Haivision Systems Inc. (HAI) Earnings Call Transcript & Summary

Greetings. Welcome to the Haivision Investor Webinar. [Operator Instructions] I will now turn the conference over to your host, Mr. Glen Akselrod, with Bristol Capital. You may begin.

Thank you, Kyle. And thank you, everybody, for joining our webcast today with Haivision. The purpose of today's presentation is to give our audience a better understanding of the business through a PowerPoint presentation and then questions and answers with management. Just as a reminder, this is not an earnings call, but is really meant to give a high-level overview of the business. The presentation is going to be led by Mirko Wicha, CEO, who is also joined by Dan Rabinowitz, Chief Financial Officer. You should see the presentation in the portal in front of you, and I would have e-mailed it earlier in PDF. If you don't have a copy of the presentation and want one, simply e-mail me at [email protected], and I'll be happy to assist. We'll break for Q&A at the end of the formal presentation. When we do break, we encourage questions. And as a reminder, we're only taking questions through the web portal. If you're listening over the telephone, please access the web link sent earlier to ask a question. Remember, you could submit a question using the text box at any time. I'll ask the questions on the air for everyone to hear, and then Mirko or Dan will answer. I'm not going to reference any names, but simply read the questions asked. And as we have a fairly large audience today, if I can't get to your question online and that has not yet been addressed during the call and can be, I'll come back to you through e-mail. I'll not -- I won't read the forward-looking statements, but I do state that they apply, and I reference them on Page 2 of this PowerPoint. With that said, once again, thank you for joining us. Remember, this is fairly informal, and we do encourage questions to help you better understand the business and its growth path. And now I'll turn the call over to Mirko to start his part of the discussion and presentation.

