Good afternoon, ladies and gentlemen, and welcome to the Evertz Q3 Investor Conference 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 0 for the operator. This call is being recorded on Thursday, the second of March, 2023. I would now like to turn the conference over to Brian Campbell, Executive Vice President, Business Development. Please go ahead, Mr. Campbell.
Good afternoon, everyone, welcome to Evertz Technologies conference call for our fiscal 2023 third quarter ending January 31st, 2023. 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 go into greater detail. First up, sales for the third quarter totaled CAD 110.9 million. Our sales base is well diversified, the top 10 customers accounting for approximately 32% of sales during the quarter, with no single customer or over 7%.
In fact, we had 113 customer orders of over CAD 200,000 during the quarter. Gross margin in the quarter was CAD 65.6 million or 59.2% for the quarter, which is within our target range. Net earnings before foreign exchange for the third quarter were CAD 19.8 million and fully diluted earnings per share was CAD 0.16. Evertz working capital was CAD 157.5 million, with CAD 5.3 million in bank indebtedness as at January 31st, 2023. The purchase order backlog at the end of February was in excess of CAD 140 million, and shipments during the month of February were CAD 31 million.
We attribute this strong financial performance and robust combined shipments and purchase order backlog to the ongoing technical transition in the industry, channel and video services proliferation, increasing global demand for high quality video anywhere, anytime, and specifically to the growing adoption of Evertz IP-based Software Defined Video Networking solutions, Evertz IT and cloud solutions, our immersive 4K Ultra HD solutions, and our state of the art DreamCatcher IP replay and BRAVO live production suite. Today, Evertz Board of Directors declared a dividend of CAD 0.19 per share, payable on or about March 23rd. I will now hand over to Doug Moore, Evertz Chief Financial Officer, to cover our results in greater detail.
Thank you, Brian, good afternoon, everyone. Starting at revenues. Sales were CAD 110.9 million for the third quarter fiscal 2023. That's a decrease of CAD 9.7 million or 8% compared to CAD 120.6 million the third quarter of fiscal 2022. For the nine months ended January 31st, 2023, sales were CAD 325.7 million, compared to CAD 324.9 million the same period last year. That represents an increase of approximately CAD 0.8 million. Looking at specific regions. The U.S. Canadian region had sales for the quarter of CAD 71.2 million, a decrease of CAD 7.7 million or 10% compared to CAD 78.9 million the same period last year.
Sales in the U.S. Canadian region were CAD 238.2 million for the nine-month period ending January 31st, 2023, compared to CAD 221.5 million the same period last year, which represents an increase of CAD 16.7 million or 8%. The International region had sales for the quarter of CAD 39.6 million compared to CAD 41.7 million last year, a decrease of CAD 2.1 million or 5%. International segment represented 36% of total sales this quarter. That's compared to 35% in the same period last year. Sales in the International region were CAD 87.5 million for the nine-month period ending January 31st, 2023, compared to CAD 103.4 million in the same period last year. That represents a decrease of CAD 15.9 million or 15%.
Gross margin for the third quarter was approximately 59.2%, compared with 57.4% in the third quarter ending January 31st last year, and was within our target range. Gross margin for the nine months ending January 31st was approximately 58.8% and also within the company's target range. For operational expenses, selling and admin expenses were CAD 16.3 million for the third quarter. That's an increase of CAD 0.3 million from the same period last year. Selling and administrative expenses as a percentage of revenue were approximately 14.7% as compared to 13.2% for the same period last year. For the nine months period ending January 31st, selling and admin expenses were CAD 44 million.
That's a decrease of CAD 0.7 million compared to CAD 44.7 million from the same period last year. For the nine-month period, selling and admin expenses as a percentage of revenue were approximately 13.5% as compared to 13.8% for the same period last year. Turning to R&D. Research and development expenses were CAD 30.2 million for the third quarter, which represents a CAD 4.2 million increase from the third quarter last year. R&D expenses as a percentage of revenues were approximately 27.3% over the period, as compared to 21.5% for the same period last year. For the year, research and development expenses were CAD 87.3 million, which represents an increase of CAD 12.1 million over the same period last year.
R&D expenses as a percentage of revenue were approximately 26.8% over the period, compared to 23.1% in the same period last year. The increase in the nine-month period includes CAD 11.6 million increase in net salary expenses. That's driven by increased headcount and salary increases to current staff as well. Foreign exchange for Q3 was a loss of CAD 2.3 million. That's compared to a gain of CAD 1.7 million in the same period last year. The loss was driven by a decrease in the value of the US dollar compared to the Canadian dollar between October 31st and January 31st. Foreign exchange for the nine months ended January 31st, was a gain of CAD 1.7 million. That's compared to a gain of CAD 5.4 million in the same period last year.
