Vecima Networks Inc.
TSX : VCM

Vecima Networks Inc.

February 12, 2015 06:00 ET

Vecima Reports Second Quarter Results

Sales Increase 10% YOY, Gross Margin Climbs to 52%

VICTORIA, BRITISH COLUMBIA--(Marketwired - Feb. 12, 2015) - 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 six months ended December 31, 2014.

FINANCIAL HIGHLIGHTS
(Canadian dollars in millions except percentages, employees, and per share data) Q2FY15 Q1FY15 Q2FY14
Sales $ 23.7 $ 23.1 $ 21.6
Gross margin 52 % 50 % 46 %
Adjusted EBITDA1 $ 6.3 $ 7.0 $ 4.9
Net income $ 3.7 $ 4.0 $ 11.42
Earnings per share3 $ 0.17 $ 0.18 $ 0.512
Adjusted earnings per share1,3 $ 0.15 $ 0.18 $ 0.11
Cash and short-term investments $ 52.0 $ 52.1 $ 36.5
Employees 506 503 538
1 Adjusted EBITDA and adjusted earnings per share does not have any standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other issuers. See "Adjusted EBITDA and Adjusted Earnings Per Share".
2 Includes a one-time pre-tax gain of $10.3 million on the sale of property in Saskatoon.
3 Based on weighted average number of shares outstanding.

"We achieved excellent results in the second quarter," said Sumit Kumar, President and CEO. "Demand for our newer platform products continued to grow as we transition from our legacy products. This transition contributed to our very strong 52% gross margin. We also achieved a 10% year-over-year increase in sales, of which the strengthening US dollar contributed 7% and organic sales growth contributed 3%. In particular, uptake of our new digital video access platform (DVAP) products increased and we achieved higher sales of our Terrace QAM products. Cash flow and profitability remained strong with adjusted EBITDA of $6.3 million, up 29% year over year, and we recorded net income of $3.7 million. We also maintained a robust cash balance of $52.0 million, even while paying two dividends amounting to $2.0 million in the period, increasing our investment in R&D and working capital, and disbursing one extra payroll in December due to the timing of the New Year's Day holiday."

"Going forward we anticipate continued strong customer demand, but see the potential for quarter-to-quarter variation in orders based on the timing of new product approvals and possible impacts related to the proposed merger of two of North America's largest cable multiple system operators (MSOs). If the merger proceeds, we believe it would prove highly beneficial for Vecima, but does have the potential to create short-term fluctuations in product orders."

"Our near-term product focus will remain on completing development of our new Terrace TC600E and TransQAM platforms, which we announced in the first quarter. We are also investing in the longer-term development of products and platforms that enable our cable customers to support gigabit class Internet speeds and IP-based video delivery efficiently and cost effectively," said Mr. Kumar.

Based on the Company's continued favourable performance and positive outlook, Vecima's Board of Directors declared a quarterly dividend of $0.045 on February 11, 2015. The dividend will be payable on March 20, 2015 to shareholders of record as at February 24, 2015.

MULTIPLE SYSTEM OPERATOR (MSO) PRODUCTS

Terrace Family

  • Second quarter sales of Terrace family products decreased to $5.7 million, from $7.9 million in Q1 fiscal 2015 as a large MSO customer neared completion of its all-digital network conversion. The aggressive pace of the conversion had contributed appreciable sales of Terrace products in previous quarters. To date, Vecima has sold well in excess of $100 million of Terrace family products and continues to roll out this product line to customers. During the second quarter, Vecima completed early stage requirements for another large MSO customer and subsequently signed a supply agreement to support the anticipated ramp-up of this customer's network conversion to all-digital.

  • Development on the new Terrace TC600E platform continued through the second quarter, with launch expected in the second half of fiscal 2015. The TC600E, which provides support for MPEG-4 and high definition inputs, will enable cable operators to continue to support and enhance their commercial video businesses while freeing up valuable network capacity for additional revenue-generating services.

Terrace QAM

  • Sales of Terrace QAM increased to $8.3 million in Q2, from $6.3 million in Q1 2015, driven by deliveries to Vecima's lead customer and increased deployment activity from a second MSO customer. Terrace QAM is purpose designed for the hospitality industry, providing an elegant platform over which cable operators can deliver a leading high-definition service offering.

