Moving iMage Technologies Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
September 26, 2023

There are 5 speakers on the call.

Operator

Greetings. Welcome to Moving Image Technologies 4th Quarter and Year End Fiscal 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to Brian Siegel, Senior Managing Director. Thank you. You may begin.

Speaker 1

Thank you, operator. Good morning, and welcome to Moving Image Technologies' earnings conference call and webcast. With me today is Chairman and CEO, Phil Rafferson, We will provide an industry overview Co Founder and Executive VP of Sales and Marketing, Joe Delgado, who will 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 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 expected or anticipated results or events will actually take place. Actual future results could differ materially from those statements. 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 or 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 tailwinds And then Joel will discuss why we're 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.

Speaker 2

We are currently in the early days of 1 right now where the cinema owners are starting to upgrade their technology that is coming to the end of its useful life with newer technologies such as laser projectors with upgraded servers, new screens And sound systems being purchased to replace these. Additionally, we are seeing cinema owners build new theaters and upgrade or 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 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, Hollywood strike will cap the upside here this year, but we are seeing an expansion of another trend by theater owners to bring in business showing non movie content, whether it's sports, eSports or concerts.

Speaker 2

An example is AMC partnering with Taylor Swift to show her concerts in theaters. 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. Thank you.

Speaker 3

Joel? 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 consisting of FF and E projects and selling our proprietary U. S.

Speaker 3

Manufactured goods And 3rd party technologies. As Phil 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's a strong operating leverage in this part of the business, today, FF and E remains the largest part of our business. However, given the low 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 smoothing out the lumpiness and cyclicality of that business.

Speaker 3

For Cinema, this includes expanding our existing lineup of over 50 proprietary manufactured products, Including our AVA products and caddy lines, by manufacturing these products, we can significantly increase Our margins on FF and E projects as well as our overall company gross margin when we sell these products a la carte. Additionally, our partnership with LEA Professional for smart power amplifiers is another potential source of growth and margin expansion for the FF and E projects and those a la carte sales. Each theater needs 5 or 6 or even more of these power amplifiers per Cinema Screen and with LEAs warranties being twice that of the industry average that demonstrates the confidence we have in their overall quality. Currently, we have several large circuits testing these products and between the quality at LEA and the supply issues that some of our competitors are experiencing, I wouldn't be surprised to see sales start to ramp in fiscal 2024. Next up for Cinema, and this is what truly excites me about our future, we're in the latter stages of going to market with a set of potentially disruptive High margin technology offerings that will also bring reoccurring service revenue.

Speaker 3

First, I'll discuss our Mi Translator offering, which I believe has the potential to begin contributing growth in fiscal 2024. BMI 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 that may not have previously attended the movies. With this product and service, those who did attend previously can now have a significantly enhanced movie 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.

Speaker 3

The North American theater owners organization known as NATO within the industry The Cinema Foundation, an all industry nonprofit charge with promoting and expanding the industry and the overall moviegoing experience. Our own Frank Keyes serves on its Board of Directors. One of the foundation's top marketing priorities is to expand outreach and bring more ADA And non English proficient patrons to the movies. These initiatives fall right into the wheelhouse of Mi Translator, and there was a tremendous enthusiasm and interest in the product at CinemaCon and subsequent trade shows. We're currently in talks with several cinema circuits on testing Mi Translator.

Speaker 3

CineQC, our SaaS based quality control platform, is another example. We've been working with National Amusements, a large international Moving circuit on upgrading and improving this product. Unfortunately, the additional development we have been doing has delayed our plans to roll out the product more broadly. However, Once complete, we will have a much more robust tested offering to bring to our other clients. The next opportunity for us is to move beyond cinema.

Speaker 3

Here, we are targeting 2 areas, other live entertainment venues and esports. I believe esports has the potential to be a significant incremental growth driver for us in fiscal 2024. During the past few months, we have expanded our relationship with SandBox, who aims to build a little league for amateur esports to include an exclusive multimillion dollar supply agreement, a minority ownership position, a board advisory seat and co ownership of the IP related to the technology. In May, we did an investor presentation, which is available on our IR website with Rick Starr, Founder of SandBox. He laid out his vision for creating that little league of esports by setting up local amateur leagues in movie theaters hosted on the big screen.

Speaker 3

Not only is this a very attractive activity for parents and kids, but for theater owners as well. With a Sandbox league, a theater can fill excess capacity of over 6 1,000 MTCs per year and get a return on his investment in as little as 8 months. That is compelling return in general, but especially to the theater owners who are used getting a return on their investments in 18 months to 24 months. Rick then said he already had an active pipeline in North America of over 2,500 locations And another 500 internationally. Right now, he is out doing a funding round, which will enable him to start to ramp locations more quickly.

