Energy Transfer
Annual Report 2023

Plain-text annual report

EVERTZ REPORT_Front_Back Cover_2023_Sep 1.indd 1 EVERTZ REPORT_Front_Back Cover_2023_Sep 1.indd 1 2023-09-01 4:16 PM 2023-09-01 4:16 PM 2023 HIGHLIGHTS EVERTZ TECHNOLOGIES LIMITED CORPORATION OFFICES STRENGTH INNOVATION GENERATING CASH PROFITABILITY Annual Revenue Re-investment in R&D Operating Activities $455M $117M $92M Earnings Before Taxes $88M REVENUE (in millions of dollars) $441 $455 $343 2021 2022 2023 NORTH AMERICA 74% 26% INTERNATIONAL 2023 Revenue DIVIDENDS PAID (annual total in millions of dollars) CASH FROM OPERATING ACTIVITIES (in millions of dollars) $54.9 $56.4 $93.0 $91.5 $41.2 $59.0 CORPORATE HEAD OFFICE Evertz Technologies Ltd. 5292 John Lucas Dr. Burlington, ON L7L 5Z9 T: (905) 335-3700 Burbank 2020 N. Lincoln Street Burbank, CA 91504 T: (818) 558-3910 F: (818) 558-3906 Indiana 250 Airport Road Indiana, PA 15701 T: (724) 349-1412 F: (724) 349-1421 Evertz UK 260 Wharfedale Road Winnersh Triangle Berkshire, UK RG41 5TP T: 44-118-921-6800 F: 44-118-921-6802 Evertz Asia Ltd. Tower One Unit 1618 Metroplaza, 223 Hing Fong Road Kwai Fong, New Territories Hong Kong T: (852) 2850-7989 F: (852) 2850-7978 Sales Offices Burlington, ON Burbank, CA Phoenix, AZ New York City, NY Indiana, PA Berkshire, UK Croatia Germany Beijing Hong Kong Shanghai Singapore India Dubai Australia 2021 20221 1excludes $76.3 M special dividend September 2021 2023 2022 (before changes in non-working capital and current taxes) 2021 2023 58.2% 57.9% 59.0% 16.9% 23.0% 21.0% 2021 2022 2023 GROSS MARGIN OPERATING EARNINGS A LETTER TO FELLOW SHAREHOLDERS Evertz had another very successful year in fiscal 2023, with record annual revenues and strong momentum heading into fiscal 2024. Evertz commitment to our customers’ success and their trust in our capabilities allowed Evertz to generate record annual revenues, combined with a significant increase in order intake, resulting in a 165% year-over-year increase in our order backlog. Evertz Sustainable Success: • Management: • Over 300 years of industry experience within the senior management team; • Decisive actions, addressing issues head on, with an adherence to Evertz vision; • Operational discipline and uncompromising commitment throughout the organization to doing it the “right way”, including the maintenance of S&A under 15% and delivering superior financial performance; • Strategic planning, identifying and solving solutions in both the immediate and long-term, foreseeing industry transitions; • Careful planning with no economic layoffs in Company history, ensuring continuity for our over 1,900 dedicated staff. • Technology Leader: • Continuous investment in research and development, including $117 million in fiscal 2023 and over $450 million throughout the past five years, resulting in superior technological products; • Maintaining a focus on investing into new technologies, including “Cloud” native solutions and services such as evertz.io and DreamCatcher™ BRAVO Studio; • Emphasis on technical design and support, including over half of all staff associated with technical design and support. • Commitment: • Commitment to customers, working assiduously with our customers to provide new technological solutions, on-time and reliable deliveries, with continuous service and after sale support; • Commitment to the prioritization of the health and safety of our employees, customers and partners; • Commitment to sustainable solutions, including development of Cloud based and remote solutions and our continued support of the Save the Soil movement. Highlights from the year include: • Record annual revenues of $455 million; • Earnings before taxes of $88 million; • Annual investment in research and development of $117 million; • Distribution of excess cash flow through increased quarterly dividends totaling $0.74 per share during the year; • Record open order backlog of $392 million as at May 31, 2023, an increase of 165% over the prior year. RESEARCH AND DEVELOPMENT INITIATIVES Evertz invested $117 million in R&D in the past year and over $450 million throughout the past five years. The annual investments fueled development activities within our core product portfolio and funded intensive longer term R&D initiatives, such as: unified Orchestration, Control & Management, Analytics and User Interface software platforms; high performance low latency IP networking technologies; our IT based and Cloud architectures; Playout & Content Management; DreamCatcher™ Live Production Suite; Interactive graphic overlay platforms; Compression and Media Transport Solutions; and Professional AV Solutions. These solutions are enabling our customers to efficiently transition to IP, IT and public/private/hybrid Cloud based solutions, providing flexible tools for content creation, production, monetization, and distribution. 1 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT COMPANY RECOGNITION TV Technology – 2023 NAB Best of Show – Evertz awarded, in June 2023, to DreamCatcher™ Live Production Suite, including BRAVO Studio, the complete Cloud-based production control suite providing virtual access to all the services found in a traditional control room, including integration of the power of Studer Vista audio mixing. Next TV – 2023 NAB Best of Show – Evertz awarded, in June 2023, to Reflektor, the SaaS IP distribution platform, a powerful, low-bandwidth Cloud on-ramp option for easy and convenient contribution of high-quality video with ultra-low latency for Cloud production and streaming applications. SportsPro OTT – 2022 Best New Platform, Best User Experience, Best in Fan Engagement – Evertz awarded, in November 2022, all three awards to EaseLive, the SaaS interactive graphic overlay platform, used to take fan experiences to another level by engaging fans with dynamic and personalized storytelling content on top of the live stream as a single-screen experience. 50 Best Managed Company - Evertz was awarded as a 2023 Platinum Member of Canada’s 50 Best Managed Companies, which recognizes excellence in Canadian companies. Canada’s 50 Best Managed Companies identifies Canadian corporate success through companies focused on their core vision, creating stakeholder value and excelling in the global economy. Save Soil Movement - Evertz continues to be a proud sponsor of Conscious Planet and committed to raising awareness to the Save Soil Movement. The Save Soil Movement is a global movement launched to address land degradation and advocate for healthy soil and is consistent with Evertz goal of operating in a sustainable future. FOUNDATION FOR GROWTH As a leader in our technology sector, we are continuously dealing with increasing complexity. It is clear that technology is an essential driver to productivity and economic growth. Evertz is in a position to lead; able to reach out to current and new market customers with clean, technologically superior solutions and leverage the power of technology to solve challenges brought forth to ourselves and our customers. As the market leader, we are well positioned with numerous, large exciting opportunities to capitalize on this in the coming year. Evertz is built upon the long-term vision of generating value and sustainable success through continuous investment in technology while maintaining a vigilant focus on operating discipline. We generate significant cash from operations and maintain a pristine balance sheet. We view this financial strength as a competitive advantage, providing flexibility and allowing us to deliver significant value to our shareholders through the continued payment of dividends, while adhering to our strategy of investment into new technologies. 2 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT MOVING FOWARD Evertz is entering the new year with record backlog and record pipeline, and with the backing of our healthy balance sheet and consistent investments in our technological solutions, we expect superior industry results for the 2024 fiscal year. We are maintaining our focus on investing into new technologies, leveraging and expanding upon the high-profile industry leading Cloud and on-premise solutions that Evertz has successfully deployed. With significant orders and a robust pipeline with key customers, we expect to gain broader adoption within the Media and Entertainment technology industry and vertical markets. Key successes to build upon: • IP based Software Defined Video Networking platforms; • IT based workflow and Cloud services, delivering an immersive viewing experience from production to playout; • Mediator-X Asset Management and Playout platforms, managing and delivering content over private and public Cloud infrastructures; • evertz.io – powerful Cloud SaaS, enabling the launch and monetization of many OTT, DTC, Connected TV, and Free Ad-Supported TV “FAST” channels around the world; • DreamCatcher™ Live Production Suite – IP based instant replay & BRAVO Studio live production suite; • Studer Audio – live production solution for comprehensive audio mixing; and • evertzAV – network based, high quality and highly secure audio visual solutions. These technologies provide superior solutions enabling our customers to address and implement complex multi-platform solutions, including efficient, flexible, and reliable creation, production, monetization, and distribution of content, with the expansion of remote operation capabilities, and to efficiently transition to evolving IP & IT based solutions including Cloud and SaaS services. We enter fiscal 2024 with significant momentum and demand for our Evertz IP, IT & Cloud native services and solutions with influential industry leaders across the world. As a leading innovator and one of the largest pure players in our technology sector, we believe Evertz is in a position of strength to provide solutions to customers and deliver to shareholders! We would like to take this opportunity to thank our employees, channel partners, customers and shareholders for their continued support and we look forward to a safe, healthy and successful future. Romolo Magarelli Director, President and Chief Executive Officer Douglas A. DeBruin Executive Chairman 3 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS For the Year ended April 30, 2023 THE FOLLOWING MANAGEMENT’S DISCUSSION AND ANALYSIS IS A REVIEW OF RESULTS OF THE OPERATIONS AND THE LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY. IT SHOULD BE READ IN CONJUNCTION WITH THE SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA AND THE COMPANY’S CONSOLIDATED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES CONTAINED ON SEDAR. THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY ARE PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) AND ARE PRESENTED IN CANADIAN DOLLARS. THE FISCAL YEAR OF THE COMPANY ENDS ON APRIL 30 OF EACH YEAR. CERTAIN INFORMATION CONTAINED HEREIN IS FORWARD-LOOKING AND BASED UPON ASSUMPTIONS AND ANTICIPATED RESULTS THAT ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS. SHOULD ONE OR MORE OF THESE UNCERTAINTIES MATERIALIZE OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY SIGNIFICANTLY FROM THOSE EXPECTED. FORWARD-LOOKING STATEMENTS The report contains forward-looking statements reflecting Evertz’s objectives, estimates and expectations. Such forward-looking statements use words such as “may”, “will”, “expect”, “believe”, “anticipate”, “plan”, “intend”, “project”, “continue” and other similar terminology of a forward-looking nature or negatives of those terms. Although management of the Company believes that the expectations reflected in such forward-looking statements are reasonable, all forward-looking statements address matters that involve known and unknown risks, uncertainties and other factors. Accordingly, there are or will be a number of significant factors which could cause the Company’s actual results, performance or achievements, or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The report is based on information available to management on June 21, 2023. 4 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORTw OVERVIEW Evertz is a leading solutions provider to the television broadcast, telecommunications and new-media industries. Founded in 1966, Evertz is a leading supplier of software, equipment and technology solutions to content creators, broadcasters, specialty channels and television service providers. Evertz designs, manufactures and markets video and audio infrastructure solutions for the production, post-production and transmission of television content. The Company’s solutions are purchased by content creators, broadcasters, specialty channels and television service providers to support their increasingly complex multi-channel digital and high definition television (“HDTV/Ultra HD”) and next generation high bandwidth low latency IP network environments and by telecommunications and new-media companies. The Company’s products allow its customers to generate additional revenue while reducing costs through efficient signal routing, distribution, monitoring and management of content as well as the automation and orchestration of more streamlined and agile workflow processes on premise and in the “Cloud”. The Company made early research and development investments to establish itself as the leading supplier to the broadcast industry addressing the ongoing technical transition to IP and IT based production, workflow and distribution systems helping to create more efficient and agile workflows enabling the proliferation of high quality video emerging Ultra HD, High Dynamic range initiatives. The Company has maintained its track record of rapid innovation; is a leader in the expanding Internet Protocol Television (“IPTV”) market and a leader in Software Defined Video Network (“SDVN”) technology. The Company is committed to maintaining its leadership position, and as such, a significant portion of the Company’s staff is focused on research and development to ensure that the Company’s products are at the forefront of the industry. This commitment contributes to the Company being consistently recognized as a leading broadcast and video networking industry innovator by its customers. SIGNIFICANT ACCOUNTING POLICIES Outlined below are those policies considered particularly significant: Basis of Measurement These financial statements have been prepared on the historical cost basis except for certain financial assets and liabilities which are stated at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for assets. Functional and Presentation Currency These financial statements are presented in Canadian dollars, which is the Company’s group functional currency. Each subsidiary of the Company determines its own functional currency based on the primary economic environment in which the subsidiary operates. All financial information presented in Canadian dollars has been rounded to the nearest thousand, except per share amounts. Basis of Consolidation These financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has power over an entity, has exposure or rights to variable returns from its involvement with the entity and has the ability to use its power over the entity to affect the amount of the investor’s returns. The results of subsidiaries acquired or disposed of are included in the consolidated statements of earnings and comprehensive earnings from the effective date of acquisition of control and up to the effective date of disposal of control, as appropriate. Total comprehensive earnings of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. All intra-Company transactions, balances, income and expenses are eliminated in full on consolidation. 2023 ANNUAL REPORT 5 EVERTZ TECHNOLOGIES LIMITED Business Combinations Business combinations are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of acquisition, of assets transferred, liabilities incurred or assumed, and equity instruments issued by the Company. The acquiree’s identifiable assets and liabilities assumed are recognized at their fair value at the acquisition date. Acquisition-related costs are recognized in earnings as incurred. Any contingent consideration is measured at fair value on date of the acquisition and is included as part of the consideration transferred. The fair value of the contingent consideration liability is re-measured at each reporting date with corresponding gain/loss recognized in earnings. The excess of the consideration over the fair value of the net identifiable assets and liabilities acquired is recorded as goodwill. On an acquisition by acquisition basis, any non-controlling interest is measured either at the fair value of the non-controlling interest or at the fair value of the proportionate share of the net identifiable assets acquired. Where the non-controlling interest holds a put option that can be settled by a fixed amount of cash, in connection with their remaining shares, the fair value of the put option is recognized as a financial redemption liability. In such a case, the non-controlling interest is deemed to have been acquired at the acquisition date and a financial redemption liability is recorded instead of a non-controlling interest. Options that are not exercisable for at least one year are presented as non-current liabilities. Subsequent measurement of the redemption liability is recorded using the effective interest rate method and recognized in the statement of earnings while no earnings are attributed to the non-controlling interest. Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. Revenue Recognition Revenue is measured using a five-step recognition model which includes; 1) identifying the contract(s) with the customer; 2) identifying the separate performance obligations in the contract; 3) determining the transaction price; 4) allocating the transaction price to separate performance obligations; and 5) recognizing revenue when (or as) each performance obligation is satisfied. Step 1: Identifying the contract Before recognizing revenue, the Company reviews customer contracts to ensure each party’s rights and payment terms are identified, there is commercial substance, and that it is probable that the Company will collect the consideration in exchange for the goods or services as stated in the contract. Step 2: Identifying performance obligations The Company regularly sells hardware and software solutions including related services, training and commissioning on a stand-alone basis. A customer contract typically lists items separately with distinct item descriptions, quantities, and prices. If a contract contains a bundle of items priced together at a single price, the Company analyzes the contract to identify distinct performance obligations within the bundle. Step 3: Determining the transaction price Transaction prices are typically the prices stated on the purchase orders or contracts, net of discounts. The Company reviews customer contracts for any variable considerations, existence of significant financing components and payables to customers, and adjusts transaction prices accordingly. Step 4: Allocating the transaction price to performance obligations If a customer contract includes multiple performance obligations, the transaction price is allocated to each performance obligation based on its relative stand-alone selling price. If a stand-alone selling price is not directly observable, the Company estimates the stand-alone selling price of individual elements, based on prices at which the deliverable is regularly sold on a stand-alone basis after considering specific discounts where appropriate. 6 2023 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED Step 5: Recognizing revenue upon satisfaction of performance obligations The timing of revenue recognition is based on when a customer obtains control of the asset. Control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset. The Company reviews customer contracts and the nature of the performance obligations to determine if a performance obligation is satisfied over time or at a point in time, and recognizes revenue accordingly. Revenue from sales of hardware are recognized upon shipment, provided that the significant risks and rewards of ownership have been transferred to the customer, the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, revenue can be reliably measured and its probable that the economic benefits will flow to the Company. Revenue from software solutions are recognized either over a period of time or at a point in time depending on the contractual terms of the contract identified and the specific performance obligations identified therein. For performance obligations satisfied over time, the Company measures the progress using either an input or output method, depending on which yields the most reliable estimate. Revenue from services is recognized as services are performed and warranty revenue is recognized ratably over the warranty period. Certain of the Company’s contracts are long-term in nature. When the outcome of the contract can be assessed reliably, the Company recognizes revenue on long-term contracts over time, based on costs incurred relative to the estimated total contract costs. When the outcome of the contract cannot be assessed reliably contract costs incurred are immediately expensed and revenue is recognized only to the extent that costs are considered likely to be recovered. Revenue recognized in excess of billings are recorded as contract assets. Contract assets are recognized when revenue is recognized in excess of billings or when the Company has a right to consideration and that right is conditional to something other than the passage of time. Contract assets are subsequently transferred to accounts receivable when the right to payment becomes unconditional. Finance Income Interest income is recognized when it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in the bank, net of outstanding bank overdrafts. Inventories Inventories consist of raw materials and supplies, work in progress and finished goods. Inventories are stated at the lower of cost and net realizable value. Cost is determined on a weighted average basis and includes raw materials, the cost of direct labour applied to the product and the overhead expense. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and any recognized impairment loss. Where the costs of certain components of an item of property, plant and equipment are significant in relation to the total cost of the item, they are accounted for and depreciated separately. Depreciation expense is calculated based on depreciable amounts which is the cost of an asset less residual value and is recognized in earnings on a straight-line basis over the estimated useful life of the related asset. Borrowing costs are capitalized to the cost of qualifying assets that take a substantial period of time to be ready for their intended use. 7 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED The estimated useful lives are as follows: Asset Office furniture and equipment Research and development equipment Machinery and equipment Leaseholds Building Airplanes Basis Straight-line Straight-line Straight-line Straight-line Straight-line Straight-line Rate 10 years 5 years 5 - 15 years 5 years 10 - 40 years 10 - 20 years The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in earnings. The Company reviews the residual value, estimated useful life and the depreciation method at least annually. Impairment of Non-Financial Assets Goodwill is tested for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount may be more than its recoverable amount. At each reporting period, the Company reviews the carrying amounts of its other non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash inflows that are largely independent from other assets, the Company estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset belongs. Goodwill is allocated to a group of CGU’s based on the level at which it is monitored for internal reporting purposes. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss relating to a CGU to which goodwill has been allocated, is allocated to the carrying amount of the goodwill first. An impairment loss is recognized immediately in earnings. An impairment loss in respect of goodwill is not reversed. Where an impairment loss subsequently reverses for other non-financial assets, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of an impairment loss is recognized immediately in earnings. Intangible Assets Intangible Assets Intangible assets represent intellectual property acquired through business acquisitions and are recorded at cost less any impairment loss and are amortized using the straight–line method over a five–year period. The estimated useful life and amortization method are reviewed at the end of each reporting period. 8 2023 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED Research and Development All research and development expenditures are expensed as incurred unless a development project meets the criteria for capitalization. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Company intends to and has sufficient resources to complete development and to use or sell the asset. No internally generated intangible assets have been recognized to date. Research and development expenditures are recorded gross of investment tax credits and related government grants. Investment tax credits for scientific research and experimental development are recognized in the period the qualifying expenditures are incurred if there is reasonable assurance that they will be realized. Investment in an Associate Investments in an Associate are entities in which the Company has significant influence over, but not have control or joint control over the financial and operating policies. Investments in an Associate are accounted for using the equity method. Under the equity method, the initial investment is recognized at cost, which includes transaction costs. Subsequent to initial recognition, the carrying amount is increased or decreased in recognition of the Company’s share of the profit or loss after the date of acquisition, until the date on which significant influence ceases. At the end of each reporting period, the Company also reviews the carrying amounts of Investments in an Associate to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the carrying amount of such investment is compared to its recoverable amount, being the higher of its fair value less costs of disposal and value-in-use. If the recoverable amount of an investment is less than its carrying amount, the carrying amount is reduced to its recoverable amount and an impairment loss, being the excess of carrying amount over the recoverable amount, is recognized immediately. When an impairment loss reverses in a subsequent period, the carrying amount of the investment is increased to the revised estimate of recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized. Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Leasing At inception of a contract, the Company assesses whether that contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company records a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, consisting of the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or restore the site on which it is located; less any lease incentives received. 9 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED The right-of-use asset is depreciated on a straight-line basis over the lease term. The lease term consists of the non-cancellable period of the lease; periods covered by options to extend the lease, where the Company is reasonably certain to exercise the option; and periods covered by options to terminate the lease, where the Company is reasonably certain not to exercise the option. The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. The Company generally use their incremental borrowing rate as the interest rate implicit in our leases cannot be readily determined. The lease liability is subsequently measured at amortized cost using the effective interest rate method. Certain leases require us to make payments that relate to property taxes, insurance, and other non-rental costs. These non-rental costs are typically variable and are not included in the calculation of the right-of-use asset or lease liability. Foreign Currency Translation The individual financial statements of each subsidiary entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group entity are presented in Canadian dollars (“CDN”), which is the functional currency of the parent Company and the presentation currency for the financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences are recognized in earnings in the period in which they arise. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign operations are expressed in Canadian dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period. Foreign currency gains and losses are recognized in other comprehensive earnings. The relevant amount in cumulative foreign currency translation adjustment is reclassified into earnings upon disposition or partial disposition of a foreign operation and attributed to non-controlling interests as appropriate. Income Taxes Current Tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from net earnings as reported in the statement of earnings because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the statement of financial position date. Deferred Tax Deferred tax is the tax expected to be payable or recoverable on unused tax losses and credits, as well as differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which unused tax losses, credits and other deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. 10 2023 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is charged or credited to earnings, except when it relates to items charged or credited directly to other comprehensive earnings or equity, in which case the deferred tax is also dealt with in other comprehensive earnings or equity. Share Based Compensation Equity settled share based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity settled share based transactions are set out in note 19 of the consolidated financial statements. The fair value determined at the grant date of the equity settled share based payments is expensed on a straight-line basis over the vesting period of the option based on the Company’s estimate of the number of equity instruments that will eventually vest. At each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in earnings such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to share based payment reserve. Cash settled share based compensation to employees, including restricted share units, or others providing similar services are measured at the fair value of the instruments at the grant date. The fair value is recognized as an expense with a corresponding increase in liabilities over the vesting period of the option grant. At each reporting period, the Company revises its estimate of fair value and the number of instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in earnings such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to liabilities. Earnings Per Share The Company presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is calculated by dividing the net earnings attributable to shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by adjusting the net earnings attributable to shareholders and the weighted average number of common shares outstanding for the effects of all potentially dilutive common shares, which is comprised of share options granted to employees with an exercise price below the average market price. Finance Costs Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other finance costs are recognized in earnings in the period in which they are incurred. Investment Tax Credits The Company is entitled to investment tax credits, which are earned as a percentage of eligible research and development expenditures incurred in each taxation year. Investment tax credits relate entirely to the Company’s research and development expenses in the consolidated statements of earnings but are presented separately in the consolidated statements of earnings for information purposes. Investment tax credits are recognized and recorded within income tax receivable or as a reduction of income tax payable, when there is reasonable assurance they will be received. 11 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED Government Assistance The Company applied and received assistance from multiple assistance programs within various countries worldwide. The assistance has been recognized as an offsetting reduction to expenses and the cost of labour applied to manufactured inventory. During the year, there was no assistance received or deducted from expenses (2022 - $3,259). As of April 30, 2023, $510 in prior years assistance remained as a reduction to the cost of inventory (2022 - $904). Financial Instruments The Company’s financial assets and liabilities which are initially recorded at fair value and subsequently measured based on their assigned classifications as follows: Assets/Liabilities Cash and cash equivalents Trade and other receivables Investments in public companies Investments in private companies Bank indebtedness Trade and other payables, excluding RSUs Cash based RSU liability Redemption liability Classification Amortized cost Amortized cost Fair value through other comprehensive income Fair value through profit and loss Amortized cost Amortized cost Fair value through profit and loss Amortized cost Financial Assets All financial assets are initially measured at fair value, plus transaction costs, except for those financial assets classified as fair value through profit or loss, which are initially measured at fair value. Transaction costs in respect of financial instruments that are classified as fair value through profit or loss are recognized in earnings immediately. Transaction costs in respect of other financial instruments are included in the initial measurement of the financial instrument. Financial assets are classified into the following specific categories: financial assets “at fair value through profit or loss” (“FVTPL”), “fair value through other comprehensive income (“FVTOCI”)” and “amortized cost”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognized in earnings. Financial assets at FVTOCI are stated at fair value, with any gains or losses arising on re-measurement recognized in other comprehensive earnings. Impairment of Financial Assets Financial assets, other than those at FVTPL and FVTOCI, are assessed for indicators of impairment at the time of initial recognition and at each reporting period. The Company measures a loss allowance based on the lifetime expected credit losses. Lifetime expected credit losses are estimated based on factors such as the Company’s past experience of collecting payments, observable changes in national or local economic conditions that correlated with default on receivables, financial difficulties of the borrower, and it becoming probable that the borrow will either enter bankruptcy or financial reorganization. Financial assets are written off when there is no reasonable expectation of recovery. For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. 