This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: good day and thank you for standing by and welcome to the high vision first quarter 2022 earnings release at this time all participants are in a listen only mode after the speaker's presentation there will be a question and answer session to ask a question during the session you will need to press star 1 on a telephone keypad and please be advised that today's conference is being recorded if you require any further assistance please press star zero I would now like to hand the conference over to your speaker today, Mr. Mirko Rika. Sir, please go ahead.
spk04: Thank you, Mel, and good afternoon, everyone. Thank you for joining us once again, and I'm thrilled to be back to discuss this time our Q1 fiscal year 2022 results. As demonstrated by the results we just announced earlier today, the demand for our products remains strong, and our business fundamentals have never been stronger. Let me just start with the amazing Q1 revenue results of $28.3 million, which exceeded all previous quarters and actually represents a 23.3% growth over the previous Q1 of 2021. Now, I also want to remind everyone that this time last year, we had an unbelievable record-breaking Q1. and also the previous key one before that. So to grow another 23.3% over that quarter is an amazing back-to-back impressive financial result as we continue to deliver on our promise to increase top-line growth and build operational efficiency into our long-term business model. Now, we also delivered our 33rd, and you heard that right, 33rd consecutive quarter of positive adjusted EBITDA. Not too shabby, right, when you look around the tech world and see many companies that still haven't made any money. All I can say is I'm very, very happy to finally see the markets favoring companies that are actually profitable. that have fundamentally strong business models and don't spend crazy money just to get top line growth at the expense of huge losses. That's not high vision and never has been. So as you can imagine, we are very proud of our results and our strong business. Now, let me briefly discuss a few key highlights. Number one, I'm absolutely thrilled that we have signed an agreement to acquire AviWest SAS in France. This is our second strategic and impactful acquisition since the IPO, which is expected to close by the end of this month. Now, AviWest is a phenomenal addition to the HiVision portfolio. It enables us to be the only provider and vendor to deliver ultra-low latency wired and wireless streaming technology. This is huge. HiVision will be looked upon to help solve the most complex and difficult contribution streaming and remote production solutions in the industry. We do expect a very quick global sales integration upon the closing. I mean, customers are already excited to see how our products will integrate and provide an unparalleled portfolio of products under one roof. In fact, we already share many accounts where they use Hivision for their land-based and wired needs and actually AVI-West for the remote, mobile, or cellular bonded systems when 4G or 5G is necessary. We see this as an amazing opportunity to strengthen our global customer presence. In addition, we also have accounts that use other 4G and 5G solutions and will now have the opportunity to get their solution from a single vendor. And we see a massive, massive cross-selling opportunity worldwide into each other's accounts. In fact, we've already heard from many of our large broadcast accounts wanting to see and test the AppUS technology. Now, I'm also very excited on our ability to scale this business globally and to increase our footprint, not only in broadcast, but also to take these five GIP bonding solutions into defense, government, and the first responder market. I mean, the urgent need for real time, low latency, remote communication is growing. You know, we can now be the single source of supply into all these markets. The Ivy West acquisition is extremely synergistic in all key areas of sales, geographic expansion, technological synergies, and helping to solve our customers' challenges. And this new combination will continue to fuel our growth well into the future. We're also holding a very special webinar broadcast tomorrow at 9 a.m. Eastern time, which will actually feature Ronan, the CTO and a founder of ABUS, together with Mahmoud, the CTO of HiVision. And they'll be discussing the importance of these technologies and the vision going forward. So you can register for this webinar on our website at HiVision.com. I would highly encourage that. Secondly, we have also decided to rename Cinemassive to Hivision MCS, which stands for Mission Critical Systems, to better reflect our strategic focus on the government, defense, enterprise, and public safety verticals. We believe our combined strength and clear focus in these markets will propel Hivision into an industry powerhouse globally. Thirdly, our advanced cloud and self-serve SaaS video distribution platform, HiVision Connect, continues to receive very positive feedback from our house of worship and faith clients. And I'm thrilled to report that we now have 97 clients using HiVision Connect as part of our transition to this new SaaS platform, including some of the largest multi-campus ministries in the United States. Now, as mentioned previously, which is only about six weeks ago at our Q1 and end of the year 21 earnings release, we continue transitioning all of our faith clients to this new innovative platform. Now, the next major step is for our full release of the advanced VOD features that everyone has been anticipating. It's been a major development effort and represents the last step to enable all the key accounts that transition an entire workflow to connect. We expect this to begin shortly after the busy Easter holidays, as you can imagine. Now, our innovative cloud-based video streaming routing technology, the HiVision Hub, now has about 32 active clients, as we are about to introduce our new appliance attachment features end of this month. As I mentioned about six weeks ago, these new features will enable full management and device control of high-vision endpoints, such as our Makita encoders and the high-vision gateway, giving users powerful control of ultra-latency cloud routing of video security from anywhere to anywhere globally. And the high-vision hub is evolving into a powerful video routing and element management platform for all of our devices. And this is very, very exciting for our long-term SaaS growth. in fact our flagship encoder the makito added some new important features that enhance remote workflows with full support for simp 2110 which is for all ip based broadcast workflows i mean this combined with its renowned ultra low latency continues to make the makito the gold standard for everything remote and broadcast i would say finally Our percentage of international revenue has decreased last quarter to now represent about 20.7% of our global revenue. This is mainly due to the addition of the heavily U.S.