Speaker 3

Finally, the growth opportunity I'm most excited about is what we're currently calling eCADDY. We have infused our CADDY product line of cup holders with technology that we'll be developing applications and services for use in stadiums and arenas. In September, we introduced our 1st Major League stadium executive and got some great feedback on the type of applications that would get them excited. In the months to come, we'll be performing additional market research with other stadium and arena executives to identify the apps and services that will drive demand for this product. The TAM here is huge with millions of existing seats The potential here on its own is tremendous, but in combination with esports, semi translator and CineQC, It can reshape our business and financial models in the years to come.

Speaker 3

We'll keep you appraised as we hit milestones. As I mentioned on our previous calls, we have accelerated the part of our strategy It involves expanding outside of North America. We had established relationships overseas before the pandemic and have been reconnecting over the past few quarters. The opportunities here encompass many of our products that we believe can smoothly transition to international markets. Additionally, the cinema market in Europe is just Starting to recover from the pandemic, roughly 2 years after we did.

Speaker 3

So the timing for us to explore these opportunities couldn't be better. An example of ARP opportunities is the acquisition of exclusive global distribution rights into the cinema market for LEA professional amplifiers. In addition to testing going on here domestically, we're also well received last month when I was in Barcelona. This is a high margin product that is hitting the market Just the right time when the competition is struggling with supply chain issues. We also see the opportunity for Mi Translator and CineQC to move to international markets In conclusion, we're still in the early innings of our growth opportunity.

Speaker 3

Fiscal 2023 was a bridge between the pent up post pandemic demand during fiscal 2022 and growth for new products, new markets and refresh upgrade cycles in fiscal 2024 and beyond. With that, I thank you, and I'll turn the call back over to Brian.

Speaker 4

Thanks, Joe, and thank you everyone for attending our earnings call. I'm going to spend a little time reviewing our model and then I'll take you through the quarter followed by Q and A. Currently, FF and E projects are the key driver for our business, making up roughly 60% to 65% of revenue. We serve as a project manager procuring and reselling FF and E and services for refurbishing and upgrading or building new theaters. Since much of the makeup of our projects are pass through costs with a small margin added in, project margins are in the mid teens.

Speaker 4

That said, we have several routes to improve these margins demonstrated by our fiscal year 2024 results. Some of the ways that we improve on these margins are to upsell installation services, user proprietary manufactured products to the resale of higher margin technology projects, including projectors and servers and more recently sound system products through our relationship with LEA Professional. As Joe and Phil mentioned, FF and E projects are more cyclical and can also often see start dates pushed out. The second half of fiscal year twenty twenty three, we saw over $3,400,000 pushed out into the future, which negatively impacted our revenue growth rate and loss per share for the full year. While this business is not lost, the timing is uncertain, although at the present time, we expect most to all of it will hit fiscal year 2024.

Speaker 4

Next, we sell our higher margin proprietary manufactured Offerings a la carte, which have margins ranging from 35% to 55% include our CADDIE and ADA products. As we continue to increase the number of proprietary manufactured products that we sell, we expect our mix to shift and more favorably impact gross margin going forward. In FY 2023, we saw the early impact of this as gross margins expanded by 200 basis points versus fiscal year 2022. Going forward as our emerging products like the MiTranslator, Synacusee and eCADDY start to ramp and scale, we expect our mix to shift more significantly away from FS and E as we expect these products will have 50% plus gross margin. Now moving to the results.

Speaker 4

4th quarter revenue $5,800,000 was up 3% versus $5,600,000 last year. Pushouts I mentioned earlier negatively impacted revenue by about $1,700,000 in the quarter. For the full year, revenue was up 10.1%. Our Q4 gross profit decreased 5% to 1,400,000 And gross margin was down 200 basis points to 24.2% in the quarter, resulting from mix as we sold for higher dollar lower margin projectors during the quarter. The full year gross profit increased 19% and gross margin increased 200 basis points 26.3%.

Speaker 4

Q4 GAAP operating expenses were $2,800,000 versus $1,900,000 last year. This year's GAAP operating expenses included about $1,000,000 in non cash accounting write down. As we went through the audit, we conducted our annual impairment determined that the carrying value of the Caddy goodwill and customer relationships, intangible assets had declined. Accordingly, we impaired goodwill and intangible assets related to this. Keep in mind that the traditional Caddy business is tied to new stadium and arena builds, which have not materialized post COVID.

Speaker 4

This is what we're writing down and has nothing to do with the potential of our eCADDY product that is still in development. We also determined that due to a slower than expected initial ramp at SandBox, we're going to write off the loans to the company. I know this may seem confusing given our Strong belief in SandBox's Esports strategy and model that our relationship will drive growth for us. But again, keep in mind the write downs are based on accounting forecast, which admittedly we took an ultra conservative view as the business is still an early stage startup. For example, SandBox is out trying to close a seed round as we speak.

Speaker 4

Once this closes, they will be in a position to begin ramping customers. For the full year, GAAP OpEx were up to $7,300,000 again reflecting the $1,000,000 non cash write offs from Q4. Excluding the write off, OpEx was flat despite 10% growth in revenue, demonstrating the potential operating leverage we can show going forward as we continue to grow revenue. Q4 GAAP operating loss was $1,400,000 versus $500,000 last year, reflecting the write down and revenue push out. Excluding the write downs, our operating loss would have been $200,000 a $300,000 improvement from last year.

