Vecima Networks Inc. (TSX: VCM) today reported financial results for the three and six months ended December 31, 2024.

FINANCIAL HIGHLIGHTS

“We faced transitory headwinds in the second quarter related to a temporary shift in our product mix and adjustments in the timing of some of our largest customers’ cable and fiber upgrades. This, along with foreign exchange volatility and one-time restructuring costs, collectively led to a negative impact on our bottom-line results for the Q2 period,” said Sumit Kumar, President and CEO of Vecima.

“Notwithstanding these challenges, we achieved critical milestones as we continued to lay the foundation for anticipated future demand growth in our Video and Broadband Solutions (VBS) and Content Delivery and Storage (CDS) segments,” added Mr. Kumar. “We also moved decisively to better align our teams and program investments with customer needs and to enhance our operating efficiency going forward. While our recent reorganization further impacted Q2 results with one-time restructuring costs of approximately $2.8 million, our initiatives are expected to deliver ongoing annualized cash savings of approximately $17.5 million, with initial benefits beginning to be realized in the second half.”

“Financially, consolidated sales of $71.2 million grew 15% year-over-year, despite being 13% lower on a sequential quarterly basis. In our VBS segment, sales of $59.3 million were up 21% compared to Q2 fiscal 2024. Entra DAA products contributed $56.2 million to the Q2 VBS segment results in a mixed quarter that saw delays in orders for certain products, offset by continued expansion of our node market share with record shipments of our flagship EN9000 and initial deployment of our EN8400 1.8GHz access nodes. The EN9000 is pivotal technology that is expected to house successive generations of higher-margin software-driven access modules. As we have discussed previously, these platforms carry a lower margin when fulfilled on a standalone basis but ultimately help to drive higher margins as software-driven access modules are populated within the node. As such, adoption, deployment and hardwiring in of this future-proof node platform provides a powerful foundation for Vecima’s future growth and success.”

“We also made excellent progress with our new vCMTS solution in Q2 with four customer trials underway, including a leading Tier 1, and additional trials preparing to launch with customers worldwide in Q3. As well, we achieved initial sales of our newly acquired Falcon solutions as we expanded our presence with a Tier 1 customer and secured the first order for our new Test Suite solution from an additional operator. We anticipate further revenue opportunities from this portfolio going forward, along with related incremental sell-through opportunities for vCMTS and Remote PHY.”

“Our CDS segment experienced a ‘lumpy’ quarter with sales of $10.2 million climbing 41% sequentially after a slow start to the year but decreasing 9% year-over-year. While quarterly sales variability is normal for the CDS segment, driven by the timing of large orders related to customer IPTV projects, the year-over-year decrease in higher-margin CDS sales added to the quarter’s margin headwinds. We anticipate a strengthening of CDS sales in the second half as our open CDN and Dynamic Ad Insertion (DAI) technologies gain traction and previously deferred customer projects carry on. Our previously announced exclusive global partnership with Digital Harmonic to represent and resell its innovative dh/KeyFrame Media Optimization product is also providing new opportunities for our CDS segment going forward.”

“In the Telematics segment, second quarter revenues increased 2% year-over-year to $1.7 million, in line with our expectations and we continue to anticipate solid incremental growth from this segment.”

“Going forward, we recognize that demand volatility could continue into the second half of fiscal 2025 depending on customer project timing. Delays to date have primarily reflected ongoing system level field qualifications, which are typically challenging for customers undertaking very large system upgrades. Vecima’s technology has performed exceptionally well through these qualification processes, and we anticipate increased product rollouts once qualifications are completed. The prospect of trade actions between the U.S. and Canada has added further uncertainty to the outlook. With about 90% of our sales in the U.S., an estimated half of which we believe could potentially be exposed to tariff actions, we are underway with plans to mitigate potential risks, regardless of the outcome of current trade discussions.”

“While accurate forecasting in the near and medium term will be more difficult in light of the current trade and timing uncertainties, adapting to rapidly changing business conditions is one of Vecima’s core strengths. We are moving forward with global market share leadership in the high-growth DAA and IPTV markets, a proven track record as a provider of innovative technology, services, and products to the world’s most sophisticated cable and broadcast providers, and compelling opportunities provided by our growing portfolio of next-generation solutions. We remain confident in our future growth prospects and our ability to continue creating strong value for our customers and shareholders,” said Mr. Kumar.

BUSINESS HIGHLIGHTS

Financial and Corporate

• Second quarter revenue increased by 15% year-over-year to $71.2 million, from $62.0 million in Q2 fiscal 2024 and $81.9 million in Q1 fiscal 2025.
• Gross profit of $25.9 million, compared to $30.8 million in Q2 fiscal 2024 and $34.2 million in Q1 fiscal 2025.
• Gross margin of 36.4%, compared to 50.1% in Q2 fiscal 2024 and 41.7% in Q1 fiscal 2025.
• Adjusted EBITDA of $1.1 million, compared to $12.5 million in Q2 fiscal 2024 and $11.6 million in Q1 fiscal 2025.
• Loss per share of $0.32 and Adjusted loss per share of $0.25, compared to earnings per share and Adjusted earnings per share of $0.15 and $0.22, respectively, in Q2 fiscal 2024, and $0.09 and $0.10, respectively, in Q1 fiscal 2025.
• Completed a cost restructuring in December 2024, including a workforce reduction of approximately 12%, to better align teams and investments with customers' needs and to enhance operating efficiency. The restructuring is expected to result in annualized cash cost savings of approximately $17.5 million, with initial benefits anticipated in the second half of fiscal 2025. Second quarter fiscal 2025 results include a one-time restructuring expense of $2.8 million related to this initiative.
• Ended the second quarter with working capital of $63.8 million at December 31, 2024, compared to $84.9 million at June 30, 2024.

