Vecima Networks Inc.
TSX : VCM

Vecima Networks Inc.

November 12, 2010 16:00 ET

Vecima Reports Fiscal 2011 Q1 Results

VICTORIA, BRITISH COLUMBIA--(Marketwire - Nov. 12, 2010) - Vecima Networks Inc. ("Vecima" or "the Company") (TSX:VCM), today reported its fiscal 2011 first quarter financial results for the three months ended September 30, 2010. (All dollar amounts are in Canadian funds unless otherwise stated.)

"During the first quarter of fiscal 2011, we were successful in producing healthy profitability through diligent management and containment of expenses. Sales for the first quarter were essentially unchanged sequentially at $26.3 million compared to $26.8 million in Q4 of fiscal 2010. Meanwhile, gross margin increased to 38% from 29% in Q4 as a result of a return to typical product mix as well as realization of efficiencies in production and cost management practices," said Dr. Surinder Kumar, Chairman and CEO.

"Vecima products are core elements of system operator strategies; our products provide a method to convert to all-digital and then to use that freed-up capacity to deliver HDTV and high-speed data bandwidth. Consumption of bandwidth by consumers through activities such as watching TV on the internet, viewing streaming movies on Netflix, and downloading files are the underlying driver of demand for Vecima products. Similarly, consumption of programming that is distributed by cable operators such as HDTV and movies/TV on demand drive consumption of Vecima products," Dr. Kumar continued.

Fiscal 2011 Q1 financial highlights:

  • Net income increased 53% to $1.9 million in Q1, compared to $1.2 million in Q1 last year. Net margin was 7% for Q1, compared with 4% for the first quarter last fiscal year.
  • Gross margin increased to 38% for the first quarter, providing a gross profit of $10.1 million, compared with a gross margin of 36% for the first quarter last year that provided a gross profit of $10.1 million. This increase is a result of increased efficiency in the production of new products. Management expects that gross margins will stay within our traditional range of 35%-40%.
  • Revenue decreased 7% to $26.3 million in Q1 compared to $28.4 million in the same period a year earlier. Revenue from YourLink and Broadband Wireless grew 25% and 17%, respectively, while Converged Wired Solutions sales declined 15%.
  • We have positioned Vecima for new product opportunities while also monitoring and containing expenses. Vecima ended the first quarter of fiscal 2011 with 854 employees, representing a decrease of 5% from June 30, 2010. We expect to continue to match our staffing to our revenue as we move forward.

We made progress on the following key new pillars of opportunity for Vecima:

  • In the first quarter, Vecima made significant progress towards completion of acceptance testing for our TerraceQAM product at both our leading US MSO customer and our OEM customer. The TerraceQAM has since entered into customer field trials in multiple locations. Cable operators plan to use TerraceQAM to access the growing opportunity emerging from the need to provide HD programming in hotels. The product receives HD programming from the cable network and then processes it and outputs 60 HDTV channels in a format directly viewable on the flat panel televisions hotels are rapidly deploying today (without the requirement for set top boxes).
  • Vecima's Concierge gateway product was demonstrated successfully at multiple customer locations in Q1. Concierge is also targeted at the upcoming HDTV opportunity in the hospitality market and is suitable for both cable and direct broadcast satellite operators. The product outputs up to 48 HD channels within a property which can be viewed directly on HD television sets, again eliminating the need for a set top box in every guest room. The Concierge will be sold through multiple hospitality system solution providers as well as directly to cable and DBS operators targeting the hospitality HD opportunity. We expect initial deployments of Concierge in Q2 of fiscal 2011, starting with one or more of our system solution partners.
  • Vecima's digital video and internet over cable modules are sold to two of our leading OEM partners for certain of their respective Edge QAM and CMTS platforms. In the first quarter, Vecima shipped deployment volumes of modules for the first OEM and moved into the final stages of certification testing at the other. With the recent move by cable operators to all- digital networks, capacity for hundreds of HD channels and a four to five times increase in high speed internet bandwidth was freed-up in their network. Vecima's modules enable cable operators to use their freed up bandwidth to provide services such as digital video, high definition television, high speed data, and video on demand.
  • New opportunities are expected to mature in Vecima's Broadband Wireless market segment in the utilities and resource sectors for applications including smart metering and smart grid technologies, advanced logistics, WiFi backhaul, voice over IP, and enterprise connectivity. Vecima's broadband wireless technologies are well-suited to serve the needs of these market segments, where the principals often have distributed and remote connectivity requirements. The decision timeframes in this market segment are relatively long.
  • Development of Vecima's new customized wireless modem for the emerging vehicle fleet management opportunity proceeded during the first quarter. Our product addresses a substantial new market for vehicle tracking, fleet performance management and logistics optimization, yielding fuel savings and reduced operating costs for all manner of vehicular fleets. This new customized modem, which works on multiple cellular and WiFi networks, is a logical extension of our wireless strategy moving from fixed and nomadic solutions and into mobile solutions with GPS information. Vecima continues to make progress towards securing a major lead customer.
  • Last quarter we indicated that our customers' prelaunch forecasts for Terrace were overly optimistic. Revenue from our lead customer was less in Q1 compared to its peak in Q4. Revenue from other customers is expected to grow and we are introducing derivative products at our lead customer. Overall, we expect flat to low growth in the combined revenue for Terrace.
  • In Q1, Vecima closed the sale of one of its buildings in Victoria and received a portion of the proceeds. Vecima continues to look for opportunities to sell its non-core assets and derive value for shareholders. We expect to achieve additional progress in the near term.

