Evertz Technologies Limited

Good day, ladies and gentlemen, and welcome to the Everts Q4 2020 conference call. As a reminder, today's conference is being recorded. It is Tuesday, June 30th, 2020. At this time, I would like to turn the conference over to Mr. Brian Campbell, Executive Vice President of Business Development. Please go ahead, Mr. Campbell.

Thank you, Brad. Good afternoon, everyone, and welcome to the Everts Technologies conference call for our fourth quarter ended April 30th, 2020. with Doug Moore, Everett's Chief Financial Officer, and myself, Brian Campbell. Please note that our financial press release and MD&A are now available on CDAR. Doug and I will comment on the financial results and then open the call to your questions. Before delving into our recent business results and outlook, I'd like to briefly address the extraordinary COVID situation. Ebertz is a technical innovator delivering operational excellence, a fundamentally sound business committed to protecting our people, our partners, and supporting our customers. We're proud of the role we play as an essential service provider and critical supplier, enabling vital telecommunications, broadcast, and new media services worldwide. We're appreciative of the continuing strong partnerships with our customers and for the extraordinary efforts made by our employees to continue to support our customers and drive our business forward. Turning now to Ebert's results, I will begin with select annual and fourth quarter highlights, following which Doug will provide more detail. First off, I'm pleased to report sales for the fiscal year totaled $436.6 million, driven by the adoption of Ebert's new technologies. Annual net earnings were 69.2 million, resulting in fully diluted earnings per share of 90 cents for fiscal 2020. Liquidity and capital resources remain robust with cash of 75 million at April 30th after the return of 124.3 million via special and quarterly dividends to shareholders. Investment in research and development totaled $90.8 million for fiscal 2020, further reinforcing Ebert's commitment to R&D. Moving on to the fourth quarter, operations were impacted by the global COVID-19 pandemic. We moved quickly to implement a number of actions, including workplace best practices from national and local authorities, implemented the avoidance of essential travel, we scaled work-from-home protocols, and worked closely with our customers to provide service and support via online tools to the maximum extent possible, all while maintaining our manufacturing capabilities across multiple sites. Turning to the financials, sales in the fourth quarter were $92.2 million. Gross margin for the fourth quarter was $52.1 million, or 56.5% of sales. And foreign exchange for the fourth quarter was a gain of $6.1 million. Net earnings for the fourth quarter were $16 million, while fully loaded earnings per share were $0.21. At April 30, 2020, Ebert's working capital was $223.7 million. We attribute our solid annual and resilient quarterly performance, despite the onset of this unprecedented pandemic, to Ebert's fundamentally sound industry and financial position, the ongoing technical transition in the industry, channel and video services proliferation, the increasing global demand for high-quality video anywhere, anytime, and specifically to the growing adoption of Everett's IP-based software-defined video networking solutions, Everett's IT and virtualized cloud solutions, our immersive 4K Ultra HD solutions, and our state-of-the-art Dreamcatcher IP replay and live production suite. Our sales base is well diversified, with the top 10 customers accounting for approximately 42% of sales during the year, with no single customer over 7%. In fact, we had 443 customer orders of over $200,000, a modest increase over the 425 customer orders received last year. In addition, at the end of May, the purchase order backlog was in excess of $94 million and shipments during the month were $16 million. In response to the current uncertainty in an environment dominated by COVID-19 and by the desire to maintain the financial flexibility of the company, the Board has declared a dividend of $0.09 per share, which is a reduction in the regular quarterly dividend. I will now hand over the call to Doug Moore, Everett's Chief Financial Officer, to cover our results in greater detail.

