Vislink Technologies Inc
NASDAQ:VISL
Earnings Call Analysis
Q4-2023 Analysis
Vislink Technologies Inc
Vislink ended 2023 on a positive note with a notable increase in Q4 revenues, surging to $8.1 million from the previous year's $7.4 million. This increment reflects the payoff from strategic moves including the acquisition of BMS Assets and the initiation of service level agreements, particularly in MilGov markets. Despite a full-year revenue dip to $27.5 million from $28.1 million due to product line rationalization, Vislink manifested a 75% year-over-year growth in its MilGov sector, driven primarily by its AVDS solution, which garnered significant contracts from both North America's public safety sectors and a lead Air Force in EMEA.
The fourth quarter of 2023 witnessed Vislink's gross profit soar to $3.7 million, representing a gross margin of 46%—a sharp rise from the 33% margin of the prior year. This improvement encapsulates Vislink's strategic orientation towards high-margin offerings, such as software and services, complemented by their MilGov revenue. The full year echoed this trend with gross profit reaching $14.1 million, up from $12.9 million, and a gross margin accolade of 51%. Operational efficiencies and the cultivation of a higher-value product mix are attributed as the drivers of this upliftment.
The fiscal prudence and strategic cost management introduced by Vislink have borne evidence with a reduced operating loss of $2.6 million in the fourth quarter of 2023, bettering the previous year's $5.6 million loss. The full year aligned with this improvement trajectory, shrinking the operating loss from $14.1 million to $10.6 million. The EBITDA also reflected this positive turn with a lessened yearly loss of $9 million from a previous $12 million, and an adjusted EBITDA improvement from a $7.8 million loss to $6.4 million.
With a debt-free posture and $31.8 million in working capital, Vislink is well-poised to navigate through 2024, eyeing strategic acquisitions and advancing its capabilities particularly across the defense and public safety sectors. The solid financial foundation fortifies Vislink's ongoing transformation which encompasses cost restructuring, product line redesign, and integrated acquisitions, setting the stage for further profitability and growth expansion.
Vislink's partnership with Focal VR, on the ASPIRE and A2RL Series, showcases the company's foresight into novel areas, such as VR over RF solutions. The financial prospects are bright with an initial deal worth $1.8 million and expectations for upgrades in the future. Other partnerships, like the one with Zoom Communications, bolster Vislink's global presence by bringing innovative products to new markets, such as India's live broadcast industry.
Given that 70% of 2024's sales are anticipated from products launched in the last two years, Vislink's focus on innovation is resolute. Advancements in solutions like the LinkMatrix platform and the integration of AI efficiencies for surveillance and crowd control applications demonstrate Vislink's commitment to technology leadership. They are poised for leveraging emerging trends like AI video analytics and secure cloud storage, positioning themselves for robust growth especially in the highly promising drone communications and control sector.
Vislink's revenue streams in 2023's fourth quarter were approximately balanced between the MilGov and live production sectors, each contributing about 50%. With such diversity and the promising expansion ahead, Vislink holds a strong composite offering to various markets, which underpins its potential for sustainable growth and financial success.
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Good morning, everyone. Welcome to Vislink's Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Allison, and I will be your operator for today's call. [Operator Instructions]
Joining us for today's presentation are the company's CEO, Mickey 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 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 made 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 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 1, 2024.
Please note, today's event is being recorded. Now I would like to turn the call over to Vislink's CEO, Mr. Mickey Miller. Sir, please proceed.
Thank you, Allison, and thank 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 3-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 Vislink. 2023 marked a pivotal year for Vislink, 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 climbed north of 10% of total revenue in 2023, exceeding the 90-10 software and services hardware ratio we targeted at the beginning of last year. The recent announcement of our Air-to-Anywhere 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 AVDS solutions. Our efforts led to securing new customer wins across local, state and U.S. federal agencies and large governments worldwide. To punctuate the progress we've made, we've recorded an impressive 75% year-over-year increase in MilGov revenue in 2023.
Our efforts were bolstered by our strategic acquisition of BMS Assets in September, which solidified Vislink's leadership in AVDS particularly in U.S. federal, global OEMs and EMEA 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 Vislink customer base.
The acquisition has quickly demonstrated its value, evidenced by a $1 million-plus order we received recently in EMEA. Our growth narrative extends beyond AVDS, as we gained revenue traction in the video data transport market headed into 2024, as noted by a $1 million order 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. Through the BMS acquisition, we have secured 1 OEM market leader and are targeting others.
