Vecima Networks Inc.
TSX : VCM

Vecima Networks Inc.

November 14, 2014 06:00 ET

Vecima Reports Strong First Quarter Results

Cash Grows to $52.1 Million and Second Quarterly Dividend Declared

VICTORIA, BRITISH COLUMBIA--(Marketwired - Nov. 14, 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 September 30, 2014.

FINANCIAL HIGHLIGHTS

(Canadian dollars in millions except percentages,
employees, and per share data)
Q1FY15
Q4FY14
Q1FY14
Revenue $ 23.1 $ 24.9 $ 21.7
Gross margin 50 % 52 % 47 %
Adjusted EBITDA1 $ 7.0 $ 7.5 $ 4.5
Net income $ 4.0 $ 4.4 $ 5.4
Earnings per share(based on weighted average number shares outstanding) $ 0.18 $ 0.20 $ 0.24
Cash and short-term investments $ 52.1 $ 48.5 $ 36.6
Employees 503 507 555
1Adjusted 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.

"Our 2015 fiscal year is off to a very good start with a 54% year-over-year increase in first quarter Adjusted EBITDA," said Sumit Kumar, President and CEO. "Net income in the first quarter of fiscal 2014 reflected the positive impact of our $3.7 million gain on sale of spectrum licenses in July of 2013. Factoring out that one-time gain, our net income effectively increased by 82% year-over-year. Our cash balance also continued to grow during the quarter, increasing to a robust $52.1 million."

"Our first quarter results reflect the continued success of our platform products which are used by world leading cable operators to provide desirable services to their commercial customers. During the first quarter we achieved a number of important product milestones, including continued early deployment of our new digital video access platform. In addition, we signed an agreement with a major MSO to develop a new Terrace QAM platform and we also introduced the new Terrace TC600E platform during the quarter. Both products will support the more efficient MPEG-4 format, opening the door for cable MSOs to achieve significant network capacity improvements. Over the next several quarters we plan to develop additional products and platforms that fuel the long-term objective of cable operators to provide gigabit class Internet speeds and IP based video broadly."

"Based on our continued favourable performance, strong cash position and positive outlook, on November 12 our Board of Directors declared a quarterly dividend of $0.045 consistent with the dividend policy we announced in September," said Mr. Kumar.

MULTIPLE SYSTEM OPERATOR (MSO) PRODUCTS

Terrace Family

  • First quarter sales of Terrace Family products were $7.1 million, similar to the $7.2 million achieved in Q4 fiscal 2014. The uptake of Terrace Family products remained strong as US cable MSOs continue to transition to all-digital networks in order to create capacity for next generation services. The Terrace family of products are essential tools for MSOs undertaking this shift.

  • During the first quarter, Vecima announced the new Terrace TC600E platform which provides support for MPEG-4 and high definition inputs. Using the TC600E platform, cable operators will be able 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 $6.0 million in Q1, from $5.0 million in Q4 2014 driven primarily by timing of deliveries to our lead customer. The product provides an elegant platform over which cable operators can deliver a leading high definition service offering to hospitality customers. Beyond the lead customer in the US, management is now seeing early interest in Terrace QAM by international MSOs.

  • During the first quarter, Vecima announced that a new Terrace QAM platform, the TransQAM, will be developed for a major MSO to support network capacity upgrades. The new platform will enable Terrace QAM to support a broader spectrum of network architectures including MPEG-4, which is a key capacity driver for MSOs.

CABLE HEADEND

Digital Video Access Platform

  • Vecima continued early deployment of its new Digital Video Access Platform (DVAP) in the first quarter of fiscal 2015, generating sales of $1.8 million. Management anticipates some initial variability in quarterly sales of this product, but expects fiscal 2015 sales to be strong as it works to fulfill the $19 million two-year contract with an OEM customer. As approval testing is concluded at additional MSOs, management expects continued growth in this product.

The Company'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 November 14, 2014 at 1 p.m. ET to discuss the Company's first quarter results. Vecima's audited condensed interim consolidated financial statements and management's discussion and analysis for the three months ended September 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/vecima141114.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 the Company's financial performance or as a measure of its liquidity and cash flows. For a reconciliation of Adjusted EBITDA, investors should refer to Vecima's Management's Discussion and Analysis for the first 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: both products will support the more efficient MPEG-4 format; we plan to develop additional products and platforms that fuel the long-term objective of cable operators; using the TC600E platform, cable operators will be able to continue to support and enhance their commercial video businesses; the new platform will enable Terrace QAM to support a broader spectrum of network architectures including MPEG-4; and management expects continued growth in this product.

