Evertz Technologies Limited

Good afternoon, ladies and gentlemen, and welcome to the fourth quarter Everts Conference Call. At this time, all lines are in 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. This call is being recorded on Wednesday, June 25 of 2025. I would now like to turn the conference over to Brian Capra, Executive Vice President of Business Development. Please go ahead.

Thank you, Chloe. Good afternoon, everyone, and welcome to Everett Technologies' conference call for our fiscal 2025 fourth quarter ended April 30, 2025, 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 Ebert's results, I will begin by providing a few highlights, and then Doug will provide additional details. First off, for the second year in a row, annual revenues exceeded 1%. half a billion dollars, coming in at $501.6 million, down 2.5% from the prior year. Revenues included $374.4 million in the US-Canada region, up 10.8% from the prior year. Recurring software services and other software revenues increased 17.8% year-over-year, totaling $222.6 million in the year, which represents 44.4% of the total revenue. Gross margin was $298.5 million, with margin rates strengthening slightly to 59.5% on an annual basis. Net earnings were $59.7 million, resulting in fully diluted earnings per share of 77 cents. Investment in research and development totaled $146.8 million, up from $134.8 million in the prior year. We continued to strengthen our cash position, closing the year with $111.7 million in cash and cash equivalents, up from 86.3 million in April 2024. Turning to the fourth quarter results, quarterly revenue was 127.8 million, up 4.1% from the prior year. Gross margin in the quarter was 78.9 million, with margin rates strengthening to 61.7%. up 395 basis points sequentially from the third quarter of the current year, and up 254 basis points from the fourth quarter of the prior year. Investment in research and development during the quarter totaled $36.5 million, and net earnings for the fourth quarter were $13 million, while fully diluted earnings per share were 17 cents. Everett's working capital was $206.9 million, up $5.5 million from April 2024. Operational highlights for the quarter included Everett's stellar presence at the National Association of Broadcasters NAB show in Las Vegas, where Everett's next seamless multi-frame hybrid SDI IP routing platform with our FXLink expansion architecture was recognized with a TV Tech Best of Show Award. And we are honored to have received the TVB Europe Best of Show Award for Studer Vista in View. At the end of May, 2025, Evert's purchase sorter backlog was in excess of $259 million and shipments during the month were $26 million. We attribute the strong financial performance and robust combined shipments and purchase order backlog to channel and video services proliferation, increasing 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 Everett's IP-based software-defined video networking solutions, Everett's IT, and cloud solutions, our immersive 4K, 8K, ultra-high definition solutions, our state-of-the-art Dreamcatcher IP replay and live production with Bravo Studio featuring the iconic Studer Audio. Our sales are well diversified, with the top 10 customers during the year accounting for approximately 44.7% of sales, with one customer of 11.8%. In the fourth quarter, the top 10 customers accounted for approximately 55.2% of sales, with two customers of 14.4% and 10.5% respectively, with 120 customer orders over $200,000 in the quarter. Today, ERIP's Board of Directors declared a quarterly dividend of $0.20 per share payable on or about July 11th. I'll now hand it over to Doug Moore, ERich's Chief Financial Officer, to cover our results in greater detail.

