Q4 2023 Haivision Systems Inc Earnings Call
Ladies and gentlemen, thank you for standing by today's conference will begin in a few minutes to allow as many participants as possible to join until that time. Your lines will be again placed on music hold thank you for your patience.
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[music].
Hello, and welcome to the high vision fourth quarter and fiscal year 2023 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'd like to ask a question. During this time simply press star one on your telephone keypad.
If he would like to withdraw your question again press Star one.
I'll now turn the conference over to Nicole Walker, Chairman CEO and President. Please go ahead.
Nicole Walker: Thank you Valerie and good afternoon, everyone.
Nicole Walker: I'd like to thank everybody for joining us today to discuss our fourth quarter results and the full fiscal year 2023 volt, which ended October 31 of last year.
Nicole Walker: As demonstrated by the results, we announced earlier today demands for our products continues to be strong and our business fundamentals have never been better.
Nicole Walker: Now we achieved a strong support revenue of $35 7 million as we continued to deliver top line growth.
Nicole Walker: Now, let's not forget is inclusive of the revenue reduction we took because of exiting the houses of worship vertical and as a reminder, from our previous quarter earnings call.
We pulled in at $2 5 million U S government programmatic deal from Q4 into Q3.
Nicole Walker: Given those two events delivering $35 7 million in Q4 was a pretty good performance.
Nicole Walker: Gross margin for Q4 were also extremely strong at $74 four and Dan will talk more about that.
Nicole Walker: Last years Q4 level of 68%.
Nicole Walker: It is also the first quarter showing our operational performance potential.
Nicole Walker: Our two acquisitions.
Nicole Walker: And we delivered an adjusted EBITDA of $5 7 million for Q4, which represents a 16.9 operating margin which is important.
Nicole Walker: This is compared to last year's Q4 adjustment was about $4 9 million or 13% operating margins.
Nicole Walker: Now on an annualized basis.
Nicole Walker: I'm happy to report, we achieved a record annual revenue of approximately $140 million.
Nicole Walker: Which represents an 11, 3% growth over the previous year. So again. This is inclusive of the revenue reduction of the house. So what's a vertical that we have now completely exited from now.
Nicole Walker: If we normalize.
Nicole Walker: But the reduction.
Nicole Walker: Of the house the worth of revenue I've worked was actually 16, 1% year over year, so pretty pretty good.
Nicole Walker: As a result, our adjusted EBITDA margins for the full year.
Nicole Walker: Route to 10, 6%.
Nicole Walker: Six 4% in the previous year.
Nicole Walker: Should be noted that we still have several quarters in 2023 that included cost in our P&L.
Nicole Walker: Tier 2024.
Nicole Walker: It really shows that we have turned the corner of our acquisition strategy and demonstrating our earnings potential.
Speaker Change: I'd like to finally say for the full year 2023, our adjusted EBITDA was $14 8 million, representing an increase of 83%.
Speaker Change: Last year's performance again, demonstrating what we had been saying all along that we will show a much higher increase in our profitability going forward.
This trend to continue for 2024.
Speaker Change: And as we have been saying over and over and over we are moving quickly toward achieving our goal of delivering 20% EBITDA performance.
Speaker Change: I would think that given our previous Q3.
Speaker Change: Our Q4 performance everyone should have more comfort that this is going to happen sooner than later.
Speaker Change: In 2023, we've also seen a more balanced and consistent quarterly performance. In fact remember Q1 was 34 million in Q2 to 35 million, which included 35 million in Q4, we delivered $35 7 million pretty consistent right.
To continue into 2024, and we are finding that our three main verticals.
Speaker Change: Bob Cathay enterprise balance each other out globally and give us better business predictability and we are also seeing the U S government slowly moving.
Through the multi quarter purchasing cycles and not only depending on their year end September October timeframe, which always falls in Q4.
Speaker Change: The only unknown is of course, the U S budget approval of a continuing resolution process all bundled in with an unpredictable election year.
Speaker Change: But we will be monitoring these very closely although an election year is typically always been very positive for our business.
Speaker Change: Now we have also been very successful and <unk>.
Speaker Change: Partnerships.
Speaker Change: And in an increase in the industry and the renovation.
Speaker Change: Article, we open sourced almost seven years ago.
An example was one.
Speaker Change: I live in wholesale the agile that sorry to interrupt one site with a new entrant Youtube.
Speaker Change: We executed two.
Speaker Change: 2257 individual devices device compatibility tests.
Speaker Change: Proving widespread industry adoption, so it's something to be very very collateral.
