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. If at any time during this call you require immediate assistance, please press star zero for the operator. I would now like to turn the conference over to Mr. Brian Campbell, Executive Vice President of Business Development. Thank you. Please go ahead.
Thank you, Ina. Good afternoon, everyone, and welcome to Evertz Technologies Conference Call for our fiscal 2024 fourth quarter ended April 30, 2024, 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 details. First off, I'm pleased to report sales for the fiscal year totaled CAD 514.6 million, an increase of 13% or CAD 60 million from the prior year. Revenue from the recurring software services and other software segment was CAD 188.9 million, representing 37% of total revenue in the year.
International revenues increased 50% in 2024, reaching CAD 176.6 million. Earnings from operations totaled over CAD 100 million. Net earnings increased 10% to CAD 71 million, resulting in fully diluted earnings per share of CAD 0.91 for the year versus CAD 0.84 for the prior year. Investments in research and development totaled CAD 134.8 million, up from CAD 117.1 million in the prior year. Year-over-year, our cash position strengthened, closing 2024 with CAD 86.3 million in cash and cash equivalents, compared to CAD 6.6 million in 2023, net of bank indebtedness. Turning to the fourth quarter results, sales for the fourth quarter totaled CAD 122.8 million.
Gross margin in the quarter was CAD 72.7 million, or 59.2%, up from 58.9% in the third quarter. Investments in research and development during the quarter totaled CAD 36.7 million, and net earnings for the fourth quarter were CAD 13.9 million, while fully diluted earnings per share were CAD 0.18. Evertz's working capital was CAD 201.7 million as at April 30, 2024, up CAD 30.2 million from April 2023. At the end of May, Evertz's purchase order backlog was more than CAD 295 million, and shipments during the month of May were CAD 32 million.
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 4K 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 fourth quarter accounting for approximately 37% of sales, with no single customer over 6%. In fact, we had 113 customer orders over CAD 200,000 in the quarter.
Today, Evertz Board of Directors declared a regular quarterly dividend of CAD 0.195 per share, payable on or about July tenth. I will now hand over to Doug Moore, Evertz Chief Financial Officer, to cover our results in greater detail.
Thank you, Brian, and good afternoon, everyone. Looking at revenues, sales in the quarter were CAD 122.8 million in fiscal 2024 Q4. That's compared to CAD 128.9 million in the fourth quarter of fiscal 2023. For the year ended April thirtieth, 2024, sales were CAD 514.6 million, compared to CAD 454.6 million in the same period last year. This represents an increase of CAD 60 million or 13%. For our year-end results, we've also split out revenue hardware from combined software and service revenue. So further, hardware revenue in the year was CAD 325.7 million, and combined software service revenue was CAD 188.9 million.
This compares to CAD 281.2 million in hardware revenue and CAD 173.4 million in combined software service revenue in the prior year end, April 30, 2023. Looking at regional revenue, quarterly revenues in the U.S.-Canadian region were CAD 96.5 million, compared to CAD 98.9 million the prior year, while quarterly revenues in the international region were CAD 26.2 million, compared to CAD 30 million in the prior year. International segment represented 21% of total sales in the quarter, compared to 23% the same period last year. For the year ended April 30, 2024, sales in the U.S.-Canadian region were CAD 338 million, with a slight increase compared to CAD 337.1 million in the prior twelve-month period.
For the year ended, sales in the international region were CAD 176.6 million. That's compared to CAD 117.5 million in the same period last year, and represents an increase of CAD 59.1 million or 50%. Gross margin for the fourth quarter 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. Turning to selling and administrative expenses. S&A was CAD 20.1 million in the fourth quarter, an increase of CAD 2.6 million from 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 CAD 72.3 million for the twelve months ending April 30, 2024, an increase of CAD 10.7 million from the same period last year. Selling and admin expenses as a percentage of revenue were approximately 14.1% for the twelve-month period, as compared to 13.5% for the same period last year. Research and development expenses were CAD 36.7 million for the fourth quarter, which represents a CAD 6.8 million increase over the same period last year and includes CAD 4.1 million in increased salary costs. Further, there were CAD 1.4 million in temporary elevated R&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 CAD 4.1 million, compared to credits of CAD 3.5 million at prior year fourth quarter. For the year ended April thirtieth, R&D expenses were CAD 134.8 million, which represents an increase of CAD 17.7 million over the prior year and includes CAD 14.4 million in increased salary costs. R&D expenses were approximately 26.2% of revenue over the year, compared to 25.7% in 2023. The foreign exchange for the fourth quarter was a gain of CAD 2.1 million. Part of the gain was predominantly a result of the increase in value of the U.S. dollar against the Canadian dollar between January thirty-first, 2024, and April thirtieth, 2024. Foreign exchange for the twelve months, year ended April thirtieth, was a gain of CAD 0.2 million.
