Q2 2025 Haivision Systems Inc Earnings Call
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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.
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Abby: 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 high vision second quarter 2025 earnings call.
All lines have been placed on mute to prevent any background noise.
Abby: 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 star followed by the number one on your telephone keypad if.
Abby: If you would like to withdraw your question Press Star one a second time.
Miracle worker: Thank you and I would now like to turn the conference over to Miracle worker, President and CEO you may begin.
Miracle worker: Thank you Amit.
Speaker Change: And thank you everyone on the call for joining us today to discuss our second quarter of our fiscal year 2025, which ended in April.
Miracle worker: April 30th.
Miracle worker: As mentioned on our last earnings call back in January.
Miracle worker: Now well into our two year strategic plan.
Miracle worker: We shall complete our overall business transformation and return high vision to the double digit revenue growth, we have seen in the past.
Miracle worker: Also in turn off to a long term CAGR growth rate of between 15% to 20% per year.
Miracle worker: While we have completed their operational efficiency model have a solid handle on the cost structure gross margins EBITDA and cash generation and now the focus now is all about building high revenue growth.
Miracle worker: Oh nice from back in January as well, we have seen the bottom of the revenue curve back in Q1.
Miracle worker: Our key fundamental business model for the controller market, which was the move away from being an integrator to manufacturer is complete we.
Miracle worker: We are seeing a solid increase that long term sales pipeline our business forecast is compelling.
Miracle worker: And we are seeing strong orders and revenue increase in the overall global controller market not just in the U S. This is what we've been working hard on for the past 18 to 24 months and it's really great to see.
Miracle worker: Let me share a few thoughts on what to expect from us during the remainder of this fiscal year to prepare for this higher revenue growth and 26 and 27.
Miracle worker: We've been investing and many new product development shifts and introductions throughout this year some of which we discussed earlier, but here are some of the highlights for both the mission and broadcast parts of our business remember that six months ago, we structured the company into two focused business areas.
Miracle worker: Mission and broadcast.
Miracle worker: We are already seeing the results of our actions and our goal our focus is really paying off.
Miracle worker: Now within our mix of business, we focus on strategic developments in AI last year, we announced the hydrogen is partnering with feel they are light, which is a leading defense technology company, whose mission is to protect service members and civilians with intelligent systems and its partnership shield AI Kestrel.
Miracle worker: It is now fully integrated with high visions real time, Transcoding Kraken software system.
Miracle worker: Can be easily deployed across a wide range of air land and sea based platforms.
Miracle worker: Zine for intelligence surveillance, and reconnaissance and situational awareness applications and cracking and codes plants closed in transports high quality video metadata in real time, even in environments, where our network bandwidth is unpredictable or limited.
Miracle worker: The latest update the crack and features the availability of a new option shield Ai's tracker. The AI powered software for superior object detection and tracker uses AI and two.
Miracle worker: Two decades of computer vision research and development to detect moving objects and full motion video turning raw data into actionable.
Miracle worker: Actual actionable intelligence with speed and efficiency.
Miracle worker: Can detect moving in stationary objects on land such as vehicles and people and then maritime settings, such as both vessels individuals in life jackets, very very cool stuff.
Miracle worker: Now in May.
Miracle worker: As promised joined the defense military short soft week in Tampa, We launched an exciting next generation AI based hardware well, we're calling tactical edge processor for the day.
Miracle worker: Fence and ISR markets called the cracking X one which is also called the K X one.
Miracle worker: It was extremely well received as.
Miracle worker: As it delivers incredible performance of AI enabled and coding in real time.
Miracle worker: One is a ruggedized an AI capable video processing appliance engineered for demanding ISR deployments, combining real time encoding transcoding metadata processing and Nvidia powered AI capabilities in our <unk>.
Miracle worker: Panelists and compact design that.
Miracle worker: Mechanics, one battle tested high vision technology to remote and tactical edge environments.
Miracle worker: I mean high vision is absolutely the standard low latency edge transcoding delivery platform and the defense market.
Miracle worker: And a market leader in providing a unified approach to tactical edge computing, and we expect our cracking AI technology to drive many long term defense projects.
Miracle worker: Increase our footprint within the global defense market. This is an area that is expected to have great growth potential for the next five to 10 years and we expect to be the leader.
Miracle worker: Now equally as exciting within our broadcast business, we launched our next generation five G transmitter platform. We successfully showcased this new generation of transmitter platform called the Falcon X two in Vegas at the Nab show in April.
Miracle worker: This will be the basis for the next two years of transitioning our entire lineup of transmitters to advanced five G. Private networking, we've incorporated some revolutionary technologies and created a lower cost structure, which will result in better price performance and competitive product offerings for the future.
Miracle worker: This is very exciting as we also venture into an adjacent lower cost market with a small lightweight to win 10, a private <unk> solution that we can now go more aggressively after our key competitors lie view on T V.
Miracle worker: Thus a new revenue stream for high vision, we will be announcing more systems within this platform throughout the next several quarters.
Miracle worker: In addition, we will launch our next generation Macchiato later this fall.
