Vecima Reports Q2 Fiscal 2024 Results

Vecima Networks Inc. (TSX: VCM) today reported financial results for the three months ended December 31, 2023.

FINANCIAL HIGHLIGHTS

*(Canadian dollars in millions except percentages, employees, and per share data)*	Q2FY24	Q1FY24	Q2FY23
Revenue	$62.0	$61.5	$76.2
Gross Margin	47.8%	46.9%	47.3%
Net Income	$3.6	$1.7	$8.1
Earnings Per Share¹	$0.15	$0.07	$0.35
Adjusted Earnings Per Share^1,2,3,4,5	$0.15	$0.09	$0.35
Adjusted EBITDA²	$12.5	$8.1	$15.8
Employees	585	591	627
¹ Based on weighted average number of shares outstanding. ² 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 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 second quarter of fiscal 2024. ⁴Adjusted earnings per share includes non-cash share-based compensation of $0.3 million or $0.01 per share for the three months ended December 31, 2023, and $0.8 million or $0.03 per share for the three months ended December 31, 2022. The non-cash share-based compensation primarily reflects certain performance-based vesting thresholds achieved under the Company’s Performance Share Unit Plan. ⁵Adjusted earnings per share includes foreign exchange gain of $1.8 million or $0.08 per share for the three months ended December 31, 2023, and a loss of $(0.1) million or $(0.01) per share for the three months ended December 31, 2022.

“Vecima achieved strong operating performance and margins in the second quarter while we continued to successfully manage through a challenging macro-environment at the same time as launching a major new program into production deployment,” said Sumit Kumar, Vecima’s President and Chief Executive Officer. “An excellent product mix and gross margin of 47.8% in the higher end of our target range was a highlight and was executed in conjunction with tight operating management and higher service revenues from our growing, deployed base of next-generation platforms. This in turn contributed to adjusted EBITDA of $12.5 million or 20.1% of sales and EPS of $0.15 for the period.”

“As expected, the first half of fiscal 2024 was a transition period for our Entra distributed access architecture (DAA) business with key customers refining their rollout logistics and drawing down existing inventories in advance of new DAA launches and project ramp-ups. Moving into the second half, we anticipate a significant increase in DAA sales velocity as multiple pathways for growth begin to converge. The rollout of our next-generation ERM3 Remote PHY devices with Charter Communications, significant new fiber access opportunities becoming available via the US$42.5 billion BEAD program, which represents the largest injection of federal funding into broadband network deployment in U.S. history, and the launch of our new Generic Access Platform (GAP) node and its recent certification with the lead Tier 1 customer are just some of the major growth opportunities ahead for Entra and our VBS segment.”

“In the Content Delivery and Storage segment, demand for our IPTV solutions remains strong despite project timing shifts which contributed to softer-than-expected revenue results in the second quarter. On a full-year basis, we now expect CDS revenues to be similar to the strong performance achieved in fiscal 2023.”

“Overall, we are anticipating renewed momentum in the second half as we execute on the multiple, multi-year opportunities in our markets and pursue new highs in sales. We are on the cusp of our next major wave of revenue growth and are moving forward with a large and growing backlog, an unparalleled portfolio of next-generation DAA and IPTV technologies and solutions, strong partnerships with a number of the world’s largest Tier 1 operators, and a solid financial position. We are excited about what lies ahead for Vecima in the second half of fiscal 2024 and beyond,” said Mr. Kumar.

BUSINESS HIGHLIGHTS

Financial and Corporate

Second quarter revenue of $62.0 million, compared to $76.2 million in Q2 fiscal 2023 and $61.5 million in Q1 fiscal 2024.
Gross profit of $29.6 million, compared to $36.0 million in Q2 fiscal 2023 and $28.8 million in Q1 fiscal 2024.
Gross margin increased to 47.8% from 47.3% in Q2 fiscal 2023 and 46.9% in Q1 fiscal 2024.
Adjusted EBITDA of $12.5 million, compared to $15.8 million in Q2 fiscal 2023 and $8.1 million in Q1 fiscal 2024.
EPS and Adjusted EPS of $0.15, as compared to $0.35 and $0.35 respectively in Q2 fiscal 2023, and $0.07 and $0.09 respectively in Q1 fiscal 2024.
Ended the second quarter in a solid financial position with working capital of $80.4 million at December 31, 2023, compared to $83.7 million at June 30, 2023.

