March Networks Announces Financial Results for Second Quarter and First Six Months of Fiscal 2012

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Dec 09, 2011, 05:35 ET

OTTAWA, Dec. 9, 2011 /PRNewswire/ -

Summary Operating Results:


$USD millions except EPS data	Q2 2012	Q2 2011	Q1-Q2 2012	Q1-Q2 2011
Revenue	$21.9	$27.5	$44.3	$52.8
Net earnings (loss)	$(2.3)	$1.2	$(3.2)	$1.3
Diluted earnings (loss) per share	$(0.13)	$0.07	$(0.18)	$0.07
Earnings impact of foreign exchange gains (losses)	(0.1)	0.4	(0.3)	(0.2)
Cash and short-term investments	$44.3	$43.9	$44.3	$43.9

March Networks^®(TSX:MN), a global provider of intelligent IP video solutions, today announced financial results for the fiscal quarter and six months ended October 31, 2011. All figures are in US dollars and in accordance with International Financial Reporting Standards ("IFRS") unless otherwise specified.

The Company's second quarter fiscal 2012 revenue of $21.9 million represented a 21% decline relative to revenue of $27.5 million in the second quarter of fiscal 2011 and a 2% decline as compared to the first quarter fiscal 2012. Revenue for the first six months of fiscal 2012 of $44.3 million declined by 16% relative to the first six months of fiscal 2011. Revenue declines in the second quarter and first six months of fiscal 2012 were due to normal quarterly revenue volatility and the negative impact of the ongoing global macro-economic situation, particularly in the banking sector.

Net loss for the second quarter of fiscal 2012 was $2.3 million or $0.13 per common share as compared to net earnings of $1.2 million or $0.07 per share in the second quarter of fiscal 2011. Net loss for the six-month period ended October 31, 2011 was $3.2 million or $0.18 per common share as compared to net earnings of $1.3 million or $0.07 per share in the six-month period ended October 31, 2010.

The Company's cash and short-term investment position of $44.3 million at October 31, 2011 increased by $424,000 as compared to October 31, 2010 but declined by $1.5 million relative to $45.8 million at April 30, 2011.

"The Company believes that delays in order intake and revenue declines in the first half of fiscal 2012 were attributable to normal quarterly revenue volatility and the negative impact of the ongoing global macro-economic situation, particularly in the banking sector," said Peter Strom, President and CEO of March Networks. "We believe our results will improve in the second half of fiscal 2012 based on improved revenue visibility, including the impact of $16 million in orders from a large retail customer that we announced on November 8, 2011".

Update on Strategic Alternative Review Process

As disclosed previously, the Board of Directors of the Company established a Special Committee in June 2011 to review strategic alternatives for the Company. Today, the Company announced that it has entered into a definitive agreement with Shenzhen Infinova Ltd. and Infinova (Canada) Ltd. ("Infinova"), pursuant to which Infinova will acquire through a statutory plan of arrangement, all of the issued and outstanding shares of the Company in a $5.00 per share all cash transaction. More detail on the arrangement can be found in the Company's news release of today's date.

The company will discuss the results and the agreement with Infinova on a conference call and webcast on Friday, December 9, 2011 at 8:30 a.m. EST (1:30 p.m. UTC). The conference call may be accessed by dialing 1-800-814-4859 (North America) or +1 416-644-3414.

The conference call webcast can be accessed at:

http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3732520

A replay of the conference call will be available from December 9, 2011 at 10:30 a.m. EST until December 16, 2011 at 11:59 p.m. EST. The replay can be accessed at 1-877-289-8525 or +1 416-640-1917. The replay passcode is 4486391#.

