Net earnings for the quarter were C$24.4 million (C$0.32 per share), up 15.1% versus the same quarter last year, and up 24% versus the previous quarter. The company generated C$49.6 million cash from operations in the quarter, up from C$27.5 million cash used last year, and C$23.6 million generated last quarter.
The revenue result (second highest in Evertz history) was slightly above the consensus estimates of equity analysts, who were looking for revenue of $C97.5m. Consensus earnings expectations for the quarter were C$0.24 per share.
Evertz EVP Brian Campbell attributed the strong performance to ongoing industry technical transition to IP networking and file-based workflow. Brian Campbell also highlighted the growing adoption of Evertz’s IP-based software-defined networking solutions, compression solutions, and DreamCatcher IP-based replay and production suite.
Revenue in the US/Canada region was C$53.5 million, flat versus the same period a year ago, and down 12.4% versus the previous quarter. US/Canada sales were 53.7% of total revenue during the quarter, down from 59% of revenue during the same period a year ago, and 60.8% of revenue last quarter.
International revenue was C$46.2 million, an increase of 24% versus the same period last year, and up 17.5% versus the previous quarter. International sales were 46.3% of total revenue, up from 41% last year, and 39.2% last quarter.
The top ten customers in the quarter accounted for 36% of revenue (C$35.9 million), and the no customer in the quarter accounted for more than 11% of revenue (C$10.9 million). Altogether Evertz had 78 orders in the quarter that were greater than C$200,000 (the same as last year, and down from 82 last quarter).
Gross margins in the quarter were 57.1%, up from 57.6% last year and up from 57.2% last quarter. Evertz CFO Anthony Gridley reiterated the gross margin performance in the quarter was within the company’s target range of 56% to 60%.
R&D expenses in the second quarter were C$17.2 million, an increase of 8.8% versus the same period last year, and up 6.8% versus the previous quarter. R&D expenses were approximately 17.2% of revenue in the quarter, higher on a percentage basis than last year (16.1%) and last quarter (16%).
Selling and administrative expenses for the quarter were C$15.1 million, an increase of 2.0% versus last year, and a decrease of 7.9% versus the previous quarter. Selling and administrative expenses represented approximately 15.2% of revenue in the quarter versus 16.3% of revenue during the same period last year, and 16.3% of revenue last quarter.
The company said that its shipments in February 2015 were C$28m, and that its purchase order backlog at the end of the third quarter were in excess of C$60 million, down slightly from the C$66 million figure in the second quarter. Combination of the shipments and backlog (C$88 million) represents a 5% increase versus the same period last year.
The company ended the quarter with $129.9 million of cash and short term investments up from C$97.5 million at the end of last quarter, a difference of C$32.4m. Cash generation in the quarter benefited from a C$18.7 million positive impact from changes in non-cash working capital accounts.
Management’s exchange with equity analyst Robert Young from Canaccord Genuity on the earnings call was worth highlighting for its commentary on the current competitive dynamic in the market:
Robert Young (Canaccord): … they (a competitor) also called out the number of IP projects that they booked and the number that they shipped. I was wondering, would you be willing to share a similar metric?
Brian Campbell (Evertz): Thanks, Robert. So in terms of the metric, what is more important for us would be to showcase the on-air installs. We’re quite familiar with the ESPN DC-2 that really launched the industry’s move to IP-based solutions for live production and workflow. And if we just even look to the recent Super Bowl 50, there’s been several industry articles highlighting the fact that the CBS Super truck was there as part of the coverage, or actually, the centerpiece of the coverage. That’s an industry pioneering, one of several that incorporates Evertz Software Defined Video Networking. In fact, it’s an EXE hyperscale, 23-terabit switch in that truck. And in addition, the Levi’s Stadium is a state-of-the-art stadium. It includes Evertz solutions, and for Super Bowl 50, there was an overlay of our Software Defined Video Networking helping to provide the coverage that folks saw at the Super Bowl and also the 4K replay for the in-stadium venue experiences.
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