VSBLTY Groupe Technologies Corp. (VSBY) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to VSBLTY's Third Quarter 2022 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Mr. Jonathan Paterson. Please go ahead, sir.

Thank you, Laura. Good morning, and welcome, everyone, to VSBLTY’s quarterly conference call. This call will cover VSBLTY’s financial and operating results for the third quarter ended September 30, 2022. Following our prepared remarks, we will open the conference call to a question-and-answer session. Our call today will be led by VSBLTY’s President and Chief Executive Officer, Jay Hutton, along with the company's Chief Financial Officer, Mitch Codkind. Before we begin our formal remarks, I would like to remind everyone that some of the statements on this conference call maybe forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested in any forward-looking statements due to a variety of factors, which are discussed in detail in our regulatory filings. A copy of today's presentation will be available in the Investor Relations section of our website, www.vsblty.net and posted on SEDAR. I will now turn the call over to the Chief Financial Officer of VSBLTY, Mitch Codkind. Please go ahead, Mitch.

Thank you, Jonathan. And just to remind everyone, once again, all dollars that I talk about today are in U.S. dollars. So with that said, our revenues for Q3 came in at approximately $800,000, which is up 53% over our prior year third quarter. For the first 9 months of 2022, our revenue is now at $5.3 million and is 459% over the first 9 months of last year. It is worth pointing out that in Q3, we sold and delivered 77 units of our digitized cooler door systems, our largest deployment to date to important customers such as Coca-Cola bottling and Mountain Express Oil, a U.S.-based convenience store chain and we did this through our partner network. These patent protected cooler door systems represent an important part of driving our software as a service in our store as a medium advertising program. Cracking the sales of these cooler systems, which have an average selling price of $4500, will be a key metric in the years ahead. For each 100 units sold and deployed, we anticipate driving $114,000 in licensing or SaaS revenues and advertising revenues of $4.8 million over a 5-year period. I'm going to switch now to cost of goods sold. Within our cost of goods sold includes there are 2 buckets. There are the units costs tied to the delivery of product as well as our cloud infrastructure costs, our strong analytics capability and our field deployment model with an overarching goal to transfer the necessary knowledge of our solution set to our various partners, some of which have a global footprint. Investments in our cloud, analytics and deployment capabilities are a prerequisite to scaling our revenues in the quarters and years ahead. For now, this investment, which totals $900,000 year-to-date, has resulted in a negative margin both for the quarter and year-to-date. These costs are relatively fixed. And as we scale our revenues, we will see significant margin expansion. I also want to point out that if you want to learn more about our strong analytics capability, I would refer you to our November 23 press release about the recognition we're receiving around our data analytics capabilities, a very important competitive differentiation. For the quarter, we had an operating loss of $2.9 million and this is down from the prior year loss of $3.7 million. For the 9-month period, our operating loss was $7.8 million and this is down from the $10.8 million reported for the first 9 months of 2021. The company maintains a bookings backlog based on several material contracts executed over the past year, which totals $50 million in total contract value. Most of these contracts range from 36 to 48 months. And the revenue is expected to be recognized over this period of time. At the close of Q3, we had -- our accounts receivable were $3 million, with the largest portion due from our joint venture partner, the Latin American-based Winkel media. In addition, VSBLTY has provided $1.6 million in funding to Winkel Media as of September 30, 2022, as part of its ongoing obligations as a joint venture partner. The company anticipates the need for further funding to Winkel Media until profitability is achieved in the first half of 2023. During the quarter, the company successfully completed both a public and private unit offering that netted the organization's $6.5 million of proceeds. With the closing of our third tranche of the private placement that was completed following the end of the third quarter, the total funds received increased to $6.9 million. We ended the third quarter with a cash balance of $3.8 million. I will now hand over to Jay for additional comments.

