Mission Ready Solutions Inc. (MRSH) Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining us today for Mission Ready's live CEO event. My name is Dominic Gray, Director of Corporate Communication. With me today are Buck Marshall, President and CEO; Terry Nixon, Chief Compliance Officer; and Dong Shim, Chief Financial Officer. Mr. Marshall will discuss the recent progress of Mission Ready, including Q3 highlights, milestones achieved; and will provide an overview of upcoming catalysts. Following the discussion, the management team will respond to questions. We would like to thank everyone who submitted questions through e-mail. [Operator Instructions] Today's discussion might include forward-looking statements within the meaning applicable for U.S. and Canadian legislation. We ask that you review our forward-looking statement disclosure available on the second page of the corporate presentation updated earlier this morning and on Mission Ready's website at [ mrscorp.com-lib ]. Finally, a recording of the presentation will be made available shortly after the call. On this note, I now pass it on to Mr. Marshall.

Thanks, Dom. And welcome, everybody. Today, I want to share a few things with you that include both a "current state of the company" message as well as trying to incorporate the vision for 2022 and beyond. I am going to start with addressing our quarter 3 highlights as well as our year-to-date highlights, but I really want to get to spending time connecting the dots of our activities this past year and how it flows into our future and then get into the Q&A [ question ] with you all. Starting with our quarter 3 highlights. Revenue for the third quarter, I think, was as we expected and have previously announced, but I think that the highlight here is that we continue to work on increasing -- or maintaining higher margins and the impact that the higher margins has on the rest of our financials. Revenues in this period primarily reflect the orders we received through our various channels, our legacy products, GSA schedules, et cetera. And I might add that it represents a small percentage, in my opinion, of what those market opportunities truly are. And I'll touch a little bit more on that in the future of this -- a little bit further down in this presentation here when I talk about our vision. Continuing with the highlights: Expenses continue to be a focus for us. We try to control what we can control. When normalized and we add back the noncash expenses, the adjusted EBITDA in the period reflects a positive position, which is great. The quarter 3, how it flows into our year-to-date highlights. We continue to have a strong year overall. The primary driver of revenues this year, of course, is related to the C&T level 2 isolation gowns that we were awarded back in, I believe, September. It was the first [ date of ] announcement in 2020, which really saw in the first half of this year where -- the work was realized as -- is converted from a delivery order into revenues for the company. The importance of that contract for the company cannot be overstated. Through the efforts of the team to win that contract, it really afforded us the opportunity to lay the foundation for the future. The disappointment felt by all of us shareholders and employees of not getting additional orders was frustrating, but it was out of our control. I will say that Unifire and our manufacturing partner performed really well in the contract. The funding was appropriated for more orders under the contract, and really what we saw from the government was the nation needed more isolation gowns. It was logical that we expect more orders, but as in life, we don't always get what we expect. The message we shared internally was that we can control what we can and try not to waste effort on that stuff that we cannot control. In that spirit, we spend a lot of time and focus to control a lot of things on our financials. And I want to reflect on some of those things now and really try to tie together the significance of those with the foundation for our future. From a financial perspective, we continue to refine expenses to eliminate unnecessary line items. Compared in the same period in 2020, expenses relative to total revenue decreased to 8% from 14%. Net income increased to $1.5 million, up from a net loss of just over $4 million. Adjusted EBITDA of $5.2 million reflects an increase of about $4.4 million over the same period prior. We also see a positive $7 million working capital improvement in the year-to-date position. If you've noticed, under the category of subsequent events, we recently announced a settlement regarding the $7.1 million contingent liability. Due to timing on this, this will be reflected in our fourth quarter financials, but this will also have a very significant positive impact on our balance sheet. From an operational perspective, we made many positive changes this year. Most importantly to me and might not go realized by folks outside of the company, but we united our people and our brands through a cultural shift in thought process and communications. Under the one company, one team, one direction mindset, we brought a geographically dispersed team together to share ideas, best practices and opportunities. We took it to another level by rebranding. And people have asked, why put so much effort into rebranding? Why do this? The answer to me is simple and it really answers a lot of questions that we continue to receive today: We need to tell our story. This has been known from day 1. And as I have mentioned before and I will continue to preach, there is an order of operations to everything we do. In order for us to move the franchise forward, I maintain that we have to have a solid business foundation so that our potential can be amplified. This includes all the work we did to clean up the financials. This includes cross-listing to the OTC, first to the QB and then to the QX. This includes increasing the blue sky status. This included identifying recurring revenue sources that required less risk and more reliability to smooth out the highs and lows in between contracts. And there are several other items that may seem small