Speaker Change: While we continue to see strong demand for our global security operation centers within our global financial and banking industry Cyber security elite centers federal installations public safety in all defense sectors.
Speaker Change: I need to have real time mission critical and secure access to all the video sources and assets for real time analysis or situational awareness.
Speaker Change: Is becoming even more paramount.
Speaker Change: And we are clearly the leading vendor delivering entire contribution distribution of the innovation ecosystem in these critical areas.
Speaker Change: And we believe that our company has a bright future ahead, and we are committed to maximizing long term value.
Speaker Change: Okay.
Speaker Change: We are confident in our ability to execute on our strategic plan and deliver continued growth and operational performance.
Speaker Change: Finally, I'd like to say we are also excited to announce the PSX approval and CIB the normal course issuer bid.
Speaker Change: We clearly believe our common shares are undervalued, even with the recent 30% runoff.
Speaker Change: Our decision to initiate in CIB demonstrates confidence in our strategic plan and future drops in hydrogen and Dan will discuss this in more detail shortly.
Speaker Change: I would like to say in closing that despite the economic headwinds and continued supply chain challenges, we keep hearing about from other companies.
Speaker Change: I believe the hydrogen has weathered the storm better than most.
We expect our 2024 to be strong.
Speaker Change: And consistent with our strategic plan.
Speaker Change: Expecting to demonstrate good revenue growth with.
Speaker Change: With even a higher level of profitability, but in 2023.
Speaker Change: Dan will share our 24 projections and guidance during his remarks.
Speaker Change: With this I'll pass it off to Dan Please.
Go on.
Dan: Thank you Marco let's get into the numbers.
Dan: As Marco said revenue for this fourth quarter, just completed was $35 7 million.
Dan: Modest decrease of the $2 2 million from the prior year, but there is more to the story.
Dan: You might recall that the prior year's fourth quarter, that's our fiscal 2022 fourth quarter revenue was $37 9 million, which.
Dan: Which in turn with a 40% increase from the prior year, our fourth quarter and fiscal 2021.
Dan: We never anticipated to see tremendous growth over last year's performance.
Dan: But last time, we met we also discussed that we brought in a $2 5 million dollar programmatic opportunity that was stage for our fourth quarter into our third quarter.
Dan: Of course that transaction would be at the expense of this fourth quarter.
And as <unk> kind of alluded to we did exit the house of worship market in April 2023.
Dan: Last year, we had realized $2 2 million in cloud revenues versus only 200000 in this fourth quarter.
Dan: Revenues from maintenance and support the.
The nature of which is recurring revenue continues to be a shining spot have been grown almost 30% in the quarter.
Dan: All in all we are very pleased with the level of revenue in this latest quarter.
Dan: Revenue for the full year just ended.
Dan: With $139 9 million.
Dan: An increase of $14 2 million or 11, 3% from the prior year.
Note that fiscal year 2023 results included Abbvie West performance for the entire year.
Dan: Whereas in the prior year <unk> was only included for seven months.
Dan: On the other hand fiscal.
Dan: Fiscal year 2023 performance was also impacted by our decision to exit from the house of worship markets in April of 2023.
Dan: Said another way cloud solution revenues declined by $4 7 million when compared to the prior year.
Dan: The point that I'm trying to make is that we saw organic growth from all our properties in fiscal 2023.
Dan: Recurring revenue, which we define as our cloud solutions and maintenance and support.
Dan: With $6 7 million or 19% of total revenue in this recent fourth quarter.
Dan: And was $28 million or 20% of total fiscal 2023 revenue.
Dan: We anticipated that our recurring revenue with decrease once we exited the house of worship vertical.
After successive quarters of decline we are beginning to see our recurring revenue as a percentage of total revenue increasing again.
Dan: And as I kind of mentioned, our maintenance and support revenue grew almost 30% for the year.
Dan: Faster than our overall revenue.
Dan: For this recent fourth quarter gross margins were 74, 4% compared to 68% in the prior year comparative period.
Dan: That represents a 640 basis point improvement from the prior year comparable period.
Dan: Also note that this quarter's gross margins were yet another improvement from the 71, 9% realized just last quarter that was our third quarter of this fiscal year.
Dan: And that same third quarter of this fiscal year, representing an increase from the 68, 9% realized in our second quarter of this fiscal year.
Dan: And just to complete the thought.
Dan: That same second quarter gross margin, representing an increase from the 66, 6% realized the quarter before that our first quarter of this fiscal year.
Dan: We have.
Dan: <unk> gross margin expansion in previous calls, but to put an exclamation point on the matter.
