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Good afternoon. Welcome to Vislink's Third Quarter 2023 Earnings Conference Call. My name is Alan, and I will be your operator for today's call.Joining us today are the company's CEO, Mickey Miller; and CFO, Paul Norridge. Following their remarks, we will open the call to questions. Earlier this afternoon, Vislink released results for the third quarter ended September 30, 2023. A copy of the press release is available on the company's website.Before we begin the call, I would like to provide Vislink's safe harbor statement, 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 pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements.All forward-looking statements, including, without limitation or 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 the 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 of this afternoon, November 8, 2023.Now I would like to turn the call over to Vislink's CEO, Mr. Mickey Miller. Sir, please proceed.
Thank you, operator, and thank you everyone, for joining us today. This afternoon, we filed our 10-Q with the SEC and issued a press release that provided our financial results for the third quarter ended September 30, 2023, along with highlighted business accomplishments.As a brief overview for today's call, I'll begin by providing third quarter highlights and recent updates before passing the call to Paul to discuss our financial results in more detail. I'll then come back on to discuss updates within our key markets, product developments, and progress on our go-to-market strategy before taking your questions. And with that, let's begin.In Q3, we made solid progress in our ongoing transformation, maintaining our strong focus on the growing public safety market. A standout moment for the quarter was the strategic acquisition of Broadcast Microwave Services or BMS Assets. This acquisition solidified Vislink's position as the leader in the airborne video downlink or AVDS market, extending our reach across OEMs and end customers, including key players in the emerging drone communications and control networks market. We believe this positions us for near-term top line growth ahead of our initial projections.Financially, our cost management efforts lowered our breakeven point alongside a noteworthy sequential rebound in total revenue, led by core MilGov revenue growth of 34% year-over-year and improve key profitability measures, including a 10.6% increase in quarterly gross profit and a reduction in net loss by about $800,000 in Q3. As we continue to execute on opportunities within our robust weighted sales funnel, which currently totals over $40 million and contains significant prospects in both MilGov and live production. Our refined sales approach and commitment to providing industry-leading technology remains central to our strategy for enhancing overall performance.In Q3, we continue to strengthen our strategically constructed product portfolio. We proudly introduced Cliq OFDM transmitter and have already delivered 6 units to customers. We expect Cliq deliveries to vastly accelerate throughout 2024. We also added to our best-in-class products with the unveiling of the WMT LiveLink, our new bonded cellular transmitter, which received the IBC TVBEurope Best of Show Award. This compact and power-efficient product is driving demand across the MilGov and live production sectors by transforming remote video and data transmission.When combined with our LinkMatrix solution, it creates an all-encompassing workflow management platform, enhancing operational efficiency for customers and generating valuable recurring revenue streams through integrated service level agreements for Vislink. We have steadily improved our services revenue throughout the year. In summary, the third quarter exemplified our transformation and growth. Behind our recent acquisition of BMS Assets, our robust sales funnel and improving sales and operations, we believe we are well positioned to continue improving our market position and financial performance.I'll speak more specifically about some of our operations shortly. But first, I'd like to pass it on to Paul to give the details of the financials. Paul?
