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March Networks Announces Third Quarter Fiscal 2010 Financial Results

Summary Operating Results:


$Cdn millions except EPS data	Q3 2010	Q3 2009	Q1-Q3 2010	Q1-Q3 2009
Revenue	$20.0	$23.6	$65.4	$79.7
Non-GAAP operating earnings (loss)*	(3.2)	0.6	(2.7)	0.4
Net loss	$(3.5)	$(1.3)	$(5.0)	$(4.7)
Loss per share	$(0.20)	$(0.07)	$(0.29)	$(0.27)
Cash and short-term investments	$50.2	$46.6	$50.2	$46.6

* Non-GAAP measure: earnings (loss) before stock based compensation, amortization of acquired intangibles, restructuring charges, interest and income taxes. This measure may not be comparable to similar measures used by other companies.

OTTAWA, Ontario, February 24, 2010 –– March Networks^® (TSX:MN), a global provider of intelligent IP video solutions, today announced financial results for the quarter and nine months ended January 31, 2010. All figures are in Canadian dollars and in accordance with Canadian GAAP unless otherwise specified.

The Company’s third quarter fiscal 2010 revenue was $20.0 million, representing a decrease of 15% as compared to revenue of $23.6 million in the third quarter of fiscal 2009. On a year-to-date basis, the Company’s revenue of $65.4 million declined by 18% as compared to revenue of $79.7 million in the first nine months of fiscal 2009.

The Company recorded a non-GAAP operating loss of $3.2 million in the third quarter of fiscal 2010, representing a decline of $3.8 million relative to non-GAAP operating earnings of $554,000 in the third quarter of fiscal 2009. Non-GAAP operating earnings during the first nine months of fiscal 2010 declined by $3.0 million to a loss of $2.7 million from non-GAAP operating earnings of $386,000 in the first nine months of fiscal 2009.

The Company incurred a net loss in the third quarter of fiscal 2010 of $3.5 million, or $0.20 per share, which represents a decline of $2.3 million, or $0.13 per share as compared to the net loss of $1.3 million incurred in the third quarter of fiscal 2009. Net loss for the nine months ended January 31, 2010 declined by $300,000 to $5.0 million or $0.29 per share as compared to the net loss of $4.7 million or $0.27 per share in the nine months ended January 31, 2009.

Notwithstanding the losses incurred in the third quarter and first nine months, the Company’s cash and short-term investment position has increased to $50.2 million at January 31, 2010 from $46.6 million at January 31, 2009 through strong working capital management particularly with respect to reducing inventory levels.

Due to weak sales visibility attributable to the impact of the economic downturn in markets such as the US and Dubai, as well as the strength of the Canadian dollar, the Company has not met its expectations to increase revenue and profitability in the first nine months of fiscal 2010,‖ said Ken Taylor, CFO of March Networks. ―The Company anticipates modest revenue growth in the fourth quarter as compared to the third quarter of fiscal 2010 and that fiscal 2010 revenue and profitability will be lower than fiscal 2009.‖
In spite of the economic challenges and deferred capital spending within many of our vertical markets, the Company has experienced year to date revenue growth in the Commercial Industrial market,‖ said Peter Strom, CEO of March Networks. ―We continue to invest in R&D and technologies that address the evolving needs of customers in our key vertical markets in order to support revenue growth.‖

The Company will discuss the results on a conference call and webcast on Thursday, February 25, 2010 at 8:30 a.m. EST (1:30 p.m. GMT). The conference call may be accessed by dialing 1-877-974-0446 (North America) or +1 416-644-3417.

The conference call webcast can be accessed at:
www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2949760

A replay of the conference call will be available from February 25, 2010 at 10:30 a.m. EST until March 4, 2010 at 11:59 p.m. EST. The replay can be accessed at 1-877-289-8525 or +1 416-640-1917. The passcode for the replay is 4206564#.

About March Networks

March Networks^® (TSX:MN) is a global provider of intelligent IP video solutions. For close to a decade, the Company has helped some of the world’s largest commercial and government organizations transition from traditional CCTV to networked video surveillance used for advanced security, loss prevention and risk mitigation. VideoSphere^®, the Company’s enterprise-class video management portfolio, includes open-platform VMS software complemented by high-definition IP cameras, encoders, video analytics and recording platforms, as well as outstanding professional and managed services. March Networks systems are delivered through an extensive distribution and partner network and currently support over one million channels of video in more than 50 countries.

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 contained in this release include, but are not limited to, the following:

Under stable economic conditions, the market for the Company’s products will grow by greater than 10% annually.
The Company will return to generating gross margin as a percentage of revenue of at least 45%.
The average fiscal 2010 exchange rates for US dollars and Euros to Canadian dollars will approximate US$1.00=CDN$1.05 and Euro 1=CDN$1.50.
The Company will develop and deliver new products on time in order to satisfy the demands of current and potential customers.
The Company’s investments in new geographical and vertical markets will contribute to near term profitability.
Annual operating expense run rate will be approximately $45 million, excluding stock based compensation and amortization of acquired intangibles.
The Company will have adequate component supply to meet customer demand.
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:

The Company’s ability to generate revenue growth and profitability may be negatively impacted by delays in closing large projects in its sales pipeline; increased pricing pressure; and economic instability in key markets, such as the US, which increases the potential for delay or cancellation of sales opportunities.
Difficulty in developing the sales channel, technology partnerships and support infrastructure required to compete successfully in new vertical markets.
Weaker than expected success versus competitors in new customer and vertical market opportunities.
Product issues that result in increased costs to the Company and/or lost revenue opportunities.
Delays in product development programs for new products and new product features which lead to cost overruns and /or missed customer opportunities.
Higher than targeted product costs and/or higher than expected declines in market pricing for the Company’s products.
Lack of availability or long lead times on key product components and/or 3rd party products sold by the Company.
Shifts in the value of the Canadian dollar relative to billing currencies.
A write down of the value of certain future tax assets if the Company is unable to demonstrate that it is more likely than not to generate sufficient future profits to realize the value of these assets

Additional risks are discussed herein and under "Risk Factors" in the Company’s Annual Information Form available online at www.sedar.com.

