Q4 2024 Haivision Systems Inc Earnings Call

Speaker Change: [music].

Speaker Change: [music].

Speaker Change: [music].

Operator: Ladies and gentlemen, thank you for standing by. Today's conference call will begin momentarily. Until that time, your lines will again be placed on music hold. We thank you for your patience.

Ladies and gentlemen, thank you for standing by today's conference call will begin momentarily until that time your lines will again be placed on music hold we thank you for your patience.

[music].

Abby: © BF-WATCH TV 2021 Ladies and gentlemen, thank you for standing by. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Haivision fourth quarter 2024 earnings conference call.

Ladies and gentlemen, thank you for standing by.

The name is Abby and I will be your conference operator today.

At this time I would like to welcome everyone to the high vision fourth quarter 2024 earnings Conference call.

Abby: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you.

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 that time simply press be Starkey, followed by the number one on your telephone keypad.

If you would like to withdraw your question Press Star one a second time.

Miroslav Wicha: And I would now like to turn the conference over to Mirko Wicha, President and Chief Executive Officer. You may begin.

Speaker Change: Thank you and I would now like turn the conference over to Oh, We got President and Chief Executive Officer, you may begin.

Miroslav Wicha: Thank you, Abby. And thank you everyone on the call for joining us today to discuss our fourth quarter and our fiscal year 2024, which ended back in October the 31st. At the end of our Q4 last October, you know, we have completed our two-year strategic plan as promised back in 2022 to deliver a major EBITDA and profitability transformation. And as a result, I would say we delivered significant metrics in our operational performance between 22 and 24.

Thank you Amit.

And thank you everyone on the call for joining us today to discuss our fourth quarter and fiscal year 2024.

Speaker Change: And then back in October the 31st.

Speaker Change: Well at the end of our Q4 of last October.

Speaker Change: We have completed our two year strategic plan almost back in 2022.

Speaker Change: Liver a major EBITDA.

Speaker Change: Profitability explanation.

Speaker Change: And as a result, I Havent said, we delivered significant metrics and our operational performance between 'twenty to 'twenty four.

Miroslav Wicha: A two-year performance we are very proud of, and one that I will summarize later in my prepared remarks. We are already well into our new two-year strategic plan for fiscal 2025 and 2026. which will complete our overall transformation and turn Haivision to double-digit revenue growth. It will also return us to our long-term CAGR growth rate between 15% and 20% per year. As mentioned earlier, we have completed our operational efficiency model. We have a great handle now on the optics, gross margins, EBITDA, cash generation, and the focus now will be high revenue growth. Let me share a few thoughts on what to expect from us during fiscal 25, which we're already in, to prepare for this growth in 26 and to demonstrate the business scalability we have been talking about.

Speaker Change: Two year performance, we are very proud of and one that I will summarize later in my prepared remarks.

Speaker Change: Well, we are already well into our two year strategic plan for fiscal 2025 and totaled 26.

Speaker Change: Which more compete are all well its transformation term hydrogen to double digit revenue calls.

We will also turn out to our long term target world rates between 15 and 20% per year.

Speaker Change: As mentioned earlier, we are complete or operational efficiency model.

They handle now on the Opex gross margins EBITDA.

Speaker Change: Evolution and our focus now will be.

Speaker Change: High revenue growth.

Speaker Change: Let me share a few thoughts on what to expect from us during fiscal 'twenty five with quality in.

Speaker Change: This growth in 2006 and.

Speaker Change: As it demonstrates the business scalability, we have been talks about.

Miroslav Wicha: our main fundamental business model for the control room market. The way from beginning with the manufacturer that we've been talking about is continuing throughout this year and will affect our revenue this year, similar to what kind of happened in 2024. Now, by design, we are continuing our control room business transformation to the higher margin manufacturing scalable model from the bespoke hard to grow integrator model. I've mentioned during the past several quarters. this major business transition and see their expectations. However, it's a long road to complete. It's about nine months away until we can begin to see what I would call a net revenue increase in our overall control room business.

Speaker Change: Our main fundamental business model.

Speaker Change: That's the way it's a manufacturer that we've been talking about is continuing to slow this year.

Speaker Change: Affect our revenue this year similar to what kind of happened in 2024.

Speaker Change: By the time, we are continuing our proposal and business transformation.

Speaker Change: Higher margin manufacturing scalable model from that.

Speaker Change: Bespoke hard to grow integrated model.

Speaker Change: Now as mentioned during the past several quarters this major business transition.

Expectations.

Speaker Change: It's a long road to complete.

Speaker Change: Nine months away until we can begin to see what I would call a net revenue increase in our overall control room business.

Miroslav Wicha: Now this will be an important moment in time where scalability and high growth will begin to show. And we have always said that this transformation will be at the expense of our top line. not similar to when we decided to transition out of the house of worship market, if you remember. However, what is left is a proprietary high margin business, which is great business. And this is something we have been planning for, working towards all year, last year. And we expect to finish the process by the end of this year. Now, the good news is that we've been seeing a growth in control room sales already back in Q4 and a long-term sales pipeline is growing very nicely.

Speaker Change: And this will be important moment in time, where scalability and high growth will begin to show.

Speaker Change: Well, we've always said that this transformation will get the expense of our topline.

Speaker Change: But similar to when we decided to transition out of the house the what's it market. If you remember however, what is left.

Speaker Change: As a proprietary high margin business, which is great business.

Speaker Change: And this is something we have been planning for working towards all year last year, and we expect to finish the process by the end of this year.

Speaker Change: Now the good news is that we've been seeing.

Speaker Change: It grows in control of them failed already back in Q4.

Speaker Change: And our long term sales pipeline is growing very nicely.

Miroslav Wicha: The increase in our sales pipeline is an important indication to our future revenue growth, which gives us confidence in our future growth overall. Remember that the control room sales and pipeline is very different, and we'll start to convert to revenue during the second half of this fiscal year, and the next, and continuing. Remember that this business is longer term and typically takes at least two to four quarters to realize revenue very different from our traditional book and ship the same quarter business that we're used We always expected this to be an 18- to 24-month transition, and it looks like we will complete the full business transition during the second half of this fiscal year.

Speaker Change: The increase in our sales pipeline is an important indication to our future revenue growth, which gives us confidence in our future growth overall.

Speaker Change: Remember that the control of the sales pipeline is very different and will start to convert to revenue during the second half of this fiscal year and the next and continuing.

Speaker Change: Remember that this business is longer term and typically it takes at least two to four quarters to realize revenue very different from our traditional book and ship the same quarter of business that we're used to.

Speaker Change: Now we always expected this to be an 18 to 24 months transition. It looks like we will complete the full business transition during the second half of this fiscal year.

Miroslav Wicha: Thus, we are very close and excited to see the return to high growth into our fiscal 2026. Our partners and resellers globally are also very happy to see us embracing the partner model to scale this business and moving away from being an integrator actually and a competitor to them. Haivision has always supported and believes in a strong partner model to be able to scale globally. We also expect to be training and preparing many of our global AV partners on the new C360 fully scalable platform by next month in preparations for professional training rollouts during the next two quarters.

Thus, we are very close and excited to see the return to high growth, it's our fiscal 2026.

Speaker Change: Our partners and resellers globally are also very happy to see us embracing the partner model.

Speaker Change: Gail this business and moving away from being an integrator actually on a competitor to them.

She has always supported and believed in a strong partner model to be able to scale globally.

Speaker Change: And we also expect to be training and preparing many of our global 80 partners on the new <unk> hundred 60, <unk> fully scalable platform by next month and.

Speaker Change: Preparations for a professional training rollout during the next two quarters.

Speaker Change: Yeah.

Miroslav Wicha: I would now like to highlight the many exciting and noteworthy events and projects we've been working on that will significantly and positively affect our long-term revenue growth as our new two-year revenue plan unfolds. Our five-year, $82.6 million supply agreement to the U.S. Navy. talked about earlier, and Haivision Mission Critical Systems announced back in September that we were awarded that significant five-year production agreement. this prestigious agreement. positions Haivision at the forefront of delivering cutting-edge combat visualization and video distribution systems to the U.S. Navy's surface combatant fleet. This is huge and a showcase of what is yet to come.

Speaker Change: I would now like to highlight the many exciting and noteworthy events and projects. We were working on that will significantly and positively affect our long term revenue growth as our new two year revenue plan unfolds.

Speaker Change: Our five year $82 6 million dollar supply agreement to the U S Navy.

