March Networks Announces Second Quarter Fiscal 2010 Financial Results

    
    Summary Operating Results:

    -------------------------------------------------------------------------
    $Cdn millions                                        Q1-Q2         Q1-Q2
     except EPS data       Q2 2010       Q2 2009          2010          2009
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Revenue                  $21.4         $28.3         $45.4         $56.1
    -------------------------------------------------------------------------
    Non-GAAP operating
     earnings (loss)*        0.0           1.0          $0.5          (0.2)
    -------------------------------------------------------------------------
    Net loss                 $(1.0)        $(1.0)        $(1.5)        $(3.5)
    -------------------------------------------------------------------------
    Loss per share          $(0.06)       $(0.06)       $(0.09)       $(0.20)
    -------------------------------------------------------------------------
    Cash and
     short-term
     investments             $51.0         $41.9         $51.0         $41.9
    -------------------------------------------------------------------------
    * Non-GAAP measure: earnings (loss) before stock based compensation,
        amortization of acquired intangibles, restructuring charges, interest
        and income taxes. This measure may not be comparable to similar
        measures used by other companies.
    

OTTAWA, Nov. 25 /CNW/ - March Networks(R) (TSX:MN), a global provider of intelligent IP video solutions, today announced financial results for the quarter and six months ended October 31, 2009. All figures are in Canadian dollars and in accordance with Canadian GAAP unless otherwise specified.

The Company's second quarter fiscal 2010 revenue was $21.4 million, representing a decrease of 24% as compared to revenue of $28.3 million in the second quarter of fiscal 2009. On a year-to-date basis, the Company's revenue of $45.4 million declined by 19% as compared to revenue of $56.1 million in the first six months of fiscal 2009.

The Company recorded non-GAAP operating earnings of $43,000 in the second quarter of fiscal 2010, representing a decline of $957,000 relative to the non-GAAP operating earnings of $1.0 million in the second quarter of fiscal 2009. Non-GAAP operating earnings during the first six months of fiscal 2010 improved by $664,000 to $496,000 from the non-GAAP operating loss of $168,000 incurred in the first six months of fiscal 2009.

The Company incurred a net loss in the second quarter of fiscal 2010 of $1.0 million, or $0.06 per share, which is equivalent to the net loss incurred in the second quarter of fiscal 2009. Net loss for the six months ended October 31, 2009 improved by $2.0 million to $1.5 million or $0.09 per share as compared to the net loss of $3.5 million or $0.20 per share in the six months ended October 31, 2008.

"The fundamentals of the business are sound, as evidenced by improved gross margin and lower operating expenses, so we expect improved profitability once revenue levels recover," said Peter Strom, President and CEO of March Networks.

    
    Second Quarter 2010 Financial Highlights

    -   Operating expenses down 11% and 19% in the second quarter and first
        six months of fiscal 2010 respectively, as compared to the same
        periods in fiscal 2009.

    -   Generated over $6 million in operating cash flow in the second
        quarter of 2010 including a $3.4 million reduction in inventory.

    -   Cash and short-term investments improved to $51.0 million.
    

"The Company's lower operating cost structure has allowed the Company to stay on course for improved profitability in fiscal 2010 despite the decline in revenue," said Ken Taylor, CFO of March Networks.

The Company will discuss the results on a conference call and webcast on Thursday, November 26, 2009 at 8:30 a.m. EST (1:30 p.m. GMT). The conference call may be accessed by dialing 1-800-814-4860 (North America) or +1 416-644-3414.

The conference call webcast can be accessed at:

http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2868580

A replay of the conference call will be available from November 26, 2009 at 10:30 a.m. EST until December 3, 2009 at 11:59 p.m. EST. The replay can be accessed at 1-877-289-8525 or +1 416-640-1917. The passcode for the replay is 4179939(followed by the number sign).

About March Networks

March Networks(R) (TSX:MN) is a global provider of intelligent IP video solutions. For close to a decade, the Company has helped some of the world's largest commercial and government organizations transition from traditional CCTV to networked video surveillance used for advanced security, loss prevention and risk mitigation. VideoSphere(R), the Company's enterprise-class video management portfolio, includes open-platform VMS software complemented by high-definition IP cameras, encoders, video analytics and recording platforms, as well as outstanding professional and managed services. March Networks systems are delivered through an extensive distribution and partner network and currently support over one million channels of video in more than 50 countries.

