HAIVF (HAIVF) Q3 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to Haivision's 3 q 26 earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press 1. To raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Miroslav Wicha, President, CEO, and Chairman. Please go ahead.

Thank you, Tracy. Good morning, everyone, and thank you for joining us today. I would like to begin by putting our third quarter results in the broader context of where Haivision is today. Where we believe our markets are heading, and why we remain confident in the long term opportunity ahead of us. For the third quarter, we reported revenue of 34.5 million and adjusted EBITDA of $500 thousand representing about 4.3%. Now while our quarterly performance reflects some of the timing variability we have discussed previously, particularly around larger customer deployments and procurement cycles we continue to see healthy customer engagement, and a solid pipeline of opportunities across our business. More importantly, we look beyond any individual quarter, we believe the fundamentals of Haivision are strong. We operate in markets where secure, reliable, real-time video is increasingly mission critical. We serve customers in broadcast and defense, public safety, government, and enterprise environments where video is not simply content; it is operational information that needs to reach the right people securely and reliably, and in real time. That distinction is important. We are not trying to compete in commodity video markets; our focus is on demanding mission critical applications where reliability, security, ultra low latency, and quality matter. These are environments where failure is simply not an option. And we believe the importance of these applications is only increasing. Around the world, organizations are dealing with more information, more video sources, more distributed operations, and a greater need for real time situational awareness. Whether it is a broadcaster covering a major global event, a defense organization supporting a mission, public safety agency coordinating an emergency response, or an enterprise operating command center. Customers increasingly need to capture, transport, manage, and distribute high quality video securely and in real time. That is the market Haivision has been building for. Over many years, we have developed a portfolio of technologies and solutions that address these requirements across the video workflow from contribution and video transport to management, visualization, and decision-making. And we continue to believe that the combination of technology, our installed base, our customer relationships, and our expertise in these highly demanding environments gives Haivision a strong competitive position. At the same time, we are operating in an extraordinary global technology environment. Supply chain conditions across the technology industry continue to be extremely challenging. We are seeing constraints and volatility across a number of critical components including memory, CPUs, GPUs, and other semiconductor technologies. These are not Haivision-specific issues. They are affecting technology companies and manufacturers around the world. Tariffs and changing global trade policies are adding another layer of complexity. Component availability, lead times, pricing, and sourcing can change quickly. Making supply chain planning considerably more difficult than it was historically. In fact, it is been flip flopping since February 2022. With no certainty where it may end up. These conditions create challenges not only in sourcing components, but also in forecasting production schedules, Managing inventory, and determining the timing of customer deliveries. I want to be clear. We are not immune to these pressures. But we believe Haivision is well positioned to navigate them. Our team has been working aggressively to manage our supply chain, qualify alternative components where appropriate, work closely with suppliers, manage inventory strategically, and make the engineering changes necessary to protect our ability to deliver products to customers. 1 of Haivision's strengths has always been our ability to adapt. We have built this company through multiple technology cycles, economic cycles, and periods of disruption. We understand how to operate with discipline, and we have an experienced management team that knows our customers, our technologies, and our markets extremely well. Now that experience matters in an environment like this. We are also fortunate to operate from a position of financial discipline. Haivision is a technology company that believes strongly in innovation and growth. We also believe in building a sustainable and profitable business. Over our history, we have been EBITDA positive 21 of our 22 years. I think that says something important about the culture of this company. We invest in innovation, invest in our products, We invest in our people, We pursue acquisitions when we believe they can strengthen our strategic position. But we have consistently done those things with a focus on disciplined execution and profitability. That discipline gives us flexibility. It allows us to continue investing through challenging periods. It allows us to make decisions with a long term perspective. Importantly, it