Evertz Technologies Q4 2023 Earnings Call Transcript

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Provided by Quartr
June 21, 2023

There are 5 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to Evert's Q4 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. This call is being recorded on Wednesday, June 21, 2023. I would now like to turn the conference over to Brian Campbell, Executive Vice President, Business Development.

Operator

Please go ahead.

Speaker 1

Thank you, Julia. Good Good afternoon, everyone, and welcome to the Evertz Technologies Conference Call for our Q4 year ended April 30, 2023 with Doug Moore, Evertz's Chief Financial Officer and myself, Brian Campbell. Please note that our financial press release and MD and A will be available on SEDAR and on the company's investor website. Doug and I will comment on the financial results and then open the call to your questions. I will begin with a few annual and 4th quarter highlights, following which Doug will provide more detail.

Speaker 1

First off, I'm pleased to report sales for the fiscal year totaled a record $454,600,000 annual net earnings were $64,600,000 resulting in fully diluted earnings per share of $0.84 for fiscal 2023. Investments in research and development totaled $117,100,000 for fiscal 2023. Now moving on to the 4th quarter financials. Sales in the 4th quarter were a record high $128,900,000 up 11% year over year. Gross margin for the 4th quarter was $76,700,000 or 59.5 percent of sales and foreign exchange for the 4th quarter was a gain of $252,000 net earnings for the 4th quarter were $18,600,000 with fully diluted earnings per share of $0.24 in the quarter.

Speaker 1

At April 30, 2023, Everest working capital was $171,400,000 with 12 $500,000 cash. Purchase order backlog at the end of May was a record $392,000,000 and shipments during the month of May were $40,000,000 we attribute our strong annual and quarterly performance to the ongoing technical transition in the industry, channel and video services proliferation, increasing global demand for high quality video anywhere, anytime And specifically to the continued adoption of Evertz IP based software defined video networking solutions, Evertz IT and And Bravo Live Production Suite. Our sales is well diversified with the top 10 customers in the 4th quarter accounting for approximately 43% of sales with no single customer over 6%. In fact, we had 133 customer orders of over $200,000 in the quarter. Today, Eris Board of Directors declared a dividend I will now turn the call over to Steve.

Speaker 1

Thank you, Brian.

Speaker 2

Good afternoon, everyone. Starting with revenues, sales were $128,900,000 in Q4 of fiscal 2023 was compared to $116,100,000 in the Q4 of fiscal 2022, which represents an increase of $12,800,000 or 11%. Sales for the fiscal year ended April 30, 2023 were $454,600,000 compared to $441,000,000 in the same period last year. That represents an increase of approximately $13,600,000 Regarding regional revenues, the U. S.

Speaker 2

Canadian region had sales for the Q4 of $98,000,000 Compared to $77,800,000 last year, an increase of $20,200,000 or 26 percent. The international region had sales for fiscal results again. Sales in the U. S. Canadian region were $337,100,000 in 2023 compared to 299 we have $400,000 in fiscal 2022.

Speaker 2

That represents an increase of $37,700,000 or 13%. Sales in the international region were $117,500,000 for the year ended April 30, 2023. That's compared to we are now in fiscal 2022, representing a decrease of $24,200,000 Proportionally, the international segment represented 24% of total sales in the quarter and 26% of the total sales in the year compared to 33% 32% in the respective periods last year. Looking at gross margins, the gross margin for 4th quarter was approximately 59.5 percent compared to 58.9% in the Q4 of fiscal 2022. Gross margins for the year were approximately 59% compared to 57.9% in fiscal 2022.

Speaker 2

Both the Q4 and fiscal 2023 gross margins were within the company's target range. Looking at operating costs, selling and administrative expenses were $17,500,000 for the 4th quarter. That's an increase of $1,400,000 in the same period last year. Selling and admin expenses were $61,500,000 for the year ended April 2023. That's an increase of $600,000 from fiscal 2022.

