Q4 2023 Vislink Technologies Inc Earnings Call

Participants

Brian Kinstlinger; Analyst; Alliance Global Partners

Presentation

Operator

Well, good morning, good morning, everyone. Welcome to this Vislink Fourth Quarter and Full Year 2023 earnings conference call. My name is Allison and I will be your operator for today's call. All participants are in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by T. Rowe. (Operator Instructions) Joining us for today's presentation are the company's CEO, Micky Miller, and CFO, Mike Bond, who will report results for the fourth quarter and full year ending December 31, 2023. A copy of the press release is available on the company's website.
Before we begin the call, we'd like to provide this link Safe Harbor statement, which 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. And any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, our examination of operating trends and financial expectations are based upon the company's current estimates and various assumptions These statements involve material risks and uncertainties that could cause actual results or events to materially differ 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 financial projections or forward-looking statements, whether because of new information, future events or otherwise.
This conference call contains time-sensitive information that is accurate only as of the live broadcast this morning, April first, 2024. Please note, today's event is being recorded. And now I would like to turn the call over to Vislink CEO., Mr. Mickey Miller. So please proceed.

Go through our human guide. You everyone for joining us today. This morning, we will provide our financial results for the fourth quarter and full year ended December 31, 2023, along with highlighted business accomplishments.
As a brief overview for today's call, I'll start by highlighting our 2023 performance outline our strategic direction and detailing our three year financial goals. Then I'll pass the call to Mike to discuss our financial results. I'll then come back to discuss recent updates within our key target markets, product developments and updates around our go to market strategies.
With that, let me begin by saying how encouraged we are about our progress and how excited we are about the future of ViziLite 2023 marked a pivotal year for design as we position ourselves for accelerated revenue growth and enhanced cash flow performance in 24 and beyond our vision to leverage our proprietary hardware infrastructure to drive new recurring software and service sales is gaining traction. Our software and service revenue climb north of 10% of total revenue in 2023, exceeding the high-margin software and services hardware ratio we targeted the beginning of last year. The recent announcement of our air anywhere in platform will be an accelerant to the software service sales. We made significant strides in advancing our presence in the global public safety markets, driven primarily by our airborne video downlink systems or ATS solutions. Our efforts led to securing new customer wins across local state and US federal agencies and large governments worldwide. Punctuate the progress we made, we recorded an impressive 75% year over year increase in mobile revenue in 2023. Our efforts were bolstered by our strategic acquisition of BMS. assets in September, which solidified Vislink leadership and ABTS, particularly in US federal global OEMs and Amea region. The BMS. customer base significantly broadens our market reach and growth potential in the years ahead. It allows us to drive returns on our extensive new product introduction beyond the traditional visiting customer base, the acquisition has quickly demonstrated value evidenced by $1 million-plus order we received recently in Amea, our growth narrative extends beyond AVDS. as we gain revenue traction in the video data transport market headed into 2024, as noted by million lower for border surveillance project in Asia connected cameras from all types of venues and vehicles is a growing market where our bonded cellular technology plays a key role. In addition to the video data transport market sector we are seeing growth in the drone command and control or drone C2 area. During the BMS acquisition, we have secured one OEM market leader and are targeting others. While this is a nascent market for us. We expected to grow 75% this year to just under $2 million in revenue as we reshaped our revenue profile, Vislink has undergone a significant transformation, streamlining our product and operations over the past two plus years. By optimizing our product lineup, we were able to consolidate manufacturing, including moving most of our UK operations to the U.S. and third party contract manufacturers. While eliminating non-core products impacted our revenue growth, it has enhanced efficiency and profitability, laying the groundwork for our new three year strategic plan for profitable growth with strategic execution throughout '23 and into 2024. We believe we are on track to achieve positive cash flow, and we are targeting cash flow positivity in 2025. Our accelerated mode of sales combined with increasing software and service sales and operating leverage are expected to drive significant growth as we enter the second quarter of 2024 Vislink stands stronger than ever. Our weighted sales pipeline as are both robust at $48 million and our backlog is at the highest since the pandemic, highlighting the growth opportunities that lie ahead. Furthermore, our improved book-to-ship ratio and significantly enhance out of box success rates shows a segment of this of our operational enhancements enabled us to deliver higher quality products at an accelerated pace. We are in full swing to start the year, making substantial progress toward our goals behind our leading technology. We believe we are positioned to gain further market share in our key markets this year and drive meaningful top and bottom line financial improvements.
Before I go any further, I'd like to pass the call to our CFO Mike Bond to discuss our fourth quarter and full year 2023 results. Mike?

