Haivision Systems Inc. (HAI) Q1 2026 Earnings Call Transcript

Thank you for standing by. At this time, I would like to welcome everyone to the High Vision First Quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mirko Weka, President and Chief Executive Officer. You may begin.

Thank you, Jeannie. And thanks everyone on the call for joining us today to discuss our first quarter of 26, which ended on January 31st. We are now well into our two-year strategic plan as we continue to deliver the double-digit revenue growth we have been promising. Today, I'm very happy to report that we delivered a 25.1% revenue growth over Q1 of 2025. We also delivered an EBITDA growth of 369% over Q1 2025, both strong metrics and a great start to 2026. Our continued double-digit revenue growth is part of our long-term plan to bring us to 20% EBITDA. The focus this year and the next year is all about cementing the foundation for a long-term consistent high revenue growth. I believe we're in a good place right now and on the right path to deliver this long-term growth and value generation. We have always said that to achieve 20% plus EBITDA performance for the full year, we will need to be at scale somewhere around the 160 million dollar range. I believe we are very close to delivering on this targeted EBITDA and demonstrate the full earnings potential of HyVision. Now, 2026 is the year that will set us up for that 20% EBITDA performance in 2027. Now, as mentioned previously, we have been investing in many new product development initiatives and seen introductions throughout 2025 and some which are yet to be announced and we'll be launching some exciting products and innovative technology throughout this year and 2027 to keep building the revenue momentum for the foreseeable future now more recently we launched the next generation ai based hardware tactical edge processor for the defense military and isr markets called the kraken x1 or the kx1 and it was extremely well received as it delivers incredible computing performance for ai enabled encoding in real time utilizing the nvidia jetson gpu technology and we have begun volume shipping the kx1 and it's creating lots of excitement within the isr defense community we believe this product will have a positive impact on our long-term revenue growth within the defense ai community and we have also been shipping our next generation transmitter platform called the falcon x2 now the early demand already outstripped our initially planned production thus we have increased inventory supply chain significantly to handle the strong demand the falcon has been the most successful product launch in the history of the company and is performing very well in the field our customers are embracing our innovations on 5G networks and the more efficient MIMO antenna technology. The compact Falcon transmitter is changing the ballgame for a single-camera contribution in the market and upping the standard for quality and price performance. Strategically, the company is working on landmark defense contracts, installing large multinational operational control room deployments, demonstrating clear leadership in private 5G networking and gaining industry recognition for our technology leadership. All these efforts are already bearing fruit, as seen from our Q3, Q4, and now Q1 results. Let me try to be a little more clear and direct on why we are so bullish in our business for the foreseeable future. All of our mission-critical focus markets are performing well. We are expecting this trend to continue well into the next three to five years. This is not a quarterly game, but rather a long-term trend that will deliver higher revenue growth into 27 to 29. Our mission business, which represents two-thirds of our revenue, continues to see increased spending and growth for the next five to ten years within every defense, military, and government in the world. This is not stopping, and HyVision is an important and trusted vendor providing solutions for this industry worldwide border security is getting more attention and will be the focus of funding for the next three to five years globally from what we can see today our products are the gold standard deployed globally in defense military isr and security operations this is a market that will continue to grow for quite a long time now police forces and emergency response teams everywhere need more reliable and secure platforms more than ever global unrest is unfortunately not slowing down and public safety is also a massive future growth market this is another large focus for high vision technology on the control room market enterprises banks utilities military and governments are all an urgent need to install and implement sophisticated powerful and secure monitoring systems to protect their assets their people facilities and the ever-increasing levels of global cyber security threats they need the need for centralized real-time secure video operational rooms will simply keep increasing for many years to come it's not slowing down this is another area where high vision is positioned for global leadership now in our broadcast vertical which represents about a third of our revenue high vision focuses on the live sports or events and live news on these are the most exciting and fastest growing areas within the large broadcast vertical these are the areas that are responsible for all the money advertising and it's not slowing down in fact sports will continue to be the most important vertical and where most of the money is spent. HiVision is well positioned as a leader in both the wired and wireless 5G space providing the lowest latency highest quality most reliable and most secure video technology on the planet. This is what HiVision stands for and this is what customers are asking for. The strong reputation and success of the Makido and SRT combined with the new private 5G Falcon provides a significant competitive advantage for high vision for the foreseeable future. Thus, our markets are strong and should remain strong for the long term, again, while we are confident in our 2026 and 2027 plan. I do, however, need to mention that we are witnessing new uncertainty and global instability with the war in Iran, the continuous funding politics for the Department of Homeland Security, which is pushing significant border security projects to the right, for many vendors, including HiVision. The war is also causing nervousness within all industries. We're all hoping for a quick resolution to these headwinds. In addition, we're witnessing the rapid global increase of DRAM pricing and server pricing escalating dramatically due to the AI industry growth. This is putting pressure on all software solutions requiring the use of standard computer servers and supply chain challenges. As a result, we have no choice but to increase our prices accordingly, which we are already in the process of doing. In closing, I would like to just reaffirm our full fiscal 2026 guidance of delivering $150 million plus in revenue. Our plan is to maintain pretty much a flat OPEX over 2025 while delivering double-digit revenue growth, resulting in a 50% plus increase to our overall EBITDA over 2025. We are closely watching the U.S. Congress funding of DHS and the Iran Wall Instability, which are affecting some short-term business. We are expecting a very strong second half of 2026. As mentioned previously, we plan double-digit EBITDA and double-digit revenue growth for 2026 and to deliver a full year of 20% EBITDA performance in fiscal 2027. With that, Dan, please, can you continue with the detailed financials?

