Net earnings for the third quarter were C$21.2m (C$0.28 per share), down approximately 1% versus the same quarter last year, and up 47.9% versus the previous quarter.
The company generated C$27.5m cash from operations in the quarter, up from C$24.4m, last year, and C$17.5m last quarter.
The results (which were the fourth highest sales quarter in the history of the company), were in line with the consensus estimates of equity analysts.
Evertz EVP Brian Campbell said that the company’s revenue in the quarter was well-diversified, with the top 10 customers accounting for approximately 38% of sales. The company had 72 orders of more than C$200,000 during the quarter (versus 78 last year, and 71 last quarter), and no single customer represented more than 7% (C$6.35m) of revenue.
According to Campbell, the company’s product mix profile during the quarter was “very consistent with the last few quarters,” specifically citing success with its EXE and IPX IP routing products, the DreamCatcher replay system, video compression products, and IRDs. Campbell said that these new product families pull through traditional processing and infrastructure equipment with them.”
As evidence of this pull-through effect, Campbell highlighted how the “recent adoption of Evertz new Integrated Receiver/Decoder technology by a leading US national broadcast network customer, resulted in the purchase order of over C$10m” for Evertz IRDs, compression products, infrastructure products, and monitoring & control solutions.
Looking specifically at IP routers, Campbell said that although Evertz has not announced many wins for its EXE IP-based router (which it also calls SDVN), the company continues to have very good success with the EXE at its 46 terabit size, and has recently started to gain traction in the mobile production community with a newly introduced half-rack version of the EXE, which has a throughput capacity of 23 terabit per seconds. Campbell added that the company currently has “in excess of 30 customers” for the EXE and IPX IP-based router products, and customer demand for these products remains “very good,” particularly with sports trucks, where the company is winning new business.
Revenue in the US/Canada region was C$53.6m, down 2.5% versus the same period a year ago, and up 18.1% versus the previous quarter. US/Canada sales were 59.1% of total revenue during the quarter, flat with the same period a year ago, and up from 54.7% of revenue last quarter. Evertz does not provide details of currency adjusted trading, but one analyst estimated that revenue in the US/Canada region was likely down 10% on a constant currency basis.
International revenue was C$37.2m, down 2.5% versus the same period a year ago, and down 1% versus the previous quarter. International sales were 41% of total revenue, flat with last year and down from C$45.2m last quarter.
Commenting on the US versus international results, Campbell said Evertz was “seeing good strength in the Canada/US region,” but internationally “there is a fair bit of geopolitical and economic instability, so whether that’s Russian, Ukraine, parts of the Middle East or elsewhere, we are in a fairly challenging global economic market.”
Gross margins in the quarter were 56.2%, down from 57.6% last year and flat with the previous quarter. Evertz executives said that the gross margin performance in the quarter were within the company’s target range of 56% to 60%.
On the earnings call, RBC Capital analyst Steve Arthur asked why the company’s gross margins are “stubbornly at the lower end of your traditional range,” and what it will take to move gross margins “up towards the middle part of the 56 to 60 kind of range.” Evertz CFO Anthony Gridley said that gross margins in the quarter were driven by product mix, and that gross margins vary between geographies. Gridley also said that “some of the larger scale projects can sometimes have lower margins, and this this quarter, we had some positives from currency, but they were offset by some few lower margin deals,” resulting in the 56% level.
R&D expenses in the third quarter were C$15.8m, an increase of 4.8% versus the same period last year, and up 4.3% versus the previous quarter. R&D expenses were approximately 17.4% of revenue in the quarter, up from 16.1% last year, down from 18.2% last quarter when revenue was slightly lower.
Selling, general and administrative expenses for the quarter were C$16.4m, down 5.3% versus the same quarter last year, and essentially flat with the previous quarter. SG&A expenses represented approximately 18.1% of revenue in the quarter versus 18.6% of revenue during the same period last year, and 19.8% of revenue last quarter.
The company said that its shipments in February 2015 were C$19m, and that its purchase order backlog at the end of the third quarter of fiscal 2014 was in excess of C$65m. The combined C$84m total backlog in shipments represents a 24% year-over-year increase.
Evertz ended the quarter with C$103.3m of cash and short term investments, up from C$90.4 at the end of last quarter.
Press Release: Evertz Technologies Reports Results for the Third Quarter Ended January 31, 2015
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