Release Date: September 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Haivision Systems Inc (HAIVF, Financial) achieved a significant increase in adjusted EBITDA performance, moving from 6% in 2022 to mid-teens in 2024.
- The company secured a significant five-year production agreement with the US Navy, valued at CAD82.6 million, enhancing its position in the defense sector.
- Haivision Systems Inc (HAIVF) has successfully transitioned from an integrator to a manufacturer in the control room market, leading to higher margins and scalability.
- The company has seen positive results from its long-term rental (LTR) program, which is building a SaaS-like recurring revenue model for its 5G transmitter business.
- Haivision Systems Inc (HAIVF) reported higher gross margins in Q3 2024, increasing from 72.3% to 75% year-over-year.
Negative Points
- Revenue for the third quarter of fiscal 2024 was $30.6 million, a decrease of $4.3 million from the previous year.
- The company experienced delays in federal spending and procurement processes, impacting short-term revenue.
- Haivision Systems Inc (HAIVF) exited the house of worship vertical, resulting in a $3.5 million revenue loss compared to the previous year.
- The transition to a manufacturing model has led to a temporary decrease in top-line revenue.
- Despite the positive EBITDA performance, the company's overall revenue guidance for fiscal 2024 was revised down to $134 million to $136 million.
Q & A Highlights
Q: You mentioned a couple of headwinds to revenue in the quarter. Can you maybe rank them in order of what was causing the biggest headwind?
A: Delays in the procurement process in the defense market due to federal budget delays and our business transformation were the primary headwinds, both having a significant impact. The long-term rental program was a distant second.
Q: Can you give us a little color on how long the sales cycle for a significant contract like the one with the US Navy is?
A: We knew of the deal when we acquired Cinemassive, but it had been in the works for a couple of years prior. So, the sales cycle was more than three years but less than six.
Q: You mentioned a significant broadcast deal with a customer switching from satellite to SRT. Is that a one-time purchase or a more recurring sale?
A: It is a one-time purchase of pure software running on their own instances or servers. We will benefit from recurring support revenue, which will be significant going forward.
Q: Should we read your guidance to mean mid to high teens for adjusted EBITDA next year, or again knocking on that 20% door?
A: We expect higher EBITDA margins in Q4, resulting in mid-teens for 2024. For 2025, we anticipate a 100 to 200 basis points improvement from the current run rate, but not necessarily every quarter.
Q: How might the US Navy contract affect your ability to secure additional contracts? Are there any synergies to be had?
A: Winning the first contract is always the hardest. Now that we have it, it will be easier to pursue other projects. We are investing heavily in our mission-critical systems, and this win sets us up for future success.
Q: Could you speak to the visibility you have today regarding double-digit growth in the longer term?
A: Our growth will be driven by the control room space, defense posture, AI initiatives, and 5G cellular bonded wireless use in live sports. These areas are expected to significantly increase our revenue starting in 2026.
Q: How comfortable are you that the programs you're on are durable through the election cycle?
A: The new Navy contract is fully funded and approved by Congress, not subject to change of administration. The CAIMS project is winding down and less likely to be affected by elections.
Q: Is the new Navy contract an IDIQ or maximum authorizations?
A: It is our actual revenue over the life of the project.
Q: Do you have plans to continue your share buyback program?
A: The NCID is in place for a year, and we believe the stock is undervalued. We will continue to support the stock and make adjustments as necessary.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
