Moving iMage Technologies Q1 2024 Earnings Call Transcript

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November 14, 2023

Key Takeaways

  • Moving Image Technologies reported Q1 revenue of $6.6 million (up 13% year-over-year) with gross margin improving 80 basis points to 27.4%, and GAAP operating income of $0.4 million versus a $0.1 million loss a year ago.
  • The company is shifting its mix away from cyclical, low-margin FF&E projects toward higher-margin proprietary products—such as ADA compliance and CADDY lines—that can be sold a la carte with 35%–55% gross margins.
  • Key partnerships with LEA Professional for “smart power amplifiers” and the in-house ADA product refresh contributed to stronger gross margin and are expected to drive further growth in fiscal 2024.
  • Moving Image is developing several high-margin, recurring-revenue offerings—including the Mi Translator multi-language solution and the eCADDY/esports concepts with Sandbox—to expand beyond traditional cinema into live venues and eSports.
  • For fiscal 2024, the company expects low double-digit revenue growth and operating losses narrowing toward breakeven, with significant upside potential from ADA circuit refreshes, esports system rollouts, LEA amplifier orders, CineQC deployments and Mi Translator sales.
AI Generated. May Contain Errors.
Earnings Conference Call
Moving iMage Technologies Q1 2024
00:00 / 00:00

There are 6 speakers on the call.

Operator

Greetings, and welcome to the Moving Image Technologies First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brian Siegel, Senior Managing Director.

Operator

Thank you, sir. You may begin.

Speaker 1

Thank you, operator. Good morning, and welcome to Moving Image Technologies' earnings conference call webcast. With me today is Chairman and CEO, Phil Rafferson, who will provide an industry overview Co Founder and Executive VP of Sales and Marketing, Joe Delgado, We'll provide a strategy and business overview and our CFO, Bill Green. For those of you that have not seen today's release, it is available on the Investors section of our website. Before beginning, I would like to remind everyone that except for historical information, the matters discussed in this presentation are forward looking statements that involve several risks and uncertainties.

Speaker 1

Words like believe, expect, anticipate mean that these are our best estimates as of this writing, but that there can be no assurances that Further information on the company's risk factors is contained in the company's quarterly and annual reports filed with the SEC. Now, I'd like to turn the call over to Phil. Take it away.

Speaker 2

Thank you, Brian, and thank you all for joining us today. I'm Phil Rapson, CEO of Moving Image Technologies For MIT, as you look at MIT as an investment, industry and company specific factors will contribute to our future performance. First, I'll address the cinema industry as it stands today, and then Joe will discuss why we are so excited about the future, Where we are introducing potentially disruptive technologies into cinema, esports, stadiums, arenas And other live entertainment venues. Historically, our business has been cyclical, driven by new technology and technology upgrade cycles. We are currently in early days of 1 right now where newer technologies such as laser projectors with upgraded servers, new screens Smart sound systems are being purchased to replace older technologies.

Speaker 2

Additionally, we are seeing cinema owners build new theaters and Upgrade and refurbish older ones. These new theaters often include new amenities such as dine in, bars and more, All with the idea of making going to the movies a destination experience. From an industry growth standpoint, as I've discussed previously on these calls, COVID took its toll on the industry. Over the past 2 years, we have returned to a more normalized environment With the box office originally expected to approach pre pandemic levels this year. Unfortunately, the Hollywood strikes Have negatively impacted the box office over the near term, but theater owners are pivoting to new movie content, whether it be sports, esports or concerts to offset some of the lost revenue.

Speaker 2

An example is AMC partnering with Taylor Swift to show her concerts in the theaters. While this alternative content helps, it doesn't fully make up for the lost box office and concessions revenue during the holiday season for our customers. Additionally, now that the Actors' Strike is over, we expect the studios to move ahead aggressively with marketing releasing new movies. Before returning the call over to Joe, I'd like to thank our dedicated employees. Without them, we would not be in what I believe Is the strongest position we've ever been in as a company from an operational, financial, product and competitive perspective.