Speaker Change: We talked about earlier.

I was in mission critical systems announced back in September we were awarded that significant five year production agreement.

Speaker Change: Okay.

Speaker Change: He's a debridement.

Speaker Change: Physicians hydrogen at the forefront of delivering cutting edge combat visualization and video distribution systems to the U S. Navy surface combatants fleet. This is huge and showcase what is yet to come.

Miroslav Wicha: We also announced last year that Haivision joined a multi-company consortium led by Airbus, Defense, and Space to develop new technologies for rapid, secure, and reliable communications, representing a multi-year and multi-million dollar development contract. As part of the Air 5G project, Haivision will develop 5G transmitters that provide connectivity in mission-critical situations where normal communication lines are disrupted or unavailable. This consortium is building land- and sea-based tactical 5G communications. support all of our mission-critical operators. Network Infrastructure is Compromised or Absent. That's another very exciting project.

Speaker Change: We also announced last year, the hydrogen joined the multi company consortium led by Airbus Defence and space to develop new technologies for rapid secure and reliable communications, representing a multiyear and multimillion dollar development contract.

Speaker Change: The Air <unk> project hydrogen will develop <unk> transmitters that provide connectivity and mission critical situations, where normal communication lives disrupted on available. This consortium building land and sea based tactical communication.

Speaker Change: The system supports all of our mission critical helpers.

Speaker Change: Yes.

Speaker Change: Network infrastructures compromised or absent that's another very exciting project.

Miroslav Wicha: Now, we've got a lot of strategic developments planned this year in AI. We announced already last year that Haivision is partnering with SHIELD AI, a leading defense technology company, whose mission is to protect service members and civilian intelligence systems. Now, with this partnership, SHIELD AI can now be fully integrated with Haivision's real-time transcoding Kraken software system and deployed across a wide range of air, land and sea-based platforms. We are increasing our investments into our next generation hardware AI technology and we'll be launching our new AI-based platform and edge devices to the defense and ISR markets later this year.

Speaker Change: Well, we've got a lot of strategic development plans.

Speaker Change: This year NII yeah.

Speaker Change: Now it's already last year.

Speaker Change: Partnering with Shiel D I, a leading defense technology company.

Speaker Change: One is to protect civilians.

Speaker Change: I'll just systems.

Speaker Change: No ship Shield AI Castro.

Speaker Change: Integrated with hydrogen as real time, transcoding, Kraken software system and deploy across a wide range of air land and sea based platform.

Speaker Change: We are increasing our investments into our next generation hardware technology, we will be launching our new AI based platform and edge devices.

Speaker Change: And ISR markets later this year.

Miroslav Wicha: I mean, we are the standard, low latency, edge transcoding delivery platform in a defense market and a market leader. We expect our crack and AI technology to drive many long-term defense projects and increase our footprint within the global defense space. Now also, as mentioned earlier last year, Haivision was extremely busy at the Paris Olympics. Haivision technology was widely used across many events and our broadcast partners used well over a thousand plus Haivision Makita encoders, decoders, SRT gateways, and our Pro Series 5G transmitters at all the main events and venues during the Paris Games. We even showcased the first ever private 5G use at the Olympics, with the lowest latency and the first ever use of remote mobile device management.

Speaker Change: Where we.

Speaker Change: Standard low latency edge transport and delivery platform in the defense market and a market leader, we expect a crack in the balance sheet drop me long term defense projects and increase our footprint within the global defense space.

Speaker Change: Also as mentioned earlier last year.

Speaker Change: Well that's true it doesn't get the Paris Olympics.

Speaker Change: The hybrid technology wasn't widely used across many events and our broadcast partners well over a thousand plus hydrogen Nikita Encoders D callers SRT gateways and our pro series five G transmitters and all the main events and venues during the terrorist games.

Speaker Change: We even showcase the first ever private <unk> The Olympics with the lowest latency in the first ever use of remote mobile device management or <unk>.

Miroslav Wicha: There were many examples in Paris that has propelled Haivision to the forefront of innovation and performance, not to mention winning many prestigious awards, including the coveted IBC Innovation Award for the second consecutive year.

Speaker Change: Many examples in Paris that has propelled hydrogen to the forefront of innovation and performance not dimension, winning many prestigious awards, including the coveted IDC Innovation award for the second consecutive year.

Miroslav Wicha: Now let's talk some high-level numbers resulting from our two-year plan. As demonstrated by the results we announced earlier today, our business fundamentals are strong. We have been telling you that we will significantly increase our operational efficiency and adjusted EBITDA throughout the past two years, and our 2024 performance continues in that direction with some noteworthy highlights to demonstrate our two-year comparison. Let's talk about revenue. This is interesting. Our actual comparable revenue between fiscal 22 and fiscal 24 This is after taking effect of the reduction of revenue due to the exiting of house of worship market. Remember that in 2022, we were doing approximately 8 million in house of worship revenue.

Speaker Change: Well, let's talk some high level numbers, resulting from our two year plan.

Speaker Change: As demonstrated by the results, we announced earlier today, our business fundamentals are strong.

Speaker Change: We have been telling you.

Speaker Change: Will significantly increase our operational efficiency and adjusted EBITDA throughout the past two years and our 2020 performance continued in that direction with some noteworthy highlights demonstrate our two year comparisons.

Speaker Change: Let's talk about revenue this is interesting.

Actual comparable revenue between fiscal 'twenty to fiscal 'twenty four.

Speaker Change: This is after taking effect of the reduction of revenue due to the exist the exiting of how so what's the market remember that in 2022, we're doing approximately 8 million in house source of revenue.

Miroslav Wicha: And that includes the reduction of our 2024 revenue moving away from the integrator model within the controllable market to get rid of third-party hardware. Our two-year revenue growth was still an impressive 9% growth. So I like to say that even after all that transformation, all of the exiting, getting rid of the bad revenue, we still actually showed 9% growth in two years. So pretty, pretty compelling performance. In the same time frame, our gross margins have improved 440 basis points. going from 68.7 at the end of 22 to 73.1 at the end of 24. And interestingly enough, our OPEX in 2024.

Speaker Change: And that includes a reduction of about 2020 for revenue moving away from the integrated model with amount of control over market to get rid of third party hardware.

Speaker Change: Two year revenue growth was still.

Speaker Change: An impressive 9% growth so I like to say that even after all of that transformation to all of the exiting and getting rid of bad revenue, we still actually saw a 9% growth in two years so pretty.

Speaker Change: Pretty pretty compelling performance.

Speaker Change: Not in the same timeframe, our gross margins have improved 440 basis points.

Speaker Change: Going from $68 72 to $73 one at the end of 'twenty four.

Speaker Change: And interestingly enough our opex in 2024.

Miroslav Wicha: after two years was actually lower by 2.5% over 2022. So that alone was impressive and clearly was a major focus for the company. Our Operating Margin. went up 109% from 6.4% to 13.4% in time. And as a result, the adjusted EBITDA went up 115%, from $8.1 million to $17.3 million. I'd like to add finally that we also generated during that period $24 million in cash. These are all separate results from a pre-reported increase in profitability for operational efficiency of IT. couldn't be happier with our performance.

Speaker Change: After two years was actually lower by two 5% over 2022, so that alone was impressive and clearly was a major focus for the company.

Speaker Change: Our operating margin.

Speaker Change: Went up 109%.

Speaker Change: From six 4% to $13 four some timeframe.

Speaker Change: And as a result, our adjusted EBITDA went up 115% from $8 1 million.

$17 $3 million.

Speaker Change: I would like add finally that we also January period $24 million in cash.

Speaker Change: These all separately.

Speaker Change: The increase of profitability the operational efficiency of Iris.

Speaker Change: We couldnt be happier with our performance.

Miroslav Wicha: And now, we move our focus and attention. do one simple thing and that is high revenue growth.

Speaker Change: And now.

We move our attention.

Speaker Change: The one simple thing and that is high revenue growth.

Dan Rabinowitz: So Dan, please continue with the detailed financials of Q4 and 2024. Thank you, Mirko.

Dan: So Dan please continue with the detailed financials of Q4 and 2024.

Thank you Marco.

Dan Rabinowitz: So let's begin. So revenue for this fourth quarter fiscal 2024 was $30.1 million. that represent a decrease of 5.6 million from the previous year comparative period. and revenue for the fiscal year 2024 was $129.5 million. a decrease of $10.3 million from the prior year comparative period. As has been conveyed in our earlier calls, there are quite a few moving pieces to this revenue story. year-over-year comparisons are being clouded by our strategic decisions to change the nature of our control room business and to exit the house of worship vertically. Now remember, last time we derived any revenue from the House of Worship customers was in April of 2023, the first half of the prior year.

