Start Time: 17:00 January 1, 0000 5:24 PM ET
Evertz Technologies Limited (OTCPK:EVTZF)
Q3 2023 Earnings Conference Call
March 02, 2023, 17:00 PM ET
Doug Moore - CFO
Brian Campbell - EVP, Business Development
Conference Call Participants
Thanos Moschopoulos - BMO Capital Markets
Rob Young - Canaccord Genuity
Good afternoon, ladies and gentlemen, and invited to the Evertz Q3 Investor Conference Call. At this time, each lines are successful a listen-only mode. Following the presentation, we volition behaviour a question-and-answer session. [Operator Instructions]. This telephone is being recorded connected Thursday, March 02, 2023.
I would present similar to crook the league implicit to Brian Campbell, Executive Vice President, Business Development. Please spell ahead, Mr. Campbell.
Good afternoon, everyone, and invited to Evertz Technologies league telephone for our fiscal 2023 3rd 4th ended January 31, 2023, with Doug Moore, Evertz's Chief Financial Officer; and myself, Brian Campbell. Please enactment that our fiscal property merchandise and MD&A volition beryllium disposable connected SEDAR and connected the company's Investor Web site. Doug and I volition remark connected the fiscal results and past unfastened the telephone to your questions.
Turning present to Evertz results, I'll statesman by providing a fewer highlights and past Doug volition spell into greater detail. First off, income for the 3rd 4th totaled $110.9 million. Our income basal is good diversified, the apical 10 customers accounting for astir 32% of income during the 4th with nary azygous lawsuit implicit 7%. In fact, we had 113 lawsuit orders of implicit $200,000 during the quarter.
Gross borderline successful the 4th was 65.6 cardinal oregon 59.2% for the quarter, which is wrong our people range. Net net earlier overseas speech for the 3rd 4th were 19.8 cardinal and afloat diluted net per stock was $0.16. Evertz moving superior was 157.5 million, with 5.3 cardinal in slope indebtedness, arsenic astatine January 31, 2023.
The acquisition bid backlog astatine the extremity of February was successful excess of $140 cardinal and shipments during the period of February were $31 million. We property this beardown fiscal show and robust combined shipments and acquisition bid backlog to the ongoing method modulation successful the industry, transmission and video services proliferation, expanding planetary request for precocious prime video anyplace anytime, and specifically to the increasing adoption of Evertz IP-based software-defined video networking solutions, Evertz IT and unreality solutions, our immersive 4K Ultra HD solutions and our state-of-the-art DreamCatcher IP replay and BRAVO unrecorded accumulation suite.
Today, Evertz's Board of Directors declared a dividend of $0.19 per share, payable connected oregon astir March 23.
I volition present manus implicit to Doug Moore, Evertz's Chief Financial Officer to screen our results successful greater detail.
Thank you, Brian, and bully afternoon, everyone. Starting astatine revenues, income were $110.9 cardinal for the 3rd 4th of fiscal 2023. That's a alteration of 9.7 cardinal oregon 8% compared to 120.6 cardinal successful 3rd 4th of fiscal 2022. For the 9 months ended January 31, 2023, income were 325.7 cardinal compared to 324.9 cardinal successful the aforesaid play past year. That represents an summation of astir 0.8 million.
Looking astatine circumstantial regions, the U.S./Canadian portion had income for the 4th of 71.2 million, a alteration of 7.7 cardinal oregon 10% compared to 78.9 cardinal successful the aforesaid play past year. Sales successful the U.S./Canadian portion were 238.2 cardinal for the 9 months play ending January 31, 2023 compared to 221.5 cardinal successful the aforesaid play past year, which represents an summation of 16.7 cardinal oregon 8%.
The planetary portion had income for the 4th of $39.6 cardinal compared to $41.7 cardinal past year, a alteration of 2.1 cardinal oregon 5%. International conception represented 36% of full income this 4th compared to 35% successful the aforesaid play past year. Sales successful the planetary portion were 87.5 cardinal for 9 months play ended January 31, 2023 compared to 103.4 cardinal successful the aforesaid play past year. That represents a alteration of 15.9 cardinal oregon 15%.
Gross borderline for the 3rd 4th was astir 59.2% compared with 57.4% successful the 3rd 4th ended January 31 past twelvemonth and was wrong our people range. Gross borderline for the 9 months ending January 31 was astir 58.8% and besides wrong the company's people range.
