Haivision Systems Inc.

Ladies and gentlemen, thank you for standing by my name is abby and I will be your conference operator today at this time, I would like to welcome everyone to the high vision second quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise after the speakers remarks, there will be a question and answer session. If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. And I would now like to turn the conference over to Mirko Wicca, President and CEO. You may begin.

Thank you, Abby. And thank you everyone on the call for joining us today to discuss our second quarter of our fiscal year 2025, which ended on April 30th. As mentioned in our last earnings call back in January, We are now well into our two-year strategic plan. We shall complete our overall business transformation and return high vision to the double-digit revenue growth we have seen in the past. We'll also return us to our long-term CAGR growth rate of between 15% and 20% per year. Now, we have completed our operational efficiency model. I have a solid handle on the cost structure, gross margins, EBITDA, and cash generation. Now, the focus now is all about building high revenue growth. As mentioned back in January as well, we have seen the bottom of the revenue curve back in Q1. Our key fundamental business model for the controller market, which was the move away from being an integrator to manufacturer, is complete. We are seeing a solid increase in our long-term sales pipeline. Our business forecast is compelling. And we are seeing strong orders and revenue increase in the overall global controller market, not just in the US. This is what we've been working hard on for the past 18 to 24 months, and it's really great to see. Let me share a few thoughts on what to expect from us during the remainder of this fiscal year to prepare for this higher revenue growth in 26 and 27. We've been investing in many new product development initiatives and introductions throughout this year, some of which we discussed earlier, but here are some of the highlights for both the mission and broadcast parts of our business. Remember that six months ago, we structured the company into two focus business areas, mission and broadcast. We are already seeing the results of our actions, and our goal of focus is really paying off. Now, within our mission business, we focus on strategic developments in AI. Last year, we announced that Hivision is partnering with Shield AI, which is a leading defense technology company whose mission is to protect service members and civilians with intelligent systems. With this partnership, Shield AI Kestrel is now fully integrated with Hivision's real-time transcoding Kraken software system and can be easily deployed across a wide range of air, land, and sea-based platforms. Designed for intelligence, surveillance, and reconnaissance, and situational awareness applications, and Kraken encodes, transcodes, and transports high-quality video metadata in real time, even in environments where network bandwidth is unpredictable or limited. The latest update to Kraken features the availability of a new option, Shield AI's Tracker, the AI-powered software for superior object detection, and Tracker uses AI and two decades of computer vision research and development to detect moving objects in full motion video, turning raw data into actionable intelligence with speed and efficiency. It can detect moving and stationary objects on land such as vehicles and people and in maritime settings such as boats, vessels, individuals, and life jackets. Very, very cool stuff. Now in May, As promised, during the defense military short soft week in Tampa, we launched an exciting next generation AI-based hardware, what we're calling tactical edge processor for the defense and ISR markets called the Kraken X1, which is also called the KX1. It was extremely well received as it delivers incredible performance of AI-enabled encoding in real time. The KX1 is a ruggedized and AI-capable video processing appliance engineered for demanding ISR deployments. Combining real-time encoding, transcoding, metadata processing, and NVIDIA-powered AI capabilities in a fabulous and compact design, the KX1 brings battle-tested high-vision technology to remote and tactical edge environments. High vision is absolutely