INEO Tech Corp. (INEO) Earnings Call Transcript & Summary

Hello, everyone. My name is Pardeep Sangha, Head of Investor Relations at INEO. Thank you, everyone, for joining us today and welcome to INEO's Q4 and 2023 Annual Financial Results Investor Webinar. Joining me on the call today are Greg Watkin, Chairman, President and Founder of INEO; and Kyle Hall, the company's CEO. This call is being recorded. [Operator Instructions]. Please note, portions of today's call other than historical performance include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws. Forward-looking statements involve known and unknown risks, uncertainties and assumptions and other factors: many of which are outside of INEO's control that may cause the actual results, performance or achievements to differ materially from the anticipated results, performance or achievements implied by such forward-looking statements. These factors are further outlined in our previous quarter management discussion and analysis. We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future. We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any changes in our expectations or any change in events, conditions, assumptions or circumstances on which such statement is based except if it's required by law. And with that, I'd like to open it up to Mr. Greg Watkin, Chairman and Founder of INEO. Greg?

Thank you, Pardeep. First off, I'd like to thank everyone for joining this webinar to listen to our corporate update. Before we begin, I want to remind those joining us today that we are unfortunately not able to use the names of certain retail chains that we're working with due to our non-promotion agreements with these large companies. This is an ongoing challenge with these retailers and we really like to be able to name names. So for the benefit of our shareholders, analysts and potential new investors on the call; we'll do our best to provide commentary on the nature of the rollouts without actually naming retail chains. I'd like to start today's call by mentioning our news flow over the last 6 months. As you're all aware, we've been very quiet recently and I want to assure you that the company has been very busy over the last few months working on key contracts. This has been a major strategic initiative and we believe that these new contracts position the company to reach positive cash flow much sooner. In addition, we expect to be announcing agreements and providing updates more regularly to our shareholders. INEO continues to actively work with several large retailers and we have a growing pipeline of opportunities. Furthermore, the company has its own patented intellectual property that protects our business. To the best of our knowledge, there's no other company that provides retail loss prevention system integrated with an in-store digital media network. INEO is an innovator and continues to lead this industry. On today's call, I will provide an update on our current role of progress with our retail partners. Our CEO, Kyle Hall, will then discuss the company's annual financial results and highlight some recent business initiatives, the newly announced shipment with Welcoming Systems to Jumbo Cencosud. Kyle will also speak towards our recently announced updated commercial agreements as well as provide an outlook for 2024. 2023 has been a pivotal year for the company in which we achieved the most deployments of INEO Welcoming Systems in the company history with an accelerating installation schedule. To accomplish this, a major focus for INEO during the year was to allocate resources towards the company's R&D and infrastructure to further build out our network's capabilities for rapid scale and expansion. Working alongside our major retail partners, I can proudly announce that INEO has now successfully expanded its Welcoming System network to key major cities in 23 states with over 108 installed retail locations plus the ramp-up of installations in Bogota, Colombia and other cities throughout that country. And I'd also like to mention that plans for additional rollout deployments in 2024 and 2025 are already in progress. One of our major retail partners would like to continue moving quickly in expanding the INEO media network across all of their locations in the U.S. For context, these stores represent approximately 270 million customer impressions and more than 22 billion advertising impressions annually and we expect to deploy several hundred systems annually to this retailer over the next 3 years. With that, I'd like to turn this over to our CEO, Kyle Hall, who will discuss some of our key financial highlights.

