Ion Video Ltd (IOV) Earnings Call Transcript & Summary

Well, good morning, everyone, and welcome. My name is Anthony Baker. I'm CEO of ION Video. Today, we're hosting this live Q&A to address the many questions we received from shareholders. Joining me today are Finbar O’Hanlon, our Head of Innovation and Joe Rinarelli, our Chief Financial Officer. To maximize the time available and ensure we answer as many questions as possible. I won't spend too much time going over the quarterly report. What I really want to do is just draw out some of the key elements. Firstly, and I hope the report demonstrates this. Over the past quarter, management has continued to build the business in a very disciplined manner, focused across the 4 strategic pillars we previously outlined to shareholders. Some of the key highlights include: not only did we achieve the first ever positive operating cash flow in the company's history, but we also achieved the lowest operating costs in the company's history and importantly, 12% below management's target. The company is now also effectively debt-free following the conversion of the convertible notes and total liabilities have been reduced by more than $2.5 million in the last year. So in total, a reduction of $5.5 million of debt in the last 12 months, which I think is quite a good achievement for the business. In terms of cash, I can also confirm the company is now funded through at least to around June '27, we see an improvement on the previous guidance I provided to the market. Previously, we said April to June. Taken together, I believe these results place ION in one of the strongest financial positions it's been for many years. Beyond the financial improvements, we've also continued to strengthen the business. We filed 2 additional patent applications extending the portfolio to 5 patent families. We've established an Advisory Board of highly respected industry executives who have independently reviewed and validated our technology. And most importantly, following the rebrand and the relaunch of the company on February 9, we've commenced commercially engaging with numerous global organizations with several of those discussions now progressing rapidly towards proof-of-concept engagements. In summary, in my belief, over the past 9 months, management has fundamentally repositioned the company. All the initiatives were very necessary for the business. They've created the platform from which commercial execution can begin. To conclude, all I will say is management is exceptionally confident we will deliver the results shareholders demand and expect from ourselves and execute on the significant opportunities ahead. With that, I'll hand over to Grant, who will take us through the many Q&As, so we can answer as much as possible within the time allocation.

Thanks, Anthony. Thanks for that. Just quickly, as we did previously, we asked you to submit your questions before today's sessions, and we received many, so thank you for that. As you would expect, there's been quite a few double ups. So we've taken the liberty to condense these questions into categories such as strategy, commercialization and technology. You can ask a question at any time through the chat session, and we can see that there's already some there through the webinar, although you may want to wait until the end, just because we may well be covering your topic anyway. If you're -- if we are unable to get to your questions during the 45 minutes of today, we'll answer those after the event through a formal written update and share with those attending. The information will also be made available to shareholders as well, including those who are unable to attend. Additionally, the webinar will be posted on the ION website. So as Anthony said, we can jump straight into the questions, and these first few other financial questions. So to you, Anthony, why should investors believe commercialization will succeed this time?

Great question. I suppose we have to look at the focus of the organization. In my view, the past 10 years have been selling products. Linius has always built custom products for its end clients. And consequently, how could we ever compete. We're a very small organization. How can we ever compete against the likes of some of the organizations we are actually trying to take on. It's physically impossible. So hence, we've made a complete shift, we are now just purely an IP play. We will not build a product. We will build prototypes, take them into customers, show what it looks like, but effectively, they will be buying our IP. And that's very different. Also, the market today, the market today has evolved very much over the last, let's say, 10 years. AI wasn't around 10 years ago in the same format as it was today. So the market has shifted dramatically. And the main thing about the company is we're focused. We're not just chasing the next shiny object in the next shiny market. We are laser focused in terms of the way we want to actually commercialize this business.

So that leads to the question, what does a typical commercial agreement look like?

It's a pure licensing model. So there are basically 3 avenues or 3 elements to the revenue stream for the business. First and foremost, you get an integration fee which we -- us working with their internal tech teams to integrate our IP into their existing tech stacks, which will obviously vary dependent on the organization speaking to. That's the first and foremost. The second will be an annual recurring license fee, and then third, which is the main revenue kicker for ourselves is what we would consider an enablement factor. So if we are able to either implement a cost saving, which saves an organization, let's say, $1 million then we will get a percentage of that $1 million, whether it's on a cost saving or revenue generation. And typically, those enablement figures are between 0.5% and 3%. And we will be operating at gross margins of well over 80%.

