Evertz reported financial results for its fiscal fourth quarter and year ending April 30, 2018. For the full year, Evertz recorded revenues of C$402.8 million (USD $315.4M), an increase of 5% versus fiscal 2017 revenue.
It is helpful to evaluate financial performance in the context of aggregate market results.
High-level aggregate figures from the annual IABM DC Global Market Valuation Report (GMVR) were released by IABM DC (joint venture between Devoncroft and IABM) at the 2018 NAB Show. A press release is upcoming. For the 2017 calendar year, product revenues for the media technology sector declined slightly at -0.2%. Please keep in mind “all products” is an aggregate of over 100 individual product categories – individual product results vary considerably.
Some interesting regional and market share commentary was gleaned from an exchange between Evertz’s management team and equity analyst Thanos Moschopoulos with BMO Capital Markets. I’ve included the relevant excerpt below from the analyst question and answer session:
Thanos Moschopoulos (BMO Capital Markets): … one of your competitors talked about a slowdown in the North American spending environment due to shifting spending priorities among broadcasters. Would you share that view, or how would you say the environment is looking from your perspective?
Brian Campbell (Evertz): The U.S. has been up for us quite strongly, so a good 10% year-over-year and continues to do very well. So we’re seeing significant opportunities with the North American market being early adopters and large scale — and having large-scale deployments of our Software Defined Video Networking solutions…
In addition to noting several large client installations, such as the Ostankino TV center outside of Moscow, Evertz cited a deployment amount of software-defined networking solutions of over 100 (a claim Evertz has made publicly since late 2017). During its 2016 fiscal results (June 2016) announcement, Evertz cited a figure of more than 50 such solutions.
As an aside, I have always enjoyed the back-and-forth between equity analysts and the Evertz management team, owing to how well-researched and thoughtful the questions are from the analysts covering Evertz.
Returning to the financial results, net earnings for the fiscal year were C$53.5 million (C$0.70 per share), a 23% decrease against fiscal 2017. Evertz generated cash flow of C$98.4 million from operations during fiscal 2018, an increase of 52% over 2017.
Gross margin percentage for fiscal 2018 was 55.3%, compared to the 56.7% recorded during fiscal 2017. Operating margins for the 2018 year were 17.5%, a decline versus the 24.0% operating margins in 2017.
The largest contributor to decreased operating profitability was a foreign exchange loss of C$4.7 million recorded in the fiscal year. This compares to a foreign exchange gain of C$9.9 million during fiscal 2017. The reversal stems from the decrease in value of the US dollar against the Canadian dollar since April 2017. Cast in terms of percent of revenue, the reversal depressed operating margins by 3.8%.
Also impacting fiscal 2018 profitability was an increase in R&D expenditures of C$7.1 million or 9.6% to an annual level of C$80.8 million. (Eclipsing a C$80 million level of annual investment is worthy of some reflection). R&D expenses as a percentage of revenue were 20.1%, an increase against the 19.2% level in 2017. Management attributed the increase to a larger headcount associated with planned research in new technologies. This is consistent with the following statement included in the Evertz MD&A for the entirety of my memory: “R&D will continue to be a key focus as the Company invests in new product development.”
Selling and administrative expenses were C$65.5 million for fiscal 2018, an increase of 5.4% million from last year. As a percentage of revenue, selling and administrative expenses were 16.3%, similar to the 16.2% in 2017.
2018 annual revenue from the US/Canada region was $252.8 million, up 10% when compared to 2017. US/Canada represented 62.7% of total revenue in 2018, an increase over the 2017 contribution of 59.5% of revenue.
International revenue for full year 2018 was $150.0 million, a 3.4% decrease compared to 2017. As a percentage of total revenue, International represented 37.3% of total sales in 2018, which compares to 40.5% of total revenue in 2017.
The top ten customers for the year accounted for 37% of total revenue, and no customer accounted for an excess of 7.5% of revenue. During the year, Evertz had 341 individual customers each representing over C$200,000 of revenue.
The Company ended the year with C$94.2 million of cash and cash equivalents down slightly from C$98.2 million at January 31, 2018.
Q4 FY2018 Results:
Evertz revenue for the fourth quarter of its 2018 fiscal year was C$93.0 million, down 12.8% versus the same quarter a year earlier, and down 6.6% versus the previous quarter ending January 31, 2018.
Management attributed the revenue softness in the quarter to the general lumpiness of orders and the timing of individual shipments.
Net earnings for the quarter were C$8.1 million (C$0.11 earnings per share), a decrease of 57% versus the fourth fiscal quarter of 2017, and a decrease of 39% versus the preceding quarter.
Revenue in quarter for the US/Canada region was C$52.1 million, down 10% versus the same period a year ago. International revenue for the quarter was C$40.9 million, down 16% versus the previous year’s result.
Gross margins in the quarter were 52.7%, down from 56.2% during the prior year period and the 56.1% contribution from the third fiscal quarter of the year.
Evertz said that its shipments during May 2018 were C$32 million, and that its purchase order backlog at the end of the quarter was in excess of C$85 million. Combination of the shipments and backlog (C$117 million) represents a 9.4% decrease versus the same period last year.
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