Haivision Systems Inc.

Ladies and gentlemen, this is the operator. Today's conference is scheduled to begin momentarily. Until that time, your lines will again be placed on music hold. Thank you for your patience. Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the high vision fourth quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. I would now like to turn the call over to Mirko Wicca, President and Chief Financial Officer. Sir, please go ahead.

Thank you, Tiffany. Just to make a correction, I am the Chief Executive Officer. Dan is the CFO, but that's okay. I will steal all this thunder anyways. So thank you everyone on the call for joining us today to discuss the fourth quarter of our fiscal year 2025. which ended October 31st. As mentioned in our previous calls, we are now well into our two-year strategic plan as we continue to deliver the double-digit revenue growth we have been promising. Today, I'm very happy to report that we achieved a high-vision record quarterly revenue in Q4, eclipsing $40 million for the first time ever in any quarter. We also delivered 17.6% EBITDA margin performance. We have always said that to achieve 20% plus EBITDA performance, we will need to be at scale, you know, around $150, $160 million range. I believe we are very close to delivering on this targeted EBITDA range and demonstrate the full earnings potential of Hivision. Our continued double-digit revenue growth is part of our long-term plan to bring us to our historical CAGR growth rate of approximately 20% since the founding of Hivision. The focus this year and the next year is all about cementing the foundation for a long-term, consistent, high-revenue growth. I believe we're in a good place right now and on the right path to deliver this long-term growth. We have seen the bottom of the revenue curve back in January of 25, which is now over a year ago. Our key fundamental business model for the control room market, which was the move away from being an integrated to manufacturer, has been complete for several quarters now. We are seeing a continued increase in our long-term sales pipeline. Our business forecast is compelling, and we are seeing strong demand in this market, not just in the U.S., but worldwide. As I also mentioned before, we have been investing in many new product development initiatives and introductions throughout 2025 in some which are yet to be announced. Back in May, if you remember, we launched the exciting next-generation AI-based hardware tactical edge processor for the defense, military, and ISR markets called the Kraken X1 or the KX1. It has been extremely well received as it delivers incredible computing performance for AI-enabled encoding in real time, utilizing the latest NVIDIA chip technology. It's already creating lots of excitement within the ISR and defense community. We have also successfully showcased our next generation transmitter platform called the Falcon X2 at the NAV show back in April and are now shipping the product in volume. The early demand is already outstripping our initially planned production and we are increasing inventory supply chain significantly to handle the strong demand. In fact, the Falcon has been the most successful product launch in the history of the company, and the product is performing very well in the field. Customers are embracing our innovations on 5G networks and more efficient MIMO antennas, especially in our European markets. The compact Falcon transmitter is changing the ballgame for single camera contribution in the market and upping the standard for quality. Now, speaking of ballgames, While we have been introducing a transmitter product line into our traditional Makedo customers, we are by no means taking the focus off the very important fixed contribution part of our business. I'm very pleased to announce here today that HiVision has been selected as the official video encoder of minor league baseball. As a technology partner of minor league baseball, Makedo will be playing a key role in contribution from minor league stadiums and the delivery of over eight thousand games for streaming and TV. Now this partnership represents a major vote of confidence in high vision from a globally recognized brand expands our reach into the world of baseball across North America. Our reputation driven by leadership across globally recognized brands like the SRT protocol and the keto platform now joined by Falcon continues to strengthen in industry and open amazing doors for high vision. Now, strategically, the company is landing landmark defense contracts, installing large multinational operational control room deployments, demonstrating clear leadership in private 5G networking, and gaining industry recognition for our technology leadership. All these efforts are already bearing fruit as seen from our Q3 and now Q4 results and will continue throughout our fiscal 26 and beyond. Let me try to be more clear and direct on why we are so bullish on our business for the foreseeable future, meaning at least the next three to five plus years. All, and I mean all of our mission-critical focus markets are performing well, and we don't see