12 2023 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. A trade receivable is considered impaired if it is probable that a customer will not pay all amounts due. When a trade receivable is considered impaired, it is recorded in the allowance account. Subsequent recoveries of amounts are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in earnings. When there is no reasonable expectation of recovery, the trade receivable balance is written off against the allowance account. Financial Liabilities and Equity Instruments Issued by the Company Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognized in earnings. The net gain or loss recognized in earnings incorporates any interest paid on the financial liability and is included in the “other income and expenses” line item in the consolidated statements of earnings. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs. Other financial liabilities, including long term debt and redemption liabilities, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. Critical Accounting Estimates and Judgments The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Consequently, actual results could differ from those estimates. Those estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. Significant estimates include the determination of expected credit losses which are based on the amount and timing of cash flows expected to be received, provision for inventory obsolescence which is recorded to adjust to the net realizable value of inventory and based on current market prices and past experiences, the useful life of property, plant and equipment and intangibles for depreciation which are based on past experiences, expected use and industry trends, amortization and valuation of net recoverable amount of property, plant and equipment and intangibles, determination of fair value for share based compensation, evaluating deferred income tax assets and liabilities, the determination of fair value of financial instruments and the likelihood of recoverability, and the determination of implied fair value of goodwill and implied fair value of assets and liabilities for purchase price allocation purposes and goodwill impairment assessment purposes. Significant items requiring the use of judgment in application of accounting policies and assumptions include the determination of functional currencies, classification of financial instruments, classification of leases, determination of the number of revenue performance obligations, determination if revenues should be recognized at a point in time or over time, application of the percentage of completion method on long-term contracts, degree of componentization applied when calculating amortization of property, plant and equipment, and identification of cash generating units for impairment testing purposes. Operating Segments An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. The Company reviewed its operations and determined that it operates a single reportable segment, the television broadcast equipment market. The single reportable operating segment derives its revenue from the sale of hardware and software solutions, related services, training and commissioning and long-term contracts. 13 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED New and Revised IFRSs Issued but Not Yet Effective Following is a listing of amendments, revisions and new International Financial Reporting Standards issued but not yet effective. Unless otherwise indicated, earlier application is permitted. Presentation of Non-Current Liabilities with Covenants Amendments to IAS 1, Presentation of Financial Statements was issued by the IASB in January 2020 and clarifies the classification, presentation and disclosure requirements in the standard for non-current liabilities with covenants. The amendments are effective for reporting periods beginning on or after January 1, 2024. The Company does not expect that the adoption of this standard listed above will have a material impact on the consolidated financial statements of the Company. Lease Liability in Sale and Leaseback Transactions Amendments to IFRS 16, Leases was issued by the IASB in September 2022 and clarifies the subsequent measurement requirements for sale and leaseback transactions for sellers-leasees. The amendments are effective for reporting periods beginning on or after January 1, 2024. The Company does not expect that the adoption of the standard listed above will have a material impact on the consolidated financial statements of the Company. YEAR END HIGHLIGHTS Revenue was $454.6 million for the year ended April 30, 2023 an increase of $13.6 million, compared to $441.0 million for the year ended April 30, 2022. For the year ended April 30, 2023, net earnings were $64.6 million, a decrease from $8.1 million from $72.7 million for the year ended April 30, 2022 and fully diluted earnings per share were $0.84, a decrease from $0.94 for the year ended April 30, 2022. Gross margin during the year ended April 30, 2023 was 59.0% as compared to 57.9% for the year ended April 30, 2022. Foreign exchange gain during the year was $2.0 million, predominantly driven by the increase in value of the US dollar against the Canadian dollar since April 30, 2022. Selling and administrative expenses for the year ended April 30, 2023 was $61.5 million as compared to the year ended April 30, 2022 of $60.9 million. As a percentage of revenue, selling and administrative expenses totaled 13.5% for the year ended April 30, 2023 as opposed to 13.8% for the year ended April 30, 2022. Research and development (“R&D”) expenses were $117.1 million for the year ended April 30, 2023 as compared to $102.4 million for the year ended April 30, 2022. Cash and cash equivalents were $12.5 million, bank indebtedness was $5.9 million and working capital was $171.4 million as at April 30, 2023, compared to cash and cash equivalents of $33.9 million and working capital of $158.9 million as at April 30, 2022. HIGHLIGHTS FROM THE FOURTH QUARTER Revenue was $128.9 million for the fourth quarter ended April 30, 2023; an increase of $12.8 million, compared to $116.1 million for the same period ended April 30, 2022. For the fourth quarter ended April 30, 2023, net earnings were $18.6 million, a decrease from $19.2 million for the fourth quarter ended April 30, 2022. Fully diluted earnings per share were $0.24 a decrease from $0.25 in the fourth quarter ended April 30, 2022. For the fourth quarter ended April 30, 2023, foreign exchange gain during the quarter was $0.3 million, compared to a foreign exchange gain of $1.1 million for the fourth quarter April 30, 2022. 14 2023 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED Gross margin during the fourth quarter ended April 30, 2023 was 59.5% compared to 58.9% in the fourth quarter ended April 30, 2022. Selling and administrative expenses for the fourth quarter ended April 30, 2023 was $17.5 million as compared to the fourth quarter ended April 30, 2022 of $16.1 million. As a percentage of revenue, selling and administrative expenses totaled 13.6% for the fourth quarter ended April 30, 2023 compared to 13.9% in the fourth quarter ended April 30, 2022. Research and development expenses were $29.9 million for the fourth quarter ended April 30, 2023 as compared to $27.3 million for the fourth quarter ended April 30, 2022. SELECTED CONSOLIDATED FINANCIAL INFORMATION (In thousands of dollars except earnings per share and share data) Revenue Cost of goods sold Gross margin Expenses Selling and administrative General Research and development Investment tax credits Share based compensation Foreign exchange (gain) loss Total Operating Expenses Earnings before undernoted Finance income Finance costs Net loss from investments through profit and loss Other income and expenses Earnings before income taxes Provision for (recovery of) income taxes Current Deferred Net earnings for the year Net earnings attributable to non-controlling interest Net earnings attributable to shareholders Net earnings for the year Earnings per share Basic Diluted Year Ended April 30, 2023 2022 $ 454,578 $ 441,016 $ 186,320 268,258 61,518 4,704 117,127 (13,415) 4,662 (1,966) 172,630 95,628 376 (3,718) (5,364) 888 87,810 25,066 (1,811) 23,255 64,555 523 64,032 64,555 0.84 0.84 $ $ $ $ $ 185,701 255,315 60,884 4,563 102,438 (12,336) 5,028 (6,465) 154,112 101,203 309 (2,445) (1,493) 338 97,912 26,959 (1,724) 25,235 72,677 932 71,745 72,677 0.94 0.94 $ $ $ $ $ $ $ $ $ $ 15 2021 342,888 143,464 199,424 49,413 3,896 80,187 (13,042) 6,123 14,861 141,438 57,986 687 (1,709) (531) (588) 55,845 17,369 (3,484) 13,885 41,960 202 41,758 41,960 0.55 0.55 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED SELECTED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED) CONSOLIDATED BALANCE SHEET DATA Cash and cash equivalents Inventory Working capital Total assets Shareholders' equity As at April 30, 2023 12,468 202,479 171,428 436,652 243,099 $ $ $ $ $ $ $ $ $ $ 2022 33,902 177,268 158,947 420,979 230,938 $ $ $ $ $ 2021 108,771 152,669 214,515 451,793 292,734 Number of common shares outstanding: Basic Fully-diluted Weighted average number of shares outstanding: Basic Fully-diluted 76,145,758 82,446,008 76,229,696 81,285,196 76,284,366 82,169,366 76,200,248 76,232,462 76,266,341 76,570,564 76,357,895 76,403,894 16 2023 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITEDSELECTED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED) CONSOLIDATED STATEMENT OF OPERATIONS DATA Revenue Cost of goods sold Gross margin Expenses Selling and administrative General Research and development Investment tax credits Share based compensation Foreign exchange (gain) loss Total Operating Expenses Earnings before undernoted Finance income Finance costs Net loss on investments through profit and loss Other income and expenses Earnings before income taxes Provision for (recovery of) income taxes Current Deferred Net earnings for the year Net earnings attributable to non-controlling interest Net earnings attributable to shareholders Net earnings for the year Earnings per share: Basic Diluted 2023 100.0% 41.0% 59.0% 13.5% 1.0% 25.8% (3.0%) 1.0% (0.4%) 38.0% 21.0% 0.0% (0.7%) (1.2%) 0.2% 19.3% 5.5% (0.4%) 5.1% 14.2% 0.1% 14.1% 14.2% 2022 100.0% 42.1% 57.9% 13.8% 1.0% 23.2% (2.8%) 1.2% (1.5%) 34.9% 23.0% 0.1% (0.6%) (0.4%) 0.1% 22.2% 6.1% (0.4%) 5.7% 17.2% 0.2% 17.0% 17.2% 2021 100.0% 41.8% 58.2% 14.4% 1.2% 23.4% (3.8%) 1.8% 4.3% 41.3% 16.9% 0.2% (0.5%) (0.1%) (0.2%) 16.3% 5.1% (1.0%) 4.1% 12.2% 0.1% 12.1% 12.2% $ $ 0.84 0.84 $ $ 0.94 0.94 $ $ 0.55 0.55 17 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED REVENUE AND EXPENSES Revenue The Company generates revenue principally from the sale of software, equipment, and technology solutions to content creators, broadcasters, specialty channels, television service providers, government and corporate. The Company markets and sells its products and services through both direct and indirect sales strategies. The Company’s direct sales efforts focus on large and complex end-user customers. These customers have long sales cycles typically ranging from four to eight months before an order may be received by the Company for fulfillment. The Company monitors revenue performance in two main geographic regions: (i) United States/Canada and (ii) International. The Company currently generates approximately 70% to 80% of its revenue in the United States/Canada. The Company recognizes the opportunity to more aggressively target markets in other geographic regions and intends to invest in personnel and infrastructure in those markets. While a significant portion of the Company’s expenses are denominated in Canadian dollars, the Company collects a significant amount of its revenues in currencies other than the Canadian dollar and therefore has significant exposure to fluctuations in foreign currencies, in particular the US dollar. Approximately 80% to 85% of the Company’s revenues are denominated in US dollars. REVENUE (In thousands of Canadian dollars) United States/Canada International 2023 337,109 117,469 454,578 $ $ Year Ended April 30, 2022 $ $ 299,359 141,657 441,016 $ $ 2021 222,680 120,208 342,888 Total revenue for the year ended April 30, 2023 was $454.6 million, an increase of $13.6 million as compared to revenue of $441.0 million for the year ended April 30, 2022. Revenue in the United States/Canada region was $337.1 million for the year ended April 30, 2023, an increase of $37.7 million or 12.6% when compared to revenue of $299.4 million for the year ended April 30, 2022. Revenue in the International region was $117.5 million for the year ended April 30, 2023, a decrease of $24.2 million or 17.1% as compared to revenue of $141.7 million for the year ended April 30, 2022. COST OF SALES Cost of sales consists primarily of costs of manufacturing and assembly of products. A substantial portion of these costs is represented by components and compensation costs for the manufacture and assembly of products. Cost of sales also includes related overhead, certain depreciation, final assembly, quality assurance, inventory management, support costs as well as inventory obsolescence and write-offs. Cost of sales also includes the costs of providing services to clients, primarily the cost of service-related personnel. 18 2023 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED GROSS MARGIN (In thousands of Canadian dollars, except for percentages) 2023 2022 2021 Gross margin Gross margin % of sales $ 268,258 $ 255,315 $ 199,424 59.0% 57.9% 58.2% Year Ended April 30, Gross margin for the year ended April 30, 2023 was $268.3 million, compared to $255.3 million for the year ended April 30, 2022. As a percentage of revenue, the gross margin was 59.0% for the year ended April 30, 2023 compared to 57.9% for the year ended April 30, 2022. Gross margins vary depending on the product mix, manufacturing volumes, geographic distribution, competitive pricing pressures and currency fluctuations. During fiscal 2022 and 2023, a global supply chain disruption, including a global semi conductor chip shortage has caused the Company to experience unstable procurement capabilities leading to increased lead times and increased component costs. The Company has taken proactive steps to minimize the impact, resulting in $23.5 million increase in raw materials since April 30, 2022. The pricing environment continues to be very competitive with substantial discounting by our competition. The Company expects that it will continue to experience competitive pricing pressures. The Company continually seeks to build its products more efficiently and enhance the value of its product and service offerings in order to reduce the risk of declining gross margin associated with the competitive environment. Operating Expenses The Company’s operating expenses consist of: (i) selling, administrative and general; (ii) research and development and (iii) foreign exchange. Selling expenses primarily relate to remuneration of sales and technical personnel. Other significant cost components include trade show costs, advertising and promotional activities, demonstration material and sales support. Selling and administrative expenses relate primarily to remuneration costs of related personnel, legal and professional fees, occupancy and other corporate and overhead costs. The Company also records certain depreciation and amortization charges as general expenses. For the most part, selling, and administrative expenses are fixed in nature and do not fluctuate directly with revenue. The Company has certain selling expenses that tend to fluctuate in regards to the timing of trade shows. The Company invests in research and development to maintain its position in the markets it currently serves and to enhance its product portfolio with new functionality and efficiencies. Although the Company’s research and development expenditures do not fluctuate directly with revenues, it monitors this spending in relation to revenues and adjusts expenditures when appropriate. Research and development expenditures consist primarily of personnel costs and material costs. Research and development expenses are presented on a gross basis (without deduction of research and development tax credits). Research and development tax credits associated with research and development expenditures are shown separately under research and development tax credits. SELLING AND ADMINISTRATIVE (In thousands of Canadian dollars, except for percentages) 2023 2022 2021 Selling and administrative Selling and administrative % of sales $ 61,518 $ 60,884 $ 49,413 13.5% 13.8% 14.4% Year Ended April 30, 19 