Good day, ladies and gentlemen. Welcome to the Evertz Q2 of Fiscal 2023 investor call. At this time, all lines are in a 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 Tuesday, December 6th, 2022. I would now like to turn the conference over to Brian Campbell, Executive Vice President of Business Development. Please go ahead.
Thank you, Michelle. Welcome to Evertz Technologies Conference Call for our Fiscal 2023 Q2 ended October 31, 2022, 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 then open the call to your questions. Turning now to Evertz results, I'll begin by providing a few highlights, then Doug will provide additional detail. First off, sales for the Q2 totaled CAD 113.2 million, an increase of 5.6% compared to CAD 107.2 million in the Q2 last year.
Our base is well diversified, with the top 10 customers accounting for approximately 55% of sales during the quarter, with no single customer over 15%. We had 98 customer orders of over CAD 200,000 in the quarter. Gross margin in the quarter was CAD 67.5 million or 59.6%, which is within our target range. Investment in research and development during the quarter totaled CAD 29.6 million. Earnings from operations were CAD 28.4 million for the quarter, a 20% increase from the prior year. Net earnings for the Q2 were CAD 20 million, while fully diluted earnings per share were CAD 0.26. Evertz working capital was CAD 154.1 million, with bank indebtedness of CAD 4.2 million as at October 31, 2022.
Operational highlights for the quarter include Evertz stellar presence at the International Broadcast Conference, where Evertz XPS compact encoding, decoding platform with 5G wireless won a TV Tech Best of Show award, along with Evertz Reflektor cloud video processing platform. Evertz.io Stream was recognized with a TVB Best of Show award.
This revolutionary new cloud-based software as a service video platform combines the technological and feature requirements of traditional broadcast channels, conventional OTT channels, and free ad-supported TV FAST channels into a single platform that supports file-based playout, advanced live events, and a wide range of streaming inputs and outputs, including 4K UHD with HDR. In addition, September 15th was a historic night which saw the NFL kick off its first-ever broadcast package, carried exclusively on a streaming platform with Amazon Prime's Thursday Night Football.
The broadcast also marked the launch of Prime 1, arguably the most state-of-the-art mobile broadcast units built around a SMPTE ST 2022-7 IP routing core. Prime 1 is fully redundant. That redundancy starts with a pair of Evertz 400 gig EXE IP routing cores managed by Evertz MAGNUM control, monitoring, and analytics software. In addition, all the edge routing is handled by Evertz's award-winning NATX Fabric switches. At the end of November, Evertz purchase order backlog was in excess of CAD 149 million, and shipments during the month were CAD 39 million.
We attribute this strong financial performance and robust combined shipments and purchase order backlog to HD channel proliferation, the emergence of 4K Ultra HD and increasing live content, increasing global demand for high-quality video anywhere, anytime, the ongoing technical transition to IP, IT, and cloud-based architectures, and specifically to the growing adoption of Evertz IP-based software-defined video networking solutions, Evertz IT and cloud solutions, our immersive 4K, 8K UHD solutions, and our state-of-the-art DreamCatcher IP replay and live production with BRAVO Studio virtual production control suite. Today, Evertz Board of Directors declared a regular quarterly dividend increased to CAD 0.19 per share, payable on or about December 22nd. I will now hand over to Doug Moore, Evertz Chief Financial Officer, to cover the results in greater detail.
Thank you, Brian. Good afternoon, everyone. Looking at revenues, sales were CAD 113.2 million in the Q2 of fiscal 2023, compared to CAD 107.2 million in the Q2 of fiscal 2022. An increase of CAD 6 million quarter-over-quarter. For the six months ended October 31, 2022, sales were CAD 214.8 million compared to CAD 204.4 million in the same period last year. That represents an increase of CAD 10.4 million or 5.1%. As it relates to revenues in specific regions, the U.S.-Canadian region had sales for the quarter of CAD 88.3 million compared to CAD 78.2 million last year. This represents an increase of CAD 10.1 million or 13% quarter-over-quarter.
Sales in the same region, the US-Canada, were CAD 166.5 million for the six months ended October 31st, 2022, compared to CAD 142.6 million in the same period last year, an increase of CAD 23.9 million or 17%. The international region had sales for the quarter, CAD 25 million, compared to CAD 29 million last year, a decrease of CAD 4 million quarter-over-quarter. The international segment represented 22% of total sales this quarter. For the six months ended October 31st, 2022, sales in the international region were CAD 48.3 million compared to CAD 61.7 million in the same period last year. A decrease of CAD 13.4 million. Gross margin for the Q2 was approximately 59.6%, compared with 57% in the prior quarter and within our target range.
