Haivision Systems Inc.

Thank you for standing by. At this time, I would like to welcome everyone to the High Vision first quarter 2026 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 this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mirko Wicca, President and Chief Executive Officer. You may begin.

Thank you, Jeannie. And thanks, everyone, on the call for joining us today to discuss our first quarter of 26, which ended on January 31st. 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 delivered a 25.1% revenue growth over Q1 of 2025. We also delivered an EBITDA growth of 369% over Q1 2025, both strong metrics and a great start to 2026. Our continued double-digit revenue growth is part of our long-term plan to bring us to 20% EBITDA. 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 and value generation. We've always said that to achieve 20% plus EBITDA performance for the full year, we will need to be at scale somewhere around $160 million range. I believe we are very close to delivering on this targeted EBITDA and demonstrate the full earnings potential of Hivision. Now, 2026 is the year that will set us up for that 20% EBITDA performance in 2027. As mentioned previously, we have been investing in many new product development initiatives and seen introductions throughout 2025 and some which are yet to be announced. And we'll be launching some exciting products and innovative technology throughout this year and 2027 to keep building the revenue momentum for the foreseeable future. Now, more recently, we launched the next generation AI-based hardware tactical edge processor for the defense, military, and ISR markets called the Kraken X1 or the KX1. And it was extremely well received as it delivers incredible computing performance for AI-enabled encoding in real time utilizing the NVIDIA Jetson GPU technology. We have begun volume shipping the KX1, and it's creating lots of excitement within the ISR and defense community. We believe this product will have a positive impact on our long-term revenue growth within the defense AI community. And we've also been shipping our next-generation transmitter platform called the Falcon X2. The early demand already outstripped our initially planned production. Thus, we have increased inventory supply chain significantly to handle the strong demand. The Falcon has been the most successful product launch in the history of the company and is performing very well in the field. Our customers are embracing our innovations on 5G networks and the more efficient MIMO antenna technology. The compact Falcon transmitter is changing the ballgame for a single camera contribution in the market and upping the standard for quality and price performance. Strategically, the company is working on 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, Q4, and now Q1 results. Let me try to be a little more clear and direct on why we are so bullish on our business for the foreseeable future. All of our mission critical focus markets are performing well. We are expecting this trend to continue well into the next three to five years. This is not a quarterly game, but rather a long-term trend that will deliver higher revenue growth into 27 to 29. Our mission business, which represents two-thirds of our revenue, continues to see increased spending and growth for the next 5 to 10 years within every defense, military, and government in the world. This is not stopping, and Hydrogen is an important and trusted vendor providing solutions for this industry worldwide. Border security is getting more attention and will be the focus of funding for the next 3 to 5 years globally from what we can see 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 quite a long time. 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 also a massive future growth market. This is another large focus for high-vision technology. In the control room market, enterprises, banks, utilities, military, and governments are all in urgent need to install and implement sophisticated, powerful, and secure monitoring systems to protect their assets, their people, facilities, and the ever-increasing levels of global cybersecurity threats. The need for centralized, real-time, secure video operational rooms will simply keep increasing for many years to come. It's not slowing down. This is another area where HiVision is positioned for global leadership. In our broadcast vertical, which represents about a third of our revenue, HiVision focuses on the live sports or events and live news. These are the most exciting and fastest growing areas within the large broadcast vertical. These are the areas that are responsible for all the money, advertising, and it's not slowing down. In fact, sports will continue to be the most important vertical and where most of the money is spent. 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 are asking for. The strong reputation and success of the Mikito and SRT combined with the new private 5G Falcon provides a significant competitive advantage for high vision for the foreseeable future. Thus, our markets are strong and should remain strong for the long term, again, while we are confident in our 2026 and 2027 plan. I do, however, need to mention that we are witnessing new uncertainty and global instability with the war in Iran, the continuous funding politics to the Department of Homeland Security, which is pushing significant border security projects to the right for many vendors, including HiVision. The war is also causing nervousness within all industries. We're all hoping for a quick resolution to these headwinds. In addition, we're witnessing the rapid global increase of DRAM pricing and server pricing is escalating dramatically due to the AI industry growth. This is putting pressure on all software solutions requiring the use of standard computer servers, and supply chain challenges. As a result, we have no choice but to increase our prices accordingly, which we are already in the process of doing. In closing, I would like to just reaffirm our full fiscal 2026 guidance of delivering $150 million plus in revenue. Our plan is to maintain pretty much a flat off X over 2025 while delivering double-digit revenue growth. resulting in a 50% plus increase to our overall EBITDA over 2025. We are closely watching the U.S. Congress funding of VHS and the Iran war on stability, which are affecting some short-term business. We are expecting a very strong second half of 2026. As mentioned previously, we plan double-digit EBITDA and double-digit revenue growth for 2026 and to deliver a full year of 20% EBITDA performance in fiscal 2027. With that, Dan, please, can you continue with the detailed financials?