or irrelevant to some, but they play a big part in our future. I think another big part was bringing Dom on to handle our investor relations and corporate communications. This was a big step for us. Under Dom's leadership, we have increased shareholder communications, both retail and institutional. I think this next part is critical to understand, but under Dom's leadership, he has given focus to how each of our companies should be marketed and to whom they should be marketed to. While there's connective tissue between all of our companies and our people, the audiences and the focus are really different. Mission Ready is a shareholder-focused entity, while Unifire, PTF and Advanced Tech Rescue or ATR are primarily government and/or customer focused. Having a separate focus while maintaining the connective tissue is really important. The main idea is that the government contracting officer doesn't really care about the share price or investing. That government contracting officer, what they really want to know is product information, and they want to know that information at their level. By giving each company a focus and a marketing strategic plan, we have greatly enhanced the customer experience for these different companies. As you can see, the order of operations build on each previous step. Now that we have cleaned up the financials, we've rebranded to reflect our capabilities. We've identified the customer base for each. We've then started to move toward recurring revenues to build that future foundation. This includes our legacy products, which were previously under Unifire, but we shifted that under the Advanced Tech Rescue side. Now this also includes launching our e-com platform. This includes updating our products and pricing on the GSA schedules. We did all of this while searching for and responding to scores and scores of government contracts. I do understand and feel the frustration of not being awarded multiple contracts over the past year. That feeling is not just unique to the shareholders. Again, focusing on what we can control, we continue to push for new contracts. We provide the information needed for RFIs. We have written several white papers in response to R&D opportunities. We continue to expand our partnerships in areas we believe will be excellent opportunities in the future, areas such as the cold weather arena; the wearable sensor world of the chemical, biological, radiological and nuclear or known as the acronym CBRN. We expanded our cut-and-sew opportunities at PTF. And the list goes on, on a lot of things we've done, but essentially what we've done is built a very robust pipeline of opportunities that have taken and may take many more months to be awarded. But this only goes to ensure our future revenues. Speaking of future revenues. I've been asked what the outlook is for Mission Ready over the next year or so. And I believe it is brighter than ever, and here's why. We have purposely built [ layered group ] revenue streams that include quicker short-term sources such as orders through our GSA schedules, our legacy products. We have a mid-level or a mid-layer revenue stream, what I think are BPAs for the cold weather gear, for the Afghan refugees, et cetera, where these BPAs are more of a 12-month contract with options to renew. And then we are positioned well for several multiyear contracts that, once awarded, should be an initial 1-, 2- or 3-year period, with options to renew after that. Additionally, we expect to have our e-com platform fully operational with over 20,000 new items by the end of this year. We are currently in a beta test with that e-com platform to make sure that everything is ironed out and that we have all the product descriptions and pricing and everything correct. And then we'll be launching that towards the beginning of 2022. This e-com platform will be retail focused; the idea, to bring the products that we offer internally as well as what our vendors offer to a single location where you as a consumer can purchase. Today, we submitted our proposal for the VA GSA schedule, which will complement our existing 3 GSA schedules. Just for reference: The VA reported last year on their website that nearly $14 billion annually is spent on that schedule alone. Furthermore, we've been waiting on the commercial off-the-shelf or COTS contract, which was initially supposed to be announced in August but has continually been pushed back. These all reflect the company's ability to generate multiple revenue streams over many different future periods, and I think that's exciting. We have invested some new capital -- or we have invested capital in new equipment, rather, at PTF that will allow us to be more efficient in our production of body armor related products as well as being capable of increasing general cut-and-sew operations. We'll continue to expand this arena at PTF with third-party vendors in an effort to position ourselves as their OEM. As an OEM, we get to leverage our relationship within the industry to produce products that the third-party sales team can promote. This will also raise our margins more in line with what industry standards are while decreasing our expenses related to generating those revenues. Before we jump into Q&A portion, I think it's important to understand that, while we may all want instant gratification from a large long-term contract, the reality is that it all takes time. The work we've done and continue to do is the foundation upon which our successes in the future are built. I believe that it can take many months to navigate from an RFI to an award and ultimately to a delivery order, and we have been squarely entrenched in this process over this past year. We have scores of opportunities somewhere just short of the award phase and/or the delivery order phase. And with that, Dom, I think we can start taking some questions.

Thank you very much for that. We will now move on to the questions that we received by e-mail, first. So the first question: Why does the company continue to live under a rock? The marketing efforts have been extremely poor. Why are you not selling the future and all these upcoming catalysts you guys keep talking about?

