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International Datacasting Corporation: International Datacasting Corporation Announces Fiscal 2010 Second Quarter Results

^{Published on 2009-09-10 13:59:40 - Market Wire}
 

OTTAWA, ONTARIO--(Marketwire - Sept. 10, 2009) - International Datacasting Corporation (TSX:IDC), a leader in providing advanced solutions for the distribution of broadband content via satellite, announced its financial results for the three- and six-month periods ended July 31, 2009. All figures are in Canadian dollars unless otherwise stated.

Q2 Fiscal 2010 Financial Summary

- Revenue was $5.5 million, compared to $8.9 million in Q2 fiscal 2009.

- Gross margin was 43%, up from 42% last year.

- Normalized EBITDA1 (excluding a non-cash goodwill impairment charge taken in the quarter) was $(0.2) million, compared to $1.2 million in Q2 fiscal 2009.

- Normalized net income (excluding the goodwill impairment charge) was $(0.5) million, or $(0.01) per share, compared to $1.0 million, or $0.02 per share, in Q2 fiscal 2009.

Year-to-Date Fiscal 2010 Financial Summary

- Revenue was $10.6 million, compared to $14.6 million in the first half of fiscal 2009.

- Gross margin was 46%, up from 44% last year.

- Normalized EBITDA (excluding the goodwill impairment charge) was $(0.8) million, compared to $1.2 million in the first half of fiscal 2009.

- Normalized net income (excluding the goodwill impairment charge) was $(1.3) million, or $(0.02) per share, compared to $0.8 million, or $0.01 per share, last year.

"The difficult economic conditions that we faced coming into this fiscal year have continued into the second quarter; however, our Q2 performance in terms of revenues and normalized net income has improved compared to Q1, which we believe is a positive sign that the situation is improving and capital expenditures in the industry are slowly picking up," said Ron Clifton, President and CEO, International Datacasting Corporation. "In comparing our Q2 performance to the same period last year, it should be noted that last year's results were dominated by a single large order in that quarter that affected Europe and Asia Pacific - otherwise, all regions are producing at the same levels or slightly better. We took a goodwill impairment charge in Q2, similar to other public companies in our situation, where adverse global economic conditions have resulted in revenue declines and a decrease in market capitalization. This was a non-cash accounting adjustment, which, combined with our continued strong cash and working capital situation, cleans up and further strengthens our balance sheet moving forward.

Although the current economic environment is forcing customers in the industry to delay or downsize purchases, we continue to win ongoing business from existing customers and new business in all our vertical markets. Our quoting activity is high, and our sales pipeline is strong, so we remain optimistic about the second half of this year. We are continuing with our investment in R&D. This is important to our customers, as they want to know that we are serving them well now, particularly during these difficult times, while continuing to innovate for the future. During Q2, we developed several new products, such as our next-generation IPTV Blade Receiver product line and new 3D digital cinema products that incorporate Sensio technology, all of which will be showcased at the International Broadcast Convention next week in Europe."

Mr. Clifton continued: "We are also excited about the long-term opportunities created by our acquisition of the Tiernan radio and video product lines subsequent to quarter end. The planned integration process is going well; customer response has been encouraging; and we expect the addition of the new products to start contributing to our results in the second half of this year. We expect some restructuring costs in Q3, as we fold the product line into IDC operations. However, these should settle down by Q4, which, in combination with the synergies we expect to realize, will put us in a good position entering the new fiscal year."

Operational Highlights

During the quarter, IDC continued to strengthen its presence in the Broadcast Video market. In France, the Company won a sizable digital cinema order, and successfully broadcast a concert and the French Open live in 3D, to various locations across the country, using its SuperFlex Pro Cinema 3D products, which incorporate SENSIO's^® 3D technology. The Company also won a new order with an existing digital cinema customer in the US and showcased its entire digital cinema product suite at a leading industry conference in Europe. In addition, IDC introduced a new application for its 3D Live Encoder and Decoder, as it was used in a live 3D demonstration of a robotic surgical system at a healthcare conference in South Korea.

In the Broadcast Radio market, IDC expanded its footprint in Central Europe. The Company's PROFline subsidiary was awarded a contract by SBS Broadcasting Media to upgrade two of Romania's leading radio networks.

IDC's large installed customer base drove repeat business across all three of the Company's target market verticals in the quarter. In particular, broadcast radio customers, CBC and NPR, broadcast video customer, EchoStar and broadcast data customers, Thomson Reuters and Raytheon all placed follow-on orders, as they continue to expand or upgrade their broadband satellite distribution networks.