Video and Broadband Solutions (VBS)

The Video and Broadband Solutions segment generated second quarter sales of $49.1 million (Q2 fiscal 2023: $62.3 million; Q1 fiscal 2024: $44.1 million).

DAA (Entra Family)

Achieved next-generation Entra product sales of $43.8 million, in line with expectations (Q2 fiscal 2023: $55.7 million; Q1 fiscal 2024: $38.8 million).

Notable second quarter DAA achievements:

Increased total customer engagements to 110 MSOs worldwide, from 101 a year earlier. Fifty-five of these customers are ordering Entra products, with order sizes increasing as broader DAA deployment continues.
- Customers engaged for cable access now number 63
- Customers engaged for fiber access or both access technologies now number 47
Won a new MACPHY deployment with a broadband provider serving 75,000 customers across 22 states.
Initiated deliveries of the new Entra ERM3 Remote PHY device to Charter Communications. The award-winning ERM3 RPD helps operators upgrade legacy HFC nodes to DAA quickly and cost-effectively, while dramatically increasing broadband capacity. Volume deliveries began in December 2023.
Announced availability of Vecima’s series of 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. Subsequent to quarter-end, achieved certification of the EN9000 GAP (Generic Access Platform) node with a leading Tier 1 customer.
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 TruLive™ 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 (the highest rating) in the 2023 BTR Diamond Technology Reviews Awards.

Commercial Video (Terrace Family)

Generated Commercial Video product sales of $5.3 million (Q2 fiscal 2023: $6.5 million; Q1 fiscal 2024: $5.3 million). The year-over-year change in sales was anticipated and 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)

The CDS segment generated sales of $11.3 million (Q2 2023: $12.4 million; Q1 fiscal 2024: $15.7 million).

Achieved a strong CDS gross margin of 54.5% (Q2 fiscal 2023: 50.5%; Q1 fiscal 2024: 58.5%).
- Increased service revenue by 18% year-over-year as the base of deployed MediaScale platforms continues to grow.
- Announced an engagement with Blue Ridge Communications to support its video expansion and subsequently expanded subscriber deployments with this customer.
- Released new versions of Media Scale Origin and Dynamic Content products with additional Dynamic Ad Insertion features, including advances in asset insertion workflows, scaling of ingest throughput for dynamic versus static ad assets, and enhanced stitching capability for frame accurate ad insertion in highly variable ad window duration scenarios.
- Continued IPTV expansion at multiple customers, growing network footprints to give a larger subscriber base access to state-of-the-art live, on-demand, and cloud DVR streaming services on the IPTV fabric, including:
  - a Tier 2 US operator that increased MediaScale Cache capacity for on-demand streaming;
  - expansion of Mediascale cloud DVR storage at an operator in the southeastern U.S.;
  - a new phase of network capacity expansion with a fiber service provider in the southeastern U.S. encompassing a multi-tiered MediaScale Cache architecture over enterprise and micro caches; and
  - capacity growth of a large Tier 2 operator’s deployment of the full portfolio of MediaScale IPTV solutions.

Telematics

Telematics segment sales grew approximately 7% to $1.6 million (Q2 fiscal 2023: $1.5 million; Q1 fiscal 2024: $1.6 million).
Generated additional deployments in high-value verticals, including municipal government and moveable asset customers in restoration and emergency medical services.
Added 10 new customers to the NERO asset tracking platform and significantly increased the number of moveable assets being monitored to over 59,000 units.
Achieved strong gross margin percentage of 65.8%.

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 March 18, 2024 to shareholders of record as at February 23, 2024.

CONFERENCE CALL

A conference call and live audio webcast will be held today, February 14, 2024 at 1 p.m. ET to discuss the Company’s second quarter results. Vecima’s unaudited interim condensed consolidated financial statements and management’s discussion and analysis for the three and six months ended December 31, 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/links/vecima2024q2.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 EBITDA and Adjusted Earnings Per Share

