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March Networks First Quarter Fiscal 2011 Financial Results Revenue Growth and Return to Profitability
Aug 25, 2010 (07:08 PM EDT)


    Summary Operating Results:

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    $Cdn millions                                           Q1            Q1
     except EPS data                                      2011          2010
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    Revenue                                              $26.3         $24.0
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    Non-GAAP operating earnings*                         1.9           0.5
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    Net earnings (loss)                                   $0.1         $(0.5)
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    Diluted earnings per share                           $0.01        $(0.03)
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    Cash and short-term investments                      $42.2         $45.3
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    * Non-GAAP measure: earnings (loss) before stock based compensation,
      amortization of acquired intangibles, special charges, interest and
      income taxes. This measure may not be comparable to similar measures
      used by other companies.

OTTAWA, Aug. 25 /PRNewswire-FirstCall/ - March Networks(R) (TSX:MN), a global provider of intelligent IP video solutions, today announced financial results for the fiscal quarter ended July 31, 2010. All figures are in Canadian dollars and in accordance with Canadian GAAP unless otherwise specified.

The Company's first quarter fiscal 2011 revenue was $26.3 million, representing an increase of 10% as compared to revenue of $24.0 million in the first quarter of fiscal 2010 and an increase of 24% as compared to revenue of $21.2 million in the fourth quarter of fiscal 2010.

    Highlights for the Company's first quarter ended July 31, 2010 include:

    -   Secured a $9 million dollar order from global retail customer for
        delivery in the first half of fiscal 2011

    -   Achieved record revenue in Banking vertical

    -   Awarded nationwide deployment with top 5 Canadian bank

The Company recorded non-GAAP operating earnings of $1.9 million in the first quarter of fiscal 2011, representing an increase of $1.4 million relative to non-GAAP operating earnings of $453,000 in the first quarter of fiscal 2010. Non-GAAP operating earnings improved by $6.5 million in the first quarter of fiscal 2011 relative to the non-GAAP loss of $4.6 million recorded in the fourth quarter of fiscal 2010.

Net GAAP earnings for the first quarter of fiscal 2011 improved to $108,000 or $0.01 per diluted common share relative to a net loss of $489,000 or $0.03 per share in the first quarter of fiscal 2010 and a net loss of $27.5 million or $1.58 per share in the fourth quarter of fiscal 2010.

The Company's cash and short-term investment position was $42.2 million at July 31, 2010.

"The first quarter of fiscal 2011 was very encouraging for the Company as demand returned in the North American market after a tough fiscal 2010 to deliver revenue growth and a return to profitability", said Peter Strom, CEO of March Networks. "Recently announced retail and banking deals are expected to help drive continued revenue growth and profitability in the second quarter of fiscal 2011."

The company will discuss the results on a conference call and webcast on Thursday, August 26, 2010 at 8:30 a.m. EDT (12:30 p.m. UTC). The conference call may be accessed by dialing 1-800-814-4859 (North America) or +1-416-644-3414.

The conference call webcast can be accessed at:

http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3182080

Please also view our new Investor Channel at http://investorchannel.marchnetworks.com

A replay of the conference call will be available from August 26, 2010 at 10:30 a.m. EDT until September 2, 2010 at 11:59 p.m. EDT. The replay can be accessed at 1-877-289-8525 or +1 416-640-1917. The passcode for the replay is 4348258 followed by the number sign.

About March Networks

March Networks(R) (TSX:MN) is a global provider of intelligent IP video solutions. For close to a decade, the company has helped some of the world's largest commercial and government organizations transition from traditional CCTV to networked video surveillance used for advanced security, loss prevention and risk mitigation. VideoSphere(R), the company's enterprise-class video management portfolio, includes open-platform VMS software complemented by high-definition IP cameras, encoders, video analytics and recording platforms, as well as outstanding professional and managed services. March Networks systems are delivered through an extensive distribution and partner network and currently support over one million channels of video in more than 50 countries. www.marchnetworks.com.

*MARCH NETWORKS, VideoSphere and the MARCH NETWORKS logo are registered trademarks of March Networks Corporation. All other trademarks are the property of their respective owners.

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    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 contained in this release
    include, but are not limited to, the following:

    - The addressable market for the Company's products will grow by at least
      10% in fiscal 2011.
    - The Company will successfully reduce product costs to improve the
      Company's gross margin and/or avoid any margin erosion associated with
      competitive pricing pressure.
    - Annual operating expenses, excluding stock based compensation and
      amortization of acquired intangibles, will not exceed fiscal 2010
      levels.
    - The Company will develop and deliver new products on time in order to
      satisfy the demands of current and potential customers.
    - The Company's recently introduced products will address the needs of
      new and existing customers and contribute to near term profitability.
    - The average exchange rates for US dollars and Euros to Canadian dollars
      will be US$1.00=CDN$1.00 and Euro 1=CDN$1.30.
    - The Company will have adequate component supply to meet customer
      demand.


