March Networks Announces Financial Results for Third Quarter and First Nine Months and Revised Guidance for Fiscal 2008



    
    Summary Operating Results:
    -------------------------------------------------------------------------
    $Cdn millions                                        Q1-Q3         Q1-Q3
     except EPS data        Q3 '08        Q3 '07         '08(*)     '07(*)(*)
    -------------------------------------------------------------------------
    Revenue                  $21.1         $18.7         $73.4         $67.8
    -------------------------------------------------------------------------
    Earnings (loss) from
     continuing operations
     before income taxes      (2.9)          1.9          (2.9)          9.4
    -------------------------------------------------------------------------
    Net earnings (loss)
     from continuing
     operations             $ (3.1)        $ 1.0        $ (3.4)       $  5.3
    -------------------------------------------------------------------------
    Diluted earnings
     (loss) per share
     from continuing
     operations             $(0.18)        $0.06        $(0.20)        $0.29
    -------------------------------------------------------------------------
    (*)  Earnings include the impact of a $2.4 million charge in Q2'08 for
         retrofit costs.

    (xx) Earnings include the impact of a $2.3 million charge in Q2'07 for
         patent litigation settlement.
    

    OTTAWA, Feb. 27 /CNW Telbec/ - March Networks(TM) (TSX:MN; AIM:MNW), a
leading provider of innovative video and data applications used for security
surveillance, monitoring, analysis and business optimization, today announced
financial results for the third quarter and nine months of fiscal 2008 ended
January 31, 2008. All figures in Canadian dollars and in accordance with
Canadian GAAP unless otherwise specified.
    The Company recorded revenue of $21.1 million in the third quarter of
fiscal 2008 representing an increase of 13% as compared with revenue of
$18.7 million in the third quarter of fiscal 2007 and a decline of 24% from
the second quarter of fiscal 2008. Revenue of $73.4 million in the first
nine months of fiscal 2008 represented an increase of 8% as compared to the
first nine months of fiscal 2007.
    The Company incurred a loss from continuing operations before income
taxes in the third quarter of fiscal 2008 of $2.9 million as compared to
earnings from continuing operations before income taxes of $1.9 million in the
third quarter of fiscal 2007 and a loss of $872,000 in the second quarter of
fiscal 2008. Loss from continuing operations before income taxes in the first
nine months of fiscal 2008 was $2.9 million as compared to earnings of
$9.4 million in the first nine months of fiscal 2007. Earnings from continuing
operations before income taxes in the first nine months of fiscal 2008
reflected a one time $2.4 million charge related to a retrofit program which
the Company initiated to proactively address design issues related to the
Company's installed base of transit products. Earnings from continuing
operations before income taxes in the first nine months of fiscal 2007 were
negatively impacted by a $2.3 million lawsuit settlement.
    The Company incurred a net loss from continuing operations in the third
quarter of fiscal 2008 of $3.1 million or $0.18 per diluted share as compared
to net earnings of $1.0 million or $0.06 per diluted share in the third
quarter of fiscal 2007 and a net loss of $666,000 or $0.04 per share in the
second quarter of fiscal 2008. The Company's net loss from continuing
operations of $3.4 million or $0.20 per diluted share in the first nine months
of fiscal 2008 compares to earnings of $5.3 million or $0.29 per share in the
first nine months of fiscal 2007.
    "I am pleased with the continued diversification of revenue outside our
largest customer. We have aggressively invested in R&D and look forward to the
release of our next generation IP products and growing our European business
with the acquisition of Cieffe", said Peter Strom, President and CEO,
March Networks.

    
    Financial Highlights

    - Revenue excluding the Company's year to date largest customer was up
      66% and 39% in the third quarter and first nine months of fiscal 2008,
      respectively, from the comparable periods in fiscal 2007.

    - Achieved record Transportation revenues of $8.9 million in the third
      quarter of fiscal 2008.

    - Generated $11.8 million of cash flow from operating activities in the
      first nine months of fiscal 2008. Cash resources at January 31, 2008
      were $97.2 million.

