March Networks Announces Record Q4 and Annual Revenue in Fiscal 2011 Financial Results

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Jun 08, 2011, 09:49 ET

Summary Operating Results:
$Cdn millions except EPS data	Q4 2011	Q4 2010	Fiscal 2011	Fiscal 2010
Revenue	$27.5	$21.2	$102.8	$86.6
Non-GAAP operating earnings (loss)*	0.1	(4.6)	0.2	(7.3)
Net loss	$(0.4)	$(27.5)	$(3.8)	$(32.5)
Loss per share	$(0.02)	$(1.58)	$(0.21)	$(1.88)
Cash and short-term investments	$43.5	$47.9	$43.5	$47.9

* Non-GAAP measure: earnings (loss) before stock based compensation, amortization of acquired intangibles, special charges, interest and income taxes. This measure may not be comparable to similar measures used by other companies.

OTTAWA, June 8, 2011 /PRNewswire/ - March Networks^®(TSX:MN), a global provider of intelligent IP video solutions, today announced financial results for the fiscal quarter and fiscal year ended April 30, 2011. All figures are in Canadian dollars and in accordance with Canadian GAAP unless otherwise specified.

The Company's fourth quarter fiscal 2011 revenue of $27.5 million represented a record fourth quarter for the Company as revenues increased by 30% as compared to revenue of $21.2 million in the fourth quarter of fiscal 2010. Revenue for the fiscal year ended April 30, 2011 of $102.8 million was also a record for the Company and increased by 19% as compared to revenue of $86.6 million in the fiscal year ended April 30, 2010.

The Company recorded non-GAAP operating earnings of $139,000 in the fourth quarter of fiscal 2011 representing an improvement of $4.8 million relative to a non-GAAP loss of $4.6 million in the fourth quarter of fiscal 2010. Non-GAAP operating earnings improved by $7.5 million to $227,000 in the fiscal year ended April 30, 2011 relative to a non-GAAP loss of $7.3 million recorded in the fiscal year ended April 30, 2010.

Net GAAP loss for the fourth quarter of fiscal 2011 declined to $392,000 or $0.02 per common share relative to a net loss of $27.5 million or $1.58 per common share in the fourth quarter of fiscal 2010. The Company's net GAAP loss of $3.8 million, or $0.21 per share, in the fiscal year ended April 30, 2011 decreased by $28.7 million relative to a net GAAP loss of $32.5 million, or $1.88 per share, in the fiscal year ended April 30, 2010.

The Company's cash and short-term investment position increased by $5 million during the fourth quarter of fiscal 2011 to $43.5 million at April 30, 2011 but declined by $4.4 million relative to April 30, 2010. The Company's working capital ratio at April 30, 2011 was 3.4:1 as compared to 3.3:1 at April 30, 2010.

"The Company's achievement of record revenue in fiscal 2011 is even more impressive given the strength of the Canadian dollar which negatively impacted revenue by approximately $12 million relative to the Company's previous record of $101.2 million in fiscal 2009 ", said Ken Taylor, CFO of March Networks. "The Company plans to drive profitability in fiscal 2012 with expectations of continued double-digit revenue growth and maintaining gross margin as a percentage of revenue in the 47% to 50% range throughout fiscal 2012."

"The Company enters fiscal 2012 from a position of strength with strong revenue growth and expanding gross margins", said Peter Strom, CEO of March Networks. "The Company participates in a growing and consolidating industry and the Company believes that its next stage of growth may be enhanced by pursuing strategic alternatives. The Company's Board of Directors has initiated a process to review a range of potential strategic alternatives available to the Company and has retained Morgan Keegan as its independent financial advisor."

The Company will discuss the results on a conference call and webcast on Thursday, June 9, 2011 at 8:30 a.m. EDT (12:30 p.m. UTC). The conference call may be accessed by dialing 1 (800) 814-4860 (North America) or +1 (416) 644-3414.

The conference call webcast can be accessed at:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3536720

A replay of the conference call will be available from June 9, 2011 at 10:30 a.m. EST until June 16, 2011 at 11:59 p.m. EST. The replay can be accessed at 1(877) 289-8525 or +1 (416) 640-1917. The passcode for the replay is 4442346#.

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 addressable market for the Company's products will grow by at least 10% annually.
The Company will successfully reduce product costs to improve the Company's gross margin and/or avoid any margin erosion associated with competitive pricing pressure.
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 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.
The Company will have adequate component supply to meet customer demand.

