March Networks Announces Financial Results for Second Quarter and First Six Months of Fiscal 2012

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March Networks Announces Financial Results for Second Quarter and First Six Months of Fiscal 2012

OTTAWA, Dec. 9, 2011 /PRNewswire/ -

Summary Operating Results:

                                                                   

    $USD millions                         Q2       Q2      Q1-Q2     Q1-Q2
      except EPS data                    2012     2011     2012      2011

    Revenue                              $21.9    $27.5     $44.3     $52.8

    Net earnings (loss)                 $(2.3)     $1.2    $(3.2)      $1.3

    Diluted earnings (loss) per share  $(0.13)    $0.07   $(0.18)     $0.07

    Earnings impact of foreign           (0.1)      0.4     (0.3)     (0.2)
    exchange gains (losses)

    Cash and short-term investments      $44.3    $43.9     $44.3     $43.9

March Networks(®  )(TSX:MN), a global provider of intelligent IP video solutions, today
announced financial results for the fiscal quarter and six months ended
October 31, 2011. All figures are in US dollars and in accordance with
International Financial Reporting Standards ("IFRS") unless otherwise
specified.

The Company's second quarter fiscal 2012 revenue of $21.9 million
represented a 21% decline relative to revenue of $27.5 million in the
second quarter of fiscal 2011 and a 2% decline as compared to the first
quarter fiscal 2012. Revenue for the first six months of fiscal 2012 of
$44.3 million declined by 16% relative to the first six months of
fiscal 2011. Revenue declines in the second quarter and first six
months of fiscal 2012 were due to normal quarterly revenue volatility
and the negative impact of the ongoing global macro-economic situation,
particularly in the banking sector.

Net loss for the second quarter of fiscal 2012 was $2.3 million or $0.13
per common share as compared to net earnings of $1.2 million or $0.07
per share in the second quarter of fiscal 2011. Net loss for the
six-month period ended October 31, 2011 was $3.2 million or $0.18 per
common share as compared to net earnings of $1.3 million or $0.07 per
share in the six-month period ended October 31, 2010.

The Company's cash and short-term investment position of $44.3 million
at October 31, 2011 increased by $424,000 as compared to October 31,
2010 but declined by $1.5 million relative to $45.8 million at April
30, 2011.

"The Company believes that delays in order intake and revenue declines
in the first half of fiscal 2012 were attributable to normal quarterly
revenue volatility and the negative impact of the ongoing global
macro-economic situation, particularly in the banking sector," said
Peter Strom, President and CEO of March Networks. "We believe our
results will improve in the second half of fiscal 2012 based on
improved revenue visibility, including the impact of $16 million in
orders from a large retail customer that we announced on November 8,
2011".

Update on Strategic Alternative Review Process

As disclosed previously, the Board of Directors of the Company
established a Special Committee in June 2011 to review strategic
alternatives for the Company. Today, the Company announced that it has
entered into a definitive agreement with Shenzhen Infinova Ltd. and
Infinova (Canada) Ltd. ("Infinova"), pursuant to which Infinova will
acquire through a statutory plan of arrangement, all of the issued and
outstanding shares of the Company in a $5.00 per share all cash
transaction. More detail on the arrangement can be found in the
Company's news release of today's date.

The company will discuss the results and the agreement with Infinova on
a conference call and webcast on Friday, December 9, 2011 at 8:30 a.m.
EST (1:30 p.m. UTC). The conference call may be accessed by dialing
1-800-814-4859 (North America) or +1 416-644-3414.

The conference call webcast can be accessed at:

http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3732520

A replay of the conference call will be available from December 9, 2011
at 10:30 a.m. EST until December 16, 2011 at 11:59 p.m. EST. The replay
can be accessed at 1-877-289-8525 or +1 416-640-1917. The replay
passcode is 4486391#.

About March Networks

March Networks(®) (TSX:MN) is a leading provider of intelligent IP video solutions. For
more than a decade, the company has helped some of the world's largest
commercial and government organizations transition from traditional
CCTV to advanced surveillance technologies used for security, loss
prevention, risk mitigation and operational efficiency. Its highly
scalable and easy to use Command((TM)) video management platform incorporates a web-based client interface to
enable rapid system deployment and complete system control. It is
complemented by the company's portfolio of high-definition IP cameras,
encoders, video analytics and hybrid recorders, as well as outstanding
professional and managed services. March Networks systems are delivered
through an extensive distribution and partner network in more than 50
countries. For more information, please visit http://www.marchnetworks.com.

