March Networks Announces Third Quarter Fiscal 2011 Financial Results

Mar 03, 2011, 22:01 ET from MARCH NETWORKS CORPORATION

Summary Operating Results:

$Cdn millions except EPS data Q3
2011
Q3
2010
Q1-Q3
2011
Q1-Q3
2010
Revenue $20.6 $20.0   $75.3 $65.4
Non-GAAP operating earnings (loss)*     (3.0)    (3.2)   0.1    (2.7)
Net loss   $(3.8) $(3.5)   $(3.4) $(5.0)
Loss per share   $(0.21) $(0.20) $(0.19) $(0.29)
Cash and short-term investments    $38.5   $50.2   $38.5 $50.2

*   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, March 3 /PRNewswire/ - March Networks®  (TSX:MN), a global provider of intelligent IP video solutions, today announced financial results for the fiscal quarter and nine months ended January 31, 2011. All figures are in Canadian dollars and in accordance with Canadian GAAP unless otherwise specified.

The Company's third quarter fiscal 2011 revenue was $20.6 million, representing an increase of 3% as compared to revenue of $20.0 million in the third quarter of fiscal 2010. Revenue for the first nine months of fiscal 2011 of $75.3 million increased by 15% as compared to revenue of $65.4 million in the first nine months of fiscal 2010.

The Company recorded a non-GAAP operating loss of $3.0 million in the third quarter of fiscal 2011 representing an improvement of $152,000 relative to a non-GAAP loss of $3.2 million in the third quarter of fiscal 2010. Non-GAAP operating earnings improved by $2.8 million to $88,000 in the first nine months of fiscal 2011 relative to a non-GAAP loss of $2.7 million recorded in the first nine months of fiscal 2010.

Net GAAP loss for the third quarter of fiscal 2011 increased to $3.8 million or $0.21 per common share relative to a net loss of $3.5 million or $0.20 per common share in the third quarter of fiscal 2010. Year to date net GAAP loss of $3.4 million has improved by $1.6 million or $0.10 per common share relative to a net GAAP loss of $5 million or $0.29 per share in the first nine months of fiscal 2010.

The Company's cash and short-term investment position decreased by $6.3 million during the third quarter of fiscal 2011 to $38.5 million at January 31, 2011 due mainly to non-GAAP losses in the quarter and the timing of payments to suppliers as the Company increased its working capital ratio to 4.1:1 at January 31, 2011 from 3.3:1 at October 31, 2010.

"The Company's profitability in the first nine months of fiscal 2011 was negatively impacted by a stronger Canadian dollar, weaker than expected revenues from EMEA and lower than expected service gross margin", said Ken Taylor, CFO of March Networks. "Newly announced products

are expected to compete more favorably, particularly in the commercial industrial markets, delivering better profitability and service gross margin, both of which are expected to improve in the fourth quarter of fiscal 2011".

"Based on fourth quarter pipeline activity, the Company expects to record 10 to 15% revenue growth in fiscal 2011." said Peter Strom, CEO of March Networks. "We expect to continue to build on this growth next fiscal year with our suite of new products that are being introduced over the next few months."

The Company will discuss the results on a conference call and webcast on Friday, March 4, 2011 at 8:30 a.m. EDT (1:30 p.m. UTC). The conference call may be accessed by dialing 1-800-814-4860 (North America) or +1 416-644-3417.

The conference call webcast can be accessed at: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3399000

A replay of the conference call will be available from March 4, 2011 at 10:30 a.m. EST until March 11, 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 4409755 followed by the number sign.

About March Networks

March Networks® (TSX:MN) is a global provider of intelligent IP video solutions. For close to a decade, the company has helped some of the world's largest commercial and government organizations transition from traditional CCTV to networked video surveillance used for advanced security, loss prevention and risk mitigation. VideoSphere®, the company's enterprise-class video management portfolio, includes open-platform VMS software complemented by high-definition IP cameras, encoders, video analytics and recording platforms, as well as outstanding professional and managed services. March Networks systems are delivered through an extensive distribution and partner network and currently support over one million channels of video in more than 50 countries. www.marchnetworks.com.

*MARCH NETWORKS, VideoSphere and the MARCH NETWORKS logo are registered 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% in fiscal 2011.
  • 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 recently introduced products will address the needs of new and existing customers and contribute to near term profitability.
  • Annual operating expenses, excluding stock based compensation and amortization of acquired intangibles, will be similar to fiscal 2010.
  • The average exchange rates for US dollars and Euros to Canadian dollars will be US$1.00=CDN$1.00 and Euro 1=CDN$1.30.
  • 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.
  • Weaker than expected market acceptance of new products introduced by the Company and new versions of the Company's current products by existing customers.
  • The Company's gross margin and operating results may be adversely affected by pricing levels required to compete successfully and/or if its product cost targets cannot be achieved.
  • The Company's gross margin and operating results can fluctuate substantially as a result of the volume of warranty repairs from period to period which are difficult to predict.
  • 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.
  • 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.
  • Longer than expected lead times from component suppliers could result in production delays resulting in delayed or lost revenue.
  • Shifts in value of the Canadian dollar relative to billing currencies.