Dan: So let's begin.

Dan: So revenue for this fourth quarter of fiscal 2024 with $30 1 million.

That represents a decrease of $5 6 million from the previous year comparative period.

Dan: And revenue for the fiscal year 2024, with $129 5 million a day.

Increase of $10 3 million from the prior year comparative period.

Dan: As has been conveyed in our earlier calls there are quite a few moving pieces to this revenue story.

Year over year comparisons are being clouded by our strategic decision to change the nature of our control room business and.

Dan: And to exit the house of worship vertical.

Dan: Now remember last time, we derived any revenue from the house of worship customers from houses of worship customers was in April of 2023, the first half of the prior year.

Dan Rabinowitz: Last call we discussed in detail our initiative to migrate from a system integrator in the control room space to that of a manufacturer of proprietary products. Strategically, this decision would improve our gross margins and resulting net margins as low-margin, third-party components become a smaller part of our overall business. but more importantly, it enables us to scale the control room business more quickly, not only in North America, but even more so in international markets. We don't have to build the same internal infrastructure to support the integrator model, which is even more complicated when selling in a myriad of countries.

Last call we discussed in detail our initiative to migrate from a system integrator in the controlling stake did that have a manufacturer of proprietary products.

Dan: Strategically this decision would improve our gross margin and resulting net margins as low margin third party components become a smaller part of our overall business.

Dan: But more importantly, it enables us to scale the control room business more quickly.

Dan: Not only in North America, but even more so in international markets. We don't have to build the same internal infrastructure to support the integrator model, which is even more complicated when selling in a myriad of countries.

Dan Rabinowitz: Further, this migration endears Haivision to the various channel partners that want to represent Haivision in this market. Not only is this more consistent to their business models, but channel partners will be able to derive incremental gross profit from the sale of these third-party components. It also eliminates the appearance of Haivision as a competitor in the market.

Speaker Change: Further this migration India's high vision to the various channel partners that want to represent high vision in this market.

Speaker Change: Not only is this more consistent to their business models, but channel partners will be able to drive incremental gross profit from the sale of these third party components.

Speaker Change: It also eliminates the appearance of high vision as a competitor in the market.

Dan Rabinowitz: The strategic benefits are clear, and we have seen gross margins and EBITDA margins increase over the last 12 to 18 months. to give you a sense of the impact to fiscal year 2024 revenue. Third-party components and professional services revenues related to that integrator model fell by almost $6.5 million from the prior year. And because of the timing of our exit from the House of Worship vertical in fiscal 2023, we derived revenues of three and a half million versus no such revenues in 2024.

Speaker Change: The strategic benefits are clear and.

Speaker Change: And we have seen gross margins and EBITDA margins increased over the last 12 months to 18 months.

Speaker Change: To give you a sense of the impact to fiscal year 2020 for revenue.

Speaker Change: Third party components and professional services revenues related to that integrator model fell by almost $6 5 million from the prior year.

Speaker Change: And because of the timing of our exit from the house of worship vertical in fiscal 2023, we derived revenues and $3 5 million. This is no such revenues in 2024.

Dan Rabinowitz: Bottom line is that we are a more efficient organization and we have set the groundwork for scalability. However, one of the other big factors that may have affected second half revenue is the changing behavior of the U.S. government. We just did not see the revenue bounce that we typically see in our fourth quarter, which is commensurate with the U.S. government's fiscal year-end.

Speaker Change: Bottom line is that we are a more efficient organization and we have set the groundwork for scalability.

Speaker Change: However, one of the other big factors that May have affected second half revenue is the changing behavior of the U S government.

Speaker Change: We just did not see the revenue bounce that we typically see in our fourth quarter.

Speaker Change: Which is commensurate with the U S government's fiscal year end.

Dan Rabinowitz: And two factors may be in play. First, the incoming administration is facing a budget deficit and has an interest in providing tax cuts that may increase those deficits. Nevertheless, the new administration believes they have a mandate to cut spending, and they even established a Department of Government Efficiency to execute on that plan. The second factor that may have impacted our fourth quarter revenues is that the U.S. Congress is increasingly relying on continuing resolutions rather than a complete appropriation bill. It changes the very nature of long-term planning, production, and increases in spending.

Speaker Change: Two factors may be in play.

Speaker Change: First the incoming administration is facing a budget deficit and has an interest in providing tax cuts that may increase those deficits.

Speaker Change: Nevertheless, the new administration believes they have a mandate to cut spending and they even establish a department of government efficiency to execute on that plan.

Speaker Change: The second factor that May have impacted our fourth quarter revenues is that the U S. Congress is increasingly relying on continuing resolution well.

Speaker Change: Well rather than a complete appropriation bill.

Speaker Change: It changes the very nature of long term planning production and increases in spending.

Dan Rabinowitz: Ultimately, we are witnessing a change in the buying behavior of those mission-critical customers that we support. Gross margins on a year-to-date basis are 73.1%. that compares to 70.5% for the prior fiscal year, a 260 basis point improvement. Now, in the fourth quarter alone, our gross margins were 73 percent. less than the 75% we experienced in the prior quarter and slightly less than the 73.5% we believe to be our long-term average rate. Certainly, gross margin percentages may vary based on the mix of products sold. Additionally, there is a component of COGS that is fixed in nature that can be leveraged across higher revenues.

Speaker Change: Ultimately, we are witnessing a change in the buying behavior of those mission critical customers that we support.

Speaker Change: Gross margins on a year to date basis of 73, 1%.

Speaker Change: That compares to 75% for the prior fiscal year of 260 basis point improvement.

Speaker Change: Now in the fourth quarter alone our gross margins were 73%.

Speaker Change: Less than the 75% we experienced in the prior quarter and slightly less than the 73, 5%, we believe to be our long term average rate.

Speaker Change: Certainly gross margin percentages may vary based on the mix of products sold.

Speaker Change: Additionally, there is a component of clog.

Speaker Change: It is fixed in nature that can be leveraged across higher revenue with.

Dan Rabinowitz: We just didn't see those higher volumes in this last quarter. That is typically why we see higher gross margins in every one of our fourth quarters. We just didn't get that bounce this year.

Speaker Change: Just didn't see those higher volumes in this last quarter.

Speaker Change: That is typically why we see higher gross margins and every one of our fourth quarters, we just didn't get that bounce this year.

Dan Rabinowitz: We may continue to see quarterly variations of gross margins related to the seasonality of certain product families, although the gross margin differences between our product families are dissipating. And we are seeing modest increases in the uptake of software-only options or virtual machine deployments, which have a higher gross margin than our typical software appliances.

Speaker Change: We may continue to see quarterly variations of gross margins related to the seasonality of certain product families. Although the gross margin differences between our product families are dissipating.

Speaker Change: And we are seeing modest increases in the uptake of software only options or virtual machine deployments, which have a higher gross margin than our typical software appliances.

Speaker Change: Yeah.

Dan Rabinowitz: Total expenses for this fourth quarter were $21.8 million. That's a decrease of 1.2 million when compared to the same period in the prior year.

Speaker Change: Total expenses for this fourth quarter were $21 8 million.

Speaker Change: That's a decrease of 1.2 million when compared to the same period in the prior year.

Dan Rabinowitz: I want to mention that our third quarter. Our total expenses were $21.9 million. So total expenses have largely stabilized at these levels. Now, we may see some changes in total expenses related to the timing of marketing expenses, including the timing of our trade shows.

Speaker Change: I want to mention that our third quarter.

Speaker Change: Our total expenses were $21 9 million.

Speaker Change: So total expenses have largely stabilized at these levels.

Speaker Change: Now we may see some changes in total expenses related to the timing of marketing expenses, including the timing of our tradeshows.

Dan Rabinowitz: And in fiscal 2025, we may see increases in compensation for existing staff and strategic incremental investments to capitalize on emerging opportunities. We'll see increases in the cost of prototypes and certifications in support of the exciting new products that are going to be released throughout 2025. And we're going to see some increases in the cost of our internal technology stack that we're deploying to help in our overall efficiency. Much of those increases are slated for the second half of fiscal 2025. On a year-to-date basis, total expenses were $89.2 million. That's a decrease of $8.2 million when compared to the prior year comparative period.

