Haivision Systems Q3 2024 Earnings Report

Haivision Systems EPS Results

• Actual EPS: C$0.01
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Haivision Systems Revenue Results

• Actual Revenue: $30.65 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Haivision Systems Announcement Details

• Quarter: Q3 2024
• Date: 9/11/2024
• Time: N/A
• Conference Call Date: Thursday, September 12, 2024
• Conference Call Time: 8:30AM ET

Haivision is a leading global provider of mission-critical, real-time video streaming and visual collaboration solutions. Our connected cloud and intelligent edge technologies enable organizations globally to engage audiences, enhance collaboration, and support decision making. We provide high quality, low latency, secure, and reliable live video at a global scale. Haivision open sourced its award-winning SRT low latency video streaming protocol and founded the SRT Alliance to support its adoption. Awarded four Emmys® for Technology and Engineering from the National Academy of Television Arts and Sciences, Haivision continues to fuel the future of IP video transformation. Founded in 2004, Haivision is headquartered in Montreal and Chicago with offices, sales, and support located throughout the Americas, Europe, and Asia. Learn more at haivision.com.

Haivision Systems Q3 2024 Earnings Call Transcript

Key Takeaways

• Adjusted EBITDA margin improved from 6% in 2022 to mid-teens in 2024 and Q4 is expected to approach 20%, reflecting successful operational transformation.
• Fiscal 2024 revenue guidance was lowered to $134–136 million due to accelerated transition to a manufacturer model in control rooms and delays in U.S. federal spending.
• Awarded a five-year U.S. Navy production contract worth ~CAD 82.6 million for combat visualization and video distribution systems, with significant revenue anticipated in fiscal 2026 and beyond.
• Joined Airbus Defense & Space’s IPCEI-backed Air 5G consortium as the sole provider of wireless video/audio transmitters, aiming to deliver products in late 2025 for mission-critical communications.
• Formed a partnership with Shield AI to integrate AI-driven object detection into its Kraken video processing platform, targeting enhanced situational awareness and new defense ISR deployments.

Presentation

[Operator]

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Haivision Systems Q3 twenty twenty-four earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star, then the number one on your telephone keypad. If you'd like to withdraw your question, press Star one again. I would now like to turn the conference over to Mirko Wicha, President and CEO. Please go ahead.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Thank you, Regina, and good afternoon, and thank you everyone on the call for joining us today to discuss our Q3 and our nine-month year-to-date results for our fiscal year 2024, which ended July 31. As we get closer to the end of our fiscal 2024, which is, remind everybody, only six weeks away, we will have completed our two-year strategic plan as promised back in 2022, for a major EBITDA and profitability transformation. And as a result, we will deliver a significant increase in our Adjusted EBITDA performance between 2022 and 2024. Our Adjusted EBITDA percentage performance back in 2022 was 6%. We are now delivering as promised an Adjusted EBITDA in the mid-teens. We also promised that one quarter will be knocking on the door of 20%, which will obviously be our current Q4.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

So all in all, an amazing two-year performance and a plan well executed. But we're not stopping there. We have already been working on our new two-year strategic plan for fiscal 2025 and 2026, which will complete our overall transformation of our business and return Haivision to double-digit revenue growth. Now that we have the house in check for OpEx and gross margins and EBITDA and cash generation, the main focus will be higher revenue growth. So let me share a few thoughts, what we have been doing and what to expect from us during fiscal 2025 to prepare for this growth and to demonstrate the business scalability we have been talking about. Now, we have two major fundamental business models taking shape this year, and that will continue to affect our revenue in 2025.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Number one is the move away from being an integrator to a manufacturer in the control room market. Number two is a long-term rental, or LTR, as we call it, business in a transmitter live market event. Now, we are continuing our control room business transformation to a higher margin manufacturer, and I like to say scalable model from the bespoke, hard-to-grow integrator model. As mentioned last quarter, this major business transition has exceeded our expectations and is progressing much quicker than previously planned. However, it's a long road to complete, and we are about halfway through until we can begin to see a net revenue increase in our overall business, and we have always said that this transformation will be at the expense of our top line. Very similar to when we decided to transition out of the house of worship market.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

However, what is left is a proprietary high-margin business, which is great business. This is something we have been planning for and working towards all year. The good news is that we have already seen positive results within the first nine months of 2024. We always expected this to be an 18-to-24-month transition. It looks like we will complete the full business transition during the second half of next fiscal year. Our partners and resellers globally are very happy to see us embracing the partner model to scale this business and moving away from being an integrator and basically seen as a competitor to the AV channel, and Haivision has always supported and believes in a strong partner model to scale globally.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Now, this time next year, our revenue growth in this important market segment will be more apparent together with the solid and consistent high gross margins we have already been delivering, and we expect to be training and preparing many of our global AV partners on the new C360 fully scalable platform by the end of this calendar year, in preparation for a full-blown professional training rollout during next year. As we have been saying all along, our control room scalability and the overall revenue will begin to show higher growth once we roll this out globally. Now, on the LTR, or as we call it, long-term rental program transformation, we are building a SaaS-like recurring revenue model for our 5G transmitter business, which is a much better long-term profitable business. We are already seeing several large multi-million-dollar opportunities and several competitive replacements with our Pro Series 5G transmitters.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Our 5G technology has been very busy during the Paris Olympics, as I will discuss later. Now, these deals replace one-time revenue hits with multi-year recurring revenue that will build over time and increase the profitability going forward. Now, most of this initiative will see net revenue growth in 2026 and beyond, and that's the kind of business we all want. Now, I would like to highlight the many exciting and noteworthy events and projects that we have been working on that will significantly and positively affect our long-term revenue growth as our new two-year revenue plan unfolds, and many of these you have seen in the previous couple of weeks through press releases. Let's start big. Our Haivision MCS, our Mission Critical Systems group, announced earlier last week that has been awarded a significant five-year production agreement.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