The nine-month gain was driven by an increase in the value of the US dollar since April 30th, 2022. Turning to a discussion of liquidity of the company. Bank indebtedness as at January 31st, 2023 was CAD 5.3 million, as compared to cash of CAD 33.9 million as at April 30th, 2022. Working capital was CAD 157.5 million as at January 31st, 2023, as compared to CAD 158.9 million at the end of April 30th, 2022. Looking specifically at the cash flows for the quarter ended January 31st, 2023. The company generated cash from operations of CAD 16.2 million, which is net of a CAD 3.4 million change in non-cash working capital and current taxes.
If the effects of the change in non-cash working capital and current taxes are excluded, the company generated CAD 19.6 million cash from operations for the quarter. The company used cash from investing activities of CAD 1.6 million for the third quarter ended January 31st, 2023, which was principally driven by the acquisition of capital assets in the quarter. The company used cash for financing activities of CAD 16.3 million, which was principally driven by dividends paid of CAD 14.5 million. Finally, I'll review our share capital position as at January 31st, 2023. Shares outstanding were approximately 76.2 million, and options outstanding and share-based RSUs were approximately 4.9 million and 1.1 million respectively.
Lastly, the weighted average shares outstanding were CAD 76.2 million, and the weighted average of fully diluted shares were CAD 76.3 million. That brings to a conclusion the review of our financial results and position for the third quarter. 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 within the Canadian Securities Administrators. Brian, back to yourself.
Thank you, Doug. JP, we're ready to open the call to questions.
Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star followed by the number one on your touchtone phone. You will hear a one-tone prompt acknowledging your request. Your first question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Your line is now open.
Hi, good afternoon. Brian, can you provide some color in terms of how the business environment's evolved over the last few weeks? I mean, both from a demand perspective, but also from a supply perspective, as I know you've had to contend with supply constraints over the last while.
Thanks, Thanos. I'll touch on the demand side and then allow Doug to handle the supply constraints. You know, yes, overall our demand environment continues to be, you know, robust. You can see that we have a solid order backlog of CAD 140 million along with our CAD 131 million of shipments in the first month. We are cognizant of the macro environment. However, we're very well positioned, you know, with a very extremely robust business model and a large backlog to handle macro uncertainty. With respect to, you know, the segments, the various segments, if you look at revenues over the trailing 12 months, we're, you know, pretty much in line with Canada, North America, and international.
At that point, I'll turn over to Doug to handle the constraint side.
Yes, from the supply side, we are seeing incremental improvements, definitely on a macro level. We still do run into some issues with specific parts. Therefore, while we're definitely, you know, things have improved over the past six months, there's still challenges we're working through, so it's not a perfect world by any means. We are holding a lot of inventory, as you know, so that helps. Specific parts cause us some problems. Yeah, so it's definitely getting better, but it's not perfect is the short summary of it.
Should that perhaps provide some opportunity for releasing some inventory, working capital over the next year?
Yeah, I think, I actually expect our inventory to it's definitely peaking a bit, but I expect it to go up a little bit more in the next quarter, but not to the same level obviously as the past nine months. Now lead times from vendors are still quite significant, so the need to hold a lot of inventory still is maintained. I mean, in the long run, of course, you would, you know, have an ability to decrease that raw material holdings. In the near term, you know, I think quite frankly, we need to hold that amount just to deal with vendor lead times.
Okay. If I look at your R&D spend on a year-to-date basis, the percentage of revenue I think is about the highest it's ever been in your history as a public company. I understand that there's maybe some cyclical things going on, like you have the wage pressures on one end, maybe revenue can get a bit depressed because of ongoing supply constraints. You know, is there some other dynamic we should be aware of? You know, have you had to step up your level of investments due to some technological changes in your industry? If you could provide any color on that sort of context, that'd be great.
From a straight OpEx perspective, on the R&D front, you know, if you look at year-over-year, there's two things. We have increased head count. There's also been inflationary salary cost increases even to current staff. Just being able to maintain those that we have. You know, there's just both pieces to that. As it directly relates to specific projects, I can't specifically comment on. Yeah, I don't know if that provides the guidance you're looking for.
Brian, do you have any comment in terms of just more strategically the level of R&D investment? I mean, obviously, Evertz has, you know, certainly differentiated itself through heavy R&D investments, and that's been key to your success. Again, just thinking about the historical context, you are now at a record multiyear high. Any additional context to offer in terms of that dynamic?
It, we definitely, you know, recognize that it is at a high. We do hire the, you know, best people that we can for our long-term needs and wanna retain the folks that we have in-house as well too. That speaks to some of the inflationary aspects of it. You know, we will be, you know, cognizant of this level and going forward with our revenue to see what we can do.
Okay. Maybe just to close it off, before I pass the line. You obviously made an investment in Haivision recently. Any additional color you can provide on that?
