Haivision Systems Inc.

Hello, everyone. Thank you for joining us and welcome to HiVision's 3Q2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Mirko Wicha, President, CEO, and Chairman. Please go ahead.

Thank you, Tracy. Good morning, everyone, and thank you for joining us today. I'd like to begin by putting our third quarter results in the broader context of where HiVision is today, where we believe our markets are heading, and why we remain confident in the long-term opportunity ahead of us. For the third quarter, we reported a revenue of $34.5 million and adjusted a bidet of $1.5 million, representing about 4.3%. Now while our quarterly performance reflects some of the timing variability we have discussed previously, particularly around larger customer deployments and procurement cycles, we continue to see healthy customer engagement and a solid pipeline of opportunities across our business. More importantly, when we look beyond any individual quarter, we believe the fundamentals of HiVision are strong. We operate in markets where secure, reliable, real-time video is increasingly mission critical. We serve customers in broadcasts, in defense, public safety, government, enterprise environments where video is not simply content. It is operational information that needs to reach the right people securely and reliably and in real time. That distinction is important. We are not trying to compete in commodity video markets. Our focus is on demanding mission-critical applications where reliability, security, ultra-low latency, and quality matter. These are environments where failure is simply not an option. And we believe the importance of these applications is only increasing. Around the world, organizations are dealing with more information, more video sources, more distributed operations, and a greater need for real-time situational awareness. Whether it's a broadcaster covering a major global event, a defense organization supporting a mission, public safety agency coordinating an emergency response, or an enterprise operating a command center, customers increasingly need to capture, transport, manage, and distribute high-quality video securely and in real time. That is the market HiVision has been building for. Over many years, we have developed a portfolio of technologies and solutions that address these requirements across the video workflow, from contribution of video transport to management, visualization, and decision making. And we continue to believe that the combination of our technology, our installed base, our customer relationships, and our expertise in these highly demanding environments gives HiVision a strong competitive position. At the same time, we are operating in an extraordinary global technology environment. Supply chain conditions across the technology industry continue to be extremely challenging. We are seeing constraints and volatility across a number of critical components, including memory, CPU, GPUs, and other semiconductor technologies. These are not high vision specific issues. They are affecting technology companies and manufacturers around the world. Tariffs and changing global trade policies are adding another layer of complexity. Component availability, lead times, pricing and sourcing can change quickly, making supply chain planning considerably more difficult than it was historically. In fact, it's been flip-flopping since February of 2022, with no certainty where it may end up. These conditions create challenges not only in sourcing components, but also in forecasting production schedules, managing inventory, and determining the timing of customer deliveries. I want to be clear. We are not immune to these pressures, but we believe HyVision is well positioned to navigate them. Our team has been working aggressively to manage our supply chain, quality, return of components where appropriate, Work closely with suppliers, manage inventory strategically, and make the engineering changes necessary to protect our ability to deliver products to customers. One of High Vision's strengths has always been our ability to adapt. We have built this company through multiple technology cycles, economic cycles, and periods of disruption. We understand how to operate with discipline, and we have an experienced management team that knows our customers, our technologies, and our markets extremely well. That experience matters in an environment like this. We are also fortunate to operate from a position of financial discipline. High Vision is a technology company that believes strongly in innovation and growth. We also believe in building a sustainable and profitable business. Over our history, we have been EBITDA positive 21 of our 22 years. I think that says something important about the culture of this company. We invest in innovation. We invest in our products. We invest in our people. We pursue acquisitions when we believe they can strengthen our strategic position. But we have consistently done those things with a focus on disciplined execution and profitability. That discipline gives us flexibility. It allows us to continue investing through challenging periods. It allows us to make decisions with a long-term perspective. And importantly, it means that we do not have to sacrifice a strategy simply because the external environment becomes more difficult. Our objective is not simply to maximize the next quarter. Our objective is to build a stronger high vision. And when we look at our opportunity today, there are several reasons we remain optimistic. First, we believe we are positioned in attractive markets with strong long-term demand drivers. Broadcast continues to evolve towards increasingly distributed and cloud-connected workflows where high quality, low latency, and transport is essential. Defense and government organizations are increasing their focus on real-time intelligence, situational awareness, and secure communications. Public safety organizations increasingly rely on video and visualization to coordinate operations and make faster decisions. and enterprise customers continue to invest in command centers and operational centers that bring together increasingly large amounts of video and data. These markets are different, but they share a common requirement. Mission critical, visual information delivered securely and in real time. And this is exactly where HiVision is focused. Second, we believe the breadth of our portfolio creates opportunities to expand our relationships with customers. We have technologies for video encoding and contribution, secure video networking, video management, and intelligent visualization. As customers increasingly look for