means that we do not have to sacrifice our strategy simply because the external environment becomes more difficult. Our objective is not simply to maximize the next quarter. Our objective is to build a stronger Haivision. And when we look at our opportunity today, there are several reasons we remain optimistic. First, we believe we are positioned in attractive markets with strong long term demand drivers. Broadcast continues to evolve towards increasingly distributed and cloud connected workflows, where high quality, low-latency video transport is essential. Defense and government organizations are increasing their focus on real-time intelligence, situational awareness, and secure communications. Public safety organizations increasingly rely on video and visualization to coordinate operations and make faster decisions. And enterprise customers continue to invest in command centers and operational centers that bring together increasingly large amounts of video and data. These markets are different, but they share a common requirement. Mission critical visual information delivered securely and in real time. This is exactly where Haivision is focused. Second, we believe the breadth of our portfolio creates opportunities to expand our relationships with customers. We have technologies for video encoding and contribution, secure video networking, video management, and intelligent visualization. As customers increasingly look for integrated solutions rather than individual products, We believe our ability to address more of the workflow becomes strategically valuable. Third, we continue to invest in innovation. Innovation has been fundamental to Haivision since the company was founded. It remains central to our strategy today. Our customers operate in some of the most demanding environments in the world, Their requirements continue to evolve, and our job is to stay ahead of those requirements. That means continuing to invest in our core technologies while also expanding the intelligence, the interoperability, security, and the capabilities of our platforms. And finally, we believe there is a significant opportunity ahead of us to scale the company. And we have built a global organization, a strong portfolio of technologies, deep domain expertise and relationships, with sophisticated customers around the world. We believe those assets provide a foundation from which we can continue to grow organically while also remaining open to strategic opportunities that can expand our technology, our customer base, or our geographic reach. None of this means that every quarter will move in a straight line. We sell sophisticated solutions to sophisticated customers. Large projects can move between quarters. Government and defense procurement processes can be lengthy. Broadcasters plan around major events and capital cycles. In the current environment, supply chain constraints can affect the timing of both production and deliveries. I that can create variability in quarterly revenue recognition. We believe it is important to distinguish between timing and demand. Our focus is on the underlying level of customer activity, the quality of our pipeline, our competitive position and the long term demand for the solutions we provide. And based on what we see today, we remain confident in those fundamentals. As we move forward, our priorities are straightforward. We will continue to serve our customers exceptionally well. We will continue investing in innovation and strengthening our product portfolio. We will continue managing our supply chain and tariff challenges proactively. We will maintain financial discipline. We will continue pursuing opportunities that we believe can create sustainable profitable growth and long term shareholder value. There will undoubtedly be more volatility in the global technology environment. Supply chains will continue to evolve, Semiconductor availability will remain dynamic, Trade policies and tariffs may continue to change. Customer procurement cycles will not always align perfectly with our fiscal quarters. But Haivision has been operating successfully for more than 2 decades, because we have consistently adapted to change. We have an experienced executive team We have talented employees around the world. We have the technology to solve difficult and increasingly important problems. We serve customers for whom our technologies are mission-critical. And we have demonstrated over many years that we know how to operate a technology company profitably, and responsibly. So while we are realistic about the challenges of the current environment, we are equally enthusiastic about the opportunity ahead. We believe Haivision is in the right markets with the right technologies, serving the right mission critical applications at a time when reliable, real-time visual information is becoming more important than ever. We intend to navigate the near term turbulence while continuing to build the company for the long term. And we remain confident in Haivision's strategy, our market opportunity, our ability to create sustainable value for our customers, our employees, and our shareholders. Thank you. Now with that, I will turn the call over to Dan, our CFO, to discuss our third quarter financial results in greater detail.