Thanks, Greg. I'm going to read off these so I get the numbers exact for everyone. But I'm pleased to report that we had strong results for fiscal 2024 for the 12 months ended June 30, 2023. Our Q4 numbers and our audited year-end so this our audited year-end, we achieved revenues of $1.51 million for the year-end June 30, 2023 representing an increase of 21% compared to revenue of $1.25 million for the year ended June 30, 2022. Revenue for Q4 2023, the 3 months ending June 30, was $308,000 compared to revenue of $414,000 in Q4 2022. This decrease in fourth quarter revenue was a side effect of our intentional decision to divert resources from our legacy loss prevention sales, refocusing and monitoring strategic business initiatives and deploying media networks for retailers. INEO generated gross profit for the year ended June 30 of $373,000 as compared to profit of $503,000 for the year ended June 30, 2022. And our loss and comprehensive loss for the year ended June 30, 2023 was $3.3 million or $0.05 a share compared with a net loss of $3.3 million or $0.05 a share in June 30, 2022. EBITDA loss for the year ended June 30, 2023 was $2.83 million compared to EBITDA loss of $2.88 million for the year ended June 30, 2022. As at June 30, 2023, the company had 76,143,709 shares issued and outstanding. Those are the financials and we're happy to take questions on those when we get to the end of the call. But now I want to go into some of the business highlights that we've had. On our last webinar and in a press release earlier, we recently told everybody about the new commercial agreements that we signed with a large national retailer and a regional liquor store customer that are on our network. I'm going to go into this in a bit more detail. But the key numbers here to get in everybody's minds are: 5- to 6-year contract lengths, exclusive right for the in-store advertising in these stores in these retailers that we signed agreements with, the right to deploy additional media assets within those stores and screens throughout the stores, the right to assign the ownership of the advertising contracts to be able to sell the advertisement and assign that to a third-party media company and the right to sign the ownership of the hardware itself to a third-party media company. I'll go into those a bit more in detail, but I want to talk right now about INEO ORCA. We put this press release out a few weeks back and we've been working on this in the background for quite some time. One of our large retail customers really has been a driver on it. They want it, they like what we propose to them and so we've been working on building it out and finishing it off. And it's taken us by surprise a bit on how much activity and how much response we've had to that press release. U.S. retailers are really getting hit hard by theft right now. It's either a sign of the economic time, but it's also a bit of what's happening in law enforcement and resources of law enforcement and prosecution of shoplifting and then organized retail crime entering this stage where they're actually targeting certain products and stealing these en masse to be able to resell them on the black market. And so it's really been pushed down to retailers to fight back on their own on this. So law enforcement is not helping all that much on some of it. And in order for them to prosecute, they have to build a very good case to get law enforcement involved and they have to have done basically all the work in the background. And there's quite a few companies out there that are saying they're doing some AI and some computer vision in this area. But we've got a very unique advantage. We have Welcoming Systems at the front entrance of the store that know exactly when loss prevention events happen. Our systems alarm the store. They notify when loss prevention events happen. We capture a video of those loss prevention events. What we are doing is we're applying AI to those loss prevention events videos. We're meticulously analyzing the video from those loss prevention events and we're comparing them against either videos from within that store, from surrounding stores, stores within the area. And we're able to give the retailer a very concise look of who's taking the product and I don't mean who, Kyle or Greg. I mean like identifying the situations that this is happening, the patterns that this is happening and the system learns and adapts. And what we're able to do is by comparing like images within videos, and videos are just a series of images, we're able to distinguish patterns and clothing and people to be able to defer to the loss prevention team, give them exceptional reporting where they can now say we've got the same person hit us in 5 different stores, the same group of people hit us in 3 different stores or in 1 store. And I want to stress we're not using facial recognition, we're not using biometric numerical profiling people. We've created a way using our video clips on comparison of images on a comparison basis only to be able to do this with our AI capabilities. It's very unique, it's within privacy and it's something we're running with quite hard right now. It's going to create another revenue stream for us down the road as we really build this out. Some of our retailers right now we've kind of rolled it in as we're trialing it out with them. But this is a platform on top of the media platform that we built, it's a platform for analytics and AI recurring revenue that we're going to be able to generate out of this. So then the other piece -- I talked a lot about that one. The other piece is the Jumbo Cencosud. INEO and Prosegur put out a lot of pilot systems in the market in early 2022 and throughout 2022 and our partner Prosegur has done a great job of this. We've talked about this previously. They helped get pilot systems, demo systems in front of a lot of customers and we're now seeing those start to convert. The first big one to fall here is Jumbo Cencosud. Great retailer. Colombia division Jumbo is where we're dealing with, but they're throughout South America. They've got over 1,000 locations, bright big stores, you'd be impressed at how nice these stores are. They're really beautiful stores. We've only gone into 4. We've got 4 stores on the first roll here committed, but almost 15 systems per store; 59 systems in total going into these 4 locations. So the upside here is tremendous. We installed the initial pilot with Jumbo in I think it was end of April sometime 2022. So it ran for a little longer than we wanted to, but they've already been selling advertising on the 3 systems that we deployed. They really put it through its paces on the loss prevention side and on our capabilities operating side. And after some long drawn-out negotiations, Prosegur got an agreement and so we are now moving on that. So we'll see more from this over the next year, but we're quite happy and very proud of this relationship and very thankful for our partners at Prosegur for pushing through and getting this to happen. Now I'm going to go back into the contracts a little bit to talk about exactly some of this detail on what it means to the company going forward. We went through this quite heavily on the last call