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

Good day, and thank you for standing by. Welcome to VSBLTY's Fourth Quarter Earnings Call. [Operator Instructions] Be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Jonathan Paterson, Investor Relations.

Thank you, operator. Good morning, and welcome, everyone, to VSBLTY's Quarterly Conference Call. This call will cover VSBLTY's financial and operating results for the fiscal year ended December 31, 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. Before we begin our formal remarks, I would like to remind everyone that some of the statements on this conference call may be 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 and 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 -- Investor Relations section of our website, www.vsblty.net and posted on SEDAR. I will now turn the call to President and CEO, Jay Hutton. Go ahead, Jay.

Thank you, Jonathan, and good morning to everybody. The company ended 2022 at, $2.023 million in revenue versus $1.6 million in the prior year. This was a major disappointment to all of us and a surprise to the company as we had expected to recognize the $5.6 million in revenue that we feel we had brought in. There was a second quarter equipment sale to AustinGIS in connection with them, assuming the responsibility of capitalizing the Winkel network that was reversed by the auditor. In addition, due to the start-up nature of Winkel, a further approximately $1.6 million was disallowed until formal indication of payment was provided. This is -- all of this and despite the fact that a payment of $1.3 million in license fees was made in 2023. We honestly thought that would have been an indication of the ability and willingness to pay by Winkel, but it does not seem so. It's been reversed. I suppose when it returns, it will be -- it will return. But that was a surprise, and we're not for those 2 significant impacts we would have been able to record the year at about USD 5.6 million figure. Regarding Q4, there was a significant number of adjustments throughout the year and quarter, reflecting the exclusion of Winkel billings and layered expenses as a result of IFRS accounting rules, which are reflected in the following discussion. First of all, our revenue. Our revenue decreased significantly for the first 3 months ended December 31, 2022, as compared to the prior year's fourth quarter. The reduction of approximately $560,000 was primarily attributable to the decreased hardware sales to Winkel Media, which was referenced earlier. AustinGIS is now purchasing and financing the equipment through AustinGIS. Our cost of sales is approximately $0.5 million less than the fourth quarter of last year due to the reclassification of Winkel costs of sales to other expenses. Our operating loss for the quarter is approximately $1.9 million less than last year, primarily due to a reduction of share-based payments. G&A expenses and inventory impairment, somewhat offset by the reclassification of Winkel cost of sales as well as increases in sales and marketing and R&D costs. That's the summary of the financial situation, and I'm going to continue my commentary making comments about the business, which, in some cases, relate back to the financial situation. But before I comment specifically on our plan going forward, I think it might be useful for me to frame the market and our positioning within it. As I say this, and it sounds crazy, but it's outlandish as this might sound, visibility is a leader in the emergence of the store as a media channel. Not long after we began the journey of the company, we understood that once we could drive trusted and verifiable audience measurement into retail, physical retail, we would be on to a market that would have a tremendous and long-term disruptive quality. This was the hypothesis. The last three years has demonstrated that, that hypothesis is true. Our first customer was Nestlé Waters. And I can remember back then that they understood the power of promotion at the point of sale. The power of delivering a brand narrative at the point of sale. With them, we navigate the complexities of digital deployment in retail. They paid for the tech, both in terms of dollars and in the patience required to deal with the complexity but it validated the hypothesis. Sales lifted remarkably, and they gathered consumer data in a way that they had never had before in a physical store. Our sales pitch then was very evangelical. And it remains, to some degree, evangelical. But the idea of driving a brand narrative digitally at the point of sale was validated. And now as we advance our model, armed with the lessons of early adoption, we are now into the scaling part of our business. We're supported by industry think tanks like Boston Consulting Group, who say that this is a $100 billion opportunity by 2027. Here's a quote from April of this year from insider intelligence quote -- the channel's growth is staggering. It took only 5 years for Retail Media to become a $30 billion channel. In comparison, Social took 11 years and Search took 14 which tells you that the accelerated pace of Retail Media, store as a media is