Thank you, Mirko. Let's get into it then. Revenue for the third quarter of fiscal 26 was 34.5 million. That represents a modest decrease of $500 thousand or 1.4% compared with the prior year period. For the 9 months of fiscal 26, revenue was $102.3 million that is an increase of $4.8 million. Or 5% compared with the same period last year. Revenue performance in the quarter reflected the timing of customer purchasing and deployment cycles, particularly within our broadcast segment. Across the broadcast technology market, customers continue to invest but purchasing decisions have become more disciplined. Buyers are emphasizing demonstrable returns operating efficiencies, and careful project sequencing. Within the enterprise market, interest in secure, high quality video remains healthy. Projects tied to mission critical communications and operating efficiencies continue to move forward. Within the defense market, revenue is relatively stable, The pressure we are experienced is also related to procurement timing. Defense spending is being directed towards urgent readiness priorities, like air defense, counter drone capabilities, and replenishments. Overall, customer engagement remains healthy, our pipeline continues to include several large strategic projects. Extended procurement cycles and project timing can shift revenue recognition between quarters, even when the underlying opportunity remains intact. Gross margins for the third quarter were 69.4%, compared with 72% in the prior year period. that is a decline of about 260 basis points. On a year to date basis, gross margins were 69.6%. That compares with 72.3% in the prior year period. a similar decline of 270 basis points. Gross margin pressure in the quarter was driven by supply chain conditions. The principal challenges we have witnessed include market driven increases in component prices, as demand for AI infrastructure continues to tighten the supply of memory and other compute related components. We also experienced sole source component exposure. Extended lead times, suppliers decommitting from planned delivery dates, higher expedite costs, and, again, market driven increases in component prices. These input costs are increasing faster than customer price adjustments are taking effect. Resulting in continued near term margin compression. Unfortunately, tariffs are adding another layer of cost and planning complexity. This is not a new threat, and we have thoroughly researched our short medium, and long term alternatives. In this newest action, the 50% tariff applies to a significant subset of our products. As a result, we were able to pull an established response from our playbook and implement it in the short term. And continue to refine our response as the as the tariff discussions continue. As a reminder, tariffs are assessed on the value of goods as they cross the border. For intercompany shipments, that customs value is in informed by our transfer pricing policies. While our approach meaningfully limits the incremental cost to the business, we are unable to eliminate the entire exposure. Accordingly, we expect tariffs to pressure gross margins in the short and medium term. Even over the longer term, this subset of products might carry a modest higher cost of goods if manufactured in The United States. The cost of transformation in The United States is currently higher than in other regions of the world, partly because of higher labor costs and partly because The United States continues to impose tariffs on certain components manufactured in Asia. Overall, we believe our approach appropriately balances cost mitigation supply continuity, and our ability to meet customer commitments. Because our products are used in mission critical applications, product availability is a key competitive advantage. We have therefore made incremental inventory investments to protect our ability supply customers. Recent changes in tariffs have complicated these issues However, we continue to take pricing, sourcing, fulfillment, and design actions to address these pressures. Total expenses for the quarter were $25.7 million, a modest increase of $800 thousand from the prior year period. To put the quarterly expense level in context, total expenses have averaged approximately $25.3 million over the last 5 quarters. And this quarter's performance remains consistent with our view that expenses have largely stabilized around these levels. For the first 9 months of fiscal 26, total expenses were $76.3 million, an increase of $700 thousand compared with the prior year period. Now that prior year period does include a $1.7 million expense, for legal settlement and related fees that did not recur this year. So excluding that price, that prior year item, increase in operating expenses was a approximately $2.4 million. The change was concentrated in general and administrative expenses and research and development expenses, and share based payments. Now some of these increases partially offset by lower sales and marketing and operations and support expenses as a result of our organizational changes. The incremental investments in research and development support our heavy product realization calendar. And share based compensation varies based on the timing, the magnitude, and the nature of long-term incentives. As highlighted last quarter, August marked the 5-year anniversary of the HiVisionMCS acquisition. The technology acquired as part of that acquisition is now fully amortized. Which is expected to reduce amortization expense by approximately $600 thousand per quarter beginning in our fourth quarter. Further, in April 2027, we will have experienced the 5-year anniversary of