Thanks, Brian. Good afternoon, everyone. Before I get into the financial results, I'll provide a quick update on the tariff situation as it relates to our operations. As we noted during our last quarterly call, while it was and is a fluid situation, back at that time, there was a relatively flat U.S. tariff on Canadian manufactured goods. As you likely know, on March 7th, an exemption was implemented for U.S. MCA-compliant goods. The vast majority of goods we sell to the U.S. are, indeed, U.S. MCA-compliant and thus exempt from additional tariffs. Further, Canada doesn't currently have tariffs on our significant raw materials that we purchase. Therefore, and while I repeat it remains a fluid situation, we are not incurring significant tariff costs today, nor did we in the past quarter. But before I move on, I will also note that the majority of our U.S.-bound shipments did come from Canada this quarter. So we'll highlight that we continue to increase our flexibility by further building out our manufacturing capabilities in the U.S., in particular in Pennsylvania. And this is irrespective of tariffs, as we look to increase flexibility and better address U.S. government opportunities. Now I'll look at the financial results, sales in particular. Revenue was $127.8 million in the fourth quarter of fiscal 2025, as compared to $122.8 million in the fourth quarter of fiscal 2024, an increase of $5 million, or just over 4% quarter over quarter. For the 12 months ended April 30th, 2025, revenue was $501.6 million, as compared to $514.6 million in the same period last year, and this represents a decline of $13 million, or approximately 2.5%. As it relates to revenues in specific regions, the U.S. and Canadian region had revenue for the quarter of $106.2 million. That's compared to $96.5 million last year, and represents an increase of $9.7 million, or 10% quarter over quarter. Revenues in the U.S. Canadian region were $374.4 million for the year ended April 30th, 2025, compared to $338 million in the same period last year. That's an increase of $36.4 million, or 10.8%. The international region had revenues for the quarter of $21.4 million, compared to $26.3 million last year, a decrease of $4.9 million in the quarter-over-quarter, or 18.6%. and represented 16.8% of total sales this quarter. For the 12 months ended April 3rd, 2025, international revenue was 127.2 million compared to 176.6 million in the year last year, a decline of 49.4 million or 28%. The decrease is driven by a couple of different factors. First, last year we recognized $21 million in revenue from a large order that we had previously press released. That did not reoccur this year. And second, some of the decrease is attributable to regional unrest, whether it's in multiple locations, but including the Middle East and Central Africa. Within revenue, hardware revenue during the year was $279.1 million in the year compared to $325.7 million last year, while software and services revenue totaled $222.6 million this year compared to $188.9 million in the prior year. In the quarter, hardware revenue was $71.7 million. That's compared to $75.1 million in the same period last year, while software and service revenue was $56.1 million this quarter compared to $47.7 million in the same period as last year. Gross margin for the fourth quarter was approximately 61.7% compared with 59.2% in the prior year quarter. That gross margin was above our target range. The increase is driven by a product in exchange and partially due to the greater proportion of software and service revenue in the quarter. For the 12 months ended April 30th, gross margin was approximately 59.5%. Year-to-date margins were within our target range. Turning to S&A expenses, S&A was $20.7 million in the fourth quarter, an increase of .6 million for the same period last year. Selling and admin expenses as a percentage of revenue were approximately 16.2 percent compared to 16.4 percent in the same period last year. Sequentially, we had NAB extended in the fourth quarter, which increased costs between 1.5 to 2 million in trade show costs. For the 12 months ended April 30th, 2025, selling and admin expenses were $75.9 million, an increase of 3.6 million from the same period last year. Selling and admin expenses as a percentage of revenue were approximately 15.1% over the period compared to 14% for the same period last year. R&D expenses were $36.5 million for the fourth quarter. That represents a $0.2 million decrease from $36.7 million in the fourth quarter last year. And as a percentage of revenue, R&D expenses were 28.6% compared to 29.9% in the prior year. Over the 12 months, research and development expenses were $146.8 million. That represents an increase of $11.9 million over the same period as last year. And that increase includes an increase of $7.7 million attributed to salaries. That's largely relating to increases in headcount and salaries themselves over the past 18 to 24 months. Research and development expenses as a percentage of revenue were 29.3% year-to-date. More in exchange for the fourth quarter with a loss of $4.4 million compared to a gain of $2.1 million the same period last year. The loss in the quarter was driven by a weakening U.S. dollar compared to the Canadian dollar. We closed April 30th at approximately 1.3 to 1 in exchange rate as compared to approximately 1.45 on January 31st and a pretty significant 5% drop over the three months. Foreign exchange with a 12-month end at April 30th, 2025 with a gain of $0.2 million consistent with the last year. Turning to a discussion of liquidity of the company, net cash as of April 30th, 2025 was $111.7 million compared to net cash of $86.3 million as of April 30th, 2024. All working capital was $206.9 million as of April 30th, 2025. compared to $201.4 million as at April 30, 2024. Now, for cash flows, the company generated cash from operations of $99.6 million. That includes a $19.3 million change in non-cash working capital and current taxes, including a decrease of inventory of approximately $25 million, driven by a decline of raw materials on hand. The effects of The change in non-cash working capital and current taxes are excluded from the calculation. The company generated $79.6 million in cash from operations during the year. The company used cash of $6.7 million for investing activities. That's principally driven by the acquisition of capital assets. The company used cash in financing activities of $71.4 million. This is principally driven by dividends paid of $60.1 million. Purchase of capital stock under NCIP for 4.9 million and principal payments on leases liabilities of 4.8. Finally, our share capital position on April 30th, 2025. Shares outstanding were approximately 75.8 million and options and equity based restricted units outstanding were approximately 4.9 million. Weighted average shares outstanding were 76 million and weighted average fully diluted shares were 77 million for the year ended April 3rd, 2025. That brings to 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 official reports filed with the Canadian Securities Commission. Brian, back to you.

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

Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you would like to ask a question, please press start and the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. One moment for your first question. Your first question comes from the line of Max Ingram from Canaccord Charity. Your line is open.

Hey, good afternoon. Thanks for taking my questions. My first question is on the demand environment. Can you just give us an overview of the demand you're seeing both in North America and then internationally and any changes you might be seeing in sales cycles or drawn-out decision-making?

So with respect to the demand environments, we are seeing a robust demand environment. The strong backlog does reflect that. In addition, we're seeing very good, solid quoting activity, probably, you know, up over the last few months.

Okay, thanks. Thanks for the color. And then my second question is on the cash. Cash is now above $100 million. Can you just go over how you're thinking about that use, that capital allocation, any priorities you have for that?

