Q3 2023 Haivision Systems Inc Earnings Call
Yes.
Speaker 1: Ladies and gentlemen, thank you for standing by. Today's conference will begin in approximately five minutes to allow as many participants as possible to join. Until that time, your lines will again be placed on music hold. We thank you for your patience.
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Speaker 1: Hello and welcome to the high vision 3Q2023 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 this time, please press star 1 on your telephone keypad. I will now turn the conference over to Mirka Witscha. Please go ahead.
Hello, and welcome to the high vision three Q2 thousand 23 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.
You would like to ask a question. During this time. Please press star one on your telephone keypad I will now turn the conference over to America, which ha. Please go ahead.
Thank you Sarah and good afternoon, everyone.
Speaker 3: Thank you Sarah and good afternoon everyone. Thank you for joining us today to discuss our 3rd quarter results in the 1st, 9 months of our fiscal year 2023.
Thank you for joining us today to discuss our third quarter results in the first nine months of our fiscal year 2023.
Speaker 3: As demonstrated by the results we announced earlier today, demand for our products not only remain strong, but our business fundamentals have never been better.
As demonstrated by the results, we announced earlier today demand for our products not only remained strong but our business fundamentals have never been better.
We achieved a record Q3 revenue of $35 million, which represents an 18, 2% growth over Q3 of last year.
Speaker 3: We achieved a record Q3 revenue of $35 million, which represents an 18.2% growth over Q3 of last year.
As we continue to deliver top line.
Speaker 3: Right is inclusive of the revenue reduction we took because of exiting the house.
Right.
Elusive, although revenue reduction we took because of exiting the outsource a vertical well.
Speaker 3: Now we also achieved a record first nine months revenue of $104.2 million.
We also achieved a record first nine month revenue of $104 2 million.
Speaker 3: represents an 18.6 percent growth over last year's first nine months.
This represents an 18, 6% growth over last year first month nine months.
Speaker 3: Again, this is inclusive of the revenue reduction of the house of worship vertical that we have now completely.
Again this is inclusive of the revenue reduction of the house the worst a vertical that we have now completely exited from.
Speaker 3: and our gross profit for Q3 grew 30% from last year's Q3 which is pretty impressive.
And our gross profit for Q3 grew 30% from last year's Q3, which is pretty impressive.
And we delivered an adjusted EBITDA of 4.3 million for Q3.
Speaker 3: And we delivered an adjusted IVDA of 4.3 million for Q3, which represents a 12.4 million.
Which represents a 12, 4% operating margin.
Speaker 3: Now, this is compared to last year's Q3 adjusted loss of 1.5M. This represents an increase of.
This is compared to last year's Q3, adjusted EBITDA loss of $1 5 million.
This represents an increase.
387%.
Speaker 3: For the first 9 months of the year, our adjusted EBITDA was 9.1 million, representing an increase of 193% from last year's 9 months performance.
For the first nine months of the year, our ads adjusted EBITDA was 9.1 million, representing an increase of 193% from last year's nine months performance.
Speaker 3: As a reminder, we have always said that it's typical for our OPEX to be front loaded.
As a reminder, we have always said that is typical for opex to be Frontloaded and.
Speaker 3: and we expect a much stronger IBDAN operating margin performance in the second half of the year, which the Q3 results have clearly demonstrated. We expect Q4.
We expect a much stronger EBITDA and operating margin performance in the second half of the year.
Which the Q3 results have clearly demonstrated.
We expect Q4 to follow this trend.
Speaker 3: Now in addition, our gross margins in Q3 have increased to 71.9% from last year's Q3 of 66.1.
Now in addition, our gross margins in Q3 increased to 71, 9% from last year's Q3 of $66 one.
Speaker 3: As we mentioned several times on our previous earnings calls. This was always our 2023 plan and I'm very happy to say that we delivered what we said we would.
As we mentioned several times on our previous earnings calls. This was always our 2023 plan and I'm very happy to say that we delivered what we said we would.
Speaker 3: And I believe that this is only the beginning of what's to come in the future quarter.
And I believe that this is only the beginning of what's to come in the future quarters.
Speaker 3: focus has been and continues to be profitability and image performance.
Focus has been and continues to be profitability and EBITDA performance.
Speaker 3: We clearly made the right decision last October to exit the House of Worship Managed Services Market, which has been successfully completed in April and is now starting to show in our P&L as promised.
We clearly made the right decision last October to exit the house of worship managed services market, which has been successfully completed end of April .
Now starting to show in our P&L as promised.
Speaker 3: I should however mention the strong Q3 we just announced did include a significant 2.5 million dollar US government programmatic order that was originally scheduled to come into our Q4.
I shouldn't have ever mentioned the strong Q3, we just announced did include a significant $2 5 million dollar U S. Government programmatic order that was originally scheduled to come into our Q4 as part of our government year end planning, obviously, it's always good news when orders come earlier than expected.
Speaker 3: part of our government year-end planning. Obviously it's always good news when orders come earlier than expected.
Speaker 3: With this movement, we do expect our Q4 to be adjusted by this amount than previously planned, meaning we won't be seeing the typical hockey stick effect to our Q4.
Well at this moment, we do expect our Q4 to be adjusted by this amount than previously planned meaning we won't be seeing the typical hockey stick effect to our Q4.
Speaker 3: And we remain confident with our year end projections that Dan will be.
And we remain confident with our year end projections that Dan will be discussing.
Speaker 3: Now Q4 has always been the highest quarter by far in all of our fiscal years. In fact, last year's Q4 was very, very high. In fact, if I recall, it was almost 39 million due to an unusually strong U.S. government quarter.
Well Q4 is always been the highest quarter by far in all of our fiscal years. In fact last year's Q4 was very very high and thoughts about recalls there's almost $39 million due to an unusually strong U S government quarter.
Speaker 3: Now, interestingly enough this year, we have seen a more balanced and consistent quarterly performance.
Interesting enough. This year, we have seen a more balanced and consistent quarterly performance.
Speaker 3: In fact, in Q1 of this year, if you remember, we did 34 million. In Q2, we did 35 million. Now in Q3, we deliver it again 35 million.
In Q1 of this year. If you remember we did $34 million in Q2, we did $35 million and now in Q3, we delivered again $35 million.
Speaker 3: I expect this to continue into 2024, as we are finding that our three main verticals, our defense, our broadcast, and enterprise balance each other out globally and give us better business predictability.
I expect this to continue into 2024 as we are finding that our three main verticals, our defense of broadcast and enterprise balanced each other are globally and give us better business predictability.
Speaker 3: Now, in addition, it's interesting to note the US government has been slowly moving to a multi-quarter purchasing cycle. And not only depending on the year-end September-October timeframe, which always falls in our Q4.
In addition, it's interesting to note the U S government has been slowly moving to a multi quarter purchasing cycle.
And not only depending on the year end September October timeframe, which always falls in our Q4.
And we're also seeing.
Speaker 3: strong demand for our Global Security Operations Center.
Strong demand for our global security operation centers.
Speaker 3: within the global financial banking industry, cybersecurity, police centers, federal installations, public safety, and all the fenset.
Within the global financial banking industry.
Or security police centers federal installations public safety and all defense sectors.
Speaker 3: The needs to have real time mission critical and secure access to all your video sources and assets for real time analysis. Or situational awareness is becoming more paramount.
The needs to have real time mission critical and secure access to all your video sources and assets for real time analysis or situational awareness is becoming more paramount.
Speaker 3: And we are now the leading vendor delivering the entire contribution, distribution, and visualization ecosystem in this critical area.
Now we are now the leading vendor delivering the entire contribution distributions visualization ecosystem in this critical area.
Speaker 3: We believe that our company is a bright future ahead, and we are committed to maximizing long-term value for all our shareholders. We are confident in our ability to execute in our strategic plan and deliver continued growth and success.
We believe that our company has a bright future ahead.
We are committed to maximizing long term value for all our shareholders. We are confident in our ability to execute our strategic plan and deliver continued growth and success.
Speaker 3: Now in closing, despite the economic headwinds and continued supply chain challenges we keep hearing about from other companies, I believe that Hyvision has weathered the storm better than most.
In closing despite the economic headwinds and continued supply chain challenges, we keep hearing about from other companies I believe that hydrogen has weathered the storm better than most.
Speaker 3: And we expect our Q4 to be strong and consistent with our strategic plan. And feel very comfortable with our year end projections. And we'll discuss.
And we expect our Q4 to be strong and consistent with our strategic plan.
And feel very comfortable with our year end projections, Dan will discuss our guidance for the remainder of the year shortly.
And we're also very confident in our strategic plan and expect to demonstrate revenue growth and significant profitability growth in 2024.
Speaker 3: We're also very confident in our strategic plan and expect to demonstrate revenue growth and significant profitability growth in 2024.
Speaker 3: And finally, as we previously mentioned, we are moving quickly towards achieving our longer-term goal of delivering 20% of it outperform.
Finally, as we previously mentioned we are moving quickly towards achieving our longer term goal of delivering 20% EBITDA performance.
Speaker 3: To this, Dan, please continue with the financial details.
But it is that we continue with the financial details.
Thank you Marco so let's talk numbers.
Speaker 4: Revenue for this third quarter of fiscal 2023 was $35 million. That's an increase of $5.4 million, or 18.2%, from the prior year comparative period.
Our revenue for this third quarter of fiscal 2023 was 35 million, that's an increase of $5 4 million or 18, 2% from the prior year comparative period the.
Speaker 4: The revenue increase is notable for a number of reasons. First of all, the revenue comparison is an apples to apples comparison, as revenue from Abby West is included in both periods.
The revenue increase is notable for a number of reasons first of all the revenue comparison is an apples to apples comparison as revenue from Abbvie West is included in both periods.
Revenue from just the products increased by 28, 8% in the quarter.
Speaker 4: Revenue from just the products increased by 28.8% in the quarter.
This impact of this is this impact ultimately is reflective of the $1 $9 million decrease in cloud solution revenue when compared to last year.
Speaker 4: This impact also is reflective of the $1.9 million decrease in cloud solution revenue when compared to last year.
We saw fantastic revenue growth despite our decision to exit the managed services space, that's focused on the house of worship market.
Speaker 4: We saw fantastic revenue growth despite our decision to exit the managed services space that focused on the House of Worship market.
Speaker 4: Even our maintenance and support revenue saw double digit growth, growing 15% year over year.
Even our maintenance and support revenue saw double digit growth growing 15% year over year.
Speaker 4: This recent quarter did represent a record performance in terms of third quarter revenue, which historically tended to be a slower period for the company.
