Vecima Networks Inc.
TSX : VCM

Vecima Networks Inc.

September 25, 2014 06:00 ET

Vecima Reports Q4 and Fiscal 2014 Year End Results

Adjusted EBITDA Grows by 26%

Cash Grows to $48.5 Million

VICTORIA, BRITISH COLUMBIA--(Marketwired - Sept. 25, 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 and year ended June 30, 2014.

"Fiscal 2014 was a banner year for earnings performance. We delivered a 26% annual growth in adjusted EBITDA," indicated Sumit Kumar, President and CEO. "Our excellent performance was driven by the ongoing success of our platform products which are used by world leading cable operators to provide desirable services to their commercial customers. Our cash balance is now $48.5 million compared to $31.8 million after distribution of $22.3 million to shareholders in December 2013. We generated approximately $39.0 million in cash in fiscal 2014."

As announced on September 24th, Vecima's board of directors has adopted a dividend policy to pay an annual dividend to its common shareholders of $0.18 per share, payable quarterly. The first dividend of $0.045 is payable on October 28, 2014 to shareholders of record as at October 6, 2014. Future quarterly dividends are subject to board approval.

FINANCIAL HIGHLIGHTS

(Canadian dollars in millions except percentages, headcount, and per share data) Q4FY14 Q3FY14 FY2014 FY2013
Revenue $24.9 $22.6 $90.7 $91.2
Gross margin 52% 52% 49% 43%
Adjusted EBITDA(1) $7.5 $6.2 $23.1 $18.3
Net income $4.4 $3.4 $24.6 $19.1
Earnings per share (based on weighted average number shares outstanding) $0.20 $0.15 $1.10 $0.86
Cash and short-term investments $48.5 $42.1 $48.5 $31.8
Headcount 507 520 507 571
(1)Adjusted EBITDA does not have a standardized meaning under IFRS and therefore may not be comparable to similar measures provided by other issuers. See "Adjusted EBITDA" below.

MULTIPLE SYSTEM OPERATOR (MSO) BUSINESS SERVICES

Terrace Family

  • Sales of Terrace Family products in the fourth quarter were $7.9 million compared to $8.1 million in the previous quarter. The uptake of Terrace Family products remained strong due to the addition of a tier 1 US cable MSO early in the first quarter that went on to deploy heavily throughout the year.

  • Our Terrace Family of products remain essential in the business services vertical as operators transition their networks to all-digital. Management expects ongoing deployments that coincide with initiation of these network upgrades which are critical for every MSO going forward in order to create capacity for next generation services.

Terrace QAM

  • Sales of Terrace QAM in Q4 were $5.2 million. The product provides an elegant platform over which cable operators can deliver a leading high definition service offering to hospitality customers. Beyond our lead customer in the US, management is now seeing early interest in Terrace QAM by international MSOs.

CABLE HEADEND

Digital Video Access Platform

  • After completing our final software refinements in the third quarter, Vecima has shipped $3.7 million of the Digital Video Access Platform in fiscal 2014. Although some of the shipping represented stocking inventory, the product is now in production deployment at multiple MSOs. As approval testing is concluded at additional MSOs, management expects some variability in quarterly revenue for the remainder of calendar 2014.

Subsequent to quarter end, management announced a new Terrace QAM platform will be developed for a major MSO to support network capacity upgrades. The new platform will support MPEG-4 video format which is more efficient than traditional MPEG-2 format. This enhancement allows Terrace QAM to support a broader spectrum of network architectures including MPEG-4, a key capacity driver for MSOs.

During the quarter, as expected, Vecima received confirmation from our chip manufacturer partner that the agreement announced in March 2012 to develop a cable broadband transmitter chip has been terminated. Although the program was terminated by the end customer due to changes in the market, the intellectual property Vecima has developed is highly applicable to products currently in development and planned next generation platforms.

