Haivision Systems Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 17, 2024

There are 6 speakers on the call.

Operator

And welcome to the HyVision 4th Quarter and Fiscal Year 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I will now turn the conference over to Mirko Wicca, Chairman, CEO and President. Please go ahead.

Speaker 1

Thank you, Valerie, and good afternoon, everyone. I'd like to thank everybody for joining us today to discuss our 4th quarter results And the full fiscal year 2023 results, which ended back in October 31 last year. As demonstrated by the results we announced earlier today, demand for our products continues to be strong and our business fundamentals Have never been better. We achieved a strong Q4 revenue of $35,700,000 as we continue to deliver top line growth. Now this, let's not forget, is inclusive of the revenue reduction we took because of exiting the House of Worship vertical.

Speaker 1

And as a reminder, from our previous quarter earnings call, we've pulled in a $2,500,000 U. S. Government programmatic deal from Q4 Into Q3, given those two events delivering $35,700,000 in Q4 was a pretty good performance. Our gross margins for Q4 also extremely strong at 74.4%, and Dan will talk more about that And last year's Q4 level of 68%. There's also the Q1 showing Our operational performance potential since the last two acquisitions.

Speaker 1

We delivered an adjusted EBITDA of $5,700,000 for Q4, which represents a $16,900,000 operating margin, which is important. And this is compared to last year's Q4 adjusted EBITDA 4,900,000 or 13% operating margins. Now on an annualized basis, I'm happy to report we achieved a record annual revenue of approximately $140,000,000 which represents an 11.3% growth over the previous year. And again, this is inclusive of the revenue reduction of the House of Worship vertical that we have now completely exited from. Now if we normalize for the reduction of the household worship revenue, our growth was actually 16.1% year over year, so pretty, pretty good.

Speaker 1

As a result, our adjusted EBITDA margins for the full year grew to 10.6% From 6.4% in the previous year. It should be noted that we still had several quarters in 2023 that included costs in our P and L that will not appear in 2024. It really shows that we have turned the corner of our acquisition synergies And are demonstrating our potential as possible. I'd like to finally say for the full year 2023, our adjusted EBITDA was $14,800,000 representing an increase of 83% from last year's performance, again demonstrating what we have been saying all along that we will show a much higher increase in our profitability going forward We expect this trend to continue for 2024. As we have been saying over and over and over, We are moving quickly toward achieving our goal of delivering 20% EBITDA performance.

Speaker 1

I would think that given our previous Q3, Now our Q4 performance, everyone should have more comfort that this is going to happen sooner than later. On 2023, we have also seen a more balanced and consistent quarterly performance. In fact, Remember, Q1 we did $34,000,000 Q2 did $35,000,000 Q3 we did $35,000,000 Q4 we delivered $35,700,000 Pretty consistent. I expect this to continue into 2024. And we are still finding that our Three main verticals, defense, broadcast and enterprise, balance each other globally and give us better business predictability.

Speaker 1

We've also seen the U. S. Government slowly moving through the multi quarter purchasing cycles and not only depending on the year end September, October time frame, which always falls in our Q4. The only unknown is, of course, the U. S.

Speaker 1

Budget approval, the continuing resolution process, All bundled in with an unpredictable election year. But we'll be monitoring these very closely, although an election year It's typically always been very positive for business. Now we have also been very successful in our SRT partnership I've seen an increase in the industry standardization around the SRT protocol, the open sourced almost 7 years ago. And a great example was when HiVision hosted the Agile SRT Interop Hubset with a new entrant, YouTube, We executed 2,257 individual devices of that compatibility test, really proving widespread industry adoption,

Speaker 2

Something to be

Speaker 1

very, very proud of. We continue to see strong demand for our global security operational centers Within the global financial and banking industry, cybersecurity, police centers, federal installations, public safety and all the defense sectors, Now the need to have real time mission critical and secure access to all the video sources and assets for real time analysis Our situational awareness is becoming even more paramount. And we are clearly the leading vendor delivering the entire Contribution, distribution and reservation ecosystem in these critical areas. We believe that our company has a bright future ahead We are committed to maximizing long term value for all customers. We are confident in our ability to execute on our strategic plan and deliver continued growth and operational performance.