As previously stated, our growth strategy is focused on the introduction of new products as well as accessing new markets and new customers for our products. We remain on a path towards single-digit revenue growth for fiscal 2011, driven by new product introductions which are expected to ramp in the second half of the fiscal year. Meanwhile, with careful cost controls, we have successfully delivered gross margin within our model, as well as a return to profitability.

The Company's full consolidated financial statements and management's discussion and analysis for the three months ended September 30, 2010 are available under the Company's profile at www.SEDAR.com, and at http://www.vecima.com/financials_ir.php.

A conference call and live audio webcast will be held on November 12, 2010 at 5 p.m. ET to discuss the Company's first quarter results. To participate in the teleconference, dial 800-319-4610 or 604- 638-5340. The webcast will be available at http://www.vecima.com/events_ir.php.

About Vecima Networks

Vecima Networks Inc. (TSX:VCM) designs, manufactures and sells products that enable broadband access to cable, wireless and telephony networks. Vecima's hardware products incorporate original embedded software to meet the complex requirements of next-generation, high-speed digital networks. Service providers use Vecima's solutions to deliver services to a converging worldwide broadband market, including what are commonly known as "triple play" (voice, video and data) and "quadruple play" (voice, video, data and wireless) services. Vecima's solutions allow service providers to rapidly and cost-effectively bridge the final network segment that connects the system directly to end users, commonly referred to as "the last mile", by overcoming the bottleneck resulting from insufficient carrying capacity in legacy, last mile infrastructures. Vecima's products are directed at two principal markets: Converged Wired Solutions and Broadband Wireless. The Company has also developed and continues to focus on developing products to address emerging markets such as Voice over Internet Protocol, fibre to the home and IP video. More information is available at our website at www.vecima.com.

Forward-Looking Statements

Certain statements in this press release may constitute forward-looking statements within the meaning of applicable securities laws. All statements other than statements of historical fact are forward-looking statements. These statements include but are not limited to statements regarding management's intentions, belief or current expectations with respect to market and general economic conditions, future costs and operating performance. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict, and/or are beyond our control. A number of important factors could cause actual outcomes and results to differ materially from those expressed in these forward-looking statements. These factors include, but are not limited to, the current significant general economic uncertainty and credit and financial market volatility and the distinctive characteristics of Vecima's operations and industry that may have a material impact on, or constitute risk factors in respect of Vecima's future financial performance, as set forth under the heading "Risk Factors" in the Company's Annual Information Form dated September 28, 2010, a copy of which is available at www.sedar.com. In addition, although the forward-looking statements in this press release are based on what management believes are reasonable assumptions, such assumptions may prove to be incorrect. Consequently, readers should not place undue reliance on such forward-looking statements. In addition, these forward-looking statements relate to the date on which they are made. Vecima disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

