Good afternoon, ladies and gentlemen, and welcome to Evertz's first quarter 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 Brian Campbell, Executive Vice President of Business Development. Please go ahead.
Thank you, Constantine. Good afternoon, everyone, and welcome to Evertz Technologies conference call for our fiscal twenty twenty-five first quarter ended July thirty-first, twenty twenty-four, with Doug Moore, Evertz's 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's results, I'll begin by providing a few highlights, and then Doug will provide additional detail. First off, sales for the first quarter totaled CAD 111.6 million, including CAD 55.9 million in software and services revenue.
Our sales base is well diversified, with the top 10 customers accounting for approximately 50% of sales during the quarter, with one customer accounting for approximately 14% of sales and a second customer at 11%. In fact, we had 94 customer orders of over CAD 200,000. Gross margin in the quarter was CAD 45.4 million or 59.4%, up from 57.3% in the prior year. Net earnings were CAD 9.7 million, resulting in fully diluted earnings per share of CAD 0.13 for the quarter. Investments in research and development totaled CAD 37.3 million. Year-over-year, our cash position strengthened, closing Q1 2025, with CAD 91 million in cash and cash equivalents, compared to CAD 48.9 million a year ago, and up CAD 4.7 million in the quarter.
Evertz's working capital was CAD 197.7 million as at July 31, 2024, down CAD 3.7 million from July 2023. At the end of August, Evertz's purchase order backlog was more than CAD 302 million dollars, and shipments during the month of August were CAD 33 million dollars. The solid financial performance, including the robust purchase order backlog and shipments, continues to be driven by channel and video services proliferation, the ongoing technical transition in the industry, increasing global demand for high-quality video anywhere, anytime, and specifically by the adoption of Evertz's solutions, such as Evertz's IP-based software-defined video networking solutions, Evertz's IT and cloud-native solutions, our immersive 4K ultra-high-definition solutions, and our state-of-the-art DreamCatcher IP replay and live production with Bravo Studio, featuring the iconic Studer Audio.
Today, Evertz's board of directors declared a quarterly dividend of CAD 0.195 per share, payable on or about September seventeenth. I will now hand over to Doug Moore, Evertz's Chief Financial Officer, to cover the results in greater detail.
Thanks, Brian. Good afternoon. Starting with revenues, sales were CAD 111.6 million in the first quarter of fiscal 2025, compared to CAD 125.8 million in the first quarter of fiscal 2024. Hardware revenue declined quarter over quarter from CAD 81.4 million to CAD 55.7 million, while software services revenue increased 26% to CAD 55.9 million. Revenue from the software services portion represented approximately half of the total revenue in the quarter. Looking at regional revenue, quarterly revenues in the U.S./Canadian region were CAD 73.9 million, compared to CAD 87 million in the prior year. While quarterly revenues in the international region were CAD 37.7 million, compared to CAD 38.8 million in the prior year.
The international segment represented approximately 34% of total sales in the quarter, compared to 31% in the prior year. Gross margin for the quarter was 59.4% as compared to 57.3% in the prior year, and within our target range. Looking at selling administrative expenses, SG&A was CAD 17.6 million in the first quarter. That's an increase of CAD 1.2 million from the same period last year and represented approximately 15.8% of revenues as compared to 13% last year. Research and development expenses were thirty-seven point three million for the first quarter, which represents a CAD 5.4 million increase over the same period last year, and six hundred thousand sequentially, approximately six hundred thousand.
Year over year, the increase includes CAD 3.2 million in increased salary costs within North America and CAD 800,000 in increased salary costs internationally. ITCs for the quarter were CAD 3.8 million, compared to credits of CAD 3.4 million the prior year, first quarter last year. Foreign exchange for the first quarter was a gain of less than CAD 100,000, compared to a foreign exchange loss of CAD 2.1 million in the first quarter last year. Looking at liquidity in the company. July first, 2024 was CAD 91 million. That's compared to cash of CAD 86.4 million as of April thirtieth, 2024.