So have any progressed to a signing stage yet?

We haven't signed any commercial contracts. At the moment we do, we will actually announce that to the market. Everything we're doing at the present moment is nonbinding, but effectively, we do have indications from clients that they want to move forward. But as I stress at the present moment, they are nonbinding.

So when should shareholders expect meaningful revenue?

Difficult to clarify exactly. I was announcing the 4C, we're in contact with multiple organizations. Several of these conversations have progressed to detailed proof-of-concept discussions, where we're scoping out exactly the way they see the product, what they're going to build using our IP, but I really don't want to overpromise to the market. All I can say is what we said previously is the organizations we're talking to are literally Goliaths of the organizations. They don't move as quickly as what we can move. However, the conversations are progressing in line with what we would expect given our experience, and there's nothing to alarm us. We're actually exceptionally confident the way things are progressing at the present and it is the primary focus of the business.

So did you want to elaborate, Anthony, on who you're discussing your proof of concepts with?

We're unable to provide exact names. We have announced in the market some of the organizations we're in talks with. I would like to stress that all of the conversations at the moment are nonbinding. We've had letters of intent from the organizations we're dealing with, but they are nonbinding letters of intent. In terms of confirmation, as I said, there are several POCs to give you an indication. We've got a couple of entertainment companies we're in talks with, who have indicated they want to move forward with POCs, 2 global telcos and one of the largest technology companies in the world by market capitalization. I'm sure you can guess who we're referring to.

You said in the 4C that the POCs are profitable, what does that really mean?

I wanted to draw a line in the sand because many of the shareholders have been used to dealing with Linius back in the day and Linius used to love announcing a POC to try and raise money. And I was the idiot who invested on the back of those POCs but those POCs are almost loss-making for the business and actually never led to an end contract. I think the maximum POC signed by Linius back in the day was let's say, $50,000 in terms of revenue. All I can say from ION's perspective, we will not be doing any POCs for free. We will not be building any products, and they will all operate at very high margins within the business. And the one thing what we've really focused on is that any POC that we enter is correctly scoped out, so we know we've got a very clear path to commercial contracts. So it effectively is a precontract to an actual contract. In other words, if we perform and deliver the POC, it's an automatic right, very much to actually then trigger into a commercial contract.

Is there a typical value that you can let the shareholders know what's with the POCs?

No. I just want to stress, they're all nonbinding at the present moment. So I can only -- I'm reluctant to commit, but let me give you an indication. They're all going to be profitable. In terms of the POCs we're discussing at the present moment, the smallest POC we're discussing at the present moment would yield the company $75,000. So it's even more than anything from ION. The biggest POC is over $1 million. So that will cover a substantial proportion of our cost base. So of course, we're following that as diligently as we can, and we're confident. But that gives you an indication. We are only targeting companies with a long-term contract at the end of it.

So are your POCs the beginning of a contract? Is that how you see it?

Yes. There's no point doing a POC if you're not going to look towards a contract. So the sole reason it takes the time to actually agree these POCs is because we are scoping them out correctly. And it is difficult because the organization, as we say, let's assume it's a global telco. Their tech stacks are humongous, and we've got to actually integrate into so many different systems to make sure we operate efficiently. So -- and it's difficult, again, because we're not their sole priority. So how long is the POC run for, it's not going to be a defined 12-day period or 20-day period, we're very much dependent on them because they're the ones who are actually integrating our technology into their system. But yes, every POC will be clearly scoped with let's say, the 10 success metrics. And if we are able to achieve at least 80% to 90% of those, there'll be a default position in that contract to say that, that leads to a so-called full contract with the organization.

So the last financial question from me for the time being anyway, what milestones should shareholders watch out for over the next 12 months or so?