Thank you, Mirko. As Mirko suggested, revenue for this first quarter fiscal 2026 was $35.2 million, an increase of $7.1 million, or 25.1%, from the same period in the prior year. We're pleased that we were able to overcome the changes in the procurement process and the transition away from the integrator model in the control room space, and this does represent the third consecutive quarter of double-digit revenue growth, which is our long-term growth objective. Our recurring revenue from maintenance, support contracts, and cloud services continues to grow year over year. Recurring revenue in this first quarter was $7.3 million, up 4.5% year-over-year. Recurring revenue still represents 21% of full quarter revenue. We expect to continue to see sound year-over-year growth in recurring revenue as total product sales and renewals continue to build. Gross margins in this first quarter were 70.5%. That is a decline of 150 basis points when compared to the prior year. Gross margins this quarter were largely impacted by the mix of solutions we sold and the year-over-year increases in three product sets. We did see significant increases in sales of transmitter products. We did see year-over-year increases in the sale of HMP solutions. Those are software solutions that are installed on a server and sold as an appliance, and the timing of deliveries under our U.S. Navy contract, a legacy of our systems integrator business. Unfortunately, these products that happen to be on the lower end of our margin continue, but on the good side, this result appears to be more happenstance and not a reflection of a systemic change toward the business. I should note that the new transmitter products being introduced to the marketplace have a better cost price profile and will be manufactured in North America, representing a future opportunity to increase margins on that product line. Total expenses this quarter were $25 million. Now, that is up $2.6 million from last year. Now, early last year, we stated the need to make incremental investments in support of our R&D calendar and our sales initiative. Those investments were made in the first half of fiscal 2025, and they are still part of our current cost structure. As Mirka pointed out, our objective this year is to maintain the current level of OPEX and demonstrate operating leverage. To that point, and as stated already, this quarter's total OPEX was $25 million. Last quarter, which is our Q4 2025, total OPEX was $25.4 million, and in the quarter preceding, that's our third quarter of 2025, total OPEX was $24.9 million. What I'm trying to suggest is that total OPEX has remained relatively flat over the last three quarters. If we were to look at total expenses in aggregate, the increase is really attributed to $1.1 million in compensation-related expenses and in professional services and $300,000 in share-based payments. But if you look at the year-over-year variances by functional area, you can see where the investments are being made. About $1.4 million is in additional G&A expenses, but that was related to variable compensation based on performance, timing of professional fees, and to a lesser extent foreign exchange impacts some of these expenses like compensation based on performance or professional fees may not be recurring and and merely a result of timing roughly 800 000 of the increase is related to the incremental r d investments in people and recent prototyping materials and certification costs in support of our heavy product release schedule another $300,000 comes from non-cash share-based payments, which can vary based on the nature and the timing of those grants. We will likely see some variability in sales and marketing spend based on the timing of our trade show calendar. Otherwise, the underlying expense base is relatively fixed. Looking forward, however, this August represents the five-year anniversary of the HiVision MCS acquisition. Thus, technology purchased as part of the acquisition will be fully amortized, reducing total expenses by about 600,000 per quarter. And the following April will be the five-year anniversary of HiVision France acquisition, also known as Abbey West. Thus, technology purchased as part of that acquisition will be fully amortized, reducing total expenses by another 350,000 per quarter. Thus, as we see our adjusted EBITDA rising, we should expect to see our operating profits increasing at even a faster pace, starting with our fourth quarter of this year. So to sum up the quarter's operations, higher revenue in this first quarter contributed an incremental $4.6 million in gross profit, but with expenses up by only $2.6 million, the operating loss was only $200,000, representing a $2 million improvement from the prior year. As most of you know, our focus has been on adjusted EBITDA, as we believe it gives a clearer view of our performance by stripping out non-cash and items like depreciation, amortization, and share-based payment. So for this first quarter, adjusted EBITDA was $2.6 million, compared to only $600,000 last year. That's an improvement of $2.1 million, or 370%, or about 370%. The adjusted EBITDA margin was 7.5% compared to just 2% last year. We ended the quarter with about $17 million in cash, a modest decrease from the end of last quarter, and the amount not standing on the line of credit increased by about $2.8 However, during the quarter, we had also purchased $1.6 million in shares for cancellation related to our