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED Selling and administrative expenses excludes stock-based compensation, depreciation and amortization of intangibles. Selling and administrative expenses for the year ended April 30, 2023 were $61.5 million or 13.5% of revenue and increase of $0.6 million, as compared to selling and administrative expenses of $60.9 million or 13.8% of revenue for the year ended April 30, 2022. Share Based Compensation In March 2016, the Company adopted a restricted share unit (RSU) plan to attract, motivate and compensate persons who are integral to the growth and success of the Company. During the year ended April 30, 2023, share based compensation expense associated with the plan was $0.9 million, compared to $3.7 million for the year ended April 30, 2022. In June 2022, the Company adopted an equity based restricted share unit plan, which was approved by shareholders on October 6, 2022. During the year ended April 30, 2023, share based compensation expense associated with the 2022 plan was $2.5 million. RESEARCH AND DEVELOPMENT (R&D) (In thousands of Canadian dollars, except for percentages) 2023 2022 2021 Research and development expenses $ 117,127 $ 102,438 $ 80,187 Research and development % of sales 25.8% 23.2% 23.4% Year Ended April 30, Research and development expenses excluded stock based compensation but includes depreciation. For the year ended April 30, 2023, gross R&D expenses were $117.1 million, an increase of $14.7 million as compared to an expense of $102.4 million for the year ended April 30, 2022. The increase of $14.7 million includes a $2.4 million increase in software expenses, and an increase in net salary costs driven by salary increases of $7.9 million and an increase in head count to address key R&D initiatives for $5.9 million. Investment Tax Credits For the year ended April 30, 2023, investment tax credits were $13.4 million compared to $12.3 million for the year ended April 30, 2022. Foreign Exchange For the year ended April 30, 2023, the foreign exchange gain was $2.0 million, as compared to a foreign exchange gain for the year ended April 30, 2022 of $6.5 million. The gain was predominantly driven by the decrease in value of the US dollar against the Canadian dollar since April 30, 2022. Investment in Associate, Finance Income, Finance Costs, Other Income and Expenses For the year ended April 30, 2023, a loss of $2.1 million was incurred in relation to the Company’s treatment of the investment in DDSports, Inc under the equity method. During the year, the Company lost significant influence in DDSports, Inc and the investment was revalued to fair value. A loss upon revaluation of $3.3 million was recorded. For the year ended April 30, 2023, finance income, finance costs, other income and expenses netted to a loss of $2.4 million. 20 2023 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED LIQUIDITY AND CAPITAL RESOURCES Liquidity and Capital Resources (In thousands of dollars except ratios) Key Balance Sheet Amounts and Ratios: Cash and cash equivalents Working capital Long-term assets Days sales outstanding in accounts receivable Statement of Cash Flow Summary Operating activities Investing activities Financing activities Net decrease in cash Year Ended April 30, 2023 12,468 171,428 86,744 86 $ $ $ 2022 33,902 158,947 92,338 83 Year Ended April 30, 2023 53,814 (17,119) (58,023) (21,434) $ $ $ $ 2022 68,673 (4,963) (137,516) (74,869) $ $ $ $ $ $ $ Operating Activities For the year ended April 30, 2023, the Company generated cash from operations of $53.8 million, compared to $68.7 million for the year ended April 30, 2022. Excluding the effects of the changes in non-cash working capital and current taxes, the Company generated cash from operations of $91.5 million for the year ended April 30, 2023 compared to $93.0 million for the year ended April 30, 2022. Investing Activities The Company used cash for investing activities of $17.1 million for the year ended April 30, 2023 which was principally driven by the acquisition of investments, which net of proceeds from disposals, used cash of $10.6 million, and the acquisition of capital assets for $6.6 million. Financing Activities For the year ended April 30, 2023, the Company used cash from financing activities of $58.0 million, which was principally driven by dividends paid of $56.4 million, $4.3 million in principle payments on capitalized leases, capital stock repurchased for $1.0 million, partially offset by a $5.9 million increase in short-term bank indebtedness. WORKING CAPITAL As at April 30, 2023, the Company had cash and cash equivalents of $12.5 million and bank indebtedness of $5.9 million, compared to $33.9 million in cash and cash equivalents as at April 30, 2022. The decrease in cash and cash equivalents is predominately a result of the increase in inventory from April 30, 2022 of $25.2 million and the acquisition of investments, net of disposals, of $8.2 million. The Company had working capital of $171.4 million as at April 30, 2023 compared to $158.9 million as at April 30, 2022. The Company believes that the current balance in cash plus future cash flow from operations will be sufficient to finance growth and related investment and financing activities in the foreseeable future. Day sales outstanding in accounts receivable were 86 days at April 30, 2023 as compared to 83 for April 30, 2022. 21 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED SHARE CAPITAL STRUCTURE Authorized capital stock consists of an unlimited number of common and preferred shares. Common shares Stock options granted and outstanding Restricted stock options granted and outstanding FINANCIAL INSTRUMENTS Year Ended April 30, 2023 2022 76,145,758 4,788,500 1,511,750 76,229,696 5,055,500 - The Company’s financial instruments consist of cash and cash equivalents, bank indebtedness, trade and other receivables, trade and other payables and long- term debt. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The Company estimates the fair value of these instruments approximates the carrying values as listed below. Fair Values and Classification of Financial Instruments: The following summarizes the significant methods and assumptions used in estimating the fair values of financial instruments: I. Quoted prices (unadjusted) in active markets for identical assets or liabilities. II. Inputs other than quoted prices included in level I that are observable for the asset or liability, either directly or indirectly. Cash and cash equivalents, trade and other receivables, trade and other payables and long-term debt fair value measurements have been measured within level II. III. Inputs for the asset or liability that are not based on observable market data. CONTRACTUAL OBLIGATIONS The following table sets forth the Company’s contractual obligations as at April 30, 2023: (In thousands) Lease commitments Redemption liabilities Total 26,911 3,711 30,622 $ $ Payments Due by Period Less than 1 Year 2-3 Years 4-5 Years Thereafter $ $ 5,283 3,711 8,994 $ $ 10,139 - 10,139 $ $ 7,091 - 7,091 $ $ 4,398 - 4,398 OFF-BALANCE SHEET FINANCING The Company does not have any off-balance sheet arrangements. RELATED PARTY TRANSACTIONS In the normal course of business, we may enter into transactions with related parties. These transactions occur under market terms consistent with the terms of transactions with unrelated arms-length second parties. The Company continues to lease a premise from a company in which two shareholders’ each indirectly hold a 16% interest, continues to lease a facility from a company in which two shareholders each indirectly hold a 20% interest, continues to lease three facilities for manufacturing where two shareholders indirectly own 100% interest, continues to lease a facility from a company in which two shareholders each indirectly own a 35% interest, and continues to lease a facility where two shareholders each indirectly own 46.6%. 22 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D) SELECTED CONSOLIDATED QUARTERLY FINANCIAL INFORMATION The following table sets out selected consolidated financial information for each of the eight quarters ended April 30, 2023. In the opinion of management, this information has been prepared on the same basis as the audited consolidated financial statements. The operating results for any quarter should not be relied upon as any indication of results for any future period. (In thousands) 2023 Quarter Ending 2022 2021 Apr 30 Jan 31 Oct 31 July 31 Apr 30 Jan 31 Oct 31 July 31 $ 128,919 $ 110,873 $ 113,248 $ 101,538 $ 116,089 $ 120,563 $ 107,199 $ 97,165 52,273 Revenue Cost of goods sold Gross margin $ 76,647 $ 65,611 $ 67,477 $ 58,524 $ 68,340 $ Operating expenses Earnings from operations $ 30,468 $ 17,465 $ 28,392 $ 19,304 $ 26,863 $ 39,085 45,262 39,220 46,179 43,014 48,146 45,771 41,477 47,749 51,351 69,212 46,122 61,077 $ 40,479 56,686 $ 38,885 37,377 36,373 30,327 $ 23,700 $ 20,313 Other income and expenses Earnings before taxes Net earnings 4,547 (1,243) (1,644) (385) (1,030) (1,429) (279) (553) $ 25,921 $ 16,222 $ 26,748 $ 18,919 $ 25,833 $ 19,817 18,422 18,957 13,841 11,951 28,898 21,250 Net earnings per share: Basic Diluted Dividends per share $ $ $ 0.24 $ 0.24 $ 0.16 $ 0.19 $ 0.26 $ 0.26 $ 0.18 $ 0.18 $ 0.25 $ 0.25 $ 0.28 0.28 0.19 $ 0.19 $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ $ $ $ 23,421 $ 16,991 19,760 14,547 0.22 $ 0.22 $ 0.19 0.19 1.18 $ 0.18 The Company’s revenue and corresponding earnings can vary from quarter to quarter depending on the delivery requirements of our customers. Our customers can be influenced by a variety of factors including upcoming sports or entertainment events as well as their access to capital. Net earnings represent net earnings attributable to shareholders. 23 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORTDISCLOSURE CONTROLS AND PROCEDURES Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in National Instrument 52-109 of the Canadian Securities Administrators) as of April 30, 2023. Management has concluded that, as of April 30, 2023, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that material information relating to the Company would be made known to them by others within the Company, particularly during the period in which this report was being prepared. INTERNAL CONTROLS OVER FINANCIAL REPORTING Management is responsible for and has designed internal controls over financial reporting, or caused it to be designed under management’s supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Management has concluded that, as of April 30, 2023, the Company’s internal controls over financial reporting were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING There have been no changes to the Company’s internal controls over financial reporting during the period ended April 30, 2023 that have materially affected, or reasonably likely to materially affect, its internal controls over financial reporting. Management is currently operating under the Committee of Sponsoring Organizations of the Treadway Commission Internal Control-Integrated Framework: 2013. OUTLOOK Management is encouraged with the Company’s revenue outlook, including within the cloud native technology and service business, as evidenced by the receipt of significant orders and increase in the Company’s backlog. 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 continues to invest in new product developments. RISKS AND UNCERTAINTIES The Company risk factors are outlined in our AIF filed on SEDAR. 24 2023 ANNUAL REPORTMANAGEMENT’S DISCUSSION AND ANALYSIS (CONT’D)EVERTZ TECHNOLOGIES LIMITED INDEPENDENT AUDITOR’S REPORT To the Shareholders of Evertz Technologies Limited OPINION We have audited the consolidated financial statements of Evertz Technologies Limited (“Evertz” or the “Company”), which comprise the consolidated statements of financial position as at April 30, 2023 and 2022, and the consolidated statements of earnings, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at April 30, 2023 and 2022, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”). BASIS FOR OPINION We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. REVENUE RECOGNITION Description of the Key Audit Matter The Company generates revenue through the sale of hardware, software solutions, services and warranty, as well as a combination of these revenue streams. The Company’s contracts with customers involve multiple performance obligations. Determining whether the products and services represent distinct performance obligations, the allocation of the transaction fee to the performance obligations and, for certain performance obligations in certain arrangements, whether to recognize revenue at a point in time or over time may require significant management judgment. We identified revenue recognition as a key audit matter. Significant auditor judgment and effort, involving more senior professionals, was required to evaluate the results of our audit procedures regarding the Company’s significant judgments in identifying distinct performance obligations and whether to recognize the related revenue over time or at a point in time. Please refer to Notes 2 and 15 to the consolidated financial statements for details on the Company’s Use of Estimates and Judgments and accounting policies related to revenue recognition. 25 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED How the Key Audit Matter Was Addressed in the Audit Our audit procedures to address the Key Audit Matter included, but were not limited to, the following: • Obtaining, reading and understanding the terms of a sample of contracts entered into during the year. • For a sample of revenue transactions recognized during the year, we performed the following: • We agreed key contractual terms back to signed contracts, including contract amendments and correspondence with customers, where applicable; • Assessed the Company’s determination of the distinct performance obligation by examining the contract source documents; • We assessed the Company’s determination of the allocation of the transaction fee to the performance obligation based on the standalone selling price for the performance obligation; and • We obtained evidence of the Company’s satisfaction of the performance obligation to the client and assessed the Company’s determination of whether to recognize the related revenues over time or at a point in time based on the terms of the agreements and the nature of the performance obligation rendered. OTHER INFORMATION Management is responsible for the other information. The other information comprises: • The information included in the Management Discussion and Analysis; and • The information, other than the financial statements and our auditor’s report thereon, included in the Annual Report. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We obtained the Management Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard. The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance. RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. 26 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 27 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Jamie Barron. CHARTERED PROFESSIONAL ACCOUNTANTS, LICENSED PUBLIC ACCOUNTANTS Oakville, Ontario June 21, 2023 28 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As at April 30, 2023 and April 30, 2022 (In thousands of Canadian dollars) April 30, 2023 April 30, 2022 ASSETS Current assets Cash and cash equivalents Trade and other receivables (note 3) Contract assets Prepaid expenses Inventories (note 4) Property, plant and equipment (note 5) Right-of-use assets (note 6) Goodwill (note 7) Intangibles (note 8) Investments (note 9) Deferred income taxes (note 27) LIABILITIES Current liabilities Bank Indebtedness (note 12) Trade and other payables Provisions (note 10) Deferred revenue Current portion of lease obligations (note 11) Current portion of redemption liability (note 13) Income tax payable (note 27) Long-term lease obligations (note 11) EQUITY Capital stock (note 14) Share based payment reserve Accumulated other comprehensive loss Retained earnings Total equity attributable to shareholders Non-controlling interest (note 24) See accompanying notes to the consolidated financial statements. 29 $ 12,468 106,871 11,032 10,319 202,479 343,169 34,730 20,396 21,333 2,125 8,160 6,739 $ 33,902 100,020 6,398 5,930 177,268 323,518 37,877 24,637 21,033 3,317 5,474 5,123 $ 436,652 $ 420,979 $ $ 5,928 75,521 5,104 69,827 4,060 3,711 7,590 171,741 18,827 190,568 143,344 14,696 (2,402) 87,460 85,058 243,099 2,985 246,084 436,652 $ - 68,405 7,379 74,267 4,088 3,423 7,009 164,571 22,760 187,331 143,502 10,893 (4,093) 80,636 76,543 230,938 2,710 233,648 $ 420,979 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORTCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Years ended April 30, 2023 and 2022 Share- based pay- ment reserve Accumu- lated other compre- hensive earnings Capital stock Total equity attributable to share- holders Non- control- ling interest Retained earnings Total Equity $ 143,605 $ 9,514 $ (1,062) $ 140,677 $ 292,734 $ 2,171 $ 294,905 (In thousands of Canadian dollars) Balance at April 30, 2021 Net earnings for the year Foreign currency translation adjustment Total comprehensive earnings for the year Dividends declared Share based compensation expense (note 19) Repurchase of common shares (note 14) $ - - - $ - - - - 71,745 71,745 932 72,677 (3,031) - (3,031) (143) (3,174) - $ (3,031) $ - - 71,745 $ 68,714 $ 789 $ (131,198) (131,198) (250) 69,503 (131,448) - 1,379 (103) - - - - 1,379 (588) (691) - - 1,379 (691) Balance at April 30, 2022 Net earnings for the year Unrealized loss on an FVTOCI investments, net of tax (note 9) Foreign currency translation adjustment Total comprehensive earnings for the year Dividends declared Share based compensation expense (note 19) Repurchase of common shares (note 14) Balance at April 30, 2023 $ 143,502 $ 10,893 $ (4,093) $ 80,636 $ 230,938 $ 2,710 $ 233,648 - - - - - - - 64,032 64,032 523 64,555 (1,595) 3,286 - - (1,595) - (1,595) 3,286 177 3,463 $ - $ - $ 1,691 $ 64,032 $ 65,723 $ 700 $ 66,423 - - - 3,803 (158) - - - - (56,392) (56,392) (425) (56,817) - 3,803 (816) (973) - - 3,803 (973) $ 143,344 $ 14,696 $ (2,402) $ 87,460 $ 243,099 $ 2,985 $ 246,084 See accompanying notes to the consolidated financial statements. 