any slowing down for quite a long time. Let me be more specific. Our mission business, which represents two-thirds of our revenue, We only see increased spending and growth for the next five, ten years within every defense, military, and government in the world. This is not stopping, and HiVision is an important and trusted vendor providing solutions for this industry. Border security is only getting more attention, and it's not going to stop, given what we see in the world today. Our products are the gold standard deployed globally in defense, military, ISR, and security operations. This is a market that will continue to grow for a long time. One that high vision is also very strong in. Police forces and emergency response teams everywhere need more reliable and secure platforms more than ever. Global unrest is unfortunately not slowing down and public safety is a massive future growth market. This is another big focus for high vision technology and one that we're very successful in. And the controller market, Enterprises, banks, utilities, military, governments are all in desperate need to install and implement sophisticated, powerful, and secure monitoring systems to protect their assets, their people, their facilities, and the ever-increasing levels of global cybersecurity threats. The need for centralized, real-time, secure video operational rooms is simply going to keep increasing for many years to come. It's not slowing down. This is another area where HiVision is positioned to be a global leader. Now in our broadcast vertical, which represents about a third of our revenue, HiVision focuses actually on the most coolest and exciting part, the live sports events and live news. These are the most exciting but fastest growing areas within the large broadcast vertical. These are the areas that are responsible for all the money, advertising, and it's only increasing and not slowing down. So HiVision is well-positioned as a leader in both the wired and wireless 5G space, providing the lowest latency, highest quality, most reliable, and most secure video technology on the planet. This is what HiVision stands for, and this is what customers need and are asking for. The strong reputation and success of the Makedo and SRT combined with the new private 5G Falcon provides a significant competitive advantage for high vision for the foreseeable future. Thus, all our markets are bullish with no signs of slowing down anytime soon. This is why we are confident on our long-term potential and see double-digit revenue growth for years to come. I couldn't be happier with our record Q4 revenue performance And I would like to reiterate our continued focus and attention on revenue growth and higher profitability. And in closing, I would just like to strongly reconfirm our fiscal 2026 guidance, which Dan will be able to discuss later, of delivering $150 million plus in revenue in 2026. Our plan is to maintain pretty much a flat OPEX over 2025 while delivering double-digit revenue growth, meaning and resulting in in a 50% plus increase to our overall EBITDA over 25, as our cost structure and gross margins are well in control. So double-digit EBITDA and double-digit revenue growth is what we expect for 2026 and well beyond. This is what we've been working hard towards the past 18 to 24 months, and we see this year as a significant inflection point for high vision. Dan, please continue with the detailed financials.

Thank you, Mirko. Good evening, everyone, and thank you for joining us today. On our last call, I suggested that we are beginning to see the sales momentum reflected in our financial results. This quarter, we have solidified that position with our second consecutive quarter of double-digit revenue growth and very sound adjusted EVDA margins. By all measures, our fourth quarter performance was compelling. So let's begin with the top line. Fourth quarter fiscal 2025 revenues were $40.2 million. That's up 33 and a third percent or $10 million over the last year. For the full fiscal year, revenue was $137.6 million. That exceeded the prior year by 6.2% or $8.1 million. We made up a lot of ground from the week first quarter and the relative slattish second quarter. both Q3 and Q4 significantly exceeded prior year revenue levels. Exchange rates, which helped us in the first and second quarter by about 4%, normalized in the third and the fourth quarter, and their impact was half of that of the first half. So we're talking about solid organic growth in the second half of the year. Our year-over-year growth is even more impressive as revenue from our control room solutions excluding third-party components, are soundly surpassing last year's levels, which included those components. Control room sales for the year increased by over 35%, whereas sales of third-party components declined by another 20%. Remember, the Navy contract is a legacy systems integration model and will continue to include third-party components. And given the nature of the business overall, we will not be able to avoid third-party components entirely. Our recurring revenue from maintenance and support contracts and cloud services continues