This recent quarter did represent a record performance in terms of third quarter revenue, which historically tended to be a slower period for the company.
Speaker 4: Hope to see more of these types of records in fiscal year 2024 and beyond.
Hope to see more of these types of records in fiscal year 2024 and beyond.
Speaker 4: Revenue for the nine months ended July 31st with $104.2 million. That's an increase of $16.3 million or 18.6% from the prior year comparative period.
Revenue for the nine months ended July 31st with $104 2 million.
It's an increase of $16 3 million or 18, 6% from the prior year comparative period.
Speaker 4: Note that year-to-date results included Abby West performance for the entire nine months.
Note that year to date results included Abbvie worse performance for the entire nine months.
Speaker 4: Whereas in the prior year comparative period, year to date results included Avi West for only 4 months.
Whereas in the prior year comparative period year to date results included Abbvie was for only four months.
Speaker 4: On the other hand, this year-to-year performance reflects our exit from the managed services market in April . For the nine-month period, we saw cloud solution revenue decline by $2.8 million when compared to the prior year period. So with that said, we are seeing huge growth.
On the other hand this year to year performance reflects our exit from the managed services markets in April for.
For the nine month period, we saw cloud solution revenue declined by $2 8 million when compared to the prior year period.
So with that said we are seeing huge growth.
Speaker 4: And we see huge growth in maintenance and support revenue, which also grew by 23% year over year.
And we see huge growth in maintenance and support revenue, which also grew by 23% year over year.
Recurring revenue, which we defined as our cloud solutions and our maintenance and support was $5 6 million.
Speaker 4: Recurring revenue, which we defined as our cloud solutions and our maintenance and support was 5.6 million.
Speaker 4: or about 16% of total revenue in this recent third quarter. And it was about 20.3 million or 19% of total revenue on a year to date basis.
We're about 16% of total revenue in this recent third quarter.
And it was about $20 3 million or 19% of total revenue on a year to date basis.
Speaker 4: We anticipated that our recurring revenue would decrease as a percentage of our total revenue once we exited the managed services business.
We anticipated that our recurring revenue will decrease as a percentage of our total revenue once we exited the managed services business.
Speaker 4: With that said, we do expect maintenance and support revenues to continue to grow robustly going forward.
With that said, we do expect maintenance and support revenues to continue to grow robustly going forward.
For this quarter, our gross margins were 71, 9% that compares to 66, 1% in the prior year comparable period.
Speaker 4: For this quarter, our gross margins were 71.9%. That compares to 66.1% in the prior year comparable period.
Speaker 4: Further, this quarter's gross margin were an improvement from the 68.9% realized last quarter, that's our second quarter this fiscal year, and an increase from the 66% in the quarter before that, our first quarter this fiscal year.
Further this quarter's gross margin were an improvement from the 68, 9% realized last quarter. That's our second quarter. This fiscal year and an increase from the 66% in the quarter before that our first quarter this fiscal year.
Speaker 4: As discussed in our last earnings call, we anticipated margins to improve in this third quarter, and even suggested that the impact could be as much as 200 basis points. Well, we certainly.
As discussed in our last earnings call, we anticipated margins to improve in the third quarter and even suggested that the impact could be as much as 200 basis points.
Well, we certainly exceeded that expectation.
Speaker 4: The managed services business had about 600,006 costs related to platform license fees, third-party add-ons, and minimum bandwidth commitments.
The managed services businesses business had about 600000 in fixed cost related to platform license fees third party add ons and minimum bandwidth commitments said another way the managed service business tended to be at or below the average performer in terms of gross margin.
Speaker 4: Said another way, the managed service business tended to be a below the average performer in terms of gross margin.
Further supply chain appear to be reverting to more normal delivery schedules. We did incurred just over 300000 and additional costs related to hard to procure componentry that was consumed in the quarter.
Speaker 4: Further, supply chains appear to be reverting to more normal delivery schedules.
Speaker 4: We did incur just over $300,000 in additional costs related to hard-to-procure componentry that was consumed in the quarter.
Speaker 4: On a year-to-date basis, the additional cost for this in componentry was approximately 950,000 or about 100 basis points.
On a year to date basis, the additional cost for this and componentry was approximately 950000 or about 100 basis points.
Speaker 4: These extra costs were approximately half of the costs that we incurred last year, which impacted margins by over 200 basis points.
These extra costs were approximately half of the costs that we incurred last year, which impacted margins by over 200 basis points.
Speaker 4: We expect this extra expense to continue to dissipate going forward with the next year expectation for these costs to be half of the costs that we incurred this year.
We expect this extra expense to continue to dissipate going forward with the next your expectation for these costs to be half of the cost that we incurred this year.
And just to complete the thought there really wasn't much variation in overall mix throughout the year. Thus these gross margin improvements are real improvements.
Speaker 4: And just to complete the thought, there really wasn't much variation in overall mix throughout the year. Stephanie's gross margin improvements are real improvements.
Speaker 4: Total expenses for this quarter were $25.6 million, an increase of $1.2 million when compared to the same period in the prior year.
Total expenses for this quarter were $25 6 million, an increase of 1.2 million when compared to the same period in the prior year.
However in this quarter total expenses included a nonrecurring restructuring cost of $1 $5 million.
Speaker 4: However, in this quarter, total expenses included a non-recurring restructuring cost of $1.5 million.
Speaker 4: We essentially completed the restructuring exercise that was initiated in the fourth quarter last year.
We essentially completed the restructuring exercise that was initiated in the fourth quarter last year.
Speaker 4: The result is that we ended the quarter with 374 employees compared to 418 employees a year ago.
The result, the result is that we ended the quarter with 374 employees compared to 418 employees a year ago.
Speaker 4: And that compares to the 389 employees at the end of second quarter.
And that compares to the 389 employees at the end of second quarter.
Generally speaking approximately 75% of our cost structure is related to compensation expenses and related social charges.
Speaker 4: Generally speaking, approximately 75% of our cost structure is related to compensation expenses and related social charges.
That's you can put the math together.
I should mention that since the most recent restructuring was largely completed in the second half of this quarter there may be additional opportunities for opex savings in this fourth quarter.
Speaker 4: I should mention that since the most recent restructuring was largely completed in the second half of this quarter. There may be additional opportunities for OPEX savings in this fourth quarter.
Okay.
Okay.
Speaker 4: However, next week is our second.
However, next week is our second.
Uh huh.
Speaker 4: Next week is our second largest trade show, the International Broadcasting Convention or IBC, and it may result in incremental marking spend in this fourth quarter.
Next week is the second largest trade show the international Broadcasting Convention or I B C and it may result in incremental marketing spend in this fourth quarter.
Okay.
On a year to date basis.
Speaker 4: Total expenses were $74.4 million, an increase of $9.1 million when compared to the year.
Total expenses were $74 4 million.
An increase of $9 1 million when compared to the year.
Earlier period.
Speaker 4: As a reminder, the Avi West transaction was consummated in April of 2022, which implies it was only part of our cost structure for four months in the comparable period last year. Thus, it is impacting year over year comparisons. Avi West added approximately 80 people last year.
As a reminder, the <unk> transaction was consummated in April of 2022.
Which implies it was the only part of our cost structure for four months in the comparable period last year. Thus it is impacting year over year comparisons.
Abby West added approximately 80 people last year.
If we were to isolate the reason for the increase.
Speaker 4: Compensation related expenses added approximately $4 million in total expenses, most of which would be attributable to the timing of the Abby West acquisition.
Compensation related expenses added approximately 4 million and total expenses, most of which would be attributable to the timing of the Abbvie West acquisition.
Speaker 4: Increases in depreciation and amortization expenses related to acquired assets and intangibles added an incremental $2.3 million in total expense.
Increases in depreciation and amortization expenses related to acquired assets and intangibles.
The incremental $2 3 million in total expenses.
Speaker 4: increased travel expenses at an incremental 1.5 million.
Increased travel expenses added an incremental $1 5 million.
Speaker 4: And the Canadian dollar's exchange rate impact on US dollar denominated assets and liabilities added an incremental 1 million to total expense.
And the Canadian dollar exchange rate impact on U S dollar denominated assets and liabilities added an incremental $1 million to total expenses.
Operator: Ladies and gentlemen, thank you for standing by. Today's conference will begin in approximately five minutes to allow as many participants as possible to join. Until that time your lines will again be placed on music hold. We thank you for your patience. Please wait, the conference will begin shortly.
Okay.
Speaker 4: When we normalize total expenses for share-based payments, depreciation of fixed assets, the amortization of intangibles, and restructuring costs, total expenses were $20.8 million, a decrease of $400,000 from the prior year.
When we normalized total expenses for share based payments depreciation of fixed assets, the amortization of intangibles and restructuring costs total expenses were $20 8 million a decrease of 400000 from higher each year.
Speaker 4: The result of the higher revenues, better gross margins, and a decrease in OPEX is that adjusted EBITDA for the quarter was $4.3 million. That's an increase of $5.9 million when compared to the adjusted EBITDA loss of $1.5 million for the same period in the prior year.
Operator: [inaudible] patience and your patience and your patience and your patience[inaudible] Hello and welcome to the Haivision 3Q 2023 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, please press star one on your telephone keypad.
The result of the higher revenues.
Better gross margins and a decrease in Opex is that adjusted EBITDA for the quarter was $4 3 million. That's an increase of five 9 million when compared to the adjusted EBITDA loss of $1 5 million for the same period in the prior year.
Speaker 4: The adjusted EBITDA margin for this quarter was 12.4%.
The adjusted EBITDA margin for this quarter was 12, 4%.
Speaker 4: That margin compares quite positively to the 7.5% in the prior quarter and the 6.2% in the quarter prior to that.
That margin compares quite positively to the seven 5% in the prior quarter and the six 2% in the quarter prior to that.
Speaker 4: In prior calls, we had certainly been signaling our belief that the third quarter would be somewhat of a watershed event. I believe now you are beginning to see the full benefit of our restructuring plan. And as there's still some additional opportunities to increase the DDA margins going forward, we should see this continuing.
In prior calls we had certainly been signaling our belief that the third quarter, we would be somewhat of a watershed event. I believe now you are beginning to see the full benefit our restructuring plan and is there still some additional opportunities to increase EBITDA margins going forward, we should see this continuing.
Speaker 4: We should see gross margins continue as we absorb the remaining higher cost componentry. And as we continue to migrate the two acquisitions to a common ERP platform,
We should see gross margins continue as we absorbed the remaining higher cost componentry and as we continue to migrate the two acquisitions to a common ERP platform.
Speaker 4: And as I explained earlier, we should see additional OPEX savings in the fourth quarter based on the timing of our restructuring exercise completed in June .
