Q2 2023 Movella Holdings Inc Earnings Call
Hello, and thank you for standing by.
Welcome to La Bella second quarter fiscal year 2023 earnings conference call.
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I would now like to turn the conference over to Atlanta are there.
May begin.
Good afternoon, and welcome to Nautilus second quarter 2023 earnings Conference call. Today's discussion will contain forward looking statements based on the environment as currently seen by the Companys management and as such are subject to various risks and uncertainties actual results may differ materially.
Also contains references to non-GAAP financial measures that the company believes it provides useful information with investors.
Earnings release, most recent annual report on Form 10-K, and other filings with the SEC each of which are posted on the IR website, because I have more information on the spin.
Risk factors that could cause actual results to differ materially from management's expectations.
They also provide additional information on non-GAAP financial measures, including reconciliation, where appropriate to corresponding GAAP financial measures.
Guidance provided today incorporates the order trends, but management has seen to date and what they believe today to be appropriate assumptions.
Or inherently unpredictable and maybe materially affected by many factors, including fluctuations in foreign exchange rates changes in global economic and geopolitical conditions, and cultured man and spending including the impact of recessionary fears world events the rate of growth of our core markets, including the law.
<unk> community and other various factors detailed in the earnings release and the company's filings with the SEC.
Not possible to accurately predict demand for goods and services and therefore, the companys actual results could differ materially from guidance and now I'll turn the call over to my fellow CEO family.
Thanks, Linda and thank you all for joining us today.
We are pleased to share our results for the second quarter of fiscal year 2023.
I'll begin with a high level overview of the quarter's results and the business.
We're excited to have launched the upscale broadcasting platform last week.
Spending by wireless Exane small cap technology from professional Hollywood studios to individuals' streamers and <unk>.
<unk> enables live streamers to create engaging content.
Including motion enable advertisers.
We achieved $8 $4 million of revenue in Q2 of 2023.
Down 3% year over year.
While the writer's strike impacted our topline in Q2.
Our results reflect the resiliency embedded in the business and our continued expansion of movement visualization use cases into our existing markets as well as new growth areas.
Such as automotive workplace ergonomics.
We remain well positioned for significant opportunity ahead, particularly in film and game production once all parties reach a resolution.
We continue to be in a very strong cash position with $51 million on the balance sheet, which affords us the opportunity to make measured investments in new products and use cases, while managing our expenses prudently.
In our last earnings call, which was our first call as a public company.
A detailed overview of our technology and markets.
Some of you may be newer to the story I'd like to share an abbreviated refresher.
My brother is a global leader in digitizing movement of the human body.
And if a comic cons that mimics human movement.
We digitize movement with a highly differentiated full stack solution that integrates sensors visualization software.
AI analytics.
Well that it is best known for access technology.
Our <unk> products integrate sensors advanced algorithms and user friendly software that.
Digitized nonverbal movements, but the human body and automatons.
Nevada technology is based on our proprietary inertial sensors, which are small lightweight devices that can be attached to the body or two objects to digitize movements in <unk> space.
Although the sensors are incredibly accurate with a high sampling rate that captures even the most subtle movements.
But what really sets mobile apart is our software <unk> software is designed to be user friendly and intuitive.
Allowing developers and creators to capture and analyze movement data quickly and easily.
And with our powerful analytics tools.
Our software makes it easy to turn raw movement data into actionable insights, helping users to optimize performance and improved results.
<unk> product portfolio is protected by over a 168 granted patents, which provides a strong competitive moat.
We continue to invest in the advancement of our products and extending our technology leadership.
Our credits three diversified core end markets.
Women health and sports and automation and mobility.
We sell directly as well as through channel partners and serve the Americas, EMEA and APAC geographies now.
Now I will share with you our recent wins and progress in each of these end markets.
In the health and sports market bio mechanics, researchers and industrial athletes are leveraging our workspace economics solutions.
In Q2 2023, we continued to expand our used cases in the automotive industry assisting automotive manufacturers in the improvement of the safety and wellness of industrial athletes.
Our extensive motion capture tools provide information about the physical stresses of employees, while they work on the production lines.