Subsequent to quarter end, IDC acquired select Tiernan broadcast radio and video product lines, as well as the related intellectual property, trademarks, inventory, customer and vendor lists, OEM partnerships and reseller agreements, for total cash consideration of approximately US$2.0 million. As a result of the acquisition, in addition to growing its sales force and strengthening its research and development team, IDC has expanded its broadcast media product portfolio and extended its geographic reach, increasing the size of the Company's total addressable market.

Financial Review

Revenue was $5.5 million for Q2 fiscal 2010, compared to revenue of $5.1 million in Q1 fiscal 2010, and revenue of $8.9 million in Q2 fiscal 2009. The year-over-year revenue decline was a result of lower satellite equipment sales compared to last year, which was partially offset by a slight increase in sales from the Company's Broadcast Services business. Due to current economic conditions, IDC continues to experience longer sales cycles in its Satellite Equipment business, as many clients are delaying or downsizing purchasing decisions.

Gross profit was $2.4 million in Q2 fiscal 2010, representing 43% of revenues, compared to $3.8 million, or 42% of revenues, in Q2 fiscal 2009. Gross margins were up year-over-year predominantly as a result of product mix. However, gross margins were atypically low in both Q2 2010 and Q2 2009 as a result of a larger proportion of lower margin third-party products sold to customers this year, and higher startup costs related to the newly launched high-speed broadcast data solution last year. Management continues to work to improve gross margins over the long-term, as demonstrated over the past several years, but expects margins to continue to fluctuate on a quarterly basis with product mix and order timing.

Operating expenses for Q2 fiscal 2010 were $5.4 million, which included a $2.5 million non-cash goodwill impairment charge, related to the Company's past acquisition of PROFline B.V. Adverse global economic conditions, resulting in revenue declines in the Satellite Equipment Segment in Q1 and Q2 and a decline in IDC's common share price and market capitalization, have had a material impact on the impairment test for goodwill. While the impairment charge reduces reported results under GAAP, this charge is non-cash in nature and does not affect IDC's liquidity, cash flows or current or future operations. Excluding the goodwill impairment charge, overall operating expenses were $2.9 million, in line with $2.9 million in Q2 fiscal 2009.

Selling, General and Administrative expenses were $1.7 million in Q2 fiscal 2010, which, as a result of lower sales commissions in the quarter, were down from $1.8 million in Q2 fiscal 2009. Research and Development costs were $0.9 million in Q2 fiscal 2010, up from $0.8 million in Q2 fiscal 2009, as a result of an increase in headcount compared to the same period last year.

Earnings before interest, taxes, depreciation and amortization (EBITDA) were $(2.7) million in Q2 fiscal 2010. Excluding the goodwill impairment charge, normalized EBITDA was $(0.2) million. This is compared to EBITDA of $1.2 million in Q2 fiscal 2009.

For Q2 fiscal 2010, net loss was $3.0 million, or $0.05 per share. Excluding the goodwill impairment charge, normalized net loss was $0.5 million, or $0.01 per share. IDC recorded a net loss of $0.8 million, or $0.01 per share in Q1 fiscal 2010, and net income of $1.0 million, or $0.02 per share, in Q2 fiscal 2009.

IDC had $7.2 million in cash and working capital of $13.6 million at July 31, 2009, compared to $7.1 million in cash and working capital of $13.8 million at April 30, 2009 and $7.6 million in cash and working capital of $14.7 million at January 31, 2009. In Q2 fiscal 2010, IDC generated $0.2 million in cash from operations, compared to $2.7 million in cash from operations in Q2 fiscal 2009. At Q2 fiscal 2010 quarter end, the Company was free of long-term debt and had unused bank credit lines totaling $1.5 million.

"In light of current economic challenges, we are carefully managing costs and inventory to preserve cash and maintain a strong working capital position. That being said, we remain focused on long-term opportunities for the business. As such, we continue to make strategic investments, particularly in areas such as business development, customer support and research and development to enhance our positioning for future growth," Mr. Clifton added.

A complete set of financial statements and management's discussion and analysis for the three and six months ended July 31, 2009 will be available at [ www.sedar.com ] or on the Investor Information section of IDC's website at [ www.datacast.com ].

Conference Call

A conference call will be held on Friday, September 11, 2009 at 9:00 a.m. ET to discuss this announcement. The call may be accessed by dialing 416-644-3414 or 1-800-814-4860. A taped replay will be available for one week by dialing 416-640-1917 or 1-877-289-8525, reference number 21313949#. To access the live webcast, please visit the Company's website at [ www.datacast.com ] or [ www.newswire.ca ] for directions.

