Vecima Networks Inc.

TSX : VCM


Vecima Networks Inc.

February 12, 2014 08:00 ET

Vecima Reports Q2 Fiscal 2014 Results

Cash Balance of $36.5 Million after Distributing $22.3 Million

VICTORIA, BRITISH COLUMBIA--(Marketwired - Feb. 12, 2014) - Vecima Networks Inc. (TSX:VCM), an experienced designer and manufacturer of innovative technology in the broadband equipment market, today reported financial results for the three months ended December 31, 2013.

"Vecima delivered another quarter of strong financial performance in Q2 as we continued to provide market leading business services solutions that our customers use to implement new network architectures that better serve their cable subscribers," stated Sumit Kumar, President and CEO. "The Company completed a special cash distribution of $1.00 per common share in late December. After the distribution, we concluded the calendar year with $36.5 million in cash and marketable securities far exceeding our target of $28 million. Vecima maintained healthy profitability with Adjusted EBITDA growing from $4.5 million to $4.9 million. We remain confident in our ability to generate solid financial performance from operations."

FINANCIAL HIGHLIGHTS

(CAD dollars in millions except percentages, headcount, and per share data) Q2FY2014 Q1FY2014 Q2FY2013
Revenue 21.6 21.7 23.5
Gross Margin 46% 47% 41%
Adjusted EBITDA1 4.9 4.5 3.9
Net income 11.4 5.4 9.1
Earnings per share (based on weighted average number shares outstanding) $0.51 $0.24 $0.41
Cash and marketable securities 36.5 36.6 41.4
Headcount 538 555 617
1 Adjusted EBITDA does not have a standardized meaning under IFRS and therefore may not be comparable to similar measures provided by other issuers. Accordingly, investors are cautioned that Adjusted EBITDA should not be construed as an alternative to net income, determined in accordance with IFRS, as an indicator of our financial performance or as a measure of our liquidity and cash flows. For a reconciliation of Adjusted EBITDA, investors should refer to Management's Discussion and Analysis for the current quarter.

MSO BUSINESS SERVICES

Terrace Family

  • Sales in the second quarter were $6.6 million. The fact that cable operators will need to transition to all-digital networks is proven in the industry. With the lead customer in its fifth year of conversion, sales to that customer are starting to gradually decline though recently approved new variants are expected to extend the life cycle. Results for this product family are expected to be driven by the addition of new MSOs beginning their all-digital conversions and Vecima is well positioned to drive additional sales of Terrace proportionate to the size of the MSO.

  • In the second quarter, a new MSO customer increased its uptake of Terrace products to facilitate the all-digital transition that they initiated in Q1 FY2014.

Terrace QAM

  • Sales decreased slightly from $5.5 million in Q1 to $5.3 million in Q2. As indicated last quarter, sales are expected to moderately decline and then level off as the initial deployment ramp at the lead customer is behind us. That customer expects to launch new sales programs within the hospitality industry in calendar 2014. A second major customer for Terrace QAM has undertaken a reprioritization of capital expenditures in the short term. While hospitality is a new and lucrative market segment for cable MSOs, spending initiatives to grow this market are sometimes vying for the same capital dollars that are required to compete to maintain and grow cable subscribers in traditional markets.

CABLE HEADEND

Digital Video Access Platform

  • This product interfaces with a wide range of subscriber products, including numerous legacy devices. As a cable headend product is progressed through field testing and final approval at lead cable MSO customers, it is not uncommon for requirements outside the agreed specifications to emerge that must be addressed in practice. In this past quarter, the ramp in sales of this platform was deferred while the software was being refined to address those network issues. All indications show that, once final approval is achieved, a very strong market need and pent up demand is present.

"We maintain a strong balance sheet and are well positioned to prudently invest in the design and development of next generation platform solutions within the cable network infrastructure marketplace. As market dynamics shift, transitions in the types of technologies required to support enhanced services will enable an agile company, like Vecima, to capitalize on new opportunities," said Sumit Kumar.

CONFERENCE CALL

A conference call and live audio webcast will be held on February 12, 2014 at 1 p.m. ET to discuss the Company's second quarter results. Vecima's unaudited condensed interim consolidated financial statements and management's discussion and analysis for the three months ended December 31, 2013 are available under the Company's profile at www.SEDAR.com, and at http://www.vecima.com/financials_ir.php.

To participate in the teleconference, dial 1-800-319-4610 or 1-604-638-5340. The webcast will be available in real time at http://services.choruscall.ca/links/vecima140212.html and will be archived on the Vecima website 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 sales, future shipping volumes, future cash position, revenue expectations, future costs, future operating performance, plans to sell non-core assets, and plans to continue to explore opportunities to maximize shareholder value, including the possibility of future cash dividends and distributions. 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 and customer demand 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 26, 2013, 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, as a result of new information, future events or otherwise, except as required by law.