That's compared to a gain of CAD 2 million in the same period last year. Turning to discussion on the liquidity of the company, cash as at April 30, 2024, was CAD 86.3 million. That's compared to cash of CAD 12.5 million as of April 30, 2023. Working capital was CAD 201.4 million, as at April 30, 2024, compared to CAD 171.4 million at the end of April 30, 2023. Looking at cash flows for the quarter ended April 30, the company generated cash from operations of CAD 34.2 million, which is net of a CAD 14.6 million change in non-cash working capital and current taxes.
If the effects of the change in non-cash, non-cash working capital and current taxes are excluded from the calculation, the company generated CAD 19.6 million in cash from operations during the quarter. The company used cash CAD 3.4 million for investing activities in the quarter, which was principally driven by the acquisition of capital assets. The company used cash and financing activities of CAD 15 million, which was principally driven by dividends paid of CAD 14.9 million. I'm now looking at cash flows for the twelve-month period ended April thirtieth. The company generated cash from operations of CAD 144.7 million, which is net of a CAD 49.3 million change in non-cash working capital and current taxes. Those effects were excluded from the calculation. The company generated CAD 95.4 million in cash from operations during the year.
The company used CAD 2.3 million of cash for investing activities, which was principally driven by the acquisition of capital assets of CAD 9.6 million, and partially offset by the disposal investments during the year. The company used cash in financing activities of CAD 70.2 million, which was principally driven by dividends paid of CAD 58.6 million. Finally, reviewing our share capital position as at April 30, 2024, shares outstanding were approximately 76.1 million, and options and share-based RSU outstanding were approximately 5.4 million. Weighted average shares outstanding were 76.1 million, and weighted average fully diluted shares were 77 million for the year ended April 30, 2024. That concludes the review of our financial results and position for the fourth 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 in the official reports filed with the Canadian Securities Commission. Now, Brian, back to yourself.
Thank you, Doug. Ina, we're now ready to open the call to questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star four followed by the one on your telephone keypad. You will hear a prompt that your hand has been raised, and should you wish to cancel your request, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Please go ahead.
... Hi, good afternoon. Revenue was a bit lighter this quarter than we've seen in recent quarters. So just curious to get 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?
Thanos, I would say it's primarily because of project timing.
Okay. Um-
So and-
Maybe just. Yeah.
Our order backlog is very strong. You've seen that it's modestly, you know, up at CAD 295 million at the end of May. So it remains very robust.
Okay, so from your perspective, I mean, we've heard a lot of other companies talk about, you know, tougher spending environments, but from your perspective, you're not seeing that; it's more reflective of, you know, the quarterly volatility in order flow, which is, I mean, we've seen that in your business before and implementation cycle and so forth, right?
Those are two different questions. The revenue-
No, fair enough. Yeah.
Is-
Yeah.
primarily, because of, project timing and, 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, you know, build. So we have an extremely robust, purchase order backlog of CAD 295 million, plus then CAD 32 million of shipments, in this quarter, is, you know, very strong.
Okay. You provide the new disclosure on the software and services revenue, so that's very helpful. Thank you for that. Is that a metric you'll be providing on a quarterly basis, or is that—will that be an annual metric?
We will provide this on a quarterly basis going forward.
Yeah. And over the past year, hardware growth actually was higher than software growth. So just in terms of the dynamic there, might that just be a function of, as activity picked up over the past year, some, you know, new projects were implemented, which have a big upfront hardware component, but then, you know, a recurring software component? I mean, just curious if you have any thoughts in terms of the relative growth over the past year.
You're correct. Right. So we've done very well-
Yeah
... with the hardware, with our hardware sales and also with the recurring software, and that is, you know, totaling 37%. That's a very significant percentage of our revenue base, and we're quite proud of that, and it is building. But again, and we're also very proud of the hardware sales as well, too.
Okay. On the R&D spend, just to clarify, the CAD 1.4 million in temporary costs, does that go away in Q1, or will there be some other elevated costs in Q1?