so it might be a little bit of repetition here for some people, but I think it's well worth us really having people understand what we're doing here. The #1 thing we had to do is we had to get longevity of these contracts. We agree 2 or 3 years is great, but we need to get some certainty in the revenue runway that we would have and also the long-term security that we need for any partner that we brought in, media partner specifically for the revenue sources. And so the 5 and 6 years that we were able to secure is crucial. The next piece is getting screens elsewhere in the store so that we can sell that dwell time so that we're not just selling the entrance and exit. Our Welcoming Systems are great; people see them first thing as they see as they walk in, last thing they see as they leave, you can also see them through the whole front entrance of the store. So we're getting the dwell time at the front of the store. But we wanted the dwell time for the whole visit. If somebody is in the store for 15 minutes, we want to be able to sell that whole 15 minutes and so we want screens strategically located throughout the store that we can run advertising on and get those impressions and we've already started. We've already deployed the first store within 1 very large retailer now with extra screens. They look great. Now that was the prototype to say okay, where do they go? How do they fit? How do they look? And now we're going to roll it back into all the stores that we've already deployed and all the stores going forward. It's quite significant when you think of the immersive experience of having screens all through the store and everywhere you look, your eyes have the opportunity of seeing that advertising. With those screens then, we needed the exclusive right to be able to sell the advertising, right? We can't have competition on other screens in the store or other mediums in the stores selling against us. And so we were able to secure that as well so that the infrastructure that we have in place can be monetized properly, can be filled properly and we're not going to be in a game to the bottom where we're bidding against other screens. So very crucial to have exclusive right. And then the big pieces were the signing of the ownership of the hardware that we put in the store. When we first looked at this and we started talking to the retailers, the model really was we would put the hardware in and the retailers would fill it with advertising from their trade dollars and the relationships they had with their brands and the retailer feedback was yes, we're going to do that. It didn't quite pan out that way. As we started going, the retailers got very -- I guess the right word would be, they didn't want to share. Getting all that trade dollars today, they were worried about having it just spread over more screens and more advertising mediums versus just getting what they get for end cap space and shelf space and all that revenue that they get from the brands on the inside today. And what we really came to grips was what we wanted for the retailer and we wanted for ourselves was the national advertising budget. So think of, let's pick a big customer, Microsoft. Microsoft will advertise with retailers, they'll put a lot of money into retail stores. But then Microsoft also advertises everywhere. Whether it's TV, online or billboards; Microsoft's advertising. We want a piece of that budget to come in and not just take from the other side. And so what we had to do was we had to think this through and what was the right model. And when we also looked at who owns all these billboards out in the market and who owns all these screens, the large media companies do and the large media companies buy the hardware to put out there, whether it's a billboard or a digital display somewhere, they lease the space to put it in and they then sell the advertisement on top of it. So the opportunity of partnering with 1 of these large media companies just became the right thing to do for us. So assigning, having the right to assign the contract of the ownership of the hardware and assign the selling of the advertising just made sense to us and so we were able to secure that within these retailers. And for the last -- it hasn't been just for the last few weeks. But for the last while, we've been aggressively taking bids on media partners who want to participate with us on this business. We've got quite a few at the table and we're at the point now where we're just getting down to the nitty gritty of who is going to be our media partner. So we should have some more to say on this in the near future. But the updated contract structure really is what allows us to match the demand that we have for the INEO Welcoming System that the retailers want because of our great capabilities on the loss prevention side and analytics and even the media side. But match that with a media partner who is prolific in selling advertising and can really monetize these and take the financial burden off of INEO of owning and installing all of these systems, have the media company pay for that. So that's my long-winded way of telling you where we're at on those so open the questions if I wasn't clear. We're quite happy with where we've gotten to on those and where the company is heading. So the key objectives throughout the year. We're working hard on direct sales of putting more systems out there with the key customers that we have, getting new customers directly, but also working with our partner Prosegur on rolling out more customers and getting more customers with trials started and getting those trials converted to full contracts. Particularly, as Greg alluded to, we have 1 large retail partner, 1,000-plus stores who is moving very fast. We're going to put in a few more hundred stores next year with them and it will go for the next 2 or 3 years till we fill out all those locations, but it's going to go fast. We've [ seeded ] the market well with the trials and now we move into full contracts. As we go forward, the advertising analytics ORCA and what we do with the data that we get for just the loss prevention events themselves; it means a lot for where we're going with the company. As retailers invest in the technology in systems out in the stores, there's money coming back into retail, into retail tech and we are in a really good spot on that. CB Insights had something a couple of weeks ago with how the growth in retail tech is the #1 area of expenditures for retailers in some categories. Really taking our new agreements and pushing those forward. That's where we're going to be. So if we look at what are the core things that we're going to do for this year. We're going to deploy systems directly ourselves. We're going to deploy systems with our partner Prosegur and then we're going to work with a media company to monetize and increase the revenue growth off of all those systems. That's the 3 core initiatives. The media partner, as I said, we're working hard on that right now. It will happen, it's just a matter of time on a couple of those. And I think as we get into the new year, we're going to see a lot of growth within our systems. And with that, I will turn it back to Pardeep for some questions.

