Atai Capital Management newsletterHaivision Systems Inc. (“TSX: HAI”):
Haivision offers infrastructure solutions for the video networking and streaming market, serving
broadcasters, enterprises, and governments worldwide. Most of their revenue is derived from
hardware-based products like video encoders, decoders, transcoders, and transmitters (~80% of
revenue). Put simply, these products compress and transmit video signals into readable digital
outputs. The products do this through the SRT (Secure Reliable Transport) protocol, which
Haivision invented in 2013 and later open-sourced in 2017. Since SRT's open-sourcing, it has
become one of the most widely adopted video transport protocols, continually taking share from
the largest legacy protocol – RTMP (Invented in 2002 with its last official update in 2012).
Haivision invented SRT to transition their business toward video transmission over the Internet
protocol (IP) instead of satellite, cable, and purpose-built dedicated fiber networks. Around that
same time (2013), and some time afterward, other protocols were also being invented and
fighting for share. However, in 2017, Haivision decided to open-source their code, hoping to see
increased adoption and faster development. That plan has proven very successful, with
competitors now offering SRT in their own Encoders and several giants joining the SRT Alliance, a
consortium of companies committed to the widespread adoption of the SRT protocol. Notable
members of the SRT Alliance include YouTube, Microsoft, and Sony, all of whom have recognized
the value of SRT. Despite SRT now being open source, Haivision still benefits from being at the
forefront of this technology, leading the SRT Alliance, being closer to the tech than anyone else,
and having immediate access to newer builds.
While there are protocols that outperform SRT in some respects, they almost always lack in other
vital areas. For example, while a protocol like WebRTC may be marginally faster, it falls short of the
quality and reliability that SRT delivers. Moreover, the higher implementation costs of WebRTC limit
its applicability to niche applications.
As mentioned, there is an ongoing transition from legacy protocols like RTMP to modern IP-based
protocols like SRT, and Haivision is poised to capitalize on this shift. For example, when
organizations such as local news stations or sports arenas upgrade their video equipment
(cameras, encoders, etc.), they are increasingly opting for modern IP-based transmission
protocols over outdated solutions. And with SRT frequently chosen as the protocol of choice, there
is a growing need for SRT-compatible products. This transition away from legacy systems is
expected to intensify over the next 3-5 years, offering growth opportunities for Haivision.
Our research shows that Haivision produces high-quality and reliable products, such as their
Makito encoder, which is considered the industry standard. The brand has an incredibly strong
reputation, with almost all video engineers and customers saying things like, "If you can afford
Haivision, you go Haivision." - I am paraphrasing, but we heard this point reiterated by several
industry experts we spoke with, and a quick Google search will also show that this same viewpoint
is shared on several forums and websites. Further supporting this idea are Haivision’s high gross
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margins of 70%+ (despite being primarily a hardware-based business). These high gross margins
have persisted for over a decade, and Haivision was also able to pass on a ~10% price increase in
2022, offsetting inflation and supply-chain-related costs. They outsource the manufacturing of
their products to select contract manufacturers in the U.S., Canada, and France, making the
business incredibly capital-light (they have essentially zero capex).
Wait, did you say broadcasters? As In local news stations? As in terminal risk?
While any business with broadcasting exposure would generally be a cause for concern, in
Haivision's case, I am not worried. Broadcasting (They classify it as "Media & Entertainment")
makes up only a third of Haivision's business and consists primarily of live sports, which is growing,
not shrinking like legacy news stations.
It's important to clarify that Haivision focuses specifically on "mission critical" live video streams
where latency, quality, and reliability are of the utmost importance. Here is a link if you’d like to
read about how the NFL used SRT alongside Haivision encoders, decoders, and gateways to
enable the virtual 2020 NFL draft (which had 600+ simultaneous live streams). Additionally, we
think it’s safe to say that live sports will use more cameras in the future, not less; thus, more
Haivision products will also be needed.
Haivision has two other segments that account for roughly a third each of their business. The first
is Government & Defense, which includes customers like NASA, the U.S. Department of Defense, the
U.S. Navy, and the Japanese Maritime Self-Defense Force.
This segment is a focus area for Haivision, which was recently awarded a large defense contract
with the U.S. Navy in September, amounting to CAD 82M over five years (Haivision’s enterprise
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value is CAD 137M today). This contract is expected to ramp up in the back half of FY-2025 with a
steady run rate starting in FY-2026.
The last segment is Enterprise, which includes customers like Meta (Facebook), the New York Stock
Exchange, and Microsoft. Here is a case study of Microsoft using SRT in conjunction with Haivision
Makito encoders and Haivision’s media platform to stream their annual Inspire conference.
Haivision products are also used in control rooms, where Haivision provides Video Wall Solutions
utilizing their Command 360 Software and related hardware (video processors, encoders,
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decoders, access points, etc.), which enable low-latency video feeds for critical operations. Here is
a case study where Haivision helped the Cleveland Department of Public Safety upgrade their
video wall solution for monitoring major public events (both planned and unplanned) like the
Cleveland marathon and the 2022 NBA all-star game.
