Evertz Q1 Sales Rise 5.5% Amid Inventory Buildup

Evertz Technologies reported first-quarter fiscal 2027 revenue of $118.3 million, a 5.5% year-over-year increase. The company stated that this growth was driven by a 14% rise in software and services revenue to $58.9 million, which now accounts for 49.8% of total sales. International operations contributed significantly, with revenue up 17.5% to $38.3 million due to project completions in Europe.

Net earnings for the period were $8 million, or $0.10 per diluted share. While gross margin held at 58.6% within the company's target range, it declined from 61.4% in the prior year. According to GN markets/earnings (en-US), the company declared a dividend of $0.205 per share, signaling continued capital returns despite operational headwinds.

Backlog Surges Amid Inventory Constraints

Purchase order backlog exceeded $259 million at the end of August, supported by $30 million in shipments for that month. However, cash net of bank indebtedness dropped to $2.5 million from $19.1 million at the end of April. This decline was primarily due to a $20 million increase in raw materials inventory, as the company stocked up on memory, storage, and servers to mitigate supply chain delays driven by AI demand.

Operating cash flow was limited to $0.8 million, impacted by a $16 million negative change in non-cash working capital. Management noted that while they are currently managing part shortages, the need to pre-buy components has consumed a significant portion of available cash. The company stated it is not currently impacted by part shortages but continues to monitor lead times closely.

Tariffs and Government Demand Remain Stable

Evertz indicated that tariffs are not materially impacting its business, as most products are protected under the USMCA. The company noted that while there have been marginal tariff costs, the majority of its portfolio is not subject to new assessments. This stability allows the firm to maintain its margin targets despite a volatile global trade environment.

Expense Growth and Customer Diversification

Research and development expenses increased by $1.5 million year-over-year, driven by salaries and patent fees, while selling and administrative costs rose by $0.9 million. No single customer accounted for more than 10% of sales, and the top 10 customers represented 49% of revenue, indicating a diversified client base. This structure reduces reliance on any single entity for financial performance.