Miracle worker: Totally dubbed as the N G X targeted specifically to the broadcast sports market that will open additional revenue streams. So high vision.
Miracle worker: We will deliver full John Locke synchronization capability, including high bandwidth 21, 10, Jay bag access technologies.
Miracle worker: And our mosquito clients have been asking for these.
Miracle worker: For a long time, and we will deliver with our signature capabilities of high quality reliability low latency and security.
Miracle worker: This will enable all of our largest broadcast clients to now use high vision for their full end to end workflow for both wired and wireless transmission something no other vendor can do.
Miracle worker: Now all of these developments and strategic investments are key during 'twenty five.
Miracle worker: It will affect revenue starting in our second half of fiscal 2026, and really kick in during 2027 and beyond another reason why we're so excited about the future of high vision.
Miracle worker: The last piece is pretty huge.
Miracle worker: Yeah.
Miracle worker: I would like to end by sharing with you one specific and extremely exciting transformational competitive when we close at the end of Q2.
Miracle worker: That establishes hi vision as industry leader in cellular a bonded and wireless <unk> private networking.
Miracle worker: We have won several large and important deals in the <unk> space recently.
Miracle worker: And so customers away from TV, you lie view and the general they're really three competitors in this market.
Miracle worker: To the names like the PGA Eurosport Big fish just to name a few.
Miracle worker: But now we flip the huge tier one customer that hasn't been using lie view for over 18 years for all of their wireless needs.
Miracle worker: Warner Brothers Discovery has chosen high vision to replace their entire C. N N fleet of life of your equipment.
Miracle worker: Electronic news gathering E N G and multi camera coverage of live events across all their offices and bureaus.
Miracle worker: World wide. This is a massive win for hydrogen in many respects, but it's also a very nice five and a half million dollar order for.
Miracle worker: Over 300 units comprising.
Miracle worker: Of our pro series 304 hundred transmitters are 300 units rocket 400 systems. Many mosquitoes many module Pearl mobile player licenses and many lives guests licenses and of course, many of our stream up control system licenses.
Miracle worker: In addition, the entire ecosystem will be connected with our hub 360, <unk> cloud based platform.
Miracle worker: The global rollout.
Miracle worker: He has already begun.
Miracle worker: And is being installed in the next several months.
Miracle worker: All I can say the CNN has decided to go with high vision.
Miracle worker: From a flexibility or quality or performance.
Miracle worker: Our support and most of all trust as a vendor to deliver the best technology for their needs.
Miracle worker: As you can imagine this is a huge win for the company and it's only the beginning.
Miracle worker: As we embark on our success in the wireless market. The next generation Falcon series of transmitters will make our solution, even a stronger proposition for other customers.
Miracle worker: So in summary couldn't be happy with our performance as we maintain a strong focus attached on the revenue growth.
Dan: So I will now pass it to Dan to continue with the detailed financials.
Dan: Thank you Marco good evening, everyone and thank you for joining us.
Dan: Pleased to walk you through our performance this quarter, which I'm classifying as the end of a transition in the beginning of strategic momentum.
Miracle worker: Let's start with the top line.
Miracle worker: Q2 fiscal 2025 revenue came in at $34 3 million up modestly by 100000 over year over year.
Miracle worker: Year to date revenue for the first six months was $62 5 million down $6 3 million or nine 2% from the prior year.
Miracle worker: Importantly, though Q2 revenue grew 22% over Q1, showing sequential strength and renewed sales energy.
Miracle worker: Some of this quarter's revenue growth about $2 1 million came from favorable FX tailwind due to Canadian dollar volatility, but theres more to the story.
Miracle worker: We have been navigating a shift in U S government buying behavior and a move away from the integrator model in the control room space towards being a manufacturer and supplier of proprietary products.
Miracle worker: This transition is now largely complete and the results are beginning to show.
Miracle worker: Our sales have overtaken past sales levels that included those third party lower margin components.
Miracle worker: Our pipeline of opportunities is stronger than ever and we have seen a notable rise in large scale opportunities.
Miracle worker: We believe we have reached an inflection point and it bodes well for the second half of this year.
Miracle worker: Our reoccurring revenue for maintenance support and cloud services continues to show sound growth.
Miracle worker: <unk> revenue was $7 2 million this quarter up 11% year over year.
Miracle worker: It was $14 2 million year to date, a 10% increase.
Miracle worker: Recurring revenue now makes up 21, 2% of Q2 total revenue and that's up two points from last year.
Miracle worker: This marks our second consecutive quarter of double digit recurring revenue growth, a strong indicator of customer loyalty and a key contributor to future stability.
Miracle worker: Gross margins have stabilized after a softer Q1.
Miracle worker: Gross margins improved to 73% up from 71, 7% a year ago, that's a 130 basis point improvement.
Miracle worker: On a year to date basis margins are steady at 72, 5% near our long term expected average.
Miracle worker: With that said, we may continue to see quarterly variations of gross margins related to the timing of U S. Navy deliveries, which is more closely aligned with Mcs is legacy integrator model.