to grow year over year. In our fourth quarter, recurring revenues were 7.3 million. That's up 8.6% year over year. For the full fiscal year, recurring revenues were 28.9 million, an increase of 10.2%, a rate higher than our full fiscal year revenue. Recurring revenues now represent about 21% of full year revenue, and an even more impressive outcome considering the tremendous growth in product revenue we saw in fourth quarter. We expect to continue to see sound year-over-year growth in recurring revenue as total revenues continue to build. Recurring revenue is not only sticky, but provides stability. And combining recurring revenue with programmatic revenue, which includes multi-year deliveries, gives us really good visibility to overall fiscal year revenue. Gross margins in our fourth quarter were 73%, consistent with the prior year. Now, gross margins are impacted by the overall magnitude of sales, which enable us to leverage the fixed component of cost of sales, like production labor, fixed technology licenses, and reserve costs. And on the side, we typically see higher gross margins in our fourth quarter, which is commensurate with the U.S. government year end and typically is the largest quarter in any given fiscal year. Now, gross margins are also impacted by the timing of deliveries under our U.S. Navy contract, as that Navy contract is a legacy systems integration contract, including certain third party components. We also are impacted by seasonality in the mix of product ships, shift, and software-only or virtual machine deployments, which have higher than average gross margins. On a year-to-date basis, margins were 72.5% in line with our long-term expected average and only slightly below last year's rate of 73.1%. Total expenses this quarter were 25.4 million. That is up 3.6 million from last year. As had been communicated on prior calls, we made incremental investments in sales and marketing and research and development to exploit the opportunities that are presented to us and to groom the company from double digit revenue growth. Thus, the main drivers to the quarterly increase in expenses include about 1.2 million in sales compensation, including variable compensation related to higher than expected revenues. Roughly 1.1 million in additional R&D investments consistent with our plan to add engineering resources for new products and business opportunities. Approximately half a million is related to differences in foreign exchange rates and then another 400,000 from non-cash share based payments, which can vary based on the nature and the timing of those grants. Looking forward, looking forward this August will be our five-year anniversary of the HiVision MCS acquisition. Thus, technology purchased as part of the acquisition will be fully amortized, reducing total expenses by about $600,000 per quarter. The following April will be the five-year anniversary of HiVision France. Thus, technology purchased as part of the acquisition will be fully amortized, reducing total expenses by another 350,000 per quarter. With the exception of amortization expenses, which will decline, and the timing of trade shows, which can shift from quarter to quarter, the underlying expense base is becoming relatively fixed. For the full year, expenses totaled 101 million, up 11.8 million from last year. The increase reflects a couple of things. 2.1 million comes from currency impacts. We have launched hedging programs on Euro denominated assets and liabilities to reduce the Canadian dollar exposure to such fluctuations. This is in addition to the hedging program for U.S. denominated assets and liabilities. 1.7 million of the increase is a non-recurring litigation expense related to the VITEC case. The reward represents just a fraction of their original claim. Now, Vitek has appealed the judge's ruling. Nevertheless, we've already recorded the full liability, including damages, interest, and trial costs. 1.2 million of the increase is from non-cash, share-based payments, which can vary based on the nature and the timing of those grants. In some respects, these expenses, which make up $5 million in the increase when compared to prior year, outside of our control. But the remaining increase represents investments we chose to make. Normalized for the foreign exchange implications, we spent an incremental $2.9 million in operations and support, a million of which is related to our cost of our internal technology staff. The rest of the increase is lodging people costs to support the numerous product introductions and the U.S. Navy deal. We spent an incremental 2.4 million in sales and marketing. Again, largely in people costs to facilitate our double-digit revenue growth initiatives. But you should note that variable compensation in fiscal year 2024 was not as buoyant as it was in fiscal year 2025. Thus, the year-over-year comparisons may not be completely fair. Variable compensation to the sales organization represented in and of itself about a million dollars of the increase. We also spent 1.9 million in research and development, largely in people cost and cost of materials to assist in product realization. Now, as