Evertz Technologies Limited

Good afternoon, ladies and gentlemen, and welcome to the Everts Q2 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 zero for the operator. I would now like to turn the conference over to Brian Campbell, Executive Vice President of Business Development. Please go ahead.

Thank you, John. Good afternoon, everyone, and welcome to Ebert's Technologies Conference call for our fiscal 2025 second quarter, ended October 31st, 2024, with Doug Moore, Ebert'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, sales for the second quarter totaled $125.3 million, up 12.2% sequentially from the prior quarter, and revenue in the US-Canada region was 94.9 million, up 28.2% sequentially. Recurring software services and other software revenue increased 23.7% year-over-year, totaling 54.8 million in the quarter. Our base is well diversified, with the top 10 customers accounting for approximately 45% of sales during the quarter, with no single customer accounting for over 16% of sales. In fact, we had 134 customer orders of over 200,000 in the quarter. Gross margin in the quarter was 74.3 million, or 59.3%, which is within our target range. Investment in research and development during the quarter totaled 36.3 million, Net earnings for the second quarter were $15.9 million, while fully diluted earnings per share were $0.21. Everett's working capital was $199.8 million, with cash of $61.7 million as at October 31, 2024. Operational highlights for the quarter include Everett's stellar presence at the International Broadcast Conference, where Everett's RF over IP platform was recognized with a TVB Best of Show Award, and Evert's Dreamcatcher Bravo Studio won a TV Technology Best of Show Award. Dreamcatcher's advanced data-driven co-pilots provide the ability to automatically create clips, playlists, and stories using AI with large language models and deep machine learning technologies. making live productions even more creative and efficient. At the end of November 2024, Everett's purchase order backlog was in excess of $298 million and shipments during the month were $50 million. We attribute this strong financial performance and robust combined shipments and purchase order backlog to Everett's channel and video services proliferation, increased global demand for high-quality video anywhere, anytime, the ongoing technical transition to IP, IT, and cloud-based architectures in the industry, and specifically to the growing adoption of Evert's IP-based software-defined video network solutions, Evert's IT and cloud solutions, our immersive 4K video 8K ultra-high-definition solutions, our state-of-the-art Dreamcatcher IP replay and live production with Bravo Studio featuring the iconic Studio Audio. Today, Everett's Board of Directors declared a regular quarterly dividend increase to $0.20 per share, payable on or about December 24th. I will now hand it over to Doug Moore, Everett's Chief Financial Officer, to cover our results in greater detail.

Thank you, Brian. Good afternoon. Looking at sales, revenues were $125.3 million in the second quarter of fiscal 2025 compared to $130.7 million in the second quarter of fiscal 2024. That's a decline of $5.4 million or 4% quarter over quarter. For the six months ended October 31st, revenue was $236.9 million compared to $256.6 million in the same period last year. That represents a decline of $19.7 million, or 7.7%. As it relates to revenues in specific regions, the U.S. and Canadian region had revenue for the quarter of $94.8 million compared to $74 million last year. That represents an increase of $20.8 million, or 28% quarter over quarter. Revenues in the U.S. and Canadian region were $168.8 million for the six months ended October 31, 2024, compared to $161 million in the same period last year, an increase of 7.8 million, or 5%. The international region had revenues for the quarter of $30.4 million, compared to $56.7 million last year. That's a decrease of $26.3 million, quarter over quarter, or 46%. The international region represented 24% of total sales this quarter. For the six months ended October 31st, international revenue was $68.1 million compared to $95.5 million in the same period last year, a decline of $27.4 million or 29%. Gross margin for the second quarter was approximately 59.3% compared to 59.7% in the prior year quarter. And for the six months ended October 31st, gross margin was approximately 59.3%. Both the quarterly and year-to-date margins are within our target range. Looking at selling and administrative expenses, S&A was $18.4 million in the second quarter, an increase of $0.9 million from the same period last year. Selling and admin expenses as a percentage of revenue were approximately 14.7% as compared to 13.4% for the same period last year. For the six months ended October 31st, Selling and administrative expenses were $36 million, an increase of $2.1 million from the same period last year, and selling and admin expenses as a percentage of revenue were approximately 15.2% over the period. Research and development expenses were $36.3 million for the second quarter, which represents a $4.1 million increase from $32.2 million in the second quarter last year. The increase includes $1.9 million in increased salary and benefit costs, and .6 million in specialized service costs. Just to provide a bit more color on the specialized service costs, that relates to the modernization of certain IP and code that we purchased from Harman a couple years ago. That project is now substantially completed from an external cost perspective. As a percentage of revenue, R&D expenses were 29%. That's compared to 24.6% in the prior year. For the six months ended October 31st, research and development expenses were $73.7 million. It represents an increase of $9.5 million over the same period last year. And research and development expenses as a percentage of revenue were approximately 31.1% over the period compared to 25% over the same period last year. Foreign exchange for the second quarter was a gain of $0.8 million. That's compared to a $2.9 million gain in the same period last year. The relatively nominal gain this quarter is driven by a slightly stronger U.S.-Canadian dollar between July 31st, which we closed at approximately 1.38 to 1, and October 31st, which we closed at approximately 1.3 million Canadian dollars to U.S. dollars. Foreign exchange for the six months ended October 31st was a gain of 0.8 million. That's compared to a gain of 0.9 million in the same period last year. Looking at the liquidity of the company, cash as of October 31st was $61.7 million. That's compared to net cash of $86.3 million as of April 30th, 2024. And working capital was $199.8 million as of October 31st, compared to $201.4 million at the end of April 30th, 2024. Now looking at cash flows, the company used cash from operations of $9.6 million. That is net of a $31.5 million change in non-cash working capital and current taxes. And that includes a quarterly decrease in accounts payable of $21.8 million and a decrease in deferred revenue of $7.4 million. If the effects of the change in non-cash working capital and current taxes were excluded from the calculation, the company generated $21.8 million in cash from operations during the quarter. Looking at investing activities, the cash used... The company used cash of $1.4 million, which was predominantly driven by the acquisition of capital assets. And the company used cash in financing activities of $18.7 million, which was principally driven by dividends paid of $14.8 million, and the purchase of capital stock under our NCIB for $1.8 million subsequent to the quarter. That NCIB has since expired, but we did renew for a new NCIB effective November 27th. Finally, looking at our share capital position, as at October 31st, 2024, shares outstanding were approximately 76 million, and options in equity-based restricted units outstanding were approximately 5.5 million. The weighted average of shares outstanding were 76 million, and weighted average fully diluted shares was 76.8 million for the quarter ended October 31st. That brings us to the conclusion of 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 official reports filed with the Canadian Securities Commission. Brian, back to yourself.