by NAVSEA, the Naval Sea Systems Command, with an estimated total value of around CAD 82.6 million. Now, this prestigious agreement positions Haivision at the forefront of delivering cutting-edge combat visualization and video distribution systems to the U.S. Navy's Surface Combatant Fleet. Under this new production agreement, Haivision MCS will provide to the U.S. Navy a comprehensive suite of ultra-high performance video processing hardware and software for mission-critical display, along with video transcoding, storage, and distribution components. Now, these systems will be integral to the Navy's combat information centers across various surface combatant vessels, enhancing situational awareness and mission planning capabilities. The advanced visualization technology is designed to support the Navy's future combat systems, including those planned for the Aegis destroyers, the aircraft carriers, amphibious ships, frigates, littoral combat ships, and the next generation United States Coast Guard cutters, among other critical applications.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Haivision's next generation systems will play a pivotal role in supporting mission-critical applications by delivering these superior situational awareness to the ships. Now, interestingly enough, this award builds upon Haivision's ongoing success with the U.S. Navy's CANES, Consolidated Afloat Networks and Enterprise Services program, the past seven years, which already leverages Haivision's state-of-the-art real-time video encoding, transcoding, recording, and playback technologies for ship-wide video distribution. The award also highlights the strength and reliability of Haivision's core technologies, but demonstrates the valuable synergies achieved through the acquisition of CineMassive in 2021. The integration of Command 360 collaborative visualization platform into Haivision's technology offerings has significantly enhanced the company's capability to deliver these innovative solutions for complex defense applications. Talk about another area, the Airbus Defence and Space next generation 5G development.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Last week, we also announced that Haivision joined a multi-company consortium led by Airbus Defence and Space, to develop new technologies for rapid, secure, reliable communications, representing a multi-year and multi-million-dollar development contract. As part of the Air5G project, Haivision will develop 5G transmitters that provide connectivity in mission-critical situations where normal communication lines are disrupted or unavailable. This consortium is building land and sea-based tactical 5G communication systems that support mission-critical operations during emergencies, when network infrastructure is compromised or absent. The Air5G project aims to develop a deployable 5G private network for fixed deployments in a command center on land or in a naval flagship, providing 5G network access to supporting teams or fleets over a wide radius.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Teams in the field, such as first responders, military units, naval assets, can connect to the network and send, receive voice, video, data, ensuring priority, performance, and security. The project is built on a five-year timeline to achieve volume deployments of the solution. Now, an important note is that Haivision was selected as the sole technology provider tasked with developing the wireless video and audio streaming technology at the heart of the project, and we should see some groundbreaking products begin to be delivered from this initiative in late 2025. Now, on August twenty-sixth, we also announced that Haivision is partnering with Shield AI, a leading defense technology company whose mission is to protect service members and civilians with intelligent systems. We actually showcased the AI-integrated technology at the AUVSI Pathfinder Symposium in Huntsville, Alabama, a couple of weeks ago.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Now, this partnership brings together trusted ISR solutions for full motion video with AI object detection for defense and ISR applications. Haivision's Kraken is a video processing solution for mission-critical defense and ISR applications. The software-based Kraken encodes, transcodes, streams full motion video alongside metadata in real time across all types of communication links. Shield AI Sentient Tracker software automatically detects and tracks objects within full motion video streams using a field-proven artificial intelligence technology. Now, with this partnership, Shield AI Kestrel can now fully be integrated with Haivision's Kraken and deployed across a wide range of air, land, and sea-based platforms. By integrating Shield AI Kestrel object detection technology within our Kraken video processing platform, our customers are now able to apply full artificial intelligence to where the video is being captured and processed, enabling quick and life-saving decision-making.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

We are the standard low-latency edge transcoding delivery platform in the defense market and a market leader in this AI-driven approach. And we expect Kraken AI to drive many long-term defense projects and increase our footprint within the global defense space. Now, Haivision at the Olympics. Let's talk about some serious excitement here. I mean, Haivision was extremely busy at the Paris Olympics. And once again, Haivision technology was widely used across many events, and our broadcast partners used well over a thousand Haivision Makito encoders and decoders, SRT gateways, and our Pro Series 5G transmitters in all the main events and venues during the Paris Games, including some really cool areas, such as the surfing competition in Tahiti, right? We had the Haivision Pro 460 transmitters that were used by France Télévisions to provide engaging behind-the-scenes video with maximum freedom of camera movement.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

