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 fiscal 2025 second quarter, ended October 31, 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, sales for the second quarter totaled CAD 125.3 million, up 12.2% sequentially from the prior quarter, and revenue in the U.S. and Canada region was CAD 94.9 million, up 28.2% sequentially. Recurring software services and other software revenue increased 23.7% year over year, totaling CAD 54.8 million in the quarter.
Our base is well diversified, with the top 10 customers accounting for approximately 45% of sales during the quarter, with no single customer accounting for over 16% of sales. In fact, we had 134 customer orders of over 200,000 in the quarter. Gross margin in the quarter was CAD 74.3 million, or 59.3%, which is within our target range. Investments in research and development during the quarter totaled CAD 36.3 million. Net earnings for the second quarter were CAD 15.9 million, while fully diluted earnings per share were CAD 0.21. Evertz's working capital was CAD 199.8 million, with cash of CAD 61.7 million as of October 31, 2024. Operational highlights for the quarter include Evertz's stellar presence at the International Broadcasting Convention, where Evertz's RF over IP platform was recognized with a TVBEurope Best of Show Award, and Evertz's DreamCatcher Bravo Studio won a TV Technology Best of Show Award.
DreamCatcher's advanced data-driven copilots provide the ability to automatically create clips, playlists, and stories using AI with large language models and deep machine learning technology, making live productions even more creative and efficient. At the end of November 2024, Evertz's purchase order backlog was in excess of CAD 298 million, and shipments during the month were CAD 50 million. We attribute this 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, anytime, the ongoing technical transition to IP, IT, and cloud-based architectures in the industry, and specifically to the growing adoption of Evertz's IP-based software-defined video network solutions. Evertz's 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's board of directors declared a regular quarterly dividend increase to CAD 0.20 per share, payable on or about December 24. I will now hand it over to Doug Moore, Evertz's Chief Financial Officer, to cover our results in greater detail.
Thank you, Brian. Good afternoon. Looking at sales revenues, we're CAD 125.3 million in the second quarter of fiscal 2025, compared to CAD 130.7 million in the second quarter of fiscal 2024. That's a decline of CAD 5.4 million, or 4% quarter over quarter. For the six months ended October 31, revenue was CAD 236.9 million, compared to CAD 256.6 million in the same period last year. That represents a decline of CAD 19.7 million, or 7.7%. As it relates to revenues in specific regions, the U.S. and Canadian region had revenue for the quarter of CAD 94.8 million, compared to CAD 74 million last year. That represents an increase of CAD 20.8 million, or 28% quarter over quarter. Revenues in the U.S. and Canadian region were CAD 168.8 million for the six months ended October 31, 2024, compared to CAD 161 million in the same period last year, an increase of CAD 7.8 million, or 5%.
The international region had revenues for the quarter of CAD 30.4 million, compared to CAD 56.7 million last year. That's a decrease of CAD 26.3 million, quarter over quarter, or 46%. The international region represented 24% of total sales this quarter. For the six months ended October 31, international revenue was CAD 68.1 million, compared to CAD 95.5 million in the same period last year, a decline of CAD 27.4 million, or 29%. Gross margin for the second quarter was approximately 59.3%, compared to 59.7% in the prior year quarter, and for the six months ended October 31, gross margin was approximately 59.3%. Both the quarterly and year-to-date margins are within our target range. Looking at selling and administrative expenses, S&A was CAD 18.4 million in the second quarter, an increase of CAD 0.9 million from the same period last year.
And selling and admin expenses, as a percentage of revenue, were approximately 14.7%, as compared to 13.4% for the same period last year. For the six months ended October 31, selling and administrative expenses were CAD 36 million, an increase of CAD 2.1 million from the same period last year. And selling and admin expenses, as a % of revenue, were approximately 15.2% over the period. Research and development expenses were CAD 36.3 million for the second quarter, which represents a CAD 4.1 million increase from CAD 32.2 million in the second quarter last year. The increase includes CAD 1.9 million in increased salary and benefit costs and CAD 0.6 million in specialized service costs. Just to provide a bit more color on the specialized service costs, that relates to the modernization of certain IP and code that we purchased from Harman a couple of years ago.
