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Vecima Reports Q1 Fiscal 2024 Results

  • Revenue: $61.5M, Gross Profit: $28.8M, Adjusted EBITDA: $8.1M
  • Gross Margin: 47%, Adjusted Gross Margin: 48%
  • Content Delivery and Storage Segment Grows Revenue 43% YoY to $15.7M
  • Engagements for Entra Cable & Fiber Access now span 158 unique program opportunities across 108 service provider customers globally
  • Highly successful showcase at SCTE Cable-Tec Expo 2023, the industry’s largest tradeshow, with Entra ERM3 winning 5 Diamonds, the highest rating, at BTR’s Diamond Technology Awards

Vecima Networks Inc. (TSX: VCM) today reported financial results for the three months ended September 30, 2023.

FINANCIAL HIGHLIGHTS

(Canadian dollars in millions except percentages, employees, and per share data)

Q1FY24

Q4FY23

 

Q1FY23

Revenue

$61.5

$75.5

 

$73.4

Gross Margin

46.9%

50.5%

 

45.9%

Net Income

$1.7

$5.1

 

$9.5

Earnings Per Share1

$0.07

$0.21

 

$0.41

Adjusted Gross Margin2

47.9%

50.5%

 

45.9%

Adjusted Earnings Per Share1,2,3,4,5

$0.09

$0.25

 

$0.41

Adjusted EBITDA3

$8.1

$15.1

 

$17.2

Employees

591

602

 

607

1 Based on weighted average number of shares outstanding.

2 Adjusted Gross Margin, Adjusted Earnings Per Share, and Adjusted EBITDA do not have a standardized meaning under IFRS and therefore may not be comparable to similar measures provided by other issuers. See “Adjusted Gross Margin, Adjusted EBITDA, and Adjusted Earnings Per Share” below.

3 Starting in Q4 fiscal 2019, we have changed our definition and calculation of Adjusted Earnings Per Share. For a reconciliation of Adjusted Earnings Per Share, investors should refer to Vecima’s Management’s Discussion and Analysis for the first quarter of fiscal 2024.

4 Adjusted Earnings Per Share includes non-cash share-based compensation of $0.3 million or $0.01 per share for the three months ended September 30, 2023, and $0.1 million or $nil per share for the three months ended September 30, 2022.The non-cash share-based compensation primarily reflects certain performance-based vesting thresholds achieved under the Company’s Performance Share Unit Plan.

5 Adjusted Earnings Per Share includes foreign exchange loss of $0.6 million or $0.02 per share for the three months ended September 30, 2023, and $1.3 million or $0.06 per share for the three months ended September 30, 2022.

“Vecima performed well in the first quarter as we achieved positive operating results and generated year-over-year revenue growth in our Content Delivery and Storage and Telematics segments, while weathering the anticipated temporary slowdown in Entra distributed access architecture (DAA) product deliveries,” said Sumit Kumar, Vecima’s President and Chief Executive Officer.

“As we noted in our fourth quarter report, we successfully managed major constraints in the supply chain during fiscal 2023 to fulfill strong DAA deliveries in support of our customers’ ongoing major network upgrade projects. Correspondingly, customers have now temporarily shifted from building up their product pipelines to managing their DAA rollout logistics, expanding field deployment activity, and working through existing inventories. We anticipate renewed Entra sales growth in the second half of fiscal 2024 as customers bring inventories into balance while initiating new programs and deployments alike. These encompass additional DAA launches and project ramp-ups with key customers, including a major ERM3 rollout to support a Tier 1 customer’s network evolution to 10G.”

“In our Content Delivery and Storage segment, first quarter sales grew 43% to $15.7 million, reflecting both the growing base of customers for our IPTV solutions and expansions with a number of these customers during the period. Paired with strong gross margin performance of 58.5%, our CDS segment enjoyed an excellent start to fiscal 2024,” added Mr. Kumar.

“Operationally, we continued to focus on tightly managing the business to achieve efficiently lower operating expenses while continuing to advance our technologies and industry leadership with robust R&D investment. We ended the first quarter in a strong financial position, with an unparalleled portfolio of next-generation solutions, a veritable war chest of customer program-aligned DAA product inventory, and a growing base of customers that are effecting a widescale migration to next-generation networks globally using our products. While the timing of our customers’ rollouts may naturally vary, we see multiple pathways for growth coalescing as the year progresses and translating into the next wave of revenue momentum in the latter half of fiscal 2024,” said Mr. Kumar.

