March Networks Announces Financial Results for Third Quarter and First Nine Months and Revised Guidance for Fiscal 2008 Summary Operating Results:
|
$Cdn millions
except EPS data
|
Q3 ’08
|
Q3 ’07
|
Q1-Q3
’08*
|
Q1-Q3
’07**
|
|
Revenue
|
$21.1
|
$18.7
|
$73.4
|
$67.8
|
|
Earnings (loss) from continuing operations before income taxes
|
(2.9)
|
1.9
|
(2.9)
|
9.4
|
|
Net earnings (loss) from continuing operations
|
$ (3.1)
|
$ 1.0
|
$ (3.4)
|
$ 5.3
|
|
Diluted earnings (loss) per share
from continuing operations
|
$(0.18)
|
$0.06
|
$(0.20)
|
$0.29
|
* Earnings include the impact of a $2.4 million charge in Q2’08 for retrofit costs.
** Earnings include the impact of a $2.3 million charge in Q2’07 for patent litigation settlement.
OTTAWA, Ontario, February 27, 2008 –– March NetworksTM (TSX:MN; AIM:MNW), a leading provider of innovative video and data applications used for security surveillance, monitoring, analysis and business optimization, today announced financial results for the third quarter and nine months of fiscal 2008 ended January 31, 2008. All figures in Canadian dollars and in accordance with Canadian GAAP unless otherwise specified.
The Company recorded revenue of $21.1 million in the third quarter of fiscal 2008 representing an increase of 13% as compared with revenue of $18.7 million in the third quarter of fiscal 2007 and a decline of 24% from the second quarter of fiscal 2008. Revenue of $73.4 million in the first nine months of fiscal 2008 represented an increase of 8% as compared to the first nine months of fiscal 2007.
The Company incurred a loss from continuing operations before income taxes in the third quarter of fiscal 2008 of $2.9 million as compared to earnings from continuing operations before income taxes of $1.9 million in the third quarter of fiscal 2007 and a loss of $872,000 in the second quarter of fiscal 2008. Loss from continuing operations before income taxes in the first nine months of fiscal 2008 was $2.9 million as compared to earnings of $9.4 million in the first nine months of fiscal 2007. Earnings from continuing operations before income taxes in the first nine months of fiscal 2008 reflected a one time $2.4 million charge related to a retrofit program which the Company initiated to proactively address design issues related to the Company’s installed base of transit products. Earnings from continuing operations before income taxes in the first nine months of fiscal 2007 were negatively impacted by a $2.3 million lawsuit settlement.
The Company incurred a net loss from continuing operations in the third quarter of fiscal 2008 of $3.1 million or $0.18 per diluted share as compared to net earnings of $1.0 million or $0.06 per diluted share in the third quarter of fiscal 2007 and a net loss of $666,000 or $0.04 per share in the second quarter of fiscal 2008. The Company’s net loss from continuing operations of $3.4 million or $0.20 per diluted share in the first nine months of fiscal 2008 compares to earnings of $5.3 million or $0.29 per share in the first nine months of fiscal 2007.
“I am pleased with the continued diversification of revenue outside our largest customer. We have aggressively invested in R&D and look forward to the release of our next generation IP products and growing our European business with the acquisition of Cieffe”, said Peter Strom, President and CEO, March Networks.
Financial Highlights
- Revenue excluding the Company’s year to date largest customer was up 66% and 39% in the third quarter and first nine months of fiscal 2008, respectively, from the comparable periods in fiscal 2007.
- Achieved record Transportation revenues of $8.9 million in the third quarter of fiscal 2008.
- Generated $11.8 million of cash flow from operating activities in the first nine months of fiscal 2008. Cash resources at January 31, 2008 were $97.2 million.
“The Company continued to grow and diversify its customer base in the seasonally slow third quarter and will continue to evaluate strategic investment opportunities to complement organic growth. The costs of developing a new product portfolio are significantly impacting the Company’s profitability however these costs are expected to decline as these products are introduced over the next four to six months”, said Ken Taylor, CFO of March Networks.