Speaker Change: In fiscal 2025, we may see increases in compensation for existing staff and strategic incremental investments to capitalize on emerging opportunities.

Speaker Change: We will see increases in the cost of prototypes and certification in support of the exciting new products that are going to be released throughout 2025.

Speaker Change: And we're going to see some increases in the cost of our internal technology stack that we're deploying to help in our overall efficiency.

Speaker Change: Much of those increases are slated for the second half of fiscal 2025.

Speaker Change: On a year to date basis total expenses were $89 2 million.

Speaker Change: A decrease of $8 2 million when compared to the prior year comparative period.

Dan Rabinowitz: has, as has been the case for several quarters, the decrease in total expenses are largely related to reductions in compensation expenses, the result of our restructuring exercise, while we can see remaining decreases in restructuring costs, amortization and depreciation expenses, professional services expenses, technology and communication expenses, and occupancy The result of lower gross profit and lower expenses is an adjusted EBITDA for the quarter of $2.9 million, down from last year's comparable period of $3.8 million.

Speaker Change: As has been the case for several quarters. The decrease in total expenses are largely related to <unk>.

Speaker Change: Reductions in compensation expenses, the result of our excess a restructuring exercise.

Speaker Change: We can see remaining decreases in restructuring costs.

Speaker Change: <unk> and depreciation expenses professional services expenses technology, and communication expenses and occupancy expenses.

Speaker Change: Yeah.

Speaker Change: The result of lower gross profit and lower expenses isn't adjusted EBITDA for the quarter up $2 9 million down from last year's comparable period of $3 8 million.

Dan Rabinowitz: However... For the full year, our adjusted EBITDA was $17.3 million. a 2.6 million or 17% improvement from the prior year.

Speaker Change: However.

Speaker Change: For the full year, our adjusted EBITDA was $17 3 million.

Speaker Change: A $2 6 million or 17% improvement from the prior year.

Dan Rabinowitz: The adjusted EBITDA margin for this quarter was 9.8% compared to 15.9% for the prior year comparable period. The result of The Revenue Shortfall. For fiscal 2024, however, the adjusted EBITDA margin was 13.4 percent, a sound improvement from the 10.6 percent experienced in the prior fiscal year. Our adjusted EBITDA margins have been purely in the mid-teens for several quarters right now. So said another way, despite the $10.3 million decrease in revenue, we are seeing increased efficiencies resulting in increasing adjusted EBITDA. Operating income for the quarter was $300,000, a decline of $3.4 million from prior year comparable period, again largely the result of the fourth quarter revenue.

Speaker Change: The adjusted EBITDA margin for this quarter was nine 8% compared to 15, 9% for the prior year comparable period the result of.

Speaker Change: The revenue shortfall.

Speaker Change: Okay.

Speaker Change: For fiscal 2024, however, the adjusted EBITDA margin was 13, 4% or so.

Speaker Change: Sound improvement from the 10, 6% experienced in the prior fiscal year.

Speaker Change: Our adjusted EBITDA margins have been purely in the mid teens for several quarters right now.

Speaker Change: So said another way despite the $10 3 million dollar decrease in revenue, we are seeing increased efficiencies, resulting in increasing adjusted EBITDA.

Speaker Change: Okay.

Speaker Change: Operating income for the quarter was 300000, a decline of $3 4 million from prior year comparable period again, largely as a result of the fourth quarter revenue.

Dan Rabinowitz: For fiscal 2024, however, operating income was $5.5 million. That's a $4.2 million improvement over last year, representing a 345% improvement. and for the full year net income was $4.7 million. That's a $6 million improvement when compared to the net loss of $1.3 million last year. That's a 470% improvement.

Speaker Change: For fiscal 2024 however.

Speaker Change: Operating income was $5 5 million.

Speaker Change: That's a $4 $2 million improvement over last year, representing a 345% improvement.

Speaker Change: And for the full year net income was.

Speaker Change: It was $4 7 million, that's a $6 million improvement when compared to the net loss of $1 3 million last year.

Speaker Change: 470% improvement.

Dan Rabinowitz: Want to note that this is our fifth consecutive quarter with positive net income and positive earnings per share, and it's our eighth quarter since being a public company.

Speaker Change: Wanted to note that this is our fifth consecutive quarter with positive net income and positive earnings per share and it's our eighth quarter since being a public company.

Dan Rabinowitz: with respect to the balance sheet. We ended the quarter with cash balances of $16.5 million. That represents an $8.2 million increase from the end of fiscal 2023 and an increase of $2.9 million from last quarter end. The amount outstanding on the credit facility was only $2.2 million, compared to $4.7 million outstanding at the beginning of the year. And if we add back the $3.6 million invested to buy back shares through the MCIB, Total cash generated during the year was $14.3 million, or approximately 83% of our EBITDA. In terms of our capacity, we still have a credit facility in place for $35 million.

Speaker Change: With respect to the balance sheet.

Speaker Change: We ended the quarter with cash balances of $16 $5 million.

Speaker Change: That represents an $8 2 million increase from the end of fiscal 2023, and an increase of $2 9 million from last quarter end.

Speaker Change: Further.

Speaker Change: The amount outstanding on the credit facility with only $2 2 million.

Speaker Change: Compared to $4 7 million outstanding at the beginning of the year.

Speaker Change: And if we add back the $3 6 million invested to buy back shares through the NCI be.

Speaker Change: Total cash generated during the year was $14 3 million or approximately 83% of our EBITDA.

Speaker Change: In terms of our capacity, we still have a credit facility in place for $35 million.

Dan Rabinowitz: of which only 2.2 million is outstanding. And that credit facility can be increased by another $25 million assuming financial performance to support the increase. Plenty of capacity for acquisitions if the opportunity arises.

Speaker Change: With only $2 2 million is outstanding.

Speaker Change: And that credit facility can be increased by another $25 million, assuming financial performance to support the increase.

Speaker Change: One thing of capacity for acquisitions, if the opportunity arises.

Dan Rabinowitz: Total assets at year-end. $143 million. Now that is a decrease of $2.8 million from the end of the last year. But that decrease is largely related to almost $6 million in intangible assets, the result of ongoing amortization expenses, a $4 million reduction in inventories as we continue to squeeze out efficiencies in our supply chain. A $2.8 million reduction in right-of-use assets, largely the result of a terminated lease, and Payments Against Unreased Obligations. and then a $1.6 million reduction in receivables. Now these were all offset by the increase in cash, $8.2 million, and the increase in deferred income taxes of $3.1 million.

Speaker Change: Total assets at year end.

Speaker Change: $143 million now that is a decrease of $2 8 million from the end of last year.

Speaker Change: But that decrease is largely related to almost $6 million in intangible assets. The result of ongoing amortization expenses.

Speaker Change: A $4 million reduction in the inventories as we continue to squeeze out efficiencies in our supply chain.

Speaker Change: A $2 $8 million reduction in right of use assets largely the result of a terminated lease.

Speaker Change: And payments against our lease obligations and.

Speaker Change: And then a $1 $6 million reduction in receivables.

Now these were all offset by the increase in cash $8 2 million and an increase in deferred income taxes of $3 1 million.

Dan Rabinowitz: Total liabilities at year-end were $44.5 million. a decrease of 5.4 million from prior year end. And those decreases are largely the result of the $3 million decrease in lease liabilities and term loans. related to the termination of the existing lease, the payment of our lease obligation, and the payments against our from DAPT. We also reduced our line of credit by $2.5 million and reduced payables by $1.6 million. Now, these reductions were offset by the $2.1 million increase in deferred revenue related to our maintenance and support program. a recurring revenue element of our business.

Speaker Change: Total liabilities at year end were $44 5 million.

Speaker Change: A decrease of $5 4 million from prior year end.

Speaker Change: And those decreases are largely the result of the $3 million decrease in lease liabilities and term loan.

Speaker Change: Related to the termination of the existing lease.

Speaker Change: Payment of a lease obligation and the payments against our AR.

Speaker Change: Term debt.

Speaker Change: We also reduced our line of credit by $2 5 million and reduced payables by $1 6 million.

Speaker Change: Now these reductions were offset by the $2 1 million increase in deferred revenue related to our maintenance and support programs.

Speaker Change: A recurring revenue element of our business.

Dan Rabinowitz: So to summarize our balance sheet performance, cash balances continue to climb, and the ratio of adjusted EBITDA conversion to cash remains pretty static. Debt outstanding, including the line of credit, continues to decline and we have improved our working capital efficiency, particularly related to inventory.

