Evertz: Defense and Software Lift a Record Year, but Can the Margin Hold?

Evertz Technologies (ET.TO) closed fiscal 2026 with record sales of CAD 515.8 million, but the more intriguing story lies in two developments: a quantified defense business now exceeding CAD 50 million and a software-and-services quarter that accelerated notably. Margins held near the top of guidance, but management’s commentary on component costs and CUSMA preparation suggests the easy part may be over.

Defense: From Adjacent to Anchor

For years, Evertz has referenced its aerospace and defense ambitions in passing. This quarter, CFO Doug Moore put hard numbers behind the narrative:

From a quantification perspective, sales to government and military aerospace customers combined to be over CAD 50 million in the year, representing over 10% of revenue, just to give some context for the scope.

That is a 12% year-over-year increase, a pace that, if sustained, transforms defense from a niche vertical into a structural growth driver. Management highlighted partnerships—joining Calian-led ATHORA and Babcock’s Team INSPIRE for Canadian defense modernization—and opened an office in Colorado Springs to complement Ottawa. CEO Brian Campbell framed the opportunity as a natural extension of Evertz’s core: “Much of it is dual-purpose technology where we have decades of domain knowledge and expertise demonstrated in live news and sports at the highest level.” — Brian Campbell, Chief Executive Officer · 2026-06-24 The shift is real but not instantaneous; as Campbell noted, large programs “typically go through an RFI stage, RFP, and then contracting.”

Software and Services: A Milestone Boost

Quarterly software and services revenue jumped 17% year-over-year to CAD 55.8 million, with the year-over-year trend reaching 47% of total sales. The quarter included two project milestones that released CAD 7–8 million from deferred revenue—a one-time lift, but one that underscores the recurring footprint. Doug Moore explained on the call: “There were a couple of larger project milestones that we met in the quarter that would have caused CAD 7 million to CAD 8 million of additional software and services revenue to be released from deferred revenue.” — Doug Moore, Chief Financial Officer · 2026-06-24 Analysts pressed whether this would repeat; Moore clarified it is project-based, but the project milestone cadence is exactly what drives the lumpy but growing stream. The prior quarter’s call already hinted at this trend, with Moore noting: “If you track it for the last 8 quarters, there’s been a strong trend in growth.” — Doug Moore, Chief Financial Officer · 2026-03-04

Margin Discipline in a Costlier World

Despite the software mix tailwind, gross margin in Q4 came in at 59.3%, within the 56–60% target but slightly below the prior year’s elevated 61.7%. The competitive pressure is coming from component costs, specifically memory. Moore was candid: “We are seeing some challenges in bringing in parts and the increased costs, especially with memory in particular… We manage pricing as needed, but I can't say everything would be passed along.” — Doug Moore, Chief Financial Officer · 2026-06-24 He reaffirmed the target range is unchanged, but the tone suggests a test ahead. The company is also preparing for CUSMA renegotiations by accelerating U.S. manufacturing capacity in Indiana—a theme that has been building since the tariff uncertainty began. As Campbell noted in the March call: “Prior to the recent announcements on the U.S. Canadian tariffs, we have been actively adding to our manufacturing capabilities within the U.S.” — Brian Campbell, Chief Executive Officer · 2025-03-05

International Winds and the World Cup

International revenue surged to CAD 37.4 million in Q4, up from CAD 21.3 million a year ago, with Western Europe leading the recovery. Moore attributed the gain to project deliveries and noted “definite improvement in the U.K. and in Western Europe” despite political unrest elsewhere. Analysts wonder if the World Cup contributed, but Campbell was clear: “Any benefit from the World Cup would have happened in prior quarters, as infrastructure upgrades happen well in advance of the actual events.” — Brian Campbell, Chief Executive Officer · 2026-06-24 That is a reminder that Evertz’s sporting-event-driven demand peaks early in the cycle; the current quarter’s strength is more organic.

Looking to fiscal 2027, the story is about execution—defense backlog conversion, software milestone timing, and margin resilience against memory inflation. With a record backlog and May shipments of CAD 33 million, the momentum is evident. The question is whether Evertz can maintain its historical discipline while pivoting toward a more unpredictable, program-driven defense pipeline. So far, the pieces are in place, but the real test will come when the one-off milestones fade and the component cost pressure intensifies.