    
    -------------------------------------------------------------------------
    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:

    -   Under-stable economic conditions, the market for the Company's
        products will grow by greater than 10% annually.
    -   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 fiscal 2010 exchange rates for US dollars and Euros to
        Canadian dollars will be US$1.00=CDN$1.10 and Euro 1(equal
        sign)CDN$1.60.
    -   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 investments in certain international markets will
        contribute to near-term profitability.
    -   Annual operating expenses, excluding stock-based compensation and
        amortization of acquired intangibles, will approximate fiscal 2009
        levels.
    -   The Company will have adequate component supply to meet customer
        demand.
    -   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:

    -   The Company's ability to forecast revenue and profitability is
        impaired by unexpected delays in closing large projects in its sales
        pipeline; increased pricing pressure; and instability in the global
        economic environment leading to higher potential for delay or
        cancellation of sales opportunities.
    -   Shifts in value of the Canadian dollar relative to billing
        currencies.
    -   Weaker than expected success versus competitors in new customer and
        vertical market opportunities and/or loss of existing customers to
        competitors.
    -   Delays in product development programs for new products and new
        product features which lead to cost overruns and /or missed customer
        opportunities.
    -   The Company may experience difficulty in developing the sales
        channels, technology partnerships and support infrastructure required
        to compete successfully in new vertical markets.
    -   Higher than targeted product costs and/or higher than expected
        declines in market pricing for the Company's products.
    -   Product issues that result in increased costs to the Company and/or
        lost revenue opportunities.
    -   Changes in the mix of revenues between fixed and mobile
        transportation solutions.
    -   The Company may have to write down the value of certain future tax
        assets if it is unable to demonstrate its ability to generate
        sufficient future profits to realize the value of these assets.

    Additional risks are discussed herein and under "Risk Factors" in the
Company's Annual Information Form available online at www.sedar.com.
    -------------------------------------------------------------------------

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


                         March Networks Corporation
    -------------------------------------------------------------------------
                    CONSOLIDATED STATEMENTS OF OPERATIONS
    -------------------------------------------------------------------------
    (Canadian 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,
                           2009          2008          2009          2008
    -------------------------------------------------------------------------
    REVENUE             $   21,372    $   28,276    $   45,386    $   56,080
    -------------------------------------------------------------------------
    Cost of revenue         11,285        16,041        25,243        30,926
    -------------------------------------------------------------------------
    Contract losses              -             -             -         1,187
    -------------------------------------------------------------------------
    GROSS MARGIN            10,087        12,235        20,143        23,967
    -------------------------------------------------------------------------
    EXPENSES:
    -------------------------------------------------------------------------
    Selling, marketing
     and support             4,915         5,063        10,057         9,917
    -------------------------------------------------------------------------
    Research and
     development             2,674         3,509         5,105         7,552
    -------------------------------------------------------------------------
    General and
     administrative          2,455         2,663         4,485         6,666
    -------------------------------------------------------------------------
    Stock based
     compensation              534           279           791           763
    -------------------------------------------------------------------------
    Amortization of
     acquired
     intangible assets         892           933         1,795         1,859
    -------------------------------------------------------------------------
    Restructuring costs          -         1,419             -         1,419
    -------------------------------------------------------------------------
    Total expenses          11,470        13,866        22,233        28,176
    -------------------------------------------------------------------------
    LOSS BEFORE
     UNDERNOTED ITEMS       (1,383)       (1,631)       (2,090)       (4,209)
    -------------------------------------------------------------------------
    Interest and other
     income, net               148           310           164           704
    -------------------------------------------------------------------------
    LOSS BEFORE INCOME
     TAXES                  (1,235)       (1,321)       (1,926)       (3,505)
    -------------------------------------------------------------------------
    Current income tax
     expense                    23          (320)           61            (7)
    -------------------------------------------------------------------------
    Future income tax
     expense                  (240)           20          (480)          (29)
    -------------------------------------------------------------------------
    NET LOSS            $   (1,018)   $   (1,021)   $   (1,507)   $   (3,469)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Loss per share:
    -------------------------------------------------------------------------
    Basic               $    (0.06)   $    (0.06)   $    (0.09)   $    (0.20)
    -------------------------------------------------------------------------
    Diluted             $    (0.06)   $    (0.06)   $    (0.09)   $    (0.20)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Shares used in
     per-share
     calculation:
    -------------------------------------------------------------------------
    Basic               17,200,594    17,480,295    17,198,927    17,712,643
    -------------------------------------------------------------------------