Control rooms present a significant growth opportunity for Haivision, and they are in the process
of shifting their existing integrator business to a channel partner model. Previously, CineMassive
(acquired in 2021) operated as a full-service solutions provider, managing tasks like planning,
installation, and selling several lower-margin third-party products (chairs, monitors, etc.). The new
strategy, however, has Haivision providing their software and hardware to channel partners
instead, leaving the execution—planning, installation, and more—in their hands. This model will
have higher margins, stronger returns on capital, and much faster scalability. However, the
transition has temporarily impacted topline revenue as the company sheds the previously
mentioned lower-margin revenue streams and prepares for a full roll-out in 2025.
Outside of selling hardware, the rest of their revenue comes from service/maintenance contracts
and their software offerings (~20% of revenue, but a focus for the company as they want to
increase high-margin recurring revenue streams). An example of their software offering would be
their Haivision SRT Gateway -> Basically, the signal from a camera at a football game goes into an
encoder, gets decoded at, say, ESPN's HQ, and the software/server can then format the video, and
change the protocol as needed for delivery. For instance, websites like Twitch still only accept
RTMP, so while SRT is superior, you need to convert it to RTMP to stream on Twitch. As a side note,
YouTube recently joined the SRT alliance and plans on adopting the protocol for their live-
streaming platform, which only accepts RTMP, HLS, and DASH today. The latter two, while offering
higher-quality video than RTMP, come at the cost of high latency; SRT, on the other hand, provides
the same high-quality video without sacrificing latency.
Haivision was founded by CEO Mirko Wicha in 2004, and before their IPO, he grew revenues at a
22.7% CAGR for 16 years to $80M+ while being entirely self-funded off an initial investment of $8M.
Prior to founding Haivision, Mirko worked at Silicon Graphics in a sales capacity, where he helped
grow the business from $86M in revenue to $1B+ in five years. After Silicon Graphics, Mirko went to
work for Alias Research and was tasked with turning around their unprofitable European business
– the company would be sold two years later to his former employer, Silicon Graphics. Mirko was
interviewed in 2013, covering his background, how Haivision was founded, and the importance of
company culture.
Mirko owns 13.5% of the company, with insiders owning 31% in total; he bought an additional
~$200k worth in the open market earlier this year, and his ownership is worth CAD 20M,
representing ~20x his cash comp and ~10x his total comp. From my conversations with him and
review of his past he appears to say and do the right things. I believe he has made several wise
decisions over the years, including the creation and open-sourcing of SRT, walking away from
lower margin/ROIC business, and the two post-IPO acquisitions are likely to prove significantly
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accretive. During his tenure, he has also successfully integrated eight acquisitions, which should
help limit the possibility of poor outcomes from further M&A.
Haivision has guided to $134-$136M in revenue for FY-2024 (ended in October) after two prior top-
line guidance cuts with EBITDA margins in the mid-teens. The top-line cuts are mostly related to a
much faster-than-expected transition of their control room business to the channel partner
model. They have a long-term 20% EBITDA margin target and expect to be "knocking on the door"
of that target this year.
Based on their guidance, we can infer that FY-Q4 revenues will likely fall between $35M and $37M,
with EBITDA margins of 16-19%. Operating expenses have fallen significantly over the past two
years and have remained stable over the past four quarters. The sequential margin decline in the
recent quarter is entirely attributable to operating deleverage, and we believe Haivision, once
scaled, can have EBITDA margins north of 20%.
As of writing, at $5.00/share, Haivision has a market cap of $145M, $13.9M in cash, and $6.2M in
debt, so an EV of $137M. Their 2024 guide implies ~$21M in EBITDA and ~$13.5M in fully loaded UFCF
(after leases, SBC, and capex), translating to a 6.5x EBITDA multiple and 10x EV/UFCF.
Haivision expects to return to growth in 2025 and has guided to $140M+ in revenue. This growth will
come from industry-wide growth, their pivot away from being an integrator to a solutions
provider, their new long-term rental business (infancy stage, but grew 76% y/y), the continued
growth of their 5G transmitter business, and the aforementioned CAD 82M U.S. Navy contract.
Another exciting growth opportunity is a consortium with Airbus to help develop new technologies
for rapid and secure communications (private 5G networks, etc.). All these initiatives set up FY-
2026 and beyond to see double-digit growth per the company's guidance.
If they can grow at HSD in 2026 with 18% EBITDA margins, this would result in ~$27M of EBITDA and
around ~$18M in fully loaded UFCF, implying the business is trading at less than 5x EBITDA and 7.5x
EV/UFCF before any credit for cash generation. These multiples are far too low for a business that
should grow at attractive rates for the foreseeable future, has gross margins of 70%+, and should
have EBITDA margins north of 20% with scale.
Haivision has also been transitioning towards higher profitability over the past two years as they
work to integrate their two post-IPO acquisitions further, wind down their low-margin house of
worship business, and pivot their control room business to a channel partner model. These
initiatives have led to permanent headcount reductions and a lower fixed-cost base. However,
they have also obfuscated Haivision’s organic growth (which we estimate to be HSD) as they have
shed non-significant amounts of lower-margin revenue. We believe that as Haivision scales and
margins expand, the market will begin to notice this small but high-quality business.
Giving credit for cash generation (the company has been actively repurchasing shares since
June) and applying a 10x EBITDA multiple (15x UFCF) on 2026 numbers gets me to $11.00/share,
compared to just $5.00 today