the standard low latency edge transcoding delivery platform in the defense market and a market leader in providing a unified approach to tactical edge computing. And we expect our Kraken AI technology to drive many long-term defense projects and increase our footprint within the global defense market. This is an area that is expected to have great growth potential for the next five to 10 years. And we expect to be the leader. Equally as exciting, within our broadcast business, we launched our next generation 5G transmitter platform. We successfully showcased this new generation of transmitter platform called the Falcon X2 in Vegas at the NAB show in April. This will be the basis for the next two years of transitioning our entire line of transmitters to advanced 5G private networking. We've incorporated some revolutionary technologies and created a lower cost structure that which will result in better price performance and competitive product offerings for the future. This is very exciting as we also venture into an adjacent lower-cost market with a small, lightweight, two-antenna private 5G solution that we can now go more aggressively after our key competitors, LiveView and TVU. Thus, a new revenue stream for HiVision. We will be announcing more systems within this platform throughout the next several quarters. In addition, we will launch our next generation Makito later this fall, internally dubbed as the NGX, targeted specifically for the broadcast sports market that will open additional revenue streams for HiVision. We will deliver full Genlock synchronization capability, including high bandwidth 2110 JPEG access technologies. And our Makito clients have been asking for these for a long time, and we will deliver with our signature capabilities of high quality, reliability, low latency, and security. This will enable all of our largest broadcast clients to now use HiVision for their full end-to-end workflow for both wired and wireless transmission, something no other vendor can do. All of these developments and strategic investments are key during 2025 and will affect revenue starting in our second half of fiscal 2026, and really kick in during 2027 and beyond. Another reason why we are so excited about the future of high vision. Our last piece is pretty huge. I would like to end by sharing with you one specific and extremely exciting transformational competitive win we closed at the end of Q2. that establishes high vision as industry leader in cellular, bonded, and wireless 5G private networking. We have won several large and important deals in the 5G wireless space recently and took customers away from TVU, LiveView, and Digero. They're really three competitors in this market. To the names like the PGA, Eurosport, BigFish, just to name a few. But now we flipped a huge tier one customer that has been using LiveView for over 18 years for all their wireless needs. Warner Brothers Discovery has chosen HiVision to replace their entire CNN fleet of live view equipment for their electronic news gathering, ENG, and multi-camera coverage of live events across all their offices and bureaus worldwide. This is a massive win for HiVision in many respects. It was also a very nice $5.5 million order. for over 300 units comprising of our Pro Series 300 and 400 transmitters, Air 300 units, Rack 400 systems, many Makitos, many Mojo Pro mobile player licenses, and many live guest licenses, and of course, many of our StreamHab control system licenses. In addition, the entire ecosystem will be connected with our Hub 360 cloud-based platform. The global rollout has already begun and is being installed during the next several months. All I can say is that CNN has decided to go with HiVision for our flexibility, our quality, our performance, our support, and most of all, trust as a vendor to deliver the best technology for their needs. As you can imagine, this is a huge win for the company, and it's only the beginning as we embark on our success in the wireless market. The next generation Falcon series of transmitters will make our solution even a stronger proposition for other customers. So in summary, couldn't be happier with our performance as we maintain a strong focus and attention on the revenue growth. So I will now pass it to Dan to continue with the detailed financials.

