Evertz Technologies Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 19, 2024

Key Takeaways

  • Record FY2024 sales of CA$514.6 M, up 13% YoY, delivered net earnings of CA$71 M and diluted EPS of CA$0.91 versus CA$0.84 last year.
  • Recurring software and services revenue was CA$188.9 M, representing 37% of total revenue and highlighting a shift toward a more recurring business model.
  • International revenue grew 50% to CA$176.6 M, driven by strong global demand for IP-based, cloud-native and ultra-high-definition solutions.
  • In Q4, sales hit CA$122.8 M with a 59.2% gross margin, supported by a robust CA$295 M purchase order backlog and CA$32 M in May shipments.
  • Board declared a regular quarterly dividend of CA$0.195 per share, underscoring a strong cash position of CA$86.3 M.
AI Generated. May Contain Errors.
Earnings Conference Call
Evertz Technologies Q4 2024
00:00 / 00:00

There are 5 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to the Evertz Q4 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 Mr. Brian Campbell, Executive Vice President of Business Development.

Operator

Thank you. Please go ahead.

Speaker 1

Thank you, Hina. Good afternoon, everyone, and welcome to Evertz Technologies' conference call for our fiscal 2024 Q4 ended April 30, 2024 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. Turning now to Evertz's results, I'll begin by providing a few highlights and then Doug will provide additional details.

Speaker 1

First off, I'm pleased to report sales for the fiscal year totaled 514 point $6,000,000 an increase of 13% or $60,000,000 from the prior year. Revenue from the recurring software services and other software segment was $188,900,000 representing 37% of total revenue in the year. International revenues increased 50% in 2024 reaching $176,600,000 Earnings from operations totaled over $100,000,000 Net earnings increased 10% to $71,000,000 resulting in fully diluted earnings per share of $0.91 for the year versus $0.84 for the prior year. Investments in research and development totaled $134,800,000 dollars up from $117,100,000 in the prior year. Year over year our cash position strengthened closing 2024 with 86,300,000 in cash and cash equivalents compared to $6,600,000 in 2023 net of bank indebtedness.

Speaker 1

Turning to the 4th quarter results, sales for the 4th quarter totaled $122,800,000 Gross margin in the quarter was $72,700,000 or 59.2 percent, up from 58.9% in the 3rd quarter. Investment in research and development during the quarter totaled 36,700,000 for the Q4 were $13,900,000 while fully diluted earnings per share were $0.18 Evertz's working capital was $201,700,000 as at April 30, 2024, up $30,200,000 from April 2023. At the end of May, Evertz purchase order backlog was more than $295,000,000 and shipments during the month of May were $32,000,000 The strong financial performance including shipments and robust purchase order backlog continues to be driven by the ongoing technical transition in the industry, channel and video services proliferation, increasing global demand for high quality video anywhere, anytime, and specifically by the adoption of Evertz solutions such as Evertz IP based software defined video networking solutions, Evertz IT and cloud native solutions, our immersive 4 ks ultra high definition solutions, our state of the art DreamCatcher IP replay and live production with Bravo Studio featuring the iconic Studer Audio solutions. Our sales are well diversified with the top 10 customers in the 4th quarter accounting for approximately 37% of sales with no single customer over 6%.

Speaker 1

In fact, we had 113 customer orders over $200,000 in the quarter. Today, Evertz's Board of Directors declared a regular quarterly dividend of $0.195 per share payable on or about July 10. I will now hand over to Doug Moore, Evertz's Chief Financial Officer to cover our results in greater detail.

Speaker 2

Thank you, Brian, and good afternoon, everyone. Looking at revenues, sales in the quarter were $122,800,000 in fiscal 2024 Q4 as compared to $128,900,000 in the Q4 of fiscal 2023. For the year ended April 30, 2024, sales were $514,600,000 compared to $454,600,000 in the same period last year. This represents an increase of $60,000,000 or 13%. For our year end results, we've also split out revenue hardware from combined software and service revenue.