And as I explained earlier, we should see additional opex savings in the fourth quarter based on the timing of our restructuring exercise completed in June .
Speaker 4: albeit with this cautionary note that we do have our second largest trade show in this fourth quarter as well.
With this cautionary note that we do have our second largest trade show in this fourth quarter as well.
Adjusted EBITDA for the nine month period was $9 1 million.
Speaker 4: adjusted EBITDA for the nine month period was 9.1 million.
Speaker 4: That's an increase of 5.9 million when compared to adjusted EBITDA of 3.1 million to the prior comparable period.
That's an increase of $5 9 million when compared to adjusted EBITDA of $3 1 million for the prior comparable period.
Speaker 4: The adjusted EVDA margin for this nine-month period was 8.7%, but that compares quite favorably to 3.6% for the prior year comparable period.
The adjusted EBITDA margin for this nine month period was eight 7%, but that compares quite favorably to three 6% for the prior year comparable period.
Speaker 4: We also saw a significant improvement in the net loss for the quarter. The net loss for this quarter was only $900,000 compared to a net loss of $4.2 million for the same period in the prior year.
We also saw a significant improvement in the net loss for the quarter. The net loss for this quarter was only 900000 compared to a net loss of $4 2 million for the same period in the prior year.
That $3 4 million improvement is largely related to the $5 4 million increase in revenue and the improvement in gross margin contributing $5 6 million in incremental gross profit.
Speaker 4: That 3.4 million improvement is largely related to the 5.4 million increase in revenue and the improvement in gross margin contributing 5.6 million in incremental gross profit.
Speaker 4: Now these increases were offset by the 1.2 million in incremental expenses, and we did get some benefit from income tax recoveries of $900,000.
Now these increases were offset by the $1 2 million in incremental expenses and we did get some benefit from income tax recoveries of 900000.
Net loss on a year to date basis was $3 8 million, but that two compares quite favorably to the net loss of $5 1 million for the prior year comparative period.
Speaker 4: Net loss on a year-to-date basis was $3.8 million, but that, too, compares quite favorably to the net loss of $5.1 million for the prior year comparative period.
With respect to the balance sheet.
Speaker 4: We ended the quarter with a cash balance of 7.5 million, a modest increase of 200,000 from the prior quarter.
We ended the quarter with a cash balance of $7 5 million.
A modest increase of 200000 from the prior quarter end.
Speaker 4: However, we also ended the quarter with only $5.5 million outstanding on the credit facility. That's a reduction of $4.5 million from prior quarter end, and we reduced our term loans by an additional $1 million.
However, we also ended the quarter with only $5 5 million outstanding on the credit facility. That's a reduction of $4 5 million from prior quarter end and we reduced our term loans by an additional $1 million.
Speaker 4: Total assets of July 31st were $133.9 million. That is a decrease of $14.7 million from the end of fiscal year 2022.
Total assets at July 31 were $133 9 million that is a decrease of $14 7 million from the end of fiscal year 2022.
Speaker 4: And the decrease in assets in the nine-month period largely relate to a $7.6 million reduction in trade and other receivables.
And the decrease in assets in the nine month period, largely relate to a $7 $6 million reduction in trade and other receivables.
Speaker 4: a $5.8 million reduction in intangible assets, and a $2.4 million reduction in
A $5 $8 million reduction in intangible assets.
And a $2 $4 million reduction in inventory.
Speaker 4: These decreases were offset by the $1.7 million increase in our cash balance this fiscal year.
These decreases were offset by the $1 $7 million increase in our cash balance this fiscal year.
Speaker 4: Total liabilities at quarter end with 46.1 million. That's a decrease of 12.2 million from the end of fiscal 2022.
Total liabilities at quarter end were $46, one 1 million, that's a decrease of $12 2 million from the end of fiscal 2022.
Speaker 4: The decrease in total liabilities for the nine month period included a five and a half million dollar decrease in the line of credit.
The decrease in total liabilities for the nine month period included $5 $5 million decrease in our line of credit.
Speaker 4: $4.8 million decrease in trade and other payables.
A $4 8 million dollar decrease in trade and other payables.
One point and $2 million decrease in our lease liabilities and again $1 million reduction in the amount of term loans outstanding.
Speaker 4: $1.2 million decrease in our lease liabilities, and again, a million dollar reduction in the amount of term loans outstanding.
With respect to the remaining integration plans.
Speaker 4: For Avi West, we have completed the move of Avi West to a common accounting system, and we just completed Avi West's move to a common ERP system.
For Abbvie West we have completed the move of Abbvie west to a common accounting system and we just completed Abbvie west move to a common ERP system.
Speaker 4: With this enhanced visibility to AviWest inventory, we hope to increase the flexibility of AviWest's supply chain and reduce direct product costs to increase gross margin.
With this enhanced visibility to Abbvie west inventory, we hope to increase the flexibility of Abbvie west supply chain.
And reduce direct product costs to increase gross margins.
Speaker 4: Our focus in the near term will be to sell more of AviWest's products in North America.
Our focus in the near term will be to sell more of <unk> products in North America.
Speaker 4: At High Vision MCS, progress is also accelerating.
At high Vision Mcs progress is also accelerating.
Speaker 4: Our current focus is to fully integrate development teams, and we expect this to be completed this month.
Our current focus is to fully integrate development teams and we expect this to be completed this month.
Miroslav Wicha: I will now turn the conference over to Mariko Wicha. Please go ahead. Thank you Sarah and good afternoon everyone. Thank you for joining us today to discuss our third quarter results in the first nine months of our fiscal year 2023. I was demonstrated by the results we announced earlier today, demand for our products not only remain strong, but our business fundamentals have never been better. We achieved a record Q3 revenue of $35 million which represents an 18.2% growth over Q3 last year.
Our next major focus is integrating production capabilities and migrating mcs's ERP system to a common platform.
Speaker 4: Our next major focus is integrating production capabilities and migrating MCS's ERP system to a common platform.
Speaker 4: the pace of integration is increasing over the remainder of the year.
The pace of integration is increasing over the remainder of the year.
Speaker 4: Just on an aside, this week we also had our 12th ISO 9001 audit and we're pleased to say that once again the auditors found our quality management system to be fully effective. In fact, with outstanding ratings on most benchmarked activities.
And just on an aside this week. We also had our 12th ISO 9001 audit and we're pleased to say that once again, the auditors found our quality management system to be fully effective in fact with outstanding ratings and most most benchmarked activities.
Okay.
In terms of expectation for the remainder of the year.
Miroslav Wicha: As we continue to deliver, top line is inclusive of the revenue reduction we took because of exiting the House of Worship vertical. We also achieved a record first nine months revenue of $104.2 million which represents an 18.6% growth over last year first nine months. Again, this is inclusive of the revenue reduction of the House of Worship vertical that we have not completely accessed from. Our growth profit for Q3 grew 30% from last year's Q3 which is pretty impressive.
Speaker 4: We have completely transitioned out of the House of Worship market, and even after losing that revenue, our overall revenues continue to show growth.
We have completely transitioned out of the house of worship market and even after losing that revenue. Our overall revenues continued to show growth.
Thus our revenue guidance for the full year, which factors in the reduction in our managed services revenue is now expected to be a bit higher.
Speaker 4: Thus, our revenue guidance for the full year, which factors in the reduction in our managed services revenue, is now expected to be a bit higher.
Speaker 4: We had suggested that revenue for the year would be between 130 and 135 million, with the high end of that range being increasingly in sight.
We had suggested that revenue for the year would be between 130, and 135 million with the high end of that range being increasingly insight.
Speaker 4: We are now forecasting revenue for the full fiscal year to be somewhere between 135 and 140 million this year.
We are now forecasting revenue for the full fiscal year to be somewhere between 135 and $140 million this year.
We also expect to see continued expansion of our adjusted EBITDA margin as we continue to exploit the synergistic opportunities and achieving double digit adjusted EBITDA margins.
Speaker 4: We also expect to see continued expansion of our adjusted EBITDA margin as we continue to exploit synergistic opportunities and achieving double-digit adjusted EBITDA margin.
Miroslav Wicha: We delivered an adjusted EBITDA of $4.3 million for Q3 which represents a 12.2% operating margin. This is compared to last year's Q3 adjusted EBITDA loss of $1.5 million. This represents an increase of 387%. For the first nine months of the year, our adjusted EBITDA was $9.1 million representing an increase of 193% from last year's nine months performance. As a reminder, we have always said that it's typical for our OPEX to be front loaded and we expect a much stronger EBITDA operating margin performance in a second half of the year which the Q3 results have clearly demonstrated.
That concludes my prepared remarks, some passing the microphone back to you Marco and then we will open the floor to questions.
Speaker 4: That concludes my prepared remarks. So I'm passing the microphone back to you, Mirko, and then we'll open the floor to questions.
Thank you Dan.
Uh huh.
Yes, we can.
Look at some questions at the moment.
Speaker 1: If you have a question, please press star 1 on your telephone keypad. Your 1st question comes from the line of Nick with Acumen capital partner. Your line is open.
Yes, yes, Mr. You have a question. Please press star one on your telephone keypad.
Your first question comes from the line of Nick correct quarter, Ken with acumen capital partners.
Partners. Your line is open.
Speaker 5: This is Nick Corcoran for McNamee Capital Partners. Appreciate the time and congrats on a great quarter. Just a couple of questions for me. 1st, with with Abby West, you've talked about sales in North America. Can you maybe talk about the traction you've been getting and whether or not the writer's strike in Hollywood has increased the demand for. For either the products from Abby West or or you're. Kind of.
Miroslav Wicha: We expect Q4 to follow this trend. Now in addition, our growth margins in Q3 have increased to 71.9% from last year's Q3 of 66.1%. As we mentioned several times on our previous earnings calls, this was always our 2023 plan and I'm very happy to say that we delivered what we said we would. I believe that this is only the beginning of what's to come in the future quarters. Our focus has been and continues to be profitability and EBITDA performance.
For <unk> capital partners.
The time and congrats on.
A great quarter.
Just a couple of questions from me first Swift thought with Avi West you've talked about sales in North America can you maybe talk about the <unk>.
Josh you've been getting and whether or not the writer's strike in Hollywood has increased the demand for.
Or either the products from Abbvie Lester.
Okay the legacy products.
Speaker 3: Sure, yeah, I'll take that. I mean, right now the traction we're getting is actually been pretty, pretty solid. Again, remember that Abby West was very, very low or weak, I would say. In the North American coverage, and obviously high vision is very, very strong in North America. So a whole.
