Good afternoon, ladies and gentlemen, and welcome to Evertz Q4 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 zero for the operator. This call is being recorded on Wednesday, June twenty-first, twenty twenty-three. I would now like to turn the conference over to Brian Campbell, Executive Vice President, Business Development. Please go ahead.
Thank you, Julia. Welcome to the Evertz Technologies conference call for our 4th quarter and year ended April 30th, 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. I will begin with a few annual and 4th quarter highlights, following which Doug will provide more detail. First off, I'm pleased to report sales for the fiscal year totaled a record CAD 454.6 million. Annual net earnings were CAD 64.6 million, resulting in fully diluted earnings per share of CAD 0.84 for fiscal 2023.
Investments in research and development totaled CAD 117.1 million for fiscal 2023. Moving on to the fourth quarter financials. Sales in the fourth quarter were a record high, CAD 128.9 million, up 11% year-over-year. Gross margin for the fourth quarter was CAD 76.7 million, or 59.5% of sales. Foreign exchange for the fourth quarter was a gain of CAD 252,000. Net earnings for the fourth quarter were CAD 18.6 million, with fully diluted earnings per share of CAD 0.24 in the quarter. At April 30, 2023, Evertz's working capital was CAD 171.4 million, with CAD 12.5 million cash.
Purchase order backlog at the end of May was a record high, CAD 392 million. Shipments during the month of May were CAD 40 million. We attribute our strong annual and quarterly performance 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 continued adoption of Evertz IP-based software-defined video networking solutions, Evertz IT and cloud solutions, our immersive 4K Ultra HD solutions, and the state-of-the-art DreamCatcher IP replay and BRAVO live production suite. Our sales is well diversified, with the top 10 customers in the fourth quarter accounting for approximately 43% of sales, with no single customer over 6%. In fact, we had 133 customer orders of over CAD 200,000 in the quarter.
Today, Evertz Board of Directors declared a dividend of CAD 0.19 per share, which will be paid on or about July sixth. I will now hand over the call to Doug Moore, Evertz Chief Financial Officer, to cover our results in greater detail.
Okay, thank you, Brian. Good afternoon, everyone. Starting with revenues. Sales were $128.9 million in the fourth quarter of fiscal 2023. Let's compare to $116.1 million in the fourth quarter of fiscal 2022, which represents an increase of $12.8 million or 11%. Sales for the fiscal year ended April 30th, 2023, were $454.6 million compared to $441 million in the same period last year. That represents an increase of approximately $13.6 million. Regarding regional revenues, the U.S. Canadian region had sales for the fourth quarter of $98 million, compared to $77.8 million last year, an increase of $20.2 million or 26%.
The international region had sales for the quarter of CAD 30.9 million, compared to CAD 38.2 million last year, it's a decrease of CAD 7.3 million. Fiscal results again. Sales in the US Canadian region were CAD 337.1 million in 2023, compared to CAD 299.4 million in fiscal 2022. That represents an increase of CAD 37.7 million or 13%. Sales in the international region were CAD 117.5 million for the year ended April 30, 2023. That's compared to CAD 141.7 million in fiscal 2022, representing a decrease of CAD 24.2 million.
Proportionally, the international segment represented 24% of total sales in the quarter and 26% of the total sales in the year, compared to 33% and 32% in the respective periods last year. Looking at gross margins. The gross margin for the fourth quarter was approximately 59.5%, compared to 58.9% in the fourth quarter of fiscal 2022. Gross margins for the year were approximately 59%, compared to 57.9% in fiscal 2022. Both the fourth quarter and fiscal 2023 gross margins were within the company's target range. Looking at operating costs, selling and administrative expenses were CAD 17.5 million for the fourth quarter. That's an increase of CAD 1.4 million in the same period last year.