Miracle worker: The seasonality of certain product families may impact quarterly margins, although recently announced product introductions have dissipated margin differences between product families.
Miracle worker: And the increasing sales of software only options or virtual machine deployments, which have a higher gross margin than our typical software sales when pre installed on servers and sold as a complete appliance.
Miracle worker: Oh total Q2 expenses rose to $28 2 million, that's up $5 5 million year over year.
Miracle worker: Context really matters here.
Miracle worker: $1 5 million relates to settlement and legal fees that were incurred $1 8 million stems from currency related impacts largely from the weaker Canadian dollar compared to the euro or U S. Dollar and we also made strategic investments in R&D and incurred higher sales and marketing expense.
Miracle worker: <unk> related to higher levels of revenue.
Miracle worker: So let's dive into each one of these three factors that impacted quarterly expenses.
Miracle worker: Our non recurring expense of $1 5 million was recorded regarding a dispute filed back in 2017.
Miracle worker: The judge largely ruled in our favor, but the plaintiff has since appeal the decision.
Miracle worker: A final decision won't be known for 12 to 18 months.
Miracle worker: A second major factor affecting total expenses with recent trade actions between the U S and other countries, which created uncertainties in the market and ultimately cost high vision, one 8 million in additional expenses.
Miracle worker: Approximately 80% of our total expenses are denominated in the euro or U S. Dollar.
Miracle worker: And we've witnessed the Canadian dollar slump when tariffs were eminent and then rally when the U S administration announced a reprieve.
Miracle worker: The weaker Canadian dollar impacted total expenses by as much as $1 million in the quarter and Additionally, the weaker Canadian dollar had an impact of an additional 800000 relates the value of assets and liabilities on the balance sheet.
Miracle worker: Which was recorded as a foreign exchange loss within total expenses and specifically within general and administrative expenses.
Miracle worker: Lastly, some expense growth had always been planned and some with circumstantial, but all of it ties to long term positioning and second half revenue growth.
Miracle worker: We had always planned on incremental investments in research and development and for that matter operations and support to support the large number of new product introductions and growing business initiatives.
Miracle worker: We also incurred some incremental selling expenses like commissions and bonuses that were paid on buoyant sales that were incurred in the second quarter.
Miracle worker: Our sales teams are compensated on sales rather than on revenue.
Miracle worker: In terms of some seasonal spending one of our largest trade shows is the National Association of broadcasters, commonly referred to as in any big It is the first of our two largest trade shows that we exhibit at thus total expenses will tend to be higher in the second quarter and we should see a similar result in our <unk>.
Miracle worker: Quarter, when we will be exhibiting at the international broadcaster convention, commonly referred to as I B C and Amsterdam.
Miracle worker: At April 30th we did end the quarter with 380 employees compared to 365 employees last year to illustrate the incremental investments we've made.
Miracle worker: The result of the flattish year over year revenues, albeit with slightly enhanced margins and the $5 $5 million increase in total expenses is that we did have an operating loss for the quarter of $3 2 million compared to operating income of $1 8 million in the same period last year.
Miracle worker: The $500000 in additional gross margin was only partially able to offset the $5 $5 million increase in total expenses and then again as a reminder, total expenses were impacted by $1 5 million in nonrecurring expenses.
Miracle worker: And 1 million $1 8 million in additional expenses related to the weaker Canadian dollar.
Miracle worker: Okay.
Miracle worker: Turning to adjusted EBITDA adjusted EBITDA for the quarter was $1 7 million compared to $5 1 million in the same period last year, a decline of $3 4 million.
Miracle worker: As I mentioned, improving gross margins resulted in half a million half a million in incremental gross profit. However.
Miracle worker: However, if we normalize total expenses for share based payments depreciation and amortization the nonrecurring impact of legal and then operating expenses were $23 3 million or $3 9 million higher than the same period last year.
Miracle worker: The adjusted EBITDA comparison for the six month period isn't dramatically different than what we experienced in the second quarter with further encumbered by the year over year revenue decline in our first quarter.
Miracle worker: For the six months adjusted EBITDA is $2 2 million compared to $10 2 million in the prior year and that's a decrease of $8 million.
Miracle worker: So in addition to the $3 $9 million increase in operating expenses cited earlier.
Miracle worker: Year to date revenues fell short of prior year by $6 3 million, resulting in a $4 4 million shortfall in gross profit when compared to that prior year.
Miracle worker: With respect to the balance sheet.
Miracle worker: We ended the quarter with cash balances of $11 8 million that represents a decrease of $4 8 million from the end of last quarter.
Miracle worker: The primary driver to the decline in cash is the $2 3 million decline in deferred revenues related to maintenance and support contracts, which have been invoiced for what for which revenue has yet to be realized.
Miracle worker: But also in January we announced T. S X approval of our normal course issuer bid renewal our NCI be.
Miracle worker: In the second quarter, we purchased over 400000 shares for cancellation through the N C N CIB totaling $1 9 million.
Miracle worker: And that is 2.8 million on a year to date basis.