the Haivision France acquisition, formerly known as Aviwest. Technology acquired as part of that acquisition will become fully amortized reducing quarterly amortization expense by yet another $150 thousand. These reductions provide additional operating leverage as the business scales. Now they will not affect adjusted EBITDA, as amortization is already excluded. From that measure. The operating loss for the quarter was $1.7 million compared with an operating income of $300 thousand in the prior year period. The modest revenue decline and lower gross margins reduced quarterly gross profit by $1.2 million over the year, while total expenses increased by $800 thousand year-over-year. Resulting in a balance of the approximate $2 million year-over-year change in operating results. A year to date basis, the operating loss was $5 million essentially unchanged from the prior year period. In this case, the $4.8 million increase in revenue more than offset the lower gross margin and produced a $700 thousand increase in gross profit. But that increase in gross profit subsequently offset by the $700 thousand increase in total expenses. The net loss for the quarter was $2.1 million, That compares with the net income of $200 thousand last year. Largely the result of the change in quarterly operating loss. And for the 9 months, the net loss was $4.1 million compared with $3.3 million in the prior year period. The year to date operating results were essentially flat, the income tax benefit was $900 thousand lower than in the prior year period which accounts for the change in year-to-year. year-to-date net loss. Our focus continues to be adjusted EBITDA. Because we believe it provides a clearer view of operating performance by excluding noncash accounting items such as depreciation, amortization, and share based payments. For the third quarter, adjusted EBITDA was $1.5 million Now that compares with $3.5 million in the prior year period. Adjusted EBITDA margin was 4.3%. Compared with 10.1% last year. And for the 9 months, adjusted EBITDA was $4.4 million. Compared with $5.8 million in the prior year. Again, adjusted EBITDA margins were 4.3% compared with 5.9%. Ended the quarter with $19.7 million in cash, That is an increase of $2.5 million from the end of fiscal 25, approximately $1.6 million from the end of the last quarter. However, the amount outstanding on the line of credit was $13.9 million at quarter-end. The higher borrowing level reflects both working capital requirements, including the inventory investments made to secure product availability, and shares purchased for cancellation. Through July 31, we have repurchased approximately 850 thousand shares for $4.2 million For all of fiscal year 26, we repurchased approximately 990 thousand shares for $4.4 million We are well on our way to exceed last year's purchasing levels. Our $35 million credit facility remains in place leaving approximately $21.1 million undrawn at quarter-end. And the facility remains committed through August 2028. And as previously disclosed, it is expandable to as much as $65 million we identify an acquisition opportunity. Total assets at quarter-end. Were 150 million that is an increase of $4.5 million from the end of fiscal 25. Inventory was $19.5 million. That is an increase of $6.2 million from the end of fiscal 25 and approximately $4.4 million increase from the end of the prior quarter. This increase reflects deliberate purchases to manage extended lead times, supplier d commitments, constrained component availability, and the pace of new product introductions. This investment has a near term working capital cost, but it supports supply continuity, and our ability to meet mission critical customer requirements. Total liabilities at quarter-end were $57.6 million. That is an increase of $10.1 million from the end of fiscal 25. The increase, again, was driven primarily by the higher balance on the line of credit. With that said, lease liabilities did decline by approximately $1.1 million. And term loans declined by approximately $5 million from the end of fiscal 25 as we continue to make scheduled payments. We continue to expect the term loans associated with the Haivision France acquisition to be largely repaid by the middle of fiscal 27. So to give you a closing perspective, the fundamentals of the business remain sound, Customer engagement is healthy, we have a robust pipeline of opportunities across our market. Including several larger strategic projects. Broadcast customers remain focused on demonstrable returns and operating efficiencies, enterprise demand for secure, high quality video remains healthy, defense customers purchases are stable, but there is a noticeable delay in procurement timing as defense spending is directed towards readiness priorities. Supply chain constraints the lag between input cost increases and our customer price adjustments are expected to continue pressuring gross margins in the near term the current tariff posture is likely to put additional pressure on gross margins in the near term, but changes in fulfillment practices are being put into practice to largely offset these additional costs. Our priorities remain converting the pipeline protecting product availability, executing pricing and design actions, and maintaining our expense discipline. While procurement cycles continue, and project timing can shift revenue recognition between quarters, we remain confident in the strength of customer demand and our ability to convert the pipeline into sustainable long term growth. That concludes my prepared remarks, and so I am passing the microphone back to you, Mirko, and then we will open the floor to questions.