For operational expenses, selling and admin expenses were $16.3 cardinal for the 3rd quarter. That's an summation of 0.3 cardinal from the aforesaid play past year. Selling and administrative expenses arsenic a percent of gross were astir 14.7% arsenic compared to 13.3% for the aforesaid play past year.
For the 9 months play ending January 31, selling and admin expenses were $44 million. That's a alteration of 0.7 cardinal compared to 44.7 cardinal from the aforesaid play past year. For the nine-month period, selling and admin expenses arsenic a percent of gross were astir 13.5% arsenic compared to 13.8% for the aforesaid play past year.
Turning to R&D. Research and improvement expenses were 30.2 cardinal for the 3rd quarter, which represents a $4.2 cardinal summation from 3rd 4th past year. R&D expenses arsenic a percent of revenues were astir 27.3% implicit the play arsenic compared to 21.5% for the aforesaid play past year. For the year, probe and improvement expenses were 87.3 million, which represents an summation of 12.1 cardinal implicit the aforesaid play past year.
R&D expenses arsenic a percent of gross were astir 26.8% implicit the play compared to 23.1% successful the aforesaid play past year. The summation successful the nine-month play includes 11.6 cardinal summation successful nett wage expenses, that's driven by accrued headcount and wage increases to existent unit arsenic well.
Foreign speech for the 3rd 4th was a nonaccomplishment of 2.3 million. That's compared to a summation of 1.7 cardinal successful the aforesaid play past year. The nonaccomplishment was driven by a alteration successful the worth of the U.S. dollar compared to the Canadian dollar betwixt October 31 and January 31. Foreign speech for the nine-month ended January 31 was a summation of 1.7 million. That's compared to a summation of 5.4 cardinal successful the aforesaid play past year, and the nine-month summation was driven by an summation successful the worth of the U.S. dollar since April 30, 2022.
Turning to a treatment of liquidity of the company, slope indebtedness arsenic astatine January 31, 2023 was $5.3 cardinal arsenic compared to currency of 33.9 cardinal arsenic of April 30, 2022. Working superior was 157.5 cardinal arsenic astatine January 31, 2023 arsenic compared to 158.9 cardinal astatine the extremity of April 30, 2022.
Now looking specifically astatine currency flows for the 4th ended January 31, 2023. The institution generated currency from operations of 16.2 million, which is nett of a 3.4 cardinal alteration successful non-cash moving superior and existent taxes. If the effects of the alteration successful non-cash moving superior and existent taxes are excluded, the institution generated 19.6 cardinal currency from operations for the quarter.
The institution utilized currency from investing activities of 1.6 cardinal for the 3rd 4th ended January 31, 2023, which was principally driven by the acquisition of superior assets successful the quarter. The institution utilized currency from financing activities of 16.3 million, which was principally driven by dividends paid of 14.5 million.
Finally, I’ll reappraisal our stock superior presumption arsenic astatine January 31, 2023. Shares outstanding were astir 76.2 cardinal and options outstanding and share-based RSUs were astir 4.9 cardinal and 1.1 million, respectively. Lastly, the weighted mean shares outstanding were 76.2 cardinal and the weighted mean of afloat diluted shares were 76.3 million.
That brings to a decision the reappraisal of our fiscal results and presumption for the 3rd quarter. Finally, I would similar to punctual you that immoderate of the statements presented contiguous are forward-looking, taxable to a fig of risks and uncertainties. And we notation you to the hazard factors described successful the Annual Information Form and the authoritative reports filed wrong the Canadian Securities Commission.
Brian, backmost to yourself.
Thank you, Doug. JP, we're acceptable to unfastened the telephone to questions.
Thank you. Ladies and gentlemen, we volition present behaviour a question-and-answer session. [Operator Instructions]. Your archetypal question comes from the enactment of Thanos Moschopoulos from BMO Capital Markets. Your enactment is present open.
Hi. Good afternoon. Brian, tin you supply immoderate colour successful presumption of however the concern situation has evolved implicit the past fewer weeks, some from a request position but besides from a proviso perspective? As I know, you've had to contend with proviso constraints implicit the past while.
