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

Perfect. So we'll get started. Good afternoon, everyone, and thank you for joining us today for Mission Ready's Post-AGSM CEO Live Event. My name is Dominic Gray, Director of Corporate Communications. With me today is Buck Marshall, President and CEO of Mission Ready. I want to thank everyone who submitted their questions ahead of time. You will also be able to submit questions through the Q&A function available at the bottom of your screen during the Q&A. I'd also like to remind everyone that today's live event might contain forward-looking statements within the meaning of applicable Canadian and U.S. securities legislation. Additional information on forward-looking statements can be found on the second page of our presentation and is also available on Mission Ready's website at mrscorp.com. Mr. Marshall, the floor is now yours.

Thanks, Dom. Good afternoon, everybody. Thank you for joining us today. I think with the financial information out there already, you guys can kind of read through that. There's not a lot there outside of the numbers that we can talk about. So I want to spend most of the time on the questions that we've received kind of ahead of time and then in the chat function as well. So I'm going to jump right into the first question that I have here. How is the sales team following up with submitted contracts? For example, is the process just to submit a quote and wait? Or are they following up on it, reaching out to applicable government contacts, et cetera, what does the process look like? Well, I think this is a good question. And when we tried to outline prior to this call regarding the entire process of bidding from the RFQ to the bid to the follow-up and everything in between there. The short answer to this question is there's really very little we can do once the proposal is submitted but to wait for the contracting officer to respond to it. We sort of refer to the contracting officer as the KO, so I might use those terms interchangeably. But once we submit it, usually the KO is radio silent for the duration until the award is made. We can e-mail or call the KO, and we do on occasion. However, the contracting officer will most likely never respond to anything other than acknowledgment of the initial receipt of the submission or the proposal that we put in. There are occasions where any -- on any update or amendment that may come out after the submission, we might get notified via e-mail from the contracting officer. There are times when the contracting officer will reach out and ask if we can hold pricing longer than the original timeline because there was a delay or another reason in which they weren't unable to award the contract within their timeline that they had originally prescribed. In which case, typically, the communication is either, yes, we can hold the pricing, or no, we cannot. And no other communication is usually given from that point. The only real time we get to communicate with the contracting officer is after we've been down selected and prior to beginning negotiations, which usually means that an award is imminent. On the flip side, if we are not selected, the only communication we get is what we call an unsuccessful bidder e-mail or a letter. Basically it states that whoever the awardee is or multiple awardees are, and that we were not one of those. At that point, we can't ask the contracting officer for a debrief and try to understand why we were not selected if we were not selected. But the frustrating part that we feel and by extension you'll, because we can't really communicate it, is that during the middle of such a period here between when we submit something and when we hear something, it's just radio silence. And this last year has been filled with a lot of delays, so that extended the silent period with the government. Can be looked at as a positive as well because it means that we're still in the conversation to potentially be awarded any one of the contracts that we have submitted. But unfortunately, the flip side of that is it does not allow us to communicate with you all about the status because we just simply don't know one way or the other. Question 2 here. How much longer can the company function on this current trajectory without any major contract wins? A valid question, but it's very hard to give a specific answer to. And it's a question that we've received multiple ways from multiple people, and the answer is really the same. While we haven't had any major contract news for some time, we still have had some smaller contract, or not really contract, with smaller order wins or smaller bid wins. We will continue to reduce expenses while expanding other revenue sources. Our GSA schedules has picked up significantly over the past several months, with 1 month reaching a little over USD 300,000 in sales. Our OEM manufacturing opportunities continue to expand, and we have been expanding opportunities for open market orders around the world. So these are different relationships in different countries such as Ecuador, Colombia, the Philippines, Indonesia. We still have strong relationships in Ukraine, really kind of all of Eastern and Central Europe. But we are still waiting for, in Ukraine, specifically, we are still waiting for USG, the U.S. government or USG funds to be, I guess, kind of released to the actual contracting officers that can actually process the funding into contract awards and stuff like that. Well, publicly the administration has announced funding for support in those areas. That funding is generally been in stuff that we don't compete in, weapon