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 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 EBITDA or Adjusted Earnings Per Share, investors should refer to Vecima’s Management’s Discussion and Analysis for the second 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: as expected, the first half of fiscal 2024 was a transition period for our Entra distributed access architecture (DAA) business with key customers refining their rollout logistics and drawing down existing inventories in advance of new DAA launches and project ramp-ups; moving into the second half, we anticipate a significant increase in DAA sales velocity as multiple pathways for growth begin to converge; the rollout of our next-generation ERM3 Remote PHY devices with Charter Communications, significant new fiber access opportunities becoming available via the US$42.5 billion BEAD program, which represents the largest injection of federal funding into broadband network deployment in U.S. history, and the launch of our new Generic Access Platform (GAP) node and its recent certification with the lead Tier 1 customer are just some of the major growth opportunities ahead for Entra and our VBS segment; the year-over-year change in sales was anticipated and 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; in the Content Delivery and Storage segment, demand for our IPTV solutions remains strong despite project timing shifts which contributed to softer-than-expected revenue results in the second quarter; on a full-year basis, we now expect CDS revenues to be similar to the strong performance achieved in fiscal 2023; overall, we are anticipating renewed momentum in the second half as we execute on the multiple, multi-year opportunities in our markets and pursue new highs in sales; we are on the cusp of our next major wave of revenue growth and are moving forward with a large and growing backlog, an unparalleled portfolio of next-generation DAA and IPTV technologies and solutions, strong partnerships with a number of the world’s largest Tier 1 operators, and a solid financial position; we are excited about what lies ahead for Vecima in the second half of fiscal 2024 and beyond.

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	December 31, 2023			June 30, 2023
Assets
Current assets
Cash and cash equivalents	$	2,586		$	2,278
Accounts receivable		62,690			57,662
Income tax receivable		1,854			530
Inventories		145,209			101,601
Prepaid expenses and other current assets		3,290			13,695
Contract assets		1,452			2,707
Assets held for sale		1,405			–
Total current assets		218,486			178,473
Non-current assets
Property, plant and equipment		13,816			15,683
Right-of-use assets		1,896			2,364
Goodwill		15,039			15,049
Intangible assets		87,333			82,991
Investment tax credits		23,692			24,252
Deferred tax assets		14,677			11,576
Other long-term assets		1,685			1,298
Total assets	$	376,624		$	331,686
Liabilities and shareholders’ equity
Current liabilities
Revolving line of credit	$	44,066		$	20,513
Accounts payable and accrued liabilities		77,142			47,162
Provisions		722			1,978
Income tax payable		555			7,808
Deferred revenue		13,028			15,086
Current portion of financial liability		496			–
Current portion of long-term debt		2,062			2,260
Total current liabilities		138,071			94,807
Non-current liabilities
Provisions		390			387
Deferred revenue		3,212			4,716
Long-term portion of financial liability		1,060			–
Long-term debt		13,161			14,123
Total liabilities		155,894			114,033
Shareholders’ equity
Share capital		24,107			23,997
Reserves		3,601			3,111
Retained earnings		193,587			190,926
Accumulated other comprehensive loss		(565	)		(381	)
Total shareholders’ equity		220,730			217,653
Total liabilities and shareholders’ equity	$	376,624		$	331,686


VECIMA NETWORKS INC.
Interim Condensed Consolidated Statements of Comprehensive Income
(unaudited – in thousands of Canadian dollars, except per share amounts)

	Three months						Six months
Periods ended December 31,		2023			2022			2023			2022
Sales	$	61,954		$	76,212		$	123,432		$	149,659
Cost of sales		32,354			40,167			65,019			79,873
Gross profit		29,600			36,045			58,413			69,786
Operating expenses
Research and development		11,551			10,341			21,847			21,046
Sales and marketing		6,605			6,619			14,034			12,923
General and administrative		6,431			7,522			14,404			13,116
Share-based compensation		257			815			513			913
Other expense		97			22			267			43
Total operating expenses		24,941			25,319			51,065			48,041
Operating income		4,659			10,726			7,348			21,745
Finance expense		(1,660	)		(554	)		(2,360	)		(755	)
Foreign exchange gain (loss)		1,837			(138	)		1,253			1,164
Income before income taxes		4,836			10,034			6,241			22,154
Income tax expense		1,247			1,895			907			4,503
Net income	$	3,589		$	8,139		$	5,334		$	17,651
Other comprehensive income:
Item that may be subsequently reclassified to net income
Exchange differences on translation of foreign operations	$	(1,157	)	$	(482	)	$	(184	)	$	1,887
Comprehensive income	$	2,432		$	7,657		$	5,150		$	19,538
Net income per share
Basic	$	0.15		$	0.35		$	0.22		$	0.76
Diluted	$	0.15		$	0.35		$	0.22		$	0.76
Weighted average number of common shares
Shares outstanding – basic		24,310,794			23,312,997			24,303,312			23,208,753
Shares outstanding – diluted		24,318,211			23,341,563			24,311,772			23,237,020

VECIMA NETWORKS INC.