BUSINESS HIGHLIGHTS

Financial and Corporate

  • First quarter revenue of $61.5 million as compared to $73.4 million in Q1 fiscal 2023.
  • Achieved gross profit of $28.8 million, as compared to $33.7 million in Q1 fiscal 2023.
  • Gross margin and adjusted gross margin increased to 46.9% and 47.9%, respectively, from 45.9% in the prior-year period.
  • Adjusted EBITDA was $8.1 million, as compared to $17.2 million in Q1 fiscal 2023.
  • EPS and Adjusted EPS were $0.07 and $0.09 per share, respectively, as compared to EPS and Adjusted EPS of $0.41 per share in Q1 fiscal 2023.
  • Ended the first quarter in strong financial position with working capital of $79.0 million at September 30, 2023, compared to $83.7 million at June 30, 2023.

Video and Broadband Solutions (VBS)

The Video and Broadband Solutions segment contributed first quarter sales of $44.1 million, as compared to $61.0 million in Q1 fiscal 2023 and $57.0 million in Q4 fiscal 2023.

DAA (Entra Family)

  • Next-generation Entra product sales of $38.8 million were in line with expectations and compared to $53.0 million in Q1 fiscal 2023 and $50.7 million in Q4 fiscal 2023.

Notable first quarter DAA achievements:

  • An increase in total customer engagements to 108 MSOs worldwide, from 95 a year earlier. Fifty-one of these customers are ordering Entra products, with order sizes increasing as broader DAA deployment continues.
    • Customers engaged for cable access now number 62.
    • Customers engaged for fiber access or both access technologies now number 46.
  • Vecima supported Orion Cable’s broadband expansion with a scalable, quick-to-deploy and turnkey remote MACPHY solution that drives value through partnership with the customer and supports unique needs for flexible, open, and interoperable broadband access networks.
  • Executed warrant agreement with Charter Communications Holding Company, LLC as disclosed and further discussed in our press release dated September 11, 2023.

Achievements subsequent to the quarter-end:

  • Participated in the SCTE Cable-Tec Expo 2023, a major industry show, demonstrating recent innovations in Vecima’s Remote PHY, Access Nodes, PON, Open CDN, Dynamic Content and TruLiveTM product lines. Vecima’s technology was a key focus for industry decision-makers where interest in our expansive portfolio was prominent and unparalleled.
  • Entra ERM3 Remote PHY device was honoured with five diamonds in the 2023 BTR Diamond Technology Reviews Awards. The ERM3 RPD helps operators upgrade legacy HFC nodes to DAA quickly and cost-effectively, while dramatically increasing broadband capacity.
  • Announced availability of Vecima’s DOCSIS 4.0-Ready and 1.8 GHz ‘Forever Nodes’ which provide a clear and cost-effective path to 10G by supporting DAA today while also supporting future technologies, including DOCSIS 4.0 and Remote Optical Line Terminal (OLT) applications.

Commercial Video (Terrace Family)

  • Commercial Video products contributed $5.3 million to first quarter VBS sales, as compared to $7.3 million in Q1 fiscal 2023 and $6.3 million in Q4 fiscal 2023. The year-over-year change reflects the transition to next-generation platforms and the impact of some of Vecima’s newer DAA-driven Commercial Video solutions being accounted for as part of Entra family sales.

Content Delivery and Storage (CDS)

  • First quarter CDS segment sales grew 43% to $15.7 million, from $11.0 million in Q1 fiscal 2023. This included a 56% increase in product sales and a 24% increase in services revenue. On a sequential quarterly basis, CDS sales were 8% lower than the record $17.1 million performance achieved in Q4 fiscal 2023.
  • CDS gross margin increased to 58.5%, from 54.5% in Q1 fiscal 2023 and 53.8% in Q4 fiscal 2023.
  • Subsequent to the quarter-end, announced an engagement with Blue Ridge Communications to support this customer’s video expansion. Blue Ridge has engaged Vecima’s professional services team to provide assisted operations support utilizing proprietary tools to remotely monitor Blue Ridge’s IP video network for issues, while maximizing system up-time and operating efficiency.