Working capital was CAD 197.7 million as at July thirty-first, 2024, compared to CAD 201.4 million at the end of April thirtieth, 2024. Looking at cash flows for the quarter ended July thirty-first, the company generated cash from operations of CAD 22.5 million, and that is net of CAD 8.9 million change in non-working capital and current taxes. The effects of the change in non-working capital and current taxes are excluded, the company generated CAD 13.6 million in cash from operations during the quarter. The company used cash of CAD 2.3 million for investing activities, which was principally driven by the acquisition of capital assets. The company used cash in financing activities of CAD 16.8 million, which was principally driven by dividends paid of CAD 14.9 million.
Finally, looking at our shares, cash, or share capital position as at July 31st, 2024. Shares outstanding were approximately 76.1 million, and options and share-based restricted shares outstanding were approximately 5.6 million. Weighted average shares outstanding were 76.1 million, and the weighted average fully diluted shares was 77.3 million for the period ended July 31st. That concludes the review of our financial results and position for the first 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 Administrators. Brian, back to yourself.
Thank you, Doug. Constantine, 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 followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speaker's phone, please make sure to lift the handset before pressing any keys. Your first question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Please go ahead.
Hi, good afternoon. Brian, I guess we recognize that you've got some quarterly volatility in your business, just given the project nature of some of the work. But that said, you know, the second consecutive quarter of revenues being down year over year, and I think looking at the shipments number, that might be the case for the upcoming quarter as well. So, can you clarify for us whether you're seeing some industry dynamics here? Is there a macro issue? Is there customer caution with respect to spending, or from your perspective, might it have more to do with just the timing of projects?
From our perspective, it does have more to do with the project timing. As you'll note, we still have a very robust order backlog and a solid shipments number, so, you know, totaling CAD 335 million, which is up roughly CAD 8 million from the prior quarter. So we're, you know, sequentially up. There is a bit of timing in this quarter. But, you know, that said, we're looking forward to going to IBC in Amsterdam over the weekend to see many of our customers and channel partners and are looking for, you know, you know, good things in our fiscal 2025.
Okay. From an OpEx perspective, anything to call out this quarter or anything we should note as we think about the upcoming quarter other than-
Sure. So, well, I guess that's one thing. So if you're looking at it sequentially, of course, we didn't have NAB, right? So, NAB traveling and entertainment costs went down in the quarter. We did do some trade shows, like some road shows, but we do have IBC in Q2. That's obviously not in Q1. From an R&D perspective, there's a couple of things I'll call out. One, in the prior quarter, I mentioned that we had some temporary, you know, elevated resource costs we incurred in Q4. There's another CAD 400,000 that's in Q1. Additionally, we do take on quite a few co-ops, actually, in the summer, from May through to the end of August.
I mean, and that plus, it's actually two or three more business days in the quarter, this quarter versus last, that equates to almost CAD 1 million. So there, there's a couple of different items to touch on that are a bit abnormal.
Okay. Software and services revenue, I appreciate the fact that we're getting the quarterly disclosure now. Just one question on that is, does there tend to be a lot of seasonality in that revenue line?
Uh-
Certainly.
So there can be a bit of seasonality depending on when license renewals happen. So if there's a fair amount that might go in December and January, but I don't know, that's an extremely significant thing to call out. I mean, there is some milestones that still occur. So in this quarter, in particular, there was, I know, a project that had some commissioning completed that had CAD 6 million of released deferred revenue in one project alone. So there could still be some milestones that aren't seasonal, but are just a bit fluid, depending on timing.
You will see, you will see in the MD&A two years of quarterly segment give you an idea of the, you know, volatility, but on a trailing twelve-month basis, it's averaged roughly 40%.
Okay, that's very helpful. I look forward to seeing that. Maybe finally, with respect to your markets outside of broadcast, and anything to comment there with respect to the growth and opportunities and pipeline you're seeing?
So we continue to do very well in adjacent markets. However, the press releases are somewhat sparse there, as you'll note, but that continues to be a significant part of our revenue base and backlog.
Great. I'll pass the line. Thank you.
Question comes from the line of Rob Young from Canaccord. Please go ahead.
Hi, good evening. I'll continue one of Daniel's questions on the software and services. I think it's, what, about 50% this quarter? You said it was 40% on average, and so is that weakness in hardware or is it strength in software? Software is up 26%, so I'm assuming it's strength in software. Will you give us some color on what's going on there, why it's such a high percentage?