-weighted high-vision MCS, or Cinemassive, revenue. We expect this trend to continue, obviously, as high-vision maintains its leadership in mission-critical real-time operational center deployments. As the high-vision MCS, or again, Cinemassive business, continues to further add to our U.S. growth, It is expected over time to also increase our international business, and we believe having a strong international presence is important to maintain HiVision's leadership in the global IP video market. Now, I'd like to just discuss some product, technology, and industry trends for a bit. Now, on the product and technology front, In Q1, we already mentioned we released an important feature in our lineup, right, the support of SMPTE 2110. Now, in contrast to SRT, which enables low-latency video over the Internet, 2110 is a new standard for distributing uncompressed video within broadcast facilities over high-performance IP networks. Now, with high-vision products, broadcasters can achieve full IP-based production workflow seamlessly, bridging their internal and external networks in support of remote and decentralized workflows. In fact, the next version of Hydrogen Hub to be released at the end of this month, as I mentioned, will enable full end-to-end control connecting all these IP workflows across facilities globally or directly to cloud production resources. The importance of these end-to-end IP workflows cannot be overemphasized. And the move to IP is the most important trend in broadcast, as was actually highlighted within the third annual broadcast IP transformation report that we just released. I highly encourage everyone to download the report from our website. In this widely respected report, we actually summarize data from over 650 broadcast professionals. As I mentioned before, the pandemic has accelerated the shift in broadcast, and across all markets, to embrace approaches that address distributed workforces, decentralize operations, reduce travel, and work from home challenges. And in fact, this year's report shows that 65% of broadcasters are in the midst of migration to all IP workflows. And actually, 60% now understand that the future is in hybrid, on-premise, cloud, and remote IP workflows. Now, another important indicator shown in the report is the pervasiveness of SRT. From a live video connectivity perspective, SRT has become the most widely used transport protocol in broadcast. I mean, Hivision of course invented SRT and made it freely available as open source back in 2017. And many people have actually asked us, including many who are listening today, why did you open source such an in-demand technology? What are the benefits to Hivision? And the answer is very simple, leadership and access. Our SRT open source strategy has elevated HiVision as a leading disruptor in broadcast and streaming. And we are the beneficiaries of this strategy through several key areas, such as CTO level access at the top clients globally, access to strategic partnerships as developed through the SRT Alliance, our position in supplying the market with solutions that continue to be favored as a gold standard for SRT workflows. I would say finally, fueling our acquisition pipeline. For example, the last three out of four acquisitions we did, which is Lightflow, Tel2, and now AviWest, are all acquisitions that started with SRT partnerships. The SRT Alliance, formed and managed by Hydrogen, has also just surpassed 550 members and includes support from the world's top public clouds, including Amazon, AWS, Microsoft, and Google, the top broadcast solution providers, which include Sony, Panasonic, JVC, and Harmonic, and the top media services organizations like IBM, Comcast, and Compass. Tata Communications, and Telstra. All of these companies are bringing forward cloud-based and decentralized remote workflows based on HiVision as SRT. I've always respected the saying, you know, lead, follow, or get out of the way. HiVision prefers to lead. You can expect more disruptive open source leadership in our future. Finally, I would like to highlight a key point from our broadcast IP transformation report. Quote, for the third consecutive year of this report with 68% of the votes, 5G tops the list of technologies that will most impact broadcasters within the next five years. 5G is poised to make high bandwidth, low latency internet access ubiquitous and extend IP based workflow for any type of live event. I think that in itself should help explain why the AWS acquisition is so strategic. So let's talk about the AVOS impact and influence. In fact, a remarkable achievement for the AVOS team was just recent, delivering end-to-end latency of less than 200 milliseconds using live 5G transmission during the recent 2022 Winter Games. And this was an amazing breakthrough in wireless broadcast. This was made possible by complete understanding of the encoding pipeline and specifically how 5G networks can be taken advantage of, not only for their native increased bandwidth, but also for dramatically reduced latency. I mean, this is the expertise of the AviWest engineering teams. Now, broadcasters are looking toward a single solution that can deliver the lowest latency video regardless of the network. The HiVision Makitos are excellent for any wired installation. Those that are relatively fixed and can be served with fiber cable or even a drop. And the AVUS transmitters are a perfect complement when fixed lines are not available or the mobility or the cameraman is essential. And you may have noticed camera moving very quietly amongst the curling teams, for example, during the games, right? Each connected wirelessly with little devices and antennas in the back of the broadcast cameras. Low latency and synchronized streams are absolutely required to fuel any production environment, whether it be on-site, remote, at home, or in the cloud, dedicated to assembling and mixing these feeds for broadcast. I would say that if you watched any of the 2022 Winter Games, the likelihood that what you saw was assisted in some way by Hydrogen and AviWest is quite high. Hydrogen and AWS technology used together to deliver ultra-low latency video to production is a clear sign of the value in our combined company going forward. In fact, one last but most recent example of the move to hybrid workflows was actually within the coverage of the PGA Tour as a player championship that just finished yesterday, right after the weather delays upset the event at TPC Sawgrass outside Jacksonville, Florida. You know, both PGA Tour Entertainment and NBC Sports relied on Hivision to assist with their cloud production and remote production challenges, respectively. The hybrid workflow approach is today's reality. Let's discuss a few selected Q1 sales highlights, and I broke it down by different markets. Let's talk about within our enterprise and cybersecurity verticals. You know, Hivision, and now Hivision MCS, which was synonymous, has been at