Speaker 2

Thank you,

Speaker 3

Joe. Thank you, Phil, and good morning, everyone. I'll start by briefly reviewing our business and providing updates on each area. Today, cinema is our core legacy business, which consists of FF and E projects and selling our proprietary U. S.

Speaker 3

Manufactured goods and third party As Bill mentioned, this part of our business has historically been more cyclical and lumpy with project start dates often being pushed out. Additionally, FF and E projects tend to be at the low end of our gross margin profile, although there is strong operating leverage in this part of our business. Today, FF and E remains the largest part of our business. However, given the lower margin profile, lumpiness and timing factors I just mentioned, A major part of our strategy going forward is to shift our mix towards higher margin products as well as smooth out the lumpiness and cyclicality. For Cinema, this includes expanding our existing lineup of over 50 proprietary manufactured products, including our ADA compliance products And CADDY lines, the former of which was a contributor to our strong Q1 results.

Speaker 3

By manufacturing these products, We can significantly increase our margins on FF and E projects and our overall company gross margin when sold a la carte. Additionally, our partnership with LEA Professional for smart power amplifiers is another potential source of growth and margin expansion for both FF and E projects And a la carte sales. After the end of the quarter, we announced our first two orders for these products, and we currently have several large circuits in test. We're confident in this relationship because each screen needs 5 to 6 power amplifiers on average, and LEA is so confident in its product quality, Its warranty is 2 times the industry standard. Between the quality at LEA and supply chain and quality issues at their competitors, Which are also deemphasizing the cinema market, I feel optimistic about sales continuing to ramp in fiscal year 'twenty four.

Speaker 3

So what's next for cinema? What truly excites me is that we are in the latter stages of going to market with a set of potentially disruptive high margin technology offerings will also bring reoccurring services revenue. First, I'll discuss our Mi Translator. The Mi Translator is a multi language technology solution With a reoccurring revenue stream that forms the high end of our accessibility strategy, the market in North America alone is tremendous With over 70,000,000 non English proficient speakers who may not have previously attended the movies. With this product and service, Those who did attend previously can now have a significantly enhanced movie going experience.

Speaker 3

This is a new product class for the industry and adoption has yet to occur. That said, I believe there are now catalysts that play into adopting the Mi Translator solution. The North American Theater Owners Organization, Known as NATO within the industry, established the Cinema Foundation, an all industry nonprofit charged with promoting And expanding the industry and the overall moviegoing experience. Our own Frank T. Serves on its Board of Directors, and one of the foundation's top marketing priorities There was tremendous enthusiasm and interest in the product at CinemaCon and subsequent trade shows.

Speaker 3

We believe that this industry effort bodes well for the success of Mi Translator, We've been working with National Amusements, a large international movie circuit on upgrading and improving this product. While we've made significant progress, there's still work to do, And we're evaluating options to get this to the finish line. Unfortunately, the additional development has also delayed our plans to roll out the product more broadly. However, once complete, we will have a much more robust tested and scalable offering to bring to other circuits. The next opportunity for us is to move beyond cinema.

Speaker 3

Here, we're targeting 2 areas, other live entertainment venues and eSports. I believe esports has the potential to be a significant incremental growth driver for us this year. In May, We did an investor presentation, which is available on our IR website with Rick Starr, Founder of our esports partner, SandBox. He laid out his vision for creating the Little League of esports by setting up local amateur leagues and movie theaters hosted on the big screen. Not only is this a very attractive activity for parents and kids, but for theater owners themselves.

Speaker 3

With a Sandbox league, a theater can fill excess capacity of over 6,000 empty seats and get a return on his investment in as little as 8 months. That is compelling return in general, but especially to theater owners who are used to getting an ROI of 18 to 24 months. Rick then went on to say he already had an active pipeline in North America of over 2,500 locations and another 500 internationally, And our relationship with these same customers confirm these numbers. Right now, SandBox is out doing a funding round, for use in stadiums and arenas. We introduced the eCADDY concept to executives at 3 Major League Baseball stadiums over the past 3 months.

