Evertz Technologies Limited

Good afternoon, ladies and gentlemen, and welcome to the Everts Q3 Investor Conference 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. This call is being recorded on Wednesday, March 4, 2026. I would now like to turn the conference over to Brian Campbell, Executive VP of Business Development. Please go ahead, sir. Thank you, John.

Good afternoon, everyone, and welcome to Ebert's Technologies conference call for our fiscal 2026 third quarter and January 31st, 2026. 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 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'll begin by providing a few highlights and then Doug will provide additional detail. First off, sales for the third quarter totaled a record $139.3 million, up 5% sequentially from the prior quarter. This includes revenue in the international region of 43.7 million, up 27.7% sequentially. Recurring software services and other software revenue increased 12.3% year-over-year, totaling 62.5 million in the quarter. Our sales base is well diversified, with the top 10 customers accounting for approximately 44% of sales during the quarter. with no single customer accounting for more than 16% of sales. In fact, we had 107 customer orders of over $200,000. Gross margin in the quarter was 81.2 million, or 58.3%, compared to 57.8% in the third quarter of the prior year. Net earnings were 18.7 million, resulting in fully diluted earnings per share of $0.24 for the quarter. Investment in research and development totaled $36.7 million. Ebert's working capital was $133.2 million, including cash of $24.8 million as at January 31, 2026. At the end of February, Everett's purchase order backlog was more than $246 million, and shipments during the month of February were $32 million. We attribute this strong financial performance and solid 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 the growing adoption of Evert's IP-based software-defined video networking solutions, Evert's IT 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. And today, the Board of Directors declared a regular quarterly dividend of 20.5 cents per share payable on or about March 20th. I will now hand over to Doug Moore-Everts, Chief Financial Officer, to cover our results in greater detail.

All right. Thanks, Brian. And good afternoon, everyone. The sales were $139.3 million in the third quarter of fiscal 2026. That's a 2% increase. compared to 136.9 in the third quarter of fiscal 2025. For the nine months ending January 31st, 2026, sales were 384.2 million, up 10.4 million, or 3%, for the nine-month period ending January 31st, 2025. Quarterly hardware revenue was 76.8 million, a decrease from 81.2 million the prior year, while software and services revenue increased to 62.5 million from 55.7 million in the prior year. Revenues from software and services represented approximately 45% of the total revenue in the quarter. Year to date, quarter revenue is up 1% year over year to 209.3 million for the nine months ending January 31st, 2026, while revenues from software and services is up 5% to 174.9 million from $166.4 million in the prior year. Year-to-date, software and service revenue represented approximately 46% of total revenue over the period. Look at our regional revenue. Quarterly revenues in the U.S.-Canadian region declined 3% to $95.6 million compared to $99.1 million the prior year. This was more than offset by a 15% increase in quarterly revenues in the international region, which were $43.7 million compared to $37.8 million in the prior year. The international segment represented 31% of total sales in the quarter, compared to 28% in the same period last year. For the nine months ending January 31st, revenues in the Canadian-US region were up 2% to $273.6 million, while international revenue increased 3% to $110.6 million, compared to $105.9 million in the same period last year. For the nine months period ending January 31st, international sales represented 29% of total sales compared to 28% in the same period last year. Gross margin for the quarter was 58.3% as compared to 57.8% in the prior year. And then for the nine months ending January 31st, the gross margin was 59.3%. Both the quarter end and year end Gross margin percentages were within the company's 56% to 60% target range. Looking at S&A expenses, S&A was $18.6 million in the third quarter, a decline of 0.6 million or 3% for the same period last year. Selling and amending expenses as a percentage of revenue were approximately 13.3% compared to 14% for the same period last year. Sequentially, selling and amending is down approximately half a million dollars from Q2. That decline is primarily driven by the timing of trade show and promotions costs, which decreased about $900,000 as in Q2 we attended our IBC trade show last quarter. For the nine-month ending to January 31st, sun and mint expenses were $56.3 million, or 14.7% of sales. That's compared to $55.2 million, or 14.7% of sales for the same period last year. Research and development expenses were $36.7 million for the third quarter. That represents a $0.1 million increase over the same period last year. As a percentage of revenue, R&D expenses were 26.4% compared to 26.7% in the prior year. For the nine months ending January 31st, R&D expenses were $110.4 million, or 28.7% of sales, as compared to $110.2 million for the same period last year. ITCs for the quarter were $4.8 million as compared to ITCs of $3.6 million in the prior year of third quarter. Foreign exchange for the third quarter resulted in a loss of $2.3 million as compared to a gain for the third quarter ended January 31, 2025 of $3.9 million. The largest driver behind the current period loss was a translation of U.S. dollar assets into Canadian dollars given a decline of the U.S. dollar versus the Canadian dollar over the quarterly period. We had closed October 31st at approximately 1.401 US to Canadian, and that dropped to approximately 1.3612 of that January 31st. So nine months into January 31st, foreign exchange resulted in a loss of 0.8 million compared to a gain of 4.7 million the same period last year. Turning to the discussion of liquidity of the company, cash as at January 31st, 2026 was 24.8 million. A decline compared to cash of $111.7 million as of April 30, 2025. The decline was primarily due to $91 million in dividends distributed in the quarter, including $75.5 million in special dividends paid during Q3. Working capital was $133.2 million as of January 31, compared to $206.9 million at the end of April 30, 2025. A look at cash flows for the quarter. The company generated cash from operations of $29.3 million. which is net of a 4.4 million change in non-cash working capital and current taxes. If the effects of change in non-cash working capital and current taxes were excluded from the calculation, the company generated 24.9 million in cash from operations during the quarter. It's worth noting we did use about $10 million in cash and inventory in the quarter as we purchased some last-time byproducts and also securing parts for planned production. We increased raw materials. The company used cash at $7 million for investing activities, which was principally driven by the acquisition of capital assets in the quarter, including the acquisition of an airplane for $4.4 million, replacing aircraft previously sold during the year. The company used cash in financing activities at $92.4 million, which, as noted, was principally driven by dividends paid at $91 million, including the special dividend of $75.5 million. Finally, looking at our share capital position at January 31, 2026, Shares outstanding were approximately 75.5 million, and auctions and share-based RSUs outstanding were approximately 4.5 million. Weighted average shares outstanding were 75.5 million, and weighted average diluted shares were 76.7 million as of January 31st. That concludes the review of our financial results and position for the third 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 the official reports filed with the Canadian Securities Commission. Brian, back to yourself.