Thank you, Mirko. Good evening, everyone, and thank you for joining us. I'm pleased to walk you through our performance this quarter. which I'm classifying as the end of a transition and the beginning of strategic momentum. Let's start with the top line. Q2 fiscal 2025 revenue came in at $34.3 million, up modestly by $100,000 year-over-year. Year-to-date revenue for the first six months was $62.5 million, down $6.3 million or 9.2 percent from the prior year. Importantly, though, Q2 revenue grew 22% over Q1, showing sequential strength and renewed sales energy. Some of this quarter's revenue growth, about $2.1 million, came from favorable FX tailwinds due to Canadian dollar volatility, but there's more to the story. We have been navigating a shift in U.S. government buying behavior and a move away from the integrator model in the control room space towards being a manufacturer and supplier of proprietary products. This transition is now largely complete, and the results are beginning to show. Our sales have overtaken past sales levels that included those third-party lower margin components. Our pipeline of opportunities is stronger than ever, and we have seen a notable rise in large scale opportunities. We believe we have reached an inflection point and it bodes well for the second half of this year. Our recurring revenue from maintenance support and cloud services continues to show sound growth. Occurring revenue was 7.2 million this quarter, up 11% year over year, and it was $14.2 million year to date, a 10% increase. Recurring revenue now makes up 21.2% of Q2 total revenue, and that's up two points from last year. This marks our second consecutive quarter of double-digit recurring revenue growth, a strong indicator of customer loyalty and a key contributor to future stability. Gross margins have stabilized after a softer Q1. Gross margins improved to 73 percent, up from 71.7 percent a year ago. That's a 130 basis point improvement. On a year-to-date basis, margins are steady at 72.5%, near our long-term expected average. With that said, we may continue to see quarterly variations of gross margins related to the timing of U.S. Navy deliveries, which is more closely aligned with MCS's legacy integrator model. The seasonality of certain product families may impact quarterly margins, although recently announced product introductions have dissipated margin differences between product families, and the increase in sales of software-only options or virtual machine deployments, which have a higher gross margin than our typical software sales when pre-installed on servers and sold as a complete appliance. Now, total Q2 expenses rose to $28.2 million, That's up 5.5 million year over year, but context really matters here. 1.5 million relates to settlement and legal fees that were incurred. 1.8 million stems from currency-related impacts, largely from the weaker Canadian dollar compared to the Euro or U.S. dollar. And we also made strategic investments in R&D and incurred higher sales and marketing expenses related to higher levels of revenue. So let's dive into each one of these three factors that impacted quarterly expenses. A non-recurring expense of 1.5 million was recorded regarding a dispute filed back in 2017. The judge largely ruled in our favor, but the plaintiff has since appealed the decision. A final decision won't be known for 12 to 18 months. A second major factor affecting total expenses was recent trade actions between the U.S. and other countries, which created uncertainties in the market and ultimately cost HiVision $1.8 million in additional expenses. Approximately 80% of our total expenses are denominated in the Euro or U.S. dollar. And we've witnessed the Canadian dollar slump, when tariffs were imminent and then rally when the US administration announced a reprieve. The weak of Canadian dollar impacted its total expenses by as much as $1 million in the quarter. And additionally, the weak of Canadian dollar had an impact of an additional 800,000 related to the value of assets and liabilities on the balance sheet, which was recorded as a foreign exchange loss within total expenses. And specifically, within general and administrative expenses. Lastly, some expense growth had always been planned, and some was circumstantial, but all of it ties to long-term positioning and second-half revenue growth. We had always planned on incremental investments in research and development, and for that matter, operations and support, to support the large number of new product introductions and growing business initiatives. We also incurred some incremental selling expenses like commissions and bonuses that were paid on buoyant sales that were incurred in the second quarter. Our sales teams are compensated on sales rather than on revenue. In terms of some seasonal spending, one of our largest trade shows is the National Association of Broadcasters, commonly referred to as an NAB. It is the first of our two largest trade shows that we exhibit at. Thus, total expenses will tend to be higher in the second quarter, and we should see a similar result in our fourth quarter when we will be exhibiting at the International Broadcaster Convention, commonly referred to as IBC, in Amsterdam. At April 30th, we did end the quarter with 380 employees compared to 365 employees last year to illustrate the incremental investments we've made. The result of the flattest year-over-year revenues, albeit with slightly enhanced margins, and the $5.5 million increase in total expenses is that we did have an operating loss for the quarter of $3.2 million compared to