SOURCE: Vecima Networks Inc.

Vecima Networks Inc.

May 11, 2017 06:00 ET

Vecima Reports Q3 Fiscal 2017 Results

VICTORIA, BC--(Marketwired - May 11, 2017) - Vecima Networks Inc. (TSX: VCM)

  • Shipped first Entra Distributed Access Node for customer lab testing
  • Significant progress on next generation Entra family of products
  • $92M in cash + $8.75 M from YourLink sale proceeds expected in Q4

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 and nine months ended March 31, 2017.

"Fiscal 2017 is shaping up to be a transition period as we anticipated. Tier One MSOs are nearing the end of their digital network upgrade programs and preparing for the industry's upcoming shift in network architecture for gigabit access," said Sumit Kumar, Vecima Networks' President and CEO. "In addition, the recent merger of two large MSO customers contributed to further demand fluctuations.

While these events are making Vecima's near-term results less predictable, the technology transition underway is widely viewed as a once-in-a-lifetime network transformation event for the cable industry. This evolution represents a major growth opportunity for Vecima and we are ensuring we are positioned at the forefront of it."

During the third quarter, Vecima made excellent strides on its Entra DOCSIS 3.1 distributed access solution and related products, and recently shipped its first Entra Distributed Access Node for customer lab testing. Development also continued on two related family platforms which add DOCSIS Remote PHY and direct 10 GbE Ethernet access architectures to the Entra ecosystem.

"As our Tier One MSO customers work to refine their technology paths and timelines, we are being extremely agile in providing elegant technical solutions that respond to their evolving needs. Customer feedback has been highly positive and we view our progress as promising with respect to our entry into the vast and global market for distributed access solutions," said Mr. Kumar.

Vecima also made strong progress on upgrades to legacy products during the third quarter. Achievements included:

  • completing lab trials and customer approval on a TerraceQAM upgrade that adds additional audio transcode functionality that frees up further network bandwidth;
  • completion of a software upgrade to Vecima's Digital Video Access Platform (DVAP) that prepares the platform to support distributed access architecture. This upgrade has been delivered to our OEM partner and is expected to be rolled out for MSO customer approval starting in Q4; and,
  • Vecima's Telematics Division also released two product upgrades of its Fleet Management portal during the period. Key functionality added included PathView, a map-based winter operations module that visually provides updates on how recently roads have been cleared of snow, which is specifically targeted at the municipal government market.

"Going forward, our focus is squarely on growing our core technology businesses with innovative product offerings that capture the significant opportunities we see in our markets. With a very strong balance sheet, including a cash balance of $92.0 million, we are well positioned to support continued investment in next generation product development and to grow the Company both organically and through acquisitions as appropriate," concluded Mr. Kumar.

As previously reported, Vecima's Board of Directors declared a quarterly dividend of $0.055 per share for the period. The dividend will be payable on June 20, 2017 to shareholders of record on May 26, 2017.

FINANCIAL HIGHLIGHTS

(Canadian dollars in millions except percentages,  Q3FY17  Q3FY16  Q2FY17
employees, and per share data)         
 Revenue  $15.7  $28.6  $20.2
 Gross margin   52%   57%   52%
 Net Income  $10.4  $6.0  $3.8
 Earnings per share  $0.46  $0.27  $0.17
 (based on weighted average number shares outstanding)            
 Adjusted earnings per share1  $0.06  $0.27  $0.17
 (based on weighted average number shares outstanding)            
 Adjusted EBITDA1  $3.4  $10.3  $7.4
 Cash and short-term investments  $92.0  $69.9  $76.6
 Employees   401   508   448
1Adjusted Earnings Per Share and Adjusted EBITDA do not have a standardized meaning under IFRS
and therefore may not be comparable to similar measures provided by other issuers. See "Adjusted
EBITDA and Adjusted Earnings Per Share" below.            

Video and Broadband Solutions sales in the quarter were $14.3 million. This was lower than expected due to:

  1. OEM return path demodulator sales in the quarter were down $2.4 million from the prior quarter as a customer did not proceed with an anticipated project; and,
  2. a temporary slowdown in ordering activity as two large customers merged. We believe the requirement for our products with this customer remains strong.