Interim Condensed Consolidated Statements of Equity

(unaudited – in thousands of Canadian dollars)

Share capital

Reserves

Retained

earnings

Accumulated

other

comprehensive

(loss) income

Total

Balance as at June 30, 2022

7,935

3,141

168,923

(267

)

179,732

Net income

–

17,651

–

17,651

Other comprehensive income

–

1,887

1,887

Dividends

–

(2,542

)

–

(2,542

)

Common share issuance

15,926

–

15,926

Shares issued by exercising options

(12

)

–

PSUs settled in common shares

1,014

(1,014

)

–

Withholding taxes on PSUs

(1,453

)

–

(1,453

)

Share-based payment expense

–

913

–

913

Balance as at December 31, 2022

23,482

3,028

184,032

1,620

212,162

Balance as at June 30, 2023

23,997

3,111

190,926

(381

)

217,653

Net income

–

5,334

–

5,334

Other comprehensive loss

–

(184

)

(184

)

Dividends

–

(2,673

)

–

(2,673

)

Shares issued by exercising options

110

(23

)

–

Share-based payment expense

–

513

–

513

Balance as at December 31, 2023

24,107

3,601

193,587

(565

)

220,730


VECIMA NETWORKS INC.
Interim Condensed Consolidated Statements of Cash Flows
(unaudited – in thousands of Canadian dollars)

	Three months						Six months
Periods ended December 31,		2023			2022			2023			2022
OPERATING ACTIVITIES
Net income	$	3,589		$	8,139		$	5,334		$	17,651
Adjustments for non-cash items:
Loss on sale of property, plant and equipment		18			18			19			27
Depreciation and amortization		5,480			4,416			10,603			9,166
Share-based compensation		257			815			513			913
Warrant expense		217			–			855			–
Income tax expense		1,270			700			3,981			2,648
Deferred income tax expense (recovery)		(23	)		1,195			(3,074	)		1,855
Interest expense		1,662			557			2,362			769
Interest income		(2	)		(2	)		(4	)		(12	)
Net change in working capital		(14,603	)		(26,635	)		(10,369	)		(51,001	)
Increase in other long-term assets		299			4			311			146
Decrease in provisions		(47	)		(76	)		(1,265	)		(60	)
Increase in investment tax credits		(35	)		(32	)		(68	)		(72	)
Income tax paid		(9,647	)		(806	)		(11,597	)		(776	)
Interest received		2			5			4			15
Interest paid		(1,633	)		(524	)		(2,360	)		(699	)
Cash used in operating activities		(13,196	)		(12,226	)		(4,755	)		(19,430	)
INVESTING ACTIVITIES
Capital expenditures, net		(631	)		(364	)		(1,394	)		(1,251	)
Deferred development costs		(7,079	)		(5,226	)		(13,310	)		(10,807	)
Cash used in investing activities		(7,710	)		(5,590	)		(14,704	)		(12,058	)
FINANCING ACTIVITIES
Net draws of the revolving line of credit		24,389			4,559			23,553			11,391
Principal repayments of lease liabilities		(503	)		(443	)		(908	)		(822	)
Principal repayments of long-term debt		(320	)		(100	)		(600	)		(167	)
Dividends paid		(2,673	)		(2,542	)		(2,673	)		(2,542	)
Proceeds from common share issuance		–			15,926			–			15,926
Issuance of shares through exercised options		87			–			87			49
Withholding taxes on PSUs		–			(1,409	)		–			(1,453	)
Cash provided by financing activities		20,980			15,991			19,459			22,382
Net increase (decrease) in cash and cash equivalents		74			(1,825	)		–			(9,106	)
Effect of change in exchange rates on cash		220			748			308			(529	)
Cash and cash equivalents, beginning of period		2,292			4,344			2,278			12,902
Cash and cash equivalents, end of period	$	2,586		$	3,267		$	2,586		$	3,267

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