systems and heavy artillery type of things like that. But to this question, so while we have not had any major contract awards, we do continue to get smaller wins that help provide revenue to all of our companies, and thus help kind of keep the lights on as we wait for awards of major contracts. If there are many delays in the government contracting awarding system, how has MRS pivoted to sell to other partners and clients? Give specific examples, if possible. Well, expanding on the previous answer. I don't think we are pivoting as that would employ that we are shifting away from the USG major contracts, which we are definitely not doing. We are very much still involved with the USG on major contract opportunities. However, I think we are balancing revenue opportunities better. I have talked about this vision for the company some time now, with the idea that major contracts are so lumpy in their nature that we have to balance our revenue generation with other opportunities. Examples, as I mentioned, are the GSA and OEM manufacturing opportunities, but also include foreign military sales or FMS and included open market orders to our allies around the world for things that might be outside of our -- what you typically think of a war fighter needing or foreign military sales containing, it can be our Unifire rescue saws and chains and positive pressure ventilation fans. It can be med kits, it can be MREs, shelters for humanitarian aid, clothing for humanitarian aid. It could be a lot of different things depending on what those foreign governments may need. We have talked about Ukraine, and there are a lot of opportunities there, but larger orders are, like I mentioned, are really dependent upon U.S. government funding. There have been smaller orders placed that are funded through private donations by high net worth individuals, nonprofit organizations and NGOs. But really, everybody is kind of waiting for that money to hit through the state department and be cleared. So the money is kind of tracked accordingly. While the funding has not kind of dropped at that level where they can start awarding contracts, we've really still continued to strengthen our position in the region by partnering with folks on the ground in Eastern and Central Europe. Primarily, mainly our partners are Task Force Antal, which we've disclosed previously. Today, currently, as we speak, it's about -- from the West Coast, it's about 9-hour time zone difference, but currently, we are representing Unifire at the Global Special Operations Forces Symposium in Budapest, Hungary, along with our partners from TFA, [ Rebmedics ] and Blueforce Development. So we have a pretty strong booth there, and the symposium, for those that may not know about it, is happening this week, and really should promote all of our capabilities to the decision-makers throughout Europe. And then additionally, we have expanded contracts -- or excuse me, contacts throughout Central and South America and throughout Asia. We've been working with the Department of Commerce and the U.S. embassies and some of our partners in developing partnerships with local companies in those areas that will allow us to sell all of our products, either stuff that we manufacture or stuff that we distribute. If the cash flow doesn't increase soon, will there be a salary cut in good faith or a corporate restructuring to allow for a better bottom line? Since I joined the company in October of 2020, we've always evaluated every single expense item. We've made that public. We've been very open about auditing every single line item, and we have made adjustments to run as lean as possible. There is the risk around tooling and not having people to do the work. And then there's being lean, but still have enough people to do the work. I fully believe that we have made the right adjustments that we need to at this point without sacrificing the ability to get work done. Corporate restructuring, salary cuts, that stuff is kind of included in there to making the right decisions so that we can continue to do stuff. Anything outside of that, we will evaluate when the time comes. How many of the 65-plus contracts that we are going for are still in the running for? How many have we lost? As I mentioned prior about the process of tracking the proposals, once we submit them, we've only seen 2 unsuccessful letters. One was due to pricing, which we talked about last time we all gathered together. The second one was more recent where the incumbent manufacturer was awarded the contract. We have asked for a debriefing on that second one, but have not been granted one as yet. We are in the process of trying to audit all remaining proposals to see if they are active or they've been canceled due to funding issues at the end of the year or funding constraints at the end of the year. Again, as I mentioned, communication with the contracting officers is difficult. So it's not an easy task. So what we do internally is that we track all the stuff. We know when we submitted them. We continue to talk about them every week and see if we've heard anything from other people that we know may have submitted on those to see if they've had any indication of whether contracts have been awarded, canceled or extended or anything like that, that we may have missed. What we do know is that 2 of our larger opportunities have been extended, and the contracting officers have reached out to us and let us know about those. One of those contracts has been extended to the end of the calendar year this year, and the other one has been extended to end of April of 2023. The rest of the opportunities we have