In the Paris venues, including Stade de France and the Bercy Arena, Haivision Pro 460 mobile video transmitters were used to capture live video from events, including the gymnastics, athletics, providing unmatched glass-to-glass 80-millisecond latency for seamless production with other sources. There was extensive use of Haivision Makito X4 video encoders and decoders, as well as the SRT Gateway, to facilitate distribution of content to European and other rights holders around the world, ensuring that audiences across Europe could experience the excitement and watch the games live. By including some of these cool stuff is the many firsts that were ever at any Olympics. And I'll just. I'll list them, a few of them.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

The first ever private 5G was used, the largest ever temporary private 5G deployment, the lowest latency ever delivered over bonded cellular, the first ever C-band private 5G network, the first ever HDR 4:2:2 10-bit streaming for mobile devices, the first ever use of remote mobile device camera management. And finally, which is the coolest, the largest ever mobile device live contribution for the opening ceremony, right? We saw ninety boats configured with over two hundred Samsung phones running our MoJoPro software. And the high dynamic range, the HDR live HD video feeds from MoJoPro, were transmitted to Haivision StreamHub receivers using a private 5G network, which was set up with twelve 5G cells mounted on the historic bridges that traverse the river. The StreamHub software provided multi-view monitoring and master control for the incoming mobile camera feeds.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

These live feeds were then used to distribute the live content to the specific country content holders. Simply amazing and a first. This kind of the first of its kind live contribution has also made us a finalist for the prestigious IBC Innovation Award to be presented end of this week. Interestingly enough, we happened to have won last year's IBC Innovation Award for the private 5G streaming of the King's Coronation in London, in conjunction with the BBC. Being listed as a finalist this year is an amazing acknowledgement and testament to our continued innovation and technology. I would just add, finally, we also won a multimillion-dollar deal by one of the largest broadcasters in the world, who chose Haivision for their global IP video distribution and delivery.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

As a result, they will deploy hundreds of our SRT gateways to replace their entire global satellite network. Very exciting project, which was also highly competitive, but won by Haivision based on our innovative and groundbreaking technology. Now, let's get back to a little bit to the numbers. You know, as demonstrated by the results we announced today, our business fundamentals just keep getting stronger. You know, we have been telling you and everybody that we will significantly increase our operational efficiency and adjusted EBITDA throughout the past eighteen months, and our Q3 performance continues in that direction. So some noteworthy highlights. Our Q3 gross margins were significantly higher than last year's already impressive Q3, which went from 72.3% to 75%. We've been saying all along that we would deliver increased gross margins, and once again, we continue to deliver what we said we would.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Now, this Q3 enjoyed very high gross margins, mainly boosted by the major sale of the large broadcaster I mentioned, our software-based SRT gateways, meaning we don't need to provide the Dell servers, resulting in pure margin. This is another example where we give up the higher revenue in exchange for higher margin business. Now, additionally, our Kraken ultra-low latency transcoder used in mission-critical defense applications has also been successfully deployed on virtual machines within the U.S. military, further enhancing our gross margins. It's also noteworthy to mention that our Q3 performance, despite the lower revenue of last year, maintains our twelve-month trailing Adjusted EBITDA at a strategic CAD 20.1 million level. Another impressive metric.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

I can safely say that we are well on our path on delivering on our promise of a two-year adjusted EBITDA performance, growing dramatically from the CAD 8 million derived in fiscal 2022 to over CAD 20 million that will be derived in 2024. Not many tech companies can say that these days. And just to finish quickly, our nine-month year-to-date operating margin now stands at 14.5%, compared to last year's nine-month operating margin of 8.7%. And our nine-month year-to-date adjusted EBITDA is already at CAD 14.4 million, which is 58.2% higher than last year's nine-month adjusted EBITDA performance of CAD 9.1 million. As we have been saying over and over, we are delivering on our promise to significantly increase the profitability and operational efficiency of Haivision....

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

It should now be obvious that we will deliver the promised mid-teens Adjusted EBITDA performance for the entire year, and finish fiscal 2024 with a higher than 20 million trailing twelve months of Adjusted EBITDA for the full year. We couldn't be happier with our performance thus far, but Dan will go through all the finances in detail, but let me reiterate our annual guidance we gave back in January, delivering Adjusted EBITDA in the mid-teens is well on target, while delivering higher margins and growth in operational performance is also well on target. Now, considering our planned transformation of the control room business is moving quickly, together with the delays in federal spending, our top line will be lower than we anticipated a year ago, but all of our profitability metrics are significantly higher and well on track.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

This has been our main focus and the most important metric for this fiscal year. And the better-than-expected transformation of our control room business will set us up for a much healthier and profitable business in the future. But finally, we believe that Haivision has a much brighter future ahead, as we have now delivered, not just promised, but delivered a trailing twelve-month adjusted EBITDA of CAD 20 million for two quarters in a row, and will soon deliver a third. That cannot be taken away from us. It is no longer a promise, it's our actual running performance. We are committed to maximizing long-term value for all of our shareholders. We are confident in our ability to execute on our strategic plan and deliver continued growth.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