About International Datacasting Corporation (IDC)

International Datacasting Corporation (TSX:IDC) is a global leader in providing IP-based datacasting solutions for the distribution of broadband multimedia content. IDC has a broad portfolio of advanced technology products marketed under the names SuperFlex, Datacast XD, Tiernan and PROFLine for implementing a wide range of satellite and other broadband content contribution and distribution networks. IDC's products are in demand for radio and television broadcast networks, distance learning, digital signage, digital cinema, IPTV distribution and other multimedia applications. IDC is headquartered in Ottawa, Canada, operates in Europe through its wholly owned subsidiary PROFline B.V. in Arnhem, the Netherlands, and in the US through its Tiernan operations in San Diego, California. The Company is international in scope, with installations in more than 100 countries worldwide, regional sales and service offices in the UK, Australia, Singapore and China and an established international network of value-added partners and distributors.

(1)Use of Non-GAAP Financial Information

Non-GAAP measures, such as EBITDA and backlog, are provided to enhance the overall understanding of our current financial performance and our prospects for the future. Specifically, we believe non-GAAP results provide useful information to both management and investors by excluding specific expenses we believe are not indicative of our core operating results. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles.

EBITDA (earnings before interest, taxes, depreciation and amortization) is not a recognized measure under Canadian generally accepted accounting principles (GAAP), does not have standardized meaning, and is unlikely to be comparable to similar measures used by other companies. Accordingly, investors are cautioned that EBITDA should not be construed as an alternative to revenue, net earnings or loss determined in accordance with GAAP as an indicator of the financial performance of the Company or as a measure of the Company's liquidity and cash flows.

This press release contains forward-looking statements that may involve risks and uncertainties. Actual results may differ materially. Factors that might cause a difference include, but are not limited to, competitive developments, risks associated with IDC's growth, any difficulties with integrating the Tiernan product lines into IDC's business and/or manufacturing procedures, the development of the satellite datacasting market, regulatory risks, intellectual property infringement and other factors. IDC assumes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof. More detailed information about potential factors that could affect IDC's financial and business results is included in the public documents IDC files from time to time with Canadian securities regulatory authorities.

International Datacasting Corporation
Consolidated Balance Sheet as at

 July 31, January 31,
 2009 2009
ASSETS
Current Assets
 Cash $7,191,612 $7,554,296
 Amounts receivable 4,853,217 6,903,984
 Income tax receivable 109,672 171,766
 Inventories 3,633,837 4,250,698
 Prepaid expenses and other assets 690,558 487,073
 Future tax asset 583,537 583,537
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Total Current Assets 17,062,433 19,951,354

Equipment 2,839,825 3,113,279
Held-for-trading investment 151,991 -
Available-for-sale investment 516,667 -
Future tax asset long term portion 2,911,463 2,911,463
Intangible assets 697,874 852,957
Goodwill - 2,491,030
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 7,117,820 9,368,729

 $24,180,253 $29,320,083
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LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
 Accounts payable and accrued liabilities $2,841,042 $4,376,113
 Other liabilities - 7,800
 Obligations under capital leases
 - current portion 98,944 147,827
Deferred revenue 546,459 691,326
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Total Current Liabilities 3,486,445 5,223,066
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Long Term Liabilities
 Obligations under capital leases 134,264 176,473
 Future tax liability 139,575 217,504
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Total Long Term Liabilities 273,839 393,977
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Total Liabilities 3,760,284 5,617,043
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Shareholders' equity
 Capital stock 22,904,113 22,829,784
 Contributed surplus 2,852,621 2,680,871
 Accumulated other comprehensive income 439,661 176,440
 Accumulated deficit (5,776,426) (1,984,055)
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Total Shareholders' Equity 20,419,969 23,703,040
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 $24,180,253 $29,320,083
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International Datacasting Corporation
Unaudited Consolidated Statement of Operations and
Comprehensive Loss
for the six months ended

 July 31, July 31,
 2009 2008

Revenue $10,631,364 $14,554,827

Cost of revenue 5,752,519 8,175,935
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Gross profit 4,878,845 6,378,892
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Operating expenses
Selling, general and administrative 3,671,812 3,597,143
Research and development, net of
 investment tax credits 1,912,816 1,619,787
Amortization 625,531 586,397
Goodwill impairment 2,491,030 -
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 8,701,189 5,803,327
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Operating (loss) income (3,822,344) 575,565
Interest income (expense)
 Long-term (11,214) (32,042)
 Short-term 13,711 82,726
Unrealized gain on revaluation of
 held-for-trading investment 100,094 -
Foreign exchange (loss) (145,634) 15,478
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(Loss) earnings before income taxes (3,865,387) 641,727
Income tax recovery 73,016 140,444
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Net (loss) income $(3,792,371) $782,171
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Other comprehensive income

Unrealized gain on revaluation of
 available-for-sale investment $318,564 $-
Unrealized gain on translation of
 self sustaining foreign operations (55,343) 108,405
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Other comprehensive income 263,221 108,405
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Comprehensive (loss) income $(3,529,150) $890,576
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Net (loss) earnings per share
Basic $(0.07) $0.01
Diluted $(0.07) $0.01

