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

Good day, and thank you for standing by. Welcome to the VSBLTY Second Quarter 2023 Earnings Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, 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 quarter ended June 30, 2023. 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 with 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 Relations section of our website, www.vsblty.net and posted on SEDAR. I will now turn the call to President and CEO, Jay Hutton.

Thank you, Jonathan, and thank you to everyone that's taken the time today to dial in and listen to our review of the quarter. We're going to do something a little bit different this time around. Today, I've asked 2 of my colleagues to join me to help with the commentary around the company's quarter-end projections. The first has been with me really since the journey has begun. She's Linda Rosanio and she's a co-founder of the company. She's a long-term professional ad agency person, had run the largest woman-owned ad agency in the U.S.A. for more than 25 years. I've learned a great deal from Linda through the years, and she'll provide a little bit of insight regarding the important narrowing of focus that is underway here at VSBLTY. In addition, also joining me a new to the journey of VSBLTY is Luiz Barros. Luiz is the new Executive Chairman of VSBLTY. Luiz' varied but impressive background, having exited 2 companies in the marketing space and moving on to C-Suite roles with Unilever and most recently AB InBev. Luiz will share more about his background in his commentary in a moment or two. He's an expert in media and the way retail will consume and monetize both data and advertising in the future. Luiz will discuss initiatives that he is leading in the organization, and will provide some color regarding the unique opportunities that we're pursuing. First, however, I'd like to start with the numbers. VSBLTY investors are anxious to see the quarters start to produce meaningful revenue quarter-over-quarter -- see -- the company, excuse me, start to produce meaningful revenue quarter-over-quarter. In some ways, this is a little inconsistent with the state of the market we are addressing. We have a disruptive value proposition for sure, one that is supported by our unique and leading technical solution in the marketplace. We've been ahead of the market and now the market is finally starting to catch up. Our revenue for the second quarter of '23 was USD 0.1 million, USD 100,000, which is a 400% increase over Q2 of 2022. Year-to-date revenues were $178,000, which is slightly lower than 2022's first half of $1.2 million -- sorry, which is significantly lower than 2022's 1st half of $1.2 million. The first half reduction was primarily due to a reduction of equipment sales included in the first quarter of 2022. These were from Winkel Media approximately $600,000, which is no longer recognized under IFRS 15 and Wireless Guardian approximately $150,000, which customer went bankrupt later in the year, that customer is Mountain Express Oil. Even though the company does not recognize Winkel revenue under IFRS 15, the company is building assets and will be able to recognize this revenue as we are paid, which we expect to begin seeing in the fourth quarter of 2023. A good chunk of our revenue is deferred pursuant to the [indiscernible] recommendation under IFRS. It will be slow at first when this revenue begins to come in, but then will increase significantly as Winkel turns the corner to profitability, which is projected by the end of the year or the first part of 2024. As of June 30, the company had $1.5 million in off-balance sheet receivables, which we strongly believe will eventually recover. They sit in a deferred status at the moment. Additionally, the company will have recognized $125,000 in Winkel-related Software-as-a-Service revenue without accounting under IFRS 15. The growth of stores to well over 2,000 and the increase in potential media revenue as a result of a larger base bodes well for the future. The company reported an operating loss in the