Evertz Technologies Q1 2024 Earnings Call Transcript

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September 12, 2023

There are 6 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to Evertz's Q1 Investor Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. I would now like to turn the conference over to Ryan Campbell, Executive Vice President of NISTANCE Development. Please go ahead.

Speaker 1

Thank you, Sergio. Good afternoon, everyone, and welcome to the Evertz Technologies Limited Conference Call for our fiscal 20 24 1st Quarter ended July 31, 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. Doug and I will comment on the financial results and then open the call to your questions. Turning now to Evertz's results.

Speaker 1

I would like to begin by providing a few highlights and then Doug will go into greater detail. First off, I'm pleased to report sales for the Q1 totaled $125,800,000 up 23.9 percent from the Q1 of last year. Our sales space is well diversified With the top 10 customers accounting for approximately 54% of the sales during the quarter, With one customer accounting for approximately 14% of sales and a second customer at 11%. In fact, we had 112 quarters of over $200,000 Gross margin in the quarter was $72,000,000 or 57.3 percent, which is within our target range. Investment in research and development during the quarter totaled 31,900,000 Yes.

Speaker 1

Earnings for the Q1 were $15,900,000 While fully diluted earnings per share were $0.20 in the quarter, Evertz's working capital was 173 $400,000 with $48,900,000 in cash as at July 31, 2023. The purchase order backlog was over $343,000,000 at the end of August and shipments During the month, we're $49,000,000 We attribute the solid financial performance and robust combined 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 growing adoption of Evertz's IP based Software defined video networking solutions, Evertz's IT and Cloud solutions, our immersive Ultra HD solutions, our state of the art DreamCatcher IP replay and live production suite and Bravo Studio featuring the iconic Scooter Audio. Today, U. S. Board of Directors has declared a quarterly dividend $0.19 per share payable on or about September 29, 2023.

Speaker 1

I will now hand over to Doug Morrzy, the Chief Financial Officer, to cover our results in greater detail.

Speaker 2

All right. Thank you, Brian, and good afternoon, everyone. Sales were $125,800,000 in the Q1 of fiscal 2024, as compared to $101,500,000 in the Q1 of fiscal 2023, an increase 24,300,000 or 23.9 percent. The U. S.

Speaker 2

Canadian region had sales for the quarter of 87,000,000 Compared to $78,200,000 last year, that's an increase of 11.3%. International region had sales for the quarter of 38,800,000 It's an increase of $15,500,000 compared to $23,300,000 last year. Gross margin for the quarter was approximately Selling and administrative expenses were $16,400,000 for the Q1. That's compared to $12,900,000 in the same period last year. Selling and admin expenses as The percentage of revenue were 13% compared to 12.7% in the same period last year.

Speaker 2

It's worth noting that prior year expenses included a $3,800,000 recovery that did not reoccur in the current year. Research and development expenses were $31,900,000 for the Q1, that's

Speaker 3

audible. Compared to $28,300,000 in the same period last year.

Speaker 2

Research and development expenses as a percentage of revenue were 25.4 percent compared to 20 on a more normal basis. We had a foreign exchange loss of $2,000,000 as compared to a foreign exchange gain in the prior year of 1,000,000 The loss being predominantly a result of a 3% decrease in the value of the U. S. Dollar as at July 31, 2023, when comparing it to April 30, 2023. Turning to discussion of liquidity of the company.

Speaker 2

Cash as at July 31, 2020 It was $48,900,000 that's compared to $12,500,000 as at April 30, 2023. Working capital was 173 $4,000,000 as at July 31, compared to $171,400,000 at the end of April 2023. The company generated cash and operations of $60,000,000 which is gross of $40,100,000 change in non cash working capital Incurring taxes in the Q1. If the effects of the change in non cash working capital and taxes were excluded from the calculation, The company generated $19,900,000 in cash from operations. During the Q1 of this year, deferred revenue increased by approximately $3,000,000 and accounts receivables decreased by $23,000,000 as well.

Speaker 2

That results in a combined $46,000,000 in increased cash During the quarter, the company acquired $3,200,000 of capital assets and the company used cash for sorry, from financing activities of $17,200,000 net of $5,900,000 that was previously presented of Bank indebtedness that predominantly consisted of the payment of dividends of $14,500,000 Shares outstanding were approximately 76,100,000 and options in equity based restricted share units outstanding were 6,200,000 as at July 31, 2023. Weighted average shares outstanding were 76,100,000 and weighted average fully diluted audible. Were $76,500,000 for the quarter ended July 31, 2023. That brings to conclusion the review of financial results and position 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

Speaker 3

to yourself.

Speaker 1

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

Operator

Thank you. Ladies and gentlemen, we'll now begin the question and answer Your first question comes from Thanos Mosheopoulos from BMO Capital Markets. Please go ahead.

