Evertz Technologies Limited

good afternoon ladies and gentlemen and welcome to the first 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 store 0 for the operator this call is being recorded on wednesday september 10th 2025. i would now like to turn the conference over to mr brian campbell executive vice president of business development Please go ahead, Mr. Campbell.

Thank you, Constantine. Good afternoon, everyone, and welcome to Ebert's Technologies Conference call for our fiscal 2026 first quarter ended July 31st, 2025. 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 on 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 Evert's results, I'll begin by providing a few highlights, and then Doug will provide additional details. First off, sales for the first quarter totaled $112.1 million, including $51.6 million in software and services revenue, representing 46% of total revenue. Our sales base is well diversified with the top 10 customers accounting for approximately 50% of sales during the quarter with no one customer accounting for more than 9% of sales. In fact, we had 114 customer orders of over $200,000. Gross margin in the quarter was 68.8 million or 61.4%. up from 59.4% in the prior year. Net earnings were 11.9 million, up 22% from the prior year, while fully diluted earnings per share were 15 cents for the quarter. Investment and research and development totaled 37 million in the quarter. Everett's working capital was $202.6 million, including cash of $124.3 million as at July 31, 2025. At the end of August, Everett's purchase order backlog was more than $252 million, and shipments during the month of August were $41 million. We attribute the strong financial performance and robust combined shipments and purchase order backlog to channel and video service 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 Ebert's IP-based software-defined video networking solutions, Ebert's IT and cloud solutions, our immersive 4K, 8K ultra-high-definition solutions and Everett's state-of-the-art Dreamcatcher IP replay and live production suite with Bravo Studio featuring the iconic Studor Audio. Today, Everett's Board of Directors declared a regular quarterly dividend of 20 cents per share payable on or about September 25th. I'll now hand over to Doug Moore, Everett's Chief Financial Officer, to cover our results in greater detail.

All right, thank you, Brian. Starting with revenue, After a slow start in May of 2025, sales were $112.1 million in the first quarter of fiscal 2026, a slight increase compared to $111.6 million in the first quarter of fiscal 2025. Hardware revenue increased quarter-over-quarter from $55.7 million to $60.5 million, while software services revenue decreased from $55.9 million to $51.6 million in the current quarter. Revenue from the software services segment there represented approximately 46% of the total revenue in the quarter. Looking at regional revenue, quarterly revenues in the U.S. Canadian region were $79.5 million compared to $73.9 million the prior year, while quarterly revenues in the international region were $32.7 million compared to $37.7 million in the prior year. The international segment represented 29% of total sales in the quarter, compared to 34% in the same period last year. Gross margin for the quarter was 61.4%. That's compared to 59.4% in the prior year and slightly above our target range. While the gross margin was above our target range for the second quarter in a row, that's largely being driven by product mix, including a relatively high proportion of higher margin software service revenue in the quarter. Turning to selling and amending expenses, S&A was $18.6 million in the first quarter, an increase of $1 million from the same period last year. And selling and amending expenses as a percentage of revenue were approximately 16.6, as compared to 15.8% for the same period last year. Sequentially, S&A is down approximately $2 million from Q4. That's largely driven by the non-recurrence of NAB, which we attended in April of this year. R&D expenses were $37 million for the first quarter. That represents a $0.3 million decrease over the same period last year. As a percentage of revenue, R&D expenses were 33% compared to 33.5% in the prior year. The higher percent is largely being driven by softer revenue on Q1 this year and last. Investment tax credits for the quarter were $3.3 million. Foreign exchange for the first quarter was a gain of $0.7 million, as compared to a foreign exchange gain of less than $1 million in the first quarter last year. The U.S. dollar closed at approximately 1.38 on July 31st, not significantly different from its closing rate as of April 30th. Turning to discussion of liquidity of the company, cash as of July 31st was $124.3 million, increasing compared to cash of $111.7 million as of April 30th. Working capital was $202.6 million as of July 31st, compared to $206.9 million at the end of April 30th. The company generated cash from operations of $33.5 million. That includes $18 million change in non-cash working capital and current taxes. If the effects from the change in non-cash working capital and current taxes were excluded from the calculation, the company would have generated $15.5 million in cash from operations during the quarter. The company used $0.5 million for investing activities, which was principally driven by the acquisition of capital assets of $1.4 million and partially offset by proceeds of disposals of $900,000. The company used cash in financing activities of $20.2 million, which was principally driven by dividends paid of $15.1 million and the repurchase of capital stock under NCIB plan of $3.8 million which translated to approximately 317,000 shares purchased and canceled in the quarter. Finally, looking at our share capital position as of July 31st, shares at standing were approximately 75.5 million, and options and share-based RSUs at standing were approximately 2.1 million at the end of the quarter. During the quarter, approximately 2.7 million options expired. Weighted average shares outstanding were 75.5 million, and weighted average fully diluted shares were 76.6 million for the period ended July 31, 2025. That concludes the review of our financial results and position for the first 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 our annual information form and the official reports filed with the Canadian Securities Commission. Brian, back to yourself.