Telematics

  • First quarter Telematics sales grew approximately 14% to $1.6 million, from $1.4 million in both Q1 fiscal 2023 and Q4 fiscal 2023.
  • Generated additional deployments in high-value verticals, including municipal government and moveable asset customers.
  • Achieved our best quarter to date for additions of new moveable asset subscriptions, adding 14 new customers to the NERO asset tracking platform, and significantly increasing the number of moveable assets being monitored to over 57,000 units.
  • Achieved strong gross margin percentage of 64.9%.

“Moving forward, Vecima’s long-term outlook remains exceptionally compelling,” added Mr. Kumar. “We are continuing to demonstrate the full deployment potential of our technologies as we support our customers’ wide-scale network transformations and repeatedly break new ground in ultra-high-speed connectivity. We are advancing further from a global leadership position and remain highly confident in our ability to capture the major and multi-year opportunities in the large DAA and IPTV markets.”

As previously reported, Vecima’s Board of Directors declared a quarterly dividend of $0.055 per share for the period. The dividend will be payable on December 18, 2023 to shareholders of record as at November 24, 2023.

CONFERENCE CALL

A conference call and live audio webcast will be held today, November 9, 2023 at 1 p.m. ET to discuss the Company’s first quarter results. Vecima’s unaudited interim condensed consolidated financial statements and management’s discussion and analysis for the three months ended September 30, 2023 are available under the Company’s profile at www.sedarplus.ca, and at https://vecima.com/investor-relations/financial-reports/.

To participate in the teleconference, dial 1-800-319-4610 or 1-604-638-9020. The webcast will be available in real time at http://services.choruscall.ca/links/vecima2024q1.html and will be archived on the Vecima website at https://vecima.com/investor-relations/earnings-call-archive/.

About Vecima Networks

Vecima Networks Inc. (TSX: VCM) is leading the global evolution to the multi-gigabit, content-rich networks of the future. Our talented people deliver future-ready software, services, and integrated platforms that power broadband and video streaming networks, monitor and manage transportation, and transform experiences in homes, businesses, and everywhere people connect. We help our customers evolve their networks with cloud-based solutions that deliver ground-breaking speed, superior video quality, and exciting new services to their subscribers. There is power in connectivity – it enables people, businesses, and communities to grow and thrive. Learn more at www.vecima.com.

Adjusted Gross Margin, Adjusted EBITDA, and Adjusted Earnings Per Share

Adjusted Gross Margin, Adjusted EBITDA, and Adjusted Earnings Per Share do not have a standardized meaning under IFRS and therefore may not be comparable to similar measures provided by other issuers. Accordingly, investors are cautioned that Adjusted Gross Margin, Adjusted EBITDA, or Adjusted Earnings Per Share should not be construed as an alternative to net income, determined in accordance with IFRS, as an indicator of the Company’s financial performance or as a measure of its liquidity and cash flows. For a reconciliation of Adjusted Gross Margin, Adjusted EBITDA, or Adjusted Earnings (Per Share, investors should refer to Vecima’s Management’s Discussion and Analysis for the first quarter of fiscal 2024.

Forward-Looking Statements

This news release contains “forward-looking information” within the meaning of applicable securities laws. Forward-looking information is generally identifiable by use of the words “believes”, “may”, “plans”, “will”, “anticipates”, “intends”, “could”, “estimates”, “expects”, “forecasts”, “projects” and similar expressions, and the negative of such expressions. Forward-looking information in this news release includes the following statements: Vecima performed well in the first quarter as we achieved positive operating results and generated year-over-year revenue growth in our Content Delivery and Storage and Telematics segments, while weathering the anticipated temporary slowdown in Entra distributed access architecture (DAA) product deliveries; we anticipate renewed Entra sales growth in the second half of fiscal 2024 as customers bring inventories into balance while initiating new programs and deployments alike; while the timing of our customers’ rollouts may naturally vary, we see multiple pathways for growth coalescing as the year progresses and translating into the next wave of revenue momentum in the latter half of fiscal 2024; moving forward, Vecima’s long-term outlook remains exceptionally compelling; we are advancing further from a global leadership position and remain highly confident in our ability to capture the major and multi-year opportunities in the large DAA and IPTV markets.

A more complete discussion of the risks and uncertainties facing Vecima is disclosed under the heading “Risk Factors” in the Company’s Annual Information Form dated September 21, 2023, as well as the Company’s continuous disclosure filings with Canadian securities regulatory authorities available at www.sedarplus.ca. All forward-looking information herein is qualified in its entirety by this cautionary statement, and Vecima disclaims any obligation to revise or update any such forward-looking information or to publicly announce the result of any revisions to any of the forward-looking information contained herein to reflect future results, events or developments, except as required by law.