Miracle worker: We've had some payments on term loans and lease liabilities, which amounted to another 600000 during the quarter and we also had capital expenditures during the quarter amounting to another 400000.
Miracle worker: Okay.
Miracle worker: As a point of information to the group between last year's and CIB and this year's renewal hydrogen has purchased over one 4 million shares for approximately $6 million and we still believe that the stock is undervalued at today's prices.
Miracle worker: We still maintain the $35 million credit facility with the opportunity to expand the size of the of the line of credit if strategic opportunities arise and there's only about $7 3 million outstanding on that line of credits.
Miracle worker: Yeah.
Miracle worker: So, let's turn our attention towards tariffs last earnings call. We suggested that things are fluid.
Miracle worker: Unfortunately, not sure where you're seeing much more clarity today.
Miracle worker: But as things stand today, we are a Canadian company and the majority of our production of proprietary technology is done in Canada.
Miracle worker: Fortunately our proprietary products are governed by the United States, Mexico, Canada agreement U S MCA, which replace naphtha back in 2020.
Miracle worker: There are no tariffs for our proprietary products manufactured in Canada when sold into the United States.
Miracle worker: In fact, we may be in an advantageous position.
Miracle worker: Many of our competitors are overseas and may not have the benefit of the U S MCA with respect to tariffs.
Miracle worker: And Canada isn't currently imposing tariffs on countries that provide critical technology components, whereas the U S might take a different position.
Miracle worker: Now at the same isn't true of our products that are currently manufactured in France named.
Miracle worker: Namely our transmitter products and.
Miracle worker: In April the U S administration announced broad tariffs on imports, which includes a 10% base tariff on all imports into the United States.
Miracle worker: However, the impact of these tariffs haven't been significant yes.
Miracle worker: Yes, Miracle did allude to the significant success, we are having with the transmitter at the United States. However, it's still a relatively early initiative for us.
Miracle worker: We also have means to lower the overall impact of tariffs tariffs.
Miracle worker: Tariffs are paid on the value of goods when they cross the border and our corporate structure and transfer pricing methodologies enabled us to mitigate some of the impact.
Miracle worker: Newco also mentioned recent product introductions like the Falcon X too.
Miracle worker: A new product introduction is a great time to really look at our manufacturing strategy and where best to manufacturers such products.
Miracle worker: Of course, any tariff impact is really predicated on whether we can transfer the tariff burden to our customers and we've had conversations with customers and thus far they've been largely receptive.
Miracle worker: I should also mention that we have a handful of tactics that are being considered for each of those for each of these tariff areas.
Miracle worker: That we can accelerate or delay depending on the day to day actions of the U S administration.
Miracle worker: With that said, we believe our current course of action should provide us a cost effective solution with little risk. So for the time being we intend to stay the course at least until there is some future clarity and hopefully individuals with deep expertise in tariff macroeconomics are addressing the various issues.
Miracle worker: And that thoughtful levelheaded decisions will be made.
Miracle worker: So to summarize this quarter was a mix of transition stabilization and building momentum with cross key milestones in our business.
Speaker Change: And then model shifts and our recurring revenue has grown steadily and the pipeline has never looked more promising so with that said I'm going to hand, the mic back to America for Q&A. Thanks for everyone for attending.
America: Thank you Abby, let's take some questions. Please.
Miracle worker: Great. Thank you.
Miracle worker: And 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.
Miracle worker: If you would like to withdraw your question simply press Star one a second time.
Miracle worker: If you are called upon to ask your question and our listening via Speakerphone on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.
Miracle worker: Again, it is star one to join the queue.
Speaker Change: And our first question comes from the line of Robert Young with Canaccord Genuity. Your line is open.
Miracle worker: Okay.
Miracle worker: First question just on the gross margins.
Miracle worker: The expansion this quarter is that all driven by the business model changes.
Miracle worker: The shift from in a greater to a manufacturer or is there some raw material benefit I think you highlighted some maybe some advantageous situation there.
Miracle worker: What are the what are the drivers there behind the gross margins.
Miracle worker: I would I would suggest that the transition from a integrator to manufacturer is having a positive impact on the business. We are we are not selling nearly as much of those third party low margin components as part of our solutions in the control room space, but I would also suggest to you.
Miracle worker: The opposite is true as to what happened in the Q1 in Q1.
Miracle worker: The fixed cost of production.
Miracle worker: Was being amortized over a lower revenue level now that we have reverted back to our typical revenue levels here, it's being amortized over a broader broader amount of revenue and that's we've been able to see margins improve.
Miracle worker: Okay, Okay, that's great counsel.
Speaker Change: You said that there is a solid increase in pipeline, but is that a general comment or is that focused on the controller market.
Miracle worker: General, but maybe just back up.
Miracle worker: What are the areas of.
Miracle worker: Excitement I can add to the <unk> business.
Miracle worker: You should visit because that can continue to sign these large deals like this $5 $5 million in is there more of that in the pipeline.
Miracle worker: Broader commentary on the pipeline.
