Good afternoon, ladies and gentlemen, and welcome to the fourth quarter Evertz conference 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. This call is being recorded on Wednesday, June 25 of 2025. I would now like to turn the conference over to Brian Campbell, Executive Vice President of Business Development. Please go ahead.
Thank you, Chloe. Good afternoon, everyone, and welcome to Evertz Technologies' conference call for our fiscal 2025 fourth quarter, ended April 30th, 2025, 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 results, I will begin by providing a few highlights, and then Doug will provide additional details. First off, for the second year in a row, annual revenues exceeded CAD 500 million coming in at CAD 501.6 million down 2.5% from the prior year. Revenues included CAD $374.4 million in the U.S.-Canada region, up 10.8% from the prior year.
Recurring software services and other software revenues increased 17.8% year over year, totaling CAD 222.6 million in the year, which represents 44.4% of the total revenue. Gross margin was CAD 298.5 million, with margin rates strengthening slightly to 59.5% on an annual basis. Net earnings were CAD 59.7 million, resulting in fully diluted earnings per share of CAD 0.77. Investment in research and development totaled CAD 146.8 million, up from CAD 134.8 million in the prior year. We continued to strengthen our cash position, closing the year with CAD 111.7 million in cash and cash equivalents, up from CAD 86.3 million in April 2024. Turning to the fourth quarter results, quarterly revenue was CAD 127.8 million, up 4.1% from the prior year.
Gross margin in the quarter was CAD 78.9 million, with margin rates strengthening to 61.7%, up 395 basis points sequentially from the third quarter of the current year and up 254 basis points from the fourth quarter of the prior year. Investment in research and development during the quarter totaled CAD 36.5 million, and net earnings for the fourth quarter were CAD 13 million, while fully diluted earnings per share were CAD 0.17. Evertz working capital was CAD 206.9 million, up CAD 5.5 million from April 2024. Operational highlights for the quarter included Evertz's stellar presence at the National Association of Broadcasters' NAB Show in Las Vegas, where Evertz's Next Seamless Multi-Frame Hybrid SDI/IP Routing Platform, with our FXLink expansion architecture, was recognized with a TVTech Best of Show Award, and we are honored to have received the TVB Europe Best of Show Award for Studer Vista in VUE.
At the end of May 2025, Evertz's purchase order backlog was in excess of CAD 259 million, and shipments during the month were CAD 26 million. We attribute the 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 Evertz's IP-based software-defined video networking 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 Studio Audio. Our sales are well-diversified, with a top 10 customers during the year accounting for approximately 44.7% of sales, with one customer of 11.8%.
In the fourth quarter, the top 10 customers accounted for approximately 55.2% of sales, with two customers of 14.4% and 10.5%, respectively, with 120 customer orders over 200,000 in the quarter. Today, Evertz's board of directors declared a quarterly dividend of CAD 0.20 per share payable on or about July 11. I'll now hand it over to Doug Moore, Evertz's Chief Financial Officer, to cover our results in greater detail.
Thanks, Brian. Good afternoon, everyone. Before I get into the financial results, I'll provide a quick update on the tariff situation as it relates to our operations. As we noted during our last quarterly call, while there was and is a fluid situation, back at that time, there was a relatively flat U.S. tariff on Canadian manufactured goods. As you likely know, on March 7th, an exemption was implemented for USMCA-compliant goods. The vast majority of goods we sell to the U.S. are indeed USMCA-compliant and thus exempt from additional tariffs. Further, Canada doesn't currently have tariffs on our significant raw materials that we purchase. Therefore, and while I repeat, there remains a fluid situation, we are not incurring significant tariff costs today nor did we in the past quarter.
Before I move on, I will also note that the majority of our U.S.-bound shipments did come from Canada this quarter, but I will highlight that we continue to increase our flexibility by further building out our manufacturing capabilities in the U.S., in particular in Pennsylvania. This is irrespective of tariffs, as we look to increase flexibility and better address U.S. government opportunities. Now, looking at the financial results, sales in particular, revenue was CAD 127.8 million in the fourth quarter of fiscal 2025, that's compared to CAD 122.8 million in the fourth quarter of fiscal 2024, an increase of CAD 5 million, or just over 4% quarter- over- quarter. For the 12 months ended April 30, 2025, revenue was CAD 501.6 million, that's compared to CAD 514.6 million in the same period last year, and this represents a decline of CAD 13 million or approximately 2.5%.
As it relates to revenues in specific regions, the U.S. and Canadian region had revenue for the quarter of CAD 106.2 million, that's compared to CAD 96.5 million last year, and represents an increase of CAD 9.7 million, or 10% quarter over quarter. Revenues in the U.S. and Canadian region were CAD 374.4 million for the 12 months for the year ended April 30, 2025, compared to CAD 338 million in the period last year. That's an increase of CAD 36.4 million, or 10.8%. The international region had revenues for the quarter of CAD 21.4 million, compared to CAD 26.3 million last year, a decrease of CAD 4.9 million in the quarter- over- quarter, or 18.6%, and represented 16.8% of total sales this quarter. For the 12 months ended April 30, 2025, international revenue was CAD 127.2 million, compared to CAD 176.6 million in the year last year, a decline of CAD 49.4 million, or 28%.