Thank you, Mickey, and good morning, everyone. Looking at our financial results for the fourth quarter and full year. Our total revenue for the fourth quarter of 2023 was $8.1 million, an increase from $7.4 million in Q4 2022 this improved revenue performance primarily stemmed from the growth of our solutions in Milgard markets, aided by strategic acquisition of the BMS. assets and the increased adoption of service level agreements for the full year, our total revenue was $27.5 million compared to $28.1 million in 2022. The change was primarily due to product rationalization efforts and the discontinuation of lower margin subscale product lines.
Gross profit for the fourth quarter of 2023 was $3.7 million with our gross profit margin for the quarter at 46%. This was compared to a gross profit of $2.4 million and a 33% gross profit margin in the fourth quarter of 2022. Gross margin improvement was due to the greater contribution of mill golf and software and services to the total revenue, partially offset by some one-time manufacturing charges related to new product introduction. For the full year, gross profit was $14.1 million compared to $12.9 million in the prior year. Our gross profit margin for 2023 was 51%, a strong improvement from 46% in 2022. Total expenses in the fourth quarter of 2023 were $10.6 million, a 21% decrease from $12.9 million for the same period in 2022. For the full year, our total expenses were $38.1 million, an 11% decrease from $42.2 million in 2022.
Turning to our profitability measures, we recorded an operating loss of $2.6 million in the fourth quarter, an improvement from $5.6 million loss in the prior year. For the full year 2023, our operating loss was $10.6 million compared to $14.1 million loss in the prior period. These improvements reflect a strategic cost management effort and the increase in high-margin software services and milk revenue net loss attributable attributable to common shareholders in the fourth quarter of 2023 was $2.4 million or a $0.99 per share, an improvement compared to $5.5 million or $2.36 per share in the prior year period. For the full year, net loss attributable to common shareholders was negative $9.1 million for $3.83 per share, a 25% improvement compared to $13.5 million or $5.81 per share in the prior year. Ebitda for the full year 2023 was a loss of $9 million compared to a loss of $12 million in the prior year period. Adjusted EBITDA, a non-GAAP metric for the year was a loss of $6.4 million compared to a loss of $7.8 million in 2022. A reconciliation of EBITDA to GAAP measures is contained in our earnings release issued earlier today.
On slide 6, moving to the balance sheet. As of December 31, 2023, we had a cash and short-term investments of $14.2 million compared to $18.2 million at the end of the third quarter. Improving cash performance remains a top priority for us in 2024. We maintain a strong working capital base with $31.8 million of working capital at the end of the fourth quarter compared to $33.4 million at the end of Q3. We expect we expect to see improvements in our working capital turns in the coming quarters. Our strong debt-free balance sheet gives us the flexibility to actively seek strategic acquisitions and partnerships to enhance our capabilities and channels, especially within the defense and public safety markets.
In summary, our efforts over the past two plus years to restructure our cost base redesign our product line, integrate two key acquisitions and rejuvenate our sales channels have begun to bear fruit in 2023, marking a significant improvement in our profitability. Our progress in 2023 is largely attributed to strategic cost management, operations optimization and an increased contribution from high margin sectors such as software services and build of revenue as we progress in 2024. These initiatives are expected to further solidify our position and give us a trajectory towards greater growth.
That concludes my prepared remarks for 2023. I'll now turn it back to Mickey.