Dan: Margin expansion resulted from firstly, our exit from the house of worship business as the vertical with a below the average performer in terms of gross margins.
Dan: We believe that initiatives in it of itself resulted in approximately a 200 basis point improvement in margins each quarter since our exit in April 2023.
Dan: Secondly, our supply chains are reverting to more typical delivery schedules and more typical pricing.
Dan: In this quarter that just ended as an example, the additional cost for these difficult to procure components.
Dan: With rather de Minimis, well under $100000 and on a year to date basis. The additional cost for this componentry was approximately 950000.
Dan: <unk> represented about 100 basis points in our cost of goods sold.
Dan: The good news is that the extra costs incurred in fiscal 2023.
Dan: We're approximately half of the cost that we incurred in fiscal year 2022.
Dan: A year in which the gross margins were being impacted by almost 200 basis points.
Dan: We do expect these extra expenses to continue to dissipate with the impact to this fiscal year's results being approximately.
Dan: Of the expense incurred in fiscal 2023.
Dan: Lastly, we have completed our migrations of ERP systems at both Mcs and <unk> West So our supply chain folks have more visibility to inventory levels manufacturing forecast and purchasing methodologies at both Mcs and <unk>.
Dan: This represents a bit of a greenfield opportunity for further improvements.
Dan: With that said and it has and as has been suggested on past calls our fourth quarters are commensurate with the U S government year end and we are typically the beneficiary of higher defense spending.
Dan: This quarter just completed was no exception.
Dan: The quarters mix of revenues included a higher percentage of legacy products.
Dan: Historically operate at a higher overall product margin.
Dan: Although we do have opportunities for additional improvements in gross margins, particularly related to the amount of difficult to procure inventory consumed in fiscal 2024 and added visibility and control of supply chain.
Dan: The mix of revenues in the next few quarters that may change our gross margin <unk>.
Dan: Composure.
Dan: The result of it is that we may see gross margins in the near term and over the midterm reflect the fact that a higher proportion of our revenues are coming from <unk> products and Mcs products than we had just incurred in our fourth quarter.
Dan: These gross margin improvements are real.
Dan: And we should realize the benefits in fiscal year 2024 and beyond.
Dan: Any variances are likely going to be related more to mix.
Dan: Okay.
Dan: Total expenses for this third quarter fourth quarter excuse me were $22 9 million $22 9 billion. That's a decrease of $3 2 million when compared to the prior year comparative period.
Dan: Even more noteworthy is that the quarter. Just ended included certain performance based compensation expenses that were not incurred in the prior fiscal year and may not happen in 2024.
Dan: Much of the decrease in total expenses is related to the restructuring costs of $2 3 million that were incurred in the fourth quarter of our prior year.
Dan: However, we have essentially completed the restructuring exercise that was initiated in that fourth quarter of fiscal 2022 and completed in the third quarter of fiscal 2023.
Dan: At the end of this last quarter, we had 359 employees.
Dan: Compared to 393 employees at the same time the prior year.
Dan: Also note that year end head count was down from the 374 employees at the end of our previous quarter.
Dan: Our third quarter.
Dan: What is really exciting about our fourth quarter performance is that most of the noise related to restructuring and acquisition is behind us.
Dan: And this recent fourth quarter provides a sense of the earnings potential of the business.
Dan: And there may be opportunities for additional opex savings in the first quarter of.
2024.
Dan: For the fiscal year total expenses were $97 4 million.
Dan: That's an increase of $5 8 million when compared to the prior year.
Dan: Again year over year comparisons are still impacted by the timing of the <unk> transaction. The <unk> transaction was consummated in April of 2022.
Dan: Which implies that Abbvie west cost structure with only represented for seven months in fiscal 'twenty two versus 12 months in the year just ended.
Dan: But if we were to focus on the $5 $8 million increase year over year.
Dan: Compensation related expenses added approximately $3 8 million.
Dan: Much of which can be attributed to the five additional months of compensation paid based on the timing of the <unk> acquisition.
Dan: Remember the acquisition added approximately 80 people to our organization in April 2022.
Dan: Depreciation and amortization expenses increased by $1 4 million again, largely the result of the timing of the <unk> acquisition.
Dan: Travel expenses added an incremental $1 5 million, partly related to the timing of the <unk> acquisition, but more related to the growth in Mcs that we are seeing.
Dan: And then of course, the Canadian dollar exchange rate impact on the U S dollar denominated assets and liabilities added an incremental $1 5 million to total expenses when comparing this year to last year.
Dan: On the other hand.
Dan: We were we did successfully reduce our use of independent contractors for R&D initiatives by about $1 5 million.
