Q2 2022 Vislink Technologies Inc Earnings Call

provide contract staffing. The AirBare customers looking to gather data, that's what you do with these aircraft, but getting that information down to the people on the ground that are making tactical decisions, that's where the Visilink product really comes in and plays a huge role. Visilink provides airborne video downlink systems. We're a manufacturer of that equipment, so we provide equipment to provide managed services, installation services, and customer support. So we provide a complete

They have really robust technology and honestly we refer to many of our customers.

Some of the key solutions that we're displaying for airborne video downlink are aircraft transmission systems, fixed receive, mobile receive applications, as well as distribution to command staff and operators and users in the field via cloud distribution. So we're able to get this actionable video content and get it out into the hands of the key decision makers.

As the fans focus on each heart-pounding moment, VisLink will focus on the technology to make sure you don't miss a beat of your favorite sport. This summer, we've helped power the biggest sporting events across the globe, leveraging the newest equipment and wireless camera connectivity to give you immersive coverage of your favorite sport from wherever you're watching. Whether your event needs 5G, COFDM technology, and AM.

Good morning

I'm Mickey Miller, CEO of VisLink.

along with Mike Bond, CFO . We're glad to be here with you today to talk about our Q2 earnings.

And we look forward to having questions at the end to address any of your questions.

Good morning everybody.

see the diamond aircraft, special mission aircraft, as you saw in the video, that we working together with our partners at Air Bear Tactical. Very excited about that opportunity in the demonstrations that have happened with law enforcement throughout the U.S.

So as you know, we're all about immediate, immersive, and intelligent capture and distribution of live video. We have the pleasure of working with content owners and creators to create amazing content and give them the technology to make that happen as well as providing the technology for our military and first responders to protect, serve, and defend us.

So we address three principal markets. First and foremost is sports, news, and entertainment. Historically that's been roughly half of our revenue. Last year it was about 48%.

And we have a long 50-year history of serving that market. And we like to say we're a global leader in the capture and transmission of high-quality video. The second sector is government. Here we do about 30 to 40 percent, given different quarters. Again, we are a leader in high-quality video for surveillance and observation for

first responders, governments, and military. The last segment is satellite. Here we have not invested as much as we had in previous years, but again, we still have a strong legacy business, an embedded base of satellite equipment. We continue to serve the aerospace, first responder, and government market.

Our results.

We're 6.8 million compared to 7.6 in Q2 of 2021. We weren't very happy with the results and we'll talk about why that is. For the first half, we were just under 14 million, which was a 68% increase from last year, but still didn't hit the goals that we wanted to achieve as a company. We did fortunately bring in quite a few orders. We have a strong backlog of new business.

So just to put it in perspective, it was kind of a tale of two cities for us. Our live production business had strong growth year on year, as well as that's driven by two key areas. One, post-pandemic, the desire for all types of content, unique content in all type of immersive and intimate ways. And secondly, urban design is really one of those relays and the world understands that.

our new products that we introduced for this market have been well received by the marketplace.

On the government side, particularly around first responders, although we do see a large funnel of opportunity, we weren't able to convert those. Largely those are municipally driven or through grant, federal grant money. And for those in the US, we had the defund the police activity which impacted that demand last year. We do see that pendulum swinging the other way. We see a lot.

of opportunity and new projects that are being funded. I think a great example of that is Miami-Dade. They just had a local vote to approve upgrading the entire radio network for fire and rescue. I think that's indicative of the opportunities that we see in the U.S. with the first responder market. So we expect that to come back. It's not that we lost opportunity, it's just that it's shifted into later quarters given the sales cycle of.

the first responder market.

As I said on the live entertainment, sports, and broadcast area, we had again good growth. Kentucky Derby, Wimbledon, MotoGP, the Commonwealth Games, music festivals, Cannes, Le Mans, premiership rugby where we did a first time 5G use case, the LA Triathlon, and the Nitro Rallycross UK. So a lot of great events that we participated in and brought our technology both...

existing and new to bear, and we're really excited about that.

So the Q2, 22 financial operations update, we did have gross margins of about 53% of revenue in the second quarter. That compares to about 52% in Q2 and 21. And that number would have been slightly higher. We did take a charge for a step up in inventory based on our MVP acquisition. So if you take that out, we would have been something closer to 55% of gross margins.

