Evertz Technologies Limited (ET) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Evertz Q4 Investor Conference Call. [Operator Instructions] This call is being recorded on June 24, 2026. I would now like to turn the conference over to Brian Campbell, Executive Vice President of Business Development. Please go ahead.

Thank you, John. Good afternoon, everyone, and welcome to Evertz Technologies conference call for our 2026 Fourth Quarter and Year ended April 30 with Doug Moore, Evertz' 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 results. I'll begin by providing a few highlights, and then Doug will provide additional detail. First off, we had record annual sales in excess of $0.5 billion, coming in at $515.8 million for the year. This includes revenue in the international region of $148 million, up 16% from the prior year. Reoccurring software, services and other software revenue increased 8% year-over-year, totaling $240.7 million in the year. Margin rates remain consistently strong, coming in at 59.3% versus 59.5% prior year and 58.8% 2 years ago. Total margin dollars were $306 million. Net earnings were $64.4 million, resulting in a fully diluted earnings per share of $0.83. Our sales base is well diversified with the top 10 customers accounting for approximately 44% of sales with no single customer accounting for more than 10% on a full year basis. In fact, we had 87 customer orders of over $200,000. Turning to the fourth quarter. Sales were up 3% year-over-year to $131.6 million. Reoccurring software, services and other software was $65.8 million, an increase of 17% from the prior year. Gross margin in the quarter was $78.1 million versus $78.9 million in the fourth quarter previous year. Net earnings in the quarter were $15.2 million as compared to $13 million in the corresponding period last year. Fully diluted earnings per share were $0.20, up from $0.17 in the previous fourth quarter. Operational highlights for the quarter included Evertz' stellar presence at the National Association of Broadcasters, NAB Show in Las Vegas, where Evertz won prestigious Future Best of Show awards distributed across the primary industry publications presented by TV Technology, the Bravo Best of Blade recognized for expanding multi-program live production capabilities from a single event, our ENX, an innovative media core designed specifically for hybrid IP and SDI facilities; X-CALIBER, a high-density encoding platform engineered for scalable media transport. The MMA and Nucleus product won in the AV technology area for IPMX certified IP gateway solution built to bridge ProAV and broadcast environments with seamless IPMX and ST-2110 integration. At the end of May, Evertz purchase order backlog was more than $237 million and shipments during the month of May were $33 million. We attribute the strong financial performance and robust combined shipments and purchase order backlog to channel and video services proliferation, increased global demand for high-quality video anywhere and anytime. The ongoing technical transition to IP, IT and cloud-based architectures in the industry and specifically to the growing adoption of Evertz 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. Today, Evertz' Board of Directors declared a regular quarterly dividend of $0.205 per share payable on or about July 13. I'll now hand over to Doug Moore, Evertz' Chief Financial Officer, to cover our results in greater detail.