VECIMA NETWORKS INC.  
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME AND RETAINED EARNINGS  
(in thousands of Canadian dollars except net income per share data)  
   
  Three months ended September 30,  
    2010     2009  
    (unaudited)     (unaudited)  
Sales $ 26,333   $ 28,379  
Cost of sales   16,235     18,261  
Gross margin   10,098     10,118  
Research and development   2,832     2,153  
Sales and marketing   1,446     1,401  
General and administrative   4,715     4,330  
Stock-based compensation   45     45  
Foreign exchange (gain) loss   (174 )   579  
Other (income)   (1,492 )   (188 )
    7,372     8,320  
Operating income   2,726     1,798  
Interest expense   110     73  
Income before income taxes   2,616     1,725  
Income taxes   753     507  
Net income and Comprehensive income   1,863     1,218  
   
Retained earnings, beginning of period   90,303     91,266  
Retained earnings, end of period $ 92,166   $ 92,484  
   
Net income per share            
Basic and diluted $ 0.08   $ 0.05  
Weighted average number of Common            
  Shares outstanding - basic and diluted   22,316,767     22,856,867  
 
VECIMA NETWORKS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars )
    As at September 30, As at June 30,
      2010   2010
Assets        
Current assets        
  Marketable securities $ 786 $ 795
  Accounts receivable   25,743   27,999
  Income Tax Receivable   2,754   2,754
  Inventories   37,541   36,702
  Current portion of leases receivable   245   281
  Prepaid expenses   1,361   864
  Other current assets   41   12
  Current future tax assets   1,350   1,316
      69,821   70,723
  Leases receivable   162   214
  Property, plant and equipment   34,924   35,631
  Deferred development costs   10,052   9,661
  Intangible assets   2,491   2,519
  Investment tax credit asset   25,852   24,829
  Future tax assets   10,930   10,996
    $ 154,232 $ 154,573
Liabilities        
Current liabilities        
  Bank indebtedness $ 4,914 $ 5,934
  Accounts payable and accrued liabilities   12,308   13,654
  Warranty accrual   530   500
  Deferred revenue   2,515   2,452
  Current portion of long-term debt   250   250
      20,517   22,790
  Other long-term liabilities   728   648
  Long-term debt   3,899   3,958
      25,144   27,396
Shareholders' equity        
  Share capital $ 34,482 $ 34,482
  Contributed surplus   2,440   2,392
  Retained earnings   92,166   90,303
      129,088   127,177
    $ 154,232 $ 154,573
   
VECIMA NETWORKS INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(in thousands of Canadian dollars)  
   
  Three months ended  
  September 30,  
    2010     2009  
   
Cash flows from (used in) operating activities            
Net income $ 1,863   $ 1,218  
Add (deduct) items not requiring cash            
  Gain on the sale of property, plant and equipment   (1,519 )   -  
  Amortization of property, plant and equipment   1,410     1,390  
  Amortization of deferred development costs   2,038     1,262  
  Amortization of other assets   36     34  
  Stock-based compensation   45     45  
  Net change in non-cash working capital relating to operations   24     (3,057 )
    3,897     892  
Cash flows from (used in) investing activities            
Purchase of property, plant and equipment   (1,131 )   (548 )
Proceeds from the sale of property, plant and equipment   750     -  
Proceeds from the sale of marketable securities   -     56  
Deferred development costs   (2,429 )   (2,431 )
Purchase of other assets   (8 )   -  
    (2,818 )   (2,923 )
Cash flows from (used in) financing activities            
Repayment of long-term debt   (59 )   (62 )
    (59 )   (62 )
   
Increase (decrease) in cash during the period   1,020     (2,093 )
Cash beginning of period   (5,934 )   (335 )
Cash (Bank indebtedness), end of period $ (4,914 ) $ (2,428 )

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