Vecima Reports Q2 Fiscal 2024 Results

• Revenue: $62.0M, Gross Profit: $29.6M, Adjusted EBITDA: $12.5M
• Gross margin increased to 47.8%
• Engagements for Entra Cable & Fiber Access now span 184 unique program opportunities across 110 service provider customers globally
• Next-generation ERM3 program rollout launched with Charter Communications
• Announced availability of Vecima’s DOCSIS 4.0-Ready and 1.8 GHz ‘Forever Nodes’

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

FINANCIAL HIGHLIGHTS

“Vecima achieved strong operating performance and margins in the second quarter while we continued to successfully manage through a challenging macro-environment at the same time as launching a major new program into production deployment," said Sumit Kumar, Vecima’s President and Chief Executive Officer. "An excellent product mix and gross margin of 47.8% in the higher end of our target range was a highlight and was executed in conjunction with tight operating management and higher service revenues from our growing, deployed base of next-generation platforms. This in turn contributed to adjusted EBITDA of $12.5 million or 20.1% of sales and EPS of $0.15 for the period."

“As expected, the first half of fiscal 2024 was a transition period for our Entra distributed access architecture (DAA) business with key customers refining their rollout logistics and drawing down existing inventories in advance of new DAA launches and project ramp-ups. Moving into the second half, we anticipate a significant increase in DAA sales velocity as multiple pathways for growth begin to converge. The rollout of our next-generation ERM3 Remote PHY devices with Charter Communications, significant new fiber access opportunities becoming available via the US$42.5 billion BEAD program, which represents the largest injection of federal funding into broadband network deployment in U.S. history, and the launch of our new Generic Access Platform (GAP) node and its recent certification with the lead Tier 1 customer are just some of the major growth opportunities ahead for Entra and our VBS segment."

"In the Content Delivery and Storage segment, demand for our IPTV solutions remains strong despite project timing shifts which contributed to softer-than-expected revenue results in the second quarter. On a full-year basis, we now expect CDS revenues to be similar to the strong performance achieved in fiscal 2023."

“Overall, we are anticipating renewed momentum in the second half as we execute on the multiple, multi-year opportunities in our markets and pursue new highs in sales. We are on the cusp of our next major wave of revenue growth and are moving forward with a large and growing backlog, an unparalleled portfolio of next-generation DAA and IPTV technologies and solutions, strong partnerships with a number of the world's largest Tier 1 operators, and a solid financial position. We are excited about what lies ahead for Vecima in the second half of fiscal 2024 and beyond," said Mr. Kumar.

BUSINESS HIGHLIGHTS

Financial and Corporate

• Second quarter revenue of $62.0 million, compared to $76.2 million in Q2 fiscal 2023 and $61.5 million in Q1 fiscal 2024.
• Gross profit of $29.6 million, compared to $36.0 million in Q2 fiscal 2023 and $28.8 million in Q1 fiscal 2024.
• Gross margin increased to 47.8% from 47.3% in Q2 fiscal 2023 and 46.9% in Q1 fiscal 2024.
• Adjusted EBITDA of $12.5 million, compared to $15.8 million in Q2 fiscal 2023 and $8.1 million in Q1 fiscal 2024.
• EPS and Adjusted EPS of $0.15, as compared to $0.35 and $0.35 respectively in Q2 fiscal 2023, and $0.07 and $0.09 respectively in Q1 fiscal 2024.
• Ended the second quarter in a solid financial position with working capital of $80.4 million at December 31, 2023, compared to $83.7 million at June 30, 2023.

Video and Broadband Solutions (VBS)

The Video and Broadband Solutions segment generated second quarter sales of $49.1 million (Q2 fiscal 2023: $62.3 million; Q1 fiscal 2024: $44.1 million).

DAA (Entra Family)

• Achieved next-generation Entra product sales of $43.8 million, in line with expectations (Q2 fiscal 2023: $55.7 million; Q1 fiscal 2024: $38.8 million).

Notable second quarter DAA achievements:

