Earnings call transcript: Evertz misses Q3 FY2025 EPS expectations

Evertz Technologies reported a third-quarter EPS of $0.27, falling short of the $0.37 forecast. Revenue reached $136.9 million, marking a modest 1% year-over-year increase. Following the earnings announcement, the stock fell by 2.19% in after-hours trading. According to InvestingPro data, the company maintains a healthy P/E ratio of 14.14 and has demonstrated consistent financial strength with a GOOD overall health score.

Key Takeaways

• Evertz Technologies missed its EPS forecast by $0.08.
• Revenue increased by 1% year-over-year to $136.9 million.
• Stock price dropped 2.19% in after-hours trading.
• Continued focus on IP-based and UHD solutions.
• Expansion of U.S. manufacturing capabilities.

Company Performance

Evertz Technologies reported a slight increase in revenue for Q3 FY2025, driven by a focus on IP-based and Ultra High Definition solutions. However, the company faced challenges in meeting EPS expectations, which impacted investor sentiment. The company’s diversification in products and investments in innovative technologies position it well against competitors, but international revenue declines remain a concern.

Financial Highlights

• Revenue: $136.9 million, up 1% year-over-year.
• Earnings per share: $0.27, below the forecasted $0.37.
• Gross margin: 57.8%.
• Cash position: $96.3 million.
• Working capital: $207.9 million.

Earnings vs. Forecast

Evertz Technologies reported an EPS of $0.27, missing the forecast of $0.37 by $0.08. This represents a significant miss in the company’s earnings expectations, which likely contributed to the negative market reaction.

Market Reaction

Following the earnings announcement, Evertz’s stock price fell by 2.19% in after-hours trading, closing at $19.65. This decline reflects investor concerns over the earnings miss and potential challenges ahead. The stock remains below its 52-week high of $21.45, indicating room for recovery if future performance improves. InvestingPro analysis shows the stock currently trading near its Fair Value, with a notable dividend yield of 7.14%. Subscribers can access 8 additional ProTips and comprehensive valuation metrics through the Pro Research Report.

Outlook & Guidance

Looking forward, Evertz plans to invest in expanding its U.S. manufacturing capabilities and continue developing its IP-based solutions. The company anticipates discussions at the NAB trade show and is preparing for potential U.S.-Canada tariffs, which could impact future profitability. With a market capitalization of $62.52 billion and revenue growth of 5.2% over the last twelve months, InvestingPro data suggests the company maintains strong fundamentals despite near-term challenges. Unlock detailed financial analysis and growth projections with an InvestingPro subscription.

Executive Commentary

"Overall demand for Evertz products remains very robust," stated Brian Campbell, Executive VP, highlighting the company’s strong market position. CFO Doug Moore emphasized the strategy to mitigate tariffs by expanding U.S. manufacturing: "Our goal is to manufacture in The States and ship to customers in The States to lessen the impact of tariffs."

Risks and Challenges

• Potential U.S.-Canada tariffs could impact profitability.
• Decline in international revenue poses a risk to growth.
• Missed EPS and revenue forecasts may affect investor confidence.
• Supply chain disruptions could hinder manufacturing expansion.
• Market saturation in the video networking industry.

Q&A

During the earnings call, analysts focused on the potential impact of tariffs and Evertz’s strategy to expand U.S. manufacturing. Executives addressed concerns about order front-loading and emphasized flexibility in pricing and customer arrangements to mitigate risks.

Full transcript - Energy Transfer Equity LP (ET) Q3 2025:

Andrew, Conference Call Moderator: Good afternoon, ladies and gentlemen, and welcome to the Evertz Q3 twenty twenty five Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. I would now like to turn the conference over to Brian Campbell, Executive Vice President of Business Development. Please go ahead.

Brian Campbell, Executive Vice President of Business Development, Evertz Technologies: Thank you, Andrew. Good afternoon, everyone, and welcome to Evertz Technologies conference call for our fiscal twenty twenty five third quarter ended 01/31/2025 with Doug Moore, Evertz’s Chief Financial Officer and myself, Brian Campbell. Please note that our financial press release and MD and 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’s results, I will begin by providing a few highlights and then Doug will provide additional details.

First off, sales for the first quarter for the third quarter totaled $136,900,000 up 9% sequentially from the prior quarter and 1% year over year. Revenue included $99,100,000 in The U. S./Canada region, up 23% sequentially. Recurring software services and other software revenues increased 6.3% year over year totaling $55,000,000 in the quarter. Our base is well diversified with the top 10 customers accounting for approximately 48% of sales during the quarter with no single customer accounting for over 10% of sales.