Thank you, Doug. John, 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 number one on your touchtone phone. We'll 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're using a speakerphone, please lift the headset before pressing any keys. Once again, it is star one if you wish to ask a question. Your first question comes from the line of Stannis Mastropoulos from BMO Capital Markets. Your line is now open.

Hi, good afternoon. North American growth was clearly a little bit slower, recognizing a strong growth internationally. Just with the stretch to North America, anything you'd call out as far as what you're seeing in the environment, or is that just reflective of project timing, which, as we know, can be sometimes lumpy?

Dennis, it's Brian. I'm actually on a remote cell phone here in Ottawa at a defense conference event, and you were breaking up a little bit there. Could you repeat the question for us?

Sure. I was just asking about the slower growth in North America during the quarter, whether you've seen any change in the end markets or whether that's just reflective of project timing and lumpiness.

I would advise that it's more reflective of timing and lumpiness. So we haven't seen a significant change, and we are heading into – the NAB events on the tail end of April where we're going to be, you know, connecting again directly with, you know, many customers on site. So, it's, we're quite excited by that.

Okay. Clearly, defense is topical. So, maybe on each side of the border, we've seen Canada focusing on ramping up domestic procurement, and in the U.S., you're obviously, you've been investing in building out your operations. Can you update us in terms of what you're seeing in terms of destructive defense opportunities?

We're definitely encouraged by the steps that are being taken on multiple fronts, whether that's government initiatives, mandate, the Canadian defense sector, and the internal people as well, too. You know, that tends to be a longer-term sales cycle, but it's all, you know, quite encouraging. And we're very intent on devoting sufficient, you know, resources to help the Canadian government as they're moving forward. As you know, we have had successes over the years in the U.S. and with NATO partners.

Great. And maybe one last one for me. OpEx has been relatively stable in recent quarters, which is good to see that extent of discipline. Any puts and takes as we think about the near-term OpEx trajectory, or should this be representative of the run rate near-term?

No, I mean, the big thing to call it there is, like, while Q2 had IBC, Q4 has NAB, or NAB. So that is a pretty significant show for us. Just from a Q3 to Q4 perspective, I would expect an increase of $1.5 million to $2 million. The same with on the Q4 front as we ramp up for that show. A little bit harder to forecast, but we do often have some increases in R&D materials and prototypes, which is historically, the last couple of years anyway, been about an extra half million in Q4. And then beyond Q4, it's, you know, there's nothing specific to call it other than inflationary matters.

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

Your next question comes from the line of Robert Young from Canaccord Genuity. Your line is now open.

Hi, Brian. I think you noted you were attending the Ottawa Conference on Securing Defense earlier in the call. I think I heard that. Could you talk about what you're showing at the conference? What are the products that you're displaying to a defense customer? What are the areas where you think Ebert's can be meaningful in supplying the Canadian defense establishment?

So it isn't as much a trade show as you're familiar with the NEB and IBC. It's more attended and conferenced, but we're definitely – continuing to reinforce and make strong relationships on multiple fronts. And it is the monitoring, command and control solutions, our transport, as you know, core elements of our key technologies, our common criteria and NIAP certified, and that plays very well

to get the direction that's being taken by much of the new spending initiatives okay so no specific product areas that you're in a sales motion at this conference is there anything worth highlighting you understand you're highlighting products that you have certifications related to but is there any what product areas would you highlight as particularly relevant to a defense customer.