• Increased total customer engagements to 110 MSOs worldwide, from 101 a year earlier. Fifty-five of these customers are ordering Entra products, with order sizes increasing as broader DAA deployment continues.
  • Customers engaged for cable access now number 63
  • Customers engaged for fiber access or both access technologies now number 47
• Won a new MACPHY deployment with a broadband provider serving 75,000 customers across 22 states.
• Initiated deliveries of the new Entra ERM3 Remote PHY device to Charter Communications. The award-winning ERM3 RPD helps operators upgrade legacy HFC nodes to DAA quickly and cost-effectively, while dramatically increasing broadband capacity. Volume deliveries began in December 2023.
• Announced availability of Vecima’s series of DOCSIS 4.0-Ready and 1.8 GHz ‘Forever Nodes’ which provide 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. Subsequent to quarter-end, achieved certification of the EN9000 GAP (Generic Access Platform) node with a leading Tier 1 customer.
• Participated in the SCTE Cable-Tec Expo 2023, a major industry show, demonstrating recent innovations in Vecima’s Remote PHY, Access Nodes, PON, Open CDN, Dynamic Content and TruLive™ product lines. Vecima’s technology was a key focus for industry decision-makers where interest in our expansive portfolio was prominent and unparalleled.
• Entra ERM3 Remote PHY device was honoured with five diamonds (the highest rating) in the 2023 BTR Diamond Technology Reviews Awards.

Commercial Video (Terrace Family)

• Generated Commercial Video product sales of $5.3 million (Q2 fiscal 2023: $6.5 million; Q1 fiscal 2024: $5.3 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 CDS segment generated sales of $11.3 million (Q2 2023: $12.4 million; Q1 fiscal 2024: $15.7 million).

• Achieved a strong CDS gross margin of 54.5% (Q2 fiscal 2023: 50.5%; Q1 fiscal 2024: 58.5%).
  • Increased service revenue by 18% year-over-year as the base of deployed MediaScale platforms continues to grow.
  • Announced an engagement with Blue Ridge Communications to support its video expansion and subsequently expanded subscriber deployments with this customer.
  • Released new versions of Media Scale Origin and Dynamic Content products with additional Dynamic Ad Insertion features, including advances in asset insertion workflows, scaling of ingest throughput for dynamic versus static ad assets, and enhanced stitching capability for frame accurate ad insertion in highly variable ad window duration scenarios.
  • Continued IPTV expansion at multiple customers, growing network footprints to give a larger subscriber base access to state-of-the-art live, on-demand, and cloud DVR streaming services on the IPTV fabric, including:
    • a Tier 2 US operator that increased MediaScale Cache capacity for on-demand streaming;
    • expansion of Mediascale cloud DVR storage at an operator in the southeastern U.S.;
    • a new phase of network capacity expansion with a fiber service provider in the southeastern U.S. encompassing a multi-tiered MediaScale Cache architecture over enterprise and micro caches; and
    • capacity growth of a large Tier 2 operator’s deployment of the full portfolio of MediaScale IPTV solutions.

Telematics

• Telematics segment sales grew approximately 7% to $1.6 million (Q2 fiscal 2023: $1.5 million; Q1 fiscal 2024: $1.6 million).
• Generated additional deployments in high-value verticals, including municipal government and moveable asset customers in restoration and emergency medical services.
• Added 10 new customers to the NERO asset tracking platform and significantly increased the number of moveable assets being monitored to over 59,000 units.
• Achieved strong gross margin percentage of 65.8%.

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 18, 2024 to shareholders of record as at February 23, 2024.

CONFERENCE CALL

A conference call and live audio webcast will be held today, February 14, 2024 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, 2023 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 1-800-319-4610 or 1-604-638-9020. The webcast will be available in real time at http://services.choruscall/links/vecima2024q2.html and will bearchived on the Vecima website athttps://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 2024.

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: as expected, the first half of fiscal 2024 was a transition period for our Entra distributed access architecture (DAA) business with key customers refining their rollout logistics and drawing down existing inventories in advance of new DAA launches and project ramp-ups; moving into the second half, we anticipate a significant increase in DAA sales velocity as multiple pathways for growth begin to converge; the rollout of our next-generation ERM3 Remote PHY devices with Charter Communications, significant new fiber access opportunities becoming available via the US$42.5 billion BEAD program, which represents the largest injection of federal funding into broadband network deployment in U.S. history, and the launch of our new Generic Access Platform (GAP) node and its recent certification with the lead Tier 1 customer are just some of the major growth opportunities ahead for Entra and our VBS segment; 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; in the Content Delivery and Storage segment, demand for our IPTV solutions remains strong despite project timing shifts which contributed to softer-than-expected revenue results in the second quarter; on a full-year basis, we now expect CDS revenues to be similar to the strong performance achieved in fiscal 2023; overall, we are anticipating renewed momentum in the second half as we execute on the multiple, multi-year opportunities in our markets and pursue new highs in sales; we are on the cusp of our next major wave of revenue growth and are moving forward with a large and growing backlog, an unparalleled portfolio of next-generation DAA and IPTV technologies and solutions, strong partnerships with a number of the world's largest Tier 1 operators, and a solid financial position; we are excited about what lies ahead for Vecima in the second half of fiscal 2024 and beyond.

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 21, 2023, 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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