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

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:

        --  The Company's pipeline of sales opportunities will yield year
            over year revenue growth in the second half of fiscal 2012 as
            compared to the second half of fiscal 2011.
        --  The Company will have adequate component supply to meet
            customer demand.
        --  The Company will develop and deliver new products on time in
            order to satisfy the demands of current and potential
            customers.
        --  The Company's new products will address the needs of new and
            existing customers and contribute to near term profitability.
        --  The Company will successfully reduce product costs to improve
            the Company's gross margin and/or avoid margin erosion
            associated with competitive pricing pressure.
        --  The average exchange rates for Canadian dollars and Euros to US
            dollars will be US$1.00=CDN$1.00 and Euro 1=US$1.40.

Factors that could cause actual results to differ materially from
expected results include, but are not limited to, the following:

        --  The Company has announced that it has entered into a definitive
            agreement to be acquired. The uncertainty during the period
            until the transaction closes could lead to disruption in the
            Company's business and affect the Company's financial
            condition, operating results, and/ or ability to attract and
            retain staff. If the transaction is not successfully completed,
            a material decline in the Company's share price could occur.
        --  The Company's quarterly revenue is generally dependent upon
            conversion of opportunities in the sales pipeline during the
            quarter and, as a result, revenue and operating results can be
            difficult to predict and can fluctuate substantially. The
            Company's success in realizing customer opportunities may be
            negatively impacted by depressed economic conditions, changes
            in sales cycles, and/or weaker than expected success versus
            competitors.
        --  Longer than expected lead times from component suppliers could
            result in production delays resulting in delayed or lost
            revenue and /or reduced profits. There is currently a global
            shortage of hard drives as a result of recent flooding in
            Thailand, which is the world's second largest exporter of hard
            drives. Failure to secure adequate hard drive supply and/or
            increased cost in securing adequate supply may have a material
            negative effect on the Company's revenue and profitability.
        --  The Company's gross margin and operating results may be
            adversely affected by pricing models required to compete
            successfully, lower than expected revenue mix of software and
            high margin hardware products, and/or a failure by the Company
            to achieve its product cost targets.
        --  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.
        --  Weaker than expected market acceptance of several new products
            being introduced by the Company that are expected to contribute
            significant revenue in the second half of fiscal 2012.
        --  The Company plans to become increasingly dependent upon third
            parties for product design and supply.  Higher than expected
            costs and delayed or lost revenue may result if these
            activities are not transitioned and managed effectively.
        --  Shifts in value of the US dollar relative to the Canadian
            Dollar may cause the Company's operating costs to fluctuate
            significantly.

Additional risks are discussed under "Risk Factors" in the Company's
Annual Information Form available online at http://www.sedar.com.

March Networks Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

                              Three Months Ended                 Six Months Ended

                       October 31,      October 31,      October 31,     October 31,
                          2011             2010             2011             2010

    REVENUE                                                                           
                            $21,891          $27,536          $44,324          $52,796

    Cost of                                                                           
    revenue                  12,782           15,638           25,239           29,107

    GROSS MARGIN                                                                     
                              9,109           11,898           19,085           23,689

    EXPENSES:                                                                         

    Selling,                                                                         
    marketing and             4,887            5,321            9,548            9,864
    support

    Research and                                                                     
    development               2,625            2,275            5,384            4,995

    General and                                                                       
    administrative            2,856            2,232            5,528            5,012

    Stock based                                                                       
    compensation                254              125              412              293

    Restructuring                                                                     
    charges                 --          --          --              884

    Amortization                                                                     
                                573              617            1,202            1,210

    Total expenses                                                                   
                             11,195           10,570           22,074           22,258

    Earnings                                                                         
    (loss) before           (2,086)            1,328          (2,989)            1,431
    undernoted
    items

    Interest and                                                                     
    other income,                14               64               60              104
    net

    EARNINGS                                                                         
    (LOSS) BEFORE           (2,072)            1,392          (2,929)            1,535
    INCOME TAXES

    Deferred                    252                                                   
    income taxes                                 162      318                      275

    NET EARNINGS                                                                   $ 
    (LOSS)                 ($2,324)           $1,230         ($3,247)            1,260