[Operator Instructions] The question here coming in says about the right to assign hardware. Can you just explain how that works in terms of CapEx investment recovery and getting cash in the historically installed units? And going forward whether you have to sell the -- when you install the systems, do you sell them at cost or at a profit?

Yes. Do you want me to take that, Greg?

Go ahead.

Okay. So yes, the idea here is we've already deployed quite a few systems in the market and the media partner will assume ownership over those. So that will be a recovery on our side of capital. We're in the negotiations on that right now and it depends [indiscernible] the exact numbers, but we think we'll come out okay on that. Future sales of the hardware for more systems will not be at a loss. It would be a markup on our cost to produce these. In the end we don't want too high of a cost out there because we want to get more of these systems in because the revenue really is about generating off of the media side. But we will have the income and we will have revenue from the hardware sales to the partner. And then of course that will be all accretive to everything else that we're doing on the recurring revenue that we get from the systems themselves.

We have another question here. Given the updated strategy with the media partner and the updated contracts, will you be providing some sort of revised forecast?

We have not given any official guidance or forecast at this point in time. I think as a small technology company, we've shied away from doing any of that. What we're trying to do is give everybody the blueprint from where the revenue will be generated and allow people to generate models of their own. But at this point in time, we won't give an exact forecast for what we're expecting.

But just to put things in perspective, if I can just add something here. Your large retailer partner in the U.S. has 1,000 stores or 1,000 locations and you're currently 100 stores into that deployment. So something people can look at is can you look at there's 900 more stores to go. Is that 1 way to kind of think about this?

Yes, that's a good way to think of it, Pardeep.

And that's how investors can make up a bit of their own forecast. Okay. A question here with regards to revenue per system. Maybe you can just talk about that. How does revenue per system work previously versus the new contracts?

Yes. So off of the new model going forward with the media partner is INEO will still own the technology, will sell the technology to the media partner, they will deploy it just like they do when they buy hardware to put in a billboard or a screen elsewhere. INEO will operate that system, the full INEO media network; maintaining the hardware in the store, monitoring the hardware, running the content management system for the media going on and off the system, running the analytics behind the scenes whether it's ORCA or general data that we capture in terms of number of alarm events when the alarm events happen, people counting that type of thing. We will run that whole infrastructure on behalf of the partner and for that, we will get paid a monthly fee. So instead of us having to rely on the cyclical nature of the advertisement and where the advertising sales are, we negotiate a hard fee that we get paid on a per store basis. So really it's truly now SaaS revenue. Our revenue streams are the sale of the hardware and the SaaS revenue coming in and that's our model going forward.

A question on can you comment about cash position and how you plan to finance future operations?

Can you take it, Greg, or do you want me to take it?

Continue on, Kyle.

Okay. So with what we're putting out there in terms of the assignability of the contracts and the assignability of the advertising and we deployed a lot of systems out there. So there will be nondilutive money coming back into INEO for the sale of those systems that are already installed, right? So that's money coming back into the company. Our cash position right now is we've got enough cash to do what we need to do. We've been very -- we have always said that we had some levers that we could pull that would allow us to stop the burn, turn things around. We have not progressed the network a lot in the last couple of months. So we hammered out those 108 stores to get to this point to get to we're going to do this in deals. We slowed down a little bit because we did need to conserve cash until we were able to consummate these other deals. But we still have a few levers we can pull there. We've got good partnerships. We've got good momentum on some sales sides of things. So we have enough cash to do what we need to do in the short term.

So the sale of the existing network units out there, that will generate some cash for you, right, to strengthen your balance sheet?

Correct.

Just kind of a question here about the stage of negotiations with the media partners. Maybe just provide some general color. I mean you probably can't tell exactly what's going on here, but just some general color on the media partners and then where you are with those stages of those.

