EVS Broadcast Equipment: live events are here to stay

Since two companies will soon be acquired, it’s time for a new name!

History

EVS was founded in Belgium in 1994 and went public in 1998. In the early years they developed LSM, a specific server used for making replays and slow motion images at live sports events. LSM was  a best in class product and this led to years of growing sales, high margins and a high market share as they became dominant in that niche and more and more live sports broadcasters started using LSM. Then around 2010-2012 things started to go wrong: EVS had probably abused its almost monopoly a bit and charged rather high prices, and this gave an opportunity for new competitors to come in with much cheaper (though inferior) products and take market share away from EVS. These years were also coupled with instability at the management level: co-founder and ceo L’Hoest left in 2011 and each of his two consecutive successors weren’t a success and had to leave after a couple of years. It wasn’t until current ceo Serge Van Herck arrived in September  2019 that results started to improve again.

What do they do?

LSM was reponsible for a big part of revenue for a long time, but already in 2015 EVS realized they had to broaden their horizon from hardware mostly for live sports to also more software and for all sorts of live events (sports, music, news and entertainment). Progress was slow in the first few years, but accelerated with new ceo Van Herck who also did an important acquisition of Axon in 2020 that got them some products in software that were a good fit.

Their activities are now divided into three categories :

LiveCeption : technology for live production (their original activity)

MediaCeption : management of produced content, softwaretools to make it more efficient (some tools based on generative AI)

MediaInfra : new tools for routing of video images between and within studios

In LiveCeption EVS already has a strong market position, it’s mainly in MediaCeption and MediaInfra that they want to further grow in the coming years. Their advantage compared to some of their competitors is that they can use their strong position in LiveCeption to promote their services in MediaCeption and MediaInfra, because they work seamlessly together. Not having any disruption during live events is very important for customers, so reliability is one of the factors they value highly.

Some notable successess in the most recent years were a contract in 2022 with Fox Sports in the US, who started using their MediaInfra installation for routing and control operations at live events like the football world cup in Qatar and the Super Bowl. That year they also signed a 10-year deal worth more than $ 50 M with a « major US-based broadcast and media company » that does the live sport broadcasting for a major tech player (description fits the MLS deal for Apple) to deliver their LiveCeption servers in combination with a longterm service-level agreement.

EVS doesn’t have any controlling shareholders, one of the co-founders who is the current CTO owns 6% and is the largest shareholder. This means that they are vulnerable for a hostile takeover, two of their main competitors , AVID (2023) and Grass Valley (2020) have been acquired by private equity companies in the last couple of years. This is why I think that if EVS continues to perform in the coming years and the share price doesn’t follow, then I think private equity will also make an attempt to take them private.

Financials & Valuation

All numbers are in euros, unless otherwise indicated

Euronext Brussels: EVS

Share price:  € 29,30

Number of shares:  13.5 M

Options: 0.4 M

Warrants: 0.4 M

Number of shares fully diluted: 14.3 M

Market cap: € 396   M

Cash: € 65.1 M

Debt: € 13.6 M

Enterprise value: € 348 M

EVS had a long period of first stable and then declining revenue, with a low point in 2020 when the COVID crisis caused a lot of live events to be cancelled. Since 2020, with the new ceo and the strategy to also focus more on events outside sports and more on software and services, revenue and earnings have increased significantly. Revenue went from € 88 M in 2020 to € 173 M in 2023 and earnings per share went from € 0.5 to € 2.8. For this year further growth is expected to revenue of € 190-200 M (management’s guidance) and I estimate this will lead to earnings per share of roughly € 3. This means that they are trading at an expected price/earnings of 10, which is a valuation you would normally see at a stagnant or shrinking company, which EVS is not.

One important thing to mention about EVS is that their results are mostly higher in even years, because in those years they get extra one-time revenue from big sports events (a European or World championship football every two years and an Olympics game every four years) when broadcasters rent EVS’s equipment for those events. This year the revenue from those events is estimated at more than € 14 M. This also means that next year revenue and earnings will probably go down compared to this year. With the revenue from software increasing as a share of total revenue in the coming years this effect become smaller, but we should probably still expect a small dip in results after an even year.

At an Investor Day last year EVS quantified their ambitions for the coming years: they want to grow revenue to € 350-400 M by 2030, which means an average annual growth of roughly 10-11%. This should be a combination of organic growth and small acquisitions of complementary products and services. Last month they announced a small acquisition in Portugal of a company that had complementary content management and distribution solutions, that was their first acquisition since the 2020 acquisition of Axon.

Risks

Some of their customers are traditional broadcasters that are affected by cord cutting and have declining revenue, this might lead to those customers no longer being able to pay for EVS’s services in the future if they have to cut costs.

They don’t have much experience in acquisitions, so there’s always a chance that they do a bad acquisition or overpay.

EVS has a low tax rate because of specific R&D tax incentives in Belgium, there’s always a risk that in the future because of budget cuts the government will reduce or eliminate these tax incentives.

Maybe the upside potential in in studios and in software is smaller than we think and EVS has already picked the low-hanging fruit in the past couple of years and future growth will be more difficult to achieve.

As with all technology companies, there’s always technological risk and the chance that some competitor will come up with a superior product that changes the competitive dynamics in the sector.

Conclusion

EVS is an interesting little technology company with a strong competitive position in their core activity that has been using that position in the past couple of years to expand successfully into adjacent areas. I think they can continue to grow in the coming years, and at the current valuation that is not at all reflected in the share price, which makes me think there is still significant upside from these levels if they execute properly in the coming years.

Disclosures / Disclaimers: I own shares of EVS. This is not a solicitation to buy or sell any stock. To be clear, I do not recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the perceived implications of this article. I am not a financial advisor. Please do your own due diligence.