VECIMA NETWORKS INC.

Interim Condensed Consolidated Statements of Financial Position

(unaudited - in thousands of Canadian dollars)

 

As at

 

 

 

September 30, 2023

 

June 30, 2023

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

2,292

$

2,278

Accounts receivable

 

 

 

50,136

 

57,662

Income tax receivable

 

 

 

532

 

530

Inventories

 

 

 

137,004

 

101,601

Prepaid expenses and other current assets

 

 

 

5,977

 

13,695

Contract assets

 

 

 

1,805

 

2,707

Total current assets

 

 

 

197,746

 

178,473

Non-current assets

 

 

 

 

 

 

Property, plant and equipment

 

 

 

15,683

 

15,683

Right-of-use assets

 

 

 

2,044

 

2,364

Goodwill

 

 

 

15,188

 

15,049

Intangible assets

 

 

 

85,872

 

82,991

Investment tax credits

 

 

 

24,151

 

24,252

Deferred tax assets

 

 

 

15,004

 

11,576

Other long-term assets

 

 

 

2,119

 

1,298

Total assets

 

 

$

357,807

$

331,686

Liabilities and shareholders’ equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Revolving line of credit

 

 

$

19,677

$

20,513

Accounts payable and accrued liabilities

 

 

 

73,942

 

47,162

Provisions

 

 

 

772

 

1,978

Income tax payable

 

 

 

8,858

 

7,808

Deferred revenue

 

 

 

11,875

 

15,086

Current portion of financial liability

 

 

 

515

 

-

Current portion of long-term debt

 

 

 

1,796

 

2,260

Dividend payable

 

 

 

1,336

 

-

Total current liabilities

 

 

 

118,771

 

94,807

Non-current liabilities

 

 

 

 

 

 

Provisions

 

 

 

373

 

387

Deferred revenue

 

 

 

4,238

 

4,716

Long-term portion of financial liability

 

 

 

1,100

 

-

Long-term debt

 

 

 

13,950

 

14,123

Total liabilities

 

 

 

138,432

 

114,033

Shareholders’ equity

 

 

 

 

 

 

Share capital

 

 

 

23,997

 

23,997

Reserves

 

 

 

3,367

 

3,111

Retained earnings

 

 

 

191,419

 

190,926

Accumulated other comprehensive loss

 

 

 

592

 

(381)

Total shareholders’ equity

 

 

 

219,375

 

217,653

Total liabilities and shareholders’ equity

 

 

$

357,807

$

331,686

VECIMA NETWORKS INC.

Interim Condensed Consolidated Statements of Comprehensive Income

(unaudited - in thousands of Canadian dollars, except per share amounts)

Three months ended September 30,

 

 

 

 

2023

 

2022

Sales

 

 

$

61,478

$

73,447

Cost of sales

 

 

 

32,665

 

39,706

Gross profit

 

 

 

28,813

 

33,741

Operating expenses

 

 

 

 

 

 

Research and development

 

 

 

10,296

 

10,705

Sales and marketing

 

 

 

7,429

 

6,304

General and administrative

 

 

 

7,973

 

5,594

Share-based compensation

 

 

 

256

 

98

Other expense

 

 

 

170

 

21

Total operating expenses

 

 

 

26,124

 

22,722

Operating income

 

 

 

2,689

 

11,019

Finance expense

 

 

 

(700)

 

(201)

Foreign exchange gain (loss)

 

 

 

(584)

 

1,302

Income before income taxes

 

 

 

1,405

 

12,120

Income tax expense (recovery)

 

 

 

(340)

 

2,608

Net income

 

 

$

1,745

$

9,512

Other comprehensive income

 

 

 

 

 

 

Item that may be subsequently reclassed to net income

 

 

 

 

 

 

Exchange differences on translating foreign operations

 

 

$

973

$

2,369

Comprehensive income

 

 

$

2,718

$

11,881

Net income per share

 

 

 

 

 

 

Basic

 

 

$

0.07

$

0.41

Diluted

 

 

$

0.07

$

0.41

Weighted average number of common shares

 

 

 

 

 

 

Shares outstanding – basic

 

 

 

24,301,594

 

23,104,507

Shares outstanding - diluted

 

 

 

24,324,324

 

23,132,401

VECIMA NETWORKS INC.