operating income of $1.8 million in the same period last year. The $500,000 in additional gross margin was only partially able to offset the $5.5 million increase in total expenses. And then again, as a reminder, Total expenses were impacted by $1.5 million in non-recurring expenses and $1.8 million in additional expenses related to the weaker Canadian dollar. Turning to adjusted EBITDA, adjusted EBITDA for the quarter was $1.7 million compared to $5.1 million in the same period last year, a decline of $3.4 million. As I mentioned, improving gross margins resulted in half a million in incremental gross profit. However, if we normalize total expenses for share-based payments, depreciation and amortization, the non-recurring impact of legal, and then operating expenses were 23.3 million, or 3.9 million higher than the same period last year. The adjusted EBITDA comparison for the six-month period isn't dramatically different than what we experienced in the second quarter, but was further encumbered by the year-over-year revenue decline in our first quarter. For the six months, adjusted EBITDA is $2.2 million compared to $10.2 million in the prior year. That's a decrease of $8 million. So, in addition to the $3.9 million increase in operating expenses cited earlier, year-to-date revenues fell short of prior year by 6.3 million, resulting in a 4.4 million shortfall in gross profit when compared to that prior year. With respect to the balance sheet, we ended the quarter with cash balances of 11.8 million. That represents a decrease of 4.8 million from the end of last quarter. A primary driver to the decline in cash is the 2.3 million decline in deferred revenues related to maintenance or contracts, which have been invoiced for which revenue has yet to be realized. But also, in January, we announced TSX's approval of our normal course issuer bid renewal, our NCIB. In this second quarter, we purchased over 400,000 shares for cancellation through the NCIB, totaling $1.9 million. and that is $2.8 million on a year-to-date basis. We've had some payments on term loans and lease liabilities, which amounted to another $600,000 during the quarter, and we also had capital expenditures during the quarter amounting to another $400,000. As a point of information to the group, between last year's NCIB and this year's renewal, HiVision has purchased over 1.4 million shares for approximately $6 million. And we still believe that the stock is undervalued at today's prices. We still maintain the $35 million credit facility with the opportunities to expand the size of the line of credit if strategic opportunities arise. And there's only about 7.3 million outstanding on that line of credit. So let's turn our attention towards tariffs. Last earnings call, we suggested that things are fluid. Unfortunately, not sure we are seeing much more clarity today, but as things stand today, we are a Canadian company, and the majority of our production of proprietary technology is done in Canada. Fortunately, our proprietary products are governed by the United States-Mexico-Canada Agreement, USMCA, which replaced NAFTA back in 2020. Thus, there are no tariffs for our proprietary products manufactured in Canada, when sold into the United States. In fact, we may be in an advantageous position. Many of our competitors are overseas and may not have the benefit of the USMCA with respect to tariffs. And Canada isn't currently imposing tariffs on countries that provide critical technology components, whereas the US might take a different position. Now, the same isn't true of our products that are currently manufactured in France, namely our transmitter products. In April, the US administration announced broad tariffs on imports, which includes a 10% base tariff on all imports into the United States. However, the impact of these tariffs haven't been significant. Yes, Mirko did allude to the significant success we are having with the transmitters in the United States, However, it's still a relatively early initiative for us. We also have means to lower the overall impact of tariffs. Tariffs are paid on the value of goods when they cross the border, and our corporate structure and transfer pricing methodologies enable us to mitigate some of the impact. Mirko also mentioned recent product introductions like the Falcon X2. A new product introduction is a great time to re-look at our manufacturing strategy and where best to manufacture such products. Of course, any tariff impact is really predicated on whether we can transfer the tariff burden to our customers, and we've had conversations with customers, and thus far they've been largely receptive. I should also mention that we have a handful of tactics that are being considered for each of those for each of these tariff areas that we can accelerate or delay depending on the day-to-day actions of the U.S. administration. With that said, we believe our current course of action should provide us a cost-effective solution with little risk. So for the time being, we intend to stay the course at least until there is some future clarity. And hopefully individuals with deep expertise on tariff macroeconomics are addressing the various issues, and that thoughtful, level-headed decisions will be made. So to summarize, this quarter was a mix of transition, stabilization, and building momentum. We've crossed key milestones in our business and in model shifts, and our recurring revenue is growing steadily. And the pipeline has never looked more promising. So with that said, I'm going to hand the mic back to Mirko for Q&A. Thanks for everyone for attending.