Speaker 1

Finally, I'd like to say we are also excited to announce The TSX approval or NCIB, a normal course issuer bid, and we clearly believe our common shares are undervalued even with the recent 30% run up. Our decision to initiate I would like to say in closing that despite the economic headwinds and continued supply We expect our 2024 to be strong and consistent with our strategic plan, expecting to demonstrate good revenue growth with even a higher level of profitability than in 2023. And Dan will share our 24 projections and guidance during his remarks. With this, I'll pass it on to Dan. Please go on.

Speaker 3

Thank you, Mirko. Let's get into the numbers. As Mirko said, revenue for this 4th quarter just completed was 35,700,000 A modest decrease of the $2,200,000 from the prior year, but there is more to the story. You might recall that the prior year's 4th quarter, At our fiscal 2022 Q4, revenue was $37,900,000 which in turn was a 40% increase from the prior year, our Q4 in fiscal 2021. We never anticipated to see tremendous growth over last year's performance.

Speaker 3

The last time we met, we also discussed that we brought in a $2,500,000 programmatic opportunity that was staged for our Q4 into our Q3. Of course, that transaction would be at the expense of this Q4. And as Mirko kind of alluded to, we did exit The House of Worship market in April 2023. Last year, we had realized $2,200,000 in cloud revenues This is only $200,000 in this Q4. Revenues from maintenance and support, The nature of which is recurring revenue continues to be a shining spot having grown almost 30% in the quarter.

Speaker 3

All in all, we are very pleased with the level of revenue in this latest quarter. Revenue for the full year just ended With $139,900,000 an increase of $14,200,000 or 11.3 percent from the prior year. Note that fiscal year 2023 results included AbbVie West performance for the entire year, whereas in the prior year AbbVie West was only included 7 months. On the other hand, fiscal year 2023 performance was also impacted by our decision to exit in the House of Worship markets in April of 2023. Said another way, cloud solution revenues declined by 4,700,000 when compared to the prior year.

Speaker 3

The point that I'm trying to make is that we saw organic growth from all our properties in fiscal 2023. Recurring revenue, which we define as our cloud solutions and maintenance and support, With $6,700,000 or 19 percent of total revenue in this recent 4th quarter and with $28,000,000 or 20 percent of total fiscal 2023 revenue. We anticipated that our recurring revenue would decrease once we exited And as I kind of mentioned, our maintenance and support revenue grew almost 30% for the year, faster than our overall revenue. For this recent Q4, gross margins were 74.4% compared to 68% in the prior year comparative period. That represents a 640 basis point improvement from the prior year comparable period.

Speaker 3

Also note that this quarter's gross margins were yet another improvement From the 71.9 percent realized just last quarter, that was our Q3 of this fiscal year, And that same Q3 of this fiscal year represented an increase from the 68.9% realized in our Q2 of this fiscal year. Just to complete the thought, that same second quarter gross margin represent an increase from the 66.6% realized The quarter before that, our Q1 this fiscal year. We have discussed gross margin expansion in previous calls, But to put an exclamation point on the matter, margin expansion resulted from firstly, our exit from the House of Worship business As the vertical was a below the average performer in terms of gross margins. We believe that initiative In and of itself resulted in approximately a 200 basis point improvement in margins each quarter since our exit in April 2023. Secondly, our supply chains are reverting to more typical delivery schedules and more typical pricing.

Speaker 3

In this quarter that's just ended, as an example, the additional cost for these difficult to procure components With RADA de minimis, well under $100,000 And on a year to date basis, the additional cost for this componentry was approximately 950,000 Or representing about 100 basis points in our cost of goods sold. The good news is that that extra costs incurred in fiscal 2020 3, we're approximately half of the costs that we incurred in fiscal year 2022, a year in which The gross margins were being impacted by almost 200 basis points. We do expect these extra expenses to continue to dissipate with the impact To this fiscal year's results being approximately

Speaker 2

half

Speaker 3

of the expense incurred in fiscal 2023. Lastly, we have completed our migrations of ERP systems at both MCS And Avi West, so our supply chain folks have more visibility to inventory levels, manufacturing forecast And purchasing methodologies at both MCS and Avi West. This represents a bit of a greenfield opportunity for further improvements. With that said and as has been suggested on past calls, Our 4th quarters are commensurate with the U. S.