If data indicates increased economic stresses workplace adjustments are made to reduce physical stress, which also can result in improved mental health.
In the second quarter, we announced an exciting project with BMW.
Building on our previously announced partnership with Toyota.
The BMW group selected mobile workplace ergonomics solutions.
X sales more cap system and software to provide faster objective workplace ergonomics assessments across our international production facilities.
The BMW group utilizes mobile is motion capture technology to easily transformed realistic accurate economic evaluations of production workers with superior precision.
We also continue to expand into additional use cases within the automotive industry this quarter.
For example in Q2, we secured a key project with a leading electric vehicle company to assess.
Training humanoid robots.
And workplace ergonomics.
Our excess suits are used to capture and digitize human body movements up shop floor workers.
The data is then used for robots.
To mimic and replicate precise human movements.
In the automation and mobility market our sense.
<unk> fusion modules are used today by top companies two cents movements of robots.
Atomic comps on land sea and in the air.
In Q2, we showcased a robotic mower.
Bye.
Ohio.
Which relies on our MTI six atg sensor module to keep it on track even when satellite positioning is temporarily unavailable.
Autonomous mowing can be safely perform with $24 seven reliability.
Nevada continues to expand into new agricultural robotics used cases, such as this.
Next turning to the entertainment market.
Mobile remains the gold standard for Hollywood quality motion capture.
In the film and video game industry Mobile is X cents motion capture technology has been used to create highly realistic and immersive experiences.
Digitizing movements of actors and meeting them in real time.
Emerging new use cases or entertainment beyond the professional studios continue to expense.
Particularly in the individual creator.
Live streaming market.
In Q1, we previewed.
The strong early response to our new upscale platform.
The live streaming community continue to be enthusiastic about this offering.
Prelaunch private event in July was attended by <unk> life Streamers, who collectively represent over 100 million monthly views.
We are encouraged by the early social media engagement with our official launch.
The obscure launch announcement reach with viral levels on Twitter now X.
With half a million views on the first day.
Our scale provides creators with user friendly tools to deliver interactive experiences <unk>.
<unk> real time human movements for digital avatars during live streaming sessions on well known streaming sites such as Twitch.
Oscar is the first broadcasting software.
Unreal engine five.
And is the ultimate tool for streamers looking to grow a vibrant community.
Captivated audiences.
Obscure incorporate AI computer vision for face.
And body tracking to enhance better real time non verbal engagement.
Creators can choose to stream in various formats that include a classic web cam layout.
Our customizable <unk> environment.
Or is a <unk> tuber wearing a square mocap sensors powered by X cents.
We are now shipping the upscale mocap box.
The low Capex includes the upscale upper body more cap set with <unk> sensors, and new comfortable washable gloves that digitize the intricate movements at the fingers and hands.
<unk> <unk> box and up to 12 hour battery life.
Accommodate those long streaming sessions required by the tubers.
In other developments in Q2, we hosted our growing developer community.
The annual mobile.
<unk> conference.
Over 300 attendees and thought leaders speakers in digital health participated in our market event.
We continue to believe.
There is further opportunity to expand and grow our third party developers community through the mobile SDK.
Although adult sensors, and our software development kit save developers the engineering effort of making their own sensors. So they can focus their resources, creating amazing apps.
So far.
Third party developer count has grown to over 800, many of which are starting to announce exciting products, primarily serving the health and sports market.
And Moreover, we continue to refine our AI algorithms that power.
<unk> sport digitizing movement.
We have invested.
AI across our full stack to provide more precise lifeline movements of digital characters territories and robots.
Our sensors collect massive amounts of data that often comes with noise and bias.
At the firm wide level, our intelligent algorithms, the cipher and extract useful data when we see a noisy raw data.
And our sense of fusion algorithms aggregate and integrate the curated data from the.
Gyroscope ceramic.
With Tumblr to generate positioning and orientation information.
At the software level, our AI assembles, the positioning and orientation information from the sensors.
Three the human body power mechanical motto to duplicate precise human body movements represented by an avatar in our <unk>.
Software and virtual space.
