Vecima Reports Q3 Fiscal 2023 Results

• Revenue of $78.3M (+54% YoY); Gross Profit of $34.1M (+42% YoY); Gross Margin of 43.5%
• Q3 EPS increases to $0.18 from $0.13 YoY; Nine-month EPS climbs to $0.94 from $0.23
• Adjusted EBITDA up 44% YoY to $11.7M; Nine-month Adjusted EBITDA up 125% to $44.7M
• Q3 Entra Family DAA sales expand 104% YoY to $62.7M

Vecima Networks Inc. (TSX: VCM) today reported financial results for the three and nine months ended March 31, 2023.

FINANCIAL HIGHLIGHTS

“Our Q3 results represent another new high watermark in sales after two straight years of rapid growth that have seen our run-rate revenues more than double. Third quarter consolidated sales climbed 54% year-over-year to a new high of $78.3 million. Our results have continued to underscore the broad and enduring strength of our market position and the depth and scope of our next-generation DAA and IPTV product portfolios as we respond to the wide-ranging needs of a large and growing base of global customers,” said Sumit Kumar, President and CEO of Vecima.

“In our Video and Broadband Solutions segment, our highest quarter of deliveries yet for EntraOptical products, together with robust sales of our Entra Remote Phy nodes, helped drive new sales heights for both Entra and the Video Broadband Solutions segment as a whole. Our CDS segment also turned in a solid performance with IPTV expansions with existing customers contributing to segment revenues of $11.8 million.”

“On the bottom line, we grew Adjusted EBITDA 44% year-over-year and achieved quarterly EPS of $0.18 while continuing to manage the ongoing effects of a shifting landscape of supply chain challenges, including elevated levels of freight, logistics costs and inventory. Our gross margin percentage reflects these impacts in conjunction with a product mix shift to the more volume-oriented margin profile of some of our Cable Access products.”

“Going forward, we continue to expect our next-generation DAA cable and fiber access products will be a major driver of further long-term growth for Vecima. We also anticipate full-year FY23 revenue will well exceed the 50% growth we achieved in FY22.”

“However, we note that the macro environment is in transition, from the very recent major constraints in the supply chain, to the current landscape, where vendors that have managed the supply chain highly effectively, like Vecima, have fulfilled strong deliveries of products to fuel customers’ ongoing major network upgrade projects. Over the coming quarters we anticipate that customers’ focus will temporarily shift from building up their product pipelines, to managing their DAA rollout logistics and working through existing inventories. This is likely to lead to short-term softness in product deliveries to customers prior to an expected return to growth driven by new programs and deployments, as well as a normalization of customer demand, in calendar 2024.”

“We continue to be focused on navigating the current supply and inventory dynamics, while leveraging our unparalleled portfolio of cable and fiber access solutions, our strong working capital position to support customer deployments, and our growing global reach to capture additional market share and expand our lead in the vast new DAA market. We are still in the early stages of broad industry DAA adoption and continue to see a significant long-term growth runway ahead for Vecima,” said Mr. Kumar.

“In our Content Delivery and Storage segment, demand for our IPTV and open caching solutions continues to increase as IPTV customers initiate network expansions. We anticipate a strong finish to fiscal 2023, culminating in low double-digit year-over-year sales growth for this segment. We continue to see strong future growth potential as IPTV gains momentum and our newer caching solutions become an important driver of CDS performance.”

“Overall, we are highly confident in Vecima’s ability to capture the major and multi-year opportunities in the compelling DAA and IPTV markets over the long-term,” said Mr. Kumar.

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 June 19, 2023 to shareholders of record as at May 26, 2023.

BUSINESS HIGHLIGHTS

Financial and Corporate Highlights

• Achieved a new quarterly revenue record with third quarter sales climbing 54% to $78.3 million, from $50.9 million in Q3 fiscal 2022
• Gross profit climbed 42% to $34.1 million, up from $24.0 million in Q3 fiscal 2022
• Grew EPS and Adjusted EPS to $0.18 per share, from $0.13 per share in Q3 fiscal 2022
• Adjusted EBITDA climbed 44% to $11.7 million, from $8.1 million in the prior-year period
• Ended the third quarter in strong financial position with working capital of $91.1 million at March 31, 2023, compared to $58.6 million at June 30, 2022

Video and Broadband Solutions (VBS)

• The VBS segment delivered record performance of $64.8 million, up 75% year-over-year and 4% higher than the exceptionally strong performance achieved in Q2 fiscal 2023

DAA (Entra Family)

• Deployments of next-generation Entra DAA products rose to a record $62.7 million, up 104% year-over-year and 13% quarter-over-quarter as customers continued to increase their rollout of next-generation distributed access architecture
• Key DAA achievements in Q3 fiscal 2023 included:
  • An increase in total customer engagements to 106 MSOs worldwide, from 83 a year earlier. To date, 50 of these customers have ordered Entra products
    • Customers engaged for cable access now number 60
    • Customers engaged for fiber access or both access technologies now number 46
  • Achieved another exceptional quarter for Vecima’s fiber-access DAA solutions, leveraging supply chain strengths to support scale rollouts of EntraOptical Fiber Access solutions, particularly for broadly-funded rural broadband expansions
  • Selected by Charter Communications to provide Entra ERM3 next-generation Remote PHY devices for this customer’s enterprise-wide hybrid fiber coax (HFC) network evolution. The Entra ERM3 RPD is expected to be used for a substantial portion of Charter’s network upgrade
  • Grew Vecima’s presence in Asia with a strategic Remote PHY win with Kbro, the largest cable operator in Taiwan. Kbro selected Vecima’s Entra EN2112 Compact Remote PHY (R-PHY) nodes as part of its DAA solution to enable high-speed DOCSIS 3.1 services for subscribers
  • Recognized by Dell’Oro Group as the 2022 market share leader in two key DAA categories: Remote Optical Line Terminals and Remote MACPHY
  • VBS services revenue increased 38% year-over-year and 7% quarter-over-quarter