Speaker 3

Government year end and we are typically the beneficiary of higher defense spending. This quarter just completed is no exception. Thus the quarter's mix of revenues included a higher percentage of legacy products, which historically operate at a higher overall product margin. Although we do have opportunities for additional improvements in gross margins, Particularly related to the amount of difficult to procure inventory consumed in fiscal 2024 and added visibility and control of supply chains, It's the mix of revenues in the next few quarters that may change our gross margin composure. The result of it is that we may see gross margins in the near term and or mid term reflect the fact that a higher proportion of our revenues are coming from AviWest products and MCS products than we had just incurred in our Q4.

Speaker 3

These gross margin improvements are real and we should realize the benefits of fiscal year 2024 and beyond. Any variances are likely going to be related more to mix. Total expenses for this Q4, excuse me, were $22,900,000 $22,900,000 that's a decrease of $3,200,000 when compared to the prior year comparative period. Even more noteworthy that the quarter just ended included certain performance based compensation expenses that were not incurred in the prior fiscal year and may not happen in 2024. Much of the decrease in total expenses is related to the restructuring costs of $2,300,000 that were incurred in the Q4 of our prior year.

Speaker 3

However, we have essentially completed the restructuring exercise that was initiated in that Q4 fiscal 2022 and completed in the Q3 of fiscal 2023. At the end of this last quarter, we had 359 employees compared to 3.93 employees at the same time the prior year. Also note that year end headcount was down from the 374 employees At the end of our previous quarter, that's our Q3. What is really exciting about our 4th quarter Performance is that most of the noise related to restructurings and acquisitions is behind us. And this recent Q4 provides a sense Of the earnings potential of the business and there may be opportunities for additional OpEx savings in the Q1 of 2024.

Speaker 3

For the fiscal year, total expenses were 97,400,000 That's an increase of $5,800,000 when compared to the prior year. Again, year over year comparisons are still impacted by the Timing of the Abby West transaction. The Abby West transaction was consummated in April of 2022, which implies that Abby West's cost structure Was only represented for 7 months in fiscal 2022 versus 12 months in the year just ended. But if we were to focus on the $5,800,000 increase year over year, Compensation related expenses added approximately $3,800,000 much of which can be attributed To the 5 additional months of compensation paid based on the timing of the Abby West acquisition. Remember, the acquisition added approximately 80 people to our organization in April 2022.

Speaker 3

Depreciation and amortization expenses increased by 1,400,000 Again, largely the result of the timing of the AviWest acquisition. Travel expenses added an incremental $1,500,000 partly related to the timing of the AviWest acquisition, but more related to the growth in MCS that we are seeing. And then of course, the Canadian dollar exchange rate impact on the U. S. Dollar denominated assets and liabilities added an incremental $1,500,000 to total On the other hand, We did successfully reduce our use of independent contractors for our R and D initiatives by about 1,500,000 Which was really part of our restructuring initiatives and restructuring costs in fiscal 2023 were $800,000 less Then the fiscal year just completed I'm sorry, dollars 800,000 less in this fiscal year just completed when we compare it to the prior fiscal year.

Speaker 3

The results of the better gross margins and a decrease in OpEx was an adjusted EBITDA for the quarter of $5,700,000 That's an increase of $800,000 or 15% when compared to the prior year comparative period. By now, I think we can all agree that we've been conveying our perspective that that Q3 would be a turning point for HiVision. And the adjusted EBITDA margin for the quarter just completed was 15.9%. This adjusted EBITDA margin compares quite positively to the 12.4% in the prior quarter, that's our Q3 of fiscal 2023, and compares positively to the 7.5% in the quarter prior to that, our Q2 of fiscal 2023. We have made slow and steady progress to reach our goal of 20% adjusted EBITDA margin and I believe now you are beginning to see the full benefits Of the restructuring plan, we still have additional opportunities to increase adjusted EBITDA margins.

Speaker 3

We may continue to see modest increases in gross margins as we absorb the remaining higher cost componentry And we apply our supply chain tools to Avi Us and MCS since they are now on a common platform. We should also see additional decreases in compensation expense in the near term as we will likely not have the same outsized obligations related to performance based compensation that we had in 2023. Although our 4th quarter has been traditionally our largest quarter and as such our most profitable quarter, That seasonality pattern is less true as the Department of Defense and the U. S. Government is tending to buy our gear more ratably throughout the year.

Speaker 3

Further, MCS and Abby West seasonality seems to mitigate The 4th quarter seasonality of our legacy business. But despite all of that, we still believe that our 4th Quarter performance is a true indicator of the earning potential of the business. Adjusted EBITDA for the full year was $14,800,000 an increase of $6,700,000 or 83 percent when compared to the prior year. Yes. Adjusted EBITDA margin for this full year was 10.6% compared to only 6.4% for the prior year comparable period.