In fact, we had 115 customer orders of over $200,000 in the quarter. Gross margin in the quarter was $79,100,000 or 57.8 percent, which is within our target range. Investment in research and development during the quarter totaled $36,600,000 Net earnings for the third quarter were $21,100,000 while fully diluted earnings per share were $0.27 Evertz working capital was $207,900,000 with cash of $96,300,000 as at 01/31/2025. At the February 2025, Evertz purchase order backlog was in excess of $269,000,000 and shipments during the month were $39,000,000 We attribute the 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 cloud based architectures in the industry and specifically to the growing adoption of Evertz IP based software defined video networking solutions, Evertz IT and cloud solutions, farmers of four ks, eight ks 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 of $0.2 per share payable on or about March 20.

I will now hand it over to Doug Moore, Seabird’s Chief Financial Officer to cover our results in greater detail.

Doug Moore, Chief Financial Officer, Evertz Technologies: All right. Thanks, Brian. Good afternoon. Starting with sales, revenue was a record $136,900,000 in the third quarter of fiscal twenty twenty five as compared to $135,300,000 in the third quarter of fiscal twenty twenty four, an increase of 1,600,000 or just over 1%. For the nine months ended January 31, revenue was $373,800,000 compared to $391,800,000 in the same period last year to the decline of $18,000,000 or approximately 4.5%.

Looking at revenues in specific regions, U. S. And Canadian region had revenue for the quarter of $99,100,000 hundred and 60 7 point 9 million

Robert Young, Analyst, Canaccord Genuity: dollars for the $9,267,900,000.0

Doug Moore, Chief Financial Officer, Evertz Technologies: for the nine months ended 01/31/2025, compared to $241,500,000 in the same period last year, an increase of $26,400,000 or 11%. The international region had revenue for the quarter of thirty seven point eight million dollars compared to $54,800,000 last year, decrease of $16,900,000 or 31% quarter over quarter. International segment represented 28% of total sales in the quarter. For the nine months ended 01/31/2025, international revenue was $105,900,000 compared to $150,300,000 in the same period last year, a decline of $44,400,000 or around 29.5%. Looking at the, let’s call it, class of revenue.

Hardware revenue in the three months period ended 01/31/2025 was $81,200,000 as compared to $82,800,000 in the same period last year, while software and services revenue was $55,700,000 in the quarter ended 01/31/2025, compared to $52,400,000 in the same period last year. For the nine months, hardware revenue was $207,400,000 while software and services revenue were $166,400,000 Now looking at gross margins, gross margin for the third quarter was approximately 57.8% compared with 58.9% in the same prior year quarter. The gross margin was within our target range, albeit slightly lower than the past few quarters. Comparative decrease was largely driven by the product mix we delivered in the quarter. For the nine months ended January 31, gross margin was approximately 58.8%.

As I noted, both quarterly and year end to date margins were within our target range. Turning to selling and admin expenses, S and A was $19,200,000 in the third quarter. That’s an increase of $900,000 from the same period last year and S and A represented approximately 14% of revenue compared to 13.5% in the same period last year. For the nine months period ended January 31, selling and admin expenses were $55,200,000 increase of $3,000,000 from the same period last year. And selling and admin expense M and M expense as a percentage of revenue were approximately 14.8% over the period.

Now research and development expenses, they were $36,600,000 for the third quarter. That represents a $2,600,000 increase from $34,000,000 in

Brian Campbell, Executive Vice President of Business Development, Evertz Technologies: the third quarter last year.

Doug Moore, Chief Financial Officer, Evertz Technologies: The increase includes 1,700,000 in increased salary costs and $900,000 increase in the combination of higher software, prototypes and material costs. As a percentage of revenue, R and D expenses were 26.7% compared to 25.1% last year. For the nine months, research and development expenses were $110,200,000 that represented an increase of $12,100,000 over the same period last year. The increase included an increase of $5,700,000 in North American salaries and another million dollars in overseas salaries. Research and development expenses as a percentage of revenue were approximately 29.5% year to date.

Foreign exchange for the third quarter was a gain of $3,900,000 as compared to a loss of $2,900,000 same period last year. The gain in the quarter was largely driven by The U. S. To Canadian exchange rate. So we closed January 31 at approximately $1.45 to $1.45 Canadian to $1 as compared to $1.39 in October 31.

Foreign exchange for the nine months ended January 31 was a gain of $4,700,000 as compared to a loss of $2,000,000 in the same period last year. Looking at liquidity of the company, cash as at 01/31/2025 was $96,300,000 as compared to net cash of $86,300,000 as at April 30. Working capital was $207,900,000 as at January 31 compared to $201,400,000 at the April ’30. For cash flows, the company generated cash from operations of $53,000,000 which includes a $24,800,000 change in non cash working capital and current taxes. And that change includes a quarterly decrease of inventory of approximately $11,000,000 which was split relatively evenly between finished goods and raw materials as well as an increase in accounts payable of $7,400,000 If the effects of the change in non cash working capital and current taxes are excluded, the company generated $26,800,000 in cash from operations during the quarter.