    "The Company continued to grow and diversify its customer base in the
seasonally slow third quarter and will continue to evaluate strategic
investment opportunities to complement organic growth. The costs of developing
a new product portfolio are significantly impacting the Company's
profitability however these costs are expected to decline as these products
are introduced over the next four to six months", 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 its
annual revenue guidance but revising its earnings guidance from that which was
last published in the Company's second quarter results released on November
28, 2007. The Company is revising its earnings guidance to reflect a lower
gross margin and higher operating expenses than were previously anticipated.
The Company's gross margin is expected to be negatively impacted by a higher
anticipated mix of low margin Transportation revenue and the lower expected
value of the US dollar relative to the Canadian dollar. Operating expenses are
expected to be higher than previously anticipated primarily as a result of
cost overruns on product development.
    The Company's revenue expectations for the fiscal year ending April 30,
2008 are in the range of $94 million to $103 million.
    The Company's expectations of net loss before income taxes for the fiscal
year ending April 30, 2008 are in the range of $3 million to $5 million.

    The Company will discuss the results on a conference call and webcast on
February 28, 2008 at 8:30 a.m. EST (1:30 p.m. GMT). The conference call may be
accessed by dialing 1-800-732-6179 (North America) or 00 800 2288 3501
(Europe).
    The conference call webcast can be accessed at
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2164360

    A replay of the conference call will be available from February 28, 2008
at 10:30 a.m. EST until March 6, 2008 at 11:59 p.m. EST. The replay can be
accessed at 1-877-289-8525 or 416-640-1917. The passcode for the replay is
21260468#.

    About March Networks

    March Networks(TM) (TSX:MN; AIM:MNW) is a leading provider of intelligent
IP video and business analysis applications that enable organizations to
reduce losses, mitigate risks and improve security and operational efficiency.
The Company's advanced software suite includes enterprise-class video
management, powerful analytics and comprehensive managed and professional
services. Our software and systems are used by leading financial institutions,
retailers, transportation authorities and other organizations in more than
50 countries. For more information, please visit www.marchnetworks.com.

    Forward-Looking Statements

    -------------------------------------------------------------------------
    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 and
    financial guidance contained in this release include, but are not limited
    to, the following:

    - The market for the Company's products will grow by greater than
      10% annually.
    - The Company's revenue outside of its current largest customer will grow
      by at least 30% from the level generated in fiscal 2007.
    - The Company will develop and deliver new products on time in order to
      satisfy the demands of current and potential customers.
    - The Company will have adequate component supply to meet customer
      demand.
    - The Company's gross margin in fiscal 2008 will decline relative to
      fiscal 2007 as a result of competitive pricing strategies and sales
      mix.
    - The Company's investments in sales and marketing and in research and
      development will result in increased revenues and expanded addressable
      markets.
    - The prevailing exchange rate for US dollars to Canadian dollars will be
      US$1.00=CDN$1.00.
    - 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:

    - Delays in product development programs for new products and new product
      features which lead to cost overruns and /or missed customer
      opportunities.
    - Increasing competition from larger entities resulting from the
      consolidation of competitors and from larger entrants from other
      industries.
    - Shortages or long lead times in component supply that affect the
      Company's ability to meet customer demand.
    - Weaker than expected success versus competitors in new customer
      opportunities and/or loss of existing customers to competitors.
    - Product issues in the Company's installed base that result in increased
      costs to the Company and/or lost revenue opportunities.
    - Inability to attract and retain key employees.
    - Higher than targeted product costs and/or higher than expected declines
      in market pricing for new products.
    - Revenue shortfalls due to delays in securing new customer opportunities
      and the lack of long term purchase commitments from customers.
    - Revenue declines associated with the weakening US economy including
      spending prevailing exchange rate for US dollars to Canadian dollars
      may be below the Company's expected level for fiscal 2007.
    - 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.