Third quarter Telematics sales increased to $1.4 million, from $0.6 million in Q3 2016, reflecting a full quarter of operations for Contigo in the current year.

OUTLOOK FOR FISCAL 2017

Vecima's outlook for fiscal 2017 has been updated to reflect timing uncertainty as the cable industry transitions to the new network architecture. The Outlook assumes that one of our new product upgrades receives customer acceptance in fiscal Q4. For the 2017 fiscal year, the Company anticipates:

  • Sales in the range of $ 70.0 million to $ 72.0 million;
  • Gross margins in the range of 51% to 54%; and
  • Adjusted EBITDA in the range of $ 19.5 million to $21.5 million.

CONFERENCE CALL

A conference call and live audio webcast will be held today, May 11, 2017 at 1 p.m. ET to discuss the Company's third quarter results. Vecima's unaudited condensed interim consolidated financial statements and management's discussion and analysis for the three and nine months ended March 31, 2017 are available under the Company's profile at www.SEDAR.com, and at www.vecima.com/financials/.

To participate in the teleconference, dial 1-800-319-4610 or 1-604-638-9020. The webcast will be available in real time at http://services.choruscall.ca/links/vecima20170511.html and will be archived on the Vecima website at https://www.vecima.com/shareholder-events/.

About Vecima Networks
Vecima Networks Inc. (TSX: VCM) is a globally recognized leader in creating breakthrough technology solutions that empower network service providers to connect people and enterprises to information and entertainment worldwide. Vecima products for the cable industry allow service providers a cost-effective Last Mile Solution® for both video and broadband access, especially in the demanding business services market segment. Vecima also provides fleet managers the key information and analytics they require to optimally manage their business under the Contigo, NEROglobal, and Fleetlynx brands. More information is available at our website at www.vecima.com.

Adjusted EBITDA and Adjusted Earnings Per Share
Adjusted EBITDA and Adjusted Earnings Per Share do 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 or Adjusted Earnings Per Share should not be construed as an alternative to net income, determined in accordance with IFRS, as an indicator of the Company's financial performance or as a measure of its liquidity and cash flows. For a reconciliation of Adjusted EBITDA or Adjusted Earnings Per Share, investors should refer to Vecima's Management's Discussion and Analysis for the third quarter of fiscal 2017.

Forward-Looking Statements
This news release contains "forward-looking information" within the meaning of applicable securities laws. Forward-looking information is generally identifiable by use of the words "believes", "may", "plans", "will", "anticipates", "intends", "could", "estimates", "expects", "forecasts", "projects" and similar expressions, and the negative of such expressions. Forward-looking information in this news release include the following statements: Fiscal 2017 is shaping up to be a transition period as we anticipated; tier one MSOs are nearing the end of their digital network upgrade programs and preparing for the industry's upcoming shift in network architecture for gigabit access; the technology transition underway is widely viewed as a once-in-a-lifetime network transformation event for the cable industry; this evolution represents a major growth opportunity for Vecima and we are ensuring we are positioned at the forefront of it; we are being extremely agile in providing elegant technical solutions that respond to their evolving needs; we view our progress as promising with respect to our entry into the vast and global market for distributed access solutions; this upgrade is expected to be rolled out for MSO customer approval starting in Q4; our focus is squarely on growing our core technology businesses with innovative product offerings that capture the significant opportunities we see in our markets; we are well positioned to support continued investment in next generation product development and to grow the Company both organically and through acquisitions as appropriate; and the financial Outlook for 2017.

