Canaccord on Q1 Evertz continues to execute well with FQ1/24 results providing a top-line beat with EBITDA in line with our model. Revenue growth of 24% YoY was primarily driven by strength in International and services, Cloud and long-term contract revenue. There continued to be signs of strong software and cloud based revenue in the mix although Evertz does not segment this out - a potential future catalyst. Despite strong Cloud wins recently, product and geo mix drove gross margins down 220bps QoQ to 57.3%, still in line with management's long held target of 56-60%. Following a backlog surge in FQ4 on the back of large deals, Evertz held the backlog at historically high levels at $343M (up ~143% YoY, but down 12.5% QoQ) with ~55% of the backlog to be converted in the next twelve months, per management. Management also noted that demand for
all its products and solutions remains strong, with Cloud a key driver, and believes the company is well positioned to execute on near-term shipments and implementations. The balance sheet saw a strong benefit form working capital inflow with the cash balance exiting FQ1 at ~$49M. Evertz sold down ~$840k of an investment (we believe Haivision shares) but still holds ~$6.8M on its balance sheet. We believe Evertz's strong backlog, Cloud growth, and robust balance sheet along with potential for tuck-in M&A, provides ample room for upside from current levels. We are reiterating our BUY rating with a $19.00 price target based on 12x EV/NTM EBITDA (unchanged).