Thank you. Abby, let's take some questions, please.

Great. Thank you. And if you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star one to join the queue. And our first question comes from the line of Robert Young with Canaccord Genuity. Your line is open.

Great. First question, just on the gross margins, the expansion, you noted this quarter. Is that all driven by the business model changes, the shift from integrator to manufacturer, or is there some raw material benefit? I think you highlighted some. maybe some advantageous situation there. What are the drivers there behind the gross margins?

Well, I would suggest that the transition from an integrator to manufacturer is having a positive impact on the business. We are not selling nearly as much of those third party low margin components as part of our solutions in the control room space. But I would also suggest to you the opposite is true as to what happened in the Q1. In Q1, the fixed cost of production was being amortized over a lower revenue level. Now that we've reverted back to our typical revenue levels here, it's being amortized over a broader amount of revenue, and thus we've been able to see margins improve.

Okay. Okay. That's great. Helpful. You said that there was a solid increase in pipeline. Is that a general comment, or is that focused on the control room market? He was general, but maybe just back up. Like, what are the areas of excitement? Can the Abby West business, the contribution business, does that continue to sign these large deals like this $5.5 million win? Is there more of that in the pipeline? And maybe there's a broader commentary on the pipeline.

The comment was a general comment on our overall pipeline, but it's certainly true of the control room space as well. We've seen robust sales efforts in both areas across our entire company, and it's giving us the a lot of confidence in the second half of the year.

Yeah, one thing maybe I'll add, Robert, is one of the things I didn't kind of mention in my talk, but since you bring it up, out of 21 years of HiVision, honestly, I have never seen such a long list of multimillion-dollar opportunities that we're involved in. which only leads me to believe that we're getting involved in much larger opportunities, that's for sure. But at the levels and the amounts of them, I think you can expect that there's going to be some significant announcements over the next two to three years. So the pipeline is very, very strong.

That's great to hear. And is that mostly around the wireless contribution space?

No, no, no. No, no, no, no. I think it's the control room space. Market is massive. Right now, our mission is about two-thirds of our business. Our broadcast live events and sports is about a third. But it's actually – we're seeing very large opportunities in both of those. It's all across the board.

And then more specifically on that win with CNN – Can you dig into the drivers there, if you could? Was it on the basis of superior product or superior roadmap? Was it pricing? What was it that encouraged CNN to rip and replace your competitor in favor of you?

Well, the fact that I'm not even allowed to say CNN, I'm going to get in trouble, but I erred on a different level because I think it's a significant opportunity. But it's really with Warner Brothers, which owns CNN and a million other properties. So it's the entire umbrella, which is very cool. So we now have a master agreement signed with Warner Brothers, which means we don't have to negotiate separately in any of their properties, right? And they own a tremendous amount. In fact, some of them are our customers using Makitos, right? So this is a huge, huge deal. Now, the main... The main reason that they wanted to get out of LiveView is, number one, technology. They saw that our technology, together with the Hub 360 opportunity that ties everything together, really gives them a compelling new way to do their work. Also, the transparency in our business model, and especially the data rate and the charging, that they were just getting frustrated with not getting... uh, explanation and, uh, to why they're being built tremendous amounts of money for data rates, uh, where our solution is very clear and detailed oriented. And the fact that they got accustomed to our support and attempt to this and our, our reliability and a professionalism and our support. Um, so it goes beyond just the technology, the products, it's the people, the company, and, and, and they just wanted to go with high vision. This is a big step. I just, 18-year relationship this is not a simple decision but it's it's going to crack the dam in my opinion where uh people are now going to look at all the tier one broadcasters are going to be well already are opening up their eyes as to um all of our transmitter strategy this is not even we're not even talking about our roadmap or new technology by the way this is our current pro 3 and pro 4 series we're not this deal doesn't include anything to do with our falcon This just just gets better with our Falcon technology.

It's great to hear maybe the last question. I'll pass the line. I think last quarter you're a little bit cautious on some of the risk around the US. Spending I know you're covered a little bit of already covered that a little bit, but just, you know, as it relates to Doge and some of the tight spending, maybe just talk about that and you know the impact on the air turn terminal class line.