In connection with the forward-looking information contained in this news release, Vecima has made numerous assumptions, regarding, among other things: we will continue to pay dividends; that MSOs continue to upgrade to all-digital networks; that Vecima is able to continue its relationships with its few large customers; we are able to develop new products for customers; competition that serves the same market(s) will not have an adverse effect on the business; we are able to adapt to technological changes - designing to new standards and competing with new products; third party contractors are able to deliver on time and budget; we will be able to deliver based on the terms of our key contracts; currency fluctuations do not adversely affect Vecima; larger cable operator budgets are not static; suppliers will provide parts in a timely fashion; Vecima manages its business and its growth successfully; Vecima does not experience production capacity constraints; and the rationalization of operations could cause our operating results to fluctuate. While Vecima considers these assumptions to be reasonable, these assumptions are inherently subject to significant uncertainties and contingencies. Additionally, there are known and unknown risk factors which could cause Vecima's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information contained herein. Known risk factors include, among others: future quarterly dividends will be subject to approval of the Board of Directors; Vecima derives a substantial part of its revenue from a few large customers; Vecima may be unable to deliver products associated with key contracts; failure to manage Vecima's business or its growth successfully may adversely affect its operating results; if Vecima cannot meet customers' requirements for manufacturing capacity, sales may suffer; our inability to adapt to technological change, new products and standards could harm our business; if Vecima is required to change its pricing models to compete successfully, Vecima's margins and operating results may be adversely affected; competition from new or existing technologies may adversely affect Vecima's business; Vecima's reliance on third-party suppliers and contract manufacturers reduces its control over its performance; currency fluctuations may adversely affect Vecima; the budgeting cycles of larger cable operators can also result in quarter-to-quarter variability in customer orders, while availability of parts and production capacity can influence the timing of product deliveries; and our operating results are expected to fluctuate.

A more complete discussion of the risks and uncertainties facing Vecima is disclosed under the heading "Risk Factors" in the Company's Annual Information Form dated September 26, 2016, as well as the Company's continuous disclosure filings with Canadian securities regulatory authorities available at www.sedar.com. All forward-looking information herein is qualified in its entirety by this cautionary statement, and Vecima disclaims any obligation to revise or update any such forward-looking information or to publicly announce the result of any revisions to any of the forward-looking information contained herein to reflect future results, events or developments, except as required by law.

VECIMA NETWORKS INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited - in thousands of Canadian Dollars)
 
   March 31,  June 30,
   2017  2016
Assets        
Current assets        
 Cash and cash equivalents  $6,037  $22,222
 Short-term investments   85,974   51,872
 Accounts receivable   12,974   4,674
 Income tax receivable   2,043   3,009
 Inventories   14,899   22,172
 Assets held for sale   641   1,486
 Prepaid expenses   1,566   1,359
    124,134   106,794
Non-current assets        
 Property, plant and equipment   11,177   20,214
 Goodwill   6,111   6,210
 Intangible assets   29,708   26,724
 Investment tax credit   20,254   20,031
 Deferred tax asset   4,306   6,272
   $195,690  $186,245
Liabilities        
Current liabilities        
 Accounts payable and accrued liabilities  $7,403  $8,746
 Provisions   554   927
 Deferred revenue   1,724   2,942
 Liabilities associated with assets held for sale   -   707
 Current portion of long-term debt   250   250
    9,931   13,572
Non-current liabilities        
 Other long-term liabilities   -   5
 Provisions   -   1,167
 Long-term debt   2,271   2,458
    12,202   17,202
Shareholders' equity        
 Share capital   502   739
 Reserves   3,847   3,662
 Retained earnings   179,139   164,642
    183,488   169,043
   $195,690  $186,245
 
 
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  Nine months ended
   March 31,  March 31,
   2017  2016  2017  2016
             
Sales  $15,718  $28,637  $56,831  $76,479
Cost of sales   7,499   12,292   27,269   34,207
Gross profit   8,219   16,345   29,562   42,272
Operating expenses                
Research and development   2,969   3,136   8,675   7,917
Sales and marketing   1,404   1,807   3,862   4,193
General and administrative   2,453   2,567   7,361   6,626
Stock-based compensation   67   114   201   364
Other (income) expense   (163)   3   (119)   -
    6,730   7,627   19,980   19,100
Operating income   1,489   8,718   9,582   23,172
Finance income   48   157   363   523
Foreign exchange gain (loss)   150   (1,183)   1,126   (88)
Income before income taxes   1,687   7,692   11,071   23,607
Income tax expense   426   1,919   2,843   5,945
Net income and comprehensive income from continuing operations                
 1,261   5,773   8,228   17,662
Net income and comprehensive income from discontinued operations                
              
 9,114   216   9,963   890
Net income and total comprehensive income  $10,375  $5,989  $18,191  $18,552
             
