Evertz Technologies Limited

Good afternoon, ladies and gentlemen, and welcome to the E-Words Q4 investor call. At this time, all lines are in lesson-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 zero for the operator. I would now like to turn the conference over to Mr. Brian Campbell, Executive Vice President of Business Development. Thank you. Please go ahead.

Thank you, Ina. Good afternoon, everyone, and welcome to Everett's Technologies conference call for our fiscal 2024 fourth quarter, ended April 30th, 2024, 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 now to Everett's results, I'll begin by providing a few highlights, and then Doug will provide additional details. First off, I'm pleased to report sales for the fiscal year totaled $514.6 million, an increase of 13% or $60 million from the prior year. Revenue from the recurring software services and other software segment was $188.9 million, representing 37% of total revenue in a year. International revenues increased 50% in 2024, reaching $176.6 million. Earnings from operations totaled over $100 million. Net earnings increased 10 percent to $71 million, resulting in fully diluted earnings per share of $0.91 for the year versus $0.84 for the prior year. Investments in research and development totaled $134.8 million, up from $117.1 million in the prior year. Year over year, our cash positions strengthened. closing 2024 with $86.3 million in cash and cash equivalents, compared to $6.6 million in 2023 net of bank indebtedness. Turning to the fourth quarter results, sales for the fourth quarter totaled $122.8 million. Gross margin in the quarter was $72.7 million, or 59.2%. up from 58.9% in the third quarter. Investments in research and development during the quarter totaled $36.7 million, and net earnings for the fourth quarter were $13.9 million, while fully diluted earnings per share were $0.18. Everett's working capital was $201.7 million as at April 30, 2024, up $30.2 million from April 2023. At the end of May, Everett's purchase order backlog was more than $295 million, and shipments during the month of May were $32 million. The strong financial performance, including shipments and robust purchase order backlog, continues to be driven by the ongoing technical transition in the industry, channel and video services proliferation, increasing global demand for high-quality video anywhere, anytime, and specifically by the adoption of Everett's solutions such as Everett's IP-based software-defined video networking solutions, Everett's IT and cloud-native solutions, our immersive 4K ultra-high-definition solutions, Our state-of-the-art Dreamcatcher IP replay and live production with Bravo Studio featuring the iconic Studer Audio solutions. Our sales are well diversified with the top 10 customers in the fourth quarter accounting for approximately 37% of sales with no single customer over 6%. In fact, we had 113 customer orders over $200,000 in the quarter. Today, Everett's Board of Directors declared a regular quarterly dividend of $0.195 per share payable on or about July 10th. I will now hand over to Doug Moore, Everett's Chief Financial Officer, to cover our results in greater detail.

Thank you, Brian, and good afternoon, everyone. Looking at revenues... Sales in the quarter were $122.8 million in fiscal 2024 Q4, as compared to $128.9 million in the fourth quarter of fiscal 2023. For the year ended April 30, 2024, sales were $514.6 million, compared to $454.6 million in the same period last year. This represents an increase of 60 million or 13%. For our year-end results, we've also split out revenue hardware from combined software and service revenue. So, further, hardware revenue in the year was $325.7 million, and combined software service revenue was $188.9 million. This compares to $281.2 million in hardware revenue and $173.4 million in combined software service revenue in the prior year-end, April 3, 2023. Looking at regional revenue, quarterly revenues in the US-Canadian region were 96.5 million compared to 98.9 million in the prior year, while quarterly revenues in the international region were 26.2 million compared to 30 million in the prior year. The international segment represented 21% of total sales in the quarter compared to 23% in the same period last year. For the year ended April 30th, 2024, sales in the US-Canadian region were 338 million a slight increase compared to $337.1 million in the prior 12-month period. For the year-ended sales in the international region, we're $176.6 million. That's compared to $117.5 million in the same period last year. It represents an increase of $59.1 million, or 50%. Gross margin for the fourth quarter was approximately 59.2%, compared to 59.4% in the prior year and within our target range. For the year, gross margin was approximately 58.8% and also within our target range. Turning to selling and administrative expenses, S&A was $20.1 million in the fourth quarter, an increase of $2.6 million from the same period last year. Selling and admin expenses as a percentage of revenue was approximately 16.3% in the quarter as compared to 13.6% for the same period last year. Selling and admin expenses were $72.3 million for the 12 months ending April 30, 2024, an increase of $10.7 million from the same period last year. Selling and admin expenses as a percentage of revenue were approximately 14.1% for the 12-month period, as compared to 13.5% for the same period last year. Research and development expenses were $36.7 million for the fourth quarter, which represents a $6.8 million increase over the same period last year and includes $4.1 million in increased salary costs. Further, there were $1.4 million in temporary elevated R&D resource costs in the quarter, specifically relating to a specific project this quarter that was not in the prior year. Investment tax credits for the quarter were $4.1 million compared to credits of $3.5 million in the prior year fourth quarter. And for the year ended April 30th, R&D expenses were $134.8 million, which represents an increase of $17.7 million over the prior year and includes $14.4 million in increased salary costs. R&D expenses were approximately 26.2% of revenue over the year compared to 25.7% in 2023. The foreign exchange for the fourth quarter was a gain of $2.1 million, The gain was predominantly a result of the increase in value of the U.S. dollar against the Canadian dollar between January 31, 2024 and April 30, 2024. Foreign exchange for the 12 months year-ended April 30th was a gain of $0.2 million as compared to a gain of $2 million in the same period last year. Turning to discussion liquidity of the company, cash as at April 30, 2024 was $86.3 million compared to cash of $12.5 million as of April 30th, 2023. Working capital was $201.4 million as of April 30th, 2024, compared to $171.4 million at the end of April 30th, 2023. Looking at cash flows for the quarter ended April 30th, the company generated cash from operations of $34.2 million, which is net of a $14.6 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 $19.6 million in cash from operations during the quarter. The company used cash at $3.4 million for investing activities in the quarter, which was principally driven by the acquisition of capital assets. The company used cash in financing activities at $15 million, which was principally driven by dividends paid at $14.9 million. Now looking at cash flows for the 12-month period ended April 30th. The company generated cash from operations of $144.7 million, which is net of a $49.3 million change in non-cash working capital and current taxes. Those effects were excluded from the calculation. The company generated $95.4 million in cash from operations during the year. The company used $2.3 million of cash for investing activities, which was principally driven by the acquisition of capital assets of $9.6 million, partially offset by the disposal of investments during the year. The company used cash in financing activities of $70.2 million, which was principally driven by dividends paid of $58.6 million. Finally, reviewing our share capital position as of April 30, 2024, shares outstanding were approximately $76.1 million, and options in share-based RSUs outstanding were approximately $5.4 million. Weighted average shares outstanding were 76.1 million, and weighted average fully diluted shares were 77 million for the year end of April 30, 2024. That concludes 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 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 with the Canadian Securities Commission. Brian, back to yourself.