Thank you, Mickey, and good afternoon, everyone. Looking at our financial results for the third quarter.Our total revenue for the third quarter of 2023 was $7.2 million compared to $7.1 million from Quarter 3 2022. The slight year-over-year increase in revenue is primarily due to growth in the MilGov sector and increased adoption of service level agreements. Gross profit for the third quarter of 2023 was $3.9 million compared to $3.5 million in the third quarter of 2022. Our gross profit margin for the third quarter of 2023 was 54%, an improvement from 49% in the third quarter of 2022.The improvement in our gross margin resulted from MilGov mix improvements and cost savings in components. Total expenses in the third quarter of 2023 were $9.5 million, a 5% decrease from $9.9 million for the same period in 2022. The improvement in total expenses was primarily driven by improvements in the cost of components previously mentioned.Turning to our profitability measures. We recorded an operating loss of $2.3 million compared to $2.8 million in the prior year period. The decrease in operating loss was primarily due to the improvements in revenue and margin previously noted. Net loss attributable to common shareholders in the third quarter of 2023 was $2 million or $0.83 per share, an improvement compared to $2.7 million or $1.16 per share in the prior year period. EBITDA for the third quarter of 2023 was a loss of $2 million compared to a loss of $2.3 million in the prior year period.Adjusted EBITDA, non-GAAP metrics for the third quarter of 2023 was a loss of $1.4 million compared to a loss of $1.9 million in the third quarter of 2022. The EBITDA results were primarily a result of cost management. A reconciliation of EBITDA to GAAP measures is contained in our earnings release issued earlier today.Moving now to our balance sheet. As of September 30, 2023, we have cash and cash equivalents of $7.2 million compared to $11 million at the end of the second quarter. We also invested $10.9 million in federal bonds intended to be held to maturity. In the third quarter, we increased inventory by 3% as we continue to enhance our capacity for immediate booking and shipping, optimizing inventory and increasing working capital will be a priority over the coming quarters. The cash outflow experienced in the third quarter was primarily influenced by lower-than-expected revenue volume in the second quarter of 2023.Additionally, approximately $5 million in shipments from the third quarter were delivered within the final 2 weeks of the quarter, leading to a deferral of cash collection to the first quarter in accordance with our standard net 30-day payment terms. Improving cash performance is a top priority in the fourth quarter and in 2024. We have $33.4 million in working capital at the end of the third quarter compared to $35.6 million at the end of quarter 2. We believe our strong debt-free balance sheet gives us the flexibility to continue investing in high return on investment opportunities that align with our long-term growth potential. This includes actively seeking strategic acquisitions and partnerships in order to enhance our video communication areas, especially within the defense and public safety.That concludes my prepared remarks. I'll now turn it back to Mickey.
Thanks, Paul. I'd now like to provide more operational updates, beginning with our MilGov growth segment. As our results show, our MilGov segment has demonstrated consistent growth over the past several quarters, and we successfully established a prominent position in the AVDS market. Our momentum buoyed by favorable industry conditions is expected to further accelerate following our acquisition of important BMS Assets. BMS is a longstanding recognized leader in designing and manufacturing microwave technology systems, serving a diverse clientele in government surveillance, law enforcement, UAVs, and unmanned ground vehicle markets.Adding BMS reinforces Vislink's status as one of the world's largest and most technologically advanced AVDS providers. It enhances our international presence, particularly in EMEA, and opens opportunities for us to introduce and promote our products within BMS' traditional networks. This strategic move consolidates our position in the AVDS market and leverages synergy between our offerings. While we are not providing specific figures here today, the integration is progressing exceptionally well and has exceeded our initial expectations.Our outlook is optimistic with the potential for substantial revenue growth in the coming years. Outside of BMS, Q3 was highlighted by a complete AVDS system deployment in a major city in the Mid-Atlantic region. Deployments with large law enforcement agencies like these validate our technology as a key public safety personnel rely on our systems to provide aerial surveillance and add situational awareness. While these large-scale deployments typically take months to complete, they remain incredibly important to our overall strategy of bringing in larger deals from the public safety market.Additionally, we're encouraged by the large deals that remain in our pipeline, especially in international markets, and we see solid growth opportunities on the horizon. Our live production segment continues to provide the largest percentage of total revenue. And in Q3, we continue to expand our contributions to major events worldwide. Vislink products helped deliver coverage of important cultural events, including Pope Francis' visit to France, the G20 Summit in India and elections in Eastern Europe. Additionally, our technology had a strong presence at sporting events such as Formula 1 races, MotoGP racing, the World Rugby Championship, and College Golf Championships. In Q3, we secured a $1.8 million agreement with ASPIRE for the A2RL Autonomous Race Series, providing