Well, I think to say that we continue to live under a rock is a little shortsighted. As I discussed, there are things that need to happen before we can move forward, which we've done this year. The statement that marketing efforts have been extremely poor highlights the fact, in my opinion, that people are not reading our announcements, newsletters, social media posts. Or they're just not simply taking advantage of the avenues we've created to communicate with the company through our msr-ir@msrcorp.com (sic) [ mrs-ir@mrscorp.com ] e-mail. Essentially the portal in which you can ask questions throughout the year in -- of management, of me individually, with any one of our management team, with Dom -- we are here to communicate with you and share those marketing efforts in which we can. Some things, we can't share, but for the most part, we do share what we can. With that said, to date, I think most of the marketing efforts have been directed to new audiences. Shareholders and investors are Mission Ready's primary audience, as we discussed, but Unifire, ATR and Protect The Force, they have their own respective audiences and goals of each marketing effort. And I think this is a good time to reinforce the message again that, once -- that while Unifire, Protect The Force and ATR are subsidiaries of Mission Ready, they remain customer-, vendor-facing companies; and they should be perceived as such. I do think that shareholders and investors should be praised for wanting to be updated and follow up all the subsidiaries' developments and marketing efforts and initiatives [ broadening our ] capabilities, our products, et cetera, but it should be noted that -- as we discussed before, that those platforms and information are geared to a specific audience. I have seen, when shareholders use those platforms to express opinions on management and speculate on contracts of which [ they were not ] informed in a negative manner, it really does have a negative effect on what we're trying to do here. I mean it's counterproductive, in my opinion, and it hurts all the shareholders. I also believe that the opposite is true. When shareholders promote and are positive about the company, then it can have a positive lift across the board. Again and as you can see on the screen with the contact information, we have provided many avenues for folks to express frustrations in a productive and respectful manner. As we understand that not all messaging and/or efforts that we do will please all people at all times, I do believe and I'm confident that we do not shy away from the hard questions either, but I will absolutely shut down those who are disrespectful and inconsiderate of the work we're trying to do. To further response on our marketing efforts. I think Mission Ready has been actively marketing successfully to media, analysts, institutional investors. All those efforts might not be visible to shareholders immediately. I am and we as a management team are confident that we will start bearing fruit over time. The recent example I think we should talk about is the Manufacturing Today article that really gets our efforts to get the story out there -- that highlights our efforts to get the story out there while targeting the right audiences. With its nearly 300,000 readers, comprised of executives and senior management teams in the manufacturing industry, I think this is a prime example of our company's effort to showcase itself.

Thank you. So the next question: What is being done to secure revenues outside the government? Is there a sales team? Why is there no traction here? You have the former police commissioner on the Board of Director but can't sell any vests to a single force.

Well, as I mentioned before, we have made several changes to introduce recurring revenue streams outside of the government contracts. This process takes time to get going, but it should be a bridge that connects our vendor network and the retail and commercial opportunities that are out there. We have seen some successes in this through some of the orders for airlines, for other COVID testing in smaller arenas and things like that. And as we continue to launch our different platforms, we will continue to bring those different opportunities to the retail and commercial world. Regarding the sales team, we have both. We have an internal sales team and an external sales team. The external sales team is mainly comprised of our partners that we have built relationships with that not only promote their own products but they cross-promote our capabilities as well. I think the spirit of -- I think the phrase was why there is no traction as -- in reference to Protect The Force, as a -- I think the follow-up statement refers to selling vests to a single police force. I think that the notion that we are not getting traction here is inaccurate. We have had several orders that are smaller in nature and we've had some larger opportunities queued up as well. We can't control the timing on those, but they -- the efforts are there and the opportunities are lined up. As mentioned before, while we offer our own branded products, the competition in this space is extremely tough. That is why we have flexed our capabilities and move toward the manufacturing side, that we can be a very compliant resource for other folks, and ultimately reflects a better business proposition for the company. I think, additionally as it relates to law enforcement agencies, they -- most law enforcement agencies already have a specific carrier, either a brand or a design that they are required to utilize. The process of introducing a new product takes time, and it takes an investment from the agency. And as you have no doubt heard over the last year and connect the dots here, that this becomes increasingly difficult and counterproductive when uneducated folks call for defunding the police. When they don't have funds to buy new equipment, to get the equipment they need, it ripples through everything. However, I do believe that we could still be relevant [ in those solicitations ] as an OEM, and that's why we've shifted some of our capabilities to that focus.

Buck, this next question, I've sent to you separately. And I'll let you [ answer that ].

Sure. Let's see here. All right. So I'm not going to read the next question, as it is poorly written. I believe it's unsophisticated as an investor and it's immature in the nature of how it's written, but we will acknowledge that we received it. And I will say that management compensation will not be debated or discussed in a forum like this.

So the next question is investor sentiment is at -- is now at an all-time low. What are you doing to change this?