Commercial Video (Terrace Family)

• Generated Commercial Video sales of $2.1 million, as compared to $6.2 million in Q3 fiscal 2022 and $6.5 million in Q2 fiscal 2023, as customers prepare to transition to next-generation platforms and as our newer DAA-driven commercial video solutions are accounted for as part of Entra family sales
• Achieved a new milestone with Terrace and TerraceQAM bulk video delivery reaching an estimated 25,000 hotels, enterprises and commercial sites

Content Delivery and Storage (CDS)

• Achieved solid Q3 CDS sales of $11.8 million, as compared to $12.5 million in Q3 fiscal 2022 and $12.4 million in Q2 fiscal 2023
• Undertook a major IPTV expansion with a top 10 U.S. cable operator, growing the network footprint to give a larger subscriber base access to state-of-the-art live, on-demand, and cloud DVR streaming services on the IPTV fabric
• Completed expansions with five additional IPTV customers, as well as a special engineering project with a sixth customer
• Supported the record traffic experienced by operators using our MediaScale streaming platform during Super Bowl LVII, delivering 100% uptime performance
• Announced a new compact, affordable legacy QAM video solution suitable for smaller operators
• Subsequent to the quarter-end, established a partnership with Cadent, the largest independent platform for advanced TV advertising, to integrate Vecima’s MediaScale ^™ streaming solution with the Cadent Aperture platform. This integrated solution will enable service providers to protect existing linear ad revenue as they migrate to new IPTV platforms, while creating opportunities for incremental revenue
• CDS service revenue increased to a record $5.6 million in the quarter, a 31% increase year-over-year and a 9% increase quarter-over-quarter

Telematics

• Continued penetration into target industry verticals for our moveable asset solution, which monitors the location of valuable assets in warehouses, on vehicles and customer work sites
• Achieved best quarter to date for additions of new moveable asset customers, including adding 16 new customers for the NERO asset tracking platform, over 300 additional subscriptions booked, and asset tracking-related telematics subscriptions now representing approximately 13% of total subscriptions
• Significantly increased the number of moveable assets being monitored to over 40,000 units, an over 266% increase in the last eight quarters
• In the municipal government market for vehicle monitoring systems, continued roll out with a Canadian municipality for approximately 100 vehicle subscriptions, including winter operations vehicles
• Achieved year-to-date Telematics gross margin percentage of 66.2%

CONFERENCE CALL

A conference call and live audio webcast will be held today, May 11, 2023 at 1 p.m. ET to discuss the Company’s third quarter results. Vecima’s unaudited interim condensed consolidated financial statements and management’s discussion and analysis for the three and nine months ended March 31, 2023 are available under the Company’s profile at www.SEDAR.com, and at https://vecima.com/investor-relations/financial-reports/.

To participate in the teleconference, dial 1-800-319-4610 or 1-604-638-9020. The webcast will be available in real time at http://services.choruscall.ca/links/vecima2023q2.html 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 (Loss) Per Share

Adjusted EBITDA and Adjusted Earnings (Loss) 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 (Loss) 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 (Loss) Per Share, investors should refer to Vecima’s Management’s Discussion and Analysis for the second quarter of fiscal 2023.

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: our results have continued to underscore the broad and enduring strength of our market position and the depth and scope of our next-generation DAA and IPTV product portfolios as we respond to the wide-ranging needs of a large and growing base of global customers; going forward, we continue to expect our next-generation DAA cable and fiber access products will be a major driver of further long-term growth for Vecima; we also anticipate full-year FY23 revenue will well exceed the 50% growth we achieved in FY22; however, we note that the macro environment is in transition, from the very recent major constraints in the supply chain, to the current landscape, where vendors that have managed the supply chain highly effectively, like Vecima, have fulfilled strong deliveries of products to fuel customers’ ongoing major network upgrade projects; over the coming quarters we anticipate that customers’ focus will temporarily shift from building up their product pipelines, to managing their DAA rollout logistics and working through existing inventories; this is likely to lead to short-term softness in product deliveries to customers prior to an expected return to growth driven by new programs and deployments, as well as a normalization of customer demand, in calendar 2024; we continue to be focused on navigating the current supply and inventory dynamics, while leveraging our unparalleled portfolio of cable and fiber access solutions, our strong working capital position to support customer deployments, and our growing global reach to capture additional market share and expand our lead in the vast new DAA market; we are still in the early stages of broad industry DAA adoption and continue to see a significant long-term growth runway ahead for Vecima; in our Content Delivery and Storage segment, demand for our IPTV and open caching solutions continues to increase as IPTV customers initiate network expansions; we anticipate a strong finish to fiscal 2023, culminating in low double-digit year-over-year sales growth for this segment; we continue to see strong future growth potential as IPTV gains momentum and our newer caching solutions become an important driver of CDS performance; overall, we are highly confident in Vecima’s ability to capture the major and multi-year opportunities in the compelling DAA and IPTV markets over the long-term; the Entra ERM3 RPD is expected to be used for a substantial portion of Charter’s network upgrade; and the integration of Vecima’s MediaScale streaming solution with the Cadent Aperture platform, the largest independent platform for advanced TV advertising, will enable service providers to protect existing linear ad revenue as they migrate to new IPTV platforms, while creating opportunities for incremental revenue.

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 22, 2022, as well as the Company’s continuous disclosure filings with Canadian securities regulatory authorities available at www.sedar.com. 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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