Speaker 4

For the full year, GAAP operating loss was $1,800,000 versus $1,300,000 last year. Q4 GAAP net loss and loss per share was about 1 point compared to a net loss of $1,300,000 or $0.13 per share last year. Q4 non GAAP net loss and loss per share was $200,000 or $0.02 compared to losses of $700,000 and $0.06 per share last year. Reconciling this to GAAP this We added back the $1,000,000 in non cash write downs and $100,000 in stock compensation. For the full year, GAAP net loss and loss per share were $1,800,000 and $0.17 versus $1,300,000 and $0.13 last year.

Speaker 4

Full year non GAAP net loss and loss per share were $700,000 or $0.07 versus $1,500,000 or $0.14 last year. Reconciling non GAAP to GAAP in fiscal year 2020 3, we added back the $1,100,000 for one time write downs and stock compensation expense, While last year's non GAAP EPS excluded the $700,000 gain from the forgiveness of our PPP loans and added back $400,000 in stock Moving to the balance sheet. Our cash and cash equivalents were $6,600,000 at the end of the 4th quarter, up slightly from 3rd quarter. We're also able to buy back about 273,000 shares during the year before our window closed on June 30. As we look at FY 2024, we aren't going to make the same mistakes we made in FY 2023 by providing specific guidance.

Speaker 4

That said, I want to be as transparent as possible and we'll make some general comments. First, we tend to only have 6 months visibility into our legacy business of FF and E projects and proprietary manufactured products, which as we have said on the call can be lumpy with pushes occurring. That Said our first half of the year backlog as of June 30 was over $12,000,000 2nd, with Bill Green joining us as CFO, we are taking a very So we approach internally to budgeting for the year, mainly modeling only our legacy FF and E and proprietary manufactured product businesses. Our budget calls for similar growth to this year, which was about 10% with further pairing of losses. However, there are several opportunities for upside to this forecast that we have not included.

Speaker 4

The first is a likely 2 year ADA product refresh at a top 5 cinema circuit that would begin in the second half of fiscal twenty twenty four. Next, selling more than the 15 to 20 movie sports systems for SandBox that we sold in fiscal year 2023. We also have no sales budgeted for LEA Professional Products. And then we Budgeted nothing in there for National Amusements rolling out CineQC to their 500 international locations and or the implementation at new customers for this product. We have not budgeted any sales for Mi Translator and we have minimal to no international sales budgeted.

Speaker 4

In terms of catalysts, you should be looking for announcements on the key initiatives mentioned during this call and the upside opportunities I mentioned just now. We will plan on providing milestone updates for our emerging products and we'll announce whatever orders we can through press releases and on earnings calls this Overall, we have never been in such a strong position within cinema and we are excited that our new initiatives are progressing even if it's slower than we wouldn't have hoped originally. We want to make sure that we have the right offerings and they are ready for primetime before we start marketing more broadly. Just to let everybody know, Joe and I will be at the LD Micro conference next week in LA. If you're interested in meeting, please reach out to me.

Speaker 4

And then subsequent information, Yesterday, it was announced that there was a tentative agreement for the writers strike in Hollywood, which we believe is a very positive event that will hopefully be signed officially today. And that leaves only the SAG AFTRA talks ongoing and Hopefully, this will spur those to move forward more quickly. I want to thank everyone for attending today's call and look forward to speaking with you again on our next call in mid November. Operator, we can take questions.

Operator

Thank poll for

Speaker 4

questions.

Operator

There are no questions at this time. So this will conclude today's conference. Thank you for your participation. You may disconnect your lines at this time.

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Key Takeaways

  • Cyclical Cinema FF&E Business: Core legacy segment makes up 60–65% of revenue and is currently benefiting from a technology refresh wave as theater owners upgrade projectors, servers, screens, sound systems and expand non-movie content offerings.
  • Higher-Margin Product Strategy: MIT is shifting its mix toward proprietary, U.S.-manufactured AVA, caddy and ADA products—and smart power amplifiers via LEA Professional—to boost gross margins from mid-teens toward 50%+ and smooth revenue volatility.
  • Mi Translator Launch: A multi-language accessibility solution targeting 70 million non-English proficient North American moviegoers with a recurring-revenue model, now in talks with cinema circuits and backed by NATO and the Cinema Foundation.
  • Esports Partnership with Sandbox: Exclusive multimillion-dollar supply agreement, minority ownership and board seat to deploy amateur esports leagues in theaters—tapping 2,500+ locations to fill excess capacity and drive incremental revenue.
  • eCADDY Development: Tech-infused cup holders for stadiums and arenas designed to support future applications and services, with positive feedback from a Major League Baseball venue and further market research underway.
AI Generated. May Contain Errors.
Earnings Conference Call
Moving iMage Technologies Q4 2023
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