Our AI algorithms continuously adapt to temporary variations in.
Human body movement as well as changes in the disturbances in noisy environments to maintain accurate spatial movements at the avatar.
Our HD reprocessing AI software evaluates data.
17 sensors on the body and learns and balances good versus poor sensor data to continuously maintain real estate human body movements.
We see recent advancements in AI as an enormous growth acceleration opportunity, we believe that our business will be a strong beneficiary of AI, especially with generative AI for example.
<unk> lab.
In intelligent gate tracking app developed by a mobile app partner <unk>, 7% annualize.
Analyzes walking motion scientifically using just to mobile.
With one of each.
In addition to the visualization and graphical information.
The debt flat app users generative AI to process data collected by <unk>.
Mobile at our sensors for assessment.
Our recommendation to enhance the patients ability to improve walking motion.
Thank you and with that I will.
I'll turn it over to Steve to provide more detail on our second quarter 2023 financial results.
Thanks, Kevin and thanks, everyone for joining us today consistent with last quarter I'll begin with a review of our second quarter 2023 results and then provide limited guidance throughout my remarks, I will refer to various non-GAAP metrics a reconciliation between GAAP and non-GAAP is available in our earnings press release and on.
Our Investor Relations website.
I'll begin with our topline results net revenue for the quarter was $8 4 million, a 3% decrease compared to the same period last year and a decrease of 9% as compared to Q1 2023, while seasonality plays a role in our quarterly revenue profile. This past quarter was directly affected by the Hollywood.
Labor dispute that began in early May and has not yet reached a conclusion.
These strengths have had a wide ranging impact of the entertainment industry and has affected many production filming and animation studios, while the labor dispute started in the United States. It is impacting the entertainment industry across many geographies, which mobile asserts we estimate the impact to our revenue in Q2.
Two to be approximately $2 million.
GAAP gross margin was 53% as compared to GAAP gross margin of 50% in the second quarter of 2022 and 61% in the first quarter of 2023. The sequential decrease is attributable to the lower revenue over which fixed cost of production are amortized and product mix.
Which combined cost about 4% of the decrease.
And an increase in the excess and obsolete reserves on components on hand that caused an additional 3% decrease.
Each of which was also a direct result of the Hollywood labor dispute at lower revenue.
non-GAAP gross margin for the quarter was 53% compared to 63%, 64% in the second quarter of last year and the prior quarter respectively.
The change due to the same reasons mentioned with the GAAP numbers.
Turning to operating expenses, we remain keenly focused on investing in new products and technologies to drive topline growth return on investment and shareholder value, while managing our expenses prudently GAAP operating expenses this quarter totaled $12 2 million.
<unk>.
One 6 million.
These back transaction and capital markets related costs in the second quarter.
600000.
Accruals related to increased cost of being a public company.
And a $500000 noncash increase in reserves as our outlet growth more conservative given the uncertain macroeconomic conditions. This compares to $11 1 million in Q2 2002.
Sales and marketing expenses in Q2 totaled $3 8 million essentially even with the same quarter last year and up about 300000 sequentially largely due to higher employment costs and stock compensation.
R&D expenses were $2 2 million versus $4 3 million in the same period last year and $2 9 million in the first quarter of 2023.
In Q2, 2023, we capitalized $1 5 million of software development as.
As compared to just over 100000 in the first quarter of 2023 and zero in Q2 2022 has been articulated earlier, our engineering focus is on developing new movement Digitization technologies, including hardware.
Software and artificial intelligence and bringing the obscure platform to market <unk>.
<unk> expenses totaled $6 2 million in Q2 inclusive of $1 $6 million of expenses associated with the <unk> transaction, the majority of which are nonrecurring.
In capital markets related expenses and 600000 of new.
Public company costs that were not incurred in the prior year. This compares to $3 1 million for the same period last year and $4 million.
In Q1 2023.
Our GAAP loss from operations for the quarter was $7 7 million compared to a loss of $6 8 million in the same period last year and $9 4 million in the first quarter. These.
These results after accounting for the effect of the Hollywood labor dispute and various reserves.