Speaker 3

I should mention that we also saw significant improvement in the net income for the quarter. The net income this quarter was $2,500,000 compared to a net loss of $1,100,000 to the same time last year. That represents a $3,600,000 improvement. So quickly, the improved gross margins were more than able to offset The modest revenue differences year over year generating incremental gross profit of $800,000 And that incremental gross profit was further benefited by $3,200,000 decrease in total expenses. On the other hand, income tax cost us an incremental $500,000 For the full fiscal 2023, Our net loss was only $500,000 compared to a net loss of $6,300,000 for the prior year.

Speaker 3

This $5,800,000 improvement is largely related to the $14,200,000 incremental revenues and improved gross margins That resulted in incremental gross profit of $10,300,000 Now this incremental gross profit was offset by Increases in expenses of $5,800,000 and increases in income tax by 900,000 Overall, pretty good performance. With respect to the balance sheet, we ended the quarter with a cash balance of $8,300,000 A modest increase of $800,000 from the prior quarter end. However, we also ended the quarter with only $4,700,000 outstanding on the credit facility. That's also a reduction of $900,000 from the prior quarter end, but it's a $6,500,000 reduction from the beginning of this fiscal year. Total assets at year end were $144,100,000 That's a decrease of $4,500,000 from the prior year end.

Speaker 3

But this decrease in assets can be attributed to A $4,200,000 reduction in intangible assets. Now just on the side, we amortized $6,800,000 in intangibles during the year, But the impact of the amortization was offset by exchange rate impacts on those same assets. We also Increased inventory levels by $2,100,000 Again, that was an initiative that we spoke about in the past and has been a focus much of the year. We reduced right of use assets by $1,500,000 and there was a modest reduction in trade and other receivables. Now these decreases were offset by the $2,500,000 increase in our cash balance this fiscal year and $1,500,000 or $1,600,000 increase in tax Credits receivable.

Speaker 3

The story on the liability side is even more compelling. Total liabilities at quarter end We're $49,900,000 That's a decrease of $8,400,000 from the end of fiscal 2022. This decrease in liabilities during the year include $6,500,000 decrease in the line of credits, $1,800,000 decrease in the purchase price payable related to the Abbey West transaction, $1,400,000 decrease in restructuring costs payable, dollars 1,400,000 decrease in lease liabilities And $900,000 decrease in term loans. These five items themselves represent a reduction of liabilities by $12,000,000 Now these decreases were offset by $3,300,000 increase in deferred revenue. This 30% increase in total deferred revenues is commensurate with the approximate 30% growth in our maintenance and support revenues that we spoke about before.

Speaker 3

So with respect to the remaining integration plans for AviWest, We have completed the move to Avi West to a common accounting system. We completed Avi West move to a common ERP system. And with this enhanced visibility of Avi West inventory, we hope to increase the flexibility of Avi West supply chain And reduce product costs to increase gross margins. Our focus in the near term is to sell more Avi U. S.

Speaker 3

Products in North America, And we're well on our way. At High Vision MCS, progress has accelerated. We have fully integrated development teams. We have fully integrated production capabilities and we have migrated MCS' Our ERP system and accounting system to common platforms. Our focus in the near term is to sell more MCS products internationally.

Speaker 3

In terms of expectations for fiscal 2024, First of all, our revenue guidance for the full year factors in our exit from the House of Worship vertical in April 2023. We are projecting revenues for this fiscal year to be between $145,000,000 $150,000,000 We also expect to see continued expansion of our adjusted EBITDA margin as we take advantage of the recent restructuring and the synergistic opportunities. Thus, we anticipate adjusted EBITDA margins in the mid teens And we still anticipate seeing 1 quarter of this in this fiscal year knocking on the door Of our long term adjusted EBITDA margin of 20%. Since we believe this Q4 just completed represents a bit of a watershed event, we wanted to manage Q1 fiscal 2024 expectations as well. Typically, we see 1st quarter revenues being down from the prior Q4, which was the case in most in the most recent Q1, 1st quarter 2023.

Speaker 3

We will likely see something similar this year, again mitigated for the seasonality that we expect to see from MCS and Avi West. The revenue mix will likely be more slanted towards our MCS and AviWest products as MCS' and AviWest Revenue tend to be strongest at calendar year end. The result is that we will likely see lower gross margins due to mix. However, the revenue difference and the gross margin difference will likely be overcome by additional reductions in total expenses.

