Evertz Technologies Limited

Good day, ladies and gentlemen, and welcome to the Q2 of fiscal 2023 investor call at this time. All lines are in a listen only mode following the presentation. We will conduct a question and answer session. If at any time during this call, you require immediate assistance, please press star 0 for the operator. This call is being recorded on Tuesday, December 6, 2022. I would now like to turn the conference over to Brian Campbell, Executive Vice President of Business Development. Please go ahead.

Thank you, Michelle. Good afternoon, everyone, and welcome to Everett Technologies' conference call for our fiscal 2023 second quarter ended October 31, 2022. With Doug Moore, Everett's 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. Turning it now to Irit'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 $113.2 million. an increase of 5.6% compared to $107.2 million in the second quarter last year. Our base is well diversified with the top 10 customers accounting for approximately 55% of sales during the quarter with no single customer over 15%. In fact, we had 98 customer orders of over $200,000 in the quarter. Gross margin in the quarter was $67.5 million, or 59.6%, which is within our target range. Investment in research and development during the quarter totaled $29.6 million. Earnings from operations were $28.4 million for the quarter, a 20% increase from the prior year. Net earnings for the second quarter were $20 million, while fully diluted earnings per share were $0.26. Everett's working capital was $154.1 million, with bank indebtedness of $4.2 million as at October 31, 2022. Operational highlights for the quarter include Everett's stellar presence at the International Broadcast Conference. where Evert's XPS compact encoding decoding platform with 5G wireless won a TV tech best of show award along with Evert's reflector cloud video platform or cloud video processing platform. And Evert's IO stream was recognized with a TVB best of show award. This revolutionary new cloud-based software as a service video platform combines the technological and feature requirements of traditional broadcast channels, conventional OTT channels, and free ad-supported TV fast channels into a single platform that supports file-based playout, advanced live events, and a wide range of streaming inputs and outputs, including 4K UHD with HDR. In addition, September 15th was a historic night which saw the NFL kick off its first-ever broadcast package carried exclusively on a streaming platform with Amazon Prime's Thursday Night Football. The broadcast also marked the launch of Prime 1, arguably the most state-of-the-art mobile broadcast units built around a SMPTE SD2022-7IP routing core. Prime 1 is fully redundant, and that redundancy starts with a pair of Evert's 400-gig EXE IP routing cores, managed by Evert's Magnum control, monitoring, and analytics software. In addition, all the edge routing is handled by Evert's award-winning Nadex fabric switches. At the end of November... Everett's purchase order backlog was in excess of $149 million and shipments during the month were $39 million. We attribute this strong financial performance and robust combined shipments and purchase order backlog to HD channel proliferation, the emergence of 4K Ultra HD and increasing live content, increasing global demand for high-quality video anywhere, anytime, the ongoing technical transition to IP, IT, and cloud-based architectures, and specifically to the growing adoption of Everett's IP-based software-defined video networking solutions, Everett's IT and cloud solutions, our immersive 4K, 8K UHD solutions, and our state-of-the-art Dreamcatcher IP replay and live production with Bravo Studio Virtual Production Control Suite. Today, Everett's Board of Directors declared a regular quarterly dividend increased to $0.19 per share, payable on or about December 22nd. I will now hand over to Doug Moore, Everett's Chief Financial Officer, to cover the results in greater detail.

Thank you, Brian. Good afternoon, everyone. Looking at revenues, sales were $113.2 million in the second quarter of fiscal 2023 compared to $107.2 million in the second quarter of fiscal 2022, an increase of $6 million quarter over quarter. Where the six months ended, October 31st, 2022, sales were $214.8 million compared to $204.4 million in the same period last year. That represents an increase of $10.4 million or 5.1%. As it relates to revenues in specific regions, the U.S.-Canadian region had sales for the quarter of $88.3 million compared to $78.2 million last year. This represents an increase of $10.1 million or 13% quarter-over-quarter. Sales in the same region, U.S.-Canada, were $166.5 million for the six months ended October 31, 2022, compared to $142.6 million in the same period last year. an increase at $23.9 million or 17%. The international region had sales for the quarter $25 million compared to $29 million last year, a decrease of $4 million quarter to quarter. The international segment represented 22% of total sales this quarter. For the six months ended October 31, 2022, sales in the international region were $48.3 million compared to $61.7 million the same period last year, decreased to $13.4 million. Gross margin for the second quarter was approximately 59.6% compared with 57% in the prior quarter and within our target range. When the six months ended, October 31st, gross margin was approximately 58.7% and also within our target range. Turning to selling and admin expenses, S&A was $14.7 million in the second quarter, a decrease of $0.1 million from the same period last year. Selling and Amend expenses as a percentage of revenue were approximately 13% as compared to 13.8% for the same period last year. Selling and Amend expenses were $27.7 million for the six months ended October 31, 2022, a decrease of $1 million from the same period last year. Selling and Amend expenses as a percentage of revenue were approximately 12.9% over the as compared to 14.1% for the same period last year. Research and development expenses were $29.6 million for the second quarter, which represents a $5.2 million increase from $24.4 million in the second quarter last year. Investment tax credits related to R&D expenses were $3.2 million in the quarter, compared to credits of $2.9 million in the second quarter last year. For the six months ending October 31st, Research and development expenses were $57 million, which represents an increase of $7.9 million over the same period last year. R&D expenses as a percentage of revenue were approximately 26.6% over the period, as compared to 24% for the same period last year. Foreign exchange for the second quarter resulted in a gain of $3 million, compared to a gain of $2.2 million in the same period last year. The quarterly gain was presumably a result of the increase in the value of the US dollar against the Canadian dollar between July 31st and October 31st of 2022. Foreign exchange for the six months ended October 31st, 2022, with a gain of $4 million. That's compared to a gain of $3.6 million in the same period last year. Turning to a discussion of liquidity of the company, bank indebtedness as of October 31st, 2022, was $4.2 million. That's compared to cash of $33.9 million as at April 30, 2022. Working capital was $154.1 million as at October 31, 2022, compared to $158.9 million at the end of April 30, 2022. Looking now specifically at cash flows, the company used cash in operations of $7.7 million. which is net of $33.1 million change in non-cash working capital and current taxes. That change including a quarterly increase of inventory of $7 million and a combined decrease in accounts payable and deferred revenue of $25 million. If the effects of the change in non-cash working capital and current taxes are excluded from the calculation, the company generated $27.5 million in cash from operations during the quarter. The company used cash of $5.6 million for investing activities in the quarter, which was principally driven by $2.4 million in acquisition of capital assets and $3.2 million in purchase of investments. The company used cash in financing activities of $16 million, which was principally driven by dividends paid to $13.7 million. Finally, I will review our share position as at April 31st, 2022. Shares outstanding were approximately 76.2 million and options outstanding were approximately 4.9 million. Weighted average shares outstanding were 76.2 million and weighted average fully diluted shares outstanding were 76.4 million for the quarter ended October 31st. That 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 in the official reports filed by the Canadian Securities Commission. Brian, back to you.