Thank you, Mitch. Good morning, everybody. I wanted to comment about some additional themes that were emerging in my ongoing dialogue with the shareholders. We're delighted and really blessed to be surrounded by a supportive group of shareholders that not only believes in our mission but almost as much as we do. As I hear from shareholders, which; I do on a pretty consistent basis, there are several themes that emerged and I'll address them directly if I could. First is Winkel Media. There's a lot of questions and confusion about the investment in Winkel Media. And what I'll try and do here is set the stage as to why we did this and why we're continuing to do this. Our investment in the joint venture in Latin America has taught us a great deal. It would be hard to imagine another company with as much practical knowledge about deploying a retail media network than we have. This is on a global basis. We really have an opportunity to be the leader in this category, particularly in the area of traditional trade as opposed to modern trade. And the early stages have been disruptive. The early stages of this disruptive JV have come with its challenges, supply chain, logistics. We're doing this in 5 countries. We have truly cracked the code on the legitimate emergence of the store as a media channel. We've learned how to scale. And we've developed a partnership ecosystem that's really now dialed in. We have not only those skills to continue deployments in Latin America. But we have to transfer those skills to the other markets, which we're doing right now and we'll talk more about that in a moment or 2. The second theme is the cooler as a Service. As Mitch mentioned, we have been delighted with the momentum of the digital cooler element of the business. In Q4, our order book is the strongest it has ever been in that particular category. Our initial customers are reordering. And as Mitch mentioned, there's not only an initial revenue opportunity. But the life cycle SaaS fees plus the associated media fees means that cooler will continue to play an important role in all of our retail networks that we build. And importantly, we're not simply a hardware company or a software company. We play a role in the entire delivery model from SaaS to content to media. And this, I think, is quite important, especially if you look at the competitive landscape, we occupy multiple roles in the delivery of these retail media networks because, frankly, we've developed a skillset, which is at least in the marketplace is at the moment, unmatched. So we've got this ability to not only deliver the hardware. But the software that empowers the hardware and then the media push, the revenue push to drive media into those placements. So if you believe in the category, as Boston Consulting Group says $100 billion market by 2025, then our leadership position is uncontested at the moment. The third theme is the Intel relationship. Our Intel relationship remains a key to our business. They've supported our programs with their influence and in some cases, their resources. Along with WPP, Intel was a key partner in developing the store as a medium consortium, a thought leadership initiative, which has really begun to thrust us into the forefront of this market inflection around the store as an emerging media channel. But we are entering a new stage in our relationship with Intel. We're adding to our relationship key initiatives and developing and deploying technology together. So, not just a marketing relationship, not just an influence wielding relationship but a co-development relationship, which is an important inflection, something we have not really done before with them and will begin to be disclosed by the end of the year as more details emerge on that. In particular, we're working with Intel around context and I'll do my best to explain that as quickly as I can. We've been working with several key partners, Intel among them, some of our new partnership ecosystems. Some of these partners are new to our ecosystem and some are existing. We're developing disruptive technologies to redefine context when it comes to programmatic and retail media. This is a world that is adjusting to the reality of the removal of cookie-enabled advertising and device ID. There is a need to develop and implement something that would provide audience context in a way that is superior to the old ways. Computer vision is uniquely equipped to do this. This is like context is so important. This methodology to be released soon with key partners and customers with a launch customer in the bag will set us apart from the entire market. We don't know what kind of lead it gives us. It's very difficult to determine in technology, but certainly some amount of time, which will allow us to engage in the land grab that's part of the store as a media concept and category at the moment. I believe we have a game plan to do things that simply have never been done before. Now to the revenue. This year has been the beginning of a breakout for VSBLTY. We are in line to close out the year at around $7 million in revenue. This sets us up to have a strong '23 with revenue conservatively projected to eclipse $7 million by the midyear milestone of '23. Our projections are more aggressive than that, of course. But we are comfortable with this conservative estimate. Moving into Q4, we're seeing our cooler business dominant in the way that we dominate in the way that we expected it could. Q4 will bring greater revenue from cooler than all other cooler based revenue in previous quarters combined. This will include second orders, which, of course, I'm delighted by because it's a really important indicator. Jonathan, we will now open up our call to the Q&A. Please go ahead.

Thank you, Jay. Laura, if we could open up the lines for questions, whilst you're doing that, we did have an e-mail that came in from a shareholder Jay asking regarding Marketmedios. Do you anticipate Marketmedios existing clients to begin advertising on the Winkel Media Network? And how will this help Winkel reach critical mass?

Marketmedios is the leading out-of-home advertiser in Colombia. And what we're seeing, interestingly, and we're seeing this in Peru as well as Ecuador as well. The leading partners in that region tend to come from the traditional out-of-home space. And if the callers maybe don't understand what that is, that's essentially the same category that has Clear Channel and Out front media, those type of players. We're seeing that the store is the next horizon, the next place where large revenue will be accumulated where the store itself is emerging as a media channel part of our theme, frankly. So out-of-home companies are seeing this category. And so our key partnership strategy is to identify in each of the countries, the key partners who already have customers that are selling out-of-home media to out-of-home being billboard, bus-shelter, airport, mall, the store being the very next thing. So the intelligent strategy is, hey, you're already talking to the key advertisers in the region by way of implementing advertising on their behalf in your traditional out-of-home media network. Why not expand your out-of-home media network to the store? And that is the basis of the Marketmedios relationship. It's a family-owned company. I've met with the principals, very motivated, very aggressive and we encourage Winkel to engage them in a relationship. It's very similar to what we've done with Promo Espacio in Mexico and Publigraphic in Peru and Ecuador.