Thank you, Glen. Welcome, everybody, and appreciate you joining us today. I'm just going to skip to Page 3 from the presentation. I'll try to reference the slides as I kind of go through the business, and then I'll pass it after to Dan, and then he'll pass it back to me, and then we'll go for questions. So if you could just turn to Page 3, it's really the importance of reliable video. And television has changed the way we consume content, right? And the Internet and mobility networks that really revolutionized the way we consume video. Today, video is everywhere, right? I mean everybody just wants it now. We have telcos, cable providers, broadcasters, enterprises, they're all building complex and scalable video infrastructure with very secure and reliable networks, right, to address this real growing and urgent need. And if you look at the picture, I mean, how often have we had this viewing experience? I think we all have. While you can blame your Internet provider, right, on bandwidth issues or network problems or enterprises and governments that we serve around the world, a very simple drop or pause can cost millions of dollars in lost revenue, missed trades or potential damage. If you look at Haivision at a glance, I founded Haivision 18 years ago with 11 people and including 7 of the best video hardware engineers. And amazingly enough, these 7 original engineers are still with us today and have been actually developing advanced ultra-low latency encoders as far as back as the mid-1990s, when they were working for General DataComm's R&D center here in Montreal prior to the acquisition of the team back in 2004. And back then, actually, all of our engineers were core hardware engineers. And today, we still have a small core team of hardware engineers, but we also have over 100 software, firmware, embedded systems and software application engineers. And it's this core development expertise that is inside our performance hardware systems that really makes them industry-leading. And we leverage this common high-performance technology to serve our key markets, the 3 key market focus areas of broadcast media, defense and government and enterprise. If you look at Haivision at the numbers very quickly, from those early years, we have now over 400 employees throughout the world. And last year, we surpassed $90 million in revenue, which was fiscal 2021, which actually ended last October. And we have also delivered an impressive 15-year compound annual growth rate of 22%. We also consider ourselves an excellent stewards of capital, having raised only CAD 8.5 million in outside investments prior to last December's IPO, of course, and have now successfully completed 8 strategic acquisitions. If you see, our strong gross margins are testament to our innovative technology and to the mission-critical solutions we provide for these demanding video applications. And today, I would say that we're viewed as an innovator, disruptor, prime influencer and really a technology leader in the video and streaming industry, is something that I think we are very proud of. But I would say perhaps most proud that we have been able to accomplish this profitability, delivering 15 consecutive years of positive adjusted EBITDA. If you look at our technologies, briefly, Haivision's mission is to help organizations work more efficiently through the application of high-performance video. And from the early days of corporate telepresence, telesurgeries, remote education and mission-critical applications, our solutions are always focused on 4 key components: quality, reliability, security and, of course, performance. Our fully integrated end-to-end solutions is actually viewed as a competitive advantage, and we participate in the full spectrum of the video workflow, which is contribution, distribution and delivery. We are absolutely the clear leader in the real-time mission-critical video streaming infrastructure market. If you look at the markets very quickly on Page 7, I mentioned earlier, we really compete within the entire ecosystem of the streaming infrastructure market. And our advantage is that we provide integrated end-to-end solutions spanning all 3 of these vertical markets, right, that you see, as I mentioned, the broadcast, government, enterprise. And our customers really appreciate our approach of a single vendor, all internally developed technology, to solve the difficult video needs. And this really sets us apart from the many single-point solutions that are offered by our competitors throughout the entire video streaming ecosystem or those, I would say, as competitors that also serve but only a very specific vertical market. Now clearly, the B2B market is massive, right? The video infrastructure market is massive. Our homes, all have been upgraded bandwidth, right? And we have increasing Internet speeds. We all enjoy online gaming. We all live stream movies in 4K today. And of course, we're on social media constantly. I mean this enhanced interactivity with video is what professionals today demand at the workplace. And our focus has always been on the real-time low-latency streaming, cloud routing and delivery to professionals anywhere in the world most efficiently, which accounts for about 65% of the addressable market. The addressable market -- the total addressable market, I should say, really can be divided by market verticals. I mean the broadcast segment, although the largest, is generally dominated by on-demand. We feel that the largest growth opportunities are actually in the live portion of the market across broadcast, enterprise and government and defense. Haivision really provides in all the areas necessary of hardware, software and services to deliver the complete video streaming infrastructure solutions to our customers. On the next slide, if you actually look at our customers, I mean, we've got -- over our 18-year history, we've really amassed an influential and what I would call an envied installed base by our competitors. And our solutions help the top 33 of the Fortune 50 companies solve their mission-critical video needs. And in addition, over 70% of our business in each fiscal year is actually generated by customers who also are customers in the prior year. I mean this really shows repeatability, and most importantly, demonstrates predictable revenue. And the world simply turns to Haivision to solve their real-time mission-critical video needs. Let me actually give you a few examples of some of the use cases just to illustrate the point. So McKesson is a Fortune 50 health care company that distributes pharmaceuticals and medical supplies and provides health care information technology and care management tools worldwide. And they actually turned to CineMassive, who actually we acquired last year, to build a new global security operational center, which we often call GSOC, to monitor the growing cyber and physical security risks to protect the company's people, the products and property around the world. I mean their GSOC team has gained real-time situational awareness from more than 700 facilities worldwide. Very, very cool use case. If you look at the next one in the defense, actually over 14 years ago, the U.S. Department of Defense, and actually in particular, the team at SOCOM, right, the U.S. Special Operations Command, have reached out to us because of our low latency and code reputation. And they had a particular requirement of handling data, which we call metadata, alongside the video streams to support mission video originating from the manned and remote-piloted aircraft. After an industry-wide technical evaluation of proof of concept, Haivision actually was selected as the key video technology provider for the U.S. DoD. And our technology was actually responsible for reducing the glass-to-glass latency for the video to get from the platform camera or the sensors, or as we call them the birds, down to the pilot, operating them very remotely from over 7 seconds to under 1.5 seconds. I mean, this was a game changer for the U.S. DoD back in 2009. Now since that beachhead victory, Haivision has actually become the trusted video partner to the U.S. government, touching almost every branch of the defense and civilian agencies. In fact, our solutions are deployed through our key departments, including Homeland Security, the House, the Senate, the Pentagon, U.S. -- all the U.S. embassies abroad and even actually the same as Walter Reed National Medical Center. If you look at the last use case in broadcast one. AVIWEST, in fact, the company we just acquired and closed the deal last month, was actually appointed by UEFA, which stands for the Union of European Football Association, to create a bonded cellular ecosystem to broadcast live, selected off-venue events, including official team training and press conferences from the Europe's biggest football show, right, which was UEFA Euro 2020, which actually was postponed to last summer of '21 because of COVID. But with 51 matches that were held in 11 whole cities all across Europe, the event clearly had its challenges. UEFA actually leveraged AVIWEST's PRO380 bonded cellular field units. It streamed hub transreceivers and the management platform to address the associations mobility, flexibility and reliability challenges. It was a resounding success. So that kind of gives you some idea of some of the use cases. And of course, there are many, many. If you quickly switch to Slide 13, we are pioneers in the area of ultra-low latency encoding. In addition, our advanced research and artificial intelligence and machine learning further optimizes the video encoding based on content, scene complexity, network transmission conditions and the type of consumption devices used. In fact, live events or critical field operations require real-time video transport that is resilient to transmission errors. And it is for that reason we actually created and developed the SRT technology to address these challenges, and I'll talk about that later. I mean these are all a testament to our forward-thinking nature and industry leadership in real-time video streaming. Let's talk a little bit about the technology on Slide 14. Our engineers have been working in the space, as I mentioned earlier, for over 35 years. And we are currently selling, believe it or not, our 11th generation encoding platform. That in itself is pretty amazing. Very, very few companies can span the development spectrum from core hardware design, all the way to cloud-native deployment. And it's this unique breadth that allows Haivision to offer end-to-end solutions developed in-house to deliver exceptional quality and reliability, and I would say, most importantly, predictability to our clients. We also provide a global and elastic orchestration layer for video management and processing and routing to the connected cloud. And this is handled in the cloud with central management software and control of edge devices. And intelligence is actually applied to optimize media acquisition and routing. And our systems are also certified to meet the highest security levels, demand and defense, medical and broadcast applications. I mean this is a definite competitive advantage and a significant barrier to entry. So I mentioned SRT. I'll spend a little time on that. I think it's very important. Video transport over unreliable or unmanaged networks like the public Internet can adversely impact quality and latency, and we all know that. And we recognize this need for a new approach to connectivity back in 2011, that's over 11 years ago, when broadcasters actually first approached us with the desire to reduce the cost of and increase the flexibility of contribution links over satellite. I mean the result was SRT, which actually stands for Secure Reliable Transport. And it combines all of our expertise and stream resiliency and networking to address a specific challenge. In fact, we first demonstrated SRT back in 2013 by connecting a hotel room to the IBC conference center in Amsterdam with real-time broadcast-quality video over a horrible public network. And it was an instant hit. And we then actually incorporated SRT within all of our products and proved its usefulness at a global scale. And then in 2017, we actually seized the opportunity to lead the market. And we open-sourced our crown jewel, the SRT protocol, during a huge splash at the NAB conference in Vegas. Again, a resounding success. Now at the same time, we actually formed the SRT alliance to promote the adoption of SRT worldwide. And this initiative resulted in all the largest names in broadcast, media, streaming and cloud, all standing forward with support. And today, actually, our SRT open-source initiative is celebrating its fifth anniversary and has been adopted as an industry standard by streaming protocols that's supported by over 550 companies, including customers and vendors and competitors. And in fact, in 2019, we actually received an Emmy award for spearheading this de facto industry standard for transporting video security and officially on public networks. Let me quickly pass you to Dan, our CFO, and I will come back to summarize before we go to questions. Dan?

