Vecima Networks Inc. ("Vecima" or "the Company") (TSX: VCM), today reported its fiscal 2011 first quarter financial results for the three months ended September 30, 2010. (All dollar amounts are in Canadian funds unless otherwise stated.)
"During the first quarter of fiscal 2011, we were successful in producing healthy profitability through diligent management and containment of expenses. Sales for the first quarter were essentially unchanged sequentially at $26.3 million compared to $26.8 million in Q4 of fiscal 2010. Meanwhile, gross margin increased to 38% from 29% in Q4 as a result of a return to typical product mix as well as realization of efficiencies in production and cost management practices," said Dr. Surinder Kumar, Chairman and CEO.
"Vecima products are core elements of system operator strategies; our products provide a method to convert to all-digital and then to use that freed-up capacity to deliver HDTV and high-speed data bandwidth. Consumption of bandwidth by consumers through activities such as watching TV on the internet, viewing streaming movies on Netflix, and downloading files are the underlying driver of demand for Vecima products. Similarly, consumption of programming that is distributed by cable operators such as HDTV and movies/TV on demand drive consumption of Vecima products," Dr. Kumar continued.
Fiscal 2011 Q1 financial highlights:
-- Net income increased 53% to $1.9 million in Q1, compared to $1.2 million in Q1 last year. Net margin was 7% for Q1, compared with 4% for the first quarter last fiscal year. -- Gross margin increased to 38% for the first quarter, providing a gross profit of $10.1 million, compared with a gross margin of 36% for the first quarter last year that provided a gross profit of $10.1 million. This increase is a result of increased efficiency in the production of new products. Management expects that gross margins will stay within our traditional range of 35%-40%. -- Revenue decreased 7% to $26.3 million in Q1 compared to $28.4 million in the same period a year earlier. Revenue from YourLink and Broadband Wireless grew 25% and 17%, respectively, while Converged Wired Solutions sales declined 15%. -- We have positioned Vecima for new product opportunities while also monitoring and containing expenses. Vecima ended the first quarter of fiscal 2011 with 854 employees, representing a decrease of 5% from June 30, 2010. We expect to continue to match our staffing to our revenue as we move forward. We made progress on the following key new pillars of opportunity for Vecima: -- In the first quarter, Vecima made significant progress towards completion of acceptance testing for our TerraceQAM product at both our leading US MSO customer and our OEM customer. The TerraceQAM has since entered into customer field trials in multiple locations. Cable operators plan to use TerraceQAM to access the growing opportunity emerging from the need to provide HD programming in hotels. The product receives HD programming from the cable network and then processes it and outputs 60 HDTV channels in a format directly viewable on the flat panel televisions hotels are rapidly deploying today (without the requirement for set top boxes). -- Vecima's Concierge gateway product was demonstrated successfully at multiple customer locations in Q1. Concierge is also targeted at the upcoming HDTV opportunity in the hospitality market and is suitable for both cable and direct broadcast satellite operators. The product outputs up to 48 HD channels within a property which can be viewed directly on HD television sets, again eliminating the need for a set top box in every guest room. The Concierge will be sold through multiple hospitality system solution providers as well as directly to cable and DBS operators targeting the hospitality HD opportunity. We expect initial deployments of Concierge in Q2 of fiscal 2011, starting with one or more of our system solution partners. -- Vecima's digital video and internet over cable modules are sold to two of our leading OEM partners for certain of their respective Edge QAM and CMTS platforms. In the first quarter, Vecima shipped deployment volumes of modules for the first OEM and moved into the final stages of certification testing at the other. With the recent move by cable operators to all- digital networks, capacity for hundreds of HD channels and a four to five times increase in high speed internet bandwidth was freed-up in their network. Vecima's modules enable cable operators to use their freed up bandwidth to provide services such as digital video, high definition television, high speed data, and video on demand. -- New opportunities are expected to mature in Vecima's Broadband Wireless market segment in the utilities and resource sectors for applications including smart metering and smart grid technologies, advanced logistics, WiFi backhaul, voice