Speaker 2

So further, hardware revenue in the year was 325,700,000 dollars and combined software service revenue was $188,900,000 This compares to $281,200,000 in hardware revenue and $173,400,000 in the mine software service revenue in the prior year end April 3, 2023. Looking at regional revenue. Quarterly revenues in the U. S./Canadian region were $96,500,000 compared to $98,900,000 in the prior year, while quarterly revenues in international region were $26,200,000 compared to $30,000,000 in the prior year. The international segment represented 21% of total sales in the quarter compared to 23% in the same period last year.

Speaker 2

For the year ended April 30, 2024, sales in the U. S./Canadian region were $338,000,000 with a slight increase compared to $337,100,000 in the prior 12 month period. For the year ended, sales in the international region were CAD 176.6 million as compared to CAD 100 and $17,500,000 in the same period last year and represents an increase of $59,100,000 or 50%. Gross margin for the Q4 was approximately 59.2% compared to 59.4% in the prior year and within our target range. For the year, gross margin was approximately 58.8% and also within our target range.

Speaker 2

Turning to selling and administrative expenses. S and A was $20,100,000 in the 4th quarter, an increase of $2,600,000 in the same period last year. Selling and admin expenses as a percentage of revenue was approximately 16.3% in the quarter as compared to 13.6% for the same period last year. Selling and admin expenses were $72,300,000 for the 12 months ending April 30, 2024, an increase of $10,700,000 from the same period last year. Selling and admin expenses as a percentage of revenue were approximately 14.1% for the 12 month period as compared to 13.5% for the same period last year.

Speaker 2

Research and development expenses were $36,700,000 for the 4th quarter, which represents a $6,800,000 increase over the same period last year and includes $4,100,000 in increased salary costs. Further, there were $1,400,000 in temporary elevated R and D resource costs in the quarter, specifically relating to a specific project this quarter that was not in the prior year. Investment tax credits for the quarter were $4,100,000 compared to credits of $3,500,000 in the prior year Q4. And for the year ended April 30, R and D expenses were $134,800,000 which represents an increase of 17 $700,000 over the prior year and includes $14,400,000 in increased salary costs. R and D expenses were approximately 26.2 percent of revenue over the year compared to 25.7 percent in 2023.

Speaker 2

The foreign exchange for the Q4 was a gain of $2,100,000 or the gain was predominantly a result of the increase in value of the U. S. Dollar against the Canadian dollar between January 31, 2024 and April 30, 2024. Foreign exchange for the 12 months year ended April 30 was a gain of $200,000 as compared to a gain of $2,000,000 in the same period last year. Turning to discussion of liquidity of the company.

Speaker 2

Cash as 30, 2024 was $86,300,000 as compared to cash of $12,500,000 as of April 30, 2023. Working capital was $201,400,000 as of April 30, 2024 compared to 100 and $71,400,000 at the end of April 30, 2023. Looking at cash flows for the quarter ended April 30. The company generated cash from operations of $34,200,000 which is net of a $14,600,000 change in non cash working capital and current $6,000,000 in cash from operations during the quarter. The company used cash $3,400,000 for investing activities in the quarter, which was principally driven by the acquisition of capital assets.

Speaker 2

The company used cash and financing activities of 15,000,000 dollars which was principally driven by dividends paid of $14,900,000 I'm now looking at cash flows for the 12 month period ended April 30. The company generated cash from operations of $144,700,000 which is net of a $49,300,000 change in non cash working capital and current taxes. Those effects were excluded from the calculation. The company generated $95,400,000 in cash from operations during the year. The company used $2,300,000 of cash for investing activities, which was principally driven by the acquisition of capital assets of 9,600,000 dollars and partially offset by the disposal investments during the year.

Speaker 2

The company used cash and financing activities of $70,200,000 which was principally driven by dividends paid of $58,600,000 Finally, reviewing our share capital position as at April 30, 2024. Shares outstanding were approximately $76,100,000 and options and share based RSUs outstanding were approximately 5,400,000 dollars Weighted average shares outstanding were 76,100,000 and weighted average fully diluted shares were 77,000,000 for the year ended April 30, 2024. That concludes the review of our financial results and 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, and we refer you to the risk factors described in the annual information form and the official reports filed with the Canadian Securities Commission. Now Brian, back to yourself.

Speaker 1

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

Operator

Thank Your first question comes from the line of Thanos Tsakopoulos from BMO Capital Markets. Please go ahead.