Thank you, Mirko. As Mirko suggested, revenue for this first quarter fiscal 2026 was 35.2 million, an increase of 7.1 million or 25.1% from the same period in the prior year. We're pleased that we were able to overcome the changes in procurement process and the transition away from the integrator model in the control room space. And this does represent the third consecutive quarter of double-digit revenue growth, which is our long-term growth objective. Our recurring revenue from maintenance, support contracts, and cloud services continues to grow year over year. Recurring revenue in this first quarter was 7.3 million, up 4.5% year over year. Recurrent revenue still represents 21% of full quarter revenue. We expect to continue to see sound year-over-year growth in recurring revenue as total product sales and renewals continue to build. Gross margins in this first quarter were 70.5%. That is a decline of 150 basis points when compared to the prior year. Gross margins this quarter were largely impacted by the mix of solutions we sold and the year-over-year increases in three product sets. We did see significant increases in sales of transmitter products. We did see year-over-year increases in the sale of HMP solutions. Those are software solutions that are installed on a server and sold as an appliance. And the timing of deliveries under our U.S. Navy contract, a legacy of our systems integrator business. Unfortunately, these product sets happen to be on the lower end of our margin continuum, but on the good side, this result appears to be more happenstance and not a reflection of a systemic change to the business. I should note that the new transmitter products being introduced to the marketplace have a better cost-price profile and will be manufactured in North America, representing a future opportunity to increase margins on that product line. Total expenses this quarter were 25 million. Now, that is up 2.6 million from last year. Now, early last year, we stated the need to make incremental investments in support of our R&D calendar and our sales initiative. Those investments were made in the first half of fiscal 2025, and they are still part of our current cost structure. As Mirko pointed out, our objective this year is to maintain the current level of OPEX and demonstrate operating leverage. To that point, and as stated already, this quarter's total OPEX was 25 million. Last quarter, which is our Q4 2025, total OPEX was 25.4 million. And in the quarter preceding, that's our third quarter of 2025, Total OpEx was 24.9 million. What I'm trying to suggest is that total OpEx has remained relatively flat over the last three quarters. If we were to look at total expenses in aggregate, the increase is really attributed to 1.1 million in compensation-related expenses, half a million in professional services, and 300,000 in share-based payments. But if you look at the year-over-year variances by functional area, you can see where the investments are being made. About $1.4 million is in additional G&A expenses, but that was related to variable compensation based on performance, timing of professional fees, and to a lesser extent, foreign exchange impacts. Some of these expenses, like compensation based on performance or professional fees, may not be recurring and and merely a result of timing. Roughly 800,000 of the increase is related to the incremental R&D investments in people and recent prototyping materials and certification costs in support of our heavy product release schedule. Another 300,000 comes from non cash share based payments, which can vary based on the nature and the timing of those grants. We will likely see some variability in sales and marketing spend based on the timing of our trade show calendar. Otherwise, the underlying expense base is relatively fixed. Looking forward, however, this August represents the 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. And the following April will be the five-year anniversary of High Vision France acquisition, also known as Abby West. Thus, technology purchased as part of that acquisition will be fully amortized, reducing total expenses by another $350,000 per quarter. Thus, as we see our adjusted EBITDA rising, we should expect to see our operating profits increasing at even a faster pace, starting with our fourth quarter of this year. So to sum up the quarter's operations, higher revenue in this first quarter contributed an incremental $4.6 million in gross profit, but with expenses up by only $2.6 million, the operating loss was only $200,000. representing a $2 million improvement from the prior year. As most of you know, our focus has been on adjusted EBITDA, as we believe it gives a clearer view of our performance by stripping out non-cash and items like depreciation, amortization, and share-based payment. So for this first quarter, adjusted EBITDA was 2.6 million, compared to only 600,000 last year. That's an improvement of 2.1 million or 370% or about 370%. The adjusted EBITDA margin was 7.5% compared to just 2% last year. We ended the quarter with about 17 million in cash. That's a modest decrease from the end of last quarter. And the amount outstanding on the line of credit increased by about 2.8 million. However, during the quarter, we had also purchased $1.6 million in shares for cancellation related to our normal course issuer bid, or what we call the NCIB, and