Accruals and <unk> transaction costs were in line with our expectations as we continue to invest in our business and drive long term growth.
GAAP net loss attributable to common shareholders for the quarter was negative $13 9 million or a loss of 27 per share. This compares to a GAAP net loss of $7 6 million or a loss of <unk>.
$1 48 per share in Q2 'twenty two.
The Q2 GAAP net loss includes a noncash revaluation loss on debenture notes.
And noncash gain on the Pathfinder warrants, a $7 $3 million and 300000, respectively.
These valuations are noncash and are primarily a result of mobile of stock price volatility.
And interest rates.
Adjusted EBITDA, which is <unk>.
<unk> certain items, such as stock compensation amortization depreciation interest income and expense and the effect of income taxes revaluations of the VL and warrants.
Other infrequent costs was negative $5 2 million for the quarter compared to negative $4 5 million in the same period last year.
Q2, adjusted EBITDA amount includes approximately 600000 of incremental public company costs that were not incurred in Q2 of 2022.
Please refer to our press release for a full description of items excluded for the purpose of adjusted EBITDA.
Turning to the balance sheet, we ended the quarter with $51 million in cash and cash equivalents compared to $62 1 million at the end of Q1 2023, we remain in a strong cash position due to our February 2023, NASDAQ listing, which through a series of transactions raised $60 3 million in net proceeds providing.
Ample cash runway to support our sales and marketing initiatives and R&D investments.
The cash consumed in the last quarter was a combination of $7 $7 million operating loss, excluding stock based compensation of $500000 additional reserves raised.
$500000 depreciation and amortization of 300000, combined with $3 $5 million of cash used in working capital, which was primarily to settle transactions and capital markets related cost at $1. Five spent on capitalized software primarily related to our just launched broadcasting software obscure.
This quarter was an outlier from the perspective of cash consumption was one time in transit the spec transaction costs being paid.
We expect cash consumption to be closer to non-GAAP operating profit in the future plus or minus changes in working capital.
Now I will share a broader outlook and guidance beginning with some color on our operating environment.
Irrespective of the excitement we feel about our product traction such as the recent obscure launch we're taking what we believe it's a cautiously prudent stance with respect to the macro environment and more specifically the uncertainty around any near term resolution and the writer and actor strike and a broader return to work in the energy.
Payment industry.
Fortunately, that's done and I both articulated we are in a strong cash position, which we expect will allow us to navigate this environment maintain our focus on new product development and expansion of our global markets.
For the third quarter of 2023, we expect revenue in the range of $8 $6 million plus or minus $500000.
The lower top line driven by the continued macro environment challenges in Europe , and China and the writers strike we.
We will not achieve breakeven in Q3, we are taking action to increase demand generation and reduce opex. These measures are intended to allow us to breakeven as soon as practical and at a lower revenue level.
As a result of the above we expect full year revenue in the range of 34 to.
$38 million.
Thank you all again for joining US today, we will now open the line for questions from the analyst community.
Thank you.
Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and then wait to hear your name will now.
To withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Okay.
Our first question comes from the line of toy Landsberg with Stifel. Your line is open.
Yes.
And congratulations on getting.
<unk> launched.
First question is on the numbers however for for the year.
So I understand the Q3 guidance and some of the dynamics there.
But based on my math.
It does seem like you are expecting decent sequential growth into the December quarter. So.
Do you have visibility towards that at this point.
Yes.
Any comment that you can give us on your conviction of growth in Q4.
Yes, Hey, Corey this is Ben.
So guidance.
For both Q3 and the entire year.
We are assuming that the brightest strike an active strike in Hollywood.
It will impact the <unk>.
Entire full year.
Now having said that.
Roughly 80% of our business is not related to the strike, including 50% of our entertainment business.
We are continuing to see quarter over quarter growth in in those portion of the base that's not affected by the strike.
Yeah.
Got it thanks for clarifying guidance, you mentioned $2 million impact.
The strike this quarter.
Any way to quantify that for Q3.
Any sense at this point when you could potentially recoup some of the money I'm just trying to think how we should think about whether that's kind of just a push out is it a delay or.