"Vecima's solutions have enjoyed significant market success because of their high relevancy to the needs of our customers. As we, along with our customers, see continuous evolution in both service offerings and the technology needed, the ongoing provision of platform products will continue. Over the course of the next several quarters, Vecima plans to introduce products that enable essential network capacity improvements (e.g. MPEG-4 compression) as well as platforms that fuel the long-term objective to provide gigabit class Internet speeds and IP based video broadly," indicated Sumit Kumar, President and CEO.

OUTLOOK FOR FISCAL 2015

For fiscal 2015, management expects:

  • sales to be in the range of $90 to $100 million;

  • gross margin to be in the range of 46% to 51%;

  • adjusted EBITDA to be in the range of $21 to $26 million; and

  • to continue to monetize non-core assets when we believe it will support shareholder value maximization.

CONFERENCE CALL

A conference call and live audio webcast will be held on September 25, 2014 at 1 p.m. ET to discuss the Company's fourth quarter and year end results. Vecima's audited condensed interim consolidated financial statements and management's discussion and analysis for the three months and year ended June 30, 2014 are available under the Company's profile at www.SEDAR.com, and at http://www.vecima.com/financials/.

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/vecima140925.html and will be archived on the Vecima website at http://www.vecima.com/shareholder-events/.

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.

Adjusted EBITDA

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 Vecima's Management's Discussion and Analysis for fiscal 2014.

Forward-Looking Information

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 includes statements about: future dividends; management's expectation regarding the ongoing deployments of Terrace Family products that coincide with initiation of network upgrades to all-digital networks; management expectation of some variability in quarterly revenue for the remainder of calendar 2014 as approval testing for Digital Video Access Platforms is concluded at additional MSOs; the development of a new Terrace QAM platform and its capabilities Vecima's plans to introduce products that enable essential network capacity improvements as well as platforms that fuel the long-term objective to provide gigabit class Internet speeds and IP based video broadly; and, the financial outlook for fiscal 2015.

In connection with the forward-looking information contained in this news release, Vecima has made numerous assumptions, regarding, among other things: that MSOs continue to upgrade to all-digital networks; that Vecima is able to continue its relationships with its few large customers; Vecima is able to deliver products associated with key contracts; Vecima can manage its business and its growth successfully; Vecima can meet its customers' requirements for manufacturing capacity; Vecima is able to develop new products and enhance its existing products; Vecima is not required to change its pricing models to compete successfully; Vecima's third-party suppliers and contract manufacturers upon which it relies continue to meet its needs; currency fluctuations do not adversely affect Vecima; and, Vecima is not subject to increased competition that has an adverse effect on its business. 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 may not identify any opportunities to monetize core assets on terms satisfactory to Vecima; 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; Vecima's success depends on its ability to develop new products and enhance its existing products; if Vecima is required to change its pricing models to compete successfully, Vecima's margins and operating results may be adversely affected; Vecima's reliance on third-party suppliers and contract manufacturers reduces its control over its performance; currency fluctuations may adversely affect Vecima; and, competition from new or existing technologies may adversely affect Vecima's business.

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, 2013, 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.

This news release contains information that constitutes a "financial outlook" within the meaning of applicable securities laws. The financial outlook has been approved by management of Vecima as of the date of this news release. The financial outlook is provided for the purpose of providing readers with an understanding of Vecima's expected financial performance for fiscal 2015. Readers are cautioned that the information contained in the financial outlook may not be appropriate for other purposes.

VECIMA NETWORKS INC.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands of Canadian Dollars)


June 30,
2014
June 30,
2013
Assets
Current assets
Cash and cash equivalents $ 15,282$ 7,148
Short-term investments 33,19724,699
Accounts receivable 11,73613,442
Income tax receivable -4,762
Inventories 24,97428,264
Prepaid expenses 824936
86,01379,251
Non-current assets
Property, plant and equipment 21,45925,006
Assets held for resale 7342
Intangible assets 13,37712,176
Investment tax credit 26,77630,286
Deferred tax asset 9,6437,729
$ 157,275$ 154,790
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 9,697$ 9,973
Provisions 1,080957
Income tax payable 123281
Deferred revenue 2,1711,331
Current portion of long-term debt 250250
13,32112,792
Non-current liabilities
Other long-term liabilities 143306
Provisions 1,3801,314
Long-term debt 2,9583,229
17,80217,641
Shareholders' equity
Share capital 15312,183
Reserves 2,8262,803
Retained earnings 136,494122,163
139,473137,149
$ 157,275$ 154,790