the heart of organizations addressing the growing threats related to cybersecurity. There are many systems involved in a comprehensive cybersecurity plan. All that must meet an organization's strict system security governance. These systems span monitoring alerts-related networks, firewalls, databases, communications, and even extend to simple physical security. The Hydrogen MCS solution manages the aggregation and presentation of any source so that decision makers can manage complex environments and react to unforeseen events that may shake the foundation of their organizations. This quarter, we have established or extended multi-side deployments of our mission-critical solutions to some of the world's most important organizations, including Facebook, or now Meta, Salesforce, and Pfizer. We have also expanded the recent deployment of Walmart for their video infrastructure within the Conference Trading Center. These are some pretty big names. Within our defense vertical, we have secured yet another significant phase towards supplying the U.S. Navy with additional IP video infrastructure, a retrofit program that we have been involved with for many years and part of our ongoing programmatic business. Q1 also saw a number of design in-wins for MX-1 rugged encoder, in both manned and unbanned aerial vehicles, helicopter and planes, domestically in the U.S. and internationally. These long-term wins are critical in building a programmatic business even further. Now, one key observation to note is that we are seeing a shift of the U.S. government purchasing schedules affecting long-term programmatic business. It seems to be kind of moving back to the pre-COVID days and what we witnessed in the previous administration days. You know, where emphasis was always placed on September year-end budget spending. Because the last two, three years, we kind of saw a move to split these budgets between the April-May and September-October timeframes, which kind of smoothed out our quarterly revenue makeup. But, you know, we now seem to be going back to the old spending patterns. And that's kind of moving our government and programmatic business revenue more back to our traditional Q4, which ends October 31st. A little bit to talk about how to worship or faith vertically. Our Connect SaaS platform continues to be positively received within the market, and our focused sales team in this area has not only continued to transition the installed base, but it's also secured some significant victories against the competition. A couple of good examples, Meadowbrook Church and Live Church in Florida. New Life Church in California and Victory World Church in Georgia have all signed on with Connect in absolute head-to-head competitive battles. Very proud of those. In fact, Joe Hayes, actually the media director of Redemption Church in South Carolina, explains the value of Hydrogen Connect beautifully. He says, Hydrogen has always stepped up to the plate. The team understands our challenges and is always able to help provide a solution. We absolutely love Hydrogen Solutions. They've always been able to deliver an excellent quality, robust product for us, which means I always have a peace of mind on a Saturday night. I don't have to worry about Sunday morning and whether the world is going to be able to watch. I just know that I can rely on high-vision technology. And Robert Currier, the IT director of Redemption Church, added, high-vision connect is so simply used and is providing a significant savings on our bandwidth use, which is a great added benefit. This makes it both a reliable and affordable option for churches with smaller budgets or limited access to high-speed internet. Not only is Connect helping us save time and bandwidth, but it has also helped us to reduce the number of systems we use. An all-in-one comprehensive live streaming solution, HiVision Connect is helping us to save money. Very nice quotes. Let's talk finally a little bit about the broadcast vertical. In addition to supporting the PGA and NBC Sports I highlighted earlier, Hivision continues to expand its presence in broadcast, a key market segment that is being seriously augmented with the Abbey West acquisition. In fact, in Japan, NHK, one of the world's cornerstone and largest broadcasters, is now using Hivision Mikitos specifically to address the remote challenges associated with the winter and summer games. Texas Star and Sama TV are collaborating by using Mikitos and SRT, deliver 24 by 7 news and current affairs channels to Eti Salat in the UAE and other IPTV platforms globally. And closer to home, in a rapidly expanding esports market, fan-controlled football is now streaming to Twitch and DAZN, or DAZN, some people call it, using HiVision. Now, before I pass it to Dan, our CFO, for more detailed analysis on our first quarter results, I would like to also mention that Headwinds, And 2022 absolutely do exist, which could affect business and growth. I mentioned that last time, and I will continue to mention it. You know, the world is still dealing with an unprecedented supply chain and component shortage, like we've never, never, never seen before. I believe this will continue well into 2023, especially with the unfortunate recent developments in Ukraine. Our teams are working hard to mitigate any supply chain issues, and we are deploying cash and increasing inventories to maintain our business flow. I do expect things may begin to ease during the second half of 2023, so we're in this for a while longer. The good news is that our supply chain team has done an excellent job in mitigating these pains thus far, and it's focused like a laser beam on addressing anything that comes our way. But understand that costs are up, delivery times are longer, and the challenges are there. And I'm sure Dan will speak to this in a little more detail. Now, just to finally add, unfortunately, we've also seen a disruption of business in Russia, given the latest developments in Ukraine, which we spend years of building. You know, export licenses to other countries, such as Turkey and Saudi Arabia, are also more difficult these days, which we need to consider as we plan for the remainder of 2022 and 2023. Finally, I would like to add that we are continuing our aggressive focus on acquisitions as part of our M&A strategy since the IPO. We have now delivered two strategic acquisitions in the first 15 months since going public with others in the hopper. And we are continuously evaluating additional opportunities to help consolidate this largely fragmented market. I do want to mention that I could not be prouder of the Hivision team than we have accomplished since the IPO. It's truly been an amazing first year as a public company, and not only delivering, but actually exceeding most of our expectations thus far. And finally, I want to thank all of our investors and analysts in line today for their continued support of Hivision. I really look forward to speaking with many of you soon. Dan, the table is yours.