30 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT CONSOLIDATED STATEMENTS OF EARNINGS Years ended April 30 (In thousands of Canadian dollars, except per share amounts) Revenue (notes 15 and 22) Cost of goods sold Gross margin Expenses Selling, administrative and general (note 16) Research and development (note 17) Investment tax credits Foreign exchange gain Finance income Finance costs Net loss on investments through profit and loss (note 9) Other income Earnings before income taxes Provision for (recovery of) income taxes Current (note 27) Deferred (note 27) Net earnings for the year Net earnings attributable to non-controlling interest (note 24) Net earnings attributable to shareholders Net earnings for the year Earnings per share (note 26) Basic Diluted See accompanying notes to the consolidated financial statements. 2023 $ 454,578 $ 186,320 268,258 66,760 121,251 (13,415) (1,966) 172,630 95,628 376 (3,718) (5,364) 888 87,810 25,066 (1,811) 23,255 64,555 523 64,032 64,555 0.84 0.84 $ $ $ $ $ $ $ $ $ $ 2022 441,016 185,701 255,315 66,388 106,525 (12,336) (6,465) 154,112 101,203 309 (2,445) (1,493) 338 97,912 26,959 (1,724) 25,235 72,677 932 71,745 72,677 0.94 0.94 31 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS Years ended April 30 (In thousands of Canadian dollars) Net earnings for the year Other comprehensive earnings (loss): Unrealized gain (loss) on investments, net of tax (note 9) Foreign currency translation adjustment Comprehensive earnings Comprehensive earnings attributable to non-controlling interest Comprehensive earnings attributable to shareholders Comprehensive earnings See accompanying notes to the consolidated financial statements. 2023 2022 $ 64,555 $ 72,677 (1,595) 3,463 66,423 700 65,723 66,423 - (3,174) 69,503 789 68,714 69,503 $ $ $ $ $ $ 32 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITEDCONSOLIDATED STATEMENTS OF CASH FLOWS Years ended April 30 2023 2022 $ 64,555 $ 72,677 10,851 4,714 1,238 3,277 (8) 614 2,087 3,803 2,165 (1,754) 91,542 11,248 (12,252) (36,724) 53,814 (6,572) 60 (10,607) (17,119) 5,928 (4,283) (1,877) (56,392) (425) (974) (58,023) (106) (21,434) 33,902 11,451 4,924 1,207 - (400) - 1,493 1,379 1,955 (1,724) 92,962 14,623 (8,848) (30,064) 68,673 (5,478) 515 - (4,963) - (4,322) (1,055) (131,198) (250) (691) (137,516) (1,063) (74,869) 108,771 $ 12,468 $ 33,902 (In thousands of Canadian dollars) Operating activities Net earnings for the year Add: Items not involving cash Depreciation of property, plant and equipment (note 5) Amortization of right-of-use assets (note 6) Amortization of intangibles (note 8) Revaluation loss on investment in associate (note 9) Gain on disposal of property, plant and equipment (note 5) Realized loss on investments Share of net loss from investment in associate (note 9) Share-based compensation (note 19) Interest expense Deferred income tax expense (note 27) Current tax expenses, net of investment tax credits (note 27) Income taxes paid Changes in non-cash working capital items (note 18) Cash provided by operating activities Investing activities Acquisition of property, plant and equipment (note 5) Proceeds from disposal of property, plant and equipment Acquisition of investments, net of proceeds on disposal Cash used in investing activities Financing activities Proceeds from credit facility (note 12) Principle payments of lease liabilities (note 11) Interest paid Dividends paid Dividends paid by subsidiaries to non-controlling interests Capital stock repurchased (note 14) Cash used in financing activities Effect of exchange rates on cash and cash equivalents Decrease in cash and cash equivalents Cash and cash equivalents beginning of year Cash and cash equivalents end of year See accompanying notes to the consolidated financial statements. 33 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Years ended April 30, 2023 and 2022 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information) EVERTZ TECHNOLOGIES LIMITED (“EVERTZ” OR THE “COMPANY”) IS INCORPORATED UNDER THE CANADA BUSINESS CORPORATIONS ACT. THE COMPANY IS INCORPORATED AND DOMICILED IN CANADA AND THE REGISTERED HEAD OFFICE IS LOCATED AT 5292 JOHN LUCAS DRIVE, BURLINGTON, ONTARIO, CANADA. THE COMPANY IS A LEADING SUPPLIER OF SOFTWARE, EQUIPMENT AND TECHNOLOGY SOLUTIONS TO CONTENT CREATORS, BROADCASTERS, SPECIALTY CHANNELS AND TELEVISION SERVICE PROVIDERS. THE COMPANY DESIGNS, MANUFACTURES AND DISTRIBUTES VIDEO AND AUDIO INFRASTRUCTURE SOLUTIONS FOR THE PRODUCTION, POST–PRODUCTION, BROADCAST AND TELECOMMUNICATIONS MARKETS. 1. STATEMENT OF COMPLIANCE These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board ("IASB"). These consolidated financial statements were authorized for issue by the Board of Directors on June 21, 2023. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Measurement These financial statements have been prepared on the historical cost basis except for certain financial assets and liabilities which are stated at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for assets. Functional and Presentation Currency These financial statements are presented in Canadian dollars, which is the Company’s group functional currency. Each subsidiary of the Company determines its own functional currency based on the primary economic environment in which the subsidiary operates. All financial information presented in Canadian dollars has been rounded to the nearest thousand, except per share amounts. Basis of Consolidation These financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has power over an entity, has exposure or rights to variable returns from its involvement with the entity and has the ability to use its power over the entity to affect the amount of the investor’s returns. The results of subsidiaries acquired or disposed of are included in the consolidated statements of earnings and comprehensive earnings from the effective date of acquisition of control and up to the effective date of disposal of control, as appropriate. Total comprehensive earnings of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. All intra-Company transactions, balances, income and expenses are eliminated in full on consolidation. Business Combinations Business combinations are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of acquisition, of assets transferred, liabilities incurred or assumed, and equity instruments issued by the Company. The acquiree’s identifiable assets and liabilities assumed are recognized at their fair value at the acquisition date. Acquisition-related costs are recognized in earnings as incurred. Any contingent consideration is measured at fair value on date of the acquisition and is included as part of the consideration transferred. The fair value of the contingent consideration liability is re-measured at each reporting date with corresponding gain/loss recognized in earnings. The excess of the consideration over the fair value of the net identifiable assets and liabilities acquired is recorded as goodwill. On an acquisition by acquisition basis, any non-controlling interest is measured either at the fair value of the non- controlling interest or at the fair value of the proportionate share of the net identifiable assets acquired. Where the non-controlling interest holds a put option that can be settled by a fixed amount of cash, in connection with their remaining shares, the fair value of the put option is recognized as a financial redemption liability. In such a case, the non-controlling interest is deemed to have been acquired at the acquisition date and a financial redemption 34 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) Years ended April 30, 2023 and 2022 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) liability is recorded instead of a non-controlling interest. Options that are not exercisable for at least one year are presented as non-current liabilities. Subsequent measurement of the redemption liability is recorded using the effective interest rate method and recognized in the statement of earnings while no earnings are attributed to the non-controlling interest. Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. Revenue Recognition Revenue is measured using a five-step recognition model which includes; 1) identifying the contract(s) with the customer; 2) identifying the separate performance obligations in the contract; 3) determining the transaction price; 4) allocating the transaction price to separate performance obligations; and 5) recognizing revenue when (or as) each performance obligation is satisfied. Step 1: Identifying the contract Before recognizing revenue, the Company reviews customer contracts to ensure each party’s rights and payment terms are identified, there is commercial substance, and that it is probable that the Company will collect the consideration in exchange for the goods or services as stated in the contract. Step 2: Identifying performance obligations The Company regularly sells hardware and software solutions including related services, training and commissioning on a stand-alone basis. A customer contract typically lists items separately with distinct item descriptions, quantities, and prices. If a contract contains a bundle of items priced together at a single price, the Company analyzes the contract to identify distinct performance obligations within the bundle. Step 3: Determining the transaction price Transaction prices are typically the prices stated on the purchase orders or contracts, net of discounts. The Company reviews customer contracts for any variable considerations, existence of significant financing components and payables to customers, and adjusts transaction prices accordingly. Step 4: Allocating the transaction price to performance obligations If a customer contract includes multiple performance obligations, the transaction price is allocated to each performance obligation based on its relative stand-alone selling price. If a stand-alone selling price is not directly observable, the Company estimates the stand-alone selling price of individual elements, based on prices at which the deliverable is regularly sold on a stand-alone basis after considering specific discounts where appropriate. Step 5: Recognizing revenue upon satisfaction of performance obligations The timing of revenue recognition is based on when a customer obtains control of the asset. Control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset. The Company reviews customer contracts and the nature of the performance obligations to determine if a performance obligation is satisfied over time or at a point in time, and recognizes revenue accordingly. Revenue from sales of hardware are recognized upon shipment, provided that the significant risks and rewards of ownership have been transferred to the customer, the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, revenue can be reliably measured and its probable that the economic benefits will flow to the Company. Revenue from software solutions are recognized either over a period of time or at a point in time depending on the contractual terms of the contract identified and the specific performance obligations identified therein. For performance obligations satisfied over time, the Company measures the progress using either an input or output method, depending on which yields the most reliable estimate. Revenue from services is recognized as services are performed and warranty revenue is recognized ratably over the warranty period. 35 2023 ANNUAL REPORTEVERTZ TECHNOLOGIES LIMITED 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Certain of the Company’s contracts are long-term in nature. When the outcome of the contract can be assessed reliably, the Company recognizes revenue on long-term contracts over time, based on costs incurred relative to the estimated total contract costs. When the outcome of the contract cannot be assessed reliably contract costs incurred are immediately expensed and revenue is recognized only to the extent that costs are considered likely to be recovered. Revenue recognized in excess of billings are recorded as contract assets. Contract assets are recognized when revenue is recognized in excess of billings or when the Company has a right to consideration and that right is conditional to something other than the passage of time. Contract assets are subsequently transferred to accounts receivable when the right to payment becomes unconditional. Finance Income Interest income is recognized when it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in the bank, net of outstanding bank overdrafts. Inventories Inventories consist of raw materials and supplies, work in progress and finished goods. Inventories are stated at the lower of cost and net realizable value. Cost is determined on a weighted average basis and includes raw materials, the cost of direct labour applied to the product and the overhead expense. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and any recognized impairment loss. Where the costs of certain components of an item of property, plant and equipment are significant in relation to the total cost of the item, they are accounted for and depreciated separately. Depreciation expense is calculated based on depreciable amounts which is the cost of an asset less residual value and is recognized in earnings on a straight- line basis over the estimated useful life of the related asset. Borrowing costs are capitalized to the cost of qualifying assets that take a substantial period of time to be ready for their intended use. The estimated useful lives are as follows: ASSET Office furniture and equipment Research and development equipment Machinery and equipment Leaseholds Building Airplanes BASIS Straight-line Straight-line Straight-line Straight-line Straight-line Straight-line RATE 10 years 5 years 5 - 15 years 5 years 10 - 40 years 10 - 20 years The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in earnings. The Company reviews the residual value, estimated useful life and the depreciation method at least annually. 36 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) Years ended April 30, 2023 and 2022 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of Non-Financial Assets Goodwill is tested for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount may be more than its recoverable amount. At each reporting period, the Company reviews the carrying amounts of its other non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash inflows that are largely independent from other assets, the Company estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset belongs. Goodwill is allocated to a group of CGU’s based on the level at which it is monitored for internal reporting purposes. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss relating to a CGU to which goodwill has been allocated, is allocated to the carrying amount of the goodwill first. An impairment loss is recognized immediately in earnings. An impairment loss in respect of goodwill is not reversed. Where an impairment loss subsequently reverses for other non-financial assets, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of an impairment loss is recognized immediately in earnings. Intangible Assets Intangible Assets Intangible assets represent intellectual property acquired through business acquisitions and are recorded at cost less any impairment loss and are amortized using the straight–line method over a five–year period. The estimated useful life and amortization method are reviewed at the end of each reporting period. Research and Development All research and development expenditures are expensed as incurred unless a development project meets the criteria for capitalization. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Company intends to and has sufficient resources to complete development and to use or sell the asset. No internally generated intangible assets have been recognized to date. Research and development expenditures are recorded gross of investment tax credits and related government grants. Investment tax credits for scientific research and experimental development are recognized in the period the qualifying expenditures are incurred if there is reasonable assurance that they will be realized. Investment in an Associate Investments in an Associate are entities in which the Company has significant influence over, but not have control or joint control over the financial and operating policies. Investments in an Associate are accounted for using the equity method. Under the equity method, the initial investment is recognized at cost, which includes transaction costs. Subsequent to initial recognition, the carrying amount is increased or decreased in recognition of the Company’s share of the profit or loss after the date of acquisition, until the date on which significant influence ceases. At the end of each reporting period, the Company also reviews the carrying amounts of Investments in an Associate to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the carrying amount of such investment is compared to its recoverable amount, being the higher of its fair value less costs of disposal and value-in-use. If the recoverable amount of an investment is less than its carrying amount, the carrying amount is reduced to its recoverable amount and an impairment loss, being the excess 37 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) of carrying amount over the recoverable amount, is recognized immediately. When an impairment loss reverses in a subsequent period, the carrying amount of the investment is increased to the revised estimate of recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized. Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Leasing At inception of a contract, the Company assesses whether that contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company records a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, consisting of the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or restore the site on which it is located; less any lease incentives received. The right-of-use asset is depreciated on a straight-line basis over the lease term. The lease term consists of the non-cancellable period of the lease; periods covered by options to extend the lease, where the Company is reasonably certain to exercise the option; and periods covered by options to terminate the lease, where the Company is reasonably certain not to exercise the option. The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. The Company generally use their incremental borrowing rate as the interest rate implicit in our leases cannot be readily determined. The lease liability is subsequently measured at amortized cost using the effective interest rate method. Certain leases require us to make payments that relate to property taxes, insurance, and other non-rental costs. These non-rental costs are typically variable and are not included in the calculation of the right-of-use asset or lease liability. Foreign Currency Translation The individual financial statements of each subsidiary entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group entity are presented in Canadian dollars (“CDN”), which is the functional currency of the parent Company and the presentation currency for the financial statements. 38 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) Years ended April 30, 2023 and 2022 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences are recognized in earnings in the period in which they arise. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign operations are expressed in Canadian dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period. Foreign currency gains and losses are recognized in other comprehensive earnings. The relevant amount in cumulative foreign currency translation adjustment is reclassified into earnings upon disposition or partial disposition of a foreign operation and attributed to non-controlling interests as appropriate. Income Taxes Current Tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from net earnings as reported in the statement of earnings because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the statement of financial position date. Deferred Tax Deferred tax is the tax expected to be payable or recoverable on unused tax losses and credits, as well as differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which unused tax losses, credits and other deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is charged or credited to earnings, except when it relates to items charged or credited directly to other comprehensive earnings or equity, in which case the deferred tax is also dealt with in other comprehensive earnings or equity. Share Based Compensation Equity settled share based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity settled share based transactions are set out in note 19. The fair value determined at the grant date of the equity settled share based payments is expensed on a straight-line basis over the vesting period of the option based on the Company’s estimate of the number of equity instruments that will eventually vest. At each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in earnings such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to share based payment reserve. 39 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash settled share based compensation to employees, including restricted share units, or others providing similar services are measured at the fair value of the instruments at the grant date. The fair value is recognized as an expense with a corresponding increase in liabilities over the vesting period of the option grant. At each reporting period, the Company revises its estimate of fair value and the number of instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in earnings such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to liabilities. Earnings Per Share The Company presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is calculated by dividing the net earnings attributable to shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by adjusting the net earnings attributable to shareholders and the weighted average number of common shares outstanding for the effects of all potentially dilutive common shares, which is comprised of share options granted to employees with an exercise price below the average market price. Finance Costs Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other finance costs are recognized in earnings in the period in which they are incurred. Investment Tax Credits The Company is entitled to investment tax credits, which are earned as a percentage of eligible research and development expenditures incurred in each taxation year. Investment tax credits relate entirely to the Company’s research and development expenses in the consolidated statements of earnings but are presented separately in the consolidated statements of earnings for information purposes. Investment tax credits are recognized and recorded within income tax receivable or as a reduction of income tax payable, when there is reasonable assurance they will be received. Government Assistance The Company applied and received assistance from multiple assistance programs within various countries worldwide. The assistance has been recognized as an offsetting reduction to expenses and the cost of labour applied to manufactured inventory. During the year, there was no assistance received or deducted from expenses (2022 - $3,259). As of April 30, 2023, $510 in prior years assistance remained as a reduction to the cost of inventory (2022 - $904). 40 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) Years ended April 30, 2023 and 2022 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Financial Instruments The Company’s financial assets and liabilities which are initially recorded at fair value and subsequently measured based on their assigned classifications as follows: Assets/Liabilities Cash and cash equivalents Trade and other receivables Investments in public companies Investments in private companies Bank indebtedness Trade and other payables, excluding RSUs Cash based RSU liability Redemption liability Classification Amortized cost Amortized cost Fair value through other comprehensive income Fair value through profit and loss Amortized cost Amortized cost Fair value through profit and loss Amortized cost Financial Assets All financial assets are initially measured at fair value, plus transaction costs, except for those financial assets classified as fair value through profit or loss, which are initially measured at fair value. Transaction costs in respect of financial instruments that are classified as fair value through profit or loss are recognized in earnings immediately. Transaction costs in respect of other financial instruments are included in the initial measurement of the financial instrument. Financial assets are classified into the following specific categories: financial assets “at fair value through profit or loss” (“FVTPL”), “fair value through other comprehensive income (“FVTOCI”)” and “amortized cost”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognized in earnings. Financial assets at FVTOCI are stated at fair value, with any gains or losses arising on re-measurement recognized in other comprehensive earnings. Impairment of Financial Assets Financial assets, other than those at FVTPL and FVTOCI, are assessed for indicators of impairment at the time of initial recognition and at each reporting period. The Company measures a loss allowance based on the lifetime expected credit losses. Lifetime expected credit losses are estimated based on factors such as the Company’s past experience of collecting payments, observable changes in national or local economic conditions that correlated with default on receivables, financial difficulties of the borrower, and it becoming probable that the borrow will either enter bankruptcy or financial reorganization. Financial assets are written off when there is no reasonable expectation of recovery. For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. A trade receivable is considered impaired if it is probable that a customer will not pay all amounts due. When a trade receivable is considered impaired, it is recorded in the allowance account. Subsequent recoveries of amounts are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in earnings. When there is no reasonable expectation of recovery, the trade receivable balance is written off against the allowance account. 41 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Financial Liabilities and Equity Instruments Issued by the Company Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognized in earnings. The net gain or loss recognized in earnings incorporates any interest paid on the financial liability and is included in the “other income and expenses” line item in the consolidated statements of earnings. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs. Other financial liabilities, including long term debt and redemption liabilities, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. Critical Accounting Estimates and Judgments The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Consequently, actual results could differ from those estimates. Those estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. Significant estimates include the determination of expected credit losses which are based on the amount and timing of cash flows expected to be received, provision for inventory obsolescence which is recorded to adjust to the net realizable value of inventory and based on current market prices and past experiences, the useful life of property, plant and equipment and intangibles for depreciation which are based on past experiences, expected use and industry trends, amortization and valuation of net recoverable amount of property, plant and equipment and intangibles, determination of fair value for share based compensation, evaluating deferred income tax assets and liabilities, the determination of fair value of financial instruments and the likelihood of recoverability, and the determination of implied fair value of goodwill and implied fair value of assets and liabilities for purchase price allocation purposes and goodwill impairment assessment purposes. Significant items requiring the use of judgment in application of accounting policies and assumptions include the determination of functional currencies, classification of financial instruments, classification of leases, determination of the number of revenue performance obligations, determination if revenues should be recognized at a point in time or over time, application of the percentage of completion method on long-term contracts, degree of componentization applied when calculating amortization of property, plant and equipment, and identification of cash generating units for impairment testing purposes. Operating Segments An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. The Company reviewed its operations and determined that it operates a single reportable segment, the television broadcast equipment market. The single reportable operating segment derives its revenue from the sale of hardware and software solutions, related services, training and commissioning and long-term contracts. New and Revised IFRSs Issued but Not Yet Effective Following is a listing of amendments, revisions and new International Financial Reporting Standards issued but not yet effective. Unless otherwise indicated, earlier application is permitted. 42 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) Years ended April 30, 2023 and 2022 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Presentation of Non-Current Liabilities with Covenants Amendments to IAS 1, Presentation of Financial Statements was issued by the IASB in January 2020 and clarifies the classification, presentation and disclosure requirements in the standard for non-current liabilities with covenants. The amendments are effective for reporting periods beginning on or after January 1, 2024. The Company does not expect that the adoption of this standard listed above will have a material impact on the consolidated financial statements of the Company. Lease Liability in Sale and Leaseback Transactions Amendments to IFRS 16, Leases was issued by the IASB in September 2022 and clarifies the subsequent measurement requirements for sale and leaseback transactions for sellers-leasees. The amendments are effective for reporting periods beginning on or after January 1, 2024. The Company does not expect that the adoption of the standard listed above will have a material impact on the consolidated financial statements of the Company. 3. TRADE AND OTHER RECEIVABLES Trade receivables, net of allowances Other receivables 4. INVENTORIES Finished goods Raw material and supplies Work in progress 2023 105,692 1,179 106,871 2023 53,446 106,614 42,419 202,479 $ $ $ $ 2022 96,966 3,054 100,020 2022 53,970 83,058 40,240 177,268 $ $ $ $ Cost of sales for the year ended April 30, 2023 included $171,059 of inventory (2022 - $169,691) and $3,150 of inventory write-offs (2022 - $4,005). 5. PROPERTY, PLANT AND EQUIPMENT Office furniture and equipment $ Research and development equipment Airplanes Machinery and equipment Leaseholds Land Buildings April 30, 2023 Accumulated Depreciation Cost Carrying Amount April 30, 2022 Accumulated Depreciation Cost Carrying Amount 5,169 $ 3,589 $ 1,580 $ 4,593 $ 3,068 $ 1,525 34,008 11,599 69,811 9,570 2,276 27,086 10,263 56,937 7,086 - 10,984 3,726 6,922 1,336 40,316 11,599 30,544 9,720 9,772 1,879 12,874 69,153 55,936 13,217 2,484 2,276 7,258 9,195 2,055 9,916 6,527 - 3,155 2,668 2,055 6,761 $ 143,417 $ 108,687 $ 34,730 $ 146,827 $ 108,950 $ 37,877 43 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT 5. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Office furniture and equip- ment Research and develop- ment equipment Airplanes Machin- ery and equip- ment Lease- holds Land Build- ings Total Cost Balance as at April 30, 2021 $ 4,787 $ 40,778 $ 11,535 $ 69,202 $ 9,188 $ 2,197 $ 10,710 $ 148,397 Additions 538 1,940 64 2,936 - - - 5,478 Foreign exchange (1,716) adjustments Disposals (5,332) Balance as at April 30, 2022 $ 4,593 $ 40,316 $ 11,599 $ 69,153 $ 9,195 $ 2,055 $ 9,916 $ 146,827 (374) (2,028) (153) (2,832) (260) (472) (794) - (142) - 7 - - - Additions Foreign exchange adjustments 490 1,429 125 465 - - 4,274 363 - 16 6,572 1,052 12 221 1,052 2,927 Disposals (12,909) Balance as at April 30, 2023 $ 5,169 $ 34,008 $ 11,599 $ 69,811 $ 9,570 $ 2,276 $ 10,984 $ 143,417 (8,202) (4,668) (39) - - - - Accumulated Depreciation Balance as at April 30, 2021 $ 3,231 $ 28,027 $ 9,154 $ 54,094 $ 6,037 $ Depreciation for the year Foreign exchange adjustments Disposals (76) (2,644) (337) (2,023) (245) (460) 4,562 4,877 566 542 490 - - - - Balance as at April 30, 2022 $ 3,068 $ 30,544 $ 9,720 $ 55,936 $ 6,527 $ Depreciation for the year Foreign exchange adjustments Disposals Balance as at April 30, 2023 $ 3,589 $ 27,086 $ 10,263 $ 56,937 $ 7,086 $ 813 (4,646) 440 (8,144) 80 (38) 4,834 4,246 559 543 479 - - - - - $ 3,055 $ 103,598 - - - 414 11,451 (314) - (972) (5,127) - $ 3,155 $ 108,950 10,851 - 190 1,714 381 - (12,828) - - - $ 3,726 $ 108,687 Carrying amounts At April 30, 2022 At April 30, 2023 $ 1,525 $ 9,772 $ 1,879 $ 13,217 $ 2,668 $ 2,055 $ 6,761 $ 37,877 $ 1,580 $ 6,922 $ 1,336 $ 12,874 $ 2,484 $ 2,276 $ 7,258 $ 34,730 44 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) Years ended April 30, 2023 and 2022 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information) 6. RIGHT-OF-USE ASSETS Balance as at May 1, 2021 Additions Amortization for the year Foreign exchange adjustments Balance as at April 30, 2022 Amortization for the year Foreign exchange adjustments Balance as at April 30, 2023 7. GOODWILL The changes in carrying amounts of goodwill are as follows: Balance as at April 30, 2021 Foreign exchange differences Balance as at April 30, 2022 Foreign exchange differences Balance as at April 30, 2023 Land & Building $ $ $ $ $ $ 23,570 5,665 (4,924) 326 24,637 (4,714) 473 20,396 Cost 21,140 (107) 21,033 300 21,333 The Company performs an impairment test annually on April 30th or whenever there is an indication of impairment. For the purposes of testing for impairment, goodwill has been allocated to the following cash-generating units as follows: Evertz Microsystems Ltd. Holdtech Kft Quintech ATCI Ease Live April 30, 2023 $ 13,926 5,346 1,023 387 651 21,333 $ 2022 13,782 5,558 676 366 651 21,033 $ $ The key assumptions used in performing the impairment tests as at April 30, 2023 are as follows: Method of determining recoverable amount: Discount Rate: Perpetual growth rate: Value in use 9.0% - 12.0% 1 - 3% Recoverable Amount Management’s past experience and future expectations of the business performance is used to make a best estimate of the expected revenue, earnings before interest, taxes, depreciation and amortization and operating cash flows for a five year period. Subsequent to the fifth year, the present value of the fifth year cash flows is calculated in perpetuity. Discount Rate The discount rate applied is a pretax rate that reflects the time value of money and risk associated with the business. The discount rate applied varies depending on the jurisdictions in which the entity operates. 45 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT 7. GOODWILL (CONTINUED) Perpetual Growth Rate The perpetual growth rate is management’s current assessment of the long-term growth prospect of the Company in the jurisdictions in which it operates. Sensitivity Analysis Management performs a sensitivity analysis on the key assumptions. The sensitivity analysis indicates reasonable changes to key assumptions will not result in an impairment loss. 8. INTANGIBLES Balance as at April 30, 2021 Amortization Foreign exchange differences Balance as at April 30, 2022 Amortization Foreign exchange differences Balance as at April 30, 2023 Cost $4,476 (1,207) 48 $3,317 (1,238) 46 $2,125 $ $ $ The intangible assets relate to the technology, patents and workforce acquired during prior period acquisitions. 9. INVESTMENTS Investments in: Publically traded companies Private companies April 30, 2023 8,160 - $ 8,160 $ April 30, 2022 - 5,474 5,474 Investments in publically traded companies are maintained at their fair value and are classified as financial assets designated at fair value through other comprehensive income. The designation was made upon initial recognition as the investments were not held for the purpose of trading. Investments in private companies are maintained at their fair value and are classified as financial assets designated at fair value through profit and loss. The investment in private companies consists of an investment in share capital of DDSports Inc. (Shot Tracker). Upon initial recognition the investment was treated under the equity method as it determined the Company had a significant influence on DDSports Inc., due to its approximately 20% percentage ownership and the holding of a board seat. In fiscal 2023, DDSports Inc completed new share issuances and the Company’s ownership percentage decrease to approximately 9%. The decrease in ownership percentage has resulted in the loss of significant influence and the revaluation of the investment to its fair value, which the Company has determined to be nil, resulting in an impairment of $3,277. Prior to revaluation, in fiscal 2023, $2,087 million in losses were recorded under the equity method in recognition of the Company’s share of DDSports Inc. (2022 - $1,493). 46 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) Years ended April 30, 2023 and 2022 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information) 10. PROVISIONS Balance as at April 30, 2021 Net (reductions) additions Foreign exchange differences Balance as at April 30, 2022 Net (reductions) additions Foreign exchange differences Balance as at April 30, 2023 Warranty and Returns Lease/ Retirement Obligations $ $ $ 3,331 3,435 90 6,856 (2,364) 20 $ $ 738 (185) (30) 523 35 34 4,512 $ 592 Total 4,069 3,248 60 7,379 (2,329) 54 5,104 $ $ $ Warranty and Returns The provision relates to estimated future costs associated with standard warranty repairs and returns on hardware solutions. The provision is based on historical data associated with similar products. The warranty and returns are expected to be incurred within the next twelve months. Lease/Retirement Obligations The provision relates to estimated restoration costs expected to be incurred upon the conclusion of Company leases. 11. LEASE LIABILITIES Opening Balance Additions Interest Lease Payments Foreign exchange adjustments Closing Balance Less current portion Long term lease obligations April 30, 2023 April 30, 2022 $ 26,848 $ - 961 (5,244) 322 $ $ 22,887 $ 4,060 18,827 $ 25,367 5,665 1,029 (5,351) 138 26,848 4,088 22,760 12. CREDIT FACILITIES The Company has the following credit facilities available: 1. Credit facility of $75 million and a treasury risk management facility up to $10 million available, bearing interest at prime, subject to certain covenants and secured by all Canadian based assets. Advances under these facilities bear interest at prime. As at April 30, 2023 and April 30, 2022, the Company was in compliance with covenants. There were borrowings against the facilities as at April 30, 2023 of $5,928 (April 30, 2022 – nil). 2. Credit facility available of $1,155 bearing interest at WIBOR plus 1.4% per annum. There were no borrowings outstanding under this facility as at April 30, 2023 or 2022. 47 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT 13. REDEMPTION LIABILITY Opening Balance Amortization Foreign Exchange Adjustments Closing Balance April 30, 2023 April 30, 2022 $ 3,423 $ 2,523 57 231 781 119 $ 3,711 $ 3,423 On October 27, 2020, the Company completed the investment of 73% in the voting share capital of Ease Live AS (“Ease Live”), who are based in Bergen, Norway. Ease Live, which was formerly part of Sixty AS, is a direct to consumer interactive graphics company. The non-controlling shareholders held a put option for the remaining shareholdings, exercisable between November 15, 2022 and December 15, 2022 for a fixed cash price of $3,734. The option was not exercised. The non-controlling shareholders hold another put option for the remaining shareholdings, exercisable between November 15, 2023 and December 15, 2023 for a fixed cash price of $3,734. The put option has been separately valued as a redemption liability, and the non-controlling interest is deemed to have been acquired at the acquisition date. 14. CAPITAL STOCK Authorized capital stock consists of: Unlimited number of preferred shares Unlimited number of common shares Balance as at April 30, 2021 Cancelled pursuant to NCIB Balance as at April 30, 2022 Cancelled pursuant to NCIB Balance as at April 30, 2023 Number of Common Shares 76,284,366 (54,670) 76,229,696 (83,938) 76,145,758 Amount 143,605 (103) 143,502 (158) 143,344 $ $ $ Dividends Per Share During the year, $0.74 in dividends per share, were declared (2022 - $1.72 per share including a special dividend of $1.00 per share were declared). Normal Course Issuer Bid In October 2021, the Company renewed the Normal Course Issuer Bid (“NCIB”) with the TSX to repurchase, at the Company’s discretion, until October 28, 2022 up to 3,814,218 outstanding common shares on the open market or as otherwise permitted, subject to normal terms and limitations of such bids. During the year, the Company purchased and cancelled 33,494 common shares under this NCIB at a weighted average price of $12.01 (2022 – 54,670 common shares at a weighted average price of $12.64). In November, 2022, the Company entered into a new Normal Course Issuer Bid (“NCIB”) with the TSX to repurchase, at the Company’s discretion, until November 13, 2023 up to 3,809,810 outstanding common shares on the open market or as otherwise permitted, subject to normal terms and limitations of such bids. During the year, the Company purchased and cancelled 50,444 common shares under this NCIB at a weighted average price of $11.32 (2022 - nil). 48 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) Years ended April 30, 2023 and 2022 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information) 15. REVENUE Hardware and software Services, including warranty, maintenance and commissioning Long term contract revenue 16. SELLING, ADMINISTRATIVE AND GENERAL EXPENSES Selling and administrative Depreciation - selling and administrative General: Share based compensation (note 19) Amortization of intangibles 17. RESEARCH AND DEVELOPMENT Research and development Depreciation - research and development General: Share based compensation (note 19) 18. STATEMENT OF CASH FLOWS Changes in non–cash working capital items Trade and other receivables Contract assets Inventories Prepaid expenses Trade and other payables Deferred revenue Provisions 2023 2022 $ 349,115 $ 56,825 48,638 342,129 47,730 51,157 $ 454,578 $ 441,016 2023 2022 $ 61,518 $ 60,884 3,441 3,356 538 1,263 941 1,207 $ 66,760 $ 66,388 2023 $ 112,380 $ 4,747 2022 97,020 5,418 4,124 4,087 $ 121,251 $ 106,525 2023 2022 $ (3,475) $ (25,880) (4,634) (23,899) (3,765) 5,764 (4,440) (2,275) $ (36,724) $ (3,577) (25,488) 276 5,075 16,220 3,310 (30,064) 49 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT 19. SHARE BASED PAYMENTS Stock Option Plan The Company established, in June 2006, a stock option plan to attract, retain, motivate and compensate employees, officers and eligible directors who are integral to the growth and success of the Company. A number of shares equal to 10% of the Company’s outstanding common shares are to be reserved for issuance under the stock option plan. The Board of Directors administers the stock option plan and will determine the terms of any options granted. The exercise price of an option is to be set by the Board of Directors at the time of grant but shall not be lower than the market price as defined in the option plan at the time of grant. The term of the option cannot exceed 10 years. Stock options currently granted normally fully vest and expire by the end of the fifth year. The changes in the number of outstanding share options are as follows: Balance as at April 30, 2021 Granted Forfeited Expired Balance as at April 30, 2022 Forfeited Expired Balance as at April 30, 2023 Stock options outstanding as at April 30, 2023 were: Exercise Price $ 12.28 - $12.86 $ 14.07 - $15.80 $ 16.08 - $16.20 $ 17.24 - $17.98 Totals Weighted Average Exercise Price $ $ $ $ $ 12.35 15.37 16.17 17.94 13.38 Number of Outstanding Options 3,603,500 500,000 220,000 465,000 4,788,500 Stock options outstanding as at April 30, 2022 were: Exercise Price $ 12.28 - $12.86 $ 14.07 - $15.80 $ 16.08 - $16.87 $ 17.39 - $18.63 Totals Weighted Average Exercise Price $ $ $ $ $ 12.35 15.38 16.24 17.88 13.43 Number of Outstanding Options 3,760,000 510,500 245,000 540,000 5,055,500 50 Number of Options 5,885,000 $ 3,000 (672,500) (160,000) 5,055,500 $ (174,500) (92,500) 4,788,500 $ Weighted Average Exercise Price 13.46 15.14 12.80 16.99 13.43 12.72 17.35 13.38 Weighted Average Remaining Contractual Life 2.3 1.0 1.6 1.6 2.1 Weighted Average Remaining Contractual Life 3.3 2.0 2.4 2.4 3.0 Number of Options Exercisable - 320,000 144,000 283,000 747,000 Number of Options Exercisable - 246,300 56,000 72,000 374,300 Weighted Average Exercise Price of Exercisable Options $ $ $ $ $ - 15.70 16.16 17.93 16.63 Weighted Average Exercise Price of Exercisable Options $ $ $ $ $ - 15.70 16.36 17.47 16.14 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) Years ended April 30, 2023 and 2022 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information) 19. SHARE BASED PAYMENTS (CONTINUED) Restricted Share Unit Plan (2016 Plan) The Company established, in March 2016, a restricted share unit (“RSU-2016”) plan to provide an incentive to participants; including key executives of the Company, by rewarding such participants with equity-based compensation. Under the terms of the plan, RSU’s are issued to the participant with a vesting period of three years. On the vesting date, all RSU’s issued under the 2016 Plan will be redeemed in cash at the fair market value at the date of vest plus any accrued dividends. The changes in the number of outstanding RSUs under the 2016 Plan are as follows: Balance as at April 30, 2021 Granted Exercised Forfeited Balance as at April 30, 2022 Exercised Forfeited Balance as at April 30, 2023 Number of RSUs 797,500 10,000 (315,500) (49,000) 443,000 (371,500) (4,500) 67,000 As at April 30, 2023, the average remaining contractual life for outstanding RSUs under the 2016 Plan is 0.7 years (2022 – 0.8 years). Restricted Share Unit Plan (2022 Plan) The Company established, in June 2022, a new restricted share unit plan (RSU-2022). The purpose of the plan is to provide an incentive to participants; including key executives of the Company, by rewarding such participants with equity-based compensation. Under the terms of the plan, the Company will redeem RSUs granted to a participant under the 2022 Plan through the issuance of one Common Share of the Company for each fully vested RSU. The Board of Directors administers the equity based restricted share unit plan and will determine the terms of any restricted share units granted. Restricted share units currently granted normally fully vest and expire by the end of the fifth year. A number of restricted share units equal to 10% of the Company’s outstanding common shares are to be reserved for issuance under the equity based restricted share unit plan, less the aggregate number of stock options granted under the Stock Option Plan described above. The change in the number of outstanding RSUs under the 2022 Plan are as follows: Balance as at April 30, 2022 Granted Forfeited Balance as at April 30, 2023 Number of RSUs (2022 Plan) - 1,522,250 (10,500) 1,511,750 As at April 30, 2023, the average remaining contractual life for outstanding RSUs under the 2022 Plan is 3.4 years. 51 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT 19. SHARE BASED PAYMENTS (CONTINUED) Compensation Expense Stock Option Plan The share based compensation expense that has been charged against earnings over the fiscal period is $1,265 (2022 - $1,379). Compensation expense on grants was calculated using the Black-Scholes option pricing model. There were no grants completed in fiscal 2023. In 2022, grants were calculated with the following weighted average assumptions: Risk-free interest rate Dividend yield Expected life Expected volatility Weighted average grant-date fair value April 30, 2022 0.94% 4.76% 5 years 24% 1.74 $ Expected volatility is based on historical share price volatility over the past five years of the Company. Share based compensation expense was calculated using a weighted average forfeiture rate of 24% (2022 – 22%). Restricted Share Unit Plan (2016 Plan) The share based compensation expense that has been charged against earnings over the fiscal year is $858 (2022 - $3,649). Share based compensation expense was calculated using a weighted average forfeiture rate of 23% (2022 - 11%). As at April 30, 2023, the total liability included within trade and other payables is $780 (2022 - $5,646). Restricted Share Unit Plan (2022 Plan) The share base compensation expense that has been charged against earnings over the fiscal year is $2,539 (2022 – nil). Compensation expense on grants during the year was calculated using the fair value of the Company’s share price at the grant date. Share based compensation expense was calculated used a weighted average forfeiture rate of 10% (2022 – nil). 20. COMMITMENTS AND CONTINGENCIES In the normal course of operations, the Company is party to a number of lawsuits, claims and contingencies. Accruals are made in instances where it is probable that liabilities have been incurred and where such liabilities can be reasonably estimated. Although it is possible that liabilities may be incurred in instances for which no accruals have been made, the Company believes the possibility of outflow of cash is remote and thus no additional provisions have been recognized. The Company is committed to payments under long term debt agreements and certain lease obligations in Note 11 with minimum annual lease payments as follows: 2024 2025 2026 2027 2028 Thereafter Balance as at April 30, 2023 $ $ Redemption Liabilities Leases Payments $ 5,283 $ 4,856 5,283 3,737 3,354 4,398 26,911 $ $ 3,711 - - - - - 3,711 52 Total 8,994 4,856 5,283 3,737 3,354 4,398 30,622 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) Years ended April 30, 2023 and 2022 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information) 20. COMMITMENTS AND CONTINGENCIES (CONTINUED) Total operating lease expense during the year was $489 (2022 - $420). The Company has obtained documentary and standby letters of credit aggregating to a total of $14,360 (2022 - $4,524). 21. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Company estimates that the fair value of financial instruments approximates their carrying values. The following summarizes the significant methods and assumptions used in estimating the fair values of financial instruments: I. Quoted prices (unadjusted) in active markets for identical assets or liabilities. II. Inputs other than quoted prices included in level I that are observable for the asset or liability, either directly or indirectly. Cash and cash equivalents, trade and other receivables, trade and other payables, long term debt, and fair value disclosures have been determined using level II fair values. III. Inputs for the asset or liability that are not based on observable market data. (a) Financial risk management: The Company, through its financial assets and liabilities, is exposed to various risks. The following analysis provides a measurement of risks as at April 30, 2023: Credit risk Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, contract assets and trade and other receivables the total of which is the maximum exposure to credit risk. The Company performs evaluations of the financial situations of its customers and uses various controls and processes, such as credit checks and billings in advance to investigate credit risk. Management does not believe that there is significant credit concentration or risk not already provided for. The Company sets up an allowance for doubtful accounts using the lifetime expected credit losses related to total receivables, while factoring in the credit risks of the individual customer and the aging of receivables. Amounts owing over 90 days are individually evaluated and provided for as an expected credit loss where appropriate in the allowance for doubtful accounts. When considering the need for provisions in relation to balances past due, the Company considers forward looking information such as region specific economic factors including industry outlook, employment, politics, and other market indicators. The Company also takes into consideration customer specific payment history. The trade and other receivables are presented as follows net of the allowance for doubtful accounts: Trade and other receivables Allowance for doubtful accounts The change in the allowance for doubtful accounts was as follows: Balance at beginning of year Increase in allowance Bad debt recaptured and write-offs Impact of variation in exchange rates Balance at end of year April 30, 2023 April 30, 2022 $ $ 109,702 $ (2,831) 106,871 $ 102,522 (2,502) 100,020 April 30, 2023 April 30, 2022 $ $ 2,501 $ 778 (629) 181 2,831 $ 3,549 658 (1,685) (20) 2,502 53 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT 21. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) The aging of trade and other receivables, net of the allowance for doubtful accounts was: Less than 30 days past billing date 30-60 days past billing date 61-90 days past billing date Greater than 90 days past billing date April 30, 2023 April 30, 2022 $ 44,616 $ 21,199 7,259 33,797 41,297 17,720 11,299 29,704 $ 106,871 $ 100,020 Exchange Rate Risk The Company transacts a significant portion of its business in U.S. dollars and is therefore exposed to currency fluctuations. U.S. dollar financial instruments are as follows: Cash and cash equivalents Trade and other receivables Trade and other payables April 30, 2023 April 30, 2022 $ $ 3,248 $ 87,548 (10,433) 80,363 $ 14,071 76,702 (10,400) 80,373 Based on the financial instruments as at April 30, 2023, a 5% change in the value of the U.S. dollar would result in a gain or loss of $4.0 million in earnings before income tax. Liquidity Risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities. The Company's primary source of liquidity is its cash reserves. The Company also maintains certain credit facilities to support short term funding of operations and trade finance. The Company believes it has sufficient available funds to meet current and foreseeable financial requirements. The Company expects to settle all current financial liabilities within the next year. Maturity of lease obligations are disclosed in Note 20. 22. SEGMENTED INFORMATION The Company reviewed its operations and determined that it operates a single operating segment, the television broadcast equipment market. The single reportable operating segment derives its revenues from the sale of hardware and software solutions including related services, training and commissioning. Revenue United States International Canada 2023 306,926 $ 117,469 30,183 454,578 $ 2022 279,005 141,657 20,354 441,016 $ $ 54 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) Years ended April 30, 2023 and 2022 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information) 22. SEGMENTED INFORMATION (CONTINUED) April 30, 2023 Property, Plant and Equipment Goodwill Intangible Assets Right-of-Use Assets Investment in an Associate United States $ 4,114 $ 1,411 $ 395 $ 246 $ International Canada 9,553 21,063 18,339 1,583 1,730 - 3,617 16,533 $ 34,730 $ 21,333 $ 2,125 $ 20,396 $ - - - - April 30, 2022 Property, Plant and Equipment Goodwill Intangible Assets Right-of-Use Assets Investment in an Associate United States $ International Canada $ 4,388 9,577 23,912 37,877 1,286 $ 896 $ 718 $ 5,474 18,164 1,583 2,421 - 3,770 20,149 - - 21,033 $ 3,317 $ 24,637 $ 5,474 23. RELATED PARTY TRANSACTIONS Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Company and other related parties are disclosed below. Related Party Transactions Two shareholders each indirectly hold a 16% interest in the Company’s leased premises in Ontario. This lease expires in 2029 with a total of $6,489 committed over the remaining term. During the year, rent paid for the leased principal premises amounted to $1,055 (2022 – $1,049) with no outstanding amounts due as at April 30, 2023. The Company also leases property where two shareholders indirectly own 100% interest. This lease was renewed in October 2021 and this lease expires in September 2026 with a total of $1,065 committed over the remaining term. During the year, rent paid for the leased principal premises amounted to $292 (2022 – $279) with no outstanding amounts due as at April 30, 2023. On December 1, 2008 the Company entered into a property lease agreement where two shareholders each indirectly hold a 20% interest in the Company’s leased premises in Ontario. This lease expires in 2028 with a total of $5,139 committed over the remaining term. During the year, rent paid for the leased principal premises amounted to $877 (2022 – $867) with no outstanding amounts due as at April 30, 2022. On May 1, 2009 the Company entered into a property lease agreement where two shareholders each indirectly hold a 35% interest. This lease expires in 2029 with a total of $3,234 committed over the remaining term. During the year, rent paid for the leased principal premises amounted to $525 (2022 – $525) with no outstanding amounts due as at April 30, 2023. The Company also leases a property where two shareholders indirectly own 100% interest. The lease expires in 2023 with a total of $102 committed over the remaining term. During the year, rent paid for the leased principal premises amounted to $152 (2022 – $152) with no outstanding amounts due as at April 30, 2023. 55 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT 23. RELATED PARTY TRANSACTIONS (CONTINUED) On May 1, 2016 the Company entered into a property lease agreement where two shareholders each hold a 46.6% interest. This lease expires in 2026 with a total of $3,146 committed over the remaining term. During the year, rent paid for the leased principal premises amounted to $1,011 (2022 – $996) with no outstanding amounts due as at April 30, 2023. On August 1, 2016 the Company entered into a property lease agreement. Currently two shareholders indirectly own 100% interest. This lease expires in 2026 with a total of $909 committed over the remaining term. During the year, rent paid for the leased principal premises amounted to $271 (2022 – $263) with no outstanding amounts due as at April 30, 2023. These transactions were in the normal course of business and entered into at their respective fair values. The remuneration of directors and other members of key management personnel for the years ended April 30, 2023 and April 30, 2022 are as follows: Short-term salaries and benefits Share-based payments The total employee benefit expense was $151,266 (2022 - $139,600). Subsidiaries: The Company has the following significant subsidiaries: Company Evertz Microsystems Ltd. Evertz USA Evertz UK Holdtech Kft. Quintech Electronics & Communications Inc. Tech Digital Manufacturing Limited Truform Metal Fabrication Ltd. Ease Live AS 2023 5,010 2,816 7,826 $ $ 2022 4,600 - 4,600 $ $ % Ownership 100% 100% 100% 100% 100% 100% 75% 73% Location Canada United States United Kingdom Hungary United States Canada Canada Norway 24. NON-CONTROLLING INTEREST The Company has non-controlling interests of 25% of Truform Metal Fabrication Ltd., located in Canada, and 10% with Studiotech Poland Sp. z.o.o., located in Poland. The Company also has a non-controlling interest of 27% of Ease Live AS, located in Norway, whose interest has been separately recorded as a redemption liability (see note 13). 56 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) Years ended April 30, 2023 and 2022 (In thousands of Canadian dollars, except for “number of common shares”, “number of options” and “per share” information) 24. NON-CONTROLLING INTEREST (CONTINUED) The table below summarizes the aggregate financial information relating to the above subsidiaries before eliminating entries, as no such subsidiary is individually significant. Current assets Non-current assets Current liabilities Non-current liabilities Equity attributable to shareholders Non-controlling interest Revenue Net earnings attributable to: Shareholders Non-controlling interest $ April 30, 2023 13,697 17,122 3,028 114 24,692 2,985 April 30, 2023 $ April 30, 2022 19,937 10,358 4,422 262 22,901 2,710 April 30, 2022 $ 30,208 $ 48,539 2,666 523 3,079 932 During the year, $425 (2022 - $250) in dividends were paid to non-controlling interests. 25. CAPITAL DISCLOSURES The Company’s capital is composed of total equity attributable to shareholders which totals $243,099 (2022 - $230,938) as at April 30, 2023. The Company’s objective in managing capital is to ensure sufficient liquidity to finance increases in non-cash working capital, capital expenditures for capacity expansions, pursuit of selective acquisitions and the payment of quarterly dividends. The Company’s strategy on capital risk management has not changed significantly since April 30, 2022. The Company takes a conservative approach towards financial leverage and management of financial risk and the Company currently satisfies their internal requirements. The Company is not subject to any capital requirements imposed by a regulator. 26. EARNINGS PER SHARE Weighted average common shares outstanding Dilutive-effect of stock options Diluted weighted average common shares outstanding 2023 2022 76,200,428 32,034 76,232,462 76,266,341 304,223 76,570,564 The weighted average number of diluted common shares excludes 1,612,500 options because they were anti-dilutive during the period (2022 – 1,295,500). 57 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT 27. INCOME TAXES The Company’s effective income tax rate differs from the statutory combined Canadian income tax rate as follows: Expected income tax expense using statutory rates (25%, 2022 - 25%) $ 21,953 $ 24,478 2023 2022 Difference in foreign tax rates Benefit arriving from prior year losses Non-deductible stock based compensation Non-deductible losses Change in estimates relating to prior periods Other (152) (101) 1,029 1,395 (459) (410) 640 - 365 395 (759) 116 $ 23,255 $ 25,235 Benefit arising from a previously unrecognized tax loss has been recognized in the year as a result of a change in estimated taxable income in future years. Components of deferred income taxes are summarized as follows: Deferred income tax assets (liabilities): Tax loss carried forward Research and development tax credits Equipment tax vs accounting basis Non-deductible reserves April 30, 2023 April 30, 2022 $ $ 549 $ (2,825) 5,604 3,411 6,739 $ 142 (2,963) 3,001 4,943 5,123 As at April 30, 2023, the Company had $6,415 (2022 - $3,267) in tax losses for which no deferred tax asset has been recognized in the statement of financial position. Of these losses, $6,415 expire in 2025 while the remaining balance has no expiry. 28. SUBSEQUENT EVENT On June 21, 2023 the Company declared a quarterly dividend of $0.19 with a record date of June 29, 2023 and a payment date of July 6, 2023. 58 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT 5-YEAR FINANCIAL HIGHLIGHTS (all amounts in thousands, except EPS and share amounts) Consolidated Statement of Earnings Data Year Ended April 30, 2023 2022 2021 2020 2019 Sales $ 454,578 $ 441,016 $ 342,888 $ 436,592 $ 443,556 Selling and administrative expenses Research and development expenses Earnings before income taxes Net earnings Fully diluted EPS 61,518 117,127 87,810 64,555 0.84 60,884 102,438 97,912 72,677 0.94 49,413 80,187 55,845 41,960 0.55 67,597 90,827 91,959 69,172 0.90 67,821 85,823 105,087 78,504 1.02 Consolidated Balance Sheet Data Year Ended April 30, 2023 2022 2021 2020 2019 Cash and cash equivalents $ 12,468 $ 33,902 $ 108,771 $ 75,025 $ 104,583 Total assets Shareholder’s equity Number of common shares Outstanding Basic 436,652 243,099 420,979 230,938 451,793 292,734 443,673 295,012 466,597 353,123 76,200,248 76,266,341 76,357,895 76,624,706 76,510,417 Fully-diluted 76,232,462 76,570,564 76,403,894 76,642,787 76,529,799 59 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORTCORPORATE AND SHAREHOLDER INFORMATION DIRECTORS AND EXECUTIVE OFFICERS Romolo Magarelli Director, President and Chief Executive Officer Douglas DeBruin Executive Chairman Christopher Colclough 1, 2 Director Dr. Thomas Pistor 1 Director Dr. Ian McWalter 1, 2 Director Brian Piccioni Director Rakesh Patel Chief Technology Officer, Director Brian Campbell Executive Vice-President, Business Development Douglas Moore Chief Financial Officer Eric Fankhauser Vice-President, Product Development Vince Silvestri Vice-President of Software Systems Robert Peter Vice-President, International Operations Jeff Marks Vice-President of Manufacturing Dan Turow Senior Vice-President, Media Distribution and Chief Information Officer (CIO) Paulo Francisco Vice-President of Engineering Evertz AV Division Marsha Garner Vice-President, Inside Sales and Administration Orest Holyk Vice-President of Sales USA Jeremy Blythe Vice-President of Engineering Media Distribution 1 Member of the Audit Committee. 2 Member of the Compensation Committee. AUDITORS BDO Canada LLP 3115 Harvester Road Suite 400 Burlington, ON, Canada L7N 3N8 T: (905) 639-9500 LEGAL COUNSEL WeirFoulds LLP 66 Wellington Street West, Suite 4100 P.O. Box 35, TD Bank Tower Toronto, ON, Canada M5K 1B7 T: (416) 365-1110 EXCHANGE LISTING The common shares of the Company are listed on the Toronto Stock Exchange under the symbol ET INVESTOR RELATIONS Douglas Moore Chief Financial Officer T: (905) 335-7580 email: ir@evertz.com ANNUAL SHAREHOLDERS MEETING 10:00 a.m. Wednesday, October 4, 2023 1160 Sutton Drive Burlington, ON Canada L7L 6R6 REGISTRAR AND TRANSFER AGENT Computershare Investor Services Inc. 100 University Ave., 8th floor, North Tower Toronto, ON Canada M5J 2Y1 email: service@computershare.com T: 1-800-736-1755 www.computershare.com 60 EVERTZ TECHNOLOGIES LIMITED2023 ANNUAL REPORT2023 HIGHLIGHTS EVERTZ TECHNOLOGIES LIMITED CORPORATION OFFICES STRENGTH INNOVATION GENERATING CASH PROFITABILITY Annual Revenue Re-investment in R&D Operating Activities $455M $117M $92M Earnings Before Taxes $88M REVENUE (in millions of dollars) $441 $455 $343 2021 2022 2023 NORTH AMERICA 74% 26% INTERNATIONAL 2023 Revenue DIVIDENDS PAID (annual total in millions of dollars) CASH FROM OPERATING ACTIVITIES (in millions of dollars) $54.9 $56.4 $93.0 $91.5 $41.2 $59.0 CORPORATE HEAD OFFICE Evertz Technologies Ltd. 5292 John Lucas Dr. Burlington, ON L7L 5Z9 T: (905) 335-3700 Burbank 2020 N. Lincoln Street Burbank, CA 91504 T: (818) 558-3910 F: (818) 558-3906 Indiana 250 Airport Road Indiana, PA 15701 T: (724) 349-1412 F: (724) 349-1421 Evertz UK 260 Wharfedale Road Winnersh Triangle Berkshire, UK RG41 5TP T: 44-118-921-6800 F: 44-118-921-6802 Evertz Asia Ltd. Tower One Unit 1618 Metroplaza, 223 Hing Fong Road Kwai Fong, New Territories Hong Kong T: (852) 2850-7989 F: (852) 2850-7978 Sales Offices Burlington, ON Burbank, CA Phoenix, AZ New York City, NY Indiana, PA Berkshire, UK Croatia Germany Beijing Hong Kong Shanghai Singapore India Dubai Australia 2021 20221 1excludes $76.3 M special dividend September 2021 2023 2022 (before changes in non-working capital and current taxes) 2021 2023 58.2% 57.9% 59.0% 16.9% 23.0% 21.0% 2021 2022 2023 GROSS MARGIN OPERATING EARNINGS EVERTZ REPORT_Front_Back Cover_2023_Sep 1.indd 1 EVERTZ REPORT_Front_Back Cover_2023_Sep 1.indd 1 2023-09-01 4:16 PM 2023-09-01 4:16 PM 

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