The decrease is driven by a couple of different factors. First, last year we recognized CAD 21 million in revenue from a large order that we had previously press released. That did not reoccur this year. Second, some of the decrease is attributable to regional unrest, whether it is in multiple locations, but including the Middle East and Central Africa. Within revenue, hardware revenue during the year was CAD 279.1 million in the year, compared to CAD 325.7 million last year, while software and services revenue totaled CAD 222.6 million this year, compared to CAD 188.9 million in the prior year. In the quarter, hardware revenue was CAD 71.7 million, that is compared to CAD 75.1 million in the same period last year, while software and service revenue was CAD 56.1 million this quarter, compared to CAD 47.7 million in the same period last year.
Gross margin for the fourth quarter was approximately 61.7%, compared with 59.2% in the prior year quarter. That gross margin was above our target range. The increase is driven by a product exchange and partially due to the greater proportion of software and service revenue in the quarter. For the 12 months ended April 30th, gross margin was approximately 59.5%. Year-to-date margins were within our target range. Turning to SG&A expenses, SG&A was CAD 20.7 million in the fourth quarter, an increase of CAD 0.6 million for the same period last year. Selling and expenses as a percentage of revenue were approximately 16.2%, compared to 16.4% for the same period last year. Sequentially, we had NAV which ended in the fourth quarter, which increased costs between CAD 1.5 million-2 million in ratio comp.
For the 12 months ended April 30th, 2025, selling and expenses were CAD 75.9 million, an increase of CAD 3.6 million from the same period last year. Selling and expenses as a percentage of revenue were approximately 15.1% over the period, compared to 14% for the same period last year. R&D expenses were CAD 36.5 million for the fourth quarter. That represents a CAD 0.2 million decrease from CAD 36.7 million in the fourth quarter last year. As a percentage of revenue, R&D expenses were 28.6%, compared to 29.9% in the prior year. For the 12 months, research and development expenses were CAD 146.8 million. That represents an increase of CAD 11.9 million over the same period last year. That increase includes an increase of CAD 7.7 million, which reveals salaries. That is largely relating to increases in headcount and salaries themselves over the past 18 to 24 months.
Research and development expenses as a percentage of revenue were 29.3% year-to-date. Foreign exchange for the fourth quarter was a loss of CAD 4.4 million, compared to a gain of CAD 2.1 million in the same period last year. The loss in the quarter was driven by a weakening U.S. dollar compared to the Canadian dollar. We closed April 30th at approximately 1.38 to 1 as an exchange rate, that's compared to approximately 1.45 on January 31st, and a pretty significant 5% drop over three months. Foreign exchange for the 12 months ended April 30th, 2025, was a gain of CAD 0.2 million, consistent with last year. Turning to a discussion of liquidity of the company, net cash as of April 30th, 2025, was CAD 111.7 million, compared to net cash of CAD 86.3 million as of April 30th, 2024.
While working capital was CAD 206.9 million as of April 30, 2025, compared to CAD 201.4 million as of April 30, 2024. Now, for cash flows, the company generated cash from operations of CAD 99.6 million. That includes a CAD 19.3 million change in non-cash working capital and current taxes, including a decrease of inventory of approximately CAD 25 million, driven by a decline of raw materials on hand. The effects of the change in non-cash working capital and current taxes are excluded from the calculation. The company generated CAD 79.6 million in cash from operations during the year. The company used cash of CAD 6.7 million for investing activities. That's principally driven by the acquisition of capital assets. The company used cash in financing activities of CAD 71.4 million, which is principally driven by dividends paid of CAD 60.1 million, purchase of capital stock under NCIB for CAD 4.9 million, and principal payments on leases liabilities of CAD 4.8 million.
Finally, our share capital position at April 30, 2025. Shares outstanding were approximately CAD 75.8 million, and options and equity-based restricted units outstanding were approximately CAD 4.9 million. The weighted average shares outstanding were CAD 76 million, and weighted average fully diluted shares were CAD 77 million for the year ended April 30, 2025. That brings us to the conclusion to review 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 Commission. Brian, back to you.
Thank you, Doug. Chloe, we're now ready to open the call to questions.
Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you would like to ask a question, please press star and the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. One moment for your first question. Your first question comes from the line of Max Ingram from Canaccord Genuity . Your line is open.
Hey, good afternoon. Thanks for taking my questions. My first question is on the demand environment. Can you just give us an overview of the demand you're seeing both in North America and then internationally, and any changes you might be seeing in sales cycles or drawn-out decision-making?
Yeah. With respect to the demand environment, we are seeing a robust demand environment. The strong backlog does reflect that. In addition, we are seeing very good solid quoting activity, probably up over the last few months.