Speaker 3

We got great feedback On the type of applications that would excite them and identified other potential partners as well. This month, we'll perform additional market research With a 4 stadium executive, which will allow us to further solidify the picture for the apps and services that drive demand for this product. The TAM here is huge, With millions of existing seats becoming retrofit candidates in addition to new stadium and arena builds, the potential here on its own is tremendous. But in combination with esports, MiTranslator and CineQC, they can reshape our business and financial models in the future. We'll keep you appraised as well as these hit milestones.

Speaker 3

As I mentioned on our previous call, we've accelerated our strategy to expand outside North America. We have established relationships overseas before the pandemic I've been reconnecting over the past few quarters. The opportunities here encompass many products that we believe can smoothly transition to the international markets, Including our new and development product lines. Additionally, the cinema market in Europe is just starting to recover from the pandemic roughly 2 years after We did. So the timing for us to explore these opportunities couldn't be better.

Speaker 3

Initially, we see the opportunity for LEA Smart Power Amplifiers have already received requests for quotes from cinemas in the U. K. And Germany. We also see the opportunity for Mi Translator and CineQC to move to international markets in the years to come, And SandBox already has a pipeline established outside North America. Finally, we have an active corporate development program includes the business development deals we made with SandBox and LEA, acquisitions such as the ADA product line and other ongoing activities.

Speaker 3

In conclusion, we're still in the early innings of our growth opportunity for our emerging technologies, while our legacy business continues to improve. With that, I thank you and I'll turn it over to Brian. Brian?

Speaker 1

Thanks, Joe and thank you everyone for attending our earnings call. Going to spend a little time reviewing our model and then I'll take you through the quarter followed by Q and A. To date, our legacy FF and E projects have been the key driver for our business, Making up roughly 60% to 65% of revenue. As Joe and Phil mentioned, SF and E projects are more cyclical and can often see start dates pushed out as we saw in fat Slide 23. We serve as a project manager procuring and reselling FS and E and services for refurbishing, upgrading and building new theaters.

Speaker 1

As a large part of these projects involve pass through costs with a small margin added in, project margins are in the mid teens. We have several routes to improve these margins, including upselling installation services, scoping our proprietary manufactured products into the project for the resale of higher margin technology products, including projectors and servers and more recently sound system products through our relationship with LEA Professional. Next, We sell our higher margin proprietary manufactured offerings a la carte, which have margins ranging from 35% to 55% include our fabrication, CADDI and ADA compliance products. Additionally, since we are in the early days of a multi year technology upgrade cycle, We received discrete orders for servers, projectors and LEA power amps, all of which have gross margins above the company average. In expect our mix to shift even more significantly away from FF and E as these products will likely have 50% plus gross margins.

Speaker 1

Now moving to our Q1 results. We reported revenue of $6,600,000 up 13% versus last year. Gross profit increased 17% to 1,800,000 Gross margin was up 80 basis points to 27.4 percent in the quarter, resulting from the favorable product mix. GAAP operating expenses were $1,400,000 down 5% versus last year, mainly due to lower corporate governance costs. GAAP operating income was $400,000 versus an operating loss of $100,000 last year.

Speaker 1

GAAP net income and EPS was $400,000 and $0.04 per share versus a loss of $100,000 and $0.01 per share last year. Non GAAP net income and EPS were $400,000 and $0.04 compared to net income of $100,000 and $0.01 per share last year. Moving to the balance sheet, our cash and cash equivalents were $6,400,000 at the end of the Q1, down $200,000 from the 4th quarter, mainly reflecting changes in working capital. Now I'll provide an update on our fiscal year 'twenty four outlook. The writers and actors strikes impacted our customers by driving uncertainty into their budgeting process.