Miracle worker: The comment was a general comment on our overall pipeline, but it is certainly true of the control room space as well, we've seen robust sales efforts in both areas across our entire company and it's giving us.
Miracle worker: A lot of confidence in the second half of the year.
Miracle worker: Yeah, one thing maybe I'll add Robert is one of the things I didn't kind of mentioned in my in my talk but.
Robert Young: Since you're bringing it up.
Miracle worker: And the 21 years, so my vision honestly I have never seen.
Miracle worker: Such a long list of multimillion dollar opportunities that were involved in so.
Miracle worker: Which only leaves me to believe that we're getting involved in much larger opportunities that's for sure but at the levels and the amounts of them.
Miracle worker: I think you can expect that there's going to be some some significant announcements over the next two to three years. So the pipeline is very very strong.
Miracle worker: That's great to hear is that mostly around the wireless contribution space slow normal going on although I think I think it's a control room market is massive.
Miracle worker: And right now our mission is about two thirds of our business our broadcast live live events in sports is about a third but.
Miracle worker: But it's actually we're seeing them very large opportunities in both of those.
Miracle worker: It's all across the board.
Miracle worker: And then more specifically on that.
Miracle worker: Win with CNN.
Miracle worker: Can you dig into the drivers there if you could what is it.
Miracle worker: On the basis of superior product are superior.
Miracle worker: Our roadmap or is it pricing.
Miracle worker: What was it that encourage CNN.
Miracle worker: Rip and replace your competitor in favor review.
Miracle worker: Well, the fact that I'm not even allowed to say C N and I'm gonna get in trouble, but.
Miracle worker: Eric on a different level, because I think it's a significant opportunity, but it's really with Warner brothers, which one C. N N a million other properties. So its the entire umbrella, which is very cool. So we now have a master agreement signed with Warner Brothers, which means.
Miracle worker: We don't have to negotiate separately in any of their properties and they own a tremendous amount in fact some of them are our customers using macchiato right. So this is a huge huge deal now the main.
Miracle worker: The main reason that they wanted to get out of.
Miracle worker: Leigh view is number one technology they saw that our technology together with the hub $3 16.
Miracle worker: Opportunity that ties everything together really gives them a compelling new new ways to do their work.
Miracle worker: Also the transparency in our business model, and especially the data rate and the charging that they were just getting frustrated with not getting.
Miracle worker: Explanation and.
Miracle worker: Two why they're being built tremendous amounts of money for data rates.
Miracle worker: Where our solution is very clear and detailed oriented and the fact that there you've got accustomed to our support and attempt to this and our reliability.
Miracle worker: And our professionalism and our support.
Miracle worker: So it goes beyond just the technology of the products as the people the company and they just wanted to go to high vision that says this is a big step edits 18 year relationship.
Miracle worker: This is not a simple decision, but it's going to crack the dam to my opinion, where.
Miracle worker: People are now going to look at all the tier one broadcasters are gonna be already are opening up their eyes as to.
Miracle worker: All of our transmitter strategy. This is not even we're not even talking about our roadmap or new technology by the way. This is our current pro three and pro for serious without this deal doesn't even include anything to do with our Falcon.
Miracle worker: This just gets better with our Falcon technology.
Miracle worker: Great to hear maybe last question and I'll pass the line.
Speaker Change: I think last quarter, you a little bit cautious on some of the risks around the U S.
Speaker Change: Spending I know you covered a little bit already covered that a little bit but just.
Speaker Change: As it relates to dos and some of the tight spending maybe if you just talk about that and the impact on near term terminal cost line.
Speaker Change: Sure I mean look that remember we've always said that if you look back last year, we had a very strong Q1, a strong Q2, and crappy Q3, and Q4 right because remember with a revenue decline of our.
Speaker Change: Business model and we said for 25, it's going to be exactly the opposite right.
Miracle worker: Bad Q1, Q2, and good Q3 and Q4.
Miracle worker: Fact that we had a really strong Q2 were ahead of the curve. So that's good news right. We feel very confident in Q3, and we feel very confident in Q4. So the good things. We're ahead of the curve now we got slapped upside down with the tariff not the tariff the.
Miracle worker: For foreign exchange nonsense, and some of that stuff hurt us.
Miracle worker: It is what it is but.
Miracle worker: The fact that Q2, a stronger significantly stronger than we had expected that's good news.
Miracle worker:
Miracle worker: But also we've seen the defense spending.
Miracle worker: And government U S spending a little bit ahead of the curve.
Miracle worker: And I think a lot of people were just afraid I think theyre seeing they don't know where the doors just going next right are they going to hit the military defense or not.
Miracle worker: And I think that also helped fuel the pipe now it seems it seems.
Miracle worker: But the defense is going to get more spending and they're not gonna be cut and then train sad, but we don't know so I think we've seen a little bit of that but right. Now we have not seen any of our programs move we haven't seen anything canceled nothing has been pushed out in fact, we're seeing some stuff pushing in.
Miracle worker: So we're cautiously optimistic we feel that the government defense sector.
Miracle worker: If anything.
Miracle worker: Cross the World is is increasing their budgets so we're seeing it.