Speaker Change: So to summarize our balance sheet performance.

Speaker Change: Cash balances continue to decline in the ratio of adjusted EBITDA conversion to cash remains pretty static.

Speaker Change: Debt outstanding, including our line of credit continues to decline and we have improved our working capital efficiency, particularly related to inventory.

Dan Rabinowitz: Now, with respect to guide. Haivision's business continues to evolve rapidly, presenting significant opportunities for growth. However, providing definitive guidance for fiscal year 2025 has become increasingly challenging due to several dynamic factors, including that ongoing transition from integrator to manufacturer within the control room space. the timing and scope of the U.S. Navy production agreement, option year purchases, which may present additional opportunities. shifting and changing purchasing behavior within the U.S. government and the uncertain spending priorities under the new administration. performance and opportunities in our U.S. transmitter business, including both direct sales and long-term rentals. the need for strategic investment to capitalize on emerging opportunities and the precise timing of our upcoming product launch.

Speaker Change: Now with respect to guidance.

Speaker Change: Hi, Vincent business continues to evolve rapidly presenting significant opportunities for growth.

Speaker Change: However, providing definitive guidance for fiscal year 2025 has become increasingly challenging due to several dynamic factors, including that ongoing transition from integrator to manufacturer within the controlling stake.

Speaker Change: Timing and scope of the U S. Navy production agreement option year purchases, which may present additional opportunities.

Speaker Change: Shifting and changing purchasing behavior within the U S government and the uncertain spending priorities under the new administration.

Speaker Change: Performance and opportunities in our U S transmitter business, including both direct sales and long term rentals.

Speaker Change: The need for strategic investments to capitalize on emerging opportunities and the precise timing of our upcoming product launches.

Dan Rabinowitz: We remain highly optimistic about our growth prospects in 2025 and into the future. However, these variables introduce a level of uncertainty and complexity that makes it difficult to deliver accurate revenue guidance. As a result, we have decided that it is in the best interest of our shareholders, our analysts, and employees to prioritize transparency over speculation.

We remain highly optimistic about our growth prospects in 2025 and into the future. However, these variables introduced the level of uncertainty and complexity that makes it difficult to deliver accurate revenue guidance.

Speaker Change: As a result, we have decided that it's in the best interest of our shareholders, our analysts and employees.

Speaker Change: <unk> transparency over speculation so given those variables moving forward, we will not be providing quarterly or annual guidance.

Dan Rabinowitz: So given those variables moving forward, we will not be providing quarterly or annual guidance. We look forward to updating all stakeholders on our financial performance on a quarterly basis as we continue to execute on our significant growth initiative.

Speaker Change: We look forward to updating all stakeholders on our financial performance on a quarterly basis as we continue to execute on our significant growth initiatives.

Dan Rabinowitz: So that really concludes my prepared remarks.

Speaker Change: So that really concludes my prepared remarks, so I'm passing the microphone back to Humira call and then we will open the floor to questions.

Miroslav Wicha: So I'm passing the microphone back to you, Mirko, and then we will open the floor to questions. So, thanks Dan.

Okay.

Speaker Change: Okay.

Speaker Change: Alright, Thanks, Dan.

Abby: Abby, can we open up for questions? Of course, thank you. And we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the If you would like to withdraw your question, simply press star 1 a second time.

Speaker Change: I'll be giving up all of our questions.

Speaker Change: Of course, thank you and we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue if.

Speaker Change: If you would like to withdraw your question simply press Star one a second time.

Abby: If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star one if you would like to join the queue.

Speaker Change: If you are called upon to ask your question and our listening via speaker phone on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: Again, it is star one if you would like to join the queue.

Robert Young: And your first question comes from the line of Rob Young with Canaccord Genuity. Your line is open.

Speaker Change: And your first question comes from the line of Rob Young with Canaccord Genuity. Your line is open.

Robert Young: Hi, good evening. Place I'd like to start, I know you gave some of these numbers on the call already, but just to put them all in one place, I was just trying to get a sense of the relative impact of these factors you highlighted in the quarter, the shift in the business model in the MCS business. and the, I guess, slowdown or uncertainty or the timing of large deal activity with the U.S. government on existing programs. I think you also mentioned the leasing of the transmitters, but I don't think you noted that as an impact in this quarter.

Rob Young: Hi, good evening.

Rob Young: Please I'd like to start I know you gave some of these numbers on the call already but just to put them. All in one place I'm just trying to get a sense of the relative impact of these factors you highlighted in the quarter the shift in the business model in the Mcs business.

Rob Young: And the.

Rob Young: I guess slow down or or or uncertainty or the timing of large deal.

Rob Young: The activity with the U S government on existing programs.

Rob Young: You also mentioned the.

Rob Young: Let me see.

Rob Young: The transmitters I don't think you've noted that has an impact in this quarter.

Miroslav Wicha: So maybe you just talk about the relative impact of those three items and if there's something I'm missing. That'd be helpful.

Rob Young: Just talking about the relative impact of those three items.

Rob Young: I understand.

Rob Young: That'd be helpful.

Miroslav Wicha: I'm going to take that, Dan, for a second, and I'm going to just take one, and then you can finish up. I was just going to make a comment on the business. I mean, Q4 has always been, for 20-plus years, our traditional largest quarter, because it's a government year-end, right? And definitely this year, I think that was the majority of... We didn't get that bump, as I mentioned. We just did not... I think it's because of the elections, the transition, the new administration, not to mention all of the vet stuff, and it was just one of those weird year-ends.

Rob Young: Sure.

Rob Young: Okay. So let me just take one and then you can finish up.

Speaker Change: I'll make a comment on the on the business in Q4 has always been for 20 plus years of traditional largest quarter because of the government year end right. So and definitely this year I think that was the majority of what didn't get that bump as John mentioned, we just did not I think it's because of the election.

Rob Young: The transition the new administration not.

Speaker Change: Not to mention all of the bad stuff.

Rob Young: And it was just it was just sort of a.

Rob Young: Weird year round.

Miroslav Wicha: So I would say, and Dan, you can correct me, but I would say the majority, if not all of it, was mainly to do with the U.S. government, you know, the transformation from the manufacturer to... From the integrator to the manufacturer model, I mean, that's just part of the course, probably to a lesser extent. But I would just say that by far, the majority was all about the government, but not having a bump in our traditional Q4. So it's not like we lost anything. Nothing got lost. Things just got shifted. Same got postponed. So it's all good for business, but unfortunately, with the change of administration, you know, it's all going to move to the next purchasing cycle.

Speaker Change: I would say.

Speaker Change: Doug can correct me, but I would say majority if not all of it was mainly to do with the U S government.

Speaker Change: The.

Speaker Change: The transformation from the manufacturer to a tool from the integrator to the manufacturer model I mean, thats just part of the course.

Speaker Change: To a lesser extent, but I would just say that up by far the majority of it is all about the government, but not having the bump in our traditional Q4. So it's all of the lost anything nothing got lost things just got shifted same got postponed.

Speaker Change: So it's all good for business, but unfortunately with the.

Speaker Change: The administration.

Speaker Change: Where it's all going to move to the next parts of the cycle.

Dan Rabinowitz: Dan? Thank you. Right. And I would agree with that. I mean, if you're trying to look at what is the difference between actuals and guidance, I would have to say the exact same thing. We did not get the balance that we were expecting from the U.S. government.

Speaker Change: Then.

Speaker Change: Right.

Speaker Change: I would agree with that I mean, if you're trying to look at what is what is the difference between actuals and our guidance I would have to say the exact same thing we did not get the bounce that we were there and that we were expecting from the U S. U S government.

Dan Rabinowitz: If you're looking for other sort of explanations for the difference between 2023 and 2024, we can point to these two examples of why the comparisons may not be fair. The first being the transition from the integrator model to the manufacturer model. When you look at those third-party components and look at the professional services fees that we would have derived for having been a systems integrator, we saw the difference between 2023 and 2024 to be $6.5 million. And then if you were to look at what was the impact of the House of Worship business in this comparative period, we had $3.5 million in 2023 versus $0 in 2024.

Speaker Change: If you were looking for other sort of explanation for the difference between 2023 and 2024, we can point to these two examples of why the comparisons may not be fair.

Speaker Change: The first being the transition from the integrated model to the manufacturer model. When you look at those third party components and you look at the professional services fees that we would have derived for having been a systems integrator. We saw the difference between 2023 and 2020 for them to be $6 5 million.