                         March Networks Corporation
    -------------------------------------------------------------------------
               CONSOLIDATED STATEMENTS OF OPERATIONS  (CDN $)
    -------------------------------------------------------------------------
             (In thousands, except share and per-share amounts)
                                 (Unaudited)
    -------------------------------------------------------------------------
                            Fiscal Quarter Ended           Nine Months Ended
    -------------------------------------------------------------------------
                        January 31,   January 31,   January 31,   January 31,
                              2008          2007          2008          2007
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    REVENUE               $ 21,099      $ 18,678      $ 73,358      $ 67,805
    -------------------------------------------------------------------------
    COST OF REVENUE         12,189         9,516        42,472        31,175
    -------------------------------------------------------------------------
    GROSS MARGIN             8,910         9,162        30,886        36,630
    -------------------------------------------------------------------------
    EXPENSES:
    -------------------------------------------------------------------------
    Selling, marketing
     and support             3,952         3,944        11,923        11,994
    -------------------------------------------------------------------------
    Research and
     development             4,570         1,693        11,239         6,329
    -------------------------------------------------------------------------
    General and
     administrative          3,633         1,950        11,027         7,684
    -------------------------------------------------------------------------
    Stock based
     compensation              704           411         2,314         1,194
    -------------------------------------------------------------------------
    Amortization of
     acquired intangibles      137           137           411           303
    -------------------------------------------------------------------------
    Lawsuit settlement           -             -             -         2,263
    -------------------------------------------------------------------------
    Total expenses          12,996         8,135        36,914        29,767
    -------------------------------------------------------------------------
    EARNINGS (LOSS)
     BEFORE UNDERNOTED
     ITEMS                  (4,086)        1,027        (6,028)        6,863
    -------------------------------------------------------------------------
    Interest and other
     income, net             1,148           915         3,148         2,580
    -------------------------------------------------------------------------
    EARNINGS (LOSS)
     BEFORE INCOME TAXES
     AND DISCONTINUED
     OPERATIONS             (2,938)        1,942        (2,880)        9,443
    -------------------------------------------------------------------------
    Current income
     tax expense                 4           100            26           300
    -------------------------------------------------------------------------
    Future income tax
     expense                   157           796           485         3,884
    -------------------------------------------------------------------------
    NET EARNINGS (LOSS)
     FROM CONTINUING
     OPERATIONS             (3,099)        1,046        (3,391)        5,259
    -------------------------------------------------------------------------
    Discontinued
     operations                  -         1,140             -         1,225
    -------------------------------------------------------------------------
    NET EARNINGS (LOSS)   $ (3,099)     $  2,186      $ (3,391)     $  6,484
    -------------------------------------------------------------------------
    Net earnings (loss)
     per share:
    -------------------------------------------------------------------------
    Basic
      - from continuing
        operations        $  (0.18)     $   0.06      $  (0.20)     $   0.32
    -------------------------------------------------------------------------
      - from discontinued
        operations               -          0.07             -          0.07
    -------------------------------------------------------------------------
                          $  (0.18)     $   0.13      $  (0.20)     $   0.39
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Diluted
      - from continuing
        operations        $  (0.18)     $   0.06      $  (0.20)     $   0.29
    -------------------------------------------------------------------------
      - from discontinued
        operations               -          0.06             -          0.07
    -------------------------------------------------------------------------
                          $  (0.18)     $   0.12      $  (0.20)     $   0.36
    -------------------------------------------------------------------------
    Shares used in
     per-share
     calculation:
    -------------------------------------------------------------------------
    Basic               17,021,047    16,749,515    16,948,366    16,675,771
    -------------------------------------------------------------------------
    Diluted             17,979,730    17,977,179    17,971,829    17,971,095
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                         March Networks Corporation
    -------------------------------------------------------------------------
                     CONSOLIDATED BALANCE SHEETS (CDN $)
    -------------------------------------------------------------------------
                               (In thousands)
                                 (Unaudited)
    -------------------------------------------------------------------------
                                                    January 31,     April 30,
                                                          2008          2007
    -------------------------------------------------------------------------
    ASSETS
    -------------------------------------------------------------------------
    Current assets:
    -------------------------------------------------------------------------
    Cash and cash equivalents                        $   4,216     $   3,526
    -------------------------------------------------------------------------
    Short-term investments                              93,010        82,305
    -------------------------------------------------------------------------
    Restricted cash                                      3,262         2,775
    -------------------------------------------------------------------------
    Accounts receivable                                 14,961        19,396
    -------------------------------------------------------------------------
    Inventories                                         12,684        11,577
    -------------------------------------------------------------------------
    Prepaid expenses and other current assets            2,467         1,778
    -------------------------------------------------------------------------
    Future tax assets                                    4,026         2,198
    -------------------------------------------------------------------------
    Total current assets                               134,626       123,555
    -------------------------------------------------------------------------
    Restricted cash                                          -           833
    -------------------------------------------------------------------------
    Capital assets                                       2,211         2,720
    -------------------------------------------------------------------------
    Intangible assets                                    2,677         3,088
    -------------------------------------------------------------------------
    Future income taxes                                 20,161        21,975
    -------------------------------------------------------------------------
    Goodwill                                             5,397         5,397
    -------------------------------------------------------------------------
    TOTAL ASSETS                                     $ 165,072     $ 157,568
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS' EQUITY
    -------------------------------------------------------------------------
    Current liabilities:
    -------------------------------------------------------------------------
    Accounts payable                                 $  10,740     $   5,790
    -------------------------------------------------------------------------
    Accrued liabilities                                  8,774         4,337
    -------------------------------------------------------------------------
    Refundable royalty advance                           2,509         2,775
    -------------------------------------------------------------------------
    Acquisition escrow                                     753             -
    -------------------------------------------------------------------------
    Deferred revenue                                     3,891         7,560
    -------------------------------------------------------------------------
    Income taxes payable                                   447           467
    -------------------------------------------------------------------------
    Total current liabilities                           27,114        20,929
    -------------------------------------------------------------------------
    Acquisition escrow                                       -           833
    -------------------------------------------------------------------------
    Deferred revenue                                     8,877         5,881
    -------------------------------------------------------------------------
    Long term compensation                                 250             -
    -------------------------------------------------------------------------
    Total liabilities                                   36,241        27,643
    -------------------------------------------------------------------------
    Shareholders' equity                               128,831       129,925
    -------------------------------------------------------------------------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $ 165,072     $ 157,568
    -------------------------------------------------------------------------