Thanks, Mark. I'd now like to provide more operational updates, starting with our achievements and Milgard building on our solid foundation, VMS has bolstered our position after only a little over three months. As I mentioned, our revenue for Milgard markets witness an impressive 75% year over year growth, largely attributable to the success of our ABTS solution. We achieved over $2 million in ABTS orders from North America's public safety sector and secured another $1 million ABTS order with a leading Air Force in Amea. The integration of BMS. has been seamless and fruitful setting us up for sustained momentum. We're targeting at an ambitious 50% compounded annual growth, fueled by continued execution of our strategic initiatives and ongoing industry trends, such as increased public safety and defense spending with the current global geopolitical backdrop. Additionally, the recent appointment of Bill Sweeney as our new Managing Director of Milgard business brings valuable industry expertise to our leadership team, enhancing our ability to foster strong client relationships and integrate our services offerings. We have taken significant steps forward with the launch of air anywhere with our ABTS platform innovation as a key part of our strategic roadmap, incorporating initiatives provide a enhanced analytics to our customers in the live production markets. We continue to see steady growth and significant contributions to our revenue stream. Our products have played a pivotal role in delivering coverage of major cultural and sports and sporting events globally, reaffirming our position as a trusted provider in this dynamic market. Notably, our recent partnership with vocal VR, Spire and the HURL. Series is set to redefine the future of racing by providing innovative DR or RF wireless solutions for autonomous race cars. Groundbreaking technology will allow users to experience a real-time VR views from the cockpit directly to headsets on site and ultimately at home HURL. is well-funded in Abu Dhabi is targeting international expansion, posting large Rave events and forging new partnerships to elevate the overall race experience. The initiative enhances the spectators experience raised revolutionize how we engage with the sport a rating itself.
Financially, the outlook for this partnership with promising initial deal in 2023 was $1.8 million and there are plans for upgrades. And for coming years, the venture is just beginning and it represents a significant step forward.
Additionally, we partnered with Zoom communication India's premier outside broadcast service provider for ultra low latency 4K wireless camera systems. This collaboration in particularly significant as it introduces the first ultra low latency systems to be deployed in India, setting a new standard for live broadcast in the growing region. This partnership expands our global footprint and underscores our delivery of industry leading technology.
Moving to our product updates, technology innovation has been a key element to our customer and market success. In 2024, 70% of our sales are expected to come from products introduced in the last two years in 2026, we expect they will account for close to 100%.
Our ABTS solutions remain at the fore front of innovation, empowering our customers with cutting-edge technology to seamlessly capture and manage high-resolution, ultra-low latency, live video and associated data. We're excited about the significant advancements in our device management ecosystem, particularly at our enhanced lead Matrix platform. The bedrock of our software and services offering with linked matrix. We've integrated cloud capabilities to improve remote workflows and collaboration, which is invaluable for live broadcasts and efficient field operations, particularly in public safety scenarios.
Looking ahead, we have identified key initiatives to further elevate our solutions. We see strong potential in leveraging AI for video processing, enabling us to detect illegal or abnormal activities based on air and static cameras such as cow crowd control, drug trafficking and border control. Additionally, we aim to utilize AI to create automatic summaries of video content for surveillance reporting use cases, enhancing operational efficiency and decision-making capabilities for our customers. Furthermore, we are committed to ensuring Secure Cloud distribution and storage of our footage delivered via our AVS services, providing peace of mind and reliability to our customers. We're also focusing on remote management capabilities, allowing for the seamless management of all solutions elements in delivering eSIM provisioning, e-services, these and our other advancements are all based on our design strategy and methodology that we implemented over the last three years to leverage the same circuit architecture and component base to drive product commonality and simplicity, which results in lower cost, higher quality and scalability. We will continue to push the boundaries of technology to deliver exceptional value to our customers and drive the industry forward as we continue to refine our strategic road map, I'd like to highlight the strong growth potential across the four focus areas that form the current cornerstone of our go to market strategy. These areas are live video connectivity, airborne video, downlink systems, video data transport and drone control and communications or drone sea to the beauty of going to market in these four focus areas that we can leverage and repurpose our existing product line to meet a variety of needs and applications. This approach allows us to achieve scale and capitalize on opportunities in these growing areas with agility and precision.
Our Public Safety go-to-market strategy continues to evolve and expand while maintaining strong partnerships with major aviation units. We are actively cultivating our relationships with large OEMs and the BMS acquisition will accelerate this. Bms has a strong position with military and public safety agencies throughout the Middle East, combining business ABTS systems with BMS' regional incumbency uniquely positions us to support agencies as they upgrade their networks to support the latest in low latency video centric IP networks, where only one full quarter into integrating VMS into our platform, but we are very encouraged about the possibilities of serving a wider audience and growing revenues accordingly. Furthermore, we are actively identifying promising opportunities in drone communications and control networks. Vms is particularly active in this other underpenetrated sector, providing us with additional avenues to enhance our presence and expand our Milgard business. We are well positioned to expand our customer base as we prioritize prioritize fortifying our partnerships in converting our robust pipeline into tangible sales as we look ahead to the remainder of 2024 and beyond.
Our strategic priorities remain clear, to enable software and services, sales of our proprietary hardware platforms, increase our share in the mill gold markets and exploit operating leverage to drive positive cash flow for our three year plan outlined ambitious financial targets and expansion initiatives, which we are confident in achieving with a strong sales pipeline, the highest post-pandemic backlog and a focus on operational excellence. We are well prepared to navigate the opportunities that lie ahead. Allison, please provide the appropriate instructions.

