Net earnings for the quarter were C$21.3m (C$0.29 per share), up 61.3% versus the same quarter last year, and up 38% versus the previous quarter. The company generated C$24.4m cash from operations in the quarter, up from C$22m, last year, and C$9.7m last quarter.
The results (which were the second highest sales quarter in the history of the company), were well above the consensus estimates of equity analysts who were looking for revenue of $C80m and earnings of C$0.21 per share.
Evertz EVP Brian Campbell attributed the higher than expected results to improvements in the US/Canada market, the ongoing worldwide transition to HDTV, and strong customer demand for its new products.
Revenue in the US/Canada region was C$55m, up 63% versus the same period a year ago, and up 44.3% versus the previous quarter. US/Canada sales were 59% of total revenue during the quarter, up from 47% of revenue during the same period a year ago, and 47% of revenue last quarter.
International revenue was C$38.2m, essentially flat with last year, and down 11.4% versus the previous quarter. International sales were 41% of total revenue, down from 53% last year and last quarter.
The top ten customers in the quarter accounted for 38% of revenue (C$27.8m), and the largest customer in the quarter accounted for 12% of revenue (C$11.2m). Altogether Evertz had 78 orders in the quarter that were greater than C$200,000 (up from 57 last year, and 68 last quarter).
Unusually for Evertz, which is notoriously tight-lipped about corporate activity and customer wins, Cambell disclosed that the company had shipped a total of C$15m worth of product to two separate customers in the quarter, and specifically mentioned that these orders included the company’s new EXE routing switcher platform and Dreamcatcher video replay system. Campbell declined to identify the customers by name, saying only that Dreamcatcher had been adopted by a “major sports league” and that the EXE platform had been adopted by “a major sports network.” However, an Evertz executive speaking on the “Professional Networked Media” panel at last month’s HPA Tech Retreat in Indian Wells, California, told the audience that the EXE-VSR router has been deployed by ESPN as part of its new D2 project.
Gross margins in the quarter were 57.6%, up from 56.1% last year and up from 57.4% last quarter. Evertz executives said that the gross margin performance in the quarter were within the company’s target range of 56% to 60%. This prompted equity analysts on the earnings call to ask, for the second quarter in a row, why the company’s gross margins were not increasing more rapidly given the large percentage increases in quarterly sales.
Campbell attributed the gross margin performance to two factors. Because the company’s top-line growth in the quarter was driven by to big deals, “gross margins were lower than what you may anticipate from increased volumes, because of the large size of the orders, often-times those customers require a volume discount.” Campbell also said gross margins in the quarter were affected by the order mix.
R&D expenses in the second quarter were C$15.05m, an increase of 15% versus the same period last year, and up 3% versus the previous quarter. R&D expenses were approximately 16.1% of revenue in the quarter, lower on a percentage basis than last year (18.2%) and last quarter (18%) due to higher revenue.
Selling and administrative expenses for the quarter were C$14.9m, an increase of 9.2% versus last year, and an increase of 9.1% versus the previous quarter. Selling and administrative expenses represented approximately 16.1% of revenue in the quarter versus 18.2% of revenue during the same period last year, and 16.8% of revenue last quarter.
The company said that its shipments in February 2014 were C$25m, and that its purchase order backlog at the end of the third quarter of fiscal 2014 was in excess of C$43m, unchanged from last quarter.
Campbell said that the backlog remained the same despite higher revenue in the quarter because of a large order, which the customer asked to be expedited. Thus it was received and turned into sales during in one quarter, rather than showing up in backlog.
The company ended the quarter with $118.8m of cash and short term investments down from C$208.2 at the end of last quarter, a difference of C$89.4m. The primary reason for this was the payment of dividends of C$115.8, including a special dividend of $C104m.
Evertz said it expects its annual revenues will continue to outpace the industry growth, and that its gross margin percentages may vary depending on the mix of products sold, the company’s success in winning more complete projects, utilization of manufacturing capacity and the competitiveness of the pricing environment. R&D will continue to be a key focus as the Company invests in new product development.
Press Release: Evertz Technologies Third Quarter Fiscal 2014 Revenue Up 30%
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