Company used cash of $1,100,000 from investing activities, that’s principally driven by the acquisition of capital assets. And the company used cash and financing activities of $17,200,000 which was principally driven by dividends paid of $15,100,000 Finally, looking at our share capital position as of January 31. Shares outstanding were approximately $75,900,000 and options and equity based restricted share units outstanding were approximately $5,100,000 The weighted average shares outstanding were $76,000,000 and the weighted average of fully diluted shares were $77,000,000 for the quarter ended January 31. That brings to a conclusion the review of our financial results and position for the third 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 with the Canadian Securities Commission.

Brian, back to yourself.

Brian Campbell, Executive Vice President of Business Development, Evertz Technologies: Thank you, Doug. Andrew, we’re now ready to open the call to questions.

Doug Moore, Chief Financial Officer, Evertz Technologies: Thank

Andrew, Conference Call Moderator: Your first question is from Robert Young from Canaccord Genuity. Please go ahead.

Robert Young, Analyst, Canaccord Genuity: Good evening. I think the probably the most relevant question is to dig into the impact or the potential impact from tariffs on your business. I know that may be difficult to answer. But if you can just give us a summary of how the manufacturing footprint is split and what you think the exposure is and what you’re doing to mitigate it, whether that might be through pricing or whether you believe pricing can be passed through to your customers? Just general overview of how you think you might deal with tariffs.

Doug Moore, Chief Financial Officer, Evertz Technologies: Sure. It’s a question I’m obviously expecting. So in regards to U. S. Tariffs, I mean, this is obviously a fluid situation.

We’ve been actually monitoring it, frankly hoping they wouldn’t transpire, but planning for their implementation nonetheless. As you know, we have significant sales in The U. S, both domestically therein and the ones domestically therein obviously not impacted, but we also have manufacturing recent announcements on The U. S. Canadian tariffs, we have been actively adding to our manufacturing capabilities within The U.

S. The rationale then was primarily focused on addressing U. S. Government opportunities, but that process has been accelerated to try and lessen the potential exposure to the new tariffs on their U. S.

Customers. We have completed the initial stages of our expansion, largely focused in our Indiana, Pennsylvania facility. Our intention is to continue to expand our manufacturing capabilities there and processes within The U. S. They’re targeting specific products and customers to start, lessen that tariff exposure.

I will obviously as we add capabilities in The U. S, I will highlight that. We remain committed to maintaining our significant Canadian manufacturing. But we do expect some negative impact on the near term margin. I mean whether it’s tariff related or as we increase capabilities in The U.

S, there will be some operational redundancies, we’ll call them, between say Burlington and Pennsylvania. But I can’t really give you a specific specifically quantify the impact, whether it’s either as a margin percentage or a monetary amount, but because obviously it’s going to be specific impact will be dependent on a number of factors, obviously the speed at which we continue to ramp up our manufacturing in The States, the product mix, specific customers we end up selling to and of course seeing if there’s any changes to the tariffs or duties that are put into place. It’s a long winded answer for you.

Robert Young, Analyst, Canaccord Genuity: Thanks for the color. I think, well, you had a strong quarter for revenue and the backlog dropped quarter over quarter. So, should we think of that as front loading in front of the application of tariffs? Is that a one time benefit that might not repeat going forward? No, I don’t think we’ve seen any front loading?

Doug Moore, Chief Financial Officer, Evertz Technologies: No, I don’t think we’ve seen a material amount of front loading like from customer orders to be fair. I think it’s not any material level, no.

Robert Young, Analyst, Canaccord Genuity: And then to address it, I mean, do you think that you have the ability to absorb it? I mean, we see gross margins down a little bit quarter over quarter, I guess it wouldn’t be from this impact.

Doug Moore, Chief Financial Officer, Evertz Technologies: No, this quarter is not to do with that at all. What we’re going to focus on, if we can make something and ship it to our customers in The States, we will where we can.

Robert Young, Analyst, Canaccord Genuity: And if you can’t, will you absorb it in pricing or do you think you can pass the pricing through your customer?

Doug Moore, Chief Financial Officer, Evertz Technologies: That is going to be very dependent on the arrangement we have with that customer.

Robert Young, Analyst, Canaccord Genuity: Last question then on this is would be the backlog where you have deals in play, would those be impacted? Would the pricing on those be impacted or should we think of any change related to tariffs on past deals?

Doug Moore, Chief Financial Officer, Evertz Technologies: So, I think that our backlog again, if we’re able to manufacture in The States and ship to a customer in The States, we will do so. And as to whether or not the additional tariffs applied to The U. S. Entity that receives the goods, the customers, whether it’s absorbed or not, that’s going to depend on the arrangement we have with that customer. That’s why it’s very difficult to specifically quantify an impact.