    Factors that could cause actual results to differ materially from
    expected results include, but are not limited to, the following:
    - The Company's quarterly revenue is generally dependent upon conversion
      of opportunities in the sales pipeline during the quarter and, as a
      result, revenue and operating results can be difficult to predict and
      can fluctuate substantially. The Company's success in realizing
      customer opportunities may be negatively impacted by depressed economic
      conditions, changes in sales cycles, and/or weaker than expected
      success versus competitors.
    - The Company's gross margin and operating results may be adversely
      affected by pricing levels required to compete successfully and/or if
      its product cost targets cannot be achieved.
    - The Company plans to become increasingly dependent upon third parties
      in its product development cycle as well as for product supply. Higher
      than expected costs and delayed or lost revenue may result if these
      activities are not transitioned and managed effectively.
    - Product issues that result in increased costs to the Company and/or
      lost revenue opportunities.
    - Delays in product development programs for new products and new product
      features which lead to cost overruns and/or missed customer
      opportunities.
    - Weaker than expected market acceptance of new products introduced by
      the Company and new versions of the Company's current products by
      existing customers.
    - Longer than expected lead times from component suppliers could result
      in production delays resulting in delayed or lost revenue.
    - Shifts in value of the Canadian dollar relative to billing currencies.

    Additional risks are discussed herein and under "Risk Factors" in the
    Company's Annual Information Form available online at www.sedar.com.
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                         March Networks Corporation
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                    CONSOLIDATED STATEMENTS OF OPERATIONS
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    (Canadian dollars, amounts in thousands, except share and per-share data)
                                 (Unaudited)
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                                                         Three Months Ended
                                                    -------------------------
                                                       July 31,      July 31,
                                                          2010          2009
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    REVENUE                                            $26,316       $24,014
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    Cost of revenue                                     14,151        13,958
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    GROSS MARGIN                                        12,165        10,056
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    EXPENSES:
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    Selling, marketing and support                       4,910         5,142
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    Research and development                             2,956         2,431
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    General and administrative                           2,398         2,030
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    Stock based compensation                               242           257
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    Amortization of acquired intangible assets             783           903
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    Restructuring costs                                    909             -
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    Total expenses                                      12,198        10,763
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    LOSS BEFORE UNDERNOTED ITEMS                           (33)         (707)
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    Interest and other income, net                          41            16
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    INCOME (LOSS) BEFORE INCOME TAXES                        8          (691)
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    Current income tax expense                               -            38
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    Future income tax recovery                            (100)         (240)
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    NET EARNINGS (LOSS)                                   $108         $(489)
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    Earnings (loss) per share:
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    Basic                                                $0.01        $(0.03)
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    Diluted                                              $0.01        $(0.03)
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    Shares used in per-share calculation:
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    Basic                                           17,548,510    17,198,094
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    Diluted                                         17,951,663    17,198,094
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                         March Networks Corporation
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                         CONSOLIDATED BALANCE SHEETS
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                   (Canadian dollars, amounts in thousands)
                                 (Unaudited)
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                                                       July 31,     April 30,
                                                          2010          2010
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    ASSETS
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    Current assets:
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    Cash and cash equivalents                          $ 9,285       $ 9,492
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    Short-term investments                              32,935        38,384
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    Accounts receivable                                 23,922        16,441
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    Inventories                                         14,432        11,337
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    Prepaid expenses and other current assets            3,165         3,549
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    Future tax assets                                      315           315
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    Total current assets                                84,054        79,518
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    Property and equipment                               4,960         5,205
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    Intangible assets                                    9,320        10,192
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    Future tax assets                                    4,082         4,200
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    Goodwill                                            22,429        22,429
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    TOTAL ASSETS                                      $124,845      $121,544
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    LIABILITIES AND SHAREHOLDERS' EQUITY
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    Current liabilities:
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    Accounts payable                                   $12,405       $ 8,658
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    Accrued liabilities                                  6,776         7,192
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    Deferred revenue                                     7,696         7,795
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    Deferred leasehold inducement                          132           132
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    Short-term compensation                                  -             2
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    Income taxes payable                                   118           101
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    Total current liabilities                           27,127        23,880
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    Deferred revenue                                     4,720         4,789
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    Deferred leasehold inducement                          936           968
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    Long-term compensation                                 466           437
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    Future tax liabilities                               2,154         2,372
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    Total liabilities                                   35,403        32,446
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    Shareholders' equity                                89,442        89,098
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    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY        $124,845      $121,544
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                         March Networks Corporation
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                    CONSOLIDATED STATEMENTS OF CASH FLOWS
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                   (Canadian dollars, amounts in thousands)
                                 (Unaudited)
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                                                         Three Months Ended
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                                                       July 31,      July 31,
                                                          2010          2009
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    Cash flows from operating activities:
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    Net earnings (loss)                                   $108         $(489)
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    Items not affecting cash:
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    Amortization of capital and intangible assets          479           398
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    Amortization of intangible assets related to
     business acquisitions                                 783           903
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    Stock based compensation and shares issued
     to directors                                          242           257
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    Unrealized foreign exchange (gain)/loss                  9          (609)
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    Future income taxes and non-refundable
     investment tax credits                               (100)         (537)
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    Net change in non-cash items                        (7,046)       (4,689)
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    Net cash consumed by operating activities           (5,525)       (4,766)
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    Cash flows from investing activities:
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    Redemption (purchase) of short-term investments      5,449         2,471
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    Purchase of capital and intangible assets             (152)         (537)
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    Acquisition of business                                  -             -
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    Net cash generated by investing activities           5,297         1,934
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    Cash flows from financing activities:
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    Issuance (repurchase) of share capital, net              -             9
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    Net cash generated (consumed) by financing
     activities                                              -             9
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    Net decrease in cash and cash equivalents             (228)       (2,823)
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    Foreign exchange gain (loss) on foreign cash held       21          (242)
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    Cash and cash equivalents, beginning of period       9,492        10,126
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    Cash and cash equivalents, end of period            $9,285        $7,061
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SOURCE MARCH NETWORKS CORPORATION