[Operator Instructions] Your first question on the phone line comes from the line of Rob Goff from Echelon.

My question would be on Winkel. Could you talk to the cadence of deployments? And could you also talk to the traction that you might be seeing in terms of advertising revenues on the network?

Sure. Understand that this is, at the moment, not revenue that is recorded on VSBLTY's balance sheet because it is a 33% ownership in a joint venture. But it is a critical metric that people -- shareholders of VSBLTY want to know more about. We went into our Winkel Media investment with our eyes open. We negotiated a 33% ownership in the JV because we had an important role to play as the category emerged and the retail space evolved. Our responsibility was to provide for the capital, the equipment and the operating expenses during the formative months of the project. This is how we became an equity participant. We swapped that agreement for a long-term equity participation in a media network that if it reaches its potential, which I'm sure it will, 50,000 locations inside of 5 years, has a media value of north of USD 250 million annually. In June of this year, we were able to transfer the infrastructure responsibility to Austin GIS, an entity that is Intel majority held and we have an ongoing equity interest in. As an independent investment, we believe we've made an excellent business decision to perform the role we did in the initial months. We now have not only an intimate exposure to the unique challenges of deploying a complex multi-country media network, but also have some of the knowledge that allows us to critically assess other opportunities worldwide, gives us a baseline. Not to mention the fact that we are partners with one of the most -- one of the world's most iconic brands. This was a risk. But the calculus was that it would allow our network to build faster and have the reflected benefit of influencing other network build-outs. If you were able to speak to AB In-Bev, you would hear from them that the Winkel Media initiative is the shining star in the AB InBev strategic portfolio. From their point of view, the network presuppositions and business KPIs have been met and that critical mass has been reached. We are just at the moment, north of 2,000 stores; our 2023 objective is 5,000 stores. A more meaningful metric is the revenue that is coming from that. And it was slow to begin with. It actually took us around 13 months to get to meaningful revenue because media has the challenge of a long sales cycle, coupled with the fact that this is a brand-new medium. So I've learned in a long career that if you're evangelizing, if you're educating, you're doing less selling. But if you go into an environment where they understand the product you're selling store as a medium, it goes much more rapidly. And we've really come to the point where that initial evangelization is now pivoting to a sales engagement. In terms of revenue, Winkel is beginning to break through now with accelerated revenue growth into next year. The announcement of several key partners in the various regions as well as the deployment of programmatic technology has allowed revenues to grow and become more predictable year-over-year or month-over-month. The overall revenue is projected to be approximately $10 million in 2023 with a breakeven month projected by May of 2023.

Jay, could you confirm that is 2 million deployments currently or as at end of quarter?

2 million, Rob?

Sorry, 2000 stores.

I'm giving you a current store count. It's slightly more than that. But because installations are occurring at some pace, it's a day-to-day changing number. But the focus right now is a little bit less on the installation cadence and more on the delivery of the revenue. We want to get to a point where 65% of our revenue -- 65% of the inventory is sold. And that, to us, is a considerably more meaningful metric because additional stores require additional capital, which, of course, has been agreed to by also GIS, but does have an ongoing cost that we're trying to manage at the moment.

And if I may turn to coolers, could you talk to how you see the traction and the buildup on the coolers and also on Mountain view?

Mountain Express?

Mountain Express, sorry.

We're happy with Mountain Express. They're slightly delayed. But the first quarter is -- looks like they're going to catch up. We're looking at a total of 580 endpoints in the next deal by the end of the first quarter. A good chunk of those will be coolers. What's really exciting is the fuel and convenience category, which I have Mountain Express is running slightly behind and will finish the year at just over 100 endpoints, but will accelerate to reach more than 500 by the end of Q1. Media revenue, as expected, is slowly growing. Thanks to -- in part to programmatic capability as well as growing interest in the sponsorship direct buy. As we advance on the strategic national advertiser in the beverage category, we expect the primary beneficiary to be mixed. This is super strategic. I can't give dates because every time I give dates, I end up not taking into account the speed with which our partners move. It's not about our speed. It's usually about those that we're dealing with. But this fuel and convenience category is going to be an interesting and important category for us in 2023. We projected by the end of the year over and almost 98,800 endpoints, that's from our current perspective as of December -- well, November of '22, that's what we see right now. Of course, that number will change going up. But that's what our current VSBLTY is. So coolers north of 2,000 probably for 2023, and maybe considerably north of 2,000. We've got the attention of the largest bottlers in the world. And this new strategic advertiser is also from the beverage category and could be as meaningful to us as the ABI deal itself.