VECIMA NETWORKS INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited - in thousands of Canadian Dollars)

December 31,
2013
June 30,
2013
Assets
Current assets
Cash and cash equivalents $5,948 $7,148
Marketable securities 30,511 24,699
Accounts receivable 16,201 13,442
Income tax receivable 9 4,762
Inventories 23,810 28,264
Prepaid expenses 1,129 936
77,608 79,251
Non-current assets
Property, plant and equipment 21,543 25,006
Assets held for resale - 342
Intangible assets 12,140 12,176
Investment tax credit 31,954 30,286
Deferred tax asset 4,937 7,729
$148,182 $154,790
Liabilities
Current liabilities
Accounts payable and accrued liabilities $8,135 $9,973
Provisions 1,026 957
Income tax payable 339 281
Deferred revenue 2,192 1,331
Current portion of long-term debt 250 250
11,942 12,792
Non-current liabilities
Other long-term liabilities 218 306
Provisions 1,228 1,314
Long-term debt 3,083 3,229
16,471 17,641
Shareholders' equity
Share capital 153 12,183
Reserves 2,816 2,803
Retained earnings 128,742 122,163
131,711 137,149
$148,182 $154,790
VECIMA NETWORKS INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited - in thousands of Canadian dollars except net income per share data)

Three months ended
December 31,

Six months ended
December 31,
2013 2012 2013 2012
Sales $21,587 $23,453 $43,243 $48,121
Cost of sales 11,657 13,808 23,095 28,493
Gross margin 9,930 9,645 20,148 19,628
Operating expenses
Research and development 1,867 2,255 4,048 4,153
Sales and marketing 1,155 1,490 2,612 2,631
General and administrative 4,254 4,290 8,176 8,557
Stock-based compensation 6 13 13 30
Other (income) (10,440) (9,201) (14,383) (13,337)
(3,158) (1,153) 466 2,034
Operating income 13,088 10,798 19,682 17,594
Finance costs 45 46 86 281
Finance income 591 299 820 338
Income before income taxes 13,634 11,051 20,416 17,651
Income tax expense 2,220 1,943 3,566 3,233
Net income and total comprehensive income $11,414 $9,108 $16,850 $14,418
Net income per share
Basic $0.51 $0.41 $0.75 $0.65
Diluted $0.51 $0.41 $0.75 $0.65
Weighted average number of common shares
Shares outstanding - basic 22,328,159 22,318,131 22,328,159 22,318,131
Shares outstanding - diluted 22,348,336 22,339,437 22,348,336 22,339,437
VECIMA NETWORKS INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited - in thousands of Canadian dollars)

Share Capital
Reserves Retained Earnings Total
Balance as at June 30, 2012 $34,482 $2,761 $103,001 $140,244
Net income and total comprehensive income - - 19,162 19,162
Shares issued by exercising options 23 - - 23
Return of capital (22,322) - - (22,322)
Share-based payment expense - 42 - 42
Balance as at June 30, 2013 12,183 2,803 122,163 137,149
Net income and total comprehensive income - - 16,850 16,850
Dividends - - (10,271) (10,271)
Shares issued by exercising options 27 - - 27
Return of capital to shareholders (12,057) - - (12,057)
Share-based payment expense - 13 - 13
Balance as at December 31, 2013 $153 $2,816 $128,742 $131,711
VECIMA NETWORKS INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited - in thousands of Canadian dollars)

Three months ended
December 31,
Six months ended
December 31,
2013 2012 2013 2012
Cash flows from operating activities
Net income and total comprehensive income $11,414 $9,108 $16,850 $14,418
Add (deduct) items not requiring cash
Gain on sale of property, plant and equipment (8) - (13) 14
Gain on sale of assets held for resale (10,291) - (14,027) (3,604)
Gain on sale of intangible assets - (9,005) - (9,358)
Depreciation of property, plant and equipment 831 1,245 1,617 2,420
Amortization of deferred development costs 602 562 1,202 1,117
Amortization of finite-life intangible assets 39 36 76 73
Stock-based compensation 6 13 13 30
Income tax expense 250 1,177 774 1,237
Deferred income tax expense 1,970 766 2,792 1,996
Interest expense 45 46 86 104
Interest income (280) (65) (389) (105)
Decrease in other long-term liabilities (41) (80) (88) 66
Increase (decrease) in provisions 281 (92) 181 (193)
Increase in investment tax credit (390) (3,094) (555) (3,276)
Net change in non-cash working capital relating to operations 1,300 8,416 411 9,636
Interest paid (43) (49) (70) (95)
Interest received 266 64 374 101
Income tax received 4,679 - 4,679 -
Income tax paid (167) (242) (717) (1,129)
10,463 8,806 13,196 13,452
Cash flows (used in) provided by investing activities
Purchase of property, plant and equipment (712) (617) (1,301) (1,256)
Proceeds from the sale of property, plant and equipment 8 61 53 61
Proceeds from the sale of assets held for resale 13,387 - 17,465 3,989
Proceeds from the sale of intangible assets - 9,375 - 9,738
Purchase of marketable securities (21,527) (1,966) (29,997) (15,974)
Proceeds on sale of marketable securities 22,182 - 24,185 -
Deferred development costs (956) (1,876) (2,333) (3,990)
Purchase of indefinite and finite-life intangible assets (11) (5) (21) (8)
12,371 4,972 8,051 (7,440)
Cash flows provided by (used in) financing activities
Proceeds from shares issued through exercised options 27 3 27 5
Return of capital to shareholders (12,057) - (12,057) -
Dividends paid (10,271) - (10,271) -
Repayment of long-term debt (63) (84) (146) (146)
(22,364) (81) (22,447) (141)
(Decrease) increase in cash during the year 470 13,697 (1,200) 5,871
Cash and cash equivalents, beginning of period 5,478 11,723 7,148 19,549
Cash and cash equivalents, end of period $5,948 $25,420 $5,948 $25,420

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