VCM Vecima Networks Inc

Quarterly Revenue up 33% YoY to $81.9M, Adjusted EBITDA increases 42.6% YoY to $11.6M

• Video and Broadband Solutions sales grow 65% YoY to $72.9M, with Entra DAA sales climbing 76% YoY to $68.3M
• Gross profit increases 14% YoY to $34.2M
• Earnings per share of $0.09; Adjusted EPS of $0.10

Vecima Networks Inc. (TSX: VCM) today reported financial results for the three months ended September 30, 2024.

FINANCIAL HIGHLIGHTS

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

Q1FY25

Q4FY24

Q1FY24

Revenue

$81.9

$87.5

$61.5

Gross Margin6

41.7%

47.9%

48.8%

Net Income

$2.1

$8.3

$1.7

Earnings Per Share1,4,5

$0.09

$0.34

$0.07

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

$0.10

$0.34

$0.09

Adjusted EBITDA2

$11.6

$16.0

$8.1

Employees

612

608

591

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 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 2025.

4 Earnings Per Share and Adjusted Earnings Per Share includes non-cash share-based compensation of $0.5 million or $0.02 per share for the three months ended September 30, 2024, and $0.3 million or $0.01 per share for the three months ended September 30, 2023. The non-cash share-based compensation primarily reflects certain performance-based vesting thresholds achieved under the Company’s Performance Share Unit Plan.

5 Earnings Per Share and Adjusted Earnings Per Share includes foreign exchange gain (loss) of $0.5 million or $0.02 per share for the three months ended September 30, 2024, and a gain (loss) of $(0.6) million or $(0.02) per share for the three months ended September 30, 2023.

6 The Company has restated the comparative period for a change in commissions expense presentation. Refer to Note 21 of the Interim Condensed Financial Statements for the three-month period ended September 30, 2024.

“The first months of fiscal 2025 brought significant strategic developments, particularly within our Video and Broadband Solutions (VBS) and Content Delivery and Storage (CDS) segments,” said Sumit Kumar, Vecima’s President and CEO.

“In our VBS segment, the recent acquisition of Falcon V Systems strongly positions us to support the industry shift to converged network access strategies, with products that help operators manage, test and deliver services across their rapidly evolving portfolio of access network technologies. The acquisition not only enhances Vecima’s position as an industry-leader in flexible and interoperable technology solutions, but also advances our Entra Cloud platform, including the Entra vCMTS platform, which is currently progressing through lab trials with our lead Tier 1 customer and several Tier 2 and 3 customers. Falcon is a well-timed, tuck-in acquisition that fully aligns with both Vecima’s objectives and those of our customers in achieving key Distributed Access Architecture (DAA) goals,” Mr. Kumar added.

“In our CDS segment, we made significant strides with our open CDN and Dynamic Ad Insertion (DAI) technologies, both of which are poised to drive growth for this segment. Our progress with DAI was highlighted by the recent implementation of initial linear parity ad insertion with Hotwire Communications, setting the stage for this customer to fully adopt DAI. In another important segment development, yesterday we announced an exclusive global partnership with Digital Harmonic to represent and resell its innovative dh/KeyFrame Media Optimization product. This high-value solution significantly optimizes operators’ video quality while reducing costs, and will be offered as part of Vecima’s comprehensive, industry-leading MediaScale™ video content distribution portfolio beginning immediately."

“Financially, consolidated sales of $81.9 million were the second-best quarterly result in Vecima’s history and grew 33% year-over-year. In our VBS segment, sales of $72.9 million were up 65% compared to Q1 fiscal 2024, with next-generation Entra DAA products contributing $68.3 million of sales as volume rollouts of our new EN9000 GAP platform got underway and ERM3 Remote-PHY device deliveries continued. The strong Entra performance was partially offset by the anticipated slowdown in Commercial Video sales as our legacy products make way for next-generation solutions.”

“Our CDS segment experienced a slower-than-expected start to the year as key expansion projects were temporarily delayed. We continue to note that quarterly sales variability is normal for the CDS segment, driven by the timing of large orders related to customer IPTV projects, and we anticipate a strengthening of CDS sales both in Q2 and on a full-year basis. In the Telematics segment, first quarter revenues increased 5% year-over-year to $1.7 million, in line with our expectations.”