So Rob, other than the ones I articulated previously, which is the command and control relevant ones, which are multi viewers, signal processing, the Dreamcatcher live production solutions, that whole family of technical operations center, live production, replay, storage solutions, and transport all fall into, you know, categories that would be of demand. And, of course, the RF solutions of which we have many, and we're at the forefront of the DFI push, which is the digitization of IFN RF solutions.

Okay, great. That's a great caller. Also, Nodia, you added SOC 2 to the Eberts IO product, which maybe we can just give us a sense of what that opens up for Eberts. Is that a meaningful, addressable market change?

Yeah, maybe it's very early days. I don't have anything to add there.

Okay. And then... You know, the backlog ticked up for the first time in quarter over quarter. Sequentially, it ticked up for the first time in a while. Is that driven by, like, maybe a weaker level of February shipments, or is there another factor to call out there?

Doug, do you want to handle that?

Yeah, sure. It's just, again, there's some lumpiness in projects, whether we deliver or they come in some significant orders come in at a time. But it's just a reflection of strong demand. So you are correct. The February shipments are a bit light. That's fair. But, yeah, the growth in backlog up, I think, $6 million quarter over quarter is very positive. But I think it's – you know, not directly attributable to one item. I would say it's just, you know, strength across strong demand.

Okay. Maybe last question. You noted the inventory filled in the quarter. Is that driven by anything in the pipeline or maybe unannounced programs that you've won, something that's not? Go ahead.

Oh, it's actually, it's more driven by market, you know, I guess procurement realities with, you know, there's some memory, certain components like memory on allocation where we basically have to secure parts to guarantee our ability to ship. So it's more driven by the procurement side and then seeing there's certain products on allocation or, you know, potential coming shortages that we're, you know, using some of the cash to stockpile.

Okay. I think that's it for me. I'll pass on.

As a reminder, if you have a question or any follow-up, please press star 1. Your next question comes from the line of Paul Traver from RBC Capital Markets. Your line is now open. Thanks very much. Good afternoon.

Just a question on recurring software and services revenue. It was strong again this quarter. Is there anything to call out in terms of either unusuals or project completion, or do you see it as continuing to grow in these sort of low double digits here?

I think you still have to, you have to track it for the last, you know, eight quarters. There's been a strong trend in growth. But, and there's not, you know, a milestone of, you know, achieved a 10 million or something like that. But there's always some volatility based on project completion and milestone completion. So it's not a specific, you know, one contract to point to. But, and there's, there'll be continued some peaks, you know, going forward. But you'll see over the past eight, eight-plus quarters or more, really, 12 quarters. It's been growing because of the trend.

Okay, that's helpful. And then international, the strength in international, I mean, it's the highest quarterly level in a number of years. Has anything changed in terms of your momentum there and the drivers of that growth that we're striving at?

A lot of the growth in the current quarter, at least compared to the prior years, it was a couple projects in Europe that we completed. I don't know if that's really a macro thing to call out necessarily than the, you know, the lumpiness and volatility in this case, you know, helping us in the quarter.

And then just lastly, just on gross margins, it ticked down a little bit sequentially. Does that relate to international or some of these larger projects? You know, the mix may have a little gross margin than the past?

Yeah, I mean, the main driver, of course, is the product mix. But in this case, there is some drag due to international margins being a bit tighter than elsewhere. So, you know, it's still well within the range. It's still, you know, a strong margin. But there'll be volatility even going forward. But yeah, there's a bit of a drag in the quarter with the international sales.

And then just lastly, just on the topic of gross margins, with memory costs going up, how will that impact gross margins? Is it a relatively small portion of your BOM that it's basically immaterial from a consolidated point of view?

Yeah, I mean, what we do is we analyze BOMs on an individual level. So... You know, if there's marketable cost increases, we may have to, you know, address that through pricing. But it's not, you know, in the current quarter hasn't affected margins necessarily. It's really just, you know, having to acquire, use cash to basically acquire inventory so we have it there to ship basically when we need it. So it hasn't really been a drain on margins, but it is causing us to react Thanks for taking our questions.

There are no further questions at this time. I will now turn the call over to Brian Cablo. Please continue, sir.

I'd like to thank the participants for their questions and to add that we are pleased with the company's performance during Q3 of fiscal 2026, which saw record sales of 139.3 million, including 62.5 million in software and services revenue, solid gross margins of 58.3% in the quarter, which together with Ebert's disciplined expense management yielded quarterly earnings of 24 cents per share, despite a foreign exchange loss of $2.3 million in the quarter. We're entering into the last quarter of fiscal 2026 with significant momentum fueled by over 32 million of shipments in the month of February with a combined purchase order backlog plus February shipments totaling in excess of 278 million. And by the continuing adoption and successful large-scale deployments of EVIT's IP-based software-defined video networking and cloud solutions, by 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 replay production suite. With significant investments in software-defined IP, IT, and cloud technologies, the over 600 industry-leading IP SDN deployments and the capabilities of our staff, evit is poised to build upon our leadership position in the broadcast and media technology sector while further penetrating government and defense thank you and good night ladies and gentlemen this concludes today's conference call thank you for your participation you may now disconnect