                                                                                     

    Basic and                                                                        $
    diluted                 ($0.13)            $0.07          ($0.18)             0.07
    earnings
    (loss) per
    share

                                                                                     

    Shares used in                                                                   
    per-share
    calculation:

    Basic                17,998,411       17,550,651       17,985,192       17,549,937

    Diluted              17,998,411       17,957,861       17,985,192       17,955,511

March Networks Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(US dollars, amounts in thousands)

(Unaudited)

                                         October 31, April 30, May 1,
                                            2011       2011     2010

    ASSETS                                                           

    Current assets:                                                   

    Cash and cash equivalents                $14,822   $15,593  $9,344

    Short-term investments                    29,504    30,241  37,787

    Trade and other receivables               15,522    21,007  16,209

    Inventories                               10,223    10,058  11,162

    Other current assets                       3,357     3,398   3,492

    Total current assets                      73,428    80,297  77,994

    Property and equipment                     4,024     4,391   5,124

    Intangible assets                          4,260     3,087   2,623

    Deferred tax assets                        4,176     4,495   4,445

    Goodwill                                   5,235     5,235   5,235

                                                               

    TOTAL ASSETS                             $91,123   $97,505 $95,421

                                                               

    LIABILITIES AND SHAREHOLDERS' EQUITY                             

    Current liabilities:                                             

    Trade and other payables                  $9,121   $ 9,546 $ 8,522

    Accrued liabilities                        6,151     7,415   4,552

    Provisions                                 2,829     2,876   2,529

    Deferred revenue                           3,098     3,897   7,674

    Deferred leasehold inducement                130       130     130

    Current tax liabilities                  --        20      99

    Total current liabilities                 21,329    23,884  23,506

    Deferred revenue                           2,702     3,334   4,714

    Deferred leasehold inducement                758       823     953

    Long-term compensation                       709       738     528

    Total liabilities                         25,498    28,779  29,701

    Shareholders' equity                      65,625    68,726  65,720

                                                               

    TOTAL LIABILITIES AND SHAREHOLDERS'      $91,123   $97,505 $95,421
    EQUITY

March Networks Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS

(US dollars, amounts in thousands)

(Unaudited)

                         Three Months Ended            Six Months Ended

                     October31,   October 31,    October 31,  October 31,
                        2011         2010           2011         2010

    Cash flows                                                           
    from operating
    activities:

    Net earnings        ($2,324)        $1,230      ($3,247)        $1,260
    (loss)

    Items not                                                             
    affecting
    cash:

    Amortization             573           617         1,202         1,210
    of property,
    equipment and
    software

    Stock based                                                           
    compensation             254           136           424           304
    and shares
    issued to
    directors for
    services

    Unrealized             (684)          (52)         (772)           412
    foreign
    exchange
    (gain)/ loss

    Deferred                 252           162           318           275
    income tax
    expense

    Net change in          2,593           921         2,567       (5,903)
    non-cash items

    Net cash                 664         3,014           492       (2,442)
    generated
    (consumed) by
    operating
    activities

                                                                         

    Cash flows                                                           
    from investing
    activities:

    Redemption of             32         2,488           737         7,789
    short-term
    investments

    Purchase of            (957)         (195)       (1,885)         (335)
    property,
    equipment and
    software

    Net cash               (925)         2,293       (1,148)         7,454
    generated
    (consumed) by
    investing
    activities

                                                                         

    Cash flows                                                           
    from financing
    activities:

    Issuance of              179             8           241             8
    share capital,
    net

    Net cash                 179             8           241             8
    generated
    byfinancing
    activities

                                                                         

    Net increase            (82)         5,315         (415)         5,020
    (decrease) in
    cash and cash
    equivalents

    Foreign                (231)            18         (356)             
    exchange gain                                                      (2)
    (loss) on cash
    and cash
    equivalents

    Cash and cash                        9,029        15,593         9,344
    equivalents,          15,135
    beginning of
    period

    Cash and cash        $14,822       $14,362       $14,822       $14,362
    equivalents,
    end of period

 

SOURCE  MARCH NETWORKS CORPORATION

MARCH NETWORKS CORPORATION

CONTACT:  Ken Taylor
Chief Financial Officer, March Networks
+1 613-591-8181
ktaylor@marchnetworks.com

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