“On the bottom line, our Q1 gross profit of $34.2 million and Adjusted EBITDA of $11.6 million increased 14% and 42.6% respectively on a year-over-year basis. This reflects the higher sales, partially offset by a lower gross margin percentage of 41.7%, as compared to 48.8% a year ago. As we anticipated, our margin performance reflected the ramp and initiation of volume sales of our EN9000 node platforms, which carry a lower margin when fulfilled on a standalone basis, with overall margin contribution from the platform increasing as software-driven access modules are populated within the node. Adoption and deployment of this future-proof node platform is expected to yield module uptake across multiple generations of access technologies. Reduced revenue contribution from our high-margin CDS segment also had an impact on margin performance in the first quarter. On a full-year basis, we expect our product mix, tied to the sequence of customer programs and timing being supported this year, to deliver a gross margin slightly below our target range of 45% to 49%, reflecting this year’s product mix. By year's end, we expect a significantly stronger exit run-rate for gross margins, driven by increasing contributions from EntraOptical and the introduction of the Entra vCMTS.”

“Going forward, we expect fiscal 2025 to be a growth year for Vecima despite the expected pull-back in Q1 from Q4FY24, where we produced all-time record sales. In our VBS segment, volume deployments of our newer EN9000 and EXS1610 All-PON Shelf products are expected to continue to build, particularly in the second half, with our new Falcon V solutions providing additional revenue opportunities. While the transition to the US$42.5 billion BEAD program as a source of funding for network expansion into underserved rural areas has been slower than expected, we continue to see solid support for our fiber access products from operators accessing the existing Rural Digital Opportunity Fund (RDOF). Looking further ahead, our entry into the vCMTS market provides another significant growth driver for Vecima.”

“In our CDS segment, we anticipate a stronger second quarter as projects delayed in Q1 resume in Q2. On a full-year basis we expect CDS performance to be supported by an increase in existing and new customer IPTV upgrades and expansions, the rollout of our new DAI Products, and additional opportunities created by our recently announced dh/KeyFrame arrangement with Digital Harmonic.”

“Overall, the convergence of opportunities in our VBS and CDS segments, combined with our expectation of continued profitable growth in the Telematics segment, has created a foundation for strong full-year growth in 2025, and a remarkable runway for Vecima’s longer-term success,” said Mr. Kumar.

BUSINESS HIGHLIGHTS

Financial and Corporate

• First quarter revenue increased 33% to $81.9 million, from $61.5 million in Q1 fiscal 2024.
• Increased gross profit to $34.2 million, up 14% from $30.0 million in the same period last year.
• Gross margin of 41.7%, compared to 48.8% in the prior-year period.
• Adjusted EBITDA climbed 42.6% to $11.6 million, from $8.1 million in Q1 fiscal 2024.
• Earnings per share of $0.09, compared to $0.07 in Q1 fiscal 2024. Adjusted EPS of $0.10, compared to $0.09 in Q1 fiscal 2024.
• Ended the first quarter in a solid financial position with working capital of $83.5 million at September 30, 2024, compared to $84.9 million at June 30, 2024.

Video and Broadband Solutions (VBS)

Video and Broadband Solutions segment sales increased 65% to $72.9 million, from $44.1 million in Q1 fiscal 2024; decreased 2% from $74.7 million in Q4 fiscal 2024.

DAA (Entra Family)