So yeah I'll take that I mean, it's.
Right now the traction we're getting is has actually been pretty pretty solid again remember that abbvie west was very very low or a week I would say in their north American coverage.
Miroslav Wicha: Now, we clearly made the right decision last October to exit the House of Worship Managed Services Market, which has been successfully completed in April, and has now started to show in our PNL as promised. I should, however, mention the strong Q3 we just announced, did include a significant $2.5 million US government programmatic order that was originally scheduled to come into our Q4 as part of our government year end planning. Obviously, it's always good news when orders come earlier than expected.
And obviously high vision is very very strong in North America saw a hole.
Speaker 3: Our whole push has been for the last year is to get and only get up to speed, but get all of our clients testing equipment, getting getting their hands on the equipment and just seeing how it works with the legacy systems. So, I think we've made great progress. I think there's a lot more opportunity yet to come.
Our whole push has been.
For the last year is to is to getting only get up to speed, but get all of our clients testing the equipment getting getting there.
Miroslav Wicha: With this movement, we do expect our Q4 to be adjusted by this amount than previously planned, meaning we won't be seeing the typical hockey stick effect to our Q4, and we remain confident with our year end projections that Dan will be discussing. Now, Q4 has always been the highest quarter by far in all of our fiscal years. In fact, last year's Q4 was very, very high, and in fact, the party call was almost $39 million, due to an unusually strong US government quarter.
And on the equipment and just seeing how it works with the legacy systems. So I think what we'd normally made great progress I think there's a lot more opportunity yet to come.
Speaker 3: And so I'm pretty optimistic from a lot of our key, key broadcast clients which have
And so I'm pretty optimistic from lot of our key key broadcast clients, which has been.
Speaker 3: You know, basically, everywhere to really get to get on the bandwagon of the pro series. So we do have already some wins and I think we're looking for a huge growth there in.
Basically macchiato is everywhere to really get it get on the bandwagon of the pro series.
So we do have already some wins and I think we're looking for huge growth there in.
Speaker 3: In fiscal 2024, I don't think the I'm not hearing at all anything about the writer strikes affecting our business.
In fiscal 2024.
I don't think the I'm not hearing at all anything about the writer's strike that's affecting our business.
Speaker 3: The majority of our business honestly is live sports.
The majority of our business honestly is live sports.
Speaker 3: Um, and that's pretty healthy. That's doing very, very well for us globally.
And that's a pretty healthy.
Very well for us globally.
Miroslav Wicha: Now, interestingly enough, this year we have seen a more balanced and consistent quarterly performance. In fact, in Q1 of this year, if you remember, we did 34 million in Q2, we did 35 million, and now in Q3, we delivered again 35 million. I expect this to continue into 2024, because we are finding that our three main verticals, our defense, our broadcast and enterprise, balance each other out globally and give us better business predictability.
Great and then maybe thinking about the.
Speaker 6: Great and then maybe think about the adjusted EBRM margin.
The adjusted EBITDA margin.
Speaker 5: How should we think of the progression to 20% and how should we think of the 4th quarter relative to the.
How should we think or the progression to 20% and how should we think about the fourth quarter relative to the to the third quarter.
Speaker 4: Well, Nick, thank you for the question. We see opportunity to lower our OPEX in the fourth quarter. We also see opportunity to improve our gross margin in the fourth quarter. And hopefully that's going to translate to a higher EBITDA margin. I think we've been forecasting that we should be in the double digits for the full year based on current performance. And so we do see some expansion in the fourth quarter compared to where we were in the third quarter.
Well Nick Thank you for the question, we see opportunities to lower our opex in the fourth quarter. We also see opportunity to improve our gross margin in the fourth quarter and hopefully that's going to translate to a higher <unk>.
Miroslav Wicha: Now, in addition, it's interesting to note, the US government has been slowly moving for a multi-quarter purchasing cycle, and not only depending on the year end September October timeframe, which always falls in our Q4. And we are also seeing strong demand for our global security operations centers within the global financial banking industry, cybersecurity, police centers, federal installations, public safety, and all defense sectors. The needs to have real-time mission critical and secure access to all your video sources and assets for real-time analysis, or situational awareness, is becoming more paramount.
EBITDA margin.
I think we've been forecasting that we should be in the double digits for the full year based on current performance and so we do see some expansion in the fourth quarter compared to where we were in the third quarter.
Speaker 5: And thinking longer, kind of longer term, what do you think the timeline would get 20% on us?
And it's taking longer.
Longer term, what do you think the timeline to get type sinus.
I'm, sorry, I didn't hear the last part of that question.
Speaker 5: Yeah, I'm thinking of the timeline for you to get from the adjusted even margins you had in the third quarter to 20%.
Yes, I would think about the timeline for you to get from the adjusted EBIT margins you had in the third quarter to 20%.
Speaker 4: So, I think I think what we sort of forecasted is that in 2024, we will see a 20% margin in 1 of our quarters. I'm not ready to commit. I don't think we will get to 20% for the full year. I'm not suggesting that it's outside out of question, but our goal right now is to demonstrate 20% growth in at least 1 of our quarters. 20% EVDA margin.
So I think I think what we sort of forecast. It is that's in 2024, we will see a 20% EBITDA margin in one of our quarters.
Miroslav Wicha: Now, we are now the leading vendor delivering the entire contribution, distribution, visualization, ecosystem in this critical area. We believe that our company is a bright future ahead, and we are committed to maximizing long-term value for all our shareholders. We are confident in our ability to execute in our strategic plan and deliver continued growth and success. Now, in closing, despite the economic headwinds and continuous supply chain challenges we keep hearing about from other companies, I believe that high vision has weathered the storm better than most.
Not ready to commit I don't think we will get to 20% for the full year I'm not suggesting that it's outside out of question, but our goal right now is to demonstrate 20% growth in at least one of our quarters.
20% EBITDA margins and wonderful quarters.
Speaker 5: That's helpful. And how should we think of the conversion of free cash flow from a just...
That's helpful and how should we think with the conversion.
Free cash flow from adjusted EBITDA.
Speaker 4: Well, I tried to sort of give you a way to look at the equation here. Our adjusted EBITDA was about 4.3 million. And as I kind of pointed out between the cash balance and a line of credit, we were able to reduce our line of credit by four and a half million. We were able to reduce our debt by a million dollars. That should give you a sense that adjusted EBITDA is a fairly good indicator of what our cash generating ability might be.
Well I tried to sort of give you a way to look at the equation here. Our adjusted EBITDA was about $4 3 million and as I kind of pointed out between the cash balance in our line of credit.
Miroslav Wicha: And we expect our Q4 to be strong and consistent with our strategic plan and feel very comfortable with our year end projections, then we'll discuss our guidance for the remainder of the year shortly. And we're also very confident in our strategic plan and expect to demonstrate revenue growth and significant profitability growth in 2024.
We were able to reduce our line of credit by four and a half million dollars, we were able to reduce our debt by a $1 million that should give you a sense that adjusted EBITDA is a fairly good.
Miroslav Wicha: Finally, as we previously mentioned, we are moving quickly towards achieving our longer-term goal of delivering 20% evident performance.
Indicator of what our cash generating ability might be.
Speaker 5: Great, and then the last question for me, just as you sort of generate more free cashflow, what are your capital allocation priorities between paying down debt, share buybacks, M&A and any other.
Great and then the last question from me just as you sort of generate more free cash flow what are your capital allocation priorities between paying down debt share buybacks M&A and any other uses.
Speaker 4: I'm not sure I heard what your first sub point was. I think we're right now focused on integration, fully integrating these two properties, demonstrating our EBITDA margin. We have been quite successful in M&A. All of our acquisitions as far have been very successful, and it's something that we would probably be looking to at the future, but we're not looking for anything that's distracting us from this goal of demonstrating the earning capability of the business.
I'm not sure I heard what you first a sub point was I think we're right now focused on integration fully integrating these two properties demonstrating our EBITDA margin.
Dan Rabinowitz: But to this, Dan, please continue with the financial details. Thank you, Mirko. So let's talk numbers. Revenue for this third quarter of fiscal 2023 was $35 million. That's an increase of 5.4 million or 18.2% from the prior year comparative period. The revenue increase is notable for a number of reasons. First of all, the revenue comparison is an apples-to-apples comparison, as revenue from Ave West is included in both periods. Revenue from just the products increased by 28.8% in the quarter.
We have been quite successful in M&A all of our acquisitions, thus far have been very successful and it's something that we would probably be looking to at the future, but we're not looking for anything that's distracting us from this goal of demonstrating the earnings capability of the business.
Speaker 5: And have shared buybacks from something you've copied.
And to have share buybacks and so can you buy your cough pleasant.
Speaker 4: Not really, no, not at this juncture. It's not something we think about. I think we're, you know, we with 7 million in the bank right now, I don't think it's an opportunity for us to be buying back shares at this juncture.
Not really.
No no no.
Not at this juncture, it's not something we think about I think what we with $7 million in the bank right now I don't think it's an opportunity for us to be buying back shares.
Dan Rabinowitz: This impact also is reflective of the $1.9 million decrease in cloud-solution revenue when compared to last year. We saw fantastic revenue growth despite our decision to exit the managed services space that focused on the house of worship market. Even our maintenance and support revenue saw double-digit growth growing 15% year-over-year. This recent quarter did represent a record performance in terms of third quarter revenue, which historically tended to be a slower period for the company.
At this juncture.
Okay.
Great. That's all for me thanks for taking my questions.
Speaker 1: Your next question comes from the line of Daniel Rosenberg with Paradigm Capital. Your line is open.
Your next question comes from the line of Daniel Rosenberg with paradigm capital. Your line is open.
Thanks, and congrats on a very strong quarter. My first question goes to the levers that you were speaking to on <unk>.
Speaker 7: Thanks and congrats on a very strong quarter. My first question goes to the levers that you were speaking to on lowering OPEX and so I was just curious to hear specifics around what areas are you able to achieve this and then you know is it the scale that you guys are you know the operating leverage and economy to scale that's helping drive the confidence in your statements around getting to 20% next year?
<unk> Opex and so I was just curious to hear.
Vicks around what areas are you able to achieve this and then.
Dan Rabinowitz: Hope to see more of these types of records in fiscal year 2024 and beyond. Revenue for the nine months ended July 31st with $104.2 million. That's an increase of 16.3 million or 18.6% from the prior year comparative period. Note that year-to-date results included Ave West performance for the entire nine months. Whereas in the prior year comparative period, year-to-date results included Ave West for only four months. On the other hand, this year-to-year performance reflects our exit from the managed services market in April.