Dan: Which was really part of our restructuring initiatives.
Dan: And restructuring costs in fiscal 2023 were about 800000 less than the fiscal year, just completed I'm sorry, 800000 left in this fiscal year just completed when we compare it to the prior fiscal year.
Dan: The results of the better gross margins and a decrease in Opex was an adjusted EBITDA for the quarter of $5 7 million.
Dan: It's an increase of 800000 or 15% when compared to the prior year comparative period.
Dan: By now I think we can all agree that we've been conveying our perspective, the third quarter would be a turning point for high vision.
And the adjusted EBITDA margin for the quarter, just completed was 15, 9%.
Dan: This adjusted EBITDA margin compares quite positively the 12, 4% in the prior quarter, that's our third quarter of fiscal 2023 and compares positively to the seven 5% in the quarter prior to that our second quarter of fiscal 2023.
Dan: We have made slow and steady progress to reach our goal of 20% adjusted EBITDA margin and I believe now you are beginning to see the full benefits of the restructuring plan.
Dan: We still have additional opportunities to increase adjusted EBITDA margins.
Dan: We may continue to see modest increases in gross margins as we absorb the remaining higher cost componentry, and we apply our supply chain tools to abbvie Western NCS since they are now on a common platform.
Dan: We should also see additional decreases in compensation expense in the near term as we will likely not have the same outsized obligations related to performance based compensation that we had in 2023.
Dan: Although our fourth quarter has been traditionally our largest quarter and as such our most profitable quarter that seasonality pattern is less true as the department of defense in the U S. Government is tending to buy our gear more ratably throughout the year.
Dan: Further mcs and Abbvie west seasonality seems to mitigate the fourth quarter seasonality of our legacy business.
But despite all of that we still believe that our fourth quarter performance is a true indicator indicator of the earning potential of the business.
Dan: Adjusted EBITDA for the full year was $14 8 million.
Dan: An increase of $6 7 million or 83% when compared to the prior year.
Dan: Adjusted EBITDA margin for this full year was 10, 6% compared to only six 4% for the prior year comparable period.
Dan: I should mention that we also saw significant improvement in the net income for the quarter.
Dan: The net income this quarter was $2 5 million compared to a net loss of $1 1 million for the same time last year.
Dan: That represents a $3 6 million improvement.
Dan: So quickly the improved gross margins were more than able to offset the modest revenue differences year over year generating incremental gross profit of 800000.
Dan: And that incremental gross profit was further benefited by $3 2 million decrease in total expenses.
Dan: On the other hand income tax costs, plus an incremental 500000.
Dan: Okay.
Dan: For the full fiscal 2023, our net loss was only 500000.
Dan: <unk> to a net loss of $6 3 million for the prior year.
Dan: This $5 8 million improvement is largely related to the $14 2 million.
Dan: Incremental revenues and improved gross margins.
Dan: That resulted in incremental gross profit of $10 3 million.
Dan: Now this incremental gross profit was offset by increases in expenses of $5 8 million and increases in income tax by 900000.
Overall pretty good performance.
Dan: With respect to the balance sheet.
Dan: We ended the quarter with a cash balance of $8 3 million.
Dan: Modest increase of 800000 from the prior quarter end.
Dan: However, we also ended the quarter with only $4 7 million outstanding on the credit facility. That's also a reduction of 900000 from the prior quarter end.
Dan: $6 $5 million reduction from the beginning of this fiscal year.
Dan: Total assets at year end were $144 1 million, that's a decrease of $4 5 million from the prior year end.
Dan: This decrease in assets can be attributed to a $4 $2 million reduction in intangible assets now just on inside we amortize $6 8 million of intangibles during the year, but the impact of the amortization was offset by exchange rate impacts on those same assets.
Dan: We also decreased inventory levels by $2 1 million again that was an initiative that we spoke about in the past and has been a focus much of the year.
Dan: We reduced right of use assets by $1 5 million and there was a smallest reduction in trade and other receivables.
Dan: Now these decreases were offset by the tune of $5 million increase in our cash balance this fiscal year.
Dan: And one and a half of $1 6 million increase in tax credits receivable.
Dan: The story on the liability side is even more compelling.
Dan: Total liabilities at quarter end were $49 9 million.
Dan: That's a decrease of $8 4 million from the end of fiscal 2022.
This decrease in liabilities during the year include $6 5 million decrease in the line of credits.
Dan: $1 8 million decrease in the purchase price payable related to the Abbvie West transaction.
One 4 million decrease in restructuring costs payable.
Dan: $1 4 million decrease in lease liabilities.