really pronounced and happening as we speak. For clarity, the market metrics that you hear often quoted in these studies, awkwardly merge online advertising, advertising consumed via a website or a mobile phone, consumed on a retailer's website, mostly with offline consumed at a physical store. VSBLTY participates only in the lateral category, but that category is considerably more complex and has robust barriers to entry, which will serve to protect our early advantage. It's easier to drive digital advertising online than it is off-line, vastly easier. And that's why we have a moat, not only because we have this unique model, but we have partners that are embracing the model. There's been a good deal of conversation about artificial intelligence and how it represents the amazing transformative opportunity in the market, especially lately. This has led me into deep conversations with several shareholders about precisely how we leverage AI. And I thought I'd take a moment for this call to really underline that. It's as simple as this. Our artificial intelligence and machine learning software allows us to understand context and audience. These are 2 critical factors in developing advertising model. If you don't have evidence about your audience, you don't have anything to sell. We teach computers and cameras how to understand what they see. This is for security, and it is also most pronounced for retail. Here's some of the key highlights, not only last year, but as we advance. Winkel Media. Winkel Media is beginning to ramp nicely. At the half year point, the revenue is around $1 million, and the year expects to close between $3 million and $4 million. Profit is projected in the first half of '24, with loan repayments coming back to VSBLTY in the fourth quarter. A quick comment on Winkel Media. Part of the reason why we have some of these restatements, some of these inaccuracy comments or reversal comments is, right now, they owe us $2 million in a loan and an additional $1.5 million in open accounts receivable. This, as I mentioned earlier, despite the fact that they paid us $1.3 million earlier in the year. So I'm happy we made that investment. Many shareholders are not happy, we made that investment. But had we not made that investment, we wouldn't be benefiting from the leadership relationship that we have with our friends, ABI, and Anheuser-Busch as we deploy this network. So on balance, I think it was a good investment to make. The second thing I wanted to point out is cooler as a service. Our most meaningful revenue going forward is in this category. We're accounting for that to constitute around 30%, perhaps as much as 40% of our 2024 revenue from this category. With large customers like Coca-Cola and Heineken having already ordered modest amounts, we expect reorders from them, and that will impact this year and the revenues this year significantly. Last topic I want to discuss quickly is revenue projections and path to profitability. At the company, we know what shareholders want to see. It's really the same thing we want to see. A reason to think that despite the [ 2 mall, ] we have a reasonable shot at profitability and emergence as a leading player in this significant market inflection. We've taken pains over the last 6 months, in particular, to narrow our focus as an organization and to reduce our costs to work primarily on projects and initiatives, which will result in near-term success and revenue. Today, our project -- today, our priority project list includes 7 projects. As time goes by and we communicate with our shareholders, we will be showing how each of the projects defines a path to revenue. I think I need to define our specific project momentum specifically. So each of those projects has multiple revenue streams, and it's complex. So I will take the time. Each of them will have SaaS, management fees and media as a minimum. And in some cases more lines of revenue than just that. The media is the long play and is the major reason why VSBLTY has a legitimate shot of profound value by the time we are ready to take this to the next step. But this will take some time. We're playing the long game, and we think it will take 2 or 3 years to reach that kind of market capitalization that we have set as a goal. During that time, our revenues will grow as we accelerate this path. The company will be looking at -- the company will also be looking at near-term inorganic growth opportunities. We can commit to accretive behavior in this initiative and we expect that the first of these will be done within 45 days. Think of the opportunity space to be retail media. It's a land grab at the moment. You're going to witness our key partners, ABI [ Chief ] among them, aligned with us more strategically than ever before. This will take the form of investment initiatives, co-development initiatives and the advancement into new territories. We have the attention of the senior leadership. The Winkel model has now been validated and several organizations that recognize the state of the market are also getting closer to us from a strategic point of view. That concludes my comments, and we'll now open our call to Q&A.