Speaker 1

Thanks, Dan. Actually, I think we just open up for questions and I'll close-up after that. So who's in the line for questions?

Operator

Thank you. Your first question comes from the line of Nick Corcoran of Acumen Capital Partners. Your line is open.

Speaker 4

Hey, guys. Congrats on the strong quarter and end of the year. Maybe thinking about your guidance for fiscal 2024, Can you maybe talk about how we should think about the growth by end market?

Speaker 3

I'm not sure I have that much visibility. Mirko, is this something that you can speak to or

Speaker 1

Yes. It's a tough one. We don't really I don't think we're ready to say exactly per market. I mean, at this point, I would say, it's always going to take a stab at it. Honestly, I think Our biggest growth for next year is going to be probably in the Command 360 and the Enterprise And defense space, and I think both broadcast is also showing some good because it is a Olympic year.

Speaker 1

And the election year. Well, and an election year, but it's like that's the unknown right now, right? But I haven't seen an election that hasn't been positive for business ever. So I don't expect it to be a negative. But The only thing that I'm concerned about is this whole continuing evolution and the whole budget nonsense that keeps kicking down the can Down the road, I don't see I don't think they're going to freeze the budget, but you just never know.

Speaker 1

And that could affect Every company that deals with the government, right? So at this point, I'd rather not break it down by market. I think overall, we feel very confident Because of this free market and how it actually spins out at the end, it's probably too early to tell.

Speaker 4

Fair and good color. And you spoke about cross selling MCS and Abby West products into other geographies. How successful have you been to date and what should we see in fiscal 2024?

Speaker 1

Yes. No, good question. Actually, I'm very pleased on the progress that we've done in the international expansion and business development Investments for the Command 360 space, it is a long term Cycle, let's not forget that. So we're really building for 2025, 2026 and 2027 beyond. But we've hired people, we've got people in place, we've actually closed Several really good deals last year in international.

Speaker 1

We've got a great pipeline. So I'm very pleased on how that's progressing. I'd say on the other side, on the broadcast side, on the Avios side, we are actually really jump starting This year, we're working on the rental program we've launched. We're looking at a long term leasing program. So probably a little slower than I wanted to, but I think There's some good progress that we're doing this year.

Speaker 1

So I expect both of those to really show some fruit in 2024.

Speaker 4

That's great. That's all the questions I have. Thanks.

Operator

Your next question comes from the line of Daniel Rosenberg

Speaker 2

Around the trend of recurring revenue, I was just wondering how much visibility do you have On recurring versus the more transactional revenue, how far can you see into the year?

Speaker 1

Dan, do you want to take that?

Speaker 3

Well, I can yes, I can kind of speak to parts of it, right. So recurring revenue maintenance and support It gives us some visibility and I believe we did around $25,000,000 last year in such maintenance and support and that tends to be a bit of a machine these days. And we get the benefit of the renewals. So we're happy to see that the growth in that area Is exceeding that of the growth of our product sales specifically because it demonstrates that we're not losing people who are maintenance and support contract. So we're seeing 20%.

Speaker 3

That's a firm answer. The House of Worship business or the cloud business is a little bit smaller business right now since we got rid of the House of Worship vertical. So I don't have a tremendous amount of information about it. But I think there's another element of this that we need to discuss and that's this Programmatic business. These are long these are larger sales with multiple installations That span years.

Speaker 3

And so we get the benefit of knowing that this is going to come in next year, this is going to come in the following year, this is going to come Year after that, and there's been 2 examples that we keep pointing to demonstrate this. One is with the Navy where we've been retrofitting all of the ships They come into dry dock every few years for upgrades and updates. That's a program where we've replaced ourselves a couple of times and that has been The

Speaker 1

gift that keeps on giving.

Speaker 3

And we hope to be able to even get into the next version of revamp on that as well. The other example is the State Department. We're replacing every State Department's video infrastructure system with our technologies and We are deploying that 20, 30 at a time per year. So that gives us some visibility as to what's going on. This is also true, a true dynamic of our MCS business.