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

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift your handset before pressing any keys. Your first question is from the line of Robert Young from Kanaker Genuity. Please go ahead.

Hi. Good evening. First place I'd like to start is the gross margins. Strong. Can you remind us what your target is and whether there's any intent to adjust that? And then I think you said that software was down in the mix year over year in the quarter, but you also said that the gross margins were driven by high margin software. So if you could just maybe provide a little more color around, you've made grids between those two things so I can understand what's going on there.

First of all, note that there's a lot of volatility. and our margin is driven by product mix. So we're not changing our chart at this point. It's 56 to 60%. We have had two quarters now that have exceeded that. But of course, just three quarters ago, we were at 57%. I think before we adjust our target range, we need a greater track record of variance there. Yeah, so the comments on the driven by the software and service revenue. So first of all, that includes software and services. And year over year, you're correct. It's down to software and services year over year, even as a proportion. But as a proportion, over the past three quarters, it's increased. So our software revenue is generally a higher margin than, of course, services or hardware. And being at 46% is part of the reason why that product mix pushed it up. So even Q1 last year was high 59. So with the high proportion, but it's not a direct mathematical calculation, but there's certainly a correlation between higher proportion of software and services and margin.

Is there anything worth calling out? Like product wise, what is the driver? What is the product that is driving that high margin? It's like a category you'd highlight.

No, I mean, there's a significant portfolio of products that are within software and services, right? So I will remind that, you know, there's two different types of software and services recognized. That's some over time. So whether it's SLAs, warranties, and then there's other components that are, you know, could be a software, you know, site acceptance that triggers a release of revenue. So it is Fortunately, it's a fair mix of products that go into that category.

Okay. So, what could have happened here is, like, a milestone in software revenue recognition at high margin or something like that. Is that a good thing?

That happens every quarter, projects that get released in that manner.

Okay. And then the other notable thing that jumped out at me was the cash balance, you know, quite high. maybe I know that you always say that it's a decision, you know, driven by the board, but I was hoping you can give us some insight into the thought process, you know, how you would go about deploying that capital, you know, whether it's M&A or, you know, dividend. If you could give us a sense of the thought process, that would be helpful.

So, Rob, the thought process is quite consistent. distributed via regular quarterly dividends, which have been increasing in each of the last five years. Now, cash has been building up to a very significant level. We do continue to look at acquisition opportunities, but again, the acquisitions have to align with our growth and long-term strategic plan such that they provide very good shareholder value over the long haul. And that thought process is what the board considers each quarter.

I will also highlight that Q2 has often had a large negative cash flow swing in working capital. Last year in Q2, we used cash from inward capital, $30 million, including $20 million That's, you know, coinciding with, like, looking ahead to, you know, past Q2s or forward and behind. That's often we pay our incentive plans out in Q2, which is just cash. Looking ahead, we're also looking at acquiring a building that we are currently leasing for 2.5 to 3 million Canadians. So there is some, you know, it's significant today, the cash balance, but we do expect the cash to decrease over the next quarter.

and the normal course issuer bid is in effect.