Selling and admin expenses were CAD 61.5 million for the year ended April 2023. That's an increase of CAD 0.6 million from fiscal 2022. Selling and admin expenses as a percentage of revenue were approximately 13.5%, compared to 13.8% last year. Looking at R&D, research and development expenses were CAD 29.9 million for the fourth quarter, which represents a CAD 2.6 million increase from the fourth quarter last year. For the year, research and development expenses were CAD 117.1 million, which represents an increase of CAD 14.7 million, compared to fiscal 2022. The key drivers to the increase being approximately CAD 6 million in additional costs from increased headcount to address key R&D initiatives, and approximately CAD 8 million associated with salary increases.
R&D expenses as a percentage of revenue were approximately 25.8% for the year, compared to 23.2% last year. Foreign exchange for the fourth quarter was a gain of CAD 0.3 million. That's compared to a gain of CAD 1.1 million in the same period last year. Foreign exchange for the 12 months ended April 30th was a gain of CAD 2 million, compared to a loss of CAD 6.5 million the prior year. In both cases, the gains were driven by a change in value of the U.S. to Canadian dollar. Turning to a discussion of liquidity of the company, cash and bank indebtedness as at April 30th, 2023, netted to a total of CAD 6.5 million in cash. That's compared to CAD 33.9 million as at April 30th, 2022.
Working capital was CAD 171.4 million as of April 30, 2023, compared to CAD 158.9 million at the end of April 2022. In our quarterly cash flows, the company generated cash from operations of CAD 25.9 million. That includes a CAD 0.8 million change in non-cash working capital and current taxes. If the effects of those changes in non-cash working capital and current taxes were excluded, the company generated CAD 26.7 million in cash from operations in the quarter. The company generated CAD 3 million in cash from investing activities. The company used CAD 16.5 million in financing activities, which is gross of the CAD 5.9 million presented as bank indebtedness on the balance sheet.
That was driven by dividends paid of $14.5 million. Looking at fiscal cash flows, for the year, the company generated cash from operations of $53.8 million, and that's net of $37.7 million, change in non-cash working capital and current taxes. If the effects of the changes in non-cash working capital and current taxes were excluded, the company generated $91.5 million in cash from operations. As we've discussed in prior calls, the main use of cash and working capital relates to increase of inventory. Regarding financing activities, during the year, the company paid approximately $56.4 million in dividends. Finally, I'll review our share capital position as at April 30, 2023. Shares were approximately 76.1 million, and options and equity-based restricted share units outstanding combined to approximately 6.3 million.
Weighted average shares were CAD 76.2 million, and weighted fully average shares, diluted shares outstanding were also CAD 76.2 million for the year ended. That brings us to a conclusion, the review of our financial results and position for the fourth 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 the official reports filed on the Canadian Securities Administrators. Brian, back to yourself.
Thank you, Doug. Julia, we're now ready to open the call to questions.
Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touchtone phone. If you'd like to withdraw your question, please press the star followed by the two. If you're 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 from BMO Capital Markets. Please go ahead.
Hi, this is Steven on for BMO, sorry, for Thanos. Yeah, I was hoping to get a bit more color on the large CAD 152 million contract you announced earlier this quarter. More specifically, is it an existing customer, and how is it gonna ramp?
Sure. I'll address that. It is an existing customer. That is the first point. The large order is driven by our cloud-native technology and services business. The thing I would highlight was. How it'll flow out and ramp will be dependent on certain how we meet our deliverables. I would note that no revenue was taken in fiscal 2023.
Mm-hmm.
We estimate, you know, again, gonna be dependent on our cloud-based deliverables there, but between CAD 25 million and CAD 35 million in fiscal 2024, and then kind of, carry on throughout the rest of the five years.
Okay, that's helpful. Is there any upfront hardware component related to it?
No.
No. Perfect. Okay, I guess, you k now, you had a record revenue quarter. With some of your larger customers and POs this quarter, like, what proportion are opting for the cloud model? Can you give a little context on maybe how the mix has shifted over the last few quarters?
I cannot provide specifics on, as it relates to how much is on the cloud model. I can see that, you know, a significant portion is associated with our cloud-native technology business, service business.
Mm-hmm.