As I trust that the investment community will agree that we are still undervalued despite the recent run-up of our shares in terms of both revenue multiples and on our EBITDA multiples, not to mention the exciting future ahead of us. After all this, Dan, please continue with the detailed financials.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Thank you, Mirko. Let me see if I can bridge the discussion of our financial performance to date with the opportunities that are in front of us. So let's start. Revenue for the Q3 of fiscal 2024 was CAD 30.6 million. That was a decrease of CAD 4.3 million from the previous year comparative period, and revenue for that nine months that ended July 31st was CAD 99.4 million, a modest CAD 4.7 million decrease from the prior year comparative period. Again, there's quite a bit more about this revenue story. As an example, year-over-year comparisons are impacted by our decision to exit the house of worship vertical in April of 2023. And last year, as an example, year-to-date revenue included house of worship revenues of CAD 3.5 million.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

There were no such revenues this year. Further, on our last call, we discussed two significant initiatives that Mirko highlighted in his discussion, and that they will impact our short-term revenues, but enhance our profitability and enable us to scale the business more quickly. The first is our transition from systems integrator in the control room space to that of a manufacturer, as is the case with the rest of our products. The second is the introduction of the long-term rental program, initially focused in the transmitter market. So let's focus a few minutes on this control room transition from bespoke systems integrator to manufacturer of proprietary products. At the risk of being redundant, historically, MCS provided bespoke solutions to customers that included low-margin, third-party components like displays, third-party electronic components, and even ancillary items like cables, racks, mounts, and the like.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

This approach certainly created additional complexity in managing inventory and resulted in delays from the initial sale to the conversion of cash, as we were not only responsible for the procurement of such components, but the eventual delivery of individual items and the resulting implementation. Just to give you a small sense of the complexity, we have already identified well over two hundred and fifty inventory items that are better suited for our channel partners to provide and are no longer part of our offering. Let's also not lose sight of the fact that certain of those SKUs may have been in support of a single customer, or may be subject to quick obsolescence, as new models are generally announced annually for screens and the like.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Because of this custom approach to serving customers, this integrator approach made scaling the business much more complicated, particularly in the public safety, enterprise, and international markets. It also created a bit of conflict with our channel partners in that same public safety and enterprise verticals that sold Haivision legacy products and desired to represent Haivision in the control room space. This transition has already attracted the attention of channel partners wanting to partner with Haivision, and we expect to see more opportunities as these channel partners have the added incentive by the enhanced margin dollars they can derive from providing those third-party components. But what does this really mean in terms of top-line revenue? Certainly a difficult question, as all our product families are offered to solve our customer workflow challenges. But here are a couple of observations that illustrate the point.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

In fiscal 2022, as an example, these third-party components represented about 40% of a customer's bill of materials, and in some cases, these third-party components could represent as much as 75% of the bill of materials. In fiscal 2023, we saw those percentages decline modestly, about 20%, and then on a year-to-date basis, we've seen that same percentage fall again by another 50%.... Thus, our earlier statements that the transition to a manufacturing model is happening even faster than we expected. Now, let's turn our attention to the transmitter business and the long-term rental program. When we acquired Aviwest, our objective was to grow the transmitter market by bringing the product family to North America. To that end, we introduced a competitive long-term rental program to the market.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

This initiative enables our customers to recognize an ongoing operating expense rather than a capital expense, and it also enabled them to future-proof their purchases as they would have access to the newest technologies when available. The fact of the matter is that our competitors offer such a program in the transmitter space, and those sales may not be otherwise available to us if we didn't offer a program that is very competitive to those of our competitors. However, for Haivision, there are additional benefits. First, it enables us to increase our recurring revenue posture, which has always been a key focus for us, and enables us to derive higher gross margins over the life of these agreements.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

We have seen our global direct rental business increase 87% quarter over quarter and 76% year over year, and almost two-thirds of that growth is the result of successes in North America. We know that our offering is compelling, and we know we've gotten the attention of our competitors. Although still in its infancy, the rental business increased year over year by about CAD 700,000. But revenue will trail as revenue is being recognized over the entire rental period. For this quarter, gross margins were 75%, a significant improvement from the 72% realized the prior year, a 300 basis point improvement, and gross margins on a year-to-date basis are 73.1%, compared to 69.1% in the prior year comparative period. That's a 400 basis points improvement.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

We may continue to see some quarterly variations of gross margins related to the seasonality of certain product families, although the gross margin differences between our product families are dissipating. There is a component of COGS that is relatively fixed in nature that can be leveraged across higher revenue, and we are seeing steady increases in the uptake of software-only options or virtual machine deployments, which, as Mirko mentioned, have a higher gross margin than our typical software offerings that have traditionally been installed on servers and sold as an appliance. On a year-to-date basis, we've seen a 55% increase in these types of sales, and for the last quarter, we actually saw a 98% increase in the sales of software-only options. Total expenses for this quarter were CAD 21.9 million.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

