Press release

Vecima Reports Q2 Fiscal 2024 Results

0
Sponsored by Businesswire

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 Share1,2,3,4,5

$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.

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 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.

5 Adjusted 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

 

60

 

 

(12

)

 

 

 

 

 

48

 

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

)

 

 

 

 

 

87

 

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