integrated solutions rather than individual products, we believe our ability to address more of the workflow becomes strategically valuable. Third, we continue to invest in innovation. Innovation has been fundamental to HiVision since the company was founded. Our customers operate in some of the most demanding environments in the world. Their requirements continue to evolve and our job is to stay ahead of those requirements. That means continuing to invest in our core technologies while also expanding the intelligence, the interoperability, security, and capabilities of our platforms. And finally, we believe there's significant opportunity ahead of us to scale the company. and we have built a global organization, a strong portfolio of technologies, deep domain expertise and relationships with sophisticated customers around the world. We believe those assets provide a foundation from which we can continue to grow organically while also remaining open to strategic opportunities that can expand our technology, our customer base or our geographic reach. None of this means that every quarter will move in a straight line. We sell sophisticated solutions to sophisticated customers. Large projects can move between quarters. Government and defense procurement processes can be lengthy. Broadcasters plan around major events and capital cycles. In the current environment, supply chain constraints can affect the timing of both production and deliveries. I can create variability in quarterly revenue recognition, but we believe it is important to distinguish between timing and Demand. Our focus is on the underlying level of customer activity, the quality of our pipeline, our competitor position, and the long-term demand for the solutions we provide. And based on what we see today, we remain confident in those fundamentals. As we move forward, our priorities are straightforward. We will continue to serve our customers exceptionally well. We will continue investing in innovation and strengthening our product portfolio. We will continue managing supply chain and tariff challenges proactively. We will maintain financial discipline. We will continue pursuing opportunities that we believe can create sustainable, profitable growth and long-term shareholder value. There will undoubtedly be more volatility in the global technology environment. Supply chains will continue to evolve. Semiconductor availability will remain dynamic. Transcription by CastingWords and we have demonstrated over many years that we know how to operate a technology company profitably and responsibly. So while we are realistic about the challenge in the current environment, we are equally enthusiastic about the opportunity ahead. We believe HiVision is in the right markets with the right technologies, serving the right mission-critical applications at a time when secure, reliable, Real-time visual information is becoming more important than ever. We intend to navigate the near-term turbulence while continuing to build the company for the long term. And we remain confident in hydrogen strategy, our market opportunity, and our ability to create sustainable value for our customers, our employees, and our shareholders. Thank you. Now with that, I'll turn the call over to Dan, our CFO, to discuss our third quarter financial results in greater detail.

Thank you, Mirko. Let's get into it then. Revenue for the third quarter of fiscal 2026 was $34.5 million. That represents a modest decrease of $500,000, or 1.4%, compared with the prior year period. For the nine months of fiscal 2026, revenue was $102.3 million. That's an increase of $4.8 million, or 5%, compared with the same period last year. Revenue performance in the quarter reflected the timing of customer purchasing and deployment cycles, particularly within our broadcast segment. Across the broadcast technology market, customers continue to invest, but purchasing decisions have become more disciplined. Buyers are emphasizing demonstrable returns, operating efficiencies, and careful project sequencing. Within the enterprise market, interest in secure, high-quality video remains healthy. Projects tied to mission-critical communications and operating efficiencies continue to move forward. Within the defense market, revenue is relatively stable. The pressure we are experiencing also relates to procurement timing. Defense spending is being directed towards urgent readiness priorities like air defense, counter-drone capabilities, and replenishments. Overall, customer engagement remains healthy and our pipeline continues to include several large strategic projects. Extended procurement cycles and project timing can shift revenue recognition between quarters, even when the underlying opportunity remains intact. Gross margins for the third quarter were 69.4% compared with 72% in the prior year period. That's a decline of about 260 basis points. On a year-to-date basis, gross margins were 69.6%. That compares with 72.3% in the prior year period, a decline, a similar decline of 270 basis points. Gross margin pressure in the quarter was driven by supply chain conditions. The principal challenges we have witnessed include market-driven increases in component prices as demand for AI infrastructure continues to tighten the supply of memory and other compute-related components. We also experienced sole-source component exposure, extended lead times, suppliers decommitting from planned delivery dates, Thank you for joining us. In this newest action, the 50% tariff applies to a significant subset of our products. As a result, we were able to pull an established response from our playbook and implement it in the short term and continue to refine our response as the tariff discussions continue. As a reminder, tariffs are assessed on the value of goods as they cross the borders. For intercompany shipments, that customs value is informed by our transfer pricing policies. While our approach meaningfully limits the incremental cost to the business, we are unable to eliminate the entire exposure. Accordingly, we expect tariffs to pressure gross margins in the short and medium term. Even over the longer term, this subset of products might carry a modest higher cost of goods if manufactured in the United States. The cost of transformation in the United States is currently higher than in other regions of the world, partly because of higher labor costs and partly because the United States continues to impose tariffs on certain components manufactured in Asia. Overall, we believe our approach appropriately balances cost mitigation, supply continuity, and our ability to meet customer commitments. Because our products are used in