That's a decrease of $3.8 million when compared to the same period in the prior year. Last year, we did incur a restructuring cost of $1.5 million, which represented about 40% of the year-over-year decrease. Approximately half of the remaining decrease can be attributed to compensation-related expenses, which was the focus of our recent restructuring efforts. The remaining year-over-year differences can be attributed to decreases in amortization and depreciation expenses, professional services and technology and communication, as our back office continues to become more efficient. We did have increased reimbursements for SR&ED credits and R&D credits, much of which were related to our participation in the Airbus consortium. We are now using foreign currency derivatives contracts to mitigate the impact of changes in the Canadian dollar's impact on US dollar-denominated assets and liabilities.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

And you'll note that just the impact on OpEx-related exchange rates had a difference of about CAD 300,000 in the quarter. On a year-to-date basis, total expenses were CAD 67.4 million, a decrease of CAD 7 million when compared to the prior year comparative period. The reason for the year-to-date decreases are similar. Compensation-related expenses decreased by CAD 3 million, 3.1 million, actually, while the remaining decreases were related to non-recurring restructuring costs, amortization and depreciation, technology and telecommunication, and other development costs like prototyping and the like. The results of higher gross margins and lower expenses was an adjusted EBITDA for the quarter of CAD 4.1 million, and for the nine months ended July thirty-first, our adjusted EBITDA was CAD 14.4 million. Again, a CAD 5.3 million or 58% improvement from the same prior year period.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

The adjusted EBITDA margin for the quarter was 13.5%, a notable improvement when compared to the 12.4% in the last prior year comparative period. And on the year-to-date basis, our adjusted EBITDA margin was 14.5%, an even more impressive improvement from the 8.7% experienced in the same prior year period. Our adjusted EBITDA margins have been securely in the mid-teens for the last four quarters, as we promised over a year ago. And as Mirko mentioned, our trailing twelve-month adjusted EBITDA is CAD 20.1 million. It should become evident that there is consistency in gross margins and adjusted EBITDA margins, and that should be well received by the investment community. And given our profitability, we are building a valuable business that still may not be fully reflected in today's stock price.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Operating profit for this quarter was $1.1 million. That's a $1.6 million dollar improvement from the same prior year period. And on a year-to-date basis, operating profit was $5.3 million, an even more impressive $7.7 million improvement over the same prior year comparative period. And just to finish up the P&L bit, the net income for the quarter was $400,000. That was a $1.3 million when compared to the net loss of $900,000 in the prior year period. And on a year-to-date basis, net income was $2.6 million, a $6.4 million dollar improvement when compared to the net loss of $3.8 million in the prior year period.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

This is our fourth consecutive quarter with positive net income and positive earnings per share, and it's our seventh since being a public company, for those of you who are counting. With respect to the balance sheet, we ended the quarter with cash balances of CAD 13.9 million. That represents an increase of CAD 5.6 million from the end of fiscal 2023, and an increase of CAD 2.9 million from prior quarter end. We also still have a revolving credit facility in place for CAD 35 million, of which only CAD 3.4 million remains outstanding, and the revolving facility may still be increased by another CAD 25 million. Total assets at July 31 were CAD 140.2 million. That's a decrease of CAD 3.9 million from the end of last fiscal year.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

The decrease can be attributed to a reduction in our net intangible assets, the result of ongoing amortization expense. We have been working on reducing our inventories, and we have reduced our inventories by $3.3 million from the end of last fiscal year. On a side note, inventories have declined by $6 million since peaking in the Q2 of fiscal 2023. We saw reductions in trade and other receivables, and we've seen reductions in the right of use assets, the result of ongoing rent payments. Now, these decreases were obviously offset by the increase in cash and increase in investment tax credit receivables related to R&D activities in Canada, France, and the United States. Total liabilities were $45.1 million. That was a decrease of $4.8 million from prior fiscal year end.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

We saw decreases of 3.5 million in trade payables and other accruals. We saw 1.6 million decrease in lease liabilities and principal payments on term loans. Those were loans that we acquired as part of the Aviwest transaction. We also saw a decrease in the line of credit. Now, these decreases were offset by a $1.1 million increase of income taxes payable. So let's talk a little bit about guidance for fiscal 2024 and beyond. But before, let's touch on a couple of key announcements that were recently made and how they may impact financial performance. First, the $61 million purchasing agreement with the U.S. Navy. That purchasing agreement translates to over CAD 82 million at current exchange rates. Haivision has supplied products to the U.S. Navy in the past, particularly the CANES program, through a fulfillment partner.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