[Operator Instructions]

Well, I am sorry. I received a couple of e-mail questions.

Great. Go ahead.

To start with. So I received them early this morning. In the financials, there is disclosure of an entity called Think Traffic, which is defined as a somewhat non-arms-length entity that is providing marketing services for VSBLTY. For many people, that number seems big. A lot of our spend goes into that category. I can't quote the exact number right now, but we all know it to be relatively high. For clarity, that entity conducts all of our trade events. So money is going to that entity, which is owned by the daughter of a founder, money is going to that entity are for the purposes of trade events, not exclusively, but primarily. So for example, when you participate in the National Retail Federation Show in New York City, they handled all the logistics. We don't have the staff to do it. And all the billings for an NRF booth space and for all the associated things that occurred and the events that occurred and the participation we had in the various panels was paid through that company. So it's a pass-through. Perhaps 50% of the overall revenues today paid to Think Traffic is on a pass-through basis. So it's a little bit misleading. Going forward and as part of our review in the first quarter of costs, we're now tapping that entity to $25,000 a month for whatever activities. So the moment we hit the $25,000, we're going to stop and we wait until the next month to secure any services we need. So that company provides a role with respect to how we engage with brands. There are a creative agency. You can imagine that a lot of what we do needs to be validating and perfecting content for deployment in stores. So that's how we utilize that company. In some cases, it's a business development effort invested in getting a pilot off the ground, for example. And in many cases, it's a flow-through where we make margin. They provide the services, we margin the services and we sell the services. Those are the 2 questions I received online. I see we now have some additional questions coming online.

Yes. One moment for our first question, please. It comes from the line of [ Christoph Sandvik ] from [indiscernible].

It was found that you just mentioned exactly the question I was thinking of. So this was one of my main question. So -- but I would like to add another question. Is it possible to like have something like a ticket or something like a better connection to the shareholder regarding installs, regarding the projects, regarding everything. I guess you seem to announce that for like the 7 focus projects, I don't know if it's security or retail. But it's -- when I see like projects, for example, or help me out recently announced with -- they have the same V letter in their name, Vericast yes, it was Vericast? When I see this social media, of course, they have lost more employees, et cetera. But there's like something going on. We have -- we reach our investors are like somehow [ burned all out ] underwater. And I don't know how you can attract new shareholders, except growing business, of course, this is your main task. But maybe it would be the two questions. How can we know or see or have some visible progress for the project? And maybe you wanted to provide that in the near future. And moreover, when you have so much like costs or expenses for media through Think Traffic, it would be easy to share this on your social media, too, in order to be like there is something going on. Here's some instance -- look at our tech here, et cetera. So this is like two questions in one part, but sorry for my long explanation. One, you already may be answered. You want to show more progress for the 7 main projects. The other thing was like why can't you play your game more on social media, but it's not that much of a half -- the question is when we like read some PRs or we check things on partners two years ago, announced, et cetera. We often see visibility may be connected, but maybe not. We don't know what's our unique setting proposition right now or text, and from the ad space. I myself, I'm from the ad space and working in this industry like for 10 years. And I'm not sure where are we really connected to or where are we key factor when some other company, of course, does not always show all parts and all partners. But where are we -- is our USP in retail and in security when partners mention us, you know what I mean. I'm from German [indiscernible], explain it even more. I'm anxious a little bit like...

