March Networks Announces First Quarter 2009 Financial Results



    
    Summary Operating Results:

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    $Cdn millions
     except EPS data                      Q1 '09        Q4 '08        Q1 '08
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    Revenue                               $ 27.8        $ 21.1        $ 24.5
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    Operating earnings(*)                   (1.2)(xx)     (4.1)          0.9
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    Net earnings (loss)                   $ (2.4)       $ (3.1)       $  0.4
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    Diluted earnings (loss) per share     $(0.14)       $(0.18)       $ 0.02
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    (*)  Non-GAAP measure: earnings (loss) before stock based compensation,
         amortization of acquired intangibles, interest and income taxes.
         This measure may not be comparable to similar measures used by other
         companies.
    (xx) Includes $1.2 million provision for potential contract losses.
    

    OTTAWA, Aug. 27 /CNW Telbec/ - March Networks(TM) (TSX:MN), a leading
provider of innovative video and data applications used for security
surveillance, monitoring, analysis and business optimization, today announced
financial results for the first quarter ended July 31, 2008. All figures in
Canadian dollars and in accordance with Canadian GAAP unless otherwise
specified.
    The Company achieved record revenue of $27.8 million in the first quarter
of fiscal 2009 representing an increase of 13% as compared to revenue of
$24.5 million in the first quarter of fiscal 2008 and an increase of 32% as
compared to the fourth quarter of fiscal 2008.
    Non-GAAP operating earnings for the quarter reflected a loss of
$1.2 million which represents a $2.9 million improvement from the $4.1 million
loss incurred in the fourth quarter of fiscal 2008 and a $2.1 million decline
from operating earnings of $945,000 in the first quarter of fiscal 2008. The
Company's first quarter fiscal 2009 operating earnings include a $1.2 million
provision for contract losses on passenger rail projects that will be
delivered over fiscal years 2009 through 2015. Negotiations continue with the
customer to mitigate these losses.
    The Company incurred a net loss in the first quarter of fiscal 2009 of
$2.4 million or $0.14 per diluted share as compared to a net loss of
$3.1 million or $0.18 per diluted share in the fourth quarter of fiscal 2008
and net earnings of $374,000 or $0.02 per share in the first quarter of fiscal
2008.
    "Q1 was great start to the fiscal year highlighted by exceptional global
growth and continued diversification of our customer base" said Peter Strom,
President and Chief Executive Officer.

    
    Financial Highlights

    - Revenue excluding the Company's largest customer was up 57% as compared
      to the first quarter of fiscal 2008 and 28% as compared to the fourth
      quarter of fiscal 2008.

    - Record level of international revenue representing 35% of total revenue
      as compared to 16% in the same quarter last fiscal year.

    - Operating earnings improved by 72% as compared to the fourth quarter of
      fiscal 2008.

    - Company repurchased over 600,000 common shares to date under the Normal
      Course Issuer Bid at an average price of approximately $4.84 per share.

    "The Company's first quarter results are an early indication that the
Company is on track to achieving its revenue and operating cost structure
objectives for fiscal 2009", said Ken Taylor, CFO of March Networks. "The
Company is addressing a lower than expected Q1 gross margin level with product
cost reduction initiatives and has recently completed a staff reduction to
keep the Company in line with its operating earnings expectations."

    Business Outlook

    The Company's revenue expectations for the fiscal year ending April 30,
2009 are in the range of $100 million to $115 million.
    The Company's expectations of operating earnings for fiscal 2009 are in
the range of $0.5 million to $5 million. Operating earnings is a non-GAAP
measure that the Company uses to evaluate its performance in order to
emphasize cash flow impacting operating activities. The Company defines this
measure as earnings before interest, taxes, amortization of acquired
intangibles and stock based compensation expense. This measure may not be
comparable to similar measures used by other companies.

    The Company will release its first quarter of fiscal 2009 financial
results on August 27, 2008 and will discuss the results on a conference call
and webcast on August 28, 2008 at 8:30 a.m. EDT (1:30 p.m. GMT). The
conference call may be accessed by dialing 1-800-732-9303 (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=2386120
    A replay of the conference call will be available from August 28, 2008 at
10:30 a.m. EDT until September 4, 2008 at 11:59 p.m. EDT. The replay can be
accessed at 1-877-289-8525 or 416-640-1917. The passcode for the replay is
21280761#.

    About March Networks

    March Networks(TM) (TSX:MN) 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.

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    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 concentration with any end user customer will not
      exceed 10% in fiscal 2009.
    - 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 as a percentage of revenue in fiscal 2009
      will improve relative to fiscal 2008.
    - The Company will lower its operating cost structure as a percentage of
      revenue relative to fiscal 2008.
    - The prevailing exchange rate for US dollars and Euros to
      Canadian dollars will be US$1.00=CDN$1.00 and
      Euro 1=CDN$1.50.
    - 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:

    - Higher than targeted product costs and/or higher than expected declines
      in market pricing for the Company's products.
    - 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 success versus competitors in new customer
      opportunities and/or loss of existing customers to competitors.
    - Revenue shortfalls due to delays in securing new customer opportunities
      and the lack of long term purchase commitments from customers.
    - Slower than expected customer adoption of the Company's new product and
      service offerings.
    - Product issues that result in increased costs to the Company and/or
      lost revenue opportunities.
    - Difficulties integrating acquired business operations and related
      diversion of management attention.
    - Reduced customer spending associated with the impact of deteriorating
      economic conditions and increasing fuel prices.