This purchase agreement covers combat visualization and video distribution systems that are adjacent to our existing work. It does not cannibalize our existing relationship. It is a direct contract with the Naval Sea Systems Command, a contract we would otherwise not be able to enter into if it weren't for our Haivision MCS security posture. We are now in the base year of the contract, a ramp-up year for which revenue recognized for fiscal 2025 will be more modest than the run rate and largely focused in the second half of fiscal 2025. The exact delivery schedule for the remaining implementation is still to be finalized, but we expect the real impact of this purchasing agreement to be in fiscal 2026 and beyond.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Whereas our public safety, enterprise, and international markets for command centers are really conducive to this manufacturer model in the command center space, sales to the government may likely include the integrator model. This purchasing agreement, which has been worked on for years, is such an example, and given the scale, margins, although still sound, will not be as frothy as for the rest of the business. I do want to mention that although this purchasing agreement governs five years, there is an opportunity for significant follow-on business with the existing customer and with customers in other friendly countries. Second, AI innovations and our partnership with Shield AI. This initiative will enable our defense customers to benefit from improved situational awareness, to detect or to track objects more efficiently than is possible by the human eye.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

This, in turn, will allow our customers to monitor our video feeds and enable quicker life-saving decisions. Our advanced stream processing capabilities will be demonstrable in our Kraken release, scheduled for October, which will be generally available in early calendar 2025, and we have a significant installed base that could benefit from this enhanced functionality. Lastly, the Air 5G consortium agreement with Airbus Defense and Space. It is a development agreement approved by the, what they call the Important Project of Common European Interest, IPCEI, which aims at enabling research and development of innovative and resource-efficient technologies and components. This consortium, which is being managed by Airbus Defense and Space, includes six entities in the areas of private 5G solutions, beamforming antenna solutions, mobile private networks, communication terminals, compute solutions, and of course, Haivision as the provider of private 5G transmitters.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Haivision will benefit from being one of just a few participants on the leading edge of the next generation of secure and reliable communications. This development initiative has always been very consistent with our own development roadmap. And to put an exclamation point on that statement, although the formal consortium agreement was executed fairly recently, work against this initiative began well over a year ago, and we expect to see our first derivative product resulting from this development effort in fiscal 2025. Lastly, we will also be the recipient of certain enhanced R&D grants and favorably priced development loans as a participant in this initiative. In terms of expectations for fiscal 2024, we did revise our guidance for the full year based on the transition to a manufacturing model.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

But the delay in the approval of the U.S. federal budget, the long-term rental program, and this transition that is happening much faster than it had otherwise, has adjusted our thinking. So we are now projecting revenues for this fiscal year to be between CAD 134 million and CAD 136 million, for the reasons which we have already discussed. We still anticipate adjusted EBITDA margins in the mid-teens, as has been our guidance the entire year, and we are still anticipating seeing our Q4 to be knocking on the door of our long-term adjusted EBITDA margin goal of 20%, as our cost structure is well in place. With our operational restructuring behind us, our focus going forward is on revenue growth. Today, we discussed a number of significant growth initiatives that should translate to double-digit revenue growth for fiscal 2026 and beyond.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

However, we will still be dealing with some of the revenue growth headwinds cited earlier during this call. Don't get me wrong, these recent revenue decisions are ultimately setting the stage for a more efficient, more profitable operation, but we may not see the full benefit of that until late in fiscal 2025 and beyond. Thus, we are projecting revenue for fiscal 2025 to be CAD 140 million or better, with an adjusted EBITDA margin between 100 and 200 basis points higher than what we are seeing today. And with some of our recent announcements of our technology advances and of course, the Navy production contract, we expect to be seeing double-digit revenue growth for fiscal 2026 and beyond.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

We will be providing more specific guidance at our next earnings call in January, when we announce our full year results. So that's the end of my prepared remarks. I'm going to pass the microphone back to you, Mirko. Mirko, are you still there?

[Operator]

Mirko's line is still connected.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Sorry?

[Operator]

Mirko, you may have muted.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Yep. No, I didn't mute. I, Let's open up for questions. Thank you.

[Operator]

At this time, I'd like to remind everyone, in order to ask a question, simply press star, followed by the number one on your telephone keypad. Our first question will come from the line of Nick Corcoran with Acumen. Please go ahead.

[Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners]

Good morning, guys. Thanks for taking my questions.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Hey, Nick.

[Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners]

Just my first question is, you mentioned a couple of headwinds to revenue in the quarter. Can you maybe rank them in order of what's causing the biggest headwind?

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Well, okay. That's a fairly complicated question because there are interdependencies between the two. But I would say that delays in the procurement process in the defense market, based on the delays in the federal budget and that of our transformation, they probably rank about equal in how they impacted our financial results. And then I would say the long-term rental program would be a distant second.

[Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners]

That's helpful, and a significant contract award with the U.S. Navy. Can you maybe give a little bit of color on how long the sales cycle for a contract like that is?

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Well, we knew of the deal when we acquired CineMassive, or we knew that it was a possibility. But I think we may have put a discount on it, on whether we're going to see it or not. And what we've been led to believe is that they had been working on that contract for a couple of years prior to our acquisition of CineMassive. So we're really talking about more than three years, probably less than six.

[Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners]

And was one of the hurdles to get that contract, the security clearance?

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

... Well, certainly, because of the nature of what we were doing, the Navy would prefer a vendor that had a security clearance.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

A secure facility.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Okay.

[Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners]

And maybe last question from me. You mentioned there's a significant broadcast deal with the customer switching from satellite to SRT. Is that a one-time purchase or is it a more recurring sale?

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Yeah, that's a no, that's a one-time purchase, pure software running on their own instances or and/or servers. And so we would benefit from recurring support revenue on that, which would be significant going forward.

[Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners]

Maybe one follow-up question. Is there a shift from satellite to SRT?

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Absolutely. I mean, there's a massive shift just getting off of satellite, period. I think SRT is by far the de facto standard being used everywhere on the planet. So it has created that ability for compatibility, but ease of transition, so pretty much used by all companies, cloud companies, video guys, broadcasters, you name it. So SRT is by far the most adopted protocol for IP delivery and streaming.

[Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners]

Thanks. That's good color. I'll pass along.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Great. Thanks.

[Operator]

Our next question will come from the line of Daniel Rosenberg with Paradigm. Please go ahead.

[Daniel Rosenberg, Equity Research Analyst at Paradigm Capital Inc.]

Good morning, Mirko and Dan. Thanks for taking my question.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Hey, Daniel.

[Daniel Rosenberg, Equity Research Analyst at Paradigm Capital Inc.]

The first one comes around the guidance. When you guys say 100-200 basis points higher than today, the 2024 guidance suggests a step up in margin profile for Q4. So all that to say, should we read that language to mean mid to high teens for Adjusted EBITDA next year? Or, again, knocking on that 20% door. If you could provide any detail there, it'd be appreciated.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Okay. We do expect to see higher EBITDA margins in our Q4, and that's gonna result in an EBITDA margin in the mid-teens for twenty twenty-four, and we expect for all of twenty twenty-five, we should be able to see a one hundred to two hundred basis point improvement from the run rate where we are today. Because there's seasonality in our business and because we see Q4 having higher revenues, we are not suggesting that every quarter is gonna have that one hundred or two hundred basis point improvement to the quarter, the prior quarter. Overall, for the entire year, we expect to see that benefit.

[Daniel Rosenberg, Equity Research Analyst at Paradigm Capital Inc.]

Okay, appreciate that. And then I want to speak to the U.S. Navy contract. Congrats on an impressive win. I was wondering how that win might affect you securing additional contracts like that. Are there any synergies to be had, and any color on a pipeline that you have in delivering that kind of solution?

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Let me take that one. I mean, I think that's a great question. Let me just say this: the first one is always the most difficult one, right? So this has been, you know, with the acquisition of CineMassive and setting up, obviously, the whole secured facility with a U.S.-based posture, we are actually investing heavily in MCS, which we call Haivision Mission Critical Systems. I would expect that we would see further contracts in the future. None that we can talk about, nothing that I would say is in the pipeline in the short term, but this was all of our focus. This took a lot of effort, quite a few years, and I'm glad we finally made it.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

But it's gonna be a lot easier now that we've won and we're gonna start delivering for us to go after a lot of other projects. So definitely a much easier road to success going forward.

[Daniel Rosenberg, Equity Research Analyst at Paradigm Capital Inc.]

Okay, good to hear. And then, talking about growth, could you speak to just the visibility you have today? And then when you talk about double-digit growth in the longer term, does that relate around the initiatives you just mentioned around the MCS solution?

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Um-

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

The double digit-

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Yeah, definitely.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Go ahead, Mirko. Sorry.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Yeah. Well, yeah, no, I was just gonna mention that I think the things that we—I kind of started off and I spent a lot of time explaining that will help our our double-digit growth going forward really is the control room space, which I think is a very exciting market and a growth market. Our defense posture, given the Navy deal, absolutely, that's gonna be a significant piece mainly starting, I would say, twenty twenty-six. And of course, a lot of our AI Kraken AI initiatives, which is a whole open up a whole new market for us. So those three alone are pretty significant areas that are gonna increase our revenue.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

And then, of course, I believe the true 5G, you know, cellular bonded wireless, the use in live sports. We're just scratching the surface, and I believe us leading in that area is gonna help grow that market for us. Because, you know, we deal in live broadcast, live events, live sports. So what we just did at the Olympics has honestly never been done before. We're gonna be seeing at the next Olympics, it's gonna go to a whole different level, and we're seeing it in all other major world sporting events. Just like FIFA World Cup is gonna be better. So everybody's getting excited about 5G, cellular bonded, private 5G networks. So I believe us leading in that is gonna be a growth factor in 2026, 2027, 2028, and beyond. Those are in a nutshell.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Dan, you got something else to add?

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

I just wanna mention that even the work with the consortium, where we're hoping to build the next generation of secure, robust communication systems in the public safety space, is a huge initiative as well. Again, we'll start seeing that benefit in twenty twenty-six and beyond. All of those initiatives are demonstrating our technology prowess, demonstrating the potential of what we can be doing, and will eventually contribute to the top line growth.

[Daniel Rosenberg, Equity Research Analyst at Paradigm Capital Inc.]

Okay. Thank you for taking my questions. I'll pass the line.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Okay.

[Operator]

Our next question comes from the line of Robert Young with Canaccord Genuity. Please go ahead.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

I've been told Robert dropped off the line.