Q2 of 22 net loss attributable to common shareholders was $2.6 million or $0.05 per share. That compares to $2.8 million or $0.06 per share for Q1 2022 and a net loss of $834,000 or $0.02 per share for Q2 of 21.

So EBITDA, which is Earnings Before Interest, Taxes, and Depreciation and Amortization for the three months ended June 30, 2022, was a negative $2.1 million, and that compares to a negative $578,000 for three months ended June 30, 2021.

We did institute new operational.

programs across the organization. Mickey and I felt that we were still an organization that

dealt with customers and dealt with our

our operational issues on a fragmented basis. So we've taken steps and we'll describe those in the later part of the deck in terms of streamlining our operations, creating a more holistic customer support and customer engagement approach. And we think that'll streamline the organization and provide greater efficiencies in how we operate.

To elaborate more on that, we've realigned our go-to-market. We've brought in a new VP of global sales. JD, who was the leader of the Mobile Viewpoint sales, will now be leading our sales effort globally. He was, prior to this, head of our European sales, and now he's responsible for the entire sales and go-to-market organization. And we realign that a team.

to put solutions engineer and inside sales personnel geographically deployed in support of our regional sales people to be able to have quick decisions in support of our customers.

We're focused on the specific markets and customers that we've talked about. We now have small agile teams to be able to offer pre, post sales support and solutions engineering.

We've strengthened our investments in engineering with a focus on new product development. As we've talked about, our goal last year was to generate over 25% of our revenues with new products. Our goal this year is over 50%. And we've reinvigorated our product offering. When you look at the products that we've announced, whether it's our Aerolink product or our Quantum Receiver or our multiple AIQ Sports producer products, we've had great reception by our customers on our new product introduction.

Mobile Viewpoint now is integrated into our company. We've completed not only the acquisition, but the integration of that acquisition. So we now have one development team, one sales team. Michelle Bice, who is the general manager of Mobile Viewpoint, is now leading our product. She's our chief product officer, where he's responsible for product management and the entire engineering capability of VisLink. Thank you for working with us and for part two of that

And as I mentioned, JD is leading our sales and marketing. And Charlotte, who heads our marketing, was also from Mobile Viewpoint as well. So it's an integrated team now completely, and the leaders comprise both of traditional VisLink leaders as well as Mobile Viewpoint.

We focused on cost reduction to lower our overall breakeven point. As I said, we were disappointed with our results for this quarter. We want to make sure that even when we're disappointed with top line, we're able to deliver for our investors.

So we've implemented additional operational efficiencies, consolidated in some areas, reduced headcount, lowered our operating expenses, and an overall consolidated or operating footprint.

with an increased efforts on recurring revenue and service models.

On the product side, as I said, new product development is a key element for us. Our Aerolink, which is a tri-band, both 5G proprietary CoFDM and mesh, allows us to address not only first responder opportunities in the US, but global as well as military and agency opportunities globally.

We're the only

company in the world that has a tri-band solution, a tri-protocol solution with multi-bands.

On the production side, we have our NFT clipping capability that we introduce as part of the link matrix.

that's been successfully received. That allows producers of content to be able to mid the event to be able to clip a highlight to put that out on social or also to mint it as an NFT which brings a lot of different revenue sources for us as well as for our customers.

And then as we have talked about with our partnership with Air Bear Tactical, we've shown that diamond aircraft is a very cost-effective way for law enforcement to do surveillance at a very efficient way. So we're really excited about that partnership.

Those were all introduced in Q2.

On the wireless camera technology side, we had two major events where we introduced our new 5G capability. At the Commonwealth Games, which were all the British Commonwealth countries come together. It was the first time to use 5G to provide broadcast of a major sporting event in Europe .

and that used both bonded cellular which allowed to go from private 5G networks to transition to public 5G networks. That's the first time that's happened. And then at the premier rugby game at CERNs we were able to show a 5G network that was connected to a 5G network.

private network with a very low latency and high quality solution. So you can expect us to be there when 5G is ready to be able to deploy in broadcast environments and couple that with our very low latency CoFM capability to create a complete solution for our customers.