It, Rob, it's a bit of both. So, we have, lighter hardware revenues in this quarter, but there is, you know, a nice upward trend with the, software and services. However, it is volatile quarter to quarter, as Doug noted. You know, sometimes it has to do with the timing of, milestones and licensing contracts.
Great. And I guess part of it is that CAD 6 million deferred. Is that what drives the volatility there? I guess without that, it would still be about 40%.
Sure. That's just kind of an example of. So that did happen in the quarter, but as an example. I mean, if you look at the MD&A, I think it highlights it well. It is. There is some weakness in the quarter on the hardware front, so I think that is a fair observation, that would obviously push the percentage up software.
And is it one strong program, or is it just a general, broad set of programs that are doing well in software?
That's been a broad-
One reason that's driving it?
No, that's been a broad trend.
Okay, and then... Sorry, keep going.
And so, Rob, to put it in perspective, the 40% on a trailing twelve-month basis, that's over CAD 200 million revenue in recurring software services and other software. So that's very broad-based.
Yeah. Okay. So but this quarter specifically, is it driven by one region or one customer or one program? I'm just trying to get a sense of-
No, no.
-causative awfully decent.
Sure. If I just give you figures, even up to the past three quarters. So, software service revenue in Q1 was CAD 55.9 million, in Q4 was CAD 47.7 million, and in Q3 was CAD 52.4 million. So, there's and then, you know, Q2 last year was CAD 44.3 million. So there's not a huge swing from Q4 to Q1.
Yeah.
If that helps.
Yep. And then the deferred, the CAD 6 million, I guess I'm assuming that's pure profit. So if I were to exclude that, that probably would have driven your gross margins down towards maybe below the bottom end of your range. And so curious about the margin structures, particularly given there's a lot of software in the quarter. Is that deferred? First question, is that a pure margin? And then what would the margin, gross margin look like without it?
Sure. Let me start with saying that deferred revenue does not inherently have a 100% margin.
Without that CAD 6 million, you would still have been in your gross margin range?
To be, to be blunt, I have not done that calculation.
Okay. Okay.
Um-
Yeah, the revenue milestones, you know, are part of our ongoing business. That's the nature of our financial model, delivering on software and services milestones and then recognizing the revenue. So again, too, helpful to serve the business and analyze it on a trailing twelve-month basis, takes out some of the fluctuation.
Yep, that's fair. And then, as you noted, the cash balance is growing, and I'm curious what your plans are. I believe you raised the dividend this quarter, but what do you expect to do with that growing cash balance?
We're very cognizant, and the board is aware of the growing cash balance, and we continue to have, you know, tremendous confidence in Evertz's robust business model and ability to generate cash, as we have over the years. That is, you know, a board decision to determine what is done with the cash. We regularly distribute via quarterly dividends. We also have a Normal Course Issuer Bid in place, and we're in tune with, you know, acquisition opportunities as well.
... Last question for me would be on the backlog. Sometimes you give us the percentage that's gonna convert in the next-
Yes.
Fiscal year or next twelve months, if you could rehash that.
It's approximately 45%. That's more than a year.
Okay. So 55% within the next 12 months?
Right. Correct.
Okay. Thank you. I'll pass the line.
There are no further questions at this time. I would like to turn the call over back to Brian Campbell for closing remarks. Sir, please go ahead.
I'd like to thank the participants for their questions, and to add that we are pleased with the company's performance during the quarter, which saw sales of CAD 111.6 million, including CAD 55.9 million in software and services revenue, strong gross margins of 59.4% for the year, up 57.3% in the prior year, along with continued investment in R&D, totaling CAD 37 million. We closed the first quarter of Evertz fiscal 2025 with significant momentum, fueled by a combined purchase order backlog, plus August shipments totaling in excess of CAD 335 million by the growing adoption and successful large-scale deployments of Evertz IP-based software-defined video networking and cloud-native solutions by some of the largest broadcast, new media, service provider, and enterprises in the industry.
And by the continuing success of Evertz's DreamCatcher Bravo, our state-of-the-art IP-based replay and production suite. With Evertz's significant investments in software-defined IP, IT, and cloud-native technologies, the over six hundred 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. We look forward to having many of you join us on Wednesday, the second of October, at our annual general meeting. Good night.