Speaker 3

Once we get into some of these financial services organizations or these larger Companies, they have multiple control rooms across the world and they want to settle on a single vendor. And once we get in there, it's a land and expand And that generates incremental revenues for the foreseeable future. We probably need to spend a little bit more time assessing what it is, but historically, We had visibility to do as much as 60% of our revenue. Maybe it's about 50% now when we don't have house of worship to look at, but it's a significant piece of our business We've known at any given point in time.

Speaker 2

Okay. I appreciate that context. It was great to See the balance

Speaker 1

sheet really strengthened significantly in

Speaker 2

the quarter. And I saw the NCIB mentioned in your statements. So I was just wondering how aggressive do you intend to be with the NCIB given where shares are Or other uses of capital for that matter, just your comments on that.

Speaker 3

Well, I mean, I think our design the reason for the think people are finally listening to the HyVision story even though we've sort of been pounding our chest for the last three quarters that this is a real story that's got legs and that you ought to hang If you want outsized returns. This run up has happened in the last 3 or 4 days. So I really We have to sort of rethink about what our strategy is going to be, but it is there for us to provide support. It is there for us to demonstrate that believe the shares are undervalued and we're looking forward to being able to sort of bring some value to all of our shareholders as a result.

Speaker 2

Okay. And just last one for me, a bit of housekeeping. I just didn't quite hear clearly the guidance. I heard the top end was 150, but I didn't hear the bottom end.

Speaker 3

What I said is that we expect for the full year our adjusted EBITDA margin In the mid teens, usually I when I say mid teens, that's just over 15% mid teens. But there's some variability to that. And I still believe that we are going to be knocking on the door of 20% in at least 1 of the quarters coming up.

Speaker 2

And then on the top line on revenue?

Speaker 3

The range that we're giving is 145 to 150.

Speaker 2

Okay, perfect. I'll pass the line. Thanks so much and congrats again.

Speaker 1

Thanks,

Operator

Your next question comes from the line of Robert Young of Canaccord Genuity. Your line is open.

Speaker 5

Hi, good evening. Maybe just first question on EBITDA margins quarter over quarter. I think you said that EBITDA margin expansion, I think that's a full year comment. But you said gross margins should be weaker in Q1 offset partly by OpEx. I'm just trying to understand The cadence of gross margin expansion through the quarter, maybe how that affects Q1 EBITDA For modeling purposes.

Speaker 3

Well, look, so we've seen over a 600 basis points improvement in gross margins from a year ago to where we are today. And most of that is specifically related to things that You can clearly see, again, the high priced components that we had to purchase and the exit of the House of Worship business. Those are known. Those were forecasted. We kind of gave everyone an expectation of what how that was going to impact those margins.

Speaker 3

The third, having more control and visibility to supply chains at Abby Weston MCS is a little less Specific, clearly opportunity. We got some of the best people in our organization working on these things here. And so, there is possibility for opportunity. What I wanted to try and convey is that, first of all, I'm not I don't expect to see tremendous gross margin expansions from what we saw in the 4th quarter. That's number 1.

Speaker 3

That's a big number that we have there. Can it happen? Sure, it can happen, but I don't want that to be the expectation that we're going to be seeing 1 to 2 point Improvements for the remainder of the year. In fact, I'm kind of suggesting to you given mix, We'll likely see a decline in gross margins for no other reason than mix. So I don't want anyone to be get alarmed that the margins are going to be Give or take from the levels we are today, but it's all based on mix.

Speaker 3

What I'm trying to suggest is that our cost Structure for our Q4. It's pretty sound. We spent a lot of time making sure that our Q4 was As clean as could be, so that we could demonstrate to everyone that the business does generate 20% EBITDA margins at scale. I think we've done that. I think that you'll see in our Q1 that our expenses will be somewhat less than our 4th quarter demonstrated For compensation reasons and so on and so forth.

Speaker 3

So any shortfall from 4th quarter revenue or any shortfall in the gross margin that might happen due to mix likely will be overcome through additional savings in OpEx. That's the message I'm trying to convey.

Speaker 5

Okay. I mean, am I parsed all that? I guess, it still sounds like you think that there's Chance for EBITDA margins to expand quarter over quarter in Q1. I think I just sorry to ask that question again. I just want to make sure I understand it correctly.

Speaker 3

Well, if you're asking me whether our Q1 2024 is going to be better than our Q1 2023, Absolutely. I mean, we only generated EBITDA of $2 plus 1,000,000 whereas we just finished $5,700,000 right? So I'm sorry, Q1 of 2023 with 2.1, we're certainly going to be doing better than that. Probably going to be looking and feeling more like 4th quarter than any other quarter.