With respect to our investment in Haivision, the Early Warning Report is quite accurate with respect to our intentions. The shares were acquired for investment purposes. Evertz does intend to review its investment in Haivision on a continuing basis, depending on various factors including Haivision's financial position, the price levels of the common shares, conditions in the overall securities market, general economic and industry conditions, and other factors. Evertz may in the future take actions with respect to its investments in Haivision as the executive team and board deems appropriate.
All right. Fair enough. I'll pass it on. Thanks.
Your next question comes from the line of Robert Young from Canaccord. Your line is now open.
Hi. maybe I'll just, push you a little harder on that last question. Maybe can you give us an indication of whether that's just a passive investment, if it purely is an investment, the description you just gave suggests that. Or is there some sort of, corporate action that you're considering?
Robert, I'm going to reiterate that the shares were acquired for investment purposes, and Evertz intends to review its position on a continuing basis.
How about we talk a little bit about the demand environment, just specifically around some of the higher margin pieces of the business like IP and Cloud. This is the second quarter where you've had very strong gross margins. I think two parts there. Just talk about the demand in the higher margin pieces, and then maybe you could give a broader explanation on what's driving the gross margin strength at the high end of your range.
Definitely, we do continue to see demand for very innovative products, both cloud and on-premise equipment. You know, a couple of examples we gave last quarter was the Prime One truck, you know, arguably the largest state-of-the-art IP-based mobile production facility, and Evertz is an integral part of it. You've probably seen more press release from Game Creek regarding its presence at Super Bowl, very successful presence. We are, you know, an integral part of many of the, you know, large network and new media companies' infrastructures.
Just on the margin, just additional color. I know in the second quarter, I highlighted there were two or three larger higher margin projects that were signed off in Q2. There's really not that in the third quarter. It's a little broader, so it's really a broader product mix this quarter in third that pushed up the margin. I mean, it's in the target obviously, and to the higher end, which is good, but there's not really a specific project or two to point to.
Is there a dynamic around pricing? Like there's inflation hitting everybody. Are you raising your prices? Are you able to pass on some of your, the higher costs you described earlier in the call? Are you able to pass those through onto your customers? Perhaps that's what's leading to that query.
I mean, there's certainly, where we're able to, we pass on obviously higher costs with price increases. There's nothing specific in the quarter that was driving that, like we didn't, you know, highlight. Twofold, I mean, the costs are also going up in that sense, so we pass on what we can. There's not really a direct. I can't point to that and say that's the reason for the higher margin.
The backlog has declined. I think last quarter you said there was a large program which ended. Maybe that's part of the reason, one that was close to ending, if I remember correctly. Is there a reason for the backlog decline quarter-over-quarter? Is that just seasonality? Is there anything you'd call out there?
I wouldn't call anything out. As you know, We can have lumpy quarters and that also, you know, occurs with respect to orders as well, too. If we look at the backlog, a little over 12% of it will be delivered outside of a 12-month period. The bulk of it is to be delivered, you know, in the upcoming quarters.
Great. Great. That was gonna be my next question. Maybe on the dividend, you raised it last quarter. It's the same this quarter. Is there any change in the dividend policy to communicate? Like is it an ad hoc process every quarter with the board? Is there any process you can share around how you look at that?
It's reviewed at the board level every quarter. You know, that said, we have been, you know, at a steady level previously, for a number of quarters. I would, you know, not go any farther, other than looking at our historical dividend, you know, performance. We've been, you know, fairly consistent, you know, quarter to quarter.
Maybe last question, just on the environment. I mean, you've talked a little bit really over the last two or three years around access to sites. I think the U.S. has sort of normalized, but the international markets has been harder to get on site, get the work done. Is there any change there, or is that still a good way to describe it?
That's a good way to describe it. Not all of it is, you know. Some of it is the, you know, overall macro political environment, in, you know, rather than, you know, COVID. We've, you know, worked through much of that. There are, you know, areas where we have more difficulty getting into, some where we're not going at all as well, too. And that's, you know, does impact, you know, the revenue, distribution or, you know, segmentation geographically. We're, you know, continue to win, the, you know, business, long-term business, with our key customers, you know, over and over again, where they care about, you know, innovative, high quality, you know, products, and that's where we shine well.
Okay. Thank you. I think I'll end it there.
There are no further questions at this time. I'll now turn the call over to Mr. Campbell for closing remarks.
Okay. I'd like to thank the participants for the questions and add that we're very pleased with the company's solid performance during the third quarter, which saw a strong backlog of CAD 140 million, plus shipments in the month of February of CAD 31 million, totaling CAD 171 million, which is in line with the historical trends over the last couple of years. We are very well positioned with this momentum for the fourth quarter and the coming year. Thank you and good night.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.