Is it the scale that you guys are.
The operating leverage and economies of scale that is helping drive the confidence in your statements around getting to 20% next year.
Good question, so the way that I look at the equation. We started this restructuring effort in the fourth quarter of last year now I'll remind you we had purchased Abbvie west in April of 2022, and so that fourth quarter was the first quarter that we were able to see what the what the expense burden would be it.
Speaker 4: Good question. So, the way that I look at the equation, we started this restructuring effort in the 4th quarter of last year. Now, mind you, we had purchased Abby West in April of 2022 and so that 4th quarter was the 1st quarter that we were able to see what the, what the extensibility would be of that entity and how the teams were working together. We recognized really quickly that we had to
Entertain how the teams were working together, we recognize really quickly that we had to.
Dan Rabinowitz: For the nine-month period, we saw cloud-solution revenue declined by 2.8 million when compared to the prior year period. So with that said, we are seeing huge growth and we see huge growth in maintenance and support revenue, which also grew by 23% year-over-year. Recurring revenue, which we defined as our cloud solutions in our maintenance and support, was 5.6 million or about 16% of total revenue in this recent third quarter. And it was about 20.3 million or 19% of total revenue on a year-to-date basis.
Speaker 4: right size our R&D efforts because we've done a number of acquisitions in the last few years and many of those acquisitions included a significant number of engineers to help build products for us.
Yes.
Right size, our R&D efforts, because we've done a number of acquisitions in the last few years and many of those acquisitions included a significant number of engineers to help build build products for us.
Speaker 4: So as we were going through the exercise, we were focusing on having everyone working on a common platforms using common technologies, common methodologies. And that's what's resulted in the headcount decrease in last year.
As we were going through the exercise we were focusing on having everyone working on a common.
Common platforms using common technologies common methodologies and that's what's resulted in the head count decrease in last year now in this current period, our focus was a little bit different we wanted to see what products have legs, what products were had opportunity going forward and we realigned our development.
Speaker 4: Now in this current period, our focus was a little bit different. We wanted to see what products have legs, what products had opportunity going forward, and we realigned our development teams to be more focused on those products that generate the most revenue for the business. And that resulted in an additional headcount reduction of about 15 people.
Dan Rabinowitz: We anticipated that our recurring revenue would decrease as a percentage of our total revenue once we exited the managed services business. With that said, we do expect maintenance and support revenues to continue to grow robustly going forward. For this quarter, our gross margins were 71.9%. That compares to 66.1% in the prior year comparable period. Further, this quarter's gross margin were an improvement from the 68.9% realized last quarter that's our second quarter this fiscal year and an increase from the 66% in the quarter before that our first quarter this fiscal year.
Teams to be more focused on those products that generate the most revenue for the business and that resulted in additional head count reduction of about 15 people.
Speaker 4: So we've now reprioritized the business, focusing on those new products, focusing on the opportunities going forward, and we're able to make some pretty decisive decisions that I think are going to generate additional EPIT-A going forward.
So we've now we prioritize the business focusing on those new products focusing on the opportunities going forward and.
We're able to make some pretty decisive decisions that I think are going to generate additional EBITDA going forward.
Speaker 7: Okay, appreciate that. And in terms of the debt pay down, I'm just curious to hear if there's.
Okay I appreciate that and then in terms of the debt pay down and I'm just curious to hear if there is.
Speaker 7: Anything specific around the timing or structure that sparked you wanting to pay down in this quarter or any targets in terms of leverage ratios that you think are the right ones to have for this company?
And anything specific around the timing or structure that that sparked you want to pay down in this quarter or any targets in terms of leverage ratios.
Dan Rabinowitz: As discussed in our last earnings call, we anticipated margins to improve in this third quarter and even suggested that the impact could be as much as 200 basis points. Well, we certainly exceeded that expectation. The managed services businesses business had about 600,000 in six costs related to platform license fees, third party add-ons and minimum bandwidth commitments. So in another way, the managed service business tended to be a below-the-average performer in terms of gross margin.
That you think are the right ones to have for this company.
Speaker 4: If you're talking about just trade, I'm sorry.
If you're talking about just a.
Great.
I'm sorry.
Speaker 4: regular debt, term loans. We assume those term loans as part of the Abby West transaction and those term loans were very favorably priced. Some of them were as low as 1% interest rates and what have you.
Regular debt term loans.
Assume those term loans as part of the Abbvie West transaction and those term loans were very favorably priced some of them, whereas were as low as 1% interest rates and what have you we're not looking to accelerate our payments against those debt instruments. Rather. This is just happens to be the timing of repayments for <unk> for the debt instruments nothing is leading us.
Speaker 4: We're not looking to accelerate our payments against those debt instruments. Rather, this just happens to be the timing of repayment for the instruments. Nothing is leading us to accelerate that at all. With respect to the line of credit, we're not looking to accelerate our payments against those debt instruments.
Dan Rabinowitz: Further, supply chains appeared to be reverting to more normal delivery schedules. We did encourage just over 300,000 in additional costs related to approximately 950,000 or about 100 basis points. These extra costs were approximately half of the costs that we incurred last year, which impacted margins by over 200 basis points. We expect this extra expense to continue to dissipate going forward with a next year expectation for these costs to be half of the cost that we incurred this year.
To accelerate that at all with respect to the line of credit.
Speaker 4: It's just happenstance. We have no obligation to pay it down. We're not looking to pay it down, but what are we going to do with excess cash? We're not paying interest rates on it, we decide to pay it down.
It's just happenstance.
We have no.
<unk> obligation to pay it down we're not looking to pay it down but what are we going to do with excess cash rather than paying interest rates on them, we decided to pay it down.
Speaker 4: Now, mind you, we still have this line of credit, a thirty five million dollar line of credit with the accordion expansion feature for twenty five additional million dollars. So we could pay it down and then we reuse it if we wanted.
Now mind you we still have this line of credit of $35 million line of credit with the accordion expansion feature for 25 additional million dollars. So we could pay it down and then we.
We use it if we wanted to.
Okay. Thanks for that and last one for me.
Speaker 7: Okay, thanks for that. And last one for me. So a number of product launches and
Dan Rabinowitz: And just to complete the thought, there really wasn't much variation in overall mix throughout the year. That's these gross margin improvements are real improvements. Total expenses for this quarter were 25.6 million and increase of 1.2 million when compared to the same period in the prior year. However, in this quarter total expenses included a non-recurring restructuring cost of 1.5 million. We essentially completed the restructuring exercise that was initiated in the fourth quarter last year.
So a number of product launches.
Speaker 7: industry recognition around products and awards. Just curious what excites or what are the, you know,
Industry recognition around products and awards.
Im just curious what excites.
Excites.
What are the.
Speaker 7: new product areas that are exciting and growth potential for you, the ones that get you most excited let's say.
New product areas that are exciting and growth potential.
<unk> for you.
The ones that get you most excited let's say.
Yes.
Great question I mean, there's a.
Speaker 3: There's several in fact, right now we're in the middle of, I think, 3, 3 separate shows going on this week. The next week is the 2nd largest broadcast. So, and we're actually. Doing some pretty cool technology there. We're also showcasing. Um, you know, in another actually defense show is a command 360. I just found out a couple hours ago. We just won.
There are several in fact right now we're in the middle of it I think treat three separate sales going on this week in equity and <unk> is the second largest broadcast show and we're actually.
Dan Rabinowitz: The result is that we ended the quarter with 374 employees compared to 418 employees a year ago. And that compares to the 389 employees at the end of second quarter. Generally speaking approximately 75% of our cost structure is related to compensation expenses and related social charges. That's you can put the math together.
There were some pretty cool technology there were also showcasing.
And another actually a defense show is a command through 60 I just found out a couple of hours ago. We just won.
Dan Rabinowitz: I should mention that since the most recent restructuring was largely completed in the second half of this quarter, there may be additional opportunities for optics savings in this fourth quarter.
Speaker 3: you know, an award, a show award for that as one of the best products, which is our, you know, Command 360 visual collaboration systems. I think that's one of the ones that we're the most excited about. You know, we just start rolling that out.
An award show award for that is one of the best products, which is our <unk> hundred 60 visual collaboration systems I think that's one of the ones that we're the most excited about we just start rolling that out.
Speaker 3: There's a tremendous potential, we're seeing a huge potential in all of these global secure operation centers, interestingly enough, from all sectors.
There's a tremendous potential of what we're seeing a huge potential in.
All of these are global.
Secure operation centers.
Interesting enough from all sectors.
Speaker 3: Believe it or not, the banking sector, which we're extremely strong in, we are the leader in that sector and they just can't get enough of our stuff. So that's cool. Cyber security is going bananas with our systems.
Dan Rabinowitz: However, next week is our second, next week is our second largest trade show, the International Broadcasting Convention or IBC. And it may result in incremental marking spend in this fourth quarter. On a year-to-date basis total expenses were 74.4 million and increase of 9.1 million when compared to the year earlier period. As a reminder, the Abbey West transaction was consummated in April of 2022, which implies it was only part of our cost structure for four months in the comparable period last year.
Believe it or not the banking sector, which were extremely strong in we are the leader leader in that sector and they just can't get enough of our stops us core cyber security is going going bananas with our systems.
Speaker 3: So, you know, we're seeing it in state state and local police, you know, fire emergency response and not not to mention all the defense.
So we're seeing it in state of the state and local police fire emergency response and not.
Not to mention all of defense groups that we deal with the.
Speaker 3: groups that we deal with. So the Command 360 is the one that really, really is getting us excited. It's by far the best way to get us to the next level.
The command through 16 as the one that really really is getting us excited by.
By far the.
Speaker 3: the big growth engine going forward. So that's cool. There are some new changes. We're actually launching a couple new Makitos, which is our core product.
The big growth engine going forward, so that's cool.
There are some new changes worth launching.
A couple of new Macchiato, which is.
Dan Rabinowitz: Thus, it is impacting year-over-year comparison. Avowest added approximately 80 people last year. If we were to isolate the reason for the increase, compensation related expenses added approximately 4 million in total expenses, most of which would be attributable to the timing of the Avowest acquisition. Increases in depreciation and compensation expenses related to acquired assets and intangibles added an incremental 2.3 million in total expenses. Increased travel expenses added an incremental 1.5 million and the Canadian dollars exchange rate impact on US dollar denominated assets and liabilities added an incremental 1 million to total expenses.
Our core product.
Speaker 3: And that's exciting. We'll be launching a couple more in the next two quarters, different variations.
And Thats exciting we'll be launching a couple more on the next two quarters are different variations.