So we see opportunities in both areas, both our legacy coctum as well as opportunities in 5G, whether it's public networks with bonded cellular or private networks with our new 5G technology.

So the sector outlook for live event production we think is good. We're seeing it come back from pre-pandemic levels. The live production business is returning pretty well. We think that those opportunities are being driven by three trends. One is a technology and equipment refresh. We see a lot of old gear still sitting around and we think a lot of our customers are in a refresh cycle and will benefit from that.

The need to produce sports in a more cost-effective way, again, we're driving the cost of capture transmission and production down if we can. We're trying to drive our equipment into not only tent pole and tier one events, but down into lower tier events where the cost of production is critical.

We think that the remote sports production capability is going to be increasing. It was driven a lot by the pandemic, but we think it's going to continue. We think there's going to be a lot more AI-driven, both capture and transmission and production capabilities, and we think we're well positioned for that.

So our value proposition is it continues as the end-to-end remote production solution that incorporates an AI-powered multi-camera system and 5G streaming technologies.

That allows organizations unprecedented options to capture, produce, and distribute and monetize the content that they have.

So one of the key product opportunities, and I think Micki already touched on it, is Aerolink. We've announced the product. We expect to go into production in the next quarter. And we think that's been well received by the downlink market, both on the Milgov side as well as other sectors. And we have high hopes that will drive additional sales.

So, sector outlook for government, again, is an area where Mickey had mentioned it lagged in the last quarter. We didn't get the revenue we expected. We do think that that mostly has moved to the right. We don't think we've lost any opportunities. We think they've merely just moved out over time. So we think government business will return after some delay. We think the new opportunities are being driven by a couple trends. One is that county and municipal agencies...

are now buying in a buying mode. They have federal dollars that they can use to buy this technology. We're seeing sort of a technology refresh from some of the bigger and more significant customers that we have. And we're seeing more demand for what we'll call surveillance or observation capabilities. Here it's the case where large law enforcement agencies want to have a capability to standoff, not deploy units directly, but to have the capability to only...

to view a situation from a remote platform. And that can come either from an aerial platform or from fixed camera positions.

So again, our value prop here in the government sector is that we deliver tactical insight needed to ensure the mission success for public safety and law enforcement in first responder agencies.

So, again, so our key products here is an airborne video downlink system. We think we're a world leader in these systems, and we're looking forward to having a complete technology refresh. We see a lot of agencies are looking to refresh these aerial downlink systems, and we think we're well positioned to address that.

Okay.

Okay, on the M&A side, we remain committed to pushing both organic and inorganic growth opportunities. We've been quite active in this area, and we have short lifts that we think of opportunities that will be accretive to our business. Our goal is to publicly announce one to two deals by the end of 2022. Both those deals we're looking at consist of opportunities in the US as well as internationally. And the areas that we focus on is AI-based and other automated.

video type recognition capability, airborne and drone video capture and distribution and transmission, C4ISR of course, and then sports analytics opportunities.

We're very engaged. We're spending a great deal of time on this because we think inorganic will be a great way to complement what we're doing organically and the underlying driving of the business that we currently have. And we're looking for areas that complement our capabilities in software, in radio communications, IoT, big data, and 5G.

Now.

So we've had some recent success in public events. There was Abscond 2022. That's the largest airborne public safety and surveillance event in the US. We participated in that and got great response from our customers and notably the Aerolink, the product that we've just announced, received a tremendous reception at Abscond.

So we attended CAB-SAT. That's the Middle East region's largest event for broadcast.

Space and satellite consumers. And again, our products are well received there.

And then there's NACDA, which is the largest gathering of college athletic directors in the US. And here we announced our NFT product, which is a video clipping capability. That, again, that was well received, and we look forward to, you know, continuing to push that out and see if we get a positive reception in the market.

So we have our big global broadcast and live production event IBC which is coming up in Amsterdam in September . We're really looking forward to that.

In addition to that, we have smaller shows throughout the rest of the year. We're very focused on those shows that we can drive returns on. We don't go to shows just because they're interesting. We're very focused to make sure that the investment that we put in those shows, we get the returns. And we believe these group of shows, whether it's on the first responder side or on the sports broadcast and entertainment side, that these are the shows that drive demand and create opportunities for us to solve customer problems.

video creators, largely sports teams and large content owners.