Thank you, Mirko. Our acquisition history is particularly noteworthy and demonstrates why we have led the market. In 2009, we acquired Video Furnace, which provided software distribution capability alongside of our contribution heritage. That was quickly followed by Coolsign, providing signage capabilities within live real-time video streams. The following year, we purchased KulaByte and Montevideo, which provided us over-the-top Internet streaming expertise. In 2019, we purchased LightFlow that provided us artificial intelligence and machine learning expertise within the video streaming ecosystem. The next year, we purchased Teltoo, which enhanced our delivery capability with web RTC low-latency browser to the desktop technology, peer-to-peer scalability and advanced analytics. In 2021, we purchased CineMassive that extends our footprint within the government, enterprise and defense verticals to video collaboration systems. Think video within global security operation centers or GSOCs. Most recently, we purchased AVIWEST, which combines 2 industry leaders in low-latency video contributions. A little bit more about the last 2 acquisitions coming up. CineMassive, which was recently rebranded as Haivision MCS or Haivision Mission-Critical Systems provides visualization systems purpose-built for mission-critical operations. In fact, Haivision had been fueling these systems with video for many years. At the heart of their solution is the CineMassive management software, an intuitive interface that can be deployed to manage content across multiple rooms, displays and user applications. CineMassive's focus has been in the defense, government, public safety and enterprise space, including installations in financial services, health care, logistics, technology and utilities. We believe we can derive significant synergies by expanding our footprint within existing customers, some of which are shared customers already; expand CineMassive's presence internationally where we have a significant sales presence; and expand Haivision's presence in the first responder and public safety verticals where CineMassive has a significant presence. Haivision has always been the premier vendor for ultra-low latency wired video networks. We are now combining forces with AVIWEST, a premier vendor for ultra-low latency wireless video networks. AVIWEST has a unique IP bonding technology that aggregates multiple network connections, including 5G cellular. It dynamically adapts video bit rates according to network bandwidth fluctuations. It protects stream content and supports the retransmission of lost data. A cornerstone of their solution is AVIWEST's award-winning proprietary SST protocol, which is integrated into all of their products. We believe we can derive significant synergies by providing complete solutions, both wired and wireless, to our common customers; extend AVIWEST's presence into the defense, first responder and public safety verticals; and expand their presence into North America, where we have a significant sales presence. Our financial performance has been noteworthy. In fiscal 2021, we realized revenues of $93 million, representing a compound annual growth rate of 22% since inception. Our gross margins have increased over the last few years as we continue to introduce highly desirable products and services. In fiscal 2021, gross margins were about 75% as more of our software is being sold as software-only offerings or virtual machines rather than sold as part of an appliance sale. As Mirko mentioned, what is particularly compelling is that we've built this business with limited outside capital. Prior to the recent IPO, we had only raised $8.25 million in outside capital. And the last time we had raised capital was in 2007. Thus, we have always focused on profitable growth. We are proud of our 15 consecutive years of positive EBITDA, including 31 consecutive quarters of positive EBITDA. Similarly, our EBITDA between 2017 and 2021 has been growing at a compound annual growth rate of 42%, a rate that's faster than our revenue growth. We certainly have multiple avenues to accelerate growth. In the near term, we plan to continue to expand within our existing customer base, continue to build on our sales force and expand geographically; expand our product portfolio and exploit the opportunities presented by our new native SaaS products, that's Haivision HUB and Haivision Connect; and identify meaningful acquisitions and deploy the proceeds of the offering to turbocharge our growth. In terms of M&A, our M&A pipeline is still robust. And we are still focused on adjacent product technologies, new market opportunities that are synergistic to our core competencies, geographical and market expansion, and businesses that can accelerate our recurring revenue. We believe we can accelerate revenue growth in fiscal 2022 and beyond and leverage our established infrastructure for increasing levels of profitability. Mirko, back to you.

Thanks, Dan. So let's just summarize. I mean, it's -- look, we have built a sizable business, right, that has the ability to scale and aggregate a fragmented video streaming market, and Haivision can really serve as a platform for growth. And we have the proven expertise, and we have a proven team that has successfully integrated 6 acquisitions to date with 2 new ones actually in process. And as I said earlier, we have been great stewards of capital. As we gain scale, the investments we've made in product development and in our sales organization will enable us to drive operational efficiencies to accelerate profitability at a much higher rate. I'll leave it at that. Thank you for listening, and we will be happy to take some questions.

Perfect. Thanks, Mirko. Thanks, Dan. [Operator Instructions] We do have quite a few questions in the queue already. So I'll just get going for you guys. So first question is, assuming that your products are not commoditized, can you just get into the core differentiation between your products and perhaps your competitors?