For the six months ended October 31st, gross margin was approximately 58.7% and also within our target range. Turning to selling and admin expenses. S&A was CAD 14.7 million in the Q2, a decrease of CAD 0.1 million from the same period last year. Selling and admin expenses as a percentage of revenue were approximately 13% as compared to 13.8% for the same period last year. Selling and admin expenses were CAD 27.7 million for the six months ended October 31st, 2022. A decrease of CAD 1 million from the same period last year. Selling and admin expenses as a percentage of revenue were approximately 12.9% over the period, as compared to 14.1% for the same period last year.
Research and development expenses were CAD 29.6 million for the Q2, which represents a CAD 5.2 million increase from CAD 24.4 million in the Q2 last year. Investment tax credits related to R&D expenses were CAD 3.2 million in the quarter, compared to credits of CAD 2.9 million in the Q2 last year. For the six months ending October 31st, research and development expenses were CAD 57 million, which represents an increase of CAD 7.9 million over the same period last year. R&D expenses as a percentage of revenue were approximately 26.6% over the period, as compared to 24% for the same period last year.
Foreign exchange for the Q2 resulted in a gain of $3 million when compared to a gain also in $2.2 million in the same period last year. The quarterly gain was predominantly a result of the increase in the value of the U.S. dollar against the Canadian dollar between July 31st and October 31st of 2022. Foreign exchange for the six months ended October 31st, 2022, was a gain of $4 million. That's compared to a gain of $3.6 million in the same period last year. Turning to a discussion of liquidity of the company. Bank indebtedness as of October 31st, 2022, was $4.2 million. That's compared to cash of $33.9 million as of April 30th, 2022.
Working capital was CAD 154.1 million as of October 31, 2022, compared to CAD 158.9 million at the end of April 30, 2022. Looking now specifically at cash flows. The company used cash in operations of CAD 7.7 million, which is net of CAD 33.1 million change in non-cash working capital and current taxes. A change including a quarterly increase of inventory of CAD 7 million and a combined decrease in accounts payable and deferred revenue of CAD 25 million. If the effects of the change in non-cash working capital and current taxes are excluded from the calculation, the company generated CAD 27.5 million in cash from operations during the quarter.
The company used cash of CAD 5.6 million for investing activities in the quarter, which was principally driven by CAD 2.4 million in acquisition of capital assets and CAD 3.2 million in purchase of investments. The company used cash in financing activities of CAD 16 million, which was principally driven by dividends paid of CAD 13.7 million. Finally, I will review our share position as of April 31st, 2022. Shares outstanding were approximately 76.2 million, and options outstanding were approximately 4.9 million. Weighted average shares outstanding were 76.2 million, and weighted average fully diluted shares outstanding were 76.4 million for the quarter ended October 31st. That brings to a conclusion the review of financial results and position for the Q2.
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 the official reports filed with the Canadian Securities Administrators. Brian, back to you.
Thank you, Doug. Michelle, 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 one on your touch-tone phone.
You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they are received. Should you wish to decline from the polling process, 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 Thanos Moschopoulos of BMO Capital Markets. Please go ahead.
Hi, good afternoon. Brian, could you comment on the spending environments? Obviously you had a nice uptick in revenues this quarter versus the prior quarter. You know, backlog, and the revenue shipments seem healthy. More broadly, I mean, given that there's a lot of macro uncertainty out there, how are your customers responding? Are you seeing any change in customer behavior in recent weeks, or has it been kind of status quo in that regard?
Overall, our demand environment continues to be very robust. You can see that we have a solid backlog or order backlog of CAD 149 million along with our CAD 39 million shipments in the first month. We're cognizant of the macro environment as are our customers. However, we're very well positioned with an extremely robust business model and a large backlog to be able to handle macro uncertainty. With respect to the international, it's down quarterly year-over-year, but strong trailing 12 months and up sequentially. That's a good solid indication for us as well too.
On that point, I mean, clearly international, you know, has been significantly lagging the growth you've seen in North America. Would that be a function of maybe a different macro dynamic? Is that just, you know, lumpiness in the projects as they kind of come? Is it deployment issues still with lingering COVID restrictions? What would you attribute that to?
It's actually all of the above factors that you've noted, have contributed to, you know, we've got a solid international business in, you know, in certain regions, you know, specifically. There is definitely lumpiness to the delivery. We've done very well with some, you know, large customer orders that you've seen, you know, play out, Mediaset being one of them over multiple years. That's, you know, quite a high profile delivery that we've had ongoing.
Yes, there are, you know, continue to be challenges delivering in certain regions, whether it's due to, you know, macro uncertainty or COVID restrictions as well too. All those things, you know, play into it. However, we have had a good solid, you know, trailing 12 months. If you look at it on average, it's can be lumpy quarter- to- quarter, but it's just under 30% of the revenue in total.