Sure. I mean, look, remember, we've always said that if you look back last year, we had a very strong Q1 and strong Q2 and crappy Q3 and Q4, right? Because remember with our revenue decline of our business model, and we said for 25, it's going to be exactly the opposite, right? Bad Q1 and bad Q2 and good Q3 and Q4. The fact that we had a really strong Q2, we're ahead of the curve. So that's good news, right? We feel very confident on Q3 and we feel very confident on Q4. So the good thing is we're ahead of the curve. Now, we got slapped upside down with the tariff, not the tariff, the foreign exchange nonsense, and some of that stuff hurt us. It is what it is. But the fact that Q2 is stronger, significantly stronger than we expected, that's good news. But also we've seen the defense spending and government, U.S. spending, a little bit ahead of the curve. and I think a lot of people were just afraid. I think they're seeing, they don't know where Doge is going next, right? Are they going to hit the military defense or not? And I think that also helped fuel the pipe. Now, it seems that the defense is going to get more spending and they're not going to be cut and chainsawed, but we don't know. So I think we've seen a little bit of that. But right now, we have not seen any of our programs moved We haven't seen anything canceled. Nothing's been pushed out. In fact, we're seeing some stuff pushing in. So we're cautiously optimistic. We feel that the government, defense sector, if anything, across the world is increasing their budgets. So we're seeing it in all other countries, not just the U.S., where we're getting opportunities where people are increasing, especially in Europe, are increasing their defense budgets. police budgets, security budgets, emergency response budgets, which is all good for us, which involves Makitos, Krakens, all of our ISR properties, including the control room systems, exploitation systems. So it's all going in the right direction for us from a pipeline build, and we're very, very optimistic for the next, you know, five years.

All right. Thanks for all that, Paul. I'll pass the line. Thanks. Okay.

Our next question comes from the line of Daniel Rosenberg with Paradigm Capital. Your line is open.

Thanks for taking my questions. My first one comes around just the strength of the pipeline and kind of visibility you have towards the end of the year. I was just curious how far, you know, just... I'm curious around the conversion from pipeline to concrete revenue and then kind of, you know, how that lines up for when you think about Q3 and Q4 and the confidence you have in getting back to double-digit growth.

Well, very good question. You know, given our two business focuses, right, we've got the broadcaster, we've got the mission, and obviously the mission piece is a much longer transition, a lot much longer sales cycles. which, you know, we usually see at least a three to four, if not higher quarter conversion rate, even from sales, even if we get the order to revenue could take up to two, three, four quarters just because of commissioning, you know, these complex rooms. So that's, it's a very difficult one. Every customer is different, right? Whereas in a broadcast, it's usually much sooner, right? Broadcast, you can get the order, get the sale. We ship right away as revenue. So usually it's within the one or two quarters. Although here we're talking about CNN, and that's going to be multiple quarters. So there's all the exceptions. But I'd say what gives me comfort is that we've been talking about pipeline first, right? And then you look at order rates. Right. So forecast because pipeline is one thing that's a long term. But then you get the forecast where you're really forecasting within the first, you know, one or two quarters, you think you might get the order. And then once you do get the order, then you got to look at, you know, when is it going to be revenue? Probably two quarters. So we expect, like we said before, is we should see the second half kind of pick up from a revenue perspective. Uh, and we really expect 26. Well, we said double digit growth 26. We're going to maintain ramping that through 26 and then 27 is really where the us Navy contract starts kicking in on top of that. Right. So, um, nothing's changed from what we've been saying. Second half is going to be better than the first half. We've said that from day one, we just have a very good, uh, Q2, which is great. We just got to see how big Q4 could be and had some of those defense or government orders pushed earlier that should have been in Q4. We don't know yet. But overall for the year, we're on track to say what we said. We're going to be very similar to last year. We're going to have higher OPEX, which is clear. We're investing more in R&D. We've got more people than we did last year. And, you know, it's all preparation for 26, 27, and 28.

I appreciate the color. My next question was just around the Navy contract. I was wondering if you could speak to how that ramps up and just the impacts on the margin mix for the overall business. I know a lot of things are changing, but just trying to get a better handle on how that margin plays out with the ramp of the Navy contract.

Dan, do you want to take that one?

Sure.

I think that we kind of mentioned that the Navy contract could have an impact of 60 basis points to our overall gross margin, but we've been supplying the Navy over the last two quarters, even longer than that. And so that's already sort of reflected in our financials. So the long-term average that I spoke of before is likely to be the long-term average. Now, we may have a little bit of volatility if the Navy deliverables represent a disproportionate amount of a business in any given quarter, but we're not seeing that kind of a schedule being rolled out as of now. So I would tell you that the impact is fairly negligible at this point, but it probably was about 60 basis points for the overall business.