  • Work continued on Vecima's new TransQAM platform, which is being developed under agreement with a leading cable MSO customer. Targeted for commercial availability in the second half of fiscal 2015, the TransQAM will support a broader spectrum of network architectures including MPEG-4, which is a key capacity driver for MSOs.

CABLE HEADEND

Digital Video Access Platform

  • Sales of Vecima's new Digital Video Access Platform (DVAP) ramped up in the second quarter, climbing to $3.1 million, from $1.8 million in Q1 2015. Vecima is delivering this product under a USD $19 million two-year "take or pay" contract with an OEM customer and expects deliveries will slow for the next two quarters as the initial inventory take up is consumed and vary from quarter to quarter based on adoption rates among MSO end-users. Vecima has successfully completed approval for this platform with a number of the largest MSOs and expects to gradually transition to the deployment levels anticipated in the OEM contract.

Vecima's outlook for fiscal 2015 remains substantially unchanged from that provided in the Company's annual MD&A for fiscal 2014.

CONFERENCE CALL

A conference call and live audio webcast will be held on February 12, 2015 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, 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/vecima150212.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 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 or earnings per share, 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 second quarter of fiscal 2015.

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 includes statements about: going forward we anticipate continued strong customer demand; if the merger proceeds, we believe it would prove highly beneficial for Vecima; near-term product focus will remain on completing development of our new Terrace TC600E and TransQAM platforms; development on the new Terrace TC600E platform continued through the second quarter, with launch expected in the second half of fiscal 2015; targeted for commercial availability in the second half of fiscal 2015, the TransQAM will support a broader spectrum of network architectures; two-year "take or pay" contract with an OEM customer and expects deliveries will slow for the next two quarters; and completed approval for this platform with a number of the largest MSOs and expects to gradually transition to the deployment levels anticipated in the OEM contract.

In connection with the forward-looking information contained in this news release, Vecima has made numerous assumptions, regarding, among other things: customers still require products and services in the markets Vecima serves; a merger may result in added sales of Vecima products and services; the company has the resources, the ability to adapt to technological change and ability to comply with standard requirements to complete development on TC600E and TransQAM; Vecima is able to design and develop the TransQAM to meet various network requirements; forecasts from customers are accurate with regards to the future demand of Vecima products; our OEM contract will be honoured; and Vecima is able to deliver functioning products. 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: we derive a substantial part of our revenue from a few large customers; our success depends on our ability to develop new products and enhance our existing products; our revenues are substantially concentrated in a single market category; we may be unable to deliver products associated with key contracts; growth in our key markets may not continue; and our inability to adapt to technological change, new products and standards could harm our 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 25, 2014, 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)

