.0 and the DVE/IRD were all based on that type of effort of our product management team working closely with sales and our customers, coupled with working -- aligned with our development team in the new technologies. And so we're very optimistic about the acceptance of those products in the market because they've been designed with our customers.

And Mickey, here's a question. It says, are there any defense programs overseas that have prospects for your products?

And the answer is absolutely. And yes, we do continue to focus on the military and government and first responder markets. We think that the products that we have that we've sold here domestically in the United States also have good cross applicability to markets into solutions in other countries, other military organizations and also first responder and police organizations. So we continue to look at that. We think that's a fertile area of growth for the company. We continue to push very hard on the military government side. And we think there's a lot of prospects for growth in that area.

Thanks, Mike. Another one, can you explain how do you go to market?

We go to market. We have a global footprint of our direct sales people as well as partnering with value-added resellers and representatives throughout the world. We have very tight relationships with those in specific verticals where they bring value, both knowing the customer and also in deployment of those types of products. So yes, we have a very broad sales organization.

Here's the question that says your future sales look, you have lost 2-point -- what is your future sales outlook? You have lost $2.4 million this quarter and you have $3.1 million of cash. Does this say in simple words that you survive one more quarter?

The answer is absolutely not. Nothing could be further from the truth. As Mickey had mentioned, we had a down quarter based on some sliding to the right of some of our customer orders. We anticipate having a much better quarter next quarter. We have constructed the company and put some cost-saving measures in place that will get us to a -- what we think is a breakeven or better point. So we won't be burning cash like we had in the last quarter.

At this point, we still have access -- good access to public markets to raise funds, if we need to. And so we feel very, very confident that we have the staying power and the financial resources to stay the course for at least through the next year, if not further.

Thanks, Mike. The other one said, at the end of quarter 2, you informed that there is no issues with supply chain due to COVID and now you're saying you did?

Yes. In quarter 2, we had no disruptions in our supply chain. In the third quarter, we did have 2 vendors. One with a unique product for our Satcom products, which experienced the COVID situation on their facilities. So their ability to respond to not only us and their other customers was impaired. As I mentioned in my comments earlier, we need to design into our supply chain and into our products, agility to be able to handle situations like that.

So that one's on us, that's an area of improvement for us. This is a product that's been around for a long time in Vislink. But as we build new products and as we evaluate our existing product portfolio, we will evaluate it from a perspective to ensure that we have dual source where we need to on key critical components and ability not to have situations like this impact our revenue. So that's an area for us to improve, and we're well along that.

Mickey, there's a question, which says, is there another reverse split in works? And I'm sure that's on the minds of a lot of our investors.

The answer is no that Mickey and I are not a big fan of reverse splits. We -- but we had to do the last one to accomplish staying within compliance with the NASDAQ. We feel very confident where the share price is and where we will deliver value to continue to increase value for the shareholders to raise the share price and not necessitate a reverse split. So we feel very strongly that we can go forward without reverse splits. If necessary, we can raise capital in the markets and we can keep our share price above the requisite requirement for the NASDAQ.

Yes. There's a couple of questions that are aligned, so I'll ask them both. Are there any new contracts in the pipeline? And how comfortable are you with the visibility of future sales?

So there's a lot of contracts in the pipeline. There's a lot of activity happening. The confidence around the timing of those is a challenge. We're now experiencing a global increase in the pandemic. We'll have to see how that plays out. But I can say, in the first quarter or the first month of this quarter, things are robust. There's a lot of both existing projects that we've been involved in talking about as well as new ones coming to the table.

So our visibility isn't great, given what's happening with the pandemic, but I know there are many conversations going on with our sales teams and development teams around the needs of customers to bring technology to help them, either be more efficient, increase our revenue or be more productive. So we'll continue to monitor that. And as you're seeing, we will monitor our cost base accordingly. But as we mentioned, we're cautiously optimistic based on the activity that we're seeing.

[Owen] sent a question that says, is there any order of products from -- are there any order of your products from the law enforcement area?