Will you, perhaps not be able to recoup some of that revenue.
Yes.
That's exactly the way we think about that.
Push out and delay of projects in our pipeline.
So literally.
In terms of the $2 million in the second quarter, it's really the spear the impact.
That was.
Hello, Great a surprise for us in terms of the strike.
That impacted the last two months so.
If you look at it that way essentially.
The projects that are associated with professional studios, they're on hold so.
When there is resolution and work resumes we expect those projects to resume now having said that.
There is a finite capacity and actors and writers to continue production right. So.
It's not going to be a sort of a hockey stick rebound, but we certainly see it as that.
Return to normal growth overtime.
That's great last question.
When should we start thinking about obscure contra.
Contributing to financials.
I know that business model of course is quite different than some of your other businesses, but any any visibility on when you should start to see the financial impact of obscure would be would be great. Thank you.
Yeah. So.
Just launched it last week.
In this show.
Response has been.
Better than what we had hoped for.
In terms of.
Coverage.
Awareness.
<unk>.
The excitement from the community that we're going after which are the streamers and that would be too risky.
We set.
In prior calls that we expect.
Non material contribution to this year.
As the market develops and however, we do see meaningful.
Contribution.
In line with our expectation for next year.
Great. Thank you very much.
Thanks Corey.
Thank you ladies standby for our next question.
Our next question comes from the line of Quinn Bolton with Needham <unk> Company. Your line is open.
Hi, Ben Stevens <unk>, just wanted to follow up on <unk> question there.
It sounds like the impact of the writer's strike just prevents you from.
Engaging in these.
Professional studios or kind of hold production at those professional Steve. So you kind of have just everything grinds to a halt when the writers strike is over they come back, but it's not like revenue that you Miss in Q2, Q3, Q4 at all sort of be.
Caught up in Q1, and you'd see kind of <unk>.
Six or so million all being caught up it just seemed like everything in the pipeline just pushes out so.
Hopefully, we would get back to kind of a $2 million to $3 million a quarter from the professional studio side of the business, but it wouldn't necessarily rise above that level for a quarter or two as you catch up rate. It's just best to think of it as just a sort of permanent push out in those projects and you get back to a steady state, but you don't get the catch up revenue.
Yes that is the right way to look at it.
Sure.
Professional studios, which is 50% roughly 50% of our business going to attainment.
And as I said earlier, you're absolutely right.
There is.
A finite capacity in Hollywood production right, so they're not.
Im double up in production.
Now as to sort of recoup what was missed so it's absolutely a.
Delay for both us and the world.
Anyway.
Having said that.
But what we are seeing is.
And the other half of the entertainment business.
Non.
Hollywood.
Strike impacted namely the smaller indie.
Alright.
We are seeing increased activity.
In terms of engagement.
In the in the production so.
We are stepping up our efforts in demand creation and revenue generation.
On the part of the entertainment business that is not impacted by the strike so.
It is.
I hope that the efforts there and the increase the activity.
These indies.
Help.
The growth to be better.
Got it and just say pushed out as the professional like every covers.
Got it that those efforts will help mitigate the impact of the writer's strike do you think that that business that increased in any business do you think that that would be sustainable or do you think it would be sort of a temporary shift and that too would normalize once the strike ends.
Yes.
It's.
It's unknown.
We believe.
To a certain degree.
It opens up.
New.
Content creation.
We are in.
Sort of.
New territory here.
And.
At least in the company's history I think the last strike ways that 2007, when the company was swept hasn't night, we've never experienced this type of <unk>.
Strike.
But.
As we all know that whenever there is a shift in market dynamics.
This creates opportunity.
Four.
Entrepreneurs.
Payments, so I think to a certain degree it will be sustained.
We're going to see a sort of a spike in there.
Go to a more normal.
Growth.
Whether it's going to be replaced by the professional studio side. So it remains to be see but.
Looking at the number.
<unk>.
India projects getting started to try to sort of voya content new content.
Sure.
Find out to be encouraging.
Understood.
Moving to obscure can you talk just a little bit about the monetization for obscure both between the app as well as the cap box.