Business Outlook
March Networks maintains its focus on long-term growth objectives and will continue to provide only full year guidance. The Company is maintaining its annual revenue guidance but revising its earnings guidance from that which was last published in the Company’s second quarter results released on November 28, 2007. The Company is revising its earnings guidance to reflect a lower gross margin and higher operating expenses than were previously anticipated. The Company’s gross margin is expected to be negatively impacted by a higher anticipated mix of low margin Transportation revenue and the lower expected value of the US dollar relative to the Canadian dollar. Operating expenses are expected to be higher than previously anticipated primarily as a result of cost overruns on product development.
The Company’s revenue expectations for the fiscal year ending April 30, 2008 are in the range of $94 million to $103 million.
The Company’s expectations of net loss before income taxes for the fiscal year ending April 30, 2008 are in the range of $3 million to $5 million.
The Company will discuss the results on a conference call and webcast on February 28, 2008 at 8:30 a.m. EST (1:30 p.m. GMT). The conference call may be accessed by dialing 1-800-732-6179 (North America) or 00 800 2288 3501 (Europe).
The conference call webcast can be accessed at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2164360
A replay of the conference call will be available from February 28, 2008 at 10:30 a.m. EST until March 6, 2008 at 11:59 p.m. EST. The replay can be accessed at 1-877-289-8525 or 416-640-1917. The passcode for the replay is 21260468#
About March Networks
March Networks™ (TSX:MN; AIM:MNW) is a leading provider of intelligent IP video and business analysis applications that enable organizations to reduce losses, mitigate risks and improve security and operational efficiency. The Company’s advanced software suite includes enterprise-class video management, powerful analytics and comprehensive managed and professional services. Our software and systems are used by leading financial institutions, retailers, transportation authorities and other organizations in more than 50 countries. For more information, please visit www.marchnetworks.com.
Forward-Looking Statements
Certain statements included in this release constitute forward-looking statements, including those identified by the expressions "anticipate", "believe", "plan", "estimate", "expect", "intend" and similar expressions to the extent they relate to the Company or its management. The forward-looking statements are not historical facts but reflect the Company's current assumptions and expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current assumptions and expectations.
Assumptions made in preparing the forward-looking statements and financial guidance contained in this release include, but are not limited to, the following:
- The market for the Company’s products will grow by greater than 10% annually.
- The Company’s revenue outside of its current largest customer will grow by at least 30% from the level generated in fiscal 2007.
- The Company will develop and deliver new products on time in order to satisfy the demands of current and potential customers.
- The Company will have adequate component supply to meet customer demand.
- The Company’s gross margin in fiscal 2008 will decline relative to fiscal 2007 as a result of competitive pricing strategies and sales mix.
- The Company’s investments in sales and marketing and in research and development will result in increased revenues and expanded addressable markets.
- The prevailing exchange rate for US dollars to Canadian dollars will be US$1.00=CDN$1.00.
- The Company will continue to demonstrate its potential to generate sufficient profits in future fiscal years to realize the value of its future tax assets.
Factors that could cause actual results to differ materially from expected results include, but are not limited to, the following:
Delays in product development programs for new products and new product features which lead to cost overruns and /or missed customer opportunities
- Increasing competition from larger entities resulting from the consolidation of competitors and from larger entrants from other industries.
- Shortages or long lead times in component supply that affect the Company’s ability to meet customer demand.
- Weaker than expected success versus competitors in new customer opportunities and/or loss of existing customers to competitors.
- Product issues in the Company’s installed base that result in increased costs to the Company and/or lost revenue opportunities.
- Inability to attract and retain key employees.
- Higher than targeted product costs and/or higher than expected declines in market pricing for new products.
- Revenue shortfalls due to delays in securing new customer opportunities and the lack of long term purchase commitments from customers.