over IP, and enterprise connectivity. Vecima's broadband wireless technologies are well-suited to serve the needs of these market segments, where the principals often have distributed and remote connectivity requirements. The decision timeframes in this market segment are relatively long. -- Development of Vecima's new customized wireless modem for the emerging vehicle fleet management opportunity proceeded during the first quarter. Our product addresses a substantial new market for vehicle tracking, fleet performance management and logistics optimization, yielding fuel savings and reduced operating costs for all manner of vehicular fleets. This new customized modem, which works on multiple cellular and WiFi networks, is a logical extension of our wireless strategy moving from fixed and nomadic solutions and into mobile solutions with GPS information. Vecima continues to make progress towards securing a major lead customer. -- Last quarter we indicated that our customers' prelaunch forecasts for Terrace were overly optimistic. Revenue from our lead customer was less in Q1 compared to its peak in Q4. Revenue from other customers is expected to grow and we are introducing derivative products at our lead customer. Overall, we expect flat to low growth in the combined revenue for Terrace. -- In Q1, Vecima closed the sale of one of its buildings in Victoria and received a portion of the proceeds. Vecima continues to look for opportunities to sell its non-core assets and derive value for shareholders. We expect to achieve additional progress in the near term.
As previously stated, our growth strategy is focused on the introduction of new products as well as accessing new markets and new customers for our products. We remain on a path towards single-digit revenue growth for fiscal 2011, driven by new product introductions which are expected to ramp in the second half of the fiscal year. Meanwhile, with careful cost controls, we have successfully delivered gross margin within our model, as well as a return to profitability.
The Company's full consolidated financial statements and management's discussion and analysis for the three months ended September 30, 2010 are available under the Company's profile at www.SEDAR.com, and at http://www.vecima.com/financials_ir.php.
A conference call and live audio webcast will be held on November 12, 2010 at 5 p.m. ET to discuss the Company's first quarter results. To participate in the teleconference, dial 800-319-4610 or 604- 638-5340. The webcast will be available at http://www.vecima.com/events_ir.php.
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.
Forward-Looking Statements
Certain statements in this press release may constitute forward-looking statements within the meaning of applicable securities laws. All statements other than statements of historical fact are forward-looking statements. These statements include but are not limited to statements regarding management's intentions, belief or current expectations with respect to market and general economic conditions, future costs and operating performance. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict, and/or are beyond our control. A number of important factors could cause actual outcomes and results to differ materially from those expressed in these forward-looking statements. These factors include, but are not limited to, the current significant general economic uncertainty and credit and financial market volatility and the distinctive characteristics of Vecima's operations and industry that may have a material impact on, or constitute risk factors in respect of Vecima's future financial performance, as set forth under the heading "Risk Factors" in the Company's Annual Information Form dated September 28, 2010, a copy of which is available at www.sedar.com. In addition, although the forward-looking statements in this press release are based on what management believes are reasonable assumptions, such assumptions may prove to be incorrect. Consequently, readers should not place undue reliance on such forward-looking statements. In addition, these forward-looking statements relate to the date on which they are made. Vecima disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