Miracle worker: And all other countries not just the U S, where we're getting opportunities where people are increasing especially in Europe are increasing their defense budgets.
Miracle worker: Police budgets security budgets emergency response budgets, which is all good for us, which which involves macchiato crackings all of ISR properties.
Miracle worker: Including the control room systems experts.
Miracle worker: Our expectations for them so.
Miracle worker: It's all going in the right direction for us.
Miracle worker: From a pipeline built and we're very very optimistic for the next.
Miracle worker: Five years.
Miracle worker: Alright, thanks for all that color I'll pass the line. Thanks.
Miracle worker: Okay.
Speaker Change: And our next question comes from the line of Daniel Rosenberg with paradigm capital. Your line is open.
Speaker Change: Okay.
Daniel Rosenberg: Thanks for taking my questions. My first one comes around just the strength of the pipeline and kind of visibility you have for the.
Daniel Rosenberg: Towards the end of the year and I was just curious how far.
Daniel Rosenberg: Sure.
Miracle worker: Just.
Miracle worker: Curious around the conversion from pipeline to concrete revenue and then kind of.
Miracle worker: How that lines up for when we think about Q3 and Q4 and the confidence you have in getting back to.
Miracle worker: Double digit growth.
Miracle worker: Well very very good question.
Miracle worker: Given our tube business focuses right you've got the broadcast when you've got the mission.
Miracle worker: And obviously the mission piece is a much longer transition lot much longer sales cycles.
Miracle worker: Which we usually see at least a three to four if not higher quarter.
Miracle worker: Conversion rate, even even from sales even if we get the order to revenue could take up to 234 quarters, just because of the commissioning.
Miracle worker: These complex rooms, so that it's a very difficult one every customer's different right, whereas on the broadcast its usually much sooner.
Miracle worker: Broadcast you can get the get the order get the sale, we ship right away as revenue. So usually it was within the one or two quarters.
Miracle worker: Yeah.
Miracle worker: And although it will we're talking about CNN and that's going to be multiple quarters.
Miracle worker: There's always exceptions, but I'd say.
Miracle worker: What gives me comfort is that we've been talking about pipeline first right.
Miracle worker: And then you look at.
Miracle worker: Order rates right.
Miracle worker: So a forecast because pipelines one thing that's a long term.
Miracle worker: But then you've got the forecast, where you're really forecasting within the first you know.
Miracle worker: One or two quarters, you think you might get the order and then once you do get the order then you've got to look at you know when is it going to be revenue probably two quarters. So we expect like we said before.
Miracle worker: Is we should see the second half kind of pick up from a revenue perspective.
Miracle worker: And we really expect 26, when we said double digit growth 26, we're going to maintain ramping that through 'twenty six and then 27 is really where the U S. Navy contract starts kicking in on top of that right. So.
Miracle worker: Nothing has changed from what we've been saying second.
Miracle worker: Second half is going to be better than the first half we said that from day. One we just have a very good.
Miracle worker: Q2, which was great.
Miracle worker: You just got.
Miracle worker: To see how how big Q4 could be it has some of those defense or a government orders pushed earlier.
Miracle worker: That should have been in Q4, we don't know yet, but overall for the year. We're on track to sell what was that we're going to be very similar to last year, we're going to have a higher opex, which is clear we're investing more in.
Miracle worker: R&D, we've got more people than we did last year.
Miracle worker: And.
Miracle worker: What's also operational at 26 27 28.
Miracle worker: Okay. Appreciate the color and my next question was just around the Navy contract Am I was wondering if you can.
Miracle worker: Could speak to how that ramps up.
Miracle worker: And just the impacts on the margin mix.
Miracle worker: For the overall business I know a lot of things are changing but just trying to get a better handle on.
Miracle worker: You know how that margin plays out with.
Miracle worker: The ramp is the navy contract.
Dan: Dan do you want to take that one.
Miracle worker: Sure.
Miracle worker: I think that.
Miracle worker: We kind of mentioned that the navy contract could have an impact of 60 basis points to our overall gross margin.
Miracle worker: We've been supplying the navy over the last two quarters, even longer than that and so that's already reflected in our in our.
Miracle worker: Financials. So the long term average that I spoke of before is is likely to be the long term average now we may have a little bit of volatility.
Miracle worker: The Navy deliverables represent a disproportionate amount of the business in any given quarter, but we're not seeing that kind of a schedule being rolled out as of now so I would tell you that the impact is.
Miracle worker: Fairly negligible at this point.
Miracle worker: But it probably was about 60 basis points for the overall business.
Miracle worker: Okay.
Miracle worker: Okay.
Miracle worker: Okay and then.
Miracle worker: Just in terms of workflow that youre doing there.
Miracle worker: Are there any kind of key dates or shifts in schedules that arent going to occur in the coming quarters or is it.
Miracle worker: The cadence and how do we think about that.
Miracle worker: In terms of the Navy transaction.
Miracle worker: Yes.
Miracle worker: So there are deliveries planned throughout the summer and towards the tail end of our fiscal year and we're very keenly focused on meeting those deliverables.