Speaker 3

Hi, good afternoon. Brian, clearly, it was a Strong quarter and seems like shipments for products were also very strong. Can you just comment on maybe the spending environment and some of that strength, supply chain easing, some of that, some

Speaker 1

Depends

Speaker 3

or more specific project based, I mean, what are you seeing as far as environment?

Speaker 1

So from the EBITDA perspective, yes, It's been a very good solid quarter in terms of delivering both to our customers and securing new orders. So specifically, we do continue to win very good profitable business and larger contracts. So whether that's a broader spending implications or whether it's specifically with the Customer sets that Evertz is addressing, you'd have to look at the rest of the industry to See what their order intake looks like.

Speaker 3

Okay. But I guess from an Evertz perspective, directionally, does it feel sort of status Quo or are things feeling a bit better versus a few months ago within your own business direction?

Speaker 1

What are you saying? Well, definitely, we're continuing to address Very significant order backlog, multiyear, and We are well positioned to deliver that to our customers. So we're continuing to work through Very substantive backlog that we have and to bring in new business as well too. And so from our perspective, it's A very good solid environment. And that's going to continue For the next foreseeable quarters, that's what we're working through this very large backlog.

Speaker 3

Great. The writer and actor strike, if it drags on, is that looking to have any impact? I mean, on the one hand, maybe that might cause more investment in live production. On the other hand, does it cause some of the Customers to be more mindful about their CapEx spending, can you talk in that regard?

Speaker 1

That's definitely a factor in the industry, but we are continuing to secure significant orders. Yes. We've been crystal ball as to how long this will play out. But currently, Our order backlog is very strong and our order book has been continuing to build.

Speaker 3

The gross margin was within your targeted range of a bit nicer than in the recent quarters. Was that just reflective of maybe having a couple of larger deals in there or any other dynamic in 1Q?

Speaker 2

I'll address that. So it really is just Product mix, I would say, I would highlight that we do have a bit of a larger international segment in revenue in the quarter, but it really is a general And not really necessarily a specific contract to point to.

Speaker 3

All right. I'll pass the line. Thank you.

Operator

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

Speaker 4

Hi, good evening. You announced a couple of larger deals going back, I think, in April. And so I was curious, I think you said the largest customer is 11%, if I heard that right. Maybe just talk about whether either of those deals fell into the quarter or if they were a contributor this quarter?

Speaker 2

I can take So the largest press release we did with the approximately $150,000,000 order, in the quarter, there's about $6,000,000 of revenue I recognize Darren. Looking at the next 12 months, it's we're estimating it's a big range, it's $22,000,000 to $35,000,000 Depending on certain cloud deliverables and milestones, relatively linear after the next 12 months. But And again, in the current quarter, there's about $6,000,000 in Q1. On the approximately $25,000,000 international Order we previously press release, there would be very limited, if any, Revenue in this quarter.

Speaker 4

Okay. That's helpful. The change in the cash, I think you highlighted working If

Speaker 2

I get it

Speaker 4

right, deferred revenue was a big increase. Maybe just talk about the drivers there. What's behind And

Speaker 3

maybe you can

Speaker 4

just go through the different pieces of working capital that caused that and then Yes, sure.

Speaker 3

So I

Speaker 2

mean, The simplest I mean, the simplest half of it is just AR is down. So I mean, we've been running the last few quarters at a relatively high over $100,000,000 It's not totally abnormal to have closer to 80s in the 80s kind of Accounts receivable, so we've collected an additional $20,000,000 there. On the deferred revenue side, there's About $20,000,000 in cash we received upfront ahead of revenue. So if you're looking at a specific contract, the large one referenced, there's about $15,000,000 of that We would have received cash but not recognized. That's sitting in deferred revenue.

Speaker 2

That's the biggest piece to the increase there. While the collections in the ARR are more broad based, Across multiple customers, but that explains the questioner.

Speaker 4

Great. And is that just typical like a large project you collect a certain amount upfront? Or is there is that because I think you said it was driven by cloud and services? Is there

Speaker 2

Yes. It's really the both components to it, but it's the nature of the project, I would say, so the order as a whole, where there's unlike a typical just shipping of hardware, where sometimes you receive funds upfront, Many large customers get some terms when it's more of the service or cloud centric projects, There'll be upfront cash outlay towards us that will often result in deferred revenue.

Speaker 4

Okay. And then last question for me, just around the shipment figure like Thanos Highlighter, very strong. I think it's the 2nd Going back, so it's very, very strong. And so is that sustainable? I mean, when we think about how that the cadence through the quarter.

Speaker 4

Just maybe give us some context around that large figure and whether it's sustainable? Then I'll pass it on.

