March Networks Second Quarter Fiscal 2011 Financial Results Revenue up 32% from Q2 last year

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Nov 23, 2010, 09:00 ET

Summary Operating Results:
$Cdn millions except EPS data	Q2 2011	Q2 2010	Q1-Q2 2011	Q1-Q2 2010
Revenue	$28.3	$21.4	$54.6	$45.4
Non-GAAP operating earnings*	1.2	0.0	3.1	0.5
Net earnings (loss)	$0.3	$(1.0)	$0.4	$(1.5)
Diluted earnings per share	$0.02	$(0.06)	$0.02	$(0.09)
Cash and short-term investments	$44.8	$51.0	$44.8	$51.0

* 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, Nov. 23 /PRNewswire-FirstCall/ - 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, 2010. All figures are in Canadian dollars and in accordance with Canadian GAAP unless otherwise specified.

The Company's second quarter fiscal 2011 revenue was $28.3 million, representing an increase of 32% as compared to revenue of $21.4 million in the second quarter of fiscal 2010 and an increase of 8% as compared to revenue of $26.3 million in the first quarter of fiscal 2011. Revenue for the first six months of fiscal 2011 of $54.6 million has increased by 20% as compared to revenue of $45.4 million in the first six months of fiscal 2010.

The Company recorded non-GAAP operating earnings of $1.2 million in the second quarter of fiscal 2011 representing an increase of $1.1 million relative to non-GAAP operating earnings of $43,000 in the second quarter of fiscal 2010. Non-GAAP operating earnings improved by $2.6 million in the first six months of fiscal 2011 relative to non-GAAP earnings of $496 thousand recorded in the first six months of fiscal 2010.

Net GAAP earnings for the second quarter of fiscal 2011 improved to $284,000 or $0.02 per diluted common share relative to a net loss of $1.0 million or $0.06 per diluted common share in the second quarter of fiscal 2010. Year to date net GAAP earnings of $392,000 have improved by $1.9 million or $0.11 per diluted common share relative to a net loss of $1.5 million or $0.09 per share in the first six months of fiscal 2010.

The Company's cash and short-term investment position increased by $2.6 million during the second quarter of fiscal 2011 to $44.8 million at October 31, 2010.

"Revenue in the second quarter of fiscal 2011 was a record for the Company and I am pleased with the recovery in demand for the Company's products from our large customers, particularly in North America", said Peter Strom, CEO of March Networks. "While revenue visibility remains limited, the Company believes it will achieve 10% year over year revenue growth in the second half of fiscal 2011."

The Company will discuss the results on a conference call and webcast on Wednesday, November 24, 2010 at 8:30 a.m. EDT (1:30 p.m. UTC). The conference call may be accessed by dialing 1-800-814-4861 (North America) or +1-416-644-3416.

The conference call webcast can be accessed at:

www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3296040

A replay of the conference call will be available from November 24, 2010 at 10:30 a.m. EDT until December 1, 2010 at 11:59 p.m. EDT. The replay can be accessed at 1-877-289-8525 or +1 416-640-1917. The passcode for the replay is 4381774#.

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.
Annual operating expenses, excluding stock based compensation and amortization of acquired intangibles, will not exceed fiscal 2010 levels by more than 5%.
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.
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.
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.
Weaker than expected market acceptance of new products introduced by the Company and new versions of the Company's current products by existing customers.
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		Six Months Ended
	October 31, 2010	October 31, 2009	October 31, 2010	October 31, 2009
REVENUE	$28,317	$21,372	$54,633	$45,386
Cost of revenue	16,150	11,285	30,301	25,243
GROSS MARGIN	12,167	10,087	24,332	20,143
EXPENSES:
Selling, marketing and support	5,657	4,915	10,567	10,057
Research and development	2,524	2,674	5,480	5,105
General and administrative	2,795	2,455	5,193	4,485
Stock based compensation	220	534	462	791
Amortization of acquired intangible assets	808	892	1,591	1,795
Restructuring costs	—	—	909	—
Total expenses	12,004	11,470	24,202	22,233
EARNINGS (LOSS) BEFORE UNDERNOTED ITEMS	163	(1,383)	130	(2,090)
Interest and other income, net	66	148	107	164
INCOME (LOSS) BEFORE INCOME TAXES	229	(1,235)	237	(1,926)
Current income tax expense	—	23	—	61
Future income tax recovery	(55)	(240)	(155)	(480)
NET EARNINGS (LOSS)	$284	$(1,018)	$392	$(1,507)

Earnings (loss) per share:
Basic	$0.02	$ (0.06)	$0.02	$ (0.09)
Diluted	$0.02	$ (0.06)	$0.02	$ (0.09)

Shares used in per-share calculation:
Basic	17,550,651	17,200,594	17,549,937	17,198,927
Diluted	17,957,861	17,200,594	17,955,511	17,198,927

March Networks Corporation
CONSOLIDATED BALANCE SHEETS
(Canadian dollars, amounts in thousands) (Unaudited)
	October 31, 2010	April 30, 2010
ASSETS

Current assets:
Cash and cash equivalents	$ 14,652	$ 9,492
Short-term investments	30,137	38,384
Accounts receivable	19,988	16,441
Inventories	14,277	11,337
Prepaid expenses and other current assets	4,200	3,549
Future tax assets	518	315
Total current assets	83,772	79,518
Property and equipment	4,770	5,205
Intangible assets	8,416	10,192
Future tax assets	3,754	4,200
Goodwill	22,429	22,429

TOTAL ASSETS	$123,141	$121,544

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable	$10,963	$ 8,658
Accrued liabilities	8,874	7,192
Deferred revenue	5,766	7,795
Deferred leasehold inducement	132	132
Income taxes payable	—	101
Total current liabilities	25,735	23,878
Deferred revenue	4,106	4,789
Deferred leasehold inducement	902	968
Long-term compensation	502	439
Future tax liabilities	1,936	2,372
Total liabilities	33,181	32,446
Shareholders' equity	89,960	89,098

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$123,141	$121,544

March Networks Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian dollars, amounts in thousands) (Unaudited)
	Three Months Ended		Six Months Ended
	October 31, 2010	October 31, 2009	October 31, 2010	October 31, 2009
Cash flows from operating activities:
Net earnings (loss)	$284	$ (1,018)	$392	$ (1,507)
Items not affecting cash:
Amortization of capital and intangible assets	501	443	980	841
Amortization of intangible assets related to business acquisitions	808	892	1,591	1,795
Stock based compensation and shares issued to directors	230	534	472	791
Unrealized foreign exchange (gain)/ loss	(6)	123	3	(486)
Future income taxes and non-refundable investment tax credits	(55)	(541)	(155)	(1,078)
Net change in non-cash items	977	5,619	(6,069)	930
Net cash generated (consumed) by operating activities	2,739	(6,052)	(2,786)	1,286

Cash flows from investing activities:
Redemption (purchase) of short-term investments	2,798	(194)	8,247	2,277
Purchase of capital and intangible assets	(204)	(361)	(356)	(898)
Net cash generated (consumed) by investing activities	2,594	(555)	7,891	1,379

Cash flows from financing activities:
Issuance (repurchase) of share capital, net	3	—	3	9
Net cash generated by financing activities	3	—	3	9

Net increase in cash and cash equivalents	5,336	5,497	5,108	2,674
Foreign exchange gain (loss) on foreign cash held	31	8	52	(234)
Cash and cash equivalents, beginning of period	9,285	7,061	9,492	10,126
Cash and cash equivalents, end of period	$14,652	$12,566	$14,652	$12,566