- Revenue declines associated with the weakening US economy including spending prevailing exchange rate for US dollars to Canadian dollars may be below the Company’s expected level for fiscal 2007.
- Difficulties integrating acquired business operations and related diversion of management attention.
Additional risks are discussed herein and under "Risk Factors" in the Company’s Annual Information Form available online at www.sedar.com
*MARCH NETWORKS and the MARCH NETWORKS logo are trademarks of March Networks Corporation. All other trademarks are the property of their respective owners.
For further information, please contact:
March Networks Corporation
Peter Wilenius, VP Corporate Development
(613) 591-8181
e-mail: pwilenius@marchnetworks.com
March Networks Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (CDN $)
(In thousands, except share and per-share amounts)
(Unaudited)
| |
Fiscal Quarter Ended
|
Nine Months Ended
|
| |
January 31,
2008
|
January 31,
2007
|
January 31,
2008
|
January 31,
2007
|
| |
|
REVENUE
|
$21,099
|
$18,678
|
$73,358
|
$67,805
|
|
COST OF REVENUE
|
12,189
|
9,516
|
42,472
|
31,175
|
|
GROSS MARGIN
|
8,910
|
9,162
|
30,886
|
36,630
|
|
EXPENSES:
|
|
Selling, marketing and support
|
3,952
|
3,944
|
11,923
|
11,994
|
|
Research and development
|
4,570
|
1,693
|
11,239
|
6,329
|
|
General and administrative
|
3,633
|
1,950
|
11,027
|
7,684
|
|
Stock based compensation
|
704
|
411
|
2,314
|
1,194
|
|
Amortization of acquired intangibles
|
137
|
137
|
411
|
303
|
|
Lawsuit settlement
|
—
|
—
|
—
|
2,263
|
|
Total expenses
|
12,996
|
8,135
|
36,914
|
29,767
|
|
EARNINGS (LOSS) BEFORE UNDERNOTED ITEMS
|
(4,086)
|
1,027
|
(6,028)
|
6,863
|
|
Interest and other income, net
|
1,148
|
915
|
3,148
|
2,580
|
|
EARNINGS (LOSS) BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS
|
(2,938)
|
1,942
|
(2,880)
|
9,443
|
|
Current income tax expense
|
4
|
100
|
26
|
300
|
|
Future income tax expense
|
157
|
796
|
485
|
3,884
|
|
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS
|
(3,099)
|
1,046
|
(3,391)
|
5,259
|
|
Discontinued operations
|
—
|
1,140
|
—
|
1,225
|
|
NET EARNINGS (LOSS)
|
$ (3,099)
|
$ 2,186
|
$ (3,391)
|
$ 6,484
|
|
Net earnings (loss) per share:
|
|
Basic – from continuing operations
|
$ (0.18)
|
$ 0.06
|
$(0.20)
|
$ 0.32
|
|
– from discontinued operations
|
—
|
0.07
|
—
|
0.07
|
| |
$ (0.18)
|
$ 0.13
|
$ (0.20)
|
$ 0.39
|
| |
|
|
|
|
|
Diluted – from continuing operations
|
$ (0.18)
|
$ 0.06
|
$(0.20)
|
$ 0.29
|
|
– from discontinued operations
|
—
|
0.06
|
—
|
0.07
|
| |
$ (0.18)
|
$ 0.12
|
$(0.20)
|
$ 0.36
|
|
Shares used in per-share calculation:
|
|
Basic
|
17,021,047
|
16,749,515
|
16,948,366
|
16,675,771
|
|
Diluted
|
17,979,730
|
17,977,179
|
17,971,829
|
17,971,095
|
March Networks Corporation
|
CONSOLIDATED BALANCE SHEETS (CDN $)
|
(In thousands)
(Unaudited)
| |
January 31,
2008
|
April 30,
2007
|
|
ASSETS
|
|
|
Current assets:
|
|
|
Cash and cash equivalents
|
$ 4,216
|
