March Networks Reports Third Quarter Revenues Up 63% Compared to Last Year

OTTAWA, ON, March 1 /PRNewswire-FirstCall/ -- March Networks(TM) (TSX:MN; AIM:MNW - all figures in Canadian dollars and in accordance with Canadian GAAP), a leading provider of Internet Protocol (IP)-based digital video surveillance solutions, today announced financial results for the third quarter and first nine months of fiscal year 2006, ended January 31, 2006.

Revenue for the third quarter of fiscal 2006 was $20.0 million, compared with $12.3 million for the same period last year, an increase of 63 percent. Revenue for the first nine months of fiscal 2006 was $54.7 million, representing an 88% increase over revenues of $29.2 million in the same period last year.

Net earnings from continuing operations were $5.2 million or $0.30 per share on a diluted basis, which compares to $0.22 per share for the third quarter of fiscal 2005. Fiscal year to date net earnings from continuing operations were $13.1 million, or $0.78 per share on a diluted basis, which compares with net earnings of $3.5 million or $0.34 per share for the first nine months of fiscal 2005.

"Our go-to-market strategy continues to be effective as March Networks delivers yet another quarter of sequential growth," said Peter Strom, President and CEO of March Networks. "March Networks is focused on delivering innovative products, great service, and outstanding sales execution. These financial results are a direct result of that unwavering focus."

Q3 Financial Highlights - Achieved tenth consecutive quarter of revenue growth and sixth consecutive quarter of increased profitability. - 4,860 units shipped representing an increase of 101% over the third quarter of fiscal 2005 and bringing the installed base to 26,346 units. - Fifth consecutive quarter of net cash generation from operations. Net cash generated from operations was $11.6 million for the first nine months of fiscal 2006, compared with $2.7 million in the first nine months of fiscal 2005. - Raised proceeds of $5.1 million from the exercise of stock options and warrants during the quarter.

"We are very pleased with the financial performance of the Company in Q3. We continue to achieve our revenue targets while improved gross margins have allowed us to exceed our expectations on net earnings," said Ken Taylor, CFO for March Networks.

Business Outlook

March Networks maintains its focus on long-term growth objectives and provides only full year guidance.

The Company is maintaining the fiscal 2006 revenue guidance provided on November 30, 2005 but is raising fiscal 2006 profitability guidance based on the strength of the Company's gross margin results in the first nine months and fourth quarter expectations. The Company's fiscal 2006 annual guidance is as follows.

- Revenue expectations for the fiscal year ending April 30, 2006 remain in the range of $72 million to $76 million. - Net earnings for the year ending April 30, 2006 are now expected to be in the range of $16 million to $18 million, as compared to the November 30 guidance of $14.0 million to $16 million. - The Company intends to sell the operations of its eHealth business in order to focus on its DVR business. The Company expects to find a potential acquirer but may abandon the eHealth business if an acquirer is not found in the fourth quarter of fiscal 2006. The Company has reflected only normal operating costs of this segment (approximately $2 million) in the fiscal 2006 guidance and has not attempted to reflect the potential impact of exiting the eHealth business.

March Networks' management will discuss the full results and business outlook on a conference call and Webcast to be held on March 2, 2006 at 8:30 a.m. EST (1:30 p.m. BST). The conference call may be accessed at 1-800-814-4941 (North America) or 00 800 0000 2288 (Europe). The Webcast may be accessed at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1372800. A replay of the conference call may be accessed at 1-877-289-8525 until March 9, 2006. The pass code for the replay is 21133196 (pound key).

About March Networks

March Networks(TM) (TSX:MN; AIM:MNW) is a leading provider of innovative IP-based video applications used for security surveillance and monitoring. Our software and hardware solutions allow businesses to increase operational efficiencies, address risk, and manage assets with an integrated set of video-based intelligence tools that support enhanced decision-making. Today, the ISO 9001:2000 certified company serves the needs of leading banks, retail organizations and transportation authorities in more than 40 countries throughout the world. For more information, please visit http://www.marchnetworks.com/.