Miracle worker: Remember this is the navy and they have to be put on ships no ships coming to talk at a certain point in time that we have to be ready for that so most of our attention is making sure that our fulfillment processes are sound and that we can deliver timely and thus far it hasnt been an issue for us.
Miracle worker: Okay great.
Miracle worker: Great to hear and maybe last one for me.
Miracle worker: You know just thinking about the history of your.
Miracle worker: Your company.
Miracle worker: You used M&A in the past.
Miracle worker: Symbol.
Miracle worker: Leading technologies.
Miracle worker: Just curious if you could give a.
Miracle worker: Based on kind of the M&A landscape as you see it and any thoughts around things.
Miracle worker: I'd be interested in having a you know.
Miracle worker: Just a general commentary around the strategy there.
Miracle worker: Well I don't think anything has fundamentally changed regarding our M&A strategy, we're still.
Miracle worker: Talking to all sorts of companies on a regular basis looking for fit looking for strategic benefit and what have you. We are a bit compromised and that our share price is undervalued and thus we don't have the shares the stock to be used as a currency. So we're kind of limited to.
Miracle worker: Limited to non dilutive mesh means of being able to acquire companies. So the limiting us a little bit here, but nothing is fundamentally changed we're just trying to be quite.
Miracle worker: Rational and that we're going through this evolution going through this transition we're focused on on that and as we continue to go through that effort. If the opportunity arises we do have means to be able to execute it provided that the provided the target isn't.
Miracle worker: So large that we it outstrips our capability of being able to.
Speaker Change: To digest it.
Speaker Change: Okay understood. Thanks for taking my questions I'll pass the line.
Speaker Change: Yeah.
Speaker Change: And our next question comes from the line of Jesse <unk> with <unk> Securities. Your line is open.
Miracle worker: Okay.
Speaker Change: Hey, good evening, just coming back to Daniel's question on the the Navy systems contracts.
Speaker Change: I believe in the in the past you might have alluded to seeing or expect to expectations for a more meaningful kind of volume ramp towards fiscal fourth quarter. This year is that still the expectation or is that maybe moved around a little bit now.
Speaker Change: Well the fourth quarter, we do have a significant we have significant deliveries that were going.
Speaker Change: It is ramping up as we speak right now and I think what what Mirka was kind of alluding to is that we then start seeing the benefit of the production contract towards the tail end of the year.
Speaker Change: But that production contract also has a ramp to it and as as we see it we expect that ramp to have some significance in 2026, but even more significant in 2027 and beyond now.
Speaker Change: Now that's also subject to change right.
Speaker Change: We have also seen that the navy has been trying to accelerate some of the deliveries.
Speaker Change: But we really sort of in negotiation stage with respect to the first option here and we have yet to see what the final outcome will be of that.
Speaker Change: Yes, I would just add to that just have to say.
Speaker Change: Because I know, we did say urgently to begin the year, we were planning the most of the deliveries in Q4 to your point.
Speaker Change: I think we're going to see now that they've been trying to move it up we might see that smoothed over between Q3, which we're in now and Q4, so it might not be a spike it might be actually more level, which will be actually a good thing.
Speaker Change: So the option you know Dan will stock and that's really for next year, right, which is range.
Speaker Change: Second half or the second half of 2026.
Speaker Change: But I think we might see as a more of a smoother rollout in Q3 and Q4 for the remaining of this year.
Speaker Change: Okay. That's helpful. Thanks for the clarification and then maybe just moving over to the Warner Discovery a win.
Speaker Change: Congratulations on that in terms of the $5 5 million.
Speaker Change: Is that going to be kind of pretty much smoother recognition or will there be any lumpiness in that and then can you maybe just speak to timing around other potential windows with other properties within the warrant discovery family.
Speaker Change: Yes.
Speaker Change: I wish I could but hopefully there'll be many.
Speaker Change: One of the large pieces of that again that the deal lift because again the C. N N specifically for this one.
Speaker Change: As a large a data component, which obviously will be recognized star.
Speaker Change: Starting probably in about three months when they really start fully exercising systems, which will go on for the next year or so there'll be recognized later.
Speaker Change: It'll be part of the deferred revenue.
Speaker Change: Most of the equipment.
Speaker Change: Not most but a majority of equipment was shipped at the end of the.
Speaker Change: April and the rest is being shipped as we speak.
Speaker Change: From a revenue recognition the hardware software all of that stuff will be will be done this quarter and it's just the data piece support piece a significant support.
Speaker Change: And installation commissioning all of that so.
Speaker Change: You can appreciate this is a very complex global rollout from 17 different operations.
Speaker Change: Countries.
Speaker Change: So the coordination is does that mean for us. This is a pretty significant deal and in the wireless space, though we've never really played to large scale. So we're learning as we go and we're working very very closely with CNN.
Speaker Change: So the next the next three to six months is going to be is gonna be critical.
Speaker Change: And I'd like to say that.
Speaker Change: We are already talking to every broadcast tier one company because they're all using macchiato. They all know high vision.