No, it's fine. Better than my German. Okay Christoph, there's a lot in what you said. And I'll do my best to unpack that. So I'm a public company CEO. I guarantee you that I'm not sitting on positive information and refusing to release that to the market. That would be suicide, idiotic. Why wouldn't I release that? But here's the problem, and this is something I've done all my life. We have a unique ability and visibility to combine and collaborate with very, very large companies. That's good. The downside of that is when you talk about them without their specific consent, they get pretty grumpy and we have to be careful about how we engage in that dialogue. This is why social is such a unique gift for us because it doesn't need to go through a PR department for approval. Doesn't have to secure a quote from the customer. We're going to use social more. I'm old, and it took me a while to figure out the benefits of Social, but I do agree with you that we need to do more of that. And I'll take under advisement what you're saying. Now with respect to the specific network cadence, that's my interpretation of what you said, I'm referring now to Winkel. I can't say week-to-week, month-to-month, what Winkel's installed cadence is. I can tell you what the objectives are because those are my objectives, our objectives. But their objectives -- but their cadence is their information. It's a private company. And though we entertain the idea of taking a bigger bite of Winkel heads up, that could come. And if we can do that diligently, we will and the perfect time is now because they're just beginning to inflect that would be the time when you can get it at a value that's not so crazy. But I want to urge you to separate installation cadence from a revenue cadence, they're not the same. If I install 100 stores that have -- you're an ad guy -- of 100 stores that have no traffic, I can't sell those stores. Well, I may have met the metric on installing the store. I haven't met the metric on driving revenue. So our focus is, a lot of the shareholder focus is on installation. And that, to me, is a little puzzling because I'd rather be focused on revenue. If I have 1,000 stores that I'm selling 90% inventory on I'm doing better than 500 stores selling 25% inventory. Considerably better...

That's your point. Yes, absolutely. But like it's a little bit like, I don't want to use [ bad word, ] but it's like a little bit suspicious, always like the fog you cannot view through. So I understand that, I guess, every shareholder understands that. But maybe there are more, let's say, based on experience from the last year projection of margin and installs, what can be achieved from these products.

Right. When I mentioned them in my comments.

That's all I guess the other question would not even come up if the projections were not like far off, what expected, that's the point. That's why people sort stuff like installs or...

My commentary, I said we're going to start to time line and graph the 7 major projects. We may not give you the name of the project by corporation and ZIP code, but we'll give you the type of project it is. And we'll start to give you that. I think the marketplace needs me to dictate and specify a specific and reasonable path to profitability. And that's what -- maybe I should have learned that lesson than 3 years ago. But now I understand that to be what -- and that's the root of your comment, I believe. So thank you. I appreciate it, and we'll take it forward as an action.

One moment for our next question please. And it comes from the line of a private person, Tony Pierro.

A couple of very quick questions. First is, when do you think you bring the corner and become profitable just approximately?

Our modeling right now, Tony, suggests Q4 late or Q1 early. There are things that could accelerate that. I mentioned accretive inorganic moves, but at the moment, with our current projections, that's where we're projecting. Q4, Q1.

This is in 2024, sorry, just to be clear?

Sorry. Yes, to be clear, yes. Yes. '23 Q4, '24 Q1 can be precise.

Yes. You mentioned that some of the revenue was not recognized by the auditors in this last quarter or the fourth quarter. Will they be recognized in the first quarter?

That equipment revenue is gone forever. But that deferral of additional 1.6 from Winkel Media is to be recognized. And to tell you how much of a battle it has been. You probably have some idea, but it has been an enormous battle. And the reality is we can fight to the last dying breath and get fees traded or we can suck it up and deal with what they're telling us and move on. And there's a whole dynamic in Canada, which you may or may not be aware of around audit firms and their regulator. So something we just got it caught up in the middle of, I think.

Yes. I'm kind of surprised that the amount of loans that have been sort of written off or some -- like where you just mentioned the equipment being written off. So that's kind of a surprise. I'm a long-term investor, by the way. I really believe in what you guys are doing, but I'm just kind of scary when you write off, 1.2, I don't have the numbers in front of me, [ 1.1, 7000 ] for a small company that's looking at revenue profitability, they're big numbers to write-offs?

Which is why we fought so hard.

Yes. And when do you believe the first quarter will be released?