So we currently have an active NCIB. I mean, it's a relatively limited number of shares we can buy. It's around 8,500 shares a day. And we declared a regular quarterly dividend, say, of $0.20. Beyond that, I think it gives us a lot of flexibility.

And we do continue to review the landscape for NCIB. shareholder accretive acquisitions. And we do have that flexibility provided by the cash and the balance sheet, our pristine balance sheet.

Right. Okay. And then just a quick last one. What are your expectations for backlog conversion over the next 12 months?

So we expect the backlog more than a year out at approximately 40%. I think something worth noting, too, on the backlog, just for understanding. So there is a significant portion that's U.S. dollar base. So having a lower conversion rate of around 1.38 versus 1.44 has an impact on our overall backlog. I think that, you know, is worth noting.

Okay. Thanks for taking the mic. Yeah. Thanks for taking the questions. Thanks, Max.

Our next question comes from the line of from BMO Capital Markets. Your line is open.

Good afternoon. Brian, maybe expanding on your commentary regarding an uptick in quoting activity and any additional color you can find in terms of, from your perspective, what might be driving that?

Very good strong demand for Ebert's products and solutions. And it does reflect as well, too, we've had, you know, very good solid results in the U.S.-Canada region, which was up significantly this year.

Yeah, I'll highlight that we did a light start, so it may be a light start for us for sure. I mean, some of that might be attributable to some macroeconomic uncertainty related to the whole tariffs for what happened and what would not, but we are definitely seeing improvements over the past couple months.

Yeah, maybe just to clarify, because that was going to be my next question, was on the VMA shipments. I mean, recognizing that, you know, one month is just a data point, and there could be some volatility. And maybe the macro has gotten a little less murky in recent weeks. But I guess takeaways from your customer discussions, you're not seeing any specific pauses or influences. I mean, we had a Brief period of macro concern, but from your perspective, you're largely seeing business as usual, at least in North America.

Thanos, you were breaking up. Sorry.

No, I was just saying, notwithstanding me having been light, I think what you're trying to convey is, you know, the demand environment overall, notwithstanding me being a lighter start and, you know, customer discussions, seem positive and you're not really seeing a lot of macro hesitation per se on the back of the tariffs. Would that be fair?

Not specifically related to tariffs, but clearly the global macro environment has not changed significantly with respect to uncertainties in the Middle East and Europe that we've been following.

Okay. Okay, I think that clarifies it. On the gross margins, sorry, I understand, you know, mix drove part of it, but given that I presume the mix will continue to skew more towards software over the coming quarters, would it be unreasonable to think that you might be able to sustain a gross margin worth of 60%?

We do have some validity to it, right? So even last quarter, we were below 58%. I mean, there's a long-term trend. I mean, that's certainly the goal. And we have seen an uptick, you know, if you compare year over year. But there is validity to it, and there is a mixed change each quarter, apparently. But we haven't changed our target, but it has been skewing higher over the past few quarters, like, you know, long-term, 8 to 12 quarters.

Okay. From an OpEx perspective, obviously there was NAB. Are there any other nuances you'd call out as we think about the upcoming quarter?

No, I mean, so SNA, NAB, just trade show costs in general, that's over $1.5 million and a quarter for trade shows as a whole. The only other thing, which is not hugely material, but there is less business days, frankly, in Q4. So even having three less business days can have about a half a million dollar impact on R&D, which would break it down slightly. That would, you know, Q1 would be more similar to a Q3. Okay.

And finally, you made the comment that you're continuing to expand your U.S. production. Is your plans regarding CapEx sort of unchanged from what you were thinking back in... Yeah.

As of today, in the quarter, there was less than $1 million of capital assets spent, but today we've committed to over $2 million, U.S. actually, in spending. That is, from a build-out perspective, that hasn't changed. If we do... I don't expect it to increase significantly beyond that, unless we acquire a building as opposed to lease it. But that is something we're exploring. But other than that, my expectation hasn't changed.

Great. I'll pass the on. Thank you.

There are no further questions at this time. Mr. Campbell, please continue.

Thank you, Chloe. I'd like to thank the participants for their questions and add that we are very pleased with the company's performance during fiscal 2025, which saw continued strong sales exceeding half a billion dollars, solved gross margins of 59.5% for the year, which together with Ebert's disciplined expense management yielded basic earnings of 78 cents per share. We're entering fiscal 2026 with significant momentum fueled by a combined purchase order backlog plus May shipments totaling in excess of 285 million. By the growing adoption and successful large-scale deployments of Evert's IP-based software-defined video networking and cloud-based solutions by some of the largest broadcast new media and service provider enterprises in the industry, and by the continuing success of Dreamcatcher Bravo, our state-of-the-art IP-based replay and production suite. With Ebert's significant investments in software-defined IP, IT, and cloud technologies, the over 600 industry-leading IP SDN deployments, and the capabilities of our staff, Ebert is poised to build upon our leadership position to provide innovative solutions to customers and deliver to shareholders. Thank you, everyone, and good night.

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