Yes. Well, we've got different hardware, software, cloud products. I think the big difference is that, as I mentioned earlier, our expertise and know-how and building multiple generational technologies has actually enabled us to have all internally developed technology from an end-to-end experience in all the different markets. I mentioned contribution, distribution and delivery, and these are 3 pretty important metrics of a streaming ecosystem. And when you start putting that into the 3 verticals that we're in, government, like defense, the broadcast and the enterprise, we really differentiate ourselves from being able to address all of those markets, but also the actual end-to-end ecosystem with our own internally developed technology. So when you see some vendors, there's a lot of pure-play vendors out there, there's a lot of point solution vendors. Of course, people say end-to-end. I mean, end-to-end what they provide. But we -- our mantra has always been everything developed internally, and that is what differentiates us. We don't OEM or license or resell or glue together technology. We've -- we actually own everything. We actually develop everything. We integrate everything so it actually works both from a hardware, embedded systems, software and cloud infrastructure. So that is really what differentiates Haivision from experts in networking, end-to-end edge cloud deployment. I don't know if that helps answer that question.

I'm sure it does, but I've got quite a few questions that came in on this topic. So I'm just going to stick with it for a bit, Mirko, because it seems it's a core area of interest. So when you view -- sorry, who do you view as your core competitors? And how do Brightcove and Vimeo fit into that competitive sphere?

Yes, it's a very good question. In fact, we've got quite a lot of competitors -- I would say, fragmented competitors. I can't really put out a name that actually would be very similar to us because we -- again, we compete in 3 very key market segments, right? So if you go to the defense, you've got a whole slew of different companies than, for example, you might go to the enterprise, which again is a whole different ball game when you go to the broadcast spectrum, right? So we've already got that differentiation where we play in all 3 very, very effectively. And then we've got the -- on top of that, you layer -- we've got a lot of competitors in the contribution space. We've got a lot of competitors in the distribution of video space, and then, of course, in the delivery. And a lot of these people don't play in all the other metrics. So there is no real competitor that I could say, "Okay. They do everything we do." Because that's not the case at all. In fact, we compete effectively in the contribution. That's our strength. So there, we tend to be a very, very strong competitor with -- I can name you a lack of different people in the contribution space. In fact, with the recent acquisition, we're competing heavily now with LiveU and TVU and [indiscernible] which we never competed with before because we didn't do wireless. Now we do wireless and wired. So we're actually taking it again to another broader spectrum. Then you've got other people that we only see in broadcast. So -- or enterprise. So you mentioned Vimeo. Well, that's a consumer type of base. They get into some professional markets, but that's an OTT, a streaming platform where we don't compete in that space with them. We would -- we deal with enterprises where they want to do internal video distribution, and then we deal with the streaming customers that want to go outside the firewall from a professional perspective and user engagement perspective. And we also feed those systems as well. So for example, you mentioned Brightcove. There are areas we compete with Brightcove, actually including Kaltura. But there's other areas where we actually partner with those guys because they use our encoders, our contribution systems to feed their distribution systems. So it gets a little complicated of competitive -- competition. The bottom line is it's a very fragmented market in 3 different verticals. What benefits -- what we benefit from is that we have a complete end-to-end system delivery edge-to-edge routing cloud in all 3 sectors where we can actually compete as a one-stop shop for customers, and that's where a lot of our end users appreciate Haivision. The one throat to choke, and we can actually do more than multiple other vendors under one roof.

Okay. Great. I'm going to beat this horse a little bit to death because I still have a few questions here. So to be more specific, and if you can answer it, Mirko, is -- within broadcast media, within enterprise and within government, can you maybe name sort of your 2 or 3 top company that you run up against in those sectors? And then maybe I think that addresses a lot of the folks' questions.

Well, I think [indiscernible]...

If you can't...

I hate naming competitors, honestly, because none come to my mind at the moment. I mean it's such a fragmented market, right?

Okay. All right. We'll keep going then. How does your 70% repeat customers translate to recurring revenue? And can you talk about the stickiness of your customer base?

Dan, do you want to answer that one?

Sure. Let me take that. First, I want to be very specific. When we say that 70% of our customers in 2021 were customers that bought from us before, we were really speaking to the predictability of our revenue streams. We have seen that our customers continuously expand their footprint. They expand their needs. They buy additional workflows from us. So that gives us comfort that we have predictability in our revenue. Now in terms of recurring revenue, we have several sources of recurring revenue. We have maintenance and support agreements with our customers that are renewed on an annual basis. We have managed services, particularly in a subset of our broadcast sector, where we have annual or 1-year, 2-year or 5-year contracts with these customers that are renewed on a regular basis. And then we have certain SaaS properties. That's our Haivision HUB and our Haivision Connect that also represents a recurring revenue business. So approximately 25% of our business is considered recurring from a classical sense. On top of that, we have what's known as programmatic business. This is not necessarily contracted revenue, but it is programs that we are intimately familiar with, that we have been providing product for, that will be implemented over several years. One such example is the State Department who is doing a refresh of their video systems in all the embassies across the world. Every year, they are updating 30, 40, 50 of these embassies, and there's approximately 180 embassies out there that need to get retrofitted. That's a programmatic business that we have visibility to that brings the amount of predictable revenue up to that 60% level in each given fiscal year. Then, of course, we take that and we add the fact that our customers tend to be repeat customers. It gives us a lot of visibility and a lot of predictability in our top line revenue.

Thanks, Dan. Sticking on this topic, the 70%, do you see that figure as sustainable? Do you see yourself growing it? Give us sort of an idea of what that rate could look like down the road.