Thanks, Brian, and good afternoon. Looking at revenues, despite a relatively slow start to the quarter, sales were $131.6 million in the fourth quarter of fiscal 2026, a 3% increase compared to the $127.8 million in the fourth quarter of fiscal 2025. While for the year ending April 30, 2026, sales were $515 million, up $14.2 million or 2.8% from the prior year. Quarterly hardware revenue was $65.7 million. That's a decrease from $71.7 million in the prior year, while software and services revenue increased to $65.8 million from $56.1 million in the prior year. For the year -- sorry, actually, revenue from software and services represented approximately 50% of the total revenue in the quarter. For the year, hardware revenue declined 1% to $275.1 million, while revenues from software and services increased 8% to $240.7 million from $222.6 million in the prior year. Annually, software and services revenue represented 47% of total revenue versus 44% in the prior year. Looking at regional revenues. Quarterly revenues in the U.S./Canadian region were $94.2 million. That's a decline compared to $106.5 million in the prior year. However, this is more than offset by a $16 million increase in quarterly revenues in the international region, which were $37.4 million compared to $21.3 million in the prior year fourth quarter. The International segment represented 28% of total sales in the quarter as compared to 17% in the same period last year. For the year ended April 30, 2026, revenues in the Canadian and U.S. region were down 2% to $367.8 million, while international revenues increased $20.8 million or 16% to $148 million. The increase in the year was driven by increased project deliveries in Western Europe, in particular. For the year ending April 30, international sales represented 29% of total sales compared to 25% in the same period last year. Gross margin for the quarter was 59.3% compared to 61.7% in the prior year. It's worth noting the prior year comparative quarter was higher than typical, and the current quarter is more in line with our target range of 56% to 60%. For the year, the gross margin was 59.3%, which was also within the company's 56% to 60% target range. Turning to selling and administrative expenses. S&A was $20.7 million in the fourth quarter. That's relatively consistent with the same period last year. S&A expenses as a percentage of revenue were approximately 15.7% as compared to 16.2% for the same period last year. Sequentially, selling and admin expenses were up approximately $10 million from Q3. That increase was driven by increased trade show and travel costs, which in turn was driven by our participation at the NAB trade show in the fourth quarter. For the year ending April 30, selling and admin expenses were $77 million or 14.9% of sales as compared to $75.9 million or 15.1% of sales in the prior year. Research and development expenses were $37.7 million for the fourth quarter. That represents an increase of $1.2 million the prior year. And as a percentage of revenue, R&D expenses were 28.7% compared to 28.6% in the prior year. For the year ending April 30, R&D expenses were $148.1 million or 28.7% of sales as compared to $146.8 million for the same period last year, an increase of approximately 1% year-over-year. Foreign exchange for the fourth quarter resulted in a gain of $400,000 as compared to a loss for the fourth quarter last year of $4.5 million. The fourth quarter of the current year -- sorry, during the fourth quarter of the current year, U.S. dollar versus Canadian dollar declined modestly from $1.38 to $1.37 to 1 as opposed to the fourth quarter last year where the U.S. dollar declined more significantly from $1.44 to $1.40 to 1. For the year ending April 30, foreign exchange resulted in a loss of $0.4 million compared to a gain of $0.2 million last year. Turning to the discussion of liquidity of the company. Cash as at April 30 was $19.1 million, a decline compared to cash of $111.7 million as at April 30, 2025. The decline was primarily driven by the $136 million in dividends we distributed during the year, including the $75.5 million in special dividends that we paid during the third quarter. Working capital was $131.7 million as of April 30, 2026, compared to $206.9 million at the end of April 30, 2025. Looking now at cash flows for the quarter. For the 3 months ended April 30, cash from operations were $18.4 million as compared to $33.3 million generated during the 3 months last year. If you exclude the changes in noncash working capital and current taxes, cash from operations were $19.1 million for the fourth quarter this year compared to $17.7 million for the same period last year. In the quarter, the company used $3.9 million from investing activities. That's particularly for the acquisition of property, plant and equipment. And for the quarter, the company used $17.1 million for financing activities, $15.4 million of which was for the payment of dividends during the quarter. For the year, the company generated cash from operations of $76.2 million, which is net of a $10.2 million change in noncash working capital and current taxes. If the effects of that change were excluded from the calculation, the company generated $86.4 million in cash from operations during the year. The company used cash of $17.8 million for investing activities, which is principally driven by the acquisition of property, plant and equipment of $18.7 million, including the land and building we purchased outside Pennsylvania. And the company used cash and financing activities of $147.1 million, which as previously noted, was principally driven by dividends paid. Finally, looking at our share capital position as at April 30, 2026. Shares outstanding were approximately 75.6 million and options and shares-based RSUs outstanding were approximately 4.2 million. Weighted average shares outstanding were 75.5 million and weighted average fully diluted shares were 76.8 million. This concludes the review of our financial results and position for the fourth quarter and year-end. And 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 refer you to the risk factors described in the annual information form and the official reports filed with the Canadian Securities Commission. Brian, back to yourself.

Thanks, Doug. John, we're now ready to open the call for questions.

[Operator Instructions] Our first question comes from the line of Thanos Moschopoulos from BMO Capital Markets.