$ 3,526
|
|
Short-term investments
|
93,010
|
82,305
|
|
Restricted cash
|
3,262
|
2,775
|
|
Accounts receivable
|
14,961
|
19,396
|
|
Inventories
|
12,684
|
11,577
|
|
Prepaid expenses and other current assets
|
2,467
|
1,778
|
|
Future tax assets
|
4,026
|
2,198
|
|
Total current assets
|
134,626
|
123,555
|
|
Restricted cash
|
—
|
833
|
|
Capital assets
|
2,211
|
2,720
|
|
Intangible assets
|
2,677
|
3,088
|
|
Future income taxes
|
20,161
|
21,975
|
|
Goodwill
|
5,397
|
5,397
|
|
TOTAL ASSETS
|
$165,072
|
$157,568
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
Current liabilities:
|
|
|
Accounts payable
|
$10,740
|
$5,790
|
|
Accrued liabilities
|
8,774
|
4,337
|
|
Refundable royalty advance
|
2,509
|
2,775
|
|
Acquisition escrow
|
753
|
—
|
|
Deferred revenue
|
3,891
|
7,560
|
|
Income taxes payable
|
447
|
467
|
|
Total current liabilities
|
27,114
|
20,929
|
|
Acquisition escrow
|
—
|
833
|
|
Deferred revenue
|
8,877
|
5,881
|
|
Long term compensation
|
250
|
—
|
|
Total liabilities
|
36,241
|
27,643
|
|
Shareholders' equity
|
128,831
|
129,925
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
$165,072
|
$157,568
|
March Networks Corporation
|
CONSOLIDATED STATEMENTS OF CASH FLOWS (CDN $)
|
(In thousands)
(Unaudited)
| |
Nine Months Ended
|
| |
January 31,
2008
|
January 31,
2007
|
|
Cash flows from operating activities:
|
|
|
Net earnings - continuing operations
|
$ (3,391)
|
$ 5,259
|
|
Net earnings - discontinued operations
|
—
|
1,225
|
|
Items not affecting cash:
|
|
|
Amortization of capital assets
|
1,003
|
651
|
|
Amortization of acquired intangibles
|
411
|
303
|
|
Gain on sale of discontinued operations
|
—
|
(1,221)
|
|
Stock based compensation
|
2,314
|
1,194
|
|
Unrealized foreign exchange (gain)/ loss
|
(381)
|
50
|
|
Future income taxes and non-refundable investment tax credits
|
(236)
|
3,935
|
|
Net change in non-cash items:
|
|
|
Continuing operations
|
12,094
|
(5,408)
|
|
Discontinued operations
|
—
|
(489)
|
|
Net cash generated by operating activities
|
11,814
|
5,499
|
|
Cash flows from investing activities:
|
|
|
(Purchase) redemption of short-term investments
|
(10,717)
|
1,026
|
|
Purchase of capital assets
|
(494)
|
(2,073)
|
|
Acquisition of business
|
—
|
(8,316)
|
|
Proceeds from sale of discontinued operations
|
—
|
1,221
|
|
Net cash consumed by investing activities
|
(11,211)
|
(8,142)
|
|
Cash flows from financing activities:
|
|
|
Issuance of share capital, net
|
173
|
2,681
|
|
Net cash generated by financing activities
|
173
|
2,681
|
|
Increase in cash and cash equivalents – continuing operations
|
776
|
(698)
|
|
Decrease in cash and cash equivalents – discontinued operations
|
—
|
736
|
|
Net increase (decrease) in cash and cash equivalents
|
776
|
38
|
|
Foreign exchange loss on foreign cash and cash equivalents held
|
(86)
|
18
|
|
Cash and cash equivalents, beginning of period
|
3,526
|
3,292
|
|
Cash and cash equivalents, end of period
|
$ 4,216
|
$ 3,348
|
|
|
|
|