Okay. And then the last question before I hand it off to someone else, just a high-level product question, two-part. You're just fresh at IBC, but maybe you could give us a sense of what the areas of interest in the, you know, the eBirds product lineup are. And then the second part would be just, you know, just everyone's looking at the Oracle results this morning with this enormous amount of infrastructure building the data center and I thought maybe there's an opportunity for you to talk about potential applications of your IP switching product given, you know, the deterministic nature and if there's an application inside of that data center builder, something that you're looking at and then I'll pass the line.

So, Rob, IBC does begin on Friday. So, you know, yes, we're looking forward very much to seeing our customers over the weekends and renewing the relationships. So we're very excited by the lineup of products that we're releasing and reinforcing our long-term commitment to investments in R&D and innovation. Of course, the IP-based and cloud-based solutions are a very integral part of our product portfolio and a big driver. So, you know, we are excited by those opportunities, and not just in the data center, but in customer facilities as well, too, on-premise and in the cloud. Okay, thanks, and I'll pass on.

The next question is from the line of Panos Machopoulos from VMO Capital Markets. Please go ahead.

Hi, good afternoon. Just with respect to M&E opportunities, we've heard the comments from some other companies that there's kind of more stuff available as of late. PE has been kind of looking to monetize assets and so forth. Are you seeing more M&E opportunities in the past or anything you can say on that front?

Danos, you were breaking up. I didn't hear all of your questions, but I believe you asked, are we seeing more opportunities than in the past? Yes. I would say it's a fairly consistent level of acquisition opportunity. There are targets available, and as I said, we do... investigate and analyze those opportunities. But we're very selective in terms of ensuring that we've got alignment with Evert's portfolio of products and our growth areas that we're looking at, whether it's in our core markets or adjacent markets. And so that is an ongoing process.

Can you update us on your U.S. expansion, how that's proceeding, and whether we should be mindful of any cost or margin implications as that could use to ramp up in the near term?

So I can give you an update for sure. So our location, India, Pennsylvania, just outside Pittsburgh, we're continuing to ramp up capacity there. It's not fully operational in the sense that we can't manufacture everything there at this point. but we're continuing to ramp that up. To date, in that part of that expansion, we've incurred about a little over $2 million in costs. We've already incurred. That's a building we currently lease that we will be planning on purchasing and hopefully closing this quarter, which will cost an extra $2.5 to $3 million. I'm sorry, I don't know if there was a second part of that question.

Yeah, just... whether we've still got any margin implications as you can wrap up production there and that becomes maybe a part-to-part of the relative mix?

There will be certainly some additional, as there already is, some additional costs incurred by having some, say, redundant staff. You would say having people here and there doing similar things. But at this point, it's not overly material. So it's not... I'm not able to really quantify a significant impact. I don't expect a significant impact at this time.

Okay. And then you can provide in terms of what you're seeing from customers outside of broadcast and media. So, you know, be it in AV or in other parts of the other end markets.

So we continue to have good traction and success in the adjacent markets, specifically Ebert's AV. However, the press releases are somewhat sparse from that customer set. Oftentimes, government and military installations do not provide those press releases. So that is very much a focus of part of our business and a successful part. However, I can't provide you additional color.

On a relative basis, can you comment on whether that's going any faster or slower than the broadcast media market?

It has greater potential for us as it's a newer market.

Okay. That's all I make it.

Thank you very much. There are no further questions at this time. I'd like to turn the call back over to Mr. Brian Campbell for closing comments. Sir, please go ahead.

I'd like to thank the participants for their questions and to add that we're pleased with the company's performance during Q1 of fiscal 2026, which saw sales of $112 million, including $51.6 million in software and services revenue, strong gross margins of 61.4% for the year, up from 59.4% in the prior year, along with continued investment in R&D totaling 37 million in the year. We closed the first quarter of fiscal 2026 with significant momentum fueled by combined purchase order backlog plus August shipments totaling in excess of 293 million. by the growing adoption and successful large-scale deployments of Ebert's IP-based software-defined video networking and cloud solutions by some of the largest broadcast new media service provider and 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, Evers is poised to build upon our leadership position in the broadcast and media technology sector, providing high reliability, reliable, innovative solutions to customers, and delivering to shareholders. Thank you. We look forward to having many of you join us on Wednesday, the 1st of October, at our annual general meeting. Good night.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.