spk03: Well, thank you, Mirko. So let's get into the numbers. But before we begin, I just want to mention to those on the call that one of CINEMAS' key assets, albeit a non-financial asset, is their facility security clearance. We have made progress with the Defense Counterintelligence and Security Agency, commonly referred to as DCSA, on a special security agreement to replace our existing commitment letter. Our initial focus has been to derive sales synergies and the renaming of Cinemassive to HiVision MCS represents a significant milestone in that integration. However, it also means that as we continue to integrate HiVision MCS's business into our systems, it's becoming increasingly difficult to identify HiVision MCS revenue and expenses on a standalone basis. So with that said, now let's get into the numbers. Revenue for this first quarter of fiscal 2022 was $28.3 million, representing an increase of $5.4 million, or 23.3% from the same period in the prior year. As Mirko mentioned, typically our first quarter revenues are less than the fourth quarter revenues that preceded. We saw that in virtually every fiscal year prior to fiscal 2020. With the onset of COVID, we did begin to see more consistency in revenue and a smoothing of our revenues across orders. Said another way, client purchases were more ratable throughout the year. Although this first quarter represented a 4.7% increase in sequential quarterly growth, we seem to be reverting back to our historical seasonality as governments, broadcasts, and enterprise customers seem to be returning to work. Recurring revenue, which we are now defining as our cloud solutions and maintenance and support, continues to be robust. Recurring revenue was $6.6 million in the quarter and represented just over 23% of this quarter's total revenue. This compares to our recurring revenue in the first quarter of fiscal year 2021, where recurring revenue was only $5.2 million, but still represented just under 23% of first quarter fiscal 2021 total revenue. For this quarter, gross margins were 69.4% down from recent history. we anticipated a decline in gross margins to accommodate HiVision MCS's business, which historically operated at a lower gross margin than HiVision's traditional business. With that said, we have been incurring higher direct product costs, including higher direct product costs related to the nature of HiVision MCS's products, higher component costs at the global storage The global shortage in electronic components continues to be a challenge. We've had expediting costs, and we've made investments in subscription trials for customers interested in HiVision Hub and HiVision Connect platforms. We've also seen increases in other costs of sales, including the redesign of products using latest componentry to solidify our supply chains. and investments in new systems to provide a real-time assessment of our supply chain resilience. We've also incurred certain costs for qualifying alternative manufacturers for difficult-to-procure electronic components. I'll touch on supply chain constraints a bit later in my remarks here. As presented, total expenses for the first quarter were $19.8 million, a decrease of $9.1 million when compared to the same period in the prior year. As discussed on previous calls, $14.2 million of those share-based payments were one-time non-recurring, non-cash expenses resulting from the exercise of options related to our legacy employee stock option plan. Share-based payments related to the LTIC, our current stock option plan, was 0.8 million compared to 0.2 million in the same period in the prior year due to the timing of the initial public offering and the initial grants of DSUs, RSUs, and options related thereof, too, and subsequent grants through the year to employees to attract, retain, and motivate. Normalized for these share-based payments, total expenses were only $19 million, an increase of $4.6 million when compared to the same period in the prior year. Compensation-related expenses in aggregate increased by about $2.4 million compared to the same period in the last year. Headcount at quarter end was 338 people, compared to 256 people at the end of the first quarter in fiscal year 2021. High Vision MCS added 64 people in August 2021. That's of the total 82-person increase. And as a reminder, approximately 75% of our total expenses, excluding share-based payments, is made up of people costs. That's why we focus on on headcount numbers. Amortization and depreciation expenses in first quarter 2022 were $1.1 million higher than in the same period in the prior year, as research and development, sales and marketing, and general and administrative expenses included increases in amortization expenses related to the intangibles acquired as part of the high-vision MCS transaction. We also witnessed a half-million-dollar increase in travel, the majority of which can be attributed to HiVision MCF's install business. Adjusted EBITDA for the quarter was $2.1 million, a decrease of $1.4 million compared to the same period in the prior year. The $5.4 million increase in revenues contributed to a $2.1 million increase in gross profit, But that was offset by the increase in total expenses of $4.6 million, again, excluding those share-based payments. Nevertheless, this quarter now represents a 33rd consecutive quarter of positive adjusted EBITDA. Net loss for the quarter was half a million dollars compared to a net loss of $12.1 million for the same period in the prior year. That's an $11.6 million improvement. But as was the case for the adjusted EBITDA, share-based payments of 0.8 million represented a decrease of 13.7 million from the prior year. Now, again, 14.2 million was a one-time non-recurring expense related to the IPO. The $5.4 million increase in revenues that I spoke of before, again, contributed to an increase in gross profit. But that was offset by the increase of expenses, much of which was related to the recent acquisition. If we look at the balance sheet, we ended the quarter with