Well, it has been a historical average for a number of years -- for a half dozen years. And we don't see any reason why our existing customers won't continue to be expanding their video workflows using our properties going forward. So we believe that, that's a sustainable number. Now we have 2 new products, 2 new offerings through CineMassive and through AVIWEST. But our understanding is that their historical repeat is about the same as ours. So we don't believe that that's going to go down. We think it's sustainable. And again, as we continue to focus on expanding our footprint within our existing customers, there's opportunity for that number to go up.

Perfect. And just sticking on this topic for one more question. Do you have any important learnings or takeaways from the 30% that don't repeat with you?

Well, I don't think it's one of these -- it's a metric that's measured by repeat versus not repeat. Our business is constantly growing. So we're looking at our current business and making a determination as to how much of that business came from customers that were there last year. That doesn't necessarily imply that there are customers that don't buy from us having had bought from us in the past because we're constantly growing. Over the last couple of years, we've grown -- last quarter, we grew 23% year-over-year, right? So I don't think it's a one-to-one to suggest that because 30% are not part of that repeat number, that they haven't bought from us before. That's one observation. The second observation is that to some degree, our business is somewhat project-based, meaning a customer is building a building, they're building a boat, they're deploying aircraft, they're deploying drones, and that's when our sales teams get engaged, when there's an event that needs to be sort of supported by our products. Does that answer the question?

I hope so. If not, we'll get a follow-up. All right. Next question, I guess, a technical question. Are there machine learning vision algorithms embedded in your hardware?

Yes. That's a great question, and the answer is no. But the -- what we have is we have a lot of AI/ML technology that we do program within our FPGA technology boards and our solutions, but not at the vision type of level. What we do is we, at the moment, networking and how to make a network effective and also maybe like a scene complexity type of stuff. But what we are doing is we are expanding that. And not to say that we won't have that in the future, but that is absolutely one area that we are considering seriously.

Okay. Some revenue-related questions. I'm not sure if you touched on this, Dan. You may have and I may have missed it, but do you break out your hardware sales versus subscription recurring revenue? And if so, can you just talk about that?

Well, we don't formally break it out in our disclosures or our MD&A. But what we have said, and this has held true for quite some time, is that approximately 50% of our revenue is hardware-centric. Approximately 20% to 25% of our revenue is software-centric, and the remaining 25% to 30% of our revenue is services, recurring revenue-centric. That has held pretty consistent for a long period of time. And again, as we digest AVIWEST and we digest Haivision MCS, we may see those numbers move. But generally speaking, it's approximately 50% hardware, 25% software, 25% services.

Okay. In the past, have you ever reported on what your internal sales growth would have been without acquisitions? Is that something that you've made public?

We have not made that public, and there's really a good reason for that. Obviously, well, AVIWEST represents our eighth acquisition. And having had that much experience in acquisition, we are very quick to assimilate companies. We are very quick to make sure our sales teams incorporate the full breadth of products that are being offered. And what we find is that there are certain products that are driving sales, but there are a lot of attachments that make it exceedingly difficult for us to identify that this revenue is really AVIWEST revenue or this revenue is CineMassive revenue or what have you. It is the reason why we've been so successful with our acquisitions that we're able to assimilate them as quickly as we do.

Okay. And sort of sticking with this theme, have you been able to -- or can you talk about what the organic growth rate is once those acquisitions are in place?

Well, again, we believe that there's an opportunity for synergistic growth with either of these last 2 acquisitions, particularly as we're able to take -- supplement their existing sales force with our sales force and bring their products to new geographic markets. But our overall belief is that this market is growing 15%, and we should be able to grow organically at that same level. In fact, we've been growing at a 22% clip since the business -- the company is founded. So that's generally our position.

Great. You've just answered one of those questions that I had coming up. Can you talk about the revenue split between broadcast, government and enterprise? Do you split that out?

Well, we don't formally split that out either. But it is kind of interesting because we have just looked at those statistics. Historically, our business has been about 1/3-1/3-1/3. Some years, we see growth in one market that's averaging the other markets and what have you. But what is interesting is that CineMassive, Haivision MCS, has historically been enterprise, government defense-centric, whilst AVIWEST has been historically broadcast-centric. So even adding these 2 acquisitions to our mix, we're still at about 1/3-1/3-1/3 going forward.

Okay. Thank you. Again, this goes to a disclosure question. And if you haven't done this publicly, this isn't the call to do it on. But have you talked about where you see your long-term EBITDA margins going as you continue to scale the business?

We have given sort of directional -- some directions to where we believe our normalized EBITDA margins would be. We believe in scale. We can derive 20% EBITDA margins. We do believe that we're getting to the point where we have that level of scale, but we are a little bit behind in integration with CineMassive for good reasons. And we are beginning to see some headwinds that are changing our cost structure a little bit in the interim that we need to address going forward. So although we had hoped to be at that 20% level in 2023, we think it's going to take us a little longer to get there.

Okay. Thank you. Some more generic-type questions. Given the current economic environment and -- I guess, how do you see the current economic environment affecting your business both from a negative and a positive standpoint, things like inflation, price pressures on your products costs and how that impacts renewals, contracts, et cetera?