*MARCH NETWORKS, VideoSphere and the MARCH NETWORKS logo are registered trademarks of March Networks Corporation. All other trademarks are the property of their respective owners.

For further information, please contact:
March Networks Corporation
Ken Taylor
Chief Financial Officer
+1 613-591-8181
Email: ktaylor@marchnetworks.com

March Networks Corporation

CONSOLIDATED STATEMENTS OF OPERATIONS

(Canadian dollars, amounts in thousands, except share and per-share data)

(Unaudited)


	Three Months Ended		None Months Ended
	January 31, 2010	January 31, 2009	January 31, 2010	January 31, 2009
REVENUE	$20,005	$23,581	$65,391	$79,661
Cost of revenue	12,200	11,814	37,443	42,740
Contract losses	—	—	—	1,187
GROSS MARGIN	7,805	11,767	27,948	35,734
EXPENSES:
Selling, marketing and support	5,281	5,205	15,338	15,122
Research and development	3,663	2,447	8,768	9,999
General and administrative	2,017	3,561	6,502	10,227
Stock based compensation	(109)	299	682	1,062
Amortization of acquired intangible assets	888	1,021	2,683	2,880
Restructuring costs	—	1,246	—	2,665
Total expenses	11,740	13,779	33,973	41,955
LOSS BEFORE UNDERNOTED ITEMS	(3,935)	(2,012)	(6,025)	(6,221)
Interest and other income, net	192	273	356	977
LOSS BEFORE INCOME TAXES	(3,743)	(1,739)	(5,669)	(5,244)
Current income tax expense	21	(49)	82	(56)
Future income tax expense	(242)	(429)	(722)	(458)
NET LOSS	$(3,522)	$(1,261)	$(5,029)	$(4,730)
Loss per share:
Basic	$(0.20)	$ (0.07)	$(0.29)	$ (0.27)
Diluted	$(0.20)	$ (0.07)	$(0.29)	$ (0.27)
Shares used in per-share calculation:
Basic	17,201,220	17,188,221	17,199,657	17,581,538

March Networks Corporation

CONSOLIDATED BALANCE SHEETS

(Canadian dollars, amounts in thousands)
(Unaudited)


	January 31, 2010	April 30, 2009
ASSETS
Current assets:
Cash and cash equivalents	$11,711	$ 10,126
Short-term investments	38,500	40,740
Accounts receivable	14,101	14,892
Inventories	15,189	23,932
Prepaid expenses and other current assets	3,071	4,040
Future tax assets	5,131	5,128
Total current assets	87,703	98,858
Capital assets	5,360	5,962
Intangible assets	10,819	12,909
Future tax assets	15,074	15,646
Investment tax credits	7,405	6,505
Goodwill	22,429	22,429
TOTAL ASSETS	$148,790	$162,309
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$ 8,264	$ 12,004
Accrued liabilities	6,702	7,328
Deferred revenue	7,084	7,851
Deferred leasehold inducement	132	132
Short term compensation	7	—
Income taxes payable	101	390
Total current liabilities	22,290	27,705
Deferred revenue	5,652	8,239
Deferred leasehold inducement	1,001	1,100
Long term compensation	462	666
Future tax liabilities	2,606	3,330
Total liabilities	32,011	41,040
Shareholders' equity	116,779	121,269
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$148,790	$162,309

March Networks Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Canadian dollars, amounts in thousands)
(Unaudited)


	Three Months Ended		Nine Months Ended
	January 31, 2010	January 31, 2009	January 31, 2010	January 31, 2009
Cash flows from operating activities:
Net loss	$ (3,522)	$ (1,261)	$ (5,029)	$ (4,730)
Items not affecting cash:
Amortization of capital and intangible assets	679	437	1,520	1,526
Amortization of intangible assets related to business acquisitions	888	1,021	2,683	2,880
Stock based compensation and shares issued to directors	(109)	299	682	1,062
Unrealized foreign exchange (gain)/ loss	(290)	(131)	(776)	529
Future income taxes and non-refundable investment tax credits	(542)	(634)	(1,620)	(671)
Net change in non-cash items	2,635	5,778	3,565	(8,311)
Net cash generated (consumed) by operating activities	(261)	5,509	1,025	(7,715)
Cash flows from investing activities:
Redemption (purchase) of short-term investments	(36)	(2,268)	2,241	21,356
Purchase of capital and intangible assets	(489)	(652)	(1,387)	(4,098)
Acquisition of business	—	—	—	(699)
Net cash generated (consumed) by investing activities	(525)	(2,920)	854	16,559
Cash flows from financing activities:
Issuance (repurchase) of share capital, net	2	—	11	(4,574)
Net cash generated (consumed) by financing activities	2	—	11	(4,574)
Net increase (decrease) in cash	(784)	2,589	1,890	4,270
Foreign exchange gain (loss) on foreign cash held	(71)	(64)	(305)	333
Cash, beginning of period	12,566	6,265	10,126	4,187
Cash, end of period	$11,711	$ 8,790	$11,711	$ 8,790