Speaker 3: We did a single channel Makito, which was the first time ever we launched that in a different form factor. And then we're also doing a soft launch showcasing kind of an early adoption beta program for our.
We did a single channel Mosquito, which was the first time ever we launched that in a different form factor.
And then we're also.
Doing a soft launch so showcasing kind of an early adoption beta program for our.
Speaker 3: for our hub 360, which is our cloud system to connect all of our devices edge devices from our broadcast workflow. So we did a sneak preview at NAB. We're doing a little more than a sneak preview at IBC this week or starting this week.
For our hub $3 50, which is our cloud system to connect all of our devices edge devices for a broadcast workflow.
So we did a sneak preview at an a b.
We're doing a little more than a sneak preview at I B C. This week are starting this weekend I should say.
Speaker 3: Uh, and that is scheduled to be a or general available at the end. Of the calendar year kind of 1st, quarter of 2024.
The band that.
Is scheduled to be G. H, a general available at the end.
Of the calendar year kind of first quarter of 2024.
Speaker 3: calendar where we expect that to bring on more speed from a total solution itself. So you've got the cloud platform up 360, command 360, and some of the key to stuff. And we're really re-energizing the Pro Series transmitters in the North America market, where I see a huge up
Dan Rabinowitz: When we normalize total expenses for share based payments, depreciation of fixed assets, the amortization of intangibles and restructuring costs, total expenses were 20.8 million, a decrease of 400,000 from the prior year. The result of the higher revenues, better gross margins and a decrease in op-x is that adjusted EBTA for the quarter was 4.3 million. That's an increase of 5.9 million when compared to the adjusted EBTA loss of 1.5 million for the same period in the prior year.
Calendar.
We expect that to bring on more speed.
From a from a total solution sell so you've got the cloud platform up 360, <unk> hundred 60, and something the keto stuff.
And we're really Reenergizing the pro series transmitters in the in the North America market, where I see a huge opportunity.
Speaker 7: Thanks. Congrats again and thanks for taking my questions. I'll pass the line.
Thanks, Congrats again and thanks for taking my questions I'll pass the line.
Speaker 1: Once again, ladies and gentlemen, if you have a question, it is star one on your telephone keypad. Your next question comes from the line of Robert Young with Canaccord. Your line is open.
Once again, ladies and gentlemen, if you have a question. It is star one on your telephone keypad.
Our next question comes from the line of Robert Young with Canaccord. Your line is open.
Dan Rabinowitz: The adjusted EBTA margin for this quarter was 12.4%. That margin compares quite positively to the 7.5% in the prior quarter and the 6.2% in the quarter prior to that. In prior calls, we had certainly been signaling our belief that the third quarter would be somewhat of a watershed event. I believe now you are beginning to see the full benefit our restructuring plan and as there's still some additional opportunities to increase EBTA, margins going forward, we should see this continuing.
Speaker 8: Hi, good evening. I was hoping to dig a little bit into gross margins.
Hi, good evening.
I was hoping to dig a little bit into gross margins.
Look you had said that the gross margins were maybe a little better than I expected given.
Speaker 8: gross margins were maybe a little better than expected given the house worship impact no longer.
The houses of worship impact no longer.
Speaker 8: a drag supply chain improvement, maybe a little bit of integration. I think you suggested that gross margins can continue to get better as you move.
Drag.
Apply chain improvement, maybe a little bit of integration everything guys.
Suggested that gross margins can continue to get better.
As you move.
Speaker 8: integrate or integrate the recent acquisitions and put them on a common ERP and then further supply chain benefits.
And a great or integrate.
Dan Rabinowitz: We should see gross margins continue as we absorb the remaining higher cost componentry and as we continue to migrate the two acquisitions to a common ERP platform. And as I explained earlier, we should see additional op-x savings in the fourth quarter based on the timing of our restructuring exercise completed in June. I'll be it with this cautionary note that we do have our second largest trade show in this fourth quarter as well.
The recent acquisitions and put them on a common ERP.
ERP and then.
Further supply chain benefits.
And so.
Speaker 8: It seems, should we be thinking of 71, 72% being a base? Like will it improve from here or are there any negative things that we should be considering? Well, Robert.
Should we be thinking of 70, 172%.
We will improve from here or are there any negative things that we should be considering.
Well, Robert Nice to hear from you again.
Speaker 4: I'm not sure I'd be as optimistic as you are, but maybe I'm just a very conservative, tend to be fairly conservative. The one area that's fairly defined is the cost of this componentry that we spent some incremental money to be able to obtain, to be able to serve our customers.
I'm not sure it'd be as optimistic as you are but maybe I'm just a very conservative.
Dan Rabinowitz: Adjusted EBTA for the 9 month period was 9.1 million. That's an increase of 5.9 million when compared to a adjusted EBTA of 3.1 million for the prior comparable period. The adjusted EBTA margin for this 9 month period was 8.7%, but that compares quite favorably to 3.6% for the prior year comparable periods. We also saw significant improvement in the net loss for the quarter. The net loss for this quarter was only 900,000 compared to a net loss of 4.2 million for the same period in the prior year.
Tend to be fairly conservative the one area. That's fairly defined is the cost of the componentry that we spent some incremental money is to be able to obtain to be able to serve our customers.
Speaker 4: Last year, those incremental costs were about 210 basis.
Last year, those incremental costs were about 210 basis points and we've seen that number.
Speaker 4: And we've seen that number be cut in half this year. It's about 110 basis points.
Cut in half this year, it's about 110 basis points.
Speaker 4: that's impacted our financial statements, and we anticipate that to actually be reduced in half next year as well. So that's a real tangible benefit you can look at.
That's impacted our financial statements and we anticipate that to actually be recent half next June as well. So that's a real tangible benefits you can look at now when it comes to the ERP and the migration of the two entities that speaks to an opportunity, but we've got some work to do to make sure that we can exploit it I've got a lot of confidence in our supply chain people as milk.
Speaker 4: Now, when it comes to the ERP and the migration of the two entities, that speaks to an opportunity, but we've got some work to do to make sure that we can exploit it. I've got a lot of confidence in our supply chain people. As Mirko kind of alluded to, we weathered this global shortage better than many of our competitors out there. There was not a single customer that we could not deliver products to because of the way that we were able to handle our supply chains.
Dan Rabinowitz: That 3.4 million improvement is largely related to the 5.4 million increase in revenue and the improvement in gross margin contributing 5.6 million in incremental gross profit. Now these increases were offset by the 1.2 million in incremental expenses and we did get some benefit from income tax recovery of 900,000. Net loss on the year-to-date basis was 3.8 million but that too compares quite favorably to the net loss of 5.1 million for the prior year comparative period.
You kind of alluded to we weathered this global shortage better than many of our competitors out there there was not a single customer that we could not deliver products to because of the way that we were able to handle our supply chain.
Speaker 4: So I am confident that being on a common platform with the common tools that we use to be able to manage our costs of goods sold will be able to impact MCS's business and Abby West's business going forward.
So I am confident that being on a common platform with the common tools that we use to be able to manage our cost of goods sold we'll be able to impact mcs's business and Abbvie West's business going forward.
Dan Rabinowitz: With respect to the balance sheets we ended the quarter with a cash balance of 7.5 million a modest increase of 200,000 from the prior quarter end. However we also ended the quarter with only 5.5 million outstanding on the credit facility. That's a reduction of 4.5 million from prior quarter end and we reduced our term loans by an additional 1 million dollars. Total assets at July 31st were 133.9 million that is a decrease of 14.7 million from the end of fiscal year 2022 and the decrease in assets in the 9th period, largely relate to a 7.6 million dollar reduction in trade and other receivables, a 5.8 million dollar reduction in intangible assets, and a 2.4 million dollar reduction in inventory.
If you were if you.
Yeah.
Speaker 4: conservatively speaking, I would maybe look at a half point improvement next year and another half point improvement the year after that and another half percent improvement thereafter. But we are certainly going to strive to better that as well.
Conservatively speaking I would maybe look at a half point improvement next year and another half point improvement the year after that and then another half.
Present improvement thereafter, but we are certainly going to strive to better that as well.
Okay, Great and then.
Speaker 8: Looking at OPEX, the restructuring exercise...
I mean looking at Opex.
Structuring exercise Cedric complete in June so there is some residual impact there.
Speaker 8: in June , so there's some residual impact there.
To get to the.
Speaker 8: the EBITDA margin expansion, would it be, are there some, is it mostly driven by top line growth or would there be some additional OPEX benefit?
The EBITDA margin expansion would it be or are there. Some is it mostly driven by topline growth or will there be some additional opex benefit.
In addition to the ground and then just talked about.
Speaker 4: I'm anticipating a little bit more OPEX benefit as a result of the timing of the last restructuring. If you think about it, we did the restructuring at the second half of June .
I'm anticipating a little bit more opex benefit as a result of the timing of the last restructuring. If you think about it we did the restructuring at the second half of June So our second quarter financial third quarter financials had fully loaded costs for those individuals' for both the months of May and June those expenses aren't going to be part of our fourth quarter equation.
Speaker 4: So our second quarter financial third quarter financials had fully loaded costs for those individuals for both the month of May and June . Those expenses aren't going to be part of our fourth quarter equation. Again. I'm cautioning that we do have a one of our big trade shows in the fourth quarter that's going to go the opposite direction. But overall, I do believe we're going to be seeing some incremental benefit.
Dan Rabinowitz: These decreases were offset by the 1.7 million increase in our cash balance this fiscal year. Total liabilities at quarter end with 46.1 million that's a decrease of 12.2 million from the end of fiscal 2022. The decrease in total liabilities for the 9th period included a 5.5 million dollar decrease in the line of credit, a 4.8 million dollar decrease in trade and other payables, 1.2 million dollar decrease in our lease liabilities, and again a million dollar reduction in the amount of term loans outstanding.
Again, I am cautioning that we do have a one of our big trade shows in the fourth quarter, that's going to go the opposite direction, but overall I do believe we're going to be seeing some incremental benefits now in terms of revenue.
Speaker 4: Now, in terms of revenue, I mentioned that we're seeing more of a.
Medical kind of mentioned that we're seeing more of a.
Speaker 4: flattening of our revenue curve. It used to be that our fourth quarter was a very large quarter. It was in concert with the U.S. year-end.
Flattening of our revenue curve it used to be that our fourth quarter was a very large quarter. It was in concert with the U S year end.
Speaker 4: But we're seeing that even that business seems to come in more radically throughout the year. And we did have a surprise opportunity where the programmatic deal came into the third quarter that we firmly expected to see in the fourth quarter. So we're probably seeing.
But we're seeing that even that business seems to come in more ratably throughout the year and we did have.