Well, let me talk a little bit about what we're calling the headwinds that we're facing today. There are a handful of headwinds that we've spoken about in the past. The first, the one that we're dealing with quite regularly, is constraints of supply chain. We have a number of supply chain experts within our business, and they have made sure that we can bring in the componentry and the items necessary to be able to fulfill our sales line. And the good message is that we've been able to fulfill all of our customers' needs in the first quarter and the second quarter, and we're well on our way being able to supply our customers in the third and the fourth quarter of this fiscal year. But it hasn't been without a price, and we see that price being conveyed in a couple of ways. There are certain elements, certain components that are costing us more than we have had to spend in the past. The lead time for significant components have also expanded over some period of time. And that has necessitated us in buying additional inventory now to support our future needs. That has cost us in terms of the level of inventory that we've had. We've had to increase some of our deposits with our contract manufacturers so that they can ensure we have the componentry necessary to fulfill our customers' needs. So -- and again, we've paid a little bit more for componentry. I think I mentioned in our last earnings release that in our first quarter, we probably incurred about $0.5 million of additional expense in terms of cost of goods sold that we would not have seen had we not been going through the supply chain issue right now. So that's one item. The second item is the retention and attraction of employees. There's no doubt that our employees are viewed as skilled practitioners, and a lot of people have been going after employees. That has resulted us in increasing the raises that we have to give to our employees. It's increased the cost of being able to attract new people to our business. It has just generally made the cost of employment higher than it had been in the past. And now we're beginning to see that those higher employee costs are being transmitted through our professional services that we also procure on a regular basis. So we're beginning to see all of these headwinds having some impact on our business, but we also have plans in place to be able to mitigate much of that exposure going forward.

Okay. Dan, likely some overlap on this question, but I'll ask it and maybe you could fill in some gaps. How did the pandemic drive incremental sales and long-term changes around the broadcast/media industry? And should some of this be viewed as partial pull-forward? Or was this mostly incremental with setting up at-home studios, for example?

Well, let me take that one. I mean, I think that's a great question because we've gone through 2 years now of the pandemic. And there was absolutely no question, an increase in the broadcast business across all sectors because of work-from-home, remote everything, right? The good news is that it did spike up business in the short term actually. For us, we've been growing our broadcast revenue well before the pandemic anyways since all of our solutions are aimed at remote production, right, and real-time remote anything. So we've been working on this for quite a long time. What the pandemic has actually done is continued our growth in that business. But what it did is a lot of people that were thinking or sitting on the fence were saying, "Yes, yes, yes. We know this is important. We'll get to it one day." All of a sudden, had no choice. They were scrambling like mad. So the business actually picked up dramatically, where all of those customers had no choice. They bought systems. Our broadcast business has grown significantly since then. Now is it going to continue? We believe it is going to continue. Maybe the high spike is coming down. That's for sure, because most of the people have already installed systems. But it's going to significantly increase all over the world. Where stay-at-home culture is there for good, everything is going to be remote, people have finally realized that the cost of streaming high-quality video is possible today with this kind of technology, and that is here to stay for sure. So we don't see that slowing down. We see that continuing, and it's just not only in the broadcast sector, but that was the first one that was obviously the most apparent.

Okay. Thank you. And sticking to the macro theme. Have you seen demand increase for your business with defense and government, with the current war in Ukraine and increased NATO spending, U.S. government spending, et cetera?

Great question. I would say at this point of what we can talk about is, unfortunately, any time there is something going on in the parts of the world, we do see some revenue pickup just because that's the nature of our client base. I mean the good news is that all of the NATO [ 5 ] nations and the partners including, of course, the U.S., are big users of Haivision equipment already, right? So we have seen some projects move forward that were already planned because of the tension. I wouldn't say anything significant that's going to -- making a big difference in our numbers because we also -- a lot of our business is programmatic as well, right? So when we talk about predictable revenue or just recurring revenue, we deal in multiyear, large governmental deployments. What we've seen is some are moving forward, some are moving to the right, some are moving to the left. But nothing significant, except that it's a robust business. And we are a major provider globally, not just in the U.S.

Okay. What do the big cloud providers like AWS and Google, Oracle, Salesforce use for their video technology?

Well, I guess it depends what the question is, for what purpose with our technology. So it's for contribution, which is I think where the question might be, is any kind of encoding platform, whether it's software, hardware, can go up into the cloud, right? The question is what format, what standards they're using. And that's one reason why we wanted SRT to become this de facto standard, which means that we basically allowed a common operating protocol to be the thread that binds all vendors together for these cloud providers. And the idea of that is, of course, if it's SRT-enabled, we have a very, very good chance that we're going to have a very good performing competitive SRT product as being developed with SRT, right? So that's always been our strategy, right, is to really own the edge. So to be able to feed and feeding edge device into all of these cloud systems.

Okay. I hope that answered it. And if not, we'll get a follow-up. Notwithstanding your classified contracts, do you have infrastructure contracts with government transit systems?

Government, what? Sorry, I missed that.

Transit systems.

I'm not sure what that means. What...

Transportation, subways, metro.

Candidly, I don't have the answer to that, but it's something we can look at later.

Okay. Good. A question about your intellectual properties. Can you just talk a little bit about your intellectual property? Do you own it? How much of it is open source, et cetera.

Dan, do you want to take that question?

We'll try to answer it. I'm not sure we'll do it. All of our technology is developed in-house. I would say that more important than patents -- we do have a handful of patents, but more important than the patent is really the know-how that goes into this. As Mirko kind of alluded to in his prepared remarks, we have engineers that have been part of our solutions for 35 years. There's very few companies out there that can claim that they produced their 11th generation of encoder. And it's because of that experience, we're able to provide low-latency -- ultra-low-latency high-quality, high-performance systems to this marketplace. It is our know-how that protects us. It is our certifications that we get associated with our hardware that protect us, and it's our relationships with our customers that protect us more so than the intellectual property. In terms of open source, the only technology that we've open sourced at this juncture is our SRT, Secure Reliable Transport protocol. And the idea behind that was to make it a de facto standard so that all products could interoperate at a high level to serve our customer needs better.