So some of those costs will continue through to Q1. Expect to see that would trail off after, like I said, the summer, so into Q2, it'll 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 to CAD 800,000 too, and that can have a bit of volatility to it. But the temporary costs should start trailing off, but they will have some component in Q1.
Okay. The CAD 800 thousand includes some materials and supplies. That's sort of typical. We often see that in your Q4. Is there some of that?
There's... Yeah. I mean, there's some volatility there, and Q4 often has a bit of an uptick in materials and supplies.
Okay.
The CAD 800,000 is actual increase.
Okay. Last one for me. Anything else you would call out from an OpEx perspective besides the R&D line we should think about heading into Q1?
Yeah, I mean, the other big one is in S&A. We sequentially, again, travel and trade show costs went up CAD 1.7 million, the biggest driver being NAB Q4.
Right.
Okay, I think to call it.
Okay, I'll pass the line. Thanks.
Thank you. Your next question comes from the line of Robert Young from Canaccord Genuity. Please go ahead.
Hi, good evening. You might have defined this somewhere in your disclosures, but I can you give a 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 maybe how much of that is software that's embedded into hardware? How much of that would be software that's sold separately? How much is software in the cloud? Any, you know, broader description, what exactly that is, would be helpful.
Sure. What the software and services would include. So it would include, starting with the service component, which is more straightforward, the, you know, warranty, commissioning, what else? You know, 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 the hardware, but issued as software, like a license key. Provide some clarity?
Okay. Would it be fair to say that that's revenue that's not tied directly to hardware?
A license, like certain components of it, could be used on hardware, but not necessary. So you could buy the hardware without it, I guess, would
... Mm-hmm. So maybe, maybe the broader question is, what's the new information you're trying to provide investors with this disclosure?
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 in with hardware. Now, hardware shows physical hardware, so a physical good. So, a serial number on it, I don't want to describe it, but-
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.
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?
No. No hardware embedded in the software and services.
Okay. Second question for me, just beyond the cash balance growing, continues to grow despite, you know, the higher level of OpEx this quarter, strong cash from operations. Maybe give us a sense of what you have planned for that cash.
Well, the driver and the cash increase, I mean, there's a couple things there. There is the increase in deferred revenue, so that has brought up cash substantially in the year. Further errors are down, which has a positive effect on cash flow. As for the use, we have announced another regular quarterly dividend, and beyond that, we have significant flexibility.
Okay. 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?
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' very strong operational cash flow generation, you know, capabilities over the long term and are confident in it. And that has been reflected in, you know, increasing quarterly dividends over the last years. Again, too, that is a, you know, board decision, but they're well aware of the significant cash buildup.
Okay. Last question for me. I think we're past the anniversary of that large CAD 152 million cloud software deal, but there was some, 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, would maybe expand on that significant order comment, and then I'll pass on.
So, with respect to the CAD 152 million cloud software and services order over 5 years, so that, you know, is exactly what it says. There is a potential and, you know, are other revenues, outside of that, purchase order, hardware related, specifically, you know, you know, with that customer. So I'm not sure, what else, you're looking for.
Oh, so ... Yeah, so the increase in the backlog, was that driven by larger deals? Maybe just talk about, are there other large deals of that sort of size, the CAD 152 million multi-year deal? Even just talk about the pipeline.
Um, there-
Large deals. Were there large deals this quarter?
There have been significant purchase orders and deals, you know, occur. Nothing that we've press released outside of the CAD 25 million 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. So, a very high-end solution for an international customer.
Okay. Thank you very much.
Thank you. There are no further questions at this time. I will now hand the call back to Mr. Brian Campbell for closing remarks.
Thank you, Ina. I'd like to thank our participants for the questions and to add that we are very pleased with the company's strong performance during fiscal 2024, which saw sales increase 13% year-over-year, crossing the CAD 500 million threshold to reach a record high of CAD 514.6 million. Strong gross margins of 58.8% for the year, delivering over CAD 100 million in earnings from operations, all while investing CAD 139 million in R&D to build and sustain future growth. We closed the fourth quarter of Evertz fiscal 2024 with significant momentum, fueled by the combined purchase order backlog, plus May shipments totaling in excess of CAD 327 million dollars.
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 DreamCatcher 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. Thank you, everyone, and good night.
Thank you. This concludes today's call. Thank you for participating. You may all disconnect.