Forward Looking Statements ------------------------------------------------------------------------- Certain statements included in this management's discussion and analysis constitute forward looking statements, including those identified by the expressions "anticipate", "believe", "plan", "estimate", "expect", "intend" and similar expressions to the extent they relate to the Company or its management. The forward looking statements are not historical facts but reflect the Company's current expectations regarding future results or events. These forward looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. Assumptions made in preparing forward-looking statements and financial guidance include, but are not limited to, the following: - The market for the Company's products will continue to grow by at least 20% annually. - End-user customers will deploy the Company's products in substantially all of the addressable locations identified during the sales process. - The Company will generate at least 10% of its revenue from channel partner initiated sales. - New customer deployments will support annual revenue growth of no less than the anticipated DVR market growth. - No material change in patent litigation costs. - The competitive environment will dictate average selling price degradation of 5% per year. - Costs per unit of existing products will not increase more than 5% per year. - The Company will invest and be successful in new markets and technologies while maintaining operating expenses below 40% of revenue. - The Company will have reduced taxes payable as a result of utilizing available tax losses carried forward. Factors that could cause actual results to differ materially from expected results include, but are not limited to, the following: - Timeliness of delivery of product features. - Variability in customer deployment schedules from quarter to quarter. - Declines in market growth rates for the Company's products. - Inability to transition to new technologies to meet customer demand. - Pricing models and sales strategies required to address competitive environment in new markets. - Shifts in the mix of products sold. - Fluctuations in the exchange rate between the US dollar and the Canadian dollar. - Variations in average sales cycles. - Key component supply restrictions and/or cost increases. - Complications associated with implementation of a new business system and related processes. Additional risks are discussed herein and under "Risk Factors" in the Company's Annual Information Form available online at http://www.sedar.com/. ------------------------------------------------------------------------- (x)MARCH NETWORKS and the MARCH NETWORKS logo are trademarks of March Networks Corporation. All other trademarks are the property of their respective owners. March Networks Corporation ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS (CDN $) ------------------------------------------------------------------------- (In thousands, except share and per-share amounts) (Unaudited) << ------------------------------------------------------------------------- Three Months Ended Nine Months Ended ------------------------------------------------------------------------- January 31, January 31, January 31, January 31, 2006 2005 2006 2005 ------------------------------------------------------------------------- ------------------------------------------------------------------------- REVENUE $20,009 $12,312 $54,734 $ 29,153 ------------------------------------------------------------------------- COST OF REVENUE 8,257 6,227 23,470 14,220 ------------------------------------------------------------------------- GROSS MARGIN 11,752 6,085 31,264 14,933 ------------------------------------------------------------------------- EXPENSES: ------------------------------------------------------------------------- Selling, marketing and support 2,776 2,099 7,678 5,143 ------------------------------------------------------------------------- Research and development 1,784 1,138 4,776 3,143 ------------------------------------------------------------------------- General and administrative 2,400 510 6,394 3,070 ------------------------------------------------------------------------- Stock based compensation 183 41 534 105 ------------------------------------------------------------------------- Total expenses 7,143 3,787 19,382 11,461 ------------------------------------------------------------------------- EARNINGS BEFORE UNDERNOTED ITEMS 4,609 2,298 11,882 3,472 ------------------------------------------------------------------------- Interest and other income, net 566 (3) 1,242 2 ------------------------------------------------------------------------- EARNINGS BEFORE DISCONTINUED OPERATIONS 5,175 2,295 13,124 3,474 ------------------------------------------------------------------------- Discontinued operations 196 - 196 - ------------------------------------------------------------------------- NET EARNINGS 5,371 2,295 $13,320 $ 3,474 ------------------------------------------------------------------------- Net earnings per share: ------------------------------------------------------------------------- Basic - from continuing operations $ 0.32 $ 0.22 $ 0.83 $ 0.34 ------------------------------------------------------------------------- - from discontinued operations $ 0.01 - $ 0.01 - ------------------------------------------------------------------------- $ 0.33 $ 0.22 $ 0.84 $ 0.34 ------------------------------------------------------------------------- Diluted - from continuing operations $ 0.30 $ 0.22 $ 0.78 $ 0.34 ------------------------------------------------------------------------- - from discontinued operations $ 0.01 - $ 0.01 - ------------------------------------------------------------------------- $ 0.31 $ 0.22 $ 0.79 $ 0.34 ------------------------------------------------------------------------- Shares used in per-share calculation: ------------------------------------------------------------------------- Basic 16,146,634 10,318,036 15,850,828 10,315,754 ------------------------------------------------------------------------- Diluted 