Speaker 5

Okay. Okay, that's And then a little bit of commentary on the election activity Typically driving positive opportunities for AMERCO. I'm trying to understand that. Is that Related to the broadcast business or like does it create opportunities in the government military business? Maybe you can just give it a little maybe a little more insight into that.

Speaker 5

My sense might be that it might pause some government spending. And so maybe you'd correct me my understanding there.

Speaker 1

Yes, yes. That is a very good question because there is multiple markets being involved here, right? I was more referring to government spending Other than my broadcasters think because it's election year, they're going to sell a few systems. That's To me, much smaller piece, where most of our broadcast business is all about live sports, right? And then, okay, some live news, but That's I was more referring to the election year, but also referring to potential Non passage of budgets to run the government and the government shuts down, right?

Speaker 1

And we've seen what happens with that previously. So that's my only concern. I don't believe that's going to happen during the election year, but then you know what, given what's going on in the U. S. At this point, who knows what's going to happen.

Speaker 1

So That was my only comment. The government spending, remember, we're doing a lot of government business, government enterprise business, government defense business. And that's a big piece of the business, right? So should that take the wrong turn, That's the only thing I'm really worried about for next year. The good news is, it was an election year, And I don't think we've ever witnessed a negative, I hope I'm not, I don't think I've ever seen a negative Consumer business year in an election year ever.

Speaker 1

So, but I have to say it anyways.

Speaker 5

Okay. Thank you. And maybe last question, another high level one for you. Last quarter, you'd highlighted A lot of activity around cybersecurity. I think you're tying it to government spend like local emergency, fire, police, etcetera.

Speaker 5

And I was can you maybe put a little bit of meat around that? Like are Still seeing that sort of demand around cybersecurity and maybe give a sense of how you plug into that opportunity and then I'll pass the line.

Speaker 1

Yes, absolutely. In fact, it's going bang and busters at the activity or not. Everybody that we talk to That is a requirement. Everybody is concerned about security. They have been for a while.

Speaker 1

We've been involved in this for a long time, but we're seeing it Exponentially in the enterprise space, not just government, not just defense, of course. But in the enterprise space, whether it's banking, pharmaceuticals, Oil and Gas, everybody is concerned about security, cybersecurity and secure networks. And that's what we're all about. So, the good news is that that's the hot button. We're right at the top of that.

Speaker 1

I mean, again, I appreciate these are long term sales opportunities, right? So we're preparing, we're building, we're doing a lot of business depth. We're working with integrators, partners, channel partners, especially internationally to build that infrastructure out And possibly, I'll take advantage of what I believe is going to be a huge market expansion in the next 5 years. So that's really the positioning of The accident and NASA business, we're definitely that's not going to stop. And as we look at it from the defense side, unfortunately, Well, there's just way too many wars going on.

Speaker 1

I don't see that that's going to change anytime soon. I think that's going to continue and That's actually getting more interest within the defense sector where they do need mission critical awareness, Decision making capability and that plays right into our whole end to end piece.

Speaker 3

If I could just fill in a spot here. I mean, I think everyone can get their head around what MCS' businesses are. You see a lot of TV programs where you see controls with lots of Screens and lots of visualization and so on and so forth. Now all of a sudden there are Enterprises who have control rooms focused on the cybersecurity threat. Let's take banks as an example.

Speaker 3

They are monitoring emails and they're monitoring networks They're monitoring intrusions. They're monitoring everything. They're using our visualization systems and the means to capture and Display all of that information in a single location to be on top of it at any given point in time. So I hate to say it, but cyber problems Are part of the wound in our sales.

Speaker 5

Okay. That's great. Thanks for the color. Congrats on a strong quarter. I'll pass the line.

Speaker 1

All right. Thanks.

Operator

There are no further questions at this time. I will now turn the call back to Mirko Wicca for some closing remarks.

Speaker 1

Okay. Well, thank you, Jean Louis. And I just want to thank all of our shareholders And of course, analysts on the line today for their continued support of Hydrogen. And we look forward to speaking with you in mid March Then we will be discussing our Q1 of 2024 results. So thank you everybody.

Speaker 1

Thank you for listening and we'll speak later. Bye.

Operator

This concludes today's conference call. You may now disconnect.

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Earnings Conference Call
Haivision Systems Q4 2023
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