Weighted average number of shares
 outstanding
 Basic 56,751,747 56,371,362
 Diluted 57,647,286 59,580,079



International Datacasting Corporation
Unaudited Consolidated Statement of Operations and
Comprehensive Loss
for the three months ended

 July 31, July 31,
 2009 2008

Revenue $5,521,161 $8,932,300

Cost of revenue 3,126,610 5,170,182
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Gross profit 2,394,551 3,762,118
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Operating expenses
Selling, general and administrative 1,711,361 1,833,145
Research and development, net of
 investment tax credits 880,759 808,074
Amortization 303,444 279,002
Goodwill impairment 2,491,030 -
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 5,386,594 2,920,221
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Operating (loss) income (2,992,043) 841,897
Interest income (expense)
 Long-term (5,396) (13,001)
 Short-term (2,604) 53,406
Unrealized gain on revaluation of
 held-for-trading investment 51,486 -
Foreign exchange (loss) gain (37,211) 75,174
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(Loss) earnings before income taxes (2,985,768) 957,476
Income tax recovery 12,822 42,054
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Net (loss) income $(2,972,946) $999,530
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Other comprehensive income

Unrealized gain on revaluation of
 available-for-sale investment $141,667 $-
Unrealized (loss) gain on translation
 of self sustaining foreign operations (62,631) 30,018
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Other comprehensive income 79,036 30,018
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Comprehensive (loss) income $(2,893,910) $1,029,548
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Net (loss) earnings per share
Basic $(0.05) $0.02
Diluted $(0.05) $0.02

Weighted average number of
shares outstanding
 Basic 56,762,413 56,383,826
 Diluted 58,195,326 58,910,921



International Datacasting Corporation
Consolidated Statement of Cash Flows
for the six months ended

 July 31, July 31,
 2009 2008

Operating Activities
 Net (loss) income $(3,792,371) $782,171
 Add items not requiring an outlay
 of cash:
 Goodwill impairment 2,491,030 -
 Amortization 625,531 586,397
 Bad debt expense 45,251 -
 Unrealized gain on revaluation of
 held-for-trading investment (100,094) -
 Future income taxes (77,929) (32,955)
 Stock-based compensation 189,668 85,755
Net change in operating components of
 working capital 771,581 793,471
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Cash provided by operating activities 152,667 2,214,839
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Investing activities
 Additions to equipment (201,125) (468,426)
 Purchase of held-for-trading investment (51,897) -
 Purchase of available-for-sale investment (198,103) -
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Cash (applied to) investing activities (451,125) (468,426)
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Financing activities
Bank loan repayments - (971,978)
Repayments of obligations under capital
 leases (91,092) (105,567)
Issue of common shares, net of issue costs 56,411 3,363
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Cash (applied to) financing activities (34,681) (1,074,182)
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Effect of foreign exchange rate changes
 on cash (29,545) 76,346

(Decrease) Increase in cash during the
 period (362,684) 748,577

Cash - Beginning of period 7,554,296 7,842,443
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Cash - End of period $7,191,612 $8,591,020
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Interest paid 11,214 50,197
Equipment purchased under capital lease - 24,841
Capital lease obligations assumed - (24,841)
Income taxes paid 4,913 7,699



International Datacasting Corporation
Consolidated Statement of Cash Flows
for the three months ended

 July 31, July 31,
 2009 2008

Operating Activities
 Net (loss) income $(2,972,946) $999,530
 Add items not requiring an outlay of
 cash:
 Goodwill impairment 2,491,030 -
 Amortization 303,444 279,002
 Bad debt expense (3,526) -
 Unrealized gain on revaluation of
 held-for-trading investment (51,486) -
 Future income taxes (15,508) (13,182)
 Stock-based compensation 121,819 39,352
Net change in operating components of
 working capital 369,724 1,421,144
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Cash provided by operating activities 242,551 2,725,846
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Investing activities
 Additions to equipment (54,036) (170,247)
 Purchase of held-for-trading investment - -
 Purchase of available-for-sale investment - -
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Cash (applied to) investing activities (54,036) (170,247)
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Financing activities
Bank loan repayments - -
Repayments of obligations under capital
 leases (40,784) (49,626)
Issue of common shares, net of issue costs - 4,900
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Cash (applied to) financing activities (40,784) (44,726)
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Effect of foreign exchange rate changes
 on cash (20,828) 39,826

Increase in cash during the period 126,903 2,550,699

Cash - Beginning of period 7,064,709 6,040,321
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Cash - End of period $7,191,612 $8,591,020
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Interest paid 5,396 13,391
Equipment purchased under capital lease - 24,841
Capital lease obligations assumed - (24,841)
Income taxes paid 2,686 7,699