March Networks Releases Fourth Quarter and Fiscal 2007 Financial Results

OTTAWA, June 6 /PRNewswire-FirstCall/ --

Summary Operating Results: ------------------------------------------------------------------------- $Cdn millions except EPS data Q4'07 Q4'06 Fiscal Fiscal 2007 2006 ------------------------------------------------------------------------- Revenue $ 19.8 $ 21.4 $ 87.6 $ 76.2 ------------------------------------------------------------------------- (Loss) earnings from continuing operations before income taxes $ (0.7) $ 6.5 $ 8.8 $ 21.1 ------------------------------------------------------------------------- Net (loss) earnings from continuing operations $ (0.4) $ 31.8 4.8 $ 46.4 ------------------------------------------------------------------------- Diluted (loss) earnings per share from continuing operations, as restated(1) $ (0.03) $ 1.76 $ 0.27 $ 2.62 -------------------------------------------------------------------------

OTTAWA, Ontario, June 6, 2007 - March Networks(TM) (TSX:MN; AIM:MNW), a leading provider of innovative video and data applications used for security surveillance, monitoring, analysis and business optimization, today announced financial results for the fourth quarter and fiscal year ended April 30, 2007. All figures in Canadian dollars and in accordance with Canadian GAAP unless otherwise specified.

Revenue for the fiscal year ended April 30, 2007 was $87.6 million, compared with $76.2 million in the prior fiscal year, representing an increase of 15%. Revenue for the fourth quarter of fiscal 2007 of $19.8 million increased by 6% as compared to the third quarter of fiscal 2007, and declined by 8% as compared to revenue of $21.4 million in the fourth quarter of fiscal 2006.

Net earnings from continuing operations before income taxes for fiscal 2007 were $8.8 million, or $0.49 per diluted share, compared with $21.1 million, or $1.19 per diluted share, as restated, in fiscal 2006. Net earnings from continuing operations for fiscal 2007 were $4.8 million or $0.27 per diluted share. Net loss from continuing operations before income taxes for the fourth quarter of fiscal 2007 was $0.7 million, or $0.04 per share, compared to net earnings of $6.5 million, or $0.36 per diluted share, as restated(1) in the fourth quarter of fiscal 2006. Net loss from continuing operations for the fourth quarter of fiscal 2007 was $0.4 million or $0.03 per share.

"I am pleased with our continued success in building strong partnerships and securing new business around the globe. Fiscal 2007 was a milestone year for the Company, as the investments made set the stage for future growth and support our goal of positioning the company as a global leader in each of our core vertical markets " said Peter Strom, President and CEO of March Networks.

1. See Consolidated Statements of Operations. Financial Highlights - Fourth quarter revenues from other than the Company's current largest customer increased by 26% as compared to the third quarter of fiscal 2007. - Achieved year over year revenue growth in all target market segments in fiscal 2007 as compared to fiscal 2006. - Recorded greater than $400,000 in revenue from each of 21 customers in fiscal 2007. - Shipped a record 19,653 units during fiscal 2007; the Company's installed base is now more than 51,000 units. - Cash resources at April 30, 2007 were $86 million.

"The Company demonstrated in the fourth quarter that it is on track to diversifying its revenue base and to generating the revenue growth required to achieve its objectives for fiscal 2008. The Company's strong balance sheet will support the Company's strategy of enhancing its competitive position by more aggressively expanding its sales and marketing presence and accelerating its product development initiatives in fiscal 2008" said Ken Taylor, CFO of March Networks.

Business Outlook

March Networks maintains its focus on long-term growth objectives and will continue to provide only full year guidance. The Company's fiscal 2008 annual guidance is as follows:

Revenue for the fiscal year ending April 30, 2008 is expected to be in the range of $70 million to $80 million.

Net loss before income taxes for the fiscal year ending April 30, 2008 is expected to be in the range of $5 million to $10 million.

The company will discuss the results on a conference call and webcast on June 7, 2007 at 8:30 a.m. EDT (1:30 p.m. BST). The conference call may be accessed by dialing 1-800-731-6941 (North America) or 00 800 0000 2288 (Europe). The conference call webcast can be accessed at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1858780. A replay of the conference call will be available from June 7, 2007 at 10:30 a.m. EDT until June 14, 2007. The replay can be accessed at 1-877-289-8525. The passcode for the replay is 21232093#.

About March Networks

March Networks(TM) (TSX:MN; AIM:MNW) is a leading provider of innovative video and data applications used for security surveillance, monitoring, analysis, and business optimization. The Company's software and IP-based hardware solutions allow businesses to increase operational efficiencies, address risk, and manage assets with an integrated set of video-based intelligence tools and business intelligence applications. The ISO 9001:2000 certified company serves the needs of leading financial institutions, retailers, transportation authorities, commercial and homeland security organizations in more than 50 countries throughout the world. For more information, please visit http://www.marchnetworks.com/.

Forward-Looking Statements -------------------------------------------------------------------------

Certain statements included in this release 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 assumptions and 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 assumptions and expectations.