• Achieved strong next-generation Entra product sales of $68.3 million, a year-over-year increase of 76% (Q1 fiscal 2024: $38.8 million; Q4 fiscal 2024: $68.7 million).
• Increased total customer engagements to 123 MSOs worldwide, from 108 a year earlier. 62 of these customers are ordering Entra products with order sizes increasing as broader DAA deployment continues.
• Began volume shipments of EN9000 GAP Node, with continued ramp up expected in the coming quarters. The modular EN9000 provides customers with a future-proof path to 10G, protecting today's network investment by ensuring operators can easily transition to future technologies, including DOCSIS 4.0 and 10G FTTH.
• Demonstrated interoperability of Entra DOCSIS 4.0 Remote-PHY device against third-party cores, including a showcase of our "Unified" Platform with Cox Communications at the SCTE TechExpo.
• Significant increase in customer engagement for our vCMTS platform, including ongoing lab trials with the lead Tier 1 customer, and initiation of trials with additional Tier 2 and Tier 3 operators.
• Subsequent to the quarter-end, on October 11, 2024, acquired Falcon V Systems, a provider of innovative software orchestration products that help operators manage, test and deliver services across converged cable, fiber and mobile networks.
  • Combination of Vecima's Entra Cloud™ and Falcon V's Principal Core™ will help operators accelerate and simplify convergence of their multi-access networks with multi-vendor interoperability.
  • Falcon V's Test Suite™ product allows operators to more rapidly scale their DAA deployments and pursue multi-core convergence by ensuring they can fully test new software in a multi-core, multi-vendor environment, allowing for substantially more rapid iteration, verification, and deployment.
  • The Falcon V principal core also accelerates opportunities for Vecima's vCMTS platform by abstracting the orchestration and provisioning system interface layer to the principal core, making multi-vendor support and interoperability broader at the vCMTS and RPD layers of a distributed cable access network. This is expected to further compel operator adoption of vCMTS platforms from multiple vendors and optimizes the feature-set in the vCMTS to core data packet processing functions while migrating network orchestration functions to Vecima's principal core.

Commercial Video (Terrace Family)

• Generated Commercial Video sales of $4.5 million, as compared to $5.3 million in Q1 fiscal 2024 and $5.9 million in Q4 fiscal 2024 as customers began to transition to next-generation platforms.

Content Delivery and Storage (CDS)

• Content Delivery and Storage segment sales decreased to $7.2 million reflecting the timing of orders (Q1 fiscal 2024: $15.7 million; Q4 fiscal 2024: $11.1 million).
  • Achieved strong CDS gross margin of 60.2% (Q1 fiscal 2024: 62.2%; Q4 fiscal 2024: 56.7%).
  • Increased CDS services revenues year-over-year as the base of deployed MediaScale platforms continues to grow.
  • Continued progress in development of the standards-compliant MediaScale Open CDN platform, with first deployments expected in the coming quarters.
  • Continued progress of the MediaScale Dynamic Ad Insertion platform, including first phase development at Hotwire Communications, moving this customer toward dynamic and tailored ad experiences to subscribers going forward.
  • On November 13, 2024 announced global agreement with Digital Harmonic to exclusively resell its innovative dh/KeyFrame™ technology as part of Vecima's MediaScale™ video content distribution portfolio. With dh/KeyFrame, network operators in the media and entertainment space are able to significantly elevate video quality while reducing content bitrates, providing significant cost savings and network capacity increases.

Telematics

• Telematics segment sales grew approximately 5% year-over-year to $1.7 million (Q1 fiscal 2024: $1.6 million; Q4 fiscal 2024: $1.8 million).
  • Generated additional deployments in high-value verticals, including municipal government and moveable asset customers in areas such as restoration and emergency medical services.
  • Added six new customers for the NERO asset tracking platform, bringing customer count to over 200 and increasing the number of moveable assets being monitored to over 72,000 units.
  • Achieved strong gross margin percentage of 72.3%.

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 16, 2024 to shareholders of record as at November 22, 2024.

CONFERENCE CALL

A conference call and live audio webcast will be held today, November 14, 2024 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, 2024 are available under the Company’s profile at www.sedarplus.ca, and at https://vecima.com/investor-relations/financial-reports/.

To participate in the Q1FY25 teleconference, dial 1-844-763-8274 or 1-647-484-8814. The webcast will be available in real time at https://event.choruscall.com/mediaframe/webcast.html?webcastid=DzjGALpK 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 first quarter of fiscal 2025.