Dan Rabinowitz: With respect to the remaining integration plans, for AV West we have completed the move of AV West to a common accounting system and we just completed AV West's move to a common ERP system. With this enhanced visibility to AV West inventory, we hope to increase the flexibility of AV West supply chains and reduce direct product costs to increase gross margins. Our focus in the near term will be to sell more of AV West products in North America.
Surprise opportunity, where the a programmatic deal came into the third quarter that we firmly expect to see in the fourth quarter. So we're probably seeing.
Speaker 4: black revenue in the fourth quarter, give or take.
Flat revenue in the fourth quarter give or take.
Speaker 8: That was my next question. The government program, I think it was $2.5 million. Is that full $2.5 million? Is that the pull forward or was that the size of the program and it was pulled forward?
And so actually that was my next question. The government program I think it was $2 5 million does that $4 million to $5 million is that the pull forward or was.
The size of the program and it was pulled forward.
Speaker 4: That was the amount of revenue recognition in the third quarter that we thought was going to be a fourth quarter event.
That was the amount of revenue recognized in the third quarter that we thought was going to be a fourth quarter event.
Dan Rabinowitz: At high vision MCS, progress is also accelerating. Our current focus is to fully integrate development teams and we expect this to be completed this month. Our next major focus is integrating production capabilities and migrating MCS's ERP system to a common platform. The pace of integration is increasing over the remainder of the year.
Okay alright, okay. Thanks, that's great. Thanks for taking my question Congrats.
Speaker 8: All right. Okay, thanks. That's great. Any questions?
Congrats on the quarter.
Thank you and next.
Speaker 1: My apologies your next question comes from the line of Daniel H. Baldini with Abron Asset Management. Your line is open.
My apologies. Your next question comes from the line of Daniel H Baldini with Aberdeen asset management. Your line is open.
Speaker 9: Great, thanks very much for taking my call. I have a question that relates really to the US portion of your broadcast business. And that is, you know, in recent weeks we...
Great. Thanks, very much for taking my call.
<unk> that relates to relate to the U S portion of your broadcast business and.
Dan Rabinowitz: Now just on an aside, this week we also had our 12th ISO 9001 audit and we're pleased to say that once again the audors found our quality management system to be fully effective, in fact with outstanding ratings on most, most benchmarked activities. In terms of expectation for the remainder of the year, We have completely transitioned out of the house of worship market, and even after losing that revenue, our overall revenues continue to show growth.
In recent weeks week.
Speaker 9: this standoff between Charter and Disney and the settlement
Sure this standoff between charter and Disney.
And the settlement.
Speaker 9: I'm curious to basically have accelerated the demise of the cable bundle here in the US. And I'm just curious, how could you grow your US broadcast business in a world where there's just fewer cable channels out there and fewer local affiliates producing local news as time
You too.
<unk> have accelerated the demise of the cable bundle here in the U S.
And I'm just curious how could you grow your U S broadcast business in a world where there is just fewer cable channels are out there and skewer local affiliates producing local news.
Dan Rabinowitz: Thus, our revenue guidance for the full year, which factors in the reduction in our managed services revenue, is now expected to be a bit higher. We had suggested that revenue for the year would be between 130 and 135 million, with the high end of that range being increasingly in sight. We are now forecasting revenue for the full fiscal year to be somewhere between 135 and 140 million this year. We also expect to see continued expansion of our adjusted EBITDA margin, as we continue to exploit synergistic opportunities and achieving double digit adjusted EBITDA margins.
As time goes on.
Thank you.
Sure.
Speaker 3: Okay, well, I mean, thank you for the question. Well, let me let me just. Explain what we have to do in broadcast and where our systems are sold.
Okay well thank.
Thank you for the question.
Well, let me let me just explain what we.
Due in broadcast and where our systems are sold.
Speaker 3: And we're predominantly in live sports, right? Which means
And we're predominantly in live sports, alright, and which means.
Speaker 3: We work with the affiliates with the main broadcasting companies, but also that deal with people like the NFL, people like the Fox Sports, ESPN. And then they work with people like the NCAA, and then they go down and down in a different sporting league.
We get it we work with the affiliates and.
With the main with the main broadcasting companies, but also that that.
Deal with people like the NFL people like Fox News Sports complex Fox Sports.
Miroslav Wicha: That concludes my prepared remarks, so I'm passing the microphone back to you, Mirko, and then we'll open the floor to questions. Thank you, Dan. I guess we can look at some questions at the moment.
S P N and.
And then they they work with people like the DNC double as and when they go down and down and the different Sporting League.
Speaker 3: for instant replays for live, you know, live monitoring of games, practice fields, etc. You know, golf events. So we're not really competing or competing. We're not looking for cable network type of news.
Sure.
And replaced for life.
Alive monitoring of games practice fields et cetera.
Nick Corcoran: If you have a question, please press star one on your telephone keypad. Your first question comes from the line of Nick Korak. [inaudible] How should we think of the progression to 20% and how should we think of the fourth quarter relative to the third quarter?
Golf events.
So we're not really competing or I should say competing were not looking for cable network type of news.
Speaker 10: you know, business, if you follow me. We're seeing that live sports is actually growing.
No.
Business is evolving.
We're seeing that that live sports is actually growing.
Speaker 5: globally, not just the US, right? Now for us, what we as a company, we've never been involved in wireless or cellular bonded
Globally, not just the U S right now for us.
As a as a company we've never been.
Involved in wireless or cellular bonded hype.
Speaker 5: type of solutions, right, encoding solutions. We've all been sick.
Type of solution. So I think coding solutions, we've all been thick.
Speaker 3: We are in Iraq at events. But Avi West technology brings us the capability to do 5G wireless cellular bonded technology where if you think
We are in Iraq.
At events, but Avi West technology brings us the capability to do five G wireless cellular Bonder technology, where do you think.
Speaker 5: As an example, think of think of PGA and golf and the guys with the backpacks following the golfers, right? I mean. That that stuff we've never played with before now we are involved in that heavily. So for us. We're seeing our business potentially increasing because we're doing both wired and wireless and not the pickup for us.
As an example think of it think of Pega in golf and you know the guys are the backpacks following the golfers right I mean.
That stuff, we've never played with before now we are involved in that heavily so for us we're seeing our business, but actually increasing because we're doing both wired and wireless and that's a pickup for us like pick up market share that we would never involved in it.
Speaker 5: pick up market share that we were never involved in. So from a North American broadcast perspective, it's been pretty strong. I mean, we also benefited from the big COVID bubble, right, which is tremendous. Everybody doing remote production, everybody doing everything remote, but we haven't seen a slowdown of live sports, which is really what we do very well. Does that help? All right.
So from a north American broadcast perspective, it's been pretty strong I mean, we also benefited from the big Covid bubble, which was tremendous.
What are you doing remote production everybody doing everything remote.
But we haven't seen a slowdown of live sports, which is really what we what we do very well.
Yeah that helpful Alright.
Yeah. That's helpful. Thanks very much.
Speaker 1: and there are no further questions at this time I will turn the call over to Mirka Wicha.
And there are no further questions at this time I will turn the call over to Mike Havlicek.
Okay, well thank you Sarah.
Speaker 10: So, I just want to basically thank everybody and all our shareholders. And analysts on the line today for the continued support of high vision. And we look forward to speaking with all of you in January . When we plan to be discussing our full year 2023 results. So, that's that's going to be sometime late. So, I just want to say thank you to everybody in January as always and look, really look forward to to be able to talk about the whole year results.
So I just want to.
Basically thank everybody and all our shareholders and analysts on the line today for the continued support of our vision and.
Really look forward to speaking with all of you in January when we plan I'll be discussing our full year 2023 results.
So that's that's going to be some time late January as as alloys, and really look forward to to be able to talk about the whole year results. So.
Miroslav Wicha: Well, Nick, thank you for the question. We see opportunity to lower our optics in the fourth quarter. We also see opportunity to improve our gross margin in the fourth quarter. And hopefully that's going to translate to a higher EBDA margin. I think we've been forecasting that we should be in the double digits for the full year based on current performance. And so we we do see some expansion in the fourth quarter compared to where we were in the third quarter.
Speaker 5: So, thanks again and we'll see everybody in January .
So thanks, again, and we'll see everybody in January .
Speaker 1: This concludes today's conference call. We thank you for joining. You may now disconnect your lines.
This concludes today's conference call. We thank you for joining you may now disconnect your lines.
Speaker 2: Please wait, the conference will begin shortly. Thank you for watching!
Please wait the conference will begin shortly.
[music].
Miroslav Wicha: And it's taking longer, kind of longer term. What do you think the timeline get twice on us? I'm sorry, I didn't hear the last part of that question. Yeah, I'm thinking of the timeline to get from the adjustment margin you had in that the third quarter to 20%. So I think I think what we sort of forecast is that in 2024, we will see a 20% EBDA margin in one of our quarters.
Yeah.
Yes.
Yes.
Yes.
Yes.
[music].
Miroslav Wicha: I'm not ready to commit. I don't think we will get to 20% for the full year. I'm not suggesting that it's outside out of question, but our goal right now is to demonstrate 20% growth in at least one of our quarters. 20% EBDA margins in one of our quarters.
Miroslav Wicha: That's helpful.
Miroslav Wicha: And how should we think of the conversion of free cash flow from adjusted EBDA? Well, I tried to sort of give you a way to look at the equation here. Our adjusted EBDA was about 4.3 million. And as I kind of pointed out between the cash balance and our line of credit, we were able to reduce our line of credit by 4.5 million. Again, we were able to reduce our debt by a million dollars. That should give you a sense that adjusted EBDA is a fairly good indicator of what our cash generating ability might be. Great.
Miroslav Wicha: And then the last question for me, just as you sort of generate more free cash flow, what are your capital allocation priorities between paying down debt, share by back M&A and other users? I'm not sure I heard what your first subpoint was. I think we're right now focused on integration fully integrating these two properties, demonstrating our EBDA margin. We have been quite successful in M&A. All of our acquisitions as far have been very successful and it's something that we would probably be looking to at the future, but we're not looking for anything that's distracting us from this goal of demonstrating the earning capability of the business.
Miroslav Wicha: And have share by back some something you've got. Not really. No, not at this juncture. It's not something we think about. I think we're, you know, we, with 7 million in the bank right now, I don't think it's an opportunity for us to be buying back shares at this juncture.
Miroslav Wicha: Great.
Miroslav Wicha: That's all for me. Thanks. Take my question.
Daniel Rosenberg: Your next question comes from the line of Daniel Rosenberg with paradigm capital. Your line is open. Thanks, and congrats on a very strong quarter.