While this is a nature of market for us, we expect it 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 2-plus years.
By optimizing our product lineup, we were able to consolidate manufacturing, including moving most of our U.K. 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 3-year strategic plan for profitable growth.
With the 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 MilGov 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 is 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 enhanced out-of-box success rate shows the effectiveness of our operational enhancements and AVDS 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 MilGov markets, aided by strategic acquisition of 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 MilGov and software and services to the total revenue, partially offset by some onetime 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 MilGov revenue.
Net loss attributable to common shareholders in the fourth quarter of 2023 was $2.4 million, 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 or $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 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 in working capital at the end of the fourth quarter compared to $33.4 million at the end of Q3.
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 2-plus years to restructure our cost base, redesign our product line, integrate 2 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 MilGov 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, Mike. I'd now like to provide more operational updates, starting with our achievements in MilGov. Building on our solid foundation, BMS has bolstered our position after only a little over 3 months. As I mentioned, our revenue from MilGov markets witnessed an impressive 75% year-over-year growth, largely attributable to the success of our AVDS solution. We achieved over $2 million in AVDS orders from North America's public safety sector and secured another $1 million AVDS order with a leading Air Force in EMEA.
The integration of BMS has been seamless and fruitful, setting us up for sustained momentum. We're targeting 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 MilGov business brings valuable industry expertise to our leadership team, enhancing our ability to foster strong client relationships and integrate our services offering.
We have taken significant steps forward with the launch of Air-to-Anywhere with our AVDS platform. This innovation is a key part of our strategic road map, incorporating initiatives to provide AI-enhanced analytics to our customers.
In the live production markets, we continue to see steady growth and significant contribution to our revenue stream. Our products have played a pivotal role in delivering coverage of major cultural and sporting events globally, reaffirming our position as a trusted provider in this dynamic market.
Notably, our recent partnership with Focal VR, ASPIRE and the A2RL Series is set to redefine the future of racing by providing innovative VR over RF wireless solutions for autonomous race cars. The groundbreaking technology will allow users to experience a real-time VR views from the cockpit, directly to headsets on site and ultimately at home. A2RL is well funded in Abu Dhabi and is targeting international expansion, hosting large range of events and forging new partnerships to elevate the overall race experience.
The initiative enhances the spectators experience and aims to revolutionize how we engage with the [ sport ] of rating itself. Financially, the outlook for this partnership is promising. The initial deal in 2023 was $1.8 million and there are plans for upgrades in forthcoming years. The venture is just beginning, and it represents a significant step forward.
Additionally, we partnered with Zoom Communications, India's premier outside broadcast service provider for ultra-low latency 4K wireless camera systems. This collaboration is 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 2 years. In 2026, we expect they will account for close to 100%. Our AVDS solutions remain at the forefront of innovation, empowering our customers with cutting-edge technology to seamlessly capture and manage high-resolution, ultra-latency live video and associated data.
We're excited about the significant advancements in our device management ecosystem, particularly in our enhanced LinkMatrix platform the bedrock of our software and services offering.
With LinkMatrix, we've integrated cloud capabilities to improve remote workflows and collaboration, which is invaluable for live broadcast 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 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 AVDS services, providing peace of mind and reliability to our customers. We are also focusing on remote management capabilities allowing for the seamless management of all solutions, elements and delivering e-SIM provisioning e-services.
These and our other advancements are all based on our design strategy and methodology that we implemented over the last 3 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 4 focus areas that form the 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 C2. The beauty of going to market in these 4 focus areas is 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 Vislink's AVDS 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. We're only one full quarter into integrating BMS 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. BMS is particularly active in this underpenetrated sector, providing us with additional avenues to enhance our presence and expand our MilGov business. We are well positioned to expand our customer base as we prioritize fortifying our partnerships and converting a 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 over our proprietary hardware platforms, increase our share in the MilGov markets and exploit operating leverage to drive positive cash flow. Our 3-year plan outlines 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.
[Operator Instructions] Our first question today will come from Brian Kinstlinger of Alliance Global Partners.
Great. 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, say, the different focus areas of your business?
A couple of points. The BMS -- the numbers from BMS for Q4 were nominal as we just completed that in September. And when we look at where we see growth? Number 1 is AVDS 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 surveillance cameras back to the control typically over bonded cellular that area has been growing. We see that in the 20%-type growth range.