About March Networks
March Networks^® (TSX:MN) is a leading provider of intelligent IP video solutions. For more than a decade, the company has helped some of the world's largest commercial and government organizations transition from traditional CCTV to advanced surveillance technologies used for security, loss prevention, risk mitigation and operational efficiency. Its highly scalable and easy to use Command^™ video management platform incorporates a web-based client interface to enable rapid system deployment and complete system control. It is complemented by the company's portfolio of high-definition IP cameras, encoders, video analytics and hybrid recorders, as well as outstanding professional and managed services. March Networks systems are delivered through an extensive distribution and partner network in more than 50 countries. For more information, please visit www.marchnetworks.com.

*MARCH NETWORKS, March Networks Command and the MARCH NETWORKS logo are trademarks of March Networks Corporation. All other trademarks are the property of their respective owners.

Certain statements included in this release constitute forward-looking statements, including those identified by the expressions "anticipate", "believe", "plan", "estimate", "expect", "intend" and similar expressions to the extent they relate to the Company or its management. The forward-looking statements are not historical facts but reflect the Company's current assumptions and expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current assumptions and expectations. Assumptions made in preparing the forward-looking statements contained in this release include, but are not limited to, the following:

The Company's pipeline of sales opportunities will yield year over year revenue growth in the second half of fiscal 2012 as compared to the second half of fiscal 2011.
The Company will have adequate component supply to meet customer demand.
The Company will develop and deliver new products on time in order to satisfy the demands of current and potential customers.
The Company's new products will address the needs of new and existing customers and contribute to near term profitability.
The Company will successfully reduce product costs to improve the Company's gross margin and/or avoid margin erosion associated with competitive pricing pressure.
The average exchange rates for Canadian dollars and Euros to US dollars will be US$1.00=CDN$1.00 and Euro 1=US$1.40.

Factors that could cause actual results to differ materially from expected results include, but are not limited to, the following:

The Company has announced that it has entered into a definitive agreement to be acquired. The uncertainty during the period until the transaction closes could lead to disruption in the Company's business and affect the Company's financial condition, operating results, and/ or ability to attract and retain staff. If the transaction is not successfully completed, a material decline in the Company's share price could occur.
The Company's quarterly revenue is generally dependent upon conversion of opportunities in the sales pipeline during the quarter and, as a result, revenue and operating results can be difficult to predict and can fluctuate substantially. The Company's success in realizing customer opportunities may be negatively impacted by depressed economic conditions, changes in sales cycles, and/or weaker than expected success versus competitors.
Longer than expected lead times from component suppliers could result in production delays resulting in delayed or lost revenue and /or reduced profits. There is currently a global shortage of hard drives as a result of recent flooding in Thailand, which is the world's second largest exporter of hard drives. Failure to secure adequate hard drive supply and/or increased cost in securing adequate supply may have a material negative effect on the Company's revenue and profitability.
The Company's gross margin and operating results may be adversely affected by pricing models required to compete successfully, lower than expected revenue mix of software and high margin hardware products, and/or a failure by the Company to achieve its product cost targets.
Product issues that result in increased costs to the Company and/or lost revenue opportunities.
Delays in product development programs for new products and new product features which lead to cost overruns and /or missed customer opportunities.
Weaker than expected market acceptance of several new products being introduced by the Company that are expected to contribute significant revenue in the second half of fiscal 2012.
The Company plans to become increasingly dependent upon third parties for product design and supply. Higher than expected costs and delayed or lost revenue may result if these activities are not transitioned and managed effectively.
Shifts in value of the US dollar relative to the Canadian Dollar may cause the Company's operating costs to fluctuate significantly.

Additional risks are discussed under "Risk Factors" in the Company's Annual Information Form available online at www.sedar.com.

