Haivision Systems Inc. (TSX: HAI) Q2 2025 Earnings Call | 06/12/2025

This content is a summary of the High Vision Second Quarter 2025 Earnings Call.

Key Highlights from Mirko Wicca, President & CEO:

• Strategic Plan Progress: High Vision is well into its two-year strategic plan to transform the business and achieve double-digit revenue growth and a 15-20% CAGR. Operational efficiency is complete; the focus is now on revenue growth.
• Revenue Rebound: Q1 marked the bottom of the revenue curve, and the company is seeing a solid increase in its long-term sales pipeline, strong orders, and revenue growth in the global controller market.
• Mission Business (Defense & ISR):
  • Significant investment in AI and new product development.
  • Partnership with Shield AI: High Vision's Kraken real-time transcoding software is integrated with Shield AI's Kestrel and features Shield AI's Tracker for AI-powered object detection in video.
  • Launched Kraken X1 (KX1): A ruggedized, AI-capable video processing appliance for defense and ISR markets, delivering real-time AI-enabled encoding. Expected to drive long-term defense projects.
• Broadcast Business:
  • Launched Falcon X2: Next-generation 5G transmitter platform, basis for transitioning all transmitters to advanced 5G private networking, offering better price performance and competitiveness.
  • Entering adjacent lower-cost market with a small, lightweight 5G solution to compete with LiveView and TVU.
  • Upcoming Makito NGX: Targeted for broadcast sports, offering Genlock synchronization and 2110 JPEG access technologies, enabling full end-to-end workflow for large broadcast clients.
• Major Competitive Win: Warner Brothers Discovery (including CNN) chose High Vision to replace their entire fleet of LiveView equipment for electronic news gathering (ENG) and multi-camera coverage worldwide. This is a $5.5 million order for over 300 units of various High Vision products and licenses, connected with their Hub 360 cloud-based platform. This significant win establishes High Vision as a leader in cellular, bonded, and wireless 5G private networking.
• Future Outlook: These strategic investments are key for 2025 and are expected to impact revenue in H2 fiscal 2026, with significant growth in 2027 and beyond.

Key Highlights from Dan, Chief Financial Officer:

• Q2 Fiscal 2025 Financial Performance:
  • Revenue: $34.3 million, up modestly by $100,000 year-over-year.
  • Year-to-date revenue: $62.5 million, down 9.2% year-over-year.
  • Sequential Growth: Q2 revenue grew 22% over Q1, indicating renewed sales energy.
  • FX Tailwinds: Approximately $2.1 million of Q2 revenue growth came from favorable FX due to Canadian dollar volatility.
• Business Model Shift: The transition from integrator to manufacturer in the control room space is largely complete, leading to increased proprietary product sales.
• Recurring Revenue: $7.2 million this quarter (up 11% year-over-year), representing 21.2% of total revenue. This marks the second consecutive quarter of double-digit recurring revenue growth.
• Gross Margins: Improved to 73% (up from 71.7% a year ago), stabilizing after a softer Q1. The shift to manufacturing and higher revenue levels are contributing factors.
• Expenses: Total Q2 expenses rose to $28.2 million (up $5.5 million year-over-year) due to:
  • $1.5 million in non-recurring legal settlement fees.
  • $1.8 million from currency-related impacts (weaker Canadian dollar).
  • Strategic investments in R&D and higher sales and marketing expenses related to increased revenue and trade shows (NAB).
• Operating Loss: Operating loss of $3.2 million for the quarter, compared to an operating income of $1.8 million in the prior year, primarily due to increased expenses.
• Adjusted EBITDA: $1.7 million for the quarter, down from $5.1 million in the prior year.
• Balance Sheet: Ended the quarter with $11.8 million in cash (decrease of $4.8 million from last quarter), driven by a decline in deferred revenues and share repurchases ($1.9 million through NCIB in Q2).
• Tariffs: Proprietary products manufactured in Canada are protected by USMCA. French-manufactured transmitter products are subject to a 10% base tariff on imports into the US, but the impact is currently not significant. The company has tactics to mitigate tariff impact and can transfer some burden to customers.
• Outlook: The quarter was a mix of transition, stabilization, and building momentum. The pipeline is strong, boding well for the second half of the year.

Question and Answer Session Highlights:

• Gross Margin Expansion: Primarily driven by the shift from integrator to manufacturer and improved amortization of fixed production costs over higher revenue levels.
• Pipeline Strength: Strong across both mission and broadcast segments, with a significant number of multi-million dollar opportunities.
• CNN Win Drivers: Technology superiority (Hub 360), transparent business model, clear data rate charging, and High Vision's reputation for support, reliability, and professionalism. The win is a master agreement with Warner Brothers Discovery.
• U.S. Government Spending: Cautious optimism, with no program cancellations or pushes, and some instances of accelerated deliveries. Overall, global defense budgets are increasing.
• Navy Contract Ramp-up: Deliveries are planned throughout the summer and fiscal year-end, with a smoother rollout in Q3 and Q4. Significant ramp-up is expected in 2026 and even more in 2027 and beyond. The impact on overall gross margin is approximately 60 basis points.
• M&A Landscape: Still actively looking for strategic fits, but limited by share price undervaluation, restricting acquisitions to non-dilutive means.
• Canadian Military Spending: High Vision is actively engaging with Canadian defense, leveraging their Canadian company status and position as the gold standard.
• 5G Product Leasing: The rental and long-term leasing program is ongoing, more successful in Europe than the U.S. It's a small piece of the business, and the recent Warner Brothers deal involved a purchase rather than a lease.