VECIMA NETWORKS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of Canadian dollars except net income per share data)


Year ended
June 30
,
20142013
Sales $ 90,705$ 91,249
Cost of sales 45,83152,335
Gross margin 44,87438,914
Operating expenses
Research and development 8,4817,663
Sales and marketing 5,8555,248
General and administrative 15,80217,143
Stock-based compensation 2342
Other (income) (15,175)(13,977)
14,98616,119
Operating income 29,88822,795
Finance costs 214393
Finance income 9411,451
Income before income taxes 30,61523,853
Income tax expense 6,0134,691
Net income and total comprehensive income $ 24,602$ 19,162
Net income per share
Basic $ 1.10$ 0.86
Diluted $ 1.10$ 0.86
Weighted average number of common shares
Shares outstanding - basic 22,328,34822,322,422
Shares outstanding - diluted 22,353,55022,332,602

VECIMA NETWORKS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in thousands of Canadian dollars)


Share
Capital
ReservesRetained
Earnings
Total
Balance as at June 30, 2012$ 34,482$ 2,761$ 103,001$ 140,244
Net income and total comprehensive income--19,16219,162
Shares issued by exercising options23--23
Return of capital to shareholders(22,322)--(22,322)
Share-based payment expense-42-42
Balance as at June 30, 201312,1832,803122,163137,149
Net income and total comprehensive income--24,60224,602
Dividends--(10,271)(10,271)
Shares issued by exercising options27--27
Return of capital to shareholders(12,057)--(12,057)
Share-based payment expense-23-23
Balance as at June 30, 2014$ 153$ 2,826$ 136,494$ 139,473

VECIMA NETWORKS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of Canadian dollars)

Year ended
June 30
,
20142013
Cash flows from operating activities
Net income and total comprehensive income $ 24,602$ 19,162
Add (deduct) items not requiring cash
Gain on sale of property, plant and equipment (10,293)(104)
Gain on sale of assets held for resale (3,736)(3,604)
Gain on sale of intangible assets -(9,694)
Impairment loss on deferred development costs 295-
Impairment loss on property, plant and equipment -316
Depreciation of property, plant and equipment 3,3174,830
Amortization of deferred development costs 2,5652,271
Amortization of finite-life intangible assets 107148
Stock-based compensation 2342
Income tax expense 7,9277,291
Deferred income tax expense (1,914)(2,600)
Interest expense 214216
Interest income (672)(410)
Decrease in other long-term liabilities (163)(36)
Increase (decrease) in provisions 189(225)
Increase in investment tax credit 6,3082,874
Net change in non-cash working capital relating to operations (1,353)3,553
Interest paid (189)(159)
Interest received 657421
Income tax received 4,6957,269
Income tax paid (1,003)(1,613)
31,57629,948
Cash flows used in investing activities
Purchase of property, plant and equipment (2,979)(2,261)
Proceeds from the sale of property, plant and equipment 13,502293
Proceeds from the sale of assets held for resale 4,0783,989
Proceeds from the sale of intangible assets -10,090
Purchase of short-term investments (38,958)(60,522)
Proceeds on sale of short-term investments 30,46035,823
Deferred development costs (6,929)(7,171)
Purchase of indefinite and finite-life intangible assets (44)(41)
(870)(19,800)
Cash flows used in financing activities
Proceeds from shares issued through exercised options 2723
Return of capital to shareholders (12,057)(22,322)
Dividends paid (10,271)-
Repayment of long-term debt (271)(250)
(22,572)(22,549)
Increase (decrease) in cash during the year 8,134(12,401)
Cash and cash equivalents, beginning of period 7,14819,549
Cash and cash equivalents, end of period $ 15,282$ 7,148

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