[Robert Young, Equity Research Analyst at Canaccord Genuity]

Oh, I'm here. I'm here.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Oh, oh.

[Robert Young, Equity Research Analyst at Canaccord Genuity]

Nope, I'm here. Sorry about that. No, no, I've got a couple of quick ones. Most of my questions were covered in the prepared remarks, but the reduction in the guidance and the recent push out in the US, you already covered a bit of this. Like, how comfortable are you that the programs you're on are durable through the election cycle? Like, the other side of, you know, presidential elections or any of these subject to cancellation, or change, or anything like that. But maybe just talk about how durable you feel that business is with CANES and with the additional Navy contract.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

A very good question. I mean, from the new Navy contract, I mean, what we're told, I mean, it's obviously not only been approved, but the budgeting has been secured by Congress and it's committed. It's not subject to change of administration. So from that, it's a high priority project that's been fully funded and approved. So we don't see any disruption. That in that specific project, that what we're told. From a CANES perspective, that's, you know, that's been going on for seven plus years. It is starting to wind down. We have seen budget discussions and problems that have moved deals left to right. So that one would be affected potentially by an administration change or elections.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

But it's to a much lesser extent because we're kind of nearing the end of that program, so I'm not as concerned. But you know, the big deal and let's not forget that our base year for this new contract, which we thought would have been this year, because it's taken us. You know, we actually thought that this was gonna close back in January, February, March. It just didn't close, so it just took a long time for the close. The base year is actually in 2025. So we're already planning that, that's gonna be a small amount. You know, the real intent is really, where it really ramps up, is 2026 and then 2027, 2028.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

So I would expect that no matter what happens with the elections, it's not gonna be much of an effect on this deal. I'm more—I guess I would be more concerned if God knows what happens with the elections and if there's a government shutdown, that could be a whole different discussion, right? But at this point, none of these programs seem to be affected.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Yeah, Robert, I think that if we look at both the CANES project, and for that matter, the Navy project, both of them represent technology refreshes, right? In the CANES project, this is their third, we're in the middle of our third technology refresh with the Navy, and that will continue. That's not, that's not a contentious kind of issue, and even the technology refresh related to this U.S. Navy deal is a technology refresh. Again, it's not contentious, it's not a new program, it's not a large program. It's part of the ongoing refurbishment of these boats that happen all the time.

[Robert Young, Equity Research Analyst at Canaccord Genuity]

Okay. That's great to hear. Last little one, just the new Navy contract, is that an IDIQ or a maximum authorization, or is that actual revenue you expect to, you know, receive over the life of the contract? Then I'll pass the line. Thanks.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

That is our actual revenue over the life of the project.

[Robert Young, Equity Research Analyst at Canaccord Genuity]

Okay. Thank you very much.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Super. Thanks.

[Operator]

We have no further questions at this time. I'll hand the call back to Mirko for any final remarks.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Oh, wait a minute. Ben's got a question.

[Operator]

Yep. We do now have a question from-

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Oh, go ahead.

[Operator]

Yeah, we now have a question from Venkata. Please go ahead with your question.

[Venkata Velagapudi, Equity Research Analyst at Research Capital Corporation]

Yeah, thanks, Dan and Mirko, for taking my questions. Yeah, I just have one question, as questions related to most of- I mean, operations have been covered. This is about your share buybacks you have been doing over the course of last quarter. So just want to know, like, the timeline, do you have plans to continue? Or, what criteria do you have in mind before pursuing this program? Thanks a lot.

[Dan Rabinowitz, EVP and CFO at Haivision Systems Inc.]

Very good. Well, the NCIB is in place for a year. I don't see why we wouldn't want to renew the program. I believe the basis for the decision to go down this path is that we believe the stock was not reflective of the value. And as long as the stock was cheap, we were going to support it. We'll continue to support the stock. At what level? We have to, we have yet to determine, but we do have this automatic share purchase plan in place during our blackout periods, and so that is in place and will continue to operate for the remainder of the year, and we will make adjustments as necessary.

[Venkata Velagapudi, Equity Research Analyst at Research Capital Corporation]

Okay, perfect. Sounds good. Thanks.

[Operator]

With that, I'll hand the call back over to Mirko.

[Mirko Wicha, President, CEO, and Chairman at Haivision Systems Inc.]

Thanks. Yeah, I just wanna thank all of our shareholders and analysts on the line today, and for the continued support of Haivision. And look forward to speaking with everyone in mid-January, when we're gonna discuss our full 2024 results and give a little more color to our guidance for 2025 at that time. So thank you again, and speak to everybody in January.

[Operator]

That will conclude today's call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Mirko Wicha, President, CEO, and Chairman
• Dan Rabinowitz, EVP and CFO

Analysts

• Robert Young, Equity Research Analyst at Canaccord Genuity
• Venkata Velagapudi, Equity Research Analyst at Research Capital Corporation
• Nick Corcoran, Equity Research Analyst at Acumen Capital Finance Partners
• Daniel Rosenberg, Equity Research Analyst at Paradigm Capital Inc.