RNS Number:8831M
March Networks Corporation
29 November 2006
FOR IMMEDIATE RELEASE 29 November 2006
March Networks
March Networks Grows Revenue by 41% and Pro Forma Pre-Tax Earnings by 11% in
First Six Months of Fiscal 2007
Summary Results:
------------------ ------- ------- --------- --------
$Cdn millions Q2'07 Versus Q1-Q2 2007 Vs. Q1-Q2 2006
except EPS data Q2'06
------------------ ------- ------- --------- --------
Revenue $26.3 +33% $49.1 +41%
------------------ ------- ------- --------- --------
Pro forma earnings from
continuing operations before
income taxes $ 4.7 -9% $ 9.8 +11%
------------------ ------- ------- --------- --------
Net earnings $ 1.4 $ 5.1
------------------ ------- ------- --------- --------
Diluted net earnings per share $0.08 $0.25
------------------ ------- ------- --------- --------
OTTAWA, Ontario, November 28, 2006 -- March Networks(TM) (TSX:MN; AIM:MNW), a
leading provider of Internet Protocol (IP)-based digital video surveillance
solutions, today announced financial results for the second quarter and first
six months of fiscal 2007, ended October 31, 2006. All figures in Canadian
dollars and in accordance with Canadian GAAP unless otherwise specified.
Revenue for the first six months of fiscal 2007 ended October 31, 2006 was $49.1
million, compared with $34.7 million in the first six months of last fiscal
year, representing an increase of 41%. Revenue for the second quarter of fiscal
2007 ended October 31, 2006 was $26.3 million, compared with $19.8 million in
the second quarter of fiscal 2006, representing an increase of 33%.
The Company has used pro forma earnings from continuing operations before income
taxes, a non-GAAP financial measure, to evaluate performance in the second
quarter and first six months of fiscal 2007 as compared to the similar periods
in the prior fiscal year to assist management, investors and other stakeholders
in evaluating the Company's performance relative to prior periods and the
Company's financial guidance. Pro forma earnings from continuing operations
before income taxes are calculated by adding the $2.3 million settlement of the
E-Watch lawsuit to net earnings from continuing operations, before income taxes
as reported under GAAP in the second quarter and first six months of fiscal
2007. The E-Watch settlement is expected to be of a non-recurring nature and has
no comparable expense in the second quarter and first six months of fiscal 2006.
The E-Watch settlement was not contemplated in the Company's financial guidance.
The Company has presented this measure on a pre-tax basis to allow better
comparability of results in the second quarter and first six months of fiscal
2007 with the similar periods in fiscal 2006 since, at the time of reporting
such fiscal 2006 results, the Company had not yet met the criteria to record the
income tax expense associated with its use of tax losses carried forward in the
first six months of 2006. It should be noted that this non-GAAP measure has no
prescribed meaning under GAAP and therefore it is unlikely that this measure
would be comparable to similar earnings measures presented by other companies.
Pro forma net earnings from continuing operations before income taxes for the
first six months of fiscal 2007 were $9.8 million compared with $8.8 million in
the first six months of fiscal 2006. Net earnings from continuing operations for
the first six months of fiscal 2007 were $4.2 million or $0.24 per diluted
share. Pro forma net earnings from continuing operations for the second quarter
of fiscal 2007 were $4.6 million, or $0.26 per share on a diluted basis,
compared with $5.6 million or $0.33 per diluted share for the second quarter of
fiscal 2006. Net earnings from continuing operations for the second quarter of
fiscal 2007 were $1.4 million or $0.08 per diluted share.
"Q2 was another outstanding quarter for March Networks. I continue to be pleased
with the Company's execution on all fronts. The market for our solutions
continues to be robust as customers and prospects increasingly turn to March
Networks for their digital video and business optimization solutions," said
Peter Strom, President and CEO of March Networks
Financial Highlights
*13th consecutive quarter of revenue growth, and 8th consecutive quarter
of generating operating cash flow.
*15% sequential revenue growth in Q2'07 as compared to Q1'07.
*Achieved year over year revenue growth in all target market sectors in
the first six months of fiscal 2007.
*Units shipped in the first six months of fiscal 2007 (11,113) represent
an increase of 39% compared to the first six months of last year. Installed
base of over 42,600 units.
*Cash flow from operating activities of $7.5 million in the first six
months of 2007 despite the $2.3 million payment to settle the E-Watch
lawsuit.
*Cash resources at October 31, 2006 of $88 million.