Question and Answer Session

Operator

(Operator Instructions) Brian Kinstlinger, Alliance Global Partners.

Brian Kinstlinger

So my solid results at a high level, maybe you can talk about the revenue growth drivers, how much of revenue came from BMS and then maybe the contribution and or growth rates from SE? You have the different focus areas of your business?

Have a good morning thanks for joining and good morning. A couple of points on, you know, the BMS., the numbers from BMS. for Q4 were nominal as we just completed that in September, and we look at where we see growth. Number one is AVT. As we mentioned, we're seeing tremendous growth and we expect to see tremendous growth in that combined with the BMS acquisition, the video data transport where we bring and surveillance cameras back to control, typically over bonded cellular. That area has been growing. We see that in the 20% type growth range in the traditional markets, a camera access video. We expect those to be in the 10% range.
And then lastly, the control CT. area, a new market for us. We mentioned we see 75% going into this year. And as you can imagine, with what's happened globally with the geopolitical events, we see that as a tremendous market growth for us, but it's still early.

Brian Kinstlinger

And what percentage in the fourth quarter was Milgard?

Mike, do you want to run?
You want to take that one?

Yes, it was it was roughly split, Brian, about half and half. I have no doubt having that production or will add production.
Yes, about half and half.

Brian Kinstlinger

Okay. Well, we didn't hear much about live production throughout the call. So what is happening there? And are you seeing increased demand there is that's a that's an area where I think that there's been weakness over the last few years. So maybe discuss that market environment.

Yes, we saw there. I think what we're seeing now, there's a tremendous appetite for live entertainment and live sports.
Yes, I think a great example of one of our partners. Motor GP was just acquired by Liberty Global this morning for over EUR4 billion. And so there's a massive appetite for that. So we're seeing, as we mentioned, with the Zoom acquisition with the Aspire E to R L. that deal. So we're seeing growth in that area. I think the reason why we didn't talk a lot about is we've made this some mil gov is growing at a higher rate than we've done with the combination of the MS acquisition has positioned ourselves very well in those markets.
And the beauty over to Brian, as we mentioned, there were just leveraging the same product set effectively the same same hardware infrastructure and software overlay that we use that we're able to repurpose into those different use cases.