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: The first months of fiscal 2025 brought significant strategic developments; the recent acquisition of Falcon V Systems strongly positions us to support the industry shift to converged network access strategies; the acquisition not only enhances Vecima's position as an industry­ leader in flexible and interoperable technology solutions, but also advances our Entra Cloud platform including the Entra vCMTS platform; in our CDS segment, we made significant strides with our open CDN and Dynamic Ad Insertion (DAI) technologies, both of which are poised to drive growth for this segment, as we anticipated, our margin performance reflected the ramp and initiation of volume sales of our EN9000 node platforms, which carry a lower margin when fulfilled on a standalone basis, with overall margin contribution from the platform increasing as software-driven access modules are populated within the node; adoption and deployment of this future-proof node platform is expected to yield module uptake across multiple generations of access technologies; reduced revenue contribution from our high­ margin CDS segment also had an impact on margin performance in the first quarter; on a full-year basis, we expect our product mix, tied to the sequence of customer programs and timing being supported this year, to deliver a gross margin slightly below our target range of 45% to 49%, reflecting this year's product mix; by year’s end, we expect a significantly stronger exit run-rate for gross margins, driven by increasing contributions from Entra Optical and the introduction of the Entra vCMTS; going forward, we expect fiscal 2025 to be a growth year for Vecima despite the expected pull-back in Q1 from Q4FY24, where we produced all-time-record sales; in our VBS segment, volume deployments of newer EN9000 and EXS1610 All PON Shelf products are expected to continue to build, particularly in the second half, with our new Falcon V solutions providing additional revenue opportunities; while the transition to the US$42.5 billion BEAD program as a source of funding for network expansion into underserved rural areas has been slower than expected, we continue to see solid support for our fiber access products from operators accessing the existing Rural Digital Opportunity Fund (RDOF); looking further ahead, our entry into the vCMTS market provides another significant growth driver for Vecima; in our CDS segment, we anticipate a stronger second quarter as projects delayed in Q1 resume in Q2; on a full­ year basis we expect CDS performance to be supported by an increase in existing and new customer IPTV upgrades and expansions, the rollout of our new DAI Products, and additional opportunities created by our recently announced dh/KeyFrame arrangement with Digital Harmonic; Overall, the convergence of opportunities in our VBS and CDS segments, combined with our expectation of continued profitable growth in the Telematics segment, has created a foundation for strong full-year growth in 2025, and a remarkable runway for Vecima's longer-term success; the Falcon V principal core also accelerates opportunities for Vecima's vCMTS platform by abstracting the orchestration and provisioning system interface layer to the principal core, making multi-vendor support and interoperability broader at the vCMTS and RPD layers of a distributed cable access network; this is expected to further compel operator adoption of vCMTS platforms from multiple vendors and optimizes the feature-set in the vCMTS to core data packet processing functions while migrating network orchestration functions to Vecima's principal core; continued progress in development of the standards-compliant MediaScale Open CDN platform, with first deployments expected in the coming quarters.

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 19, 2024, 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, 2024

June 30, 2024

Assets

 

 

Current assets

 

 

Cash and cash equivalents

$

2,220

$

2,136

Accounts receivable

 

49,615

 

70,139

Income tax receivable

 

385

 

359

Inventories

 

137,948

 

136,040

Prepaid expenses and other current assets

 

5,709

 

6,632

Contract assets

 

1,851

 

2,276

Total current assets

 

197,728

 

217,582

Non-current assets

 

 

Property, plant and equipment

 

11,970

 

11,908

Right-of-use assets

 

5,147

 

4,670

Goodwill

 

15,206

 

15,308

Intangible assets

 

95,593

 

93,893

Investment tax credits

 

20,072

 

21,760

Deferred tax assets

 

22,653

 

21,420

Other long-term assets

 

1,096

 

1,282

Total assets

$

369,465

$

387,823

Liabilities and shareholders’ equity

 

 

Current liabilities

 

 

Revolving line of credit

$

35,965

$

51,732

Accounts payable and accrued liabilities

 

58,364

 

57,583

Provisions

 

636

 

591

Income tax payable

 

2,179

 

2,757

Deferred revenue

 

11,654

 

15,856

Current portion of financial liability

 

1,676

 

1,773

Current portion of long-term debt

 

2,440

 

2,433

Dividends payable

 

1,337

 

–

Total current liabilities

 

114,251

 

132,725

Non-current liabilities

 

 

Provisions

 

424

 

375

Deferred revenue

 

2,972

 

3,511

Long-term portion of financial liability

 

806

 

853

Long-term debt

 

15,601

 

15,399

Total liabilities

 

134,054

 

152,863

Shareholders’ equity

 

 

Share capital

 

24,129

 

24,117

Reserves

 

4,663

 

4,120

Retained earnings

 

205,776

 

204,968

Accumulated other comprehensive income (loss)

 

843

 

1,755

Total shareholders’ equity

 

235,411

 

234,960

Total liabilities and shareholders’ equity

$

369,465

$

387,823

 