And I would just add to that, Glen, is that we do, however, feel very, very passionate about open-source projects. And I think the SRT is a great testament to that. And we are working on a lot of interesting technologies that I think will end up being game changers, just like the SRT has been. And we're actually working on a massive project right now, especially to address the multicast problem in the world where the P2P stuff is just not cutting it, right? And so you'll see a lot of stuff from us in very interesting technologies to kind of maintain our leadership, and that's actually going to be a big open-source initiative from a Haivision perspective that's going to be building on our SRT heritage. So -- and that's something very, very important, I think, in the technology field.

Okay. Thank you. Speaking of technology, with your move into the cellular 5G space, what role do you see your experience with SRT having a role in this space?

It's a beautiful complement. In fact, now that we're combined with AVIWEST, which is really the ultra-latency leader in wireless 5G stuff, together with the wired, if you think about it, I mean, we can now provide solutions that can address effectively any requirement for video, right? So SRT, remember, is a routing to go from point to point, whereas if you look at SST, which is the AVIWEST-patented bonded technology, is really is to take out more on the core of the network infrastructure and be able to actually have with the 5G, very, very compelling private networks at a very high bandwidth and give that security to markets that actually have never been able to use this kind of technology, except they have to use radio or line-of-sight type of stuff in a market that comes from this first responders: the blue light, the police departments, especially defense. And this is actually where we have been starting to actually implement our SRT technology for the higher-end side. That's the stuff that cloud's enabling. But now with the 5G, the future really is to take into these markets is their patented bonder technology where they can actually set up these private 5G networks and then blend them together with the outside of the SRT network. So they're very, very complementary. But we have both now, right? So we say, again, we're in a very unique position. In fact, there is no other company right now that can say -- we can say in both the wired and wireless, right? And again, back to remember your competition slide, it's like it's difficult because we're playing with people that are playing in the different fields. We're actually playing in both of these. And I think that's another huge benefit of Haivision that nobody else has.

Okay. Thank you for that, Mirko. We've got about 10 questions in the queue still and 5 minutes to go. So we may go a couple of minutes over board for our audience, if that's okay with you, Mirko and Dan. And if not, then you'll end the call. So I've got a few questions here from one individual. On the government market, how lumpy is this market? Or how much does it depend on the approval of federal budgets?

It's a great question. One of the things -- we have a very strong government team, which actually does both enterprise, ISR, right, and the core defense stuff. And we don't chase projects, right, that are not funded. Put it that way, okay? So one of the things that we do is we work very hard with the end users, with the clients. And we actually work on budgeted programs. So is there lumpiness? Of course, there's lumpiness, right? Can you exactly predict when things are going to hit? It's not that simple. But what we work on is once we win these projects, these are multiyear projects, and then we have a better time line on deployment of these projects. And we've got many examples of those that we've already been doing for the last 14, 15 years. And I think it gives us even more predictability, right? The only difference is which quarter and how the government purchases, which has been changing as well, right? With all the different changes of administrations in the U.S. in the last 4 years, it's been different buying cycles. So it gets complicated, but it's something that when you look at our 3 markets, we kind of have a benefit compared to a lot of other companies that only have one market or they only focus on one specific market. We have the broadcast ways, we have the enterprise, and then we have the government and defense blended together that actually gives us a very nice predictable revenue stream.

Next question is, can you compare/contrast the AVIWEST proposition to companies' named mobiles, viewpoint, TVU, LiveU solutions?

Well, it's -- I don't think I'm in a position to be able to comment on all the differences in technology at this point. But everybody just mentioned, are all of our new competitors. So I can say that we are absolutely -- we got them in our sights. We are going to be extremely strong competitors to try View and TVU specifically because they're the 2 guys that are the largest players that have kind of been without competition. And I think with Haivision entering that space, we are now not only the same, not bigger in size, we also have a lot of other technologies that they don't. So I think we're going to change the game field there. Mobile Viewpoint is very, very small. They were just picked up by Vislink. So yes, we'll be competing with them as well, but that's in a much smaller scale. And of course, I don't know if you had mentioned or not, but the Geos the other guys. They are Canadian guys, and we'll be competing with them as well. So the benefit that Haivision has right now, honestly, is that we are so excited to be in the wireless space now and add all of our states in the wired space that we're going to be dominating. I mean we've got our accounts that all use Haivision are already calling us and say, "Hey, I want to try your stuff because we need wireless." And they might be using somebody else's technology. Why not get it from one vendor? That's what we're going to be able to produce to the client. We have a one-stop shop, and they can trust our -- they trust our quality, user reputation, they trust our reliability. And I think it's going to be a very different landscape in the wireless space in the next 12 to 24 months.

Okay. Given that there's a massive investment to reduce latency, do you believe that you can reduce more latency going forward?