you've heard in past calls, these investments have resulted in some new products in 2025 and will secure the timely availability of new products in fiscal 2026 as well. So higher revenue in our fourth quarter contributed to an incremental 7.3 million of gross profit. And with expenses up only by 3.7, our operating profit was 3.9 million, exceeding last year by 3.6 million. And for the full fiscal year, the 8.1 million in incremental revenue resulted in incremental gross profit of 5.1 million. Thus, for the reasons outlined earlier, our total expenses rose by 11.8 million and our operating profit of 5.5 million, I'm sorry, our operating loss for the year was 1.2 million compared to an operating profit of 5.5 million, which is a swing of 6.7 million. But as most of you know, we really focus on adjusted EBITDA as it gives us a clearer view of our performance by stripping out the non-cash, the non-recurring items like depreciation, amortization, share-based payments, and the cost of legal settlements. So for Q4, our adjusted EBITDA was 7.1 million compared to only 2.9 million last year. That's an increase of 4.1 million or an impressive 140%. The adjusted EBITDA margin was 17.6%. Let me emphasize this point. Our adjusted EBITDA margin of 17.6% is very close to our long-term expectation of 20%. For the full fiscal year, adjusted EBITDA was 12.8 million compared to 17.3 million last year. We did make incremental investments as we've disclosed in previous phone calls to exploit the opportunities and to prepare the business for growth in 2026 and beyond. We ended Q4 with 17.2 million in cash. That's an increase of 6.3 million. from the end of last quarter. In addition, the amount outstanding on the line of credit declined by 5.2 million. Thus, the net increase in cash in this quarter was an impressive 11.6 million. The financial statements as presented don't show much of the increase in cash because we also purchased 4.9 million in shares for cancellation We have been paying cash-based taxes of 1.5 million, and we have repaid loans for another 300,000. On that matter, I just want to remind everyone, in fiscal 2025, we actually purchased about a million shares for cancellation for an investment of 4.4 million. Over the last two NCIB programs, we purchased about 1.8 million shares for cancellation at a total investment of 8.1 million. Our credit facility remains strong at $35 million, with only 2.7 million outstanding at year end, with room to expand if strategic opportunities arise. Total assets at year end were 145 million. That's an increase of 3.7 million from the end of fiscal year 2024. The increase in assets is largely related to the $5.6 million increase in receivables, which is based on revenues, and $3.1 million increase in deferred income taxes. Now, these were offset by the decrease in the value of goodwill and intangibles, largely the result of ongoing amortization, and a decrease in the value of inventories. Just a note about inventories for a second. Yes, inventories decreased 1.6 million this year, but I'm also happy to say that inventories declined by 8.1 million since peaking in the second quarter of 2023. Total liabilities at quarter end were 47.5 million. That's an increase of 2.9 million. Now, that increase is largely the result of an increase in payables by $3.2 million. Now, to avoid the typical questions that we really, we usually receive regarding tariffs, I want to remind everyone. Our proprietary products are covered by the USMCA trade agreement. There are no tariffs on products manufactured in Canada when sold into the US. Our next generation transmitter products will be manufactured in North America, mitigating the impact of those 15% tariffs. We believe that we are well positioned and may actually have a competitive advantage compared to all our competitors, many of our competitors who manufacture their products overseas. Now, in terms of projections, As Mirko kind of alluded to, we are still buoyant about fiscal 2026 and we anticipate overall revenues to be higher than 150 million for the fiscal year. This is consistent with our double digit revenue growth trajectory. More impactful is that we are going to leverage relatively flat operating expenses and we anticipate our adjusted EBITDA to grow by at least 50%, a much faster rate than top-line growth, illustrating our ability to leverage our OpEx. So if I could summarize our overall performance, in Q3, we delivered solid double-digit revenue growth of over 14%. In Q4, we delivered solid double-digit revenue growth of 33%. Gross margins are stable. We achieved our long-term expectation of 72.5%. Our OPEX has largely stabilized at these levels, though we will see quarterly variations based on the timing of marketing spend. Our adjusted EBITDA margin in our fourth quarter was 17.6%, a bit shy of our long-term objective at 20%, but clearly demonstrates the earning potential of the business. And we purchased 1.1 million shares for a total investment of 4.9 million in the year. A pretty successful accomplishment for the year. With that, I'll turn it back to Mirko for Q&A. And thank you again for joining us on today's call.