Speaker Change: And then if you were to look at what was the impact of the house the wish them their business in the comparative period.

Speaker Change: At $3 $5 million in 2023 versus $0 in 2024, so that largely bridges the gap between 2023 performance in 2020 for performance.

Dan Rabinowitz: So that largely bridges the gap between 2023 performance and 2024 performance.

Unnamed Speaker: Okay. I think one thing this earning cycle is going to be the tariffs to try and understand relative impact and I know there's no way to really understand. what will come of that.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: I think one theme this earning cycle is going to be big tariffs I'm trying to understand.

Speaker Change: So the impact I know there is no way to really understand.

Speaker Change: What will come of that.

Miroslav Wicha: But I'm just curious if you could maybe opine a little bit on Haivision's manufacturing footprint. you know, and how you're set up to withstand, you know, maybe tariffs between the U.S. and Mexico and Canada or between the U.S. and China, given, you know, I guess a lot of raw materials are going to come out of China and I believe some of your manufacturing is in Canada and some of them in the United States. Maybe you just give an overview of that landscape so we can understand it a little better.

Speaker Change: But I was just curious if you could maybe opine a little bit on that.

Jan: Hi, This is Jan is manufacturing footprints.

Speaker Change: And how you're set.

Speaker Change: Setup to withstand.

Maybe tariffs between the U S and Mexico, and Canada or between U S and China, given I guess a lot of raw materials are going to come out of China and I believe some of your manufacturing is in Canada and some of them. Maybe you can just give us.

Speaker Change: An overview of that landscape. So we can understand it a little better.

Miroslav Wicha: Right, right, right. So it's an interesting question and it's something we've been speaking about for quite some time here. But I think we're fairly well positioned to weather this in the event that it happens. And that's particularly because we have systematically made our contract manufacturer posture more flexible than it has been in the past. You might remember years ago, I guess maybe that's even before we actually went public, we were working with a single factory manufacturer out of Cornwall, Ontario. And we just felt that we outgrew them. And it didn't take that much of an effort for us to migrate from that company to another company to give us a little bit more flexibility and to give us a little bit more security.

Speaker Change: Right right right. So it's an interesting question and it's something we've been speaking speaking about for quite some time here, but I think we're fairly well positioned to weather. This in the event that it happens and that's particularly because we have systematically made our contract manufacturer posture more.

Speaker Change: Then it has been in the past you might remember years ago. When I guess, maybe that's even before we actually went public we were working with a single factory manufacturer out of Cornwall, Ontario.

Speaker Change: And.

Speaker Change: And we just felt that we outgrew them and it didn't take that much of an effort for us to migrate from that company to another company to give us a little bit more flexibility and it gives us a little bit more.

Speaker Change: Security, we moved part of our.

Miroslav Wicha: We moved part of our manufacturing to a company called Plexus. They're a very, very large multi-billion dollar manufacturer, but we became a small fish in a big pond. We have since moved to a different contract manufacturer, Creation Technologies, and they happen to be a North American-centric contract manufacturing company with facilities in Canada, the United States, and Mexico.

Speaker Change: Manufacturing to a couple of complexity there are very very large multibillion dollar manufacturer, but we became a small fish in a big pond.

We have since.

Moved to a different contract manufacturer creation technologies and they happen to be a north American centric contract manufacturing company with facilities in Canada.

Speaker Change: States and Mexico.

Miroslav Wicha: And we've already started having discussions with them about migrating that business from our Canadian facility to that of the U.S. facility in the event of a tariff issue. And it doesn't take a tremendous amount of effort for us to move it. Obviously, there's a little bit of time that we would have to overcome. But because we're talking about moving between entities, it's a fairly easy move. Contract manufacturing is a bit of a commodity. service of sorts. You don't want to have to move, but there are reasons why you want to move. And we've demonstrated that we can move our contract manufacturing from one facility to another at least.

Speaker Change: And we've already started having discussions with them about migrating that business from our Canadian facility to that of the U S facility.

Speaker Change: In the event of a tariff issue and it doesn't take a tremendous amount of effort for us to move it obviously, there's a little bit of time that we would have to overcome but because we're talking about moving.

Speaker Change: Now moving between entities, it's a fairly easy move.

Speaker Change: Contract manufacturing is a bit of a commodity sort.

Speaker Change: Service of sorts, you don't want to have to move but there are there a reason why you want to move and we've demonstrated that we can move our contract manufacturing from one facility to another at least on.

Miroslav Wicha: on two earlier occasions.

Speaker Change: I am too earlier.

Speaker Change: Occasions.

Speaker Change: Okay.

Unnamed Speaker: Okay, great colors. Good to hear you're thinking about that.

Speaker Change: Okay, great color good to hear your thinking about that maybe.

Unnamed Speaker: Maybe last question for me.

Speaker Change: Maybe last question for me.

Miroslav Wicha: You'd said that you'd be opportunistic on M&A and that you had Maybe a pipeline or maybe some evaluation going on, maybe just give us a sense of how active you are there and how you feel about your capacity now that MCS and AWS, or maybe later down the road in the integration, maybe just rehash your position for M&A. Well, I would tell you that we are so keenly focused on the restructuring and now the revenue growth of sorts. That's where our key focus is going to be. But that doesn't mean that we haven't put acquisition strategy on a back burner of sorts.

Speaker Change: Said that you'd be opportunistic on M&A and that you had.

Speaker Change: Maybe a pipeline.

Speaker Change: Or maybe some evaluation going on maybe you guys give us a sense of how active you are there and how you feel about your capacity now there as jetson, having lessened maybe later down the road in the integration.

Speaker Change: Maybe just rehash your position.

Speaker Change: And for M&A.

Speaker Change: Well I would tell you that we are so keenly focused on.

Speaker Change: The restructuring and now the revenue growth. So that's where our key focus is going to be but that doesn't mean that we haven't put acquisition strategy on a on a backburner. So we still are having conversations with many many different people out there and we're looking for we're looking for proper fit we're looking for proper economics.

Miroslav Wicha: We still are having conversations with many, many different people out there. And we're looking for we're looking for proper fit. We're looking for proper economics, so on and so forth. Obviously, it becomes a little bit more challenging when the share price doesn't give us a currency to help us in that initiative. But we'll continue to keep our eye out for it. And we want to exploit the opportunities when they're presented. And I would just add to that, Robert, that we're continuously talking to many, many people, as you can appreciate. And if there's a good opportunity where you jumped on, our facilities are completely clear.

Speaker Change: Fourth obviously, it becomes a little bit more challenging when the share price doesn't give us a currency to help us in that initiative, but.

Speaker Change: We'll continue to keep our eye out for it and we want to exploit the opportunities when they are presented to us.

Speaker Change: Yeah, and I would just add to that.

Speaker Change: Robert.

Speaker Change: We're talk we're continually talking to many many people as you can appreciate and if there's a good opportunity, whereas you jumped all our facilities are completely clear we can actually do stuff, but I think if we wanted to do something I wanted to do a transformational but I think that's going to require our share price to be.

Miroslav Wicha: We can actually do stuff.

Miroslav Wicha: But I think if we want to do something, I want to do it transformational. And I think that's going to require our share price to reflect our true value. And I think we're just not there. I still believe, I think we believe that our shares are extremely undervalued. Even though the run up of the last year, you know, given where we see our future, I think there's still some significant room to grow. And at that point, it becomes a little bit easier.

Speaker Change: It reflects our true value and I think we're just not there.

Speaker Change: I still believe I think we believe that.

Speaker Change: Our shares are extremely undervalued.

Speaker Change: Even though the run up in the last year given.

Speaker Change: Given where we see our future.

Speaker Change: I think there's there's still some significant room to grow and at that point, it becomes a little bit easier.

Thomas Hui: Thanks, Shalyn. And as a reminder, it is star one if you would like to ask a question, and your next question comes from the line of Thomas Hui with Paradigm Capital Incorporated.

Jonathan: Thanks, Jonathan.

Speaker Change: Okay.

Speaker Change: Yeah.

And as a reminder, it is star one if you would like to ask a question.

Speaker Change: And your next question comes from the line of Thomas Wei with paradigm capital incorporated your line is open.

Thomas Hui: Your line is open. Hi, Dan and Mirko. Thomas here filling in for Daniel today.

Thomas Wei: Hi, Thomas.

Speaker Change: Thomas here filling in for Daniel today.

Thomas Hui: I just want to unpack a little bit about the missed volumes in the government. Was it one specific large contract renewal that didn't go through or was it like broadly across the board?