Assumptions made in preparing the forward-looking statements and financial guidance contained in this release include, but are not limited to, the following:

- The market for the Company's products will grow by greater than 10% annually. - The Company's revenue outside of its current largest customer will grow by at least 30% from the level generated in fiscal 2007. - The Company will develop and deliver new products on time in order to satisfy the demands of current and potential customers. - The Company will have adequate component supply to meet customer demand. - The Company's gross margin in fiscal 2008 will decline relative to fiscal 2007 as a result of competitive pricing strategies and sales mix. - The Company's increased investments in sales and marketing and in research and development will result in increased revenues and expanded addressable markets. - The prevailing exchange rate for US dollars to Canadian dollars will be US$1.00=CDN$1.05. - The Company will continue to demonstrate its potential to generate sufficient profits in future fiscal years to realize the value of its future tax assets.

Factors that could cause actual results to differ materially from expected results include, but are not limited to, the following:

- Delays in developing or delivering new products and new product features to meet customer demand. - Weaker than expected success versus competitors in new customer opportunities and/or loss of existing customers to competitors. - Increasing competition from larger entities resulting from the consolidation of competitors and with larger entrants from other industries. - Inability to attract and retain key employees. - Higher than targeted product costs and/or higher than expected declines in market pricing for new products. - Fluctuations in the exchange rate between the US dollar and the Canadian dollar. - Shortages or long lead times in component supply that affect the Company's ability to meet customer demand. - Product issues in the Company's installed base that result in increased costs to the Company and/or lost revenue opportunities. - Revenue shortfalls due to delays in securing new customer opportunities and the lack of long term purchase commitments from customers.