VECIMA NETWORKS INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME AND RETAINED EARNINGS (in thousands of Canadian dollars except net income per share data) Three months ended September 30, 2010 2009 -------------------------------------------------------------------------- (unaudited) (unaudited) Sales $ 26,333 $ 28,379 Cost of sales 16,235 18,261 -------------------------------------------------------------------------- Gross margin 10,098 10,118 -------------------------------------------------------------------------- Research and development 2,832 2,153 Sales and marketing 1,446 1,401 General and administrative 4,715 4,330 Stock-based compensation 45 45 Foreign exchange (gain) loss (174) 579 Other (income) (1,492) (188) -------------------------------------------------------------------------- 7,372 8,320 -------------------------------------------------------------------------- Operating income 2,726 1,798 Interest expense 110 73 -------------------------------------------------------------------------- Income before income taxes 2,616 1,725 Income taxes 753 507 -------------------------------------------------------------------------- Net income and Comprehensive income 1,863 1,218 Retained earnings, beginning of period 90,303 91,266 -------------------------------------------------------------------------- Retained earnings, end of period $ 92,166 $ 92,484 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Net income per share Basic and diluted $ 0.08 $ 0.05 Weighted average number of Common Shares outstanding - basic and diluted 22,316,767 22,856,867 VECIMA NETWORKS INC. CONSOLIDATED BALANCE SHEETS (in thousands of Canadian dollars) As at As at September 30, June 30, 2010 2010 --------------------------------------------------------------------------- Assets Current assets Marketable securities $ 786 $ 795 Accounts receivable 25,743 27,999 Income Tax Receivable 2,754 2,754 Inventories 37,541 36,702 Current portion of leases receivable 245 281 Prepaid expenses 1,361 864 Other current assets 41 12 Current future tax assets 1,350 1,316 -------------------------------------------------------------------------- 69,821 70,723 Leases receivable 162 214 Property, plant and equipment 34,924 35,631 Deferred development costs 10,052 9,661 Intangible assets 2,491 2,519 Investment tax credit asset 25,852 24,829 Future tax assets 10,930 10,996 --------------------------------------------------------------------------- $ 154,232 $ 154,573 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Liabilities Current liabilities Bank indebtedness $ 4,914 $ 5,934 Accounts payable and accrued liabilities 12,308 13,654 Warranty accrual 530 500 Deferred revenue 2,515 2,452 Current portion of long-term debt 250 250 --------------------------------------------------------------------------- 20,517 22,790 Other long-term liabilities 728 648 Long-term debt 3,899 3,958 --------------------------------------------------------------------------- 25,144 27,396 --------------------------------------------------------------------------- Shareholders' equity Share capital $ 34,482 $ 34,482 Contributed surplus 2,440 2,392 Retained earnings 92,166 90,303 --------------------------------------------------------------------------- 129,088 127,177 --------------------------------------------------------------------------- $ 154,232 $ 154,573 --------------------------------------------------------------------------- --------------------------------------------------------------------------- VECIMA NETWORKS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of Canadian dollars) Three months ended September 30, 2010 2009 -------------------------------------------------------------------------- Cash flows from (used in) operating activities Net income $ 1,863 $ 1,218 Add (deduct) items not requiring cash Gain on the sale of property, plant and equipment (1,519) - Amortization of property, plant and equipment 1,410 1,390 Amortization of deferred development costs 2,038 1,262 Amortization of other assets 36 34 Stock-based compensation 45 45 Net change in non-cash working capital relating to operations 24 (3,057) -------------------------------------------------------------------------- 3,897 892 -------------------------------------------------------------------------- Cash flows from (used in) investing activities Purchase of property, plant and equipment (1,131) (548) Proceeds from the sale of property, plant and equipment 750 - Proceeds from the sale of marketable securities - 56 Deferred development costs (2,429) (2,431) Purchase of other assets (8) - -------------------------------------------------------------------------- (2,818) (2,923) -------------------------------------------------------------------------- Cash flows from (used in) financing activities Repayment of long-term debt (59) (62) -------------------------------------------------------------------------- (59) (62) -------------------------------------------------------------------------- Increase (decrease) in cash during the period 1,020 (2,093) Cash beginning of period (5,934) (335) -------------------------------------------------------------------------- Cash (Bank indebtedness), end of period $ (4,914) $ (2,428) -------------------------------------------------------------------------- --------------------------------------------------------------------------
Contacts: Vecima Networks Inc. Alan Brick Investor Relations Officer 250-881-1982 invest@vecima.comwww.vecima.com