                         March Networks Corporation
    -------------------------------------------------------------------------
                         CONSOLIDATED BALANCE SHEETS
    -------------------------------------------------------------------------
                   (Canadian dollars, amounts in thousands)
                                 (Unaudited)
    -------------------------------------------------------------------------
                                                    October 31,    April 30,
                                                       2009          2009
    -------------------------------------------------------------------------
    ASSETS
    -------------------------------------------------------------------------
    Current assets:
    -------------------------------------------------------------------------
    Cash and cash equivalents                       $   12,566    $   10,126
    -------------------------------------------------------------------------
    Short-term investments                              38,464        40,740
    -------------------------------------------------------------------------
    Accounts receivable                                 15,535        14,892
    -------------------------------------------------------------------------
    Inventories                                         19,148        23,932
    -------------------------------------------------------------------------
    Prepaid expenses and other current assets            3,286         4,040
    -------------------------------------------------------------------------
    Future tax assets                                    5,131         5,128
    -------------------------------------------------------------------------
    Total current assets                                94,130        98,858
    -------------------------------------------------------------------------
    Capital assets                                       5,669         5,962
    -------------------------------------------------------------------------
    Intangible assets                                   11,555        12,909
    -------------------------------------------------------------------------
    Future tax assets                                   15,132        15,646
    -------------------------------------------------------------------------
    Investment tax credits                               7,105         6,505
    -------------------------------------------------------------------------
    Goodwill                                            22,429        22,429
    -------------------------------------------------------------------------
    TOTAL ASSETS                                    $  156,020    $  162,309
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS' EQUITY
    -------------------------------------------------------------------------
    Current liabilities:
    -------------------------------------------------------------------------
    Accounts payable                                $    8,015    $   12,004
    -------------------------------------------------------------------------
    Accrued liabilities                                  7,314         7,328
    -------------------------------------------------------------------------
    Deferred revenue                                     8,393         7,851
    -------------------------------------------------------------------------
    Deferred leasehold inducement                          132           132
    -------------------------------------------------------------------------
    Income taxes payable                                   105           390
    -------------------------------------------------------------------------
    Total current liabilities                           23,959        27,705
    -------------------------------------------------------------------------
    Deferred revenue                                     6,806         8,239
    -------------------------------------------------------------------------
    Deferred leasehold inducement                        1,034         1,100
    -------------------------------------------------------------------------
    Long term compensation                                 848           666
    -------------------------------------------------------------------------
    Future tax liabilities                               2,847         3,330
    -------------------------------------------------------------------------
    Total liabilities                                   35,494        41,040
    -------------------------------------------------------------------------
    Shareholders' equity                               120,526       121,269
    -------------------------------------------------------------------------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      $  156,020    $  162,309
    -------------------------------------------------------------------------



                         March Networks Corporation
    -------------------------------------------------------------------------
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
    -------------------------------------------------------------------------
                   (Canadian dollars, amounts in thousands)
                                 (Unaudited)
    -------------------------------------------------------------------------
                           Three Months Ended            Six Months Ended
    -------------------------------------------------------------------------
                        October 31,   October 31,   October 31,   October 31,
                           2009          2008          2009          2008
    -------------------------------------------------------------------------
    Cash flows from
     operating
     activities:
    -------------------------------------------------------------------------
    Net loss            $   (1,018)   $   (1,021)   $   (1,507)   $   (3,469)
    -------------------------------------------------------------------------
    Items not
     affecting
     cash:
    -------------------------------------------------------------------------
    Amortization of
     capital and
     intangible
     assets                    443           698           841         1,089
    -------------------------------------------------------------------------
    Amortization of
     intangible
     assets
     related to
     business
     acquisitions              892           933         1,795         1,859
    -------------------------------------------------------------------------
    Stock based
     compensation
     and shares
     issued to
     directors                 534           316           791           817
    -------------------------------------------------------------------------
    Unrealized foreign
     exchange (gain)/
     loss                      123           555          (486)          660
    -------------------------------------------------------------------------
    Future income
     taxes and non-
     refundable
     investment
     tax credits              (541)          258        (1,078)          (37)
    -------------------------------------------------------------------------
    Net change in
     non-cash items          5,619        (3,294)          930       (14,089)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net cash consumed
     by operating
     activities              6,052        (1,555)        1,286       (13,170)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Cash flows from
     investing
     activities:
    -------------------------------------------------------------------------
    Redemption
     (purchase) of
     short-term
     investments              (194)        7,861         2,277        23,624
    -------------------------------------------------------------------------
    Purchase of
     capital and
     intangible assets        (361)       (2,796)         (898)       (3,446)
    -------------------------------------------------------------------------
    Acquisition of
     business                    -           (41)            -          (699)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net cash
     generated by
     investing
     activities               (555)        5,024         1,379        19,479
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Cash flows from
     financing
     activities:
    -------------------------------------------------------------------------
    Issuance
     (repurchase)
     of share capital,
     net                         -        (2,659)            9        (4,628)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net cash
     generated
     (consumed) by
     financing
     activities                  -        (2,659)            9        (4,628)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net increase in
     cash                    5,497           810         2,674         1,681
    -------------------------------------------------------------------------
    Foreign exchange
     gain (loss) on
     foreign cash
     held                        8           325          (234)          397
    -------------------------------------------------------------------------
    Cash, beginning
     of period               7,061         5,130        10,126         4,187
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash, end of
     period             $   12,566    $    6,265    $   12,566    $    6,265
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE March Networks Corporation

For further information: For further information: March Networks Corporation, Ken Taylor, Chief Financial Officer, (613) 591-8181, Email: ktaylor@marchnetworks.com

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March Networks Corporation

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