17,373,776 10,378,476 16,889,812 10,376,194 ------------------------------------------------------------------------- March Networks Corporation ------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (CDN $) ------------------------------------------------------------------------- (In thousands) (Unaudited) ------------------------------------------------------------------------- January 31, April 30, 2006 2005 ------------------------------------------------------------------------- ASSETS ------------------------------------------------------------------------- Current assets: ------------------------------------------------------------------------- Cash and cash equivalents $ 3,620 $ 7,435 ------------------------------------------------------------------------- Short-term investments 79,040 56,400 ------------------------------------------------------------------------- Accounts receivable 10,723 6,865 ------------------------------------------------------------------------- Inventories 3,692 4,497 ------------------------------------------------------------------------- Prepaid expenses and other current assets 732 166 ------------------------------------------------------------------------- Total current assets 97,807 75,363 ------------------------------------------------------------------------- Capital assets 583 294 ------------------------------------------------------------------------- Other assets - 147 ------------------------------------------------------------------------- TOTAL ASSETS $ 98,390 $ 75,804 ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------------------------------------------- Current liabilities: ------------------------------------------------------------------------- Accounts payable $6,655 $5,901 ------------------------------------------------------------------------- Accrued liabilities 3,531 3,983 ------------------------------------------------------------------------- Deferred revenue 412 2,403 ------------------------------------------------------------------------- Total liabilities 10,598 12,287 ------------------------------------------------------------------------- Shareholders' equity 87,792 63,517 ------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 98,390 $ 75,804 ------------------------------------------------------------------------- March Networks Corporation ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (CDN $) ------------------------------------------------------------------------- (In thousands) (Unaudited) ------------------------------------------------------------------------- Nine Months Ended ------------------------------------------------------------------------- January 31, January 31, 2006 2005 ------------------------------------------------------------------------- Cash flows from operating activities: ------------------------------------------------------------------------- Net earnings $13,320 $ 3,474 ------------------------------------------------------------------------- Items not affecting cash: ------------------------------------------------------------------------- Amortization of capital assets 152 54 ------------------------------------------------------------------------- (Gain)/write down on other assets (196) 100 ------------------------------------------------------------------------- Foreign exchange loss on foreign cash and cash equivalents held 218 140 ------------------------------------------------------------------------- Stock based compensation 534 105 ------------------------------------------------------------------------- Change in non-cash operating working capital items: ------------------------------------------------------------------------- Accounts receivable (3,858) (694) ------------------------------------------------------------------------- Inventories 805 (3,061) ------------------------------------------------------------------------- Prepaid expenses and other current assets (566) (197) ------------------------------------------------------------------------- Accounts payable 2,947 300 ------------------------------------------------------------------------- Accrued liabilities 221 227 ------------------------------------------------------------------------- Deferred revenue (1,991) 2,259 ------------------------------------------------------------------------- Net cash generated by operating activities 11,586 2,707 ------------------------------------------------------------------------- Cash flows from investing activities: ------------------------------------------------------------------------- Purchases of short-term investments (22,640) - ------------------------------------------------------------------------- Purchase of capital assets (441) (67) ------------------------------------------------------------------------- Long-term receivable 343 - ------------------------------------------------------------------------- Proceeds from sale of division - 279 ------------------------------------------------------------------------- Net cash (consumed) generated by investing activities (22,738) 212 ------------------------------------------------------------------------- Cash flows from financing activities: ------------------------------------------------------------------------- Issuance of share capital, net 7,555 (69) ------------------------------------------------------------------------- Issuance of warrants - 513 ------------------------------------------------------------------------- Net cash generated by financing activities 7,555 444 ------------------------------------------------------------------------- Net increase in cash and cash equivalents (3,597) 3,363 ------------------------------------------------------------------------- Foreign exchange loss on foreign cash and cash equivalents held (218) (140) ------------------------------------------------------------------------- Cash and cash equivalents, beginning of period 7,435 2,432 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 3,620 $ 5,655 ------------------------------------------------------------------------- >>