Okay. Thanks. Thanks for the color. My second question is on the cash. Cash is now above CAD 100 million. Can you just go over how you're thinking about that use of that capital allocation, any priorities you have for that?
We currently have an active NCIB. I mean, it is relatively limited on the number of shares we can buy. It is around 8,500 shares a day. We declared a regular quarterly dividend, say, of CAD 0.20. Beyond that, I think it gives us a lot of flexibility. We do continue to review the landscape for shareholder accretive acquisitions. We do have that flexibility provided by the cash in the balance sheet and our pristine balance sheet.
Right. Okay. Just a quick last one. What are your expectations for backlog conversion over the next 12 months?
We expect the backlog more than a year out is approximately 40%. I think something worth noting too on the backlog, just for understanding, there is a significant portion that is US dollar-based. Having a lower conversion rate of around 1.38 versus 1.44 has an impact on our overall backlog. I think that is worth noting.
Okay. Thanks for taking my—yeah. Thanks for taking my questions.
Thanks, Max.
Our next question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Your line is open.
Good afternoon. Brian, maybe expanding on your commentary regarding an uptick in quoting activity and any additional color you can provide in terms of, from your perspective, what might be driving that?
Very good strong demand for Evertz's products and solutions. It does reflect as well too. We've had very good solid results in the U.S.-Canada region, which was up significantly this year.
Yeah. I'll highlight it. It is a light start. Maybe it's a light start for us for sure. I mean, some of that might be attributable to some macroeconomic uncertainty relating to the whole tariffs, what would happen, what would not. We are definitely seeing improvements over the past couple of months.
Yeah. Maybe just to clarify, because that was going to be my next question, was on the main shipments. I mean, recognizing that one month is just a data point and there could be some momentum in volatility. I mean, maybe the macro's gotten a little less murky in recent weeks. I guess takeaways from your customer discussions, you're not seeing any specific pauses or influences. I mean, you had a brief period of macro concern, but from your perspective, you're largely seeing business as usual, at least in North America.
Thanos, you were breaking up. Sorry.
Yeah. No, I was just saying notwithstanding me having been light, I think what you're trying to convey is good demand environment overall, notwithstanding me being the later start, and customer discussions seem positive, and you're not really seeing a lot of macro hesitation per se on the back of the tariffs. Would that be fair?
Not specifically related to tariffs, but clearly the global macro environment has not changed significantly with respect to uncertainties in the Middle East and Europe, right, that we've been going.
Okay. Okay. I think that clarifies it. On the gross margins, so I understand mixed growth part of it, but given that I presume the mix will continue to skew more towards software over the coming quarters, would it be unreasonable to think that you might be able to sustain a gross margin of up to 60%? What do you think?
There's some validity to it, right? Even last quarter, we were below 58%. I mean, as a long-term trend, I mean, that's certainly the goal. We have seen an uptick if you compare year over year. There is validity to it, and there is a mixed change each quarter, apparently. We haven't changed our target, but it has been skewing higher over the past few quarters, like long-term, 8 quarters-12 quarters.
Okay. From an OpEx perspective, obviously there was NAV. Are there any other nuances you'd call out as we think about the upcoming quarter?
No. I mean, S&A, NAV, and just trade sales costs in general, that's over CAD 1.5 million in the quarter for trade sales as a whole. The only other thing, which is not hugely material, but there is a lot of business days, frankly, in Q4. Even having three less business days can have about a CAD 500,000 impact on R&D, which would bring it down slightly. That would, yeah, Q1 would be more similar to a Q3.
Okay. Finally, you made the comment that you're continuing to expand your U.S. production. Is your plans regarding CapEx sort of unchanged from what you were thinking back in May?
As of today, not in the quarter, there was less than CAD 1 million of capital assets spent, but today we've committed to over $2 million , actually, in spending. That is from a build-out perspective. That hasn't changed. If we do, I don't expect it to increase significantly beyond that unless we acquire a building as opposed to lease it. That is something we're exploring. Other than that, my expectation hasn't changed.
Okay. Great. I'll pass the line. Thank you.
There are no further questions at this time. Mr. Campbell, please continue.
Thank you, Chloe. I'd like to thank the participants for the questions and add that we are very pleased with the company's performance during fiscal 2025, which saw continued strong sales exceeding CAD 500 million solid gross margins of 59.5% for the year, which together with Evertz's disciplined expense management yielded basic earnings of CAD 0.78 per share. We are entering fiscal 2026 with significant momentum fueled by a combined purchase order backlog plus May shipments totaling in excess of CAD 285 million. By the growing adoption and successful large-scale deployments of Evertz's IP-based software-defined video networking and cloud-based solutions by some of the largest broadcast, new media, and service provider 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 FDN deployments, and the capabilities of our staff, Evertz is poised to build upon our leadership position to provide innovative solutions to customers and deliver to shareholders. Thank you, everyone, and good night.
This concludes today's conference call. Thank you for participating. You may now disconnect.