Dan: And 900000 decrease in term loans.
These five items themselves represent a reduction of liabilities by $12 million.
Dan: Now these decreases were offset by $3 3 million increase in deferred revenue.
Dan: This 30% increase in total deferred revenues is commensurate with the approximate 30% growth in our maintenance and support revenues that we spoke about before.
Dan: So with respect to the remaining integration plans for Abbvie West.
Dan: We have completed the move to a <unk> to a common accounting system.
Dan: We completed <unk> move to a common ERP system.
And with this enhanced visibility <unk> inventory, we hope to increase the flexibility of Abbvie with supply chain.
Dan: And reduced product costs to increase gross margins our focus in the near term is to sell more <unk> products in North America, and we're well on our way.
Dan: At high vision Mcs.
Dan: Progress has accelerated.
Dan: We have fully integrated development teams, we are fully integrated production capabilities.
Dan: And we have migrated Mcs, our ERP system and accounting system to common platforms.
Dan: Our focus in the near term is to sell more mcs products internationally.
Dan: In terms of expectations for fiscal 2024.
Dan: First of all our revenue guidance for the full year factors in our exit from the house of worship vertical in April 2023.
Dan: We are projecting revenues for this fiscal year to be between 145 and $150 million.
Dan: We also expect to see continued expansion of our adjusted EBITDA margin as we take advantage of the recent restructuring and the synergistic opportunities.
Dan: Thus, we anticipate adjusted EBITDA margins in the mid teens.
Dan: And we still anticipate seeing one quarter of this in this fiscal year knocking on the door of our long term adjusted EBITDA margin of 20%.
Dan: Okay.
Dan: Since we believe this fourth quarter, just completed represents a bit of a watershed event, we wanted to manage first quarter fiscal 2024 expectations as well.
Dan: Typically we see first quarter revenues being down from the prior fourth quarter, which was the case in most in the most recent first quarter first quarter 2023.
Dan: We will likely see something similar to this year again mitigated for the seasonality that we expect to see from Mcs and Abbvie West.
Dan: The revenue mix will likely be more slanted towards our Mcs and <unk> products as Mcs's and Abbvie west revenue tend to be strongest at calendar year end.
Dan: The result is that we will likely see lower gross margins due to mix.
Dan: However, the revenue difference and the gross margin difference will likely be overcome by additional reductions in total expenses.
Dan: So that really concludes my prepared remarks, I'm going to pass the microphone back to Morocco, and then we will open the floor to questions.
Morocco: Thanks, Dan.
Morocco: I actually I think we'll just open up for questions and I'll close up after that so.
Morocco: He has been around for questions.
Speaker Change: Thank you if you have a question. Please press star one on your telephone keypad.
Speaker Change: If you wish to remove yourself from the queue simply press Star one again one moment. Please for your first question.
Speaker Change: Your first question comes from the line of Nick.
Speaker Change: Corcoran.
Acumen capital Partners. Your line is open.
Nick Corcoran: Hey, guys congrats on the strong quarter and ended.
Nick Corcoran: End of the year.
Nick Corcoran: Okay.
Speaker Change: Maybe thanks Matthew.
Speaker Change: Maybe just thinking about your guidance for fiscal 2004 can you maybe talk about how we should think about the gross markup.
Speaker Change: Uh huh.
Speaker Change: I'm not sure I have that much visibility nickel is this something that you can speak to her.
Speaker Change: Yeah.
Speaker Change: It's a tough one.
Speaker Change: We don't really.
Speaker Change: I don't think were ready to say exactly per market I mean at this point I would say.
Speaker Change: It's always going to take a stab at it honestly I think our.
Speaker Change: Our R R.
Speaker Change: Biggest growth for next year is going to be probably in the command 360, and the enterprise and defense space.
Speaker Change: And I think both broadcast is also showing some some some good because it is.
Speaker Change: The Olympic year.
Speaker Change: <unk> annual election.
Speaker Change: While annual election year, but I'd say, that's the unknown right now, but I haven't seen the election that hasnt been positive our business ever.
Speaker Change: So I don't expect it to be a negative but.
Speaker Change: And al the only thing that I am concerned about is this whole continuing resolution and the whole budget non sales that keeps ticking down the can down the road.
Speaker Change: I don't see I don't.
Speaker Change: I think they're going to phase the budget, but you just never know and I'll cut effect.
Every company.
Speaker Change: That deals with the government right. So at this point.
Speaker Change: I'd, rather not break it down by market I think overall, we feel very confidence because of the three markets and Hollywood Ice's things out at the end is probably too early to tell.