cash balances of $24 million. Total assets at year end were $124 million, an increase of $1.8 million from fiscal 2021 year end. The increase in assets is largely the result of trade and other receivables, again, related to higher revenue levels, prepaid expenses, some of which are related to the supply chain shortages we've been seeing, and investments in inventory to minimize the risk of revenue disruption. These working capital increases were offset by the $2.8 million decrease in cash in the quarter. Total liabilities at quarter end were $33.4 million, a slight decrease from fiscal 2021 year end. But note that of our total liabilities, $11.2 million is related to deferred revenue. That's recurring revenue invoice and yet to be recognized. And $8.5 million is related to lease liabilities resulting from the accounting treatment of IFRS 16. In terms of financial liabilities, we remain debt-free. Our $35 million revolving line of credit for general working capital, general corporate requirements, and financing for acquisitions remains completely available. And it includes an accordion feature that allows us to expand the line to as much as $60 million. Obviously, the big news this quarter was the announcement that we signed an agreement to acquire Abbey West. HiVision will acquire 100% of the shares of Abbey West on a cash-free and debt-free basis for cash consideration of about 20.5 million euros, which is approximately 29.6 million Canadian. Obviously, that's going to be subject to customary adjustments for transactions like this. Obviously, the guidance provided last earnings call did not incorporate the performance of Abbey West. So to assist, Abbey West's year end is December 31st. In the 12 months ending December 31st, revenues in terms of euros were about 10.5 million, or approximately 15.1 million Canadian dollar terms. About 50% of last year's revenue were in the November-December timeframe or in their first calendar quarter, months that won't be part of our fiscal 2022 results. Gross margin for high-vision MCF for Abbey West is about 70%. And although facing some supply chain constraints, we believe there are some opportunities for enhancement, margin enhancement. As will be the case with HiVision MCS, it will be unlikely that we will be able to report AviWest revenues or margins separately as each of our entities cross-sell products to their existing client base. We had a similar experience with our VideoFurnace, Coolabyte, and CoolSign acquisitions. We do expect the acquisition to be modestly accretive in the near term, with opportunities to enhance adjusted EBITDA margins to mid-teens by the end of the calendar year. Mirko mentioned significant headwinds, so I want to touch on that just a bit. Our supply chain teams have done an excellent job in mitigating the sales impact given this worldwide component shortage. They have successfully addressed all the issues for the quarter just passed and the current quarter, and the number of issues remaining for third and fourth quarter seem to be very limited and controllable. However, our successes are not without some real costs to the company. For the last six months, we've been working with our contract manufacturer, as an example, to secure our six-month needs for parts and components. We've had to increase our deposits with our contract manufacturer by approximately $1.3 million, and it will likely go up by a couple hundred thousand dollars before the process is complete. We've also made an approximate $2.5 million in incremental inventory to secure the high value, long lead time components necessary to keep the revenue line moving. And in the past quarter, we did incur at least a half a million in additional direct product costs directly related to the worldwide shortage in components. We will likely have to re-spin certain of our boards to accommodate more available componentry, and new challenges seem to be topping out of the woodwork on a weekly basis. As Nico suggested, we don't know when we might see our supply chains reverting back to historical levels, but believe that we will continue to see some level of tightness through the middle of 2023. The good news is that our supply chain experts seem to be on top of this issue. The people side of the equation has also been challenging, and the cost of retention is becoming more significant. There is no doubt that our competitors and other industry participants view our employees with some degree of envy. Now, we reevaluate compensation at the beginning of each fiscal year. That's November 1st for us. And a quick back-of-the-envelope calculation suggests that the average increase in salaries have been between 5% and 10% in certain geographies. The cost of certain social charges and fringe benefits are increasing as we inform our employee programs. And despite all of our attempts, the overall environment to attract and remain employees continues to be a challenge. We've invested in internal recruiters, but we're using third-party recruiters in more circumstances. And we believe that these challenges are compounded by the work from home initiative that have diluted the culture we have spent years promoting. Now, a quick note about currency. In the instance when we do provide guidance, we do not really consider the potential impact of foreign exchange gains or losses as we do not attempt to estimate future movements in foreign currency rates. Now, we have seen currency rates, exchange rates remain relatively static in the last three months. But we don't know where that might go going forward. So with that said, we are now ready to take questions.
spk01: Thank you. As a reminder, to ask a question, you will need to press star one on the telephone keypad. Again, in order to ask a question, you may press star one on the telephone keypad. To enjoy your question, press the pound key. Please stand by while we compile the Q&A roster. We have the first question comes from the line of Nick Corcoran of Acumen Capital. Your line is now open. You may ask your question.