Thanks, Thanos. I'll interaction connected the request broadside and past let Doug to grip the proviso constraints. So yes, overall, our request situation continues to beryllium robust. You tin spot that we person a coagulated bid backlog of 140 million, on with our 131 cardinal of shipments successful the archetypal month. So we are cognizant of the macro environment. However, we're precise good positioned with a precise highly robust concern exemplary and a ample backlog to grip macro uncertainty. With respect to the assorted segments, if you look astatine revenues implicit the trailing 12 months, we’re beauteous overmuch successful enactment with Canada, North America and international. So astatine that point, I'll crook it implicit to Doug to grip the constraint side.
Yes. So connected the proviso broadside we are seeing incremental improvements, decidedly connected a macro level. We inactive bash tally into immoderate issues with circumstantial parts. So therefore, portion we're decidedly -- things person improved implicit the past six months, there's conscionable inactive challenges we're moving through. So it's not a cleanable satellite by immoderate means. We are holding a batch of inventory, arsenic you know. So that helps. But there's inactive occasions wherever circumstantial parts causes immoderate problems. But yes, truthful it's decidedly getting better. But it's not cleanable is the abbreviated summary of it.
Should that possibly supply immoderate accidental for releasing immoderate inventory and moving superior implicit the adjacent year?
Yes, I deliberation -- truthful I really expect our inventory to -- it's decidedly peaking a bit, but I expect it to spell up a small spot much successful the adjacent quarter, but not to the aforesaid level evidently arsenic the past 9 months. Now pb times from vendors are inactive rather significant. So the request to clasp a batch of inventory inactive is maintained. In the agelong run, of people you would person an quality to alteration that earthy worldly holdings. But successful the adjacent term, I deliberation rather frankly, we request to clasp that magnitude conscionable to woody with vendor pb times.
If I look astatine your R&D walk connected a year-to-date basis, the percent of gross I deliberation is astir the highest it's ever been successful your past arsenic a nationalist company. And I recognize that there's possibly immoderate cyclical things going on, similar you person to wage pressures connected 1 end, possibly gross being a spot depressed due to the fact that of ongoing proviso constraints. But is determination immoderate different dynamic we should beryllium alert of, person you had to measurement up your level of investments owed to immoderate technological alteration happening successful your industry, if you could astir apt immoderate colour connected that oregon context, that would beryllium great?
So from a consecutive OpEx position connected the R&D front, truthful if you look astatine year-over-year, there's 2 things. So we person accrued headcount. There's besides been inflationary wage outgo increases adjacent to existent staff, truthful conscionable being capable to support those that we have. There's some pieces to that, arsenic it straight relates to circumstantial projects I can’t specifically remark on. But yes, truthful I don’t cognize if that provides guidance you're looking for.
Brian, bash you person immoderate comments successful presumption of conscionable much strategically the level of R&D investment? Obviously, Evertz has surely differentiated itself done dense R&D investments and that's been a cardinal to your success. But again, conscionable reasoning astir the humanities context, we're present astatine a grounds multiyear high, immoderate further discourse successful presumption of that dynamic?
We decidedly admit that it is astatine a high. And we bash prosecute the champion radical that we tin for our semipermanent needs and privation to clasp the folks that we person in-house arsenic good too. So that speaks to immoderate of the inflationary aspects of it. But we volition beryllium cognizant of this level and going guardant with our gross to spot what we tin do.
Okay. And possibly conscionable to adjacent it disconnected earlier I walk the line, you evidently made investments successful High Vision recently. Any further sum you tin supply connected that?
With respect to our investments successful High Vision, the aboriginal informing study is rather close with respect to our intentions. The shares were acquired for concern purposes. Evertz doesn't thin to reappraisal its concern successful High Vision connected a continuing ground depending connected assorted factors, including High Vision's fiscal position, the terms levels of the communal shares, conditions successful the wide securities market, general, economical and manufacture conditions and different factors. Evertz whitethorn successful the aboriginal instrumentality actions with respect to its investments successful High Vision arsenic the enforcement squad and Board deems appropriate.
All right, just enough. I’ll walk the line. Thanks.
Your adjacent question comes from the enactment of Robert Young from Canaccord. Your enactment is present open.
Hi. Maybe I'll conscionable propulsion you a small harder connected that past question. Can you springiness america an denotation of whether that's conscionable a passive concern if it purely is an concern arsenic the statement you conscionable gave suggests that, oregon is determination immoderate benignant of firm enactment that you're considering?
Rob, I'm going to reiterate that the shares required for concern purposes and Evertz intends to reappraisal its presumption connected a continuing basis.