Speaker Change: Fair and.
Speaker Change: Keller.
Speaker Change: You spoke of the cross selling.
Speaker Change: Mcs and <unk> products in Q and.
Into other geographies, how successful you've been to date and what you are seeing in fiscal 'twenty four.
Speaker Change: Yes, no good question.
Speaker Change: Actually I'm very pleased on the progress that we've done in the international expansion.
Speaker Change: And business development.
Speaker Change: Investments for the command through 60 days.
Speaker Change: It is a long term cycle for us forget that so we're really building for $25 26 in 2007 and beyond but we hire people with the people in place we've actually closed several really good deals last year in international.
Speaker Change: We've got a great pipeline, so I'm very pleased on how that's progressing.
Speaker Change: I'd say on the other side of the on the broadcast side from the West side.
Speaker Change: We are actually really jumpstarting.
Speaker Change: This year, we're working on the rental program. We've launched we're looking at a long term leasing program. So.
Speaker Change: Probably a little slower than I wanted to but I think there is some good good progress that we're doing this year. So I expect both of those to really show some fruit in 2024.
Speaker Change: That's great that's all the questions I have.
Speaker Change: Thanks.
Speaker Change: Alright.
Speaker Change: Your next question comes from the line of Daniel Rosenberg paradigm capital. Your line is open.
Daniel Rosenberg: Hi America, and Dan Congrats on a strong quarter.
Daniel Rosenberg: My first question was just around.
Daniel Rosenberg: The trend of recurring.
Daniel Rosenberg: Revenue.
Daniel Rosenberg: Just wondering how much of visibility do you have on recurring versus the more.
Daniel Rosenberg: <unk>.
Daniel Rosenberg: Transactional revenue.
Daniel Rosenberg: Can you see into the year.
Daniel Rosenberg: Andrew I'll take that.
Andrew: Well I can yes, I can kind of speak to parts of it right. So recurring revenue maintenance and support it gives us some visibility and I believe we did around $25 million last year in such a maintenance and support and that that tends to be a bit of a machine. These days and we get to get the benefit.
Andrew: The renewals so we're happy to see that the growth in that area is exceeding that of the growth of our product sales specifically because it demonstrates that we're not losing people our maintenance and support contracts. So we're seeing 20% that's a firm firm answer.
Andrew: The <unk> business or the cloud business is a little bit it's a smaller business right now since we got rid of the house of worship vertical and so I don't have a tremendous amount of them.
Andrew: Information about it but I think there is another element of this that we need to discuss and Thats. This programmatic business. These are long. These are these are larger.
Andrew: Sales with multiple installations that span years and.
Andrew: So we get the benefit of knowing that this is going to come in next year. This is going to come in the following year that's been coming the.
Andrew: Year after that and Theres been two two examples that we keep pointing to to demonstrate this one is with the Navy where we've been retrofitting all of the ships as they come into dry dock every few years for upgrades and updates.
Andrew: That that's a program, where we placed ourselves a couple of times and that has been the.
Andrew: The gift that keeps on giving.
Andrew: And we hope to be able to even get into the next version of <unk>.
Andrew: A rebound on that as well. The other example is the state Department, we're replacing every state departments video infrastructure system with our technologies and we are we are deploying that 2030 at a time per year. So that gives us some some.
Andrew: Some visibility to what's going on.
Andrew: This is also true of true dynamic of our Mcs business once we get in with some of these financial services organizations or these larger companies. They have multiple control rooms across the world and they want to settle on a single vendor and once we get in there, it's a land and expand and that generates incremental revenue.
Andrew: <unk> for the foreseeable future.
Andrew: We probably need to spend a little bit more time assessing what it is but historically, we had visibility to as much as 60% of our revenue maybe its about 50% now when we don't have house of worship to look at but it's a significant piece of our business is known at any given point in time.
Andrew: Okay.
Okay I appreciate that context.
Andrew: It was great to see the balance sheet.
Andrew: Alright really strengthen.
Andrew: Significantly in the quarter.
Andrew: The in CIB and mentioned in your statements. So I was just wondering how aggressive you intend to be.
Andrew: With the NCI be given where our shares are.
Andrew: Our other uses of capital for that matter just your comments on that.
Speaker Change: Well I mean, I think our design the reason for the NCI is to provide support for.
Speaker Change: For a thinly traded stock.
Speaker Change: We have seen some movement in the stock I think people are finally listening to the hydrogen store, even though we've sort of been pounding our chest for the last three quarters that this is a real story, that's got legs and that you ought to hang on if you want if you want outsized returns.