That project is now substantially completed from an external cost perspective. As a percentage of revenue, R&D expenses were 29%. That's compared to 24.6% in the prior year. For the six months ended October 31, research and development expenses were CAD 73.7 million, represents an increase of CAD 9.5 million over the same period last year, and research and development expenses, as a percentage of revenue, were approximately 31.1% over the period, compared to 25% for the same period last year. Foreign exchange for the second quarter was a gain of CAD 0.8 million. That's compared to a CAD 2.9 million gain in the same period last year. The relatively nominal gain this quarter is driven by a slightly stronger U.S. to Canadian dollar between July 31, excuse me, which we closed at approximately 1.38 to 1, and October 31, which we closed at approximately CAD 1.3 to U.S. dollars.
Foreign exchange for the six months ended October 31 was a gain of CAD 0.8 million. That's compared to a gain of CAD 0.9 million in the same period last year. Looking at the liquidity of the company, cash as of October 31 was CAD 61.7 million. That's compared to net cash of CAD 86.3 million as of April 30, 2024. And working capital was CAD 199.8 million as of October 31, compared to CAD 201.4 million at the end of April 30, 2024. Now, looking at cash flows, the company used cash from operations of CAD 9.6 million. That is net of a CAD 31.5 million change in non-cash working capital and current taxes. And that includes a quarterly decrease in accounts payable of CAD 21.8 million and a decrease in deferred revenue of CAD 7.4 million.
If the effects of the change in non-cash working capital and current taxes were excluded from the calculation, the company generated CAD 21.8 million in cash from operations during the quarter. Looking at investing activities, the company used cash of CAD 1.4 million, which was predominantly driven by the acquisition of capital assets. The company used cash in financing activities of CAD 18.7 million, which was principally driven by dividends paid of CAD 14.8 million. The purchase of capital stock under our NCIB for CAD 1.8 million subsequent to the quarter. That NCIB has since expired, but we did renew for a new NCIB effective November 27. Finally, looking at our share capital position as of October 31, 2024, shares outstanding were approximately 76 million, and options and equity-based restricted units outstanding were approximately 5.5 million.
The weighted average of shares outstanding were 76 million, and weighted average fully diluted shares was 76.8 million for the quarter ended October 31. That brings us to the conclusion of the review of our financial results and position for the second 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 and official reports filed with the Canadian Securities Administrators. Brian, back to yourself.
Thank you, Doug. John, 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 touch-tone 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're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Your line is now open.
Hi, good afternoon. There's a significant discrepancy in the growth rate between the North American region and international. I'm fully aware that you have a project-based business, and you can have some quarterly lumpiness, but, just, is there anything else to call out in terms of the difference in growth rates between the regions?
One thing I could note is in Q2 last year, we did have a large project for approximately CAD 15 million in revenue that related to something we had press released about a year and a half ago. There was a bit of a large spike in Q2, Q3, some of that related to that project. That's one thing to call out when looking at year-over-year comparables.
That's helpful. Brian, anything that you would say more generally in terms of the spending environment as status quo, or are you seeing any significant difference versus, say, the prior quarter in that regard?
So internationally, as Doug said, it's more project-related. However, we are seeing very robust quotations and purchase orders in our North American region.
Okay. And if we look at the November shipments, and I mean, just kind of comparing it to last year, is the implication that revenue for the upcoming quarter should be likely to be up sequentially from what we saw in Q2?
We are starting with a very strong first-month shipments, the November shipments, that equals the highest that we've had in a disclosure period for monthly shipments. So we've got a very good Q3 start, and we're sitting on a very solid backlog at CAD 298 million. That's, again, true, so the combination of backlog and shipments is very solid.
Okay. From an OpEx perspective, anything you'd call out as we think about the near-term trajectory, I mean, aside for the CAD 0.6 million related to the Harman costs you called out?
Yeah. So I mean, just looking sequentially, I mean, this quarter we did have IBC, as Brian mentioned. We attended there. So if comparing Q1 and Q2, we're up around CAD 0.8 million. I mean, the largest increase being CAD 7,800,000 in trade show and promotion costs, which is largely attributed to IBC, frankly. So that's one thing to call out. Obviously, we still have trade shows in that in Q3, but that is a bit of a spike on the NA side. On the R&D side, we're actually down a bit sequentially. So we're down just around CAD 1.1 million. About CAD 500,000 of that relates to Q1. We have a lot of summer co-ops that join that didn't occur in Q2, and that wouldn't increase in Q3, but would reoccur in a future year. That, and yeah.