Net income per share                
Continuing operations   0.06   0.26   0.37   0.79
Discontinued operations   0.41   0.01   0.45   0.04
Total basic net income per share  $0.46  $0.27  $0.81  $0.83
Continuing operations   0.06   0.26   0.37   0.79
Discontinued operations   0.41   0.01   0.44   0.04
Total diluted net income per share  $0.46  $0.27  $0.81  $0.83
             
Weighted average number of common shares                
 Shares outstanding - basic   22,376,226   22,384,578   22,388,222   22,381,161
 Shares outstanding - diluted   22,437,129   22,456,933   22,429,623   22,436,317
 
VECIMA NETWORKS INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited - in thousands of Canadian dollars)
             
   Share     Retained   
   Capital  Reserves  Earnings  Total
Balance as at June 30, 2015  $488  $3,228  $147,608  $151,324
Net income and comprehensive income   -   -   18,552   18,552
Dividends   -   -   (3,693)   (3,693)
Shares issued by exercising options   93   (20)   -   73
Share-based payment expense   -   364   -   364
Balance as at March 31, 2016  $581  $3,572  $162,467  $166,620
             
Balance as at June 30, 2016  $739  $3,662  $164,642  $169,043
Net income and comprehensive income   -   -   18,191   18,191
Dividends   -   -   (3,694)   (3,694)
Shares repurchased and cancelled   (293)   -   -   (293)
Shares issued by exercising options   56   (16)   -   40
Share-based payment expense   -   201   -   201
Balance as at March 31, 2017  $502  $3,847  $179,139  $183,488
 
VECIMA NETWORKS INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited - in thousands of Canadian dollars)
   Three months   
   ended  Nine months ended
   March 31,  March 31,
   2017  2016  2017  2016
Cash flows from operating activities                
Net income and total comprehensive income  $1,261  $5,773  $8,228  $17,662
Adjustments to reconcile net income to cash from                
operating activities   1,950   3,695   7,491   9,566
Decrease in provisions   (170)   (70)   (360)   (47)
Increase in investment tax credit   (31)   (45)   (140)   (154)
Net change in non-cash working capital relating to                
operations   (2,855)   4,641   (3,857)   6,691
Interest paid   (20)   (24)   (63)   (73)
Interest received   301   187   792   598
Income tax received   -   10   11   11
Income tax paid   (2)   -   (15)   (8)
Net cash provided by continuing operations   434   14,167   12,087   34,246
Net cash (used) provided by discontinued operations   (450)   1,328   11   3,194
Net cash (used) provided by operations   (16)   15,495   12,098   37,440
Cash flows used in investing activities                
Purchase of property, plant and equipment   (335)   (1,158)   (1,382)   (1,952)
Proceeds from sale of property, plant and equipment   33   -   71   -
Purchase of short-term investments   (20,059)   (7,188)   (38,302)   (21,578)
Proceeds on sale of short-term investments   2,200   16,800   4,200   16,800
Deferred development costs   (3,404)   (2,497)   (9,703)   (7,813)
Purchase of indefinite and finite-life intangible assets   (7)   (9)   (42)   (29)
Business acquisition   -   (13,303)   -   (13,303)
Net cash used by continuing operations   (21,572)   (7,355)   (45,158)   (27,875)
Net cash provided (used) by discontinued operations   19,972   (290)   19,612   (1,343)
Net cash used in investing   (1,600)   (7,645)   (25,546)   (29,218)
Cash flows used in financing activities                
Proceeds from exercised stock options   26   51   40   73
Proceeds from government grants   83   994   259   1,046
Repurchase and cancellation of shares   -   -   (293)   -
Dividends paid   (1,231)   (1,231)   (3,694)   (3,693)
Repayment of long-term debt   (62)   (62)   (187)   (187)
Net cash used by continuing operations   (1,184)   (248)   (3,875)   (2,761)
Net cash provided by discontinued operations   352   -   1,138   -
Net cash used in financing   (832)   (248)   (2,737)   (2,761)
(Decrease) increase in cash and cash equivalents                
during the period   (2,448)   7,602   (16,185)   5,461
Cash and cash equivalents, beginning of period   8,485   10,636   22,222   12,777
Cash and cash equivalents, end of period  $6,037  $18,238  $6,037  $18,238

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