It was a nice acceleration in the growth rate for your software business this quarter. Is there anything in particular that you would call out in that regard or just sort of the ongoing trend and driver that we talked about in prior quarters?

I can call out -- there's a couple of larger project milestones that we met in the quarter that would have caused the growth, $7 million, $8 million in additional software and services revenue that was released from deferred revenue. There's ongoing releases and deferrals throughout the year, but that's a bit more substantial than typical. So if I had to call it something, there's 2 projects that made up between $7 million and $8 million worth of software and service revenue releases.

Okay. Would that be onetime revenue? Or is that recurring revenue that's now been coming online?

It would be more of a project-based onetime milestone.

Okay. That's helpful. With respect to the hardware side of the business, I mean, obviously, a lot of price inflation happening with components. We did see consistent margins this quarter. But going forward, how should we think about that dynamic? Would you expect to be able to pass through those costs and maintain margins? Or what do you think on the component side?

We are seeing some challenges, of course, in bringing in parts and increased costs, especially with memory, particularly in other aspects. The target range remains the same with that 56% to 60%. We manage pricing we need to, but I don't think -- I can't directly say everything would be passed along, but our target range remains the same and doing our best to mitigate those cost increases.

Okay. And last one for me. Brian, any update of note with respect to U.S. government and defense opportunities on your side of the border?

Yes. So we are very encouraged by the U.S., international and domestic opportunities that we see for Evertz much of a dual-purpose technologies where we have decades of domain knowledge and expertise demonstrated in the live news, sports at the highest level, then those technologies common criteria certified NIAP listed for installation in secure facilities, and we have routing platforms that can handle the top secret and other levels as well, too. So we're very well positioned to be able to grow with that area. It's something that we do have significant experience in some high-profile locations that we can't necessarily speak to. But what we have done is increase our emphasis and awareness domestically and also internationally. So we've opened up the Evertz' office in Colorado Springs, and we have one in Ottawa as well, too. You may have seen that we participated with the Canadian delegation that included the Canadian Secretary of State for Defense Procurement and CEO of DIA into the SAHA Defense and Aerospace exhibition in Istanbul. That was quite a large event and contingent, and we were front and center there. So those initiatives were continue to work very strongly, and I'll pass over to Doug to add a little bit more color to that financial color.

Yes. I mean from a quantification perspective, I mean, we don't separately disclose sales to government, military in our financial statements. However, I could comment that over the past year, sales to government, military, aerospace customers combined to be over $50 million in the year and also over 10% of revenue. So just to give you some kind of context of the scope.

Your next question comes from the line of Robert Young from Canaccord Genuity.

Great to hear the context around the defense sector. I was wondering if you could go a little bit deeper there and just to talk about how you're going to market. Are you doing that with a partner? Are you building out any partner relationships specific to defense? Are you pursuing any specific opportunities in defense currently with partners? Can you talk about the go-to-market?

So the answer is yes to all of the above. We have in the past done so like that. Many of the large installations that we have in the U.S. or NATO areas have been through U.S. or international large prime contractors. So Evertz providing very meaningful subsystems and solutions, secure environments. There's more public context around that. So you may have seen recently that Evertz joined ATHORA as a foundational partner advancing sovereign Canadian defense interoperability. This is led by Calian and Evertz brings real-time operational infrastructure, secure networking, data transport and data transport expertise to these next-generation defense modernization opportunities that we're seeing domestically in Canada. Similarly, Evertz has joined Babcock's Team INSPIRE to provide next-generation strategic communications for the Canadian Armed Forces. Babcock is a U.K.-based prime contractor that we have experience with as well, too. So those are a couple of the recent public domain relationships that we're very much leaning into and are significantly contributing to these opportunities.

Great to hear about all those efforts. That $50 million revenue number you shared, how would that compare with the last 5 years, for example? Are you seeing a meaningful increase in opportunities or any increase in deal size? Is there anything to put context around how much of that defense spend or defense opportunity is new and how much has already been a part of Evertz's business?