Speaker 3

Hi, good afternoon. Revenue was a bit lighter this quarter than we've seen in recent quarters.

Speaker 4

So just curious to get

Speaker 3

your thoughts on that. Is that just a function of project timing? Might that be reflective of any other factors such as macro weakness? Or just any color you can provide would be helpful?

Speaker 1

So, Thanos, I would say it's primarily because of project timing.

Speaker 2

Okay.

Speaker 1

Our order backlog is very strong. You've seen that it's modestly up at $295,000,000 at the end of May. So it remains very robust. Okay.

Speaker 3

So from your perspective, I mean, we've heard a lot of other companies talk about tougher spending environments. But from your perspective, you're not seeing that. It's more reflective of the quarterly volatility in order flow, which is, I mean, we've seen in your business before an implementation cycle and so forth, right?

Speaker 1

Those are 2 different questions. So the revenue

Speaker 3

Fair enough, yes.

Speaker 1

Primarily because of project timing and deliveries. That said, your commentary about the overall macro economic situation, Evertz is not immune to that. So we do recognize it. So but our order book does continue to build. So we have an extremely robust purchase order backlog of 295,000,000 dollars plus then $32,000,000 of shipments in this quarter is very strong.

Speaker 3

Okay. You provided a disclosure on the software and services revenue, so that's very helpful. Thank you for that. Is that a metric that we provided on a quarterly basis or is that will that be an annual metric?

Speaker 2

We will provide this on a quarterly basis going forward.

Speaker 3

Okay. And over the past year, hardware growth actually was higher than software growth. So just to mention the dynamic there, I mean, that's a function of as activity ticked up over the past year, some new projects were implemented, which have a big upfront hardware component, but then a recurring software component. I mean, just curious if you have any thoughts in terms of the relative growth over the past year?

Speaker 1

You're correct, right. So we've done very well with the hardware with our hardware sales and also with recurring software and that is totaling 37%. That's a very significant percentage of our revenue base and we're quite proud of that and it is But again to the and we're also very proud of the hardware sales as well too.

Speaker 3

Okay. And on the R and D spend, just to clarify the $1,400,000 in temporary costs, does that go away in Q1 or will it be some other elevated costs in Q1?

Speaker 2

So some of those costs will continue through to Q1, expected you see that would trail off after I think into the summer. So Q2 will be trailing off. So and then the other there is an uptick in Q4. If you're looking sequentially in Q4, our materials and supplies went up 800,000 dollars and that can be a bit of volatility to it. But the temporary cost should start going off, but they will have some component in Q1.

Speaker 3

Okay. The $800,000 includes materials and supplies, is that sort of typical we often see that in your Q4, was there some of that?

Speaker 2

Yes. I mean, there's some volatility there, and Q4 often has a bit of an uptick in bureaus and supplies. Okay. The 800 ks a special increase.

Speaker 3

Okay. Last one for me. Anything else you would call out from an OpEx perspective aside from the R and D line that we should think about heading into Q1?

Speaker 2

Yes, I mean the other big one is in S and A. We sequentially again travel and trade show costs went up 1,700,000 dollars the biggest driver being NAB in Q4.

Speaker 4

Right.

Speaker 3

It. Okay. I'll pass the line. Thanks.

Operator

Thank you. And your next question comes from the line of Robert Young from Canaccord Genuity. Please go ahead.

Speaker 4

Hi, good evening. You might have defined this somewhere in your disclosures, but can you give maybe a broader description of what exactly this recurring software services and other software representing 37% of total revenue in the fiscal year. Can you just maybe break out what that includes, maybe a little more granularly and how much of that is software that's embedded in hardware? How much of that would be software that's sold separately? How much software in the cloud?

Speaker 4

Any broader description of what exactly that is

Speaker 2

would be helpful? What the software and services would include? So, it would include starting with the service component, which is more straightforward, warranty commissioning, what else, SLAs, like that. On the software side, it would be a mix of standalone software, it could be channel keys, license keys that could get increased functionality of hardware, but it should have software, like a license key. Provide some clarity.

Speaker 4

Okay. Would it

Speaker 2

be fair to

Speaker 4

say that that's revenue that's not tied directly to hardware?