We're required to do it within 5 days. So it's been prepared. I know what the numbers are. The first quarter, just as a quick reminder, will be softer than expected. And the reason why it's very specifically our largest customer went bankrupt. We feel very comfortable we're recovering from that right now and back on a growth trajectory, but first quarter is sucked because Mountain Express went under. We didn't have any risk. We didn't have any capital that we lost. We had no -- it didn't cost us in the wallet. It just cost us in the growth. They had a projection of -- I can't remember precisely, but 1,100 stores in Q1, which, of course, would have been maybe $3 million in revenue in Q1 was the going-in projection.

Okay. And then really the last question. In terms of revenue, a couple of meetings ago, you mentioned that you were projecting 50% growth every quarter, 100% growth. Do you have any estimation of what your growth rate will be in terms of revenue?

I remember that. Here's my problem. When we sell indirectly my channels, Winkel, Sensormatic, AustinGIS, they give me their estimates. And from their estimates, I derive my estimates. And I've been around a while. So I don't take their estimates verbatim and then just sort pair them. I rolled them back, subject them to some level of due diligence, and that's how I create my estimates, but the industry has been wrong. The industry, and I'm part of the industry, I'm not disclaiming ownership, but that is the problem. We build our revenue based upon the projections that we get from our channels or from our major projects. So that's been wrong. But it doesn't change the end game. For example, Winkel was to have been at 5,000 stores by the end of '22, you remember. I talked about it. It's at 2,200 roughly stores, right, maybe 2,300. Well, that's because of a myriad of things, almost none of which we VSBLTY had control over. I keep saying to my team, we've been on the bridge, but we have never been at the helm. Let's be at the helm. Because that way, the commitments I make we're directly accountable for. We don't have to go to others to get them to act behavior or deliver in any kind of way. So we're going to be more circumspect about projections, [ so less from impression ].

I'm sorry, go ahead.

I believe our growth this year will be minimally in the 100% range and potentially more, but I'm going to avoid specific guidance because it is that unpredictable at the moment. When that predictability emerges and it's almost there, and it's project by project predictability as opposed to a global enterprise predictability. When that emerges, I will begin to talk about guidance. And I know that feels like a slide of hand to shareholders, but it's just ingenuous for me to do what I did before, right?

I'm definitely looking forward to more guidance, more specific guidance. And I think we all are actual -- one of the things that started me shaking when I was reading the report is -- and I don't have it right in front of me. It's either $40 million or $45 million in the whole and the auditors just said, that's a huge concern. What do you think of this $40 million that you're in the whole?

I wouldn't even characterize it that way. We've invested $40 million I would say that. I would say stack us up against the $1 billion unicorns that have emerged from tech in the last 10 years and how many of them went through 7 to 10 years without profitability. The opportunity here is a $1 billion exit because the category is emerging, and we're a leader. And it's -- there's no doubt, we're not guessing about this category anymore. We were -- we definitely were. We are not anymore. So when I believe that $45 million invested can result in a, I don't know, $0.5 million, $1 billion exit. To me, that seems like a good ROI. That just means, but that's where we're going. And we may miss on that objective. I think there's good and ample opportunity for us to hit it. I see everything lining up for us to do it. But it's a 2- to 5-year play. And I don't know that we're going to have any more -- well, any significant dollars requiring to be invested in the company other than short-term requirements. So I do believe that that's a decent ROI $45 million invested for what could turn out to be a multi-hundred million dollar exit.

Thank you. One moment for our next caller.

A quick question. Maybe I missed it. I was a little late to the party. But going forward, cash balance and financing and maybe you looked a little bit through [indiscernible] somewhat more of a partner and then kind of also alluded to maybe taking a bigger chunk of Winkel. Wonder if you can speak to any plans for that.