Greg and I, as we went into this -- we started this in February, everyone, just so you know. This wasn't like a come lately strategy. We started this back in February on where we thought we had to be by about this time in the year and where we had to progress things. And as we looked at it and we said okay, what do we need to secure the media partner? And the first step was the contracts, right? So we worked really hard in those contracts and to get what we needed. But get what we needed in terms of what we needed in order for the media partner to come in and fuel this thing. And so Greg and I got this put the bed a few months and I guess about 3 or 4 weeks back, that's when we announced it. And in that whole time we've been working on a side path of media partners. And so we've spoken with many and some really good conversations that we had even as far back to February that helped us structure what we were doing with the retailers and structure what we were doing for the future of the company. So we've had discussions going for quite some time. It's a matter of just making sure that we get what we need and as the right partner to go forward. It's a bit of a balance, right? We have these retailers that have needs and we're going to have the media partners have needs and their needs to have to overlap and the classic Venn diagram with us in there, too, right? So it's been, I would say, challenging. But Greg always said, he says this is fun. This is the fun challenge. This is business happening, right? We're making partnerships, we're making deals and doing it with some good people on the other side. And so I can't say much more on where we're going to end up yet, but we're quite happy with the options that we have.

Question about Jumbo Cencosud. If you guys can provide some color there in terms of when does it start generating revenue? And I think maybe just clarify about the working capital or CapEx for these 59 systems like you've already built the systems, right? These are already being shipped, right? So the CapEx has already happened. Just provide some color on that?

Yes, maybe I'll provide a little bit and let Kyle take a break for just a second. Jumbo Cencosud, we are in the process of producing those systems right now. We have another shipment which will be going out the door today. The deal on that one is this is reducing our CapEx burn because we're getting cash for the systems, as Kyle was alluding to, with working with a media partner, working with Prosegur on this. We are also getting paid for these systems that are going out the door as well as getting ongoing SaaS revenue from these systems. So that certainly goes a long way to helping with the cash burn is when you get somebody actually purchasing the systems from us. So we receive cash upfront for part of those ones and it's helping us significantly with our CapEx burn.

Question on the partnerships. Do you foresee any other partnerships similar to Prosegur in order to expand in additional markets?

Kyle, do you want to comment on that one?

Yes. We're not exclusive with Prosegur. Like I said, they've been a good partner though, right? They've been good. We've lamented a little bit on how slow some of these pilots have taken to get to full rollouts and we're working hard still to make that happen. There's the opportunity to do some things with some other players and noncompetitive with Prosegur and possibly slightly competitive with Prosegur. We don't want to injure them in any way, shape or form. But if it can proceed our business better, we will do a partnership with another party within either the loss prevention field, an adjacent technology type field. We'd have to weigh the cost and benefits of it and make sure just to people that Greg and I and the way we do business, we'd be quite upfront and open with our partners to make sure that it's a sustainable relationship and our current relationships are sustainable with it.

That appears to be all the questions that we have today. Any closing comments from either Kyle or Greg are appreciated.

Yes. I know some of this is quite repetitive because we only had that webinar a few weeks ago. We're acknowledging the fact that we were quiet for a little too long as Greg referenced earlier. We're here and we want to answer your questions. If we haven't answered your questions today, we're open to taking questions either through Pardeep, Greg or I. We have no problem hopping on the phone, scheduling a call to go into more detail. We've got some big things happening. Wish we could say a bit more on a couple, but those contracts were enormous to get through and they're quite valuable, right? So almost the value of INEO is now in those contracts and the technology is valuable, but it's those contracts that are going to move us forward in terms of the revenue generation and the future valuation of the company. And that will come more to light over the next 6 months to a year for everyone. But we're happy to have everybody here today and we're committing to you that we will be transparent and open as best we can on these calls and we'll hop on as often as we need to.

Yes. I just want to thank everybody for joining the call today. We certainly haven't historically provided guidance in terms of revenues, et cetera. But as you look at the contracts that Kyle alluded to, we talked about it a little bit earlier in the presentation as well. With the 1 major retailer in the States, we're talking about 22 billion advertising impressions that are available as inventory and that's very valuable for the advertising partners that we're in discussions with to look at the totality of the inventory that we've got there. The same thing holds true with Jumbo Cencosud. We have very large amounts of inventory that we're now able to bring to the market. So that's the key thing for the company. And I'd like to thank everybody for joining us today.

Thank you, everyone. That concludes our call today.