Speaker Change: Wanted to talk a little bit about the Miss volumes in the government was it one specific large contract renewals that didn't go through or was it like broadly across the board there.

Miroslav Wicha: No, no, it's absolutely not. I mean, we don't really have any concentration of revenue whatsoever. So no, it was not any one specific. I think it was in general, in our government and slash defense and government enterprises, we call it. It was across the board. It was just a slow, unusual slowdown. So it was not one single thing.

Speaker Change: No no it's absolutely not.

Speaker Change: And we don't really have any concentration of revenue whatsoever. So no. It was not any one specific I think it was in general.

Speaker Change: And in our in our government <unk> defense and government enterprises, we call it.

Speaker Change: It was across the board it was just a it was a.

Speaker Change: No unusual slowdown so it was not one single thing.

Thomas Hui: Okay I guess my next question goes towards Dan's comments about the fiscal deficit and just being more cost conscious. At least that's the narrative going into the next administration. Do you see any changes in the relationship with, I guess, your customers? Do you see any threat of competition, maybe switching to like a lower cost vendor for encoders? And that's So, I just have a hard time hearing. I didn't hear a lot of that. Sorry, Tom.

Speaker Change: Okay. I guess my next question goes towards Dan's comments about.

Speaker Change: The fiscal deficit and just being more cost conscious at least that's the neighborhood is going into the next administration do you see any changes in the.

Speaker Change: Relationship with I guess your customers do you see any threat of its competition, maybe switching to like a lower cost than doing four and kudos and that's it.

Speaker Change:

Speaker Change: I just have a hard time hearing I didn't hear a lot of that sorry, Tom you can still see a threat do you see.

Miroslav Wicha: Do you see a threat of lower cost encoders because of government cutbacks? Ah, okay. No, absolutely not. I mean, look, we've been hearing about the federal low-cost encoders for 20 years. And believe me, there's a lot of low-cost encoders. So no, no, no, not at all. I mean, one of the things that we focus on where people buy technology is for our core strengths, right? And if you need low latency, high performance, high quality, I mean, this is what people buy for reliability, mission critical. You're not going to deploy very low-cost encoders in that space.

Speaker Change: See a threat of lower costs and coders because the government.

Speaker Change: Cut cutbacks.

Speaker Change: Oh, Okay, no absolutely not I mean look the.

Speaker Change: We've been hearing about the low cost carrier for 20 years [laughter] and.

Speaker Change: And believe me there is a lot of low cost encoder. So no no no no not at all I mean.

Speaker Change: One of the things that we focus on where people bought technology is four are our core strengths right and if you need low latency high performance high quality.

Speaker Change: This is what people buy us high reliability mission.

Speaker Change: Mission critical they're not you're not going to deploy a very low cost.

Miroslav Wicha: That's just not going to happen. So, no, we've been pretty competitive. If you look at our encoding strategy per and pricing per channel, we're actually extremely aggressive and very competitive. But we did a lot more performance as a result, but we we stay away from the very, very, very low cost. Peplin-Kortemeyer.

Speaker Change: Corridors in that space. So it's just that's just not going to happen.

Speaker Change: So.

Speaker Change: We've been pretty pretty competitive and if you look at it all.

Speaker Change: And coding strategy per and pricing per channel were actually extremely aggressive and very competitive.

Speaker Change: But we get a lot more performance.

Speaker Change: As a result, but we stay away from the very very very little cost.

Speaker Change: Pipeline quarter market.

Dan Rabinowitz: If I could just chime in, I think that this is more about the uncertainties than it is about pricing or the efficacy of our products, et cetera, what have you. Our sense is that this is a weird time for US politics and a weird time for US procurement. Okay.

Speaker Change: Okay.

Speaker Change: I could just chime in I think that this is more about the uncertainties than it is about.

Pricing or or the efficacy of our product set or what have you I. Our sense is that this is a weird time.

Speaker Change: For our U S politics, weird time for U S procurement.

Speaker Change: Okay.

Miroslav Wicha: Sorry, Tom, just to add, remember, we have some of the largest government... and many other companies, and so you're talking from the Facebooks to NASA, to DOD, you know, I mean these are very large enterprises, and we just, last quarter, we just saw it across the board, it was like, actually last time I've seen something similar was really when he lost against George H.W. Trump in 2016, where everybody across the board freaked out and nobody spent anything because nobody knew what to do. And we're kind of, I wouldn't say we're at that level, but we saw a very similar, you know, situation with this term where, okay, we already know the entity that's coming into the White House, but everybody is on alert to just hold off, no need to spend money, and the budgets got pushed out.

Speaker Change: Yeah, Tom sorry, Phil I'll, just add remember we have some of the largest government.

Speaker Change: Yes.

Speaker Change: Companies.

Speaker Change: So you're talking from the Facebooks two <unk> okay.

Speaker Change: Two two to do digitally.

Speaker Change: Yes.

These are very large enterprises and well.

Speaker Change: Last quarter, we just saw it as the board. It was like I said last time are seeing something similar.

Speaker Change: Really.

Speaker Change: So if I could trouble.

Speaker Change: 2016, where everybody across the board freak out and nobody spend anything because nobody knew what to do.

Speaker Change: We're kind of I wouldn't say, we're at that level, but we saw a very similar situation. This this term where okay. We're only entity that's coming into the white Hot.

Speaker Change: Everybody is on on the alerts to just hold off no need to spend money in the budget just got pushed out.

Miroslav Wicha: And it was kind of surprising because usually election year, it's the opposite, right? Election year, spend, spend, spend, spend, go, go, go. But knowing the fact that, you know, especially what was happening, everybody was just like, you know what, I'm going to wait. So that's really what happened.

Speaker Change: And it was kind of surprised me because usually election here, it's the opposite right.

Speaker Change: Spend spend spend spend gogo, but knowing the fact that you know.

Speaker Change: Especially what was happening.

Speaker Change: Everybody was just like you know what I'm going to wait.

Miroslav Wicha: I think it's a blip. The question is going to be, is the debt ceiling of the negotiation that's going to hit in March? Let's see what happens there. That's one reason. That's another reason.

Speaker Change: That's really what happened.

Speaker Change: I think it's a blip the question is going to be as we.

Speaker Change: That feeling of a negotiation that's going to hit in March.

Speaker Change: Let's see what happens there, but that's one reason that's another reason why it's faster even do guidance anymore. It's just getting it's getting impossible right.

Miroslav Wicha: For us to even do guidance anymore, it's getting impossible. We've got a lot of large accounts, a lot of deals, a lot of add-ons, and people are just playing with budgets. It's very difficult. It's very lumpy. To do a quarterly analysis, it's getting more and more difficult for us.

Speaker Change: We've got you know we've got we've got a lot of the large accounts.

Speaker Change: A lot of deals lot of.

Add ons and people are just playing with budgets I know, it's very difficult it's very lumpy.

Speaker Change: So to do at a quarterly analysis, it's getting more and more difficult for us.

Speaker Change: Okay. Thank you for that.

Speaker Change: Yeah.

Speaker Change: Yeah.

Nick Corcoran: And as a reminder, it is star one if you would like to ask a question, and your next question comes from the line of Nick Corcoran with Acumen Capital. Hi, Dan and Mirko, a couple questions for me.

Speaker Change: And as a reminder, it is star one if you would like to ask a question and your next question comes from the line of Nick Cochran with acumen capital. Your line is open.

Nick Cochran: Hi, Devin Murko a couple of questions for me. The first one is or two knockouts into the quarter Keith any indication.

Nick Corcoran: The first one is we're two and a half months into the quarter. Key to any indication, how sales have been quarter to date and whether you've seen any sales slip from the fourth quarter into the first quarter?

Nick Cochran: How sales have been quarter to date, and whether you've seen any sales slipped from the fourth quarter until the first quarter.

Miroslav Wicha: Very good question, Nick. We don't usually comment on anything to do with the current quarter, but I did kind of mention in my talk a little bit, I don't know if you read between the lines, but one of the things that we've been looking for and that we're monitoring carefully is the transformation of a controlling market. And that business is all based on sales pipeline, and then of course, sales, and then of course, delivery that gets converted to revenue, right? So we've been watching that trend since last Q3, where I think we hit a real bottom of where we took the massive hits.

Nick Cochran: Oh, Yeah very good question Nick.

So we don't we.

Nick Cochran: We don't usually comment on anything to do with the current quarter, but but.

