Evertz Technologies Limited

Good day and welcome to the Q3 2021 conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Brian Campbell, Executive Vice President of Business Development. Please go ahead, sir.

Thank you, Cody. Good afternoon, everyone, and welcome to the Everts Technologies conference call for our fiscal 2021 third quarter and January 31st, 2021, 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 on the company's investor website. Doug and I will comment on the financial results and then open the call to your questions. I will begin by providing a few highlights, and then Doug will go into greater detail. First off, sales for the third quarter totaled $92.8 million. Our base is well diversified. The top 10 customers accounting for approximately 34% of sales during the quarter with no single customer over 6%. In fact, we had 89 customer orders of over $200,000. Gross margin was 56% for the quarter. Net earnings for the third quarter were 10.4 million and fully diluted earnings per share was 13%. Ebert's working capital was $221.6 million, with $94.1 million in cash as of January 31, 2021. Operational highlights for the third quarter included, first, securing the Shock Tracker $11 million financing led by Ebert's and Verizon Ventures. This funding will support accelerated deployment across NCAA basketball conferences, expand remote live sports production in the cloud with 5G-enabled technology, and second, the announcement of a strategic asset acquisition of the iconic Studer Audio brand technology and related assets from Harman International, a Samsung company. The acquisition was successfully closed on February 9th, at which time members of Studer's talented staff joined Evers. Moving on, the purchase order backlog at the end of February was a record high, $125 million, and shipments during the month were $25 million. We attribute this solid financial performance and robust combined shipments and purchase order backlog to the ongoing technical transition in the industry channel, and video services proliferation, 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 Bravo live production suite. Today, Ebert's Board of Directors declared a dividend of 18 cents per share payable on March 25th, 2021. I will now hand over the call to Doug Moore, Ebert's Chief Financial Officer, to cover our results in greater detail.

Thank you, Brian. Good afternoon, everyone. Sales were $92.8 million in the third quarter of fiscal 2021, a decrease of $28.4 million compared to $121.2 million in the third quarter of fiscal 2020. Sales for the nine months ended January 31, 2021, were $249.6 million compared to $344.4 million in the same period last year. That represents a decrease of approximately 28%. The decrease in revenues during the nine-month period were due to travel restrictions and projects on hold as a result of the pandemic. Looking at specific regions, the US Canadian region had sales for the quarter of 56.3 million, a decrease of 13.2 million or 19% compared to 69.5 million in the same period last year. Sales in the US Canadian region were 159.1 million for the nine months ended January 31st, 2021, compared to 230.3 million in the same period last year, a decrease of 71.2 million, or 31%. The international region had sales for the quarter of $35.5 million, compared to 51.7 million last year, a decrease of 15.2 million, or 29%. The international segments represented 39% of total sales this quarter, as compared to 43% in the same period last year. Sales in the international region were $90.5 million for the nine months ended January 31, 2021, compared to $114.1 million in the same period last year. That represents an increase of $23.6 million, or 21%. Gross margin for the third quarter was approximately 56%, consistent with the third quarter ended January 31, 2020. Gross margin for the nine-month end of January 31st was approximately 57.6% and within the company's historical ranges. For operating expenses, selling and administrative expenses were $11.7 million for the third quarter, a decrease of $6.2 million from the same period last year. Selling and administrative expenses as a percentage of revenue were approximately 12.6% as compared to 14.7% for the same period last year. The decrease in S&A expenses in the quarter was driven by $2.7 million decrease in net salary expenses and $2.0 million decrease in travel and promotion costs, both due to the pandemic. Delegate amended expenses for $36.4 million for the nine months ended January 31, 2021, a decrease of $15.8 million for the same period last year. For the nine-month period ended, or sorry, nine-month period, Selling and admin expenses as a percentage of revenue was approximately 14.6% as compared to 15.1% in the same period last year. Turning to R&D, research and development expenses were $21.4 million for the third quarter, which represents a $2.6 million decrease from the third quarter last year. For the year, research and development expenses were $57.7 million, which represents a decrease of $11.9 million over the same period last year and driven by Government assistance recorded as a reduction in costs. Foreign exchange for the third quarter was a loss of $5.3 million compared to the gain of $0.3 million in the same period last year. The loss was driven by a substantial decrease in the value of the U.S. dollar to Canadian dollar between October 31st and January 31st. Foreign exchange for the nine-month end of January 31st was a loss of $9.8 million compared to the loss of $2.6 million in the same period last year. It's driven by the decrease in value of the U.S. dollar since April 30, 2020. Turning to a discussion of liquidity of the company, cash as of January 31, 2021, was $94.1 million compared to $75 million as of April 30, 2020. Working capital was $221.6 million. as of January 31st, 2021, compared to $223.7 million at the end of April 30th, 2020. Looking specifically at cash flows for the quarter, the quarter ended January 31st, the company generated cash from operations of $10.3 million, which is net of a $6.1 million change in non-cash working capital and current taxes. If the effects of those changes in non-cash working capital and current taxes are excluded, the company generated $16.4 million cash from operations for the quarter. The company used cash from its foreign investing activities of $10 million in the third quarter ended January 31st, which was principally driven by the acquisition of capital assets of $2 million and an $8 million Canadian investment in TD Sports or otherwise known as Shot Tracker. The company used cash from financing activities of $15.5 million which was principally driven by dividends paid of $13.7 million and $1.1 million in principal payments on capitalized leases. Finally, I'll review our share position as of January 31, 2021. Shares outstanding were approximately $76.3 million, and options outstanding were approximately $5.9 million. The weighted average shares outstanding were $76.3 million, and weighted average of fully diluted shares were $76.4 million. That brings to a conclusion the review of our financial results and the position for the third 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 forum and the official reports filed with the Canadian Security Commission. Brian, that's you.