Thank you, Doug. Ina, we're now ready to open the call to questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your telephone keypad. You will hear a prompt that your hand has been raised, and should you wish to cancel your request, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Thanos Tatopoulos from BMO Capital Markets. Please go ahead.

Hi, good afternoon. Revenue was a bit lighter this quarter than we've seen in recent quarters. So just curious to get your thoughts on that. Is that just a function of project timing? Might that be reflective of any other factors such as macro weakness or any color you can provide to be helpful?

I would say it's primarily because of project timing. Okay. Our order backlog is very strong. You've seen that it's modestly up at 295 million at the end of May. It remains very robust.

Okay, so from your perspective, I mean, we've heard a lot of other companies talk about, you know, tougher spending environment. But from your perspective, you're not seeing that. It's more reflective of, you know, the quarterly volatility and order flow, which is, I mean, we've seen that in your business before, an implementation cycle and so forth, right?

Those are two different questions. So the revenue is primarily because of project timing and deliveries, right? That said, your commentary about the overall macroeconomic situation, you know, Everts is not immune to that, so we do recognize it. But our order book does continue to, you know, build, so we have an extremely robust purchase order backlog of 295 million, plus then 32 million of shipments in this quarter is, you know, very strong.

Okay. You're providing the new disclosure on the software and services revenue, so that's very helpful. Thank you for that. Is that a metric you'll be providing on a quarterly basis, or will that be an annual metric?

We will provide this on a quarterly basis going forward.

And over the past year, hardware growth actually was higher than software growth. So just in terms of the dynamic there, might that just be a function of As activity picked up over the past year, some new projects were implemented, which have a big upfront hardware component, but then a recurring software component. I mean, just curious if you have any thoughts in terms of the relative growth over the past year.

You're correct, right? So we've done very well with the hardware, with our hardware sales, and also with the recurring software, and that is totaling 37%. That's a very significant percentage of our revenue base, and we're quite proud of that, and it is building. But again, too, and we're also very proud of the hardware sales as well, too.

Okay. And on the R&D spend, just to clarify, the $1.4 million in temporary costs, Does that go away in Q1, or will there be some other elevated costs in Q1?

So some of those costs will continue through to Q1. Expect that it would trail off after the summer. So Q2 would be trailing off. And then there is an uptick in Q4. If you're looking sequentially in Q4, our materials and supplies went up 800,000, too. And that can have a bit of volatility to it. But the temporary costs should start rolling off, but they will at some component in Q1.

Okay, the $800,000 increase in materials and supplies, is that sort of typical? We often see that in your Q4. Is there some of that?

Yeah, I mean, there's some volatility there, and Q4 often has a bit of an uptick in materials and supplies. Okay. The $800,000 is a substantial increase.

Okay. Last one for me. Anything else you would call out from an OpEx perspective aside from the R&D line that we should think about heading into Q1? Yeah.

