Evertz Technologies (TSX:ET) Q1 2027 Earnings Call

0:00 Ladies and gentlemen, and welcome to eBirds Q1 at Fiscal 2027 Investor Call. At this time, online turn and listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Monday, September 14, 2026. I would now like to turn the conference over to Brian Campbell. Please go ahead.

0:28 Good afternoon, everyone, and welcome to eREITs Technologies conference call for our fiscal 2027 first quarter ended July 31st, 2026 with Doug Moore, eREITs Chief Financial Officer, and myself, Brian Campbell. Please note that our financial press release and MD&A will be available on CDAR 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 Ebert's results, I'll begin by providing a few highlights and then Doug will provide additional detail. First off, the sales for the first quarter totaled $118.3 million, up 5.5%, including $58.9 million in software and services revenue, which represents 49.8% of the total revenue.

1:26 International revenue in the quarter was $38.3 million, up $4.6 million, or 17.5% from the prior year. Our sales base is well diversified, with the top 10 customers accounting for approximately 49% of sales during the quarter, with no one customer accounting for more than 10% of sales. In fact, we had 87 customer orders of over $200,000. The gross margin in the quarter was $69.3 million or 58.6% down from 61.4% in the prior year.

2:15 Net earnings were $8 million resulting in fully diluted earnings per share of $0.10 for the quarter. Investment in Research and Development totaled $38.5 million. Evert's working capital was $131.4 million, including cash of $2.5 million as of July 31, 2026. At the end of August, Evert's purchase order backlog was more than $259 million, and shipments during the month of August were $30 million. We attribute this 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 Uber'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.

3:41 Today, Evertz Board of Directors declared a regular quarterly dividend of 20.5 cents per share payable on or about October 1st. I'll now hand over to Doug Moore, Evers Chief Financial Officer, to cover our results in greater detail.

3:56 All right. Thanks, Brian. Hey, good afternoon, everyone. Starting with revenue, after a slower start in May of 2026, sales were up just over 5% to $118.3 million in the first quarter of fiscal 2027, compared to the $112 million in the first quarter of fiscal 2026. Hardware revenue declines slightly quarter over quarter from $60.5 million to $59.3 million, while software and services revenue increased 14% from $51.6 million to $58.9 million in the current quarter. Revenue from software and services represented approximately 50% of the total revenue in the quarter.

4:44 Looking regionally, quarterly revenues in the U.S.-Canadian region were $79.9 million, compared to $79.5 million in the prior year. While quarterly revenues in the international region were $38.3 million, an increase of $4.6 million or 17% compared to $32.7 million in the prior year. The international segment represented 32% of the total sales in the quarter. Gross margin for the quarter was $58.6 million. That's compared to $61.4 million in the prior year, and this quarter was within our target range. have all down year over year. The gross margin, as I said, was within a target range. While our software and services revenue represented almost 50% of revenue, I'll note there was an increase in international revenue that counterbalanced that a bit.

5:35 It's also worth noting that at this time, we aren't being materially impacted by additional tariff costs. Turning to selling and mint expenses, S&A was $19.9 million in the first quarter. That's an increase of $0.9 million from the same period last year. And selling and amending expenses as a percentage of revenue for approximately 16.8% compared to 16.9% for the same period last year. Year-over-year, increase in S&A expenses included around $300,000 in additional trade show and travel costs as we've attended more trade shows in the quarter or year-over-year, particularly within the government and military sector. Sequentially, S&A is down about $0.8 million from Q4. That's just as a reminder, the largest driver there is the non-reoccurrence of NAV that happened in April of the prior year. Research and development expenses were $38.5 million in the first quarter.

6:30 That represented a $1.5 million increase over the same period last year. As a percentage of revenue, R&D expenses were 32.5% compared to 33% in the prior year. The increase in R&D expenses was driven by salaries of around $700,000 and also some patent related professional fees for around $300,000. Investment tax credits for the quarter were $3.7 million as compared to credits of $3.3 million the prior year. And stock compensation expense, while it's up less than $100,000 sequentially to $2.4 million, but it's up $1.3 million year over year. That increase year-over-year is driven by the equity-based RSU and share options we issued in December of 2025 that are being recognized over the vesting period since issuance.

7:20 Foreign exchange for the first quarter was a loss of $500,000 as compared to a foreign exchange gain of $0.7 million in the first quarter last year. Now turning to liquidity of the company, cash ahead of bank indebtedness as of July 31st, 2026 was $2.5 million. That's a large decline compared to cash of $19.1 million as of April 30th, 2026. And that decrease is mostly driven by a sharp increase in raw materials inventory that we ended up bringing in during the quarter. Working capital was $215.1 million as of July 31st, 2026, compared to $200.2 million at the end of April 30th, 2026. Looking at cash flows for the quarter. The company generated cash from operations of $0.8 million, which is net of a $16 million negative change in non-cash working capital and current taxes.