Speaker 2

Selling and demand expenses as a percentage of revenue were approximately 13 5% compared to 13.8% last year. Looking at R and D. Research and development expenses were we have $29,900,000 for the 4th quarter, which represents a $2,600,000 increase from the Q4 last year. For the year, research and development expenses were $117,100,000 which represents an increase of 14,700,000 compared to fiscal 2022, the key drivers to the increase being approximately $6,000,000 we will now begin the call to provide additional costs from increased headcount to address key R and D initiatives and approximately $8,000,000 associated with salary increases. R and D expenses as a percentage of revenue were approximately 25.8% for the year compared to 23.2% last year.

Speaker 2

Foreign exchange for the Q4 was a gain of $300,000 as compared to a gain of $1,100,000 in the same period last year. Foreign exchange for the 12 months ended April 30 was a gain of $2,000,000 compared to a loss of $6,500,000 prior year, in both cases, the gains were driven by a change in value of the U. S. To Canadian dollar. Turning to a discussion of liquidity of the company.

Speaker 2

Cash and bank indebtedness as of April 30, 2023 netted to a total of $6,500,000 in cash. That's compared to $33,900,000 as at April 30, 2022. Working capital was $171,400,000 as of April 30, 2023 compared to $158,900,000 at the end of April 2022. In quarterly cash flows, the company generated cash from operations of $25,900,000 and that includes a $800,000 change in non cash working capital and current taxes. The effects of those changes in non cash working capital and current taxes were excluded.

Speaker 2

The company generated $26,700,000 in cash from operations in the quarter. The company generated point sorry, Generated $3,000,000 in cash from investing activities and the company used $16,500,000 in financing activities, which is gross of the $5,900,000 presented as bank indebtedness on the balance sheet, and that was driven by dividends paid of $14,500,000 In our fiscal cash flows, for the year, the company generated cash from operations of $53,800,000 and that's net of $37,700,000 change in non cash working capital and current taxes. If the effects of the changes in non cash working capital and current taxes were the company generated $91,500,000 in cash from operations. As we've discussed in prior calls, the main use of cash and working capital relates Regarding financing activities, during the year, the company paid approximately $56,400,000 in dividends. Finally, I'll review our share capital position as of April 30, 2023.

Speaker 2

Shares were approximately Weighted average shares were 76,200,000 and weighted fully average shares diluted shares outstanding were also 76,200,000 for the year ended. That brings to conclusion the review of our financial results we are in position for the Q4. 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, we refer you to the risk factors described in the annual information form and the official reports filed on the Canadian Securities Commission. Brian, back to yourself.

Speaker 1

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

Operator

your first question comes from Thanos Moskopoulos from BMO Capital. Please go ahead.

Speaker 3

Hi, this is Steven on for BMO sorry, for Thanos. Yes, I was hoping to get a bit more color on the large $152,000,000 contract you announced earlier this quarter. More specifically, is it an existing customer and how is it going to ramp?

Speaker 2

Sheryl, I'll address that. It is an existing customer, that is the first point. The large order is driven by our cloud native technology and services business. The thing I would highlight was And how it will flow out and ramp will be dependent on certain how we meet our deliverables. But I would note that no revenue was taken in fiscal 2023.

Speaker 2

We estimate, it's going to be dependent on our cloud based deliverables there, but it's between $25,000,000 $35,000,000 in fiscal 2024 and then kind of Carry on throughout the rest of the 5 years.

Speaker 3

Okay, that's helpful. Is there any upfront hardware component related to it? No. No. Perfect.

Speaker 3

Okay. And I guess there was a you had a record revenue quarter. With some of your larger customers and POs this quarter, like what proportion are opting for the cloud model? Can you give a little context on maybe how the mix has shifted over the last few quarters?

Speaker 2

Yes, I cannot provide specifics on as it relates to how much is on the cloud model. I can see that a lot of the large A significant portion is associated with our cloud data technology business, service business. I can't simply quantify that. I think if you look at our record backlog. I noted the large order, the $115,000,000 order.

Speaker 2

There's also approximately $45,000,000 relating to a long term service contract, which is a licensing and support a contract over multiple years, 10 years in fact. Those are I think without diving into specific numbers, so that provides some color.