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) ------------------------------------------------------------------------- Fiscal Quarter Ended Fiscal Year Ended April 30, April 30, April 30, April 30, 2007 2006 2007 2006 ------------------------------------------------------------------------- ------------------------------------------------------------------------- REVENUE $19,815 $ 21,448 $87,620 $76,182 COST OF REVENUE 10,475 9,355 41,650 32,825 ------------------------------------------------------------------------- GROSS MARGIN 9,340 12,093 45,970 43,357 ------------------------------------------------------------------------- EXPENSES: ------------------------------------------------------------------------- Selling, marketing and support 4,140 3,015 16,134 10,463 ------------------------------------------------------------------------- Research and development 3,027 736 9,356 4,538 ------------------------------------------------------------------------- General and administrative 3,286 2,323 10,970 8,482 ------------------------------------------------------------------------- Stock based compensation 291 178 1,485 712 ------------------------------------------------------------------------- Amortization of acquired intangibles 136 - 439 - ------------------------------------------------------------------------- Lawsuit settlement - - 2,263 - ------------------------------------------------------------------------- Total expenses 10,880 6,252 40,647 24,195 ------------------------------------------------------------------------- (LOSS) EARNINGS BEFORE UNDERNOTED ITEMS (1,540) 5,841 5,323 19,162 ------------------------------------------------------------------------- Interest and other income, net 848 663 3,428 1,905 ------------------------------------------------------------------------- (LOSS) EARNINGS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS (692) 6,504 8,751 21,067 ------------------------------------------------------------------------- Current income tax expense 30 475 330 475 ------------------------------------------------------------------------- Future income tax expense (278) (25,803) 3,606 (25,803) ------------------------------------------------------------------------- NET (LOSS) EARNINGS FROM CONTINUING OPERATIONS (444) 31,832 4,815 46,395 ------------------------------------------------------------------------- Discontinued operations 2 (1,259) 1,227 (2,502) ------------------------------------------------------------------------- NET (LOSS) EARNINGS $ (442) $ 30,573 $ 6,042 $43,893 ------------------------------------------------------------------------- Net (loss) earnings per share: ------------------------------------------------------------------------- Basic - from continuing operations $ (0.03) $ 1.93 $ 0.29 $ 2.90 ------------------------------------------------------------------------- - from discontinued operations - (0.08) 0.07 (0.16) ------------------------------------------------------------------------- $ (0.03) $ 1.85 $ 0.36 $ 2.74 ------------------------------------------------------------------------- Diluted - from continuing operations, as restated(1) $ (0.03) $ 1.76 $ 0.27 $ 2.62 ------------------------------------------------------------------------- - from discontinued operations, as restated(1) - (0.07) 0.07 (0.14) ------------------------------------------------------------------------- $ (0.03) $ 1.69 $ 0.34 $ 2.48 ------------------------------------------------------------------------- Shares used in per-share calculation: ------------------------------------------------------------------------- Basic 16,848,071 16,531,97 16,714,709 15,995,657 ------------------------------------------------------------------------- Diluted, as restated(1) 17,931,083 18,050,897 17,938,447 17,665,729 ------------------------------------------------------------------------- 1. Diluted earnings per share and diluted weighted average shares outstanding for periods in fiscal 2006 have been restated to correct prior errors in the calculation of the dilutive impact of warrants and stock options (additional 441,676 shares in Q4'06 and 768,692 shares in fiscal 2006). March Networks Corporation ------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (CDN $) ------------------------------------------------------------------------- (In thousands) (Unaudited) ------------------------------------------------------------------------- April 30, April 30, 2007 2006 ------------------------------------------------------------------------- ASSETS ------------------------------------------------------------------------- Current assets: ------------------------------------------------------------------------- Cash and cash equivalents $ 3,526 $ 3,292 ------------------------------------------------------------------------- Short-term investments 82,305 85,761 ------------------------------------------------------------------------- Restricted cash 2,775 - ------------------------------------------------------------------------- Accounts receivable 19,396 13,655 ------------------------------------------------------------------------- Inventories 11,577 6,346 ------------------------------------------------------------------------- Prepaid expenses and other current assets 1,778 994 ------------------------------------------------------------------------- Current assets - discontinued operations - 48 ------------------------------------------------------------------------- Future tax assets 2,198 7,984 ------------------------------------------------------------------------- Total current assets 123,555 118,080 ------------------------------------------------------------------------- Restricted cash 833 - ------------------------------------------------------------------------- Capital assets 2,720 889 ------------------------------------------------------------------------- Intangible assets 3,088 - ------------------------------------------------------------------------- Future income taxes 21,975 18,587 ------------------------------------------------------------------------- Goodwill 5,397 - ------------------------------------------------------------------------- TOTAL ASSETS $ 157,568 $ 137,556 ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------------------------------------------- Current liabilities: ------------------------------------------------------------------------- Accounts payable $ 5,790 $ 9,634 ------------------------------------------------------------------------- Accrued liabilities 4,337 3,748 ------------------------------------------------------------------------- Refundable royalty advance 2,775 - ------------------------------------------------------------------------- Deferred revenue 7,560 2,602 ------------------------------------------------------------------------- Income taxes payable 467 475 ------------------------------------------------------------------------- Current liabilities - discontinued operations - 597 ------------------------------------------------------------------------- Total current liabilities 20,929 17,056 ------------------------------------------------------------------------- Acquisition escrow 833 - ------------------------------------------------------------------------- Deferred revenue 5,881 1,035 ------------------------------------------------------------------------- Total liabilities 27,643 18,091 ------------------------------------------------------------------------- Shareholders' equity 129,925 119,465 ------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 157,568 $ 137,556 ------------------------------------------------------------------------- March Networks Corporation ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (CDN $) ------------------------------------------------------------------------- (In thousands) (Unaudited) ------------------------------------------------------------------------- Fiscal Year Ended ------------------------------------------------------------------------- April 30, April 30, 2007 2006 ------------------------------------------------------------------------- Cash flows from operating activities: ------------------------------------------------------------------------- Net earnings - continuing operations $ 4,815 $ 46,395 ------------------------------------------------------------------------- Net earnings (loss) - discontinued operations 1,227 (2,502) ------------------------------------------------------------------------- Items not affecting cash: ------------------------------------------------------------------------- Amortization of capital assets 1,020 196 ------------------------------------------------------------------------- Amortization of acquired intangibles 439 - ------------------------------------------------------------------------- Gain on sale of discontinued operations (1,226) - ------------------------------------------------------------------------- Stock based compensation 1,485 712 ------------------------------------------------------------------------- Foreign exchange loss on foreign cash and cash equivalents held (137) 190 ------------------------------------------------------------------------- Future income taxes and non-refundable investment tax credits 3,879 (26,571) Items not affecting cash in discontinued operations - (14) ------------------------------------------------------------------------- Net change in non-cash items: ------------------------------------------------------------------------- Continuing operations (7,536) (1,555) Discontinued operations (550) 409 ------------------------------------------------------------------------- Net cash generated by operating activities 3,416 17,260 ------------------------------------------------------------------------- Cash flows from investing activities: Purchases of short-term investments 3,456 (29,361) ------------------------------------------------------------------------- Purchase of capital assets (2,493) (641) ------------------------------------------------------------------------- Purchase of capital assets - discontinued operations - (32) ------------------------------------------------------------------------- Acquisition of business (8,316) - ------------------------------------------------------------------------- Proceeds from sale of discontinued operations 1,226 343 ------------------------------------------------------------------------- Net cash consumed by investing activities (6,127) (29,691) ------------------------------------------------------------------------- Cash flows from financing activities: ------------------------------------------------------------------------- Issuance of share capital, net 2,933 8,478 ------------------------------------------------------------------------- Net cash generated by financing activities 2,933 8,478 Net decrease in cash and cash equivalents - continuing operations (455) (2,157) Net increase (decrease) in cash and cash equivalents - discontinued operations 677 (1,796) ------------------------------------------------------------------------- Net decrease in cash and cash equivalents 222 (3,953) ------------------------------------------------------------------------- Foreign exchange loss on foreign cash and cash equivalents held 12 (190) ------------------------------------------------------------------------- Cash and cash equivalents, beginning of period 3,292 7,435 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 3,526 $ 3,292 -------------------------------------------------------------------------