    Additional risks are discussed under "Risk Factors" in the Company's
Annual Information Form available online at www.sedar.com.
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    (*) 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
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                    CONSOLIDATED STATEMENTS OF OPERATIONS
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    (Canadian dollars, amounts in thousands, except share and per-share data)
                                 (Unaudited)
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                                                          Three Months Ended
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                                                       July 31,      July 31,
                                                          2008          2007
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    REVENUE                                           $ 27,804      $ 24,546
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    COST OF REVENUE                                     14,885        13,317
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    PROVISION FOR CONTRACT LOSSES                        1,187             -
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    GROSS MARGIN                                        11,732        11,229
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    EXPENSES:
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    Selling, marketing and support                       4,854         4,022
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    Research and development                             4,043         2,964
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    General and administrative                           4,003         3,298
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    Stock based compensation                               484           805
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    Amortization of acquired intangibles                   926           137
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    Total expenses                                      14,310        11,226
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    EARNINGS (LOSS) BEFORE UNDERNOTED ITEMS             (2,578)            3
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    Interest and other income, net                         394           927
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    EARNINGS (LOSS) BEFORE INCOME TAXES AND
     DISCONTINUED OPERATIONS                            (2,184)          930
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    Current income tax expense                             313             -
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    Future income tax expense                              (49)          556
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    NET EARNINGS (LOSS)                               $ (2,448)     $    374
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    Net earnings (loss) per share:
    -------------------------------------------------------------------------
    Basic                                             $  (0.14)     $   0.02
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    Diluted                                           $  (0.14)     $   0.02
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    Shares used in per-share calculation:
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    Basic                                           17,974,854    16,875,685
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    Diluted                                         18,712,445    17,983,992
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                         March Networks Corporation
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                         CONSOLIDATED BALANCE SHEETS
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                   (Canadian dollars, amounts in thousands)
                                 (Unaudited)
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                                                       July 31,     April 30,
                                                          2008          2008
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    ASSETS
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    Current assets:
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    Cash                                              $  5,130      $  4,187
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    Short-term investments                              43,446        59,209
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    Restricted cash                                      2,450         2,410
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    Accounts receivable                                 22,219        15,432
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    Inventories                                         26,060        22,220
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    Prepaid expenses and other current assets            1,998         2,982
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    Future tax assets                                    4,690         4,556
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    Total current assets                               105,993       110,996
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    Capital assets                                       2,762         2,492
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    Intangible assets                                   15,450        16,377
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    Future tax assets                                   21,052        21,081
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    Goodwill                                            22,126        22,048
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    TOTAL ASSETS                                      $167,383      $172,994

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    LIABILITIES AND SHAREHOLDERS' EQUITY

    -------------------------------------------------------------------------
    Current liabilities:
    -------------------------------------------------------------------------
    Accounts payable                                  $ 12,216      $ 11,576
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    Accrued liabilities                                  8,431        10,236
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    Refundable royalty advance                           2,450         2,410
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    Deferred revenue                                     2,498         3,329
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    Income taxes payable                                   421           422
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    Total current liabilities                           26,016        27,973
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    Deferred revenue                                     9,476         9,048
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    Long term compensation                                 443           451
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    Future tax liabilities                               4,097         4,362
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    Total liabilities                                   40,032        41,834
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    Shareholders' equity                               127,351       131,160
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    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY        $167,383      $172,994

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                         March Networks Corporation
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                    CONSOLIDATED STATEMENTS OF CASH FLOWS
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                   (Canadian dollars, amounts in thousands)
                                 (Unaudited)
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                                                          Three Months Ended
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                                                       July 31,      July 31,
                                                          2008          2007
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    Cash flows from operating activities:
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    Net earnings - continuing operations              $ (2,448)     $    374
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    Items not affecting cash:
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    Amortization of capital assets                         391           325
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    Amortization of acquired intangibles                   926           137
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    Stock based compensation                               484           805
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    Unrealized foreign exchange (gain)/ loss               105          (134)
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    Future income taxes and non-refundable
     investment tax credits                               (295)          336
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    Net change non-cash items                          (10,795)        3,965
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    Net cash generated (consumed) by
     operating activities                              (11,632)        5,808
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    Cash flows from investing activities:
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    Redemption (purchase) of short-term investments     15,763        (5,289)
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    Purchase of capital assets                            (650)         (125)
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    Acquisition of business                               (658)            -
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    Net cash generated (consumed) by
     investing activities                               14,455        (5,414)
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    Cash flows from financing activities:
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    Issuance (repurchase) of share capital, net         (1,952)           52
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    Net cash generated (consumed) by financing
     activities                                         (1,952)           52
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    Net increase in cash                                   871           446
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    Foreign exchange gain (loss) on foreign
     cash held                                              72           (23)
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    Cash, beginning of period                            4,187         3,526
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    Cash, end of period                               $  5,130      $  3,949
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For further information:

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

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March Networks Corporation

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