Evertz Technologies Limited

Good day and welcome to the Everts Q2 2021 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brian Campbell, Executive Vice President, Business Development. Please go ahead, sir.

Thank you, Brandon. Good afternoon, everyone, and welcome to Everts Technologies conference call for our fiscal 2021 second quarter ended October 31st, 2020. With Doug Moore, Everts Chief Financial Officer, and myself, Brian Campbell. Please note that our financial press release and MD&A will be available on CDAR and the company's investor website. 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 pandemic. The pandemic has created headwinds and challenges, delaying customer deliveries, installations, and impacting customer operations around the globe. That said, our customers are fundamentally healthy and Everts has a unique and powerful technology position. Everts is a technical innovator and a fundamentally strong business committed to supporting our customers and protecting our people. 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 are appreciative of the continuing strong partnerships with our customers and for the extraordinary efforts being made by our employees in these challenging times. Turning now to Ebert's results, I'll begin by providing a few highlights and then Doug will provide additional detail. First off, Sales for the second quarter totaled $100.5 million, an increase of 78% compared to $56.3 million in the first quarter of this year. The strong sequential rebound from our first quarter of fiscal 2021 was experienced across all geographic regions and was driven predominantly by the adoption of Everett's new technologies and products. Our base is well diversified with the top 10 customers accounting for approximately 55% of sales during the quarter and with no single customer over 25%. In fact, we had 70 customer orders of over 200,000 in the quarter. Gross margin in the quarter was $59.7 million or 59.4%, which is within our target range. Investment in research and development during the quarter totaled $19.7 million. Net earnings for the second quarter were $21.2 million, while fully diluted earnings per share were $0.28. Ebert's working capital was $231.2 million, with cash of $110 million as of October 31st. Operational highlights for the second quarter include the addition of EaseLive OTT Interactive Graphics Software as a service technology platform and their talented engineering team. At the end of November, Evert's purchase order backlog was in excess of $106 million and shipments during the month were $23 million. We attribute the strong financial performance and robust combined shipments and purchase order backlog to the ongoing technical transition in our industry, channel and video services proliferation, increasing global demand for high quality video anywhere, anytime. And specifically to the growing adoption of Ebert's IP-based software-defined video networking solutions, Ebert's IT and virtualized cloud solutions, our immersive 4K Ultra HD solutions, and our state-of-the-art Dreamcatcher IP replay and Bravo live production suite. Today, Ebert's Board of Directors declared a regular quarterly dividend of 18 cents per share payable on or about December 23rd. I'll now hand over to Doug Moore, Ebert's Chief Financial Officer, to cover our results in greater detail.

Thank you, Brian. Good afternoon, everyone. Sales were $100.5 million in the second quarter of fiscal 2021, compared to $119.8 million in the second quarter of fiscal 2020. That represents a decrease of $19.3 million quarter over quarter. Sales were $156.8 million for the six months ended October 31, 2020, compared to the $223.2 million in the same period last year. That represents a decrease of approximately 30%. Decrease in revenues has been driven by travel restrictions and projects on hold as a result of the pandemic. As it relates to revenue-specific regions, the U.S.-Canada region had sales for the quarter of $66.9 million compared to $88.6 million last year. This represented a decrease of $21.7 million, or 24% quarter over quarter. Sales in the U.S.-Canadian region were $102.8 million for the six-month period ended October 31st. compared to $160.8 million in the same period last year, a decrease of $58 million, or 36%. The international region had sales for the quarter of $33.6 million, compared to $31.2 million last year, an increase of $2.4 million quarter over quarter. The international segment represented 33% of total sales this quarter, as compared to 26% in the same period last year. Sales in the international region were $54 million for the six months ended October 31st, compared to $62.4 million in the same period last year, representing a decrease of $8.4 million. Gross margins for the second quarter, which inclusive of $2.2 million in wage subsidies, was approximately 59.4% and within the company's historical range, while gross margin for the six months ended October 31st was approximately 58.6%. Turning to selling and administrative expenses, S&A was $12.8 million in the second quarter, a decrease of $5.2 million from the same period last year. Selling and administrative expenses as a percentage of revenue was approximately 12.7% as compared to 15% for the same period last year. Decrease in expenses was driven by a $3.2 million reduction in travel and promotion costs associated with reduced selling activities and travel restrictions. Selling and administrative expenses were $24.7 million for the six months ended October 31, 2020, a decrease of $9.6 million from the same period last year. For the first two quarters, selling and administrative expenses as a percentage of revenue was approximately 15.8% as compared to 15.4% for the same period last year. Research and development expenses, which netted $3.2 million in wage subsidies, was $19.7 million for the second quarter, represented a $3.2 million decrease from the second quarter last year. For the six months ended October 31st, research and development expenses were $36.2 million, which represents a decrease of $9.4 million over the same period last year. Foreign exchange for the second quarter was a loss of $1.3 million compared to a loss of $1.1 million the same period last year. Foreign exchange for the six-month period ended October 31st was a loss of $4.4 million compared to a loss of $2.9 million in the same period last year. The six-month loss was predominantly a result of the decrease in the value of U.S. dollars since April 30, 2020. Turning to a discussion of liquidity of the company, cash as at October 31, 2020, was $110 million, as compared to $75 million at April 30, 2020. Working capital was $231.2 million at October 31, 2020, compared to $223.7 million at the end of April 2020. Looking now specifically at cash flows in the quarter, the company generated cash in operations of $20.8 million, which is an add of $5.3 million change in non-cash working capital and current taxes. If the effects of the change in non-cash working capital and current taxes are excluded from the calculation, the company generated $26.1 million in cash from operations during the quarter. During the cohort quarter, the company used cash of $2.9 million for investing activities, which was principally driven by the acquisition of capital assets of $2.1 million and $0.8 million in the investment in E-Live AS. The company used cash in financing activities of $10.4 million, which was principally driven by dividends paid at $6.9 million, $1.1 million in principal payments on capitalized leases, and $1.7 million in the purchase of capital stock. Finally, I will review our share capital position as of October 31st, 2020. Shares outstanding were approximately 76.3 million and options outstanding were approximately 5.5 million. Weighted average shares outstanding were 76.4 million and weighted average fully diluted shares were also 76.4 million as of October 31st. This brings to a conclusion the review of our financial results and position for the second quarter. Finally, I would like to remind you that some of the statements presented today 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 and the official reports filed with the Canadian Securities Commission. Brian, back to you.