Speaker Change: This run up has happened in the last three or four days. So I really we have to sort of rethink about what our strategy is going to be but it is there for us to provide supports it is there for us to demonstrate that we believe the shares are undervalued.
Speaker Change: And we're looking forward to being able to sort of.
Speaker Change: <unk>.
Bring some value to all of our shareholders as a result.
Okay.
Just last one for me a bit of housekeeping I just didn't quite hear clearly the guidance I heard the top end was $1 50, but I didn't hear the bottom hand.
Speaker Change: What I said is that we expect for the full year, our adjusted EBITDA margin to be in the mid teens.
Usually I when I say mid teens thats just over 15%.
Speaker Change: Mid teens.
Speaker Change: But there is some variability to that and I still believe that we are going to be knocking on the door of 20%.
Speaker Change: At least one of the quarters coming up.
Speaker Change: And then on the top line on revenue.
Speaker Change: The range that we're giving is $1 45 to $1 50.
Speaker Change: Okay, Okay, perfect I'll pass the line. Thanks, so much and congrats again.
Speaker Change: Thanks Dale.
Speaker Change: Again, if you would like to ask a question. Please press star one on your telephone Keypad. Your next question comes from the line of Robert Young of Canaccord Genuity.
<unk> Your line is open.
Robert Young: Hi, Good evening, maybe just first question on EBITDA margins quarter over quarter.
Speaker Change: I think you said that.
Speaker Change: EBITDA margin expansion I think thats, a full year comment you said gross margins should be weaker than Q1, offset partly by Opex I'm just trying to understand the cadence of gross margin.
Speaker Change: Expansion through the quarter, maybe how that how that effects Q1 EBITDA.
Speaker Change: For modeling purposes.
Speaker Change: Well look so we've seen over a 600 basis points improvement in gross margins from a year ago to where we are today and most of that is specifically related to things that you can clearly see again the high.
Speaker Change: High priced components that we have to purchase and the exit of the outsourcing business. Those are known those were forecast and we kind of gave everyone an expectation of what how that was going to impact gross margins.
Speaker Change: Third having more control and visibility to the supply chain that abbvie Western Mcs is a little less.
Speaker Change: Specific.
Speaker Change: Clearly opportunity we got some of the best people in our organization working on these things here and so.
Speaker Change: There is possibility for opportunity what I wanted to try and convey is that first of all I'm not I don't expect to see tremendous gross margin expansion from what we saw in the fourth quarter.
Speaker Change: <unk>, that's a big number that we have there.
Can it happen ensure it can happen, but I don't want that to be the expectation that we're going to be seeing 1% to two point improvement for the remainder of the year in fact, I am kind of suggesting to you given mix given next we'll likely see a decline in gross margins for no. Other reason the mix.
Speaker Change: So I don't want anyone to be get alarmed that the margins are going to be.
Give or take some from the levels. We are today, but it's all based on mix.
Speaker Change: What I'm trying to suggest is that our cost structure for our fourth quarter.
Speaker Change: Its pretty songs we.
Speaker Change: We spent a lot of time, making sure that our fourth quarter was as clean as could be so that we could demonstrate to everyone that the business does generate 20% EBITDA margins at scale.
Speaker Change: We've done that I think that youll see in our first quarter that our expenses will be somewhat less than our fourth quarter demonstrated.
Speaker Change: For competition reasons, and so on and so forth.
Speaker Change: So any shortfall from.
Speaker Change: Fourth quarter revenues or any shortfall in the gross margin that might happen due to mix likely will be overcome through additional savings in opex. That's the message I'm trying to convey.
Speaker Change: Okay.
Speaker Change: Parse all of that I guess I still it still sounds like you think that there is chance for EBITDA margins to expand quarter over quarter in Q1.
Speaker Change: Sorry to ask that question again, I, just want to make sure I understand it correctly.
Speaker Change: Well if you if you're asking me, whether our first quarter 2024 is going to be better than our first quarter 2023.
Speaker Change: Absolutely I mean, we only generated EBITDA of two plus million dollars, whereas we just finished five seven right. So.
Speaker Change: Sure.
Speaker Change: I am sorry first quarter 2020.
Three with $2 one.
Speaker Change: We're certainly going to be doing better than that we're probably going to be looking and feeling more like fourth quarter.
Than any other quarter.
Speaker Change: Okay. Okay. That's helpful.
Speaker Change: And then a little bit of commentary on that.
Speaker Change: The election.
Speaker Change: Activity.
Speaker Change: Typically driving positive.
Speaker Change: Opportunities for you Marco I'm trying to understand that is that.