Speaker 1

As a result, when providing our fiscal year 'twenty four outlook last month On our Q4 'twenty three earnings call, we built in some conservatism into our commentary by only focusing on our legacy business. As I said at the time, we expect to see low double digit top line growth, while pairing losses and approaching breakeven. And our views this quarter remain the same. Note, this guidance took into account the impact of the active strikes on our 2nd quarter results, which when combined with traditional seasonal weakness, We expect to be materially down versus last year, but then we'll see a stronger second half. Next, I provided upside opportunities that were excluded from our forecast.

Speaker 1

I will now update these items. There's an ADA product refresh at a top 5 cinema circuit that would begin in the second half of fiscal twenty twenty four. We recently held conversations with this circuit and feel we are well positioned to get this multimillion dollar order. For esports last quarter, I said that our guidance included flat sales of our Movie Sport systems through FY 'twenty three, which was roughly 15 to 20 systems. I apologize, but I misspoke.

Speaker 1

In FY 'twenty three, we only recognized revenue for 8 systems or received orders for 16 systems. Therefore, anything over 8 systems sold in fiscal year 'twenty four will be upside to our guidance. Additionally, once SandBox closes its Funding round, we expect them to quickly move to roll out leagues at the circuits that order the 8 systems that were not shipped in fiscal year And then start to ramp additional locations. Next, as I discussed in our recent investor presentations, our incremental opportunity for Sally Elea Smart Power Amplifiers is very significant. Still, we included $0 for sales of these products in our FY 'twenty four guidance, So any orders, including the two orders we announced in the Q2 would be upside.

Speaker 1

With a total market of about $630,000,000 in North America and about 5% to 10 annual attrition rates, the replacement market is $32,000,000 to $63,000,000 annually. So hypothetically speaking, capturing just 10% of this could add $3,000,000 to $6,000,000 in annual revenue, which is material considering we only reported $20,000,000 in fiscal 'twenty three. This doesn't even take into consideration new projects or international sales. Moving to CineQ C, we continue to work closely with National Amusements to enhance Once this happens, we expect they will start to roll out CineQ C to their 500 international locations, which were not included in our guidance. We will also then start to market this product to other cinemas and build a pipeline.

Speaker 1

And finally, any sales of the Mi Translator or any international sales would also be upside. Regarding Catalyst, you should be looking for announcements on the key initiatives mentioned during this call and the upside opportunities I mentioned just now. We plan to provide milestone updates for our emerging products and announce whatever orders we can through press releases and earnings calls this year. Also of note, we put in place a 10b5-1 trading program for our share repurchase program. This went into effect in November 1st It allows us to be in the market every trading day regardless of whether we are in a blackout period.

Speaker 1

Overall, I continue to believe we've never been in a stronger position within cinema. We are excited that our new initiatives are moving forward. We prudently want to ensure that we have the right offerings and that they are ready for primetime before we start marketing more aggressively. Just to let everybody know, Joe and I will be at the Sidoti Microcap Conference this week, so please tune into the webcast at 3:15 p. M.

Speaker 1

Eastern Time on Wednesday. The link is available on our website. If you're interested in a 1 on 1 meeting, please reach out to me or request one through the Sidoti portal. I want to thank everyone for attending today's call and look forward to speaking with you again on our next call in mid February.

Operator

Thank you. We will now be conducting a question and answer session. Thank you. Our first question comes from the line of Neal Seegans, a Private Investor. Please proceed with your question.

Speaker 4

Hey, guys. First of all, it's great to see the nice performance of the core business. And you covered a lot of ground on the 4 or 5 early stage new initiatives. And I wanted to see if I Could just drill down a little bit more on a couple of them. For the benefit of me and I think others, Could you review what our contractual relationship terms are with SandBox In terms of what the 2 or 3 primary elements of that agreement are and what our equity ownership interest NNEM is right now based on their current capital structure?