And the answer is absolutely yes. We continue to emphasize law enforcement given recent events and the requirements of law enforcement. There's a greater requirement for them to surveil and to do surveillance of urban areas. And we -- our technology plays very well in that area. So we continue to see a lot of interest from law enforcement and first responder organizations for the equipment that we sell and have been selling for quite some time. So we're very bullish again on that segment of the market, and we think we'll have additional sales and additional revenue in the coming quarters.

Yes, here's one. The reverse split did not go so well. How are you planning to take care of your investors in the future? What is your schedule on PR, Investor relationship communications from [Marco Weber]?

That's a great question. When we look at this, we see -- first of all, we brought on KCSA to help us to -- with our communications to investors. But what we're seeing from a lot of our customers, there's a reticence in these days, whether it's through the defund police efforts or just general market situation to make large announcements. We are, however, working with customers on some things that we'll be able to announce in the future. There's a lot of activity going on. We haven't been able to announce many of those largely because of the subdued desire to make public announcements along those.

But we are engaged in many opportunities, but a lot of it has to do with just the global caution around what's happening with the pandemic. So we'd like to announce as much as we could announce to the market because when you look at what we've done with this business, this company was effectively 5 companies that had been acquired over time. So within it was a multiple set of processes, organizations, people, facilities, and we've been able to pull that together and make a rationalization effort to lower our cost base, improve our efficiency and bring new products to market. We brought more products to the market this quarter than effectively did in some time. So we're continuing to build on the fundamentals of the business.

We can't control a pandemic, but we can control what we do every day in terms of what we focus on and what we do to improve our business and that's what our team is doing. We're making massive improvements from everything from how we go to market, how we define our products, how we develop our products and how we produce our products and how we ship our products. We have a lot of room for improvement. That's what's encouraging here. We see a good platform with an excellent customer base in each of the markets that we serve and now we're working on the fundamentals and we see a tremendous opportunity for improvement, and we're making progress each quarter to that.

As you can see, with this quarter, we had roughly the same amount of sales as we had a year ago, and we lost half as much. I'm not proud of that. We don't like to lose money, and we have areas to improve. And by making additional cost savings like we have to achieve an additional $5 million in savings, we're not sitting back and taking this COVID situation and wait until it's over. We're taking action internally to position ourselves to come out of COVID better than we went in. And so we're really encouraged with what our team has done, what our entire organization has done, but we have a lot more to do. We have a lot more room for improvement.

So Mickey maybe one final question I see is that someone asked, you mentioned acquisitions in an interview last month. Is that still in the cards?

And the answer to that is, Mickey and I look almost on a daily basis at organic and inorganic growth. We obviously are very much concentrated on organic growth at this point. We do see, as Mickey said, a lot of opportunity in the markets we participate in, in the business segments that we participate in, and we do see adjacency in other markets that we can also play in as well for our prime products. But we also are looking inorganically as well. And that will continue. We do have a big push to look at other areas that we could potentially use our products in other areas we could use our customer base to effectively take other products and put them into those customer bases as well.

So it will be an ongoing process. We can't say much at this point, but we do continue to look at inorganic growth as well as organic growth.

Thanks, Mike. So that's where we are. We appreciate the engagement of our investors. We appreciate the questions.

Just to summarize, we've got a lot of work to do. We're happy with the progress we've made so far, but we've got a lot of work to do. And I think when we do see just some reasonable normalcy in the sports and entertainment market, let's face it. Sports and entertainment has been back, but it's a fraction of the amount of event. I think I saw that a rights holder had lost or down 80% this year on last year. So the overall market has been impacted. But the things that we're doing internally, when that market returns, we're going to bring innovation in a big way. There's a great deal of new technology that we'll be applying to our overall portfolio. And we'll have a platform that will allow us to efficiently deliver to our customers and return the results to our investors. So that's our goal. We're focused on this 24/7, and we'll continue to do that.

Thanks, everybody.

Thanks, everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.