Robert Young, Analyst, Canaccord Genuity: But I think Maybe another way to ask it. The goal I would say is that Are you the importer? Are you paying the tariffs or on a deal that’s in your backlog or is your customer going to pay for that tariff as an importer?

Brian Campbell, Executive Vice President of Business Development, Evertz Technologies: So, Rob, Doug has answered that it depends on the customer arrangement.

Doug Moore, Chief Financial Officer, Evertz Technologies: Okay. Look, our goal here is to, again, if we can manufacture in The States and ship to a customer in The States to lessen the impact of tariffs, we will. And in the long term, we expect this to level out, quite frankly. Great. Okay.

Robert Young, Analyst, Canaccord Genuity: And in the short run, you’re shifting manufacturing to The U. S. As much as you can, but you’re at the early stages of that shift. Is that a good way to think of that?

Doug Moore, Chief Financial Officer, Evertz Technologies: Yes. We had started this before. Again, the intention wasn’t before we heard of anything about tariffs or whatnot, there was a focus on government opportunities that would be manufactured in The States. This has escalated that ramp up. So it’s not the first step, but earlier days, but not not we didn’t just start this a month ago.

Andrew, Conference Call Moderator: Your next question is from Mathopoulos from BMO Capital Markets. Please go ahead.

Robert Young, Analyst, Canaccord Genuity: It might be too early to say, but should we anticipate a meaningful uptick in CapEx associated with building up more capacity in The U. S? And if so, any way to think about that quantitatively?

Doug Moore, Chief Financial Officer, Evertz Technologies: Yes. I mean, we do we’ve been planning this for quite some time. So from a materiality perspective, they could we could have CapEx of $2,000,000 to $5,000,000 type of a thing, the costs over the next six to twelve months, but we’re not going to double our capital assets or anything like that. That’s kind of how we quantify that $2,000,000 to $5,000,000 of extra CapEx across across

Andrew, Conference Call Moderator: multiple quarters.

Robert Young, Analyst, Canaccord Genuity: Is this already a topic that’s coming up in customer discussions or is it just so early days that your customers are also scratching their heads trying to make sense of

Doug Moore, Chief Financial Officer, Evertz Technologies: it? This has been a topic with customers from, I would say, since the initial discussions of this well over a month ago.

Robert Young, Analyst, Canaccord Genuity: All right. Maybe on a different topic, The international business, obviously, year to date has been down significantly. And I realize that that can be dependent on maybe some projects in the year ago quarter that didn’t repeat. But just in general, is there anything else to point to in terms of the growth challenges international has had, not only over recent quarters, but also kind of more broadly in recent years relative to North America? Anything you’d spell out?

Doug Moore, Chief Financial Officer, Evertz Technologies: I mean, international revenue, so year over year, we did have a large project we press released that was went out in the prior year. That was around $25,000,000 approximately at a macro level to call out. I don’t have a specific item to call it at a macro level.

Robert Young, Analyst, Canaccord Genuity: Okay. Generally speaking, anything of note that you’d call out as far as the overall spending environments, be it either across either of the key geographic regions?

Brian Campbell, Executive Vice President of Business Development, Evertz Technologies: Dallas, could you repeat that question? You broke up at the end.

Robert Young, Analyst, Canaccord Genuity: Yes. Just asking whether there’s anything you call out as far as the spending environment. Would you characterize the status quo or any changes you’ve seen, be it in Europe or North America as far as overall demand?

Brian Campbell, Executive Vice President of Business Development, Evertz Technologies: Overall demand for eBreach products remains very robust. That said, there is uncertainty around the current tariff situation. We are very much looking forward to having close contact in April at NAB, our largest annual trade show. So that will definitely help us continuing those relationships and continue to build our strong backlog and order book.

Andrew, Conference Call Moderator: There are no further questions at this time. Mr. Gamble, please proceed with closing remarks.

Brian Campbell, Executive Vice President of Business Development, Evertz Technologies: Thank you, Andrew. I’d like to thank the participants for their questions and to add that we are very pleased with the company’s performance during the third quarter of fiscal twenty twenty five, which saw record high quarterly sales of $136,900,000 solid gross margins of 57.8% in the quarter, which together with Evertz disciplined expense management yielded basic quarterly earnings of $0.28 per share. We’re entering into the last quarter of fiscal twenty twenty five with significant momentum fueled by the combined purchase order backlog plus February shipments totaling in excess of $3.00 $8,000,000 by the growing adoption and successful large scale deployments of Evertz IP based software defined video networking and cloud solutions by some of the largest broadcast new media service provider and enterprises in the industry. And by the continuing success of DreamCatcher Bravo, our our state of the art IP based replay and production suite. With Evertz 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 to provide innovative solutions to customers and deliver to shareholders.

Thank you everyone and good night.

Andrew, Conference Call Moderator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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