the recent settlement of restricted share units. Over the last two NCIB programs, we purchased about 1.9 million shares for cancellation at a total investment of 8.6 million. The company renewed its NCIB commencing February 4th of 2026 that allows for the cancellation of up to 1.8 million additional shares representing about 20% of the public float. Now further, our credit facility remains strong at 35 million with only 5.5 million outstanding. The line of credit is expandable to as much as 65 million in the event we identify an acquisition target. We are already in discussions with BMO to renew the line of credit under similar terms. Total assets at year end were 138 million. That's a decrease of about 6.3 million from the end of fiscal year 2025. The decrease in total assets is largely due to the $2.4 million decrease in goodwill and intangible assets. Note that the amortization of those intangibles is about $1.2 million per quarter. The decrease is also related to the $1.5 million decrease in receivables and the $1.3 million decrease in the value of inventories. Inventories continue to be a balance sheet bright spot. And inventories have in fact declined by $9.5 million since peaking in the second quarter of 2023. With that said, we are likely to make incremental investments in inventory with new product introductions and the prospects of increasing sales. Total liabilities at quarter end were about 44.3 million, a decrease of 3.1 million from the end of fiscal 2025. Trade and other payables declined by 5.6 million in the quarter, and this was offset by the $2.8 million increase in the amount outstanding on the line of credit. To avoid the typical questions we usually receive regarding tariffs, I want to remind everyone that our proprietary products are covered by the USMCA trade agreement. There are no tariffs on products manufactured in Canada when sold into the US. And our next generation of transmitter products will be manufactured in North America, which will mitigate the impact of the 15% tariffs that they may incur. We are well-positioned and may have, in fact, competitive advantage compared to others who manufacture their products overseas. We are seeing one dynamic in the marketplace that may have an impact on revenue and margins. The global memory semiconductor market is in a tight supply cycle, largely driven by the demand from AI data centers and high-performance computing. Prices are surging. At the same time, memory manufacturers are prioritizing AI-optimized products, which is further constraining supplies. As Miracle mentioned, we have initiated price increases for our software products that reside on these servers and are watching supply chains very closely. Now, M&A is still very much of our DNA. We have completed eight acquisitions since 2009, six as a private company, and then two more as a public company. And as the inventors of SRT and the founders of the SRT Alliance, we are in the fortunate position of having conversations with many industry players. Well more than 600 companies are SRT partners, and these discussions have in fact led to successful M&A transactions in the past. Our line of credit was designed to accommodate M&A transactions once identified. While it is certainly true that a more buoyant stock price gives us more tools at our disposal as we consider M&A, it's also true that we are laser-focused on demonstrating revenue growth and the earnings potential of the business. We do not currently have any transactions in tow, and it's unlikely we will identify nor close an M&A transaction this fiscal year. Last earnings call, we suggested that providing quarterly guidance was becoming increasingly challenging, and nothing can be more true than today. We are hearing that recent geopolitical events such as the operations in the Middle East have necessitated a reshuffling of procurement priorities. The over-reliance on continued resolutions in the U.S. Congress has created artificial bottlenecks. They prevent the DOD from starting new programs or increasing production rates, have necessitated smaller orders over longer timelines, which contribute to administrative overload, which perpetuates slower contracting cycles. It's also necessitated a funds and focus shift to urgent needs like munitions and deployments and has forced DOD spending to occur later in the fiscal year, much like what we saw last fiscal year. Add to that the delays in funding of the Department of Homeland Security and supply chain shortages it's creating a difficult market to forecast. Given these current complexities, we're seeing the timing of certain deliverables move to the right. Don't get me wrong, demand is still robust, but getting things through the procurement cycles and then timely delivery is increasingly challenging. Nevertheless, we remain highly optimistic about our growth prospects. We are committed to consistent double-digit revenue growth over the long term. but acknowledge that it won't necessarily be sequential growth. Just like last year, where the second half of the year represented well over 50% of our revenue, we are expecting to see a similar dynamic this year, particularly when you factor in the timing of the U.S. NAEP deal and the introduction of these new products. So that really concludes my prepared remarks. I'm going to pass the microphone back to you, Mirko, and then we'll open the floor to questions.