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,

 

 

2024

 

2023

Sales

$

81,905

$

61,478

Cost of sales

 

47,734

 

31,460

Gross profit

 

34,171

 

30,018

Operating expenses

 

 

Research and development

 

11,883

 

10,296

Sales and marketing

 

9,442

 

8,434

General and administrative

 

7,461

 

8,173

Share-based compensation

 

546

 

256

Other expense

 

293

 

170

Total operating expenses

 

29,625

 

27,329

Operating income

 

4,546

 

2,689

Finance expense

 

(2,373)

 

(700)

Foreign exchange gain (loss)

 

508

 

(584)

Income before income taxes

 

2,681

 

1,405

Income tax expense

 

536

 

(340)

Net income

$

2,145

$

1,745

Other comprehensive income:

 

 

Item that may be subsequently reclassified to net income

 

 

Exchange differences on translation of foreign operations

$

(912)

$

973

Comprehensive income

$

1,233

$

2,718

Net income per share

 

 

Basic

$

0.09

$

0.07

Diluted

$

0.09

$

0.07

Weighted average number of common shares

 

 

Shares outstanding – basic

 

24,311,637

 

24,301,594

Shares outstanding – diluted

 

24,381,964

 

24,324,324

 

VECIMA NETWORKS INC. Interim Condensed Consolidated Statements of Equity (unaudited - in thousands of Canadian dollars)

   

 

 

Share capital

Reserves

Retained earnings

Accumulated other comprehensive income (loss)

Total

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

Balance as at June 30, 2024

 

$

24,117

$

4,120

$

204,968

$

1,755

$

234,960

Net income

 

 

–

 

–

 

2,145

 

–

 

2,145

Other comprehensive loss

 

 

–

 

–

 

–

 

(912)

 

(912)

Dividends

 

 

–

 

–

 

(1,337)

 

–

 

(1,337)

Shares issued by exercising options

 

 

12

 

(3)

 

–

 

–

 

9

Share-based payment expense

 

 

–

 

546

 

–

 

–

 

546

Balance as at September 30, 2024

 

$

24,129

$

4,663

$

205,776

$

843

$

235,411

 

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

   

 

 

Three months ended September 30,

 

 

 

2024

 

2023

OPERATING ACTIVITIES

 

 

 

Net income

 

$

2,145

$

1,745

Adjustments for non-cash items:

 

 

 

Loss on sale of property, plant and equipment

 

 

20

 

1

Depreciation and amortization

 

 

5,570

 

5,123

Share-based compensation

 

 

546

 

256

Warrant expense

 

 

106

 

638

Income tax expense

 

 

1,940

 

2,711

Deferred income tax recovery

 

 

(1,404)

 

(3,051)

Interest expense

 

 

2,400

 

700

Interest income

 

 

(27)

 

(2)

Net change in working capital

 

 

16,165

 

4,234

Decrease in other long-term assets

 

 

76

 

12

Increase (decrease) in provisions

 

 

107

 

(1,218)

Increase in investment tax credits

 

 

(49)

 

(33)

Income tax paid

 

 

(587)

 

(1,950)

Interest received

 

 

27

 

2

Interest paid

 

 

(2,587)

 

(727)

Cash provided by operating activities

 

 

24,448

 

8,441

INVESTING ACTIVITIES

 

 

 

Capital expenditures, net

 

 

(988)

 

(763)

Deferred development costs

 

 

(6,676)

 

(6,231)

Cash used in investing activities

 

 

(7,664)

 

(6,994)

FINANCING ACTIVITIES

 

 

 

Net repayment of the revolving line of credit

 

 

(15,767)

 

(836)

Principal repayments of lease liabilities

 

 

(237)

 

(405)

Principal repayments of long-term debt

 

 

(454)

 

(280)

Issuance of shares through exercised options

 

 

9

 

–

Cash used in financing activities

 

 

(16,449)

 

(1,521)

Net increase (decrease) in cash and cash equivalents

 

 

335

 

(74)

Effect of change in exchange rates on cash

 

 

(251)

 

88

Cash and cash equivalents, beginning of period

 

 

2,136

 

2,278

Cash and cash equivalents, end of period

 

$

2,220

$

2,292

 

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Vecima Networks Investor Relations - 250-881-1982 invest@vecima.com