March Networks Announces First Quarter Fiscal 2012 Financial Results

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Sep 07, 2011, 07:48 ET

Summary Operating Results:
$USD millions except EPS data	Q1 2012	Q4 2011	Q1 2011
Revenue	$22.4	$28.4	$25.3
Net earnings (loss)	$(0.9)	$2.7	$0.0
Diluted earnings (loss) per share	$(0.05)	$0.15	$0.00
Earnings impact of foreign exchange gains (losses)	(0.2)	2.1	(0.7)
Cash and short-term investments	$44.7	$45.8	$41.1

OTTAWA, Sept. 7, 2011 /PRNewswire/ - March Networks^®(TSX:MN), a global provider of intelligent IP video solutions, today announced financial results for the fiscal quarter ended July 31, 2011. All figures are in US dollars and in accordance with International Financial Reporting Standards ("IFRS") unless otherwise specified.

The Company's first quarter fiscal 2012 revenue of $22.4 million represented an 11% decrease as compared to revenue of $25.3 million in the first quarter of fiscal 2011 and a 21% decline as compared to the fourth quarter of fiscal 2011 due primarily to lower than expected demand from large end users in North America and project opportunities in the Middle East.

Net loss for the first quarter of fiscal 2012 was $923,000 or $0.05 per common share as compared to net earnings of $30,000 or $0.00 per share in the first quarter of fiscal 2011 and net earnings of $2.7 million or $0.15 per share in the fourth quarter of fiscal 2011. The fourth quarter fiscal 2011 comparative period includes a $2.1 million foreign exchange gain mainly associated with converting Canadian dollar assets at April 30, 2011 to US dollars on the transition to IFRS.

The Company's cash and short-term investment position at July 31, 2011 increased by $3.6 million as compared to July 31, 2010 but declined by $1.1 million during the first quarter of fiscal 2012 relative to $45.8 million at April 30, 2011 primarily as a result of spending on intangible assets associated with the implementation of a new ERP system. The Company's working capital ratio at July 31, 2011 improved to 3.8:1 as compared to 3.4:1 at April 30, 2011.

"Pursuant to its announcement on June 8, 2011, the Company continues to be actively engaged in its review of strategic alternatives," commented Peter Strom, CEO of March Networks. "The Special Committee of the Company's Board of Directors, with support from its independent financial advisor, continues to evaluate the Company's strategic alternatives and will report to shareholders on the status of its strategic review when the Company has completed the review or has further information which it is required to disclose to all shareholders."

The company will discuss the results on a conference call and webcast on Thursday, September 8, 2011 at 8:30 a.m. EDT (12:30 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=3623620

A replay of the conference call will be available from September 8, 2011 at 10:30 a.m. EDT until September 15, 2011 at 11:59 p.m. EDT. The replay can be accessed at 1-877-289-8525 or +1 416-640-1917. The replay passcode is 4443846#.

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^™ 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 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 addressable market for the Company's products will grow by at least 10% annually.
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 any 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.
The Company will have adequate component supply to meet customer demand.

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

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.
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.
The Company is undertaking a review of strategic alternatives that could disrupt its business and affect the Company's financial condition, operating results, share price and/or ability to attract and retain staff.
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 a 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.
Longer than expected lead times from component suppliers could result in production delays resulting in delayed or lost revenue.
Shifts in value of the US dollar relative to the Canadian Dollar may cause the Company's operating costs to fluctuate significantly.
The Company is currently undertaking an initiative to replace its core ERP platform with SAP, an enterprise-wide computing system which will be integrated with certain other key business applications currently being used by the Company. The Company has dedicated considerable resources to the implementation of SAP and has carefully designed an implementation plan to reduce operational disruptions. However, there can be no guarantee that the implementation will not disrupt the Company's operations, or that the implementation will be completed within the identified period of time and budget. In addition, there cannot be any guarantee that the implementation of SAP will improve current processes or operating results. Any of these failures could have a material adverse impact on the Company's financial condition and results of operations.

Additional risks are discussed under "Risk Factors" in the Company's Annual Information Form available online at 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
	July 31, 2011	July 31, 2010
REVENUE	$22,433	$25,260
Cost of revenue	12,457	13,469
GROSS MARGIN	9,976	11,791
EXPENSES:
Selling, marketing and support	4,661	4,543
Research and development	2,759	2,720
General and administrative	2,672	2,779
Stock based compensation	158	169
Restructuring charges	—	884
Amortization	629	593
Total expenses	10,879	11,688
Earnings (loss) before undernoted items	(903)	103
Interest and other income, net	46	40
EARNINGS (LOSS) BEFORE INCOME TAXES	(857)	143
Deferred income taxes	66	113
NET EARNINGS (LOSS)	($923)	$30

Basic and diluted earnings (loss) per share	($0.05)	$0.00

Shares used in per-share calculation:
Basic	17,967,213	17,548,510
Diluted	17,967,213	17,951,663


March Networks Corporation CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (US dollars, amounts in thousands) (Unaudited)

	July 31, 2011	April 30, 2011	May 1, 2010
ASSETS
Current assets:
Cash and cash equivalents	$15,135	$15,593	$9,344
Short-term investments	29,536	30,241	37,787
Trade and other receivables	16,347	21,007	16,209
Inventories	9,123	10,058	11,162
Other current assets	3,584	3,398	3,492
Total current assets	73,725	80,297	77,994
Property and equipment	4,187	4,391	5,124
Intangible assets	4,428	4,495	2,623
Deferred tax assets	5,235	5,235	4,445
Goodwill	4,103	3,087	5,235
TOTAL ASSETS	$91,678	$97,505	$95,421
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade and other payables	$8,217	$ 9,546	$ 8,522
Accrued liabilities	4,825	7,415	4,552
Provisions	2,833	2,876	2,529
Deferred revenue	3,186	3,897	7,674
Deferred leasehold inducement	130	130	130
Current tax liabilities	2	20	99
Total current liabilities	19,193	23,884	23,506
Deferred revenue	3,200	3,334	4,714
Deferred leasehold inducement	791	823	953
Long-term compensation	735	738	528
Total liabilities	23,919	28,779	29,701
Shareholders' equity	67,759	68,726	65,720
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$91,678	$97,505	$95,421


March Networks Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS (US dollars, amounts in thousands) (Unaudited)

	Three Months Ended
	July 31, 2011	July 31, 2010
Cash flows from operating activities:
Net earnings (loss)	($923)	$30
Items not affecting cash:
Amortization of property, equipment and software	629	593
Stock based compensation and shares issued to directors for services	170	169
Unrealized foreign exchange (gain)/ loss	(88)	463
Deferred income tax expense	66	113
Net change in non-cash items	(26)	(6,824)
Net cash generated (consumed) by operating activities	(172)	(5,456)

Cash flows from investing activities:
Redemption of short-term investments	705	5,301
Purchase of property, equipment and software	(928)	(140)
Net cash generated (consumed) by investing activities	(223)	5,161

Cash flows from financing activities:
Issuance of share capital, net	62	—
Net cash generated by financing activities	62	—

Net decrease in cash and cash equivalents	(333)	(295)
Foreign exchange loss on cash and cash equivalents	(125)	(20)
Cash and cash equivalents, beginning of period	15,593	9,344
Cash and cash equivalents, end of period	$15,135	$9,029