second quarter of $2.3 million compared to an operating loss of $2.1 million in the same quarter of the prior year. The increased operating loss resulted from the gain on recovery inventory impairment last year, not being in this year's figures. Last year's recovery on inventory impairment was triggered by the sale of Winkel-related inventory to AustinGIS. We have taken significant steps to improve profitability and sales growth since our pivot from the loss of the large C-store deployment earlier this year due to customer bankruptcy. Among these steps are the reduction of our monthly cash burn by 29% by third and fourth quarter of this year and the prioritization and laser focus on just 7 key customer projects that specifically and directly drive revenue in the near future. Most of these projects are retail media related with similar execution requirements that match our core competency -- competencies. But 2 of these projects have to do with our continuing developments in Smart City infrastructure. These deals, the Smart City infrastructure deals, tend to be larger and do not have the slow ramp-up time that is characteristic of the retail media projects we engage in. Based upon our current projections, our combination of cost reduction and increased focus on our major projects should drive us to profitability within the next 6 months. I will close my comments by saying that we're hitting the reset in a couple of important ways. Luiz will dive into this in greater detail, but I want to comment on 2 of the critical lessons learned from our Winkel investment. Number one, while we are proud of our unique world-leading content management in computer vision software, the real headline as we build out retail media networks ourselves with our client partners is the media revenue. Software-as-a-Service is great, and we have perhaps an 18-month lead on our computer vision product compared to our competitors. For the small store segment of the market, by the way, 70% of the global retail counters is small retail. So the real and enduring win is the media revenue. And that's a really important and perhaps a message we haven't delivered before. Whenever and wherever we can own or co-own the actual media, we're going to do that. Number two, it takes longer than we estimated to ramp up and increase the revenue. It's a new category. It's heavily education-focused and selling is hand-to-hand combat. Winkel is predictably growing its revenue -- is now predictably growing its revenues month-over-month. We waited some time for that to happen. We've been battle-tested. The product is scaled and it is performing in a very difficult market. We feel we are ready to meet the challenges of emerging retail media networks here at home and in other greenfield locations. When we deploy in new markets, expect us to create strong alliances with media companies already active in the region as opposed to building our own like Winkel. Winkel was a wonderful and important joint venture, an enduring joint venture that we're going to expand elsewhere. But where we have an opportunity, we will align with a local and pervasive media company in the region. This will shorten our time to revenue and allow us to ramp much faster. So in closing, the primary takeaway is that wherever we can and as intelligently as we can, we will own the glass. By that, I mean the network itself, grocery, convenience, big box, whatever, they all have great media value. And if we do our due diligence carefully and correctly and accretively, we will add the reward of media on the growth side, the value side and on the revenue side. This is the logic behind the Shelf Nine acquisition announced a couple of weeks ago. We will do more of that kind of activity. Media is as profitable as software since it has modest cost of goods and is like software recurring. I'm now going to hand the floor over to Luiz Barros, Executive Chairman. Well, I have Luiz' comments, I suppose I could read them on his behalf, but instead of going there, we'll flip over to Linda. Linda has some additional commentary that she was going to provide. Linda?