So we're excited about the event that we have coming up. Again, it's a very focused, where we drive to get the returns that we need on the marketing spend that we have.

k

Yep. Great.

So Oscar is asking, can you speak more about potential acquisitions? We can't go into detail, obviously, because we're under NDAs with those.

characterize the type of companies we're looking for. Companies that obviously that are in our space are ideal. And when we look at our space, it'd be leveraging our channels into both military, government and broadcast sports entertainment.

then also where we can leverage our expertise whether it be cloud, 5G, RF transmission, firmware, leveraging the strengths that we currently have in our products in the team that we have in place. That's what we're looking at and they can be arranged you know for us very important for our cash giving potential challenges in the world given higher interest rates.

and potential recessions, we want to make sure that we have cash on hand to be able to support the business. As I mentioned from the beginning, we have reduced our cost base and that is a reduction of cost base in addition to increasing headcount in our engineering and our engineering capabilities to be able to continue and innovate. So we'll bring cost down overall in the organization.

At the same time, we're increasing, but our net comes down. So we're very focused on that.

And so any acquisition we do, we'd like to drive to get more recurring revenue business, more predictable business. That would be a key item for us. And everything we're looking at today is in that range. It allows us to leverage that. Seems like more and more every day we're seeing more troubled companies that are in a liquidity position challenge that we may have an opportunity to participate in. So again, we'll be very judicious in what we do and how we deploy capital.

I see a question that says with the worldwide inflation and possibility of economic slowdowns in the news, what is your outlook for your key markets? And again, I think we had said that we think that the live production market is going to be robust for a couple of reasons. One is we think there's a technology refresh on the horizon and we're starting to experience that. We think that the cost of production is...

is needed to be driven down so that lower tier events can be produced and covered economically. And we think with our AI driven 5G capability, we think we can help sports producers and broadcasters lower that cost of capture and go out and address those opportunities in a more cost effective manner. The science tool that we require

So we think that's a real positive on the live event side. On the government side, again, I think there's going to be a push towards

funding police departments, there was a defunding effort that went on a little while ago. I think that's kind of reversed itself. We're starting to see more budget dollars, both federally and on a state and local government level flow into solutions where people want to be able to have the capability of surveilling or observing events and not having to roll, you know, ground units. So we think there's a

real positive trend there that we can capture with our new Aerolink product and some of our other downlink products. So we remain pretty bullish on both of the main sectors that we address. Yeah, you mentioned you are addressing all levels of sport competition professionally grassroots. What solution do you offer for the lower tier events? Our IQ Sports Producer and V-Pilot, which are AI generated capability allows very low end

sports to be captured at a cost effective way because it's done through machines. We have on site our GPU or CPU that is able to A, know the sport, know the rules of the sport, but follow the ball, which is very difficult to do, particularly in high-speed sports where the puck or the ball moves very quickly. This is a technology that we acquire through the mobile viewpoint acquisition. A05 Globaloldemort A05 Global spur A05fly

And this is a product, our IQ Sports Producer product, that we've been introducing, like Mike mentioned. We're at the NACDA show, which is a national show of athletic directors in the U.S. But that's a product that we're selling into Series 3 and Series 4 of football leagues here in Europe .

that we see opportunity. We have a deployment today at a Tier 1 high school in the state of Texas that's being deployed throughout their campus to be able to support various sports. So I think that IQ Sports produces a key product that brings us down out you know where we certainly have a great history at premier events globally and it brings us down into

much lower events. Having said that, our technology, our traditional coftin technology and our bonded cellular technology has been strong in the mid tier. There's a lot of activities and events that we participate in globally that aren't tier one activities but are created through and captured through our mobile viewpoint, WMT, bonded cellular technology, as well as our own very low cost coftin technology like we've seen with our Microlight 3 and our Dragon.

I'll take this one. It was mentioned in the press recently about a high profile 5G demo you're participating in that took place in the Commonwealth Games. Will that lead to commercial opportunities? Absolutely. That's why we're doing these things. We're doing trials with people like BT Sport, BT Media, many of our partners globally, MotoGP, at a very high level to demonstrate the capabilities of 5G. We don't see.