Speaker 3

Okay. And my last question, shipments were quite strong in the 1st month of this quarter. And also you apparently finished out Q4 pretty strongly. Do you see that pace continuing throughout the rest of this quarter?

Speaker 1

We do have we anticipate solid deliveries in the rest of the quarter. And again, too, that depends on The customer's ability to for us to deliver in the summer months.

Speaker 3

Okay. And would you say that was it easier to deliver to the customer This most Q1 and Q4 compared to the past, like are a lot of the constraints gone by now? Or are you still experiencing some restrictions there.

Speaker 2

I think from a purchasing perspective, from a manufacturing perspective, There's definitely improvements overall in the past 3 to 6 months. There's still challenges we deal with, in particular with certain vendors. But we have done our best to mitigate those issues, right. We've stockpiled a lot of raw materials components. Year over year, our Raw materials are up $23,000,000 If you look back 2 years from April 21, it's up $47,000,000 I think that's helped us mitigate some of those challenges, but it would be I could not say there,

Speaker 1

but it was gone. So in terms of on-site access, we're doing very well.

Speaker 3

Okay, fantastic.

Operator

Your next question comes from Robert Young from Canaccord. Please go ahead.

Speaker 4

Parth on Rob, I'm just following on that cloud question there. I'm guessing you're not providing more color on the mix, but As I go back to the AGM last year, I believe 20% number was mentioned. So Assuming the big cloud order, should we expect cloud as a percentage to grow over time or kind of stay steady?

Speaker 1

The cloud part of the business is definitely a key focus, when we're investing very heavily in terms of R So what you're seeing is evidence with the long term very large purchase order success in those areas. So we've been delivering cloud services to our key customers now since 20 2016, 2017 and that business is definitely ramping up and continues to.

Speaker 4

Got it. And then it appears that competition is steadily growing. Grass Valley and Ross put out a couple of announcements. How do you see yourself positioned versus competition?

Speaker 1

We're definitely the leader, the global leader. So, and the announcements, you'd have to read through them. Candidly, we're focused on our own business and delivering we're delivering and have been delivering at scale to the largest Broadcast media players in the industry in North America and internationally.

Speaker 4

That's helpful. And then just following up on gross margins really strong in the quarter. I'm guessing cloud has a Pretty big role to play there. So should we expect you to increase your target gross margins going ahead, maybe beyond 60%?

Speaker 2

I think at this time, our target maintains. I would think it wouldn't necessarily just be cloud. So I mean, There are other high margin components, whether it's warranty, maintenance, licensing, maintenance, other services that are Generally higher margin too, it wouldn't just say it could be isolated to cloud based, but our target remains Same, the 50%, 60%.

Speaker 4

Got it. Thank you. And one last one, any update on the high vision expression of interest and Any update there?

Speaker 1

Nothing that isn't in the public domain.

Speaker 4

All right. Thank you so much and I'll pass the line.

Speaker 1

Thank you.

Operator

Brian, there are no further questions at this time. Please proceed with your closing remarks.

Speaker 1

Thank you, Julia. I'd like to thank our participants for their questions. We're very pleased by the company's strong performance in fiscal 2023, achieving record sales of 450 we're now ready for the Q4. $4,600,000 delivering pretax earnings of $87,800,000 19.3 percent of sales, all while investing $117,000,000 in R and D to build future growth. We're entering the first half of fiscal twenty twenty four with significant momentum fueled by a record purchase order backlog in excess of we have a $392,000,000 plus 40,000,000 shipments in May, totaling In excess of $342,000,000 and fueled by the growing adoption and successful large scale deployments of Evertz's with our significant investments in software defined, IP, IT and cloud native technologies, Industry leading deployments and the capabilities of our staff, Evertz is poised to build upon our leadership position in the broadcast and media technology sector.

Speaker 1

Thank you and good night.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and you may now disconnect your lines. Thank you.

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Earnings Conference Call
Evertz Technologies Q4 2023
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