Very simple. Continued discipline across the 4 pillars. At the end of the day, we have to run the business as we have done. Now that we've got it into a very strong position from a balance sheet perspective. The last thing we want to do is let go of those controls that we've put in place. However, the sole focus, as I indicated in my summary, we've provided the foundations for the business. And we've got the platform. Our focus now is solely on execution, execution of those commercial contracts. I think our shareholders would realize if we were able to land any of those POCs, which, as I say, Fin and I are exceptionally confident of and if we are able to land the biggest one, it transforms our company. If that's the value of the POC, which I indicated to you, that's $1 million, but if we are able to land that, what would be the value of the commercial contracts. That's the sort of level that we were actually talking at the present moment. So I expect to land minimum 2 or 3 commercial contracts within the next period of time.

Sounds exciting. So few for you, Fin. I know you're doing a lot of showcases. We've got a question here that the last one. I was not quite sure which your last one was, I didn't really understand the showcase. Can you please explain why what you showed is valuable?

Yes, sure. That's actually a really great question. So the showcases are really not built for our shareholders. They're built for our customers. And if every -- look, before I go into answering this question, I just think that every investors on this call is interested in answering this question should be following me on LinkedIn. Because every day, I'm showcasing what's happening in the market. Now what we showcased at the showcase was a demonstration of where the market is moving to. We're talking about. The content creator economy is now moving, the whole advertising industry is shifting. People like Netflix are moving into hybrid forms of content, the whole marketplace is shifting. And so what we've actually built was a technology which we will be able to walk into a meeting, Anthony and I and demonstrate that live. So that polling, we'll do that live in a room. And what we're really showing there is we're showing a number of different things. We're showing the birth of what's called agentic content, which is where in the past where someone were pre-produce a piece of content. Now the audience is part of that. And what that's really showing is that this is a start of every individual being able to have their own version of a piece of curated content. That's the first one. Second one is showing the evolution of this creator economy, which granted some of our shareholders might not understand, but it's a space that's absolutely exploding. So really, what you saw in that showcase was a demonstration of technology that Anthony and I are taking with us to customers and doing this live in the room and showing them a brand-new type of content, which is where the market is moving to where AI and AI agents are now driving the customer experiences, which means advertising revenue goes up, content becomes hyperpersonalized at scale to an individual, means content creators can make more money. It's just a myriad of different things. So that's -- and that is one showcase. We're also looking at building some different verticals around the same sort of presentation. So we'll be able to walk in a room and have a crime watch show or a business show similar sort of things. But again, the core platform that we've built and what we showcased at that particular showcase was a demonstration of technology that both Anthony and I will be taking into our meetings, which is timely and relevant. So yes, if you follow me on LinkedIn, you will start to get some snapshots of how the market is moving. And look, big part of my job is Head of Innovation is knowing where the market is moving to and making sure we're always relevant to that market. And so what you saw at that showcase was an indication of us meeting the market where it's currently at.

Just a question around patents. Are you worried that some of the patents expire in 2028?

Look, we're not worried at all. So let me try and give you an example here. When I say that, let me explain that. Our portfolio, as you know, goes back prior to date 2007, right? And so since then, since we've come back and built the business, we've built a whole suite of patents around that. Now what that means is it means that we're no longer just about video, we're about much more. We're about the virtualization of video, but we're about the control, the governance, the monetization, the rights management, the authentication, the security, the content tokenization, everything that we've been building from a patent portfolio is built off the back of the patent that we already know. Hence, why we've got freedom to operate on the filings that we've currently got, which gives us a very strong standing. So the -- besides the fact that these new patents are timely, if the -- once the patent expires in 2028, if anyone wants to do virtual video, they can do that. And that means that virtual video becomes a standard, no problem. But anytime anyone wants to monetize it, anytime someone wants to put a piece of content together where there are multiple rights holders where rights need to be negotiated. Anytime where content security, where governance for anyone that requires content like sovereignty involved or any of those mechanisms, we've got a strong portfolio of patents now that means that they will then be.