Video and Broadband Solutions (VBS)

• Video and Broadband Solutions segment sales increased 21% year-over-year to $59.3 million (Q2 fiscal 2024 - $49.1 million; Q1 fiscal 2025 - $72.9 million).

DAA (Entra Family)

• Achieved next-generation Entra product sales of $56.2 million, a year-over-year increase of 29% (Q2 fiscal 2024 - $43.8 million; Q1 fiscal 2025 - $68.3 million).
• Increased total customer engagements to 123 MSOs worldwide, from 110 a year earlier. Sixty-three of these customers are ordering Entra products as broader DAA deployment progresses.
• Expanded volume shipments of our flagship EN9000 GAP Node, with over 10,000 nodes delivered in Q2 and significant interest from an expanding group of customers. 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. In addition to strong uptake from our lead customer, we continued to see growth in interest from additional customers.
• Completed first deliveries of the 1.8GHz-ready EN8400 ‘Forever Node’ to a lead customer and secured and delivered an additional order with a second customer. The EN8400 provides 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.
• Customer engagement for our new vCMTS platform increased with lab trials underway with four North American MSOs during the quarter, including the lead Tier 1 customer. Secured new lab trial commitments with additional Tier 2 and Tier 3 operators, which are expected to commence this year.
• 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.
  • Secured licenses for the Falcon Principal Core platform with a lead Tier 1 customer in North America
  • Secured first order for the Falcon Test Suite with a customer outside of North America

Commercial Video (Terrace Family)

• Generated Commercial Video product sales of $3.0 million (Q2 fiscal 2024 - $5.3 million, Q1 fiscal 2025 $4.5 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 Content Delivery and Storage segment generated sales of $10.2 million (Q2 fiscal 2024 - $11.3 million; Q1 fiscal 2025 - $7.2 million).
  • Achieved CDS gross margin of 56.5% (Q2 fiscal 2024 - 57.0%; Q1 fiscal 2025 - 60.2%).
  • Positioned MediaScale Dynamic Ad Insertion platform with several new customers, building on our initial deployments with three customers.
  • Continued progress in development of the standards-compliant MediaScale Open CDN platform.
  • On November 13, 2024 announced global agreement with Digital Harmonic to exclusively resell its innovative dh/KeyFrame™ technology, which significantly elevates video quality while reducing content bitrates, providing material cost savings and network capacity increases. Secured initial lab equipment order for dh/KeyFrame during the quarter.

Telematics

• Telematics segment sales grew 7.1% year-over-year to $1.7 million (Q2 fiscal 2024 - $1.6 million; Q1 fiscal 2025 - $1.7 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 nine new customers for the NERO asset tracking platform. The Telematics business as a whole is now tracking over 100,000 assets, including over 20,000 vehicles and 80,000 asset tags.
  • Achieved strong gross margin percentage of 66.5%.

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 24, 2025 to shareholders of record as at February 28, 2025.

CONFERENCE CALL

A conference call and live audio webcast will be held today, February 13, 2025 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, 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 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=T3C1wVjR 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 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: we achieved critical milestones as we continued to lay the foundation for anticipated future demand growth in our Video and Broadband Solutions (VBS) and Content Delivery and Storage (CDS) segments; we also moved decisively to better align our teams and program investments with customer needs and to enhance our operating efficiency going forward; while our recent reorganization further impacted Q2 results, our initiatives are expected to deliver ongoing annualized cash savings with initial benefits beginning to be realized in the second half; the EN9000 is pivotal technology that is expected to house successive generations of higher-margin software-driven access modules; adoption, deployment and hardwiring in of this future-proof node platform provides a powerful foundation for Vecima’s future growth and success; we anticipate further revenue opportunities from this portfolio going forward, along with related incremental sell-through opportunities for vCMTS and Remote PHY; we anticipate a strengthening of CDS sales in the second half as our open CDN and Dynamic Ad Insertion (DAI) technologies gain traction and previously deferred customer projects carry on; our exclusive global partnership with Digital Harmonic to represent and resell its innovative dh/KeyFrame Media Optimization product is also providing new opportunities for our CDS segment going forward; in the Telematics segment we continue to anticipate solid incremental growth; going forward, we recognize that demand volatility could continue into the second half of fiscal 2025 depending on customer project timing; delays to date have primarily reflected ongoing system level field qualifications and we anticipate increased product rollouts once qualifications are completed; the prospect of trade actions between the U.S. and Canada has added further uncertainty to the outlook with about 90% of our sales in the U.S., an estimated half of which we believe could potentially be exposed to tariff actions, we are underway with plans to mitigate potential risks, regardless of the outcome of current trade discussions; accurate forecasting in the near and medium-term will be more difficult in light of current trade and timing uncertainties.

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.

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