December 31,
2014
June 30,
2014
Assets
Current assets
Cash and cash equivalents $ 8,471 $ 15,282
Short-term investments 43,508 33,197
Accounts receivable 13,750 11,736
Inventories 21,662 24,974
Prepaid expenses 962 824
88,353 86,013
Non-current assets
Property, plant and equipment 21,329 21,459
Assets held for resale - 7
Intangible assets 14,531 13,377
Investment tax credit 28,845 26,776
Deferred tax asset 7,365 9,643
$ 160,423 $ 157,275
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 7,363 $ 9,697
Provisions 1,032 1,080
Income tax payable 62 123
Deferred revenue 1,653 2,171
Current portion of long-term debt 250 250
10,360 13,321
Non-current liabilities
Other long-term liabilities 100 143
Provisions 1,601 1,380
Long-term debt 2,833 2,958
14,894 17,802
Shareholders' equity
Share capital 278 162
Reserves 3,062 2,817
Retained earnings 142,189 136,494
145,529 139,473
$ 160,423 $ 157,275
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,
2014 2013 2014 2013
Sales $ 23,712 $ 21,587 $ 46,840 $ 43,243
Cost of sales 11,422 11,657 23,000 23,095
Gross margin 12,290 9,930 23,840 20,148
Operating expenses
Research and development 2,383 1,867 4,485 4,048
Sales and marketing 1,785 1,155 3,066 2,612
General and administrative 3,844 4,254 7,668 8,176
Stock-based compensation 271 6 274 13
Other (income) (457 ) (10,440 ) (482 ) (14,383 )
7,826 (3,158 ) 15,011 466
Operating income 4,464 13,088 8,829 19,682
Finance costs 29 45 67 86
Finance income 477 591 1,625 820
Income before income taxes 4,912 13,634 10,387 20,416
Income tax expense 1,221 2,220 2,682 3,566
Net income and total comprehensive income $ 3,691 $ 11,414 $ 7,705 $ 16,850
Net income per share
Basic $ 0.17 $ 0.51 $ 0.34 $ 0.75
Diluted $ 0.16 $ 0.51 $ 0.34 $ 0.75
Weighted average number of common shares
Shares outstanding - basic 22,340,225 22,324,860 22,335,076 22,323,641
Shares outstanding - diluted 22,396,285 22,345,037 22,391,136 22,343,818
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, 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 35 (8 ) - 27
Return of capital to shareholders (12,057 ) - - (12,057 )
Share-based payment expense - 13 - 13
Balance as at December 31, 2013 $ 161 $ 2,808 $ 128,742 $ 131,711
Balance as at June 30, 2014 $ 162 $ 2,817 $ 136,494 $ 139,473
Net income and total comprehensive income - - 7,705 7,705
Dividends - - (2,010 ) (2,010 )
Shares issued by exercising options 116 (29 ) - 87
Share-based payment expense - 274 - 274
Balance as at December 31, 2014 $ 278 $ 3,062 $ 142,189 $ 145,529
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,
2014 2013 2014 2013
Cash flows from operating activities
Net income and total comprehensive income $ 3,691 $ 11,414 $ 7,705 $ 16,850
Add (deduct) items not requiring cash
Loss (gain) on sale of property, plant and equipment 90 (8 ) 126 (13 )
Gain on sale of assets held for resale (493 ) (10,291 ) (493 ) (14,027 )
Depreciation of property, plant and equipment 748 831 1,482 1,617
Amortization of deferred development costs 692 602 1,382 1,202
Amortization of finite-life intangible assets 11 39 24 76
Stock-based compensation 271 6 274 13
Income tax expense 234 250 404 774
Deferred income tax expense 987 1,970 2,278 2,792
Interest expense 29 45 67 86
Interest income (191 ) (280 ) (329 ) (389 )
Decrease in other long-term liabilities (20 ) (41 ) (43 ) (88 )
Increase in provisions 87 281 173 181
Increase in investment tax credit (100 ) (390 ) (167 ) (555 )
Net change in non-cash working capital relating to operations (1,857 ) 1,300 (1,689 ) 411
Interest paid (33 ) (43 ) (71 ) (70 )
Interest received 191 266 329 374
Income tax received - 4,679 - 4,679
Income tax paid (141 ) (167 ) (465 ) (717 )
4,196 10,463 10,987 13,196
Cash flows used in investing activities
Purchase of property, plant and equipment (543 ) (712 ) (1,481 ) (1,301 )
Proceeds from the sale of property, plant and equipment - 8 3 53
Proceeds from the sale of assets held for resale 500 13,387 500 17,465
Purchase of short-term investments (2,197 ) (21,527 ) (23,476 ) (29,997 )
Proceeds on sale of short-term investments 3,380 22,182 13,165 24,185
Deferred development costs (2,277 ) (956 ) (4,446 ) (2,333 )
Purchase of indefinite and finite-life intangible assets (7 ) (11 ) (15 ) (21 )
(1,144 ) 12,371 (15,750 ) 8,051
Cash flows used in financing activities
Proceeds from shares issued through exercised options 77 27 87 27
Return of capital to shareholders - (12,057 ) - (12,057 )
Dividends paid (2,010 ) (10,271 ) (2,010 ) (10,271 )
Repayment of long-term debt (63 ) (63 ) (125 ) (146 )
(1,996 ) (22,364 ) (2,048 ) (22,447 )
Increase (decrease) in cash during the period 1,056 470 (6,811 ) (1,200 )
Cash and cash equivalents, beginning of period 7,415 5,478 15,282 7,148
Cash and cash equivalents, end of period $ 8,471 $ 5,948 $ 8,471 $ 5,948

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