8:10 If the effects of the change in non-cash working capital and current taxes were excluded from the calculation, the company generated $16.8 million in cash from operations during the quarter, compared to $16.8 million in the first quarter of fiscal 2026. As noted, the use of cash was driven by a large increase in raw materials inventory We brought in approximately $20 million of raw materials in the quarter, largely consisting of memory, storage, and servers, driven by some of the supply chain increased lead times. The company used cash of $2.1 million for investing activities. That was principally driven by the acquisition of capital assets of $1.8 million and business acquisitions of $0.3 million. During the quarter, we acquired a small AV integrator in the Ottawa region.

9:00 The company used cash in financing activities of $16.8 million, which was principally driven by dividends paid of $15.5 million. Finally, looking at our share capital position as of July 31st, shares outstanding were approximately $75.7 million, and options and share-based RSUs outstanding were approximately $4 million. Weighted average shares outstanding were $75.6 million, and weighted average fully diluted shares were $77.6 million. for the period ending July 31st. That concludes the review of our financial results and position for the first quarter. 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. Brian, back to you.

9:52 Thank you, Doug. Louie, we're now ready to open the call to questions. Thank you, and ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your cell phone keypad. To withdraw your question, please press the star followed by the number two. With that, our first question comes from the line of Tanis Moustrapoulos with BMO Capital Markets. Please go ahead.

10:19 Hi, good afternoon. From a supply chain perspective, you mentioned greater investment in inventory for some of the components. Are you able to manage supply constraints or is it having any impact in terms of delayed orders or shipments or anything like that? And also, have you been able to pass through the pricing increases on the component costs or how is that dynamic influencing your margins? Thanks.

10:49 Yeah, sure. So I'll address that. So on the supply chain, that's really, you know, it's chewed up a big chunk of our cash as the lead times are being pushed there watching with this AI demand. During the quarter, we would have had some delays in server receipts and that, but as of today, we're not impacted by, like we're not having part shortages or any kind of constraints in that regard. It's just really it's taken... Like I said, we built up a lot of stock in memory and storage servers just to make sure we can deliver when we need to. And that's taken a lot of our cash out. On the cost side, so that's not a straightforward answer, I guess I would say.

11:35 It's a case-by-case basis on how you pass on a cost. It's not a direct... direct line, but it's not affecting our margins at the moment. We're still within our target range. We're getting healthy margins, and we don't forecast a decrease this time.

11:54 And on tariffs, you mentioned no real impact to date. You've still got to remain the case. Is that a function of just being able to migrate your manufacturing to U.S. operations, or is it that there isn't a lot within your scope that's impacted by the new U.S. tariffs?

12:16 The scope is a big factor. So there's multiple different methods we can build in the States, as you know. We can shift things around. But it's really not materially impacting us.

12:32 And then finally, any estate in terms of your opportunity within government and defense and how the pipeline there has been progressing over the past quarter?

12:44 On the sales side, I could say it's lumpy in general, and the quarter is between 5% to 6% of revenue. Brian wants to add more color, but we did have some strong order intake in August from government sales, but I can't specifically quantify it, but I don't know if there's additional color you want to add, Brian.

13:07 I would reiterate the strong order intake, and we've been very active on both domestically in Canada trying to increase our presence and position being a made in Canada solution not just a Canadian goods for classification purposes but we're with our campus in Burlington our manufacturing operations and are over 600 engineers and staff domiciled in Canada. We feel that we've got a very compelling solution to provide to Canadian government. And historically, we have had a very good position within the U.S. government and defense community and at times NATO as well.

14:11 All right, I'll pass on. Thank you. and your next question comes from the line of Paul Treiber with RBC Capital Markets. Please go ahead.

14:23 Well, thanks and good afternoon. Just a question just on the backlog. Sequentially, there's quite a large rise there. Was there concentrated in a few large contracts or was it fairly broad-based? And what's the underlying demand trend that you're seeing in regards to the backlog?

14:44 I can comment on the... on the backlog composition. So it's a pretty relatively broad-based increase. There's no specific contracts material of press loosing on their own, but there is some contracts in the 5 to 10 million size, but that's not totally typical. So it's a bit relatively broad-based.

15:12 And sorry, there was a second part there.

15:18 Just on the breadth which you've discussed, shipping to revenue with international being much stronger than U.S., what was driving international in the quarter? And conversely, in terms of the U.S. and North America, were there any factors that were potentially weighing on demand that you haven't seen in previous quarters?

15:49 We are very project-centric, so there were a few projects that were completed internationally. In particular, we had a few in Europe. That's just the lumpiness of the nature. As it relates to Canadian and U.S. demand, there's no specific factors to drive an offsetting decrease or anything like that. It's just really more the lumpiness of where the projects occurred.

16:18 Okay, and then just lastly, just with more and more of your software incorporating some AI features, how are you looking to manage AI-related costs that get embedded into software? Do you anticipate lower margins on products with AI, or is it relatively negligible?