out there, we will continue to track and see if we can get more information. But the real -- again, the real difficult part of that is not having any kind of communication with the U.S. government contracting officers as they're just not allowed to tell us too much there. How are investors supposed to stay excited about the company when nothing has materialized in months? The volume is nonexistent and sentiment has never been lower. Why should we stay invested? I'm assuming that the volume is not existent is reference to the trading activity. Okay. Well, everyone has their own risk tolerance, and they should decide their own investment strategy based on their situation. With that said, Mission Ready has made tremendous progress over the last 2 years. Our balance sheet has been cleaned up and financially positioned very well for success. So that when we do get major contracts, the financial benefit will be exponentially better than it was prior. Money won't have to go to paying off past due expenses and things like that. We have expanded opportunities outside of the U.S. government, which we announced. That was our vision this year is to continue to level out that lumpiness of the U.S. government. We partnered with some exciting new vendors that could be real disruptors in the cybersecurity and technology spaces. We have pushed our brand beyond North America, and like I mentioned, into those other areas, foreign, Ecuador, Colombia, Indonesia, the Philippines and the Central and Eastern Europe as well. And we've done that really to -- through our open market orders and our FMS contacts there. We are gaining momentum domestically with our manufacturing opportunities, whereas we recently announced a contract with Health and Human Services to develop the next-generation police uniform. We should be able to announce shortly after -- well, shortly after contract finalization, another similar opportunity as well. Personally, the conversations we are having with decision makers at the highest level of foreign governments is very exciting. And I think the potential for our foreign military revenue avenues, our revenue generation is something that the company has never seen before. And that's really exciting. So that's that. Who bids on these contracts for MRS and what is their experience? Do they get updates from the government? I want to know if they have had any answer as to why we have 60 unanswered bids? Can this contract -- can contracts just be canceled or will they eventually be awarded no matter what? What are the reasons for these delays? Real reasons, not conjecture. Well, we talked about the first part of this in the previous answers here. But to answer the first part about who bids on these contracts, we have to understand the process of bid better. Almost everyone in the company is searching for opportunities that fit our criteria as a company, what our capabilities are, where our strengths are. And from there, we engage with the appropriate people. Sometimes for simpler contracts where we are just distributing some of this product, the RFQ might be for a widget that we distribute from XYZ company. The person who found the opportunity will contact the vendor and get our pricing and then we will add our margin to it and submit the paperwork. It's pretty straightforward and it's pretty simple. On more complex submissions, we have our subject matter experts for that particular item involved. We have former contracting officers who used to work for the government. On the other side of this, writing the contracts and doing the awards and working on behalf of the government, they now work for us or work with us to break down each solicitation so that we can respond to each section correctly in its entirety. We can comply with all the foreign clauses and anything else that may be required of the contract. And without giving away their ages, I would say that the level of experience collectively of these folks push nearly 100 years of U.S. government contracting experience. Now the rest of the question, I think I covered already, but for the folks that wrote this question, if you don't feel my previous answers were complete enough, please reach out to Dom and set up a time, and we'll answer them more completely. This was more of a statement here. Is there any hope that refreshed budgets after September will get some things moving or does it not work that way? I would say, yes, there is hope. Absolutely. Going into the new U.S. government fiscal year, it will help move things along. But we can't say for sure. I mean, logically, we could speculate as to what we think will happen and when it should happen, but the reality is that logic has not always been kind to us in the past. The U.S. government has not been following logic for the past 2 years that I've been with the company. And I believe that the contracting system is broken. And there are, I think, several reasons for that, part of which is that a lot of government officials are still not back into centralized office, wherever that may be, whatever command that may be with, there's still a lot of people working from home. People are retiring early, they're rotating through. The agencies are dealing with budget allocations that get pulled and have to be reallocated, and I think there's a lot of things that go into it. So I don't think there's a singular product -- or excuse me, a singular thread that you can look to that will answer all those questions. And I know people don't want speculation or conjuncture, but unfortunately, that is all we have in the lack of communication, specifically from the U.S. government. But