Evertz Technologies Limited

Thank you, Chloe. Good afternoon, everyone, and welcome to Evertz Technologies conference call for our fiscal 2025 Fourth Quarter ended April 30, 2025, with Doug Moore, Evertz's Chief Financial Officer; and myself, Brian Campbell.

Please note that our financial press release and MD&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.

Turning now to Evertz'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 $0.5 billion, coming in at $501.6 million, down 2.5% from the prior year. Revenues included $374.4 million in the U.S./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 $0.77.

Investment in research and development totaled $146.8 million, up from $134.8 million in the prior year. We continue 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 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 $0.17.

Evertz's working capital was $206.9 million, up $5.5 million from April 2024. Operational highlights for the quarter included Evertz stellar presence at the National Association of Broadcasters NAB Show in Las Vegas where Evertz's next seamless multi-frame hybrid SDI IP routing platform with our FX-LINK 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 and View.

At the end of May 2025, Evertz' purchase order 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 Evertz's IP-based software-defined video networking solutions, Evertz 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 1 customer of 11.8%.

In the fourth quarter, the top 10 customers accounted for approximately 55.2% of sales with 2 customers of 14.4% and 10.5%, respectively with 120 customer orders over $200,000 in the quarter. Today, Evertz Board of Directors declared a quarterly dividend of $0.20 per share payable on or about July 11.

I'll now hand it over to Doug Moore, Evertz 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 7, an exemption was implemented for USMCA compliant goods.

The vast majority of goods we sell to the U.S. are indeed USMCA compliant and thus exempt from additional tariffs.

Further, Canada doesn't currently have tariffs on our significant raw materials that we purchased. 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, but 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 looking 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 31 -- April 30, sorry, 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, U.S.

and Canadian region had revenue for the quarter of $106.2 million as 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 12 months for the year ended April 30, 2025, compared to $338 million in the period -- last 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 30, 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 as 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.

The gross margin was above our target range. The increase is driven by a product mix change and partially due to the greater proportion of software and service revenue in the quarter.

For the 12 months ended April 30, 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 $0.6 million for the same period last year.

Selling and admin expenses as a percentage of revenue were approximately 16.2% compared to 16.4% in the same period last year. Sequentially, we had NAV ended in the fourth quarter which increased cost between $1.5 million to $2 million in trade show costs.

For the 12 months ended April 30, 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.

As a percentage of revenue, R&D expenses were 28.6% compared to 29.9% in the prior year. And for the 12 months, research and development expenses were $146.8 million that represents an increase of $11.9 million over the same period last year.

And that increase includes an increase of $7.7 million attributable to salaries. That's largely relating to increases in head count 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. Foreign exchange for the fourth quarter was a loss of $4.4 million compared to a gain of $2.1 million in 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 30 at approximately 1.3:1 at exchange rate as compared to approximately 1.45 on January 31 and a pretty significant 5% drop over the 3 months. Foreign exchange for the 12 months ended April 30, 2025, was a gain of $0.2 million, consistent with last year.

Turning to a discussion of liquidity of the company. Net cash as at April 30, 2025 was $111.7 million compared to net cash of $86.3 million as at April 30, 2024.

While working capital was $206.9 million as at April 30, 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 noncash working capital and current taxes, including a decrease of inventory of approximately $25 million, driven by a decline in raw materials on hand. The effects of the change in noncash 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 has cash of $6.7 million for investing activities. That's principally driven by the acquisition of capital assets, and the company used cash and financing activities of $71.4 million, this is principally driven by dividends paid of $60.1 million, purchase of capital stock under our NCIB for $4.9 million and principal payments on lease liabilities of $4.8 million.

Finally, our share capital position at April 30, 2025. Shares outstanding were approximately 75.8 million and options and equity-based restricted units outstanding were approximately 4.9 million.

The weighted average shares outstanding were 76 million and weighted average fully diluted shares were 77 million for the year ended April 30, 2025. That brings to conclusion the review 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.

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?

Okay. So with respect to the demand environment, we are seeing a robust demand environment and the strong backlog, it does reflect that.

In addition, we're seeing very solid quoting activity, probably up over the last few months.

Okay 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 today of $0.20.

Beyond that, I think, it gives us a lot of flexibility...

And we do continue to review the landscape for 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 is 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 based.

So having a lower conversion rate of around 1.38 versus 1.44 has an impact on our overall backlog. I think that is worth noting.

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

Very good strong demand for Evertz products and solutions. And it does reflect as well too.

We've had very good solid results in the U.S./Canada region, which was up significantly this year.

Yes. I'll highlight that it is a light start.

So May is a light start for us for sure. I mean, some of that might be attributable to some macroeconomic uncertainty relating to the tariffs to what would happen or what would not, but we are definitely seeing improvements over the past couple of months.

Yes. Maybe just to clarify because that's going to be my next question was on the shipments.

I mean, recognizing that One month is just a data point and there could be some lumpiness and 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 May having been light.

I think what you're trying to convey is a good demand environment overall, notwithstanding May being a later start and 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, right, that we've been in...

Okay. Okay.

That clarifies it. On the gross margins, sorry, I understand 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 gross margin north of 60%?

It did have some fluidity to it, right? So even last quarter, we were below 58%.

I mean it's a long-term trend, I mean, that's certainly the goal. And we have seen an uptick if you compare year-over-year, but there is fluidity to it, and there is a mix change each quarter inherently.

But -- so we haven't changed our target, but it has been skewing higher over the past few quarters, like long term, 8 to 12 quarters.

Okay. From an OpEx perspective, obviously, there was NAV.

Are there any other nuances you call out as we think about the upcoming quarter?

No. I mean -- so S&A, just trade show costs in general, that's over $1.5 million in the quarter for trade shows as a whole.

Is -- the only other thing, which is not hugely material, but there is a lot of business days, frankly, in Q4. So even having 3 less business days can have about $0.5 million impact on R&D which would bring it down slightly.

That would -- Q1 would be more similar to Q3.

Okay. And finally, you made the comment that you're continuing to expand your U.S.

production. Is the -- is your plans regarding CapEx sort of unchanged from what you were thinking back in May...

As of today, in the quarter, there was less than $1 million of capital asset spend, but today, we committed to over USD 2 million 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.

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 $0.5 billion, solid gross margins of 59.5% for the year, which together with Evertz's disciplined expense management, yielded basic earnings of $0.78 per share.

We are 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 Evertz 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 Evertz' significant investments in software-defined IP, IT and cloud technologies over 600 industry-leading IP SDN deployments and the capabilities of our staff, Evertz is poised to build upon our leadership position in the innovative -- to provide innovative solutions to customers and deliver to shareholders.

Thank you, everyone, and good night.