"The Company has continued to deliver strong revenue growth and cash flow from
operating activities in the first six months of fiscal 2007, which has allowed
the Company to expand its global reach and its product portfolio while
maintaining a strong cash balance to fund future strategic initiatives" 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 the
fiscal 2007 revenue and earnings guidance that was provided on August 28, 2006,
excluding the impact of the E-Watch lawsuit settlement. The Company's fiscal
2007 annual guidance is as follows:
Revenue for the fiscal year ending April 30, 2007 is expected to be in the range
of $97 million to $107 million.
Pre- tax earnings from continuing operations, excluding the $2.3 million E-Watch
lawsuit settlement, for the fiscal year ending April 30, 2007 are expected to be
in the range of $19 million to $22 million.
The Company expects fiscal 2007 net earnings from continuing operations,
excluding the $1.5 million after tax impact of the E-Watch lawsuit settlement,
to be in the range of $12 million to $14 million or between $0.66 and $0.77 per
diluted share.
The March Networks management team will discuss the full results and business
outlook on a conference call and Webcast to be held on November 29, 2006 at 8:30
ET (1:30pm UK time). The conference call may be accessed at 1-800-814-4941
(North America) or 00 800 0000 2288 (UK). The Webcast may be accessed at
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1665180. A replay of the
conference call may be accessed at 1-877-289-8525 until December 6, 2006. The
pass code for the replay is 21209143#.
About March Networks
March Networks(TM) (TSX:MN; AIM:MNW) is a leading provider of innovative video
and data applications used for security surveillance, monitoring, analysis, and
business optimization. The Company's software and IP-based hardware solutions
allow businesses to increase operational efficiencies, address risk, and manage
assets with an integrated set of video-based intelligence tools and business
intelligence applications. The ISO 9001:2000 certified company serves the needs
of leading financial institutions, retailers, transportation authorities,
commercial and homeland security organizations in more than 40 countries
throughout the world. For more information, please visit www.marchnetworks.com.
Forward-Looking Statements
Certain statements included in this press 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 press release include, but are not limited to, the
following:
* The market for the Company's products will continue to grow by at least
20% annually.
* The Company will have adequate component supply to meet customer demand.
* End-user customers will deploy the Company's products in substantially
all of the addressable locations identified during the March Networks sales
process.
* The Company will generate at least 10% of its revenue from channel
partner initiated sales.
* New customer deployments will support annual revenue growth of no less
than the anticipated DVR market growth.
* The competitive environment in which the Company carries on business
will dictate average selling price degradation of 5% per year.
* The Company will invest and be successful in new markets and
technologies while maintaining operating expenses below 40% of revenue.
* The prevailing exchange rate for US dollars to Canadian dollars will be
US$1.00=CDN$1.14.
* The Company will have reduced taxes payable as a result of utilizing
available tax losses carried forward.
Factors that could cause actual results to differ materially from expected
results include, but are not limited to, the following:
* The Company's largest customer represents 52% of the Company's revenue
in the first six months of fiscal 2007. The Company understands that it is
no longer the sole approved vendor to this customer.
* Shortages in component supply that affect the Company's ability to meet
customer demand.
* Variability in customer deployments from quarter to quarter and/or loss
of customers to competitors.
* Product issues in the Company's installed base could result in increased
costs and/or lost revenue opportunities.
* Fluctuations in the exchange rate between the US dollar and the Canadian
dollar.
* Variability in customer deployments from quarter to quarter and/ or
loss of customers to competitors.
* Delays in delivering or developing new products and new product features
to meet customer demand.
* Slower than anticipated success in international markets.
* Changes in pricing models and sales strategies required to address
competitive environment.
* Shifts in the mix of products sold.
* Declines in market growth rates for the Company's products.
* Costs associated with defending unanticipated patent infringement
claims.