let me give you kind of a real-life example, I think, that encapsulates the entire system. As you know, or if you've been with the company for a while, as you should know, we won 7 of 13 delivery orders on the Level 2 isolation gowns, which was based on a very real need for the Strategic National Stockpile. We delivered on our commitment for all those 7 delivery orders that we received. The need for more gowns did not diminish. However, the U.S. government elected not to extend any more delivery orders to any of the contract awardees. Logically, it points to we should have had more delivery orders. The funding was there, the manufacturing capability was ramped up and ready to go. Logically, it made sense. The original contract customer was HHS, and they utilized DLA for their award process. Once the original delivery orders were complete, for whatever reason, HHS decided not to use DLA to further any more delivery orders and opted to actually to take it over themselves and recompete the solicitation. And as we've explained how well that went with the listing on sam.gov and then it was canceled 2 days later. That doesn't make a lot of logical sense to me. And then several months later, they reactivated that solicitation, and after a few delays, finally had a submission deadline on it. After all the amendments and changes, we were informed that the U.S. government's intention was to have delivery orders made by October 5, which, again, logically, if you apply some calendar math, meant that delivery orders would need to be with the manufacturers prior to September 5. Continuing with the calendar math, that would mean that the awardees would have had to been notified somehow prior to September 5. Yet here we are, and there's been no words, no notices, no amendments, no updates by the U.S. government, just complete radio silence. Again, this is conjecture, but we know that we -- excuse me, we know that there was a protest filed after the original submission date but prior to any award by a firm in Hawaii. This was published by the GAO, and we know that the protest was dismissed or cleared on August 22. We also understand that money allocated for the budget -- for the gowns was kind of a 1-year money from the government, which meant that it should have been awarded prior to the end of the fiscal year. However, due to the protest, the U.S. government may have had a small extension on that timeline, but we do not know how long that will be or when the actual use it or lose it date might be. So again, applying logic, it doesn't make much sense as to why there is a delay, but it doesn't mean that we don't think about it and ask questions and continue to talk amongst the industry to see if we can figure something out. But at this point, we just are still waiting and trying to figure out what the government is going to do. The good news to that, the flip side, I guess, is that we are still very much in the competition for that. We're still very much in the belief that we have some very competitive bids, not only on financial per gown price points, but on capacity at our different manufacturers. While we are on this train of thought, let me summarize a few questions that were phrased a little bit differently but are all pretty much driving at the same thing, which is why has Mission Ready forecasted higher revenues this year and then have reported financially significantly less revenue? I think that the answer is partially already explained in what I just went through. But to further the understanding of the bidding process and how we logically forecast finances, we have to start with the solicitation. On each solicitation, there is an originally published date, a submission due date and then maybe some updated dates or an amended date or something like that, if applicable, in conjunction with the actual documents. We look at these dates in conjunction with other logical factors such as timing during the year, supply chain, manufacturing inputs, the complexity of the solicitation and any other relevant factors that could influence the timeline. We also weigh each opportunity with a subjective percentage that we can win or not win, meaning we might weight the gown opportunity for -- that we just talked about higher because we won the delivery order, we won the contract and delivery orders in the past, and we might take an opportunity that, let's say, IT-related and weight that lower because we don't have direct experience and we are submitting with our partners that do have a lot of experience. And we believe that we still have a chance with that, but not direct experience, so we might weight a little bit lower. All those things, all those factors go into when we set up our budget for the year and forecast out. We put all those inputs in, come up with a number and then we typically discount those numbers a little bit further just based on the fact that we don't win 100% of everything that we submit, and we try to be conservative in that degree. So when we looked at these factors and we start to forecast for the year or even maybe 2 years into the future, again, using the gown example, the original submission was for first quarter, second quarter of 2022. So when we're looking at this in October or so in 2021 going okay, the gown should be coming out, the submission due date is actually the first quarter, second quarter, which means logically that a month or two after the award or after the submission due date award should be given and delivery orders placed. When the U.S. government delays that, then our entire forecast model shifts. I think it's important to note here that it doesn't