Sure. Good morning. I'm happy to be invited here today to share additional insight into 7 key projects that VSBLTY is determined to be critical to our short-term path to profitability. There have been some really meaningful learnings for us from being so intimately involved in the evolution of the in-store digital media networks. Media and consumer packaged goods marketing for 30-plus years [ married ] to my 8 years with VSBLTY now has given me a unique advantage to see the driving force that our technology will be as this business sector explodes globally as we're seeing in the market now. Our first and most critical project, which you can guess is Winkel Media, and it has set the stage for what we know is a core model for the monetization of in-store media networks in the hardest Class of Trade to execute, the traditional trade of Bodega stores throughout Latin America. Our daily focus now is to continue to grow the network, but at the same time, push to achieve 60% advertising fill rates or more in each store. We are profitable once we pass the low 20s. We're making great progress here, and that has spurred expansion activity in another [indiscernible] global market in Brazil. Our second most critical project is a pilot that we have just installed in Sao Paulo, Brazil with 2 powerhouse partners, one that dominates the digital out-of-home market, as Jay referenced, is finding these type of powerhouse partners. They have 70,000 active screens throughout the country and a second partner who is the sister company to our JV partner, AB InBev. Our goal is to begin deploying 5,000 to 10,000 stores beginning in Q1 '24 in both traditional and modern trade, so small Bodega stores as well as supermarkets and traditional C-stores like 7-Eleven or Oxxo. This pilot was executed flawlessly on the install based on our collective past learnings. We are exactly on track as of today, September 1, which was our milestone goal to start testing against KPIs that we need to finalize in order to activate the rollout plan for Q1. That's like actually was like kind of moving the Queen Mary, but it was amazing that we got this done in like 6 weeks or so. This shift to having a strong SME partner in the digital out-of-home space is a major accelerator for us. We will not need the long lead times to ramp up both in terms of installs as well as sales. In Project 3 in the Middle East, we will follow the exact same strategy. We are finalizing our agreement along with our local partner there to have the largest digital out-of-the-home company, again, partnered with us to jump-start the network. We are already in discussions with 2 large supermarket chains and one large C-store chain, which projected together will create a media network of 1,800-plus screens at the minimum. We expect the first pilot in Saudi Arabia to be installed within the next month. In the U.S., another significant project is also underway and is focused on the top 20 media markets over the next 2 years or so. Our recently announced acquisition of Shelf Nine, a strategic fit as a smart shopper marketing, brand [ fab ] and media company that has 4,500 screen is leading the way to scale in markets where we have critical mass to build on, markets like New York, Philadelphia, Dallas, Houston, among others. Our goal is to combine both C-store and supermarket stores to achieve 250 to 1,000 stores in each market with 2 to 8 or more screens per store. Shelf Nine is an approved partner of Wakefern ShopRite, which is a really important chain in the Northeast, and we have that business in common right now. So together, we can grow based on the track record we both have with them. Another 2 projects are focused on brand-driven partnerships that take advantage of a particular screen type that we have been successful in validating 25% to 35% sales lift and in some cases, much more. These include our cutting-edge core technology that we have been co-developing as a 50% partner. In some cases, our core products have achieved far greater sales increases for the top global beverage brand. We expect to have these brands continue to be anchor tenants in our various media networks. We also look to leverage our relationship with our joint venture partner, AB InBev to lock in contracts with brands like Budweiser and others among their 200-plus portfolio. This week, we announced an important pilot that utilizes another unique screen, a Lenovo touch tablet, that allows us to engage one-on-one with customers and measure the actual individual sessions. This use case is particularly important to healthcare and pharma brands, and we're really excited to leverage a 5-year relationship with H-Ventures in Milan, Italy to scale a network that they already control. They manage 9,000 local neighborhood pharmacies and also control the trade and media dollars that are spent in these stores by their brand clients. It's important to note that many of the partnerships and subsequent tests that we have developed all over the globe in retail have tremendous synergy when you see how they come together in a retail media network monetization opportunity. In closing, I want to quickly mention #7. It's by far the most meaningful as it has the potential to save thousands of lives. This week, we deployed Phase 1 of our Secure -- our school safety campaign. Along with our security partners, Radar app, Radar USA and most recently 911 [indiscernible], we started a campaign that features great school kids asking where the technology is that could help keep them safe in a mass shooting. We answer with a turnkey solution that provides a computer vision -- our computer vision capabilities to see people and weapons that pose a threat at the perimeter of the schools, houses of worship and other public buildings. The full solution allows us to lock down the building in an instant and provide real-time alerts and intelligence to 911 local police and security personnel to assist in apprehending the shooter. And with that, I'd like to turn back the discussion to our CEO, Jay Hutton.