normal course issuer bid or what we call the NCIB and the recent settlement of restricted share units. Over the last two NCIB programs we purchased about 1.9 million shares for cancellation at a total investment of 8.6 million. Note the company renewed its NCIB commencing February 4th of 2026 that allows for the cancellation of up to 1.8 million additional shares representing about 20 percent of the public float now further our credit facility remains strong at 35 million with only 5.5 million outstanding the line of credit is expandable to as much as 65 million in the event we identify an acquisition target we are already in discussions with BMO to renew the line of credit under similar terms. Total assets at year-end were $138 million. That's a decrease of about $6.3 million from the end of fiscal year 2025. The decrease in total assets was largely due to the $2.4 million decrease in goodwill and intangible assets. Note that the amortization of those intangibles is about $1.2 million per quarter. The decrease is also related to the $1.5 million decrease in receivables and the $1.3 million decrease in the value of inventories. Inventories continue to be a balance sheet bright spot, and inventories have in fact declined by $9.5 million since peaking in the second quarter of 2023. With that said, we are likely to make incremental investments in inventories with new product introductions and the prospects of increasing sales. Total liabilities at quarter-end were about $44.3 million, a decrease of $3.1 million from the end of fiscal 2025. Trade and other payables declined by $5.6 million in the quarter, and this was offset by the $2.8 million increase in the amount of standing on the line of credit. To avoid the typical questions we usually receive regarding tariffs, I want to remind everyone that our proprietary products are covered by the USMCA trade agreement. There are no tariffs on products manufactured in Canada when sold into the US, and our next generation of transmitter products will be manufactured in North America, which will mitigate the impact of the 15% tariffs that they may incur. We are well positioned and may have, in fact, competitive advantage compared to others who manufacture their products overseas. We are seeing one dynamic in the marketplace that may have an impact on revenue and margins. The global memory semiconductor market is in a tight supply cycle, largely driven by the demand from AI data centers and high-performance computing. Prices are surging. At the same time, memory manufacturers are prioritizing AI-optimized products, which is further constraining supplies. As Mirko mentioned, we have initiated price increases for our software products that reside on these servers and are watching supply chains very closely. Now, M&A is still very much of our DNA. We have completed eight acquisitions since 2009, six as a private company and then two more as a public company, and as the inventors of SRT and the founders of the SRT Alliance, we are in the fortunate position of having conversations with many industry players. well more than 600 companies are SRT partners and these discussions have in fact led to successful M&A transactions in the past. Our line of credit was designed to accommodate M&A transactions once identified. While it is certainly true that a more buoyant stock price gives us more tools at our disposal as we consider M&A, it's also true that we are laser focused on demonstrating revenue growth and the earnings potential of the business. We do not currently have any transactions in tow and it's unlikely we will identify nor close an M&A transaction this fiscal year. Last earnings call we suggested that providing quarterly guidance was becoming increasingly challenging and nothing can be more true than today. We are hearing that recent geopolitical events such as the operations in the Middle East have necessitated a reshuffling of procurement priorities. The over-reliance on continued resolutions in the U.S. Congress has created artificial bottlenecks. They prevent the DOD from starting new programs or increasing production rates, have necessitated smaller orders over longer timelines, which contribute to administrative overload, which perpetuates slower contracting cycles. It's also necessitated a funds and focus shift to urgent needs like munitions and deployments and has forced DOD spending to occur later in the fiscal year, much like what we saw last fiscal year. Add to that the delays in funding of the Department of Homeland Security and supply chain shortages. It's creating a difficult market to forecast. Given the these current complexities, we're seeing the timing of certain deliverables move to the right. Don't get me wrong, demand is still robust, but getting things through the procurement cycles and then timely delivery is increasingly challenging. Nevertheless, we remain highly optimistic about our growth prospects. We are committed to consistent double-digit revenue growth over the long term, but acknowledge that it won't necessarily be sequential growth. Just like last year, where the second half of the year represented well over 50% of our revenue, we are expecting to see a similar dynamic this year, particularly when you factor in the timing of the U.S. NAID deal and the introduction of these new products. So that really concludes my prepared remarks. I'm going to pass the microphone back to you, Mirko, and then we'll open the floor to questions.