Well, that's been our life from the beginning, right? I mean we've got many, many, many firsts. And in fact, the good news is that AVIWEST is in an exact same spot. They are absolutely the first and the best and the lowest -- I mean they have achieved the lowest, lowest end-to-end glass-to-glass 5G latency just now in the Beijing Olympics. I mean no one is even close to that. So yes, the answer is, of course, we're going to try to keep it going, and we will. The good news is that we are the leaders, and we're going to continue on our heritage. And I think that's what it's all about. It's -- like Dan mentioned, right, it's our know-how. I mean we have the most compact, the most dense systems on the planet. Why? Because we've been doing this for a long time, over and over. We know how to make things smaller, better, lighter and more effective. So that's a secret sauce, very simple.

Thanks, Mirko. Now we've hit the top of the hour. I've got a few more questions here, so we'll go maybe another 5 minutes. But if you have to drop off and you're listening, just remember this call is being recorded, and we'll make the replay available through the same link in a couple of hours. So some financial-type questions for you guys. So first question because it leads to others, have you guys given any kind of guidance for 2022?

We have given some guidance to 2022. We -- the last guidance we gave was that we believe revenues will be around $130 million or better for this fiscal year. Remember, our fiscal year ends October 31. We will be the beneficiary of a full year of CineMassive's revenue in this fiscal year and will also be the beneficiary of 7 months of AVIWEST revenue in this fiscal year. So we're looking at about a 30% increase in revenue year-over-year given the 2 acquisitions. We've also given some guidance that we believe that EBITDA will continue to grow a little bit faster than where we -- than our revenue growth. But we are facing these headwinds, and we are addressing these headwinds to ensure that we can deliver on that EBITDA line that we've suggested in the past.

And I'm sorry, Dan, can you just repeat what that line is on adjusted EBITDA?

Adjusted EBITDA, it's going to be under $18 million, which is about a 40% increase from last year's $12 million.

Perfect. Thank you. Can you talk a little bit about your current cash flow and balance sheet situation and sort of how you see that moving forward?

Well, as we promised to our investors, the use of proceeds from the IPO was largely going to be for acquisition. And our first significant or impactful acquisition was CineMassive, which was structured half in cash and half in stock. The AVIWEST transaction, which is also a very strategic acquisition for us, was structured as an all-cash transaction for specific reasons. So we still have the credit facility available to us. It's a $35 million facility that's available to us, that can expand to $60 million, assuming we can reach our EBITDA targets. And so that will enable us to continue the strategic direction that we've been going. In terms of balance sheet direction, I'm not sure what more I can say to it. We had always been a very efficient user of working capital to build this business. As we mentioned before, we had not raised significant money prior to the IPO. And we continue to be a relatively efficient user of working capital. Now things have changed a little bit as we've had to make investments in inventory and deposits to support supply chain. But other than that, we still believe that we're going to have -- that our balance sheet is relatively efficient going forward.

Okay. Can you talk a little bit about your margin profile in each of the end markets? Are they similar? Or are they different? And if so, maybe a little bit on the -- what differentiates them.

Well, I would say that the cost structures -- the markets themselves are not hugely disparate in terms of overall margin. But I think that the way that each one of these markets tends to operate results in differences in margin that we have to understand. So for instance, in our defense space, our defense customers tend to be a little bit more hardware-centric. They tend to purchase best-of-breed components to fill their workflows. They also tend to buy spares rather than buying maintenance and support agreements. And they tend to get supplied through fulfillment partners than resellers. So it's a different construct the way we go to market with our defense customers. On the other side of the equation, our enterprise customers tend to be more through resellers. They tend to look for overall solutions, end-to-end solutions, which can include contribution hardware and our distribution software and delivery software. So it's a very different mix of products, but they're looking for that one throat to choke. They're looking for that one vendor that can supply all of their workflow needs. The broadcast business is a little bit different than that. Our broadcast customers are increasingly coming more direct to us. They tend to have more sophisticated production people within their businesses. They know how to assemble workflows. We obviously assist them when we go forward. But again, that's a very different go-to-market channel than the defense space. The result of it is not that our products are giving different margins. It's really the way that we go to market that results in different profitability across those markets.

Super. This is going to be my last question, and then maybe, Mirko, if you want some closing remarks. So when you're considering your acquisitions -- or future acquisitions, typically, what are the things that you look for? And what sort of EBITDA multiples do you tend to look at when considering those type of transactions?

Well, as I kind of spoke to before, we're looking for adjacent technologies. We're looking to extend our geographic breadth. We're looking to expand our footprint within our customers, and we're looking for technologies that we could build a lot on. Now as we've said in the past, this infrastructure streaming market is a very fragmented market. There's a lot of companies that do very little revenue. There are fewer companies that can get past the $10 million line. There's even fewer companies that can get past the $25 million line. Because of the fragmentation, we're dealing with a number of businesses that aren't up to scale. And so I don't -- we tend not to look at EBITDA multiples when making determinations as to what we're going to pay for a business. We kind of look at the revenue, the revenue growth, the leadership they have within the organization and the synergies that we can derive. What we have said is that we do not like to buy losses. We have not really bought any companies that aren't generating some level of EBITDA for us. And we spend an awful lot of time making sure that we can get those targets to what we believe to be acceptable levels of EBITDA going forward. So the EBITDA multiple concept is a little bit off given the life cycle of where our targets generally are.

Okay. Super. I have no further questions in the queue. If I didn't get to your question, again, I'll go through them and we'll see if we can get it answered via e-mail. Mirko, Dan, just if you have any closing remarks, and then we'll end the call.

No. Nothing I can think of. Obviously, a lot of good questions. Well, thank you everybody for coming, listening.

Super. Thanks to the 2 of you. Thank you to the audience, and this concludes this presentation.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.