Speaker 5

With respect to SandBox, the equity position, I think Brian could probably share a little bit more about this In detail, but I think we assume something like 6% Of equity, and it depends on where we're going to land with respect to their first round of funding. And What we did aside from supplying the technology, we have that exclusive Supplier agreement in place and I believe that is a 3 year exclusive supplier agreement.

Speaker 4

And that's for the eCADDY. And is the revenue per To us, still around 43,000?

Speaker 1

Yes. So Yes. So, yes, it's a multimillion dollar Exclusive supply agreement, there's technology sharing and ownership as part of that. And yes, generally, we're talking $40,000 to $50,000 per system.

Speaker 4

Yes. Okay. And are you all Phil and Joe, are you guys considering Taking a piece of this current round, I believe you have a first right of refusal on all of their future financings, if I'm not mistaken.

Speaker 5

Yes, you broke up at the beginning of that question. Neil, I'm sorry.

Speaker 4

I was asking if you're planning to participate in this next financing round?

Speaker 1

Yes. We're not going to comment on that. The round is still ongoing and it's just not something we're going to comment on at this point.

Speaker 4

Okay. Let me ask another quick one here. Is there any visibility on potentially landing any large Sports arenas, either new builds or refresh, that really hasn't been part of the conversation Since I became interested in the company, but is there any visibility probably more likely on some of the large stadiums Refreshing and needing sizable dollar amounts of your Caddy product lines?

Speaker 5

Yes. Since this is a brand new technology, nothing like this really exists.

Speaker 4

Yes. I'm not talking about e Caddy. I'm talking about, just the Caddy line as it exists today.

Speaker 1

The legacy

Speaker 5

side, yes. Yes, there's existing we're looking at existing pipeline now for sure. We work closely with the major seating companies, Neil, like Hussey out of Maine and And Erwin Seating out of Michigan. So yes, there's new builds and remodels going on in arenas And stadiums now. However, that has lagged.

Speaker 5

I think we've mentioned in prior calls that has definitely lagged behind Like our core business, cinema, but it is now starting to pick up.

Speaker 4

Okay. And Joe, would you Say the likelihood of landing 1 or more of those opportunities is likely in 2024 or is there Not good enough visibility to go that to say that yet.

Speaker 5

I think We've got a couple of really good candidates that should land this fiscal.

Speaker 4

Okay. Okay. Well, that's great. And listen, one more quick one. How should we be thinking about eCADDY, the next generation of the CADDY product?

Speaker 4

Should we be thinking more likely revenue generation in 2025? Or Are you thinking that it's still possible that we could start to have that product formalized, Finalized and ready to go to market and generating sales late this year.

Speaker 5

What I'll say about that, Neil, is The excitement level for us here at the company is tremendous because of the feedback that we've got. And I think we're going to be very, very judicious With respect to our approach to market, we're going to get our ducks in a row. And basically, it's all about voice of the customer, right? We're getting into a space that has never existed. So we want to make sure that we come into the market with a product and service That is both robust and flexible enough to meet the customers' Needs at the arena and stadium level, the operational level and of course from a revenue standpoint, it's got to bring value to both sides, right, us And the arena and stadium operators, I think we're well on our way to doing that.

Speaker 4

Okay. And

Speaker 1

just to build on that, I would Probably looking to fiscal 2024 as a development year. We're still talking Some stadiums this month and from that we'll be able to go out and start to develop The roadmap and the actual service that will be provided. So I probably wouldn't look to any Business this year. And if there does come some business, that would be again another category of upside. I would look at it as sometime next year and beyond.

Speaker 4

Okay. Well, listen, I'll yield the floor here And just would like to reiterate great looking core numbers And you guys are basically trading only $0.15 $0.20 above cash and you're profitable. So hopefully an active IR program to get out and increase visibility. But thanks again and I'll yield the floor.

Speaker 5

Thank you, Neil.

Speaker 1

Thanks, Neil.

Operator

Thank you. Ladies and gentlemen, that does conclude our question and answer session. And with that, the conclusion of today's call. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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