Yep. Well, thanks, Dan. All right, Janet, I think we can probably open up the questions then.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. And your first question comes from Robert Young with CGF. Please go ahead.

Hi, just starting with that, the last bit you were talking about, Dan, the uncertainty inserted by Middle East conflict and the delay in DHS funding. I know you're not providing quarterly guidance, but I was hoping you could give us a sense of the ability to resume. If those pressures relent inside of Q2, I guess by the end of April, is that something that would allow you to get back on track in the second half?

Or maybe give us some broad ideas of how to think about timing of a better second half. you want to give it a try or should you want me to get well no i mean well i think uh let me let me take a stab at it i think right now we're kind of monitoring it you know on a daily weekly basis um i think if this if this continues uh for for you know more than a couple months then i think it's going to be pushing stuff out for sure in in q3 uh but at the moment um from what i'm what I'm seeing and what I'm hearing is that everybody is still very, very confident on a very strong Q4 for us and the purchase cycles that are getting moved to the right. And we're still also feeling pretty good strength on the Q3. So I think at the moment, from a timing perspective, I think we're still fine. I think we're about halfway through Q2. So we're going to monitor but we feel pretty strong right now that it's going to be a repeat of last year. Our second half will be much stronger. I mean, mind you, our Q1 was great. So I don't think our first half will be as low as last year. So I think it's just a really short-term event, but we're monitoring very closely.

If you don't mind me adding one other thing here, I don't think that this is an encumbrance of the company per se. We've designed our supply chains. We've designed our manufacturing process in such a way that we tend to deliver our products within two days of purchase order. We have that much visibility. We have that much control over our contract manufacturer. So this is not an internal encumbrance that we're dealing with. It's really about getting procurement through processes and getting the POs out and the customer accepting delivery.

Okay. And then, just in relative terms, would you say that the delay in DHS funding or the conflict in the Middle East would be the larger relative pressure in the short run?

I would say so at the moment, yeah.

Okay.