Thank you, Dan. Tracey, I guess we can open up the questions now.

Absolutely. Let's begin the question-and-answer session. At this time, I would like to remind everyone that if you want to ask a question, please press *1 on your telephone keypad now. To raise your hand. We ask that you do pick up your handset when asking to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Now please stand by for a moment while we compile the Q&A roster. Your first question comes from the line of Robert Young with Canaccord Genuity. Your line is open. Please go ahead.

Hi. Good morning. The first question for me would be just about trying to quantify some of the impact that you see from the tariff. Risk If you could give us a sense of what the significant subset of revenue is that you highlighted, and that would be helpful. And if not, is it possible to gain a sense of the gross margin impact? And then I guess to round it out, just to talk about some of the steps that you are taking to mitigate. I understand some would be moving production to The U. S, but maybe you just broaden that out a little bit to better understand what you are doing.

Okay. So, specifically, we have not yet made the decision to move production to The United States as of yet. It has its own encumbrances and we want to make sure this tariff environment is remains intact over the long term before we make such a dramatic decision here. But we are moving our fulfillment operations from Montreal to The United States. So product is being moved at inventory levels as opposed to at retail levels. And so the tariffs are gonna be assessed at the inventory level. So to put it another way here, the tariffs are covering a subset of our products. Specifically, it is covering our Makito line of products. Not covering other products like our transmitters or our platforms like HMP and what have you. So approximately 30% of our sales are related to the Makito line of products coming into The United States. If I were to give you sort of an estimate of how this is gonna affect our overall consolidated gross margin, I would suggest it is gonna be about 3% in the near term here until we have this refined and we know what the long term tariff view is gonna be.

Okay. that is very helpful. The second question, I would like to if you can parse out the impact of some of the purchase and deployment cycle timing delays that you give a bit of context around that already, but if you could split it out between the 3 segments of the business, it sounds like broadcast is the 1 that is the most worrisome. And you can talk about that specifically and whether you are seeing cancellations or if it is really just delays.

Mirko, do you want to-- Yep. Yep. I was gonna jump on that. Yeah. Actually, well, the good news is that we are actually not seeing any cancellations. In fact, we have not gotten any indications of cancellation of projects both in the government enterprise, and or broadcast. We have seen in the government the uncertainty, obviously, with the midterms but also with the, continuing resolution, the spending in the defense uncertainty right now is causing disruption. And by the way, this changes on a weekly basis right now. So there we have seen things move to less in some instances, and stop to the right. So that is been a bit unpredictable right now in the government sector. And also the what we would call the more the enterprise government sector. The broadcast what we are seeing right now is that people are delaying through some cycles some of their some of their procurements. But no 1 has actually canceled or canceling stuff. So that is kind of a bit of a bit of a mixed bag right now. there is no 1 size fits all. The most important thing for us is that I have I have been monitoring is that our pipeline and forecast is actually it continues to grow. So that is that is really, really solid news. I hope that helps.

Yeah. that is helpful. And that is a good segue for my last question. In the release, you talked about some large strategic opportunities in the pipeline. Any context-- around that? And is that just stuff that was already in the pipeline that is moving to the right timing wise, or is it new? Can you give us a sense of what is going on in the pipe?