Dan Rabinowitz: My first question goes to the levers that you are speaking to on lowering OPEX, and so I was just curious to hear specifics around what areas are you able to achieve this, and then, you know, is it the scale that you guys are, you know, the operating leverage and economies of scale that's helping drive the confidence in your statements around getting to 20 percent next year? Good question. So the way that I look at the equation, we started this restructuring effort in the fourth quarter of last year.
Dan Rabinowitz: Now, mind you, we had purchased Abby West in April of 2022, and so that fourth quarter was the first quarter that we were able to see what the, what the expense burden would be of that entity and how the teams were working together. We recognized really quickly that we had to, right size, our R&D effort because we've done a number of acquisitions in the last few years, and many of those acquisitions included a significant number of engineers to help build products for us.
Dan Rabinowitz: So as we were going through the exercise, we were focusing on having everyone working on a common, common platforms using common technologies, common methodologies, and that's what's resulted in the head count decrease in last year. Now, in this current period, our focus is a little bit different. We wanted to see what products have legs, what products were had opportunity going forward, and we re-aligned our development teams to be more focused on those products that generate the most revenue for the business.
Dan Rabinowitz: And that resulted in an additional head count reduction of about 15 people. So we've now reprioritized the business, focusing on those new products, focusing on the opportunities going forward. And we're able to make some pretty decisive decisions that I think are going to generate additional EBITDA going forward. Okay, appreciate that.
Dan Rabinowitz: And in terms of the debt paid down, I'm just curious to hear if there's anything specific around the timing or structure that that sparked you wanting to pay down in this quarter, or any targets in terms of leverage ratios that you think are the right ones to have for this company. If you're talking about regular debt, term loans, we assume those term loans as part of the Abbey West transaction. And those term loans were very favorably priced.
Dan Rabinowitz: Some of them were as low as 1% interest rates and what have you. We're not looking to accelerate our payments against those debt instruments. Rather, this just happens to be the timing of repayment for the instruments. Nothing is leading us to accelerate that at all. With respect to the line of credit, it's just happenstance. We have no obligation to pay it down. We're not looking to pay it down. But what are we going to do with excess cash rather than paying interest rates on?
Dan Rabinowitz: And we decide to pay it down. Now, mind you, we still have this line of credit, a $35 million dollar line of credit with the accordion expansion feature for 25 additional million dollars. So we could pay it down and then we use it if we wanted Okay, thanks for that.
Miroslav Wicha: And last one for me, so a number of product launches and industry recognition around products and awards, just curious what are the, you know, new product areas that are exciting and close potential for you, the ones that get you most excited let's say. Yeah, great question. I mean, there's a several. In fact, right now we're in the middle of, I think three, three separate shows going on this week and next week, IBC is the second large broadcast show and we're actually showing some pretty cool technology there.
Miroslav Wicha: We're also showcasing, you know, in another actually defense show is a Command 360. I just found out that we just won, you know, an award show award for that as one of the best products, which is our, you know, Command 360 visual collaboration systems. I think that's one of the ones that we're the most excited about, you know, we just start rolling that out. There's a tremendous potential, we're seeing a huge potential in, in all of these, you know, global secure operations centers.
Miroslav Wicha: Interestingly enough, from all sectors, believe it or not, the banking sector, which we're extremely strong in, we are the leader leader in that sector and they just can't get enough of our stuff. So that's cool. Fiber security is going, going bananas with our systems. So, you know, we're seeing it in state, state and local police, you know, fire emergency response and not to mention all of the defense groups that we deal with. So the Command 360 is one that really, really is getting us excited. And it's by far the big growth engine going forward. So that's cool.
Miroslav Wicha: There are some new changes. We're launching a couple new mosquitoes, which is our core product. And that's exciting. We'll be launching a couple more in the next two quarters, different variations. We did a single channel, Makido, which was the first time ever we launched that in a different form factor. And then we're also doing a soft launch social casing, kind of an early adoption beta program for our, for our hub 360, which is our cloud system to connect all of our devices, edge devices for our broadcast work.
Miroslav Wicha: So we did a sneak preview at NAB. We're doing a little more than a sneak preview at IBC this week, or starting this week, I should say. And that, you know, is scheduled to be a G8 or general available at the end of the calendar year, kind of first quarter of 2024 calendar, where we expect that to bring on more speed from a total solution itself. So you've got the cloud platform of 360, Command 360, and some of Makido stuff.
Miroslav Wicha: And we're really reenergizing the pro series transmitters in the North America market, where I see a huge opportunity. Thanks. Congrats again. And thanks for taking my questions. I'll pass the line. Once again, ladies and gentlemen, if you have a question, it is star one on your telephone keypad.
Robert Young: Your next question comes from the line of Robert Young with Canacord. Your line is open. Hi, good evening.
Dan Rabinowitz: I was hoping to take a little bit into Gross margins and look. It said that the Gross margins were maybe a little better than expected, given the house worship impact no longer a drag supply chain improvement, maybe a little bit of integration and I think you suggested that Gross margins can continue to get better as you move integrate or integrate the recent acquisitions and put them on a common RPE, ERP and then further supply chain benefits.
Dan Rabinowitz: So it seems like we should be thinking of 71-72% being a base that will improve from here or are there any negative things that we should be considering? Well, Robert, nice to hear from you again. I'm not sure I'd be as optimistic as you are, but maybe I'm just a very conservative tend to be fairly conservative. The one area that's fairly defined is the cost of this componentry that we spent some incremental monies to be able to obtain, to be able to serve our customers.
Dan Rabinowitz: Last year, those incremental costs were about 210 basis points and we've seen that number be cut in half this year. It's about 110 basis points that impacted our financial statements and we anticipate that to actually be released in half next year as well. So that's a real tangible benefit you can look at. Now, when it comes to the ERP and the migration of the two entities, that speaks to an opportunity, but we've got some work to do to make sure that we can exploit it.
Dan Rabinowitz: I've got a lot of confidence in our supply chain people. As American kind of alluded to, we weathered this global shortage better than many of our competitors out there. There was not a single customer that we could not deliver products to because of the way that we were able to handle our supply chains. So I am confident that being on a common platform with the common tools that we use to be able to manage our costs of goods sold will be able to impact MCS's business and Abbey West's business going forward.
Dan Rabinowitz: So if you were, if you are conservatively speaking, I would maybe look at a half-point improvement next year and another half-point improvement the year after that and another half percent improvement thereafter, but we are certainly going to strive to better that as well. Okay, great.
Dan Rabinowitz: And then, I mean, looking at OPEX, the restructuring exercise, you said it was complete in June, so there's some residual impact there. To get to the EBITDA margin expansion, is it mostly driven by top-line growth or there be some additional OPEX benefit in addition to the growth? I'm anticipating a little bit more OPEX benefit as a result of the timing of the last restructuring. If you think about it, we did the restructuring at the second half of June.
Dan Rabinowitz: So our second quarter financials had fully loaded costs for those individuals for both the months of May and June. Those expenses aren't going to be part of our fourth quarter equation. Again, I'm questioning that we do have one of our big trade shows in the fourth quarter that's overall, I do believe we're going to see seeing some incremental benefit. Now, in terms of revenue, I, Miracle kind of mentioned that we're seeing more of a Blatting of our revenue curve.
Dan Rabinowitz: It used to be that our fourth quarter was a very large quarter. It was a concert with the US year end. But we're seeing that even that business seems to come in more radically throughout the year. And we did have a Sprite's opportunity where the a programmatic deal came into the third quarter that we firmly expected to see in the fourth quarter. So we're probably seeing. In the fourth quarter, give or take.
Robert Young: Okay, and so that actually that was my next question. The government program that they was two and a half million. Is that full two and a half million? Is that the pull forward or was that the size of the program and it was pulled forward? That was the amount of revenue, recognize in the third quarter that we thought was going to be a fourth quarter event. Okay, all right. Okay, thanks. That's great. Thanks for taking my questions. Congrats on the quarter.
Operator: Your next. My apologies.
Daniel H. Belldini: Your next question comes from the line of Daniel H. Belldini with Abraham Asset Management. Your line is open. Great. Thanks very much for taking my call.
Miroslav Wicha: I have a question that relates really to the US portion of your broadcast business. And that is, you know, in recent weeks, we observed this standoff between charter and Disney. And the settlement appears to basically have accelerated the demise of the cable bundle here in the US. And I'm just curious, how could you grow your US broadcast business in a world where there's just fewer cable channels out there and fewer local affiliates producing local news.
Miroslav Wicha: As time goes on. Thank you. Okay, well, I mean, thank you to the question. Well, let me let me just explain what we have to do in broadcast and where our systems are sold. And we're predominantly in live sports, right? And which means we get, we work with the affiliate and in, you know, with the main, with the main broadcast in companies, but also that, you know, deal with the people like the NFL, people like the Fox News, sorry sports, not Fox sports, ESPN.
Miroslav Wicha: And then they work with, you know, people like the NCAAs and they go down and down in a different sporting league for instant replays, for live, you know, live monitoring of games, practice fields, et cetera. You know, a golf event. So we're not really competing or I just say competing, we're not looking for cable network type of news, you know, business, if you're evolving. We're seeing that live sports is actually growing globally, not just the US, right?
Miroslav Wicha: Now for us, what we, as a company, we've never been. We've been involved in wireless or cellular bonded type of solutions, right? And coding solutions, we've all been thick. You know, in Iraq at events, but I've you West technology brings us the capabilities to do 5G wireless cellular bond technology, where you know, if you think, because I think of PGA and golf and the guys with the backpacks following the golfers, right?
Miroslav Wicha: I mean, that's that stuff we've never played with before. Now we are involved in that heavily. So for us, we're seeing our business potentially increasing because we're doing both wired and wireless and not to pick up for us, right? We pick up markets here that we were never involved in. So from an North American broadcast perspective, it's been pretty strong. I mean, we also benefit from a big COVID bubble, which is tremendous. Everybody doing remote production, everybody doing everything remote. But we haven't seen a slowdown of live sports, which is really what we do very well.
Miroslav Wicha: Yeah, that's helpful. Thanks very much.
Miroslav Wicha: And there are no further questions at this time. I will turn the call over to Mariko Wicha. Okay. Well, thank you, Sarah. So I just want to basically thank everybody and all our shareholders and analysts on the line today for the continued support of Haivision and really look forward to speaking with all of you in January. When we plan to be discussing our full year 2023 results, so that's that's going to be sometime late, as always. And look really look forward to to be able to talk about the whole year results. So thanks again, and we'll see everybody in January.
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