I think so to speak, I think the key thing to say here is we want people to virtualize video. Today and in 2007, we would actually encourage that because in layman's terms, the best way is describing it from my perspective, once you virtualize it, if you want to do absolutely anything, whether it's data storage, whether it's monetization, whatever the so-called use case is, you're going to infringe our latest patents. So as I said, we encourage people to virtualize video. But what's the point of virtualizing video if it's no benefit unless you can then do something with it. And that's what infringes all our latest patents. Now as Fin said, they're all deeply integrated. We've got the freedom to operate on everything. We've now got, as I say, a suite of 5 patents. We've got 2 more in the pipeline, which are already with lawyers. So they're actually working on those just to further enhance that moat around the original core concept. And again, what Fin and I have often said and what we've been approached by shareholders is what happens if Anthropic or someone like that go and actually say, we're going to start doing this. That's our best case scenario. We would love that because we've got all the legal documents, it means we can go straight to their competitor and just start and say, this is what they're doing, and they're making it work for them. How would you like to play in this space and be able to do it all freely. And as you issue a takedown notice against Anthropic. So if that plays into our point, we are not worried about the patents. We are protected and I'll say that with the ones which we've got coming up as well, that just further enhances that even more so.

And look, I must also say that we -- look, the -- if we think about this, the original MPEG-4 specification for digital video is designed really in 1998. Think about how the world has evolved since 1998. But you know what hasn't evolved, the format of video and it's the thing that's holding back all of these levels of intelligence, being on that personalized video content sovereignty, new monetization models, when you start looking at what's going on and you look at my LinkedIn and stuff, we're saying that we've built a medium for this new world that interconnects all these different things. So our patents and what we've been building on top of this virtual video once the world starts to recognize it, once you could treat video as data, it unlocks all this world of possibility. Our new patents are the thing that gives the moat around anyone that wants to maximize the value of treating that video as data. That's where our moat and our patents are. And going back to our original filing in 2007, gives us that sort of that strength and value in that proposition with our potential partners.

The next question is about whether we're in the right country to execute the strategy, but I assume borders are not relevant, but...

I slightly disagree with that. Yes, you're quite right in terms of actually the restructuring of the company, the home of our client base. 90% of the clients that we're talking to is America. Some of the POCs we're talking about are Australian, 2 are Australian, one is Asian, but the majority are in America. And hence, why we are going to America quite frequently. We're off to America -- Fin's off to America in 2 weeks. But please, again, we look at the cost base of the business. We've managed to accommodate that and maintain costs within the business.

So yes, we say our biggest opportunity is in the U.S.

I think everybody is aware.

And that's where our Advisory Board is too. So we've got people on ground, well-known experts in the space there.

So next question is about how do you go from conversations with the customer to the customer deploying the IP, what does that look like?

The simple answer is the proof of concept. As I say, we -- the initial outreach to these customers is going very well. We then go to get through to the right individuals within the organization, the decision makers as in the case of most things. Once you've got the decision approved, then proceed, that's when the challenge actually comes in. We've got almost to that position with multiple organizations. But it's now I've now got to refer you to the tech team. I'm now going to refer you to this team. And that's where it gets quite time consuming because the devil is in the detail of everything in life. So consequently, on these conversations, it's -- we give an agreement, we get excited. But then when we get referred to the tech team, it's like it gets hard. And it really is a long process to scope these projects.

One sort of on the vein of POCs and technology and delivery is one that's come through. I'd like to know if any information on near-term opportunities can be given and a potential contract value. I think you sort of answered that, but I'll let you go back to it. Can there be any guidance given around what contract management would like to see achieved in the next 3 months? So it's a double whammy.

Let me answer the first point, just to reclarify the POCs range, they're all non-bonded at the moment. Letters of intent, that is nonbinding, I just want to stress that. But the POC is ranging value from $75,000 up to $1 million in terms of POCs. In terms of contract value, look, I've gone out to the market previously and said, ION will not be signing a contract, which generates less than $500,000 for the business. And I stand by that. It's not worth our while in terms of the time needed to actually execute on a $500,000 contract is the same as it is on a $10 million contract. So from our perspective, let's just focus on the real opportunities that are actually going to transform this business. That's part one? What's the second?

Can there be any guidance given around what contract management would like to achieve in the next 3 months.