Additional risks are discussed herein and 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 Nine Months Ended
  January 31,
2011
January 31,
2010
January 31,
2011
January 31,
2010
REVENUE $20,619 $20,005 $75,252 $65,391
Cost of revenue 13,073 12,200 43,374 37,443
GROSS MARGIN 7,546 7,805 31,878 27,948
EXPENSES:        
Selling, marketing and support 4,798 5,281 15,365 15,338
Research and development 3,168 3,663 8,648 8,768
General and administrative 2,584 2,017 7,777 6,502
Stock based compensation 242 (109) 704 682
Amortization of acquired intangible assets 807 888 2,398 2,683
Restructuring costs 909
Total expenses 11,599 11,740 35,801 33,973
LOSS BEFORE UNDERNOTED ITEMS (4,053) (3,935) (3,923) (6,025)
Interest and other income, net 84 192 191 356
LOSS BEFORE INCOME TAXES (3,969) (3,743) (3,732) (5,669)
Current income tax expense 21 82
Future income tax recovery (218) (242) (373) (722)
NET LOSS ($3,751) $(3,522) ($3,359) $(5,029)
         
Loss per share:        
Basic ($0.21) $ (0.20) ($0.19) $ (0.29)
Diluted ($0.21) $ (0.20) ($0.19) $ (0.29)
         
Shares used in per-share calculation:        
Basic and Diluted 17,559,758 17,201,220 17,554,134 17,199,657

March Networks Corporation
CONSOLIDATED BALANCE SHEETS
(Canadian dollars, amounts in thousands)
(Unaudited)
  January 31,
2011
April 30,
2010
ASSETS  
Current assets:  
Cash and cash equivalents $ 8,346 $ 9,492
Short-term investments 30,106 38,384
Accounts receivable 16,758 16,441
Inventories 13,776 11,337
Prepaid expenses and other current assets 3,144 3,549
Future tax assets 518 315
Total current assets 72,648 79,518
Property and equipment 4,515 5,205
Intangible assets 7,734 10,192
Future tax assets 3,754 4,200
Goodwill 22,429 22,429
TOTAL ASSETS $111,080 $121,544
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities:  
Accounts payable $5,843 $ 8,658
Accrued liabilities 7,817 7,192
Deferred revenue 4,018 7,795
Deferred leasehold inducement 132 132
Income taxes payable 101
Total current liabilities 17,810 23,878
Deferred revenue 3,639 4,789
Deferred leasehold inducement 869 968
Long-term compensation 560 439
Future tax liabilities 1,718 2,372
Total liabilities 24,596 32,446
Shareholders' equity 86,484 89,098
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $111,080 $121,544

March Networks Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian dollars, amounts in thousands)
(Unaudited)
  Three Months Ended Nine Months Ended
    January 31,
  2011
January 31,
2010
  January 31,
  2011
January 31,
2010
Cash flows from operating activities:      
Net loss $(3,751) $ (3,522) ($3,359) $ (5,029)
Items not affecting cash:        
Amortization of capital and intangible assets 494 679 1,474 1,520
Amortization of intangible assets related to business acquisitions 807 888 2,398 2,683
Stock based compensation and shares issued to directors 252 (109) 724 682
Unrealized foreign exchange (gain)/ loss 142 (290) 145 (776)
Future income taxes and non-refundable investment tax credits (218) (542) (373) (1,620)
Net change in non-cash items (3,787) 2,635 (9,856) 3,565
Net cash generated (consumed) by operating activities (6,061) (261) (8,847) 1,025
         
Cash flows from investing activities:        
Redemption (purchase) of short-term investments 31 (36) 8,278 2,241
Purchase of capital and intangible assets (156)   (489) (512) (1,387)
Net cash generated (consumed) by investing activities (125) (525) 7,766 854
         
Cash flows from financing activities:        
Issuance (repurchase) of share capital, net 21 2 24 11
Net cash generated by financing activities 21 2 24 11
         
Net increase (decrease) in cash and cash equivalents (6,165) (784) (1,057) 1,890
Foreign exchange loss on foreign cash held (141) (71) (89) (305)
Cash and cash equivalents, beginning of period 14,652 12,566 9,492 10,126
Cash and cash equivalents, end of period $8,346 $11,711 $8,346 $11,711

SOURCE MARCH NETWORKS CORPORATION