I mean, the other big one is in S&A. We sequentially, again, travel and trade show costs went up 1.7 million, the biggest driver being NAB before.

Right.

Okay.

I'll pass the line. Thanks.

Thank you. And your next question comes from the line of Robert Young from Canaccord Genuity. Please go ahead.

Hi, good evening. You might have defined this somewhere in your disclosures, but can you give maybe a broader description of what exactly this recurring software services and other software representing 37% of total revenue in the fiscal year? Can you just maybe break out what that includes? maybe a little more granularly. How much of that is software that's embedded in hardware? How much of that would be software that's sold separately? How much is software in the cloud? Any broader description of what exactly that is would be helpful.

What the software services would include. So it would include starting with a service component, which is more straightforward. Warranty commissioning. What else? SLAs. like that. On the software side, it would be a mix of standalone software, could be channel keys, license keys, that could get increased functionality of hardware, but issued as software, like a license key. To provide some clarity.

Okay. Would it be fair to say that that's revenue that's not tied directly to hardware?

A license, like certain components of it could be used on hardware, but not necessary. So you could buy the hardware without it, I guess, with a private.

So maybe the broader question is, what's the new information you're trying to provide investors with this disclosure?

That's fair. So before, hardware and software, so whether it was standalone, whether it was license keys, whether it was options, was all grouped in with hardware. Now hardware shows physical hardware, so a physical kit, so a serial number on it. I don't know how to describe it, but.

So it's primarily to address our analyst and investor requests for breaking out the software revenues to ascertain what percentage of our overall business is related to software.

Okay. I guess maybe if I just put a finer point on that, is there any hardware embedded into that 37%? Or can I assume that that's all software, all recurring?

No hardware embedded in the software and services. Okay.

Second question for me would just be on the cash balance growing. continues to grow despite the higher level of OPEX this quarter, strong cash from operations. Maybe give us a sense of what you have planned for that cash.

Well, the driver and the cash increase, I mean, there's a couple things there. There is the increase in deferred revenue, so that has brought up cash substantially in the year. Further errors are down, which has a positive impact effect on cash flow. As per the use, we have announced another regular quarterly dividend. And beyond that, we have significant flexibility.

Okay. Do you have a dividend policy around, I think, the last couple of years you've increased the dividend on an annual basis? How would that... happen in the future if you're going to increase the dividend?

It's a good question. The dividend policy is handled by the board. It's a board decision and the board is very cognizant of Evert's very strong operational cash flow generation capabilities over the long term and are confident in it. And that has been reflected in increasing quarterly dividends over the last years. Again, too, that is a board decision, but they're well aware of the significant cash buildup.

Okay. Last question for me. I think we're past the anniversary of that large $152 million cloud software deal, but there was some... some words in the press release suggesting significant orders. And as you noted earlier, the backlog did go up despite the fact that revenue was down quarter over quarter by a pretty significant amount. And so I was just curious, would you expand on that significant order comment and then I'll pass on.

With respect to the $152 million cloud software and services, order over five years. So that is exactly what it says. There is a potential and, you know, are other revenues outside of that purchase order, hardware-related specifically, you know, with that customer. So I'm not sure what else. Oh, so...

Yeah, so the increase in the backlog, was that driven by larger deals? Maybe we could just talk about, are there other large deals of that sort of size, the $152 million multi-year deal? He was just talking about the pipeline. There are large deals this quarter.

There have been significant purchase orders and deals that have occurred. Nothing that we've press released outside of the $25 million international purchase order, which you saw last year again, too. And we spoke about it being delivered in the later quarters of 2024. And that was, again, too, just you'll recall that it was for Everett's IP-based solution, so EXEs, EQXs, gateways and other solutions. So, a very high-end solution for an international customer.

Okay. Thank you very much.

Thank you. There are no further questions at this time. I will now hand the call back to Mr. Brian Campbell for closing remarks.

Thank you, Mina. I'd like to thank our participants for their questions and to add that we're very pleased with the company's strong performance during fiscal 2024, which saw sales increase 13% year-over-year, crossing the half-billion threshold to reach a record high of $514.6 million, strong gross margins of 58.8% for the year, delivering over 100 million earnings from operations, all while investing $139 million in R&D to support build and sustain future growth. We close the fourth quarter of Evert's fiscal 2024 with a significant momentum fueled by a combined purchase order backlog plus May shipments totaling in excess of $327 million by the growing adoption and successful large-scale deployments of Evert's IP-based software-defined video networking and cloud solutions by some of the largest broadcast, new media, and service provider and enterprises in the industry, and by the continuing success of Everett's Dreamcatcher Bravo, our state-of-the-art IP-based replay and production suite. With Everett's significant investments in software-defined IP, IT, and cloud-native technologies, the over 600 industry-leading IP platform SDN deployments, and the capabilities of our staff, Everts is poised to build upon our leadership position in the broadcast and media technology sector. Thank you, everyone, and good night.

Thank you. This concludes today's call. Thank you for participating. You may all disconnect.