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

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.
Delays in product development programs for new products and new product features which lead to cost overruns and /or missed customer opportunities.
The Company's gross margin and operating results may be adversely affected by pricing models required to compete successfully and/or a failure by the Company to achieve its product cost targets.
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.
Weaker than expected market acceptance of new products to be introduced by the Company.
Product issues that result in increased costs to the Company and/or lost revenue opportunities.
Longer than expected lead times from component suppliers could result in production delays resulting in delayed or lost revenue.
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
(Canadian dollars, amounts in thousands, except share and per-share data) (Unaudited)
	Three Months Ended		Fiscal Year Ended
	April 30, 2011	April 30, 2010	April 30, 2011	April 30, 2010
REVENUE	$27,530	$21,235	$102,782	$86,626
Cost of revenue	14,330	13,660	57,704	51,103
GROSS MARGIN	13,200	7,575	45,078	35,523
EXPENSES:
Selling, marketing and support	5,778	5,767	21,143	21,105
Research and development	3,093	3,886	11,741	12,654
General and administrative	4,190	2,567	11,967	9,069
Stock based compensation	233	273	937	955
Amortization of acquired intangible assets	790	883	3,188	3,566
Write down of investment tax credits	—	4,156	—	4,156
Restructuring costs	—	—	909	—
Total expenses	14,084	17,532	49,885	51,505
LOSS BEFORE UNDERNOTED ITEMS	(884)	(9,957)	(4,807)	(15,982)
Interest and other income, net	73	51	264	407
LOSS BEFORE INCOME TAXES	(811)	(9,906)	(4,543)	(15,575)
Current income tax expense	112	3	112	85
Future income tax recovery	(531)	17,555	(904)	16,833
NET LOSS	($392)	$(27,464)	($3,751)	$(32,493)

Loss per share:
Basic	($0.02)	$(1.58)	($0.21)	$(1.88)
Diluted	($0.02)	$(1.58)	($0.21)	$(1.88)

Shares used in per-share calculation:
Basic and Diluted	17,762,739	17,375,178	17,656,695	17,287,886

March Networks Corporation
CONSOLIDATED BALANCE SHEETS
(Canadian dollars, amounts in thousands) (Unaudited)
	April 30, 2011	April 30, 2010

ASSETS

Current assets:
Cash and cash equivalents	$14,791	$ 9,492
Short-term investments	28,687	38,384
Accounts receivable	19,927	16,441
Inventories	9,795	11,337
Prepaid expenses and other current assets	3,359	3,549
Future tax assets	483	315
Total current assets	77,042	79,518
Property and equipment	4,403	5,205
Intangible assets	7,884	10,192
Future tax assets	3,780	4,200
Goodwill	22,429	22,429

TOTAL ASSETS	$115,538	$121,544

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable	$9,053	$ 8,658
Accrued liabilities	9,769	7,192
Deferred revenue	3,928	7,795
Deferred leasehold inducement	132	132
Income taxes payable	19	101
Total current liabilities	22,901	23,878
Deferred revenue	3,395	4,789
Deferred leasehold inducement	836	968
Long-term compensation	575	439
Future tax liabilities	1,500	2,372
Total liabilities	29,207	32,446
Shareholders' equity	86,331	89,098

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$115,538	$121,544

March Networks Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian dollars, amounts in thousands) (Unaudited)
	Three Months Ended		Fiscal Year Ended
	April 30, 2011	April 30, 2010	April 30, 2011	April 30, 2010
Cash flows from operating activities:
Net loss	$ (392)	$ (27,464)	($3,751)	$(32,493)
Items not affecting cash:
Amortization of capital and intangible assets	636	248	2,110	1,768
Amortization of intangible assets related to business acquisitions	790	883	3,188	3,566
Stock based compensation and shares issued to directors	235	273	959	955
Unrealized foreign exchange (gain)/ loss	51	(326)	196	(1,102)
Future income taxes and non-refundable investment tax credits	(499)	22,609	(872)	20,989
Net change in non-cash items	5,746	1,965	(4,110)	5,530
Net cash generated (consumed) by operating activities	6,567	(1,812)	(2,280)	(787)

Cash flows from investing activities:
Redemption (purchase) of short-term investments	1,419	116	9,697	2,357
Purchase of capital and intangible assets	(1,492)	(229)	(2,004)	(1,616)
Net cash generated (consumed) by investing activities	(73)	(113)	7,693	741

Cash flows from financing activities:
Issuance (repurchase) of share capital, net	6	(1)	30	10
Net cash generated by financing activities	6	(1)	30	10

Net increase (decrease) in cash and cash equivalents	6,500	(1,926)	5,443	(36)
Foreign exchange loss on foreign cash held	(55)	(293)	(144)	(598)
Cash and cash equivalents, beginning of period	8,346	11,711	9,492	10,126
Cash and cash equivalents, end of period	$14,791	$9,492	$14,791	$9,492