Anybody that reads our balance sheet sees that we have a short-term need for capital. And I'm a founder, which means I have a ton of equity. I have less equity than when we started and potentially less equity before we finish. But the reality is I'm not going to start the company of necessary capital to meet some of these objectives. So I'm going to be circumspect. We're going to be precision surgical. We won't raise more than we need. But I suspect in the next little while here, we'll have to do something to address the balance sheet requirements because -- we have AR, we have $1.5 million in current AR, but we don't feel like we're going to get that back anytime soon. Had we -- if we were to get that, it would be a different conversation. Now the good news is we've got people around us that are believing us and are in a position to have knowledge and believe in us. And we will be intelligent about accessing that capital. I need to be cryptic, but I'm sure you understand.

Yes. No, I didn't even want to ask the question pretty soon. But at the same time, I guess that [ radar USA ] payment is still pushed out to who knows when at this point?

Who knows when, I agree. I don't know.

And last question, there was some thought online people I guess, irate about potential interest that maybe percent you and other executives were given on some sort of short term loan, maybe salary deferrals. I know it was it looks like 45% to 60% interest. I guess that was like 4% a month over a period of many hours.

A couple of things. So I haven't loaned the company. I personally haven't loaned the company any money, but the entire executive team has been on paid deferrals since the beginning of the year. This is skin in the game for all of us. Not 10% pay deferral, 100% pay deferral. So that's half a year. And we do this because it's a good signal to staff because we look to staff to go through a slight reduction in payroll, so that we can adjust our brand and be more elegant and conservative with how we use our cash. So that's the one thing. The second thing is we have had insiders [ Ford ] and people close to the company, not technically "insiders" but close to the company that have loaned the company, short-term capital over multiple months. In some cases, I can think of three on top of my head, have been, they loan the money 30 days, 60 days, it was paid back, done. And we have a couple also now in actions that have the same sort of criteria. 30, 60 days. We're managing against cash flow. Think of it as our operating line or something like that. That's how we've been functioning it. Short term, 4% is only because it was short term and because people were not demanding any level of security, which we haven't granted. So that's the reason why. Could we have done it at a different number? Maybe, but that's what we do.

Yes. Great. And I think we will often forget the value that you hold in some of the private placements. Some of the private equity that you have in AustinGIS, Winkel Media, all these things that are reflected on the balance sheet and [indiscernible] the company's value. I know what the complex story that is becoming more and more clear to me and hopefully most investors, and I appreciate you taking the time to answer these questions. I'm just trying to clarify some of these questions.

I appreciate you pointing that out. It's something I like to say all the time. I'm not going to give you a specific, but one of those companies that we have an equity interest in based out of Texas is doing a Series B round now, and we are going to do very well on the Series B ramp.

Well, that's good to know. I think that is going...

I don't have the metric, and I'm not trying to tell a story, but that -- they're being banked by Santander, which is a legitimate Tier 1 bank and the numbers I've seen so far are very good for VSBLTY. Right now, we have an entry on the balance sheet about $1 million. It's at our investment level now. So that's where it sits in terms of its value on the books.

So what are some of the creative options that financing maybe without being dilutive, like maybe the -- I know there's probably a few options out there, would it make sense to maybe take a something by percentage.

Factoring, bringing in co-development funds to funnel into R&D. There's a few of them.

Great. Okay. Well, that's something that I was trying to bring up. I know there's one more thing I want to bring up, but I kind of forgot.

[Operator Instructions] All right. I don't see any questions in the queue. You can proceed with any final thoughts.

My only final thoughts are, it's been a difficult path for VSBLTY to shareholders and for me as well. but I am 100% believing our destiny and our possibilities here. I believe that there's risk. I believe that there's journey to be navigated here, for sure, but I believe in our future, and I will look forward to providing more frequent updates whatever. I guess I'm going to use social more given Christoph's comments. So I'll try to do more of that and provide more transparency as for the company's progress. Also look for some additional news in the summer months as we begin to populate and finish off some of these deals that we have underway at the moment. Thank you all for your time.

And with that, ladies and gentlemen, thank you for participating in today's conference. You may now disconnect.