Speaker 2

So I'll start, Brian, you want to go on. But so I mean 49 is certainly a strong month of shipments. I think We've certainly never had $150,000,000 So that's not fair to prorate that across the board. What I would say is, if you look at our total backlog, approximately 45% is beyond the year. I already kind of mentioned the WBD The 45% and then the which Just lost my train of thought there.

Speaker 1

So Rob, the very strong shipment It's actually solid overall results, but it's a timing of deliverables As well as it contributed to very significant month of shipments.

Speaker 4

Okay. But we Shouldn't just multiply that by 3.

Speaker 2

Yes. I don't think that would be a realistic to prorate across.

Speaker 1

As you know, We deliver when the customers are ready at times, so that can have shipments delayed in the month and then pile up in the 2nd month. So our August is at 49 is an incredibly high number. We can do it, but

Speaker 4

Is that driven by one order or one customer? I mean, this quarter, I think you said top customer Multiple. Should we expect that to be quite a bit higher next quarter?

Speaker 1

Could you repeat that for me, please?

Speaker 4

Sorry, You said that the top customers, 11% should be expected to be quite a bit higher next quarter just given the size of that shipment figure if it's driven by a small number of customers?

Speaker 1

We actually have a 14% annual and a 11% as part of the Large customers.

Speaker 4

Okay. I mean, I was more thinking So in the 49,000,000 shipments figure, like is that driven by a small number of customers? Or is it broad? And then should we be expecting that top customer figure to be a lot higher in the fiscal Q2.

Speaker 1

The 15% of the single customer in the quarter is unusual. And that would give you for it to persist for the full year. So the answer is no to that.

Speaker 4

Okay. Thanks. Appreciate it. That's fine.

Operator

Your next question comes from Steven Li from Raymond James. Please go ahead.

Speaker 5

Hey, guys. Given what you just said on the other shipment, that momentum is continuing. I mean, we're not going to multiply by 3, But Q2 should be sequentially up from Q1, correct?

Speaker 4

That's hard to search,

Speaker 5

so Say that again. I didn't catch that.

Speaker 2

I mean, to say it sequentially, Q2 will be higher than Q1 is hard to assert. So it's a strong start at $49,000,000 If you look past, we've had $50,000,000 in 2019, I believe, and then the final quarter was about $120,000,000 So it's I cannot give a specific forecast beyond what the 1st month.

Speaker 5

Right. Overall, your backlog is much bigger. So it should give you a bit more visibility, isn't it?

Speaker 1

On the backlog, it's certainly larger. Once again, Stephen, the deliverables are customer based as well too. So we do They're really products, services as the customers are ready for it. So It's not prudent to extrapolate that number.

Speaker 5

Okay. That's fair. Okay. And the R and D, Brian, dollars 32,000,000 I mean, the sequential increase, is there any one time there? Or is that kind of A good level going forward.

Speaker 5

Thanks.

Speaker 2

I can comment on R and D. If you're looking at sequentially,

Speaker 3

we

Speaker 2

did bring a fair amount of co ops on this summer. So Additional co ops, I would say, there's always some co ops in that. That actually equates to approximately a little bit over 500 If you're looking at sequentially to it's actually additional business days in Q1 versus Q4, which Equates to approximately $500 as well. So, yes, if you use that kind of a guide, I mean, it's I don't expect any kind of major decreases going forward.

Speaker 5

All right. Got it. Thanks, guys.

Operator

Thank you. There are no further questions at this time. I'll turn the call back to Ryan Campbell for closing remarks.

Speaker 1

Thank you, Sergio. I'd also like to thank the participants for the questions and to add that we're very pleased with the company's performance during the first Quarter of fiscal 2024, we saw strong quarterly sales of $125,800,000 An increase of 24% from the prior year, solid gross margins of 57.3%, which Together with Evertz's disciplined expense management yielded earnings of $0.20 per share. We're entering the Q2 of Fiscal 2024 with significant momentum fueled by a combined purchase order backlog plus August shipments totaling in excess of $392,000,000 by the growing adoption and Successful large scale deployments of Ebix IP based software defined video networking and cloud solutions by some of the larger broadcast, new media service provider and enterprise companies in the sector and by the continuing success of Ebix DreamCatcher Bravo, Our state of the art IP replay and production suite. With significant investments in software defined IP, IT and Cloud Technologies, over 600 industry leading SD WAN deployments and the capabilities of our staff, Evix is poised to build upon our leadership position to provide innovative solutions to customers and deliver to shareholders. Thank you.

Speaker 1

We look forward to having many of you join us on Wednesday, 4th October at our Annual General Meeting. Good night.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect the lines. Thank you.

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Earnings Conference Call
Evertz Technologies Q1 2024
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