Thank you, Linda. And I think that even though this was not a trajectory, we're going to -- just like when you sometimes read the second chapter before the first chapter, we're going to go back to Luiz because I think we've solved the technical difficulties. And Luiz, you have some commentary, please?

Yes. Can you hear me now?

Good. Thank you.

Thank you, Jay and Linda. For those who don't know me yet, I'm Luiz Felipe Barros. I joined VSBLTY Board on Q4 of 2022 after I left AB InBev, where I was the Global Senior Vice President of Data, Analytics, Media & Digital Products. In 2023, Q2, I was elevated my current role of VSBLTY to support Jay and the management team on our growth, data and go-to-market strategies as well as on how our design and operating model [ should go ] to address the evolution of our vision business. I'm also a board member of a couple of other companies, such as Eletromidia. Eletromidia is the largest digital [ order ] company in Latin America, the only public and listed media company in the region and has the fifth largest digital screen footprint in the world with more than 70,000 screens. Now what really matters, I'm here to share what we've been deploying to deliver our path to profitability [indiscernible]. There's no rocket science when I say that the way to get there needs 2 things. The first one is to accelerate top line. The fundamental keeps the success of any business. The second one is [indiscernible] our bottom line under diligent control focusing on what matters to keep our differentiation and deliver solid operational excellence with efficiency. Starting by the top line. As an AI-SaaS company, we have long sales cycles that require a lot of work to close multimillion-dollar projects for our clients. They require technical valuation, technology integration with our client systems and partners that can only be delivered, thanks to the experienced team of R&D specialists that we have at VSBLTY. Linda shared with you some of the exciting initiatives we are focused at but to ensure that we can have a predictable recurrent revenue on top of those projects, we decided to expand on our successful experience in retail media landscape with the joint venture with AB InBev [indiscernible] Latin America. The [ retail media ] space is not a trend anymore. It's a reality. It's more -- it's very profitable to retailers and delivers strong [ incrementality ] for advertisers. This is a market that will reach $55 billion in 2024 in the U.S. alone, and it has a pace to be the larger than social media advertise in the next couple of years. Homes like Amazon already have more than 7% of the total revenue coming from retail media and Walmart went from $300 million in 2020 to over $2.6 billion last year with retail media alone. While the digital retail media landscape is becoming very crowded with great players competing for advertising, media and e-commerce budget, the physical retail media is still under development. It's a unique opportunity since in the U.S. alone over 80% of retail sales still happens on physical trade, while in Latin America physical retail sales still around 90%. VSBLTY has an undisputed advantage to lead this industry, thanks to our disruptive AI-based computer vision technology. Physical retail media is not only about having screens on the point of sale. This exists for years already. Physical retail media [ means ] advanced technology and analytics as the one that pioneers visibility to deliver personalized message to consumers on the last [ month of truth ] before purchase of a product. It's also required that advertisers and agencies that provide with analytical intelligence that allows them to understand consumer behavior in the point of sale, shelf space optimization and much more. What VSBLTY's technology does for retail media is what digital [ bids ] for advertising and revolutionized the industry in the last 20 years. As I shared before, we are on final stages to acquire Shelf Nine, a physical retail media network with over [ 4,500 ] screens in the U.S. We are also evolving negotiations on our JV in Latin America to be able to consolidate the revenue into our balance sheet in the nearby future. This effort will start to reflect on our numbers mid-Q3 and fully in Q4. Together with this effort, we are currently running a pilot in Brazil in partnership with 2 market leaders, AB InBev in CPG and Eletromidia in digital out-of-home to aggressively expand our footprint in Latin America in the largest market of the region. Our technology is a must have to make physical media and this evolution of our strategy will be predictability and sustainable recurring revenue to VSBLTY, as [indiscernible] already has short sales cycles and recurring demand from advertisers and agencies. This will support our strategy to expedite the growth of our business and top line while our AI SaaS initiatives shared by Linda will deliver substantial incremental revenue and margins [indiscernible] plan is the priority, as I mentioned, is also pre-bottom line check to get profitability. This is the second element on our path to profitability. And more than that, this evolution on our strategy requires the appropriate infrastructure and partners. Over the last few months, we fully reviewed our team's infrastructure and costs. We are reorganizing the company to ensure accountability and ownership of both retail media business and security operations. We will spend the next few weeks after this call in [ VSBLTY's ] new structure with our shareholders, but I can anticipate some key changes. First, we will organize the company under 2 business units that will have full accountability for sales results and channel expansion. The first view will be focused on retail media and the second one on security initiatives. Both of those things will have specific targets and their compensation model will evolve to be more performance-based. To support those two business units and ensure operational efficiency, they will be supported by [ common ] functions across the company. Those functions are client services, operations and finance. We also spend a lot of time reviewing all our vendors line by line to optimize the return of investments and keep costs in check with our current [ moment ] and extension plans. This effort to reduce our cash burning 30% with partial impact already in August and September and full impact in [indiscernible] October. The combination of these 2 efforts accelerates top line growth with recurring revenue and deploy tight control of bottom line will help us on our path to profitability expected to deliver in the next couple of quarters.