March Networks Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(US dollars, amounts in thousands, except share and per-share data)
(Unaudited)

	Three Months Ended		Six Months Ended
	October 31, 2011	October 31, 2010	October 31, 2011	October 31, 2010
REVENUE	$21,891	$27,536	$44,324	$52,796
Cost of revenue	12,782	15,638	25,239	29,107
GROSS MARGIN	9,109	11,898	19,085	23,689
EXPENSES:
Selling, marketing and support	4,887	5,321	9,548	9,864
Research and development	2,625	2,275	5,384	4,995
General and administrative	2,856	2,232	5,528	5,012
Stock based compensation	254	125	412	293
Restructuring charges	—	—	—	884
Amortization	573	617	1,202	1,210
Total expenses	11,195	10,570	22,074	22,258
Earnings (loss) before undernoted items	(2,086)	1,328	(2,989)	1,431
Interest and other income, net	14	64	60	104
EARNINGS (LOSS) BEFORE INCOME TAXES	(2,072)	1,392	(2,929)	1,535
Deferred income taxes	252	162	318	275
NET EARNINGS (LOSS)	($2,324)	$1,230	($3,247)	$ 1,260

Basic and diluted earnings (loss) per share	($0.13)	$0.07	($0.18)	$ 0.07

Shares used in per-share calculation:
Basic	17,998,411	17,550,651	17,985,192	17,549,937
Diluted	17,998,411	17,957,861	17,985,192	17,955,511

March Networks Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(US dollars, amounts in thousands)
(Unaudited)

	October 31, 2011	April 30, 2011	May 1, 2010
ASSETS
Current assets:
Cash and cash equivalents	$14,822	$15,593	$9,344
Short-term investments	29,504	30,241	37,787
Trade and other receivables	15,522	21,007	16,209
Inventories	10,223	10,058	11,162
Other current assets	3,357	3,398	3,492
Total current assets	73,428	80,297	77,994
Property and equipment	4,024	4,391	5,124
Intangible assets	4,260	3,087	2,623
Deferred tax assets	4,176	4,495	4,445
Goodwill	5,235	5,235	5,235

TOTAL ASSETS	$91,123	$97,505	$95,421

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other payables	$9,121	$ 9,546	$ 8,522
Accrued liabilities	6,151	7,415	4,552
Provisions	2,829	2,876	2,529
Deferred revenue	3,098	3,897	7,674
Deferred leasehold inducement	130	130	130
Current tax liabilities	—	20	99
Total current liabilities	21,329	23,884	23,506
Deferred revenue	2,702	3,334	4,714
Deferred leasehold inducement	758	823	953
Long-term compensation	709	738	528
Total liabilities	25,498	28,779	29,701
Shareholders' equity	65,625	68,726	65,720

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$91,123	$97,505	$95,421

March Networks Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US dollars, amounts in thousands)
(Unaudited)

	Three Months Ended		Six Months Ended
	October 31, 2011	October 31, 2010	October 31, 2011	October 31, 2010
Cash flows from operating activities:
Net earnings (loss)	($2,324)	$1,230	($3,247)	$1,260
Items not affecting cash:
Amortization of property, equipment and software	573	617	1,202	1,210
Stock based compensation and shares issued to directors for services	254	136	424	304
Unrealized foreign exchange (gain)/ loss	(684)	(52)	(772)	412
Deferred income tax expense	252	162	318	275
Net change in non-cash items	2,593	921	2,567	(5,903)
Net cash generated (consumed) by operating activities	664	3,014	492	(2,442)

Cash flows from investing activities:
Redemption of short-term investments	32	2,488	737	7,789
Purchase of property, equipment and software	(957)	(195)	(1,885)	(335)
Net cash generated (consumed) by investing activities	(925)	2,293	(1,148)	7,454

Cash flows from financing activities:
Issuance of share capital, net	179	8	241	8
Net cash generated by financing activities	179	8	241	8

Net increase (decrease) in cash and cash equivalents	(82)	5,315	(415)	5,020
Foreign exchange gain (loss) on cash and cash equivalents	(231)	18	(356)	(2)
Cash and cash equivalents, beginning of period	15,135	9,029	15,593	9,344
Cash and cash equivalents, end of period	$14,822	$14,362	$14,822	$14,362