Interim Condensed Consolidated Statements of Change in Equity

(unaudited - in thousands of Canadian dollars)

 

 

 

Share capital

 

Reserves

 

Retained earnings

Accumulated

other

comprehensive income (loss)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as at June 30, 2022

 

$

7,935

$

3,141

$

168,923

$

(267)

$

179,732

Net income

 

 

-

 

-

 

9,512

 

-

 

9,512

Other comprehensive income

 

 

-

 

-

 

-

 

2,369

 

2,369

Dividends

 

 

-

 

-

 

(1,271)

 

-

 

(1,271)

Shares issued by exercising options

 

 

61

 

(12)

 

-

 

-

 

49

PSUs settled in common shares

 

 

49

 

(49)

 

-

 

-

 

-

Withholding taxes on PSUs

 

 

(44)

 

-

 

-

 

-

 

(44)

Share-based payment expense

 

 

-

 

98

 

-

 

-

 

98

Balance as at September 30, 2022

 

$

8,001

$

3,178

$

177,164

$

2,102

$

190,445

 

 

 

 

 

 

 

 

 

 

 

 

Balance as at June 30, 2023

 

$

23,997

$

3,111

$

190,926

$

(381)

$

217,653

Net income

 

 

-

 

-

 

1,745

 

-

 

1,745

Other comprehensive income

 

 

-

 

-

 

-

 

973

 

973

Dividends

 

 

-

 

-

 

(1,252)

 

-

 

(1,252)

Share-based payment expense

 

 

-

 

256

 

-

 

-

 

256

Balance as at September 30, 2023

 

$

23,997

$

3,367

$

191,419

$

592

$

219,375

 
VECIMA NETWORKS INC.

Interim Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands of Canadian dollars)

Three months ended September 30,

 

 

 

 

2023

 

 

2022

 

OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

 

$

1,745

 

$

9,512

 

Adjustments for non-cash items:

 

 

 

 

 

 

Loss on sale of property, plant and equipment

 

 

 

1

 

 

9

 

Depreciation and amortization

 

 

 

5,123

 

 

4,750

 

Share-based compensation

 

 

 

256

 

 

98

 

Warrant expense

 

 

 

 

638

 

 

-

 

Income tax expense

 

 

 

2,711

 

 

1,948

 

Deferred income tax expense (recovery)

 

 

 

(3,051

)

 

660

 

Interest expense

 

 

 

700

 

 

212

 

Interest income

 

 

 

(2

)

 

(10

)

Net change in working capital

 

 

 

4,234

 

 

(24,366

)

Decrease in other long-term assets

 

 

 

12

 

 

142

 

Increase (decrease) in provisions

 

 

 

(1,218

)

 

16

 

Increase in investment tax credits

 

 

 

(33

)

 

(40

)

Income tax received (paid)

 

 

 

(1,950

)

 

30

 

Interest received

 

 

 

2

 

 

10

 

Interest paid

 

 

 

(727

)

 

(175

)

Cash provided by (used in) operating activities

 

 

 

8,441

 

 

(7,204

)

INVESTING ACTIVITIES

 

 

 

 

 

 

Capital expenditures, net

 

 

 

(763

)

 

(887

)

Deferred development costs

 

 

 

(6,231

)

 

(5,581

)

Cash used in investing activities

 

 

 

(6,994

)

 

(6,468

)

FINANCING ACTIVITIES

 

 

 

 

 

 

Net draws (repayments) of the revolving line of credit

 

 

 

(836

)

 

6,832

 

Principal repayments of lease liabilities

 

 

 

(405

)

 

(379

)

Repayment of long-term debt

 

 

 

(280

)

 

(67

)

Issuance of shares through exercised options

 

 

 

-

 

 

49

 

Withholding taxes on PSUs

 

 

 

-

 

 

(44

)

Cash provided by (used in) financing activities

 

 

 

(1,521

)

 

6,391

 

Net decrease in cash and cash equivalents

 

 

 

(74

)

 

(7,281

)

Effect of change in exchange rates on cash

 

 

 

88

 

 

(1,277

)

Cash and cash equivalents, beginning of year

 

 

 

2,278

 

 

12,902

 

Cash and cash equivalents, end of period

 

 

$

2,292

 

$

4,344

 

 

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