In connection with the forward-looking information contained in this news release, Vecima has made numerous assumptions, regarding, among other things: we have the ability to develop new products; if we're unable to manage our intellectual property accordingly, other incumbents may capture market share predominantly occupied by Vecima; if competitors develop similar products, revenues could decline; we can support MPEG-4 format within our new products; we can adopt new technologies and standards; suppliers provide us with the necessary components to deliver platform solutions; and new technologies don't impair the market need for the new platforms Vecima develops. 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: our success depends on our ability to develop new products and enhance our existing products; if our intellectual property is not adequately protected, we may lose our competitive advantage; increased competition could have an adverse effect on our business; we may be unable to deliver products associated with key contracts; our inability to adapt to technological change, new products and standards could harm our business; our reliance on third-party suppliers and contract manufacturers reduces our control over our performance; and competition from new or existing technologies may adversely affect 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)
September 30,
2014
June 30,
2014
Assets
Current assets
Cash and cash equivalents $ 7,415 $ 15,282
Short-term investments 44,691 33,197
Accounts receivable 11,906 11,736
Income tax receivable 32 -
Inventories 24,440 24,974
Prepaid expenses 921 824
89,405 86,013
Non-current assets
Property, plant and equipment 21,624 21,459
Assets held for resale 7 7
Intangible assets 13,898 13,377
Investment tax credit 27,795 26,776
Deferred tax asset 8,352 9,643
$ 161,081 $ 157,275
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 9,860 $ 9,697
Dividends payable 1,005 -
Provisions 1,102 1,080
Income tax payable - 123
Deferred revenue 1,909 2,171
Current portion of long-term debt 250 250
14,126 13,321
Non-current liabilities
Other long-term liabilities 120 143
Provisions 1,444 1,380
Long-term debt 2,896 2,958
18,586 17,802
Shareholders' equity
Share capital 163 153
Reserves 2,829 2,826
Retained earnings 139,503 136,494
142,495 139,473
$ 161,081 $ 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
September 30,
2014 2013
Sales $ 23,128 $ 21,656
Cost of sales 11,578 11,438
Gross margin 11,550 10,218
Operating expenses
Research and development 2,102 2,181
Sales and marketing 1,281 1,457
General and administrative 3,824 3,922
Stock-based compensation 3 7
Other (income) (25 ) (3,943 )
7,185 3,624
Operating income 4,365 6,594
Finance costs 38 41
Finance income 1,148 229
Income before income taxes 5,475 6,782
Income tax expense 1,461 1,346
Net income and total comprehensive income $ 4,014 $ 5,436
Net income per share
Basic $ 0.18 $ 0.24
Diluted $ 0.18 $ 0.24
Weighted average number of common shares
Shares outstanding - basic 22,330,536 22,322,422
Shares outstanding - diluted 22,389,740 22,332,312
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 - - 5,436 5,436
Share-based payment expense - 7 - 7
Balance as at September 30, 2014 $ 12,183 $ 2,810 $ 127,599 $ 142,592
Balance as at June 30, 2014 $ 153 $ 2,826 $ 136,494 $ 139,473
Net income and total comprehensive income - - 4,014 4,014
Dividends - - (1,005 ) (1,005 )
Shares issued by exercising options 10 - - 10
Share-based payment expense - 3 - 3
Balance as at September 30, 2014 $ 12,346 $ 5,639 $ 267,102 $ 285,087
VECIMA NETWORKS INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited - in thousands of Canadian dollars)
Three months ended
September 30,
2014 2013
Cash flows from operating activities
Net income and total comprehensive income $ 4,014 $ 5,436
Add (deduct) items not requiring cash
Loss (gain) on sale of property, plant and equipment 36 (5 )
Gain on sale of assets held for resale - (3,736 )
Depreciation of property, plant and equipment 734 786
Amortization of deferred development costs 690 600
Amortization of finite-life intangible assets 13 37
Stock-based compensation 3 7
Income tax expense 170 524
Deferred income tax expense 1,291 822
Interest expense 38 41
Interest income (138 ) (109 )
Decrease in other long-term liabilities (23 ) (47 )
Increase (decrease) in provisions 86 (100 )
Increase in investment tax credit (67 ) (165 )
Net change in non-cash working capital relating to operations 168 (889 )
Interest paid (38 ) (27 )
Interest received 138 108
Income tax paid (324 ) (550 )
6,791 2,733
Cash flows used in investing activities
Purchase of property, plant and equipment (938 ) (589 )
Proceeds from the sale of property, plant and equipment 3 45
Proceeds from the sale of assets held for resale - 4,078
Purchase of short-term investments (21,279 ) (8,470 )
Proceeds on sale of short-term investments 9,785 2,003
Deferred development costs (2,169 ) (1,377 )
Purchase of indefinite and finite-life intangible assets (8 ) (10 )
(14,606 ) (4,320 )
Cash flows used in financing activities
Proceeds from shares issued through exercised options 10 -
Repayment of long-term debt (62 ) (83 )
(52 ) (83 )
Decrease in cash during the year (7,867 ) (1,670 )
Cash and cash equivalents, beginning of period 15,282 7,148
Cash and cash equivalents, end of period $ 7,415 $ 5,478

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