Investment thesis
Vislink (NASDAQ:VISL) is a wireless telecommunication equipment company that is trying to turn around its unprofitable business. It’s valued at $145.1 million as of the time of writing.
It appears that the company has gained momentum following the announcement about the launch of a 4K HEVC Multi-Format Exciter named DVE6100. However, the recently released 2020 financial results look disappointing and I think this one is a sell. The revenues are dropping, and the margins are worsening.
Overview of the business
In its own words, Vislink is a global technology business specializing in the collection, delivery, and management of high-quality, live video and associated data from the scene of the action to the viewing screen. For the broadcast markets, the company provides solutions for the collection of live news, sports, and entertainment events.
Vislink’s offering includes wireless cameras, satellite communications, and drones, among others. It’s the official RF systems supplier for video communication for the MotoGP racing series. The events of the latter have around 400 million viewers worldwide.
(Source: Vislink)
The company has more than 2,000 systems deployed by governments, militaries, and broadcasters. On March 2, Vislink revealed that it received an order valued at over $4 million from the U.S. Department of Defense for the supply of handheld intelligence, surveillance, and reconnaissance receiver devices and accessories.
Vislink holds a total of 34 patents and it recently launched its DVE6100 encoder, which in its own words is a compact, multi-format, multi-channel 4K HEVC exciter.
(Source: Vislink)
The company claims that the device offers a 50% reduction in leased satellite bandwidth compared to MPEG-4, DVB-S2 technology.
Overall, I think that Vislink looks like a relatively small company that has built an impressive network of partnerships. It has over 30,000 customers and its sales in more than 80 countries worldwide. The firm has around 90 employees.
(Source: Vislink)
However, the fundamentals of the business look unimpressive.
Financials and valuation
Vislink released its 2020 financial results on March 31 and I think they look bad. Revenues dropped by 20.9% compared to 2019 and EBITDA for the year was negative $16 million.
(Source: Vislink)
The company claims that proactive spending cuts across the business have allowed it to achieve savings of around $5 million. However, I have serious doubts about the size of these savings considering the margins have deteriorated and the loss from operations is larger compared to 2019. Even if you take into account impairment costs, revenues are decreasing faster than the expenses for components and personnel plus G&A expenses. Vislink isn’t even close to being profitable.
Looking at the balance sheet, you can see that the company has an asset-light business model. Cash, accounts receivable, and inventories account for the majority of assets. At least Vislink is almost debt-free and its working capital position is positive.
However, the company has an accumulated deficit of over $270 million and its shareholders' equity stood at less than $10 million as of December. This is a serious red flag that points to an unsustainable business model.
(Source: Vislink)
Note that the balance sheet should look in a much better position at the moment following a $50 million stock offering.
The operation caused significant stock dilution, with 18.2 million new shares as well as warrants which could result in the issuance of up to 9.1 million shares. According to data from Nasdaq, Vislink has 45.6 million shares and a market capitalization of $145.1 million as of the time of writing.
From a fundamentals point of view, I think Vislink is in dire straits and the DVE6100 encoder is unlikely to help it turn around its business.
Let’s turn our attention to the share price action. Notice that the share price, as well as the trading volume, started rising at the start of January. The increase became stronger shortly after the launch of the DVE6100 encoder and continued for a while despite the $50 million stock offering.
(Source: TradingView)
According to InvestorPlace, Vislink is among the companies that are currently popular with retail investors on Reddit. On YouTube, the company is being promoted by several channels including Logan Kohn, Napolean Macro, Student Trader, Invest With Crents, True Trading Group, and ClayTrader Video Charts. Note that Vislink isn't promoting the business itself, but this is done by a significant number of retail investors and traders.
However, I doubt retail investor interest is high enough to move the share price by a significant amount. The posts about Vislink on Reddit aren’t receiving much attention at the moment and the company’s own subreddit has just 193 members as of the time of writing. None of the videos on YouTube uploaded over the past month has over 500 views.
Some people on Reddit are claiming that short interest is high and that there’s a short squeeze, examples here and here. However, I doubt this is the case as short interest currently takes just a day to cover.
(Source: Nasdaq)
Investor takeaway
Vislink is trying to turn around its business and it claims it has made significant progress on cutting costs. However, revenues are decreasing and margins are deteriorating.
It seems that the company’s valuation has increased over the past few months on optimism about new orders and products. It’s unlikely that the reason behind the higher market capitalization is retail investor interest or a short squeeze.
Overall, I think that the business of Vislink isn't worth much in its current state and that the company is a sell. Investors can take advantage of this by shorting the shares. According to data from Fintel, the short borrow fee rate stands at 19.56% as of the time of writing.
The only major risk that I see for the bear thesis is that I could be underestimating the market potential of the DVE6100 encoder.