Speaker 2

License like certain components of it could be used on hardware, but not necessary. So you could buy the hardware without it, I guess, is the way to drive

Speaker 4

it. So maybe the broader question is what's the new information you're trying to provide investors with this disclosure?

Speaker 2

That's fair. So before hardware and software, so whether it was standalone, whether it was license keys, whether it was options, was all grouped into with hardware. Now hardware shows physical hardware, so a physical good. So a serial number on it, I'll describe it, but.

Speaker 1

So it's primarily to address our analyst and investor requests for breaking out the software revenues to ascertain what percentage of our overall business is related to software.

Speaker 4

Okay. I guess maybe if I just put a finer point on that. Is there any hardware embedded into that 37% or can I assume that that's all software, all recurring?

Speaker 2

No hardware embedded in the software and services.

Speaker 4

Okay. 2nd question for me would just be on the cash balance growing, continues to grow despite the higher level of OpEx this quarter, strong cash from operations. Maybe give us a sense of what you have planned for that cash?

Speaker 2

Well, the driver on the cash increase, I mean, there's a couple of things there. There is the increase in deferred revenue. So that is brought up cash substantially in the year. Further errors are down, which has a positive effect on cash flow. As per the use, we have announced another regular quarterly dividend.

Speaker 2

And beyond that, we have significant flexibility. Okay.

Speaker 4

Do you have a dividend policy around I think the last couple of years you've increased the dividend on an annual basis. How would that happen in the future if you're going to increase the dividend?

Speaker 1

It's a good question. The dividend policy is handled by the Board. It's a Board decision and the Board is very cognizant of Evertz's very strong operational cash flow generation capabilities over the long term and are confident in it. And that has been reflected in increasing quarterly dividends over the last years. Again, too, that is a Board decision, but they're well aware of the significant cash buildup.

Speaker 4

Okay. Last question for me. I think we're past the anniversary of that large $152,000,000 cloud software deal, but there were some words in the press release suggesting significant orders. And as you noted earlier, the backlog did go up despite the fact that revenue was down quarter over quarter by a pretty significant amount. And so I was just curious, maybe if you expand on that significant order comment and then I'll pass on.

Speaker 1

With respect to the $152,000,000 cloud software and services order over 5 years. So that is exactly what it says. There is a potential and our other revenues outside of that purchase order, hardware related specifically with that customer. So, I'm not sure what else.

Speaker 4

Yes, so the increase in the backlog, was that driven by larger deals? Maybe we can just talk about are there other large deals of that sort of size, the $152,000,000 multiyear deal? Maybe just talk about the pipeline.

Speaker 2

There are large deals this quarter.

Speaker 1

There have been significant purchase orders and deals occurred. Nothing that we press released outside of the $25,000,000 international purchase order which you saw last year again too. And we spoke about it being delivered in the later quarters of 2024. And that was again to just you'll recall that it was for Evertz IP based solutions. So EXEs, EQXs, gateways and other solutions.

Speaker 1

So very high end solution for an international

Speaker 2

customer.

Operator

Thank you. There are no further questions at this time. I will now hand the call back to Mr. Brent Campbell for closing remarks.

Speaker 1

Thank you, Nina. I'd like to thank our participants for their questions and to add we're very pleased with the company's strong performance during fiscal 2024, which saw sales increase 13% year over year crossing the 500,000,000 threshold to reach a record high of 514,600,000 dollars strong gross margins of 58.8 percent for the year delivering over $100,000,000 earnings from operations all while investing $139,000,000 in R and D to build and sustain future growth. We closed the Q4 of VeeVirt's fiscal 2024 with a significant momentum fueled by the combined purchase order backlog plus May shipments totaling in excess of $327,000,000 by the growing adoption and successful large scale deployments of Evertz IP based software defined video networking and cloud solutions by some of the largest broadcast, new media and service provider and enterprises in the industry. And by the continuing success of Evertz StreamCatcher Bravo, our state of the art IP based replay and production suite. With Evertz significant investments in software defined IP, IT and cloud native technologies, the over 600 industry leading IP SDN 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 everyone and good night.

Operator

Thank you. This concludes today's call. Thank you for participating. You may all disconnect.

Powered by Quartr