Okay. And then, you know, at, Just in terms of workflow that you're doing there, are there any kind of key dates or shifts in schedules that are going to occur in the coming quarters or, you know, a steady cadence? How do we think about that?

In terms of the Navy transaction? Yes. Well, there are deliveries planned throughout the summer and towards the tail end of our fiscal year. We're very keenly focused on meeting those deliverables. remember this is the Navy and they have to be put on ships and those ships come into dock at a certain point in time and we have to be ready for that. So most of our attention is making sure that our fulfillment processes are sound and that we can deliver timely and thus far it hasn't been an issue for us.

Okay. Great to hear. And maybe the last one for me, you know, just thinking about the history of your company, you know, you used M&A in the past to assemble leading technologies. I'm just curious if you could give an update on the M&A landscape as you see it. Any thoughts around things you'd be interested in having? Just a general commentary around the strategy there.

Well, I don't think anything has fundamentally changed regarding our M&A strategy. We're still talking to all sorts of companies on a regular basis, looking for fit, looking for strategic benefit, and what have you. We are a bit compromised in that our share price is undervalued, and thus we don't have the shares, the stock to be used as a currency. So we're kind of limited to non-dilutive means of being able to acquire companies. So it's limiting us a little bit here. But nothing has fundamentally changed. We're just trying to be quite in that we're going through this evolution, going through this transition. We're focused on that. And as we continue to go through that effort, if the opportunity arises, we do have means to be able to execute it, provided the target isn't so large that it outstrips our capability of being able to digest it.

Okay, understood. Thanks for taking my questions. I'll pass the line.

And our next question comes from the line of Jesse Peitlik with Cormark Securities. Your line is open.

Hey, good evening. Just coming back to Dana's question on the Navy systems contract. I believe in the past you might have alluded to seeing expectations for a more meaningful kind of volume ramp towards fiscal fourth quarter this year. Is that still the expectation or is that maybe moved around a little bit now?

Well, fourth quarter, we do have a significant, we have significant deliveries that we're going, it is ramping up as we speak right now. And I think what Mirko was kind of alluding to is that we're going to start seeing the benefit of the production contract towards the tail end of the year, but that production contract also has a ramp to it. And as we see it, we expect that ramp to have some significance in 2026, but even more significance in 2027 and beyond. Now that's also subject to change, right? Uh, we have also seen that the Navy has been trying to accelerate some of the deliveries. Uh, but we, we really sort of in the negotiation stage with respect to this first option year. And, uh, we have yet to see what the final outcome will be of that.

I would just add to that. Just, I would say, you know, cause I know we did say originally in the beginning of the year, we were planning the most of the delivery in Q4 to your point. I think what we're going to see now that they've been trying to move it up, we might see that smoothed over between Q3, which we're in now, and Q4. So it might not be a spike. It might be actually more level, which will be actually a good thing. For the opportunity that Dan was talking, that's really for next year, right, which is really the second half. It will be second half of 2026. But I think we might see more of a smoother rollout in Q3 and Q4 for the remaining of this year.

Okay, that's helpful. Thanks for the clarification. And then maybe just moving over to the Warner Discovery win, congratulations on that. In terms of the $5.5 million, is that going to be kind of pretty much a smooth recognition, or will there be any lumpiness in that? And then can you maybe just speak to timing around other potential wins with other properties within the Warner Discovery family?