mission-critical applications, product availability is a key competitive advantage. We have therefore made incremental inventory investments to protect our ability to supply customers. Thank you for joining us. Total expenses have averaged approximately $25.3 million over the last five quarters. And this quarter's performance remains consistent with our view that expenses have largely stabilized around these levels. For the first nine months of fiscal 2026, total expenses were $76.3 million, an increase of $700,000 compared with the prior year period. Now that prior year period does include a $1.7 million Thank you for joining us. Some of these increases were partially offset by lower sales and marketing and operations and support expenses as a result of organizational changes. The incremental investments in research and development support our heavy product realization calendar. And share-based compensation varies based on the timing, the magnitude, and the nature of long-term incentive grants. As highlighted last quarter, August marked the five-year anniversary of the HiVision MCS acquisition. The technology acquired as part of that acquisition is now fully amortized, which is expected to reduce amortization expense by approximately 600,000 per quarter, beginning in our fourth quarter. Further, in April, 2027, we'll have experienced the five-year anniversary of the HiVision France acquisition, formerly known as AviWest. Technology acquired as part of that acquisition will become fully amortized, reducing quarterly amortization expense by yet another $350,000. These reductions provide additional operating leverage as the business scales. Now they will not affect adjusted EBITDA as amortization is already excluded from that measure. The operating loss for the quarter was 1.7 million, Thank you very much. On a year-to-date basis, the operating loss was $5 million, essentially unchanged from the prior year period. In this case, the $4.8 million increase in revenue more than offset the lower gross margin and produced a $700,000 increase in gross profit. But that increase in gross profit was subsequently offset by the $700,000 increase in total expenses. The net loss for the quarter was $2.1 million. That compares with the net income of $200,000 last year, largely the result of the change in quarterly operating loss. And for the nine months, the net loss was $4.1 million compared with $3.3 million in the prior year period. Where the year-to-date operating results were essentially flat, the income tax benefit was $900,000 lower than in the prior year period, Our focus continues to be adjusted EBITDA because we believe it provides a clearer view of operating performance by excluding non-cash accounting items such as depreciation, amortization, and share-based payments. For the third quarter, adjusted EBITDA was $1.5 million. Now that compares with $3.5 million in the prior year period. Adjusted EBITDA margin was 4.3% compared with 10.1% last year. And for the nine months, adjusted EBITDA was $4.4 million compared with $5.8 million the prior year. And again, adjusted EBITDA margins were 4.3% compared with 5.9%. We ended the quarter with $19.7 million in cash. That is an increase of $2.5 million from the end of fiscal 2025 and approximately $1.6 million from the end of the last quarter. However, the amount outstanding on the line of credit was $13.9 million at quarter end. The higher borrowing level reflects both working Capital requirements including the inventory investments made to secure product availability and shares purchased for cancellation. Through July 31st, we have repurchased approximately 850,000 shares for $4.2 million. For all of fiscal year 2026, we repurchased approximately 990,000 shares for $4.4 million. We are well on our way to exceed last year's purchasing levels. Our $35 million credit facility remains in place, leaving approximately $21.1 million undrawn at quarter end, and the facility remains committed through August of 2028. And as previously disclosed, it is expandable to as much as $65 million if we identify an acquisition opportunity. Total assets at quarter end were $149.5 million. That's an increase of $4.5 million from the end of fiscal 2025. Inventory was $19.5 million. That is an increase of $6.2 million from the end of fiscal 2025 and approximately $4.4 million increase from the end of the prior quarter. This increase reflects deliberate purchases to manage extended lead times, supplier decommitments, constrained component availability, and the pace of new product introductions. This investment has a near-term working capital cost, but it supports supply continuity and our ability to meet mission-critical customer requirements. Total liabilities at quarter end were $57.6 million. That is an increase of $10.1 million from the end of fiscal 2025. The increase, again, was driven primarily by the higher balance on the line of credit. With that said, lease liabilities did decline by approximately $1.1 million, and term loans declined by approximately half a million from the end of fiscal 2025 as we continue to make scheduled payments. We continue to expect the term loans associated with the HiVision France acquisition to be largely repaid by the middle of fiscal 2027. So to give you a closing perspective, the fundamentals of the business remain sound, customer engagement is healthy, and we have a robust pipeline of opportunities across our markets, including several larger strategic projects. Broadcast customers remain focused on demonstrable returns and operating efficiencies. Enterprise demand for secure, high-quality video remains healthy, and defense customers' purchases are stable, but there's a noticeable delay in procurement timing as defense spending is directed towards readiness priorities. Supply chain constraints and the lag between input cost increases and our customer price adjustments are expected to continue pressuring gross margins in the near term. The current tariff posture is likely to put additional pressure on gross margins in the near term but changes in fulfillment practices are being put in practice to largely offset these additional costs. Our priorities remain converting the pipeline, protecting product availability, executing pricing and design actions, and maintaining our expense discipline. While procurement cycles continue and project timing can shift revenue recognition between quarters, we remain confident in the strength of a customer demand and our ability to convert the pipeline into sustainable long-term growth. That concludes my prepared remarks, so I'm passing the microphone back to you, Mirko, and then we will open the floor to questions.