So, other than that kind of special project, we're working on some modernization of IP being done. Yeah, that's all I have to call out really.
Okay. And finally, the software and services revenue, obviously, had some very good growth year over year. I mean, I guess longer term, we should expect that trajectory, I think, to continue as far as becoming a bigger part of the mix. But just if we think about sort of the next couple of quarters, would you also expect a similar dynamic with software and services becoming a higher component, or as you look at your backlog, is there also a strong hardware opportunity that you're seeing as well in the backlog and pipeline?
We do continue to see strong hardware in the backlog and pipeline. It's a significant component, but definitely, the recurring software services component of the business is one that we're emphasizing and have been growing pretty significantly in the last years, so that trend of us emphasizing recurring software and services and other software is an ongoing push.
Brian, I'll pass the line. Thank you.
Your next question comes from the line of Robert Young from Canaccord Genuity. Your line is now open.
Robert?
Robert Young, your line is now open.
Sorry, I was on mute. I think you said in the prepared comments that deferred revenue was down. I'm not sure if that's quarter over quarter or year over year. But if you could just dig into the drivers behind that.
Sure, so it's down quarter over quarter, so since July 31, and also since April 30 year-end. If you look at the past 12-18 months, it has ramped up quite a bit, and now it's the timing of it. It's largely services and software solutions. That's the majority of it. It's been triggered by some milestones being met, so whether it's finalization of commissioning or site acceptance, or in some cases, just the amortization of cash upfront for warranties and long-term services, so that's the broad explanation.
Okay, so more related to long-term projects as opposed to something to do with recurring software or software contracts.
Sorry, those could be the same, right? So you could have a long-term software service contract. So I'm not clear on the question.
So maybe I'll ask it a different way. Would the deferred revenue, would it be down because of hardware-related or hybrid contracts, or would it be related to something to do with the software growth? Because just given the software growth, seeing the two things at the same time, trying to understand that.
Sure. So what I would say again is that the majority of deferred revenue is not all of it, but the majority of it is software or service-related. There's certain large projects in the past year, including the one we press released, that there was a lot of cash upfront for a longer term. And some of that is being amortized into revenue over time that is exceeding the cash received.
Okay. I see you raised the dividend. Is there any insights you can give into the policy or the thought process that the board goes through in making that decision? I guess it's the third year, I believe, where it's been raised annually. So is that the driver? Maybe just give a sense of where the board is thinking.
Yeah. So I guess technically, it would be the fourth year, fourth increase that we've had. But yes, the board looks at the dividend, the business outlook going forward, the strength of our balance sheet, and the increase in quarterly dividend does reflect the ongoing confidence of the board and the business prospects for our business.
Would it be fair to say that you intend to raise that dividend annually going forward, or is that going to be a decision you make every year?
That's a decision that the board makes every year, but that has been the trend.
Okay. And then the last question for me will just be around the backlog down a little bit, but just give a sense of how much do you expect that to convert over the next year? That'd be helpful. Now I'll pass the line.
Yeah. So the backlog is up sequentially. So we're quite proud of the fact that it's up another CAD 12 million in the quarter. And Doug, I believe it's 40%-45% of the backlog is greater than 12 months out. So the bulk of it is deliverable in the next 12 months. Correct.
Great. Thank you very much. I'll pass the line.
There are no further questions at this time. I will now turn the call back to Brian Campbell for closing remarks. Please continue.
Thank you, John. I'd like to thank the participants for their questions and to add that we're very pleased with the company's performance during the second quarter of fiscal 2024, which saw continued strong quarterly sales of CAD 125.3 million, solid gross margins of 59.3% in the quarter, which together with Evertz's disciplined expense management yielded quarterly earnings per share of CAD 0.21. We're entering the second half of fiscal 2025 with significant momentum fueled by a combined purchase order backlog plus November shipments totaling in excess of CAD 348 million, up CAD 12 million from the prior quarter. By the continued adoption and successful large-scale deployments of Evertz's IP-based software-defined video networking and cloud solutions by the largest broadcast new media service provider and enterprises in the industry, and by the continuing success of 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 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.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.