Brian Kinstlinger

Got it.
And then as it relates to the pipeline, thanks for that. Can you break down that? I mean, I assume CDDS. is at the top, but maybe break that in other milk of opportunities versus live production down maybe by its contribution to that. And is there any geo graphic concentration as well?

Yes, I think you know, the geographic concentration consistent what we've seen typically and 40% to 50% Americas, the balance Rest of World. And then we are seeing a higher percentage than traditionally around logos, but the live production remains strong.
I think what's one thing your assets talk about is what we see. And in Q1, we're happy to report, we expect Q1 our revenue will be higher than than before, higher than before.

Brian Kinstlinger

Meaning last year's $7.1 million higher is higher than Q4.

Higher than higher than what we just announced with before.

Brian Kinstlinger

Got it.
Thank you. And then as it relates to BMS, I think you said last call that was a struggling business. You need to reengage with customers, there was opportunity to refresh their customer bases technology. How have those client conversations progress?

Fantastic. We're thrilled with the BMS acquisition. The customer base had a long tradition of working with BMS. They love the team. There love the products, and we're really concerned as they went through the difficulties they look through post pandemic, as I mentioned to you, pre pandemic, they were $20 million business and they've struggled and through the pandemic and customers are were really very positive. The fact that now they had a well-funded business asset acquiring And so all those are those conversations to the customer had been very positive.

Brian Kinstlinger

And then you on and mentioning the fourth quarter was a nominal contribution to revenue with those conversations improving and being fantastic. When do you expect this to be a now a significant revenue contributor to your business.

In 2024.

Brian Kinstlinger

First half second half?

I mean, I think what we'll see improvement each quarter.

Brian Kinstlinger

And then I guess lastly on just you started the call saying that you wanted to provide three year targets. Maybe I missed it. Did you provide actual revenue or the margin profile? And maybe any long term where finished business, what could this business look like in three years?
Or do you what are the goals?
What this business will look like?

Yes, Brian, it's Mike. We're obviously we're not providing guidance, but we look at the business out over the next few years. But the gross the growth in milk of the acquisition of BMS., is that the higher percentage that we're looking for for the services and software revenue?
We have a our target of trying to double this business in the next three years on the top line?

Brian Kinstlinger

And thanks so much.

Yes, Brian, when one to get to your question on BMS growth, one thing to point out is what is what this opportunity has given us. Vms has a strong customer base. What they didn't have was a next-generation product line, and that's what we've been working on and that we brought to market and they are linking our ABTS platform. So we're in a process now of transitioning their customer base to meet their needs from a from a legacy standpoint with the historical VMS product line and then make the technology transformations and the value that the acquisition brings us is now our transmitters will we'll work with that. We will operate with their receivers that are incumbent in the market. And then as those customers upgrade to receive sites and the overall software platforms will be the obvious solution for that.

Brian Kinstlinger

Okay.
Thank you.

Thanks, Brent.

Thanks, Brent.

Operator

And at this time we will conclude our question-and-answer session. I'd like to turn the conference back over to Mickey Miller for closing remarks.

Yes, Thanks, Allison. Our vision, first of all, thank you for joining us today. Everyone. Our vision of innovation to entertain the masses and make the world safer, continues to drive our path forward as we execute our mission to deliver high-quality products services to our clients while providing a return to our investors, we are humbled to have the opportunity to do so. And very much appreciate the support of our investors. We ensure that we are acutely focused on growing this business and providing our S. investors with solid returns with our collective efforts and shared vision. I believe the Vislink best days are ahead of us. Thank you.

Operator

Thank you for joining us today for Vislink Fourth Quarter and Full Year 2023 conference call. You may now disconnect.