reliable low-latency video cockpit views to key personnel.Our partnership with FocalPoint VR enhances production quality and generates recurring revenue through an annual service level agreement by facilitating crucial data communication between the race cars and their control systems. In a move that expands our live production presence, we partnered with Zoom Communications India, the nation's largest outside broadcast service provider. They utilize our ultra-low latency 4K wireless camera systems to enhance their broadcasting footprint across Southeast Asia, aiming to become the region's top radio frequency supplier.This order highlights the enduring value of our wireless camera systems in live event scenarios and demonstrates our ability to capitalize on significant opportunities in this dynamic market. We recently partnered with JB&A, a leading value-added distributor of audio video solutions in the U.S. Through this agreement, JB&A will offer us solutions, including IP bonded cellular technology, vPilot and LinkMatrix to broadcasters and content creators nationwide. While it's early in the partnership, we anticipate strong growth opportunities in our live production segment. As we continue to emphasize MilGov, live production remains a key part of our strategy in top line.In product innovation, we achieved early success with LiveLink, our cutting-edge bonded cellular transmitter. Livelink delivers high-quality video transmission up to 4K resolution, making it a game changer for public safety agencies and broadcast teams. It's significant as the most compact and power-efficient unit available, is generating significant demand in both our MilGov and live production markets. Cliq OFDM transmitter demand remains strong as it enables live broadcast to capture more dynamic content. These compact mini camera transmitters have received highly positive responses from live broadcast customers, underscoring their appeal in a market that values compact design without compromising reliable video transmission.We've also taken significant steps to enhance our device management ecosystem. We expanded our LinkMatrix platform to seamlessly work with AWS, streamlining remote production workflows, and enabling better collaboration. This is especially crucial for both live broadcast and efficient field operation in public safety. With the AWS integration, we provide essential insights for improving remote product workflows, further deepening our value proposition to our clients, and fostering valuable touch points for integrated service level agreements.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. We're leveraging the new team members' expertise to foster valuable connections and drive growth. BMS has a strong position with military and public safety agencies throughout the Middle East, combining Vislink's AVDS systems with BMS' incumbency in the region uniquely positions us to support agencies as they upgrade their networks to support the latest and low-latency video-centric IP networks.We're only 7.5 weeks into the integration of BMS into our platform, but we are very encouraged about the possibilities to serve a wider audience and grow revenues accordingly. Moreover, we are actively identifying promising opportunities in the drone communications in the control network space. BMS is particularly active in this unpenetrated sector, providing us with additional avenues to enhance our presence and expand our MilGov business. Our pipeline is showing early growth internationally, especially in South America. While these deals may require additional time for processing due to their size and complexity, we remain unwavering in our commitment to see them through to fruition.On the marketing front, we continue to seize opportunities at industry conferences and trade shows. For instance, we recently showcased our full product portfolio at the IBC. Later this month, I'll represent Vislink at the 2023 Milipol Paris Show, a 4-day conference dedicated to security innovation on an international scale. This platform allows us to demonstrate our technology's ability to deliver high-quality, real-time video data in challenging safety and law enforcement environment, connecting us with major agencies worldwide.We've also strengthened our software and services sales, enhancing our recurring revenue streams. Our attachment strategy for software and services diversifies our revenue sources and strengthen our client relationships, ultimately fostering retention and a healthier sales pipeline. We are making steady progress to our goal of achieving a 90-10 sales split between software and services and hardware. Overall, our go-to-market strategies outlined earlier this year are beginning to bear fruit. And with the BMS acquisition, we anticipate expanding our customer base, fortifying our partnerships, and converting our robust pipeline into tangible sales. As we optimize our sales approach, we look forward to the opportunities that lie ahead in 2024 with the potential to significantly enhance our market presence, revenue generation, and the future trajectory of Vislink.In closing, our Q3 performance and ongoing activities reflect our commitment to growth and transformation. Recent acquisitions and partnerships are strengthening our position in the MilGov market and present additional growth prospects. With a solid sales pipeline and a focus on financial sustainability, we believe we can achieve success in Q4 and throughout 2024. As we secure contracts with prominent law enforcement agencies, we expect our enhanced visibility to further enrich our pipeline across the Americas and globally. Looking ahead to the end of the year and beyond, we see immense potential to amplify our market presence, escalate revenue and shape the future of Vislink.Operator, please provide the appropriate instructions.