Speaker Change: But.
Speaker Change: They don't use our transmitters and guess what everybody is extremely.
Speaker Change: Anxious to see.
Speaker Change: Why CNN picked us and why this happened and they're all evaluating our technology. So I think that's I think youre going to see over the next 18 to 24 months.
Speaker Change: A very good healthy growth in our trials better business.
Speaker Change: This is the big one for C. N N to go that's huge very huge.
Speaker Change: Okay.
Speaker Change: Thank you for that.
Speaker Change: Maybe just then on one final question then just with respect to the.
Speaker Change: The control room business and building out that international.
Speaker Change: Channel partner partnerships can.
Speaker Change: Can you just maybe just give an update on how that's been progressing if youre seeing any particular progress in any international specific international jurisdictions, and just maybe expectations on when you could start to see more meaningful revenue contributions start trolling.
Speaker Change: Yes.
Speaker Change: Although it is progressing very well.
Speaker Change: We had been supporting some of our training for.
Speaker Change: For international but that's now.
Speaker Change: <unk> is about to start.
Speaker Change: We wanted to start that earlier in the year.
Speaker Change: So.
Speaker Change: We're actually winning deals where we're actually seeing.
Speaker Change: <unk> forecast and our pipeline grow dramatically international interesting, we've made quite a few installations.
Speaker Change: Fortunately a lot of them we cannot name.
Speaker Change: But its progressing very well and we've hired people or growing the team.
Speaker Change: The training was above.
Speaker Change: I'll just start a national we've already had our several training sessions in the U S. Specifically for the U S partner. So that's that's progressed very well so I expect that to really kick into gear in the second half of this year.
Speaker Change: Where I.
Speaker Change: I see 2006 is going to be for us.
Speaker Change: A very healthy growth in the international space.
Speaker Change: Alright, perfect. That's all from me I'll pass the line.
Speaker Change: As a reminder, this star one if you'd like to ask a question.
Speaker Change: Our next question comes from the line of Nick Cochran with acumen capital. Your line is open.
Nick Cochran: Hey, guys most of my question's been answered, but maybe the first one Ken.
Speaker Change: Recently announced increased military spending I'm just wondering how you are positioned to benefit from that going forward.
Speaker Change: Yeah. Good question I mean, I speak to my my field guys in.
Speaker Change: We're definitely we're definitely talking to different levels in the Canadian defense industry. So we're all over it.
Speaker Change:
Speaker Change: Unfortunately, when I look at it the Canadians were always been very close to the Americans.
Speaker Change: And so it's a bit of an awkward situation at the moment.
Speaker Change: So we're.
Speaker Change: I think as a Canadian company, we're positioned very very well.
Speaker Change: And I think we're going to take advantage of it so it's going to take it's going to take a little extra work right now.
Speaker Change: Canadian military already uses our stuff.
Speaker Change: But we just we just need to work a little harder right now to try to take that Canadian position, because we've always kind of use the fact that hey, the U S is using US were the gold standard it's a non issue, but I think we know right now we're kind of got to revert a little bit and kind of put up the Canadian flag. If you know what I mean.
Speaker Change: So that is happening as we speak right.
Speaker Change: Great. That's great color and then maybe last question from me I know you you mentioned that large win with the.
Speaker Change: The <unk> products in the past he has fulfilled leasing out those products how is that going.
Speaker Change:
Speaker Change: The rental program and the long term leasing program.
Speaker Change: It is still ongoing I mean, where we.
Speaker Change: We're doing much better in Europe, because they've been running that for many many years, even as part of Abbvie West right. When we bought them. So it's a machine more in the U S.
Speaker Change: We're doing we'll do okay do I think we're doing great. No I think we can do better. So we've got a huge focus on our rental and long term lease.
Speaker Change: Programs in the U S, where we're you know we're going to be investing in inventory in partnerships. So we're still working it it's still a very very small piece for us.
Speaker Change: So it's not a needle mover at all.
Speaker Change: But interestingly enough if you look at the deal we just won.
Speaker Change: They were actually leasing.
Speaker Change: For millions of dollars from Ly view per year, now and they went with us and they bought everything.
Speaker Change: So it was kind of interesting so I'm not sure if the dynamics are changing in that industry or not.
Speaker Change: But you know.
Speaker Change: No we're still committed to the long term lease and rental.
Speaker Change: Thanks, that's good color I'll pass along.
Speaker Change: Cool.
Speaker Change: And we have no further questions. So I will now turn the conference back over to Mr. Miracle worker for closing remarks.
Speaker Change: Super Thanks savvy in the well in closing I again, just reiterate we're committed to maximizing our long term value for all of our shareholders and.
Speaker Change: And we're very confident in our ability to execute our strategic revenue growth plan and deliver solid growth for the future as promised as well. Thanks.
Speaker Change: All of our shareholders and analysts on the line today for their continued support of high vision and I look forward to speaking with all of you in mid September.
Speaker Change: When we discuss our third quarter results. Thank you everybody.
Speaker Change: And ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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