Thank you, Luiz. In my closing comments, it would be remiss of me not to directly acknowledge how broadly challenging it has been for the organization for the last several quarters for sure and the demand we're making on the patience of the shareholders. I think the process that we've gone through in the last 60 to 90 days with the incredible direct assistance of Luiz Barros in helping us fortify our goals and objectives help us decrease our costs and deliver a really resolute focus on the 6 or 7 projects which are clearly directly impacting revenue. We are going to be a company that is going to emerge out of this stronger and more capable. We are an absolute pioneer in the category. We have a disruptive proposition in a marketplace that's clearly inflecting. We haven't lost our lead. We haven't lost our clear direction in terms of the goal that we're focused on. And frankly, we have among the most capable and iconic partners on the planet at the moment. And you're seeing that, especially with the Brazil initiative beginning to pay manifest benefit outside of the Middle America zone, which is where we planted our first trees. With that, I will turn it back over to you, Josh, for Q&A.

[Operator Instructions] Our first question comes from Chris [ Ondeck ] with [indiscernible].

This is Chris. I have some questions. And one of the question would be how much money do we have left now? So you managed to reduce the cost. I'm not sure if it is like you wanted 20% less than year-over-year, I'm not sure what's correct amount. But how long will the money last currently?

Well, you know, I think, Chris, that we did a roughly CAD 4.1 million raise in the summertime. And so we -- our anticipated runway on that is to get us to the profitability point. Now there may be some necessary need to seek additional capital. If that is the case, we'll do so intelligently, but we're not at this moment looking at that. The acquisitions that have been mentioned in this phone call are being done without the need for cash accretive and with specific connection to performance-based first year, second year, third year. The value of that acquisition has been stated is roughly USD 4.4 million, and it will be achieved based upon the projections and earn-outs achieved by the entity that's being acquired.

So when you say profitability can be achieved in 2 quarters, which project of the 7 projects in different categories will be like the most important one?

Well, I guess the one that's likely to generate the most revenue for us as an organization. It doesn't take -- it's not difficult to determine that the biggest opportunity for us is Winkel media. But very quickly is this Brazil operation, which we're not really able to go into detail yet, but the projections for that operation are significant. Based upon the performance within the trial, which is just launched today, as you heard from Linda, if it achieves the key performance indicators that it's expected to achieve, it will be -- it will grow faster and be larger than Mexico or Middle America, the collected nations in the middle part of the Americas, it will be bigger, faster. So really, that's 1 and 1a.

[Operator Instructions] And I'm not showing any further questions at this time. I'd now like to turn the call back over to Jay Hutton for any closing remarks.

Thank you, and thank you all for attending once again. My closing remarks would be we feel we have a renewed sense of purpose, and we've got a much leaner organization that is more focused on the objectives of getting profitable as soon as possible. And we feel like we have a team that is capable of doing that. We've not lost any passion or commitment to the project or goals or objectives of the organization, and we feel even more renewed given the confidence that has been shown in us by our partners. Some of them are big partners and very capable of going elsewhere for their services and solutions, and they've elected to align with us in a meaningful way. As a last parting comment, look for that alignment to be more significantly obvious in the next several weeks as we look to do some strategic things with a couple of our key customers, not just on the deployment of retail media networks, but broadening our capabilities with computer vision to include other use cases and capabilities. And we'll do that collaboratively with some of our key and sizable partners. Thank you all for attending.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.