16:43 Yeah, I think it's relatively negligible. We don't... I'd change, I guess, the margin profile, whether they're AI-embedded or not. Yeah, that's probably the best way to answer that.

16:58 Okay, thank you. I'll buy fine. All right, thank you. And your next question comes from the line of Robert Carroll with ConocoGenuity.

17:14 First question for me would be on the quarter-over-quarter question. and the software and services line. I think last year it was the same type of dip quarter per quarter. So is there some seasonality there to understand? Or I understand it's up year over year, but what would be the driver of the quarterly, the sequential drop?

17:38 The only really seasonality we would have in the sense of software and services is more towards Q3 when there's a lot of annual license renewals for... calendar year ends but even then certain customers are over various periods. Some of that's just driven by volumes so it's not so much a seasonality as it is a volume driven I guess but yeah there's no real other than like I said other than the annual renewals or licenses and there's nothing specific to point to for seasonality.

18:10 Okay and then what was the driver of the year-over-year growth then in software and services?

18:18 Sure, so it's project-based. So there's a few projects that would have been completed. So there's a general baseline if you look at our MDA last eight quarters where there's a general baseline, I'll call it. But there is, as projects get completed, sign-offs like SATs, sign-offs, acceptances, then basically they get recognized into revenue. So if, for example, there's a, you know, A project in Europe that got signed off. It would go to revenue, international revenue.

18:51 Right. And then, so over the last eight quarters, as you know, the data in the MDA shows that you have a steadily increasing mix of software. And maybe you just talk at a high level what the growth in that, you know, the percentage of revenue coming from software as a service, what's the driver of that?

19:14 That is a long-term trend of our business model, having more hardware-centric, of course, but having software solutions that used to be solely hardware. Now there's software solutions. We have more service-level agreements than we had in the past. It's just the long-term trend we've had in our business model.

19:41 And then the previous question about the growth and the backlog, first time I've seen that, is the software and services line the driver behind that? Is it long-duration programs?

19:54 It's actually, the current increase, the 9%, is actually hardware. It's more hardware-driven than it is actually software. So there's hardware contracts came in. Everything's kind of mixed, but they're hardware-centric, is what I would say. so there's some of those contracts that we brought in were also government related so which generally are more hardware centric.

20:22 Okay and then last question for me just to push you a little harder on this mitigation of tariffs in the past you've said that you were protected under the NAFTA or CUSMA and it seems as though that's no longer a protection and so I'm curious, if you just get into maybe a little more detail around how you're mitigating, are you able to service all of your U.S. demand out of your U.S. manufacturing? And I guess I was kind of anticipating a higher level of U.S. revenue crowding in in front of this increase in tariffs, which we didn't see. And so I'm just trying to get a better understanding of how you're mitigating and why there wasn't any Early Vine to avoid it.

21:16 So we're not, you know, the U.S. office is largely, you know, not everything's being produced out of there, but it's more government-related projects, we'll say, is the focus. The majority of our products are currently being protected by the USMCA. The The various codes that have been applied to products and the majority of our stuff is not being impacted at the moment. It's a volatile situation, but at the moment it's not.

21:52 Okay, so is that your assessment or is that an assessment of the, like if you've not been assessed tariffs to date on, and it's because the codes related to the way you file don't line up with the codes provided in the... It's not that we're not...

22:10 Sorry, it's not that there's no impact with tariffs. There's been some marginal cost over the past year or so, right? But, I mean, the majority of our stuff is not being, does not affect with tariffs.

22:23 And that's having no real expected impact on your margin structure or how to headwind the growth in the U.S. market?

22:33 Not materially, no.

22:35 Okay, thank you. I'll pass the line. Thank you and I'm sure no further questions at this time. I would like to start with Dr. Brian Campbell for closing remarks.

22:49 Thank you. I'd like to thank the participants for their questions and to add that we are pleased with the company's performance during Q1 of fiscal 2027. We saw sales rise 5.5% to $118.3 million including $58.9 million in Software and Services Revenue, solid gross margins of 58.6% for the quarter, along with continued investments in R&D, which totaled $38.5 million in the quarter. We closed the first quarter of Ebert's fiscal 2027 with significant momentum fueled by a combined purchase order backlog plus August shipments totaling in excess of $289 million, by the growing adoption and successful large-scale deployments of Ebert's IP-based software-defined video networking and cloud solutions by some of the largest new media and broadcast players in the industry and with government defense and enterprise.

23:56 And by the continuing success of our Dreamcatcher Bravo state-of-the-art IP-based replay and production suite with Ebert's significant investments in software-defined IP IT and Cloud Technologies, the over 600 industry-leading IP, SDN deployments and the capabilities of our staff, Evertz is poised to build upon our leadership position. Thank you and we look forward to having many of you join us on Wednesday, the 7th of October at our annual general meeting. Good night. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining me now. Disconnect.