spk04: Hi, guys, and thanks for taking my questions. Hi, Nick. The first question has to do with the programmatic revenue in the quarter. Can you give any indication what that was of the total revenue and how you feel that will trend through the year? You know, honestly, we don't usually give a number for what the program of business is. I don't even have it handy. But I think the trend, Nick, is that we are seeing definitely the shift, you know, into the typical government year-end, which is end September and the new year in October, both kind of fall into a Q4. So right now, we're actually seeing already uh that early early on and so i expect our q4 to be much larger than than than we would have expected uh before we started the year but um if i look back to map what it was two three three years ago Q1 was always traditionally the smallest quarter of the year, and Q2 was a little bit bigger, Q3 was a little bit bigger, and then Q4 was a big one. I think that's kind of the way we're going forward this year, and that includes not just programmatic business, that includes government spending. And we actually did get some good programmatic business in Q1, but we kind of do that throughout the year anyway. But unfortunately, I've seen a lot. I've just seen a big, big shift in the government overall spending, which is an enterprise in defense as well as programmatic businesses. That's helpful. And then just moving on to CineMassive, how is the integration of that going? Sorry, the attrition? Integration. Oh, integration, sorry. Dan, do you want to talk about that a little bit? Sure.
spk03: So, yeah, no, for sure. Well, let's Let's say we're happy with the integration thus far, but it hasn't been without some complications. And what I mean by complications is that because they've got this secured facility, we have to work with PCSA on how we integrate these two companies without allowing information to get into the hands of foreign owners. And so that has slowed the process in terms of back office integration, but it has not delayed the process in sales integration. And for that matter, we have put the teams together in a real significant way. And that's part of the reason why we wanted to rename the enterprise High Vision MCS to highlight that it's one singular team that's going to be selling a full battery of product to each other's respective customer bases. So that has worked, and we're going to start, we have already started seeing a number of opportunities that include both High Vision products and Cinemassive products on the same bill of materials, so to speak, same invoices. So it is working.
spk04: Great. And then the last question has to do with how the year is tracking compared to your previous guidance. I believe you had mentioned on your last call that you expect revenue to be up about 35% and EBITDA to be up north of 40%.
spk03: Well, it's a little bit more of a complicated question because we now have Abby West in the mix. Obviously, we have an expectation that Abby West is going to close at the end of March, which means we should see seven months of that revenue added to the existing business. The existing guidance that we gave you, I don't believe there's any, we don't see anything that is changing the existing guidance. I would say that between the existing guidance and what Abby West brings to the equation, we're probably looking at $130 million or better in this current fiscal year.
spk04: And then with the supply chain challenges, do you think there's any headwinds to your previous EBITDA guidance?
spk03: Well, we're certainly seeing some headwinds. impact on gross margins as represented by this last quarter's results. But we've been able to mitigate much of it. I think we're halfway through the mitigation in terms of financial cost of their business, maybe more so from a balance sheet standpoint, maybe 75% or 80% from a balance sheet standpoint. But we're aware of it, and we're also aware of our need to generate new to DA. We're not yet changing guidance based on that.
spk04: Great. That's all for me. Thank you. Thanks, Nick.
spk01: Thank you. We have the next question. It comes from the line of Rod Vian of Canaccord. Your line is now open. You may ask a question.
spk03: Hi. Good evening. There was a line in the press release. I just wanted to get some context around it. It said that you'd expect... the acquisition to reach typical levels of adjusted EBITDA contribution. I just wondered if you could put some context around what you mean by that. Is that implying a target profile over time? If not, what are the typical levels that you'd expect? Well, I guess that's my line. So let me see if I can add some color to it. You know, we've always said that we believe we can build this business to an EBITDA margin of 20% with some level of scale. And obviously, we're getting scale very quickly given the acquisitions we put in place. I believe that this fiscal year we're trying to move the EBITDA margins from the 13.3% level, thereabouts, to just under 15%. And so when I speak about Abby West, we believe they too can accomplish just under 15% EBITDA margin through synergies and through some opportunities that we've already identified. Okay, okay, thanks a lot. That's good color. Second question, I guess you're not going to break out the contribution of Cinemassive, given the comments and the prepared comments. Can I think of that business as running similar to the 25 million Canadian run rate you guys highlighted when you acquired it? Or should I think of it as running a bit slower, a little bit faster? Any context relevant to that marker?
spk04: Well, first of all, it was 15 million Canadian, not 25, right? Yeah.
spk03: Oh, no, no, no. He said Cinemassive.
spk04: Oh, so I thought you said Avi West. I'm sorry.
spk03: I thought you said Cinemassive.
spk04: Sorry if I said Avi West.