And then, I know you noted the memory pricing and server pricing as a gross margin pressure but it wasn't one of the items I believe in Q1 so is that something that you'd expect to see in in Q2 or is that just is that something you feel confident you'll be able to offset with pricing well let me let me let me just correct something I I was I'm more concerned about shortage of supply than I am about margin compression based on memory we we are increasing our prices it's happening as we speak right now so we're protecting our margins on those kind of products but i'm concerned although no one has told us that we're not going to be able to get servers for our needs and so on and so forth uh i'm just watching the dynamic and i'm concerned about manufacturing by being diverted to these ai initiatives of sorts and what the impact might be in the future but we haven't seen it as of yet okay that's all very helpful um you noted the uh The new product, the X1 Edge device, last quarter, I think you said that you're putting initial sampling into the market.

Now you're saying that demand is very, very strong and that you're in production. Is that demand a lot greater than you had anticipated? Perhaps you could give us some use cases on ways that that product is being used. What's the driver of demand there?

Well, I think, let me just correct that. I mean, I think the interest has, the demand of the interest has actually gone up quite significantly because we managed to now start volume shipments and we got the first systems into some of these key clients that were waiting for it. So we're still at the beginning of that trend. The initial feedback has been extremely positive that people are pretty excited and I think they're going to start looking at building those into some of their programs. So it's really more of a longer-term perspective. But if you look at what this KX1 does, it's the first time ever you'll have an edge device that will be able to, in one small, powerful box, a hardware device that will be able to take real-time video and apply very large-scale AI models to it in real time and give the operators or decision makers the ability to make real-time decisions for the first time ever with one device rather than using multiple different types of technologies and doing a lot of post-processing on them. So it's something very new. It's really going to be shaking up the whole ISR defense industry. So we're going to be watching very closely. It's just the initial feedback has been amazing, and we're getting it out to all of the early adopters as we speak. So I'm pretty excited about it.

Let me also add, these are not necessarily plug-and-play type devices. These are parts of sophisticated workflows. And so these devices are in the hands of those people who are going to be assessing the product and assessing how it fits into their workflows and hopefully be part of large deployments that we'll be the beneficiary of. So this is a good initial sign, but sales of the product will be sometime in the future.

Okay, and one last question, back on the topic of gross margins, if I could. In the Q1, I think you said mix of solutions was a big factor, and the products were the HMP server, the AVI-West transmitter, and then the timing of deliveries on the U.S. Navy contract. And I recall last quarter, the U.S. Navy contract was also a big contributor, but I didn't see the same margin impact. And so is that just timing within that contract or is there something to understand? And if you could give us a sense of, you know, the relative impact from each of those three things, that would be very helpful. And I'll pass the line.

Yeah, well, you know, these are difficult equations in some respects here, because, you know, our cost of goods sold includes certain fixed elements, like the cost of our production departments, the cost of technology license, the cost of obsolescence reserves, so on and so forth. And so you tend to see margins higher when revenues are higher. And our revenues in our fourth quarter were higher, and we were able to leverage those fixed costs. The difference here is that the Navy deal was a little – was a bigger percentage of the revenue, but the three product lines together sort of contributed to the deterioration – not deterioration. I use the word deterioration. It just happens to be a mix where they all had impact at the same time. Again, I don't think that this is – this is not a systemic problem for the business. This just happens to be happenstance. I mean, sometimes we are the beneficiary of increased margins when people are buying our software products as virtual machines or as software-only offerings, and then we become the victim of it when they are more server-based appliance-centric software offerings. And so that's kind of what happened here.

Thanks for taking the questions.

Your next question comes from the line of Don Angelo Guilpe with Beacon Securities. Please go ahead.

Hey, good morning, guys. um just uh moving moving over to the north american manufacturing of the new transmitters can you kind of just quantify some of the margin improvements that we could expect to see here well uh i'm not i'm not going to give any specifics about a product line per se but uh let me just suggest this this is the first transmitter products that are the first generation transmitter products that are coming under high vision's leadership and as demonstrated by the the rest of our product line, we know how to design this equipment for profitability. And so we're going to be able to see that reflected in the transmitter sales going forward. And remember, when we introduced new products, there's a weaning off of the old and a weaning on of the new. In this most recent introduction of the transmitter products, we saw the uptake exceeding our expectations, and that's why we're making the claim that it's the best introduction of product thus far, but it's still early in the process of sorts. The other advantage of moving into North America is that we have a little bit more direct control over it. We have longstanding relationships with the contract manufacturer as opposed to the contract manufacturers being used in Europe. We're also able to overcome the tariff issues related to manufacturing products in Europe and bringing them overseas. So all of those things combined are going to enable us to see the same margins we see on all of our proprietary products, whereas the transmitters are slightly below our margins these days.