* 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
Anil Dilawri, Director - Investor and Public Relations
(613) 591-8181
e-mail: adilawri@marchnetworks.com
Buchanan Communications
Bobby Morse / Jeremy Garcia / James Strong
+44 (0) 20 7466 5000
e-mail: bobbym@buchanan.uk.com
March Networks Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS (CDN $)
(In thousands, except share and per-share amounts)
(Unaudited)
Fiscal Quarter Ended Six Months Ended
October 31, October 31, October 31, October 31,
2006 2005 2006 2005
REVENUE $26,320 $19,849 $49,127 $34,725
COST OF REVENUE 11,942 8,442 21,659 15,213
GROSS MARGIN 14,378 11,407 27,468 19,512
EXPENSES:
Selling, marketing and
support 4,543 2,573 8,050 4,772
Research and
development 2,388 1,310 4,636 2,401
General and
administrative 3,051 2,121 5,734 3,834
Stock based
compensation 451 199 783 351
Amortization of
acquired intangibles 138 - 166 -
Lawsuit settlement 2,263 - 2,263 -
Total expenses 12,834 6,203 21,632 11,358
EARNINGS BEFORE
UNDERNOTED ITEMS 1,544 5,204 5,836 8,154
Interest and other
income, net 845 384 1,665 676
EARNINGS BEFORE INCOME
TAXES AND DISCONTINUED
OPERATIONS 2,389 5,588 7,501 8,830
Current income tax
expense 100 - 200 -
Future income tax
expense 859 - 3,088 -
NET EARNINGS FROM
CONTINUING OPERATIONS 1,430 5,588 4,213 8,830
Discontinued
operations (2) (474) 85 (881)
NET EARNINGS $ 1,428 $ 5,114 $ 4,298 $ 7,949
Net earnings per share:
Basic - from
continuing operations $ 0.09 $ 0.35 $ 0.25 $ 0.56
- from discontinued
operations - (0.03) 0.01 (0.05)
$ 0.09 $ 0.32 $ 0.26 $ 0.51
Diluted - from
continuing operations $ 0.08 $ 0.33 $ 0.24 $ 0.52
- from discontinued
operations - (0.03) 0.01 (0.05)
$ 0.08 $ 0.30 $ 0.25 $ 0.47
Shares used in per-share calculation:
Basic 16,651,215 15,792,300 16,625,801 15,638,115
Diluted 17,382,903 17,111,978 17,363,224 16,827,989
March Networks Corporation
CONSOLIDATED BALANCE SHEETS (CDN $)
(In thousands)
(Unaudited)
October 31, April 30,
2006 2006
ASSETS
Current assets:
Cash and cash equivalents $ 3,264 $ 3,292
Short-term investments 84,749 85,761
Restricted cash 2,808 -
Accounts receivable 15,981 13,655
Inventories 6,265 6,346
Prepaid expenses and other current assets 1,670 994
Current assets - discontinued operations 2 48
Future tax assets 10,315 7,984
Total current assets 125,054 118,080
Restricted cash 842 -
Capital assets 2,434 889
Intangible assets 3,360 -
Future income taxes 13,614 18,587
Goodwill 5,397 -
TOTAL ASSETS $150,701 $137,556
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $9,901 $9,634
Accrued liabilities 3,920 3,748
Refundable royalty advance 2,808 -
Deferred revenue 3,067 2,602
Income taxes payable 393 475
Current liabilities - discontinued operations 142 597
Total current liabilities 20,231 17,056
Acquisition escrow 842 -
Deferred revenue 3,813 1,035
Total liabilities 24,886 18,091
Shareholders' equity 125,815 119,465
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $150,701 $137,556
March Networks Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CDN $)
(In thousands)
(Unaudited)
Six Months Ended
October 31, October 31,
2006 2005
Cash flows from operating activities:
Net earnings - continuing operations $4,213 $ 8,830
Net earnings - discontinued operations 85 (881)
Items not affecting cash:
Amortization of capital assets 319 110
Amortization of acquired intangibles 166 -
Gain on other assets - discontinued operations (86) -
Stock based compensation 783 351
Foreign exchange loss on foreign cash and cash
equivalents held (38) 172
Future income taxes and non-refundable investment
tax credits 2,873 -
Items not affecting cash in discontinued
operations - 11
Change in non-cash operating working capital items:
Continuing operations (479) (3,306)
Discontinued operations (409) (148)
Net cash generated by operating activities 7,427 5,139
Cash flows from investing activities:
Purchases of short-term investments 1,010 (11,745)
Purchase of capital assets (1,509) (357)
Purchase of capital assets - discontinued
operations - (37)
Acquisition of business (8,316) -
Long term receivable - discontinued operations 86 86
Net cash consumed by investing activities (8,729) (12,053)
Cash flows from financing activities:
Issuance of share capital, net 1,269 2,748
Net cash generated by financing activities 1,269 2,748
Net increase/(decrease) in cash and cash
equivalents 291 (3,197)
- continuing operations
Net decrease in cash and cash equivalents -
discontinued operations (324) (969)
Net decrease in cash and cash equivalents (33) (4,166)
Foreign exchange loss on foreign cash and cash
equivalents held 5 (172)
Cash and cash equivalents, beginning of period 3,292 7,435
Cash and cash equivalents, end of period $ 3,264 $ 3,097
This information is provided by RNS
The company news service from the London Stock Exchange
END
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