So that would be roughly a 12% increase over the prior year. It's been lumpy because of big projects in the past and we would foresee it to be like that in the future. But we are looking at large programs. Those don't happen instantaneously. As you know, you often go through a RFI stage RFP and then contracting definitely takes time, but we're really encouraged by the opportunities we see in front of us.

Yes. Maybe last question for me would be around the CUSMA renegotiations. You still manufacture the bulk of your product in Canada, and I'm curious about what you might have done to prepare for any change in that? I know the North American revenue base has declined in the last 2 quarters. And I'm curious if that's a function of upcoming CUSMA or if there's some other factor? And then I'll pass on.

Yes. I mean I can comment that we continue to ramp up capacity outside Pittsburgh there. So now we spent -- during the year, we spent between $7 million and $8 million. And I think $3 million or $4 million was associated with the land and building, but also additional equipment and leasehold improvements to ramp up our ability to manufacture just outside Pittsburgh there in Indiana. But currently, the vast majority of what we're selling is USMCA compliant and not being subjected to tariffs. So it's something we'll have to monitor and address. But as of this time, it's not a huge, at least a clear impact.

Well, I guess the question I'm trying to ask is if the negotiations were to yield like an end to that agreement, what would -- how should investors be thinking about how well Evertz is prepared?

Yes. So I mean, we will have to additional capacity to our United States facility, but we will have 6 months to fully address those plans properly.

Your next question comes from the line of Paul Treiber from RBC Capital Markets.

Thanks for the detail on the Defense business. Just another one, if I may, on defense. Defense revenue, is it skewed more towards hardware or reoccurring software? Or does it match the mix of the entire company?

So it would be more skewed towards hardware. Software is a large component of the modernization issues, and it is part of those sales to that sector. We do not have the analysis to tell you currently what the product mix is. We're not disclosing that at this time.

Okay. That's helpful. Second question is just on the international revenue growth. You mentioned there's a degree of lumpiness due to the project timing. Was it related to those -- I think there's 2 projects milestones that you hit. Were those in Europe?

No, actually, they're in North America. They're not correlated in this case. This is just project deliveries that happened to be in Q4 in the international region. So they're not related in this case.

Okay. And when you look forward to international, I mean, do you see that momentum and growth in international sustained? And is that segment going through a period of stronger growth here?

We did significantly release -- we had an improvement in Western Europe for sure. So there's still a fair amount of political unrest in certain jurisdictions. But year-over-year, there was definitely an improvement in the U.K. and Western Europe.

Okay. And then just lastly, during the quarter, I mean, obviously, there's the conflict in the Middle East. There's also the World Cup in North America. With all those large events going on, were there any -- did the conflict have any impact on procurement discussions, what you've seen through the quarter? And then conversely, like the World Cup, was there a benefit from the World Cup in the quarter?

Benefit for the World Cup would happen in prior quarters as infrastructures updated their facilities well in advance of the actual events in similar to the way the Olympics and other events happen.

So not directly to Q4.

Okay. So it's no late catch-up of those deployments?

No.

There are no further questions at this time. I will now turn the call over to Brian Campbell. Please continue, sir.

Thank you, John. I'd like to thank the participants for their questions and to add that we are pleased with the company's performance during fiscal 2026. We saw record sales of $515.8 million, including $240.7 million in software and services revenue, solid gross margins of 59.3% for the year, which together with Evertz's disciplined expense management, yielded earnings per share of $0.85. We are entering into fiscal 2027 with significant momentum fueled by over $33 million of shipments in May with a combined purchase order backlog plus shipments totaling in excess of $270 million by the continued operator adoption of and successful large-scale deployments of Evertz's IP-based software-defined video networking and cloud solutions by the largest broadcast, new media service providers and enterprises in the industry, by the continuing success of DreamCatcher, Bravo and our state-of-the-art IP replay suite, and we're very encouraged by the opportunities in the government, defense and aerospace sector. With Evertz's significant investments in software-defined IP, IT and cloud technologies, the over 600 industry-leading SDN deployments and our capabilities of the staff, Evertz is poised to build upon our leadership position in the sector. Thank you, and good night.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.