Okay, thanks for all the color, Dan. I'll pass the line.

Your next question comes from the line of Sebastian Charland with Agave Capital. Please go ahead.

Good morning. Congrats on the growth this quarter. My question relates to the defense industrial strategy of Canada. I know they mentioned in the document about having Canadian champions, North American, Canadian-based. It seems like K-Vision kind of fits the mold there. I was wondering what your team's take on it at this point. Is it more still aspirational than actionable at this point, or do you see real traction in the market through that?

Sebastian, are we referring to a formal program of sorts?

Yeah, well, I'm not sure if I'd call it a program, but in February, the Carnies administration released a defense industrial strategy, the Canadian DIS, with a 5% GDP target for defense spending. And in the document, they were mentioning they were looking for a Canadian champion, and there were a bunch of definitions for those. And it seems like it kind of fit the mold for A-Vision to qualify, and those champions would get accelerated, procurements, access to contracts. It's kind of the build partner by framework. But perhaps my only question was if your team was aware of it and if you had any expectations out of that new program.

Well, I can tell you that the interest internationally has been very buoyant and that I think that all NATO countries have committed to increased defense spending, all trying to bring their defense spending to 5% of GDP by 2029. And so we've been the beneficiary of that. And this kind of sounds in a similar frontier. Now, interestingly enough, we don't have our sales effort in Canada is not as robust as it is in North America, in the rest of the North American, for that matter, internationally, but certainly something we ought to be looking at. okay uh no no i was uh i was certain you might be looking into this but fair enough thank you again if you would like to ask a question press star then the number one on your telephone keypad your next question comes from the line of sebastian charland with agave capital please go ahead

all right already back in the loop um my last question is more about the recurring revenue conversion is it at this point i know product has been growing real fast um but on the recurring revenue more service side do you see um this keep increasing as a percentage of revenue i think it dropped from 25 to 21 in the mix roughly speaking where do you model this in the next two three years uh with the target of reaching the 20 ebitda and 27 for example yeah well uh it's a good question.

I think that the 25% number is the first quarter number. And remember our first quarter revenue was about 29 million. And so it was, it was low and our recurring revenue tends to be a lot more stable from quarter to quarter or year over year. So I think it's an anomaly that you saw such a big number in the first quarter. It's just mathematics on low revenue numbers is going to look at a higher percentage. We do expect, we have seen our recurring revenues grow each and every quarter, and that's a function of the annuity nature of that business, where as we make additional sales, there's more renewals each year that speak to it. Our long-term goal, if we were looking at where we hope the business to be sometime in the future, we'd love to have a split between hardware software and maintenance and support services a third a third a third right now it's at 21 we're not that far off that third but it is going to take us a while to get to that number i i do want to remind everyone on the call here that when we were in the house of worship business which had a managed services component to it we were in fact at that 30 level but we purposefully got out of that business and gave up about 10 million of that revenue And so it's taking us a while to rebuild to that level. But that's our goal.

Okay. Yeah, one third each. It's going to take time for service to snowball there, but that's a fair target. Thank you.

That concludes our question and answer session. I will now turn the call back over to Mirko Wicca for closing remarks.

Well, thank you, Jeannie. In closing, I guess we just want to let everyone know we're committed to maximizing long-term value for all of our shareholders. We are confident in our ability to execute our strategic revenue growth plan and deliver solid growth for the future as promised. And I just want to thank all our shareholders and analysts on the line today for the continued support of HiVision. And I look forward to speaking with you in mid-June when we'll discuss our second quarter performance and results. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.