We think it will take time for 5G to develop based on where the technology is. Today you see it being deployed in the US, largely for handsets, but much of that is the downlink side. For our use case, you need a lot of uplinks. You need bandwidth in the uplink to be able to get the low latency so there's no dropout of the video when you as a consumer at home watching the event. Or if you're a first responder looking at aerial video to make decisions around. So.

It's got to be very high quality. That's why we see with our own capability a long tail with our traditional proprietary. But as 5G evolves and you see more 5G private networks, you're going to see opportunities to use 5G as a medium.

We think right now on the private 5G is very

5G is very, very...

country dependent based on how the spectrum has been regulated. For instance, in the US.

Today for private 5G networks is 150 megahertz of CBRS band which is largely owned by For the preferred level owned by the carriers t-mobile AT&T and Verizon But outside the US where it sits here in the UK. I'm here at our facility in Colchester in the UK UK has Allocated 400 megahertz, which is a lot of bandwidth Strictly for industry to be able to deploy technologies like this

for this use case as well as many other use cases. And so we're seeing a great deal of opportunity here in the UK because they have allocated 400 megahertz.

In other countries, we see that developing over time. And we'll be ready when they're ready with the spectrum to be able to deploy systems that do many other things besides video, metadata, data, you name it, to be able to transmit over a 5G pipe.

Nine.

I see a good question that says the increase in revenue is great to hear, but what do you expect to be profitable? Now, there, I guess the answer is that, yes, we expect that we're going to have increasing revenue, but we also have done a lot of work on trying to simplify and streamline our system such that we're using common components. Our receivers and transmitters are starting to use common elements. So therefore, as we get different use cases from customers...

The form factors may change, but the internal workings of a lot of our solutions now are the same. So we're driving efficiencies in terms of how we produce, how we engineer, and how we manufacture our goods. So that leads us to a point where we can expect to at least maintain margin, if not increase margin. So we're looking at maintaining margins and at least increasing profitability.

For the second quarter, which part of business are growing fastest right now? For the second quarter, as we discussed, our

sports media entertainment business grew the fastest. It was up significantly from last year, below what we hoped to achieve. And then on the Milgov side, particularly on the government side, well below our expectations. We didn't lose those opportunities. They transitioned into Q3 and Q4, but we're very focused on closing those and bringing. Given our investment in inventory, we've been able to build ahead on many of these things. We'll be able to book and ship within the same quarter for many of those opportunities. And we're very focused on making that happen.

I received one more question.

I had one more question that I received about supply chain and scarcity of components. Again, we have experienced some scarcity of certain components. Again, it's episodic. At given times, it's hard to predict what will go into short supply. As Mickey had mentioned, we've done a pretty good job of trying to accumulate critical parts and components and put them on the shelf. We've also produced more finished goods and more work in progress.

so that we can be more responsive to customers' orders in a shorter period of time. But we continue to see some components go into short supply, and it does hamper our ability to produce in certain cases. But we don't lose the sale. Typically, it just kind of moves to the right in time. And what we're seeing is that once we can get the components and fulfill the order, we maintain those orders. So we don't see where we're net-net losing orders or losing revenue through component shortages at this time.

Well, thanks everyone for the questions. Thanks for the opportunity. I just want to summarize where we are. We were disappointed in our results for this quarter. We don't take this lightly. We're not going to sit still and let this continue. We took action on the cost side, which you'll see, which will be developed through third quarter and fourth quarter, but will hit all full year next year. And that is net of adding additional capability on the engineering side.

We're very focused on new products to reinvigorate the traditional VisLink and Mobile Viewpoint product line. And then we're also looking at augmenting those with opportunities in the M&A market. We remain very committed to this business. We see great opportunity in the markets we're in, as well as taking the capabilities of the team here and bringing that into new markets through acquisition. We appreciate everyone's commitment to our business, but I want you to understand we don't take losses lightly, we take it very focused.

and of course social Facebook, LinkedIn.

Twitter, YouTube, and Insta. Thanks very much.