And then I think in the press release.
Mentioned that youre, bringing it up to your to the epic games store.
The primary store for live streamers or are there opportunities to bring obscured other app stores to increase.
Sort of the distribution of that platform.
Yes, so the reason we distribute.
On the epic story is because the obscure.
Form the App.
First at that spill on Epic's Unreal engine five.
So.
Naturally the answer to your question is yes that would be the place Influencers streamer.
<unk>, we'll go do it at the Hello.
The.
In terms of what they do with it with the App is then they take the App because of App is a twitch extension for broadcasting.
So then they will take it to the Twitch platform.
Which is our first launch.
Platform for them to start streaming.
And then.
Overall the way we developed software is it's actually a platform agnostic in terms of.
The broadcasting channel.
If you would.
So yes, so it would be.
Growing into the platforms.
And then the monetization between the App software and demo cap box.
Yeah. So.
The.
What we're trying to do is we're trying to.
Make the entire solution set.
Assessable as possible so we've priced the mocap box.
995.
Which.
As a price point, where you feel that it's affordable for the segment the streamers that we're targeting that mid obando streamers.
They're already making.
Some amount of.
Some amount of.
Annual income from streaming likelihood.
And then.
Once they start streaming we add.
Two new revenue streams that are on top of our existing revenue one years.
The Rev share from Twitch, which is.
20% of.
The interactions that the stream.
Most have with defense.
And then on top of that.
Embedded in our App.
<unk>.
Market place for assets for digital assets, which.
Streamers.
We'll use too.
Complement their retro streaming environment.
And those assets initially would be I think we have over 500 assets that.
<unk>.
A combination of.
For your assets.
So in the assets of a price on it that they were biased from us directly. So those are the two additional revenue streams.
Overall.
The combined upscale platform.
Wednesday scales, we expect it to be.
In line with gross margin.
Models.
The entire company.
Got it okay. Thank you.
Thank you.
Please standby for our next question.
Our next question comes from the line of a Bcf with Northland Capital. Your line is open.
Hi, this is on behalf of Mike Lattimore.
Give some color on what your revenue mix by industry vertical.
Sure I can give you that this is Steve.
This quarter, we did.
$2 8 million in entertainment $2 7 million in each well actually two 7 million and automation of mobility and about $2 $8 million in health and sports.
We would have expected our entertainment side.
The strike hadn't happened to be much larger.
Alright.
<unk>.
The strike.
OLED product revenue or Youre seeing some revenue being affect that even in these services because of the strike.
It's more on the product revenue.
Alright.
However, the bookings and the automation on mobility category.
They remain as expected, we're seeing some growth in automation to mobility.
In the 4% to 5% quarter over quarter range and.
And we expect that to continue.
Alright, great. Thank you.
Thank you ladies standby for our next question.
We have a follow up from the line of toy Bamberg with Stifel. Your line is open.
Yes. Thank you I just had two quick follow ups first of all on gross margin.
How should we think about the mix for the second half of the year.
So it sounds like the mix is going to remain an issue for Q3 and Q4, but yes any any other color you could add there, especially in light of you. Obviously also had some onetime items right. So.
Yes, yes, and your comments on gross margin for the second half, Yes, you bet. This is Steve and I expect it to be up in the Sixty's.
Perfect.
And then you also talked about managing Opex.
Second half of the year in light of the lower revenues.
Should we think of.
Opex is kind of flattish.
From the current run rate or up or down.
No I would expect it down.
Take out the onetime items that I articulated and I would expect it to be down from that we're going to we're taking a look at all of our opex and making decisions on what to do as Ben said, we are improving our Rev. Gen to actually grow revenue not just an entertainment with the NDS, but across our whole portfolio.
<unk>.
Addressing opex our goal is to be able to breakeven.
At a lower revenue level.
Perfect. Thank you so much.
Thank you.
Ladies and gentlemen that concludes our Q&A portion.
Thank you for your participation on today's call that concludes the call as well you may now disconnect everyone have a wonderful day.
Yes.
Okay.
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Okay.
Okay.
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Thank you.
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