In the traditional markets of camera access video, we expect those to be in the 10% range. And then lastly, the control C2 area. It's a new market for us. We mentioned we see 75% going into this year. And as you can imagine, what happened globally with the geopolitical events, we see that as a tremendous market growth for us, but it's still early.
And what percentage in the fourth quarter was MilGov?
Mike, do you want to take that one?
Yes. It was roughly split, Brian, about half and half.
Half MilGov, half Live production or...
Live production. Yes. About half and half.
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 an area where I think that there's been weakness over the last few years. So maybe discuss that market environment.
Yes. We still do. I think what we're seeing -- there's a tremendous appetite for Live entertainment and Live sports. I think a great example today, one of our partners MotoGP was just acquired by Liberty Global this morning for over EUR 4 billion. So there's a massive appetite for that. So we're seeing, as we mentioned, with the Zoom acquisition with the ASPIRE, A2RL, that deal. So we're seeing growth in that area.
I think the reason why we didn't talk a lot about it is we've made this -- MilGov is growing at a higher rate. And we've -- with the combination of the BMS acquisition, it positions ourselves very well in those markets. And the beauty of the two, Brian, as we mentioned there, we're just leveraging the same product set effectively, the same hardware infrastructure and software overlay that we use and we're able to repurpose into those different use cases.
Got it. And then as it relates to the pipeline, can you break down that? I mean, I assume [ CBDS ] is at the top, but maybe break that in other MilGov opportunities versus Live production down maybe by its contribution to that? And is there any geographic concentration as well?
Yes. I think the geographic concentration is consistent with what we've seen, typically 40% to 50% Americas, the balanced rest of world. And then we are seeing a higher percentage than traditionally around MilGov, but the line of production remains strong. I think 1 thing you asked us to talk about is what we see in Q1? We were happy to report, we expect Q1, our revenue will be higher than Q4.
Higher than before, meaning last year's $7.1 million? This year...
Higher than Q4, higher than what we just announced in Q4.
Got it. And then as it relates to BMS, I think you said last call that was a struggling business, you needed to reengage your customers. There was opportunity to refresh their customer bases technology. How have those conversations progressed?
Fantastic. We're thrilled with the BMS acquisition. The customer base had a long tradition of working with BMS. They love the team there and love the products, and we're really concerned as they went through the difficulty, they went through post pandemic.
As I mentioned to you, pre-pandemic, they were a $20 million business and then struggled through the pandemic. And customers were really very positive. The fact that now they had a well-funded business that acquired them. So all those conversations to the customer has been very positive.
And then you -- and you mentioned the fourth quarter was a nominal contribution to revenue with those conversations improving and being fantastic. When do you expect this to be a significant revenue contributor to your business?
In 2024.
First half, second half?
I think we'll see improvements each quarter.
Okay. I guess lastly, you started the call with saying that you wanted to provide 3-year targets. Maybe I missed them. Did you provide actual revenue or maybe margin profile? Maybe any long-term where could this business -- what could this business look like in 3 years? Or do you -- what are the goals of what this business will look like?
Yes. Brian, this is Mike. Obviously, we're not providing guidance. But when we look at the business out over the next few years with the growth in MilGov, the acquisition of BMS and the higher percentage that we're looking for, for the services and software revenue, we have an outward target of trying to double this business in the next 3 years on the top line.
Yes. Brian, to answer your question on BMS growth. One thing to point out is what this opportunity has given us. BMS 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 in the AeroLink in our AVDS platform. So we're in the process now of transitioning their customer base to meet their needs from a legacy standpoint with the historical BMS product line and then make the technology transformation. And the value that the acquisition brings us is now our transmitters will work with -- we'll operate with their receivers that are incumbent in the market. And then as those customers upgrade their received sites and the overall software platforms will be the obvious solution for that.
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.
Thanks, Allison. Our vision -- first of all, thanks 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 and services to our clients while providing return to our investors. We're humbled to have the opportunity to do so and very much appreciate the support of our investors. We assure that we are acutely focused on growing this business and providing our investors with solid returns. With our collective efforts and shared vision, I believe that Vislink's best days are ahead of us. Thank you.
Thank you for joining us today for Vislink's Fourth Quarter and Full Year 2023 Conference Call. You may now disconnect.