[Operator Instructions] Our first question comes from Brian Kinstlinger from Alliance Global.
This is [indiscernible] on for Brian. It's good to hear how the acquisition of BMS expands your adjustable markets. But could you detail whether there will be or you believe there will be cross-selling opportunities among existing customers?
Yes, absolutely. That's a great question. We're really excited about this acquisition. Let me just give you a background on BMS. BMS has been in this business for over 40 years. They have a great track record and have incumbent customers throughout the world, particularly in EMEA and with federal agencies here in the U.S. Our customer bases are very complementary. And to give you an example, BMS prior to COVID was north of $15 million in sales. Through COVID, they ran into some liquidity challenges. They were uncapitalized and they weren't able to make it through.But what we've done since the acquisition is talk to their key customers. Their key customers are excited that BMS brand is alive and well and moving forward with the Vislink brand. As an example, some customers in the Middle East when they want to see what's happening on their borders, and these are several countries that are in very difficult border situations, they say, let's go to the BMS. It's literally the brand that's being referred to that's providing security and surveillance for these areas. So it's got a great reputation. Now coupled with our architecture and our product road map that we've been building with AeroLink and Quantum. Now they have a refreshed capability to upgrade their existing capabilities from H.264 to H.265 from 1080i to 1080p and 4K as well as a whole host of AI overlay that we have available for.So we're really excited as are our customers to bring those capabilities into the market. We've been working very diligently with BMS' historical vendor base and have a lot of success there, bringing them back online to be able support the goals that we have for BMS. So it's still early, but we're very encouraged by the team, by the customer base and by the history in respect that the customers have for this brand and this product. And we're looking forward to bring it alive with the Vislink architectures in the future and bringing these complete AVDS solutions with an AI overlay to many countries, many federal agencies.
Next question. MilGov was up 34%. Could you quantify what the actual revenue contribution was in this quarter? And how lumpy should we expect this business to be in the coming quarters? And also, is the segment impacted by the new government debt agreement, which has resulted in some lower government budgets in any way?
Yes. What we found as Vislink historically in the U.S., we continue to see federal grants driving a lot of demand. As we mentioned, we had on Mid-Atlantic large city deploy. We also had a county deploy a little bit earlier, and we see several opportunities that are over $1 million of opportunities that are federal funded. So we continue to see that source of capital being deployed in these types of use cases and applications.What we're seeing as we're broadening our customer base and particularly with the BMS portfolio of customers, we think that we'll be able to get consistent growth on the MilGov side because it not only includes our AVDS product, but it also includes our traditional WCS camera systems that are used in a lot of military applications for war games and things like that as well as our bonded cellular capability that we're seeing deployed in public safety applications.An example of that is our new LiveLink that we introduced that received TV Europe show -- award of the show, which basically is a 8 modem solution with bonded cellular that you can put on a belt of a public safety personnel that allow them backhaul video, data and voice to the cloud. And so we're seeing -- we think we can move away from the lumpiness that historically we've seen in the MilGov by the number of opportunities that we're seeing in the various use cases that we support.
The beginning part of that question, do you think you could quantify what the actual revenue contribution was during the quarter from MilGov?
Sure. I think we have it in the materials. Paul, is that right? We disclose it at that level?
I don't think we disclosed at that level, no.
Okay. Yes. We typically break it out, but we can give you historicals. Typically, that's been 1/3 of the business, and we've got 2/3 on the live production side. [indiscernible].
Typically as well, the margins in that sector are very beneficial for us.
Moving on, do you think you could quantify the number of AeroLink sales that were recognized during the quarter? And is there any sort of visibility on near-term sales?
Yes. On the AeroLink, we didn't have a great quarter on AeroLink even with our numbers. A lot of that was these larger opportunities that are taking a little bit longer time to close. But we've got -- we have a forecast of a quite large forecast for this quarter on AeroLink. But again, some of these are larger opportunities that may fall out into the next quarter. But as we mentioned, our weighted funnel is around $40 million, that's a weighted funnel. A lot of that includes a much larger exposure than MilGov than we had in the past.So I think as we get a better track record of seeing now this combined BMS Vislink capability with their incumbency that they have with so many customers. I think we'll get a better feel and be able to -- in the future, will be able to project that. But I could say the funnel in the coming quarters looks positive.