Nick Cochran: But I did kind of mentioned in my talk a little bit I don't know if you read between the lines, but one of the things that we've been looking for and that we are monitoring carefully.

Nick Cochran: Is the transformation of our control markets.

Nick Cochran: And that business is all based on sales pipeline and then of course sales and then of course delivery that gets converted to revenue right. So we've been we've been watching that trend since last Q3, where I think we hit a real bottom of where we took the massive.

Nick Cochran: Hits in Q3, and Q4 of of getting rid of third party stuff and also the new sales because you get a new sales going to be a lot less of our revenue then that's it.

Miroslav Wicha: Q3 and Q4 of getting rid of the third-party stuff and also the new sales because, you know, you get a new sale, it's going to be a lot less of a revenue than as an integrator. So that is what we've been looking at and the good news is that we've seen a nice pickup since Q4, money is not going to affect our revenue, and we're actually seeing it during Q1 and I'm managing it through the pipeline of forecasts of what deals we're working on and that's been growing beautifully.

Nick Cochran: Integrator, so that that.

Nick Cochran: That has already been looking at and the good news is that we've seen a nice pick up since Q4 months, it's not going to affect our revenue.

Nick Cochran: We're actually seeing it during Q1 and I'm, Matt I'm managing it through the pipeline of forecast of what deals we're working on and Thats been growing beautifully so.

Miroslav Wicha: So that's a long-term, it gives us, you know, kind of like a... it gives us the confidence that we're going in the right direction. And it's going to come to realization in the second half of this fiscal year, where we're going to see the crossover, right, where, you know, the revenue, the net revenue is going to start picking up, where we're going to forget all about this integration versus manufacturing thing, it doesn't matter. And by 2026, we're going to be at the same revenue levels that we were when we acquired Cinemassive as a full integrator model.

Nick Cochran: That's a long term gives us kind of like that.

Nick Cochran: It gives us confidence that.

Nick Cochran: We're going the right direction, and it's going to come to realization in the second half of this fiscal year, where we're going to see the crossover right where.

Nick Cochran: The revenue the net revenue is going to start picking up.

Nick Cochran: Where we're going to forget all about this integration versus manufacturing thing it doesn't matter and by 2026, we're gonna be at the same revenue levels that we were when we acquire a massive.

Nick Cochran: As a full integrator model in that.

Miroslav Wicha: And so that's, that's what we've been tracking. And the good news is that that is what we're seeing as a positive upswing. So, but that's not revenue, right?

Nick Cochran: So that's <unk>.

Nick Cochran: That's what we've been tracking and the good news is that that is what we're seeing is a positive up upswing. So.

Nick Cochran: But thats not revenue right, that's something that's going to be.

Miroslav Wicha: That's something that's going to be, you know, two, three, four quarters away.

Nick Cochran: Two three or four quarters away so.

Miroslav Wicha: So When the Kindergarten Started, when the Time started ... It's now in Q1, which is almost over, and I'm seeing no stop in Q3. So it's all going in the right direction.

Nick Cochran: It started with the <unk> started.

Nick Cochran: Exactly.

Now in Q1, which is almost over.

Nick Cochran: I'm seeing no stop.

Nick Cochran: During Q3, so it's almost like a direction.

Unnamed Speaker: And that's all I have for you today.

Nick Cochran: And that's what we're very 26.

Nick Corcoran: That's helpful. And maybe I'll ask it a different way.

Nick Cochran: That's helpful and maybe I'll ask it a different way quarterly sales the last few quarters. It would be in the $30 million a quarter is it reasonable to assume that level of sales in the first quarter or.

Miroslav Wicha: The quarterly sales the last two quarters being 30 million a quarter, is it reasonable to assume that level of sales in the first quarter? Or is there anything that might provide some downside to that? Well, look, I'm not sure I'm in a position to give any specifics here, but I think that there's a, you know, if you think about our first, second, third and fourth quarter of 2024, and you think about what, how we perform first, second quarter, third, fourth quarter, you can almost look at 2025 to be the reverse experience of that, where our first, second quarter will be on the light side and our third and fourth quarter will be on the heavy side, because we see the tremendous opportunity based on all of the initiatives that are in play right now.

Nick Cochran: Is there anything that might.

Nick Cochran: Provide some downside to that.

Nick Cochran: Angela.

Nick Cochran: Well look.

Nick Cochran: I'm not sure I'm in a position to give any specifics here, but I think that there is a you know.

Nick Cochran: If you think about our first second third and fourth quarter of 2024.

Nick Cochran: Think about what how we performed for second quarter third fourth quarter, you can almost look at 2025 to be the reverse experience of that well first second quarter will be on the light side and a third and fourth quarter will be on the heavy side, because we see the tremendous opportunity based on all of the initiatives that are in play right now we're working through this.

Miroslav Wicha: We're working through this conversion of sorts, and we do believe that we've bottomed, and we're going to see a pulling out of it. But it takes a quarter or two before we begin to see the manufacturing model overseed, what the integrated model had provided, again, the incremental revenue and the integrated model being less profitable revenue, right? And so that's sort of how I would think about 2025's performance.

Conversion of stores and we do believe that we've bottomed out.

And we're going to see.

Nick Cochran: Pulling out of it but.

It takes a quarter or two before we begin to see the manufacturing model overseas with the integrated Rawhide provided again, the incremental revenue and the integrated model being less profitable revenue right.

Nick Cochran: And so that's sort of how I would think about 2020 fives performance.

Miroslav Wicha: It will be flattish for a couple of quarters and then we'll start building from there.

Nick Cochran: It will be flattish for a couple of quarters and then we'll start building from there.

Miroslav Wicha: That's helpful.

Speaker Change: That's helpful and maybe one last question for me you have the U S. Navy contract I think in the past you've said that you'd expect revenues from that to be in mid 2025 can you give an update on that program and potential timing.

Miroslav Wicha: And maybe one last question for me. You have the the US Navy contract, I think, in the past, you said that you'd expect revenues from that to be in mid 2025. Can you give an update on that program and potential planning?

Okay.

Miroslav Wicha: Uh, when we said mid-2025, I'm not, I'm not exactly sure we've ever said that. It's certainly second half of the year. That is the scheduled delivery of the beginning of the ramp. With 2026 and 2027 being huge years for us, right, nothing has changed.

Speaker Change: When we said mid 2025.

Speaker Change: I'm not exactly sure we've ever said that its certainly second half of the year that is the scheduled delivery of the beginning of the ramp.

Speaker Change: With 2026, and 2017 huge years for us right.

Speaker Change: Nothing has changed there is absolutely nothing changed other than the Navy's interest in getting back on the original schedule that they are that they had had.

Miroslav Wicha: There is absolutely nothing changed other than the Navy's interest in getting back on the original schedule that they had communicated early in negotiation.

Speaker Change: I had communicated early in negotiations.

Unnamed Speaker: I'll pass the line.

Speaker Change: That's good color.

Miroslav Wicha: Thanks.

Speaker Change: Thanks.

Speaker Change: Okay.

Speaker Change: Okay.

Abby: And again, just star 1 if you would like to ask a question.

Speaker Change: And again the star one if you would like to ask a question.

Okay.

Speaker Change: Okay.

Miroslav Wicha: And with no further questions, I would now like to turn the conference back over to Mirko Wicha for any closing remarks. Thank you. Thank you, Abby.

Michael <unk>: And with no further questions I would now like to turn the conference back over to Michael <unk> for any closing remarks.

Ravi: Thank you. Thank you Ravi.

Miroslav Wicha: So, look, in closing, we're committed to maximizing long-term value for all of our shareholders. We're confident in our ability to execute on our strategic revenue growth plan and deliver solid growth for the future.

Speaker Change: So look in closing.

Speaker Change: We're committed to maximizing long term value for all of our shareholders. We're confident in our ability to execute on our strategic revenue growth plan and deliver solid growth for the future.

Miroslav Wicha: So I just want to thank all our shareholders and analysts online today for the continued support of Haivision and look forward to speaking with you in mid-March when we will discuss our first quarter of 2025 results. Thank you, everybody.

Speaker Change: I was just wanted to thank all our shareholders and analysts on the line today continue to support a high vision and look forward to speaking with you in mid March when we will discuss our first quarter of 2025 results. Thank you everybody.

Operator: And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.

Speaker Change: And ladies and gentlemen, this concludes today's call and we thank you for your participation.

Speaker Change: May now disconnect.

Speaker Change: Yeah.