Speaker Change: Related to the broadcast business or does it create opportunities in the government military business. Maybe you can just give it a little maybe a little more insight into that.
Speaker Change: My sense, yes, it might be that it might pause some government spending and so maybe maybe you can correct me if my understanding there.
Speaker Change: Yes.
Speaker Change: Good question, because there's multiple markets being involved here right.
Speaker Change: I was more referring to government spending.
Speaker Change: Other than <unk>.
Why broadcaster sync because it's election year theyre going to sell a few systems.
Speaker Change: To meet much smaller piece.
Speaker Change: Most of our broadcast business is all about live sports right Glen Echo Some live news, but that's.
Speaker Change: I was referring to.
Speaker Change: The election year, but also referring to potential.
Speaker Change: Non passage of budgets to run the government and the government shuts down right and we've seen what happens with that.
Speaker Change: Previously so thats the only concern.
Speaker Change: I don't believe that's going to happen during the election year, but.
Speaker Change: Given what's going on in the U S. At this point, who knows what's going to happen. So.
Speaker Change: That was my only comment is the government spending remember we're doing a lot of government business government enterprise business government defense business.
Speaker Change: And.
Speaker Change: It's a big piece of the business right. So.
Speaker Change: Should should I take the long term.
Speaker Change: That's the only thing I'm really worried about for next year. The good news is there is an election year.
Speaker Change: And I don't think we've ever witnessed a negative.
No I don't think I've ever said negative.
Speaker Change: Consumer business year in an election year or.
Speaker Change: So.
Speaker Change: But I have to say it anyway.
Speaker Change: Okay.
Speaker Change: Thank you and maybe last question another high level, one for you last quarter.
Speaker Change: You had highlighted a lot of activity around cyber security and I think youre tied into government spend like local emergency fire police et cetera, and maybe put a little bit of meat around that like are you still seeing that sort of demand around cyber security and maybe give a sense of how you plug into that opportunity and then I'll pass the line.
Speaker Change: Yes, absolutely in fact.
Speaker Change: It's gone gangbusters the activity on that.
Speaker Change: Everybody that we talk to that as a requirement everybody is concerned about security.
Speaker Change: There had been for a while we've been involved with for a long time, but we're seeing it.
Speaker Change: Explanations in the enterprise space not just government not just defense of course, but in the enterprise space, whether it's banking pharmaceuticals.
Speaker Change: Oil and gas everybody is concerned about security cyber security and secure networks and that's what we're all about so.
Speaker Change: The good news is that that's the that's the hot button, we're right at the top of that I mean.
Speaker Change: Again I. Appreciate these are long term sales opportunities right. So we're preparing we're building we're getting lot of Biz Dev.
Speaker Change: We're working with integrators.
Speaker Change: Partners Channel partners, especially internationally to build that infrastructure out.
Speaker Change: With profitable take advantage of what I believe is going to be a huge market expansion in the next five years.
So that's really the positioning of the.
Speaker Change: External NASA business, but we're definitely that's not going to stop.
Speaker Change: And as we look at it from the defense side. Unfortunately.
Or is it just way too many wars going on.
Speaker Change: I don't see that that's going to change anytime soon I think thats going to continue and that's actually.
Speaker Change: Getting more interest within the defense sector, where they do need.
Speaker Change: <unk> critical awareness and decision, making capability and that plays right into our whole end to end piece.
Speaker Change: If I could just.
Speaker Change: It's still in our spot here.
Speaker Change: I think everyone can get their head around what Mcs's business are you will see a lot of television programs, where you see controls with lots of screens and lots of visualization and so on and so forth.
Now all of a sudden there are enterprises, who have control rooms focused on cyber security threat, let's take big banks. As an example, there are monitoring E mails and are monitoring networks and their monitoring intrusions and they're monitoring everything they are using our visualization systems as the means to capture and display all of that information.
Speaker Change: <unk> in a single location to be on top of it at any given point in time.
Speaker Change: So I hate to say it but cyber problems or are part of the wind in our sails.
Okay.
Speaker Change: Great. Thanks for the color congrats on a strong quarter I'll pass the line.
Speaker Change: Alright. Thanks.
There are no further questions at this time I will now turn the call back to <unk> for some closing remarks.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you Emily.
Speaker Change: I want to thank all of our shareholders.
Speaker Change: For the analysts on the line today for their continued support of hydrogen.
Speaker Change: And I really look forward to speaking with you in mid March when we will be discussing our first quarter of 2024 results.
Speaker Change: Thank you everybody. Thank you for listening and we will speak later.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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