Speaking of funnel, you mentioned a couple of times that your pipeline is going. There's more large deals and a lot of it is coming from the international like more internationally rather than inside the United States. So I'm curious, is the pricing power historically different internationally? Would there be some sort of pressure on margins for more international demand?
I think when you take a look at some of the opportunities that we looked at, for instance, we announced the ASPIRE order. That's a major opportunity that is consistent with the margins that we see throughout the U.S. And -- but the most interesting part of that application is it now allows you to bring DR capabilities from moving video and the ability to do that 4K, 6K or 38K and do that in a way that there is very extremely low latency. So I think what we're finding, given the uniqueness that we bring around super low latency, high bandwidth, particularly around DVBT 2, which is a new wave form that we're deploying. Customers are willing to pay for that level of reliability and consistency and sustainability. And so we haven't seen pressures on the margins outside the U.S.
And lastly, any update on the live production business, specifically around demand. Any broad-based signs of recovery yet?
Well, I think our live production business remains consistent. And I think what's different for us than in other markets is -- than with other competitors that aren't in the wireless segment. We are seeing the wireless segment of live production continuing to increase. Our partners that serve for live events like the Super Bowl are busier than ever. And the big reason is because with wireless, they can provide very intimate, compelling video that you can't do with a wired solution. So I think by the new products that were introduced, Cliq, which is a mobile unit as well as we'll be introducing Dragonfly towards the end of this year that, again, is a body warn type product.You can see the kinds of use cases you probably saw the Ump Cam during Major League, World Series here in the U.S. Those are all capabilities that are brought through wireless, high-fidelity, low-latency solutions like Vislink provides. And although perhaps live production could be flat, we're seeing the RF element of that to continue to grow.
All right. Really quickly, just to clarify from your prepared remarks, not sure I caught it correctly. Did you say that $5 million and some shipments came in the last 2 weeks and that revenue won't be recognized until next quarter? Did I hear that correctly?
No, it's revenue recognized. But it's the cash.
Cash, it's the timing of the cash collection.
I think that was the key thing we wanted to highlight from a cash perspective, we did burn some cash, but it was largely because of last quarter and then this quarter, as we mentioned, $5 million of sales were in the last couple of weeks. We expect to -- yes.
This concludes our live question-and-answer session. I'd like now to turn the call back over to management for additional questions the company received from investors.
Yes. I think what we've been hearing is a lot of questions about BMS. Again, we're very excited about this combination. The team that now is a part of Vislink are experts in their field. They've got many years of experience around the AVDS use case. They're respected by our customer base, and they're very professional about what they do. So we're very excited to have that team on board and their customers to be able to support in the future. So we'll continue to report updates on that, but we're very encouraged by what we see in the early days, and we expect this to be very positive to our results in the future.The other question that we get a lot is about the $10.9 million in bonds being held to maturity. Can you give nature of the bonds, maturity dates, for example, et cetera? And I'll turn that over to Paul.
Yes. Thanks, Mickey. So basically, in Quarter 1 of this year, we invested in 3 bonds totaling $10.9 million, 2 of which were federal bonds and 2 of which will be maturing in Quarter 4 of this year and the other one will mature in Quarter 1 of 2024.
All right. Thanks, Paul. Well, thank you for joining us today, everyone. To our investors, thank you for your continued support. We are dedicated more than ever to building shareholder value and making Vislink the premier provider of technology solutions for the collection, delivery management and distribution of high-quality, live video and data. We remain committed to enabling creators to capture, stream and monetize our content and ensuring the military and first responders have real-time intelligence to fulfill their missions, serve and protect. With our collective efforts and shared vision, I believe the best days of Vislink are ahead of us. Thank you.
Thank you for joining us today for Vislink's Third Quarter 2023 Conference Call. You may now disconnect.