I will pass it on. Sure. it is a bit of both, but, we are seeing some very well sized large opportunities, for 2027 based on the new products that we have been announcing. And are about to announce. So that is really good news. In fact, we are gonna be showing, some of our of our technologies at the IBC show, which starts tomorrow. So that is seeing a nice pickup, especially with the Makito 1 technology and the FalkonX4 and the FalkonX2 set in the broadcast side. This is a broadcast show. We are also seeing, at the forecast of pipeline growing nicely, you know, with the Kraken KX1 that we launched earlier in the year. And we just launched the, the Cobra product. So it is still very, very early. there is already a very decent demand for that, that people wanna get their hands on it. test it, and put it in the workflow. So overall, there is we are seeing larger opportunities grow as a result of these new products, which is good. Now these obviously takes time, and it takes a little longer. So these are more at play later in the year, 2027. And, with the U.S. Navy, as we have talked about before, I mean, things have been moved a little bit to the right. Just given the situation, what is happening there, But overall, we have not seen any large procurement projects, being, canceled. Thank you. that is fine.

Your next question comes from the line of Dan Rosenberg with Paradigm Capital. Your line is open. Please go ahead.

Hi. Good morning. I had a quick follow-up on what you mentioned around moving the fulfillment process to The U. S. I was curious on how much flexibility you have around that Obviously, you know, it involves some work upfront, but I am wondering if things change is it easy to turn that around? Just curious about the levers you have and in terms of managing that gross margin line and the tariff impacts?

Good question, Dan. So first of all, obviously, we have been thinking about tariffs for well over a year now since the threat originally emerged February of last year. And, we pulled down, the plan, the playbook, for moving this fulfillment we could implement in very short order. And the reason we could move it in very short order is that we do have production capability in The United States already. And so by moving inventory, this new production facility; we could start fulfilling from that production facility fairly readily. In fact, we had begun testing this well before the tariffs were put in place, and we have been doing this in coordination with our customs broker who is dealing with a number of Canadian companies, dealing with these tariff issues of sorts. This can be reversed pretty readily. Now we have been able to accomplish this in the very fairly short term. In the medium term, I would say 3 to 6 months, we may have to make this more of a permanent construct where we are hiring people, on a permanent basis and what have you. But if this turns around, if the tariffs go back to normal, we can reverse out of it in very, very short order. Okay.

Appreciate that. And then just on the component cost, I mean, out of your hands, but so you mentioned it last quarter, obviously, continuing this quarter. Is there anything to say directionally are things kind of consistent with the pressures you are seeing there, or has it gotten worse Any commentary there, please?

Well, I would I would tell you that the challenges that we are seeing each day, each week, each month, are changing. Right? Whereas before, we did we had no availability Delays in components were significant. Some of our suppliers were talking about supplying a year from now, what have you. So we have seen a normalization or it is not back to what I would call normal, but we have seen that revert back to at least manageable levels. We are not talking about delays that go out a year or what have you. But there are still components that are short of supply. There are still allocations on certain components and what have you. Supply chain has done a really good job in having components available for our customers' needs in the very short term and the midterm. We have very little that we have not been able to supply because of supply chain. That has also been at the expense of investments in inventory to secure that inventory. In some in some cases, we have had to increase the amount that we buy so that the suppliers will take us seriously and we can get sources of supply. In other cases, we have had to pay a premium for those components. We have also had to use alternative, sources of certain components for us to be able to continue that supply chain. I do not see the cost of that supply chain increasing or decreasing in the near term, I do think it is becoming a little bit easier for us to manage but it is not back to normal periods. Wanna remind everyone that we went through a similar experience in 2022. A worldwide component shortage, and we were able to manage our way through that quite a bit. And you might recall that our inventory levels were up in the $23, $24 million time-dollar time frame. To do that. I do not think we are ever gonna get back to that level of inventory. In fact, I think we are with some exception, we are probably getting to the peak of where our environment needs to be to be able to secure sources of supply. And as we did after the 2022 worldwide component shortage was overcome, we will overcome this as well, and we will revert back to normal levels shortly thereafter.