mean that the revenue opportunity goes away, but it does make predicting when it will happen more difficult. Now if you take that unusual amount of delays across all the major contracts and the result is a missed forecast for timing. It also represents an opportunity, though, that for year 2 or 3 into the future, those opportunities could be awarded in those years, which we didn't predict. So years 2 and 3 could be greatly increased over our forecast as we still believe that those funds will be shifted and not canceled. Let me see if I can get a couple more questions in here. Last year, during the AGM, Buck's said that shareholders should be excited for what's happening in Q1, Q2 of 2022. In a recent news release, MRS stated that they were hoping for manufacturing opportunities in this quarter, referring to quarter 3, what happened? Well, I think we covered this one in the previous long example I just gave. But let me expand on the manufacturing a little bit that I did discuss earlier. Since that opportunity is still alive, I can't go in detail, however, I will say that it has been an opportunity that we've worked on for well over 12 months now. 12 months ago, if you would ask that we would have never guessed it would have taken longer than 12 months for this process. Again, the delay is outside of our control, has happened, and we are still there. But we expected this opportunity for manufacturing to be assigned to us sometime in the first quarter, second quarter of 2022, but the delays have pushed that out. We've done everything that was asked from us, and we are really in favor with the government regarding our ability to step in and help the failing manufacturer. So we are positioned well, and this is an opportunity to Protect The Force Manufacturing. However, like I mentioned, there are things outside of our control that has prevented the U.S. government from moving forward yet. I will share that this is a major manufacturing opportunity that would potentially exceed USD 40 million in revenues if it were assigned to us. So we are still very much pursuing this and working with the U.S. government to try and clear those hurdles so that they are able to move forward with us. Which that brings us to the bottom of the hour.

Buck, if you don't mind, we'll take 2 more questions. So there was one. Why has there been no outreach to new investors? If the company is on the cost point, not attracting new investors to restore it? So given that it relates to my mandate, I'll answer that one directly. As it's been discussed in the past with shareholders on an individual basis, this is simply false to assume that there has been no outreach to investors. As a matter of fact, there have been hundreds of outreaches to retail investors, brokers, high network individuals and institutions. Buck and I and part of the management team have attended virtual and in-person events to promote the company's story. As a result, the management team and myself are currently in active discussions with dozens of firms that follow our progress. The company's first analyst coverage is a direct result of this outreach. The focus has been predominantly on the U.S. and Canada, but we've also reached to international firms, groups and individuals, namely in Europe and Asia. And from a retail perspective, candidly, Mission Ready has steered away from cheap promotions that will simply burn hole through the company's pocket without providing a return on investment. The strategy is and remains to build long-term shareholder relationships with investors by presenting them a compelling story rather than allow speculators to make a quick buck on market fluctuations and create more volatility. There is also another question that I thought was really interesting. If priorities continue to shift away from the areas we bid on, how will we find ways to grow revenue and profits?

Well, I think by staying relevant, right? The company has been, and I think you've been able to get a glimpse of it through Unifire, strives to identify best-in-class products, solutions and technologies that respond to unmet needs, not only for the U.S. government, but for other entities, either commercial or foreign governments around the world. We continue to work at staying at the forefront of innovation. Like we've recently announced and talked about here, the grant through the Department of Homeland Security to pioneer the next generation of law enforcement duty uniforms. We have another one coming out as well. I think that we continue to push our capabilities into the commercial sector as far as manufacturing goes, to be not reliant on the government or opportunities as much. And I think that we've been asked in different ways, how do we expand our sales around the world? And we haven't had the internal sales force to really drive a lot of those initiatives until this year when we were able to connect with some other people that had a dedicated sales force and dedicated presence in different places around the world. They were lacking the access to product, and that was a partnership that was serendipitous in a lot of ways. They are able to get to the decision makers that we are unable to get to. And they -- in turn, we provide them with the widget or the service that they may need, and we continue to expand those. But those are just a couple of different ways that we can expand our revenues and grow our profits. I think that that kind of covers that question, Dom.

Absolutely. We'll finish with one quick other question that is relevant and has been asked a few times. What's the status of the retail/online sales directly to consumers?