I can't specifically quantify that. I think, if you look at our record backlogs, I noted the large order, the CAD 115 million order. There's also approximately CAD 45 million relating to a long-term service contract, which is a licensing and support contract over multiple years, 10 years, in fact.
Mm-hmm.
Those are, you know, I think without diving into specific numbers, that provides some color.
Okay. My last question, shipments were quite strong in the first month of this quarter. Also, you apparently finished out Q4 pretty strongly. Do you see that pace continuing throughout the rest of this quarter?
We anticipate, you know, solid deliveries in the rest of the quarter, and again, too, that depends on the customer's, you know, ability to, for us to deliver in the summer months.
Okay. Would you say that was it easier to, you know, deliver to the customer, you know, this most Q1 and Q4, compared to the past? Like, are a lot of the constraints gone by now, or are you still experiencing some restrictions there?
I think from a purchasing perspective, from a manufacturing perspective, there's definitely improvements overall in the past three to six months. There's still challenges we deal with, in particular with certain vendors. We have done our best to mitigate those issues, right? We've stocked about a lot of raw materials, components. Year-over-year, our raw materials are up CAD 23 million. If you look back two years from April 2021, it's up CAD 47 million. I think that's helped us mitigate some of those challenges, but it would be, I could not say they're all gone.
Right.
In terms of on-site access, we're doing very well.
Okay, fantastic. All right, thanks for taking my questions. I'll pass the line.
Your next question comes from Robert Young from Canaccord. Please go ahead.
Rob, I'm just following on that cloud question there. I'm guessing you're not providing more color on the mix, but as I go back to the AGM last year, I believe a 20% number was mentioned. Assuming the big cloud order, should we expect cloud as a percentage to grow over time or kind of stay steady?
The cloud part of the business, it, you know, is definitely a key focus, one we're investing very heavily in terms of R&D and resources, dollars, and people. That definitely is the strategy to, you know, ramp up that part of the business. What you're seeing is, you know, evidence with the long term, very large, purchase order, success in those, in those areas. We've been delivering cloud services, you know, to our, you know, key customers now, since, you know, 2016, 2017, and that business is, you know, definitely ramping up and continues to.
Got it. Then it appears that competition is steadily growing. Grass Valley and Ross put out a couple of announcements. How do you see yourself positioned versus competition?
Well, we're definitely the leader, the global leader. The announcements, you'd have to, you know, read through them. You know, candidly, we're focused on our own business and delivering to customers. We're delivering and have been delivering, you know, at scale to the largest broadcast media players in the industry in North America and internationally.
That's helpful. Just following up on gross margins, really strong in the quarter. I'm guessing cloud has a pretty big role to play there, so should we expect you to increase your target gross margin going ahead, maybe beyond 60%?
I think at this time, our target maintains. It wouldn't necessarily just be cloud. I mean, there are other high margin components, whether it's, you know, warranty, licensing, maintenance, other services that are generally higher margin, too. It wouldn't just say it could be isolated to cloud-based. Our target remains the same, the 56%-60%.
Got it. Thank you. One last one. Any update on the Haivision expression of interest and any update there?
Nothing that isn't in the public domain.
All right. Thank you so much, and I'll pass the line.
Thank you.
Brian, there are no further questions at this time. Please proceed with your closing remarks.
Thank you, Julia. I'd like to thank our participants for their questions. We're very pleased by the company's strong performance in fiscal 2023, achieving record sales of CAD 454.6 million, delivering pre-tax earnings of CAD 87.8 million, 19.3% of sales, all while investing CAD 117 million in R&D to build future growth. We're entering the first half of fiscal 2024 with significant momentum, fueled by a record purchase order backlog in excess of CAD 392 million, plus CAD 40 million shipments in May, totaling in excess of CAD 342 million. Fueled by the growing adoption and successful large-scale deployments of Evertz's IP-based, Software Defined Video Networking solutions, cloud solutions, and our cloud solutions by some of the largest broadcast new media service provider and enterprise companies in the industry.
With our significant investments in software-defined IP, IT, and cloud-native technologies, industry-leading 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 and good night.
Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, you may now disconnect your lines. Thank you.