spk03: At this juncture, we're not seeing one business or one vertical outgrowing other ones at this point. We are pleased with the results of Cinemassive. They have not disappointed us, but they're also not outshining Cinemassive. our expectations. So I would say that collectively speaking, we're all sort of growing in concert. Okay, okay. And the reason I was asking, I was trying to do some back of the envelope math around the gross margins impact. If Cinemassive is the biggest driver of the margins impact, if I make that assumption, then I kind of have to get to somewhere between 35% and 50% gross margins for that business. Is that about right? Is that good math? 35 to 40% gross margin. 35 to 50, sorry. I think you're way low on that. We've always suggested to you that Cinemassive has been between 55 and 60% gross margins. They've actually been on the higher end of that in what we've been able to see. And so I'm not exactly sure how your map added to that. Okay, so likely the part that squares that is the... the impact of supply chain and some of the things you're talking about, some of the gross cost pressures from supply chain. So if I were to break the impact on gross margins, say, year over year, the 7% difference, would it be about half and half in a massive supply chain? Would that be kind of a rough way to think of it? uh i i hate to i feel like i'm being put a little bit on the spot here i i think that may be accurate um but i i would i would rather get back to you with a more definitive answer if i could yeah yeah sure no problem and then last question for me is just around the uh the expectations for head count you're gonna add in 2022 i think you said something like 60 you're gonna add in 2022 I'm not sure if that included Abby West in that number at the time, the 338 that you gave earlier in the call. How much additional headcount are you thinking of in budget for the rest of the year? And then I'll pass the line to someone else. Well, very good question. So let me see if I can sort of unpack that a tiny bit. Yes, our original budget, which was absent in Abby West's acquisition, included the addition of 60-some-odd people in our budget. Now, there's two things that are happening that we are looking at. The first is the ability to attract employees is getting more challenging, and we are seeing that people are leaving high vision for other opportunities a little bit more so than they had in the past. Which means the idea of us being able to get to 66 new hires in this fiscal year seems Fairly unlikely. We're still seeing a little bit of catch-up based on the attrition that we're seeing. And now that we have Abby West on board, and now that the integration with Cinemastis has become more apparent and more obvious, we have an opportunity to sort of derive synergies through those acquisitions, and we will probably be rationalizing our new hires couched against what do these other properties bring to the equation and can we derive synergies thereof so i my i guess that's a long way of saying that it's unlikely that we're going to be hiring to our original budget but we will probably ending the year with well over 400 employees from where we are today okay okay thanks for taking the questions appreciate your answers thanks robert
spk01: Thank you. Next question comes from the line of Kevin Christian Arte of their deal. Your line is now open. You may ask your question.
spk02: Hey, guys, good afternoon, or good evening, rather. I just had a question on your sort of commentary on Avi West. It did $15 million for the December period, and I think you mentioned 50% of that came in November, December, which you're not going to capture, you know, this year. But I want to ask, is that... Kevin. Yes.
spk03: What I said was 50% came from November, December, and first quarter... of 2021, so five months made up 50%. The fact that we're closing at the end of March means we're not going to be the benefit of January, February, March, and we're not going to be the benefit of November, December, because that's outside of our fiscal year. That's the nuance I was trying to get across.
spk02: Was there anything in those five months that was a little bit anomalous in a way or outside of just seasonality? I guess I'm trying to frame how to think about the real run rate of the business as I think about 2023 actually.
spk03: It's a good question. We obviously are learning alongside a lot of people as we go through it. I would tell you November, December experience, where they seem to have a disproportionate amount of revenues in their November to September, that's been there the last two years, and we believe that's part of their overall business. The January, February, March observation is a little bit more, it's not as obvious to us.
spk02: Okay. Okay, thanks for that, Dan. That's helpful. I had a question for you, again, on AviWest. So, like, it sounds really good. You know, there's a lot of opportunities for cross-sell between your base customers and theirs. I know that 75% of the revenue comes from sort of the media and entertainment sector. So I'm just curious as to... you know why that's been the case and why they didn't why they may not have had a strong business in military the type of use cases i think that could come out of you know wireless encoders out in the field sounds very well suited for those industries i'm wondering um do the other competitors out there are they pretty uh deeply entrenched in those markets or is there something is this something that could be brand new for for uh customers in in those verticals just curious as to the thoughts there
spk04: Well, let me take that one, Kevin. That's a very good question. In fact, you know, there's three, I would say, main competitors to their business, and it's very similar. A lot of the players in that specific market have really, really focused on two markets, which is broadcast sports and news gathering, right? And so if you go to LiveU, TVU, and Ivy West, that's predominantly their business. In fact, none of them have really... ventured into any of the other markets, with probably the exception of Degero, which is another one, a smaller Canadian company, which have kind of gravitated more to government and networking. And Abby West obviously being the smallest of all of them, right? So really, number one, it's just the biggest focus was focused on broadcasts and sports and news gathering. They just didn't have the resources even to venture into the other markets. Not to say it wasn't a potential market, yes, but it was just a matter of resources. I think that's where we bring a massive amount of energy and resources and scale where we are in all those other markets that this is a natural fit for us. And interestingly enough, we will be able to be a significant player because even LiveView and TV, which are the two biggest vendors, are barely touching that space. So we see a huge, huge opportunity for us to go into the first responder market, you know, the blue lights, as we call them, market, not to mention defense, of course, and just pure government. So we see that as a big opportunity for us to really differentiate ourselves from the competition.
spk02: Yeah, I mean, it sounds like a really good opportunity if those customers are not being served. Is this something that they've been looking for, you know, that you're hearing from those customers in those sort of industries? And, you know, I'm just thinking the opportunity just sounds pretty actually really good for you guys.