Okay. Has supply chain been getting any better, or would you describe that as being consistent as far as, component availability relative to last quarter?
Yeah. I mean, from a quarter-over-quarter basis, it still represents a significant challenge, to be honest. We are seeing some vendors with lead time improvements and, you know, improvements on deliveries, but at the same sense, other ones it's we're seeing no improvements at all. That's really, hence why we're sitting with CAD 23 million more in raw materials this year-end and, well, even CAD 40 million since the last of October. We've continued to stockpile raw materials as it continues to be a challenge.
Finally, the gross margin is obviously very strong. Is that just reflective of, you know, the mix during the quarter, or is there anything you'd call out that drove the margin?
I mean, as always, you know, there's always fluidity in there with the mix. There is some larger projects that are higher margin that were completed during the quarter. You'll see a corresponding decrease in deferred revenue to kind of align with that. Really it's product mix and what was delivered and signed off in the quarter.
Great. I'll pass the line. Thank you.
Thank you. As a reminder, ladies and gentlemen, if you do have a question, please press star one at this time. The next question comes from Rob Young of Canaccord Genuity. Please go ahead.
Hi. Can you remind us what the target range for gross margins is? I think 56%-60% or just remind us.
Yeah. 56%-60%. You're correct.
Okay. You just said that, large project clearing drove, you know, the strength.
Yeah. I mean, there's always some fluidity. There's always some fluidity to it depending on the mix of itself. You know, there were couple larger projects that were signed off in the quarter that were higher margin in nature. That would've been a partial reason of the uptick on the higher end of the range.
Right. Is that like an, like a cost-matching thing, or is it like just a mix of the product? Is it more software related?
Yeah. It's from a mix. Whether it's heavier in software would be right, I think.
Okay. The on the macro, are you seeing any delays on signing deals? It sounds like you've got large projects that are closing. Are you seeing any delays on large projects or any, you know, reticence on the part of your larger customers that are signing larger deals to sort of get those cross the line?
That has been ongoing, for the last couple of years, that there have been, you know, large projects delayed. However, we do have, you know, very significant projects that continue to, you know, move forward with our customers, and that's what we're focusing on, you know, delivering, you know, for them to keep their business, plans moving ahead at the pace that they need.
Okay. It's more consistent with what you've seen over the last couple of years as opposed to any big change?
Correct.
Okay. Maybe you could talk a little bit about access to customer sites. I know that's been an ongoing issue. Has that improved material or, you know, is there anything you call out there?
It remains consistent. In North America, we've had, you know, good access. Internationally, it still can be a challenge in certain, you know, areas. We've been managing through it but there has been no significant change in the last, since last quarter.
Notable the cash, you have net debt this quarter, which I think you have to go back to 2008 or so to see something like that in your financials, at the same time that you're raising the dividend. I'm curious about, you know, those two things happening the same time. Is there any change in the way you think about your, the structure of the business? Are you gonna, you know, carry a larger amount of debt, or is this out of that CAD 75 million revolver I think you have?
The CAD 75 million revolver is able to cover the current indebtedness. You know, there's definitely like I said, we've stockpiled quite a fair amount of inventory. We've increased raw materials by CAD 40 million in the past 12 months. There's some timing to the... If you look at our payables, deferred revenue, if you use the, you know, both those came down quite a bit, so there's like a cash flow impact there. The expectation is, you know, with carrying on business as is, the indebtedness would go away in the next quarter or so.
Same as it have in 2008. Okay. The CAD 3.2 million in acquisitions, I didn't have a chance to go through the MD&A. I don't know if you discussed it in there. Maybe you just give some color on what that is.
it's the same the investments are the same nature as in Q1.
It's an additional... So these are marketed securities or?
Yes.
Is it the same thing or are you just building a larger position in the same security?
It's CAD 3.2 million additional investments.
All right. All right. I think that's all I've got. I'll pass the line.
Thank you. There are no further questions at this time. I will now turn the call back to Brian Campbell for closing remarks.
Yeah. Thank you. I'd like to thank the participants for the questions and add that we're very pleased with the company's performance during the Q2 of fiscal 2023, which saw strong quarterly sales of CAD 113.2 million, solid gross margins of 59.6% in the quarter. We are entering into the second half of fiscal 2023 with significant momentum fueled by a combined purchase order backlog plus November shipments totaling in excess of CAD 188 million.
With Evertz' significant investments in software-defined IP, IT, and cloud technologies, the over 500 industry-leading IP SDVN deployments and the capabilities of our staff, Evertz is poised to build on our leadership position in the broadcast and media technology sector. Thank you everyone, and good night.
Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.