I wish I could, but hopefully there'll be many. I mean, one of the large pieces of that, again, the deal, because, again, it's CNN specifically for this one, is a large data component, which obviously will be recognized, you know, starting probably in about three months when they really start fully exercising systems, which will go on for the next year. So that will be recognized later. That will be part of deferred revenue. Most of the equipment, not most, but the majority of the equipment was shipped at the end of April, and the rest is being shipped as we speak. So from a revenue recognition, the hardware, software, all that stuff will be done this quarter. And it's just a data piece, support piece. It's significant support and installation, commissioning, and all that. As you can appreciate, this is a very complex global rollout from 17 different operations and countries. So the coordination is – I mean, for us, this is a pretty significant deal in the wireless space that we've never really played at large scale. So we're learning as we go, and we're working very, very closely with CNN. So the next three to six months is going to be critical. And I like to say that we are already talking to every broadcast tier one company because they're all using Makitos. They all know HiVision, but they don't use our transmitters. And guess what? Everybody is extremely anxious to see why CNN picked us and why this happened and they're all evaluating our technology. So I think it's I think you're going to see over the next 18 to 24 months a very good, healthy growth in our transmitter business because this is a big one. For CNN to go, that's huge, very huge.

Okay. Thank you for that. Maybe just then on one final question, then just with respect to the control room business and building up that international presence, channel partnerships. Can you maybe just give an update on how that's been progressing, if you're seeing any particular progress in any specific international jurisdictions, and just maybe expectations on when you could start to see more meaningful revenue contributions start to roll in?

Yeah. No, it's progressing very well. We had been postponing some of our training for international, but that's now is about to start. We wanted to start that earlier in the year. So we're actually winning deals. We're actually seeing our forecast and our pipeline grow dramatically international. We've made quite a few installations. Unfortunately, a lot of them we cannot name. But it's progressing very well. We've hired people. We're growing the team. The training is about to start international. We've already had our several training sessions in the U.S. specifically for the U.S. partners. So that's progressed very well. So I expect that to really kick into gear in the second half of this year where, you know, I see 26 is going to be for us a very healthy growth in the international space. All right, perfect. That's all from me. I'll pass the line.

And as a reminder, just star one if you'd like to ask a question. And our next question comes from the line of Nick Cochran with Acumen Capital. Your line is open.

Hey, guys. Most of my questions have been answered, but maybe the first one, Canada has recently announced increased military spending. I'm just wondering how you're positioned to benefit from that going forward.

Good question. I mean, I speak to my field guys, and we're definitely talking to different levels in the Canadian defense industry, so we're all over it. Unfortunately, if I look at it, the Canadians have always been very close to the Americans, and so it's a bit of an awkward situation at the moment. So I think as a Canadian company, we're positioned very, very well and I think we're going to take advantage of it. So it's going to take a little extra work right now. You know, Canadian military already uses our stuff, but we just need to work a little harder right now to try to take that Canadian position because we've always kind of used the fact that, hey, the U.S. is using us. We're the gold standard. It's a non-issue, but I think, you know, right now we've kind of got to revert a little bit and kind of put up the Canadian flag, if you know what I mean. So that is happening as we speak, right?

Great. That's a great color. And then maybe last question for me. I know you mentioned that large win for the 5G products. In the past, you spoke about leasing those products. How is that going?

The rental program and the long-term leasing program is still ongoing. I mean, we're doing much better in Europe because they've been running that for many, many years, even as part of Abbey West, right, when we bought them. So It's a machine more in the U.S. We're doing okay. Do I think we're doing great? No, I think we can do better. So we've got a huge focus on our rental and long-term lease programs in the U.S. where we're going to be investing in inventory, in partnerships. So we're still working it. It's still a very, very small piece for us. It's not a needle mover at all. But interestingly enough, if you look at the deal we just won, uh, you know, they were actually leasing for millions of dollars from live view per year. Now they, and they went with us and they bought everything. So it's kind of interesting. So I'm not sure if the dynamics are changing in that industry or not. Uh, but, uh, you know, we're, we're still committed to the long-term lease and, and for the rental.

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

Cool.

And we have no further questions. So I will now turn the conference back over to Mr. Mirko Wicca for closing remarks.

Super. Thanks, Abby. And well, in closing, again, just reiterate, we're committed to maximizing our long-term value for all of our shareholders. And we're very confident in our ability to execute our strategic revenue growth plan and deliver solid growth for the future as promised. We just want to thank all our shareholders and analysts on the line today for their continued support of HiVision. I look forward to speaking with all of you in mid-September when we discuss our third quarter results. Thank you, everybody.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.