spk04: Yeah, well, you know, a lot of that market was also pretty fragmented, but understand that 5G and 4G and cellular stuff, It will tend to be first picked up by some of these advanced broadcast initiatives, right? Where if you look at some of the government defense work, a lot of it is radio type of stuff, right? So there are players doing that kind of a market spin. The 5G is still early. It's still in infancy in that space. And that's going to become a growth factor in the future. So, you know, there's an understandable reason why some of these players haven't been focused on the market. We have been in our market from the Wired's perspective. And we do have the ins in that market where we can actually literally leverage this wireless stuff very quickly. There's another company called VizLink, right, as well out of the U.S. that have been involved in some of that stuff where they do have radio technology, point-to-point radio, terrestrial type of stuff. But there's absolutely no clear leader or big vendor that's serving those markets with 5G cellular IP bonding technology. And I think we could be the guys, right?
spk02: Gotcha. That's good to hear. You sounded pretty excited on the house of worship business. You talked about some competitive wins there. I just wasn't clear there. Are you willing to talk about maybe who you're coming up against and winning? And is that on encoders or on sort of like media player and connect type, you know, services? Just wanted to get a little bit more of a sense of what you meant by, you know, the competitive wins, where they're coming from and what you're exactly winning there.
spk04: Yeah, no, it's actually definitely not the encoder business. I mean, we are pretty strong already, but no, this is actually head to head against some media properties. I don't want to mention any names, unfortunately, but let's just put it this way. It's one of the main competitors that we've been facing over the years, and we're starting to take some pretty significant deals from them with Connect, which is very nice to see. But yeah, no, it's Connect software properties. I mean, period, right? It's our recurring revenue. It's our contractual revenue. And we're getting new names, which is great. Not just existing customers' additions. These are actual new names, competitive wins. And we seem to be getting more and more every quarter. So pretty excited about it.
spk02: Gotcha. Okay. Yeah, no, it's good to hear. The last one for me, maybe for Dan, if you could, you've done a couple of acquisitions now, and thinking back to the IPO, there were a few sort of ways that we could think about the business in terms of splits. We sort of had a view that between media, enterprise, and government, it was sort of a third, a third, a third. We also had a view at time of IPO that if you looked at your revenue base, about 30% at any time, you know, was programmatic. And just wondering what the different moves that you've made, if you've sort of got a way to think about how those splits may look right now on a performance basis.
spk03: Well, that's a really good question. I think one of the incumbrances that we have is that we need to spend a little bit more time with the Cinemassive folks and designate what these customers, what vertical these customers are. On the back of an envelope, we've always seen them as a 50% government, 50% enterprise kind of provider. But that would have to be validated. We'd have to look at their internal systems to make sure that they're capturing the essence of what that deal might be. Abby West, we're going to have a similar challenge. They're a little bit more broadcast centric than the other entities. So we're going to have to look at this in aggregate and come back with a new sort of conclusion as to how you want to look at this.
spk02: Okay. And then I guess the programmatic business is probably looking lower than 30% given the addition of Abby West, obviously.
spk03: Well, programmatic business, I mean, understand that when we look at programmatic business, we look at it as sort of a subjective element to it. Yes, these are customers for which we have visibility going forward, but it's not exactly contracted revenues per se. And so we sort of scrubbed our internal databases and said, well, this is going to be recurring each year at this level, so on and so forth, and that's where we came to the 60% number. We have not yet gone down that exercise in Abbey West, nor have we gone down that exercise with Cinemassive. But we do know that Cinemassive has a number of customers where they put in security centers and they're repeat customers per se. So that would be akin to our programmatic business. We just haven't had the time yet to get there.
spk02: Okay. Maybe just the last one. I know you talked about lingering supply chain issues, and obviously things are unfortunately being a little bit exacerbated now with the issues in Europe. But could you talk about the conversations that you might be having with clients in the European region? Obviously, again, Abbey West is a major presence there. Has there been any shifting in tone or anything?
spk04: know pushing out in terms of uh delays of orders uh just have to ask the question just given you know what's happening in the region uh well i can i can i just literally i was there last week just came back on on saturday um haven't really felt any any major difference as of yet uh whether that's going to continue so that's a that's a different story uh definitely we've seen Some, as I mentioned in my speech, that was several countries, obviously, that has created tension. Well, Russia is obvious, but it's also getting more and more difficult in some of the other remoter areas. But in Western Europe, if you want to say that, and for that matter, even Eastern Europe, we haven't seen anything yet that would make me think that the business is changing or slowing down. I mean, I think we don't... At this point, it's a week by week, right, depending on how this...
spk01: nonsense in ukraine uh keeps playing out gotcha okay okay guys thanks a lot for taking my questions i'll pass the line all right thanks kevin thank you there are no further questions at this time i would now like to turn the call over back to mr mirko vika okay
spk04: Thank you, operator. Well, I guess this is the end of the call. Everybody, I appreciate your time, and thank you for spending the hour with us, and look forward to talking to you about next quarter in three months now. So thanks, and we'll see you then.
Disclaimer