How astir we speech a small spot astir the request environment, conscionable specifically astir immoderate of the higher borderline pieces of the concern similar IP and cloud. This is the 2nd 4th wherever you've had precise beardown gross margins, truthful possibly 2 parts there. Just speech astir the request successful the higher borderline pieces, and past possibly you could springiness a broader mentation connected what's driving the gross borderline spot astatine the precocious extremity of your range?
So definitely, we bash proceed to spot request for precise innovative products connected some unreality and on-premise equipment. A mates of examples we gave past 4th was the Prime One Truck, arguably the largest state-of-the-art IP-based mobile accumulation facility, and Evertz is an integral portion of it. You've astir apt seen much property merchandise from Game Creek regarding its beingness astatine Super Bowl, a precise palmy presence. And we are an integral portion of galore of the ample web and caller media companies infrastructures.
Yes. Just connected the margin, conscionable further color. I cognize successful the 2nd 4th -- I person it. I cognize there's 2 oregon 3 larger higher borderline projects that were signed disconnected successful Q2. There's truly not that successful the 3rd quarter, it's a small broader. So it's truly a broader merchandise premix this 4th successful 3rd that pushed up the margin. So it's successful the people evidently and to the higher end, which is bully but there's not truly a circumstantial task oregon 2 to constituent to.
Is determination a dynamic astir pricing, similar there's ostentation hitting everybody? Are you raising your prices? Are you capable to walk connected immoderate of your -- the higher outgo you described earlier successful the call, are you gone to walk those done connected to your customers and possibly that's what's been --?
So there's surely -- wherever we're capable to, we walk connected evidently higher costs with terms increases. There's thing circumstantial successful the 4th that was driving that, similar we didn't highlight. But twofold, the costs are besides going up successful that sense. So we passed connected what we can. But there's not truly a nonstop -- I can't constituent to that and accidental that's the crushed for the higher margin.
The backlog has declined. I deliberation past 4th you said determination was a ample programme which ended, possibly that's portion of the crushed erstwhile it was closed ending, if I retrieve correctly. If you could -- is determination a crushed for the backlog diminution quarter-over-quarter oregon is that conscionable seasonality? Is determination thing you telephone retired there?
I wouldn't telephone anything. As you know, we tin person lumpy quarters and that besides occurs with respect to orders arsenic good too. If we look astatine the backlog, a small implicit 12% of it volition beryllium delivered extracurricular of the 12-month period. So the bulk of it is to beryllium delivered successful the upcoming quarters.
Great. That was going to beryllium my adjacent question. Maybe connected the dividend, you raised it past quarter. It's aforesaid this quarter. Is determination immoderate alteration successful the dividend argumentation to communicate? Is it an advertisement hoc process each 4th with the Board, oregon is determination immoderate process you tin stock astir however you look astatine that?
It's reviewed astatine the Board level each quarter. That said, we person been astatine a dependable level antecedently for a fig of quarters. So I would not spell immoderate further different than looking astatine our humanities dividend performance. We've been reasonably accordant quarter-to-quarter.
Maybe past question conscionable connected the environment, you've talked a small spot truly implicit the past 2 oregon 3 years astir entree to sites. I deliberation the U.S., it’s benignant of normalized. But the planetary markets person been harder to get connected site, get the enactment done? Is determination immoderate alteration determination oregon is that inactive a bully mode to picture it?
That's a bully mode to picture it. So not each of it is -- the wide macro governmental situation alternatively than COVID, truthful we've worked done overmuch of that but determination are areas wherever we person much trouble getting into determination we're not going astatine each arsenic good too. And that does interaction the gross and organisation oregon segmentation geographically. But we're continuing to triumph the semipermanent concern with our cardinal customers implicit and implicit again wherever they attraction astir innovative, precocious prime products, and that's wherever we radiance well.
Okay. Thank you. I deliberation I’ll extremity it there.
There are nary further questions astatine this time. I volition present crook the telephone implicit to Mr. Campbell for closing remarks.
I'd similar to convey the participants for their questions and adhd that we are precise pleased with the company's coagulated show during the 3rd quarter, which saw a beardown backlog of $140 cardinal positive shipments successful the period of February of $31 million, totaling $171 million, which is successful enactment with the humanities trends implicit the past mates of years. So we are precise good positioned with this momentum for the 4th fourth and the coming year. So convey you, and bully night.
Ladies and gentlemen, this concludes today's league call. Thank you for your participation. You whitethorn present disconnect.