Doug Moore Thank you, Brian. Good afternoon, everyone. Sales were $92.2 million in the fourth quarter of fiscal 2020 compared to $107.2 million in the fourth quarter of fiscal 2019, which represents a decrease of 15 million or 14%. Sales for the 12 months ended April 30, 2020 were $436.6 million compared to $443.6 million the same period last year. This represents a decrease of approximately 7 million or 2%. The decrease in sales was largely attributable to projects put on hold or canceled in the fourth quarter as a result of the COVID-19 pandemic. The U.S.-Canada region had sales for the fourth quarter of 58.7 million compared to 63.6 million last year, a decrease of 8%. Sales in the U.S.-Canada region were 289 million for the 12 months ended April 30, 2020, compared to 297.8 million in the same period last year. This represents a decrease of $8.8 million or 3%. The international region had sales for the quarter of $33.5 million compared to $43.7 million last year, a decrease of $10.2 million or 23%. Sales in the international region were $147.6 million for the 12 months ended April 30, 2020, compared to $145.8 million in the same period last year, representing an increase of $1.8 million. The international segment represented 36% of total sales in the quarter and 34% of total sales in the year, as compared to 41% and 33% in the same respective periods last year. Gross margin for the fourth quarter was approximately 56.5%, and gross margin for the 12 months ending April 30, 2020 was 56.9%, both of which were within the company's target range. Selling and administrative expenses were $15.4 million for the fourth quarter, a decrease of $2.6 million from the same period last year. As a percentage of revenue, S&A expenses were approximately 16.7% consistent with the same period last year. The decrease in selling and administrative expenses was driven by the cancellation of trade shows and reduced travel and selling costs as a result of the pandemic. Selling and administrative expenses were $67.6 million for the 12-month period ending April 3, 2020, a decrease of $0.2 million from the same period last year. For the year, selling and admin expenses as a percentage of revenue were approximately 15.5% compared to 15.3% last year. Research and development expenses were $21.2 million for the fourth quarter, which represents a $.6 million decrease from the fourth quarter last year. For the year, research and development expenses were $90.8 million, which represents an increase of $5 million over the same period last year. Research and development expenses were up for the year, which is predominantly a result of an increase in R&D salary costs and headcount. During the year, $4.2 million in government assistance related to COVID-19 programs was deducted from expenses. Of that, $3 million was deducted from the fourth quarter R&D costs. Foreign exchange for the fourth quarter was a gain of $6.1 million compared to a gain of $1.9 million in the same period last year. A gain of $6.1 million was driven by the increase in the value of the U.S. dollar against the Canadian dollar between January 31st and April 30th, 2020. Foreign exchange for the 12 months ended April 3, 2020 was a gain of $3.5 million compared to a gain of $3.4 million in the prior year. Turning to a discussion of the liquidity of the company, cash added on April 30, 2020 was $75 million as compared to $104.6 million on April 30, 2019. Working capital was $223.7 million at April 30, 2020, compared to $282.5 million at the end of April 30, 2019. For the year, the company generated cash from operations of $109.3 million, which includes $21.6 million change in non-cash working capital and current taxes. The effects of the change in non-cash working capital and current taxes are excluded from companies operating cash flows, the company would have generated $87.7 million in cash from operations. For the year, the company paid approximately $124.8 million in dividends and acquired $10.1 million in capital assets. I'm looking specifically at cash flows for the quarter ended April 30th. The company generated cash from operations of $47.1 million, which includes a $25.5 million in non-cash working capital and current taxes. The effects of the change in non-cash working capital and current taxes are excluded. The company would have generated $21.6 million cash from operations for the quarter. The company used $3.1 million for investing activities, which was principally driven by capital asset purchases. The company used cash from financing activities of 17.7 million, which was principally driven by dividends paid of 13.8 million, and capital stock repurchased under an NCIB for 2.4 million. Finally, I will review our share capital position as of April 30, 2020. Shares outstanding were approximately 76.4 million, and options outstanding were approximately 1.6 million. Weighted average shares outstanding were 76.6 million, and weighted average fully diluted shares We're also 76.9 million for the year ended. This brings to a conclusion the review of our financial results and position for the fourth quarter. Finally, I would like to remind you that some of the statements presented herein are forward-looking, subject to a number of risks and uncertainties, and we refer you to the risk factors described in the annual information form in the official reports filed with the Canadian Securities Commission. Brian, back to you.