Okay. Thanks for that. And then just turning to the Navy contract, I know you mentioned some revenue pushed out but not lost. I am curious when it comes back online, you know, do you see that as a gradual coming back online? Or is there kind of a catch up type thing? If it is even possible to predict Any context there would be helpful.

First, I would suggest that it is impossible to predict. it is changing pretty quickly. On a weekly, monthly basis. I would say that, we are seeing some consistency, in the Navy transaction. We are not seeing, a catch up in any form or fashion. Ships are still deployed. But it is not-- condensing. Okay.

Last 1 for me. A number of new products seem to be in the pipeline and coming to market. Maybe could you help us understand kind of the demand you are expecting What gives you confidence in the end customer seeking out newer solutions or you know, differentiation in those products that are coming to market. Then I will pass the line. Thank you.

I will take that 1. Yeah, Dan. I mean, I think the different for the 3 different markets. Right? Like, we are we are seeing the, enthusiasm really towards the new Makito X1 that we announced. Which is a kind of a platform, but it is the this will be the first time that Haivision will play in the what I believe to be a very strong JPEG XS, you know, uncompressed high quality market where we have never played before. Right? Always been in the, you know, in the 4, 5 land. And so this is a big first for us that we will have a single board platform, and to my knowledge, the only company that will have that can do JPEG XS, 4, 5 encoding and decoding on the same blade. So the versatility, the flexibility, and the actual ecosystem that this plugs into is very, very exciting for our customers, and we are seeing a tremendous enthusiasm to get that product out and get people to test it. So we are just you know, it is it is still not even out of the oven yet. And we will actually, we are showing it this week. Part of the technology we are showing at IBC, and I think you are gonna see between now and NAB more and more progress announcements, with that platform. So that not only is something fundamentally different, but it is a new market also for us. So that is where I see you know, a renewed optimism. As an example, on the, you know, on the mission side, the, you know, the whole I would say, US defense military spending has been shifting. Right? And it is getting there is a lot more stuff on the ISR now. More on drone stuff, more remote. That all plays very well with us. And we have built our new technologies to align with that. Right? So when you look at the Kraken and the transcoding systems, that have way more intelligence, more performance, AI enabled is getting attraction. We are seeing a pipeline on potential projects that are being budgeted growing and that is very positive. We just announced, the COBRA, which is call it, the visual or tactical visual processor, video processor technology, but it is at a much smaller scale. Again, this exact same size, almost the Kraken KX1. But it is packed with a tremendous amount of performance with some advanced software technologies. And links to our mobile app, the Play ISR. So the whole ecosystem really lends itself to where the defense industry, wants to go. So I think we are at the forefront of all that, and I think will be a beneficiary 2027, 2020, and 2029. So that is when I say I am excited about the longer term, I see where the requirements are, and we are announcing the technologies for that market now, which is very cool. Great. Thanks for taking my questions.

Okay. A reminder, if you would like to ask a question, press 1 on your telephone keypad now. Your next question comes from the line of Donangelo Volpe from Beacon Securities. Your line is open. Please go ahead.

Hey. Good morning. You guys might have addressed this in 1 of the earlier questions, but, just wanna look at how you guys are looking at the capital allocation strategy and how we should be looking at the balance between securing more inventory. I guess there is a little bit of a delta from the 2022 levels. Wondering if you are looking at ramping up a little bit more there, or if you guys are going to be prioritizing reducing debt or a continuation of the NCIB? Any color there would be helpful.

Well, with respect to inventory, yeah, we have been investing in inventory, and we are probably continue to be investing in inventory, but I do not think it is going to get to the levels that we saw in 2022. And so we are probably I cannot give you a number as to what it will increase to, but I do think that we still have some challenges. We still have some components that we need to make sure we have secure supply for, and so we may see that number go up. But we are not prioritizing the payment of debt. In fact, if you look at the business, we are really very debt-free. We do have $19 million in the bank. We do have 6 entities in the organization and we have cash located in these entities, we could pay down that line of credit pretty readily if we centralized the cash in the near term here, and that is something that we are looking at. there is no real need for us to pay down debt. Our term debt is de minimis. it is just, you know, it is just about flexibility. Now in terms of the NCIB, we have made some significant investments in the NCIB. it is something we will continue to be making investments in. The magnitude of that between now and the end of the year, is yet to be known. Part of it is based on what the share price is going to settle at. And, what the opportunities might be with respect to trading.