                         March Networks Corporation
    -------------------------------------------------------------------------
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CDN $)
    -------------------------------------------------------------------------
                               (In thousands)
                                 (Unaudited)
    -------------------------------------------------------------------------
                                                        Nine Months Ended
    -------------------------------------------------------------------------
                                                    January 31,   January 31,
                                                          2008          2007
    -------------------------------------------------------------------------
    Cash flows from operating activities:
    -------------------------------------------------------------------------
    Net earnings - continuing operations             $  (3,391)    $   5,259
    -------------------------------------------------------------------------
    Net earnings - discontinued operations                   -         1,225
    -------------------------------------------------------------------------
    Items not affecting cash:
    -------------------------------------------------------------------------
    Amortization of capital assets                       1,003           651
    -------------------------------------------------------------------------
    Amortization of acquired intangibles                   411           303
    -------------------------------------------------------------------------
    Gain on sale of discontinued operations                  -        (1,221)
    -------------------------------------------------------------------------
    Stock based compensation                             2,314         1,194
    -------------------------------------------------------------------------
    Unrealized foreign exchange (gain)/ loss              (381)           50
    -------------------------------------------------------------------------
    Future income taxes and non-refundable
     investment tax credits                               (236)        3,935
    -------------------------------------------------------------------------
    Net change in non-cash items:
    -------------------------------------------------------------------------
      Continuing operations                             12,094        (5,408)
    -------------------------------------------------------------------------
      Discontinued operations                                -          (489)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net cash generated by operating activities          11,814         5,499
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash flows from investing activities:
    -------------------------------------------------------------------------
    (Purchase) redemption of short-term investments    (10,717)        1,026
    -------------------------------------------------------------------------
    Purchase of capital assets                            (494)       (2,073)
    -------------------------------------------------------------------------
    Acquisition of business                                  -        (8,316)
    -------------------------------------------------------------------------
    Proceeds from sale of discontinued operations            -         1,221
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net cash consumed by investing activities          (11,211)       (8,142)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash flows from financing activities:
    -------------------------------------------------------------------------
    Issuance of share capital, net                         173         2,681
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net cash generated by financing activities             173         2,681
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Increase in cash and cash equivalents -
     continuing operations                                 776          (698)
    -------------------------------------------------------------------------
    Decrease in cash and cash equivalents -
     discontinued operations                                 -           736
    -------------------------------------------------------------------------
    Net increase (decrease) in cash and
     cash equivalents                                      776            38
    -------------------------------------------------------------------------
    Foreign exchange loss on foreign cash and
     cash equivalents held                                 (86)           18
    -------------------------------------------------------------------------
    Cash and cash equivalents, beginning of period       3,526         3,292
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period         $   4,216     $   3,348
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    




For further information:

For further information: Peter Wilenius, VP Corporate Development, March
Networks Corporation, (613) 591-8181, pwilenius@marchnetworks.com

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