Evertz Completes “Massive Scale” Public Cloud Deployment for Playout

Josh Stinehour | October 1, 2018

Ahead of the 2018 IBC Show on September 11, 2018, Evertz announced revenue for the first quarter of its 2019 fiscal year, which ended on July 31, 2018.  Revenue for the quarter was C$103.0 million, down 5.4% versus the same period a year ago, and up 10.9% versus the previous quarter (fiscal 2018 fourth quarter) ending April 30, 2018.

Combining Evertz’ two most recent fiscal quarters of FQ1 2019 with FQ4 2018 (covering February 1, 2018 – July 31, 2018) reveals a six month year-over-year revenue decline of 9.1% versus the same period during 2017.  The year-over-year decline during an even year is another data point running counter to the historical cyclicality of the media technology market, where even years exhibit higher purchasing levels when compared to odd years.  EVS experienced a similar decline during its first half 2018 announcement.

A more detailed post will follow discussing the above observations on even years.  My view is this is much more attributable to changing business models in the sector as opposed to weakness in either business.

Evertz “Massive Scale” Cloud Deployment

Concurrent with the earnings announcement, Evertz issued a press release on the completion of the transition “of a massive scale (300+ channels) European channel lineup to the public cloud utilizing Evertz’ advanced playout and Media Asset Management (MAM) solution running with Amazon Web Services.”

Evertz was careful to refrain from identifying the customer in its press release.  This care was similarly observed by Evertz’ management team during its conference call with equity analysts.  Highlighting this care was the below exchange with equity analyst Thanos Moschopoulos from BMO Capital Markets.

  • Thanos Moschopoulos (BMO): Regarding that press release, Discovery has previously talked publicly about the work they are doing with you in the cloud. Could you clarify whether that is the customer in question [is Discovery] or is that another cloud customer that you now have been deploying with?
  • Brian Campbell (Evertz): The press release does not detail the customer, and that’s by agreement with the customer. So, I don’t want to go any farther than what is in the press release. But yes, we’ve had a very successful deployment in the US with Discovery where they’ve migrated their entire U.S. channel playout to Amazon Web Services.  The press release here also talks about supporting cloud-based live event management. Again, this is a massive deployment. And you have not seen anyone other than Evertz come up with press releases such as this.

Brian’s last statement (the emphasis is mine) calls attention to the unique nature of the deployment.  It is echoed in the press release.  “The extensive functionality in this massive scale deployment represents a milestone in the migration of the industry to IP-centric, software-centric and cloud-centric technologies” stated Dan Turow, VP File-Based Solutions at Evertz.

Attendees at the Devoncroft Summit | Amsterdam earlier in September would have heard about unrelated and unique cloud deployments from the customer perspective during a panel moderated by Steve Plunkett, Founder InnovAItor (picture below). We hope to have a write-up of some of the discussion points for a later post.

(from left to right: Steve Plunkett, Founder InnovAItor; Simon Farnsworth, EVP Engineering & Operations EMEA & APAC at Discovery; Sinead Greenaway, Chief Technology and Operations Officer at UKTV; and Steve Fish, VP Media & Technology Architecture at Turner International)


Additional Financial Metrics from Evertz’ FQ1 2019 Results

Driving the year-over-year revenue decline was weakness in the international regions for Evertz.

International revenue was C$27.9 million, representing a 36% decline versus the previous year’s result and a decrease of 21.7% when compared to the previous quarter. International sales were 27.1% of total revenue, down from 40% last year and 44% last quarter.

Revenue in the US/Canada region was C$75.2 million, up 15% versus the same period a year ago, and up 44% compared to the preceding quarter.  US/Canada sales were 72.9% of total revenue during the quarter, up from 60.8% of revenue during the same period a year ago, and 56% of revenue last quarter.

Unusual for Evertz there was significant customer concentration in the quarter, with a single customer representing 17% of revenue or C$17.5 million.  Management avoided drawing any linkage between the cloud deployment and the single large customer; even adding emphasis that the two data points were independent pieces of information.

As a result of the large customer, the top ten customers in the quarter accounted for 51% of revenue.  This figures is usually much closer to 30%.  Evertz still had a diversified revenue base, as 114 individual customers each represented over $200,000 of revenue during the quarter.

Gross margins in the quarter were 57.0%, up slightly from 56.1% last year and up substantially from 52.7% last quarter.

Operating income for the first quarter was C$23.2 million, an increase of 28.2% compared to the year-earlier period and a 101% increase against the preceding quarter.  For the quarter, Evertz recorded an operating margin of 22.6%, a substantial increase over the 12.5% operating margin level in the first fiscal quarter of 2018 and the 16.7% level observed in the preceding quarter.  It is interesting to note the swing in foreign exchange from a loss of $8.2 million in the year-earlier period to a gain of $1.1 million in the current quarter translates to a 9% percentage point uplift in operating margin or around 92% of the margin improvement year-over-year.

R&D expenses in the second quarter were C$21.3 million, an increase of 11.0% versus the same period last year, and up 1.5% versus the previous quarter.  R&D expenses were approximately 20.7% of revenue in the quarter, higher on a percentage basis than last year (17.7%), but below last quarter (22.6%).

Selling and administrative expenses for the quarter were C$15.9 million, flat versus last year, and a decrease of 3.1% versus the sequential quarter. Selling and administrative expenses represented approximately 15.4% of revenue in the quarter versus 14.5% of revenue during the same period last year, and 19.1% of revenue in the previous quarter.

Net earnings for the quarter were C$17.3 million (C$0.23 earnings per share), an increase of 35.3% versus the first fiscal quarter of 2018, and a more than doubling compared to the C$0.11 earnings per share recorded in FQ4 2018.

The company ended the quarter with C$91.7m of cash and cash equivalents down slightly from C$94.1 at the end of April.


Business Outlook:

Evertz indicated shipments during August 2018 were C$41 million, and that its purchase order backlog at the end of the quarter was in excess of C$81 million.   The combined shipments and backlog is then C$122 million, a 9.9% increase over the same time last year.

During the question and answer session with analyst, Brian Campbell attributed the strong shipment number to “the demand for Evertz IP-based and cloud-based products. Our next-generation of products are helping many of the industry leader’s transition to IP-based solutions, virtualized cloud solutions, and file-based solutions.”



Related Content:

Evertz Press Release on Fiscal First Quarter 2019 Results

Evertz Press Release on Massive Scale Public Cloud Deployment



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