Your next question comes from the line of Jody Kane from Diamond Bridge Capital.

Can you give us an update on the Al Jabr deal you announced a month or so ago?

Sure. When we initially announced the joint venture, we said we anticipated closing the definitive agreement within 60 days. We're at about 70 days, to-date and apart from the lesson about projecting close timelines, which is a lesson I seem to continue to have to learn. We are confident that we'll be done shortly within 10 days. We have a 50-50 -- we have a 50-50 ownership in VSBLTY Middle East. And we will not be responsible for capitalizing any of the start-up and formation costs of the entity. The next milestone is the JV agreement, the joint venture agreement, which has been in Redline for maybe 6 weeks now. I just returned from Saudi. And the market for smart city applications is really staggering with over $1 trillion in sovereign funds being spent on new city infrastructure. I think we're all aware of the kind of money that's being poured into smart city infrastructure. That's mostly sovereign funds being deployed to diversify the economy and create new sources of domestic revenue. We're already tracking 7 different deals and feel comfortable that we will announce the deal momentum as early as deal momentum, not the JV, but the deal momentum as early as Q1 of '23. So even though it took a little while longer, I'm not going to drive to a 60-day timeline and run the risk of doing a deal that might not be fully thought out. So there were some elements that arrived in the negotiation towards the end related to tax and legal structure. And I just want to make sure I'm clear of those, which we are now before we signed the deal. This is why we didn't pull it in inside the 60-day projection.

That makes sense. And then can you give us an update on the security business?

Sure. The security business is predominantly Mexico at the moment, although there's, significant opportunities in large projects in Saudi and also a few in the U.S. Some of the work we're doing with the SCN security community network, which is the Jewish Federation, we'll get more exposure in the coming months and we're excited about that. We're already doing multiple facilities with our security software. But in Mexico, the smart city infrastructure is continuing to deploy utilizing VSBLTY AI solutions. I just was on a call yesterday where the projection for the month of December alone is 500 incremental units and going into the first quarter, an additional several hundreds. So it's not going at 1,000 a month. But we really couldn't manage the kind of deployment speed that that would dictate. But we're good at several hundred a month. And we're at the point now where the overall network is growing in terms of size. And in addition to that, we are retrofitting non-AI cameras with AI technology. The relationship that has been signed between Aegis and Total Play; that was stealthily announced in the middle of the summer, a telecom provider. That's now beginning to yield benefit. Interestingly enough, not just in security, but in private commercial applications as well. So we'll see more of that starting in Q1. We might actually squeeze 1 or 2 of those deals into '22. But I'm not certain about that at the moment.

And I'm not sure how much you can speak to this, but is this a licensing fee revenue that's outstanding? And when might that hit the P&L?

Sorry, your audio went a little.

I believe there is some licensing fee that is outstanding. And I was wondering when that may hit the P&L, if you can speak to that.

I now recall. So I think you're referring to Radar USA. That deal was announced several months ago. And as part of that deal, there was -- it's a complex deal. But part of that deal was a $2 million upfront license fee paid to VSBLTY by Radar USA as sort of a prepaid license package. While we have -- while that entity, Radar USA, is in revenue, and while we have VSBLTY has recognized revenue from that entity, that $2 million payment has not yet been made. That payment is contingent upon Radar USA securing its funding, which is now underway. And as I'm told, it's going quite well. I mentioned I have conservatively put their collection of that $2 million in the late first quarter, second quarter of '23. And we think that that's comfortable on a conservative projection.

[Operator Instructions] Your next question comes from the line of [ Ron Snyder ].

Shareholder of the company for probably the last 2 years, like you shift gears just a little bit, maybe talk a little bit more about the stock itself, whatever you can tell me. I guess my first question is, you'd say you've got $3.8 million in cash. Is that enough money going forward to fund your activities or have further dilution to the stock?