Okay. Thanks for that. And then I guess, just pivoting over to some of the new products. I am just wondering if Miroslav, maybe you provide some commentary on where you are seeing some of the strongest early customer engagement. I know you talked about the Makito X1, but maybe about the Cobra FalkonX4, and the Play ISR premium.

Yeah. So you are asking Nick --so you are asking for the actual specific customers? Or region regionally? I would say regionally and just how overall engagement has been. I think he is asking what which where are we seeing the most activity? Respect to these newly announced products? Ah, okay. Sorry, sir. Well, we are actually seeing tremendous feedback about within the U.S. from a broadcast perspective On the Makito X1. And that is really picking up, and some of ushered interesting even enterprise clients. From the defense side, we are actually seeing a very strong response internationally. So we are actually gonna have a very, very good quarter internationally for our mission team. that is coming actually from the area in Asia as well. Not just Europe. So that is all positive. We are seeing the typical you know, quarter Q4 demand, in The US, of course, but what we are seeing in The US is that there is a the government year end spending is a little bit, different this year just given the midterms and the budgeting process and the continued resolution. but there is a huge interest in the COBRA and the KX1 because those are really truly next generational technologies that will, give us a real competitive-- competitive advantage. So we are seeing that all across the mission global mission, area. Because they all share the same need, and they all talk. Right? that is 1 positive thing there. From the FalkonX4, we are actually showing the X4, which is which truly is a next level of high performance, you know, multi antenna and multichannel technology. So we will be actually showing that at IBC this week. That should be pretty exciting. And we are also, you know, given a glimpse of it of the technology a demo of our JPEG our first JPEG XS implementation. it is not available yet. It will not be a product yet. We are showing it actually working, as a technology to give people confidence that, the Makito X1 JPEG will be a pretty serious technology in the competitive market space. And that is what we are going after, again, a very, very different market, a new market for us. After some key competitors.

Okay. Thanks. And then final 1 for me. I just want to make sure Guidance is being maintained at $140 to $142 for this fiscal year?

I would say that we are probably closer to the lower end of the range than we are at the higher end of the range, given what we are seeing in the fourth quarter. But, like, we kind of suggested, timing is everything. Supply chain is everything. And we could be pleasantly surprised. Okay. Thank you. I will pass the line.

Your next question comes from the line of Robert Young with Canaccord Genuity. Your line is open. Please go ahead. Robert, your line is open. Please go ahead. Move to the next question. Your next question comes from Nick Corcoran with Acumen Capital Partners. Your line is open. Please go ahead.

Good morning. I think most of my questions have already been answered, but, just 1 follow-up question. You indicated that, tariffs might have a 3% impact in the near term. How should we think about margins in the gross margin in the fourth quarter?

Well, I think I gave the estimate. If we look at what current levels are, which is a reflection of supply chain pricing issues, and then you subtract 3 points because the fourth quarter will be fully the tariffs start at the beginning of August. That should give you some direction on it. that is helpful. Thank you. I will pass on.

We have now reached the end of the Q&A session. I would like to turn the call back to Mirko for closing remarks.

Thank you, Tracy. So I guess in closing, I would like to just reiterate that we are committed to maximizing the long term value of all our shareholders, and we are confident our ability to execute on our strategic growth plan. I just want to thank all our shareholders and analysts on the line today for their continued support of Haivision and we really look forward to speaking with you in mid January when we will discuss our Q4 And full fiscal year 2026 performance and results. Thank you, everybody.

This concludes today's call. Thank you for attending. You may now disconnect.