I'd like to say, Ron, that I say it internally all the time, we're a living organism. And if we're a living organism, we need to learn from the mistakes of the past. And certainly, that's been critical to optimizing our Latin America network. We're doing something for the first time ever and let's learn from it. I'm also learning that I should never say never about accessing funding again. I don't expect too. We have some components that are part of our cap structure, which are uncommon. Not every company has it, which would allow us to be strategic about non-dilutive financing in the future. And what I'm referring to specifically is, of course, the revenue is growing and the revenue is growing at quite a pace. So we expect the revenue will be part of what mitigates the need for additional capital requirement. And that's growing month-over-month and quarter-over-quarter. So that, of course, is the easy, most efficient and most intelligent way to ensure that we don't have to go back to the market. The second is that we have a bunch of $0.17 warrants, maybe $3 million worth, like between $2 million and $3 million worth that only have about 8 months left to live. And as long as our stock price sits above them, we expect them to come in. We're not projecting that. We're not guaranteeing it. We're not relying upon it. But it is a component of the company's capital structure, which is non-dilutive in nature in terms of accessing of new capital. The second is we have about $7 million of warrants that have been issued to AB In-Bev. And part of our ongoing discussion with AB InBev is at what point in time does our project in Latin America constitute enough traction to justify strategic investment by AB In-Bev? And we passed that Rubicon several months ago. So part of my conversation is what is it -- what might be necessary to get AB InBev to exercise those options. And of course, if we were to do that, then, again, it would be non-dilutive because it's already factored into the share cap and would be beneficial to all of us because it would enlist them in a more strategic way. They're very strategically involved already, but this would be beneficial for the company. So those are the types of things that I think will keep us from having to tap the marketplace. Of course, revenue being cheap among them, but there's other components.

Okay. So how many shares actually are outstanding at this point?

Allow me to give an estimate because it's changing every day because of warrant exercises and other dynamics in the marketplace, but something like 240 million on a basic basis.

And if we look at these warrants and options going forward, how many more shares could be brought to the marketplace with those exercise going forward?

Mitch, do you have that number?

I don't have it in front of me. It's in the filed financial statements, which, again, I don't want to take the time to pull that up. But we have a detailed schedule of warrants with the exercise price and the expiration date. So that there's a table in there that I believe it's over 50 million of warrants outstanding. And just to give you another number, the weighted average on a fully diluted basis as of quarter end, September 30, is 229 million shares outstanding, again, using a fully diluted calculation.

Okay. As far as -- I've not really been able to find the same place. But as far as the commitment by the insiders and management, what percentage of the company is owned by insider/management?

About 20%.

Yes, that's correct. It was higher prior to the recent our public and private equity offering that we did. But yes, it is just around 20% at the current time.

Okay. So I commit that then, that's good to see. You still got your Intel advisers on your board. Are they still pretty active in helping you move forward?

We have one Intel advisor on the board, Joe Jensen, Former Senior VP. He is on our advisory board, our actual fiduciary board, so very active. I have -- I'm blessed with an incredibly active Board there's. They're working on specific projects. They're engaged strategically with not just a board that shows up every quarter to sign consent resolutions. I don't have that kind of Board. I have a working Board. So I'm really delighted. In fact, the most recent addition, Luis Barros, which we haven't talked about in the call, this guy is a global expert on data and data analytics for retail, coming from an SVP position at -- Global SVP controlling a budget of over $1 billion in media. So incredible talent, incredible capability and look for him to play a more -- he, in particular, Luis play a more relevant role in active management of the company because he's not doing anything else right now. So I've managed a list. I've managed him a list him more actively in the business of the day. He is responsible for some of the work we're doing in Brazil right now. He's Brazilian. And though I can't talk too much about it, because it's evolving as we speak. But our next big move with AB InBev is Brazil. And that will be done as soon as we figure out what the block diagram looks like. We're looking at ownership, equity, participation, capital, that's all being worked out right now. But the goal is to enter Brazil by the first quarter of '23. This is a quick reminder. Brazil is the second largest media market in the Americas, only one bigger is the U.S.A. So the fact that we haven't been in Brazil, the ancestral home of AB InBev was really a matter of some -- we wanted to do that market second. Now that we've cracked the code in Mexico, both in terms of our point of view and in the AB InBev point of view, Brazil is next.

Thank you, sir. There are no further questions at this time. I'll be turning the call over to Mr. Jay Hutton for any closing remarks.

Well, I'd just like to thank all of our loyal investors. And I appreciate the opportunity to share with you what we're doing. I'm happy to talk to investors on a one-to-one basis, both myself and Jonathan Paterson, where our objective is to be as transparent as possible and we're excited about the year ahead. We also think that 2021 will come in on a year-over-year basis at a significant growth over the prior year and we look to do the same thing into '23. Thank you for your attendance.

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.